Finance ministry notifies rules to enable 100% FDI in insurance sector

Revised rules remove the requirement for majority Indian directors in insurers with foreign investment, but mandate that one of the top leadership roles be held by an Indian resident

Following the notification allowing 100 per cent foreign direct investment (FDI) in the insurance sector, the Finance Ministry has revised norms to remove the requirement that a majority of directors and key management personnel in an insurance company with foreign investment be Indian residents. However, the revised rules stipulate that at least one of the top leadership positions — chairperson, chief executive officer (CEO) or managing director — must be held by an Indian resident.

 

“In an Indian insurance company having foreign investment, at least one amongst the chief executive officer, managing director and chairperson of its board shall be resident Indian citizens,” the Gazette notification released on Tuesday said. Earlier, the rule prescribed that a majority of directors and key managerial personnel had to be Indian, which has now been removed. 

"These are part of comprehensive reforms undertaken by the government to promote ease of doing business. These reforms will help India attract more foreign Investment in insurance sector," said Department of Financial Services (DFS) secretary M Nagaraju told Businesss Standard.

 

 

The Finance Ministry has notified the final rules after consultations on the draft issued in August. The move is aimed at facilitating the implementation of the new insurance law, which was passed by Parliament during the recently concluded Winter Session, subsequently assented to by the President and notified by the government. The new rules shall come into force on the date of their publication in the official gazette, which is December 30, 2025.

 

The notification also omitted existing Rule 4A. This rule prescribed that an Indian company with foreign investment exceeding 49 per cent, which is paying dividends and for which at any time the solvency margin is less than 1.2 times the control level of solvency, would need to retain at least 50 per cent of the net profit in the general reserve.

 

Another provision under Rule 4A required that half of the directors be independent directors. However, if the chairperson was also an independent director, at least one-third of the board had to comprise independent directors. This condition has now been removed.

 

Additionally, the notification clarified that under the rules, all references to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, will be replaced with the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019. All references to the FEMA Regulations, 2000, will be substituted with the FEMA (NDI) Rules, and related sections will be deleted. Provisions referring to the 74 per cent cap will be replaced with the phrase “to exceed the limit as stipulated by the Insurance Act, 1938”.

 

The notification has also removed three clauses applicable to insurance companies with foreign investors. These included the requirement of prior approval from the Insurance Regulatory and Development Authority of India (Irdai) for repatriation of dividends, restrictions on payments to foreign group or promoter entities beyond what is permitted by the regulator, and provisions specifying board and key management composition as determined by regulators.

 

Moreover, the new legislation — the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act — has amended the Insurance Act, 1938, the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999.