LIFE INSURANCE BUSINESS IN KOREA

Transcription

1 LIFE INSURANCE BUSINESS IN KOREA ANNUAL REPORT

2 Contents 4 Message from the Chairman 6 Overview of FY2014 Life Insurance Industry in Korea 28 Industry News 64 About KLIA

3 LIFE INSURANCE BUSINESS IN KOREA ANNUAL REPORT

4 Korea Life Insurance Association 2 Message from the Chairman The Korean economy maintained its momentum with steady growth in 2015 thanks to the recovery of advanced economies including the US. Despite continuing growth in previous years, the Korean life insurance industry is now forced to come up with a new paradigm because of rapid changes in factors affecting the industry. Message from the Chairman In FY2014, the industry witnessed solid performance in major business indicators. Total assets increased by KRW 64.6 trillion to KRW trillion from the same period in the previous year, with premium income up 1.9% to KRW trillion and net profits up 14.8% to KRW 3.2 trillion, respectively. Korean insurers are facing new threats including a prolonged trend of low growth, negative spreads caused by low interest rates, and international efforts to step up financial prudence. Against this backdrop, change and innovation are needed for the Korean life insurance industry to boost its competitiveness. The industry is also facing other challenges, such as low confidence in the insurance industry and a trend of increasing consumer protection. Amid this crisis, major life insurers are striving to enhance their competitiveness by restructuring their workforce, cutting costs, and promoting financial technology, also known as Fintech, which integrates the financial industry with information and communications technology. The financial authorities are also exploring various measures that could provide the financial industry with new opportunities. Such measures include promoting deregulation through financial regulatory reforms and strengthening the competitiveness of the insurance industry through innovation and prudent policies. The Korea Life Insurance Association (KLIA) has made a wide range of efforts over the past year to promote the development of the life insurance industry. In April 2015, we hosted an event for representatives from the Chinese insurance

5 Annual Report industry so that Chinese insurers could learn about marketing and sales management of Korean insurers as well as to discuss their own experiences. The Association of British Insurers was also invited to Seoul in May to hold a joint seminar and provide our members with information about and experience with an advanced insurance market. In addition, we signed an MOU with the Life Insurance Association of Japan in July With the aim of preparing for the homo hundred era, in which people will live to be a hundred years old, the KLIA initiated the Happy Aging New Life project in early A task force dedicated to addressing the challenge of an aging population was created in March, and an aging society advisory council was launched in September. We will also endeavor to boost consumer confidence in the life insurance industry by getting back to basics in order to promote sustainable growth in the industry. As part of these efforts, we will push ahead with new projects to lay the groundwork for the sustainable development of the industry. Examples of such projects include arranging direct meetings between chief customer officers (CCO) and customers, improving the quality of consumer services, and providing life insurance information that is tailored to region and social stratum. With the arrival of the homo hundred era, private pension must provide sufficient assistance for people s later years. To that end, we will fulfill our role as a social safety net by lobbying for more tax breaks for pension providers. 2014/2015 Life Insurance Business in Korea features a broad range of news and information about major achievements in the industry, changes in insurance regulations and various activities in which the KLIA is engaged. I sincerely hope that this annual report will help global insurance professionals gain a better understanding of the Korean insurance industry. Thank you. Chairman & CEO Soo-Chang Lee

6 Overview of FY2014 Life Insurance Industry in Korea Financial Statements 10 Business by Company 12 Performance 13 Income and Expenditures 19 Assets 24 Field Organization and Distribution Channels 26

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8 Korea Life Insurance Association 6 Overview of FY2014 Life Insurance Industry in Korea New Business KRW trillion (Apr-Dec 2012) (Apr-Dec 2013) Despite the economic recovery witnessed in major advanced countries, including the US, the growth rate of the global economy remained the same as the previous year at 3.3% due to sluggish growth in emerging markets. While most developed economies, except Japan, continued to show signs of recovery, economic activity was subdued in emerging nations, including China and Latin America. The US economy recorded 2.4% growth, up 0.2 percentage points year-on-year thanks to increasing fixed investments, an improving job market, and rising consumer spending. Germany and France led the turnaround in the Euro zone, which posted 0.8% growth, in contrast with the previous year s negative rate. Overview of FY2014 Life Insurance Industry in Korea Business in Force KRW trillion (Apr-Dec 2012) (Apr-Dec 2013) Premium Income KRW trillion (Apr-Dec 2012) 84.0 Japan s hike of the consumption tax dampened consumer sentiment, contributing to the slowdown of economic activity in the country, with the growth rate falling by 1.5 percentage points to 0.1%. In the meantime, emerging markets continued to record declining growth rates due to low domestic demand. In particular, China witnessed a growth rate of 7.4%, the lowest since 1990, owing to its troubled real estate market. Frequent natural disasters and falling exports in Asian countries also contributed to the weak performance of the emerging economies, whose overall growth rate fell by 0.3 percentage points year-on-year to 4.4%. The Korean economy maintained a solid growth trend with a rate of 3.3%, up from the previous year s 2.9%. Among the contributing factors were the steady recovery of the global economy and higher capital investment. Exports, led by IT products, were at USD billion, up 2.3% from the same period a year ago. In the meantime, imports also went up by 1.9% to USD billion because of increasing consumer demand for cars and other durable goods (Apr-Dec 2013) Claims Paid KRW trillion The Korean financial market initially experienced instability due to concerns about increasing volatility in some emerging markets and China s sluggish economy, but stability eventually returned as those concerns were assuaged by the increasing current account surplus and the inflow of foreign stock investments. Still, potential risks remain in the world, including the high probability of Greece defaulting on its debt, which could threaten the stability of the Korean financial market (Apr-Dec 2012) 41.9 (Apr-Dec 2013) The Korean life insurance industry maintained a stable growth momentum in FY2014 despite increasing global uncertainty such as the financial insecurity of emerging markets. Life insurers recorded a current net income of KRW 3.23 trillion, operating in the black for the 14th consecutive year since FY

9 Annual Report Premium income in FY2014 rose by 1.9% year on year to a total of KRW trillion on the back of increasing sales of protection-type products such as whole life insurance. On the other hand, claims paid in FY2014 also jumped by 10.0%, or KRW 5.63 trillion from the same period in the previous year, totaling KRW trillion. Total Assets KRW trillion (Apr-Dec 2012) New business value in the life insurance industry dropped by 4.1% (KRW trillion) in FY2014 to a total of KRW trillion. While the number of new business policies fell by 8.3% to million, the face value per policy rose by 4.6% to KRW million. Despite this decrease in new business value, business in force went up 5.5% to KRW 2.30 quadrillion due to increases in other kinds of business, including contract transfers and renewals. There were million policies in force as of December (Apr-Dec 2013) The total assets in the Korean life insurance industry in FY2014 were KRW trillion, a 10.8% increase year on year. Securities, which account for 59.6% of total assets, were recorded at KRW trillion, up 12.7% compared to the previous year. In particular, investment in bonds including government and public debt accounted for 44.6% (KRW trillion) of assets. In terms of each asset in the portfolio, securities represented the largest portion at 59.6%, followed by loans at 14.7%, cash and deposits at 2.5%, and real estate at 2.2%. Separate accounts accounted for 16.9% and non-operating assets for 4.1% of the total. Key Figures for the Life Insurance Industry FY New Business Business in Force Premium Income Claims Paid Unit: KRW trillion (USD billion) Total Assets FY (373.2) 2,112.3 (1,901.3) (103.8) 56.6 (50.9) (512.9) FY2012 (Apr-Dec 2012) (274.0) 2,068.5 (1,945.9) 84.0 (79.0) 41.9 (39.4) (515.3) FY2013 (Apr-Dec 2013) (270.6) 2,183.8 (2,089.8) 77.2 (73.9) 41.9 (40.1) (571.8) FY2014 (Jan-Dec 2014) (357.8) 2,304.9 (2,117.5) (101.6) 62.3 (57.2) (608.3) 1) Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association 2) Currency exchange rates are for the end of each fiscal year and for the end of December for FY2014 (December 31 st, 2013: USD 1 = KRW 1,045.0, December 31 st, 2014: USD 1 = KRW 1,088.5). 3) Figures in parentheses are billions of USD. 4) Figures for FY2013 cover only nine months from April 2013 to December 2013, as account settlement for the fiscal year is taking place in December instead of March beginning in 2013.

10 Korea Life Insurance Association 8 Financial Statements Balance Sheet Overview of FY2014 Life Insurance Industry in Korea Category Assets Unit: KRW 100 million Unit: USD million FY2013 FY2014 FY2014 Invested Assets 4,673,741 5,230, ,558 Cash and Deposits 134, ,543 14,933 Securities 3,501,165 3,946, ,560 Loans 888, ,798 89,646 Real Estate 149, ,066 13,419 Non-operating Assets 281, ,254 25,104 Separate Account Assets 1,019,869 1,116, ,584 Total Assets 5,974,801 6,620, ,245 Liabilities and Capital Liabilities Liability Reserves 4,214,706 4,618, ,321 Policyholders Equity Adjustment 70,071 90,715 8,334 Other Liabilities 129, ,789 13,945 Separate Account Liabilities 1,058,983 1,168, ,315 Total Liabilities 5,473,046 6,029, ,914 Capital Capital Stock 96,508 97,803 8,985 Capital Surplus 57,020 58,357 5,361 Retained Earnings 227, ,157 23,349 Capital Adjustment -11,184-14,872-1,366 Other Comprehensive Income (Accumulated) 131, ,947 18,002 Total Capital 501, ,392 54,331 Total Liabilities and Capital 5,974,801 6,620, ,245 *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association *Currency exchange rate is for December 31 st of FY2014 (USD 1 = KRW 1,088.5).

11 Annual Report Profit and Loss Statement Category Insurance Investment Unit: KRW 100 million Unit: USD million FY2013 FY2014 FY2014 Insurance Profit and Loss 128, ,378 17,490 (Insurance Operating Profit) 556, ,185 72,870 Premium Income 547, ,822 71,734 Reinsurance Profit 8,955 12,363 1,136 (Insurance Operating Expenses) 428, ,807 55,380 Claims Paid 299, ,912 39,404 Business Expenses 57,238 80,446 7,391 Amortization of Deferred Acquisition Cost 61,447 79,582 7,311 Other 9,750 13,866 1,274 Investment Profit and Loss 150, ,644 19,811 (Investment Operating Profit) 184, ,615 23,667 (Investment Operating Expenses) 33,969 41,971 3,856 Provision of Liability Reserves 274, ,343 36,779 Operating Profit (Loss) 4,266 5, Other Separate Accounts Other Profit and Loss 24,069 34,764 3,194 (Non-operating Income) 31,023 43,152 3,964 (Non-operating Expenses) 6,954 8, Separate Account Profit and Loss (Separate Account Profit) 5,660 8, (Separate Account Expenses) 5,660 8, Corporate Income Tax Expenses 7,404 8, Current Net Income 20,932 32,370 2,974 *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association *Currency exchange rate for December 31 st, 2014 (USD 1 = KRW 1,088.5). * Insurance Profit and Loss includes only major categories. *The profit and loss statement is based on the general accounts.

12 Korea Life Insurance Association 10 Business by Company Overview of FY2014 Life Insurance Industry in Korea Company Total Assets Premium Income Market Share Net Income Unit: KRW 100 million, % Solvency Margin (RBC) Hanwha 916, , , Samsung 2,112, , , Heungkuk 193,956 43, Kyobo 801, , , DGB 49,428 10, Mirae Asset 240,800 53, KDB 137,025 27, Dongbu 81,355 17, Tongyang 203,743 40, , Shinhan 219,385 48, ING 255,648 38, , Hana 33,766 5, KB 76,792 13, Hyundai Life 48,339 10, IBK 22,257 7, Nonghyup 517, , , Kyobo Life Planet ,367.8 Domestic Total 5,910, , , Allianz 159,756 23, MetLife 160,560 32, Prudential 127,450 17, , PCA 49,470 19, ACE 11,997 2, BNP Paribas Cardif 39,173 6, LINA 31,017 16, , AIA 131,110 25, Foreign Total 710, , , Total 6,620,752 1,105, , *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association

13 Annual Report Performance New Business A total of million new life insurance policies were written in FY2014 in the Korean life insurance industry, down 8.3% from the same period the year before. The number of new policies written decreased in most insurance types, except for group and retirement annuities. On the other hand, new business value dropped by only 4.1% (KRW trillion) to a total of KRW trillion as the face value per policy rose 4.6% from KRW million to KRW million, making up for the loss caused by the fall in the number of new policies. New Business Policies 2012 (Apr-Dec 2012) (Apr-Dec 2013) million There were a total of million contracts for new individual policies in FY2014, a decrease of 21.3% from the same period of the previous year, and new business value also fell by 5.6% to KRW trillion. There was a noticeable decrease in pension products among individual policies. The number and value of new business policies for pensions in FY2014 dropped 13.6% (200,000 contracts) and 14.5% (KRW 8.31 trillion), respectively, year on year. New group insurance in FY2014 increased by 13.0% from the same period the year before to a total of 4.07 million contracts, and new business value moved up slightly from KRW trillion to KRW trillion during the same period, an increase of 0.1% New Business Amount ,145,920 (Apr-Dec 2012) 2,912,951 (Apr-Dec 2013) 2,827,875 4,060, ,894,890 KRW 100 million New Business by Year FY Policies (million) Unit: million contracts, KRW 100 million New Business Amount (KRW 100 million) FY ,145, (Jan-Dec 2013) ,060,845 FY2013 (Apr-Dec 2013) ,827,875 FY2014 (Jan-Dec 2014) ,894,890 *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association

14 Korea Life Insurance Association 12 New Business by Insurance Type Life insurance is generally divided into individual and group insurance. Individual insurance policies are further divided into death protection, which includes coverage for illness, accidents, and whole life insurance; pure endowment insurance, which covers pensions and educational expenses; and endowment insurance, which includes short-term savings plans. The new business value of individual policies in FY2014 dropped 5.6% to KRW trillion as the value of new annuity insurance plunged 14.5%, or KRW 8.31 trillion year on year. While the new business value of accident insurance and whole life insurance fell, the value of sickness insurance rose by 4.4% (KRW 3.04 trillion). Overview of FY2014 Life Insurance Industry in Korea In terms of group insurance, which is dominated by protection-type insurance against sickness and accidents, the total value of new business increased slightly, up 0.1% from the same period of the previous year. A surge of 77.6% was witnessed in separate accounts, with the new business value of retirement pensions soaring 78.0%. New Business by Insurance Type Category FY2013 (Apr-Dec 2013) 2013 (Jan-Dec 2013) FY2014 (Jan-Dec 2014) Unit: KRW 100 million, % Change General Accounts 2,787,617 4,013,503 3,810, Individual Insurance 2,509,140 3,625,721 3,422, Pure Endowment 392, , , Death 1,906,764 2,683,079 2,617, Endowment 209, , , Group Insurance 278, , , Separate Accounts 40,258 47,342 84, Total 2,827,875 4,060,845 3,894, *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association *Variable insurance policy numbers and sum figures are included in general accounts, while premium income and assets are included in separate accounts. New Business by Insurance Type KRW trillion 47,342 3,625,721 40,258 2,509, Jan-Dec 4,060, Apr-Dec 2,827, , , Jan-Dec 84,076 3,422, ,152 3,894,890 Separate Account Group Insurance Individual Insurance

15 Annual Report Business in Force As of the end of December FY2014, the Korean life insurance industry held a total of million in-force policies, worth more than KRW 2.30 quadrillion, a 0.3% (240,000 policies) increase in the number of policies and a 5.5% increase (KRW trillion) in total face value. Despite a decrease of 4.1% in new business value, the total value of business in force continued to go up because of other increases such as contract transfers and renewals. Business in Force by Year KRW 100 million ,123, ,838,195 The business in force for individual insurance was million policies, a 0.7% (560,000 policies) year-on-year decrease while the total value of business in force rose by 5.5% (KRW trillion) during the same period to more than KRW 2.22 quadrillion. Group insurance business in force rose 6.7% (310,000 policies) in terms of the number of ,048,780 policies to a total of 4.83 million contracts, while the total value went down by 2.4% (KRW 1.37 trillion) to KRW trillion. At the same time, in terms of the value of business in force for product type, annuities and other pure endowment plans saw a 3.7% increase compared to the end of December FY2013, endowment insurance a 1.2% increase, and death insurance including disease and accident cover a 6.4% increase. In the death insurance category, the value of business in force for accident cover dropped 1.6% (KRW 1.21 trillion) year on year. In addition, business in force for separate accounts, including corporate pensions, rose by 14.3% (50,000 policies) to a total of 3.97 million policies, and they had an even greater increase in value, rising 26.3% (KRW 5.69 trillion) to KRW trillion. This was due to a significant increase in the value of business in force for corporate pensions, which saw a 27.9% (KRW 5.78 trillion) year-on-year increase. Business in Force by Year FY Policies (million) Value (KRW 100 million) Change (%) Average of Sum Guaranteed per Policy (KRW million) FY ,123, FY ,838, FY ,048, *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association

16 Korea Life Insurance Association 14 Policies in force for protection-type insurance covering illness, whole life and accidents increased by 6.1% (KRW trillion) to KRW 1.73 quadrillion, and the value of savings-type insurance went up by 3.8% (KRW trillion) to KRW trillion. Protection-type insurance accounted for 75.3% of the total business in force for FY2014, while savings-type plans accounted for 24.7% of it, showing a slight decline in terms of market share. Overview of FY2014 Life Insurance Industry in Korea Market Share by Protection- and Savings-Type New Business In Force Premium Income Category FY2012 FY2013 (Apr-Dec 2013) 2013 (Jan-Dec 2013) Unit: % FY2014 (Jan-Dec 2014) Protection Savings Protection Savings Protection *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association Market Share by Protection- and Savings-Type Savings Unit: % Protection Savings New Business 77.1 In Force Premium Income 36.0

17 Annual Report At the end of FY2014, individual insurance accounted for 96.4%, group insurance for 2.4%, and separate accounts for 1.0% of the total value of business in force. The share of individual insurance did not change from the end of December FY2013, while group insurance s share was down 0.2 percentage points. Business in Force by Insurance Type Unit: KRW 100 million, % Category FY2012 FY2013 FY2014 Change General Accounts 20,949,017 21,621,818 22,775, Individual Insurance 20,427,142 21,047,873 22,215, Pure Endowment 3,522,914 3,612,651 3,747, Death 15,283,021 15,789,331 16,802, Endowment 1,621,207 1,645,892 1,665, Group Insurance 521, , , Separate Accounts 174, , , Total 21,123,492 21,838,195 23,048, *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association *Variable insurance policy numbers and sum figures are included in general accounts, while premium income and assets are included in separate accounts. Lapses and Surrenders The total amount of lapses and surrenders was KRW trillion in FY2014, showing a 1.9% (KRW 4.52 trillion) decrease from the same period the year before. Along with this decrease in the value of lapses and surrenders, the rate of lapses and surrenders* was also down 0.4 percentage points during the same period to 8.9%. Since recording 12.4% in FY2008 at the outbreak of the global financial crisis, this rate has been steadily declining, though it is showing signs of stability. * Rate of lapses and surrenders = face value of lapses and surrenders (initial in force value + total new business value)

18 Korea Life Insurance Association 16 Lapses and surrenders for individual insurance and group insurance amounted to KRW trillion and KRW trillion, respectively, down 2.3% (KRW 5.04 trillion) and 11.5% (KRW 1.33 trillion) each from the end of December FY2013. At the same time, the value of lapses and surrenders for separate accounts soared to KRW 4.39 trillion, 72.7% (KRW 1.85 trillion) higher than the same period of the previous year. Overview of FY2014 Life Insurance Industry in Korea Lapses and Surrenders Category FY2013 (Apr-Dec 2013) 2013 (Jan-Dec 2013) FY2014 (Jan-Dec 2014) Unit: KRW 100 million, % Change (%) Lapses and Surrenders (Rate) 1,720,191(7.2) 2,332,128(9.3) 2,286,868(8.9) -1.9(-0.4pp) Individual Insurance 1,612,488 2,190,194 2,139, Group Insurance 87, , , Separate Accounts 19,705 25,461 43, *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association *Variable insurance policy numbers and sum figures are included in general accounts, while premium income and assets are included in separate accounts. Lapses and Surrenders 2013 Apr-Dec KRW 100 million 19,705 1,612,488 25,461 2,190, ,720,191 2,332,128 Jan-Dec 87, ,473 Separate Accounts Group Insurance Individual Insurance 2014 Jan-Dec 43,974 2,139, ,126 2,286,868

19 Annual Report Income and Expenditures Income Premium income in FY2014 increased by 1.9% (KRW 2.01 trillion) from the same period of the previous year to a total of KRW trillion. Life insurance premium income has been growing steadily except for FY2008, when it dipped because of the global financial crisis. But this growth trend was somewhat subdued in the last couple of years as the surge in savingstype insurance sales seen in FY2012 came to an end. Initial premiums, which are sensitive to business fluctuations, plunged by 6.6% (KRW 1.30 trillion) to KRW trillion from the same period of the previous year. Significantly, firstyear premiums were down 7.2% from FY2013. Premium income from general accounts fell by 1.6% (KRW 1.27 trillion) from the same period in the previous year to KRW trillion because of a drop in sales of immediate annuities and other kinds of pensions, relieving the Premium Income KRW 100 million ,153,086 (Apr-Dec 2012) 839,859 1,085,595 (Apr-Dec 2013) 772, ,105,753 overdependence on savings-type insurance for premium income. Meanwhile, premium income from separate accounts increased by 11.3% (KRW 3.28 trillion) during the same period to KRW trillion. Premium Income Category FY2013 (Apr-Dec 2013) 2013 (Jan-Dec 2013) FY2014 (Jan-Dec 2014) Unit: KRW 100 million, % Change Premium Income 772,367 1,085,595 1,105, (First Year) 235, , , (Subsequent Years) 536, , , General Accounts 547, , , Individual Insurance 541, , , Group Insurance 6,168 8,359 8, Separate Accounts 225, , , Retirement Insurance Corporate Pension 69,523 81, , Variable Insurance 155, , , Protection 243, , , Savings 303, , , *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association *Variable insurance policy numbers and sum figures are included in general accounts while premium income and assets are included in separate accounts. *Separate accounts are excluded from premium income figures for protection and savings insurance.

20 Korea Life Insurance Association 18 At the same time, premium income from protection-type insurance for general accounts such as whole life, illness, and accident insurance increased by 4.5% from the same period the year before to KRW trillion. On the other hand, premium income for savings-type insurance products declined by 5.8% year on year to a total of KRW trillion due to lower premium income from pensions. In regard to individual insurance, premium income from pure endowment insurance decreased by 7.6% to KRW trillion, with premium income from pensions down 9.4%. Endowment insurance premiums also fell 3.5% from the same period in the previous year to KRW trillion. However, death protection netted premiums of KRW trillion, an increase of 4.6% during the same period. Overview of FY2014 Life Insurance Industry in Korea Premium income from variable insurance in separate accounts fell by 1.9% (KRW billion) to KRW trillion. Premium income from all pension products, however, totaled KRW trillion, up 45.4% (KRW 3.69 trillion) from the same period of the previous year with premium income from retirement annuities amounting to KRW trillion. Meanwhile, general accounts represented 70.6% of premium income, with separate accounts taking up the other 29.4%. Moreover, individual insurance accounted for 69.9% of premium income whereas group insurance represented only 0.7%. Premium income from pure endowment, death, and endowment insurance as a percentage of the total amounted to 21.7% (down 2.3pp), 30.0% (up 0.8pp), and 18.1% (down 1.0pp), respectively. Premium Income by Insurance Type FY FY2013 (Apr-Dec 2013) 2013 (Jan-Dec 2013) FY2014 (Jan-Dec 2014) Pure Endowment Unit: KRW 100 million, % Death Endowment Group Separate Total 162, , ,738 6, , ,367 (21.1) (30.9) (18.1) (0.8) (29.2) (100.0) 260, , ,822 8, ,043 1,085,595 (24.0) (29.2) (19.1) (0.8) (26.9) (100.0) 240, , ,544 8, ,931 1,105,753 (21.7) (30.0) (18.1) (0.7) (29.4) (100.0) *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association *Figures in parentheses represent each category s share of the total premium income. Premium Income by Insurance Type Unit: % Pure Endowment Death Group Separate Endowment (Apr-Dec) (Jan-Dec) (Jan-Dec)

21 Annual Report Moving on to the market share of domestic insurers in terms of premium income in FY2014, Korea s Big Three life insurance companies (Hanwha, Samsung and Kyobo) had a combined market share of 49.0%, continuing a downward trend by falling 0.9 percentage points year on year. On the other hand, the market share of small and mid-sized insurers declined 0.1 percentage points to 37.9%, the same percentage as the previous year. Meanwhile, the market share of foreign life insurers increased 1.0 percentage points to 13.1%, breaking out of a downward trend that had lasted since the global financial crisis. Market Share of Domestic and Foreign Life Insurers Category Domestic Premium Income 2013 FY2014 Market Premium Share Income Market Share Unit: KRW 100 million, %, pp Change Big Three 541, , SMEs 412, , Subtotal 954, , Foreign 131, , Total 1,085, ,105, *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association *ING Life was classified as a domestic company in FY2013 after its principal shareholder changed. Premium Income KRW 100 million Market Share of Domestic and Foreign Life Insurers Unit: % Foreign Foreign Domestic Domestic , ,126 1,085, , , ,105,

22 Korea Life Insurance Association 20 Expenditures Claims paid Claims paid in FY2014 totaled KRW trillion, an increase of 10.0% or KRW 5.63 trillion compared to the same period in the previous year. Benefits paid for death, accidents, maturity, and retirement cost KRW trillion, up 14.3% (KRW 1.35 trillion). The increase in benefits paid for maturity was especially large: 16.9% (KRW billion) year on year. Overview of FY2014 Life Insurance Industry in Korea In individual insurance, claims paid for pure endowment and endowment insurance increased 12.9% (KRW 1.43 trillion) and 11.4% (KRW 1.23 trillion), respectively, while those for death fell 1.6% (KRW billion) from the same period in the previous year. In separate accounts, claims paid for retirement and variable insurance were up 60.7% (KRW 2.54 trillion) and 6.4% (KRW billion), respectively, during the same period. Refunds grew by 9.2% (KRW 4.29 trillion) to KRW trillion. The amount paid in dividends was KRW billion, down 2.4% (KRW 5.9 billion) year on year. Meanwhile, the rate of claims paid in premium income was 56.3%, an increase of 4.2 percentage points, following the end of the rapid rise in premium income in FY2012.

23 Annual Report Expenses General account expenses in FY2014 were KRW 8.04 trillion, an increase of KRW billion (4.9%) from the same period of the prior year, with maintenance costs up 4.5% (KRW billion). Meanwhile, the ratio of business expenses to premium income increased by 0.2 percentage points year on year to 7.3%. Income and Expenditures Category FY2012 FY2013 (Apr-Dec 2013) 2013 (Jan-Dec 2013) FY2014 (Jan-Dec 2013) Unit: KRW 100 million, % Change Premium Income 1,153, ,367 1,085,595 1,105, Claims Paid 565, , , , Benefits 98,804 68,439 94, , Refunds 464, , , , Dividends 2,943 1,848 2,500 2, Expenses 71,924 57,238 76,653 80, *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association Claims Paid KRW 100 million Expenses KRW 100 million , (Apr-Dec 2012) 418,797 (Apr-Dec 2012) 52, (Apr-Dec2013) 419, , (Apr-Dec2013) 57,238 76, , ,446

24 Korea Life Insurance Association 22 Assets Total assets in the Korean life insurance industry in FY2014 were KRW trillion, representing an increase of KRW trillion (10.8%). Invested assets rose by KRW trillion (11.9%) from the same period in the previous year to KRW trillion, accounting for 79.0% of total assets. Total Assets ,478,271 KRW 100 million Overview of FY2014 Life Insurance Industry in Korea Securities represented the largest share of assets at 59.6%, followed by loans at 14.7%, cash and deposits at 2.5%, and real estate at 2.2%. Separate accounts accounted for 16.9% of assets, and non-operating assets for 4.1%. The percentages of all assets invested in securities and real estate rose by 1.0 and fell by 0.3 percentage points, respectively ,974,801 6,620,752 In terms of the percentages of assets invested in each category, investment in securities totaled KRW trillion, up KRW trillion (12.7%) from FY2013. Bonds (including government and public debt) took up the largest share (44.6%) of the total investment in securities at KRW trillion, followed by foreign securities (4.8%), beneficiary certificates (4.7%), and stocks (3.7%). A total of KRW trillion was invested in loans in FY 2014, an increase of KRW 8.76 trillion (9.9%) from the same period of the previous year. In addition, cash and deposit investment was valued at KRW trillion, up KRW 2.80 trillion (20.9%), while real estate investments fell by KRW billion (2.6%) to KRW trillion. The steady growth of the retirement annuity market, in which assets increased by 31.3% from the same period in the previous year, drove up separate account assets by KRW 9.67 trillion (9.5%) to KRW trillion. Assets Category 2012 (December 2012) FY2013 (December 2013) FY2014 (December 2014) Share Unit: KRW 100 million, % Change Invested Assets 4,291,415 4,673,741 5,230, Cash and Deposits 200, , , Securities 3,152,410 3,501,164 3,946, Loans 795, , , Real Estate 142, , , Non-operating Assets 278, , , Separate Accounts 908,176 1,019,868 1,116, Total Assets 5,478,271 5,974,801 6,620, *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association *Variable insurance policy numbers and sum figures are included in general accounts while assets are included in separate accounts.

25 Annual Report % Non-operating Assets 273,254 5,230,876 6,620,752 Assets of 2014 Unit: KRW 100 million 79.0% Invested Assets 1,116, % Separate Account Invested Assets KRW 100 million Non-operating Assets KRW 100 million Separate Accounts KRW 100 million ,291, , , ,673, , ,019, ,230, , ,116,622

26 Korea Life Insurance Association 24 Field Organization and Distribution Channels Overview of FY2014 Life Insurance Industry in Korea The sales organization of a Korean life insurer consists of regional offices, which execute the sales strategy formulated by headquarters and manage sales activity in their jurisdiction, and subordinate units including branch offices. At the end of FY2014, Korean life insurers were operating 4,002 sales units, down 400 from the same period of the previous year. This figure includes 122 regional offices, 3,851 branch offices, and 29 overseas offices. The number of agencies was 6,876, down by 168 (2.4%) during the same period. The Korean Life Insurance Association acts under authority granted by Korea s Financial Services Commission to administer qualification exams for life insurance agents and to register successful applicants so that they may begin selling insurance. In addition, people who have been involved in the life insurance business for a year or more in the past three years are eligible to register as life insurance agents. These applicants must complete a training course, which was introduced in July 2011, to become registered agents. As of the end of December 2014, there were 131,825 registered life insurance agents, down 12,967 (9.0%) people year on year. These agents included 33,204 men and 98,621 women, showing that women still make up more than 70% of the sales force. Number of Employees 1,000 people Number of Solicitors Number of Agencies ,000 people number of units , ,035 Field Organization and Distribution Channels FY No. of Employees Agents Male Female Total Regional Offices Offices Branches Unit: 1,000 people, number of units Overseas Agencies FY , ,693 FY , ,035 FY , ,867 *Source: Life Insurance Statistics Yearbook, Korea Life Insurance Association *Variable insurance policy numbers and sum figures are included in general accounts while assets are included in separate accounts ,867

27 LIFE INSURANCE BUSINESS IN KOREA ANNUAL REPORT

28 Industry News Revision of the Insurance Business Act 30 First Revision of the Enforcement Decree of the Insurance Business Act 30 Second Revision of the Enforcement Decree of the Insurance Business Act 32 Revision of Regulations for Supervising the Insurance Business 34 Revision of Detailed Regulations for Supervising the Insurance Business 40 Revision of the Commercial Act 42 Revision of the Guidelines for Life Insurance Product Disclosure 43 Research on New Profit Models for the Long-Term Survival of the Insurance Industry 47 Publication of an Insurance Handbook for Old-Age Indemnity Health Plans 51 Solicitation Guidelines for Insurance Agencies 53 Research on the Health Management Service Act 55 Signing MOUs with Overseas Insurance Associations 60 Life Insurers Social Contributions in FY2014 Amount to KRW Billion 61 New Life Insurance Products for Exclusive Sale in 2014 and

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30 Korea Life Insurance Association 28 Industry News Revision of the Insurance Business Act Background and main features - The Insurance Business Act was revised to define unfair conduct by insurers against their agents in the law*, thus providing legal grounds for imposing a fine for negligence not exceeding KRW 10 million. *Such conduct had originally been defined in the Enforcement Decree of the Insurance Business Act. - A certified insurance actuary can be ordered to suspend their business for a specified period of up to six months. These revisions were made on October 15 th, 2014, and took effect on April 16 th, Industry News First Revision of the Enforcement Decree of the Insurance Business Act Background - The Enforcement Decree of the Insurance Business Act was revised to give insurers greater autonomy in investing their assets in small and medium-sized businesses or startups. - The implementation of regulations on credit card business operators, which are classified as insurance agencies of financial institutions, for the sales ratio of insurance products was delayed until the end of 2016 in an attempt to ease the management burden on the insurers and secure the job stability of the agents.

31 Annual Report Main Features Regulations relaxed on insurers management of their subsidiaries assets (Original) An insurance company can conduct transactions with its subsidiaries, provided that the total assets or equity capital are limited as follows: * i) Credit extended to subsidiaries: Less than 2% of total assets and 40% of equity capital ii) The aggregate amount of stocks and bonds issued by subsidiaries: Less than 3% of total assets and 60% of equity capital - These rules are not applicable to 1) entities whose businesses are closely related to the operation of the insurance business such as damage adjustment and accident investigation, 2) subsidiaries of foreign insurers, 3) insurance companies that own 100% of their subsidiary s stocks, 4) private equity funds, 5) real estate investors, and 6) ship investment companies. (Revised) To encourage insurance providers to invest more in startups, members of the Small and Medium-Sized Startup Investment Federation, the Korea Venture Investment Federation, and the Venture Business Investment Association are also exempted from these asset management regulations. Implementation postponed on a new restriction on the insurance product sales ratio at credit card companies (Original) The amount of products newly introduced by credit card companies and sold by one insurance company or one non-life insurance company cannot exceed 25% of the gross amount of products sold either by life insurance companies or non-life insurance companies. (Revised) Considering the situation in the market and the different solicitation methods used by credit card operators, the new restriction on the insurance product sales ratio will not take effect until the end of Nevertheless, credit card companies should submit an implementation plan to the Financial Services Commission no later than two months after the enforcement date to comply with the insurance sales ratio restriction when the grace period ends. Revised and put into effect on December 23 rd, 2014

32 Korea Life Insurance Association 30 Second Revision of the Enforcement Decree of the Insurance Business Act Background - The Enforcement Decree of the Insurance Business Act was revised to provide greater convenience to insurance consumers by introducing the single-type non-life insurance agency system.* Under the revised regulations, the guidelines of an insurance policy must also include examples of conditions under which insurance claims can be rejected to help policyholders better understand the policy. * Under this system, a person who is engaged in a business that offers specific goods and services is allowed to sell non-life insurance contracts on behalf of insurance companies that are relevant to the original business. Industry News - The chairman of the Insurance Product Publication Committee will be elected from among the members of that committee. A greater number of committee members will be recommended by a consumer advocacy organization to better represent the public interest. Main Features Introduction of the single-type non-life insurance agency and agents system The single-type non-life insurance agency and agents system was introduced to allow a person who is engaged in a business that offers specific goods and services to sell single-type non-life insurance contracts that are relevant to the original business on behalf of insurance companies. As the single-type non-life insurance agencies or agents sell only one or two types of insurance products that are related to the original businesses in which they have expertise, the registration requirements were relaxed compared to those for general insurance agencies. - They need to take only eight hours of training courses, instead of the original twenty hours, without taking examinations. - This scheme will be phased in over time depending on its feasibility, including the possibility of misselling and market demand. Examples must be provided showing how insurance claims can be rejected - Examples of insurance claims being rejected in whole or in part will be included in product descriptions, marketing materials, and other information provided to insurance buyers. - This is an attempt to reduce insurance complaints and conflicts by narrowing the gap between what consumers expect and what they are actually entitled to receive.

33 Annual Report Image advertising now allowed for insurance products Image advertising for insurance products is now allowed. Such advertising will focus on the overall purpose of the insurance product without showing specific details such as premiums or benefits. - Such advertisements must be less than one minute, providing only general information about the product, such as why it is necessary. - However, any disadvantages to insurance consumers that are related to major features of the product must be clearly presented. For example, in many cases, insurance rates that do not increase upon renewal are relatively higher in the first place. Insurers now exempt from checking for overlapping contracts with group travel insurance - Insurers are now also exempt from the duty to check for overlapping insurance contracts when business entities or educational institutions purchase group travel insurance for outdoor activities. Under the original rule, they were only exempt from this when overseas group insurance was bought through travel agencies. Clearer definition of liability reserves (including premium reserves and unearned premiums reserves) - Because the original rule regarding premium reserves and unearned premium reserves could create the misperception that liability reserves accumulate for each insurance type, the rule has been revised to make clear that the liability reserves accumulate for each insurance contract. New method of appointing the members and chairperson of the Insurance Product Publication Committee - The method of appointing the members and chairperson of the Insurance Product Publication Committee, which was set up under the KLIA, has been changed to better represent the public interest and to ensure the objectivity of insurance product disclosure. Of the total nine members, four members will be elected from within the insurance industry (instead of the original five), and five will be recommended by a consumer organization (instead of the original four). The chairperson, who used to be nominated by the head of the KLIA from among its executives, will instead be elected by the committee from among its members. Insurance Product Development Standards have been improved - Clarifying the preliminary reporting period for insurance products enables insurers to predict precisely when they can start selling policies, which is essential information for marketing purposes. Products can be put on the market 30 days after they are reported. If any changes are made to a product after it has been reported, 15 more days must pass before it can be sold. - The period for submitting certification of basic documents such as premium information is extended from the original 20 days to 30 days from the date that this certification is requested.

34 Korea Life Insurance Association 32 System built to share insurance agents solicitation history - This provides legal grounds for insurance companies and agencies to share insurance agents solicitation history* through the KLIA so that they can identify agents who have avoided penalties by moving to other companies, who are guilty of misselling, and who have created disturbances. * 1 registration periods at each insurance company, 2 number of insurance contracts solicited by the agent, 3 personal record of business suspension or de-registration, 4 number of contracts canceled because of consumer complaints, and 5 whether allowances have been returned These regulations were revised on January 6 th, 2015 and took effect on July 7 th, Note, however, that some of the main revisions were enforced as follows: Industry News Revisions Took effect on Introduces the single-type non-life insurance agency and agents system 7/7/2015 Includes conditions under which insurance claims can be rejected 7/7/2015 Introduces image advertising for insurance products 1/20/2015 Exempts group travel insurance from the duty of checking for overlapping contracts 1/6/2015 Clarifies the definition of liability reserves 1/6/2015 Changes in the method of appointing the chairperson and members of the Insurance Product Publication Committee 1/20/2015 Improves the Insurance Product Development Standards 4/1/2015 Builds a system for sharing insurance agents solicitation history 7/7/2015 Revision of Regulations for Supervising the Insurance Business Background - The regulations for supervising the insurance business were revised to implement follow-up measures and additional projects of the Insurance Business Innovation and Integrity Initiative announced on July 15 th, 2014, as part of insurance regulation reform. Main Features New method for calculating and applying the standard interest rate - The method of calculating the standard interest rate has been modified to reflect changes in the market rates* so that companies can accumulate an appropriate amount of liability reserves. *The market rates include the average interest rates of 5-year, 10-year, and 20-year government bonds. The details of the calculation methods will be set forth in the detailed regulations for supervising the insurance business.

35 Annual Report Insurance companies with a solvency ratio of 150% or more will be subject to a standard interest rate that is 0.25pp higher to encourage healthy competition for insurance premiums.* *The higher the standard interest rate, the lower insurance premiums tend to be. Higher limit on the adjustment rate of the disclosed interest rate - The limit on the adjustment rate of the disclosed interest rate was increased from ±10% to ±20% to give insurers greater autonomy in managing financial strength and refunds. The revised limit only applies to new businesses and should be explained to consumers beforehand because of the increasing volatility of disclosed interest rates. Deferred corporate tax liabilities related to the emergency-risk reserve now recognized as the solvency margin - The deferred corporate tax on the emergency-risk reserve, which has been regarded as a liability for the purposes of future tax payment, will continue to be recognized as such when calculating the solvency margin. The original plan was to exclude the deferred corporate tax on the emergency-risk reserve from the solvency margin starting in Instead, it was decided to continue to include this in the solvency margin as supplementary capital, in line with international standards. Better solvency margin ratio for insurers - Considering that the fair valuation of liabilities will be introduced in Korea along with the new international accounting standards in 2018, the standard solvency margin will start gradually increasing in The details of the tougher solvency margin will be set forth in the detailed regulations for supervising the insurance business. Better product design for savings-type insurance - Savings-type insurance products have been redesigned to relieve the burdens on consumers caused by low interest rates by reducing business expenses. * 100% of insurance premiums must be refunded at the standard interest rates if they have been fully paid for seven years. For whole life annuity products and savings annuities, the principle of standard interest rates +0.25pp can be applied. - However, the revised rule will not apply until 2017, considering the effects of lower business expenses and the higher ratio of levelized commissions* scheduled to begin in * The rate of levelized commission for savings-type insurance will increase from 30% to 50% to improve contract retention rates and surrender value. Requirements eased for extending credit in derivatives transactions between insurance companies and affiliated financial institutions - When an insurance company outsources derivatives transactions to an affiliated stock firm, the excess outsourced margin deposit made for the daily settlement must be excluded from credit extensions until the next business day. Under the previous rule, the margin deposit had to be withdrawn on the same day after the market closes so that it could be excluded from credit extensions, which is impossible due to transaction procedures.