Parliament passes Bill to increase FDI limit in insurance sector to 74%

The Parliament has passed a Bill to increase Foreign Direct Investment (FDI) limit in the insurance sector from 49 per cent to 74 per cent with the Lok Sabha approving the proposed law by a voice vote. Piloting the Bill, Finance Minister Nirmala Sitharaman said hiking the FDI limit in the insurance sector will help insurers raise additional funds and tide over the financial problems. Today, many of the insurance companies are hard pressed to maintain solvency ratio of 150 per cent as per the norms, she said while explaining the need for the amendment. Recently, the Insurance (Amendment) Bill, 2021 was passed by Rajya Sabha. The Bill amends the Insurance Act, 1938.

The minister said the government will provide funds to public sector insurance companies but the private players will have to raise capital on their own and the Bill provides them headroom to raise capital. Three out of the seven public sector insurers are below solvency margin but since they are in public sector, the government will infuse capital and their solvency margin will be taken care of. Observing that insurers are facing solvency related issues, she said ‘if growth capital is hard to come by, there will be a stress situation. In order that the stress situation is not left unattended, we need to raise the FDI limit’. Sitharaman said the COVID-19 pandemic has further added to the woes of the insurance companies.

She said ‘There is definitely a financial stress for raising money, especially for private sector insurance companies, which needs to maintain that solvency ratio’. Solvency margin is the ratio of assets to liabilities. She added that some of the life insurance companies are under stress and they need the money to come out of that. The minister further said the FDI limit was being raised on the recommendation of insurance regulator IRDAI which has done extensive consultations with the stakeholders. She said FDI in the insurance sector has increased significantly after the government decided to raise the cap from 26 per cent to 49 per cent in 2015.