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 ft9%), 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 India.
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.