Following shortly after the issuance of the Insurance Companies
(Foreign Investment) Rules 2015 (Rules) on February 19 2015, the
Department of Industrial Policy & Promotion, Ministry of
Commerce & Industry notified Press Note No 3 of 2015 (Press
Note) on 2nd March 2015 to amend the Consolidated
Foreign Direct Investment Policy (FDI Policy) and, effectively,
make it consistent with the Rules and the Insurance Laws
(Amendment) Ordinance 2014.
The main features of the amendments carried out to the FDI
Policy are as follows:
Foreign investment of up to 26% of the total paid-up equity of
an Insurer is allowed through the automatic route, or without the
need for prior government approval.
Foreign direct investment proposals which take total foreign
investment above 26% will need approval of the Foreign Investment
Foreign portfolio investments in an Insurer are to be governed
by the provisions contained in R5 of FEMA Regulations 2000 and by
the extant Securities Exchange Board of India (Foreign Portfolio
The Press Note reiterates the Rules in specifying that increase
of foreign investment in an Insurer must be in accordance with the
pricing guidelines specified by RBI under the FEMA, and that the
foreign equity investment cap of 49% shall also apply to insurance
brokers, third-party administrators, surveyors and loss assessors
and other insurance intermediaries appointed under the provisions
of the Insurance Regulatory and Development Authority Act
The Rules and the Press Note when read together are a step
forward as they seek to remove the discrepancies in applicable laws
and regulations in relation to foreign investment in the insurance
sector. However, in order to effectively implement the recent
changes in the maximum permissible limit of foreign direct
investment in the insurance sector, further clarification in the
form of regulations is required, including, amendments to R11 of
the IRDA (Registration of Indian Insurance Companies) Regulations
2000 which provides the exact mechanism for calculation of the
foreign direct investment in entities operating in the insurance
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