41
This is the sole and exclusive property of HDFC Life. October 18, 2016 HDFC Standard Life Insurance Company Limited Investor presentation – September 2016
This is the sole and exclusive property of HDFC Life. October 18, 2016
HDFC Standard Life Insurance Company Limited
Investor presentation – September 2016
India Life Insurance HDFC Life - Business Snapshot Journey with Max Annexures
Agenda
A
2
5,655
3,397 2,931 2,717
316 215
153 43 43
Hong K
ong
Ta
iwan
Sin
gapore
Japan
Mala
ysia
Th
aila
nd
Chin
a
India
Indonesia
Growth opportunity – Under-penetration vs global benchmarks
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
Life insurance penetration (2015)
15.7%
13.3%
8.3%
5.6%
3.7% 3.4% 2.7% 2.0% 1.3%
Ta
iwan
Hong K
ong
Japan
Sin
gapore
Th
aila
nd
Mala
ysia
India
Chin
a
Indonesia
33 40 41
48 56
49 43 41 44 43
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
India life insurance density US$ (2006-15)
Life insurance density US$ (2015)
4.1% 4.0% 4.0% 4.6% 4.4%
3.4% 3.2% 3.1% 2.6% 2.7%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
India life insurance penetration (2006-15)
3
Protection gap (2014)
92.2% 88.3% 78.4%
73.3% 72.5% 70.2%
56.3% 56.0%
16.4%
India
Chin
a
Th
aila
nd
Indonesia
Mala
ysia
Hong K
ong
Japan
Sin
gapore
Ta
iwan
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
Life expectancy (Years)1
Source : 1 Census of India 2 United Nations World Populations Prospects Report (2012), EY Report on Indian insurance sector – 2015
Growth opportunity – Favourable demographics
63
67
70 71
1999-02 2006-10 2016-20(E) 2021-25(E)
53% 50% 45% 43%
33% 34% 36% 37% 14%
16% 19% 20%
1999-02 2006-10 2016-20(E) 2021-25(E)
Less than 25 years 25-49 years 50 years and above
1.1 1.2
1.3 1.4
Population composition (bn)2
4
9% 10% 11% 11%
56%40%
56%47%
15%
26%
18%
19%
9% 13%
12%16%
11% 11%3% 7%
0%
20%
40%
60%
80%
100%
120%
FY07 FY10 FY13 FY15
Currency Deposits Life insurance funds Provident and pension funds Others
Source: DBIE-RBI Statistics (2015), RBI Annual Report (2014), Economic Survey 2014-15 Vol II, Press note 2014-15 by CSO
Financial savings mix
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
Life insurance – A preferred savings instrument
Household savings composition
49% 48% 33% 40%
51% 52% 67% 60%
FY07 FY10 FY13 FY15
Financial savings Physical savings
23% 25% 22% 19%
Household savings as % of GDP
5
Life insurance – Evolution of the industry
FY04-08 Expansion
FY09-14 Achieving the new normal
FY15 onwards Growth revival
FY01-03 Entry
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
8% 34% 17% 13% 2% 19% (10%) (4%) (2%) (5%) (8%) 17% (10%) 31% 92%
23 14 13 12 12 11 4 23 23 23 23 22 22 21 17 15
Private sector growth1
Industry growth1
# of private players
>100% >100% >100% >100%
81%
100% 86%
1% 7%
-20% -24%
2%
-3%
16% 14%
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Note: 1 On individual FYWRP basis, Source: IRDAI and Life Insurance Council 6
72
143
266 269288
230
175 178 172
200
227
59
138
260 261
203
262273
304292
285
208 214
60
-
5,000
10,000
15,000
20,000
25,000
30,000
0
50
100
150
200
250
300
350
400
450
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 YTD Jul'16
Se
nse
x
Ind
ivid
ual
WR
P i
n R
s. B
n
Sensex Private Players LIC
* Basis Individual Weighted Received Premium (WRP)
Source: IRDAI, Life Insurance Council, HDFC Life Analysis
Private sector gained higher market share than LIC for the first time in FY16, post FY11 regulatory changes
Industry new business* trends
34% 35% 50% 57% 52% 46% 37% 38% 38% 49% 52% 49% Private players market share
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%
Grow
th %
Private
LIC
Overall
7
In
div
idu
al W
RP
in
Rs b
n
Sen
sex
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
Amongst private insurers, insurers with a strong bancassurance platform continue to dominate with
increasing market share of the total private individual new business
Private industry – Market share trends
Top 7 private players vs other players
8
41% 39% 35% 33% 29% 25% 23%
59% 61% 65% 67% 71% 75% 77%
FY11 FY12 FY13 FY14 FY15 FY16 YTD Jul'16
Rest Private Top 7
68%
40% 37%
33%
43%
32%
60% 63%
67%
57%
FY11 FY12 FY13 FY14 FY15
Unit Linked Conventional
Private industry – Product and distribution mix
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
Source: IRDAI, Life Insurance Council, HDFC Life Analysis
Note: 1. Basis Overall WRP (Individual and Group); 2. Basis Individual New business premia
Distribution mix2 Product mix1
47% 44% 40% 41% 36%
33% 39% 43% 44% 47%
9% 8% 6% 4% 3% 5% 5% 5% 5% 5%
6% 4% 6% 7% 9%
FY11 FY12 FY13 FY14 FY15
Individual Agents Corporate Agents - Banks
Corporate Agents - Others Brokers
Direct Business
9
B
India Life Insurance HDFC Life - Business Snapshot Journey with Max Annexures
Agenda
10
HDFC Life overview
Reach:
Employees
14,610
Partner Branches (Banca and Brokers)
12,000+
Offices9
396
Persistency7 (13th month): 80% Persistency7 (61th month): 48% Conservation ratio: 83%
Persistency
AUM: Rs 783.3 bn Net worth6: Rs 34.1 bn
Balance sheet
Total premium: Rs 32.2 bn Net Premium1: Rs 8.1 bn APE: Rs 5.9 bn Premiums
EVOP%4: 17.4%; RoE: 31.8% Opex ratio5: 14.5%
Profitability & efficiency
EV: Rs 107.8 bn VNB: Rs 1.3 bn NB Margin (Post Overrrun): 19.7% EV3 & VNB3
Established in 2000, HDFC Standard Life
Insurance Company (‘HDFC Life’) is partnership
between HDFC Ltd. and Standard Life
1st private life insurer to launch operations in
India
Solvency ratio of 204% as on June 30, 2016
Product portfolio 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 12.33 mn)
Snapshot of operations (Q1 FY17) Overview
Unit Linked: 47% Non-linked (Participating): 39% Non-linked (Non Participating): 14%
Product mix8
Individual new business premium: 3 Group business premium: 2 Ranking2
Individual agents
85,000+
1 Calculated as Total premium less surrenders, withdrawals, benefits and claims paid; 2 Ranking among private players based on Q1 FY17 data; 3 EV: Embedded value, VNB: Value of New business; 4 EVOP% - Annualized EVOP (Embedded value operating profit)/Opening EV; 5 Operating expenses divided by Total premium; 6 Net worth comprises of Share capital, Share premium and Accumulated profits/ (losses) 7 Based on original premium; 8 Based on Individual APE excluding service tax; 9 Including corporate office in Mumbai and 2 operations hubs
11
policies (Individual new business)
0.17 mn
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
1
2
3
4
5
6
Strong financial performance defined by profitable growth reflecting robustness of the business model
7
12
Financial and operational snapshot (1/2)
Notes:
1. Gross of reinsurance for both individual and group business 2. FY16 EV based on external review. For Q1, EVOP% is annualised 3. Comprises of Share capital, Share premium and Accumulated profits/(losses) 4. Calculated using net profit and share capital including share premium. For Q1, net profit is annualised
13
FY14 FY15 FY16 CAGR Q1 FY16 Q1 FY17
Key Financial Metrics
New business Premium 40.4 54.9 64.9 27% 10.9 14.1
Renewal Premium 80.2 93.4 98.3 11% 17.0 18.1
Total Premium 120.6 148.3 163.1 16% 28.0 32.2
Individual WRP 23.7 29.7 33.3 18% 4.9 5.6
Group premium 14.8 21.8 28.3 38% 5.2 7.1
Premium Less Benefit Payouts (1) 73.6 65.8 80.6 5% 19.0 24.0
Net profit 7.3 7.9 8.2 6% 2.3 2.5
Assets Under Management 505.5 670.5 742.5 21% 680.5 783.3
Embedded Value (2) 69.9 88.1 102.3 21% 91.2 107.8
Net Worth (3) 19.3 25.4 31.5 28% 27.7 34.1
Key Financial Ratios
Overall New Business Margins (post overrun) (2) 15.2% 18.5% 19.9% 10.1% 19.7%
EVOP % (2) 18.9% 21.7% 20.6% 17.0% 16.4%
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%
Financial and operational snapshot (2/2)
Notes:
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
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. Percentages are rounded off. 9. Based on total new business premium including group. Percentages are rounded off. 10. Comprises of individual, broker and corporate consultants
14
FY14 FY15 FY16 Q1 FY16 Q1 FY17
Key Financial Ratios
Return on Equity (5) 44.7% 35.1% 28.7% 36.7% 31.8%
Solvency Ratio 194% 196% 198% 208% 204%
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) 884 876 1,150 182 172
HDFC Life Branches (No.) 429 414 398 414 396
No. of Financial Consultants (In 000s) (10) 75 86 117 94 86
Total Employees (No.) 13,963 14,348 15,254 14,537 14,610
Technology solutions to enhance business outcomes
15
Distribution & Sales Force enablement
Ecommerce & Digital Marketing
Digitizing Operations & Underwriting
Workforce Learning & Management
Work in progressDeployment / Early adoption stageGood adoptionComplete adoption
Big Data &
Analytics –
Claims &
Financial UW
Pre-approved
Sum Assured
(PASA)
Robotics &
Desktop
Automation
India Stack
(eKYC,
Biometrics, UPI)
Go Online &
Learn (GOAL)
Mobile HR
Management
Systems
Enterprise
MOOC
On demand
learning
solutions
Mobility Suite
(Insta-Series)
OTC Policy
Issuance
Mobile Sales
Diary
MyMix
Customized
Solutions
Lead Warming
Call Centers
Virtual Sales
Assistant
Geo & Spatial
Capabilities
Virtual
Branch
Mobile
Commerce
Partner
Integration
Configurable,
Modular Stack
Open Source
Technology on
Cloud
Select toolsArea
Website 3.0
Hyper-
personalization
Digital
Relationship
Manager
Plug & Play
Partner
Onboarding
Toolkit
OCR technology
Our strategy
Drive technology enablement across the value chain
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
Invest in skill development & workforce retention
Delivering Value
Ensure effective risk mitigation & management
Enhance customer experience
16
C
India Life Insurance HDFC Life - Business Snapshot Journey with Max Annexures
Agenda
17
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
Indicative shareholding post the transaction
19
• Promoter holding: 66.6%
• Domestic holding: 58.5%
• Foreign holding: 41.5%
Promoters of the resultant entity would be HDFC Ltd. and Standard Life
Max FS69.0%MSI
25.0%
Axis Bank6.0%
HDFC Ltd.61.6%
Standard Life35.0%
Others3.4%
Final shareholding of HDFC Life will depend on shareholding of each entity as on the record date of the transaction
Max Sponsors
Foreign Institutions44.0%
Others10.0%
Domestic Institutions15.6% 30.5%
HDFC Ltd.42.5%
Standard Life24.1%
Others19.1%
Max Sponsors6.5%
MSI7.8%
Notes 1.Based on shareholding as of Jun 30, 2016 for respective companies
Transaction strategic benefits(1/2)
Increased market share with diversified distribution network 1
Wider product basket with a balanced portfolio 2
• 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%)
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
• 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%)
Enhanced access to bancassurance channels – Partnership with 3 out of 6 top private sector banks
3
20
Transaction strategic benefits (2/2)
21
Revenue and cost synergies to enhance shareholder value 4
• Integrated platforms – technology, digital, mobility, analytics, operations and underwriting
• Higher cross sell opportunities
• Best practices to enhance distribution productivity
• Savings due to value engineering
Improved employee value proposition 5
• 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
21,130
1,101 1,039
778 742
441
358 308
192 169 160 135
-
200
400
600
800
1,000
1,200
1,400
LIC Proforma ICICI Pru SBI Life HDFC Life Bajaj Life Max Life Birla Sunlife Tata AIA Kotak Life Reliance Life PNB MetLife
56%
11%
9%9%
6%
2%
4%
1%2% 2%
0%
2%
81%
4%
3%2%
4%2%
0%
2% 1%1%
2%
0%
70%
7%
5% 5% 5%
2% 2%2% 2%
1% 1% 1%
0%
5%
10%
15%
20%
25%
LIC Proforma SBI Life ICICI Pru HDFC Life Bajaj Life Max Life Birla Sunlife Kotak Life Reliance Life IndiaFirst PNB MetLife
Individual Group Total
Combined entity to consolidate market share
Notes
1. Market share analysis based on FY16 data amongst private players (for new business premiums)
Market share analysis across segments
Assets under Management (March 31, 2016) Rs bn
22
FY16 Q1FY17
Total Premium 163.1 92.2 255.3 32.2 17.4 49.6
Individual WRP 33.3 21.0 54.4 5.6 3.8 9.4
Group Premium 28.3 2.7 31.0 7.1 0.9 8.0
Net Profit 8.2 4.4 12.6 2.5 1.3 3.8
AUM 742.5 358.2 1,100.7 783.3 377.0 1,160.3
Solvency 198% 343% 252% 204% 347% 257%
EV 102.3 56.2 158.5 - - -
Return on Embedded value 15.1% 7.4% 12.2%
Overall Post Overrun NBM 19.9% 17.9% 19.2% - - -
Proforma financials
23
Rs bn
Notes 1. Comprising of new business
1
1
Operational overview of HDFC Life proforma
24
Employees
Branches
Customers (1)
Individual Agents
Key Bancassurance Partners
14,610 9,010 23,620
396 205 601
4.1 Mn 2.9 Mn 7.0 Mn
85,760 48,611 134,371
5 3 8
As of June 30, 2016
Notes 1. Excludes Group customers
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
Axis Bank Arrangement
• Axis Bank corporate agency agreement to continue till September 2021
Brand • Trademark license agreement to use ‘Max’ brand as part of life insurance
products transitioning from Max Life for 7 years post merger completion
25
Key transaction details (2/2)
26
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
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
Board • Board of HDFC Life to continue
Policyholder Safeguards
• Existing policies will continue on an “as is” basis with the same terms until their tenure
Way forward
27
Announcement of Transaction
Execution of Documents
Application to Regulators
Receipt of Approvals
Effective Date
Listing
12 – 15 Months
August 8, 2016 12-15 months Within 30 – 45 Days of Effective
Date
• CCI: Filing completed
• IRDAI: Notice of intent and application for in-principle approval expected to be made within 30 – 45 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
Reg
ula
tory
Ap
pro
vals
Transaction advisors
28
Arpwood Capital
Morgan Stanley
Shardul Amarchand Mangaldas
AZB & Partners (Mumbai)
Cyril Amarchand Mangaldas (Mumbai)
Haribhakti & Co. LLP
Financial Advisors
Legal Advisors
Valuation Advisors
Citigroup Global Markets India Private Limited
Kotak Mahindra Capital Company Limited
Fairness Opinions
D
India Life Insurance HDFC Life - Business Snapshot Journey with Max Annexures
Agenda
29
PVFP TVFOG FC CNHR VIF ANW EV
VIF
74.3 69.4
102.3
-0.2 -0.6 -4.1
32.9
Composition of EV (FY16)
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
Rs bn
30
Analysis of change in EV
27.9 32.9
61.0
8.1 -0.3 7.4
3.2 0.3 -3.1 -2.22
69.4
EVOP (20.6%)
18.4
EV at 31st Mar 151
EV at 31st Mar 16
Expected return on existing business
Dividend payout3
Change in operating
assumptions and model
VNB added during the
year2
Variance in operating
experience
Changes in economic
assumptions
Economic variances
Rs bn
88.9
102.3
Notes: 1 Restated opening EV based on external review; 2 New business profits (VNB) pertain to Overall (Individual + Group) business; 3 Including DDT
Value of in-force business (VIF) Adjusted Net worth (ANW)
15.1%
RoEV
31
Understanding the FY16 VNB
9.1
7.4 -0.1 -0.5 -1.1
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
Rs bn
32
Sensitivity analysis (1/2)
Scenario VNB % Change in
VNB EV
% Change in EV
Change in Base scenario 7.4 102.3
Economic parameters
Reference rate
Increase by 1% 7.2 -2.6% 100.4 -1.9%
Decrease by 1% 7.6 2.2% 104.3 1.9%
Increase by 2% 7.0 -5.4% 98.6 -3.7%
Decrease by 2% 7.7 3.8% 106.3 3.9%
Equity values Decrease by 10% 7.3 -1.1% 100.4 -1.9%
Decrease by 20% 7.2 -2.2% 98.4 -3.8%
Implied swaption volatilities Increase by 25% 7.4 -0.2% 102.1 -0.2%
Implied equity volatilities Increase by 25% 7.3 -0.6% 102.1 -0.2%
Expenses
Maintenance expenses Increase by 10% 7.2 -2.3% 101.5 -0.8%
Decrease by 10% 7.6 2.3% 103.1 0.8%
Acquisition expenses Increase by 10% 6.3 -14.3% NA NA
Decrease by 10% 8.4 14.3% NA NA
Policy/premium discontinuance rates & partial withdrawal rates (proportionate)
Policy/premium discontinuance rates & partial withdrawal rates
Increase by 10% 6.8 -8.3% 99.9 -2.4%
Decrease by 10% 8.1 9.0% 104.9 2.5%
Increase by 50% 4.7 -35.8% 91.7 -10.4%
Decrease by 50% 11.4 53.8% 117.8 15.1%
Rs bn
33
Sensitivity analysis (2/2)
Notes: 1Mass 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 2Applicable for ULIPs 3A 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
Scenario VNB % Change in
VNB EV
% Change in EV
Change in Base scenario 7.4 102.3
Policy/premium discontinuance rates & partial withdrawal rates (shape change)
Mass lapse rate1 25% of policies 7.7 4.3% 103.1 0.8%
50% of policies 6.8 -7.4% 97.7 -4.5%
Policy/premium discontinuance rates & partial withdrawal rates2
Increase by 50% 6.4 -13.0% 94.8 -7.4%
Decrease by 50% 8.8 19.2% 113.3 10.8%
Non-zero policy lapse rate3 Increase by 5% 6.1 -17.9% 98.8 -3.4%
Decrease by 5% 8.5 14.7% 105.1 2.7%
Insurance risks
Mortality/morbidity rates Increase by 5% 7.1 -3.6% 101.7 -0.6%
Decrease by 5% 7.7 3.6% 103.0 0.6%
Required capital
Required capital Equal to minimum regulatory solvency capital
7.5 0.8% 102.4 0.1%
Taxation
Tax rate Increased to 25% 6.5 -12.4% 95.5 -6.7%
Rs bn
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This is the sole and exclusive property of HDFC Life. October 18, 2016
Appendix
EV methodology and approach
Components of EV The EV 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
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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 in-force 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.
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Key assumptions underlying EV
Mortality and morbidity The assumed mortality rates are based on the standard mortality tables Indian Assured Lives Mortality (2006-08) (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 in-force, 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, 2016. The commission rates under different products are based on the actual commission payable (if any) to the distributors. Inflation The assumed expense inflation rate is 7.5% p.a. in the valuation as at Mar 31, 2015 and Mar 31, 2016
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, 2015 – 12.36% • June 1, 2015 to Oct 31, 2015 – 14.0% • Nov 1, 2015 to May 31, 2016 – 14.5% • June 1, 2016 onwards – 15.0%
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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 2014-15 and the remaining 11 instalments in
the first year would be first year premiums in 2015-16
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
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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.
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This is the sole and exclusive property of HDFC Life
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