Insurance Regulatory and Development Authority

All Insurers/Re-insurer,

Pension Fund Managers (PFMs)/Points of Presence (PoP)

As you are aware, the Pension Fund Regulatory and Development Authority (PFRDA) had recently called for expression of interest from various entities to set-up operations as the Pension Fund Managers (PFMs) and for acting as Points of Presence (PoP) under the New Pension Scheme (NPS) announced by the Government of India. Some of the insurance companies which fulfill the criteria for filing of expression of interest with the PFRDA, had sought our approval for entry into pension fund management.

2. The Authority had examined the various legal and regulatory issues relating to insurance companies (a) setting-up subsidiaries to take up operations as PFMs and (b) acting as PoP, and it has been decided that presently

Life Insurance Companies may set-up fully owned subsidiaries to act as PFMs;
No Non-Life Insurance Company would be permitted to act as PFMs;
N0 Insurer may act as PoP.

3. The decision of the Authority to permit life insurance companies to set-up subsidiaries for PFM is, however, subject to approval on a case to case basis. Any life insurance company intending to set-up a subsidiary to carry out PFM function must take the explicit prior approval of the Authority. Further, while approving the application for setting-up 100% subsidiary of the insurance company for PFMs operations, the Authority would at the minimum impose the following conditions:-

The capital requirements of the subsidiary would be met through the Shareholders’ Funds. In effect, it would be the promoters of the insurance company, who would be meeting the capital and operating expenses requirements on an on going basis such that the networth requirements of the PFM are met by the shareholders on a continuing basis with no impact on the Policyholders’ A/c.

The investment in the subsidiary would be held as a non admitted asset in the insurance company’s accounts and would not be considered for the purpose of computation of solvency margin.

The investments in the subsidiary would be carried at the book value of the subsidiary for the purposes of preparation of the financials of the insurance company.
As per Authority’s interpretation of the New Pension Scheme (NPS), the returns to the respective subscribers would be based on the NAV of the units held by them and there are no guarantees on the pension funds to be managed by the respective PFM. However, in case of any extraordinary lapses and contingencies, that affect the interests of the subscribers, the resultant losses would be funded through the Shareholders’ A/c., of the insurance company. In effect, the promoters of the insurers would meet all such losses. Under no circumstances would the Policyholders’ Funds be accessed for the said purpose.
In the event of the PFM considering management of any guaranteed products, specific and prior approval of the Authority would be required.
The Authority may impose any further conditions as it may consider necessary from time to time.

All the insurers are advised to take note of the above.

(J. Hari Narayan)
Chairman