IRDA details Indian management control in insurance JVs

Foreign participation in insurance ventures has been kept at 49 per cent in order to ensure the Indian promoters will have control over appointment of majority of directors and that of key management persons, including CEOs, the Insurance Regulatory and Development Authority of India (IRDAI) said on Monday.

''Control also means the right to appoint a majority of the directors or to control the management or policy decisions, including by virtue of their shareholding or management rights or shareholders agreement or voting agreements whose sole purpose is to carry on life insurance business or general insurance business or re-insurance business or health insurance business,'' IRDAI said.

However, foreign investors can nominate non-CEO 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, IRDAI said while issuing its guidelines for "Indian-owned and controlled" insurance companies.

Management control by Indians applies in cases where the aggregate holdings of equity shares by foreign investors, including portfolio investors, do not exceed 49 per cent of the paid-up equity capital of such Indian insurance company, which is majority-owned and controlled by Indians, in such manner as may be prescribed.

The central government has notified the Indian Insurance Companies (Foreign Investment) Rules, 2015, which mainly govern Indian control of Indian Insurance Company, Indian ownership and issues relating to foreign investment. The definition of ''Indian ownership'' has since been amended by Indian Insurance Companies (Foreign Investment) Amendment Rules, 2015.

The Insurance Laws (Amendment) Act 2015 introduced some much-awaited reforms, including, increasing the foreign investment cap in the insurance sector to 49 per cent, permitting overseas reinsurers to open branch offices to carry out reinsurance business in India, etc.

However, the Insurance Laws (Amendment) Act, 2015 also provides for 'Indian-owned and controlled' requirement for an Indian insurance company.

As per the amended rules, management control can be exercised by the virtue of shareholding, management rights (or) shareholders agreements (or) voting agreements or any other manner as per applicable laws.

In order to bring more clarity on the issue of compliance with the manner of ''Indian owned and controlled'', the Authority, in exercise of powers conferred under Section 14 (1) of the IRDA Act 1999, lays down the following guidelines on compliance of ''Indian owned and controlled''.

These guidelines are applicable to Indian insurance companies and may come into existence after notification of the Act.

Foreign investors may propose to hike their foreign investment from the existing level or may not intend to increase their current foreign stake from the existing level.

"Both direct and indirect holding in an Indian insurance company shall not exceed 49 per cent", the regulator said, adding that existing companies need to comply with these guidelines within three months.