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Meritz Tower, 825-2,Yeoksam-dong, Gangnam-gu, Seoul, KoreaTel . 82-2-3786-2114 Fax . 82-2-3786-2115

www.meritzfire.com

ANNUAL REPORT 2010MERITZ INSURANCE

CONTENTS

03 Company profile04 Financial Highlights06 A Message from the CEO08 2010 at a Glance12 Business Overview_Performance by Line15 Business Overview_Underwriting Management18 Business Overview_Investment Management20 Business Overview_Risk Management22 Management's Discussion & Analysis30 Independent Auditors' Report31 Financial Statements38 Notes to Non-consolidated Financial Statements100 Internal Control Over Financial Reporting Review Report101 Corporate History in Brief102 Accolades & Awards103 Board of Directors104 Organization105 Credit Ratings106 Corporate Data

Companyprofile

Meritz Insurance , the first non-life insurance company in Korea,celebrated its 88th anniversary in FY2010. It was a profit strengthtamping year in preparation for its 100th anniversary with a businessgrowth of KRW 7 trillion in total assets and 3.8 trillion Won in directwritten premiums in 2010. It was a result of the persistent promotion ofprofit oriented growth strategy distinguished from other insurers basedon the continuous trust and support of the customers.

FY2011 will be a year for new challenges and innovation for MeritzInsurance. We have taken first steps toward the new challenge bylaunching Meritz Financial Holdings on Mar 28, 2011, the first insuranceholding company in Korea. Meritz Insurance as the leading company of

Meritz Financial Holdings Group, and will contribute to thediversification of financial market in Korea and transparent governancestructure by developing of integrated financial products for themaximum synergy between the group companies and creation of thebest customer service in the insurance industry to maximize the valuesof customers and shareholders, who continuously support thecompany. The company will also make assurance of thorough efforts to be rebornas a 100 year-old innovative traditional company leading the trend andparadigm of the non-life insurance industry by drawing up thequantitative growth accompanied by quality and through optimal riskmanagement.

04

FINANCIAL HIGHLIGHTS

Classification FY2008 FY2009 FY2010

Earned premium 2,609,776 3,046,383 3,526,299

Direct premium written 2,896,411 3,288,049 3,836,076

Net premium written 2,631,368 3,020,923 3,815,935

Incurred Losses 2,152,938 2,296,786 2,795,723

Net operating expenses 683,490 752,370 815,093

Increase in catastrophe reserve (a) (40,238) 13,632 11,314

Operating gains (186,415) (16,406) (95,830)

Operating income on investment 106,159 207,584 257,023

Total gain from operation (80,256) 191,178 161,193

Non-operating income 16,008 (4,017) 7,439

Net income (b) (58,815) 140,407 120,949

Adjusted net income (a+b) (99,053) 154,039 132,263

Total asset 5,265,467 6,034,989 6,973,859

Invested assets 4,138,331 4,627,571 5,367,501

Non-invested assets 1,127,136 1,407,418 1,606,357

Total liabilities 4,839,824 5,355,015 6,358,297

Total shareholder's equity 425,643 679,974 615,562

Adjusted shareholder's equity 531,449 799,413 746,314

Loss ratio 82.5% 75.4% 79.3%

Expense ratio 26.2% 24.7% 23.1%

Combined ratio 108.7% 100.1% 102.4%

Net investment yield 2.8% 4.9% 5.3%

Adjusted ROE (16.1%) 26.2% 18.7%

Solvency Ratio 189.9% 230.9% 163.0%

Stock Information

BPS(KRW) 4,293 7,994 8,551

PBR( ) 0.9 1.1 1.2

EPS(KRW) - 1,418 1,234

PER( ) - 5.9 8.4

Dividend information

Number of Shares 123,800,000 123,800,000 87,269,690

Face value(KRW) 500 500 500

Dividend yield 0.6% 4.0% 4.5%

Payout ratio - 22.8% 32.5%

[ unit : KRW in millions ]

05MERITZ INSURANCE ANNUAL REPORT 2010

14.3% 13.5%

16.1%

2,896 3,288

3,836

Direct premium written(KRW in billions)

CommercialAutoLong-term

FY2008 FY2009 FY2010

15.3% 14.6%15.6%

6,036

6,974

Total assets(KRW in billions)

FY2008 FY2009 FY2010

189.9%230.9% 163.0%

108.7% 100.1% 102.4%

26.2%

Key indexes(%)

Solvency margin ratioCombined ratioAdjusted ROE

G/R

FY2008 FY2009 FY2010

18.7%

-59

140

121

Net income(KRW in billions)

FY2008 FY2009 FY2010

-16.1%

5,265

06

A MESSAGE FROM THE CEO

Meritz Insurance celebrated its 88th anniversary in FY2010. Since the 88th anniversary, we have paid tribute to the memory of thefirst non-life insurance company in Korea and unfolded variousactivities to become a better blue-chip company when we celebrateour 100th anniversary. We have commercialized the memorial productin the theme of ‘family’, as a representative example, and achievedsuccessful sales of that product through positive advertisement.

The direct written premium collected in the FY2010 amounted to KRW3,836.1 billion, which was a growth of 16.6% compared to that of theprevious year. It means the sales grew by 230% compared to theclosing date, on March 31, 2005, before promoting the 2nd founding,which was a 0.3%p improvement of the Market Share. The retentionpremium was increased by 250% in the same period, which showed a0.8%p improvement of the market share. The most profitable Long-term product made up 70% of the portfolio, which is the highestdevelopment in the non-life insurance industry rising by 26.0%pcompared to that of six years before. The portfolio of new long-terminsurance premium and protection premium per month improved bythe highest level in the insurance industry, which means that overallsales competitiveness has been drastically enhanced.

The net income of FY2010 was KRW 120.9 billion, which amounts to anaverage earning strength of KRW 10 billion per month. As a result,the net income M/S recorded 6.1%p up to 9.9% share compared tothat of six years before, the best improvement in the insuranceindustry. The combined ratio was 102.4%, which is an incredibleimprovement of 3.0%p compared to that of 6 years before, also mostof the indexes related to the company’s earnings, such as generalexpense ratio and ROE have significantly improved.

The numerical values of assets and financial soundness mustconsider the division of Meritz Insurance for the launching of afinancial holding company, which are not the same before and afterthe division. Please refer to the financial statement for the numericalvalues after the division. I will report with the numerical values beforethe division here for reporting purpose.

The total assets of the company before the division in FY2010 wereKRW7,223.3 billion (KRW6,973.9 billion after the division), which is anincrease of 19.7% compared to the previous year. At 270% higher thanthat of six years before, it is the highest growth in the insuranceindustry. The company’s weight has been secured with other investedassets and shareholder’s equity, which have been increased by 250%and 290% respectively.

The company’s solvency margin ratio in FY2010 was 256.0% beforethe division (163% after the division), which is the improvement by25.1%p compared to the prior year and by 76.9%p compared to that of6 years before, and it is much higher than the 233.9% of the 2nd-tieraverage solvency margin ratio.Meritz have passed a meaningful year with comparatively excellentmanagement performance in the overall outcome of sales amount,profits, and financial soundness last year. However, I can say that themost important accomplishment will be the launching of the financialholding company. I will go through the upcoming plans and meaningof the financial holding’s founding.

I am very pleased to report that our overall managementperformance has come to be much better than in the past,since most of the management strategies have beenachieved successfully in the ripe stage of last year, the 6thyear of the second founding.

The company has decided to transition into the ‘financial holdingscompany’system to achieve an advanced governance structure withvarious advantages. We advocate ‘honest and specialized financialcompany’to provide more diversified and superior financial servicesThe financial holdings company founding work had been promotedlegitimately with the application of preliminary approval for itsestablishment on August 5, 2010, which has been processed smoothly byacquisition of the preliminary approval on December 1, 2010, and itslicense on March 16, 2011.

Accordingly, the company has established a new holdings company on Mar25, 2011, with the division of KRW 328.3 billion in total assets, consisting ofKRW33.2 billion in cash and deposit, KRW 289.4 billion in treasury stock ofMeritz Insurance and subsidiaries stocks, and KRW 5.7 billion in brandtrademark rights, which launched as the Meritz Financial Holding Co., Ltd.officially on the 28th of March.

Meritz Insurance had changed its listing on April 11th, and the holdingscompany was re-listed on May 13th. Meritz Insurance acquired approval asa subsidiary of Meritz Financial Group on Jun 15, and its enrollment will becompleted by early August. Meritz Financial Holding Company will be themajor shareholder and a parent company of Meritz Insurance with a 34%share.

Meritz Insurance has founded the first insurance-oriented financialholdings company beyond being the first insurer in Korea. It will recoverthe weakened management indexes, and bring them over the level beforethe division within one year based on accumulated strategies andconfidence. Our financial holdings company will maximize the synergy andsharing of customer information through the collaboration with eachsubsidiary in the group. We will provide the complete mid/long term plansby collecting all the strong points of the non-bank financial holdingcompany that cannot be possessed by the bank-oriented financial holdingcompanies.

We entreat all the shareholders to anticipate the steady growth of Meritzand continue to extend to us the same exceptional attention and affectionthat you have always given.

Thank you!June 10, 2011

Meritz Fire & Marine Insurance Co., Ltd.

Myung Soo, Wohn / Vice-Chairman & CEO


NEW CEO

President Jin Kyu Song President Jin Kyu Song has been elected as the CEO in the general meeting of shareholders on June 10, 2011.

08

2010 AT A GLANCE

Meritz Insurance, the first non-life insurance company in Korea, established a financial holdingscompany on Mar 28, 2011. Meritz Financial Group is the first insurance financial holdings companylaunched in Korea, and it is comprised of Meritz Securities, Meritz Asset Management, MeritzFinancial Information Service, Ritz Partners, Meritz Business Service, as well as with MeritzFire&Marine Insurance in its center.

The reason behind the transition of Meritz Insurance into a holdings company is to accomplish thesynergy creation to secure stable market position and earnings, diversify the financial businesslines for the provision of comprehensive financial services, take preemptive measures against thedividing trend of production and sales of financial products, raise funds, and secure investmentcapacity, divide the risks and to set up independent management system of each subsidiary, securethe group control tower, and enhance the management efficiency through the concentration ofcore capabilities.

When Meritz F&M has fully transitioned into the holding company system, the group’s investmentcapacity will expand from KRW 160 billion to around KRW 350 billion to advance into new financialbusinesses. The company can devise the diversification of business lines by dominating non-financial companies followed by the deregulation of insurance holding company.

The company can gain strengthening of business specialties by allowing the management tomultitask and foment cost savings, together with the synergy effect by the sharing of customerinformation. It’s also an opportunity for integrated channels like the exclusive sales company togrow, inflow of exterior customers, and enhancement of management efficiency through theconcentration on core capabilities.

The establishment of the financial holdings company has been processed through the spin-offmethod by transferring parts of assets such as subsidiary stocks, treasury stocks, and cash assetspossessed by Meritz Insurance .

2010 Customer Service Award

In 2010, the company received its fourth consecutive “Grand Prize”at the 18th Customer ServiceAwards, which was organized by Korea Management Association Consultants (KMAC).

The Grand Prize is conferred to companies selected through the primary screening that haveachieved various customer satisfaction activities and recognized accomplishment through strictsite audit and assessment by the examiners consisted with the university professors.

The company received positive evaluations regarding its customer satisfaction activities by allexecutives and employees together to enhance the customer value. The Company’s persistentefforts for the ‘differentiated customer service’was done by securing the customer’s trust basedon the CEO’s enthusiasm and leadership towards the CS management.

This award confirms that exceptional customer service has been recognized by a reputablecustomer service institute. As such, it is necessary for Meritz employees to maintain a customer-service mindset in order to enhance the Company’s competitive edge. This award will support thecompany’s ceaseless efforts to maximize customer satisfaction.

MERITZ FIRE INSURANCE, THE FIRST NON-LIFE INSURER IN KOREAESTABLIESHED THE FIRST INSURANCE FINANCIAL HOLDING COMPANY

CUSTOMER SERVICE AWARD?

The Customer Service Award is the largest

awarding system in Korea related to the

customer satisfaction management, which is

organized by Korea Management

Associations Consultants (KMAC).

It evaluates the CS management system of

whole company such as establishment of

customer satisfaction management system

and infrastructure, CS activities and

techniques, employee assessment and

compensation system out of the 181

candidates of each industry in Korea.


Management of sharing

Meritz Insurance has selected the management of sharing as one of five core managementphilosophies. Since the company believes that an insurance enterprise is ultimately concerned withthe well-being of our society and customers and puts it into practice for the disadvantagedneighborhoods and local communities in need.The company carried out various sharing activities in 2010 such as supporting children/youth,constructing green environment, and active volunteering from every department.

Meritz Insurance sponsored an economic camp for young students in an effort to help themacquire a better understanding of financial and economic matters. Meritz helped to familiarizestudents with basic economic principles with activities like inviting children to financing field andeducating children of multicultural families about finance and economics.

The company supported the Meritz Arts Volunteer Corps and Lindenbaum Music Festival for theyouth. The Meritz Arts Volunteer Corps was selected among the high school and college studentswith great talent and passion for music. They were trained by professionals and performed at thesocial welfare facilitiesThe company provides scholarships to children whose parents have been lost or injured in trafficaccidents, to cheer up their dreams and to inspire vitality into their daily lives.

As a part of the green management, the company saved costs by lowering the building’stemperature and utilizing personal cups to fund green environment constitution projects such asmaking gardens and drawing wall paintings at children’s facilities. The company is also leading theeco-friendly living with environment preservation projects for the local community such as caringthe Seoul forest and Mt. Cheonggyesan.

In 2010, 4,550 Meritz employees and sales people engaged in volunteer activities at 85 welfareagencies to have warmhearted interaction with the underprivileged. The company supports a‘Beautiful Saturday event’where employees donate clothing and other items to support the needy

neighborhoods with the sales profit of donated goods. Also, the company provides medicaltreatment for children with pediatric cancer and heart diseases with the ‘sharing funds’constituted from voluntary donations from the executives and staff together with the matchinggrant donated from the company.

Meritz Insurance has come to known as a compassionate enterprise practicing the ‘lovingneighbor’through various sharing activities and supports. As a result, the company received thegratitude plaques from Korea Business Council for the Arts, Korea Scout Association, DongcheonNursing Home, Seoul Forest, and Briquettes Campaign Headquarters, as well as thecommendation of the Minister of Health & Welfare in the neighbor-aid category on the SocialWelfare Day organized by the Ministry of Health & Welfare and the Community Chest of Korea.

Meritz Insurance will not cease its efforts to promote ‘love’and ‘sharing’the most genuine valuesof the insurer to keep well-being of our community and customers.

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

3,836Direct Premium Written

KRW in billions

(2,760 KRW in billions)

72.0Long-term Mix

%

18.7Adjusted ROE

%

12

LONG-TERM LINES

Review of FY2010Since the standardization of actual medical expenses, the number of new contracts for

related products was decreased. As such, the long-term insurance market in FY2010increased to KRW30.56 trillion, up 22.3% (YoY), centered on the expanded sales of savings-type, pension-type, and property protection-type insurance.

Meritz Insurance has concentrated on the sales of strategically targeted products such as100 year integrated protection-type products, children’s insurance, and property protection-type insurance according to the amendment of the Fire Insurance Act (which requires publicfacilities to purchase fire insurance). As a result, the Company reported a 21.4% sales growthto KRW2.76 trillion, with a consistent marketing strategy focusing on the sales of protection-type insurance. However, the Company showed an M/S of 9.0%, which decreased by 0.1%(YoY), due to the influence of the savings-type sales growth of the market.

Outlook for FY2011Long-term market sales are expected to enjoy a solid double-digit growth backed by the

persistent expansion of savings-type, pension-type, and property insurance, and the renewalpremium growth of actual-expense medical insurance; however, FY2011 market sales shoulddeliver a growth rate of 11.3%, which is a slight decline from the prior year, due to the sluggishgrowth of new contracts in FY2010.

Meritz Insurance is projected to record a growth of 11.3%, to KRW3.07 trillion, with theimprovement of its retention ratio through new contracts and the complete sales of protection-type health insurance. The market share is expected to remain at 9.0%, which is the same as inFY2010.

Marketing strategy for FY2011Meritz Insurance will create new products leading to new growth in the protection-type

health insurance market (whole life /drivers/children) with higher profit, persistently promoteprofitable growth with differentiated marketing strategies matched with products andchannels, and expand the foundation for new premium growth by responding in advance toKorea’s aging society, which will create value in the future.

The Company will also improve its persistence ratio to constitute the sales expansionbase by establishing an organic management system for premium renewals (management ofcontract soundness in the first year, management of secession attribute of in-force business,preliminary management of contract maintenance, etc.) and the management of completesales.

Long-term Line Premium(KRW in billions)

FY2008 FY2009 FY2010

2,274

1,850

2,760

BUSINESS OVERVIEW PERFORMANCE BY LINE


AUTO LINES

Review of FY2010The auto insurance market in FY2010 recorded KRW11.75 trillion, up by 10.7%, influenced

by the increase of vehicle registrations thanks to greater sales of new automobiles as a resultof the economic recovery and the auto premium hike.

Direct written premium came in at KRW776.2 billion, up 12.2%, influenced by strategicadjustments of the premium rate and an expansion of online auto insurance sales. The marketshare increased by 0.1%, up to 6.3% in FY2010.

Outlook for FY2011The auto insurance market in FY2011 is expected to grow 5.6%, to KRW12.41 trillion, aided

by auto premium hikes and the regulation changes that occurred in FY2010 and by thepersistent increase of premium per vehicle due to the high-class trend of automobiles.

The Company’s auto insurance sales in FY2011 are projected to record a 10.4% growth toKRW856.8 billion, backed up with the expanded growth in the core base areas and theextended promotion of online auto insurance.

Marketing strategy for FY2011The Company’s FY2011 marketing strategy is the preemptive execution of 3S (Smart,

Speedy, and Specialized) focusing on solidifying its position as the 2nd ranking insurancecompany in Korea.The Company will promote growth, concentrating on the core base areas (all the capitalregions and a few metropolitan cities such as Busan, Daegu, and Ulsan), increasing the onlineauto insurance sales, and expanding the selective daily system sales.

Auto Line Premium(KRW in billions)

FY2008 FY2009 FY2010

692727

776

14

COMMERCIAL LINES

Review of FY2010In spite of the negative growth of fire and marine insurance products, the commercial

insurance market in FY2010 presented sales of KRW4.40 trillion, up 6.9%, concentrating onaccident, comprehensive, and other commercial insurances.

The Company showed a performance of KRW299.7 billion, down 6.9%, due to the baseeffect from the high growth of engineering insurance of last year and the reconstitution of theportfolio conforming to the profit oriented business strategy. The Company presented a 6.8%market share in FY2010.

Outlook for FY2011In spite of the projected negative growth for engineering and marine insurance due to the

slowdown of construction business and the appreciation of the Korean won, the commercialinsurance market of FY2011 is expected to grow 5.0%, to KRW4.62 trillion, thanks to expandednew demands for liability insurance and new types of commercial lines, the steady growthtrend of group accident and comprehensive insurance, and the continuous expansion ofoverseas business.

Meritz Insurance’s sales target in commercial lines is KRW269.0 billion, down 10.2% with5.9% of the market share (M/S 6.6% in the core profit market). The Company has removed the14% non-profit business from the existing sales amount according to the business remodelingstrategy concentrating on profit and based on risk management.

Marketing strategy for FY2011Meritz Insurance is planning to strengthen its profit-oriented sales portfolio by putting

resources into the core profit market. In addition, the Company will extend the profit scale andpromote the marketing strategy for securing the future profit creation power despite theshrinkage of the sales by ensuring competitiveness through the expansion of infrastructureand systematic R&D for the high grow new market to secure the future profit.Meritz Insurance will reallocate resources into profit-oriented sales, reform the assessmentand compensation system, and differentiate the customer service. Furthermore, the Companywill invest in expanding infrastructure for new market and strengthening the systematic R&Dand core capability for each value chain.

Commercial Line Premium(KRW in billions)

FY2008 FY2009 FY2010

322320 300


LONG-TERM LINES

Review of FY2010The loss ratio of the long-term insurance industry in FY2010 was 83.0%, up 0.8%, mainly

due to the rapid increase of savings-type and pension-type insurance sales and surging claimspaid from actual-expense medical insurance.

The Company reported a loss ratio of 79.5%, 3.5% lower than the market. Although thisfigure was up 2.0%, it was formerly the 1st ranking performance in the insurance industry. Thecombined ratio was 98.6%, which is an improvement of 0.8%.

Outlook for FY2011Meritz Insurance is promoting the stabilization of the increasing trend of the risk loss ratio

by strengthening the profit base through focusing on new premium growth of the protection-type insurance, renewal of non-guaranteed (N/G) living benefit, differentiation of regionalunderwriting (U/W), and organic management of renewal premium. The Company expects a1.7% improvement of risk loss ratio thanks to increasing inflow of renewal premium fromexisting N/G living benefit, and a 0.5% additional improvement backed by the regional U/Wdifferentiation and efficient management for renewal premium.

The Company’s loss ratio is projected to be 78.9%, which is a sluggish increase comparedto the previous year, under the persistent risk loss ratio management.

Underwriting Strategy for FY2011Meritz Insurance will expand the earned premium persistently with renewal premium

growth through improving persistency ratio and growing sales of profitable products. Inaddition, the Company will promote the stabilization of the risk loss ratio with regionallycustomized and differentiated U/W management and risk loss ratio management

The Company will strengthen U/W competitiveness by tracing the high risk handler withU/W system by promoting the systematic U/W for the region-handler-customer chain. Anddirect U/W will be executed for the contracts with lower reliability and vulnerable to adverseselection.

Category Meritz IndustryFY2010 FY2011(e) FY2010 FY2011(e)

Direct premium written 2,760.2 3,073.2 30,561.2 34,014.6G/R 21.4 11.3 22.3 11.3M/S 9.0 9.0 - -Loss ratio 79.5 79.8 83.0 -

Note : FY2011 is based on the K-GAAP.

(Unit | KRW Bn, %)

BUSINESS OVERVIEW UNDERWRITING MANAGEMENT

16

AUTO LINES

Review of FY2010The loss ratio of the auto insurance market in FY2010 was 79.6%, up 6.0%. The higher

auto loss ratio was attributed to the increase of vehicle traffics due to the economic recovery,increase of accident rate due to the adverse weather conditions in the winter season, andincrease of vehicle claims due to hike in ceiling for property damages.

The Company recorded a worsening of its loss ratio, by 4.8%, to 80.3%.

Outlook for FY2011The loss ratio of auto insurance market in FY2011 is estimated to be 77.6%, improved by

2.0%. It is based on the impact of premium increase and the regulation change of proportionaldeductible from fixed amount to variable rate (decreasing factor) and the impact of increasinginsurance premiums and accident rate (increasing factor).

The Company is targeting a 77% auto loss ratio in FY2011, and will accomplish thisthrough pricing strategy and through the differentiation and efficiency of underwriting.

Underwriting Strategy for FY2011The Company is concentrating on improving the efficiency/profitability and operating

expense efficiency through U/W guideline operation. Such a profit improvement strategy willbe promoted through the expansion of U/W guideline differentiation for each channel and thesupport for the sales of profitable products. The P/F improvement through the growth strategyfocusing on the core bases and the refinement of risk grade assessment system willcontribute to the stabilization of loss ratio. The Company’s auto insurance profit will bestabilized by seeking the ways to improve loss ratio through improvement of U/W process andexpansion of superior coverages.


Direct premium written 776.2 856.8 11,750.7 12,406.8G/R 12.2 10.4 10.7 5.6M/S 6.3 6.6 - -L/R 80.3 77.0 79.6 77.6

Note : FY2011 is based on the K-GAAP.

(Unit | KRW Bn, %)


COMMERCIAL LINES

Review of FY2010Amidst a downward trend in the premium rates of primary products, along with

intensified price competition due to a growing number of insurers in the marketplace, theindustry's loss ratio for commercial lines in FY2010 declined by 8.4%, to 66.2%, or 2.9%, to60.7%, excluding RG charges. The growth of group accident insurance with the high loss ratioand natural disasters also affected a higher loss ratio.

In line with this, Meritz Insurance recorded 60.5%, slightly higher than the previous year.RG has been excluded based on the Company’s profit-oriented business strategy.

Outlook for FY2011Meritz Insurance is projected to record a 53.6% loss ratio in commercial lines, an

improvement of 6.9%, through business remodeling based on profit-oriented businessstrategy.

Underwriting Strategy for FY2011The Company has persistently promoted a solid U/W strategy since FY2009 with U/W

profit under the first priority. The Company will accomplish its transition into a thorough profitcenter by dividing the business type into profitability, risk, and U/W competitiveness, and byapplying differentiated U/W strategic stances for each division.

In order to achieve the strategic objectives,Consider the potential risk factors such as habitual sales and strengthen the reinsurance risk management by managing the accumulated reserves for each cat risktype.Plan to concentrate on the reinforcement of core capabilities such as innovation of the U/W process, improvement of the U/W system, development and promotion of humancapability improvement programs, and improvement of pricing capability.


Direct premium written 299.7 269.0 4,395.7 4,615.5G/R (6.9) (10.2) 6.9 5.0M/S 6.8 5.9 - -L/R 69.7 58.1 66.2 55.0

(Unit | KRW Bn, %)

18

Review of FY2010

The invested assets of FY2010 were KRW5.37 trillion, up by 16%. The investment profit wasKRW257 billion with a 5.3% investment yield, up 0.4%.

By continuously promoting the improvement of asset portfolio to secure the stable investmentprofit since FY2009, the Company has expanded the portion of fixed income assets includingbonds and loans to 72.4%, up by 3.9% to KRW719.2 billion. As a result, the Company built upthe capability to generate the annual profit of KRW210 billion.

In terms of risk management, the Company is trying to minimize interest rate risk bymanaging the matching ratio of duration for liabilities (long-term/annuity account) over 80%.

Category FY2010 DurationAssets Liabilities Matching ratio

Long-term 4.01 5.03 80%Pension 5.12 5.09 101%Total of special accounts 4.21 5.04 84%

BUSINESS OVERVIEW INVESTMENT MANAGEMENT


Investment Environment of FY2011

The 2011 global financial market shows recovering processes at different speeds as isindicated in the contradictory polices - retrenchment policy of emerging countries and liquidityprovision of advanced countries through financial and monetary policy.

The stock market is faced with considerable volatility caused by the weakened economicmomentum of G2 countries (USA and China), concern about financial crisis in SouthernEuropean countries, such as Greece, and the termination of quantitative easing (QE2).However, it is projected that the G2 economy will return to recovery and the risk factors will beresolved in the second half. As such, it is expected to show a bull market in the annualviewpoint.

The interest rate may not show an increasing trend, considering the conditions of investors’buying power based on the weakened economy momentum, sluggish inflation rate, andabundant liquidity; however, it is expected that the interest rate will not drop down additionallyfrom current level considering the normalization of base rate and the current market interestrate at the level of financial crisis before. There may be ups and downs in the box zone in thefirst half, and is expected to be a gradually increasing trend as a result of the dissolution ofuncertainty.

Asset Management in FY2011

Meritz Insurance is projecting to achieve investment profits of KRW269.1 billion, based on a4.7% investment yield. Management will thus put forth its utmost efforts to acquire additionalfixed-income assets and restructure performance-based assets to broaden our profitability.

In terms of stocks, the Company will enhance the profitability through appropriate assetdistribution and market timing strategy, as it is expected that the stock market volatility will beenlarged in the rising trend of stock indexes.

For bond investment, the Company will focus on the management of stability and profitabilitywhile balancing aggressive operation and performing selective investment in blue-chipcompanies. The Company is planning to purchase overseas bonds and A.I. (AlternativeInvestments), focusing on products such as principal guaranteed products, yield-up products,and absolute profit pursuing products that exceed the bond yield within the limited market risk,while avoiding the pure index products of high volatility.

In case of loan assets, the Company will reinforce the preliminary screening of debtors withcredit and collateral analysis to secure the profitability and stability, and concentrate in theenhancement of asset soundness through positive and efficient post-management.

20

Review of FY2010

In December 2008, Meritz Insurance established the Risk Management Division (the division,hereinafter) in order to classify all the risks into insurance, interest rate, market, credit, andnon-financial risk individually for efficient management and control.The division is constituted with the risk management team in charge of risk planning and non-financial risks and the financial RM team in charge of the financial risks of assets andinsurance. The division is executing the integrated functions of establishment of riskmanagement policy, operation of risk management system, quantitative measurement ofrisks, and the support to risk management committee.

Category Description Target

Insurance risk Definition Risk of potential losses caused by the fluctuation U/W, between actual and economic assumption or Reserve fundprobability of accidents

How to measure VaR (Value at Risk)DFA (Dynamic Financial Analysis) Approach

How to manage Monitor monthly limits and trend analysis

Interest rate risk Definition Risk of potential losses that net interest income Interest bearingor net assets value can be reduced following assets, Interestthe variation of interest rate bearing liabilities

How to measure ALM(Asset Liability Management)Duration Gap

How to manage Manage the duration matching by accounts

Market risk Definition Risk of potential losses caused by the variation of Stocks, market interest rate, exchange rate, and stock prices Bonds,

How to measure Market VaR / Scenario Analysis DerivativesHow to manage Measure daily risk and monitor daily limits

Credit risk Definition Risk of potential losses of assets value due to the Loan, Bond,financial debasement (or nonpayment) of the investee Accrued assets,and borrower OTC credit

How to measure Credit VaR derivativesHow to manage Measure monthly risks and monitor monthly limits

Non-financial Definition Risk of potential losses caused by inadequate or false Overall risk internal process, manpower, system or external accidents management

How to measure KRI (Key Risk Indicator)How to manage Checkup of KRP (Key Risk Process) and KRI monitoring

Measurement and management methods for each risk type

BUSINESS OVERVIEW RISK MANAGEMENT


Risk Management Committee

The risk management committee is comprised of the CEO and two outside directors, who arethe financial experts, for its operation. The Committee held seven sessions in FY2010 todeliberate on and resolve critical bills. The matters for resolution were determination of risklimits and hurdle rates, strategic asset allocation (SAA), derivatives operation strategy, renewalof reinsurance treaty, assumed interest rate of long-term insurance and annuities, maximumallowance of minimum guaranteed interest rate, maximum interest rate allowance forpension insurance, risk management regulations, and amendment of reinsurancemanagement guidelines. The matters for reporting were annual plan of risk management,synthetic analysis of risk status, operation results of investment/loan monitoring board andLOB monitoring board, report of risk analysis and countermeasures, items related to thesupervision systems of RBC/RAAS, checkup of credit review, and inspection result of internalcontrol over the reinsurance.

The committee members have a very high perception on risk management, and they aresupporting the Company with keen interest for the advancement of risk management andsettlement of internal risk management culture.The committee has placed particular emphasis on the importance of risk management sincethe financial crisis, and is focusing on the macro-risk management of the whole Companythrough quarterly inspections of all the assets, detailed checkup of the contracts possessed,inspection of reinsurance operation status, and promotion of its improvement measures.

Risk Management Strategy for FY2011

In FY2011, Meritz Insurance intends to concentrate on risk management against the worst-case ‘killer’risks by establishing a preemptive countermeasure system for the overall risks.The Company will establish a risk analysis and response system against the worst situationsby upgrading the risk analysis system (Stress Test) and setting up BCP (Business ContinuityPlan) system, reinforce preventive risk management system through risk factor analysis ofnew investment assets or new insurance products, enhance RBC (Risk Based Capital) ratio,develop additional KRI (Key Risk Indicator) for the efficiency of operation risk management, andestablish risk management mind-set through practicing the RMG (Risk ManagementGuidance).

Strategy direction Establishment of a preemptive risk response system against risks

Strategy tasks 1. Establish risk analysis and responding system against the worst situation

2. Reinforce preventive risk management system for entrance control efficiency

3. Enhance its capital adequacy ratio

4. Enhance its efficiency of operation risk management

5. Settle down risk management culture by strengthening risk management ownership

22

OVERVIEW

BASIS OF PRESENTATION

Management’s discussion and analysis may contain forward-looking statements that are providedto assist in the understanding of anticipated future performance and business plans.

However, such expectations of future performance plans involve certain risk and uncertainty thatcan use actual results to differ materially from those expressed in the forward-looking statements,due to factors beyond the Company’s control. The term “Company,”used herein, without any otherqualifying description, refers to Meritz Fire & Marine Insurance Co., Ltd.

REVIEW OF FY2010

The Company achieved remarkable growth on total assets and direct premium written in FY2010,which is a result of the persistent promotion of profit driven strategy. Direct premium written,earned premium written and net premium written all have been grown up by double-digitincreases consecutively following previous year. It means that overall sales competitiveness hasbeen improved continuously.

Of particular note, capital decreased by 29.6% as a result of capital reduction arising fromlaunching of the financial holding company, which is the first insurance holding company in Koreaand brings combined financial products for the maximum synergy between the group companies.

MANAGEMENT’S DISCUSSION & ANALYSIS


BALANCE SHEET SUMMARY

FY2008 FY2009 FY2010 YoY(%)

Earned premium 2,609.8 3,046.4 3,526.3 15.8%Direct premium written 2,896.4 3,288.0 3,836.1 16.7%Net premium written 2,631.4 3,020.9 3,590.4 18.9%Underwriting income (186.4) (16.4) (95.8)Net investment income 106.2 207.6 257.0 23.8%Non-operating income 1.8 (4.0) (4.9) Ordinary income (78.5) 187.2 156.3 (16.5%)Tax expenses (benefits) (19.7) 46.8 35.4 Net income (58.8) 140.4 120.9 (13.9%)Loss ratio (%) 82.5 75.4 79.3 3.9%pExpense ratio (%) 26.2 24.7 23.1 (1.6%p)Combined ratio (%) 108.7 100.1 102.4 2.3%p

[ KRW in billions ]

FY2008 FY2009 FY2010 YoY(%)

Investment assets 4,138.3 4,627.6 5,367.5 16.0%Non-investment assets 1,127.1 1,407.4 1,606.4 14.1%Total assets 5,265.5 6,035.0 6,973.9 15.6%Policy reserve 4,196.6 4,697.0 5,702.1 21.4%Catastrophe reserve 105.8 119.4 130.8 9.5%Other liabilities 537.4 538.9 525.4 (2.5%)Total liabilities 4,839.9 5,355.0 6,358.3 18.7%Capital stock 61.9 61.9 43.6 (29.6%)Capital surplus 234.4 235.8 170.4 (27.7%)Retained earnings 157.4 297.8 386.8 29.9%Capital adjustment (28.1) (116.6) (250.9)Total shareholders' equity 531.4 680.0 615.6 (9.5%)Solvency margin ratio (%) 189.9 230.9 163.0 (67.9%p)

[ KRW in billions ]

Direct premium written[ KRW in billions ]

FY2008 FY2009 FY2010

3,288.02,896.4

3,836.1

Total shareholders' equity[ KRW in billions ]

FY2008 FY2009 FY2010

680.0

531.4

615.6

INCOME STATEMENT SUMMARY

24

ANALYSIS OF RESULTS OF OPERATIONS

The results of operations of the company demonstrate that FY2010 was a good year. With overallsales competitiveness and profit strength, The results represent the true underlying performanceof the company and significant value for shareholders. In FY2010, direct premium written was up16.7% to KRW3,836.1 billion, primarily owing to observable growth of high margin long-terminsurance products, which are the Company’s prime growth engine

Compared to the FY2009, earned premiums rose 15.8% to KRW3526.3 billion, while net premiumwritten also recorded a notable growth of 18.9%, year on year.

FY2008 FY2009 FY2010 YoY(%)

Commercial lines 320.0 321.9 299.7 (6.9%)Auto lines 726.7 691.8 776.2 12.2%Long-term lines 1,849.6 2,274.4 2,760.2 21.4%Total 2,896.3 3,288.1 3,836.1 16.7%

[ KRW in billions ]

DIRECT PREMIUM WRITTEN BY LINE

FY2008 FY2009 FY2010 YoY(%)

Commercial lines 8.4 7.8 6.8 (1.0%p)Auto lines 7.0 6.2 6.6 0.4%pLong-term lines 9.2 9.1 9.0 (0.1%p)Combined market share 8.5 8.2 8.2 0.0%p

[ KRW in billions ]

MARKET SHARE BY LINE

Note : Long-term lines contain premiums paid at once

Commercial lines 9.8%Auto lines 21.0%Long-term lines 69.2%

Direct premium written by line[ % ]

FY 2009

Commercial lines 7.8%Auto lines 20.2%Long-term lines 72.0%

FY 2010


By line, direct premium written of long-term lines soared 21.4% in FY2010 compared to prior yearto KRW2,760.2 billion, which is a good profitability, mainly due to growth strategy with protection-type products and agency market expansion during the period.

The portfolio of long-term lines accounted for 72% from 69.2% of previous year contributed bettersales mix to result in the profit strength structure in FY2010. Auto lines also increased by 12.2% to KRW776.2 billion. However, commercial lines declined to6.9% to KRW299.7 billion.


In FY2010, earned premium rose 15.8% than that of previous year to KRW3,526.3 billion. Netpremium written was also up 18.9% to KRW3,590.4 billions.

Incurred losses rose 21.7% in FY2010 to KRW2,795.7 billion. Accordingly, loss ratio adverselyaffected by challenging market condition, increased by 3.9%p to 79.3% from 75.4% in FY2010.

Net operating expense rose 8.3% to KRW815.1 billion, year on year. However, expense ratiocontinuously improved down 1.6%p from 24.7% to 23.1% this year following FY2009.

Consequently, combined ratio up 2.3%p in FY2010 from 100.1% in FY2009 negatively influenced byloss ratio increase.

COMBINED RATIO

FY2008 FY2009 FY2010 YoY(%)

Earned premium 2,609.8 3,046.4 3,526.3 15.8%Incurred losses 2,152.9 2,296.8 2,795.7 21.7%

(1,971.3)Loss ratio (a) 82.5% 75.4% 79.3%Net operating expense 683.5 752.4 815.1 8.3%Expense ratio (b) 26.2% 24.7% 23.1% (1.6%p)Combined ratio (a+b) 108.7% 100.1% 102.4% 2.3%p

(101.7%)

[ KRW in billions ]

Loss ratio (a)[ % ]

FY2008 FY2009 FY2010

75.4%

82.5%

79.3%

Note : Figures in parenthesis exclude the effect the refund guarantee losses in 2008

26

INVESTMENT PERFORMANCE

FY2010 INVESTMENT PERFORMANCE


FY2009 FY2010YoY(%) Share(%) YoY(%) Share(%)

Cash & equivalents 222.2 (6.8) 4.8 343.7 54.7 6.4Domestic bonds 1,597.6 1.8 34.5 187.9 17.6 35.1Stock 126.3 (11.3) 2.7 196.9 55.9 3.7Investment funds 525.4 1.7 1.1 651.2 23.9 12.1Overseas securities 446.1 4.4 9.6 499.7 12.0 9.3Other securities 62.1 (30.8) 1.3 113.8 83.3 2.1Loans 790.2 38.9 17.0 954.3 20.8 17.8Real estate 667.3 0.7 14.4 717.2 7.5 13.4Total 4,627.6 11.8 100.0 5,367.5 16.0 100.0Investment yield 4.9% 5.3% 0.4%p

[ KRW in billions ]

Note : Long-term lines contain premiums paid at once

Domestic bonds 35.1%Loans 17.8%Real estate 13.4%Investment funds 12.1%Overseas securities 9.3%Cash & equivalents 6.4%Stock 3.7%Other securities 2.1%

FY2010 Investment performance[ % ]

FY 2010

Invested assets in FY2010 surged 16% over a year earlier to KRW5,367.5 billion, primarily due toactive investment management in every sector. Overseas securities increased by 12% toKRW499.7 billion and loan investment rose 20.8%, totalling KRW954.3 billion. Domestic bonds rose17.6% to KRW1,879 billion for concentrating to fixed-interest-bearing assets including overseasbonds; on the other hand, stock soared 55.9% to cope with market volatility.

Investment yield also continuously improved by 0.4%p to 5.3% compared to the FY2009.


NET INCOME

FY2008 FY2009 FY2010 YoY(%)

Earned premium 2,609.8 3,046.4 3,526.3 15.8%Underwriting income (186.4) (16.4) (95.8)Net investment income 106.2 207.6 257.0 23.8%Non-operating income 1.8 (4.0) (4.9) Tax expenses (benefits) (19.7) 46.8 35.4 (24.4%)Net income (a) (58.8) 140.4 120.9 (13.9%)Incurred in catastrophe reserve (b) (40.2) 13.6 11.4 (17.0%)Adjusted net income (a+b) (99.1) 154.0 132.3 (14.1%)

[ KRW in billions ]

ASSETS

FY2008 FY2009 FY2010 YoY(%)

Cash and deposits 238.3 222.2 343.7 54.7%Stocks 142.2 126.3 196.9 55.9%Equity-method stocks 143.3 190.2 2.3 (98.8%)Domestic bonds 1,349.3 1,597.6 1,887.9 18.2%Investment funds 516.6 525.4 651.2 23.9%Overseas securities 427.4 446.1 499.7 12.0%Other securities 89.8 62.1 113.8 83.3%Loans 568.8 790.2 954.3 20.8%Real estate 662.4 667.0 717.2 7.5%Investment assets 4,138.3 4,627.6 5,367.5 15.6%Non-investment assets 1,127.1 1,407.4 1,616.4 14.9%Total assets 5,265.5 6,035.0 6,973.9 15.6%

[ KRW in billions ]

In FY2010, the Company recorded net income of KRW120.9 billion. However, it fell to 13.9%compared to previous year, the figures still shows considerably strong per month over average 10billion KRW. Net investment income rose 23.8% which contributed to a continuous growthfollowing previous year.

Net income (a)[ KRW in billions ]

FY2009 FY2010

FY2008

140.4

58.8

120.9

Total assets[ KRW in billions ]

FY2008 FY2009 FY2010

6,035.0

6,973.9

5,265.5 Total assets increased by15.6% in FY2010 to KRW6,973.9 billion compared to the prior year.Domestic bonds grew 18.2% to KRW1,887.9 billion, which is for the Company to broad portfoliocontinuously following last year to secure fixed-interest-bearing assets including overseas bondssince FY2009.

Loans investment rose 20.8% in FY2010, amounting to KRW954.3 billion. Of particular note,significant reduction in equity-method stocks because all of the subsidiary stocks were transferredto financial holding company.

28


ASSET QUALITY

FY2008 FY2009 FY2010

Total loans* 577.0 804.6 975.2Normal 565.5 784.2 943.3Precautionary 0.6 11.2 0.5Substandard 9.3 3.4 15.0Doubtful 0.0 3.8 13.2Estimated loss 1.8 2.0 3.2NPL ratio (%) 1.92 1.14 3.22Provisions for loan loss 8.3 13.3 19.7Coverage ratio (%) 74.9% 144.6% 62.6

[ KRW in billions ]

LIABILITIES AND SHAREHOLDERS’EQUITY

FY2008 FY2009 FY2010 YoY(%)

Policy reserve 4,196.6 4,697.0 5,702.1 21.4%Catastrophe reserve 105.8 119.4 130.8 9.5%Other liabilities 537.4 538.9 525.4 (2.5%)Total liabilities 4,839.8 5,355.0 6,358.3 18.7%Total shareholders' equity 425.6 680.0 615.6 (9.5%)Adjusted shareholders' equity 531.4 799.4 746.3 (6.6%)

[ KRW in billions ]

Note : Before allowance for doubtful accounts

Total liabilities in FY2010 grew 18.7% over FY2009 to KRW6,358.3 billion, policy reserve increased21.4%, reaching KRW5,702.1 billion, while catastrophe reserve grew 9.5%.

Substandard & below recorded to KRW31.4 billion, rose by KRW22.2 billion in FY2010, year on year.Thus, the NPL ratio increased by 2.08%p and it brings coverage ratio to 62.6% in FY2010.

Total loans*[ KRW in billions ]

FY2008 FY2009 FY2010

804.6

975.2

577.0

Total liabilities[ KRW in billions ]

FY2008 FY2009 FY2010

5,355.0

4,839.8

6,358.3


SOLVENCY MARGIN RATIO

FY2008 FY2009 FY2010

Solvency amounts 613.9 866.4 709.6Solvency guidance 323.3 375.3 435.6Solvency margin ratio(%) 189.9 230.9 163.0

(238.6)* (256.0)**

[ KRW in billions ]

Note : *Figures in parenthesis represent excluding refund guarantee losses in FY2008

**Solvency Margin Ratio before establishing the holdings

The Company’s solvency margin ratio FY2010 was 256.0%, which is 25.1%p improved compared toprevious year, showing the Company’s financial soundness. However, it’s fell down to 163% afterdivision from establishment of financial holding company during FY2010. Adjusted ROE was 18.7%and RBC ratio was 198.9%.

Solvency margin ratio[ % ]

FY2008 FY2009 FY2010

230.9

189.9

163.0

30

THE BOARD OF DIRECTORS AND STOCKHOLDERMERITZ FIRE & MARINE INSURANCE CO., LTD.

We have audited the accompanying non-consolidated statements of financial position of Meritz Fire & Marine Insurance Co., Ltd. (the “Company”) as ofMarch 31, 2011 and 2010, and the related non-consolidated statements of income, appropriations of retained earnings, changes in equity and cash flowsfor the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the non-consolidated financial positionof Meritz Fire & Marine Insurance Co., Ltd. as of March 31, 2011 and 2010, and the results of its financial performance, and its cash flows for the yearsthen ended, in conformity with accounting principles generally accepted in the Republic of Korea.

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying non-consolidated financialstatements are not intended to present the financial position, results of financial performance, and cash flows in accordance with accounting principlesand practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Koreato audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and theaccompanying non-consolidated financial statements are for use by those who are knowledgeable about Korean accounting principles and auditingstandards and their application in practice.

April 28, 2011

INDEPENDENT AUDITORS’ REPORT

This audit report is effective as of April 28, 2011, the independent auditors’report date. Accordingly, certain material subsequent events or circumstances may have occurredduring the period from the auditors’report date to the time this audit report is used. Such events and circumstances could significantly affect the accompanying non-consolidated financial statements and may result in modifications to this report.


2011 2010

AssetsCash and cash equivalents (Notes 3, 9, 15, 27 and 37) ￦ 125,758,125 ￦ 72,174,312Deposits (Notes 9, 15 and 27) 217,921,858 49,999,460Trading securities (Notes 4, 15 and 27) 438,787,555 176,690,119Available-for-sale securities (Notes 4, 5, 15 and 27) 2,787,322,470 2,387,337,111 Held-to-maturity securities (Notes 4, 5, 6, 15 and 27) 123,355,704 193,567,089Equity method investments (Note 7) 2,815,162 190,238,600 Loans, less allowance for doubtful accounts of \20,893,639thousand in 2011 (\14,357,013 thousand in 2010) (Note 8) 954,307,285 790,244,245Property and equipment (Notes 9 and 22) 735,119,948 681,453,901Intangible assets (Note 10) 42,705,829 17,940,902Deferred acquisition costs (Note 14) 1,013,684,396 840,990,095Other assets, less allowance for doubtful accounts of12,130,925 thousand in 2011(\7,066,264 thousand in 2010)(Note 11) 355,537,615 323,934,654Separate account assets (Note 17) 176,542,850 210,418,544Total assets ￦ 6,973,858,797 ￦ 6,034,989,032

Liabilities and equityLiabilities:

Policy reserves (Notes 16 and 21) ￦ 5,702,119,201 ￦ 4,696,950,444Catastrophe reserves (Note 16) 130,752,257 119,438,218Insurance accounts payables (Notes 8, 15 and 18) 121,403,904 113,342,818Severance and retirement benefits (Note 19) 2,069,708 561,244Other liabilities (Note 20) 217,017,987 210,456,224Separate account liabilities (Note 17)Total liabilities 6,358,296,558 5,355,014,629

Equity: Capital stock (Notes 1 and 22) 43,634,845 61,900,000Capital surplus (Note 22) 170,432,783 235,797,493Capital adjustments (Note 22) (250,934,964) (116,585,558)Accumulated other comprehensive income (Notes 22 and 30) 265,675,762 201,087,426Retained earnings (Note 22) 386,753,813 297,775,042Total equity 615,562,239 679,974,403

Total liabilities and equity ￦ 6,973,858,797 ￦ 6,034,989,032

See accompanying notes.

NON-CONSOLIDATED STATEMENTS OFFINANCIAL POSITIONAS OF MARCH 31, 2011 AND 2010

(Korean won in thousands)

32

2011 2010

Operating revenue:Premium income (Note 24) ￦ 3,815,936,864 ￦ 3,271,836,963Net reinsurance income (Note 23) 147,216,101 242,144,311Compensation income (Note 13) 1,541,607 21,579,967Interest income (Note 4) 191,694,242 168,951,856Gain on valuation of securities (Notes 4 and 5) 15,521,616 2,694,168Gain on disposal of securities 61,660,348 40,857,211Gain on foreign currency transactions and translation (Note 15) 9,806,544 5,795,166Rental income 18,211,158 18,085,424 Dividend income 22,165,722 16,012,054Expenses recovered 42,771,560 47,486,673Reversal of policy reserves (Note 16) 6,602,578 146,466,014Separate accounts income (Note 17) 147,036,356 74,196,749Gain on valuation and transactions of derivative financial 7,842,874 36,833,108 instruments (Note 27)Other operating revenues 2,616,872 528,480

4,490,624,442 4,093,468,144

Operating expenses:Provision for policy reserves (Note 16) 1,011,771,335 646,766,962Provision for catastrophe reserves (Note 16) 11,314,040 13,631,655Claims paid 1,329,656,128 1,377,926,022Refunds expenses 670,588,862 654,271,688 Net reinsurance premiums paid (Note 23) 225,566,410 250,913,263Loss on valuation of securities (Notes 4 and 5) 17,598,288 1,499,299Loss on disposal of securities 12,385,287 9,399,873Operating and administrative expenses 554,314,290 493,578,162

(Notes 9, 10, 19, 25 and 26)Amortization of deferred acquisition costs (Note 14) 309,615,646 309,960,462Loss on foreign currency transactions and translation (Note 15) 10,246,149 45,352,970Separate accounts expenses (Note 17) 147,036,356 74,196,749Loss on valuation and transactions of derivative financial 6,546,041 7,259,408instruments (Note 27)Other operating expenses (Note 28) 39,957,417 35,280,474

4,346,596,249 3,920,036,987Operating income 144,028,193 173,431,157

(Korean won in thousands, except per share amounts)

NON-CONSOLIDATED STATEMENTS OFINCOMEAS OF MARCH 31, 2011 AND 2010

[ Continued ]


2011 2010

Non-operating income (expense):Equity in earnings of equity method investments, net (Note 7) 11,924,007 10,978,591Gain on disposal of property and equipment, net 37,523 14,040Loss on valuation of land (Note 9) (662,671) - Other, net 1,000,276 2,737,057

12,299,135 13,729,688Income before income taxes 156,327,328 187,160,845Income tax expense (Note 29) (35,378,204) (46,753,530)Net income ￦ 120,949,124 ￦ 140,407,315

Earnings per share (Note 31):Basic ￦ 1,133 ￦ 1,318Diluted ￦ 1,128 ￦ 1,316



34

2011 2010

Retained earnings before appropriations:Retained earnings carried forward from the prior year ￦ 64,689 ￦ 27,727 Net income 120,949,124 140,407,315

121,013,813 140,435,04Transfer from voluntary reserves 179,400,000 -

300,413,813 140,435,042

Appropriations: Legal reserve 4,000,000 3,200,000Loss on capital reduction 257,061,723 - Cash dividends (Note 33) 39,268,182 31,970,353Voluntary reserve - 105,200,000

300,329,905 140,370,353

Unappropriated retained earningscarried forward to the next year ￦ 83,908 ￦ 64,689


NON-CONSOLIDATED STATEMENTS OFAPPROPRIATION OF RETAINED EARNINGSAS OF MARCH 31, 2011 AND 2010



As of April 1, 2009 ￦ 61,900,000 ￦ 234,445,107 ￦(114,393,077) ￦ 86,322,796 ￦ 157,367,727 ￦425,642,553Valuation on treasury stock fund - 1,352,386 (2,192,481) - - (840,095)Gain on valuation of available-for-sales securities - - - 82,943,418 - 82,943,418Valuation on derivative financial instruments - - - 30,976,250 - 30,976,250 Equity adjustment arising from equity method - - - 784,155 - 784,155

investments Equity adjustment of separate account - - - 60,807 - 60,807

Net income - - - - 140,407,315 140,407,315As of March 31, 2010 ￦ 61,900,000 ￦ 235,797,493 ￦(116,585,558) ￦ 201,087,426 ￦ 297,775,042 ￦679,974,403

As of April 1, 2010 ￦ 61,900,000 ￦ 235,797,493 ￦ (116,585,558) ￦ 201,087,426 ￦ 297,775,042 ￦679,974,403Dividends - - - - (31,970,353) (31,970,353)Capital reduction arising from spin-off (18,265,155) (65,751,723) (257,061,723) - - (341,078,601)Valuation on treasury stock fund - 387,013 (640,896) - - (253,883)Disposal on treasury stock - - 7,131,206 - - 7,131,206Transfer of treasury stock arising from spin-off - - 116,222,007 - - 116,222,007Gain on valuation of available-for-sales securities - - - 38,764,333 - 38,764,333Valuation on derivative financial instruments - - - 7,785,394 - 7,785,394Equity adjustment arising from equity method - - - (11,703,831) - (11,703,831)

investmentsGain on revaluation of land - - - 29,752,334 - 29,752,334Equity adjustment of separate account - - - (9,894) - (9,894)Net income - - - - 120,949,124 120,949,124

As of March 31, 2011 ￦ 43,634,845 ￦ 170,432,783 ￦(250,934,964) ￦ 265,675,762 ￦ 386,753,813 ￦615,562,239


NON-CONSOLIDATED STATEMENTS OFCHANGES IN EQUITYAS OF MARCH 31, 2011 AND 2010


TotalRetainedearnings

Accumulated other

comprehensiveincome

CapitaladjustmentsCapital surplusCapital stock

36

2011 2010

Cash flows from operating activities:Net income ￦ 120,949,124 ￦ 140,407,315Adjustments to reconcile net income to net cash provided by

operating activities:Net provision for policy and catastrophe reserves 1,016,482,797 513,932,603Loss (gain) on valuation of securities, net 2,076,672 (1,194,869)Depreciation 18,765,346 17,889,190Amortization 6,031,983 3,669,817Provision for severance and retirement benefits 9,310,303 8,868,924 Provision for doubtful accounts, net 15,286,688 5,129,485Amortization of deferred acquisition costs 309,615,646 309,960,462Loss on foreign currency translation, net 3,833 25,695,336Gain on valuation of derivative financial instruments, net (4,675,951) (20,102,809)Equity in earnings of equity method investments, net (11,924,007) (10,978,591)Loss on revaluation of land 662,671 - Others, net (1,579,130) (21,594,010)Changes in operating assets and liabilities

Deposit (68,840,711) 18,320,555Trading securities (257,675,080) 73,172,145 Available-for-sale securities (355,060,092) (255,237,254)Held-to-maturity securities 69,975,385 44,575,224Dividend income from equity method investment - 2,896,492 Loans (174,285,067) (226,490,708)Deferred acquisition costs (482,309,946) (505,341,449)Separate account liabilities 3,952,628 (8,860,583)Insurance accounts payables 8,288,946 13,716,732Payment of severance and retirement benefits (1,511,035) (3,360,625)Separate account assets 580,994 1,823,294 Others, net (28,753,501) (39,845,113)Net cash provided by operating activities 195,368,496 87,051,563


NON-CONSOLIDATED STATEMENTS OFCASH FLOWSAS OF MARCH 31, 2011 AND 2010

[ Continued ]


2011 2010

Cash flows from investing activities:Acquisition of equity method investments (9,000,000) (37,802,943)Acquisition of property and equipment (35,003,402) (22,598,134)Disposal of property and equipment 126,361 34,109 Increase in intangible assets (36,499,057) (9,410,783)Decrease (increase) in leasehold deposits, net 1,094,992 (4,614,289)Others, net (3,962,553) 712,050

Net cash used in investing activities (83,243,659) (73,679,990)

Cash flows from financing activities:Decrease in leasehold deposits received (501,877) (1,342,068)Disposal of treasury stock 7,131,206 - Payment of dividends (31,970,353) -

Net cash used in financing activities (25,341,024) (1,342,068)

Decrease in cash and cash equivalents arising from spin-off (33,200,000) -Net increase in cash and cash equivalents 53,583,813 12,029,505Cash and cash equivalents at the beginning of the year 72,174,312 60,144,807Cash and cash equivalents at the end of the year (Note 37) 125,758,125 72,174,312



38

1. Company information

Meritz Fire & Marine Insurance Co., Ltd. (the “Company”) was incorporated in October 1922. The Company provides primarily property and casualtyinsurance products and related services. On October 1, 2005, the Company changed its name from Oriental Fire & Marine Insurance Co., Ltd. toMeritz Fire & Marine Insurance Co., Ltd.

The Company listed its common shares at the Korea Exchange (“KRX”) in July 1957 and the Company’s paid-in capital decreased by \18,265 millionas a result of capital reduction arising from spin-off on March 25, 2011 which was approved by an extra-ordinary shareholders’meeting held onJanuary 11, 2011. The Company completed the procedures for listing spun off common shares at KRX on April 11, 2011, and accordingly, as of March31, 2011, the Company has 87,269,690 common shares issued amounting to \43,635 million.

As of March 31, 2011, the stockholders of the Company and their shareholdings are as follows:

NOTES TO NON-CONSOLIDATEDFINANCIAL STATEMENTSMARCH 31, 2011 AND 2010

Stockholder Number of shares Percentage ofownership (%)

Nine individuals, including Cho Jeong-Ho 18,898,212 21.66Meritz Financial Group Inc. 11,364,520 13.02Employees’stock ownership association 1,349,010 1.54KB pure stocks 2 4,232,665 4.85Others 51,425,283 58.93

87,269,690 100.00

2. Summary of significant accounting policies

Basis of financial statement preparationThe Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language inconformity with accounting principles generally accepted in the Republic of Korea (“Korean GAAP”). Certain accounting principles applied by theCompany that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generallyaccepted accounting principles in other countries. Accordingly, these non-consolidated financial statements are intended for use by those who areinformed about Korean accounting principles and practices. In the event of any differences in interpreting the non-consolidated financial statementsor the independent auditors’report thereon, the Korean version, which is used for regulatory reporting purposes, shall prevail. The accompanyingnon-consolidated financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from theKorean language financial statements.

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the Republic of Korea,including Statements of Korea Accounting Standards (“SKAS”) 1 to 24 (except for SKAS 14), and the significant accounting policies followed by theCompany in preparing the accompanying non-consolidated financial statements are summarized below.


Financial year The Company’s financial year is March 31. Reference in the accompanying non-consolidated financial statements for 2011 and 2010 represents theyears ended March 31, 2011 and 2010, respectively.

RevenuesRevenues from premium income are recognized at the time when such premium payments become due. However, in the case of insurancecontracts of which the first premium payment or single premium payment are uncollected as of the first day of the insured period due to a paymentextension allowed by the Company, the first premium payment or single premium payment is recognized as revenue in the period in which the firstday of insured period falls. If premium is received before the nominated collection due date, the Company records unearned insurance premiumbased on calendar period calculation.

Interest income on deposits, securities and loans, and other investments is recognized as income in the period when it is earned. Interest income ondefaulted, delinquent or restructured loans is recognized as income in the period when the payments are received.

Cash equivalentsHighly liquid deposits and marketable securities with original maturities of three months or less, and which have no significant risk of loss in value byinterest rate fluctuations, are considered as cash equivalents.

Investments in securitiesInvestments in securities within the scope of SKAS 8 Investments in Securities are classified as either trading, held-to-maturity or available-for-salesecurities, as appropriate, and are initially measured at cost, including incidental expenses.

Securities that are acquired and held principally for the purpose of selling them in the near term are classified as trading securities. Debt securitieswhich carry fixed or determinable payments and fixed maturity are classified as held-to-maturity if the Company has the positive intention and abilityto hold them to maturity. Securities that are not classified as either trading or held-to-maturity are classified as available-for-sale securities.

After initial measurement, available-for-sale securities are measured at fair value with unrealized gains or losses being recognized directly in equityas other comprehensive income. Likewise, trading securities are also measured at fair value after initial measurement, but with unrealized gains orlosses reported as part of net income. Held-to-maturity securities are measured at amortized cost after initial measurement. The cost is computedas the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method of anydifference between the initially recognized amount and the maturity amount.

The fair value of trading and available-for-sale securities that are traded actively in the open market (marketable securities) is measured at theclosing price of those securities at the reporting date. Non-marketable equity securities are measured at cost subsequent to initial measurement iftheir fair values cannot be reliably estimated. Non-marketable debt securities are carried at a value using the present value of future cash flowsdiscounted using an appropriate interest rate which reflects the issuer’s credit rating announced by a public independent credit rating agency. If theapplication of such measurement method is not feasible, estimates of fair values may be made using a reasonable valuation model or quotedmarket prices of similar debt securities issued by entities conducting business in similar industries.

The Company recognizes an impairment loss on its investments in securities if there is objective evidence that the securities are impaired. Theimpairment loss is charged to the statement of income.

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Equity method investmentsInvestments in entities over which the Company has control or significant influence are accounted for using the equity method.

Under the equity method of accounting, the Company’s initial investment in an investee is recorded at acquisition cost. Subsequently, the carryingamount of the investment is adjusted to reflect the Company’s share of income or loss of the investee in the statement of income and share ofchanges in equity that have been recognized directly in the equity of the investee in the related equity account of the Company in the statement offinancial position.

At the date of acquisition, the excess of the cost of the investment over the Company’s share of the net fair value of the investee’s identifiable assetsand liabilities is accounted for as goodwill which is amortized over its useful life within 20 years using the straight-line method. Conversely, negativegoodwill represents the excess of the Company’s share in the net fair value of the investee’s identifiable assets and liabilities over the cost of theinvestment. Negative goodwill is recorded to the extent of the fair value of acquired non-monetary assets and recognized as income using thestraight-line method over the remaining weighted-average useful life of those acquired non-monetary assets. The amount of negative goodwill inexcess of the fair value of acquired non-monetary assets is recognized as income immediately.

In translating the financial statements of foreign investees into Korean won, assets and liabilities are translated at the exchange rate at the reportingdate and income and expenses are translated at the average exchange rate for the reporting period. All resulting exchange differences arerecognized as foreign currency translation adjustments in other comprehensive income within equity.

Allowance for doubtful accountsThe allowance for doubtful accounts is provided in compliance with the Regulation of Insurance Supervision (“RIS”), which requires the application ofminimum loss ratios based on the degree of collectability of receivables, including loans. Receivables are classified as normal, precautionary,substandard, doubtful and estimated loss, and the related allowance is calculated at a minimum of 0.5% (0.75% for consumer loans), 2% (5% forconsumer loans), 20%, 50% and 100%, respectively, of the outstanding amount in each classification.

Property and equipmentProperty and equipment are stated at cost, less accumulated depreciation, except for certain assets in existence as of July 1, 1998 that wererevalued in accordance with the previous Korean Assets Revaluation Law and land and buildings that were revalued in accordance with the currentrevised SKAS 5 which are stated at fair value, less accumulated depreciation.

Maintenance and repairs are expensed in the year in which they are incurred. Expenditures which enhance the value or extend the useful life of therelated assets are capitalized.

Depreciation of property and equipment is provided using the declining balance method (buildings using the straight-line method) over the followingestimated useful lives:


Years

Buildings 40Vehicles 4Furniture and equipment 4


The Company has chosen the revaluation model as its accounting policy for its land. Accordingly, land is measured at fair value, less impairment lossesrecognized after the date of revaluation. Valuation is performed frequently enough to ensure that the fair value of a revalued land does not differmaterially from its carrying amount.

If a land’s carrying amount is increased as a result of a revaluation, the increase shall be credited directly to in the other comprehensive income.However, the increase shall be recognized in the statement of income to the extent that it reverses a revaluation decrease of the same land previouslyrecognized in the statement of income.

If a land’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in the statement of income. However, the decreaseshall be debited directly to other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that land.

Intangible assetsIntangible assets of the Company consist of development cost and other intangible assets which are stated at cost, less accumulated amortization.Amortization is recognized as an expense based on the straight-line method over the estimated useful life of 5 years.

Impairment of assetsWhen the recoverable amount of an asset is less than its carrying amount due to obsolescence, physical damage or abrupt decline in the marketvalue of the asset, the decline in value, if material, is deducted from the carrying amount and recognized as an asset impairment loss in the currentyear.

If the value of impaired asset subsequently recovers and the recovery objectively relates to an event arising after the period when the impairmentloss was recorded, such recovery is credited in the current operations up to the previously recorded impairment loss.

Compensation receivablesInsurance benefits that are paid in advance to a policyholder in the event of a claim where the benefits paid can be recovered through the Companyexercising its recourse guarantee or compensation right, or disposal of insured assets acquired by the Company during the resolution process ofaccident claims, are accounted for as compensation receivables. Recoverable amounts out of the reserve for outstanding claims are deducteddirectly from policy reserves.

Compensation receivables are estimated by multiplying the average recovery ratio (ie, recoverable amount/net claims) for the last 3 years to the netclaims amount during the year.

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Deferred acquisition costsThe expected cost of acquiring long-term insurance contracts entered into before April 1, 2004, except for those long-term contracts whose relatedactual acquisition costs exceeded the expected acquisition costs, were deferred and amortized using the straight-line method over the insurancecontract term, or 7 years, whichever is shorter. However, pursuant to the RIS and Accounting Standards for Insurance Companies, the Companycalculates the amortized deferred acquisition costs related to the insurance contracts during the reporting period, by deducting the differencebetween the policy reserves under the net level premium method and those under the surrender value method from the amounts computed byadding the unamortized acquisition costs at the prior year-end to acquisition costs incurred during the current year.

During the year ended March 31, 2005, the Company changed its accounting policy for deferred acquisition costs related to the long-term insurancecontracts which were entered into on or after April 1, 2004, pursuant to a revision of the RIS in 2004. According to the revised RIS, actual acquisitioncosts, or the expected deferred acquisition costs if the former exceeds the latter, are deferred and amortized using the straight-line method over theinsurance premium payment term, or over 7 years, whichever is shorter. However, if the unamortized deferred acquisition costs at the end of thereporting period exceed the difference between the policy reserves calculated using the net level premium method and surrender value method, thesurplus amount is fully expensed in the current period. No additional amount was amortized in 2011 and 2010.

Policy reservesIn accordance with the Insurance Business Act (“IBA”) and the RIS, the Company is required to maintain policy reserves, and the details are asfollows:

1. Long-term insurance premium reservesThe Company maintains a reserve for the portion of premiums, which is refundable to policyholders upon maturity and cancellation of the policyunder long-term saving oriented insurance unless there has been a substantial claim for payment under the policy.

2. Reserve for outstanding claimsThe reserve for outstanding claims refers to a provision for claims received but not settled, or for claims not received, and therefore not yet settled,on the insurance policies where the events causing the payment of claims have occurred at the reporting date. The amount collectible fromexercising the compensation right or disposal of insured assets acquired by the Company is reported as a deduction from policy reserves.

3. Unearned premium reserveThe Company is required to maintain an unearned premium reserve, which is the premium whose payment date belongs to the current year andwhose applicable period has not yet commenced at the end of the reporting period.

4. Reserve for participating policyholder dividendThe reserve for participating policyholder dividend is provided for the purpose of future dividends in accordance with the relevant laws and contractterms.

5. Excess participating policyholder dividend reservePursuant to the relevant laws and contracts, the Company may provide an excess participating policyholder dividend reserve in accordance with theoperating results of related insurance products. The reserve may be used to pay participating policyholder dividends or additional dividends.

6. Reserve for losses on participating insurance policiesIn accordance with the RIS and relevant laws, the Company may establish a reserve up to 30% of earnings of dividend insurance. The reserve forlosses on participating insurance policies may be used to offset a deficit of participating insurance contracts within 5 years and the residual may beused as the dividends to the individual policyholders.

7. Reinsurance reserveIn the event of ceding insurance, the Company maintains reinsurance reserves at amounts which can be expected to be collected from the relatedreinsurance companies pursuant to the relevant laws.



Catastrophe reservesIn order to prepare for and recover from exceptionally large claims which may be incurred in the future, the Company is required to maintain acatastrophe reserve as a liability with reserve rates determined by the IBA and the RIS.

The Company provides a catastrophe reserve by multiplying predetermined ratios to net retained premiums received during the reporting period byline of insurance, up to a certain limit, as calculated by multiplying predetermined ratios to the total insurance premiums received during thereporting period by line of insurance in accordance with the RIS requirements.

This reserve may be reversed up to the limit of the net loss for the year in the event that the ratio of net insurance expenses claimed to net earnedinsurance premiums at risk, by line of insurance, for the year is in excess of the regulated ratio by line of insurance which are prescribed by the RIS.

Separate accountsIn accordance with “Article 108”of the IBA and the RIS, the Company classifies all or part of the property equivalent to the reserves on retirementinsurance and retirement pension into separate accounts, which are recorded separately from other assets and liabilities on the statement offinancial position as “separate account assets”and “separate account liabilities”respectively.

The given or received capital that are caused by temporary transactions are deducted from separate account liabilities and separate account assetsas “separate account receivables”and “separate account payables, respectively”.

The Company recognizes the separate account income and expenses arising from insurance policies where the Company has provided a guaranteeon principal and interest (guarantee on principal and interest on retirement insurance policies and retirement pension policies) separately in thegeneral account income statement.

According to “Article 6-23”of the RIS, the Company does not state separate account revenue and expenses on the insurance policies bearingdividends on the basis of actual results (retirement pension policies bearing dividend on the basis of actual results) in the general account incomestatement.

Severance and retirement benefitsIn accordance with the Employee Retirement Benefit Security Act (“ERBSA”) and the Company’s employee benefits policy, employees terminatingtheir employment with at least one year of service are entitled to severance and retirement benefits based on the rates of pay in effect at the time oftermination, years of service and certain other factors. The provision is determined based on the amount that would be payable assuming allemployees were to terminate their employment as of the reporting date.

In accordance with the ERBSA, the Company made a transition to a new defined benefit pension plan (“DB Plan”) and a defined contribution pensionplan (“DC plan”) to replace the traditional severance and retirement benefit plan, effective for the prior year.

Prior to April 1, 2009, the Company was obliged to pay all employees a severance payment which required no external funding under the traditionalseverance and retirement benefit plan. The accumulated severance and retirement benefits under the previous severance and retirement benefitplan were transferred to the DB plan at the effective date of the DB plan.

Under the DB Plan, the provision for the retirement benefit liability is determined based on an employee’s final salary, equal in value at retirement toat least one month’s final salary for every year of service by the employee. The retirement benefit liability is partly funded, and the funds contributedare managed by the plan’s administrators that are appointed by the Company. The Company accounts for the funds contributed as a deduction fromthe retirement benefit liability.

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Severance and retirement benefits (cont’d)Under the DC Plan, the Company pays a fixed monthly contribution of at least 1/12th of an employee’s annual salary for each year of service to aseparately administered fund which is managed by the plan’s administrators. Contributions to the DC Plan are recognized as an expense in thestatement of income as incurred.

Provisions and contingent liabilitiesProvisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflowof resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made on the amount of theobligation. The provision is used only for expenditures for which the provision was originally recognized. If the effect of the time value of money ismaterial, provisions are stated at present value.

A contingent liability is disclosed, but not recognized when it is not probable that an outflow of resources embodying economic benefits will berequired to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability.

Income taxesCurrent income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to thetax authorities. Deferred income taxes are provided using the liability method for the tax effect of temporary differences between the tax bases ofassets and liabilities and their reported amounts in the financial statements. Deferred income tax assets and liabilities are measured using theenacted tax rates and laws that will be in effect when the differences are expected to reverse. In addition, current tax and deferred tax are charged orcredited directly to equity if the tax relates to items that are credited or charged directly to equity.

Valuation of long-term receivables (payables) at present value and restructuringReceivables or payables arising from long-term installment transactions are stated at present value. The difference between the carrying amount ofthese receivables or payables and their present value is amortized using the effective interest rate method and credited or charged to the statementof income over the installment period.

When credit terms (e.g., principal, interest rate, payment period) of receivables from debtors experiencing financial difficulties (e.g., courtreceivership, debt restructuring, financial workout) are unfavorably changed from the perspective of the Company, such receivables are stated atpresent value and the difference between the carrying amount and present value of such receivables is charged to the statement of income.

Foreign currency translationTransactions involving foreign currencies are recorded at the exchange rates prevailing at the time the transactions are made.

Monetary assets and liabilities denominated in foreign currencies are translated into Korean won at the prevailing exchange rates of \1,107.2 toUS$1 and \13.3188 to ?1 at March 31, 2011 and \1,130.8 to US$1 and \12.1768 to ?1 at March 31, 2010. The resulting unrealized foreign currencytranslation gains or losses are credited or charged to current operations.

DerivativeDerivative financial instruments are presented as assets or liabilities valued principally at the fair value of the rights or obligations associated with thederivative contracts. The unrealized gain or loss from a derivative transaction with the purpose of hedging the exposure to changes in the fair value ofa recognized asset or liability or unrecognized firm commitment is recognized in net income. For a derivative instrument with the purpose of hedgingthe exposure to the variability of cash flows of a recognized asset or liability or a forecasted transaction, the hedge-effective portion of the derivativeinstrument’s gain or loss is deferred as other comprehensive income in equity. The ineffective portion of the gain or loss is charged or credited tocurrent operations. Derivative instruments that do not meet the criteria for hedge accounting, or contracts for which the Company has not electedhedge accounting are measured at fair value with unrealized gains or losses reported in net income.



Leases A lease is accounted for as either a capital lease or an operating lease. A lease is recognized as a capital lease if it transfers substantially to theCompany all the risks and rewards incidental to ownership of the leased asset.

An asset acquired by way of a capital lease arrangement is stated in the statement of financial position at the lower of the fair value or the presentvalue of minimum lease payments at the inception of the lease. The corresponding liability is included in the statement of financial position as acapital lease obligation. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constantrate of interest on the remaining balance of the liability. Capitalized lease assets are depreciated in the same manner as other depreciable propertyand equipment.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term.

Share-based payment transactions For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase inequity at the fair value of the goods or services received or the equity instruments granted over the vesting period. For cash-settled share-basedpayment transactions, the Company measures the goods or services acquired and the liability incurred at the fair value of the liability, and re-measures the fair value of the liability at each reporting date, with any changes in value recognized in profit or loss for the period. For share-basedpayment transactions in which the terms of the arrangement provide the supplier of goods or services with a choice of whether the Company settlesthe transaction in cash or by issuing equity instruments, the Company accounts for that transaction, or the components of that transaction, as acash-settled share-based payment transaction if, and to the extent that, the Company has incurred a liability to settle in cash (or other assets), or asan equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred.

Share-based payment transactions implemented before the effective date of SKAS 22 are accounted in accordance with Korea Financial AccountingStandards Interpretations 39-35 Accounting for Stock Options.

Per share amountsBasic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the year.Diluted earnings per share are calculated by dividing net income by the weighted-average number of common shares outstanding during the yearplus the weighted-average number of common shares that would have been outstanding assuming the conversion of all dilutive potential commonshares.

Premium deficiencyThe Company recognizes a premium deficiency in accordance with the Accounting Standards for Insurance Companies, if the expected interest rate,which has been used in calculating premium reserves, exceeds the interest rate for a one-year time deposit at the end of the reporting period andthe deficiency is expected to last other than temporary. The Company performs a premium deficiency test once annually.

A premium deficiency shall first be recognized by derecognizing any unamortized acquisition costs as an expense that the deficiency is eliminated. Ifthe premium deficiency is greater than the unamortized acquisition costs, a liability shall be accrued for the excess deficiency.

Significant judgments and accounting estimatesThe preparation of financial statements in accordance with Korean GAAP requires management to make judgments, estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the reporting date, and the reportedamounts of revenues and expenses during the reporting period. Such judgments and accounting estimates made that have the most significanteffect on the amounts recognized in the financial statements were included in the valuation of property and equipment, loan and receivables,securities, deferred income tax and derivative financial instruments. Actual results could differ from those estimates.

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3. Restricted deposits

Other deposits as of March 31, 2011 and 2010 amounting to \7,500 thousand and \10,500 thousand, respectively, are restricted to withdraw as they areprovided for a collateral for checking accounts.

4. Trading securities

Details of trading securities as of March 31, 2011 and 2010 are as follows (Korean won in thousands):


Balance before valuation Fair value (*) Valuation gains (losses)2011 2010 2011 2010 2011 2010

Equity securities ￦ 42,222,905 ￦ - ￦ 45,635,999 ￦ - ￦ 3,413,094 ￦ -Government and public bonds 49,912,581 30,355,378 49,803,810 30,270,870 (108,771) (84,508)Special bonds - 20,192,864 - 20,191,000 - (1,864)Beneficiary certificates 284,933,841 105,747,774 285,538,039 105,898,249 604,198 150,475Overseas securities 2,247,957 5,230,431 2,247,957 5,462,210 - 231,779Other securities 55,000,000 14,419,344 55,561,750 14,867,790 561,750 448,446

￦ 434,317,284 ￦ 175,945,791 ￦ 438,787,555 ￦ 176,690,119 ￦ 4,470,271 ￦ 744,328

Trading securities Available-for-sale securities Held-to-maturity securities Total2011 2010 2011 2010 2011 2010 2011 2010

Government and ￦ 474,260 ￦ 42,183 ￦ 27,029,517 ￦ 15,045,021 ￦ 69,195 ￦ 65,056 ￦ 27,572,972 ￦ 15,152,260public bonds

Special bonds 26,618 26,796 34,257,266 31,556,482 1,097,000 1,110,598 35,380,884 32,693,876Financial bonds - - 14,220,634 11,106,306 6,505,453 7,730,000 20,726,087 18,836,306Corporate bonds - - 10,983,228 14,412,096 911,895 1,111,351 11,895,123 15,523,447Overseas bonds - 4,304 30,457,744 28,591,614 564,897 1,223,790 31,022,641 29,819,708Other bonds 790,911 679,873 - 294,400 - - 790,911 974,273

￦ 1,291,789 ￦ 753,156 ￦116,948,389 ￦101,005,919 ￦ 9,148,440 ￦ 11,240,795 ￦127,388,618 ￦112,999,870

(*) The fair value of trading securities that are traded actively in the open market (marketable securities) is measured at the closing price of those securities at the reporting date. Non-marketable securities

are carried at a value announced by a public independent credit rating agency.

Details of interest income from investment securities earned during 2011 and 2010 are as follows (Korean won in thousands):


The Company reclassified trading securities to available-for-sale categories as appropriate under SKAS 8 for the year ended March 31, 2009. Thefollowing table shows the carrying values and fair values of the reclassified trading securities (Korean won in thousands):

2011 2010Type Companies Reclassification date Fair value Book value Fair value Book value

Overseas securities CCO EverestⅡ Jul. 1, 2008 ￦ 10,802,397 ￦ 10,802,397 ￦ 10,984,591 ￦ 10,984,591SC Low Vol ⅡFund Jul. 1, 2008 10,439,982 10,439,982 10,168,154 10,168,154

￦ 21,242,379 ￦ 21,242,379 ￦ 21,152,745 ￦ 21,152,745

The Company would have recorded unrealized gain and loss on valuation of trading securities amounting to ?89,634 thousand and ?1,113,304 thousand in2011 and 2010 in the statement of income, respectively if the reclassification had not been made in 2009.

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5. Available-for-sale securities

Details of equity securities classified as available-for-sale securities as of March 31, 2011 and 2010 are summarized as follows (Korean won inthousands):


UnrealizedNumber of Ownership Acquisition Fair value/ gains (losses) Impairment loss

shares (%) cost NAV Book value (*4) Up to 2010 2011

Equity securities with readily determinable fair values (*1):

Daewoo securities Green 1,000,000 3.70 ￦ 3,500,000 ￦ 3,540,000 ￦ 3,540,000 ￦ 40,000 ￦ - ￦ -Korea Special Purpose Acquisition Company(“SPAC”)

Korea Line Corporation (*5) 35,000 0.21 6,386,762 333,900 333,900 - - 6,052,862Tongyang Value Ocean SPAC 200,000 4.05 2,000,000 1,980,000 1,980,000 (20,000) - -Samsung Life Insurance 18,380 0.01 2,021,800 1,893,140 1,893,140 (128,660) - -Jeonbuk Bank 1,329,394 2.39 9,993,150 9,026,585 9,026,585 (966,565) - -Hana Nikel 1 2,400,000 9.02 11,999,988 9,240,000 9,240,000 (2,759,988) - -Hanjin heavy Industries & 242,018 0.51 11,962,262 7,913,989 7,913,989 (4,048,273) - -

Construction Co., Ltd.Hanjin Eng & 87,750 0.30 4,424,398 1,105,650 1,105,650 (3,318,748) - -

Construction HoldingsHanwha Non-Life 897,042 1.84 10,629,948 9,194,681 9,194,681 (1,435,267) - -

Insurance Co., Ltd.HMC 1 SPAC 500,000 4.00 1,000,000 1,137,500 1,137,500 137,500 - -Daeshin Growth SPAC 400,000 3.65 800,000 902,000 902,000 102,000 - -Dae Joo Co., Ltd. 288,000 0.81 432,000 133,056 133,056 (298,944) - -Seobu Terrain and 620,504 3.01 9,928,069 9,524,736 9,524,736 (403,333) - -

Development Co., Ltd.Solomon SPAC 800,000 4.71 1,000,000 952,000 952,000 (48,000) - -Shinyoung SPAC 1 1,000,000 4.95 1,000,000 1,085,000 1,085,000 85,000 - -Shinhan SPAC 1 74,999 0.91 149,998 371,245 371,245 221,247 - -Eugenes Corp. 90,000 0.17 983,632 405,000 405,000 (578,632) - -INICIS Co., Ltd. 64,800 0.50 1,328,400 418,608 418,608 (909,792) - -Kiwoom SPAC 1 500,000 4.74 1,000,000 985,000 985,000 (15,000) - -HI 1 SPAC 250,000 3.45 1,000,000 957,500 957,500 (42,500) - -Korea Investment 360,000 3.19 792,000 774,000 774,000 (18,000) - -

Securities SPAC 1STX Co. 143,665 0.29 6,904,273 3,886,138 3,886,138 (3,018,135) - -Nongshim Holdings 18,072 0.39 1,789,128 1,046,369 1,046,369 (742,759) - -Hynix 428,669 0.07 12,817,203 13,417,340 13,417,340 600,137 - -

Semiconductor Inc.103,843,011 80,223,437 80,223,437 (17,566,712) - 6,052,862 - -

2011

[ Continued ]




Equity securities without readily determinable fair value (*3):

Korea Securities 478 0.01 3,160 3,160 3,160 - - -Depository

Pusan New Port 988,614 0.86 4,943,070 5,126,952 5,126,952 183,882 - -ARD Holdings, Inc.

Company (*2)ARD Holdings, Inc. (*2) 320,000 0.66 1,600,000 1,614,080 1,614,080 14,080 - -Pointpark Ltd. 100,000 2.32 200,000 20,871 20,871 - 179,129 -Busan International 399,000 3.99 1,995,000 2,033,304 2,033,304 38,304 - -Mapo Aekyoung

Airlines (*2)Mapo Aekyoung 168,000 14.00 840,000 715,008 715,008 (124,992) - -

Town (*2)Seoul Guarantee Insurance 49,984 0.02 1,805,484 2,714,931 2,714,931 909,447 - -

Company (*2, *6)KDS 1 Preferred stock 795 - 6,042 - - - 6,042 -C& Marine Financing Co. 200,000 - 1,000,000 - - - 1,000,000 -Final Data Inc. 25,000 - 900,000 - - - 900,000 -Vestas IM 59,800 14.95 299,000 299,000 299,000 - - -

13,591,756 12,527,306 12,527,306 1,020,721 2,085,171 - - -

Contributed capital (*3):

Macquarie Korea OPP - 1.24 12,693,153 12,693,153 12,693,153 - - -KoFC Macquarie Growth - 4.49 4,540,000 4,540,000 4,540,000 - - -

Champ 2010 No1Shinhan Infra Portfolio - 10.42 26,075,524 26,075,524 26,075,524 - - -Korea BTL Fund 1 - 2.78 15,206,394 15,206,394 15,206,394 - - -

58,515,071 58,515,071 58,515,071 - - -Beneficiary certificates 376,713,268 365,632,752 365,632,752 (10,394,364) 534,677 151,475

￦552,663,106 ￦516,898,566 ￦516,898,566 ￦(26,940,355) ￦ 2,619,848 ￦ 6,204,337

2011

50




Equity securities with readily determinable fair values(*1):

OCI Co., Ltd. 3,500 0.02 ￦ 1,054,179 ￦ 689,500 ￦ 689,500 ￦ (364,679) ￦ - ￦ -STX Co. 143,665 0.29 6,904,273 2,923,583 2,923,583 (3,980,690) - -Nongshim Holdings 18,072 0.39 1,789,129 1,134,922 1,134,922 (654,207) - -Hanwha Non-Life 897,042 1.84 10,629,948 9,688,054 9,688,054 (941,894) - -

Insurance Co., Ltd.Dong-A Pharmaceutical 40,803 0.39 4,185,812 4,712,746 4,712,746 526,934 - -Hynix Semiconductor Inc. 100,000 0.02 2,354,700 2,670,000 2,670,000 315,300 - -Dae Joo Co., Ltd. 288,000 0.81 432,000 164,160 164,160 (267,840) - -Hanjin Eng & 87,750 0.30 4,424,398 1,110,037 1,110,037 (3,314,361) - -

Construction HoldingsKorea Line Corp. 35,000 0.30 6,386,762 2,205,000 2,205,000 (4,181,762) - -Jeonbuk Bank 1,329,394 2.49 9,993,150 9,345,640 9,345,640 (647,510) - -Hanwha Chemical Corp. 60,000 0.04 988,858 828,000 828,000 160,858) - -Hyundai Mobis Co., Ltd. 20,000 0.02 3,072,243 3,000,000 3,000,000 (72,243) - -Eugenes Corp. 90,000 0.17 983,632 321,750 321,750 (661,882) - -Lotte Shopping Co., Ltd. 2,000 0.01 674,120 656,000 656,000 (18,120) - -Seoul Broadcasting 25,000 0.14 1,177,350 1,000,000 1,000,000 (177,350) - -

SystemLG Display Co., Ltd. 40,000 0.01 1,561,647 1,598,000 1,598,000 36,353 - -NHN Corporation 5,000 0.01 953,965 900,000 900,000 (53,965) - -INICIS Co., Ltd. 64,800 0.50 1,328,400 377,136 377,136 (951,264) - -SODIFF Advanced 11,000 0.10 1,069,099 935,000 935,000 (134,099) - -

Materials Co., Ltd.11,000 0.10 1,069,099 935,000 935,000 (134,099) - -

Seoul Semiconductor 35,000 0.06 1,615,271 1,526,000 1,526,000 (89,271) - -Co., Ltd.

Hanjin heavy Industries & 239,622 0.50 11,962,262 6,170,267 6,170,267 (5,791,995) - -Daewoo Securities

Construction Co., Ltd.Daewoo Securities 1,000,000 3.70 3,500,000 3,635,000 3,635,000 135,000 - -

Green Korea SPACTongyang Value ` 200,000 4.05 2,000,000 2,100,000 2,100,000 100,000 - -

Ocean SPACHana Nikel 1 2,400,000 10.55 11,999,988 8,880,000 8,880,000 (3,119,988) - -

91,041,186 66,570,795 66,570,795 (24,470,391) - -

2010

[ Continued ]




Equity securities without readily determinable fair values (*3):

Korea Securities Depository 376 0.01 3,160 3,160 3,160 - - -Pusan New Port Company (*2) 988,614 0.86 4,943,070 5,060,715 5,060,715 117,645 - -ARD Holdings, Inc. (*2) 320,000 0.66 1,600,000 1,640,000 1,640,000 40,000 - -Pointpark Ltd. 100,000 2.32 200,000 20,871 20,871 - 179,129 -Busan International 399,000 3.99 1,995,000 1,609,965 1,609,965 (385,035) - -

Airlines (*2)Mapo Aekyoung Town (*2) 168,000 14.00 840,000 808,416 808,416 (31,584) - -Seoul guarantee Insurance 49,984 0.14 1,805,484 2,105,076 2,105,076 299,592 - -

Company (*2, *6)Shinhan 1st SPAC 74,999 10.00 149,998 149,998 149,998 - - -KDS 1 Preferred stock 795 - 6,042 - - - 6,042 -C& Marine Financing Co. 200,000 12.50 1,000,000 - - - 1,000,000 -Final Data Inc. 25,000 0.50 900,000 - - - 900,000 -

13,442,754 11,398,201 11,398,201 40,618 2,085,171 -

Contributed capital (*3):

MIC2003-1 - 0.83 132,237 132,237 132,237 - - -Macquarie Korea OPP - 1.24 11,309,153 11,309,153 11,309,153 - - -Shinhan Infra Portfolio - 10.42 24,535,190 24,535,190 24,535,190 - - -Korea Infra 3 - 2.78 12,392,995 12,392,995 12,392,995 - - -

48,369,575 48,369,575 48,369,575 - - -Beneficiary certificates 457,723,491 419,522,910 419,522,910 (37,665,904) 330,389 204,288

￦610,577,006 ￦545,861,481 ￦545,861,481 ￦(62,095,677) ￦ 2,415,560 ￦ 204,288

2010

(*1) The fair value of marketable equity securities was measured at the closing price as of the reporting date.

(*2) The fair value was measured based on Korean Bond Pricing & KR Co’s (the “KBP”) valuation report. KBP used more than one valuation model such as Discounted Cash Flow (DCF) model, Imputed

Market Value (IMV) model, Discounted Free Cash Flow to Equity (FCFE) model, Dividend Discount Model (DDM) and Risk Adjusted Discounted Cash Flow Model together with reasonable applicable

assumptions.

(*3) These equity securities are stated at acquisition cost as the fair value of these securities cannot be measured reliably in accordance with Korean GAAP.

(*4) Unrealized gain (loss) on valuation of investment securities above is before adjustment of deferred income tax.

(*5) Korea Line Corporation (“KLC”) filed for receivership in February 2011, and the Company assessed the objective evidence that investment securities in KLC had been impaired existed. Accordingly, the

Company stated carrying amount of the securities at recoverable amount, which resulted in recognition of impairment loss on available-for-sale securities amounting to \6,052,862 thousand.

(*6) The Company recognized reversal of impairment loss amounting to \1,805,484 thousand for the year ended March 31, 2011 as a result of valuation by KBP.

52

Debt securities classified as available-for-sale securities as of March 31, 2011 and 2010 are summarized as follows (Korean won in thousands):


Unrealized gains Maturity Type Acquisition cost Amortized cost Fair value(*1) Book value(*2) (losses) (*3)

Within 1 year Overseas bonds (*4) ￦ 28,404,861 ￦ 31,415,379 ￦ 26,602,600 ￦ 26,527,419 ￦ (4,887,960)Other securities 62,700,000 62,700,000 58,253,686 58,253,686 (4,446,314)

91,104,861 94,115,379 84,856,286 84,781,105 (9,334,274)

Within 5 years Government and 47,536,335 48,906,330 50,814,805 50,687,835 1,781,505public bonds

Special bonds 93,692,863 93,496,202 100,232,665 99,655,316 6,159,114Financial bonds 200,756,270 200,705,461 206,672,053 205,155,220 4,449,759Corporate bonds 86,933,026 87,656,824 91,404,903 90,962,838 3,306,014Overseas bonds (*4) 344,891,478 343,551,988 342,156,115 337,879,571 (5,672,417)

773,809,972 774,316,805 791,280,541 784,340,780 10,023,975

Within 10 years Government and 66,802,216 66,870,536 68,554,416 67,870,055 999,519public bonds

Special bonds 430,081,614 430,062,010 456,621,769 449,919,515 19,857,505Financial bonds 90,330,908 90,297,875 94,597,908 93,960,865 3,662,990Corporate bonds 109,997,429 110,000,000 109,688,177 109,329,705 (670,295)Overseas bonds (*4) 31,850,742 31,850,742 31,671,412 31,407,530 (443,212)

729,062,909 729,081,163 761,133,682 752,487,670 23,406,507

Over 10 years Government and 408,683,938 408,438,185 444,423,735 440,718,570 32,280,385public bonds

Special bonds 100,088,617 100,083,733 107,120,180 106,581,100 6,497,367Corporate bonds 9,987,321 9,988,311 11,098,474 10,980,485 992,174Overseas bonds (*4) 88,797,440 88,797,440 91,953,594 90,534,194 1,736,754

607,557,316 607,307,669 654,595,983 648,814,349 41,506,680

Total Government and 523,022,489 524,215,051 563,792,956 559,276,460 35,061,409public bonds

Special bonds 623,863,094 623,641,945 663,974,614 656,155,931 32,513,986Financial bonds 291,087,178 291,003,336 301,269,961 299,116,085 8,112,749Corporate bonds 206,917,776 207,645,135 212,191,554 211,273,028 3,627,893Overseas bonds (*4) 493,944,521 495,615,549 492,383,721 486,348,714 (9,266,835)Other securities 62,700,000 62,700,000 58,253,686 58,253,686 4,446,314)

￦ 2,201,535,058 ￦ 2,204,821,016 ￦ 2,291,866,492 ￦ 2,270,423,904 ￦ 65,602,888

2011


Unrealized gains Maturity Type Acquisition cost Amortized cost Fair value(*1) Book value(*2) (losses) (*3)

Within 1 year Special bonds ￦ 14,999,095 ￦ 14,999,784 ￦ 15,124,178 ￦ 15,108,943 ￦ 109,159Financial bonds 9,781,956 9,923,788 10,401,837 10,273,570 349,782Corporate bonds 21,576,566 21,080,286 21,557,044 21,467,659 387,373Overseas bonds (*4) 38,012,507 40,063,182 41,788,757 41,313,213 1,250,031Other securities 46,799,000 46,799,000 47,207,547 47,207,547 408,547

131,169,124 132,866,040 136,079,363 135,370,932 2,504,892


Special bonds 90,699,118 90,637,583 97,644,432 96,885,440 6,247,857Financial bonds 120,192,735 120,165,702 126,372,474 125,379,115 5,213,413Corporate bonds 133,402,645 133,504,755 142,917,549 141,554,617 8,049,862Overseas bonds (*4) 301,179,043 302,257,328 299,428,698 296,459,522 (5,797,806)

697,591,274 699,994,614 721,148,025 714,928,749 14,934,135


Special bonds 360,056,576 360,054,648 379,729,843 375,067,830 15,013,182Financial bonds 40,330,908 40,325,220 43,852,460 43,311,960 2,986,740Corporate bonds 39,063,476 39,323,292 40,364,331 40,069,335 746,043Overseas bonds (*4) 91,224,749 91,199,249 92,942,452 91,602,856 403,607

575,302,116 575,713,176 603,592,685 596,619,764 20,906,588

Over 10 years Government and 281,984,409 281,938,025 292,203,592 290,374,730 8,436,705public bondsSpecial bonds 90,088,617 90,088,224 94,084,165 93,641,890 3,553,666 Corporate bonds 9,987,321 9,988,006 10,657,554 10,539,565 551,559

382,060,347 382,014,255 396,945,311 394,556,185 12,541,930

Total Government and 378,728,549 380,178,038 393,692,063 391,592,568 11,414,530public bonds

Special bonds 555,843,406 555,780,239 586,582,618 580,704,103 24,923,864Financial bonds 170,305,599 170,414,710 180,626,771 178,964,645 8,549,935Corporate bonds 204,030,008 203,896,339 215,496,478 213,631,176 9,734,837Overseas bonds (*4) 430,416,299 433,519,759 434,159,907 429,375,591 4,144,168)Other securities 46,799,000 46,799,000 47,207,547 47,207,547 408,547

￦ 1,786,122,861 ￦ 1,790,588,085 ￦ 1,857,765,384 ￦ 1,841,475,630 ￦ 50,887,545

2010

54

(*1) The fair value of marketable debt securities was measured at the closing price as of the reporting date. In addition, the fair value of non-marketable debt securities was measured by discounted cash

flow using discount rates reflecting the bond’s credit rating by an independent credit valuer.

(*2) Fair value includes accrued income, which is the difference between fair value and book value.

(*3) Unrealized gains (losses) on valuation of investment securities above are before deferred income tax adjustments.

(*4) The Company recognized the impairment loss on the overseas securities amounting to \11,111,893 thousand and \1,150,655 thousand in 2011 and 2010, respectively, based on its assessment that the

objective evidence that the securities had been impaired existed. In addition, the Company recognized the reversal of impairment loss on available-for-sale securities of \8,785,089 thousand as the

reversal of impairment loss for overseas securities is objectively related to the event occurring after the impairment loss was recognized and also recognized the reversal of impairment loss of

\1,984,199 thousand by repayment of principal.

Changes in valuation gains and losses for available-for-sale securities for the years ended March 31, 2011 and 2010 are summarized as follows (Koreanwon in thousands):


Beginning balance Increase Decrease Ending balance

Equity securities ￦ (24,429,773) ￦ - ￦ (7,883,782) ￦ (16,545,991)Government and public bonds 11,414,530 23,646,879 - 35,061,409Special bonds 24,923,864 7,590,122 - 32,513,986Financial bonds 8,549,935 - 437,186 8,112,749Corporate bonds 9,734,837 - 6,106,944 3,627,893Beneficiary certificates (37,665,904) - (27,271,540) (10,394,364)Overseas bonds (4,144,168) (5,122,667) - (9,266,835)Other securities 408,547 (4,854,861) - (4,446,314)Net valuation gain (loss) before income tax (11,208,132) ￦ 21,259,473 ￦ (28,611,192) 38,662,533Income tax effect 2,709,069 (8,397,264)Net valuation gain (loss) after income tax ￦ (8,499,063) ￦ 30,265,269

2011


Equity securities ￦ (46,545,811) ￦ - ￦ (22,116,038) ￦ (24,429,773)Government and public bonds 2,044,673 9,369,857 - 11,414,530 Special bonds 10,343,296 14,580,568 - 24,923,864 Financial bonds 2,390,665 6,159,270 - 8,549,935 Corporate bonds 5,767,265 3,967,572 - 9,734,837 Beneficiary certificates (82,883,014) - (45,217,110) (37,665,904)Overseas bonds (6,039,507) - (1,895,339) (4,144,168)Other securities (4,216,382) 408,547 (4,216,382) 408,547 Net valuation loss before income tax (119,138,815) ￦ 34,485,814 ￦ (73,444,869) (11,208,132)Income tax effect 27,696,333 2,709,069 Net valuation loss after income tax ￦ (91,442,482) ￦ (8,499,063)

2010


Investment trust contracts as of March 31, 2011 and 2010 are as follows (Korean won in thousands):

Gains (losses)Company Face value Acquisition cost Book value on valuation

Available-for-sale securities ACE Pension 10,400,000 10,400,000 10,518,768 118,768TAURUS 2 11,200,000 11,200,000 9,611,598 (1,588,402)ACE General 10,400,000 10,400,000 10,518,768 118,768TAURUS 3 10,700,000 10,700,000 9,074,633 (1,625,367)ACE Advisory 20,000,000 20,000,000 18,529,919 (1,470,081)

￦ 62,700,000 ￦ 62,700,000 ￦ 58,253,686 ￦ (4,446,314)

2011

Gains (losses)Company Face value Acquisition cost Book value on valuation

Available-for-sale securities TEMPIS 1 ￦ 11,799,000 ￦ 11,799,000 ￦ 12,305,845 ￦ 506,845 TEMPIS 2 11,500,000 11,500,000 11,679,558 179,558 Neaway Assets Investment 10,000,000 10,000,000 9,452,520 (547,480)Samho SH Investment 3,000,000 3,000,000 3,109,838 109,838 Albatross18 10,500,000 10,500,000 10,659,786 159,786

￦ 46,799,000 46,799,000 ￦ 47,207,547 ￦ 408,547

2010

Details of assets included in the investment trust contracts above as of March 31, 2011 and 2010 are as follows (Korean won in thousands):

2011 2010

Cash ￦ 38,036,613 ￦ 2,278,536 Securities - 9,338,548Bonds 20,217,073 31,988,673Other - 3,601,790

￦ 58,253,686 ￦ 47,207,547

6. Held-to-maturity securities

Details of held-to-maturity securities as of March 31, 2011 and 2010 are as follows (Korean won in thousands):

56

Details of pledged securities as of March 31, 2011 are as follows (US dollars in unit or Korean won in thousands):


Korean won Remarks Face value amounts of mortgage Companies

Available-for-sale Securities Derivatives 55,000,000 ￦ 55,000,000 Industrial Bank of KoreaDerivatives 40,000,000 40,000,000 SC First BankDerivatives $9,000,000 9,964,800 Korea Development BankDerivatives $40,000,000 44,288,000 SC First BankDerivatives $20,000,000 22,144,000 KB BankForward hedge 10,000,000 10,000,000 CLSA Securities

181,396,800

Held-to-maturity securities Derivatives 10,000,000 10,000,000 Industrial Bank of KoreaDerivatives $10,000,000 11,072,000 Korea Development Bank

21,072,000￦ 202,468,800

Maturity Classification Acquisition cost Amortized cost Recoverable value Book value

Within 1 year Government and public bonds ￦ 20,220 ￦ 20,220 ￦ 20,220 ￦ 20,220

Within 5 years Government and public bonds 1,157,977 1,211,470 1,211,470 1,211,470Special bonds 10,000,000 10,000,000 10,000,000 10,000,000

11,157,977 11,211,470 11,211,470 11,211,470

Within 10 years Government and public bonds 50,359 52,014 52,014 52,014Financial bonds 91,000,000 91,000,000 91,000,000 91,000,000Overseas bonds (*) 11,545,000 11,545,000 11,072,000 11,072,000

102,595,359 102,597,014 102,124,014 102,124,014

Over 10 years Special bonds 10,000,000 10,000,000 10,000,000 10,000,000

2011

[ Continued ]



Total Government and public bonds 1,228,556 1,283,704 1,283,704 1,283,704Special bonds 20,000,000 20,000,000 20,000,000 20,000,000Financial bonds 91,000,000 91,000,000 91,000,000 91,000,000Overseas bonds (*) 11,545,000 11,545,000 11,072,000 11,072,000

￦ 123,773,556 ￦ 123,828,704 ￦ 123,355,704 ￦ 123,355,704

2011


Within 1 year Government and public bonds 9,840 9,840 9,840 9,840Financial bonds 20,000,000 20,000,000 20,000,000 20,000,000Corporate bonds 19,953,573 19,992,069 19,992,069 19,992,069

39,963,413 40,001,909 40,001,909 40,001,909

Within 5 years Government and public bonds 1,228,556 1,257,180 1,257,180 1,257,180Special bonds 10,000,000 10,000,000 10,000,000 10,000,000Financial bonds 91,000,000 91,000,000 91,000,000 91,000,000Overseas bonds (*) 11,545,000 11,545,000 11,308,000 11,308,000

113,773,556 113,802,180 113,565,180 113,565,180

Within 10 years Financial bonds 30,000,000 30,000,000 30,000,000 30,000,000

Over 10 years Special bonds 10,000,000 10,000,000 10,000,000 10,000,000

Total Government and public bonds 1,238,396 1,267,020 1,267,020 1,267,020Special bonds 20,000,000 20,000,000 20,000,000 20,000,000Financial bonds 141,000,000 141,000,000 141,000,000 141,000,000Corporate bonds 19,953,573 19,992,069 19,992,069 19,992,069Overseas bonds (*) 11,545,000 11,545,000 11,308,000 11,308,000

193,736,969 193,804,089 193,567,089 193,567,089

2010

(*) The difference of acquisition cost, amortized cost, recoverable value and book value is due to exchange rate applied at acquisition date and the reporting date.

58

7. Equity method investments

Details of equity method investments as of March 31, 2011 and 2010 are as follows (Korean won in thousands):


2011 2010Number of shares Ownership (%) Acquisition cost Netasset value Book value Book value

Meritz Investment Bank (*1) - - ￦ - ￦ - ￦ - ￦ 12,386,189Meritz Securities Co., Ltd.(*1) - - - - - 150,752,293Meritz Assets Management (*1) - - - - - 12,229,619Meritz Financial Information Service( *1) - - - - - 2,570,777PT. Asuransi Hanjin Korindo (*2) 7,650 51.00 953,955 2,815,162 2,815,162 2,805,337Ritzpartners Co., Ltd. (*1) - - - - - 9,494,385

￦ 953,955 ￦ 2,815,162 ￦ 2,815,162 ￦ 190,238,600

Equity in OtherBeginning Acquisition earnings (loss) comprehensive Ending

Companies balance (Disposal) Spin-off of investee income (loss) balance

Meritz Securities Co., Ltd. (*1,*2) ￦ 150,752,293 ￦ 12,386,189 ￦ (178,696,872) ￦ 13,524,429 ￦ 2,033,961 ￦ -Meritz Investment Bank (*1) 12,386,189 (12,386,189) - - - -Meritz Assets Management (*2) 12,229,619 - (12,241,209) 11,590 - -Meritz Financial Information Service (*2) 2,570,777 - (3,990,801) 1,420,024 - -PT. Asuransi Hanjin Korindo 2,805,337 - - (53,962) 63,787 2,815,162Ritzpartners Co.Ltd. (*2) 9,494,385 8,000,000 (14,253,422) (3,181,864) (59,099) -Meritz Business Service (*2) - 1,000,000 (1,399,600) 203,790 195,810 -

￦ 190,238,600 ￦ 9,000,000 ￦ (210,581,904) ￦ 11,924,007 ￦ 2,234,459 ￦ 2,815,162

(*1) Investment securities in those companies were entirely transferred to Meritz Financial Group Inc. as a result of spin-off on March 25, 2011.

(*2) Financial statements as of December 31, 2010 were used for PT, Assuransi Hanjin Korindo.

The details of changes in book value of equity method investments for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands):

2011


Equity in OtherBeginning Acquisition earnings (loss) comprehensive Ending

Companies balance (Disposal) Spin-off of investee income (loss) balance

Meritz Securities Co., Ltd. ￦ 124,039,918 ￦ 18,699,993 ￦ (2,896,492) ￦ 10,353,248 ￦ 555,626 ￦ 150,752,293Meritz Investment Bank 5,689,415 4,102,950 - 2,296,070 297,754 12,386,189 Meritz Assets Management 8,511,795 5,000,000 - (1,208,457) (73,719) 12,229,619 Meritz Financial Information Service 2,205,257 - - 365,520 - 2,570,777 PT. Asuransi Hanjin Korindo 2,901,847 - - (322,175) 225,665 2,805,337 Ritzpartners Co., Ltd. - 10,000,000 - (505,615) - 9,494,385

￦ 143,348,232 ￦ 37,802,943 ￦ (2,896,492) ￦ 10,978,591 ￦ 1,005,326 ￦190,238,600

2010

(*1) Though the Company retired 10,360,714 shares of Meritz Investment Bank due to a merger between Meritz Securities Co., Ltd. and Meritz Investment Bank and acquired 7,458,336 shares of

Meritz Securities Co., Ltd. by the merger ratio (1:0.719867), those shares were transferred to Meritz Financial Group Inc. as a result of spin-off on March 25, 2011.

(*2) The Company could not obtain financial statements of the investee under equity method as of March 25, 2011, spin-off date and accordingly, it used the financial statements as of March 31, 2011.

The changes in the difference between the acquisition cost and proportionate net asset value of the investees at the time of acquisition (negative goodwill) for the years ended March 31, 2011 and 2010

are as follows (Korean won in thousands):

Beginning balance Increase Amortization Spin-off Ending balance

Meritz Securities Co., Ltd. ￦ (17,615,805) ￦ (489,247) ￦ 2,277,963 ￦ 15,827,089 ￦ -Meritz Investment Bank (489,247) - 489,247 - -Meritz Business Service - 155,291 (70,709) (84,582) -

￦ (18,105,052) ￦ (333,956) ￦ 2,696,501 ￦ 15,742,507 ￦ -

2011

Beginning balance Increase Amortization Ending Balance

Meritz Securities Co., Ltd. ￦ (7,880,768) ￦ (14,598,130) ￦ 4,863,093 ￦ (17,615,805)Meritz Investment Bank (364,644) (2,353,714) 2,229,111 (489,247)

￦ (8,245,412) ￦ (16,951,844) ￦ 7,092,204 ￦ (18,105,052)

2010

60

The condensed financial information of the investees under equity method as of and for the years ended March 31, 2011 and 2010 are as follows (Koreanwon in thousands):


Companies Total assets Total liabilities Net asset value Operating income Net losses

PT.ASURANSI HANJIN KORINDO ￦ 6,579,632 ￦ 1,059,706 ￦ 5,519,926 ￦ 118,702 ￦ (105,808)

2011

Operating income Net incomeCompanies Total assets Total liabilities Net asset value (losses) (losses)

Meritz Securities Co., Ltd. ￦ 1,913,311,717 ￦ 1,388,146,096 ￦ 525,165,621 ￦ 31,370,567 ￦ 20,631,641Meritz Investment Bank 1,722,318,400 1,569,525,447 152,792,953 935,062 3,061,415 Meritz Assets Management 12,692,994 463,375 12,229,619 (891,246) (1,259,369)Meritz Financial Information Service 7,810,232 5,239,455 2,570,777 369,979 315,967 PT. Asuransi Hanjin Korindo 6,180,363 679,703 5,500,660 178,095 (631,715)Ritzpartners Co., Ltd. 9,513,482 19,097 9,494,385 (603,197) (505,615)

2010

8. Loans

The maturities of loans as of March 31, 2011 and 2010 are summarized as follows (Korean won in thousands):

2011 2010

Within 1 year ￦ 68,713,563 ￦ 132,902,6171 year ~ 3 years 252,279,408 167,764,5803 years ~ 5 years 150,276,689 77,087,784Over 5 years 503,931,264 426,846,277Total ￦ 975,200,924 ￦ 804,601,258

Annual interest rate March 31, 2011 March 31, 2010

Loans related to housing 2.0% ~ 5.0% ￦ 11,263,977 ￦ 12,303,096￦ 11,263,977 ￦ 12,303,096

As of March 31, 2011 and 2010, loans to the Company’s directors and employees consist of the following (Korean won in thousands):


The Company classifies its loans and other receivables into five different grades: "normal", "precautionary", "substandard", "doubtful" and "estimatedloss", pursuant to the RIS and the Company’s own classification criteria of assets. Details of the classification of the loans and other receivables as ofMarch 31, 2011 and 2010 are as follows (Korean won in thousands):

Descriptions Normal Precautionary Substandard Doubtful Estimated loss Total

Loans :Policy loans ￦ 298,475,932 ￦ - ￦ - ￦ - ￦ - ￦ 298,475,932Loans secured by real estate 263,542,958 492,000 3,169,958 - 3,234,476 270,439,392Unsecured loans 24,390 - 6,828,000 - 1,651 6,854,041Guaranteed loans 12,154,583 22,724 - - - 12,177,307Other loans 369,067,232 - 5,004,000 13,183,020 - 387,254,252

943,265,095 514,724 15,001,958 13,183,020 3,236,127 975,200,924

Other receivables :Insurance receivables (*1) 44,868,366 24,249,178 2,751,220 3,089,246 3,303,955 78,261,965Other accounts receivables 35,969,177 82,405 175,511 92,789 3,227,232 39,547,114Accrued income (*2) 3,590,465 8,162 - - - 3,598,627Trade notes receivables 446,858 - - - - 446,858Suspense payment - - 65,901 - - 65,901Dishonored notes - - - - 791,154 791,154

84,874,866 24,339,745 2,992,632 3,182,035 7,322,341 122,711,619￦ 1,028,139,961 ￦ 24,854,469 ￦ 17,994,590 ￦ 16,365,055 ￦ 10,558,468 ￦ 1,097,912,543

2011

Descriptions Normal Precautionary Substandard Doubtful Estimated loss Total

Loans :Policy loans ￦ 275,100,633 ￦ - ￦ - ￦ - ￦ - ￦ 275,100,633Loans secured by real estate 218,300,261 1,181,049 3,283,220 - 1,981,000 224,745,530Unsecured loans 49,010 485 - - 1,651 51,146Guaranteed loans 13,501,603 15,010 - - - 13,516,613Other loans 277,280,000 10,000,000 107,336 3,800,000 - 291,187,336

784,231,507 11,196,544 3,390,556 3,800,000 1,982,651 804,601,258

Other receivables :Insurance receivables (*1) 52,764,101 8,337,467 2,589,484 2,081,580 881,106 66,653,738Other accounts receivables 25,204,450 280,071 104,215 14,008 3,190,408 28,793,152Accrued income (*2) 3,940,259 22,190 - - - 3,962,449Trade notes receivables 384,534 - - - - 384,534Suspense payment - - 61,159 - 9,196 70,355Dishonored notes - - - - 791,154 791,154

82,293,344 8,639,728 2,754,858 2,095,588 4,871,864 100,655,382￦ 866,524,851 ￦ 19,836,272 ￦ 6,145,414 ￦ 5,895,588 ￦ 6,854,515 ￦ 905,256,640

2010

62

(*1) The allowance for doubtful accounts is determined after netting insurance receivables against insurance payables by each counterparty pursuant to the RIS.

(*2) The Company records accrued income for the accounts classified as “normal”or “precautionary”. And the Company does not provide an allowance for doubtful accounts for accrued income

receivables from financial institutions.

Details of allowance for doubtful accounts for the balances of loans and other receivables as of March 31, 2011 and 2010 are as follows (Korean won inthousands):


Normal Precautionary Substandard Doubtful Estimated lossDescriptions (0.5~0.75%) (2~5%) (20%) (50%) (100%) Total

Loans ￦ 6,566,497 ￦ 25,736 ￦ 3,254,708 ￦ 6,591,510 ￦ 3,236,127 ￦ 19,674,578Insurance receivables 224,341 2,173,184 550,244 1,544,622 3,303,955 7,796,346Other accounts receivables 179,845 1,648 35,102 46,394 3,227,232 3,490,221Accrued income 17,951 163 - - - 18,114Trade notes receivables 2,234 - - - - 2,234Suspense payments - - 32,856 - - 32,856Dishonored notes - - - - 791,154 791,154

￦ 6,990,868 ￦ 2,200,731 ￦ 3,872,910 ￦ 8,182,526 ￦ 10,558,468 ￦ 31,805,503

2011

Normal Precautionary Substandard Doubtful Estimated lossDescriptions (0.5~0.75%) (2~5%) (20%) (50%) (100%) Total

Loans ￦ 5,167,840 ￦ 1,959,826 ￦ 1,336,120 ￦ 2,850,000 ￦ 1,982,651 ￦ 13,296,437Insurance receivables 263,820 166,749 517,896 1,040,790 881,106 2,870,361Other accounts receivables 126,022 5,601 20,842 7,004 3,190,408 3,349,877Accrued income 19,700 443 - - - 20,143Trade notes receivables 1,922 - - - - 1,922Suspense payments - - 23,611 - 9,196 32,807Dishonored notes - - - - 791,154 791,154

￦ 5,579,304 ￦ 2,132,619 ￦ 1,898,469 ￦ 3,897,794 ￦ 6,854,515 ￦ 20,362,701

2010


As of March 31, 2011 and 2010, the allowances for loans, by each type, are summarized as follows (Korean won in thousands):

2011 2010

Policy loans ￦ 2,238,555 ￦ 2,063,252Loans secured by real estate 6,103,784 4,971,263Unsecured loans 1,367,434 2,043Guaranteed loans 92,295 102,012Others 9,872,510 6,157,867

￦ 19,674,578 ￦ 13,296,437

Descriptions 2011 2010 2009

Loans ￦ 975,200,924 ￦ 804,601,258 ￦ 577,228,679Insurance receivables 122,711,619 100,655,382 52,984,210

￦ 1,097,912,543 ￦ 905,256,640 ￦ 630,212,889

Allowance for doubtful accounts ￦ 31,805,503 ￦ 20,362,701 ￦ 14,623,643Allowance ratio 2.90% 2.25% 2.32%

The ratio of allowance for doubtful accounts to total receivables as of March 31, 2011, 2010 and 2009 is as follows (Korean won in thousands):

9. Property and equipment

Changes in net book value of property and equipment for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands):

Beginning balance Additions Disposals Revaluation Depreciation Ending balance

Land (*1) ￦ 399,662,047 ￦ (*2) 35,481 ￦ - ￦ 37,481,347 ￦ - ￦ 437,178,875Buildings 255,182,101 365,405 - - (7,636,490) 247,911,016Furniture and equipment 14,106,017 14,970,592 (79,500) - (11,110,381) 17,886,728Vehicles 27,817 - (9,338) - (18,475) 4Construction in-progress 12,475,919 19,667,406 - - - 32,143,325

￦ 681,453,901 ￦ 5,038,884 ￦ (88,838) ￦ 37,481,347 ￦ (18,765,346) ￦ 735,119,948

2011

The values of the Company’s land, as determined by the government for tax administration purposes are as follows (Korean won in thousands):

64

(*1) The Company engaged Daeil Asset Appraisal Co., Ltd., an accredited independent appraiser to determine the fair value of its land under revaluation model. Fair value is determined by reference to

market-based evidence. The valuation performed by the appraiser as of March 31, 2010 was based on active market prices, adjusted for any difference in the nature, location or condition of the specific

property.

If the land was measured using the cost model, the carrying amounts would be as \164,360,783 thousand and \164,325,302 thousand at March 31, 2011 and 2010, respectively.

Revaluation loss of \671,287 thousand and revaluation income of \8,616 thousand which is reverse of previously recognized revaluation decrease wererecorded as non-operating expenses and income for the year ended March 31, 2011, respectively. The movements in accumulated other comprehensiveincome due to the revaluation are as follows (Korean won in thousands):


Beginning balance Additions Disposals Depreciation Ending balance

Land ￦ 399,244,045 ￦ 418,002 ￦ - ￦ - ￦ 399,662,047Buildings 262,126,048 682,394 - (7,626,341) 255,182,101Furniture and equipment 14,320,698 10,031,751 (38,176) (10,208,256) 14,106,017Vehicles 64,303 - - (36,486) 27,817Construction in-progress 1,009,932 11,465,987 - - 12,475,919

￦ 676,765,026 ￦ 22,598,134 ￦ (38,176) ￦ (17,871,083) ￦ 681,453,901

2010

2011 2010

Beginning balance ￦ 190,533,415 ￦ 190,533,415Increase in accumulated other comprehensive income by revaluation 38,144,018 -Adjustment of deferred income tax (8,391,684) -Ending balance ￦ 220,285,749 ￦ 190,533,415

(*2) The condominium ownership classified as guarantee deposit was reclassified as property and equipment for the year ended March 31, 2011.

The residual values of certain fully depreciated property and equipment which are still in use as of March 31, 2011 and 2010, amounted to \117,365 thousand and \87,720 thousand, respectively.

Book Value Value determined by the government2011 2010 2011 2010

Main Building ￦ 259,364,210 ￦ 228,561,920 ￦ 128,566,080 ￦ 122,762,750Yeouido Building 33,663,000 27,938,000 17,633,000 16,762,800Annex of Main Building 31,501,680 31,501,680 18,136,629 18,136,629Branch Office 21,836,337 23,032,152 16,932,135 16,874,034Training Building 40,962,270 38,995,130 33,621,648 32,629,278Other 49,851,378 49,633,165 25,358,217 25,310,497

￦ 437,178,875 ￦ 399,662,047 ￦ 240,247,709 ￦ 232,475,988


Acquisition cost Accumulated Amortization Book value

Development cost ￦ 43,705,295 ￦ (9,604,334) ￦ 34,100,961Other intangible assets 18,508,960 (9,904,092) 8,604,868

￦ 62,214,255 ￦ (19,508,426) ￦ 42,705,82

2011

Acquisition cost Accumulated Amortization Book value

Development cost ￦ 18,557,197 ￦ (7,663,649) ￦ 10,893,548Other intangible assets 13,993,483 (6,946,129) 7,047,354

￦ 32,550,680 ￦ (14,609,778) ￦ 17,940,902

2010

The property and equipment are insured against fire and other damages. Details are as follows (Korean won in thousands):

Insured amountType Insured property Insurance Company 2011 2010

Burglary insurance Cash and securities Dongbu Insurance Co.,Ltd. ￦ 1,250,000 ￦ 1,226,000Fire insurance Building Dongbu Insurance Co.,Ltd. 284,550,962 284,961,935Property insurance Furniture and fixtures Dongbu Insurance Co.,Ltd. 37,954,974 29,481,986

￦ 323,755,936 ￦ 315,669,921

In addition, the Company maintains package insurance for financial-institutions and general indemnity insurance for its directors and vehicles as ofMarch 31, 2011.

10. Intangible assets

Details of intangible assets as of March 31, 2011 and 2010 are as follows (Korean won in thousands):

66

10. Intangible assets

Changes in intangible assets for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands):


Beginning balance Purchases Spin-off Amortization (*) Ending balance

Development cost ￦ 10,893,548 ￦ 25,148,098 ￦ - ￦ (1,940,685) ￦ 34,100,961Other intangible assets 7,047,354 11,315,477 (5,666,667) (4,091,296) 8,604,868Total ￦ 17,940,902 ￦ 36,463,575 ￦ (5,666,667) ￦ (6,031,981) ￦ 42,705,829

2011

Beginning balance Purchases Amortization (*) Ending balance

Development cost ￦ 5,686,571 ￦ 6,848,054 ￦ (1,641,077) ￦ 10,893,548Other intangible assets 6,513,365 2,562,729 (2,028,740) 7,047,354Total ￦ 12,199,936 ￦ 9,410,783 ￦ (3,669,817) ￦ 17,940,902

2010

(*) Amortization is charged to operating expenses in the statement of income.

Residual useful lives of the Company’s intangible assets as of March 31, 2011 are summarized as follows (Korean won in thousands):

Amount Residual useful lives Remarks

Development cost ￦ 34,100,961 1~5 System development cost and othersOther intangible assets 8,604,868 1~5 Software

￦ 42,705,829


11. Other assets

Other assets as of March 31, 2011 and 2010 consist of the following (Korean won in thousands):

2011 2010

Insurance receivables (Notes 8, 12, and 15) ￦ 109,009,662 ￦ 101,325,521Other account receivables (Note 8) 39,547,114 28,793,152Leasehold deposits 92,460,798 93,555,790Accrued income (Note 8) 39,047,253 27,498,791Prepaid expenses 1,197,440 2,454,205Compensation receivables (Note 13) 47,228,053 45,686,446Derivative financial instrument assets (Note 27) 30,902,689 27,732,911Other (Note 8) 8,275,531 3,954,102

367,668,540 331,000,918(12,130,925) (7,066,264)

￦ 355,537,615 ￦ 323,934,654

12. Insurance receivables

Details of insurance receivables as of March 31, 2011 and 2010 are as follows (Korean won in thousands):

2011 2010

Premiums receivable ￦ 5,064,432 ￦ 7,826,996Due from agents 189,921 642,927Co-insurance receivables 9,492,847 8,976,122Due from agency receivables 9,427,359 8,896,017Re-insurance receivables 23,475,138 20,260,502Overseas reinsurance receivables 58,220,970 50,785,365Deposits on reinsurance contracts assumed 3,138,995 3,937,592

￦ 109,009,662 ￦ 101,325,521

68

13. Compensation receivables

Changes in compensation receivables for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands):

14. Deferred acquisition costs

Changes in deferred acquisition costs for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands):

Beginning balance Increase(decrease) Ending balance

General ￦ 22,831,144 ￦ (1,032,844) ￦ 21,798,300Vehicles 22,399,784 2,211,492 24,611,276Long-term 455,518 362,152 817,670Personal annuities - 807 807

￦ 45,686,446 ￦ 1,541,607 ￦ 47,228,053

2011

Beginning balance Increase(decrease) Ending balance

General ￦ 3,531,856 ￦ 19,299,288 ￦ 22,831,144Vehicles 20,258,230 2,141,554 22,399,784Long-term 316,217 139,301 455,518Personal annuities 176 (176) -

￦ 24,106,479 ￦ 21,579,967 ￦ 45,686,446

2010


Long-term insurance (Non-participating) ￦ 832,803,554 ￦ 477,730,891 ￦ (306,171,353) ￦ 1,004,363,092Personal annuities 8,186,541 4,579,056 (3,444,293) 9,321,304

￦ 840,990,095 ￦ 482,309,947 ￦ (309,615,646) ￦ 1,013,684,396

2011


Long-term insurance (Non-participating) ￦ 638,976,694 ￦ 500,991,739 ￦ (307,164,879) ￦ 832,803,554Personal annuities 6,632,414 4,349,710 (2,795,583) 8,186,541

￦ 645,609,108 ￦ 505,341,449 ￦ (309,960,462) ￦ 840,990,095

2010



15. Monetary assets and liabilities denominated in foreign currencies

Monetary assets and liabilities denominated in foreign currencies as of March 31, 2011 and 2010 are summarized as follows (Korean won in thousandsand US dollars, Euros and Japanese Yen in unit):

2011 2010Foreign Equivalent Gain (loss) on Foreign Equivalent Gain (loss) on

currencies Korean won translation currencies Korean won Translation

[ Assets ]Insurance receivables:

USD 35,811,834 ￦ 39,650,862 ￦ (821,391) 36,937,236 ￦ 41,768,625 ￦ (2,434,082)EUR 10,812,015 16,904,369 206,634 39,433 59,867 (6,459)YEN 3,507,682 46,718 (14,917) 670,306 8,162 118 Other - 744,602 (1,336) - 226,428 (24,002)

57,346,551 (631,010) 42,063,082 (2,464,425)

Deposits:USD 43,636,367 48,314,184 (1,019,183) 41,203,664 46,593,101 (9,881,860)EUR 33,875 52,963 (240) 49,026 74,432 (7,610)YEN 54,673 728 (24) 51,357 625 (45)GBP 7,043 12,531 (323) 21,337 36,380 (3,140)

48,380,406 (1,019,124) 46,704,538 (9,892,655)

Overseas securities:USD 437,087,833 483,943,649 (256,968) 378,173,513 427,638,609 (12,158,229)YEN 1,180,654,734 15,725,022 1,674,596 1,519,873,279 18,507,193 (1,907,961)

499,668,671 1,417,628 446,145,802 (14,066,190)￦ 605,395,628 ￦ (232,506) ￦ 534,913,422 ￦ (26,423,270)

[ Liabilitie ]Insurance payable:

USD 7,765,331 ￦ 8,597,774 ￦ 226,220 11,463,412 ￦ 12,962,825 ￦ 697,278 EUR (1,279) (1,999) (636) 105,365 159,965 15,637 YEN 1,983,675 26,420 1,170 1,450,801 17,666 490 Other 104,783 1,107 - 51,487 3,645

￦ 8,726,978 ￦ 227,861 ￦ 13,191,943 ￦ 717,050

70

16. Insurance reserves

The Company maintains its policy reserves as a liability in accordance with the IBA and the RIS. Changes in policy reserves by policy type for the yearsended March 31, 2011 and 2010 are summarized as follows (Korean won in thousands):



Long-term insurance premium reserve:Long-term ￦ 3,287,626,290 ￦ 881,392,464 ￦ - ￦ 4,169,018,754Personal annuities 613,941,095 58,927,248 - 672,868,343

3,901,567,385 940,319,711 - 4,841,887,096

Reserve for outstanding claims:General(*1) 177,313,507 - 37,074,217 140,239,290Vehicles 146,306,602 - 2,552,102 143,754,500Long-term 144,018,224 25,864,487 - 169,882,711Personal annuities 3,540,365 244,786 - 3,785,151Reinsurance (104,963,112) - (6,914,469) (98,048,643)

366,215,586 26,109,273 32,711,850 359,613,009

Unearned premium reserve:General 161,885,262 - 3,446,672 158,438,590Vehicles 305,559,184 60,210,150 - 365,769,334Long-term 3,937,966 - 1,217,460 2,720,506Personal annuities 19,486 - 6,871 12,615Reinsurance (93,687,843) - (8,532,724) (85,155,119)

377,714,055 60,210,150 (3,861,721) 441,785,926

Reserve for participating policyholders' dividends:Personal annuities 40,444,092 5,054,390 - 45,498,482Retirement insurance 505,621 - 238,208 267,413

40,949,713 5,054,390 238,208 45,765,895

Excess participating policyholders' dividends:Personal annuities 10,253,754 334,704 - 10,588,458Retirement insurance 249,951 - 230,228 19,723

10,503,705 334,704 230,228 10,608,181

Reserve for loss from participating insurance:Personal annuities - 2,459,094 - 2,459,094

￦ 4,696,950,444 ￦ 1,034,487,322 ￦ 29,318,565 ￦ 5,702,119,201

2011



Long-term insurance premium reserve:Long-term ￦ 2,701,242,944 ￦ 586,383,346 ￦ - ￦ 3,287,626,290 Personal annuities 561,411,767 52,529,328 - 613,941,095

3,262,654,711 638,912,674 - 3,901,567,385

Reserve for outstanding claims:General (*1) 431,733,415 - 254,419,908 177,313,507 Vehicles 155,652,870 - 9,346,268 146,306,602 Long-term 108,159,518 35,858,706 - 144,018,224 Personal annuities 3,794,971 - 254,606 3,540,365 Reinsurance (212,118,109) - (107,154,997) (104,963,112)

487,222,665 35,858,706 156,865,785 366,215,586

Unearned premium reserve:General 157,987,133 3,898,129 - 161,885,262 Vehicles 336,164,003 - 30,604,819 305,559,184 Long-term 2,922,097 1,015,869 - 3,937,966 Personal annuities 14,367 5,119 - 19,486 Reinsurance (93,914,610) - (226,767) (93,687,843)

403,172,990 4,919,117 30,378,052 377,714,055

Reserve for participating policyholders' dividends:Personal annuities 33,812,020 6,632,072 - 40,444,092 Retirement insurance 372,244 133,377 - 505,621

34,184,264 6,765,449 - 40,949,713

Excess participating policyholders' dividends:Personal annuities 9,136,281 1,117,473 - 10,253,754 Retirement insurance 278,585 - 28,634 249,951

9,414,866 1,117,473 28,634 10,503,705 ￦ 4,196,649,496 ￦ 687,573,419 ￦ 187,272,471 ￦ 4,696,950,444

2010

(*1) The Company entered into Refund Guarantee (“RG”) Insurance contracts with Asia Heavy Industries, Jinse Shipbuilding, C& Heavy Industries amounting to US$15 million and EUR 16 million, US$114

million, US$100 million, respectively. As of March 31, 2011, the Company does not maintain any reserve for outstanding claims with respect to the RG insurance contracts due to the completion of

payment of claim for which it reserved ?34 billion as the reserve for outstanding claims excluding reinsurance and compensation as of March 31, 2010.

72

Changes in catastrophe reserves for the years ended March 31, 2011 and 2010 are summarized as follows (Korean won in thousands):



General ￦ 39,571,505 ￦ 13,247,671 ￦ - ￦ 52,819,176Vehicles 79,866,713 - (1,933,632) 77,933,081

￦ 119,438,218 ￦ 13,247,671 ￦ (1,933,632) ￦ 130,752,257

2011


General ￦ 33,818,807 ￦ 5,752,698 ￦ - ￦ 39,571,505 Vehicles 71,987,756 7,878,957 - 79,866,713

￦ 105,806,563 13,631,655 ￦ - ￦ 119,438,218

2010

17. Separate accounts

The Company manages retirement insurance contracts and retirement pension contracts separately from the general account. Financial information ofseparate accounts as of and for the years ended March 31, 2011 and 2010 is as follows (Korean won in thousands):

2011 2010

Assets Cash and deposits:

Ordinary deposits ￦ 762,097 ￦ 239,685Other deposits 19,430,000 42,176,000

20,192,097 42,415,685

Marketable securities:Stocks 1,533,231 1,423,758Bonds 28,430,998 31,678,137Beneficiary certificates 78,319,370 64,250,860Overseas securities 6,685,422 6,902,098Other securities 33,527,261 33,072,405

148,496,282 137,327,258Loans:

Other loans 7,000,000 26,000,000Allowance for doubtful accounts (63,000) (130,000)

6,937,000 25,870,000[ Continued ]


2011 2010

Other assets:Other accounts receivable 15,977 8,828Accrued income 652,540 2,112,853Accrued dividends 6,192 5,761Prepaid expenses 141,703 -Prepaid income taxes - 118,241Derivative financial instruments assets 101,058 2,559,918

917,470 4,805,601Due from general accounts 8,491,735 4,539,108

185,034,584 214,957,652Less due from general accounts (8,491,735) (4,539,108)Separate account assets ￦ 176,542,850 ￦ 210,418,544

LiabilitiesOther liabilities:

Other accounts payable ￦ 95,211 ￦ 21,042Accrued expenses 893,050 1,238,105Unearned income 285,650 362,422Withholdings 15,736 -Accrued income taxes 419 38

1,290,066 1,621,607Due to general account 50,169 631,164

1,340,235 2,252,771

Reserve Reserve for policyholders:

Premium reserve 183,380,679 211,211,216Reserve for participating policyholders' dividend 124,434 1,011,082Excess participating policyholders’dividend reserve 55,115 457,296Retained earnings for non-dividend 83,208 (35,520)Accumulated other comprehensive income 50,913 60,807

183,643,436 212,644,074185,034,584 214,957,652

Less due to general account (50,170) (631,164)Less accumulated other comprehensive income (50,913) (60,807)Separate account liabilities ￦ 184,933,501 ￦ 214,265,681

[ Continued ]

74


2011 2010

Income (*1):Premium income ￦ 132,534,043 ￦ 59,713,191Interest income 3,450,833 7,890,364Dividend income 2,126,506 177,057Gain on disposal of securities 3,527,022 816,718Gain on valuation of securities 1,362,079 4,105,870Gain on foreign currency transactions 2,255,000 26,311Gain on transaction of derivative financial instruments 279,724 20,226Gain on valuation of derivative financial instruments 101,058 2,393,700Other income 2,732,798 356,892

￦ 148,369,063 ￦ 75,500,329

Expenses (*1):Provision (reversal) for policyholders’reserve ￦ (29,000,638) ￦ 4,735,443Claims paid 170,499,555 64,604,452Separate account operating fees 926,838 1,182,750Taxes and dues 253,022 1,011,197Bad debt expense 63,000 130,000Property management fee 124,462 92,884Loss on disposal of securities 1,029,749 843,504Loss on valuation of securities 1,709,662 244,307Loss on foreign currency transactions 466,168 2,619,45Interest expense 66,059 36,257Loss on transaction of derivative financial instruments 2,231,074 -Other expense 112 78

￦ 148,369,063 ￦ 75,500,329

(*1) Income and expenses on the retirement pension policies bearing dividend on the basis of actual results, amounted to \1,332,707 thousand and \1,303,580 thousand for the years ended March 31, 2011

and 2010, respectively, which are not stated in the statement of income for general account.


2011 2010

Claims payables ￦ 28,680,077 ￦ 32,839,896Due to agents 36,849,874 27,168,966Premiums refund payables 9,765,025 6,996,381Due to agency business 9,289,004 6,558,052Reinsurance payables 26,112,019 23,655,391Overseas reinsurance payables 10,150,674 15,252,602Deposits on reinsurance contracts ceded 557,231 871,530

￦ 121,403,904 ￦ 113,342,818

18. Insurance accounts payable

Details of insurance accounts payables as of March 31, 2011 and 2010 are as follows (Korean won in thousands):

2011 2010

Beginning balance ￦ 7,255,367 ￦ 1,747,068Transfer due to spin-off (84,330) -Payments during the year (1,511,035) (3,360,625)Provision during the year 9,310,303 8,868,924Ending balance ￦ 14,970,305 ￦ 7,255,367Less deposits for retirement insurance (12,900,597) (6,694,123)

￦ 2,069,708 ￦ 561,244

19. Severance and retirement benefits

Changes in severance and retirement benefits for the years ended March 31, 2011 and 2010 are summarized as follows (Korean won in thousands):

76


2011 2010

Other accounts payables (Note 35) ￦ 25,609,818 ￦ 24,420,980Accrued expenses 61,370,902 55,376,272Deferred income tax liabilities (Note 29) 72,180,604 58,729,058Income tax payable 11,839,830 17,456,596Leasehold deposits withheld (Note 35) 15,619,639 16,121,516Derivative financial instrument liabilities (Note 27) 25,946,825 32,473,683Other 4,450,369 5,878,119

￦ 217,017,987 ￦ 210,456,224

20. Other liabilities

Other liabilities as of March 31, 2011 and 2010 consist of the following (Korean won in thousands):

21. Contingencies and significant contracts

Re-insurance agreementsThe Company and 19 other non-life insurance companies are engaged in mutual insurance agreements, which secure a part of their total insuredamounts. These insured amounts are additionally re-insured by Korean Reinsurance Company and any remaining amounts not covered by KoreanReinsurance Company are re-insured by Munich Re Insurance Company and other foreign insurance companies. In accordance with thereinsurance agreements, the Company receives or pays commissions from/to Korean Reinsurance Company and foreign reinsurance companies.

Outstanding litigationThe Company is involved in litigation as a defendant with an aggregate claim amount of \53 billion arising in the normal course of its business relatedto policy coverage and claims disputes. The Company has provided reserves amounting to 35 billion for the possible estimated losses resulting fromsuch litigation as of March 31, 2011.

Bank overdraft accounts agreementThe Company has opened bank overdraft accounts with Woori Bank and other banks (within the limit of ?1,900 million) and one-day bank overdraftaccounts (within the limit of ?13,000 million) as of March 31, 2011.


2011 2010

Number of common shares authorized ￦ 200,000,000 ￦ 200,000,000Par value 500 500Number of common shares issued and outstanding 87,269,690 123,800,000Capital stock ￦ 43,634,845,000 ￦ 61,900,000,000

22. Equity

Details of capital stock as of March 31, 2011 and 2010 are as follows (Korean won in unit):

Changes in number of common shares, capital stock and paid-in capital in excess of par vale for the recent 2 years are as follows (Korean won inthousands):

(*2) All the shares of treasury stock that the Company owned as of March 31, 2010 and the shares of Meritz financial Group Inc. that the Company would acquire as a result of spin-off of the treasury stock by

the spin-off ratio were transferred to Meritz Financial Group Inc.

Number of common shares Capital stock Paid-in capital in excess of par value

2009.3.31 123,800,000 61,900,000 222,830,4082009.4.1~2010.3.31 - - -2010.3.31 123,800,000 61,900,000 222,830,408Spin-off (*1) (36,530,310) (18,265,155) (65,751,723)2011.3.31 87,269,690 43,634,845 157,078,685

(*1) The company completed spin-off on March 25, 2011 (see Note 34).

In accordance with the Korean Asset Revaluation Act and the Insurance Business Act, the Company revalued its land and buildings in 1976 and 1994,resulting in a revaluation gain of ?41,737 million, net of revaluation tax, which was offset entirely against the accumulated deficit in 1993. In addition, theCompany revalued its land and buildings in 1998, resulting in a revaluation gain of ?9,555 million, which was recorded as revaluation surplus in the capitalsurplus as of March 31, 2011.

As of March 31, 2011 and 2010, capital adjustments consist of the following (Korean won in thousands):

2011 2010

Treasury stock (*2) ￦ - ￦ (122,712,317)Stock option (Note 32) 6,126,759 6,126,759Other capital adjustment (Note 34) (257,061,723) -

￦ (250,934,964) ￦ (116,585,558)

78


2011 2010

Valuation loss for available-for-sale securities, net (Note 5) ￦ 30,265,269 ￦ (8,449,064)Gain (loss) on valuation of derivative financial instruments (Note 27) 15,105,604 7,320,209Equity adjustment arising from equity method investments, net (Note 7) (31,773) 11,672,059Revaluation surplus (Note 9) 220,285,749 190,533,415Equity adjustment of separate account 50,913 60,807

￦ 265,675,762 ￦ 201,087,426

2011 2010

Legal reserve (*3) ￦ 13,840,000 ￦ 10,640,000Voluntary reserve 251,900,000 146,700,000Retained earnings before appropriations 121,013,813 140,435,042

￦ 386,753,813 ￦ 297,775,042

As of March 31, 2011 and 2010, accumulated other comprehensive income consists of the following (Korean won in thousands):

As of March 31, 2011 and 2010, retained earnings consist of the following (Korean won in thousands):

(*3) The Korean Commercial Code requires the Company to appropriate, as a legal reserve, at least 10% of cash dividends for each accounting period until the reserve equals 50% of outstanding capital

stock. The legal reserve may not be utilized for cash dividends, but may be used to offset a deficit, if any, or may be transferred to capital stock.

23. Reinsurance

Details of ceded reinsurance transactions for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands):

Reinsurance Cash surrender Reinsurance Reinsurance claimspremium ceded value recovered claims returned

General ￦ 184,616,924 ￦ (1,689,398) ￦ 122,521,931 ￦ (14,902,626)Vehicles 901,477 (117) 1,854,348 -Long-term 41,175,339 (39,668) 37,524,487 (179,236)Personal annuities 601,982 (129) 397,544 (347)

￦ 227,295,722 ￦ (1,729,312) ￦ 162,298,310 ￦ (15,082,209)

2011


Reinsurance Cash surrender Reinsurance Reinsurance claimspremium ceded value recovered claims returned

General ￦ 206,595,705 ￦ (1,597,594) ￦ 201,597,536 ￦ (5,264,741)Vehicles 679,748 (332) 706,395 -Long-term 44,636,087 (29,580) 44,847,540 (180,114)Personal annuities 629,762 (533) 438,730 (1,035)

￦ 252,541,302 ￦ (1,628,039) ￦ 247,590,201 ￦ (5,445,890)

2010

24. Premium income

Details of premium income for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands):

Direct premium Assumed reinsurancewritten premium Surrenders Total

General ￦ 299,662,472 ￦ 20,508,727 ￦ (5,117,962) ￦ 315,053,237Vehicles 776,212,808 - (35,529,993) 740,682,815Long-term 2,673,987,483 - - 2,673,987,483Personal annuities 86,213,329 - - 86,213,329

￦ 3,836,076,092 ￦ 20,508,727 ￦ (40,647,955) ￦ 3,815,936,864

2011

Direct premium Assumed reinsurancewritten premium Surrenders Total

General ￦ 321,897,074 ￦ 21,703,197 ￦ (3,398,554) ￦ 340,201,717 Vehicles 691,775,719 - (34,516,529) 657,259,190 Long-term 2,196,831,772 - - 2,196,831,772 Personal annuities 77,544,284 - - 77,544,284

￦ 3,288,048,849 ￦ 21,703,197 ￦ (37,915,083) ￦ 3,271,836,963

2010

80

2011 2010

Wages and salaries ￦ 141,327,095 ￦ 131,848,946Provision for retirement and severance benefits (*1) 12,696,537 11,868,211Other employee benefits 24,018,168 21,576,722Administrative expenses 190,740,975 152,712,880Amortization of intangible assets 6,031,983 3,669,817Acquisition and collection expenses 67,675,175 61,282,517Agent commissions 73,729,406 80,082,146Co-insurance commissions 770,518 756,115Agency business commissions 224,666 231,815Claim inspection expenses 34,822,617 26,030,435Assumed reinsurance commissions 2,076,649 3,188,281Profit commissions paid for assumed reinsurance 184,116 156,220Interest on ceded reinsurance deposits 16,385 174,057

￦ 554,314,290 ￦ 493,578,162

25. Operating expenses

Details of operating expenses for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands):


(*1) It includes provision for severance and retirement benefits paid under the DC plan, amounting to \3,523,542 thousand and \3,123,913 thousand for the years ended March 31, 2011 and 2010,

respectively.

26. Value-added information

Details of value-added information for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands)

nvestment administrationOperating expenses Expenses Total

2011 2010 2011 2010 2011 2010

Wages and salaries ￦ 141,327,095 ￦ 131,848,946 ￦ 2,333,847 ￦ 1,843,276 ￦ 143,660,942 ￦ 133,692,222Retirement and 12,696,537 11,868,211 198,341 124,428 12,894,878 11,992,639

severance benefitsOther employee Benefits 24,018,168 21,576,722 254,265 224,474 24,272,433 21,801,196Rental expenses 25,602,764 22,778,334 36,435 19,471 25,639,199 22,797,805Depreciation (*1) 14,729,620 13,655,538 62,136 59,178 14,791,756 13,714,716Taxes and dues 17,403,514 16,917,144 8,340,853 7,314,834 25,744,367 24,231,978

￦ 235,777,698 ￦ 218,644,895 ￦ 11,225,877 ￦ 9,585,661 ￦ 247,003,575 ￦ 228,230,556

(*1) Depreciation of real estate for the years ended March 31, 2011 and 2010 amounting to \3,973,590 thousand and \4,174,474 thousand, respectively, is not included therein.


27. Derivative contracts

Details of derivative contracts as of March 31, 2011 and 2010 are as follows (Korean won in thousands):

Currency Currency ￦ 1,852,429 ￦114,198,759 ￦ 22,780,640 ￦ 91,418,119 ￦ 1,523,790 ￦ 153,249 ￦ 1,370,541 ￦ -related forwards

Currency 8,208,535 418,792,148 60,896,000 357,896,148 2,926,261 2,247,040 679,221 19,435,480swaps

10,060,964 532,990,907 83,676,640 449,314,267 4,450,051 2,400,289 2,049,762 19,435,480

Index Stock price - 21,839,000 21,839,000 - - - - -related index futures

￦ 10,060,964 ￦554,829,907 ￦105,515,640 ￦449,314,267 ￦ 4,450,051 ￦ 2,400,289 ￦ 2,049,762 ￦ 19,435,480

AmountValued

Notional amount Unrealized losses (I/S)

TotalTradingpurpose

HedgingPurpose Total

Tradingpurpose

HedgingPurpose

Unrealizedgains (losses)

on valuation(B/S) (*1)

2011

Currency Currency ￦ 4,170,224 ￦ 62,420,001 ￦ 17,346,472 ￦ 45,073,529 ￦ 5,588,018 ￦ 1,690,845 ￦ 3,897,173 ￦ 757,338related forwards

Currency (9,112,500) 427,526,826 62,194,000 365,332,826 14,514,791 11,370,644 3,144,147 8,508,978swaps

(4,942,276) 489,946,827 79,540,472 410,406,355 20,102,809 13,061,489 7,041,320 9,266,316

Interest rate Interest rate 201,504 10,000,000 - 10,000,000 - - - 201,504related swaps

￦ (4,740,772) ￦499,946,827 ￦ 79,540,472 ￦420,406,355 ￦ 20,102,809 ￦ 13,061,489 ￦ 7,041,320 ￦ 9,467,820

AmountValued

Notional amount Unrealized losses (I/S)

TotalTradingpurpose

HedgingPurpose Total

Tradingpurpose

HedgingPurpose

Unrealizedgains (losses)

on valuation(B/S) (*1)

2010

(*1) Unrealized gains (losses) on derivative is before deferred income tax adjustments.

The Company has been basically using the derivative financial instruments only as a tool for risk hedge. In this regard, the Company has entered intocurrency forward contracts and currency swap contracts to hedge against foreign currency fluctuation and interest rate fluctuation of deposits andsecurities denominated in foreign currencies, and interest rate swap contracts to hedge against interest rate fluctuation of domestic debt securities.

82

It is expected that cash flow fluctuation risk of the Company’s derivative financial instruments with the purpose of cash flow hedge accounting as ofMarch 31, 2011 are exposed up to April 17, 2017. In addition, of the unrealized loss on valuation of derivative financial instruments which recorded in othercomprehensive income, \171,030 thousand is expected to be realized and charged to current operation within one year.

As of March 31, 2011, the Company has entered into currency swap contracts of \33,216,000 thousand (\23,850,104 thousand as of March 31, 2010) andcurrency forward contracts of \91,418,119 thousand (\34,322,403 thousand as of March 31, 2010) to hedge the exposure to changes in the fair value ofoverseas securities by foreign exchange rate fluctuation. Fair vale hedge accounting is applied to all of the derivative contracts above and unrealized gains(losses) on valuation of the derivative financial contracts are recorded in the net income. Meanwhile, of unrealized gains (losses) on valuation of thecorrespondent hedged overseas securities, gains (losses) on foreign currency translation are recorded in the net income.

As of March 31, 2011, the Company has entered into currency swap contracts of \324,680,148 thousand (currency swap contracts of \341,482,722thousand and currency forward contracts of \10,751,126 thousand as of March 31, 2010) to hedge the exposure to variability of cash flows of overseassecurities by foreign exchange rate fluctuation and interest rate fluctuation. Cash flow hedge accounting is applied to all of the derivative contracts aboveand the hedge-effective portion of unrealized gains (losses) on valuation of the derivative contracts are recorded in the other comprehensive income.

Cumulative valuation gains (losses) of all derivative contracts are accounted for as derivative financial instrument assets (liabilities) in the statement offinancial position.

Credit derivative contractsThe Company invests in Credit Linked Notes (CLN) which had a book value of \103,405,837 thousand as of March 31, 2011 (\110,724,544 thousand asof March 31, 2010). Through these investments, the Company takes the credit risks of underlying assets, such as corporate bonds constituting CLNs,but earns interest higher than the market rates. However, there could be a loss resulting from changes in the credit status of the underlying assets.CLNs are recorded at fair value, which is obtained from independent credit rating agencies without bifurcating credit default swap embedded in thecredit derivative contracts.

Embedded derivative contractsThe Company invests in structured deposit which contains embedded derivative contracts, which are bifurcated from the host contract andaccounted for as separate derivatives. In this regard, the Company recorded derivative financial instrument liability amounting to \5,105,100thousand and recognized gain on valuation of derivative financial instruments amounting to \225,900 thousand for the year ended 2011.


2011 2010

Dividends to policyholders ￦ 3,137,562 ￦ 2,553,178Loss on valuation and disposal of loans - 4,998,739Investment administration expenses 27,714,652 18,279,677Real estate administration expenses 5,051,558 5,224,352Depreciation of real estate 3,973,590 4,174,474Other 80,055 50,054

￦ 39,957,417 ￦ 35,280,474

28. Other operating expenses

Other operating expenses for the years ended March 31, 2011 and 2010 consist of the following (Korean won in thousands):


29. Income tax

For the year ended March 31, 2011, the Company is subject to corporate income taxes, including resident surtax, at the aggregate rates of 11% on taxableincome of up to \200,000 thousand and 24.2% on taxable income in excess of \200,000 thousand. The aggregate tax rate will be 24.2% in 2011 and 2010and thereafter on taxable income in excess of \200,000 thousand.

The major components of income tax expenses for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands):

2011 2010

Income before income taxes (A) ￦ 156,327,328 ￦ 187,160,844Tax at the statutory income tax rate 37,831,213 45,292,924Adjustments:

Non taxable income (49,268) (290,277)Non deductible expense 557,683 309,998Other (2,961,424) 1,440,885

Income tax expense (B) 35,378,204 46,753,530Effective income tax rate (B)/(A) ￦ 22.63% ￦ 24.98%

2011 2010

Current income taxes ￦ 33,207,139 ￦ 39,123,359Tax effect on temporary differences 24,596,813 42,039,976

57,803,952 81,163,235Current and deferred income taxes recognized directly to equity (22,425,748) (34,409,705)Provision for income taxes ￦ 35,378,204 ￦ 46,753,530

A reconciliation of income tax expenses applicable to income before income taxes at the Korea statutory tax rate to income tax expenses at the effectiveincome tax rate of the Company is as follows (Korean won in thousands):

84


Changes in deferred income tax assets and liabilities for the years ended March 31, 2011 and 2010 are as follows (Korean won in thousands):

Beginning balance Increase(*1) Decrease (*1) Spin-off (*2) Ending balance

Deductible temporary differences:Loss on impairment of available- ￦ 41,946,442 ￦ 17,316,231 ￦ 10,769,287 ￦ - ￦ 48,493,386

for-sale securitiesLoss on impairment of membership 1,091,065 - 216,939 - 874,126Allowance for bad debts 5,603,448 4,370,619 5,603,448 - 4,370,619Loss on revaluation of land 8,936,864 662,671 - - 9,599,535Retirement of stock 2,095 - - - 2,095Deemed dividends 543,255 510 9,486 - 534,279Severance and retirement benefits 5,078,757 5,400,457 - 10,479,214 -Taxes and dues 7,701,986 8,372,116 7,701,986 - 8,372,116Depreciation 275,110 61,135 - - 336,245Deemed depreciation 224,050 - 153,906 - 70,144Interest income 92,990 - 92,990 - -Dormant policies 8,914,863 10,449,961 8,914,863 - 10,449,961Contribution - 67,992 - - 67,992Retained earning adjustments arising 1,002,905 - - 1,002,905 -

from equity method investmentsDividends (equity method investments) 17,384,008 - 4 17,384,004 -Loss on valuation of derivatives 14,828,756 (4,638,022) 336,520 - 9,854,214Accumulated other comprehensive 7,798,708 (48,212,666) - - (40,413,958)

income (available-for-sale securities)121,425,302 (6,148,996) 33,799,429 28,866,123 52,610,754

Additional temporary differences:Accrued income 1,054,533 17,043,528 1,054,533 - 17,043,528Gain on valuation of the trading securities 4,191,505 316,413 3,333,690 - 1,174,228Gain on foreign currency translation 9,628,854 (4,644) (3,937,706) - 13,561,916Gain on cross trading 1,797,966 - - 1,797,966 -Group severance and retirement benefits 5,078,757 6,064,669 664,212 10,479,214 -Equity in earnings of equity method 55,961,881 11,943,192 - 66,003,132 1,901,941

investmentsEquity adjustments arising from equity 14,964,178 2,234,459 - 17,239,371 (40,734)

method investmentsAccumulated depreciation 631,995 - - - 631,995Accumulated other comprehensive income 244,273,609 38,144,018 - - 282,417,627

(gain on revaluation of land)Separate account (accumulated 60,807 - 9,894 - 50,913

other comprehensive income

2011

[ Continued ]


Beginning balance Increase(*1) Decrease (*1) Spin-off (*2) Ending balance

Accumulated other comprehensive 9,467,820 9,967,660 - - 19,435,480income(gain on valuation of derivatives)

Other additional capital surplus 4,490,310 640,896 5,131,206 - -(treasury stock fund)

Compensation receivables 45,686,446 1,541,607 - - 47,228,053Land 278,328 - - - 278,328Advanced depreciation provisions 1,581,327 - - - 1,581,327

399,148,316 87,891,798 6,255,829 95,519,683 385,264,602

Deferred income tax assets 27,032,088 20,947,558recognized (*3)

Deferred income tax liabilities (85,761,146) (93,128,162)recognized (*3)

￦ (58,729,058) ￦ (72,180,604)

2011

[ Continued ]

Beginning balance Increase(*1) Decrease(*1) Ending balance

Deductible temporary differences:Loss on impairment of available-for-sale ￦ 39,356,032 ￦ 2,590,410 ￦ - ￦ 41,946,442SecuritiesLoss on impairment of membership 917,301 173,764 - 1,091,065Allowance for bad debts 4,973,502 1,225,037 595,091 5,603,448Loss on revaluation of land 8,936,864 - - 8,936,864Retirement of stock 2,095 - - 2,095Deemed dividends 254,384 308,215 19,344 543,255Severance and retirement benefits 1,531,114 6,692,314 3,144,671 5,078,757Taxes and dues 10,820,703 7,701,985 10,820,702 7,701,986Depreciation - 275,110 - 275,110Deemed depreciation - 494,649 270,599 224,050Interest income - 92,990 - 92,990Dormant policies 8,312,494 8,914,863 8,312,494 8,914,863Retained earning adjustments arising from 1,002,905 - - 1,002,905

equity method investmentsAvailable-for-sale securities 75 - 75 -Dividends (equity method investments) 14,487,516 2,896,492 - 17,384,008Restructured receivables 984,875 - 984,875 -Loss on valuation of derivatives 60,159,391 (20,102,809) 25,227,826 14,828,756Accumulated other comprehensive income 115,729,390 - 107,930,682 7,798,708

(available-for-sale securities)Tax loss carry-forwards 9,210,683 14,784,616 23,995,299 -

276,679,324 26,047,636 181,301,658 121,425,302

2010

86


Beginning balance Increase(*1) Decrease(*1) Ending balance

Additional temporary differences:Accrued income 10,350,180 2,784,301 12,079,948 1,054,533 Gain (loss) on valuation of the trading securities (4,010,940) 1,847,295 (6,355,150) 4,191,505 Gain on foreign currency translation 57,200,756 (14,167,008) 33,404,894 9,628,854 Gain on cross trading 1,797,966 - - 1,797,966 Group severance and retirement benefits 1,531,114 5,078,757 1,531,114 5,078,757 Equity in earnings of equity method investments 44,983,290 10,978,591 - 55,961,881 Equity adjustments arising from equity 13,958,851 1,005,327 - 14,964,178

method investmentsAccumulated depreciation 631,995 - - 631,995 Accumulated other comprehensive income 244,273,609 - - 244,273,609

(gain on revaluation of land)Separate account (accumulated other - 60,807 - 60,807

comprehensive incomeAccumulated other comprehensive income (30,328,258) 39,796,078 - 9,467,820

(gain on valuation of derivatives)Other additional capital surplus 2,756,482 1,733,828 - 4,490,310

(treasury stock fund)Compensation receivables 24,111,523 21,574,923 - 45,686,446 Land 278,328 - - 278,328 Advanced depreciation provisions 1,581,327 - - 1,581,327

369,116,223 70,692,899 40,660,806 399,148,316Deferred income tax assets recognized (*3) 71,132,962 27,032,088Deferred income tax liabilities recognized (*3) (87,822,044) (85,761,146)

￦ (16,689,082) ￦ (58,729,058)

2010

(*1) The income tax effect of temporary differences at the beginning of the period, reflects the results of the actual tax return filing.

(*2) The Company transferred deferred income tax liabilities amounting to \11,145,268 thousand to Meritz Financial Group Inc. due to the spin-off.

(*3) Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.


Temporary differences, not recognized as deferred income tax assets (liabilities) as of March 31, 2011 and 2010 are as follows (Korean won in thousands):

2011 2010

Advanced depreciation provision of land (*1) 1,581,327 1,581,327Retained earning adjustments arising from equity method investments - 300,871Dividends (on equity method investments) - 5,215,201Equity in earnings of equity method investments (*2) - (10,059,868)

1,581,327 (2,962,469)

(*1) Tax effect is not recognized since there is no possibility of disposal in the foreseeable future.

(*2) Tax effect is not recognized since temporary differences are not likely to be extinguished in the foreseeable future.

Deferred income tax assets (liabilities) directly charged/credited to the equity as of March 31, 2011 and 2010 are as follows (Korean won in thousands):

2011 2010Gross Tax effect Net of tax Gross Tax effect Net of tax

Gain (loss) on valuation of available-for-￦ 38,662,533 ￦ 8,397,264 ￦ (8,397,264) ￦ (11,208,133) ￦ (2,709,069) ￦ 2,709,069sale securities (*1)

Gain on valuation of derivatives 19,435,480 4,329,878 (4,329,878) 9,467,820 2,147,611 (2,147,611)Equity adjustments arising from equity (40,734) (8,961) 8,961 14,964,178 3,292,119 (3,292,119)

method investmentsRevaluation surplus 282,417,627 62,131,878 (62,131,878) 244,273,609 53,740,194 (53,740,194)Capital surplus on treasury stock fund - - - 4,490,310 987,868 (987,868)

￦340,474,906 ￦ 74,850,059 ￦ (74,850,059) ￦ 261,987,784 ￦ 57,458,723 ￦ (57,458,723)

(*1) Deferred income tax assets of gain on valuation of the available-for-sale securities as of March 31, 2011 include tax effect amounting to \12,321 thousand (\14,715 thousand in 2010) caused by separate

account.

88


30. Comprehensive income

Comprehensive income for the years ended March 31, 2011 and 2010 is as follows (Korean won in thousands):

31. Earnings per share

Basic earnings per share for the years ended March 31, 2011 and 2010 are computed as follows (Korean won in unit):

Weighted average number of common stocks outstanding for the years ended March 31, 2011 and 2010 is computed as follows:

(*1) 1,110,550 shares X (198/365) = 602,435 shares

(*2) (36,530,310 shares - 16,121,607 shares) X (7/365) = 391,399 shares

2011 2010

Net income ￦ 120,949,124 ￦ 140,407,315Other comprehensive income:

Gain on valuation of available-for-sale securities 38,764,333 82,943,418Gain on valuation of derivatives 7,785,393 30,976,250Equity adjustments arising from equity method investments (11,703,831) 784,155Revaluation surplus 29,752,334 -Separate account other comprehensive income (9,894) 60,807

Comprehensive income ￦ 185,537,459 ￦ 255,171,945

2011 2010

Net income ￦ 120,949,124,343 ￦ 140,407,314,795Weighted average number of common stocks outstanding 106,778,879 106,567,843Earnings per share ￦ 1,133 ￦ 1,318

2011 2010

Beginning ￦ 106,567,843 ￦ 106,567,843Disposal of treasury stock (*1) 602,435 -Capital reduction caused by spin-off (*2) (391,399) -Weighted average number of common stocks outstanding ￦ 106,778,879 ￦ 106,567,843


Diluted earnings per share for the years ended March 31, 2011 and 2010 are computed as follows (Korean won in unit):

Weighted average number of diluted common stocks outstanding for the years ended March 31, 2011 and 2010 are as follows:

(*) Weighted average number of diluted common stocks outstanding was calculated by treasury stock methods.

Potential dilutive securities as of March 31, 2011 are as follows.

2011 2010

Net income of common stock ￦ 120,949,124,343 ￦ 140,407,314,795Compensation costs (after tax) - -Diluted net income 120,949,124,343 140,407,314,795Weighted average number of diluted common stocks Outstanding 107,214,353 106,710,625Diluted earnings per share ￦ 1,128 ￦ 1,316

2011 2010

Weighted average number of common stocks outstanding ￦ 106,778,879 ￦ 106,567,843Stock options 435,474 142,782Weighted average number of diluted common stocks Outstanding ￦ 107,214,353 ￦ 106,710,625

Type Exercisable period Number of shares to be issued

Stock options From June 16, 2008 to June 15, 2016 1,491,278 shares

90


3rd

Number of stock options granted 1,491,278 sharesDate of grant June 15, 2006Method of grant New stock, treasury stock or difference compensationExercise price ￦ 5,780Exercisable period June 16, 2008 ~ June 15, 2016Vesting conditions Minimum required service period: 2 years

Achievement of the target net income

32. Stock options

As of March 31, 2011, total stock options granted are summarized as follows:

3rd

April 1, 2010 1,491,278Forfeited or expired -Exercised -March 31, 2011 1,491,278

Changes in the number of stock options granted for the year ended March 31, 2011 are as follows (unit: shares):

3rd

Compensation cost recognized until March 31, 2010 6,126,759Compensation cost recorded for the year -To be recognized in the future years -

6,126,759

Stock price was calculated based on the price at date of grant (3rd: \8,800) using the Black-Scholes Option Pricing Model. The compensation costconsists of the following (Korean won in thousands):


3rd

Risk free interest rate 5.35%Expected life of option 2.16 yearsExpected stock volatility 49.36%Expected dividend ratio 20.00%Expected ratios of non-exercise 0.00%Weighted average exercise price ￦ 5,780Weighted average fair value of stock option ￦ 4,108.39

Details of assumptions used to calculate compensation costs are as follows:

33. Dividends

Year-end dividends for the years ended March 31, 2011 and 2010 are as follows (Korean won in unit):

2011 2010

Dividend per share (percentage of par) ￦ 450(90%) ￦ 300(60%)Number of shares issued and outstanding, excluding treasury stock 87,269,690 106,567,843Total dividends ￦ 39,268,181,700 ￦ 31,970,352,900

Dividend payout ratios for the years ended March 31, 2011 and 2010 are as follows (Korean won in unit):

2011 2010

Dividends ￦ 39,268,181,700 ￦ 31,970,352,900Net income 120,949,124,343 140,407,314,800Payout ratios 32.47% 22.77%

92


Dividend yields for the years ended March 31, 2011 and 2010 are as follows (Korean won in unit):

2011 2010

Dividend per share ￦ 450 ￦ 300Stock price at the reporting date 10,350 7,350Price-dividend yields 4.35% 4.08%

34. Business spin-off

In accordance with a resolution at extraordinary shareholders’meeting held on January 11, 2011, the Company has spun off its investment businesssegment on March 25, 2011 and established new company, Meritz Financial Group Inc. whose common shares newly issued as a result of the spin-offwere listed at KRX on March 28, 2011. Such spin-off has been done in order to let the Company focus on insurance business for competitivenessreinforcement as well as to enhance a transparency for its governance by incorporating a financial holding company. Details are as follows:

Type of spin-offThe Company established a new company, Meritz Financial Group Inc., spinning off its investment business sector in accordance with theprocedures stated in the articles from 530-2 to 530-11 in Korean Commercial Code. In this regard, the Company’s shareholders became theshareholders of Meritz Financial Group Inc. by virtue of the new stocks issued proportionately by Meritz Financial Group Inc.

Spin-off ratioThe common shares newly issued by Meritz Financial Group Inc. were distributed to the Company’s shareholders at the Company’s shareholdersof record as of March 25, 2011 at a rate of 0.2950752 per common share of the Company. Such spin-off ratio was determined in proportionate to thenet asset value of a spun off sector and a non-spun off sector in the statement of financial position of the Company as of September 30, 2010.

Assets and liabilities transferredThe Company transferred cash and cash equivalents for system implementation and operating funds, equity method investments in 5 investeesother than PT.ASURANSI HANJIN KORINDO, trademark right recorded as intangible assets, treasury stock (including the new shares of MeritzFinancial Group Inc. the Company would acquire as a result of spin-off of the treasury stock) and deferred income tax liability to Meritz FinancialGroup Inc. as carrying amount. The summarized statements of financial position of the Company and Meritz Financial Group Inc. at the spin-off dateare as follows (Korean won in thousands):


The Company Meritz Financial Group Inc.

Assets:Cash and cash equivalents 283,777,625 33,200,000Securities:

Trading securities 307,345,887 -Available-for-sale securities 2,979,462,350 -Held-to-maturity securities 123,520,148 -Equity method investments - other 2,815,162 210,581,904Equity method investments - the company - (*1) 78,762,826

3,413,143,547 289,344,730

Loans 940,748,659 -Property and equipment 735,247,719 -Other assets:

Intangible assets 43,198,503 5,666,667Other assets 1,361,239,582 41,972

1,404,438,085 5,708,639Separate account assets 177,961,897 -Total assets 6,955,317,532 328,253,369

Liabilities:Policy reserves 5,665,922,140 -Catastrophe reserves 130,467,737 -Other liabilities 373,982,684 11,187,240Separate account liabilities 180,114,548 -Total liability 6,350,487,109 11,187,240

Equity:Capital stock 43,634,845 18,265,155Capital surplus:

Paid-in capital in excess of par value 157,078,685 319,648,497Revaluation surplus 9,554,536 -Other capital surplus 4,053,446 -

170,686,667 319,648,497

Capital adjustments:Treasury stock - (*1) (34,294,232)Stock option 6,126,759 -Other capital adjustments (*2) (257,061,724) -

(250,934,965) (34,294,232)Accumulated other comprehensive income 266,358,985 13,446,709Retained earnings 375,084,891 -Total equity 604,830,423 317,066,129

Total liabilities and equity 6,955,317,532 328,253,369

94

(*1) The Company has transferred the 16,121,607 shares of treasury stock (￦116,222,008 thousand) at the spin-off date and Meritz Financial Group Inc. has recorded those shares as equity method

investments whose carrying amount was determined as the proportionate net asset value in the statement of financial position of the Company at the spin-off date. The difference amounting to

￦3,164,949 thousand between such carrying amount in the statement of financial position of Meritz Financial Group Inc. and a carrying amount after spin-off ratio of the Company’s treasury stock at

the spin-off date was deducted from paid-in capital in excess of par value in the statement of financial position of Meritz Financial Group Inc. at the spin-off date. The common shares of Meritz Financial

Group Inc. transferred to Meritz Financial Group Inc. as a result of spin-off of such treasury stock were stated at a carrying amount, ￦34,294,232 thousand the Company maintained at the spin-off

date.

(*2) Loss on capital reduction was caused by a decrease in the Company’s existing capital in order to issue stocks of a newly incorporated company. Details are as follows (Korean won in thousands):


Amount

Carrying amount of assets transferred by spin-off ￦ (249,490,543)Increase in assets by the transfer of treasury stock by spin-off (116,222,007)Carrying amount of liability transferred by spin-off 11,187,240Accumulated other comprehensive income transferred by spin-off 13,446,709Decrease in capital stock by spin-off 18,265,155Decrease in paid-in capital in excess of par value by spin-off 65,751,723Loss on capital reduction ￦ (257,061,723)

Obligation due to the spin-off In accordance with the provision 1 at an article 530-9 in Korean Commercial Code, the Company and Meritz Financial Group Inc. have a jointresponsibility for the repayment of the debts of the Company at the spin-off date.

Rewards and stock options granted to key management for the year ended March 31, 2011 are as follows (Korean won in thousands):

35. Related parties

Related parties as of and for the year ended March 31, 2011 are as follows:

Investor Relationship

Meritz Fire&Marine Insurance Co.Ltd Meritz Financial Group Inc. Holding companyRitzpartners Co., Ltd. Meritz Fire & Marine insurance Co., Ltd. Subsidiary

Rewards to the key Provision for Severance Stock compensationmanagementPosition Wages and salaries and retirement benefits expenses Other benefits Total

Registered directors ￦ 6,808,150 ￦ 936,372 ￦ - ￦ 23,444 ￦ 7,767,966


Stock options granted to the key management

Number of sharesPosition Date of grant April 1, 2010 Exercised March 31, 2011 Exercise period Exercise price

Registered directors 2006.06.15 688,943 - 688,943 2008.06.16 ￦ 5,780~ 2016.06.15

Transactions with related parties for the years ended March 31, 2011 and 2010 are summarized as follows (Korean won in thousands):

Outstanding balances with related parties arising from the above transactions as of March 31, 2010 (nil as of March 31, 2011) are summarized as follows(Korean won in thousands):

2011 2010Revenue Expense Revenue Expense

Meritz Securities Co., Ltd. ￦ - ￦ - ￦ 1,763,048 ￦ 2,589Meritz Investment Bank - - 1,843,055 465,808Meritz Assets Management - - 646,396 1,456,232Meritz Financial Information Service - - 1,917,152 12,363,458PT. Asuransi Hanjin Korindo 200,026 87,178 244,460 121,202

￦ 200,026 ￦ 87,178 ￦ 6,414,111 ￦ 14,409,289

LiabilitiesOther accounts payable leasehold deposits received

Meritz Securities Co., Ltd. ￦ - ￦ 290,509Meritz Assets Management 6,272,471 162,565Meritz Financial Information Service - 482,766

￦ 6,272,471 ￦ 935,840

96

36. Premium deficiency

Insurance contracts subject to insurance premium deficiency tests are all contracts that are long-term or individual annuity insurance, which cannormally incur premium income and claim payment as of February 28, 2011. According to the type of each contract and the characteristics of coverage,the insurance contracts are classified as long-term insurance or pension insurance, dividend insurance or non-dividend insurance, fixed interest typeinsurance or floating interest type insurance. To reflect the characteristics of insurance, it was divided into casualty-type, driver-type, property-type,illness-type, saving-type and pension-type, and single payments and installment payment in the calculation.

Although insurance contracts subject to insurance premium deficiency test should be based on contracts held as of the fiscal year end according to theFinancial Supervisory Service’s guide, the test was based on the contracts held as of February 28, 2011 because there is no significant differencebetween the contracts held as of March 31, 2011 and February 28, 2011, and it is almost certain that insurance premium deficit will not be incurred.

For premium deficiency calculation for the year ended March 31, 2011 the Company used following assumptions:


Classification Criteria Calculation method

Discount rate(interest rate) Recent 3 years Asset management earning rate = asset management income ÷management asset ×100

Management asset = (∑management asset at the end of previous month + ∑management asset at the end of this month) ÷24

Asset management income = (investment income ? investment expense)

Expense ratio Recent 1 year Actual expense ratio = actual operating expense ÷expense loadings

Surrender ratio(persistency ratio) Recent 5 years Persistency ratio = insurance premium persisted ÷insurance premium of new contracts

Surrendered ratio = insurance premium of surrendered contracts ÷insurance premium of new contracts

Lapse ratio = insurance premium of lapsed contracts ÷insurance premium of new contracts

Extinction ratio = insurance premium of extinct contract by accident ÷insurance premium of new contracts

Insurance claim payment ratio Recent 3 years Insurance claim payment ratio = insurance claim paid ÷premium at risk


Surrender ratio (persistency ratio) was based on the statistical analysis using past 5-year data, removing outliers that cause errors and fitting function toreflect the trend.

Premium surplus for the year ended February 28, 2011 are as follows (Korean won in hundred million, %):

Classification Insurance contract amounts Expected interest rate (%) Premium surplus

Non-dividend insurance 1,747,547 3.5~8.0 765Individual annuities 7,021 4.0~7.5 8,744

1,754,568 3.5~8.0 9,509Fixed interest type 176,157 3.5~8.0 321Floating interest type 1,578,411 3.9~6.0 9,188

37. Cash flow information

Cash presented in the statements of cash flows including cash, ordinary deposits and cash equivalents is as follows (Korean won in thousands):

The statements of cash flows are prepared using the indirect method. Significant non-cash transactions for the years ended March 31, 2011 and 2010 aresummarized as follows (Korean won in thousands):

2011 2010

Cash - 1,600Deposits:

Ordinary deposit 30,912,138 25,265,373Current deposit 1,345,987 707,339

32,258,125 25,972,712Cash equivalents 93,500,000 46,200,000

125,758,125 72,174,312

2011 2010

Increase (decrease) in available-for-sale securities from ￦ 49,870,666 ￦ (107,930,682)valuation of available-for-sale securities

Equity adjustments arising from equity method investments 2,234,459 1,005,327Increase in treasury stock due to valuation of treasury stock fund (640,896) (2,192,481)Gain on valuation of derivatives 9,967,660 39,796,078Gain on revaluation of land 38,144,018 -Write off of loans 3,843,886 -

98

38. Operating result of the final interim period

The Company did not issue 4th quarter interim financial statements and the Company’s major financial indicators for the three months ended March 31,2011 and 2010 are as follows (Korean won in thousands):

39. Introduction of Korea International Financial Reporting Standards

According to the roadmap announced in March 2007, the Company will adopt the Korea International Financial Reporting Standards (hereinafter “K-IFRS”) for the first time for the financial period beginning April 1, 2011. The Company formed a task force team and devised a strategic plan to

transition to K-IFRS. K-IFRS implementation task force team is periodically reporting the progress and results of the implementation project tomanagement of the Company. Additionally, the task force team is regularly providing training programs to employees to develop K-IFRS-trainedresources.

The task force team completed its preliminary impact assessment of K-IFRS and developed a detailed master plan for the implementation of K-IFRSaccounting information system. Following this plan, the team conducted the detail analysis of the Company’s financial reporting system requirementand accounting policy changes impacted by the adoption of K-IFRS. Based on results of the above analysis, the Company has mapped out changes thatare required for its financial reporting system capable of capturing and producing K-IFRS financial data, and modifications to the Company’s workprocesses relating to the system changes have been made. The Company completed the system and work processes changes in 2011.

The Company has been preparing its financial statements under K-IFRS from since the date of transition (April 1, 2010) and onwards, and managementof the Company expects that financial information for the fiscal year 2010 and after will be conformed to K-IFRS.

The table below summarizes the differences that are expected to give rise to a significant impact on the Company’s financial statements based on the K-IFRSs that are effective as of March 31, 2011. The differences listed below are not exhaustive, and additional differences may be identified in the future asa result of further assessment.


Three months ended March 31,2011 2010

Operating revenue ￦ 1,150,883,056 ￦ 1,025,796,479Net gain 29,792,253 25,185,098Net gain per share (won) 281 237


Section K-IFRS K-GAAP

Adoption of the fair value option(“FVO”)

FVO is applicable only in case of mitigating accountingdiscrepancies at the time of initial acquisition of financialinstruments or a group of financial instrumentsmanaged and evaluated on a fair value basis orcombined financial instruments including embeddedderivatives.

N/A

Gain (loss) on translation ofoverseas available-for-sale debtsecurities.

Gain (loss) on translation of monetary available-for-saledebt securities denominated in foreign currencies isrecognized as current income (loss) while gain (loss) ontranslation of nonmonetary available-for-sale debtsecurities denominated in foreign currencies isrecognized as other comprehensive income.

Gain (loss) on translation of available-for-sale debtsecurities is recognized as other comprehensive incomeregardless of monetary/nonmonetary.

Condition of hedge accounting Short-cut method is not acceptable in hedge accounting Short-cut method is acceptable in hedge accounting insame cases

Allowance The Company is required to assess the impairment ofassets at every reporting date by materiality andaccording to the materiality, assessment isimplemented based on specific or portfolio ofreceivables.

Receivables are classified as one of normal,precautionary, substandard, doubtful and estimated loss,and the related allowance is calculated at a minimum of0.5% (0.75% for household loans), 2% (5% for householdloans), 20%, 50% and 100%, respectively, of theoutstanding amount in each classification by the RIS

Valuation of leasehold depositsand loans for employees

Initially recognized at fair value, after initial recognition,measured at amortised cost using effective interest ratemethod.

Stated at nominal value

Recognition of interest income Recognized as interest income if it can be obtainedcertainly and measured reliably, regardless of default ofthe principal and interest.

Recognized on a accrual basis but recognized on a cashbasis if the principal or interest is defaulted.

Employee benefits The liability for severance and retirement benefits inestimated based on actuarial assumptions and on adiscounted basis.

In accordance with the Company’s regulations,employees and directors terminating their employmentwith at least one year of service are entitled to severanceand retirement benefits. An allowance for employeeretirement benefits is measured based on theassumption that all employees will leave as of thereporting date.

Disclosure of financialinstruments

Additional disclosures such as fair value level offinancial instruments, fair value of financial instrumentsmeasured at amortised cost method and risk offinancial instruments including credit risk and liquidityrisk are required.

Disclosure of book value of financial asset and financialliability

Disclosure of insurancecontracts

Nature and extent of risks arising from insurancecontracts should be disclosed

N/A

40. Approval of financial statements for the year ended March 31, 2011The Company’s financial statements for the year ended March 31, 2011 will be approved in the shareholders’meeting to be held on June 10, 2011.

100

INTERNAL CONTROL OVER FINANCIALREPORTING REVIEW REPORT

This report is annexed in relation to the audit of the financial statements as of March 31, 2011 and the review of internal accounting control system pursuant to Article 2-3 of the

Act on External Audit for Stock Companies of the Republic of Korea.

THE REPRESENTATIVE DIRECTORMERITZ FIRE & MARINE INSURANCE CO., LTD.

We have reviewed the accompanying management’s report on the effectiveness of the internal control over financial reporting (“ICFR”) of Meritz Fire &Marine Insurance Co., Ltd. (the “Company”) as of March 31, 2011. The Company’s management is responsible for design and operations of its ICFR,including the reporting of its operations. Our responsibility is to review management’s ICFR report and issue a report based on our review. The management’s report on the effectiveness of the ICFR of the Company states that “Based on the assessment results, I believe that the Company’sICFR, as of March 31, 2011, is effectively designed and operating, in all material respects, in conformity with the Best Practice Guideline.”

We conducted our review in accordance with the ICFR review standards established by the Korean Institute of Certified Public Accountants. Thesestandards require that we plan and perform our review to obtain less assurance than an audit as to management’s report on the operations of the ICFR.A review includes the procedures of obtaining an understanding of the ICFR, inquiring as to management’s report on the operations of the ICFR andperforming a review of related documentation within limited scope, if necessary.

A company’s ICFR consists of an establishment of related policies and organization to ensure that it is designed to provide reasonable assurance on thereliability of financial reporting and the preparation of financial statements for external financial reporting purposes in accordance with accountingprinciples generally accepted in the Republic of Korea. However, because of its inherent limitations, the ICFR may not prevent or detect materialmisstatements of the financial statements. Also, projections of any assessment of the ICFR on future periods are subject to the risk that ICFR maybecome inadequate due to the changes in conditions, or that the degree of compliance with the policies or procedures may be significantly reduced.

Based on our review of the management’s report on the effectiveness of the ICFR, nothing has come to our attention that causes us to believe thatmanagement’s report referred to above is not presented fairly, in all material respects, in accordance with the ICFR standards.

We conducted our review of the ICFR in place as of March 31, 2011, and we did not review the ICFR subsequent to March 31, 2011. This report has beenprepared for Korean regulatory purposes pursuant to the Act on External Audit for Stock Companies, and may not be appropriate for other purposes orfor other users.

April 28, 2011

1922. 10Founded Chosun Fire & Marine Insurance with paid-in capital of

KRW 5 million (The first fire & marine insurance company in Korea)

1923. 8Held the first general meeting of stockholders

1935. 10Moved headquarters to Taepyung-no, Jung-gu, Seoul

1937. 8Acquired auto insurance license

1922~1949 Era of Foundation & Exploration

1950. 5Renamed as Oriental Fire & Marine Insurance Inc. from Chosun

Fire & Marine Insurance

1956. 7First Korean insurer to be listed on Korea Stock Exchange

1958. 9Privatized (Ewha Hakdang, acquired stake in Oriental insurance

from the government)

1962. 3Dongbang Life Insurance, acquired stake in Oriental insurance

from the Ewha Hakdang

1963. 5Transferred control to Samsung Group(Dongbang Life Insurance

was affiliated into Samsung Group)

1967. 7Affiliated into Hanjin Group

1976. 12First Korean insurer to exceed KRW 10 billion in sale1950~1982 New Birth

1983. 12Acquired building and moved into Headquarters at Yoido-dong,

Youngdungpo-gu, Seoul

1996. 5Total assets exceeded KRW 1 trillio

n

1997. 12Established a training institute

2002. 6Contract transfer from Regent Insurance Co.,Ltd

1983~2004 Era of Growth

2005. 3Disaffiliated from the Hanjin Group

2005. 10Renamed as Meritz Fire & Marine Insurance Co.,Ltd. from Oriental

Fire & Marine Insurance Inc.

2005. 10Headquarters moved to a ‘Meritz Tower’building at

Yeoksam-dong, Gangnam-gu, Seoul

2005. 11Acquired Meritz Securities as subsidiary

2006. 210:1 stock split (Par value changed from KRW 5,000 to KRW 500)

2006. 11Acquired Meritz Investment Bank as sub-subsidiary

2006. 11First Korean insurer to receive A3 credit rating from Moody’s

2007. 8Paid-in capital increased to KRW 61.9 billion with a rights offering of

KRW 225.7 billion

2007. 10Interim dividend of KRW 100 per share

(First interim dividend in insurance industry)

2008. 4Established Meritz Financial Information Service Co., Ltd.

2008. 5Established Meritz Asset Management Co., Ltd.

2009. 4Acquired 1st grade in 2008 FSS’s civil application evaluation

(three consecutive years)

2009. 12Established ‘Ritz Partners’as Subsidiary

2010. 3Received A3 grade from Moody’s for four consecutive years

2010. 4Merger of Meritz Securities and Meritz Investment Bank and

established ‘Meritz Securities’

2010. 8Acquisition of Meritz Business Service (MBS) as subsidiary

2010. 8Total Invested Assets exceeded KRW 5 Trillion

2010. 12Total assets exceeded KRW 7 Trillion

2011. 2Earned A- grade from A.M Best for four consecutive years

2011. 3Established ‘Meritz Financial Holding Company’

2005~ 2nd Founding

CORPORATE HISTORY IN BRIEF

102

1996. 02 Awarded “Special Award”at the 1st Maekyung Business Daily Financial Product Awards1997. 01 No.1 customer satisfaction provider in automobile insurance service as

evaluated by Korea Consumer Protection Board1998. 11 Awarded Prime Minister Prize in private and governmental management

and service innovation contest (two consecutive years)1998. 11 Ranked 1st among non-life insurers in the National Customer

Satisfaction Index (NCSI) for 1998, Korea Productivity Center (KPC) at Korea Customer Service Management Awards

1999. 09 Awarded the Grand Prize for Innovative Management by KMAC for outstanding customer satisfaction

1999. 12 No.1 non-life insurance carrier for outstanding customer satisfaction as jointly selected by Korea Productivity Center, Chosun-Ilbo and Michigan University in two consecutive years

2000. 03 Received “Special Award”at the 5th Maekyung Business Daily Financial Product Awards

2001. 10 No.1 financial service provider in Korea Service Quality Index (KS-SQI) survey2001. 12 Awarded by Financial Service Commission as outstanding new financial product

(Military service insurance)2002. 07 Awarded the Best Prize for new business culture in corporate image contest by KMAC2004. 03 Awarded the Special Prize in Maekyung Daily grand financial product contest2004. 10 Awarded the Grand Prize for children/youth welfare service in Hankyung

social outreach business contest2005. 11 Awarded the Outstanding Prize for customer value innovation in Customer

Satisfaction Management Awards2006. 11 Received the best prize for customer value innovation in Customer Satisfaction

Management Awards

2007. 03 Awarded by Maekyung as outstanding new financial product (gold prize)2007. 10 Received the innovation award in non-life sector at 2007 Financial Innovation Award

from Moneytoday.2007. 12 Received a plague of thanks for outstanding “sharing management”

from KCCI’s voluntary corps2008. 02 Awarded the grand prize in the field of welfare of disabled persons at

Sharing-Management Award sponsored by Kookmin Ilbo2008. 08 Awarded the Grand Prize in the product field at Seo-kyung Truthful Insurance People2008. 11 Awarded the Grand Prize for KMAC Korea Customer Satisfaction

Management Awards.2009. 07 Awarded the Grand Prize in innovative product field at Seo-kyung Truthful Insurance People2009. 11 Awarded the Outstanding Prize for customer value innovation in Customer

Satisfaction Management Awards2010. 10 Awarded the KMAC Grand Prize for four consecutive years for Korea

Customer Satisfaction Management

ACCOLADES & AWARDS


BOARD OF DIRECTORS

EXECUTIVE DIRECTORS Jung-Ho Cho- Chairman- Chairman of Meritz Securities - Director of Meritz Investment Bank

Myung-Soo Wohn- Vice Chairman & CEO - Senior Managing Director & CIO of Samsung Fire & Marine Insurance- Senior Managing Director & COO of PCA Life Insurance

Seung Bang Ro- Auditor General- Insurance 3 Team Leader, Inspection Planning Team Leader of Insurance

Inspection Department, Financial Supervisory Service- Research Commissioner (Manager Level) of International Cooperation Department,

Financial Supervisory Service

NON-EXECUTIVE DIRECTORS In-Joon Kim- Outside Director - Incumbent Professor at the Yonsei School of Business - Director of Jeil Products Ltd. / CEO of IFS Co., Ltd.- Professor at the Graduate School of Management in Korea Advanced Institute of

Science & Technology

Yeon-Ku Jo- Outside Director- Executive Secretary of Public Information, Finance & Economy Institute- Investigator of National Tax Tribunal, National Tax Service- Superintendent of Tax Office, National Tax Service- Investigation Manager of Seoul District Tax Office, National Tax Service

Jung-Ho Kang- Outside Director- Alternate Director & Residential Representative of IMF (International Monetary Fund)- Senor Judge of National Tax Tribunal- President & CEO of Kosdaq Securities- Chairperson of Korea Futures Exchange

Beom Ha Jee- Outside Director- Advisory Board of Presidential Financial Reformation Committee- Guest research professor of Wharton School- Dean of Business College, the King’s College/USA- Professor of Management & Economy Department, Handong University

104

ORGANIZATION

CEO

Personnel & General Affairs Headquarter Risk Management Headquarter

Corporate Supporting General Strategic Planning Headquarter

Asset Management Headquarter

Actuary & Accounting Headquarter

Business & System Renovation Headquarter

Customer Service Headquarter

Personal Line Insurance Headquarter

Automobile Insurance Headquarter

Commercial Line Insurance Headquarter

Marketing Headquarter

Sales Education & Training Headquarter

Personal Line Sales Business Division

Line Of Business General

Sales General

Claim Service General

Seoul Area Headquarter

Kyungin Area Headquarter

Jungbu Area Headquarter

Busan Gyeongnam Area Headquarter

Gyeongbuk Area Headquarter

Agency Headquarter Ⅰ, Ⅱ, Ⅲ

Bancassurance Headquarter

New Distribution Channel Headquarter

Commercial Line Sales Headquarter Ⅰ, Ⅱ, Ⅲ

New Distribution Channel Business Division

Commercial Line Business Division

Automobile Insurance Claim Headquarter

Long-term/General Claim Adjustment Headquarter


Meritz Insurance received A- rating from AM Best for 4 consecutive years.

The ratings were granted reflecting recent capital adequacy and stable business outcome of MeritzInsurance. It is a positive impact on the enhancement sales and upgrading corporate brand image.

Moody’s and AM Best are globally renowned credit rating agencies, providing rating services tofinancial institutions across the world.

CREDIT RATINGS

A.M. Best Moody’s

2011.02 A- (Excellent) Stable -

2010.03 A- (Excellent) Stable A3 Stable

2008.12 A- (Excellent) Negative A3 Negative

2007.10 A-(Excellent) Stable A3 Stable

2006.11 B++(Good) Positive A3 Stable

2006.01 B++(Good) Stable

2004.11 B++(Good) Stable

106

CORPORATE DATA

Established October 1, 1922

Headquarters Meritz Tower, 825-2 Yeoksam-Dong, Gangnam-Gu, Seoul 135-934, KoreaTel : +82 2 3786-2114, Fax : +82 2 3786-2115

Website http://www.meritzfire.com

Paid in Capital KRW 43,634,845,000

Affiliates & Investee Companies (As of Mar 31, 2011)

Investment status to other companies

Name of other companies Investment company Equity investment Equity ratio

Meritz Securities Co., Ltd. Meritz Fire Insurance 775,104,000 Won 0.25%

PT.ASURANSIHANJIN KORINDO Meritz Fire Insurance 953,955,000 Won 51.00%

Total shares outstanding 87,269,690 shares

Listed Date Jul 2, 1956

Investor Relations Tel. 82-2-3786-1157, Fax. 82-2-3786-1165

Domestic 47.54%Major shareholders 34.58%Foreigners 13.12%Related companies 2.43%ESOP 2.32%Treasury shares 0.01%

Shareholders(as of Mar 31, 2011)

Documents

Meritz Tower, 825-2,Yeoksam-dong, Gangnam-gu, Seoul…ir.meritzfire.com/isw/download/ofm/oiv/AR2010_Full_size_document.pdf · Meritz Tower, 825-2,Yeoksam-dong, Gangnam-gu, Seoul,