India’s Raise of Foreign Insurers’ Investment Cap a ‘Positive Step’: AIA

May 6, 2015

Stephen Simchak, director of international affairs for the American Insurance Association (AIA) In his testimony before the U.S. International Trade Commission (ITC) on trade and investment policies in India. Has welcomed the passage of legislation in the Indian Parliament raising the foreign investment cap on insurance companies to 49 percent from 26 percent, as well as the opening of the market to reinsurance branches.

“India has taken a substantial step toward reducing trade and investment barriers in the insurance sector, and has done so through the impressive dedication of the new government to positive economic reform,” Simchak said.

He added, however, that it is “too early to say with quantitative certainty what the impact of the insurance reforms will be. But predictions from insurance groups and independent economists have put new FDI inflows to India from the investment cap increase anywhere from $2 billion to $10 billion. We expect that those non-Indian insurers that currently have joint ventures in India will increase their stake to 49 percent. Over time we expect that the increase in the investment cap will also attract new market entrants.”

Simchak also note that the opening of India’s reinsurance market to foreign branches is “another very significant development that came from the insurance legislation.” He explained that an “open and developed reinsurance market is essential for providing price and product advantages to consumers, diversifying risk, and making insurance markets generally more competitive.

“The move to permit foreign reinsurance branches in the Indian market is important to U.S. reinsurers who will soon have greater access to the market, and for the stability of India’s insurance sector.”

In conclusion Simchak noted that there are “remaining challenges to non-Indian participation in the insurance market. The increase in the investment cap from 26 percent to 49 percent was an important, hard fought improvement to India’s insurance regulatory system. However, even a 49 percent investment cap is a significant investment barrier, and we hope that, in the future, there will be no foreign investment cap at all.

Source: The American Insurance Association (AIA)

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