The Indian insurance regulator IRDAI has allowed foreign investors, including foreign portfolio investors (FPIs), to invest in preference shares and subordinated debt issued by Indian insurers.
The regulator has also now allowed the subordinated debt issued by the Indian insurers to be listed on local stock exchanges but not on overseas bourses.
According to Asia Insurance Review, in a new set of regulations titled “Other Forms of Capital) Regulations, 2022”, the regulator stipulates that the quantum of investments by foreign investors, including foreign institutional investors (FII)/ foreign portfolio investors (FPIs), in the two kinds of instruments — preference shares and subordinated debt— cannot exceed the sectoral cap specified by the Foreign Exchange Management Act (FEMA).
IRDAI stipulates that the total quantum of the instruments under ‘Other forms of capital’ taken together should be the lower (at any point in time) of 50% of the total paid-up equity share capital and securities premium of an insurer or 50% of the net worth of the insurer.
The issue of subordinated debt would either have to be perpetual, or the maturity/redemption period should not be less than 10 years for life insurance companies, general insurance companies and reinsurance insurance companies.
The maturity/redemption period should not be less than seven years for health insurance companies.
Insurers are not been permitted to issue preference shares or subordinated debt with “put options”. However, an insurer may issue instruments with a “call option” subject to certain conditions being met.
Besides debentures which can be counted as subordinated debt, the IRDAI has empowered itself to specify any other instrument as a subordinated debt.
Domestic insurance companies can now also invest in preference shares or subordinated bonds issued by other insurers. The only stipulation is that an insurer cannot invest in ‘other forms of capital’ of another insurer having a common promoter.
Indian promoters of insurers can also invest in preference shares or subordinate debt, IRDAI says.
by Yana Keller