Meritz Tower, 825-2,Yeoksam-dong, Gangnam-gu, Seoul, Korea Tel Fax

Transcription

1 Meritz Tower, 825-2,Yeoksam-dong, Gangnam-gu, Seoul, Korea Tel Fax

2 MERITZ INSURANCE ANNUAL REPORT 2010

3 CONTENTS 03 Company profile 04 Financial Highlights 06 A Message from the CEO at a Glance 12 Business Overview_Performance by Line 15 Business Overview_Underwriting Management 18 Business Overview_Investment Management 20 Business Overview_Risk Management 22 Management's Discussion & Analysis 30 Independent Auditors' Report 31 Financial Statements 38 Notes to Non-consolidated Financial Statements 100 Internal Control Over Financial Reporting Review Report 101 Corporate History in Brief 102 Accolades & Awards 103 Board of Directors 104 Organization 105 Credit Ratings 106 Corporate Data

4 Meritz Insurance, the first non-life insurance company in Korea, celebrated its 88 th anniversary in FY2010. It was a profit strength tamping year in preparation for its 100 th anniversary with a business growth of KRW 7 trillion in total assets and 3.8 trillion Won in direct written premiums in It was a result of the persistent promotion of profit oriented growth strategy distinguished from other insurers based on the continuous trust and support of the customers. FY2011 will be a year for new challenges and innovation for Meritz Insurance. We have taken first steps toward the new challenge by launching Meritz Financial Holdings on Mar 28, 2011, the first insurance holding company in Korea. Meritz Insurance as the leading company of Meritz Financial Holdings Group, and will contribute to the diversification of financial market in Korea and transparent governance structure by developing of integrated financial products for the maximum synergy between the group companies and creation of the best customer service in the insurance industry to maximize the values of customers and shareholders, who continuously support the company. The company will also make assurance of thorough efforts to be reborn as a 100 year-old innovative traditional company leading the trend and paradigm of the non-life insurance industry by drawing up the quantitative growth accompanied by quality and through optimal risk management.

5 FINANCIAL HIGHLIGHTS [ unit : KRW in millions ] Classification FY2008 FY2009 FY2010 Earned premium 2,609,776 3,046,383 3,526,299 Direct premium written 2,896,411 3,288,049 3,836,076 Net premium written 2,631,368 3,020,923 3,815,935 Incurred Losses 2,152,938 2,296,786 2,795,723 Net operating expenses 683, , ,093 Increase in catastrophe reserve (a) (40,238) 13,632 11,314 Operating gains (186,415) (16,406) (95,830) Operating income on investment 106, , ,023 Total gain from operation (80,256) 191, ,193 Non-operating income 16,008 (4,017) 7,439 Net income (b) (58,815) 140, ,949 Adjusted net income (a+b) (99,053) 154, ,263 Total asset 5,265,467 6,034,989 6,973,859 Invested assets 4,138,331 4,627,571 5,367,501 Non-invested assets 1,127,136 1,407,418 1,606,357 Total liabilities 4,839,824 5,355,015 6,358,297 Total shareholder's equity 425, , ,562 Adjusted shareholder's equity 531, , ,314 Loss ratio 82.5% 75.4% 79.3% Expense ratio 26.2% 24.7% 23.1% Combined ratio 108.7% 100.1% 102.4% Net investment yield 2.8% 4.9% 5.3% Adjusted ROE (16.1%) 26.2% 18.7% Solvency Ratio 189.9% 230.9% 163.0% Stock Information BPS(KRW) 4,293 7,994 8,551 PBR( ) EPS(KRW) - 1,418 1,234 PER( ) Dividend information Number of Shares 123,800, ,800,000 87,269,690 Face value(krw) Dividend yield 0.6% 4.0% 4.5% Payout ratio % 32.5% 04

6 Direct premium written (KRW in billions) Key indexes (%) Commercial Auto Long-term 16.1% Solvency margin ratio Combined ratio Adjusted ROE 14.3% 2, % 3,288 3, % 230.9% 163.0% 108.7% 100.1% 102.4% -16.1% 26.2% 18.7% FY2008 FY2009 FY2010 FY2008 FY2009 FY2010 Net income (KRW in billions) Total assets (KRW in billions) G/R % 14.6% 15.6% 6,974 5,265 6, FY2008 FY2009 FY2010 FY2008 FY2009 FY2010 MERITZ INSURANCE ANNUAL REPORT

7 A MESSAGE FROM THE CEO Meritz Insurance celebrated its 88 th anniversary in FY2010. Since the 88 th anniversary, we have paid tribute to the memory of the first non-life insurance company in Korea and unfolded various activities to become a better blue-chip company when we celebrate our 100 th anniversary. We have commercialized the memorial product in the theme of family, as a representative example, and achieved successful sales of that product through positive advertisement. The direct written premium collected in the FY2010 amounted to KRW 3,836.1 billion, which was a growth of 16.6% compared to that of the previous year. It means the sales grew by 230% compared to the closing date, on March 31, 2005, before promoting the 2 nd founding, which was a 0.3%p improvement of the Market Share. The retention premium was increased by 250% in the same period, which showed a 0.8%p improvement of the market share. The most profitable Longterm product made up 70% of the portfolio, which is the highest development in the non-life insurance industry rising by 26.0%p compared to that of six years before. The portfolio of new long-term insurance premium and protection premium per month improved by the highest level in the insurance industry, which means that overall sales competitiveness has been drastically enhanced. The net income of FY2010 was KRW billion, which amounts to an average earning strength of KRW 10 billion per month. As a result, the net income M/S recorded 6.1%p up to 9.9% share compared to that of six years before, the best improvement in the insurance industry. The combined ratio was 102.4%, which is an incredible improvement of 3.0%p compared to that of 6 years before, also most of the indexes related to the company s earnings, such as general expense ratio and ROE have significantly improved. The numerical values of assets and financial soundness must consider the division of Meritz Insurance for the launching of a financial holding company, which are not the same before and after the division. Please refer to the financial statement for the numerical values after the division. I will report with the numerical values before the division here for reporting purpose. The total assets of the company before the division in FY2010 were KRW7,223.3 billion (KRW6,973.9 billion after the division), which is an increase of 19.7% compared to the previous year. At 270% higher than that of six years before, it is the highest growth in the insurance industry. The company s weight has been secured with other invested assets and shareholder s equity, which have been increased by 250% and 290% respectively. The company s solvency margin ratio in FY2010 was 256.0% before the division (163% after the division), which is the improvement by 25.1%p compared to the prior year and by 76.9%p compared to that of 6 years before, and it is much higher than the 233.9% of the 2nd-tier average solvency margin ratio. Meritz have passed a meaningful year with comparatively excellent management performance in the overall outcome of sales amount, profits, and financial soundness last year. However, I can say that the most important accomplishment will be the launching of the financial holding company. I will go through the upcoming plans and meaning of the financial holding s founding. I am very pleased to report that our overall management performance has come to be much better than in the past, since most of the management strategies have been achieved successfully in the ripe stage of last year, the 6th year of the second founding. The company has decided to transition into the financial holdings company system to achieve an advanced governance structure with various advantages. We advocate honest and specialized financial company to provide more diversified and superior financial services The financial holdings company founding work had been promoted legitimately with the application of preliminary approval for its establishment on August 5, 2010, which has been processed smoothly by acquisition of the preliminary approval on December 1, 2010, and its license on March 16, Accordingly, the company has established a new holdings company on Mar 25, 2011, with the division of KRW billion in total assets, consisting of KRW33.2 billion in cash and deposit, KRW billion in treasury stock of Meritz Insurance and subsidiaries stocks, and KRW 5.7 billion in brand trademark rights, which launched as the Meritz Financial Holding Co., Ltd. officially on the 28th of March. Meritz Insurance had changed its listing on April 11th, and the holdings company was re-listed on May 13th. Meritz Insurance acquired approval as a subsidiary of Meritz Financial Group on Jun 15, and its enrollment will be completed by early August. Meritz Financial Holding Company will be the major shareholder and a parent company of Meritz Insurance with a 34% share. Meritz Insurance has founded the first insurance-oriented financial holdings company beyond being the first insurer in Korea. It will recover the weakened management indexes, and bring them over the level before the division within one year based on accumulated strategies and confidence. Our financial holdings company will maximize the synergy and sharing of customer information through the collaboration with each subsidiary in the group. We will provide the complete mid/long term plans by collecting all the strong points of the non-bank financial holding company that cannot be possessed by the bank-oriented financial holding companies. We entreat all the shareholders to anticipate the steady growth of Meritz and continue to extend to us the same exceptional attention and affection that you have always given. Thank you! June 10, 2011 Meritz Fire & Marine Insurance Co., Ltd. Myung Soo, Wohn / Vice-Chairman & CEO 06

8 NEW CEO President Jin Kyu Song President Jin Kyu Song has been elected as the CEO in the general meeting of shareholders on June 10, MERITZ INSURANCE ANNUAL REPORT

9 2010 AT A GLANCE MERITZ FIRE INSURANCE, THE FIRST NON-LIFE INSURER IN KOREA ESTABLIESHED THE FIRST INSURANCE FINANCIAL HOLDING COMPANY Meritz Insurance, the first non-life insurance company in Korea, established a financial holdings company on Mar 28, Meritz Financial Group is the first insurance financial holdings company launched in Korea, and it is comprised of Meritz Securities, Meritz Asset Management, Meritz Financial Information Service, Ritz Partners, Meritz Business Service, as well as with Meritz Fire&Marine Insurance in its center. The reason behind the transition of Meritz Insurance into a holdings company is to accomplish the synergy creation to secure stable market position and earnings, diversify the financial business lines for the provision of comprehensive financial services, take preemptive measures against the dividing trend of production and sales of financial products, raise funds, and secure investment capacity, divide the risks and to set up independent management system of each subsidiary, secure the group control tower, and enhance the management efficiency through the concentration of core capabilities. When Meritz F&M has fully transitioned into the holding company system, the group s investment capacity will expand from KRW 160 billion to around KRW 350 billion to advance into new financial businesses. The company can devise the diversification of business lines by dominating nonfinancial companies followed by the deregulation of insurance holding company. The company can gain strengthening of business specialties by allowing the management to multitask and foment cost savings, together with the synergy effect by the sharing of customer information. It s also an opportunity for integrated channels like the exclusive sales company to grow, inflow of exterior customers, and enhancement of management efficiency through the concentration on core capabilities. The establishment of the financial holdings company has been processed through the spin-off method by transferring parts of assets such as subsidiary stocks, treasury stocks, and cash assets possessed by Meritz Insurance. CUSTOMER SERVICE AWARD? The Customer Service Award is the largest awarding system in Korea related to the customer satisfaction management, which is organized by Korea Management Associations Consultants (KMAC). It evaluates the CS management system of whole company such as establishment of customer satisfaction management system and infrastructure, CS activities and techniques, employee assessment and compensation system out of the 181 candidates of each industry in Korea Customer Service Award In 2010, the company received its fourth consecutive Grand Prize at the 18th Customer Service Awards, which was organized by Korea Management Association Consultants (KMAC). The Grand Prize is conferred to companies selected through the primary screening that have achieved various customer satisfaction activities and recognized accomplishment through strict site audit and assessment by the examiners consisted with the university professors. The company received positive evaluations regarding its customer satisfaction activities by all executives and employees together to enhance the customer value. The Company s persistent efforts for the differentiated customer service was done by securing the customer s trust based on the CEO s enthusiasm and leadership towards the CS management. This award confirms that exceptional customer service has been recognized by a reputable customer service institute. As such, it is necessary for Meritz employees to maintain a customerservice mindset in order to enhance the Company s competitive edge. This award will support the company s ceaseless efforts to maximize customer satisfaction. 08

10 Management of sharing Meritz Insurance has selected the management of sharing as one of five core management philosophies. Since the company believes that an insurance enterprise is ultimately concerned with the well-being of our society and customers and puts it into practice for the disadvantaged neighborhoods and local communities in need. The company carried out various sharing activities in 2010 such as supporting children/youth, constructing green environment, and active volunteering from every department. Meritz Insurance sponsored an economic camp for young students in an effort to help them acquire a better understanding of financial and economic matters. Meritz helped to familiarize students with basic economic principles with activities like inviting children to financing field and educating children of multicultural families about finance and economics. The company supported the Meritz Arts Volunteer Corps and Lindenbaum Music Festival for the youth. The Meritz Arts Volunteer Corps was selected among the high school and college students with great talent and passion for music. They were trained by professionals and performed at the social welfare facilities The company provides scholarships to children whose parents have been lost or injured in traffic accidents, to cheer up their dreams and to inspire vitality into their daily lives. As a part of the green management, the company saved costs by lowering the building s temperature and utilizing personal cups to fund green environment constitution projects such as making gardens and drawing wall paintings at children s facilities. The company is also leading the eco-friendly living with environment preservation projects for the local community such as caring the Seoul forest and Mt. Cheonggyesan. In 2010, 4,550 Meritz employees and sales people engaged in volunteer activities at 85 welfare agencies to have warmhearted interaction with the underprivileged. The company supports a Beautiful Saturday event where employees donate clothing and other items to support the needy neighborhoods with the sales profit of donated goods. Also, the company provides medical treatment for children with pediatric cancer and heart diseases with the sharing funds constituted from voluntary donations from the executives and staff together with the matching grant donated from the company. Meritz Insurance has come to known as a compassionate enterprise practicing the loving neighbor through various sharing activities and supports. As a result, the company received the gratitude plaques from Korea Business Council for the Arts, Korea Scout Association, Dongcheon Nursing Home, Seoul Forest, and Briquettes Campaign Headquarters, as well as the commendation of the Minister of Health & Welfare in the neighbor-aid category on the Social Welfare Day organized by the Ministry of Health & Welfare and the Community Chest of Korea. Meritz Insurance will not cease its efforts to promote love and sharing the most genuine values of the insurer to keep well-being of our community and customers. MERITZ INSURANCE ANNUAL REPORT

11 Business Overview Meritz have passed a meaningful year with comparatively excellent management performances in the overall outcome of sales amount, profits and financial soundness.

12 Direct Premium Written 3,836 KRW in billions Long-term Mix 72.0 % (2,760 KRW in billions) Adjusted ROE 18.7 %

13 BUSINESS OVERVIEW PERFORMANCE BY LINE LONG-TERM LINES Review of FY2010 Since the standardization of actual medical expenses, the number of new contracts for related products was decreased. As such, the long-term insurance market in FY2010 increased to KRW30.56 trillion, up 22.3% (YoY), centered on the expanded sales of savingstype, pension-type, and property protection-type insurance. Meritz Insurance has concentrated on the sales of strategically targeted products such as 100 year integrated protection-type products, children s insurance, and property protectiontype insurance according to the amendment of the Fire Insurance Act (which requires public facilities to purchase fire insurance). As a result, the Company reported a 21.4% sales growth to KRW2.76 trillion, with a consistent marketing strategy focusing on the sales of protectiontype insurance. However, the Company showed an M/S of 9.0%, which decreased by 0.1% (YoY), due to the influence of the savings-type sales growth of the market. Outlook for FY2011 Long-term market sales are expected to enjoy a solid double-digit growth backed by the persistent expansion of savings-type, pension-type, and property insurance, and the renewal premium growth of actual-expense medical insurance; however, FY2011 market sales should deliver a growth rate of 11.3%, which is a slight decline from the prior year, due to the sluggish growth of new contracts in FY2010. Meritz Insurance is projected to record a growth of 11.3%, to KRW3.07 trillion, with the improvement of its retention ratio through new contracts and the complete sales of protectiontype health insurance. The market share is expected to remain at 9.0%, which is the same as in FY2010. Long-term Line Premium (KRW in billions) 1,850 2,274 2,760 Marketing strategy for FY2011 Meritz Insurance will create new products leading to new growth in the protection-type health insurance market (whole life /drivers/children) with higher profit, persistently promote profitable growth with differentiated marketing strategies matched with products and channels, and expand the foundation for new premium growth by responding in advance to Korea s aging society, which will create value in the future. The Company will also improve its persistence ratio to constitute the sales expansion base by establishing an organic management system for premium renewals (management of contract soundness in the first year, management of secession attribute of in-force business, preliminary management of contract maintenance, etc.) and the management of complete sales. FY2008 FY2009 FY

14 AUTO LINES Review of FY2010 The auto insurance market in FY2010 recorded KRW11.75 trillion, up by 10.7%, influenced by the increase of vehicle registrations thanks to greater sales of new automobiles as a result of the economic recovery and the auto premium hike. Direct written premium came in at KRW776.2 billion, up 12.2%, influenced by strategic adjustments of the premium rate and an expansion of online auto insurance sales. The market share increased by 0.1%, up to 6.3% in FY2010. Outlook for FY2011 The auto insurance market in FY2011 is expected to grow 5.6%, to KRW12.41 trillion, aided by auto premium hikes and the regulation changes that occurred in FY2010 and by the persistent increase of premium per vehicle due to the high-class trend of automobiles. Auto Line Premium (KRW in billions) FY2008 FY FY2010 The Company s auto insurance sales in FY2011 are projected to record a 10.4% growth to KRW856.8 billion, backed up with the expanded growth in the core base areas and the extended promotion of online auto insurance. Marketing strategy for FY2011 The Company s FY2011 marketing strategy is the preemptive execution of 3S (Smart, Speedy, and Specialized) focusing on solidifying its position as the 2nd ranking insurance company in Korea. The Company will promote growth, concentrating on the core base areas (all the capital regions and a few metropolitan cities such as Busan, Daegu, and Ulsan), increasing the online auto insurance sales, and expanding the selective daily system sales. MERITZ INSURANCE ANNUAL REPORT

15 COMMERCIAL LINES Review of FY2010 In spite of the negative growth of fire and marine insurance products, the commercial insurance market in FY2010 presented sales of KRW4.40 trillion, up 6.9%, concentrating on accident, comprehensive, and other commercial insurances. The Company showed a performance of KRW299.7 billion, down 6.9%, due to the base effect from the high growth of engineering insurance of last year and the reconstitution of the portfolio conforming to the profit oriented business strategy. The Company presented a 6.8% market share in FY2010. Outlook for FY2011 In spite of the projected negative growth for engineering and marine insurance due to the slowdown of construction business and the appreciation of the Korean won, the commercial insurance market of FY2011 is expected to grow 5.0%, to KRW4.62 trillion, thanks to expanded new demands for liability insurance and new types of commercial lines, the steady growth trend of group accident and comprehensive insurance, and the continuous expansion of overseas business. Meritz Insurance s sales target in commercial lines is KRW269.0 billion, down 10.2% with 5.9% of the market share (M/S 6.6% in the core profit market). The Company has removed the 14% non-profit business from the existing sales amount according to the business remodeling strategy concentrating on profit and based on risk management. Commercial Line Premium (KRW in billions) Marketing strategy for FY2011 Meritz Insurance is planning to strengthen its profit-oriented sales portfolio by putting resources into the core profit market. In addition, the Company will extend the profit scale and promote the marketing strategy for securing the future profit creation power despite the shrinkage of the sales by ensuring competitiveness through the expansion of infrastructure and systematic R&D for the high grow new market to secure the future profit. Meritz Insurance will reallocate resources into profit-oriented sales, reform the assessment and compensation system, and differentiate the customer service. Furthermore, the Company will invest in expanding infrastructure for new market and strengthening the systematic R&D and core capability for each value chain FY2008 FY2009 FY

16 BUSINESS OVERVIEW UNDERWRITING MANAGEMENT LONG-TERM LINES Review of FY2010 The loss ratio of the long-term insurance industry in FY2010 was 83.0%, up 0.8%, mainly due to the rapid increase of savings-type and pension-type insurance sales and surging claims paid from actual-expense medical insurance. The Company reported a loss ratio of 79.5%, 3.5% lower than the market. Although this figure was up 2.0%, it was formerly the 1st ranking performance in the insurance industry. The combined ratio was 98.6%, which is an improvement of 0.8%. Outlook for FY2011 Meritz Insurance is promoting the stabilization of the increasing trend of the risk loss ratio by strengthening the profit base through focusing on new premium growth of the protectiontype insurance, renewal of non-guaranteed (N/G) living benefit, differentiation of regional underwriting (U/W), and organic management of renewal premium. The Company expects a 1.7% improvement of risk loss ratio thanks to increasing inflow of renewal premium from existing N/G living benefit, and a 0.5% additional improvement backed by the regional U/W differentiation and efficient management for renewal premium. The Company s loss ratio is projected to be 78.9%, which is a sluggish increase compared to the previous year, under the persistent risk loss ratio management. Underwriting Strategy for FY2011 Meritz Insurance will expand the earned premium persistently with renewal premium growth through improving persistency ratio and growing sales of profitable products. In addition, the Company will promote the stabilization of the risk loss ratio with regionally customized and differentiated U/W management and risk loss ratio management The Company will strengthen U/W competitiveness by tracing the high risk handler with U/W system by promoting the systematic U/W for the region-handler-customer chain. And direct U/W will be executed for the contracts with lower reliability and vulnerable to adverse selection. (Unit KRW Bn, %) Category Meritz Industry FY2010 FY2011(e) FY2010 FY2011(e) Direct premium written 2, , , ,014.6 G/R M/S Loss ratio Note : FY2011 is based on the K-GAAP. MERITZ INSURANCE ANNUAL REPORT

17 AUTO LINES Review of FY2010 The loss ratio of the auto insurance market in FY2010 was 79.6%, up 6.0%. The higher auto loss ratio was attributed to the increase of vehicle traffics due to the economic recovery, increase of accident rate due to the adverse weather conditions in the winter season, and increase of vehicle claims due to hike in ceiling for property damages. The Company recorded a worsening of its loss ratio, by 4.8%, to 80.3%. Outlook for FY2011 The loss ratio of auto insurance market in FY2011 is estimated to be 77.6%, improved by 2.0%. It is based on the impact of premium increase and the regulation change of proportional deductible from fixed amount to variable rate (decreasing factor) and the impact of increasing insurance premiums and accident rate (increasing factor). The Company is targeting a 77% auto loss ratio in FY2011, and will accomplish this through pricing strategy and through the differentiation and efficiency of underwriting. Underwriting Strategy for FY2011 The Company is concentrating on improving the efficiency/profitability and operating expense efficiency through U/W guideline operation. Such a profit improvement strategy will be promoted through the expansion of U/W guideline differentiation for each channel and the support for the sales of profitable products. The P/F improvement through the growth strategy focusing on the core bases and the refinement of risk grade assessment system will contribute to the stabilization of loss ratio. The Company s auto insurance profit will be stabilized by seeking the ways to improve loss ratio through improvement of U/W process and expansion of superior coverages. (Unit KRW Bn, %) Category Meritz Industry FY2010 FY2011(e) FY2010 FY2011(e) Direct premium written , ,406.8 G/R M/S L/R Note : FY2011 is based on the K-GAAP. 16

18 COMMERCIAL LINES Review of FY2010 Amidst a downward trend in the premium rates of primary products, along with intensified price competition due to a growing number of insurers in the marketplace, the industry's loss ratio for commercial lines in FY2010 declined by 8.4%, to 66.2%, or 2.9%, to 60.7%, excluding RG charges. The growth of group accident insurance with the high loss ratio and natural disasters also affected a higher loss ratio. In line with this, Meritz Insurance recorded 60.5%, slightly higher than the previous year. RG has been excluded based on the Company s profit-oriented business strategy. Outlook for FY2011 Meritz Insurance is projected to record a 53.6% loss ratio in commercial lines, an improvement of 6.9%, through business remodeling based on profit-oriented business strategy. Underwriting Strategy for FY2011 The Company has persistently promoted a solid U/W strategy since FY2009 with U/W profit under the first priority. The Company will accomplish its transition into a thorough profit center by dividing the business type into profitability, risk, and U/W competitiveness, and by applying differentiated U/W strategic stances for each division. In order to achieve the strategic objectives, Consider the potential risk factors such as habitual sales and strengthen the reinsurance risk management by managing the accumulated reserves for each cat risk type. Plan to concentrate on the reinforcement of core capabilities such as innovation of the U/W process, improvement of the U/W system, development and promotion of human capability improvement programs, and improvement of pricing capability. (Unit KRW Bn, %) Category Meritz Industry FY2010 FY2011(e) FY2010 FY2011(e) Direct premium written , ,615.5 G/R (6.9) (10.2) M/S L/R MERITZ INSURANCE ANNUAL REPORT

19 BUSINESS OVERVIEW INVESTMENT MANAGEMENT Review of FY2010 The invested assets of FY2010 were KRW5.37 trillion, up by 16%. The investment profit was KRW257 billion with a 5.3% investment yield, up 0.4%. By continuously promoting the improvement of asset portfolio to secure the stable investment profit since FY2009, the Company has expanded the portion of fixed income assets including bonds and loans to 72.4%, up by 3.9% to KRW719.2 billion. As a result, the Company built up the capability to generate the annual profit of KRW210 billion. In terms of risk management, the Company is trying to minimize interest rate risk by managing the matching ratio of duration for liabilities (long-term/annuity account) over 80%. Category FY2010 Duration Assets Liabilities Matching ratio Long-term % Pension % Total of special accounts % 18

20 Investment Environment of FY2011 The 2011 global financial market shows recovering processes at different speeds as is indicated in the contradictory polices - retrenchment policy of emerging countries and liquidity provision of advanced countries through financial and monetary policy. The stock market is faced with considerable volatility caused by the weakened economic momentum of G2 countries (USA and China), concern about financial crisis in Southern European countries, such as Greece, and the termination of quantitative easing (QE2). However, it is projected that the G2 economy will return to recovery and the risk factors will be resolved in the second half. As such, it is expected to show a bull market in the annual viewpoint. The interest rate may not show an increasing trend, considering the conditions of investors buying power based on the weakened economy momentum, sluggish inflation rate, and abundant liquidity; however, it is expected that the interest rate will not drop down additionally from current level considering the normalization of base rate and the current market interest rate at the level of financial crisis before. There may be ups and downs in the box zone in the first half, and is expected to be a gradually increasing trend as a result of the dissolution of uncertainty. Asset Management in FY2011 Meritz Insurance is projecting to achieve investment profits of KRW269.1 billion, based on a 4.7% investment yield. Management will thus put forth its utmost efforts to acquire additional fixed-income assets and restructure performance-based assets to broaden our profitability. In terms of stocks, the Company will enhance the profitability through appropriate asset distribution and market timing strategy, as it is expected that the stock market volatility will be enlarged in the rising trend of stock indexes. For bond investment, the Company will focus on the management of stability and profitability while balancing aggressive operation and performing selective investment in blue-chip companies. The Company is planning to purchase overseas bonds and A.I. (Alternative Investments), focusing on products such as principal guaranteed products, yield-up products, and absolute profit pursuing products that exceed the bond yield within the limited market risk, while avoiding the pure index products of high volatility. In case of loan assets, the Company will reinforce the preliminary screening of debtors with credit and collateral analysis to secure the profitability and stability, and concentrate in the enhancement of asset soundness through positive and efficient post-management. MERITZ INSURANCE ANNUAL REPORT

21 BUSINESS OVERVIEW RISK MANAGEMENT Review of FY2010 In December 2008, Meritz Insurance established the Risk Management Division (the division, hereinafter) in order to classify all the risks into insurance, interest rate, market, credit, and non-financial risk individually for efficient management and control. The division is constituted with the risk management team in charge of risk planning and nonfinancial risks and the financial RM team in charge of the financial risks of assets and insurance. The division is executing the integrated functions of establishment of risk management policy, operation of risk management system, quantitative measurement of risks, and the support to risk management committee. Measurement and management methods for each risk type Category Description Target Insurance risk Definition Risk of potential losses caused by the fluctuation U/W, between actual and economic assumption or Reserve fund probability of accidents How to measure VaR (Value at Risk) DFA (Dynamic Financial Analysis) Approach How to manage Monitor monthly limits and trend analysis Interest rate risk Definition Risk of potential losses that net interest income Interest bearing or net assets value can be reduced following assets, Interest the variation of interest rate bearing liabilities How to measure ALM(Asset Liability Management) Duration Gap How to manage Manage the duration matching by accounts Market risk Definition Risk of potential losses caused by the variation of Stocks, market interest rate, exchange rate, and stock prices Bonds, How to measure Market VaR / Scenario Analysis Derivatives How to manage Measure daily risk and monitor daily limits Credit risk Definition Risk of potential losses of assets value due to the Loan, Bond, financial debasement (or nonpayment) of the investee Accrued assets, and borrower OTC credit How to measure Credit VaR derivatives How to manage Measure monthly risks and monitor monthly limits Non-financial Definition Risk of potential losses caused by inadequate or false Overall risk internal process, manpower, system or external accidents management How to measure KRI (Key Risk Indicator) How to manage Checkup of KRP (Key Risk Process) and KRI monitoring 20

22 Risk Management Committee The risk management committee is comprised of the CEO and two outside directors, who are the financial experts, for its operation. The Committee held seven sessions in FY2010 to deliberate on and resolve critical bills. The matters for resolution were determination of risk limits and hurdle rates, strategic asset allocation (SAA), derivatives operation strategy, renewal of reinsurance treaty, assumed interest rate of long-term insurance and annuities, maximum allowance of minimum guaranteed interest rate, maximum interest rate allowance for pension insurance, risk management regulations, and amendment of reinsurance management guidelines. The matters for reporting were annual plan of risk management, synthetic analysis of risk status, operation results of investment/loan monitoring board and LOB monitoring board, report of risk analysis and countermeasures, items related to the supervision systems of RBC/RAAS, checkup of credit review, and inspection result of internal control over the reinsurance. The committee members have a very high perception on risk management, and they are supporting the Company with keen interest for the advancement of risk management and settlement of internal risk management culture. The committee has placed particular emphasis on the importance of risk management since the financial crisis, and is focusing on the macro-risk management of the whole Company through quarterly inspections of all the assets, detailed checkup of the contracts possessed, inspection of reinsurance operation status, and promotion of its improvement measures. Risk Management Strategy for FY2011 In FY2011, Meritz Insurance intends to concentrate on risk management against the worstcase killer risks by establishing a preemptive countermeasure system for the overall risks. The Company will establish a risk analysis and response system against the worst situations by upgrading the risk analysis system (Stress Test) and setting up BCP (Business Continuity Plan) system, reinforce preventive risk management system through risk factor analysis of new investment assets or new insurance products, enhance RBC (Risk Based Capital) ratio, develop additional KRI (Key Risk Indicator) for the efficiency of operation risk management, and establish risk management mind-set through practicing the RMG (Risk Management Guidance). Strategy direction Strategy tasks Establishment of a preemptive risk response system against risks 1. Establish risk analysis and responding system against the worst situation 2. Reinforce preventive risk management system for entrance control efficiency 3. Enhance its capital adequacy ratio 4. Enhance its efficiency of operation risk management 5. Settle down risk management culture by strengthening risk management ownership MERITZ INSURANCE ANNUAL REPORT

23 MANAGEMENT S DISCUSSION & ANALYSIS OVERVIEW BASIS OF PRESENTATION Management s discussion and analysis may contain forward-looking statements that are provided to assist in the understanding of anticipated future performance and business plans. However, such expectations of future performance plans involve certain risk and uncertainty that can use actual results to differ materially from those expressed in the forward-looking statements, due to factors beyond the Company s control. The term Company, used herein, without any other qualifying description, refers to Meritz Fire & Marine Insurance Co., Ltd. REVIEW OF FY2010 The Company achieved remarkable growth on total assets and direct premium written in FY2010, which is a result of the persistent promotion of profit driven strategy. Direct premium written, earned premium written and net premium written all have been grown up by double-digit increases consecutively following previous year. It means that overall sales competitiveness has been improved continuously. Of particular note, capital decreased by 29.6% as a result of capital reduction arising from launching of the financial holding company, which is the first insurance holding company in Korea and brings combined financial products for the maximum synergy between the group companies. 22

24 INCOME STATEMENT SUMMARY [ KRW in billions ] FY2008 FY2009 FY2010 YoY(%) Direct premium written [ KRW in billions ] 2, ,288.0 FY2008 FY2009 3,836.1 FY2010 Earned premium 2, , , % Direct premium written 2, , , % Net premium written 2, , , % Underwriting income (186.4) (16.4) (95.8) Net investment income % Non-operating income 1.8 (4.0) (4.9) Ordinary income (78.5) (16.5%) Tax expenses (benefits) (19.7) Net income (58.8) (13.9%) Loss ratio (%) %p Expense ratio (%) (1.6%p) Combined ratio (%) %p BALANCE SHEET SUMMARY [ KRW in billions ] FY2008 FY2009 FY2010 YoY(%) Total shareholders' equity [ KRW in billions ] FY2008 FY FY2010 Investment assets 4, , , % Non-investment assets 1, , , % Total assets 5, , , % Policy reserve 4, , , % Catastrophe reserve % Other liabilities (2.5%) Total liabilities 4, , , % Capital stock (29.6%) Capital surplus (27.7%) Retained earnings % Capital adjustment (28.1) (116.6) (250.9) Total shareholders' equity (9.5%) Solvency margin ratio (%) (67.9%p) MERITZ INSURANCE ANNUAL REPORT

25 MANAGEMENT S DISCUSSION & ANALYSIS ANALYSIS OF RESULTS OF OPERATIONS The results of operations of the company demonstrate that FY2010 was a good year. With overall sales competitiveness and profit strength, The results represent the true underlying performance of the company and significant value for shareholders. In FY2010, direct premium written was up 16.7% to KRW3,836.1 billion, primarily owing to observable growth of high margin long-term insurance products, which are the Company s prime growth engine Direct premium written by line [ % ] Compared to the FY2009, earned premiums rose 15.8% to KRW billion, while net premium written also recorded a notable growth of 18.9%, year on year. DIRECT PREMIUM WRITTEN BY LINE [ KRW in billions ] FY2008 FY2009 FY2010 YoY(%) FY 2009 Commercial lines (6.9%) Auto lines % Long-term lines 1, , , % Total 2, , , % Note : Long-term lines contain premiums paid at once Commercial lines 9.8% Auto lines 21.0% Long-term lines 69.2% MARKET SHARE BY LINE [ KRW in billions ] FY2008 FY2009 FY2010 YoY(%) FY 2010 Commercial lines (1.0%p) Auto lines %p Long-term lines (0.1%p) Combined market share %p By line, direct premium written of long-term lines soared 21.4% in FY2010 compared to prior year to KRW2,760.2 billion, which is a good profitability, mainly due to growth strategy with protectiontype products and agency market expansion during the period. Commercial lines 7.8% Auto lines 20.2% Long-term lines 72.0% The portfolio of long-term lines accounted for 72% from 69.2% of previous year contributed better sales mix to result in the profit strength structure in FY2010. Auto lines also increased by 12.2% to KRW776.2 billion. However, commercial lines declined to 6.9% to KRW299.7 billion. 24

26 COMBINED RATIO [ KRW in billions ] FY2008 FY2009 FY2010 YoY(%) Earned premium 2, , , % Incurred losses 2, , , % (1,971.3) Loss ratio (a) 82.5% 75.4% 79.3% Net operating expense % Expense ratio (b) 26.2% 24.7% 23.1% (1.6%p) Combined ratio (a+b) 108.7% 100.1% 102.4% 2.3%p (101.7%) Note : Figures in parenthesis exclude the effect the refund guarantee losses in 2008 In FY2010, earned premium rose 15.8% than that of previous year to KRW3,526.3 billion. Net premium written was also up 18.9% to KRW3,590.4 billions. Incurred losses rose 21.7% in FY2010 to KRW2,795.7 billion. Accordingly, loss ratio adversely affected by challenging market condition, increased by 3.9%p to 79.3% from 75.4% in FY2010. Net operating expense rose 8.3% to KRW815.1 billion, year on year. However, expense ratio continuously improved down 1.6%p from 24.7% to 23.1% this year following FY2009. Consequently, combined ratio up 2.3%p in FY2010 from 100.1% in FY2009 negatively influenced by loss ratio increase. Loss ratio (a) [ % ] 82.5% 79.3% 75.4% FY2008 FY2009 FY2010 MERITZ INSURANCE ANNUAL REPORT

27 MANAGEMENT S DISCUSSION & ANALYSIS INVESTMENT PERFORMANCE FY2010 INVESTMENT PERFORMANCE [ KRW in billions ] FY2009 FY2010 YoY(%) Share(%) YoY(%) Share(%) Cash & equivalents (6.8) Domestic bonds 1, Stock (11.3) Investment funds Overseas securities Other securities 62.1 (30.8) Loans Real estate Total 4, , Investment yield 4.9% 5.3% 0.4%p Note : Long-term lines contain premiums paid at once FY2010 Investment performance [ % ] Invested assets in FY2010 surged 16% over a year earlier to KRW5,367.5 billion, primarily due to active investment management in every sector. Overseas securities increased by 12% to KRW499.7 billion and loan investment rose 20.8%, totalling KRW954.3 billion. Domestic bonds rose 17.6% to KRW1,879 billion for concentrating to fixed-interest-bearing assets including overseas bonds; on the other hand, stock soared 55.9% to cope with market volatility. FY 2010 Investment yield also continuously improved by 0.4%p to 5.3% compared to the FY2009. Domestic bonds 35.1% Loans 17.8% Real estate 13.4% Investment funds 12.1% Overseas securities 9.3% Cash & equivalents 6.4% Stock 3.7% Other securities 2.1% 26

28 NET INCOME [ KRW in billions ] FY2008 FY2009 FY2010 YoY(%) Earned premium 2, , , % Underwriting income (186.4) (16.4) (95.8) Net investment income % Non-operating income 1.8 (4.0) (4.9) Tax expenses (benefits) (19.7) (24.4%) Net income (a) (58.8) (13.9%) Incurred in catastrophe reserve (b) (40.2) (17.0%) Adjusted net income (a+b) (99.1) (14.1%) Net income (a) [ KRW in billions ] In FY2010, the Company recorded net income of KRW120.9 billion. However, it fell to 13.9% compared to previous year, the figures still shows considerably strong per month over average 10 billion KRW. Net investment income rose 23.8% which contributed to a continuous growth following previous year ASSETS [ KRW in billions ] FY2008 FY2009 FY2010 YoY(%) FY Total assets [ KRW in billions ] FY2009 6,035.0 FY2010 6,973.9 Cash and deposits % Stocks % Equity-method stocks (98.8%) Domestic bonds 1, , , % Investment funds % Overseas securities % Other securities % Loans % Real estate % Investment assets 4, , , % Non-investment assets 1, , , % Total assets 5, , , % 5,265.5 Total assets increased by15.6% in FY2010 to KRW6,973.9 billion compared to the prior year. Domestic bonds grew 18.2% to KRW1,887.9 billion, which is for the Company to broad portfolio continuously following last year to secure fixed-interest-bearing assets including overseas bonds since FY2009. FY2008 FY2009 FY2010 Loans investment rose 20.8% in FY2010, amounting to KRW954.3 billion. Of particular note, significant reduction in equity-method stocks because all of the subsidiary stocks were transferred to financial holding company. MERITZ INSURANCE ANNUAL REPORT

29 MANAGEMENT S DISCUSSION & ANALYSIS ASSET QUALITY [ KRW in billions ] FY2008 FY2009 FY2010 Total loans* Normal Precautionary Substandard Doubtful Estimated loss NPL ratio (%) Provisions for loan loss Coverage ratio (%) 74.9% 144.6% 62.6 Total loans* [ KRW in billions ] Note : Before allowance for doubtful accounts Substandard & below recorded to KRW31.4 billion, rose by KRW22.2 billion in FY2010, year on year. Thus, the NPL ratio increased by 2.08%p and it brings coverage ratio to 62.6% in FY LIABILITIES AND SHAREHOLDERS EQUITY [ KRW in billions ] FY2008 FY2009 FY2010 YoY(%) FY2008 FY2009 Total liabilities [ KRW in billions ] 4, ,355.0 FY2010 6,358.3 Policy reserve 4, , , % Catastrophe reserve % Other liabilities (2.5%) Total liabilities 4, , , % Total shareholders' equity (9.5%) Adjusted shareholders' equity (6.6%) Total liabilities in FY2010 grew 18.7% over FY2009 to KRW6,358.3 billion, policy reserve increased 21.4%, reaching KRW5,702.1 billion, while catastrophe reserve grew 9.5%. FY2008 FY2009 FY

30 SOLVENCY MARGIN RATIO [ KRW in billions ] FY2008 FY2009 FY2010 Solvency amounts Solvency guidance Solvency margin ratio(%) (238.6)* (256.0)** Note : *Figures in parenthesis represent excluding refund guarantee losses in FY2008 **Solvency Margin Ratio before establishing the holdings The Company s solvency margin ratio FY2010 was 256.0%, which is 25.1%p improved compared to previous year, showing the Company s financial soundness. However, it s fell down to 163% after division from establishment of financial holding company during FY2010. Adjusted ROE was 18.7% and RBC ratio was 198.9%. Solvency margin ratio [ % ] FY2008 FY2009 FY2010 MERITZ INSURANCE ANNUAL REPORT

31 INDEPENDENT AUDITORS REPORT THE BOARD OF DIRECTORS AND STOCKHOLDER MERITZ FIRE & MARINE INSURANCE CO., LTD. We have audited the accompanying non-consolidated statements of financial position of Meritz Fire & Marine Insurance Co., Ltd. (the Company ) as of March 31, 2011 and 2010, and the related non-consolidated statements of income, appropriations of retained earnings, changes in equity and cash flows for the years then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the non-consolidated financial position of Meritz Fire & Marine Insurance Co., Ltd. as of March 31, 2011 and 2010, and the results of its financial performance, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the Republic of Korea. Accounting principles and auditing standards and their application in practice vary among countries. The accompanying non-consolidated financial statements are not intended to present the financial position, results of financial performance, and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated financial statements are for use by those who are knowledgeable about Korean accounting principles and auditing standards and their application in practice. April 28, 2011 This audit report is effective as of April 28, 2011, the independent auditors report date. Accordingly, certain material subsequent events or circumstances may have occurred during the period from the auditors report date to the time this audit report is used. Such events and circumstances could significantly affect the accompanying nonconsolidated financial statements and may result in modifications to this report. 30

32 NON-CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF MARCH 31, 2011 AND 2010 (Korean won in thousands) Assets Cash and cash equivalents (Notes 3, 9, 15, 27 and 37) 125,758,125 72,174,312 Deposits (Notes 9, 15 and 27) 217,921,858 49,999,460 Trading securities (Notes 4, 15 and 27) 438,787, ,690,119 Available-for-sale securities (Notes 4, 5, 15 and 27) 2,787,322,470 2,387,337,111 Held-to-maturity securities (Notes 4, 5, 6, 15 and 27) 123,355, ,567,089 Equity method investments (Note 7) 2,815, ,238,600 Loans, less allowance for doubtful accounts of \20,893,639 thousand in 2011 (\14,357,013 thousand in 2010) (Note 8) 954,307, ,244,245 Property and equipment (Notes 9 and 22) 735,119, ,453,901 Intangible assets (Note 10) 42,705,829 17,940,902 Deferred acquisition costs (Note 14) 1,013,684, ,990,095 Other assets, less allowance for doubtful accounts of 12,130,925 thousand in 2011(\7,066,264 thousand in 2010) (Note 11) 355,537, ,934,654 Separate account assets (Note 17) 176,542, ,418,544 Total assets 6,973,858,797 6,034,989,032 Liabilities and equity Liabilities: Policy reserves (Notes 16 and 21) 5,702,119,201 4,696,950,444 Catastrophe reserves (Note 16) 130,752, ,438,218 Insurance accounts payables (Notes 8, 15 and 18) 121,403, ,342,818 Severance and retirement benefits (Note 19) 2,069, ,244 Other liabilities (Note 20) 217,017, ,456,224 Separate account liabilities (Note 17) Total liabilities 6,358,296,558 5,355,014,629 Equity: Capital stock (Notes 1 and 22) 43,634,845 61,900,000 Capital surplus (Note 22) 170,432, ,797,493 Capital adjustments (Note 22) (250,934,964) (116,585,558) Accumulated other comprehensive income (Notes 22 and 30) 265,675, ,087,426 Retained earnings (Note 22) 386,753, ,775,042 Total equity 615,562, ,974,403 Total liabilities and equity 6,973,858,797 6,034,989,032 See accompanying notes. MERITZ INSURANCE ANNUAL REPORT

33 NON-CONSOLIDATED STATEMENTS OF INCOME AS OF MARCH 31, 2011 AND 2010 (Korean won in thousands, except per share amounts) Operating revenue: Premium income (Note 24) 3,815,936,864 3,271,836,963 Net reinsurance income (Note 23) 147,216, ,144,311 Compensation income (Note 13) 1,541,607 21,579,967 Interest income (Note 4) 191,694, ,951,856 Gain on valuation of securities (Notes 4 and 5) 15,521,616 2,694,168 Gain on disposal of securities 61,660,348 40,857,211 Gain on foreign currency transactions and translation (Note 15) 9,806,544 5,795,166 Rental income 18,211,158 18,085,424 Dividend income 22,165,722 16,012,054 Expenses recovered 42,771,560 47,486,673 Reversal of policy reserves (Note 16) 6,602, ,466,014 Separate accounts income (Note 17) 147,036,356 74,196,749 Gain on valuation and transactions of derivative financial 7,842,874 36,833,108 instruments (Note 27) Other operating revenues 2,616, ,480 4,490,624,442 4,093,468,144 Operating expenses: Provision for policy reserves (Note 16) 1,011,771, ,766,962 Provision for catastrophe reserves (Note 16) 11,314,040 13,631,655 Claims paid 1,329,656,128 1,377,926,022 Refunds expenses 670,588, ,271,688 Net reinsurance premiums paid (Note 23) 225,566, ,913,263 Loss on valuation of securities (Notes 4 and 5) 17,598,288 1,499,299 Loss on disposal of securities 12,385,287 9,399,873 Operating and administrative expenses 554,314, ,578,162 (Notes 9, 10, 19, 25 and 26) Amortization of deferred acquisition costs (Note 14) 309,615, ,960,462 Loss on foreign currency transactions and translation (Note 15) 10,246,149 45,352,970 Separate accounts expenses (Note 17) 147,036,356 74,196,749 Loss on valuation and transactions of derivative financial 6,546,041 7,259,408 instruments (Note 27) Other operating expenses (Note 28) 39,957,417 35,280,474 4,346,596,249 3,920,036,987 Operating income 144,028, ,431,157 [ Continued ] 32

34 (Korean won in thousands, except per share amounts) Non-operating income (expense): Equity in earnings of equity method investments, net (Note 7) 11,924,007 10,978,591 Gain on disposal of property and equipment, net 37,523 14,040 Loss on valuation of land (Note 9) (662,671) - Other, net 1,000,276 2,737,057 12,299,135 13,729,688 Income before income taxes 156,327, ,160,845 Income tax expense (Note 29) (35,378,204) (46,753,530) Net income 120,949, ,407,315 Earnings per share (Note 31): Basic 1,133 1,318 Diluted 1,128 1,316 See accompanying notes. MERITZ INSURANCE ANNUAL REPORT

35 NON-CONSOLIDATED STATEMENTS OF APPROPRIATION OF RETAINED EARNINGS AS OF MARCH 31, 2011 AND 2010 (Korean won in thousands) Retained earnings before appropriations: Retained earnings carried forward from the prior year 64,689 27,727 Net income 120,949, ,407, ,013, ,435,04 Transfer from voluntary reserves 179,400, ,413, ,435,042 Appropriations: Legal reserve 4,000,000 3,200,000 Loss on capital reduction 257,061,723 - Cash dividends (Note 33) 39,268,182 31,970,353 Voluntary reserve - 105,200, ,329, ,370,353 Unappropriated retained earnings carried forward to the next year 83,908 64,689 See accompanying notes. 34

36 NON-CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AS OF MARCH 31, 2011 AND 2010 (Korean won in thousands) Capital stock Capital surplus Capital adjustments Accumulated other comprehensive income Retained earnings Total As of April 1, ,900, ,445, ,393,077) 86,322, ,367, ,642,553 Valuation on treasury stock fund - 1,352,386 (2,192,481) - - (840,095) Gain on valuation of available-for-sales securities ,943,418-82,943,418 Valuation on derivative financial instruments ,976,250-30,976,250 Equity adjustment arising from equity method , ,155 investments Equity adjustment of separate account ,807-60,807 Net income ,407, ,407,315 As of March 31, ,900, ,797,493 (116,585,558) 201,087, ,775, ,974,403 As of April 1, ,900, ,797,493 (116,585,558) 201,087, ,775, ,974,403 Dividends (31,970,353) (31,970,353) Capital reduction arising from spin-off (18,265,155) (65,751,723) (257,061,723) - - (341,078,601) Valuation on treasury stock fund - 387,013 (640,896) - - (253,883) Disposal on treasury stock - - 7,131, ,131,206 Transfer of treasury stock arising from spin-off ,222, ,222,007 Gain on valuation of available-for-sales securities ,764,333-38,764,333 Valuation on derivative financial instruments ,785,394-7,785,394 Equity adjustment arising from equity method (11,703,831) - (11,703,831) investments Gain on revaluation of land ,752,334-29,752,334 Equity adjustment of separate account (9,894) - (9,894) Net income ,949, ,949,124 As of March 31, ,634, ,432,783 (250,934,964) 265,675, ,753, ,562,239 See accompanying notes. MERITZ INSURANCE ANNUAL REPORT

37 NON-CONSOLIDATED STATEMENTS OF CASH FLOWS AS OF MARCH 31, 2011 AND 2010 (Korean won in thousands, except per share amounts) Cash flows from operating activities: Net income 120,949, ,407,315 Adjustments to reconcile net income to net cash provided by operating activities: Net provision for policy and catastrophe reserves 1,016,482, ,932,603 Loss (gain) on valuation of securities, net 2,076,672 (1,194,869) Depreciation 18,765,346 17,889,190 Amortization 6,031,983 3,669,817 Provision for severance and retirement benefits 9,310,303 8,868,924 Provision for doubtful accounts, net 15,286,688 5,129,485 Amortization of deferred acquisition costs 309,615, ,960,462 Loss on foreign currency translation, net 3,833 25,695,336 Gain on valuation of derivative financial instruments, net (4,675,951) (20,102,809) Equity in earnings of equity method investments, net (11,924,007) (10,978,591) Loss on revaluation of land 662,671 - Others, net (1,579,130) (21,594,010) Changes in operating assets and liabilities Deposit (68,840,711) 18,320,555 Trading securities (257,675,080) 73,172,145 Available-for-sale securities (355,060,092) (255,237,254) Held-to-maturity securities 69,975,385 44,575,224 Dividend income from equity method investment - 2,896,492 Loans (174,285,067) (226,490,708) Deferred acquisition costs (482,309,946) (505,341,449) Separate account liabilities 3,952,628 (8,860,583) Insurance accounts payables 8,288,946 13,716,732 Payment of severance and retirement benefits (1,511,035) (3,360,625) Separate account assets 580,994 1,823,294 Others, net (28,753,501) (39,845,113) Net cash provided by operating activities 195,368,496 87,051,563 [ Continued ] 36

38 (Korean won in thousands, except per share amounts) Cash flows from investing activities: Acquisition of equity method investments (9,000,000) (37,802,943) Acquisition of property and equipment (35,003,402) (22,598,134) Disposal of property and equipment 126,361 34,109 Increase in intangible assets (36,499,057) (9,410,783) Decrease (increase) in leasehold deposits, net 1,094,992 (4,614,289) Others, net (3,962,553) 712,050 Net cash used in investing activities (83,243,659) (73,679,990) Cash flows from financing activities: Decrease in leasehold deposits received (501,877) (1,342,068) Disposal of treasury stock 7,131,206 - Payment of dividends (31,970,353) - Net cash used in financing activities (25,341,024) (1,342,068) Decrease in cash and cash equivalents arising from spin-off (33,200,000) - Net increase in cash and cash equivalents 53,583,813 12,029,505 Cash and cash equivalents at the beginning of the year 72,174,312 60,144,807 Cash and cash equivalents at the end of the year (Note 37) 125,758,125 72,174,312 See accompanying notes. MERITZ INSURANCE ANNUAL REPORT

39 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Company information Meritz Fire & Marine Insurance Co., Ltd. (the Company ) was incorporated in October The Company provides primarily property and casualty insurance products and related services. On October 1, 2005, the Company changed its name from Oriental Fire & Marine Insurance Co., Ltd. to Meritz Fire & Marine Insurance Co., Ltd. The Company listed its common shares at the Korea Exchange ( KRX ) in July 1957 and the Company s paid-in capital decreased by \18,265 million as a result of capital reduction arising from spin-off on March 25, 2011 which was approved by an extra-ordinary shareholders meeting held on January 11, The Company completed the procedures for listing spun off common shares at KRX on April 11, 2011, and accordingly, as of March 31, 2011, the Company has 87,269,690 common shares issued amounting to \43,635 million. As of March 31, 2011, the stockholders of the Company and their shareholdings are as follows: Stockholder Number of shares Percentage ofownership (%) Nine individuals, including Cho Jeong-Ho 18,898, Meritz Financial Group Inc. 11,364, Employees stock ownership association 1,349, KB pure stocks 2 4,232, Others 51,425, ,269, Summary of significant accounting policies Basis of financial statement preparation The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea ( Korean GAAP ). Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these non-consolidated financial statements are intended for use by those who are informed about Korean accounting principles and practices. In the event of any differences in interpreting the non-consolidated financial statements or the independent auditors report thereon, the Korean version, which is used for regulatory reporting purposes, shall prevail. The accompanying non-consolidated financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements. The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the Republic of Korea, including Statements of Korea Accounting Standards ( SKAS ) 1 to 24 (except for SKAS 14), and the significant accounting policies followed by the Company in preparing the accompanying non-consolidated financial statements are summarized below. 38

40 Financial year The Company s financial year is March 31. Reference in the accompanying non-consolidated financial statements for 2011 and 2010 represents the years ended March 31, 2011 and 2010, respectively. Revenues Revenues from premium income are recognized at the time when such premium payments become due. However, in the case of insurance contracts of which the first premium payment or single premium payment are uncollected as of the first day of the insured period due to a payment extension allowed by the Company, the first premium payment or single premium payment is recognized as revenue in the period in which the first day of insured period falls. If premium is received before the nominated collection due date, the Company records unearned insurance premium based on calendar period calculation. Interest income on deposits, securities and loans, and other investments is recognized as income in the period when it is earned. Interest income on defaulted, delinquent or restructured loans is recognized as income in the period when the payments are received. Cash equivalents Highly liquid deposits and marketable securities with original maturities of three months or less, and which have no significant risk of loss in value by interest rate fluctuations, are considered as cash equivalents. Investments in securities Investments in securities within the scope of SKAS 8 Investments in Securities are classified as either trading, held-to-maturity or available-for-sale securities, as appropriate, and are initially measured at cost, including incidental expenses. Securities that are acquired and held principally for the purpose of selling them in the near term are classified as trading securities. Debt securities which carry fixed or determinable payments and fixed maturity are classified as held-to-maturity if the Company has the positive intention and ability to hold them to maturity. Securities that are not classified as either trading or held-to-maturity are classified as available-for-sale securities. After initial measurement, available-for-sale securities are measured at fair value with unrealized gains or losses being recognized directly in equity as other comprehensive income. Likewise, trading securities are also measured at fair value after initial measurement, but with unrealized gains or losses reported as part of net income. Held-to-maturity securities are measured at amortized cost after initial measurement. The cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initially recognized amount and the maturity amount. The fair value of trading and available-for-sale securities that are traded actively in the open market (marketable securities) is measured at the closing price of those securities at the reporting date. Non-marketable equity securities are measured at cost subsequent to initial measurement if their fair values cannot be reliably estimated. Non-marketable debt securities are carried at a value using the present value of future cash flows discounted using an appropriate interest rate which reflects the issuer s credit rating announced by a public independent credit rating agency. If the application of such measurement method is not feasible, estimates of fair values may be made using a reasonable valuation model or quoted market prices of similar debt securities issued by entities conducting business in similar industries. The Company recognizes an impairment loss on its investments in securities if there is objective evidence that the securities are impaired. The impairment loss is charged to the statement of income. MERITZ INSURANCE ANNUAL REPORT

41 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 Equity method investments Investments in entities over which the Company has control or significant influence are accounted for using the equity method. Under the equity method of accounting, the Company s initial investment in an investee is recorded at acquisition cost. Subsequently, the carrying amount of the investment is adjusted to reflect the Company s share of income or loss of the investee in the statement of income and share of changes in equity that have been recognized directly in the equity of the investee in the related equity account of the Company in the statement of financial position. At the date of acquisition, the excess of the cost of the investment over the Company s share of the net fair value of the investee s identifiable assets and liabilities is accounted for as goodwill which is amortized over its useful life within 20 years using the straight-line method. Conversely, negative goodwill represents the excess of the Company s share in the net fair value of the investee s identifiable assets and liabilities over the cost of the investment. Negative goodwill is recorded to the extent of the fair value of acquired non-monetary assets and recognized as income using the straight-line method over the remaining weighted-average useful life of those acquired non-monetary assets. The amount of negative goodwill in excess of the fair value of acquired non-monetary assets is recognized as income immediately. In translating the financial statements of foreign investees into Korean won, assets and liabilities are translated at the exchange rate at the reporting date and income and expenses are translated at the average exchange rate for the reporting period. All resulting exchange differences are recognized as foreign currency translation adjustments in other comprehensive income within equity. Allowance for doubtful accounts The allowance for doubtful accounts is provided in compliance with the Regulation of Insurance Supervision ( RIS ), which requires the application of minimum loss ratios based on the degree of collectability of receivables, including loans. Receivables are classified as normal, precautionary, substandard, doubtful and estimated loss, and the related allowance is calculated at a minimum of 0.5% (0.75% for consumer loans), 2% (5% for consumer loans), 20%, 50% and 100%, respectively, of the outstanding amount in each classification. Property and equipment Property and equipment are stated at cost, less accumulated depreciation, except for certain assets in existence as of July 1, 1998 that were revalued in accordance with the previous Korean Assets Revaluation Law and land and buildings that were revalued in accordance with the current revised SKAS 5 which are stated at fair value, less accumulated depreciation. Maintenance and repairs are expensed in the year in which they are incurred. Expenditures which enhance the value or extend the useful life of the related assets are capitalized. Depreciation of property and equipment is provided using the declining balance method (buildings using the straight-line method) over the following estimated useful lives: Years Buildings 40 Vehicles 4 Furniture and equipment 4 40

42 The Company has chosen the revaluation model as its accounting policy for its land. Accordingly, land is measured at fair value, less impairment losses recognized after the date of revaluation. Valuation is performed frequently enough to ensure that the fair value of a revalued land does not differ materially from its carrying amount. If a land s carrying amount is increased as a result of a revaluation, the increase shall be credited directly to in the other comprehensive income. However, the increase shall be recognized in the statement of income to the extent that it reverses a revaluation decrease of the same land previously recognized in the statement of income. If a land s carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in the statement of income. However, the decrease shall be debited directly to other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that land. Intangible assets Intangible assets of the Company consist of development cost and other intangible assets which are stated at cost, less accumulated amortization. Amortization is recognized as an expense based on the straight-line method over the estimated useful life of 5 years. Impairment of assets When the recoverable amount of an asset is less than its carrying amount due to obsolescence, physical damage or abrupt decline in the market value of the asset, the decline in value, if material, is deducted from the carrying amount and recognized as an asset impairment loss in the current year. If the value of impaired asset subsequently recovers and the recovery objectively relates to an event arising after the period when the impairment loss was recorded, such recovery is credited in the current operations up to the previously recorded impairment loss. Compensation receivables Insurance benefits that are paid in advance to a policyholder in the event of a claim where the benefits paid can be recovered through the Company exercising its recourse guarantee or compensation right, or disposal of insured assets acquired by the Company during the resolution process of accident claims, are accounted for as compensation receivables. Recoverable amounts out of the reserve for outstanding claims are deducted directly from policy reserves. Compensation receivables are estimated by multiplying the average recovery ratio (ie, recoverable amount/net claims) for the last 3 years to the net claims amount during the year. MERITZ INSURANCE ANNUAL REPORT

43 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 Deferred acquisition costs The expected cost of acquiring long-term insurance contracts entered into before April 1, 2004, except for those long-term contracts whose related actual acquisition costs exceeded the expected acquisition costs, were deferred and amortized using the straight-line method over the insurance contract term, or 7 years, whichever is shorter. However, pursuant to the RIS and Accounting Standards for Insurance Companies, the Company calculates the amortized deferred acquisition costs related to the insurance contracts during the reporting period, by deducting the difference between the policy reserves under the net level premium method and those under the surrender value method from the amounts computed by adding the unamortized acquisition costs at the prior year-end to acquisition costs incurred during the current year. During the year ended March 31, 2005, the Company changed its accounting policy for deferred acquisition costs related to the long-term insurance contracts which were entered into on or after April 1, 2004, pursuant to a revision of the RIS in According to the revised RIS, actual acquisition costs, or the expected deferred acquisition costs if the former exceeds the latter, are deferred and amortized using the straight-line method over the insurance premium payment term, or over 7 years, whichever is shorter. However, if the unamortized deferred acquisition costs at the end of the reporting period exceed the difference between the policy reserves calculated using the net level premium method and surrender value method, the surplus amount is fully expensed in the current period. No additional amount was amortized in 2011 and Policy reserves In accordance with the Insurance Business Act ( IBA ) and the RIS, the Company is required to maintain policy reserves, and the details are as follows: 1. Long-term insurance premium reserves The Company maintains a reserve for the portion of premiums, which is refundable to policyholders upon maturity and cancellation of the policy under long-term saving oriented insurance unless there has been a substantial claim for payment under the policy. 2. Reserve for outstanding claims The reserve for outstanding claims refers to a provision for claims received but not settled, or for claims not received, and therefore not yet settled, on the insurance policies where the events causing the payment of claims have occurred at the reporting date. The amount collectible from exercising the compensation right or disposal of insured assets acquired by the Company is reported as a deduction from policy reserves. 3. Unearned premium reserve The Company is required to maintain an unearned premium reserve, which is the premium whose payment date belongs to the current year and whose applicable period has not yet commenced at the end of the reporting period. 4. Reserve for participating policyholder dividend The reserve for participating policyholder dividend is provided for the purpose of future dividends in accordance with the relevant laws and contract terms. 5. Excess participating policyholder dividend reserve Pursuant to the relevant laws and contracts, the Company may provide an excess participating policyholder dividend reserve in accordance with the operating results of related insurance products. The reserve may be used to pay participating policyholder dividends or additional dividends. 6. Reserve for losses on participating insurance policies In accordance with the RIS and relevant laws, the Company may establish a reserve up to 30% of earnings of dividend insurance. The reserve for losses on participating insurance policies may be used to offset a deficit of participating insurance contracts within 5 years and the residual may be used as the dividends to the individual policyholders. 7. Reinsurance reserve In the event of ceding insurance, the Company maintains reinsurance reserves at amounts which can be expected to be collected from the related reinsurance companies pursuant to the relevant laws. 42

44 Catastrophe reserves In order to prepare for and recover from exceptionally large claims which may be incurred in the future, the Company is required to maintain a catastrophe reserve as a liability with reserve rates determined by the IBA and the RIS. The Company provides a catastrophe reserve by multiplying predetermined ratios to net retained premiums received during the reporting period by line of insurance, up to a certain limit, as calculated by multiplying predetermined ratios to the total insurance premiums received during the reporting period by line of insurance in accordance with the RIS requirements. This reserve may be reversed up to the limit of the net loss for the year in the event that the ratio of net insurance expenses claimed to net earned insurance premiums at risk, by line of insurance, for the year is in excess of the regulated ratio by line of insurance which are prescribed by the RIS. Separate accounts In accordance with Article 108 of the IBA and the RIS, the Company classifies all or part of the property equivalent to the reserves on retirement insurance and retirement pension into separate accounts, which are recorded separately from other assets and liabilities on the statement of financial position as separate account assets and separate account liabilities respectively. The given or received capital that are caused by temporary transactions are deducted from separate account liabilities and separate account assets as separate account receivables and separate account payables, respectively. The Company recognizes the separate account income and expenses arising from insurance policies where the Company has provided a guarantee on principal and interest (guarantee on principal and interest on retirement insurance policies and retirement pension policies) separately in the general account income statement. According to Article 6-23 of the RIS, the Company does not state separate account revenue and expenses on the insurance policies bearing dividends on the basis of actual results (retirement pension policies bearing dividend on the basis of actual results) in the general account income statement. Severance and retirement benefits In accordance with the Employee Retirement Benefit Security Act ( ERBSA ) and the Company s employee benefits policy, employees terminating their employment with at least one year of service are entitled to severance and retirement benefits based on the rates of pay in effect at the time of termination, years of service and certain other factors. The provision is determined based on the amount that would be payable assuming all employees were to terminate their employment as of the reporting date. In accordance with the ERBSA, the Company made a transition to a new defined benefit pension plan ( DB Plan ) and a defined contribution pension plan ( DC plan ) to replace the traditional severance and retirement benefit plan, effective for the prior year. Prior to April 1, 2009, the Company was obliged to pay all employees a severance payment which required no external funding under the traditional severance and retirement benefit plan. The accumulated severance and retirement benefits under the previous severance and retirement benefit plan were transferred to the DB plan at the effective date of the DB plan. Under the DB Plan, the provision for the retirement benefit liability is determined based on an employee s final salary, equal in value at retirement to at least one month s final salary for every year of service by the employee. The retirement benefit liability is partly funded, and the funds contributed are managed by the plan s administrators that are appointed by the Company. The Company accounts for the funds contributed as a deduction from the retirement benefit liability. MERITZ INSURANCE ANNUAL REPORT

45 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 Severance and retirement benefits (cont d) Under the DC Plan, the Company pays a fixed monthly contribution of at least 1/12th of an employee s annual salary for each year of service to a separately administered fund which is managed by the plan s administrators. Contributions to the DC Plan are recognized as an expense in the statement of income as incurred. Provisions and contingent liabilities Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a 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 on the amount of the obligation. The provision is used only for expenditures for which the provision was originally recognized. If the effect of the time value of money is material, provisions are stated at present value. A contingent liability is disclosed, but not recognized when it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability. Income taxes Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. Deferred income taxes are provided using the liability method for the tax effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. In addition, current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged directly to equity. Valuation of long-term receivables (payables) at present value and restructuring Receivables or payables arising from long-term installment transactions are stated at present value. The difference between the carrying amount of these receivables or payables and their present value is amortized using the effective interest rate method and credited or charged to the statement of income over the installment period. When credit terms (e.g., principal, interest rate, payment period) of receivables from debtors experiencing financial difficulties (e.g., court receivership, debt restructuring, financial workout) are unfavorably changed from the perspective of the Company, such receivables are stated at present value and the difference between the carrying amount and present value of such receivables is charged to the statement of income. Foreign currency translation Transactions involving foreign currencies are recorded at the exchange rates prevailing at the time the transactions are made. Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the prevailing exchange rates of \1,107.2 to US$1 and \ to?1 at March 31, 2011 and \1,130.8 to US$1 and \ to?1 at March 31, The resulting unrealized foreign currency translation gains or losses are credited or charged to current operations. Derivative Derivative financial instruments are presented as assets or liabilities valued principally at the fair value of the rights or obligations associated with the derivative contracts. The unrealized gain or loss from a derivative transaction with the purpose of hedging the exposure to changes in the fair value of a recognized asset or liability or unrecognized firm commitment is recognized in net income. For a derivative instrument with the purpose of hedging the exposure to the variability of cash flows of a recognized asset or liability or a forecasted transaction, the hedge-effective portion of the derivative instrument s gain or loss is deferred as other comprehensive income in equity. The ineffective portion of the gain or loss is charged or credited to current operations. Derivative instruments that do not meet the criteria for hedge accounting, or contracts for which the Company has not elected hedge accounting are measured at fair value with unrealized gains or losses reported in net income. 44

46 Leases A lease is accounted for as either a capital lease or an operating lease. A lease is recognized as a capital lease if it transfers substantially to the Company all the risks and rewards incidental to ownership of the leased asset. An asset acquired by way of a capital lease arrangement is stated in the statement of financial position at the lower of the fair value or the present value of minimum lease payments at the inception of the lease. The corresponding liability is included in the statement of financial position as a capital lease obligation. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Capitalized lease assets are depreciated in the same manner as other depreciable property and equipment. Operating lease payments are recognized as an expense on a straight-line basis over the lease term. Share-based payment transactions For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase in equity at the fair value of the goods or services received or the equity instruments granted over the vesting period. For cash-settled share-based payment transactions, the Company measures the goods or services acquired and the liability incurred at the fair value of the liability, and remeasures the fair value of the liability at each reporting date, with any changes in value recognized in profit or loss for the period. For share-based payment transactions in which the terms of the arrangement provide the supplier of goods or services with a choice of whether the Company settles the transaction in cash or by issuing equity instruments, the Company accounts for that transaction, or the components of that transaction, as a cash-settled share-based payment transaction if, and to the extent that, the Company has incurred a liability to settle in cash (or other assets), or as an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred. Share-based payment transactions implemented before the effective date of SKAS 22 are accounted in accordance with Korea Financial Accounting Standards Interpretations Accounting for Stock Options. Per share amounts Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the year. Diluted earnings per share are calculated by dividing net income by the weighted-average number of common shares outstanding during the year plus the weighted-average number of common shares that would have been outstanding assuming the conversion of all dilutive potential common shares. Premium deficiency The Company recognizes a premium deficiency in accordance with the Accounting Standards for Insurance Companies, if the expected interest rate, which has been used in calculating premium reserves, exceeds the interest rate for a one-year time deposit at the end of the reporting period and the deficiency is expected to last other than temporary. The Company performs a premium deficiency test once annually. A premium deficiency shall first be recognized by derecognizing any unamortized acquisition costs as an expense that the deficiency is eliminated. If the premium deficiency is greater than the unamortized acquisition costs, a liability shall be accrued for the excess deficiency. Significant judgments and accounting estimates The preparation of financial statements in accordance with Korean GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the reporting date, and the reported amounts of revenues and expenses during the reporting period. Such judgments and accounting estimates made that have the most significant effect on the amounts recognized in the financial statements were included in the valuation of property and equipment, loan and receivables, securities, deferred income tax and derivative financial instruments. Actual results could differ from those estimates. MERITZ INSURANCE ANNUAL REPORT

47 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Restricted deposits Other deposits as of March 31, 2011 and 2010 amounting to \7,500 thousand and \10,500 thousand, respectively, are restricted to withdraw as they are provided for a collateral for checking accounts. 4. Trading securities Details of trading securities as of March 31, 2011 and 2010 are as follows (Korean won in thousands): Balance before valuation Fair value (*) Valuation gains (losses) Equity securities 42,222,905-45,635,999-3,413,094 - Government and public bonds 49,912,581 30,355,378 49,803,810 30,270,870 (108,771) (84,508) Special bonds - 20,192,864-20,191,000 - (1,864) Beneficiary certificates 284,933, ,747, ,538, ,898, , ,475 Overseas securities 2,247,957 5,230,431 2,247,957 5,462, ,779 Other securities 55,000,000 14,419,344 55,561,750 14,867, , , ,317, ,945, ,787, ,690,119 4,470, ,328 (*) The fair value of trading securities that are traded actively in the open market (marketable securities) is measured at the closing price of those securities at the reporting date. Non-marketable securities are carried at a value announced by a public independent credit rating agency. Details of interest income from investment securities earned during 2011 and 2010 are as follows (Korean won in thousands): Trading securities Available-for-sale securities Held-to-maturity securities Total Government and 474,260 42,183 27,029,517 15,045,021 69,195 65,056 27,572,972 15,152,260 public bonds Special bonds 26,618 26,796 34,257,266 31,556,482 1,097,000 1,110,598 35,380,884 32,693,876 Financial bonds ,220,634 11,106,306 6,505,453 7,730,000 20,726,087 18,836,306 Corporate bonds ,983,228 14,412, ,895 1,111,351 11,895,123 15,523,447 Overseas bonds - 4,304 30,457,744 28,591, ,897 1,223,790 31,022,641 29,819,708 Other bonds 790, , , , ,273 1,291, , ,948, ,005,919 9,148,440 11,240, ,388, ,999,870 46

48 The Company reclassified trading securities to available-for-sale categories as appropriate under SKAS 8 for the year ended March 31, The following table shows the carrying values and fair values of the reclassified trading securities (Korean won in thousands): Type Companies Reclassification date Fair value Book value Fair value Book value Overseas securities CCO Everest Jul. 1, ,802,397 10,802,397 10,984,591 10,984,591 SC Low Vol Fund Jul. 1, ,439,982 10,439,982 10,168,154 10,168,154 21,242,379 21,242,379 21,152,745 21,152,745 The Company would have recorded unrealized gain and loss on valuation of trading securities amounting to?89,634 thousand and?1,113,304 thousand in 2011 and 2010 in the statement of income, respectively if the reclassification had not been made in MERITZ INSURANCE ANNUAL REPORT

49 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Available-for-sale securities Details of equity securities classified as available-for-sale securities as of March 31, 2011 and 2010 are summarized as follows (Korean won in thousands): 2011 Unrealized Number of Ownership Acquisition Fair value/ gains (losses) Impairment loss shares (%) cost NAV Book value (*4) Up to Equity securities with readily determinable fair values (*1): Daewoo securities Green 1,000, ,500,000 3,540,000 3,540,000 40, Korea Special Purpose Acquisition Company ( SPAC ) Korea Line Corporation (*5) 35, ,386, , , ,052,862 Tongyang Value Ocean SPAC 200, ,000,000 1,980,000 1,980,000 (20,000) - - Samsung Life Insurance 18, ,021,800 1,893,140 1,893,140 (128,660) - - Jeonbuk Bank 1,329, ,993,150 9,026,585 9,026,585 (966,565) - - Hana Nikel 1 2,400, ,999,988 9,240,000 9,240,000 (2,759,988) - - Hanjin heavy Industries & 242, ,962,262 7,913,989 7,913,989 (4,048,273) - - Construction Co., Ltd. Hanjin Eng & 87, ,424,398 1,105,650 1,105,650 (3,318,748) - - Construction Holdings Hanwha Non-Life 897, ,629,948 9,194,681 9,194,681 (1,435,267) - - Insurance Co., Ltd. HMC 1 SPAC 500, ,000,000 1,137,500 1,137, , Daeshin Growth SPAC 400, , , , , Dae Joo Co., Ltd. 288, , , ,056 (298,944) - - Seobu Terrain and 620, ,928,069 9,524,736 9,524,736 (403,333) - - Development Co., Ltd. Solomon SPAC 800, ,000, , ,000 (48,000) - - Shinyoung SPAC 1 1,000, ,000,000 1,085,000 1,085,000 85, Shinhan SPAC 1 74, , , , , Eugenes Corp. 90, , , ,000 (578,632) - - INICIS Co., Ltd. 64, ,328, , ,608 (909,792) - - Kiwoom SPAC 1 500, ,000, , ,000 (15,000) - - HI 1 SPAC 250, ,000, , ,500 (42,500) - - Korea Investment 360, , , ,000 (18,000) - - Securities SPAC 1 STX Co. 143, ,904,273 3,886,138 3,886,138 (3,018,135) - - Nongshim Holdings 18, ,789,128 1,046,369 1,046,369 (742,759) - - Hynix 428, ,817,203 13,417,340 13,417, , Semiconductor Inc. 103,843,011 80,223,437 80,223,437 (17,566,712) - 6,052, [ Continued ] 48

50 2011 Unrealized Number of Ownership Acquisition Fair value/ gains (losses) Impairment loss shares (%) cost NAV Book value (*4) Up to Equity securities without readily determinable fair value (*3): Korea Securities ,160 3,160 3, Depository Pusan New Port 988, ,943,070 5,126,952 5,126, , ARD Holdings, Inc. Company (*2) ARD Holdings, Inc. (*2) 320, ,600,000 1,614,080 1,614,080 14, Pointpark Ltd. 100, ,000 20,871 20, ,129 - Busan International 399, ,995,000 2,033,304 2,033,304 38, Mapo Aekyoung Airlines (*2) Mapo Aekyoung 168, , , ,008 (124,992) - - Town (*2) Seoul Guarantee Insurance 49, ,805,484 2,714,931 2,714, , Company (*2, *6) KDS 1 Preferred stock 795-6, ,042 - C& Marine Financing Co. 200,000-1,000, ,000,000 - Final Data Inc. 25, , ,000 - Vestas IM 59, , , , ,591,756 12,527,306 12,527,306 1,020,721 2,085, Contributed capital (*3): Macquarie Korea OPP ,693,153 12,693,153 12,693, KoFC Macquarie Growth ,540,000 4,540,000 4,540, Champ 2010 No1 Shinhan Infra Portfolio ,075,524 26,075,524 26,075, Korea BTL Fund ,206,394 15,206,394 15,206, ,515,071 58,515,071 58,515, Beneficiary certificates 376,713, ,632, ,632,752 (10,394,364) 534, , ,663, ,898, ,898,566 (26,940,355) 2,619,848 6,204,337 MERITZ INSURANCE ANNUAL REPORT

51 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Unrealized Number of Ownership Acquisition Fair value/ gains (losses) Impairment loss shares (%) cost NAV Book value (*4) Up to Equity securities with readily determinable fair values(*1): OCI Co., Ltd. 3, ,054, , ,500 (364,679) - - STX Co. 143, ,904,273 2,923,583 2,923,583 (3,980,690) - - Nongshim Holdings 18, ,789,129 1,134,922 1,134,922 (654,207) - - Hanwha Non-Life 897, ,629,948 9,688,054 9,688,054 (941,894) - - Insurance Co., Ltd. Dong-A Pharmaceutical 40, ,185,812 4,712,746 4,712, , Hynix Semiconductor Inc. 100, ,354,700 2,670,000 2,670, , Dae Joo Co., Ltd. 288, , , ,160 (267,840) - - Hanjin Eng & 87, ,424,398 1,110,037 1,110,037 (3,314,361) - - Construction Holdings Korea Line Corp. 35, ,386,762 2,205,000 2,205,000 (4,181,762) - - Jeonbuk Bank 1,329, ,993,150 9,345,640 9,345,640 (647,510) - - Hanwha Chemical Corp. 60, , , , ,858) - - Hyundai Mobis Co., Ltd. 20, ,072,243 3,000,000 3,000,000 (72,243) - - Eugenes Corp. 90, , , ,750 (661,882) - - Lotte Shopping Co., Ltd. 2, , , ,000 (18,120) - - Seoul Broadcasting 25, ,177,350 1,000,000 1,000,000 (177,350) - - System LG Display Co., Ltd. 40, ,561,647 1,598,000 1,598,000 36, NHN Corporation 5, , , ,000 (53,965) - - INICIS Co., Ltd. 64, ,328, , ,136 (951,264) - - SODIFF Advanced 11, ,069, , ,000 (134,099) - - Materials Co., Ltd. 11, ,069, , ,000 (134,099) - - Seoul Semiconductor 35, ,615,271 1,526,000 1,526,000 (89,271) - - Co., Ltd. Hanjin heavy Industries & 239, ,962,262 6,170,267 6,170,267 (5,791,995) - - Daewoo Securities Construction Co., Ltd. Daewoo Securities 1,000, ,500,000 3,635,000 3,635, , Green Korea SPAC Tongyang Value ` 200, ,000,000 2,100,000 2,100, , Ocean SPAC Hana Nikel 1 2,400, ,999,988 8,880,000 8,880,000 (3,119,988) ,041,186 66,570,795 66,570,795 (24,470,391) - - [ Continued ] 50

52 2010 Unrealized Number of Ownership Acquisition Fair value/ gains (losses) Impairment loss shares (%) cost NAV Book value (*4) Up to Equity securities without readily determinable fair values (*3): Korea Securities Depository ,160 3,160 3, Pusan New Port Company (*2) 988, ,943,070 5,060,715 5,060, , ARD Holdings, Inc. (*2) 320, ,600,000 1,640,000 1,640,000 40, Pointpark Ltd. 100, ,000 20,871 20, ,129 - Busan International 399, ,995,000 1,609,965 1,609,965 (385,035) - - Airlines (*2) Mapo Aekyoung Town (*2) 168, , , ,416 (31,584) - - Seoul guarantee Insurance 49, ,805,484 2,105,076 2,105, , Company (*2, *6) Shinhan 1st SPAC 74, , , , KDS 1 Preferred stock 795-6, ,042 - C& Marine Financing Co. 200, ,000, ,000,000 - Final Data Inc. 25, , ,000-13,442,754 11,398,201 11,398,201 40,618 2,085,171 - Contributed capital (*3): MIC , , , Macquarie Korea OPP ,309,153 11,309,153 11,309, Shinhan Infra Portfolio ,535,190 24,535,190 24,535, Korea Infra ,392,995 12,392,995 12,392, ,369,575 48,369,575 48,369, Beneficiary certificates 457,723, ,522, ,522,910 (37,665,904) 330, , ,577, ,861, ,861,481 (62,095,677) 2,415, ,288 (*1) The fair value of marketable equity securities was measured at the closing price as of the reporting date. (*2) The fair value was measured based on Korean Bond Pricing & KR Co s (the KBP ) valuation report. KBP used more than one valuation model such as Discounted Cash Flow (DCF) model, Imputed Market Value (IMV) model, Discounted Free Cash Flow to Equity (FCFE) model, Dividend Discount Model (DDM) and Risk Adjusted Discounted Cash Flow Model together with reasonable applicable assumptions. (*3) These equity securities are stated at acquisition cost as the fair value of these securities cannot be measured reliably in accordance with Korean GAAP. (*4) Unrealized gain (loss) on valuation of investment securities above is before adjustment of deferred income tax. (*5) Korea Line Corporation ( KLC ) filed for receivership in February 2011, and the Company assessed the objective evidence that investment securities in KLC had been impaired existed. Accordingly, the Company stated carrying amount of the securities at recoverable amount, which resulted in recognition of impairment loss on available-for-sale securities amounting to \6,052,862 thousand. (*6) The Company recognized reversal of impairment loss amounting to \1,805,484 thousand for the year ended March 31, 2011 as a result of valuation by KBP. MERITZ INSURANCE ANNUAL REPORT

53 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 Debt securities classified as available-for-sale securities as of March 31, 2011 and 2010 are summarized as follows (Korean won in thousands): 2011 Unrealized gains Maturity Type Acquisition cost Amortized cost Fair value(*1) Book value(*2) (losses) (*3) Within 1 year Overseas bonds (*4) 28,404,861 31,415,379 26,602,600 26,527,419 (4,887,960) Other securities 62,700,000 62,700,000 58,253,686 58,253,686 (4,446,314) 91,104,861 94,115,379 84,856,286 84,781,105 (9,334,274) Within 5 years Government and 47,536,335 48,906,330 50,814,805 50,687,835 1,781,505 public bonds Special bonds 93,692,863 93,496, ,232,665 99,655,316 6,159,114 Financial bonds 200,756, ,705, ,672, ,155,220 4,449,759 Corporate bonds 86,933,026 87,656,824 91,404,903 90,962,838 3,306,014 Overseas bonds (*4) 344,891, ,551, ,156, ,879,571 (5,672,417) 773,809, ,316, ,280, ,340,780 10,023,975 Within 10 years Government and 66,802,216 66,870,536 68,554,416 67,870, ,519 public bonds Special bonds 430,081, ,062, ,621, ,919,515 19,857,505 Financial bonds 90,330,908 90,297,875 94,597,908 93,960,865 3,662,990 Corporate bonds 109,997, ,000, ,688, ,329,705 (670,295) Overseas bonds (*4) 31,850,742 31,850,742 31,671,412 31,407,530 (443,212) 729,062, ,081, ,133, ,487,670 23,406,507 Over 10 years Government and 408,683, ,438, ,423, ,718,570 32,280,385 public bonds Special bonds 100,088, ,083, ,120, ,581,100 6,497,367 Corporate bonds 9,987,321 9,988,311 11,098,474 10,980, ,174 Overseas bonds (*4) 88,797,440 88,797,440 91,953,594 90,534,194 1,736, ,557, ,307, ,595, ,814,349 41,506,680 Total Government and 523,022, ,215, ,792, ,276,460 35,061,409 public bonds Special bonds 623,863, ,641, ,974, ,155,931 32,513,986 Financial bonds 291,087, ,003, ,269, ,116,085 8,112,749 Corporate bonds 206,917, ,645, ,191, ,273,028 3,627,893 Overseas bonds (*4) 493,944, ,615, ,383, ,348,714 (9,266,835) Other securities 62,700,000 62,700,000 58,253,686 58,253,686 4,446,314) 2,201,535,058 2,204,821,016 2,291,866,492 2,270,423,904 65,602,888 52

54 2010 Unrealized gains Maturity Type Acquisition cost Amortized cost Fair value(*1) Book value(*2) (losses) (*3) Within 1 year Special bonds 14,999,095 14,999,784 15,124,178 15,108, ,159 Financial bonds 9,781,956 9,923,788 10,401,837 10,273, ,782 Corporate bonds 21,576,566 21,080,286 21,557,044 21,467, ,373 Overseas bonds (*4) 38,012,507 40,063,182 41,788,757 41,313,213 1,250,031 Other securities 46,799,000 46,799,000 47,207,547 47,207, , ,169, ,866, ,079, ,370,932 2,504,892 Within 5 years Government and 52,117,733 53,429,246 54,784,872 54,650,055 1,220,809 public bonds Special bonds 90,699,118 90,637,583 97,644,432 96,885,440 6,247,857 Financial bonds 120,192, ,165, ,372, ,379,115 5,213,413 Corporate bonds 133,402, ,504, ,917, ,554,617 8,049,862 Overseas bonds (*4) 301,179, ,257, ,428, ,459,522 (5,797,806) 697,591, ,994, ,148, ,928,749 14,934,135 Within 10 years Government and 44,626,407 44,810,767 46,703,599 46,567,783 1,757,016 public bonds Special bonds 360,056, ,054, ,729, ,067,830 15,013,182 Financial bonds 40,330,908 40,325,220 43,852,460 43,311,960 2,986,740 Corporate bonds 39,063,476 39,323,292 40,364,331 40,069, ,043 Overseas bonds (*4) 91,224,749 91,199,249 92,942,452 91,602, , ,302, ,713, ,592, ,619,764 20,906,588 Over 10 years Government and 281,984, ,938, ,203, ,374,730 8,436,705 public bonds Special bonds 90,088,617 90,088,224 94,084,165 93,641,890 3,553,666 Corporate bonds 9,987,321 9,988,006 10,657,554 10,539, , ,060, ,014, ,945, ,556,185 12,541,930 Total Government and 378,728, ,178, ,692, ,592,568 11,414,530 public bonds Special bonds 555,843, ,780, ,582, ,704,103 24,923,864 Financial bonds 170,305, ,414, ,626, ,964,645 8,549,935 Corporate bonds 204,030, ,896, ,496, ,631,176 9,734,837 Overseas bonds (*4) 430,416, ,519, ,159, ,375,591 4,144,168) Other securities 46,799,000 46,799,000 47,207,547 47,207, ,547 1,786,122,861 1,790,588,085 1,857,765,384 1,841,475,630 50,887,545 MERITZ INSURANCE ANNUAL REPORT

55 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 (*1) The fair value of marketable debt securities was measured at the closing price as of the reporting date. In addition, the fair value of non-marketable debt securities was measured by discounted cash flow using discount rates reflecting the bond s credit rating by an independent credit valuer. (*2) Fair value includes accrued income, which is the difference between fair value and book value. (*3) Unrealized gains (losses) on valuation of investment securities above are before deferred income tax adjustments. (*4) The Company recognized the impairment loss on the overseas securities amounting to \11,111,893 thousand and \1,150,655 thousand in 2011 and 2010, respectively, based on its assessment that the objective evidence that the securities had been impaired existed. In addition, the Company recognized the reversal of impairment loss on available-for-sale securities of \8,785,089 thousand as the reversal of impairment loss for overseas securities is objectively related to the event occurring after the impairment loss was recognized and also recognized the reversal of impairment loss of \1,984,199 thousand by repayment of principal. Changes in valuation gains and losses for available-for-sale securities for the years ended March 31, 2011 and 2010 are summarized as follows (Korean won in thousands): 2011 Beginning balance Increase Decrease Ending balance Equity securities (24,429,773) - (7,883,782) (16,545,991) Government and public bonds 11,414,530 23,646,879-35,061,409 Special bonds 24,923,864 7,590,122-32,513,986 Financial bonds 8,549, ,186 8,112,749 Corporate bonds 9,734,837-6,106,944 3,627,893 Beneficiary certificates (37,665,904) - (27,271,540) (10,394,364) Overseas bonds (4,144,168) (5,122,667) - (9,266,835) Other securities 408,547 (4,854,861) - (4,446,314) Net valuation gain (loss) before income tax (11,208,132) 21,259,473 (28,611,192) 38,662,533 Income tax effect 2,709,069 (8,397,264) Net valuation gain (loss) after income tax (8,499,063) 30,265, Beginning balance Increase Decrease Ending balance Equity securities (46,545,811) - (22,116,038) (24,429,773) Government and public bonds 2,044,673 9,369,857-11,414,530 Special bonds 10,343,296 14,580,568-24,923,864 Financial bonds 2,390,665 6,159,270-8,549,935 Corporate bonds 5,767,265 3,967,572-9,734,837 Beneficiary certificates (82,883,014) - (45,217,110) (37,665,904) Overseas bonds (6,039,507) - (1,895,339) (4,144,168) Other securities (4,216,382) 408,547 (4,216,382) 408,547 Net valuation loss before income tax (119,138,815) 34,485,814 (73,444,869) (11,208,132) Income tax effect 27,696,333 2,709,069 Net valuation loss after income tax (91,442,482) (8,499,063) 54

56 Investment trust contracts as of March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Gains (losses) Company Face value Acquisition cost Book value on valuation Available-for-sale securities ACE Pension 10,400,000 10,400,000 10,518, ,768 TAURUS 2 11,200,000 11,200,000 9,611,598 (1,588,402) ACE General 10,400,000 10,400,000 10,518, ,768 TAURUS 3 10,700,000 10,700,000 9,074,633 (1,625,367) ACE Advisory 20,000,000 20,000,000 18,529,919 (1,470,081) 62,700,000 62,700,000 58,253,686 (4,446,314) 2010 Gains (losses) Company Face value Acquisition cost Book value on valuation Available-for-sale securities TEMPIS 1 11,799,000 11,799,000 12,305, ,845 TEMPIS 2 11,500,000 11,500,000 11,679, ,558 Neaway Assets Investment 10,000,000 10,000,000 9,452,520 (547,480) Samho SH Investment 3,000,000 3,000,000 3,109, ,838 Albatross18 10,500,000 10,500,000 10,659, ,786 46,799,000 46,799,000 47,207, ,547 Details of assets included in the investment trust contracts above as of March 31, 2011 and 2010 are as follows (Korean won in thousands): Cash 38,036,613 2,278,536 Securities - 9,338,548 Bonds 20,217,073 31,988,673 Other - 3,601,790 58,253,686 47,207,547 MERITZ INSURANCE ANNUAL REPORT

57 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 Details of pledged securities as of March 31, 2011 are as follows (US dollars in unit or Korean won in thousands): Korean won Remarks Face value amounts of mortgage Companies Available-for-sale Securities Derivatives 55,000,000 55,000,000 Industrial Bank of Korea Derivatives 40,000,000 40,000,000 SC First Bank Derivatives $9,000,000 9,964,800 Korea Development Bank Derivatives $40,000,000 44,288,000 SC First Bank Derivatives $20,000,000 22,144,000 KB Bank Forward hedge 10,000,000 10,000,000 CLSA Securities 181,396,800 Held-to-maturity securities Derivatives 10,000,000 10,000,000 Industrial Bank of Korea Derivatives $10,000,000 11,072,000 Korea Development Bank 21,072, ,468, Held-to-maturity securities Details of held-to-maturity securities as of March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Maturity Classification Acquisition cost Amortized cost Recoverable value Book value Within 1 year Government and public bonds 20,220 20,220 20,220 20,220 Within 5 years Government and public bonds 1,157,977 1,211,470 1,211,470 1,211,470 Special bonds 10,000,000 10,000,000 10,000,000 10,000,000 11,157,977 11,211,470 11,211,470 11,211,470 Within 10 years Government and public bonds 50,359 52,014 52,014 52,014 Financial bonds 91,000,000 91,000,000 91,000,000 91,000,000 Overseas bonds (*) 11,545,000 11,545,000 11,072,000 11,072, ,595, ,597, ,124, ,124,014 Over 10 years Special bonds 10,000,000 10,000,000 10,000,000 10,000,000 [ Continued ] 56

58 2011 Maturity Classification Acquisition cost Amortized cost Recoverable value Book value Total Government and public bonds 1,228,556 1,283,704 1,283,704 1,283,704 Special bonds 20,000,000 20,000,000 20,000,000 20,000,000 Financial bonds 91,000,000 91,000,000 91,000,000 91,000,000 Overseas bonds (*) 11,545,000 11,545,000 11,072,000 11,072, ,773, ,828, ,355, ,355, Maturity Classification Acquisition cost Amortized cost Recoverable value Book value Within 1 year Government and public bonds 9,840 9,840 9,840 9,840 Financial bonds 20,000,000 20,000,000 20,000,000 20,000,000 Corporate bonds 19,953,573 19,992,069 19,992,069 19,992,069 39,963,413 40,001,909 40,001,909 40,001,909 Within 5 years Government and public bonds 1,228,556 1,257,180 1,257,180 1,257,180 Special bonds 10,000,000 10,000,000 10,000,000 10,000,000 Financial bonds 91,000,000 91,000,000 91,000,000 91,000,000 Overseas bonds (*) 11,545,000 11,545,000 11,308,000 11,308, ,773, ,802, ,565, ,565,180 Within 10 years Financial bonds 30,000,000 30,000,000 30,000,000 30,000,000 Over 10 years Special bonds 10,000,000 10,000,000 10,000,000 10,000,000 Total Government and public bonds 1,238,396 1,267,020 1,267,020 1,267,020 Special bonds 20,000,000 20,000,000 20,000,000 20,000,000 Financial bonds 141,000, ,000, ,000, ,000,000 Corporate bonds 19,953,573 19,992,069 19,992,069 19,992,069 Overseas bonds (*) 11,545,000 11,545,000 11,308,000 11,308, ,736, ,804, ,567, ,567,089 (*) The difference of acquisition cost, amortized cost, recoverable value and book value is due to exchange rate applied at acquisition date and the reporting date. MERITZ INSURANCE ANNUAL REPORT

59 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Equity method investments Details of equity method investments as of March 31, 2011 and 2010 are as follows (Korean won in thousands): Number of shares Ownership (%) Acquisition cost Netasset value Book value Book value Meritz Investment Bank (*1) ,386,189 Meritz Securities Co., Ltd.(*1) ,752,293 Meritz Assets Management (*1) ,229,619 Meritz Financial Information Service( *1) ,570,777 PT. Asuransi Hanjin Korindo (*2) 7, ,955 2,815,162 2,815,162 2,805,337 Ritzpartners Co., Ltd. (*1) ,494, ,955 2,815,162 2,815, ,238,600 (*1) Investment securities in those companies were entirely transferred to Meritz Financial Group Inc. as a result of spin-off on March 25, (*2) Financial statements as of December 31, 2010 were used for PT, Assuransi Hanjin Korindo. The details of changes in book value of equity method investments for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Equity in Other Beginning Acquisition earnings (loss) comprehensive Ending Companies balance (Disposal) Spin-off of investee income (loss) balance Meritz Securities Co., Ltd. (*1,*2) 150,752,293 12,386,189 (178,696,872) 13,524,429 2,033,961 - Meritz Investment Bank (*1) 12,386,189 (12,386,189) Meritz Assets Management (*2) 12,229,619 - (12,241,209) 11, Meritz Financial Information Service (*2) 2,570,777 - (3,990,801) 1,420, PT. Asuransi Hanjin Korindo 2,805, (53,962) 63,787 2,815,162 Ritzpartners Co.Ltd. (*2) 9,494,385 8,000,000 (14,253,422) (3,181,864) (59,099) - Meritz Business Service (*2) - 1,000,000 (1,399,600) 203, , ,238,600 9,000,000 (210,581,904) 11,924,007 2,234,459 2,815,162 58

60 2010 Equity in Other Beginning Acquisition earnings (loss) comprehensive Ending Companies balance (Disposal) Spin-off of investee income (loss) balance Meritz Securities Co., Ltd. 124,039,918 18,699,993 (2,896,492) 10,353, , ,752,293 Meritz Investment Bank 5,689,415 4,102,950-2,296, ,754 12,386,189 Meritz Assets Management 8,511,795 5,000,000 - (1,208,457) (73,719) 12,229,619 Meritz Financial Information Service 2,205, ,520-2,570,777 PT. Asuransi Hanjin Korindo 2,901, (322,175) 225,665 2,805,337 Ritzpartners Co., Ltd. - 10,000,000 - (505,615) - 9,494, ,348,232 37,802,943 (2,896,492) 10,978,591 1,005, ,238,600 (*1) Though the Company retired 10,360,714 shares of Meritz Investment Bank due to a merger between Meritz Securities Co., Ltd. and Meritz Investment Bank and acquired 7,458,336 shares of Meritz Securities Co., Ltd. by the merger ratio (1: ), those shares were transferred to Meritz Financial Group Inc. as a result of spin-off on March 25, (*2) The Company could not obtain financial statements of the investee under equity method as of March 25, 2011, spin-off date and accordingly, it used the financial statements as of March 31, The changes in the difference between the acquisition cost and proportionate net asset value of the investees at the time of acquisition (negative goodwill) for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Beginning balance Increase Amortization Spin-off Ending balance Meritz Securities Co., Ltd. (17,615,805) (489,247) 2,277,963 15,827,089 - Meritz Investment Bank (489,247) - 489, Meritz Business Service - 155,291 (70,709) (84,582) - (18,105,052) (333,956) 2,696,501 15,742, Beginning balance Increase Amortization Ending Balance Meritz Securities Co., Ltd. (7,880,768) (14,598,130) 4,863,093 (17,615,805) Meritz Investment Bank (364,644) (2,353,714) 2,229,111 (489,247) (8,245,412) (16,951,844) 7,092,204 (18,105,052) MERITZ INSURANCE ANNUAL REPORT

61 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 The condensed financial information of the investees under equity method as of and for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Companies Total assets Total liabilities Net asset value Operating income Net losses PT.ASURANSI HANJIN KORINDO 6,579,632 1,059,706 5,519, ,702 (105,808) 2010 Operating income Net income Companies Total assets Total liabilities Net asset value (losses) (losses) Meritz Securities Co., Ltd. 1,913,311,717 1,388,146, ,165,621 31,370,567 20,631,641 Meritz Investment Bank 1,722,318,400 1,569,525, ,792, ,062 3,061,415 Meritz Assets Management 12,692, ,375 12,229,619 (891,246) (1,259,369) Meritz Financial Information Service 7,810,232 5,239,455 2,570, , ,967 PT. Asuransi Hanjin Korindo 6,180, ,703 5,500, ,095 (631,715) Ritzpartners Co., Ltd. 9,513,482 19,097 9,494,385 (603,197) (505,615) 8. Loans The maturities of loans as of March 31, 2011 and 2010 are summarized as follows (Korean won in thousands): Within 1 year 68,713, ,902,617 1 year ~ 3 years 252,279, ,764,580 3 years ~ 5 years 150,276,689 77,087,784 Over 5 years 503,931, ,846,277 Total 975,200, ,601,258 As of March 31, 2011 and 2010, loans to the Company s directors and employees consist of the following (Korean won in thousands): Annual interest rate March 31, 2011 March 31, 2010 Loans related to housing 2.0% ~ 5.0% 11,263,977 12,303,096 11,263,977 12,303,096 60

62 The Company classifies its loans and other receivables into five different grades: "normal", "precautionary", "substandard", "doubtful" and "estimated loss", pursuant to the RIS and the Company s own classification criteria of assets. Details of the classification of the loans and other receivables as of March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Descriptions Normal Precautionary Substandard Doubtful Estimated loss Total Loans : Policy loans 298,475, ,475,932 Loans secured by real estate 263,542, ,000 3,169,958-3,234, ,439,392 Unsecured loans 24,390-6,828,000-1,651 6,854,041 Guaranteed loans 12,154,583 22, ,177,307 Other loans 369,067,232-5,004,000 13,183, ,254, ,265, ,724 15,001,958 13,183,020 3,236, ,200,924 Other receivables : Insurance receivables (*1) 44,868,366 24,249,178 2,751,220 3,089,246 3,303,955 78,261,965 Other accounts receivables 35,969,177 82, ,511 92,789 3,227,232 39,547,114 Accrued income (*2) 3,590,465 8, ,598,627 Trade notes receivables 446, ,858 Suspense payment , ,901 Dishonored notes , ,154 84,874,866 24,339,745 2,992,632 3,182,035 7,322, ,711,619 1,028,139,961 24,854,469 17,994,590 16,365,055 10,558,468 1,097,912, Descriptions Normal Precautionary Substandard Doubtful Estimated loss Total Loans : Policy loans 275,100, ,100,633 Loans secured by real estate 218,300,261 1,181,049 3,283,220-1,981, ,745,530 Unsecured loans 49, ,651 51,146 Guaranteed loans 13,501,603 15, ,516,613 Other loans 277,280,000 10,000, ,336 3,800, ,187, ,231,507 11,196,544 3,390,556 3,800,000 1,982, ,601,258 Other receivables : Insurance receivables (*1) 52,764,101 8,337,467 2,589,484 2,081, ,106 66,653,738 Other accounts receivables 25,204, , ,215 14,008 3,190,408 28,793,152 Accrued income (*2) 3,940,259 22, ,962,449 Trade notes receivables 384, ,534 Suspense payment ,159-9,196 70,355 Dishonored notes , ,154 82,293,344 8,639,728 2,754,858 2,095,588 4,871, ,655, ,524,851 19,836,272 6,145,414 5,895,588 6,854, ,256,640 MERITZ INSURANCE ANNUAL REPORT

63 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 (*1) The allowance for doubtful accounts is determined after netting insurance receivables against insurance payables by each counterparty pursuant to the RIS. (*2) The Company records accrued income for the accounts classified as normal or precautionary. And the Company does not provide an allowance for doubtful accounts for accrued income receivables from financial institutions. Details of allowance for doubtful accounts for the balances of loans and other receivables as of March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Normal Precautionary Substandard Doubtful Estimated loss Descriptions (0.5~0.75%) (2~5%) (20%) (50%) (100%) Total Loans 6,566,497 25,736 3,254,708 6,591,510 3,236,127 19,674,578 Insurance receivables 224,341 2,173, ,244 1,544,622 3,303,955 7,796,346 Other accounts receivables 179,845 1,648 35,102 46,394 3,227,232 3,490,221 Accrued income 17, ,114 Trade notes receivables 2, ,234 Suspense payments , ,856 Dishonored notes , ,154 6,990,868 2,200,731 3,872,910 8,182,526 10,558,468 31,805, Normal Precautionary Substandard Doubtful Estimated loss Descriptions (0.5~0.75%) (2~5%) (20%) (50%) (100%) Total Loans 5,167,840 1,959,826 1,336,120 2,850,000 1,982,651 13,296,437 Insurance receivables 263, , ,896 1,040, ,106 2,870,361 Other accounts receivables 126,022 5,601 20,842 7,004 3,190,408 3,349,877 Accrued income 19, ,143 Trade notes receivables 1, ,922 Suspense payments ,611-9,196 32,807 Dishonored notes , ,154 5,579,304 2,132,619 1,898,469 3,897,794 6,854,515 20,362,701 62

64 As of March 31, 2011 and 2010, the allowances for loans, by each type, are summarized as follows (Korean won in thousands): Policy loans 2,238,555 2,063,252 Loans secured by real estate 6,103,784 4,971,263 Unsecured loans 1,367,434 2,043 Guaranteed loans 92, ,012 Others 9,872,510 6,157,867 19,674,578 13,296,437 The ratio of allowance for doubtful accounts to total receivables as of March 31, 2011, 2010 and 2009 is as follows (Korean won in thousands): Descriptions Loans 975,200, ,601, ,228,679 Insurance receivables 122,711, ,655,382 52,984,210 1,097,912, ,256, ,212,889 Allowance for doubtful accounts 31,805,503 20,362,701 14,623,643 Allowance ratio 2.90% 2.25% 2.32% 9. Property and equipment Changes in net book value of property and equipment for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Beginning balance Additions Disposals Revaluation Depreciation Ending balance Land (*1) 399,662,047 (*2) 35,481-37,481, ,178,875 Buildings 255,182, , (7,636,490) 247,911,016 Furniture and equipment 14,106,017 14,970,592 (79,500) - (11,110,381) 17,886,728 Vehicles 27,817 - (9,338) - (18,475) 4 Construction in-progress 12,475,919 19,667, ,143, ,453,901 5,038,884 (88,838) 37,481,347 (18,765,346) 735,119,948 MERITZ INSURANCE ANNUAL REPORT

65 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Beginning balance Additions Disposals Depreciation Ending balance Land 399,244, , ,662,047 Buildings 262,126, ,394 - (7,626,341) 255,182,101 Furniture and equipment 14,320,698 10,031,751 (38,176) (10,208,256) 14,106,017 Vehicles 64, (36,486) 27,817 Construction in-progress 1,009,932 11,465, ,475, ,765,026 22,598,134 (38,176) (17,871,083) 681,453,901 (*1) The Company engaged Daeil Asset Appraisal Co., Ltd., an accredited independent appraiser to determine the fair value of its land under revaluation model. Fair value is determined by reference to market-based evidence. The valuation performed by the appraiser as of March 31, 2010 was based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. If the land was measured using the cost model, the carrying amounts would be as \164,360,783 thousand and \164,325,302 thousand at March 31, 2011 and 2010, respectively. Revaluation loss of \671,287 thousand and revaluation income of \8,616 thousand which is reverse of previously recognized revaluation decrease were recorded as non-operating expenses and income for the year ended March 31, 2011, respectively. The movements in accumulated other comprehensive income due to the revaluation are as follows (Korean won in thousands): Beginning balance 190,533, ,533,415 Increase in accumulated other comprehensive income by revaluation 38,144,018 - Adjustment of deferred income tax (8,391,684) - Ending balance 220,285, ,533,415 (*2) The condominium ownership classified as guarantee deposit was reclassified as property and equipment for the year ended March 31, The residual values of certain fully depreciated property and equipment which are still in use as of March 31, 2011 and 2010, amounted to \117,365 thousand and \87,720 thousand, respectively. The values of the Company s land, as determined by the government for tax administration purposes are as follows (Korean won in thousands): Book Value Value determined by the government Main Building 259,364, ,561, ,566, ,762,750 Yeouido Building 33,663,000 27,938,000 17,633,000 16,762,800 Annex of Main Building 31,501,680 31,501,680 18,136,629 18,136,629 Branch Office 21,836,337 23,032,152 16,932,135 16,874,034 Training Building 40,962,270 38,995,130 33,621,648 32,629,278 Other 49,851,378 49,633,165 25,358,217 25,310, ,178, ,662, ,247, ,475,988 64

66 The property and equipment are insured against fire and other damages. Details are as follows (Korean won in thousands): Insured amount Type Insured property Insurance Company Burglary insurance Cash and securities Dongbu Insurance Co.,Ltd. 1,250,000 1,226,000 Fire insurance Building Dongbu Insurance Co.,Ltd. 284,550, ,961,935 Property insurance Furniture and fixtures Dongbu Insurance Co.,Ltd. 37,954,974 29,481, ,755, ,669,921 In addition, the Company maintains package insurance for financial-institutions and general indemnity insurance for its directors and vehicles as of March 31, Intangible assets Details of intangible assets as of March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Acquisition cost Accumulated Amortization Book value Development cost 43,705,295 (9,604,334) 34,100,961 Other intangible assets 18,508,960 (9,904,092) 8,604,868 62,214,255 (19,508,426) 42,705, Acquisition cost Accumulated Amortization Book value Development cost 18,557,197 (7,663,649) 10,893,548 Other intangible assets 13,993,483 (6,946,129) 7,047,354 32,550,680 (14,609,778) 17,940,902 MERITZ INSURANCE ANNUAL REPORT

67 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Intangible assets Changes in intangible assets for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Beginning balance Purchases Spin-off Amortization (*) Ending balance Development cost 10,893,548 25,148,098 - (1,940,685) 34,100,961 Other intangible assets 7,047,354 11,315,477 (5,666,667) (4,091,296) 8,604,868 Total 17,940,902 36,463,575 (5,666,667) (6,031,981) 42,705, Beginning balance Purchases Amortization (*) Ending balance Development cost 5,686,571 6,848,054 (1,641,077) 10,893,548 Other intangible assets 6,513,365 2,562,729 (2,028,740) 7,047,354 Total 12,199,936 9,410,783 (3,669,817) 17,940,902 (*) Amortization is charged to operating expenses in the statement of income. Residual useful lives of the Company s intangible assets as of March 31, 2011 are summarized as follows (Korean won in thousands): Amount Residual useful lives Remarks Development cost 34,100,961 1~5 System development cost and others Other intangible assets 8,604,868 1~5 Software 42,705,829 66

68 11. Other assets Other assets as of March 31, 2011 and 2010 consist of the following (Korean won in thousands): Insurance receivables (Notes 8, 12, and 15) 109,009, ,325,521 Other account receivables (Note 8) 39,547,114 28,793,152 Leasehold deposits 92,460,798 93,555,790 Accrued income (Note 8) 39,047,253 27,498,791 Prepaid expenses 1,197,440 2,454,205 Compensation receivables (Note 13) 47,228,053 45,686,446 Derivative financial instrument assets (Note 27) 30,902,689 27,732,911 Other (Note 8) 8,275,531 3,954, ,668, ,000,918 (12,130,925) (7,066,264) 355,537, ,934, Insurance receivables Details of insurance receivables as of March 31, 2011 and 2010 are as follows (Korean won in thousands): Premiums receivable 5,064,432 7,826,996 Due from agents 189, ,927 Co-insurance receivables 9,492,847 8,976,122 Due from agency receivables 9,427,359 8,896,017 Re-insurance receivables 23,475,138 20,260,502 Overseas reinsurance receivables 58,220,970 50,785,365 Deposits on reinsurance contracts assumed 3,138,995 3,937, ,009, ,325,521 MERITZ INSURANCE ANNUAL REPORT

69 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Compensation receivables Changes in compensation receivables for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Beginning balance Increase(decrease) Ending balance General 22,831,144 (1,032,844) 21,798,300 Vehicles 22,399,784 2,211,492 24,611,276 Long-term 455, , ,670 Personal annuities ,686,446 1,541,607 47,228, Beginning balance Increase(decrease) Ending balance General 3,531,856 19,299,288 22,831,144 Vehicles 20,258,230 2,141,554 22,399,784 Long-term 316, , ,518 Personal annuities 176 (176) - 24,106,479 21,579,967 45,686, Deferred acquisition costs Changes in deferred acquisition costs for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Beginning balance Increase Decrease Ending balance Long-term insurance (Non-participating) 832,803, ,730,891 (306,171,353) 1,004,363,092 Personal annuities 8,186,541 4,579,056 (3,444,293) 9,321, ,990, ,309,947 (309,615,646) 1,013,684, Beginning balance Increase Decrease Ending balance Long-term insurance (Non-participating) 638,976, ,991,739 (307,164,879) 832,803,554 Personal annuities 6,632,414 4,349,710 (2,795,583) 8,186, ,609, ,341,449 (309,960,462) 840,990,095 68

70 15. Monetary assets and liabilities denominated in foreign currencies Monetary assets and liabilities denominated in foreign currencies as of March 31, 2011 and 2010 are summarized as follows (Korean won in thousands and US dollars, Euros and Japanese Yen in unit): Foreign Equivalent Gain (loss) on Foreign Equivalent Gain (loss) on currencies Korean won translation currencies Korean won Translation [ Assets ] Insurance receivables: USD 35,811,834 39,650,862 (821,391) 36,937,236 41,768,625 (2,434,082) EUR 10,812,015 16,904, ,634 39,433 59,867 (6,459) YEN 3,507,682 46,718 (14,917) 670,306 8, Other - 744,602 (1,336) - 226,428 (24,002) 57,346,551 (631,010) 42,063,082 (2,464,425) Deposits: USD 43,636,367 48,314,184 (1,019,183) 41,203,664 46,593,101 (9,881,860) EUR 33,875 52,963 (240) 49,026 74,432 (7,610) YEN 54, (24) 51, (45) GBP 7,043 12,531 (323) 21,337 36,380 (3,140) 48,380,406 (1,019,124) 46,704,538 (9,892,655) Overseas securities: USD 437,087, ,943,649 (256,968) 378,173, ,638,609 (12,158,229) YEN 1,180,654,734 15,725,022 1,674,596 1,519,873,279 18,507,193 (1,907,961) 499,668,671 1,417, ,145,802 (14,066,190) 605,395,628 (232,506) 534,913,422 (26,423,270) [ Liabilitie ] Insurance payable: USD 7,765,331 8,597, ,220 11,463,412 12,962, ,278 EUR (1,279) (1,999) (636) 105, ,965 15,637 YEN 1,983,675 26,420 1,170 1,450,801 17, Other 104,783 1,107-51,487 3,645 8,726, ,861 13,191, ,050 MERITZ INSURANCE ANNUAL REPORT

71 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Insurance reserves The Company maintains its policy reserves as a liability in accordance with the IBA and the RIS. Changes in policy reserves by policy type for the years ended March 31, 2011 and 2010 are summarized as follows (Korean won in thousands): 2011 Beginning balance Increase Decrease Ending balance Long-term insurance premium reserve: Long-term 3,287,626, ,392,464-4,169,018,754 Personal annuities 613,941,095 58,927, ,868,343 3,901,567, ,319,711-4,841,887,096 Reserve for outstanding claims: General(*1) 177,313,507-37,074, ,239,290 Vehicles 146,306,602-2,552, ,754,500 Long-term 144,018,224 25,864, ,882,711 Personal annuities 3,540, ,786-3,785,151 Reinsurance (104,963,112) - (6,914,469) (98,048,643) 366,215,586 26,109,273 32,711, ,613,009 Unearned premium reserve: General 161,885,262-3,446, ,438,590 Vehicles 305,559,184 60,210, ,769,334 Long-term 3,937,966-1,217,460 2,720,506 Personal annuities 19,486-6,871 12,615 Reinsurance (93,687,843) - (8,532,724) (85,155,119) 377,714,055 60,210,150 (3,861,721) 441,785,926 Reserve for participating policyholders' dividends: Personal annuities 40,444,092 5,054,390-45,498,482 Retirement insurance 505, , ,413 40,949,713 5,054, ,208 45,765,895 Excess participating policyholders' dividends: Personal annuities 10,253, ,704-10,588,458 Retirement insurance 249, ,228 19,723 10,503, , ,228 10,608,181 Reserve for loss from participating insurance: Personal annuities - 2,459,094-2,459,094 4,696,950,444 1,034,487,322 29,318,565 5,702,119,201 70

72 2010 Beginning balance Increase Decrease Ending balance Long-term insurance premium reserve: Long-term 2,701,242, ,383,346-3,287,626,290 Personal annuities 561,411,767 52,529, ,941,095 3,262,654, ,912,674-3,901,567,385 Reserve for outstanding claims: General (*1) 431,733, ,419, ,313,507 Vehicles 155,652,870-9,346, ,306,602 Long-term 108,159,518 35,858, ,018,224 Personal annuities 3,794, ,606 3,540,365 Reinsurance (212,118,109) - (107,154,997) (104,963,112) 487,222,665 35,858, ,865, ,215,586 Unearned premium reserve: General 157,987,133 3,898, ,885,262 Vehicles 336,164,003-30,604, ,559,184 Long-term 2,922,097 1,015,869-3,937,966 Personal annuities 14,367 5,119-19,486 Reinsurance (93,914,610) - (226,767) (93,687,843) 403,172,990 4,919,117 30,378, ,714,055 Reserve for participating policyholders' dividends: Personal annuities 33,812,020 6,632,072-40,444,092 Retirement insurance 372, , ,621 34,184,264 6,765,449-40,949,713 Excess participating policyholders' dividends: Personal annuities 9,136,281 1,117,473-10,253,754 Retirement insurance 278,585-28, ,951 9,414,866 1,117,473 28,634 10,503,705 4,196,649, ,573, ,272,471 4,696,950,444 (*1) The Company entered into Refund Guarantee ( RG ) Insurance contracts with Asia Heavy Industries, Jinse Shipbuilding, C& Heavy Industries amounting to US$15 million and EUR 16 million, US$114 million, US$100 million, respectively. As of March 31, 2011, the Company does not maintain any reserve for outstanding claims with respect to the RG insurance contracts due to the completion of payment of claim for which it reserved?34 billion as the reserve for outstanding claims excluding reinsurance and compensation as of March 31, MERITZ INSURANCE ANNUAL REPORT

73 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 Changes in catastrophe reserves for the years ended March 31, 2011 and 2010 are summarized as follows (Korean won in thousands): 2011 Beginning balance Increase Decrease Ending balance General 39,571,505 13,247,671-52,819,176 Vehicles 79,866,713 - (1,933,632) 77,933, ,438,218 13,247,671 (1,933,632) 130,752, Beginning balance Increase Decrease Ending balance General 33,818,807 5,752,698-39,571,505 Vehicles 71,987,756 7,878,957-79,866, ,806,563 13,631, ,438, Separate accounts The Company manages retirement insurance contracts and retirement pension contracts separately from the general account. Financial information of separate accounts as of and for the years ended March 31, 2011 and 2010 is as follows (Korean won in thousands): Assets Cash and deposits: Ordinary deposits 762, ,685 Other deposits 19,430,000 42,176,000 20,192,097 42,415,685 Marketable securities: Stocks 1,533,231 1,423,758 Bonds 28,430,998 31,678,137 Beneficiary certificates 78,319,370 64,250,860 Overseas securities 6,685,422 6,902,098 Other securities 33,527,261 33,072, ,496, ,327,258 Loans: Other loans 7,000,000 26,000,000 Allowance for doubtful accounts (63,000) (130,000) 6,937,000 25,870,000 [ Continued ] 72

74 Other assets: Other accounts receivable 15,977 8,828 Accrued income 652,540 2,112,853 Accrued dividends 6,192 5,761 Prepaid expenses 141,703 - Prepaid income taxes - 118,241 Derivative financial instruments assets 101,058 2,559, ,470 4,805,601 Due from general accounts 8,491,735 4,539, ,034, ,957,652 Less due from general accounts (8,491,735) (4,539,108) Separate account assets 176,542, ,418,544 Liabilities Other liabilities: Other accounts payable 95,211 21,042 Accrued expenses 893,050 1,238,105 Unearned income 285, ,422 Withholdings 15,736 - Accrued income taxes ,290,066 1,621,607 Due to general account 50, ,164 1,340,235 2,252,771 Reserve Reserve for policyholders: Premium reserve 183,380, ,211,216 Reserve for participating policyholders' dividend 124,434 1,011,082 Excess participating policyholders dividend reserve 55, ,296 Retained earnings for non-dividend 83,208 (35,520) Accumulated other comprehensive income 50,913 60, ,643, ,644, ,034, ,957,652 Less due to general account (50,170) (631,164) Less accumulated other comprehensive income (50,913) (60,807) Separate account liabilities 184,933, ,265,681 [ Continued ] MERITZ INSURANCE ANNUAL REPORT

75 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Income (*1): Premium income 132,534,043 59,713,191 Interest income 3,450,833 7,890,364 Dividend income 2,126, ,057 Gain on disposal of securities 3,527, ,718 Gain on valuation of securities 1,362,079 4,105,870 Gain on foreign currency transactions 2,255,000 26,311 Gain on transaction of derivative financial instruments 279,724 20,226 Gain on valuation of derivative financial instruments 101,058 2,393,700 Other income 2,732, , ,369,063 75,500,329 Expenses (*1): Provision (reversal) for policyholders reserve (29,000,638) 4,735,443 Claims paid 170,499,555 64,604,452 Separate account operating fees 926,838 1,182,750 Taxes and dues 253,022 1,011,197 Bad debt expense 63, ,000 Property management fee 124,462 92,884 Loss on disposal of securities 1,029, ,504 Loss on valuation of securities 1,709, ,307 Loss on foreign currency transactions 466,168 2,619,45 Interest expense 66,059 36,257 Loss on transaction of derivative financial instruments 2,231,074 - Other expense ,369,063 75,500,329 (*1) Income and expenses on the retirement pension policies bearing dividend on the basis of actual results, amounted to \1,332,707 thousand and \1,303,580 thousand for the years ended March 31, 2011 and 2010, respectively, which are not stated in the statement of income for general account. 74

76 18. Insurance accounts payable Details of insurance accounts payables as of March 31, 2011 and 2010 are as follows (Korean won in thousands): Claims payables 28,680,077 32,839,896 Due to agents 36,849,874 27,168,966 Premiums refund payables 9,765,025 6,996,381 Due to agency business 9,289,004 6,558,052 Reinsurance payables 26,112,019 23,655,391 Overseas reinsurance payables 10,150,674 15,252,602 Deposits on reinsurance contracts ceded 557, , ,403, ,342, Severance and retirement benefits Changes in severance and retirement benefits for the years ended March 31, 2011 and 2010 are summarized as follows (Korean won in thousands): Beginning balance 7,255,367 1,747,068 Transfer due to spin-off (84,330) - Payments during the year (1,511,035) (3,360,625) Provision during the year 9,310,303 8,868,924 Ending balance 14,970,305 7,255,367 Less deposits for retirement insurance (12,900,597) (6,694,123) 2,069, ,244 MERITZ INSURANCE ANNUAL REPORT

77 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Other liabilities Other liabilities as of March 31, 2011 and 2010 consist of the following (Korean won in thousands): Other accounts payables (Note 35) 25,609,818 24,420,980 Accrued expenses 61,370,902 55,376,272 Deferred income tax liabilities (Note 29) 72,180,604 58,729,058 Income tax payable 11,839,830 17,456,596 Leasehold deposits withheld (Note 35) 15,619,639 16,121,516 Derivative financial instrument liabilities (Note 27) 25,946,825 32,473,683 Other 4,450,369 5,878, ,017, ,456, Contingencies and significant contracts Re-insurance agreements The Company and 19 other non-life insurance companies are engaged in mutual insurance agreements, which secure a part of their total insured amounts. These insured amounts are additionally re-insured by Korean Reinsurance Company and any remaining amounts not covered by Korean Reinsurance Company are re-insured by Munich Re Insurance Company and other foreign insurance companies. In accordance with the reinsurance agreements, the Company receives or pays commissions from/to Korean Reinsurance Company and foreign reinsurance companies. Outstanding litigation The Company is involved in litigation as a defendant with an aggregate claim amount of \53 billion arising in the normal course of its business related to policy coverage and claims disputes. The Company has provided reserves amounting to 35 billion for the possible estimated losses resulting from such litigation as of March 31, Bank overdraft accounts agreement The Company has opened bank overdraft accounts with Woori Bank and other banks (within the limit of?1,900 million) and one-day bank overdraft accounts (within the limit of?13,000 million) as of March 31,

78 22. Equity Details of capital stock as of March 31, 2011 and 2010 are as follows (Korean won in unit): Number of common shares authorized 200,000, ,000,000 Par value Number of common shares issued and outstanding 87,269, ,800,000 Capital stock 43,634,845,000 61,900,000,000 Changes in number of common shares, capital stock and paid-in capital in excess of par vale for the recent 2 years are as follows (Korean won in thousands): Number of common shares Capital stock Paid-in capital in excess of par value ,800,000 61,900, ,830, ~ ,800,000 61,900, ,830,408 Spin-off (*1) (36,530,310) (18,265,155) (65,751,723) ,269,690 43,634, ,078,685 (*1) The company completed spin-off on March 25, 2011 (see Note 34). In accordance with the Korean Asset Revaluation Act and the Insurance Business Act, the Company revalued its land and buildings in 1976 and 1994, resulting in a revaluation gain of?41,737 million, net of revaluation tax, which was offset entirely against the accumulated deficit in In addition, the Company revalued its land and buildings in 1998, resulting in a revaluation gain of?9,555 million, which was recorded as revaluation surplus in the capital surplus as of March 31, As of March 31, 2011 and 2010, capital adjustments consist of the following (Korean won in thousands): Treasury stock (*2) - (122,712,317) Stock option (Note 32) 6,126,759 6,126,759 Other capital adjustment (Note 34) (257,061,723) - (250,934,964) (116,585,558) (*2) All the shares of treasury stock that the Company owned as of March 31, 2010 and the shares of Meritz financial Group Inc. that the Company would acquire as a result of spin-off of the treasury stock by the spin-off ratio were transferred to Meritz Financial Group Inc. MERITZ INSURANCE ANNUAL REPORT

79 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 As of March 31, 2011 and 2010, accumulated other comprehensive income consists of the following (Korean won in thousands): Valuation loss for available-for-sale securities, net (Note 5) 30,265,269 (8,449,064) Gain (loss) on valuation of derivative financial instruments (Note 27) 15,105,604 7,320,209 Equity adjustment arising from equity method investments, net (Note 7) (31,773) 11,672,059 Revaluation surplus (Note 9) 220,285, ,533,415 Equity adjustment of separate account 50,913 60, ,675, ,087,426 As of March 31, 2011 and 2010, retained earnings consist of the following (Korean won in thousands): Legal reserve (*3) 13,840,000 10,640,000 Voluntary reserve 251,900, ,700,000 Retained earnings before appropriations 121,013, ,435, ,753, ,775,042 (*3) 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. 23. Reinsurance Details of ceded reinsurance transactions for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Reinsurance Cash surrender Reinsurance Reinsurance claims premium ceded value recovered claims returned General 184,616,924 (1,689,398) 122,521,931 (14,902,626) Vehicles 901,477 (117) 1,854,348 - Long-term 41,175,339 (39,668) 37,524,487 (179,236) Personal annuities 601,982 (129) 397,544 (347) 227,295,722 (1,729,312) 162,298,310 (15,082,209) 78

80 2010 Reinsurance Cash surrender Reinsurance Reinsurance claims premium ceded value recovered claims returned General 206,595,705 (1,597,594) 201,597,536 (5,264,741) Vehicles 679,748 (332) 706,395 - Long-term 44,636,087 (29,580) 44,847,540 (180,114) Personal annuities 629,762 (533) 438,730 (1,035) 252,541,302 (1,628,039) 247,590,201 (5,445,890) 24. Premium income Details of premium income for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Direct premium Assumed reinsurance written premium Surrenders Total General 299,662,472 20,508,727 (5,117,962) 315,053,237 Vehicles 776,212,808 - (35,529,993) 740,682,815 Long-term 2,673,987, ,673,987,483 Personal annuities 86,213, ,213,329 3,836,076,092 20,508,727 (40,647,955) 3,815,936, Direct premium Assumed reinsurance written premium Surrenders Total General 321,897,074 21,703,197 (3,398,554) 340,201,717 Vehicles 691,775,719 - (34,516,529) 657,259,190 Long-term 2,196,831, ,196,831,772 Personal annuities 77,544, ,544,284 3,288,048,849 21,703,197 (37,915,083) 3,271,836,963 MERITZ INSURANCE ANNUAL REPORT

81 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Operating expenses Details of operating expenses for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): Wages and salaries 141,327, ,848,946 Provision for retirement and severance benefits (*1) 12,696,537 11,868,211 Other employee benefits 24,018,168 21,576,722 Administrative expenses 190,740, ,712,880 Amortization of intangible assets 6,031,983 3,669,817 Acquisition and collection expenses 67,675,175 61,282,517 Agent commissions 73,729,406 80,082,146 Co-insurance commissions 770, ,115 Agency business commissions 224, ,815 Claim inspection expenses 34,822,617 26,030,435 Assumed reinsurance commissions 2,076,649 3,188,281 Profit commissions paid for assumed reinsurance 184, ,220 Interest on ceded reinsurance deposits 16, , ,314, ,578,162 (*1) It includes provision for severance and retirement benefits paid under the DC plan, amounting to \3,523,542 thousand and \3,123,913 thousand for the years ended March 31, 2011 and 2010, respectively. 26. Value-added information Details of value-added information for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands) nvestment administration Operating expenses Expenses Total Wages and salaries 141,327, ,848,946 2,333,847 1,843, ,660, ,692,222 Retirement and 12,696,537 11,868, , ,428 12,894,878 11,992,639 severance benefits Other employee Benefits 24,018,168 21,576, , ,474 24,272,433 21,801,196 Rental expenses 25,602,764 22,778,334 36,435 19,471 25,639,199 22,797,805 Depreciation (*1) 14,729,620 13,655,538 62,136 59,178 14,791,756 13,714,716 Taxes and dues 17,403,514 16,917,144 8,340,853 7,314,834 25,744,367 24,231, ,777, ,644,895 11,225,877 9,585, ,003, ,230,556 (*1) Depreciation of real estate for the years ended March 31, 2011 and 2010 amounting to \3,973,590 thousand and \4,174,474 thousand, respectively, is not included therein. 80

82 27. Derivative contracts Details of derivative contracts as of March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Amount Valued Total Notional amount Trading purpose Hedging Purpose Unrealized losses (I/S) Total Trading purpose Hedging Purpose Unrealized gains (losses) on valuation (B/S) (*1) Currency Currency 1,852, ,198,759 22,780,640 91,418,119 1,523, ,249 1,370,541 - related forwards Currency 8,208, ,792,148 60,896, ,896,148 2,926,261 2,247, ,221 19,435,480 swaps 10,060, ,990,907 83,676, ,314,267 4,450,051 2,400,289 2,049,762 19,435,480 Index Stock price - 21,839,000 21,839, related index futures 10,060, ,829, ,515, ,314,267 4,450,051 2,400,289 2,049,762 19,435, Amount Valued Total Notional amount Trading purpose Hedging Purpose Unrealized losses (I/S) Total Trading purpose Hedging Purpose Unrealized gains (losses) on valuation (B/S) (*1) Currency Currency 4,170,224 62,420,001 17,346,472 45,073,529 5,588,018 1,690,845 3,897, ,338 related forwards Currency (9,112,500) 427,526,826 62,194, ,332,826 14,514,791 11,370,644 3,144,147 8,508,978 swaps (4,942,276) 489,946,827 79,540, ,406,355 20,102,809 13,061,489 7,041,320 9,266,316 Interest rate Interest rate 201,504 10,000,000-10,000, ,504 related swaps (4,740,772) 499,946,827 79,540, ,406,355 20,102,809 13,061,489 7,041,320 9,467,820 (*1) Unrealized gains (losses) on derivative is before deferred income tax adjustments. The Company has been basically using the derivative financial instruments only as a tool for risk hedge. In this regard, the Company has entered into currency forward contracts and currency swap contracts to hedge against foreign currency fluctuation and interest rate fluctuation of deposits and securities denominated in foreign currencies, and interest rate swap contracts to hedge against interest rate fluctuation of domestic debt securities. MERITZ INSURANCE ANNUAL REPORT

83 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 It is expected that cash flow fluctuation risk of the Company s derivative financial instruments with the purpose of cash flow hedge accounting as of March 31, 2011 are exposed up to April 17, In addition, of the unrealized loss on valuation of derivative financial instruments which recorded in other comprehensive income, \171,030 thousand is expected to be realized and charged to current operation within one year. As of March 31, 2011, the Company has entered into currency swap contracts of \33,216,000 thousand (\23,850,104 thousand as of March 31, 2010) and currency forward contracts of \91,418,119 thousand (\34,322,403 thousand as of March 31, 2010) to hedge the exposure to changes in the fair value of overseas securities by foreign exchange rate fluctuation. Fair vale hedge accounting is applied to all of the derivative contracts above and unrealized gains (losses) on valuation of the derivative financial contracts are recorded in the net income. Meanwhile, of unrealized gains (losses) on valuation of the correspondent hedged overseas securities, gains (losses) on foreign currency translation are recorded in the net income. As of March 31, 2011, the Company has entered into currency swap contracts of \324,680,148 thousand (currency swap contracts of \341,482,722 thousand and currency forward contracts of \10,751,126 thousand as of March 31, 2010) to hedge the exposure to variability of cash flows of overseas securities by foreign exchange rate fluctuation and interest rate fluctuation. Cash flow hedge accounting is applied to all of the derivative contracts above and the hedge-effective portion of unrealized gains (losses) on valuation of the derivative contracts are recorded in the other comprehensive income. Cumulative valuation gains (losses) of all derivative contracts are accounted for as derivative financial instrument assets (liabilities) in the statement of financial position. Credit derivative contracts The Company invests in Credit Linked Notes (CLN) which had a book value of \103,405,837 thousand as of March 31, 2011 (\110,724,544 thousand as of March 31, 2010). Through these investments, the Company takes the credit risks of underlying assets, such as corporate bonds constituting CLNs, but earns interest higher than the market rates. However, there could be a loss resulting from changes in the credit status of the underlying assets. CLNs are recorded at fair value, which is obtained from independent credit rating agencies without bifurcating credit default swap embedded in the credit derivative contracts. Embedded derivative contracts The Company invests in structured deposit which contains embedded derivative contracts, which are bifurcated from the host contract and accounted for as separate derivatives. In this regard, the Company recorded derivative financial instrument liability amounting to \5,105,100 thousand and recognized gain on valuation of derivative financial instruments amounting to \225,900 thousand for the year ended Other operating expenses Other operating expenses for the years ended March 31, 2011 and 2010 consist of the following (Korean won in thousands): Dividends to policyholders 3,137,562 2,553,178 Loss on valuation and disposal of loans - 4,998,739 Investment administration expenses 27,714,652 18,279,677 Real estate administration expenses 5,051,558 5,224,352 Depreciation of real estate 3,973,590 4,174,474 Other 80,055 50,054 39,957,417 35,280,474 82

84 29. Income tax For the year ended March 31, 2011, the Company is subject to corporate income taxes, including resident surtax, at the aggregate rates of 11% on taxable income of up to \200,000 thousand and 24.2% on taxable income in excess of \200,000 thousand. The aggregate tax rate will be 24.2% in 2011 and 2010 and thereafter on taxable income in excess of \200,000 thousand. The major components of income tax expenses for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): Current income taxes 33,207,139 39,123,359 Tax effect on temporary differences 24,596,813 42,039,976 57,803,952 81,163,235 Current and deferred income taxes recognized directly to equity (22,425,748) (34,409,705) Provision for income taxes 35,378,204 46,753,530 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 is as follows (Korean won in thousands): Income before income taxes (A) 156,327, ,160,844 Tax at the statutory income tax rate 37,831,213 45,292,924 Adjustments: Non taxable income (49,268) (290,277) Non deductible expense 557, ,998 Other (2,961,424) 1,440,885 Income tax expense (B) 35,378,204 46,753,530 Effective income tax rate (B)/(A) 22.63% 24.98% MERITZ INSURANCE ANNUAL REPORT

85 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 Changes in deferred income tax assets and liabilities for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands): 2011 Beginning balance Increase(*1) Decrease (*1) Spin-off (*2) Ending balance Deductible temporary differences: Loss on impairment of available- 41,946,442 17,316,231 10,769,287-48,493,386 for-sale securities Loss on impairment of membership 1,091, , ,126 Allowance for bad debts 5,603,448 4,370,619 5,603,448-4,370,619 Loss on revaluation of land 8,936, , ,599,535 Retirement of stock 2, ,095 Deemed dividends 543, , ,279 Severance and retirement benefits 5,078,757 5,400,457-10,479,214 - Taxes and dues 7,701,986 8,372,116 7,701,986-8,372,116 Depreciation 275,110 61, ,245 Deemed depreciation 224, ,906-70,144 Interest income 92,990-92, Dormant policies 8,914,863 10,449,961 8,914,863-10,449,961 Contribution - 67, ,992 Retained earning adjustments arising 1,002, ,002,905 - from equity method investments Dividends (equity method investments) 17,384, ,384,004 - Loss on valuation of derivatives 14,828,756 (4,638,022) 336,520-9,854,214 Accumulated other comprehensive 7,798,708 (48,212,666) - - (40,413,958) income (available-for-sale securities) 121,425,302 (6,148,996) 33,799,429 28,866,123 52,610,754 Additional temporary differences: Accrued income 1,054,533 17,043,528 1,054,533-17,043,528 Gain on valuation of the trading securities 4,191, ,413 3,333,690-1,174,228 Gain on foreign currency translation 9,628,854 (4,644) (3,937,706) - 13,561,916 Gain on cross trading 1,797, ,797,966 - Group severance and retirement benefits 5,078,757 6,064, ,212 10,479,214 - Equity in earnings of equity method 55,961,881 11,943,192-66,003,132 1,901,941 investments Equity adjustments arising from equity 14,964,178 2,234,459-17,239,371 (40,734) method investments Accumulated depreciation 631, ,995 Accumulated other comprehensive income 244,273,609 38,144, ,417,627 (gain on revaluation of land) Separate account (accumulated 60,807-9,894-50,913 other comprehensive income [ Continued ] 84

86 2011 Beginning balance Increase(*1) Decrease (*1) Spin-off (*2) Ending balance Accumulated other comprehensive 9,467,820 9,967, ,435,480 income (gain on valuation of derivatives) Other additional capital surplus 4,490, ,896 5,131, (treasury stock fund) Compensation receivables 45,686,446 1,541, ,228,053 Land 278, ,328 Advanced depreciation provisions 1,581, ,581, ,148,316 87,891,798 6,255,829 95,519, ,264,602 Deferred income tax assets 27,032,088 20,947,558 recognized (*3) Deferred income tax liabilities (85,761,146) (93,128,162) recognized (*3) (58,729,058) (72,180,604) 2010 Beginning balance Increase(*1) Decrease(*1) Ending balance Deductible temporary differences: Loss on impairment of available-for-sale 39,356,032 2,590,410-41,946,442 Securities Loss on impairment of membership 917, ,764-1,091,065 Allowance for bad debts 4,973,502 1,225, ,091 5,603,448 Loss on revaluation of land 8,936, ,936,864 Retirement of stock 2, ,095 Deemed dividends 254, ,215 19, ,255 Severance and retirement benefits 1,531,114 6,692,314 3,144,671 5,078,757 Taxes and dues 10,820,703 7,701,985 10,820,702 7,701,986 Depreciation - 275, ,110 Deemed depreciation - 494, , ,050 Interest income - 92,990-92,990 Dormant policies 8,312,494 8,914,863 8,312,494 8,914,863 Retained earning adjustments arising from 1,002, ,002,905 equity method investments Available-for-sale securities Dividends (equity method investments) 14,487,516 2,896,492-17,384,008 Restructured receivables 984, ,875 - Loss on valuation of derivatives 60,159,391 (20,102,809) 25,227,826 14,828,756 Accumulated other comprehensive income 115,729, ,930,682 7,798,708 (available-for-sale securities) Tax loss carry-forwards 9,210,683 14,784,616 23,995, ,679,324 26,047, ,301, ,425,302 [ Continued ] MERITZ INSURANCE ANNUAL REPORT

87 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Beginning balance Increase(*1) Decrease(*1) Ending balance Additional temporary differences: Accrued income 10,350,180 2,784,301 12,079,948 1,054,533 Gain (loss) on valuation of the trading securities (4,010,940) 1,847,295 (6,355,150) 4,191,505 Gain on foreign currency translation 57,200,756 (14,167,008) 33,404,894 9,628,854 Gain on cross trading 1,797, ,797,966 Group severance and retirement benefits 1,531,114 5,078,757 1,531,114 5,078,757 Equity in earnings of equity method investments 44,983,290 10,978,591-55,961,881 Equity adjustments arising from equity 13,958,851 1,005,327-14,964,178 method investments Accumulated depreciation 631, ,995 Accumulated other comprehensive income 244,273, ,273,609 (gain on revaluation of land) Separate account (accumulated other - 60,807-60,807 comprehensive income Accumulated other comprehensive income (30,328,258) 39,796,078-9,467,820 (gain on valuation of derivatives) Other additional capital surplus 2,756,482 1,733,828-4,490,310 (treasury stock fund) Compensation receivables 24,111,523 21,574,923-45,686,446 Land 278, ,328 Advanced depreciation provisions 1,581, ,581, ,116,223 70,692,899 40,660, ,148,316 Deferred income tax assets recognized (*3) 71,132,962 27,032,088 Deferred income tax liabilities recognized (*3) (87,822,044) (85,761,146) (16,689,082) (58,729,058) (*1) The income tax effect of temporary differences at the beginning of the period, reflects the results of the actual tax return filing. (*2) The Company transferred deferred income tax liabilities amounting to \11,145,268 thousand to Meritz Financial Group Inc. due to the spin-off. (*3) Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 86

88 Temporary differences, not recognized as deferred income tax assets (liabilities) as of March 31, 2011 and 2010 are as follows (Korean won in thousands): Advanced depreciation provision of land (*1) 1,581,327 1,581,327 Retained earning adjustments arising from equity method investments - 300,871 Dividends (on equity method investments) - 5,215,201 Equity in earnings of equity method investments (*2) - (10,059,868) 1,581,327 (2,962,469) (*1) Tax effect is not recognized since there is no possibility of disposal in the foreseeable future. (*2) Tax effect is not recognized since temporary differences are not likely to be extinguished in the foreseeable future. Deferred income tax assets (liabilities) directly charged/credited to the equity as of March 31, 2011 and 2010 are as follows (Korean won in thousands): Gross Tax effect Net of tax Gross Tax effect Net of tax Gain (loss) on valuation of available-for- 38,662,533 8,397,264 (8,397,264) (11,208,133) (2,709,069) 2,709,069 sale securities (*1) Gain on valuation of derivatives 19,435,480 4,329,878 (4,329,878) 9,467,820 2,147,611 (2,147,611) Equity adjustments arising from equity (40,734) (8,961) 8,961 14,964,178 3,292,119 (3,292,119) method investments Revaluation surplus 282,417,627 62,131,878 (62,131,878) 244,273,609 53,740,194 (53,740,194) Capital surplus on treasury stock fund ,490, ,868 (987,868) 340,474,906 74,850,059 (74,850,059) 261,987,784 57,458,723 (57,458,723) (*1) Deferred income tax assets of gain on valuation of the available-for-sale securities as of March 31, 2011 include tax effect amounting to \12,321 thousand (\14,715 thousand in 2010) caused by separate account. MERITZ INSURANCE ANNUAL REPORT

89 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Comprehensive income Comprehensive income for the years ended March 31, 2011 and 2010 is as follows (Korean won in thousands): Net income 120,949, ,407,315 Other comprehensive income: Gain on valuation of available-for-sale securities 38,764,333 82,943,418 Gain on valuation of derivatives 7,785,393 30,976,250 Equity adjustments arising from equity method investments (11,703,831) 784,155 Revaluation surplus 29,752,334 - Separate account other comprehensive income (9,894) 60,807 Comprehensive income 185,537, ,171, Earnings per share Basic earnings per share for the years ended March 31, 2011 and 2010 are computed as follows (Korean won in unit): Net income 120,949,124, ,407,314,795 Weighted average number of common stocks outstanding 106,778, ,567,843 Earnings per share 1,133 1,318 Weighted average number of common stocks outstanding for the years ended March 31, 2011 and 2010 is computed as follows: Beginning 106,567, ,567,843 Disposal of treasury stock (*1) 602,435 - Capital reduction caused by spin-off (*2) (391,399) - Weighted average number of common stocks outstanding 106,778, ,567,843 (*1) 1,110,550 shares X (198/365) = 602,435 shares (*2) (36,530,310 shares - 16,121,607 shares) X (7/365) = 391,399 shares 88

90 Diluted earnings per share for the years ended March 31, 2011 and 2010 are computed as follows (Korean won in unit): Net income of common stock 120,949,124, ,407,314,795 Compensation costs (after tax) - - Diluted net income 120,949,124, ,407,314,795 Weighted average number of diluted common stocks Outstanding 107,214, ,710,625 Diluted earnings per share 1,128 1,316 Weighted average number of diluted common stocks outstanding for the years ended March 31, 2011 and 2010 are as follows: Weighted average number of common stocks outstanding 106,778, ,567,843 Stock options 435, ,782 Weighted average number of diluted common stocks Outstanding 107,214, ,710,625 (*) Weighted average number of diluted common stocks outstanding was calculated by treasury stock methods. Potential dilutive securities as of March 31, 2011 are as follows. Type Exercisable period Number of shares to be issued Stock options From June 16, 2008 to June 15, ,491,278 shares MERITZ INSURANCE ANNUAL REPORT

91 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Stock options As of March 31, 2011, total stock options granted are summarized as follows: Number of stock options granted 1,491,278 shares Date of grant June 15, 2006 Method of grant New stock, treasury stock or difference compensation Exercise price 5,780 Exercisable period June 16, 2008 ~ June 15, 2016 Vesting conditions Minimum required service period: 2 years Achievement of the target net income 3rd Changes in the number of stock options granted for the year ended March 31, 2011 are as follows (unit: shares): 3rd April 1, ,491,278 Forfeited or expired - Exercised - March 31, ,491,278 Stock price was calculated based on the price at date of grant (3rd: \8,800) using the Black-Scholes Option Pricing Model. The compensation cost consists of the following (Korean won in thousands): 3rd Compensation cost recognized until March 31, ,126,759 Compensation cost recorded for the year - To be recognized in the future years - 6,126,759 90

92 Details of assumptions used to calculate compensation costs are as follows: 3rd Risk free interest rate 5.35% Expected life of option 2.16 years Expected stock volatility 49.36% Expected dividend ratio 20.00% Expected ratios of non-exercise 0.00% Weighted average exercise price 5,780 Weighted average fair value of stock option 4, Dividends Year-end dividends for the years ended March 31, 2011 and 2010 are as follows (Korean won in unit): Dividend per share (percentage of par) 450(90%) 300(60%) Number of shares issued and outstanding, excluding treasury stock 87,269, ,567,843 Total dividends 39,268,181,700 31,970,352,900 Dividend payout ratios for the years ended March 31, 2011 and 2010 are as follows (Korean won in unit): Dividends 39,268,181,700 31,970,352,900 Net income 120,949,124, ,407,314,800 Payout ratios 32.47% 22.77% MERITZ INSURANCE ANNUAL REPORT

93 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 Dividend yields for the years ended March 31, 2011 and 2010 are as follows (Korean won in unit): Dividend per share Stock price at the reporting date 10,350 7,350 Price-dividend yields 4.35% 4.08% 34. Business spin-off In accordance with a resolution at extraordinary shareholders meeting held on January 11, 2011, the Company has spun off its investment business segment on March 25, 2011 and established new company, Meritz Financial Group Inc. whose common shares newly issued as a result of the spin-off were listed at KRX on March 28, Such spin-off has been done in order to let the Company focus on insurance business for competitiveness reinforcement as well as to enhance a transparency for its governance by incorporating a financial holding company. Details are as follows: Type of spin-off The Company established a new company, Meritz Financial Group Inc., spinning off its investment business sector in accordance with the procedures stated in the articles from to in Korean Commercial Code. In this regard, the Company s shareholders became the shareholders of Meritz Financial Group Inc. by virtue of the new stocks issued proportionately by Meritz Financial Group Inc. Spin-off ratio The common shares newly issued by Meritz Financial Group Inc. were distributed to the Company s shareholders at the Company s shareholders of record as of March 25, 2011 at a rate of per common share of the Company. Such spin-off ratio was determined in proportionate to the net asset value of a spun off sector and a non-spun off sector in the statement of financial position of the Company as of September 30, Assets and liabilities transferred The Company transferred cash and cash equivalents for system implementation and operating funds, equity method investments in 5 investees other than PT.ASURANSI HANJIN KORINDO, trademark right recorded as intangible assets, treasury stock (including the new shares of Meritz Financial Group Inc. the Company would acquire as a result of spin-off of the treasury stock) and deferred income tax liability to Meritz Financial Group Inc. as carrying amount. The summarized statements of financial position of the Company and Meritz Financial Group Inc. at the spin-off date are as follows (Korean won in thousands): 92

94 The Company Meritz Financial Group Inc. Assets: Cash and cash equivalents 283,777,625 33,200,000 Securities: Trading securities 307,345,887 - Available-for-sale securities 2,979,462,350 - Held-to-maturity securities 123,520,148 - Equity method investments - other 2,815, ,581,904 Equity method investments - the company - (*1) 78,762,826 3,413,143, ,344,730 Loans 940,748,659 - Property and equipment 735,247,719 - Other assets: Intangible assets 43,198,503 5,666,667 Other assets 1,361,239,582 41,972 1,404,438,085 5,708,639 Separate account assets 177,961,897 - Total assets 6,955,317, ,253,369 Liabilities: Policy reserves 5,665,922,140 - Catastrophe reserves 130,467,737 - Other liabilities 373,982,684 11,187,240 Separate account liabilities 180,114,548 - Total liability 6,350,487,109 11,187,240 Equity: Capital stock 43,634,845 18,265,155 Capital surplus: Paid-in capital in excess of par value 157,078, ,648,497 Revaluation surplus 9,554,536 - Other capital surplus 4,053, ,686, ,648,497 Capital adjustments: Treasury stock - (*1) (34,294,232) Stock option 6,126,759 - Other capital adjustments (*2) (257,061,724) - (250,934,965) (34,294,232) Accumulated other comprehensive income 266,358,985 13,446,709 Retained earnings 375,084,891 - Total equity 604,830, ,066,129 Total liabilities and equity 6,955,317, ,253,369 MERITZ INSURANCE ANNUAL REPORT

95 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND 2010 (*1) The Company has transferred the 16,121,607 shares of treasury stock ( 116,222,008 thousand) at the spin-off date and Meritz Financial Group Inc. has recorded those shares as equity method investments whose carrying amount was determined as the proportionate net asset value in the statement of financial position of the Company at the spin-off date. The difference amounting to 3,164,949 thousand between such carrying amount in the statement of financial position of Meritz Financial Group Inc. and a carrying amount after spin-off ratio of the Company s treasury stock at the spin-off date was deducted from paid-in capital in excess of par value in the statement of financial position of Meritz Financial Group Inc. at the spin-off date. The common shares of Meritz Financial Group Inc. transferred to Meritz Financial Group Inc. as a result of spin-off of such treasury stock were stated at a carrying amount, 34,294,232 thousand the Company maintained at the spin-off date. (*2) Loss on capital reduction was caused by a decrease in the Company s existing capital in order to issue stocks of a newly incorporated company. Details are as follows (Korean won in thousands): Amount Carrying amount of assets transferred by spin-off (249,490,543) Increase in assets by the transfer of treasury stock by spin-off (116,222,007) Carrying amount of liability transferred by spin-off 11,187,240 Accumulated other comprehensive income transferred by spin-off 13,446,709 Decrease in capital stock by spin-off 18,265,155 Decrease in paid-in capital in excess of par value by spin-off 65,751,723 Loss on capital reduction (257,061,723) Obligation due to the spin-off In accordance with the provision 1 at an article in Korean Commercial Code, the Company and Meritz Financial Group Inc. have a joint responsibility for the repayment of the debts of the Company at the spin-off date. 35. Related parties Related parties as of and for the year ended March 31, 2011 are as follows: Investor Relationship Meritz Fire&Marine Insurance Co.Ltd Meritz Financial Group Inc. Holding company Ritzpartners Co., Ltd. Meritz Fire & Marine insurance Co., Ltd. Subsidiary Rewards and stock options granted to key management for the year ended March 31, 2011 are as follows (Korean won in thousands): Rewards to the key Provision for Severance Stock compensation managementposition Wages and salaries and retirement benefits expenses Other benefits Total Registered directors 6,808, ,372-23,444 7,767,966 94

96 Stock options granted to the key management Number of shares Position Date of grant April 1, 2010 Exercised March 31, 2011 Exercise period Exercise price Registered directors , , ,780 ~ Transactions with related parties for the years ended March 31, 2011 and 2010 are summarized as follows (Korean won in thousands): Revenue Expense Revenue Expense Meritz Securities Co., Ltd ,763,048 2,589 Meritz Investment Bank - - 1,843, ,808 Meritz Assets Management ,396 1,456,232 Meritz Financial Information Service - - 1,917,152 12,363,458 PT. Asuransi Hanjin Korindo 200,026 87, , , ,026 87,178 6,414,111 14,409,289 Outstanding balances with related parties arising from the above transactions as of March 31, 2010 (nil as of March 31, 2011) are summarized as follows (Korean won in thousands): Other accounts payable Liabilities leasehold deposits received Meritz Securities Co., Ltd ,509 Meritz Assets Management 6,272, ,565 Meritz Financial Information Service - 482,766 6,272, ,840 MERITZ INSURANCE ANNUAL REPORT

97 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Premium deficiency Insurance contracts subject to insurance premium deficiency tests are all contracts that are long-term or individual annuity insurance, which can normally incur premium income and claim payment as of February 28, According to the type of each contract and the characteristics of coverage, the insurance contracts are classified as long-term insurance or pension insurance, dividend insurance or non-dividend insurance, fixed interest type insurance or floating interest type insurance. To reflect the characteristics of insurance, it was divided into casualty-type, driver-type, property-type, illness-type, saving-type and pension-type, and single payments and installment payment in the calculation. Although insurance contracts subject to insurance premium deficiency test should be based on contracts held as of the fiscal year end according to the Financial Supervisory Service s guide, the test was based on the contracts held as of February 28, 2011 because there is no significant difference between the contracts held as of March 31, 2011 and February 28, 2011, and it is almost certain that insurance premium deficit will not be incurred. For premium deficiency calculation for the year ended March 31, 2011 the Company used following assumptions: Classification Criteria Calculation method Discount rate(interest rate) Recent 3 years Asset management earning rate = asset management income management asset 100 Management asset = ( management asset at the end of previous month + management asset at the end of this month) 24 Asset management income = (investment income? investment expense) Expense ratio Recent 1 year Actual expense ratio = actual operating expense expense loadings Surrender ratio(persistency ratio) Recent 5 years Persistency ratio = insurance premium persisted insurance premium of new contracts Surrendered ratio = insurance premium of surrendered contracts insurance premium of new contracts Lapse ratio = insurance premium of lapsed contracts insurance premium of new contracts Extinction ratio = insurance premium of extinct contract by accident insurance premium of new contracts Insurance claim payment ratio Recent 3 years Insurance claim payment ratio = insurance claim paid premium at risk 96

98 Surrender ratio (persistency ratio) was based on the statistical analysis using past 5-year data, removing outliers that cause errors and fitting function to reflect the trend. Premium surplus for the year ended February 28, 2011 are as follows (Korean won in hundred million, %): Classification Insurance contract amounts Expected interest rate (%) Premium surplus Non-dividend insurance 1,747, ~ Individual annuities 7, ~7.5 8,744 1,754, ~8.0 9,509 Fixed interest type 176, ~ Floating interest type 1,578, ~6.0 9, Cash flow information Cash presented in the statements of cash flows including cash, ordinary deposits and cash equivalents is as follows (Korean won in thousands): Cash - 1,600 Deposits: Ordinary deposit 30,912,138 25,265,373 Current deposit 1,345, ,339 32,258,125 25,972,712 Cash equivalents 93,500,000 46,200, ,758,125 72,174,312 The statements of cash flows are prepared using the indirect method. Significant non-cash transactions for the years ended March 31, 2011 and 2010 are summarized as follows (Korean won in thousands): Increase (decrease) in available-for-sale securities from 49,870,666 (107,930,682) valuation of available-for-sale securities Equity adjustments arising from equity method investments 2,234,459 1,005,327 Increase in treasury stock due to valuation of treasury stock fund (640,896) (2,192,481) Gain on valuation of derivatives 9,967,660 39,796,078 Gain on revaluation of land 38,144,018 - Write off of loans 3,843,886 - MERITZ INSURANCE ANNUAL REPORT

99 NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2011 AND Operating result of the final interim period The Company did not issue 4th quarter interim financial statements and the Company s major financial indicators for the three months ended March 31, 2011 and 2010 are as follows (Korean won in thousands): Three months ended March 31, Operating revenue 1,150,883,056 1,025,796,479 Net gain 29,792,253 25,185,098 Net gain per share (won) Introduction of Korea International Financial Reporting Standards According to the roadmap announced in March 2007, the Company will adopt the Korea International Financial Reporting Standards (hereinafter K-IFRS ) for the first time for the financial period beginning April 1, The Company formed a task force team and devised a strategic plan to transition to K-IFRS. K-IFRS implementation task force team is periodically reporting the progress and results of the implementation project to management of the Company. Additionally, the task force team is regularly providing training programs to employees to develop K-IFRS-trained resources. The task force team completed its preliminary impact assessment of K-IFRS and developed a detailed master plan for the implementation of K-IFRS accounting information system. Following this plan, the team conducted the detail analysis of the Company s financial reporting system requirement and accounting policy changes impacted by the adoption of K-IFRS. Based on results of the above analysis, the Company has mapped out changes that are required for its financial reporting system capable of capturing and producing K-IFRS financial data, and modifications to the Company s work processes relating to the system changes have been made. The Company completed the system and work processes changes in The Company has been preparing its financial statements under K-IFRS from since the date of transition (April 1, 2010) and onwards, and management of the Company expects that financial information for the fiscal year 2010 and after will be conformed to K-IFRS. The table below summarizes the differences that are expected to give rise to a significant impact on the Company s financial statements based on the K- IFRSs that are effective as of March 31, The differences listed below are not exhaustive, and additional differences may be identified in the future as a result of further assessment. 98

100 Section K-IFRS K-GAAP Adoption of the fair value option ( FVO ) Gain (loss) on translation of overseas available-for-sale debt securities. FVO is applicable only in case of mitigating accounting discrepancies at the time of initial acquisition of financial instruments or a group of financial instruments managed and evaluated on a fair value basis or combined financial instruments including embedded derivatives. Gain (loss) on translation of monetary available-for-sale debt securities denominated in foreign currencies is recognized as current income (loss) while gain (loss) on translation of nonmonetary available-for-sale debt securities denominated in foreign currencies is recognized as other comprehensive income. N/A Gain (loss) on translation of available-for-sale debt securities is recognized as other comprehensive income regardless of monetary/nonmonetary. Condition of hedge accounting Short-cut method is not acceptable in hedge accounting Short-cut method is acceptable in hedge accounting in same cases Allowance Valuation of leasehold deposits and loans for employees Recognition of interest income Employee benefits Disclosure of financial instruments Disclosure of insurance contracts The Company is required to assess the impairment of assets at every reporting date by materiality and according to the materiality, assessment is implemented based on specific or portfolio of receivables. Initially recognized at fair value, after initial recognition, measured at amortised cost using effective interest rate method. Recognized as interest income if it can be obtained certainly and measured reliably, regardless of default of the principal and interest. The liability for severance and retirement benefits in estimated based on actuarial assumptions and on a discounted basis. Additional disclosures such as fair value level of financial instruments, fair value of financial instruments measured at amortised cost method and risk of financial instruments including credit risk and liquidity risk are required. Nature and extent of risks arising from insurance contracts should be disclosed Receivables are classified as one of normal, precautionary, substandard, doubtful and estimated loss, and the related allowance is calculated at a minimum of 0.5% (0.75% for household loans), 2% (5% for household loans), 20%, 50% and 100%, respectively, of the outstanding amount in each classification by the RIS Stated at nominal value Recognized on a accrual basis but recognized on a cash basis if the principal or interest is defaulted. In accordance with the Company s regulations, employees and directors terminating their employment with at least one year of service are entitled to severance and retirement benefits. An allowance for employee retirement benefits is measured based on the assumption that all employees will leave as of the reporting date. Disclosure of book value of financial asset and financial liability N/A 40. Approval of financial statements for the year ended March 31, 2011 The Company s financial statements for the year ended March 31, 2011 will be approved in the shareholders meeting to be held on June 10, MERITZ INSURANCE ANNUAL REPORT

101 INTERNAL CONTROL OVER FINANCIAL REPORTING REVIEW REPORT THE REPRESENTATIVE DIRECTOR MERITZ FIRE & MARINE INSURANCE CO., LTD. We have reviewed the accompanying management s report on the effectiveness of the internal control over financial reporting ( ICFR ) of Meritz Fire & Marine Insurance Co., Ltd. (the Company ) as of March 31, The Company s management is responsible for design and operations of its ICFR, including the reporting of its operations. Our responsibility is to review management s ICFR report and issue a report based on our review. The management s report on the effectiveness of the ICFR of the Company states that Based on the assessment results, I believe that the Company s ICFR, as of March 31, 2011, is effectively designed and operating, in all material respects, in conformity with the Best Practice Guideline. We conducted our review in accordance with the ICFR review standards established by the Korean Institute of Certified Public Accountants. These standards require that we plan and perform our review to obtain less assurance than an audit as to management s report on the operations of the ICFR. A review includes the procedures of obtaining an understanding of the ICFR, inquiring as to management s report on the operations of the ICFR and performing a review of related documentation within limited scope, if necessary. A company s ICFR consists of an establishment of related policies and organization to ensure that it is designed to provide reasonable assurance on the reliability of financial reporting and the preparation of financial statements for external financial reporting purposes in accordance with accounting principles generally accepted in the Republic of Korea. However, because of its inherent limitations, the ICFR may not prevent or detect material misstatements of the financial statements. Also, projections of any assessment of the ICFR on future periods are subject to the risk that ICFR may become inadequate due to the changes in conditions, or that the degree of compliance with the policies or procedures may be significantly reduced. Based on our review of the management s report on the effectiveness of the ICFR, nothing has come to our attention that causes us to believe that management s report referred to above is not presented fairly, in all material respects, in accordance with the ICFR standards. We conducted our review of the ICFR in place as of March 31, 2011, and we did not review the ICFR subsequent to March 31, This report has been prepared for Korean regulatory purposes pursuant to the Act on External Audit for Stock Companies, and may not be appropriate for other purposes or for other users. April 28, 2011 This report is annexed in relation to the audit of the financial statements as of March 31, 2011 and the review of internal accounting control system pursuant to Article 2-3 of the Act on External Audit for Stock Companies of the Republic of Korea. 100

102 1950~1982 CORPORATE HISTORY IN BRIEF 2005~ 1983~2004 2nd Founding Disaffiliated from the Hanjin Group Renamed as Meritz Fire & Marine Insurance Co.,Ltd. from Oriental Fire & Marine Insurance Inc Headquarters moved to a Meritz Tower building at Yeoksam-dong, Gangnam-gu, Seoul Acquired Meritz Securities as subsidiary :1 stock split (Par value changed from KRW 5,000 to KRW 500) Acquired Meritz Investment Bank as sub-subsidiary First Korean insurer to receive A3 credit rating from Moody s Paid-in capital increased to KRW 61.9 billion with a rights offering of KRW billion Interim dividend of KRW 100 per share (First interim dividend in insurance industry) Established Meritz Financial Information Service Co., Ltd Established Meritz Asset Management Co., Ltd Acquired 1st grade in 2008 FSS s civil application evaluation (three consecutive years) Established Ritz Partners as Subsidiary Received A3 grade from Moody s for four consecutive years Merger of Meritz Securities and Meritz Investment Bank and established Meritz Securities Acquisition of Meritz Business Service (MBS) as subsidiary Total Invested Assets exceeded KRW 5 Trillion Total assets exceeded KRW 7 Trillion Earned A- grade from A.M Best for four consecutive years Established Meritz Financial Holding Company 1922~1949 New Birth Renamed as Oriental Fire & Marine Insurance Inc. from Chosun Fire & Marine Insurance First Korean insurer to be listed on Korea Stock Exchange Privatized (Ewha Hakdang, acquired stake in Oriental insurance from the government) Dongbang Life Insurance, acquired stake in Oriental insurance from the Ewha Hakdang Transferred control to Samsung Group(Dongbang Life Insurance was affiliated into Samsung Group) Affiliated into Hanjin Group First Korean insurer to exceed KRW 10 billion in sale Era of Foundation & Exploration Founded Chosun Fire & Marine Insurance with paid-in capital of KRW 5 million (The first fire & marine insurance company in Korea) Held the first general meeting of stockholders Moved headquarters to Taepyung-no, Jung-gu, Seoul Acquired auto insurance license Era of Growth Acquired building and moved into Headquarters at Yoido-dong, Youngdungpo-gu, Seoul Total assets exceeded KRW 1 trillion Established a training institute Contract transfer from Regent Insurance Co.,Ltd

103 ACCOLADES & AWARDS Awarded Special Award at the 1st Maekyung Business Daily Financial Product Awards No.1 customer satisfaction provider in automobile insurance service as evaluated by Korea Consumer Protection Board Awarded Prime Minister Prize in private and governmental management and service innovation contest (two consecutive years) Ranked 1st among non-life insurers in the National Customer Satisfaction Index (NCSI) for 1998, Korea Productivity Center (KPC) at Korea Customer Service Management Awards Awarded the Grand Prize for Innovative Management by KMAC for outstanding customer satisfaction No.1 non-life insurance carrier for outstanding customer satisfaction as jointly selected by Korea Productivity Center, Chosun-Ilbo and Michigan University in two consecutive years Received Special Award at the 5th Maekyung Business Daily Financial Product Awards No.1 financial service provider in Korea Service Quality Index (KS-SQI) survey Awarded by Financial Service Commission as outstanding new financial product (Military service insurance) Awarded the Best Prize for new business culture in corporate image contest by KMAC Awarded the Special Prize in Maekyung Daily grand financial product contest Awarded the Grand Prize for children/youth welfare service in Hankyung social outreach business contest Awarded the Outstanding Prize for customer value innovation in Customer Satisfaction Management Awards Received the best prize for customer value innovation in Customer Satisfaction Management Awards Awarded by Maekyung as outstanding new financial product (gold prize) Received the innovation award in non-life sector at 2007 Financial Innovation Award from Moneytoday Received a plague of thanks for outstanding sharing management from KCCI s voluntary corps Awarded the grand prize in the field of welfare of disabled persons at Sharing-Management Award sponsored by Kookmin Ilbo Awarded the Grand Prize in the product field at Seo-kyung Truthful Insurance People Awarded the Grand Prize for KMAC Korea Customer Satisfaction Management Awards Awarded the Grand Prize in innovative product field at Seo-kyung Truthful Insurance People Awarded the Outstanding Prize for customer value innovation in Customer Satisfaction Management Awards Awarded the KMAC Grand Prize for four consecutive years for Korea Customer Satisfaction Management 102