This is the sole and exclusive property of HDFC Life. May 20, 2019

Protecting our golden years... Opportunity in the retirement space in India

Vibha Padalkar

MD & CEO, HDFC Life Insurance Company Ltd.

Most people bank on a default retirement plan - serendipity

2

29% 23%

62% 60%

9% 17%

2015 2050

Ageing population

Age <15 years Age 15-59 years Age 60+ years

3

Source: Crisil PFRDA, UN Population Estimates

India, perceived as a “young country”, now has a rapidly increasing ageing population

By 2050, every sixth Indian will be a sexagenarian compared with every eleventh now

Proportion of the elderly is expected to double to ~17%

as of 2050

By 2050, 1 in 6 people over the age of 60 will live in India, bringing the future

market to 200 million people

41.5% of elderly male (65+) are working to meet their retirement needs

Improvements in life expectancy will lead to an average post retirement period of 20 years

16 17

19 20

18 18

22 22

1995-2000 2000-05 2011-12 2030E

Life expectancy at age 60 Males Females

4

Changes in our societal structures and lack of mindfulness about retirement savings have led to a ticking time bomb-ish situation

Unorganized workforce not under any

formal pension scheme is 82.7%

Sources: Milliman Asia Retirement Report 2017; Survey by NSSO, Ministry of statistics and Programme implementation Crisil PFRDA, Census of India, UN Population Estimates

52% of elderly population in both

urban and rural

areas are fully dependent on others

Decreasing average household size

1981 1991 2001 2011 2018E

5.5 5.1 4.6 4.2 3.9

Traditional support structures of joint families have been consistently declining thereby driving up the old age dependency ratio

143 158 174 191 208 225 247

268

0

100

200

300

2015 2020 2025 2030 2035 2040 2045 2050

Old age dependency ratio per thousand

Financial literacy as % of population

is 18% as compared to global

average of 33%

5

India has a long way to go!

Source: “Global Pension Assets Study 2019”; Thinking Ahead Institute – Willis Towers Watson (2019)

Compared to global benchmarks, India's pension market is woefully under-penetrated at 4.8% of the GDP

1.5 4.8 9.0

13.8

43.2 44.3 45.4

56.4 60.8

65.4

84.2 94.0

101.7

120.5 126.0

130.7

166.7

Pension Assets/GDP Ratio

-

10,00,000

20,00,000

30,00,000

40,00,000

50,00,000

60,00,000

70,00,000

2014 2016 2018 2020 2022 2024 2026 2028

Total Pension AUM (₹ trillion)

So, what is the opportunity size ?

Estimated market opportunity (organized sector)*

2018 2025

47 tn

*PFRDA, IRDAI, HDFC Life Market Intelligence

21 tn

47 tn

● Mandatory schemes will play a key role in increasing coverage

for both unorganized and organized sectors

● Govt. schemes like Atal Pension Yojana (APY) currently limited

to banks has scope for further penetration through insurers

27% 17%

3%

7%

11%

34%

54%

36%

2018 2025

SAF/Gratuity Annuity NPS NPS Govt. EPF PPF MF Pension

Unorganized sector accounts for 82% of the working population, which immensely increases the opportunity pie

6

7

But there are challenges…

But there are challenges…

Inability to anticipate future

financial needs

Deposits are popular choice

with retirees

49% 48% 33%

42%

51% 52% 67%

58%

FY07 FY10 FY13 FY17

Financial savings Physical savings

There is a significant lack of awareness among Indians regarding systematic retirement planning

With a culture of saving in physical assets…

..there a low mindshare to invest in pension savings for

retirement

58% savings are mostly in property and gold Only 16% of financial savings are in pension funds

“Shifting to an opt-out model for pension schemes like NPS and tax incentives for annuities will help in gaining mindshare"

9

Financial savings mix

Household savings composition

65% 50%

67%

44%

15% 26%

18%

25%

9% 13% 12%

16%

11% 11% 3%

15%

FY07 FY10 FY13 FY17

Currency & deposts Life insurance Provident/Pension fund Others

But there are challenges…

Mandatory pension schemes do

not cover the large population Social security is low in India

11

Significant scope for improvement within Asia Pacific and India in particular

Sources: World Social Protection Report 2017-2019, Milliman Asia Retirement Report 2017

In India, only approx.

19% of population

covered under formal social security

Indians covered under formal social security is lower than the average of the region

Significant scope for improvement within Asia Pacific and India in particular

EU and Central Asia Americas Asia Pacific Africa

% of population receiving at least one social security benefit

84% 68% 39% 18%

12

Source: OECD.

• Percentage indicates how effectively existing pension schemes are utilized

• India has less than 6% covered by a pension scheme, as opposed to countries such as USA, UK, and Japan (above 90%)

India’s coverage of mandatory pension schemes is lowest amongst Asian counterparts

5.5 6.3 13

19 19 19

29 33

40

50 52 54 57

61 66

70 70 71 72 75

9 10

18 22

27 30

36

46 51

61

71

80

87 87 87 90 91 92 93 95

Coverage of mandatory pension schemes (%)

By population (age 15-64) Active labour force

But there are challenges…

Low mindshare to invest in

Pension Low financial literacy

Significant % of India’s population is unaware of financial investment opportunities leading to low pension contribution

14

18

30

20

33

38

33

0

5

10

15

20

25

30

35

40

India Brazil China Russia South

Africa

World

Financial literacy among population (%)

Awareness of financial investment opportunities is least in India as compared to global

counterparts

Sources: “Micro-pensions in India: Critical Issues, Challenges, and Strategies For The Future; Arunachalam et al.; World Bank; Maps of India; OECD

Low pension contribution amounts, owing to low disposable income & awareness across India, do not

provide sufficient cover for retirement

8.4

3.5 4

10.7

0.3 0.6

3.2 3.9

8.2

1.1 1 0.01

1.6

0

2

4

6

8

10

12

Pension contributions as a % of GDP

But there are challenges…

Varied products with different

tax treatment

Fragmented and disjointed

pension system leaving

customers confused

We also have a fragmented and disjointed pension system

16

PFRDA EPFO IRDAI

10% of basic by employer + 50K

Post Retirement

EEE/T

Lump sum + Pension

NPS

Employer Contri tax-free (12%)

Employee Contri within 80C (12%)

Post Retirement

EEE

Lump sum

EPF

Up to 150k within 80C

15 years

EEE

Lump sum

PPF

SEBI

Up to 150k within 80C

3 years

EET

Lump sum

MF Pension

8.33% basic pay up to 20L

5 years

EEE

Lump sum

Gratuity

15% of basic pay up to 150k

Post Retirement

EEE/T

Lump sum + Pension

SAF

Up to 150k within 80C

10 years

EET

Lump sum + Pension

LI Pension/ Annuity

4 Regulators

Tax Benefits at contribution stage

Varied period of Vesting

Differing Tax Treatment

Differences in Payout at Exit

7 Different Products

Multiple regulators, seven different products, different tax benefits and treatment are leaving

customers confused

Products that insurers / subsidiaries are allowed to sell

17

Can we make India a Pensioned Society?

By addressing specific areas we do see an opportunity to boost pension coverage in India

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● Increase adoption of

NPS (tap increasing

workforce)

● Leverage distribution

scale of MFs & LIs

Distribution Awareness about

Pension investment

Products & Implementation

Policy reforms & regulations

1 2 3 4

● Increase financial

literacy

● Encourage investment

in pension schemes

● Allow flexible payment

and withdrawal options

● Explore innovative

annuity solutions

● Widen the investment

avenues for annuity

● Process simplification

from enrolment to exit

● Regulatory & tax

consistency

● Low expenses for

Pension – EOM for LI

● Requirement of non-

zero returns in LI

pension plans

● Low FMC(0.01%) for

NPS

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We are putting our money where our mouth is…

(HDFC Life’s ecosystem)

77% 65%

71% 69% 68%

22% 34% 28% 31% 30%

FY10 FY09 FY08 FY07 FY06

Savings Protection Pension

HDFC Life identified the retirement opportunity early and has been a key contributor to uplift this category

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Retirement was a focus even in the initial years – Pension contributed to average ~30% share in the portfolio

HDFC Life portfolio break-up (APE) – FY06 to FY10

HDFC Life’s core brand thought “Sar Utha Ke Jiyo” was inspired by essence of

retirement savings - most of us do not want ourselves or our families to ever depend on somebody else

HDFC Life is working to build a pension distribution ecosystem that will help deepen coverage

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ASP

(Annuity Service

Provider)

POP

(Point of Presence)

PFM

(Pension Fund

Manager)

*as % of overall NBP

412 Life offices (plus bank branches) 91,172 number of agents 51.4 mn lives covered in FY19

Large distribution network that enables wider reach

HDFC Life – Pension distribution ecosystem

YoY growth of 102% in AUM to Rs 51.7 bn

Ranks #1 in corporate subscribers base

2600+ crs annuity business in FY19– still potential for growth

Portfolio share increased from 6% in FY15 to 17% in FY 19*

Creating adjacencies like Life99 platform, a one stop solution for all retiral needs across employee demographics, will enhance customer experience

Retirement Platform I One-view I Buying Journeys

Save Tax

Build Wealth

Retirement score

Buy NPS

Annuity Options

Senior Care

Get one-view of retirement corpus and plan for

retirement 1

NPS subscription option to save taxes and annuity

options for retirement income 2

Buy voluntary covers – NPS, Annuity 3

Avail services on the go (including value added

services) 4

22

We have also been innovating in the annuity space...

Possible Annuity variants

Health

Linked

Flexible

Par

● Gap in the Indian market

● Provides for long term care

(income) on CI, disability

Immense scope for product innovation Breakthrough with innovative “HDFC Life Pension Guaranteed Plan”

● Deferred annuity product – max 10 years

● Attractive rates

● 2600+ crs annuity business in FY19

● Copied by the market

● Well received by the customers

● Equity and index

linked annuities

● Better risk

management for

insurers

● Flexible annuity options to

increase guarantee after

the purchase of contract

● Participating annuity

● Helps to give potential higher

returns (part guaranteed)

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…..driven by risk calibrated investment opportunities

Product design & mix monitoring

2

Residual strategy 4

● Protection and longevity businesses

● Unit linked and non par savings products

● Quantum of retail guaranteed products

<8% of AUM

● Prudent assumptions and pricing approach

● Return of premium annuity products (>90% of

annuity); Average age at entry ~59 years

● Limited deferment period in deferred annuity (<5 yrs)

● Regular monitoring of interest rates and business mix

● Long term government securities and partly

paid bonds issued by top tier corporates

● Utilise excess asset duration from short

duration liability products to support long

duration liabilities

● External hedging instruments such as FRAs, IRFs,

STRIPs amongst others

Natural hedges 1

ALM approach 3

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Pillar 0 Universal Social Security

Pillar I Pay as you go

Pillar II Occupational Pension

Pillar III Personal Pension

Pillar IV Informal support

Non-contributory social pension framework

Financed by govt - IGNOPS & State Schemes

Payouts are meagre at Rs 200 p.m. and varying contribution by states

Defined benefit (DB)

Replaces portion of pre-superannuation income

High stress on the fiscal system; govt transitioned from DB to defined contribution (DC) pension in 2004

Defined contribution (DC) - Mandatory, organized sector

EPF –money invested in fixed income assets

Lacks depth due to low share of the organised sector in the country’s economy

Voluntary – NPS, APY, MFs retirement plans, pension plans LIs & PPF

Variation in the solutions offered – Annuity,Accumulation,fund options etc

Affordability & persistency issues for low income segment

Family or other informal financial and non-financial support

Failing in recent times with the onset of urbanisation and nuclearization of families.

5 pillar

Pension coverage in India

Life insurers, with their vast reach and expertise can play a pivotal role in increasing pension coverage across the country

Source: PFRDA, AMFI, NSAP, IRDA, Crisil Research, Annual Report 2014-15 of NSI 25

Caters to low income

groups with low

pension amounts

Nearly non-existent Vanishing support

Key to reduce financial burden on both society and govt.

Thank You