Corporate Information - HDFC Ltd

HDFC Life Insurance Company LimitedDirectors’ ReportFY 2020. Customer 360 is a real-time customer interactionaggregator developed to understand customer needsholistically and offer better service.needs of its customers across life and health protection,retirement, savings and investments. We have 37 individualand 11 group products, along with 6 rider benefits.During FY 2020, 99.9% of new business was initiatedthrough digital platforms. Around 85% of the renewalpayments came through online modes. 210 bots weredeployed across internal processes and 60% of post salesverification calls were completed through InstaVerify(a video-based authentication mobile app).Economic slowdown and financial distress can easilycreate uncertainties for the breadwinner of the family,potentially derailing short-term and long-term plansof the household. To protect against such unforeseencircumstances, it would be imperative to have additionalsources of income, which can secure one’s lifestyle.Persistency ratios continue to be steady across variouscohorts. The 13th month persistency for individualbusiness has improved from 84% in FY 2019 to 88% inFY 2020. The 61st month persistency improved from 51%in FY 2019 to 54% in FY 2020.The general principle of investing, however, suggests thatinvestment should mirror life goals with short-term goalsmet through liquid and fixed income assets while medium/long term goals are better met through varying combinationof debts and equities. Customers who believe in thisphilosophy would prefer to have some equity exposure tomeet their lont-term needs.Maintaining Profitable GrowthOur embedded value was 20,650 crore as on March 31,2020 with a healthy operating return on embedded value(EVOP/ Opening Embedded Value) of 18.1% versus 20.1%for last year. This was due to lower interest rates and afterstrengthening persistency assumptions and setting aside areserve for higher mortality claims on account of Covid-19.We continue to maintain healthy post overrun newbusiness margin (based on actual expenses) of 25.9%versus 24.6% for last year. The profit after tax (PAT)for HDFC Life grew by 1% over last year to 1,295 crorein FY 2020.The operating expenses (Opex) to total premium ratioremained stable at 13.1% during FY 2020, despitecontinued investment in growth opportunities andinnovation.Our assets under management (AUM) were 1,27,226crore, with a debt-equity proportion of 71:29 as on March31, 2020, thereby clocking a 1% growth over last year. Theaccretion to AUM was offset by decline in equity markets.Business OutlookWe believe that there is significant growth potential forlife insurance given the under-penetration and robustdemographic trends and that it is well placed to capturethese multi decade opportunities. We have built a trackrecord across business cycles over the past decade,and are confident of delivering value to customersand profitable growth to our shareholders goingforward as well.ProductsLife Insurance products are seen as an ideal solution tosecure long-term financial goals. HDFC Life provides avariety of life insurance solutions to meet the diverseAt HDFC Life, we have identified this customer need ofsecuring long-term income and introduced many firstto-market products like HDFC Life Pension GuaranteedPlan which was launched in early 2018 and our recentproduct, HDFC Life Sanchay Plus, which has gained goodacceptance from our customers. Both products haveenabled customers with low risk appetite to generateguaranteed supplementary income according to theirlife-stage need.In November 2019, we have launched a unique offering inthe traditional participating space called HDFC Life SanchayPar Advantage. This product has many unique featureslike whole life cover, immediate or deferred income, optionto receive guaranteed income, option to accumulateincome if not needed with ability to withdraw as andwhen required, making this a truly customised product.Further, the investment strategy for this product allowsexposure to equity, offering potential of superior returnsover the longer term.We will continue our focus on developing innovativeproduct propositions that focus on addressing customerneeds at every stage of life.Human Resource and People DevelopmentAt HDFC Life, we believe people are the drivingforce behind our success. We have well-defined policiesin place to attract talent, train and develop them forhigher productivity, create an engaged workforceby imbibing a culture of meritocracy and providingperformance-based recognitions and rewards.Our core focus areas are right hiring, developingpeople for higher productivity and creating an engagedtalent force. Digitisation continues to remain at theheart of all our people processes.5

Twentieth Annual Report 2019-20Directors’ ReportWe have been taking various measures to build a diverse andrich talent pool and also create a robust pipeline. For careeropportunities that arise in the organisation, our internaltalent is given the first priority. Through career progressionsand Internal Job Postings ('IJPs'), we encourage ouremployees to opt for cross functional movements, therebybroadening their professional exposure. Over the years,we have developed alliances with universities andacademia for a train and hire model for our frontline salesroles. For Managerial levels, our campus hiring programme‘Jigyasa’ continues to induct fresh minds from covetedbusiness schools across the country. With digitisationbeing the core business requirement, our ‘Graduate TraineeProgramme’ has been developed to build a strong new-agetechnology skill set in the organisation.We believe that values are the most critical elements thatreflect the conduct of an organisation. Our organisationvalues, in conjunction with clearly identified leadershipbehaviours, enable employees across levels to deliveron their responsibilities towards internal and externalcustomers in an effective way. Various scientificallydesigned assessment tools in external hiring as wellas internal career advancement processes ensure thatemployees are aligned to these values.We have also institutionalised various talent review andsuccession planning processes across Middle and SeniorManagement levels. These have enabled us in developingpeople for higher productivity in their current role and inbuilding a strong pipeline of future-ready talent.We are committed to creating and sustaining a highperformance culture across the organisation. Therefore,our performance management system is deeplyentrenched in the principles of balanced scorecard. Atthe same time, our compensation philosophy ensures webenchmark ourselves with the external market in order tostay attractive as a potential employer. We ensure that wedifferentiate and reward high performance internally.On the learning and development front, our mission is tomeet the organisation’s strategic needs by facilitatingenterprise-wide capability development for employees anddistributors. We have been enabling this through adoptionof a contemporary and progressive learning ecosystem.Particulars of EmployeesThe statement showing particulars of employees pursuantto Section 197 of the Companies Act, 2013 (the ‘Act’) readwith Rule 5(2) and 5(3) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules, 2014, formspart of this report. However, the above mentioned statement isnot being sent to the Members along with this Annual Reportin accordance with the provisions of Section 136 of the Act.6The aforesaid information is available for inspection by theMembers up to the date of this AGM on all working days,during business hours, at the Registered Office. Memberswho are interested in obtaining the said particulars mayplease write to the Company Secretary.The details of remuneration of Directors and Employeesas required under Section 197(12) of the Act readwith Rule 5(1) of the Companies (Appointment andRemuneration of Managerial Personnel) Rules, 2014including amendments thereof, are given as an‘Annexure 5’ and forms part of this report.InvestmentsThe year gone by posed multiple challenges from aninvestment management perspective. The clear majoritysecured by the incumbent NDA coalition at the generalelections, held at the beginning of the year, was positivefor policy continuity and led to expectations of greaterpolitical stability and a renewed focus on pursuingeconomic reforms.The initial quarters of the year were characterised byslowing growth as the domestic economy grappled withthe lingering effects of NBFC and HFC defaults over theprevious year. The rural and agriculture sector was weakdue to the after-effects of poor monsoon in the previousyear. The industrial sector, too, was plagued by slowdemand growth and low capacity utilisation, affectingrevenues and margins.The government and the RBI took several fiscal andmonetary measures to help revive growth. Among thekey fiscal measures, the government cut corporate taxrates aggressively to support manufacturing companiesas well as promote fresh investments. The RBI, too, cutinterest rates cumulatively by 135 bps over the course ofcalendar year 2019. The domestic economy continuedits weakening trend and hit a low of 4.7% growth in theOctober-December 2019 quarter.The global economic growth, too, slowed down due to theescalating trade war between the US and China, primarily,as well as other countries. Major developed economies’central banks eased monetary policies to stem theweakening activity. Towards the end of the year, the USand China agreed to a ‘Phase 1’ deal that halted the tit-fortat tariff impositions and paved the way for negotiations toreach a more comprehensive agreement.The equity markets had their fair share of volatilityduring the year. Notwithstanding the strong electoralmandate for the union government, equity markets werequite listless in the initial quarters as the weakeningeconomy weighed on sentiments. Consumption growth

HDFC Life Insurance Company LimitedDirectors’ Reportstayed tepid through the year, which affected top linegrowth of the consumption sector – both durables as wellas non-durables. Capex trends in the industrial sector andinfrastructure, too, were weak, while export-orientedsectors were affected by the insipid global trends. However,expectations of turnaround and a pick-up in growth in thelatter half of the year saw equity markets regain theirmomentum. Underlying corporate earnings were alsoforecast to pick up as the cycle of elevated NPA provisioningfor financial firms was waning while the corporate tax ratecuts provided an additional boost to earnings. Weak globalgrowth also helped firms lower their input costs and shoreup margins. The upward momentum was reinforced bystrong capital inflows from foreign investors taking thelarge cap equity indices to fresh lifetime highs.During the last quarter of the year, rapid spread of thenovel corona virus (Covid-19) in a Chinese province andthereafter to a large number of countries across the globeand more specifically in Europe and the US, put a tightsqueeze on global activity. Lockdown was imposed bycertain countries including India to control the spread ofthe highly contagious virus. The lockdowns and the sharpdeterioration in activity are expected to tip the globaleconomy into a severe recession in the coming quarters.Equity markets around the world saw sharp and severecorrections, with a number of indices slipping into bearmarkets. The large cap Nifty index, too, slipped duringthe last quarter and ended the year 26% below the levelsprevailing at the end of the previous year, while the Mid Capindices fell around 31 – 35% in the same period.The fixed income markets, meanwhile, had a positive yearon the back of listless growth and easing monetary policy.RBI cut policy interest rates and added liquidity into thebanking system through Open Market Operations (‘OMO’)purchases and unsterilised forex purchases.In March 2020, in addition to the earlier rate cuts, RBItook aggressive measures to stem the weakness in thecorona virus afflicted economy. RBI cut interest rates byan additional 75 to 90 bps and added huge amounts ofliquidity to help stem the deterioration in activity levels.Over the course of the year, RBI also resorted to numberof unconventional measures to improve the transmissionof its rate actions to the real economy. RBI used Long TermRepos (LTROs) for the first time in India to add liquidityas well as resorted to simultaneous purchase and sale ofdifferent maturity securities in the open market (OperationTwist) to influence the shape of the yield curve. The10-year benchmark government security yield eased from7.35% to 6.12% over the year.Our investment funds were managed as per the statedobjectives laid down in the Investment Policy, Asset-Liability Management Policy (‘ALM Policy’), and respectivefunds’ objectives. These policies lay down the assetallocation and risk appetite guidelines for different funds,some of which have in-built guarantees. Fund allocation istracked on a regular basis and is backed by suitable assets.During the year, the asset allocation in our conventionaland shareholder funds was in line with the ALM policy.Your Company’s total AUM as on March 31, 2020 was 1,27,226 crore. This comprised assets of 54,182 croreheld under the unit-linked funds and 73,044 crore heldunder the conventional funds and shareholders’ funds.Corresponding numbers for the previous year were 63,378 crore and 62,174 crore, respectively.Information TechnologyWe continue our journey of leveraging technology totransform our business. We have invested in technologicalplatforms and systems to improve customer lifecyclemanagement and improve efficiencies for our customersand distributors. HDFC Life’s operating model hasevolved from a traditional distribution and productplay model to a matrix of platforms, digital channels,ecosystems and traditional avenues led by technologyand analytics.HDFC Life is a key player in the digital ecosystem supportedby strong tie-ups with multiple partners, proprietaryplatforms and growth engines. These engines ultimatelytranslate to five building blocks viz., Journey simplification,Partner integration, Data labs, Service simplification andPlatforms and ecosystems.In our effort to simplify the Customer on-boarding process,we continue to develop a suite of mobile applications suchas InstaMix, InstaGo, Mobile Sales Diary (MSD), InstaVerifyand InstA.Your Company continues to integrate its products andprocesses with online aggregator and net banking customerjourneys. The integration options enable aggregators/banks to design and embed insurance purchase in theirown customer journey.This enables superior customer experience and ensuresthat best practices as well as product updates and featuresare seamlessly integrated. In addition to the on-boardingprocess, we constantly strive to reduce friction in thecustomer journey with the intent to provide a simpleand seamless journey across the value chain. To enablethe same, we continue to invest and leverage on ourcapabilities in cloud computing, artificial intelligence, androbotics amongst others.7

Twentieth Annual Report 2019-20Directors’ ReportInformation Security and Cyber Security continues to bethe focus areas of HDFC Life. As part of the ISO 27001:2013and ISMS assessment programme, independent auditorsand IRDAI auditors validated and certified the controlsimplemented by us.Your Company has successfully managed the currentCovid-19 lockdown situation by providing necessarytechnology platform and support to enable employeesto work from home within a short period of time. We alsoenabled a solution for teams to collaborate. This periodaligned with the financial year end and we were able toprocess new business and service customers due to thedigital capabilities built over the years.In line with our constant quest for excellence, the technologyteam at HDFC Life continues to receive recognition andhas received 18 awards for various Technology andCyber Security initiatives and achievements throughoutthe year.Regulatory LandscapeDuring the year under review, the Insurance Regulatoryand Development Authority of India (“IRDAI”/ “Authority”)issued various regulations/ guidelines to further aid thegrowth of industry. Some of the key regulations/ guidelinesetc., as notified include:Your Company had received various awards and accolades,during the year under review, across financial disclosures,customer service, technology, digital solutions, products,human resources, marketing, etc.The Linked and Non-Linked Product Regulations werenotified in July 2019, replacing the erstwhile Regulations.The new Regulations lay down the contours of the newproducts and required all existing products to be eithermodified to comply with the new requirements or to bewithdrawn.Your Company was recognised as one of ‘India's Top 25Best Workplaces in BFSI 2020’ by Great Place To Work.Your Company’s Annual Report 2018-19, won the SilverShield for Excellence in Financial Reporting at the Instituteof Chartered Accountants of India (‘ICAI’) 2019 and PlatinumShield at the LACP Vision Awards 2018-19.The amendments to the IRDAI (Registration ofInsurance Marketing Firm) Regulations, 2015 were notifiedin August 2019, which replaced the earlier regulations.The new Regulations provided for putting in place a BoardApproved Policy for utilisation of Insurance MarketingFirms for penetration of insurance.Your Company had received the 'Best Marketing Strategyof the Year' at the Insurance India Summit & Awards 2019and was adjudged the most 'Trusted Brand' in the Reader'sDigest Trusted Brand Survey. Kantar BrandZ recognisedyour Company as the 'Most Valuable Life Insurer' and rankedHDFC Life at 27th in the '75 Most Valuable Indian Brands'.Your Company was also adjudged Superbrand 2019-20. Forits digital campaigns, your Company has received the Goldaward for Branded Content and Bronze Award for MediaPartnership at the Campaign Media 360 2020 Awards.At the ET Brand Equity India DG Awards, HDFC Life wonGold in the Best BFSI Campaign category at the SmartiesIndia 2019 Awards your Company won the Best Use ofMobile Audio, and also won the Bronze Award for BestBrand-Influencer collaboration at the IAMAI India DigitalAwards 2020.The Regulatory Sandbox Regulations were notified inAugust 2019, which provided a platform for insurersand insurance intermediaries to make applications forinnovative insurance offerings which would promote theoverall development of the sector, while being withinthe purview of the extant regulatory framework. Eachapproved proposal would be allowed a timeframe of sixmonths from the date of approval to run the project. Manyinsurers and intermediaries filed innovative productofferings under the Sandbox framework and IRDAI hasso far accorded approval to such applications acr

M/s G.M. Kapadia & Co., Chartered Accountants Bankers HDFC Bank Ltd. (Primary Banker) Axis Bank Ltd. Bank of Baroda Bandhan Bank Ltd. Citibank N.A. CSB Bank Ltd. DCB Bank Ltd. Deutsche Bank ESAF Small Finance Bank ICICI Bank Ltd. IDFC Bank Ltd. Indian Bank RBL Bank Ltd. Saraswat Co-op Bank Ltd. State Bank of India Suryoday Small Finance Bank Ltd.