The battle between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) over the regulation of unit-linked insurance plans could affect the plans of companies aiming to list unless the differences are resolved soon.

Life companies, when contacted, said they would stick to the line that the products come under IRDA regulation and are unlikely to either stop selling ULIPs or obtain registration with SEBI. Insurers say for the issue to be now closed, the regulators will have to sort it out among themselves or it will require the intervention of the government.

Among life insurance companies, Reliance Life Insurance had announced its intent to go for an IPO. Some time ago, HDFC Standard Life too had said it would look at an IPO in 2010-11. The Aditya Birla Group is looking at hiving off its financial services business under a new entity an exercise which would require listing of the new arm.

Although there are no guidelines in place for life insurance IPOs, IRDA is expected to come out with disclosure norms for companies seeking a listing by end February. Following this, SEBI is also expected to come out with the disclosure requirement in a couple of months. Only after the market regulation notifies the disclosure norms, the first life insurance company can go public.

When contacted by ET, Reliance Capital chief executive Sam Ghosh, said: We hope this issue gets resolved before we file our draft prospectus.

Most of the life companies do not agree with SEBIs interpretation of laws with respect to regulation of ULIPs. The market regulator last week wrote to most of the life insurance companies stating that their ULIP products raise money from the public and the money is invested in a fund chosen by public and the calculation is through net asset value which is unitised fund value.

According to SEBI, all these characteristics are akin to mutual fund schemes.

The market watchdog has cited Section 12(1)b of the SEBI Act, which says no person shall sponsor or carry on any venture capital fund, or collective investment scheme, including mutual funds, unless he obtains a certificate of registration from the board.

Collective investment schemes as defined under Section 11A of the SEBI Act clearly excludes contracts of insurance under the Insurance Act, said V Srinivasan, chief financial officer of Bharti Axa Life Insurance. He added that in a sense, insurance has always been a collective investment scheme where resources are mobilised for investment and ULIP is only one way of accounting and does not change the fundamental basis of insurance.

Incidentally, the provision on Collective Investment Schemes was introduced to regulate entities such as promoters of plantation schemes or timeshare schemes who escaped regulations in the past.