IRDA gives insurance companies good news
New Delhi: The Insurance Regulatory Development Authority (IRDA) has provided some good news for companies like HDFC and ICICI, who have substantial FII holdings and are interested in getting into the insurance business, by stating that it has decided to de-link the 26 per cent cap in foreign equity from FII holdings in insurance JVs. According to sources in the finance ministry, IRDA members have already arrived at an in-principle agreement on the issue after deliberating on this matter at length.

The IRDA's recent decision will make it easier for domestic companies with FII holdings to tie up with foreign insurance companies. This means that a foreign insurance company will be able to acquire up to 26 per cent equity in the proposed joint venture with an Indian company, even if the Indian partner has a substantial FII holding.

So far confusion has reigned over how much foreign equity participation should be allowed in the insurance sector. Would the 26 per cent cap include FII holdings? If so, would companies like HDFC (with 47 per cent foreign holding) and ICICI (17 per cent) be allowed to have a foreign partner for their insurance foray? The IRDA's decision seeks to clear the air. The insurance watchdog has said that the 26 per cent cap as mentioned in the IRDA Act will be adhered to in letter and spirit.
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IRDA to introduce brokers for the insurance industry
New Delhi: THE newly constituted Insurance Regulatory and Development Authority (IRDA), which will put in place guidelines, covering cover licensing norms, agency regulation, accounting regulation and investment regulation, for private domestic and foreign insurance companies by end- June. One of the main features of these guidelines will be the introduction of brokers for the first time in the sector, in addition to agents who are generally considered to be pro-insurance companies.

A detailed, draft regulation for insurance brokers has already been prepared and licenses would be issued for four types of brokers -- direct insurance, reinsurance, composite and others, which include consultants and risk managers.

Once the guidelines are in place, applications for setting up insurance companies will be invited by July 15 and hopefully the first companies would start operating by October-November this year.

IRDA would grant license to brokers for a three-year period with a provision for renewal, on payment of certain fees and on fulfilment of the stipulated conditions. The IRDA will retain the powers to suspend or cancel the licence for violation of the prescribed guidelines.

The brokers would also have to maintain a solvency margin which would be 10 per cent of net retained brokerage and fees in a year. But the minimum solvency margin would be Rs 50,000 for direct insurance broker, Rs 2 lakh for reinsurance broker and Rs 2.5 lakh for composite brokers.

Every broker would also need to have a mandatory professional indemnity insurance cover which will be four times the brokerage and fees in a year subject to a minimum of Rs 2.5 crore for direct insurance, Rs 5 crore for reinsurance, Rs 10 crore for composite and Rs 1 crore for others. Every broker would have to furnish half-yearly results to the authority besides ensuring proper system of internal audit.

The annual license fee for brokers for first two years would be Rs 50,000 for direct insurance, Rs 1 lakh for reinsurance broker, Rs 1.5 lakh for composite brokers and Rs 5,000 for others. The annual license renewal fee for the first two years for the four categories would be Rs 25,000, Rs 50,000, Rs 1 lakh and Rs 5,000 respectively.
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