Orange Life Insurance, Ltd. NOTICE OF THE 28TH ANNUAL … Life... · Insurance in September 2018,...

2019

Orange Life Insurance, Ltd.

NOTICE OF

THE 28TH ANNUAL GENERAL MEETING OF SHAREHOLDERS

Table of Contents

Ⅰ. Letter to Shareholders…………………………………………………………………………………………..2

Ⅱ. Executive Summary……………………………………………………………………………………………...3

- 28th Annual General Shareholders’ Meeting Information

- Matters to be voted on at our 28th AGM

Ⅲ. Agendas to be voted on…………………………………………………………………………………………4

No.1 Approval of Audited Financial Statements for fiscal year 2018 (Jan. 1, 2018 ~ Dec. 31,2018) and Annual Dividend

No. 2 Approval of Revision of Articles of Incorporation No. 3 Appointment of Directors (3 Outside directors) No. 4 Appointment of Director who will serve as Audit Committee Member No. 5 Appointment of Audit Committee Members (2 Audit Committee Members) No. 6 Approval of Remuneration Cap for Directors

Ⅳ. Additional Information…………………………………………………………………………………………19

1. Number and Classification of Voting Shares 2. Method of Resolutions 3. Members of the Board of Directors after the 27th Annual General Meeting of Shareholders 4. Corporate Governance 5. Related Party Transactions

Ⅴ. Appendix – Audited Financial Statements for FY2018

1

Letter to Shareholders

March 12, 2019

Dear valued shareholders,

You are cordially invited to attend the 28th Annual General Meeting of Shareholders (AGM) of Orange Life – our first AGM since our major shareholder changed to Shinhan Financial Group on February 1, 2019. We will hold the meeting on Friday 29 March, 2019, at 9:00 a.m.(Korea Standard Time) at our office in Seoul Korea(Orange Center, 37, Sejong-daero 7-gil, Jung gu). Shareholders on the register as of 31 December 2018 are entitled to vote at this AGM.

Many events have taken place over the year since our March 2018 AGM. We successfully rebranded to Orange Life Insurance in September 2018, and on 1 February 2019 we became a member of Shinhan Financial Group (SFG). Along with our top-of-the-class financial strength and European-heritage management skills, our capabilities as a financial services provider will be further strengthened through collaboration with Shinhan Financial Group.

As part of our efforts to enhance our transparency, herein we have provided background information including biographical details of the Directors standing for election, and other issues relating to the AGM, so that shareholders have a better understanding of their rights and can make an informed decision in relation to the subject matters of the AGM. In Particular, 3 of our directors are no longer eligible to stand for re-election, having reached their maximum 6 years tenure, and thus we need to nominate 3 new outside directors at this AGM.

The Board believes that sound corporate governance is crucial to our business, where we are committed to boosting long-term value through strong and sustainable growth, supported by top-of-the-class capital adequacy and prudent management philosophy.

The Board considers that all items proposed for consideration and approval by the shareholders at the AGM are in the best interests of the Company and its shareholders as a whole. Accordingly, the Board recommends the shareholders to vote in favour of the proposed resolutions.

In the face of recent changes at Orange Life, your participation at the AGM is very important to us and you can exercise your right to vote whether or not you choose to attend the meeting.

Thank you for your continued investment in Orange Life. We look forward to welcoming you to our annual meeting.

Best regards,

Munkuk Cheong President & CEO Chairman of the Board Orange Life Insurance, Ltd.

2

Executive Summary

28th Annual General Shareholder’s Meeting Information

DATE AND TIME PLACE RECORD DATE

09:00AM, Friday, March 29, 2019 (Korea Standard Time) 37, Sejong-daero 7-gil, Jung-gu, Seoul

(Sunhwa-dong, Orange Center) Dec. 31, 2018

Matters to be voted on at our 28th AGM

No.1 Approval of Audited Financial Statements for fiscal year 2018 (Jan. 1, 2018 ~ Dec. 31,2018) and Annual Shareholder Dividend

No. 2 Approval of Revision of Articles of Incorporation

No. 3 Appointment of Directors (3 Outside directors)

No. 3-1 Outside Director Nominee: Hyoung Tae Kim (Re-election)

No. 3-2 Outside Director Nominee: Jooho Sung

No. 3-3 Outside Director Nominee: Bum Su Kim

No. 4 Appointment of Director who will serve as Audit Committee Member

Outside Director Nominee: Youngsub Chun

No. 5 Appointment of Audit Committee Members

No. 5-1 Audit Committee Member (Outside Director) Nominee: Bum Su Kim

No. 5-2 Audit Committee Member (Outside Director) Nominee: Jooho Sung

No. 6 Approval of Remuneration Cap for Directors

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Agendas to be voted on

Agenda No. 1: Approval of Audited Financial Statements for fiscal year 2018

(Jan. 1, 2018 ~ Dec. 31,2018) and Annual Dividend

Voting Item

Pursuant to Article 449 of the Commercial Act, we seek shareholders’ approval during the Annual General Meeting of Shareholders on the Company’s financial statements for fiscal year 2018, and annual shareholder dividend.

Business Results for FY2018

During fiscal year 2018, Orange Life recorded KRW 311 billion of profit after tax attributable to equity shareholders.

(Unit: KRW in billion, %)

FY2017 FY2018 Change Change%

Total Assets 31,455 32,744 1,289 4.1%

Total Liabilities 27,787 28,972 1,185 4.3%

Total Shareholders’ Equity 3,669 3,772 104 2.8%

Profit after Tax 340 311 (29) (8.5%)

Total shareholders’ equity increased by KRW 103.9 billion due to the profit after tax in FY2018 of KRW 311.3 billion and increase in unrealized gains on investment assets by KRW 14 billion which was partially offset with shareholders’ dividend of KRW 221.4 billion.

Profit after tax decreased by KRW 29 billion from FY2017, mainly due to an increase in stock option vesting expenses, employee special bonus, and advertising expenses from rebranding.

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Dividend Distribution

We have been making efforts to increase shareholder value through consistent and sustainable shareholder return policy and in connection with these efforts, the BOD has proposed KRW 1,600 year-end dividend per share for FY2018, resulting in a final dividend amount of KRW 131.2 billion.

The annual dividend per share including the interim dividend (KRW 1,000 per share) is KRW 2,600, bringing the total dividend amount to KRW 213.2 billion. The annual dividend yield ratio is 9.0%.

(Unit: KRW in billion, %, shares)

FY2016 FY2017 FY2018

Interim Final Annual Profit After Tax 240,741(*1) 340,236 311,269(*2) Dividend 167,034 196,800 82,000 131,200 213,200 Payout Ratio 69.38%(*1) 57.84% 68.49%(*2) Number of Shares 82,000,000 82,000,000 82,000,000 Dividend per Share (in KRW) 2,037 2,400 1,000 1,600 2,600 (*1) FY2016 Profit after Tax excluding suicide death benefits would increase to KRW 290,193 mln and dividend payout ratio decreases to 57.56%

(*2) FY2018 Profit after Tax adjusted for one-off expenses (Rebranding, Stock option vesting, and Employee special bonus) would increase to KRW 364,425 mln and dividend payout ratio decreases to 58.50%

For more detailed information of notes to financial statements, please refer to Appendix ‘Audited financial statements and related notes for FY2018’.

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Agenda No. 2: Approval of Revision of Articles of Incorporation

Voting Item

Pursuant to Article 433 of the Commercial Code of Korea, we seek shareholders’ approval at the Annual General Meeting of Shareholders for the revision of the Articles of Incorporation.

Current Provision Proposed Amendments Rationale for Change

Article 7. Share Certificates Share Certificates shall be registered certificates in nominative form, and shall be issued by the Company in denominations of one (1), five (5), ten (10), fifty (50), one hundred (100), five hundred (500), one thousand (1,000), ten thousand (10,000) shares.

Article 7. Electronic Registration of rights that need to be stated in Stocks and Certificates of Preemptive Right to the New Stocks The company shall electronically register the rights that need to be stated in stocks and certificates of preemptive right to the new stocks in the electronic register of the electronic registry instead of issuing share certificates and certificates of preemptive right to the new stocks.

Adopted provisions regarding

compulsory electronic

registration of stocks etc. and

deleted provisions

regarding the types of share

certificates

Article 10 Transfer Agent of Stocks, etc. (1)~(2) (omitted) (3) The Company shall preserve the Register of Shareholders or the copy of the Register in the Transfer Agent’s office and shall make the Transfer Agent handle entry of a change of a holder of stocks, registration or cancellation of the right of pledge, registration or cancellation of trust property, issuance of share certificates, receipt of report and other stock related affairs. (4) (omitted)

Article 10 Transfer Agent of Stocks, etc. (1)~(2) (same as current provisions) (3) The Company shall preserve the Register of Shareholders or the copy of the Register in the Transfer Agent’s office and shall make Transfer Agent handle electronic registration of stocks, management of the Register of Shareholders and other stock related affairs. (4) (same as current provisions)

Changed stock related

provisions regarding


registration of stocks etc.

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Article 11 Reissuance of Share Certificates (1) A shareholder desiring reissuance of a share certificate for reason of partition or amalgamation of shares, or damage or soiling to a share certificate, shall submit application therefor to the transfer agent of stocks, etc. in the form prescribed by the Company, together with the share certificate to be cancelled. However, when the damage or soiling is so extreme that the share certificate is not legible or cannot be authenticated, it shall be regarded as lost and the following paragraph shall apply for its replacement. (2) A shareholder desiring the issuance of a new share certificate due to loss of his share certificate shall submit to the transfer agent of stocks, etc. an application therefor, in the form prescribed by the Company, together with the original or the certified copy of a Judgment of Nullification with respect to the lost share certificate.

Article 11 <Deleted>

Deleted provisions related to

issuance of share

certificates regarding


registration of stocks etc.

Article 12. Report of Address, Name, Seal or Signature of Shareholders, etc. (1) Shareholders and registered pledgees shall report their names, addresses, seals, signatures, etc. to Transfer Agent in Article 10.

(2) Shareholders and registered pledgees who live abroad shall designate a place and a representative in Republic of Korea to receive the notice and shall report.

(3) It applies to the case of changes in (1) and (2)

Article 12 <Deleted>

Deleted provisions because if stocks are registered

electronically there is no need for shareholders

etc. to report their information to transfer agent

(Newly adopted)

Article 15. Electronic Registration of Rights that need to be stated in Bonds and Certificates of Preemptive Right to the New Stocks The Company shall electronically register the rights that need to be stated in bonds and certificates of preemptive right to the new stocks in Electronic Register of Electronic Registry instead of issuing bonds and Certificates of Preemptive Right to the New Stocks.

Adopted grounds of electronic

registration of rights that need to be stated in bonds and certificates of preemptive right to

the new stocks

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Article 17. Provisions Applicable to Cases of Issuing Bonds Article 10 and Article 12 shall apply to cases of issuing bonds.

Article 16. Provisions Applicable to Cases of Issuing Bonds Article 10 shall apply to cases of issuing bonds.

Deleted Article 12

ADDENDA (2018. 9. 3.) Article 1. Effective Date (1) The revised Articles of Incorporation shall be effective from September 3, 2018.

ADDENDA (2019. 3. 29.) Article 1. Effective Date (1) The revised Articles of Incorporation shall be effective from September 16, 2019 when Act on Electronic Registration of Stocks, Bonds, etc. is enforced.

-

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Agenda No. 3: Appointment of Directors (3 Outside Directors)

Voting Item(s)

Pursuant to Article 382 of the Commercial Code of Korea, we seek shareholders’ approval at the Annual General Meeting of Shareholders on the appointment of directors.

At the 28th AGM of Shareholders, we will seek the shareholders’ approval for the appointment of the following 3 outside directors.

• Agenda Item No. 3-1 Outside Director Nominee: Mr. Hyoung Tae Kim (Re-election)

• Agenda Item No. 3-2 Outside Director Nominee: Mr. Jooho Sung

• Agenda Item No. 3-3 Outside Director Nominee: Mr. Bum Su Kim

Overview

The Board of Directors currently consists of 6 directors: 1 Executive Director, 1 Non-Executive Director and 4 Outside Directors. The terms of the 4 Outside Directors expire on March 30, 2019.

In compliance with the Corporate Governance Act of Financial Companies (hereinafter “the Corporate Governance Act”), the Company has established an Executive Candidate Recommendation Committee, which recommends candidates for the positions of the Chief Executive Officer, Outside Directors and Audit Committee Members. It is required by the Corporate Governance Act that candidates for the aforementioned positions be reviewed and recommended by the Committee before they are appointed at the General Meeting of Shareholders.

Committee Members

Executive Candidate Recommendation Committee

Chair: Outside Director Hyuk-Sang Kwon Members: Non-Executive Director Tae Youn Kim

Outside Director Woong-Soon Song

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Director Recommendations

On March 7, 2019, the Executive Candidate Recommendation Committee was held to recommend Mr. Hyoung Tae Kim, Jooho Sung, Bum Su Kim and Youngsub Chun to be candidates for Outside Directors.

Such recommendation was reported to the Board of Directors on the same date. In Agenda No. 3, we seek approval of the appointment of only 3 Outside Directors, as the appointment of the remaining Outside Director (Youngsub Chun) will be handled separately in Agenda No. 4, as is required by the Corporate Governance Act.

Members of the Board of Directors after the 28th AGM

Name Director Classification

Date of Birth Nationality Profession End of

Tenure Share

Ownership

BOD Meeting

Attendance Rate

Munkuk Cheong

Executive Director

May 23, 1959 ROK Finance February 3,

2020 None 100%

Tae Youn Kim

Non-Executive Director

July 7, 1968 ROK Finance

2020 AGM (FY2019

AGM) None 100%

Hyoung Tae Kim

Outside Director

July 7, 1961 ROK Finance

2020 AGM (FY2019

AGM) None 100%

Jooho Sung Outside Director

December 27, 1963 ROK Finance

2020 AGM (FY2019

AGM) None -

Bum Su Kim

Outside Director

September 15, 1963 ROK Legal Affairs

2020 AGM (FY2019

AGM) None -

Youngsub Chun

Outside Director

October 30, 1957 ROK Finance

2020 AGM (FY2019

AGM) None -

*Our Non-Executive directors, Michael Byungju Kim and Jong-Ha Yoon resigned from the Board as of February 1, 2019 and at the 2019 Extraordinary General Meeting of Shareholders (which was held on February 1, 2019) Tae Youn Kim was appointed as a Non-Executive director.

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Agenda No. 3-1: Outside Director Nominee

(for a one-year term from March 30, 2019 to 2020 AGM)

Hyoung Tae Kim

Date of Birth July 7, 1961

Nominator Executive Candidate Recommendation Committee

Relations to the Largest Shareholder None

Business Transaction with the Company for the Past 3 years None

Term of Office 2020 AGM (FY2019 AGM)

Current Position Chief Economist, Kim & Chang Visiting Professor, Business School, Seoul National University

BOD Meeting Attendance Rate (prior year) 100%

Education Seoul National University, Korea, B.B.A. Seoul National University, Korea, M.B.A. Seoul National University, Korea, Ph.D. in Finance MIT, Sloan School, MA, USA, Post-doctorate

Major Work Experience

Global Institute of Financial Innovation, Managing Director & CEO The George Washington University, School of Business, Visiting Professor International Monetary Fund, Asia-Pacific Division, Visiting Scholar Korea Capital Market Institute, President Korea Securities Research Institute, Vice President Korea Securities Research Institute, Research Fellow University of Pennsylvania, Wharton School, Senior Research Fellow

Reasons for Recommendation

Hyoung Tae Kim is a chief economist at Kim & Chang and a visiting professor of Seoul National University.

Dr. Kim served as the President of the Korea Capital Market Institute and played a pivotal role in institutionalizing private equity funds, ELS, the Capital Market Act as well as the Financial Holding Company Act. He served as a member of the National Economic Advisory Council, which is a constitutional body advising on economic matters to the President of Korea. Dr. Kim researched and lectured at the Business School of The George Washington University, and, as a managing director of the Global Institute of Financial Innovation, he consulted state governments and venture companies of the US.

Among other qualifications, Dr. Kim brings to the Board executive leadership experience, including his service as a chief executive officer and president of financial research institutes, along with extensive financial expertise.

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Jooho Sung

Date of Birth December 27, 1963





Current Position Kyunghee University, Business Administration, Professor Korea Risk Management Society, Vice President

BOD Meeting Attendance Rate (prior year) -

Education BA in Statistics from Seoul National University MA in Statistics from Seoul National University PhD in Finance and Insurance from Cass University Business School


Financial Supervisory Services, Insurance Supervision Innovation Task Force Korean Pension Association, President Korean Insurance Academic Society, Vice President Korea Workers' Compensation and Welfare Services, Member of Retirement Pension Committee Hongik University, School of Commerce, Finance and Insurance Major, Assistant Professor Insurance Actuary, Pension Actuary


Jooho Sung is a professor at Kyunghee University teaching Insurance and Pension actuarial studies. He is also serving as a vice president at Korea Risk Management Society.

The Executive Candidate Recommendation Committee has recommended him as a candidate for Outside Director because Mr. Sung is expected to bring valuable insight to the BOD with his rich experience in the insurance and pension business. Mr. Sung is an actuary and has been providing advisory services to numerous government agencies, including assistance in dealing with critical issues. Also his strong academic background in finance is evidence of his extensive knowledge of the business and he is expected to share insightful advice with the Board.

Among other qualifications, Mr. Sung brings to the Board insurance expertise along with his leadership experiences.



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Bum Su Kim

Date of Birth September 15, 1963





Current Position KL Partners, Managing Partner


Education

BA in Law from Seoul National University Master’s degree in Comparative Law from The University of Florida Master’s degree in Intellectual Property & Information Law from University of Houston


Seoul Central District Court, Uijeongbu District Court, Judge Seoul Family Court, Judge Ministry of Justice, Member of Studies Group Law of International Transactions The Korean Arbitrators Association, Vice President and International Director Japanese Commercial Arbitration Board, Emergency Arbitrator Kuala Lumpur International Arbitration Centre, Arbitrator International Chamber of Commerce Court of Arbitration, Arbitrator Attorney at Law, New York State Admitted to bar, Korea (27th)


Bum Su Kim is a managing partner at KL Partners.

Mr. Kim has been nominated as an outside director candidate by the Executive Candidate Recommendation Committee because the committee considers him as the most suitable candidate to bring legal expertise to the BOD on dealing with issues arising from changes in regulatory requirements or any legal matters.

Mr. Kim has abundant experiences in international transactions, serving as an excellent arbitrator in various arbitration centers around the world. With his experiences, he is expected to ensure that the Board’s decisions are compliant with the relevant laws and regulations.

Among other qualifications, Mr. Kim brings to the Board legal expertise along with his leadership experience.

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Agenda No. 4: Appointment of Outside Director who will serve as Audit Committee Member

(for a one-year term from March 30, 2019 to 2020 AGM), Youngsub Chun

Voting Item(s)

The Corporate Governance Act stipulates that the Audit Committee shall be comprised of three directors or more and that at least two-thirds of the Committee shall be Outside Directors. Furthermore, the Act requires that at least one Outside Director who will be serving on the Audit Committee must be appointed separately, apart from other directors.

Accordingly, at the 28th AGM of Shareholders, the Company seeks to obtain approval from shareholders for the appointment of one Outside Director who will serve as audit committee member.

• Candidate: Youngsub Chun

(for a one year term from March 30, 2019 to 2020 AGM)

Date of Birth October 30, 1957





Current Position Seoul National University, Department of Economics, Professor


Education BA in Economics from Seoul National University Master’s degree in Economics from Seoul National University PhD in Economics from Seoul National University PhD in Economics from University of Rochester


The Korean Economic Association, Director Korean Resource Economics Association, Advisor Korean Environmental Economics, Director Sustainable Development Committee, Chairman Vanderbilt University, Economics, Assistant Professor Illinois State University, Economics, Assistant Professor


Youngsub Chun is a professor at Seoul National University teaching Economics and Public Finance.

The Executive Candidate Recommendation Committee has recommended him as an outside director candidate who will serve as an Audit Committee member because, along with his outstanding academic background in economics and finance, it is believed that he can bring accounting or financial expertise to the Board given his rich experiences in teaching public finance and also providing advisory services. His considerable expertise is demonstrated by his teaching career path.

As seen in the career history above, Mr. Chun is considered to be an accounting or financial expert, by whom the Audit Committee meets the requirement of including at least one financial expert, as is stipulated in the Commercial Code of Korea and the Corporate Governance Act.

14

Agenda No. 5: Appointment of Audit Committee Members

Voting Items

Pursuant to Article 542-12 of the Commercial Code of Korea and Article 19 of the Corporate Governance Act, we seek shareholders’ approval for the appointment of Audit Committee Members.

• Agenda Item No. 5-1 Audit committee member nominee: Mr. Bum Su Kim

• Agenda Item No. 5-2 Audit committee member nominee: Mr. Jooho Sung

Among the existing Outside Director candidates, Mr. Kim and Mr. Sung above, along with Mr. Youngsub Chun of Agenda No. 4 were recommended as nominees of the Audit Committee Members with one-year terms from March 30, 2019.

15

Agenda No. 5-1: Audit Committee Member (Outside Director) Nominee

(for one-year term from March 30, 2019 to 2020 AGM)

Bum Su Kim

Date of Birth September 15, 1963





Current Position KL Partners, Managing Partner


Education

BA in Law from Seoul National University Master’s degree in Comparative Law from The University of Florida Master’s degree in Intellectual Property & Information Law from University of Houston


Seoul Central District Court, Uijeongbu District Court, Judge Seoul Family Court, Judge Ministry of Justice, Member of Studies Group Law of International Transactions The Korean Arbitrators Association, Vice President and International Director Japanese Commercial Arbitration Board, Emergency Arbitrator Kuala Lumpur International Arbitration Centre, Arbitrator International Chamber of Commerce Court of Arbitration, Arbitrator Attorney at Law, New York State Admitted to bar, Korea (27th)


Bum Su Kim is a managing partner at KL Partners.

Mr. Kim has been nominated as an Audit Committee member candidate by the Executive Candidate Recommendation Committee because the Committee considers him as the most suitable candidate to bring legal expertise to the Audit Committee on dealing with issues arising from changes in accounting regulatory requirements or any legal matters.

Mr. Kim has abundant experiences in international transactions, serving as an excellent arbitrator in various arbitration centers around the world. With his experience, he is expected to ensure that the Board’s decisions are compliant with the relevant laws and regulations.

Among other qualifications, Mr. Kim brings to the Board legal expertise along with his leadership experience.

16

Agenda No. 5-2: Audit Committee Member (Outside Director) Nominee


Jooho Sung

Date of Birth December 27, 1963





Current Position Kyunghee University, Business Administration, Professor Korea Risk Management Society, Vice President


Education BA in Statistics from Seoul National University MA in Statistics from Seoul National University PhD in Finance and Insurance from Cass University Business School


Financial Supervisory Services, Insurance Supervision Innovation Task Force Korean Pension Association, President Korean Insurance Academic Society, Vice President Korea Workers' Compensation and Welfare Services, Member of Retirement Pension Committee Hongik University, School of Commerce, Finance and Insurance Major, Assistant Professor Insurance Actuary, Pension Actuary


Jooho Sung is a professor at Kyunghee University teaching Insurance and Pension actuarial studies. He is also serving as a vice president at Korea Risk Management Society.

The Executive Candidate Recommendation Committee has recommended him as a candidate for Audit Committee member because Mr. Sung is expected to bring valuable insight to the Committee with his rich experiences in the insurance and pension business. Mr. Sung is a certified actuary and has been providing advisory services to numerous government agencies, including assistance in dealing with critical issues. Also his strong academic background in finance is evidence of his extensive knowledge and ability to share insightful advice with the Committee.

Among other qualifications, Mr. Sung brings to the Board insurance expertise along with his leadership experiences.

17

Agenda No. 6: Approval of Remuneration Cap for Directors

Voting Item(s)

Pursuant to Article 388 of the Commercial Act, we hereby request that the shareholders approve the following:

Directors’ Remuneration for FY2018~FY2019 (in KRW)

- Eligible scope of directors: Registered directors* - Expected total remuneration amount includes salary, performance bonus, other expenses and any

unforeseen expenses that may occur.

FY2019 (Proposed) FY2018 (Approved) Remark(GAP)

KRW 2.5 billion KRW 2.5 billion No Change

KRW 2.5 billion is proposed as the maximum amount of aggregate remuneration that may be disbursed to the 5

directors, including 4 outside directors, of the company for fiscal year 2019. For your reference, the limit for fiscal

years 2017 and 2018 was also KRW 2.5 billion for 5 directors, including 4 outside directors.

*Non-executive directors are not entitled to receive remuneration.

Related Regulation

Commercial Act, Article 388 (Remuneration for Director)

“If the amount of remuneration for directors has not been fixed by the Articles of Incorporation,

it shall be determined by a resolution at the general shareholders’ meeting.”

18

Additional Information

1. Number and Classification of Voting Shares

The record date for exercising voting rights at the AGM of Shareholders is December 31, 2018. As of the record date, there are 82,000,000 shares outstanding, all of which are valid shares for voting.

2. Method of Resolution

Pursuant to the provisions of the Commercial Code of Korea, Agenda No. 1, 3, 4, 5 and 6 shall be approved by a majority of shares present at the meeting and at least one fourth of the total shares issued and outstanding with voting rights. Pursuant to Article 434 of the Commercial Code of Korea, Agenda No. 2 shall be approved by at least two-thirds of shares present at the meeting and at least one-third of the total shares issued and outstanding with voting rights.

3. Members of the Board of Directors after the 28th Annual General Meeting of Shareholders

Before AGM

After AGM

Initially appointed on Reappointed on End of Tenure

Executive Director Executive Director

Munkuk Cheong Munkuk Cheong February 3, 2014 February 3, 2017 February 3, 2020

Non-Executive Director* Non-Executive Director*

Tae Youn Kim Tae Youn Kim February 1, 2019 - 2020 AGM

Outside Directors** Outside Directors

Hyoung Tae Kim Hyuk-Sang Kwon Jay Bum Ahn Woong-Soon Song

Hyoung Tae Kim Jooho Sung Bum Su Kim Youngsub Chun

August 23, 2018 March 30, 2019

2020 AGM March 30, 2019 -

*Our Non-Executive directors, Michael Byungju Kim and Jong-Ha Yoon resigned from the Board as of February 1, 2019 and at 2019 Extraordinary General Meeting of Shareholders (which was held on February 1, 2019) Tae Youn Kim was appointed as a Non-Executive director.

** An Outside Director is defined as a member of a corporation's Board of Directors who is not an employee of the company and has no operational responsibilities within the company, as is stipulated under the Commercial Code of Korea and the Corporate Governance Act.

4. Corporate Governance

Overview

The Company has established a stable and transparent governance structure in order to maximize the interests of shareholders and policyholders. The Board of Directors and sub-Board committees are composed as follows:

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The Board of Directors

Our Board of Directors has the ultimate responsibility for the administration of company affairs. Our Articles of Incorporation currently provide for a Board of Directors consisting of no less than five directors, at least three of whom must be Outside Directors. Executive Directors are directors who are full-time executive officers of our company. Non-Executive Directors are directors who are not full-time executives of our company, while Outside Directors are non-executive directors elected from among those persons who do not have a special relationship with us, which would interfere with the exercising of their independent judgment. Directors are elected at a general meeting of shareholders by a majority vote of those present or represented, so long as the affirmative votes also represent no less than 25% of the issued and outstanding shares with voting rights. Our Outside Directors are elected from among candidates who meet the qualifications set forth in the Commercial Code of Korea and the Corporate Governance Act.

The Representative Director is a director elected by a resolution of our Board of Directors and is empowered to make day-to-day business decisions as our Chief Executive Officer. Munkuk Cheong currently serves as our Representative Director.

Board Committees

In accordance with the Corporate Governance Act, we have established the following committees under our Board of Directors:

• Executive Candidate Recommendation Committee;

• Audit Committee;

• Risk Management Committee; and

• Remuneration Committee.


Under the Commercial Code of Korea, the Corporate Governance Act and our Articles of Incorporation, we are required to have an Executive Candidate Recommendation Committee consisting of at least three directors, a majority of whom must be Outside Directors. The Executive Candidate Recommendation Committee is responsible for reviewing and recommending candidates for Outside Directors, Audit Committee Members and the Chief Executive Officer for election at the general meeting of shareholders.

The Executive Candidate Recommendation Committee currently consists of three directors: Tae Youn Kim, Woong-Soon Song and Hyuk-Sang Kwon. The Executive Candidate Recommendation Committee holds meetings only when candidates for Outside Directors, Audit Committee members or the Chief Executive Officer need to be recommended.

Audit Committee

Under the Commercial Code of Korea, the Corporate Governance Act and our Articles of Incorporation, we are required to have an Audit Committee consisting of three or more directors, at least two-thirds of whom must be Outside Directors. Members of the Audit Committee are elected by our shareholders at the general meeting of shareholders. The committee reviews all audit and compliance-related matters and makes recommendations to our Board of Directors. Our Audit Committee’s primary responsibilities include:

• Appointing the external auditors;

• Approving the annual internal audit plans;

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• Evaluating the audit results and action plans made by business managements;

• Reviewing annual financial statements;

• Reviewing our system of controls and policies;

• Considering the effects of significant changes in accounting practices; and

• Dealing with matters stipulated in the laws or AOI or delegated from the BOD

In connection with the AGM of shareholders, the Committee examines the agenda for, and financial statements and other reports to be submitted by the Board of Directors at, each AGM of shareholders.

The Audit Committee currently consists of three directors: Woong-Soon Song, Jay Bum Ahn and Hyuk-Sang Kwon. Meetings of the Audit Committee are held quarterly, and on an ad hoc basis if necessary.

Risk Management Committee

The Risk Management Committee is responsible for overseeing all risks relating to our operations and advising our Board of Directors with respect to risk management-related issues. The principal activities of the Risk Management Committee include:

• establishing and reviewing our overall risk management policies and procedures;

• determining specific risk tolerance levels and capital allocations for various business activities;

• monitoring our capital adequacy and solvency levels; and

• overseeing the operation of our risk management systems and coordinating with subcommittees and councils, as well as the Risk Management Office, to facilitate an integrated risk management workflow.

The Risk Management Committee currently consists of six directors: Jay Bum Ahn, Hyuk-Sang Kwon, Woong-Soon Song, Hyoung Tae Kim, Munkuk Cheong and Tae Youn Kim. Meetings of the Risk Management Committee are held quarterly, and on an ad hoc basis if necessary.

Remuneration Committee

The Remuneration Committee is responsible for reviewing and determining the operation of our compensation program. Our Remuneration Committee’s primary responsibilities include:

• reviewing and approving corporate goals and objectives relevant to the compensation of our directors;

• establishing and reviewing annually any stock ownership guidelines applicable to our directors and management;

• determining and approving the compensation level (including base and incentive compensation) and direct and indirect benefits of Executive Officers; and

• any other matters delegated by our Board of Directors.

The Remuneration Committee currently consists of four directors: Jay Bum Ahn, Hyuk-Sang Kwon, Hyoung Tae Kim and Tae Youn Kim. Meetings of the Remuneration Committee are held annually, and on an ad hoc basis if necessary.

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Profile of BOD Members

The table below sets forth our directors, and their positions, as of the record date of the AGM. The business address of each of our directors, as well as our Executive Officers, is our registered office at Orange Center, 37, Sejong-daero 7-gil, Jung-gu, Seoul 04511, Korea.

(As of December 31, 2018)

Name Position End of Current Term Other Current Positions

Munkuk Cheong Representative Director, President and Chief Executive Officer

February 2020 None

Michael Byungju Kim* Non-Executive Director March 2020 Partner and Founder, MBK Partners

Jong-Ha Yoon* Non-Executive Director March 2020 Partner and Head of Korea, MBK Partners

Hyuk-Sang Kwon Outside Director March 2019 Chief Executive Officer, Win Asset Management

Woong-Soon Song Outside Director March 2019 Attorney-at-Law and Partner, Shin & Kim

Jay Bum Ahn Outside Director March 2019

Adjunct Professor of Graduate School of Technology Management at Kyung Hee University

Hyoung Tae Kim Outside Director March 2019

Visiting Professor, Seoul National University Chief Economist, Kim & Chang

*Our Non-Executive directors, Michael Byungju Kim and Jong-Ha Yoon resigned from the Board as of February 1, 2019 and at 2019 Extraordinary General Meeting of Shareholders which was held on February 1, 2019, Tae Youn Kim was appointed as a Non-Executive director.

Munkuk Cheong has served as our Representative Director and Chief Executive Officer since February 2014. Previously, Mr. Cheong served as president and Chief Executive Officer of ACE Life Korea and Allianz Life Korea, and as Chief Executive Officer of AIG Global Investment Korea. Mr. Cheong holds a Bachelor of Arts degree in Dutch Studies from Hankuk University of Foreign Studies.

Michael Byungju Kim has served as our Non-Executive Director since December 2013. Mr. Kim currently also serves as partner and founder of MBK Partners. Previously, Mr. Kim served as president of Carlyle Asia Partners, managing director and Chief Operating Officer of Asia-Pacific Investment Banking for Salomon Smith Barney and executive director of Goldman Sachs & Co. Mr. Kim holds a Bachelor of Arts degree in English from Haverford College and a Master of Business Administration degree from Harvard Business School. He has resigned from the Board on February 1, 2019.

Jong-Ha Yoon has served as our Non-Executive Director since December 2013. Mr. Yoon currently also serves as

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partner and head of Korea for MBK Partners. Previously, Mr. Yoon served as co-president of Korea for Carlyle Asia Partners and managing director of Financial Advisory Services at KPMG in Seoul. Mr. Yoon holds a Bachelor of Arts degree in Economics from Georgetown University, a Master of Public Policy degree from the John F. Kennedy School of Government at Harvard University and a Doctor of Philosophy degree in Economics from the University of Chicago. He has resigned from the Board on February 1, 2019.

Hyuk-Sang Kwon has served as our Outside Director since December 2013. Previously, Mr. Kwon served as head of Equity Division at Hanwha Asset Management and director of Equity Investment Division at Yurie Asset Management. Mr. Kwon holds a Bachelor of Arts degree in Agricultural Economics from Korea University and a Master of Business Administration degree from the University of Missouri.

Woong-Soon Song has served as our Outside Director since December 2013. Mr. Song currently also serves as senior partner at Shin & Kim. Previously, Mr. Song served as general counsel for the Samsung Group and Samsung Life Insurance. Mr. Song holds a Bachelor of Laws and Master of Laws degrees from Seoul National University and a Master of Laws degree from Columbia Law School.

Jay Bum Ahn has served as our Outside Director since December 2013. Previously, Mr. Ahn served as Executive Officer of LINA Life Korea and MetLife Korea, and also served as Chief Marketing Officer and Direct Sales Officer of Standard Chartered Bank Korea. Mr. Ahn holds a Bachelor of Arts degree in Marketing from George Mason University and a Master of Business Administration degree from American University.

Hyoung Tae Kim has served as our Outside Director since August 2018. Dr. Kim currently also serves as a chief economist at Kim & Chang and a visiting professor in Seoul National University. Previously, Dr. Kim served as the President of the Korea Capital Market Institute. Dr. Kim also researched and lectured at the Business School of the George Washington University, and, as a managing director of the Global Institute of Financial Innovation, he consulted state governments and venture companies of the US. Dr. Kim holds a Bachelor of Arts degree in Business Administration and a Master of Business Administration degree and Ph.D. in Finance from Seoul National University. Dr. Kim also holds a post-doctoral degree from MIT Sloan School of Management.

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BOD Activities in 2018

Committee Members Meetings attended/ Meetings scheduled to attend Attendance Rate

Board of Directors

Munkuk Cheong 9/9 100%

Michael Byungju Kim 6/9 67%

Jong-Ha Yoon 9/9 100%

Hyuk-Sang Kwon 9/9 100%

Jay Bum Ahn 8/9 89%

Woong-Soon Song 9/9 100%

Suk Heun Yoon** 4/4 100%

Hyoung Tae Kim* 2/2 100%




Woong-Soon Song 3/3 100%

Audit Committee Woong-Soon Song 5/5 100%


Jay Bum Ahn 5/5 100%

Risk Management Committee


Munkuk Cheong 5/5 100%




Woong-Soon Song** 3/3 100%

Hyoung Tae Kim* 1/1 100%

Remuneration Committee




Hyuk-Sang Kwon** 0/0 -

Hyoung Tae Kim* 0/0 - *Outside director Hyoung Tae Kim was appointed as a member of Risk Management Committee and Remuneration Committee on November 21, 2018.

**Since outside director Suk Heun Yoon resigned from the Board of Directors, along with Sub-Board Committees, as of May 7, 2018, other outside directors have been respectively appointed as members of the sub-Board committees; Woong-Soon Song as a member of Risk Management Committee, and Hyuk-Sang Kwon as a member of Remuneration Committee.

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5. Related Party Transactions

Transactions with largest Shareholders

There are no credit grants to Life Investment Limited and no acquisition of stocks issued by Life Investment Limited, which is the largest shareholder of our company as of December 31, 2018.

Dividends paid to Life Investment Limited for the year ended December 31, 2018 was KRW 130,950 million.

Transactions with related parties

The Company’s transactions with other related parties are marketing related expenses of KRW 102 million, with no outstanding balance of related payables as of December 31, 2018. Also, the Company donated KRW 3,044 million to the Orange Hope Foundation for the year ended December 31, 2018.

For detailed information of notes to financial statements, please refer to Appendix ‘Audited financial statements and related notes for FY2018’.

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Table of contents Page Independent auditor’s report

Financial statements

Statements of financial position

1

Statements of profit or loss and other comprehensive income or loss

2

Statements of changes in equity

3

Statements of cash flows

4

Notes to the financial statements 6

Independent auditor’s report

The Board of Directors and ShareholdersOrange Life Insurance, Ltd. (formerly, ING Life Insurance Korea, Ltd.)

Report on the financial statements

Opinion

We have audited the financial statements of Orange Life Insurance, Ltd.(the “Company”) (formerly, ING Life Insurance Korea, Ltd.), which comprise the statements of financial position as of December 31, 2018 and 2017, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects the financial position of the Company as of December 31, 2018 and 2017and its financial performance and its cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

Basis of opinion

We conducted our audits in accordance with Korean Auditing Standards (KGAAS). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

(Premium reserve calculating)As noted in Note 2.2.16 (Insurance Contract Liabilities) to the Financial Statements, the Company shall notify the policyholders or beneficiaries of insurance contracts, insurance claims, The Company has accumulated premium reserves for the payment of premiums.

As noted in Note 15 (Statement of Insurance Contract Liabilities), the book value of the reserve for insurance premiums is 22.2 trillion won, representing 76.6% of the total liabilities of 29.0 trillion won and 97.4% of the insurance contract liabilities of 22.8 trillion won There is. The premium reserve is the present value of the future cash flows during the estimated life of the insurer based on the base rate of the settlement of accounts used by the insurer. Therefore, it was decided that the auditor should pay significant attention, and decided on the key audit matters.

As of the reporting date, the main audit procedures performed by the Company for the insurance premium reserve of 22.2 trillion won recorded in the financial statements are as follows.

Understand the Company’s accounting policies related to the calculation of premium reserves and review for the compliance of the Regulation on Supervision of Insurance Business and the enforcement rules thereof.

Review if the changes in supervisory regulations and internal calculation regulations are applied in the calculation of premium reserves as appropriate.

Evaluate if the basic information such as the methodology, assumptions, and input variables used for the interest sensitive product or protection product, whichever is held in higher proportion, comply with the supervisory regulations and internal calculation regulations.

Evaluate the completeness of the contracts subject to reserve by the reconciliation of the contract information on the Company’s operation system and the results of premium reserve computation.

Review if the total amount of premium reserve in the final reserve closing file matches the closing information.

Responsibilities of management and those charged with governance for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Auditing Standards (KGAAS) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Korean Auditing Standards (KGAAS), we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conc

lude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The partner in charge of the audit resulting in this independent auditor’s report is Yong Joo Han.

March 8, 2019

This audit report is effective as of March 8, 2019, the independent auditor’s report date. Accordingly, certain material subsequent events or circumstances may have occurred during the period from the independent auditor’sreport date to the time this report is used. Such events and circumstances could significantly affect the accompanying financial statements and may result in modifications to this report.

Orange Life Insurance, Ltd. (formerly, ING Life Insurance Korea, Ltd.)

Financial statements for the years ended December 31, 2018 and 2017

“The accompanying financial statements, including all footnotes and disclosures, have been prepared by, and are the responsibility of, the Company.”

Cheong, Munkuk Chief Executive Officer Orange Life Insurance, Ltd.

Orange Life Insurance, Ltd. (formerly, ING Life Insurance Korea, Ltd.)Notes to the financial statementsDecember 31, 2018 and 2017

1. Company information

Orange Life Insurance Ltd. (formerly, ING Life Insurance Korea, Ltd.)(the “Company”) was incorporated on September 9, 1991 and primarily engages in the life insurance business, reinsurance business for life insurance and related asset management activities.

The Company was wholly owned by ING Insurance International II B.V. of the Netherlands. On December 24, 2013, Life Investment Limited acquired 100% equity interest in the Company from ING Insurance International II B.V., and the Company became a wholly owned subsidiary of Life Investment Limited. The Company is listed on the domestic securities market since May 11, 2017.

The name of the Company has been changed from ING Life Insurance Korea, Ltd. to Orange Life Insurance, Ltd. by the approval for the revision to the articles of association at the extraordinary general meeting of shareholders on August 23, 2018.

The capital stock which issued at 20,000 million at establishment currently amounts to 82,000 million as of December 31, 2018 after going through several additional offerings.

Capital stock and shareholders of the Company as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017

Name of shareholder Capital stock(at par)

Percentage ofownership (%)

Capital stock(at par)

Percentage ofownership (%)

Life Investment Limited 48,500 59.15 48,500 59.15Others 33,500 40.85 33,500 40.85

82,000 100.00 82,000 100.00

2. Basis of financial statement preparation and significant accounting policies.

2.1 Basis of financial statement preparation

The Company prepares statutory financial statements in the Korean language in accordance with Korean International Financial Reporting Standards (KIFRS) enacted by the Act on External Audit of Stock Companies. The accompanying financial statements have been translated into English from the Korean language financial statements. In the event of any differences in interpreting the financial statements or the independent auditors’ report thereon, the Korean version, which is used for regulatory reporting purposes, shall prevail.

2.2 Significant accounting policies

2.2.1 Transactions in foreign currencies

2.2.1.1 Functional currency

The Company’s financial statements are presented in the functional currency. The functional currency is the currency of primary economic environment where the business activities are taken place. Transactions in foreign currencies are initially converted to the functional currency by the Company and recognized.

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2. Basis of financial statement preparation and significant accounting policies (cont’d)

2.2 Significant accounting policies (cont’d)

2.2.1.2 Translation of foreign currency transactions

Transactions in foreign currencies are initially recognized at their respective functional currency rates as of the dates of the transaction or the functional average exchange rates. Monetary assets and liabilities denominated in foreign currencies are retranslated at the currency spot exchange rates ruling at the reporting date, and the exchange differences arising on translation are recognized in profit or loss in the period. Non-monetary assets and liabilities that are measured in terms of fair value are translated using the exchange rates as at the reporting date. Exchange differences are recognized in profit or loss in the period for the components of which gain or loss on valuation of fair value is recognized in profit or loss, whereas, the differences are recognized in other comprehensive income for the components of which gain or loss on valuation of fair value is recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost are recognized at the currency rates of initial recognition, so no exchange differences are incurred.

2.2.2 Cash and cash equivalents

Cash consists of cash on hand and demand deposits. Cash equivalents are held to meet demand for highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value.

2.2.3 Classification and measurement of financial assets

Financial assets are classified as financial assets at fair value through profit or loss, available-for-sale investments, held-to-maturity investments, or loans and receivables, as appropriate. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset. Financial assets are recognized initially atfair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

2.2.3.1 Financial assets at fair value through profit or loss (FVTPL)

Financial assets at FVTPL include financial assets held-for-trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separate embedded derivatives are also classified as financial assets held-for-trading unless they are designated as effective hedging instruments or financial guarantee contracts as defined by KIFRS 1039.In addition, financial assets at FVTPL are also subsequently measured at fair value and resulting unrealized gain or loss including the related interest income and dividend income is credited or charged to profit or loss in the statements of comprehensive income.

2.2.3.2 Available-for-sale financial investments (AFS)

Financial assets that are not classified as held-to-maturity, held-for-trading, designated as at fair value through profit or loss, or loans and receivables, are classified as available-for-sale. A gain or loss on an available-for-sale financial asset is recognized in other comprehensive income, except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognized. However, unquoted equity investments whose fair value cannot be measured reliably are carried at cost. The cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognized. Dividends on an available-for-sale equity instrument are recognized in profit or loss when the entity’s right to receive payment is established.

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2.2.3.3 Held-to-maturity investments (HTM)

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Company has the positive intention and ability to hold it to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the effective interest rate.

2.2.3.4 Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the effective interest rate.

2.2.4 Derivative financial instruments and hedge accounting

Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are classified as either trading or hedging if they are qualified for hedge accounting. Derivatives are subsequently re-measured at fair value and any gains or losses arising from changes in fair value on derivatives are taken directly to the statement of comprehensive income, except for the effective portion of cash flow hedges, which is recognized in other comprehensive income. The Company designates certain hedging instruments as (a) hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment (fair value hedge); (b) hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction (cash flow hedge); and (c) hedge of a net investment in a foreign operation.

At the inception of the hedge relationship, the Company documents the relationship between the hedginginstrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

2.2.4.1 Fair value hedge accounting

Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recognized in net income immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Hedge accounting is discontinued when the Company revokes the hedging relationship or when the hedging instrument is no longer qualified for hedge accounting. The fair value adjustment to the carrying amount of the hedged item is amortized to net income from that date to maturity using the effective interest method.

2.2.4.2 Cash flow hedge accounting

The effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in net income. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to net income when the hedged item is recognized in net income. Hedge accounting is discontinued when the hedging instrument is expired or sold, or it is no longer qualified for hedge accounting, and any cumulative gain or loss in other comprehensive income remains in equity until the forecast transaction is ultimately recognized in net income. When a forecasted transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in net income.

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2.2.4.3 Embedded derivative

An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract—with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. A derivative embedded in a contract is accounted for as a stand-alone derivative if its economic characteristics are not closely related to the economic characteristics of the host contract; unless the entire contract is measured at fair value with changes in fair value recognized in net income.

2.2.4.4 Valuation adjustment: Credit risk

Marked to market value of derivative asset position is net of a credit valuation adjustment attributable to derivative counterparty default risk.

2.2.5 Impairment of financial assets

2.2.5.1 Available-for-sale financial investments

Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the statements of comprehensive income – is removed from other comprehensive income and recognized in the statements of comprehensive income.

In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. Impairment losses on equity investments are not reversed through the statements of comprehensive income; increases in their fair value after impairment are recognized directly in other comprehensive income. However, if, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statements of comprehensive income, the impairment loss is reversed through the statements of comprehensive income.

2.2.5.2 Held-to-maturity investments

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. The amount of the loss is recognized in the statements of comprehensive income. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the statements of comprehensive income. The reversal should not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed.

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2.2.5.3 Loans and receivables

Individually important financial assets recognize a loss on impairment by establishing individual allowance for bad debts after reviewing if there is any objective evidence of the damage caused. If there is no objective evidence for the damage caused to the individually reviewed financial asset, other damages including the financial assets with similar credit risks are reviewed collectively. Also, individually unimportant financial assets assess a loss on impairment collectively.

In the event that there is objective evidence for the damage caused, individual allowance for bad debts is estimated in the difference of the current value of the estimated future cash flow which is discounted by the book value of the financial asset and the first effective interest rate. However, the future loss on impairment which has occurred yet does not include the expected future cash flow. Individual allowance for bad debts is depreciated with the financial assets when it is impossible to collect the debts in the future and all the collaterals or securities are completely collected. In the event that bad debts are objectively related with the incident occurred after the amount of the loss on impairment reduces and the loss recognizes the damage during the follow-up period, the individual allowance for bad debts is adjusted in order to recover the loss on impairment recognized already.

In order to calculate the current value of the expected future cash flow, the first effective interest rate is applied, but the final effective interest rate before impairment is applied to estimate the loss on impairment for variable-rate financial assets. The current value of the expected future cash flow of the secured financial assets is calculated by estimating cash flow from the collateral, regardless of the possibility of additionalinflows of collateral, and by deducting acquisition costs and disposal costs. The Company classifies loans into groups with similar credit risk in order to establish allowance for bad debts. Criteria for classification of credit risks are type of products, industry of borrower, credit rating, regional risk, type of collateral, and status of defaults, etc.

The Company calculates allowance for bad debts based on the loss incurred. Allowance for bad debts are established and calculated by multiplying IBNR (Incurred But Not Reported) default by LGD (Loss Given Default). IBNR default is estimated by reflecting LEP (Loss Emergence Period) to PD (Probability of Default) based on past experience of impairments on loans with similar credit risk. Also, LGD (Loss Given Default) is estimated by applying the effective interest rate of the loans as discount rate considering types of products and collateral.

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2.2.6 Reclassifications of financial assets

The Company reclassifies a financial asset only in the rare circumstances as follow:

When the Company is unable to trade held-for-trading financial assets due to inactive markets and management’s intent to sell them in the foreseeable future significantly changes, the Company may elect to reclassify these financial assets in rare circumstances. Held-for-trading financial assets that meet the definition of loans and receivables may be reclassified to loans and receivables if the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity.

Available-for-sale financial assets that meet the definition of loans and receivables may be reclassified to loans and receivables if the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity. The reclassification to held-to-maturity is permitted only when the Company has the ability and intent to hold the financial asset until maturity. A financial asset reclassified from the available-for-sale category to held-to-maturity is reclassified at its fair value on the date of reclassification, and any previous gain or loss on that asset that has been recognized in other comprehensive income is amortized to profit or loss over the remaining life of the investment using the effective interest method. Any difference between the new amortized cost and maturity amount is also to be amortized over the remaining life of the financial asset using the effective interest method. If the financial asset is subsequently impaired, any gain or loss that has previously been recognized in other comprehensive income is reclassified from equity to profit or loss in the statements of comprehensive income.

If, as a result of a change in intention or ability, it is no longer appropriate to classify an investment as held-to-maturity, it will be reclassified as available-for-sale. However, if a reclassification is more than an insignificant amount of held-to-maturity, any remaining held-to-maturity investments will all be reclassified as available-for-sale.

2.2.7 Derecognition of financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when (i) the rights to receive cash flows from the asset have expired or, (ii) the Company has transferred substantially all the risks and rewards of the asset. If the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset, the Company recognizes the asset and the associated liability to the extent of the Company’s continuing involvement in the asset. If the Company has retained substantially all the risks and rewards of ownership of the transferred asset, the Company continues to recognize the transferred asset and recognizes a collateralized borrowing for the consideration received.

2.2.8 Reinsurance assets

Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are disclosed as reinsurance assets in accordance with the related reinsurance contracts. Reinsurance assets are reviewed for impairment at each reporting date. Impairment occurs when there is objective evidence - as a result of an event that occurred after initial recognition of the reinsurance assets- that the Company may not receive all outstanding amounts due under the terms of the contract, and the event has a reliable measurable impact on the amounts that the Company will receive from the reinsurer. Reinsurance assets are impaired, the carrying amount of assets is reduced, and the impairment loss is recognized in the statements of comprehensive income.

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2.2.9 Property and equipment

Property and equipment is stated at historical cost less accumulated depreciation. The historical cost is expenditure directly related to the acquisition of assets. The subsequent cost is capitalized if it is probable that future economic benefit associated with the items will flow to the Company and the cost of an item can be measured reliably. All other repairs and maintenance costs are recognized as an expense in the period incurred.

Depreciation of property and equipment is calculated using declining balance method or straight line method to write down the cost of property and equipment to their residual values over their estimated useful life.

Useful lifeFurniture and equipment 5 yearsLeasehold improvements 5 or rental period

The carrying value of assets is reduced when there are indicators that the carrying value may not be recoverable. The assets’ residual values and useful life are reviewed and adjusted if appropriate at each financial year end. Any gains of loss arising on derecognition of the assets (calculated as the difference between the net disposal proceeds and the carrying amount of the assets) are recognized as other operating income and expenses in the statement of comprehensive income.

2.2.10 Intangible assets

Intangible assets are recognized if there is a high probability that future economic benefit arising from the assets will flow to the Company and the cost of them can be measured reliably. Intangible assets include software, research and development cost, and membership.

Intangible assets acquired individually are recognized at acquisition cost. Intangible assets with finite life are amortized over the useful economic life with straight line method and the following amortization period. Intangible assets with indefinite useful life are not amortized, but are tested for impairment annually, or whenever there is an indication that the intangible asset may be impaired. The assessment of indefinite life is reviewed at each reporting to determine whether the indefinite life continues to be supportable.

Useful lifeSoftware and development 5 yearsMembership Indefinite

2.2.11 Government grants

Government grants are recognized as fair value where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an asset, it is subtracted when calculating the book value of the asset. When the grant relates to income, it is deferred and subtracted from the related expense for the purpose of the grants. When the grant requires an obligation for repayment, it is treated as a change in accounting assumption.

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2.2.12 Impairment on non-financial assets

The Company tests all non-financial assets subject to amortization for impairment whenever events orchanges in circumstances indicate that the carrying amount may not be recoverable. Recoverable amount is the higher of value in use and net fair value less costs to sell. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and such impairment loss is recognized. For the purpose of impairment assessments, the assets are grouped separately as the lowest identifiable level of group (cash generating unit) generating cash flow. Previously recognized impairment loss on non-financial assets other than goodwill is reviewed at each reporting date for the possibility of reversal.

2.2.13 Insurance receivables

Insurance receivables are recognized when due (before the date of the statements of financial position) and measured on initial recognition at the present value of estimated future cash flows on consideration received and receivables using the effective interest rate. Subsequent to initial recognition, insurance receivables are recognized at amortized cost, using the effective interest rate method in the balance sheet. The short-term insurance receivables of which interest revenue is unimportant, are reported at nominal value. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable and recoverable amount is less than acquisition costs after amortization of insurance receivables, with the impairment loss recorded in the statements of comprehensive income.

2.2.14 Deferred Acquisition Costs

The Company recognizes acquisition costs from long term insurance contracts as assets, and the acquisition costs are amortized evenly over the premium payment period (up to 7 years). If there is any unamortized acquisition costs remaining as of the date of termination (or the date of invalidation, if an insurance contract becomes invalid before termination), such remainder shall be amortized in the accounting year in which the contract is terminated. Further, if the unamortized acquisition costs are greater than the difference between the net premiums type premium reserve at the end of the current accounting year and the surrender value type premium reserve, the excess shall be amortized in the current accounting year.

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2.2.15 Classification of insurance contracts and investment contracts

The Company agrees to indemnify a policyholder in the event that an uncertain incident (insurance incident) of a certain future has caused an adverse influence on the other party (policyholder). The agreement which agrees to acquire the important insurance risk from the policyholder is classified into insurance contracts, and significance of insurance risk is assessed by each contract considering the insurance payable in case of insurance incident, and other payments in case no incident occurs.

On the other hand, the Company classifies the contracts which are exposed to financial risk without important insurance risk into investment contracts. Financial risk means a risk caused by fluctuations of certain variables (interest rate, prices of financial products, prices of commodities, exchange rate, price or ratio index, credit rating or credit index, and non-financial variables that do not relate to the contracting Company) which are likely to occur in the future. Investment contracts are reclassified if there are requisites for provisional dividends. Investment contracts with requisites for provisional dividends are treated as insurance contracts in accounting and investments contracts without requisites for provisional dividends are treated according to Financial Accounting Standards No. 1039 “Financial products: Recognition and Measurement” in accounting.

In the event that the Company classifies a contract as an insurance contract, the contract is classified and recognized as an insurance contract until all the rights and obligations under the contract terminate or expire. In the event that the insurance risk becomes immaterial during the contract term, it is not reclassified into investment contract. However, in the event that an investment contract with insurance risk is recognized as important, it is reclassified into insurance contract.

2.2.16 Insurance Contract Liabilities

Insurance contract liabilities are provided in accordance with the Regulation on Supervision of Insurance Business and the related laws. These reserves are computed based on the Premium and Insurance Contract Liabilities Calculation Guideline set forth by Financial Supervisory Commission. Major contents are as below:

2.2.16.1 Premium Reserve

The Company is required to maintain a premium reserve at the amount calculated by deducting the actuarial present value of future premiums to be received after the reporting date from the actuarial present value of future payment of claims with respect to the long-term insurance contracts expected after the reporting date.

2.2.16.2 Unearned Premium Reserve

The Company is required to maintain an unearned premium reserve for insurance contracts, whose payment date falls within the current year but the effective date has not yet commenced as of the reporting date.

2.2.16.3 Guaranteed Reserve

A guaranteed reserve is reserved to guarantee an amount above certain level for claims paid, etc. for the Company’s in-force policies as of December 31, 2017. The Company reserves the amount based on the calculation method regulated by Appendix 24 of Enforced Regulation of Regulation on Supervision of Insurance Business (standard on calculation for guaranteed reserve).

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2.2.16.4 Reserve for Outstanding Claims

The Company provides reserve for payments including claims whose payment is (estimated to be) due but outstanding at balance sheet date. Reserve for outstanding claims comprises of i) amount of identifiable claims estimated based on insurance events reported to the Company for litigation, pending, etc., ii) incurred but not reported claims over one year prior to balance sheet date, iii) reserve against the insurance contracts lapsed for nonpayment whose right for reinstatement or grace period did not expire, which is equivalent to lapse surrender value, and iv) Claims for which payments such as claims, refund and dividends are fixed but which remain outstanding as of the balance sheet date.

2.2.16.5 Reserve for Participating Policyholder’s Dividends

(a) Excess Crediting Rate ReserveThe Company accumulates this reserve to make up for the difference between assumed interest rate and the average interest rate for one-year term deposit of the current business year, for policyholders of participating insurance contracts (applicable only to those dated on or before October 1, 1997).

(b) Mortality Dividend Reserve The Company provides reserve against mortality dividend to make up for the difference between expected mortality rate and actual mortality rate for the participating insurance contracts that remained in force for longer than one year

(c) Interest Dividend Reserve The Company provides reserve against interest dividend to make up for the difference between standard interest dividend rate and assumed interest rate of the insurance product for the participating insurance contracts that remained in force for longer than one year. For the policies dated on or before October 1, 1997, the Company makes reserve on interest dividend to make up for the difference between standard interest dividend rate and the assumed interest rate of the insurance product including the guaranteed interest dividend rate at beginning of the current business year.

(d) Long-term Persistency Dividend Reserve For the effective participating insurance contracts that remained in force for longer than 6 years, the Company provides reserve calculated by subtracting surrender charges from the net premium reserve and multiplying it by the long-term duration dividend rate.

(e) Expense Dividend Reserve The Company provides reserve against expense dividend to make up for the difference between expected expense dividend rate and standard expense dividend rate for the insurance contracts excluding non-participating insurance contracts that remained in force for longer than one year.

(f) Reserve for Policyholder’s Income DividendsThe Company accumulates the due amount based on business performance in conformity with statutes or insurance policy provisions as a reserve against the unrealized participating policyholder dividends.

(g) Reserve for Loss on Participating Insurance The Company accumulates the reserve for loss on participating insurance within the limit of 30/100 of participating profit policyholders’ equity in order to make up for the loss on participating insurance contracts that may incur in the future. This reserve makes up for the loss on participating contracts within the 5 fiscal years immediately following the end of the fiscal year in which reserve was accumulated, and the remaining balance is used as resources for individual participating policyholders’ dividends.

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2.2.17 Liability Adequacy Test

The Company makes an assessment of the appropriateness of insurance liability using current estimates of future cash flows of insurance contracts at the end of the financial year. After the assessment, if the book value of the insurance liability is considered as inappropriate with respect to the estimated future cash flows, the shortfall is recognized in the statements of comprehensive income.

The Company applies a liability adequacy test that meets specified minimum requirements under KIFRS 1104 Insurance Contracts and this IFRS standard imposes no further requirements. The minimum requirements are the following:

(a) The test considers current estimates of all contractual cash flows, and of related cash flows such as claims handling costs, as well as cash flows resulting from embedded options and guarantees.

(b) If the test shows that the liability is inadequate, the entire deficiency is recognized in profit or loss.

2.2.18 Policyholders’ equity adjustment

In accordance with Appendix 16 of Enforced Regulation of Regulation on Supervision of Insurance Business, gain or loss on valuation of available-for-sale investments and revaluation surplus on PP&E(Property, Plant & Equipment) are credited or charged to other comprehensive income or the policyholders equity adjustment account according to the distribution criteria of the investment income during the year. In case of loss on available-for-sale investments, they are recorded in policyholders’ equity adjustment account to the extent of the sum of reserve for policyholder’s income dividends and policyholders’ dividend stabilization reserve.

2.2.19 Separate accounts

In accordance with “Article 108” of the Insurance Business Act and Regulation on Supervision of Insurance Business, the Company establishes and operates accounts to use all or any part of the assets equivalent to the reserves separately from any other assets with respect to the contracts of retirement insurance, retirement pension and variable insurance policies (including variable universal policies).

According to “Article 6-23”of Regulation on Supervision of Insurance Business, income and expenses pertaining to the variable insurance within separate accounts are not presented explicitly in the general accounts’ statements or comprehensive income, whereas income and expenses of principal and interest guaranteed-type separate account products are presented as gross amounts in the general accounts’ statement of comprehensive income as ‘separate account income’ and ‘separate account expenses’.

2.2.20 Classification and measurement of financial liabilities

Financial liabilities are classified, at initial recognition, as payables and derivatives designated as hedging instruments, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

2.2.21 Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statements of comprehensive income.

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2.2.22 Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statements of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.

2.2.23 Employee benefits

2.2.23.1 Retirement benefits

The Company operates defined contribution plans and defined benefit plans.

In the event that defined contribution plans are established, the Company’s share (contribution) is recognized as severance payment (expense) in the fiscal period, but allowance for severance liability is not recognized. When an employee is hired to provide his/her service for a certain period of time, the contribution which is paid to the defined contribution plans in exchange for his/her service is recognized.

The contributions to defined contribution plans are recognized as an expense when an employee who is eligible for the payment provides his/her service.

For defined benefit plans, the cost of salary recognized in the statements of financial position represents the present value of the defined benefit obligation, less fair value of plan assets and adjustment for unrecognized past service cost. An independent actuary using the projected unit credit method calculates defined benefit obligation. The present value of the defined benefit obligation is recorded in the same currency to be paid and measured by discounting estimated future cash outflows by the interest rate of high-quality corporate bonds with similar maturity as the expected postemployment benefit payment date. Actuarial gain or loss from changes in actuarial assumptions or differences between actuarial assumptions and actual results is recognized in profit or loss. Past service costs are recognized in profit and loss of the period, but if the changes in pension plans require a vesting period, the past service costs are expensed over the vesting period using the straight-line method.

The Company shall recognize a gain or loss on the settlement of defined benefit plans when the settlement occurs.

2.2.23.2 Short-term employee benefits

Short-term employee benefits shall be recognized as expenses, if expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services. The Company shall recognize the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service. The Company shall recognize the expected cost of profit-sharing and bonus payments as liabilities when the Company has a present legal or constructive obligation to make such payments as a result of past events and a reliable estimate of the obligation can be made.

2.2.23.3 Share-based payment

The Company recognizes expenses from cash-settled share-based payment transactions and equity-settled share-based payment transactions in profit or loss by the fair value of the goods or services received. If an entity has granted the counterparty the right to choose whether a share-based payment transaction is settled in cash or by issuing equity instruments, the transaction is accounted according to its substance.

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2.2.23.4 Other long-term employee benefits

Other long term employee benefits, that will not be expected to be settled within 12 months of the end of the reporting period in which the employees render the related services, shall be the present value of future benefits that are obtained in exchange for the work performed in the current term and in the past period.Changes in remeasurement shall be recognized as profit or loss in the period that occurred.

2.2.23.5 Termination benefit

Termination benefits resulting from either the Company’s decision to terminate the employment before the normal retirement date, or an employee’s decision to accept the Company’s offer of benefits in exchange for termination of employment, are recognized as expenses at the earlier of i) when the Company can no longer withdraw an offer of those benefits and ii) when it recognizes any related restructuring costs.

2.2.24 Basic earnings per share and diluted earnings per share

Basic earnings per share are computed by dividing net income on the income statement by the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed by dividing diluted net income as adjusted by adding back the after-tax amount of interest expense on any convertible debt and dividends on any convertible preferred stock, by the weighted average number of common shares and diluted securities outstanding during the year.

2.2.25 Income taxes

The income taxes for the period comprise current and deferred tax. Income taxes are recognized in the statements of comprehensive income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case the income taxes are also recognized in other comprehensive income or directly in equity, respectively.

The current income tax is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in Korea where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred income tax is not recognized if the deferred income tax arises from the initial recognition of an asset or liability in a transaction which is not a business combination, and at the time of the transaction affects neither accounting profit nor taxable profit (tax loss). Deferred income tax is determined using tax rates (and laws) that have been enacted, or substantially enacted, by the reporting period, and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities should be offset if the Company has a legally enforceable right to set off current income tax assets against current income tax liabilities, and the deferred income tax assets relate to the same taxable entity and the same taxation authority, or a different taxable entity which has an intention to settle the current assets or liabilities on a net basis, or deferred income tax assets and liabilities are intended to be recovered and settled concurrently.

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2.2.26 Provision

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result ofa past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognized as provision is the current most reliable estimate on the present value of the expenditures expected to be required to settle the current obligation regarding the inevitable risks and uncertainties of the related events or circumstances at the end of reporting date. When provisions are determined in order to fulfill its current obligations by using the expected cash flows, the carrying amount of provision is the present value of those cash flows.

In the event that a part or all of the amount disbursed is anticipated to be repaid by a third party in order to settle the provision, the amount disbursed is recognized as assets within the limit of the provision for the repayable (the amount of reimbursement), provided that the Company fulfills its obligations and the third party will certainly repay the amount which can be estimated reliably.

2.2.27 Equity

2.2.27.1 Classification of Equity

The Company, when issuing a financial instrument, classifies the instrument, or its component parts, on initial recognition as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument. If the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the Company classifies the instrument as an equity instrument in accordance with the substance of the contractual arrangement.

2.2.27.2 Legal Reserve

The Commercial Act requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of capital stock. Use of such legal reserve is restricted to set off losses and capitalizations in accordance with the decision at general shareholders’ meeting.

2.2.27.3 Bad Debt Reserve

Where the accumulated amount of loan loss provision for loans, insurance accounts receivables, accounts receivables and accrued income, etc. is less than amounts prescribed in Article 7 4 of Regulation on Supervision of Insurance Business, the Company shall accumulate such balance as bad debt reserve, and shall be limited to the amount calculated by deducting the reserve accumulated pursuant to the Insurance Business Act and other laws from retained earnings.

2.2.28 Revenue Recognition

2.2.28.1 Gross Premiums

Gross premiums on insurance contracts are recognized as revenue when due and received. Premiums that are paid before the payment due date are accounted for as unearned insurance premiums.

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2.2.28.2 Interest Income and Expense

For all interest bearing financial assets, interest income or expense is recorded using the effective interest rate, which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability.

2.2.28.3 Dividend

Revenue is recognized when the Company’s right to receive the payment is established.

2.2.29 Operating segment

Operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. However, the company didn’t need to disclose its operating segment separately or individually since the disclosure requirements of KIFRS1108 “Operating segment” are not applicable to the company.

2.3 New or amended standards

The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of the Company's annual financial statements for the year ended December 31, 2017, except for the adoption of new standards and interpretations as at January 1, 2018.

The nature and the impact of each new standard and amendment are described below:

2.3.1 KIFRS 1115 Revenue from Contracts with Customers

KIFRS 1115 supersedes KIFRS 1011 Construction Contracts, KIFRS 1018 Revenue and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with its customers. KIFRS 1115 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which the Companyexpects to be entitled in exchange for transferring goods or services to a customer. The impact of this amendment on its financial statements is not significant.

2.3.2 Amendments to KIFRS 1102 Classification and Measurement of Share-based Payment Transactions

KIFRS 1102 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled.

The amendments are prospectively applied, but retrospective application is permitted if elected for all three amendments and other criteria are met. The impact of this amendment on its financial statements is not significant.

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2.3 New or amended standards (cont’d)

2.3.3 KIFRS 2122 Foreign Currency Transactions and Advance Consideration

The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an the Company initially recognizes the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the Company must determine the transaction date for each payment or receipt of advance consideration. The impact of this amendment on its financial statements is not significant.

2.4 Standards issued but not yet effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosed below.

2.4.1 KIFRS 1109 Financial Instruments

KIFRS 1109 Financial Instruments enacted on September 25, 2015, is applied for annual periods beginning on or after January 1, 2018, in principle. However, the Company plans to be exempt from applying KIFRS 1109 until 2020 in accordance with KIFRS 1104 Insurance Contracts. IASB has amended and announced IFRS17 on May 18, 2017, and KASB is in the midst of procedures to amend KIFRS 1117 ‘Insurance Contract.’ As of December 31, 2018, the Company is eligible for the temporary exemption from applying KIFRS 1109 since the ratio of liabilities related to insurance to total liabilities exceeds 90%, and thus KIFRS 1109 is expected to apply for annual periods beginning on or after January 1, 2021.

The new KIFRS 1109 is retrospectively applied, in principle, but there are some exceptions such as exemption of restatement of comparative information for classification, measurement, impairment of financial instruments. For hedge accounting, the requirements are generally applied prospectively, with some exceptions such as accounting for time value of options.

Major characteristics of KIFRS 1109 are financial assets being classified and measured on the basis of the holder’s business model and instrument’s contractual cash flow characteristics, impairment model of financial instruments based on expected credit losses (ECL), broader range of hedged items and hedging instruments that qualify for the application of hedge accounting or changes in evaluation of hedging effectiveness, etc.

For smooth adoption of KIFRS 1109, financial impact analysis, accounting policies establishment, accounting system establishment and stabilization need to take place. The impact of the standards on the financial statements in the period they are initially adopted may differ depending on the Company’s decisions and judgments of accounting policies, as well as the financial instruments held by the Company, economic environment, etc.

The Company has conducted a preliminary assessment of the potential impact on the 2018 financial statements based on the current status and information available as of December 31, 2018, to assess the financial impact of the first adoption of KIFRS 1109. The financial impacts on the financial statements upon the application of the standard are as follows. The Company will be analyzing more specific financial impact in the future when additional information is available, and the results of the preliminary assessment for December 31, 2018, may be subject to change as additional information becomes available to the Company.

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2.4 Standards issued but not yet effective (cont’d)

2.4.1.1 Financial asset classification and measurement

The new KIFRS 1109 requires a financial instrument to be classified and measured subsequently at amortized cost, fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVTPL), on the basis of the holder’s business model and instrument’s contractual cash flow characteristics, as shown below. The requirements should be applied to an entire financial asset, even if it contains an embedded derivative. That is, in contrast with the requirements of KIFRS 1039, a derivative embedded within a hybrid (combined) contract containing a financial asset host is not accounted for separately.

Business model /Contractual cash flow characteristics

Composed solely of principal and interest For other cases

Purpose of collecting contractual cash flows Measured at amortized cost

Measured at FVTPLPurpose of collecting and selling

contractual cash flowsMeasured at FVOCI

Purpose of selling, others Measured at FVTPL

The requirements in KIFRS 1109 to classify financial assets measured at amortized costs or at FVOCI are stricter than KIFRS 1039, and thus, the proportion of financial assets measured at FVTPL may increase which may lead to a rise in profit or loss volatility at the adoption of KIFRS 1109.

In accordance with KIFRS 1109, a debt instrument that meets the following two conditions must be measured at amortized cost: 1) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, and 2) the objective of the Company's business model is to hold the financial asset to collect the contractual cash flows.

Based on the results of preliminary impact assessment, most of the financial assets measured at amortized cost as of December 31, 2018, are classified to items measured at amortized costs since: 1) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, and 2) the objective of the Company's business model is to hold the financial asset to collect the contractual cash flows. In conclusion, there will not be a material impact on the financial statements.

In accordance with KIFRS 1109, a debt instrument that meets the following two conditions must be measured at FVOCI: 1) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, and 2) the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

Based on the results of preliminary impact assessment, if KIFRS 1109 is applied to the debt instruments classified as available-for-sale financial assets as of December 31, 2018, the financial assets are expected to be classified as financial assets measured at FVOCI. However, in the case of the puttable-instruments amounting to 1,241,659 million and the host contract included hybrid contract amounting to 220,389 million, the contractual terms of those instruments give rise to cash flows that are not solely payments of principal and interest on the principal amount outstanding. As a result, we expect a slight increase in changes in current profit or loss.

In accordance with KIFRS 1109, if an equity instrument is not held for trading, the Company can make an irrevocable election at initial recognition to measure it at FVOCI, and subsequent recycling from comprehensive income to profit or loss is not permitted.

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2.4.1.1 Financial asset classification and measurement (cont’d)

In accordance with KIFRS 1109, a debt instrument of which: 1) the contractual terms of the financial asset give rise to cash flows that are not solely payments of principal and interest on the principal amount outstanding, and 2) the financial asset is held within a business model whose objective is achieved by selling financial assets, and equity instruments that are not measured at FVOCI, are measured at FVTPL.

Based on the result of a preliminary impact assessment, the fair value of a financial asset with a SPPI meet cash flow is 24,288,603 million and the fair value of financial asset with a does not meet SPPI is

1,574,406 million.

2.4.1.2 Financial liabilities classification and measurement

In KIFRS 1109, fair value changes of financial liabilities at FVTPL attributable to changes in credit risk of the liability shall be presented in other comprehensive income, not in profit or loss. Amounts presented in other comprehensive income shall not be subsequently recycled to profit or loss. However, the new standard allows the recognition of the full amount of change in the fair value in profit or loss only if the presentation of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The Company does not have financial liabilities measured at FVTPL as of December 31, 2018.

2.4.1.3 Impairment: financial assets and contract assets

In KIFRS 1039, impairment is recognized only when there is objective evidence of impairment based on incurred loss model. In the new KIFRS 1109, impairment of debt instruments, lease bonds, contract assets, loan commitments and financial guarantee contracts that are measured at amortized costs or at FVOCI is recognized based on the expected credit loss (ECL) impairment model.

KIFRS 1109 outlines a ‘three-stage’ model for impairment based on changes in credit risk since initial recognition. Loss allowance is measured based on the 12-month ECL or life-time ECL which allows early recognition of credit loss compared to the incurred loss model of KIFRS 1039.

Classification Loss allowance

Stage 1Assets with no significant

increase in credit risk sinceinitial recognition

12-month ECL: Expected credit losses that result from default events that are possible within 12

months after the reporting date.

Stage 2Assets with significant

increase in credit risk sinceinitial recognition

Lifetime ECL: Expected credit losses that result from all possible default events over the expected

life of the financial instrument.Stage 3 Credit-impaired assets

In KIFRS 1109, accumulated changes in the life-time ECL after initial recognition are taken into account as loss allowance in case credit is impaired at initial recognition of financial assets.

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2.4.1.3 Impairment: financial assets and contract assets (cont’d)

As a result of the adoption of KIFRS 1109, the Company intends to use the simplified method for debt securities that does not consider a significant increase in credit risk when the credit risk is low as of the end of the reporting period.

According to the preliminary impact assessment results, the credit risk exposures that are embedded in the financial assets with contractual conditions that generate cash flow consisting solely of interest payment on principal and principal balance as of December 31, 2018 are shown in the table below (Korean won in millions):

12-month ECL Lifetime ECLStage 1 Stage 2 Stage 3

Deposits 384,500 - -Loans 2,588,594 - 488

Securities 20,501,380 - -Other financial assets 651,392 - 7,451

(*) The exposures in the table above are the carrying amount to which the Company has applied the amendment to KIFRS 1039 (the carrying amount before the allowance for doubtful accounts in the case of financial assets measured at amortized cost).

2.4.1.4 Hedge accounting

The new KIFRS 1109 maintains mechanics of hedge accounting (fair value hedge, cash flow hedge, overseas operations net investment hedge) as set forth in KIFRS 1039. However, unlike requirements in KIFRS 1039 that are too complex and strict, KIFRS 1109 is more practical, principles based and less strict, and focuses on the Company’s risk management activities. Also, KIFRS 1109 allows a broader range of hedged items and hedging instruments. Under KIFRS 1039, a hedge is assessed to be highly effective only if the offset is in the range of 80-125 percentage by performing numerical test of effectiveness. In KIFRS 1109, such requirements are alleviated.

Transactions not qualifying for hedge accounting requirements of KIFRS 1039 may now qualify for hedge accounting under KIFRS 1109, resulting in less volatility in profit or loss.

2.4.2 KIFRS 1116 Leases

KIFRS 1116 was issued in January 2016 and it replaces KIFRS 1017 Leases, KIFRS 2104 Determining whether an Arrangement contains a Lease, KIFRS 2015 Operating Leases-Incentives and KIFRS 2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. KIFRS 1116 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under KIFRS 1017. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

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2.4.2 KIFRS 1116 Leases (cont’d)

KIFRS 1116 is effective for annual periods beginning on or after January 1, 2019. The aggregate amount of the minimum lease payments before the present value discount of the assets currently used as operating leases is 23,043 million and the discount amount is 22,721 million at the incremental borrowing rate. We will account for each lease element and associated non-lease element as a single lease element, using the simplified method of accounting for contracts that include full (or in part) lease or lease. However, the results of the preliminary impact assessment as of December 31, 2018 may be changed based on additional information available to the Company in the future.

The Company plans to apply KIFRS No. 1116 for the first time using the cumulative effect cumulative temporary adjustment provision as of January 1, 2019, and the comparative financial statements will not be restated.

2.4.3 KIFRS 1109 Prepayment Features with Negative Compensation

Under KIFRS 1109, a debt instrument can be measured at amortised cost or at fair value through other comprehensive income, provided that the contractual cash flows are ‘solely payments of principal and interest on the principal amount outstanding’ (the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments to KIFRS 1109 clarify that a financial asset passes the SPPI criterion regardless of the event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract.

The amendments should be applied retrospectively and are effective from January 1, 2019, with earlier application permitted. These amendments have no impact on the financial statements of the Company but it is planned to apply the amendments to the adoption of KIFRS 1109.

2.4.4 KIFRS 1012 Income Taxes

The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, the Company recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the Company originally recognised those past transactions or events.

The Company applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application is permitted. When the Company first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the earliestcomparative period. Since the Company’s current practice is in line with these amendments, the Companydoes not expect any effect on its consolidated financial statements.

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2.4.5 KIFRS 2123 Uncertainty over Income Tax Treatment

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of KIFRS 1012 and does not apply to taxes or levies outside the scope of KIFRS 1012, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

Whether an entity considers uncertain tax treatments separately The assumptions an entity makes about the examination of tax treatments by taxation authorities How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax ratesHow an entity considers changes in facts and circumstances

The Company has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after January 1, 2019, but certain transition reliefs are available. The Company will apply the interpretation from its effective date. Since the Company operates in a complex multinational tax environment, applying the Interpretation may affect its financial statements.

2.4.6 Amendments to KIFRS 1019 Plan Amendment, Curtailment or Settlement

The amendments to KIFRS 1019 clarify that the Company first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling. This amount is recognised in profit or loss. The Company then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect, excluding amounts included in the net interest, is recognised in other comprehensive income.

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3. Significant accounting judgments, estimates and assumptions

In the process of applying the Company’s accounting policies, management is required to exercise judgments, estimates and assumptions on the amount of assets and liabilities which cannot be easily identified from other data. Estimates and assumptions are based on the historical experience and relevant other factors. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on a continuous basis. Modification on accounting estimates are recognized at the period where the modification is made, if such modification affects only that period. However, if such modification affects both current and future periods, the modifications are recognized at the period where the modification is made and at future periods.

The following are the most significant uses of judgment and estimates exercised by management in the process of applying the Company’s accounting policies, and these judgments and estimates affect the amount recognized in the financial statements.

3.1 Fair value measurement of financial instruments

The best evidence of fair value is quoted prices in an active market in determining fair value of financial assets. If the market for a financial instrument is not active, the Company establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, and option pricing models. The fair value measurement is described in one of the following three levels used to classify fair value measurements:

Level 1— fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2— fair value measurements are those derived from inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices).

Level 3— fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

3.2 Impairment of available-for-sale equity investments

The Company follows the guidance of KIFRS 1039 to determine when an available-for-sale equity investment is impaired. This determination requires significant judgment. In making this judgment, the Company evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost, and the financial viability and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology, and operational and financing cash flow.

If the declines in fair value below cost were considered significant (over 50%) or prolonged (over twelve months), the Company would suffer an additional loss by reclassifying the accumulated loss on fair value adjustments, recognized in equity on available-for-sale financial assets, to profit or loss.

3.3 Impairment on loans and receivables

Individual and collective allowances for bad debts are calculated to assess impairment on loans and receivables. When individual allowance for bad debts is calculated, expected recoverable amount is calculated by estimated future cash flows considering borrowers’ sales or collateral. In addition, when the collective allowance for bad debts is calculated, default rates, duration of loss, and loss rates at bankruptcy,are estimated based on historical impairment.

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3. Significant accounting judgments, estimates and assumptions (cont’d)

3.4 Liability Adequacy Test

The Company recognizes the shortfall as its loss by assessing the adequacy of insurance liability. In order to estimate the cash flow anticipated to occur from the current insurance contract, reasonable anticipation of cash inflows, including premium income and that of cash outflows including insurance, refund, reserve, expenses, etc., is required. For this purpose, return on investment, ratio of risk, ratio of cancellation and expense rate all use the presumptions considering the experience of the past and the trend of the future. The long-term insurance uses the discount rate reflecting the past experience and the current market information in order to calculate the future cash flow into the current value. Also, adequacy of individually estimated claims is assessed for reserves by selecting the most adequate model according to the trend of claims paid among various statistical methods. The Company applies the selected presumption consistently by subdividing by the same or similar products.

3.5 Defined benefit plans

The cost of defined benefit plans and other post-employment medical benefits, and the present value of the pension obligation, are determined using actuarial valuations. An actuarial valuation involves making various assumptions. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions,and its long term nature, a defined benefit obligation is highly sensitive to changes in these assumptions.

3.6 Impairment on non-financial assets

The Company tests annually whether all non-financial assets suffered any impairment. Intangible assets that have an indefinite useful life are tested for impairment at each reporting date or when there is any indication that the assets may be impaired. Other non-financial assets are reviewed for impairment whenever events of changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of calculating ‘in use’ value, the Company’s management estimates expected future cash flow results from assets or cash generating unit, and select the appropriate discount rate to calculate the present value of expected future cash flow.

3.7 Income taxes

There are different kinds of transactions and calculation methods which make final tax determination uncertain. Based on an estimate of the additional taxes to be imposed, if there is a difference between final tax amount and initially recognized tax amount, the difference will affect current income tax and deferred income tax assets and liabilities at the period when such determinations is made.

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4. Cash and deposits

Cash and deposits as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Cash and cash equivalents:

Current deposits 566 2,010Ordinary deposits 56,263 87,094MMDA 97,925 86,491

154,754 175,595Deposits:

Installment deposits 347,500 347,500Time deposits 37,000 37,000Fund deposits (*) 37 44Deposits for checking accounts (*) 8 8

384,545 384,552539,299 560,147

(*) Fund deposits and deposits for checking accounts are restricted in use.

5. Financial assets at fair value through profit or loss (FVTPL)

Financial assets at FVTPL as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018Book value before

valuation Fair value Book valueDerivative assets

for trading 644 169 169

December 31, 2017Book value before

valuation Fair value Book valueFinancial assets

held-for-trading 10,000 10,095 10,095

Derivative assets for trading 607 231 231

10,607 10,326 10,326

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6. Available-for-sale financial assets

Available-for-sale financial assets as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018

Acquisition cost Fair value Book valueEquity securities:

Stock 30,000 30,757 30,757Equity investment (*1) 97,081 104,306 104,306Beneficiary certificates 925,294 842,502 842,502Equity securities inforeign currency (*2)

289,363 261,033 261,033

Other securities 4,000 3,129 3,1291,345,738 1,241,727 1,241,727

Debt securities:Government or publicbonds(*3)

5,321,416 5,737,882 5,737,882

Special bonds(*3) 1,866,311 1,930,441 1,930,441Financial bonds 971,714 981,572 981,572Corporate bonds 2,153,603 2,245,982 2,245,982Bonds in foreign currency 238,194 224,700 224,700Credit linked notes in foreign currency

216,679 220,389 220,389

Private Placement Bondsin foreign currency

103,054 103,108 103,108

10,870,971 11,444,074 11,444,07412,216,709 12,685,801 12,685,801

December 31, 2017Acquisition cost Fair value Book value

Equity securities:Stock 30,000 31,679 31,679Equity investment (*1) 79,659 85,322 85,322Beneficiary certificates 361,751 369,865 369,865Equity securities inforeign currency (*2) 147,606 128,715 128,715

Other securities 7,000 6,905 6,905626,016 622,486 622,486

Debt securities:Government or publicbonds 12,092,129 13,941,128 13,941,128

Special bonds 3,820,598 4,078,121 4,078,121Financial bonds 1,086,056 1,088,083 1,088,083Corporate bonds 1,919,678 1,966,392 1,966,392Bonds in foreign currency 160,232 154,705 154,705Credit linked notes inforeign currency 3,373 3,177 3,177

19,082,066 21,231,606 21,231,60619,708,082 21,854,092 21,854,092

(*1) Impairment loss of 2 million (December 31, 2017: 63 million) was recognized on the equity investment in Macquarie Korea Opportunities Fund for the year ended December 31, 2018.

(*2) Impairment loss of 1,156 million (December 31, 2017: 2,964 million) was recognized on the foreign currency equity investments in Lexington Capital Partners VI for the year ended December 31, 2018.

(*3) The Company reclassified government or public bonds and special bonds which amount to 9.55 trillion to held-to-maturity securities on January 1, 2018 (Note 7).

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6. Available-for-sale financial assets (cont’d)

Changes in valuation gains and losses on available-for-sale financial assets for the years ended December 31, 2018 and 2017 are summarized as follows (Korean won in millions):

For the year ended December 31, 2018Beginning balance Valuation Realization Transfer (*)

Endingbalance

Equity securities 33,002 (88,008) (2,258) - (57,264)Debt securities 1,628,001 276,840 (80,729) (1,199,058) 625,054Securities inforeign currency 8,867 (20,174) (1,049) - (12,356)

Other securities 1,396 (557) (219) - 620 1,671,266 168,101 (84,255) (1,199,058) 556,054

Transfer to policyholders’equity adjustment (134,759) (42,434)

Net valuation gain before income tax 1,536,507 513,620

Income tax effect (394,448) (129,891)Net valuation gain after income tax 1,142,059 383,729

(*) The amount has been reclassified from available-for-sale financial assets to held-to-maturity securities.

For the year ended December 31, 2017Beginning

balance Valuation RealizationEndingbalance

Equity securities 22,996 16,290 (6,284) 33,002Debt securities 2,449,821 (790,613) (31,207) 1,628,001Securities in foreign currency 4,816 5,418 (1,367) 8,867Other securities 1,110 808 (522) 1,396

2,478,743 (768,097) (39,380) 1,671,266Transfer to policyholders’ equity adjustment (213,440) (134,759)

Net valuation gain before income tax 2,265,303 1,536,507

Income tax effect (548,203) (394,448)Net valuation gain after income tax 1,717,100 1,142,059

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6. Available-for-sale financial assets (cont’d)

Loaned securities of available-for-sale financial assets as of December 31, 2018 and 2017 are as follows (Korean won in millions):

Par valueDecember 31, 2018 December 31, 2017

Government or public bonds 79,000 380,000

Available-for-sale financial assets provided as collateral as of December 31, 2018 and 2017 are as follows (Korean won in millions):

Par value

Classification Purpose December 31, 2018 December 31, 2017Institutions that collaterals

are provided toGovernment or public bonds

Derivatives transaction 932 - Morgan Stanley

7. Held-to-maturity securities

Held-to-maturity securities as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Government or public bonds 8,748,351 -Special bonds 1,757,291 -

10,505,642 -

In response to the increase in the interest rate volatility, the Company reclassified government or public bonds and special bonds, which amount to 9.55 trillion, from available-for-sale financial assets to held-to-maturity securities to stabilize the capital management on January 1, 2018. The accumulated other comprehensive income at the reclassification date was 820,654 million.

Loaned securities of held-to-maturity securities as of December 31, 2018 and 2017 are as follows (Korean won in millions)

Par valueDecember 31, 2018 December 31, 2017

Government or public bonds 216,000 -

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8. Loans and receivables

Details of loans as of December 31, 2018 and 2017 are summarized as follows (Korean won in millions):

December 31, 2018 December 31, 2017Policy loans 2,244,193 2,085,072Mortgage loans 1,289 1,647Other loans 343,600 47,900

2,589,082 2,134,619Allowance for bad debts (497) (748)Deferred loan fee 3 5

2,588,588 2,133,876

Details of receivables as of December 31, 2018 and 2017 are summarized as follows (Korean won in millions):

December 31, 2018 December 31, 2017Insurance receivables 100,662 100,816Other accounts receivables 19,473 17,778Guarantee deposits 38,013 38,711Accrued income 500,695 531,719

658,843 689,024Present value discounts (1,188) (1,968)Allowance for bad debts (7,458) (8,588)

650,197 678,468

Allowance for bad debts for the loans and receivables as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Loans:

Policy loans 488 747Mortgage loans 9 1

497 748Receivables:

Insurance receivables 3 2Other accounts receivables 7,451 8,584Guarantee deposits 4 2

7,458 8,5887,955 9,336

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8. Loans and receivables (cont’d)

Changes in allowance for bad debts for the loans and receivables for the years ended December 31, 2018and 2017 are as follows (Korean won in millions):

For the year endedDecember 31, 2018

For the year endedDecember 31, 2017

Beginning balance 9,336 8,262Increase:

Bad debt expenses 155 1,467Reversal after write-off 1 58

Decrease:Write-off (1,343) (449)Reversal (194) (2)

Ending balance 7,955 9,336Individual allowances 7,939 9,331Collective allowances 16 5

Details of insurance receivables as of December 31, 2018 and 2017 are summarized as follows (Korean won in millions):


Accrued premiums 44,312 49,212Reinsurance claims 23,760 20,034Reinsurance commission 32,590 31,570

100,662 100,816

9. Property and equipment

Property and equipment as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018

Acquisition costAccumulated depreciation Book value

Furniture and equipment 41,084 (34,399) 6,685Leasehold improvements 35,497 (30,090) 5,407Others 137 - 137Government grants (*) (143) 106 (37)

76,575 (64,383) 12,192

December 31, 2017

Acquisition costAccumulated depreciation Book value

Furniture and equipment 37,740 (32,106) 5,634Leasehold improvements 33,595 (26,722) 6,873Others 137 - 137Government grants (*) (143) 75 (68)

71,329 (58,753) 12,576

(*) The government grants received for the purpose of life insurance big data strategy model development are presented as a deduction from the acquisition cost and accumulated depreciation.

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9. Property and equipment (cont’d)

Changes in book value of property and equipment for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018Beginning balance Acquisition Disposal Depreciation

Endingbalance

Furniture and equipment 5,634 4,322 (4) (3,267) 6,685

Leasehold improvements 6,873 2,143 (79) (3,530) 5,407

Others 137 - - - 137Government grants (*) (68) - - 31 (37)

12,576 6,465 (83) (6,766) 12,192

For the year ended December 31, 2017Beginning balance Acquisition Disposal Depreciation

Endingbalance

Furniture and equipment 4,451 3,641 (3) (2,455) 5,634

Leasehold improvements 8,153 2,277 (205) (3,352) 6,873

Others 137 - - - 137Government grants (*) (124) - - 56 (68)

12,617 5,918 (208) (5,751) 12,576

(*) The government grants received for the development of life insurance big data strategy model are presented as a deduction from the acquisition cost and accumulated depreciation.

Insurance contracts as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018Insured assets Insurance company Insured amount

All risk insurance Office equipment DB Insurance Ltd. 61,287Burglary insurance HO & BO’s cash, securities Lotte Insurance Ltd. 3,480

December 31, 2017Insured assets Insurance company Insured amount

All risk insurance Office equipment Lotte Insurance Ltd. 63,805Burglary insurance HO & BO’s cash, securities Lotte Insurance Ltd. 3,540

No property and equipment was provided as collateral as of December 31, 2018.

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10. Intangible assets

Intangible assets as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018

Acquisition costAccumulatedamortization

Accumulated impairment losses Book value

Development costs 91,772 (64,480) - 27,292Software 35,215 (25,771) - 9,444Others 13 (13) - -Membership (*1) 2,835 - (737) 2,098Government grants (*2) (615) 256 - (359)

129,220 (90,008) (737) 38,475

December 31, 2017

Acquisition costAccumulatedamortization

Accumulated impairment losses Book value

Development costs 77,089 (56,362) - 20,727Software 31,345 (21,129) - 10,216Others 13 (13) - -Membership (*1) 2,835 - (510) 2,325Government grants (*2) (615) 133 - (482)

110,667 (77,371) (510) 32,786

(*1) Useful life of the membership is classified as indefinite as of the reporting date. (*2) The government grants received for the purpose of life insurance big data strategy model development are presented as a deduction from the acquisition cost and accumulated amortization.

Changes in net book value of intangible assets for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018Beginning balance Acquisition Disposal Amortization

Impairment loss

Endingbalance

Development costs 20,727 14,683 - (8,118) - 27,292

Software 10,216 3,999 (2) (4,769) - 9,444Membership 2,325 - - - (227) 2,098Government grants (*) (482) - - 123 - (359)

32,786 18,682 (2) (12,764) (227) 38,475

For the year ended December 31, 2017Beginning balance Acquisition Disposal Amortization

Impairment loss

Endingbalance

Development costs 21,262 10,425 - (10,960) - 20,727

Software 9,635 5,148 - (4,567) - 10,216Membership 2,200 636 (533) - 22 2,325Government grants (*) (605) - - 123 - (482)

32,492 16,209 (533) (15,404) 22 32,786

(*) The government grants received for the purpose of life insurance big data strategy model development are presented as a deduction from acquisition cost and accumulated amortization.

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11. Deferred acquisition costs

Changes in deferred acquisition costs for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018Beginning balance Increase Amortization

Ending balance

Survival 58,801 8,680 (26,731) 40,750Death 422,188 221,601 (202,683) 441,106Endowment 42,531 7,430 (21,135) 28,826

523,520 237,711 (250,549) 510,682

For the year ended December 31, 2017Beginning balance Increase Amortization

Ending balance

Survival 72,795 21,169 (35,163) 58,801Death 393,690 209,175 (180,676) 422,188Endowment 53,394 13,177 (24,041) 42,531

519,879 243,521 (239,880) 523,520

12. Reinsurance assets

Reinsurance assets as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018Survival Death Endowment Total

Reserve for outstanding claims 19 2,165 13 2,197Unearned premiums 137 5,419 33 5,589Incurred but not reported 769 30,214 187 31,170

925 37,798 233 38,956

December 31, 2017Survival Death Endowment Total

Reserve for outstanding claims 10 2,185 7 2,202Unearned premiums 119 5,193 34 5,346Incurred but not reported 626 26,837 181 27,644

755 34,215 222 35,192

There was no impairment loss in reinsurance assets for the years ended December 31, 2018 and 2017.

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12. Reinsurance assets (cont’d)

Changes in reinsurance assets for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018Survival Death Endowment Total

Beginning balance 755 34,215 222 35,192Reserve for outstanding claims 9 (19) 6 (4)Unearned premiums 18 225 (1) 242Incurred but not reported 143 3,377 6 3,526Ending balance 925 37,798 233 38,956

For the year ended December 31, 2017Survival Death Endowment Total

Beginning balance 758 30,263 207 31,228Reserve for outstanding claims (40) 245 7 212Unearned premiums (2) 268 (1) 265Incurred but not reported 39 3,439 9 3,487Ending balance 755 34,215 222 35,192

13. Other assets

Other assets except for reinsurance assets as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Prepaid expenses 2,490 3,238Prepayments 109 195Others 14 14

2,613 3,447

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14. Separate accounts

The statements of financial position of separate accounts as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Assets:

Cash and deposits 475,461 396,134Financial assets at FVTPL 4,522,484 5,058,680Loans 53,023 55,910Other assets 72,429 67,671General accounts receivables 64,595 88,736

Total assets 5,187,992 5,667,131(Separate accounts payables) (64,595) (88,736)

Separate accounts assets 5,123,397 5,578,395

Liabilities, reserve and other comprehensive income:Reserve for policyholders 5,145,596 5,615,703

Insurance contract liabilities 5,145,596 5,615,703Other liabilities (*) 19,636 32,770General accounts payables 22,760 18,658

Total liabilities and reserve 5,187,992 5,667,131(Separate accounts receivables) (22,760) (18,658)

Separate accounts liabilities 5,165,232 5,648,473

(*) The initial investments in separate accounts amounting to 3,128 million and 6,905 million as of December 31, 2018 and 2017, respectively, are classified as other securities within available-for-sale financial assets in the statements of financial position for the general accounts. In accordance with Article 5-7 of the Regulation on Supervision of Insurance Business, the Company is required to repay the initial investment at the standard price within three months from the date when total assets of the separate accounts exceed twice as much as the investments on a quarterly basis.

The statements of comprehensive income for separate accounts for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018


Revenue:Premium income 899,774 955,729Interest income 62,666 56,126Dividend income 44,317 38,065Gain on valuation of securities 58,125 395,424Gain on disposal of securities 44,138 150,950Gain on derivative transaction 525,178 300,761Others 34,042 11,515

1,668,240 1,908,570

Expense:Provision(reversal of) for reserve for policyholders (470,107) 225,575Claims and benefits 907,793 1,100,405Loss on valuation of securities 402,661 58,183Loss on disposal of securities 118,365 44,107Loss on derivative transaction 510,425 288,627Separate accounts management fee 139,060 121,605Others 60,043 70,068

1,668,240 1,908,570

(*) In accordance with Article 6-23 of the Regulation on Supervision of Insurance Business, revenues and expenses from performance-linked type separate accounts are not presented in the statements of comprehensive income for the general accounts.

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15. Insurance contracts liabilities

The Company provides insurance contract liabilities in conformity with the Regulation on Supervision of Insurance Business and related statutes, and details of the insurance contract liabilities per insurance type as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Premium reserve 22,170,000 20,521,739Unearned premium reserve 713 698Reserve for outstanding claims 309,016 288,370Guaranteed reserve 166,683 183,452Reserve for participating policyholders’ dividend 122,246 164,618Reserve for policyholders’ income dividends 1,633 1,642Reserve for loss on participating insurance - 5,891

22,770,291 21,166,410

Changes in premium reserve for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018Beginningbalance Changes

Ending Balance

Survival 8,481,004 (175,112) 8,305,892Death 10,082,802 822,136 10,904,938Endowment 1,957,933 1,001,237 2,959,170

20,521,739 1,648,261 22,170,000


Ending balance

Survival 8,375,344 105,660 8,481,004Death 9,246,726 836,076 10,082,802Endowment 1,610,092 347,841 1,957,933

19,232,162 1,289,577 20,521,739

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15. Insurance contracts liabilities (cont’d)

Changes in unearned premium reserve for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018BeginningBalance Changes

Ending balance

Death 698 15 713


Ending balance

Death 751 (53) 698

Changes in reserve for outstanding claims for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):


Ending balance

Survival 88,774 11,190 99,964Death 194,096 9,913 204,009Endowment 5,500 (457) 5,043

288,370 20,646 309,016


Ending balance

Survival 75,440 13,334 88,774Death 171,167 22,929 194,096Endowment 4,933 567 5,500

251,540 36,830 288,370

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15. Insurance contracts liabilities (cont’d)

Changes in guaranteed reserve for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

Changes in reserve for participating policyholders’ dividend, reserve for policyholder’s income dividends, and reserve for loss on participating insurance for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

16. Policyholders’ equity adjustment

Policyholders’ equity adjustment as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Gain on valuation of available-for-sale financial assets 42,434 134,759Gain on valuation of held-to-maturity securities 84,902 -

127,336 134,759


Ending Balance

Guaranteed minimumannuity benefit reserve 21,712 (2,769) 18,943

Guaranteed minimum deathbenefit reserve 161,740 (14,000) 147,740

183,452 (16,769) 166,683


Ending Balance

Guaranteed minimumannuity benefit reserve 22,853 (1,141) 21,712

Guaranteed minimum deathbenefit reserve 181,505 (19,765) 161,740

204,358 (20,906) 183,452


Ending balance

Reserve for participating policyholders’ dividend 164,618 (42,371) 122,247Reserve for policyholders’ income dividends 1,641 (8) 1,633Reserve for loss on participating insurance 5,891 (5,891) -


Ending balance

Reserve for participating policyholders’ dividend 169,307 (4,689) 164,618Reserve for policyholders’ income dividends 6,927 (5,286) 1,641Reserve for loss on participating insurance 12,747 (6,857) 5,891

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17. Derivatives

Derivative financial assets and liabilities as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018Trading Fair value hedge Cash flow hedge Total

Assets Liabilities Assets Liabilities Assets Liabilities Assets LiabilitiesCurrency forward - - 810 3,520 - - 810 3,520Currency swap - - - - 13,013 471 13,013 471Equity index option 110 - - - - - 110 -Embedded derivative 59 1,012 - - - - 59 1,012

169 1,012 810 3,520 13,013 471 13,992 5,003

December 31, 2017Trading Fair value hedge Cash flow hedge Total

Assets Liabilities Assets Liabilities Assets Liabilities Assets LiabilitiesCurrency forward - - 6,618 - - - 6,618 -Currency swap - - - - 2,092 225 2,092 225Equity index option 174 - - - - - 174 -Embedded derivative 57 - - - - - 57 -

231 - 6,618 - 2,092 225 8,941 225

The Company is managing derivative financial assets and liabilities mainly to hedge financial risks. The Company uses above derivatives for the purpose of hedging the changes in exchange rate and interest rate.

The Company has entered into currency forward contracts of USD 201.0 million as of December 31, 2018 and applies fair value hedge accounting for the derivatives to hedge the risk from fluctuation of the fair value due to the changes in the exchange rate of beneficiary certificates in foreign currencies of the Company's available-for-sale financial assets. As a result, the valuation gain or loss from the derivative instrument as the hedging instrument is all reflected in the current profit or loss, and the portion of currency exchange gain or loss from the fluctuation in exchange rates in the valuation gain or loss of the benefit certificates in foreign currencies as hedged item is reflected in the current profit or loss. Also, the Company has entered into currency swap contracts of USD 114.1 million, GBP 57.5 million and EUR 80 million as of December 31, 2018, and applies cash flow hedge accounting for the derivatives contact to hedge the risk in fluctuation of cash flows due to the changes in exchange rates of bonds in foreign currencies of the Company's available-for-sale financial assets. As a result, the Company recognizes the ineffective portion of the valuation gain or loss from the derivative instrument in the current profit or loss and accounts for the rest of the portion in accumulated other comprehensive income.

Regarding derivative contracts under cash flow hedge accounting, the estimated maximum period of time that the derivatives are exposed to the risk of future fluctuation in cash flows is until July 6, 2027. There is no valuation loss on derivatives recognized in accumulated other comprehensive income as of December 31, 2018, which is expected to be recognized as loss within one year.

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17. Derivatives (cont’d)

The contractual amounts for the unsettled derivatives as of December 31, 2018 and 2017, and gains or losses on valuation on those derivatives for the years ended December 31, 2018 and 2017, are as follows (Korean won in millions, USD, GBP, EUR in thousands):


Trading Hedging

Outstanding amounts

Gains onvaluation

Losses onvaluation

Outstanding amounts

Gains onvaluation

Losses on valuation

Gains onvaluation(equity)

Currency forward - - - $ 201,044 810 3,520 -Currency swap - - - $ 114,100 4,880 5,364 11,557

- - - 57,500 - - -- - - € 80,000 - - -

Equity index option 254,867 - 534 - - - -Embedded derivative $ 195,000 41 1,051 - - - -

41 1,585 5,690 8,884 11,557


Trading Hedging

Outstanding amounts

Gains onvaluation

Losses onvaluation

Outstanding amounts

Gains onvaluation

Losses on valuation

Gains onvaluation(equity)

Currency forward - - - $ 95,000 6,618 - -Currency swap - - - $ 95,100 - - -

- - - 22,000 9,293 150 (3,371)Equity index option 248,309 - 433 - - - -Embedded derivative $ 3,000 57 - - - - -

57 433 15,911 150 (3,371)

Changes in valuation gains on derivatives designated as cash flow hedge, which are recognized in equity as part of other comprehensive income, for the year periods ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018Beginning balance Change Ending balance

Interest rate forward 90,155 (6,490) 83,665Interest rate swap 19,372 (1,511) 17,861Currency swap (2,514) 11,557 9,043

107,013 3,556 110,569Income tax effect (25,897) (978) (26,875)Accumulated other comprehensive income 81,116 2,578 83,694

For the year ended December 31, 2017Beginning balance Change Ending balance

Interest rate forward 96,463 (6,308) 90,155Interest rate swap 22,882 (3,510) 19,372Currency swap 857 (3,371) (2,514)

120,202 (13,189) 107,013Income tax effect (29,089) 3,192 (25,897)Accumulated other comprehensive income 91,113 (9,997) 81,116

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18. Income tax expenses and deferred income tax liabilities

Components of income tax expenses for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Current income tax 82,312 83,715Changes in temporary differences 13,910 (128,668)

96,222 (44,953)Deferred income taxes reflected directly in Equity 5,585 159,293Income tax expense reflected directly in Equity (215) (2,378)

5,370 156,915Income tax expense reported in the statement of comprehensive income 101,592 111,962

(*) As a result of the regular tax audit, the Company reflected income tax expense of 1,307 million and current tax assets of 10,637 million, respectively, for the year ended December 31, 2018. The Company is currently pursuing tax appeal process against National Tax Service(NTS) and thus, is not able to forecast the final outcome of tax appeal process as of reporting date.

Income taxes reflected directly in equity as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Gain on valuation of available-for-sale financial assets (129,891) (394,448)

Gain on valuation of Held-to-maturity securities (258,972) -

(388,863) (394,448)Other comprehensive income (23,839) (23,624)

Total income tax effect reflected directly in equity (412,702) (418,072)

.

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18. Income tax expenses and deferred income tax liabilities (cont’d)

Details of changes in accumulated temporary differences and components of deferred income tax liabilities for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018Beginningbalance

Net increase(decrease)

Ending balance

Accumulated temporary differences:Securities (491,896) (164,093) (655,989)Accrued income (290,991) 56,160 (234,831)Reserve for loss on participating insurance

5,891 (5,891) -

Accounts payable 4,155 (86) 4,069Accrued expenses 48,257 4,192 52,449Withholding (dormant claims) 11,124 (2,790) 8,334Defined benefit obligation 15,180 3,801 18,981Plan assets (16,330) (1,879) (18,209)Guaranteed reserve 183,452 (16,769) 166,683Other liabilities (95) (777) (872)Gain or loss on valuation of derivatives

(3,350) (1,450) (4,800)

Impairment loss of available-for-sale financial assets

38,208 (1,251) 36,957

Provision for restoration 13,501 857 14,358Leasehold improvements (3,625) 1,248 (2,377)Separate accounts (39,867) 4,563 (35,304)Others 16,282 38,390 54,672

(510,104) (85,775) (595,879)Deferred income tax liabilities (A) (131,081) (19,495) (150,576)Temporary differences charged or credited directly to equity

Loss (gain) on valuation of available-for-sale financial assets

(1,536,507) 1,022,887 (513,620)

Loss (gain) on valuation of Held-to-maturity securities

- (1,030,756) (1,030,756)

(1,536,507) (7,869) (1,544,376)Deferred income tax liabilities (B) (394,448) 5,585 (388,863)Deferred income tax liabilities (A+B) (525,529) (13,910) (539,439)

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For the year ended December 31, 2017Beginningbalance

Net increase(decrease)

Ending balance

Accumulated temporary differences:Securities (408,822) (83,074) (491,896)Accrued income (327,314) 36,323 (290,991)Reserve for loss on participating insurance 12,748 (6,857) 5,891

Accounts payable 4,437 (282) 4,155Accrued expenses 59,449 (11,193) 48,257Withholding (dormant claims) 18,381 (7,258) 11,124Defined benefit obligation 14,046 1,134 15,180Plan assets (13,713) (2,617) (16,330)Guaranteed reserve 204,358 (20,906) 183,452Other liabilities (833) 738 (95)Gain or loss on valuation of derivatives 3,081 (6,431) (3,350)Impairment loss of available-for-sale financial assets

55,419 (17,211) 38,208

Provision for restoration 13,444 57 13,501Leasehold improvements (4,688) 1,062 (3,625)Separate accounts (47,502) 7,634 (39,867)Others 2,401 13,881 16,282

(415,108) (95,000) (510,104)Deferred income tax liabilities (A) (100,456) (30,625) (131,081)Temporary differences charged or credited directly to equity

Loss (gain) on valuation of available-for-sale financial assets (2,265,303) 728,796 (1,536,507)

Loss (gain) on valuation of derivatives designated as cash flow hedges (22,882) 22,882 -

(2,288,185) 751,678 (1,536,507)Deferred income tax liabilities (B) (553,741) 159,293 (394,448)Deferred income tax liabilities (A+B) (654,197) 128,668 (525,529)

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A reconciliation of income tax expenses, applicable to income before income taxes at the Korea statutory tax rate, to income tax expenses at the effective income tax rate of the Company for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Income before income taxes 412,861 452,198Tax at the statutory income tax rate 106,878 108,970Adjustments Non-taxable profit (2,414) (2,300) Non-deductible expenses 133 (2,324)

Effect of changes in tax rate (4,354) 7,636Amount of additional corporate tax 1,307 -

Others 42 (20)(5,286) 2,992

Income tax expenses 101,592 111,962Effective income tax rate 24.61% 24.76%

19. Accounts payables

Accounts payables as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Insurance payables (*) 34,213 33,040Other accounts payable 40,164 56,470Accrued expenses 98,712 59,863Withholdings 13,633 15,890

186,722 165,263

(*) Insurance payables consist entirely of reinsurance payables.

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20. Provisions

Changes in provisions for restoration for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the years ended December 31, 2018

Beginning balance Provision(*1) Provision used Other(*2) Ending balance

13,501 851 (81) 87 14,358


Beginning balance Provision Provision used Other(*2) Ending balance

13,444 950 (771) (122) 13,501

(*1)Provisions for restoration, and provisions for restoration, which are measured at their present value.(*2)This is the effect of changes in the estimate, such as discount rate changes.

Changes in other provisions for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):


Beginning balanceIncrease

(Decrease) Ending balance

Provision for litigation 1,860 (685) 1,175Other long-term employee benefits provision(*) 3,261 1,356 4,617

5,121 671 5,792


Beginning balanceIncrease

(Decrease) Ending balance

Provision for litigation - 1,860 1,860Other long-term employee benefits provision(*) - 3,261 3,261

- 5,121 5,121

(*)The Company has reclassified other long-term employee benefit provisions in the comparative financial statements to the financial statements in order to improve comparison with the current period's financial statements. Such reclassifications do not affect the reported net income or net assets.

The expected economic benefits outflow in provision as of December 31, 2018 is as follows (Korean won in millions):

December 31, 2018

Total Within 1 year 1~3 years 3~5 years Over 5 yearsProvision for restoration (*1) 14,357 4,660 8,688 1,009 -Other long-term employee benefits provision(*2) 5,150 262 758 1,338 2,792

(* 1) Expected recovery cost Expected recovery cost is the amount after present value discount.(* 2) Estimated outflow of other long-term employee benefit provisions is before present value discount.(* 3) The timing of payment of the lawsuit cannot be predicted as of the end of the reporting period.

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21. Employee benefits

Net defined benefit liabilities as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Defined benefit obligations 20,129 16,328Fair value of plan assets (18,211) (16,332)Net defined benefit liabilities recognized 1,918 (4)

Changes in carrying value of defined benefit obligation for the years ended periods ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Beginning balance 16,328 15,194Changes:

Current service cost 1,268 1,277Interest cost 621 533Actuarial gain(loss) 2,357 (462)Payment (445) (214)

3,801 1,134Ending balance 20,129 16,328

Changes in fair value of plan assets for the years ended periods ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Beginning balance 16,332 13,714Changes:

Expected return on plan assets 621 480Re-measurement loss (418) (329)Contribution by the Company 2,121 2,681Payment (445) (214)

1,879 2,618Ending balance 18,211 16,332

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21. Employee benefits (cont’d)

Total costs recognized for defined benefit for the years ended periods ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Current service cost 1,268 1,277Interest cost - 53

1,268 1,330

Total costs recognized for defined contribution plans for the years ended periods ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Insurance operating expenses 8,235 7,860Investment administrative expenses 788 766

9,023 8,626

Components of plan assets as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Time deposits 18,209 16,330Other 2 2

18,211 16,332

Details of main assumptions used in actuarial assessment as of December 31, 2018 and 2017 are as follows :

December 31, 2018 December 31, 2017Demographic assumption : Turnover rate (%) 4.00 5.00Financial assumption :

Rate of salary increase (%) 4.00 4.00 Inflation rate (%) 2.00 2.00

Discount rate (%) 3.40 3.90

Above demographic assumptions; KIDI’s statistics were used for mortality rate.

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21. Employee benefits (cont’d)

Changes in Remeasurements for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Remeasurements:

Effect of changes in demographic assumptions (62) -

Effect of changes in financial assumptions (1,296) 621Experience adjustments (999) (159)

(2,357) 462Return on plan assets (excluding amounts included in net interest of net defined benefit liabilities): Actual revenue from plan assets 203 151

Amounts included in net interest of net defined benefit liabilities (621) (480)

(418) (329)(2,775) 133

Sensitivity analysis of defined benefit plans to changes in the actuarial assumptions as of December 31, 2018 is as follows (Korean won in millions):

Defined benefit obligation 0.5% point increase 0.5% point decreaseDiscount rate

20,129(1,296) 1,422

Future salary increasing rate 1,461 (1,343)

Estimate of contributions expected to be paid to the defined benefit plans for one year is 1,462 million ( 1,268 million for December 31, 2017).

The average duration of the defined benefit obligation is 13.9 years (12.8 years for December 31, 2017).

22. Other liabilities

Other liabilities as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Withholdings 1,897 2,354Value added tax payable 50 6Premium received in advance 118,317 94,411Advance payment 1 -Other accounts payables 9,915 11,319Accrued expenses 25,250 19,197Others 180 244

155,610 127,531

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23. Assets and liabilities denominated in foreign currencies

Assets and liabilities denominated in foreign currencies as of December 31, 2018 and 2017 are as follows (Korean won in millions and USD, EUR, AUD, GBP in thousands):


CurrencyForeign

currenciesKorean won equivalents

Foreign currencies

Korean won equivalents

Cash and deposits USD 35,795 40,022 13,848 14,837EUR 1,329 1,700 1,239 1,586AUD 239 188 272 227

Available-for-sale financial assets USD 551,773 616,937 234,591 251,341EUR 80,606 103,108 102 130GBP 61,759 87,718 23,004 33,115AUD 1,862 1,467 2,408 2,011

Loans USD 30 33 30 32Accrued income USD 1,792 2,004 1,047 1,122

EUR 592 757 1 1GBP 1,763 2,504 401 578AUD 1 1 1 1

Accounts receivables USD 306 343 404 432Accounts payables USD 89 99 23 25

Details of gains and losses on foreign currency translation and foreign currency transactions for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018 For the year ended December 31, 2017Net gain (loss) on foreign currency

transaction

Net gain(loss) on foreign currency

translation

Net gain (loss) on foreign currency

transaction

Net gain(loss) on foreign currency

translationCash and deposits 12 2,510 208 (1,777)Available-for-sale financial assets 363 6,282 (1,070) (14,839)Loan and receivables (42) (64) - -Others 10 - 397 (18)

343 8,728 (465) (16,634)

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24. Contingent liabilities and commitments

24.1 Total number of insurance contracts and insured amounts

The total number of insurance contracts and insured amounts are 1,867,671 contracts and 89,727,352 million, respectively, as of December 31, 2018 (1,865,692 contracts and 89,476,032 million as of December 31, 2017).

24.2 Agreement on reinsurance

The Company has reinsurance agreements with Swiss Reinsurance Co. ("Swiss Re"), Reinsurance Group of America Incorporated ("RGA"), Gen Re, Munich Re, Scor Re, Hannover Re, and Korean Re for coverages of death and disability, cancer, critical illness, long-term care, specific disease, medical reimbursement, and simplified issue insurance as of December 31, 2018. In accordance with the reinsurance agreements, the Company pays reinsurance premiums for the insurance covers to the reinsurers mentioned above.

24.3 Insurance contracts for employees

As of December 31, 2018, the Company is under an agreement of fidelity insurance with Seoul Guarantee Insurance Company covering accidental losses incurred in the course of business.

24.4 Overdraft agreements

The Company has overdraft agreements with KEB Hana Bank with the limits of 20,000 million as of December 31, 2018.

24.5 Litigation

Details of litigations the Company is involved in as of December 31, 2018 and 2017 are as follows (Korean won in millions):

No. of litigation AmountsDecember 31,

2018December 31,

2017December 31,

2018December 31,

2017

Defendant 30 27 7,444 5,438

Insurancepremiumdamage,commissabsence

Plaintiff 23 30 3,236 2,134

Return ofcommissobligationcancellatrectificati

Most estimated losses from the litigations above are accounted for as reserve for outstanding claims and provision for litigation. Reserve for outstanding claim is 1,576 million (December 31, 2017: 1,545 million) and provision for litigation is 1,175 million as of December 31, 2018. (December 31, 2017:

1,860 million)

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24. Contingent liabilities and commitments (cont’d)

24.6 Bancassurance partnership

As of December 31, 2018, the Company entered into sales partnership contracts to sell bancassurance insurance products with 13 domestic banks including KB kookmin Bank ("Insurance agency of financial institution"). The above insurance agencies are entering into contracts to sell insurance products specified in the relevant regulations and collect insurance premiums on behalf of the Company. The Company pays the insurance agencies certain rates of sales commissions for the insurance contracts that they make. The Company recorded 18,061 million and 12,613 million of sales commissions as insurance operating expenses for the years ended December 31, 2018 and 2017, respectively.

24.7 Capital commitment

The Company currently has capital and investment commitment in 26 funds including Truston Global Infra Private Fund No.1, and total undrawn commitment is 311,529 million as of December 31, 2018 (December 31, 2017: 294,538 million).

24.8 Others

On July 9, 2018, the Financial Supervisory Service (FSS) announced industry wide application of corrective action on immediate annuity products sold by life insurance companies. The impact on the Company as a result of the above cannot be estimated as of the audit report date.

From July 2, 2018 to July 19, 2018, the Financial Supervisory Service conducted a sector inspection and pointed out that there was a fact that we did not updated the basic documents to the Financial Supervisory Service. In connection with the above, the financial impact of the Company on the Company cannot be predicted as of the date of the audit report as the Company has not been informed of the final result by the Financial Supervisory Service

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24. Contingent liabilities and commitments (cont’d)

24.9 Financial instruments offset

Details of financial assets subject to offsetting, enforceable master netting arrangements and similaragreements as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018Financial assets at FVTPL

Derivativesassets

Financial liabilities at

FVTPL

Derivatives liabilities

Gross amount of recognized financial assets 169 13,823 1,012 3,991Gross amount of recognized financial liabilities set off in the statement of financial position - - - -Net amounts of financial assets or liabilities presented in the statement of financial position (a) 169 13,823 1,012 3,991Financial instruments not set off in the statement of financial position Assets or liabilities (b) - - - - Cash and financial instruments

as collateral (c) 90 10,228 - 530Net amount (a-b-c) 79 3,595 1,012 3,461

December 31, 2017Financial assets at

FVTPLDerivatives

assetsDerivatives

liabilitiesGross amount of recognized financial assets 174 8,710 225Gross amount of recognized financial liabilities set off in the statement of financial position - - -Net amounts of financial assets or liabilities presented in the statement of financial position (a) 174 8,710 225Financial instruments not set off in the statement of financial position Assets or liabilities (b) - - - Cash and financial instruments

as collateral (c) 174 8,257 -Net amount (a-b-c) - 453 225

24.10 Operating leases

The Company has recognized lease payments amounting to ₩ 23,078 million for the year ended December 31, 2018 and the future minimum lease payments for non-cancellable operating leases are as follows (Korean won in millions):

AmountWithin 1 year 19,370Over 1 year and within 5 years 4,548Over 5 years -

23,918

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25. Earnings per share

Basic earnings per share as of December 31, 2018 and 2017 are as follows (Korean won):



Net income / ordinary income (A) 311,269,225,697 340,236,257,800Weighted average number of shares outstanding (B) 82,000,000 82,000,000

Net income / ordinary income per share (A/B) 3,796 4,149

Diluted earnings per share is the same as the basic earnings per share, as the options in the share options are changed from equity settlement to cash settlement in 2017.

26. Statements of cash flows

Cash in the statements of cash flows refers to cash and cash equivalents excluding deposits in cash and deposits.

The Company has prepared cash flows from operating activities using the indirect method on the statements of cash flows. Significant non-cash transactions transaction for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Loss on valuation of available-for-sale financial assets (758,330) (575,041)Gain on valuation of held-to-maturity securities 771,784 -

Gain (loss) on valuation of derivatives designated as cash flow hedges 2,578 (9,997)Remeasurement of defined benefit obligations (2,012) 101

Provision for restoration 435 591Reclassification of capital for share-based payment - (10,147)

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27. Equity

The Company is authorized to issue 200,000,000 shares of capital stock. The total number of common stock issued and outstanding as of December 31, 2018 is 82,000,000 shares and the par value per share is 1,000.

Details of equity as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Capital stock 82,000 82,000Capital surplus:

Capital in excess of par value 487,939 487,939Other capital surplus 653 653

488,592 488,592Accumulated other comprehensive income:

Gain on valuation of available-for-sale financial assets 383,729 1,142,059Gain on valuation of held-to-maturity securities 771,784 -Gain on valuation of derivatives designated as cash flow hedges 83,694 81,116

Remeasurement of defined benefit obligations (9,132) (7,120)1,230,075 1,216,055

Retained earnings:Legal reserve 41,000 41,000Bad debt reserve 21,653 20,140Unappropriated retained earnings 1,909,126 1,820,770

1,971,779 1,881,9103,772,446 3,668,557

(*) The Company had a stock split from 10,000 per share to 1,000 per share on January 23, 2017 from the decision at the general shareholders’ meeting held on December 20, 2016.

The Korean Commercial Code requires the Company to appropriate, as a legal reserve, at least 10% of cash dividends for each accounting period until the reserve equals 50% of outstanding capital stock. The legal reserve may not be utilized for cash dividends, but may be used to offset a deficit, if any, or may be transferred to capital stock.

Changes in accumulated other comprehensive income for the years ended December 31, 2018 and 2017 are summarized as follows (Korean won in millions):


Beginning balance

Changes DisposalPolicyholder’

equity adjustment

ReclassificationIncome tax

effectEndingbalance

Gain (loss) on valuation of available-for-sale financial assets 1,142,059 168,101 (84,255) 92,325 (1,199,058) 264,557 383,729

Gain on valuation of held-to-maturity financial assets - - (76,487) - 1,199,058 (350,787) 771,784

Gain (loss) on valuation of derivatives designated as cash flow hedges 81,116 3,556 - - - (978) 83,694

Remeasurements ofdefined benefit obligations (7,120) (2,775) - - - 763 (9,132)

1,216,055 168,882 (160,742) 92,325 - (86,445) 1,230,075

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27. Equity (cont’d)


Beginning balance Changes DisposalPolicyholder’

equity adjustmentIncome tax

effectEnding balance

Gain (loss) on valuation of available-for-sale financial assets 1,717,100 (768,097) (39,380) 78,681 153,755 1,142,059

Gain (loss) on valuation of derivatives designated as cash flow hedges 91,113 (13,189) - - 3,192 81,116

Remeasurements ofdefined benefit obligations (7,221) 133 - - (32) (7,120)

1,800,992 (781,153) (39,380) 78,681 156,915 1,216,055

Balance of bad debt reserve as of December 31, 2018 and 2017 is as follows (Korean won in millions):

December 31, 2018 December 31, 2017Beginning balance 21,653 20,140Provision for bad debt reserve 1,562 1,513Ending balance 23,215 21,653

Provision for bad debt reserve and adjustment income after reflecting bad debt reserve as of December 31, 2018 and 2017 are as follows (Korean won in millions):



Net income before provision for bad debt reserve 311,269 340,236Bad debt reserve (1,562) (1,513)Adjustment income after reflecting bad debt reserve 309,707 338,723Adjustment income per share after reflecting bad debt reserve 3,777 4,131

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27. Equity (cont’d)

Dividends paid for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Annual dividend (2018: 1,700 per share, 2017: 2,037 per share) 139,400 167,034Interim dividend (2018: 1,000 per share, 2017: 700 per share) 82,000 57,400

Dividend proposed for approval of shareholders for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Annual dividend (2018: 1,600 per share, 2017: 1,700 per share) 131,200 139,400

(*) The financial statements for the year ended December 31, 2018 do not reflect the above unpaid dividends.

Details of the statements of appropriation of retained earnings for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



I. Unappropriated retained earnings: Unappropriated retained earnings carried forward

from the prior year 1,679,857 1,537,934Interim dividend (2018: 1,000(100%) per share, 2017: 700(70%) per share) (82,000) (57,400)

Net income 311,269 340,2361,909,126 1,820,770

II. Voluntary reserves - -1,909,126 1,820,770

III. Appropriation of retained earnings (*): Annual dividend(2018: 1,600 (160%) per share, 2017: 1,700 (170%) per share) (131,200) (139,400)

Bad debt reserve (1,562) (1,513)(132,762) (140,913)

V. Retained earnings carried forward to the next year 1,776,364 1,679,857

(*) Expected date of disposal of current retained earnings is March 29, 2019 and confirmed date of disposal of retained earnings from prior year was March 30, 2018.

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28. Share-based payment

The Company granted stock options to its employees from June 2014 and has not been granted since March 2017. Initial share options were granted as equity-settled share-based payments. As the cash settlement policy for the stock option payment method was clearly defined during the previous period, all share options granted were accounted for as cash-settled share-based payment. And the related liability measured at fair value amounting to 51,661 million as of December 31, 2018 is accounted as accrued expenses.

As discussed in Note 44, the Company has entered into a share purchase agreement with Life Investment Co., Ltd., the Company's largest shareholder, and Shinhan Financial Holding Company, and the transfer from the Financial Services Commission to the Shinhan Financial Group as a subsidiary on January 16, 2019 The fair value of share options is reflected in the fair value of the Company's stock and the exercise price of certain share-based payment arrangements has been adjusted in accordance with the market value criteria.

Details of commitments on share-based payment granted to employees as of December 31, 2018 and 2017 are as follows:

Conditional performance 1





Grant date June 23, 2014 November 6, 2014 November 20, 2015 March 30, 2016 March 22, 2017

Granted shares 1,476,000 799,500 364,900 38,950 23,370

Retained shares 1,168,500 557,810 364,900 38,950 23,370

Contractual life 7 years from grant date

7 years from grant date

7 years fromgrant date



The compensation costs the Company recognized as compensation for rendering services earnings for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Compensation costs incurred in the share based payment transactions 36,382 5,556

The weighted-average fair value of share-based payment arrangements at the end of the reporting period is as follows (Korean won):

December 31, 2018 December 31, 2017Weighted average fair value per unit

23,989 7,657

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28. Share-based payment (cont’d)

Changes in details of commitments on share-based payment for the years ended December 31, 2018 and 2017 are as follows (Korean won):

December 31, 2018

Number of shares Weighted average exercise price (KRW)

Beginning balance 2,168,290 22,439Granted during the period - -Forfeited during the period (14,760) -Exercise during the period - -Expired during the period - -Ending balance 2,153,530 23,395Exercisable at the end of the year 2,130,160 23,276

December 31, 2017

Number of shares Weighted average exercise price (KRW)

Beginning balance 2,168,290 22,439Granted during the period 23,370 22,439Forfeited during the period (23,370) -Exercise during the period - -Expired during the period - -Ending balance 2,168,290 22,439Exercisable at the end of the year 1,593,469 22,439

29. Premium income

Premium income for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018 For the year ended December 31, 2017Individual :

Survival 445,711 581,153Death 1,870,371 1,805,075Endowment 1,448,867 771,309

3,764,949 3,157,537

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30. Reinsurance transactions

Reinsurance transactions for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):


Reinsurance expense

Reinsurance income

Reinsurance claimReinsurance commission Total

Individual-domestic 134,132 84,263 32,591 116,854


Reinsurance expense

Reinsurance income

Reinsurance claimReinsurance commission Total

Individual-domestic 128,312 79,346 31,568 110,914

31. Interest income and expenses

Interest income for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Cash and cash equivalent 2,298 2,184Deposits 32,035 30,327Available-for-sale financial assets 357,834 701,034Held-to-maturity securities 329,659 -Loans 126,499 116,114Others 8,729 7,713

857,054 857,372

Interest expenses for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Settlement losses on separate accounts, etc. 1,212 1,327

32. Dividend income

Dividend income for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Available-for-sale financial assets 38,920 15,294

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33. Investment income and expenses from financial assets

Investment income from financial assets for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Gain on valuation of financial assets at FVTPL - 95Gain on disposal of financial assets at FVTPL 7 -Gain on disposal of available-for-sale financial assets 65,546 29,095Gain on disposal of derivatives for trading - 3,834Gain on valuation of derivatives for trading 41 57Gain on disposal of derivatives designated as hedges 890 5,024Gain on valuation of derivatives designated as hedges 1,289 6,618Reversal of allowances for bad debts 194 2

67,967 44,725

Investment expenses from financial assets for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Loss on disposal of available-for-sale financial assets 974 3,912Impairment loss on available-for-sale financial assets 1,158 3,027Loss on disposal of derivatives for trading 811 162Loss on valuation of derivatives for trading 1,585 433Loss on disposal of derivative designated as hedge 4,097 -Loss on valuation of derivatives designated as hedges 3,520 149Bad debt expense 155 1,467

12,300 9,150

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34. Claims and benefits

Claims and benefits for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018Claims Surrenders Dividends Total

Individual:Survival 11,555 818,632 8,893 839,080Death 95,187 677,640 37,239 810,066Endowment 3,857 444,890 28 448,775

110,599 1,941,162 46,160 2,097,921

For the year ended December 31, 2017Claims Surrenders Dividends Total

Individual:Survival 8,817 658,348 3,151 670,316Death 97,123 599,907 12,263 709,293Endowment 2,484 400,139 13 402,636

108,424 1,658,394 15,427 1,782,245

35. Insurance operating expenses

Insurance operating expenses for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Salary and bonus 65,052 64,398Retirement benefits 9,422 9,102Employee benefits 65,076 19,502Acquisition cost 408,855 388,553Collection cost 3,131 3,194Utilities 14,994 14,318Rent 22,421 22,013Advertisement 26,683 9,531Depreciation 5,880 5,111Taxes and dues 44,980 40,536IT expenses 11,455 10,124Other professional service fees 15,948 18,671Others 14,658 13,134

708,555 618,187Less: Deferred Acquisition Cost (237,711) (243,522)

470,844 374,665

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36. Investment administrative expenses

Investment administrative expenses for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Salary and bonus 6,198 6,292Retirement benefits 869 855Employee benefits 3,336 1,332Utilities 719 655Rent 1,313 1,240Depreciation 886 641Taxes and dues 478 474IT expenses 2,981 2,784Other professional service fees 11,781 12,661Others 1,127 1,116

29,688 28,050

37. Other operating income and expenses

Other operating income for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Gain on foreign currency translation 12,991 1,195Gain on foreign currency transactions 4,316 1,377Fees and commission Income 277 518Rental income 265 212Reversal of impairment loss on intangible assets - 22

17,849 3,324

Other operating expenses for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Loss on foreign currency translation 4,263 17,829Loss on foreign currency transactions 3,973 1,841Amortization of intangible assets 12,764 15,404Impairment loss on intangible assets 227 -Discount fees 358 (217)

21,585 34,857

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38. Non-operating income and expenses

Non-operating income (expenses) for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):



Non-operating income: Gain on disposal of intangible assets - 50 Miscellaneous income 5,205 9,414

5,205 9,464Non-operating expenses: Loss on disposal of property and equipment 82 208

Loss on disposal of intangible assets 2 -Donations(*) 3,243 3,806Penalties 14 25Miscellaneous loss 1,993 3,568

5,334 7,607(129) 1,857

(*) During the year, the Company donated KRW 3,044 million to the Orange Hope Foundation.

39. Transactions with related parties

The Company’s related parties as of December 31, 2018 are as follows:

Related party Nature of related partyLife Investment Limited Holding company

MBK Partners Inc. Entity controlled by one of the key management personnel

MBK Partners III Inc., Dasan 1 Entities that have significant influence overthe holding company

Korea Retail Investment, Inc.(*), Homeplus Holdings Co., Ltd. (*), Homeplus Stores Co., Ltd. (*), Homeplus Co., Ltd.(*), Orange Hope Foundation

Other related parties

(*) They are related parties controlled by MBK Partners III Inc.

The Company donated 3,044 million to Orange Hope Foundation during the year ended, 2018, and had transactions with other related parties for marketing related expenses of 102 million (December 31, 2017:

324 million). There is no balance of related payables (December 31, 2017: 7 million) as of December 31, 2018. Also, dividends paid to Life Investment Limited, amounted to 130,950 million and 200,984 million for the year ended December 31, 2018 and 2017, respectively.

Compensation for key management for the years ended December 2018 and 2017 are as follows (Korean won in millions):



Short-term wages and salaries 4,782 4,356Retirement benefits 473 458Share-based payment 16,358 4,219

21,613 9,033

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40. Fair value of financial assets and liabilities

Book values and fair values of financial assets and liabilities as of December 31, 2018 and 2017 are as follows (Korean won in millions):


Book value Fair value Book value Fair valueFinancial assets:

Cash and cash equivalents 154,754 154,754 175,595 175,595

Deposits 384,545 584,272 384,552 556,692

Financial assets at FVTPL 169 169 10,326 10,326

Available-for-sale financial assets 12,685,801 12,685,801 21,854,092 21,854,092

Held-to-maturity securities 10,505,642 11,273,999 - -

Loans 2,588,588 2,588,588 2,133,876 2,133,876

Receivables 650,197 650,197 678,468 678,468Derivative assets designated as hedges

13,823 13,823 8,710 8,710

26,983,519 27,951,603 25,245,619 25,417,759Financial liabilities:

Financial liabilities at FVTPL 1,012 1,012 - -Derivative liabilities designated as hedges 3,991 3,991 225 225Other financial liabilities 186,722 186,722 165,263 165,263

191,725 191,725 165,488 165,488

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

a. The fair value of financial instruments being traded in the active market is measured using a quoted market price as of a reporting date. b. The fair value of financial instruments which have no active market is measured using assessment of an independent external assessment agency or is estimated using a valuation technique. Valuation techniques include using recent arm’s length market transaction between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially equivalent, discounted cash flow analysis and option pricing models. c. For fair value determination, a valuation technique whose variables include only data from observable markets by comparison with other current market transactions in the same instruments. If all variables for a valuation technique are not observable, reasonable estimation or assumption is used for a fair value determination. d. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured shall be measured at cost.

The Company uses the following valuation technique for fair value of financial instruments measured at amortized cost:

a. Cash and cash equivalents and deposits: carrying amounts and fair value of cash are the same, and the carrying amounts of cash equivalents such as ordinary deposits, of which deposit and withdrawal can be made at any time, and time deposits with maturity of less than 3 months, are used as the proxy of fair value. b. Held-to-maturity financial assets: mark-to-market valuation amount provided by an independent external valuation agency is used for the fair value of held-to-maturity financial assets.c. Loans: expected future cash flows receivable in the future, discounted based on market interest rate and discount rate considering the borrower's credit risk, was used to calculate fair value of loans.d. Other receivables and other financial liabilities: The carrying amounts of other receivables and other financial liabilities, which are accounts receivables and accounts payables carried out in a short time period, are used as the proxy of fair value.

The Company classifies fair value measurements using a hierarchy that reflects the significance of theinputs to measure the fair value. The fair value hierarchy has the following levels:

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40. Fair value of financial assets and liabilities (cont’d)

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilitiesLevel 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectlyLevel 3: techniques which use the inputs, which have a significant effect on the recorded fair value, are not based on observable market data

Book values of financial assets carried at cost as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Available-for-sale financial assets

Equity investments 66 6666 66

Above unlisted equity instruments are measured at acquisition cost since the variance of the estimated cash flows is significant and the probability of occurrence of various estimates cannot be reliably measured.

Fair value hierarchy of the financial assets and liabilities subject to fair value assessment as of December 31, 2018 and 2017 is as follows (Korean won in millions):

December 31, 2018

Level 1 Level 2 Level 3 TotalFinancial assets:

Financial assets at FVTPL - 169 - 169Available-for-sale financial Assets (*) 6,117,435 5,875,089 693,211 12,685,735

Derivative assets designated as hedges - 13,823 - 13,823

6,117,435 5,889,081 693,211 12,699,727Financial liabilities:

Financial liabilities at FVTPL - 1,012 - 1,012Derivative liabilitiesdesignated as hedges - 3,991 - 3,991

- 5,003 - 5,003

(*) Equity securities carried at cost have been excluded.

December 31, 2017

Level 1 Level 2 Level 3 TotalFinancial assets:

Financial assets at FVTPL - 10,326 - 10,326Available-for-sale financial Assets (*) 14,064,482 7,309,501 480,043 21,854,026

Derivative assets designated as hedges - 8,710 - 8,710

14,064,482 7,328,537 480,043 21,873,062Financial liabilities:

Derivative liabilities designated as hedges - 225 - 225

- 225 - 225

(*) Equity securities carried at cost have been excluded.

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Details of valuation techniques and inputs for the valuation of financial assets and liabilities classified as Level 2 and 3 are as follows (Korean won in millions):

December 31, 2018

Fair value LevelValuation technique Inputs

Estimating ranges of unobservable inputs

(%)Financial assets

Financial assets at FVTPL (derivative assets for trading)

169 2DCF method,Black-Scholes Model

Interest rate,stock index, etc.

-

Available-for-sale financial assets

(debt instruments, ETFs)5,875,089 2 DCF method

NAV method

Interest rate, stock index,etc.

-

Available-for-sale financial assets (equity instrument)

693,211 3DCF method,DDM method,NAV method

Dividend rate,growth rate,discount rate,liquidity value

Discount rate:9.36%~16.62%Permanent growth rate: 0%.

Derivative assets designated as hedges 13,823 2 DCF method

Interest rate, exchange rate, etc.

-

Financial liabilities

Financial liabilities at fair value through profit or loss(Derivative liabilities for trading purposes)

1,012 2DCF method,Black-Scholes Model


-

Derivative liabilities designated as hedges 3,991 2 DCF method


-

December 31, 2017

Fair value LevelValuation technique Inputs

Estimating ranges of unobservable inputs

(%)Financial assets

Financial assets atFVTPL (financial assets for trading)

10,095 2 NAV method - -

Financial assets at FVTPL (derivative assets for trading)

231 2DCF method,Black-Scholes Model


-


(debt instruments, ETFs)7,309,501 2 DCF method,

NAV method

Interest rate, stock index,etc.

-


(equity instrument)480,043 3

DCF method,DDM method,NAV method

Dividend rate,growth rate,discount rateliquidity value

Discount rate:10.74%~16.97%Permanent growth rate: 0%.

Derivative assets designated as hedges 8,710 2 DCF method


-

Financial liabilities

Derivative liabilities designated as hedges 225 2 DCF method


-

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Details of changes in the carrying amount of financial assets and liabilities classified as fair value Level 3 for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):


Beginning balance Net income

Other comprehensive

income ChangesEnding balance

Available-for-sale financial assets:Equity securities 480,043 5,392 (16,141) 223,917 693,211


Beginning balance Net income

Other comprehensive

income ChangesEnding balance

Available-for-sale financial assets:Equity securities 350,289 (11,943) 16,452 125,245 480,043

Total gains or losses recognized in profit or loss for the years ended December 31, 2018 and 2017 and total gains or losses recognized in profit or loss relating to assets held at the end of the reporting period are as follows (Korean won in millions):



Total gains or losses

recognized in profit or loss

Total gains or losses recognized

in profit or loss relating to assets held at the end of

the reporting period

Total gains or losses

recognized in profit or loss

Total gains or losses recognized

in profit or loss relating to assets held at the end of

the reporting period

Other income or loss 6,550 6,550 (8,916) (8,627)Impairment loss (1,158) (1,158) (3,027) (3,027)

5,392 5,392 (11,943) (11,654)

The sensitivity analysis of the financial instruments has been performed by classifying favorable and unfavorable changes based on how changes in unobservable inputs have effects on the fluctuations of financial instruments’ value. When the fair value of a financial instrument is affected by more than one unobservable input, the fair value is calculated based on the most favorable or the most unfavorable changes. Equity securities are financial instruments classified as Level 3, subject to sensitivity analysis,and the fair value changes are recognized as other comprehensive income (Korean won in millions):

December 31, 2018 December 31, 2017Most

favorable Most

unfavorable Most

favorable Most unfavorable Financial assets:Available-for-sale financial assets (*) 711,472 685,901 480,902 473,482

(*) Fair value changes of equity securities are measured by increasing or decreasing the majorunobservable inputs, such as dividend rate, discount rate and liquidation value.

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The fair value hierarchy of financial assets and liabilities not measured but disclosed at fair value as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018Level 1 Level 2 Level 3 Total

Financial assets:Cash and cash equivalents - 154,754 - 154,754Deposits - 584,272 - 584,272Held-to-maturity securities 9,382,597 1,891,402 - 11,273,999Loans - - 2,588,588 2,588,588Receivables - - 650,197 650,197

9,382,597 2,630,428 3,238,785 15,251,810Financial liabilities:Other financial liabilities - - 186,722 186,722

- - 186,722 186,722

December 31, 2017Level 1 Level 2 Level 3 Total

Financial assets:Cash and cash equivalents - 175,595 - 175,595Deposits - 556,692 - 556,692Loans - - 2,133,876 2,133,876Receivables - - 678,468 678,468

- 732,287 2,812,344 3,544,631Financial liabilities:Other financial liabilities - - 165,263 165,263

- - 165,263 165,263

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Carrying amounts of financial assets and liabilities by category as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018Financial

instruments held-for-trading

Available-for-sale financial instruments

Held-to-maturity

securities

Financial instruments measured at

amortized cost

Derivatives designated as hedges

Total

Financial assets:Cash and cashequivalents - - - 154,754 - 154,754

Deposits - - - 384,545 - 384,545Financial assets atFVTPL 169 - - - - 169

Available-for-salefinancial assets - 12,685,801 - - - 12,685,801

Held-to-maturity securities - - 10,505,642 - - 10,505,642Loans - - - 2,588,588 - 2,588,588Receivables - - - 650,197 - 650,197Derivative assets designated as hedges - - - - 13,823 13,823

169 12,685,801 10,505,642 3,778,084 13,823 26,983,519

Financial liabilities:Financial liabilities at FVTPL 1,012 - - - - 1,012Derivative liabilities

designated as hedges - - - - 3,991 3,991Other financial liabilities - - - 186,722 - 186,722 1,012 - - 186,722 3,991 191,725

December 31, 2017Financial

instruments held-for-trading

Available-for-sale financial

instruments

Financial instruments measured at amortized

cost

Derivatives designated as

hedgesTotal

Financial assets:Cash and cash equivalents - - 175,595 - 175,595Deposits - - 384,552 - 384,552Financial assets at FVTPL 10,326 - - - 10,326Available-for-sale financial assets - 21,854,092 - - 21,854,092Loans - - 2,133,876 - 2,133,876Receivables - - 678,468 - 678,468Derivativeassets designatedas hedges - - - 8,710 8,710

10,326 21,854,092 3,372,491 8,710 25,245,619

Financial liabilities:Derivative liabilities designated as hedges - - - 225 225

Other financial liabilities - - 165,263 - 165,263 - - 165,263 225 165,488

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41. Risk management

41.1 Policy of risk management

(1) Risk management overview

The essence of the insurance business is to take risks and manage them. Insurance products can be exposed to a variety of risks in business activities because pricing factors are very complex and the period of contracts is long, unlike other financial products.

The Company maintains a risk management system to prevent and systematically manage various kinds of risks that may arise in business activities due to complex characteristics of insurance products and uncertain external financial environment. Furthermore, the Company has implemented regulations of risk management and prepared for internal guidelines. The Company has granted each organization with responsibility and authority, and has established internal control systems, for efficient communication.

(2) Structure and function

The Company operates a risk management committee (RMC) under the Board of Directors to supervise the establishment of various policies related to the risk management, and to oversee risk management tasks to deliberate and resolve matters stipulated in the regulations and guidelines.

The RMC, chaired by an independent director, has been operating on a regular basis as the highest decision-making body related to risk management. The functions of RMC as the decision making body are being responsible for establishing basic risk management policy, setting risk appetite and risk limit and checking capital adequacy and solvency, and respective measures. For the purpose of efficient risk management,the two working committees and two advisory groups were established and report to RMC: General Account Asset Liability Committee (G/A ALCO), Separate Accounts Asset Liability Committee (S/A ALCO), Insurance Model Management Advisory Group, and Insurance Risk Management Advisory Group.

Working committees and Working group Main functions

General Account Asset Liability Management Committee

Establish main policies and decision making in relation to financial risk management for general account asset and liability

Separate Accounts Asset Liability Management Committee

Establish main policies and decision making in relation to financial risk management for separate accounts asset and liability

Insurance Model Management Advisory Group

Support management’s decision making in managing to the value of insurance contract and the overall assumptions used to measure risk and valuation models.

Insurance Risk Management Advisory Group Support management’s decision making in relation to insurance risk management

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41. Risk management (cont’d)

41.2 Insurance risk

(1) Insurance risk overview

Insurance risk is the risk related to the insurance company’s main business of underwriting insurance contracts and payment of insurance claims. It is the possibility that the actual risk at the time of payment of insurance claims is higher than the risk expected at the time of issuing insurance contract.

(2) Insurance risk exposure

Exposure to insurance risk is measured as risk premium income during the past 1 year, as of valuation date, that will be used to pay for insurance claims such as death, disease, etc. Risk premium is calculated by subtracting reinsurance risk premium (insurance premium paid to reinsurer) from the company’s risk premium income.

The Company’s maximum exposure to the insurance risk as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Death 217,296 211,122Disability 29,246 29,685Hospitalization 84,026 85,037Operation & diagnosis 151,574 145,861Actual medical loss reimbursement 1,112 1,070

483,254 472,775

(3) Measurement and management of insurance risk

The Company measures insurance risk based on the regulation on Risk Based Capital(RBC) by the supervisory institution. It is calculated by the sum of the risk premium multiplied by the adjusted risk factor summed up, and then adjusted to allow for risk diversification.

The Company develops new products based on product approval and review procedures, including profitability guideline. Also, scheduled basis rate and assumptions for pricing are set at appropriate levels through regular experience analysis.

The Company conducts a review of profitability of both inforce policies and new business based on regular calculation and analysis of Embedded Value (EV). The Company also analyzes the fluctuation in value by factor by analyzing deviation of performance against assumptions.

Also, the Company operates insurance risk advisory groups with operation and risk management departments in order to efficiently manage insurance risks.

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(4) Concentration of insurance risk and reinsurance policies

1) Concentration status of top 5 reinsurers

The Company uses reinsurance to transfer insurance risk and improve the efficiency of capital management with advanced methodologies. The Company establishes risk diversification measures by analyzing reinsurance profit and loss for efficient management of reinsurance.

The Company cedes to reinsurers, which meet the internal target on credit rating, and concentration status of top 5 reinsurers for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018 AA- A+ ~ A- BBB+ Others

Reinsurance premium 133,561 - - -Weight 99.57% - - -

For the year ended December 31, 2017 AA- A+ ~ A- BBB+ Others

Reinsurance premium 128,094 - - -Weight 99.83% - - -

(*) Calculation based on the total reinsurance premium.

2) Reinsurance premium by reinsurers' credit rating

The Company has transactions with reinsurers with credit ratings that qualify for investments. Reinsurance premium by reinsurers' credit rating for the years ended December 31, 2018 and 2017 are as follows (Korean won in millions):

For the year ended December 31, 2018 AA- A+ ~ A- BBB+ Others Total

Reinsurance premium 134,132 - - - 134,132

Weight 100.00% - - - 100.00%

For the year ended December 31, 2017 AA- A+ ~ A- BBB+ Others Total

Reinsurance premium 128,312 - - - 128,312

Weight 100.00% - - - 100.00%

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41.3 Interest risk

(1) Interest risk overview

Interest rate risk refers to the risk of losses arising from changes in market interest rates and differences in the maturity structure of assets/liabilities. Interest rate risk is mainly caused by differences in factors affecting net asset value, such as the size and maturity of assets and liabilities exposed to interest rate changes, maturity and interest payment cycle.

(2) Interest rate risk exposure

The Company’s exposure to interest rate risk as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Amount (*1) Exposure Amount (*1) Exposure

Interest bearing assets:Cash and deposits 539,299 539,299 560,147 560,147Available-for-sale financial Assets 11,460,005 11,460,005 21,231,690 21,231,690Held-to-Maturity Securities 10,505,642 10,505,642 - -Loans (*2) 2,589,082 2,460,660 2,134,619 2,133,876

25,094,028 24,965,606 23,926,456 23,925,713Interest bearing liabilities (*3):

Fixed rate 10,781,852 10,528,017 10,010,871 9,744,182Floating rate 11,388,861 11,306,000 10,511,566 10,438,359

22,170,713 21,834,017 20,522,437 20,182,541

(*1) Amounts in the statement of financial position are before subtracting allowance for bad debts, present value discounts and deferred loan originated cost and fees.

(*2) Insurance contract loans are included in loans. (*3) The financial statements of the interest and marginal bonds are the premium reserves and the premium

reserves

(3) Floating rate liabilities by the minimum guaranteed interest rate

Minimum guarantee rate of floating rate liabilities, which is the lowest disclosed rate, is set out in the contracts by product.

The Company’s floating rate liabilities by the minimum guaranteed interest rate as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Below 0% 121,116 113,4560% to 2% 4,927,227 3,775,0082% to 3% 5,323,798 5,631,7923% to 4% - -Over 4% 1,016,721 991,310

11,388,862 10,511,566

(*) It is based on amounts in the statement of financial position. (**) All product groups in floating rate interest-bearing liabilities are included (section of minimum guaranteed interest below 0%: floating rate attached riders and annuity and pension product of fixed rate are included).

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41.3 Interest risk (cont’d)

(4) Measurement and management of Interest rate risk

The Company measures interest rate risk based on the internal model and the method regulated by the supervisory institution for calculating RBC ratio.

For interest rate risk management, the Company has established asset management guidelines in which the Company has applied a Strategic Asset Allocation (SAA) that reflects the properties of interest rate and maturity structure, etc. of insurance liability. That is, the company has established guideline and operated on it. Decision on SAA is made every year by General Account Asset Liability Committee (GA ALCO) under Risk Management Committee(RMC).

41.4 Credit risk

(1) Credit risk overview

Credit risk is defined as the potential losses incurred when a counterparty goes bankruptcy, or cannot perform the contractual obligations and credit worsens. Credit risk can be classified with expected losses and unexpected losses.

Expected loss refers to potential loss from bankruptcy of assets exposed to credit risk based on bankruptcy rate, and collection rate and is taken into account through appropriation of allowance for bad debts. Unexpected loss refers to volatility in the actual loss due to credit risk, and the Company takes unexpected loss into account through credit risk.

(2) Exposure to credit risk

Assets exposed to credit risk include 1) deposits, loans, AFS (available for sales assets), real estate andother types of asset which have a risk of loss arising from issuer’s non-fulfillment of obligation and credit rate downgrade, and 2) derivatives, and 3) reinsurance.

The maximum exposure to the credit risk as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Exposure Exposure

Operating assets:Cash and deposits 539,299 560,147Available-for-sale financial assets (*1) 11,444,074 21,231,606Held-to-maturity securities(*2) 10,505,642 -Loans (*3) 2,588,594 2,133,872

25,077,609 23,925,625Non-operating assets:

Reinsurance assets 38,956 35,192Others (*4) 686,841 705,853

725,797 741,045Over-the-counter derivative transactions (*5) 13,992 8,941Credit exposure in off-balance sheet items (*6) 155,764 147,269

25,973,162 24,822,880

(*1) Available-for-sale financial assets are based on amounts in debt securities(*2) Held-to-maturity financial assets are debt securities.(*3) Loans above are presented in total amount of loans (before subtracting allowance for bad debts and present value discount) less allowance for bad debts of loans classified below ‘substandard’.(*4) Others in non-operating assets include insurance receivable, other accounts receivables, other

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deposits, accrued income, advanced payments and intangible assets and etc. The intangible assets could be evaluated at fair value, and the principle amount of the intangible assets is not guaranteed. Also, they are the amounts after deducting allowance for bad debts of loans classified below ‘substandard’ and others.(*5) It is based on amounts in the statements of financial position.(*6) It is the amount multiplied by CCF(credit conversion factor) for off-balance sheet commitments calculated under the risk based capital (RBC).

(3) Measurement and management of credit risk

The Company measures credit risk of loans, bonds, and derivatives, adopting both the regulatory requirement (for RBC regulation) and internal models.

Credit risk of RBC is calculated in accordance to the standard implemented by the supervisory institution. Total credit risk of assets is measured by applying credit risk exposure and risk coefficients based on credit status such as asset type, presence of collateral/guarantee and borrower’s credit rating.

The Company uses measuring values of credit risk to estimate and manage limits of investment assets’ credit rating, setting exposure credit line by borrower and expected/unexpected losses.

Moreover, the Company sets limits to credit rating of investment assets in order to manage borrowers’ credit risk. The Company has defined standards of classifying asset soundness based on borrowers’ credit in order to manage expected loss.

(4) Aging for financial assets past due but not impaired

Aging for financial assets past due but not impaired as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018

1~30 days 31~60 days 61~90 days91 daysand over Total

Loans and receivables:Policy loans - - - 1,478 1,478Mortgage loans 51 - - - 51

51 - - 1,478 1,529

December 31, 2017

1~30 days 31~60 days 61~90 days91 daysand over Total

Loans and receivables:Policy loans - - - 1,649 1,649Mortgage loans 67 - - - 67

67 - - 1,649 1,716

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41.4 Credit risk (cont’d)

(5) Exposure to credit risk after credit enhancement including collateral

Exposure to credit risk after credit enhancement including collateral as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018

Offset (b)

Credit enhancement (c) Exposure after credit

enhancement(a-b-c)Exposure (a) Collateral Guarantee Others

Cash and deposits 539,299 - - - - 539,299Available-for-sale financial assets 11,444,074 - - - - 11,444,074

Held-to-maturity securities 10,505,642 - - - - 10,505,642

Loans 2,588,594 - 344,889 - 2,243,705 -Reinsurance assets 38,956 - - - - 38,956

Others 686,841 - - - - 686,841Over-the-counter derivatives 13,992 - 13,778 - - 214

Credit offer 155,764 - - - - 155,76425,973,162 - 358,667 - 2,243,705 23,370,790

December 31, 2017

Offset (b)

Credit enhancement (c) Exposure after credit

enhancement(a-b-c)Exposure (a) Collateral Guarantee Others

Cash and deposits 560,147 - - - - 560,147Available-for-sale financial assets 21,231,606 - - - - 21,231,606

Loans 2,133,872 - 49,547 - 2,084,325 -Reinsurance assets 35,192 - - - - 35,192

Others 705,853 - - - - 705,853Over-the-counter derivatives 8,941 - 8,432 - - 509

Credit offer 147,269 - - - - 147,26924,822,880 - 57,979 - 2,084,325 22,680,576

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(6) Concentration by industry - credit risk of financial assets

Concentration by industry - Debt instruments (Korean won in millions)


State and public institution 14,548,640 14,006,740Finance and insurance 2,463,126 2,371,434Wholesale and retail sales, transportation, lodging and restaurant service 1,152,648 1,160,596

Electricity, gas, steam, water supply 1,269,472 1,384,088Real estate 450,868 465,296Others 2,064,962 1,843,452

21,949,716 21,231,606

Concentration by industry – Loans (Korean won in millions)


Policy loan Finance and insurance - - Others 2,243,705 2,084,325

2,243,705 2,084,325Others Finance and insurance 343,600 47,900 Others 1,289 1,647

344,889 49,547Total 2,588,594 2,133,872

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(7) Concentration by countries - Credit risk of financial assets (Korean won in millions)

December 31, 2018

Korea

Overseas TotalKRWForeign

currency

Cash and deposits 497,389 41,910 - 539,299Available-for-sale financial assets 10,895,877 13,931 534,266 11,444,074

Held-to-maturity financial assets 10,505,642 - - 10,505,642

Loans 2,588,561 33 - 2,588,594Reinsurance assets 38,956 - - 38,956Others 681,232 5,146 463 686,841Over-the-counter derivatives 111 13,576 305 13,992Credit offer 64,900 - 90,864 155,764

25,272,668 74,596 625,898 25,973,162

December 31, 2017

Korea

Overseas TotalKRWForeign

currency

Cash and deposits 543,497 16,650 - 560,147Available-for-sale financial assets 21,088,954 1,570 141,082 21,231,606Loans 2,133,840 32 - 2,133,872Reinsurance assets 35,192 - - 35,192Others 703,720 563 1,570 705,853Over-the-counter derivatives 174 3,952 4,815 8,941Credit offer 131,399 - 15,870 147,269

24,636,776 22,767 163,337 24,822,880

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41.5 Market risk

(1) Market risk overview

Market risk is the risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors such as stock prices, interest rates and foreign exchange rates.

Main target assets by market risk type are as follows.

Target assets Market risk

Stock price Stocks Decrease in present value of stocks held due to decrease in share prices

Interest rate Bonds Decrease in value of bonds held due to increase in interest rates

Exchange rate Assets in foreign currencyDecrease in value of assets in

foreign currency held due to decrease in exchange rates

(2) Market risk exposure

The regulation in the calculation of Risk Based Capital describes market risk and GMxB risk. General market risk exposure is risk arising from held-for-trading securities, derivatives-for-trading, net exchange position (foreign currency assets exceeding exchange hedge derivatives). Guaranteed risk of GMxB insurance is risk of loss that arises when minimum mortality insurance claims and minimum annuity insurance claims, etc. that the Company has to guarantee, exceed guaranteed reserve due to decrease in price of GMxB insurance assets.

Exposure to general market risk based on RBC as of December 31, 2018 and 2017 is as follows (Korean won in millions):

December 31, 2018 December 31, 2017Held for trading financial assets - 10,095Assets and liabilities in foreign currency 595,976 280,942Derivative transactions (281,497) 13,622

314,479 304,659

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41.5 Market risk (cont’d)

Details of policyholders’ reserves and minimum guarantee reserves by variable products as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018Premium income (*1) Policyholders’ reserve (*2) Guaranteed reserve

Variable whole life (*3) 244,700 830,948 143,378Variable annuity 260,671 2,691,750 20,333Variable universal savings 394,404 1,595,457 562

899,775 5,118,155 164,273

December 31, 2017Premium income (*1) Policyholders’ reserve (*2) Guaranteed reserve

Variable whole life (*3) 207,205 748,655 158,898Variable annuity 298,928 3,060,887 23,276Variable universal savings 449,596 1,779,778 492

955,729 5,589,320 182,666

(*1) Separate accounts premium income(*2) Policyholders’ reserve only includes reserve for in-force policies.(*3) Variable whole life includes variable universal protection insurance

(3) Measurement and management of market risk

The Company measures market risk and its exposure based on the regulatory requirements (for RBC calculation) and internal models.

To pre-emptively manage market risk in regards to investment, the Company specifies investment assets as well as investment limits by credit grade in the investment policy guidelines. Risk Management Department and Compliance Department regularly monitor Asset Management Department’s compliance of such policies and report results to the management as well as to the Risk Management Committee.

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41.5 Market risk (cont’d)

(4) Sensitivity by market risk factor

The Company conducts a sensitivity analysis of RBC and risk analysis of major market risk factors to assess the losses arising from the variability of market risk.

Sensitivity analysis of the Company’s assets as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018 December 31, 2017Profit (loss)

impactEquityimpact

Profit (loss)impact

Equityimpact

Exchange rate

Won / dollar exchange rateincreased by 100 Koreanwon 2,465 984 4,510 4,786Won / dollar exchange ratedecreased by 100 Koreanwon (2,460) (997) (4,510) (4,804)

Interest rate

Interest rate increased by100 bp - (581,023) - (1,573,378)

Interest rate decreased by100 bp - 581,023 - 1,578,231

Stock price

Stock price index increasedby 10% - 95,356 - 47,552

Stock price index decreased by 10% - (95,356) - (47,552)

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41.6 Liquidity risk

(1) Liquidity risk overview

Liquidity risk is the risk that stems from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss. Losses can be derived from asset and liability duration mismatches or unexpected rapid change in cash flows.

(2) Current status of liquidity

Details of maturity structure of financial assets, insurance contracts liabilities, etc. as of December 31, 2018 and 2017 are as follows (Korean won in millions):

December 31, 2018

Within 3

months

3 months~

1 year

1 year ~

5 years

5 years~

10 years

10 years~

20 years Over 20 years Total

Assets:

Cash and deposits 154,754 44 37,000 137,501 210,000 - 539,299


577,894 626,551 3,455,548 5,168,743 2,314,193 542,872 12,685,801

Held-to-maturity financial assets

- 25,344 347,177 3,036,323 4,193,171 2,903,627 10,505,642

Loans 343,815 1,253 18,906 13,752 60,649 2,150,707 2,589,082

Derivatives for trading 21 90 4 54 - - 169


687 124 35 12,977 - - 13,823

Liabilities:Insurance contract liabilities

51,567 360,194 1,799,745 1,155,402 873,832 17,929,260 22,170,000

Derivatives for trading - - 17 995 - - 1,012


57 3,463 - 472 - - 3,992

December 31, 2017

Within 3

months

3 months~

1 year

1 year ~

5 years

5 years~

10 years

10 years~

20 years Over 20 years Total

Assets:

Cash and deposits 175,596 51 37,000 - 347,500 - 560,147

Financial assets at FVPL 10,095 - - - - - 10,095Available-for-sale financial assets 506,672 938,338 4,331,463 5,793,168 7,086,838 3,197,613 21,854,092

Loans 48,499 129 14,402 16,648 50,811 2,004,130 2,134,619

Derivatives for trading 69 105 - 57 - - 231Derivatives designated as hedges 4,067 2,550 - 2,093 - - 8,710

Liabilities:Insurance contract liabilities 231,576 186,672 1,319,226 975,242 730,095 17,078,928 20,521,739

Derivatives designated as hedges - - - 225 - - 225

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(3) Measurement and management of liquidity risk

The Company controls liquidity risk with a gap analysis tool.

Liquidity risk is measured by liquidity gap and liquidity ratio. Liquidity ratio is the percentage of the Company's assets transferrable to cash within 3 months maturities, against claims paid for the past three months. This ratio measures the appropriateness of the Company’s current asset volume. The Company maintains its liquidity ratio above a minimum of 100%.

Liquidity gap is the difference between assets and liabilities by remaining maturities. The Company is less likely exposed to liquidity risk if it has more assets with short remaining maturity than liabilities with short remaining maturity. Nevertheless, the Company has bank overdraft agreements in place in order to prepare for inability to make payments for a short period of time in urgent situations, and for temporary and sudden insufficiency of liquid assets.

41.7 Solvency assessment

The Company conducts solvency assessment to promote confidence in financial stability and solvency level. For example, a Company calculates and discloses RBC ratio in compliance not only with the relevant regulation (Regulation on Supervision of Insurance Business) but also with internal guidelines to manage the solvency level.

The Company measures, manages and discloses RBC (e.g. Solvency) ratio according to the Regulation on Supervision of Insurance Business to maintain required capital for solvency purposes. RBC is available capital (e.g. Solvency) divided by required capital (e.g. Solvency Threshold). Available capital represents how capable the Company is in paying the liabilities to policy holders, even in cases of unexpected loss or decline in the value of assets. Required capital is the risk amount of the Company. This ratio indicates insurance Company’s financial strength and claims payment ability. Available capital is comprised of capital, capital surplus and retained earnings. Required capital is computed considering insurance, interest rates, credit, market, operational risks and diversification effects. In order to calculate risk based capital requirements, the computation is distinguished by insurance, interest, credit, market and operational risks considering the risk diversification effect.

The FSS requires the Risk Based Capital to be maintained above 100%, based on financial statements. The Company maintains and manages asset soundness by predicting RBC imposed by supervisory institution when establishing asset management strategy and business plan

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42. Liability Adequacy Test

42.1 Insurance contract liabilities to evaluation

The Company conducted the liability adequacy test as of December 31, 2018. Tested reserve is premium reserve net of DAC (Deferred Acquisition Cost) and unearned premium reserve of general accounts. O/S claims reserve, dividend reserve and GMXB reserve are excluded according to Article 6-3 of Enforced Regulation of Regulation on Supervision of Insurance Business.

42.2 Assumption and Methodology

The assumptions used for the liability adequacy test as of December 31, 2018 were analyzed and calculated in accordance with Appendix 26 of Enforced Regulation of Regulation on Supervision of Insurance Business. The assumptions and methodology are as follows.

Assumption Methodology

Lapse rate

Based on the experience data for the last five years and nine months, the lapse rate was categorized into product group, payment method, sales channel and elapsed year. Itis calculated on the basis of annual premium, reflecting the status of payment (payment in full and pension initiation) and the tax benefit period.

Mortality / Morbidity rate

Based on the experience data for the last five years and nine months, the mortality rate is calculated by applying the trend in the ratio of claim amount to risk premium by age,sex, product group and elapsed year.

Discount rate Discount rate was calculated using interest scenarios (200) presented by FSS

Expense rate

Based on the last 1 year experience statistics, unit project cost per cost driver was categorized by the type of expense (acquisition cost/maintenance cost) and by sales channel,and was calculated after reflecting the company’s policies on future business expense. Temporary expenses were excluded and the inflation rate was taken into consideration.

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42. Liability Adequacy Test (cont’d)

42.3 Insurance deficit (surplus)

Liability adequacy test is conducted on the basis of the type of interest and participating. The result of liability adequacy test as of December 31, 2018 is as follows (Korean won in millions):

Fixed rate Floating rate

ParticipatingNon-

participating ParticipatingNon-

participating Variable (*4) Total Surplus (*1)Tested Reserve

(*2)687,732 8,573,992 1,096,934 9,372,747 (315,565) 19,415,840 -

Reserve tested for adequacy (*3)

659,900 5,134,552 1,490,867 8,880,657 (1,937,570) 14,228,406 (5,187,433)

(*1) Surplus = reserve by scenario – tested reserve ((+): Deficit, (-): Surplus).(*2) Tested reserve based on the attached table 26.II. ‘The standard of reserve adequacy test 2-1’ of the enforcement decree of Regulation on Supervision of Insurance Business. (*3) Reserve tested for adequacy is calculated by taking the average of the amounts after applying the interest scenario based on the attached table 26.II.4-1. But, P (55) is applied up to June 30, 2020. (*4) Refers to variable insurance.

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43. Interests in unconsolidated structured entities

Details of nature, purpose and activities of unconsolidated structured entities as of December 31, 2018 and 2017 are as follows (Korean won in millions):

Nature, purpose and activities

Property investment company (A)

A is a real-estate investment vehicle that invests in real estate by way of acquisition, management, improvement, rental and development of real estate, etc. The Company recognizes interest income or dividend income from an entity. The unconsolidated structured entities that the Company invests in mostly own its commercial buildings and have profit from leasing the buildings. Therefore, investment return uncertainty is low. However, The Company is exposed to a loss from decrease in the equity value or delay in collection of loans according to market conditions (The Company put up 130% of collateral for loans)

Investment trust (B)

B is an investment trust that delegates the duties for investing and managing the trust to an investment manager, according to a trust agreement and return investment earnings to investors. The Company recognizes dividend income from a trust and is exposed to a loss of capital in case of a trust's NAV decrease.

PEF (C)

C is a private equity fund and invests in equities. An unconsolidated structured entity returns earnings to investors mainly from taking part in management rights, improving corporate governance structure. The Company recognizes dividend income from a fund and is exposed to a loss of capital in case of a fund's NAV decrease.

Details of size of unconsolidated structured entities and nature of exposed risks as of December 31, 2018 are as follows (Korean won in millions):

Property investment company

Investment trust PEF Total

Unconsolidated structured entity

I. Total asset of unconsolidated structured entity 36,467,647 1,562,713 5,118,460 43,148,820

II. Book value Loans (A) - - - - Securities (B) 373,893 169,468 149,850 693,211 Others (C) 1,573 696 - 2,269

III. Maximum exposure to loss Investment asset 375,465 170,164 149,850 695,479

Contractual commitment 1,399 226,514 11,571 239,484

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44. Events after the Reporting Period

(1) Change of The Largest ShareholderOn September 5, 2018, the Company entered into a share purchase agreement for the sale of 59.15% stake in Orange Life Insurance Co., Ltd., which is held by Life Investment Co., Ltd., to Shinhan Financial Holding Company (47,400 Won) Following approval from the Financial Services Commission (FSC) on January 16, 2019 to acquire a stake in Orange Life as a subsidiary of Shinhan Financial Group, the largest shareholder of Orange Life was changed from Life Investments Limited to Shinhan Financial Holding Company as of February 1, 2019.

(2) The Board approves a Share Buyback ProgramAs the Board of the Company approved a share buyback program to enhance shareholder value on 11 February 2019, the Company entered into a trust agreement with Samsung Securities Co., Ltd to acquire treasury shares of KRW 50,000 million.

45. Approval of financial statements

The financial statements as of and for the year ended December 31, 2018 was approved by the Board of Directors on February 11, 2019 and it will be approved at the general shareholders’ meeting on March 29, 2018.

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Orange Life Insurance, Ltd. NOTICE OF THE 28TH ANNUAL … Life... · Insurance in September 2018,...

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