Samsung Life Insurance Co., Ltd. Separate Financial Statements March 31, 2013 and 2012

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1 Separate Financial Statements

2 Index Page(s) Report of Independent Auditors 1-2 Separate Financial Statements Statements of Financial Position 3 Statements of Comprehensive Income 4 5 Statements of Changes in Equity 6 7 Statements of Cash Flows Reports of Independent Accountants Review of Internal Accounting Control System Reports on the Operations of the Internal Accounting Control System

3 Report of Independent Auditors To the Shareholders and Board of Directors of Samsung Life Insurance Co., Ltd. We have audited the accompanying separate statements of financial position of Samsung Life Insurance Co., Ltd. ( the Company ) as of, and the related statements of comprehensive income, changes in equity and cash flows for the years then ended, expressed in Korean won. 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 audits 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 financial statements, referred to above, present fairly, in all material respects, the financial position of Samsung Life Insurance Co., Ltd. as of March 31, 2013 and 2012, and its financial performance and cash flows for the years then ended, in accordance with International Financial Reporting Standards as adopted by the Republic of Korea( Korean IFRS ). 1

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5 Separate Statements of Financial Position (In millions of Korean won) Notes Assets Cash and cash equivalents 37 \ 2,236,996 \ 1,591,407 Financial assets at fair value through profit or loss 4,9 2,066, ,461 Available-for-sale financial assets 5,9 110,014,189 93,856,295 Held-to-maturity financial assets 6,9 857,386 1,057,835 Loans receivable and other receivables 7,9 29,271,395 27,503,794 Derivative financial assets for hedge accounting 8,9 293, ,882 Investments in subsidiaries, associates and joint ventures 10 2,004,184 2,002,066 Assets held for sale 41 52,906 - Investment property 11 4,431,312 4,137,435 Property and equipment 12 1,689,521 1,632,638 Intangible assets , ,333 Current income tax assets 20 95,204 86,316 Other assets 14 4,136,663 4,044,283 Separate account assets 15 28,161,584 23,801,700 Total assets \ 185,475,116 \ 160,589,445 Liabilities and Equity Liabilities Insurance contract liabilities 16 \ 121,195,651 \ 106,655,592 Policyholders' equity adjustment 18 7,492,055 6,041,938 Financial liabilities at fair value through profit or loss 9,19 183, ,372 Other financial liabilities 9,19 987, ,912 Derivative financial liabilities for hedge accounting 8,9 813,166 1,283,285 Deferred income tax liabilities 20 4,456,884 3,315,558 Provisions 21 97,376 93,471 Other liabilities , ,224 Separate account liabilities 15 28,277,936 23,983,652 Total liabilities 164,139, ,866,004 Equity Capital stock , ,000 Capital surplus 23 6,131 6,131 Capital adjustments 23 (556,205) (262,361) Accumulated other comprehensive income 23 12,959,157 9,594,719 Retained earnings 23 8,826,354 8,284,952 Total equity 21,335,437 17,723,441 Total liabilities and equity 185,475, ,589,445 The accompanying notes are an integral part of these separate financial statements. 3

6 Separate Statements of Comprehensive Income Years ended (In millions of Korean won) Notes Operating revenue Premium income 24 \ 22,052,096 \ 14,726,219 Reinsurance income , ,401 Interest income 26 5,467,188 5,379,227 Gain on financial assets at fair value through profit or loss ,846 48,767 Realized gains on available-for-sale financial assets , ,904 Gain on loans receivable and other receivables 27 9,534 8,977 Gain on derivative financial instruments for hedge accounting , ,334 Gain on foreign currency transactions 35 41, ,778 Fee and commission income 32,514 24,444 Dividend income 198, ,885 Rental income 322, ,648 Separate account commission received 829, ,494 Separate account revenue , ,917 Other operating income 28 45,930 52,939 30,383,281 22,660,934 Operating expenses Increase in policy reserves 16 14,418,228 7,341,593 Insurance claims paid 9,363,179 9,171,226 Reinsurance expenses , ,452 Acquisition and administration expenses 29 1,477,387 1,477,662 Amortization of deferred acquisition costs 14 2,146,773 1,840,398 Asset management expenses , ,352 Interest expenses 35,330 36,522 Losses on financial assets at fair value through profit or loss 27 27, ,386 Realized losses on available-for-sale financial assets 27 95,673 41,514 Losses on loans receivable and other receivables 27 1,141 - Losses on derivative financial instruments for hedge accounting 27 32, ,388 Losses on foreign currency transactions , ,634 Separate account expense , ,917 Other operating expense , ,019 29,177,536 21,620,063 Operating income 1,205,745 1,040,871 4

7 Separate Statements of Comprehensive Income Years ended (In millions of Korean won) Notes Non-operating revenue 28 45, ,698 Non-operating expenses 28 70,997 69,531 Profit before income tax 1,179,792 1,184,038 Income tax expense , ,257 Profit for the year \ 935,402 \ 932,781 Other comprehensive income(losses) for the year, net of tax Change in value of available-for-sale financial assets Change in value of held-to-maturity financial assets Change in value of derivative financial instruments for hedge accounting Shares of other comprehensive income(loss) of subsidiaries, associates and joint ventures Other comprehensive income on separate account 3,132,537 2,157,693 (639) (572) 174,107 (58,691) - (78,064) 58,433 12,312 3,364,438 2,032,678 Total comprehensive income for the year \ 4,299,840 \ 2,965,459 Earnings per share (in Korean won) 34 Basic earnings per share \ 4,806 \ 4,702 Diluted earnings per share \ 4,806 \ 4,702 The accompanying notes are an integral part of these separate financial statements. 5

8 Separate Statements of Changes in Equity Years ended (In millions of Korean won) Capital stock Capital surplus Capital adjustments Accumulated other comprehensive income Retained earnings Total Balance at April 1, 2011 \ 100,000 \ 6,131 \ 13,493 \ 7,562,041 \ 7,752,171 \ 15,433,836 Comprehensive income Profit for the year , ,781 Gains(Losses) on valuation of available-forsale financial assets - - 2,157,693-2,157,693 Gains(Losses) on valuation of held-tomaturity financial assets (572) - (572) Gains(Losses) on valuation of derivative financial instruments for hedge accounting (58,691) - (58,691) Shares of other comprehensive income(loss) of subsidiaries, (78,064) - (78,064) associates and joint ventures Other comprehensive income(loss) on separate account ,312-12,312 Transactions with shareholders Cash dividends (400,000) (400,000) Acquisition of treasury stock - - (275,854) - - (275,854) Balance at March 31, 2012 \ 100,000 \ 6,131 \ (262,361) \ 9,594,719 \ 8,284,952 \ 17,723,441 6

9 Separate Statements of Changes in Equity Years ended (In millions of Korean won) Capital stock Capital surplus Capital adjustments Accumulated other comprehensive income Retained earnings Total Balance at April 1, 2012 \ 100,000 \ 6,131 \ (262,361) \ 9,594,719 \ 8,284,952 \ 17,723,441 Comprehensive income Profit for the year , ,402 Gains(Losses) on valuation of available-forsale financial assets ,132,537-3,132,537 Gains(Losses) on valuation of held-tomaturity financial assets (639) - (639) Gains(Losses) on valuation of derivative financial instruments for hedge accounting , ,107 Other comprehensive income(loss) on separate account ,433-58,433 Transactions with shareholders Cash dividends (394,000) (394,000) Acquisition of treasury stock - - (287,227) - - (287,227) Others - - (6,617) - - (6,617) Balance at March 31, 2013 \ 100,000 \ 6,131 \ (556,205) \ 12,959,157 \ 8,826,354 \ 21,335,437 The accompanying notes are an integral part of these separate financial statements. 7

10 Separate Statements of Cash Flows Years ended (In millions of Korean won) Notes Cash flows from operating activities Cash generated from operations Profit for the year \ 935,402 \ 932,781 Adjustments in expenses and revenues 37 11,005,995 3,813,394 Changes in operating assets and liabilities 37 (5,022,606) 497,307 6,918,791 5,243,482 Interests received 5,337,249 5,229,001 Interests paid (21,488) (19,618) Dividends received 227, ,015 Income taxes paid (253,279) (484,283) Net cash provided by operating activities 12,208,593 10,167,597 Cash flows from investing activities Proceeds from disposal of available-for-sale financial assets 10,470,049 8,946,128 Payment for acquisition of available-for-sale financial assets (21,123,450) (17,458,544) Proceeds from disposal of held-to-maturity financial assets 206, ,473 Settlement of derivative financial instruments for hedge accounting 77,311 (5,203) Proceeds from disposal of investments in subsidiaries, associates and joint ventures 20, ,538 Payment for acquisition of investments in subsidiaries, associates and joint ventures (75,595) (472,887) Payment for acquisition of investment properties (423,508) (532,077) Proceeds from disposal of investment properties 20,020 13,605 Payment for acquisition of property and equipment (54,201) (94,935) Proceeds from disposal of property and equipment 14,292 7,494 Payment for acquisition of intangible assets (38,183) (23,990) Proceeds from disposal of intangible assets 22, Others 2,102 40,145 Net cash used in investing activities (10,881,548) (8,820,228) Cash flows from financing activities Payment of dividends (394,000) (400,000) Payment for acquisition of treasury stocks (287,227) (275,854) Net cash used in financing activities (681,227) (675,854) Net increase in cash and cash equivalents 645, ,515 Cash and cash equivalents at the beginning of the year 1,591, ,695 Exchange losses(gains) on cash and cash equivalents (229) 197 Cash and cash equivalents at the end of the year 37 \ 2,236,996 \ 1,591,407 The accompanying notes are an integral part of these separate financial statements. 8

11 1. The Company Samsung Life Insurance Co., Ltd. (the "Company") was incorporated under the laws of the Republic of Korea on April 24, The Company is engaged in life insurance business as permitted by the Insurance Business Law of the Republic of Korea. On May 12, 2010, the Company was listed on the Korea Exchange. The following table lists numbers of available and discontinued products as of March 31, 2013: Products Available Discontinued Total Annuity with tax benefits Annuity Whole life, Term life insurance Endowment insurance Group insurance ,171 1,228 As of March 31, 2013, major shareholders of the Company and their respective shareholdings are as follows: Name of Shareholder Number of Shares (In thousands) Percentage of Ownership (%) Lee Kun-Hee 41, Samsung Everland Inc. 38, E-MART Co., Ltd 14, Samsung Foundation of Culture 9, Samsung Life Public Welfare Foundation 9, SHINSEGAE Co., Ltd 7, Employee stock ownership association 6, CJ CheilJedang Corp 5, Others 60, Treasury stock 5, ,

12 2. Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of these separate financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of Preparation The Company maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in conformity with the International Financial Reporting Standards as adopted by the Republic of Korea ( Korean-IFRS ). The accompanying separate financial statements have been condensed, restructured and translated into English from the Korean language financial statements. The Company s financial statements for the annual period beginning on April 1, 2011, have been prepared in accordance with Korean IFRS. These are the standards and related interpretations issued by the International Accounting Standards Board ("IASB") that have been adopted by the Republic of Korea. The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the management to exercise judgment in the process of applying the Company s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the separate financial statements are disclosed in Note Changes in Accounting Policy and Disclosures (a) New and amended standards adopted by the Company The Company has adopted the Korean-IFRS 1001, Presentation of Financial Statements, during the year and accordingly, the standard requires the Group s operating income to only include income and expense incurred from the major operating activities.. The Company applies the accounting policy retroactively in accordance with the amended standards and the comparative separate statement of the comprehensive income is restated by reflecting adjustments resulting from the retrospective application. As a result of the changes in the accounting policy, other income and expenses of \41,100 million and \67,189 million, respectively, for the year ended March 31, 2013 (2012: \51,419 million and \68,868 million, respectively), which include gain and loss on disposal of property, and equipment, classified as operating income under the previous standard, were excluded from operating income. Consequently, operating income for the years ended, is higher by \26,089 million and \17,449 million, respectively, as compared to the amounts under the previous standard. However, there is no material impact on net income and earnings per share for the years ended. 10

13 (b) New standards and interpretations not yet adopted New standards, amendments and interpretations issued but not effective for the financial year beginning April 1, 2012, and not early adopted by the Company are as follows: - Amendments to Korean-IFRS 1019, Employee Benefits According to the amendments to Korean-IFRS1019, Employee Benefits, use of a corridor approach is no longer permitted, and therefore all actuarial gains and losses incurred are immediately recognized in other comprehensive income. All past service costs incurred from changes in pension plan are immediately recognized, and expected returns on interest costs and plan assets that used to be separately calculated are now changed to calculating net interest expense(income) by applying discount rate used in measuring defined benefit obligation to net defined benefit liabilities(assets). This amendment will be effective for the Company as of January 1, 2013, and the Company is assessing the impact of application of the amended Korean-IFRS1019 on its separate financial statements as of the report date. - Enactment of Korean-IFRS 1113, Fair value measurement Korean-IFRS 1113, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across Korean-IFRSs. Korean-IFRS 1113 does not extend the use of fair value accounting but provides guidance on how it should be applied where fair value measurement is already required or permitted by other standards within Korean-IFRSs. This amendment will be effective for the Company as of January 1, 2013, and the Company is assessing the impact of application of the enacted Korean IFRS 1113 on its separate financial statements as of the reporting date. - Amendment of Korean IFRS 1001, Presentation of Financial Statements Korean-IFRS 1001, Presentation of Financial Statements, was amended to require other comprehensive income items to be presented into two groups on the basis of whether they are potentially reclassifiable to profit or loss subsequently. This is effective for annual periods beginning on or after July 1, 2012, with early adoption permitted. The Company expects that the application of this amendment would not have a material impact on its separate financial statements. 11

14 - Enactment of Korean IFRS 1110, Consolidated Financial Statements Korean IFRS 1110, Consolidated Financial Statements, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included in the consolidated financial statements of the Parent Company. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. This enactment will be effective for annual periods beginning on or after January 1, 2013, and the Group is reviewing the impact of this standard. - Enactment of Korean IFRS 1111, Joint Arrangements Korean IFRS 1111, Joint Arrangements, aims to reflect the substance of joint arrangements by focusing on the contractual rights and obligations that each party to the arrangement has rather than its legal form. Joint arrangements are classified as either joint operations or joint ventures. A joint operation is when joint operators have rights to the assets and obligations for the liabilities, and account for the assets, liabilities, revenues and expenses, while parties to the joint venture have rights to the net assets of the arrangement and account for their interest in the joint venture using the equity method. This enactment will be effective for annual periods beginning on or after January 1, 2013, and the Group is reviewing the impact of this standard. - Enactment of Korean IFRS 1112, Disclosures of Interests in Other Entities Korean IFRS 1112, Disclosures of Interests in Other Entities, provides the disclosure requirements for all forms of interests in other entities, including a subsidiary, a joint arrangement, an associate, a consolidated structured entity and an unconsolidated structured entity. This enactment will be effective for annual periods beginning on or after January 1, 2013, and the Group is reviewing the impact of this standard. 12

15 2.2 Subsidiaries and Associates The financial statements of the Company are separate financial statements based on Korean-IFRS 1027, Consolidated and non-consolidated financial statements. In accordance with Korean-IFRS 1027, the Company accounts for investments to subsidiaries and associates using cost method, and for beneficiary certificates using fair value method. 2.3 Segment Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions. 2.4 Foreign Currency Translation (a) Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The separate financial statements are presented in Korean won, which is the controlling entity s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to monetary assets and liabilities are presented in the statement of comprehensive income within Gains(Losses) on foreign currency transactions The changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analyzed between translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortized cost are recognized in profit or loss, and other changes in carrying amount are recognized in other comprehensive income. 13

16 Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available-forsale, are included in other comprehensive income. 2.5 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. 2.6 Financial instruments Classification The Company classifies its financial instruments in the following categories: financial assets or liabilities at fair value through profit or loss, loans and receivables, available-for-sale financial assets, held-to-maturity financial assets and other financial liabilities at amortized cost. Management determines the classification of financial instruments at initial recognition. (a) Financial assets or liabilities at fair value through profit or loss Financial assets or liabilities at fair value through profit or loss are financial assets or liabilities held for trading. A financial asset and liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the short term. Derivatives or embedded derivatives are also categorized as held for trading unless they are designated as hedges. Assets or liabilities in this category are classified as financial assets or liabilities at fair value through profit or loss. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. (c) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company intends and is able to hold to maturity. If the Company were to sell other than an insignificant amounts of held-to-maturity investments, the whole category would be tainted and reclassified as available-for-sale. 14

17 (d) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. (e) Financial liabilities measured at amortized cost The Company classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition, as financial liabilities carried at amortized cost and as trade payables, borrowings, and other financial liabilities in the statement of financial position Recognition and Measurement Regular purchases and sales of financial assets are recognized on the trade date. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest rate method. Gains or losses arising from changes in the fair value of the financial assets carried at fair value through profit or loss are presented in the statement of comprehensive income within Gain(Loss) on financial assets at fair value through profit or loss in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the statement of comprehensive income as part of Dividend income when the Company s right to receive dividend payments is established. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the statement of comprehensive income as Change in value of available-for-sale financial assets. Interest on available-for-sale and held-to-maturity securities calculated using the effective interest method is recognized in the statement of comprehensive income as part of Interest income. Dividends on available-for-sale equity instruments are recognized in the statement of comprehensive income as part of Dividend income when the Company s right to receive dividend payments is established. 15

18 2.6.3 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously Impairment of Financial Assets (a) Assets carried at amortized cost The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. The criteria that the Company uses to determine that there is objective evidence of an impairment loss include: Significant financial difficulty of the issuer or obligor; A breach of contract, such as a default or delinquency in interest or principal payments; For economic or legal reasons relating to the borrower s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; It becomes probable that the borrower will enter bankruptcy or other financial reorganization; The disappearance of an active market for that financial asset because of financial difficulties; or Observable data suggesting that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, even though the decrease cannot be identified with respect to individual financial assets in the portfolio. Impairment loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted using the initial effective interest rate. The carrying amount of the asset is reduced by the impairment loss amount and the amount of the loss is recognized in the statement of comprehensive income. In practice, the Company may measure impairment loss based on the fair value of financial asset using an observable market price. 16

19 If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (for example, an improvement in debtor s credit rating), the reversal of the previously recognized impairment loss is recognized in the statement of comprehensive income. (b) Assets classified as available-for-sale The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Company uses the criteria refer to in (1) above. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the asset is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss is removed from equity and recognized in the income statement. Impairment losses recognized in the separate income statement on equity instruments are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement. 2.7 Derivative Financial Instruments and Hedging Activities Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged Derivative financial instruments for trading All derivative financial instruments, except for derivatives that are designated and qualify for hedge accounting, are classified as financial instruments held for trading and measured at fair value. A gain or loss arising from a change in fair value is recognized in profit or loss as part of net gains on financial instruments at fair value through profit or loss. 17

20 2.7.2 Derivative financial instruments for hedge accounting (a) Fair value hedge If derivatives qualify for a fair value hedge, the gain or loss from remeasuring the hedging instrument at fair value is recognized in profit or loss as part of operating income and expense and the gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and is recognized in profit or loss as part of other operating income and expenses. Hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Bank revokes the designation. Once hedge accounting is discontinued, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is fully amortized to profit or loss by the maturity of the financial instrument. (b) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income, whereas the gain or loss relating to the ineffective portion is recognized immediately in the current profit or loss. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). Hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting. Once hedge accounting is discontinued, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the statement of comprehensive income. However, when a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately recognized in the current profit or loss Embedded derivatives An embedded derivative is separated from the host contract and accounted for as a derivative if, and only if the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid(combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss. A gain or loss arising from a change in the fair value of embedded derivative separated from host contract is recognized in profit or loss as part of net gains on financial instruments at fair value through profit or loss. 18

21 2.8 Property and Equipment All property and equipment are stated at historical cost less depreciation and accumulated impairment loss. Historical cost includes expenditures directly attribute to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. Land is not depreciated. Depreciation is computed using the straight-line method for buildings and structures and the declining balance method for other property and equipment, based on the estimated useful lives of the assets as described below. Buildings Structures Vehicles Other property and equipment Estimated useful lives years 5-40 years 5 years 5-20 years The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within other gains and losses, net in the income statement. 2.9 Investment property Investment property is held to earn rentals or for capital appreciation or both. Investment property is measured initially at its cost including transaction costs incurred in acquiring the asset. After recognition as an asset, investment property is carried at cost less accumulated depreciation and impairment losses. 19

22 2.10 Intangible Assets Intangible assets are stated at cost, net of amortization calculated using the straight-line method based on the estimated useful lives of the assets as described below. The assets useful lives and amortization method are reviewed at the end of each reporting period. Development costs Software Trademark Other intangible assets Estimated useful lives 5 years 5 years 5-20 years years An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within other gains and losses, net in the income statement Reinsurance assets The Company recognizes recoverable amount of ceded insurance from reinsurance companies as reinsurance assets, included in other assets of financial statements. The Company assesses at the end of each reporting period whether there are objective evidence that reinsurance assets are impaired. A reinsurance asset is impaired if, and only if that there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance assets, that the cedant may not receive all amounts due to it under the terms of the contract, and that event has a reliably measurable impact on the amounts that the cedant will receive from the reinsurer. When reinsurance assets are impaired the carrying amount of the asset is reduced by the impairment loss amount and the amount of the loss is recognized in the income statement. 20

23 2.12 Separate Accounts Separate accounts represent assets and liabilities that are maintained by an insurance entity and are established primarily for the purpose of funding fixed and variable annuity contracts, variable life insurance contracts, variable universal insurance contracts, group annuity contracts, and similar activities. The Insurance Business Law governs the structure of separate accounts and the Regulation on Insurance Supervision has developed certain regulations with respect to separate accounts. The Regulation on Insurance Supervision indicates that a separate account is legally segregated from the insurer s general account and the assets in the separate accounts are generally restricted from being charged with liabilities arising out of any other business of the insurer. Separate accounts are currently used to support group severance and variable insurance policies. In sponsoring a group severance insurance plan, the Company generally assumes the risk of investment gains or losses and guarantees the contract holder a specified interest rate. A variable insurance contract is a contractual arrangement that combines some features of an investment company, such as when the contract holder assumes the risk of investment gains or losses, with certain traditional insurance features, such as when the insurance company assumes the risk of mortality and administrative expenses. The fair value of the contract holder s account varies with the investment experience of the specific portfolio of securities, the securities held in the separate accounts. A separate account is not a legal entity, but an accounting entity with accounting records for variable or fixed-benefit contract assets, liabilities, income and expenses segregated as a discrete operation within the insurance company. The variable contract separate accounts do not affect the results of the insurance company s other separate accounts and its general account Impairment of Non-financial Assets Goodwill or intangible assets with indefinite useful lives are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets, other than goodwill, that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 21

24 2.14 Non-current Assets (or disposal group) Held for Sale Non-current assets (or disposal group) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. Assets that meet the criteria to be classified as held for sale to be measured at the lower of carrying amount and fair value less costs to sell, and depreciation on such assets to cease. The Company recognizes an impairment loss for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell, and recognizes a gain for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognized previously Classification of insurance contracts The Company evaluates additional benefits of all the contracts, and classifies the contracts into two groups. The contracts where in the transfer of insurance risk is significant are recognized as insurance contracts, and the contracts that have the legal form of an insurance contract but do not expose the insurer to significant insurance risk are recognized as investment contracts. Insurance contracts and investment contracts with a discretionary participation feature are accounted for in accordance with Korean-IFRS 1104, and investment contracts without a discretionary participation feature are accounted for in accordance with Korean-IFRS The Company applies Korean-IFRS 1039 Financial Instruments: Recognition and Measurement to derivatives embedded in an insurance contract unless the embedded derivative is itself an insurance contract or a policyholder s option to surrender an insurance contract for a fixed amount is given. As of March 31, 2013, the Company does not have embedded derivatives qualified for separation from host contract Deferred Acquisition Costs In accordance with Article 31 of Accounting Standards for Insurance Industry, acquisition costs arising from long-duration contracts, excluding any excess amount over estimated acquisition costs, are deferred and amortized over the premium payment period or seven years, whichever is shorter. For cancellations, any unamortized portion is written off immediately. 22

25 2.17 Insurance contract liabilities The Company provides various insurance contract liabilities in accordance with the Insurance Business Act and regulations issued by the Financial Supervisory Commission and the Ministry of Finance and Economy as follows: a) Premium reserve is a net level premium reserve using interest and mortality assumptions used in computing cash surrender values. b) Reserve for outstanding claims represents refunds, dividends and claims reported and unpaid as of the date of the statement of financial position. In accordance with Article 4-3 of Detailed Enforcement Regulation on Insurance Supervision, the Company recognizes reserve for outstanding claims as an Incurred But Not Reported (IBNR), which is calculated by a rational statistical method based on the Company s experience. c) Unearned premium reserve represents the unearned portion of quarterly, semi-annual and annual premiums as of the date of the statement of financial position. d) Guaranteed benefit reserve guarantees a certain level of the insurance claims considering expected losses in the future. e) Dividends held as deposit for policyholders represent amounts payable to policyholders due to interest rate difference guarantee, mortality gains, excess interest, expense gains and long-term contracts. f) Reserve for asset revaluation represents amounts payable to policyholders with respect to the revaluation of real estate in g) Reserve for policyholders profit dividends represents undistributed earnings payable to participating policyholders which is determined based on participating policy profits. h) Reserve for assumed reinsurance premium represents amounts of all the policy reserves including reinsurance policyholders. In cases when the Company is reinsured, the reserve for ceded reinsurance premium represents amounts receivable from reinsurance companies and is deducted from policy reserves. 23

26 2.18 Policyholders Equity Adjustment a) Reserve for stabilization of policyholders dividends represents a part of the unpaid portion of policyholders share of the revaluation increase of real estate and can be utilized for the payment of dividends to participating policyholders in case the current year s dividend ratio is below that of the prior year. b) Fund for public projects represents a part of the unpaid portion of policyholders share of the revaluation increase of real estate. Annual income from the fund for public projects which is based on the average rate of investment income for the last three years must be contributed for public projects. c) At year end, unrealized holding gains and losses on available-for-sale securities are allocated to policyholders' equity adjustment by the ratio of the average policy reserve of the participating and nonparticipating contracts or the ratio of the investment source at the new acquisition year based on the date of asset acquisition Liability adequacy test The Company assesses at the end of each reporting period whether its recognized insurance liabilities are adequate, using current estimates of future cash flows under its insurance contracts. If that assessment shows that the carrying amount of its insurance liabilities is inadequate in the light of the estimated future cash flows, the entire deficiency is recognized in profit or loss Provisions and Contingent liabilities Provisions are recognized when: the Company has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Contingent liabilities are stated in the notes when: the Company has a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or a present obligation that arises from past events but is not recognized because 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. 24

27 2.21 Current and Deferred Income Tax The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity. Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax assets and liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 25

28 2.22 Employee Benefits (a) Retirement benefit obligations The Company has both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. For defined contribution plans, the Company pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, together with adjustments for unrecognized past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognized immediately in income, while costs are amortized over the vesting period. 26

29 (b) Short-term employee benefits Short-term employee benefits are employee benefits (other than termination benefits) that are due to be settled within 12 months after the end of the period in which the employees render the related service. The undiscounted amount of short-term employee benefits expected to be paid in exchange for that service is recognized as a liability (accrued expense), after deducting any amount already paid. The expected cost of profit-sharing and bonus payments are recognized as liabilities when the Company has a present legal or constructive obligation to make such payments as a result of past events render by employees and a reliable estimate of the obligation can be made. (c) Share-based payment For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received. If the fair value of the goods or services received cannot be measured reliably, the Company measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. The Company operates cash-settled, share-based compensation plans, under which the Company receives services from employees as consideration for equity instruments (options) of the Company. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense, over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. Until the liability is settled, the Company remeasures the fair value of the liability at each reporting date and at the date of settlement, with any changes in fair value recognized in profit or loss for the period. (d) Other long-term employee benefits The Company provides long-term employee benefits, which are entitled to employees with service period for ten years and above. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in the statement of income in the period in which they arise. These obligations are valued annually by independent qualified actuaries. 27

30 (e) Termination benefits Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits when it is demonstrably committed to a termination when the entity has a detailed formal plan to terminate the employment of current employees without possibility of withdrawal and in the case of an offer made to encourage voluntary redundancy Share Capital Ordinary shares are classified as equity. Where the Company purchases its own equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company s equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received is included in equity attributable to the Company s equity holders Revenue Recognition (a) Premium Income Insurance premiums received in advance are deferred as unearned revenue at the time of receipt. As the contract matures, a proportionate share of the insurance premium is recognized as revenue over the coverage period. Past due insurance premiums are not recognized as of the date of the statement of financial position. 28

31 (b) Interest income Interest income is recognized using the effective interest method according to the time passed. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, an entity shall estimate cash flows considering all contractual terms of the financial instrument but shall not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, in those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument, the Company uses the contractual cash flows over the full contractual term of the financial instrument. When a loan and receivable is impaired, the Company reduces the carrying amount to its recoverable amount and continues unwinding the discount as interest income. Interest income on impaired loan and receivables is recognized using the original effective interest rate. (c) Dividend income Dividend income is recognized when the right to receive payment is established. 29

32 2.25 Lease A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. (a) Lease as a leasee Leases of property and equipment where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance cost is charged to the statement of income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of income on a straight-line basis over the period of the lease. 30

33 (b) Lease as a lessor i) Lease classification A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership at the at the lease s commencement. A lease other than a finance lease is classified as an operating lease. Whether a lease is a finance lease depends on the substance of the transaction rather than the form of the contract and a lease is classified as finance lease when the substance of the transaction meets the following situations individually or in combination: the lease transfers ownership of the asset to the lessee by the end of the lease term; the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; the lease term is for the major part of the economic life of the asset even if title is not transferred; at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and the leased assets are of such a specialized nature that only the lessee can use them without major modifications. The Company includes the residual value guaranteed by the lessee, a party related to the lessee, or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee as part of the minimum lease payment. 31

34 ii) Finance lease The Company recognizes the assets held under a finance lease as a receivable at an amount equal to the net investment in the lease, which refers to the present value of the lease payments. The difference between the gross lease receivable and the present value of the lease receivable is recognized as unearned finance income. Expenses incurred in relation to a finance lease, whose lease agreement has been entered but not yet executed as of the reporting period, are accounted for as prepaid lease assets and transferred as finance lease receivables at the date of lease inception. The Company recognizes commissions, legal fees and internal costs that are incremental and directly attributable to negotiating and arranging a lease as part of the finance lease receivable. Lease payments relating to the period are applied against the gross investment in the lease to reduce both the principal and the unearned finance income. This finance income allocation is based on a pattern reflecting a constant periodic return on the net investment in the finance lease. Estimated unguaranteed residual values used in computing the lessor s gross investment in the lease are reviewed regularly. If there has been a reduction in the estimated unguaranteed residual value, the income allocation over the lease term is revised and any reduction in respect of amounts accrued is recognized immediately. iii) Operating lease Lease income from operating leases is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred by the lessor in negotiating and arranging an operating lease is added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income 32

35 2.26 Dividend Distribution Dividend distribution to the Company s shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Company s shareholders Approval of Issuance of the Financial Statements The issuance of the March 31, 2013 separate financial statements of the Company was approved by the Board of Directors on May 14,

36 3. Critical Accounting Estimates and Judgments The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimations and assumptions are continuously evaluated with consideration to factors such as events reasonably predictable in the foreseeable future within the present circumstance according to historical experience. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. (a) Fair value of financial instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. (b) Allowances for losses on loans receivable and other receivables The Company determines allowance for losses on loans receivable and other receivables through impairment testing. The estimates of provision of credit losses are determined by the methodology and assumptions used for estimating expected cash flows of the borrower for allowance on individual loans and collectively assessing allowances for groups of loans. (c) Defined benefit liability The present value of the defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of the defined benefit liability. The Company determines the appropriate discount rate at the end of each year. This is the interest rate that is used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit liability. In determining the appropriate discount rate, the Company considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the pension benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Other key assumptions for defined benefit liability are based in part on current market conditions. (d) Income taxes The Company recorded, based on its best estimate, current taxes and deferred taxes that the Company will be liable in the future for the operating results as of the financial year end. However, the final tax outcome in the future may be different from the amounts that were initially recorded. Such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. 34

37 4. Financial assets at fair value through profit or loss The details of financial assets at fair value through profit or loss as of, are as follows: (in millions of Korean won) Debt securities 61, ,122 Beneficiary certificates 1,702, ,815 Other securities 290,045 - Derivatives for trading 12,549 27,524 2,066, ,461 The details of debt securities at fair value through profit or loss as of, are as follows: 2013 (in millions of Korean won) Par value Acquisition cost Book value Government and public bonds 50,000 51,017 51,658 Bonds issued by government agencies 10,000 10,000 10,165 60,000 61,017 61, (in millions of Korean won) Par value Acquisition cost Book value Government and public bonds 140, , ,055 Bonds issued by government agencies 10,000 10,000 10, , , ,122 35

38 Beneficiary certificates and other trading securities at fair value through profit or loss as of March 31, 2013 and 2012, are as follows: (in millions of Korean won) Acquisition Cost Book Acquisition value Cost Book Value Beneficiary certificates 1,686,261 1,702, , ,815 Other securities 290, , ,976,261 1,992, , ,815 Loaned securities relating financial assets at fair value through profit or loss as of March 31, 2013 and 2012, are as follows: (in millions of Korean won) Loaned to Government and public bonds 30,750 29,947 Korea Securities Finance Corporation The right to receive the principal and interest from the loaned securities above is vested on the Company. And the Company has the right to claim for the return of the loans receivable to the lender, without extra fees or time restriction. 36

39 5. Available-for-sale financial assets The details of available-for-sale financial assets as of, are as follows: (in millions of Korean won) Equity securities 19,514,106 16,817,274 Debt securities 75,962,863 61,491,339 Beneficiary certificates 2,483,092 2,573,735 Overseas securities 11,560,427 12,631,551 Other securities 493, , ,014,189 93,856,295 The details of equity securities among available-for-sale financial assets as of March 31, 2013 and 2012, are as follows: (in millions of Korean won) Acquisition cost Acquisition Book value cost Book value Listed securities 1,479,074 19,277,773 1,372,452 16,573,054 Unlisted securities 173, , , ,220 1,652,711 19,514,106 1,542,209 16,817,274 The details of debt securities among available-for-sale financial assets as of March 31, 2013 and 2012, are as follows: 2013 (in millions of Korean won) Par value Acquisition cost Book value Government and public bonds 33,594,583 32,617,962 36,311,735 Bonds issued by government agencies 30,331,491 30,471,086 32,536,033 Bonds issued by financial institutions 1,718,217 1,725,582 1,796,863 Corporate bonds 5,096,750 5,110,405 5,318,232 70,741,041 69,925,035 75,962, (in millions of Korean won) Par value Acquisition cost Book value Government and public bonds 29,466,987 28,404,049 30,408,220 Bonds issued by government agencies 24,131,090 24,199,989 25,110,635 Bonds issued by financial institutions 1,943,217 1,945,189 1,988,312 Corporate bonds 3,906,750 3,906,528 3,984,172 59,448,044 58,455,755 61,491,339 37

40 Beneficiary certificates among available-for-sale financial assets as of, are as follows: (in millions of Korean won) Acquisition cost Acquisition Book value cost Book value Stock-type 1,785,771 1,889,770 1,817,528 1,957,823 Bond-type Real estate-type 590, , , ,910 2,376,720 2,483,092 2,414,609 2,573,735 Overseas securities among available-for-sale financial assets as of, are as follows: (in millions of Korean won) Acquisition cost Acquisition Book value cost Book value Stocks 20,041 11,449 25,945 17,517 Bonds 11,049,057 11,063,923 12,401,026 12,413,677 Others 504, , , ,357 11,573,897 11,560,427 12,647,139 12,631,551 Other securities among available-for-sale financial assets as of, are as follows: (in millions of Korean won) Acquisition cost Acquisition Book value cost Book value Mutual fund 132, , , ,235 Hybrid securities 332, , , ,766 Others 20,000 21,157 11,000 11, , , , ,396 38

41 The changes in unrealized holding gains or losses on available-for-sale financial assets for the year ended, are as follows: 2013 (in millions of Korean won) Beginning Realized Valuation gains (losses) Ending Gains(losses) on valuation of available-for-sale financial assets Amount allocated to policyholders' equity adjustment Amount allocated to deferred Income tax liabilities Amount allocated to accumulated other comprehensive income \ 19,019,962 \ (265,037) \ 5,848,202 \24,603,127 7,333,291 4,179,300 \13,090, (in millions of Korean won) Beginning Realized Valuation gains (losses) Ending Gains(losses) on valuation of available-for-sale financial assets Amount allocated to policyholders' equity adjustment Amount allocated to deferred Income tax liabilities Amount allocated to accumulated other comprehensive income \ 14,737,299 \ (303,898) \ 4,586,561 \19,019,962 5,882,760 3,179,203 \ 9,957,999 Impairment losses on available-for-sale financial assets for the years ended, are as follows: (in millions of Korean won) Equity securities 34, Beneficiary certificates - 6,008 Overseas securities 16,528 14,504 Other securities 89-50,989 20,756 39

42 Pledged as collateral securities in available-for-sale securities as of, are as follows: 2013 (in millions of Korean won) Custodian Book value Remarks Government and public bonds and others Credit Suisse and 13 financial institutions 3,712,362 Derivatives transactions 2012 (in millions of Korean won) Custodian Book value Remarks Government and public bonds and others Credit Suisse and 13 financial institutions 4,568,124 Derivatives transactions Loaned securities in available-for-sale financial assets as of, are as follows: (in millions of Korean won) Loaned to Government and public bonds and others 5,280,498 2,212,030 Korea Securities Finance Corporation and others The right to receive the principal and interest from the loaned securities above is vested on the Company. And the Company has the right to claim for the return of the loans receivable to the lender which includes Korea Securities Finance Corporation, without extra fees or time restriction. 40

43 6. Held-To-Maturity financial assets Book values of held-to-maturity financial assets as of, are as follows: (in millions of Korean won) Debt securities 857,386 1,057,835 The details of held-to-maturity debt securities as of, are as follows: 2013 (in millions of Korean won) Par value Acquisition cost Book value Government and public bonds 739, , ,393 Bonds issued by government agencies 120, , , , , , (in millions of Korean won) Par value Acquisition cost Book value Government and public bonds 945, , ,858 Bonds issued by government agencies 120, , ,977 1,065, ,259 1,057,835 Pledged as collateral securities in held-to-maturity securities as of, are as follows: 2013 (in millions of Korean won) Custodian Book value Remarks Government and public bonds and others RBS 12,246 Derivatives transactions 2012 (in millions of Korean won) Custodian Book value Remarks Government and public bonds and others RBS and 1 financial institution 19,283 Derivatives transactions 41

44 The changes in unrealized holding gains or losses on held-to-maturity financial assets for the years ended, are as follows: 2013 (in millions of Korean won) Beginning Realized Valuation gains (losses) Ending Gains(losses) on valuation of held-to-maturity financial assets Amount allocated to policyholders' equity adjustment Amount allocated to deferred income tax liabilities Amount allocated to accumulated other comprehensive income 4,374 (1,257) - 3, , (in millions of Korean won) Beginning Realized Valuation gains (losses) Ending Gains(losses) on valuation of held-to-maturity financial assets Amount allocated to policyholders' equity adjustment Amount allocated to deferred income tax liabilities Amount allocated to accumulated other comprehensive income 5,398 (1,024) - 4,374 1, ,290 42

45 7. Loans Receivable and Other Receivables The details of loans receivable and other receivables as of, are as follows: (in millions of Korean won) Loans receivable 25,096,250 24,339,707 Other receivables 4,175,145 3,164,087 29,271,395 27,503,794 The details of loans receivable as of, are as follows: (in millions of Korean won) Call loans 23,000 - Policy loans receivable 13,846,245 13,335,206 Loans secured by securities Loans secured by real estate 7,425,599 7,221,383 Unsecured loans receivable 3,201,578 3,441,696 Loans secured by third party guarantee 250, ,753 Other loans receivable 328, ,382 25,075,042 24,343,581 Deferred loan origination fees and costs 52,055 42,475 Unwinding of the discount (3,070) (3,154) Allowances (27,777) (43,195) Book value 25,096,250 24,339,707 The details of other receivables as of, are as follows: (in millions of Korean won) Bank deposits 1 2,277,080 1,336,812 Insurance receivables 197, ,983 Other accounts receivable 117, ,357 Leasehold deposits 119, ,542 Accrued interest income 1,513,072 1,465,588 4,224,399 3,211,282 Unwinding of the discount (3,216) (1,596) Allowances (46,038) (45,599) Book value 4,175,145 3,164,087 1 As of March 31, 2013, deposits amounting to 19 million (2012: 19 million) are subject to withdrawal restriction. 43

46 Allowances for loans receivable and other receivables classified according to receivable type as of, are as follows: (in millions of Korean won) Loans receivable Policy loans receivable Loans secured by real estate 4,283 4,841 Unsecured loans receivable 22,427 38,047 Loans secured by third party guarantee Other loans receivable Other receivables 27,777 43,195 Insurance receivables Other accounts receivable 45,458 44,854 Accrued interest income ,038 45,599 The changes in allowances for loans receivable and other receivables for the years ended March 31, 2013 and 2012, are as follows: 2013 (in millions of Korean won) Loans receivable Other receivables Beginning balance 43,195 45,599 Increase Bad debt losses - 1,141 Collection of loans previously written-off 32,446-32,446 1,141 Decrease Write-off 34, Reversal of allowance 9,534 - Unwinding effect 3,774-47, Ending balance 27,777 46,038 44

47 2012 (in millions of Korean won) Loans receivable Other receivables Beginning balance 51,361 47,108 Increase Collection of loans previously written-off 34,676-34,676 - Decrease Write-off 31, Reversal of allowance 8, Unwinding effect 3,199-42,842 1,509 Ending balance 43,195 45,599 Ratios of allowances to loans receivable and other receivables as of, are as follows: (in millions of Korean won) Loans receivable 25,075,042 24,343,581 Other receivables 4,224,399 3,211,282 29,299,441 27,554,863 Allowance 73,815 88,794 Ratio(%) 0.25% 0.32% The details of insurance receivables as of, are as follows: (in millions of Korean won) Insurance receivables Premiums incurred but not received 192, ,256 Insurance settlement adjustments 1,305 1,421 Reinsurance receivables 3,487 3, , ,983 45

48 8. Derivative financial instruments The Company has derivative financial instruments for trading and hedging. Derivative financial instruments for trading are to earn capital appreciation or manage assets and liabilities of the Company. Derivative financial instruments for hedge accounting are to hedge the risk of changes in fair value or future cash flows, through interest rate swap and currency swap. The details of derivative financial instruments as of, are as follows: 2013 Trading Hedging Total (in millions of Korean won) Assets Liabilities Assets Liabilities Assets Liabilities Currency swaps 12,295 31, , , , ,956 Currency forwards - 13,207 8,400 8,467 8,400 21,674 Embedded derivatives , ,872 12, , , , , ,502 Credit risk adjustment , , , , , , Trading Hedging Total (in millions of Korean won) Assets Liabilities Assets Liabilities Assets Liabilities Currency swaps 15,429 41, ,432 1,282, ,861 1,323,359 Currency forwards 5, ,465 1,135 7,827 1,682 Interest rate options 1, ,233 - Interest rate swaps Stock swaps Index options 4, ,923 - Embedded derivatives 3 242, ,350 27, , ,969 1,283, ,496 1,567,657 Credit risk adjustment (3) - (87) - (90) - 27, , ,882 1,283, ,406 1,567,657 46

49 Summary of derivative transactions as of and for the years ended, is as follows: 2013 (in millions of Korean won) Outstanding contracts amount Trading Gains on valuation (PL) Losses on valuation (PL) Outstanding contracts amount Gains on valuation (PL) Hedging Losses on valuation (PL) Gains(losses) on valuation (BS) Currency swaps 341,296 11,890 6,418 9,843, ,818 3,177 (221,182) Currency forwards 347,595-13, ,829 9,923 8,467 (10,035) Embedded derivatives - 103,731 (3) , ,621 19,621 10,620, ,741 11,644 (231,001) 2012 (in millions of Korean won) Outstanding contracts amount Trading Gains on valuation (PL) Losses on valuation (PL) Outstanding contracts amount Gains on valuation (PL) Hedging Losses on valuation (PL) Gains(losses) on valuation (BS) Currency swaps 373,682 3,621 7,091 11,305,469 76, ,499 (395,106) Currency forwards 269,547 5, ,281 2,578 1,248 (10,035) Currency futures 4, Interest rate options 150, Interest rate swaps 145,000 2,968-50, (117) Stock swaps 70, Index options 130, , Embedded derivatives - 3,430 31, ,143,280 16,284 41,010 11,598,750 79, ,747 (405,108) 47

50 The changes in unrealized holding gains or losses on derivatives financial instruments for the years ended, are as follows: 2013 (in millions of Korean won) Beginning balance Realized Valuation gains (losses) Ending balance Gains(losses) on valuation of derivatives financial instruments for hedge accounting Amount allocated to policyholders' equity adjustment Amount allocated to deferred income tax liabilities Amount allocated to accumulated other comprehensive income (534,443) (282,974) 512,665 (304,752) - (73,751) (231,001) 2012 (in millions of Korean won) Beginning balance Realized Valuation gains (losses) Ending balance Gains(losses) on valuation of derivatives financial instruments for hedge accounting Amount allocated to policyholders' equity adjustment Amount allocated to deferred income tax liabilities Amount allocated to accumulated other comprehensive income (444,650) 186,962 (276,755) (534,443) - (129,335) (405,108) The period that the Company is exposed to the cash flow variations risk on the derivatives contracts used for cash flow hedge is up to June 20, And among the unrealized holding gains and losses on derivatives recorded as accumulated other comprehensive income, the amount that is estimated to be realized as gains within 12 months from March 31, 2013, after considering deferred income tax charged to equity, is 22,392 million (2012: 32,048 million). For the year ended March 31, 2013, the ineffective portion of gains(losses) on valuations of derivative financial instruments for cash flow hedge is 24,889 million (2012: 4,025 million). 48

51 9. Financial Instruments by Category The book value and fair value of financial assets as of, are as follows: 2013 (in millions of Korean won) Book value Fair value Financial assets Cash and cash equivalents 2,236,996 2,236,996 Financial assets at fair value through profit or loss 2,054,377 2,054,377 Financial assets at fair value through profit or loss (Derivatives held for trading) 12,549 12,549 Available-for-sale financial assets 110,014, ,014,189 Loans receivable 25,096,250 25,275,833 Other receivables 4,175,145 4,175,145 Held-to-maturity financial assets 857, ,280 Derivative assets held for hedging 293, ,802 Financial liabilities Financial liabilities at fair value through profit or loss (Derivatives held for trading) 183, ,336 Other financial liabilities 987, , Derivative liabilities held for hedging 813, ,166 (in millions of Korean won) Book value Fair value Financial assets Cash and cash equivalents 1,591,407 1,591,407 Financial assets at fair value through profit or loss 424, ,937 Financial assets at fair value through profit or loss (Derivatives held for trading) 27,524 27,524 Available-for-sale financial assets 93,856,295 93,856,295 Loans receivable 24,339,707 24,444,566 Other receivables 3,164,087 3,164,087 Held-to-maturity financial assets 1,057,835 1,127,356 Derivative assets held for hedging 239, ,882 Financial liabilities Financial liabilities at fair value through profit or loss (Derivatives held for trading) 284, ,372 Other financial liabilities 970, ,912 Derivative liabilities held for hedging 1,283,285 1,283,285 49

52 Methods of determining fair value for financial instruments are as follows: Cash and cash equivalents: Cash and cash equivalents include cash on hand, cash in banks, and highly liquid temporary cash investments with original maturities of three months or less. The carrying amount of these investments approximates fair value. Investment securities: The fair value of financial instruments that are quoted in active markets is determined using the quoted prices. Fair value is determined by independent third-party pricing services where quoted prices are not available. Pricing services use one or more of the valuation techniques including Discounted Cash Flow Model, Imputed Market Value Model, Free Cash Flow to Equity Model, Dividend Discount Model, and Net Asset Value Method. Loans receivable: Discounted Cash Flow Model is used to determine the fair value of loans. Fair value is determined by discounting the expected cash flow, which are contractual cash flows adjusted by prepayment rate, at appropriate discount rate. For those loans with residual maturities of less than one year as of the acquisition date and the ones with interest rate reset period of less than three months, carrying amount is regarded as fair value. Derivatives: For exchange traded derivatives, quoted price in an active market is used to determine fair value and for OTC derivatives, fair value is determined by independent third-party pricing services. Pricing services use internally developed valuation models that are widely used by market participants to determine fair values of plain vanilla OTC derivatives including options, interest rate swaps, and currency swaps, based on observable market parameters. However, some complex financial instruments are valued using appropriate models developed from generally accepted market valuation models including the Monte Carlo Simulation. Other receivables and other financial liabilities: For those assets and debts with residual maturities of short term, the carrying amount is regarded as fair value. 50

53 Fair value hierarchy of financial instruments that are measured at fair value as of March 31, 2013 and 2012, is as follows: 2013 (in millions of Korean won) Level 1 Level 2 Level 3 Total Financial assets Financial assets at fair value through profit or loss 51,658 2,002,719-2,054,377 Financial assets at fair value through profit or loss (Derivatives held for trading) - 12,549-12,549 Derivative assets held for hedging - 293, ,802 Available-for-sale financial assets 51,352,735 58,250, , ,005,319 Financial liabilities Financial liabilities at fair value through profit or loss (Derivatives held for trading) - 183, ,336 Derivative liabilities held for hedging - 813, , (in millions of Korean won) Level 1 Level 2 Level 3 Total Financial assets Financial assets at fair value through profit or loss 141, , ,937 Financial assets at fair value through profit or loss (Derivatives held for trading) - 27,524-27,524 Derivative assets held for hedging - 239, ,882 Available-for-sale financial assets 43,070,993 50,357, ,425 93,823,633 Financial liabilities Financial liabilities at fair value through profit or loss (Derivatives held for trading) - 284, ,372 Derivative liabilities held for hedging - 1,283,285-1,283,285 The levels of the fair value hierarchy and its application to financial assets and liabilities are described below. Level 1 : Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 : Inputs, other than quoted prices, that are observable from market for the asset or liability, either directly(that is, as prices) or indirectly (that is, derived from prices) Level 3 : Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) 51

54 The fair value of financial instruments traded in active markets is based on quoted market prices at the statement of financial position date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, an entity in the same industry, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm s length basis. The quoted market price used for financial assets held by the Company is the current bid price. These instruments are included in Level 1. Instruments included in Level 1 consist primarily of KOSPI and KOSDAQ equity investments classified as financial assets at fair value through profit or loss or available-for-sale financial assets. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. There are no significant changes between level 1 and level 2 of fair value hierarchy for the years ended. The changes in level 3 of the fair value hierarchy for the years ended, are as follows: 2013 (in millions of Korean won) Available-for-sale financial assets Total Beginning balance 395, ,425 Total profit Profit or loss (48,734) (48,734) Other comprehensive income 45,529 45,529 Purchases 30,313 30,313 Sales 38,679 38,679 Transfer into level 3 22,337 22,337 Transfer out of level Others (4,168) (4,168) Ending balance 402, ,023 52

55 2012 (in millions of Korean won) Available-for-sale financial assets Total Beginning balance 210, ,063 Total profit Profit or loss (14,321) (14,321) Other comprehensive income 46,378 46,378 Purchases 16,869 16,869 Sales 34,003 34,003 Transfer into level 3 168, ,714 Transfer out of level Others 1,725 1,725 Ending balance 395, ,425 Certain financial assets presented at their acquisition cost as of, are as follows: (in millions of Korean won) Equity securities 8,870 32,662 These equity securities are carried at cost because it is practically difficult to quantify the intrinsic values of the equity securities issued by unlisted public and non-profit entities. In addition, probabilities and range of estimated cash flows of the unlisted equity securities which are issued by project financing companies cannot be reasonably assessed. Therefore, these equity securities are carried at cost. The Company has no plan to sell these instruments in the near future, and is expected to measure their fair value upon the privatization of invested companies or upon further progress of the projects. 53

56 Categorizations of the Company's financial instruments as of, are as follows: 2013 (in millions of Korean won) Financial assets and liabilities at fair value through profit or loss Available -for-sale financial assets Loans receivable and other receivables Held-tomaturity financial assets Derivative instruments for hedge accounting Financial liabilities at amortized cost Total Financial assets Cash and cash equivalents - - 2,236, ,236,996 Financial assets at fair value 2,054, ,054,377 through profit or loss Financial assets at fair value through profit or loss 12, ,549 (Derivatives held for trading) Available-for-sale financial assets - 110,014, ,014,189 Loans receivable ,096, ,096,250 Other receivables - - 4,175, ,175,145 Held-to-maturity financial assets , ,386 Derivative assets held for hedging , ,802 2,066, ,014,189 31,508, , , ,740,694 Financial liabilities Financial liabilities at fair value through profit or loss 183, ,336 (Derivatives held for trading) Other financial liabilities , ,315 Derivative liabilities held for hedging , , , , ,315 1,983,817 54

57 2012 (in millions of Korean won) Financial assets and liabilities at fair value through profit or loss Available -for-sale financial assets Loans receivable and other receivables Held-tomaturity financial assets Derivative instruments for hedge accounting Financial liabilities at amortized cost Total Financial assets Cash and cash equivalents - - 1,591, ,591,407 Financial assets at fair value 424, ,937 through profit or loss Financial assets at fair value 27, ,524 through profit or loss (Derivatives held for trading) Available-for-sale financial assets - 93,856, ,856,295 Loans receivable ,339, ,339,707 Other receivables - - 3,164, ,164,087 Held-to-maturity financial assets ,057, ,057,835 Derivative assets held for hedging , ,882 Financial liabilities Financial liabilities at fair value through profit or loss (Derivatives held for trading) Other financial liabilities Derivative liabilities held for hedging 452,461 93,856,295 29,095,201 1,057, , ,701, , , , , ,283,285-1,283, , ,283, ,912 2,538,569 55

58 Classification of net gains or losses on financial instruments by category for the years ended, is as follows: (in millions of Korean won) Financial assets at fair value through profit or loss Interest income(expense) 8,431 12,497 Gains(Losses) on valuation or sale (profit or loss) 32,052 3,112 Available-for-sale financial assets Impairment losses or reversal of impairment losses(profit or loss) (50,989) (20,756) Foreign exchange gains(losses) (365,657) 215,884 Interest income(expense) 3,590,348 3,413,902 Gains(Losses) on valuation or sale(profit or loss) 193, ,146 Total gains(losses) on valuation(other comprehensive 1 income(loss)) 5,848,202 4,586,561 Realized profit or loss from total gains(losses) on valuation (265,037) 303,898 Dividend income 198, ,885 Held-to-maturity financial assets Interest income(expense) 55,604 68,494 Loans receivables Interest income(expense) 1,676,262 1,736,099 Gains(Losses) on valuation or sale(profit or loss) 9,534 8,051 Other receivables Foreign exchange gains(losses) (11,348) (7,948) Interest income(expense) 54,072 94,524 Gains(Losses) on valuation or sale(profit or loss) (1,141) 926 Other financial liabilities Foreign exchange gains(losses) Interest income(expense) (16,560) (19,304) Derivative financial instruments held for trading Gains(Losses) on valuation or sale(profit or loss) 116,244 (58,731) Derivative financial instruments held for hedging Gains(Losses) on valuation or sale(profit or loss) 371,659 (188,054) Total gains(losses) on valuation(other comprehensive 1 income(loss)) 512,665 (276,755) Realized profit or loss from total gains(losses) on valuation (282,974) (186,962) 1 The changes in total gains (losses) on valuation are the amount before allocating policyholders' equity adjustment and deferred income tax. 56

59 10. Investments in Subsidiaries, Associates and Joint Ventures The details of investments in subsidiaries, associates and joint ventures as of March 31, 2013 and 2012, are as follows: (in millions of Korean won) Location Percentage of ownership (%) Book value Percentage of ownership (%) Book value Subsidiaries Samsung Life USA , ,152 Investment (America), Ltd. Samsung Life 1 China ,906 Properties (China), Ltd. Samsung Life United , ,004 Investment (UK), Ltd. Kingdom SSI Capital Holding 2 Thailand 49,00 5, Park Capital Holding 3 Thailand 49,00 11, Thai Samsung Life Insurance 4 Co.,Ltd. Thailand , Beijing Samsung Real Estate Co., Ltd. China , ,491 Samsung life Service Claim Adjustment co., Ltd. Korea , ,193 Samsung SRA Asset Management Co., Ltd. Korea , KDB High-end Investment Trust No.1 and other beneficiary certificates Korea - 5,307-7, , ,431 Associates Samsung Card Korea ,218, ,218,681 Samsung Futures Korea , ,178 A&D credit information 5 Korea , ,947 Kocref No.6 7 Korea ,000 Kocref No.8 5 Korea , ,759 Kocref No.14 5 Korea , ,143 New Airport Highway 5 Korea , ,931 KTB Mezzanine Korea , ,869 Samsung Venture No.9 7 Korea ,866 Samsung Venture No.11 Korea , ,139 Samsung Venture No.18 Korea , ,596 Samsung Venture No.25 Korea , KTIC No.24 7 Korea KTIC No.27 Korea , ,413 Bokwang No.16 6 Korea , ,364 Joint ventures 1,368,729 1,379,382 Saengbo Real Estate Trust Korea , ,958 Samsung Air China Life Insurance China , ,295 84,061 57,253 2,004,184 2,002,066 57

60 1 The securities of Samsung Life Properties (China), Ltd. are classified as held-for-sale assets during the reporting period (Note 41). 2 The Company acquired the 49% equity shares of the SSI Capital Holding s interest during the reporting period. Considering the Company can control the investee by nominating the majority of members of board of directors, SSI Capital Holding is classified as subsidiary even though the Company owns less than 50% of the equity shares. 3 The Company acquired 49% equity shares of Park Capital Holding. Accordingly, Park Capital Holding is classified as the subsidiary of the Company since the Company has control over the Park Capital Holding. 4 The corporate name of Siam Samsung Life Insurance Co., Ltd. was changed to Thai Samsung Life Insurance Co., Ltd. during the reporting period. Park Capital Holding, the subsidiary of the Company, acquired additional 51% shares during the reporting period. Thus, Thai Samsung Life Insurance Co., Ltd. is reclassified as subsidiary considering the Company and its subsidiaries have control over Thai Samsung Life Insurance Co., Ltd. during the reporting period. 5 The Company applied the equity method accounting as the Company can exert significant influence in the investees through its seat at the investees board of directors. 6 The Company does not hold control because it is a limited partner and its decision-making power, benefits and risks are limited as stated in the articles of association. 7 Liquidated during the year ended March 31, If the difference between the fiscal year end of the associates, subsidiaries, joint ventures and the Company is three months, the recent financial statements of investee were used to calculate deemed cost. 58

61 The changes in subsidiaries, associates, and joint ventures for the years ended March 31, 2013 and 2012, are as follows: 2013 (in millions of Korean won) Subsidiaries Beginning Balance Acquisition Disposal Ending balance Samsung Life Investment (America), Ltd. 18, ,152 Samsung Life Properties (China), Ltd. 52,906 - (52,906) - Samsung Life Investment (UK), Ltd. 24, ,004 SSI Capital Holding - 5,836-5,836 Park Capital Holding - 11,382-11,382 Thai Samsung Life Insurance Co., Ltd. 1 9,046 3,983-13,029 Beijing Samsung Real Estate Co., Ltd. 434, ,491 Samsung Life Service Claim Adjustment co., Ltd. 19, ,193 Samsung SRA Asset Management Co., Ltd. - 20,000-20,000 KDB High-end Investment Trust No.1 and other beneficiary certificates 7,639 - (2,332) 5,307 Associates 565,431 41,201 (55,238) 551,394 Samsung Card 1,218, ,218,681 Samsung Futures 41, ,178 A&D Credit Information 2, ,947 Kocref No.6 10,000 - (10,000) - Kocref No.8 2, ,759 Kocref No.14 6, ,143 New Airport Highway 32, ,931 KTB Mezzanine 6,869 - (1,477) 5,392 Samsung Venture No.9 1,866 - (1,866) - Samsung Venture No.11 12,139 - (4,400) 7,739 Samsung Venture No.18 31,596 6,416-38,012 Samsung Venture No.25-1,170-1,170 KTIC No (496) - KTIC No.27 4, ,413 Bokwang No.16 7, ,364 Joint ventures 1,379,382 7,586 (18,239) 1,368,729 Saengbo Real Estate Trust 29, ,958 Samsung Air China Life Insurance 27,295 26,808-54,103 1 Classified as an associate in the previous reporting period. 57,253 26,808-84,061 2,002,066 75,595 (73,477) 2,004,184 59

62 2012 (in millions of Korean won) Beginning balance Acquisition Disposal Ending balance Subsidiaries Samsung Life Investment (America), Ltd. 18, ,152 Samsung Life Properties (China), Ltd. 52, ,906 Samsung Life Investment (UK), Ltd. 24, ,004 Beijing Samsung Real Estate Co., Ltd , ,491 Samsung Life Service Claim Adjustment co., Ltd. KDB High-end Investment Trust No.1 and other beneficiary certificates Associates - 19,193-19, ,977 - (553,338) 7, , ,684 (553,338) 556,385 Samsung Card 1,218, ,218,681 Samsung Futures 41, ,178 A&D Credit Information 2, ,947 Kocref No.6 10, ,000 Kocref No.8 2, ,759 Kocref No.14 6, ,143 New Airport Highway 32, ,931 Macquarie Central Office 1,005 - (1,005) - Thai Samsung Life Insurance Co., Ltd. 6,299 2,747-9,046 KTB Mezzanine 6, ,869 Samsung Venture No.9 5,424 - (3,558) 1,866 Samsung Venture No.11 17,151 - (5,012) 12,139 Samsung Venture No.18 15,140 16,456-31,596 KTIC No.24 1,836 - (1,340) 496 KTIC No.27 5,450 - (1,037) 4,413 Bokwang No.16 7, ,364 1,381,177 19,203 (11,952) 1,388,428 Joint ventures Saengbo Real Estate Trust 29, ,958 Samsung Air China Life Insurance 27, ,295 57, ,253 2,094, ,887 (565,290) 2,002,066 60

63 The marketable investments in subsidiaries, associates and joint ventures as of March 31, 2013, are as follows: Number of shares owned Market value per share (In Korean won) Market prices (In millions of Korean won) Recorded book value (In millions of Korean won) Samsung Card 32,468,868 \ 39,550 \ 1,284,144 \ 1,218,681 Kocref No.8 613,400 4,810 2,950 2,759 The details of net gains(losses) on investments in subsidiaries, associates and joint ventures for the years ended, are as follows: (in millions of Korean won) Gains on investments in subsidiaries, associates and joint ventures Gains on disposal 3, ,279 Gains on dividends 28,864 40,130 32, ,409 Losses on investments in subsidiaries, associates and joint ventures Impairment losses (3,808) - Losses on disposal - (663) (3,808) (663) 29, ,746 61

64 11. Investment Property The investment properties as of, are as follows: 2013 (in millions of Korean won) Land Buildings and structures Construction in progress Total Acquisition cost 1,942,060 2,843, ,040 5,104,746 Accumulated depreciation - (673,434) - (673,434) Balance at March 31, ,942,060 2,170, ,040 4,431, (in millions of Korean won) Land Buildings and structures Construction in progress Total Acquisition cost 1,846,827 2,790, ,938 4,774,441 Accumulated depreciation - (637,006) - (637,006) Balance at March 31, ,846,827 2,153, ,938 4,137,435 The changes in investment properties for the years ended, are as follows: 2013 (in millions of Korean won) Land Buildings and structures Construction in progress Total Balance at April 1, ,846,827 2,153, ,938 4,137,435 Acquisition and capital expenditure 105,776 99, , ,087 Transfer 27,933 39,781 (67,714) - Disposal (14,486) (19,796) - (34,282) Depreciation - (57,960) - (57,960) Others 1 (23,990) (44,978) - (68,968) Balance at March 31, ,942,060 2,170, ,040 4,431,312 1 Consists of transfer to or from property and equipment. 62

65 2012 (in millions of Korean won) Land Buildings and structures Construction in progress Total Balance at April 1, ,583,650 2,076,269 92,405 3,752,324 Acquisition and capital expenditure 166,759 80, , ,934 Transfer 154,417 88,392 (242,809) - Disposal (6,631) (6,044) - (12,675) Depreciation - (53,859) - (53,859) Others 1 (51,368) (32,023) (898) (84,289) Balance at March 31, ,846,827 2,153, ,938 4,137,435 1 Consists of transfer to or from property and equipment. As of, the fair values of investment properties are 6,050,014 million and 5,598,643 million, respectively. The fair value of investment properties is assessed based on the evaluation by an independent valuer, who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued. Rental income and operating expense of investment properties for the years ended March 31, 2013 and 2012, are as follows: (in millions of Korean won) Rental income 322, ,418 Operating expense Related to rental income 122, ,193 Others 465 2,158 63

66 12. Property and Equipment The property and equipment as of, are as follows: 2013 (in millions of Korean won) Land Buildings and structures Construction in progress Others Total Acquisition cost 545,388 1,481,376 4, ,849 2,422,622 Accumulated depreciation - (399,126) - (333,975) (733,101) Balance at March 31, ,388 1,082,250 4,009 57,874 1,689, (in millions of Korean won) Land Buildings and structures Construction in progress Others Total Acquisition cost 522,000 1,397,392 5, ,020 2,315,332 Accumulated depreciation - (352,112) - (330,582) (682,694) Balance at March 31, ,000 1,045,280 5,920 59,438 1,632,638 The changes in property and equipment for the years ended, are as follows: 2013 (in millions of Korean won) Land Buildings and structures Construction in progress Others Total Balance at April 1, ,000 1,045,280 5,920 59,438 1,632,638 Acquisition and capital expenditure 54 25, ,215 51,929 Transfer - 2,715 (2,715) - - Disposal (656) (2,547) - (284) (3,487) Depreciation - (38,175) - (26,495) (64,670) Others 1 23,990 49, ,111 Balance at March 31, ,388 1,082,250 4,009 57,874 1,689,521 1 Consists of transfer to or from investment property. 64

67 2012 (in millions of Korean won) Land Buildings and structures Construction in progress Others Total Balance at April 1, , ,480 50,591 63,559 1,514,284 Acquisition and capital expenditure ,589 14,262 24,028 97,657 Transfer ,319 (59,830) Disposal (849) (3,548) - (339) (4,736) Depreciation - (30,720) - (28,134) (58,854) Others 1 49,230 34, ,287 Balance at March 31, ,000 1,045,280 5,920 59,438 1,632,638 1 Consists of transfer to or from investment property. The details of insured investment property, and property and equipment as of March 31, 2013 and 2012, are as follows: (in millions of Korean won) Insurance coverage Insurance type Insured assets Insurance company Comprehensive policy Building and others 4,776,845 4,467,602 Samsung Fire & Marine Insurance As of March 31, 2013, buildings and land provided as collaterals amount to 94,660 million and leasehold rights amounting to 40,684 million are provided as collaterals for leasehold deposits. 65

68 13. Intangible Assets The details of intangible assets as of, are as follows: 2013 (in millions of Korean won) Development costs Software Memberships Others Total Acquisition cost 182, ,050 75,513 12, ,208 Accumulated amortization (118,880) (83,425) - (12,200) (214,505) Accumulated impairment - - (4,655) - (4,655) Balance at March 31, ,896 27,625 70, , (in millions of Korean won) Development costs Software Memberships Others Total Acquisition cost 275,687 96,983 93,114 12, ,646 Accumulated amortization (207,137) (73,369) - (12,061) (292,567) Accumulated impairment - - (2,746) - (2,746) Balance at March 31, ,550 23,614 90, ,333 The changes in intangible assets for the years ended, are as follows: 2013 (in millions of Korean won) Development costs Software Memberships Others Total Balance at April 1, ,550 23,614 90, ,333 Acquisition 18,830 14,067 5, ,183 Disposal - - (22,819) - (22,819) Amortization (23,484) (10,056) - (139) (33,679) Impairment - - (1,970) - (1,970) Balance at March 31, ,896 27,625 70, ,048 66

69 2012 (in millions of Korean won) Development costs Software Memberships Others Total Balance at April 1, ,860 27,755 89,744 2, ,639 Acquisition 14,916 5,442 3, ,990 Disposal - - (26) - (26) Amortization (22,137) (9,583) - (308) (32,028) Impairment (89) - (2,747) (1,406) (4,242) Balance at March 31, ,550 23,614 90, ,333 67

70 14. Other assets As of, the details of other assets are as follows: (in millions of Korean won) Reinsurance assets 34,827 36,236 Prepaid expenses 22,059 21,728 Advances 2,758 2,244 Deferred acquisition cost 4,077,019 3,984,075 4,136,663 4,044,283 Reinsurance assets As of, the details of reinsurance assets are as follows: (in millions of Korean won) Ceded reserve for outstanding claims 3,179 2,567 Ceded unearned premium reserve 8,502 9,280 Ceded reserve for loss on incurred but not reported 23,146 24,389 34,827 36,236 Deferred acquisition cost The changes in deferred acquisition cost for the years ended, are as follows: (in millions of Korean won) Individual insurance Group insurance Total Individual insurance Group insurance Total Beginning balance 3,875, ,933 3,984,075 3,750,392 99,275 3,849,667 Deferral 2,159,053 80,664 2,239,717 1,904,317 70,489 1,974,806 6,034, ,597 6,223,792 5,654, ,764 5,824,473 Amortization 2,079,194 67,579 2,146,773 1,779,567 60,831 1,840,398 Ending balance 3,955, ,018 4,077,019 3,875, ,933 3,984,075 68

71 15. Separate Accounts and Trust assets Separate accounts The statements of financial position of separate accounts as of, are as follows: (in millions of Korean won) Assets Cash and bank deposits 2,697,275 4,185,920 Financial assets 25,104,511 19,229,718 Other assets 359, ,062 28,161,584 23,801,700 Liabilities Other liabilities 147, ,976 Insurance contracts liabilities 19,488,097 17,057,895 Investment contracts liabilities 8,642,530 6,804,781 28,277,936 23,983,652 Equity Accumulated other comprehensive income 97,971 39,538 69

72 Revenues and expenses of guaranteed interest contracts for the years ended March 31, 2013 and 2012, are as follows: (in millions of Korean won) Revenues Premium income 1,839 53,164 Interest income 297, ,307 Gains on disposal of financial assets 18,376 13,437 Gains on valuation of financial assets 8,670 1,025 Other income 24,184 7, , ,917 Expenses Increase in policy reserves (123,496) (2,283,624) Claims paid 407,242 2,604,434 Separate account commission 50,573 56,202 Service fees Interest expenses 891 2,403 Losses on disposal of financial assets 7,691 2,310 Losses on valuation of financial assets 599 4,724 Other expenses 6, , ,917 70

73 Revenues and expenses of investment-linked fund (protection-type) for the years ended March 31, 2013 and 2012, are as follows: (in millions of Korean won) Revenues Premium income 1,578,307 1,306,935 Interest income 79,374 66,114 Gains on disposal of financial assets 131,368 81,682 Gains on valuation of financial assets 117,513 70,872 Other income 16,641 15,253 1,923,203 1,540,856 Expenses Increase in policy reserves 997, ,570 Claims paid 222, ,874 Minimum guarantee cost 8,717 3,794 Separate account commission 510, ,130 Service fees 7,015 5,019 Taxes and dues 3,558 3,815 Losses on disposal of financial assets 132, ,864 Losses on valuation of financial assets 36,468 34,099 Other expenses 4,037 5,691 1,923,203 1,540,856 71

74 Revenues and expenses of investment-linked fund (savings-type) for the years ended March 31, 2013 and 2012, are as follows: (in millions of Korean won) Revenues Premium income 3,681,831 3,662,247 Interest income 332, ,427 Gains on disposal of financial assets 470, ,480 Gains on valuation of financial assets 383, ,663 Other income 65,075 76,674 4,933,660 4,773,491 Expenses Increase in policy reserves 1,863,516 1,707,588 Claims paid 2,153,050 1,901,489 Minimum guarantee cost 74,468 62,970 Separate account commission 268, ,162 Service fees 21,593 17,973 Taxes and dues 11,186 14,791 Losses on disposal of financial assets 417, ,057 Losses on valuation of financial assets 108, ,378 Other expenses 15,827 20,083 4,933,660 4,773,491 Trust assets In accordance with the regulations under the Capital Markets Integration Act, the Company differentiates trust assets from existing assets, and recognizes trust commission as operating income when receiving trust commission. As of March 31, 2013, the amount of the trust fund under the contract with the Company is 476,772 million. 72

75 16. Insurance contracts liabilities The details of insurance contracts liabilities as of, are as follows: 2013 (in millions of Korean won) Individual insurance Group insurance Total Premium reserve 114,730,479 1,769, ,499,541 Reserve for outstanding claims 2,050,356 85,580 2,135,936 Unearned premium reserve 3,642 8,578 12,220 Guaranteed benefit 690, ,416 Interest difference guarantee reserve 182, ,824 Mortality gains reserve 427,381 9, ,820 Interest gains reserve 494, ,867 Expense gains reserve 259,023 7, ,587 Long-term duration dividend reserve 7, ,036 Reserve for asset revaluation ,845,828 1,880, ,726,493 Reserve for loss on incurred but not reported 360,941 Reserve for assumed reinsurance 5,626 Reserve for policyholders profit dividends 96,753 Reserve for loss compensation on participating insurance 5, ,195,651 73

76 2012 (in millions of Korean won) Individual insurance Group insurance Total Premium reserve 100,417,812 1,809, ,227,805 Reserve for outstanding claims 1,859,900 64,346 1,924,246 Unearned premium reserve 4,244 11,382 15,626 Guaranteed benefit 579, ,899 Interest difference guarantee reserve 198, ,977 Mortality gains reserve 458,608 10, ,098 Interest gains reserve 484, ,610 Expense gains reserve 262,499 8, ,955 Long-term duration dividend reserve 7, ,768 Reserve for asset revaluation ,274,094 1,905, ,179,249 Reserve for loss on incurred but not reported 337,382 Reserve for assumed reinsurance 6,467 Reserve for policyholders profit dividends 128,183 Reserve for loss compensation on participating insurance 4, ,655,592 The changes in insurance contracts liabilities for the years ended, are as follows: 2013 Individual Insurance Reserve for Whole life, Group (in millions Endowment assumed Annuity Term life insurance of Korean won) insurance reinsurance insurance Total Beginning balance 46,441,156 55,464,214 2,368,724 1,905, , ,655,592 Reserve(Reverse) 9,204,726 3,283,321 2,083,687 (24,490) (7,185) 14,540,059 Ending balance 55,645,882 58,747,535 4,452,411 1,880, , ,195, Individual Insurance Reserve for Whole life, Group (in millions Endowment assumed Annuity Term life insurance of Korean won) insurance reinsurance insurance Total Beginning balance 43,039,136 51,832,513 1,958,295 1,886, ,129 99,225,033 Reserve(Reverse) 3,402,020 3,631, ,429 18,195 (31,786) 7,430,559 Ending balance 46,441,156 55,464,214 2,368,724 1,905, , ,655,592 74

77 17. Liability adequacy test Contracts subject to Liability adequacy test The Company reviewed the adequacy test for premium reserve and unearned premium reserve as of March 31, Premium reserves are net premium reserves after deducting deferred acquisition cost under the regulation on Supervision of the Insurance Business 6-3. Summary of basis for calculation as of March 31, 2013: Experience rate (%) Basis Lapse ratio 1-45 Loss ratio Discount Rate The ratio of surrender value against contract amounts calculated in the basis of groups of products, payment methods, channels, due dates of recent 5 years. The ratio of insurance claims paid against risk premium calculated in the basis of the collateral, the gender, and dividend status of recent 5 years. Estimated investment assets profit ratio based on the interest rate scenario provided by the Financial Supervisory Service in a conservative approach. Indirect costs included in commission and operating expenses were calculated based on unit cost of the expense allocation standards of the last year in accordance with the Regulation on Insurance Supervision. Direct costs included in commission and operating expenses were calculated based on estimates of future expense according to the Company s regulations. Summary of calculation on the respective insurance contracts follows: (in millions of Korean won) Premium Surplus (deficiency) Fixed interest Variable interest Participating (10,769,352) Non-participating 3,355,588 Participating 489,543 Non-participating 10,741,192 3,816,971 75

78 18. Policyholders equity adjustment The details of policyholders equity adjustments as of, are as follows: (in millions of Korean won) Reserve for stabilization of policyholders dividends 113, ,825 Contributed to public projects 44,000 44,000 Unrealized holding gains and losses on available-for-sale financial assets 7,333,291 5,882,760 Unrealized holding gains and losses on held-to-maturity financial assets 939 1,353 7,492,055 6,041, Financial liabilities at fair value through profit or loss and other financial liabilities Financial liabilities at fair value through profit or loss as of, are derivatives for trading (Note 8). The details of other financial liabilities as of, are as follows: (in millions of Korean won) Insurance payables 3,307 3,442 Other payables 88, ,916 Accrued expenses 397, ,199 Leasehold deposits 502, ,474 (present value discount account) (21,479) (12,054) Trust accounts payable 17,007 2, , ,912 The details of insurance payables in other financial liabilities as of, are as follows: (in millions of Korean won) Insurance payables Reinsurance payables 2,528 2,692 Insurance settlement adjustments ,307 3,442 76

79 20. Deferred tax assets (liabilities) Deferred tax assets and liabilities as of, are as follows: 2013 (in millions of Korean won) Beginning balance Temporary Differences Increase (Decrease) Ending balance Deferred Income Tax Assets(Liabilities) Beginning balance Increase (Decrease) Ending balance I. Deductible temporary differences Losses on impairment of available-for-sale financial assets 59, , ,299 14,508 90, ,342 Beneficiary certificates - 117, ,246-28,373 28,373 Derivatives 698,264 (484,032) 214, ,980 (117,136) 51,844 Dividend income 185,249 (8,271) 176,978 44,830 (2,001) 42,829 Losses on impairment of other assets 2,888 4,513 7, ,092 1,791 Deposit insurance premiums 52,569 15,488 68,057 12,722 3,748 16,470 Claims paid on dormant insurance 68,211 5,145 73,356 16,507 1,245 17,752 Minimum guaranteed benefit reserves 227,749 41, ,331 55,115 10,063 65,178 Reserve for interest guarantee 352,150 68, ,085 85,220 16, ,903 Reserves for policyholders' profit dividends 2,603 3,235 5, ,413 Accrued expense 85,501 (7,249) 78,252 20,691 (1,754) 18,937 Unwinding of discount 173,473 (173,473) - 41,981 (41,981) - Others 93,498 5,066 98,564 22,626 1,226 23,852 2,002,106 (36,467) 1,965, ,509 (8,825) 475,684 II. Taxable temporary differences Financial assets at fair value through profit or loss (944,478) 35,444 (909,034) (228,564) 8,578 (219,986) Available-for-sale financial assets (1,026,598) 308,663 (717,935) (248,437) 74,697 (173,740) Unwinding of discount - (224,804) (224,804) - (54,402) (54,402) Investments in associates and subsidiaries and joint ventures (61,520) (293,005) (354,525) (14,888) (70,907) (85,795) Allowances for bad debt losses (205,621) 68,730 (136,891) (49,760) 16,632 (33,128) Accrued income (787,539) (192,808) (980,347) (190,585) (46,659) (237,244) Land (1,646) - (1,646) (398) - (398) Depreciation (1,562) (3,835) (5,397) (378) (928) (1,306) Others (95,960) (9,150) (105,110) (23,894) (1,543) (25,437) (3,124,924) (310,765) (3,435,689) (756,904) (74,532) (831,436) Deferred tax charged directly to equity (12,605,781) (4,361,484) (16,967,265) (3,050,599) (1,055,479) (4,106,078) (13,728,599) (4,708,716) (18,437,315) (3,322,994) (1,138,836) (4,461,830) Portion not certain to be realized Gains(losses) on valuation on investments in associates and subsidiaries and joint ventures 7,436 (2,490) 4,946 (3,315,558) (1,141,326) (4,456,884) 77

80 2012 (in millions of Korean won) Beginning balance Temporary Differences Increase (Decrease) Ending balance Beginning balance Deferred Income Tax Assets(Liabilities) Increase Ending (Decrease) balance I. Deductible temporary differences Losses on impairment of available-for-sale financial assets 248,698 (188,747) 59,951 54,714 (40,206) 14,508 Beneficiary certificates 144,816 (144,816) - 35,045 (35,045) - Derivatives 448, , ,264 94,687 74, ,980 Dividend income 200,019 (14,770) 185,249 44, ,830 Losses on impairment of other assets 2,888-2, Deposit insurance premiums 136,885 (84,316) 52,569 33,126 (20,404) 12,722 Claims paid on dormant insurance 57,975 10,236 68,211 14,644 1,863 16,507 Minimum guaranteed benefit reserves 240,432 (12,683) 227,749 54, ,115 Reserve for interest guarantee 332,041 20, ,150 74,460 10,760 85,220 Reserves for policyholders' profit dividends 7,628 (5,025) 2,603 1,846 (1,216) 630 Accrued expense 153,118 (67,617) 85,501 37,055 (16,364) 20,691 Unwinding of discount 184,297 (10,824) 173,473 41, ,981 Others 109,666 (16,168) 93,498 24,778 (2,152) 22,626 2,266,936 (264,830) 2,002, ,099 (26,590) 484,509 II. Taxable temporary differences Financial assets at fair value through profit or loss (1,106,130) 161,652 (944,478) (267,684) 39,120 (228,564) Available-for-sale financial asset (851,871) (174,727) (1,026,598) (239,069) (9,368) (248,437) Investments in associates and subsidiaries and joint ventures (176,955) 115,435 (61,520) (38,930) 24,042 (14,888) Allowances for bad debt losses (205,661) 40 (205,621) (45,245) (4,515) (49,760) Accrued income (641,596) (145,943) (787,539) (157,274) (33,311) (190,585) Land (1,646) - (1,646) (362) (36) (398) Depreciation (8,555) 6,993 (1,562) (1,787) 1,409 (378) Others (100,892) 4,932 (95,960) (22,251) (1,643) (23,894) (3,093,306) (31,618) (3,124,924) (772,602) 15,698 (756,904) Deferred tax charged directly to equity (9,660,360) (2,945,421) (12,605,781) (2,125,544) (925,055) (3,050,599) (10,486,730) (3,241,869) (13,728,599) (2,387,047) (935,947) (3,322,994) Portion not certain to be realized Gains(losses) on valuation on investments in associates and subsidiaries and joint ventures 6, ,436 (2,380,287) (935,271) (3,315,558) 78

81 Deferred tax assets and liabilities are computed based on difference between the financial statement carrying amounts and tax bases of assets and liabilities by applying enacted tax rates in effect in the years in which the differences are expected to reverse. The Company periodically assesses its ability to recover deferred income tax assets. In the event of a significant uncertainty regarding the Company s ultimate ability to recover such assets, a valuation allowance is provided to reduce the assets to its estimated realizable value. For the year ended March 31, 2013, the Company did not recognize the deferred income tax asset and liability effects from cumulative temporary differences of 40,379 million and 19,943 million, respectively, which were related to the valuation of equity method investments from which dividend income is not likely to be received and whose disposal is remote. Deferred income tax assets and liabilities and income tax expense charged directly to equity as of and for the years ended, are as follows: 2013 (in millions of Korean won) Amount Income tax expense Change in value of available-for-sale financial assets 4,132,634 1,000,097 Change in value of held-to-maturity financial assets (843) (204) Change in value of derivative instruments for hedge accounting 229,693 55,586 Other comprehensive income(loss) of investments in associates and subsidiaries and joint ventures - - Other comprehensive income on separate accounts 1 77,089 18,656 79

82 2012 (in millions of Korean won) Amount Income tax expense Change in value of available-for-sale financial assets 3,146, ,454 Change in value of held-to-maturity financial assets (645) (73) Change in value of derivative instruments for hedge accounting (89,793) (31,102) Other comprehensive income(loss) of investments in associates and subsidiaries and joint ventures (110,288) (32,224) Other comprehensive income on separate accounts 1 17,256 4,944 1 Deferred income tax effect of 18,656 million charged to the equity of accumulated other comprehensive income on separate account is reflected under other liabilities in the statement of financial position of separate accounts of the guaranteed interest type contracts. As of March 31, 2013, total amounts of income taxes payable and prepaid income taxes before netting are 368,441 million and 463,645 million, respectively. 80

83 21. Provisions The changes in asset retirement obligation liability for the years ended, are as follows: (in millions of Korean won) Beginning balance 7,328 6,993 Increase 1, Decrease (570) (911) Unwinding of discount Ending balance 8,176 7,328 Asset retirement obligation liability is present value of estimated costs to be incurred for restoration of the leased properties. The changes in other provisions for the years ended, are as follows: 2013 (in millions of Korean won) Beginning balance Increase (Decrease) Ending balance Claims to be paid on dormant 1 insurance 68,211 5,145 73,356 Social contribution fund 2 17,932 (2,088) 15,844 86,143 3,057 89, (in millions of Korean won) Beginning balance Increase (Decrease) Ending balance Claims to be paid on dormant 1 insurance 57,975 10,236 68,211 Social contribution fund 2 29,600 (11,668) 17,932 87,575 (1,432) 86,143 1 The Company makes provisions for claims to be paid on dormant insurance policies. The timing of payment cannot yet be determined. 2 Life insurance companies, through independent treaties, realize some portion of tax benefit as Social Contribution Fund every year, and recognize provision for estimated liabilities when the contribution is due. 81

84 22. Other liabilities Details of other liabilities as of, are as follows: (in millions of Korean won) Advances 12, Deferred revenue 25,325 9,956 Deferred premium 453, ,620 Deposit received 53,358 37,029 Defined benefit obligations 28,978 31,772 Other long-term employee benefits 50,582 9,440 Others 11,442 4, , ,224 Defined benefit obligations Details of defined benefit obligation as of, are as follows: (in millions of Korean won) Defined benefit obligation 311, ,723 Fair value of plan assets (282,885) (224,951) Defined benefit obligation, net 28,978 31,772 Changes in defined benefit obligations for the years ended, are as follows: (in millions of Korean won) Beginning balance 256, ,101 Current service cost 32,550 31,303 Interest cost 14,208 14,816 Actuarial gains and losses 25,261 5,523 Benefits paid (8,920) (48,713) Past service cost 1-13,425 Transfer from(to) associates (4,331) 1,268 Effects of transition to defined contribution plans (3,628) - Ending balance 311, ,723 1 Past service cost is the difference due to change in the average employee benefits calculation method, all of the past service cost was earned when incurred, and all was amortized during the year ended March 31,

85 The changes in plan assets for the years ended, are as follows: (in millions of Korean won) Beginning balance 224, ,012 Expected return on plan assets 10,690 8,567 Actuarial losses (909) (793) Contributions to plan assets 57,500 45,500 Benefits paid (5,670) (22,335) Transfer from(to) associates (829) - Effects of transition to defined contribution plans (2,848) - Ending balance 282, ,951 The details of recognized gains and losses for the years ended, are as follows: (in millions of Korean won) Current service cost 32,550 31,303 Interest cost on defined benefit obligation 14,208 14,816 Expected return on plan assets (10,690) (8,567) Actuarial losses 26,170 6,316 Amortization on past service cost - 13,425 62,238 57,293 Actual returns on plan assets for the years ended, are 9,781 million, and is 7,774 million, respectively. As of, all plan assets consist of bank deposits. Key assumptions used for defined benefit obligations calculations are as follows: (%) Discount rate Wage increase rate Retirement rate Historical data Historical data of the Company of the Company Mortality Average mortality rate of Korea Insurance Development Institute Average mortality rate of Korea Insurance Development Institute 83

86 Present value of defined benefit obligation and fair value and adjustment of plan assets are as follows: (in millions of Korean won) Present value of defined benefit liability 311, , , ,389 Fair value of plan assets (282,885) (224,951) (194,012) (184,829) Deficit(Surplus) of the funded plans 28,978 31,772 45,089 25,560 Defined benefit obligations adjustments 574 (10,340) (13,316) - Plan assets adjustments (909) (793) (2,298) - Other long-term employee benefits Details of defined other long-term employee benefits as of March 31, 2013, and 2012, are as follows: 2013 (in millions of Korean won) Beginning balance Increase (Decrease) Ending balance Long term incentives 1 9,440 23,714 33,154 Benefits for long service 2-17,428 17,428 9,440 41,142 50, (in millions of Korean won) Beginning balance Increase (Decrease) Ending balance Long term incentives 1 13,493 (4,053) 9,440 13,493 (4,053) 9,440 1 The executives of the Company are provided with long-term incentive plans based on the threeyear performance of the Company. Thus, the Company recognizes the long-term employee benefit expenses up to the expected amount to be paid. 2 The Company provides other long-term employee benefits, which are entitled to employees according to the length of their service period. The Company recognizes the long-term employee benefit expenses over the service period. 84

87 Share-based payments The Company provides executives with 50% of the performance-based incentives on the first year, and 25% on the second and third years, respectively. The Company changed the share-based payment system from equity-settled to cash-settled during the reporting period. As of March 31, 2013, the details of share-based payments that the Company granted are as follows: (in millions of Korean won, shares) Related to the profit of 2008, 2009 and 2010 Types Cash-settled type Grant date March 31,2011 Grant period (service period) 2013 Estimated earned shares as of March 31, ,778 shares Compensation cost recognized until March 31, ,617 Compensation cost recognized in current period 1,197 85

88 23. Equity The details of capital stock as of, are as follows: (in millions of Korean won) Common stock 100, ,000 Under its Articles of Incorporation, the Company is authorized to issue 600 million shares of capital stock with a 500 par value per share. As of March 31, 2013, 200 million shares of common stock have been issued. The Company is also authorized, subject to the Board of Directors approval, to issue common stock to investors other than current shareholders for the exercise of stock options or general public subscription. The Company may grant stock options that will allow key employees or directors to purchase shares of common stock with the approval of shareholders. No such stock option has been granted as of March 31, The details of capital surplus as of, are as follows: (in millions of Korean won) Revaluation reserve 1 6,131 6,131 1 Balance of revaluation reserve as a result of revaluation on investment properties, and property and equipment as of October 22, The details of capital adjustments as of, are as follows: (in millions of Korean won) Treasury stock 1 (556,205) (275,854) Other capital adjustment - 13,493 (556,205) (262,361) 1 The Company acquired 6 million treasury shares, for the purpose of stabilizing the share price and for payment of incentive to executives, and 74,779 treasury shares were granted as incentive for executives. 86

89 The details of accumulated other comprehensive income as of, are as follows: (in millions of Korean won) Gains(losses) on valuation of available-for-sale financial assets Gains(losses) on valuation of held-to-maturity financial assets Gains(losses) on valuation of derivative financial instruments for hedge accounting Other comprehensive income(loss) on separate account 13,090,536 9,957,999 1,651 2,290 (231,001) (405,108) 97,971 39,538 12,959,157 9,594,719 The details of retained earnings as of, are as follows: (in millions of Korean won) Legal reserve 50,000 50,000 Other legal reserve 2,328 2,328 Reserve for credit losses 170,228 - Retained earnings before appropriation 8,603,798 8,232,624 8,826,354 8,284,952 The Korean Commercial Code requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of capital stock. This reserve is not available for payment of cash dividends but may be transferred to capital stock or used to reduce accumulated deficit, if any. 87

90 The details of appropriation of retained earnings for the years ended, are as follows: Dates of appropriation: June 7, 2013, and June 5, 2012 for the years ended March 31, 2013 and 2012, respectively. (in millions of Korean won) Retained earnings before appropriation Unappropriated retained earnings carried over from prior year 7,668,396 7,299,843 Net income 935, ,781 8,603,798 8,232,624 Appropriation Dividends 291, ,000 Cash dividends [Dividends(ratio) per share Common stock : 1,500 (300%) 291, , : 2,000 (400%) Reserve for credit losses 66, , , ,228 Unappropriated retained earnings carried forward to subsequent year 8,245,697 7,668,396 The reserve for credit losses is calculated in accordance with the Regulation on Supervision of Insurance Business, and is disclosed in the notes. The details of reserve for credit losses after appropriation as of, are as follows: (in millions of Korean won) Ending balance 232, ,228 88

91 The details of adjusted income and earnings per share for the years ended March 31, 2013 and 2012, are as follows: (in millions of Korean won, except per share amount) Net profit before adjustment 935, ,781 Provision of reserve for credit losses 1 (66,989) (4,272) Adjusted net profit 2 868, ,509 Adjusted earnings per share(korean won) 4,462 4,681 1 The policy of reserve for credit losses is effective for annual periods beginning on April 1, 2011, but the amount of reserve for credit losses of the previous year was measured under the assumption applied since April 1, Adjusted net profit is not accordance with K-IFRS and calculated on the assumption that provision of reserve for credit losses is the amount before allocating policyholders' equity adjustment and deferred income tax. 24. Premium Income Premium income for the years ended, consists of the following: (in millions of Korean won) Individual Insurance Annuity 10,953,027 5,243,803 Whole life, Term life insurance 8,035,486 8,191,178 Endowment insurance 2,603, ,944 Group insurance 459, ,294 22,052,096 14,726,219 89

92 25. Reinsurance Transactions The details of reinsurance transactions for the years ended, are as follows: 2013 (in millions of Korean won) Ceded reinsurance premium Reinsurance claims recovered Reinsurance commission received Individual insurance Domestic 89,316 63,913 18,709 Overseas 112,870 92,482 13, , ,395 32,632 Group insurance Domestic 1,579 1,556 - Overseas 7,468 5,298 1,673 9,047 6,854 1, , ,249 34,305 (in millions of Korean won) Assumed reinsurance premium Reinsurance claims paid Reinsurance Commission paid Individual insurance 7,847 7, Group insurance 9,892 7,123 2,120 17,739 14,474 2,738 Assumed reinsurance contracts are all ceded overseas. 90

93 2012 (in millions of Korean won) Ceded reinsurance premium Reinsurance claims recovered Reinsurance commission received Individual insurance Domestic 137, ,842 25,236 Overseas 118,393 98,249 13, , ,091 39,069 Group insurance Domestic 1,685 2,032 - Overseas 7,664 4,512 1,524 9,349 6,544 1, , ,635 40,593 (in millions of Korean won) Assumed reinsurance premium Reinsurance claims paid Reinsurance commission paid Individual insurance 8,347 7, Group insurance 7,826 5,583 1,624 16,173 13,107 2,300 Assumed reinsurance contracts are all ceded overseas. 26. Interest Income Interest income for the years ended, consists of: (in millions of Korean won) Interest Income Cash and cash equivalents 66,488 36,784 Financial assets at fair value through profit or loss 8,431 12,497 Available-for-sale financial assets 3,590,348 3,413,902 Loans receivable and other receivables 1,730,334 1,830,623 Held-to-maturity financial assets 55,604 68,494 Others 15,983 16,927 5,467,188 5,379,227 91

94 27. Gains and losses on financial instruments Gains and losses on financial instruments for the years ended, are as follows: (in millions of Korean won) Gains on financial instruments Financial assets at fair value through profit or loss Derivative financial instruments held for trading (Financial assets or liabilities at fair value through profit or loss) Gains on valuation 16,879 1,205 Gains on disposal 15,369 3,676 32,248 4,881 Gains on valuation 115,621 16,284 Gains on transactions 27,977 27, ,598 43,886 Available-for-sale financial assets Gains on disposal 238, ,904 Loans receivable and other receivables Reversal of allowance for bad debts 9,534 8,977 Gains on valuation 342,741 79,486 Derivative financial instruments Gains on transactions 61,211 32,848 for hedge accounting 403, ,334 Losses on financial instruments Financial assets at fair value through profit or loss Derivative financial instruments held for trading (Financial assets or liabilities at fair value through profit or loss) Available-for-sale financial assets Loans receivable and other receivables Derivative financial instruments for hedge accounting Losses on valuation 1 1,062 Losses on disposal ,769 Losses on valuation 19,621 41,010 Losses on transaction 7,733 61,607 27, ,617 Losses on disposal 44,684 20,758 Impairment losses 50,989 20,756 95,673 41,514 Bad debt losses 1,141 - Losses on valuation 11, ,747 Losses on transactions 20,649 44,641 32, ,388 92

95 28. Other operating income and expenses Other operating income and expenses for the years ended, are as follows: (in millions of Korean won) Other operating income Gains on trust assets 1, Gains on disposal of investment properties - 1,006 Others 44,829 50,935 45,930 52,939 Other operating expenses Discounts 2, Other losses on trust assets Amortization 33,679 32,028 Depreciation of investment properties 58,475 54,119 Impairment losses on non-financial assets 8, Others 76,832 54, , ,019 93

96 Non-operating revenues and expenses for the years ended, are as follows: (in millions of Korean won) Non-operating revenues Gains on disposal of investments in subsidiaries, associates and joint ventures 3, ,279 Gains on dividends of investments in subsidiaries, associates and joint ventures 28,864 40,130 Gains on disposal of property and equipment 1,132 2,306 Gains on disposal of assets held-for-sale 3,540 - Miscellaneous income 7,564 8,983 Non-operating expenses Losses on disposal of investments in subsidiaries, associates and joint ventures Impairment losses on investments in subsidiaries, associates and joint ventures 45, , ,808 - Losses on disposal of property and equipment 2,313 3,198 Miscellaneous losses 12,194 13,162 Donations 48,828 48,265 Others 3,854 4,243 70,997 69,531 94

97 29. Acquisition and Administration Expenses The details of acquisition and administration expenses for the years ended March 31, 2013 and 2012, are as follows: (in millions of Korean won) Acquisition expenses Agent commission 1,363,869 1,339,463 Sales promotion 174, ,520 Others 760, ,881 2,298,294 2,016,864 Administration expenses Wages and salaries 367, ,773 Bonus 110, ,846 Employee benefits 117,627 91,377 Office rent 100,017 98,386 Severance benefits 59, ,502 Information technology 31,497 29,555 Communication expenses 16,098 15,576 Taxes and dues 188, ,419 Association dues 4,282 4,010 Depreciation 58,364 53,257 Agent commission 22,053 18,516 Branch expenses 21,963 21,728 Collection expenses 10,386 10,220 Others 310, ,439 1,418,810 1,435,604 Deferred acquisition costs (2,239,717) (1,974,806) 1,477,387 1,477,662 95

98 30. Asset Management Expenses The details of asset management expenses for the years ended, are as follows: (in millions of Korean won) Wages and salaries 57,208 50,564 Bonus 15,474 16,910 Severance benefits 7,951 14,788 Employee benefits 15,955 13,823 Taxes and dues 32,432 29,400 Office rent 1,541 1,957 Repairs and maintenance Outside service fees 106,092 96,068 Depreciation 5,791 5,337 Advertising expenses 8,998 10,822 Professional fees 64,914 67,739 Information technology 25,186 22,287 Communication expenses 4,020 4,142 Others 57,348 47, , ,352 96

99 31. Income Tax Expense Income tax expense for the years ended, consists of the following: (in millions of Korean won) Current income tax 286, ,971 Deferred income taxes - temporary difference 1,141, ,271 Items charged directly to equity (1,055,479) (925,055) Refund on additional income taxes for prior years (127,891) (29,930) Income tax expense 244, ,257 The following table reconciles the expected amount of income tax expense based on the statutory rates with the actual income tax expense for the years ended : (in millions of Korean won) Net income before income taxes 1,179,792 1,184,038 Expected taxes at statutory rate 285, ,537 Permanent differences 89,446 9,032 Others (130,566) (44,312) Income tax expense 244, ,257 Effective tax rates 20.70% 21.22% 32. Employee Benefit Expense Employee benefit expense for the years ended, consists of: (in millions of Korean won) Short-term employee benefits 516, ,146 Severance benefits 1 67, ,290 Long-term employee benefits 34,266 (4,053) 1 For the year ended March 31, 2013, retirement bonus of 5,309 million (2012: 80,997 million) was included in severance benefits. 97

100 33. Commitments and Contingencies (a) As of March 31, 2013, the Company s total face amount of insurance is approximately 574,595 billion (2012: 541,603 billion). (b) The Company maintains reinsurance agreements with Korean Re and other reinsurance companies for individual and group insurance. (c) As of March 31, 2013, the Company is a defendant in 191 legal actions regarding insurance claims amounting to 19,429 million. As a plaintiff, the Company is a party to various legal claims and proceedings in the amount of 262,814 million. The Company s management believes that although the outcome of these cases is uncertain, their ultimate resolution will not have material adverse effect on the results of operations or financial position of the Company. (d) As of March 31, 2013, the Company has bank overdraft facility agreements with SC First Bank and five other banks with an aggregate limit of 250 billion. (e) Other commitments i) As of March 31, 2013, the Company has payment guarantees from J.P. Morgan-Korea related to a letter of credit facility amounting to US $ 9,600,000. ii) As of March 31, 2013, the Company has financial guarantees from Seoul Guarantee Insurance Co., Ltd. related to deposits of lawsuits amounting to 24,412 million. (f) As of March 31, 2013, the Company has 38 credit-linked note including BICHUMI GLOBAL , and the maximum expiration date is May The total par value is USD 1,095 million and EUR 105 million. If the reference entity goes bankrupt, the Company returns the credit-linked note to the issuers, and receives the bonds issued by reference entity or pays related amounts in accordance with the contracts. (g) The Company has contracts with Samsung Everland Inc. for the maintenance of the Company s land, buildings, furniture, equipment and leased buildings. The Company paid Samsung Everland Inc. 139,979 million (2012: 88,931 million) for services rendered for the year ended March 31,

101 (h) Operating lease Lessee The Company leases various vehicles under cancellable operating lease agreements with the remaining period of less than one year and the lease payments recognized in the statement of comprehensive income are 613 million. The future minimum lease payments under operating lease agreements amount to 923 million. Lessor The Company provides its land and buildings recognized as investment property to others under the operating lease agreement with the remaining period of less than five years. The future lease receipts under non-cancellable operating leases as of, are as follows: Maturity (in millions of Korean won) Within 1 year 264, ,535 Over 1 year and within 5 years 144, , , ,811 (i) Capital expenditures As of March 31, 2013, details of contractual amount to purchase or construct investment property, are as follows: (In millions of Korean won) Property and equipment 10,293 8,028 Investment property 142, , , , Earnings Per Share Basic earnings per share for the years ended, is calculated as follows: (in millions of Korean won, except for the number of shares and earnings per share) Net income available for common stock 935, ,781 Weighted average number of common shares 194,612, ,364,125 Basic earnings per share 4,806 4,702 Diluted earnings per share are identical to basic earnings per share. 99

102 35. Assets and Liabilities Denominated in Foreign Currencies As of, assets and liabilities denominated in foreign currencies, and related unrealized foreign exchange gains and losses are as follows: (in millions) Unrealized Unrealized Korean Foreign foreign foreign Korean won Account won currencies exchange exchange (translated) (translated) gains losses Foreign currency deposits Available-for-sale financial assets Accrued Income USD , ,215 4,649 EUR 1 1, ,008 GBP Others , ,300 7,097 USD 8,544 9,501,550 12, ,735 10,381,667 EUR 1,261 1,797, ,393 1,894,848 GBP , , ,036 JPY 5,523 65, , ,489 Others 24, ,511 11,560,427 12, ,855 12,631,551 USD ,290 3,593 1, ,150 EUR 23 32, ,714 GBP 102 2, ,653 JPY Others ,913 4,019 2, ,560 17, ,224 Gains and losses on foreign currency transactions for the year ended March 31, 2013, are 24,306 million, 82,638 million, respectively. 100

103 36. Related Party Transactions The related parties of the Company as of March 31, 2013, are as follows: Subsidiaries Associates Joint Ventures Related parties Samsung Life Investment (America), Ltd. Samsung Life Properties (China), Ltd. Samsung Life Investment (UK), Ltd. SSI Capital Holding Park Capital Holding Thai Samsung Life Insurance Co., Ltd. Samsung Life Service Claim Adjustment Co. Beijing Samsung Real Estate Co., Ltd. Samsung SRA Asset Management Co., Ltd. KDB High-end Investment Trust No.1 Samsung Card Samsung Futures A&D Credit information Kocref No.8 Kocref No.14 New Airport Highway KTB Mezzanine Samsung venture No.11 Samsung venture No.18 Samsung venture No.25 KTIC No.27 Bokwang No.16 Saengbo Real Estate Trust Samsung Air China Life Insurance The Company s outstanding credit loans to its directors and employees amount to 73,106 million at interest rates ranging from 1~ 6% as of March 31,

104 Significant transactions with related parties for the years ended, are as follows: (in millions of Korean won) Income Expenses 1 Income Expenses 1 Subsidiaries Samsung Life Investment (America), Ltd. - 2,998-2,944 Samsung Life Investment (UK), Ltd. - 2,641-2,967 Samsung Life Properties (China), Ltd Samsung SRA Asset Management Co., Ltd Samsung Life Service Claim Adjustment Co., Ltd. 8,651 83,857 2,066 86,747 8,806 89,498 2,066 93,407 Associates Samsung Card 18,790 5,952 19,741 5,182 Samsung Future 2, , Kocref No ,594 - Kocref No Kocref No New Airport Highway 4,058-4,739-27,149 6,771 30,732 6,458 Joint Venture Saengbo Real Estate Trust ,493 96,343 32,829 99,923 1 Expenses exclude bad debts expense. For the year ended March 31, 2013, the Company recorded 41 million as reversal of allowance for doubtful accounts. 102

105 The related account balances outstanding as of, are summarized as follows: (in millions of Korean won) Receivables 1 Payables 2 Receivables 1 Payables 2 Subsidiaries Samsung Life Investment (America), Ltd Samsung Life Investment (UK), Ltd Samsung Life Investment (China) Co., Ltd Samsung SRA Asset Management Co., Ltd - 1, Samsung Life Service Claim Adjustment Co., Ltd. - 3, ,768-6, ,997 Associates Samsung Card - 10,783-11,468 Samsung Future 62 1,201 3,805 1,206 Kocref No ,449 - Kocref No.8 2,412-9,707 - Kocref No.14 13,224-13,224 - New Airport Highway 30,648-38,143-46,346 11, ,328 12,674 Joint Venture Saengbo Real Estate Trust - 3, ,346 22, ,336 18,671 1 Gross receivables before allowance for doubtful accounts. The Company recorded 55 million as allowance for doubtful accounts as of March 31, 2013 (2012: 96 million). 2 Payables include leasehold deposits from related parties. Investment property provided as collateral for the leasehold deposits amounts to 143 million as of March 31, Samsung Life Service Claim Adjustment Co., Ltd. has a service outsourcing contract with the Company to provide insurance contract verification services, call centers services and other insurance related services. For the years ended, the Company recognized 5,612 million and 7,825 million in short-term and long-term employee benefits, respectively, and 874 million and 5,229 million in severance benefits, respectively, for the key management. The key management consists of registered executives who have the duties and responsibilities over the planning, operational, and managerial activities of the Company. 103

106 37. Supplemental Cash Flow Information Adjustments in expenses and revenues of cash flows from operating activities for the years ended, are as follows: (in millions of Korean won) Adjustments for: Interest income (5,467,188) (5,379,227) Gains on valuation of financial assets at fair value through profit or loss (132,500) (17,489) Gains on disposal of financial assets at fair value through profit or loss (43,346) (31,278) Gains on disposal of available-for-sale financial assets (238,342) (182,904) Reversal of allowance for bad debts (9,534) (8,977) Gains on valuation of derivatives for hedge accounting (342,741) (79,486) Gains on transaction of derivatives for hedge accounting (61,211) (32,848) Gains on foreign exchange translation (17,166) (271,813) Dividend income (227,320) (199,015) Other operating income (25,615) (23,253) Gains on investments in subsidiaries, associates and joint ventures (136) (160,616) Increase in insurance contract liabilities 14,418,228 7,341,593 Amortization expenses on deferred acquisition costs 2,146,773 1,840,398 Interest expenses 35,330 36,522 Losses on valuation of financial assets at fair value through profit or loss 19,622 42,072 Losses on disposal of financial assets at fair value through profit or loss 7,928 62,314 Losses on disposal of available-for-sale financial assets 44,684 20,758 Impairment losses on available-for-sale financial assets 50,989 20,756 Losses on valuation of derivatives for hedge accounting 11, ,747 Losses on transaction of derivatives for hedge accounting 20,649 44,641 Losses on foreign currency translation 335,224 72,716 Bad debts expenses 1,141 - Depreciation expenses (property and equipment and 122, ,713 investment property) Amortization of intangible assets 33,679 32,028 Severance benefits 62,238 57,293 Income tax expense 244, ,257 Others 15,945 9,492 11,005,995 3,813,

107 The changes in operating assets and liabilities for the years ended, are as follows: (in millions of Korean won) Changes in operating assets and liabilities Decrease(Increase) in financial assets at fair value through profit or loss (1,567,514) 313,885 Decrease(Increase) in loans receivable and other receivables (1,753,561) 2,160,866 Decrease(Increase) in other assets (2,217,570) (1,946,856) Decrease(Increase) in separate account assets (4,301,450) (2,318,109) Increase(Decrease) in insurance contract liabilities 123,239 89,313 Increase(Decrease) in other liabilities 399,966 (137,311) Increase(Decrease) in separate account liabilities 4,294,284 2,335,519 (5,022,606) 497,307 Cash and cash equivalents as of, are as follows: (in millions of Korean won) Cash on hand Current deposits 4,796 4,730 Ordinary deposits 75,154 77,930 Time deposits 1,190, ,000 Overseas deposits 13,622 7,097 Other deposits 953,163 1,011,413 2,237,015 1,591,426 Restricted deposits (19) (19) Cash and cash equivalents 2,236,996 1,591,

108 Significant transactions not affecting cash flows for the years ended, are as follows: (in millions of Korean won) Reclassification of construction-inprogress to land, buildings and structures 70, ,639 Changes in other payables for the acquisition of investment property 29,309 6,579 Reclassification of investment property to property and equipment 68,968 84,067 Reclassification of property and equipment to investment property - 29 Transfer to assets held-for-sale 52,906 - Changes in policyholders equity adjustments 1,450,117 1,099,059 Changes in deferred income taxes charged directly to equity 1,055, ,055 Changes in gains(losses) on available-for-sale financial assets (Other comprehensive income) 3,132,537 2,157,693 Changes in gains(losses) on held-to-maturity financial assets (Other comprehensive income) Changes in gains(losses) on valuation of derivative financial instruments for hedge accounting 174,107 58,691 (Other comprehensive income) Shares of other comprehensive income(loss) of subsidiaries, associates and joint ventures - 78,064 Other comprehensive income(loss) on separate account 58,433 12,312 Transfer from equity-settled share-based payment to cash-settled share-based payment 6,876 - Write off of loans receivable and other receivables 35,258 32,

109 38. Financial Instrument Risk Management 38.1 Overview (a) Risk Management Policy Overview Life insurance companies are more likely to be exposed to insurance risk (the risk of loss arising from actual risk at the time of claims exceeding the estimated risk at the time of underwriting) and interest rate risk (the risk arising from interest variation or maturity difference between insurance liability and asset management) primarily due to the long term nature of the insurance contract. The Company manages risks to reinforce its value and to contribute to shareholders, policyholders and the society. This goal is achieved by systematically managing risk and preventing potential risks in advance. The Company s risk management strategy is to calculate the Risk Based Capital (RBC) and the required solvency margin and manage them within the acceptable level. As part of this effort, the Company established base standards for risk management and designed the management structure. Also, the Company has risk management committee to support risks control decision. Steps for risk management are identifying the risks, calculating the acceptable level of risks after assessing its impact, and monitoring and reporting to management on a regular basis, and effectively controlling risks in case risks exceed the acceptable level. Risk management procedures of the Company are as follows: Identify and categorize risks into insurance, interest rate, credit, market, liquidity, operational risk and other risk. The Company assesses risks using empirical statistic data or stochastic model based on scenarios. In most cases, risks are measured by multiplying the object exposed to risk by the risk coefficient. Acceptable level of risks is determined and managed at each risk category risk according to the risk management guidelines. Risk management department and the operating department establish major risk monitoring indicators based on the operating guidelines. Then they report the results to risk management committee on a regular basis. In cases where monitoring results show that the level of risk might exceed the acceptable level, procedures to lower the level of risk are established. These procedures are repeated constantly. 107

110 Risk management guidelines for each risk category are as follows: 1 Manage insurance Risk: 1) Establish product revenue guidelines from the product development stage that can generate revenue; 2) Establish underwriting standards that can prevent adverse selection, and; 3) Manage claim settlement standards to achieve fair insurance settlement. 2 Manage interest Rate Risk: 1) Determine the crediting rate and the assumed interest rate taking into account the market rate and asset management profit margin; 2) Establish guidelines and determine interest rate according to the guideline on a regular basis; 3) Manage interest rate by establishing asset management strategies that takes into account the interest rate and maturity of insurance liabilities; 4) Analyze the nature of long term insurance liabilities and then develop a portfolio that can achieve long-term goal by taking into account the risk level of asset management and profit margin. 5) Set the portfolio that is executable each year as a guideline and distribute/manage assets accordingly. 3 Manage credit risk: Establish appropriate investment level and limit on assets exposed to credit risk. 4 Manage market risk: Limit the portion of marketable assets in the asset portfolio using advanced risk management systems such as VaR and stress test. 5 Manage liquidity risk: Manage/examine the size of claims paid and liquidated assets on a daily basis. 6 Manage operational risk: Establish management indicators for each risk category and collaborate with relevant departments to monitor, audit and compliance review. (b) Structure and function of risk management organization Risk management organization of the Company consists of risk management committee and risk management department which execute risk management plan. Risk management committee is the top decision-making organization led by the CEO, its committee chairman, and holds meetings on a regular basis. The risk management committee is responsible for setting risk management regulations, risk management procedures, guidelines and acceptable level of risk for each risk category, and monitoring/managing the risk level. Insurance risk management committee and asset risk management committee operate under the risk management committee, and in case of emergency crisis, the management committee will be convened. In addition to product committee, investment committee and credit committee are operated under the risk management committee. 108

111 The following notes the function of each committee. Committee Major Responsibility Insurance Risk Management Committee Establish operating standards such as underwriting, insurance payment evaluation Asset risk management Committee Establish policy and critical guidelines of asset risk management. Crisis Management Committee Establish Business Continuity Plan(BCP) in case of emergency. Product Committee Develop new insurance products, declare amendments or end of sale and decide interest rate for insurance products Investment Committee Make investment decision on real estate and large amounts of financial assets Credit Committee Approve credit transactions and establish credit rating management standards The risk management department consists of firm-wide risk management and sector-wide risk management for management purposes. The firm-wide risk management department, which is independent of the operating department, is managed under the CFO. It is responsible for managing all categories of risk management such as insurance, interest rate, credit, market, liquidity, and operation. The sector-wide risk management department is categorized into its risk type. In regard to insurance sector, product development department manages the risk rate and interest rate and underwriting department manages underwriting contracts and payment standards. As for the asset sector, credit risk analysis department and retail finance risk management department determines the credit rating and credit limit of financial assets and individual loans, respectively. Additionally the operation risk management department is responsible for risk management, compliance review and internal controls related to the sale of insurance products. (c) Activities to establish risk management system Risk management procedures should be adequately established and standardized for each risk category in order to establish an effective risk management system. In addition, a system that can accurately measure and identify risk should be implemented and highly skilled human resources are required. 109

112 The Company established guidelines to set up procedures for risk management by each risk category. In addition, based on the regulation, the Company manages standardized risk management procedure. The Company implemented a risk management system that can systematically measure the major risks and has been constantly making adjustments in an effort to improve the effectiveness of the system. Specifically, an independent system that measures insurance, interest rate, credit, market risk has been implemented. This system can measure risk arising from typical change in financial environment as well as risks arising from abnormal change through stress test. Availability of top level human resources that can manage/control risk is essential for the risk management department. Their responsibility is to develop risk management indicators using the risk management system, monitor the risks on a regular basis and then report to risk management committee. The risk management department consists of certified professionals or experienced professionals such as actuaries and financial risk experts Capital Adequacy Evaluation The Company calculates the RBC (risk-based capital) ratio based on the regulation on supervision of the insurance business in an effort to manage the required capital (represents capital to maintain the solvency margin, which is publicly disclosed). Risk-based capital (RBC) ratio is the total available capital of the Company, which represents the Company s capability fulfill its obligation to its customers against unexpected loss or decrease in asset value, divided by the Company s required capital (standard solvency margin amount). Available capital consists of capital, capital surplus, and retained earnings. Required capital is calculated based on the diversification of insurance, interest rate, credit, market and operation risks. The Company divides risk into insurance, interest rate, credit, market and operation risk for the calculation of risk-based capital. The Company takes RBC into consideration for portfolio strategy. The Company measures the level of internal risk using internal risk model for insurance, interest rate, credit and market risk. 110

113 Korean financial supervisory service requires RBC ratio of over 100% based on the consolidated financial statements. If RBC ratio is below 100%, the supervisory service recommends maintaining certain level of adequacy by corrective orders. Solvency Margin Ratio Recommend business improvement 50% - 100% Request business improvement 0% - 50% Command business improvement Below 0% Complementary Measures Recommend increase of equity capital, restrict any new business, others Request change of management members, liquidation of subsidiaries, others Suspend management, suspend insurance business, others The Company complies with the RBC rate required by the supervisory service Insurance Risk Insurance risk overview Insurance risk refers to the risk related to underwrite of insurance contracts and claim payments. Insurance risk can be divided into insurance price risk and policy reserve risk. Insurance price risk is the possibility of loss if the amount of insurance claim exceeds the amount of risk premiums received from policy holders. Policy reserve risk is the possibility of loss if the amount of actual insurance claim in the future exceeds claims reserve. Concentration of Insurance Risk and Reinsurance Policy The Company mitigates the concentration of insurance risk and utilizes reinsurance policy for the purpose of increasing efficiency of equity management. Entering a reinsurance contract is made under the following procedures: 1 For new contracts, product committee decides whether reinsurance contracts are needed through decision making process of new product marketing. For contracts in force, it is discussed with the insurance risk management team if insurance price risk increases continuously. 2 Reinsurance management team related to above 1 discusses and analyzes products to be reinsured, reinsurance limit, rate of coverage and rate of return. 111

114 Level and nature of insurance price risk Maximum exposures of insurance price risk as of, are as follows: (in millions of Korean won) Before mitigation After mitigation Before mitigation After mitigation Death 1,045, ,017 1,038, ,726 Disability 197, , , ,593 Hospitalization 533, , , ,032 Surgery and diagnosis 1,044, ,083 1,029, ,680 Actual medical expenses 232, , , ,357 Others 158, , , ,672 3,210,730 2,999,498 3,178,493 2,928,060 Ratio of claims paid against risk premiums is 85.82% and 86.74% as of, respectively. As of, market risk exposures of embedded derivative instruments included in the host contracts, are as follows: (in millions of Korean won) Guaranteed minimum aggregated benefit Guaranteed minimum death benefit Guaranteed minimum aggregated benefit Guaranteed minimum death benefit Variable annuity insurance 95,969 6,855 83,390 5,956 Variable universal insurance Variable wholelife insurance - 165, ,722 95, ,362 83, ,

115 Assumptions used in measuring insurance liabilities The Company applies assumed rates (For interest sensitive insurance, crediting rate stated in the premium and liabilities reserve calculation manual, which is calculated based on adjusted external base rate and return rate of asset management according to Article 6-12 of the regulation on supervision of insurance business) defined in the premium and liability reserve calculation manual under regulation on supervision of insurance business when measuring insurance liabilities at every reporting period. Reserve amount should be over the standard reserve which is calculated using the standard interest rate and standard risk rate under regulation on supervision of insurance business Interest rate risk Interest rate risk overview Interest rate risk represents exposure risk due to the unmatched sensitivity of the liabilities and assets to changes in interest rates. It represents Asset Liability Management Risk (ALM Risk). For interest rate risk management, the Company utilizes Strategic Asset Allocation (SAA) to establish asset management guideline. Also, guideline for interest rate of insurance product is established and utilized. Interest rate risk exposure As of, interest rate risk exposures of the Company are as follows: (in millions of Korean won) Interest earning assets Available-for-sale financial assets 1 87,365,180 74,119,782 Held-to-maturity financial assets 857,386 1,057,835 Loans receivable 25,075,042 24,343,581 Interest-bearing liabilities 113,297,608 99,521,198 Fixed rate contracts 58,780,788 57,242,204 Floating-rate contracts 57,718,753 44,985, ,499, ,227,805 1 This amount is after excluding equity securities from available-for-sale financial assets in the statements of financial position. 113

116 Interest rate gap analysis Interest rate gap analysis is a technique for measuring change in net interest income by calculating the difference between assets and liabilities that incur interest for each maturity date. Details of gap analysis result for each maturity as of, are as follows: 2013 (in millions of Korean won) Less than 1 year Between 1 year and 5 years Between 5 and 10 years Between 10 and 20 years Over 20 years Total Interest-earning assets 21,395,948 35,494,410 33,591,272 15,586,961 7,229, ,297,608 Interest-bearing liabilities 1,024,473 4,588,854 11,616,299 10,195,481 89,074, ,499,541 Simple gap 20,371,475 30,905,556 21,974,973 5,391,480 (81,845,417) (3,201,933) Accumulated gap 20,371,475 51,277,031 73,252,004 78,643,484 (3,201,933) Accumulated gap ratio 18.0% 45.3% 64.7% 69.4% (2.8)% 2012 (in millions of Korean won) Less than 1 year Between 1 year and 5 years Between 5 and 10 years Between 10 and 20 years Over 20 years Total Interest-earning assets 20,388,600 33,015,493 27,210,119 12,698,457 6,208,529 99,521,198 Interest-bearing liabilities 809,961 4,108,141 7,741,724 7,362,263 82,205, ,227,805 Simple gap 19,578,639 28,907,352 19,468,395 5,336,194 (75,997,187) (2,706,607) Accumulated gap 19,578,639 48,485,991 67,954,386 73,290,580 (2,706,607) Accumulated gap ratio 19.7% 48.7% 68.3% 73.6% (2.7)% 114

117 Policy reserve of floating rate contracts for each minimum guaranteed interest rate The Company reserves for a floating rate contract based on the crediting rate. The minimum guaranteed interest rate for each floating rate contract is determined on the agreement per contract. Details of policy reserve of floating rate contracts for each minimum guaranteed interest rate as of, are as follows: (in millions of Korean won) % 1,433,872 2,003,790 Between 0% and 2% 8,022,062 7,030,496 Between 2% and 3% 33,110,359 21,777,337 Between 3% and 4% 13,596,883 12,659,011 Over 4% 1,555,577 1,514,967 57,718,753 44,985, Credit Risk Credit risk overview Credit risk represents the risk of loss on asset portfolio from the counterparty s default, breach of contract and fall of credit ratings. Such credit risk can be categorized into expected and unexpected losses. Expected loss is expected amount of loss based on default and recovery rate and it is managed through allowance for bad debts. Unexpected loss is the volatility of loss from credit risk, and it is managed through capital. For the risk management reporting purposes, the Company considers all combined elements of credit risk exposure such as individual s default, national and particular field s risk and others. 115

118 Management of credit risk Regarding assets exposed to credit risk, the Company prepares for loss from default through appropriating allowance for bad debts. In order to mitigate credit risk, the Company manages assets subject to credit risk through credit reinforcement methods such as collaterals and guarantees. The Company measures credit risk on assets subject to credit risk exposure through RBC standard and internal model. RBC measures the assets total credit risk amount by applying credit risk exposure and risk coefficient depending on the assets types, whether or not collaterals/guarantees exist, and the counterparties credit situations such as credit ratings. The Company uses Credit VaR(Value at Risk) to estimate statistical loss distribution such as the assets default rate, loss rate, variability and others, and to compute expected and unexpected losses. The Company uses such credit risk estimations to manage limit on credit rating of investment assets, establishment of limit on exposure per borrower, and expected and unexpected losses. In order to manage borrowers credit risk, the Company limits the investment assets qualified credit ratings. Furthermore, even for qualified borrowers, in order to avoid concentration on particular borrowers, the Company manages concentration exposure limit per borrower. On the other hand, in order to manage future expected losses, the Company establishes Credit VaR limit when allocating strategic assets every year. Through such establishment, the Company manages its assets future expected loss scope to be within fixed limits. 116

119 Degree of maximum exposure to credit risk As of, the Company s maximum exposures to credit risk relating to its financial instruments without considering the value of the collaterals, are as follows: (in millions of Korean won) Cash and cash equivalents 1 2,236,716 1,591,151 Financial assets at fair value through profit or loss 2 74, ,646 Available-for-sale financial assets 2 87,365,180 74,119,782 Held-to-maturity financial assets 857,386 1,057,835 Loans receivable and other receivables 29,271,395 27,503,794 Derivatives financial assets for hedge accounting 293, , ,098, ,691,090 1 This amount is after excluding cash on hand from cash and cash equivalents in the statement of financial position. 2 This amount is after excluding equity securities from financial assets at fair value through profit or loss and available-for-sale financial assets in the statement of financial position. When financial instruments are recognized at fair value, the above amounts only indicate current credit risk s exposure and do not represent maximum credit exposure that may occur in the future due to changes in values. 117

120 Credit risk of loans receivable and other receivables The Company sets and manages allowance for bad debts on loans receivable and other receivables with credit risks in order to manage credit risks. The Company recognizes impairment losses on loans receivable and other receivables carried at amortized costs if objective evidence that the impairment occurred as of March 31, Under Korean-IFRS, loss from future impairment event is not recognized despite its possibility of occurrence as impairment loss represents incurred loss. The Company measures incurred losses inherent in financial assets classified as loans receivable and other receivables, and recognizes these incurred losses as allowance for bad debts, deducted from the relevant assets book values. As of, loans excluding policy loans receivable are classified as follows based on whether they are past due or impaired: (in millions of Korean won) Loans not past due nor impaired 10,871,204 10,614,785 Past due but not impaired 286, ,917 Impaired 71, ,673 Loans receivable 11,228,797 11,008,375 Allowance for bad debts (27,777) (43,195) Book value 11,201,020 10,965,

121 As of, credit quality information on loans that are not past due nor impaired are as follows: 2013 (in millions of Korean won) Level 1 Level 2 Level 3 Level 4 Total Non-retail Call loans 23, ,000 Loans secured by real estate 303,943 1,243,896 13,000-1,560,839 Unsecured loans receivable 1,274,262 1,007, ,281,306 Loans secured by third party guarantee 163, ,751 Other loans receivable 309,231 19, ,231 2,074,187 2,269,931 13,009-4,357,127 Retail - Loans secured by real estate 5,526,839 78, ,605,736 Unsecured loans receivable 664, ,884 14, ,658 Loans secured by third party guarantee 10,432 73, ,683 6,201, ,032 14,077-6,514,077 8,276,155 2,567,963 27,086-10,871, (in millions of Korean won) Level 1 Level 2 Level 3 Level 4 Total Non-retail Loans secured by real estate 231,065 1,406,661 57,656-1,695,382 Unsecured loans receivable 1,412,777 1,000, ,412,859 Loans secured by third party guarantee 84, ,434 Other loans receivable 174,682 50, ,382 1,902,958 2,457,429 57,670-4,418,057 Retail Loans secured by securities Loans secured by real estate 5,193,564 94, ,287,833 Unsecured loans receivable 675, ,959 19, ,289 Loans secured by third party guarantee 9,943 23, ,445 5,879, ,891 19,527-6,196,728 7,782,268 2,755,320 77,197-10,614,785 Regarding non-retail finance, the Company grants and manages credit rating through evaluating the borrower and counterparty s credit quality. As of, the Company manages 18 non-retail ratings reflecting best estimations on credit risk after considering the counterparties financial situations. 119

122 Regarding retail finance, the Company manages credit risk in breakdowns depending on the customers and loan natures following Application Scoring System (ASS) and Behavior Scoring System (BSS) models for internal management purposes. For reporting purpose classification, the Company classified them considering the overall Probability of Default (PD) and residential collateral s collectability evaluated by the internal credit risk management system. The relation between internal and external level of credit quality is as follows: Level 1 Level 2 Level 3 Level 4 Internal credit level(non-retail) AAA to AA- A+ to BBB- BB+ to BB- Below B Corporate bonds(domestic) AAA to AA- A+ to BBB- BB+ to BB- Below B CP level(domestic) A1 A2+ to B+ B to B- Below C S&P AAA to A- BBB+ to BB- B+ to B- Below CCC+ Moody's Aaa to A3 Baa1 to Ba3 B1 to B3 B to B- AM Best(Financial Supervisory Service) A++ to A- B++ to B+ Below Caa1 Below CCC The definition of the disclosure rating above is as follows: - Level 1: Exposure with high principal and interest payment capability. In the case of retail loans, they are composed of prime credit exposures where past due does not occur and loans with residential property collateral that have high collectability. - Level 2: Exposure with high principal and interest payment capability but where future payment capability may be affected by economic conditions and environmental changes. In the case of retail loans, they are composed of exposures with short-term past due amongst residential property and non-residential property collateral and credit loans that need close monitoring compared to the level 1 according to the evaluation result by internal credit rating evaluation model. - Level 3: Exposures which do not have principal and interest payment capability problems presently but contain speculative elements in terms of future security. Such exposures are in need of close monitoring in terms of default on liabilities. - Level 4: Exposures where defaults have occurred due to inability to pay principal and interest, or where it has a high probability of default. 120

123 As of, aging analysis of loans that are past due but not impaired is as follows: 2013 (in millions of Korean won) Less than 30 days Between 30 and 60 days Between 60 and 90 days Over 90 days Total Loans secured by real estate 198,524 5,668 2, ,027 Unsecured loans receivable 70,235 3,936 2, ,600 Loans secured by third party guarantee 2, , ,271 9,796 5, , (in millions of Korean won) Less than 30 days Between 30 and 60 days Between 60 and 90 days Over 90 days Total Loans secured by real estate 182,596 6,188 3, ,414 Unsecured loans receivable 87,475 4,369 2, ,685 Loans secured by third party guarantee 1, , ,628 10,754 6, ,917 Past due occurs when counterparty fails to make a payment of the principal and interest at the agreed payment date. Impairment occurs when the objective evidence of impairment exists and when the impairment event affects the financial asset s future expected cash flow that can be reliably estimated. Examples of objective evidence of impairment are accounts past due for over 90 days, faulty credit information according to credit information management regulation, readjustment of past due receivables and renewing payables with impaired exposures. Loans past due but not impaired may occur in retail loans and non-retail loans. In the case of retail loans, impairment is evaluated using evaluation based on statistical methods for generally similar assets. In the case of non-retail loans, even if the objective evidence of impairment exists for loans that are not individually impaired, because financial asset s future expected cash flow is not affected through collateral and credit reinforcement. In general, loans past due over 90 days are classified as impaired loans category, but if its future expected cash flow is not affected (or is guaranteed) by collaterals, the loan could be classified as over 90 days category. 121

124 As of, details of impaired loans, are as follows: 2013 (in millions of Korean won) Individual assessment Collective assessment Loans secured by real estate Unsecured loans receivable Loans secured by real estate Unsecured loans receivable Loans secured by third party guarantee Loans Allowance for receivable bad debts Ratio 21,674 2,532 12% 9,063 1,911 21% 30,737 4,443 30, % 9,951 7,879 79% % 40,289 8,142 71,026 12, (in millions of Korean won) Individual assessment Collective assessment Loans secured by real estate Unsecured loans receivable Loans secured by real estate Unsecured loans receivable Loans secured by third party guarantee Loans Allowance for receivable bad debts Ratio 16,209 2,776 17% 45,071 10,235 23% 61,280 13,011 29, % 13,792 10,431 76% % 43,393 10, ,673 23,791 Other receivables are mostly bank deposits and accrued interest income. Bank deposits consist of savings deposits and time deposits made to financial institutions with AA or higher credit rating, and accrued interest income consists of interests from debt securities, loans and bank deposit. 122

125 Credit quality of debt securities As of, credit quality information of debt securities that are neither past due nor impaired follows: 2013 (in millions of Korean won) AAA to AA- (AAA to A-) A+ to BBB- (BBB+ to BB-) Below BB+ (Below B+) Total Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets 61, ,823 85,198,529 2,166,651-87,365, , ,386 86,117,738 2,166,651-88,284, (in millions of Korean won) AAA to AA- (AAA to A-) A+ to BBB- (BBB+ to BB-) Below BB+ (Below B+) Total Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets 151, ,122 73,058,773 1,061,009-74,119,782 1,057, ,057,835 74,267,730 1,061,009-75,328,739 As of, none of securities(debt securities) is either past due or impaired. 123

126 Credit quality of derivatives The Company invests in long-term overseas bond investments in order to match its long-term liabilities. To avoid exchange rate risk, the Company enters into derivatives instruments transactions related to currencies. In addition, the Company sets a limit on investments in stock and interest rate derivatives for profit-making purposes. Credit risk from derivatives is mitigated from same the offsetting agreement of assets and liabilities of the same counterparty. The Company legally documents all offsetting agreements. ISDA Master Agreement is a general agreement that applies to the derivatives transactions. It provides a basic structure of the agreement on derivatives transaction activities. It restricts by agreement that all transactions are to be terminated and that the remaining agreement is to be settled in net amounts if the counterparty s one-way default or other early redemption occurs. Cash or long-term government bonds are generally requested as collaterals regarding derivative assets depending on the counterparty s credit rating or the nature of the transactions. The terms of the collateral are generally documented on ISDA Credit Support Anex (CSA) as well as on ISDA Master Agreement. According to CSA, the Company obtains binding power to implement the collateral when the counterparty s default on liability or payment, or a similar early redemption occurs. Lump-sum offsetting agreement is settled on a gross basis, which does not result in offsetting individual assets and liabilities on a financial statement. Thus, the asset and liability on the financial statement are not offset. If offsetting is possible on the same counterparty, the exposure degree on the credit risk regarding the derivatives asset above can be reduced compared to the amount recognized on the financial statement. As of, the derivative financial liabilities amount that can be offset with the collateral, and the amount provided to the Company regarding the derivative financial assets above are as follows: (in millions of Korean won) Collateral 88,480 64,402 Derivative financial liabilities that can be offset 169, ,

127 Analysis on credit risk concentration As of, credit risk concentration of loans receivable by industry is as follows: 2013 (in millions of Korean won) Finance and insurance Real estate and rental Construction Manufacturing Wholesale /retail Loans to household Others Total Call loans 23, ,000 Policy loans receivable Loans secured by real estate Unsecured loans receivable Loans secured by third party guarantee Other loans receivable ,846,245-13,846,245 1,107, , ,747 15,502 5,815,425 48,941 7,425,599 55, , , , ,400 3,201,578-20,847 95, ,639 47, , ,000 89, , ,231 1,285,524 1,100, ,857 2,747 15,502 20,659,217 1,080,749 25,075, (in millions of Korean won) Finance and insurance Real estate and rental Construction Manufacturing Wholesale /retail Loans to household Others Total Policy loans receivable Loans secured by securities Loans secured by real estate Unsecured loans receivable Loans secured by third party guarantee Other loans receivable ,335,206-13,335, ,296, ,933 1,687 4,838 14,668 5,466,478 60,953 7,221, , , ,344-15, ,310 1,077,366 3,441,696-21,490 20, ,309 42, , , , ,382 1,506,834 1,032, ,307 4,848 29,985 19,820,464 1,180,987 24,343,

128 As of, credit risk concentration of debt securities by industry is as follows: 2013 (in millions of Korean won) Public Finance and insurance Real estate and rental Construction Manufacturing Wholesale /retail Others Total Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets 61, ,823 40,724,442 18,469,506 4,398,914 7,001,294 3,094, ,609 13,312,073 87,365, , ,386 41,643,651 18,469,506 4,398,914 7,001,294 3,094, ,309 13,312,073 88,284, (in millions of Korean won) Public Finance and insurance Real estate and rental Construction Manufacturing Wholesale /retail Others Total Financial assets at fair value through profit or loss Available-for-sale Financial assets Held-to-maturity financial assets 151, ,122 35,170,332 15,459,744 3,455,267 7,167,403 2,669, ,534 9,922,306 74,119,782 1,057, ,057,835 36,379,289 15,459,744 3,455,267 7,167,403 2,669, ,534 9,922,306 75,328,

129 As of, credit risk concentration of debt securities by country is as follows: 2013 (in millions of Korean won) Republic of Korea United states of America United kingdom France Kingdom of the Netherlands China Others Total Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets 61, ,823 81,398,369 2,518,563 1,279, , ,759 80,333 1,273,831 87,365, , ,386 82,317,578 2,518,563 1,279, , ,759 80,333 1,273,831 88,284, (in millions of Korean won) Republic of Korea United states of America United kingdom France Kingdom of the Netherlands China Others Total Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets 151, ,122 67,564,651 2,894,244 1,300, , ,361 84,393 1,342,661 74,119,782 1,057, ,057,835 68,773,608 2,894,244 1,300, , ,361 84,393 1,342,661 75,328,

130 38.6 Liquidity risk Liquidity risk overview Liquidity risk is the risk of excess or deficiency occurring from unexpected rapid change in cash flows or inconsistency of assets/liabilities maturity. Liquidity risk can be understood through the size of liquid asset and liability. Possibility of exposure to liquidity risk is low when liquid asset is comparatively larger than expected amount of claims payments. Management of liquidity risk The Company manages liquidity risk through liquidity ratio. Liquidity ratio is an index evaluating the appropriateness of liquid assets size, and calculated by dividing assets with residual maturities of less than three months by claims payments that occurred during last three months. The Company manages the liquidity ratio to be over 100% at the minimum. The Company prepares for temporary and sudden lack of liquid assets by bank overdraft agreement of \ 250 billion with six banks in order to prepare for unforecasted cash outflow requirements that may occur during a financial crisis. 128

131 Liquidity risk exposure As of, regarding insurance contract liabilities and financial assets, the contractual remaining maturity details of non-discounted contractual cash flow are as follows: 2013 (in millions of Korean won) Financial assets Cash and cash equivalents Financial assets at fair value through profit or loss(except derivatives for trading) Less than 3 months Between 3 months and 1 year Between 1 year and 5 years Between 5 years and 10 years Between 10 years and 20 years Over 20 years 2,236, ,236,996 1,933, ,019 10,165 10, ,054,377 Loans receivable 14,171, ,018 2,478, ,968 2,947,686 4,002,275 25,075,042 Other receivables 1,898,432 1,849, , , ,465 1,651 4,224,399 Available-for-sale financial assets Held-to-maturity financial assets 23,454,629 5,441,510 32,548,601 32,951,235 12,391,475 3,226, ,014,189 3, , , , ,386 43,698,396 8,365,444 35,653,449 33,758,009 15,756,426 7,230, ,462,389 Total Insurance contracts Liabilities 3,903,102 1,024,472 4,691,445 11,616,300 10,195,482 89,764, ,195,651 Other financial liabilities 582, , , ,008,794 Derivatives for trading Cash outflows 87, , , ,962 Cash inflows 85, , , ,523 Derivatives for hedging Cash outflows 1,088,048 2,025,102 6,998,224 1,223, ,865 29,122 11,532,699 Cash inflows 1,102,852 2,192,501 6,801,592 1,143, ,589 20,307 11,415,

132 2012 (in millions of Korean won) Financial assets Cash and cash equivalents Financial assets at fair value through profit or loss(except derivatives for trading) Less than 3 months Between 3 months and 1 year Between 1 year and 5 years Between 5 years and 10 years Between 10 years and 20 years Over 20 years 1,591, ,591, ,815-89,802 61, ,937 Loans receivable 13,690,233 1,186,051 2,501, ,762 2,915,878 3,533,380 24,343,581 Other receivables 932,769 1,191, , ,161 90,153 12,321 3,211,282 Available-for-sale financial assets Held-to-maturity financial assets 21,562,614 3,481,962 29,935,251 26,666,952 9,534,366 2,675,150 93,856,295 60, , ,965 26, ,213-1,057,835 38,111,723 6,002,492 33,606,062 27,755,599 12,788,610 6,220, ,485,337 Total Insurance contracts liabilities 3,715, ,961 4,240,636 7,741,724 7,362,263 82,785, ,655,592 Other financial liabilities 545,129 75, ,989 18, ,966 Derivatives for trading Cash outflows 40,790 37, ,055 29, ,652 Cash inflows 39,532 35, ,429 28, ,381 Derivatives for hedging Cash outflows 480,239 1,237,916 8,823,349 1,981, ,253 29,824 12,822,758 Cash inflows 523,508 1,305,836 8,890,294 1,855, ,752 21,258 12,839,

133 Maturities of assets and liabilities as of, are as follows: 2013 (in millions of Korean won) Below 1 year Over 1 year Total Cash and cash equivalents 2,236,996-2,236,996 Financial assets at fair value through profit or loss 2,037,030 29,896 2,066,926 Available-for-sale financial assets 28,896,139 81,118, ,014,189 Held-to-maturity financial assets 141, , ,386 Loans receivable and other receivables 18,755,282 10,516,113 29,271,395 Derivative financial assets for hedge accounting 154, , ,802 Investments in subsidiaries associates and joint ventures - 2,004,184 2,004,184 Assets held for sale 52,906-52,906 Investment property - 4,431,312 4,431,312 Property and equipment - 1,689,521 1,689,521 Intangible assets - 163, ,048 Current income tax assets 95,204-95,204 Other assets 154,848 3,981,815 4,136,663 Separate account assets - 28,161,584 28,161,584 Total assets 52,524, ,950, ,475,116 Insurance contract liabilities 4,927, ,268, ,195,651 Policyholders' equity adjustment - 7,492,055 7,492,055 Financial liabilities at fair value through profit or loss 28, , ,336 Other financial liabilities 687, , ,315 Derivative financial liabilities for hedge accounting 62, , ,166 Current income tax liabilities Deferred income tax liabilities - 4,456,884 4,456,884 Provisions - 97,376 97,376 Other liabilities 606,981 28, ,960 Separate account liabilities - 28,277,936 28,277,936 Total liabilities 6,313, ,826, ,139,

134 2012 (in millions of Korean won) Below 1 year Over 1 year Total Cash and cash equivalents 1,591,407-1,591,407 Financial assets at fair value through profit or loss 285, , ,461 Available-for-sale financial assets 25,044,576 68,811,719 93,856,295 Held-to-maturity financial assets 204, ,582 1,057,835 Loans receivable and other receivables 17,000,164 10,503,630 27,503,794 Derivative financial assets for hedge accounting 58, , ,882 Investments in subsidiaries associates and joint ventures - 2,002,066 2,002,066 Investment property - 4,137,435 4,137,435 Property and equipment - 1,632,638 1,632,638 Intangible assets - 183, ,333 Current income tax assets 86,316-86,316 Other assets 60,207 3,984,076 4,044,283 Separate account assets - 23,801,700 23,801,700 Total assets 44,331, ,258, ,589,445 Insurance contract liabilities 4,525, ,130, ,655,592 Policyholders' equity adjustment - 6,041,938 6,041,938 Financial liabilities at fair value through profit or loss 2, , ,372 Other financial liabilities 620, , ,912 Derivative financial liabilities for hedge accounting 59,037 1,224,248 1,283,285 Current income tax liabilities Deferred income tax liabilities - 3,315,558 3,315,558 Provisions - 93,471 93,471 Other liabilities 196,012 41, ,224 Separate account liabilities - 23,983,652 23,983,652 Total liabilities 5,403, ,462, ,866,

135 38.7 Market risk Market risk overview Market risk is the risk of changes in financial instruments fair values of future cash flows due to changes in market price. Main assets subject to market risk by risk element are as follows: Risk Factor Assets Amount of risk Stock price Equity instrument Decrease in holding stock s present value due to decrease of stock price Interest rate Debt instrument Decrease in holding debt s value due to increase of interest rate Exchange rate Foreign currency assets Decrease in holding foreign currency asset s translated amount due to decrease of exchange rate Measuring method of market risk In order to manage the amount of loss from the assets market price decrease, the Company measures exposure and risk of the assets subject to market risk using RBC and internal models. Based on RBC standard, the general market risk amount is calculated by multiplying each market risk coefficient regarding each stock/interest rate/foreign exchange rate change risk. Regarding annuities minimum guarantee risk of variable insurance, the annuities guarantee risk amount of variable insurance are measured using risk coefficients. With external capital regulation, to manage stock asset s price risk internally, the Company measures Market VaR(Value at Risk) and sets limits on part of capital. 133

136 Management method of market risk In order to manage market risk, the Company regulates limits such as loss and management limits. Risk management department periodically monitors whether the management department follows such limits and reports the results to the executive management and asset risk management committee. In order to avoid currency risk from foreign investments, the Company sets a policy, where 100% of foreign currency assets are hedged. Following such policy, the Company offsets losses that may occur from changes in currency during the future investment period regarding foreign bonds and stocks, currency swap and forward contracts and others. The Company performs stress testing on trading and available-for-sale portfolios reflecting changes in risk elements such as interest rate, stock price, foreign exchange rate and others. The Company uses historical scenario as risk situation analysis main scenario and also uses hypothetical scenario analysis as an ancillary. Such risk situation analysis is carried out at least once in every quarter. 134

137 Sensitivity details per market risk variable For the years ended, the sensitivity analysis details on income and capital impact, following changes in exchange and interest risk, are as follows: (in millions of Korean won) Profit and loss 1 Equity 2 Profit and loss 1 Equity 2 Exchange rate Interest rate Stock index \ 100 increase \ 100 decrease 100 bp increase 100 bp decrease 10% increase 10% decrease (1,774) 8,049 (5,653) (73,176) 1,774 (8,049) 5,653 73,176 (69,374) (4,438,382) (12,449) (3,203,712) 69,374 4,438,382 12,449 3,203,712-2,126,291 3,725 1,516,240 - (2,126,291) (3,725) (1,516,240) 1 Profit and loss before income tax. 2 The changes in other comprehensive income are before policyholders equity adjustment and deferred tax allocation. 135

138 39. Segment Information The information of operating segment is disclosed in consolidated financial statements in accordance with Korean-IFRS Business combination During the year ended March 31, 2013, the Company indirectly obtained control over Thai Samsung Life Insurance Co., Ltd. as Park Capital Holding, a subsidiary of the Company, acquired additional 51% of the equity shares. Above securities are classified and measured at book value as subsidiaries, associates and joint ventures on separate financial statements (Note10). 41. Assets held for sale Assets and liabilities of disposal group classified as held-for-sale as of March 31, 2013, is as follows: (in millions of Korean won) 2013 Investments in subsidiaries, associates and joint ventures 1 52,906 1 The securities of Samsung Life Properties (China), Ltd. are reclassified as assets held-for-sale according to the approval of the Company s management during March The securities of Samsung Life Properties (China), Ltd. are measured at the lower of the fair value and the carrying amount as of March 31, Reclassification of the comparative financial statements accounts Certain amounts in the financial statements as of and for the year ended March 31, 2012, have been reclassified to conform to the March 31, 2013 financial statement presentation. These reclassifications have no effect on previously reported net income or net asset. 43. Event after the reporting period On April 23, 2013, the Company s Board of Directors declared to additionally acquire 3 million common shares as treasury stock for purpose of increasing shareholder value by stabilizing stock price. 136

139 Report of Independent Accountants' Review of Internal Accounting Control System To the President of Samsung Life Insurance Co., Ltd. We have reviewed the accompanying management s report on the operations of the Internal Accounting Control System ( IACS ) of Samsung Life Insurance Co., Ltd. (the Company ) as of March 31, The Company s management is responsible for designing and operating IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review the management s report on the operations of the IACS and issue a report based on our review. The management s report on the operations of the IACS of the Company states that based on its assessment of the operations of the IACS as of March 31, 2013, the Company s IACS has been designed and is operating effectively as of March 31, 2013, in all material respects, in accordance with the IACS standards established by the Internal Accounting Control System Operations Committee (IACSOC) of the Korea Listed Companies Association. Our review was conducted in accordance with the IACS review standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform, in all material respects, the review of management s report on the operations of the IACS to obtain a lower level of assurance than an audit. A review is to obtain an understanding of a company s IACS and consists principally of inquiries of management and, when deemed necessary, a limited inspection of underlying documents, which is substantially less in scope than an audit. A company s IACS is a system to monitor and operate those policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the Republic of Korea. Because of its inherent limitations, IACS may not prevent or detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on our review, nothing has come to our attention that causes us to believe that management s report on the operations of the IACS, referred to above, is not presented fairly, in all material respects, in accordance with the IACS standards established by IACSOC. Our review is based on the Company s IACS as of March 31, 2013, and we did not review management s assessment of its IACS subsequent to March 31, This report has been prepared pursuant to the Acts on External Audit for Stock Companies in Korea and may not be appropriate for other purposes or for other users. Samil PricewaterhouseCoopers May 30,

140 Report on the Operations of the Internal Accounting Control System To the Board of Directors and Audit Committee of Samsung Life Insurance Co., Ltd. I, as the Internal Accounting Control Officer ( IACO ) of Samsung Life Insurance Co., Ltd. ( the Company ), assessed the status of the design and operations of the Company s internal accounting control system ( IACS ) for the year ended March 31, The Company s management including the IACO is responsible for designing and operating the IACS. I, as the IACO, assessed whether the IACS has been effectively designed and is operating to prevent and detect any error or fraud which may cause misstatements to the financial statements, for the purpose of establishing the reliability of financial reporting and the preparation of financial statements for external purposes. I, as the IACO, applied the IACS standards to assess the design and operations of the IACS. Based on the assessment on the operations of the IACS, in all material respects, the design and operations of the Company s IACS were effective as of March 31, 2013, in accordance with the IACS standards. May 14, 2013 Lee Jun-Kun Internal Accounting Control System Officer Park Keun-Hee President & CEO 138