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A

Project Study Report

On

Training Undertaken at

HDFC Standard Life Insurance Company Ltd.

Titled

A Feasibility study to identify the highly network individual for HDFC

Standard Life Insurance Co. Ltd.

Submitted in partial fulfillment for the

Award of degree of

Master of Business Administration

Submitted By: - Submitted To:-

Shikha Garg Ms. Priti

MBA Part III

2008-2010

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DECLARATION

I, SHIKHA GARG Roll No 91 Class MBA 3rd sem. of the SIMCS Jaipur, hereby declare that

the Summer Training Report entitled, A Feasibility study to identify the highly network

individual for HDFC Standard Life Insurance co. Ltd. is an original work and the same

has not been submitted to any other institute for the award of any other degree. A seminar

presentation of the Training Report was made on 18 th May 2009 till 25th June 2009 and the

suggestions as approved by the faculty were duly incorporated.

Presentation in charge Signature of the Candidate

(Faculty)

Countersigned

Director/Principal of the Institute

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C E R T I F C A T E

To Whom It May Concern

This is to certify that Ms. Shikha Garg, student of Subodh Institute of Management and

Career Studies, Jaipur, has undergone summer internship as a part of institute curriculum

at HSLIC LTD. from 18th May 2009 till 25th June 2009. During this program she has

undergone a project for our company. The project title has beenA Feasibility study to

identify the highly network individual for HDFC Standard Life Insurance co. Ltd.

She has completed the project well in time and has been found hardworking and sincere.

We wish her all the best for all her future endeavors.

Thanks & regards.

(Your name sign n seal)

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PREFACE

Difference in academic life & practical life is revealed when we enter the real life where

there is cut throat competition & in order to exist in this world of competition one has to befully aware of all the aspects of Industrial life.

Practical Knowledge is the lifeblood of the management .This Practical Knowledge is

termed as field knowledge in marketing management. In professional course of

management, this field of knowledge makes us understand about the consumer behavior,

his response to your product, the interpersonal skills, how to make yourself positive till the

end of the day, etc.

Practical training is the most important part of management study. During the course of

training a trainee learns to correlate the practical problems & situations to possible theory

knowledge A professional course like HDFC Standard Life, has to have a provision of these

type of practical practices during its course time, to enhance the skill in corporate world & to

meet this requirement in our management curriculum Project Study is provided. I have

undergone two months training at HSLIC, Jaipur.

This report shows how I conducted the survey for Financial Consultant in HSLIC.

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Acknowledgement

I express my sincere thanks to my project guide, Mr. Dushyant Handa for guiding me right

from the inception till the successful completion of the project. I sincerely acknowledge

him/her/them for extending their valuable guidance, support for literature, critical reviews of

project and the report and above all the moral support he had provided to me with all stages

of this project.

I would also like to thank the supporting staff for their help and cooperation throughout our

project.

Shikha Garg

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EXECUTIVE SUMMARY

This report is a representation of all rules regulations and structure required to become

financial consultant (FC) for HDFC SL.

Along with an overview of Insurance sector, the report provides details on various

aspects of life insurance. It details about history, what life insurance is all about.

This report also provides idea an about regulatory aspects of insurance sector, and the

norms imposed by IRDA regulatory body of Insurance business in India.

It also provides an idea about the working culture ofHDFC SL which covers its operational

method, sales structure, financial strength etc.

This report also provides us good idea about financial consultant, how it operates what are

the norms imposed by IRDA, what is commission structure, How HDFCSL provide support

to its Financial Consultants.

If somebody is interested in happening events of insurance sector, this report will help him

immensely.

The report also provides fair idea about the competitors of HDFCSL present in the market.

Last but not least this report is a sincere attempt to cover all the aspect of life insurance

sector.

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TABLE OF CONTENTS

Topics Page

1. Introduction To The Industry (Insurance Sector)

1.1) Introduction

1.2) Insurance Sector Breif History

1.3) How Big Is The Insurance Sector

1.4) Why Open Up The Insurance Industry

1.5) Future Course Of Insurance Business

1.6) Bottlenecks Government/Rbi Regulation

1.7) Benefits Of Insurance

2. Life Insurance

2.1) The Life Insurance Scenario In India

2.2) What Is Life Insurance

2.3) Benefits Of Life Insurance

2.4) Need For Life Insurance

2.5) Principles Of Life Insurance

2.6) Pecularities Of Life Insurance

2.7) Why Insurance Is Superior To Other Form Of Savings

2.8) Premium

2.9) Underwriting2.10) Classification Of Risk

3. Regulatory Aspect Of Insurance Sector

3.1) Glimpse On Malhotra Committee Report

3.2) Irda Norms And Regulations

3.3) Insurance Rules

4. Introduction To The Organisation (Hdfc Standard Life Insurance Company

4.1) About Hdfc

4.2) Reputation For Quality4.3) Hdfc Standard Life

4.4) Performance Achived

4.5) Products Of Hdfc Life Insurance

4.6) Sales Structure Of The Organisation

5. Distribution Strategy Mainly Followed

5.1) Distribution Scenario In Indian Market

5.2) What Companies Should Look

5.3) Basic Channels Followed By Companies

5.4) Retail Distrbution Strategy

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Topics Page

6. Research Methodology

6.1) Title Of The Study

6.2) Duration Of The Project

6.3) Objective Of The Study

6.4) Type Of Research

6.5) Sample Size And The Method Of Selecting Samples

6.6) Scope Of Study

6.7) Limitation Of Study

7. Acgency Of Financial Consultant

7.1) Regulations For Financial Consultant Imposed By Irda

7.2) Selection Criteria For Fc

7.3) Eligibility Crireria For Fc As Per Hdfc Sl7.4) Role Of Hdfc Sl Agent The Consultant

7.5) Application Format For Financial Consultant

7.6) Commission Structure For Financial Consultant

8. Analysis And Interpretation

8.1) Objective Of The Project

8.2) Project Plan

8.3) Study Plan

8.4) Methodology Followed8.5) Detail Description And Analysis

9. Swot Analysis

9.1) Prudential Icici

9.2) Birla Sun Life

9.3) Max Newyork Life

9.4) Life Insurance Corporation Of India Ltd.

9.5) Tata Aig

9.6) Why Customer Should Go For Hdfc

10. Conclusion And Limitations

10.1) Conclusion

10.2) My View About Project

10.3) Limitations

11. Biblography

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1) OVERVIEW OF INSURANCE SECTOR

1.1) Introduction

ABSTRACT: Insurance is an Rs.400 billion business in India and yet its spread in the

country is relatively thin. Insurance as a concept has not been able to make headway in

India. Presently LIC enjoys a monopoly in life insurance business while GIC enjoys it in

general insurance business. There have been very little options before the consumers to

decide the insurer. A successful passage of the IRA Bill have clear the way of private sector

operators in collaboration with their overseas partner. It is likely to bring in a moreprofessional and focused approach. Moreover the foreign players would bring sophisticated

actuarial techniques with them, which would facilitate the insurer to effectively price the

product. It is very important that trained marketing professionals who are able to

communicate specific features of the policy should sell the policy. In the next millennium all

these activities would play a crucial role in the overall development and maturity of the

insurance industry

1.2) Insurance Sector a brief h istory

The insurance sector in India dates back to 1818, when Oriental Life Insurance Company

was incorporated at Calcutta. Thereafter, few other companies like Bombay Life Assurance

Company, in 1823 and Tritron Insurance Company, for General Insurance, in 1850 were

incorporated. Insurance Act was passed in 1928 but it was subsequently reviewed and

comphrensive legislation was enacted in 1938. The nationalisation of life insurance

business took place in 1956 when 245 Indian and Foreign Insurance provident societies

were first merged and then nationalised. It paved the way towards the establishment of Life

Insurance Corporation (LIC) and since then it has enjoyed a monopoly over the life

insurance business in India. General Insurance followed suit and in 1968, the insurance act

was amended to allow for social control over the general insurance business. Subsequently

in 1973, non-life insurance business was nationalised and the General Insurance Business

(Nationalisation) Act, 1972 was promulgated. The General Insurance Corporation (GIC) in

its present form was incorporated in 1972 and maintains a very strong hold over the non-life

insurance business in India. Due to concerns of relatively low spread of insurance in the

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country the efficient and quality functioning of the Public Sector insurance companies. The

untapped potential for mobilizing long-term contractual savings fund for infrastructure.

The (Congress) government set up an Insurance Reforms committee in April 1993. The

Committee submitted its report in January 1994, recommended a phased program of

liberalization, and called for private sector entry and restructuring of the LIC and GIC. The

United Front government moved an insurance bill but it did not pass. The BJP government

moved an insurance bill again in 1998, which had also to be referred back to a select

committee of parliament. But now the parliament has given a nod to the Insurance

Regulatory and Development Authority (IRDA) bill with some changes in the original

structure.

1.3) How big is the insurance market?

Insurance is a Rs.400 billion business in India, and together with banking services adds

about 7% to Indias GDP. Gross premium collection is about 2% of GDP and has been

growing by 15-20% per annum. India also has the highest number of life insurance policies

in force in the world, and total ingestible funds with the LIC are almost 8% of GDP. Yet

more than three-fourths of Indias insurable population has no life insurance or pension

cover. Health insurance of any kind is negligible and other forms of non-life insurance are

much below international standards.

To tap the vast insurance potential and to mobilize long-term savings we need reforms

which include revitalizing and restructuring of the public sector companies, and opening up

the sector to private players. A statutory body need to be made to regulate the market and

promote a healthy market structure. Insurance Regulatory Authority (IRA) is one such body,

which checks on these tendencies. IRA role comprises of following three functions:

(a) Protection of consumers interest.

(b) To ensure financial soundness and solvency of the insurance industry, and

(c) To ensure healthy growth of the insurance market.

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1.4) Why open up the Insurance Industry?

An insurance policy protects the buyer at some cost against the financial loss arising from a

specified risk. Different situations and different people require a different mix of risk-cost

combinations. Insurance companies provide these by offering schemes of different kinds.

Unfortunately the concept of insurance is not popular in our country. As per the latest

estimates, the total premium income generated by life and general insurance in India is

estimated at around a meagre 1.95% of GDP. However Indias share of world insurance

market has shown an increase of 10% from 0.31% in 1996-97 to 0.34% in 1997-98. Indias

market share in the life insurance business showed a real growth of 11% thereby

outperforming the global average of 7.7%. Non-life business grew by 3.1% against global

average of 0.20%. In India insurance spending per capita was among the lowest in the

world at $7.6 compared to $7 in the previous year. Amongst the emerging economies, India

is one of the least insured countries but the potential for further growth is phenomenal, as a

significant portion of its population is in services and the life expectancy has also increased

over the years.

The nationalized insurance industry has not offered consumers a variety of products.

Opening of the sector to private firms will foster competition, innovation, and variety of

products. It would also generate greater awareness on the need for buying insurance as a

service and not merely for tax exemption, which is currently done. On the demand side, a

strong correlation between demand for insurance and per capita income level suggests that

high economic growth can spur growth in demand for insurance. Also there exists a strong

correlation between insurance density and social indicators such as literacy. With social

development, insurance demand will grow.

1.5) Future course of Insurance Business

One of the main differences between the developed economies and the emerging

economies is that insurance products are bought in the former while these are sold in latter.

Focus of insurance industry is changing towards providing a mix of protection / risk over

and long-term investment opportunities.

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SERVICES WE CAN EXPECT

Yes No Maybe

Insurance over

the phone/mail

Distribution

through Banks

Financial

Planning services

Online premium

payments

Some of the major international players in the insurance business, in Indian market, are

Sun Life of Canada, Prudential of the United Kingdom, Standard Life, and Allianz etc.

Following might be the future strategies of insurance companies.

(1) The new entrants cannot compete with the state owned LIC on price alone. Due to its

size, LIC operates at very low costs and their premia on policies that offer pure protection

are on a par with comparable schemes across the globe. What the new insurance

companies will probably offer is higher returns than the annualised 9-10% one can hope to

earn from LICs policies. This will put pressure on LIC to offer more attractive returns.

(2) Consumers can expect more product innovations. For instance, at present, LIC provides

cover for permanent disability and what the new companies could offer is temporary

disability insurance as well.

(3) Apart from the basic term insurance, most insurance products worldwide are sold as

long-term investment opportunities with the protection component being clearly spelt out in

the scheme.

(4) LICs policies are not flexible according to the customers needs. So new entrants and

the present insurance players have planned to offer universal life and variable life insurance

products that allow the holder flexibility in deciding how his premia are split between

protection and savings. New products would also enable product combinations that allow

greater customisation.

(5) Private insurers would compete furiously on the service platform. These would not only

include faster claims settlement and other after-sales service but there agents would be

trained in pre-sales interaction to usher in a customer-oriented approach. They would be

better qualified in assisting clients in financial planning.

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(6) Foreign companies would also use superior software (like APEX) that will give them an

edge over the in-house LIC software. This technology will help private insurers in product

development and customising products to suit individual needs.

(7) The foreign players will probably introduce a lot of innovation and competition on

Surrender value. LIC pays surrender value only after three years but private insurance

companies are likely to offer sops by way of better and timely surrender value to clients.

(8) Access to insurance too will probably become more widespread. Role of intermediaries

would decrease and sale of insurance through direct channels and banks would increase.

Simple products like term insurance might be sold through the telephone or direct mail to

high net worth clients.

(9) In reaction to foreign players strategies one might expect LIC to react and drop its

premia and upgrade its services.

Joint Ventures

Indian Company Foreign Partner

Kotak Mahindra Old mutual

Tata Group AIG

Sundaram Finance Winterthur

Sanmar Group GIO of AustraliaSpic MetLife

ILFS Cigna

Bajaj Allianz

20th Century Canada Life

Vyasa Bank ING

Cholmandalam Axa

SBI Alliance Capital

HDFC Standard Life

ICICI PrudentialHindustan Times Commercial Union

IDBI Principal

Max India New York Life

The privatization of the insurance sector would open up exciting new career options and

new jobs would be created. A few insurers estimated a figure of 1lakh, after comparing the

work forces in India and the UK.

At present, life products comprise a big chunk, or 98%, of LICs business. Pension

comprises a mere 2%. Now with increase in life expectancy rate, people have to start

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planning their retirements. Hence pension business is expected to grow once the industry

opens.

The demand for healthcare is growing due to population increase, greater urban migration

and alarming levels of pollution. Healthcare insurance is more important for families with

smaller savings because they would not be able to absorb the financial impact of adverse

events without insurance cover. Foreign insurance companies like Aetna (worlds largest

healthcare insurance provider) and Cigna have been providing Managed Care services

across the globe. Managed Care integrates the financing and delivery of appropriate health

care services to covered individuals.

1.6) Bottlenecks Government / RBI regulations

The IRDA bill proposes tough solvency margins for private insurance firms, a 26% cap

on foreign equity and a minimum capital of Rs.100 crores for life and general insurers and

Rs. 200 crores for reinsurance firms. Section 27A of the Insurance Act stipulates that LIC is

required to invest 75% of its accretions through a controlled fund in mandated government

securities. LIC may invest the remaining 25% in private corporate sector, construction, and

acquisition of immovable assets besides sanctioning of loans to policyholders. These

stipulations imposed on the insurance companies had resulted in lack of flexibility in the

optimisation of risk and profit portfolio. If this inflexibility continues, the insurance companies

will have very little leverage to earn more on their investments and they might not be able to

offer as flexible products as offered abroad.

The government might provide more autonomy to insurance companies by allowing

them to invest 50 % of their funds as per their own discretions.

Recently RBI has issued stiff guidelines, which had dealt a severe blow to the plans of

banks and financial institutions to enter the insurance sector. It says that non-performing

assets (NPA) levels of the prospective players will have to be 1% point lower than the

industry average (presently 7.5%). RBI has also stipulated that all prospective entrants

need to have a net worth of Rs. 500 crores. These guidelines have made it virtually

impossible for many banks to get into the insurance business. Also banks and FIs who are

planning to enter the business cannot float subsidiaries for insurance.

RBI has taken too much caution to make sure that the new sector does not experience

the kind of ups and downs that the non-bank financial sector has experienced in the recent

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past. They had to rethink about these guidelines if Indias strong banks and financial

institutions have to enter the new business.

The insurance employees union is offering stiff resistance to any private entry. Their

objections are (a) that there is no major untapped potential in insurance business in India;

(b) that there would be massive retrenchment and job losses due to computerization and

modernization; and (c) that private and foreign firms would indulge in reckless profiteering

and skim the urban cream market, and ignore the rural areas. But all these fears are

unfounded. The real reason behind the protests is that the dismantling of government

monopoly would provide a benchmark to evaluate the governments insurance services.

1.6) List Of Private insurance Companies

Life Insurance List:

Sl.No. Registration

Number

Date of Reg. Name of the company

1. 101 23.10.2000 HDFC Standard Life Insurance Company Ltd.

2. 104 15.11.2000 Max New York Life Insurance Co. Ltd.

3. 105 24.11.2000 ICICI Prudential Life Insurance Company Ltd.

4. 107 10.01.2001 Om Kotak Mahindra Life Insurance Co. Ltd.

5. 109 31.01.2001 Birla Sun Life Insurance Company Ltd.

6. 110 12.02.2001 Tata Aig Life Insurance Company Ltd.7. 111 30.03.2001 SBI Life Insurance Company Ltd.

8. 114 02.08.2001 ING Vysya Life Insurance Company Pvt. Ltd.

9. 116 03.08.2001 Allianz Bajaj Life Insurance company Ltd.

10. 117 06.08.2001 MetLife India Insurance Company Pvt. Ltd.

General Insurance List:

Sl.No. Registration

number

Date of Reg. Name of the Company

1. 102 23.10.2000 Royal Sundaram Alliance Insurance Company

Ltd.

2. 103 23.10.2000 Reliance General Insurance Company Ltd.

3. 106 04.12.2000 IFFCO Tokio General Insurance Co. Ltd.

4. 108 22.01.2001 TATA AIG General Insurance Company Ltd.

5. 113 02.05.2001 Bajaj Allianz General Insurance Company Ltd.

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6. 115 03.08.2001 ICICI Lombard General Insurance Company Ltd.

Yr: 2001-2002: (From 1st Jan 2001 to till date)Life Insurance List:

1. 121 03.01.2002 AMP SANMAR Assurance Company Ltd.

1.7) Benefits of Insurance

Insurance is the instrument of Security, saving and peace of mind. It provides several

benefits by paying a small amount of premium to an insurance company as:

Safeguards oneself and one's family for future requirements.

Peace of mind-in case of financial loss.

Encourage saving.Tax rebate.

Protection from the claim made by creditors.

Security against a personal loan, housing loan or other types of loan.

Provide a protection cover to industries, agriculture, women and child.

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LIFE INSURANCE

2.1) The Life Insurance Scenario in India

Since 1956, with the nationalization of insurance industry, the state-run Life Insurance

Corporation of India (LIC) has held the monopoly in that country's life insurance sector.

General Insurance Corporation of India (GIC), with its four subsidiaries, was its counterpart

in the casualty sector. Over time, taking advantage of its monopoly and virtual prerogative

in establishing premiums, LIC has evolved into a monolith. With around 600,000 agents in

every nook and corner of the vast country, it has created an enviable brand name,

particularly among the rural population of the country. It has around $40 billion as its lifefund and is a strong player in the financial sector. However, on the qualitative side, it has

very little to take pride in. And there lies the potential for foreign players to challenge this

behemoth.

As is typical with monopolies, the premium rates charged by LIC are among the highest in

the world, and its track record in customer service can, at best, be called shabby. With a

huge unionized, rigid workforce mostly in the clerical category, LIC runs the risk of high

fixed cost, which will be the deciding factor in productivity in the competitive scenario. Whileboasting full-scale automation of its operation, the truth is that its technology is outdated.

The new players, with the state-of-the-art technology under their belt, will be in an

advantageous position. 80% of LIC's business is procured by 20% of its ill-trained agent

force. The foreign player, with the domestic partner's strong brand value, can test the

unconventional distribution channels like brokers, the Internet, the banking distribution

system, etc. Although foreign players may be tempted to keep their operation in the big

cities for the 'creamy layer' of the society, the real market lies in rural India, which accounts

for the lion's share of LIC's present business. The foreign player must learn to adapt to

Indian realities. The well-publicized failures of world famous consumer goods companies

like Electrolux, Whirlpool, Reebok, Nike etc. to gauge the Indian psyche and sentiments

demonstrate the concept. They failed in the areas of realistic pricing, product promotion and

reaching to the consumer. The foreign companies need to know the "ground realities" to the

details.

Political Scenario

Until recently, India continued to be one of the few remaining countries of the world to

remain insulated from the direct foreign investment in its insurance sector. However, things17

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are changing now with the passage of Insurance Regulatory Development Act (IRDA)

through Indian Parliament in late 1999. A much awaited and much debated act, it met with

strong resistance from the political institutions of India and took almost six years to see

daylight. Though first recommended by Malhotra Committee on Insurance Reforms in 1994,

what emerges is a diluted form of the original recommendations. However in the long

awaited period of its passage, the issue was nationally debated and was finally 'de-

politicized,' meaning that the reform path is 'irreversible.'

IRDA, for the time being, prohibits 100% foreign equity in insurance. It requires the Indian

promoter to invest either wholly in an insurance venture or team up with a foreign insurer,

with a cap of 26% of equity for a foreign partner. The Indian promoter is permitted to divest

only after 10 years to the Indian public, through a public offering of shares, at which time

the equity structure will provide for equal participation between the Indian and foreign

partner with a share of 26% each in the share capital. The underlying tone of the 26% cap

for the foreign insurer is to ensure that financial interest substantially vests with the Indian

promoter, permitting the foreign co-promoter a definite say in direction and management

(By Indian Company Law, 26% is the minimum equity to move a resolution or vetoing a

resolution in Board of Directors' Meeting). It is important to note that the 26% level is the

bargained solution by the privatization proponents (read Government) in the face of stiff

political resistance. The main two political poles of Indian politics the Congress Party and

the Bharatiya Janata Party (BJP) - are both in favor of the reform. Only the extent of the

reform and who-will-bell-the-cat-and-get-the-(dis)credit factor bar them in reaching a

consensus for more sweeping reforms. The populist out-of-fashioned socialistic jingoism,

masking these parties' rightist ideology, is fast losing its appeal to the masses. This will only

hasten the reform process.

2.2) what is life insurance?

Life Insurance is universally acknowledged to be an institution which eliminates 'risk' and

provides the timely aid to the family in the unfortunate event of death of the breadwinner.

Life Insurance is a contract for payment of a sum of money to the person assured (or

nominee) on the happening of the event insured against. The contract provides for the

payment of premium periodically to the Insurance Company by the assured.

The contract provides for the payment of an amount on the date of maturity or at specified

dates at periodic intervals or at unfortunate death, if it occurs earlier.

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2.3) Benefits of life Insurance as:

Protection: Life Insurance guarantees full protection against risk of death of the assured. In

case of death, full sum assured is payable.Long term saving: Life insurance encourages long term saving. By paying a small premium

in easy installments for a long period a handsome saving can be achieved.

Liquidity: Loan can be obtained against a policy assured whenever required.

Tax Profit: Tax relief in income tax and wealth tax can be availed on the premium paid for

Life Insurance.

By the year 1956, 154 Indian insurance, 16 non-Indian insurance and 75 provident societies

were carrying on Life insurance business in India. On 1st September 1956 all the Insurance

Companies were nationalized. On September 1956, LIC Act was passed by Indian

Parliament and the state run Life Insurance Corporation of India (LIC) has held the

monopoly in countries life insurance sector.

In the year 1999, the Insurance Regulatory Development Act (IRDA) was passed in Indian

Parliament. By this act a door was open for private companies with foreign equity Life

Insurance. By this act an Indian promoter can invest either wholly in an insurance venture

or team up with a foreign insurer, with a cap of 26 percent of equity for a foreign partner.

2.4) Need for life insurance

Old age provision providing for a lump sum amount after the active income earning years

of the life assured.

Children benefit provision fore education, marriage, and start in life.

Protection against inflation- provision for capital asset appreciation to combat inflation.

Family protection- protection of the interest of the family members against the loss of the

income due to the death of the breadwinner.

Provision for special needs- protection on financial difficulties arising out of accident,

disability, sickness, loan repayment on death.

Protection against business losses- key men insurance and partnership insurance.

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2.5) Principles of life insurance

Principle of Utmost Good Faith

Contract of insurance are governed by the principle of utmost good faith (uberrimae fides)as apposed to the general principle of buyer behaviour (caveat emptor). The reasons for

the above are:

The proposer is the only person aware of the present state of his own health.

The insurer not in the position to find out facts unless expressly declared by the proposer.

Principle of Utmost Good Faith, there is a positive duty on the proposer to voluntarily

disclose, accurately and fully all Material Facts of the risk proposed, whether requested or

not.

A Material Fact is a fact which would influence the decision of a prudent underwriter in

deciding whether to insure a particular risk or the terms on which to insure it.

According to Section 45 of the Insurance Act, 1938, a policy of Insurance cannot be called

in question after a period of 2 years from the date of acceptance of the risk unless the

Insurer establishes the following points.

A) The statement by the proposer was inaccurate or false, and

B) Such a statement was material to the contract, and

C) The statement was deliberately and fraudulently made, and

D) The proposer knew the correct facts at the time of making the false statement.

The Consultant has a responsibility both toward the Insurance Company and also towards

the Client in this regard.

1) He must encourage his client to disclose all material facts and must explain to him the

importance of full disclosure, in Insurance Contracts.

2) He must make independent enquiries and report to the Company in case he is aware of

any material fact.

Non Disclosure does not benefit anybody.

1) The Client may not get the Claim Amount.

2) The Consultant will get a bad name in case the Claim is not paid and will also be liable to

action.

3) The Company gets a bad name.

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B)Principle of insurable interest

Insurable interest refers to the relationship the person has with the subject matter of

insurance ( human life in life insurance ), whereby, he suffers a pecuniary financial loss on

the happening of the event insured.

The following are examples of Insurable Interest in Life Insurance Contracts.

1) A person has insurable interest on his own life to an unlimited extent. This provision

is made in law as it is difficult to prove in normal circumstances.

2) Husband and wife have insurable interest in each others lives. However in practice there

are certain restrictions in insuring ladies without any income.

3) A Creditor has insurable interest in the life of the Debtor to the amount of loan involved.

4) A Surety has insurable interest in the life of the principal debtor to the extent of the surety

involved.

5) Partners in business have insurable interest in the lives of their co-partners to the extent

of the amount payable on death by the firm.

6) A company has insurable interest on the lives of its key employees.

2.6) Peculiarities of the life insurance

Risk is certain in life insurance

Life insurance is a long term contract

There is a difficulty in determining human life value

Indemnity principles are not strictly applicable to life insurance

2.7) Why insurance is superior to other form of savings

An immediate state is created in favor of the policyholders

Protection in case of death

Aid in thrift- economical management of resources

Insurance is a long term saving vehicle. It enjoys the benefits of long term assets and the

benefit of smoothing with profits

Tax relief- income tax, gift tax and wealth tax.

Policies can be taken under M.W.P Act 1874, to protect against creditors.

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Policies can be offered as a collateral security.

2.8) Premiums

The basic elements of premiums are as follows

Mortality

Rate of interest

Premium loading or expenses

The above are only main elements in premium. Other factors like future bonus, lapses,

reserves, profits etc are also taken into account while determining the premiums.

Mortality Table is a Table giving the probabilities of Survival and Death at successive ages.

In Theory Life Insurance can be arranged as yearly contracts under which premium

charged for a given year are just sufficient to pay the claims incurred during the year. This

method is known as Assessmentism. General Insurance and Group Insurance business is

on this basis.

In Life Insurance Assessmentism causes:

1) Resentment against the Insurer due to variation in premiums.

2) Heavy burden at higher ages.

In Assessmentism premiums at higher ages are prohibitive. This difficulty is removed by

charging level premium. The Level Premium is the mathematical equivalent of the

increasing premium payable year after year.

Level premium is more than Claims in early ages and less than Claims at higher ages. Thus

a reserve of fund is created.

The excess is invested and Interest earned is taken into account.

The level premium together with interest should be adequate to meet the claims as well as

expenses of the Insurer.

Adverse Selection

The tendency on the part of under average lives to go in for insurance to a larger extent,

thereby upsetting proportions of healthy and unhealthy lives in a group continuing insurance

is called Adverse Selection. There is Adverse Selection in case of Lapses also where

healthy lives resort to surrender of the policies.

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To protect against Adverse Selection, the Insurer has to select lives. The data required for

the selection is obtained through the proposal form, personal statement of health and a

Medical Examiners report.

The Consultant has to the Responsibility to protect the Company against Adverse Selection

in the following manner.

1) By recommending insurance only to Healthy Lives.

2) By informing the Company of any factors that may increase the risk.

3) By ensuring that the policies sold by him are kept in full force.

2.9) Underwriting

Underwriting is the function of selection, classification and accepting risks under an

insurance policy.

The objectives of underwriting are:

1) To maintain homogeneity of the insured groups, thereby ensuring that the mortality

experience of the new entrants is nor significantly different from the existing policyholders.

2) To distinguish between Standard lives and non standard lives.

3) To protect against adverse selection.

2.10) Classification of risks

Risks in Life Insurance can be classified as follows:

1) Those relating to Physical Hazards.

2) Those relating to Occupational Hazards.

3) Those relating to Moral Hazards.

4) The risk of living too long (covered in annuities)

5) Financial Risks.

Factors relating to Physical Hazards

1) Age: Higher the age greater the risk.

2) Sex: Female lives experience greater longevity. Risk of pregnancy and childbirth are

peculiar to female lives.

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3) Build: (Body Shape) - Height, Weight and distribution of the weight is an important factor

in assessing the risk. Overweight at higher ages and underweight at lower ages is a distinct

risk.

4) Physical Condition- The condition of the nervous, digestive, cardio vascular, respiratory

and the genito-urinary system.

5) Personal History: Past Illness, operations and Insurance history.

6) Habits- Continued use of a thing - excessive food, smoking, drinking, exercise etc.

Healthy habits are indicative of longer longevity.

P.T.O

7) Family History - Inheritable and Infectious diseases and death at early ages in the family.

8) Hobbies - e.g. dangerous hobbies like mountain climbing, competitive racing, aviation

etc.

Factors relating to Occupational Hazard

1) Workers working with heavy machinery, at heights, underground mines high voltages.

2) Workers affected by dust - workers in mines, stone mills, abrasive industry.

3) Workers working under air pressure- divers, tunnel workers

4) Workers affected by temperature- Furnace workers, refrigeration plant workers.

5) Atomic Plant workers- workers affected by radiation.

6) Stunt men, jockeys, mountaineers, etc need to be rated separately.

Factors relating to Moral Hazard

Moral Hazard involves good faith, personal reputation, character business ethics,

environment, speculation, departure from normal social behavior etc of the applicant.

We do not do a Moral judgment in Life Insurance but are only concerned about the factors

which affect the mortality.

No amount of rating can compensate for Moral Hazard, hence cases involved moral hazard

are generally declined.

Some situations which indicate that Moral Hazard is involved are:

1) Insurance not supported by Insurable Interest.

2) Insurance on the lives of children without insurance of parents.

3) Large amount of Insurance not commensurate with income of the proponent.

4) Large amount of Insurance for the first time at a very advanced age.5) Previous Insurance declined or rated up.

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6) Insurance proposed at a place other than the normal residence

7) Address of the proponent c/o Agent.

8) Nominee other than a close relative.

2) REGULATORY ASPECT OF INSURANCE SECTOR

3.1) Glimpse on Malhotra Committee Report

In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R. N.

Malhotra, was formed to evaluate the Indian insurance industry and recommend its future

direction. In 1994, the committee submitted the report and gave the following

recommendations:

Structure

Government stake in the insurance Companies to be brought down to 50%

Government should take over the holdings of GIC and its subsidiaries so that these

subsidiaries can act as independent corporations.

All the insurance companies should be given greater freedom to operate.

Competition

Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the

industry

No Company should deal in both Life and General Insurance through a single entity.

Foreign companies may be allowed to enter the industry in collaboration with the domestic

companies.

Postal Life Insurance should be allowed to operate in the rural market

Only one State Level Life Insurance Company should be allowed to operate in each state.

Regulatory Body

The Insurance Act should be changed.

An Insurance Regulatory body should be set up .

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Controller of Insurance (Currently a part from the Finance Ministry) should be made

independent

Investments

Mandatory Investments of LIC Life Fund in government securities to be reduced from 75%

to 50 %

GIC and its subsidiaries are not to hold more than 5% in any company (There current

holdings to be brought down to this level over a period of time)

Customer Service

LIC should pay interest on delays in payments beyond 30 days. Insurance companies must

be encouraged to set up unit linked pension plans.

Computerization of operations and updating of technology to be carried out in the insurance

industry

Overall, the committee strongly felt that in order to improve the customer services and

increase the coverage of the insurance industry should be opened up to competition.

But at the same time, the committee felt the need to exercise caution as any failure on the

part of new players could ruin the public confidence in the industry.

Hence, it was decided to allow competition in a limited way by stipulating the minimum

capital requirement of Rs.1 bn. This amount is not very high for foreign firms, as it

translates to only about US$25 million. Further, to date it is unclear whether equity should

be payable in one go or should be brought in as installments. Also, the foreign equity

participation was to be restricted to only 40%.

The committee felt the need to provide greater autonomy to insurance companies in order

to improve their performance and enable them to act as independent companies with

economic motives. For this purpose, it had proposed setting up an independent regulatory

body.

The industry and analysts find that there is lack of clarity in the following areas:-

Though coverage of rural areas was to be made compulsory, it raises the question as to

who would subsidies the rural policies as they would be difficult to service and hence costs

will go up.

There is some confusion with respect to investments. Where the funds should be invested?

Currently 70% of the funds with LIC & GIC are invested in Government securities. Would

new entrants be allowed to invest in GOI securities?

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The report also does not enumerate exit options available to the new entrants. In the event

of failure, there should be an arrangement made whereby the other companies pool in to

bail the customers, who in all probability would be middle class individuals.

On the basis of the report, the then Finance Minister P. Chidambaram proposed the

opening up of insurance to the private sector, including multinational companies.

3.2) IRDA norms and regulations

Illustration

ABC is foreign company having diverse business interests, including the marketing and

selling of insurance products in the United States of America (USA). It has a strong

infrastructure, good customer base and brand equity. ABC has heard that the Indian

insurance market has opened up and seeks some information about opportunities there.

ABC wants to tie-up with an Indian company ("XYZ") by forming a joint venture and wants

to know the amount of equity it can hold in an Indian joint venture company and the

insurance products it can sell in India. The company has distributable profits in three (3)

preceding financial years, prior to the year in which shares with differential rights are to be

issued.

Further, ABC has a subsidiary in India (the "ABC Sub"), which is engaged in manufacturing

car tyres. ABC wants to know whether ABC Sub can enter into a joint venture with XYZ.

ABC also wants to know about the new regulatory regime, capitalization and related issues.

Observation and Comments

The Indian government has recently passed the Insurance Regulatory Development

Authority Act, 1999 (the "IRDA") whereby amendments have been made to the existing

insurance laws prevailing in the country, namely, the Insurance Act, 1938 (the "Ins Act"),

the Life Insurance Corporation Act, 1956 (the "Life Act"), and the General Insurance

Business (Nationalization) Act, 1972 (the "GIB Act"). An authority called the Insurance

Regulatory Development Authority (the "Authority") has been established to regulate the

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insurance sector. (Section 3 of the IRDA) The Authority, inter alia, will have the power to.

Issue to applicants a certificate of registration; renew, modify, withdraw, suspend or cancel

such registration. (Section 14(2)(a) of the IRDA) A certificate of registration will have to be

renewed annually. (Section 3A of the Ins Act r/w the First Schedule of the IRDA)

Prescribe prudential norms such as solvency margins and investment guidelines for

insurance companies (Section 14(2)(k) and (l) of the IRDA)

Protect interests of policyholders in matters concerning assignments of policies,

nominations by policyholders, insurable interest, settlement of insurance claims, surrender

value of policies, and other terms and conditions of contracts of insurance. (Section 14(2)

(b) of the IRDA)

However, the Indian Government has retained with itself the power to issue directions on

questions of policy. (Section 14(2)(b) of the IRDA)

The definition of an "Indian insurance company" has been amended to include "any insurer

being a company-

Which is formed and registered under the Companies Act, 1956; in which the aggregate

holding of equity shares by a foreign company, either by itself or through its subsidiary

companies or its nominees does not exceed twenty-six per cent (26%) of the paid-up

capital; and whose sole purpose is to carry on life insurance business or general insurancebusiness or re-insurance business." (Section 2(7A) of the Ins Act r/w the First Schedule of

the IRDA) The explanation to this section provides that a "foreign company" is a company

that is not a domestic company. (Section 2(23A) of the Income-tax Act, 1961 r/w section

2(7A) of the Ins Act r/w the First Schedule of the IRDA)

The IRDA by amending the Ins Act clearly provides that the aggregate holding of equity

shares by a foreign company, either by itself or through its subsidiary companies or

nominees should not exceed 26% of the paid-up capital of the insurance company. It hasbeen clarified that the twenty-six per cent (26%) cap applicable to foreign companies will

also apply to foreign institutional investors, non-resident Indians and overseas corporate

bodies. (Section 2(7A)(b) of the Ins Act r/w the First Schedule of the IRDA)

Thus, a foreign company is now permitted to own unto 26% of the equity in an Indian joint

venture company. Therefore, if ABC proposes to form a joint venture with XYZ, ABC's

shareholding will be restricted to a minority shareholding of 26% in the joint venture

company. It must be noted that the Indian insurance company must be a public limited

company. (Section 2C of the Ins Act)

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Now, let us assume that ABC has a subsidiary company in India (the "ABC Sub") in which it

owns a fifty-one per cent (51%) equity and decides that ABC Sub should enter into the

insurance joint venture with XYZ. This will not be permissible. According to recent informal

pronouncements of the Authority, Indian companies that are subsidiaries of overseas

companies will not be allowed to tie-up with other Indian companies to do insurance

business. The Authority perceives this as violation of the twenty-six per cent (26%) equity

cap by foreign insurance companies.

ABC can, however, along with several other foreign companies have a stake in an

insurance company operating in India as long as the combined equity stake of all foreign

companies does not exceed twenty-six per cent (26%).

The Authority will not register any new insurance company carrying on the business of life

or general insurance unless it has a minimum paid-up capital of Rs. 100 crores (approx.

US$ 23,255,800). No composite license for life and non-life business will be granted. For

companies in the reinsurance sector, a minimum paid-up capital of Rs. 200 crores (approx.

US$ 46,510,000) is required. (Section 6 of the Ins Act) The foregoing paid-up share capital

must be brought into the new company within six (6) months of issue of the license.

(Section 6 of the Ins Act r/w the First Schedule of the IRDA) In addition, every insurer will

be required to undertake such percentages of life insurance or general insurance business

in the rural or social sector, as specified in the Official Gazette by the Authority in this

behalf. (Section 27D of the Ins Act r/w the First Schedule of the IRDA) Furthermore, a new

insurance company will be permitted to invest policyholders' funds only in India. (Section

27C of the Ins Act r/w the First Schedule of the IRDA) Every insurer shall, in respect of its

life insurance business, be required to deposit with the Reserve Bank of India, either in

cash or in approved securities, a sum equal to one per cent (1%) of its total gross premium

written in India, not, however, exceeding Rs. 10 crores (approx. US$ 2,325,580). In respect

of the general insurance business, this sum will equal three per cent (3%) of its total gross

premium written in India, not, however, exceeding Rs. 10 crores (approx. US$ 2,325,580).

In respect of re-insurance business, this sum will equal Rs. 20 crores (approx. US$

4,651,160). (Section 7(i) of the Ins Act r/w the First Schedule of the IRDA)

There appears to be a grey area in the IRDA. It has been provided that an Indian promoter

holding more than twenty-six per cent (26%) of the paid-up equity capital of an Indian

insurance company will have to divest in a phased manner the share capital in excess of

twenty-six per cent (26%), after a period of ten (10) years from the date of commencementof business by the Indian insurance company. (Proviso to section 6AA of the Ins Act r/w the

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First Schedule of the IRDA) On the one hand, the Indian government seeks to restrict

foreign equity ownership in Indian insurance companies to twenty-six per cent (26%)

whereas on the other hand, it wants Indian partners to divest their equity holdings to twenty-

six per cent (26%) after ten (10) years. It is unclear whether the foreign partner will be

permitted to purchase the equity to be divested. Additionally, what if there are no takers of

the equity required to be divested! All these points will have to be adequately considered

when formulating the regulations in respect of divestment.

The IRDA proposes to allow three kinds of insurance brokerage firms to operate in the

country, namely, insurance, re-insurance, and composite brokerage firms. The twenty-six

per cent (26%) equity cap will apply to such firms too, except that, composite brokers may

enjoy a higher equity cap of forty-nine per cent (49%).

c) Company formation consideration

On complying with the registration formalities, ABC and XYZ will have to enter into a

shareholders agreement. The main issue that arises here is exercise of control in the

functioning of the joint venture company. Generally, exercise of control can be at two levels.

Board of Directors; and Shareholders

Under the Companies Act, 1956 (the "Cos. Act") a company can carry on activities by

passing either of two resolutions, special resolutions and ordinary resolutions. Ordinary

resolutions can be passed by shareholders having 50% plus one share with voting rights in

the company, whereas special resolutions can be passed only by shareholders having 75%

shares with voting rights in the company. A special resolution is, inter alia, required to

amend the Memorandum and Articles of Association of a company, to issue further shares

through a rights issue, to give loans or guarantees to other companies, etc. With a twenty-

six per cent (26%) equity stake, ABC will only be in a position to block special resolutions. It

will not be able to control the day-to-day functioning of the joint venture company.

Additionally, the Authority has prescribed that foreign insurance companies cannot retain

Board control in Indian insurance joint venture companies. Therefore, ABC will not be able

to appoint majority directors on the joint venture company's Board. Another pertinent point

that arises is infusion of funds to the extent of seventy-four per cent (74%) of the equity of

the joint venture company by the Indian partner, namely, XYZ. XYZ will have to bring in a

minimum amount of US$ 17,209,292, if the joint venture company seeks to enter into the

business of life or general insurance. Further, in the event of increase of share capital, XYZ

will have to pump in an amount equal to its seventy-four per cent (74%) equity stake. Thiscan cause some problems. It should be noted that preference shares cannot be issued by

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companies carrying on life insurance business (Section 6A(1)(i) of the Ins Act). As such, the

joint venture company carrying on life insurance business cannot comply with the

capitalization stipulations by issuing preference shares to ABC

In such circumstances, the parties can consider entering into a three-way joint venture

either with another Indian company or with a bank. The Reserve Bank of India ("RBI") has

permitted banks to enter into the insurance sector and to invest up to fifty per cent (50%) of

their paid-up capital in insurance joint ventures.

d) Share transfer issues

Various issues arise if one of the shareholders in the joint venture company decides to

transfer its shareholding. The transfer conditions depend upon the shareholders agreement.

As per the guidelines stipulated under the IRDA, where the nominal value of the shares

intended to be transferred by any individual, firm, group, constituents of a group, or body

corporate under the same management, jointly or severally, exceeds one per cent (1%) of

the paid-up capital of the insurer, previous approval of the Authority must be obtained to

effect such a transfer. (Section 6A(4)(b)(iii) r/w the First Schedule of the IRDA) Further,

where, after the transfer of shares, the total paid-up holding of the transferee in the shares

of the company is likely to exceed five per cent (5%) of its paid-up capital, or where the

transferee is a banking or an investment company, is likely to exceed two and a half per

cent (2 %) of such paid-up capital, prior approval of the Authority must be obtained in

respect of the transfer. (Section 6A(4)(b)(ii) r/w the First Schedule of the IRDA) The

aforesaid regulations will have to be complied with by ABC and XYZ in case of transfer of

shares in the joint venture company.

3.3) Insurance Rules

To regulate, promote and to ensure orderly growth and also to protect the interests of

policyholders, Insurance in India is regulated by certain rules and regulations. This section

is aimed at familiarizing the user with the Insurance Laws.

Agent's Licensing Course/ Syllabus

Syllabus of the examination to be held by IRDA for Agents to attain license.

Application for Training Institutes

Application for approval of training institutions for the purpose of training agents, as

specified by IRDA.

Appointed Actuary Regulations, 2000

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Contains rules and regulations that guide the appointment of Actuaries.

The Insurance Advisory Committee (Meetings) Regulations, 2000

Rules and Regulations that would govern the meetings of the The Insurance Advisory

Committee.

Agents Regulations, 2000

Contains detailed rules and regulations laid down by IRDA for an individual to become an

agent.

Assets, Liabilities, and Solvency Margin of Insurers Regulations, 2000

Specifies the minimum solvency margins to be maintained by Insurers. In addition, it also

specifies the reporting procedures to be followed by insurers.

General Insurance - Reinsurance Regulations, 2000

Regulations governing Reinsurance business(General Insurance) in India.

Investment Regulations, 2000

All about investment and exposure norms for Life and General Insurance business as

notified by IRDA.

Investment (Amendment) Regulations, 2001

Contains details of the amendments made to the Investment Regulations 2000, as given by

IRDA

Insurance Surveyors and Loss Assessors ( Licensing, Professional Requirements and Code

of Conduct) Regulations, 2000

Contains detailed rules and regulations laid down by IRDA for individuals/corporate to

become Surveyors and Loss Assessors

Life Insurance - Reinsurance Regulations, 2000

Regulations governing Reinsurance business(Life Insurance) in India.

Registration of Indian Insurance Companies Regulations, 2000

Contains detailed procedure to be followed by companies to register and carryout

Insurance business in India.

Third Party Administrators- Health Regulations, 2001

Regulations issued by IRDA governing third party administration in Health insurance sector.

Insurance Advertisements and Disclosure Regulations, 2000

Norms laid down by the IRDA governing advertising and promotional aspects for Insurance

companies.

Preparation of Financial Statements And Auditor's Report Of Insurance CompaniesRegulations, 2002

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Regulations addressing matters relating to Financial statements, management reports and

auditor's reports to be submitted by insurance companies.

Obligations Of Insurers To Rural Social Sectors Regulations, 2002

Insurers obligations towards Rural and Social Sectors as laid down by IRDA.

Insurance Regulatory and Development Authority (Meetings) Regulations, 2000

Procedure to be followed by the authority to conduct meetings for transaction of business.

IRDA

Insurance Regulatory and Development Authority is a statutory body formed by an Act of

Parliament on 19th April 2000.

Licensing Of Corporate Agents Regulations, 2002

Contains detailed rules and regulations laid down by IRDA for Corporates to become an

agent.

Manner of Receipt of Premium Regulations, 2002

Contains details of the amendments made to allowed modes of premium payments.

Protection Of Policyholders' Interests Regulations, 2002

Regulations laid down by IRDA to protect the interest of the policy holders.

Protection of Policyholders' Interests (Amendment) Regulations, 2002 (Contains details

of the amendments made to the "Protection of Policyholders' Interests Regulations, 2002",

as given by IRDA

(Rules are given in detail at the back of this report)

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ABOUT HDFC STD LIFE INSURANCE

4.1) About HDFC

Founded in 1977 HDFC today is the market leader in housing finance in India and has

extended financial assistance for more then 19 lakhs homes. HDFC has over 120 offices in

India presently. It also has one international office in Dubai and service associates in

Bahrain, Kuwait, Qatar, Saudi Arabia and Sultanate of Oman. HDFCs asset base amount

to over Rs 21450 crore its financial strength is reflected in highest safety ratings of AAA

and MAAA awarded by CRISIL and ICRA two of Indias leading credit rating agencies

respectively, for the last 7 years consecutively. It has depositor base of over 13 lakhs

depositors and a deposit agent, force of over 50000. Of the total deposits, 82% are sourced

from individual and trust depositors, which demonstrates the tremendous confidence that

retail investors have in the company.

HDFC promoted companies have emerged to meet the investors and customers needs.

HDFC Bank for commercial banking, HDFC mutual for mutual products, HDFCs standard

life insurance and pension products and HDFC Chubb for general insurance products.

Being an institution that is strongly committed to the highest standards of quality andexcellence, HDFC has won several accolades in the past few years. One such award is

Ramakrishna Bajaj National Quality Award for the year 1999. this award was instituted

to award reorganization to Indian companies for business excellence and quality

management HDFC is the only company so far to receive this award in the services

category.

4.2) Reputation for Quality

Year Award

1999 RAMAKRISHNA BAJAJ

NATIONAL QUALITY AWARD

1998 EXCELLENCEINSERVICEINDUSTRY

1997 One of the best Indian Boards1997 Most competitive Indian company

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1995 & 96 Indias best managed company

1991 United Nations Scroll of Honour

4.3) HDFC Standard Life

a) The Partnership:

HDFC and Standard Life first came together for a possible joint venture, to enter the Life

Insurance market, in January 1995. It was clear from the outset that both companies shared

similar values and beliefs and a strong relationship quickly formed. In October 1995 the

companies signed a 3 year joint venture agreement.

Around this time Standard Life purchased a 5% stake in HDFC, further strengthening the

relationship.

The next three years were filled with uncertainty, due to changes in government and

ongoing delays in getting the IRDA (Insurance Regulatory and Development authority) Act

passed in parliament. Despite this both companies remained firmly committed to the

venture.

In October 1998, the joint venture agreement was renewed and additional resource made

available. Around this time Standard Life purchased 2% of Infrastructure Development

Finance Company Ltd. (IDFC). Standard Life also started to use the services of the HDFC

Treasury department to advise them upon their investments in India.

Towards the end of 1999, the opening of the market looked very promising and both

companies agreed the time was right to move the operation to the next level. Therefore, in

January 2000 an expert team from the UK joined a hand picked team from HDFC to form

the core project team, based in Mumbai.

Around this time Standard Life purchased a further 5% stake in HDFC and a 5% stake in

HDFC Bank.

In a further development Standard Life agreed to participate in the Asset Management

Company promoted by HDFC to enter the mutual fund market. The Mutual Fund was

launched on 20th July 2000.

b) Incorporation of HDFC Standard Life Insurance Company Limited:

The company was incorporated on 14th August 2000 under the name of HDFC Standard

Life Insurance Company Limited.

Our ambition from as far back as October 1995 was to be the first private company to re-

enter the life insurance market in India. On the 23rd of October 2000, this ambition was

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realized when HDFC Standard Life was the only life company to be granted a certificate of

registration.

HDFC are the main shareholders in HDFC Standard Life, with 81.4%, while Standard Life

owns 18.6%. Given Standard Life's existing investment in the HDFC Group, this is the

maximum investment allowed under current regulations.

HDFC and Standard Life have a long and close relationship built upon shared values and

trust. The ambition of HDFC Standard Life is to mirror the success of the parent companies

and be the yardstick by which all other insurance company's in India are measured.

c) Our Mission:

The most successful and admire life insurance company, which means that we the most

trusted company, the easiest to deal with, offer the best value of money, and set the

standards in the industry. In short, The most obvious choice for all.

This does not just mean being the largest or the most productive company in the market;

rather it is a combination of several things like-

Customer service of the highest order

Value for money for customers

Professionalism in carrying out business

Innovative products to cater to different needs of different customers

Use of technology to improve service standards

Increasing market share

d) Our Values:

SECURITY: Providing long term financial security to our policy holders will be our constant

endeavour. We will be do this by offering life insurance and pension products.

TRUST: We appreciate the trust placed by our policy holders in us. Hence, we will aim to

manage their investments very carefully and live up to this trust.

INNOVATION: Recognizing the different needs of our customers, we will be offering a

range of innovative products to meet these needs.

Our mission is to be the best new life insurance company in India and these are the values

that will guide us in this.

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4.4) Performance achieved

HDFC Standard Life declares results for FY 2002-03, premium from new business more

than three and a half times over last FY

Insurance coverage crosses Rs. 5000 crore mark

HDFC Standard Life participating policyholders to benefit from third successive bonus

declaration

HDFC Standard Life Insurance Company Limited, the first private sector life insurance

company to start operations, declared its annual results for the financial year ending

March 31st, 2003. The company generated premium from new

business ofRs. 132 crore in 2002-03, as compared to Rs. 36 crore in the previous

financial period, registering a year-on-year growth of over260%.

Another significant achievement for HDFC Standard Life was that the cumulative

Insurance coverage, i.e. the sum assured for the policyholders, crossed the Rs. 5000

crore mark during the year. During this period, HDFC Standard Life extended life

Insurance coverage to over1, 50,000 lives.

According to Mr. Deepak Satwalekar, Managing Director and CEO, HDFC Standard

Life, the exceptional growth in business in the past twelve months had been driven by

the rising expectations of the consumer. This in turn had resulted in HDFC Standard

Life introducing new insurance solutions, establishing an increased presence across

locations, increasing its sales force of trained financial consultants and adding

corporate agents to its distribution mix, he added.

The Directors of HDFC Standard Life at their Board meeting on 29th April, 2003, also

declared the companys third bonus for participating policyholders.

Commenting on the bonus declaration Mr. Deepak Parekh, Chairman, HDFC Standard

Life, said We have declared reversionary bonus rates this year equal to the interim

bonus rates we declared last year. Long term interest rates have fallen by over 1%

since we declared our bonus last year, and this has had an impact on the rates of

interest that all financial institutions can pay their customers. In recognition of this fall in

long term interest rates we have reduced our interim bonus rates this year, and unless

there is a recovery in long term interest rates, reversionary bonus rates will also have to

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be reduced in future years.

Details of the bonuses declared are given in the Annexure attached along with this

release.

HDFC Standard Lifes current product portfolio caters to all the needs of the individual

protection, investment, savings and pension. Mr. Satwalekar said, Our products are

in fact integrated financial solutions that can offer them stability of returns along with

total protection. We would, going forward, continue to add to our insurance solutions

portfolio to offer increased flexibility in structuring individualized insurance solutions.

A new addition to HDFC Standard Lifes product portfolio was the HDFC Childrens

Plan in February 2003. This customized solution has found wide acceptance amongst

policyholders towards ensuring a bright future for their children, whether it is education,

marriage or establishing a professional career. Besides the Childrens Plan, the HDFC

Personal Pension Plan also continued to gain in popularity during the year. Amongst

private insurers, HDFC Standard Life currently has a 25 percent market share in the

pension segment.

With offices in 49 locations, HDFC Standard Life has nearly doubled its physical

presence across the country in the last twelve months. Ajmer in Rajasthan was the

latest in the companys list of cities that it operates from.

Also contributing to the growth in business were more than 10,500 financial

Consultants trained to understand the needs of the consumer, provide the right advice

and maintain high service standards.

With the modified corporate agency regulations allowing banks to sell insurance

products, HDFC Standard life entered into tie-ups with HDFC Bank, Union Bank of India

and Indian Bank. Emphasizing the importance of this distribution channel, Mr.

Satwalekar said that given the right circumstances, corporate agents, and

bancassurance, which is a specialized form of corporate agents, could emerge as

significant intermediaries in the year ahead.

He pointed out that the success of bancassurance will, however, be dependent on

appropriate products being sold through the bank branches and exploiting the strengths

of the branch network. A significant change in the Indian financial services industry is

imminent with banks and insurance companies increasingly realising the strategic

significance of bancassurance in the future viability of their businesses, he added.

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HDFC Standard Lifes group business also grew significantly in 2002-03 covering

over

22,000 lives for a sum assured of over Rs. 2000 crores.

Details of Bonus declared by HDFC Standard Life for participating policyholders for

the financial year 2002-03

Reversionary Bonus

a) Regular premium policies

The Directors declared a reversionary bonus at the annual rate of 3.75% of the sum

assured for all regular premium HDFC Endowment Assurance policies, HDFC

Childrens Plans, HDFC Money Back policies and HDFC Personal Pension Plans that

were still in force on 31st March, 2003, and have paid all premiums in full when due.

b) Single Premium Whole of Life Policies

The Directors declared a reversionary bonus at the annual rate of 7.00% of the sum

assured plus attaching bonus for all HDFC Single Premium Whole of Life policies that

were still in force on 31st March, 2003.

c) Single Premium Personal Pension Plans

The Directors declared a reversionary bonus at the annual rate of 7.00% of the sum

assured for all single Premium HDFC Personal Pension Plans that were still in force on

31st March, 2003.

These rates of bonus will apply for the financial year from 1st April, 2002 to 31st March,

2003.

Interim Bonus

a) Regular premium policies

The Directors declared an interim bonus at the annual rate of 3.25% of the sum assured

for all regular premium HDFC Endowment Assurance policies, HDFC Childrens Plans,

HDFC Money Back policies and HDFC Personal Pension Plans that become claims

before the next bonus declaration and have paid all premiums in full when due.

le Premium Whole of Life Policies

The Directors declared an interim bonus at the annual rate of 6.00% of the sum assured

plus attaching bonus for all HDFC Single Premium Whole of Life Policies that are still in

force and become claims before the next bonus declaration.c) Single Premium Personal Pension Plans

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The Directors declared an interim bonus at the annual rate of 6.00% of the sum assured

for all single premium HDFC Personal Pension Plans that are still in force and become

claims before the next bonus declaration.

Notes:

1. Reversionary Bonus

A bonus that is added to policies throughout their term, the bonus rate changes over the

term of the policy, the bonus rate is usually declared annually. Once added to the policy

the full value of the bonus is guaranteed to be paid on death or maturity provided that all

premiums are paid in full when they are due.

2. Interim Bonus

A bonus that is added only to policies which become claims in the period between this

bonus distribution and the next. Such policies receive interim bonus to compensate

them for the reversionary bonus they have earned up until the date of claim but will not

receive because they will no longer be in force at the next bonus declaration. The

interim bonus rate is usually declared annually.

3. Calculation of reversionary and interim bonuses

Reversionary and interim bonuses accrue on a monthly basis, so that policies will

receive one twelfth of the annual rate of bonus for each complete and part month they

qualify for bonus during the period to which the bonus applies.

4.5) Products of HDFC Standard Life Insurance

1) Child Plan

Childrens Plan is designed to provide a lump sum to the child at maturity. It also provides

financial security to the child in the future, even in case of the insured parents unfortunate

death during the policy term. Childrens Plan receives simple reversionary bonuses, which

are usually added annually. This is a flexible plan with three options for you to choose from,

depending on your requirements. The details of these options are explained in the next

section.

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What are the options that are available with this plan?

Option

On the death of the

insured parent during

the policy term

On maturity

Maturity Benefit Plan

Future premiums waived

and the policy continues till

maturity.

Sum assured + bonuses

paid.

Accelerated Benefit PlanSum assured + bonuses

paid and the policy stops.

On the survival of the

insured parent to the

maturity date, sum assured

+ bonuses paid.

Double Benefit Plan

Sum assured paid, future

premiums waived, and the

policy continues till

maturity.

Sum assured + bonuses

paid.

2) Money Back Plan

It is a participating (with profits) insurance plan that offers the following features:

Payment of cash lump sums, each of which is a proportion of the basic sum assured,

at 5-year intervals during the term of the policy. (Please refer to the table given below.)

On survival up to maturity, a payment equal to the basic sum assured plus any bonus

additions less the cash lump sums paid earlier is provided.

In case of the unfortunate death of the life assured within the term of the policy, the

basic sum assured plus any bonus additions is provided. This is over and above the earlier

payouts.

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Schedule of cash lump sum

(as a % of basic sum assured)

Total Policy TermNumber of Years from policy date

5 10 15 20 25

10 40%

15 30% 30%20 25% 25% 25%

25 20% 20% 20% 20%

30 15% 15% 15% 15% 15%

3) Term assurance Plan

Under this plan, a sum assured is payable in case of death of the life assured during the

term of the contract. One can choose the lumpsum that would replace the income lost to

one's family in the unfortunate event of one's death. Since this non-participating (withoutprofits) plan is a pure risk cover plan, no benefits are payable on survival to the end of the

term of the policy.

Why should you buy this product?

If you have a family that you care for, you should consider what would happen in case of

your unfortunate death. The emotional void cannot be filled, but financial insecurity can be

avoided. By taking this affordable life insurance plan, you canprovide for the well-being of your family in case of your unfortunate death. This plan comes

to you at a minimal cost and is well-suited for the value-conscious customer.

4) Personal Pension Plan

Before you enter into any financial contract, it is important that you understand what the

product is, how it works, the risks involved and what a decision to buy could mean for you.

We recommend that you read this document before you purchase a policy from HDFC

Standard Life Insurance Company.

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Purpose: The policy is basically a savings contract, which is designed to provide an

income for life from retirement, with an option to take the lump sum elsewhere to buy the

annuity, provided it is permitted by the prevailing regulations.

Your commitment: You agree to pay a single premium or level premiums with installments

due every quarter, half-year or year throughout the deferment period

of the policy, after which you will start receiving your pension.

Risk factors: If you cease to pay premiums we may pay a surrender value. This will be

determined at our discretion. If any of the information which you provide is incorrect, we

reserve the right to vary the benefits which may be payable and, further, if there has been

non-disclosure of a material fact then we may treat your Policy as void. We will not pay out

if a claim arises from an excluded cause of death. Future bonuses are not guaranteed.

They are dependent on our future experience. The principal elements of experience are our

investment performance and expenses.

How does your Personal Pension Plan work?

This participating (with profits) plan is basically a savings contract, which is designed to

provide an income for life from retirement. It does this by providing a notional lump sum on

retirement, comprising of sum assured plus any attaching bonus. Subject to the prevailing

regulations, part of this lump sum can be taken in form of cash and the rest converted to an

annuity at the rate then offered by HDFC Standard Life. Alternatively, if it is permitted by the

prevailing regulations, the notional lump sum can be used to buy an annuity with any other

insurance companywho will accept such business. On earlier death after the first year, for

Regular Premium policies all premiums paid to date will be returned with interest at 8% per

annum, subject to a maximum of the sum assured plus bonuses declared to date. For

Single premiums, it is sum assured plus bonuses declared to date.

Normally, we will declare a reversionary bonus once a year. Once added, it cannot be

reduced. Reversionary bonus will take the form of a simple addition to your policy benefits.

In addition, on maturity, a terminal bonus might be payable. On death, an interim bonus,

reflecting the period since the last addition of reversionary bonus, might also be payable.

5) Endowment Plan

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It is a participating (with profits) insurance plan that offers the following features:

Provides financial support to the family by way of a lumpsum payment in case of the

unfortunate death of the life assured within the term of the policy.

Provides a lump sum payment to the life assured on survival up to maturity.

Why should you buy this product?

This plan is a with profits saving plan and is well suited for saving money for your long term

financial goals. This plan also helps provide for the needs of your family in your absence by

paying out a lump sum in the event of your unfortunate death during the term of the policy.

6) Loan Cover Term Assurance

This plan provides a lump sum on the unfortunate death of the life assured during the term

of the plan. The lump sum will be a decreasing percentage of the initial sum assured. As

the outstanding loan decreases as per the loan schedule, the cover under the policy

decreases as per the policy schedule. Since this is a non-participating (without profits) pure

risk cover plan, no benefits are payable on survival to the end of the term of the policy