Guidelines on Variable Insurance Products

IRDA has, vide circular dated November 23, 2010, issued guidelines on Universal life insurance policies/products. The salient features of the guidelines are as follows:

I. All universal life products are required to be termed as Variable Insurance Products (“VIPs”). VIP has been defined as a non- linked life insurance product which provides (i) a death benefit equal to the guaranteed sum assured plus the balance in the policy document and (ii) a maturity benefit equal to the balance in the policy account together with a terminal bonus as applicable.

II. VIPs are required to be offered only under non-unit linked platform.

III. Every policy is required to have a corresponding policy account whose balance shall depict the accrual to the policyholder. The policy amount will be credited with premium net of all charges.

IV. VIP is required to provide only mortality cover. Under a VIP, the sum assured should be at least ten times of the annual premium.

V. VIP is required to provide to the policyholder the flexibility of changing the sum assured during the currency of the contract subject to minimum sum assured.

VI. VIPs are not permitted to be issued as a group contract.

VII. VIPs are required to provide only for level regular premiums. Single premium or limited premium structures would not be allowed.

VIII. The minimum policy and premium payment term of a VIP is required to be five years with a lock- in period of atleast three years.

IX. All the VIPs are required to prescribe a surrender value which shall not be more than as prescribed in the Circular.

X. Top –up premium is allowed through out the term of the policy, however at any point in time, the total top-up premium should not exceed the total sum of the regular premiums paid at that particular point of time.

XI. Partial withdrawal is allowed under VIP.

XII. VIP is required to be offered as traditional products either as participating or non- participating, as per the current practice.

XIII. The insurer is required to keep a separate account of all receipts and payments in respect of VIPs.

XIV. The maximum expenses (including commission) that can be charged to the premium paid by the policyholder in the first year has been capped at 27.5% of the first-year premium. For the second and third-year, the cap has been fixed at 7.5% of the second and third year premium and a cap of 5% has been prescribed on the premium for fourth year and thereafter. In case of top-up premiums a 3% cap has been prescribed.

XV. In case the premiums are not paid within the grace period, the policy will become a paid – up policy.

XVI. The promotional material and the key features document is required to mandatorily disclose the following:

a) Guaranteed minimum floor rate.

b) Sum assured.

c) Premium paying term.

d) Break-up of premium showing all the components separately.

e) Lock-in period and treatment of monies during lock in period in the event of surrender.

f) Interest rate on loan, if applicable.

g) A declaration that this is a non linked insurance product.

XVII. All existing individual products which have separate and indentified savings component are required to be refilled with the IRDA in accordance with these guidelines.

Guidelines on Sharing of Information by IRDA

Faced with requests from various quarters seeking information about the insurance companies and other entities regulated by the IRDA, IRDA has, vide its circular dated December 8, 2010, published detailed guidelines on how it would be sharing information.

IRDA has categorized the information sought from it into three categories:

a) Information available in the public domain- such as returns and information filed with the IRDA under the disclosure guidelines prescribed by the IRDA, or information made available on the websites of the entities regulated by the IRDA.

b) Information not available in the public domain, which may include, (i) information which is considered confidential by the IRDA, or (ii) information which could impinge on the proprietary rights for commercial or other reasons.

c) Any other information.

Information in public domain

For information available in the public domain, the IRDA may either disclose the information or direct the person concerned to the website/ other source where the information is available.

Information not in public domain

The guidelines on sharing of such information is as follows:

a) Where information has been sought under Section 20 of the Insurance Act, the request should be examined to ensure that no information that can affect competition or stability of the company or the industry as a whole is shared. It may, however, be noted under Section 20 of the Insurance Act, the policyholder and the shareholders of an insurance company have the right to inspect and seek certified copies of the returns, statements, accounts, and memorandum and articles of association. Such details are normally available in public domain. The stipulation of the IRDA, therefore, should be read more as an statement made by way of abundant caution to prevent disclosure of proprietary information.

b) Where information is sought by domestic regulators (such as RBI, SEBI, PFRDA etc.), international supervisors and agencies, and public authorities, the IRDA will determine whether each request relates to a shareable information or not. The assessment on the shareability of the information not in public domain shall be made taking into account the following:

i. Reasons for the request.

ii. Nature of the information sought, and whether the information has proprietary value.

iii. Maintenance of confidentiality of the information sought.

iv. Reciprocity between the regulators and authorities making the request.

c) Where information has been sought by the public at large or under the Right to Information Act, 2005, the request shall be dealt with in accordance with the applicable legal framework. In accordance with the Right to Information Act, 2005 itself, access to commercial information that is confidential and may impinge on proprietary/ privacy rights may be denied.

Other information

The IRDA will consider each request on its merit, and may deny access to information when the information may impact the stability of its regulated entities, or when it may be mis-used by the competitors.

A. IRDA’s advisory on compliance with the orders of Insurance Ombudsman

Taking note of an order passed by the Delhi High Court, the IRDA has advised the insurance companies to take note of the observations made by the High Court to the following effect:

a) It is not open for the insurer to challenge the awards of insurance ombudsman.

b) The mechanism of adjudication by the insurance ombudsman is an alternate dispute redressal mechanism devised by insurers themselves, and the insurers have bound themselves unconditionally to honour such awards.

The IRDA has advised the insurance companies to review all the cases filed by them against the orders of Insurance Ombudsman in light of the High Court’s observation. IRDA has further asked the insurance companies to inform the IRDA of the final status of the cases filed against the orders of Insurance Ombudsman.

It may be noted that the above observations were made by the High Court of Delhi in the case of Vinay Kumar Aneja v. NIA (Order dated 09.09.2010 in W.P. No. 10638/06). The case related to non-renewal of a mediclaim policy by New India Assurance Company Limited after the assured had made multiple claims during the claim period on account of cancer treatment. In a complaint filed by the assured, the Insurance Ombudsman asked the insurance company to renew the mediclaim policy of the assured. The insurer renewed the policy but from a date subsequent to the order of the Ombudsman. Upon a clarification sought by the petitioner, the Insurance Ombudsman directed the insurer to collect the premium for the period starting from the date the policy lapsed and renew the policy from that date.

Before the High Court the insurer claimed primarily two defences, namely:

a) Under Section 64VB of the Insurance Act, 1938, ‘no risk can be assumed unless the premium is received in advance’.

b) Insurance Ombudsman could not have entertained claims in respect of non-renewal of mediclaim policies as they do not fall under any of the five categories of complaints that can be entertained by insurance ombudsman under the Redressal of Public Grievance Rules, 1998. The Ombudsman rejected the contentions of the insurance company and

The High Court rejected the contention of the insurer on the ground that it was too late for the insurer to have claimed those defences. Objections to the awards passed by the Insurance Ombudsman cannot be admitted when the award has been accepted by the insurer in the first place. Also, since the mechanism of the insurance ombudsman has been devised by the insurance companies, themselves, they should bind themselves to unconditionally honor the awards of the insurance ombudsman.

Interpretation of ‘First Ten Years of Business’ u/s 40 A of the Insurance Act, 1938

The Insurance Regulatory and Development Authority (“IRDA”) has, vide its circular dated November 18, 2010, clarified the concept of ‘first ten years of business’ in context of Section 40 A of the Insurance Act, 1938 (“Act”). Section 40A of the Act deals with the limits on payment of commission or other remuneration to the insurance agents. Section 40A also provides certain relaxations from complying with the prescribed limits during first ten years of the business of the insurer.

In the above circular, IRDA has clarified that for the purpose of computing first ten years of business of the insurer the relevant date would be date on which the insurer is granted the certificate of registration.

SEBI amends guidelines on Interval Mutual Fund Schemes

Interval Schemes are those schemes in which subscription can be made during a specific period (known as transaction period) and repurchase of units is permissible on all business days subject to applicable loads (except for redemption during specified transaction period when no load is charged).

Given that there is no restriction on tenure of the securities in which the interval scheme can invest, this coupled with the daily redemption option may result in asset liability mismatch. Accordingly, the Securities and Exchange Board of India (“SEBI”) has vide its circular dated November 26, 2010 (“Circular”) has prescribed the following in relation to the intervals schemes:

a) The units of the schemes are required to be mandatory listed.

b) The redemptions in interval funds will only be allowed during specified transaction period which is required to be minimum two working days.

c) The minimum duration of an interval period in an interval scheme/plan is required to be 15 days.

d) The investments by these schemes are required to be made only in those securities which mature on or before the opening of the immediately following specified transaction period.

e) In case of securities with put and call option, the residual time for exercising the put option of the securities it will not be beyond the opening of the immediately following transaction period.

f) The Asset Management Companies (“AMC”) are required to ensure compliance with these guidelines from the date of next specified transaction period or April 1, 2011 whichever is later.

In relation to cut-off timings for applicability of Net Asset Value (NAV) of mutual fund scheme, the SEBI has, vide the Circular, amended certain provisions of its circular dated October 11, 2006 in the following manner:

a) The following cut-off timings are required to be observed by a mutual fund in respect of the purchase of units in liquid fund schemes and their plans, and the following NAVs are required to be applied for such purchases:

i. in cases where the application is received up to 2 pm on a day and funds are available for utilisation before the cut-off time without availing any credit facility - the closing NAV of the day immediately preceding the day of application.

ii. in case applications received after 2 pm on a day and funds are available for utilization on the same day without availing any credit facility - the closing NAV of the day immediately preceding the next business day.

iii. irrespective of the time of receipt of application, if funds are not available for utilization before cut-off time - the closing NAV of the day preceding the day on which the funds are available for utilisation.

b) For the allotment of units in respect to purchase in liquid schemes, it is required to be ensured that:

i. the application is received before the applicable cut - off time;

ii. the funds for the entire amount of subscription/purchase as per the application are credited to the bank account of the respective liquid schemes before the cut-off time;

iii. that the funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective liquid schemes.

c) For the allotment of units in respect of switch-in to liquid schemes from other schemes, it is required to be ensured that:

i. the application for switch-in is received before the applicable cut-off time;

ii. funds for the entire amount of subscription/purchase as per the switch-in request are credited to the bank account of the respective switch-in liquid schemes before the cut-off time;

iii. the funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective switch-in schemes.

The Circular has also clarified the provisions of Clause 6 (2A) of the circular dated October 24, 2008 in the following manner:

a) For the allotment of units in respect of purchase in income/debt oriented mutual fund schemes/plans other than liquid schemes, it is required to be ensured that:

i. the application is received before the applicable cut-off time;

ii. the funds for the entire amount of subscription/ purchase as per the application are credited to the bank account of the respective scheme before the cut- off time;

iii. the funds available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective scheme.

b) For the allotment of units in respect of switch-in to income/debt oriented mutual fund schemes/plan other than liquid schemes for other schemes, it is required to be ensured that:

i. the application for switch-in is received before the applicable cut-off time;

ii. the funds for the entire amount of subscription /purchase as per the switch-in request are credited to the bank account of the respective switch-in income/debt oriented mutual fund schemes/plans before the cut-off time;

iii. the funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective switch-in income/debt oriented mutual fund schemes/plans.

The SEBI has also advised the AMCs to not acquire any the assets out of the scheme property which involves the assumption of any unlimited liability or which may result in encumbrance of the scheme property in any way.

Revision/Reopening of annual accounts

Section 220 of the Companies Act, 1956 provides for the manner in which the annual accounts of a company are laid before annual general meeting for adoption by shareholders and filed with the Registrar. The MCA vide its circular dated 13^th January, 2003, had directed the grounds and manner in which the accounts can be reopened/revised by companies. The same circular also clarified that a company cannot lay more than one set of the annual accounts contrary to circular dated 13^th January, 2003.

However, it has been observed by the MCA that a few companies are violating the rules as set out in the circular. Thus, the MCA vide its circular dated 22^nd November, 2010[1] directed the Registrar of Companies to keep a check on such defaulting companies and not accept such accounts except in accordance with provision of Section 220 of the Companies Act read with the 2003 circular. Earlier in the extraordinary general meeting or in the subsequent annual general meeting of a company, a company could reopen and revise its accounts even after their adoption in the annual general meeting and filing with the Registrar of Companies in order to comply with technical requirements of any other law to achieve the object of exhibiting true and fair view.

CHANGE IN ADDITIONAL FEE TO BE LEVIED FOR DELAYS IN FILING FORMS

The Ministry of Corporate Affairs (“MCA”) vide its circular dated 22^nd November, 2010, has revised the additional fee to be levied for the delay in filing Forms other than Form 5. The existing fees are as follows:

Period of Delay	Fixed Rate of Additional Fee
Upto one month.	One time of normal filing fee.
More than one month and upto three months.	Two times of normal filing fee.
More than three months and upto six months.	Four times of normal filing fee.
More than six months and upto one year.	Six times of normal filing fee.
More than one year and upto two years	Eight times of normal filing fee.
More than two years.	Nine times of normal filing fee.

The revised fees applicable from 5^th December, 2010 are as follows:

Period of Delay	Fixed Rate of Additional Fee
Upto 30 days.	Two times of normal fee.
More than 30 days and upto 60 days.	Four times of normal fee.
More than 60 days and upto 90 days.	Six times of normal fee.
More than 90 days.	Nine times of normal fee.