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Indian insurance stocks surged after the Finance Ministry proposed increasing the foreign direct investment (FDI) cap from 74% to 100%
New India Assurance, LIC Stocks Rise After FinMin Proposes 100% FDI In Insurance
Stocks of insurance companies continued to rise following the Ministry of Finance’s proposal to increase the foreign direct investment (FDI) limit in domestic insurers from 74% to 100%.
The Ministry has suggested amendments to several provisions of the Insurance Act of 1938, including the FDI increase, a reduction in paid-up capital requirements, and the introduction of a composite license. The Department of Financial Services (DFS) has invited public feedback on these proposals until December 10.
Insurance stocks have been active in response to the announcement. Companies such as New India Assurance, LIC, General Insurance Corporation of India, and others have seen gains of up to 15.5% over the past week. On the day of the announcement, all general insurance stocks were trading higher, with gains ranging from 0.5% to 2%.
However, life insurance stocks like HDFC Life, SBI Life, and Max Financial have not joined in the positive momentum, as ongoing regulatory concerns have dampened investor sentiment in this segment.
This marks the second public consultation by the DFS on proposed changes to the Insurance Act of 1938, the Life Insurance Corporation Act of 1956, and the Insurance Regulatory and Development Authority Act of 1999. Last year, in December 2022, the Ministry also invited comments on proposed revisions to these regulations.
The office memorandum, dated November 26, 2024, outlines the proposed amendments to the insurance laws aimed at improving accessibility and affordability for citizens, encouraging industry growth, and streamlining business processes. A thorough review of the legal framework governing the insurance sector was conducted in consultation with the Insurance Regulatory and Development Authority of India (IRDAI) and industry stakeholders.
The proposed changes are focused on safeguarding policyholder interests, improving financial security, encouraging more entrants into the market, and fostering economic growth and job creation. The reforms are intended to increase the efficiency of the insurance sector, simplify business operations, and expand insurance penetration to meet the goal of “Insurance for All by 2047.”
The main proposal includes raising the FDI cap in Indian insurance companies from 74% to 100% and allowing insurers to engage in one or more lines of insurance business, along with activities related to or incidental to insurance. Additionally, the minimum net-owned funds for foreign reinsurers are set to be reduced from Rs 5,000 crore to Rs 1,000 crore. The IRDAI would also be given the power to specify lower capital entry requirements (no less than Rs 50 crore) for underserved or unserved segments on a case-by-case basis.
The Insurance Act of 1938 is the primary legislation governing the insurance industry in India, establishing the regulatory framework for the functioning of insurance businesses and overseeing the relationships between insurers, policyholders, shareholders, and the regulator, IRDAI.
The anticipated changes could increase industry competition, driving higher insurance penetration and creating jobs across the country. Currently, India has 25 life insurance companies and 34 non-life or general insurance firms, including Agriculture Insurance Company of India Ltd. and ECGC Ltd.
