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.
“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 to Business Standard.
“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,” said a Gazette notification released on Tuesday.
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 rule 4A, which required an Indian company with foreign investment exceeding 49 per cent, which pays dividend and for which at any time the solvency margin is less than 1.2 times the control level of solvency, to retain at least 50 per cent of the net profit in general reserve.
The now-dropped rule also prescribed half of the company’s directors be independent, unless the Chairperson is also an independent director, in which case the number of independent directors would be at least one-third.
Additionally, the notification clarified that 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 FEMA Regulations, 2000, will also be substituted with FEMA (NDI) Rules.
Further, provisions referring to the 74 per cent cap on FDI will be replaced with the phrase “the limit as stipulated by the Insurance Act, 1938”.
The notification has also removed three clauses applicable to insurance companies with foreign investors.
The first related to the requirement of prior approval from the Insurance Regulatory and Development Authority of India (IRDAI) for repatriation of dividends.
The second clause curbed payment by an insurer to “the foreign group or promoter or subsidiary or interconnected or associate entities beyond what is necessary or permitted by the Authority.”
The third provided that the “composition of the Board of Directors and key management persons shall be as specified by the concerned regulators.”
Moreover, the new legislation — the ‘Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act’ — has also amended the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999, in addition to the Insurance Act, 1938.
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