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Saturday, February 12, 2011

IRDA releases norms for merger of general insurance cos

 More than 10 years after opening up of the insurance sector, regulator Irda today proposed to allow mergers and acquisitions in the general insurance business that requires consolidation among the 24 industry players, most of which are loss-making.
To protect the interest of policyholders, they must be given right to exit from the insurer, which is on the block for acquisition, Irda said in its draft guidelines. An acquirer will need approvals from Irda, the Reserve Bank and the finance ministry, in case it has foreign direct investment.

Most of the 22 players in the private sector have foreign investment, which is capped at 26 per cent. Irda has also said that the intent of the acquirer should be clearly spelt out. The regulator has retained with itself the power to vet the valuations arrived at by the companies involved in M&As.

According to industry players, most of the private sector general insurance companies require fresh infusion of capital which may come from foreign partners, who have been constrained by the FDI cap. The Bill to raise the FDI ceiling is pending in Parliament.
The general insurance business has remained loss making for want of capital, which is constrained due cap on foreign capital infusion.

At present, the Insurance Act provides for the M&As only for life insurance companies.
The fast growing general insurance space has many entities looking for M&A opportunities. There have been reports of Reliance General Insurance looking to buy majority stake in its rival Royal Sundaram.

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