Global Trade Alert

On 2 September 2019, the Indian Ministry of Finance through the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2019 has increased the foreign equity investment limit in insurance intermediaries from 49% to 100%. Foreign investments in such companies fall under the automatic route i.e. they do not require prior approval from the government before making such investments. However, the investments will be subject to verification by the Insurance Regulatory and Development Authority of India (IRDAI). 

The Rules provide for additional requirements, as below, for any insurance intermediary that has a majority shareholding of foreign investors - 

• the intermediary must be incorporated as a limited company under the Indian Companies Act 2013
• among the Chairman of the Board of Directors, the Chief Executive Officer, the Principal Officer, or the Managing Director, at least one shall be a resident Indian citizen
• the intermediary must take prior permission of the IRDAI prior to repatriating dividend
• the intermediary shall bring the latest technological, managerial and other skills
• it shall not make payments beyond what is necessary or permitted by IRDAI, to the foreign group/promoter/subsidiary/interconnected or associated entities
• all payments made to the above entities must be disclosed in specified formats
• the composition of the Board of Directors and key management persons shall be specified by the concerned regulators

The Rules also specify that in case an entity (such as a bank), whose primary business is outside the insurance area, is permitted by the IRDAI to function as an insurance intermediary, the foreign investment limits of the original sector will continue to apply as long as the share of revenue from the primary business is greater than 50% of the total revenue.