IRDAI issues guidelines on Indian-owned and controlled insurance firms

Insurance Regulatory and Development Authority of India (IRDAI) has issued guidelines on Foreign Direct Investment (FDI), in order to bring clarity on the issue of compliance with the manner of Indian-owned and -controlled companies. According to the Insurance Laws (Amendment) Act 2015, the total foreign investment including both direct and indirect in Indian insurance companies cannot exceed the limit of 49 percent. The guidelines will come into force from the date of issue.

IRDAI further said that the guidelines are also applicable to insurance intermediaries such as brokers, third party administrators, surveyors and loss assessors. However, guidelines shall not be applicable to insurance intermediaries who are having more than 50 percent of its revenue from the non-insurance activities. The applicability of the guidelines may come into existence after notification of the Act.

The law provides for 'Indian Owned and controlled requirement' for an Indian insurance company. In such a case the law will be applicable where the companies proposes to hike their foreign investment from the existing level or even when they do not intend to increase their current foreign stake from the existing level.

On the other side while stating about the Indian control, IRDAI said the domestic firm shall ensure that majority of the directors, excluding independent directors, should be nominated by Indian promoter/investors and appointment of key management person, including Chief Executive Officer or Managing Director or Principal officer, should be through the Board of Directors or by the Indian promoter. However, key management person, excluding CEO, may be nominated by the foreign investor provided that the appointment of such key management person is approved by the Board of Directors, wherein majority of the directors excluding independent directors are the nominees of Indian promotor.

Further, it said that the control can be exercised by any one or more of criterion like by virtue of shareholding; management rights; shareholders agreements; voting agreements; any other manner as per the applicable laws.