Insurers seek certain revisions in the draft guidelines released in February
Following feedback from insurers, the Insurance Regulatory and Development Authority (Irda) is likely to tone down the requirements for mergers and amalgamation as envisaged in the draft guidelines released in February.
According to industry officials, insurers have requested two areas to be revised. One concerns getting permission from local courts for mergers and informing all policy holders whenever any merger is proposed. Also, they are seeking a framework regarding valuation norms. The draft was silent about the latter.
“Insurers want alterations to be made to three areas listed in the draft guidelines. The revised ones will address the same,” said an industry official.
The first area they want addressed is the court approval required for mergers. They feel it should not be mandatory.
According to the draft guidelines, the final approval from Irda is subject to clearance from a relevant court or tribunal.
“Under the current guidelines, Irda would not be able to override the court ruling. Hence, it is not ideal. Being the regulator, it should have the complete authority, like in the case of mergers of life insurance companies,” said a senior executive at a private insurance company.
“The Insurance Act, which provides provisions for mergers and acquisition of life insurance companies, gives complete authority to Irda. However, it is silent regarding the issue of mergers of general insurers,” an Irda official added.
Another area insurers are debating is the provision involving sending the merger proposal to all policyholders. Insurers feel it is neither feasible nor desirable to inform all of them whenever any merger proposal comes.
“There is no issue in informing policy holders when there is a definitive agreement between two parties regarding the merger. However, informing them at the proposal level is just not feasible or desirable. Apart from the issue of cost, proposals do not necessarily translate into actual deals. The process involves a lot of brainstorming and negotiations,” said an official at a general insurance company.
When contacted, Irda Chairman J Hari Narayan said, “We are evaluating the issues and will shortly come out with the revised guidelines.”
The third area concerns valuations. The draft guidelines simply left it to the insurance companies.
“The draft just says Irda could appoint an independent actuarial consultant to carry out valuation of the insurance business of transacting parties. However, there must be some guidelines regarding the valuation of companies. We made representations through our council and expect to get clarity on these issues in the revised guidelines,” said another official at a private sector general insurance firm.
In February, Irda came out with an exposure draft on mergers and amalgamations of the general insurance companies. The same is expected to spur consolidation in the sector.
According the draft guidelines, along with Irda, the insurers would also require approval from the Reserve Bank of India. In case of a foreign joint venture partner, approval from the Foreign Investment Promotion Board would be needed.
Currently, there are 21 non-life insurance companies operating in the country and most of them have foreign joint venture partners. The Insurance Act caps the sectoral FDI limit at 26 per cent.
Last year, it was reported that Reliance General Insurance, the general insurance arm of Reliance Capital, was in talks to buy a majority stake in rival Royal Sundaram. Both firms have approached Irda and are awaiting approval. The latter is a joint venture between the Sundaram Group and the England-based RSA, which owns 26 per cent in the alliance.
