Washington–Insurance companies and trade groups in Europe and North America have called on India's Minister of Commerce to support an increase of the cap on direct foreign investment in Indian insurance companies.
In a letter, the groups, including the American Insurance Association, the American Council of Life Insurers, the Association of British Insurers and companies including MetLife and Sun Life Financial, expressed concern to Indian Commerce Minster Kamal Nath that the cap on direct foreign investment will not be raised from 26 percent to 49 percent in the country's revised services offer to the World Trade Organization.
The increase, the groups note, is supported by India's Finance Minister and the Insurance Regulatory and Development Authority.
"This would be a significant step towards the freedom from restrictions that foreign direct investors in the insurance sector would, ultimately, prefer," the groups said in the letter.
Allowing increased foreign investment from insurers is especially important, the groups noted in their letter, given the nature of insurance investing and the future needs of India.
"Given demographic shifts in India, the increase in urbanization and rapid industrialization, significant long-term capital for infrastructure projects will be needed. Insurance companies by their nature and by regulatory direction invest in long-term financial assets," the groups said. "Raising the equity cap in the insurance sector will encourage further foreign capital infusion and lead to faster capital market development."
Additionally, increasing the level of allowed foreign investment will help Indian life insurance companies meet the regulatory solvency requirements, the organizations said.
"Current IRDA regulations require the actual or available solvency margin of 1.5 times the required solvency margin for life insurers, which requires the local partner to continuously expand its equity base as the business grows," the groups said in their letter.
"Raising the equity cap would assist the local joint venture partners in meeting their ongoing capitalization requirements, allowing their local partners to invest in other areas," they added.
David Snyder, assistant vice president and general counsel for the AIA, echoed those sentiments, noting the role that investment will play in helping India further develop.
"India has an urgent need for infrastructure investment," Mr. Snyder said. "Allowing foreign insurers to invest more capital can only help India's economic development. Insurance companies invest in long-term financial instruments like government bonds that fund infrastructure such as roads, airports and bridges."
Additionally, Mr. Snyder noted, India should increase its cap on foreign investment o help level the playing field between other companies and those based in India, which he noted have become players on the global stage.
"Indian insurers are treated better in other countries than India treats foreign insurers operating on its shores," said Mr. Snyder. "Raising the direct foreign investment cap will show the world that India is truly committed to being a good trading partner."
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