India has taken a decisive step toward opening up its
insurance industry by easing long-standing governance and residency conditions
for insurers with overseas ownership. The changes follow the government’s
recent move to permit 100 per cent foreign direct investment (FDI) in
insurance, signalling a clear ntent to attract deeper and more sustained global
participation.
Regulatory shift aligned with new legislation
These changes are designed to give effect to the newly
enacted insurance reform law cleared by Parliament during the Winter Session
and subsequently approved by the President. The legislation is part of a
broader effort to modernise the insurance sector’s regulatory architecture and
make India a more competitive destination for long-term international capital.
According to the finance ministry, the final rules were
issued after stakeholder feedback on a draft circulated in August. The
amendments became effective immediately after their publication in the official
gazette on December 30, 2025.
Removal of restrictive provisions
One of the most consequential changes is the deletion of
Rule 4A, which previously applied to insurers with foreign ownership beyond 49
per cent. That rule had imposed profit retention obligations on companies whose
solvency margins dipped below regulatory thresholds, even if dividends were
being paid. It also laid down stricter norms on board independence.
With Rule 4A scrapped, insurers backed by foreign investors
are no longer required to reserve half their profits under such conditions, nor
must they meet the earlier thresholds for independent directors on their
boards.
FEMA and FDI rules streamlined
The notification also updates the regulatory framework by
replacing references to outdated FEMA regulations from 2000 with the FEMA
(Non-Debt Instrument) Rules, 2019. Additionally, language linked to the earlier
74 per cent FDI ceiling has been removed, with references now tied directly to
limits specified under the Insurance Act, 1938.
Several other conditions specific to foreign-invested
insurers have also been withdrawn. These include the need for prior approval
from the Insurance Regulatory and Development Authority of India (IRDAI) to
repatriate dividends, caps on payments to overseas group entities, and
prescriptive norms governing board and management composition.
Part of a wider reform push
The changes form part of a larger legislative overhaul under the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, which also updates the LIC Act, 1956, and the IRDAI Act, 1999. Together, these measures underscore the government’s push to liberalise the insurance ecosystem, reduce regulatory friction, and position India as a more globally integrated insurance market. conditions for insurers with overseas ownership. The changes follow the government’s recent move to permit 100 per cent foreign direct investment (FDI) in insurance, signalling a clear ntent to attract deeper and more sustained global participation.
Through a fresh notification issued by the finance ministry,
earlier rules that tightly controlled the nationality and residency of board members
and senior executives have been substantially relaxed. Insurance companies with
foreign shareholders are no longer bound by the requirement that most directors
or key management personnel must be India-based. Instead, the revised framework
stipulates a lighter touch: only one among the CEO, managing director, or board
chairperson must be a resident Indian citin.
Regulatory shift aligned with new legislation
These changes are designed to give effect to the newly
enacted insurance reform law cleared by Parliament during the Winter Session
and subsequently approved by the President. The legislation is part of a
broader effort to modernise the insurance sector’s regulatory architecture and
make India a more competitive destination for long-term international capital.
According to the finance ministry, the final rules were
issued after stakeholder feedback on a draft circulated in August. The
amendments became effective immediately after their publication in the official
gazette on December 30, 2025.
Removal of restrictive provisions
One of the most consequential changes is the deletion of
Rule 4A, which previously applied to insurers with foreign ownership beyond 49
per cent. That rule had imposed profit retention obligations on companies whose
solvency margins dipped below regulatory thresholds, even if dividends were
being paid. It also laid down stricter norms on board independence.
With Rule 4A scrapped, insurers backed by foreign investors
are no longer required to reserve half their profits under such conditions, nor
must they meet the earlier thresholds for independent directors on their
boards.
FEMA and FDI rules streamlined
The notification also updates the regulatory framework by
replacing references to outdated FEMA regulations from 2000 with the FEMA
(Non-Debt Instrument) Rules, 2019. Additionally, language linked to the earlier
74 per cent FDI ceiling has been removed, with references now tied directly to
limits specified under the Insurance Act, 1938.
Several other conditions specific to foreign-invested
insurers have also been withdrawn. These include the need for prior approval
from the Insurance Regulatory and Development Authority of India (IRDAI) to
repatriate dividends, caps on payments to overseas group entities, and
prescriptive norms governing board and management composition.
Part of a wider reform push
The changes form part of a larger legislative overhaul under the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, which also updates the LIC Act, 1956, and the IRDAI Act, 1999. Together, these measures underscore the government’s push to liberalise the insurance ecosystem, reduce regulatory friction, and position India as a more globally integrated insurance market.
By Advik Gupta
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