Stocks of insurance players extended their gains as Ministry of Finance proposed that the foreign direct investment (FDI) limit in domestic insurance companies be raised to 100 percent from 74 percent.
Further, FinMin suggested that insurers should be allowed to service all types of insurance. If approved, this move will allow insurers to provide life, general as well as health insurance policies under one entity. At present, life insurers cannot sell health insurance, and vice versa.
The Ministry also proposed that the minimum net-owned funds for foreign re-insurers be reduced to Rs 1,000 crore, down from Rs 5,000 crore currently. The insurance regulator, IRDAI, would also be allowed to set lower capital requirements (at least Rs 50 crores) for companies serving under-served areas, on a case-by-case basis.
"The proposed amendments primarily focus on promoting policyholders' interests, enhancing the financial security of the policyholders, facilitating entry of more players in insurance market leading to economic growth and employment generation, and enhancing efficiencies of the insurance industry," said the Finance Ministry.
The insurance stocks have been buzzing as reports on the development surfaced. Insurance players such as The New India Assurance Company, LIC, General Insurance Corporation of India and others have recorded gains of up to 15.5 percent over the past week. Today, all general insurance stocks are trading in the positive zone, with gains of 0.5-2 percent.
Life insurance player such as HDFC Life, SBI Life or Max Financial have not joined the cheer over the past week as regulatory pressures dampened sentiment on the counters.
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In an interview with CNBC-TV18, Nilesh Sathe, former Member of the Insurance Regulatory and Development Authority of India (IRDAI), said that the move could garner interest from global insurance players, and will increase market entries and also higher acquisitions in Indian insurers.
He added that a variety of global players such as UnitedHealth, Berkshire Hathaway or others have been awaiting this development in order to make their entry into the domestic market. "The existing players are keen on increasing their stake to 100 percent, and many life and general insurance companies which are much bigger globally have not entered India yet. They are awaiting the 100 percent FDI approval," he said to CNBC-TV18.
IRDAI Chairman Debasish Panda has in the past said that allowing 100 percent in FDI in insurance as well as a unified licence will enable foreign players to plan their businesses independently, bring global expertise, as well as enhance capacity and technology. Panda feared that a 'crowding out effect' could emerge in the insurance space if the industry remains dependent only on domestic capital.
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