The deal, on which Reuters had first reported in June, will be the largest investment by a global insurer in an Indian non-life insurer.
"India is one of the world's most important markets with immense potential and we are... making a significant commitment," said Tulsi Naidu, CEO of Asia Pacific for Zurich Insurance Company.
Asia's third-largest economy had in 2021 relaxed the cap for overseas investment in the insurance sector, allowing acquisition of majority stakes of up to 74% against 49% permitted earlier.
The deal comes as Kotak Mahindra Bank said last month the central bank approved the appointment of veteran international banker Ashok Vaswani as the bank's chief executive officer after founder and billionaire Uday Kotak announced plans to step down.
Zurich Insurance's stake purchase will give Kotak General Insurance a post money valuation of about 79.43 billion rupees ($954.53 million), according to a stock exchange filing.
Zurich Insurance Co, a unit of one of Europe's largest insurers, will buy an additional 19% stake in Kotak General Insurance within three years, the companies said.
Kotak Mahindra Bank's shares rose as much as 2% to 1,758.65 rupees on the news.
($1 = 83.2140 Indian rupees)
(Reporting by Ashna Teresa Britto and Rama Venkat in Bengaluru and M. Sriram in Mumbai; Editing by Mrigank Dhaniwala and Savio D'Souza)
