RULES, 2015

RULES, 2015

[Gazette of Pakistan, Extraordinary, Part-II, 23rd April, 2015]

S.R.O. 343(I)/2015, dated 22.4.2015.–In exercise of the powers conferred by Section 83 of the Insurance Ordinance, 2000 read with Section 167(2) thereof, the Securities and Exchange Commission of Pakistan with the approval of the Policy Board, is pleased to make the following Rules, the same having been previously published in the official Gazette through SRO 68(I)/2014, dated January 30, 2014.


1. Short Title and Commencement.–(1) These Rules shall be called the “Unit Linked Products and Fund Rules, 2015”.

(2) These Rules shall come into force at once.

2. Definitions.–(1) In these Rules, unless there is anything repugnant in the subject or context,–

(a)      “Basic Annual Premium” means the net premium determined as gross premium paid by the policy-holders less charges for riders/supplementary benefits and extra mortality/morbidity charges;

(b)      “Gross Annual premium” means the amount of premium paid by the policy holder to the insurer for the purchase of a unit linked product;

(c)      “Bid Price” is the price at which the units of a fund are redeemed, calculated as the net asset value adjusted for selling costs;

(d)      “Forward Pricing” means a specific pricing methodology which involves calculation of the unit prices at which the transaction is undertaken after the deal is done, so as to establish the true value of the units at the time of purchase or disposal;

(e)      “Indexation” means a life insurance product feature which enables automatic increase in sum cover and/or premium on compound/simple basis without requiring a policy-holder to undergo medical underwriting on each renewal date;

(f)       “Offer Price” means the price at which the units of a fund are allocated to policies, calculated as the net asset value adjusted for acquisition costs and a front end load, if any;

(g)      “Ordinance” means Insurance Ordinance, 2000;

(h)      “Rules” means Unit Linked Products and Fund Rules, 2015;

(i)       “Unit Linked” in relation to life insurance means individual life insurance contracts offering life insurance coverage coupled with saving component where under the saving component is managed through operating unit linked investment funds;

(j)       “Unit Linked Contracts” means Investment-Linked Contracts as defined in Section 2 (xxxiii) of the Ordinance;

(k)      “Unit-linked Fund” means a group of assets and liabilities, the values of which are used to determine the values of Unit Linked Contracts;

(2) In these Rules, the word 'Takaful’ may be used inter-changeably with the word 'insurance', 'Family Takaful’ with 'Life Insurance', 'General Takaful' with 'General Insurance', 'contribution' with 'premium' and 'Company' & 'Insurer' with 'Takaful Operator'. Similarly other terms used in the Takaful Rules, 2012 associated with the Takaful business may be used inter-changeably with their conventional counterpart words/terms.

(3) The words and expressions used but not defined shall have the same meaning assigned to them in the Ordinance.



3.  Minimum Financial Protection.–All life insurers carrying out unit linked business shall offer the unit linked products having the minimum financial protection component (i.e. life insurance coverage) as specified in table below:

Type of Product

Minimum Financial Protection (life insurance cover for death due to any cause)

Regular premium individual life contracts (endowment, wholelife etc.)

5 times of the Basic Annual Premium

Child education/marriage or family income benefit contracts (where no fixed sum cover is paid on death due to any cause)

5 times of the Basic Annual Premium

Single premium contracts

1.25 times of the premium

4.  Indexation of Premium.–(1) The policy-holder shall have an option to avail the policy through level premium or indexation premium.

(2)      All unit linked products shall have an Indexation option based on any one of the following:

(a)      Automatic Default Option: Under this option, the basic or gross premium shall be increased with a fixed Indexation rate on compound or simple basis. However, insurers shall incorporate a reasonable level of Indexation.

(b)      Indexation of Premium and Sum Cover: Under this option, both the premium and sum cover shall be increased with a fixed Indexation rate on compound or simple basis.

(3)      The Insurer in respect of their unit linked Bankassurance business shall ensure that the Bank’s premium collection system is effectively deducting the indexed premium, and if it is not, shall take such action as is required to ensure that it shall start deducting the indexed premium within a period of not more than two year after the commencement date.

5.     Minimum Term of the Regular Premium Individual Life Plans.–No Insurer shall offer a unit-linked regular premium plan (saving) of a term shorter than 5 years through any distribution channel.

6.     Disclosures to Policy-holders.–(1) All insurers offering unit linked products shall disclose the following:–

(a)      Disclosure of Investment Risk: All sales literature, brochure and annual statements/letters to the policy-holder shall contain a disclosure that the investment risk shall be borne by the policy-holder and actual maturity or surrender values may be lower or higher than the projected figures.

(b)      Targeted Asset Mix and Charges: Target asset mix of the fund and details of all fund related charges shall be placed on the website of the life insurer and in the insurance policy documents issued to the policy-holder.

(c)      Product Charges Structure and Unit Pricing Methodology: Details of the product charges structure and unit pricing methodology shall be disclosed to all policy-holders in the policy document.

(d)      Individual Statement of Policy-holders Unit Account: The insurer shall provide the unit linked policy-holders with a statement of the policy-holders unit account as specified in Annexure 1 for the following reporting periods:

(i)       Annual Statement within one month of the close of the financial year; and

(ii)      Quarterly Statement within one month of the close of every quarter.

          A life insurer may use a different format showing the movement of units for at least last policy year.

(e)      Disclosure regarding Deduction of Rider’s Charges: All insurers shall explicitly disclose the rider’s charges at the time of sale of the policy through Illustration and policy schedule and every year through “statement of policy holder’s account” if these charges are deducted by redemption of units from the clients' account value.

(2)  In case, the disclosures made to the insurance policy-holder by the insurer or an agent of the insurer under sub-rule (1) above are misleading or incorrect in any material particular, the same shall be treated as misleading or deceptive conduct under Section 76 of the Ordinance.

7.  Insurance Need Analysis Document.–No life insurance policy which is a unit linked product shall be sold through any distribution channel unless the agent has carried out an Insurance need Analysis of the prospective policy-holder as per the format set out as Annexure 2. A life insurer may use a different format with additional information.



8.  Funds Governance.–(1) Where the insurer establishes a Unit Linked Fund, it shall constitute an investment committee comprising of the following persons at minimum:

(a)      Appointed Actuary and/or Internal Actuary;

(b)      Chief Financial Officer

(c)      Chief Executive Officer; and

(d)      Two members of the Board:

                   Provided that for the purpose of sub-rule (1) above, the internal actuary shall be a person being the Fellow or Associate member of the Pakistan Society of Actuaries, the Institute of Actuaries in England or Society of Actuaries in the United States of America; or such other body as may be recognized by the Commission for the purposes of this rule after obtaining views of the Pakistan Society of Actuaries:

                   Provided further that the Internal Actuary shall have at least 36 months' post Fellowship/Associateship experience with any insurer.

(2)  Investment Committee: The investment committee shall be responsible for management of all Unit Linked Funds, which shall include the following:

(a)      Investment Policy: The Investment Committee shall formulate a documented investment policy for each fund which shall be approved by the Board and shall include, as a minimum:–

(i)       Allowable Exposure to Various Asset Classes: the proportion of investments to be held in various asset classes (asset classes, for this purpose, being listed equities, unlisted equities, government securities, term finance certificates, mutual funds, real estate, short term deposits, sukuks and other instruments of redeemable capital).

(ii)      Allowable Exposure in Single Entity: the maximum proportion of the fund which may be invested in each entity (e.g., shares and TFCs of a particular company).

(iii)     Minimum Rating/Other Investable Criterion: the investment policy should state the minimum rating requirement for rated instruments as well as other criterion for non-rated instrument.

(iv)     Ineligible Asset Classes/Securities: the investment policy shall explicitly mention broad ineligible asset classes and securities.

(v)      Monitoring Frequency: the investment policy shall state the frequency of performance measurement, monitoring the asset mix and mechanism used for portfolio balancing.

(vi)     Allowable Exposure in Related Parties: the investment policy shall explicitly state the maximum allowable investment limit in related parties such as associated companies, subsidiary companies etc.

(b)      Fund Pricing Methodology and its Implementation: The investment committee shall document and monitor the unit pricing methodology and its implementation.

(c)      Investment Processes Documentation: The investment committee shall document all procedures relating to investment decisions, investment transactions, accrual and receipt of investment income, pricing and preparation of statements set out in Rule 13.

(3)  Good Investment Practices: The Investment Committee shall also, as good practice:

(a)      identify those responsible for day to day investment decisions in line with the investment policy;

(b)      identify all risks to which the fund may be exposed and for formulating, monitoring and management of the risk manage-ment process; and

(c)      require that the accounting records of the fund be automated.

(4)      Role of Appointed Actuary for the Investment Processes: The Appointed Actuary shall certify annually that he/she is of the opinion that the investment policy for a fund is suitable for all insurance policies which will be linked to the fund. The Appointed Actuary shall also sign the document outlining the fund’s pricing arrangements and shall, at least once in every six months, carry out a detailed review of each fund’s pricing to ensure that the documented pricing arrangements are being followed.

(5)  Role of Shariah Board/Advisor’s: In case of takaful companies the investment policy shall also be approved by the Shariah Board/Advisor.

(6)  Internal Audit and Compliance Function: The internal audit and compliance function of the insurer shall include, in their scope, the adherence to the above policy and procedures and shall report any findings ultimately to the Board. The statutory auditors of the company shall, during the course of their audit, ensure that the pricing arrangements are appropriate and shall also carry out test checks on the determination of prices during the period under review.

(7)  Outsourcing of Investment Functions: The Board may decide to out-source the management of investments. Where this is the case, the Board shall ensure that appropriate systems and controls are in place, including regular and reliable management information, to ensure that they can fulfill their responsibilities to policyholders. Any outsourcing arrangement shall not, however, absolve the Board of its responsibility to ensure that investments are appropriate and properly managed.

9.  Unit Linked Fund Operation.–

(1) Unit-Linked Fund Creation: A life insurer shall file the following documents at the time of creation of a Unit Linked Fund:

(a)      The name of the fund and of the statutory fund of which it will be a part

(b)      Date of launching of the fund

(c)      Seed money, if any

(d)      Investment policy (certified by the Appointed Actuary)

(e)      Rules of the fund including net asset valuation methodology

(f)       Bid and Offer Prices at the beginning

(2)  Explicit Fund Related Charges: The explicit fund related charges levied by a life insurer on the Unit Linked Fund shall include:–

(a)      a Bid Offer spread is a difference between prices at which units are allocated to (acquired by) a policy and at which units are encashed (redeemed) respectively;

(b)      an investment management charge is a periodic charge levied on the fund, which could either be:

(i)       a proportion of the net asset value of the fund;

(ii)      a fixed amount;

(iii)     a varying proportion or fixed amount based on fund performance; or

(iv)     a combination of any of the above.

          The above charges shall be clearly defined in the policy documents.

(3)  Implicit Fund Related Charges: Implicit fund related charges are effectively rounding differences between the conversion of money values into units and vice versa. The mechanism adopted by the life insurer shall ensure that rounding off should be done up to the fourth decimal place. For example unit prices of 100.00015 and 100.00014 shall be used as 100.0002 and 100.0001 respectively.

(4)  Permitted Expenses: Expenses permitted to be debited from a fund include the following:–

(a)      permitted explicit fund management charges;

(b)      costs paid to a third party directly related to the acquisition or sale of a particular investment, including brokerage costs, any related taxes/government levies and bank charges;

(c)      costs paid to a third party directly related to collection of investment income as well as any non-recoverable taxes or other levies on investment income;

(d)      taxes which may be appropriately attributable to the investment income or gains of the fund (e.g., taxes on foreign investments which are not capable of being set off against any tax levied on the shareholders' fund of the company) including direct taxes on income of such investments (e.g. final tax regime or turn over tax);

(e)      provision for or write off of any asset; and

(f)       Custodian charges (for example CDC charges).

(5)  Where the fund has invested in property, expenses directly related to the maintenance of the property and related taxes may also be debited from the fund.

10.  Unit Linked Fund Transaction.–(1) Investment Related Transactions: Any transaction to acquire or dispose of any assets in a Unit Linked Fund shall be at arm’s length, where such assets are listed securities traded on any of the country’s stock exchanges, the transaction shall be through a transaction with an external entity. For other assets the transaction shall either be through an external entity or shall be required to be specifically certified by the Company’s statutory auditors as having been transacted at fair value.

(2)      Inter-fund Transfer of Policy-holders' Unit Account Value

(a)      All life insurers are required to provide an option to their policy-holders to transfer whole or part of a policy-holders' unit account value from one Unit Linked Fund to another Unit Linked Fund at least once in a policy year.

(b)      A life insurer shall not charge bid-offer spread on the above transfer of policy-holders' unit account or any charge, by whatever name, that is based on a percentage of the unit account value. However a fixed amount per transfer may be charged.

(3)      Custody of Assets

(a)      All listed securities shall be held in accounts held by the life insurer with the central depository company and in sub-accounts designated for each fund. The investments in government securities of Unit Linked Fund shall be held in an IPS (i.e. investor’s portfolio services) account of the company.

(b)      Ownership documents for all other assets shall be kept with a custodian approved by the board of directors of the insurer.

(c)      Bank accounts including fixed deposits shall be maintained in clearly designated accounts for each fund.

(4)  Inter-Fund Balances

(a)      Transactions between the investment fund and other funds of the life insurer shall be kept to a minimum. It is recognized, however, that there will be some essential transactions, for example the payment of monies into a fund on allocation of premiums/contributions and the payment of monies by the fund on redemption of units/investment.

(b)      Any balances created with other funds (unit-linked and otherwise) shall be settled within 15 working days.

11.  Net Asset Valuation (NAV) Pricing Methodology.–

(1)      General Principles

(a)      Unit prices should be calculated in a fair and transparent manner, which means:–

(i)       Unit pricing methodology shall ensure that the transactions in a Unit Linked Fund are executed in a manner that it should not affect the interests of the policy-holders.

(ii)      Prices shall be based on the net asset value, adjusted for charges and purchase and sale costs.

(iii)     Cross-subsidy among policy-holders or individual funds shall be avoided as far as reasonably possible. In particular, any adjustments to smooth unit prices shall be avoided.

(iv)     The pricing mechanism shall not be used as a deliberate means of extracting value from the fund or from policy-holders.

(b)      Expenses, income and taxation should be recognised appropriately in the price, being accrued in a timely and accurate manner so that the unit price properly reflects the value of the underlying assets.

(c)      For each fund the investment committee shall approve the pricing policy and procedures, which will set out the following:–

(i)       Pricing Frequency

(ii)      Pricing Model

(iv)     Valuation of Assets and Liabilities and Adjustments

(2)      Pricing Frequency and Unit Transaction Timing

i.        All Unit Linked Funds created after the promulgation of these rules shall be valued daily. Funds in existence at the time of issue of these Rules may continue to be valued weekly (but not less frequently than this) until June 30, 2015. Where a fund is valued on a weekly basis this shall be on a given time on, a given day in each week. In case of the designated day of the week being a holiday the valuation should take place on the previous working day.

ii.       Where a fund is valued on a daily basis the price should be updated on a specified time at the end of the day. In the unusual event of a fund being priced more than once per day, this will be disclosed to policy-holders through insurer’s web site.

iii.      The timing of unit transactions such as allocation to policy-holders, creation and cancellation of units will be determined according to events such as the receipt of policy-holder instructions, issuance of policy and realization of renewal premium etc.

iv.      The following objectives should be taken into account when determining pricing frequency and unit transaction timing:–

(a)      Avoiding any losses to policy-holders through market timing and other ‘strategic dealing activity'.

(b)      Maintaining, within defined risk-return appetite, appropriate levels of liquidity in the fund to avoid any significant, unintended gearing effects.

(c)      Ensuring that funds designed to track the performance of an underlying asset do so within defined tolerances avoiding the risk of any significant distortion or deviation.

(d)      Avoiding any material loss to the fund or policy-holders by ensuring a good match between net policy-holder unit transactions and the related asset purchase or disposal.

(e)      Avoiding any material loss to the fund or policy-holders by ensuring there is no undue delay between receipt of an instruction from a policy-holder and the resulting unit transaction.

(3)  Pricing Methodology: All life insurers issuing unit-linked contracts shall follow the Forward Pricing methodology by June 30, 2015. Unit acquisition and redemption transactions which occur during two pricing dates would be held in abeyance until the next valuation date and executed at the price determined at the next valuation date.

(4)  Valuation of Assets and Liabilities and Pricing Adjustments

(a)      The following basis for valuing various assets shall be followed when determining the price at which units are to be allocated or redeemed:

(i)       A security listed on a stock exchange shall be valued at its closing price on such exchange on the date as of which it is valued, or if such exchange is not open on such date, then at its last sale price on the next preceding date on which such exchange was open and if no sale is reported for such date, the security shall be valued at an amount not higher than the closing asked price nor lower than the closing Bid Price. If there is no active market for a security, however, it should be valued in accordance with the applicable financial reporting framework.

(ii)      An investment purchased and awaiting payment against delivery shall be included for valuation purposes as a security held, and the cash account of the company shall be adjusted to reflect the purchase price, including brokers' commission and other expenses incurred in the purchase thereof but not disbursed as of the valuation date;

(iii)     An investment sold but not delivered pending receipt of proceeds shall be valued at the net sale price. For takaful operators such investment shall continue to be shown as held by the unit-fund but the value shall be taken as the net sale proceeds. For other insurers the net sale proceeds shall be shown as an amount receivable and the securities shall not be shown as held by the Unit Linked Fund.

(iv)     A Government fixed income security for which there is no secondary market shall be valued so as to recognize a uniform return from the time of acquisition to maturity.

(v)      The value of any dividends, bonus, shares or rights which may have been declared on securities in the portfolio but not received by the fund as of the close of business on the valuation date shall be included as assets of the fund, if the security upon which such dividends, bonuses or rights were declared is included in the assets and is valued ex-dividend, ex-bonus or ex-rights as the case may be.

(vi)     A security not listed or quoted on a stock exchange shall be valued at investment price or its breakup value as per last audited accounts, whichever is lower.

(vii)    Interest accrued on any interest-bearing security in the portfolio shall be included as an asset of the fund if such accrued interest is not otherwise included in the valuation of the security.

(viii)   Any other income accrued up to the date on which computation was made shall also be included in the assets; and

(ix)     All liabilities, expenses, taxes and other charges due or accrued up to the date of computation which are chargeable under these Rules shall be deducted from the value of the assets.

(b)      To determine the Offer Price the net asset value may be adjusted by adding:–

(i)       a front end load not exceeding the amount declared in the policy document;

(ii)      a provision for acquisition costs of investments, being the average cost of acquisition given the actual asset mix of the fund; and

(iii)     a rounding adjustment not exceeding the forth decimal place as specified in Rule 10(3) above.

(c)      To determine the Bid Price the net asset value may be adjusted by deducting the cost of disposal of investments, being the average estimated cost given the actual asset mix of the fund.

(d)      If any adjustment is made to the value of assets and liabilities as set out above other than those permitted by these Rules, the consent of the Commission shall be taken.

12.  Accounts of Unit Linked Funds

(1) Form of Accounts

i.        The regulatory returns to be submitted under Section 46 of the Ordinance shall include, for each fund set up, the following accounting statements:

(a)      Statement of Net Assets

(b)      Statement of Changes in Net Assets

(c)      Statement of Performance Measurement (as per Annexure 3)

ii.       The Statement of Changes in Net Assets shall include the following if these are relevant:–

(a)      Fund Balance Brought Forward from Previous Valuation Date.

(b)      New investments in Fund (value of creation of units in the case of a Unit Linked Fund).

(c)      Investment income earned during the period.

(d)      Gains on disposal of investments (determined as net selling value less cost).

(e)      Increase (decrease) in unrealized gains (losses).

(f)       Redemptions from Fund in the period.

(g)      Taxes accruing/deducted on gains or investment income which are not recoverable.

(h)      Investment Management Charges at Fund level accrued for the period.

(i)       Mortality and Morbidity Charges.

(j)       Fund Balance Carried Forward to Next Valuation Date.

iii.      The Statement of Performance Measurement shall be for the following period:

■        The previous twelve months.

■        The previous five years.

■        The previous ten years.

iv.      The basis of calculation of each performance measure shall be disclosed in any document containing a statement of such measure.

(2) Audit

The Accounts of the funds as required above shall be audited at least once in every financial year by the same auditors auditing the Regulatory Returns. The report of the auditors shall also be deemed to be a part of the Accounts and shall be in such form as may be prescribed by the Commission.

(3)      Circulation to Policy-holders

The Accounts of the Unit Linked Fund shall be placed on the web-site of the life insurer within seven working days of these being submitted to the Commission.

(4)      Summary of Investments

A breakup of asset allocation, sector allocation (for equity) and top 10 holdings in a Unit Linked Fund on the date as at which accounts referred to in sub-Section 13(1) are prepared shall be placed on the web-site of the life insurer.


Statement Date


For the period ended December 31,

Policy Number


Policyholder Name


Date of Birth


Current Age


Total Policy Term


Total Premium paying term


Initial Sum Assured


Current Sum Assured


Annualized Initial Premium


Current Premium



Total Premium



Riders' Premium



Basic Premium



Mode of Premium payment


Dynamization Method



(1) Both premium and sum assured to remain flat



(2) Only premium to increase by 5% each year



(3) Both premium and sum assured to increase by 5% each year














Policy period

Account value as at the beginning of the period Units

Basic Premium Allocated during the period (Rs.)

Number of New Units purchased (units)

Mortality Charges deducted (units)

Amount of Partial Withdrawal, if any (Rs.)

Account value as at the end of the period (units) = (2) + (4) – (5) – (6)

Unit value as at the end of the period

Total value of the policy as at the end of the period = (7) * (8)

Amount of Loan, if any (Rs.)

Net value of the policy as at the end of the period = (9) – (10)













































Annexure 2

Insurance Need Analysis of Mr. __________

1. Basic Information Basic Information

Basic Information





Telephone (Landline/Mobile)


E-mail ID


Date of birth


Marital status


State of health

Excellent/Very good/Good/ Moderate/Poor



Family Details

Number of dependents


Details of dependents
























State of Health (Excellent Very Good/Good/Moderate/Poor)












Income if any






Whether financially dependent






Any scope of expansion of family


Employment Details



Length of service


Annual Income


Covered under pension scheme?


Normal retirement age


Financial Details

Value of Savings and Assets


Details of Liabilities/ Outstanding Loan


Expected Inheritance


Pension Details

Employer’s Scheme/Insurance


Personal Contribution/Premium


Retirement Age


Anticipated Value


Future Saving Needs

For Education for Children


For Wedding


For House Purchase




Existing Life Assurance Plans


Policy No.

Sum Assured


Start Date

Maturity Date
















Financial Priorities and Objectives

What is more important for you? (Please number in order of priority)

Financial Security for family in the event of death


Financial Security in the event of Critical Illness


Providing Retirement Income


Planning for your children’s education


Planning for your children’s wedding


Building capital through regular saving


Investing existing capital for better return


Identified Insurance Needs

Life Insurance (Death/Maturity)


Desirable Sum Assured


Health Insurance


Desirable limit of coverage per annum


Savings and Investment Planning


Desirable returns per annum


Pension planning


Desirable pension per annum


Any Additional Information






Life stage

Childhood/Young unmarried/ Young married/ Young married with children/married with older children/post-family or pre-retirement/ retirement

Protection needs

Life & Health/Savings and Investment/Pension

Appetite for risk


Policy recommended, including name of insurer


Commitment for the current/ future years


Whether all risk elements and details of charges to be incurred and all other obligations have been explained


Why you think this policy is most suited prospect



Agent’s Certification:

I/We hereby certify that I/we believe that the product/s recommended by me/us above is suitable for the prospect, based on the information submitted by him/her, as recorded above.

(Name and Signature of Agent)                            Dated: ____________


Prospect’s Acknowledgement:

The above recommendation is based on the information provided by me. I have been explained about the features of the product and believe it would be suitable for me based on my insurance needs and financial objectives.

(Signature of Prospect)                                         Dated: ____________

Annexure 3

Name of the Company

Statement of Investment Performance Measurement of the Unit Linked Fund
For the year ended December 31, _______

Sr. No.

Name of the Unit Linked Fund

Type of the Fund

Bid Price at the beginning of the year (A)

Bid Price at the end of the year (B)

Investment Yield % 
(Y = B/A x 100)