Life Insurance Non-Disclosure Leaves Expat Investors Exposed to Huge Losses

Expatriate investors in Asia have lost hundreds of millions of dollars through UK-listed life insurance companies whose offshore subsidiaries and financial adviser "agents" were neither registered nor licensed to promote, market and sell bond portfolio financial products. 

Many investors have alleged that they did not receive disclosure documents outlining the risks involved, or the commission or fees payable, before they entered into bond portfolio products on the insurer's platform, following recommendations from investment advisers in the Asian region.


Following deregulation in the 1990s, many large life insurance companies based in the UK restructured and arranged for their former sales staff to become financial advisers. These advisers then set up their own business operations in Asia. In turn, these advisers marketed portfolio bond products for insurers from the Isle of Man, Jersey and the Cayman Islands, with parent companies listed in London. 

Although the "light-touch" regulatory regimes of these offshore islands offered some protection for investors, many expatriates in Asia are beginning to find this protection was not adequate.

Most life insurance companies and their independent financial advisers agreed terms of business between themselves which were not disclosed to investors. Both sides then embarked on something of a merry-go-round of refusing to accept liability when things went wrong for investors. The numerous funds on the life insurance bond platforms from 2012 made massive losses for expatriate investors or failed to allow redemptions. 

The circle of non-disclosure was structured as follows:

  • The investor meets with the independent financial adviser who markets the bond provider's (life insurance company) products, does not disclose that they are unlicensed or unregulated in the jurisdiction where the product is marketed or sold to investors (ie, Hong Kong, Thailand, Indonesia, the United Arab Emirates, Cyprus, Malta and even the UK).
  • The independent financial adviser recommends that the client invests in the insurance bond portfolio which has access to a platform of funds approved by the life insurance company, and on which the insurance company conducts only light-touch due diligence.
  • Neither the financial adviser nor the insurance company (bond provider) discloses the risks, fees or commission paid to either the financial adviser or the bond provider. Little or no information is given to investors and investors assume the products are safe because they are household names in the UK.
  • The client then enters a bond agreement with the financial adviser in Asia and the insurer is usually registered as a company in the Isle of Man, Jersey or the Cayman Islands.
  • The insurance company represents to investors and the independent financial advisers that it conducts due diligence on the funds placed on the insurance fund platform. There is no disclosure of fees or commission arrangements between the fund managers and the insurance company. There is evidence that the fund managers pay the insurance companies a premium for being placed on the insurance company's platform.
  • When funds on the insurer's platform go into receivership or fail, which has often been the case in the last five years, the financial advisers and the bond provider insurance companies deny any liability and instead point the finger at the financial advisers, denying agency for selling products or responsibility for false representations about the stability of the funds or for carrying out due diligence.
  • Investors, having lost their money, have nowhere to go. The ombudsmen on the Isle of Man and Jersey and the Cayman Islands protect the insurers by claiming that the investor's contract is with the independent financial adviser.

The Circle of Non-Disclosure

Elderly or retired investors are finding that they have no redress against the financial advisers as they are usually insolvent or deny liability or else blame the insurance companies for selling the products. The bond providers (insurance companies) also deny any liability, even though they placed the funds on the insurance platform in the first place. 

Investors have made numerous complaints to the ombudsman on the Isle of Man, and to the UK Financial Conduct Authority ("FCA"), but no investigation appears to have been carried out into the kinds of non-disclosure issues described above. Nor have the regulators addressed unlicensed operations carried out by insurance companies in other jurisdictions. This raises serious consumer protection issues.

Many of the life insurance companies were aware that the funds on their platforms (such as the failed LM Managed Performance Fund in Australia, Premier New Earth Solutions based in the UK and Axiom Litigation Fund based in the Cayman Islands), were not returning redemptions. When Thomson Reuters Regulatory Intelligence asked the insurance companies why these funds were still being marketed, one senior executive said they were "afraid of losing market share and if we don't take the business then someone else will. It is very popular with the brokers."

Thai Regulator Found Insurance Companies' Products Unlicensed

The Securities and Exchange Commission of Thailand has recently written to investors confirming that the insurance companies and investment advisers in question were not registered or licensed under s. 4 and s. 90 of the Securities and Exchange Act B.E. 2535.

A letter obtained by Thomson Reuters Regulatory Intelligence stated: "The failure to obtain the required licences may result in enforcement action. A violation of s. 93 of the SEC Act can result in imprisonment from six months to three years or substantial fines."

Lawyers acting for investors in Hong Kong and Thailand sent warning letters to the insurance companies as long ago as 2012, in many instances six months to one year before the funds actually collapsed. Nevertheless, many of the funds continued to be sold to expatriate investors in Asia in the weeks before the suspension of fund redemptions.

Serious Issues of Regulation

The life insurers have so far avoided liability for investors' losses and have failed to take any responsibility, although they have continued to collect management fees and commissions. 

The most important issue is financial advisers and insurance companies' complete failure to disclose the risks attached to these financial bond products. These products would never have been allowed to be sold in the UK without a full disclosure of the risks and fees involved, quite apart from the fact that they were unlicensed.

It would appear that an insurance company can market a bond with questionable funds internationally and yet, in practice, bear no responsibility toward the investors. Insurance companies have failed to address a whole range of consumer issues and may well find that they fall foul of UK and other financial regulators once the full scenario unfolds.


Niall Coburn is the Asia-Pacific regulatory intelligence expert for Thomson Reuters. He is a barrister and former director of enforcement at the Dubai Financial Services Authority and senior specialist adviser to ASIC. He is based in Brisbane, Australia.