Mumbai: The government’s proposal to hike foreign direct investment (FDI) limit in the insurance sector to 74 per cent has been welcomed by experts. They said this move will bring in new sources for funding for the players, which will help them in strengthening their solvency. The move will also help in improving insurance penetration and job creation. It would result in an increase in merger and acquisition activity in the sector, industry players believe.
“I propose to amend the Insurance Act, 1938 to increase the permissible FDI limit from 49 per cent to 74 per cent in insurance companies and allow foreign ownership and control with safeguards,” Finance Minister Nirmala Sitharaman said during her budget speech in the Parliament.
Moody’s Investors Service senior analyst (financial institutions) Mohammed Ali Londe said the proposal to increase the FDI limit is positive for insurers.
“The possibility of higher foreign ownership would improve insurers’ financial flexibility by offering additional opportunities to bolster solvency. In addition, insurers would benefit from the sharing of risk management best practices, possibly leading to a lowering of exposure to high-risk assets and adoption of risk-based capital management,” Londe said.
“These benefits are expected across the insurance market as the government has simultaneously announced that it will take LIC to IPO and privatise one of the government-owned general insurers, which along with the changes in foreign-owned insurers will cumulatively improve the pricing discipline of the market’s underwriting performance given their dominant positions,” Londe added.
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According to Canara HSBC OBC Life managing director and CEO Anuj Mathur, relaxation in FDI is a positive news for the insurance sector. Raising the investment cap in insurance companies was one of the key demands of various global investors after the government had amended the FDI policy to allow 100 per cent foreign investment in insurance intermediaries during last year’s budget.
“The move will help insurers attract more capital to expand business and would also potentially boost the government’s divestment programme,” stated Mathur.
Commenting on the development, Reliance General Insurance executive director and CEO Rakesh Jain said the increase in the limit was a long standing industry demand. It will certainly help attract larger foreign investment, technical know-how and strengthen the ability of the insurance sector to become globally competitive.
Edelweiss General Insurance executive director and CEO Shanai Ghosh said the move will help strengthen the sector and also help further penetration of insurance in the country, which still is far behind the world average.
Echoing the view, Future Generali India Life Insurance chief investment officer Niraj Kumar said budget 2022 has indeed taken cognizance of this and has taken the bold step of increasing the FDI limit which will provide an immediate backstop in terms of capital for growth and improve the insurance penetration and financial inclusion in the economy.