Amendments may ease norms for mandatory listing.
There is more to the amendment to insurance laws than an increase in the foreign investment cap from 26 per cent to 49 per cent.
| WHAT'S IN STORE The other proposed amendments to the insurance laws |
Promoters of Indian insurance companies can also hope to get some relief on the clause prescribing mandatory listing after 10 years. Sources said with the life insurance companies pushing for easing – if not doing away with – of this clause, the government is set to propose an amendment when it moves the Bill. Many cash-rich Indian promoters are keen on staying as majority shareholders in life insurance ventures.
In addition, the comprehensive amendments to insurance laws will also seek to allow public sector general insurance companies to raise capital from the market to finance their expansion.
With the Left withdrawing support to the Manmohan Singh government, the finance ministry is hopeful of pushing through key reform proposals, including amendment to the Insurance Act, 1938, and other laws governing the public sector general insurers and Life Insurance Corporation (LIC).
While it was ready with the amendments as far as 36 months ago, the government was unable to introduce a Bill in the Parliament as the Left parties were opposed to the move. At that point of time, the UPA did not want to be seen as seeking the Opposition’s support to push through key economic legislations.
Insurance companies have been pushing for a relaxation of the foreign investment limit as they are governed by stringent solvency margin norms and continuously need capital infusion to support business growth.
Many Indian promoters are constrained to chip in with their 74 per cent share every few months due to pressure for capital from other businesses. The increase in FDI is urgently required for creating additionala capacity, flow of technical know-how from overseas and better customer service, the CEO of a life insurance company said.
While mooting 49 per cent FDI in insurance, the finance ministry has also proposed to remove restrictions on Indian promoters, who were required to bring down their holding to 26 per cent after the tenth year of commencing business.
In addition, the Insurance Act, 1938, does not permit foreign re-insurers to function independently in the country and they can hold a maximum of 26 per cent stake in a local joint venture with a minimum paid-up capital of Rs 200 crore.
Even though the insurance sector was opened up since 2000, public sector General Insurance Corporation (GIC) continues to be the only re-insurers in the country as foreign reinsurers have stayed away from having a presence that is bigger than a branch office. The absence of an amendment to the law prompted the Lloyd’s syndicate to withdraw its key India representative recently.
With industrial risks rising, it is proposed to allow foreign re-insurers, like Lloyd’s of London, to open branches in India. This will result in lower cost of re-insurance and such branches will create a hub for the Asian reinsurance business in India.
