Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021 and Press Note 2 of 2021

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Jun 30, 2021

Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021 and Press Note 2 of 2021

In order to operationalize the proposed increase in foreign investment limits for insurance companies, amendments were made to the Insurance Act, 1938, to give effect to the increase in such limits (effective from April 1, 2021). Further to the statutory amendment, the Department of Financial Services, Ministry of Finance, Government of India notified the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021 (‘FI Amendment Rules’) on May 19, 2021, so as to amend the Indian Insurance Companies (Foreign Investment) Rules, 2015 (‘Insurance FI Rules’). The key amendments proposed are as follows:

i. In an Indian insurance company having foreign investment, the following have to be ‘Resident Indian Citizens’: (a) a majority of its directors; (b) a majority of its key management persons; and (c) at least one among the chairperson of its board, its managing director and its chief executive officer. Existing insurance companies have to comply with this requirement within one year.

ii. In case of an Indian Insurance Company having foreign investment exceeding 49%:

For a financial year for which dividend is paid on equity shares and for which at any time, solvency margin is less than 1.2 times control level of solvency, not less than 50% of net profit for the financial year is required to be retained in general reserve; and
Not less than 50% of its directors are required to be independents unless the chairperson of its board is an independent, in which case at least one-third of its board is required to comprise of independents.

On June 14, 2021, the Department for Promotion of Industry and Internal Trade, Ministry of Commerce & Industry, Government of India, issued Press Note 2 (2021 Series) so as to amend the Consolidated FDI Policy of 2020 for the Insurance Sector. By virtue of this FDI, up to 74% is permitted under the ‘Automatic Route’ and will be subject to approval/ verification by the Insurance Regulatory and Development Authority. The Press Note will take effect on the date on which amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 are notified.

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