India’s New Rules for Insurance Investments Could Attract U.S., European Insurers

India’s New Rules for Insurance Investments Could Attract U.S., European Insurers

2021-02-01 15:37:02

NEW DELHI – The Indian government said on Monday that it plans to increase the limits on how much foreign companies can invest in the country's insurance sector, a move that could attract influx from US and European insurers.

Finance Minister Nirmala Sitharaman said in her budget address for 2021-2022 that the government would allow up to 74% foreign direct investment in insurance entities, up from 49% currently, paving the way for "foreign ownership and control with guarantees."

The change could attract investment from international insurance companies, said industry sources, many of which have existing joint venture operations in India, including from American International Group and Prudential Plc in the UK.

Life and health insurance use is low in the country at 1.3 billion people, but is expected to grow. Invest India, the country's investment promotion agency, expects the insurance market to be worth about $ 250 billion by 2025.

"It's a huge market for them in terms of size. That's the main driver for companies," said an Indian lawyer who advises international insurance companies.

A second attorney said several Asian insurers have also expressed interest in ramping up investments in India, and have begun to seek more details on Monday's proposal hours after it was announced.

The state-run Life Insurance Corporation dominates the life insurance market in India, but private players have grown rapidly in size.

ICICI Prudential Life Insurance – a joint venture between ICICI Bank and Prudential – said last year that assets under management exceeded 2 trillion rupees ($ 27.4 billion). Prudential said in August last year that India is a market where it has "significant investment needs for growth."

More relaxed rules for foreign investment in insurance will also help some Indian insurers raise capital and boost their business after a slowdown caused by the COVID-19 pandemic.

“The life insurance industry's imperativeness in the economy has become paramount in the wake of COVID,” Niraj Kumar, chief investment officer of Future Generali India Life Insurance, an Indian JV of Assicurazioni Generali SpA in Italy, said in a statement.

"The bold move … will provide an immediate backstop in terms of capital for growth and improve insurance penetration and financial inclusion in the economy."

(Reported by Aditya Kalra in New Delhi and Abhirup Roy in Mumbai; edited by Euan Rocha and Jane Merriman)

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