The revision of India’s foreign investment cap from 49% to 74% for insurance companies is an opportunity for the significant inflow of capital into the country’s fast-developing insurance market, says AM Best.
In its Best’s Commentary, “India Insurance Market to Benefit From Increase in Foreign Investment Limit,” AM Best states that the increase will allow Indian insurers greater financial flexibility in additional capital-raising, and over time, is expected to support a bolstering of the industry’s solvency.
Aside from the government’s mandate for control of the companies to remain with resident Indian citizens, which may be a limiting factor for foreign insurers looking to hold majority interest, a specified percentage of profits is also to be retained as a general reserve, which will contribute to the strengthening of companies’ capital positions.
AM Best is of the opinion that the Indian insurance industry is likely to attract significant overseas capital, which is crucial to strengthening the solvency of the overall industry, particularly for the general insurance companies, which recorded declining capital buffers over the last few years. The raised foreign direct investment cap should also enable insurers to expand underwriting operations further, which will contribute to growing the insurance penetration in the country.