Higher inflow of FDI will enhance underwriting capacity, says AM Best report
Zurich Insurance Group has proposed a US$487 million investment in Indian insurer Kotak General Insurance as the Government increased FDI cap in insurance sector to 74% from 49% in 2021, according to an industry report.
Citing increasing FDI cap, a global credit rating agency AM Best noted high-growth potential of India’s insurance market is an attractive strategic option for global insurance players.
“Larger international insurance groups typically have business profiles heavily weighted toward high-penetration, low-growth developed markets and are struggling to find opportunities to effectively deploy capital,” said Michael Dunckley, associate director, AM Best.
“As the cost of capital has increased, several are buying back equity from their shareholders due to a lack of growth opportunities. These investments have allowed the international insurance groups to take effective control of the local insurance companies and dictate their strategic direction,” he said in Best’s Commentary, “International Insurers Seize Opportunities to Expand in India”.
The liberalisation of India’s insurance segment and the infusion of foreign capital will provide the financial resources for expansion, encourage knowledge transfer and stronger corporate governance and may increase overall market competitiveness, noted Best.
The higher inflow of FDI will enhance underwriting capacity and improve product innovation, which will enable insurers to cover a wider range of risks and support higher insurance penetration in India over time.
However, the commentary notes that foreign investors still need to find local partners that are willing and able to hold the minority share in the local venture. A number of restrictions remain despite the relaxation of FDI restrictions, which are additional considerations for foreign investors as well.
Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. Fiinews.com
