IRDAI Increases Limit for Raising Funds on ‘Exceptional Basis’

The insurance regulator increased the limit for raising funds on ‘exceptional basis’ under other forms of capital, a move that will help insurers boost solvency margins when the sector is growing at fast pace.

“It was now proposed to relax the provisions on an exceptional basis to provide that funds could be raised through other forms of capital up to the extent of 25% of equity share capital plus share premium account or net worth, whichever was higher in situations which may so warrant,” said Irdai in minutes of meeting put on the website.

Earlier, Irdai had been placed the ceiling for raising funds through other forms of capital at 25% of equity share capital plus shares premium account. Many insurance companies including National Insurance, ICICI Lombard had raised funds through debt. Cholamandalam BSE 3.88 % MS General Insurance had raised Rs 100 crore through non-convertible debentures to fuel growth.

For the unlisted company it gives flexibility and higher headroom,” said Ritesh Kumar MD and CEO HDFC Ergo. “It is benefiting companies who have accumulated losses. It improves the solvency margin.” In March, state-run National Insurance Company had raised Rs 893 crore through subordinated debt from insurance companies and pension funds. This helped insurer shore up its solvency margin, which is below the stipulated limit.

Post amendment to the Insurance Act, Irdai has the power to form regulations on capital and fund raising by companies. Four general insurance companies including New India Assurance, General Insurance Corporation, ICICI Lombard and Reliance General has announced their plans to go public by listing on the stock exchange.