BANCASSURANCE AND BEYOND – A Banker Perspective Ajay Vyas Dy. General Manager Central Bank Of India

Life Insurance Industry – Size & Players Life Insurance Industry size 2011: `2,87,000 Cr Expected Industry size* by 2020: 15,00K - `17,00K Cr Cumulative capital investment: `26 K Cr Employment (direct + indirect): increased from ~8.3lacs in FY2000 to over 32lacs in FY2009 Life Insurance penetration (total premium as % of GDP as of 2010) in India stands at 4.4% vis-à-vis Industrialized countries ~8.65% depicting a huge growth opportunity Currently there are 24 LI players (23 Private & 1 PSU) with many more players lined to enter. 1956-57 Life Insurance Corporation (LIC) 2000-2003 WAVE I - PRIVATE INSURER HDFC Life Max New York Life ICICI Prudential Kotak Life Birla Sunlife TATA AIG Life SBI Life ING Vysya Life Bajaj Allianz Life Metlife Reliance Life Aviva Life 2004 -2007 WAVE II - PRIVATE INSURER Sahara Life Shriram Life Bharti AXA Life Future Generali Life IDBI Federal 2008 -2011 WAVE III - PRIVATE INSURER Canara HSBC OBC Aegon Religare Life DLF Pramerica Star Union Dai-ichi India First Life Edelweiss Tokio Life * - Source: www.irda.gov.in, BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 2010

YoY increase in overall premium collection Phases in Life Insurance Industry Growth of the in the Life insurance Industry in India can be split 3 phases : Sole life insurer phase (Ist phase) LIC - sole life insurer with primary focus on agency distribution High growth & investment phase (IInd Phase) Private life insurance enter the sector - sizeable capital investment in setting up: Distribution network, Training, Manpower, Facilities, Solvency requirements, Contact centres, IT & related data centre etc:- Immediate upswing in overall premium generation due to competition Profitable growth phase (IIIrd phase) Improvement in maximizing capital utilization and consolidation of relatively non-productive units Business conservation focus to increase renewal premium collection. Surge in long term partnerships with established distribution entities (NBFC/Banks, etc:) to maximize penetration with limited capital investment; Emergence of Bancassurance as a Key Enabler YoY increase in overall premium collection Phase I Phase II Phase III

Over 400 million customers Banking Industry in India Total branches across all scheduled commercial banks in India : over 76,000 Increased customer awareness about financial products post globalization. Banks aspiration to offer all financial products under one roof & position “Bank as a ONE STOP SHOP” Opportunity to up-sell & cross-sell para-banking products through the existing banking network. Para-banking activities lead to improved productivity of bank employees & to earn fee-based income. Insurance products offer superior long term benefits both to bank & customer over the relationship period. Emergence of Bancassurance – a Win-Win Proposition for both the Insurer & Bank. SBI & its Associates Public Sector Banks Private Sector Banks Foreign Banks Total Branches 18,772 45,460 11,968 316 76,516 Customer base Over 400 million customers Cross sell Life insurance Upsell General Insurance Wealth Management Mutual Funds Asset products Equity – Demat Bank network source: RBI profile of banks in India as on 31st Mar 2011; Bancassurance is the sale of Insurance through Bank partner’s distribution network

The Bancassurance Opportunity… Real Potential Still to be Unleashed Banks are major players in the Indian Financial system: 76,000 branches (32,000 rural and 14,700 semi urban) Enormous retail account base of 440 mn deposit accounts Total deposit base of Rs. 1,49,473 billion Large Structure governed thru’ Regulations Four Categories of Banks – Foreign Banks, Nationalised Banks, Private Sector Banks and Co-operative Banks catering to distinct customer segments Over 2500 Banks spread nationally and geographically Banking Habits of Customers Propensity to Visit Bank Branches High Trust in the Banking System Bank Managers looked upon as “Financial Advisors”

Over 65% of Household financial savings are in short term instruments The Bancassurance Opportunity… Incremental Financial Household Savings Over 65% of Household financial savings are in short term instruments

Advantages for Bank partner Advantages for Insurance Companies Bancassurance – a Win-Win Proposition Advantages for Bank partner Increased customer loyalty from offering all financial products & services under one roof – One Stop Financial Institution Improved usage of its distribution network Improvement in sales skills of employees enabling better sale of other banking products & services; Increase in employee productivity & profitability Insurance revenues - fee based income Additionally upfront revenues can be utilised for fuelling banks growth aspirations & capital requirements Long term valuation benefit creation through equity JVs by leveraging the bank brand and presence Advantages for Insurance Companies Immediate access to established brand and wide distribution network Additional source of premium generation Low operating costs leading to higher efficiency Geographic advantage: Access to banks exclusive customer base Demographic advantage: Access to all the customer segments Access to banks captive customer base Increased brand awareness through mutual association Profitable growth opportunity

Comparative between other income and profit -2010-11(Rs in Crore) Bancassurance – a Win-Win Proposition Comparative between other income and profit -2010-11(Rs in Crore) BANK OTHER INCOME PROFIT CBI 1265 1252 UNION Bank 2039 2081 Allahabad 1389 1423 BOI 2681 2488 Indian Bank 1182 1714 PNB 3613 4433 Traditional source of income Shrinking Margins Low Interest Income Capital Requirement – Basel II Threat of NPA

Partnership Matrix… Bank Insurer Insurance Customer base and relationships High footfalls at Bank’s retail outlets Distribution network Large sales force. Brand Insurer Sales & marketing expertise for insurance products Profit maximization selling insurance products Strong technical expertise & Product know-how Financial strength Brand 50% 50% Insurance Bancassurance partnership and distribution agreement to clearly address: Volume targets Type of products to be sold Sharing of margins between product and distribution Sharing of CRM system Management responsibility of the product factory Require solid legal contract / servicing agreements

Description of the arrangement Partnership arrangements between Banks & Insurers 10 Arrangements Description of the arrangement Examples Corporate Agency Bank signs a distribution arrangement with the Insurance Company Mostly prevalent in the market LIC –Central Bank Of India HDFC Life – Indian Bank Tata AIG – United Bank of India Cross Shareholdings Bank and the insurance company agree to have cross shareholdings between them. A member from each company might join the board of directors of the other company Mostly prevalent in the Japanese market Joint venture (Brownfield) Bank joins as an equity stake holder in an existing insurance company. Axis Bank – Max New York Life PNB – Metlife (IRDA approval awaited) Acquisition Bank wholly or partially acquires an insurance company. Reliance Life (Reliance Life acquired AMP Sanmar Life) ICBC - AXA (ICBC has acquired 60% stake in AXA Minmetals Insurance group) Manufacturer (Greenfield) Bank starts its own Insurance Company SBI – SBI Life HSBC, Canara Bank & OBC – HSBC Life Bank of Baroda , Andhra Bank– India First IDBI – IDBI Federal

AMOUNT OF PREMIUM (IN Cr) Bancassurance Growth In India INDIVIDUAL NEW BUSINESS OF LIFE INSURERS - CHANNEL WISE CHANNEL AMOUNT OF PREMIUM (IN Cr) 2010-11 2009-10 2008-09 2007-08 2006-07 Individual Agents 65665.52 65289.25 55327.54 66515.43 54605.30 Corporate Agents-Banks 11062.63 8688.68 6737.38 6329.22 3363.17 % OF TOTAL (13.30) (10.60) (9.69) (7.97) (5.57) Corporate Agents- Others* 2957.75 3510.76 3380.54 3461.89 1825.89 Brokers 1471.80 1128.50 773.62 473.73 331.63 Direct Selling 2016.32 3389.85 3310.33 2642.71 235.33 TOTAL 83174.03 82007.05 69529.41 79422.97 60361.32 Source: IRDA

Customer Insurance Need matrix BANK ATM CASA Checking Phone Banking Time Deposits Foreign Currency Shares Trading/Financing Mutual Funds Transactions Investment Credit Card Overdraft Business Loans Mortgage Personal Loan Vehicle Loan Lending Protection Education Assets & Savings Health / Medical Life Travel Accident Life Insurance Products complete the financial relationship of the Bank with the customers

Revenue maximization through life insurance 13 Bank Product Insurance Attachment possibility Product Additional Revenue Benefit for the Bank CASA Individual LI & Group LI Personal Loan (PL) Group Credit life Home Loan (HL) MSME loan Recurring Deposit (RD) Group Term Plan Fixed Deposit (FD) 1 2 3 4 5 6 Typically a banking customer is sold only individual life insurance products generating “x” revenue But, a bank customer on an average has 2 to 6 banking products Insurance can be bundled/attached with all of them Thus, opportunity for the bank to generate 2x to 6x revenue through offering multiple insurance products

Channels of Distributions Distributions servicing in Banking sector to different Customer Segments Channels of Distributions In-Branch Sales Team CCPC Call Centers Dedicated Marketing Managers Relationship Managers Retail Walk-in customers Loan Customers New Customers High Net worth Customers SMEs

Key Success Factors… Commitment of Partners Motivation Selection of & Training of Bank Staff Selection of Customer Segments Selection of Partner Sales & Distribution Model Product Offerings

The Bancassurance……… Way Forward Selection of right insurance business model Segmentation of customers and Customization of Insurance products for each. Mobilization of resource & right Corporate vision Training of Bank’s staff Process to be fine tuned. (Policy issuance, communication & settlement of claims) Real time MIS & monitoring of business Customer grievances & redress mechanism

Prevalent Bancassurance Models in India 17 Bancassurance Model Description Risk Profile Distribution only (Corporate Agency) Bank ties-up as a Corporate Agent with an insurer and sells the insurance companies products to their retail and commercial banking customers. Bank receives a commission payment on the insurance products sold Banks take sales regulatory risk, insurers take all manufacturing risks. Joint Venture (Equity JV + CA) Bank buys a equity stake in the insurance company. Bank sells insurance products of its joint venture insurance company. Typically insurers take responsibility for controlling and managing risk. Banks are responsible for distribution, and both take their proportionate share of revenue and profit or loss. The ownership percentage can vary and other more complex structures can be put in place to allow for different service companies, offshore and onshore companies, and captives Banks take sales regulatory risk and both insurers and banks take manufacturing risks to the extent they are not reinsured Manufacturer Banks sell and underwrites insurance products via a wholly-owned insurance company. Banks take both sales regulatory risk and manufacturing/ underwriting risk

Considerations to be made by Bank while choosing the Bancassurance Model 18 Capital considerations - Basel and Solvency norms have the potential to cause significant capital pressure for banks that hold a greater than 20% share in any joint venture Banks have to make their decision on how to make best use of capital - Use it for banking expansion or diversification into insurance. Capital light Brownfield equity structure is the new trend which could address some capital considerations - however it again depends on bank commitment to deliver mutually agreed insurance targets. A core choice is whether to take a risk free distribution income or a risk-bearing and capital-intensive manufacturing model OR a combination of both. Basel III Norms Existing RBI Norm Common equity (after deductions) 4.50% 3.6% Conservation buffer 2.50% Nil Countercyclical buffer 0-2.5% Common equity + Conservation buffer + Countercyclical buffer 7-9.5% Tier I (including the buffers) 8.5-11% 6% Total capital (including the buffers) 10.5-13% 9% Source: Basel committee documents, RBI;

* - Source: www.irda.gov.in, BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 2010

* - Source: www.irda.gov.in, BCG report: India Insurance, Turning 10, Going on 20, Swiss Re: Sigma - World Insurance in 2010

Current Bancassurance market scenario (1/2) 21 Increasingly banks are keen on looking to tie up through a Brown Field Equity JVs for a longer term partnership with Insurance companies as it has major advantages: Increase brand awareness : Prolonged brand association - increased new business at record growth rates Valuation benefits : Longer term valuation benefits to both Banks & Insurance companies Capital requirements : Relatively capital light structure to enter into the lucrative life insurance sector IRDA to decide on allowing banks to partner with multiple partners: 2 Life Insurers & 2 General Insurers 2 Health Insurance & 1 ECGC Customized wealth creation insurance products as per bank partner requirements Banks consciously moving towards increasing sales of regular premium products

Current Bancassurance market scenario (2/2) 22 Models preferred by Banks: Small & Medium Private Banks – Corporate Agency (CA) model Large Private Banks – Equity JV / Manufacturer model PSU Banks: Medium & Small PSUs -Corporate agency model Larger PSUs preferring Equity JV / Manufacturer model As seen above - Banks with sizeable distribution network are now looking at entering into equity model partnerships Medium & Small sized PSU Banks with differentiated geographic footprints are coming together to partner for mutually beneficial association (eg: IDBI & Federal bank)

Recent Joint Ventures & Bancassurance Tie-ups 23 Recent examples in the Green Field Equity JV tie ups: Bank of India, Union Bank of India with Daichi, Japan - Star Union Dai-ichi Life Canara Bank, Oriental Bank of Commerce with HSBC Life - Canara HSBC OBC Life IDBI Bank, Federal Bank with Aegis- IDBI Federal Life Bank of Baroda, Andhra Bank with Legal & General - India First Life Recent examples in the Brown Field Equity JV tie ups: Axis Bank tie-up with Max New York Life (10year partnership agreement; Axis bank offered ~4% stake in MNYL; deal valued at approx. 250cr-350cr) Punjab National Bank & Metlife India (Deal yet to be finalized; 10 year partnership agreement; PNB offered ~30% stake (including free & discounted stake) in Metlife India; deal valued at approx. 600Cr) Syndicate Bank currently in the process of finalizing its JV partner (Syndicate bank is scouting for an appropriate insurance partner for Brownfield entry into the life insurance industry; Birla Sunlife) Many other Banks considering entering Life insurance to encash distribution premium and create “Valuation upside” Note - Deal values as per unverified market intelligence

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Appendix

Considerations to be made by Bank while choosing the Insurance Partner (1/2) 27 Objectives of the venture should be clear and communicated to the Top management Assessment of the Insurance Partner in terms of : Levels of expertise (in Indian market + globally), investment and/or assets brought committed for the venture Alignment of cultures and management styles for effective integration and co-operation Ability to develop tailored products with differentiated pricing for bank partner Global ranking & Credibility of the Insurance partner and Bancassurance experience Assessment of the Bank’s potential with respect to: Number of Points of Presence (PoP) (Bank Branches, ATMs, RRB branches, etc.) Challenge in terms of activation of these PoP’s Operational Sales Model Support Bank employees responsible for driving insurance sales with Manpower support from the Insurance partner Relationship Managers assigned to cover specialized segments/channels of the bank, viz. Wealth Management SMEs, Corporates, Asset business, etc. Consent & support for regulatory (IRDA) certification of the bank employees Source : TowersWatson -India Bancassurance Benchmarking survey

Considerations to be made by Bank while choosing the Insurance Partner (2/2) 28 Lead generation architecture: Lead generation & capture process to be designed to capture insurance sale opportunities at all bank PoP’s Manpower support from Insurer to be knowledgeable about bank branch business & customer profile and be able to engage the bank staff effectively for lead generation Investment in technology for data base mining, lead management and tracking Training & development Adequate and well planned training architecture for Bank from the Insurance Partner Insurer investment in a Bancassurance training platform to provide necessary training to the branch staff at various levels & across various curriculum’s Online training/refresher & knowledge repository for the bank branch staff Performance on Service Delivery parameters with focus on Service & Claims Customer Management & Support Performance Management systems viz. Management Information System & Reports Source : TowersWatson - India Bancassurance Benchmarking survey

Constituents for an effective Bancassurance Partnership 29 Organization Strategic Management Proposition Source Service Sales Distribution Customer Bancassurance understanding & importance to the bank Commitment & objectives set from the Top Strong Visible Leadership Consistent focus – Not just flavor of the month Mutually Agreed Target Dedicated Insurance Vertical at the bank with an Insurance head to manage business sourcing In-house and third party product provision Simple Multi – channel products agreed with the bank Proposition created for mass market Specific proposition for High Networth Individuals Effective bundling of products Shared Services Integrated low cost service models Single system Straight through processing Active external & Internal lead generation at branches & worksites Incentive/rewards balanced with the ban Strong Compliance focus Guided Execution Defined targets for the bank branch employee & Financial Advisor Assess multiple insurance attachment models Face to Face, Internet, Direct telephone integrated solution Face to face representatives for business Focused sales culture Predict future segment needs Breakthrough Propositions Simple triggers Active high volume & high quality lead generation Cross sell & up-sell supported by core banking product incentives The blue boxes highlight the areas where particular differentiation can be achieved Source: E&Y Report On Bancassurance - A winning Formula, July 2010

Industry Snapshot Key Financials: (In INR Mn) Insurers Gross Written Premium Capital as on GWP/ Capital Ratio 2009-10 2008-09 31st Mar 10 Bajaj Allianz 114,197 106,245 12,107 9.4 ICICI Prudential 165,319 153,562 47,871 3.5 SBI Life 101,040 72,121 10,000 10.1 Reliance Life 66,049 49,325 29,743 2.2 HDFC Standard 70,051 55,647 19,680 3.6 Birla Sun life 55,057 45,776 24,495 Max New York 48,605 38,573 19,730 2.5 TATA AIG 34,938 27,475 19,205 1.8 AVIVA 23,780 19,929 18,888 1.3 Bharati AXA 6,697 3,604 13,053 .5 Future Generali 5,415 1,526 7,646 .7 30

Industry Snapshot - Profit and (Loss) breakup Private Insurers Capital Infused Shareholder Profit & loss (INR Crs) Accumulated Profit / (Loss) in Balance Sheet (INR Mn) YTD Mar 10-11 09-10 Bajaj Allianz Life 1,211 10,570 542. 10,387 (183) ICICI Prudential 4,781 8,076 258 (27,109) (35,185) SBI Life 1,000 3,663 276 6,212 2,549 Reliance Life 2,970 (1,293) (284) (28,032) (26,739) HDFC Standard Life 2,013 (990) (275) (15,655) (14,665) Birla Sun Life 2,450 3,050 (435) (17,225) (20,275) Max New York 19,20 1940 (209) (8290) (10230) Tata AIG 18,88 518 (400) (11580) (16100) 31

List of Life Insurance Companies in India (1/2) 32 Sl. No. Insurers Bank owned Indian Partners (shareholding %) Foreign Partner (shareholding %) Regn. No. Date of Registration Operations commenced in 1. Life Insurance Corporation of India No --- 512 1-Sep-56 1956-57 2. HDFC Life Insurance Co. Ltd. HDFC Ltd. (72.43%) Standard Life Assurance, UK (26%) 101 23-Oct-00 2000-01 3. Max New York Life Insurance Co. Ltd. Max India Ltd. (70%) Axis Bank (4%) New York Life, USA (26%) 104 15-Nov-00 4. ICICI-Prudential Life Insurance Co. Ltd. Yes ICICI Bank Ltd (74%) Prudential , UK (26%) 105 24-Nov-00 5. Kotak Life Insurance Co. Ltd. Kotak Mahindra Bank (74%) Old Mutual, South Africa (26%) 107 10-Jan-01 2001-02 6. Birla Sun Life Insurance Co. Ltd. Aditya Birla Group (74%) Sun Life, Canada (26%) 109 31-Jan-01 7. Tata-AIG Life Insurance Co. Ltd. Tata Sons (74%) American International Assurance Co., USA (26%) 110 12-Feb-01 8. SBI Life Insurance Co. Ltd. State Bank of India (74%) BNP Paribas Assurance SA, France (26%) 111 29-Mar-01 9. ING Vysya Life Insurance Co. Ltd. Exide Industries (50%) ,Gujarat Cements (15%) & Enam (9%) ING Insurance International B.V., Netherlands (26%) 114 2-Aug-01 10. Bajaj Allianz Life Insurance Co. Ltd. Bajaj Finserv (74%) Allianz, Germany (26%) 116 3-Aug-01 11. Metlife India Insurance Co. Ltd.* J&K Bank (25%), M. Pallonji & Co. (31%) 4 Private investors (18%) Metlife International Holdings Ltd., USA (26%) 117 6-Aug-01 12. Reliance Life Insurance Co. Ltd. (Earlier AMP Sanmar Life Insurance Co. from 3.1.2002 to 29.9.2005) Reliance Capital (Anil Dhirubhai Ambani Company) (74%) Nippon Life Insurance, Japan (26%) 121 3-Jan-02 * Punjab National Bank has acquired partnership in Metlife. The deal is awaiting IRDA approval post which the shareholding pattern will change

List of Life Insurance Companies in India (2/2) 33 Sl. No. Insurers Bank owned Indian Partners (shareholding %) Foreign Partner (shareholding %) Regn. No. Date of Registration Operations commenced in 13. AVIVA Life Insurance No Dabur group (74%) Aviva International Holdings Ltd., UK (26%) 122 14-May-02 2002-03 14. Sahara Life Insurance Co. Ltd. Sahara India Pariwar (100%) --- 127 6-Feb-04 2004-05 15. Shriram Life Insurance Co. Ltd. Shriram Group (74%) Sanlam, South Africa (26%) 128 17-Nov-05 2005-06 16. Bharti AXA Life Insurance Co. Ltd.# Bharti Enterprises (74%) AXA Holdings, France (26%) 130 14-Jul-06 2006-07 17. Future Generali India Life Insurance Company Ltd. Pantaloon retail ( 25.5%), Sain Advisory services pvt. Ltd. (49%) Generali, Italy (25.5%) 133 4-Sep-07 2007-08 18. IDBI Fortis Life Insurance Company Ltd. Yes IDBI Bank (48%) & Federal Bank (26%) Fortis, Netherlands (26%) 135 19-Dec-07 19. Canara HSBC OBC Life Insurance Company Ltd. Canara Bank (51%), Oriental Bank of Commerce (23%) HSBC Insurance, (Asia Pacific) holdings (26%) 136 8-May-08 2008-09 20. Aegon Religare Life Insurance Company Ltd. Religare (44%), Bennett, Coleman & Co (30%) Aegon group, Netherlands (26%) 138 27-Jun-08 21. DLF Pramerica Life Insurance Co. Ltd. DLF Limited (74%) Prudential of America, USA (26%) 140 22. Star Union Dai-ichi Life Insurance Bank of India (48%) & Union Bank of India (26%) Dai-ichi Mutual Life Insurance, Japan (26%) 142 26-Dec-08 23. IndiaFirst life insurance company Bank of Baroda (44%) & Andhra Bank (30%) Legal & General Middle East Limited, UK (26%) 143 5-Nov-09 2009-10 24. Edelweiss Tokio Life Insurance Edelweiss Capital Ltd (74%) Tokio Marine & Nichido Fire Insurance Co., Japan 26%) 147 10-May-11 2010-11 # Reliance Industries Limited (RIL) & Reliance Industrial Infrastructure Limited (RIIL) has acquired Bharti’s stake in Bharti AXA Life. The deal is awaiting IRDA approval post which the shareholding pattern will change

Regulatory environment in India 34 Insurance and Banking are two different sectors and are regulated by different entities Reserve Bank of India (RBI) Regulatory Authority for all Indian Banks RBI norms pertaining to Bancassurance (refer appendix) Insurance Regulatory Development Authority (IRDA) Insurance sector follows the guidelines provided by IRDA IRDA also specifies norms for bancassurance partnerships

RBI norms pertaining to bancassurance (1/2) 35 Any Scheduled Commercial Bank can become corporate agent to a life insurance company and earn fee based income provided JV will be allowed for financially strong banks that fulfill the following criterion: In case of where a foreign partner contributes 26% of the equity with the permission of IRDA and Foreign Investment Promotion Board more than one public sector bank or private sector bank can contribute in the equity of the Joint Venture As subsidiary of a bank or any other bank will not be allowed to join insurance company on risk participation Net Worth of the bank > Rs 500cr Capital Adequacy Ratio (CAR) > 10% Net profit earned continuously for last 3 years The track record of the subsidiaries, if any of the concerned bank should be satisfactory Non Performing Asset should be reasonable Source : RBI Website

RBI norms pertaining to bancassurance (2/2) 36 Banks which are not eligible for joint venture participation as mentioned on Slide 4 can do the following Make investments up to 10% of the Net Worth of the bank or 50cr whichever is lower The investment done is to provide Infrastructure or services support to the insurance company Such participation shall be treated as investment and should be without any contingent liability for the bank Capital Adequacy Ratio (CAR) > 10% Non Performing Asset should be reasonable Source : RBI Website

Key features of each model 37 Capital free commission Income Utilization of the revenues earned in the bank Involves investment by Insurance company to help scale up insurance business of the bank & achieve expertise. Risk borne by the insurance company Distribution (Corporate Agency) Relatively Capital Intensive (However, lesser than the Manufacturer model) Access to newer markets and distribution networks as both Banks & Insurance co. are thickly bonded for a relatively longer term. Sharing of risks and costs with a partner Access to greater resources, including specialized staff, technology and finance Joint Venture (Equity JV + CA) Most Capital Intensive way with highest risks Potential greater returns offered by certain core insurance products through the long-term underwriting returns by manufacturing Complexity in manufacturing the product which calls for tie-up with a globally strong insurance partner. Manufacturer

Insurer’s perspective Distribution agreement Equity partnership vs. Distribution relationship 38 High Bank’s perspective Insurer’s perspective Advantages Disadvantages Joint-venture (Equity partnership)   Increased stability of the venture: Long-term partnership, joint interest & aligned incentive structures Ability to participate in product design and Product customization Dedicated support provided by insurance partner to ensure know-how transfer Enhanced profitability: Commissions + Manufacturing margins Less flexibility to opt out Could be capital intensive Increased stability of partnership allowing investments with longer gestation periods Common brand providing easier access to captive customer base Increased business potential from long-term common interests Increased bank employee buy-in Increased penetration across bank branches & associates Increased profit sharing with bank Distribution agreement (Corporate agency) Marginal costs Limited sharing of customer information Capital gain opportunity Flexibility due to shorter term of partnership Limited control No/Limited profit sharing Direct competition with peer banks for sale of same products (as Life Insurance partner is common) Simpler deal structure Lower investment requirements Reduction in unit costs from increased sales volumes Shorter tenure of partnership Decreased bank employee buy-in Higher drain on resources Brand & culture diversity BANK COMMITMENT Low

Deal Structuring Options 39 Pure play equity – 10 year deals Bank provided with free equity / initial equity at discounted rate Bank partner has skin in the business to deliver commitments In certain scenarios equity reduction can be proposed if business is not delivered Primarily PSU banks are entering equity participation route to create valuation Bank prefers free equity with no or minimal capital investment Step up equity - 10 year deals Bank provided with free equity / initial equity at discounted rate / step up at discounted rate Bank partner has skin in the business to deliver basis minimum business guarantee Incremental equity on business delivery on a terminal basis Structuring methodology to engage bank in delivering the business as per agreed potential Equity + Distribution premium - 10 year deals Upfront Cash + free equity / initial equity at discounted rate / step up at discounted rate Structuring methodology for bank partner to have skin in the business basis minimum business guarantee Claw backs applied on cash by holding commissions or reduction in equity Distribution premium upfront / premium year on year - 3 – 5 year deals Usually prevalent in Private or Foreign bank deals Cash paid upfront or structured basis year on year delivery of agreed business Structuring methodology for bank partner to have skin in the business basis minimum business guarantee Claw backs applied on cash by withdrawing commissions until business delivered