New rules for facilitating 100% FDI in insurance notified

Following the notification of laws permitting 100% foreign direct investment (FDI) in insurance, the Finance Ministry has revised regulations to eliminate the requirement that a majority of directors and key management personnel in insurance companies with foreign investment must be Indian residents. However, companies must still ensure either the Chairman, CEO, or Managing Director is an Indian resident.

The final rules, released after consultations on a draft published in August, will operationalize amendments to insurance laws passed by Parliament during the Winter Session. These amendments received Presidential assent and were officially notified by the government. The revised rules will take effect upon their publication in the Official Gazette, slated for December 30, 2025.

As per the notification, Rule 4 now specifies only that “at least one amongst the Chief Executive Officer, managing director, and chairperson of its Board shall be Resident Indian Citizens” for insurers with foreign investment. Previous requirements mandating a majority of Indian directors and key personnel have been scrapped.

The ministry has also omitted Rule 4A, which previously required insurance companies with foreign stakes exceeding 49% to retain 50% of net profits in general reserves if their solvency margin fell below 1.2 times the control level while paying dividends. Additionally, Rule 4A had mandated that half the Board comprise independent directors—or one-third if the Chairperson was independent. These provisions no longer apply.

The notification further replaces references to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, with the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019. Phrases stipulating a 74% foreign investment cap have been updated to align with limits defined under the Insurance Act, 1938.

Three additional clauses for insurers with foreign investors were removed: prior IRDAI approval for dividend repatriation; restrictions on payments to foreign affiliates beyond regulatory limits; and requirements for Board composition aligned with regulator specifications.

The legislative reforms, enacted through the ‘Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act,’ revise the Life Insurance Corporation Act (1956), the Insurance Regulatory and Development Authority Act (1999), and the Insurance Act (1938).

During parliamentary discussions on the bill, Finance Minister Nirmala Sitharaman emphasized that the FDI reforms aim to expand consumer choice and sector efficiency, not diminish public-sector insurers. She highlighted government efforts to strengthen public insurers, including a ₹17,450 crore infusion into three non-life companies. Sitharaman noted the reforms prioritize “greater penetration, enhanced regulatory oversight, simplified compliance, and increased FDI.”

Published on December 31, 2025