New Delhi (Agencies): General insurance regulator IRDA on Friday proposed to allow mergers and acquisitions in the general insurance business that requires consolidation among the 24 industry players, most of which are loss-making.

To protect the interest of policyholders, they must be given right to exit from the insurer, which is on the block for acquisition, Irda said in its draft guidelines more than 10 years after opening up of the insurance sector.

"The transacting parties shall ensure that policyholders of the transferor entity are migrated in a manner which ensures that their existing policies are continued to be serviced by the transferee entity on terms and conditions no less favourable than those existing prior to the merger," IRDA said.

In case it has foreign direct investment, an acquirer will need approvals from IRDA, the Reserve
Bank and The Finance Ministry.

Most of the 22 players in the private sector have foreign investment, which is capped at 26 per cent.

IRDA has also said that the intent of the acquirer should be clearly spelt out. The regulator has retained with itself the power to vet the valuations arrived at by the companies involved in M&As.

"The Authority reserves the right to appoint an independent actuarial consultant to carry out actuarial valuation of the insurance business of the proposed transacting parties,” the guidelines said.

According to industry players, most of the private sector general insurance companies require fresh infusion of capital which may come from foreign partners, who have been constrained by the FDI cap. The Bill to raise the FDI ceiling is pending in Parliament.

"There are as many players in the general insurance space as in other markets. This guideline will play a part as the industry matures. The industry has been there for 10 years and this would give opportunity for old players," Sanjay Datta, head of health at ICICI Lombard General Insurance said.

IRDA has invited comments on the draft exposure guidelines by February 22. At present, the Insurance Act provides for the M&As only for life insurance companies.