India to raise foreign direct investment limit for insurers to 74%

India is considering increasing the foreign direct investment (FDI) limit in insurance from 49 percent to 74 percent. The move is 'credit positive' according to Moody’s Investors Service.

Analysts at the credit rating agency believe that it will provide Indian insurers with new sources of funding and access to external expertise that can improve their underwriting performance and unlock new operating efficiencies.

Mohammed Ali Riyazuddin Londe, vice president – senior analyst, financial institutions at Moody’s, explained: "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."

Riyazuddin Londe added that these benefits are expected across the insurance market.

"As the government has simultaneously announced that it will take LIC to IPO and privatize 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," he said.

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