100% Foreign Investment Permitted in insurance intermediaries

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on 30 October 2019, notified the IRDAI (Insurance Intermediaries) (Amendment) Regulations 2019 (Intermediaries Regulations), to amend the regulations governing intermediaries to allow 100% FDI and to prescribe compliance requirements for insurance intermediaries with majority foreign ownership (FOIs);

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on 19 November 2019, issued a circular to notify that the Guidelines on ‘Indian Owned and Controlled’ will be inapplicable to insurance intermediaries; and

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on 3 January 2020 notified the ‘Guidelines on repatriation of dividends by insurance intermediaries which have majority by foreign investor’ (Dividend Guidelines).

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prior approval of the IRDAI for repatriation of dividends;

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no payments can be made to any related party of the FOI beyond 10% of the total expenses of the FOI in any financial year. Mandatory disclosure of such payments to IRDAI;

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bringing in latest technological, managerial and other skills;

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majority of the directors on the board and key management persons (including one amongst the chairperson of the board, CEO, principal officer or managing director) must be resident Indian citizens; and

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setting out the procedure and considerations for repatriation of dividend. Details in this regard are available here.

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While the move to allow 100% FDI in insurance intermediaries is a welcome move, some of conditions (described above) may be viewed as onerous by foreign investors.

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As ‘Indian Owned and Controlled’ requirements are no longer applicable to insurance intermediaries; intermediaries with foreign shareholders could review existing agreements to evaluate additional rights (including potential renegotiation of their existing rights).

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It is unclear whether conditions other than sectoral caps contemplated under NDI Amendment, FI Amendment Rules, Intermediaries Regulations and Dividend Guidelines (such as restrictions on payments to related parties, repatriation of dividends, board composition etc.) should apply to entities engaged in insurance intermediation, whose core business is not insurance intermediation. Greater clarity on this aspect is expected in the days to come.

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Restrictions on payments to related parties, repatriation of dividends, board composition etc. appear to apply only to FOIs. It will be interesting to see whether IRDAI will apply these conditions to Indian owned and controlled intermediaries with minority foreign shareholders.