HDFC Standard Life Insurance Company Limited

Quarter ended June 2011 2011-12

This is the sole and exclusive property of HDFC Life

Premium Income

A growth of 12% in total premium Continuing focus on single premium polices in Q1 results in growth of 118% Our high quality of new business of previous years and continuous focus on persistency lead to a 45% increase in renewal premium Group business has grown by 27% in Q1 FY12 De-growth of 37% in individual new business (regular premium) due to high base in Q1 FY 11 (Pre new ULIP guidelines) 16.5
14.8
48%

` Bn

12%

3.7
0.5

-37 %
118 %

Total Premium First Year Regular Premium (Individual) Single Premium (Individual) Renewal Premium (Individual) Group Premium

5.9

65%

10.0
3.6
0.3

3% -18% 0.2

-2% 10.9

45 %

-27%

7.5 5.5
22%

38 %

0.7

31%

1.1

53 %

1.4

27%

3M FY10

3M FY11

3M FY12

Growth

New ULIP regulations continue to impact growth in Q1 FY12 Absence of a regular premium Unit Linked pension offering has affected new business
HDFC Life Growth 64% Private Sector Growth

24%

Since last 3 years grown more than private industry We have outperformed the market in the last 3 years.

-17%

-22% -36%
-44%

3MFY10

3MFY11

3MFY12

All references of growth are in terms of Weighted Received Premia (WRP) of Individual Business

Source :IRDA

Market Share

Sustained increase in private sector market share Adapting well to post September 1, 2010 regulatory regime Ranked # 2 in Q1 FY 12 amongst private insurance companies Ranked #1 in individual business in 2 out of 3 months in Q1 FY12 Market share gain of 170 bps in private space in Q1 FY12 over same period LY and 460 bps since Q1 FY 10
3M FY10 3M FY11 3M FY12 11.8%

Private Sector Market Share

Overall Market Share

13.5%

8.9%

4.6%

5.5%

5.1%

All references of market share, ranking and growth are in terms of Weighted Received Premia (WRP) of Individual Business

Source :IRDA

Distribution & Product Mix

Bancassuarance distribution continues to contribute a large share in Q1 FY12

Renewed focus on Direct distribution has lead to growth of 31% in EPI

Post new ULIP regime share of participating policies is on the increase

Tied Agency 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
34% 64% 2%

Bancassurance
4%

Direct

UL

Conventional

14% 31% 73%

86% 69%

23%

3MFY11

3MFY12

3MFY11

3MFY12

Commission Ratio
Commission (% Premium Income) - First year premiums - Renewal premiums - Single premiums Commission % to Total premiums Q1 FY10 Q1 FY11 Q1 FY12 15.9% 2.7% 0.4% 8.2% 12.2% 2.1% 1.1% 6.8% 10.1% 1.9% 0.8% 3.9%

Post September 1, 2010, first year commissions have reduced on ULIP products Total commission rates (new business plus renewal) are also reducing as a proportion of total premium

Commission % is equal to respective commission over respective premium

Operating Expenses
Management actions on cost containment and productivity enhancement programmes started
last year have yielded savings in operating expenses

Operating expenses ratio has decreased by 720 bps Operating expenses have reduced by 23% in rupee terms

5.0 4.5 4.0 3.5

3.0 2.5 2.0 1.5

30.3%

23.0% 15.8% 3.0

3.4 2.6

30.0% 25.0%

20.0% 15.0% 10.0%

5.0% 0.0% -5.0% Operating Expense Ratio Operating Expenses Rs Bn

1.0 0.5 3M FY10 3M FY11 3M FY12

-10.0%

Operating expenses exclude service tax

Conservation Ratio
Conservation Ratio (Individual Business)
81% 59%

13th Month Persistency

79% 70%

80%

62%

3M FY10

3M FY11

3M FY12

3M FY10

3M FY11

3M FY12

Focus continues on maintaining high conservation and persistency levels

Indian GAAP Results

` Bn

3M FY10

3M FY11

3M FY12
0.09

(0.09)

(0.75)

The back book has started generating sufficient profits to offset the new business strain incurred on writing of new policies and this has resulted in improving the Indian GAAP results.

Total Capital
` Bn
Closing Capital for the period

22 21 20 19 18 17 16 15 3M FY 10 3M FY 11

21.6

Capital infusion has scaled down over the last 3 financial years No Capital infusion was required during the first quarter of the FY12.

19.7

18.0

Generation of surplus on back book has reduced the need for capital drawdown

3M FY 12

Solvency Ratio as at 30th June 2011 was 185% as against a regulatory requirement of 150%

Shareholding Pattern as at 30th June 2011 : HDFC 72.4%; Standard Life 26.0%; Individuals / ESOP Trust 1.6%

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Assets Under Management

23% growth in assets under management over June 30, 2010 Strong renewal premium growth and persistency have lead to increase in AUM

Debt

Equity 300 250 56% 200

AUM

Growth 23%
275

85.0% 75.0% 65.0% 55.0%

59%
223

54%

56%

55%

150
140

45.0% 35.0% 25.0% 15.0% 5.0% -5.0%

100
44% 44% 45%

50 0

June 30 2009

June 30 2010

June 30 2011

3M FY10

3M FY11

3M FY12

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Management Outlook
Business environment post the new regulatory regime (effective Sep 1, 2010) continues to impact the industry growth given the baseline achievement in the similar period o o o o For Private players , individual business premium in WRP terms declined by 44% in Q112 HDFC Life ranked No.2 in the quarter and enjoyed No.1 status in May and June11 HDFC Life month on month market share amongst private players has nearly doubled over the last 1.5 years to 14% Strong renewal growth during the quarter and the continued strong persistency performance Strong cost controls continue to be in place across the industry

Contribution of traditional plans to the business mix has increased; reversal of some of the guidelines on Pension products would be a positive

Bancassurance channel will increase its contribution to the new business written. o o o IRDA committee recommendations that allow banks to have an option of 2 insurance partners is a positive move, especially for large insurers with strong brands Competitive action to gain Bank distribution through offering equity stake or strategic tie-ups seen through deals between banks and insurers HDFC Life is preparing for the likely multi-tie scenario through a 3 pronged approach of fortifying existing relationships, diversifying distribution mix and being a partner of choice. A cross-functional programme is underway to address these challenges

HDFC Life has rolled out channel transformation programs across its tied agency channel and the benefits expected in the next few quarters Processes introduced to improve customer service metrics and persistency
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Strategy & Way forward

The five strategic themes identified continue to be of relevance. Significant progress has been made on the identified strategic initiatives Position as a leader in providing long term life insurance solutions Diversify distribution channel mix in New Business Own identified customer segments / product categories Deliver a unique customer experience MID launched as part of Need Based Selling, Innovation, Delivering on Brand Promise and Technology Integration Tied Agency Transformation rollout completed across the country . Fortifying Existing Relationships, 10% EPI targeted from New Distribution Channels Customer Lifecycle Segmentation products, distribution channels; 3 segments identified to be worked on and new products in the pipeline for launch during FY12 Unified Customer-led view, 1st of its kind Financial Planning Tool to be launched in Q2, Pioneering Service Initiatives, Endto-End TATs improved through technology leverage Persistency cells created, Branch Profitability and ownership being created. Low cost delivery models being evaluated

Aim for cost leadership through the entire delivery chain

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Awards and Accolades

Best Companies to Work for in India in 2011 Adjudged as one of the Best Companies to Work for in India in 2011, for the second consecutive year. The company ranked first in the insurance category. The study has shown that HDFC Life does a great job in its rewards and recognition programs with numerous events and celebrations to recognize employee contribution. HDFC Life also provides various self developmental and professional growth opportunities for all employees. More than 470 companies participated in the study, making it the largest such study in India. Indian Insurance Awards 2011 Won the 'Best Product Innovation Award 2011 - Life Insurance' for the product 'HDFC SL Crest' at the Indian Insurance Awards 2011. HDFC SL Crest has been a trendsetting innovation in the market, which has made HDFC Life the winner of the award. CISO 100 Awards 2011 Awarded the Top 100 CISO Awards 2011, for demonstrating outstanding performance in information security and technology practices. HDFC Life's Chief Information Security Officer (CISO) - Sharad Sadadekar, was recognized amongst the Top 100 CISOs, for implementing one of the best Information Security practices amongst Indian companies. The 'Top 100 CISO Awards' recognizes executives who have demonstrated outstanding initiatives in using information security practices and technology to secure their business and mission critical information in the most effective manner and deliver business value.

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Awards and Accolades

CIO 100 2011 Award Selected as an honoree for CIO magazines 24th annual CIO 100 Awards. Chosen as one of 100 innovative organizations that uses IT effectively to create business value by creating competitive advantage, optimizing business processes, enabling growth and improving relationships with customers.

Asia Best Employer Brand Awards 2011 Received 5 awards across diverse categories in Asia's Best Employer Brand Awards in the CMO Asia Awards for Excellence in Branding and Marketing. The award categories that HDFC Life has won are: Young HR Professional of the Year, Talent Management, Best HR Strategy in Line with Business, Innovation in Recruitment and Brand Leadership Award For Excellence in Branding and Marketing.

Yuva Hero Award Received Yuva Hero Award from the NGO Yuva Unstoppable for contribution towards upliftment of lesser privileged children. Yuva Unstoppable is a premier volunteer movement with a force of 60,000 young people across 30 cities of India helping more than 100,000 kids in municipal schools / slums through organizational partnerships with schools, colleges and corporate companies.

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MCEV as at 31st March 2011

Market Consistent Embedded Value (MCEV) results are unaudited

16

Analysis of change in MCEV from Mar 10-Mar11

` Bn

Notes to analysis of change: 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. The opening changes are primarily driven by a strengthening of the persistency assumptions offset by updates to the allowance for non hedgeable risk. Expected return on in force: This item reflects expected investment income on shareholder assets during the period, and reflects that future shareholder profits are now 1 year closer than at the start of the period. This positive item will occur in each MCEV period. Other Income and variances on in force: Other Income includes un-modeled income like service tax recoveries and various ad-hoc charges collected. Variances on in force reflects the fact that claims, persistency and maintenance expense experience during the period may not match that assumed in the opening MCEV calculation (updated for assumption changes). The variances on in force captures the impact of these deviations . Investment variances and economic assumption changes: This reflects the impact due to the actual investment return being different from the expected returns and the impact from the change in the yield curve at the end of the period compared to the yield curve at the start of the period.

Market Consistent Embedded Value (MCEV) results are unaudited

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New Business Profits

` Bn

New business profits for Q1 FY12 New business EPI for Q1 FY12
2

0.6 3.8

New business margin for Q1 FY12

1 2

1 ,2

15.9%

Based on loaded acquisition expenses Margins and EPI are shown for individual business only

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Appendix 1 : Components of value of in force (VIF)

Present value of future profits (PVFP)
This component has been calculated by discounting the projected future after tax shareholder attributable cashflows expected to arise on in-force business at the valuation date. The cashflows have been projected on a deterministic basis using the companys best estimate view of future persistency, mortality and expenses. Future investment returns and the risk discount rate have been set equal to the returns from the risk free yield curve at the closing balance sheet date. solvency requirements. The FCRC has been calculated as the discounted value of investment costs and taxes on shareholder attributable assets backing the required capital over the lifetime of the in-force business.

Cost of non-hedgeable risk (CNHR)

The VIF incorporates an explicit deduction to allow for non hedgeable and non economic risks. The CNHR has been derived using a cost of capital approach and is calculated as the discounted value of an annual charge applied to projected risk bearing capital.

Time Value of Financial Options and Guarantees ("TVFOG")

During FY2010-11, the company carried out an extensive analysis of the profile of guarantees in its Par funds to identify the level of guaranteed benefits occurring at future time periods. The investment strategy of the Par funds was re-set to enable, where possible, hedging of these guaranteed benefits through cashflow matching of the guarantees with fixed interest assets. As a result, the company is of the view that there is no residual TVFOG associated with the Par funds. During FY2010-11, the company launched a number of unit-linked funds incorporating various forms of investment guarantees. The cost associated with these investment guarantees has been allowed for in the MCEV calculations by modelling a cost equal to the additional guarantee charge levied on these funds. This allowance has been factored into the PVFP.

The initial risk bearing capital has been calculated based

on 99.5th percentile stress events for non economic assumptions over a 1-year time horizon. This initial risk bearing capital has been updated to be based on the portfolio of business as at 31st March 2011. running-off the initial risk bearing capital in line with the expected movement in the regulatory solvency margin requirement. EU Solvency II, QIS 5 framework (previously QIS 4 framework). In order to allow for the greater risks associated with emerging markets, the risk bearing capital has been uplifted by 50%. capital is 4% p.a.

Projected risk bearing capital has been determined by

99.5th Percentile stress events have been taken from the

The annual charge applied to the projected risk bearing

The stress events, uplifts to NHR, run-off pattern for projected risk bearing capital and annual charge, are reviewed and modified if necessary on an annual basis.

Frictional Costs of Required Capital (FCRC)

The VIF allows for a deduction in respect of the frictional costs of holding required capital (FCRC). Required capital has been set equal to the amount of shareholder attributable assets required to back local regulatory

19

Appendix 2 : Key assumptions underlying MCEV

Expenses
Maintenance expenses have been based on expense levels incurred during FY 2009-10, inflated at 7.5%. These assumptions incorporate no allowance for future productivity improvements. Loaded acquisition expenses, for the purposes of New Business profits in the Analysis of Change in MCEV were based on the expense levels the company expected to achieve by FY 2012-13 based on the April 2010 business plan. Actual acquisition expenses are currently higher than these assumptions and therefore any excess acquisition expense over the assumption is recognised in the period and the shareholder attributable component, net of tax, deducted from the value of new business for that period. Given the substantial changes in regulations the Company has reviewed its cost structure as a result of which the long-term acquisition expense levels have been calibrated at a level lower than that used earlier. These new long-term acquisition expense levels, as approved by the Board in May 2011, have been incorporated into the pre-overrun margins disclosed for Q1 FY 12 The closing MCEV is calculated assuming projected earned and risk discount rates are both set equal to the risk free (government bond) yield curve at the closing balance sheet date. The new business profitability is calculated with similar assumptions, except that the yield curve at the opening balance sheet date is used. No allowance for any illiquidity premia is made within the earned rates, except for group credit spread products.

Mortality and morbidity assumptions are set by product line and are based on past experience.
Persistency assumptions are set by product line, payment mode and duration in-force, based on past experience and expectations of future experience. Separate decrements are modeled for lapses, surrenders, paid-ups and partial withdrawals. Due to the age of the industry, minimal experience exists on long-term persistency assumptions and therefore these assumptions are reviewed on an active basis and updated when experience suggests a significant difference from the assumptions used. The results presented incorporate a strengthening of persistency assumptions and explicit modelling of partial withdrawals. Tax assumptions are based on interpretation of existing tax legislation, where appropriate supported by legal opinion. Profits attributable to shareholders are assumed to be taxed at 14.1625% for Life business and 0% for Pensions business. For the New Business profits reported for the Q1 of FY 12, the profits attributable to shareholders are assumed to be taxed at 13.52% for Life Business and 0% for Pensions business. Allowance is made within the tax computation for dividend offsets permitted under Section 2A of the Income Tax Act and for losses incurred within the Shareholder Fund. No allowance is made for future changes to taxation such as the Direct Tax Code. These changes will be incorporated only once materially enacted. It is expected that implementation of DTC in its current form will result in a material negative impact to the MCEV and new business profitability.

Persistency

Tax assumptions

Economic assumptions

Mortality and morbidity

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Appendix 3: New business profits and analysis of change in MCEV

The analysis of change in MCEV identifies the main drivers that have caused the MCEV to move over the financial year. The value of new business written in the year is normally the most significant driver for increases in value shown in the analysis of change. In presenting the analysis of change, the following approach has been adopted. economic assumptions during the period.
The new business profits are calculated before and after the impact of acquisition expense overruns and other inperiod variances on the new business. As noted in the previous slide, the company has revised downwards its loaded acquisition expense assumptions for reporting new business profits for Q1 of FY 2011-12, based on the revised estimates of long-term achievable expense levels which have been approved by the Board on in May 2011. For the Analysis of Change in MCEV the New Business profits (before over-run) are based on the earlier loaded acquisition expenses.

Impact of methodology

changes

in

assumptions

and

The impacts from updates to assumptions and methodology are allowed for as follows: Updates to non economic assumptions and methodology are made at the start of the period, and the subsequent analysis of change calculated using these revisions

Updates to economic assumptions are made at the end of period and incorporated as a closing adjustment.
The impact on the MCEV from variations between the assumptions and actual experience are determined and recognised in the period for non economic assumptions and at the end of the period for economic assumptions.

EV profits
EV profits are calculated as the movement in EV during the period less capital injections.

Experience variances

EV Operating profit (EVOP)

EV operating profit (EVOP) is calculated as the movement in EV during the period less capital injections and the impact of economic variances and economic assumption changes. The EVOP represents the impact on the MCEV from performance that is considered within management control

The impact on the variations for non economic assumptions are separately attributed to new and inforce business.
New business profits are calculated as at the end of period, using the opening (i.e. 31st March 2010) yield curve and incorporate allowance for variations on non

Value of new business

21

Glossary
Commission ratio Ratio of total commissions paid out on first year, single and renewal premiums to total premiums. Conservation ratio Ratio of current year renewal premiums to previous years 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 e.g. for a monthly mode policy sold in March 2010, the first installment would fall into first year premiums for 2009-10 and the remaining 11 installments in the first year would be first year premiums in 2010-11. 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 The sum of first year premium and 10% weighted single premiums and single premium top-ups.

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Disclaimer
This release is a compilation of unaudited financial and 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 June 30, 2011 and do not reflect any subsequent changes

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Thank You

In partnership with Standard Life plc

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