HDFC Life Insurance Company Ltd Management Discussions.


FY 2020-21 started with a stringent lockdown aimed at controlling the spread of the COVID-19 pandemic. Post the initial 2-3 months, restrictions were progressively eased during the rest of the year. However, towards the end of the year, the number of infections started rising again, giving indications of a possible second wave. Globally, too, most countries went through a similar trajectory of initial lockdowns, subsequent easing followed by a second wave of infections. Monetary and fiscal authorities around the world unveiled various stimulus measures to cushion the economic blow from the pandemic and help their respective economies recover.

The biggest contribution to the fight against the virus was the development and roll-out of multiple vaccines against COVID-19. Most countries initiated their vaccination programmes around the last quarter of the year. Optimism around the ability to control the spread of the infection soared with the roll-out of the vaccination programmes.

The tale of the economy, over the course of the year, reflected the effects of the lockdown. Indias GDP contracted by a massive 24.4% in the April-June quarter, the first contraction in the economy for over 40 years. The subsequent quarters saw a recovery in activity, leading to GDP contraction of 7.3% and growth of 0.4% in the July-September and the October-December quarters, respectively.

In India, most economic parameters bore signs of the effect of the pandemic. Fiscal deficit for the year was revised to ~9.5% from the budgeted level of 3.5% of GDP Government revenues were severely dented with no relief on expenditure as the Government needed to take measures to support the affected sections of the economy. Inflation readings hardened during most of the year, as the supply constraints due to production and logistics issues pushed up price levels despite weak demand. Inflation eased by the end of the year, as supply picked up and food prices, too, eased. The developments on the trade front were positive, as the trade balance moved to a surplus during some months as imports weakened considerably. The trade deficit for the full year is estimated at about USD 99 billion, down from USD 161 billion in the previous year.

Crude oil prices had a volatile period as the demand collapsed in the initial part of the year pushing exchange traded oil prices into negative territory. Prices recovered thereafter, as demand and activity picked over the remaining part of the year, also driven by supply cuts from major oil producers. Brent crude oil prices ended the year at USD 63.1 per barrel, close to the levels prevailing prior to the COVID induced meltdown.

Indias external sector saw a significant improvement, on the back of a sharp pick up in inflows on the capital account led by Foreign Portfolio Investors (FPI) and Foreign Direct Investments (FDI). The narrower current account deficit and the higher surplus on the capital account is expected to result in a total balance of payments surplus of about USD 120 billion, highest level seen in the last few years. The Reserve Bank of India (RBI) has been absorbing a large portion of this surplus to lower the volatility in the currency markets. RBIs foreign currency reserves increased to about USD 577 billion from about USD 475 billion, over the course of the year.

The Reserve Bank of India (RBI) also took multiple measures, including cutting interest rates to increase liquidity, allowing banks to provide moratoriums and restructure loans to affected borrowers, amongst others. The RBI maintained its accommodative stance through the period of high inflation, contending that the rise in price levels was a transient feature, and prioritising the growth recovery should be the objective of the monetary policy.

The Governments fiscal policy supported to the economy through various measures - from providing food and income support to the most vulnerable sections, to providing investment incentives to industries to push up capital expenditure and consequently improve employment. The Government also increased infrastructure spending to attract private investment and trigger second order effects that would sustain growth. The Government committed to gradually ease fiscal deficit to 4.5% over the next 5 years.

The fiscal and monetary policy measures, RBIs supportive policies aimed at supporting borrowers and the graded opening up of the economy helped most activities recover to pre-pandemic levels by the last quarter of the year. By the fourth quarter, GDP growth estimates, and a host of leading indicators of activity like power consumption, freight movement, e-way bill generation, mobility indices, etc. showed the proverbial V-shaped recovery. However, certain segments of the economy, notably services sectors like travel, hospitality etc. continued to suffer, prompting observations that the recovery was more of a two-track recovery, akin to a K. The manufacturing sector saw a strong recovery, while the people intense services sector continued to suffer.

By the end of the year, initial signs of a second wave of COVID infections were visible. However, the medium term outlook for the economy is more sanguine as the Government is expected to respond with less stringent and more localised responses to the second wave, while the increase in vaccinations is expected to help reduce the further spread in future infections.

Outlook on the Life Insurance Industry in India

COVID-19 has brought about an enormous change at a global level, impacting everything, from our day-today lives to businesses and the way they are operated. The insurance industry has seen a shift too, in terms of emerging product preferences, ways of customer engagement, service delivery, operations and processes amongst others.

A sizable increase in online transactions, from purchases to payments, was seen in FY 2020-21, and the insurance industry has been no exception. This accelerated the process of digitisation for all players and the growth trends across insurance players were also a function of being able to seamlessly shift the business from the offline to the online model for all stakeholders i.e. customers, employees and partners.

The current pandemic has led to higher awareness around the need for protection and the inadequacy of current insurance coverage. Life insurance has emerged as a prominent theme to protect ones family whilst securing long-term financial goals. Insurance remains a multi decade opportunity in the Indian context and insurers are well poised to maximise the long-term growth potential of the industry.

Some of the growth drivers are elaborated below:

India is the second-most populous country in the world and amongst the youngest, with a median age of about 28 years. The life insurance industry helps in mobilisation of long-term savings, provides protection and long-term income and annuity solutions. Each of these segments has different demand drivers and Indias changing demographic profile bodes well for the industrys future growth.

The proportion of insurable population (people between the ages of 20 and 64) is expected to touch almost 1 billion by 2035, thus outlining the need for long-term savings and protection plans. The emergence of nuclear families and advancement in healthcare facilities has led to increase in life expectancy, leading to a higher need for pension and protection based products.

When compared to other developed economies, India remains vastly under-insured, both in terms of penetration and density. Macro-economic factors such as growth in GDP and rise in per capita income, coupled with rising awareness about need for life insurance, higher financial savings as a percentage of GDP, increasing urbanisation and increase in digitalisation would continue to aid the growth of the Indian life insurance sector.

The protection gap in India is amongst the highest in the world at 83%, as growth in savings and life insurance coverage has lagged economic and wage growth. Further, the protection gap is predicted to grow at 4% per annum. The increase in disposable income, coupled with pandemic- induced awareness of protection products is expected to help increase penetration. Retail credit has grown at a CAGR of 18% over last 10 years and is expected to increase demand for credit life products. The opportunity is large, given rising affluence, higher awareness, increasing adoption of credit, enhancement of attachment rates, improvement in value penetration and widening lines of businesses (i.e. attachment beyond mortgages).

The retirement space is an equally large opportunity. Improving life expectancy has increased the post retirement life span to around 20 years. In comparison to global benchmarks, Indias pension market is underpenetrated at 4.8% of the GDP The number of people above the age of 60 years is expected to triple from 2015 to 2050, thus providing insurers an opportunity to offer long-term income and annuity products. The growth will be driven by changing demographics, increase in life expectancy and lack of a formal social security system for the wider population.

The share of financial savings, as a percentage of household savings, increased from 32% in FY 2012-13 to 35% in FY 2018-19, while the share of life insurance as a percentage of financial savings has been stable at around 16-18%. The life insurance industry is uniquely positioned to cover a range of customer needs across fixed income and equity platforms. Over a longer term, higher personal disposable incomes, resulting in higher household savings, are likely to be channelled into different financial savings instruments including life insurance.

The government continues to promote financial inclusion and increase insurance awareness with initiatives including setting up of small finance banks and payments banks and offering low cost insurance schemes. During these turbulent times, Insurance Regulatory and Development Authority of India (IRDAI) introduced a standardised term plan - Saral Jeevan Bima, on January 1, 2021 and a standardised annuity plan - Saral Pension Plan, on April 1, 2021. The idea behind these plans is to bring more people under insurance coverage, thus helping the society at large in financial risk management, while making the buying journey simpler for customers.

IV. Digitisation

Technology is evolving and disrupting businesses rapidly. Customer behaviour is evolving as quickly, hastening the need and importance of providing a frictionless end-to- end buying experience. Technology and data will be key for driving new business, customer service, claim payouts as well as risk management. Online is no longer a channel, but a way of doing business and servicing customers. The current pandemic has further accelerated the adoption of technology across multiple lines of business.

Higher digital adoption by customers and distributors requires insurers to develop strong technological capabilities and highly efficient platforms, which are powered by analytics, automation and artificial intelligence. Seamless integration of these platforms and processes with the partners systems is necessary. Customers expectation of personalised and improved service experience can be addressed by the use of artificial intelligence, cloud computing, machine learning algorithms and bots.

Risks and Concerns

The life insurance industry faces a number of risks due to rapidly evolving customer behaviour, changing demographic profile, increasing competition and dynamic macroeconomic conditions. The financial conditions and future prospects of companies may be significantly affected by factors such as market fluctuations, changes in tax rates or in interest rates. Risks also exist in the form of a change in the relationship with key distribution partners. The ongoing pandemic poses short-term pressures to the industry, including but not limited to growth, mortality, persistency and solvency.

Our enterprise risk management framework details the governance and management of our key risks (Enterprise Risk Management section of the report).


I. Overview

The life insurance industry has evolved considerably over the last two decades - from a product and distribution centric approach to a more customer-centric approach. Business models have also evolved, leading to changes in distribution strategy as well as the product portfolio, with technology viewed as a key enabler in the entire process. From a single insurer two decades ago, the market is thriving with 24 life insurers today.

During FY 2020-21, the life insurance industry grew by 7% to garner Rs. 2,783 billion of new business premiums as against Rs. 2,589 billion in the previous financial year.

Private insurers grew by 8% in individual business, while group business saw a growth of 20%. LIC recorded degrowth of 3% in individual business and growth of 1% in the group business. Development of alternate channels of distribution and product innovation have been the key drivers for the growth in market share of private insurers in the individual business, which has increased from 37% in FY 2011-12 to 60% in FY 2020-21.

Within the private sector, the top 10 insurers accounted for 88% of the market (in terms of individual WRP) in FY 2020-21, compared to 85% in FY 2016-17. Distribution arrangements with large banks have been a key driver for most of the large insurers.

Diversification within savings products, driven by product innovation, changing customer preferences and evolving regulations, has resulted in private life insurers shifting focus from a largely unit linked dominated product mix to a more diversified one. The pandemic induced awareness for the need for more insurance and long-term wealth creation led to further diversification in the savings segment in FY 2020-21. Over the last few years, private insurers have increased their focus on the under-penetrated protection segment, both within the individual and the group segments. Focus on the retirement space has also increased given the market opportunity.

III. Distribution Mix across Private Insurers

There has been a steady shift in the distribution mix over time - business sourced by the bancassurance channel has gradually increased with expansion in number of branches and widening reach across India. Implementation of open architecture by some of the larger banks, has enabled more insurers to achieve scale, while also presenting the customer with more product choices. The direct channel (including online) has also gained traction over the years and has showcased higher growth than most other channels. Increasing digital awareness, coupled with the governments drive towards digitisation, is helping the online channel emerge as a key distribution channel, especially for younger customers. Insurers are also tying up with partners within the non-traditional ecosystem (e.g. e-commerce companies, fintechs, cab aggregators) to diversify their distribution mix further. Agency channel share has declined over period, despite number of agents increasing by 19% from FY 2014-15 to FY 2020-21.


# What we track Comments
1 a) Embedded value (EV): Sum of adjusted net asset value and the present value of future profits of a firm Consistent growth in EV, as witnessed by steady Operating return on EV Continue to deliver upward trend in new business margins
b) New Business Margins (NBM): Profitability of business written in a particular year
2 Persistency: Strength and quality of existing book Improvement in persistency across cohorts, led by focus on quality of business and leveraging technological capabilities to provide superior customer experience
3 Assets under Management (AUM): Growth and net accretion to deliver healthy growth with balanced mix The Company recorded growth of 37% in AUM. Debt:Equity mix of 64:36
# What we track Comments
4 Distribution mix: Develop and nurture each channel, while ensuring business diversification Diversified distribution comprises a wide spectrum of over 390 HDFC Life branches, 1200+ direct channel employees and over 1,00,000 financial consultants. This is supplemented by 300+ partners, including more than 50 new ecosystem partners
5 Product mix: Balanced product mix with options for different risk reward profiles Need-based selling and profitable growth continue to be key focus areas
6 Drive to increase protection: Higher focus on protection business across individual and group segments Calibrated approach toward protection business whereby individual protection grew, whereas group protection declined in FY 2020-21 on account of lower credit disbursements leading to lower credit protect business
# What we track Comments
7 Market share and ranking: Market leadership with consistent growth across segments The Company continues to consolidate its leadership position in overall new business while recording an increase in market share in the individual segment.
8 No. of lives: Number of lives insured across individual and group business, an indicator of scale of business Despite logistical challenges, the Company insured 4 crore lives in FY 2020-21. Drop in no. of lives is on account of lower credit protect business.


HDFC Life has delivered strong performance across key performance metrics despite disruptions caused by the COVID-19 pandemic during the year under review. In line with our stated long term strategy, we continued to drive business and create value for key stakeholders by maintaining a balanced and profitable product mix, diversified distribution, continuous product innovation, reimagining insurance through effective use of technology and catering to continuously evolving customer preferences. The standalone results presented below includes detailed analysis across key financial parameters tracked by us.

I n light of the pandemic and based on the information available up to the date of approval of the financial results for FY 2020-21, we have reassessed the impact on assets, including valuation and impairment of investments. The financial statements as at the Balance Sheet date reflect appropriate adjustments based on such evaluation.

I. Our Business Segments:

Lines of Business:

We offer long term savings, protection and retirement or pension products. These products are grouped under three segments participating (Par), non participating (Non Par) and unit-linked (UL). A brief description of each product segment is given below:

1. Non-Linked segments:

Non-linked segment comprises the traditional products that offer reasonable insulation from market risks. The non-linked segment is split into participating and non-participating segments.

a) Non-Linked Participating segment:

This segment covers insurance contracts that participate in the surplus generated from the segment, during the term of the contract. The policyholder is entitled to 90% of the surplus generated from this segment which is added to the policy as bonuses. The shareholders share of surplus is one-ninth of the bonus declared for the policyholders. The balance surplus, if any, in the segment is accumulated under the head Funds for future appropriation in the balance sheet for future distribution to policyholders and shareholders. Products under this segment includes endowment, savings cum protection and pension plans.

b) Non-Linked Non Par segment:

This segment covers insurance contracts, which do not participate in the surplus generated from the segment. The policyholder is entitled to the sum assured with/without guaranteed return or periodic annuity or lump sum payment, depending on the type/terms of the contract. The surplus arising from this segment is transferred to Shareholders Profit & Loss Account on recommendation by the Appointed Actuary of the Company. Products under this segment include term protection, savings cum protection, immediate and deferred annuity and health plans under Individual business and credit life, term life, fund based pension, group variable plans under Group business.

2. Unit Linked segment:

This segment covers insurance contracts that are investment cum protection plans that provide returns directly linked to the market performance of the underlying fund. The investment component of the premium is invested in unit linked funds as per the choice of the policyholder. Investment risk is borne by the policyholder. These contracts have charges, which are periodically deducted from the relevant funds. The policyholder is entitled to the fund value or sum assured, whichever is higher, or fund value and sum assured, on the completion of the contract. The surplus arising from this segment is transferred to Shareholders Profit & Loss Account on recommendation by the Appointed Actuary of the Company. The product in this segment includes Unit Linked Life and fund based Pension plans under Individual and Group businesses.

II. Performance of Our Standalone Financial Statements:

A) Income statement analysis:

Focus on technology and customer centricity enabled us to maintain business continuity during the COVID-19 outbreak. The reported gross premium income witnessed a growth of 18%, with growth in both individual and group premium. In comparison, operating expenses grew by 7% due to cost control measurestakenbyusunderthepandemicsituation.We reported a Profit After Tax (PAT) of Rs. 1,360 crore during FY 2020-21.

Income statement analysis

Revenue and Profit and Loss Account FY 2020-21 FY 2019-20 Growth
Gross Premium Income 38,583 32,707 18%
Reinsurance (net) (461) (483) -5%
Total Premium Income (Net) 38,122 32,224 18%
Income from Investments
Policyholders 32,678 (3,311) 1087%
Shareholders 647 438 48%
Income from Investments 33,325 (2,873) 1260%
Other Income
Policyholders 183 244 -25%
Shareholders - 19 -100%
Total Income (A) 71,630 29,614 142%
Commission 1,710 1,491 15%
Operating Expenses 4,623 4,300 7%
Interest on Non-convertible debentures 27 - 100%
GST on linked charges 356 354 1%
Benefits Paid 22,575 19,022 19%
Other Provisions (226) 765 -130%
Change in Valuation Reserves (net) 40,830 2,441 1573%
Change in funds for future appropriations 108 (220) 149%
Total Expenses(B) 70,003 28,153 149%
Provision for tax:
Policyholders 274 149 84%
Shareholders (7) 17 -141%
Provision for tax (C) 267 166 61%
Profit after tax (A-B-C) 1,360 1,295 5%

The following table sets forth summary of premium income at segment level for the periods indicated: Summary of Premium Income at Segment level:


FY 2020-21

FY 2019-20

Par Non-par Unit Linked Total Par Non-par Unit Linked Total Growth
New Business Premium (NBP) 2,362 15,034 2,711 20,107 1,142 13,318 2,778 17,238 17%
Individual 2,362 5,882 1,832 10,076 1,142 5,428 1,893 8,463 19%
Group - 9,152 879 10,031 - 7,890 885 8,775 14%
% Growth in NBP as compared to previous year 107% 13% -2% 17% 32% 28% -25% 15%
Renewal Premium 5,294 4,651 8,531 18,476 4,900 2,155 8,414 15,469 19%
Gross written Premium 7,656 19,685 11,242 38,583 6,042 15,473 11,192 32,707 18%
Less: Reinsurance ceded (5) (436) (20) (461) (4) (461) (18) (483) -5%
Net premium 7,651 19,249 11,222 38,122 6,038 15,012 11,174 32,224 18%

Gross written premium increased by 18% from Rs. 32,707 crore in FY 2019-20 to Rs. 38,583 crore in FY 2020-21.

a) Individual New Business Premium:

Individual new business premium grew by 19% from Rs. 8,463 crore in FY 2019-20 to Rs. 10,076 crore in FY 2020-21 as the economy stabilised and customer confidence improved in the second half of the year.

We witnessed an upswing in the savings business on a sequential basis, as more and more customers continued to secure their financial needs as well as protect their loved ones. The participating segment witnessed a 107% growth driven by the recently launched new product and non-par segment increased by 8% with continued momentum in Annuity business.

b) Group New Business Premium:

Group new business premium grew by 14% from Rs. 8,775 crore in FY 2019-20 to Rs. 10,031 crore in FY 2020-21. The growth was on account of the fund based group business and the annuity business. Credit protect de-grew during the year, due to lower disbursements in the first half of the year. We saw a trend of improving disbursements as the year progressed, registering positive growth of 26% in the fourth quarter. We also launched a new product, during the year, combining the advantages of retail and group plans.

c) Renewal Premium:

Renewal premium grew by 19% from Rs. 15,469 crore in FY 2019-20 to Rs. 18,476 crore in FY 2020-21. The growth was on account of higher new business growth in the previous year, and robust collections in our long-term savings products launched last year.

Our 13th month persistency improved from 88% to 90% (based on original premium for individual business). While we saw improvement in persistency across various time cohorts in FY 2020-21, we remain focused on this metric in light of the external situation.

During FY 2020-21, we added nearly 9.82 lakh new policies to its individual portfolio. The growth in premium was primarily driven by a focus on meeting varied customer needs through our diverse and innovative product portfolio and a multi-channel approach. Our product portfolio consists of 36 retail and 12 group products, along with seven rider benefits covering savings, investment, protection and retirement needs of our customers.

The COVID-19 outbreak resulted in fewer physical interactions and branch visits by customers. Our technology platforms played a pivotal role in accelerating digital servicing and selling without compromising safety.

Distribution channel mix :

Our diversified and multi-channel distribution network enabled us to service our customers effectively and adapt to changes in the external environment. We believe that we offer attractive value propositions to our distribution partners. A testament to the same is our longstanding relationships with various partners, who are our corporate agents or master policyholders.

Bancassurance is the dominant channel contributing about 61% of our new business (APE). Many of our bancassurance partners have extensive distribution networks, providing us with significant opportunities to expand our market reach, access their customers and leverage their existing distribution infrastructure.

We have pan India presence with 300+ banks, NBFCs, MFIs, SFBs, brokers and new ecosystem partners, over 1,00,000 individual agents and online access to our customers.

We are focused on developing and strengthening our proprietary distribution, namely, agency, direct and online channels. They together contribute about 1/3rd of the individual new business APE.

• Our agency channel comprising over 1,00,000 agents continues to gain traction and scale, with a focus on profitable product mix and maintaining quality of business. We primarily sell long-term savings and protection plans through this channel. The focus is on recruiting high quality agents, improving agent productivity, fine-tuning our agent incentive schemes and equipping our agents to serve our customers well.

• Our direct sales channel is engaged in selling our products to customers without the involvement of any intermediaries, both online and offline. This channel is designed to up-sell and cross-sell to our base of existing customers by leveraging analytical tools to determine customer preferences. We have a multi-dimensional approach covering branch

walk-ins, tele-sales, digital touch points and crosssell to credit protect customers amongst others.

• Our advanced online platform is user-friendly and customer-centric. It guides our customers and distribution partners right from on-boarding to policy issuance. Through this channel, we are able to tap into a younger customer segment and expand our geographical presence, especially in non-metros.

Another emerging distribution channel for us is the new age ecosystem partners which belongs to a diverse range of industries, ranging from carpool aggregators like Uber and Ola, e-commerce players like Paytm to healthcare providers like Healthspring. We believe that non-traditional distribution partnerships have huge potential, given wider customer access and a significantly under-penetrated life insurance market.

ii. Reinsurance ceded:

We partner with reinsurers to share underwritten risk beyond the risk retained by us. The reinsurance premium ceded decreased from Rs. 483 crore in FY 2019-20 to Rs. 461 crore in FY 2020-21, due to decrease in credit life business on account of COVID-19 and higher retention of risk on our own books.

iii. Income from Investments:

The following table sets forth, for the periods indicated, summary of income from investments:


FY 2020-21

FY 2019-20







Par Non Par Unit Linked Par Non Par Unit Linked
Interest Income 2,002 3,642 1,690 425 7,759 1,883 2,568 1,765 350 6,566
Dividend Income 76 - 451 13 540 92 - 537 10 639
Profit on sale / redemption of investments 716 257 5,633 209 6,815 947 281 3,616 109 4,953
(Loss on sale / redemption of investments) (65) (24) (1,787) _ (1,876) (843) (26) (1,469) (31) (2,369)
Transfer / Gain on revaluation / Change in Fair value (Unrealised Gain) (16) (88) 20,191 _ 20,087 _ (57) (12,605) _ (12,662)
Total income from Investments 2,713 3,787 26,178 647 33,325 2,079 2,766 (8,156) 438 (2,873)

a) Policyholders:

Non-Linked Segments (Par and Non-Par):

These segments witnessed an increase in interest income from Rs. 4,451 crore in FY 2019-20 to Rs. 5,644 crore in FY 2020-21, on back of higher Asset Under Management (AUM), supported by higher renewals and new business premium.

Dividend income has reduced from Rs. 92 crore in FY 2019-20 to Rs. 76 crore in FY 2020-21 due to lower dividend payout by investee companies.

Net profit on sale of investment increased from Rs. 359 crore in FY 2019-20 to Rs. 884 crore in FY 2020-21 on account of higher realisation due to improved equity markets.

Unit linked segment:

Investment returns in this segment are transferred directly to policyholders, with corresponding changes in unit liabilities. The movement of Rs. 32,796 crore was primarily on account of strong growth in equity markets during FY 2020-21, as BSE Sensex increased by 68% compared to fall of 24% in FY 2019-20 and BSE100 increased by 71% compared to fall of 26% in FY 2019-20. 10 year government security (GSec) bond yields have increased by 4 bps compared to decrease of 120 bps in FY 2019-20.

There was decrease in interest on investments in fixed income securities from Rs. 1,765 crore to Rs. 1,690 crore, primarily due to new investments at lower yield.

Dividend income reduced from Rs. 537 crore in FY 2019-20 to Rs. 451 crore in FY 2020-21 due to lower dividend payout by investee companies.

Net profit on sale of investments increased from Rs. 2,147 crore in FY 2019-20 to Rs. 3,846 crore in FY 2020-21 on account of higher gains on realisation.

b) Shareholders:

Interest income in the shareholders account increased from Rs. 350 crore in FY 2019-20 to Rs. 425 crore in FY 2020-21 due to increase size of fixed income portfolio.

Profit on sale/redemption of investments has increased from Rs. 109 crore in FY 2019-20 to Rs. 209 crore in FY 2020-21 due to higher profit realisation on the equity portfolio.

Time Weighted Rate of Return (TWRR) for policyholders and shareholders accounts are detailed below:

Particulars FY 2020-21 FY 2019-20
Policyholders Investments 1,65,297 121,371
Shareholders Investments 8,542 5,855
A. Without Unrealised Gains/Losses
Shareholders Funds 8.89% 6.52%
Policyholders Funds
- Non Linked
a) Participating 8.51% 6.96%
b) Non Participating 9.52% 9.58%
- Linked -Non Participating 8.62% 6.30%
B. With Unrealised Gains/Losses
Shareholders Funds 15.44% 2.93%
Policyholders Funds
- Non Linked
a) Participating 16.27% 5.43%
b) Non Participating 7.21% 15.00%
- Linked -Non Participating 47.25% -14.63%

During the FY 2020-21, TWRR without unrealised gains/losses for policyholders and shareholders increased on account of increase in interest income and higher profit realisation on equity portfolio. Increase in TWRR with unrealised gains/losses for shareholders, par funds and linked funds are mainly attributed to strong growth in equity markets in FY 2020-21.

The TWRR with unrealised gains/losses for non par funds decreased mainly due to higher yields in the debt market. 10 year Gsec bond yields increased by 4 bps as compared to decrease of 120 bps in FY 2019-20.

iv. Other income:

Other income mainly comprises interest on revival of policies, interest on policy loan, income on unclaimed amount of policyholders, interest on income tax amongst others. Other income decreased from Rs. 263 crore in FY 2019-20 to Rs. 183 crore in FY 2020-21.

v. Commission:

The summary of commission expense is as follows:

(Rs. crore)

FY 2020-21

FY 2019-20

First year Single Renewal Total First year Single Renewal Total
Premium 6,858 13,248 18,477 38,583 6,044 11,194 15,469 32,707
Commission (A) 1,266 133 277 1,676 1,082 141 241 1,464
Commission % of premium 18.5% 1.0% 1.5% 4.3% 17.9% 1.3% 1.6% 4.5%
Rewards (B)* 34 - - 34 27 - - 27
Total commission (A+B) 1,300 133 277 1,710 1,109 141 241 1,491

*Represents rewards as defined under Insurance Regulatory Development Authority of India (IRDAI) (Payment of commission or remuneration or reward to Insurance agents and Insurance intermediaries) Regulations, 2016.

We pay commission to our distributors on the premium income collected during the period.

The commission expense increased by 15% from Rs. 1,491 crore in FY 2019-20 to Rs. 1,710 crore in FY 2020-21 due to the following reasons:

• First year commission increased from Rs. 1,082 crore in FY 2019-20 to Rs. 1,266 crore in FY 2020-21 majorly due to higher business volumes and change in business mix.

• Single premium commission decreased from Rs. 141 crore in FY 2019-20 to Rs. 133 crore in FY 2020-21 due to higher contribution by products with lower commissions. The lower average single commission rate was attributable to higher proportion of direct business.

• Renewal commission increased from Rs. 241 crore in FY 2019-20 to Rs. 277 crore in FY 2020-21, on account of higher renewal premium. The lower renewal average commission rate was attributable to change in channel mix.

vi. Operating expenses:

The following table sets forth, for the periods indicated, summary of operating expenses:

(Rs. crore)
Particulars FY 2020-21 FY 2019-20 Growth %
Employees remuneration & welfare benefits 1,676 1,677 0%
Advertisement and publicity 1,410 1,070 32%
Business development expenses 666 612 9%
Information technology expenses 139 120 16%
Volume based expenses 119 154 -23%
Other expenses 576 634 -9%
Operating Expenses Policyholders (A) 4,586 4,267 7%
Operating Expenses Shareholders (B) 37 33 10%
Operating Expenses (A+B) 4,623 4,300 7%

The total operating expenses to total premium ratio over past 3 years is shown below.

a) Operating expenses under Policyholders Revenue account:

While operating expenses to total premium ratio reduced from 13.1% to 12.0% for the year, we witnessed normalisation of operating costs as the external environment stabilised in Q4 FY 2020-21.

• Employee Remuneration:

Employee cost was flat as compared to last year due to lower new manpower recruitment driven by the current pandemic.

• Advertisement and Publicity Spends:

I n line with our focus on increasing brand visibility and creating insurance awareness, our advertisement and publicity spends increased by Rs. 340 crore. As part of our overall branding strategy, HDFC Life conducts various campaigns specifically targeted at locations with higher visibility in our target customer group.

• Business Development Expenses:

Business development expenses mainly comprises of name usage fees, events and meets expenses, contest payouts amongst others. The increase of Rs. 54 crore is in line with the business activities.

• Information technology expenses:

During the pandemic, information technology services played a pivotal role to ensure a smooth transition from physical to online. This included, enabling work from home, online customer journey from new business to servicing, managing online claims processing and increased use of cloud infrastructure. Deployment of digital assets for the above led to an increase in information technology cost.

• Others:

Volume Based Expenses:

The decrease in expenses based on business volume such as stamp duty and medical fees due to degrowth in our credit life business owing to impact of the pandemic.

Other expenses:

Other expenses like travel, training, repairs, printing, communication and general office expenses were lower due to the pandemic related situation.

b) Operating Expenses in Shareholders account:

Expenses other than those directly related to insurance business increased by 12% from Rs. 33 crore in FY 2019-20 to Rs. 37 crore in FY 2020-21 primarily on account of debenture issue expenses of Rs. 1.50 crore and other cost. The expenses other than those directly related to insurance business includes, CSR expenses of Rs. 20 crore in FY 2020-21. The CSR expenses includes contribution made to PM CARES fund amounting to Rs. 7.50 crore.

vii. Interest on Non-Convertible debentures:

During the year, we have issued sub-ordinated debt in the form of Non-convertible debentures (NCD) of Rs. 600 crore to enhance our solvency, the interest amounting to Rs. 27 crore relates to such debentures issued in July 2020 at a coupon rate of 6.67% per annum. This amount has been invested, on which we have earned income of Rs. 24 crore which forms part of Investment income in point iii. above.

viii. Other Provisions:

Provision for diminution in the value of investments (net) in:

• The Revenue account decreased from provision of Rs. 531 crore in FY 2019-20 to reversal of provision of Rs. 191 crore in FY 2020-21 and

• in Profit and Loss account decreased from provision of Rs. 198 crore in FY 2019-20 to reversal of Rs. 37 crore in FY 2020-21.

This was primarily due to strong recovery in equity markets in the period. The BSE Sensex increased by 68% compared to the fall of 24% in FY 2019-20 and BSE100 increased by 71% compared to negative return of 26% in FY 2019-20.

Provision for non-standard assets has decreased from Rs. 37 crore in FY 2019-20 to Rs. 2 crore in FY 2020-21 primarily due to reduction in Non-Performing Asset (NPA) provision in FY 2020-21. There were no investment assets classified as NPAs during FY 2020-21.

ix. Benefits paid:

The following table provides the summary of benefits paid:


FY 2020-21

FY 2019-20

Par Non Par Unit Linked Total Par Non Par Unit Linked Total
Surrenders & Withdrawals 421 1,603 6,847 8,871 382 2,303 6,295 8,980
Discontinuance termination - - 3,088 3,088 - - 2,274 2,274
Maturity & Money back (including Annuity) 3,322 446 4,373 8,141 4,247 298 1,185 5,730
Protection Claims (Death, Health & Rider) 231 2,517 388 3,136 208 1,955 284 2,447
Total Benefits paid 3,974 4,566 14,696 23,236 4,837 4,556 10,038 19,431
Less: Reinsurance on claims (1) (653) (7) (661) - (402) (7) (409)
Net benefits paid 3,973 3,913 14,689 22,575 4,837 4,154 10,031 19,022

Benefits paid include claims on death, maturity, surrender and withdrawals. Benefits paid during the year have increased from Rs. 19,022 crore in FY 2019-20 to Rs. 22,575 crore in FY 2020-21 primarily due to higher maturities, discontinuance termination and death claims during year.

a) Surrenders & Withdrawals:

Surrenders increased from Rs. 6,539 crore in FY 2019-20 to Rs. 6,915 crore in FY 2020-21 mainly due to changes in the external environment. There was a decline in withdrawals from Rs. 2,441 crore in FY 2019-20 to Rs. 1,956 crore in FY 2020-21. We continue to focus on need-based selling and to sensitise our customers on the need to continue with their existing policies, to protect their families and achieve their financial goals.

b) Discontinuance termination:

Discontinuance termination payouts increased from Rs. 2,274 crore in FY 2019-20 to Rs. 3,088 crore in FY 2020-21 due to higher number of policies completing the 5 years lock-in from policy issuance and attaining eligibility for lumpsum payout of policy fund value.

c) Maturity & Money back (including Annuity):

Maturity has increased from Rs. 5,155 crore in FY 201920 to Rs. 7,425 crore in FY 2020-21 due to higher number of policies completing their policy term. Money back (including Annuity) has increased from Rs. 575 crore in FY 2019-20 to Rs. 716 crore in FY 2020-21 due to higher number of policies attaining eligibility for money back payouts, as compared to the previous year.

d) Protection Claims (Death, Health & Rider):

Protection claims increased in line with higher protection business written over the past years and also on account of elevated claims due to COVID-19. During the year, number of Individual protection claims settled were 16,639 as against 12,509 in the previous year.

3,118 COVID claims amounting to Rs. 222 crore (gross claims) were settled during the year. Overall claim settlement ratio was 99.4% and the individual business claim settlement ratio was 98.0%.

e) Increase in amounts received from reinsurance was in line with increase in claims.

x. Change in valuation of policy liabilities:

The following table sets forth, for the periods indicated, summary of the changes in valuation of liabilities:

Particulars FY 2020-21 FY 2019-20
Gross: policy liabilities (non-unit/ mathematical reserves) 21,319 13,224
Amount ceded in reinsurance (1,067) (1,588)
Amount accepted in Reinsurance - -
Fund reserve 20,120 (9,677)
Funds for discontinued policies 458 482
Change in valuation of liability in respect of life policies 40,830 2,441

Change in valuation reserves reflects change in the actuarial liability in respect of policies in force and for policies in respect of which premium has been discontinued but a liability still exists. The change in fund reserves includes the change in unit fund value of policyholders fund, under the unit linked segment.

The increase in fund reserves in the unit linked fund was due to strong recovery in the equity markets. During FY 2020-21, BSE100 increased by 71% compared to fall of 26% in FY 2019-20. The increase in change in reserves for the non-participating segment reflects the net increase due to higher new business and renewal premium collection. The increase in liability under these policies was offset by release of reserves on account of benefits paid.

During the year we provided for COVID reserve of Rs. 165 crore for potential adverse mortality. This reserve is over and above the policy level liabilities calculated based on the applicable IRDAI regulations.

xi. Provision for tax

Provision for taxation shown in the revenue accounts represents tax charged on the total surplus (grossed up for bonus of the participating line of business in the Revenue account). Provision for tax increased from Rs. 149 crore in FY 2019-20 to Rs. 274 crore in FY 2020-21 due to increase in taxable surplus in participating and unit linked segments, reduction in surplus from the tax exempt pension segment and change in taxability of dividend income pursuant to Income Tax law change from FY 2020-21.

Provision for tax in the Shareholders profit & loss account decreased due to tax deduction under section 80M of the Income Tax Act, 1961, being considered while computing the provision for tax.

xii. Change in funds for future appropriation (FFA):

FFA reflects the surplus arising from the participating business to the extent it is not distributed. The change in FFA increased from negative of Rs. 220 crore in FY 2019-20 to positive Rs. 108 crore in FY 2020-21 majorly due to strong recovery in the equity markets.

B) Financial Position/Balance Sheet analysis:

The following table sets forth, for the periods indicated, the financial position of the Company:

(Rs. crore)
Particulars As on March 31, 2021 As on March 31, 2020
Sources of funds
Shareholders funds 8,638 6,800
Borrowings 600 -
Policyholders funds 162,837 119,502
Funds for future appropriations 991 883
Total 173,066 127,185
Application of funds
Investments 173,839 127,226
Loans 424 299
Fixed Assets 340 330
Current Assets (A) 4,965 4,307
Current liabilities and provision (B) 6,502 4,977
Net Current Assets (A-B) (1,537) (670)
Total 173,066 127,185
Contingent liabilities 1,854 2,188

Sources of Funds i. Shareholders funds:

The breakup of capital and reserves is as follows:

Particulars As on March 31, 2021 As on March 31, 2020
Share Capital 2,021 2,019
Share application money received pending allotment of shares 2 6
Reserves and Surplus 6,407 4,967
Credit/(Debit) Fair Value Change Account 208 (192)
Shareholders fund (net worth) 8,638 6,800

Net-worth increased from Rs. 6,800 crore at March 31, 2020 to Rs. 8,638 crore at March 31, 2021, primarily on account of transfer of profits during the year. We did not issue fresh capital in FY 2020-21 except on account of exercise of stock options by employees under the Employee Stock Option Scheme.

Fair value change account represents the balance of unrealised gains/loss on equity securities in the shareholders fund. Increase in fair value change in shareholders account from net unrealised loss of Rs. 192 crore at March 31, 2020 to net unrealised gains of Rs. 208 crore at March 31, 2021 was due to the rise in equity markets during the year. The BSE Sensex increased by 68% compared to the fall of 24% in FY 2019-20 and BSE100 increase by 71% compared to the fall of 26% in FY 2019-20.

ii. Borrowings:

During the year ended March 31, 2021, we issued unsecured, subordinated, non-convertible debentures (NCDs) of Rs. 600 crore in the nature of Subordinated Debt as per the IRDAI (Other Forms of Capital) Regulations, 2015. The said NCDs were allotted on July 29, 2020 and are redeemable at the end of 10 years from the date of allotment with a call option to redeem the NCDs post completion of 5 years from the date of allotment and annually thereafter. The issuance of subordinated debt was carried out to improve the solvency position, provide a cushion against equity market volatility and support new business growth.

iii. Policyholders Funds:

The summary of Policyholders funds is given below:

(Rs. crore)
Particulars As on March 31, 2021 As on March 31, 2020
Credit / (Debit) Fair Value Change Account 2,555 50
Policy Liabilities 85,523 65,270
Provision for Linked liabilities 70,963 50,844
Funds for discontinued policies 3,796 3,338
Funds for future appropriations 991 883
Total Policyholders Funds 163,828 120,385

a) Credit/Debit Fair value change:

The movement in fair value change account is a function of the performance of the equity markets and the mix of equity and mutual funds in the portfolio. Credit/Debit Fair value change increased from Rs. 50 crore as at March 31, 2020 to Rs. 2,555 crore at March 31, 2021 mainly due to higher returns in equity markets.

Credit / Debit Fair Value change also includes Cash flow Hedge Reserve which increased from Rs. 52 crore as at March 31, 2020 to Rs. 223 crore as at March 31, 2021

largely due to increase in outstanding exposure in FRA contracts from Rs. 4,642 crore as on March 31, 2020 to Rs. 13,767 crore as on March 31, 2021.

During the year as part of our hedging strategy, we have entered into FRA transactions to hedge our interest rate risk. We entered into FRAs to minimise exposure to fluctuations in interest rates on plan assets and liabilities. This hedge is carried in accordance with its established policies, goals and applicable regulations. We do not engage in derivative transactions for speculative purposes. Notional value of outstanding exposure in FRA contracts increased from Rs. 4,642 crore as on March 31, 2020 to Rs. 13,767 crore as on March 31, 2021.

b) Policy liabilities:

Policy liabilities increased from Rs. 65,270 crore as at March 31, 2020 to Rs. 85,523 crore as at March 31, 2021 in line with new business growth and liability for the existing persistent back book.

c) Provision for Linked liabilities :

Provision for Linked liabilities represents unit fund liability in respect of linked business calculated as product of number of units outstanding and the Net Asset Value (NAV) as of reporting date. Provision for linked liabilities increased from Rs. 50,844 crore as at March 31, 2020 to Rs. 70,963 crore as at March 31, 2021 primarily due to higher unrealised gains arising from equity market movement during the year.

d) Fund for future appropriations:

Funds for future appropriation increased from Rs. 883 crore as at March 31, 2020 to Rs. 991 crore as at March 31, 2021. This represents funds in participating segment, the allocation of which, either to participating policyholders or to shareholders, has not been determined as at the Balance Sheet date. The change is primarily due to strong recovery in equity markets during FY 2020-21.

Application of Funds iv. Investments:

The graph below summaries the Asset Under Management (AUM):

The break-up of investments as on balance sheet dates is as follows:

(Rs. crore)
Particulars As on March 31, 2021 As on March 31, 2020 Growth %
Shareholders Investments 8,542 5,855 46%
Policyholders Investments (Non Linked) 90,538 67,189 35%
Policyholders Investments (Linked) 74,759 54,182 38%
Total 173,839 127,226 37%

The reasons for key movements are detailed below:

a) Shareholders Investments:

Shareholders investments increased by 46% from Rs. 5,855 crore as at March 31, 2020 to Rs. 8,542 crore as at March 31, 2021 mainly due to profit transfer from policyholders funds, investment of fund relating to NCD issuance, increase in the market value of the equity portfolio and higher investment income.

b) Policyholders Investments (Non Linked):

Policyholders investments increased by 35% from Rs. 67,189 crore as at March 31, 2020 to Rs. 90,538 crore as at March 31, 2021 in line with the growth in premium inflows (net of claims) and investment income.

c) Policyholders Investments (Linked):

Assets held to cover Linked Liabilities increased by 38% from Rs. 54,182 crore as at March 31, 2020 to Rs. 74,759 crore as at March 31, 2021 mainly due to higher unrealised gains resulting from growth in equity markets.

v. Loans against Policy:

Loans against policies (net of repayments) increased from Rs. 299 crore as at March 31, 2020 to Rs. 424 crore as at March 31, 2021 primarily on account of higher number of policyholders availing loans. Loans against policies help provide liquidity to customers at the time of their need and also enables them to continue with their policies. These loans are fully secured and are net of the provision for standard assets, made in accordance with the applicable IRDAI regulations.

vi. Current Assets:

The following table sets forth, for the periods indicated, summary of current assets:

(Rs. crore)
Particulars As on March 31, 2021 As on March 31, 2020
Prepayments 47 54
Advance tax paid 484 499
Capital advances - 1
Security deposits 41 40
Other advances 66 58
Other Assets
Income accrued on investments 1,809 1,484
Outstanding Premiums 374 208
Due from other entities carrying on insurance business (including reinsurers) 272 2
Due from subsidiaries/holding company 10


Investment sold awaiting settlement 42 532
Assets held for unclaimed amount of policyholders 627 642
Income on unclaimed amount of policyholders 71 72
Receivable from unit linked schemes 13


Cash and Bank Balance 1,036 680
Others 73 35
Total current assets 4,965 4,307

Key items of current assets and advances are:

a) Income accrued on investments increased from Rs. 1,484 crore as at March 31, 2020 to Rs. 1,809 crore as at March 31, 2021 due to increase in the fixed income securities and equity holdings.

b) Outstanding premium increased from Rs. 208 crore as at March 31, 2020 to Rs. 374 crore as at March 31, 2021 due to higher base of policies. It represents premium due but not received on Non-Linked policy contracts which are within their allowed grace period.

c) Due from other entities carrying on insurance business represents the net amount due from reinsurers pertaining to claims accepted and receivable by us, net of reinsurance premium payable to them. It also includes claims received by us but pending decision and intimation to the reinsurers. The increase from Rs. 2 crore as at March 31, 2020 to Rs. 272 crore as at March 31, 2021 was primarily on account of higher claims recognised and receivable from reinsurers.

d) Investment sold awaiting settlement represents sale proceeds pending to be received on sale of investments. This amount has decreased from Rs. 532 crore as at March 31, 2020 to Rs. 42 crore as at March 31, 2021 due to lower trades undertaken as at March 31, 2021 as compared to March 31, 2020.

e) Pursuant to IRDAI circular on "Handling of unclaimed amounts pertaining to policyholders " and the Master circular on unclaimed amount of policyholders issued on November 17, 2020, we have created a single segregated fund known as Unclaimed Fund to manage all policyholders payouts remaining unpaid greater than 180 days. Decrease in assets held for unclaimed amount of policyholders Rs. 642 crore as at March 31, 2020 to Rs. 627 crore as at March 31, 2021 is due to efforts made by us to connect with customers and disburse amounts in the Unclaimed Fund.

f) Income on unclaimed amount of policyholders represents accumulated income on the amount invested in the Unclaimed Fund.

g) Others majorly include fund management charges receivable, Goods and Services Tax/Service Tax Unutilised credits, Service tax deposits and other assets.

vii. Current Liabilities and Provisions:

The summary of current liabilities is as follows:

(Rs. crore)
Particulars As on March 31, 2021 As on March 31, 2020
Current liabilities
Agents Balances 247 161
Balances due to other insurance companies (including Reinsurers) 9 68
Premiums received in advance 26 19
Unallocated Premium 498 486
Sundry creditors 2,299 1,570
Due to subsidiaries/holding company _ 47


(Rs. crore)
Particulars As on March 31, 2021 As on March 31, 2020
Claims Outstanding 237 71
Annuities Due 3 1
Unclaimed amount of policyholders 627 642
Income on unclaimed fund 71 72
Investments purchased _ to be settled 554 164
Payable to Policyholders 1,676 1,281
Others 177 320
Provision for employee benefits 63 60
Provision for taxation 15 15
Total current liabilities and provisions 6,502 4,977

Key items of current liabilities & provisions are given below:

a) Agent balances represents amounts payable to insurance agents and intermediaries towards commission as at the balance sheet date. Increase from Rs. 161 crore as at March 31, 2020 to Rs. 247 crore as at March 31, 2021 is in line with increase in premiums and accrual for agent commissions payable against the premium earned.

b) Balances due to other insurance companies represents reinsurance premium payable net of any claims accepted and receivable from them.

c) Premium received in advance represents advance premium which will be recognised as premium income on the due date of the policy.

d) Unallocated premium represents premium received on policies that are in the process being issued or pending due to underwriting requirements. Increase from Rs. 486 crore as at March 31, 2020 to Rs. 498 crore as at March 31, 2021 is attributable to premium received pending underwriting or receipt of additional documents.

e) Sundry creditors represents amount payable/ accruals for various services utilised by the Company for expenses like employee related cost, marketing cost, operating expenses, interest payable on NCDs and provisions for litigations. The increase in sundry creditors from Rs. 1,570 as at March 31, 2020 to Rs. 2,299 crore as at March 31, 2021 is due to normal business activities and negotiations carried out for better payment terms.

f) Claims outstanding represents amounts payable to policyholders for various claims that are intimated to us and outstanding as on balance sheet date pending investigation or requirement of further documents from policyholders.

g) Unclaimed amount of policyholders and interest on unclaimed amount of policyholders represent amount including interest payable to unclaimed policyholders.

h) Payable to policyholders represent amount admitted as payable to policyholders and is outstanding to be settled as on the balance sheet date.

i) Others include tax deducted, Goods and Services Tax liability and proposal deposits refund.

viii. Contingent liabilities:

The below table summarises the contingent liabilities:

(Rs. crore)
Particulars As on March 31, 2021 As on March 31, 2020
Partly paid-up investments 1,747 2,057
Statutory demands and liabilities in dispute, not provided for 66 91
Claims against policies / other than against policies not acknowledged as debts by the Company (net of reinsurance) 41 40
Total 1,854 2,188

Contingent liability for partly paid up investments decreased from Rs. 2,057 crore as at March 31, 2020 to Rs. 1,747 crore as at March 31, 2021 primarily due to payment of call amount on the respective call dates of underlying investment offset partially by additional investment in partly paid up bonds, aligned to our Asset Liability Management (ALM) requirements.

Statutory demands and liabilities in dispute, not provided for, relate to the show cause cum demand notices received by the Company from Tax authorities. We have filed appeals against the demand notices with the appellate authorities and have been advised by experts that the grounds of appeal are well supported in law, in view of which we do not expect any liability to arise in this regard.

C) Cash Flow Statement:

The following table sets forth, for the periods indicated, a summary of the cash flows:

(Rs. crore)
Particulars FY 2020-21 FY 2019-20
Cash flow from operating activities 9,703 7,370
Cash flow from investing activities (8,995) (7,782)
Cash flow from financing activities 678 38

i. Cash flow from operating activities:

Increase in cash flow from operating activities by Rs. 2,333 crore is primarily driven by premium received from policyholders net of payments towards benefits, commission and operating expenses.

ii. Cash flow from investing activities:

Decrease in cash flow from investing activities by Rs. 1,213 crore mainly represents net increase in investment of funds in various securities such as government bonds, equity, corporate bonds/paper, money market instruments and liquid mutual funds.

iii. Cash flow from financing activities:

Increase in cash flow from financing activities by Rs. 640 crore is arising from additional funds received on account of issue of non-convertible debentures during the year.

III. Key Analytical Ratios/Metrics:

i. Profitability:

The following table sets forth, a break-up of underwriting profits into back book surplus and new business strain and shareholders income over a period of three years:

(Rs. crore)
Particulars FY 2018-19 FY 2019-20 FY 2020-21
Underwriting Profits:
Back book Surplus 2,548 2,992 3,232
New Business Strain (1,650) (1,905) (2,500)
Total(A) 898 1,087 732
Shareholders income (B) 379 208 628
Total (A+B) 1,277 1,295 1,360

The overall underwriting profits decreased from Rs. 1,087 crore in FY 2019-20 to Rs. 732 crore in FY 2020-21 due to increase in new business strain by 31% from Rs. 1,905 crore in FY 2019-20 to Rs. 2,500 crore in FY 2020-21 and additional provisioning for COVID-19 claims of Rs. 165 crore. This was offset by growth of 8% in back book surplus from Rs. 2,992 crore in FY 2019-20 to Rs. 3,232 crore in FY 2020-21. Shareholders income increased from Rs. 208 crore in FY 2019-20 to Rs. 628 crore in FY 2020-21. This was on account of higher investment income from interest due to increase in size of the fixed income portfolio, higher net realised profits on sale of equity investments and reversal of provision for diminution in the value of investments due to strong recovery in equity market. We had total accumulated profits of Rs. 5,929 crore as on March 31, 2021.

ii. Capital and Solvency Ratio:

Capital/ Net worth


As against a regulatory minimum requirement of 150%, we have a stable solvency ratio of 201% as on March 31, 2021 as compared to 184% as on March 31, 2020. The increase in solvency ratio aided by the subordinated debt raised in FY 2020-21 and steady increase in assets available for solvency. Further, based on our assessment of the business operations over the next one year, it is expected that the solvency ratio will continue to remain above the minimum limit prescribed by the Insurance regulator.

iii. New Business Margins:

The Value of new business (VNB) grew at 14% to Rs. 2,185 crore in FY 2020-21 on the back of premium growth and expansion of new business margins. The new business margins increased to 26.1% compared to 25.9% last year due to favorable product mix and lower cost ratios.


1. EVOP% calculated as annualised EVOP (Embedded Value Operating Profit) to Opening EV; COVID reserve included as part of assumption changes

2. Creation of COVID reserve ofRs. 165 crore for FY2021-22, in anticipation of elevated COVID related mortality

3. Mortality variance: -48 crore, Persistency variance:Rs. 29 crore, Expenses and Others:Rs. 95 crore

We continue to deliver healthy growth in EV with Embedded Value Operating Profit (EVOP) of Rs. 3,830 crore (18.5% of EV). The negative mortality variance on account of excess COVID claims was offset by positive variance on persistency and expenses, resulting in positive operating variances.

Sensitivity analysis - FY 2020-21

Analysis based on key metrics Change in Scenario Change in VNB Margin1 % Change in EV
Reference rate Increase by 1% -1.5% -2.2%
Decrease by 1% 0.9% 1.6%
Equity Market movement Decrease by 10% -0.1% -1.5%
Persistency (Lapse rates) Increase by 10% -0.3% -0.6%
Decrease by 10% 0.3% 0.5%
Maintenance expenses Increase by 10% -0.5% -0.8%
Decrease by 10% 0.5% 0.7%
Acquisition expenses Increase by 10% -3.1% N.A.
Decrease by 10% 3.1% N.A.
Mortality / Morbidity Increase by 5% -1.0% -0.8%
Decrease by 5% 1.0% 0.8%
Tax rate2 Increase by 25% -4.8% -8.3%


1 Post overrun total VNB for Individual and Group business

2 The tax rate is assumed to increase from 14.56% to 25% and hence all the currently taxed profits in policyholder/shareholder segments are taxed at a higher rate. It does not allow for the benefit of policyholder surplus being tax-exempt as was envisaged in the DTC Bill.

Risk management has been the bedrock of our strategy. Our financial risk management framework enables us to identify potential risks in a timely manner and take steps to mitigate those risks. This is reflected in lower sensitivity of our new business margins and Embedded Value to changes in various parameters highlighted above. This is due to our balanced product mix, diversified distribution, focus on risk management and improving quality of business.


I. HDFC Pension Management Company

HDFC Pension Management Company Limited ("HDFC Pension"), a wholly owned subsidiary of HDFC Life Insurance Company Limited, started its operations in August 2013.

With an AUM of Rs. 16,384 crore as on March 31, 2021, it is the largest Pension Fund Manager (PFM) in the retail and corporate National Pension Scheme (NPS) segment. Over the year, its market share has increased to 34.4% from 31.1%.

HDFC Pension is also the fastest growing PFM under the NPS architecture with YoY growth of 98% in AUM.

The Company has about 7.6 lakh customers under the retail and corporate NPS segment as on March 31, 2021.

In FY 2019-20, HDFC Pension started operations as a Point of Presence (POP) in both retail and corporate NPS segments and had 998 corporate and 65,000 plus NPS customers.

II. HDFC International Life and Re Company

HDFC International Life and Re, in a span of five years of operations, has made inroads across prominent life insurance markets in the GCC (Gulf Cooperative Council) and broader MENA (Middle East & North Africa) region. Despite a challenging and turbulent FY 202021, principally on account of COVID-19 pandemic, the Company generated substantial growth of 81% in gross written premium on a y-o-y basis. Additionally, outcome of key strategic levers and performance metrics remained stable during the year.

The business model continues to offer treaty and facultative led reinsurance solutions to cedents and client partners, across the spectrum of life and medical insurance lines.

The Company also received confirmation from S&P Global Ratings of its long-term public financial strength rating of BBB with a Stable outlook during the year.


The Company has institutionalised a robust and comprehensive internal control mechanism across all major processes to ensure reliability of financial reporting, timely feedback on achievement of operational and strategic goals, compliance with policies, procedures, laws, and regulations. The Internal audit function provides independent and reasonable assurance about the adequacy and operating effectiveness of the Internal Controls to the Board and the Audit Committee. Internal audits are conducted by in-house Internal Audit (IA) team and also by the co-sourced auditor (external chartered accountant firms). All significant audit observations and follow-up actions thereon are periodically reported to the Audit Committee and closely monitored for effective implementation.

The internal audit function also tests and reports on adequacy and operating effectiveness of internal financial controls over financial reporting in line with the requirements of Companies Act, 2013. The Company has established a Risk framework to actively manage all material risks faced by the Company, in a manner consistent with the Companys strategy. Aligned with the business decisions, the Enterprise Risk Management (ERM) framework covers all business risks including strategic risk, operational risks (including fraud and information security/ cyber risks), financial risks (Interest rate, Credit, Liquidity risks and Asset Liability mismatch risks), insurance risks and emerging risks. The Company also has a well-defined risk management policy, which aims at establishing a risk culture and governance framework to enable identification, measurement, mitigation and reporting of risks within the Company in line with the Companys strategy, risk-return trade-off and the escalation & accountability framework. The top corporate risks identified are approved by the Risk Management Committee of the Board and are closely monitored by the Risk Management Team and are presented to the Risk Management Council and Risk Management Committee of the Board. The risk management architecture of the Company has been detailed under the Enterprise Risk Management section of the Annual Report.