Mumbai: With large private equity investors eyeing the insurance sector, the insurance regulator has received requests to allow PE funds to invest from Mauritius. At present, the regulator has allowed private equity firms to invest in insurance companies as a financial investor directly or as a strategic investor by floating a special purpose vehicle and registering it with the Securities & Exchange Board of India.
The regulator has put a lock-in period of five years for PE funds in insurance. This year, large PE funds such as Westbridge Capital, Warburg Pincus and True North have invested in the sector.
“Private equity funds wants to come through Mauritius,” said a source close to the development. “In the present form, if they become promoter, they have to register with Sebi.”
The regulator wants strategic investors to enter the insurance sector and thats the reason they had put a lock-in of five years. It allowed private equity funds to invest either directly in Indian insurance companies in the capacity of an investor, or invest through a special purpose vehicle in the capacity of a promoter in the insurance company. If a PE wants to buy more than 10 per cent, it has to float an SPV to invest in an insurance company. For an SPV, the fund needs approval from the department of economic affairs at the ministry of finance.
“Irda wants the entity to be responsible,” said the CEO of an insurance company. “It has asked the funds to register with the capital market regulator to know the jurisdiction. Irda cannot check the origin and investors of the fund if it is coming from Mauritius and Bermuda.”
The greater interest of PE funds in the Indian insurance space is triggered by three reasons — growth of insurance market which demands utilisation of a lot of capital, extensive use of technology blurring the line between insurance and technology companies, and emergence of financial investor in an industry which now shows profitability, said Joydeep Roy, partner at PwC. “The PE funds choice would be to invest from their favoured location where the funds reside for the sake of simplicity,” said Roy. “However, the regulator may find it challenging to accept that.”
Irda had issued guidelines in December 2017 to facilitate and regulate investment by private equity funds in insurance companies as investors and promoters.
Westbridge along with Rakesh Jhunjhunwalas Rare Enterprises and Madison India had invested around Rs 6,500 crore in Star Health Insurance, Warburg Pincus in ICICI Lombard and Indiafirst Life Insurance. Talks are on about TrueNorth investing in Max Bupa. The number of deals is on the rise as existing promoters are looking to exit or monetise their investment after a decade.