SEBI Related Party Transactions and Insurance Programme Structures India 2026: Group Captives, Inter-Co Recharges, and Approvals

Large listed Indian groups rarely run insurance at the subsidiary level alone. Programme economics push toward a group structure where the parent or a dedicated subsidiary buys cover for the group, the operating subsidiaries participate as named insureds, and the costs are allocated back to the operating units through an inter-company recharge mechanism. The structure delivers volume discounts of 8 to 22 percent on premium and a unified deductible position across the group, but it brings every cession, recharge, and supplemental arrangement into the related-party transaction (RPT) disclosure perimeter under the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (LODR).

The RPT angle on insurance has tightened materially with the SEBI (LODR) (Sixth Amendment) Regulations 2021 that revised Regulation 23 thresholds, the SEBI consultation papers in 2023 to 2024 that proposed further tightening, and the SEBI Adjudication Orders through 2024 to 2026 that levied penalties between INR 25 lakh and INR 8 crore on listed entities for RPT disclosure failures. Insurance arrangements feature in a non-trivial share of these enforcement actions, particularly where a captive insurer in a group structure is involved or where the inter-company recharge mechanism is structured without proper approval architecture.

The core analytical question for any insurance arrangement at a listed group is whether the transaction is an RPT under the LODR definition, whether it crosses the materiality threshold, and what approval architecture applies. The analysis is not always intuitive because the LODR definition of related party is broader than the Companies Act 2013 definition, and the materiality test compares each transaction (or aggregated transactions of the same nature) against the consolidated turnover of the listed entity.

The operational stakes are material. A listed entity that fails to obtain prior audit-committee approval for a material RPT, or fails to seek shareholder approval where required, faces SEBI Adjudication Order penalties, potential disgorgement, and reputational exposure. The board and the audit-committee individual members can also face fiduciary-duty challenge in subsequent shareholder litigation. The investment in proper RPT analysis and documentation is small (typically INR 8 lakh to INR 25 lakh annually for a mid-cap listed group), and the avoided exposure is multiple orders of magnitude larger.

Regulation 23 of the LODR Regulations addresses related-party transactions for listed entities. The regulation defines related party with reference to the Companies Act 2013 Section 2(76) plus the LODR-specific extensions, defines related-party transactions, sets materiality thresholds, and prescribes the approval architecture.

The expanded LODR related-party definition

The LODR Regulation 2(zb) defines related party with reference to Section 2(76) of the Companies Act and applicable accounting standards, with the addition of any entity belonging to the promoter or promoter group or any person whose securities or holdings would attract the definition. The expansion brings entities that may not be Section 2(76) related parties under the LODR ambit. For listed groups, the practical effect is that the captive insurer subsidiary, the financial services group company that may sell insurance products, the holding company's insurance subsidiary, and even a joint venture insurer where the listed entity has material ownership all sit within the related-party definition.

What counts as a related-party transaction

The LODR Regulation 2(zc) defines related-party transaction as a transaction involving the listed entity, on the one hand, and a related party, on the other hand. The definition is broad and covers any transfer of resources, services, or obligations regardless of price. Specifically for insurance arrangements, the following transactions sit within the definition.

1. Premium paid by the listed entity (or its subsidiaries) to a related-party captive insurer for cession of risk under a group master policy or a stand-alone captive cover.
2. Premium paid by the listed entity to a related-party broker for placement services and advisory.
3. Reinsurance ceded by a captive insurer subsidiary to a third-party reinsurer through a related-party reinsurance broker.
4. Group master policy participation where the parent or a dedicated group entity buys cover on behalf of the operating subsidiaries, with recharge of premium share to each subsidiary.
5. Inter-company indemnification arrangements where one group entity indemnifies another against specific losses (effectively a self-insurance or risk-sharing arrangement).

The 10 percent materiality test

Regulation 23(1) defines material RPT as transactions exceeding the lower of INR 1,000 crore or 10 percent of the consolidated annual turnover of the listed entity as per the last audited financial statements. The test is applied to each transaction or to aggregated transactions of the same nature in a financial year.

For a listed entity with consolidated turnover of INR 8,000 crore, the materiality threshold is INR 800 crore. A captive cession arrangement with annual ceded premium of INR 900 crore would be material. For a smaller listed entity with consolidated turnover of INR 3,000 crore, the threshold is INR 300 crore. The same captive arrangement at proportionate scale could be material at the smaller entity.

The aggregation requirement is operationally important. A series of smaller insurance arrangements with the same related party, each individually below the materiality threshold, can aggregate into a material transaction. The LODR requires aggregation of transactions of the same nature in a financial year, and the audit committee should track aggregated positions across the year rather than only checking individual transactions.

Approval architecture

The approval architecture varies with materiality and the nature of the transaction.

1. All RPTs require prior approval of the audit committee, with limited carve-outs for routine transactions where the audit committee has granted omnibus approval subject to defined parameters (typically annual approval at the start of the year, with periodic review).
2. Material RPTs require shareholder approval by ordinary resolution, with the related parties not voting on the resolution. The shareholder approval is sought at the next AGM or through postal ballot if the timing requires it.
3. Material RPTs above a higher threshold may require additional governance, including reasoned opinion of the audit committee, disclosure in the explanatory statement, and independent valuer or expert opinion.

The 2021 amendment lowered the materiality threshold from earlier 10 percent of the standalone turnover to 10 percent of consolidated turnover, with the INR 1,000 crore monetary cap added. The change brought more transactions into the material RPT ambit, including many insurance arrangements at listed groups.

A group master policy is a single insurance contract bought by the parent or a designated group entity, with multiple group entities listed as named insureds. The structure is operationally efficient (single placement, unified deductible, simpler claims handling) but the RPT analysis depends on the precise structure.

When the group master policy is not an RPT

Where the parent buys a group master policy with its own funds, without recharge to subsidiaries, and the subsidiaries simply enjoy named-insured status without paying any premium, the transaction is not an RPT between the listed entity and its subsidiaries. The subsidiaries receive a benefit but no transfer of resources flows in the direction tested by the RPT analysis.

This structure is rare in practice because tax and accounting principles generally require each entity to bear the cost of insurance covering its own assets and operations. A parent absorbing 100 percent of subsidiary insurance cost can attract transfer-pricing observations and Companies Act 2013 Section 188 attention.

When the group master policy is an RPT (the common case)

The common structure involves the parent or designated entity buying the policy, with each subsidiary paying a premium share to the parent (or designated entity) representing the subsidiary's allocable cost. The recharge from subsidiary to parent is a related-party transaction within the LODR definition.

The RPT analysis covers:

1. Each individual recharge (parent to subsidiary or vice versa) considered as a related-party transaction.
2. Aggregated recharges across the year considered for materiality test.
3. The arms-length basis for the recharge allocation methodology.
4. The audit-committee approval for the recharge arrangement.
5. The shareholder approval if the aggregated quantum crosses the materiality threshold.

Arms-length basis for recharge allocation

The recharge allocation must follow an arms-length basis. The standard methodologies are:

1. Allocation by sum insured with each subsidiary paying a share proportional to its assets covered or its turnover or its risk exposure under the policy.
2. Allocation by claims experience where retrospective allocation considers each subsidiary's loss contribution.
3. Allocation by employee count for employee-benefit policies (group health, group personal accident, workers compensation).
4. Allocation by line-of-business specific drivers (motor by fleet size, marine by goods value, fire by sum insured).

The methodology should be documented at the start of the policy year, applied consistently, and reviewed periodically. The audit committee should be satisfied that the methodology represents an arms-length outcome, with documentary support from broker or actuarial advice where appropriate.

Operational documentation for the group master policy RPT

Five documentation items support proper RPT treatment of a group master policy.

1. The recharge allocation methodology documented at the policy year start, with approval by the relevant authority.
2. The audit-committee approval for the recharge arrangement, with the approval covering both the structure and the methodology.
3. The arms-length justification with documentary support (broker advice, actuarial opinion, benchmarking).
4. The quarterly tracking of cumulative recharge amounts for materiality monitoring.
5. The disclosure in the financial statement notes under related-party transaction disclosure.

Listed Indian groups increasingly operate captive insurers in GIFT City IFSC, Bermuda, Singapore, Mauritius, or other jurisdictions. The captive structure typically involves the operating subsidiaries (or the parent) ceding specific risks to the captive insurer subsidiary under a master cession arrangement. The cession arrangement is a related-party transaction under both the Companies Act 2013 Section 188 and the LODR Regulation 23.

The captive structure economics

Captives serve three economic purposes for listed groups:

1. Cost stability by smoothing premium volatility across hard and soft commercial market cycles.
2. Risk retention efficiency by funding retained risk through a regulated insurance vehicle rather than a balance sheet provision.
3. Reinsurance access by enabling direct reinsurance market access through the captive rather than through the Indian admitted market.

The captive premium typically reflects an actuarially derived expected loss plus loading for captive operating costs and capital charge. The structure is economically rational, but the RPT analysis must address the arms-length basis.

RPT analysis on captive cession premium

The captive cession premium is an RPT between the operating entity (the ceding insured) and the captive insurer (the related-party insurance company). The materiality test compares the annual ceded premium against the consolidated turnover threshold of lower of INR 1,000 crore or 10 percent of consolidated turnover.

For a listed entity with consolidated turnover of INR 12,000 crore and a property captive that retains INR 200 crore of property premium, the cession is below the INR 1,000 crore absolute cap. But the analysis must also include casualty premium, marine premium, and any other lines ceded to the same captive, aggregating across lines. Where the aggregate cession crosses the materiality threshold, shareholder approval is required.

Arms-length basis for captive premium

The arms-length analysis for captive premium typically involves three elements.

1. Expected loss component derived from actuarial analysis of historical loss experience, projected forward with appropriate trend factors.
2. Operating cost loading representing the captive's running cost (regulatory, audit, actuarial, management) allocated to each line and each cession.
3. Capital charge loading representing the cost of capital deployed in the captive to support the risk retention.

The total captive premium is compared against market premium quoted by third-party insurers for the same risk. Where the captive premium is at or modestly above market, the arms-length conclusion is supportable. Where the captive premium is materially below market, the arms-length conclusion is harder to support without additional evidence (typically argued as reflecting the captive's lower acquisition cost and structural efficiency).

The GIFT City IFSC captive regulatory framework issued by the IFSC Authority in 2022 to 2024 with successive amendments provides the regulatory home for many new captives, with associated documentation requirements. Bermuda and Singapore captives operate under their domestic supervisory regimes with their own arms-length expectations.

Audit-committee and shareholder approval architecture for captive cessions

The approval architecture for captive cessions involves the same audit committee and shareholder approval framework as other RPTs, with the practical adaptation that captive cessions typically run on a multi-year basis with periodic review rather than annual reauthorisation.

A listed group establishing a new captive in 2025 to 2026 should structure the approval architecture as:

1. Board approval for the captive establishment with the rationale, structure, and projected cession flows.
2. Audit-committee approval for the master cession agreement with the duration, lines covered, methodology for premium setting, and review cadence.
3. Shareholder approval where material for the projected aggregate cession flows on a multi-year basis, with appropriate disclosure in the explanatory statement.
4. Annual audit-committee review of actual cession flows, premium setting, and arms-length adequacy.
5. Quarterly reporting of cession flows for materiality monitoring.

Inter-company recharges of insurance premium are pervasive at listed groups and represent one of the most operationally complex RPT categories. The recharge can flow in multiple directions (parent to subsidiary, subsidiary to parent, peer subsidiary to peer subsidiary), can cover multiple lines, and can use multiple methodologies.

The recharge taxonomy

Four recharge structures recur at listed groups.

1. Parent-to-subsidiary recharge where the parent buys a group master policy and recharges the premium share to each subsidiary. The recharge is the parent's revenue (or contra-cost) and the subsidiary's insurance expense.
2. Subsidiary-to-parent recharge where a treasury or shared-services subsidiary buys insurance for the group and recharges to the parent and other group entities.
3. Cross-subsidiary recharge where a subsidiary with a specific risk profile (typically a captive-like arrangement) accepts cession from peer subsidiaries.
4. Cost-plus arrangements where a group entity provides insurance management services to other group entities, with the services priced on a cost-plus basis.

Each structure carries its own RPT analysis, its own arms-length expectation, and its own approval architecture.

The premium allocation audit

The statutory auditor's SA 550 work programme on related parties typically includes a structured review of inter-company recharge arrangements. The audit work covers:

1. Identification of all inter-company recharge transactions through journal entry analysis, inter-company ledger reconciliation, and discussion with group finance.
2. Verification of underlying support including the group master policy, the broker invoice, the recharge calculation, and the documentation of allocation methodology.
3. Assessment of arms-length basis with reference to market benchmarks or appropriate proxies.
4. Review of approval architecture with confirmation of audit-committee and shareholder approval where applicable.
5. Disclosure adequacy review for the financial statement notes and the corporate governance report.

For a mid-cap listed group with annual insurance premium of INR 40 crore and recharge flows across 3 to 6 subsidiaries, the audit work on insurance RPT typically runs 40 to 80 audit hours. For larger groups with captives and multi-jurisdictional structures, the audit work expands proportionately to 150 to 400 audit hours.

Common audit observations

The audit observations on inter-company insurance recharges through 2024 to 2026 cluster in five recurring themes.

1. Methodology inconsistency where the recharge allocation methodology changes year-to-year without documentation or approval.
2. Missing arms-length documentation where the recharge is computed mechanically but the arms-length conclusion lacks supporting analysis.
3. Approval gaps where some recharge transactions lack audit-committee approval or omnibus approval coverage.
4. Disclosure inaccuracy where the financial statement note does not capture all recharge transactions or aggregates them inconsistently.
5. Materiality monitoring failures where the cumulative recharge amount crosses the materiality threshold mid-year without triggering shareholder approval.

Operational discipline to manage the recharge architecture

For listed groups with material inter-company recharge flows, four operational disciplines materially reduce audit observation risk and inspection exposure.

1. Annual recharge policy approval by the audit committee covering methodology, parameters, and quantum thresholds.
2. Quarterly recharge tracking with cumulative materiality monitoring and audit-committee reporting.
3. Standardised documentation packets for each recharge transaction with the policy reference, the calculation, the methodology citation, and the approval evidence.
4. External benchmarking at the policy renewal cycle to refresh the arms-length basis with current market data.

The LODR Regulation 23 carries dis-application carve-outs that exclude certain transactions from the RPT framework. Understanding the carve-outs and their limits is operationally important because misplaced reliance on a carve-out creates the same exposure as outright non-compliance.

The Regulation 23(5) carve-outs

Regulation 23(5) provides that the audit-committee approval and shareholder approval provisions do not apply to:

1. Transactions between a holding company and its wholly-owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting.
2. Transactions entered into between two government companies.
3. Transactions between a holding company and its wholly-owned subsidiary, subject to specific conditions.

The wholly-owned subsidiary carve-out: scope and limits

The wholly-owned subsidiary (WOS) carve-out is the most operationally relevant for listed groups with insurance recharge arrangements. The carve-out applies where the holding company and the WOS are parties to the transaction, the WOS is wholly-owned (100 percent ownership including beneficial ownership), and the accounts of the WOS are consolidated with the holding company and placed before the shareholders at the AGM.

The limits of the carve-out are significant:

1. The carve-out does not extend to less-than-WOS subsidiaries. Even a 99.9 percent subsidiary does not benefit from the carve-out. Many listed groups maintain a small minority public stake in operating subsidiaries (often through historical reasons or stock-exchange listing requirements), which immediately removes the carve-out.
2. The carve-out does not extend to transactions among subsidiaries. Even if both subsidiaries are WOSs of the listed holding company, transactions between them require the full RPT analysis. The carve-out only covers transactions between the listed holding and its WOS.
3. The carve-out does not extend to fellow subsidiaries. A WOS of one branch and a WOS of another branch are not in scope of the carve-out for inter se transactions.
4. The carve-out conditions must be satisfied annually. The consolidation must be current, the AGM placement must be confirmed, and any change in ownership status (a small share issuance reducing the holding below 100 percent) immediately removes the carve-out.

The omnibus approval mechanism

Where the WOS carve-out is not available, the audit committee can grant omnibus approval for routine RPTs subject to defined parameters. The omnibus approval mechanism is operationally common for insurance arrangements and should be structured carefully.

The omnibus approval should specify:

1. The categories of transactions covered (premium recharges, captive cessions, broker placements).
2. The maximum quantum for each category, individually and aggregated.
3. The maximum tenure of the omnibus approval, typically the financial year.
4. The periodic review cadence with the audit committee reviewing actuals against approved parameters.
5. The exception escalation for transactions outside the parameters.

The LODR requires the omnibus approval to be reviewed by the audit committee at least once a year, with the rationale documented for continuing or modifying the approval. The omnibus approval cannot extend to material RPTs that require shareholder approval.

Special situations: subsidiaries of subsidiaries and listed subsidiaries

For groups with multiple listed entities, the RPT analysis applies independently at each listed entity. Transactions between two listed entities in the same group are RPTs at both listed entities, requiring approval architecture at both levels. This creates a particularly demanding documentation requirement, and the audit committee at each listed entity must independently satisfy itself on the transaction.

For a listed entity with a listed subsidiary, the inter-company recharge between them is an RPT at both. The materiality test runs against each listed entity's own consolidated turnover. The approvals required at each listed entity may differ depending on the respective materiality outcomes.

SEBI inspection of listed entities has tightened materially through 2024 to 2026, with insurance-related RPT featuring in approximately 9 to 14 percent of substantive observations across the period (per practitioner aggregation of public Adjudication Orders and inspection summaries). The documentation expectations have correspondingly tightened, and listed groups should prepare governance documentation to a higher standard than was typical 24 months ago.

The audit-committee minute book

The audit-committee minute book is the principal evidentiary document on RPT approval. The minute book entries on insurance-related RPTs should:

1. Identify each transaction with sufficient specificity to distinguish from other recharges or arrangements.
2. Document the arms-length basis with the supporting analysis referenced.
3. Record the discussion including any committee questions and management responses.
4. Capture the approval with conditions where applicable.
5. Note any abstentions by interested members.

The minute book should be drafted contemporaneously and reviewed promptly by the company secretary and the chair. Retrospective drafting or material modification of minutes creates significant exposure if discovered at inspection.

The related-party register

The related-party register under Section 188 of the Companies Act 2013 and the supporting LODR documentation should track each related-party transaction with the date, the parties, the nature, the value, the arms-length basis, and the approval reference. For insurance arrangements, the register should capture each recharge, each cession, and each broker placement with a related-party broker.

The register is a living document, updated as transactions occur. The annual reconciliation against the financial statements and the corporate governance report should be a structured exercise.

The arms-length file

The arms-length basis for each RPT is supported by an arms-length file containing the analysis, the supporting evidence, and the conclusion. For insurance arrangements, the file typically includes:

1. The broker market survey showing comparable insurance pricing.
2. The actuarial analysis for cession premiums.
3. The benchmarking against published industry data where available.
4. The methodology documentation for premium allocation.
5. The external valuer opinion where the transaction quantum or complexity warrants it.

The arms-length file should be assembled contemporaneously with the transaction and refreshed periodically. The audit committee should be able to point to the file at inspection.

Disclosure in the financial statements and the corporate governance report

The related-party transaction disclosure appears in three places in the annual report:

1. The financial statement note under the applicable accounting standard (Ind AS 24 for listed entities preparing under Ind AS).
2. The corporate governance report under the related-party section.
3. The board report under the related-party transaction disclosure section.

The three disclosures should be consistent in scope, quantum, and characterisation. Inconsistency among them is a recurring SEBI inspection observation.

The 2026 inspection posture: what to prepare for

Based on the SEBI inspection focus areas published in early 2026 and the practitioner intelligence circulating in the audit and compliance community, listed groups should prepare for the following inspection emphasis in the FY 2025-26 cycle and beyond.

1. Captive cession arrangements at GIFT City IFSC with detailed review of arms-length basis and approval architecture.
2. Inter-company recharge methodology consistency with year-over-year comparison.
3. Materiality monitoring with quarterly tracking evidence.
4. Wholly-owned subsidiary carve-out reliance with verification of the 100 percent ownership condition.
5. Audit-committee minute book quality with assessment of substantive discussion versus pro-forma recording.

The investment in proper RPT discipline for insurance arrangements is small relative to the exposure. A mid-cap listed group should expect to invest INR 12 lakh to INR 30 lakh annually in dedicated insurance-RPT compliance work, covering the documentation, the methodology refresh, the audit-committee preparation, and the annual review meeting. The avoided exposure in SEBI Adjudication Order penalties, disgorgement, and reputational impact is multiple orders of magnitude larger.