Policyholders can now inspect insurers’ M&A proposals

KOLKATA: Policyholders' will have the right to inspect merger and acquisition proposals for general insurance companies after they receive an in-principal approval from the regulator. Merging entities will also have to cite a reason for the acquisition or merger proposal.

After a company submits a proposal for a merger or an acquisition, the Insurance Regulatory & Development Authority (Irda) may ask insurers to send a copy of the application to all its policyholders. Customers of non-life companies range from large corporates who have bought industrial covers to an illiterate driver in rural India, who buys a motor cover.

Irda has prepared a draft exposure for schemes of arrangement and transfers of non-life insurance business and intends to incorporate it in the Insurance Amendment Bill of 2008. This is because there are no guidelines for mergers and acquisition of non-life companies under the present set of rules and Acts.

"The exposure draft, which also makes Irda approval a must for such M&A activities, lays down the framework for amalgamation of non-life insurance companies," said the regulator in a statement issued on Wednesday.

The draft stipulates that insurers will also have to submit a report on proposed arrangements or transfer prepared by an independent actuary who has never been professionally connected with any of the parties concerned at any time during the last five preceding years.

Following the merger, if there is a possibility of reduction in the sum assured for existing policies, the insurance regulator may insert additional terms and conditions as it may think proper for these covers. The reduction of contracts as approved by the regulator shall be valid and binding on all the parties concerned.

Irda has also proposed that it inserted a set of terms and conditions on a case-to-case basis for granting in-principle approval.

The final approval to the scheme of arrangement, in the normal course, will be granted only after all other regulatory and court approvals/sanctions have been obtained and finalised, and confirmation that the scheme of arrangement for which the approval has been obtained by the insurers is in conformity with the draft scheme of arrangement, for which the regulator granted the in-principle approval.

Irda may impose requirements on the transacting parties as it may consider necessary and appropriate to ensure protection of the interests of the policyholders and to ring fence the assets of the proposed transacting entities.

The insurers will also have to ensure that on completion of M&As, the solvency level of the merged entity is above the statutorily required minimum level.