Private equity funds can be promoters of insurance companies with 5-year lock-in rider

MUMBAI: The insurance regulator has cleared a proposal allowing private equity funds to become promoters of insurance companies through special purpose vehicle with a lock-in period of five years.

Insurance Regulatory and Development Authority of India (IRDA) on Wednesday decided to allow PE funds to come as promoters in insurance companies subject to management owned and controlled norms laid out in the Insurance Amendment Act 2015, a senior IRDA official said.

“They will have to provide for future capital as required,” the official said. Insurance companies need capital investment in the first few years before they break even. General insurance companies break even in 5-7 years while life insurance companies take 10-12 years to turn profitable.

The minimum capital requirement for insurance companies is Rs 100 crore. There are two kinds of capital involved –– minimum capital requirement and solvency capital requirement. Solvency capital requirement depends on capital burn based on growth and the kind of business. It varies from business to products and distribution network. The regulator will issue detail guidelines in the coming weeks.

IRDA looked at allowing PEs to promote insurance ventures after PE firm True North applied to buy a significant stake in Religare Health Insurance.