IRDAI issues basis of deciding the compensating shareholders on merger of insurers

IRDAI issues basis of deciding the compensating shareholders on merger of insurers

IRDAI has proposed draft regulations for the determination of compensation to shareholders on the merger of insurance companies, under which the payments will be based on the residual value of assets.

Exposure Draft on Insurance Regulatory and Development Authority of India says that the compensation to the shareholders whose powers against the acquiring insurer has been subdued will be paid based on the residual value of the assets.

The residual value, if added, will be equal to the total value of assets of the particular procured insurer on the day immediately before the appointed day, dwarfed the total amount of liabilities. Furthermore, the compensation will be paid either in-kind/cash or might be partially in cash and partially in kind as per the regulation.

Under Insurance Ain-kind, Section 37A (4A), the shareholders and the members whose rights are skeptically impacted by the scheme of amalgamation or alliance will be entitled to compensation.

IRDAI Regulations 2020 proposes that there will be separate provisions for the payment of the compensation for the amalgamation/merger of the branch for a foreign reinsurer.

The draft said that where the amount of coverage allowed will not be admissible for the holders of not less than 10 percent of the paid-up equity capital of the procured insurer to whom the compensation is obligatory, such as the aggrieved persons may refer the appeal to the Securities Appellate Tribunal in such case.

The period for such an appeal will be specified by the IRDAI that should not be less than the Thirty days from the date of the implication of compensation.

The purpose of the proposed regulations will be to provide the manner of the assurance of the compensation for the shareholders where the interests of them in, or the rights against, the insurer will result from the amalgamation are less than their interest in, or the rights against the primary insurer.