M&A Opportunities in the Indian Insurance Sector: Insurance Laws Amendment Act, 2025

Insurance penetration in India stands at 3.7% (compared to 7% globally). However, the Indian insurance market is poised to be the fastest growing among G20 nations over the next five years. To expand insurance coverage, the Government of India (“Government”) and the Insurance Regulatory and Development Authority of India (the “IRDAI”) have introduced several measures to attract more private players and augmenting growth in the sector by liberalizing investment restrictions.

The Sabka Bima Sabki Raksha Act (Amendment of Insurance Laws) Act, 2025 (the “Insurance Laws Amendment Act”) was adopted in the winter session of Parliament and published in the Gazette of India on December 21, 2025. The Insurance Laws Amendment Act amends the Insurance Act, 1938 (the “Insurance Act”), the Life Insurance Corporation Act, 1956, and the Insurance Regulatory and Development Authority Act, 1999 (“IRDA Act”). Corresponding amendments have been made to the Indian Insurance Companies (Foreign Investment) Rules, 2015 through amendment rules notified on December 30, 2025 (the “Amendment Rules”). The Insurance Laws Amendment Act will come into force on a date appointed by the Government pursuant to a Gazette notification.

The Insurance Laws Amendment Act and the Amendment Rules (together, the “Amendments”) reflect the intent of the Government to incentivize foreign direct investment (“FDI”) and global expertise in the Indian insurance sector, including by liberalizing certain restrictive conditions imposed on companies involved in the insurance business. This note will explore key changes introduced through the Amendments, as well as their implications on stakeholders in the insurance market.

KEY AMENDMENTS

Removal of FDI limits

The Amendments have increased the limit of aggregate holdings of equity shares by foreign investors (which include non-residents, persons resident outside India, and any other eligible entities under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019) in an Indian insurance company from 74% to 100% of the paid-up equity capital.

Removal of the erstwhile cap on FDI in insurance companies under the automatic route, along with the relaxations granted in respect of governance (see ‘Governance related relaxations’ below), are expected to result in strategic foreign investors investing in India by expanding their existing presence or entering to create new insurance businesses in India.

Relaxations for insurance intermediaries

The Insurance Laws Amendment Act specifically states that insurance intermediaries will include insurance brokers, re-insurance brokers, insurance consultants, corporate agents, third-party administrators, surveyors and loss-assessors, managing general agents, insurance repositories, and any other entity as may be notified. Certain key obligations of insurance intermediaries have been removed, including the requirement for insurance intermediaries with majority foreign shareholding to (a) obtain prior IRDAI approval for the purpose of repatriating dividends, and (b) restrict payments to a foreign group, promoter, subsidiary, or an interconnected or associate entity to what is necessary or permitted by the IRDAI.

Mergers of insurance companies with non-insurance companies

The Insurance Laws Amendment Act explicitly includes a framework for enabling mergers between insurance companies and non-insurance companies (subject to IRDAI approval and compliance with other conditions prescribed by the IRDAI). The framework permitting such amalgamations is consistent with the National Company Law Appellate Tribunal (NCLAT) decision in IRDAI v. Shriram General Insurance Company Limited, which held that in the absence of a specific prohibition, mergers between insurance and non-insurance companies can be undertaken under the provisions of the Companies Act, 2013 without seeking prior approval of the IRDAI.

Common directorships

The Insurance Laws Amendment Act has expanded the restrictions on common directorships to all classes of insurance business (limited to life insurance companies earlier). Accordingly, insurers are prohibited from appointing any person as a director or officer if such person is a director or officer in (i) another insurer in the same class of business; (ii) any banking company; or (iii) any investment company.

While the intention is to remove conflict of interests and encourage good governance norms, this may have certain repercussions for existing board compositions of insurance companies promoted by listed entities who are mandated to appoint an independent director on the board of the listed entity to the board of their subsidiary, in the event that such subsidiary is a material subsidiary of the listed entity.

Increased thresholds for share transfers

The Insurance Laws Amendment Act has relaxed the requirement for prior IRDAI approval for the registration of share transfers where the nominal value of such shares is up to a specified percentage of the paid-up equity capital of the insurer, raising the earlier threshold of 1% to 5% to facilitate the ease of doing business and reduce compliance burdens. We expect such amendment to result in reduced regulatory approval requirements for share transfer transactions involving non-substantial shareholding.

Permissible investments

Earlier, insurance companies in India were restricted from investing in the shares and debentures of private companies. The Insurance Laws Amendment Act has now omitted such restriction, allowing insurance companies to invest in other entities such as technology and ancillary companies (such as Insurtech companies).

Relaxed eligibility requirements for foreign re-insurers

The Insurance Laws Amendment Act allows a company or body established or incorporated under a law of any country outside India and engaged in re-insurance business to establish a branch in India exclusively for re-insurance purposes. This provision includes the Lloyd’s (re)insurance market, as established under the Lloyd’s Act, 1871 (United Kingdom), along with members of such marketplace.

The Insurance Laws Amendment Act also relaxes the eligibility criteria for registration of foreign re-insurers in relation to capital requirement by reducing the minimum requirement of net-owned funds from INR 50 billion to INR 10 billion. This relaxation is likely to encourage more foreign re-insurers to open branches in India and increase domestic competition.

Expanded scope of insurance business

The Insurance Laws Amendment Act has expanded the definition of “insurance business” to mean the business of effecting insurance contracts and “includes other form of contract as may be notified”. However, it is unclear whether this provision allows insurers to enter into non-insurance contracts, or if such provision is limited to ancillary services directly related to insurance, as suggested in the Ministry of Finance's Office Memorandum dated November 26, 2024 (the “Draft Amendments”). While the Draft Amendments had proposed that insurers could diversify into activities such as guarantee and indemnity business or ‘services related or incidental to insurance business’, such ancillary services have not been specified in the Insurance Laws Amendment Act. However, the enabling language provided in the definition of ‘insurance business’ in the Insurance Laws Amendment Act suggests that the Government will notify such ancillary services in the future.

Governance related relaxations

In addition to the increase in FDI limit, the Amendment Rules also liberalize governance-related conditions for insurance companies in India, certain of which are highlighted below:

1. Residency requirements: The requirement for an Indian insurance company with FDI to have a majority of its directors or key management persons as resident Indian citizens has been done away with. However, at least one individual among the chairperson, managing director, or chief executive officer, is required to be a resident Indian citizen.

2. Board composition: The requirement for an Indian insurance company with at least 49% FDI to have 50% of its board comprising independent directors (or at least one-third of the board, in case an independent director is the chairperson of such board) has been removed.

3. Reserve requirements: The Amendment Rules have removed the requirement for insurance companies in India to retain at least 50% of its net profits as general reserves if the solvency margin is less than 1.2 times the control level of solvency.

Corresponding changes to the IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Indian Insurance Companies) Regulations, 2024 in relation to classes of insurance business, registration requirements, and transfers of shareholding, may be necessary to complement the Amendments and might be proposed in the future.

STRENGTHENING THE IRDAI

The Insurance Laws Amendment Act has streamlined and increased the scope of the IRDAI’s powers to protect the interests of policyholders, including as follows:

1. Search and seizure: The Chairperson of the IRDAI can authorize an officer to conduct a search and seizure if there is reason to believe that, inter alia, a contravention of any provision of the Insurance Act or the IRDA Act has been, or is likely to be, committed by an insurer. The Insurance Laws Amendment Act extends this power to cover insurance intermediaries as well.

2. Disgorgement of wrongful gains: The IRDAI can issue directions of disgorgement to an insurer or insurance intermediary of an amount equivalent to any wrongful gain made or loss averted.

3. Setting limits on commission paid to insurance agents or intermediaries: The IRDAI may specify the limits of any commission, remuneration, or reward payable to an insurance agent or insurance intermediary in the interest of policyholders.

4. Supersession of board: If the insurer is acting in a manner prejudicial to policyholder interests, the IRDAI has the power to supersede the board of directors (or such other management or governing/ executive committee) of such insurer and appoint an administrator to manage its affairs.

CONCLUSION

The Amendments represent a significant overhaul of India’s insurance law regime and could potentially be transformative.

By raising the FDI cap from 74% to 100%, the Amendments are likely to enhance India’s appeal as an investment destination among global insurers and reinsurers. As underpenetrated segments, including rural, MSME, cybersecurity, and climate risk coverages, become more commercially viable with deeper capital pools, inbound strategic investors can build differentiated portfolios unencumbered by compulsory local equity thresholds. The reduction in net-owned fund requirements for reinsurers further broadens the addressable market.

Nonetheless, India remains a distribution-centric market where entrenched partnerships with banks, NBFCs, and regional agents often dictate competitive advantage. In that regard, purely foreign-owned entities may still struggle for scale absent effective channel access. Further, regulatory oversight continues to emphasize policyholder protection and solvency, ambitious acquisitions will require careful navigation of the IRDAI’s enhanced enforcement framework.

Since insurance is a balance-sheet-intensive industry, capital is an ongoing operational constraint, particularly in lines exposed to long-tail liabilities. In India, this reality is compounded by intense price competition, relatively thin underwriting margins, and a market that continues to prioritize scale and distribution reach over short-term profitability. For foreign insurers and reinsurers pursuing business opportunities in India, integration challenges are often about aligning global risk appetites with local reserving practices, product structures, and regulatory expectations.

Successful market entry is likely to favor foreign investors willing to commit substantial capital upfront, adopt phased integration strategies, and invest in regulatory credibility and local partnerships, rather than those seeking rapid consolidation or purely financial arbitrage in what remains a deeply competitive and tightly supervised market.

Foreign investors willing to engage in long-horizon, partnership-oriented strategies are likely to find India’s insurance landscape increasingly conducive to meaningful consolidation and value creation.