The Insurance Regulatory and Development Authority (Irda) today came out with draft guidelines for mergers and acquisitions of general insurance companies, that mandates players to explain the intent behind proposed deals.
The guidelines, once in place, is expected to usher in a wave of consolidation in the fast-growing general insurance space, where many entities are looking for M&A opportunities.
At present, the Insurance Act provides for the M&A pertaining to life insurance companies only.
Currently there are 21 non-life insurance companies operating in the country. The proposed M&A norms are expected to spur consolidation leading to fewer but stronger players in the insurance sector.
As per the draft guideline, the insurers proposing to approach Irda with merger proposal would have to prepare a scheme of arrangement explaining the "intent of the parties to undertake the transactions which would result in change of structure of the parties."
Besides Irda, they would also have to seek approval of the Reserve Bank and in case of foreign joint venture partner, FIPB approval would have been sought.
The exposure draft, on which the Irda invited comments by February 22, mandates non-life insurance companies to submit their intent letter two months prior to application.
The policy holders of the transferor entity would be given an exit option and would continue to enjoy the same terms and conditions under the existing policy and will be given an exit option.
"The transacting parties shall ensure that policy holders of the transferor entity are migrated in a manner which ensures that their existing policies are continued to be serviced by the transferee entity on terms and conditions no less favourable than those existing prior to the merger," Irda said.
It also said that Irda could appoint an independent actuarial consultant to carry out actuarial valuation of the insurance business of the transacting parties.
"The draft norm does not specify how the two transacting parties would arrive at a final valuation for the merger," Bharti AXA General Insurance Chief Executive Officer and Managing Director Amarnath Ananthanarayanan said.
Last year Irda Chairman J Hari Narayan had said it was evaluating M&A proposals from two non-life companies.
There have been reports that Reliance General Insurance is looking to buy a majority stake in its rival Royal Sundaram. If successful, it would be the first time that a general insurance firm will acquire a rival.
