ING LIFE 2017 ANNUAL REPORT 2017
ANNUAL REPORT Insured for New Growth Insured for New Growth
Leading Provider of Insurance
ING Life Insurance Korea, Ltd. (ING Life) has been keeping pace with the development and growth of the life insurance industry in Korea ever since its establishment in 1987. Marking the 30th anniversary in 2017, we are preparing for a new way forward to achieve stronger growth while shaping a sustainable future. We will create new values by thinking outside the box, backed by our long-time accumulated knowledge and experience, and based on our corporate culture of communication and trust.
This is the first Annual Report of ING Life since its initial public offering (IPO). We have published this report to share the efforts we made to grow together with our shareholders and other stakeholders as a reliable financial partner, and the outcome of such efforts. Formats Compass This report is published in both This report has been published as an printed and PDF formats, giving our interactive PDF, allowing readers to move stakeholders the option to choose their easily to pages in the report, and includes preferred communication format. shortcuts to related web pages.
Printed Report Reference page
Interactive PDF Website link Video clipclips
This report is available in PDF format which can be downloaded at www.inglife.co.kr Company History
2017 30th anniversary of the founding of ING Life Insurance Korea ING Life Insurance Korea years of innovation 30 Listed on KOSPI (as #079440.KS)
Received an exclusive Insured for New Growth 1987 2000 2006 2010 2015 2016 license to the Non-Par Started its business Became the first to Received the Received the ‘Consumer Launched the Brave Received the Anti-Money ING Good Start Variable under the name of receive an ‘A (Excellent)’ ‘Anti-Corruption Merit Trust Grand Prize’ at Orange Whole Life Laundering Award by Whole Life Insurance Life Insurance Company rating from A.M.Best Commendation’ in the the Consumer Interests Insurance – the industry’s the Prime Minister on from the New Product of Georgia among Korean life group category from Promotion Management first low cash surrender the 10th Anti-Money Deliberation Committee insurers the Korea Independent Awards value product with lower Laundering Day of the Korea Life Commission Against 1991 premium Insurance Association Corruption Opened the ‘WM Center’ Life Insurance Company 2001 2011 Received an exclusive in Gangnam, Seoul Chosen as ‘Korea’s Best of Georgia changed its Maintained the highest Received an award in license to the Brave Call Center in 2017’ in name to Netherlands premium income growth 2007 Leading the ‘Cultural Activity Orange Whole Life Chosen at the Big Data the call center category Life Insurance rate in the industry for Relocated corporate Support’ category at the Insurance from the New Analysis Strategy Model of the Korean Service three consecutive years headquarters to the Happiness Plus Social Product Deliberation Contest for the ‘2016 Quality Index for 13 Provider of Insurance ‘ING Center’, located in 1998 Contribution Awards Committee of the Pilot Project on Smart consecutive years Jung-gu, Seoul, Korea Chosen as the best 2003 Korea Life Insurance Services Using Big Data’ of the Ministry of company in a business Annual premium income 2012 Association Received the Anti-Money Science, ICT and Future Laundering Award by evaluation conducted exceeded KRW 1 trillion 2008 Chosen as ‘Korea’s Most Received the ‘Financial Planning and the National the Financial Services by the Insurance Received the ‘Silver Ethical Company’ by Supervisory Board Tower Order of Industrial Supervisory Commission Information Society Commission (FSC) 2004 Fortune Korea Service Merit’ from the Chairman Award’ on Agency Chairman on the 11th Became the fourth Ministry of Knowledge the 9th Anti-Money Anti-Money Laundering 1999 largest life insurer in 2013 Laundering Day The Brave Orange Whole Day Economy ING Life Insurance Korea, Ltd. (ING Life) has been keeping pace with Changed company name Korea based on premium Received ‘AAA’ rating for Life Insurance attained to ING Life Insurance income seven consecutive years The Brave Orange Whole a ‘Financial Product Received the Grand Prize the development and growth of the life insurance industry in Korea Korea 2009 in the Insurer Financial Life Insurance received Service Consumer Quality ‘Financial Supervisory ever since its establishment in 1987. Marking the 30th anniversary in 2017, Received the ‘Industrial Strength Rating of Korea the ‘Grand Prize’ at the Certification’ from the Service Governor Award’ 2005 we are preparing for a new way forward to achieve stronger growth while Service Medal for 2015 Best New Financial Korea Finance Consumer at the 6th Financial New policies exceeded Ratings Attracting Foreign Products held by the Federation Consumer Protection shaping a sustainable future. We will create new values by thinking outside one million Investors’ from the Financial Supervisory Awards 2014 the box, backed by our long-time accumulated knowledge and experience, Ministry of Knowledge Service Introduced the industry’s Received the ‘Innovation and based on our corporate culture of communication and trust. Economy first Robo-Advisor Fund Received the Herald Grand Prize’ at the Economic Daily Grand Smart App Awards held Launched ‘iTOM’, Prize ‘FSC Chairman This is the first Annual Report of ING Life since its initial public offering by the Korea Internet a customer management- Award’ in Insurance Professional Association -centric tablet-based sales Business (IPO). We have published this report to share the efforts we made to grow activity management together with our shareholders and other stakeholders as a reliable financial application partner, and the outcome of such efforts.
Others ESOP ING ING 3.49% 0.86% Group Group MBK Partners Shareholder Foreigners 36.5% 59.15% Composition 80% 85.1% ING MBK Group Partners
100% 100% 20% 14.9%
1999 Kookmin 2007 Kookmin 2008 2013 2017 Bank Bank
* As of December 31, 2017 Contents
MAGAZINE REPORT 034 047-157
Key Value Drivers 050 Financial and Operating Report Unrivaled capital strength, well-balanced source of earnings, 080 FC channel with leading productivity Corporate Governance Report level, and other key differentiators of 006 ING Life 092 Audited Financial Statements CEO’s Statement I. Growth
Greetings form CEO Munkuk Cheong to all II. Profitability 157 of our stakeholders, who trust in the reliable III. Efficiency IR & Corporate Information performance and the future of ING Life IV. Risk & Capital Management 157 Imprint 010 035 2017 at a Glance Our Commitment to Creating Shared Value
010 News Highlights Creating shared values together with our stakeholders as a reliable 012 Performance Highlights financial partner to shape a sustainable future for all
036 Shareholder Value 042 Employee Value 038 FC Value 044 Social Value 040 Customer Value
016 Interview with Chief Executive Officer 014 020 Interview with Chief Financial Officer Interview with 024 Interview with Management Chief Agency Channel Officer 026 Interview with Interview with the management on Chief Alternative Channel Officer the performance of ING Life in 2017 – a year of change and innovation – 028 Interview with and the company’s future direction Chief Marketing Officer 030 Interview with Chief Operating Officer 032 The Board of Management
004 ING Life Insurance Korea Annual Report 2017 Contents 005 CEO's Statement
2017 was a meaningful year to ING Life Insurance Korea (ING Life) as we proved our competitiveness and capability at home and abroad. In May, we successfully listed our shares on the Korea Composite Stock Price Index (KOSPI) market, thanks to all of your support and encouragement.
Dear customers and shareholders, 2017 was a meaningful year to ING Life Insurance Korea (ING Life) as we proved our competitiveness and capability at home and abroad. In May, we successfully listed our shares on the Korea Composite Stock Price Index (KOSPI) market, thanks to all of your support and encouragement. We made all-out efforts to meet high market expectations for our corporate value, and thus achieved a business performance exceeding our goal and beating market expectations.
Profit after tax reached KRW 340.2 billion, higher than ever before; value of new business (VNB) amounted to KRW 134.5 billion, a 33.1% increase compared with the figure in 2016. Premium income totaled KRW 4,113.3 billion comprising KRW 3,157.5 billion and KRW 955.7 billion in general and special accounts, respectively. The strong and stable business performance led to a steady hike in share price.
These achievements attest to our solid financial strength, impervious to any changes, for they were made in the midst of challenging business conditions, such as escalating volatility in the global financial market, multiplying economic uncertainties, and fast-evolving changes towards an era of the Fourth Industrial Revolution. In addition, the scheduled enforcement of the IFRS 17 and Korea Insurance Capital Standard (K-ICS) – a new international accounting standard for insurers and a new Korean solvency regime, respectively – is proving to be an opportunity for us, whilst it is a challenge for competitors. For over the past 30 years, we have conducted asset-liability management (ALM) to global standards, and thus ensured our sustained capital strength and financial soundness. Another firm foundation for our sustainable growth is the business steering strategy in maintaining a balance between growth and profitability, as well as between efficiency and risk.
006 ING Life Insurance Korea Annual Report 2017 CEO’s Statement 007 Furthermore, in pursuit of stronger and stable growth, we focused on further strengthening our Third, we will stay ahead in a rapidly changing environment. We will redesign customer experience competitive advantages in 2017. To make improvements to our financial consultant (FC) channel, in consideration of digital environments, while building a healthcare product platform reflecting the we sought to improve the ability to sell protection-type products, which are more profitable, global healthcare trend. Also, in line with the advent of the Fourth Industrial Revolution, insurance by expanding the use of ‘iTOM’, a customer management-centric sales support system. Of applications, policy management, claims payments and other customer services will be available particular note, we secured patents on the system’s two features – overall process and automatic as digital functions, and many internal work processes will be automated through the use of distribution and retrieval of transferred customers – in January 2018, which proved our excellence robotics. As a response to the fast-evolving business environment and customer needs, we have in FC support system based on superior mobile and digital technology. To strengthen the adopted an agile organization structure in 2Q 2018, with the aim of maximizing our business bancassurance (BA) and general agency (GA) channels, we strived to achieve stable growth and efficiencies. improve profitability at the same time by diversifying our product portfolio through the development Lastly, we will fulfill our responsibilities as a member of society. We launched the ‘Orange of diverse products. As a result, protection products sold via the FC channel accounted for Foundation’ in 1Q 2018, which focuses on offering opportunities to children and young adults to 55% of total sales, a 1.3%p increase from the previous year. Also, APE generated through the develop their talent. By contributing about 1% of profit after tax every year to projects and donation new channels rose 1.0%p year-on-year to 46%. In addition, we increased investment in big data programs supporting these younger citizens, we will lend a helping hand to future generations so analytics, expanded our digital service offerings for customers, and established a mobile customer that they can realize their dreams. management platform for our FCs. By overhauling customer management programs, we offer continuously improving service levels both directly and through our financial consultants. These Over the past 30 years, all of us at ING Life have been striving towards the vision of becoming a efforts helped drive VNB up 33% year-on-year to a record KRW 134.5 billion in 2017. reliable partner for customers’ dreams. And, once again, we’d like to thank all of our stakeholders who have been with us on this long and continuous path to change and innovation. We now stand at a new beginning, ready to face an era of change and pursue innovation with a new insight. As a In 2018, we pledge to raise expectations even company growing together with its customers, shareholders and local societies, we will continue to pave the way for sustainable growth focused on embedded value. Your continued support would higher for ING Life’s future. We will achieve both be most appreciated for our ‘quantum leap’ towards a brighter future. qualitative and quantitative growth by leveraging Thank you. our capital strength to increase sales power.
In addition, we will take a ‘Quantum Leap’ forward, focusing on the following objectives.
First, we will ensure that all aspects of our business are thoroughly prepared for upcoming Munkuk Cheong regulatory changes. We are ahead of our peers in the preparation for IFRS 17 and K-ICS, both CEO & President, ING Life Insurance Korea slated to take effect in 2021. By taking full advantage of our solid financial strength and superior operating systems, we will respond to the new standards step by step, make continuous improvements, and do our utmost to protect the capital of the company, and the expectations of our shareholders and customers.
Second, we will operate sales channels in a more preemptive and proactive manner. The FC channel will focus more on the growth of VNB by strengthening its protection-type product sales capability while expanding market share based on our capital strength. The BA channel will be bolstered with efforts to expand market presence and to improve profitability; and the GA channel will maintain its growth momentum with a focus on protection-type products by leveraging its strategic partnerships.
008 ING Life Insurance Korea Annual Report 2017 CEO’s Statement 009 2017 at a Glance
JANUARY MAY JULY News Highlights Launched the ‘Non-Par Living Listed on KOSPI on May 11 Launched the ‘Simplified Issue Benefit Variable Universal Whole Brave Orange Whole Life Life Insurance’ Insurance’ (non-participating, low cash surrender value Launched the ‘Non-par Variable product with lower premium) OCTOBER Annuity Insurance – Save & Grow’ Held a ceremony to celebrate
MARCH the 30th anniversary of the company’s founding Released ‘iWALK-Nilili Manbo’, a mobile application to Recruited recent college Chosen as ‘Korea’s Best Call encourage moderate exercise, graduates through open Center in 2017’ by the Korean predominantly walking enrollment (targeting 30 new Service Quality Index for 13 graduates to start work from Launched the ‘Non-Par ING Good consecutive years January 2018) Start Variable Life Insurance’ FEBRUARY AUGUST DECEMBER Launched the ‘Non-Par Orange Prepared to establish a social Care Plus Variable Annuity’ contribution foundation – Orange Supported all staff to actively Foundation (regulatory approvals participate in the ‘Orange Hope Shared our big data strategy received, and foundation House’ charity campaign model with the industry launched, in 1Q 2018)
Provided title sponsorship for the ‘ING Life Champions APRIL Trophy Park In Bee Invitational’ Launched the ‘Non-Par Life Care LPGA/KLPGA golf tournament CI Whole Life Insurance’
Received an exclusive license to the ‘Non-Par ING Good Start Variable Whole Life Insurance’ from the New Product Deliberation Committee of the Korea Life Insurance Association
Successful 2017
ING Life celebrated its 30th anniversary in 2017 – a year marked by significant achievements that transformed our company, as we successfully made our stock debut on the Korea Composite Stock Price Index (KOSPI) market. We also demonstrated the strength of our business. As of December 31, 2017, our risk-based capital Click the play button to watch the company PR video of ING Life (RBC) ratio reached 455%, one of the highest levels in the industry, and based on our capital strength, we will remain competitive and stay ahead in the rapidly changing insurance industry, including the strengthening of capital regulations. In addition, we made announcements to establish the Orange Foundation to fulfill our corporate social responsibilities through diverse social contribution activities designed to help future generations realize their dreams.
010 ING Life Insurance Korea Annual Report 2017 2017 at a Glance 011 Performance Highlights
VALUE OF NEW BUSINESS PROFIT AFTER TAX TOTAL ASSETS FINANCIAL HIGHLIGHTS (Unit: KRW billion) (Unit: KRW billion) (Unit: KRW billion) 2017 2016 Change
Key Value Indicators (Unit: KRW billion) 134.5 340.2 31,455.4 Annualized Premium Equivalent (APE) 684.3 710.7 (3.7%) Protection APE 307.9 279.9 10.0%
Value of New Business 134.5 101.0 33.1% 1) 340.2 134.5 31,455.4 30,668.7 304.8 290.2 Summarized Statements of Income (Unit: KRW billion) 29,555.6
Premium Income 1) 4,113.3 4,057.7 1.4% 101.0
Operating Result Before Tax 2) 428.4 362.9 18.0%
Profit After Tax3) 340.2 290.2 17.2%
Summarized Statements of Financial Position (Unit: KRW billion) Total Assets 31,455.4 30,668.7 2.6%
Invested Assets 24,558.2 23,984.1 2.4% 2016 2017 2015 2016 2017 2015 2016 2017 Shareholders’ Equity 3,668.6 4,147.4 (11.5%)
Key Ratios (Unit: %) ROE 8.7% 5.7% 3.0%p PROTECTION APE EARNINGS PER SHARE RBC RATIO (Unit: KRW billion) (Unit: KRW)2) (Unit: %) RBC Ratio 455.3% 319.2% 136.1%p
1) Includes premium income from variable business 2) Excludes past suicide claims and market variance (Realized capital & FX gains and losses/Impairments) 3) Excludes past suicide claims 307.9 4,149 455.3
KEY FIGURES 455.3 307.9 4,149 279.9 3) Number Number Number Number 3,717 of employees of FCs of branches of customers 2,936 229.2 324.9 761 5,278 96 1,232,200 319.2
2015 2016 2017 2015 2016 2017 2015 2016 2017
* As of December 31, 2017
1) Excludes past suicide claims 2) After giving retroactive effect to a 10-to-1 stock split which became effective on January 23, 2017 3) 2016 Earnings per share reflects reported 2016 profit after tax (before excluding past suicide claims)
012 ING Life Insurance Korea Annual Report 2017 2017 at a Glance 013 Interview with Management
Bring Visionary Ideas to
In 2017, ING Life celebrated our past 30 years by looking forward. While solidifying our status as a company with a long history of practicing global standards, we have completed the foundation for unparalleled growth worthy of a listed company unrivaled in capital. Now we are preparing for a ‘Quantum Leap’ to deliver more value to all stakeholders. And our objectives, plans and unique advantages are explained by the CEO and other key executives in the following interviews.
014 ING Life Insurance Korea Annual Report 2017 Interview with Management 015 Interview with Chief Executive Officer
QUANTUM
LEAP TOWARDS An absolute capital strength, outstanding NEW GROWTH financial consultants (FCs), and an advanced corporate culture have combined to drive the sustained growth of ING Life for years. Based on our business steering philosophy and agile organization, we will grow stronger and Q1 more sustainable. First of all, congratulations on ING Life’s 30th anniversary, successful IPO and record-high profit in 2017. How would you Munkuk Cheong define ING Life’s strengths and know-how that have made Chief Executive Officer & President these exceptional achievements possible?
ING Life’s noteworthy achievements accomplished in 2017 are the result of an absolute capital strength, outstanding financial consultants, and an advanced corporate culture, all converging into a great advantage. Of these, capital strength is one of our strongest suits that allows us to continue to grow to the delight of investors. Our strong capital base also enables us to keep our promises to customers. As insurance is a form of promise to pay benefits to policyholders as contracted, capital is what makes the fulfillment of such promise possible. It is well recognized that the current risk-based capital (RBC) regime is an inadequate barometer for adequately separating well-capitalized insurance companies from the rest. However, as the new international accounting standards and more stringent capital regime are to take effect in 2021, our capital strength increasingly attracts positive media attention, which in turn enhances our corporate value. In addition, as customers become more financially aware, focusing on financial soundness rather than relying solely on the sales pitch from distributors, ING Life also earns greater trust from customers.
Capital strength, however, is not our only competitive edge. Our core strengths include the financial consultant (FC) channel and a corporate culture that values individual autonomy. In particular, our FC channel is not only Keywords for Agile Organization of ING Life the best in the industry, but also the basis of the strong financial health and a key corporate asset of which we are very proud. Our products guarantee customers a 100% insurance payout in the event of an insured claim, protect shareholders through thorough risk management practices, and enable the company to achieve TRUST • GROWTH AND ACHIEVEMENT • OWNERSHIP • PARTNERSHIP • RESPECT • profitable growth. Outstanding as they may be in terms of customers, shareholders and corporate values, TEAMWORK • COMMUNICATION • our insurance products are not easy for average FCs to sell. Nevertheless, our FCs have generated a steady RESPONSIBILITY • VISION • ROLE MODEL • sales performance, spearheading the growth of the company for years. The FC channel’s competitiveness EMPOWERMENT • INCLUSIVENESS • has been possible not only because of the superior sales competency of individual FCs but also backed by PASSION • CONSULTATIVE • BOTTOM-UP • the advanced and flexible corporate culture of a company built and managed to international standards, which ACT FIRST • FAIL FAST • TRY AGAIN • drives individual FCs to reach for higher goals. END-TO-END
016 ING Life Insurance Korea Annual Report 2017 Interview with Management 017 Q3 Regarding the transformation into an agile Business Steering Philosophy organization you have mentioned, would you please elaborate on it? Also, what do you expect from an Growth Efficiency agile organizational structure and culture?
Optimal Balance
In an era of ‘New Normal’, the survival of a business in the competitive Korean financial landscape depends on its approach to customers. Only by offering products and services developed and serviced from the customers’ perspective can a business expect to attract customers, who will be the basis of its future revenue. In other Profitability Risk & Capital words, the thought and work process must become customer-centric, and this is possible only when the Management organization changes itself first.
For the first time in the Korean industry, ING Life has therefore adopted the concept of an agile organization,
GROWTH effective April 2018. In overhauling the organization, we dismantled the physical and mental barriers between • Maintain strong VNB growth by traditional teams and divisions, and created a group of squads each comprising team members with different expanding protection APE but complementary skill sets. We then gave each squad complete authority over how to achieve their goals, • Increase the strengths of including responding to changes in customer needs and the market environment, in order to remain agile and our best-in-class FC channel to stay competitive. In particular, the dismantling of inter-team barriers has enabled real-time communication • Diversify our distribution and feedback among squad members and will lead to creative ideas encompassing a wider perspective. Q2 channels to include BA and GA channels The transformation into an agile organization has also provided us with a platform to carry us through the What are main tasks that ING Life will pursue in order to Fourth Industrial Revolution. We have continued to pursue the conversion of our distribution channels, product maintain its growth momentum in 2018? PROFITABILITY marketing and IT technologies. ‘AiTOM’ is a good example of what we have already accomplished, because • Improve investment profits by it is a next-generation sales system setting new standards for sales support tool for FC channels. As the agile diversifying investment under transformation now allows more dynamic interactions and innovation, we expect that such discussions will soon our ALM principles produce more evolutionary outcomes to drive further change. In short, we have built the framework and strength • Improve underwriting profit We will lead by example, setting new industry benchmarks in Korean insurance management. In order through efficient use of expenses to ride the wave of digital innovation. to achieve this goal, first of all we will maintain an optimal capital structure through disciplined asset and loss ratio improvement and liability management (ALM) strategies. Second, we will drive an optimal EV-growth strategy by The purpose of agile organization is to change not only the form but the way we work. All of us at ING Life lengthening our asset duration through long bond purchases while supporting investment yield through EFFICIENCY will combine our efforts to develop the new organization into not only a unique corporate culture but also an careful diversification into more yield-enhancing assets, and improving cost efficiency through greater • Continue to improve cost organizational structure that constantly innovates itself. efficiency through digitalization use of mobile systems and big data applications. Third, we will expand product ranges, strengthen • Manage loss ratio and channel competitiveness, and invest in our people and organization structure for the long-term benefit persistency rates to remain of the company. In particular, we will further strengthen our product pipeline by leveraging our capital stable strength and product development capability. We will also solidify the foundation for customer-centric • Maximize shareholder returns by improving ROE management through the agile organizational structure which we adopted in April 2018. Fourth, we will continue our proactive shareholder return policy of maintaining a dividend payout ratio above 50% RISK & CAPITAL MANAGEMENT and continue to communicate with shareholders in an active and transparent manner. By implementing • Manage risks to the global these measures, we will achieve qualitative growth, based on which we will do our utmost to maximize standard shareholder value. • Maintain our optimum capital structure In implementing these measures, as we have done over the years, we will focus on maintaining a • Maximize shareholder value including a strong dividend balance between growth and profitability as well as between efficiency and risk. These four factors policy compose the value driver that makes the sustainable growth of an insurance company possible, and we can maximize our corporate value through an optimal balance of these four factors. This fact applies to all insurance companies, but only ING Life actually strives for such a balance. Accordingly, we will pursue the management philosophy of ‘business steering’, achieve a ‘quantum leap’ in growth, and thus grow into a company that offers more value to its shareholders, employees, sales partners, customers and local communities.
018 ING Life Insurance Korea Annual Report 2017 Interview with Management 019 Interview with Chief Financial Officer Q2 IPO of ING Life is considered to be Strong RBC Ratio (Unit: %) the ‘first’ or the ‘best’ in many respects. FINANCIAL 1) Would you comment on ING Life’s ING Life Industry average investment appeals that have made STRENGTHS TO DRIVE the IPO a success? 136.1 %p US FORWARD 455.3 year-on-year I think the fact that we are financially strong is the most important factor in the success of ING Life’s initial public offering (IPO). We have a very strong risk-based capital (RBC) ratio – one of 319.2 the strongest in the market – and our asset liability management (ALM) is also strong because it has been managed to international 254.6 standards. In addition, we provide a lot of information about our EV 218.8 – how much value our current in-force book would generate over time. So I think that the strength of RBC, EV and distribution all complemented each other in delivering a successful IPO.
Since our IPO, we have been fortunate to be recognized by, and have our stock included in, the Morgan Stanley Capital International (MSCI) Korea index and the Financial Times Stock Exchange (FTSE) Equity Global Small Cap index, which has raised our profile 2016 2017
in front of investors who might otherwise not have been aware of 1) Excludes Kyobo LifePlanet Life Insurance Company how different we are. I would like to believe that their inclusion was Q1 What sets us apart is that we comply with all local regulations in because we have both strong financial figures and strong growth ING Life is reputed to have Korea, but we do not manage to the local standards. What I mean to potential. We are also shareholder-friendly, customer-focused, and say is that ING Life has always been managed to global standards, financial strengths which set the transparent in disclosing our earnings and other relevant figures. I which in turn has enabled us to have a stronger capital structure think all those items have played a part in the recognition we have company apart from other life insurance and financial results. It is difficult to choose just one figure that sets been given by the MSCI and FTSE. companies in Korea. How did ING Life us apart, but I would say that value of new business (VNB) growth secure such distinguishing strengths, and captures the fact that we have been able to grow our numbers of of these strengths, which one are you distributors and our core new business volume, improve product mix most proud of? and increase margins. Our profit has risen and that’s a reflection of the quality of our in-force book of business; but I think VNB growth is the key point and that drives embedded value (EV) growth. EV also shows how strong our back book of business is. So those are the value matrixes I would put above anything else.
We were able to secure the value matrixes primarily because we have a very strong sales force. Our financial consultants (FC) are full-time sales professionals with the highest agent license exam pass rate in the market, and we have also implemented the most effective digital sales management tools in the industry. Distribution, in particular FC channel, is the main strength of ING Life, and capital strength plays its role as a supporting feature which allows us to focus on making our sales force effective and robust.
020 ING Life Insurance Korea Annual Report 2017 Interview with Management 021 Q3 Q4 ING Life recorded a strong stock How do you think the market will In regards to our high RBC ratio, we plan to remain somewhat performance in 2017 – the share price change down the road? And how is prudent in terms of capital release, at least until 2019 when we expect the new K-ICS capital regulations to be sufficiently clear continued to climb, the price-to-book ratio ING Life going to respond to expected such that we can quantify our projected 2021 capital position, exceeded 1x, and the company also defied changes, including new capital because we want to make sure that we have sufficient capital the so-called listed life insurers’ discount regulations such as IFRS 17 and K-ICS? to take advantage of the opportunities that are likely to present formula. What are ING Life’s unique efforts themselves when the new regime is implemented. In the to achieve these? meantime, we will maintain our dividend policy of paying out The new accounting standards (IFRS 17) and Korean 50% or more of after tax profit, split between interim and final Insurance Capital Standard (K-ICS) will be introduced into dividend. Korea in 2021. This is great news for us, and the coming When we listed the company, we were aware that the share regulatory changes will give us advantages because we prices of other listed life insurance companies in Korea had are already familiar with IFRS, European solvency and other dropped after their IPOs and had struggled to recover to international standards. In June 2017 when the regulator Stock Information their initial offering prices, and that appeared to have put announced changes to the RBC regime, the domestic many investors off IPOs within the life insurance industry. baseline caught up to where we were already managing • Korea Composite Stock Price Index 079440 We were therefore very careful to explain to investors that we our assets and liabilities, consequently reducing our ALM • Market Capitalization: KRW 4,378.8 billion follow global standards, and that we have strong capital as mismatch and letting our RBC soar to industry records. We • Number of Shares: 82,000,000 well as a strong dividend distribution policy. I think we were • Market Capitalization Ranking: 65th on KOSPI now have a very high RBC ratio, over 450%, which is much able to attract investors on the back of the strong dividend • Included Index: MSCI Korea Index, FTSE Global Equity Index higher than other life insurance companies in Korea. We are policy, but we retained them because we not only provide therefore exceptionally well placed to take advantage of the * As of December 31, 2017 good dividends but we delivered strong growth and clear changes to come. explanations of our results, and that has supported a solid stock price performance since the IPO in May through to the year-end.
Stock Performance ING Life Stock Price 녹청색이 KOSPI Index The IPO was a success because we put a lot of effort into
the steps we took both before and after the IPO. Prior to the Stock Price KOSPI Index IPO, the CEO and I went on investor roadshows, covering (Unit: KRW) HIGHEST (Unit: Point) 57,000 Europe, the US and Asia, including Korea. When we launched 60,000 2,600 the IPO, investors outside Korea recognized that we were not like other life insurance companies in Korea. Therefore they We will seek to enhance both became more interested in looking at and understanding our differentiated management philosophy, our strong sales corporate and shareholder values by 50,000 processes, and our financial performance, and that has played maintaining a competitive shareholder out in strong support from international shareholders. return policy and communicating with After the IPO, we recruited top professionals in the industry shareholders in a transparent manner, 40,000 to lead our IR team and conducted roadshows and other while leveraging our solid financial investor relations (IR) activities, including one-on-one meetings soundness to ensure continued growth with investors and quarterly earnings reports which are setting 2,200 new industry benchmarks in Korea. We have listened to our of the company. 30,000 investors and reflected some of their feedback in our decision- LOWEST making – like the introduction of an interim dividend – and in 30,450 Andrew Barrett our reporting. The publication of our first annual report is also Chief Financial Officer, Finance Division part of our efforts to expand communication channels with investors in order to keep them well informed. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 2017 2017 2017 2017 2017 2017 2017 2017
022 ING Life Insurance Korea Annual Report 2017 Interview with Management 023 Interview with Chief Agency Channel Officer
PROFESSIONAL, RELIABLE, Young and strong financial consultants are our core assets AND FORWARD-LOOKING FCs and forces to drive our growth.
Hee Pil Kwag Chief Agency Channel Officer, Q1 FC Channel Division ING Life has been well known for average of KRW 762,000 – the highest in the industry. High- margin protection- and variable-type products accounted for its strong FC channel. What are the 93% of our FC’s monthly initial premiums, demonstrating the company’s distinctive strengths and efficiency and profitability of our FC channel. specialized values? When iTOM was first launched, some FCs experienced difficulties in using the new system, but they were quickly ING Life is well known for its financial consultant (FC) able to adapt to it because our organization is young. The channel which offers industry-leading expertise, thanks to our Q2 percentage of FCs who enter their activities in iTOM has systematic training programs and distinctive sales systems. 1) Please describe ‘iTOM’, the sales system FC Productivity in 2017 (Unit: KRW thousand) reached 80%, and the SM and BM access rates are 95% and Due to the characteristics of life insurance products, the which has completely changed the paradigm 97%, respectively. In January 2018, we obtained patents for expertise of FCs, who explain products to customers and the ‘overall process’ and ‘automatic distribution and retrieval make insurance recommendations, is extremely important. of FC sales. 762 of transferred customers’ of iTOM. In February, iTOM evolved We therefore have been operating the SIMBA (Superior to become ‘AiTOM’, reflecting the unique strength of iTOM, Insurance Sales Model for Beginning Agents) program, a ‘iTOM’, which stands for ING Target Operating Model, is an
ING Life and its successful establishment as an integral part of the systematic six-month training course for new FCs, since 2015. FC activity management system based around customer sales culture and systems of our FC channel. AiTOM is a As a result, approximately 93% of our new FCs passed the management, and it is also our unique branch operating next-generation sales system, featuring functions such as the agent license examination at their first exam sitting in 2017, model. We built the iTOM system in April 2016 because iTOM Planner, BM/SM Planner, SIMBA Coaching Planner, Click well above industry average of 75%. This kind of success maintaining existing customers is as important as generating 571 My Protection Plan, LSP 3.01), Speech Bible, and the OMNI is why we are known as an ‘FC Academy’. In addition, we new business. By connecting FC activity management with 529 Application2), based on which our FC activities are expected to have built an in-depth training system for finance, tax, real customer management, we offer customers better financial 506 further increase. estate and retirement planning to meet the demands of core solutions. 479 488 customers, thus maximizing the capabilities of our FCs. These systematic trainings, in turn, have been leading to a reduction FC activity and customer management, which were previously Monthly average license exam pass rate Industry average in FC turnover, so that the 13th month retention rate improved managed separately, are now managed interactively. We also average Foreign-owned of new FCs in 2017 Mid-tier average considerably to 55% in 2017. Helped by this virtuous cycle moved away from our previous coaching methods, which Big 4 average of improvements in productivity and efficiency, our FC sales relied on the skills of individual managers, and have adopted Bank-affiliates average channel continues to expand, despite recent industry trends data-based coaching, resulting in major quantitative and 93% towards reducing the numbers of full-time tied agents. qualitative improvements in coaching. Branch Managers (BMs) and Sales Managers (SMs) can now use the iTOM Planner Monthly initial premium income per FC in 2017 No. 1 in the industry Another major strength of our FC channel is that we have to provide timely, detailed coaching based on FC activity the ideal balance between FCs with extensive experience tracking, while headquarters monitors and analyzes and younger new FCs who are active, and eager to learn. FC activity as well as the coaching of BMs and SMs, enabling KRW 762,000 More than 60% of our FCs are full-time professionals in us to preemptively develop the right training, coaching * As of December 31, 2017 their 20s or 30s, making our FC channel the youngest in the programs, and other improvement measures. We have also Korean insurance industry. This also means that there is a addressed information asymmetry between headquarters, 1) Life Stage Plan 3.0 is a tablet-based tool used for customer counseling. This customer-tailored sales strong possibility that young, active FCs will create long-term branches and FCs, and can now more easily identify FCs with platform enables FCs to identify customers’ financial needs based on their personal, family and financial business relationships with their customers. As of the end of lower or reducing activity who may need support. This has led situations. 2) 2017, the monthly initial premium income per FC, which is to improvements in corporate productivity and an enhanced OMNI Application is a function which allows customers the option to suspend an insurance application * Source: Financial Supervisory Service process prior to final confirmation, and then – maybe after taking the time to review the proposal in their an important measure of FC productivity, stood at a monthly FC retention rate. own time – to perform the final confirmation remotely by using a web link sent to their smartphone. This 1) Productivity = Monthly initial premium income / Number of FCs who close means that FCs do not have to revisit the customer simply to collect the final electronic signature. more than one new contract per month
024 ING Life Insurance Korea Annual Report 2017 Interview with Management 025 Interview with Chief Alternative Channel Officer
NEW CHANNELS TOGETHER We will achieve both stable and profitable growth in the BA TOWARDS NEW HORIZONS channel, and strengthen strategic partnerships in the GA channel to expand our market presence.
Q1 Yong Hwang What kind of strategies are being Chief Alternative Channel Officer, Alternative Channel Division implemented by ING Life to diversify its We stepped into the GA channel in 2015 and have been experiencing strong growth since then, focused on protection sales channels? Please describe the status sales – the APE generated from the GA channel recorded With recent major regulatory tightening, the market is changing of new channels and future plans. KRW 36 billion in 2015, KRW 99 billion in 2016, and KRW rapidly and, against this backdrop, we are leveraging our 110 billion in 2017. As of the end of 2017, we have established substantial capital strength and financial soundness to build ING Life has grown through its strong FC channel. However, marketing arrangements with most of the top 30 general solid foundations for long-term partnerships and to create new given the rapidly-changing insurance market environment, it agencies in Korea. A total of 52,300 general agency financial growth. Moreover, we are rapidly expanding our GA channel consultants (GFCs) from 50 partner general agencies are (Unit: %) thanks to the competitiveness of our products based on a is becoming increasingly important to pursue sales through Channel Diversification a range of channels, rather than being too dependent working together with our company. In addition, protection- stable loss ratio, talented sales personnel with a business FC BA GA on one specific channel. We therefore advanced into the type products, which are higher margin, accounted for 95% of mindset and recruited through open enrollment, and the bancassurance (BA) and general agency (GA) channels new business from the GA channel in 2017, proving that our industry’s best GA sales support system. in 2015, and have been continuing the diversification of GA channel has been substantially improving its profitability. In distribution channels. In 2017, the BA channel and the GA 2018, the GA channel will continue to play an important role in In 2018, we will continue to strengthen relationships with channel accounted for 30% and 16%, respectively, of the increasing the company’s overall value of new business (VNB) 56.0 our existing partner GAs, while identifying strong small- to by strengthening strategic partnerships with key GAs. annualized premium equivalent (APE). The GA channel, in 2015 medium-sized general agencies with whom to partner, and 5.2 particular, has grown well, from 5% in 2015 to 14% in 2016, increasing the number of GFCs who sell our products. This will 38.8 and then to 16% in 2017, contributing to the company’s stable establish ING as one of the top ten players in the GA market, with the aim of becoming one of the top five. growth. Q2
Our BA channel has rapidly expanded its business since 2015 What unique strengths does ING Life by implementing a strategy of adding partner banks, especially have in the fast-growing GA channel? Korea’s leading banks. In 2016, we sold our products through 55.0 four major strategic banks – KB Kookmin Bank, Shinhan 2016 When we first entered into the general agency market, most Bank, Industrial Bank of Korea and KEB Hana Bank, while 14.0 of the general agencies with which we sought to establish 31.1 Woori Bank and NH Bank were added in 2017. We continue Number of partner GAs increased by a partnership already had agreements in place with large 61.3% year-on-year to reach 50 to strengthen our partnership with major nationwide banks by insurance companies. It was therefore difficult to persuade offering optimized products, assigning sales professionals to them of the need for an additional partnership. However, we manage the relationships, and providing customer-centered implemented a distinctive strategy focused on corporate business support. In 2018, we will focus on stable growth and 50 customers and variable products, and expanded our presence improving profitability by diversifying our product portfolio to 54.0 in the general agency market with a focus on more-profitable include more foreign currency annuities and variable products, 2017 Portion of protection-type products protection-type products. in the GA channel increased by in addition to general savings which is currently our core 16.1 29.9 24.3%p year-on-year to record 95% product. 95% * Based on annualized premium equivalent (APE) * As of December 31, 2017
026 ING Life Insurance Korea Annual Report 2017 Interview with Management 027 Interview with Chief Marketing Officer
FAST-FORWARDING We accelerate the pace of innovation with an aim to THE PACE OF INNOVATION achieve sustainable growth for customers, the company, and society as a whole. Q1 The insurance industry has recently any premium increases during the payment period. Moreover, Ick Jin Park been undergoing unprecedented we added various other specialized products that support Chief Marketing Officer, customers to cover medical treatments later in life, as well as To-the-Shop Tribe changes. How will ING Life respond products that focus on the increasing proportion of short-term to them in terms of product portfolio hospitalizations due to the development of more advanced In addition, because claims payments are very important to our and strategy? medical technologies. These products have been well- customers, we provide detailed examples to make the claims received by both customers and the wider market. process easier, resulting in greater customer satisfaction.
The insurance industry is facing major changes due to Going forward, we will select target customer groups and Furthermore, we run the ‘Customer Smile Program’, through low market growth, the low birth-rate, an aging population, develop more customized products to increase our customer which financial consultants (FCs) undertake a follow-up changes in financial practices resulting from the Fourth base and maintain our growth momentum. In particular, we visit to their customers within three months after selling new Industrial Revolution, and the adoption of new accounting changed our headquarter to a more agile, customer-centric insurance policies, and provide any information needed about standards. ING Life strives to lead the market instead of structure in April 2018. Through the agile organizational the insurance contract. We also offer a contract re-assessment responding passively to these changes. We therefore research structure, we will undertake focused research to develop service one and two years later. In addition, we undertake a various socio-structural changes, including population creative products that suit different customer groups to lead wide range of marketing activities that help our customers changes, monitor industry trends and relevant technologies for the continued growth of the company and become a market to manage their health in a fun, enjoyable way as we believe each customer group, and undertake comprehensive product leader. Our target groups include customers in their 20s that our company’s healthy growth is tied to the health of our planning by benchmarking relevant overseas markets. and 30s who are accustomed to the mobile environment; policyholders. A good example is the ‘Nilili Manbo’, a health customers in their 40s and 50s who are preparing for later life; management application that allows customers to enjoy With an increase in life expectancy and a rising number of and select customer groups who are expected to continue to walking as if it were a game. one-person households, there has been a continued rise grow in the fast-changing population-social structure, such as in demand for insurance that covers expenses needed in Key Products high net worth individuals (HNWI), people with existing chronic ING Life focuses on fostering FCs who specialize in assisting later life. In contrast, there is less demand for pure death diseases, and one-person households. VIP customers at the Wealth Management Center. Our wealth coverage for the bereaved. We have therefore launched the Whole Life Insurance managers (WMs) are accountants and tax specialists with CFP Living Benefit Variable Universal Whole Life Insurance, a Lifetime coverage plan that protects the happiness and (Certified Financial Planner) and other certifications, as well as new product concept that provides living expenses during dreams of the family hands-on experience. They provide comprehensive financial life while pursuing better investment returns in a low interest Q2 advisory services relating to tax, the establishment of or rate environment. We have also launched Critical Illness Term Life Insurance Health Benefit What is ING Life’s unique approach to conversion to a corporation, and other matters to HNWIs and Whole Life Insurance, which provides health management Product that provides large Product that covers coverage at affordable diseases that can occur business owners. We also invite VIP customers to cultural, arts services and also covers diabetes. In 2016, we became formulating marketing strategies? premiums for a specified in life and other performance events as part of our efforts to actively the first insurance company in Korea to develop a low cash period engage with HNWIs. surrender value product with lower premiums, called the Brave We think about things from the customer’s perspective and we We offer diverse products, Orange Whole Life Insurance. This insurance product has pay great attention to the opinions of our customers, with the ranging from protection-type We will continue to listen very closely to the voices of our contributed substantially to increasing the proportion of our aim of ensuring customer satisfaction. One of the reasons that insurance for families customers, and offer distinctive customer-centric services that protection annualized premium equivalent (APE) by reducing financial consumers find insurance difficult is the jargon, and to savings-type products reflect their opinions. Furthermore, by establishing the ‘Orange the premium burden for customers and improving persistency. the handbooks full of difficult legal terminology. This is why for funds Foundation’, we can take a more active and targeted approach In February 2018, we launched the Orange Medical Insurance, we created ‘easy terms’, enabling customers to easily and to the allocation of charitable contributions made in the name which provides focused coverage for hospitalization and accurately understand their insurance policies. In creating new of the company, ensuring that we maximize the benefits we surgery, while lowering the premium by removing death policy terms, we actively reflect the ideas of our staff members Annuity Insurance Variable Insurance provide to support disadvantaged children and young adults. coverage. It also provides coverage up to age 100 without and those of our customers. Customized planning for Product for both protection and post-retirement happiness stock market participation
028 ING Life Insurance Korea Annual Report 2017 Interview with Management 029 Interview with Chief Operating Officer
TOWARDS HIGHER CUSTOMER We stay closer to our customers and lead the market VALUE AND SATISFACTION from a long-term perspective, in our efforts to achieve sustainable growth.
Q1 Our corporate-wide consumer protection activities and Gee Heung Lee Please describe ING Life’s customer-centric management have been recognized with Chief Operating Officer, customer-centered management. several awards. We won the ‘Grand Prize in the Insurance In-the-Shop Tribe What are the company’s key Fraud Prevention and Investigation Category’ from the Seoul differentiators? Economic Daily in June 2017 for operating the Special Now, however, customers can use mobile devices such as Investigation Unit to protect customer assets and control our smartphones and tablet PCs to purchase an insurance policy loss ratio. We received the ‘Financial Services Commission and to handle other tasks relating to their chosen product. The importance of customer relationship management (CRM) Chairman Award’ at the Herald Business Insurance Awards in For example, customers can directly and conveniently cannot be emphasized enough, especially for an insurance October 2017, and this was followed up by winning the ‘Grand purchase the policy upon a suggestion of an FC thanks to company that provides intangible products and services. Prize (Financial Supervisory Service Governor Award)’ at the the ‘OMNI Application’ function in AiTOM. We have therefore Good CRM leads to higher persistency and improved loss Financial Consumer Protection Awards of the Korea Economic now combined the best of the mobile/Internet channel, which ratios, while reducing complaints and hence lifting a potential Daily in November. In addition, we have been chosen as enables customers to research and purchase insurance barrier to new sales. With this in mind, ING Life held a an outstanding call center for 13 consecutive years in the products through the Internet, with the inherent characteristics ‘Consumer Protection Declaration Ceremony’ in July 2015, ‘Korean Service Quality Index (KSQI)’, evaluated by Korean of life insurance marketing, which requires detailed product thereby placing our customers at the center of everything Management Association Consulting (KMAC). explanations and recommendations by insurance planners. we do. Subsequently in 2016, we adopted the ‘Customer Consultant’ system, and have been making continued In addition, we launched our renewed ‘Mobile Center’ in efforts to improve customer service by reflecting customer December 2017, which gives customers the convenience of opinions and preferences. We have also introduced an annual accessing insurance services via their mobile devices. There ‘Consumer Protection Day’, when we re-dedicate ourselves Q2 are improvements across various services and in the user to listening to the voice of customers (VOC). There is also the The Fourth Industrial Revolution is interface, with top priority given to customer convenience. ‘Idea Generation Center’, which collects staff suggestions to a major topic in the insurance industry. Customized information is displayed on the home screen enhance customer convenience and satisfaction. In these, as soon as a customer logs in, including information on the What kind of activities is ING Life and many other ways, we continue to make the utmost efforts insurance contract purchased, inquiries about the maximum towards the best in customer management. undertaking to meet these challenges? loan amount, and recommended products.
Awards for Customer-centric Management in 2017 At ING Life, management and all staff members are actively As part of our ‘Life Insurance Big Data Strategic Model As we usher in the Fourth Industrial Revolution, we strive to focused on customer-centered management at all times. The Development and Promotion’ project, we have built the CEO visits customers every quarter, and personally informs stay ahead by thinking carefully and acting proactively at • Received the ‘Grand Prize in the Insurance Fraud Prevention and Investigation Category’ at the STT(Speech-to-Text)/TA(Text Analysis) system, which converts customers again of product coverage details and amounts, the company level in order to offer more customer-centric True Insurer Awards (Seoul Economic Daily) customer phone calls to text and then analyzes them. This services. As a result, in February 2018, we unveiled ‘AiTOM’, and listens carefully to customer opinions. In addition, will improve customer services by using the latest in big data an upgraded version of ‘iTOM’, our unique FC activity roles and responsibilities of Chief Customer Officer (CCO) • Received the ‘Financial Services Commission analysis technology. We are also working on developing the management model. AiTOM is an IT system that enables our Chairman Award’ at the 2017 Herald Business have been established to run an independent organization ‘FC counseling chatbot service’, which provides real-time headquarters to obtain customer data and provide it to our Insurance Awards (Herald Business) that oversees consumer protection. Consumer Protection assistance to answer FCs’ questions through a chatbot, and Managers, who are appointed in each function, conduct sales teams. It then helps the FC in charge to offer customized • Received the ‘Grand Prize (Financial Supervisory the ‘artificial intelligence call center’, which will enable 24/7 services that are optimized for each individual customer, in internal reviews on whether or not the respective function is Service Governor Award)’ at the 6th Financial customer counseling. We are thus doing our very best to offer accordance with headquarters’ guidelines. In the past, FCs properly carrying out consumer protection-related work and Consumer Protection Awards (Korea Economic the kind of advanced customer services that befit the era of had to visit customers in person to sell insurance policies. activities. Daily) the Fourth Industrial Revolution.
• Chosen as ‘Korea’s Best Call Center in 2017’ by the Korean Service Quality Index for 13 consecutive years (KMAC)
030 ING Life Insurance Korea Annual Report 2017 Interview with Management 031 The Board of Management
Ick Jin Park Gee Heung Lee Andrew Barrett Munkuk Cheong Yong Hwang Hee Pil Kwag
Chief Marketing Officer, Chief Operating Officer, Chief Financial Officer, Chief Executive Officer & President Chief Alternative Channel Officer, Chief Agency Channel Officer, To-the-Shop Tribe In-the-Shop Tribe Finance Division Alternative Channel Division FC Channel Division
Major Career Major Career Major Career Major Career Major Career Major Career Managing Director, Managing Director, CFO, ING Life Taiwan CEO, ACE Life Korea Executive Director, Branch Manager & Division Head of Sales, Planning Support Division, Hyundai Capital Operation Division, Prudential Life Insurance Head of Bancassurance, ACE Life Korea ING Life Korea CFO, Allianz Life Korea CEO, Allianz Life Korea Company of Korea Associate Partner, Managing Director, Managing Director of Finance, GOMID Inc. CFO, Allianz Life Egypt CEO, AIG Global Investment Korea McKinsey & Company Korea Office Office of the Actuary, Samsung Life Insurance Bancassurance Division, Allianz Life Korea Ssangyong Cement Director, Bancassurance Division, AIA Life Card Planning Department, Citibank Korea New Channel Sales Division, Project Manager, Hanwha Life Insurance McKinsey & Company Korea Office
032 ING Life Insurance Korea Annual Report 2017 The Board of Management 033 RISK & CAPITAL MANAGEMENT
EFFICIENCY
PROFITABILITY
GROWTH
Key Value Drivers
Up to Higher Standards
Undisputed leader in financial stability
The foundation that underpins the continued growth of ING Life is its capital strength. As of December 2017, our risk-based capital (RBC) ratio is 455%, a wide lead over our competitors. This is the outcome of our steadfast pursuit of long-term, sustainable growth, instead of short-term profits, based on the asset liability management (ALM) strategies in line with global standards under thorough risk management.
034 ING Life Insurance Korea Annual Report 2017 Refer to page 69 035 RISK & CAPITAL MANAGEMENT
EFFICIENCY
PROFITABILITY
GROWTH
ING Life has been growing mainly on the strength of our FC channel which has one of the highest average productivity levels in the Korean life insurance industry, and we have been expanding our premium through the diversification of sales channels to include bancassurance (BA) and general agency Strong and (GA) channels. In 2017, while annualized premium equivalent (APE) continued to grow, led primarily by protection-type products, value of new business (VNB) surged 33.1% and VNB margin also increased robust VNB growth by 5.5%p year-on-year, on the back of an increasing proportion of high-margin new business sales and product repricing. We plan to increase premium income from protection-type insurance products and thus maintain the growth momentum by systematically building up the FC channel, which is profitable in terms of VNB margin and improving product competitiveness.
2017 vs. 2016 VNB Protection APE Trend VNB VNB Margin Improvement (Unit: KRW billion) (Unit: %)
90 85 +0.3%p -0.3%p +1.6%p 19.7 20
+4.4%p 80 80
75 74
14.2 -0.5%p 68
70
65 62
10
33.1% 5.5 %p
50 VNB increased by 33.1% year-on-year from the previous year
101.0 134.5
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2016 Volume Product & Financial Best Estimate Tax 2017 2016 2016 2016 2016 2017 2017 2017 2017 Business Mix Market Assumptions Change
034 Refer to page 55 035 RISK & CAPITAL MANAGEMENT
EFFICIENCY
PROFITABILITY
Unlike most listed Korean life insurers, ING Life generates profits fairly evenly across the three major sources of earnings; we maintain positive mortality and morbidity margin by focusing on protection-type Profitable and products where superior underwriting practices combine with effective claims management to control our claims ratio, while paying all valid claims; we generate stable profits from expenses and other margins by balanced growth improving business efficiencies and reducing costs, while continuing to invest in the business; and we maintain positive investment earnings through our disciplined approach to asset liability management (ALM), supported by recent diversification into yield-enhancing assets, while managing our liability profile and preparing for IFRS 17 and K-ICS.
Source of Earnings Comparison Source of Earnings Breakdown in 2017 (Unit: KRW billion) (Unit: KRW billion) 452.2
89.7 (19.8%)
1) Expenses Investment Credited 380.3 400 -533.4 -799.5 112.5 (29.6%) 142.2 Loadings (31.4%) Investment 18.9 % 753.7 Return 889.2
Profit before tax increased by 18.9% from the previous year PBT 452.2 146.6 (38.5%)
220.3 (48.7%) 200
121.3 (31.9%) Risk Premiums 712.1 Claims
Investment Margins -569.9
Mortality & Morbidity Margins Expense & Other Margins 1) 452.2
2016 2) 2017 Generated KRW 452.2 billion 1) Includes reserves, lapses, surrenders, policyholders’ profit share and others in profit before tax 1) Acquisition and maintenance expenses – other margins 2) Excludes past suicide claims
034 035 RISK & CAPITAL MANAGEMENT
EFFICIENCY
Return on equity (ROE) is one of the key barometers for investors. Despite our strong capital base and high RBC ratio, we recorded 8.7% ROE in 2017, and averaged 7.7% over the last three years, exceeding the industry average of 5.8%. Continued improvements We achieved this through effective expense management – investing in distribution and automation, to reduce labor and printing costs, among others – and effective claims management - superior underwriting combined with improved in efficiency fraud detection and streamlined insurance payments processes. In addition, we strive to increase policy persistency ratio by retaining our top-performing financial consultants and implementing corporate-wide customer management programs, and thus enhance the efficiency of our operations.
ROE Efficiency Ratio (Unit: %) (Unit: %)
1.8%p 7.4 improved 5.6
8.0 Expense Ratio (Maintenance Cost/Premium Income 1)) 7.7 ING Life 1)
10.2%p 1.9%p 86.4 improved 76.2 Difference
Loss Ratio (Claims/Risk Premium) 5.8 Industry Average 2)
4.0 9.0%p 61.8 improved 70.8
Policy Persistency Ratio – 25th month
2014 2017
1) Average for the three years from 2015 through 2017 1) Includes special accounts 2) Industry average for the three years from 2015 through 2017, excluding Kyobo LifePlanet Life Insurance Company
034 035 RISK & CAPITAL MANAGEMENT
As of December 2017, ING Life’s RBC ratio is 455% (473% before year-end dividends), representing a year-on-year rise of 135%p. The increase largely reflects changes in Korea’s RBC regulations that became effective from June 2017, and which Solid capital removed some of the heavy required capital penalty against ING Life for investing our assets longer than our statutory liabilities, in line with European solvency requirements. We will strive to maximize shareholder value by maintaining our high dividend policy based on outstanding capital adequacy and risk management in accordance with global standards. We will adequacy also secure an optimal level of capital adequacy even under IFRS 17 and K-ICS (Korean Insurance Capital Standard), both to be adopted in 2021, by continuing to lengthen our asset duration while supporting the portfolio yield.
RBC Ratio Dividend Payout Ratio (Unit: %) (Unit: KRW billion, %) Net Profit ING Life Payout Ratio
340 455.3% 305 1) 290 300 Suicide Claims 49
241
Industry average 1) 200 254.6 % 2) 59.9% 58.0% 57.8% 58.6 %
Recommended ratio by the 100 Average payout ratio for the three years Financial Supervisory Service from 2015 through 2017 150.0%
2015 2016 2017 2015 2016 2017 1) Industry average, excluding Kyobo LifePlanet Life Insurance Company * As of December 31, 2017 1) Excludes past suicide claims 2) Excludes past suicide claims, 69.4% dividend payout ratio if suicide claims are included
034 Refer to page 69 035 Only companies that are strong enough to withstand change can achieve sustainable growth in the long run. In 2017, ING Life continued to grow on the basis of our unparalleled capital strengths, Our Commitment to CSV well-balanced sources of earnings, and superior capital adequacy. We will create greater value for all our stakeholders based on a strong financial structure less impacted by changes of business environment. Sharing the Ride of
ING Life strives to be an economically, socially and environmentally responsible company. We therefore think outside the box to set a new direction for creating shared value from a unique perspective; paving the way towards a sustainable future ahead of anyone else; and creating values of happiness to grow together with all of our stakeholders, including shareholders, customers, FCs, employees and society as a whole.
034 Our Commitment to Creating Shared Value 035 Maximizing Shareholder Value
IR Policy and Organization IR Meetings Since the initial public offering (IPO) in May 2017 through the end of the year, ING Life has conducted 220 IR meetings, A company’s long-term growth is based on shareholder trust. including corporate visits, domestic and overseas non-deal Accordingly, ING Life seeks to improve shareholders’ value roadshows (NDRs) and overseas conferences. Prior to the IPO, we and enhance the transparency in its corporate governance by had held deal road shows in Korea as well as overseas, including the communicating with shareholders and investors based on the Americas, Europe and Asia, to meet with 160 domestic and overseas prudent and consistent investor relations (IR) policy. In particular, institutional investors. In 2018, we will continue communicating based on our strong capital and solid new sales, we are delivering a with analysts and investors at a variety of IR events including strong shareholder return policy, including our promise to maintain a seminars, sharing information on measures that European insurance high-dividend policy of paying out 50% or more of net profit after tax companies took in their responses to the enforcement of the new through mid-2019. capital regulation regime.
In May 2017, upon our listing on the Korea Composite Stock Price IR Materials ING Life publishes quarterly IR earnings results on its Index (KOSPI), we created the Investor Relations Office, with the aim website, in addition to publicly-announced information submitted to of effectively performing our responsibilities and duties as a listed fulfill its legal obligations. To suit many foreign investors interested company in accordance with relevant laws, including the Financial in ING Life, we publish our earnings results and hold earnings result Investment Services and Capital Markets Act, and also to strengthen conference calls, in both English and Korean. To communicate our trust-based relationship with investors. All of our management, directly with investors, President & CEO Munkuk Cheong and including the CEO, CFO, and the IR Office faithfully and impartially Executive Vice President & CFO Andrew Barrett participate in provide investors with information on all corporate matters, including Korean and English conference calls separately without consecutive business activities and financial status, and strive to keep corporate translations, presenting results as well as answering questions. We governance stable, and maximize shareholder value, all through have set a new industry benchmark by providing supplementary and proactive IR activity. detailed IR materials to address and explain issues where we feel – or have heard – that investors would appreciate more detail. Please Key IR Activities feel free to review our past quarterly Earnings Release materials, IR Channel ING Life is building a systematic communication available from the IR section of our website, for examples including channel to facilitate effective IR activities. Before publishing earnings pro-forma RBC ratios (2Q17 and 4Q17), pro-forma LAT (4Q17), fixed results and quarterly reports, management and working-level interest investment maturity profiles (3Q17), etc. We have also issued staff members of relevant functions, including the IR Office, share our first annual report in both Korean and English to more actively information on key issues. Once earnings results are released, market communicate with our domestic and overseas stakeholders for the and investor opinions and their demands are delivered to our top first time since our IPO in May 2017. Containing information on our management and key executives. All matters deemed important to major performances, strategies and plans, as well as the voices of investors in making investment decisions are promptly made public various stakeholders, the annual report is expected to serve as core through the Korea Stock Exchange, and published in both Korean IR material, detailing our value and vision. and English on our company website as well as in our IR newsletters, ING Life’s IR materials are available at the IR section of our website which are distributed to investors and analysts. – https://www.inglife.co.kr/wcms/eng/ir1/ir12/ir123/ir1232/scwirmn051e.jsp
ING Life means trust to investors. It is because three factors – the philosophy of top management, financial statements, and IR activities detailing various materials to investors – effectively come together and add to trust.
Moo Il Jung Senior Portfolio Manager & Equity Analyst of Franklin Templeton Investments Click the play button to watch the video clip of the interview
036 ING Life Insurance Korea Annual Report 2017 037 Professional FCs Driving Our Growth
Strengths of FC Channel AiTOM Launched in 2016, ‘iTOM’ is a customer management- -based FC activity organizing system as well as a branch operation The financial consultant (FC) channel of ING Life is a young model exclusive to ING Life. The system is the outcome of our organization, comprising professional full-time FCs and embodying a efforts of discovering a new growth driver for the full-time consultant value-sharing culture. FCs in their 20s to 30s account for 64% of total, channel in the Korean insurance market; and is what separates which makes for a unique strength in an industry where the insurance our face-to-face tied agency channel from the rest. Through sales agents are getting older. Consisting largely of a generation applications installed on the tablet PCs, support is provided to familiar with mobile devices, the young FC channel was pivotal in FCs in managing their customers and integrating their sales with establishing ‘iTOM’ as a sales management system exclusive to customer management. In January 2018, we patented iTOM’s overall ING Life. The FC channel is expected to help us to stay ahead of process and automatic distribution and recovery of transferred competition in the digital age. customers features, which amounts to a de facto recognition for our technological prowess. In February 2018, we unveiled ‘AiTOM’, a new We reward our outstanding FCs with membership to our Lions Club version improved from the customer’s perspective as well as in FC which provides them with additional benefits, status and recognition. sales management and strengthened OMNI Application1) function They are the core of our FC channel, contribute to the growth of ING based on our digital strategy – “The Life Connected”. Life, and also help junior FCs develop their competencies. Other characteristics and strengths of our FC channel include a culture Partner Center In 2017, ING Life opened a ‘Partner Center’ at the of sharing in which successful FCs share their experience and Seoul headquarters for ‘Partners’, the top 0.1% of our FCs. Partners know-how with new FCs full of vitality; and a balanced organizational are chosen from a group of ‘Royal Lions’ who have maintained their structure in which current and future leaders together pursue their Lion status for at least 10 years, and through a strict quantitative and common passions and interests in lasting harmony. qualitative screening of their performance, persistency, compliance and reputation. Partners’ qualifications are annually re-evaluated. Activities to Enhance Competitiveness of FC Channel 2) Each partner is a Personal Producing Tied Agency (PPTA) , a new SIMBA We foster our FCs into the industry’s top experts through FC model through which each Partner engages in his/her own sales systematic training. Under our ‘SIMBA (Superior Insurance sales and can select other FCs to share sales know-how and work together Model for Beginning Agents)’ program, all new FCs undergo a 180 as a team, unlike traditional branch-based FCs. By adopting this new day-long comprehensive basic training, which includes financial system, we seek to offer customers a customized financial service knowledge, customer management and sales skills. Depending on that is fundamentally different, and to present FCs with a vision worth the degree of their competency and interest, they can additionally challenging for. Taking a step further, we will do our best to help our receive in-depth training in finance, taxation, real estate and Partners reach their individual goals. retirement planning. Launched in 2014, the SIMBA program has contributed to ING Life earning an industry reputation as an ‘FC 1) Academy’, and in 2017, we achieved the highest agent license OMNI Application is a function which allows customers the option to suspend an insurance application process prior to final confirmation, and then – maybe after taking the time to review the exam pass rate in the industry with over 93%. The program has also proposal in their own time – to perform the final confirmation remotely by using a web link sent to their smartphone. This means that FCs do not have to revisit the customer simply to collect the contributed to improve our FC retention rate. Through our FC training final electronic signature. programs, we aim to offer all customers quality financial consulting 2) Personal Producing Tied Agency is one-person businessman-type branch manager services at all times. We will therefore enhance the expertise and competitiveness of our FCs planning a better future together with their customers by continuing to diversify and upgrade FC competency- -strengthening programs.
ING Life is the hall of fame for FCs, because being a former FC of ING Life promotes self-esteem, and being an FC of ING Life is a source of pride.
Ju Won Cha Click the play button to ING Life Lion and Chairman of watch the video clip of the interview ING Million Dollar Round Table
038 ING Life Insurance Korea Annual Report 2017 Our Commitment to Creating Shared Value 039 Putting Customer Satisfaction First
Customer-centric Management and Systems Key Customer Satisfaction Activities Customers are at the center of all businesses of ING Life. Having Customer Consultant ‘Customer Consultant’ is a program through declared our commitment to place the highest priority on customer which ING Life and customers together seek better ways to improve satisfaction in 2014, we have since been practicing customer- customer services. Launched in 2016, this program produced its -focused management in a systematic manner. Of note, a financial second group of customer consultants in 2017. Service improvement consumer protection charter has been adopted and shared among ideas suggested by customers have contributed a great deal to our all employees and sales channels. In accordance with the charter, adoption of services that well reflect consumer needs. The program we faithfully fulfill our promises with customers, placing top priority has also enabled us to improve customer service by providing on customer interests, and protect and manage customers’ personal opportunities to communicate with customers in a prudent and information and assets. sincere manner.
In particular, we have established a ‘Financial Consumer Protection Idea Generation Center Idea Generation Center is an internal Council’ and appointed an independent Chief Customer Officer suggestion system that we have been operating since 2014 to build (CCO) to ensure that proactive customer management and thorough a culture of innovation and practice customer-centric management. consumer protection are promptly and effectively conducted and The Intranet-based system allows employees to freely suggest their that any adjustments, if needed, are made by relevant functions. In ideas, and relevant departments to examine, adopt ideas of their addition, all functions have each designated a Consumer Protection choice, and post the results of their examination and adoption. The Manager to carry out a wide variety of consumer protection. Leading Idea Development Center is actively used by employees as they activities include the production of product descriptions in a simplified competitively suggest better ways to innovate business processes comic format to help consumers develop an accurate understanding and diligently post the results of actions taken by their functions. As of policies in which they may be interested; and the introduction of of December 2017, a total of 424 employees have suggested 3,890 videos explaining the key matters that customers should be aware of ideas, of which 18.2% or 709 ideas have been adopted. The Idea upon purchasing an insurance policy, an industry first. Development Center is contributing a great deal to the company’s customer-centered management through improving customer service We pay close attention to customer opinions and promptly take and increasing customers’ product understanding. remedial actions if necessary. Through an advanced voice of customers (VOCs) system consisting of various on and offline Mobile Center Renewal ‘ING Life Insurance Mobile Center’ channels, we collect and reflect customer opinions in our product application, which brings a wide range of our insurance services and service development. In early 2018, we adopted an agile to people on the go, was upgraded in December 2017. The most organizational structure to better respond to changes in customer prominent upgrades are improvements in the service and user needs and to potential future changes in the market. We will make interface (UI), reflecting the highest priority the company places on steadfast efforts to implement the new system as an integral part user convenience. A log-in in the app displays customer-specific of our unique horizontal and seamless organizational culture and information, including detailed information of the insurance policies of achieve genuine innovation for customers. the user and recommended products. The app supports fingerprint authentication, and is certified with mobile application accessibility by the Korea Institute of Web Accessibility Certification and Value.
ING Life is a partner for a healthy life. This is because it plans better lives and golden years together with its customers, and provides reliable and detailed supports.
Yeon Jung Uhm Click the play button to Customer of ING Life watch the video clip of the interview
040 ING Life Insurance Korea Annual Report 2017 041 Achieving Work-Life Balance
Employment Status Happy-at-Work is one of the top values that ING Life pursues. Through diverse programs, we seek to enhance the quality of ING Life seeks talent with “agility” to stay ahead in a fast-changing employees’ lives and increase their sense of pride in the company. business environment and “creativity” to think out of the box. Our In 2015, we became the industry’s first to adopt a ‘PC-Off’ system to employees collaborate with one another based on “teamwork”, reduce unnecessary overtime; and we also operate ‘Family Day’ as integrate themselves into the organization to which they belong a way to encourages employees to leave work at 6 p.m. sharp every through “adaptability”, “communicate” with one another by second and third Wednesday of the month to remind employees that understanding and forming consensus with others, and demonstrate their personal lives are important. Other similar programs include these competencies at the right place and at the right time. ‘Block Vacation’, which obligates each employee to take at least one annual vacation of five days or longer, and ‘Refresh Vacation’, We hire and offer a competent salary to talent with outstanding which institutes a minimum three-day vacation for recharging. By expertise and great growth potential. In 2017, we conducted an open implementing these systems, we are helping our employees enjoy enrollment to recruit college graduates as part of our commemoration ‘a life with rest and relaxation’. of the company’s 30th anniversary. In the second round of applicant interviews, we employed a new method, allowing job applicants Welfare to select an interview method of their choice. In addition, the second and third interviews were ‘blind interview’, leaving out job Support for Self-Development By offering a wide array of HR applicants’ school backgrounds, gender, age, and other non- development programs, we help our employees improve their job -essential information. We also have in place a salary system that expertise and organizational commitment. Such training programs fairly compensates employees for their performance. In addition, required by job type are provided on- and off-line as leadership and we pay annual bonuses based on the company’s KPI achievements competency strengthening programs. Financial support is provided and the individual employee’s performance, and award monthly to employees studying to acquire certificates or making other self- financial rewards to outstanding employees. As of the end of 2017, -development efforts. the number of ING Life employees is 761, and their average years of service is 11 years. Support for Health Management Believing that employee health leads to corporate growth, ING Life fully covers its employees’ Happy-at-Work health and long-term care insurance premiums. In addition, we run an employee-only fitness center in our headquarters building; and ING Life also focuses on creating a healthy, enjoyable workplace. In support regular health exams of employees and their immediate 2016, we adopted ‘Orange Power Nap’ to prevent employee fatigue family members. and improve their individual productivity by taking a short nap. This program, which starts at 2pm every day and lasts for 20 minutes, was Benefits for Long-Term Employees ING Life respects and properly begun as an idea suggested by employees. A 2017 employee survey rewards its long-term employees. Varying bonus and vacation finds that over 97% of the respondents took part in Power Nap and rewards are offered to employees according to their years of service, expressed their satisfaction with the program. which are divided into the categories of 5 to 9, 10 to 14, 15 to 19, 20 to 24, and 25 years and up.
ING Life stands by its employees. It pursues harmony between work and life, provides many opportunities, and spares no effort so that employees can grow together with the company.
Kyung Sik Choi Click the play button to Financial Risk Management Department, ING Life watch the video clip of the interview
042 ING Life Insurance Korea Annual Report 2017 Our Commitment to Creating Shared Value 043 Achieving Work-Life Balance
Supporting Corporate Social Responsibility (CSR)
Corporate Social Responsibility Strategy and Direction Orange Hope House This program, operated by employee volunteers, involves making improvements to the facilities and ING Life carries out diverse social contribution activities involving study rooms that are used by underprivileged children. The 2017 future generations and the environment as our main themes. campaign was conducted by the Holt Ilsan Center, to which many of Directing our donations to children, teenagers and other future our employees have been donating a sum equivalent to the last thee leaders of our societies, we offer them opportunities to develop their figures of his/her monthly salaries since 2013. Before commencing an talent and dreams. Our donations have increased 270% over the improvement project, a professional construction company performs last three years. In 2017, we donated KRW 3.84 billion supporting a safety inspection and provides advice on how to improve the underprivileged children and teenagers. In addition, 957 employees facility. Employees participate by painting, replacing floor coverings and FCs volunteered for a combined total of 5,996 hours supporting and wallpapers, and building furniture, all in an effort to help the the healthy growth of future generations. children develop hope in a better environment.
Key CSR Activities Orange Plant Campaign ING Life is a green company which In 2017, ING Life held ‘Orange Hope Bazaar’ and ‘Orange Hope recognizes how precious the environment is, pursues a healthy life House’, with the help of employee volunteers; conducted ‘One for all, and undertakes eco-friendly social contribution campaigns. Company-One School Finance Education’ and ‘Orange Financial In 2017, we carried out ‘Orange Plant Share’ in collaboration with Education’, with the help of FCs donating their time and talents; the Korea Green Foundation, giving citizens air-purifying plant pots supported young sports talents with ‘Orange Scholarship Program’ that absorb fine dust; and ‘Orange Plant Education’, helping children and ‘Orange Mentoring Program’; and carried out ‘Orange Plant increase their knowledge and awareness of the environment. By Campaign’ focusing on eco-friendliness. Moreover, we lent a helping engaging in these activities, we contribute to building a healthier hand to many pockets of society, including support for Pohang City’s society. recovery from earthquake damage and sponsorship of a military unit. Orange Foundation In 2017, celebrating its 30th anniversary and Orange Scholarship Program This program involves providing successful IPO, ING Life strengthened its social contribution as a scholarships to children and teenagers talented in sports or art way to repay the local communities in which it is a member. Having but who are too poor to finance the development of their talent. In recognized the need to form a professional organization in order to collaboration with ChildFund Korea, we help such children discover carry out continued and consistent social contribution activities, we their dreams and develop their talent. KRW 2 million is awarded established the ‘Orange Foundation’ in April 2018. We plan to donate annually to each of 200 children selected through the Dream 1% of our profit after tax to the foundation every year and expand the Discovery Program, and we provide KRW 10 million to each of scale of our child sponsorship and donation programs. We also plan 50 children chosen as Dream Development Program scholarship to provide an environment that encourages employee participation in students. In particular, among Dream Discovery Program scholarship public-interest activities through the foundation. students chosen in 2016, eighteen students were selected as Dream Development Program scholarship students in 2017.
ING Life means hope for future generations. This is because it provides opportunities for future generations to dream and develop their talent from a long-term perspective, in a constant manner, and above all, with sincerity.
Yesul Yoon Assistant Manager of Child Fund Korea
Click the play button to watch the video clip of the interview
044 ING Life Insurance Korea Annual Report 2017 Our Commitment to Creating Shared Value 045 ING Life Insurance Korea Making ING Life Part of Everyone’s 2017
In 2017, ING Life continued to stride forward as a ‘reliable financial partner’. ANNUAL Despite market challenges and regulatory changes, we accelerated our pace of innovation and change to grow for the benefit of our customers, shareholders, FCs, employees, and all other stakeholders. As a result, we accomplished significant achievements, including a record business performance, and further REPORT solidified the foundation for sustainable and profitable growth.
We are now standing at a new starting line. We will pursue change and innovation from a new perspective in order to respond to the winds of change, and will continue to identify further growth opportunities in the Korean market. We will achieve healthy and responsible growth by leveraging our competencies and strengths. Let us look forward to a brighter future in which all of our stakeholders together enjoy the fruits of our sustained growth.
046 ING Life Insurance Korea Annual Report 2017 047 Contents
A. Financial and Operating Report B. Corporate Governance Report Market Review 052 Governance Principle 082 Economic and Interest Rate Conditions Industry Overview Board of Directors 082 Changes in the Regulatory Environment and System Composition of the BOD Outlook Committees under the BOD Independency of the BOD Financial Review 054 Roles and Responsibilities of the BOD Overview Activities of the BOD Growth Evaluation and Compensation of the BOD Embedded Value Asset Management Shareholder Relations 088 Operating Results Shareholder Composition Financial Position Shareholders’ Meetings Cash Flows Compensation System 089 Business Review 062 Remuneration Committee Distribution Channels Employee Compensation System Product and Marketing Technological Innovation Agile Organization
Strategic Priorities 068 Audited Financial Statements Business Steering C. Key Performance Indicators Independent Auditor’s Report 094
Capital Management 069 Financial Statements 095 Shareholder Dividend Policy Capital Adequacy Notes to the Financial Statements 100 Risk Management 072 Overview Audit Report 156 Risk Management System
Risk Management Process
Risk Management by Type
IR & Corporate Information 157
Imprint 157
048 ING Life Insurance Korea Annual Report 2017 Contents 049 A. FINANCIAL AND OPERATING REPORT
01. Market Review 04. Strategic Priorities
Economic and Interest Rate Conditions 052 Business Steering 068
Industry Overview 052 Key Performance Indicators 068 Changes in the Regulatory Environment and System 053
Outlook 054 05. Capital Management
Shareholder Dividend Policy 069
Capital Adequacy 069 02. Financial Review
Overview 054 Growth 054 06. Risk Management
Embedded Value 056 Overview 072
Asset Management 058 Risk Management System 072
Operating Results 059 Risk Management Process 073
Financial Position 060 Risk Management by Type 074 Cash Flows 060
03. Business Review
Distribution Channels 062
Product and Marketing 064
Technological Innovation 065
Agile Organization 066
050 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 051 01 Market Review The percentage of sales from savings insurance fell as tax benefits for Market Competition The so-called ‘Big 3’ players in the domestic and FCs can have a material impact on our business and operational higher premium savings policies were cut from April 2017, resulting life insurance market maintain a share of around 45% of total premium performance. In particular, changes are planned to the accounting in reduced demand, while low interest rates led to pressure to reduce income. They benefit from an oligopolistic status, and small- to mid-sized standards and the solvency system of the Korean insurance market. These commission rates on savings products, which in turn led to lower and foreign insurance companies are forced to compete on that basis. will have a practical impact on life insurance companies, including ING Life Economic and Interest Rate Conditions attractiveness from the perspective of distributors. These changes The bancassurance system was adopted through an amendment to the Insurance Korea. 2017 was a year of both opportunities and challenges. The global economy coincided with insurance companies’ updating their strategies to respond Insurance Business Act in the early 2000s, and has led to the launch of a grew by 3.5%1), a year-on-year (yoy) increase of 0.3%p, thanks to a to continued low interest rates and the 2021 introduction of IFRS 17. In few insurance companies focusing on bancassurance. Home shopping In May 2017, the International Accounting Standards Board (IASB) officially stronger economic recovery in the US and Europe. However, other major contrast, the percentage of sales from protection, which are high added- and telemarketing have emerged as insurance sales channels, and sales announced IFRS 17, a new international standard for the accounting of markets, including China, experienced slower growth, and there were other value, is growing. channels will continue to become more diverse in the future. Consequently, insurance contracts, to increase transparency in accounting systems by unfavorable market conditions, including the spread of protectionism and while the Big 3 still maintain their oligopolistic status, their market share improving the comparability of financial information between countries the US Federal Reserve’s rate hikes. The Korean economy grew more The percentage of elderly citizens in the population is increasing rapidly continues to decline and, in contrast, the market shares of small- to medium- and industries. It will be adopted in Korea from January 1, 2021. IFRS strongly in 2017 than the previous year, in large part thanks to a revised – the result of prolonged low birth rates and increases in life expectancy, sized and foreign insurance companies are on an increasing trend. 17 requires a fundamentally different approach from existing accounting supplementary budget in the second half of the year, the resolution of attributable to more advanced medical technologies and improvements policies in both liability measurement and revenue recognition. The FSS is political instability, the government’s income-led growth policy, and the in standards of living. The aging ratio (the percentage of the population To succeed in a competitive life insurance market, it is important to be both therefore working on a new solvency system (K-ICS) that better conforms global economic recovery. aged 65 or over) rose from 3.8% in 1980 to 7.2% in 2000, and is expected effective and efficient across a wide range of business areas, including to international insurance capital standards and actual economic values. to exceed 20% by 2026, making Korea a super-aged society. Despite underwriting, product development, asset management, and customer This new solvency system could affect values considerably, by altering The base rate in Korea had been on a downward trend since July 2012, this rapid progress towards becoming a super-aged society, there is still management, as well as offering a selection of sales channels to reach basic assumptions around the market valuation of assets and liabilities. It is and reached as low as 1.25% in June 2016. However, with US Fed rates inadequate preparation being made for post-retirement years. The elderly the targeted customer demographics. With an environment of prolonged therefore vital to establish preemptive measures to secure a level of capital increasing since the second half of 2016, the Bank of Korea also raised poverty rate in Korea is 49.6%, and is the highest among OECD member low interest rates and low industry growth, asset management strategies adequacy and reduce risks, including by risk transfer. The FSS is providing its base rate by 25bp in November 2017, with more increases expected in countries. When the national pension was created, the nominal income based on asset and liability management (ALM) have become more support to ensure that the new solvency system does not cause sudden 2018. This will gradually have a positive impact on the margin structure of replacement rate was 70%, but, after two pension reforms, that rate was important, in addition to underwriting, which is the inherent core principle mass insolvencies, including consulting with the industry, improving the insurance companies, including on investment margins. adjusted down to 40% from 2028, and the real income replacement rate is of life insurance. Previous competition for sales volume and market share current supervision system and assessing the impact of IFRS 17. As part of
1) expected to remain between 20 and 30%. It is therefore clear that the public is being replaced by more qualitative competition focused on products these measures, the FSS has already strengthened the current risk-based Source: IMF WEO Update social security system alone is insufficient preparation for older age. and services. Developing new products to meet customer needs – or to capital (RBC) system to include an increase in the duration of statutory identify and promote new needs - has therefore become essential for any liabilities, and has also improved the liability adequacy test (LAT) system to Industry Overview Life insurance makes up for shortfalls in the public social safety net, life insurance company, as well as remaining focused on the standard include changes to the discount rate calculation. These changes have been Status of the Life Insurance Market As of December 31, 2017, there offering financial products that cover the diverse risks that occur throughout indicators of life insurance business efficiency, including policy persistency enforced since 2017. In 2018, the FSS will continue to make institutional are 25 life insurance companies and 122,190 insurance agents in Korea. people’s lives, and covering the daily expenses of later years. Demand and insurance agents’ retention rates. improvements through impact assessments regarding the improved LAT Over the last five years, the Korean life insurance industry has grown for life insurance is therefore expected to continue to grow. According to system and by examining the status of insurance companies’ progress in in parallel with the overall increase in gross domestic product (GDP). Statistics Korea, the three major causes of death (including malignant implementing the necessary IFRS 17 and K-ICS-related infrastructure. Changes in the Regulatory Environment and System Premium income totaled KRW 114 trillion as of December 31, 2017. The neoplasms - such as gastric cancer, liver cancer, and lung cancer; development and expansion of additional sales channels and the launch of cerebrovascular disease; and heart disease) accounted for 47.1% of total The life insurance industry is required to comply with domestic insurance A core principle of IFRS 17 is that insurance liabilities will be marked- new products that meet customer needs have together contributed to the deaths in 2015. At least one out of four deaths was caused by cancer. laws, and is subject to regulation and supervision by the Financial Services to-market on the balance sheet, which is very different from the current growth of the industry. The steady rise in the aging population and the increasing risk from such Commission (FSC) and the Financial Supervisory Service (FSS), the historic-pricing basis used in Korea under K-IFRS (and previously used diseases encourages citizens to secure their future finances through life enforcement organization of the FSC. New laws and regulations or changes under K-GAAP). Any Korean insurance company with large volumes of fixed insurance products and other instruments. to existing laws or regulations applied to the life insurance business high interest rate contracts is likely to experience a material increase in their
Premium Income by Product in the Domestic Life Insurance Market (Unit: KRW trillion) Premium Income and Market Share of Life Insurance Companies in Korea (Unit: KRW trillion)
2017 2016 2015 2017 2016 2015 Classification Classification Amount Change (%) Amount Change (%) Amount Change (%) Amount Share Amount Share Amount Share Protection insurance 40.6 3.1% 39.3 7.1% 36.7 8.4% Big 3 2) 51.8 45.4% 55.3 46.2% 55.0 46.9% Savings insurance 38.9 (12.3%) 44.4 (3.9%) 46.2 4.4% ING Life 4.1 3.6% 4.1 3.4% 4.5 3.8% Separate accounts 34.5 (4.4%) 36.1 5.2% 34.3 5.7% Small- to medium-sized companies 3) 37.4 32.9% 40.6 33.8% 43.3 36.9% Corporate pension 14.9 (10.9%) 16.7 22.1% 13.7 15.9% Foreign companies 4) 20.7 18.1% 19.9 16.6% 14.4 12.3% Variable insurance 19.6 1.1% 19.4 (6.0%) 20.6 (0.1%) Total 114.0 100.0% 119.8 100.0% 117.2 100.0%
Total life insurance 114.0 (4.9%) 119.8 2.2% 117.2 6.0% * Source: Korea Life Insurance Association 1) Based on general account and separate account premium income * Source: Korea Life Insurance Association 2) Samsung Life Insurance, Hanwha Life Insurance, Kyobo Life Insurance 3) ING Life Insurance Korea, Heungkuk Life Insurance, DGB Life Insurance, Mirae Asset Life Insurance (before completing the 2017 acquisition of PCA Life Insurance Korea), KDB Life Insurance, DB Life Insurance, Shinhan Life Insurance, Hana Life Insurance, KB Life Insurance, Hyundai Life, IBK Insurance, NongHyup Life Insurance, Kyobo LifePlanet Life Insurance Elderly Poverty Rate of OECD Member Countries (Unit: %) 4) ABL Life Insurance (formerly Allianz Life Korea, prior to the December 2016 acquisition by Anbang Insurance Group), MetLife, Prudential Life Insurance, PCA Life Insurance Korea OECD (before completing the 2017 acquisition by Mirae Asset Life Insurance), Chubb Life Insurance (formerly ACE Life), BNP Paribas Cardif Life Insurance, LINA Korea (a CIGNA Country Korea Japan UK Australia Mexico France Germany U.S. Average business), AIA Korea, Tongyang Life Insurance Elderly Poverty Rate1) 49.6 12.4 19.4 13.4 33.5 27.0 3.8 9.4 21.5 China’s Anbang Insurance Group acquired Tongyang Life Insurance in September 2015, resulting in a change in Tongyang Life Insurance’s categorization from a domestic small- to mid-sized company to a foreign company, starting in 2016 * Source: ‘Pension at a Glance 2015 (OECD and G20 indicators)’ published by OECD (Organisation for Economic Co-operation and Development), including 2009 data for Korea 1) Individuals aged over 65 living in relative income poverty – defined by the OECD as an income below half the national median equivalised household income
052 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 053 02 liabilities and a consequent reduction in available capital, while the amount Financial Review 2018 Strategic Priorities of required capital is likely to increase under K-ICS, causing a double negative impact on solvency ratios (reduced numerator and increased denominator). This will have a negative impact on the financial soundness Overview Utilizing excess capital of many companies who will need to – and have already started to – raise to support product additional capital, while the changes to profit recognition under IFRS 17 will, In 2017, ING Life achieved outstanding financial performance, thanks to 03 development and strengthening channel in many cases, lead to lower future reported profits. solid capital strength, competitive distribution channels, and business Investment for the Future competitiveness strategies that maintained the right balance between growth and 02 ING Life welcomes IFRS 17 and K-ICS because both of these new profitability, and between efficiency and risk. Our profit after tax recorded Improving Profitability Adopting “Agile organization” standards are closely aligned to the way we have always run our business, KRW 340.2 billion, and the value of new business (VNB) increased by 01 based on customer-centric managing our investments according to ALM principles and designing our 33.1% over the previous year to record KRW 134.5 billion. Premium income Capital & Risk management product portfolios around regular premium protection policies with longer rose 1.4% year-on-year to KRW 4,113.3 billion, including KRW 3,157.5 Management premium payment terms. In 2015, we undertook an internal diagnosis of billion in the general account, KRW 955.7 billion in the separate account. our readiness for adopting IFRS 17, and this was followed in 2016 by the 04 first external diagnosis and a project to analyze the IT system requirements. These strong financial results led to a rising share price. Since listing on the Shareholder Return 05 We have established the strategic tasks we need to follow in 2018 for the Korea Composite Stock Price Index (KOSPI) on 11 May 2017, ING Life has Maximizing adoption of IFRS 17, and we are building the infrastructure needed to maintained a positive trend throughout the year, outperforming the KOSPI. Shareholder ensure accurate financial accounting under IFRS 17, in time for parallel As a result, we were the only listed life insurance company in Korea to Value through Profitable reporting in 2020 and official reporting from 2021. With the details of the achieve a price-to-book ratio (PBR) above 1x. Maintaining ALM & Continuously improving efficiency based on Growth FSS’ new solvency system not yet finalized, we will continue to review our optimal capital structure process management own measures relating to the adoption of new regulations, and undertake We will maintain our focus on qualitative growth and increasing long-term based on global Maintaining a strong detailed quantitative impact studies. revenues through ‘sustainable growth focused on embedded value’. We standard Improving investment shareholder return policy yield through asset will also leverage our strong capital base to improve sales capacity, in diversification order to maximize both competitiveness and corporate value. Furthermore, Outlook we will ensure that the fruits of these efforts are widely shared among all According to the ‘2018 Insurance Industry Outlook and Tasks’ from the our stakeholders, including shareholders, customers, employees and the Korea Insurance Research Institute (KIRI), premium income of life insurance community. (Unit: KRW billion) is forecast to grow by 0.3% yoy in 2018, but fall by 0.6% excluding Growth corporate pensions. Premium income from protection-type insurance is 2017 2016 Change (%, %p) Growth forecast to grow by 2.8%, as insurance companies look to increase sales Annualized Premium Equivalent 684.3 710.7 (3.7%) in this area. In contrast, savings-type insurance is expected to decline by 2017 was a very successful year in terms of new business. We continued Protection APE 307.9 279.9 10.0% 3.0%, attributable to lower demand due to reduced tax benefits, lower sales to foster professional financial consultants (FCs, tied agents), who remain Value of New Business 134.5 101.0 33.1% commissions, and the impact of the new solvency system and IFRS 17. the key distribution channel of ING Life. At the same time, we reinforced Premium income from corporate pensions is forecast to rise 5.3%, in line the utilization of ‘iTOM’, our customer-centric sales activity management VNB Margin (%) 19.7% 14.2% 5.5%p 1) 1) with the expansion of the overall retirement market, and despite the fact system, to support our FCs in their efforts to focus on sales of high-margin Embedded Value 5,593.6 5,201.4 7.6% that most large companies have already arranged their corporate pension protection-type products. Meanwhile, we diversified our product line-up 1) Before deducting dividend paid and reflecting changes in 2018 corporate income tax rates scheme with a licensed provider. for our BA and GA channels as they strived to achieve both stable growth and improved profitability. In addition, we continued to prepare for the The domestic life insurance industry is seeing major changes in the social, approaching Fourth Industrial Revolution by increasing investments in big Strong VNB Growth Supported by Higher Protection APE economic, and regulatory environment. There is the possibility of falling data, digitalizing customer services, automating low-value repetitive tasks, demand as the working age population decreases, but on the other hand, and establishing a mobile platform to support our distributors and our Higher APE composition in protection (Unit: %) Enough room to improve (Unit: KRW billion) increased life expectancy is expected to lift demand for insurance. The customers. product mix within protection Protection Korean life insurance industry is expected to grow over the mid- to long- 307.9 Savings Whole Life (Traditional) term based on changes in the age profile of customers, new distribution These combined efforts resulted in VNB in 2017 of KRW 134.5 billion, Variable 19.8 19.0 25.0 22.5 Variable Whole Life 279.9 channels, and increased demand for higher-yield products in a low interest marking year-on-year growth of 33.1%. In particular, protection annualized Term Life Health Benefit rate environment. Life insurance companies, therefore, need to develop premium equivalent (APE) grew by 10% over the previous year, helping 229.2 43.7 47.7 32.5 diverse new products to meet these varying demands. By the nature of to drive the strong VNB growth. VNB margin rose by 5.4%p y-y to reach 35.7 life insurance business, insurers always have insurance liabilities to be 19.7%, thanks to continued improvements in the protection mix within the 164.5 managed, and are receiving regular premiums from customers of those FC and GA channels, supported by the launch of a wider range of higher- Whole life-type existing policies. However, in the current low interest rate environment, there margin products and product re-pricing. products compose 90% of APE is the added burden of reduced investment margins requiring insurers to 45.0 39.4 36.5 boost new money yields, whilst at the same time the pending introduction 33.2 Protection composition: of K-ICS requires companies to employ ALM strategies to better manage FC: 53.6% (+1.3%p YoY) their capital positions. The need to raise and/or generate additional GA: 95.2% (+24.2%p YoY) capital will encourage companies to focus on strategies that enhance profitability, including less focus on sales of savings insurance and greater 2014 2015 2016 2017 2014 2015 2016 2017 concentration on protection insurance. * Variable includes variable type savings and annuities
054 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 055 Embedded Value by KRW 682 billion compared to the end of 2016 figure, while the ANW Reconciliation of Shareholder's Equity to EV ANW Reconciliation of Quarterly VNB to Annual VNB in 2017 Our embedded value (EV), measured before deducting shareholder reduced by KRW 290 billion. After deducting KRW 224 billion of dividend dividend outgo and before reflecting the impact of higher 2018 corporate paid and reflecting KRW 39 billion impact from higher 2018 corporate (Unit: KRW billion) Reported stand-alone quarterly VNB (Unit: KRW billion) Adjustment to 3.25% NIER and higher tax rate income tax rates, rose by around KRW 393 billion to reach KRW 5,594 tax rates, our EV as of December 31, 2017 stood at KRW 5,330 billion. Total +150 billion as of December 31, 2017, equivalent to an 8% return on embedded Our EV was prepared by Milliman Korea, an external actuarial firm, and 134.5 value (RoEV). VNB was KRW 134 billion, and EV operating profit, including uses a market-standard risk discount rate (RDR) of 8.5% despite the fact Restated 37.3 26.6 39.3 31.3 VNB and unwinding, recorded KRW 407 billion. Higher interest rates that ING Life’s business is considered to be much lower risk than peers, -31 contributed KRW 569 billion towards the rise in our value of inforce (VIF), as exemplified by the high (over 80%) allocation to domestic bonds in -19 3,743 but also contributed towards a reduction of KRW 630 billion in the adjusted our asset portfolio, which in turn led to a more conservative net interest -25 net worth (ANW) reflecting lower unrealized gains on our bond portfolio earnings investment rate assumption of 3.25% when projecting future cash from the higher market interest rates. As a net result, our VIF improved flows for our EV. 3,669
Embedded Value Movement (Unit: KRW billion) ① Fair value adjustment on deposits and derivatives ② Adjustment on intangible assets ANW Reported 35.3 25.1 37.6 31.3 ③ Deduct long-term activity bonus to tied agents VIF @ NIER @ NIER @ NIER @ NIER ④ Tax on pre-adjustments at 25.3% 2.90% 3.00% 3.15% 3.25% RoEV 8% ① ② ③ ④
Shareholder's EV Q1 Q2 Q3 Q4 EV Operating Profit: 407 Equity (2017) ANW
134 -8 -7 9 569 -15
VIF Mvmt 5,594 5,330 5,201 682 1,626 Actuarial Assumption and Sensitivities (Unit: KRW billion) -39 1,587 944
ANW Mvmt -290 EV KRW 5,329.9 billion VNB KRW 134.4 billion 4,258 3,968 270 70 0 -630 -224 3,743 Base Range EV Sensitivity VNB Sensitivity
Market Interest (+/– 0.5%p) -86 45 9 -13 Present Value of Future Profits – Cost of Capital: 277 Rate - New Business Strain: -142
Value of New Business: 134 Discount Rate 8.5% (+/- 1.0%p) -196 228 -20 23
Experience for Lapses (+/– 10%) -49 53 -14 15 the past 5.5 years Opening EV VNB Unwinding Operating Operating Changes Other Total EV Dividend paid Tax Closing EV Dec. 31, 2016 variances assumption in market non-operating EV Profit Dec. 31, 2017 change Dec. 31, 2017 changes variances variances (before div&tax) Mortality / Experience for (+/– 10%) -398 398 -12 12 Morbidity the past 5.5 years
VIF: Projected Profits (before Tax) (Unit: KRW billion) Maintenance Experience for (+/– 10%) -43 43 -3 2 Expenses the past 1 year Projected Statutory Operating Results: In-force Business
Total Pre-Tax Income * Source: Milliman Actuarial Valuation Report Note1: 50bps market interest rate is approximately equivalent to NIER change of 40bps 570 Note2: Future effective tax rate is assumed at 25.3% 529 480 448 423 404 384 356 322 288
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
* Source: Milliman Actuarial Valuation Report as of December 31, 2017 Note: Future effective tax rate assumed in VIF is assumed at 25.3%
056 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 057 Asset Management ratings, to maintain our credit risk at a manageable level. Just under 9% of Operating Results Operating Expenses Operating expenses fell by 1.3%, or KRW 51.9 Since our entry into the Korean market, ING Life has utilized advanced our total invested assets are loans, of which 98% are low-risk policy loans Operating Revenues Operating revenues rose by KRW 76.5 billion billion, from KRW 3,943.9 billion in 2016 to KRW 3,891.9 billion in 2017, European risk management techniques to develop and manage our secured against the policy’s cash surrender value. As such, investments in compared with the previous year to reach KRW 4,342.3 billion, which was mainly attributable to a KRW 133.8 billion, or 9.4%, decrease in provisions products. As a company that has been active in the Korean market for stable assets, including domestic bonds and loans, account for 95% of our mainly attributable to an increase in both premium income and investment- for insurance contract liabilities, a figure that was greater than the the past 30 years we have some older products in our portfolio with fixed, total invested assets, which is extremely high compared to other listed life related income. We actively seek sales of protection-type insurance increases in claims and benefits, insurance operating expenses, and high interest guarantees of 6% or more than, but these accounted for just insurance companies. Despite investing almost entirely in these risk-free products, which have higher margins. Premium income from protection- other operating expenses. The main reason behind this decrease was the 10.1% of policy reserves – the lowest among listed life insurers – and, with assets, we achieved an adjusted investment yield of 4% in 2017, higher type insurance sales increased by 3.8%, or KRW 65 billion, from KRW 1,740 maturing of interest rate-linked products and the end of the fixed interest superior investment returns, we continue to generate a positive investment than the industry average, and were able to maintain stable investment billion in 2016 to KRW 1,805.1 billion in 2017. Premium income from savings rate period, resulting in a year-on-year fall of KRW 88.5 billion in provisions margin. In addition, we have built a stable asset portfolio focused on long- yields and avoid a negative investment spread. With interest rates on insurance products rose by KRW 33.3 billion, from KRW 738 billion in 2016 for premium reserve for pure endowment insurance. In addition, there was term bonds, applying an asset liability management (ALM) strategy that 10-year government and public bonds now at less than 3%, improving to KRW 771.3 billion in 2017. This was the result of a sharp increase in sales a KRW 20.9 billion release of GMxB reserves in 2017, unlike 2016 when considers the long-term nature of the insurance business. yields on new investments is a vital task for all life insurance companies. of savings insurance products from January through March, ahead of an GMxB reserves for variable insurance increased by KRW 43.2 billion due We therefore plan to increase our holdings of yield-enhancing strategic amendment to the Income Tax Act in April 2017 that reduced the ceiling for to lower interest rates. Claims and benefits rose by only KRW 58.8 billion, As of December 31, 2017, Korean domestic bonds accounted for 86% of assets (overseas bonds, domestic securities, overseas real estate and non-taxable gains on long-term savings insurance. Premium income from or 3.4%, from the previous year. In 2016, past suicide claims were paid our total invested assets, considerably higher than the industry average. infrastructure) from around 3.2% of the total portfolio at the end of 2017 to annuities fell by 12.5%, or KRW 83.3 billion, from KRW 664.5 billion in 2016 out in full on an ADB (accidental death benefit) rider issued between 14 We manage yields through investments in long-term government and 14% by the end of 2019. This will optimize our asset yield, while maintaining to KRW 581.2 billion in 2017. In investment-related income, interest income May 2001 through 25 November 2007, where the courts and the regulator public bonds, which are critical when matching asset and liability durations asset quality through ALM management. rose 1.9%, or KRW 16.1 billion, from KRW 841.3 billion in 2016 to KRW ruled against the insurance industry and deemed that claims should be and currency. We also selectively invest in corporate bonds with high credit 857.4 billion in 2017, in line with the increase in invested assets. Investment paid upon suicide, following an industry-wide error in the standard policy income from financial assets rose from KRW 33.5 billion in 2016 to KRW wording. This resulted in the release of the full amount that was previously 44.7 billion in 2017, helped by gains from derivative transactions that were provisioned as other liabilities, and it was a one-off expense. Insurance undertaken to hedge foreign exchange fluctuations on assets denominated operating expenses rose KRW 19.7 billion or 5.6% from the previous year, in foreign currencies. Reinsurance income saw year-on-year growth of 3% attributable to a rise in acquisition expenses due to increasing sales of to reach KRW 110.9 billion, and separate account income fees increased high-margin protection products. by 33.3% to KRW 153.1 billion. Investment Asset Portfolio (Unit: KRW billion, %)
2017 2016 2015 Classification Amount Mix / Yield Amount Mix / Yield Amount Mix / Yield Year-end balance 560.1 2.3% 565.4 2.4% 596.7 2.6% Cash and deposits Investment yield1) 29.9 5.5% 30.8 5.5% 31.6 4.8% Marketable Year-end balance 21,864.2 89.0% 21,329.2 88.9% 20,123.3 88.5% Alternative Classification for Premium Income (aligned with APE and VNB classifications) securities Investment yield1) 720.9 3.4% 708.1 3.5% 688.1 3.9% (Unit: KRW billion) Year-end balance 2,133.9 8.7% 2,089.4 8.7% 2,018.2 8.9% Change Loans2) and others Classification 2017 2016 Investment yield1) 111.6 5.4% 112.9 5.7% 107.1 5.7% Amount Percentage Year-end balance 24,558.2 100.0% 23,984.1 100.0% 22,738.2 100.0% Premium income 3,157.5 3,142.5 15.0 0.5% Invested assets Investment yield1) 862.5 3.6% 851.8 3.7% 826.7 4.1% Protection product 1,805.1 1,740.0 65.1 3.8%
1) Based on investment operating result, which is determined by deducting investment operating expenses from investment operating revenues, as stipulated in the Detailed Savings product (excl. Variable) 1,263.2 1,307.5 (44.3) (3.4%) Enforcement Regulations on Insurance Business Supervision. Gains on management of marketable securities include gains/losses on foreign currency, derivatives transactions, and gains/losses on valuation Variable (Savings & Annuities) product 89.3 94.9 (5.6) (5.9%) 2) After deducting allowance for bad debt and loan origination costs/fees
Operating Expenses (Unit: KRW billion) Operating Revenues (Unit: KRW billion) Change Change Classification 2017 2016 Classification 2017 2016 Amount Percentage Amount Percentage Provision for insurance contract liabilities 1,284.7 1,418.5 (133.8) (9.4%) Premium income 3,157.5 3,142.5 15.0 0.5% Claims and benefits 1,782.2 1,723.5 58.8 3.4% Protection product 1,805.1 1,740.0 65.0 3.8% Reinsurance expenses 128.3 122.0 6.4 5.2% Annuity product 581.1 664.5 (83.3) (12.5%) Insurance operating expenses 374.7 355.0 19.7 5.6% Savings product 771.3 738.0 33.3 4.5% Amortization of deferred acquisition costs 239.9 254.0 (14.2) (5.6%) Reinsurance income 110.9 107.7 3.2 3.0% Investment administrative expenses 28.1 26.3 1.7 6.6% Interest income 857.4 841.3 16.1 1.9% Interest expenses 1.3 1.6 (0.2) (16.4%) Dividend income 15.3 17.9 (2.6) (14.5%) Investment expenses from 9.2 19.0 (9.8) (51.8%) Investment income from financial assets 44.7 33.5 11.2 33.6% financial assets Other operating income 3.3 8.1 (4.8) (58.9%) Other operating expenses 34.9 17.3 17.6 101.8% Separate account fee income 153.1 114.9 38.2 33.3% Separate accounts fee expenses 8.8 6.8 2.0 29.7% Total operating revenues 4,342.3 4,265.7 76.5 1.8% Total operating expenses 3,891.9 3,943.9 (51.9) (1.3%)
058 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 059 Cash Flows Due to the factors mentioned above, ING Life’s operating profits rose by Summarized Statements of Financial Position (Unit: KRW billion) 39.8%, or KRW 128.4 billion, from KRW 321.9 billion in 2016 to KRW 450.3 The holdings of cash and cash equivalents decreased by just KRW 5.2 Change billion in 2017. Non-operating income increased by KRW 8.7 billion, and billion during the year, from KRW 180.8 billion at year-start to KRW 175.6 Classification 2017 2016 Amount Percentage income tax expenses rose by KRW 37.6 billion year-on-year as a result of billion at year-end. an increase in deferred income tax liabilities (DTL) resulting from the hike Assets in income tax rates effective from 2018. As a result, profits after tax grew In 2017, ING Life’s net cash inflows from operating activities fell by KRW Cash and deposits 560.1 565.4 (5.3) (0.9%) strongly in 2017, rising by 41.3%, or KRW 99.5 billion, from KRW 240.7 55.6 billion from 2016, to stand at KRW 1,437.3 billion. This was mainly Financial assets at fair value 10.3 0.5 9.8 900.0% billion in 2016 to KRW 340.2 billion in 2017. due to increases in claims payouts for policy cancellations and early through profit or loss withdrawals. Available-for-sale financial assets 21,854.1 21,329.2 524.9 2.5% On a normalized basis – removing the impact of suicide claims from the Loans and receivables 2,812.3 2,765.1 47.3 1.7% 2016 results – the 2016 operating result would have been KRW 65.2 billion Net cash outflows from investing activities decreased from KRW 1,341.3 Derivatives assets designated as hedges 8.7 22.9 (14.2) (60.9%) higher at KRW 387.1 billion, against which the 2017 operating profit of KRW billion in 2016 to KRW 1,216.4 billion in 2017. This was mainly due to a Tangible assets 12.6 12.6 – – 450.3 billion showed a rise of 16.3%. reduction in cash spent to purchase the financial assets that support Intangible assets 32.8 32.5 0.3 3.1% insurance contracts and a year-on-year decrease in cash inflows from Deferred acquisition costs 523.5 519.9 3.6 0.8% operating activities. Cash inflows from investing activities rose by KRW Current income tax assets 23.8 32.7 (8.9) (27.3%) Financial Position 344.8 billion to reach KRW 1,925.5 billion, the result of an increase in the ING Life’s total assets as of December 31, 2017 stood at KRW 31,455.4 maturity of available-for-sale financial assets. Other assets 38.6 35.0 3.7 11.4% billion, an increase of KRW 786.6 billion compared with the figure in 2016. Separate accounts assets 5,578.4 5,352.9 225.5 4.2% This was mainly attributable to a KRW 524.9 billion increase in available-for- Net cash outflows from financing activities rose from KRW 182.5 billion in Total assets 31,455.4 30,668.7 786.6 2.6% sale financial assets and a KRW 225.5 billion increase in separate accounts 2016 (representing the FY 2015 final shareholder dividend) to KRW 224.4 Liabilities assets. Liabilities rose by KRW 1,265.5 billion compared to the previous billion in 2017 (representing the sum of the FY 2016 final shareholder Insurance contract liabilities 21,166.4 19,877.8 1,289.6 6.5% year to reach KRW 27,786.8 billion, mainly due to a KRW 12,886 billion dividend of KRW 167.0 billion and the FY 2017 interim shareholder dividend Policyholder’s equity adjustment 134.8 213.4 (78.7) (36.6%) increase in insurance contract liabilities. Shareholders’ equity reduced KRW of KRW 57.4 billion). Derivative liabilities designated as hedges 0.2 7.0 (6.8) (100.0%) 478.9 billion year-on-year to KRW 3,668.6 billion, largely owing to higher Deferred income tax liabilities 525.5 654.2 (128.7) (19.6%) interest rates which reduced the unrealized gains on our bond portfolio, as well as reflecting the cost of shareholder dividend distributions. Other liabilities 311.4 357.4 (46.0) (12.9%) Separate accounts liabilities 5,648.5 5,411.5 237.0 4.4% Total liabilities 27,786.8 26,521.3 1,265.5 4.8% Equity Capital stock 82.0 82.0 – – Capital surplus 488.6 498.3 (9.7) (2.0%) Accumulated other comprehensive 1,216.1 1,801.0 (584.9) (32.5%) income Retained earnings 1,881.9 1,766.1 115.8 6.6% Total equity 3,668.6 4,147.4 (478.9) (11.5%) Total liabilities and equity 31,455.4 30,668.7 786.6 2.6%
Summarized Statements of Income (Unit: KRW billion) Summarized Statements of Cash Flows (Unit: KRW billion)
Change Classification 2017 2016 Change Classification 2017 2016 Amount Percentage Net cash inflows from operating activities 1,437.3 1,492.9 (55.6) Operating revenues 4,342.3 4,265.7 76.5 1.8% Net cash outflows from investing activities (1,216.4) (1,341.3) 124.9 Operating expenses 3,891.9 3,943.9 (51.9) (1.3%) Net cash outflows from financing activities (224.4) (182.5) (41.9) Operating profit 450.3 321.9 128.5 39.8% Net cash from foreign currency translation (1.8) 0.5 (2.3) Non-operating income (expenses) 1.9 (6.8) 8.7 Turn into profit Net increase (net decrease) of cash and cash equivalents (5.2) (30.3) 25.1 Profit before tax 452.2 315.1 137.1 43.5% Cash and cash equivalents at the beginning of the year 180.8 211.1 (30.3) Income tax expense 112.0 74.3 37.6 51.4% Cash and cash equivalents at the end of the year 175.6 180.8 (5.2) Profit after tax 340.2 240.7 99.5 41.1%
060 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 061 03 Business Review The number of full-time FCs across the insurance industry has declined by Our FC channel strategy for 2018 is to ‘establish an unrivaled position banks, the BA cannel will diversify its product offerings to include annuity 3% yoy. ING Life, however, made a shift into a net increase in 2015, and in the insurance industry through efficient and profitable scaling-up’. To products denominated in US Dollars and variable products, while continues to expand the tied agency sales force. We have established, and this end, we will utilize AiTOM, the latest upgrade of iTOM, to increase continuing to offer savings insurance products which serve as the basic tightly manage, a recruiting process for our sales managers (SM) to follow, sales activities, and also achieve qualitative and quantitative growth in products for the BA channel. Distribution Channels which continues to prove effective in recruiting new FCs. In particular, the organization by strengthening FC loyalty and implementing diverse Distribution channels will continue to diversify as the insurance market we set out clearly-defined goals for each step of the process to ensure strategies to increase the numbers of our FCs. We will also promote the use GA Channel ING Life set up its GA channel in 2015, somewhat later than matures. To secure stable sales in this changing environment, it is vital to increased activity by each SM, thus leading to more FC appointments. of the OMNI Application function, which allows customers to easily check other leading insurance companies in Korea. It began with a converted establish a multi-channel strategy, rather than depending heavily on any the details of a policy plan provided by an FC using their smartphones, and monthly insurance premium (CMIP) of KRW 3 billion in 2015, and then single distribution channel. Newly recruited FCs are trained, supported and coached to become the then decide whether to subscribe to the policy. We are also targeting high almost tripled the CMIP to KRW 8.3 billion in 2016, making us one of the industry’s elite sales force through our SIMBA (Superior Insurance Sales net worth (HNW) customers in order to develop future growth engines for top 10 leading insurers in terms of GA new business only two years after ING Life’s distribution channels are categorized into the financial consultant Model for Beginning Agents) program. SIMBA is a 180-day introductory the FC channel. setting up our GA channel. The GA channel has expanded by signing (FC or tied agents), bancassurance (BA), and general agency (GA) program that provides training on product sales, customer management, agreements with most of the top 30 GAs in Korea. As of December 31, channels, and ‘others’. We began our channel diversification strategy in and other subjects through seamlessly connected training and coaching BA Channel As of December 31, 2017, ING Life’s BA channel ranks 7th in 2017, we have formed partnerships with 50 GAs, and approximately 52,300 2015 and as of year-end 2017, 54% of the converted monthly insurance at the head office, regional offices, and branches. In addition, ING the industry, based on monthly initial premium income. Its growth is driven general agency financial consultants (GFCs) can sell ING Life products. premium (CMIP) was generated by the FC channel, with the BA and GA Life’s Wealth Management (WM) Center fosters FCs into VIP customer by products that have been optimized for partner banks, our professional While initially focusing on a selection of large GAs that target large premium channels delivering 30% and 16%, respectively. By adding the BA and GA specialists, with a focus on strengthening their sales skills in selling high sales personnel, and customer-centered support. In 2015, the BA channel corporate sales policies, we also focus on selling variable products that channels to our well-established FC channel, we have achieved a good coverage protection and variable products to senior business leaders, achieved remarkable CMIP growth of around 630% over the previous year do not offer fixed interest rate guarantees and therefore have lower capital balance between stable growth and strong margins. Over time, we expect executives and professionals. by implementing a strategy of increasing the number of partner banks. In requirements. As a result, our GA channel has established a strong position to reduce the mix of BA channel, and increase the mix of GA channel, 2016, the BA channel deepened the sales partnerships with its four major in the variable insurance and corporate market. 95% of new policies sold keeping FC channel at around 50%. In 2016, we adopted ‘iTOM’ – a customer-centric FC activity management strategic banks – KB Kookmin Bank, Shinhan Bank, Industrial Bank of in 2017 came from protection-type products, helping us to achieve a system – to increase FC productivity through systematic activity Korea, and KEB Hana Bank – and added two more key strategic banks substantial improvement in channel profitability. FC Channel As of December 31, 2017, there were 5,278 FCs, sales management and support. iTOM has revolutionized customer and – Woori Bank and NH Bank – in 2017, giving us a BA growth platform managers (SMs), branch managers (BMs) and other agents working for activity management by giving FCs control of the data through their tablet consisting of 6 major banks together with several smaller and regional In 2018, the GA channel will strengthen relationships with partner GAs by ING Life, from 7 regional offices and 96 branches across the nation. The devices, and making FC activities more efficient and easier to measure banks. offering products that customers need, recruiting young and entrepreneurial FC channel – our core distribution organization – enhances customer and to manage. As well as enabling data-based activity management, sales personnel through a transparent recruitment process, and running satisfaction by utilizing its top-level expertise in offering high-quality it has also enabled process-centered coaching, in contrast to previous Our BA channel focuses on increasing sales at partner banks, promoting the industry’s top sales support system. In addition, we will widen our financial consulting services. By focusing its sales mainly on more coaching methods that relied on the skills of the individual sales manager. regional sales, and increasing the number of ‘BA Mania’ branches, which operations by adding partnerships with strong small- to medium-sized GAs, profitable protection and variable products, they contribute to the rise in the This has resulted in considerable improvements in the quantity and excel in selling our products. In order to improve the productivity of our and by increasing the number of agencies, branches and GFCs through company’s embedded value. quality of manager coaching. In addition, iTOM has removed information regional training leaders (RTL), who are in charge of training at bank whom we sell our products. Our target is to maintain our GA channel as asymmetry and delays between headquarters, branches and FCs, leading branches and are thus in the front line of sales, we have strengthened RTL one of the top 10 in the market, and to build the foundations to reach the to improvements in timely intervention by managers and headquarters to activity management standards in order to establish a strong performance- top 5 while always focusing on profitability. support FC productivity and improve FC retention rates. driven culture. In 2018, while strengthening its partnership with strategic
Distribution Channel Overview Channel Diversification: Adding new channels Key Figures of FC Channel
Monthly average Percentage of Classification Details Percentage of FCs Percentage of Percentage of 13-month MIP 4) FC (Unit: %) 1) of agent license mobile 1) 2) 3) 3) in 20s and 30s 1) LIONs MDRT members retention rate productivity BA exam pass rate subscription Full-time Financial Consultants who are contracted 8.1 5.2 14.0 16.1 FC channel to ING Life and do not sell products from other life GA 64% 92.6% 71% 6.1% 10.2% 55.2% KRW 762,000 insurance companies 38.8 91.9 1) As of December 31, 2017 2) 31.1 Based on registration with the Million Dollar Round Table (MDRT) Association as of December 2017 Bancassurance – by regulation, protection products 29.9 3) BA channel Based on the average in December 2017 cannot be sold through banks 4) Monthly insurance premium
Corporate (independent) agency sales channel, or GA channel Group of Independent Financial Advisors offering products from multiple life insurance companies 56.0 55.0 54.0 Premium Income by Channel Others Employees, etc. (Unit: KRW billion, %)
2017 2016 2015 Classification Amount Share (%) Amount Share (%) Amount Share (%) FC channel 3,228.3 78.5% 3,303.9 81.4% 3,431.2 76.3% BA channel 708.9 17.2% 647.4 16.0% 1,016.1 22.6% GA channel 143.4 3.5% 72.9 1.8% 15.9 0.4% Others 32.6 0.8% 33.5 0.8% 36.3 0.8%
2014 2015 2016 2017 Total 4,113.3 100.0% 4,057.7 100.0% 4,499.5 100.0%
* Channel breakdown within APE
062 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 063 Product and Marketing We undertake in-depth research into changes in social structures, including Product Name Details Distribution Channel ING Life manages interest rate risk and generates mortality & morbidity population changes, and reflect the results in our product development. Non-par ING Strong Child Insurance Health insurance that covers comprehensive medical expenses for children FC channel profits by leveraging a product portfolio centered on high margin The recent increase in life expectancy and one-person households is Non-par Variable Saving Life Insurance Variable savings insurance product that enables additional earnings from various whole life and variable products. With ING’s disciplined approach to resulting in greater demand for insurance products that cover expenses FC channel v2.0 “Save & Grow” fund investments underwriting and claims management, Whole life products are considered during the lifetime of the policyholder. In contrast, there is potential Non-par Different Start Variable Variable savings insurance that maximizes yield by increasing the fund investment particularly profitable (high VNB margin), and they also enable various for reduced demand for death benefits payable as a lump sum to the FC channel rider attachments, thus contributing strongly to our mortality & morbidity bereaved. In response, we released a variable whole life insurance product Saving Life Insurance amount based on low insurance costs profits. We will continue to respond to the low interest rate environment by that offers a good investment margin, even in an era of low interest rates, Non-par Child Dream Developing Variable Variable savings insurance to prepare child tuition funds FC channel generating strong margins from variable products through our competitive while also providing living expenses. We also released the CI Whole Life Universal Insurance and diverse line-up of funds and fund management options. Insurance, which provides financial benefits for the treatment of diabetes, Non-par Variable Annuity Insurance Variable annuity insurance product for which additional income can be expected FC channel in addition to providing health management services. These products have “Save & Grow” through fund investments We aim to provide the optimal product portfolio to generate growth in been received positively by the market. Variable annuity insurance product for which additional income can be expected FC channel, Non-par Orange Variable Annuity Insurance each channel. In the FC channel, we provide a product portfolio that through fund investments GA channel makes maximum use of our financial planning and customer management In order to continue to expand our customer base, we target specific Variable annuity insurance product that enables a policyholder to secure retirement Non-par Orange Mixed Variable FC channel, expertise. We provide variable savings products that feature the latest customer groups and develop customized products for them. We are assets even if he or she has a disability while anticipating additional income from Annuity Insurance GA channel options in fund investment, which requires a substantial level of expertise in currently focused on customers aged in their 20s and 30s who are fund investments these products. We also offer Korea’s first low cash surrender value whole familiar with the mobile environment, HNW customers, who offer a market Variable annuity insurance product that allows a policyholder to secure annuity Non-par Orange Care Plus Variable FC channel, life insurance product. These products are now well established in the opportunity and expected strong growth in numbers, customers with pre- income stream even if he or she is diagnosed with cancer or other critical illness Annuity Insurance GA channel market thanks to the capabilities of our FC channel. Our GA channel mainly existing conditions (already diagnosed with a non-terminal illness), and while anticipating additional earnings from fund investments sells variable whole life products with relatively low interest rate risk and one-person households. We monitor industry trends and technological A basic-type interest rate-linked annuity insurance product that allows a Non-par Free Style Annuity Insurance Plus FC channel high marketability, interest rate-linked whole life and term life products, and changes for each individual customer group, and undertake detailed policyholder to save post-retirement funds by paying monthly premiums variable life and annuity products. This strong product mix has supported product planning supported by comprehensive analyses of overseas A basic-type interest rate-linked annuity insurance product where a policyholder Non-par Fortune Single Payment both high growth and stable revenues. research. deposits a sizable sum of money for a certain period and then receives FC channel Pension Insurance post-retirement funds
Products Sold in 2017 Non-par ING Saving VIP Savings Insurance Interest rate-linked savings insurance that is only for the bancassurance channel BA channel
Product Name Details Distribution Channel Non-par ING Good Start Variable Variable savings insurance product that pursues maximized earnings rates by BA channel, Saving Life Insurance increasing the fund investment amount by adopting a back-end loading FC channel Brave Orange Whole Life Insurance A whole life insurance, low cash surrender value product intended to provide death FC channel US Dollar savings product that is intended for diversified asset management (non-participating, low cash surrender value) benefits and whose strength is affordable premiums Non-par ING VIP Dollar Savings Insurance BA channel through investing in a different currency Simplified Issue Brave Orange Whole A whole life insurance, low cash surrender value product for customers with US Dollar savings insurance that reserves US dollars every month to enable stable Life Insurance (non-participating, low cash pre-existing non-terminal illnesses, that provides death benefits at affordable FC channel Non-par ING Dollar Savings Insurance BA channel surrender value) premiums asset management
Non-par Variable Universal Whole Variable whole life insurance product that provides death benefits and post-retirement FC channel, * As of December 31, 2017 Life Insurance for Living Expenses living expenses GA channel
Whole life insurance product that provides death benefits and prepays high FC channel, Non-par Life Care CI Whole Life Insurance treatment expenses if a policyholder is diagnosed with a critical illness GA channel Technological Innovation Non-par Life Care Variable CI Whole Variable whole life insurance product that provides death benefits and prepays FC channel, from customer-related matters to follow-up service management, in order Life Insurance high treatment expenses if a policyholder is diagnosed with a critical illness GA channel The insurance market is fast-changing as it faces the Fourth Industrial to develop a model that can be used in our actual day-to-day work and to Non-par Orange Variable Universal Whole Variable whole life insurance product for which additional death benefits can be FC channel, Revolution. Competition is no longer limited to other insurance industry identify potential areas of improvements. The outcomes were shared at a Life Insurance anticipated according to fund investment gains GA channel players, but has the potential to intensify as borders between different presentation in February 2017, and are expected to help strengthen the financial sectors are being torn down. Developments in information and competitiveness of the whole Korean insurance industry. Royal VIP Universal Whole Life Insurance Interest rate-linked whole life insurance product that has integrated universal FC channel (non-participating) functions for flexible use of death benefits communications technology (ICT) and digital technologies – including big data analysis, artificial intelligence (AI), and the Internet of things (IoT) – are The main outcomes of our model have been customer micro-segmentation ING Perfect Universal Whole Life Insurance Interest rate-linked whole life insurance product that has integrated universal GA channel (non-participating) functions for flexible use to death benefits driving innovation in the financial industry. In order to lead these changes, and analyses of the drivers and indicators of insurance policy lapsing, ING Life has set out our digital strategy entitled ‘The Life Connected’, and product recommendations and early FC retention, and predictive analyses Non-par Whole Life Insurance Basic-type whole life insurance product for death benefits FC channel we aim to improve customer service and enhance productivity by utilizing on diagnosis and suitability, insurance policy withdrawals, new policy Standard Type suitable new technologies. cancellations, insurance fraud, and customer complaints. By using our Non-par Smart Term Life Insurance Basic-type term life insurance that provides death benefits for a defined period FC channel strategic model, we are able to identify early indicators of potential customer (Type 1/Type 2) As part of these efforts we developed a big data analysis strategy model in problems and hence take preemptive action to contact the customer ING CEO Term Life Insurance Interest rate-linked, step-up whole life insurance product that enables a high FC channel, late 2016, based on the insurance business value chain. We participated and resolve any issues, thus improving both customer satisfaction and (non-participating) amount of death benefit to be accumulated over time GA channel in the ‘Life insurance big data strategy model development and expansion’ FC satisfaction, which leads to improved customer persistency and FC Orange 3 Care Insurance (non-participating, Low cash surrender value health insurance product that covers three major adult FC channel, project, which was part of the ‘2016 pilot project on smart services using retention rates. In order to develop this strategy model, we built a ‘voice GA channel low cash surrender value) illnesses, and whose strength is affordable premiums big data’, spearheaded by the Ministry of Science, ICT and Future Planning, recognition model (STT engine)’ which converts speech data to text. Its Non-par ING Reliable Cancer Insurance Health insurance that provides cancer-focused coverage FC channel and organized by the National Information Society Agency. Using the latest syllable-level recognition rate is currently more than 83%, which allows us to Non-par Simplified Issue Orange Health Simple underwriting based comprehensive health insurance that can be big data analysis technologies such as machine learning, deep learning, more effectively collect non-standard data, such as call center counseling FC channel Insurance (renewable type) purchased even by customers with a pre-existing non-terminal illness and reinforcement learning, we analyzed the overall insurance business, record files, as standard data.
064 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 065 We are also partnering with specialist companies for greater digital The structure of the To-the-Shop Tribe allows around 100 professional Organizational Change innovation. In October 2017, we established a strategic partnership with SK personnel to collaborate on product planning and development, policy Holdings C&C to create an FC counseling chatbot service based on AIBRIL reviews, sales, and marketing planning. To give an example of our new (jointly developed with IBM and offering Watson’s AI computing capabilities thinking, we have established the 2030 Customer Acquisition Squad, • Organic and in Korean), as well as the more general joint development of a model to consisting of customer management experts, social media marketers, horizontal apply artificial intelligence to the insurance industry. The FC counseling designers, product planners and marketers, sales planners, and sales organizational structure chatbot will enable FCs to ask questions to a chatbot and get instant training personnel, to target potential customers aged in their 20s and 30s. support during meetings with customers, or while engaged in other work. We are analyzing the specific characteristics of people in these age groups, • Customer-centric Chatbot development was completed in early 2018, and we plan to launch so that we can develop and then offer optimized insurance products for this Customer- operation the service in the first half of the year. This FC counseling chatbot project is specific segment. The In-the-Shop Tribe aims at enhancing the satisfaction centered our first step in applying AI to a wide range of tasks that will improve value of existing customers. Staff members with experience in a wide range of for our customers and our FCs. We will first apply AI in our internal work, customer support areas come together to identify measures that can add • End-to-end, roles and then expand the scope to include customer services. value for existing customers, and can generate new business from dormant and responsibility- focused teams customers. The HNW Tribe, which consists of staff from our WM Centers iTOM is ING Life’s unique sales management tools, and one of our greatest and specialists in HNW customer support, is in charge of identifying and strengths. In January 2018, we obtained patents for the ‘overall process’ retaining HNW customers, who are expected to offer an important market and ‘automatic distribution and retrieval of transferred customers’ of opportunity for future growth. Before adopting After adopting an agile organization system an agile organization system iTOM. However, we did not stop there. We have already launched AiTOM – the next-generation version of iTOM – which provides our FCs and their managers with a mobile-based customer-centric activity management Organization Chart system; just one part of our overall digital strategy. In March 2018, we adopted the robotic process automation (RPA) system, using robot software to automatically handle repetitive rule-based work. This has Health Product Development Protection Product Development Saving Product Development Branding FC Support Platform Customer Acquisition Platform 4050 Customer Acquisition 2030 Customer Acquisition Brand MKT. Chapter considerably improved efficiency and accuracy in handling simple time- President & CEO To-the-Shop Tribe consuming work. The use of RPA will be expanded across our company so Sales MKT. Chapter 1) that we can allocate vital resources, including personnel and time, to higher Operations MKT. Chapter value-added work and the creation of our distinctive value. This in turn will PR&Communication Function generate ‘smart growth’ for the company. Product Planning Chapter Product Lab Audit Function Product Development Chapter Agile Organization Underwriting SMG2) UW 1 UW 2 Reinsurance On April 1st 2018, ING Life became the first Korean life insurance company to adopt an agile organization system, similar to that in operation at many Corporate Control Function Non-face-to-face Platform Service Recovery Customer Value Improvement Inactive Customer Mgmt. FC Transferred Customer Mgmt. Customer Journey On-boarding IT companies in the U.S. An agile organization breaks down the boundaries In-the-Shop Tribe Customer Strategy Chapter between departments, and assigns the authority required to complete work Investment Mgmt. Function Channel Customer Support Chapter to an organizational unit. This reorganization was undertaken in order to more quickly access new customers amidst fierce competition in an era in Customer Service Chapter which low global growth and low interest rates have become the norm. The Human Resources Function Customer Experience Chapter barriers between the existing Marketing Division and Operation Division were dismantled, and from the huge pool of talent available from these two Customer Support SMG2) Call Center Policy Service1 Policy Service2 former divisions we created the To-the-Shop Tribe, In-the-Shop Tribe, and Legal&Compliance Function Claims SMG2) Claims Assessment1 Claims Assessment2 SIU&Investigation HNW (High Net Worth) Tribe, based on customer acquisition, customer service, and high value customers, respectively. Each tribe consists of HNW Market Research HNW Customer Value Improvement 2) HNW Tribe HNW MKT. Chapter several small groups, called squads. We have maintained certain support Customer Protection SMG departments that are fundamental to our business, including finance, WM Center SMG2) WM Center risk management, and channel management, whose members are also FC Channel Div. available to join as squad members from time to time, as and when their specific professional knowledge and skillsets are required. This new organization has increased work autonomy and efficiency, and has Alternative Channel Div. improved communication among staff.
Finance Div.
Squad IT Group Self-managing Unit
* As of May 1, 2018 1) Temporary until completion of re-branding 2) Self Managing Group
066 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 067 04 05 Capital Adequacy Strategic Priorities Existing customers are growing in importance in the domestic insurance Capital Management market which is widely covered but with shallow penetration and, in light Capital Adequacy Evaluation Insurance companies in Korea conduct of growing regulations to strengthen financial consumer protection, more capital adequacy evaluations in accordance with relevant guidelines set attentive care is required to maintain existing customers. ING Life has therefore by the industry authorities in order to maintain solvency and business Business Steering been devoted to satisfying existing customers and maximizing their value Shareholder Dividend Policy soundness. Appropriate measures are taken to raise equity capital to a The Korean insurance industry faces cataclysmic changes in the envi- based on our customer-centric business principles. In 2014, we established ING Life plans to pay out 50% or more of net profit as dividends, payable level sufficient to provide a buffer against unexpected losses. ronment in which it operates. It is fast-approaching a super-aged society, a corporate-wide customer management program from the integrated in two installments comprising a smaller interim dividend and a larger final and the global economy remains stuck in a low-interest-rate and low-growth perspective of ‘touch-upsell-service’, and built a system that enables us to dividend. This dividend policy will continue at least until mid-2019, by which To maintain solvency, ING Life measures its risk-based capital (RBC) mode, giving rise to forecasts of slower growth and lower profitability provide all customers with quality services through a ‘stay-in-touch’ approach time the company expects the details of the new Korean solvency regime ratio in accordance with guidelines set by Korea’s regulators. RBC ratio for the insurance industry. At the same time, such changes in socio- led by FCs. This customer management strategy has significantly improved (K-ICS) to be sufficiently clear that we can confidently quantify our expected is calculated as the total available capital of the company (available to economic situations continue to expand the post-retirement annuity and persistency of our insurance policies and constantly creates opportunities for capital adequacy position under that new regime, which is due to be provision against unexpected losses and to maintain solvency) divided by health insurance markets, and stoke customers’ needs for investment-type up-selling. implemented from 2021. the company’s required capital (as determined by the RBC formula), and products. On the regulatory front, the direction of Korean regulations and the ratio is the current measure of the financial soundness and solvency supervision has taken a shift from pre-sales regulations to post-sales Moreover, we lead a healthy market competition by largely avoiding Based on a record date of July 31, 2017, we paid an interim dividend of of insurance companies. Available capital comprises capital stock, supervision of contractual fulfillment. The change accompanies a phased price wars and other mutually destructive competition, instead relying on KRW 700 per share, and based on a record date of December 31, we paid capital surplus and retained earnings, while required capital is calculated easing of regulations on product development and pricing, which can innovation-based differentiation. A good example is ‘Brave Orange Whole Life a final dividend of KRW 1,700 per share. The cash dividends paid out in considering the size and degree of such risks facing the company as present a growth opportunity to companies equipped with distinctive product Insurance’, Korea’s first insurance product that provides a low cash surrender respect of 2017 financial results totaled KRW 196.8 billion (KRW 2,400 per insurance, interest rate, market, credit and operational risks. development capabilities. On the other hand, some companies see it as value product which incentivizes policyholders to maintain their policies rather share on 82 million issued shares), representing a 17.8% increase from a burden to expand their capital in order to comply with the strengthened than opting for early surrender. The product was recognized by the Financial the previous year and equivalent to a dividend yield of 4.4%. The company Authorities require insurance companies to maintain an RBC ratio of 100% or consumer protection and capital regulations. In particular, the enforcement Supervisory Service as the best new financial product of 2015. In 2018, will continue its efforts to maximize shareholder value by maintaining an more. ING Life manages capital adequacy by taking into account the impact of the IFRS 17 and K-ICS, slated for 2021, is expected to be the catalyst for to supplement the medical reimbursement policies sold elsewhere within attractive shareholder return policy and transparent communication with of our asset management strategies and business plans on the required change in the insurance industry. the industry and to fill in a growing gap in the aging society, we introduced shareholders. RBC ratio. Our RBC ratio was 325%, 319% and 455% at the end of 2015, ‘Orange Medical Insurance’, an affordable health benefit product providing 2016, and 2017, respectively, averaging 363% over the past three years. ING Life has been pursuing sustainable growth with a focus on embedded fixed benefits upon various medical events but without the cost of death value by balancing the four major value drivers of growth, profitability, coverage. In addition, we promote policyholders to stay healthy, while efficiency, as well as risk and capital management. This has enabled us improving our loss ratio, by releasing ‘Life CI Whole Life Insurance’ in a link Dividend to not only take preemptive measures in a rapidly changing market, but with ‘National Fitness 100’, a sports welfare project under the Korea Sports also to establish the strong fundamentals required to lead changes in the Promotion Foundation. Backed by these unparalleled product development Classification 2017 2016 2015 industry. In pursuing growth, we have diversified our distribution channels capabilities and know-how, we are generating new values to satisfy our Par value per share1) (KRW) 1,000 1,000 1,000 by supplementing our top-notch financial consultant (FC) channel with customers, and also continually securing corporate growth drivers. Net profit (KRW million) 340,236 240,741 304,794 bancassurance (BA) and general agency (GA) channels, thus maintaining Net profit per share1) (KRW) 4,149 2,936 3,717 solid growth momentum in value of new business (VNB). In order to enhance Our risk and capital management systems, which have been operated to Cash dividend paid (KRW million) 196,800 167,034 182,500 the competitiveness of our FC channel, we have developed iTOM, a sales global standards, are part of the foundation that have enabled the stable Payout ratio (%) 57.8% 69.4% 59.9% management system, through which we offer quality financial solutions for growth over the past 30 years, and provide the core source of our compet- Dividend yield 2) (%) 4.4% – – diverse customer needs. This sales system, exclusive to ING Life, has enabled itiveness for future growth. Based on the risk management and distinctive 1) the FC channel to improve its productivity, product portfolio, and other asset liability management (ALM) strategies, we have not only been Cash dividend per share (KRW) 2,400 2,037 2,226 efficiency indicators as well as sales performance. These improvements have generating above-industry asset management performance, but we maintain 1) Retroactively applied after reflecting a 10-to-1 stock split which became effective on January 23, 2017 2) Dividing cash dividend per share by the average closing prices of the past one week before the ex-dividend date (Since the stock was listed on May 11, 2017, the cash dividend helped foster a higher loyalty among our FCs, which has in turn led to the a pristine balance sheet that is also pivotal to maintaining our industry-leading yield rate for 2016 and 2015 is not calculated) formation of a virtuous circle of a high retention rate and higher productivity, RBC ratio, an indicator of an insurance company’s capital adequacy. With and consequently to a more competitive FC channel. IFRS 17 and K-ICS scheduled to take effect in a few years, our corporate value is expected to excel as ING has many years’ experience of being Prompt Corrective Action on RBC Evaluations ING Life has been pursuing channel diversification since 2015 to facilitate managed under international capital regulations. Management improvement Staff reduction, capital increase or write-off, restrictions on quantitative growth, and at the same time, to reach customer groups who RBC < 100% recommendation expansion into new business, etc. may be difficult to access through only the FC channel. Our GA channel has Key Performance Indicators Management Branch closure or restrictions on new branch opening, dismissal of expanded its presence in the market at a record speed, laying the foundation RBC < 50% for stable growth and contributing to the creation of future revenue sources The company sets Key Performance Indicators (KPIs) annually at corporate improvement demand company officers, partial suspension of business operations, etc. with its high-margin products-centered portfolio. The BA channel is attracting level and at individual employee level. These are then used to define Management Retirement of company stocks, appointment of outside RBC < 0% high net worth (HNW) customers of banks with its competitive product corporate value and growth targets for the business as a whole, and to improvement order administrator, merger and policy transfer, etc. portfolio, while supporting the company in achieving economies of scale set targets for each individual within the organization, with achievement through quantitative growth. against both corporate and individual targets contributing to the annual performance evaluation of employees. The weight of corporate KPI RBC Ratio (Unit: KRW billion) increases from 20% for staff to 50% for senior executives. In 2017, corporate KPI targets comprise of (1) New Business APE (annualized Classification As of Dec. 31, 2017 As of Dec. 31, 2016 As of Dec. 31, 2015 premium equivalent), (2) VNB (Value of New Business), (3) OPEX (Insurance Available capital 3,637.8 4,346.8 4,497.7 Operating Expenses), (4) ORBT (K-IFRS Operating Result Before Tax), and Required capital 798.9 1,361.8 1,384.4 (5) TEV Operating Earnings (growth in Traditional Embedded Value before RBC ratio 455.3% 319.2% 324.9% market impacts). KPI weights may differ depending on the individual’s division/function, job level and work scope.
068 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 069 Retained earnings, one of the components of shareholders’ equity, From 2009 to 2015, ING maintained a portfolio of domestic bonds under Changes in Required Capital Required capital, which is the denominator ING Life’s required capital decreased sharply to KRW 799 billion at the end increased with net profit in 2017, while accumulated other comprehensive the Held-to-Maturity (HTM) accounting classification, meaning that the in the RBC ratio, is calculated as follows: risks facing the company are of 2017 from KRW 1,362 billion at the end of 2016. This is the direct result income declined 32.8% year-on-year, owing to a decrease in unrealized bonds were recorded at amortized book value and were not marked-to- classified into (1) insurance, (2) interest rate, (3) credit, (4) market and of the new RBC guidelines set by insurance authorities, which require a capital gains on our bond portfolio, following rises in interest rates. market. After almost 7 years, some of the bonds had aged to the point (5) operational risks; the exposure to each risk type is multiplied by the gradual extension of the maximum statutory duration for insurance liabilities where our ALM strategy required them to be sold in order to re-invest at appropriate risk factor to derive the risk amount of each risk type; then from the previous 20 years to 30 years. Because ING has always managed Changes in Risk-based Capital (Available Capital) Available capital, longer durations. In December 2015, the HTM bond portfolio was unlocked the total risk amount is calculated allowing for diversification effects (by our assets according to our ALM strategy, our assets were managed to be which is used for calculating RBC ratio, is calculated by adding Base and reclassified as Available-for-Sale (AFS), meaning that bonds were now applying a correlation matrix across the five risk amounts to reduce the longer than our statutory liabilities and we had to hold a large amount of capital (capital stock, capital surplus, retained earnings, accumulated other marked-to-market and bond values became more volatile with changes in total required capital and reflect the fact that the five different risks will interest rate risk against the intentional asset-liability duration mismatch. comprehensive income, selective hybrid capital instruments, etc.) and interest rates. With the prospect of IFRS 17 and K-ICS being implemented not develop into worst case scenarios all at the same time). The required The recent changes in RBC regulation brought our statutory liability duration Supplementary capital (subordinated debt, loan loss reserves, etc.), then from 2021, ING will continue our ALM strategy, including further increasing capital (after diversification) is therefore less than the sum of the five up to where we had been managing our assets, and our interest rate risk subtracting items with no asset value (deferred acquisition cost, intangible asset duration. However, longer bonds become even more sensitive to separate risks before diversification. reduced sharply from KRW 1,118 billion at the end of 2016 to KRW 499 assets, etc.), and finally adjusting for items related to consolidated interest rates, so to reduce the volatility of asset values – considering that billion at the end of 2017 – a decrease of KRW 619 billion – allowing our financial statements (investments related to affiliates, etc.). The reason for liabilities are not currently marked-to-market on the balance sheet and RBC ratio to jump significantly when the regulation changes were reflected. distinguishing Base capital from Supplementary capital is to improve the are therefore static in the face of rising interest rates – it became prudent This now provides us even more breathing space to continue increasing quality of each capital level (or own funds), and Supplementary capital is to reclassify KRW 9.55 trillion of domestic bonds as HTM from January asset duration in preparation for the introduction of the new K-ICS solvency capped at Base capital net of deductible items. 2018. This accounting reclassification reduces the interest rate sensitivity regime in 2021. of shareholders’ equity and available capital, and provides a more stable ING Life prepares separate (i.e. stand-alone) financial statements, as it has environment in which to continue lengthening the asset portfolio. no subsidiary companies. We recorded available capital of KRW 4.5 trillion, KRW 4.3 trillion, and KRW 3.6 trillion as of December 31, 2015, 2016 and
2017, respectively. Available capital at the end of 2017 was about KRW 700 Changes in Available Capital (Unit: KRW billion) billion less than the corresponding figure in 2016, mainly due to dividends paid out during the year and to a material reduction in accumulated other 144 comprehensive income (AOCI) following rises in interest rates. 4,347 -10 4 3,638 -585 -89 -4 -139
Shareholders’ Equity (Unit: KRW billion)
Classification As of Dec. 31, 2017 As of Dec. 31, 2016 As of Dec. 31, 2015 Total equity 3,668.6 4,147.4 4,260.8 Capital stock 82.0 82.0 82.0 Capital surplus 488.6 498.3 497.5 Retained earnings 1,881.9 1,766.1 1,707.9 Reserve Capital adjustment − − − As of Capital Retained 1) Supplementary 2) Dividends As of AOCI in excess of DAC Dec. 31, 2016 stock, etc. earnings capital to be paid Dec. 31, 2017 Accumulated other comprehensive income 1,216.1 1,801.0 1,973.5 surrender reserve 4,347 -10 114 -585 4 -89 -4 -139 3,638
1) Accumulated other comprehensive income 2) Deferred acquisition costs Risk-based Capital (Unit: KRW billion)
Classification As of Dec. 31, 2017 As of Dec. 31, 2016 As of Dec. 31, 2015
RBC ratio (A/B) 455.3% 319.2% 324.9% Changes in Required Capital (Unit: KRW billion) Available capital (A=1+2-3) 3,637.8 4,346.8 4,497.7 Base capital (1) 4,170.4 4,647.2 4,758.7 Supplementary capital (2) 164.0 253.3 300.9 1,362 -1 Deducted capital (3) 696.6 553.6 562.0 Required capital (after diversification, i.e. after correlation 798.9 1,361.8 1,384.4 matrices applied) 41 1 9 799 7 Insurance risk (before diversification, i.e. before correlation 136.6 137.3 141.2 -619 matrices applied) Interest rate risk (before correlation matrices applied) 499.2 1,117.9 1,163.3 Credit risk (before correlation matrices applied) 236.3 229.4 180.8 Market risk (before correlation matrices applied) 91.9 51.3 56.3 As of Diversification As of Insurance risk Interest rate risk Credit risk Market risk Operational risk Operational risk 41.1 40.6 45.0 Dec. 31, 2016 effects Dec. 31, 2017 Diversification effect 206.2 214.8 202.2 1,362 -1 -619 7 41 1 9 799
070 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 071 06 Risk Management involves recognizing risk exposure, assessing its scale, setting tolerance Composition of Risk Management Committee levels, regularly monitoring the risk, and reporting to management. Contingency plans are also established in case any risk should exceed the defined tolerance levels. Board of Directors Overview ING Life’s risk management policy centers on systematically identifying ING Life’s risk management process is as follows: and assessing various risks that may arise in the process of the company’s • Recognize and categorize risks by type Executive Candidate Remuneration Audit Committee Risk Management Committee business activities and efficiently managing them at the corporate level • Assess and evaluate risks Recommendation Committee Committee to enhance corporate value. Risks have recently been increasing in • Control risks (set tolerances, and operate and manage them) the business environment surrounding the insurance industry, owing to • Monitor and regularly report on risks the protraction of the low interest rate environment and the expansion • Establish and implement countermeasures, if required General Account Asset Liability Separate Account Asset Liability Insurance Model Management Insurance Risk Management of external volatility. Reflective of such uncertainties in the financial Committee Committee Advisory Group Advisory Group environment and the long-term nature of the life insurance business, our Risk Management Organization The BOD of ING Life consists of risk management policy aims at preemptively preventing various potential seven executive directors and has four committees within the Board – risks, systematically and effectively managing them, and thereby generating Audit Committee, Executive Candidate Recommendation Committee, Risk Management Regulations profits and growing in a long-term and stable manner. Remuneration Committee, and Risk Management Committee. The BOD engages in making final decisions on risk management standards and other risk management-related matters. For efficient risk management, the Risk BOD Regulations Risk Management System Management Committee has been set up and operates within the BOD. Risk Management Risk Governance We manage risks through a three-step process. The Risk Management Committee, Risk Management Standards Committee Regulations first step involves recognizing potential risks and establishing, executing, Our risk management organization consists of the Risk Management and examining detailed management measures to be carried out by each Committee (RMC) making risk-related decisions, the Chief Risk Officer General Account Asset Liability Insurance Market Credit Liquidity Operational relevant department. In the second stage, the Chief Risk Officer (CRO) and (CRO), who assesses and manages risks arising in the course of various Committee Operation Regulations Risk Management Office develop, execute and examine the comprehensive business operations and transactions, and the Risk Management Office Crisis Situation Analysis risk management strategies that enable the company to effectively assisting the RMC and the CRO in executing risk management decisions Insurance Risk Market Risk Credit Risk Liquidity Risk Irregularity Separate Account Asset Liability Management Management Management Management Prevention Management Committee Operation Regulations implement risk management policies at the corporate level. The Risk and processes. Guidelines Guidelines Guidelines Guidelines Regulations Guidelines Management Committee (RMC) and the Board of Directors (BOD) hold final Insurance Model Management responsibility and authority over risk management by finalizing decisions The Risk Management Committee is established within the BOD and Guarantee Costs Foreign Internal Accounting Management Advisory Group Operation Guidelines on matters related to risk management policies. The final third step, is the top decision-making body for risk management. It is in charge of Calculation Model Exchange Risk Management Management System Operation Guidelines conducted by the Auditor and the Audit Department, involves confirming establishing various policies related to risk management, overseeing Guidelines Guidelines Insurance Risk Management legal, regulatory and procedural compliance, inspecting the status of risk management practices, and deliberating on and deciding matters Advisory Group Operation Guidelines Operational Risk internal controls and diverse risks under management, recommending or as set forth by company internal regulations and guidelines. Chaired by Management demanding necessary measures, and reporting important audit-related an independent director, the Risk Management Committee holds regular Guidelines matters to the Audit Committee. meetings to finalize risk management-related decisions that ensure corporate business soundness, which include, but are not limited to, Risk Strategy ING Life bases risk strategies on our corporate vision and establishing basic risk management policies, setting risk tolerances, and Risk Management Process business strategies, with an eye toward maintaining an optimal balance ensuring the company’s capital adequacy and solvency. In addition, to ING Life has established and operates risk management guidelines to Classification Details between risk and profit and thus enhancing corporate value, which in efficiently manage diverse risks, the Risk Management Committee has clearly set risk management processes by risk type. We manage major Risk related to the insurance company’s main business turn allows us to fulfill our obligations towards shareholder value and established and operates two working committees – General Account Asset risks through systematic assessment, enhance system effectiveness of underwriting insurance policies and payment of customers. In addition, we do our utmost to achieve strategic goals and Liability Committee and Separate Account Asset Liability Committee – through constant revision and improvement, and prepare ourselves against insurance claims maintain customer trust by (i) reinforcing capital adequacy for long-term and two advisory groups – Insurance Model Management Advisory Group abnormal financial environment changes through stress testing. Insurance risk The possibility of a loss that may arise due to the actual corporate sustainability; (ii) optimizing asset liability management (ALM); (iii) Insurance Risk Management Advisory Group. Their functions are as follows: payment being larger than the one estimated at the time improving economic value of the company, and (iv) ensuring operational We carry out risk management by categorizing risks facing the company of policy issue Working Committees efficiency to be a reliable financial partner to customers. Main Functions into insurance, interest rate, credit, market, liquidity and operational risks, and Working Groups Risk of sustaining a loss caused by the fluctuation of General Account Establish major policies and make decisions related and assessing and managing them accordingly. We quantify risks using market variables (interest rate, stock price, real estate Risk Management Framework We effectively manage risks through a Asset Liability to financial risk management of general account experience statistics or model analysis by risk type, set risk tolerances price, exchange rate, etc.) risk management system, which is part of our business decision-making Committee assets and liabilities and management guidelines, and seek to reduce risk exposure through Market risk Loss that may arise due to the fluctuation of market process, and runs in accordance with the management guidelines that we Separate Account Establish major policies and make decisions related continued risk monitoring and contingency planning. interest rates, or a mismatch in asset/liability duration, or have established by risk type. By establishing risk management regulations Asset Liability to financial risk management of separate account a change in asset value resulting from market price (stock and internal guidelines, we have assigned responsibilities and authorities to Committee assets and liabilities price, interest rate, exchange rate, etc.) fluctuations each of our functions, while building an internal control system for efficient Assist management in making decisions related to Loss that can affect owned assets due to a debtor’s Insurance Model management. the actuarial models, parameters and assumptions bankruptcy or a failure by a counterparty to perform his/ Management Credit risk used in calculating the value and risk of insurance her contractual obligations, or a deterioration in the credit Advisory Group policies quality of a counterparty, etc. In addition, we have set a risk management process to support the Risk Management Committee and the Risk Management Office in making Insurance Risk Risk of a loss arising from a temporary excessive Assist management in making decisions related to Management shortage of funds resulting from a mismatch in asset/ decisions on various risk-related issues, as well as for identifying and insurance risk management Liquidity risk Advisory Group liability duration or an unexpected sharp cash flow managing risks in a timely manner. In general, a risk management process fluctuation
072 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 073 Organizations Dedicated to Risk Management We operate the Risk Risk Management by Type Insurance Risk Management Insurance risk is the inherent risk ING Life uses reinsurance to transfer insurance risk away from the Management Office to support the Risk Management Committee and Required Capital by Risk Through the end of 2016, more than 70% associated with an insurance company’s business of the underwriting of business and to improve the efficiency of capital management. Major items assist the Chief Risk Officer in performing his/her duties. Under the of ING Life’s required capital was held for interest rate risk because the insurance contracts and claims settlement. It refers to the possibility of loss considered for reinsurance include (i) new products where the Company guidance of the Chief Risk Officer, the Risk Management Office manages Company runs a strong ALM strategy whereby asset duration was longer to the company arising from the difference between the risk expected at values the ongoing support and global insight from reinsurers who have various risks, including insurance, interest rate, credit, market, liquidity, and than statutory liability duration, creating an intentional ALM mismatch. the time of a policy issue (expected mortality/morbidity rate) and the risk more experience in the relevant product type, or (ii) high-sum assured operational risks, independent of corporate operations (including sales, Statutory liability duration increased with the amendments to the risk- at the time of payment (actual loss rate), and is measured as the possible policies where there is the possibility that a series of high individual claims product development, and asset management). To manage these various based capital (RBC) regulations from June 2017, which released over difference between the actual amount of claims that will be paid over the could materially impact the financial statements. We undertake analyses risks, we have established two departments – Financial Risk Management half of the capital amount held against interest rate risk (before correlation next year compared to the expected payments. of reinsurance targets, ceding limits, limit ratios and profitability when we Department and Operational Risk Management Department. matrices were applied). This provided ample room to increase the capital cede to reinsurance companies. In the case of new products, decisions amount held against credit risk, which has now started to increase due to We measure insurance risk in accordance with the RBC standards. The on whether to cede some of the risk to reinsurers are made during Financial Risk Management Department supports the operation of the Risk purchases of yield-enhancing investments (overseas corporate bonds, amount of insurance risk is measured by using a risk factor based on net product design or product launch preparation. In the case of existing Management Committee, evaluates the company’s capital adequacy and domestic equities, real-estate, and infrastructure) in line with the company’s earned risk premiums and claims paid for each policy, and is adjusted products, there is an annual report on the potential outcome of executing solvency, inspects and analyzes the operation status of risk tolerances, asset management strategy. according to the reinsurance retention ratio. We develop new products a reinsurance strategy, and a new reinsurance strategy based on that and performs other quantifiable duties essential to risk management. based on product review and approval procedures, including profitability analysis is approved by the Risk Management Committee. We partner only Operational Risk Management Department focuses on preventing losses In general, the duration of an insurance company’s statutory liabilities is guidelines. Also, expected crediting rates and assumptions for pricing are with reinsurers with outstanding financial soundness, proven by S&P credit through training and control. It manages the risk of incurring a loss related longer than that of its assets, resulting in a negative duration gap. Interest set at appropriate levels through regular experience analysis exercises. ratings of A or higher as of December 31, 2017. to misselling, insurance fraud, procedural failure, disruptions in business rate risk can then arise due to the gap between the relative interest rate In addition, we conduct a review of profitability of both in-force policies continuity, and any other identifiable risks within our business activities. sensitivities of asset values and liability values. The June 2017 amendments and new business policies based on regular calculation and analysis of to Korea’s RBC regulations have increased statutory liability durations, embedded value (EV). We also analyze the fluctuation in value by factor by Activities to Build a Risk Management System In order to pursue leading to a further increase in interest rate risk. However, ING Life has analyzing deviation of performance against assumptions. In order to ensure integrated risk management from a corporate-wide perspective, ING Life always implemented a strategy that is more aligned to European standards efficient insurance risk management, we operate insurance risk advisory operates risk management strategies through the following process: and does not consider the artificial limits on statutory liability durations groups, with participation from the department in charge of operations and under Korean RBC – this means that we intentionally managed our asset the Risk Management Office. • Approve risk management strategies and plans: CRO devises policies duration to be longer than our statutory liability duration prior to June 2017. and strategies on all risk matters, including tolerance management When statutory liability durations increased in June, under the changed (setting tolerance levels, and defining required actions in case of RBC regulations, and moved closer to where we had been managing tolerance level breaches) by risk type, and submits them to the Risk our asset duration, our interest rate risk decreased significantly, which is Management Committee for approval testimony once again to our absolute capital strength. • Recognize and categorize risks: Recognize major risks that may arise during various processes, such as product development, audit, sales,
and asset management, and monitor regularly Required Capital by Risk Type (Unit: KRW billion) • Assess and evaluate risks: Quantify and evaluate major risks by type. Classification As of Dec. 31, 2017 As of Dec. 31, 2016 As of Dec. 31, 2015 Risks are assessed using methods required by supervisory bodies, as Insurance risk 137 (14%) 137 (9%) 141 (9%) well as methods set forth in internal models Interest rate risk 499 (50%) 1,118 (71%) 1,163 (73%) • Internal report and risk control: All important issues that are identified Credit risk 236 (23%) 229 (14%) 181 (11%) during the normal monitoring process are promptly reported by Market risk 92 (9%) 51 (3%) 56 (4%) the CRO to operational management and to the Risk Management Committee, in order to implement appropriate measures without delay Operational risk 41 (4%) 41 (3%) 45 (3%) * Before correlation matrices applied
Risk Management Organization Insurance Risk Management Status (Unit: KRW billion)
As of Dec. 31, 2017 As of Dec. 31, 2016 As of Dec. 31, 2015 Chief Risk Officer Exposure Exposure Exposure Classification Risk Risk Risk (Net earned (Net earned (Net earned Amount Amount Amount risk premium) risk premium) risk premium) Financial Risk Management Department Operational Risk Management Department Insurance risk amount 473 137 458 137 442 141 Before reflecting the reinsurance ratio 137 137 141 Retention rate 78.65% 78.99% 78.87% Market Others Death 211 36 206 35 195 33 Interest rate Persistency rate (Lapse rate) General operation Fraud prevention Disability 30 20 30 21 32 23 Credit Mortality/Morbidity rate Internal accounting Hospitality 85 8 85 11 84 17 Channels/Sales management system Stock/Foreign exchange Cost/Inflation Operation & diagnosis 146 73 136 69 130 68 Liquidity Guarantee cost Corporate safety Business continuity management Actual medical loss reimbursement 1 1 1 1 1 0 ALM (mismatch of asset and liability duration) Project/Process risk management Others − − − − − −
074 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 075 Interest Rate Risk Management Interest rate risk refers to the risk of To manage interest rate risk, we have established asset management Credit Risk Management Credit risk is a loss incurred upon deterioration As with our previous credit risk management, we use qualified credit losses that may arise if interest rates move in future and cause asset and guidelines based on a strategic asset allocation (SAA) policy that reflects in the credit quality of a counterparty, including bankruptcy and debt ratings that place limits on the credit ratings of investment assets, manage liability values to change by different amounts. Interest rate risk is mainly the inherent properties of insurance liabilities. We also established restructuring, resulting in our inability to recover the principal or contracted the transaction limit per borrower, and manage the total VaR limit. We set caused by differences in factors affecting cash flows such as the size guidelines for interest rates on insurance products that reflect asset interest on the assets held. Assets subject to credit risk include deposits, exposure limits per borrower in order to prevent excessive credit exposure of assets and liabilities which are sensitive to interest rate movements, management earning rates and market interest rates. We manage our loans, available-for-sale securities, real estate, and other types of assets, over- to a specific borrower, even to one that is qualified. We manage expected maturity and interest payment cycle. Interest rate risk generally refers to the assets based on the SAA, which was established to reflect the structure the-counter (OTC) derivatives, and reinsurance transactions whose value or losses by defining standards for asset soundness based on borrowers’ risk that a company’s net asset value might decrease when interest rates of the interest rates and maturities of our liabilities. Our asset distribution profit/loss may change due to a counterparty’s bankruptcy or default. credit, and continuously review the soundness of the assets held. As part fall, owing to a greater increase in liability values (which are typically longer) strategy is set out every year by the Risk Management Committee. We of this process, we set allowances for bad debts to prepare for the risk than in corresponding asset values (which are typically shorter). reflect asset management earnings rates and market interest rates when We measure credit risk in accordance with the standards set out in the of asset losses, and, in cases where losses on assets are certain or very determining the assumed interest rate and disclosed interest rate of an RBC regime and by using our internal model. The RBC regime measures likely, we write off bad debts early in order to prepare for the credit risk ING Life measures interest rate risk based on the internal model and the insurance product, so that we can manage interest rate risk by limiting credit risk by applying risk coefficients based on credit status according to that may suddenly occur due to a borrower’s bankruptcy. As a follow-up method regulated by the supervisory authorities for calculating RBC ratio. disparity between sources of earnings from invested assets and from type of assets, collateral and guarantees, and the borrower’s credit rating. measure, we put aside contingent liabilities for bad debt, based on our Interest rate risk under RBC is calculated by taking the larger of (i) volatility insurance liabilities. We use credit ratings from top-level external credit-rating agencies. Our measurements of credit soundness. interest rate risk amount, and (ii) minimum interest rate risk amount, and internal model assesses credit risk through a statistical loss distribution adding interest rate negative spread risk amount to the larger of the two. using several credit risk factors, including the asset default rate, loss rate, Volatility interest rate risk amount captures the future losses arising from and volatility, and then measures value at risk (VaR), which is a statistic for market rate volatility and the mismatch of asset and liability duration, and the amount of credit risk. differences in convexity. Minimum interest rate risk amount is calculated by multiplying a risk factor coefficient to the insurance liability. Meanwhile, interest rate negative spread risk refers to the expected loss for one year Credit Risk Management Status (Unit: KRW billion) when the crediting rate of an insurance policy exceeds the market rate. Our As of Dec. 31, 2017 As of Dec. 31, 2016 As of Dec. 31, 2015 internal model measures interest rate sensitivity by directly simulating the Classification Exposure Risk Amount Exposure Risk Amount Exposure Risk Amount future cash flows of assets and liabilities based on different interest rate scenarios. Credit risk amount (1+2+3+4) 25,337 236 24,807 229 23,431 181 Investment assets (1) 24,410 202 23,984 199 22,708 163 Cash and deposits 423 9 565 21 597 17
Interest Rate Risk Management Status (Unit: KRW billion) Loans 2,134 0 2,089 0 2,018 2 Securities 21,854 193 21,329 177 20,093 144 As of Dec. 31, 2017 As of Dec. 31, 2016 As of Dec. 31, 2015 Classification Real estates − − − − − − Exposure Exposure Exposure Non-Investment assets (2) 741 17 713 22 629 16 Interest rate risk amount 499 1,118 1,163 Reinsurance assets 35 0 31 2 30 1 Interest rate risk factor 1.50% 1.85% 1.85% Others 706 17 682 20 599 15 Interest bearing liabilities 20,183 18,881 17,491 Over-the-counter derivatives transactions (3) 38 1 44 1 95 1 Fixed rate 9,744 8,925 8,147 Off-balance sheet items (4) 147 16 66 8 − − Floating rate 10,438 9,955 9,344 Interest bearing assets 23,926 23,517 22,348 Cash and deposits 560 565 597 Bonds Financial assets at fair value through profit or loss − − − (Unit: KRW billion)
Below Available-for-sale financial assets 21,232 20,862 19,733 Classification Risk-free AAA AA+~AA- A+~BBB- No rating Others Total BBB- Held-to-maturity securities − − − Total 15,179 3,454 2,262 226 − − 108 21,228 Loans 2,134 2,089 2,018 Government or public bonds 13,941 − − − − − − 13,941 Special bonds 1,225 2,744 − − − − 108 4,078 Financial bonds − 90 998 − − − − 1,088 Corporate bonds − 615 1,218 134 − − − 1,966 Bonds in foreign currency 13 4 46 92 − − − 155
076 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 077 As of December 31, 2017, our holdings of risk-free bonds totaled around Market Risk Management Market risk is categorized into general market In order to manage losses caused by asset devaluation in the market, we We also focus on preventing losses from sales activities. We analyze and KRW 15.2 trillion, accounting for 70% of our total bonds. They consist risk and GMxB risk, based on the RBC regime. General market risk refers measure exposure and the risk amounts of assets subject to market risk monitor sales by channel and product, enabling the timely recognition and mostly of quality assets with a rating of AA- or higher. to losses incurred from decreases in the market value of assets as a result in accordance with both the RBC regime and our own internal model. The control of any abnormal sales activities. In addition, we have established a of changes in financial markets, including stock prices, interest rates, and RBC regime measures the amount of general market risk by multiplying business continuity system to prepare for unexpected and serious incidents The following shows loans held per credit rating as of December 31, foreign exchange rates. General market risk exposure includes risk arising each market risk factor by exposure to fluctuations in stock price/interest such as war, infectious disease, fire, large-scale cyber terrorism or natural 2017. Most of the assets to which a rating has been assigned are risk-free from held-for-trading securities, derivatives-for-trading, net exchange rate/exchange rate. In order to manage GMxB risk, we measure risk by disaster. We stress-test these systems through drills on a regular basis. assets. Policy loans account for most other ratings; policy loans are within position (foreign currency asset exceeding exchange hedge derivatives). deducting guarantee reserves from the average of the top 15% of net the scope of the cash surrender value, and our exposure to credit risk is GMxB risk includes GMDB (Guaranteed Minimum Death Benefit), GMAB losses expected in the future, if that amount exceeds the lower limit for In addition, we conduct prior risk reviews when undertaking new work. We therefore extremely low. (Guaranteed Minimum Accumulation Benefit), GMWB (Guaranteed minimum guarantees in each category. Our internal model sets and have improved work integrity by designing strong controls and examining Minimum Withdrawal Benefit), and other Guaranteed Minimum x-type manages individual investment and risk limits for all types of securities our operational effectiveness. There are frequent reviews of the risks that Benefits, typically associated with Variable-type policies. Guaranteed risk assets. may arise from inadequate approvals, management or non-compliance of GMxB insurance is the risk of loss that arises when minimum mortality with business policies and guidelines. Our internal accounting management insurance claims and minimum annuity insurance claims etc. which have Operational Risk Management Operational risk refers to risk of systems prevent improper accounting, and provide a means for the been guaranteed by the insurer, exceed the guaranteed reserves held due comprehensive loss arising from general business activities, including systematic and effective maintenance and supervision of our business by to decreases in the values of GMxB insurance assets. failures in major systems, errors, omissions, and misconduct. It refers company management. to both direct and indirect risks caused by inadequate internal work processes, people and systems, or by external events. It is, however, difficult to ascertain and quantify operational risk exposure
Loans (Unit: KRW billion) in detail. The RBC regime, therefore, allows use of a simple method to ING Life utilizes incident and work error reporting procedures to identify calculate the capital required to cover operational risk. ING Life calculates Below Classification Risk-free AAA AA+~AA- A+~BBB- No rating Others Total BBB- diverse types of risk. We also conduct timely risk evaluations to ascertain operational risk as a certain percentage, currently 1%, of premium income, Total 48 − 0 − − − 2,086 2,134 and evaluate risk pertaining to possible impact of major changes in a including variable insurance. Call loans, unsecured loans, product, project, external work outsourcing, sales channel or control discounted note loans, third party − − − − − − − − environment. We align operational risk-related activities with our guarantee collateral loans corporate strategic goals, and integrate operational risk management Securities collateral loans − − − − − − − − into our daily work activities and strategic plans, as part of our efforts to Mortgage loans − − − − − − 2 2 achieve sustainable growth. We have therefore set up an operational risk Policy loans − − − − − − 2,084 2,084 management system consisting of a series of processes, including target- Other loans 48 − 0 − − − − 48 setting, incident identification, risk response, and control activities.
Market Risk Management Status (Unit: KRW billion) Derivatives (Unit: KRW billion) As of Dec. 31, 2017 As of Dec. 31, 2016 As of Dec. 31, 2015 Below Classification Risk-free AAA AA+~AA- A+~BBB- No rating Others Total Classification BBB- Exposure Risk Amount Exposure Risk Amount Exposure Risk Amount Total 8 1 13 15 − − − 38 Market risk amount (1+2) 5,894 92 5,676 51 6,015 56 Interest rate − − − − − − − − General market risk (1) 305 4 316 5 499 6 Equity 0 − − 15 − − − 15 Held for trading financial asset 10 0 − − 30 0 Currency 8 1 10 − − − − 20 Assets and liabilities in foreign currency 281 22 210 17 69 6 Credit − − 3 − − − − 3 Derivatives transactions 14 (19) 107 (12) 400 0 Others − − − − − − − − GMxB risk (2) 5,589 88 5,360 46 5,516 51 Variable whole life 749 44 587 − − − Variable annuity 3,061 43 3,206 44 3,485 49 Variable universal protection − − − − 488 − Variable universal saving 1,780 2 1,567 2 1,544 2
(Unit: KRW billion)
Guaranteed Classification Premium income Policyholders’ reserve Guaranteed reserve minimum risk GMxB risk amount 956 5,589 183 88 Variable whole life 207 749 159 44 Variable annuity 299 3,061 23 43 Variable universal protection − − − − Variable universal saving 450 1,780 0 2 * As of December 31, 2017
078 ING Life Insurance Korea Annual Report 2017 Financial and Operating Report 079 B. CORPORATE GOVERNANCE REPORT
01. Governance Principle 082 03. Shareholder Relations
Shareholder Composition 088
Shareholders’ Meetings 088 02. Board of Directors
Composition of the BOD 082
Committees under the BOD 083 04. Compensation System
Independency of the BOD 084 Remuneration Committee 089
Roles and Responsibilities of the BOD 085 Employee Compensation System 090
Activities of the BOD 086
Evaluation and Compensation of the BOD 088
080 ING Life Insurance Korea Annual Report 2017 Corporate Governance Report 081 01 Committees under the BOD Governance Principle According to the Articles of Incorporation, the Board of ING Life consists eight auditors and one executive director with expertise on audit matters of five or more directors, the majority of whom are independent directors Audit Committee The Audit Committee oversees audit-related matters and the insurance industry, who directly reports to the Audit Committee. The with the appropriate level of experience and knowledge in their respective and reviews the legitimacy and appropriateness of management’s department, when necessary, outsources advisory services to independent fields to perform their duties as directors of a financial institution. The term business operations to support the management in its making of rational institutions. ING Life has in place a transparent and stable governance structure to of office of directors ranges between 1 to 3 years and is determined at the business decisions. The committee also evaluates the appropriateness of promote shareholders’ interests and protect customers’ rights. Our Board annual general meeting of shareholders, in accordance with Article 383 internal controls and business performances and devises improvement In 2017, there were four Audit Committee meetings convened with a 100% of Directors (BOD) – established in accordance with relevant laws and of the Korea Commercial Code. The term is extended to the end of the plans. It consists of three independent directors with verified independence attendance by its members. Last year, a total of seven agenda items were various administrative guidelines such as the Commercial Code and the Act annual general meeting (AGM) convened for the fiscal year during which who have no conflicts of interest with the company’s major shareholder, in submitted for approval, and all were approved, including an assessment on Governance of Financial Institutions – is in charge of making decisions the director’s term ends. The term of office of reappointed independent a bid to satisfy the rules governing the independency of Audit Committee report of internal accounting management system design and operation on, and supervising matters related to, business execution. directors is one year with the limit of six consecutive years. As a rule, the members according to the Commercial Code. To effectively fulfill its status, an audit report of the annual business report, a 2017 annual audit chairman of the BOD is chosen among independent directors, but a non- responsibilities, an Audit Department has been established, consisting of plan, and appointment of chairman of the Audit Committee. We publish all necessary materials including governance on our website independent director can be appointed as chairman if necessary; and in and the Financial Supervisory Service’s electronic disclosure system, in an such a case, a lead independent director is appointed, followed by the endeavor to faithfully fulfill all business disclosure obligations and to secure public announcement of the appointment and its circumstances. As of transparency in business operations. December 31, 2017, the BOD of ING Life is composed of seven directors – one executive director, two non-executive directors, and four independent ING Life website: www.inglife.co.kr Composition of the Board directors – and is chaired by the executive director and CEO, Munkuk FSS’ electronic disclosure system: http://dart.fss.or.kr Cheong. Classification Name Major Career Roles in BOD Currently Chief Executive Officer & President, ING Life Korea Munkuk For the purposes of enhancing accountability in management and CEO, ACE Life Korea Chairman of the Board Executive Cheong 02 maintaining efficient BOD operations, CEO Munkuk Cheong was Director 정문국 CEO, Allianz Life Korea Risk Management Committee appointed as chairman of the Board at the board meeting convened on CEO, AIG Global Investment Korea Board of Directors March 8th, 2017. Also, Chairman of the Audit Committee Woong Soon Currently Partner and President, MBK Partners Song was appointed as a Lead Independent Director, who, since his Michael President, Carlyle Asia Partners 2013 appointment as an Audit Committee Chairman, has conducted his Byungju Kim Managing Director and Chief Operating Officer of Asia-Pacific Investment Banking, – Composition of the BOD duties in a proactive and professional manner. In particular, he attended 김병주 Salomon Smith Barney/CitiGroup In order to secure transparency in its decision-making process and all board meetings and Audit Committee meetings convened in 2017, Executive Director, Goldman Sachs & Co. Non-executive effectively execute business activities based on checks and balances, demonstrating his deep and broad expertise in all legal matters. Directors Currently Partner and Head, MBK Partners our BOD operates as an independent governance body. Consisting of Co-Head of Korea, Carlyle Asia Partners Remuneration Committee experts from diverse backgrounds and professions, the BOD has four Jong-Ha Yoon Managing Director of Financial Advisory Services/Valuation Services, Risk Management Committee specialized committees under its supervision – Audit Committee, Executive 윤종하 KPMG (Seoul) Executive Candidate Candidate Recommendation Committee, Risk Management Committee, Senior Manager of Economic Consulting Services, KPMG LLP Recommendation Committee and Remuneration Committee. In an effort to safeguard the Board’s role (Washington/Chicago) as a check on management, the majority of the board members are Currently Visiting Professor, School of Business, Seoul National University independent directors whose independency has been verified. Suk Heun Head of the School of Finance, Soongsil University Risk Management Committee 1) Yoon Professor, Hallim University (Chairman) 윤석헌 Senior Researcher, Korea Institute of Finance Remuneration Committee Assistant Professor, McGill University Governance Structure Currently Attorney-at-law and Senior Partner, Shin & Kim Entities Purpose of Establishment and Key Activities Composition Chair Woong Soon General Counsel & Executive Director, Samsung Life Insurance Lead Independent Director Makes decisions on matters regarding the company’s business 7 in total Munkuk Cheong, Song General Counsel, Samsung Group Audit Committee (Chairman) Board of Directors operations, other than resolutions made by the annual general (4 independent directors) Representative Director 송웅순 Foreign Associate, Linklater and Paines Risk Management Committee meeting (AGM), and conducts internal controls Visiting Attorney, White & Case Evaluates the adequacy of overall internal control system operations Independent and reports vulnerabilities and areas for improvement to the BOD 3 in total Woong Soon Song, Currently CEO, Win Asset Management Audit Committee Directors and management so that these issues can be rectified, in order to (3 independent directors) Independent Director CEO, PHAROS Asset Management Executive Candidate Hyuk Sang Recommendation Committee efficiently achieve corporate goals Head of Equity Division, Hanwha Asset Management Kwon (Chairman) Recommends candidates for independent directors, auditors and Chief Investment Officer, Hangaram Investment Executive Candidate 권혁상 Audit Committee CEO who meet qualifications set forth in the Articles of Incorporation 3 in total Hyuk Sang Kwon, Head of Client Asset Management Team, Woori Investment & Securities Recommendation Risk Management Committee and relevant legislations such as the Act on Governance of Financial (2 independent directors) Independent Director Committee Director of Equity Investment Division, Yurie Asset Management Institutions Adjunct Professor, Graduate School of Technology Management Establishes and reviews risk management guidelines aligned with the Risk Management 5 in total Suk Heun Yoon, at Kyung Hee University Remuneration Committee business strategy, and deliberates and votes on risk management Jay Bum Committee (3 independent directors) Independent Director1) Head of Personal and Preferred Segments, Chief Marketing Officer (Chairman) issues Ahn and Direct Sales Representative, Standard Chartered Bank Korea Audit Committee 안재범 Remuneration Establishes and implements remuneration policies and procedures 3 in total Jay Bum Ahn, Head of Bancassurance and Marketing, MetLife Risk Management Committee Committee independent of the management (2 independent directors) Independent Director Head of Business Development and Account Relationship Management, LINA Life
* As of December 31, 2017 * As of December 31, 2017 1) Resigned on May 7, 2018 immediately prior to his appointment as the Governor of the Financial Supervisory Service (FSS) on May 8, 2018; Jay Bum Ahn was appointed as the Chair of the Risk Management 1) Resigned on May 7, 2018 immediately prior to his appointment as the Governor of the Financial Supervisory Service (FSS) on May 8, 2018 Committee on May 18, 2018
082 ING Life Insurance Korea Annual Report 2017 Corporate Governance Report 083 Executive Candidate Recommendation Committee The Executive In 2017, a total of five Risk Management Committee meetings were Roles and Responsibilities of the BOD At the March 8, 2017 general Board meeting, the Audit Committee Candidate Recommendation Committee reviews and nominates executive convened with a 100% attendance by its members. Last year, the The BOD holds roles and responsibilities as the final decision-making presented the Board with its report on results of its money laundering candidates with validated professional expertise, objectivity and moral committee deliberated on and approved all 17 agenda items submitted, entity of the company, coordinating the various opinions of stakeholders inspection, internal accounting management systems, and its 2016 internal principles. The committee consists of three directors of whom two, including appointment of the chairman of the Risk Management Committee, and performing its decision-making duties. Based on his/her expertise audit activities, followed by the Compliance Officer’s (CO) report on internal including the chairman, are independent directors. ING Life has established designation of a reinsurer, a derivatives product investment plan for 2017, and insight, each director supports management in business execution, controls in regards to credit information management in 2016. Furthermore, guidelines to validate the qualifications of, and nominate candidates for, enactment and revision of risk management-related rules, risk management monitors the legitimacy and appropriateness of business actions taken, at the general board meeting on May 10, 2017, the Board deliberated on the office of independent directors, auditors, and the chief executive officer, strategy and budget and product approval. and is authorized to implement any measure or action pertaining to the and approved the proposed enactment of regulation on risk management who will steer the company towards its long-term vision and serve the company’s business operations not resolved at the AGMs, in accordance for collective investment property, stipulating procedures and standards for interests of various stakeholders, including shareholders. The appointment Remuneration Committee The Remuneration Committee is established with respective laws or the Articles of Incorporation. maintaining the company’s asset soundness, protecting customer interests, of independent directors and Audit Committee members takes place under the BOD with the mandate of reviewing and operating the company’s and enhancing the company’s management stability and efficiency. At the after the committee reports its nominations to the BOD. Unless any of the key compensation schemes. See section 04. Compensation System for Establishing and Evaluating Business Goals and Strategies Pursuant general Board meeting on November 20, 2017, the Board deliberated on nominations are rejected by the Board, the list of nominees is disclosed more information. to article 7 clause 13 of the BOD Regulations of ING Life, the Board and approved the proposed amendments of internal control standards and confirmed at the AGM. The chief executive officer is appointed by the establishes and evaluates the company’s business goals and strategies. to reflect the nation’s legislative amendments and the CCO reported the Board following a nomination by the Executive Candidate Recommendation The authority to execute business in line with the goals and strategies is results of the 2016 and 2017 self-assessments on internal controls. Committee. Independency of the BOD delegated to the CEO, who presents the business reports to the BOD at the All directors of ING Life have had their qualifications validated and have quarterly general Board meetings, based on which the Board establishes Establishing and Evaluating Governance Principles and Policies such There were two Executive Candidate Recommendation Committee been nominated by the Executive Candidate Recommendation Committee, and evaluates business goals and strategies. Accordingly, in an ad-hoc as Management Succession Internal Governance Guidelines, which meetings convened in fiscal year 2017 with a 100% attendance by its in accordance with relevant laws such as the Korea Commercial Code Board meeting convened on January 12, 2017, ING Life presented the include a CEO succession plan, were enacted in November 2016 and members. Last year, three agenda items were submitted and approved, and the Act on Governance of Financial Institutions, and appointed at previous year’s forecast business performance and proposed business have since been executed without any violations. No agenda related to including the nomination of candidates for the office of independent the AGM. The Executive Candidate Recommendation Committee is one plans for 2018 and obtained the Board’s approval of those plans. this matter has been submitted to the general and ad-hoc Board meetings directors and Audit Committee members and appointment of chairman of of the BOD’s subcommittees, established in accordance with the Act on convened in FY 2017. the Executive Candidate Recommendation Committee. Governance of Financial Institutions, and also serves as an independent Revising the Articles of Incorporation Proposals for revising the Articles director candidate recommendation committee, as required by the Korea of Incorporation to be submitted to the AGM are deliberated and voted Identifying and Managing Conflicts of Interest The BOD is authorized to Risk Management Committee The BOD delegates some of its authority Commercial Code. Relevant laws require that the majority of the Executive on by the Board. A resolution was made at the general Board meeting approve transactions between directors and the company and transactions to the Risk Management Committee to facilitate the effective management Candidate Recommendation Committee should consist of independent convened on March 8, 2017, to revise the Articles of Incorporation to reflect undermining corporate opportunities and assets. No agenda related to of risk-related issues, such as establishing basic risk management policies, directors. This requirement has been met with 2 out of our 3 directors being articles necessary for the inclusion in deductible expenses of executives’ such transactions has been submitted to the general or ad-hoc Board determining specific risk tolerances and monitoring capital adequacy and independent. For the purpose of ensuring independent decisions, while severance payments in accordance with the Corporate Tax Law. Final meetings convened in FY 2017. solvency. The committee consists of five directors, three being independent providing professional advice and serving as a check on management, approval was obtained at the AGM convened on March 22, 2017. directors. It is supported by the Chief Risk Officer on administrative the majority of BOD members are independent directors. To safeguard matters and has two working committees – General Account Asset Liability its independency, directors are required to voluntarily inform the Board in Approving Budget and Account Settlement The BOD approves Committee and Separate Account Asset Liability Committee – and two the event of conflict of interest, either personal or other, in the decision- the company’s budget (including the compensation of executives and advisory groups – Insurance Model Management Advisory Group and making process. Directors who deem their judgment of an agenda issue to employees) and deliberates and decides on matters (including dividend) Insurance Risk Management Advisory Group – for the purpose of effective have been impaired by external pressure, are also required to report such to be submitted to the AGM. Accordingly, the limit on the total amount of management of various risks. surrounding circumstances to the Board. remuneration for registered directors was set at KRW 2.5 billion, reported to the general Board meeting convened on March 8, 2017, and approved at the AGM convened on March 22, 2017. Account settlement and shareholder dividend for FY 2016, which closed on December 31, 2016, were approved on March 8, 2017 at the general Board meeting and on Directors’ Relations of Interest with the Company or Major Shareholders March 22, 2017 at the AGM. Account settlement and shareholder dividend Transaction with the Other relations of interest Classification Name Recommended by for FY 2017 were approved first at the general Board meeting on February 8, company with major shareholders 2018 and then at the AGM on March 30, 2018.
Executive Establishing and Evaluating Internal Control and Risk Management Munkuk Cheong – – Director Criteria In an endeavor to ensure legislative compliance, sound management and protection of shareholders and stakeholders, pursuant Controlling shareholder to Article 24 of the Act on Governance of Financial Institutions, we have Michael Byungju Kim – In relation to the controlling shareholder established an internal control system defining standards and procedures by which executives and employees conduct their day-to-day operations. Non-executive The Board oversees overall matters related to operating internal controls Directors Jong-Ha Yoon – In relation to the controlling shareholder and takes final responsibility. Furthermore, the Audit Committee, under the BOD, evaluates management’s operation of internal controls and reports its Hyuk Sang Kwon – – findings to the Board. Independent Director Candidate Recommendation Committee (prior Independent Woong Soon Song – – entity of the Executive Candidate Directors Jay Bum Ahn Recommendation Committee – – established on October 18, 2016) Suk Heun Yoon – –
084 ING Life Insurance Korea Annual Report 2017 Corporate Governance Report 085 Activities of the BOD Number of independent directors/ Order Date Agenda Details A total of nine board meetings were convened in 2017, with directors’ meetings and provide necessary materials at least seven days in advance, Total attendees attendance averaging 92%, and attendance by independent directors’ to allow directors to familiarize themselves with the agenda, thus facilitating Appointment of members of Executive Candidate Recommendation Committee, 4th Mar. 30 Resolution 4/6 averaging 97%. All 25 items submitted to the Board were approved at the a well-informed discussion during Board meetings. Furthermore, education Remuneration Committee, and Risk Management Committee 2017 Board meetings, and measures reported were carried out as planned. programs are offered to enhance independent directors’ expertise, provide Business report by CEO 4/7 financial industry-specific information and promote their understanding of Report on the operation of the Litigation Management Committee 4/7 The Board guidelines stipulate that convocation notices for board meetings the company. In 2017, when the company was listed on the KOSPI market, and provision of agenda materials should be made one day prior to the in particular, there were three training courses provided, including one Financial performance as of the first quarter of 2017 4/7 Report date of meetings. However, we try to notify directors of the convocation of highlighting legal systems relevant to executives of listed companies. 5th May 10 Report on the outcome of anti-money laundering activities in 2016 4/7
Update of the Risk Management Committee 4/7
Board Meetings in 2017 ESG (Environment Social Governance) activity report 4/7
Number of independent directors/ Resolution Enactment of the standard for the risk management of collective investment property 4/7 Order Date Agenda Details Total attendees Report Dividend policy of the company 3/6 1st Jan. 12 Resolution Approval of 2017 Business Plan 4/6 6th Jul. 13 Resolution Closing of shareholder’s list and record date of interim dividend 3/6 2nd Feb. 3 Resolution Appointment of the Representative Director 4/6 Business report by CEO 4/7 Validation report of the Appointed Actuary 4/7 Financial performance as of the second quarter of 2017 4/7 Risk Management Committee Update 4/7 Report 7th Aug. 18 Update of the Risk Management Committee 4/7 FY 2016 Report on Operating Status of the Internal Accounting Management System 4/7 CSR activity report 4/7 IFRS 17 Status Update 4/7 Resolution Approval for payment and amount of FY2017 interim dividend 4/7 Revision of guideline on treatment of officers 4/7 8th Sep. 14 Resolution Forfeit of granted stock option 4/7 Limitation on executive officers’ compensation 4/7 Business report by CEO 4/6 Stock Options Grants 4/7 Report Financial performance as of the third quarter of 2017 4/6 Report on the internal accounting management system by the Audit Committee 4/7 Result of 2016 financial consumer protection status evaluation 4/6 Annual audit report on the 2016 business report 4/7 Report Update of the Risk Management Committee 4/6 Annual report on internal audit activities in 2016 4/7 Report on the preparation activities for IFRS 17 and K-ICS 4/6 Report on the audit plan for 2017 4/7 Result of internal assessment of the company’s internal controls for 2016/2017 4/6 Report on the result of anti-money laundering audit (including FSS’ inspection result) 4/7 9th Nov. 20 Approval on the policyholders’ dividend ratio for FY 2018 4/6 Annual report on internal control activities for credit information management in 2016 4/7 3rd Mar. 8 Revision of the internal accounting management regulations 4/6 Report on executive candidate recommendation by the Executive Candidate 4/7 Recommendation Committee Approval on the deferred establishment of internal risk and solvency evaluation system 4/6 (K-ORSA, Korea Own Risk and Solvency Assessment) Appointment of the Chairman of the BOD 4/7 Resolution Amendment of the Internal Control Guidelines 4/6 Appointment of the Representative Independent Director 4/7 Resolution on the establishment of a corporate foundation 4/6 Review and approval on board meeting minutes 4/7 Evaluation of the BOD 4/6 Resolution on public offering to be listed on the KOSPI market 4/7
Revision on risk management regulations 4/7
Appointment of officers in charge of major business operations 4/7 Resolution Number of exercisable stock options in 2016 and changes following stock split 4/7
Approval on the agenda decided by the Remuneration Committee 4/7
Shareholders dividends for FY 2016 4/7
Financial statements and business report for FY 2016 4/7
Revision of Articles of Incorporation 4/7
Approval on the holding of an annual general meeting 4/7
086 ING Life Insurance Korea Annual Report 2017 Corporate Governance Report 087 03 Evaluation and Compensation of the BOD Shareholder Relations Shareholder Meetings in 2017 We conduct a comprehensive evaluation of the BOD, to ensure that the Date Agenda Resolution Board is able to fully serve its role as the company’s major decision- Appointment of a director Original agenda approved making entity. The evaluation of all board members and executives Shareholder Composition Feb. 3 supporting the Board takes place at the beginning of each year, in the Approval on the appointment of an independent director as an Audit Committee member Original agenda approved format of a questionnaire on such items as independence of the previous Life Investment Limited is the largest shareholder of ING Life. Life Approval on the appointment of an independent director as an Audit Committee member Original agenda approved year’s Board composition, agenda materials, and level of directors’ Investment Limited is a special purpose company established on August engagement. In order to ensure the fulfillment of independent directors’ 22, 2013, in accordance with the Act on Capital Market and Financial Approval on the appointment of an independent director that is not an Audit Committee member Original agenda approved responsibilities, executives of departments related to BOD operations, such Investment Industry, for the purpose of acquiring 100% of the shares in Approval on the appointment of Audit Committee Members Original agenda approved as the Legal Department, Human Resources Management Department, ING Life. Life Investment Limited has since reduced its shareholding in ING Risk Management Department, and Audit Department, are required to Life through the IPO in May 2017. The business status of Life Investment Approval on 2016 financial statements and business report Original agenda approved conduct an internal evaluation of independent directors’ expertise and Limited has no impact on the business stability of ING Life. Approval on 2016 shareholders’ dividends Original agenda approved participation. The internal evaluation of independent directors adopts an Mar. 22 absolute evaluation method and questionnaires are drafted by the Legal Shareholder Status (Unit: Shares, %) Approval on executive officers’ compensation limits Original agenda approved Department, through thorough preparation, focusing on enhancing the Shareholder name Number of shares Ownership Approval on the guideline regarding executive officers’ treatment Original agenda approved objectivity towards the evaluation subjects, criteria, and methodology. Life Investment Limited 48,500,000 59.15% The internal evaluation of independent directors for FY 2017 took place in Approval on granting stock options Original agenda approved Minority shareholders 32,796,583 39.99% January 2018, with the main focus on the activities of the BOD and three of Approval on revision of the Articles of Incorporation Original agenda approved Employee stock ownership its four subcommittees – Audit Committee, Risk Management Committee, 703,417 0.86% program and Remuneration Committee; and all four independent directors were Annual report on governance structure and remuneration system in 2016 Initial report updated * As of December 31, 2017 assessed to have exercised an exceptional degree of professionalism, dedication and contribution.
Shareholders’ Meetings The compensation of directors is calculated based on the value of their services within the limitations set at the AGM. The amount approved for ING Life convenes general or ad-hoc shareholders’ meetings for decisions the five registered directors at the 2017 AGM was KRW 2.5 billion, of which on major changes in the company’s business operations, in order to 04 KRW 1,513 million was paid out. safeguard shareholders’ rights. The annual general meeting (AGM) is Compensation System The Remuneration Committee consists of three directors, two of whom are convened within three months from the closure of a fiscal year or at an required to be independent directors for more faithful conduct of duties. All earlier date set forth by relevant laws. A shareholders’ meeting can be three directors were appointed in December 2013; and though their initial convened by the CEO, following the BOD’s resolution, unless otherwise term of office expired two years ago, in consideration of their respective Compensation Paid by Type (Unit: Person, KRW million) specified by rules and regulations. Before convening a shareholders’ Remuneration Committee expertise, the three directors have been granted a term extension, after Average Number Total meeting, the company notifies shareholders of the date, place, and agenda The company’s remuneration program is devised and operated not disclosing the exception to the limitations on term extensions. For the Classification compensation of people compensation per person two weeks prior to the designated date, in the form of either a written or only to achieve short-term goals but also to attain long-term business sake of a professional and independent decision-making process, the electronic document. All shareholders’ meetings are chaired by the CEO or growth. Accordingly, the Remuneration Committee is established under Remuneration Committee may request the company to provide it with Registered Director (excluding independent a director appointed by the CEO, in case of the CEO’s absence or inability the BOD with the mandate of reviewing and operating the company’s related materials, and, if necessary, outsource advisory service from 1 1,323 1,323 directors and Audit to hold the meeting in person. key compensation schemes, bearing the aforementioned management external firms. All information regarding the compensation of the company Committee members) philosophy in mind. The Committee determines the amount of executives’ and its employees are kept strictly confidential by the Remuneration Independent Director performance-based compensation, including that of the management, and Committee, which is prohibited from use by a third party or the directors (excluding Audit 1 47 47 the method of payment. themselves for personal gain. Materials deliberated on and voted by the Committee members) Remuneration Committee are applied only to the company’s domestic Audit Committee Classification Details 3 142 47 operations, for no overseas operations have yet been established. Members Performance evaluation and risk Traditional embedded value (TEV) There were two Remuneration Committee meetings convened in 2017 adjustment criteria with a 100% attendance. Five items were submitted for approval, all of which were approved – operation status of the 2016 compensation Long-term performance: Value of new business (VNB) scheme, design and execution of a performance-based compensation program for 2017, compensation details regarding amount and payment Evaluation metrics Soundness: Traditional embedded value (TEV) method, changes following a stock split and number of shares that can be purchased through stock options in 2016, and appointment of the chairman Profitability: Operating results based on K-IFRS of the Remuneration Committee. Performance-based compensation is paid over Payment method a three-year term
088 ING Life Insurance Korea Annual Report 2017 Corporate Governance Report 089 Employee Compensation System Employee Compensation (Unit: Person, KRW billion)
We have two distinct compensation programs for executives and The stock options may be exercised during a period of seven years 2) Profit before tax (B) Average employees. The program for executives is operated based on the following commencing on the second anniversary of the date they were granted, as Total compensation Average number Classification compensation of of employees (A)1) Percentage of employees (C) considerations. long as the grantee continues to be in office as of the last day of the most (A/B) employees (A/C) recently completed calendar year. When such stock options are exercised, 2016 68.9 396.0 17% 767 0.09 Performance Evaluation and Performance-based Compensation As we may make a cash payment equal to the difference between the exercise 2017 73.5 315.0 23% 763 0.1 performance evaluation indices for executive officers, we have developed price (KRW 22,439) and the market value of the applicable number of 1) corporate-wide and division-specific indicators in consideration of balance common shares at the time of exercise. Because our stock option plan Based on the amount specified in the statement of earned income payment submitted to the tax authorities in accordance with Article 10, Income Tax Act 2) Profit before tax of the prior year (t-1) between the company’s financial and non-financial risks. Key financial was designed and granted when ING Life was a private unlisted company, performance indicators include profitability indicators such as operating prior to our IPO in May 2017, there was no quoted market price available result, soundness indicator such as embedded value growth, and long- to evaluate the stock options, so the ‘market value’ was defined to be the Performance-based Compensation by Position (Unit: Person, KRW billion) term performance indicator such as value of new business. Personal goals exercise price (KRW 22,439) increased annually by the rate of increase Employee and leadership are utilized as non-financial indicators. Along with these in the TEV, or the price at which change of control is executed (i.e if/when Classification Executive Sr. Professional/ Sr. Professional/ company-wide performance indicators, individual performance evaluation MBK sell out or down). Manager/L4 Leader/L5 Professional/L7 L6(G) L6(D) metrics such as the executive key performance index and execution Total compensation 7.3 4.8 26.2 15.3 14.4 0.9 of strategic tasks in non-quantifiable areas are also reflected in the The compensation plan for employees is devised and operated in 2016 Performance-based compensation for individual performance. 0.8 0.4 2.3 1.7 1.6 0.1 consideration of the following: compensation Total compensation 8.5 5.7 28.5 17.8 11.9 1.1 Criteria for Deferral, Adjustment, Forfeit, and Confirmation of Compen- • Streamlined Salary Plan: ING Life runs a performance-based bonus 2017 Performance-based sation Performance-based compensation is determined based on 1.2 0.4 2.2 1.7 1.3 0.1 plan for its general employees, other than those specified by the compensation evaluation of the executives’ performance against agreed KPIs, and is Remuneration Committee, and the plan takes into consideration the partially paid out as a cash sum with payment of the remaining amount value of services they provide. The basis for salary payments are clear, deferred for up to 3 years in consideration of the executive risk transition due to streamlined wage items and an absence of additional incentives, period. Of the performance-based compensation amounts calculated in other than those related to individual work performance. 2016 and 2017, 50% and 60% were paid out in cash, respectively, and the payments of the remaining amounts were deferred, to be paid out over the • Compensation Plan to Foster Performance-driven Culture: In accor- following 3 years. dance with the labor-management agreement, we have developed programs aligned with performance-based compensation, aimed Criteria for Compensation Methods such as Cash or Stock Of total at heightening employees’ performance. Accordingly, we measure compensation, base salary, which is included in average wages as employee performance using corporate-wide and division-specific indi- defined in the Labor Standards Act, or paid in a manner similar to wages cators, which are designed to reflect a balance between the company’s for employees, are classified as base compensation; and performance- financial and non-financial drivers. Performance-based compensation based bonuses are classified as bonus compensation. The ratio of bonus is calculated in conjunction with the individual’s achievement of his/her compensation to total compensation is determined considering the nature goals and paid in cash a year after the evaluation is complete. and difficulty of executives’ responsibilities; and bonus compensation is paid in cash, in accordance with evaluation indicators, reflecting the executive’s long-term performance and associated risks.
Stock Option We operate a share-based compensation plan, pursuant to which we may, by special resolution of our shareholders or the resolution of our board of directors, grant options to purchase common shares to our directors, officers and employees as consideration for their contribution to the company. Total 2,259,920 shares have been granted to 23 executives since June 2014 and currently 2,168,290 shares are outstanding, excluding cancelled 91,630 shares.
090 ING Life Insurance Korea Annual Report 2017 Corporate Governance Report 091 C. AUDITED FINANCIAL STATEMENTS
Independent Auditor’s Report 094
Statements of Financial Position 095
Statements of Comprehensive Income 096
Statements of Changes in Equity 097
Statements of Cash Flows 098
Notes to the Financial Statements 100
092 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 093 Independent auditor’s report Statements of financial position
ING Life Insurance Korea, Ltd. As at December 31, 2017 and 2016
(Korean won)
The Shareholders and Board of Directors Notes December 31, 2017 December 31, 2016 ING Life Insurance Korea, Ltd. Assets Cash and deposits: 4, 22, 25, 39, 40 We have audited the accompanying financial statements of ING Life We believe that the audit evidence we have obtained is sufficient and Cash and cash equivalents \ 175,595,829,118 \ 180,818,117,745 Insurance Korea, Ltd. (the “Company”), which comprise the statements of appropriate to provide a basis for our audit opinion. Deposits 384,551,168,428 384,578,509,066 financial position as at December 31, 2017 and 2016, and the statements of comprehensive income, statements of changes in equity and statements Opinion 560,146,997,546 565,396,626,811 of cash flows for the years then ended, and a summary of significant In our opinion, the financial statements present fairly, in all material respects, Financial assets at fair value through profit or loss 5, 39, 40 10,325,682,760 542,963,576 accounting policies and other explanatory information. the financial position of the Company as at December 31, 2017 and 2016, Available-for-sale financial assets 6, 22, 39, 40 21,854,092,323,697 21,329,238,009,235 and its financial performance and cash flows for the years then ended in Loans and receivables: 7, 22, 39, 40 Management’s responsibility for the financial statements accordance with Korean International Financial Reporting Standards. Loans 2,133,875,712,186 2,089,437,203,827 Management is responsible for the preparation and fair presentation of Receivables 678,468,673,496 675,645,330,380 these financial statements in accordance with Korean International Financial 2,812,344,385,682 2,765,082,534,207 Reporting Standards, and for such internal control as management March 5, 2018 Derivative assets designated as hedges 16, 39, 40 8,709,953,008 22,882,268,978 determines is necessary to enable the preparation of the financial statements 8 that are free from material misstatement, whether due to fraud or error. Property and equipment 12,575,535,199 12,617,228,849 Intangible assets 9 32,786,191,395 32,492,262,416 Auditors’ responsibility Deferred acquisition costs 10 523,520,109,348 519,878,961,320 Our responsibility is to express an opinion on these financial statements Current income tax assets 17 23,828,658,580 32,746,455,545 based on our audits. We conducted our audits in accordance with auditing Other assets: standards generally accepted in the Republic of Korea. Reinsurance assets 11, 40 35,191,771,871 31,227,755,390 Those standards require that we comply with ethical requirements and plan Other assets 12, 40 3,446,976,840 3,737,666,580 and perform the audit to obtain reasonable assurance about whether the 38,638,748,711 34,965,421,970 financial statements are free from material misstatement. Separate accounts assets 13, 40 5,578,394,830,379 5,352,887,413,738
An audit involves performing procedures to obtain audit evidence about Total assets \ 31,455,363,416,305 \ 30,668,730,146,645 the amounts and disclosures in the financial statements. The procedures Equity and liabilities selected depend on the auditors’ judgment, including the assessment of Equity the risks of material misstatement of the financial statements, whether due Capital stock 26 \ 82,000,000,000 \ 82,000,000,000 to fraud or error. In making those risk assessments, the auditors consider Capital surplus 26, 27 488,591,962,510 498,315,266,791 internal control relevant to the entity’s preparation and fair presentation of the Accumulated other comprehensive income 6, 16, 17, 20, 25, 26 1,216,054,721,908 1,800,991,881,735 financial statements in order to design audit procedures that are appropriate Retained earnings 26 1,881,909,794,922 1,766,107,537,122 in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating Total equity 3,668,556,479,340 4,147,414,685,648 the appropriateness of accounting policies used and the reasonableness Liabilities of accounting estimates made by management, as well as evaluating the Insurance contract liabilities 14, 40 21,166,409,643,053 19,877,792,433,796 overall presentation of the financial statements. Policyholder's equity adjustment 15 134,759,619,687 213,440,088,549 Derivative liabilities designated as hedges 16, 39 224,952,453 7,000,745,670 Deferred income tax liabilities 17 525,528,838,737 654,196,468,838 Other liabilities: Accounts payable 18,22,39 165,262,505,202 164,185,761,557 Provisions 19, 23 15,360,997,048 13,443,687,424 Net defined benefit liabilities 20 (3,874,296) 1,479,666,604 Other liabilities 21 130,791,828,585 178,279,333,362 311,411,456,539 357,388,448,947 Separate accounts liabilities 13, 40 5,648,472,426,496 5,411,497,275,197 Total liabilities 27,786,806,936,965 26,521,315,460,997 This audit report is effective as at March 5, 2018, the independent auditors’ report date. Accordingly, certain material subsequent events or circumstances may have occurred during the Total equity and liabilities \ 31,455,363,416,305 \ 30,668,730,146,645 period from the date of the independent auditors’ report to the time this report is used. Such events and circumstances could significantly affect the accompanying financial statements and may result in modifications to this report. The accompanying notes are an integral part of the financial statements.
094 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 095 Statements of comprehensive income Statements of changes in equity
ING Life Insurance Korea, Ltd. For the years ended December 31, 2017 and 2016 ING Life Insurance Korea, Ltd. For the years ended December 31, 2017 and 2016
(Korean won) (Korean won)
Notes Accumulated other 2017 2016 Capital stock Capital surplus Retained earnings Total comprehensive income
Operating revenue: As at January 1, 2016 \ 82,000,000,000 \ 497,457,892,313 \ 1,973,513,787,741 \ 1,707,866,038,704 \ 4,260,837,718,758 Premium income 28, 40 \ 3,157,536,869,740 \ 3,142,469,492,914 Profit after tax - - - 240,741,498,418 240,741,498,418 Reinsurance income 23, 29 110,914,485,815 107,685,152,843 Other comprehensive Interest income 30 857,371,520,830 841,278,405,900 income (loss): Dividend income 31 15,293,825,759 17,881,190,216 Loss on valuation of available-for-sale - - (181,859,440,502) - (181,859,440,502) Investment income from financial assets 16, 32 44,725,020,311 33,477,058,737 financial assets Other operating income 36 3,324,237,259 8,087,579,178 Gain on valuation of Separate accounts commission received 13 153,106,493,985 114,869,809,554 derivatives designated - - 9,196,418,039 - 9,196,418,039 as cash flow hedges 4,342,272,453,699 4,265,748,689,342 Remeasurement Operating expenses: of defined benefit - - 141,116,457 - 141,116,457 Provision for insurance contract liabilities 14 1,284,653,192,776 1,418,502,227,092 obligations Claims and benefits 33 1,782,245,467,541 1,723,478,817,731 - - (172,521,906,006) - (172,521,906,006) Reinsurance expenses 23, 29, 40 128,312,416,878 121,950,616,845 Total comprehensive - - (172,521,906,006) 240,741,498,418 68,219,592,412 Insurance operating expenses 20, 23, 34, 38 374,664,761,557 354,960,354,373 income Amortization of deferred acquisition costs 10 239,880,361,526 254,033,216,291 Dividend paid - - - (182,500,000,000) (182,500,000,000) Share-based Investment administrative expenses 20, 35, 38 28,049,554,678 26,320,798,868 - 857,374,478 - - 857,374,478 compensation cost Interest expenses 30 1,327,018,979 1,588,026,894 As at December 31, 2016 \ 82,000,000,000 \ 498,315,266,791 \ 1,881,909,794,922 \ 1,766,107,537,122 \ 4,147,414,685,648 Investment expenses from financial assets 16, 32 9,150,284,761 18,971,252,770 As at January 1, 2017 \ 82,000,000,000 \ 498,315,266,791 \ 1,800,991,881,735 \ 1,766,107,537,122 \ 4,147,414,685,648 Other operating expenses 36 34,856,720,232 17,277,429,528 Profit after tax - - - 340,236,257,800 340,236,257,800 Separate accounts commission paid 13 8,791,983,204 6,781,574,970 Other comprehensive 3,891,931,762,132 3,943,864,315,362 income (loss): Operating profit 450,340,691,567 321,884,373,980 Loss on valuation of Non-operating income (expenses) 37 1,857,491,242 (6,812,707,335) available-for-sale - - (575,040,887,508) - (575,040,887,508) financial assets Profit before tax 452,198,182,809 315,071,666,645 Loss on valuation of Income tax expense 17 111,961,925,009 74,330,168,227 derivatives designated - - (9,997,035,787) - (9,997,035,787) Profit after tax \ 340,236,257,800 \ 240,741,498,418 as cash flow hedges Other comprehensive income (loss) 6, 16, 17, 25, 26 Remeasurement of defined benefit - - 100,763,468 - 100,763,468 Reclassified subsequently to profit or loss: obligations Loss on valuation of available-for-sale financial assets (575,040,887,508) (181,859,440,502) - - (584,937,159,827) - (584,937,159,827) Gain (loss) on valuation of derivatives designated as cash flow hedges (9,997,035,787) 9,196,418,039 Total comprehensive income - - (584,937,159,827) 340,236,257,800 (244,700,902,027) (585,037,923,295) (172,663,022,463) Dividend paid - - - (224,434,000,000) (224,434,000,000) Not reclassified subsequently to profit or loss: Share-based - (9,723,304,281) - - (9,723,304,281) Remeasurement of the net defined benefits liabilities 100,763,468 141,116,457 compensation cost (584,937,159,827) (172,521,906,006) As at December 31, 2017 \ 82,000,000,000 \ 488,591,962,510 \ 1,216,054,721,908 \ 1,881,909,794,922 \ 3,668,556,479,340 Total comprehensive income (loss) \ (244,700,902,027) \ 68,219,592,412 The accompanying notes are an integral part of the financial statements. Earnings per share Basic earnings per share 24 \ 4,149 \ 2,936 Diluted earnings per share \ 4,149 \ 2,861
The accompanying notes are an integral part of the financial statements.
096 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 097 Statements of cash flows
ING Life Insurance Korea, Ltd. For the years ended December 31, 2017 and 2016
(Korean won) (Korean won)
2017 2016 2017 2016
Cash flows from operating activities: Changes in assets and liabilities from operating activities: Profit after tax \ 340,236,257,800 \ 240,741,498,418 Deposits 27,340,638 1,019,802,296 Adjustments Financial assets at fair value through profit or loss (10,000,000,000) 30,392,496,573 Interest income (857,371,520,830) (841,278,405,900) Derivatives for trading (63,958,024) (519,132,624) Interest expenses 1,327,018,979 1,588,026,894 Loans and receivables (58,455,797,616) (67,017,784,714) Dividend income (15,293,825,759) (17,881,190,216) Deferred acquisition costs (243,521,509,554) (255,540,764,541) Income tax expense 111,961,925,009 74,330,168,227 Other assets (39,136,217) 869,235,001 (759,376,402,601) (783,241,400,995) Separate accounts assets (225,507,416,641) 161,840,070,017 Additions to expenses not involving cash outflows: Accounts payables (10,814,939,905) (4,378,099,440) Insurance contract liabilities 1,284,653,192,776 1,418,502,227,092 Provisions (771,479,740) (1,076,353,490) Loss on valuation of derivatives for trading 432,951,938 242,859,415 Plan assets (2,681,132,153) (1,101,780,174) Loss on valuation of derivatives designated as hedges 149,508,028 3,322,092,065 Other liabilities (62,766,357,736) 61,307,406,951 Loss on foreign currency translation 17,829,307,966 1,358,644,320 Separate accounts liabilities 236,975,151,299 (155,253,939,898) Retirement benefit expenses 1,330,524,589 1,324,950,193 (377,619,235,649) (229,458,844,043) Share-based compensation costs 5,555,548,678 857,374,478 Receipt of interests 756,098,095,657 687,576,079,124 Amortization of deferred acquisition costs 239,880,361,526 254,033,216,291 Payment of interests (1,327,018,979) (1,588,026,894) Depreciation of property and equipment 5,751,892,622 5,986,895,122 Receipt of dividends 13,765,963,282 16,544,358,118 Amortization of intangible assets 15,403,678,828 14,640,214,922 Payment of income tax (74,796,972,657) (94,846,988,044) Bad debt expenses 1,467,417,543 253,237,117 Net cash provided by operating activities 1,437,348,429,034 1,492,926,846,015 Impairment loss on available-for-sales financial assets 3,027,000,236 14,690,366,135 Cash flows from investing activities: Loss on disposal of available-for-sales financial assets 3,911,522,115 228,062,188 Cash inflows from investing activities: Loss on disposal of property and equipment 207,912,491 221,773,944 Disposal of derivatives \ 21,852,142,839 \ - Impairment loss on intangible assets - 57,998,548 Disposal of available-for-sales financial assets 1,903,094,844,965 1,580,657,753,381 Provision for restoration 238,192,451 551,684,875 Disposal of intangible assets 583,000,000 - Loss on foreign currency transaction 1,062,986,027 415,126,224 1,925,529,987,804 1,580,657,753,381 Miscellaneous loss 1,859,983,652 - Cash outflows from investing activities: 1,582,761,981,466 1,716,686,722,929 Acquisition of available-for-sales financial assets 3,122,523,293,600 2,913,893,229,570 Deductions from revenues not involving cash inflows: Acquisition of property and equipment 4,874,841,052 4,060,459,663 Gain on valuation of financial assets at fair value through profit or loss 94,844,258 - Acquisition of intangible assets 14,491,714,439 3,987,729,600 Gain on valuation of derivatives for trading 56,868,840 30,413,887 (3,141,889,849,091) (2,921,941,418,833) Gain on valuation of derivatives designated as hedge 6,617,667,369 - Net cash used in investing activities (1,216,359,861,287) (1,341,283,665,452) Gain on disposal of derivatives designated as hedge 5,023,723,564 - Cash flows from financing activities: Gain on foreign currency translation 1,195,333,099 6,555,143,004 Cash inflows from financing activities - - Gain on disposal of available-for-sale financial assets 29,095,595,381 31,621,128,229 Cash outflows from financing activities Gain on disposal of intangible assets 50,000,000 - Payment of dividends (224,434,000,000) (182,500,000,000) Reversal of impairment loss on intangible asset 21,820,768 - Net cash used in financing activities (224,434,000,000) (182,500,000,000) Reversal of allowances for bad debts 2,488,359 24,230,186 Net decrease in cash and cash equivalents (3,445,432,253) (30,856,819,437) Gain on foreign currency transaction 235,897,647 906,332,497 Foreign currency translation of cash and cash equivalents (1,776,856,374) 536,296,813 Miscellaneous income - 20,349,304,795 Cash and cash equivalents at the beginning of the year 180,818,117,745 211,138,640,369 (42,394,239,285) (59,486,552,598) Cash and cash equivalents at the end of the year \ 175,595,829,118 \ 180,818,117,745
The accompanying notes are an integral part of the financial statements.
098 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 099 Notes to the financial statements 2.2.3 Classification and measurement of financial assets ING Life Insurance Korea, Ltd. December 31, 2017 and 2016 Financial assets are classified as financial assets at fair value through profit or loss, available-for-sale investments, held-to-maturity investments, or loans and receivables, as appropriate. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention 1. Company information in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset. Financial assets are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. ING Life Insurance Korea, Ltd. (the “Company”) was incorporated on September 9, 1991 and primarily engages in life insurance business, reinsurance for life insurance and related asset management activities. 2.2.3.1 Financial assets at fair value through profit or loss (FVTPL) Financial assets at FVTPL include financial assets held-for-trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held-for-trading if they are acquired for the The Company was wholly owned by ING Insurance International II B.V. based in Netherlands. On December 24, 2013, Life Investment Limited bought 100% purpose of selling or repurchasing in the near term. Derivatives, including separate embedded derivatives are also classified as financial assets held-for- stake of the Company from ING Insurance International II B.V. and the Company became a wholly owned subsidiary of Life Investment Limited. In addition, trading unless they are designated as effective hedging instruments or financial guarantee contracts as defined by KIFRS 1039. In addition, financial assets the Company was listed on the domestic securities market on May 11, 2017. at FVTPL are also subsequently measured at fair value and resulting unrealized gain or loss including the related interest income and dividend income is credited or charged to profit or loss in the statements of comprehensive income. The capital stock which stood at ￦20,000 million at establishment currently amounts to ￦82,000 million as of December 31, 2017 after going through several capital increases. 2.2.3.2 Available-for-sale financial investments (AFS) Financial assets that are not classified as held-to-maturity, held-for-trading, designated as at fair value through profit or loss, or loans and receivables, are classified as available-for-sale. A gain or loss on an available-for-sale financial asset is recognized Capital stock and shareholders of the Company as of December 31, 2017 and 2016 are as follows (Korean won in millions): in other comprehensive income, except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognized. However,
December 31, 2017 December 31, 2016 unquoted equity investments whose fair value cannot be measured reliably are carried at cost. The cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when the financial asset is derecognized. Dividends on an Percentage of Percentage of Name of shareholder Capital stock Capital stock ownership (%) ownership (%) available-for-sale equity instrument are recognized in profit or loss when the entity’s right to receive payment is established. Life Investment Limited ￦ 48,500 59.15 ￦ 82,000 100.00 2.2.3.3 Held-to-maturity investments (HTM) Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified Others 33,500 40.85 - - as held-to-maturity when the Company has the positive intention and ability to hold it to maturity. After initial measurement, held-to-maturity investments ￦ 82,000 100.00 ￦ 82,000 100.00 are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the effective interest rate. The percentage of ownership of Life Investment Limited has been changed to 59.15% upon listing by selling existing shares to the public. 2.2.3.4 Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the 2. Basis of financial statement preparation and significant accounting policies effective interest rate.
2.1 Basis of financial statement preparation 2.2.4 Derivative financial instruments and hedge accounting
The Company prepares statutory financial statements in the Korean language in accordance with Korean International Financial Reporting Standards (KIFRS) Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are classified as either enacted by the Act on External Audit of Stock Companies. The accompanying financial statements have been translated into English from the Korean trading or hedging if they are qualified for hedge accounting. Derivatives are subsequently re-measured at fair value and any gains or losses arising from language financial statements. In the event of any differences in interpreting the financial statements or the independent auditors’ report thereon, the Korean changes in fair value on derivatives are taken directly to the statement of comprehensive income, except for the effective portion of cash flow hedges, version, which is used for regulatory reporting purposes, shall prevail. which is recognized in other comprehensive income. The Company designates certain hedging instruments as (a) hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment (fair value hedge); (b) hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction (cash flow hedge); and (c) hedge of 2.2 Significant accounting policies a net investment in a foreign operation.
2.2.1 Transactions in foreign currencies At the inception of the hedge relationship, the Company documents the relationship between the hedging instrument and the hedged item, along with its 2.2.1.1 Functional currency The Company’s financial statements are presented in the functional currency. The functional currency is the currency of risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing primary economic environment where the business activities are taken place. Transactions in foreign currencies are initially converted to the functional basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item. currency by the Company and recognized. 2.2.4.1 Fair value hedge accounting Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recognized in net 2.2.1.2 Translation of foreign currency transactions Transactions in foreign currencies are initially recognized at their respective functional currency income immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Hedge accounting rates as of the dates of the transaction or the functional average exchange rates. Monetary assets and liabilities denominated in foreign currencies are is discontinued when the Company revokes the hedging relationship or when the hedging instrument is no longer qualified for hedge accounting. The fair retranslated at the currency spot exchange rates ruling at the reporting date, and the exchange differences arising on translation are recognized in profit or value adjustment to the carrying amount of the hedged item is amortized to net income from that date to maturity using the effective interest method. loss in the period. Non-monetary assets and liabilities that are measured in terms of fair value are translated using the exchange rates as at the reporting date. Exchange differences are recognized in profit or loss in the period for the components of which gain or loss on valuation of fair value is recognized in 2.2.4.2 Cash flow hedge accounting The effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow profit or loss, whereas, the differences are recognized in other comprehensive income for the components of which gain or loss on valuation of fair value is hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in net income. Amounts recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost are recognized at the currency rates of initial previously recognized in other comprehensive income and accumulated in equity are reclassified to net income when the hedged item is recognized in recognition, so no exchange differences are incurred. net income. Hedge accounting is discontinued when the hedging instrument is expired or sold, or it is no longer qualified for hedge accounting, and any cumulative gain or loss in other comprehensive income remains in equity until the forecast transaction is ultimately recognized in net income. When a forecasted transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in net income. 2.2.2 Cash and cash equivalents
Cash consists of cash on hand and demand deposits. Cash equivalents are held to meet demand for highly liquid investments that are readily convertible to 2.2.4.3 Embedded derivative An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract known amounts of cash and subject to an insignificant risk of changes in value. with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. A derivative embedded in a contract is accounted for as a stand-alone derivative if its economic characteristics are not closely related to the economic characteristics of the host contract; unless the entire contract is measured at fair value with changes in fair value recognized in net income.
100 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 101 2.2.4.4 Valuation adjustment: Credit risk Marked to market value of derivative asset position is net of a credit valuation adjustment attributable to If, as a result of a change in intention or ability, it is no longer appropriate to classify an investment as held-to-maturity, it will be reclassified as available-for- derivative counterparty default risk. sale. However, if a reclassification is more than an insignificant amount of held-to-maturity, any remaining held-to-maturity investments will all be reclassified as available-for-sale.
2.2.5 Impairment of financial assets 2.2.7 Derecognition of financial assets 2.2.5.1 Available-for-sale financial investments Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the statements of comprehensive income – A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when (i) the rights to receive is removed from other comprehensive income and recognized in the statements of comprehensive income. cash flows from the asset have expired or, (ii) the Company has transferred substantially all the risks and rewards of the asset. If the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset, the Company recognizes the asset In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the and the associated liability to the extent of the Company’s continuing involvement in the asset. If the Company has retained substantially all the risks and investment below its cost. ‘Significant’ is to be evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value rewards of ownership of the transferred asset, the Company continues to recognize the transferred asset and recognizes a collateralized borrowing for the has been below its original cost. Impairment losses on equity investments are not reversed through the statements of comprehensive income; increases in consideration received. their fair value after impairment are recognized directly in other comprehensive income. However, if, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statements of comprehensive 2.2.8 Reinsurance assets income, the impairment loss is reversed through the statements of comprehensive income. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are disclosed as reinsurance assets 2.2.5.2 Held-to-maturity investments If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the in accordance with the related reinsurance contracts. Reinsurance assets are reviewed for impairment at each reporting date. Impairment occurs when difference between the asset’s carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows there is objective evidence – as a result of an event that occurred after initial recognition of the reinsurance assets – that the Company may not receive all is discounted at the financial asset’s original effective interest rate. The amount of the loss is recognized in the statements of comprehensive income. If, in outstanding amounts due under the terms of the contract, and the event has a reliable measurable impact on the amounts that the Company will receive a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment from the reinsurer. Reinsurance assets are impaired, the carrying amount of assets is reduced, and the impairment loss is recognized in the statements of was recognized, the previously recognized impairment loss is reversed through the statements of comprehensive income. The reversal should not result comprehensive income. in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. 2.2.9 Property and equipment
2.2.5.3 Loans and receivables Individually important financial assets recognize a loss on impairment by establishing individual allowance for bad debts Property and equipment is stated at historical cost less accumulated depreciation. The historical cost is expenditure directly related to the acquisition of after reviewing if there is any objective evidence of the damage caused. If there is no objective evidence for the damage caused to the individually reviewed assets. The subsequent cost is capitalized if it is probable that future economic benefit associated with the items will flow to the Company and the cost of an financial asset, other damages including the financial assets with similar credit risks are reviewed collectively. Also, individually unimportant financial assets item can be measured reliably. All other repairs and maintenance costs are recognized as an expense in the period incurred. assess a loss on impairment collectively. Depreciation of property and equipment is calculated using declining balance method or straight line method to write down the cost of property and If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the equipment to their residual values over their estimated useful life. impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account. Useful life Furniture and equipment 5 years In order to calculate the current value of the expected future cash flow, the first effective interest rate is applied, but the final effective interest rate before Leasehold improvements 5 or rental period impairment is applied to estimate the loss on impairment for variable-rate financial assets. The current value of the expected future cash flow of the secured financial assets is calculated by estimating cash flow from the collateral regardless of the possibility of additional inflows of collateral and by deducting The carrying value of assets is reduced when there are indicators that the carrying value may not be recoverable. The assets’ residual values and useful life acquisition costs and disposal costs. The Company classifies loans into groups with similar credit risk in order to establish allowance for bad debts. Criteria for are reviewed and adjusted if appropriate at each financial year end. Any gains of loss arising on derecognition of the assets (calculated as the difference classification of credit risks are type of products, industry of borrower, credit rating, regional risk, type of collateral, and status of defaults, etc. between the net disposal proceeds and the carrying amount of the assets) are recognized as other operating income and expenses in the statement of comprehensive income. The Company calculates allowance for bad debts based on the loss incurred. Allowance for bad debts are established and calculated by multiplying IBNR (Incurred But Not Reported) default by LGD (Loss Given Default). IBNR default is estimated by reflecting LEP (Loss Emergence Period) to PD (Probability 2.2.10 of Default) based on past experience of impairments on loans with similar credit risk. Also, LGD (Loss Given Default) is estimated by applying the effective Intangible assets interest rate of the loans as discount rate considering types of products and collateral. Intangible assets are recognized if there is a high probability that future economic benefit arising from the assets will flow to the Company and the cost of them can be measured reliably. Intangible assets include software, research and development cost, and membership. 2.2.6 Reclassifications of financial assets Intangible assets acquired individually are recognized at acquisition cost. Intangible assets with finite life are amortized over the useful economic life with The Company reclassifies a financial asset only in the rare circumstances as follow: straight line method and the following amortization period. Intangible assets with indefinite useful life are not amortized, but are tested for impairment When the Company is unable to trade held-for-trading financial assets due to inactive markets and management’s intent to sell them in the foreseeable annually, or whenever there is an indication that the intangible asset may be impaired. The assessment of indefinite life is reviewed at each reporting to future significantly changes, the Company may elect to reclassify these financial assets in rare circumstances. Held-for-trading financial assets that meet the determine whether the indefinite life continues to be supportable. definition of loans and receivables may be reclassified to loans and receivables if the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity. Useful life Software and development 5 years Available-for-sale financial assets that meet the definition of loans and receivables may be reclassified to loans and receivables if the Company has the Membership Indefinite intention and ability to hold the financial asset for the foreseeable future or until maturity. The reclassification to held-to-maturity is permitted only when the Company has the ability and intent to hold the financial asset until maturity. A financial asset reclassified from the available-for-sale category to held- to-maturity is reclassified at its fair value on the date of reclassification, and any previous gain or loss on that asset that has been recognized in other comprehensive income is amortized to profit or loss over the remaining life of the investment using the effective interest method. Any difference between the new amortized cost and maturity amount is also to be amortized over the remaining life of the financial asset using the effective interest method. If the financial asset is subsequently impaired, any gain or loss that has previously been recognized in other comprehensive income is reclassified from equity to profit or loss in the statements of comprehensive income.
102 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 103 2.2.11 Government grants 2.2.16.1 Premium reserve The Company is required to maintain a premium reserve at the amount calculated by deducting the actuarial present value of future premiums to be received after the reporting date from the actuarial present value of future payment of claims with respect to the long-term insurance Government grants are recognized as fair value where there is reasonable assurance that the grant will be received and all attached conditions will be contracts expected after the reporting date. complied with. When the grant relates to an asset, it is subtracted when calculating the book value of the asset. When the grant relates to income, it is deferred and subtracted from the related expense for the purpose of the grants. When the grant requires an obligation for repayment, it is treated as a 2.2.16.2 Unearned premium reserve The Company is required to maintain an unearned premium reserve for insurance contracts, whose payment date change in accounting assumption. falls within the current year but the effective date has not yet commenced as of the reporting date.
2.2.12 Impairment on non-financial assets 2.2.16.3 Guaranteed reserve A guaranteed reserve is reserved to guarantee an amount above certain level for claims paid, etc. for the Company’s in-force policies as of December 31, 2017. The Company reserves the amount based on the calculation method regulated by Appendix 24 of Enforced Regulation The Company tests all non-financial assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying of Regulation on Supervision of Insurance Business (standard on calculation for guaranteed reserve). amount may not be recoverable. Recoverable amount is the higher of value in use and net fair value less costs to sell. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and such impairment loss is 2.2.16.4 Reserve for outstanding claims The Company provides reserve for payments including claims whose payment is (estimated to be) due but recognized. For the purpose of impairment assessments, the assets are grouped separately as the lowest identifiable level of group (cash generating unit) outstanding at balance sheet date. Reserve for outstanding claims comprise of i) identifiable claims estimated based on insurance events reported to generating cash flow. Previously recognized impairment loss on non-financial assets other than goodwill is reviewed at each reporting date for the possibility the Company for litigation, pending, etc., ii) incurred but not reported claims over one year prior to balance sheet date, iii) reserve against the insurance of reversal. contracts lapsed for nonpayment whose right for reinstatement or grace period did not expire, which is equivalent to lapse surrender value, and iv) Claims for which payments such as claims, refund and dividends are fixed but which remain outstanding as of the balance sheet date. 2.2.13 Insurance receivables 2.2.16.5 Reserve for participating policyholder’s dividends Insurance receivables are recognized when due (before the date of the statements of financial position) and measured on initial recognition at the present (a) Excess crediting rate reserve The Company accumulates this reserve to make up for the difference between assumed interest rate and the average value of estimated future cash flows on consideration received and receivables using the effective interest rate. Subsequent to initial recognition, insurance interest rate for one-year term deposit of the current business year, for policyholders of participating insurance contracts (applicable only to those dated on receivables are recognized at amortized cost, using the effective interest rate method in the balance sheet. The short-term insurance receivables with or before October 1, 1997). negligible interest revenue are reported at nominal value. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable and recoverable amount is less than acquisition costs after amortization of (b) Mortality dividend reserve The Company provides reserve against mortality dividend to make up for the difference between expected mortality rate and insurance receivables, with the impairment loss recorded in the statements of comprehensive income. actual mortality rate for the participating insurance contracts that remained in force for longer than one year.
2.2.14 Deferred acquisition costs (c) Interest dividend reserve The Company provides reserve against interest dividend to make up for the difference between standard interest dividend rate and assumed interest rate of the insurance product for the participating insurance contracts that remained in force for longer than one year. For the The Company recognizes acquisition costs from long term insurance contracts as assets, and the acquisition costs are amortized evenly over the premium policies dated on or before October 1, 1997, the Company makes reserve on interest dividend to make up for the difference between standard interest payment period (up to 7 years). If there is any unamortized acquisition costs remaining as of the date of termination (or the date of invalidation, if an dividend rate and the assumed interest rate of the insurance product including the guaranteed interest dividend rate at beginning of the current business insurance contract becomes invalid before termination), such remainder shall be amortized in the accounting year in which the contract is terminated. year. Further, if the unamortized acquisition costs are greater than the difference between the net premiums type premium reserve at the end of the current accounting year and the surrender value type premium reserve, the excess shall be amortized in the current accounting year. (d) Long-term persistency dividend reserve For the effective participating insurance contracts that remained in force for longer than 6 years, the Company provides reserve calculated by subtracting surrender charges from the net premium reserve and multiplying it by the long-term duration dividend rate. 2.2.15 Classification of insurance contracts and investment contracts (e) Expense dividend reserve The Company provides reserve against expense dividend to make up for the difference between expected expense The Company agrees to indemnify a policyholder in the event that an uncertain incident (insurance incident) of a certain future has caused an adverse dividend rate and standard expense dividend rate for the insurance contracts excluding non-participating insurance contracts that remained in force for influence on the other party (policyholder). The agreement which agrees to acquire the important insurance risk from the policyholder is classified into longer than one year. insurance contracts, and significance of insurance risk is assessed by each contract considering the insurance payable in case of insurance incident, and other payments in case no incident occurs. (f) Reserve for policyholder’s income dividends The Company accumulates the due amount based on business performance in conformity with statutes or insurance policy provisions as a reserve against the unrealized participating policyholder dividends. On the other hand, the Company classifies the contracts which are exposed to financial risk without important insurance risk into investment contracts. Financial risk means a risk caused by fluctuations of certain variables (interest rate, prices of financial products, prices of commodities, exchange rate, price (g) Reserve for loss on participating insurance The Company accumulates the reserve for loss on participating insurance within the limit of 30/100 of or ratio index, credit rating or credit index, and non-financial variables that do not relate to the contracting Company) which are likely to occur in the future. participating profit policyholders’ equity in order to make up for the loss on participating insurance contracts that may incur in the future. This reserve makes Investment contracts are reclassified if there are requisites for provisional dividends. Investment contracts with requisites for provisional dividends are treated up for the loss on participating contracts within the 5 fiscal years immediately following the end of the fiscal year in which reserve was accumulated, and the as insurance contracts in accounting and investments contracts without requisites for provisional dividends are treated according to Financial Accounting remaining balance is used as resources for individual participating policyholders’ dividends. Standards No. 1039 “Financial products: Recognition and Measurement” in accounting.
In the event that the Company classifies a contract as an insurance contract, the contract is classified and recognized as an insurance contract until all 2.2.17 Liability adequacy test the rights and obligations under the contract terminate or expire. In the event that the insurance risk becomes immaterial during the contract term, it is not The Company makes an assessment of the appropriateness of insurance liability using current estimates of future cash flows of insurance contracts at the reclassified into investment contract. However, in the event that an investment contract with insurance risk is recognized as important, it is reclassified into end of the financial year. After the assessment, if the book value of the insurance liability is considered as inappropriate with respect to the estimated future insurance contract. cash flows, the shortfall is recognized in the statements of comprehensive income.
2.2.16 Insurance contract liabilities The Company applies a liability adequacy test that meets specified minimum requirements under KIFRS 1104 Insurance Contracts and this IFRS standard imposes no further requirements. The minimum requirements are the following: Insurance contract liabilities are provided in accordance with the Regulation on Supervision of Insurance Business and the related laws. These reserves are computed based on the Premium and Insurance Contract Liabilities Calculation Guideline set forth by Financial Supervisory Commission. Major contents (a) The test considers current estimates of all contractual cash flows, and of related cash flows such as claims handling costs, as well as cash flows are as below: resulting from embedded options and guarantees.
(b) If the test shows that the liability is inadequate, the entire deficiency is recognized in profit or loss.
104 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 105 2.2.18 Policyholders’ equity adjustment The Company shall recognize the expected cost of profit-sharing and bonus payments as liabilities when the Company has a present legal or constructive obligation to make such payments as a result of past events and a reliable estimate of the obligation can be made. In accordance with Appendix 16 of Enforced Regulation of Regulation on Supervision of Insurance Business, gain or loss on valuation of available-for-sale investments and revaluation surplus on PP&E (Property, Plant & Equipment) are credited or charged to other comprehensive income or the policyholders 2.2.23.3 Share-based payment The Company recognizes expenses from cash-settled share-based payment transactions and equity-settled share-based equity adjustment account according to the distribution criteria of the investment income during the year. In case of loss on available-for-sale investments, payment transactions in profit or loss by the fair value of the goods or services received. If an entity has granted the counterparty the right to choose whether they are recorded in policyholders’ equity adjustment account to the extent of the sum of reserve for policyholder’s income dividends and policyholders’ a share-based payment transaction is settled in cash or by issuing equity instruments, the transaction is accounted according to its substance. dividend stabilization reserve.
2.2.23.4 Other long-term employee benefits Other long term employee benefits, that will not be expected to be settled within 12 months of the end of the 2.2.19 Separate accounts reporting period in which the employees render the related services, shall be the present value of future benefits that are obtained in exchange for the work performed in the current term and in the past period. Changes in remeasurement shall be recognized as profit or loss in the period that occurred. In accordance with ‘Article 108’ of the Insurance Business Act and Regulation on Supervision of Insurance Business, the Company establishes and operates accounts to use all or any part of the assets equivalent to the reserves separately from any other assets with respect to the contracts of retirement insurance, 2.2.23.5 Termination benefit Termination benefits resulting from either the Company’s decision to terminate the employment before the normal retirement retirement pension and variable insurance policies (including variable universal policies). According to ‘Article 6-23’ of Regulation on Supervision of date, or an employee’s decision to accept the Company’s offer of benefits in exchange for termination of employment, are recognized as expenses at the Insurance Business, income and expenses pertaining to the variable insurance within separate accounts are not presented explicitly in the general accounts’ earlier of (i) when the Company can no longer withdraw an offer of those benefits and (ii) when it recognizes any related restructuring costs. statements of comprehensive income, whereas income and expenses of principal and interest guaranteed-type separate account products are presented as gross amounts in the general accounts’ statements of comprehensive income as ‘separate account income’ and ‘separate account expenses’. 2.2.24 Basic earnings per share and diluted earnings per share
2.2.20 Classification and measurement of financial liabilities Basic earnings per share are computed by dividing net income on the income statement by the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed by dividing diluted net income as adjusted by adding back the after-tax amount of interest expense Financial liabilities are classified, at initial recognition, as payables and derivatives designated as hedging instruments, as appropriate. All financial liabilities on any convertible debt and dividends on any convertible preferred stock, by the weighted average number of common shares and diluted securities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. outstanding during the year.
2.2.21 Derecognition of financial liabilities 2.2.25 Income taxes A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced The income taxes for the period comprise current and deferred tax. Income taxes are recognized in the statements of comprehensive income, except to by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case the income taxes are also recognized in other modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is comprehensive income or directly in equity, respectively. recognized in the statements of comprehensive income.
The current income tax is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in Korea where the Company’s 2.2.22 Offsetting of financial instruments subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to be Financial assets and financial liabilities are offset and the net amount is reported in the statements of financial position if there is a currently enforceable legal paid to the tax authorities. right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their 2.2.23 Employee benefits carrying amounts in the financial statements. However, deferred income tax is not recognized if the deferred income tax arises from the initial recognition of an asset or liability in a transaction which is not a business combination, and at the time of the transaction affects neither accounting profit nor taxable profit 2.2.23.1 Retirement benefits The Company operates defined contribution plans and defined benefit plans. (tax loss). Deferred income tax is determined using tax rates (and laws) that have been enacted, or substantially enacted, by the reporting period, and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. In the event that defined contribution plans are established, the Company’s share (contribution) is recognized as severance payment (expense) in the fiscal period, but allowance for severance liability is not recognized. When an employee is hired to provide his/her service for a certain period of time, the 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 contribution which is paid to the defined contribution plans in exchange for his/her service is recognized. differences can be utilized.
The contributions to defined contribution plans are recognized as an expense when an employee who is eligible for the payment provides his/her service. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred For defined benefit plans, the cost of salary recognized in the statements of financial position represents the present value of the defined benefit obligation, income tax assets and liabilities should be offset if the Company has a legally enforceable right to set off current income tax assets against current income less fair value of plan assets and adjustment for unrecognized past service cost. An independent actuary using the projected unit credit method calculates tax liabilities, and the deferred income tax assets relate to the same taxable entity and the same taxation authority, or a different taxable entity which has defined benefit obligation. The present value of the defined benefit obligation is recorded in the same currency to be paid and measured by discounting an intention to settle the current assets or liabilities on a net basis, or deferred income tax assets and liabilities are intended to be recovered and settled estimated future cash outflows by the interest rate of high-quality corporate bonds with similar maturity as the expected postemployment benefit payment concurrently. date. Actuarial gain or loss from changes in actuarial assumptions or differences between actuarial assumptions and actual results is recognized in profit or loss. Past service costs are recognized in profit and loss of the period, but if the changes in pension plans require a vesting period, the past service costs are expensed over the vesting period using the straight-line method. 2.2.26 Provision
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of The Company shall recognize a gain or loss on the settlement of defined benefit plans when the settlement occurs. resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
2.2.23.2 Short-term employee benefits Short-term employee benefits shall be recognized as expenses, if expected to be settled wholly before twelve The amount recognized as provision is the current most reliable estimate on the present value of the expenditures expected to be required to settle the current months after the end of the annual reporting period in which the employees render the related services. The Company shall recognize the undiscounted obligation regarding the inevitable risks and uncertainties of the related events or circumstances at the end of reporting date. When provisions are determined in amount of short-term employee benefits expected to be paid in exchange for that service. order to fulfill its current obligations by using the expected cash flows, the carrying amount of provision is the present value of those cash flows.
106 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 107 In the event that a part or all of the amount disbursed is anticipated to be repaid by a third party in order to settle the provision, the amount disbursed is 2.4 Standards issued but not yet effective recognized as assets, within the limit of the provision for the repayable (the amount of reimbursement), provided that the Company fulfills its obligations and The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements are disclosed below. the third party will certainly repay the amount which can be estimated reliably.
2.4.1 KIFRS 1109 Financial Instruments 2.2.27 Equity KIFRS 1109 Financial Instruments enacted on September 25, 2015 is applied for annual periods beginning on or after January 1, 2018, in principle. However, 2.2.27.1 Classification of equity The Company, when issuing a financial instrument, classifies the instrument, or its component parts, on initial recognition the Company plans to be exempt from applying KIFRS 1109 until 2020 in accordance with KIFRS 1104 Insurance Contracts. IASB has amended and as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability and announced IFRS17 on May 18, 2017, and KASB is in the midst of procedures to amend KIFRS 1117 ‘Insurance Contract.’ As of December 31, 2017, the an equity instrument. If the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the Company is eligible for the temporary exemption from applying KIFRS 1109 since the ratio of liabilities related to insurance to total liabilities exceeds 90%, Company classifies the instrument as an equity instrument in accordance with the substance of the contractual arrangement. and thus KIFRS 1109 is expected to apply for annual periods beginning on or after January 1, 2021.
2.2.27.2 Legal reserve The Commercial Act requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of annual The new KIFRS 1109 is retrospectively applied, in principle, but there are some exceptions such as exemption of restatement of comparative information for cash dividends declared, until the reserve equals 50% of capital stock. Use of such legal reserve is restricted to set off losses and capitalizations in classification, measurement, impairment of financial instruments. For hedge accounting, the requirements are generally applied prospectively, with some accordance with the decision at general shareholders’ meeting. exceptions such as accounting for time value of options.
2.2.27.3 Bad debt reserve Where the accumulated amount of loan loss provision for loans, insurance accounts receivables, accounts receivables and Major characteristics of KIFRS 1109 are financial assets being classified and measured on the basis of the holder’s business model and instrument’s accrued income, etc. is less than amounts prescribed in Article 7-4 of Regulation on Supervision of Insurance Business, the Company shall accumulate contractual cash flow characteristics, impairment model of financial instruments based on expected credit losses (ECL), broader range of hedged items and such balance as bad debt reserve, and shall be limited to the amount calculated by deducting the reserve accumulated pursuant to the Insurance Business hedging instruments that qualify for the application of hedge accounting or changes in evaluation of hedging effectiveness, etc. Act and other laws from retained earnings. For smooth adoption of KIFRS 1109, financial impact analysis, accounting policies establishment, accounting system establishment and stabilization need to take place. The impact of the standards on the financial statements in the period they are initially adopted may differ depending on the Company’s 2.2.28 Revenue recognition decisions and judgments of accounting policies, as well as the financial instruments held by the Company, economic environment, etc. 2.2.28.1 Gross premiums Gross premiums on insurance contracts are recognized as revenue when due and received. Premiums that are paid before the payment due date are accounted for as unearned insurance premiums. The Company has conducted a preliminary assessment of the potential impact on the 2017 financial statements based on the current status and information available as of December 31, 2017, to assess the financial impact of the first adoption of KIFRS 1109. The financial impacts on the financial statements upon the 2.2.28.2 Interest income and expense For all interest bearing financial assets, interest income or expense is recorded using the effective interest rate, application of the standard are as follows. The Company will be analyzing more specific financial impact in the future when additional information is available, which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter and the results of the preliminary assessment for December 31, 2017, may be subject to change as additional information becomes available to the Company. period, where appropriate, to the net carrying amount of the financial asset or liability. 2.4.1.1 Financial asset classification and measurement The new KIFRS 1109 requires a financial instrument to be classified and measured 2.2.28.3 Dividend Revenue is recognized when the Company’s right to receive the payment is established. subsequently at amortized cost, fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVTPL), on the basis of the holder’s business model and instrument’s contractual cash flow characteristics, as shown below. The requirements should be applied to an entire financial asset, even if it contains an embedded derivative. That is, in contrast with the requirements of KIFRS 1039, a derivative embedded within a hybrid (combined) 2.2.29 Operating segment contract containing a financial asset host is not accounted for separately. Operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are reviewed regularly by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess Business model / Contractual cash flow characteristics Composed solely of principal and interest For other cases its performance, and for which discrete financial information is available. However, the company didn’t need to disclose its operating segment separately or Purpose of collecting contractual cash flows Measured at amortized cost individually since the disclosure requirements of KIFRS 1108 “Operating segment” are not applicable to the company. Purpose of collecting and selling contractual cash flows Measured at FVOCI Measured at FVTPL Purpose of selling, others Measured at FVTPL
2.3 New or amended standards The requirements in KIFRS 1109 to classify financial assets measured at amortized costs or at FVOCI are stricter than KIFRS 1039, and thus, the proportion The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of the Company’s annual of financial assets measured at FVTPL may increase which may lead to a rise in profit or loss volatility at the adoption of KIFRS 1109. financial statements for the year ended December 31, 2016, except for the adoption of new standards and interpretations as at January 1, 2017. In accordance with KIFRS 1109, a debt instrument that meets the following two conditions must be measured at amortized cost: 1) the contractual terms of The nature and the impact of each new standard and amendment are described below: the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, and 2) the objective of the entity’s business model is to hold the financial asset to collect the contractual cash flows. 2.3.1 Amendments to KIFRS 1007 Statement of Cash Flows: Disclosure Initiative Based on the results of preliminary impact assessment, most of the financial assets measured at amortized cost as of December 31, 2017, are classified to KIFRS 1007 Statement of Cash Flows requires an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities items measured at amortized costs since: 1) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments arising from financing activities, including both changes arising from cash flows and non-cash changes. of principal and interest on the principal amount outstanding, and 2) the objective of the entity’s business model is to hold the financial asset to collect the contractual cash flows. In conclusion, there will not be a material impact on the financial statements. 2.3.2 Amendments to KIFRS 1012 Recognition of Deferred Tax Assets for Unrealized Losses In accordance with KIFRS 1109, a debt instrument that meets the following two conditions must be measured at FVOCI: 1) the contractual terms of the The amendments clarify that the unrealized losses on debt instruments measured at fair value below its cost give rise to a deductible temporary difference. financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, and 2) the The amendments do not have any impact on the Company. financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
108 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 109 Based on the results of preliminary impact assessment, if KIFRS 1109 is applied to the debt instruments classified as available-for-sale financial assets as of The current standards, such as KIFRS 1018, present revenue recognition standards per transaction type of sale of goods, provision of services, interest December 31, 2017, the financial assets are expected to be classified as financial assets measured at FVOCI. However, there is a possibility of classifying them income, royalty income, dividend income, construction contract, etc. In KIFRS 1115, the revenue is recognized by applying a five-step model (1. Identify the as items measured at FVTPL as the contractual terms of the equity securities classified as available-for-sale financial assets give rise to cash flows that are not contract(s) with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the solely payments of principal and interest on the principal amount outstanding. As a result, we expect a slight increase in changes in current profit or loss. performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligation) for all types of contract.
In accordance with KIFRS 1109, if an equity instrument is not held for trading, an entity can make an irrevocable election at initial recognition to measure it at The Company concluded that the impact of this amendment on its financial statements is not significant. FVOCI, and subsequent recycling from comprehensive income to profit or loss is not permitted.
2.4.3 Amendments to KIFRS 1102 Classification and Measurement of Share-based Payment Transactions Based on the result of a preliminary impact assessment, the Company has the possibility of classifying equity instruments classified as available-for-sale financial assets as of December 31, 2017, to items measured at FVTPL. The related accumulated other comprehensive income can be classified as retained The KASB issued amendments to KIFRS 1102 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement earnings. of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash In accordance with KIFRS 1109, a debt instrument of which: 1) the contractual terms of the financial asset give rise to cash flows that are not solely settled to equity settled. payments of principal and interest on the principal amount outstanding, and 2) the financial asset is held within a business model whose objective is achieved by selling financial assets, and equity instruments that are not measured at FVOCI, are measured at FVTPL. The Company does not have debt or The amendments are prospectively applied, but retrospective application is permitted if elected for all three amendments and other criteria are met. The equity instruments classified as financial assets at FVTPL as of December 31, 2017. amendments are effective for annual periods beginning on or after January 1, 2018, with early application permitted. The Company concluded that the impact of the amendments on its financial statements is not significant. 2.4.1.2 Financial liabilities classification and measurement In KIFRS 1109, fair value changes of financial liabilities at FVTPL attributable to changes in credit risk of the liability shall be presented in other comprehensive income, not in profit or loss. Amounts presented in other comprehensive income shall 2.4.2 KIFRS 1116 Leases not be subsequently recycled to profit or loss. However, the new standard allows the recognition of the full amount of change in the fair value in profit or loss only if the presentation of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or KIFRS 1116 was issued in January 2016 and it replaces KIFRS 1017 Leases, KIFRS 2104 Determining whether an Arrangement contains a Lease, KIFRS loss. The Company does not have financial liabilities measured at FVTPL as of December 31, 2017. 2015 Operating Leases-Incentives and KIFRS 2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. KIFRS 1116 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance 2.4.1.3 Impairment: financial assets and contract assets In KIFRS 1039, impairment is recognized only when there is objective evidence of impairment sheet model similar to the accounting for finance leases under KIFRS 1017. The standard includes two recognition exemptions for lessees – leases of ’low- based on incurred loss model. In the new KIFRS 1109, impairment of debt instruments, lease bonds, contract assets, loan commitments and financial value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, guarantee contracts that are measured at amortized costs or at FVOCI is recognized based on the expected credit loss (ECL) impairment model. a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation KIFRS 1109 outlines a ‘three-stage’ model for impairment based on changes in credit risk since initial recognition. Loss allowance is measured based on the expense on the right-of-use asset. 12-month ECL or life-time ECL which allows early recognition of credit loss compared to the incurred loss model of KIFRS 1039. KIFRS 1116 is effective for annual periods beginning on or after January 1, 2019. The Company is assessing the potential effect of the amendments on its Classification Loss allowance financial statements. The Company will apply these amendments on the required effective date. 12-month ECL: Expected credit losses that result from default Stage 1 Assets with no significant increase in credit risk since initial recognition events that are possible within 12 months after the reporting date. 2.4.5 KIFRS 2122 Foreign Currency Transactions and Advance Consideration Stage 2 Assets with significant increase in credit risk since initial recognition Lifetime ECL: Expected credit losses that result from all possible default events over the expected life of the financial instrument. Stage 3 Credit-impaired assets The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an In KIFRS 1109, accumulated changes in the life-time ECL after initial recognition are taken into account as loss allowance in case credit is impaired at initial entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts recognition of financial assets. in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis. Alternatively, an entity may apply the Interpretation prospectively to all assets, expenses and income in its scope, that are 2.4.1.4 Hedge accounting The new KIFRS 1109 maintains mechanics of hedge accounting (fair value hedge, cash flow hedge, overseas operations net initially recognised on or after: investment hedge) as set forth in KIFRS 1039. However, unlike requirements in KIFRS 1039 that are too complex and strict, KIFRS 1109 is more practical, (i) The beginning of the reporting period in which the entity first applies the interpretation, or principles based and less strict, and focuses on the entity’s risk management activities. Also, KIFRS 1109 allows a broader range of hedged items and (ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first hedging instruments. Under KIFRS 1039, a hedge is assessed to be highly effective only if the offset is in the range of 80-125 percentage by performing applies the interpretation. numerical test of effectiveness. In KIFRS 1109, such requirements are alleviated.
The Interpretation is effective for annual periods beginning on or after January 1, 2018. Early application of interpretation is permitted and must be disclosed. Transactions not qualifying for hedge accounting requirements of KIFRS 1039 may now qualify for hedge accounting under KIFRS 1109, resulting in less However, since the Company’s current practice is in line with the Interpretation, the Company does not expect any effect on its financial statements. volatility in profit or loss.
2.4.2 KIFRS 1115 Revenue from Contracts with Customers
KIFRS 1115 Revenue from Contracts with Customers enacted on November 6, 2015 is applied for annual periods beginning on or after January 1, 2018, with early adoption permitted. The new standard KIFRS 1115 will replace KIFRS 1018 Revenue, KIFRS 1011 Construction Contracts, KIFRS Interpretation 2031 Revenue: Exchange Transaction of Advertising Services, KIFRS 2113 Customer Loyalty Programmes, KIFRS 2115 Agreements for the Construction of Real Estate, KIFRS 2118 Transfer of Assets from Customers. The Company plans to adopt KIFRS 1115 for annual periods beginning on or after January 1, 2018, but the Company will retrospectively apply it to prior reporting periods presented for comparative purpose based on KIFRS 1008 Accounting policies, changes in accounting estimates and errors. The Company plans to use a simplified application, not to restate the financial statements for the contracts completed as of January 1, 2017, etc.
110 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 111 3. Significant accounting judgments, estimates and assumptions 3.5 Defined benefit plans The cost of defined benefit plans and other post-employment medical benefits, and the present value of the pension obligation, are determined using In the process of applying the Company’s accounting policies, management is required to exercise judgments, estimates and assumptions on the amount actuarial valuations. An actuarial valuation involves making various assumptions. These include the determination of the discount rate, future salary of assets and liabilities which cannot be easily identified from other data. Estimates and assumptions are based on the historical experience and relevant increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions, and its long term nature, a other factors. Actual results may differ from these estimates. defined benefit obligation is highly sensitive to changes in these assumptions.
Estimates and underlying assumptions are reviewed on a continuous basis. Modification on accounting estimates are recognized at the period where the modification is made, if such modification affects only that period. However, if such modification affects both current and future periods, the modifications 3.6 Impairment on non-financial assets are recognized at the period where the modification is made and at future periods. The Company tests annually whether all non-financial assets suffered any impairment. Intangible assets that have an indefinite useful life are tested for The following are the most significant uses of judgment and estimates exercised by management in the process of applying the Company’s accounting impairment at each reporting date or when there is any indication that the assets may be impaired. Other non-financial assets are reviewed for impairment policies, and these judgments and estimates affect the amount recognized in the financial statements. whenever events of changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of calculating ‘in use’ value, the Company’s management estimates expected future cash flow results from assets or cash generating unit, and select the appropriate discount rate to calculate the present value of expected future cash flow. 3.1 Fair value measurement of financial instruments
The best evidence of fair value is quoted prices in an active market in determining fair value of financial assets. If the market for a financial instrument is 3.7 Income taxes not active, the Company establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash There are different kinds of transactions and calculation methods which make final tax determination uncertain. Based on an estimate of the additional taxes flow analysis, and option pricing models. to be imposed, if there is a difference between final tax amount and initially recognized tax amount, the difference will affect current income tax and deferred income tax assets and liabilities at the period when such determinations is made. The fair value measurement is described in one of the following three levels used to classify fair value measurements:
Level 1— fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2— fair value measurements are those derived from inputs, other than quoted prices included within Level 1, that are observable for the asset or 4. Cash and deposits liability, either directly (i.e. prices) or indirectly (i.e. derived from prices). Level 3— fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable Cash and deposits as of December 31, 2017 and 2016 are as follows (Korean won in millions): market data (unobservable inputs). December 31, 2017 December 31, 2016 Cash and cash equivalents: 3.2 Impairment of available-for-sale equity investments Current deposits ￦ 2,010 ￦ 848 Ordinary deposits 87,094 89,846 The Company follows the guidance of KIFRS 1039 to determine when an available-for-sale equity investment is impaired. This determination requires MMDA 86,491 90,124 significant judgment. In making this judgment, the Company evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost, and the financial viability and short-term business outlook for the investee, including factors such as industry and sector performance, 175,595 180,818 changes in technology, and operational and financing cash flow. Deposits: Installment deposits 347,500 347,500 If the declines in fair value below cost were considered significant (over 50%) or prolonged (over twelve months), the Company would suffer an additional Time deposits 37,000 37,000 loss by reclassifying the accumulated loss on fair value adjustments, recognized in equity on available-for-sale financial assets, to profit or loss. Fund deposits (*) 44 71 Deposits for checking accounts (*) 8 8 3.3 Impairment on loans and receivables 384,552 384,579 ￦ 560,147 ￦ 565,397 Individual and collective allowances for bad debts are calculated to assess impairment on loans and receivables. When individual allowance for bad debts is calculated, expected recoverable amount is calculated by estimated future cash flows considering borrowers’ sales or collateral. In addition, when the (*) Fund deposits and deposits for checking accounts are restricted in use. collective allowance for bad debts is calculated, default rates, duration of loss, and loss rates at bankruptcy, are estimated based on historical impairment.
3.4 Liability adequacy test 5. Financial assets at fair value through profit or loss (FVTPL) The Company recognizes the shortfall as its loss by assessing the adequacy of insurance liability. In order to estimate the cash flow anticipated to occur from Financial assets at FVTPL as of December 31, 2017 and 2016 are as follows (Korean won in millions): the current insurance contract, reasonable anticipation of cash inflows, including premium income and that of cash outflows including insurance, refund,
reserve, expenses, etc., is required. For this purpose, return on investment, ratio of risk, ratio of cancellation and expense rate all use the presumptions December 31, 2017 considering the experience of the past and the trend of the future. The long-term insurance uses the discount rate reflecting the past experience and the Book value before valuation Fair value Book value current market information in order to calculate the future cash flow into the current value. Also, adequacy of individually estimated claims is assessed for Financial assets held-for-trading ￦ 10,000 ￦ 10,095 ￦ 10,095 reserves by selecting the most adequate model according to the trend of claims paid among various statistical methods. The Company applies the selected presumption consistently by subdividing by the same or similar products. Derivative assets for trading 607 231 231 ￦ 10,607 ￦ 10,326 ￦ 10,326
December 31, 2016
Book value before valuation Fair value Book value Derivative assets for trading ￦ 755 ￦ 543 ￦ 543
112 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 113 6. Available-for-sale financial assets Changes in valuation gains and losses on available-for-sale financial assets for the years ended December 31, 2017 and 2016 are summarized as follows (Korean won in millions): Available-for-sale financial assets as of December 31, 2017 and 2016 are as follows (Korean won in millions): For the year ended December 31, 2017
December 31, 2017 Beginning balance Valuation Realization Ending balance
Acquisition cost Fair value Book value Equity securities ￦ 22,996 ￦ 16,290 ￦ (6,284) ￦ 33,002 Equity securities: Debt securities 2,449,821 (790,613) (31,207) 1,628,001 Stocks ￦ 30,000 ￦ 31,679 ￦ 31,679 Securities in foreign currency 4,816 5,418 (1,367) 8,867 Equity investment (*1) 79,659 85,322 85,322 Other securities 1,110 808 (522) 1,396 Beneficiary certificates 361,751 369,865 369,865 2,478,743 (768,097) (39,380) 1,671,266 Equity securities in foreign currency (*2) 147,606 128,715 128,715 Transfer to policyholders’ equity adjustment (213,440) (134,759) Other securities 7,000 6,905 6,905 Net valuation gain before income tax 2,265,303 1,536,507 626,016 622,486 622,486 Income tax effect (548,203) (394,448) Debt securities: Net valuation gain after income tax ￦ 1,717,100 ￦ 1,142,059
Government or public bonds 12,092,129 13,941,128 13,941,128 For the year ended December 31, 2016
Special bonds 3,820,598 4,078,121 4,078,121 Beginning balance Valuation Realization Ending balance Financial bonds 1,086,056 1,088,083 1,088,083 Equity securities ￦ 7,787 ￦ 19,880 ￦ (4,671) ￦ 22,996 Corporate bonds 1,919,678 1,966,392 1,966,392 Debt securities 2,742,722 (284,017) (8,884) 2,449,821 Bonds in foreign currency 160,232 154,705 154,705 Securities in foreign currency 2,287 3,403 (874) 4,816 Credit linked note in foreign currency 3,373 3,177 3,177 Other securities 446 658 6 1,110 19,082,066 21,231,606 21,231,606 2,753,242 (260,076) (14,423) 2,478,743 ￦ ￦ ￦ 19,708,082 21,854,092 21,854,092 Transfer to policyholders’ equity adjustment (248,019) (213,440) December 31, 2016 Net valuation gain before income tax 2,505,223 2,265,303 Acquisition cost Fair value Book value Income tax effect (606,264) (548,203) Equity securities: Net valuation gain after income tax ￦ 1,898,959 ￦ 1,717,100 Stocks ￦ 30,000 ￦ 34,599 ￦ 34,599 Equity investment (*1) 84,960 63,498 63,498 Loaned securities of available-for-sale financial assets as of December 31, 2017 and 2016 are as follows (Korean won in millions): Beneficiary certificates 207,775 214,238 214,238 Par value Equity securities in foreign currency (*2) 148,068 138,448 138,448 December 31, 2017 December 31, 2016 Other securities 17,000 16,167 16,167 Government or public bonds ￦ 380,000 ￦ 999,500 487,803 466,950 466,950 Debt securities: Available-for-sale financial assets provided as collateral as of December 31, 2017 and 2016 are as follows (Korean won in millions): Government or public bonds 11,031,855 13,364,294 13,364,294
Special bonds 3,837,558 4,261,070 4,261,070 Par value Classification Purpose Institutions that collaterals are provided to Financial bonds 1,086,186 1,115,065 1,115,065 December 31, 2017 December 31, 2016 Corporate bonds 1,952,476 2,041,980 2,041,980 Government or public bonds Derivatives transaction ￦ - ￦ 2,788 Morgan Stanley, Standard Chartered Bank Korea Ltd., etc. Bonds in foreign currency 74,566 79,879 79,879 17,982,641 20,862,288 20,862,288 ￦ 18,470,444 ￦ 21,329,238 ￦ 21,329,238 (*1) Impairment loss of ￦63 million (December 31, 2016: ￦8,102 million) was recognized in equity investment for Macquarie Korea Opportunities Fund for the year ended December 7. Loans and receivables 31, 2017. Also, impairment loss of ￦2,980 million was recognized in equity investment for H&Q2 Fund for the year ended December 31, 2016. (*2) Impairment loss of ￦2,964 million (December 31, 2016: ￦3,608 million) was recognized in equity securities in foreign currency for Lexington Capital Partners VI for the year ended December 31, 2017. Details of loans as of December 31, 2017 and 2016 are summarized as follows (Korean won in millions):
December 31, 2017 December 31, 2016 Policy loans ￦ 2,085,072 ￦ 1,928,418 Mortgage loans 1,647 2,498 Other loans 47,900 159,000 2,134,619 2,089,916 Allowance for bad debts (748) (488) Deferred loan fee 5 9 ￦ 2,133,876 ￦ 2,089,437
114 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 115 Details of receivables as of December 31, 2017 and 2016 are summarized as follows (Korean won in millions): 8. Property and equipment
December 31, 2017 December 31, 2016 Property and equipment as of December 31, 2017 and 2016 are as follows (Korean won in millions): Insurance receivables ￦ 100,816 ￦ 96,585 Other accounts receivables 17,778 13,773 December 31, 2017 Acquisition cost Accumulated depreciation Book value Guarantee deposits 38,711 31,277 ￦ ￦ ￦ Accrued income 531,719 544,082 Furniture and equipment 37,740 (32,106) 5,634 689,024 685,717 Leasehold improvements 33,595 (26,722) 6,873 Present value discounts (1,968) (2,298) Others 137 - 137 Allowance for bad debts (8,588) (7,774) Government grants (*) (143) 75 (68) ￦ ￦ ￦ ￦ 678,468 ￦ 675,645 71,329 (58,753) 12,576 December 31, 2016
Allowance for bad debts for the loans and receivables as of December 31, 2017 and 2016 are as follows (Korean won in millions): Acquisition cost Accumulated depreciation Book value Furniture and equipment ￦ 35,774 ￦ (31,323) ￦ 4,451 December 31, 2017 December 31, 2016 Leasehold improvements 32,885 (24,732) 8,153 Loans: Others 137 - 137 Policy loans ￦ 747 ￦ 475 Government grants (*) (143) 19 (124) Mortgage loans 1 13 ￦ 68,653 ￦ (56,036) ￦ 12,617 748 488 (*) The government grants received for the purpose of life insurance big data strategy model development are presented as a deduction from acquisition cost and accumulated Receivables: depreciation. Insurance receivables 2 3 Other accounts receivables 8,584 7,767 Changes in book value of property and equipment for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Guarantee deposits 2 4 For the year ended December 31, 2017 8,588 7,774 Beginning balance Acquisition Disposal Depreciation Ending balance ￦ 9,336 ￦ 8,262 Furniture and equipment ￦ 4,451 ￦ 3,641 ￦ (3) ￦ (2,455) ￦ 5,634 Leasehold improvements 8,153 2,277 (205) (3,352) 6,873 Changes in allowance for bad debts for the loans and receivables for the years ended December 31, 2017 and 2016 are as follows (Korean won in Others 137 - - - 137 millions): Government grants (*) (124) - - 56 (68) For the year ended December 31, 2017 For the year ended December 31, 2016 ￦ 12,617 ￦ 5,918 ￦ (208) ￦ (5,751) ￦ 12,576 Beginning balance ￦ 8,262 ￦ 8,684 Increase: For the year ended December 31, 2016 Bad debt expenses 1,467 253 Beginning balance Acquisition Disposal Depreciation Ending balance ￦ ￦ ￦ ￦ ￦ Reversal after write-off 58 - Furniture and equipment 5,164 1,977 (19) (2,671) 4,451 Decrease: Leasehold improvements 8,932 2,759 (203) (3,335) 8,153 Write-off (449) (651) Others 56 81 - - 137 Reversal (2) (24) Government grants (*) - (143) - 19 (124) ￦ ￦ ￦ ￦ ￦ Ending balance ￦ 9,336 ￦ 8,262 14,152 4,674 (222) (5,987) 12,617 Individual allowances 9,331 8,243 (*) The government grants received for the purpose of life insurance big data strategy model development is presented as a deduction from acquisition cost and accumulated depreciation. Collective allowances 5 19
Insurance contracts as of December 31, 2017 and 2016 are as follows (Korean won in millions): Details of insurance receivables as of December 31, 2017 and 2016 are summarized as follows (Korean won in millions): December 31, 2017 December 31, 2017 December 31, 2016 Insured assets Insurance company Insured amount Accrued premiums ￦ 49,212 ￦ 49,464 All risks insurance, etc. Office equipment, etc. Lotte Insurance ￦ 63,805 Reinsurance claims 20,034 18,039 Burglary insurance HO & BO’s cash, securities Lotte Insurance 3,540 Reinsurance commission 31,570 29,082 December 31, 2016 ￦ 100,816 ￦ 96,585 Insured assets Insurance company Insured amount All risks insurance, etc. Office equipment, etc. Lotte Insurance ￦ 67,732 Burglary insurance HO & BO’s cash, securities Lotte Insurance 3,450
No property and equipment was provided as collateral as of December 31, 2017.
116 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 117 9. Intangible assets 10. Deferred acquisition costs
Intangible assets as of December 31, 2017 and 2016 are as follows (Korean won in millions): Changes in deferred acquisition costs for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):
December 31, 2017 For the year ended December 31, 2017
Accumulated Accumulated Acquisition cost Book value Beginning balance Increase Amortization Ending balance amortization impairment losses Survival ￦ 72,795 ￦ 21,169 ￦ (35,163) ￦ 58,801 Development costs ￦ 77,089 ￦ (56,362) ￦ - ￦ 20,727 Death 393,690 209,175 (180,676) 422,188 Software 31,345 (21,129) - 10,216 Endowment 53,394 13,177 (24,041) 42,531 Others 13 (13) - - ￦ 519,879 ￦ 243,521 ￦ (239,880) ￦ 523,520 Membership (*1) 2,835 - (510) 2,325 Government grants (*2) (615) 133 - (482) For the year ended December 31, 2016 ￦ 110,667 ￦ (77,371) ￦ (510) ￦ 32,786 Beginning balance Increase Amortization Ending balance Survival ￦ 102,760 ￦ 19,433 ￦ (49,398) ￦ 72,795 December 31, 2016 Death 362,030 207,801 (176,141) 393,690 Accumulated Accumulated Acquisition cost Book value amortization impairment losses Endowment 53,581 28,307 (28,494) 53,394 Development costs ￦ 66,665 ￦ (45,403) ￦ - ￦ 21,262 ￦ 518,371 ￦ 255,541 ￦ (254,033) ￦ 519,879 Software 26,197 (16,562) - 9,635 Others 13 (13) - - Membership (*1) 3,494 - (1,294) 2,200 Government grants (*2) (615) 10 - (605) 11. Reinsurance assets ￦ 95,754 ￦ (61,968) ￦ (1,294) ￦ 32,492 Reinsurance assets as of December 31, 2017 and 2016 are as follows (Korean won in millions): (*1) Useful life of the membership is classified as indefinite as of the reporting date. (*2) The government grants received for the purpose of life insurance big data strategy model development are presented as a deduction from acquisition cost and accumulated December 31, 2017 amortization. Survival Death Endowment Total Reserve for outstanding claims ￦ 10 ￦ 2,185 ￦ 7 ￦ 2,202 Changes in net book value of intangible assets for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Unearned premiums 119 5,193 34 5,346
For the year ended December 31, 2017 Incurred but not reported 626 26,837 181 27,644
Beginning balance Acquisition Disposal Amortization Impairment loss Ending balance ￦ 755 ￦ 34,215 ￦ 222 ￦ 35,192
Development costs ￦ 21,262 ￦ 10,425 ￦ - ￦ (10,960) ￦ - ￦ 20,727 December 31, 2016
Software 9,635 5,148 - (4,567) - 10,216 Survival Death Endowment Total Membership 2,200 636 (533) - 22 2,325 Reserve for outstanding claims ￦ 50 ￦ 1,940 ￦ - ￦ 1,990 Government grants (*) (605) - - 123 - (482) Unearned premiums 121 4,925 36 5,082 ￦ 32,492 ￦ 16,209 ￦ (533) ￦ (15,404) ￦ 22 ￦ 32,786 Incurred but not reported 587 23,398 171 24,156
For the year ended December 31, 2016 ￦ 758 ￦ 30,263 ￦ 207 ￦ 31,228 Beginning balance Acquisition Disposal Amortization Impairment loss Ending balance Development costs ￦ 27,112 ￦ 4,620 ￦ - ￦ (10,470) ￦ - ￦ 21,262 There was no impairment loss in reinsurance assets for the years ended December 31, 2017 and 2016. Software 12,209 1,607 - (4,181) - 9,635 Membership 2,258 - - - (58) 2,200 Changes in reinsurance assets for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Government grants (*) - (615) - 10 - (605) For the year ended December 31, 2017 ￦ 41,579 ￦ 5,612 ￦ - ￦ (14,641) ￦ (58) ￦ 32,492 Survival Death Endowment Total (*) The government grants received for the purpose of life insurance big data strategy model development are presented as a deduction from acquisition cost and accumulated Beginning balance ￦ 758 ￦ 30,263 ￦ 207 ￦ 31,228 amortization. Reserve for outstanding claims (40) 245 7 212 Unearned premiums (2) 268 (1) 265 Incurred but not reported 39 3,439 9 3,487 Ending balance ￦ 755 ￦ 34,215 ￦ 222 ￦ 35,192
For the year ended December 31, 2016
Survival Death Endowment Total Beginning balance ￦ 846 ￦ 28,572 ￦ 207 ￦ 29,625 Reserve for outstanding claims 33 (845) (3) (815) Unearned premiums (30) 191 (4) 157 Incurred but not reported (91) 2,345 7 2,261 Ending balance ￦ 758 ￦ 30,263 ￦ 207 ￦ 31,228
118 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 119 12. Other assets For the year ended December 31, 2017 For the year ended December 31, 2016 ￦ 1,908,570 ￦ 1,641,744 Other assets except for reinsurance assets as of December 31, 2017 and 2016 are as follows (Korean won in millions): Expense: December 31, 2017 December 31, 2016 Provision (reversal) of reserve for policyholders ￦ 225,575 ￦ (157,947) Prepaid expenses ￦ 3,238 ￦ 3,447 Claims and benefits 1,100,405 1,081,764 Prepayments 195 276 Loss on valuation of securities 58,183 129,779 Others 14 14 Loss on disposal of securities 44,107 91,390 ￦ 3,447 ￦ 3,737 Loss on derivative transaction 288,627 363,783 Separate accounts management fee 121,605 88,569 Others 70,068 44,406 ￦ 1,908,570 ￦ 1,641,744
13. Separate accounts (*) In accordance with Article 6-23 of the Regulation on Supervision of Insurance Business, revenues and expenses from performance-linked type separate accounts are not presented in the statements of comprehensive income for the general accounts. The statements of financial position of separate accounts as of December 31, 2017 and 2016 are as follows (Korean won in millions):
December 31, 2017 December 31, 2016 Assets: 14. Insurance contracts liabilities Cash and deposits ￦ 396,134 ￦ 387,517 Financial assets at FVTPL 5,058,680 4,821,470 The Company provides insurance contract liabilities in conformity with the Regulation on Supervision of Insurance Business and related statutes, and details Loans 55,910 64,664 of the insurance contract liabilities per insurance type as of December 31, 2017 and 2016 are as follows (Korean won in millions). Other assets 67,671 79,236 General accounts receivables 88,736 70,817 Details of insurance contract liabilities as of December 31, 2017 and 2016 are as follows (Korean won in millions):
5,667,131 5,423,704 December 31, 2017 December 31, 2016 (Separate accounts payables) (88,736) (70,817) Premium reserve ￦ 20,521,739 ￦ 19,232,162 Separate accounts assets ￦ 5,578,395 ￦ 5,352,887 Unearned premium reserve 698 751 Liabilities, reserve and other comprehensive income: Reserve for outstanding claims 288,370 251,540 Reserve for policyholders ￦ 5,615,703 ￦ 5,390,128 Guaranteed reserve 183,452 204,358 Insurance contract liabilities 5,615,703 5,390,128 Reserve for participating policyholders’ dividend 164,618 169,307 Other liabilities (*) 32,770 21,369 Reserve for policyholders’ income dividends 1,642 6,927 General accounts payables 18,658 12,207 Reserve for loss on participating insurance 5,891 12,747 Total liabilities and reserve 5,667,131 5,423,704 ￦ 21,166,410 ￦ 19,877,792 (Separate accounts receivables) (18,658) (12,207) Separate accounts liabilities ￦ 5,648,473 ￦ 5,411,497 Changes in premium reserve for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): (*) The initial investments in separate accounts in the general accounts amounting to ￦6,905 million and ￦16,167 million as of December 31, 2017 and 2016, respectively, are classified as other securities within available-for-sale financial assets in the statement for the general accounts. In accordance with Article 5-7 of the Regulation on Supervision of For the year ended December 31, 2017 Insurance Business, the Company is required to repay the initial investment at the standard price within three months from the date when total assets of the separate accounts Beginning balance Changes Ending balance exceed twice as much as the investments on the quarterly basis. Survival ￦ 8,375,344 ￦ 105,660 ￦ 8,481,004 Death 9,246,726 836,076 10,082,802 The statements of comprehensive income for separate accounts for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Endowment 1,610,092 347,841 1,957,933 For the year ended December 31, 2017 For the year ended December 31, 2016 ￦ 19,232,162 ￦ 1,289,577 ￦ 20,521,739 Revenue: For the year ended December 31, 2016 Premium income ￦ 955,729 ￦ 915,251 Beginning balance Changes Ending balance Interest income 56,126 57,665 Survival ￦ 8,181,217 ￦ 194,127 ￦ 8,375,344 Dividend income 38,065 35,968 Death 8,435,267 811,459 9,246,726 Gain on valuation of securities 395,424 223,546 Endowment 1,227,344 382,748 1,610,092 Gain on disposal of securities 150,950 80,225 ￦ 17,843,828 ￦ 1,388,334 ￦ 19,232,162 Gain on derivative transaction 300,761 312,556 Others 11,515 16,533
120 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 121 Changes in unearned premium reserve for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): 15. Policyholders’ equity adjustment
For the year ended December 31, 2017 Policyholder’ equity adjustment as of December 31, 2017 and 2016 are as follows (Korean won in millions): Beginning balance Changes Ending balance Death ￦ 751 ￦ (53) ￦ 698 December 31, 2017 December 31, 2016 Gain on valuation of available-for-sale financial assets ￦ 134,759 ￦ 213,440 For the year ended December 31, 2016
Beginning balance Changes Ending balance Death ￦ 982 ￦ (231) ￦ 751 16. Derivatives Changes in reserve for outstanding claims for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Derivative financial assets and liabilities as of December 31, 2017 and 2016 are as follows (Korean won in millions): For the year ended December 31, 2017 December 31, 2017 Beginning balance Changes Ending balance Trading Fair value hedge Cash flow hedge Total Survival ￦ 75,440 ￦ 13,334 ￦ 88,774 Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Death 171,167 22,929 194,096 Currency forward ￦ - ￦ - ￦ 6,618 ￦ - ￦ - ￦ - ￦ 6,618 ￦ - Endowment 4,933 567 5,500 Currency swap - - - - 2,092 225 2,092 225 ￦ 251,540 ￦ 36,830 ￦ 288,370 Equity index option 174 - - - - - 174 - For the year ended December 31, 2016 Embedded derivative 57 - - - - - 57 - Beginning balance Changes Ending balance ￦ 231 ￦ - ￦ 6,618 ￦ - ￦ 2,092 ￦ 225 ￦ 8,941 ￦ 225 Survival ￦ 70,333 ￦ 5,107 ￦ 75,440 December 31, 2016 Death 174,022 (2,855) 171,167 Trading Fair value hedge Cash flow hedge Total Endowment 5,521 (588) 4,933 Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities ￦ 249,876 ￦ 1,664 ￦ 251,540 Currency forward ￦ - ￦ - ￦ - ￦ 3,322 ￦ - ￦ - ￦ - ￦ 3,322 Currency swap - - - - - 3,679 - 3,679 Changes in guaranteed reserve for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Equity index option 543 - - - - - 543 -
For the year ended December 31, 2017 Embedded derivative - - - - 22,882 - 22,882 -
Beginning balance Changes Ending balance ￦ 543 ￦ - ￦ - ￦ 3,322 ￦ 22,882 ￦ 3,679 ￦ 23,425 ￦ 7,001 Guaranteed minimum annuity benefit reserve ￦ 22,853 ￦ (1,141) ￦ 21,712
Guaranteed minimum death benefit reserve 181,505 (19,765) 161,740 The Company is managing derivative financial assets and liabilities mainly to hedge financial risks. The Company uses above derivatives for the purpose of ￦ 204,358 ￦ (20,906) ￦ 183,452 hedging the changes in exchange rate and interest rate.
For the year ended December 31, 2016 The Company has entered into currency forward contract of USD 95 million as of December 31, 2017 and applies fair value hedge accounting for the Beginning balance Changes Ending balance derivatives to hedge risk from fluctuation of fair value due to the changes in exchange rate of beneficiary certificates in foreign currencies of the Company’s Guaranteed minimum annuity benefit reserve ￦ 24,661 ￦ (1,808) ￦ 22,853 available-for-sale financial assets. As a result, the valuation gain or loss from the derivative instrument as the hedging instrument is all reflected in current Guaranteed minimum death benefit reserve 136,490 45,015 181,505 profit or loss, and the portion of currency exchange gain or loss from the fluctuation in exchange rates in the valuation gain loss of the benefit certificates in ￦ 161,151 ￦ 43,207 ￦ 204,358 foreign currencies as hedged item is reflected in current profit or loss. Also, the Company has entered into currency swap contract of USD 95.1 million and GBP 22 million as of December 31, 2017, and applies cash flow hedge accounting for the derivatives contact to hedge risk in fluctuation of cash flow due to the changes in exchange rates of bonds in foreign currencies of the Company’s available-for-sale financial assets. As a result, the Company recognizes Changes in reserve for participating policyholders’ dividend, reserve for policyholder’s income dividends, and reserve for loss on participating insurance for the ineffective portion of the valuation gain or loss from the derivative instrument as hedging instrument in current profit or loss and accounts the rest of the the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): portion in accumulated other comprehensive income.
For the year ended December 31, 2017
Beginning balance Changes Ending balance Reserve for participating policyholders’ dividend ￦ 169,307 ￦ (4,689) ￦ 164,618 Reserve for policyholders’ income dividends 6,927 (5,286) 1,641 Reserve for loss on participating insurance 12,747 (6,857) 5,891
For the year ended December 31, 2016
Beginning balance Changes Ending balance Reserve for participating policyholders’ dividend ￦ 169,429 ￦ (122) ￦ 169,307 Reserve for policyholders’ income dividends 13,864 (6,937) 6,927 Reserve for loss on participating insurance 18,558 (5,811) 12,747
122 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 123 The interest rate swap contract of ￦150,000 million, for the purpose of hedging risk of fluctuation in cash flows due to the changes in interest rate of debt 17. Income tax expenses and deferred income tax liabilities securities, has been terminated as of December 31, 2017. Until the end of the contract, the ineffective portion of the valuation gain or loss is recognized in current profit or loss and the rest is accounted for as accumulated other comprehensive income. In addition, the difference between the carrying amount Components of income tax expenses for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): and the settlement amount at the end of the contract is effectively hedged, and accounted for as accumulated other comprehensive income. For the year ended December 31, 2017 For the year ended December 31, 2016
Regarding derivatives contracts under cash flow hedge accounting, the estimated maximum period of time that the derivatives are exposed to the risk of Current income tax ￦ 83,715 ￦ 68,341 future fluctuation in cash flow is until March 16, 2027. There is no valuation loss on derivatives recognized in accumulated other comprehensive income as Changes in temporary differences (128,668) (49,091) of December 31, 2017, which is expected to be recognized as loss of current year within one year. (44,953) 19,250 Deferred income taxes reflected directly in Equity 159,293 69,370 The contractual amounts for the unsettled derivatives as of December 31, 2017 and 2016, and gains or losses on valuation on those derivatives for the years Income tax expense reflected directly in Equity (2,378) (14,290) ended December 31, 2017 and 2016, are as follows (Korean won in millions, USD, GBP in thousands): 156,915 55,080 For the year ended December 31, 2017 Income tax expense reported in the statement of ￦ 111,962 ￦ 74,330 comprehensive income Trading Hedging Outstanding Gains on Losses on Outstanding Gains on Losses on Gains on amounts valuation valuation amounts valuation valuation valuation (equity) Income taxes reflected directly in equity as of December 31, 2017 and 2016 are as follows (Korean won in millions): Currency forward ￦ - ￦ - ￦ - $ 95,000 ￦ 6,618 ￦ - ￦ -
Currency swap - - - $ 95,100 - - - December 31, 2017 December 31, 2016 £ 22,000 9,293 150 (3,371) Gain on valuation of available-for-sale financial assets ￦ (394,448) ￦ (548,203) Equity index option 248,309 - 433 - - - - Gain on valuation of derivative designated as hedge - (5,538) Embedded derivative $ 3,000 57 - - - - - (394,448) (553,741) ￦ 57 ￦ 433 ￦ 15,911 ￦ 150 ￦ (3,371) Other comprehensive income (23,624) (21,246)
For the year ended December 31, 2016 (23,624) (21,246)
Trading Hedging Total income tax effect reflected directly in equity ￦ (418,072) ￦ (574,987) Outstanding Gains on Losses on Outstanding Gains on Losses on Gains on amounts valuation valuation amounts valuation valuation valuation (equity) Currency forward ￦ - ￦ - ￦ - $ 85,000 ￦ - ￦ 3,322 ￦ - Details of changes in accumulated temporary differences and components of deferred income tax liabilities for the years ended December 31, 2017 and Currency swap - - - $ 41,000 - 4,487 857 2016 are as follows (Korean won in millions): Equity index option 258,822 30 243 - - - - For the year ended December 31, 2017 Interest rate swap - - - ￦ 150,000 - - 974 Beginning balance Net increase (decrease) Ending balance ￦ 258,822 ￦ 30 ￦ 243 ￦ - ￦ 7,809 ￦ 1,831 Accumulated temporary differences: Available-for-sale financial assets ￦ (408,822) ￦ (83,074) ￦ (491,896) Accrued income (327,314) 36,323 (290,991) Changes in valuation gains on derivatives designated as cash flow hedge, which are recognized in equity, for the years ended December 31, 2017 and 2016 Reserve for loss on participating insurance 12,748 (6,857) 5,891 are as follows (Korean won in millions): Accounts payable 4,437 (282) 4,155 For the year ended December 31, 2017 Accrued expenses 59,449 (11,193) 48,257 Beginning balance Changes Ending balance Withholding (dormant claims) 18,381 (7,258) 11,124 Interest rate forward ￦ 96,463 ￦ (6,308) ￦ 90,155 Defined benefit obligation 14,046 1,134 15,180 Interest rate swap 22,882 (3,510) 19,372 Plan assets (13,713) (2,617) (16,330) Currency swap 857 (3,371) (2,514) Guaranteed reserve 204,358 (20,906) 183,452 120,202 (13,189) 107,013 Other liabilities (833) 738 (95) Income tax effect (29,089) 3,192 (25,897) Gain or loss on valuation of derivatives 3,081 (6,431) (3,350) Accumulated other comprehensive income ￦ 91,113 ￦ (9,997) ￦ 81,116 Impairment loss of available-for-sale financial assets 55,419 (17,211) 38,208 For the year ended December 31, 2016 Provision for restoration 13,444 57 13,501 Beginning balance Changes Ending balance Leasehold improvements (4,688) 1,062 (3,625) Interest rate forward ￦ 86,161 ￦ 10,302 ￦ 96,463 Separate accounts (47,502) 7,634 (39,867) Interest rate swap 21,908 974 22,882 Others 2,401 13,881 16,282 Currency swap - 857 857 ￦ (415,108) ￦ (95,000) ￦ (510,104) 108,069 12,133 120,202 Deferred income tax liabilities (A) ￦ (100,456) ￦ (30,625) ￦ (131,081) Income tax effect (26,153) (2,936) (29,089) Temporary differences charged or credited directly to equity Accumulated other comprehensive income ￦ 81,916 ￦ 9,197 ￦ 91,113 Loss (gain) on valuation of available-for-sale financial assets (2,265,303) 728,796 (1,536,507) Loss (gain) on valuation of derivatives designated as (22,882) 22,882 - cash flow hedges ￦ (2,288,185) ￦ 751,678 ￦ (1,536,507) Deferred income tax liabilities (B) ￦ (553,741) ￦ 159,293 ￦ (394,448) Deferred income tax liabilities (A+B) ￦ (654,197) ￦ 128,668 ￦ (525,529)
124 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 125 For the year ended December 31, 2016 18. Accounts payable Beginning balance Net increase (decrease) Ending balance Accounts payables as of December 31, 2017 and 2016 are as follows (Korean won in millions): Accumulated temporary differences:
Available-for-sale financial assets ￦ (323,287) ￦ (85,535) ￦ (408,822) December 31, 2017 December 31, 2016 Accrued income (297,120) (30,194) (327,314) Insurance payables (*) ￦ 33,040 ￦ 31,080 Reserve for loss on participating insurance 18,559 (5,811) 12,748 Other accounts payable 56,470 49,573 Accounts payable 4,424 13 4,437 Accrued expenses 59,863 60,183 Accrued expenses 74,881 (15,432) 59,449 Withholdings 15,890 23,350 Withholding (dormant claims) 18,998 (617) 18,381 ￦ 165,263 ￦ 164,186
Defined benefit obligation 12,743 1,303 14,046 (*) Insurance payables consist entirely of reinsurance payables. Plan assets (12,447) (1,266) (13,713) Guaranteed reserve 161,151 43,207 204,358 Other liabilities (1,497) 664 (833) Gain or loss on valuation of derivatives 1,354 1,727 3,081 19. Provisions Impairment loss of available-for-sale financial assets 47,870 7,549 55,419 Changes in provisions for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Provision for restoration 12,053 1,391 13,444 Leasehold improvements (4,372) (316) (4,688) For the years ended December 31, 2017 Separate accounts (45,616) (1,886) (47,502) Beginning balance Provision Increase (Decrease) Ending balance Others 994 1,407 2,401 Provision for restoration ￦ 13,444 ￦ 238 ￦ (181) ￦ 13,501 ￦ (331,312) ￦ (83,796) ￦ (415,108) Provision for litigation - - 1,860 1,860 Deferred income tax liabilities (A) ￦ (80,177) ￦ (20,279) ￦ (100,456) ￦ 13,444 ￦ 238 ￦ 1,679 ￦ 15,361
Temporary differences charged or credited directly to equity For the year ended December 31, 2016
Loss (gain) on valuation of available-for-sale financial assets (2,505,223) 239,920 (2,265,303) Beginning balance Provision Increase (Decrease) Ending balance Loss (gain) on valuation of derivatives designated as (69,614) 46,732 (22,882) Provision for restoration ￦ 12,053 ￦ 552 ￦ 839 ￦ 13,444 cash flow hedges Provision for litigation 610 - (610) - ￦ (2,574,837) ￦ 286,652 ￦ (2,288,185) Other provisions (*) 20,060 - (20,060) - Deferred income tax liabilities (B) ￦ (623,111) ￦ 69,370 ￦ (553,741) ￦ 32,723 ￦ 552 ￦ (19,832) ￦ 13,444 Deferred income tax liabilities (A+B) ￦ (703,288) ￦ 49,091 ￦ (654,197) (*) As the Company decided to pay the full amount of the claim for suicide mortality related to the accidental death rider, the Company reversed all related provisions and paid the related amount in full for the year ended December 31, 2016. A reconciliation of income tax expenses, applicable to income before income taxes at the Korea statutory tax rate, to income tax expenses at the effective income tax rate of the Company for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): The expected economic benefits outflow in provision as of December 31, 2017 is as follows (Korean won in millions):
For the year ended December 31, 2017 For the year ended December 31, 2016 December 31, 2017 Income before income taxes ￦ 452,198 ￦ 315,072 Total Within 1 year 1~3 years 3~5 years Over 5 years Tax at the statutory income tax rate 108,970 75,785 Provision for restoration (*) ￦ 13,501 ￦ 1,109 ￦ 11,433 ￦ 959 ￦ - Adjustments (*) Estimated expenses are after discount value since the amount is expected to occur at the time of expenditure. Non-taxable profit (2,300) (1,674) Non-deductible expenses (2,324) 228 Effect of changes in tax rate 7,636 - Others (20) (9) 20. Employee benefits ￦ 2,992 ￦ (1,455) Income tax expenses 111,962 74,330 Net defined benefit liabilities as of December 31, 2017 and 2016 are as follows (Korean won in millions):
Effective income tax rate 24.76% 23.59% December 31, 2017 December 31, 2016 Defined benefit obligations ￦ 16,328 ￦ 15,194 Fair value of plan assets (16,332) (13,714) Net defined benefit liabilities recognized ￦ (4) ￦ 1,480
126 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 127 Changes in carrying value of defined benefit obligation for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Details of main assumptions used in actuarial assessment as of December 31, 2017 and 2016 are as follows (Korean won in millions):
For the year ended December 31, 2017 For the year ended December 31, 2016 December 31, 2017 December 31, 2016 Beginning balance ￦ 15,194 ￦ 13,891 Demographic assumption: Changes: Turnover rate (%) 5.00 5.00 Current service cost 1,277 1,273 Financial assumption: Interest cost 533 488 Rate of salary increase (%) 4.00 4.00 Actuarial gain (462) (458) Inflation rate (%) 2.00 2.50 Payment (214) - Discount rate (%) 3.90 3.60 1,134 1,303 Ending balance ￦ 16,328 ￦ 15,194 Above are demographic assumptions; KIDI’s statistics were used for mortality rate.
Changes in fair value of plan assets for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): December 31, 2017 December 31, 2016 Remeasurements: For the year ended December 31, 2017 For the year ended December 31, 2016 Effect of changes in demographic assumptions ￦ - ￦ - Beginning balance ￦ 13,714 ￦ 12,448 Effect of changes in financial assumptions 621 - Changes: Experience adjustments (159) 458 Expected return on plan assets 480 436 462 458 Actuarial loss (329) (272) Return on plan assets (excluding amounts included in net Contribution by the Company 2,681 1,102 interest of net defined benefit liabilities): Payment (214) - Actual revenue from plan assets 151 164 2,618 1,266 Amounts included in net interest of net defined benefit (480) (436) Ending balance ￦ 16,332 ￦ 13,714 liabilities (329) (272)
Total costs recognized for defined benefit plans for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): ￦ 133 ￦ 186
For the year ended December 31, 2017 For the year ended December 31, 2016 Sensitivity analysis of defined benefit plans to changes in the actuarial assumptions as of December 31, 2017 is as follows: Current service cost ￦ 1,277 ￦ 1,273
Interest cost 53 52 Defined benefit obligation 0.5% point increase 0.5% point decrease ￦ 1,330 ￦ 1,325 Discount rate ￦ (963) ￦ 1,054 ￦ 16,328 Future salary increasing rate ￦ 1,067 ￦ (984) Total costs recognized for defined contribution plans for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Estimate of contributions expected to be paid to the defined benefit plans for one year is￦ 1,268 million (￦1,277 million for December 31, 2016). For the year ended December 31, 2017 For the year ended December 31, 2016
Insurance operating expenses ￦ 7,860 ￦ 8,378 The average duration of the defined benefit obligation is 12.8 years (13.3 years for December 31, 2016). Investment administrative expenses 766 781 ￦ 8,626 ￦ 9,159
Components of plan assets as of December 31, 2017 and 2016 are as follows (Korean won in millions): 21. Other liabilities
December 31, 2017 December 31, 2016 Other liabilities as of December 31, 2017 and 2016 are as follows (Korean won in millions): Time deposits ￦ 16,330 ￦ 13,713 December 31, 2017 December 31, 2016 Other 2 1 Withholdings ￦ 2,354 ￦ 1,690 ￦ 16,332 ￦ 13,714 Value added tax payable 6 29 Premium received in advance 94,411 144,886 Other accounts payables 11,319 12,256 Accrued expenses 22,457 18,775 Others 244 643 ￦ 130,792 ￦ 178,279
128 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 129 22. Assets and liabilities denominated in foreign currencies 23.5 Litigation Details of litigations the Company is involved in as of December 31, 2017 and 2016 are as follows (Korean won in millions): Assets and liabilities denominated in foreign currencies as of December 31, 2017 and 2016 are as follows (Korean won in millions and USD, EUR, AUD,
GBP in thousands): No. of litigation Amounts Remark December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 Currency Foreign currencies Korean won equivalents Foreign currencies Korean won equivalents Insurance claims, insurance premium, request Defendant 27 21 ￦ 5,438 ￦ 3,791 for commission, request for wage, Non-existence Cash and deposits USD 13,848 ￦ 14,837 12,335 ￦ 14,907 of obligation, etc. EUR 1,239 1,586 200 253 Return of unjust enrichment, commission, Non- Plaintiff 30 24 ￦ 2,134 ￦ 1,631 AUD 272 227 - - existence of obligation, etc. Available-for-sale financial assets USD 234,591 251,341 176,718 213,564 EUR 102 130 1,111 1,408 Most estimated losses from the litigations above are accounted as reserve for outstanding claims and provision for litigation. Reserve for outstanding claim is ￦1,545 million (December 31, 2016: ￦1,371 million) and provision for litigation is ￦1,860 million as of December 31, 2017. GBP 23,004 33,115 - - AUD 2,408 2,011 3,197 3,354 Loans USD 30 32 - - 23.6 Bancassurance partnership Accrued income USD 1,047 1,122 915 1,105 As of December 31, 2017, the Company entered into sales partnership contracts to sell bancassurance insurance products with 13 domestic banks EUR 1 1 40 51 (“Insurance agency of financial institution”). The above insurance agencies are entering into contracts to sell insurance products specified in the relevant GBP 401 578 - - regulations and collect insurance premiums on behalf of the Company. The Company pays the insurance agencies certain rates of sales commissions AUD 1 1 1 1 for the insurance contracts that they make. The Company recorded ￦12,613 million and ￦10,438 million of sales commissions as insurance operating expenses for the years ended December 31, 2017 and 2016, respectively. Accounts receivable USD 404 432 328 396 Accounts payable USD 23 25 - - 23.7 Capital commitment
Details of gains and losses on foreign currency translation and foreign currency transactions for the years ended December 31, 2017 and 2016 are as The Company currently has capital commitment in 20 funds including Truston Global Infra Private Fund No.1, and total undrawn capital commitment is follows (Korean won in millions): ￦294,538 million as of December 31, 2017 (December 31, 2016: ￦132,165 million).
For the year ended December 31, 2017 For the year ended December 31, 2016 Details of financial assets subject to offsetting, enforceable master netting arrangements and similar agreements as of December 31, 2017 and 2016 are as Net gain (loss) on foreign Net gain (loss) on foreign Net gain (loss) on foreign Net gain (loss) on foreign follows (Korean won in millions): currency transaction currency translation currency transaction currency translation December 31, 2017 Cash and deposits ￦ 208 ￦ (1,777) ￦ (21) ￦ 536 Financial assets at FVTPL Derivatives assets Derivatives liabilities Available-for-sale financial assets (1,070) (14,839) 366 4,660 Gross amount of recognized financial assets ￦ 174 ￦ 8,710 ￦ 225 Others 397 (18) - - Gross amount of recognized financial liabilities set off ￦ (465) ￦ (16,634) ￦ 345 ￦ 5,196 - - - in the statement of financial position Net amounts of financial assets or liabilities presented 174 8,710 225 in the statement of financial position (a) Financial instruments not set off in the statement of 23. Contingent liabilities and commitments financial position Assets or liabilities (b) - - - 23.1 Total number of insurance contracts and insured amounts Cash and financial instruments as collateral (c) 174 8,257 - The total number of insurance contracts and insured amounts are 1,865,692 contracts and ￦89,476,032 million, respectively, as of December 31, 2017 Net amount (a-b-c) ￦ - ￦ 453 ￦ 225
(1,875,405 contracts and ￦87,908,276 million as of December 31, 2016). December 31, 2016
Financial assets at FVTPL Derivatives assets Derivatives liabilities 23.2 Agreement on reinsurance Gross amount of recognized financial assets ￦ 543 ￦ 22,882 ￦ 7,001 Gross amount of recognized financial liabilities set off The Company has reinsurance agreements with Swiss Reinsurance Co. ("Swiss Re"), Reinsurance Group of America Incorporated ("RGA"), Gen Re，Munich - - - in the statement of financial position Re, Scor Re, Hannover Re, and Korean Re for death and disability coverage, cancer, critical illness, long-term care, simplified issue insurance, specific Net amounts of financial assets or liabilities presented 543 22,882 7,001 disease, medical reimbursement, and so on as of December 31, 2017. In accordance with the reinsurance agreements, the Company is paying reinsurance in the statement of financial position (a) premiums for the insurance covers to the reinsurers mentioned above. Financial instruments not set off in the statement of financial position 23.3 Insurance contracts for employees Assets or liabilities (b) - 1,358 1,358 Cash and financial instruments as collateral (c) 543 21,524 3,468 As of December 31, 2017, the Company is under an agreement of fidelity insurance with Seoul Guarantee Insurance Company covering accidental losses Net amount (a-b-c) ￦ - ￦ - ￦ 2,175 incurred in the course of business.
23.4 Overdraft agreements
The Company has overdraft agreements with Shinhan Bank and KEB Hana Bank with limits of ￦60,000 million and ￦20,000 million, respectively, as of December 31, 2017.
130 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 131 24. Earnings per share December 31, 2017 December 31, 2016 Retained earnings: Basic earnings per share for the years ended December 31, 2017 and 2016 are as follows (in Korean won): Legal reserve 41,000 41,000 For the year ended December 31, 2017 For the year ended December 31, 2016 Bad debt reserve 20,141 20,481 Net income / ordinary income (A) ￦ 340,236,257,800 ￦ 240,741,498,418 Unappropriated retained earnings 1,820,769 1,704,626 Weighted average number of shares outstanding (B) 82,000,000 82,000,000 1,881,910 1,766,107 Net income / ordinary income per share (A/B) ￦ 4,149 ￦ 2,936 ￦ 3,668,557 ￦ 4,147,414
(*) The Company had a stock split from ￦10,000 per share to ￦1,000 per share on January 23, 2017 from the decision at the general shareholders’ meeting held on December 20, 2016. Diluted earnings per share amounts for the years ended December 31, 2017 and 2016 are as follows (in Korean won): The Korean Commercial Code requires the Company to appropriate, as a legal reserve, at least 10% of cash dividends for each accounting period until the For the year ended December 31, 2017 For the year ended December 31, 2016 reserve equals 50% of outstanding capital stock. The legal reserve may not be utilized for cash dividends, but may be used to offset a deficit, if any, or may Net income / ordinary income (A) ￦ 340,236,257,800 ￦ 240,741,498,418 be transferred to capital stock. Weighted average number of shares outstanding and 82,000,000 84,158,788 dilutive potential ordinary shares (B) Changes in accumulated other comprehensive income for the years ended December 31, 2017 and 2016 are summarized as follows (Korean won in millions): Diluted earnings per share (A/B) ￦ 4,149 ￦ 2,861 For the year ended December 31, 2017
Policyholder’ Diluted earnings per share are the same as the basic earnings per share, as the settlement method of stock options was changed from equity settlement Beginning balance Changes Disposal Income tax effect Ending balance type to cash settlement type as of December 31, 2017. equity adjustment Gain (loss) on valuation of ￦ 1,717,100 ￦ (768,097) ￦ (39,380) ￦ 78,681 ￦ 153,755 ￦ 1,142,059 available-for-sale financial assets Gain (loss) on valuation of derivatives 91,113 (13,189) - - 3,192 81,116 designated as cash flow hedges 25. Statements of cash flows Remeasurements of (7,221) 133 - - (32) (7,120) defined benefit obligations Cash and cash equivalents in the statements of cash flows refers to cash and cash equivalents excluding deposits in cash and deposits. ￦ 1,800,992 ￦ (781,153) ￦ (39,380) ￦ 78,681 ￦ 156,915 ￦ 1,216,055
The Company has prepared cash flows from operating activities using indirect method on the statements of cash flows. Significant non-cash transactions For the year ended December 31, 2016 Policyholder’ for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Beginning balance Changes Disposal Income tax effect Ending balance equity adjustment
For the year ended December 31, 2017 For the year ended December 31, 2016 Gain (loss) on valuation of ￦ 1,898,959 ￦ (242,882) ￦ (31,617) ￦ 34,579 ￦ 58,061 ￦ 1,717,100 available-for-sale financial assets Gain (loss) on valuation of available-for-sale financial assets ￦ (575,041) ￦ (181,859) Gain (loss) on valuation of derivatives Gain (loss) on valuation of derivatives designated 81,917 12,132 - - (2,936) 91,113 (9,997) 9,196 designated as cash flow hedges as cash flow hedges Remeasurements of (7,362) 186 - - (45) (7,221) Remeasurement of defined benefit obligations 101 141 defined benefit obligations Provision for restoration 591 1,594 ￦ 1,973,514 ￦ (230,564) ￦ (31,617) ￦ 34,579 ￦ 55,080 ￦ 1,800,992 Classification of share-based compensation from (10,147) - equity to liabilities Balance of bad debt reserve as of December 31, 2017 and 2016 is as follows (Korean won in millions):
December 31, 2017 December 31, 2016 Beginning balance ￦ 20,140 ￦ 20,481 26. Equity Provision for bad debt reserve 1,513 (341)
The Company is authorized to issue 200,000,000 shares of capital stock. The total number of common stock issued and outstanding as of December 31, Ending balance ￦ 21,653 ￦ 20,140 2017 is 82,000,000 shares and par value per share is ￦1,000. Provision for bad debt reserve and adjustment income after reflecting bad debt reserve as of December 31, 2017 and 2016 are as follows (Korean won in Details of equity as of December 31, 2017 and 2016 are as follows (Korean won in millions): millions):
December 31, 2017 December 31, 2016 For the years ended December 31, 2017 For the years ended December 31, 2016 Capital stock ￦ 82,000 ￦ 82,000 Net income before provision for bad debt reserve ￦ 340,236 ￦ 240,741 Capital surplus: Bad debt reserve (1,513) 341 Capital in excess of par value 487,939 487,939 Adjustment income after reflecting bad debt reserve ￦ 338,723 ￦ 241,082 Other capital surplus 653 10,376 Adjustment income per share after reflecting bad debt reserve 4,131 2,940 488,592 498,315 Accumulated other comprehensive income: Gain on valuation of available-for-sale financial assets 1,142,059 1,717,100 Gain on valuation of derivatives designated as 81,116 91,113 cash flow hedges Remeasurement of defined benefit obligations (7,120) (7,221) 1,216,055 1,800,992
132 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 133 Dividends paid for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Details of commitments on share-based payment granted to employees as of December 31, 2017 and 2016 are as follows:
For the years ended December 31, 2017 For the years ended December 31, 2016 Conditional performance 1 Conditional performance 2 Conditional performance 3 Conditional performance 4 Conditional performance 5 Annual dividend Grant date June 23, 2014 November 6, 2014 November 20, 2015 March 30, 2016 March 22, 2017 ￦ 167,034 ￦ 182,500 (2017: ￦2,037 per share, 2016: ￦22,256 per share) Granted shares (*) 1,476,000 799,500 364,900 38,950 23,370 Interim dividend (2017: ￦700 per share) ￦ 57,400 ￦ - Retained shares (*) 1,168,500 572,570 364,900 38,950 23,370 (*) The amounts for dividend per share as of December 31, 2016 are calculated prior to the 10-for-1 stock split which occurred on January 23, 2017. Contractual life 7 years from grant date 7 years from grant date 7 years from grant date 7 years from grant date 7 years from grant date
(*) The shares granted above are number of shares after the 10-for-1 stock split which occurred on January 23, 2017. Dividend proposed for approval of shareholders for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):
For the years ended December 31, 2017 For the years ended December 31, 2016 Changes in details of commitments on share-based payment for the years ended December 31, 2017 and 2016 are as follows (Korean won): Annual dividend ￦ 139,400 ￦ 167,034 December 31, 2017 (2017: ￦1,700 per share, 2016: ￦2,037 per share) Number of shares Weighted average exercise price (KRW) (*) The financial statements for the year ended December 31, 2017 do not reflect the above unpaid dividends. Beginning balance (*) 2,168,290 ￦ 22,439 Granted during the period (*) 23,370 22,439 Details of the statements of appropriation of retained earnings for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Transfer from other companies - - For the years ended December 31, 2017 For the years ended December 31, 2016 Transfer to other companies - - I. Unappropriated retained earnings: Forfeited during the period (23,370) - Unappropriated retained earnings carried forward Exercise during the period - - ￦ 1,537,933 ￦ 1,463,885 from the prior year Expired during the period - - Interim dividend (2017: ￦700 (70%) per share) (57,400) - Ending balance (*) 2,168,290 ￦ 22,439 Net income 340,236 240,741 Exercisable at the end of the year 1,593,469 ￦ 22,439 1,820,769 1,704,626 December 31, 2016 II. Voluntary reserves - - Number of shares Weighted average exercise price (KRW) 1,820,769 1,704,626 Beginning balance (*) 2,129,340 ￦ 22,439 III. Appropriation of retained earnings (*): Granted during the period (*) 38,950 22,439 Annual dividend (2017: ￦1,700 (170.0%) per share, (139,400) (167,034) 2016: ￦2,037 (203.7%) per share) Transfer from other companies - - Bad debt reserve (1,513) 341 Transfer to other companies - - (140,913) (166,693) Forfeited during the period - - V. Retained earnings carried forward to the next year ￦ 1,679,856 ￦ 1,537,933 Exercise during the period - -
(*) Expected date of disposal of current retained earnings is March 30, 2018 and confirmed date of disposal of retained earnings from prior year was March 22, 2017. Expired during the period - - Ending balance (*) 2,168,290 ￦ 22,439 Exercisable at the end of the year 1,021,520 ￦ 22,439
(*) The shares granted above are number of shares after the 10-for-1 stock split which occurred on January 23, 2017. 27. Share-based payment
The Company granted stock options to its senior executives. The costs of those options are measured using the fair value approach and recognized in Accounting estimates used for measurement of compensation costs are as follows: compensation cost and taken into account as period costs and capital surplus reflecting its substance. Unit Contents
Weighted average fair value per unit KRW 7,657 As the cash settlement policy for the stock option payment method is clearly defined, all share options granted are accounted for as cash-settled share- based payment and the related liability measured at fair value as of December 31, 2017 is accounted as accrued expenses. Dividend yield % 6.69 Expected volatility % 5.78 The compensation costs the Company recognized as compensation for rendering services for the years ended December 31, 2017 and 2016 is as follows Risk free interest rate % 2.27~2.43 (Korean won in millions): Expected maturity of option years 0~4 For the years ended December 31, 2017 For the years ended December 31, 2016 Compensation costs incurred Accrued expenses recognized in respect of share-based payment as of December 31, 2017 are ￦15,279 million and the intrinsic value per unit is ￦7,987. ￦ 5,556 ￦ 857 in share-based payment transactions
134 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 135 28. Premium income 32. Investment income and expenses from financial assets
Premium income for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Investment income from financial assets for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):
For the years ended December 31, 2017 For the years ended December 31, 2016 For the years ended December 31, 2017 For the years ended December 31, 2016 Individual : Gain on valuation of financial assets at FVTPL ￦ 95 ￦ - Survival ￦ 581,153 ￦ 664,475 Gain on disposal of financial assets at FVTPL - 232 Death 1,805,075 1,740,041 Gain on disposal of available-for-sale financial assets 29,095 31,621 Endowment 771,309 737,953 Gain on disposal of derivatives for trading 3,834 1,569 ￦ 3,157,537 ￦ 3,142,469 Gain on valuation of derivatives for trading 57 30 Gain on disposal of derivatives designated as hedges 5,024 - Gain on valuation of derivatives designated as hedges 6,618 - Reversal of allowances for bad debts 2 25 29. Reinsurance transactions ￦ 44,725 ￦ 33,477
Reinsurance transactions for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Investment expenses from financial assets for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): For the years ended December 31, 2017
Reinsurance income For the years ended December 31, 2017 For the years ended December 31, 2016 Reinsurance expense Reinsurance claim Reinsurance commission Total Loss on disposal of available-for-sale financial assets ￦ 3,912 ￦ 228 Individual-domestic ￦ 128,312 ￦ 79,346 ￦ 31,568 ￦ 110,914 Bad debt expense 1,467 253 Impairment loss on available-for-sale financial assets 3,027 14,690 For the year ended December 31, 2016 Loss on disposal of derivatives for trading 162 235 Reinsurance income Reinsurance expense Reinsurance claim Reinsurance commission Total Loss on valuation of derivatives for trading 433 243 Individual-domestic ￦ 121,951 ￦ 78,603 ￦ 29,082 ￦ 107,685 Loss on valuation of derivatives designated as hedges 149 3,322 ￦ 9,150 ￦ 18,971
30. Interest income and expenses 33. Claims and benefits Interest income for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Claims and benefits for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): For the years ended December 31, 2017 For the years ended December 31, 2016 Cash and cash equivalent ￦ 2,184 ￦ 2,949 For the year ended December 31, 2017 Deposits 30,327 28,820 Claims Surrenders Dividends Total Available-for-sale financial assets 701,034 691,536 Individual: ￦ ￦ ￦ ￦ Loans 116,114 113,075 Survival 8,817 658,348 3,151 670,316 Others 7,713 4,898 Death 97,123 599,907 12,263 709,293 ￦ 857,372 ￦ 841,278 Endowment 2,484 400,139 13 402,636 108,424 1,658,394 15,427 1,782,245 Group: - - - - Interest expenses for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): ￦ 108,424 ￦ 1,658,394 ￦ 15,427 ￦ 1,782,245 For the years ended December 31, 2017 For the years ended December 31, 2016 For the year ended December 31, 2016 Settlement losses on separate accounts, etc. ￦ 1,327 ￦ 1,588 Claims Surrenders Dividends Total Individual: Survival ￦ 7,360 ￦ 633,342 ￦ 3,616 ￦ 644,318 Death 149,606 590,624 11,968 752,198 31. Dividend income Endowment 2,680 324,063 14 326,757 Dividend income for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): 159,646 1,548,029 15,598 1,723,273 Group: 205 1 - 206 For the years ended December 31, 2017 For the years ended December 31, 2016 ￦ 159,851 ￦ 1,548,030 ￦ 15,598 ￦ 1,723,479 Available-for-sale financial assets ￦ 15,294 ￦ 17,881
136 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 137 34. Insurance operating expenses Other operating expenses for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):
Insurance operating expenses for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): For the years ended December 31, 2017 For the years ended December 31, 2016 Loss on foreign currency translation ￦ 17,829 ￦ 1,359 For the years ended December 31, 2017 For the years ended December 31, 2016 Loss on foreign currency transactions 1,841 605 ￦ ￦ Salary and bonus 64,398 63,825 Amortization of intangible assets 15,404 14,640 Retirement benefits 9,102 9,613 Impairment loss on intangible assets - 58 Employee benefits 19,502 9,046 Discount fees (217) 615 Acquisition cost 388,553 390,771 ￦ 34,857 ￦ 17,277 Collection cost 3,194 3,300 Utilities 14,318 14,430 Rent 22,013 25,385 Advertisement 9,531 11,770 37. Non-operating income and expenses Depreciation 5,111 5,451 Non-operating income (expenses) for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Taxes and dues 40,536 39,985
IT expenses 10,124 9,810 For the years ended December 31, 2017 For the years ended December 31, 2016 Other professional service fees (*) 18,671 13,807 Non-operating income: Others 13,134 13,308 Gain on disposal of intangible assets ￦ 50 ￦ - 618,187 610,501 Miscellaneous income 9,414 22,186 Less: Deferred Acquisition Cost (243,522) (255,541) 9,464 22,186 ￦ 374,665 ￦ 354,960 Non-operating expenses:
(*) Other professional service fees are presented in net by deducting ￦206 million of government grants received for the purpose of life insurance big data strategy model Loss on disposal of property and equipment 208 222 development for the year ended December 31, 2016. Donations 3,806 1,125 Penalties 25 19 Miscellaneous loss 3,568 27,633 35. Investment administrative expenses 7,607 28,999 ￦ 1,857 ￦ (6,813) Investment administrative expenses for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions):
For the years ended December 31, 2017 For the years ended December 31, 2016 Salary and bonus ￦ 6,292 ￦ 5,632 38. Transactions with related parties Retirement benefits 855 871 Employee benefits 1,332 1,000 The Company’s related parties as of December 31, 2017 are as follows: Utilities 655 599 Related party Nature of related party Rent 1,240 1,353 Life Investment Limited Holding company Depreciation 641 535 MBK Partners Inc. Entity controlled by one of the key management personnel Taxes and dues 474 402 MBK Partners III Inc., Dasan 1 Entities that have significant influence over the holding company IT expenses 2,784 2,277 Korea Retail Investment, Inc., Homeplus Holdings Co., Ltd., Other related parties (*) Other professional service fees 12,661 12,544 Homeplus Stores Co., Ltd., Homeplus Co., Ltd. Others 1,116 1,108 (*) They are related parties controlled by MBK Partners III Inc. ￦ 28,050 ￦ 26,321
The Company had transactions with other related parties for marketing related expenses of ￦324 million (December 31, 2016: ￦134 million, other income ￦4 million) and the balance of related payables is ￦7 million (December 31, 2016: ￦9 million) as of December 31, 2017. Also, dividends paid to Life Investment Limited for the years ended December 31, 2017 and 2016 are ￦200,984 million and ￦182,500 million, respectively. 36. Other operating income and expenses Compensation for key management personnel for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): Other operating income for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): For the years ended December 31, 2017 For the years ended December 31, 2016 For the years ended December 31, 2017 For the years ended December 31, 2016 Short-term wages and salaries ￦ 4,356 ￦ 3,416 Gain on foreign currency translation ￦ 1,195 ￦ 6,555 Retirement benefits 458 400 Gain on foreign currency transactions 1,377 950 Share-based payment 4,219 615 Fees and commission Income 518 371 ￦ 9,033 ￦ 4,431 Rental income 212 212 Reversal of impairment loss on intangible assets 22 - ￦ 3,324 ￦ 8,088
138 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 139 39. Fair value of financial assets and liabilities Book value of financial assets carried at cost as of December 31, 2017 and 2016 are as follows (Korean won in millions):
Book value and fair value of financial assets and liabilities as of December 31, 2017 and 2016 are as follows (Korean won in millions): December 31, 2017 December 31, 2016 Available-for-sale financial assets December 31, 2017 December 31, 2016 Equity investments ￦ 66 ￦ 66 Book value Fair value Book value Fair value Equity securities in foreign currency - 3,354 Financial assets: ￦ 66 ￦ 3,420 Cash and cash equivalents ￦ 175,596 ￦ 175,596 ￦ 180,818 ￦ 180,818 Deposits 384,551 556,692 384,579 608,591 Above unlisted equity instruments are measured at acquisition cost since the variance of the estimated cash flows is significant and the probability of Financial assets at FVTPL 10,326 10,326 543 543 occurrence of various estimates cannot be reliably measured. Available-for-sale financial assets 21,854,092 21,854,092 21,329,238 21,329,238 Loans 2,133,876 2,133,876 2,089,437 2,089,437 Fair value hierarchy of the financial assets and liabilities subject to fair value assessment as of December 31, 2017 and 2016 is as follows (Korean won in millions): Receivables 678,468 678,468 675,645 675,645 December 31, 2017 Derivative assets designated as hedges 8,710 8,710 22,882 22,882 Level 1 Level 2 Level 3 Level 4 ￦ 25,245,619 ￦ 25,417,760 ￦ 24,683,142 ￦ 24,907,154 Financial assets: Financial liabilities: Financial assets at FVTPL ￦ - ￦ 10,326 ￦ - ￦ 10,326 Derivative liabilities designated as hedges ￦ 225 ￦ 225 ￦ 7,001 ￦ 7,001 Available-for-sale financial assets 14,064,482 7,309,500 480,043 21,854,025 Other financial liabilities 165,263 165,263 164,186 164,186 Derivative assets designated as hedges - 8,710 - 8,710 ￦ 165,488 ￦ 165,488 ￦ 171,187 ￦ 171,187 ￦ 14,064,482 ￦ 7,328,536 ￦ 480,043 ￦ 21,873,061 Financial liabilities: The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Derivative liabilities designated as hedges - 225 - 225 a. The fair value of financial instruments being traded in the active market is measured using a quoted market price as of a reporting date. ￦ - ￦ 225 ￦ - ￦ 225 b. The fair value of financial instruments which have no active market is measured using assessment of an independent external assessment agency or December 31, 2016 is estimated using a valuation technique. Valuation techniques include using recent arm’s length market transaction between knowledgeable, willing Level 1 Level 2 Level 3 Level 4 parties, if available, reference to the current fair value of another instrument that is substantially equivalent, discounted cash flow analysis and option Financial assets: pricing models. Financial assets at FVTPL ￦ - ￦ 543 ￦ - ￦ 543 c. For fair value determination, a valuation technique whose variables include only data from observable markets by comparison with other current market Available-for-sale financial assets 13,492,431 7,483,097 350,289 21,325,817 transactions in the same instruments. If all variables for a valuation technique are not observable, reasonable estimation or assumption is used for a fair Derivative assets designated as hedges - 22,882 - 22,882 value determination. ￦ 13,492,431 ￦ 7,506,522 ￦ 350,289 ￦ 21,349,242 d. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured shall Financial liabilities: be measured at cost. Derivative liabilities designated as hedges - 7,001 - 7,001 ￦ - ￦ 7,001 ￦ - ￦ 7,001 The Company uses the following valuation technique for fair value of financial instruments measured at amortized cost:
a. Cash and cash equivalents and deposits: carrying amounts and fair value of cash are the same, and the carrying amounts of cash equivalents such Details of valuation techniques and inputs for the valuation of financial assets and liabilities classified as Level 2 are as follows: as ordinary deposits, of which deposit and withdrawal can be made at any time, and time deposits with maturity of less than 3 months, are used as the proxy of fair value. December 31, 2017 b. Held-to-maturity financial assets: mark-to-market valuation amount provided by an independent external valuation agency is used for the fair value of Fair value Valuation technique Inputs held-to-maturity financial assets. Financial assets Financial assets at FVTPL (financial assets for-trading) ￦ 10,095 NAV method - c. Loans: expected future cash flows receivable in the future, discounted based on market interest rate and discount rate considering the borrower’s DCF method, Interest rate, credit risk, was used to calculate fair value of loans. Financial assets at FVTPL (derivative assets for-trading) 231 Black-scholes model stock index, etc. d. Other receivables and other financial liabilities: The carrying amounts of other receivables and other financial liabilities, which are accounts receivables Available-for-sale financial assets 7,309,500 DCF method, NAV method Interest rate, stock index and accounts payables carried out in a short time period, are used as the proxy of fair value. (debt instruments, beneficiary certificates) Interest rate, Derivative assets designated as hedges 8,710 DCF method exchange rate, etc. The Company classifies fair value measurements using a hierarchy that reflects the significance of the inputs to measure the fair value. The fair value Financial liabilities hierarchy has the following levels: Interest rate, Derivative liabilities designated as hedges ￦ 225 DCF method Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities exchange rate, etc. Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use the inputs, which have a significant effect on the recorded fair value, are not based on observable market data
140 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 141 December 31, 2016 The sensitivity analysis of the financial instruments has been performed by classifying with favorable and unfavorable changes based on how changes in unobservable inputs have effects on the fluctuations of financial instruments’ value. When the fair value of a financial instrument is affected by more than one Fair value Valuation technique Inputs unobservable input, the fair value is calculated based on the most favorable or the most unfavorable changes. Equity securities are financial instruments Financial assets classified as Level 3, subject to sensitivity analysis, and the fair value changes are recognized as other comprehensive income (Korean won in millions): Financial assets at FVTPL DCF method, ￦ 543 Interest rate, stock index, etc. (derivative assets for-trading) Black-scholes model December 31, 2017 Available-for-sale financial assets 7,483,097 DCF method, NAV method Interest rate Most favorable Most unfavorable (debt instruments) Financial assets: Interest rate, Derivative assets designated as hedges 22,882 DCF method exchange rate, etc. Available-for-sale financial assets (*) ￦ 480,902 ￦ 473,482 Financial liabilities December 31, 2016 Interest rate, Derivative liabilities designated as hedges ￦ 7,001 DCF method Most favorable Most unfavorable exchange rate, etc. Financial assets: Available-for-sale financial assets (*) ￦ 356,527 ￦ 346,810 Valuation technique and inputs of financial instruments classified to Level 3 as of December 31, 2017 and 2016 are as follows (Korean won in millions): (*) Fair value changes of equity securities are measured by increasing or decreasing the major unobservable inputs, such as dividend rate, discount rate and liquidation value. December 31, 2017
Fair value Valuation technique Inputs Assumptions The fair value hierarchy of financial assets and liabilities not measured but disclosed at fair value as of December 31, 2017 and 2016 is as follows (Korean Financial assets won in millions): Dividend rate, Discount rate: NAV method, December 31, 2017 Available-for-sale financial assets growth rate, 10.74%~16.97% ￦ 480,043 DDM method, (equity instruments) discount rate, Permanent Level 1 Level 2 Level 3 Total DCF method liquidity value growth rate: 0% Financial assets: December 31, 2016 Cash and cash equivalents ￦ - ￦ 175,596 ￦ - ￦ 175,596 Fair value Valuation technique Inputs Assumptions Deposits - 556,692 - 556,692 Financial assets Loans - - 2,133,876 2,133,876 Dividend rate, Discount rate: NAV method, Receivables - - 678,469 678,469 Available-for-sale financial assets growth rate, 10.36%~16.71% ￦ 350,289 DDM method, (equity instruments) discount rate, Permanent ￦ - ￦ 732,288 ￦ 2,812,345 ￦ 3,544,633 DCF method liquidity value growth rate: 0% Financial liabilities: Other financial liabilities - - 165,263 165,263 Details of changes in carrying amount of financial assets and liabilities classified as fair value Level 3 for the years ended December 31, 2017 and 2016 are ￦ - ￦ - ￦ 165,263 ￦ 165,263 as follows (Korean won in millions): December 31, 2016
For the year ended December 31, 2017 Level 1 Level 2 Level 3 Total
Other comprehensive Financial assets: Beginning balance Net income Changes Ending balance income Cash and cash equivalents ￦ - ￦ 180,818 ￦ - ￦ 180,818 Available-for-sale financial assets: Deposits - 608,591 - 608,591 Equity securities ￦ 350,289 ￦ (11,943) ￦ 16,452 ￦ 125,245 ￦ 480,043 Loans - - 2,089,437 2,089,437 For the year ended December 31, 2016 Receivables - - 675,645 675,645 Other comprehensive Beginning balance Net income Changes Ending balance ￦ - ￦ 789,409 ￦ 2,765,082 ￦ 3,554,491 income Financial liabilities: Available-for-sale financial assets: Other financial liabilities - - 164,186 164,186 Equity securities ￦ 174,785 ￦ (6,050) ￦ 15,525 ￦ 166,029 ￦ 350,289 ￦ - ￦ - ￦ 164,186 ￦ 164,186
Total gains or losses recognized in profit or loss for the years ended December 31, 2017 and 2016 and total gains or losses recognized in profit or loss relating to assets held at the end of the reporting period are as follows (Korean won in millions):
For the year ended December 31, 2017 For the year ended December 31, 2016
Total gains or losses Total gains or losses Total gains or losses recognized in profit or loss Total gains or losses recognized in profit or loss recognized in profit or loss relating to assets held at the recognized in profit or loss relating to assets held at the end of the reporting period end of the reporting period Other income or loss ￦ (8,916) ￦ (8,627) ￦ 8,640 ￦ 8,640 Impairment loss (3,027) (3,027) (14,690) (14,690) ￦ (11,943) ￦ (11,654) ￦ (6,050) ￦ (6,050)
142 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 143 Carrying amounts of financial assets and liabilities by category as of December 31, 2017 and 2016 are as follows (Korean won in millions): 40.1.2 Structure and function
December 31, 2017 The Company operates a risk management committee (RMC) under the Board of Directors to supervise the establishment of various policies related to the
Financial instruments risk management, and to oversee risk management tasks to deliberate and resolve matters stipulated in the regulations and guidelines. Financial instruments Available-for-sale Derivatives designated as measured at Total held-for-trading financial instruments hedges amortized cost The RMC, chaired by an independent director, has been operating on a regular basis as the highest decision-making body related to risk management. The Financial assets: functions of RMC as the decision making body are; being responsible for establishing basic risk management policy, setting risk appetite and risk limit and Cash and cash equivalents ￦ - ￦ - ￦ 175,596 ￦ - ￦ 175,596 checking capital adequacy and solvency, and respective measures. For the purpose of efficient risk management, the two working committees and two Deposits - - 384,551 - 384,551 advisory groups were established and report to RMC: General Account Asset Liability Committee (G/A ALCO), Separate Account Asset Liability Committee Financial assets at FVTPL 10,326 - - - 10,326 (S/A ALCO), Insurance Model Management Advisory Group, and Insurance Risk Management Advisory Group. Available-for-sale financial assets - 21,854,092 - - 21,854,092 Loans - - 2,133,876 - 2,133,876 Working committees and Working group Main functions Establish main policies and decision making in relation to financial risk management for Receivables - - 678,468 - 678,468 General Account Asset Liability Management Committee general account asset and liability Derivative assets - - - 8,710 8,710 Establish main policies and decision making in relation to financial risk management for designated as hedges Separate Account Asset Liability Management Committee separate accounts asset and liability ￦ 10,326 ￦ 21,854,092 ￦ 3,372,491 ￦ 8,710 ￦ 25,245,619 Support management’s decision making in managing to the value of insurance contract and Insurance Model Management Advisory Group Financial liabilities: the overall assumptions used to measure risk and valuation models. Derivative liabilities Insurance Risk Management Advisory Group Support management’s decision making in relation to insurance risk management - - - 225 225 designated as hedge Other financial liabilities - - 165,263 - 165,263 ￦ - ￦ - ￦ 165,263 ￦ 225 ￦ 165,488 40.2 Insurance risk
December 31, 2016 40.2.1 Financial instruments Insurance risk overview Financial instruments Available-for-sale Derivatives designated as measured at Total held-for-trading financial instruments hedges amortized cost Insurance risk is the risk related to the insurance company’s main business of underwriting insurance contracts and payment of insurance claims. It is the Financial assets: possibility that the actual risk at the time of payment of insurance claims is higher than the risk expected at the time of issuing insurance contract. Cash and cash equivalents ￦ - ￦ - ￦ 180,818 ￦ - ￦ 180,818 Deposits - - 384,579 - 384,579 40.2.2 Insurance risk exposure
Financial assets at FVTPL 543 - - - 543 Exposure to insurance risk is measured as risk premium income during the past 1 year, as of valuation date, that will be used to pay for insurance claims Available-for-sale financial assets - 21,329,238 - - 21,329,238 such as death, disease, etc. Risk premium is calculated by subtracting reinsurance risk premium (insurance premium paid to reinsurer) from the company’s Loans - - 2,089,437 - 2,089,437 risk premium income. Receivables - - 675,645 - 675,645 The Company’s maximum exposure to the insurance risk as of December 31, 2017 and 2016 is as follows (Korean won in millions): Derivative assets - - - 22,882 22,882 designated as hedges December 31, 2017 December 31, 2016 ￦ 543 ￦ 21,329,238 ￦ 3,330,479 ￦ 22,882 ￦ 24,683,142 Death ￦ 211,122 ￦ 205,656 Financial liabilities: Disability 29,685 30,159 Derivative liabilities - - - 7,001 7,001 designated as hedge Hospitalization 85,037 84,765 Other financial liabilities - - 164,186 - 164,186 Operation & diagnosis 145,861 136,471 ￦ - ￦ - ￦ 164,186 ￦ 7,001 ￦ 171,187 Actual medical loss reimbursement 1,070 1,304 ￦ 472,775 ￦ 458,355
40.2.3 Measurement and management of insurance risk 40. Risk management The Company measures insurance risk based on the regulation on Risk Based Capital (RBC) by the supervisory institution. It is calculated by the sum of the risk premium multiplied by the adjusted risk factor summed up, and then adjusted to allow for risk diversification. 40.1 Policy of risk management
The Company develops new products based on products approval and review procedures, including profitability guideline. Also, scheduled basis rate and 40.1.1 Risk management overview assumptions for pricing are set at appropriate levels through regular experience analysis. The essence of the insurance business is to take risks and manage them. Insurance products can be exposed to a variety of risks in business activities because pricing factors are very complex and the period of contracts is long, unlike other financial products. The Company conducts a review of profitability of both inforce policies and new business based on regular calculation and analysis of Embedded Value (EV). The Company also analyzes the fluctuation in value by factor by analyzing deviation of performance against assumptions. The Company maintains a risk management system to prevent and systematically manage various kinds of risks that may arise in business activities due to complex characteristics of insurance products and uncertain external financial environment. Furthermore, the Company has implemented regulations of Also, the Company operates insurance risk advisory groups with operation and risk management departments in order to efficiently manage insurance risks. risk management and prepared for internal guidelines. The Company has granted each organization with responsibility and authority, and has established internal control systems for efficient communication.
144 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 145 40.2.4 Concentration of insurance risk and reinsurance policies The Company’s exposure to interest rate risk as of December 31, 2017 and 2016 is as follows (Korean won in millions):
40.2.4.1 Concentration status of top 5 reinsurers The Company uses reinsurance to transfer insurance risk and improve the efficiency of capital December 31, 2017 December 31, 2016
management with advanced methodologies. The Company establishes risk diversification measures by analyzing reinsurance profit and loss for efficient Amount (*1) Exposure Amount (*1) Exposure management of reinsurance. Interest bearing assets: Cash and deposits ￦ 560,147 ￦ 560,147 ￦ 565,397 ￦ 565,397 The Company cedes to reinsurers, which meet the internal target on credit rating, and concentration status of top 5 reinsurers for the years ended December 31, 2017 and 2016 is as follows (Korean won in millions): Available-for-sale financial assets 21,231,690 21,231,690 20,862,288 20,862,288 Loans (*2) 2,134,619 2,133,876 2,089,916 2,089,437 For the year ended December 31, 2017 ￦ 23,926,456 ￦ 23,925,713 ￦ 23,517,601 ￦ 23,517,122 ≥ AA- A+ ~ A– BBB+ ≥ Others Interest bearing liabilities (*3): Reinsurance premium ￦ 128,094 ￦ - ￦ - ￦ - Fixed rate ￦ 10,010,871 ￦ 9,744,182 ￦ 9,202,126 ￦ 8,925,428 Weight 99.83% - - - Floating rate 10,511,566 10,438,359 10,030,787 9,955,353 For the year ended December 31, 2016 ￦ 20,522,437 ￦ 20,182,541 ￦ 19,232,913 ￦ 18,880,781 ≥ AA A+ ~ A– BBB+ ≥ Others (*1) Amounts in the statement of financial position are before subtracting allowance for bad debts, present value discounts and deferred loan originated cost and fees. Reinsurance premium ￦ 121,778 ￦ - ￦ - ￦ - (*2) Policy loans are included. Weight 99.86% - - - (*3) Interest bearing liabilities in the statement of financial position consist of premium reserve and unearned premium reserve.
(*) Calculation based on the total reinsurance premium. 40.3.3 Floating rate liabilities by the minimum guaranteed interest rate
40.2.4.2 Reinsurance premium by reinsurers’ credit rating The Company has transactions with reinsurers with credit ratings that qualify for investments. Minimum guarantee rate of floating rate liabilities, which is the lowest disclosed rate, is set out in the contracts by product. Reinsurance premium by reinsurers’ credit rating for the years ended December 31, 2017 and 2016 are as follows (Korean won in millions): The Company’s floating rate liabilities by the minimum guaranteed interest rate as of December 31, 2017 and 2016 are as follows (Korean won in millions): For the year ended December 31, 2017
≥ AA- A+ ~ A– BBB+ ≥ Others Total December 31, 2017 December 31, 2016 Reinsurance premium ￦ 128,312 ￦ - ￦ - ￦ - ￦ 128,312 Below 0% ￦ 113,456 ￦ 106,626 Weight 100.00% - - - 100.00% 0% to 2% 3,775,008 3,140,551 2% to 3% 5,631,792 5,821,150 For the year ended December 31, 2016 3% to 4% - - ≥ AA- A+ ~ A– BBB+ ≥ Others Total Over 4% 991,310 962,460 Reinsurance premium ￦ 121,951 ￦ - ￦ - ￦ - ￦ 121,951 ￦ 10,511,566 ￦ 10,030,787 Weight 100.00% - - - 100.00% (*) Floating rate liabilities are premium reserve and unearned premium reserve. (**) All product groups in floating rate interest-bearing liabilities are included (section of minimum guaranteed interest below 0%: floating rate attached riders and annuity and pension product of fixed rate are included). 40.3 Interest risk
40.3.1 Interest risk overview 40.3.4 Measurement and management of Interest rate risk
Interest rate risk refers to the risk of losses arising from changes in market interest rates and differences in the maturity structure of assets/liabilities. Interest The Company measures interest rate risk based on the internal model and the method regulated by the supervisory institution for calculating RBC ratio. rate risk is mainly caused by differences in factors affecting net asset value, such as the size and maturity of assets and liabilities exposed to interest rate changes, maturity and interest payment cycle. For interest rate risk management, the Company has established asset management guidelines in which the Company has applied a Strategic Asset Allocation (SAA) that reflects the properties of interest rate and maturity structure, etc. of insurance liability. That is, the company has established guideline and operated on it. Decision on SAA is made every year by General Account Asset Liability Committee (GA ALCO) under Risk Management Committee 40.3.2 Interest rate risk exposure (RMC). Exposure to interest rate risk is the amount of asset and liability changed due to the change in market interest. Interest-bearing assets can be defined as the assets which hold the flow of interest income and interest-bearing liabilities as reserves the Company should hold to meet the obligation from the insurance contract. 40.4 Credit risk
40.4.1 Credit risk overview
Credit risk is defined as the potential losses incurred when a counterparty goes bankruptcy, or cannot perform the contractual obligations and credit worsens. Credit risk can be classified with expected losses and unexpected losses.
Expected loss refers to potential loss from bankruptcy of assets exposed to credit risk based on bankruptcy rate, and collection rate, and is taken into account through appropriation of allowance for bad debts. Unexpected loss refers to volatility in the actual loss due to credit risk, and the Company takes unexpected loss into account through credit risk.
146 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 147 40.4.2 Credit risk exposure 40.4.4 Aging for financial assets past due but not impaired
Assets exposed to credit risk include 1) deposits, loans, AFS (available for sale assets), real estate and other types of asset which have a risk of loss arising Aging for financial assets past due but not impaired as of December 31, 2017 and 2016 is as follows (Korean won in millions): from issuer’s non-fulfillment of obligation and credit rate downgrade, and 2) derivatives, and 3) reinsurance. December 31, 2017
The maximum exposure to the credit risk as of December 31, 2017 and 2016 is as follows (Korean won in millions): 1~30 days 31~60 days 61~90 days 91 days and over Total Loans and receivables: December 31, 2017 December 31, 2016 Policy loans ￦ - ￦ - ￦ - ￦ 1,649 ￦ 1,649 Exposure Exposure Mortgage loans 67 - - - 67 Operating assets: ￦ 67 ￦ - ￦ - ￦ 1,649 ￦ 1,716 Cash and deposits ￦ 560,147 ￦ 565,397 December 31, 2016 Available-for-sale financial assets (*1) 21,231,606 20,862,288 1~30 days 31~60 days 61~90 days 91 days and over Total Loans (*2) 2,133,872 2,089,428 Loans and receivables: 23,925,625 23,517,113 Policy loans ￦ - ￦ - ￦ - ￦ 1,782 ￦ 1,782 Non-operating assets: Mortgage loans 84 - - 13 97 Reinsurance assets 35,192 31,228 ￦ 84 ￦ - ￦ - ￦ 1,795 ￦ 1,879 Others (*3) 705,853 681,908 741,045 713,136 Over-the-counter derivative transactions (*4) 8,941 23,425 40.4.5 Exposure to credit risk after credit enhancement including collateral Credit offer in off-balance sheet items (*5) 147,269 66,082 Exposure to credit risk after credit enhancement including collateral as of December 31, 2017 and 2016 is as follows (Korean won in millions): ￦ 24,822,880 ￦ 24,319,756 December 31, 2017 (*1) Available-for-sale financial assets are based on amounts in debt securities Credit enhancement (c) Exposure after (*2) Loans above are presented in total amount of loans (before subtracting allowance for bad debts and present value discount) less allowance for bad debts of loans classified Exposure (a) Offset (b) credit enhancement below ‘substandard’. Collateral Guarantee Others (a-b-c) (*3) Others in non-operating assets include insurance receivables, other accounts receivable, other deposits, accrued income, advanced payments and intangible assets and etc. The Cash and deposits ￦ 560,147 ￦ - ￦ - ￦ - ￦ - ￦ 560,147 intangible assets could be evaluated at fair value, and the principle amount of the intangible assets is not guaranteed. Also, they are the amounts after deducting allowance for bad debts of loans classified below ‘substandard’ and others. Available-for-sale financial assets 21,231,606 - - - - 21,231,606 (*4) It is based on amounts in the statements of financial position. Loans 2,133,872 - 49,547 - 2,084,325 - (*5) It is the amount multiplied by CCF (credit conversion factor) for off-balance sheet commitments calculated under the risk based capital (RBC). Reinsurance assets 35,192 - - - - 35,192 Others 705,853 - - - - 705,853 40.4.3 Measurement and management of credit risk Over-the-counter derivatives 8,941 - 8,432 - - 509 The Company measures credit risk of loans, bonds, and derivatives, adopting both the regulatory requirement (for RBC regulation) and internal models. Credit offer 147,269 - - 147,269 ￦ 24,822,880 ￦ - ￦ 57,979 ￦ - ￦ 2,084,325 ￦ 22,680,576 Credit risk of RBC is calculated in accordance to the standard implemented by the supervisory institution. Total credit risk of assets is measured by applying December 31, 2016 credit risk exposure and risk coefficients based on credit status such as asset type, presence of collateral/guarantee and borrower’s credit rating. Credit enhancement (c) Exposure after Exposure (a) Offset (b) credit enhancement The Company uses measuring values of credit risk to estimate and manage limits of investment assets’ credit rating, setting exposure credit line by borrower Collateral Guarantee Others (a-b-c) and expected/unexpected loss. Moreover, the Company sets limits to credit rating of investment assets in order to manage borrowers’ credit risk. The Cash and deposits ￦ 565,397 ￦ - ￦ - ￦ - ￦ - ￦ 565,397 Company has defined standards of classifying asset soundness based on borrowers’ credit in order to manage expected losses. Available-for-sale financial assets 20,862,288 - - - - 20,862,288 Loans 2,089,428 - 161,485 - 1,927,943 - The Company continuously reviews soundness of assets held. The Company sets limits to credit risk every year so that unexpected loss of assets held is maintained below the limit. The Company applies credit ratings to assets exposed to credit risk such as loans, bonds, etc. The Company only performs Reinsurance assets 31,228 - - - - 31,228 reinsurance transactions with reinsurance companies with credit ratings deemed adequate for making transactions. Others 681,908 - - - - 681,908 Over-the-counter derivatives 23,425 - 22,067 - - 1,358 Credit offer 66,082 - - 66,082 ￦ 24,319,756 ￦ - ￦ 183,552 ￦ - ￦ 1,927,943 ￦ 22,208,261
148 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 149 40.4.6 Concentration by industry - credit risk of financial assets 40.5 Market risk Concentration by industry - Debt instruments (Korean won in millions) 40.5.1 Market risk overview December 31, 2017 December 31, 2016 Market risk is the risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market State and public institution ￦ 14,006,740 ￦ 13,327,623 risk factors such as stock prices, interest rates and foreign exchange rates. Finance and insurance 2,371,434 2,359,246 Main target assets by market risk type are as follows: Wholesale and retail sales, transportation, lodging and 1,160,596 1,240,992 restaurant service Target assets Market risk Electricity, gas, steam, water supply 1,384,088 1,459,342 Stock price Stocks Decrease in present value of stocks held due to decrease in share prices Real estate 465,296 578,929 Interest rate Bonds Decrease in value of bonds held due to increase in interest rates Others 1,843,452 1,896,156 Exchange rate Assets in foreign currency Decrease in value of assets in foreign currency held due to decrease in exchange rates ￦ 21,231,606 ￦ 20,862,288
Concentration by industry – Loans (Korean won in millions) 40.5.2 Market risk exposure
December 31, 2017 December 31, 2016 The regulation in the calculation of Risk Based Capital describes market risk and GMxB risk. General market risk exposure is risk arising from held-for- Policy loan trading securities, derivatives-for-trading, net exchange position (foreign currency assets exceeding exchange hedge derivatives). Guaranteed risk of Finance and insurance ￦ - ￦ - GMxB insurance is risk of loss that arises when minimum mortality insurance claims and minimum annuity insurance claims, etc. that the Company has to guarantee, exceed guaranteed reserve due to decrease in price of GMxB insurance assets. Others 2,084,325 1,927,943 ￦ 2,084,325 ￦ 1,927,943 Exposure to general market risk based on RBC as of December 31, 2017 and 2016 is as follows (Korean won in millions): Others December 31, 2017 December 31, 2016 Finance and insurance 47,900 159,000 Held for trading financial assets ￦ 10,095 ￦ - Others 1,647 2,485 Assets and liabilities in foreign currency 280,942 209,697 ￦ 49,547 ￦ 161,485 Derivative transactions 13,622 106,551 Total ￦ 2,133,872 ￦ 2,089,428 ￦ 304,659 ￦ 316,248
40.4.7 Concentration by countries - Credit risk of financial assets 40.5.3 Current status of guaranteed risk of GMxB insurance Concentration by countries - Credit risk of financial assets (Korean won in millions) Details of policyholders’ reserves and minimum guarantee reserves by variable products as of December 31, 2017 and 2016 are as follows (Korean won in
December 31, 2017 millions):
Korea December 31, 2017 Overseas Total KRW Foreign currency Premium income (*1) Policyholders’ reserve (*2) Guaranteed reserve Cash and deposits ￦ 543,497 ￦ 16,650 ￦ - ￦ 560,147 Variable whole life (*3) ￦ 207,205 ￦ 748,655 ￦ 158,898 Available-for-sale financial assets 21,088,954 1,570 141,082 21,231,606 Variable annuity 298,928 3,060,887 23,276 Loans 2,133,840 32 - 2,133,872 Variable universal savings 449,596 1,779,778 492 Reinsurance assets 35,192 - - 35,192 ￦ 955,729 ￦ 5,589,320 ￦ 182,666
Others 703,720 563 1,570 705,853 December 31, 2016
Over-the-counter derivatives 174 3,952 4,815 8,941 Premium income (*1) Policyholders’ reserve (*2) Guaranteed reserve Credit offer 131,399 - 15,871 147,269 Variable whole life (*3) ￦ 156,876 ￦ 587,258 ￦ 178,658 ￦ 24,636,776 ￦ 22,767 ￦ 163,337 ￦ 24,822,880 Variable annuity 327,104 3,206,037 24,476
December 31, 2016 Variable universal savings 431,272 1,566,747 311
Korea ￦ 915,252 ￦ 5,360,042 ￦ 203,445 Overseas Total KRW Foreign currency (*1) Separate accounts premium income. Cash and deposits ￦ 550,237 ￦ 15,160 ￦ - ￦ 565,397 (*2) Policyholders’ reserve only includes reserve for in-force policies. Available-for-sale financial assets 20,782.410 26,541 53,337 20,862,288 (*3) Variable whole life includes variable universal protection insurance.
Loans 2,089,428 - - 2,089,428 Reinsurance assets 31,228 - - 31,228 40.5.4 Measurement and management of market risk
Others 680,356 261 1,291 681,908 The Company measures market risk and its exposure based on the regulatory requirements (for RBC calculation) and internal models. Over-the-counter derivatives 23,425 - - 23,425 To pre-emptively manage market risk in regards to investment, the Company specifies investment assets as well as investment limits by credit grade in the Credit offer 42,406 - 23,676 66,082 investment policy guidelines. Risk Management Department and Compliance Department regularly monitor Asset Management Department’s compliance ￦ ￦ ￦ ￦ 24,199,490 41,962 78,304 24,319,756 of such policies and report results to the management as well as to the Risk Management Committee.
150 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 151 40.5.5 Sensitivity by market risk factor December 31, 2016
The Company conducts a sensitivity analysis of RBC and risk analysis of major market risk factors to assess the losses arising from the variability of market risk. Within 3 months 3 months~1 year 1 year~5 years 5 years~10 years 10 years~20 years Over 20 years Total Assets: Sensitivity analysis of the Company’s assets as of December 31, 2017 and 2016 is as follows (Korean won in millions): Cash and deposits ￦ 180,818 ￦ 79 ￦ 37,000 ￦ - ￦ 347,500 ￦ - ￦ 565,397 Loans 159,295 68 9,969 25,231 37,522 1,857,831 2,089,916 December 31, 2017 December 31, 2016 Available-for-sale Profit (loss) impact Equity impact Profit (loss) impact Equity impact 430,664 634,345 4,645,933 5,675,429 7,917,014 2,025,853 21,329,238 financial assets Exchange rate Derivatives for trading 330 213 - - - - 543 Won / dollar exchange rate increased by ￦ ￦ ￦ ￦ Derivatives designated 4,510 4,786 3,227 (5,849) - 22,882 - - - - 22,882 100 Korean won as hedges Won / dollar exchange rate decreased by (4,510) (4,804) (3,227) (10,323) Liabilities: 100 Korean won Insurance contract liabilities 92,679 85,522 1,308,030 989,742 636,623 16,119,566 19,232,162 Interest rate Derivatives designated 840 2,482 - 3,679 - - 7,001 Interest rate increased by 100 bp - (1,573,378) - (1,419,005) as hedges Interest rate decreased by 100 bp - 1,578,231 - 1,421,246 Stock price 40.6.3 Measurement and management of liquidity risk Stock price index increased by 10% - 47,552 - 36,368 Stock price index decreased by 10% - (47,552) - (36,368) The Company controls liquidity risk with a gap analysis tool.
Liquidity risk is measured by liquidity gap and liquidity ratio. Liquidity ratio is the percentage of the Company’s assets transferrable to cash within 3 months 40.6 Liquidity risk maturities, against claims paid for the past three months. This ratio measures the appropriateness of the Company’s current asset volume. The Company maintains its liquidity ratio above a minimum of 100%. 40.6.1 Liquidity risk overview Liquidity gap is the difference between assets and liabilities by remaining maturities. The Company is less likely exposed to liquidity risk if it has more assets Liquidity risk is the risk that stems from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss. with short remaining maturity than liabilities with short remaining maturity. Nevertheless, the Company has bank overdraft agreements in place in order to Losses can be derived from asset and liability duration mismatches or unexpected rapid change in cash flows. prepare for inability to make payments for a short period of time in urgent situations, and for temporary and sudden insufficiency of liquid assets.
40.6.2 Current status of liquidity 40.7 Solvency assessment Details of maturity structure of financial assets, insurance contracts liabilities, etc. as of December 31, 2017 and 2016 are as follows (Korean won in millions): The Company conducts solvency assessment to promote confidence in financial stability and solvency level. For example, a Company calculates and December 31, 2017 discloses RBC ratio in compliance not only with the relevant regulation (Regulation on Supervision of Insurance Business) but also with internal guidelines to Within 3 months 3 months~1 year 1 year~5 years 5 years~10 years 10 years~20 years Over 20 years Total manage the solvency level. Assets: The Company measures, manages and discloses RBC (e.g. Solvency) ratio according to the Regulation on Supervision of Insurance Business to maintain Cash and deposits ￦ 175,596 ￦ 51 ￦ 37,000 ￦ - ￦ 347,500 ￦ - ￦ 560,147 required capital for solvency purposes. RBC is available capital (e.g. Solvency) divided by required capital (e.g. Solvency Threshold). Available capital Financial assets at FVPL 10,095 - - - - - 10,095 represents how capable the Company is in paying the liabilities to policy holders, even in cases of unexpected loss or decline in the value of assets. Loans 48,499 129 14,402 16,648 50,811 2,004,130 2,134,619 Required capital is the risk amount of the Company. This ratio indicates insurance Company’s financial strength and claims payment ability. Available capital Available-for-sale 506,672 938,338 4,331,463 5,793,168 7,086,838 3,197,613 21,854,092 is comprised of capital, capital surplus and retained earnings. Required capital is computed considering insurance, interest rates, credit, market, operational financial assets risks and diversification effects. In order to calculate risk based capital requirements, the computation is distinguished by insurance, interest, credit, market Derivatives for trading 69 105 - 57 - - 231 and operational risks considering the risk diversification effect. Derivatives designated 4,067 2,550 - 2,093 - - 8,710 as hedges The FSS requires the Risk Based Capital to be maintained above 100%, based on financial statements. The Company maintains and manages asset Liabilities: soundness by predicting RBC imposed by supervisory institution when establishing asset management strategy and business plan. Insurance contract liabilities 231,576 186,672 1,319,226 975,242 730,095 17,078,928 20,521,739 Derivatives designated - - - 225 - - 225 as hedges
152 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 153 41. Liability adequacy test Details of size of unconsolidated structured entities and nature of exposed risks as of December 31, 2017 are as follows (Korean won in millions):
Property investment Investment trust PEF Total 41.1 Insurance contract liabilities to evaluation company Unconsolidated structured entity The Company conducted the liability adequacy test as December 31, 2017. Tested reserve is premium reserve net of DAC (Deferred Acquisition Cost) and I. Total asset of unconsolidated structured entity ￦ 33,384,349 ￦ 708,068 ￦ 5,439,756 ￦ 39,532,173 unearned premium reserve of general accounts. O/S claims reserve, dividend reserve and GMXB reserve are excluded according to Article 6-3 of Enforced II. Book value Regulation of Regulation on Supervision of Insurance Business. Loans (A) - - - - Securities (B) 233,695 108,245 138,103 480,043 41.2 Assumption and methodology Others (C) 2,105 924 - 3,029 The assumptions used for the liability adequacy test as of December 31, 2017 were analyzed and calculated in accordance with Appendix 26 of Enforced III. Maximum exposure to loss Regulation of Regulation on Supervision of Insurance Business. The assumptions and methodology are as follows: Investment asset 235,801 109,169 138,103 483,073 Contractual commitment 28,182 158,956 35,356 222,494 Assumption Methodology Based on the experience data for the last five years and nine months, the lapse rate was categorized into product group, Lapse rate payment method, sales channel and elapsed year. It is calculated on the basis of annual premium, reflecting the status of payment (payment in full and pension initiation) and the tax benefit period. Based on the experience data for the last five years and nine months, the mortality rate is calculated by applying the trend Mortality / Morbidity rate 43. Approval of financial statements in the ratio of claim amount to risk premium by age, sex, product group and elapsed year. Discount rate Discount rate was calculated using interest scenarios (200) presented by FSS The financial statements as of and for the year ended December 31, 2017 was approved by the Board of Directors on February 8, 2018, and it was Based on the last 1 year experience statistics, unit project cost per cost driver was categorized by the type of expense approved at the general shareholders’ meeting on March 30, 2018. Expense rate (acquisition cost/maintenance cost) and by sales channel, and was calculated after reflecting the company’s policies on future business expense. Temporary expenses were excluded and the inflation rate was taken into consideration.
41.3 Insurance deficit (surplus) 44. Events after the reporting period
Liability adequacy test is conducted separately by product group, and then summed. The result of liability adequacy test as of December 31, 2017 is as As of January 1, 2018, the Company reclassified￦ 9.55 trillion of available-for-sale debt securities as held-to-maturity financial assets to maintain stable follows (Korean won in millions): capital in response to increase in interest rate volatility.
Fixed rate Floating rate Variable (*4) Total Surplus (*1) Participating Non-participating Participating Non-participating Tested Reserve (*2) ￦ 663,389 ￦ 7,937,814 ￦ 1,062,840 ￦ 8,570,393 ￦ (320,591) ￦ 17,913,845 ￦ - Reserve tested for 555,326 3,700,600 1,309,848 7,496,880 (1,826,384) 11,236,270 (6,677,575) adequacy (*3)
(*1) Surplus = reserve by scenario – tested reserve ((+): Deficit, (-): Surplus) GPV (Gross Premium Value: Present value of Outgo – Present value of Income. (*2) Tested reserve based on the attached table 26.II. ‘The standard of reserve adequacy test 2-1’ of the enforcement decree of Regulation on Supervision of Insurance Business. (*3) Reserve tested for adequacy is calculated by taking the average of the amounts after applying the interest scenario based on the attached table 26.II.4-1. But, P(50) is applied up to June 30, 2018 and P(55) is applied up to June 30, 2020. (*4) Refers to variable insurance.
42. Interests in unconsolidated structured entities
Details of nature, purpose and activities of unconsolidated structured entities as of December 31, 2017 and 2016 are as follows (Korean won in millions):
Nature, purpose and activities A is a real-estate investment vehicle that invests in real estate by way of acquisition, management, improvement, rental and development of real estate, etc. The Company recognizes interest income or dividend income from an entity. The unconsolidated Property investment structured entities that the Company invests in mostly own its commercial buildings and have a profit from leasing the buildings. company (A) Therefore, investment return uncertainty is low. However, The Company is exposed to a loss from decrease in the equity value or delay in collection of loans according to market conditions. (The Company put up 130% of collateral for loans.) B is an investment trust that delegates the duties for investing and managing the trust to an investment manager, according to Investment trust (B) a trust agreement and return investment earnings to investors. The Company recognizes dividend income from a trust is exposed to a loss of capital in case of a trust’s NAV decrease. C is a private equity fund that invests in equities. An unconsolidated structured entity returns earnings to investors mainly from taking PEF (C) part in management rights, and improving corporate governance structure. The Company recognizes dividend income from a fund and is exposed to a loss of capital in case of a fund’s NAV decrease.
154 ING Life Insurance Korea Annual Report 2017 Audited Financial Statements 155 Audit Report IR & Corporate Imprint Information
7 March 2018
We, the members of Audit Committee of ING Life Insurance, Korea Ltd., have audited the accounting reports and operations for the 27th fiscal year beginning Corporate Office About This Report 1 January 2017 and ending 31 December 2017, and report on the results as follows: (04511) ING Center, 37, Sejong-daero 7-gil, Jung-gu, Seoul, Korea ING Life Insurance Korea, Ltd. (ING Life) publishes an annual report which summarizes our business activities and Summary of Audit Procedures Opinion achievements in order to share with our shareholders, investors, Phone Number customers and other stakeholders. The ING Life 2017 Annual A. We examined the accounting books and related documents, A. Balance Sheets and Statements of Income In Korea: 1588-5005 Report includes our financial performance and some of non- and have performed review of the financial statements and The Balance Sheets and Statements of Income presents fairly the Overseas: +82-2-2261-1133 financial performance. In particular, we have a separate section supplementary information. for key achievements and significant activities, with greater financial position of the company as of 31 December 2017 and the business impacts and higher shareholder interest, in our efforts We had the audit division to conduct the audit applying audit results of its operations for the fiscal year then ended in accordance Stock Exchange Listing to ensure better accessibility of information. This report is procedures including reconciliation, physical inspection, to Korean Laws, Regulations and the Articles of Incorporation of produced after having validated by the relevant staff members observation, confirmation, and other procedures required to provide Company. Korea Composite Stock Price Index 079440 and the management based on thoroughly reviewed results. a reasonable basis for our opinion. B. Annual Business Report In addition, we had the audit division to cooperate closely with the Board of Directors Publisher The Annual Business Report gives an accurate view of company’s external auditors and discussed important issues. Munkuk Cheong, Executive Director, Chairman of the Board ING Life Insurance Korea, Ltd. situation based on Korean Laws, Regulations and the Articles of Michael Byungju Kim, Non-Executive Director Incorporation of Company. Publishing Date Jong-Ha Yoon, Non-Executive Director June 2018 B. For the audit of operations, we have participated in the Board C. The Statements of Appropriation of Retained Earnings of Directors meetings and received reports on business from Woong Soon Song, Independent Director The Statements of Appropriation of Retained Earnings is based Publishing Director the directors when deemed necessary, and examined important Hyuk Sang Kwon, Independent Director on Korean Laws, Regulations and the Articles of Incorporation of Munkuk Cheong business-related documents. Company. Jay Bum Ahn, Independent Director Suk Heun Yoon*, Independent Director Address
* Resigned on May 7, 2018 immediately prior to his appointment as (04511) 37, Sejong-daero 7-gil, Jung-gu, Seoul, Korea the Governor of the Financial Supervisory Service (FSS) on May 8, 2018 Website ING Life Insurance Korea, Ltd. www.inglife.co.kr
Annual General Meeting March 30, 2018
IR Contact Information Scan this QR code to Woong Soon Song E-mail [email protected] watch the company PR video of ING Life Chairman of Audit Committee Address (04511) ING Center, 17th Floor, 37, Sejong-daero 7-gil, Jung-gu, Seoul, Korea Phone +82-2-2200-8944
Hyuk Sang Kwon Member of Audit Committee
Jay Bum Ahn Member of Audit Committee
156 ING Life Insurance Korea Annual Report 2017