IRDAI Issues Exposure Draft On Compensating Shareholder On Merger Of Insurers
More investments expected to flow in the Indian insurance sector as IRDAI approves guidelines for PE Funds to become promoters. (Photographer: Akio Kon/Bloomberg)

IRDAI Issues Exposure Draft On Compensating Shareholder On Merger Of Insurers

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The Insurance Regulatory and Development Authority of India has come out with draft regulations for determination of compensation to shareholders on merger of insurance companies, under which payment will be based on the residual value of assets.

"...compensation to the shareholders whose rights against the acquiring insurer has been reduced... shall be paid based on the residual value of the assets," said the exposure draft on which the insurance regulator has invited comments from the stakeholders by Nov. 20.

The residual value, it said, will be equal to the value of assets of the acquired insurer as on the day immediately before the appointed day, less the total amount of liabilities.

Further, the compensation shall be "paid either in cash and/or in kind or partially in cash and partially in kind", it said.

Under the Section 37A (4A) of the Insurance Act, 1938, shareholders and members whose rights have been adversely impacted by the scheme of amalgamation or merger would be entitled to compensation.

IRDAI (Manner of Determination of Compensation to Shareholders on Merger of an Insurer under a Scheme Prepared under Section 37A) Regulations, 2020 also proposes for separate provisions for payment of compensation for merger/amalgamation of the branch of a foreign reinsurer.

The draft said where the amount of compensation offered is not acceptable to holders of not less than 10% of the paid up equity capital of the acquired insurer to whom the compensation is payable, such aggrieved persons may prefer an appeal to the Securities Appellate Tribunal.

The time period for appeal may be specified by the IRDAI which should not be less than 30 days from the date of intimation of compensation.

The objective of the proposed regulations is to provide for the manner of determination of compensation for the shareholders "whose interests in, or rights against, the insurer" resulting from amalgamation are less than his interest in, or rights against the original insurer.

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