Irdai tightens ESOP norms, share transfer rules for insurers

Mumbai: Insurance Regulatory and Development Authority of India (Irdai) has tightened rules governing shares issued to employees of insurance companies under employee stock option plans (ESOPs), stating that senior executives and directors cannot use such schemes to acquire stakes beyond prescribed limits without prior regulatory approval.

In a circular issued on Monday, Irdai asked insurers to track not only direct share allotments to employees but also shares issued through ESOP trusts to ensure regulatory ownership limits aren't breached.

Where an investor holding 5% or less is likely to cross the 5% threshold after a transfer, prior approval is required. For an investor already holding more than 5%, approval is required if the transaction takes the holding beyond 10%, 25%, 50% or 75%.


Transfers exceeding 5% of paid-up equity capital in a financial year by an individual, group or entities under the same management will also require regulatory approval. The regulator has also extended the requirement to listed insurance companies, directing them to put systems in place to monitor shareholding changes through stock exchanges and other market intermediaries. "The insurer shall put in place necessary mechanism to ensure compliance with the said Regulations including necessary communication with stock exchange(s) and capital market intermediaries such as Registrar and Transfer Agent or Depository Participant. It shall be a duty of the concerned insurer to ensure compliance with the said Regulation," Irdai said.

Irdai has also tightened information requirements for applications seeking approval for share transfers. Insurers will have to provide detailed disclosures on the proposed investor's source of funds, financial strength, business experience, and ability to meet future capital requirements.

For proposed amalgamations, Irdai has prescribed additional documentation to assess the impact on policyholders and the financial position of the merged insurer. An independent actuary will be required to assess the impact of a proposed merger on technical reserves, solvency, product pricing and the financial condition of the transferee insurer.