Budget proposals positive for Indian insurance sector: Fitch Ratings

Our Bureau Mumbai | Updated on February 09, 2021

‘Fitch expects relaxation of foreign-ownership rules to attract international insurers and promote competition within the sector’

Fitch Ratings on Tuesday said Budget proposals will help Indian insurers attract foreign capital, strengthen solvency and promote competition.

“The proposals could encourage global insurers to enter the fast-expanding Indian market, while international insurers already holding minority stakes in domestic companies may try to increase their ownership over the medium term,” it said in a statement.

Finance Minister Nirmala Sitharaman had in the Union Budget 2021-22 proposed increasing the foreign direct investment (FDI) cap in insurance to 74 per cent and had also announced the listing of Life Insurance Corporation of India next fiscal.

Also read: Proposal to hike FDI in insurance to 74% could bring in capital

“Fitch expects a relaxation of foreign-ownership rules to attract international insurers and promote competition within the sector,” the agency said, adding that this would, in turn, increase insurers’ access to capital and thereby improve the industry’s solvency position.

“We also believe an influx of new capital could be channelled to develop insurers’ distribution networks, enable digitisation and bring expertise to areas such as marketing and client servicing, which would improve insurance penetration in the long run,” it said.

India’s insurance penetration rate stood at 3.8 per cent in 2019, according to Swiss Re Institute, lagging some peer countries in the Asia Pacific.

India’s foreign-ownership liberalisation would correspond with the deregulatory measures undertaken in some other Asia-Pacific countries, the agency said.

On LIC’s listing, Fitch said it will improve the insurer’s accountability and transparency, while attracting more foreign interest in the industry.

“The proposed IPO, once executed, could broaden the insurer’s capital base and improve its regulatory capital position, which was 165 per cent at end-September 2020, marginally above the regulatory minimum of 150 per cent,” it further said.

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Published on February 09, 2021
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