Developments in Indian Life Insurance Industry 16th December 2010, Kochi

Agenda Snapshot of Indian Life Insurance Industry Inclusive Growth of Life Insurance Sector Investment by Life Insurance Companies Expenses of Life Insurance Companies Protection of Policyholders Interest 2

Snapshot of Indian Life Insurance Industry Life Insurance Industry completes a decade of opening up. Currently there are 23 players in the Life Insurance Industry. 20 Insurance companies have JV’s with foreign partners. LIC, Reliance Life Insurance and Sahara Life Insurance company are the three companies who do not have JV’s. All the major international players are present in the Indian Insurance market. A high capital intensive industry-Rs. 30,396 Cr deployed. (As of 30th Sept 2010) Foreign partners have brought in capital of Rs.5053 Crs as FDI. (As of 31st March 2010) India has the largest in-force policies in the world. 3

Snapshot of Indian Life Insurance Industry……….contd Parameters FY 99-00 FY 07-08 FY 08-09 FY 09-10 Apr-Sep 2010 (provisional) Number of players 1 18 22 23 Capital Deployed (Rs. Cr) 5 16,692 24,988 28,943 30,396 Branches 2,048 8,913 11,815 12,018 11,837 Employees (in Lacs) 1.23 2.54 2.85 2.70 2.62 Individual Agents (in Lacs) 7.14 25.20 29.37 29.78 27.60 More than 72 % of branches are located in Class C cities or lower Source: IRDA, Life Insurance Council (Apr-Sep 10 data is provisional)

Snapshot of Indian Life Insurance Industry……....contd Parameters FY 99-00 FY 07-08 FY 08-09 FY 09-10 Apr-Sep 2010 (provisional) New Business Policies (In Cr) 1.69 5.08 5.09 5.32 2.00 In force Policies (In Cr) 10.14 25.76 29.60 30.40 31.22 New Business Premium (Rs.Cr) 8,299 93,713 87,331 1,09,894 62,450 Renewal premiums (Rs. Cr) 17,951 1,07,639 1,34,454 1,55,556 62,805 Total Premium (Rs. Cr) 26,250 2,01,351 2,21,785 2,65,450 1,25,254 As per IRDA guidelines Life Insurance Companies have to mandatorily sell 18%policies in rural areas. Source: IRDA, Life Insurance Council (Apr-Sep 10 data is provisional)

Snapshot of Indian Life Insurance Industry ……..contd Parameter FY 99-00 FY 07-08 FY 08-09 FY 09-10 India’s share of world premium (Life) 0.50% 1.83% 1.98% 2.45% Penetration as % of GDP 1.77% 4.0% 4.60 New Business Policies (In Cr) 1.69 5.08 5.09 5.32 In force Policies (In Cr) 10.14 25.76 29.6 31.89 The industry services largest number of life insurance policies in the world Source: IRDA

Snapshot of Indian Life Insurance Industry ……..contd Benefits Paid Parameter FY 06-07 FY 07-08 FY 08-09 FY 09-10 Apr-Sep 2010 (provisional) Total Death Benefit paid(Rs.Cr) 4,794 5,288 6,125 8,385 4,937 Total Maturity claim paid(Rs. Cr) 34,356 34,543 37,806 NA Total Benefits paid (Rs.Cr) 56,887 61,686 58,527 95,883 64,742 Source: IRDA, Life Insurance Council (Apr-Sep 10 data is provisional)

Inclusive Growth of Life Insurance Sector Agenda Inclusive Growth of Life Insurance Sector 8

- Inclusive growth of Life Insurance Sector Companies are statutorily required to do rural business and cover lives from social sector -rural, un-organized and socially underprivileged from there first year of operation. Companies have to mandatorily sell 18% of new policies in rural areas. Cover 25,000 lives in social sector every year. 2.8 Crore rural policies were sold by companies in last two years. (1.55 Crore policies in 2007-08 and 1.26 Crore policies in 2008-09) 3.36 Crore life's covered in social sector in last two years. (1.43 Crore in 2007-08 and 1.93 Crore in 2008-09) 72% of the total 12,018 branches of insurance companies are in semi-urban or rural areas (33% in rural areas). No such obligations for Mutual Funds which operate mostly in 16 cities. Source: IRDA, Life Insurance Council

Investment by Life Insurance Companies Agenda Investment by Life Insurance Companies 10

Investment by Life Insurance Companies Rs. Crs Parameter FY 00-01 FY 07-08 FY 08-09 FY 09-10 Central Government Securities 47,512 2,96,687 3,16,010 3,61,520 State Government and other approved securities 5012 85,198 1,07,190 1,36,998 Investment in Infrastructure Sector 24,887 91,283 1,15,369 1,39,710 In FY 2009-10 life insurers invested 7,44,505 lakh crores in Central government, state government and other approved securities. Source: IRDA, Life Insurance Council

Investment by Life Insurance Companies……..contd Pattern of investment Rs. Crs Instruments FY 2009-10 As on 30th Sep 2010 Equity 4,46,881 5,29,444 Fixed Income (Debt) 8,10,904 8,72,577 Others 32,161 33,185 Total 12,89,946 14,35,206 Source: Life Insurance Council (data is provisional)

Expenses of Life Insurance Companies Agenda Expenses of Life Insurance Companies 13

Expenses of Life Insurance Companies Insurance is a long term contract with average tenure of 15 years. Comparatively high start-up cost to be related to a long tenure. Under Section 40 B of Insurance Act 1938, there is a capping on expenses of management. - Exemption is granted to companies in first 5 years of operation. - Any non-compliance later is viewed adversely by IRDA. Maximum Commission payable to agents under various product heads is prescribed in the Insurance Act (section 40 A). Longer the term of the policy, lower is the premium and therefore percent commission is higher. For shorter term policies the percent commission is lower as premium is higher. This ensures that the absolute commission is reasonable. In last four years (i.e. from FY 06-07 to FY 09-10) more than Rs.1,55,600 crores of premium was collected at a commission of less than 2.0% Source: IRDA

Protection of Policyholders Interest Agenda Protection of Policyholders Interest 15

Protection of Policy holders interest All advertisements are to be filed with the regulator & must satisfy fairness criteria. It is mandatory to explicitly give information on the definitions of all the applicable charges, method of appropriation of these charges and the quantum of all the charges during the entire term of the policy. All ULIP sales illustration should highlight the rate of return calculated at 6% and 10% to enable comparison across various products. The illustration is to be signed by the proposer. It is compulsory to mention on top each ULIP policy document “In this policy, the investment risk in investment portfolio is borne by policy holder. Policy document should clearly mention inter-alia the grievance redressal mechanism, name and address of grievance officer, ombudsman to whom complaint can be registered.

Protection of Policy holders interest…………..…….Contd Under regulation 6(1)Policy holders are given a 15 day free-look period from the date of receipt of policy document, where in the policy holder can review the terms and condition of the policy and opt to return the policy and claim refund. Section 45 of the Insurance Act 1938 - “Policy not to be called in question on ground of mis-statement after two years”. U/s 17d of Insurance Act 1938, there is a capping on expenses of management. Overall capping of expenses for ULIP is:- More than 10 years - 225 bps Less than 10 years - 300 bps

Protection of Policy holders interest…………..…….Contd Recent Regulatory Changes Cap on surrender charges / discontinuance. Lock in period increased to 5 years Even spread of charges during the lock in period Guarantee of return at maturity for ULIP Pension / Annuity Plans (4.5%) Minimum life insurance cover should be 110% of Single Premium for age at entry of 45 years and above and 125 % for age at entry below 45 years. Disclosure of Commission to the prospect.

Protection of Policy holders interest…………….Contd Transparency and Corporate Governance Public Disclosures Companies are required to disclose detailed financial & statistical information on quarterly /half yearly and yearly basis on their website. Companies are required to publish audited half yearly and annual financial statement in newspapers. Corporate Governance Companies are required to follow Corporate Governance guidelines which are followed by all listed companies in India.

Protection of Policy holders interest…….………….Contd Grievance Redressal Mechanism Note:- There are 12 ombudsman Centre's in India. The companies cannot challenge the decision of the ombudsman Register a Complaint with the Toll free number / helpline of the Company Complaint to the Grievance officer of the company Complaint to Council /IRDA / Ombudsman

Kerala Specific Data Individual New Business Premium (In Cr) Parameter FY 07-08 FY 08-09 FY 09-10 Individual New Business Premium (In Cr) 3,913 6,347 4,073 4,635 Individual New Business Policies 20,38,410 26,67,078 25,13,726 24,35,371 Branches 371 646 839 831 Number of Agents 1,10,127 1,40,099 1,59,408 1,59,884 Source: IRDA

Thank You

Life Insurance New Business Premium Rs.Crs Category 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Premium % Life 20,258 77 28,534 74 50,988 67 55,796 60 61,906 71 71,756 66 Annuity 1,759 7 1,668 4 1,982 3 2,577 4,357 5 5,686 Pension 4,077 15 8,575 22 22,649 30 35,245 37 20,388 23 31,676 29 Health 123 0.5 8 0.02 0.04 94 0.1 339 0.39 335 0.31 Total 26,217 38,785 75,649 93,712 86,990 1,09,453 Note: Figures may not add up to 100% due to rounding off Source: IRDA

Life Insurance Business New Business Premium collected for Pension and Annuity schemes in last 5 years Rs.Crs Category 2005-06 2006-07 2007-08 2008-09 2009-10 Pension & Annuity 10,243 24,631 37,822 24,745 37,362 Policies Category 2005-06 2006-07 2007-08 2008-09 2009-10 Pension Policies 20,42,661 67,59,813 99,23,334 51,56,146 64,66,139 Source: IRDA