IRDA issues draft M&A guidelines for general insurers

New Delhi, Feb 11 (PTI) Insurance regulator IRDA todaycame out with draft guidelines for mergers and acquisitions ofgeneral insurance companies, that mandates players to explainthe intent behind proposed deals.

The guidelines, once in place, is expected to usher in awave of consolidation in the fast-growing general insurancespace, where many entities are looking for M&A opportunities.

At present, the Insurance Act provides for the M&Apertaining to life insurance companies only.

Currently there are 21 non-life insurance companiesoperating in the country. The proposed M&A norms are expectedto spur consolidation leading to fewer but stronger players inthe insurance sector.

As per the draft guideline, the insurers proposing toapproach IRDA with merger proposal would have to prepare ascheme of arrangement explaining the "intent of the parties toundertake the transactions which would result in change ofstructure of the parties."

Besides IRDA, they would also have to seek approval ofthe Reserve Bank and in case of foreign joint venture partner,FIPB approval would have been sought.

The exposure draft, on which the IRDA invited comments byFebruary 22, mandates non-life insurance companies to submittheir intent letter two months prior to application.

The policy holders of the transferor entity would begiven an exit option and would continue to enjoy the sameterms and conditions under the existing policy and will begiven an exit option.

"The transacting parties shall ensure that policy holdersof 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.

It also said that IRDA could appoint an independentactuarial consultant to carry out actuarial valuation of theinsurance business of the transacting parties.

"The draft norm does not specify how the two transactingparties would arrive at a final valuation for the merger,"Bharti AXA General Insurance Chief Executive Officer andManaging Director Amarnath Ananthanarayanan said.

Last year IRDA Chairman J Hari Narayan had said it wasevaluating M&A proposals from two non-life companies.

There have been reports that Reliance General Insuranceis looking to buy a majority stake in its rival RoyalSundaram. If successful, it would be the first time that ageneral insurance firm will acquire a rival.