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Disclose voting activity in invested companies:IRDAI to insurers

M Saraswathy

In a move that will lead to better disclosures and higher transparency in the insurance space, Insurance Regulatory and Development Authority of India (IRDAI) has told insurers that they should have a clear policy on voting and disclosure of voting activity.

In an exposure draft sent to insurers, on the Principles of Stewardship to be adopted by the insurers as institutional investors, IRDAI said that the growth in the insurance industry in recent years has resulted in a significant increase in the funds of insurance companies.

“The Authority is of the view that adoption of the principles would improve the confidence of the policyholders in the insurers on one hand and also ensure better corporate governance and decision-making at investee companies on the other,” said IRDAI.

Life Insurance Corporation (LIC), the country’s largest insurer as well as the biggest investor, will be the most impacted by these norms. Currently, they do not disclose details of their voting decisions. IRDAI said that they have examined the regulatory guidelines in various jurisdictions across the world and said that disclosures regarding decision-making and voting at meetings of investee companies by institutional investors are being encouraged.

LIC has earlier maintained that decisions related to voting at share holder meetings are sensitive in nature and they don’t disclose it as per policy.

While several large insurance companies with heavy investable assets usually do side with the management in important issues coming to vote, IRDAI has said that insurers should not just blindly support the board of the investee company.

“Instead, they should take their own voting decisions to promote the overall growth of the investee companies and, in turn, enhance the value of their investors,” it said.

Further, it said that the voting policy should be publicly disclosed. The voting decisions taken in respect of all the investee companies should also be disclosed publicly along with the rationale for such decision, as per the regulator.

A senior official said that since other industries such as mutual funds already disclose such information and with insurance companies getting into the listing process, it would be a welcome step. However, it is not clear whether public sector insurers would also be a part of this.

The regulator said that stewardship activities include monitoring and engaging with companies on matters such as strategy, performance, risk, capital structure, and corporate governance, including culture and remuneration.

Insurance executives also said that they do not disclose such information, because they are not required to do so as per current norms. Further, since except ICICI Prudential Life , none of them are listed, reducing the need to declare such information.

In addition to the regular fulfilment of their stewardship activities, IRDAI said that institutional investors should also provide a periodic report to their ultimate beneficiaries (policyholders) of how they have discharged their responsibilities, in a format which is easy to understand.

The principles would require insurers to draw out a policy based on the principles and get it approved by their Board of Directors. The policy would need to be disclosed on their website within 30 days of approval by the Board, said IRDAI.

The seven principles of stewardship prescribed by IRDAI:-

Insurers should formulate a policy on the discharge of their stewardship responsibilities and publicly disclose it.
Insurers should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
Insurers should monitor their investee companies.
Insurers should have a clear policy on intervention in their investee companies.
Insurers should have a clear policy for collaboration with other institutional investors, where required, to preserve the interests of the policyholders (ultimate investors), which should be disclosed.
Insurers should have a clear policy on voting and disclosure of voting activity.
Insurers should report periodically on their stewardship activities.