New Delhi, Feb 11 (PTI) More than 10 years after openingup of the insurance sector, regulator Irda today proposed toallow mergers and acquisitions in the general insurancebusiness that requires consolidation among the 24 industryplayers, most of which are loss-making.
To protect the interest of policyholders, they must begiven right to exit from the insurer, which is on the blockfor acquisition, Irda said in its draft guidelines.
"The transacting parties shall ensure that policyholdersof the transferor entity are migrated in a manner whichensures that their existing policies are continued to beserviced by the transferee entity on terms and conditions noless favourable than those existing prior to the merger," Irdasaid.
An acquirer will need approvals from Irda, the ReserveBank and the finance ministry, in case it has foreign directinvestment.
Most of the 22 players in the private sector haveforeign investment, which is capped at 26 per cent.
Irda has also said that the intent of the acquirer shouldbe clearly spelt out.
The regulator has retained with itself the power to vetthe valuations arrived at by the companies involved in M&As.
"The Authority reserves the right to appoint anindependent actuarial consultant to carry out actuarialvaluation of the insurance business of the proposedtransacting parties, the guidelines said.
According to industry players, most of the private sectorgeneral insurance companies require fresh infusion of capitalwhich may come from foreign partners, who have beenconstrained by the FDI cap. The Bill to raise the FDI ceilingis pending in Parliament.
The general insurance business has remained loss makingfor want of capital, which is constrained due cap on foreigncapital infusion.
"There are as many players in the general insurance spaceas in other markets. This guideline will play a part as theindustry matures. The industry has been there for 10 years andthis would give opportunity for old players," Sanjay Datta,head of health at ICICI Lombard General Insurance said.
Irda has invited comments on the draft exposureguidelines by February 22.
At present, the Insurance Act provides for the M&As onlyfor life insurance companies.
The fast growing general insurance space has manyentities looking for M&A opportunities. There have beenreports of Reliance General Insurance looking to buy majoritystake in its rival Royal Sundaram.