Chennai: The Insurance Regulatory Authority of India (IRDA) has identified six insurance firms that can take over the business of Sahara India Life Insurance Co. Ltd after effectively winding up the company, a subsidiary of the Sahara Group.

The administration of Sahara India Life was taken over by the Insurance Regulatory and Development Authority of India (IRDA) on 12 June and on 23 June, it asked the company to stop issuing new policies, the first time in its 18-year history that the regulator has taken such a step.

Sanjay Agarwal, whole-time director and chief executive officer of Sahara Life, said he was busy and didn’t immediately have the time to answer questions from Mint.

“Only after giving them (Sahara Life) opportunity of being heard, an administrator was appointed to manage the affairs of the insurer. Based on the administrator’s report, we directed the insurer not to underwrite new business going forward,” said Nilesh Sathe, member, life, IRDA.

The regulator has identified Life Insurance Corporation of India, ICICI Prudential Life Insurance Co. Ltd, HDFC Standard Life Insurance Co. Ltd, Bajaj Allianz Life Insurance Co. Ltd, Kotak Mahindra Old Mutual Life Insurance Co. Ltd and SBI Life Insurance Co. Ltd as potential candidates to take over Sahara Life’s business.

“We have given time to the insurers till 30 June to express their willingness. This will not be an acquisition or a merger but a simple transfer of the insurance business,” added Sathe.

IRDA’s action against Sahara hasn’t been prompted by a capital crunch at the insurer. In fact, according to one filing by Sahara Life, the insurer has a solvency ratio of 8.10 as against the regulatory requirement of 1.5. The ratio is the margin of excess assets a company owns over those required to be held by the regulator.

Sathe argues that this itself shows the company was not keen on expanding its business as it was sitting on capital.

On 12 June, IRDA appointed R. K Sharma, a general manager at the regulator, as the administrator to manage the affairs of the insurer. IRDA said Sahara Life was acting in a manner likely to be prejudicial to policyholders’ interests in the order appointing the administrator. Mint has seen the order.

The order pointed out three major infractions. First, the chairman of the board and investment committee, Subrata Roy, had not attended any of the meetings of the board and investment committee during the four years ended March 2015. Roy was jailed in March 2014 (in a dispute between the Sahara Group and another regulator, the Securities and Exchange Board of India) and granted parole on 6 May 2016, and could not have attended meetings during the time he spent in prison; IRDA said it was a serious lapse in governance on the part of the company not to have appointed another chairman. In fact, according to IRDA, it was at its behest that a new chairman O.P. Srivastava was appointed.

Two, the business of the insurer was declining. According to the Handbook of Statistics released by IRDA, Sahara Life’s renewal business constantly declined: the insurer collected Rs140 crore in renewal premium in 2013-14 but by 2015-16 it was able to collect only Rs114 crore.

IRDA directed the insurer to furnish a detailed business plan for the three years from 2016-17 to 2018-19 to address its concerns. According to the regulator’s order, the insurer didn’t furnish any plan.

Third, IRDA noticed an increase in the insurer’s expenses. Security and other deposits increased from Rs0.10 crore in 2013-14 to Rs71.34 crore in 2014-15. IRDA observed a further increase in 2015-16 to Rs78.24 crore. The order states that the insurer claimed it was expanding its business by opening new offices and had given a security deposit of Rs71.25 crore for opening 646 offices across India. But the regulator says that it had not approved these expansion plans. Further, the insurer paid a rental deposit of less than Rs80 crore to a group company that hasn’t been refunded yet, IRDA said.

Transferring Sahara Life’s business may not be easy.

“Sahara’s portfolio is rather tiny. For any sizeable insurer to be interested, the portfolio needs to be big,” said Sanket Kawatkar, principal and consulting actuary, life insurance India, Milliman India Pvt. Ltd, a consulting firm. “For any insurer to be interested, the amount of assets transferred will need to be much above the liabilities.”

Sahara has filed a defamation case in a Patna court against Mint’s editor and some reporters over the newspaper’s coverage of the company’s dispute with the Securities and Exchange Board of India. Mint is contesting the case