New rules for facilitating 100% foreign direct investment in insurance notified

Now that the 100 percent FDI law has been notified, the Finance Ministry has introduced new rules that remove the requirement that a majority of directors and key management personnel be Indian residents of a foreign-invested insurance company. However, the Chairman, Chief Executive Officer (CEO) or Managing Director must be an Indian resident.

After consultation on the draft published in August, the ministry has come up with final rules. This will help in the implementation of the new Insurance Law, which was passed by Parliament, approved by the President and notified by the Government during the just concluded winter session. New rules “will come into effect on the date of publication in the Government Gazette”, i.e. December 30, 2025.

As per the notification, Rule 4 will have only one section which reads: “In an Indian insurance company having foreign investments, at least one of the Chief Executive Officer, Managing Director and Chairman of the Board of Directors shall be resident Indian nationals.” Previously, this rule required that the majority of directors and key executives must be Indian, which has now been abolished.

The notification has omitted the existing rule 4A. This rule stipulated that an Indian company with foreign investment of more than 49 percent, which pays dividends and whose solvency margin is less than 1.2 times the solvency control level at any time, must keep at least 50 percent of its net profit in general reserve. Another provision of Rule 4A requires that half of the directors must be independent directors. However, if the chairman is also an independent director, at least one third of the board of directors consists of independent directors. Now there will be no such condition anymore.

Furthermore, the notification stated that in the Rules, all references to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, will be replaced by the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019, and all references to the FEMA Regulations, 2000, will be replaced by the FEMA (NDI) Rules. Keeping this in mind will delete all related sections. Also, the provision regarding a maximum of 74 percent will be replaced by the words “to exceed the limit as provided by the Insurance Act, 1938”.

The notice also removed three clauses for insurance companies with foreign investors. Primarily, it involves prior approval from IRDAI for repatriation of dividend. The second “….shall not make any payments to the foreign group or promoter or subsidiary, interrelated or associated entities beyond what is necessary or permitted by the Authority,” and the third is “the composition of the Board of Directors and key management figures shall be as specified by the relevant regulators.”

The new law, ‘Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act’, also amended the Life Insurance Corporation Act, 1956 and the Insurance Regulatory and Development Authority Act, 1999, in addition to the Insurance Act, 1938.

Earlier, in response to the debate on the bill in Parliament, Finance Minister Nirmala Sitharaman said the aim of bringing in FDI is not to demolish the public sector but to ensure more choice and efficiency for the common people. She said the government has in fact taken several steps to strengthen PSU insurance companies, even injecting ₹17,450 crore into three non-life companies. “We are now looking for greater penetration, better regulatory oversight, easier compliance and more foreign direct investment,” Sitharaman had said.

Published on December 31, 2025