India Moves Closer to Raising Foreign Direct Investment Cap for Insurance

By Rajhkumar K Shaaw and | December 10, 2014

Max India Ltd., the Indian partner of MS&AD Insurance Group Holdings Inc., Japan’s biggest casualty insurer, surged to its highest in a month after a parliament panel recommended the nation increase the cap on foreign investment in the sector.

Max, which has a venture with MS&AD Insurance’s unit Mitsui Sumitomo Insurance Co. to provide life insurance, rose 5.8 percent to 410.80 rupees at 1:40 p.m. in Mumbai. The panel of lawmakers in a report presented in the upper house of parliament that all types of overseas investors can own as much as 49 percent in insurers, up from 26 percent.

“The committee recommends that the composite cap of 49 percent should be inclusive of all forms of foreign direct investment and foreign portfolio investments,” the lawmakers said in the report. “Incremental equity should ideally be used for expansion of capital base so as to actually strengthen the insurance sector.”

The recommendations brings the insurance bill closer to being endorsed by the upper house of parliament after six years of delay and will be Prime Minister Narendra Modi’s biggest step in opening Asia’s third-largest economy before U.S. President Barack Obama’s visit in January. India’s benchmark stock index reversed losses after the report was introduced in parliament.

Massive Investment Expected

“It’s an important trigger and a catalyst,” Amitabh Chaudhry, managing director of HDFC Standard Life Insurance Co. said in an interview to Bloomberg TV India. “I do believe this will lead to an investment of additional capital of about $3 billion.”

Reliance Capital Ltd., which has partnered with Nippon Life Insurance Co., added 3.6 percent to 534.20 rupees. The S&P BSE Sensex index, which was down 0.3 percent, recovered to gain as much as 0.4 percent.

Overseas insurers including American International Group Inc. see promise in the second-most populous country where insurance penetration, or premiums underwritten as a proportion of a country’s total economic output, is less than the global average of 6.5 percent.

“It means access to capital which is required for the growth of the industry,” Rajesh Sud, chief executive officer at Max Life Insurance Co., said in a phone interview today. “This in turn will help industry participants to form more aggressive plans to increase penetration of life insurance in the country.”

–With assistance from Unni Krishnan in New Delhi and George Smith Alexander in Mumbai.

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