IRDA clarifies that Insurers raising capital by issuing debentures must create Debenture Redemption Reserve under Companies Act, 2013

In a recent circular dated 4th August, 2017 issued under the IRDAI (Other Forms of Capital) Regulations, 2015 (“Regulations”), the Insurance Regulatory and Development Authority of India (“IRDA”) has,advised  insurers, who have raised capital by  issuing Debentures, to create a Debenture Redemption Reserve(“DRR”) in terms of the Companies Act, 2013 and allied Rules.

In view of the Regulations, insurers are permitted to raise capital in other forms such as Preference Shares and Subordinated Debt.  A few insurers had approached IRDA with proposals to raise capital in other forms and were granted approvals in terms of the Regulations.

Further, some insurers had issued debentures to raise capital and sought clarification from IRDA on the requirement to create DRR as given under Section 71 of the Companies Act, 2013.

In view of the above, IRDA has clarified as follows:

  • Insurers who have raised capital by issuing Debentures, must create a DRR in terms of the Companies Act, 2013 and allied Rules. As per the present stipulations, a DRR of 25% of the value of outstanding Debentures will be adequate.
  • The DRR will not be considered as a liability for the purpose of computing solvency margin and ratio.

Source: Insurance Regulatory Development Authority of India

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