Irda notifies M&A norms for general insurers

Insurance regulator Irda has notified the merger and acquisition guidelines forgeneral insurance companies, paving way for consolidation in the sector.

The Regulation - Insurance Regulatory and developmentAuthority (Scheme of Amalgamation and Transfer of General Insurance Business)Regulations, 2011 - would apply to all private general insurance companies withimmediate effect.

With more than 10 years after opening up of the insurancesector, the regulations would pave way for M&As between 20 private sectorplayers, most of who have foreign investment that is capped at 26 per cent.

Following this, the general insurers would now have to filethe draft agreement of the proposed merger with the Irda and also therespective balance sheet while seeking approval from the regulator.

The regulator has retained with itself the power to vet thevaluations arrived at by the companies involved in M&As, saying that theAuthority would carry out an independent valuation of the insurance business ofthe transacting parties to arrive at the valuation.

In order to safeguard the policyholders' interest, the Irdahas mandated the insurers to inform their respective customers about the deal,it said.

Besides Irda, an acquirer would need to have approvals fromthe Reserve Bank and the finance ministry, in case it has foreign directinvestment. It also needs to have clearance of the Sebi and the CompetitionCommission of India (CCI).

According to industry players, most of the private sectorgeneral insurance companies require fresh infusion of capital which may comefrom foreign partners, who have been constrained by the FDI cap. The Bill toraise the FDI ceiling is pending in Parliament.

The general insurance business has remained loss making forwant of capital, which is constrained due cap on foreign capital infusion.

Till now, the Insurance Act provided for the M&As onlyfor life insurance companies.