IRDAI provides nod to insurers to issue preference shares with some conditions

The Insurance Regulatory and Development Authority of India (IRDAI ), in an exposure draft, gave nod that insurance companies can issue other forms of capital like preference shares or subordinated debt. However, it said these instruments must have been issued and paid-in in cash.

The regulator has proposed that with respect to preference shares, the claims of the equity investors shall stand after that of the settlement of the claims of the preference holders but shall be subordinate to that of the claims of the policy holders. Further, for subordinated debts, it should be superior to the claims of the investors in equity shares and preference shares but shall be subordinated to the claims of the policyholders and all other creditors.

IRDAI further pointed that this should be neither secured nor covered by a guarantee of the insurer or its related party or other arrangement that legally enhances the seniority of the claim vis-à-vis the insurer™s policyholders and creditors. It should also be perpetual or the maturity period or redemption period is not less than 15 years.

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