A.M. Best: India Law to Raise Foreign Investment Interest in Insurance Sector

There will be heavy interest fromforeign investors in India’s insurance sector now that global insurers are permitted to increase their stakes in Indian companies, according to a new briefing from A.M. Best.

The Best’s briefing, titled “India’s New Legislation Will Draw Significant Foreign Investment Interest and Enhance Local Market’s Capacity,” explores the amended law that will allow foreign parties to own up to 49 percent of an insurance company in India.

The change represents a significant increase from the previous limit of 26 percent. The higher foreign investment ceiling will be a composite cap and could include foreign direct investment (FDI) and portfolio investment. Majority ownership and control, however, will remain with resident Indians.

“One factor contributing to the attractiveness is the current positive investment return in India’s equity market, with the benchmark Sensex 30 index up 30 percent over the past year,” said Roy Lee, financial analyst in A.M. Best’s Hong Kong office.

“This may entice foreign investors to pursue the portfolio investment route and own up to 49% of the local company. The buy-in, however, is contingent upon the selling price asked by local companies and the foreign exchange volatility of the Indian currency,” added Lee.

For those with existing Indian joint ventures, expanding their presence from 26 percent to 49 percent is a possibility considering the long-term potential of the local market.

However, in the short term, the recent financial performance of India’s non-life market could slow the entrance of new market players, the A.M. Best briefing said. According to the Insurance Regulatory and Development Authority of India, underwriting losses in the non-life sector increased to 75.49 billion rupees in fiscal year 2014 from 72.17 billion rupees in the previous year.

Source: A.M. Best Company

Topics Trends AM Best