Conditions for insurance companies receiving foreign investment
Further aligning regulations


The Indian government spent the beginning of 2021 attempting to raise the foreign direct investment (FDI) limit for Indian insurance companies in India from 49% to 74%, enabling foreign ownership and control in such Indian insurance companies. Policy changes to facilitate similar liberalised foreign investments in the insurance market commenced last year when Indian insurance intermediaries were offered the type of ownership and control now on offer to non-national parties.

In order to harmonise the supporting legislation, the government is proactively moving towards realigning relevant policies to reflect the liberalised FDI thresholds and corresponding conditions to be followed by such companies. These include the recent amendment to the Foreign Exchange Management (Non-Debt Instruments) Rules of 2019 (NDI Rules) and the withdrawal of the Indian Owned and Controlled Guidelines of 19 October 2015 (IOC Guidelines) by the Insurance Regulatory and Development Authority of India (IRDAI), which in its present form is in opposition to the intent of the amendment.


As the Indian economy matured over the past two decades, the government slowly increased FDI limits from 26% to 74%. It took note of the importance of the insurance sector and the need for increase in insurance penetration, which currently stands at a significantly low 3.76%, close to a little more than half of the global average of 7.23%.(1)

A drastic increase in the thresholds was a long-standing demand of stakeholders owing to certain operational concerns. Since a majority of actors in the sector comprise joint venture companies, foreign counterparties observed some friction when raising their shareholding to the increased limits from the earlier permissible 49%, as the enhancement in stakes would fail to provide the corresponding operational or management control. In some scenarios, businesses required capital injections to ease cash crunches and support development on account of an already saturated FDI cap due to legislative boundaries. The growth of businesses was ultimately hindered. With debt being the only mode of foreign funding in the system and the corresponding lack of collateral or unfavourable credit ratings in some cases, there were limited options remaining to seek funds from Indian parties.

Conditions for insurance companies receiving foreign investment

The Indian Insurance Companies (Foreign Investment) Rules of 2015 (Insurance Rules) as amended on 19 May 2021, introduced a few conditions and safeguards, imposed by policymakers to be taken note of while facilitating foreign investments in such companies. These conditions were mandated by the government, being mindful of the sensitivity of the sector,(2) in a bid to protect the interests of policyholders and to attain political agreement on the FDI revamp. The key conditions introduced by the amended Insurance Rules are set out below.

Residency and citizenship qualification
The amended Insurance Rules provide that the majority of directors, key management persons and certain other members of the senior management of all insurance companies with foreign investments must be Indian residents within a year of the implementation of these rules.

Retention of profits
All Indian insurance companies with foreign investment exceeding 49% shall retain at least 50% of their net profits in a general reserve in the event of scenarios specified in the amendment.

Independent directors
All Indian insurance companies with foreign investment exceeding 49% must meet either of the two requirements:

Further aligning regulations

With a view to harmonising the provisions regarding enhanced FDI thresholds for Indian insurance companies, the government has taken a number of measures as stated below.

Amendment to Insurance Act
The government implemented the Insurance (Amendment) Act on 1 April 2021, which revised the definition of an "Indian insurance company" to reflect the increase in the permissible foreign shareholding to 74%.

Press Note No. 2 revisions
On 15 June 2021, the Department for Promotion of Industry and Internal Trade released Press Note No. 2 of 2021, which amended the FDI policy to permit equity investments by foreign persons in Indian insurance companies up to 74% of the share capital under the automatic route.(3) Among other points, the note provided for these investments to be continued subject to approval or verification by the IRDAI, and called for compliance with the applicable pricing guidelines on FDI increases in Indian insurance companies.

IRDAI July amendment
IRDAI implemented the IRDAI (Indian Insurance Companies) (Amendment) Regulations on 8 July 2021 (IRDAI July Amendment), which aligns the provisions of the Insurance Regulatory and Development Authority (Registration of Indian Insurance Companies) Regulations of 2000, the Insurance Regulatory and Development Authority (Transfer of Equity Shares of Insurance Companies) Regulations of 2015, along with certain other regulations, with the amended Insurance Rules. This amendment mandated insurance companies with foreign investment to undertake the following supplementary compliances:

  • submission of the affidavit certifying compliance with the residency and citizenship qualification to the IRDAI by a company seeking registration, along with an application for the grant of a registration certificate by specified members of the senior management and the promoter of the company;
  • submission of an additional affidavit certifying compliance with the requirement to retain profits by a company seeking registration, in the event that the applicant company's shareholding reflects foreign ownership of more than 49%; and
  • submission of an undertaking to the IRDAI by existing insurers confirming compliance with the residency and citizenship qualification, signed by the specified members of the senior management within 45 days of the board meeting on which such compliance is confirmed.

Amendment to NDI Rules
The Ministry of Finance amended the NDI Rules on 19 August 2021, which, while reiterating the residency and citizenship qualification and repealing the construct of Indian ownership and control requirement, increased the FDI limits in Indian insurance companies from 49% to 74%.

Withdrawal of IOC guidelines
The IRDAI formally withdrew the IOC Guidelines on 30 July 2021. These were issued pursuant to the earlier requirement of Indian insurance companies to remain under Indian ownership and control and enumerated restrictions on the governance of such companies. Noting that the amendments reflected of a paradigm shift towards permissible foreign ownership and control, the withdrawal of the IOC Guidelines was an obvious step towards legislative re-alignment.


With the ball now rolling towards legislative harmony between the increased FDI limits in Indian insurance companies and foreign ownership and control, it is anticipated that prospective foreign partners will view the Indian insurance sector more favourably. Similarly, a plethora of opportunities appear to have emerged for Indian partners, and they may consider revaluating their holdings in insurance companies given the possibility of better exit strategies or diminishing their stakes on receiving a promising offer. The increase in access to foreign capital is sure to aid companies to focus on sustainability and innovation. As a result of the revised policy, an increase in foreign investments and M&A activities in the insurance sector is legitimately expected. This could also lead to increased competition, better customer services and may also catalyse the emerging insurtech sector.

To conclude the alignment process, it is expected that the IRDAI will make revisions to several other regulations, including the IRDAI (Assets, Liabilities and Solvency Margin of General Insurance Business) Regulations of 2016, the IRDAI (Assets, Liabilities and Solvency Margin of Life Insurance Business) Regulations of 2016, and the Guidelines for Corporate Governance for Insurers in India of 18 May 2016, in addition to other effective regulations.

For further information on this topic please contact Gaurav Dayal or Kartik Chatrath at Lakshmikumaran & Sridharan by telephone (+91 (11) 4129 9800) or email ([email protected] or [email protected]). The Lakshmikumaran & Sridharan website can be accessed at


(1) Ministry of Finance, Economic Survey 2020-2021 (Volume II), available here; and Statista, Life and Non-Life Insurance Penetration in Selected Countries Worldwide in 2019, available here.

(2) 5th Paragraph, Foreword by CII, report titled "Redefining Insurance" by Deloitte and Confederation of Indian Industry reads as follows: "India's population is anticipated to touch 1.35 billion by 2020, with the life expectancy of 74 years. The life insurance sector is expected to comprise 35% of the total savings by the end of this decade."

(3) Paragraph 2(1)(4) of the FDI Policy reads as follows: "Automatic Route: The entry route through which investment by a person resident outside India does not require the prior approval of the Reserve Bank of India or the Central Government."