July 24, 2024

International insurers expanding in India as FDI cap increase spurs investments: AM Best

India’s increase of the foreign direct investment (FDI) cap in the insurance sector from 49% to 74% in 2021 has spurred international insurance companies to make significant strides, injecting fresh capital and global best practices into the market to stimulate growth, according to a recent commentary by AM Best.

am-best-logoSince the FDI cap increase, numerous international insurance groups have seized the opportunity to expand their presence in India, transforming minority shares in local insurers into controlling positions.

Notably, Zurich Insurance Group has recently proposed a substantial USD 487 million investment in Indian insurer Kotak General Insurance.

AM Best’s commentary, titled “International Insurers Seize Opportunities to Expand in India,” underscores India’s high-growth potential in the insurance sector as a strategic attraction for global insurance players.

Michael Dunckley, Associate Director at AM Best, commented on the trend, noting that larger international insurance groups, traditionally concentrated in high-penetration, low-growth developed markets, are actively seeking opportunities to deploy capital effectively.

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The investments in India have allowed these global players to assume effective control of local insurance companies and influence their strategic direction.

The liberalisation of India’s insurance segment, coupled with the infusion of foreign capital, is expected to provide the financial resources necessary for expansion.

This influx of international investment is anticipated to encourage knowledge transfer, foster stronger corporate governance, and enhance overall market competitiveness.

The higher FDI inflow is also predicted to bolster underwriting capacity and fuel product innovation, enabling insurers to cover a broader spectrum of risks and supporting increased insurance penetration in India over time.

However, the commentary acknowledges that despite the relaxation of FDI restrictions, foreign investors still need to identify local partners willing and able to hold minority shares in the ventures. Certain restrictions persist, adding an extra layer of consideration for international investors.

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