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HDFC Standard Life Insurance Company Limited Topic: Financial Analysis of HDFC SL Insurance Co. Ltd.

Submitted By: Ashutosh Goel Roll No: 263

Flow of Presentation
Objectives Introduction to Insurance Industry Global VS Indian Insurance Industry Introduction to HDFC SL Insurance Co. Ltd. Introduction to Department Financial Analysis
Promoters Analysis Strategy Analysis Financial Ratios

Key Learning Recommendations

Understanding Process of HDFC life Retail department Financial Analysis of HDFC life Comparing With Competitor IPO being eyed in near future recommendations with financials Elaborating on Learning's From the Exercise

Insurance Industry
Evolution - 3 Phases:
Sharing and Contribution

Reforms to protect consumers Private participants invited


Post Liberalization
FDI invited up to a limit of 26% IRDA is regulating the industry 25+ companies Customer Protection
COPA Ombudsman

NIA educating about Insurance $41 billion industry in 2012

Global vs Indian
Public-Private market share No. of Companies Penetration Global 4% Value of Industry

India US UK

65% - 35% 77% - 23% 92% - 8% (NHS)

25+ 1000+ 104+

4.4% 3.52% 11.0%

$ 41 billion $ 5 trillion $ 2.8 trillion


45% - 55%



$163 billion

Introduction to HDFC SL Insurance Co. Ltd.

JV - Housing Development Finance Corporation Limited (HDFC) and Standard Life plc (UK)
HDFC Ltd. is Indias premier housing finance company and a well - established financial conglomerate Established in 1825, Standard Life is a leading provider of long term savings and investments to around 6 million customers worldwide. Headquartered in Edinburgh, Standard Life has around 8,500 employees internationally


The most obvious choice for all

Department Joined
Retail Department Project Trainee Functions
Ground level sales Training

Circle Head Circle Manager

Senior Sales Manager

Sales Manager Asst. Sales Manager Business Development Manager Sales Development Manger Financial Consultant

Process of Issuing Insurance

Filing a Proposal
Documentation and Age Proof

Medical History and Medical Examination

Report of impartial information submitted to Underwriter Assessment of risk is made based on the information obtained If approved - first premium receipt is issued and risk cover starts Signed and Stamped original policy documents(Policy Bond) are despatched

Process to join as Financial Consultant

Basic Training & Induction IRDA Training (50 hours) IRDA Exam Disha Training

Advanced Training Unmatched Support

Financial Analysis

Promoters Analysis
Industry FDI Analysis

Other Combination 6 74-26 combination 17

Strategy Analysis

STRENGTH Domestic image of HDFC supported by Standard lifes international image is a major strength of the company Strong and well spread network
500 branches 900 cities

Huge basket of product range Cater to different needs of different customers

Smart Women's Plan

Heavy management expenses and administrative costs Economies of scale way too far Low customer confidence on the private players Hierarchical reporting structure with many designations Poor retention percentage of tied up agents

Insurable population Inflow of managerial and financial expertise from the worlds leading insurance markets International companies building world class expertise in local market by introducing the best global practices. Insurance liberalization in India With the IRDA finalizing the norms for Insurance Companies to go for IPO, HDFC has opportunities to grow in future

Entering of the new life insurance companies Manulife The global bigwigs entering the insurance market Competition brings pressure
profit margins better control on claims cost and management expenses

Threat from the existing private players in the industry

Financial Ratios
New business premium income growth rate

New business premium income growth rate - segment wise HDFC KOTAK Participating - Individual & Group Life 34.52% 115.00% Participating - Individual & Group Pension -17.46% -1.00% Non Participating - Individual & Group Life 36.99% 137.00% Non Participating - Group Pension -3.92% Annuity 418.16% Health 25.47% Unit Linked - Individual Life 3.53% 80.00% Unit Linked - Individual Pension -4.16% -90.00% Unit Linked - Group Life 31.36% Unit Linked - Group Pension -11.90% -

HDFC has comparatively low growth in income than compared to KOTAK but HDFC has product in the range of Annuity and linked group life and pension products which are not available with many companies in the industry and this is the right time to convert this opportunity to profits of HDFC HDFC provides wide range of pension products which leads to diversification of income of company into long range of products and hence the growth of new business premium income in this area is negative. HDFC must improve on quality of product and less focus on range of products, critical market analysis for this is needed

Total New Business Premium Income Growth


Net Retention Ratio

Net Retention Ratio HDFC 99.43% KOTAK 98.06%

This ratio depicts what is the percentage of policies for which the company is solely liable. And the other company is not paid any amount for this risk. Higher the risk shared, the better it is for the company, so lesser the ratio better it would be HDFC life is more into individual insurance and Kotak has its focus on Group insurance and hence the sharing of risk is easily possible in Kotak HDFC life can use its corporate image that it has developed over years to get group insurance projects so the sole liability of HDFC is reduced

Expense of Management to Gross Direct Premium Ratio

= Expenses of management Total gross direct premium

Expense of Management to Gross Direct Premium Ratio HDFC 17.51% KOTAK 24.95%

A lot has been improved in the are of expense management as majorly all the expenses have declined as compared to previous year(FY 2012) for HDFC HDFC should now start working on expansion in rural areas where it can tap potential market and utilize the opportunity

Commission Ratio
= Gross commission paid Gross Premium
Commission Ratio HDFC 5.65% KOTAK 4.31%

There are two aspects to this

It is an expense and hence should be as low as possible On the other hand IRDA allows up to 35% as commission, higher the commission less risky the policy for the company

This ratio is near about average and company is recommended to maintain the ratio in future around the same

Ratio of policy holder's liabilities to shareholder's funds

= Policyholders Liabilities Shareholders Funds
Ratio of policy holder's liabilities to shareholder's funds HDFC 2178.72% KOTAK 1255.48%

It depicts the risk at which the policies are. Higher the ratio, more risk the policy has. At the same time it also shows how efficiently the share capital has been utilized HDFC needs to control this ratio efficiently and bring it to industry average of 11 to 15 times

Growth rate of shareholders' fund

CY shareholders funds = PY shareholders fund PY shareholders funds
Growth rate of shareholders' fund HDFC -8.84% KOTAK 30.96%

Because of Slow Economic growth the Insurance industry has faced 2% negative growth and so has HDFC Life HDFC has introduced new products into the market so in this FY it needs to push on its marketing strategy and work on improving growth of shareholders funds

Change in net worth ( ` in Lakhs)

= CY shareholders funds PY shareholders funds
Change in net worth ( ` in Lakhs) HDFC -16910 KOTAK 18,973

Net Worth is the value of shareholders funds and for HDFC this has reduced by Rs. 1.6 Billion which shows the poor performance of the company

Ratio of surplus to policyholders' liability

= Surplus Policyholders Liability

Ratio of surplus to policyholders' liability HDFC 1.69% KOTAK 0.25%

HDFC has this Ratio a lot better as compared to other companies in the industry This ratio depicts what is the surplus fund that the company has generated over what it will have to pay back to its customers

Profit after tax/Total Income

Profit after tax/Total Income HDFC 1.12% KOTAK 5.00%

Profit has been very low for HDFC in FY2013 The company needs to improve its policies and work on marketing strategy. Also, the designing of the policies so that the PAT can be improved

(Total real estate + loans)/(Cash & invested assets)

(Total real estate + loans)/(Cash & invested assets) HDFC 0.75% KOTAK 0.49%

This shows the Fixed assets as compared to the cash and other investments which is close to industry average The company should maintain this in future

Total investments/(Capital + Surplus)

Total investments/ (Capital + Surplus) HDFC 1801.43% KOTAK 1365.89%

Here we see again what is the percentage of investment as compared to its capital - Higher the ratio better it is HDFC life Has the ratio above the industry average and needs to improve it as far as possible showing improved efficiency The ULIP Customers need to be made more aware about the working of fund so that the investment opportunities can be better utilized

Conservation Ratio
Renewal Premium of the current year = (FY prem + Single prem+Renewal)
Conservation Ratio HDFC Participating - Individual & Group Life Participating - Individual & Group Pension Non Participating - Individual & Group Life Health Unit Linked - Individual Life Unit Linked - Individual Pension 82.35% 82.31% 10.85% 74.14% 70.29% 78.93% KOTAK 79.13% 88.29% 72.60% 69.19% 73.74%

Key Learnings
Financials Needs of an Individual:





Key Learnings
Financial Planning Bank Deposit Mutual Funds Equity Bonds Post Office Deposits Insurance Gold

Key Learnings
Laws relating to Insurance Essentials of valid contract with insurance perspective Principals
Principal of utmost good faith Principal of insurable interest Principal of indemnity

Laws relating to Breach of Contract Lapsation, Paid up, Surrender and loan against policy

Key Learnings
Underwriting process: Receive Application Risk Identification
Age of Person Genetic Medical History Current Health Condition Nature of Occupation Hobbies of Adventure Sport

Issue Policy bond and letter of commencement of policy to policyholder

Key Learnings
Pure Term plan Pure Endowment Plan Endowment Assurance Plan Money Back Plans Participating plans/ With profit Joint life policy Whole Life Plan Convertible plans Micro Insurance ULIPS Salary Saving Scheme Group insurance Riders
Accidental Death Benefit Critical illness rider Waver of premium, etc.

Key Learnings
Short Term Income Fund Balanced Fund

Money Market
0-100 0-20 0-20

Government bonds
0-100 80-100 0-60

Nil Nil 40-80

Blue Chip




Allocation Charges Policy Admin Charges Mortality Charges Fund management Charges Fund Value = NAV * No. of Units

HDFC Life needs to balance its financials as IRDA has allowed the companies to issue an IPO once it has completed 10yrs of working in India Once the Stock Market stabilizes, the company can go forward and look for public issue in the FY 2015 HDFC Life should revise the products being offered in the market and discontinue with the tail products of the company

Thank You

Public Disclosure of HDFC Life as on March, 2013 Public Disclosure of Kotak Mahindra old mutual life insurance limited IRDAs Ratios for life insurance Business Analysis and Valuation by K. Palepu HDFC Training Module