- The regulator
The Insurance Regulatory and Development Authority (IRDA) constituted under the Insurance Regulatory and Development Authority Act 1999, which derives its powers from the Insurance Act 1938 regulates entities which carry on insurance business and intermediary business (brokers, insurance surveyors, loss assessors, insurance agents and third party administrators) in or from India.
- Subsidiary/Branch
Performance of any commercial activity in the insurance sector requires the establishment of a duly licensed local entity. A local insurer must be a public company or a co-operative society. Branches of foreign insurers/reinsurers are not permitted. However, a liaison/representative office may engage in promotional activities on behalf of foreign reinsurers.
- FDI restrictions
26 per cent limit on direct and indirect foreign ownership. It has been proposed for many years that this limit will be increased to 49% but as yet the implementing legislation has not been approved.
- Control approvals
Any transaction in shares of insurers amounting to > 1 per cent of the paid-up equity of an insurer requires prior approval of the IRDA.
In addition, prior approval of the IRDA is required for any transfer resulting in:
- a banking or investment company holding ? 2.5 per cent of the paid up equity of an insurer; or
- any other person holding ? 5 per cent of the paid-up equity of an insurer.
All other changes in shareholding must be notified to IRDA.
- Minimum capital
Minimum paid-up capital requirements:
- Insurer – INR1 billion
- reinsurer – INR2 billion
- direct broker – INR5 million
- reinsurance broker – INR20 million
- composite broker – INR25 million
NB. Only a single class of equity shares with a single face value is allowed.
INR61.91= USD1.00 at 1 January 2014
- Risk based capital
No, however there are proposals to develop a risk based capital regime.
Every insurer must maintain an excess of assets over liabilities (Required Solvency Margin). Required Solvency Margin is:
- insurer: the higher of INR500 million or formulaic calculation of net premium or formulaic calculation of net claims.
- reinsurer: the higher of INR1 billion or a formulaic calculation of net premium or a formulaic calculation of net claims.
Available Solvency Margin (ASM) is excess in policyholder funds and shareholder funds.
Solvency Margin Ratio (ASM/RSM) must be not less than 1.5.
- Group supervision
No.
- Policyholder protection
No, although there are 'conduct of business' regulations, mostly contained in the IRDA (Protection of Policyholders' Interests) Regulations.
- Portfolio transfers
Yes. A scheme for amalgamation must be submitted to and approved in principle by IRDA then advertised to policyholders, following which IRDA will give final approval if the merger is in the best interests of the policyholders.
- Outsourcing
Core and important activities which are said to affect corporate governance, protection of policyholders, solvency and revenue flows of the insurer cannot be outsourced. There is a comprehensive list of core activities in the Guidelines on Outsourcing of Activities by Insurance Companies, including: underwriting, product design, actuarial functions, ERM, investment and related functions, fund accounting, claims decisions, bank reconciliation, complaints, market conduct, appointment of experts and compliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
