Higher FDI cap to widen sources of funding and access to knowhow for insurers -- Moody's

India's Budget proposal to increase the foreign direct investment limit for insurers to 74% from 49% is credit positive, as it provides Indian insurers with new sources of funding and access to external knowhow that can improve their underwriting performance and unlock new operating efficiencies, according to a statement issued by Moody's Investors Service.

Mr Mohammed Ali Riyazuddin Londe, vice president – senior analyst, Financial Institutions, Moody’s Investors Service, said, “The possibility of higher foreign ownership would improve insurers’ financial flexibility by offering additional opportunities to bolster solvency. In addition, insurers would benefit from the sharing of risk management best practices, possibly leading to a lowering of exposure to high-risk assets and adoption of risk-based capital management.

He added, “These benefits are expected across the insurance market as the government has simultaneously announced that it will take LIC to IPO and privatise one of the government-owned general insurers, which along with the changes in foreign-owned insurers will cumulatively improve the pricing discipline of the market's underwriting performance given their dominant positions.”

The Confederation of Indian Industry, commenting on the proposed increase in the FDI ceiling in the insurance sector, said, “This is bound to attract enhanced flow of capital to the sector, benefiting the economy.”

ICICI Lombard General Insurance managing director & CEO Bhargav Dasgupta said that the non-life insurance sector has finally witnessed a long-standing demand being fulfilled in the increase in the FDI limit to 74% which will catalyse the long-term development and growth of the industry. “At the same time, steps such as privatisation, increased allocation to healthcare and infrastructure, voluntary scrapping of vehicles policy are positive for the sector,” he said. Industry experts also believe that the additional capital infusion in the sector will make the industry globally competitive and help with growth and increasing penetration.

Raheja QBE General Insurance managing director & CEO Pankaj Arora said that increasing the FDI cap is a positive move for the insurance industry which will also enhance the overall performance of the sector. “Additionally, the INR64,180 crores ($8.8bn) spending plan announced for healthcare over the next six years will provide a much-needed boost for penetration of health insurance and allow beneficiaries to access quality medical treatment, which will lead to aspirational India and economic development of our country," he said.

Kotak Mahindra General Insurance CEO & chief marketing officer Mahesh Balasubramanian said that there has been a lot of positives for the insurance industry in the Budget. “Healthcare spends, vehicle scrapping, spending on capex should all help the industry get back to 15% growth as seen during pre-COVID times and increase insurance penetration and density,” he said.

Royal Sundaram General Insurance managing director & CEO M S Sreedhar said that the increase in FDI will give a huge boost to the insurance sector towards improving penetration and its product suite to cater to a nation of 1.3bn people. “The diverse initiatives towards upskilling, employment creation, ease of doing business and improving investor confidence will cumulatively augur well for the Indian economy and the general insurance sector in the country,” he said.

HDFC Life managing director & CEO Vibha Padalkar said that the Budget is focused on revival of economic growth and the higher allocation to capital expenditure should support growth revival and job creation. “The FDI increase in insurance, continuation of the disinvestment programme and ease of tax compliance are welcome steps,” she said.

Ashish Kumar Srivastava, MD & CEO of PNB MetLife, said, “We applaud this significant step towards 74%, as this will provide a boost to the sector, and we look forward to the legislative amendments to come into effect at the earliest. We welcome the hassle-free pension for elderly citizens above the age of 75 years.”

The last reference was to the Budget proposal for senior citizens above 75 years of age with only pension income to be exempted from filing tax returns. Banks paying the interest would deduct the tax on their behalf.

Source: Asia Insurance Review