Year Ender | India’s 2025 FDI story in insurance: Exits overwhelm inflows as net FDI dips

Insurance FDI

• India allows 100 percent foreign ownership in insurance firms from 2025
• Net FDI in insurance dropped sharply due to major foreign exits despite high inflows.
• Allianz SE exits Bajaj joint ventures, a major foreign insurer departure.

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India’s insurance sector entered 2025 amid one of its most ambitious reform phases, capped by Finance Minister Nirmala Sitharaman’s Budget announcement allowing 100 percent foreign ownership in insurance companies.

But even as headline foreign direct investment (FDI) inflows remained robust, a surge in exits and capital repatriation altered the investment narrative in 2025.

While gross inflows suggested sustained foreign interest, the scale of outflows, particularly from long-standing foreign partners, revealed a sector still grappling with structural constraints.

Headline inflows hide a widening imbalance

At an aggregate level, India continued to draw significant foreign capital in FY25. Preliminary government data show gross FDI inflows of around $81 billion for the year ended March 2025, among the highest levels recorded. Financial services, including insurance, remained an important contributor to these inflows.

Within the services basket, insurance stood out. During the first half of FY25, insurance accounted for over 62 percent of total equity inflows into services, reflecting sustained interest from global insurers and financial investors. These numbers reinforced the long-held view of Indian insurance as a structural growth opportunity, driven by low penetration, rising incomes, a young population and regulatory predictability.

However, these headline figures masked a sharp deterioration beneath the surface.

Net FDI collapses as outflows accelerate

Once exits and repatriation are factored in, India’s FDI picture looks markedly weaker. According to government data, net FDI, inflows minus outflows, collapsed by over 96 percent in FY25, falling to below $400 million, the lowest level seen in years.

This decline was not driven by a sudden drying up of new investments, but by large-scale exits by foreign investors monetising or unwinding long-held stakes. The insurance sector reflected this broader trend, witnessing several high-profile foreign-linked exits even as reforms gathered pace.

Foreign insurers reassess India exposure

The most prominent development was Allianz SE’s decision to exit its joint ventures with the Bajaj Group, ending a 24-year partnership across life and general insurance. The German insurer sold its entire 26 percent stake in Bajaj Allianz Life Insurance and Bajaj Allianz General Insurance for a combined consideration of about €2.6 billion (around Rs 24,000 crore), transferring full ownership to the Bajaj Group.

The transaction marked one of the largest exits by a foreign insurer from India and signalled a strategic reassessment of Allianz’s India exposure, despite the market’s long-term potential.

In another notable deal, Piramal Finance announced the sale of its 14.72 percent stake in Shriram Life Insurance Company to Sanlam Emerging Markets of South Africa for about Rs 600 crore. While Sanlam increased its ownership, the transaction still represented an exit for an existing shareholder and added to the broader pattern of churn in foreign-linked holdings.

Industry analysts note that Allianz’s departure fits into a longer trend. Over the past decade and a half, global insurers such as New York Life, ING, AIG and Old Mutual have either exited or significantly scaled back their Indian operations, even as foreign ownership limits were progressively raised from 26 percent to 74 percent, and now to 100 percent.

Why exits persist

According to an earlier Moneycontrol report, several factors explain why exits continue despite policy reforms. Operationally, many foreign insurers have struggled to scale profitably in a market dominated by entrenched domestic players, bancassurance tie-ups and agency-heavy distribution models.

Without deep local networks, customer acquisition costs have remained high, and profitability timelines longer than initially anticipated.

At the same time, India’s buoyant equity markets and rising valuations have encouraged profit-taking, particularly for investors that entered the sector a decade or more ago. For global insurers facing tighter capital requirements or shifting priorities, exiting Indian ventures at attractive valuations has become a rational strategic choice.

Several sources have time and again pointed out that foreign insurers, however, are increasingly unwilling to operate in India as minority partners. Industry executives say global insurance groups now prefer to enter the market only with a majority stake or full ownership, reflecting a shift in risk appetite and governance expectations.

Minority joint ventures, once the dominant entry route, have often limited foreign partners’ control over capital deployment, product strategy and distribution, making it harder to align Indian operations with global priorities. As a result, several insurers have either exited legacy partnerships or deferred fresh investments, choosing to wait for regulatory clarity on full ownership.

Reforms aim to reset the investment cycle

The government’s decision to allow 100 percent FDI in insurance is widely seen as a response to these challenges. By removing the requirement for a domestic partner, policymakers hope to convert minority, partner-dependent investments into fully controlled, long-term commitments.

Ratings agency Moody’s, in its report dated November 16 has said the higher FDI cap could attract new global players and encourage deeper investment by existing ones, though it cautioned that “actual inflows would depend on execution, distribution access and regulatory clarity rather than policy changes alone.”