HDFC Standard Life Insurance Company Limited. Investor presentation August 2016

Transcription

1 HDFC Standard Life Insurance Company Limited Investor presentation August 2016 This is the sole and exclusive property of HDFC Life. August 21, 2016

2 Agenda A India Life Insurance HDFC Life - Current Business Snapshot Journey with Max Annexures 2

3 Taiwan Hong Kong Japan Singapore Thailand Malaysia India China Indonesia Hong Kong Taiwan Singapore Japan Malaysia Thailand China India Indonesia India China Thailand Indonesia Malaysia Hong Kong Japan Singapore Taiwan Growth opportunity Under-penetration vs global benchmarks 15.7% 13.3% Life insurance penetration (2015) 5,655 Life insurance density US$ (2015) Protection gap (2014) 92.2% 88.3% 78.4% 73.3% 72.5% 70.2% 56.3% 56.0% 8.3% 5.6% 3.7% 3.4% 2.7% 2.0% 1.3% 3,397 2,931 2, % India life insurance penetration ( ) 4.1% 4.0% 4.0% 4.6% 4.4% 3.4% 3.2% 3.1% 2.6% 2.7% 33 India life insurance density US$ ( ) India has the highest protection gap in the region, as growth in savings and life insurance coverage has lagged behind economic and wage growth Despite moderate penetration, the protection gap has increased over 4x in last 15 years, with significantly low insurance density Source: Swiss Re, MOSPI Note: Penetration as measured by premiums as % of GDP, Density defined as the ratio of premium underwritten in a given year to the total population 3

4 Growth opportunity Favourable demographics Life expectancy (Years) 1 Population composition (bn) % 33% % 19% 20% 34% 36% 37% 53% 50% 45% 43% (E) (E) (E) (E) Less than 25 years years 50 years and above India's insurable population is anticipated to touch 750 million in 2020 India is currently one of the world s youngest nation with around 60% population under the age of 30, offering great opportunity for long term savings and investment plans Demand for retirement policies to rise with increasing life expectancy, declining birth-rates and proportion of India s elderly population expected to increase by almost 50% by 2030 Emergence of nuclear families and increasing life expectancy to facilitate need for pension and protection based products Source : 1 Census of India 4 2 United Nations World Populations Prospects Report (2012), EY Report on Indian insurance sector 2015

5 Life insurance A preferred savings instrument Household savings composition 120% Financial savings mix 23% 25% 22% 19% 51% 52% 67% 60% 49% 48% 33% 40% FY07 FY10 FY13 FY15 Financial savings Physical savings Household savings as % of GDP 100% 80% 60% 40% 20% 0% 3% 11% 11% 7% 12% 9% 13% 16% 15% 18% 26% 19% 56% 56% 40% 47% 9% 10% 11% 11% FY07 FY10 FY13 FY15 Currency Deposits Life insurance funds Provident and pension funds Others Underperforming equity markets and persistently high inflation led to a larger proportion of household saving shifting towards physical assets between FY 08 and FY 15 Share of life insurance within financial assets has grown as it caters to a unique mix of long-term savings and protection needs Various government initiatives to promote financial inclusion: Implementation of JAM trinity around 220 million new savings bank accounts opened in last two years Licenses to banks promoting financial inclusion including Small Finance Banks and Payment Banks Launch of affordable PMJJBY and PMSBY social insurance schemes - gross enrolments of around 124 million Atal Pension Yojana promoting pension in unorganized sector 5 Source: DBIE-RBI Statistics (2015), RBI Annual Report (2014), Economic Survey Vol II, Press note by CSO

6 Life insurance Evolution of the industry FY01-03 Entry FY04-08 Expansion FY09-14 Achieving the new normal FY15 onwards Growth revival >100% >100% >100% >100% 81% 100% 86% Private sector growth 1 1% 7% 2% 16% 14% Industry growth 1 # of private players -3% -20% -24% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 19% 2% 13% 17% 34% 92% 31% (10%) 17% (8%) (5%) (2%) (4%) (10%) % 23 FY01-03 FY04-08 FY09-14 FY15 onwards Features Entry of private players Introduction of Bancassurance Superior growth introduction of ULIPs Favorable equity markets Muted growth with regulatory tightening and increased focus on quality of business coupled with dismal equity market performance Revival of growth with top private players taking the lead Customer Risk-averse Traditional Risk-taking Experimental Cautious Conservative Long term focus Protection Environment Beginning of growth phase Capital markets boom and bust Slow growth Revival of growth Regulatory Environment Benign Enabling Proactive Watchful Industry Foreign partner transfer knowledge Product innovation Private market share expands Service orientation Digitization Service delivery 6 Note: 1 On individual FYWRP basis, Source: IRDAI and Life Insurance Council

7 Growth % Individual WRP in Rs. Bn Individual WRP in Rs bn Industry new business * trends 450 Sensex Private Players LIC Sensex Private players market share FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 YTD Jul'16 34% 35% 50% 57% 52% 46% 37% 38% 38% 49% 52% 49% Private LIC Overall 99% 86% 1% 7% -20% -24% 2% -3% 16% 14% 18% 88% 0% -22% 29% 4% 11% -4% -2% -27% 3% 12% 92% 31% -10% 17% -9% -5% -2% -3% -11% 8% 15% Private sector gained higher market share than LIC for the first time in FY16, post FY11 regulatory changes 7 * Basis Individual Weighted Received Premium (WRP) Source: IRDAI, Life Insurance Council, HDFC Life Analysis

8 Trend of private market share Top 7 private players vs other players 59% 61% 65% 67% 71% 75% 77% 41% 39% 35% 33% 29% 25% 23% FY11 FY12 FY13 FY14 FY15 FY16 YTD Jul'16 Rest Private Top 7 Amongst private insurers, insurers with a strong bancassurance platform continue to dominate with increasing market share of the total private individual new business 8 Note: 1. Basis Individual Weighted Received Premium (WRP) as disclosed by IRDAI, Life Insurance Council 2. Top 7 players based on YTD Jul 16 business numbers, comprising of ICICI Pru, SBI Life, HDFC Life, Max Life, PNB Metlife, Kotak Life and Tata AIA

9 Private industry Product and distribution mix Product mix 1 Distribution mix 2 68% 32% Unit Linked 60% 40% 37% Conventional 63% 67% 33% 43% 57% Individual Agents Corporate Agents - Others Direct Business 33% 39% 43% 44% Corporate Agents - Banks Brokers 6% 4% 6% 7% 9% 5% 5% 5% 5% 9% 8% 5% 6% 4% 3% 47% 47% 44% 40% 41% 36% FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 Reduced distributors payout and high expense structure led many players to move to traditional products over last few years Share of Bancassurance sourced business has consistently increased on the back of increasing reach of banks Share of Agency has declined post regulatory changes in FY11 9 Source: IRDAI, Life Insurance Council, HDFC Life Analysis Note: 1. Basis Overall WRP (Individual and Group); 2. Basis Individual New business premia

10 Agenda India Life Insurance B HDFC Life - Current Business Snapshot Journey with Max Annexures 10

11 HDFC Life overview Overview Snapshot of operations (Q1 FY17) Established in 2000, HDFC Standard Life Insurance Company ( HDFC Life ) is partnership between HDFC Ltd. and Standard Life plc 1st private life insurer to launch operations in India Solvency ratio of 204% as on June 30, 2016 Product portfolio 1 of 29 individual and 8 group products, along with 7 optional riders Subsidiaries HDFC Pension Management Company Limited (Investment of Rs 280 mn) HDFC International Life and Re Company Ltd (Investment of USD mn) Reach 1 : Premiums Ranking 2 EV 3 & VNB 3 Profitability & efficiency Balance sheet Persistency Product mix 7 Total premium: Rs 32.2 bn Net Premium 1 : Rs 8.1 bn APE: Rs 5.9 bn Individual business premium: 3 Group business premium: 2 EV: Rs bn VNB: Rs 1.3 bn NB Margin (Post Overrrun): 19.7% EVOP% 4 : 17.5%; RoE: 31.8% Opex ratio 5 : 14.5% AUM: Rs bn Net worth: Rs 34.1 bn Persistency 6 (13 th month): 80% Persistency 6 (61 th month): 48% Conservation ratio: 83% Unit Linked: 47% Non-linked (Participating): 39% Non-linked (Non Participating): 14% 396 Offices 8 12,000+ Partner Branches (Banca and Brokers) 85,000+ Individual agents 0.17 mn policies (Individual new business) 14,610 Employees 11 1 Calculated as Total premium less surrenders, withdrawals, benefits and claims paid; 4 Ranking among private players based on FY16 data; 3 EV: Embedded value, VNB: Value of New business; 4 EVOP% - EVOP (Embedded value operating profit)/ Opening EV; 5 Operating expenses divided by Total premium; 6 Premium persistency based on original annualized premiums; 7 Based on Individual APE excluding service tax; 8 Including corporate office in Mumbai and 2 operations hubs

12 Our strengths Strong parentage and a trusted brand that enhances our appeal to consumers An independent, experienced leadership team driving business performance using a balanced scorecard approach Growing and profitable multi-channel distribution footprint that provides market access across geographies & consumer segments Leading position in bancassurance with longstanding partnerships Efficient technology platform that ensures ease of purchase for consumers and enables rapid integration with distributors Proven ability to consistently grow and deliver across business cycles Strong financial performance defined by profitable growth reflecting robustness of the business model 12

13 Financial and operational snapshot (1/2) All data unless mentioned in Rs Billion FY14 FY15 FY16 CAGR Q1 FY16 Q1 FY17 Key Financial Metrics New business Premium % Renewal Premium % Total Premium % Premium Less Benefit Payouts (1 ) % Net profit % Assets Under Management % Embedded Value (2 ) % Net Worth % Key Financial Ratios Overall New Business Margins (post overrun) (3 ) 15.2% 18.5% 19.9% 10.1% 19.7% Operating Expenses / Total Premium 10.7% 10.2% 11.6% 11.6% 14.5% Total Commissions / Total Premium 4.3% 4.2% 4.3% 3.4% 3.9% Return on Invested Capital (4 ) 33.6% 36.4% 37.8% 42.2% 45.2% Return on Equity (5 ) 44.7% 35.1% 28.7% 36.7% 31.8% Solvency Ratio 194% 196% 198% 208% 204% Notes: 1. Gross of reinsurance for both individual and group business 2. EV based on internal Company analysis 3. Computed on EV basis based on internal Company analysis 4. Calculated using net profit and share capital including share premium. For Q1, net profit is annualised 5. Calculated using as net profit and average net worth (Net worth comprises of Share capital, Share premium and Accumulated profits/(losses)). For Q1, net profit is annualised 13

14 Financial and operational snapshot (2/2) FY14 FY15 FY16 Q1 FY16 Q1 FY17 Key Financial Ratios Persistency (13M / 61M) (6 ) 69%/21% 73%/37% 79%/47% 74%/37% 80%/48% Conservation Ratio (7 ) 79% 90% 80% 83% 83% Business Mix (%) Product (UL/Trad Non Par/Trad Par) (8 ) 50/14/36 63/16/21 56/14/30 66/15/19 47/14/39 Indl Distribution (CA/Agency/Broker/Direct) (8 ) 70/16/7/7 74/13/5/8 75/12/4/9 73/13/5/9 70/14/6/10 Total Distribution (CA/Agency/Broker/Direct/Group) (9 ) 43/10/4/6/37 41/10/3/6/40 40/8/2/7/43 33/10/2/7/48 29/11/2/8/50 Other Details New business No. of Individual Policies Sold (In 000s) , HDFC Life Branches (No.) No. of Financial Consultants (In 000s) (1 0 ) Total Employees (No.) 13,963 14,348 15,254 14,537 14,610 Notes: 6. Persistency ratio is computed for rolling 12 months with a 1 month lag on original premium basis, based on individual business as per the latest IRDA circular 7. Conservation ratio for individual business 8. Based on individual APE excluding service tax. UL stands for Unit Linked, Trad stands for Traditional, Par stands for Participating & CA stands for Corporate Agents 9. Based on total new business premium including group 10. Comprises of individual, broker and corporate consultants 14

15 Future Avenues Existing Solutions Leveraging mobility solutions for digital transformation Entire insurance purchase process to be completed on a smart phone/ tablet, thereby improving customer experience, agent efficiency and reducing processing effort Mobile apps to help in the purchase cycle, customer servicing and eliminate inefficiencies E-MIF msd Customer App InstaFR Attendance & Leave Management Credit Protect Calculator InstaLife InstaVerify Training HR & Communicat ion Lead & Quote Login Conversion Policy Servicing Analytics based Smart Lead Management Contest Co mmunication Management My Mix Bay/Renew on Bank app Reimbursement Management PASA Future Avenues Fair adoption Good adoption Business as usual Mode 15

16 Our strategy Delivering Value I. Create an agile, multi-channel distribution platform to fortify and diversify our revenue mix II. Drive innovation in product development and sales to enhance customer value proposition III. Invest in digital ecosystem to establish leadership in the fast growing online segment IV. Continue to build economies of scale to ensure profitability and cost leadership Enhance customer experience Drive technology enablement across the value chain Ensure effective risk mitigation & management Invest in skill development & workforce retention 16

17 Agenda India Life Insurance HDFC Life - Current Business Snapshot C Journey with Max Annexures 17

18 Proposed transaction structure Single Composite Scheme of Arrangement Step #1: Max Life merges into Max FS (listed entity) Step #2: Merged entity in Step#1 demerges life insurance undertaking into HDFC Life (Entity referred to as MergeCo subsequently) Step#3: Max FS (holding residual business) merges with Max India (listed entity) 18

19 Indicative shareholding post the transaction Standard Life 35.0% Others 3.4% HDFC Ltd. 61.6% MSI 25.0% Axis Bank 6.0% Max FS 69.0% Others 10.0% Domestic Max Institutions Sponsors 15.6% 30.5% Foreign Institutions 44.0% Promoters of the resultant entity would be HDFC Ltd. and Standard Life Others 19.1% MSI 7.8% Max Sponsors 6.5% Standard Life 24.1% HDFC Ltd. 42.5% Promoter holding: 66.6% Domestic holding: 58.5% Foreign holding: 41.5% Final shareholding of HDFC Life will depend on shareholding of each entity as on the record date of the transaction Notes 1.Based on shareholding as of Jun 30, 2016 for respective companies 19

20 Key transaction details (1/2) Relative Valuation Based on agreed commercials, relative valuation of HDFC Life and Max Life is 69% and 31% respectively Non Compete and Non Solicitation Term: 4 years from the payout of first tranche Consideration: An upfront payment of Rs 5.01 bn payable immediately post completion of merger, followed by three equal annual installments totaling Rs 3.49 bn Payment to be made by final Merged entity of HDFC Life from Shareholders account Payment is subject to receipt of upfront majority approval from minority shareholders of Max FS. Max Life will seek consent from its shareholders holding more than 75% stake for the proposed transaction Brand Trademark license agreement to use Max brand as part of life insurance products transitioning from Max Life for 7 years post merger completion Axis Bank Arrangement Axis Bank corporate agency agreement to continue till September

21 Key transaction details (2/2) Board Board of HDFC Life to continue Integration Planning Co-operation committee Joint representation for transaction closure Integration Planning committee to provide integration roadmap and resolve integration related issues with majority representation from HDFC Life Policyholder Safeguards Existing policies will continue on an as is basis with the same terms until their tenure Final Structure at Effective Date Max Life s insurance business to demerge into HDFC Life Residual business of Max FS to merge into Max India HDFC Life to issue shares to shareholders of Max Life and Max FS HDFC Life would become a listed company with HDFC Ltd. and Standard Life (Mauritius Holdings) 2006 Limited as Promoters 21

22 Transaction strategic benefits(1/2) 1 Increased market share with diversified distribution network HDFC Life has FY16 market share of 6.3% (1) and 3.5% (2) in individual and group segment respectively versus Proforma market share to be ~10.8% (1) and 3.85% (2) in individual and group segment respectively Increased number of service touch points for the customers Distribution mix (3) of HDFC Life Agency (13%), Banca (71%), Direct (12%), Others (4%) versus Proforma Distribution mix (3) Agency (19%), Banca (67%), Direct (11%), Others (2%) 2 Wider product basket with a balanced portfolio Wider product suite across categories Product mix (3) of HDFC Life PAR (30%), Non-PAR (14%), ULIP (56%) versus Proforma Product mix (3) PAR (42%), Non-PAR (13%), ULIP (45%) 3 Enhanced access to bancassurance channels Partnership with 3 out of 6 top private sector banks 22 Notes 1.Based on FY16 individual new business received premiums 2.Based on FY16 group new business received premiums 3.Based on FY16 individual APE (excluding tax) and individual WRP for HDFC Life and Max Life respectively

23 Transaction strategic benefits (2/2) 4 Revenue and cost synergies to enhance shareholder value Integrated platforms technology, digital, mobility, analytics, operations and underwriting Higher cross sell opportunities Best practices to enhance distribution productivity Savings due to value engineering 5 Improved employee value proposition Better opportunities for employees across geographies and functions Access to a larger talent pool with intent to retain talent across the two companies Employer of choice to attract and retain talent 23

24 Combined entity to consolidate market share Market share analysis across segments 25% 81% 20% 70% 15% 56% 10% 5% 0% 11% 9% 9% 7% 6% 4% 5% 5% 5% 4% 4% 2% 2% 2% 2% 2% 2% 1% 2% 1% 2% 2% 2% 2% 0% 1% 1% 1% 0% 1% 0% 3% 2% LIC Proforma SBI Life ICICI Pru HDFC Life Bajaj Life Max Life Birla Sunlife Kotak Life Reliance Life IndiaFirst PNB MetLife Individual Group Total Assets under Management (March 31, 2016) 1,400 Rs bn 1,200 21,130 1,101 1,039 1, LIC Proforma ICICI Pru SBI Life HDFC Life Bajaj Life Max Life Birla Sunlife Tata AIA Kotak Life Reliance Life PNB MetLife 24 Notes 1. Market share analysis based on FY16 data amongst private players (for new business premiums)

25 Proforma financials FY16 Q1FY17 Rs bn Total Premiums Individual Premiums Group Premiums Net Profit AUM , ,160.3 Solvency 198% 343% 252% 204% 347% 257% EV Return on Embedded value Overall Post Overrun NBM 15.9% 7.4% 12.7% 19.9% 17.9% 19.2% Notes 1. Comprising of new business and renewal business

26 Operational overview of HDFC Life proforma Employees 14,610 9,010 23,620 Branches Customers (1) 4.1 Mn 2.9 Mn 7.0 Mn Agents 85,760 48, ,371 Key Bancassurance Partners As of June 30, Notes 1. Excludes Group customers

27 Regulatory Approvals Way forward Months Announcement of Transaction Execution of Documents Application to Regulators Receipt of Approvals Effective Date Listing August 8, 2016 Within 7 Days of Announcement months Within Days of Effective Date CCI: On or before Sep 7, Approval expected in 4 5 months IRDAI: Notice of intent and application for in-principle approval expected to be made within days. In principle approval expected in 3-4 months SEBI: Within 2-3 weeks (by Max FS and Max India). In principle approval expected in 30 days High Court: After receipt of in-principle approval from SEBI and IRDAI. Approval expected in 8 10 months 27

28 Transaction advisors Financial Advisors Arpwood Capital Morgan Stanley Legal Advisors Shardul Amarchand Mangaldas AZB & Partners (Mumbai) Cyril Amarchand Mangaldas (Mumbai) Valuation Advisors Haribhakti & Co. LLP Fairness Opinions Citigroup Global Markets India Private Limited Kotak Mahindra Capital Company Limited 28

29 Agenda India Life Insurance HDFC Life - Current Business Snapshot Journey with Max D Annexures 29

30 Composition of EV (FY16) Rs bn VIF PVFP TVFOG FC CNHR VIF ANW EV Notes: 1. PVFP pertains to Overall (Individual + Group) business 2. PVFP Present Value of Future Profits; TVFOG Time Value of Financial Options and Guarantees; FC Frictional Cost; CNHR Cost of Non Hedgeable Risk; VIF Value of InForce business; ANW Adjusted Networth 30

31 Analysis of change in EV EVOP (20.7%) Rs bn Expected return on existing business -0.3 Change in operating assumptions and model 7.4 VNB added during the year Variance in operating experience Changes in economic assumptions Economic variances Dividend payout % RoEV IEV at 31 st Mar 15 Adjusted Net worth (ANW) Value of in-force business (VIF) IEV at 31 st Mar 16 Notes: 1 New business profits (VNB) pertain to Overall (Individual + Group) business; 2 Including DDT 3 RoEV calculated as (Closing EV Opening EV + dividends paid) / Opening EV 31

32 Understanding the FY16 VNB Rs bn VNB before TVFOG, CRNHR, FC TVFOG FC CRNHR VNB New business margin for FY16 at 19.9% Margin driven by higher mix of protection and Non Par savings products 32

33 Sensitivity analysis (1/2) Scenario VNB % Change in VNB Change in Base scenario Economic parameters Reference rate Equity values EV % Change in EV Increase by 1% % % Decrease by 1% % % Increase by 2% % % Decrease by 2% % % Decrease by 10% % % Decrease by 20% % % Implied swaption volatilities Increase by 25% % % Implied equity volatilities Increase by 25% % % Expenses Maintenance expenses Acquisition expenses Increase by 10% % % Decrease by 10% % % Increase by 10% % NA NA Decrease by 10% % NA NA Policy/premium discontinuance rates & partial withdrawal rates (proportionate) Policy/premium discontinuance rates & partial withdrawal rates Rs bn Increase by 10% % % Decrease by 10% % % Increase by 50% % % Decrease by 50% % % 33

34 Sensitivity analysis (2/2) % Change in % Change in Scenario VNB EV VNB EV Change in Base scenario Policy/premium discontinuance rates & partial withdrawal rates (shape change) Mass lapse rate 1 25% of policies % % 50% of policies % % Policy/premium Increase by 50% % % discontinuance rates & partial withdrawal rates 2 Decrease by 50% % % Non-zero policy lapse rate 3 Increase by 5% % % Decrease by 5% % % Insurance risks Increase by 5% % % Mortality/morbidity rates Decrease by 5% % % Required capital Required capital Taxation Equal to minimum regulatory solvency capital Rs bn % % Tax rate Increased to 25% % % Notes: 1 Mass lapse rate assumptions (25% or 50%) are reflected by replacing the relevant assumptions made in the base scenario and not as an addition to the assumptions made in the base scenario 2 Applicable for ULIPs 3 A policy lapse is defined as premium discontinuance, after which a policy will be subject to forcible foreclosure at the end of a revival period, specified as per the policy terms and conditions 34

35 Appendix This is the sole and exclusive property of HDFC Life. August 21, 2016

36 IEV methodology and approach Components of IEV The IEV set out consists of the following components: Adjusted net worth( ANW ), consisting of: Free surplus ( FS ) allocated to the covered business; Required capital ( RC ) Value of in-force covered business ( VIF ) FS The FS is the market value of any assets allocated to, but not required to support, the in-force covered business as at the valuation date. The FS has been determined as the adjusted net worth of the Company (being the net shareholders funds adjusted to revalue assets to market value), less the RC as defined below. RC RC is the amount of assets attributed to the covered business over and above that required to back liabilities for covered business, the distribution of which to the shareholders is restricted. The RC is set equal to the higher of Minimum Regulatory Capital ( MRC ) and Internal Capital, less FFA in the participating fund 36

37 Components of Value in force ( VIF ) Present value of future profits ( PVFP ) The PVFP us the present value of projected distributable profits to shareholders arising from the in-force covered business determined by projecting the shareholder cash flows from the inforce covered business and the assets backing the associated liabilities. Time Value of Financial Options and Guarantees ( TVFOG ) The TVFOG reflects the value of the additional cost to shareholders that may arise from the embedded financial options and guarantees attaching to the covered business in the event of future adverse market movements. The intrinsic value of such options and guarantees is reflected in the PVFP. Frictional costs of required capital ( FC ) The VIF includes an allowance for the FC of RC for the covered business. The FC represents the investment management expenses and taxation costs associated with holding the RC. The VIF also includes an allowance for FC in respect of the encumbered capital in the Company s holdings in its subsidiaries, HDFC Pension Fund Management Company and HDFC International Life and Re Company. Cost of residual non-hedgeable risks ( CRNHR ) The CRNHR is an allowance for risks to shareholder value to the extent that these are not already allowed for in the TVFOG or the PVFP. In particular, the CRNHR makes allowance for: asymmetries in the impact of the risks on shareholder value; and risks that are not allowed for in the TVFOG or the PVFP The CRNHR has been determined using a cost of capital approach. The CRNHR is the present value of the cost of capital charge levied on the projected capital in respect of the material risks identified. 37

38 Key assumptions underlying EV Mortality and morbidity The assumed mortality rates are based on the standard mortality tables Indian Assured Lives Mortality ( ) (IALM06-08) and annuitants mortality table (IALM 96-98), for each age and gender and adjusted for the Company s own experience for each product class Policy/ premium discontinuance rates, partial withdrawal rates and revised rates The partial withdrawal rates and the revival rates, specific to different product types and duration inforce, are set based on the company s own experience as at Dec 31, 2015 or on pricing assumptions/industry benchmarks. Commission and expenses The expense assumptions are based on analysis of the Company s actual expenses for the year ending Mar 31, The commission rates under different products are based on the actual commission payable (if any) to the distributors. Policyholder bonuses Future bonuses on participating business have been projected in a manner consistent with the company s bonus policy; the projected future investment returns assumed to be earned on the assets deemed to back the policies; and relevant statues and regulations. Taxation The company has exhausted its historical tax losses as at the valuation date and hence no value is placed on the same. Effective income tax rate applied to surplus emerging from life insurance business is equal to 14.42%. The tax rate applied to pension business is zero. The assumed service tax rates are as follows: Until May 31, % June 1, 2015 to Oct 31, % Nov 1, 2015 to May 31, % June 1, 2016 onwards 15.0% Inflation The assumed expense inflation rate is 7.5% p.a. in the valuation as at Mar 31, 2015 and Mar 31,

39 Glossary APE (Annualized Premium Equivalent) - The sum of annualized first year regular premiums and 10% weighted single premiums and single premium top-ups Conservation ratio - Ratio of current year renewal premiums to previous year's renewal premium and first year premium 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 2015, the first instalment would fall into first year premiums for and the remaining 11 instalments 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, based on reducing balance approach 39

40 Disclaimer This presentation is for information purposes only and does not constitute an offer or invitation to sell or the solicitation of an offer or invitation to purchase any securities ( Securities ) of HDFC Standard Life Insurance Company Limited ( HDFC Life or the Company ) in India, the United States, Canada, the People s Republic of China, Japan or any other jurisdiction. This presentation is not for publication or distribution, directly or indirectly, in or into the United States (including its territories and possessions, any state of the United States and the District of Columbia). The securities of the Company may not be offered or sold in the United States absent registration or an exemption from registration under the U.S. Securities Act of 1933, as amended. The Company does not intend to register any securities in the United States. You confirm that you are either: (i) a qualified institutional buyer as defined in Rule 144A under the U.S. Securities Act of 1933, as amended, or (ii) outside the United States. By receiving this presentation, you are agreeing to be bound by the foregoing and below restrictions. Any failure to comply with these restrictions may constitute a violation of applicable securities laws. This presentation should not, nor should anything contained in it, form the basis of, or be relied upon in any connection with any contract or commitment whatsoever. The information contained in this presentation is strictly confidential and is intended solely for your reference and shall not be reproduced (in whole or in part), retransmitted, summarized or distributed to any other persons without Company s prior written permission. The Company may alter, modify or otherwise change in any manner the contents of this presentation, without obligation to notify a any person of such revision or changes. This presentation may contain forward looking statements that involve risks and uncertainties. Forward looking statements are based on certain assumptions and expectations of future events. Actual future performance, outcomes and results may differ materially from those expressed in forward looking statements as a result of a number of risks, uncertainties and assumptions. Although Company believes that such forward looking statements are based on reasonable assumptions, it can give no assurance that such expectations will be met. Representative examples of factors that could affect the accuracy of forward-looking statements include (without limitation) the condition of and changes in India s political and economic status, government policies, applicable laws, the insurance sector in India, and international and domestic events having a bearing on Company s business, particularly in regard to the progress of changes in the regulation of the life insurance sector in India, and such other factors beyond our control. You are cautioned not to place undue reliance on these forward-looking statements, which are based on current view of Company s management on future events. The data herein with respect to HDFC Life is based on a number of assumptions, and is subject to a number of known and unknown risks, which may cause HDFC Life s actual results or performance to differ materially from any projected future results or performance expressed or implied by such statements. This presentation has been prepared by the Company. No representation, warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information and opinions in this presentation. None of Company or any of its directors, officers, employees, agents or advisers, or any of their respective affiliates, advisers or representatives, undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise and none of them shall have any liability (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with this presentation. Further, nothing in this presentation should be construed as constituting legal, business, tax or financial advice or a recommendation regarding the securities. 40

41 Thank you This is the sole and exclusive property of HDFC Life