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IRDAI Allows Insurers To Raise Foreign Capital Via Two More Instruments

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The Insurance Regulatory and Development Authority of India has allowed foreign investors to infuse capital via alternate routes into an Indian insurer, in a bid to boost the insurance sector.

The regulator let foreign institutional and portfolio investors, excluding foreign reinsurers branches, to infuse capital in an Indian insurer via preference shares and subordinated debt—all non-convertible, fully paid up and unsecured, according to a Dec. 8 notification.

The quantum of investment is subject to limits specified in the Foreign Exchange Management Act.

A subordinated debt is a type of loan that is paid after all other corporate debts and loans are repaid in the case of a borrower default.

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The regulator has further allowed such subordinated debt issued by Indian insurers to be listed only on Indian stock exchanges. The instruments have to be in compliance with pricing guidelines as well as SEBI and RBI regulations.

In May 2021, the Finance Ministry had raised total foreign direct investment limits in insurance to 74% from 49% to increase capital inflows.

According to the notification, the total quantum of the instruments issued under other forms of capital at any point in time should be less than:

The IRDAI has mandated the following maturity periods for the two instruments.

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For preference share capital, a maturity or redemption period of not less than:

  • Ten years for life insurance companies, general insurance companies, and reinsurance companies.

  • Seven years for health insurance companies.

For subordinated debt, it should either be perpetual, or the maturity or redemption period should not be less than:

  • Ten years for life insurance companies, general insurance companies, and reinsurance companies.

  • Seven years for health insurance companies.

Under the current regulations, insurers cannot issue preference shares or subordinated debt with a put option.

However, an insurer may issue instruments with a call option subject to certain conditions, such as at least five completed years and prior approval in exercising the call option based on the solvency levels of the insurer.

The IRDAI has allowed Indian promoters and investors, as defined in the Insurance Act, to subscribe to the instruments, in addition to FPIs and FIIs.

An insurer may also invest in other forms of capital issued by another insurer, subject to certain conditions.

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