MAX NEW YORK LIFE INSURANCE COMPANY LIMITED ANNUAL REPORT 2006-2007 DIRECTOR'S REPORT Your directors have pleasure in presenting the Seventh Annual Report of your Company with the audited accounts for the financial year ended March 31, 2007. PERFORMANCE HIGHLIGHTS Highlights for the year ended March 31, 2007 are as under: (Rs. in crore) Current Year Previous Year (March 31, 2007) (March 31, 2006) Particulars Income Premium Income (net) 1,485.4 779.7 Income from Investments - Policyholder 93.1 62.4 - Shareholder 14.1 7.8 Other Income 5.1 1.3 Total Income 1,579.7 851.2 Less: Expense Commission 213.4 134.5 Operating expenses (excl. depreciation) 514.9 326.9 Depreciation 22.6 17.9 Benefits Paid 83.1 42.5 Provision for Reserves 822.9 383.9 Total Expenses 1,656.9 905.7 Max New York Life continued its high growth trajectory during the financial year 2006-07. Premium income has grown a 91% over the previous year. Over 552,000 policies were sold, up from over 423,000 the previous year. The cumulative sum assured is now over Rs. 43,000 crore. The first-year premium increased 106% to Rs. 912 crore. Renewal premium also registered an impressive increase of 72%. GROWING REACH In a vast and diversified market like India, the geographical reach is of critical importance. Agency distribution continues to be the primary channel of distribution, well supported by alternate distribution channels such as bancassurance, corporate agents and a dedicated rural distribution. During the financial year, the number of agent advisors has increased to over 25,000, a net growth of 63% over last year. We continued to focus on quality of advice model in our agency distribution. Our agent advisors are considered to be the best in the industry. This reflects in 345 agent advisors meeting the MDRT norms. Your Company is confident of continuing amongst the top 50 MDRT companies in the world. Financial Year 2006-07 has been an eventful year for the Agency channel. Your Company expanded its reach with 48 new offices. The agency channel now has a presence in 83 cities through 117 offices. Agency sales recorded a growth of 106% touching Rs.650 crore during the year as compared to Rs. 313 crore in the last financial year. The Corporate Agency and Broker channel continues to grow at over 100% in new business. Your Company has grown its corporate agency channel by 160% and contributed Rs. 171 crore of the Company's new business sales. Our large corporate relationships include Peerless and Amsure. These corporations helped us expand our reach significantly through their unique distribution reach with allowed us to reach. Your Company has actively focused on growing business through other channels. It has signed 9 new Bancassurance relationships in this financial year. Our relationship with Yes Bank continued to gain strength and is proving to be a win-win relationship for both organization with emphasis on quality of service and delivery. The rural distribution network in Punjab with unique hub and spoke model ensured that we reached the rural population to the last mile without compromising on our high quality of advice model. A special mention of the Direct Sales Team (DST), which set new benchmark in productivity will not be out of place. At the end of the financial year, your Company had around 500 direct sales staff in DST channel. Overall, your Company now has a network of 172 offices in 120 locations. It employs 4,590 people (2,620 last year). SERVICE DELIVERY INITIATIVES Service is key to better customer and agent satisfaction. Customer is the focal point in all the activities of your Company. To further enhance our service to the customers, distribution portal was launched during the financial year. This dedicated portal will provide access to all the information related to the policies to the agents and will help enhance their service levels to the customers. The customer service team was strengthened during the year and we now have more than 125 people strong customer service team. The improvement in customer service is evident from the fact that your Company has crossed 1 million policies in force. Several customer service initiatives were introduced such as tele-servicing of policy requests, medicals at home, SMS on demand where field agents could request SMS to be sent to focus audience, e-mail alerts to agents on key events on the policy such as policy enforcement, premium reminder etc. Also, a robust quality program is underway to improve our communication with customers and agents. All our service delivery processes and service centers have been ISO 9000: 2001 certified. Six Sigma projects have helped improve our operations and enhanced the customer focus in your Company. Use of technology to better service our customers has been another focus area for your Company. During the year, your Company launched distribution portal which allows the agent advisors access to all the information related to policies of their customers on touch of the button. This has helped in significantly improving the ability of your Company's agent advisors to quickly provide the renewal notices and receipts as well as the status of their investments. Operations team which works at the backend provided all the necessary support to the distribution team by continuously improving their efficiency and hence meeting the growing demands of the fast growing business of your Company. BONUS PAYMENT The Company has declared bonuses (dividends) based on the underlying performance of the participating fund for the year 2006-07. The bonus is payable in respect of eligible policies on third and greater policy anniversaries falling due in the 12 months period commencing 1st July 2007. HUMAN RESOURCES Your Company recognizes that success of an organization depends on the robust intellectual capital it owns. Since inception, Max New York Life has focused on building relationships with customers for life through high quality of advice and service to the customers. MNYL continues to build its organization to support its aggressive expansion agenda. Your Company has successfully built a strong team of over 4,500 people led by an experienced and dynamic management cadre. The extended MNYL cadre includes a network of over 25,000 highly trained and wellrespected agent advisors. Training is seen by your Company as a key differentiator in the market place. MNYL imparted over 32,471 man-days of training to its employees in the period. The training covered areas such as Insurance Concepts, Product Knowledge, Systems and Processes, Communication, Leadership, Service Delivery and other Management Development inputs. CORPORATE SOCIAL REPONSIBILITY Your Company has been donating since inception, part of the proceeds of every policy sold to the SOS Children's Villages of India. This year, your Company is donating Rs 10,00,000.00 to SOS Children's Villages of India. SHARE CAPITAL During the year, the paid up share capital of the Company has increased to Rs. 732 Crore. Your Company continues to be one of the highest capitalized private life insurance companies in India. SOLVENCY Your Company has met the solvency margin requirements as per IRDA norms. DIRECTORS In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Company, Mr. N. C. Singhal and Mr. Rajesh Khanna retire by rotation, and being eligible have offered themselves for reappointment. AUDIT COMMITTEE The Audit Committee of the Company comprises of four non-executive directors. Four meetings of the Committee were held during the year. Mr. B Anantharaman is the Chairman of the audit committee. Mr. Joe Gilmour, Mr. N. C. Singhal and Mr. Frederick Sievert are the other committee members. AUDITORS The Joint Auditors M/s. Thakur Vaidyanath Aiyar & Co., Chartered Accountants and M/s. Ray & Ray, Chartered Accountants retire at the conclusion of the ensuing Annual General Meeting and have expressed their willingness to be re-appointed at the Annual General Meeting. The retiring Joint Auditors are proposed to be appointed as joint auditors of the Company at the ensuing Annual General Meeting to hold office until the conclusion of next Annual General Meeting. The Company has received certificates from the Joint Auditors that their appointment as auditors, if made, will be in accordance with the limits specified under Section 224 (1B) of the Companies Act, 1956. PARTICULARS OF DEPOSITS The Company has not accepted any deposits under Section 58A of the Companies Act, 1956. PARTICULARS OF EMPLOYEES The Statement giving particulars, under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to Section 217(2AA) of the Companies Act, 1956, your Directors hereby state that: 1. In the preparation of the Annual Accounts for the year ended March 31, 2007, the applicable accounting standards have been followed along with proper explanation, relating to any material departures. 2. Your Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs as on March 31, 2007 and of the Profit and Loss Account for the aforesaid period. 3. Proper and sufficient care has been taken by your directors for the maintenance of adequate accounting records in accordance with provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. 4. The Annual Accounts of the Company for the period under review have been prepared on a going concern basis. ADDITIONAL INFORMATION Information in accordance with the provisions of Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are as follows: A. Conservation of Energy : NA B. Technology Absorption : NA C. Foreign Exchange Earnings and Outgo : (Rs. in crore) Year ended 31.03.2007 Earnings (including equity infusion) 45.62 Outgo 14.88 Activities relating to Exports, initiatives taken to increase NA exports, develop New Export markets, Export Plan etc. ACKNOWLEDGMENTS The directors wish to place on record their deep appreciation for the hard work, dedicated efforts, teamwork and professionalism shown by the employees and the Agents Advisors, which has enabled the Company to successfully establish itself amongst the leading private life insurance companies in India. Your directors also express gratitude to the Insurance Regulatory and Development Authority of India, the Reserve Bank of India, Central and State Governments and the joint venture partners, Max India Limited and New York Life International, LLC for their continued cooperation, support and assistance. For and on behalf of the Board of Directors ANALJIT SINGH Chairman New Delhi MAY 14, 2007 MANAGEMENT DISCUSSION AND ANALYSIS With respect to the operations of the Company for the financial year April 1, 2006 to March 31, 2007 and results thereof, the Management of the Company confirms, certifies and declares: 1. The Company is doing business on the basis of certificate of registration granted and duly renewed by IRDA. 2. The Company has duly paid all dues payable to the statutory authorities. 3. There has been no change in the Indian and Foreign shareholding pattern of the Company and the same are in conformity with the statutory or regulatory requirements for the same. 4. The Company has not directly or indirectly invested outside India the funds of the holders of policies issued in India. 5. The Company is maintaining the required solvency margins as undertaken to the Insurance Regulatory and Development Authority. 6. The Company certifies that the values of all the assets have been reviewed on the date of the Balance Sheet and that the assets set forth in the Balance Sheet are shown in the aggregate at amounts not exceeding their realisable or market value under the several headings - " Loans", " Investments", "Agents' balances", "Outstanding Premiums", "Interest, Dividends and Rents outstanding", "Interest, Dividends and Rents accruing but not due", "Amounts due from other persons or Bodies carrying on insurance business", " Sundry Debtors", " Bills Receivable", " Cash" and the several items specified under "Other Accounts". 7. No part of the life insurance fund has been directly or indirectly applied in contravention of the provisions of the Insurance Act, 1938 (4 of 1938) relating to the application and investment of the life insurance funds. 8. The Company recognises the risks associated with the life insurance business and manages it by adopting prudent policies commensurate with the needs of the life insurance business. The key risks affecting the operations of the Company are underwriting risks and investment risks. The underwriting risk is managed robustly by the Company's underwriting function and by further establishing reinsurance treaties with various reinsurance companies. All risks above the pre-determined retention limits are automatically reinsured. The investment risk is managed by creating a portfolio of different asset classes and of varied maturities so as to spread the risk across a wide category of investee companies. The Company has constituted an Investment Committee, which acts as the policy making body for the investment operations. The Investment Committee lays down various internal policies and norms governing the functioning of the Investment Department. The Investment Committee periodically discusses the investment strategy, portfolio structures, performance of the portfolio and related issues. The investment policy is reviewed regularly in order to align the same with the Company's business plans. 9. The Company does not have operations in any other country other than India. 10. Average claim settlement time to-date has been 14 days from the day the final document submitted with Company (2006 : 16 days). 11. The value of investments as shown in Balance Sheet have been arrived as follows : (i) Valuation -shareholders' investments and non-linked policyholders' investments have been ascertained on the basis of quotes received from market participants. Debt securities, which include government securities, are considered as held to maturity' and measured at historical cost subject to amortisation. Listed equity shares, as at balance sheet date, are valued at fair value, being the last quoted closing price on the National Stock Exchange (NSE) and in case the same is not available, then on the Stock Exchange, Mumbai (BSE). Equity shares, awaiting listing, are valued at historical cost subject to provision for diminution. Investments in Mutual fund units are valued at fair value at previous day's net asset value. (ii) Valuation - linked investments In case of Linked business - Government securities are valued at the rate obtained from CRISIL (Credit Rating Information Services of India Ltd.). Debt securities other than Government Securities are valued on the basis of Bond Valuer (CRISIL). Listed equity shares are valued at fair value, being the last quoted closing price on NSE and in case the same is not available, then on the BSE. Mutual fund units are taken at the previous day's net asset values. 12. The Company has invested its controlled funds only in rated securities, primarily in Central Government treasury bills and securities and highly rated bonds/mutual funds. All Investments in Debt securities are made with the clear intent of being held to maturity. Accordingly, the Management is confident of the quality of the investments. 13. The financial statements of Max New York Life Insurance Company Limited and all information in this annual report are the responsibility of the Management and have been reviewed by the Audit Committee and approved by the Board of Directors. (a) The financial statements have been prepared in accordance with generally accepted accounting standards and principles and policies have been followed with no material departures. (b) The financial statements have been prepared in accordance with the accounting policies adopted by the Management and stated therein and the same have been followed consistently. These financial statements contain some items which reflect the best estimates and judgement of the Management. When alternative accounting methods exist, Management has chosen those it deems most appropriate in the circumstances to ensure the financial statements are presented fairly, in all material respects. The choice of estimates and judgement have been made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at the end of the financial year and the operating loss of the Company for the year. (c) The Management of the Company has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the applicable provisions of the Insurance Act 1938 (4 of 1938) and Companies Act 1956 (1 of 1956), for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. (d) The financial statements have been prepared on a going concern basis. (e) The Company has set up an internal audit system commensurate with the size and nature of the business and the same is operating effectively. 14. The details of transactions with related parties for the year ended March 31, 2007 are given in Note No.II (r) in Schedule 16 in financial statement. For and on behalf of the Board of Directors ANALJIT SINGH Chairman JOE GILMOUR Director B. ANANTHARAMAN Director GARY BENNETT Chief Executive Officer SUNIL SHARMA Executive Director & Chief Operating Officer JOHN POOLE Chief Actuary (Appointed Actuary) SUNIL KAKAR Chief Financial Officer AJAY SETH Director- Legal & Compliance and Company Secretary New Delhi MAY 14, 2007