Insurers welcome Irda clarification on management control

MUMBAI: Insurers feel that the new clarifications from the regulator Irda on higher FDI will boost foreign capital inflows into the industry.

Clarifying the issue of management control as specified in the new Insurance Act, the insurance regulator on Monday said Indian promoters will have control over appointment of majority of directors and that of key management persons, including CEOs.

However, foreign investors can nominate non-CEO level key management persons provided such an appointment is approved by the board where majority of the directors, excluding independent members, are the nominees of Indian investors.

Stating that "both direct and indirect holding in a domestic insurance company shall not exceed 49 per cent", the regulator said existing companies need to comply with these guidelines within three months.

Both the insurance subsidiaries of State Bank of India, SBI Life and SBI General are already progressing towards the hike in FDI from currently existing 26 per cent to 49 per cent.

While the foreign partner of SBI General, IAG has appointed Deloitte for valuation exercise, SBI has appointed PwC for the same. In case of SBI Life, the foreign partner Cardif has roped in Milliman for the valuation exercise, whereas SBI was yet to hire a consultancy firm for the same.

"The Irda has clarified it in a very well manner that how will the exercise of FDI hike to be conducted and in what manner," SBI Life managing director and chief executive Arijit Basu told PTI.

"We are already operating on the guidelines of the regulator on the FDI hike issue," he added.

"It is true that the Irda's latest notes provide further clarification. In fact they are generic guidelines which are helpful in getting the things done," Bharti Axa Life Insurance MD & CEO Sandip Ghosh said.

"We understand that the Irda, in light of the control guidelines, will examine each shareholders' agreement/joint venture agreement to determine whether rights granted to a foreign shareholder are acceptable," Anuj Sah (associate partner) and Rohan Singh (associate) of the law firm Khaitan & Co said in a statement.
"Accordingly, Indian insurance companies and their shareholders may have to wait for a few stake increase applications to be cleared before it becomes clear what specific rights are not acceptable," they added.