PwC Insurance InsightsAnalysis of regulatory changes and impact assessment for January 2017

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2 PwC PwC Insurance Insights Analysis of regulatory changes and impact assessment for January 2017 2

Table of Contents

Preface

Our point of view on key IRDAI guidelines issued in January 2017

Other key guidelines issued by IRDAI in January 2017

Contacts

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5

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PrefaceThe Cabinet Committee on Economic Affairs (CCEA) has given its go-ahead for the listing of shares of five general insurance companies in the stock market, Finance MinisterArun Jaitleysaid at a Cabinet briefing on 18 January 2017. The five companies are New India Assurance, United India Insurance, Oriental Insurance, National Insurance and General Insurance Corporation of India.The listing is expected to help these companies raise resources from the capital market to meet fund requirements.1

The dilution of the governments stake will take place either through the issue of fresh equity or an offer for sale or through a combination of both, Jaitley stated at a press conference. The governments stake will be brought down to 75% in tranches as per regulations of the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority of India (IRDAI).2

The plans to list on the bourses has once again made profitability important for the four public sector non-life insurers who were, thus far, chasing market share but had been reporting operating losses. According to industry officials, since January this year (a time when most multinational companies renew their cover), state-owned general insurers have stayed away from grabbing loss-making group health insurance businesses and have also increased premium rates in the segment by an average of 4050%.3 HDFC ERGO General Insurance recently raised 350 crore INR through non-convertible debentures (NCDs) to fund its expansion post acquisition of L&T General Insurance. This was done by way of the private placement of unsecured, subordinated, redeemable NCDs of a face value of 10 lakh INR each. HDFC ERGO has become the third largest private non-life company with a market share of 4.3% post-merger. The company has issued a 10-year subordinated debt which

carries a coupon rate of 7.6% p.a. The bonds which have been rated triple A have been listed on the Bombay Stock Exchange (BSE) with a call option at the end of five years. The proceeds of the NCDs issue will strengthen the companys solvency position which determines the extent of business the company is allowed to underwrite as per IRDAI norms.3

The non-life insurance industry is looking for a centralised registration facility and comparatively lower rates for the smooth implementation of the Goods and Services Tax (GST). GST, which seeks to turn India into a single market for the first time, is likely to be implemented by the government during the next fiscal year. The lower rate demand is mainly for making insurance premium affordable. The issue of GST implementation will be discussed during the General Insurance Councils meeting on February 17 in Mumbai,

1. TNN and agencies. (18 January 2017). Five general insurance companies to be listed in the stock market: Finance Minister Arun Jaitley. Times of India. Retrieved from http://timesofindia.indiatimes.com/business/india-business/five-general-insurance-companies to-be-listed-in-the-stock-market-finance-minister-arun jaitley/articleshow/56643979.cms?TOI_browsernotification=true (last accessed on 6 March 2017)

2. Nair, R., Aggarwal, M, & Roy, S. (19 January 2017). Govt approves listing of state-owned general insurance companies. Live Mint. Retrieved from http://www.livemint.com/Money/I5Ll11RXVFsxbWjOtSk1eI/Cabinet-approves-listing-of-stateowned-general-insurance-co.html (last accessed on 6 March 2017)

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said the Councils Secretary General, R Chandrasekaran. The idea is to take a stock of the GST update for the industry and its preparedness for implementation of GST, he added. According to Chandrasekaran, the meeting will also discuss the industrys preparedness for Indian Accounting Standards (Ind AS), to be implemented on 1 April 2018.4

IRDAI forms a panel to review life insurance product norms: IRDAI has constituted a committee to review life insurance product regulations. The members of the committee include K S Gopalakrishnan, CEO, Aegon Religare Life Insurance; Sai Srinivas, Appointed Actuary, Bajaj Allianz Life Insurance; and Sandeep Bakshi, CEO, ICICI Prudential Life. The committee will review the existing framework of IRDA-linked and non-linked

insurance product regulations along with other key aspects such as the changing economic and insurance market environment, customers needs and expectations, and insurance product flexibility and innovations. It should submit its report to the regulator on or before 15 March 2017, according to a notification issued by IRDAI.5

The recent changes made by IRDAI are very dynamic. The numbers and recent regulatory reforms by IRDAIi.e. reinsurance and listing of insurance companies regulations, increase in the cap of FDI and the proposed implications of GSTcan be seen as a positive sign for the insurance sector in India. These reforms will give rise to strong, healthy competition and a well-regulated sector, similar to that of other developed insurance markets in the world.

4. PTI. (16 February 2017). Non-life insurance sector looks for lower GST rates. Moneycontrol. Retrieved from http://www.moneycontrol.com/news/economy/non-life-insurance-sector-looks-for-lower-gst-rates_8506121.html (last accessed on 6 March 2017)

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Our point of view on key IRDAI guidelines issued in January 2017Formats for publishing financial results as required under SEBIs (Listing Regulations, 2015) Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations, 2015)

IRDAI circular reference: Ref: IRDA/F&A/CIR/LFTD/027/01/2017

Date of notification: 30 January 2017

Applicable entities: General, standalone health and reinsurance companies

Background and objective SEBI vide its circular no. CIR/CFD/CMD/15/2015 dated 30 November 2016 has published the formats for publishing financial results in order to enable investors to make well-informed investment decisions. Timely, adequate and accurate disclosure of financial results on a periodical basis is critical. At the same time, ensuring comparability, uniformity and parity in disclosures made by listed entities across stock exchanges is essential.

Further, SEBI vide its circular no. CIR/CFD/FAC/62/2016 dated 5 July 2016 clarifies that for the period ending on or after 31 March 2017, the formats for unaudited/audited quarterly financial results to be submitted by the listed banking and insurance companies shall follow the formats prescribed under the respective acts/regulations as specified by their regulators.

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Every insurance company (life and non-life) shall submit disclosures, as below, for quarters ending 30 September 2016 and 31 December 2016 in the format specified by IRDAI:

- Quarterly financial results;

- Reporting of segment-wise revenue, results and capital employed, along with the quarterly results.

With respect to the format for publication in a newspaper (standalone/consolidated), insurance companies shall continue to follow the format specified under the above-mentioned circulars issued by SEBI.

IRDAI, as a part of its circular on formats for publishing financial results as required under SEBI (Listing Regulations, 2015), prescribes annexure formats along with a list of returns (as given below) to ensure compliance with the requirements of SEBI under LODR regulations, 2015.

- Format for quarterly financial results as Annexure I

- Reporting of segment-wise revenue, results and capital employed along with the quarterly results as Annexure II

- Limited review reports by auditors as Annexure III

- Audited financial reports, the audit report by the auditors as Annexure IV

- Financial results published in the newspapers in terms of Regulation 47(1)(b) of LODR Regulations, 2015, as Annexure V

The other requirements specified under the above-mentioned SEBI circulars to continue to apply to insurance companies

The purpose of this circular was to enable listed general insurance/standalone health insurance and reinsurance companies (including those insurers whose securities are listed on the stock exchanges) to meet the disclosure requirements of SEBI under LODR Regulations, 2015. These requirements do not, in any manner, modify the disclosure requirements or the manner of preparation of financial statements as required under the Insurance Act, 1938, the IRDAI Act, 1999, and the regulations framed thereunder.

Key directives issued by IRDAI based on SEBI circular CIR/CFD/DIL/115/2016 dated 24 October 2016

Impact analysisThe major implications will include the following:

Compliance: Insurers additionally need to comply with SEBI listing and disclosure requirements regulations.

Reporting formats: Every insurer will have to additionally use the formats presc