Merger of insurance: Pay adequate compensation to shareholders, says IRDAI1 min read . Updated: 08 Nov 2020, 03:28 PM IST
- The shareholders of acquired insurer will be eligible for compensation, IRDAI said.
- The regulator mentioned that the residual value of the assets shall be the total quantum available for payment of compensation
Insurance Regulatory and Development Authority of India (IRDAI) said that in merger cases between two insurers, adequate compensation must be paid to shareholders of the acquired insurers. The regulator has recently released draft guidelines on compensation payable during insurers' mergers. The shareholders of acquired insurer will be eligible for compensation, IRDAI said.
IRDAI said that the residual value of the assets shall be the total quantum available for payment of compensation. "The residual value of the assets shall be the amount equal to the value of the assets of the acquired insurer as on the day immediately before the appointed day, less the total amount of liabilities," the regulator mentioned.
The IRDAI has further said, “Every shareholder of the acquired insurer shall be given such amount as compensation, as bears to the residual value of the assets, the same proportion as the amount of paid-up capital of the shares held by the shareholder bears to the total-up capital of the acquired insurer".
In cases where the equity shares of one or more shareholders is not fully paid-up, the unpaid portion on such equity shares shall be deducted from the compensation payable, the regulator said.
IRDAI also said, "Where the preference shares of acquired insurer have not been taken over by the acquiring insurer, such preference shareholders shall get preference over equity shareholders."
If the amount of compensation is not acceptable to holders of not less than 10% of the paid up equity capital of the acquired insurer to whom the compensation is payable, such aggrieved persons may prefer an appeal to the Securities Appellate Tribunal before such date as may be notified by the Authority, the regulator said.
The time period for appeal may be specified by the Authority which shall not be less than 30 days from the date of intimation of compensation.
The aim is to provide for the manner of determination of compensation for the shareholders "whose interests in, or rights against, the insurer" resulting from amalgamation are less than his interest in, or rights against the original insurer.