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Rediff.com  » Business » Foreign firms seek 49% FDI in insurance

Foreign firms seek 49% FDI in insurance

By BS Economy Bureau in New Delhi
August 18, 2005 10:34 IST
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Foreign firms have asked the government to keep its promise of raising the foreign investment cap for the insurance sector to 49 per cent in order to encourage more capital infusion.

The insurers have expressed serious concerns that the cap may be locked in at 26 per cent in the revised WTO services offer.

In a letter addressed to Commerce and Industry Minister Kamal Nath, foreign insurers MetLife, Principal International, New York Life and Sun Life Financial, and 17 foreign industry associations, have asked for an increase in the limit to cover both insurers and insurance intermediaries.

The insurers have said that incremental foreign investment by existing players will be at least $500 million in addition to investments made by several new players entering the market.

They have said that the current norms set by the Insurance Regulatory and Development Authority require the actual or available solvency margin to be 1.5 times more than the required solvency margin of life insurers.

This means a local partner will have to continuously expand its equity base as business grows. The foreign insurers have contended that raising the cap will help meet capitalisation requirements while allowing local partners to invest in other areas.

They have also underlined the fact that Indian insurance companies are now competing globally. Asking for a level playing field, the foreign insurers have argued that while India puts restrictions on the number of branches and re-insurance, Indian companies enjoy complete freedom globally.

As examples, they have pointed out that Life Corporation of India has branches in the UK, Mauritius and Fiji, and has a subsidiary in Bahrain. The company has also announced plans to enter Saudi Arabia. Besides, GIC has global re-insurance operations and New India Assurance operates in 23 countries.

Industry associations that are backing the demand to hike FDI include the American Council on Life Insurers, Association of British Insurers, General Insurance Association of Japan, European Services Forum, International Financial Services, London, Australian Services Roundtable, and Canadian Life and Health Insurance Association.
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BS Economy Bureau in New Delhi
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