Foreign Direct Investment in the insurance sector has been permitted up to 49% pursuant to the Insurance Laws (Amendment) Act, 2015.
With the amendments to the Indian Insurance Companies (Foreign Investment) Rules, 2016 and the FDI Policy in March, 2016, investments up to 49% in the insurance sector are now permitted through the automatic route i.e. prior approval of the Foreign Investment Promotion Board is not required for increase in foreign investment up to 49%. Prior approval of the IRDAI will be required however.
Set out below are some of the key points for foreign investment in an Indian insurance company, from an insurance regulatory perspective:
1. All investments, including foreign investments, in an Indian insurance company exceeding 1% of the paid up share capital of the company require prior approval of the IRDAI. While granting the approval, it is customary for the IRDAI to impose a lock-in period on the shares acquired.
2. All foreign investments must comply with applicable IRDAI regulations which prescribe the manner of computation of foreign shareholding in insurance companies.
3. There are no separate caps on holding of a single foreign investor in an Indian insurance company – the 49% limit will apply to all foreign investment.
4. All Indian insurance companies must be "Indian owned and controlled", in the manner prescribed in the IRDAI's Guidelines on Indian Owned and Controlled ("Control Guidelines"). The rights of non-resident investors often need to be negotiated in light of the Control Guidelines, and the IRDAI's norms on corporate governance of insurance companies. From a regulatory perspective, it is imperative that investments are structured keeping in mind the foregoing mandates.
5. A foreign investor that has exited from an Indian insurance company cannot invest in a new insurance joint venture, till the completion of two financial years from the exit date.
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