HDFC STANDARD LIFE

Investor Presentation

July 2010
Table of contents

1 Indian Life Insurance – An Ongoing Growth Story

2 Indian Life Insurance – Market Analysis

3 HDFC Standard Life – Operations and Performance

4 HDFC Standard Life – Financial Highlights

5 Awards & Accolades

Appendix

2
Indian Life Insurance
―An Ongoing Growth Story‖

01
An ongoing growth story

Liberalisation has greatly developed the market…

Pre- Post-
liberalization liberalization
1999-2000 2009-10

Life insurance penetration (%) 1.77 4.5

Life insurance density (Rs.) 342 1,854

No. of players 1 23

New business premium (Rs. Bn) 91.23 1095

Average sum assured (Rs.) 57,000 232,110

11,257 (LIC)
Average premium (Rs.) 4,200
21,005 (Private)

Source: Swiss Re Sigma No. 3/2009, IRDA, Life Insurance Council

4
An ongoing growth story
…and the backdrop is good for further development

— India weathered the global financial crisis 12

Real GDP growth 9.6
successfully 10 9.4 9.3
8.3
— Robust GDP growth: 8.5% 5-year CAGR (2003-2008) 8 7.4 7.4
6.7
— Increasing per capita income: 6.8% 5-year CAGR 6
(2003-2008) 3.8
4
— Estimated GDP growth of 8-8.5% in 2010-11
2

0
2003 2004 2005 2006 2007 2008 2009 2010 RE

6,000
2008 nominal GDP (US$ bn)

4,907
5,000 4,326 Ranking of Asian countries
4,000 by largest GDP

3,000
2,000 1,223
931
1,000 511 391 273 222 215 182
0
China

Indonesia
India

Singapore
Korea

Thailand

Hong
South

Malaysia
Taiwan
Japan

Kong
Source: Global Insight World View, Central Statistical Organisation, GoI, RBI 5
An ongoing growth story
The demographic transition favours the industry…
India‟s population to increase from 1,029 mn to 1,400 mn 1 between 2001-26
— The largest in the world
Demographic transition
— Will raise the proportion of working-age people, producing wealth and increasing the market for insurance products
— With the fall in youth dependency ratio, gross domestic savings will rise
— In addition, the participation of women in the workforce is also likely to improve, creating further wealth
— Larger population with more adults is positive for savings, investment and overall GDP
Economic growth will push household incomes higher

…while life expectancy creates opportunities in pensions, and protection against lifestyle health disorders can also increase

80 Life expectancy 71 50 Critical illness cases reported 47.0

67
63 40.0
58 40
60 55

Cases in millions
Number of years

46 30
40
20

20 10 5.2
3.0 1.2
0.9
0
0 2001 2011
1971 1981 1991 2001 2010 2025 Cancer Cardio Vascular Diseases Stress & Lifestyle Related Disorders

— Expectation of life at birth was 63 years in 2001; currently is over 66 years — Incidence of lifestyle related disorders is increasing
— Strongly underlies the need for Pension Products — Opportunity for Standalone Health Products

Note 1: Source: UN Population Division 6

An ongoing growth story
Household financial savings have risen substantially…
500,000 (P): Provisional
(PE): Preliminary Estimates
800,000
400,000
700,000
Rs. Cr.

300,000 600,000
500,000
200,000
400,000
100,000 300,000
200,000
0
100,000

-100,000 0
Currency Deposits Share and Claims on Insurance Funds Provident and Financial Saving (Gross)
Debentures Government Pension Funds

2004-05 2005-06 2006-07 2007-08 (P) 2008-09 (PE)

…but there is still scope for diversification into insurance

Financial savings (2004 – 2005) Financial savings (2008 – 2009)
Provident and Currency
Pension Funds Provident and
9%
13% Pension Funds
9%
Currency
12%

Insurance
Funds
Insurance Funds 19%
16% Deposits
37%
Deposits
Claims on 55%
Claims on Share and
Government
Government Debentures
24% Share and -3% 2%
Debentures
1% Source: RBI
7
An ongoing growth story
Overall, insurance is poised for continued growth…
Macro backdrop is positive Three avenues for near-term growth
— More adults — Addition of new customers

— Higher income — Extension to new geographies

— New product demand — Existing customers buy more

Addition of new customers through better penetration…

— India constitutes 16% of world population but only 1.97% of the world life insurance market (2008)

— India‘s household savings rate at 34.6% in 2008

— Out of every 100 persons in India, only 3 are covered by insurance or pension
Very low
— Mere 20% of the insurable population (age group 20 to 60) covered by life insurance
insured
population — Potential to cover remaining 80% which is without life insurance protection or pension protection

— Huge potential to tap the rural populations

— 0.25 agent / 1,000 pop* compared to 1 / 1000 pop in urban areas

— Premium: 2% - 2.5% of GDP; Rs 60 per capita* compared to 5.9% - 6.3% of GDP; Rs 1,800 per
capita for urban areas

Source: IRDA, NCAER, CERG

* Data as of 2006 8
An ongoing growth story

Overall tremendous potential for growth, still untapped…

First year life premiums (Rs. bn)

Projections at growth of 10%* (assuming GDP growth at 5% and GDS > 30%)

2004-5

2005-06

2006-07

2007-08

2008-09

2009-10 projected

2010-11 projected

0 300 600 900 1,200

First year premiums (Rs. bn)

*Own estimates

9
An ongoing growth story

…and ongoing government support can be expected

— Insurance industry is the largest investor in the Indian equity market

Net Inflow
(March 31, 2010)
Industry Rs. billion
Life insurance 611.25
Foreign institutional investors 215.68
Mutual fund -105.12

— Life insurance industry also participates significantly in Government borrowings

— The Government recognises the key contribution of the insurance sector in supporting the nation‘s
economic development

10
Source: Life Insurance Council, SEBI
Indian Life Insurance
―Market Analysis‖

02
New business
After less than a decade, the private sector has a …and sales have weathered the global financial crisis
significant share of the market for new business… well
2009-10 market share by new business APE 80000 First year premiums (Rs. Cr.)
70000
LIC Private Sector
60000

50000

40000

30000

20000

10000

0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

100%
LIC
40% 90%
32% 37%
80% 43% 42%
48% 47%
70%
Rising industry renewal premiums indicate a 60%
50%
maturing market and is supportive to
40%
profitability 30%
68% 63%
52% 53% 57% 58%
20%
10%
0%
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

First year premium Renewal

Source: Based on weighted first year premium figures derived from IRDA Report 12
Key changes – regulations
FY 2010-11
Recent regulatory changes will pose challenges…
— Significant regulatory changes with respect to unit linked products
FY 2009-10
— Lock-in period of 5 years
— PFRDA launches pension solutions for unorganised sector
— No front ending of charges
— Committee set up for review of multi-ties for banking companies
— Minimum premium paying term of 5 years
— Corporate governance framework in process
— Increase in risk component
— Changes in investment and accounting regulations likely
— Minimum guaranteed return on pension products
— Disclosure framework launched
— Limit on surrender charges
— Circular for cap on ULIP charges
— Swarup committee on agency commissions
— Exposure draft on persistency

…disclosure norms facilitate IPOs

Periodicity of reporting Duration Medium Other conditions
— The IRDA has finalised guidelines for public disclosure
effective from March 31, 2010 Explanation of (i) variation in surplus / deficit
or net profit / net loss after tax is in excess of
– largely consistent with standards prescribed by IAIS Within 45 days
10% or Rs.5 crs, whichever is higher; (ii)
(International Association of Insurance Supervisors) 1. Quarterly financial data from the end of Website
variation in exceptional or extraordinary
the period
– Insurers to host on website disclosures of at least 5 items is in excess of 10% or Rs. 1 crore,
years latest by April 15, 2010 whichever is higher

— The disclosures proposed can be grouped into: 2 months post Limited review by auditors; Report placed
2. Half yearly financial data Website/Print
– Financial information quarter end before BoD or committee

– Analytical ratios Within 6 months

3. Annual financial data from the end of Website/Print
the period

13
 HDFC Standard Life
―Operations and Performance‖

03
Operations and performance

Growth through a comprehensive distribution network covering over 700 cities …

568
600 250000

500 440 200000

197,688
400
150000

300

100000
200

74,016
53 50000
100

18,296
0 0
Mar 04 Mar 07 Mar 10

Distribution points Agents (RHS)

15
Operations and performance
…supported by excellent customer service nationwide

— Extensive branch network – reach to

customers
— Dedicated Email team for resolution of email
requests/queries
— SMS Services for customers ‗On the Move‘
through SMS key words
— Web based services enhanced for customers
and channel partners
— Constant evaluation and capture of ―Voice of
Customer‖ through renowned research
agencies for experience at various touch points
— Drishti – Our exclusive Customer Contact
Center for customer queries

16
Operational Highlights
A comprehensive product portfolio to meet customer needs…

Young and single Just married Married with children Nearing retirement

Savings Savings Savings Investments

— Endowment Assurance — Joint life plans — Children‘s Plan — Single premium whole life
— Money Back — Unit linked Endowment — Unit linked Young Star — Wealth Builder
— Simplilife — Simplilife Investments Health
Health Protection — Single premium whole life — Surgicare, Critical care
— Surgicare, Critical care — Term Assurance — Wealth Builder Pension
— Loan cover term Pension

…a diversified mix of distribution channels…

Channel wise EPI trend

0.5% 0.8% 1.8% 1.4% 1.6% 2.0% Rs. Bn.

Channel` FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10

39.0% 43.1% 39.0%
43.5% 46.7% 1. Alternate 3.7 5.8 9.5 11.9 14.0
54.7%
2. Retail 4.8 7.3 14.5 13.2 11.1
3. Others 0.1 0.2 0.3 0.4 0.5
60.5% 56.1% 54.7% 59.6% Total 8.6 13.3 24.3 25.5 25.6
51.7%
43.3%

1. Alternate includes banks, brokers, 2. Retail is the tied agency sales force
other corporate agents and 3. Others includes direct sales, telemarkting,
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 international business online sales etc., rural bima bachat sales

Others Alternate Retail

17
Operations and performance
…supported by strong bancassurance relationships…

18
Operations and performance
Operational efficiency drives productivity…

Automation & centralization

— Managed growth within a centralized virtual organization
— First life insurer with Automated Workflow Processes
— Digitized workflow eliminates inefficiencies of paper based systems
— Multiple processing hubs and data centres with ‗failover‘ capability – more than Disaster Recovery
— Protecting Integrity of Policy Administration System through stringent Change Management Process and using Identity
Management Solutions for error free access control

Spend management initiative

— Renegotiations of all major lease agreements related to office space to avail of better rates
— Active negotiation of all significant contracts with vendors and focus on bulk purchases to ensure better and cost-effective rates
— Savings of 20%-40% being realized across different commodities
– Category Management (through Value Analysis / Value Engineering) to identify better / alternate ways of spend (including
by modifying the specs)
– Using best in class sourcing techniques (including reverse auctions) so as to source commodities at the most competitive
rates
– Realize savings by minimizing scope for non-compliant / wasteful spends by incorporating a workflow process. (e.g. Travel
Management System)
– Realize savings in terms of delivered costs, through CENVAT credit
– Significant savings in terms of delivered costs through proper contracts. Over 110 contracts, in case of around 25
categories have been negotiated

19
Operations and performance
…and responsive customer service

Lowest Claims Repudiation Ratio - Individual Business FY2008-09

30
27.78

25 24.3
22.77

20.01 20.13
19.33 19.63
20

16.37
15.09
15
12.23
11.51
11.23
10.56 10.37
10 9.23 8.84
8.35
7.81 7.77 7.34
6.59
5.67
5.2 4.8
5

0
Tata AIG Met Life Aviva SBI Life Birla Sunlife KMOM Bajaj Allianz ING Vysya MNYL Reliance ICICI Pru HDFCSL

Percentage Claim Repudiation - Policies Percentage Claim Repudiation - Benefit amount

Source: IRDA Annual Report

20
HDFC Standard Life
―Financial Highlights‖

04
Financial highlights

80
70.1
70

60 55.6
48.6
50 37.5
Strong growth in total premiums and 40 28.6
21.7
higher share of renewals… 28.6
30

20 15.7 12.1
32.6
5.3 26.9 27.0
10 16.5
10.4
0
2005-06 2006-07 2007-08 2008-09 2009-10
Renewal NB Recd. Premium

250.0
Rs. Bn. 207.7
200.0

150.0
… assets under management as on
106.0
100.0 89.2 March 31, 2010 have nearly doubled
49.8
50.0
25.5

0.0
March 31, March 31, March 31, March 31, March 31,
2006 2007 2008 2009 2010

22
Financial highlights

Premiums are growing and average case size is high

New business premiums (EPI)

EPI (Rs. Bn.)

30
25.52 25.61
25 24.25

20

15 13.28

10 8.54

5 4.03

0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Note: EPI is effective premium income which is summation of annualized regular premium and 10% of single premium 23
Financial highlights

Renewal premiums exceed new business premiums for the first time

Rs. Cr. 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 CAGR

Regular Premium

New 2984 2539 2280 1317 818 382 51%

Renewal 3748 2861 2173 1210 530 200 80%

Single 273 165 405 332 225 104 21%

Total Premium 7005 5565 4858 2859 1573 686 59%

EPI 2561 2552 2425 1328 854 403 45%

New business growth slowed down due to the global economic crisis..
.. but renewal premiums continued to show strong growth

24
Financial highlights

Commission rates have stabilised as a proportion of gross premiums

Commission ratio
12.0%
10.6%

10.0%

8.0% 7.7% 7.6% 7.5%

7.4% 7.2%

6.0%

4.0%

2.0%

0.0%
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

25
Financial highlights

Rise in 08-09 expense ratio due to one-off investments in manpower expansion and bancassurance customer
base, coupled with impact of lower persistency

Expense ratio Rs Bn
Expenses
40.0%
20
33.6% 17.6
35.0% 18

29.0% 16 15.09
30.0%
25.4% 14
25.0%
20.8% 12
20.2% 19.7% 10.13
20.0% 10

15.0% 8
5.77
6
10.0% 3.98
4
2.31
5.0%
2
0.0% 0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

26
Financial highlights

… improved individual regular premium conservation ratio in 2009-10

100%

90%

80%
74.7 %*
70% 73.0%*
Impact of products with premium
60% reduction option wore out in the
50%
latter half of 2009-10
91.3% 89.5%
84.2%
40% While this was an industry wide
71.6%
30%
65.0% phenomenon we withdrew the
product earlier than others
20%

10%

0%
2005-06 2006-07 2007-08 2008-09 2009-10

* Excluding products with the premium reduction option

27
Financial highlights

Reduction in capital injections…

25

Paid-up Capital (tangible)

19.7
20 Capital injections
18.0

15
12.7

10
8.0
6.2
5.3
4.7
5
3.0
1.8 1.7

0
March 31, 2006 March 31, 2007 March 31, 2008 March 31, 2009 March 31, 2010

28
Awards and Accolades

05
Awards and accolades

“Product of the year 2010” award for HDFC Young Star Super
— Global consumer recognition standard that recognizes the best innovations in retail products

— A consumer verdict for best innovations

– based on a survey of 30,000 Indian consumers by AC Nielsen

— Innovative product features appreciated by customers

– triple insurance benefit,

– bumper additions,

– low premium allocation charges,

– low fund management charges; and

– low policy administration charges

Back

30
Awards and accolades

— CIO 100 – The Bold 100, 2008 for Mobile workforce Solution (Consultant
Corner)

— CIO 100 – Special Award for IT Security, 2008

— CQUEST Best IT Implementation – Scale Of Deployment, 2008 for

Workforce Mobility

— ―Intelligent Enterprise‖ Award by the Express Computer Magazine – Part of

the Indian Express Group, 2006

— HDFC Standard Life ranked 29th most trusted Indian Brands amongst the
Top 50 Service Brands to a study conducted by the Brand Equity –
Economic Times, 2008

— '4Ps Power Brand 2006', for being one of India's Top 25 'Most Innovative
Companies' in an exclusive survey conducted by ICMR (Indian Council of
Market Research) and 4Ps - Business and Marketing (a Business and
Marketing magazine published by Planman Media 2008

31
Appendix
Industry growth prospects

The youthful age pyramid – 2005 The expected transition - 2030

Source: UN Population Division

Household income
No. of Households in „000s
Household income 2005-06 2009-10 Growth
>Rs. 10 million 52 141 171%
Rs. 5-10 million 103 255 148% Significant impact on
Rs. 2-5 million 454 1,037 128%
— Household savings
Rs. 1-2 million 1,122 2,373 111%
Rs. 0.5-1 million 3,212 6,173 92% — Financial savings
Rs. 0.2-0.5 million 13,183 22,268 69%
< Rs. 0.2 million 185,525 189,698 2%
Source: NCAER – Market Information Survey of Households, August 2005 33
Statutory profit and loss account
Units: Rs ‘000s
FY ending 31 March 2009-10 2008-09
Premium 70,051,044 55,646,937
Reinsurance ceded (494,720) (463,174)
Premium earned (net) 69,556,324 55,183,763
Income from investments 57,228,189 (17,231,361)
Other income 3,862,305 6,504,424
Total income 130,646,818 44,456,826

Commission expense (5,254,973) (4,248,904)

Operating expenses (15,090,403) (17,600,683)
Fringe benefit tax - (66,320)
Benefits paid (net) (13,378,943) (6,812,692)
Interim bonuses paid (1,013) (611)
Terminal bonuses paid (2,725) (4,194)
Change in valuation of liability against life policies in force (95,009,353) (14,057,024)

Surplus / (Deficit) 1,909,409 1,666,398

Appropriations
Transfer to Shareholders' Account 472,930 794,984
Transfer to Other Reserves - -
Funds for future appropriation - Provision for lapsed policies 532,861 285,019
Balance being Funds for Future Appropriations 903,618 586,395
Total 1,909,409 1,666,398

Amounts transferred from the Policyholders Account 472,930 794,984

Income from investments 335,133 329,343
Other income 3,522 300
Total income 811,585 1,124,627
Expenses other than those related to insurance business (3,981) (5,307)
Contribution to the Policyholders Fund (3,559,448) (6,148,951)
Profit / (Loss) before tax (2,751,844) (5,029,631)
Provision for taxation - -
Profit / (Loss) after tax (2,751,844) (5,029,631)

Source: HDFC Standard Life 2009-10 Annual Report 34

Statutory balance sheet
Units: Rs ‘000s
FY ending 31 March 2009-10 2008-09 2009-10 2008-09
Sources of funds Application of funds
Shareholders' funds Investments
Share capital 19,680,000 17,958,180 Shareholders' 6,304,757 4,291,597
Reserve and surplus 552,892 552,892 Policyholders' 43,415,382 30,152,727
Credit/(Debit) fair value change account 184,435 (77,610) Assets held to cover linked liabilities 155,217,800 68,782,936
Sub-total 20,417,327 18,433,462 Loans 40,366 30,248
Fixed assets 1,143,777 1,451,346
Borrowings - - Current assets
Policyholders' funds: Cash and bank balances 2,826,362 4,108,660
Credit/(Debit) fair value change account 205,087 (296,885) Advances and other assets 4,917,758 5,428,699
Policy liabilities 37,666,908 29,092,419 Sub-total 7,744,120 9,537,359
Insurance reserves - -
Provision for linked liabilities 127,701,636 84,085,083 Current liabilities 12,281,585 8,820,225
Add: Fair value change 27,516,164 (15,302,147) Provisions 187,617 208,813
Total provision for linked liabilities 155,217,800 68,782,936 Sub-total 12,469,202 9,029,038
Sub-total 193,089,795 97,578,470
Net current assets (4,725,082) 508,321
Funds for future appropriations 1,490,013 586,395
Funds for future appropriations - provision
1,064,831 531,970 Debit balance in profit and loss account 14,664,966 11,913,122
for lapsed policies
Surplus allocated to shareholders -
Total 216,061,966 117,130,297 Total 216,061,966 117,130,297

Source: HDFC Standard Life 2009-10 Annual Report 35