Private equity players are thrilled over the latest set of insurance reforms unveiled by insurance regulator IRDAI on Friday, stating that these would free up half-a-billion dollars of capital and also attract investments into the space.
IRDAI has given private equity funds the option of making investment through special purpose vehicles and, thereby, enabling them to directly invest in insurance companies, which provides more flexibility.
A new provision has also been introduced to allow the promoters to dilute their stake up to 26 per cent, subject to the condition that the insurer has satisfactory solvency record for preceding 5 years and is a listed entity.
Also a lock-in period of investments for investors and promoters has been stipulated on the basis of age of investor. Investment up to 25 per cent of paid up capital by single investor (50 per cent for all investors collectively) will now be treated as ‘investor’ and investments over and above that will only be treated as ‘promoter’ (earlier the threshold was 10 per cent for individual investor and 25 per cent for all investors collectively).
Karthik Reddy Chairperson, IVCA & Co-founder and Managing Partner, Blume Ventures, said: “With these round of reforms, the IRDAI has taken another step forward. Allowing insurers to raise alternative sources of capital with light regulation and reducing solvency ratios shows confidence of the regulator in the maturity cycle of the insurance sector.
These will free up half a billion dollars of capital and also attract investments into the space.
Besides, bancassurance can thrive with a range of offerings and leveraging tech partners, creating a win win for start-ups, insurers and investors alike.
These are all great confidence imbibing moves by the regulator, paving the way for insurance penetration to keep accelerating to more corners of India.”
Nithya Easwaran Managing Director, Multiples Alternate Asset Management Pvt Ltd, said the IRDAI’s reform of moving from rule-based to principle-based regulatory regime is very progressive, and will propel the growth and penetration in the sector to a new orbit.
“The revised guidelines, specifically, the increase of threshold from 10 per cent to 25 per cent stake for being treated as investors and making SPV structure optional will bring the sector on the roadmap of a wider base of institutional investors. The ‘fit and proper’ criteria will ensure that high quality, responsible and experienced institutional investors will become significant stakeholders and partner with the companies through the transition to a more open architecture and innovative industry structure.”
Even insurance companies’ chief executives hailed the latest set of IRDAI reforms, especially those relating to allowing companies to raise other forms of capital such as subordinated debt and preference shares.
Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance, said the IRDAI is playing a pivotal role to align the industry towards the requirements of the evolving needs of India’s life insurance customers.
“The speed and the transformational reforms being introduced, such as expanding partnership options for corporate agents and IMFs, relaxations provided for incorporating new companies and attracting further capital, are just a few examples of the changes being designed for the benefit of the customers, and the industry at large. We welcome these changes and are aligned to the agility of the regulator to further advance the industry,” he said.