The increased foreign direct investment (FDI) cap in India’s insurance industry has led to a series of investments by international insurance companies and is expected to catalyse market growth with the influx of new capital and transfer of global best practices, according to an AM Best commentary.

India’s government increased the FDI cap to 74% from 49% in 2021, and since then several international insurance groups have expanded their minority shares in Indian insurers into controlling positions; most recently, Zurich Insurance Group proposed a USD 487 million investment in Indian insurer Kotak General Insurance. In the Best’s Commentary, “International Insurers Seize Opportunities to Expand in India,” AM Best states that high-growth potential of India’s insurance market is an attractive strategic option for global insurance players.

“Larger international insurance groups typically have business profiles heavily weighted toward high-penetration, low-growth developed markets and are struggling to find opportunities to effectively deploy capital,” said Michael Dunckley, associate director, AM Best. “As the cost of capital has increased, several are buying back equity from their shareholders due to a lack of growth opportunities. These investments have allowed the international insurance groups to take effective control of the local insurance companies and dictate their strategic direction.”

The liberalisation of India’s insurance segment and the infusion of foreign capital will provide the financial resources for expansion, encourage knowledge transfer and stronger corporate governance and may increase overall market competitiveness. The higher inflow of FDI will enhance underwriting capacity and improve product innovation, which will enable insurers to cover a wider range of risks and support higher insurance penetration in India over time. However, the commentary notes that foreign investors still need to find local partners that are willing and able to hold the minority share in the local venture. A number of restrictions remain despite the relaxation of FDI restrictions, which are additional considerations for foreign investors as well.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=339177.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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