The Indian insurance sector has come a long way over the past
decade with some of the marque international insurance players
tying up with domestic partners to promote insurance companies in
India. While the marriage between foreign investors and domestic
partners has been successful for the most part, there has always
been a sense of expectation with foreign investors that the
insurance sector would be liberalised and they would be permitted a
larger and more prominent role, where their shareholding in
domestic insurance companies is commensurate to the expertise that
they bring to the table.
Given the aforesaid dynamic, all players in the insurance sector
had been eagerly awaiting the Insurance Laws (Amendment) Act, 2015
("Amendment Act") and while the Amendment Act did not
disappoint the industry when it came to increasing foreign
shareholding thresholds (i.e. increasing the limit from 26% to
49%), the unequivocal affirmation that all Indian insurance
companies must be "Indian owned and controlled" has left
foreign investors in a quandary, where they can increase their
economic interests in their Indian ventures, may need to cede
management "control" in order to do so.
Though there were concerns that the Amendment Act would dampen
the spirit of foreign investors and they may choose not to increase
their shareholding in their domestic ventures, the heightened
investment activity that has been witnessed over the past few
months has shown that foreign investors still believe in the Indian
insurance story, understanding that core fundamentals such as lack
of insurance penetration, a burgeoning middle class and a proactive
industry friendly government, will still render the insurance
sector as a sunshine sector. Hence, not only have foreign investors
increased their shareholding through step-up transactions, they
have also proactively negotiated with Indian promoters to amend
their shareholders' agreements and joint venture agreements to
be in compliance with the Amendment Act and the guidelines on
"Indian owned and controlled" issued by the Insurance
Regulatory and Development Authority of India ("IRDAI")
on October 19, 2015 ("Control Guidelines").
Apart from the enactment of the Amendment Act and the Control
Guidelines, the Indian government and the IRDAI have issued
regulations permitting insurance companies to undertake public
issue of its shares and raise money from public, liberalising the
investment opportunities that can be explored by insurance
companies; and have formulated regulations that will enable
insurance companies to raise capital through the issuance of
preference shares and debentures.
Further, insurance intermediaries have seen a surge of private
equity investments, especially in online marketplaces – which
have witnessed interest from the investment vehicles of Narayana
Murthy and Azim Premji, and also global private equity majors such
as TPG Growth and KKR. The government of India is also mulling how
such technology can be leveraged to promote paperless insurance and
solve the chronic problem of low insurance penetration in
Hence, while the insurance sector continues to grapple with
regulatory challenges that are unique to it, the indomitable spirit
and belief of foreign investors in the Indian insurance story
continues unabated and with renewed vigour.
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