The long awaited Insurance Laws (Amendment) Bill (the “Bill”) has become a provisional law in India.

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, 1972; and
  • the Insurance Regulatory and Development Authority Act, 1999.

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 voting agreements”.

2. Lloyd’s of London to be treated as a foreign company

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 members. 

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 million); and
  • 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 (re)insurance company.

4.  Branches for reinsurance business in India

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  companies.

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.