The long awaited Insurance Laws (Amendment) Bill (the
"Bill") has become a provisional law in
The Bill, which could not be passed in the Indian Parliament in
its winter session, has been promulgated by the President of India
as an Ordinance on 26 December 26 2014. Despite the Bill being
passed as an Ordinance, it shall temporarily have the same force
and effect as an Act of Parliament. The Bill amends three Acts:
the Insurance Act, 1938;
the General Insurance Business (Nationalisation) Act,
the Insurance Regulatory and Development Authority
Highlights of the Bill
1. Increase in foreign equity cap to 49%
The Bill increases the maximum permitted limit of foreign equity
in Indian insurance companies from 26% to 49%. The limit shall be a
composite cap – either as a direct investment or by a
portfolio, or a combination of both. However, the management and
control of insurance companies shall remain with Indian companies.
The term "control" has been defined to mean "the
right to appoint a majority of the directors or to control the
management or policy decisions including by virtue of their
shareholding or management rights or shareholders agreements or
2. Lloyd's of London to be treated as a foreign
To facilitate the entry of Lloyd's of London (covered under
the Lloyd's Act 1871 of the UK) into the Indian insurance
market, the Bill amends the definition of "foreign
company",which would now include a company or body established
under a law of any country outside India and includes Lloyd's
of London established under the Lloyd's Act 1871 or any of its
3. Registration requirements for doing Insurance
business in India
Every insurer is required to be registered in order to carry on
insurance business in India. Under the Bill, public companies,
co-operative societies, foreign companies operating through a
branch and statutory bodies established by acts of Parliament have
to be registered to carry on insurance business in India. In order
to be registered, each category of insurer requires a minimum
amount of capital:
For life insurance, general insurance and health insurance, the
minimum paid up capital required is Rs 1 billion (around USD 16
For reinsurance business, the minimum paid up capital required
is Rs 2 billion (around USD 32 million).
Such paid-up equity capital would not include the preliminary
expenses incurred for formation and registration of the
4. Branches for reinsurance business in
The Bill permits foreign reinsurers to open branches only for
reinsurance business in India. The provisions prohibiting an
insurer to invest the funds of policyholders, directly or
indirectly, outside India would apply to such branches.
The Ordinance should prove helpful in opening up an insurance
market, in which many see strong growth potential, to foreign
investment. Indeed, some insurers have already expressed their
intention to take advantage of the temporary increased
liberalisation of the Indian market, for instance, by increasing
their investment in joint ventures with Indian insurance
However, insurers seeking to invest in India should bear in mind
that the Ordinance remains a temporary decree. The Ordinance will
now be laid before the Parliament in the upcoming budget session
for its approval. If the Ordinance is not passed by the Indian
Parliament within six weeks of Parliament reassembling, or if
resolutions disapproving the Ordinance are passed by both Houses,
then the Ordinance will cease to operate.
This update is authored by Clasis Law, Clyde & Co's
associated firm in India
The content of this article is intended to provide a general
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