Among top insurance markets

India ranked 10th among 156 countries in the life insurance business, with a share of 2.3 per cent during FY12 The country ranked 19th among 156 countries in the non-life premium income, with a share of 0.62 per cent in FY12

Rapidly growing insurance segments

The life insurance premium market expanded at a CAGR of 20.1 per cent, from USD11.5 billion in FY03 to USD59.9 billion in FY12 The non-life insurance premium market rose at a CAGR of 18.0* per cent, from USD3.4 billion in FY04 to USD12.7 billion in FY13**

Increasing private sector contribution

The share of private sector in the life insurance premiums increased from 2 per cent in FY03 to 29.3 per cent in FY12 The market share of private sector companies in the non-life insurance premium market rose from 14.5 per cent in FY04 to 42.9 per cent in FY13**

Crop, Health and Motor insurance to drive growth

Crop insurance market in India is the largest in the world and covers around 30 million farmers; it accounted for nearly 5 per cent of the total non-life insurance premium in FY12 Strong growth in the automotive industry over the next decade to be a key driver of motor insurance Health insurance continues to be one of the most rapidly growing sectors in the Indian insurance industry, and reported 16.1* per cent growth in gross premiums in FY13**
Source: IRDA, Mckinsey estimates Notes: * Growth rate in INR terms, ** Figures for FY13 are provisional

FY12

Strong demand demand Growing

Growing interest in insurance among people; innovative products and distribution channels aiding growth Increasing demand for insurance offshoring

Attractive opportunities
Life insurance in low-income urban areas Health insurance, pension segment Strong growth potential for microinsurance, especially from rural areas

FY15E
Market size: USD139 billion

Market size: USD72 billion

Advantage India
Increasing investments

Rising participation by private players has increased their market share in the life insurance market to 29.3 per cent in FY12 from 2 per cent in FY03 Increase in FDI limit to 49 per cent from 26 per cent, as proposed in 2012, will further fuel investments

The engineering sector is delicensed; Tax incentives insurance 100 per cent FDI on is allowed in the products sector Passing of Insurance Bill gives IRDA to frame regulations Due toflexibility policy support, there was cumulative FDI of USD14.0 billion into Clarity on rules for insurance IPOs the sector over April 2000 February would infuse liquidity in the industry 2012, making up 8.6 per cent of total Repeated attempts to make the FDI into the country in that period sector more lucrative for foreign participants

Policy support

Source: IRDA Notes: 2015E - Expected value for 2015; Estimate according to BMI, IRDA - Insurance Regulatory and Development Authority, IPO - Initial Public Offering, FDI - Foreign Direct Investment

2000 onwards 199399

195672

Before 1956

The life insurance sector was made up of 154 domestic life insurers, 16 foreign life insurers and 75 provident funds

All life insurance companies were nationalised to form LIC in 1956 to increase penetration and protect policy holders from mismanagement The non-life insurance business was nationalised to form GIC in 1972

Malhotra Committee recommended opening up the insurance sector to private players IRDA, LIC and GIC Acts were passed in 1999, making IRDA the statutory regulatory body for insurance and ending the monopoly of LIC and GIC

Post liberalisation, the insurance industry recorded significant growth; the number of private players increased to 44 in 2012* Customers are more conscious of the benefits of insurance and its importance for a secure future

Source: IRDA Notes: * As of September 2012, LIC - Life Insurance Corporation of India, GIC - General Insurance Corporation of India, IRDA - Insurance Regulatory and Development Authority

Insurance Regulatory and Development Authority (IRDA) Established in 1999 under the IRDA Act Responsible for regulating, promoting and ensuring orderly growth of the insurance and re-insurance business in India

Public (1) Life Insurance (24 players) Private (23)

Ministry of Finance (Government of India)

Insurance Regulatory and Development Authority (IRDA)

Public (6) Non-Life Insurance (27 players) Private (21)

Re-insurance (1 player)

Public (1)

Source: IRDA, Aranca Research Note: Data as of September 2012

With a share of 2.3 per cent, India stood 10th among 156 countries in the life insurance business in FY12 The growth in life insurance and non-life insurance premium in India outperformed the average global growth as well as the emerging markets over 201011 While life insurance premium witnessed a 2* per cent decline in 2012 due to adjustment in the new regulatory environment, non-life insurance rose 37* per cent in 2012 compared to the previous year

Life insurance premium growth rates* in India, emerging markets and the world
20%

Non-life insurance premium growth rates* in India, emerging markets and the world
37%

11% 3%

10% 2% -3% -5% -2% 1% 2012 World 2010 India** 14% 0% 10%

23%

9% 2% 2011 Emerging markets World

8% 3%

2010 India**

2011 Emerging markets

2012

Source: IRDA, Swiss Re Estimates, Aranca Research Notes: * Growth rate in INR terms, ** Figures for India correspond to FY10, FY 11 and FY12

The total insurance market expanded from USD14.4 billion in FY03 to USD72 billion in FY12 Over FY03FY12, total gross written premiums increased at a CAGR of 19.6 per cent

Gross premiums written in India (USD billion)

63.3 73.3
CAGR: 19.6% 40.0 28.5 14.4 17.9 22.3 57.0 54.9 72.0

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Non life insurance premium (USD billion) Life insurance premium (USD billion)

Source: IRDA, Aranca Research

The life insurance market grew from USD11.5 billion in FY03 to USD59.9 billion in FY12 Over FY03FY12, life insurance premiums expanded at a CAGR of 20.1 per cent

Growth in life insurance premiums (USD billion)

64.0

56.0 CAGR: 20.1% 50.0 48.3

59.9

34.5 14.5 11.5 23.9 18.4

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

Source: IRDA, Aranca Research

FY12

Life insurance penetration increased to 3.4 per cent in 2011 from 2.6 per cent in 2002 Life insurance density* expanded from USD11.7 in 2002 to USD49.0 in 2011 at a CAGR of 17.2 per cent

Life insurance penetration (%)

4.6
4.1 4.0 4.0 3.4 2.6 2.3 2.5 2.5 11.7 4.4

Life insurance density (USD)

55.7 CAGR: 17.2% 40.4 47.7 41.2 49.0

33.2

18.3 12.9

15.7

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: IRDA, Aranca Research Note: Life insurance density* is defined as the ratio of premium underwritten to the total population in a given year

2011

Share of private sector has been growing over the years, from around 2 per cent in FY03 to 29 per cent in FY12 The Gross Direct Premium of private companies increased from USD0.2 billion in FY03 to USD17.6 billion in FY12 at a CAGR of 61.7 per cent

Share of public and private sector in life insurance segment (%)

FY12 FY04

Share of public and private sector in life insurance segment (USD billion)

45 39 37 28 21 11 0 FY03 14 1 FY04 17 2 FY05 3 FY06 6 FY07 13 FY08 14 FY09 17 FY10 19 FY11 18 FY12 34 42

98.0 %

70.7% 2.0% 29.3%

Size: USD11.5 billion

Size: USD59.9 billion

Public Private

Private (USD billion)

Public (USD billion)

Source: IRDA, Aranca Research

Currently, the life insurance sector has 23* private players compared to only four in FY02 LIC is still the market leader, with 70.7 per cent share in FY12, followed by ICICI Prudential, with 4.9 per cent share

Market share of major companies in terms of total life insurance premium collected (FY12)
2.1% 2.2% 2.6% 3.6% 4.6% 4.9%

9.0%

LIC ICICI Prudential SBI Life HDFC Standard Bajaj Allianz 71.0% Max Life Birla Sunlife Others

Source: IRDA, Aranca Research Notes: * As of September 2012; Excluding reinsurer, LIC - Life Insurance Corporation of India

The industry is witnessing a shift towards the traditional non-linked insurance plans The share of non-linked insurance increased from 59.1* per cent in FY09 to 75.7 per cent in FY12 The non-linked premiums expanded at a CAGR of 16.7* per cent to USD45.4 billion during FY09FY12

Share of linked and non-linked insurance premium

24.3% 40.9% 43.5% 37.4%

75.7%

59.1%

56.5%

62.6%

FY09

FY10 Linked Premium

FY11 Non-Linked Premium

FY12

Source: IRDA, KPMG analysis Note: *Growth rate in INR terms, Linked Plans - In linked plans, a part of the investment goes towards providing you life cover while the residual portion is invested in a fund which in turn invests in stocks or bonds; the value of investments alters with the performance of the underlying fund In Non-Linked plans, a major chunk of investible funds are in debt instruments, giving steady and almost assured returns over the long term

The non-life insurance market grew from USD3.4 billion in FY04 to USD12.7 billion in FY13* Over FY04FY13*, non-life insurance premiums increased at a CAGR of 18.0** per cent The number of policies issued increased from 43.6 million in FY03 to 85.7 million in FY12, at a CAGR of 7.8 per cent

Growth in Non-Life insurance premium (USD billion)

Number of Non-Life insurance policies (million)

86 CAGR: 7.8% 79

CAGR: 18.0**% 7.1 5.5 4.2 2.9 0.5 FY04 3.1 0.8 FY05 3.4 1.2 FY06 3.6 1.9 FY07 2.7 FY08 3.9 2.7 FY09 4.4 3.8 FY11 5.0 FY12 5.5 7.3 44 42 50 51 47 57

67

68

2.9 FY10

FY13*

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

Private (USD billion)

Public (USD billion)

Source: IRDA, Aranca Research Notes: * Figures for FY13 are provisional ** Growth rate in INR terms

FY12

The non-life insurance penetration rate was in the range of 0.60.7 per cent over 200111 Non-life insurance density increased from USD3.0 in 2002 to USD10.0 in 2011 at a CAGR of 14.3 per cent The global average density of USD283 in 2011 indicates a huge potential for growth

Non-Life insurance penetration (%)

0.71 0.70 0.67 0.64 3.5 3.0 0.62 0.61 0.60 2002 2003 2004 2005 2006 0.60 2007 2008 0.60 2009 2010 2011 2002 2003 0.60

Life insurance density (USD)

10.0

8.7
CAGR: 14.3%

6.2
4.0 4.4 5.2

6.2

6.7

2004

2005

2006

2007

2008

2009

2010

Source: IRDA, Aranca Research

2011

Motor insurance forms the largest non-life segment, with 43.1 per cent share in FY13*, with Gross Direct Premium of USD5,482.8 million Health insurance is the fastest growing segment and formed 22.2 per cent of the total in FY13*, with Gross Direct Premium of USD2,824.7 million

Break-up of non-life insurance market in India (FY13*)

Total size: USD12.7 billion
Motor
17.1% Health 3.5% Fire Marine Engineering 22.2% Others

4.4%
9.6%

43.1%

Source: IRDA, Aranca Research Note: * Figures for FY13 are provisional

The market share of private sector companies rose from 14.5 per cent in FY04 to 42.9 per cent in FY13* The Gross Direct Premium of private companies increased from USD0.5 billion in FY04 to USD5.5 billion in FY13* at a CAGR of 33.1** per cent

Growing share of private sector

FY13*

Non-life insurance premium of private sector (USD billion)

5.5
5.0 CAGR: 33.1**% 2.7 2.9 3.8

FY04

2.7 98% 2% 42.9% 57.1% 1.2 0.5 0.8 1.9

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

Size: USD3.4 billion Size: USD12.7 billion Public Private

Source: IRDA, Aranca Research Notes: * Figures for FY13 are provisional, ** Growth rate in INR terms

FY13*

The number of companies increased from 15 in FY04 to 27** in FY13; six of these companies are in the public sector The public sector companies together accounted for about 57 per cent of the total Gross Direct Premium in the non-life insurance segment New India leads the market with 14.5 per cent market share Private players are not far behind and compete better in the non-life insurance segment

Market share of major companies in terms of Gross Direct Premium collected (FY13*)
Total size: USD12.7 billion
New India 14.5% United India 29.9% 13.5% National

Oriental
ICICI Lombard

4.7% 5.8% 8.9%

13.3% 9.5%

Bajaj Allianz AIC Others

Source: IRDA, Aranca Research Notes: * Figures for FY13 are provisional ** As of September 2012; Excluding reinsurer

Emergence of new distribution channels

New distribution channels like bancassurance, online distribution and NBFCs have widened the reach and reduced costs Firms have tied up with local NGOs to target lucrative rural markets

Growing market share of private players

In the life insurance segment, share of the private sector in total premiums increased to 29.3 per cent in FY12 from 2.0 per cent in FY03 In the non-life insurance segment, share of the private sector increased to 42.9 per cent in FY13* from 14.5 per cent in FY04

Launch of innovative products

The life insurance sector has witnessed the launch of innovative products such as Unit Linked Insurance Plans (ULIPs) Other traditional products have also been customised to meet specific needs of Indian consumers

Mounting focus on EV over profitability

Large insurers continue to expand, focussing on cost rationalisation and aligning business models to realise reported embedded value (EV), and generate value from future business rather than focus on present profits

* Figures for FY13 are provisional Notes: NBFC - Non Banking Financial Company, NGO - Non-governmental Organisation, EV - Embedded Value

Indias robust economy is expected to sustain the growth in insurance premiums written Higher personal disposable incomes would result in higher household savings that will be channeled into different financial savings instruments like insurance and pension policies Household savings are expected to grow to USD540 billion by 2015E from USD89 billion in 2000 Financial savings are expected to grow to USD248 billion by 2015E from USD45 billion in 2000

Household and financial savings projections

Household savings (USD billion)
540

Financial savings (USD billion)

248

306

141

89

45

2015E

Source: ICICI, Aranca Research Note: Financial savings denote investment in equity and debt instruments, E - Estimates

2015E

2000

2010

2000

2010

Growing affluence of the middle class The emergence of an affluent middle class is triggering demand for both life and non-life personal insurance lines A rising number of young professionals are opting for health insurance, motor insurance and ULIPs

Indian residents shifting from low-income to highincome groups

Income segment Million Household, 100% 26 50 40 35 25 12 2 1 2008 6 3 2020 29 17 7 2030 Strivers (9206.418412.8) Globals (>18412.8) 15 32 Aspirers (16573682.5) Seekers (3682.5 9206.4) Deprived (<1657)

Source: McKinsey Quarterly, Aranca Research

Tax incentives

Insurance products are covered under the exempt, exempt, exempt (EEE) method of taxation. This translates to an effective tax benefit of approximately 30 per cent on select investments (including life insurance premiums) every financial year

Union Budget 201314

The proposed Insurance (Amendment) Bill is expected to empower IRDA to introduce regulations for promoting sustainable growth, providing the flexibility to frame regulations and increase the FDI limit to 49 per cent The government has also extended Rashtriya Swasthya Bima Yojana (RSBY) to cover unorganised sector workers in hazardous mining and associated industries

Life insurance companies allowed to go public

IRDA recently allowed life insurance companies that have completed 10 years of operations to raise capital through initial public offerings (IPOs) Companies will be able to raise capital if they have embedded value of twice the paid up equity capital

Approval of increase in FDI limit and revival package

Increase in FDI limit will help companies raise capital and fund their expansion plans Revival package by government will help companies get faster product clearances, tax incentives and ease in investment norms
Notes: RSBY - Rashtriya Swasthya Bima Yojana, FDI - Foreign Direct Investment

The IRDA Act, 1999 allowed an FDI of up to 26 per cent in the insurance sector on an automatic route subject to obtaining license from IRDA Cabinet has approved an increase of FDI limit to 49 per cent through the Insurance Laws Amendment Bill (2008). The increase in FDI limit will take effect following approval from the Parliament

Top Life Insurance Co

Foreign Partner
Prudential plc (26%) Allianz SE (26%) BNP Paribas Cardif (26%) Standard Life (26%) Sun Life Financial, Inc (26%) Nippon Life Insurance (26%) Mitsui Sumitomo Insurance (26%)

Domestic Partner
ICICI Bank Ltd (74%) Bajaj Finserv Ltd (74%) SBI (74%) HDFC Bank (72.4%) Aditya Birla Group (74%) Reliance Capital (74%) Max India (74%)

Year of Incorporation
2000 2001 2000 2000 2000 2005 2000

Top Life Insurance Co

Foreign Partner
Fairfax Financial Holdings Ltd (26%) Allianz SE (26%) Tokio Marine & Nichido Fire Insurance Group (26%)

Domestic Partner
ICICI Bank Ltd (74%) Bajaj Finserv Ltd (74%) IFFCO (74%)

Year of Incorporation
2000 2001 2000

Source: Aranca Research

Investments from the private sector are increasing, as they see a huge opportunity in the growing insurance sector of the country
Most of the existing players are tying up with banks to expand their distribution network Few players like HDFC Life are planning to go public; others are selling stakes to generate funds
Religare Health Insurance IndiaFirst Life Insurance Aviva Life Reliance Life Canara HSBC Life Bharti AXA Life AEGON Religare Life ING Vysya Life HDFC Life

USD 110.4 million by 2016 USD28 million in 2010; plans to invest USD45 million in 2011 USD26 million in 2010 USD58 million in 2011 USD22 million in 2011 Plans to inject USD100 million in 2011 USD71 million in 2010; plans to invest USD445 million through 2016 USD53 million in 2010 Going public by FY14
Source: Towers Watson; Assorted News Articles; Aranca Research

IRDA issues TPA regulations

CHANGE

IRDA cleared bill Foreign players allowed to enter with 26% FDI cap

IRDA insurance brokers and corporate agent regulation

Entry of standalone health insurance players allowed

1999

2001

2002

2006

IMPACT

Liberalisation of sector and formation of an independent regulator

Entry of TPAs specifically focussed o n servicing health insurance business Entry of foreign players infusing capital and technical expertise

Thrust on insurance distribution through corporate intermediaries

Entry of standalone health insurance players

Source: KPMG, Aranca Research Note: TPA - Third Part Administrator

Creation of Indian Motor Third Party Insurance Pool CHANGE

Merger and Acquisition guidelines

Price detariffication

Introduction of Declined Risk pool, TP premium increase

2007

2011

2012

IMPACT

Mechanism to equitably share CVTP losses Significant change in the premium rates for the commercial lines

Enabled consolidation, inorganic transactions in the industry

Improvement in overall profitability of the CV segment

Source: KPMG, Aranca Research Note: CVTP - Commercial Vehicle Third Party, TP - Third Party, CV - Commercial Vehicle

SBI Life Insurance is a joint venture between Indian banking giant State Bank of India (74 per cent) and France headquartered BNP Paribas Assurance (26 per cent) The company primarily deals in life insurance and pension plans with 714 offices across India. In FY12, it issued around 8.8 lakh insurance policies Between FY08 and FY13, SBI Lifes profits increased at a CAGR of 81.1* per cent; in FY13, its annual profits increased to USD121.9 million. It had second largest market share (15.6 per cent among all private sector companies in FY12) in the life insurance premium

Total premium collected (USD billion)

2.8 CAGR: 23.6*% 1.6 1.4 39.2 2.1 2.7

Net profit (USD million)

116.0 CAGR: 81.1*% 58.2 80.3 121.9

8.4 FY08 FY09 FY10 FY11 FY12 FY08 FY09 FY10 FY11 FY12 FY13

Source: SBI Life Annual Report, IRDA, Company website, Aranca Analysis Note: * Growth rate in INR terms

Tata AIA Life Insurance Company Limited (Tata AIA Life) is a joint venture between Tata Sons (74 per cent) and AIA Group Limited (26 per cent) The life insurance premium increased from USD198.8 million in FY06 to USD757.3 million in FY12 at a CAGR of 26.6* per cent The sum assured increased from USD3.5 billion in FY06 to USD12.3 billion in FY12, rising at a CAGR of 24.9* per cent

Total life insurance premium (USD million)

874.5 CAGR: 26.6*% 508.5

Total sum assured (USD billion)

736.9
598.5

757.3 CAGR: 24.9*% 9.3 9.0 9.6 11.4

13.3
12.3

301.9 198.8 3.5

FY06

FY07

FY08

FY09

FY10

FY11

FY06

FY07

FY08

FY09

FY10

FY11

FY12

Source: IRDA, Aranca Research Note: * Growth rate in INR terms

FY12

Objective for establishing microinsurance

Fulfilment of corporate social responsibility Increase brand recognition to boost market entry todays micro clients maybe tomorrows high-premium clients To target untapped markets and income groups of rural India

Key strategic decisions

The microinsurance business model must be separated from business model Selling microinsurance would require new, alternative distribution mechanisms

The microinsurance business model New business unit Partnering with NGOs

Forming CRIGs

Local operations managed by NGOs

A special microinsurance team called the Rural & Social Team is formed

Identify and partner with credible NGOs operating in the local community NGO suggests good agents for microinsurance policies (microagents)

A group of microagents called a community rural insurance group (CRIG) is formed; it relies on direct marketing of microinsurance policies to local community members

Local operations like collecting and aggregating the premiums, training micro-agents, and helping to distribute benefits looked after by the NGO; this saves administrative costs for Tata-AIG

Source: Company website, Aranca Analysis

Robust growth in microinsurance expected

Number of policies Premium First year (FYP) and Renewals (RYP)

3,200 380,000 410,000 2,400 300,000 1,800 1,900 2,800

190,000 900
400 2009 2010 2011 2012 0 2008 300 2009 2010 FYP 2011 RYP 2012 800

100,000

2008

Source: Company website, Aranca Analysis

Source: Company website, Aranca Analysis

New India Assurance a wholly owned subsidiary of Government of India; it is the largest non-life insurance company in India with a market share of 14.5 per cent in FY13** in the non-life insurance segment It is the largest non-life insurer in Afro-Asia, excluding Japan It serves the Indian subcontinent with a network of 1,068 offices, comprising 28 Regional offices, 393 Divisional offices and 648 branches, with nearly 21,000 employees The company has overseas presence in 20 countries: Japan, UK, Middle East, Fiji and Australia It has been rated as "A-" (Excellent) for six consecutive years, indicating its excellent risk-adjusted capitalisation, prospective improvement in underwriting performance and leading business profile in the direct insurance market in India Its Gross Direct Premium increased from USD1,406.2 million in FY09 to USD2,101.4 million in FY12, at a CAGR of 16.0* per cent
254 295 528 111 217 FY09 Fire

Gross Direct Premium (USD million)

CAGR: 16.0*%

341

311
263 331 538 111 256 FY10 Marine Motor Health 621 133 297 FY11 443

494

778
159 329 FY12

Miscellaneous and others

Source: IRDA, Company website, New India Assurance Annual report Notes: * Growth rate in INR terms, ** Figures for FY13 are provisional, A.M. Best Europe Ltd, Alfred Magilton Best Company Limited

ICICI Lombard GIC Ltd is a 74:26 joint venture between ICICI Bank Limited, Indias second largest bank, and Fairfax Financial Holdings Limited, a Canada-based diversified financial services company It is the largest private sector general insurance company, with a market share of 8.9 per cent in the non-life insurance sector in FY13** As of FY13, it has 2,757 pan India branches with an employee strength of 7,289 Its Gross Direct Premium increased from USD816.6 million in FY09 to USD1,182.1 million in FY13 at a CAGR of 14.4* per cent

Gross Direct Premium (USD million)

1,117.7
CAGR: 14.4*% 967.4 1,182.1

Number of policies issued (million)

9.2 CAGR: 23.4% 5.6 7.6

816.6
723.8 4.0 4.5

FY09

FY10

FY11

FY12

FY09

FY10

FY11

FY12

FY13

Source: ICICI Lombard Annual Report, IRDA, Company website, Aranca Analysis Notes: * Growth rate in INR terms, ** Figures for FY13 are provisional

FY13

Crop insurance

Low-income urban and pension markets

Microinsurance

Opportunities for Indian insurance market

Motor insurance markets

Health insurance markets

Source: Aranca Research

Urban low-income insurance penetration in India is expected to have increased to 40 per cent in 2012 from 30 per cent in 2007 Rapid development in Tier II and Tier III cities and growth in new bankable households have led to the emergence of a large insurable class with an appetite for sophisticated life insurance products Insurance density and penetration remain at very low levels compared to that in developed countries; this indicates a strong potential for growth in future Business models need to be customised accordingly to maintain cost-effectiveness, as most low-income customers would be small-ticket accounts, though huge in numbers

Urban low-income insurance penetration in India

40%

30%

2007

2012E

Source: IRDA, Asia Insurance Review, Aranca Research Note: E in the axis for the figures above refer to estimates

Increasing life expectancy, favourable savings and greater employment in the private sector will fuel demand for pension plans The opening of pension market with the passing of the PFRDA Bill 2011 will make the pension market more conducive for private life insurers Proposed new pension bill by government will further provide new opportunities to insurers

Opportunity in the Indian pension and annuity market

84 13%

CAGR: 7% 42

Workers covered

Workers not covered

87%

There is scope to introduce new-generation pension products such as Variable Annuity and Inflation Indexed Annuity

2010

2025E* Formal pension system penetration (2010)

Indian retirement market (USD billion)

Source: McKinsey Quarterly, Aranca Research Notes: PFRDA - Pension Fund Regulatory and Development Authority * Expected value, at 2009-10 rates

The number of new policies issued increased at a CAGR of 7.8 per cent from FY03 to FY12, from 43.6 million to 85.7 million Despite strong growth, non-life insurance sector remains far from tapped, with penetration rates (premium to GDP ratios) remaining low at 0.7 per cent in 2012 compared to an average of 4.5 per cent in the US and global average of 2.8 per cent Strong growth in the automotive industry over the next decade will be a key driver of motor insurance Proposed IRDA draft envisages a 1080 per cent rise in premium rates for the erstwhile loss-making third-party motor insurance

Breakup of non-life insurance market in India (FY13**)

Motor 17.1%

Vehicle production in India* (million units)

32.0

Health
3.5% 4.4% 9.6% 43.1% Fire 9.2 Marine Engineering 22.2% Others Car Production Commercial 2010 2020E 2&3 wheelers 2.8 0.7 2.3 9.0

Source: IRDA, Aranca Research Notes: E in the axis for the figures above refer to estimates, * ACMA Estimates, ** Figures for FY13 are provisional, GDP - Gross Domestic Product

Only 1.52 per cent of total healthcare expenditure in India is currently covered by insurance providers From 13.3 per cent of the total non-life insurance premium in FY07, health insurance currently contributes 22.2** per cent Total health insurance premiums increased from USD733.1 million in FY07 to USD2,824.7 million in FY13** at a CAGR of 29.1* per cent Health insurance continues to be one of the most rapidly growing sectors in the Indian insurance industry; it reported 16.1* per cent growth in gross premiums in FY13**

Health insurance penetration (million policies)

220 CAGR: 8%

110

2005

2015E

Absence of a government-funded health insurance makes the market attractive for private players IRDA recommended the government to reduce capital requirements for stand-alone health insurance companies from USD21 million to USD10 million

Source: McKinsey Quarterly, Annual Report IRDA, Aranca Research Notes: * Growth rate in INR terms ** Figures for FY13 are provisional

Introduction of health insurance portability expected to boost the orderly growth of the health insurance sector Penetration of health insurance is expected to more than double by 2020 Increasing penetration of health insurance likely to be driven by government-sponsored initiatives such as RSBY and ESIC Government-sponsored programmes expected to provide coverage to nearly 380 million people by 2020 Private insurance coverage is estimated to grow by nearly 15 per cent annually till 2020

Population covered by health insurance (in million)

140

240 110 80 55 20 35 2010 Private insurance ESIC State insurance

120

25
130 2020E Govt employee insurance RSBY

Source: Mckinsey estimates, Aranca Research Notes: RSBY - Rashtriya Swasthya Bima Yojna ESIC - Employees State Insurance Corporation

The business environment in Indias microinsurance sector supports healthy growth

IRDA drafted microinsurance guidelines in 2010, which contain

numerous favourable measures such as

Macro level (The enabling environment)

Lower threshold limits for agents commissions Rural areas must account for 7 per cent of new life insurance policies in the first year of firms operation and rise to 20 per cent over the next 10 years

In order to reduce microinsurance distribution costs, IRDA proposed microinsurance schemes to supplement existing government

Intermediate level (Support infrastructure)

insurance schemes The number of regional rural banks and NGOs operating in the rural sector will aid distribution of microinsurance products

The annual income growth rate in rural India is expected to increase

Micro level (Policy holders)

to 3.6 per cent over 201030 from 2.8 per cent during 19902010
About 5 million people currently have microinsurance, while the entire market is expected to be in the range of 140300 million

Source: IRDA, McKinsey, Aranca Research

Number of Micro-insurance policies (in millions)

19.8 14.7 18.9 14.8

New business premium (USD million)

84.4 63.6 52.3 48.0

16.8 12.6

16.3

79.3

13.3
43.9

57.9 43.7

2.1 FY09

3.0 FY10 Private Public

2.6 FY11 Total

1.5
FY12

8.4 FY09

5.1 FY10 Private

5.7 FY11 Public

4.3 FY12

Source: IRDA, McKinsey, Aranca Research

Crop insurance market in India is the largest in the world, covering around 30 million farmers Crop insurance accounted for nearly 5 per cent of the total non-life insurance premium in FY12 To provide crop insurance to farmers, Government has launched various schemes like National Agriculture Insurance Scheme (NAIS), Modified National Agriculture Insurance Scheme (MNAIS) and Weather-based Crop Insurance Scheme (WBCIS) The number of farmers covered increased at a CAGR of 11.5 per cent from FY08 to FY12, while the sum insured rose at a CAGR of 22.0* per cent from USD6.5 billion to USD12.1 billion over the same period There is huge scope for increasing coverage, as only 30 million farmers out of 120 million are insured under crop insurance schemes Government of India plans to increase the coverage to 50 million during the 12th Five-Year Plan

Crop insurance coverage

Number of farmers covered (million) 2.4 0.7 0.4 23.9 17.6 16.7 9.3 0.4 18.4 19.2 11.7 1.2

FY08

FY09 NAIS

FY10 MNAIS

FY11 WBCIS

FY12

Sum insured (USD billion) 4.4 0.7 7.1

1.0 0.4 6.1 0.2

3.1 0.2 7.5

5.8

8.1

FY08

FY09 NAIS

FY10 MNAIS

FY11 WBCIS

FY12

Source: Agricultural Insurance Company of India Annual report, Department of Agriculture and Cooperation, IRDA, Aranca Research Notes: * Growth rate in INR terms

Insurance Regulatory and Development Authority (IRDA)

3rd Floor, Parisrama Bhavan, Basheer Bagh, Hyderabad500 004 Phone: 91-040-23381100 Fax: 91-040-66823334 E-mail: irda@irda.gov.in

Life Insurance Council

4th Floor, Jeevan Seva Annexe Bldg. S. V. Road, Santacruz (W), Mumbai400054 Phone: 91-22-26103303, 26103306 E-mail: ninad.narwilkar@lifeinscouncil.org

General Insurance Council

5th Floor, Royal Insurance Building, 14, Jamshedji TATA Road, Churchgate, Mumbai400020 Phone: 91-22-22817511, 22817512 Fax: 91-22-22817515 E-mail: gicouncil@gicouncil.in

CAGR: Compound Annual Growth Rate IRDA: Insurance Regulatory and Development Authority IPO: Initial Public Offering FDI: Foreign Direct Investment

LIC: Life Insurance Corporation of India

GIC: General Insurance Corporation of India NBFC: Non-Banking Financial Company NGO: Non-governmental Organisation RSBY: Rashtriya Swasthya Bima Yojana PFRDA: Pension Fund Regulatory and Development Authority GDP: Gross Domestic Product ESIC: Employees State Insurance Corporation

FY: Indian financial year (April to March) So, FY12 implies April 2011 to March 2012 GOI: Government of India INR: Indian Rupee USD: US Dollar Where applicable, numbers have been rounded off to the nearest whole number

Exchange Rates (Fiscal Year) Year

2004-05 2005-06 2006-07

Exchange Rates (Calendar Year) Year

2005 2006 2007 2008

INR equivalent of one USD

44.95 44.28 45.28

INR equivalent of one USD

45.55 44.34 39.45 49.21

2007-08
2008-09 2009-10 2010-11 2011-12 2012-13

40.24
45.91 47.41 45.57 47.94 54.31

2009
2010 2011 2012 2013

46.76
45.32 45.64 54.69 54.45
Average for the year

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