All insurance companies with foreign investment will have to appoint resident Indian citizens on at least one of the key managerial positions in the entity to get permission to operate in the country.
Government has notified the Indian Insurance Companies (Foreign Investment) Amendment Rules, 2021 that makes appointment of resident Indian citizen mandatory, at least one amongst the chairperson, managing director or Chief Executive Officer.
The new rules, which will also apply to existing insurers with FDI, also said that foreign investors' direct and indirect investments will be counted as prescribed under regulations for the registration of insurance companies issued by the Insurance Regulatory and Development Authority of India (IRDAI).
Moreover, the rules have also made specific provision for insurance companies with more than 49% Foreign Direct Investment (FDI). In the concluded budget session Parliament has raised FDI in insurance from present 49% to 74%.
To be able to enhance FDI to 74% level, companies would now be required to have minimum 50% independent directors on the board. An exception is given where the chairperson is an independent director. In such case, one-third of directors would be independent.
Moreover, such companies would be required to retain net profits for dividend declaration, where prescribed solvency margins are not met for a financial year.
Earlier this year, foreign investment in the insurance sector was liberalised vide amendments to the Insurance Act, 1938. Last month, the Ministry of Finance (MoF) had released draft foreign investment amendment rules for public consultation. It has now been notified.
Insurance sector experts said that now further amendments are expected in Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and IRDAI guidelines on Indian ownership and control.