Overview of Life insurance industry

Date : 15.11.2017

INDEX

1. Meaning

2. Glossary

3. Type of Life insurance

4. How they earn

5. Industry evolution

6. World Data

7. Domestic Data

8. Risk

10. Data about major private life insurers

11. Annexure

Meaning

1

Life Insurance :

Life Insurance Business means the businessof effecting contracts of insurance uponhuman life, including any contract wherebythe payment of money is assured on or thehappening of any contingency dependent onhuman life, and any contract which issubject to payment of premiums for a termdependent on human.

Glossary

2

Term Description

APE (Annualized PremiumEquivalent)

APE (Annualized Premium Equivalent) is the sum of annualized first year premiumson regular premium policies, and ten percent of single premiums, on the newbusiness written during any period from both our individual and group customers.The APE is adjusted for any new business cancellations effected during the period.

Bonus (to policyholders) The non guaranteed benefits added to a participating policy and represents the shareof surplus distributed to the policyholders

Expense of Management Cost or total cost refers to total expenses including commission and includingprovision for doubtful debts and bad debts

Embedded Value (EV) The measure of the consolidated value of shareholders’ interest in the existing lifeinsurance business. It represents the present value of shareholders’ interests in theearnings distributable from the assets allocated to the business after sufficientallowance for the aggregate risks in the business and is generally expressed as a sumof Adjusted Net worth and Value of In-force of business. Embedded valuedetermined as per the requirements and principles prescribed in the ActuarialPractice Standard 10 issued by the Institute of Actuaries of India is referred to asIndian Embedded Value.

Term Description

Persistency Ratio The ratio of policies remaining in force to all policies issued in the period 13month/25 month etc, prior to the date of measurement and is referred to as 13thmonth/25th month persistency etc It is the percentage of policies that have notdiscontinued paying premiums or surrendered. It can be measured in terms ofnumber of policies or in terms of premium.

Value of new business(VNB)” and “VNB margin

VNB is the present value of expected future earnings from new policies writtenduring any given period and it reflects the additional value to shareholders expectedto be generated through the activity of writing new policies during any given period.VNB for any period reflects actual acquisition costs incurred during that period

VNB margin is the ratio of VNB to APE for any given period and is a measure of theexpected profitability of new business

Type of Life Insurance

3

Types of insurance

Participating

Participating Life Insurance

Participating Pension

Non-Participating

(Non Linked)

Term Insurance

Health Insurance

Endowment

Annuity

Non Participating

(Unit Linked)

Linked Life

Linked Pension

Linked Health

How they earn

4

• Same like medicaim• Profit Primarily arise fromcharges levied on thepolicyholders funds net ofexpenses & claims

• Profit arise from premium andincome from investments

• Depends on Bonus Declaredto policy holders on annualbasis.

• 1/9th of the bonus istransferred to shareholders Participating

Product

Non Participating (Non linked)

Health insurance

Non Participating

(Unit Linked)

Industry Evolution

5

1999-2005

2006-2011

2012-2016

• 2000- IRDA Establishment• Insurance industry privatised once again• 26% FII permission in equity

• Major changes in regulation of linked and non-linked products(Reduction in commission, cap onsurrender charges, increase in lock in period)

• Licencing of Bancassurance agents

• 49% FII permission in equity• Corporate agents allowed to tie up with more than

one player

Story in Chart- World Insurance Data

6

38

%

3%

23

%

2%

1%

33

%

58

%

8%

8%

16

%

1%

10

%

ASIA LATIN AMERICA

NORTH AMERICA

AFRICA OCEANIA EUROPE

WORLD LIFE INSURANCE MARKET

Life insurance market Share Population Share

97% 93%82%

3% 7%18%

1995 2005 2015

LIFE INSURANCEPREMIUM MARKET SHARE

Advanced economies Emerging economies

16

.7%

16

.2%

11

.5%

7.2

%

7.6

%

7.4

%

6.1

%

5.5

%

4.7

%

3.7

%

3.0

%

3.5

%

3.2

%

3.0

%

2.8

%

2.7

%

2.3

%

2.3

%

0.6

%

0.5

%

0.3

%

LIFE INSURANCE PENETRATION AS % OF GDP

37

00

.03

35

98

.70

30

33

.30

28

94

.50

28

03

.00

22

27

.00

20

49

.60

17

24

.90

15

58

.50

11

50

.00

61

6.0

0

35

3.0

0

29

8.3

0

29

8.0

0

22

2.0

0

19

5.5

0

46

.50

22

.40

21

.20

9.2

0

LIFE INSURANCE DENSITY IN US$

Story in Chart- Domestic Insurance Data

7

48

.10

%

51

.80

%

51

.50

%

49

.50

%

49

.40

%

47

.40

% 59

.00

%

60

.50

%

62

.60

%

63

.20

%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

LIFE INSURANCE COVERAGE SUM ASSURED AS % OF GDP

LIFE INSURANCE PREMIUM HISTORY Rs. In Bill.

80

4 10

76

13

48

15

56

16

52

17

31

17

98

19

40

21

48

22

79

24

29

75

4 93

0

87

1 10

93

12

58

11

42

10

70

11

96

11

31

13

87 17

50

15

58 2

00

6

22

19 2

64

9

29

10

28

73

28

68

31

36

32

79 36

66 4

17

9

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Renewal Premium New Business Premium Total Premium Expon. (Total Premium)

29%

11%

19%

10%

-1%0%

9%

5%

12%14%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

TOTAL PREMIUM GROWTH( YOY %)

64%54% 59% 56% 63%

76% 83% 88% 87% 87% 87%

36%46% 41% 44% 37%

24% 17% 12% 13% 13% 13%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

PREMIUM PROFILE

Non Linked Linked

83% 88% 87% 86% 79%65%

54%45% 45% 45% 44%

17% 12% 13% 14% 21%35%

46%55% 55% 55% 56%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

PRIVATE PLAYER-MIXLinked Non Linked

64%

50%

43%48%

54%

63% 62% 62%

51%48% 46%

36%

50%

57%52%

46%

37% 38% 38%

49%52% 54%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

TREND IN MARKET SHARE-INDIVIDUAL WRP PREMIUM

LIC Private Sector

72%

5%

5%

5%

3%2%

9%

INDUSTRY MARKET SHARETOTAL PREMIUM

LIC

ICICI Pru Life

HDFC Standered

SBI Life

Max Life

Bajaj Allianz

Others

71%

4%

5%

6%

2%2%

10%

INDUSTRY MARKET SHARENBP

LIC

ICICI Pru Life

HDFC Standered

SBI Life

Max Life

Bajaj Allianz

Others

19%

17%

18%9%

5%

32%

PRIVATE PLAYER-MARKET SHARETOTAL PREMIUM

ICICI Pru Life

HDFC Standered

SBI Life

Max Life

Bajaj Allianz

Others 18 Players

16%

17%

20%7%

6%

34%

PRIVATE PLAYER-MARKET SHARENBP

ICICI Pru Life

HDFC Standered

SBI Life

Max Life

Bajaj Allianz

Others 18 Players

Risk

8

Changes in regulations

Variation in persistency experience

Interest rate fluctuations

Concentration Risk

Data of Major Private Sector Life insurers

9

Business Performance Data of Key Private Players

Click Here :

This document contains comparative analysis of five biggest private sector life insurers of India

Annexures

10

Sources of information :

1. IRDA2. Company Reports3. Swiss Re Reports

Basic Premium Calculation Table :

Commission structure for regular premium based insurance products linked and non-linked :

Premium paying Terms Maximum Commission or Remuneration in any form as % of premium

1st Year Renewal Premiums

5 15 7.5

6 18 7.5

7 21 7.5

8 24 7.5

9 27 7.5

10 30 7.5

11 33 7.5

12 years or more 35 7.5

Brochure of ULIP Policy :

Click here to see the PDF of brochure

*Just for illustrative purpose only.

Sample of financial statement of Life insurance company:

Click here to see the PDF of brochure

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