‘It has been noticed that the following entities have launched several Unit Linked Insurance Products (Ulips) :
* Aegon Religare Life Insurance Company Limited
* Aviva Life Insurance Company India Limited
* Bajaj Allianz Life Insurance Company Limited
* Bharti AXA Life Insurance Company Limited
* Birla Sun Life Insurance Company Limited
* HDFC Standard Life Insurance Company Limited
* ICICI Prudential Life Insurance Company Limited
* ING Vyasa Life Insurance Company Limited
* Kotak Mahindra Old Mutual Life Insurance Limited
* Max New York Life Insurance Co. Limited
* Metlife India Insurance Company Limited
* Reliance Life Insurance Company Limited
* SBI Life Insurance Company Limited
* TATA AIG Life Insurance Company Limited
Since, the Ulips launched by the abovesaid entities were prima facie found to be akin to the mutual fund schemes and were launched without obtaining registration from the Securities and Exchange Board of India (Sebi) under the Sebi Act, 1992 and the regulations made thereunder, notices were issued to these entities on January 15, 2010 . Sebi had sought replies from the said entities as to how the Ulips were launched without obtaining the requisite certificate of registration from Sebi and why appropriate action should not be taken against them under the provisions of the Sebi Act. The entities replied to the aforementioned notices.
I have carefully considered the replies of each of the entities, product brochures of various Ulips offered by them and the relevant material available on record. Since the subject matter in the notices issued to the entities is identical and their replies are substantially similar, I proceed to deal with issues involved in the matter by way of a common order. The question that arises for my consideration is whether Ulips offered by the said entities are a combination of investment and insurance and if so whether the investment components are in the nature of mutual funds which can only be offered after obtaining registration from Sebi under section 12(1B) of the Sebi Act?
From the examination of the product documents of such Ulips, it is noted that in addition to the insurance component, the Ulips also have inter alia the following characteristics?
* The product is unit linked and money is raised from public through sale of units to them.
* The investment risk in chosen investment portfolio is borne by investors.
* Upon untimely death before the expiration date of the policy the nominee of the policy holder will be paid either the NAV (Unitised Fund Value) or the sum assured whichever is higher.
* Upon survival at the maturity of the policy, the policy holder will be paid the NAV of the investments.
* Premium will be used to allocate units in the fund chosen by the investor.
* The product has characteristics such as fund management, fund management charges, switch and partial withdrawal options.
It is observed that the various Ulips launched by these entities offer investment options with varying degrees of exposure to equity and debt. It is also noted that in their product brochure for Ulips, the entities have under the heading ?risks of investments?, inter alia, disclosed and declared that:
* Unit linked life insurance products are different from traditional insurance products and the premium paid in such cases are subject to investment risks associated with capital markets and the unit price of the units may go up or down based on the performance of the fund and factors influencing the capital market
From the above, I find that the attributes of the Ulips are different from the traditional insurance products and they are a combination of insurance and investment. The attributes of the investment component of Ulips are akin to the characteristics of mutual funds, which issue units to the investors and provide exit at net asset value of the underlying portfolio. The investment component of Ulips is subject to investment risks associated with securities markets, which are entirely borne by the investors. I also find that the entities by their own admission have stated that there are two components of Ulips?an insurance component where the risk on the life insurance portion vests with the insurer and the investment component where the risk lies with the investor. This establishes conclusively that Ulips are a combination product and the investment component need to be registered with and regulated by Sebi.
As discussed above, in spirit and substance, the Ulips have characteristics of mutual fund schemes and the arguments forwarded by the entities have no merit. It is, therefore, necessary from the point of view of protecting the interest of investors that such products should be offered/launched after obtaining requisite certificate of registration from Sebi under the Sebi Act.
The entities have contended that their policies were launched after following appropriate procedures and obtaining requisite permission from Irda, which is the regulator in case of life insurance products. The approval/registration from one regulatory authority does not exempt the entity from complying with other applicable laws administered by relevant regulators.
However, the said entities have not obtained any certificate of registration from Sebi though the Ulips launched by them had an investment component in the nature of mutual funds, as mandated by section 12(1B) of the Sebi Act. It is, therefore, necessary to restrain the entities mentioned in this order from raising further monies/subscription, new and/or additional, from the investors for any product (including Ulips) having an investment component in the nature of mutual funds till they obtain registration from Sebi.
Accordingly, in exercise of the powers conferred upon me by virtue of section 19 of the Sebi Act read with sections 11, 11B and 12(1B) thereof, I hereby direct the entities mentioned in para 1 of this order not to issue any offer document, advertisement, brochure soliciting money from investors or raise money from investors by way of new and/or additional subscription for any product (including Ulips) having an investment component in the nature of mutual funds, till they obtain the requisite certificate of registration from Sebi. This order will not affect soliciting money/subscription from public with respect to any pure contract of insurance or the insurance component of a combination product. This order shall come into force with immediate effect.’
Prashant Saran,
Member, Sebi board
Place : Mumbai
Date : 9 .4.2010