Sebi bans 14 insurance firms from issuing ULIP

Many of the affected companies said they would talk to both Sebi and Irda on the issue, which has emerged as a bone of contention between the two regulators.

Reacting to the order, Irda Chairman J Harinarayan said, “I don’t think their (Sebi’s) position is well founded.” Insurance companies have to take legal recourse since the order was issued against individual companies and Irda is not party to it, he said.
Rejecting the arguments by insurance companies that ULIP schemes are insurance products, a view endorsed by Irda, Sebi issued the order. “...In exercise of the powers...I hereby direct ... the (14) entities 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.”

Secretary General S B Mathur of The Life Insurance Council— an industry association of life insurers— told PTI, “we will take it with the regulator on Monday.”

LIC not under ambit

The players who have been prohibited from raising any further money include big players like SBI Life Insurance Company, ICICI Prudential Life, Reliance Life, Metlife India, Aviva Life, Tata AIG Life, etc.

However, state-owned insurer LIC is not named in the order, which further said in case these entities wanted to raise funds through any such schemes they would have to obtain the requisite certificate of registration from Sebi. The order was issued by Sebi whole time member Prashant Saran, said. Earlier in January, Sebi had issued a notice to these companies asking why they did not seek its permission before offering ULIP schemes.

That time Irda member R Kannan had said “All the products sold are within the insurance regulation and it is a global practice.” Unlike conventional plans, ULIP schemes are financial products that offer life insurance as well as investment like a mutual fund. But, whether they could be considered as a mutual fund is at the centre of the heated debate between Sebi and insurance companies.

In a reply to the notices sent by Sebi, insurance companies said ULIP is a life insurance product and not covered under the definition of “securities” under the Securities Contracts (Regulation) Act, 1956.

To buttress their contention, they said the predominant feature of a ULIP is insurance cover, which is dependant on human life and the mere existence of an additional investment feature cannot convert a ULIP into a mutual fund.

They further contended that ULIPs have a mandatory insurance cover, which forms a vital and inseparable part of the product.

Companies differ

Unlike mutual fund schemes, the products are interlinked with the life of the policy holder, these companies added.

In its reply to Sebi’s notice to insurance companies earlier, Irda is also understood to have taken the stand that regulation of ULIPs by Irda was well laid down and that it did not agree with Sebi’s contention that insurers needed a certificate of registration from the market regulator for dealing in ULIPs.

However, Saran in his order said “I conclude that ULIPs offered by the said entities are a combination of investment and insurance and, therefore, the investment components are in the nature of mutual funds, which can only be offered/launched after obtaining registration from Sebi.”

The other companies, against whom the Sebi had issued the order include, Aegon Religare Life Insurance Company, Bajaj Allianz Life, Bharti AXA Life, Birla Sun Life, HDFC Standard Life, ING Vyasa Life, Kotak Mahindra Old Mutual Life and Max New York Life.

A Max New York Life spokesperson said “we have not received any communication from Sebi. We would not comment on this news on Sebi’s ban on ULIPs of some of the life insurers without receiving any communication from Sebi.” Many other insurance companies officials, on the condition of anonymity, said they would approach Irda on the issue before taking any call.

Govt says it’s for Sebi, Irda to take a call

New Delhi, pti: The finance ministry, on Saturday, kept a safe distance from the ongoing row between market regulator Securities Exchange Board of India (Sebi) and insurance watchdog Insurance Regulatory & Development Authority (Irda) over Ulips, saying the two regulators have to resolve the issue.

“It’s a matter between regulators; so they have to decide,” finance secretary Ashok Chawla told PTI when sought his comments. Chawla said Sebi and Irda have not so far been able to come to any resolution. “So, Sebi has taken a legal process. So, let’s see what happens,” he said.