The insurance regulator has allowed foreign investors to invest in preference shares and subordinated debt issued by Indian insurers, expanding their pools of capital to fund their business growth in the world’s fastest growing large economy, reported Business Line.
The regulator has also now allowed the subordinated debt issued by the Indian insurers to be listed in local stock exchanges (no overseas listing allowed).
In a new set of regulations around ‘other forms of capital’ now issued by IRDAI, the regulator has stipulated that the quantum of investments by foreign investors including FII/ foreign portfolio investors (FPIs) in these two instruments — preference shares and subordinated debt— cannot exceed the sectoral cap (specified under FEMA).
IRDAI has stipulated that the total quantum of the instruments under ‘other forms of capital’ taken together should be lower (at any point in time) of (i) 50 per cent of the total paid-up equity share capital and securities premium of an insurer or (ii) 50 per cent of net worth of the insurer.
Also, the insurance regulator has stipulated that the issue of subordinated debt would either have to be perpetual, or the maturity/redemption period should not be less than ten 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 have not been permitted to issue either preference shares or subordinated debt with “put option”. However, an insurer may issue instruments with a “call option” subject to certain conditions being met.