HDFC Standard Life Insurance Company Limited

Transcription

1 HDFC Standard Life Insurance Company Limited Financial Year ended March 2013 This is the sole and exclusive property of HDFC Life

2 2 Agenda Economic overview Overview of Indian life insurance industry HDFC Life performance

3 The demographic dividend would fuel middle class consumption with significant contribution from India By 2050 India is expected to be contributing about 30% to global middle class consumption Savings and investment that drive economic growth are higher in India compared to other emerging economies Source: WEF future of manufacturing report,

4 Favourable demographics with improving human development would translate into higher life expectancy & greater demand Improving life expectancy (Years) Lower penetration compared to developed nations France South Africa United Kingdom United States India # Japan China South Korea Increase in average life expectancy would fuel need for pension and health products. Emergence of nuclear families has resulted in reduction in average household size and would increase need for protection products Sufficient headroom exists to sell insurance as penetration remains lower than advanced economies Source : Census of India, Ministry of Health & Welfare, IRDA annual report 2012, # penetration for FY12 4

5 Increase in the working age population would ensure demand for long term savings and protection plans offered by life insurance Total pop. (Mn) 1, , , % 52% 56% xx% Share of working-age population in total population Working-age population 1 1. Population between years old Source: BCG report 5

6 6 Agenda Economic overview Overview of Indian life insurance industry HDFC Life performance

7 BSE SENSEX The development of life insurance industry in India Entry of Private Life Insurers Start of Equity Bull Market Post-Lehman World 1st wave of private insurers Riding the wave (ULIPs 1 ) 2nd wave of entrants Increase in Regulatory change, 3rd wave 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Number of private life insurance entrants Life Insurance in India has seen 3 distinct phases post the year 2000 the market has 24 life insurers present today 1 Unit Linked Insurance Plans are products where the investor bears the investment risk Source : BSE Sensex Performance Jan 1, 2000 March 31, 2013, Google Finance, HDFC Life Analysis. Graph not as per scale 7

8 New Business Premium in Rs. Bn Private Market Share % Industry new business premium trends % % 6% % % % % 39% % % % 29% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 LIC Private Players Private Market Share ULIP Regulations in Sept 10 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Note: New Business Premium numbers are based on first year premium including single premium Insurance industry was opened to private sector in 2000 and was able to garner 39% market share in new business premium by FY09 Between FY09 and FY13, private sector slowed down with de-growth of 3%, while LIC continued to grow at 9% CAGR resulting in a slide in the private sector s market share Source: IRDA data, HDFC Life Analysis New business includes individual and group 8

9 9 The industry had to reinvent to stay relevant to customers and distributors due to the pace & magnitude of change Various guidelines issued by IRDA since 2010 ULIP - September 2010 Pension products - November 2011 Banca tie-ups (draft guidelines) - October 2012 Product guidelines - February 2013 In traditional products, these regulations relate to commission structures, surrender charges, minimum term of policy and premium payment, death benefits. In ULIP products, the regulations relate to reduction in yield from 5 th policy year onwards, cap on guarantee charge, ban on highest NAV guaranteed product Cap on surrender charges along with minimum surrender value forcing companies now to focus on persistency, customer service and brand building There is a clear shift in product mix for the industry with the contribution of ULIPs declining and that of traditional (conventional) platform products growing, with participating plans leading the growth. Bancassurance has very quickly emerged as an important distribution channel, contributing more than 1/3 rd to industry s new business. However, with regard to insurance sales, large parts of the banking system are still underpenetrated.

10 10 Agenda Economic overview Overview of Indian life insurance industry HDFC Life performance

11 Revenue Indian GAAP Financials AUM, NBM and MCEV Performance Snapshot First Year premium higher by 16% (PY de-growth of 7%) Total premium growth* of 13% (PY 13%) Conservation ratio* at 78% (PY 80%) Ranked^ # 2 in private market share for FY13 (PY #2) Overall surplus of ` 5.1 bn (PY ` 3.8 bn) Expense ratio* at 10.8% (PY 11.7%) of total premium Solvency Ratio 217% as against a regulatory requirement of 150% Assets under management increased 24.4% on YoY basis Pre-overrun NBM stood at 17.8%, post overrun NBM at 13.2%, for individual business Embedded value as on 31st March 2013 at ` 58.7 bn (YoY growth of 22%) Individual business market share at 17.5% (PY 15.5%) * Since Q1-FY13, we stopped making an accrual for premium due but not received on unit-linked policies, based on directive from the regulator. Total premium growth, Conservation ratio and Expense ratio assume that this change has been done for previous years. Conservation ratio is for individual business. ^ Ranking is based on individual business WRP 11

12 Premium Income ` Bn % % -13% {13%} % % % % {12%} % % 5.9-5% % % % % % FY11 FY12 FY13 Total Premium Single Premium (Individual) Renewal Premium (Individual) Group Premium First Year Regular Premium (Individual) Robust growth in new business continues for last six consecutive quarters (Q3 FY12: 3%, Q4 FY12: 15%, Q1 FY13: 17%, Q2 FY13: 7%, Q3 FY13: 22%, Q4 FY13: 16%) In tough regulatory environment, growth in first year regular (16%) & renewal (12%) premium leading to overall growth of 13% Note:1) Since Q1-FY13, we stopped making an accrual for premium due but not received on unit-linked policies, based on directive from the regulator. Figures in flower bracket represent growth numbers had this change been done for previous years. 2) After adjusting for change in accounting policy for unit-linked business, total reported premium growth would be 13.0% (FY13), 13.1% (FY12) and 29.3% (FY 11). 12

13 Annualised Premium Equivalent(APE) ` Bn YOY Performance Half Yearly Performance % -2% 17% 50% 0% % 21% 17% % 10% % -100% -150% % -30% -50% FY11 FY12 FY13-200% - H1 H2 12 M -70% APE Growth FY12 FY13 Growth Rebound in APE growth in an uncertain and challenging macro and regulatory environment Fuelled new business growth through a mix of channel, operational and product led initiatives H2 showed a better performance compared to H1 growing at 21% 11.8 in FY % % % Note: APE is for individual business - H1 H M -7

14 Weighted Received Premia(WRP) Individual Growth 18% 15% 2% -5% -2% -8% -8% -20% -24% FY11 FY12 FY13 HDFC Life Growth Private Industry Growth Total Industry Growth 25% Delivered more than three times the growth rate in FY13 vs top 6 peer companies who collectively grew by 4% Consistently outpaced the private industry over the last 3 years by adapting well to the new economic order -9% 4% 15% 1% 8% Source :IRDA -18% -16% 14

15 Market Share (WRP Individual) 15.5% 17.5% 12.9% 5.9% 5.7% 6.7% FY11 FY12 FY13 Private Industry Total Industry Only player to have doubled market share (private industry) since FY % Ranked #2 in FY13 amongst private 12.9% insurance companies (Individual business) Shift in momentum towards private players in the second half of the current year 5.9% 5.7% Source :IRDA 15

16 Distribution & Product Mix Distribution Mix Product Mix 3% 4% 5% 1% 1% 3% 13% 65% 73% 72% 43% 36% 86% 1% 31% 4% 7% 19% 16% 56% 61% FY11 FY12 FY13 Agency Broker Bancassurance Direct FY11 FY12 FY13 Unit Linked Participating Non Participating While Direct and Broker channel continue to increase their share in total APE, Agency faces challenges in difficult business conditions in line with industry. However it has been able to maintain its share amongst peer group. The company operates out of 450 offices across the country serving over 961 cities in India and a liaison office in Dubai Maintaining a balanced product mix, with Non-par segment picking up well and online term products continuing to show potential The percentages are with reference to APE for individual business 16

17 Commission Ratio Commission (% of Premium Income) FY11 FY12 FY13 - First year premiums 12.7% 17.6% 17.7% - Renewal premiums 2.0% 1.6% 1.3% - Single premiums 1.0% 0.3% 0.3% Total 5.3% 5.7% 5.7% Maintained overall commission ratio as last year Change in product mix with larger share of conventional products is reflected in the increase in first year commission. After adjusting for change in accounting policy for unit-linked business, total Commission as a percentage to Premium Income for previous years would be 5.8% (FY12) and 5.4% (FY 11) 17

18 Operating Expenses ` Bn {16.3%} 16.0% {11.7%} 11.5% 10.8% 30.0% 20.0% 10.0% % % % -30.0% % - FY11 FY12 FY % Operating Expenses Operating Expenses/Total premium Ratio Operating expense ratio was kept under control, despite significant investments being made in new channels, technology, branch refurbishments and international business Operating expenses increased by 4% but at a lower rate than inflation Tangible decline in our expense ratio to 10.8%, one of the best in the private sector - After adjusting for change in accounting policy for unit-linked business, operating expenses/total reported premium ratio for previous years would be 11.7% (FY12) and 16.3% (FY 11) - Operating expenses exclude service tax 18

19 * Conservation ratio for previous years has been reworked after adjusting for change in accounting policy for unit-linked business 19 Conservation Ratio 100% Conservation Ratio (Individual Business)* 13 th Month Persistency Ratio 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 80% 80% 78% 40% 79% 84% 78% 30% 30% 20% 20% 10% 10% 0% FY11 FY12 FY13 0% FY11 FY12 FY13 Focus on channels, products and customer oriented initiatives along with well defined premium reminder process helping stem decline in persistency and conservation ratios

20 Indian GAAP Results ` Bn (2.7) (1.7) (2.0) (1.4) (4.0) FY11 FY12 FY13 Shareholder A/C surplus Policyholders' A/C surplus Deficit (created)/reversed in Rev A/c 5.0 Declared a net profit of ` 4.5 bn in the current year, yielding a total surplus of ` 5.1 bn 4.0 (Deficit in Revenue account as of 31st March 2012 of ` 0.6 bn has been completely off-set in the current year) Back book generating sufficient profits to offset the new business strain incurred on writing of 2.0 new policies (1.0) (1.4) (2.0) 20

21 Total Share Capital ` Bn Capital Shareholding Pattern HDFC Limited Individuals / ESOP Trust Standard Life % % 72.4% FY11 FY12 FY Closing Capital Capital Infused during the period 3.00 HDFC Limited Individuals / ESOP Trust Standard Life No additional capital introduced in the last 2 financial years 26.0% 0 Solvency Ratio as at 31st Mar 2013 was 217% as against a regulatory requirement of 150% % 72.4% H1 FY11 H1 FY12 H1 FY

22 22 Assets Under Management AUM in Rs bn Sensex Growth in AUM vs LY Debt Equity % 21.7% 24.4% 35,000 33,000 31, ,000 27,000 25,000 23,000 54% 52% 45% , ,404 18,836 21,000 19,000 17,000 46% 48% 55% 0 31st Mar st Mar st Mar ,000 31st Mar st Mar st Mar 2013 AUM has grown at a CAGR of 23% (FY ) outpacing total industry growth Percentage of debt portfolio increased due to shift in product mix and surrenders in the equity oriented funds

23 Fund Performance (Since Inception) HDFCSL Returns Benchmark Returns 14.8% 12.7% 11.9% 8.7% 6.9% 5.5% 2.5% Benchmarks: BSE % Growth Balanced Secured Opportunities 45% BSE-100 & 55% Crisil Composite Bond Index CRISIL Composite Bond Index CNX MIDCAP Index The company has beaten benchmarks in all the major fund categories over a long term horizon Inception Dates: Growth Fund: January 02,2004 Balanced Fund: January 02,2004 Secured Fund: January 02,2004 Opportunities Fund: January 04,2010. Fund performance represented in Compounded Annual Growth Rate (CAGR) 23

24 24 Fund Performance (Last 1 year) 6.8% HDFCSL Returns 7.8% 8.2% Benchmark Returns 11.0% 9.3% 4.2% -4.0% Benchmarks: BSE % Growth Balanced Secured Opportunities 45% BSE-100 & 55% Crisil Composite Bond Index CRISIL Composite Bond Index CNX MIDCAP Index Company s long term oriented investment approach is designed to yield medium to long term returns and benefit policyholders

25 25 Claim Repudiation Ratio 8.4% 7.2% 6.2% 4.0% 3.6% 2.6% FY11 FY12 FY13 % by Amount % by No. of Policies Shown a decline in claim repudiation ratio due to various customer initiatives driven by the company One of the lowest claim repudiation ratio amongst the private players in the industry

26 MCEV as at 31st Mar 2013 ` Bn Present Value of Future Prof its Frictional Cost of Required Capital Cost of Non Hedgeable Risks Shareholders Shareholders Adjusted Adjusted Networth worth 16.9 Present Value of Future profits Frictional Cost of Required + Value Capital of Inforce 41.8 Cost of Non Hedgeable Risks = MCEV 58.7 Market Consistent Embedded Value (MCEV) results are unaudited 26

27 Analysis of Change MCEV EV profit 10.5 ` Bn Opening modeling, assumption and methodology changes New business profits (before expense over-run)* Acquisition expense overrun 3.9 Expected return on inforce Operating Variances Investment variances and change in economic assumptions MCEV at 31st Mar 12 Notes to analysis of change: Embedded value operating profit Opening modeling, assumptions and methodology changes: The models, assumptions and methodology are continuously refined and improved and the impact of these refinements is reflected in the opening changes. Expected return on inforce: This item reflects expected investment income on shareholder assets during the period, and reflects that future shareholder profits are now 1 year closer than at the start of the period. This positive item will occur in each MCEV period. Operating Variances: The Operating Variances capture the impact of the deviations of the actual claims, persistency and maintenance expense experience during the period from that assumed in the opening MCEV calculation. Investment variances and change in economic assumptions: This reflects the impact due to the actual investment return being different from the expected returns and the impact from the change in the yield curve at the end of the period compared to the yield curve at the start of the period. MCEV at 31st Mar 13 * New business profits pertain to Overall (Individual + Group) business 27

28 New Business Profits ` Bn FY11 FY12 FY13 New business profits 1, New business APE New business margin 1,2 18.8% 17.2% 17.8% New business margin (after impact of 14.2% 10.5% 13.2% acquisition expenses overrun) 2 1 Based on loaded acquisition expenses 2 Margins and APE are shown for individual business only * FY11 had first 5 months of margins under product portfolio that existed in the pre charge cap regime. 28

29 Organization agenda continues to be driven through five strategic themes 29 Leader in providing long term insurance solutions Set the industry standards by driving changes that encourage long term behaviour by all stakeholders & yield sustainable benefits Fortify & Diversify distribution channel mix Retain and grow existing distribution partners and win new relationships to de-risk business in the face of increasing competitive intensity Own select customer segments and product categories Select attractive customer segments, develop products based on needs of the segments and drive efforts & investments to these segments Deliver unique customer experience Improve customer experience & loyalty through offering best-in-class service standards across touch points Cost leadership across the delivery chain Run a profitable business through driving cost & productivity efficiencies across the value chain

30 30 Progress on Strategic Themes 1. Long Term Player 2. Fortification & Diversification Number of policies grew by 19% Policy term enhanced to 13 years Traditional products contributed 39% Conservation ratio at 78% APE growth in channels except agency Direct sales & broker at 12% Dedicated sales & support structure Added new partners banks, MFIs 3. Owning Customer Segments 4. Unique Customer Experiences ~ 7 times increase in online term sales POS underwriting engine Click2Buy Integrated product & marketing teams Servesresht & TEBT programs Pension & annuity plans for wisdom investor 5. Cost Leadership Product files in line with new regulations Increased margins, no capital infusion

31 HDFC Life is well positioned to align and take advantage of the potential changes expected in the near future 31 Market Polarization of market share in favour of large players with access to existing distribution continues Customer Higher alignment to brands that evoke trust Channel Ready with offerings with banks willing to offer in an open architecture / broker mode once regulations emerge Product Filed revised products that would meet the new product guidelines to replace existing ones Process & Technology Investing in a technology enabled business transformation program and has engaged TCS for the same People Ability to attract talent likely to be restricted to select few insurers who deliver profitable, sustainable growth

32 Awards and Accolades CIO 100 Award for Enterprise Excellence Brand Slam Leadership Award by CMO Asia Underwriting initiative of the year award by Asian Leadership Awards FAME Fabulous Achievement in Marketing Excellence ASTD Citation for improving sales productivity BestPrax Benchmark Award for Leadership Governance Best Private Life Insurer at CNBC TV18 Best Bank and Financial Institution Awards 2012 For more details about our Awards & Accolades, kindly refer our website at 32

33 Awards and Accolades Best Companies to Work for 3 rd consecutive year Best Product Innovation Award 2012 for second consecutive year CISO Best Information Security practices Quality Excellence Award 2012 World HRD Congress Thought Leader Award 2012 Award for CEO with HR orientation & Talent Management For more details about our Awards & Accolades, kindly refer our website at 33

34 Awards and Accolades Award for Innovative Service (Click 2 Buy) Celent Model Insurer Asia Award Outlook Money Award Runners Up in the 'Best Life Insurer' Category Award for Innovation in Finance Product of the year 2013 for Smart Woman Plan Porter Prize for Strategy & Product Innovation For more details about our Awards & Accolades, kindly refer our website at 34

35 Appendix & Glossary 35

36 36 Appendix 1 : MCEV methodology and approach MCEV methodology The calculations of embedded value and new business profits have been performed using a market consistent embedded value ( MCEV ) approach. This approach differs from a traditional EV approach primarily in respect of the way in which allowance for risk is made. Within the traditional EV approach allowance is made for risk through an increase in the risk discount rate used to value future shareholder cash flows, whilst within the MCEV calculation explicit separate allowances are made for risk. Components of MCEV There are two components to the MCEV: 1. Shareholders adjusted net worth this component represents the market value of assets attributable to shareholders. This amount is derived from the Indian GAAP balance sheet adjusted to allow for assets on a market value basis, elimination of intangible assets and to allow for shareholder attributable assets or liabilities residing within the unit-linked and non Par policyholder funds. 2. Value of in-force this component represents the discounted value of after tax shareholder attributable cashflows expected on the business as at the valuation date. No allowance is made for future new business. This amount has been adjusted to deduct allowances for non hedgeable risk, frictional costs of required capital and the time value of financial options and guarantees.

37 37 Appendix 2 : Components of value of in force ( VIF ) Present value of future profits ( PVFP ) This component has been calculated by discounting the projected future after tax shareholder attributable cashflows expected to arise on in-force business at the valuation date. The cash-flows have been projected on a deterministic basis using the company s best estimate view of future persistency, mortality and expenses. Future investment returns and the risk discount rate have been set equal to the returns from the risk free (government bond) yield curve at the closing balance sheet date. Time Value of Financial Options and Guarantees ("TVFOG") During FY11, the company carried out an extensive analysis of the profile of guarantees in its Par funds to identify the level of guaranteed benefits occurring at future time periods. The investment strategy of the Par funds was reset to enable, where possible, hedging of these guaranteed benefits through cashflow matching of the guarantees with fixed interest assets. As a result, the company is of the view that there is no residual TVFOG associated with the Par funds. The cost associated with the investment guarantees in the unit linked funds has been allowed for in the PVFP calculation. Frictional Costs of Required Capital ( FCRC ) The VIF allows for a deduction in respect of the frictional costs of holding required capital ( FCRC ). Required capital has been set equal to the amount of shareholder attributable assets required to back local regulatory solvency requirements. The FCRC has been calculated as the discounted value of investment costs and taxes on shareholder attributable assets backing the required capital over the lifetime of the in-force business. Cost of non hedgeable risk ( CNHR ) The VIF incorporates an explicit deduction to allow for non hedgeable and non economic risks. The CNHR has been derived using a cost of capital approach and is calculated as the discounted value of an annual charge applied to projected risk bearing capital. The initial risk bearing capital has been calculated based on 99.5th percentile stress events for non economic assumptions over a 1-year time horizon. This initial risk bearing capital has been updated based on the portfolio of business as at 31st March Projected risk bearing capital has been determined by running-off the initial risk bearing capital in line with the expected movement in the regulatory solvency margin requirement. 99.5th Percentile stress events have been taken from the EU Solvency II, QIS 5 framework (previously QIS 4 framework). In order to allow for the greater risks associated with emerging markets, the risk bearing capital has been uplifted by 50%. The annual charge applied to the projected risk bearing capital is 4% p.a. The stress events, uplifts to NHR, run-off pattern for projected risk bearing capital and annual charge, are reviewed and modified if necessary on an annual basis.

38 38 Appendix 3 : Key assumptions underlying MCEV Expenses Maintenance expenses have been based on the latest expense analysis done in FY13 and are inflated at 7.5% per annum. These assumptions do not incorporate any allowance for future productivity improvements. Given the substantial changes in regulations, the Company has reviewed its cost structure, as a result of which the long-term acquisition expense levels have been calibrated at a level lower than that used earlier. These new long-term acquisition expense levels, as approved by the committee of Board in March 2012, have been incorporated into the pre-overrun margins disclosed for FY12 and FY13. Economic assumptions The closing MCEV is calculated assuming projected earned and risk discount rates are both set equal to the risk free (government bond) yield curve at the closing balance sheet date. The new business profitability is calculated with similar assumptions, except that the yield curve at the opening balance sheet date is used. No allowance for any illiquidity premia is made within the earned rates, except for group credit spread products. Persistency Persistency assumptions are set by product line, payment mode and duration in-force, based on past experience and expectations of future experience. Separate decrements are modeled for lapses, surrenders, paid-ups and partial withdrawals. Tax assumptions Tax assumptions are based on interpretation of existing tax legislation, where appropriate supported by legal opinion. Profits attributable to shareholders are assumed to be taxed at 14.16% for Life business and 0% for Pensions business. Allowance is made within the tax computation for dividend offsets permitted under Section 2A of the Income Tax Act and for losses incurred within the Shareholder Fund. No allowance is made for future changes to taxation such as the Direct Tax Code. These changes will be incorporated only once materially enacted. It is expected that implementation of DTC in its current form will result in a material negative impact to the MCEV and new business profitability. Mortality and morbidity Mortality and morbidity assumptions are set by product line and are based on past experience.

39 39 Glossary Commission ratio Ratio of total commissions paid out on first year, single and renewal premiums to total premiums. Conservation ratio Ratio of current year renewal premiums to previous year s renewal premium and first year premium. APE (Annualized Premium Equivalent) The sum of annualized first year regular premiums and 10% weighted single premiums and single premium top-ups. First year premiums Regular premiums received during the year for all modes of payments chosen by the customer which are still in the first year. For example, for a monthly mode policy sold in March 2012, the first installment would fall into first year premiums for and the remaining 11 installments in the first year would be first year premiums in New business received premium The sum of first year premium and single premium. Operating expense All expenses of management excluding service tax. It does not include commission. Operating expense ratio Ratio of operating expenses (excluding service tax) to total premiums. Renewal premiums Regular recurring premiums received after the first year. Solvency ratio Ratio of available solvency margin to required solvency margins. Total premiums Total received premiums during the year including first year, single and renewal premiums for individual and group business. Weighted received premium (WRP) The sum of first year premium and 10% weighted single premiums and single premium top-ups. 13th month persistency Percentage of contracts, measured by premium, still in force 13 months after they have been issued.

40 40 Disclaimer This release is a compilation of published financial results, other information and is not a statutory release. This may also contain statements that are forward looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ from our expectations and assumptions. We do not undertake any responsibility to update any forward looking statements nor should this be constituted as a guidance of future performance. This release is a privilege copy intended for reference of selected group. These disclosures are subject to the prevailing regulatory and policy framework as on March 31, 2013 and do not reflect any subsequent changes.

41 41 Thank You In partnership with Standard Life