ICICI Prudential Life Insurance Company Ltd Management Discussions.

I. INDUSTRY AND BUSINESS REPORT

Macroeconomic environment and outlook

Growth and Inflation

Global GDP growth1 in 2019 decelerated to 2.9%. The largest economy in the world i.e. the US economy registered a GDp growth rate of 2.3%, whilst india and China within developing economies grew at 4.2% and 6.1% respectively.

Retail inflation2 (average) in india, based on consumer price index (CPi), accelerated from 3.4% in FY2019 to 4.8% in FY2020. this pick-up in inflation was largely driven by food inflation which rose from 0.2% in FY2019 to 6.7% in FY2020.

Financial markets

FY2020 was characterised by a steady decline in bond yields even as credit spreads for sub-investment grade securities widened. the slowdown in the economy and benign inflation led to the reserve Bank of india (RBI) cutting its repo rate by 85 basis points and the 10-year government bond yield3 falling by 63 basis points in the first half of the financial year. this trend of a decline in the risk-free rate continued into the second half of the financial year as well. Even as Indias GDp growth prospects and fiscal indicators worsened, the onset of the CovID-19 pandemic triggered a flight to safety leading to a rally in government bonds. Central banks globally responded by infusing economies with liquidity and also cut policy rates to unprecedented lows. Consequently, the 10-year government bond yield fell by another 13 basis points in the second half of the financial year as the RBI cut the repo rate by another 100 basis points. Besides, the RBi also cut its reverse repo rate by 115 basis points as it attempted to dis-incentivise banks from depositing surplus cash with the RBi and instead lend it. Additionally, the RBI launched a host of liquidity-enhancing measures including targeted long-term repo operations (TLTRo) amounting to Rs1.0 trillion. the Government also intervened to support aggregate demand in the form of a stimulus package amounting to Rs1.7 trillion4.

With global growth expected to contract in 2020, equity markets globally witnessed volatility and a downward bias in the last quarter of FY2020. Despite a comfortable current account balance and a decline in crude oil prices to multi-year lows in the second half of FY2020, the Indian equities market experienced a sharp decline. The Nifty 50 index fell by 26% over FY2020 mainly owing to high Fii outflows from india.

The Indian rupee, on an average basis, depreciated3 by 1.5% against the USD in FY2020 (compared to a depreciation of 8.4% in FY2019). The real effective exchange rate3 (REER), which measures the Indian currency against a basket of 36 currencies, however, appreciated by 2.8% in FY2020.

Foreign Direct investment (FDi)5 from April 2019 to December 2019 was recorded at Rs2.6 trillion compared to Rs2.3 trillion during the same period last year, registering an increase of 10.6%. Even as monthly Foreign institutional investors (Fii)6 inflows for india remained positive for most of

FY2020, the cumulative sum for FY2020 amounted to an outflow of Rs275 billion mainly owing to an outflow of Rs1.2 trillion in March 2020.

Financial savings

The household sector continued to account for the predominant share (over 60%) of overall savings7. Gross financial savings as a percentage of household savings was 57.9% in FY2019.

particulars7,8 : FY2017 FY2018 FY2019
Nominal GDP (Rstrillion) 153.92 170.98 189.71
Household savings as % of GDP 18.1% 19.2% 18.2%
Gross financial savings as % of Household savings 57.9% 62.9% 57.9%
Insurance share of financial assets (excluding currency) 20.3% 23.3% NA

Macroeconomic outlook

While there are headwinds on account of the COViD-19 pandemic, from a longer term perspective, india still seems poised towards a sustained growth trajectory fuelled by favourable demographics, rising per capita income, digitalisation, moderate inflation and higher savings rates.

Insurance industry structure and developments

The size of the Indian life insurance sector was Rs5.1 trillion9 on a total premium basis in FY2019, making it the tenth-largest life insurance market in the world10 and the fifth-largest in Asia10. The total premium in the Indian life insurance sector grew at a CAGR of approximately 15% between FY2002 and FY2019 outpacing the GDP CAGR of 13% during the same period. Based on retail weighted received premium (RWRP), new business premium of the industry has grown at a CAGR of 11% during FY2002 to FY2020.

The Indian Life insurance industry has 24 companies including Life insurance Corporation of india (LiC). The top 5 private sector companies contribute to 39.7%9 of the market.

There has been a significant change in the product mix of the industry for 9M-FY2020 as compared to FY2019. Share of non-linked products has increased from 74% to 83% for the industry and from 49% to 56% for private sector.

Agency channel continues to be the predominant channel for the industry, mainly driven by LiC. there has been no significant change in the channel mix of the industry as well as the private sector from FY2019 to 9M- FY2020. increasingly, direct sales through proprietary sales force and the internet are becoming more relevant.

Contribution of the life insurance industry

within indian financial services, the life insurance industry is uniquely positioned to cover a range of customer needs. the industry can offer a variety of savings products across fixed income and equity platforms. it can also offer annuity, term plans and defined benefit health plans. the life insurance industry acts as a risk manager by providing cover against mortality and morbidity risks. life insurance products ensure that the financial goals of an individual are met, irrespective of the occurrence of mortality or morbidity events. at December 2019, the industry had covered 253 million lives through individual policies and 428 million through group policies.

the indian life insurance industry plays a key role in channelising household savings to the financial markets. the industry has been able to leverage its extensive distribution network throughout the country to provide long-

term funds to both debt and equity markets. the life insurance industry also provides long-term capital needed for infrastructure projects. Details of investments made in the infrastructure sector by the industry are as follows:

billion March 31, 2018 March 31, 2019 December 31,2019
Infrastructure/Housing investments 3,760.97 3,842.62 4,150.49

 

Source: Life Insurance Council

the insurance industry in india is also a significant source of part-time and full-time employment to professionals with varied skill levels.

Numbers in 000s March 31, 2018 March 31, 2019 December 31,2019
No. of agents (individual) 2,083 2,195 2,261
No. of direct employees 266 285 295
Total 2,348 2,480 2,556

Regulatory updates and developments

The key regulatory updates during FY2020 are as detailed below:

1. Linked and Non-Linked Product Regulations, 2019

I nsurance Regulatory Development Authority of india (iRDAi) has reduced the minimum life cover or sum assured to seven times of the annual premium from the earlier requirement of ten times. For pension policies, it has allowed an option to commute up to 60% of the vested amount, an open market option of up to 50% of the non- commuted amount and also provided for liquidity options in case of financial exigencies.

insurers are now allowed to solicit protection products with a policy term of as less as one month. The revival period has been increased to three and five years for linked and non-linked products respectively. There has been a marginal improvement in the surrender value of non-linked products.

The Regulator had also provided for guidelines on Use & File for ensuring compliance to this regulation. Existing products were accordingly modified/withdrawn by January 31, 2020.

2. Benefit Illustration and product suitability

iRDAi has prescribed the format of the Benefit illustration (Bi) mandating that the same be generated before the proposer fills the application form and a specific approval of the proposer needs be captured. in case of online sales, the Bi has to be emailed to the proposer after the submission of the application form but before the payment of the proposal deposit.

Further, product suitability has been made mandatory for all products other than pure risk/health products and insurers are required to have a Board approved policy for suitability in place.

3. stewardship Code for Insurers

I RDAi has revised the requirements under the Stewardship Code requiring the Stewardship Policy for FY2021 to address the situations where conflict of interest may arise and procedures to be followed in such situations. The Policy shall also include different levels of monitoring in different investee companies and areas of monitoring covering Environmental, Social and Governance risks.

The Code has further made voting compulsory in cases where the insurers holding of the paid-up capital of investee Company is 3% and above. it has also prescribed for quarterly disclosures on voting activity to be made available on the Company website.

The responsibility to ensure effective oversight on the insurers stewardship activities has been vested upon the Board Audit Committee.

4. point of sales person/product (pos)

I RDAi through its master circular has permitted for filing of existing non-POS products as POS products under "minor modifications" route if the product meets the parameters under the POS guidelines. The turnaround time prescribed for issuance of a policy has been increased to four working days from the earlier timeline of two working days.

Further, the regulation also requires that an adequate system should be put in place to ensure that the POS persons only sell products within the POS parameters and the POS persons conduct would be one of the parameters to be considered for renewal of intermediarys license. The premium payment term for POS products shall not be less than five years. The requirement of an agreement for the appointment of POS person has been removed.

5. regulatory sandbox

The regulator had invited all insurers to submit Board approved proposals within the framework of the regulatory sandbox, which is envisaged as a testing ground for new innovations with certain regulatory relaxations. The regulation provided that iRDAi may permit insurers to test the approved proposals for a period of six months and which may be further extended by six months upon review. Further, it also stated that the proposal will be deemed complete if it covers 10,000 persons or premium of Rs50 lacs. Upon completion of the experimentation, the insurer is mandated to submit a report on the experiment along with feedback from policyholders. Explicit requirements on confidentiality, disclosures and grievance redressal of policyholders have been prescribed.

opportunities and Threats

opportunities

• Insurance under-penetration

India continues to be an underpenetrated insurance market with a life insurance penetration11 (premium as % of GDP) of 2.7% in FY2019 as compared to a global average of 3.3%. At USD 54 in FY2019, the insurance density11 (premium per capita) in india also remains very low as compared to other developed and emerging market economies. The macroeconomic factors such as growth in GDP and rise in per capita income, coupled with indias young and working population, 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.

• Favourable demographics

According to United Nations estimates, the working population is expected to increase by 26% by the year 2030. With a median age of 28 years, india has a very young population, especially compared to countries such as Japan, USA and China. These factors are likely to increase demand for life insurance products.

• Increasing urbanisation

According to United Nations Population division estimates, indias urban population is expected to increase by 42% by the year 2030. increased urbanisation can lead to an improvement in the standard of living and better access to financial products such as life insurance.

• Financial savings

I ndia has a large pool of household savings and in FY2019, the ratio of household savings to GDP was 18.2%. The share of gross financial savings as a proportion of household savings was 57.9%

in FY2019. The share of life insurance as a proportion of financial savings (excluding currency) in india reached its peak level at 29.0% in FY2010. However, with regulatory changes in the sector and a downturn in the economic environment, the share of life insurance declined sharply to the lowest share of 18.8% of financial savings in FY2014. in FY2018, the share of life insurance increased to 23.3%, aided by the improving customer value proposition of insurance products.

• High protection gap

According to Swiss Re, Mortality Protection Gap for india is at USD 8.56 trillion which is high compared to the rest of the world. Protection coverage ratio which is the ratio between protection gap and protection needs is also very high for india. Sum assured to GDP is also a measure of protection coverage in a country and sum assured to GDP ratio is significantly lower in india compared to the rest of the world. This provides significant opportunities for indian life insurance companies to expand their protection business.

Retail credit has been growing at a CAGR of 16.3% from FY2013 to FY2019. This provides an additional opportunity for the industry for the credit cover business. This product provides mortality/morbidity cover to borrowers.

Strategy and performance brief

Our primary focus continues to be to grow the absolute Value of New Business (VNB) through the 4P strategy of Premium growth, Protection business growth, persistency improvement and productivity improvement targeted at improving cost ratios. we believe that this 4p strategy is appropriate in the context of the large insurance opportunity in the country, coupled with our objective to grow the vNB.

During the year, we received approval for five of our proposals from the iRDAi within the regulatory sandbox framework. These proposals span across products and service propositions. this reinforces our desire to continue to innovate in providing solutions to our customers.

Premium growth: we would endeavour to grow premium through our customer-centric product portfolio and simplified on- boarding process. we would continue to focus on broadening the customer base through initiatives spanning across both distribution and products. From a distribution perspective, we are focussed on expanding the network and strengthening our reach through a closer mapping of distribution segments with customer segments and products.

• Our New Business received premium grew by 20.4% from Rs102.52 billion in FY2019 to Rs123.48 billion in FY2020. our annualised premium Equivalent (ApE) declined by 5.4% from Rs77.99 billion in FY2019 to Rs73.81 billion in FY2020. Within product segments, non- linked savings Ape grew by 62.2%, protection Ape grew by 54.6% and Unit linked business declined by 23.2%.

Rsbillion FY2018 FY2019 FY2020
New business premium 91.18 102.52 123.48
ape (Rsbillion) FY2018 FY2019 FY2020
savings 73.45 70.77 62.65
Linked 63.81 62.10 47.72
Non-linked 8.86 7.68 12.46
Group 0.78 0.99 2.47
Protection 4.46 7.22 11.16
Total 77.92 77.99 73.81

• Protection business growth: We are focussed on expanding the health & protection business across both retail and group lines of business. This would be done by offering protection products across channels, penetrating the online term insurance market and partnering with loan providers to offer coverage against loans. During the year, the protection Ape recorded a growth of 54.6% from Rs7.22 billion in FY2019 to Rs11.16 billion in FY2020. New business sum assured grew by 29.0% from Rs4.43 trillion in FY2019 to Rs5.71 trillion in FY2020.

APE (Rsbillion) FY2018 FY2019 FY2020
Retail protection 2.71 4.36 7.68
Credit Life 0.61 1.57 2.35
Group term 1.15 1.28 1.13
total 4.46 7.22 11.16

• Persistency improvement: Maintaining a high level of persistency is critical to drive value for both customers as well as shareholders. We would seek to drive persistency improvements across all cohorts by encouraging long-term investment behaviour. For FY2020, our persistency ratios for 13th month and 49th month were stable at 86.8% and 67.3% respectively.

Particulars FY2018 FY2019 FY2020
13th month 86.8% 86.2% 86.8%
25th month 78.3% 77.4% 78.3%
37th month 68.8% 71.0% 70.1%
49th month 64.2% 65.0% 67.3%
61st month 54.5% 58.1% 58.7%

As per IRDA circular dated January 23, 2014

• productivity improvement: Technology and process reengineering have been at the centre of our efforts to improve cost ratios. we would continue to leverage the digital platform to improve the customer experience and efficiency of our service operations. The cost to total weighted received premium (TWRp) ratio for the savings business has improved to 10.4% as against 11.5% for FY2019. As the cost ratio for protection segment is higher compared to savings business, the total cost to TWRp ratio stood at 15.9% in FY2020 compared to 15.0% in FY2019.

Particulars FY2018 FY2019 FY2020
Cost/TWRp 13.7% 15.0% 15.9%
Cost/TWRp (Savings LOB) 11.8% 11.5% 10.4%
Cost/Average AUM 2.6% 2.8% 2.9%

Value of New Business (VNB)

Our VNB increased from Rs13.28 billion in FY2019 to Rs16.05 billion in FY2020 showing a growth of 20.9% and VNB margin improved from 17.0% in FY2019 to 21.7% in FY2020. The VNB for protection and savings businesses are Rs9.58 billion and Rs6.47 billion respectively in FY2020, as compared to Rs7.89 billion and Rs5.39 billion in FY2019.

Embedded Value

The Embedded Value (EV) is a measure of the consolidated value of the shareholdersRsinterest in the life insurance business. it is calculated as the sum of the Companys adjusted net worth (ANW) and the value of in-

force business (ViF). The ViF includes the present value of future profits attributable to shareholders from the in-force business of the Company (which includes the new business written during the previous year). The calculation of ViF also reflects adjustments for various risks within the business. Our EV increased from Rs216.23 billion at March 31, 2019 to Rs230.30 billion at March 31, 2020, showing a growth of 6.5%.

Embedded Value Operating Profit (EVOP) for the year was Rs32.88 billion as compared to Rs38.01 billion in FY2019. The operating assumption change impact for the year was primarily due to an increase in the effective tax rate (negative impact of Rs5.49 billion), which was partially offset by a reduction in maintenance expenses. Net Operating assumption change impact was Rs(2.25) billion in FY2020 compared to Rs4.20 billion in FY2019 resulting into drop in the embedded value operating profit (EVOP) from Rs38.01 billion in FY2019 to Rs32.88 billion in FY2020. With these elements, Return on Embedded Value (ROEV) was 15.2% in FY2020 as compared to 20.2% in FY2019.

Besides EVOP a sharp fall in equity prices during the year resulted in a negative impact of Rs14.76 billion through economic assumption change and investment variance.

Solvency

We have a solvency ratio of 194.1% at March 31, 2020, compared to the regulatory minimum required level of 150%.

Company outlook

we expect favourable demographics, rise in the working population, improving per capita income, increasing urbanisation and shift towards household financial savings to continue to provide strong potential for growth in premium.

The large protection gap in india coupled with a low sum assured to GDp ratio suggests significant opportunities for the protection business. Retail credit growth provides an ample opportunity for the credit protect business. we expect to be able to leverage both these trends to grow our protection business at a multiple of our savings business growth rate.

Through various customer awareness initiatives, we expect to drive continued improvement in persistency and quality parameters that will ultimately help customers get the intended benefits from their policies.

we will continue to leverage technology for process re-engineering and to provide best-in-class service to our customers. we expect these initiatives to result in improving cost ratios for the business.

Risks and concerns

indian insurance industry is highly competitive with 24 companies operating in the market. indian consumer demands are changing continuously which

requires companies to modify their offerings in alignment with customer needs. this poses an opportunity as well as risk to the industry as inability to meet the consumer demand would hamper the growth.

Some of the macroeconomic and policy factors which could be risks for the industry are:

1) Slowdown in the GDp and GDp per capita growth rates

2) Global slowdown of the financial market and economies contributing to weakness in the indian financial and economic environment

3) weak credit environment and economic challenges leading to increased credit risk within fixed income portfolio

4) impact of CoviD-19 pandemic on long-term savings

5) Superior return on physical savings instrument

6) inferior fund performance in comparison to other savings instrument

7) impact of CoviD-19 pandemic on mortality/morbidity claim experience

8) Changes in tax rate structure for the industry

the Company recognises that risk is an integral element of the business and managed acceptance of risk is essential for generation of shareholder value. the Company has instituted an enterprise risk management framework which details the governance and management of all aspects of risks that we face.

II. DISCUSSION ON FINANCIAL PERFORMANCE AND ANALYSIS OF FINANCIAL STATEMENTS

A. Overview of Lines of Business (LOB)

The Company operates in various lines of business in retail and group segment. A brief description of the products under each line of business is given below:

1. participating (par) products - these are products where the policyholder is entitled to at least 90% share of the surplus emerging in the participating funds and the remaining belongs to the shareholders. the participating fund is managed by the Company and the surplus emerging in the fund is added back to the policies in the form of bonuses. the shareholdersRsprofits arising on the participating business depend on the total bonuses declared to policyholders on an annual basis. Currently, shareholdersRsshare of profit is one-ninth of the bonus declared to the policyholders. the level of bonuses declared to policyholders is influenced by the actual returns on investments and the expectation of future rates of return. the Company has par life and par pension lines of business. 2

2. Non-participating (non-par) non-linked products - these products offer the pre-defined benefit at inception for specified events. Further, the policyholder is not entitled to any share in surplus arising from the investment fund. Surplus arising in case of non-participating business is transferred to shareholdersRsaccounts based on the recommendation of the appointed actuary. Non-par non-linked products include non-par life, non-par pension, non-par variable (life and pension) annuity, health, etc.

a. Non-par life:

endowment assurance - an endowment assurance is a contract to pay a benefit on the life assured surviving the

stipulated date or on the death of the life assured before maturity.

term assurance - a contract to pay an assured amount on occurrence of certain events viz. death, disability or critical illness of the insured during the term of the policy.

b. Non-par pension - products that help to build a retirement corpus which pay an assured benefit or interest as specified from time to time.

c. Non-par variable (Life & pension) - products where the benefits are partially or wholly dependent on the performance of an approved external index/benchmark.

d. Annuity - Annuities provide for a series of guaranteed payout to the annuitant at regular intervals in return for a certain sum paid upfront.

e. Health - it provides fixed benefit on specified health events like on hospitalisation, on the diagnosis of specified illness, on undergoing surgery or procedure, etc.

of the above, protection business includes term assurance and health line of business for both retail and group.

3. Non-participating (non-par) linked products - These products provide returns which are directly linked to the performance of an approved index or value of the underlying assets. The investment risk in these products is borne by the policyholder. The products have a transparent charge structure, including the charge for either life cover or health cover. Surplus arising in case of non-participating linked business is transferred to shareholdersRsaccounts based on the recommendation of the Appointed Actuary. the Company has linked life, pension, health, and group line of business.

B. standalone financial statements

a. Results from operations:

the Companys financial statements include Revenue account (also known as policyholders account) and profit and Loss account (also known as shareholders account). the revenue account contains income and expenses relating to policyholders, and the surplus generated in this account is appropriated to the profit and Loss account based on the recommendation of the Appointed actuary. a deficit in any line of business in the revenue account is funded from the profit and Loss account. other than the transfers to and from the revenue account, the profit and Loss account

contains the income and expenses pertaining to shareholders. Surplus as per the revenue account, not appropriated to profit and Loss account, is held as Funds for future appropriations (FFA) which is shown in the Balance Sheet. Funds for Future Appropriation comprise funds which have not been explicitly allocated either to policyholders or to shareholders at the balance sheet date.

the various lines of business disclosed in the revenue account are as per the requirements of IRDAI regulations. However, for analysis of our revenue account, it can be viewed from three broad lines of business as given above i.e., participating, non-participating (including variable insurance product), and linked. Shareholders profits in participating lines of business depend on the total bonuses declared to policyholders on an annual basis. Currently, one-ninth of the bonus declared to policyholders is transferred to shareholders. In case of the non-participating line of business, profit arises primarily from premium and investment income net of expenses, claims, and policyholders liabilities whereas in case of linked business, profit primarily arises from charges levied on the policyholders fund net of expenses, claims, and policyholders liabilities.

segment-wise performance of Companys revenue and profit and Loss account: revenue account (policyholders account)

particulars

FY2019

FY2020

1 par Non-par1 Linked total par Non-par1 Linked total
Income
Gross premium (net of Goods and service tax) 34.91 47.21 227.18 309.30 40.21 60.59 233.51 334.31
reinsurance ceded (0.03) (2.68) (0.80) (3.51) (0.04) (4.67) (0.81) (5.52)
Net earned premium 34.88 44.53 226.38 305.79 40.17 55.92 232.70 328.79
Income from investments2 11.63 17.07 73.44 102.14 12.35 20.14 (159.79) (127.30)
other income (including fees and charges) 0.14 0.15 0.51 0.80 0.17 0.20 0.43 0.80
Contribution from the shareholdersRsaccount (A) - 5.00 0.27 5.27 - 14.95 0.02 14.97
Total income (B) 46.65 66.75 300.60 414.00 52.69 91.21 73.36 217.26
outgo
Commission3 2.53 2.43 11.08 16.04 3.11 4.03 8.72 15.86
operating expenses relating to insurance business4 2.83 9.42 13.28 25.53 3.35 14.59 10.55 28.49
Goods and service tax charge on linked charges - - 6.35 6.35 - - 6.53 6.53
Benefits paid (net) and interim bonus paid 9.02 6.03 127.54 142.59 10.51 10.17 173.09 193.77
Change in valuation of policy liabilities 28.97 46.56 134.50 210.03 31.77 57.27 (139.61) (50.57)
total outgo (C) 43.35 64.44 292.75 400.54 48.74 86.06 59.28 194.08
surplus/(deficit) before tax (D = B-C) 3.30 2.31 7.85 13.46 3.95 5.15 14.08 23.18
provision for taxation (E) 1.13 - - 1.13 1.31 - - 1.31
surplus after tax(F=D-E) 2.17 2.31 7.85 12.33 2.64 5.15 14.08 21.87
transfer to shareholdersRsaccount (F) 0.61 CO 7.85 10.77 0.65 5.15 14.09 19.89
Balance being funds for future appropriations 1.56 - - 1.56 1.99 - (0.01) 1.98
Net transfer to shareholdersRsaccount (G = F-A) 0.61 (2.69) 7.58 5.50 0.65 (9.80) 14.07 4.92

 

Includes balance of variable insurance products.

 

2 Netted for any impairment in investments, which is shown as provision for diminution in the value of investments in the Revenue account. 3 Commission also includes rewards and/or remuneration to agents, brokers or other intermediaries.

 

4. Including provision for doubtful debts and bad debts written off.

Profit and Loss account (Shareholders account)

particulars FY2019 FY2020
Amounts transferred from Policyholders account (Net of contribution from shareholders) 5.50 4.92
investment income1 6.42 6.13
Other income 0.09 0.01
Expenses other than those directly related to insurance business2 (0.38) (0.37)
profit before tax (A) 11.63 10.69
Provision for taxation (B) 0.22 -
profit after tax (C=A-B) 11.41 10.69

 

Netted for any impairment in investments, which is shown as provision for diminution in the value of investments in Profit and Loss account.

 

2 Including Managerial Remuneration in excess of the allowable limits - refer note 3.2 of Schedule 16: significant accounting policies and notes forming part of the financial statements.

Element-wise analysis of the Revenue account and Profit and Loss account is given below:

1. Gross premium (revenue account)

The following table sets forth, for the periods indicated, summary of gross premium income:

Line of business

FY2019

FY2020

First year renewal single total First year : renewal single total
retail
Par 6.55 28.34 - 34.89 8.86 31.27 - 40.13
Non-par 4.11 17.86 8.64 30.61 9.44 13.57 10.41 33.42
Linked 59.12 156.05 2.98 218.15 46.78 161.80 3.28 211.86
Total retail 69.78 202.25 11.62 283.65 65.08 206.64 13.69 285.41
Group1 - 3.40 22.25 25.65 - 2.79 46.11 48.90
Gross total premium 69.78 205.65 33.87 309.30 65.08 209.43 59.80 334.31

 

1Group includes policy sourced to group customers under par, non-par, and linked line of business.

the gross premium increased by 8.1% from Rs309.30 billion in FY2019 to Rs334.31 billion in FY2020 primarily on account of an increase in retail renewal premium and group premium.

The total group premium increased from Rs25.65 billion in FY2019 to Rs48.90 billion in FY2020 primarily on account of an increase in group gratuity & credit life business.

2. reinsurance ceded (revenue account)

Reinsurance premium increased by 57.3% from Rs3.51 billion in FY2019 to Rs5.52 billion in FY2020 primarily on account of an increase in protection business from retail and group segment.

3. Investment income (revenue account)

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

particulars

FY2019

FY2020

Non- linked1 Linked total Non- linked1 Linked total
interest, dividend, and rent 22.81 29.62 52.43 28.09 32.68 60.77
Profit/(loss) on sale of investments 6.04 26.84 32.88 6.50 19.81 26.31
Accretion of discount/ (amortisation of premium) (0.15) 7.19 7.04 (0.01) 7.63 7.62
Unrealised gains/(loss) - 9.79 9.79 - (219.87) (219.87)
Provision for diminution in the value of investments - - - (2.13) - (2.13)
Investment income (net) 28.70 73.44 102.14 32.45 (159.75) (127.30)

 

1 Includes par and non-par line of business

Non-linked: The investment income of the non-linked line of business increased from Rs28.70 billion in FY2019 to Rs32.45 billion in FY2020 primarily on account of an increase in the interest income corresponding to an increase in interest-earning assets partly offset by an increase in provision for diminution in the value of investments.

Linked: the investment income of the linked line of business decreased from Rs73.44 billion in FY2019 to Rs(159.75) billion in FY2020. the investment income for the linked line of business includes income on the unit-linked portfolio which has decreased from Rs72.52 billion in FY2019 to Rs(160.72) billion in FY2020 and is directly passed on to the policyholders with the corresponding changes in the fund reserve. the decrease in the investment income of the unit-linked portfolio is primarily on account decrease in the unrealised gains/(losses) resulting from mark-to-market valuation of assets held. the unrealised gain/(loss) decreased from a gain of Rs9.79 billion in FY2019 to a loss of Rs219.87 billion in FY2020 primarily due to subdued equity market performance in FY2020. the S&p BSE100 fall by 26.6% in FY2020. Fears of coronavirus spread and resultant economic lockdown led to unprecedented volatility in equity markets.

4. Other Income (Revenue account)

other income includes fees and charges and other miscellaneous income. the other income remained at a similar level of Rs0.80 billion in FY2019 and FY2020.

5. Contribution from shareholders account (revenue account)

Contribution from Shareholders account represents the funding from the Profit and Loss account (Shareholders account) to various lines of business in case of a deficit in any line of business and also excess of Expense of Management (Refer note 3.49 of schedule 16).

Contributions from Shareholders account increased from Rs5.27 billion in FY2019 to Rs14.97 billion in FY2020 primarily on account of higher new business strain12 resulting from the new business growth of the protection business.

6. Commission expense (revenue account)

The following table sets forth, for the periods indicated, summary of commission expense:

particulars FY2019 FY2020
First year commission 11.20 10.77
Single commission 0.47 0.63
New business commission 11.67 11.40
Renewal commission 3.84 3.82
Total commission 15.51 15.22
Rewards1 0.53 0.64
total Commission including rewards 16.04 15.86
Commission rate2 5.6% 5.4%

 

1Represents rewards as defined under IRDAI (Payment of commission or remuneration or reward to Insurance agents and Insurance intermediaries) Regulations, 2016.

 

2Commission/(total premium - 90% of single premium).

The total commission including rewards expense decreased by 1.1% from Rs16.04 billion in FY2019 to Rs15.86 billion in FY2020. There is a decrease in commission rates from 5.6% in FY2019 to 5.4% in FY2020.

The new business commission decreased from Rs11.67 billion in FY2019 to Rs11.40 billion in FY2020 primarily on account of a decrease in first year premium. Renewal commission marginally decreased from Rs3.84 billion in FY2019 to Rs3.82 billion in FY2020.

7. operating expense relating to insurance business (revenue account)

The following table sets forth, for the periods indicated, summary of operating expenses relating to insurance business:

particulars FY2019 FY2020
Employee-related expenses 9.65 10.31
Advertisement & sales related expenses 8.65 9.63
Other expenses 7.23 8.55
total operating expenses 25.53 28.49

The total operating expenses relating to insurance business increased by 11.6% from Rs25.53 billion in FY2019 to Rs28.49 billion in FY2020.

The employee-related expense increased from Rs9.65 billion in FY2019 to Rs10.31 billion in FY2020. The employee headcount increased from 14,099 as at March 31,2019 to 14,630 as at March 31, 2020.

The advertisement & sales related expenses increased from Rs8.65 billion in FY2019 to Rs9.63 billion in FY2020 primarily on account of higher advertisement activities in FY2020 towards the protection business which grew over 54% in FY2020.

The other expenses increased from Rs7.23 billion in FY2019 to Rs8.55 billion in FY2020 primarily on account of an increase in stamps duties and support cost primarily driven by growth in the protection business.

8. Goods and service tax charge on linked charges (revenue account)

Goods and service tax charge on linked charges represents the tax payable on the charges collected on linked products, and the tax is collected from policyholders. Goods and service tax charge on linked charges increased by 2.8% from Rs6.35 billion in FY2019 to Rs6.53 billion in FY2020.

9. Benefits paid (net) and interim bonus paid (Revenue account)

The following table sets forth, for the periods indicated, summary of benefits paid:

particulars FY2019 FY2020
Surrender claims 106.12 149.79
Maturity and annuity claims 24.50 28.19
Mortality (death) claims 10.94 16.12
Survival benefits and other claims1 4.70 5.28
Amount recovered from reinsurer (3.67) (5.61)
Total 142.59 193.77

 

1 Includes interim bonus paid.

Benefits paid (net of reinsurance) and interim bonus paid increased from Rs142.59 billion in FY2019 to Rs193.77 billion in FY2020. this increase was primarily on account of an increase in surrender claims from Rs106.12 billion in FY2019 to Rs149.79 billion in FY2020, increase in maturity & annuity claims from Rs24.50 billion in FY2019 to Rs28.19 billion in FY2020 and increase in mortality (death) claims from Rs10.94 billion in FY2019 to Rs16.12 billion in FY2020.

10. Change in valuation of policy liabilities (revenue account)

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

particulars FY2019 FY2020
Gross: Policy liabilities (non-unit/ mathematical reserves) 118.60 156.40
Amount ceded in reinsurance (43.01) (68.37)
Change in non-unit/mathematical reserves (net) (A) 75.59 88.03
Fund reserve 113.88 (156.63)
Funds for discontinued policies 20.56 18.03
Change in fund reserve (B) 134.44 (138.60)
Total change in the valuation of policy liabilities (A+B) 210.03 (50.57)

Change in non-unit/mathematical reserves (net of amount ceded in reinsurance) increased from Rs75.59 billion in FY2019 to Rs88.03 billion in FY2020 reflecting broadly the increase in premium net of benefit outgo.

Change in fund reserve (including discontinued policies), which represents liability carried on account of units held by unit-linked policyholders, decreased from Rs134.44 billion in FY2019 to Rs(138.60) billion in FY2020 primarily due to higher benefits paid and lower investment income in the unit-linked portfolio.

11. provision for taxation (revenue account)

The 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, in line with the Companys accounting policy. The provision for taxation

increased from Rs1.13 billion in FY2019 to Rs1.31 billion in FY2020 primarily on account of an increase in the surplus (grossed up for bonus) of the Par life line of business.

12. surplus after tax (revenue account) and Net transfer to shareholders account

As a result of the above changes in income and expenses, surplus after tax in the Revenue account increased from Rs12.33 billion in FY2019 to Rs21.87 billion in FY2020.

The surplus generated in the Revenue account after setting aside fund for future appropriation is transferred to Profit and Loss account (Shareholders account) based on the recommendation of the Appointed Actuary. The net transfer to shareholders account decreased from Rs5.50 billion in FY2019 to Rs4.92 billion in FY2020. The remaining surplus of Rs1.98 billion in FY2020 was retained as a fund for future appropriation.

Segment-wise breakup of surplus after tax is as under:

particulars FY2019 FY2020
Participating business1 2.17 2.64
Non-participating business1 (2.69) (9.79)
Linked business1 7.58 14.05
surplus after tax1 7.06 6.90
Add: Contribution from shareholders (A) 5.27 14.97
surplus after tax including the contribution from shareholders (B) 12.33 21.87

 

1Before contribution from shareholders

participating business: The surplus in the Revenue account for participating line of business is net of bonus and interim bonus. The surplus (grossed up for bonus) increased from Rs7.53 billion in FY2019 to Rs8.51 billion in FY2020. Shareholders profits in participating business depend on the total bonuses declared to policyholders on an annual basis. Currently, one-ninth of the bonus declared to policyholders is transferred to shareholders. The transfer to shareholders for the participating line of business increased from Rs0.60 billion in FY2019 to Rs0.65 billion in FY2020 on account of an increase in bonus declared to policyholders.

Non-participating business: The surplus in the Revenue account for non-par line of business arises primarily from premium and investment income net of expenses, claims, and policyholders liabilities. The deficit in the non-par line of business before contribution from shareholders increased from Rs2.69 billion in FY2019 to Rs9.79 billion in FY2020 primarily on account of higher new business strain resulting from the new business growth of protection business.

Linked business: The surplus in the Revenue account for the linked lines of business primarily arises from charges levied on the policyholders fund net of expenses, claims and policyholders liabilities. The surplus in linked line of business before contribution from shareholders increased from Rs7.58 billion in FY2019 to Rs14.05 billion in FY2020 primarily on account of lower new business strain.

13. Investment and other income (Profit and Loss account)

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

particulars FY2019 FY2020
interest, dividend and rent 4.25 4.48
Profit/(loss) on sale of investments 2.22 2.13
Accretion of discount/ (amortisation of premium) (0.05) (0.01)
Provision for diminution in the value of investments (0.47)
Investment income (net) 6.42 6.13
Other income 0.09 0.01
Total income 6.51 6.14

investment income (net) decreased from Rs6.42 billion in FY2019 to Rs6.13 billion in FY2020 primarily on account of provision for diminution of the value of investments. interest, dividend and rent increased from Rs4.25 billion in FY2019 to Rs4.48 billion in FY2020 primarily on account of an increase in interest income due to an increase in the interest-earning assets. Profits and losses are realised as the portfolio is realigned based on the market conditions and expected attractiveness of securities and sectors. During FY2020, profit on sale on investments (net of loss on the sale of investments & net of provision for diminution in value of investments) decreased from Rs2.22 billion in FY2019 to Rs1.66 billion in FY2020.

Other income decreased from Rs0.09 billion in FY2019 to Rs0.01 billion in FY2020.

14. Expenses other than those directly related to insurance business (profit and Loss account)

Expenses other than those directly related to the insurance business has decreased from Rs0.38 billion in FY2019 to Rs0.36 billion in FY 2020. Corporate social responsibility expenses (CSR expenses) are charged to Profit and Loss account and have decreased from Rs0.23 billion in FY2019 to Rs0.17 billion in FY 2020.

15. provision for tax (profit and Loss account)

Tax on other than participating line of business and shareholders income is shown in Profit and Loss account. Provision for tax has decreased from Rs0.22 billion in FY2019 to RsNil billion in FY2020 on account of lower taxable surplus arising due to an increase in exempt income from non-participating line of business.

16. profit after tax (profit and Loss account)

Profit after tax decreased from Rs11.41 billion in FY2019 to Rs10.69 billion in FY2020 primarily on account of a decrease in the transfers from policyholders account (net of contributions from shareholders) from Rs5.50 billion to Rs4.92 billion. The decrease in transfer from policyholdersRsaccounts was primarily on account of higher new business strain resulting from the new business growth of protection business.

b. Financial position

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

particulars March 31, 2019 March 31, 2020
sources of funds
Shareholders funds 70.47 72.19
Policyholders funds
Fair value change account and revaluation reserve - investment property 18.48 (1.87)
Policy liabilities 1,494.97 1,444.40
Funds for future appropriations 10.34 12.33
total 1,594.26 1,527.05
Application of funds
investments 1,590.09 1,512.56
Loans 2.70 4.63
Fixed assets 4.76 4.78
Current assets (A) 33.36 38.38
Current liabilities and provisions (B) 36.65 33.30
Net current assets (A-B) (3.29) 5.09
total 1,594.26 1,527.05
Contingent liabilities 4.03 6.71

1. shareholders fund & capital position

The following table sets forth, for the periods indicated, the details of shareholders fund of the Company:

particulars March 31, 2019 March 31, 2020
Equity share capital 14.36 14.36
Share premium

Balance of profit in Profit and Loss

34.28 34.29
account 19.89 26.51
Revaluation reserve 0.23 0.26
Fair value change account 1.71 (3.23)
shareholders fund (net-worth) 70.47 72.19
solvency ratio 214.9% 194.1%

During FY2020, there is no capital infusion except from the exercise of stock options to employees under Employee Stock Option Scheme.

The net worth of the Company increased from Rs70.47 billion at March 31, 2019 to Rs72.19 billion at March 31, 2020 primarily on account of an increase in the balance of profit in Profit and Loss account off-set in part by a decrease in fair value change account.

The balance of profit in Profit and Loss account increased from Rs19.89 billion in FY2019 to Rs26.51 billion in FY2020 on account of profit for the year net of dividends (including dividend distribution tax).

The Company had performed an independent valuation of their investment property and consequently revaluation reserve increased from Rs0.23 billion (Historical cost: Rs3.65 billion; revalued amount: Rs3.88 billion) at March 31, 2019 to Rs0.26 billion (Historical cost: Rs3.65 billion; revalued amount: Rs3.91 billion) at march 31, 2020.

Fair value change account represents the unrealised gains/loss on equity securities and mutual fund and it decreased from Rs1.71 billion at March 31, 2019 to Rs(3.23) billion at March 31, 2020. 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.

The Company had a solvency ratio of 194.1% at March 31, 2020, compared to the regulatory minimum required level of 150%.

2. Policyholders fund

Fair value change account and revaluation reserve - investment property

Fair value change account decreased from Rs17.83 billion at March 31, 2019 to Rs(2.53) billion at March 31, 2020. 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.

The Company had performed an independent valuation of investment property and consequently revaluation reserve increased from Rs0.65 billion (Historical cost: Rs0.19 billion; revalued amount: Rs0.84 billion) at March 31, 2019 to Rs0.66 billion (Historical cost: Rs0.19 billion; revalued amount: Rs0.84 billion) at March 31, 2020.

policy liabilities

The following table sets forth, for the periods indicated, summary of policy liabilities:

particulars March 31, 2019 March 31, 2020
Non-unit liabilities (mathematical reserves) 385.52 473.55
Provision for linked liabilities (fund reserves) 1,037.00 880.37
Funds for discontinued policies 72.45 90.48
policy liabilities 1,494.97 1,444.40

The movement in policy liabilities is explained in the element-wise analysis of the Revenue account.

3. Funds for future appropriation (FFA)

The following table sets forth, for the periods indicated, summary of funds for future appropriation:

particulars March 31, 2019 March 31, 2020
Non-linked 10.33 12.33
Linked 0.01 -
Total 10.34 12.33

FFA increased from Rs10.34 billion in FY2019 to Rs12.33 billion in FY2020 on account of an increase in the undistributed surplus of participating line of business.

4. Investments

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

particulars March 31, 2019 March 31, 2020
Shareholders investments 79.92 74.21
Policyholders investments (non-linked) 400.71 467.50
Asset held to cover linked liabilities 1,109.46 970.85
total Investments 1,590.09 1,512.56

Total investments decreased from Rs1,590.09 billion at March 31, 2019 to Rs1,512.56 billion at March 31, 2020. The decrease in shareholders investments is largely attributable to subdued equity market performance in FY 2020 partly offset by the profit generated during the year net of dividend (including dividend distribution tax) paid to the shareholders.

The increase in policyholders non-linked investments is largely attributable to net inflows into the fund. in case of the Asset held to cover linked liabilities, the decrease is primarily attributable to unrealised losses due to subdued equity market performance in FY2020 partly offset by the net inflow during the year.

The investment held in unit-linked funds (Asset held to cover linked liabilities) at March 31,2020 was 64.2% of the total investment assets as against 69.8% at March 31, 2019. Further, of the total investment assets at March 31,2020, 39.9% of the assets were held as equity at March 31, 2020 as against 48.5% at March 31, 2019.

5. Loans

The Company has seen a healthy growth in loan against policies from Rs2.70 billion at March 31, 2019 to Rs4.63 billion at March 31, 2020 primarily on account of the higher number of policyholders availing this facility. The Company had performed an impairment assessment and accordingly no impairment was recognised.

6. Fixed assets

Fixed assets increased from Rs4.76 billion at March 31, 2019 to Rs4.78 billion at March 31, 2020.

7. Net current assets

(i) Details of current assets

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

particulars March 31, 2019 March 31, 2020
Income accrued on investments Assets held for unclaimed amount of 11.02 12.56
policyholders1 6.65 8.33
Cash and bank balances 6.61 8.11
Outstanding premium 1.61 2.18
GST unutilised credit 1.58 1.73
Sundry Debtors (Investments)2 Advance taxes and tax deducted at 0.90 1.66
source 2.32 1.52
Balance due from Reinsurers 0.49 0.44
prepayments 0.45 0.36
Deposits 0.34 0.35
other advances and receivables3 1.39 1.14
total 33.36 38.38

 

Including Income on Unclaimed amount of policyholders

 

2 Represents receivables towards investments sold

 

3 Includes other advances net of provision for doubtful advance, other receivables net of provision for doubtful receivables, agents balance net of provision for doubtful agent balances, due from subsidiary and advances to employees.

The explanation for key elements is as mentioned below:

Income accrued on investments increased from Rs11.02 billion at March 31, 2019 to Rs12.56 billion at March 31, 2020 primarily on account of an increase in debt investments of the Company.

Pursuant to iRDAI circular on "Handling of unclaimed amounts pertaining to policyholders", the Company has created a single segregated fund to manage all the unclaimed monies. Assets held for the unclaimed amount of policyholders increased from Rs6.65 billion at March 31,2019 to Rs8.33 billion at March 31, 2020.

Cash and bank balances increased from Rs6.61 billion at March 31, 2019 to Rs8.11 billion at March 31, 2020.

outstanding premium represents the premium due but not received on par & non-par, non-linked products as at March 31 and which are within the grace period. It increased from Rs1.61 billion at March 31, 2019 to Rs2.18 billion at March 31, 2020.

GsT unutilised credit represents GST input tax credit which will be utilised in the future for set-off against payment of GST liabilities.

It increased from Rs1.58 billion at March 31,2019 to Rs1.73 billion at March 31, 2020.

sundry debtors (investments) represents the sales proceeds pending to be received (but not overdue) on sale of investment securities. It increased from Rs0.90 billion at March 31, 2019 to Rs1.66 billion at March 31, 2020.

Advance taxes and tax deducted at source decreased from Rs2.32 billion at March 31, 2019 to Rs1.52 billion at March 31, 2020 primarily on account of income tax refund received.

(ii) Details of current liabilities

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

particulars March 31, 2019 March 31, 2020
Unclaimed amount of policyholders1 6.65 8.33
Sundry creditors2 7.47 7.97
Policyholders claims payable 5.11 7.68
Unallocated premium (including premium received in advance) 4.75 3.78
Goods and Service tax/Service tax payable 2.08 2.07
Payable to unit fund3 8.51 1.65
Payable to agents (agents balances) 1.28 0.89
Balance due to other reinsurers 0.09 0.16
other liabilities3 0.47 0.50
Provision for leave encashment and gratuity 0.26 0.28
total 36.65 33.30

 

Including Interest on Unclaimed amount of policyholders.

 

2 Including due to holding company, expenses payable and payable towards investments purchased.

 

3 Including TDS payable and other deposits.

The explanation for key elements is as mentioned below:

The details of unclaimed amounts of policyholders including breakup and ageing at March 31, 2020, and March 31, 2019 is given in point 3.5 and 3.6 of Schedule 16: Significant accounting policies and notes forming part of the financial statements for the year ended March 31, 2020.

sundry creditors representing creditors for expenses and investment increased from Rs7.47 billion at March 31, 2019 to Rs7.97 billion at March 31, 2020 primarily on account of an increase in payable towards investment trades of last few days.

policyholders claims payable represent amounts payable to the policyholders for all claims (death, maturity, survival, surrender, foreclosure, annuity, etc.) that are intimated to the Company and are outstanding due to pending investigation as a part of the normal claims process or pending due to incomplete documentation from the policyholders. The increase in claims payable from Rs5.11 billion at March 31,2019 to Rs7.68 billion at March 31,2020 is primarily on account of an increase in maturity claims payable.

Unallocated premium including premium received in advance

primarily represents premium received from customers where policy issuance is in progress or pending due to requirements awaited from customers. it decreased from Rs4.75 billion at March 31, 2019 to Rs3.78 billion at March 31, 2020.

Goods and Service tax/Service tax payable primarily represents goods and service tax payable in respect of services rendered by the Company.

payable to unit fund decreased from Rs8.51 billion at March 31, 2019 to Rs1.65 billion at March 31, 2020. The amount represents payable to unit-linked policyholders account from shareholders account, which is transferred to the unit-linked policyholders account immediately on the next banking day and hence held as a current liability. Out of Rs8.51 billion at March 31,2019, Rs3.77 billion was pertaining to interest/redemption on government securities received on the last day of the financial year, which is RsNil at March 31, 2020.

payable to agents represents the amount payable to insurance agents, brokers, insurance marketing firms and web aggregators towards commission. The amount outstanding is primarily attributable to the business sourced during the last month of the financial year.

8. Contingent liability

The contingent liability increased from Rs4.03 billion at March 31, 2019 to Rs6.71 billion at March 31,2020. The increase in Contingent liability is primarily attributable to the investment made in partly paid secured non-convertible debentures during the year. At March 31, 2020, the uncalled portion of the debentures amounted to Rs4.50 billion.

c. Cash flow statement

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

particulars FY2019 FY2020
Net cash generated from/(used in) operating activities 113.81 86.00
Net cash generated from/(used in) investing activities (75.63) (108.02)
Net cash generated from/(used in) financing activities (8.43) (4.05)

Cash flows from operating activities:

Net cash flows generated from operating activities decreased from Rs113.81 billion in FY2019 to Rs86.00 billion in FY2020 primarily on account of an increase in policy benefits and other operating expenses paid offset by an increase in premium and other receipts.

Cash flows from investing activities:

Net cash flows used in investing activities increased from Rs75.63 billion in FY2019 to Rs108.02 billion in FY2020 on account of an increase in the purchase of investments off-set in part by the sale of money markets and liquid mutual funds.

Cash flows from financing activities:

Net cash flows used in financing activities decreased from Rs8.43 billion in FY2019 to Rs4.05 billion in FY2020 primarily due to a decrease in dividends paid (including dividend distribution tax) from Rs8.48 billion in FY2019 to Rs4.07 billion in FY2020.

d. Key financial ratios

The following table sets forth, for the periods indicated, the key financial ratios excluding the ratios that are mentioned in the above sections:

particulars FY2019 FY2020
Persistency ratio1
- 13th month 86.2% 86.8%
- 49th month 65.0% 67.3%
Expense ratio2 15.0% 15.9%
Solvency ratio 214.9% 194.1%

 

1 As per IRDA circular dated January 23, 2014.

 

2 Total cost including commission/total premium-10% of Single premium.

persistency ratio: The Company has a strong focus on improving the quality of business and customer retention, which is reflected in our best- in-class 13th month persistency ratios. Our 13th month persistency stood at 86.8% for FY2020. The 49th month persistency stood at 67.3%.

Expense ratio: The cost to total weighted received premium (TWRP) ratio stood at 15.9% in FY2020 compared to 15.0% in FY2019. The increase is primarily attributable to an increase in expenses for the protection & annuity business.

solvency ratio: The Company had a solvency ratio of 194.1% at March 31, 2020, compared to the regulatory minimum required level of 150%.

C. Consolidated financial results and subsidiary performance

The Company has a wholly-owned subsidiary, iCiCi Prudential Pension Funds Management Company Limited (PFM). The PFM is licensed by the Pension Funds Regulatory and Development Authority as a Pension Fund Manager under the National Pension System (NPS). The PFM has further obtained registration as Point of Presence (PoP) for NPS distribution and servicing for the public at large through physical as well as online platforms with effect from February 13, 2019. The PFM commenced operations as PoP during the quarter ended September 30, 2020 and is currently in the process of scaling up the PoP operations.

Pension fund industry

The total assets under management (AUM) of the pension fund industry has grown from Rs3,182.14 billion at March 31, 2019 to Rs4,174.79 billion at march 31, 2020. this largely comprises funds from the government sector of Rs3,766.57 billion. The AUM from the private sector, Atal Pension Yojana and National Pension System lite segments was Rs265.67 billion, Rs105.26 billion, and Rs37.28 billion respectively, a growth of 37.2%, 53.4% and 9.4% over FY2019.

Business

The subscribers funds managed by the PFM increased from Rs34.76 billion at March 31, 2019 to Rs43.53 billion at March 31, 2020, an increase of 25.2% during the year.

The PFM has a market share of 16.4% in the private sector AUM at March 31, 2020 as against 17.9% at March 31, 2019.

The net worth of PFM at March 31, 2020 is Rs0.33 billion (at March 31, 20190.35 billion).

For the year ended March 31, 2020, the PFM registered a loss of Rs0.02 billion similar to last year. The current operations of the PFM is not significant in the context of the overall profit of the Company as the subsidiary is still scaling up.

Basis of consolidation

The consolidated financial statements are prepared in accordance with the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014, section 129(4) of the Companies Act, 2013. The financials are consolidated on a line-by-line basis in accordance with AS 21 on Consolidated Financial Statements.

The consolidated profit after tax for the Company decreased from Rs11.39 billion in FY2019 to Rs10.67 billion in FY2020.

III. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The internal controls of the Company are commensurate with the business requirements, its scale of operation and applicable statutes to ensure orderly and efficient conduct of business. These controls have been

designed to provide a reasonable assurance with regard to maintaining proper accounting controls, safeguarding of resources, prevention, and detection of frauds and errors, ensuring operating effectiveness, reliability of financial reporting, and compliance with applicable regulations.

in most aspects of operations and processes, the Company has deployed automation for control and efficiency. The Company operates in a robust iT control environment with adequate controls focussed on reconciliation between systems, auto checks to avoid any duplicate data upload, reconciliation of all jobs run at the beginning and end of day, matching of trial balance and ensuring no unposted entries in the system monthly. The iT change management work flow is tracked in an application and changes moved to production only after user acceptance testing sign off by business teams. The Company has an automated control over access management with addition/deletion/modification of access to iT environment as per defined authorisation matrix. The reconciliation of user rights in applications is conducted every quarter as part of access management. in conjunction with the iT controls, all financial transactions also have a compensating detective controls (system exception reports, maker checker, etc.) at the process level. These controls are covered under the COSO framework and tested every quarter.

Due to COVID-19 pandemic, the facility to work from home (WFH) was provided to the employees of the Company through iT systems. The systems were hardened and configured with requisite data security controls. The day-to-day operations of the Company were carried out through remote location/wFH via secured servers. There had been no material changes in the process level controls or activities conducted in the financial statement closing process of the Company. The Company had tested all material controls over financial reporting at March 31, 2020 and found them to be operating effectively.

in addition, internal audits are undertaken to review significant operational areas regularly. The Audit Reports, submitted by the internal Auditors, are reviewed by the Audit Committee and corrective action is initiated to strengthen the controls and enhance the effectiveness of the existing systems. Statutory and internal Auditors are also invited to the Audit Committee meetings to ascertain their views on the adequacy of internal control systems. The management believes that strengthening internal controls is a continuous process and it will, therefore, continue its effort to keep pace with changing business needs and environment.