HDFC Standard Life Insurance Company Limited

Transcription

1 HDFC Standard Life Insurance Company Limited Financial Year ending March 2015 This is the sole and exclusive property of HDFC Life

2 Agenda A Economic Overview Overview of Indian Life Insurance Industry HDFC Life s Strategy and Performance Snapshot Financial Overview Awards and Accolades

3 Potential for Indian life insurance Insurance density and penetration 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, % 4,329 5% % 15% % % % 7% % 3% 12% 792 3% 2% 2% % 16% 14% 12% 10% 8% 6% 4% 2% 0% Density (USD) Penetration India is world s third largest economy with 6.4% of global GDP (based on purchasing power parity) Insurance penetration in India is lower, compared to other savings dominated markets Insurance density in India is considerably below global counterparts reflecting significant portion of uninsured and underinsured population Source : IMF WEO (October 2014), OECD Economic Outlook No.95 and Swiss Re Sigma World Insurance Report (2014) 3

4 Favourable demographics Life expectancy (Years) * 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 Definitive opportunity in retirement and protection products, led by: Improving life expectancy Growing proportion of working population (within age bracket of years) Emergence of nuclear families Source : * Census of India # United Nations World Populations Prospects Report (2012) 4

5 Life insurance poised for growth Household savings composition Change in financial assets 24% 22% 23% 18% FY05 9% 9% 9% 9% 9% FY14 57% 48% 57% 60% 18% 8% 18% 18% 12% 9% 9% 1% 15% 2% 1% 1% 2% 2% 18% 43% 52% 43% 40% 39% 1% 61% 2% 61% 61% 23% 61% FY05 FY08 FY11 FY14 2% Financial Savings Physical Savings Household Savings as % Currency of GDP Currency Currency Deposits Deposits Deposits Shares and Shares Debentures Shares and Debentures and Currency Deposits Currency Shares and Debentures Deposits Shares an Claims on Claims Government Claims on Government on Government Life insurance Life insurance Life funds insurance funds funds Provident Provident and Provident Pension and Funds Pension and Pensi Fu Claims on Government Life insurance funds Claims on Government Provident and Pension Life insurance Funds funds Provident Stabilising real estate demand and softening gold prices expected to result in potential shift of household savings towards financial assets Life insurance represents unique offering of long-term savings and protection products Source: RBI Annual Report (2014), DBIE-RBI Statistics (2014), Economic Survey Vol II 5

6 Online and digitisation offers untapped potential High Digital Influence Across Value Chain % Category Buyers Digital Footprint Life Insurance (38%) Digital Influence 12% Info Search for Product % buyers with digital influence 53% Info Search for Price 36% Pre-Purchase Purchase Post Purchase Search for Store Locations To Access/ Purchase Coupons Actual Purchase 18% 21% 17% Post Purchase Management Posting Reviews/ Comments 18% 3% Health Insurance (57%) 14% 32% 46% 30% 12% 19% 19% 5% Figures in boxes represent internet access among the category buyers Digital Life Policies More Cost Efficient with Higher Persistency Highest Persistency Amongst Lowest Direct Sales Cost Amongst Highest Persistency Amongst Lowest Direct Sales Cost Amongst Channels Current Channels Channels Current Channels % by Premium Direct Sales Cost/ANBP (%) % by Premium Direct Sales Cost/ANBP (%) Digital Brokers Agency 13th 25th 37th 49th 61st Digital Bancassurance Agents Brokers Corporate Agency 13th (1) Digital 25th 37th Physical 49th Channels 61st Bancassurance Corporate (1) Digital Physical Channels Agents Source: BCG CCCI digital influence study 2013 Online life insurance segment ideally positioned to expand by 2-2.5X by 2020 Digital insurance set to grow exponentially in India, supported by broadening of the digital influence through increasing mobile internet penetration beyond metros and expanding reach of digital world across age bands Note: Physical channels include agency, bancassurance, brokers, corporate agents and direct sales force 6

7 Agenda Economic Overview B Overview of Indian Life Insurance Industry HDFC Life s Strategy and Performance Snapshot Financial Overview Awards and Accolades

8 Individual WRP in Rs. Bn Private Market Share % Industry new business * trends % % 35% % % % % 38% 38% % % 50% 40% 30% 20% 10% 0% 0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 LIC Private Players Private Market Share -10% The liberalization of the sector led to entry of private players since private players currently operating in India Focus on business quality along with frequent regulatory changes has resulted in muted performance for the industry over last few years industry is now expecting to witness a more positive trend going forward With the industry moving towards better quality and sustainability, agile larger players such as HDFC Life, are well positioned to grow and increase market share * Basis Individual Weighted Received Premium (WRP) Source: IRDAI, Life Insurance Council, HDFC Life Analysis 8

9 Private industry - product and distribution mix Product mix Distribution mix UL UL Conventional Conventional Individual agents Corporate Agents Banks Corporate Agents Others Brokers Direct Business 69% 83% 59% 69% 65% 59% 71% 64% 65% 6% 4% 6% 7% 9% 5% 5% 5% 5% 4% 8% 9% 6% 4% 4% 31% 41% 31% 35% 41% 29% 35% 36% 33% 39% 43% 44% 47% 17% 47% 44% 40% 41% 36% FY11 FY12 FY13 FY14 9M FY15 FY11 FY12 FY13 FY14 9M FY15 FY10 FY11 FY12 FY13 Online and other new direct distribution channels serve as a cost-efficient mode of distribution and offer high penetration potential. Agency and bancassurance continues to be the significant contributors Reduced distributors payout and high expense structure forced many players to move to Conventional products over last few years Source: IRDAI, Life Insurance Council, HDFC Life Analysis 9

10 Agenda Economic Overview Overview of Indian Life Insurance Industry C HDFC Life s Strategy and Performance Snapshot Financial Overview Awards and Accolades

11 11 Strategic elements five pillars 1 Long term orientation Focus on establishing long term business model Increase awareness towards protection and long term products 2 Owning customer segments Niche product offering to cater to customers across segments Optimum product mix with balanced risk and value proposition 3 Fortify and diversify distribution 4 Achieve cost leadership Diversified sourcing and servicing engines Continue to develop and nurture new avenues with focus on profitable partnerships Driving operating leverage to achieve cost leadership Increase operational efficiency across processes with quality focus 5 Unique customer experience 11 Enhanced experience through speedy and hassle free processes Efficient technology usage to augment customer satisfaction Maximizing value for all stakeholders of the Company

12 12 Revenue trajectory 1 Orientation % 93% ` Bn % -13% 20% % 10% 30% % % % % % % % Total Premium FY13 FY14 FY15 Single Premium (Individual) Group Premium Renewal Premium (Individual) First Year Regular Premium (Individual) Robust performance delivered across premium categories Specific initiatives on revival of lapsed policies resulted in high renewal premium collection Thrust on group protection business yielded into healthy increase of 47% in group business

13 Market ranking 1 Orientation New Business Received Premium 15.8% Rank 14.4% % 2 2 FY13 FY14 FY15 Individual WRP 17.5% 13.8% 14.8% Rank FY13 FY14 FY15 Rank Group Received Premium 14.4% 10.9% % 1 FY13 FY14 FY15 Consistent market position across years Ranked amongst top 3 private players Recouped market share versus FY14 Source: Life Insurance Council 13

14 Persistency and Conservation Ratio 1,2 1 Orientation Persistency 100% Conservation ratio 100% 90% 90% 80% 70% 80% 70% 60% 60% 50% 40% 30% 69% 73% 87% 88% 90% 93% 88% 79% 64% 68% 50% 40% 30% 79% 79% 90% 20% 20% 10% 10% 0% 0% 13th month 25th month 37th month 49th month 61st month FY13 FY14 FY15 Mar-14 Mar-15 Improving persistency across cohorts contributed by intense efforts on collections and customer interaction initiatives also reflected in industry leading conservation levels Ongoing drive to encourage self service through numerous service initiatives such as Missed Call, SMS fund alerts, IVR interactions, Customer Portal enhancement contributed in steady performance Last mile connectivity initiative launched in FY14 for lapsed and paid-up customers contributed in higher revivals of Rs 623 Crs in FY15 vs Rs 342 Crs in FY14 Notes: 1. Persistency ratios are calculated with a 1 month lag for the period of April-March for respective years on reducing balance basis 2. Persistency and Conservation ratio are for individual business 14

15 Premium less Benefit Payouts Orientation (20.0) (40.0) (60.0) (80.0) Q1 FY13 Q1 FY14 Q1 FY15 FY13 FY14 FY15 1 Total Premium Surrenders & Withdrawals Claims by Death, Maturity & Others Premium less policyholder payouts Total Premium Surrenders & Withdrawals Maintained healthy Claims positive by Death, premium Maturity less & Others benefit Net payouts, Cash flowreflecting high business quality Highest among private players 2 Surrenders and withdrawals increased by 75% vs FY14, primarily due to: Higher base of unit linked policies completing the lock-in period Higher fund value supported by well performing equity markets More premiums being paid for policies prior to surrender, resulting in higher corpus Claims saw a rising trend due to higher mix of protection business written, more policies achieving maturity and increased annuity payout. Overall claims payout well within expectation (100.0) (5.0) (10.0) ` Bn Notes: 1. Total Premium and benefits paid are gross of reinsurance 2. Based on 9M FY15 data and FY15 results disclosed for players till May 10,

16 16 Product portfolio Offering for every customer need Recognised by experts 2 Segments Consistently awarded Best Product of the Year over last five years Youngstar Thank You Protection Retirement & pension Golden Peacock Innovative Product/Service Award 2015 Indian Insurance Awards Best Product Innovation Product of the Year 2013 under Life Insurance category Click 2 Invest Super Income Plan Smart Woman Plan Employment benefit solutions Winners of the Indian Insurance award for Best Product Innovation 2012 Sampoorn Samriddhi Woman s Savings & investment Awarded at Indian Insurance Award 2012 Sampoorn Samriddhi Health Winner at Indian Insurance Awards 2011 Crest Comprehensive product suite catering to all life cycle needs

17 Product mix 2 Segments 2% 15% 17% 37% 36% 21% 61% 49% 62% FY13 FY14 FY15 Unit Linked Participating Non Participating Company follows a channel level product strategy weaved with customer needs to ensure profitable segment mix Diversified product composition within the segments with non reliance on any single product Highest number of products being sold amongst peers Innovative products such as Click2Protect plus and Click2Invest introduced in line with Company s philosophy of offering best-in-class products to its customers Note: The percentages are with reference to APE for individual business 17

18 New business sum assured ` Bn 2 Segments FY13 FY14 FY15 Pure Protection Others New business sum assured on an increasing trend with high focus on long term pure protection business Increased mix of pension products resulted in reduction of new business sum assured for Others Note: The above numbers are based on Overall (Individual + Group) business 18

19 Segment wise average term and age 2 Segments Average Term (Yrs) Average Age (Yrs) Unit Linked Pension 12 Unit Linked Pension 53 Unit Linked Life 12 Unit Linked Life 39 Par Savings 14 Par Savings 38 Par Pension 13 Par Pension 49 Non Par Savings 16 Non Par Savings 31 Protection 29 Protection 35 Non Par Pension 11 Non Par Pension 53 The company s focus on insurance as a long-term solution reflected in the policy term Need based selling results in protection/savings contracts having a younger age-profile and pensions a higher age-profile Note: The average term and age of the individual new business policies sold in FY15 19

20 Distribution mix 5% 7% 8% 3 Distribution 72% 70% 73% 7% 7% 5% 16% 16% 14% FY13 FY14 FY15 Agency Broker Bancassurance Direct Operates out of 414 HDFC Life s offices serving 1,000 cities in India and a liaison office in Dubai Established relationship with various banks, NBFCs and MFIs with 5,000+ partner branches Maintained leadership in Online segment, with 3% contribution to new business (FY14: 1%) Launched unique program in association with Manipal Global to train and create a professional entry level sales force Note: The percentages are with reference to APE for individual business NBFC - Non-Banking Financial Corporation, MFI - Micro-finance Institutions 20

21 Cost trends 30.0% ` Bn % 10.7% 10.2% 20.0% 4 Cost % 0.0% -10.0% % -30.0% -40.0% - FY13 FY14 FY % Operating Expenses Operating Expense/Total premium Ratio % % Opex / Total Premium Ratio 11.5% continues to decline 10.8% and is amongst 10.7% the lowest in the private industry % % 12.0 Continued to invest with long term orientation in new distribution channels, training, 10.0 technology and product innovation % -20.0% -30.0% % - FY12 FY13 FY14 Note: Operating expenses exclude service tax -50.0% 21

22 Customer touch points HDFC Life branch network 414 own branches and over 5,000 partner branches for servicing customers Service call centre New business Call Centre 5 Customer Dedicated agents to handle customer calls Pre-conversion calling at new business stage interaction Dedicated agents to handle requests Customer touch points Mobility SMS on the move with policy details, FV, branch details, etc. Customer portal (My account) Online portal providing customer s FV, renewal premium receipt, etc. 95%* death claims settled within 10 working days. FY15 claim repudiation at 5.9% (NOP terms) Tied up with Common Service Centres to utilise their network to expand reach to rural areas Use of technology to improve service efficiency and enhance overall customer experience 1 st private life insurer to have a responsive website Ranked #1 across social media and digital platforms 2nd most buzzed brand on Twitter during ICC Cricket World Cup 79% of service transactions through online mode; 54% of renewal payments received through online and direct debit modes 85% of new business applications initiated using Point of Sale platform * Out of the non-investigative cases 22

23 Agenda Economic Overview Overview of Indian Life Insurance Industry HDFC Life s Strategy and Performance Snapshot D Financial Overview Awards and Accolades

24 Assets under management Assets under management Debt: Equity mix % 25% 33% 40% 20% 650 0% 45% 46% 48% % % -60% -80% 55% 54% 52% % % 31st Mar st Mar st Mar st Mar st Mar st Mar 2015 AUM in Rs bn Growth in AUM vs LY Debt Equity Continued to rank amongst top 3, in terms of assets under management in private sector Highest compounded annual growth rate (CAGR) of 26% in AUM in the last 5 years amongst top 7* players including LIC * Based on Asset under Management as on December 31,

25 Returns analysis Since inception Last 1 year 16.8% 55.5% 13.1% 13.2% 14.5% 51.0% 9.9% 11.0% 35.7% 7.4% 28.4% 28.3% 6.2% 15.4% 14.6% 20.8% Secured Balanced Opportunities Growth Secured Balanced Growth Opportunities Benchmark Returns HDFC Life Returns Company outperformed benchmarks in all the major fund categories across time horizons Strengthened research capabilities within the investments team to deliver consistent superior performance 64.0% 55.9% 44.5% Inception Dates: Growth Fund, Balanced Fund, Secured Fund: January 2, % 32.3% & Opportunities Fund: January 4,2010. Benchmarks: Growth Fund: BSE 100, Balanced Fund: 45% BSE-100 & 55% Crisil Composite Bond Index, Secured Fund: CRISIL Composite Bond Index, Opportunities Fund: CNX MIDCAP Index 22.4% Fund performance represented in CAGR 25

26 Capital position ` Bn % 230% % 196% % 190% 170% % 130% 110% Available Solvency Margin (ASM) % % - 31st Mar st Mar st Mar % Surplus Capital Incremental Solvency margin Stable solvency ratio, despite consistent growth in underlying business - RSM CAGR of 32% in last two years Excluding the dividend payouts, solvency ratio would have been 216% as on 31 st Mar 2015 Note: RSM represents Required solvency margin 26

27 Profitability trends Return on equity * Return on invested capital # % 44.7% 35.1% 20.9% 33.6% 36.4% ` Bn Wiped off accumulated losses in FY (0.5) FY13 FY14 FY15 Underwriting profits Shareholders' income Healthy dividend payout of ` 1.4 Bn (7%)^, 40% higher over FY14 78% of profits contributed by underwriting income Ended the year with accumulated profits of ` 3.8 Bn * Return on equity is calculated as a factor of profit after tax and average net worth (Net worth comprises of Share capital, Share premium and Accumulated profits/(losses)) # Return on invested capital is calculated as a factor of profit after tax and share capital including share premium ^ 7% on face value of shares of ` 10 each excluding Dividend Distribution Tax Note: The shareholders income for FY14 includes surplus of ` 0.8 Bn due to one time tax adjustment 27

28 28 Underwriting profits breakup ` Bn FY13 FY14 FY15 New Business Strain Existing Business Surplus UL FFA Profits from core insurance activities on an increasing trend Increase in new business and shift in product mix towards linked and non participating products resulted in higher new business strain

29 New business margins Individual new business margin ` Bn % 26.2% 22.5% 25.0% % 16.1% 17.5% 15.0% % % % - FY13 FY14 FY % New business APE NBM (pre overrun) NBM (post overrun) Entity level post overrun margin 12.7% 15.2% 18.5% New business margin (pre expense overruns) for FY15 marginally lower vs FY14 due to revised expense assumptions Improvement in post overrun margin aided by higher mix of protection and Non Par products Note: New business profits are computed on MCEV basis 29

30 Value of new business (VNB) walkthrough ` Bn NBM - 3.4% -0.1% 18.5% 15.2% FY14 VNB Impact of Higher EPI Change in Product Mix Change in Assumptions FY15 VNB VNB increased due to growth in new business and higher non-participating business Note: The above numbers are based on Overall (individual + Group) business 30

31 Market Consistent Embedded Value (MCEV) VIF ` Bn PVFP TVFOG FC CNHR VIF Networth EV TVFOG includes cost of guarantees for conventional non participating and participating products 1. The above is based on unaudited figures 2. PVFP pertains to Overall (Individual + Group) business 3. 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 4. Detailed explanation of components provided in the Appendix to the corporate presentation 31

32 Analysis of change in MCEV EV profit 18.2 ` Bn Methodology and assumption changes 7.4 New business profits (before expense over-run)* -1.5 Acquisition expense overrun 6.1 Expected return on inforce Operating Variances Investment variances and change in economic assumptions Dividend payout Embedded value operating profit (EVOP) 22% of Opening MCEV (FY14: 19%) 27.9 Value of in-force business Shareholder s Adjusted Networth MCEV at 31st Mar 14 MCEV at 31st Mar 15 26% growth in MCEV over last year Investment variance reflects buoyant performance of equity markets in FY15 * New business profits pertain to Overall (Individual + Group) business Note: The above is based on unaudited figures 32

33 Sensitivity analysis Scenario VNB % Change % Change in VNB in NBM EV Change in Base 5.9 (1) 18.5% 88.1 Interest rate % Change in EV Increase by 1% 6.4 8% 1.5% 87.5 (0.6%) Decrease by 1% (2) 5.8 (0.8%) (0.2%) % ` Bn Equity values Persistency Maintenance expenses Mortality Increase by 10% 5.9 negligible negligible % Decrease by 10% 5.9 negligible negligible % Increase by 10% 6.4 8% 1.5% % Decrease by 10% 5.4 (8%) (1.4%) 86.1 (2.2%) Increase by 10% 5.6 (5%) (0.9%) 87.2 (1.0%) Decrease by 10% 6.2 5% 0.9% % Increase by 10% 5.6 (5%) (0.9%) 87.1 (1.1%) Decrease by 10% 6.2 5% 0.9% % Additional Info Impact of no TVFOG for non-participating savings products VNB % Change in VNB % Change in NBM EV % Change in EV % 2.6% % Impact of zero tax on Par fund 6.0 2% 0.3% % 1. Post overrun total VNB for Individual and Group business 2. The NBM impact in interest rate fall scenario is low as the TVFOG charged is sufficient to absorb the impact of such decrease in interest rate Note: The above is based on unaudited figures 33

34 Shareholders EV IRR ` Bn % 16.2% 15.9% 16.7% 17.2% 18.3% % 18% 16% % 13.0% % 12% % % # % 4% 2% -10 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 MCEV Share capital Shareholders'-IRR 0% The shareholder IRR measured on EV generated is showing a steady growth on back of growth in business Note: The IRR has been calculated based on MCEV and not on appraisal value 34

35 Orientation Performance summary Distribution Customer FY14 FY15 FY14 FY15 Total premium (` Bn) Renewal premium by Online / Direct debit 46% 54% Market share % 14.8% Policy servicing complaints 10,987 6,578 Conservation ratio 2 79% 90% Sales related complaints 41,380 25,379 Net premium (` Bn) Claims repudiation (%) 3 4.7% 5.9% # of branches Linked : Traditional mix 49:51 62:38 # of agents ( 000) # of employees 75 13, ,348 Segments 4 Protection mix Avg. policy term (yrs.) 5% % 15.5 Online business (%) 1% 3% Avg. sum assured (MM) Profit after tax (` Bn) NBM (Post OR) % 17.5% NBAP (` Bn) MCEV (` Bn) Return on capital % 36.4% AUM (` Bn) Notes: 1. Market Share is computed on Individual Weighted Received Premium (WRP) basis 2. Conservation ratio is for individual business 3. Based on no. of policies 4. Segment mix and Protection mix is calculated basis APE 5. NBAP and NBM for individual business only,after adjusting for acquisition expense overrun 6. Return on invested capital is calculated basis profit after tax and share capital including share premium 35

36 Agenda Economic Overview Overview of Indian Life Insurance Industry HDFC Life s Strategy and Performance Snapshot Financial Overview E Awards and Accolades

37 Awards and accolades HDFC Life's Mymix, Finnoviti 2015, an award that salutes the spirit of innovation. Best Product Innovation (Life Insurance), Best Technology Innovation (Life Insurance) and Most Socially Responsible Insurer (Overall), 2014 Amongst 50 Most Talented Quality Professionals of India at World Quality Congress and Awards, 2014 TDWI Best Practices Award 2014 for BI on a Limited Budget 32 nd in Top 50 Best Places to Work for National Quality Excellence Awards 2014 for Best Business Process Excellence Program For more details about our Awards & Accolades, kindly refer our website at 37

38 Awards and accolades (continued) Loyalty Award for Financials Non Banking Financial Sector at the 7 th Loyalty Awards and Summit, 2014 ICAI award from The Institute of Chartered Accountants of India for Excellence in Financial Reporting for the annual report of FY14 Most Admired Life Insurance Companies in Private Sector at the BFS&I Awards, 2014 Innovative Leadership in Quality Award at the World Quality Congress and Awards, 2014 National Gold Award for Excellence in Cost Management organized by ICAI My FM Stars of the Industry - Youth Icon Award at the My FM Stars of the Industry Awards, 2014 Ranked amongst Top 100 CISOs at Infosec Maestros Awards, 2014 For more details about our Awards & Accolades, kindly refer our website at 38

39 Appendix & Glossary

40 40 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. Adjusted net worth It represents the market value of assets attributable to shareholders. This amount is derived from the Indian GAAP balance sheet and adjusted to allow for assets on a market value basis. 2. Value of in-force It is derived as Present value of future profits ( PVFP ) less Time Value of Financial Options and Guarantees ("TVFOG") less Frictional Costs of Required Capital ( FCRC ) less Cost of non hedgeable risk ( CNHR )

41 41 Appendix 2 : Components of value of in force ( VIF ) Present value of future profits ( PVFP ) This component is the present value of the projected future after tax shareholder profits expected to arise on the business existing at the valuation date. The projection is carried out on a deterministic basis using market-consistent economic assumptions and best estimate non-economic assumptions (such as persistency, mortality, morbidity, expenses, inflation). The economic assumptions (future investment returns and risk discount rate) are based on the risk free (government bond) yield curve at the valuation date. Time Value of Financial Options and Guarantees ("TVFOG") This component represents the cost that may arise due to embedded financial options and guarantees. Different economic scenarios are derived on the basis of a stochastic simulation process using suitable statistical distributions for interest rates and equity returns calibrated to Indian market conditions. The cost of the options and guarantees is calculated using these economic scenarios with methodology and noneconomic assumptions consistent with the underlying PVFP. Frictional Costs of Required Capital ( FCRC ) This represents the frictional costs of holding required capital ( FCRC ). Required capital is set equal to the amount of shareholder attributable assets required to back local regulatory solvency requirements. The frictional costs represent the investment costs and taxes associated with holding the required capital. Cost of non hedgeable risk ( CNHR ) This represents the deduction to allow for non hedgeable risks. The CNHR has been derived using a cost of capital approach and is calculated as the discounted value of the annual charge applied to projected risk bearing capital. The initial risk capital has been calculated based on stress events for non economic assumptions. These events are based on the Solvency II, QIS5 framework. Appropriate risk drivers are used in projecting the risk capital at future time points. The annual charge applied to the projected risk capital is 4% p.a.

42 42 Appendix 3 : Key assumptions underlying MCEV and NBP Economic assumptions The closing MCEV is calculated by basing the projected earned and risk discount rates on 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 start of the quarter in which the new business has been written is taken. For detailed assumptions, refer Appendix 5 Non economic assumptions Expenses Maintenance expenses have been based on the latest expense analysis carried out in March 2015 with appropriate allowance for future inflation. These assumptions do not incorporate any allowance for future productivity improvements. Based on an analysis carried out by the Company, the projected long-term acquisition expense assumptions have been revised and these are higher than those used earlier and have been incorporated into the calculation of pre-overrun margins for FY15. Mortality and morbidity Mortality and morbidity assumptions are set for different products based on past experience. Persistency Persistency assumptions are set for different product lines, 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 Tax assumptions are based on our interpretation of existing tax legislation, where appropriate supported by legal opinion. Profits attributable to shareholders are assumed to be taxed at 14.42% 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.

43 43 Appendix 4 : Key components underlying MCEV movements Analysis of change in MCEV 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. Operating Variances: The Operating Variances capture the impact of the difference between the actual expenses, mortality and persistency experience from those expected in the opening MCEV calculation. Expected return on inforce: It reflects expected investment income on shareholder assets during the period and unwind of the discount rate on the opening PVFP. Investment variances and change in economic assumptions: This reflects the impact due to the actual investment return being different from expected and the impact due to the change in economic assumptions (represented by change in yield curve during the period).

44 44 Appendix 5 : Economic Assumptions Years Forward rates Spot rates FY14 FY15 FY14 FY % 7.91% 8.38% 7.61% % 7.91% 8.38% 7.61% % 7.96% 8.47% 7.63% % 7.97% 8.58% 7.64% % 7.98% 8.67% 7.65% % 7.98% 8.90% 7.66% % 7.98% 8.99% 7.66% % 7.98% 9.03% 7.66% % 7.98% 9.05% 7.66% % 7.98% 9.07% 7.66% The forward rates derived from the spot-rates of risk-free government bonds are used in projecting future investment returns and discounting of future profits in VNB and MCEV calculation

45 45 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 2014, 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.

46 46 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, 2015 and do not reflect any subsequent changes.

47 47 Thank You In partnership with Standard Life