India’s Finance Ministry has released the final rules for the increased foreign investment limit of 74% in its insurance industry, as it seeks to inject capital and accelerate growth in the private insurance sector.
According to a report by The Hindu Business Line, the new rules, which came into effect on May 19, will apply to 23 life insurers, 21 non-life insurers, and seven health insurers in the market.
There is now an additional layer of solvency margin for increased foreign investment. At least 50% of annual net profit must be retained in the company’s general reserve, if the solvency margin is lower than 1.2 times the control level of solvency, the report said. Current regulations require a solvency ratio of 150%.
Indian insurance companies that have foreign investors must have majority of its directors and key management persons as resident Indian citizens. At least one of the following – board chairperson, managing director, or chief executive officer – must also meet the citizenship requirements.
Insurance firms will be given one year to comply with these new rules.
The report cited a study by the State Bank of India, which suggests the need for foreign investment in insurance to boost penetration and protection, especially in times such as the current pandemic. Current levels are mostly still below the old threshold of 49%.
As of March 2019, average foreign direct investment (FDI) in life insurers was only 35%, while non-life insurers were at 30% FDI and health insurers at 31.7%.
