New Delhi, Dec. 31: The Actuarial Society of India (ASI) is demanding a review of the 26 per cent foreign equity cap in the insurance sector as well as a re-examination of the proviso that requires Indian promoters to bring down their stake in the joint ventures to 26 per cent within 10 years of operation.
The suggestion has been made in the past and stonewalled by N. Rangachary, chairman of the Insurance Regulatory Development Authority (IRDA). Recently, at a seminar here, the IRDA chief had said, “Section 6AA of the IRDA Act provides that Indian promoters have to bring down their stake to 26 per cent after 10 years of operation through a process of initial public offering, which shall be equal to the stake of a foreign partner.”
He had pointed out that: “If the foreign company and its Indian partner subsequently maintain an equity stake of 49 per cent each, then only 2 per cent will go for public holding. This is not a viable proposition.”
The ASI’s suggestion comes in response to the Law Commission request for opinions on its consultation paper on the need to review the insurance laws in the country.
The S.P. Subhedar Committee, set up by ASI, has also suggested that the proviso for a 20 per cent cession — under which general insurers cede 20 per cent of their premium incomes to erstwhile holding company and now reinsurer General Insurance Corporation — should be abolished within five years. It also says that such a mandatory cession clause should not be introduced for life insurers.
The committee also says, “All insurance entities, whether companies, co-operatives, state-owned (like LIC) or department of state (like postal life or insurance department of states) should be registered with IRDA”.
At the moment, postal insurers and state government departments remain outside the ambit of IRDA and will probably not take too kindly to the suggestion. The committee has also suggested that keeping in view the advances made by information technology and computing sciences, the practice of reporting financial statements of certain classes of business every three years instead of annually needs to be re-examined.