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  • Writer's pictureRoyzz & Co

100% FDI Permitted In Insurance Intermediaries

On April 27, 2020, a series of amendments were introduced which permitted 100% foreign investment into insurance intermediaries and removed the requirement of control by Indian citizens only.


  • The government amended the FDI norms in 2015. The new law introduced was called Insurance Laws (Amendment) Act, 2015 and the Indian Insurance Companies (Foreign Investment) Rules, 2015. It raised the threshold for the foreign investment from 26% to 49% of the paid-up share capital and required for the control of insurance companies to be with Indian Companies.

  • Since the introduction of amendments, there has been a demand to expand the foreign investment limits and to remove the ‘resident owned and controlled’ requirement. For insurance intermediaries, per se, the industry has been requesting the foreign investments caps and control to be removed by Indian citizens considering that they do not have a strategic importance and pose any systemic risk.

  • The Government considered these suggestions during framework of Budget for the Financial year 2019-2020. Later, the Department for the Promotion of Industry and Internal Trade in a Press Note released on February 21, 2020 amended the consolidated FDI Policy of 2017 to permit 100% FDI in insurance intermediaries. The Note removed the requirement of control by Indian citizens and required FEMA (Non-debt instruments) Rules, 2019 (also known as ‘ND Rules’) to be amended which later incorporated on April 27, 2020.


Diverging Insurance Sector from an Exchange Control Outlook:

  • The insurance sector has now been divided into 2 categories:

Insurance companies and Insurance intermediaries (includes Corporate Agents, Insurance Brokers and 3rd part administrators).

  • The expansion of the foreign investment limit in insurance intermediary sector has always been considered as easy administered and palatable since intermediaries as such do not have any policyholders’ fund and do not pose any systematic risk.

Liberalisation of Foreign Investment:

  • Foreign Investors shall be permitted to set up ‘wholly owned subsidiaries’ registered as insurance intermediaries, however, they are still required to comply with IRDAI Regulations, which require the prior approval of IRDAI for transfer or issuance of shares above a certain threshold.

  • The insurance intermediaries had devised innovative structures so as to attract foreign investment. Thus, they can raise foreign investment up to 49% from foreign investors and additional foreign investment at the holding company level from unrelated foreign investors.

  • Restructuring to permit investors in the holding company to swap their shares in the insurance intermediary directly would:

Require IRDAI approval

May be a taxable event, since the swap would entail a higher value

Conditions for majority foreign shareholding:

The following conditions were provided in ND Amendment and the Press Note for an insurance intermediary to have a majority foreign shareholding:

  • Incorporation of limited company under Companies Act, 2013: Majority of the insurance intermediaries are to be formed as companies, especially since limited liability partnerships (LLPs) or partnerships in the insurance sectors were not permitted to raise foreign investment.

  • Chairman of the Board of Directors, CEO, Principle Officer or Managing Director of the Insurance Intermediary shall be resident Indian citizen: There shall be an Indian Resident who is overall responsible for the affairs of the intermediary. Inclusion of the principle officer seems to dilute the condition, considering the requirements and training required by a principle officer.

  • Take prior permission to the Authority for repatriating dividend: It is the intention of IRDAI to ensure that there is no cash extraction by the insurance intermediaries. However, most of these intermediaries deploy majority of revenue for expansion instead of repatriating dividend

  • Bring the latest technological, managerial and other skills: IRDAI has indicated in the past that the foreign players shall bring enhancement in the form of technology, managerial or others skills. Such intimation has to be provided while filling an approval by IRDAI, which becomes complicated in cases where multiple investors invest such that the aggregate foreign investment exceeds 50%. In such scenarios, the last investor has to satisfy such condition.

  • Not make payments to foreign group, promoter, subsidiary, interconnected or associate entities: It is necessary to make disclosures in the format to be specified by the authority for all payments made to groups, promoters etc. The subsidiaries shall keep reporting the payments and keep the same on track since the insurance intermediary must not extract cash to other entities without the approval of IRDAI.

  • Composition of the Board of Directors and key management persons shall be as specified by the concerned regulators: IRDAI is expected to issue guidelines from time to time for composition of key management persons to ensure independence and operational expertise with regard to governance of intermediaries.

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