IPO-bound Go Digit gets notice, advisory from insurance regulator 

Bengaluru-based insurtech start-up Go Digit General Insurance, in which Canadian company Fairfax is a key shareholder, has received a show cause notice and multiple advisories from the Insurance Regulatory and Development Authority of India (IRDAI) last month, the company’s addendum to its draft prospectus filed with the market regulator last Friday said.

The show cause notice was for non-disclosure of change in the conversion ratio of the compulsorily convertible preference shares (CCPS) issued by Go Digit Info works Services (GDISPL), the parent of Go Digit General Insurance, to FAL Corporation, part of Canada-based Fairfax Financial Holdings.

Multiple advisories

The multiple advisories include failure to take approval for change in remuneration of the Chief Executive Officer on account of change in ESAR 2018 (employee stock appreciation rights scheme) to ESOP 2018 (employee stock option plans) and failure to inform IRDAI of retrospective grant of ESARs prior to the date of grant of certificate of registration.

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IRDAI has also advised the company to ensure due care in making disclosures in the offer documents to reflect the correct position about the commission on long-term policies; discontinuation of the arrangement of mark-up charged by GDISPL for certain facility management services and technology services rendered to the company and strengthening internal controls commensurate with the size and operations of the company.

Go Digit General Insurance responded to the IRDAI advisory on November 6. It said it had already instituted the necessary internal controls to seek requisite approvals in case of change in any component of the CEO’s remuneration. It had also undertaken a feasibility study before the conversion of ESAR 2018 to ESOP 2018 and consent was sought from all outstanding option holders before such conversion.

It said GDISPL had charged a mark-up and the company executed this transaction by applicable law. It said the company regularly conducts a benchmarking analysis to ensure that any mark-up charged is within the margins set out in the benchmarking report, issued by an independent external party.

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Conversion ratio

Go Digit had changed its conversion ratio of 63,00,000 CCPS issued by GDISPL to FAL from ‘1 CCPS for 2.324 equity share’ to ‘2.324 CCPS for each equity share’. This was reflected in the amendment to the joint venture agreement dated August 11 last year. The company had not furnished the full particulars on the said alteration to IRDAI, violating Section 26 of the Insurance Act, IRDAI’s show cause notice on October 10 said.

Last year, IRDAI rejected the conversion of CCPS into shares because it would result in GDISPL, the holding company of Digit Insurance, becoming a subsidiary of the Fairfax group, which is not allowed by regulations.

In the addendum filed on Friday, Go Digit General Insurance said that it may be subject to warnings, show-cause notices and/or penalties in the future, which could adversely impact its brand and reputation. Further, the company may be imposed a penalty of ₹1 lakh for each day of non-compliance, or ₹1 crore, whichever is lower.

“In the event the IRDAI is not satisfied with our response to its advisory on discontinuation of the arrangement of mark-up charged by GDISPL for certain facility management services and technology services rendered to our Company, we may have to terminate the relevant agreements entered into with GDISPL for availing such services and to explore alternative arrangements with third parties for such services, which may not be available at commercially viable terms or all, which may adversely affect our business and operations and consequently our financial condition and result of operations,” the addendum said

Go Digit General Insurance had filed draft documents for its IPO in August last year, to raise ₹1,250 crore from a fresh issue of shares and an offer for sale of 109.4 million equity shares. The offer document was kept in abeyance by the regulator and later returned. The company refiled its draft prospectus earlier this year after making certain changes to its employee stock appreciation rights scheme.

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