HDFC Standard Life Insurance Company Ltd. - IPO

HDFC Standard Life
Insurance Company Limited
IPO NOTE 3rd November, 2017

India Equity Institutional Research II IPO Note II 3rd November, 2017 Page 2
HDFC Standard Life Insurance Company Limited

Issue Opens On Issue Closes On Price Band (INR) Issue Size (INR Cr) Rating
Tuesday, 7th November 2017 Thursday, 9th November 2017 275 - 290 8245-8695 SUBSCRIBE
HDFC Standard Life Insurance Company Limited (HDFC Life) was the first private life insurance company to register in India and it was
established as a JV between HDFC and Standard Life Aberdeen plc. HDFC Life has been the most profitable life insurer, based on Value
of New Business (VNB) margin, among the top five private life insurers in India in FY16 and FY17. It is consistently ranked amongst the
top three private life insurers in based on VNB margin and market share based on total new business premium. Amongst the private
peers it enjoys a healthy market share of 17.2% of total new business premium. The NBP as of FY17 was Rs. 86,963.6 million and APE has
grown at a CAGR of 14.5% between FY15 and FY17. The 13th month individual persistency ratio was 81.5% as on June 30, 2017.
HDFC LIFE has healthy balance sheet with total net worth of Rs. 41.5 billion and a solvency ratio of 197.5% as at June 30, 2017. In FY17,
HDFC LIFE had a PAT of Rs. 8,869.2 million and delivered an ROE of 25.6%, ROIC of 40.7% and Operating ROEV of 21.7%. As at June 30,
2017, the total AUM was Rs. 947.5 billion and Indian Embedded Value was Rs. 132.2 billion.
The company has a broad product portfolio of 31 individual and ten group products, as well as eight optional rider benefits, pushed
through a well-developed multi–channel distribution network comprising of 120 bancassurance channel and individual agent network
of 58,147 agents. HDFC Pension (wholly-owned subsidiary) operates the fund business under the NPS.
OBJECTS OF THE OFFER : The objects of the Offer are to achieve the benefits of listing the Equity Shares on the Stock Exchanges and
to carry out the sale of Offered Shares by the Selling Shareholders. The listing of Equity Shares will enhance the “HDFC Life” brand
name and provide liquidity to the existing Shareholders. The listing will also provide a public market for Equity Shares in India. HDFC
Life will not receive any proceeds from the Offer .
OFFER STRUCTURE
Particulars OFS Details Indicative Timetable
No. of shares under
299,827,818 Offer Closing Date November 7,2017
OFS(#)
Price band 275-290 Finalization of Basis of Allotment with Stock
November 14,2017
55,072- Exchange
Post issue MCAP (INR Cr.)
58,076 Initiation of Refunds November 15,2017
No. of shares Credit of Equity Shares to Demat accounts November 16,2017

Issue break-up
(#)
Commencement of Trading of Eq.shares on NSE November 17,2017
QIB 133,447,758
Non Institutional 40,034,328 Selling Shareholders
Retail 93,413,431
Name of the Company Prior Holding (%) Post Holding (%)
HDFC Life Employee
Reservation Portion 2,144,520 HDFC 61.41% 51.86%
Standard Life Mauritius 34.86% 29.44%
HDFC Employee
805,000
Reservation Portion
HDFC Shareholders
29,982,781
Reservation Portion
Total 299,827,818
Key financials (INR Millions) FY 14 FY 15 FY 16 FY17 Q1 FY18

Total premium 1,20,629 1,48,299 1,63,130 1,94,455 37,037
Net premium earned 1,19,764 1,47,625 1,61,788 1,92,749 36,615
NBP-APE 25,346 31,946 37,095 41,882 8,160
Operating expense ratio (%) 10.62% 10.04% 11.47% 12.27% 15.22%
Surplus/(deficit) 4298 8221 9596 9476 3012
VNB margin (%) - 18.5% 19.9% 22.0% 20.9%
PAT 7253 7855 8168 8869 3158
Operating RoEV (%) - 22.9% 20.7% 21.7% 22.0%
RoAE (%) 33.39% 33.40% 28.94% 25.60% -
Source: RHP, KRChoksey Research
ANALYST KRChoksey Research +91-22-6696 5555 / +91-22-6691 9576
Raghav Garg, raghav.garg@krchoksey.com, +91-22-6696 5584 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Amit Singh, amit.singh@krchoksey.com, +91-22-6696 5533 Thomson Reuters, Factset and Capital IQ

Investment Rationale
Strong parentage and a trusted brand that enhances appeal to consumers
HDFC LIFE, was established in 2000 as a joint venture between HDFC and Standard Life Aberdeen plc (one of the world’s largest
investment companies), initially through its wholly owned subsidiary The Standard Life Assurance Company and now through its
wholly owned subsidiary, Standard Life Mauritius. HDFC group is a recognised financial services conglomerate and was ranked as
one of the best Indian brands in 2014. Besides, both HDFC and Standard Life Aberdeen being well known in their respective
business areas, HDFC Life has a strong brand recall among Indian consumers.
Strong financial performance defined by consistent and profitable growth
HDFC LIFE’s focused execution has continued to deliver consistent and profitable growth to its stakeholders with a ROE, ROIC and
ROEV of 25.6%, 40.7% and 21.7% respectively in FY17. The life insurer enjoys a healthy solvency ratio of 197.5%. Its flexibility and ability
to adapt to changes in the Indian life insurance industry has allowed its business to grow and profitability to improve.
During the last three years, driven by CAGR growth of 12.6%, 43.6% and 7.3% in Individual NBP, Group NBP and renewal premiums,
the total premium has grown by a CAGR of 14.5% to Rs. 194.45 billion. The company has insured 57.9 million lives at the end of, June
2017. The life insurer, by improving cost efficiencies, increasing persistency ratios and selling a balanced product mix has improved
the VNB margins from 18.5% in FY15 to 22% in FY17. High profitability and high VNB margins has allowed business to be self-
sustaining and shows the insurer’s focus on long-term profitable growth.
Growing and profitable multi-channel distribution footprint that provides market access across various consumer segments in
India
HDFC LIFE, offers individual and group customers access to products through diversified distribution network which comprises
four distribution channels, namely bancassurance, individual agents, direct, and brokers and others. The multi-channel distribution
network provides the flexibility to adapt to changes in the regulatory landscape and mitigate the risk of over-reliance on any single
channel. All the distribution channels have been independently profitable for each of last three years. Bancassurance is the most
significant distribution channel having 120 partners, generating 59.1% of total NBP as on June 30,2017. Individual agent network,
direct sales, brokers and others contribute 6.4%, 31.8%, 2.6% of NBP respectively, as on June 30, 2017.
Focus on customer centricity enabling growth across business cycles
HDFC LIFE’s commitment to customer centricity has resulted in long-term profitable growth, as reflected in the consistent increase
in EV at a CAGR of 18.4% in last three years to Rs. 124,705 million, in FY17. In FY17, 99.0% of customer complaints were resolved within
the 15 calendar days turnaround time as prescribed by IRDAI. The efficiency of claims settlement has improved from 10 days in FY15
to 5 days in FY17. The claims settlement ratio of 99.2% for FY17 is among the best in the Indian life insurance industry. Continued
efforts to improve the quality of new business, focus on needs-based selling, strong commitment to customer service and efforts
in streamlining the renewal premium payment process, has resulted in an overall improvement in persistency ratio.
Leading digital platform that provides a superior experience for customers and distributors
HDFC LIFE has developed a leading digital platform that gives it a competitive edge across various distribution channels and
customer segments. During FY17, 48.0% of new applications were sourced through mobile devices. Annualised premium equivalent
earned through online channels has increased at a CAGR of 27.9% in last three years. The company aims to enhance revenue earned
by its distributors while continuing to pursue profitable growth by improving sales productivity and efficiency.
Independent and experienced leadership team
HDFC LIFE has an independent and experienced leadership team with capabilities and know-how across the banking, financial
services and insurance sectors. The Key Management Personnel has an average of over ten years of experience in the financial
services sector. The leadership team is committed to growing business, as demonstrated by the company’s track record in
delivering consistent results across business cycles.
Business strategies for future growth:

• Reinforce agile, multi-channel distribution platform to fortify and diversify revenue mix across business cycles
• Drive innovation in product sales to enhance customer value proposition and to capture niche segments
• Invest in digital platforms to establish leadership in the growing digital space
• Continue to build economies of scale to ensure profitability and cost leadership


Valuation & Outlook/Recommendation:
HDFC Life is one of the most profitable private life insurers, enjoying a healthy VNB margin of 22% in FY17 along with a growing
market share. A highly profitable product mix where focus is on the highly profitable protection business (forming 21.8% of the
individual and group new business premium as of FY17) has helped in generating superior profitability (average 3-year ROE of
29.4%). The business (based on NBP-APE) has grown at a CAGR of 14.5% over the last three years. The insurer has an efficient
distribution mix where bancassurance (which is a highly efficient channel) contributes ~51% of the NBP as of FY17. An AUM of Rs.
947.5 bn makes HDFC Life one of the largest life insurance companies in India having an embedded value of Rs. 132.2 bn and an
ROEV of 21.7% as of FY17. A strong parentage and a trusted brand that enhances the company’s appeal to consumers along with a
healthy growth in NBP, high VNB margin, improving cost efficiencies, increasing persistency ratios, balanced product mix and a
highly efficient distribution channel is likely to help the business perform in the long run. From an industry perspective, a
penetration of 2.7% in 2016 compared to 3.5% global average leaves ample room for India to grow at a healthy pace (industry has
grown at 17% CAGR since FY01). With a solvency ratio of 197.5% as of June 30, 2017, HSDFC Life is well placed to pursue growth
that the life insurance industry has to offer.
At the upper price band of Rs. 290 per share, the company is valued at Rs. 580.8 bn which translates into a P/FY17 EV of 4.7x. In
comparison to current valuations of SBI Life (3.9x FY17 EV) and ICICI Prudential Life (3.4x FY17 EV), the issue may look relatively
expensive. However, taking into account the operating metrics of HDFC Life, especially the comparatively high share of
protection business, high VNB margins, strong parentage and trusted brand, and long-term industry prospects, we believe a
multiple of 4.7x P/FY17 EV is justified. Hence, we recommend to ‘SUBSCRIBE’ to the issue.
ICICI Prudential Life

HDFC Life Insurance SBI Life Insurance Max Life Insurance
Key financial comparison Insurance
FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17
13th month persistency (%) 78.9% 80.9% 80.0% 80.6% 78.7% 85.7% 77.2% 80.4%
61st month persistency (%) 50.0% 56.8% 50.6% 68.1% 35.2% 56.2% 34.9% 53.0%
NBP-APE (Rs. Mn.) 37,095 41,882 50,455 67,273 51,085 64,965 21,627 27,485
NBP-APE growth (%) 16.1% 12.9% 39.9% 33.3% 9.9% 27.2% 8.7% 27.1%
Total expense ratio (%) 11.6% 12.7% 13.9% 11.6% 14.3% 14.8% 24.4% 25.6%
VNB margin (%) 19.90% 22.00% 14.2% 15.4% 8.0% 10.1% 17.9% 18.2%
RoE (%) 28.9% 25.6% 19.2% 18.6% 31.2% 28.7% 21.5% 29.1%
AUM (Rs. Bn) 742 917 798 977 1,039 1,229 358 444
AUM growth (%) 10.7% 23.6% 12.0% 22.0% 4.0% 18.0% 15.0% 24.0%


Key risks & challenges:
•Changes in regulation and compliance requirements could limit the company’s ability to introduce new products, increase
operating expenses and reduce operating flexibility
•Adverse market fluctuations and economic conditions would have a material adverse effect on the business, financial condition,
results of operations and prospects
•Interest rate fluctuations may materially and adversely affect profitability
•Operating in a highly regulated industry, any changes in the regulations or enforcement thereof may adversely affect the
business
•Concentration of investment portfolio in any particular asset class, market or industry may increase risk of suffering investment
losses
•A significant proportion of total new business premiums are generated by unit-linked products and participating products. Any
adverse regulatory changes or market developments that adversely impacts sales of such products could have a material adverse
effect on the business, financial condition, results of operations and prospects
•As a significant portion of business is generated from relatively few regions, the company is susceptible to economic and other
trends and developments, in these areas.
•The company faces significant competition and the business and prospects will be materially harmed if the company is not able
to compete effectively

India Equity Institutional Research II IPO Note II 3rd November, 2017 Page
6

Industry Overview
Life insurance in India is a Rs 4.1 trillion industry on total premium basis, having grown at CAGR of 17% since FY01. The assets under
management (AUM) of the industry increased at 19% CAGR during 2000-01 to 2016-17 to ~Rs 30 trillion. India’s share in global life
insurance market is ~2.4% indicating the vast potential for growth in India’s life insurance industry.
Penetration & Density of Life Insurance

India’s life insurance penetration stood at ~2.7% in 2016, compared with 4.4% in 2009-10, suggesting that the penetration has
substantially declined over the past few years. The average penetration for the life insurance industry globally is 3.5% and the
average insurance penetration in emerging markets stands at 3.2% in 2016 compared to 2.9% in 2015.
The insurance density in India, at US$ 46.5 in 2016, remains low as compared to that of other developed and emerging market
economies. The protection gap for India stood at $8.5 trillion as of 2014, which was much higher compared with its Asian
counterparts. In terms of sum assured, individual life insurance business was Rs. 96 trillion as FY17. The sum assured for individual
insurance is estimated to have increased at a CAGR of 16% over FY11-17. The total number of individual policies in force were 322
million as of FY2017.
Industry size on total premium basis (INR Bn) Individual Sum assured to GDP
50% 70%
4,000
65%
3,200
30% 60%
4,161
3,669
3,281
2,400
3,143
2,871
55%
2,872
63.2%
62.6%
60.5%
1,600
59.0%
10% 50%
2,014
2,654
51.8%
2,916
2,218
51.5%
1,561
49.4%
49.5%
47.4%
1,059
48.1%
800
349
45%
667
829
557
501
- -10% 40%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Industry Size (Rs. Billion) Growth (%) Source: RHP, KRChoksey Research
Brief overview of life insurance products

Life insurance policies can be broadly divided into two types - whole life and term life. In a whole-life policy, premium is paid until
the death of the policy holder. In a term-life insurance, the policy remains in force only for a fixed time period. Non-linked
products are traditional products with a protection and savings element built in or only pure-protection products. Non-linked
savings products can be further divided into participating products and non-participating products. Participating products have
variable returns, as it is linked to the performance of the insurance company. Linked products’ returns, on the other hand, are
tied to the performance of debt and equity markets.
As evident from the chart below, since introduction of new ULIP guidelines in 2010, share of non-linked products has increased
substantially and that of linked has declined from 86% as of FY10 to 44% as of FY17.
Product mix of private players (%)

100%
17% 12% 13% 14% 21%
80% 35%
46%
55% 55% 55% 56%
60%
40% 83% 88% 87% 86% 79%

65%
54%
20% 45% 45% 45% 44%
0%
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17
Linked Non-Linked


Life insurance industry outlook
•New business premium to grow at robust pace: Current low penetration (2.72% in 2016) and density (46.5 USD in 2016) of Indian
insurance market offers large growth potential. Going forward, the new business premium of life insurers is expected to grow at
11-13% CAGR to Rs 3,000-3,100 billion over the next five years .
•Share of ULIPs to improve: An improving economy and performance of corporate India is likely to have a positive impact on the
country’s stock markets. This will increase the demand for ULIPs, as it is highly correlated to the performance of the stock
markets. Also, today, with operating expenses quite low, transparency in charges, ULIPs have become comparable to mutual
fund investments, in terms of attractiveness. Share of linked products is expected to rise gradually.
•Improved cost efficiency, better cash flows to lift profit: In the medium-to-long term, new business premium is expected to
grow at a healthy pace, propelled by an upswing in economic growth, higher financial savings aided by rising disposable income
and benign inflation. Consequently, players with optimal scale of operations, better operating efficiency (as reflected in lower
expense ratios), more efficient usage of distribution channels and healthy persistency ratios are likely to see profitable rise .
•Bancassurance increasingly driving business of private players: For private players, the share of bancassurance in new business
premium has been growing steadily over the past few years. In fact, players are increasingly using the synergies accruing from
banking operations of their parent group to reach out to customers, minimise cost and improve efficiency. Even for other
players, bancassurance is becoming strategically important. With bancassurance increasingly driving the business of many
players, presence in rural and far-flung areas will prove to be a strategic asset for the business.
•Steady growth in FDI & share of private players: The number of life insurance companies zoomed to 24 in 2015-16 from a mere 5
in 2000-01. LIC is the only public player, with the remaining being private entities. Of the 23 private life insurance companies, 21
are joint ventures with foreign players. In 2015, the Parliament approved a hike in the FDI limit 49% with the aim of expanding the
sector and infusing much-needed capital for many players.
Life insurance industry drivers

•Key recent macro trends: India is amongst top countries (3rd) when ranked on basis of GDP (PPP) and has been one of the fast
growing countries in the world, aided by strong fundamentals like falling inflation, rising disposable income, largest working age
population. Going forward, IMF expects India’s economy to grow at 7.7% in 2018 from an estimated 7.2% in 2017. Further,
demonetisation has resulted in increased customer deposits with bank. In addition, innovations in operating architecture based
on the JAM (JanDhan-Aadhar-Mobile) and e-KYC is expected to improve reach of insurance products and efficiency. Rising
income and inflation under control, the household savings rate is likely to increase gradually. In the past, strong real income
growth and low inflation have had a positive spin-off effect on financial savings. We believe the share of financial savings within
household savings is likely to rise further from 43% in FY16. The government’s measures to curb black money will also help
increase the share of financial savings, which would further aid the life insurance industry.
•Demographic advantage: India’s population has increased at a CAGR of 2% from 439.2 million in 1961 to 1,210.9 million in 2011. In
all the censuses held in India so far, including the latest 2011 census, the 0-14 year age group has always had the largest share of
the population pie. This demographic advantage sets India from other leading global economies, which are ageing fast. For life
insurance companies, this is a compelling opportunity as the next few years are expected to represent a “pay-in” period because
of the large percentage of people in the ‘below 59’ age groups. Steady economic revival shall also improve household incomes
and put more disposable income in the hands of people, particularly in rural areas. India’s middle class population is also expected
to grow steadily in the years ahead.
•Significant protection gap: The protection gap for India stood at $8.5 trillion as of 2014, which was much higher compared with
its Asian counterparts. The protection margin for India at 92% was highest among all the countries in Asia Pacific which indicates
the absence or inadequacy of pure protection coverage (term insurance) for a large part of the population. Further, the
penetration of retail loan products is also low in India and, with asset quality of corporate loans being poor, financiers are
aggressively focusing on retail credit, the growth of which will support insurance off-take. The decline in term-insurance premium
rates, smoother on boarding process, increasing importance of online sales and product innovations, such as providing term
products with a health wrapper, are expected to further drive the penetration of protection premiums.

8

Industry Comparison:
INDUSTRY COMPARISON (FY17)
HDFC Standard ICICI Prudential
SBI Life Max Life Bajaj Allianz
Figures in Rs. Bn unless stated otherwise Life Life
NBP 87 101.5 78.6 36.8 32.9
5-Year CAGR (%) 17.8% 9.2% 9.1% 14.0% 3.9%
Individual-NBP 42 64.7 69.8 33.1 10.7
5-Year CAGR (%) 7.7% 14.1% 18% 14.1% -10%
Group-NBP 45 36.8 8.9 3.6 22.2
5-Year CAGR (%) 37% 2.9% -15.3% 13% 19.5%
RWRP 36.4 59.4 64.1 26.4 10.1
5-year CAGR (%) 6% 23% 17.9% 11.9% -5.1%
Commission ratio (%) 4.1 3.7 3.4 8.7 2.4
Expense ratio (%) 12.3% 7.8% 10.5% 14.8% 17.1%
Embedded Value 123.9 165.4 161.8 65.9 112.6
NBM (%) 21.6% 15.4% 10.1% 18.8% 13%
Persistency (%)
13th month 81 81 86 80 68
25th month 73 74 74 70 51
37th month 64 67 67 60 44
49th month 58 62 59 55 38
61st month 57 67 56 53 32
ROE (average FY15-17) (%) 29.4% 20.1% 31.2% 23.6% 12.2%
Market share (RWRP) (FY17) (%)
Industry level – Share (%) 7% 11% 12% 5% 2%
Private sector – Share (%) 13% 21% 22% 9% 3.5%
Product mix (%)
Linked 47% 48% 74% 25% 35%
Non-linked 53% 52% 26% 75% 65%
No. of products (#)
Individual 30 29 19 18 23
Group 10 10 9 5 11
Renewal premiums
Linked + non-linked 107.5 108.7 144.9 71.1 28.9
5-year CAGR (%) 11% 10.5% 8.6% 9.6% -9.5%
AUM 917 977 1,229 444 493
5-year CAGR (%) 23.3% 16% 11.9% 20.8% 4.6%
Channel mix (NBP) (%)
Individual agents 7.0% 22.0% 20.9% 23.0% 27.5%
Corporate Agents-Banks 30.0% 53.0% 50.9% 63.0% 1.3%
Corporate Agents-Others 2.0% 0.0% 3.2% 3.0% 6.2%
Brokers 3.0% 0.0% 2.5% 1.0% 3.0%
Direct Business 57.0% 24.0% 23.0% 11.0% 61.3%
Claims settlement Ratio (%) 99.2% 97.9% 97.2% 98.3% 99.2%
Claims Repudiation Ratio (%) 0.7% 1.6% 2.4% 1.5% 0.8%
Net Premium 193 209 222 107 61

9

Company Background
HDFC Life is the most profitable life insurer, based on Value of New Business (VNB) margin, among the top five private life
insurers in India as of FY16 and FY17. It consistently has appeared among the top three private life insurers in terms of market
share based on total new business premium between FY15 and FY17. The total new business premium for FY17 was Rs. 86,963.6
million with APE over FY15-17 having grown at a CAGR of 14.5%. The 13th month individual persistency ratio was 80.9% as of FY17
which has only improved over the last few years. As of June 30, 2017, it stood at 81.5%.
HDFC Life has a healthy balance sheet with total net worth of Rs. 41.5 billion and a solvency ratio of 197.5% as at June 30, 2017. In
FY17, the company had a PAT of Rs. 8,869.2 million and delivered an ROE of 25.6% and an operating ROEV of 21.7%. As at June 30,
2017, the total AUM of Rs. 947.5 billion and Indian Embedded Value of Rs. 132.2 billion.
HDFC Life was the first private life insurance company to register in India and it was established as a joint venture between HDFC
and Standard Life Aberdeen plc. A multi-channel distribution platform has resulted in private market share (in terms of total NBP)
increasing from 15.8% in FY15 to 17.2% in FY17. HDFC Life has a broad, diversified product portfolio covering five principal segments
across the individual and group categories, catering to specific needs of customers during each stage of their lives.
Competitive Strengths
• Strong parentage and a trusted brand that enhances appeal to consumers
• Strong financial performance defined by consistent and profitable growth
• Growing and profitable multi-channel distribution footprint that provides market access across various consumer segments
• Focus on customer centricity enabling growth across business cycles
• Leading digital platform that provides a superior experience for customers and distributors
• Independent and experienced leadership team
Products
HDFC Life has a broad, diversified product portfolio covering five principal segments across the individual and group categories,
namely participating, non-participating protection term, non-participating protection health, other non-participating and unit-
linked insurance products. As at June 30, 2017, product portfolio comprised 31 individual and ten group products, as well as eight
optional rider benefits.
FY15 FY16 FY17 Q1FY18

New business premium (individual)
(Rs. mn) Share (%) (Rs. mn) Share (%) (Rs. mn) Share (%) (Rs. mn) Share (%)
Participating products 6,246 19% 9,780 27% 12,460 30% 2,078 26%
Non-participating protection (term)
1,140 3% 1,171 3% 1,094 3% 296 4%
products
Non-participating protection (health
311 1% 624 2% 412 1% 80 1%
insurance) products
Other non-participating products 6,374 19% 5,342 15% 6,311 15% 1,161 15%
Unit-linked insurance products 19,057 58% 19,657 54% 21,735 52% 4,273 54%
Total 33,128 100% 36,574 100% 42,011 100% 7,888 100%
Break-up of total business in terms of FY15 FY16 FY17 Q1FY18

total new business premium (Rs. mn) Share (%) (Rs. mn) Share (%) (Rs. mn) Share (%) (Rs. mn) Share (%)
Protection products 6,613 12% 11,156 17% 18,964 22% 5,556 33%
Other products 48,308 88% 53,716 83% 68,000 78% 11,096 67%
Total 54,921 100% 64,872 100% 86,964 100% 16,652 100%


10

Distribution: HDFC Life offers individual and group customers access to products through a diversified distribution network
which comprises four distribution channels, namely bancassurance, individual agents, direct, and brokers and others.
As at June 30, 2017, the company’s distribution network was constituted as follows:
• 120 major bancassurance partners through corporate agency or master policyholder arrangements, comprising 21 banks, 76
non-banking financial companies, nine small finance banks and 14 micro-finance institutions;
• 58,147 individual agents, which make up 6.1% of the all private agents in the Indian life insurance industry;
• Over 1,200 frontline sales staff across direct sales channels, including group sales and online and digital sub-channels and web
aggregators.
• 45 broker and other tie-ups, comprising 18 individual insurance brokers and 27 insurance marketing firms .

Distribution mix (total NBP)
(Rs. mn) Share (%) (Rs. mn) Share (%) (Rs. mn) Share (%) (Rs. mn) Share (%)
Bancassurance 27,698 50% 34,719 54% 44,084 51% 9,849 59%
Individual agents 5,469 10% 4,922 8% 6,507 7% 1,068 6%
Direct 20,302 37% 23,869 37% 34,580 40% 5,299 32%
Brokers and others 1,452 3% 1,362 2% 1,793 2% 437 3%
Total 54,921 100% 64,872 100% 86,964 100% 16,652 100%
90% Persistency (%)

Embedded value (INR Bn)
80% 140 132.2
124.7
70%
120
60% 102.3
100 88.9
50%
80.9%
81.5%
80
78.9%
74.4%
73.3%
73.3%
40%
67.5%
64.7%
64.0%
65.1%
64.2%
63.9%
63.4%
60.1%
59.1%
58.3%
56.8%
56.7%
30% 60
50.0%
39.8%
20% 40
10% 20
0%
-
13th month 25th month 37th month 49th month 61st month
Source: RHP, KRChoksey Research Source: RHP, KRChoksey Research
AUM (INR Bn)

VNB margin (%)
948
950 24%
917
22.0%
22%
20.9%
850 19.9%
20%
18.5%
742
750
18%
670
650 16%
FY15 FY16 FY17 Q1 FY18 FY15 FY16 FY17 Q1 FY18
Source: RHP, KRChoksey Research Source: RHP, KRChoksey Research

FINANCIALS
Revenue Account / Policyholders'
FY13 FY14 FY15 FY16 FY17
Account (INR Millions)
Gross premiums 1,15,022 1,20,629 1,48,299 1,63,130 1,94,455
Reinsurance ceded 562 865 675 1,342 1,706
Net premiums 1,14,461 1,19,764 1,47,625 1,61,788 1,92,749
Income from investments 25,427 50,731 1,22,493 17,906 1,11,406
Other income 257 239 322 591 419
Total income 1,40,163 1,72,907 2,70,906 1,80,665 3,05,544
Commission expenses 6,473 5,141 6,235 7,019 7,920
Operating expenses 12,160 12,805 14,888 18,718 23,853
Provision for tax 509 1,516 1,193 1,746 1,520
Provisions (other than taxation) 1,280 1,615 1,507 1,886 2,223
Operating profit 1,19,741 1,51,830 2,47,083 1,51,297 2,70,028
Benefits paid (net) 39,028 46,619 81,624 81,769 98,422
Change in reserves 74,149 1,00,584 1,56,525 59,281 1,60,548
Surplus / (Deficit) 6,376 4,298 8,221 9,596 9,476
Source: Company Data, KRChoksey Research
Profit & Loss Account / Shareholders'

FY13 FY14 FY15 FY16 FY17
Account (INR Millions)
Transfer from Technical account 3,900 7,654 6,709 7,183 7,863
Income from investments 711 1,161 2,033 1,712 2,303
Other Income - - 0 106 1
Total income 4,612 8,815 8,742 9,000 10,167
Expenses 78 157 230 254 768

Contribution to the Policyholders'
19 2,173 467 380 354
Fund
PBT 4,515 6,425 8,046 8,334 9,089
Provision for tax 42 -828 191 166 220
PAT 4,472 7,253 7,855 8,168 8,869



FINANCIALS
Balance Sheet (INR Millions) FY13 FY14 FY15 FY16 FY17

Sources of funds
Share capital 19,949 19,949 19,948 19,953 19,985
Reserves and surplus 1,962 1,654 5,484 11,494 17,955
Shareholders' fund 21,808 21,631 25,413 31,035 38,263
Fair value change account - net -784 311 613 536 3,981
Policy liabilities 1,01,556 1,43,397 1,92,792 2,44,006 3,23,827
Provision for Linked Liabilities 2,77,946 3,27,357 4,21,402 4,27,538 5,08,065
Funds for discontinued policies 5,385 14,717 27,802 29,732 29,940
Total 4,12,396 5,10,541 6,72,662 7,39,902 9,12,744
Application of Funds
Investments
- Shareholders' 8,557 16,135 21,947 25,538 32,314
- Policyholders' 1,12,152 1,47,062 1,99,085 2,58,629 3,46,915
Asset held to cover linked liabilities 2,83,331 3,42,074 4,49,204 4,57,270 5,38,005
Loans 782.2 476.8 1,256.4 931 479
Fixed assets - net block 2,818 2,895 3,525 3,474 3,535
Net current assets -3,680 -452 -2,354 -5,939 -8,504
Total 4,12,396 5,10,541 6,72,662 7,39,902 9,12,744
Key performance indicators FY15 FY16 FY17

APE (Rs. Mn) 31,946 37,095 41,882
New business sum assured (Rs. Mn) 18,15,761 27,14,860 38,87,575
Total operating cost ratio (%) 10.2% 11.6% 12.7%
13th month persistency (%) 73.3% 78.9% 80.9%
61st month persistency (%) 39.8% 50.0% 56.8%
VNB (Rs. Mn) 5,915 7,393 9,225
VNB margin (%) 18.50% 19.90% 22.00%
EV (Rs. Mn) 88,882 1,02,325 1,24,705
EVOP (Rs. Mn) 16,012 18,372 22,193
Operating Return on Embedded Value (%) 22.90% 20.70% 21.70%
Insurance profits (Rs. Mn) 6,242 6,803 7,510
Profits after tax (Rs. Mn) 7,855 8,168 8,869
Insurance profit as % of total profit after tax (%) 79.50% 83.30% 84.70%
Net premium (Rs. Mn) 65,752 80,572 94,825

AUM (Rs. Mn) 6,70,467 7,42,472 9,17,424
Solvency ratio (%) 196.10% 198.40% 191.60%


ANALYST CERTIFICATION:
We, Raghav Garg (B.Com, M.Com (Applied Finance)), research analyst and Amit Singh (B.E (Com), MMS-Finance), research associate, author and the name subscribed to
this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no
part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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HDFC Standard Life

Insurance Company Limited

IPO NOTE 3rd November, 2017

HDFC Standard Life Insurance Company Limited

No. of shares Credit of Equity Shares to Demat accounts November 16,2017

Key financials (INR Millions) FY 14 FY 15 FY 16 FY17 Q1 FY18

HDFC Standard Life Insurance Company Limited

Business strategies for future growth:

ANALYST KRChoksey Research +91-22-6696 5555 / +91-22-6691 9576

HDFC Standard Life Insurance Company Limited

ICICI Prudential Life

FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17

ANALYST KRChoksey Research +91-22-6696 5555 / +91-22-6691 9576

HDFC Standard Life Insurance Company Limited

•Interest rate fluctuations may materially and adversely affect profitability

ANALYST KRChoksey Research +91-22-6696 5555 / +91-22-6691 9576

HDFC Standard Life Insurance Company Limited

Penetration & Density of Life Insurance

Source: RHP, KRChoksey Research

Brief overview of life insurance products

Product mix of private players (%)

40% 83% 88% 87% 86% 79%

ANALYST KRChoksey Research +91-22-6696 5555 / +91-22-6691 9576

HDFC Standard Life Insurance Company Limited

Life insurance industry drivers

ANALYST KRChoksey Research +91-22-6696 5555 / +91-22-6691 9576

HDFC Standard Life Insurance Company Limited

Source: RHP, KRChoksey Research

ANALYST KRChoksey Research +91-22-6696 5555 / +91-22-6691 9576

HDFC Standard Life Insurance Company Limited

FY15 FY16 FY17 Q1FY18

Total 33,128 100% 36,574 100% 42,011 100% 7,888 100%

Break-up of total business in terms of FY15 FY16 FY17 Q1FY18

Total 54,921 100% 64,872 100% 86,964 100% 16,652 100%

ANALYST KRChoksey Research +91-22-6696 5555 / +91-22-6691 9576

HDFC Standard Life Insurance Company Limited

FY15 FY16 FY17 Q1FY18

90% Persistency (%)

AUM (INR Bn)

HDFC Standard Life Insurance Company Limited

Reinsurance ceded 562 865 675 1,342 1,706

Net premiums 1,14,461 1,19,764 1,47,625 1,61,788 1,92,749

Income from investments 25,427 50,731 1,22,493 17,906 1,11,406

Other income 257 239 322 591 419

Total income 1,40,163 1,72,907 2,70,906 1,80,665 3,05,544

Commission expenses 6,473 5,141 6,235 7,019 7,920

Operating expenses 12,160 12,805 14,888 18,718 23,853

Provision for tax 509 1,516 1,193 1,746 1,520

Provisions (other than taxation) 1,280 1,615 1,507 1,886 2,223

Operating profit 1,19,741 1,51,830 2,47,083 1,51,297 2,70,028

Benefits paid (net) 39,028 46,619 81,624 81,769 98,422

Change in reserves 74,149 1,00,584 1,56,525 59,281 1,60,548

Surplus / (Deficit) 6,376 4,298 8,221 9,596 9,476

Source: Company Data, KRChoksey Research

Profit & Loss Account / Shareholders'

Income from investments 711 1,161 2,033 1,712 2,303

Other Income - - 0 106 1

Total income 4,612 8,815 8,742 9,000 10,167

Expenses 78 157 230 254 768

Provision for tax 42 -828 191 166 220

PAT 4,472 7,253 7,855 8,168 8,869

ANALYST KRChoksey Research +91-22-6696 5555 / +91-22-6691 9576

HDFC Standard Life Insurance Company Limited

Balance Sheet (INR Millions) FY13 FY14 FY15 FY16 FY17