Meritz F&M Meritz F&M FY2011 Financial Results & Embedded Value FY2011 Financial Results & Embedded Value FY2011 Financial Results & FY2012 Business Forecast FY2011 Financial Results & FY2012 Business Forecast FY2011 Embedded Value FY2011 Embedded Value Q & A Q & A
83
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FY2011 Financial Results & FY2012 Business ForecastFY2011 Financial Results & FY2012 Business Forecast
FY2011 Embedded ValueFY2011 Embedded Value
Q & AQ & A
1
FY2011 Financial Results FY2011 Financial Results & FY2012 Business Forecast& FY2012 Business Forecast
DisclaimerDisclaimer
This material has been prepared based on internally audited figures and final figures may change due to the results of an independent audit without notice.
This presentation includes forward-looking statements regarding the company’s outlook for FY2012 and beyond, including projected premium and net income. These forecasts are subject tounknown risks and uncertainties that may cause actual figures todiffer from those stated or implied by such statements. We have no obligation or responsibility regarding investment made based on such forward-looking statements.
2
Contents
FY2011 Financial ResultsFY2011 Financial Results2
3
About Meritz F&MAbout Meritz F&M1
FY2012 Business ForecastFY2012 Business Forecast
4History
Era of Growth(1983~2004)
Second rebirth (2005~ )
Rebirth (1950~1982)
Era of foundation & exploration(1922~1949)
1996.05 Total assets exceed W1trn
1983.12 Head office relocated to Yeoido
2011.11 Total assets exceeded W8trn
2011.10 Total Invested Assets exceeded W6trn
2011.03 Founding of Meritz Financial Holding
2010.08 Acquisition of Meritz Business Service (MBS) as subsidiary
2010.04 Founding of ‘Meritz Securities’ (Merger of Meritz Securities and Meritz Investment Bank)
2009.12 Founding of Ritz Partners (Sales Subsidiary)
2008.07 Founding of Meritz Asset Management
2008.04 Founding of Meritz Financial Information Service
2006.11 Acquisition of Meritz Investment Bank as subsidiary
2006.02 Stock split 10:1 (W5,000 →W500)
2005.11 Acquisition of Meritz Securities as subsidiary
2005.10 Rechristened Meritz Fire & Marine Insurance, Head office relocated to new building in Kangnam
2005.03 Disaffiliates from Hanjin Group
1976.12 Sales exceed W10b, a first among Korean insurers
1967.07 Hanjin Group acquires Oriental Fire & Marine Insurance
1956.07 IPO on KSE, becoming Korea’s first listed insurer
1950.05 Rechristened Oriental Fire & Marine Insurance
1922.10 Founding of Chosun Fire & Marine Insurance
The path Meritz F&MThe path Meritz F&Mhas followed this year has followed this year
Despite industry’s competition in sales, Meritz F&M has continued to push ahead with its strategy focused on health insurance
Growth strategy focused on core regions for long-term line / Entering selective daily system & mileage auto insurance market in advance / Remodeling in commercial line / Business process innovation
11
120.9
140.4
75.6
35.826.4
19.8
99.6
FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Growing earning power : Growing earning power : Record high net profitRecord high net profit
FY00~04(avg.)
164.6bn164.6bn
Record highRecord high
(excl. non-recurring effect)
FY2011
(KRW Bn)
12Growing earning power : Growing earning power : Industry leader in earning growthIndustry leader in earning growth
ROE has continued to surpass Top 4 since FY2009ROE has continued to surpass Top 4 since FY2009
Annual earning growth (CAGR) at #1 level in industry during FY20Annual earning growth (CAGR) at #1 level in industry during FY2007~FY201107~FY2011
16.9%15.8%
13.7%12.4%
14.8%
20.8%
23.1%
-17.5%
17.0% 17.1%
FY2007 FY2008 FY2009 FY2010 FY2011
Meritz Top 4
ROE
10.4%
17.3%
6.2%
10.9%
18.1%
메리츠 A B C D
FY07~FY11 CAGR
Note) FY07~FY10 : Based on adjusted net profitNote) ROE in FY07~FY10 : Based on adjusted net profit
ROE = Net profit / Total shareholders’ equity (average outstanding)
Direct premium 2,180.2 2,534.0 2,896.4 3,288.0 3,836.1 4,254.3
U/W Profit -116.0 -77.2 -186.4 -16.4 -95.8 -47.8
Combined Ratio 105.4% 102.8% 108.7% 100.1% 102.4% 101.2%
Net investment profit 159.2 179.2 106.2 207.6 257.0 268.6
Investment Yield 5.9% 5.6% 2.8% 4.9% 5.3% 4.6%
Net Profit 35.8 71.1 -58.8 140.4 120.9 164.6
Adj Net Profit 47.5 84.7 -99.1 154.0 132.3 164.6
Adj ROE 13.7% 18.6% -16.1% 26.2% 18.7% 20.8%
Solvency Ratio(RBC Ratio)
170.4% 235.8% 189.9%230.9%
(269.7%)162.9%
(198.9%)176.1%
-
Overview
Note) FY2008 Unusual factors: RG loss -181.7bn / bad investments write-off -60.2bn / additional DAC amortization -30.2bn
1,234.91,552.8
1,849.62,274.4
2,760.2671.5
685.5
726.7
691.8
776.2
273.8
295.8
320.0
321.9
299.7
3,190.2
796.4
267.7
2,180.2
2,534.0
2,896.4
3,288.0
3,836.1
4,254.3
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Commercial
Auto
Long-term
14Sales : Sales : Exceed W4tn based on longExceed W4tn based on long--term line growthterm line growth
FY2011
LongLong--term sales W3.2tnterm sales W3.2tn / LT mix in direct premium written FY06 57% / LT mix in direct premium written FY06 57% →→ FY11 75%FY11 75%
(13%)
(31%)
(57%)
(12%)
(27%)
(61%)
(11%)
(25%)
(64%)
(10%)
(21%)
(69%)
(8%)
(20%)
(70%)
(6%)
(19%)
(75%)Sales(mix)
(KRW Bn)
15LongLong--term : term : FocusFocus on LT health insuranceon LT health insurance
Fierce sales competition among top tiersFierce sales competition among top tiers
→→ Health insurance market slowdown / Rapid growth in savings & proHealth insurance market slowdown / Rapid growth in savings & property insurance marketperty insurance market
Meritz F&M has continued to focus on health insuranceMeritz F&M has continued to focus on health insurance
Industry’s initial P growth by product
31.4%
22.4%
30.9%
-3.1%2.1%
-23.1%
8.8% 16.0%
62.8%
33.7%
84.9%
27.7% 30.0%
FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Health
Property
Savings/annuities
Rapid growth of savings & property type
Health insurance G/R by company
Health insurance market slowdown
Note) FY2011 figures : As of Feb 2012
FY2011
14.8%
26.3%
7.9%
-20.1%
4.4%
FY2007 FY2008 FY2009 FY2010 FY2011
메리츠 A B
C D
FY2011
Meritz
Note) FY2011 figures : As of Feb 2012
16LongLong--term : term : M/S rise in health market leads earning power growthM/S rise in health market leads earning power growth
10.3%
10.9%
10.5%
11.1%
11.6%
10.8%10.7%10.8%
10.2%
10.7%
10.1%
12.4%
FY06 FY07 FY08 FY09 FY10 FY11
Protection
Health
M/S Trend of protection type
ProtectionP/F
83% 85% 86% 81% 72% 70%
HealthG/R
39% 15% 26% 8% -20% 4%
FY2011 M/S 12.4% in health insurance, C/R of longFY2011 M/S 12.4% in health insurance, C/R of long--term line at #1 level in industryterm line at #1 level in industry
Focus on protection type, maintain savings product mix below 30%Focus on protection type, maintain savings product mix below 30%
20%17%
15% 14%
20%
28%30%
26% 26% 25%
37%
46%
53%
20%
FY05 FY06 FY07 FY08 FY09 FY10 FY11
Meritz
Top 4
P/F Trend of savings type
Rapid increase of savings portion in industry
Meritz’s Cap : 30%
FY11
FY11
Note) FY2011 figures : As of Feb 2012 Note) FY2011 figures : As of Feb 2012 and including annuities
17
82.5%
78.8%79.5%
84.4%
82.4% 82.2%83.2%
85.3%
80.1%
77.5%
85.0%
86.6%
79.3%
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Meritz Top 4
Long-term : L/R & C/R at #1 level in industry
LT Loss ratio LT Combined ratio
FY2011
101.3% 101.2%
98.6%
101.5%
103.4%
101.3%
99.6%
101.1%
99.8%
99.0%
103.7%
103.6%
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Meritz Top 4
FY2011
Note) FY2011 L/R : Based on K-IFRS (survey fee 0.8%, future survey fee 0.0%)
L/R of Top 4 : As of Feb 2012
(K-GAAP)99.7%
(K-GAAP)
Note) FY2011 figures : Based on K-IFRS / C/R of Top 4 : As of Feb 2012
18
77.1%
80.5%
86.0%
78.2%
84.1%
83.4%
87.1%
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Risk loss ratio (incl. IBNR)
(K-GAAP)
Long-term : Risk loss ratio improvement
FY2011
34.9% 32.6% 29.9% 26.7% 24.3%
16.3% 22.1% 27.8% 33.5% 35.9%
28.2%26.6%
24.5% 22.3% 22.0%
20.7% 18.7% 17.8% 17.5% 17.8%
23.4%
38.8%
20.9%
16.9%
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Living benefit guaranteed Living benefit non-guaranteed
Death Property & cost
Premium mix by coverage
FY2011
Note) Excl. IBNR / Based on DPE
19
6.1%6.3%
2.3%
2.8%
Auto : On-line M/S upturn & Loss ratio improvement
Sales & M/S Combined ratio
FY2010 FY2011
Loss ratio(YoY)
Expenseratio
82.5%
103.7%
21.2%
76.4%(△3.9%p)
106.9%
23.0%
+1.2%
+18.9%
+5.1%
IndustryG/R
FY2010 FY2011
776.2bn 796.0bn
713.2bn(91.9%)
706.0bn(88.6%)
63.0bn(8.1%)
90.4bn(11.4%)
-0.6%
+43.5%
+2.6%
MeritzG/R
Off-line(mix)
On-line
M/S
Note) FY2011 M/S & industry’s G/R : Preliminary figures
Industry IndustryMeritz Meritz
Note) FY2011 figures : Based on K-IFRS / Industry’s figures : As of Feb 2012
/ Meritz’s survey fee & future survey fee : 7.5%
Combinedratio
Utilize Mileage insurance & Selective daily system Utilize Mileage insurance & Selective daily system (15.4% registered in mileage)(15.4% registered in mileage)
Expand onExpand on--line auto insurance M/Sline auto insurance M/S
L/R improved in industry. Meritz L/R improved in industry. Meritz F&MF&M’’ss L/R improved 3.9%p L/R improved 3.9%p YoYYoY (based on K(based on K--GAAP standard)GAAP standard)
(On-line)113.1% 116.8%
79.6%
33.6%
80.3%(+4.8%p)
36.5%7.5%
83.9%
20Commercial : L/R improvement based on profitable strategy
DPE M/S Loss ratio
Note) Commercial L/R in FY2008 and FY2009 : Excluding RG lossesFY2011 figures : Based on K-IFRS / Industry’s figures : As of Feb 2012
8.5% 8.7%8.4%
7.8%
5.5%
6.8%
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011FY2011
49.8%
58.8%
55.6%
64.8%
53.0%
59.8%61.0%
59.3%
69.7% 70.1%
54.7%
66.2%
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Meritz Industry
FY2011
Note) M/S : As of Feb 2012 / DPE (Direct premium written)
DPE M/S 5.5% down 1.3%p DPE M/S 5.5% down 1.3%p YoYYoY due to business remodelingdue to business remodeling
L/R improvement based on profitable strategyL/R improvement based on profitable strategy
(K-GAAP 58.2%)
21Expand base focused on Core regionsExpand base focused on Core regions
Expansion of branches in Core regions
41
16
6
-3
Core regions Strategic regions Managing regions
Head branch Branch
Note) Include closed branches
LT Protection M/S Risk L/Rin Managing regions
18.5%
10.1%
13.0%10.8%
Core regions Managingregions
FY2010 FY2011
+0.7%p
-5.5%p
FY2010 FY2011
102.0%
90.9%
-11.1%p
P/F in auto insurance Auto L/R by region
25.5%
74.5%
23.4%
76.6%
Core+Strategicregions
Managingregions
FY2010
FY2011
+2.1%p
-2.1%p
Core+Strategicregions
Managingregions
74.5%
81.0%6.5%p
FY2011
Note) Classify regions into three groups : Core region / Strategic region / Managing region
(Unit)
22U/W Profits : C/R 101.2% / #1 at L/R in industry
[Combined ratio]
Note) FY2011 figures : Based on K-IFRS / Top 4 figures : As of Feb 2012
105.4%102.8%
108.7%
100.1%102.4% 101.2%
81.1% 82.5%
75.4%
80.4%
103.8%
100.7% 100.9% 100.7%102.3%
101.3%
78.9% 79.3%78.6%
80.8% 83.5%
76.7%78.5%81.5%
24.3% 23.9%
26.2%24.7%
23.1%20.8%
17.3%
21.5%22.7%
24.2%
22.2%22.3%
FY2006 FY2007 FY2008 FY2009 FY2010 FY2011
Top 4
Meritz
[Loss ratio]
[Expense ratio]
Top 4
Meritz
Top 4
Meritz
FY2011
23Invested Asset Portfolio : Focus on fixed income assetsFocus on fixed income assets
72.4% mix of Fixed income assets72.4% mix of Fixed income assets
Note) Fixed income = deposit, AFS bond, overseas bond, loan / performance based = trading bond, alternative investment /Stock = outsourced investment, trading stock, stock-type AI / Other = Non-operating deposit, Property management fees
ContentsContents
FY2012 Business ForecastFY2012 Business Forecast3
2
1
FY2011 Financial ResultsFY2011 Financial Results
About Meritz F&MAbout Meritz F&M
25
Net profits W195bn, Net profits W195bn,
LT HealthLT Health M/S 15%M/S 15%
Secure IndustrySecure Industry’’s s 1~21~2ndnd rank level of rank level of ROE/Profit Margin ROE/Profit Margin
□□ 3 New growth Momentum3 New growth Momentum
Regional differentiation growth
strategy
Maintain LT health high margin-
focused strategy
Expansion of auto Insurance Stance
Maintain commercial insurance
remodeling, Competitive markets-
centered growth
Stabilized investment strategy
□□ Maintain existing strategy Maintain existing strategy for current marketfor current market
FY2012 New ChallengeFY2012 New Challenge
Great leap in 90th Anniversary ! Meritz F&M New turning point!Great leap in 90Great leap in 90thth Anniversary ! Anniversary ! Meritz F&M New turning point!Meritz F&M New turning point!
GrowthGrowth & Profitability Two major power& Profitability Two major powerDifferentiated strategy to secure both Differentiated strategy to secure both
of them simultaneouslyof them simultaneously
FY2012 Market conditionFY2012 Market condition Key word : Key word : 『『Slow Slow GrowthGrowth』』++『『UncertaintyUncertainty』』
→→ ‘‘ Risk atRisk at all timesall times’’ Management SystemManagement System
: Enhance vital business competitiveness under through risk man: Enhance vital business competitiveness under through risk management, agement,
and focus on development of midand focus on development of mid--long term growth factorslong term growth factors
Promote strategy consistent with market conditionPromote strategy consistent with market condition
11 Differentiation growth strategy by regions
Acquisition of opportunities and Acquisition of opportunities and aggressive strategy under slow growing aggressive strategy under slow growing
environmentenvironment
22 Maintain LT health insurance centered high margin products
33 Expansion of Auto insurance
Ensure internal business stability with Ensure internal business stability with thorough risk managementthorough risk management
44 Remodeling of commercial line
55 Stabilized investment strategy
Future investment for longFuture investment for long--term term sustainable growthsustainable growth
66 Input of future business investment resources
29Continue to promote Regional differentiation strategy
3
20
5
-1
Core regions Strategic regions Managing regions
Head branch
Branch
18.9%20.3%
6.4% 6.8% 7.4% 7.8%
12.7%
15.4%
FY11 FY12 FY13 FY14
LT Health
Auto
41
16
6
-3
Core regions Strategic regions Managing regions
FY2011 Results
FY2012 Plan
Head branches/branches expansion plan Core regions 3-year target
Sustain LT Health insurance-focused growth strategy
LT profitability improves with expansion of LT ProtectionLT profitability improves with expansion of LT Protection M/S andM/S and P/FP/F
31
10.0%11.1%
11.7%12.2%
Active Elite
7,300(11.0%)
3,300(16.8%)
Passed
4,800(15.8%)
Organization Target Quarterly targets
Note) Active Personnel : LT New Adjusted Monthly Prem Equivalent KRW 500,000 ↑ or Auto KRW 7,500,000 ↑ or Commercial 5,000,000 ↑Elite Personnel : LT New Adjusted Monthly Prem Equivalent KRW 1,000,000 ↑ or Auto 10,000,000 ↑ or Commercial 5,000,000 ↑
New recruitmentNew recruitment : Average monthly targets of: Average monthly targets of 400 passed (G/R +15.8%), M/S 9.3% 400 passed (G/R +15.8%), M/S 9.3% →→ 10%10%
Active personnel: Active 7,300 people (G/R +11%), Elite 3,300 (GActive personnel: Active 7,300 people (G/R +11%), Elite 3,300 (G/R +16.8%) trained/R +16.8%) trained
FY2012(G/R)
FY2011
Passed M/S
Active sales
Sustain LT Health insurance-focused growth strategy: FY2012 Organization Target
(Persons)
32
4 5 6 7 8 9 10 11 12 1 2 3
Health-insurance
(Health) Health-insurance
(Accidents)
90th anniversary products
Health-insurance
(Aging society)
Product Schedule and New Prem Growth
Sustain LT Health insurance-focused growth strategy : New Product Launch Plan
Diversified targeting to customerDiversified targeting to customer needs , and active strategy such as needs , and active strategy such as
balanced growth between companybalanced growth between company’’s line of business and marketss line of business and markets
-- Supply two products to acquire seasonal demands of first half oSupply two products to acquire seasonal demands of first half of FY2012f FY2012
-- Develop 90Develop 90thth anniversary product for new values and earning poweranniversary product for new values and earning power
-- Continuous challenge for aging societyContinuous challenge for aging society
-- Supply corresponding products by Market Sensing Supply corresponding products by Market Sensing
33Maintain Expansion of Auto insurance
FY2011 FY2012
796.4bn(6.1%)
858.2bn(6.5%)
706.0bn(7.2%)
726.6bn(7.7%)
90.4bn(2.8%)
131.5bn(3.4%)
Industry & Meritz F&M Growth Forecast
Off-line
On-line
Combined ratio
Sales(M/S)
G/RMeritz Ind.7.8% 1.5%
M/S
+0.4%p
2.9% -3.9% +0.5%p
45.5% 17.8% +0.6%p
Faster growth than industry focused on OnFaster growth than industry focused on On--line line : Establish 5 new out bound center: Establish 5 new out bound center
Reduction of gap between top tiers with loss ratio targeting 75%Reduction of gap between top tiers with loss ratio targeting 75% (K(K--GAAP)GAAP)
83.9% 82.9%
23.0% 27.3%
FY2011 FY2012
Combined ratio110.2%
106.9%
Expense ratio
FY2011 FY2012
Loss ratio(K-GAAP) (76.4%) (75.0%)
34Maintain Remodeling of Commercial insurance
267.7bn
DPE
Total Commercial line
Competitive Markets
289.2bn
36.5% 41.5%
63.7%64.8%
Combined ratio
FY2012FY2011
101.2%105.1%
Plan to grow faster than industry by focusing on competitive marPlan to grow faster than industry by focusing on competitive markets kets
C/R
E/R
L/R
+8.0%
Note) Competitive Markets : Captive and Meritz F&M’s not involved markets (Cell phone, Foreigners, and overseas non-life insurance market)
Total investment yield remains same as previous yearTotal investment yield remains same as previous year
36
Expense ratio
20.8%(838.7bn)
FY2011 FY2012
9.4%(422.4bn)
11.8%(477.3bn)
9.0%(361.4bn)
Sales costratio
Admin ratio
21.4%(956.7bn)
0.2%p↑(57.0bn)
0.4%p↑(61.0bn)
0.6%p↑(118.0bn)
12.0%(534.3bn)
Allocation of resources for future business
Administrative ratio
FY2010
361.4bn
90th anniversary business and
investment for future business etc
+39.0bn
9.0%
FY2011
422.4bn
9.4%9.4%Admin ratio
Admin cost
Labor costs 162.6bn
198.8bn
187.5bn
234.9bn
Expense ratio 21.4% : Sales cost ratio 0.2%p, Administrative coExpense ratio 21.4% : Sales cost ratio 0.2%p, Administrative cost ratio 0.4%p increase (st ratio 0.4%p increase (YoYYoY))
Input of W 39.0bn for 90Input of W 39.0bn for 90thth anniversary celebration and investment for future businessanniversary celebration and investment for future business
Note) New Monthly Equivalent Premium : Excludes One-time payment and Annuity / New Premium: Includes Annuity, but excludes one-time payment
38FY2012 Business Plan: Summarized Financial Statement
(KRW Bn)FY2012
YoY
Assets
Invested assets 7,923.0 19.3%
Non-invested assets 1,987.5 -1.2%
Total 10,201.3 17.9%
Liability
Policy reserve 8,453.7 19.0%
Other liability 401.0 -38.7%
Total 9,145.0 17.9%
TotalShareholder’sEquity
Capital stock 48.4 0.1%
Capital surplus 261.7 0.1%
Retained earnings 420.0 56.7%
Cat reserve 157.0 9.9%
Capital Adjustment 6.0 16.0%
Other comprehensive income
315.4 -0.2%
Total 1,051.5 17.0%
PofitPofit/Loss/Loss Balanced SheetBalanced Sheet
(KRW Bn)FY2012
YoY
Loss ratio
Long-term 80.1% -0.1%p
(Risk) 84.8% -2.3%p
Auto 82.9% -1.0%p
Commercial 63.7% -1.1%p
Total 80.1% -0.3%p
Expense ratio 21.4% 0.6%p
Combined ratio 101.5% 0.3%p
Investment
Investment profits
328.3 22.3%
(Yield) 4.6% -
Net Profits 195.0 18.5%
ROE 19.9% -0.9%p
39
Certain of the statements contained herein are statements of future expectations
and other forward looking statements that are based on management's current view and
assumptions and involve known and unknown risks and uncertainties. In addition,
expressions and words which are forward-looking by reason of context identify forward-
looking statements. Actual results, performance or events may differ materially from
those in such statements due to general economic conditions, performance of financial
markets, the frequency and severity of insured loss events, mortality and morbidity levels
and trends, persistency levels, interest rate levels, general competitive factors, changes
in laws and regulations, changes in the policies of governments and/or regulatory
authorities. Although the embedded value and value of new business results presented
in this document are based on a traditional embedded value methodology calculated on
a deterministic basis, alternative valuation methodologies and approaches to calculate
these results have emerged. Meritz Insurance assumes no obligation to update any
forward-looking information contained in this report. We also have no obligation or
responsibility to investment made based on such forward looking statements.
DisclaimerDisclaimer 40
41ContentsContents
. Review Statement
Ⅰ. Embedded Value1. Embedded Value results2. Adjusted Net Worth (ANW)3. Value of in-force business (VIB)4. FY2012 Forecast5. RoEV
Ⅱ. Value of New Business (VNB)
Ⅲ. Movement of EV
Ⅳ. P/EV
Ⅴ. Sensitivities
42
Ⅰ. Embedded Value1. Embedded Value results2. Adjusted Net Worth (ANW)3. Value of in-force business (VIB)4. FY2012 Forecast5. RoEV
43- . Embedded Value results
▶▶ FY2011 EmbeddedFY2011 Embedded Value : 2,154.0bnValue : 2,154.0bn (increased by 473.0 (increased by 473.0 bnbn (28.1%) compared to (28.1%) compared to FY2010 (KFY2010 (K--IFRS))IFRS))
Unit : KRW Bn
1,599.11,599.1
753.7753.7Value of in-force business
AdjustedNet Worth
EmbeddedValue
1,041.71,041.7
688.4688.4
131.08.2% ↑
-157.018.6% ↓
845.4845.4
1,316.61,316.6
837.4837.4198.1
31.0% ↑
288.038.2% ↑
1,730.11,730.1
473.028.1% ↑2,154.02,154.0
274.926.4% ↑
639.3639.3
1,041.71,041.7
FY2010(K-GAAP)
FY2009 FY2011FY2010(K-IFRS)
1,681.01,681.0-49.1
2.8% ↓
-49.17.1% ↓
44- . Adjusted Net Worth (ANW)
▶▶ FY2011 ANW : 837.4bnFY2011 ANW : 837.4bn (increased by 198.1bn(31.0%) (increased by 198.1bn(31.0%) compared to compared to FY2010 (KFY2010 (K--IFRS))IFRS))
Unit : KRW Bn
FY2010K-GAPP FY2011
164.6
639.3
837.4
-39.3-21.6
96.0
688.4
FY2010K-IFRS
-49.1
-2.7 Etc.
1.1
Net income
Gain on Valuation Of Available-for-Sale securities
Dividend
Intangible asset
Capital increasewith consideration
※ Reference to the Appendix : Convert to 2010 K-IFRS
Convert to K-IFRS
45- . Adjusted Net Worth (ANW)
Unit : KRW Bn
▶▶ FY2011 ANW Details FY2011 ANW Details
CategoryFY2011
(A)
FY2010 YoY(A-B)
NoteK-IFRS(B) K-GAAP
Shareholder’s
Equity (a)899.0 682.5 615.6 216.5
•Net income : +164.6
•Capital increase with consideration: +96.0
•Dividend : -39.3•Gain on valuation of Available-
for-Sale Securities : -2.7Declared dividend (53.2bn) is
included
-61.6 -43.2 72.8 -18.4
Catastrophe Reserve - - 99.1 -
Allowance for Bad Debt 7.2 4.1 7.0 3.1
Intangible asset -65.1 -43.5 -32.4 -21.6
Prepaid cost -3.7 -3.9 -0.9 0.2
Adjusted Net Worth (a+b) 837.4 639.3 688.4 198.1
Adjusted Capital (b)
46- . Value of in-force business - Assumptions
Operational AssumptionOperational Assumption
Persistency Ratio - Experience analysis on 3-years data Analysis for product type and channel
Loss Ratio(L/R)- Analyze past 6-year data Analysis per 17 benefit categories
- PV of Inforce- Biz L/R : FY2010 89.4% , FY2011 86.8%
Expense Cost
- Commission : Applied Meritz’s payment schedule
- Expense cost excluding Commisson : Experience study on one-year experience
data
Crediting Rates - Applied for traditional /ISP Rates of ISP are applied per types (Saving ISP , Protection ISP , etc.)
47- . Value of in-force business - Assumptions
Economic AssumptionEconomic Assumption
Risk Discount Rate : 11.0% (Previously 11.5%)
Inflation Rate : 3.0%
Tax : 24.2%
Required Capital : Applied 150% of RBC Standard
Investment yield : 4.85%
(Unit : %) FY2011 FY2010 YoY
Investment yield 4.85 5.00 - 0.15%p
- Derived using CAPM(Capital Asset Pricing Model) method
48- . Value of in-force business (VIB)
VIB = Present Value of Future Profit VIB = Present Value of Future Profit –– Cost of Capital = 1,316.6bnCost of Capital = 1,316.6bn
Unit : KRW Bn
Item FY2011 FY2010 YoY
PV of Future Premium (a) 13,851.1 10,936.2 2,914.9 26.7%
PV of Future Profit (b) 1,542.9 1,198.0 344.9 28.8%
Cost of Capital (c) 226.3 156.3 70.0 44.8%
(c/a) 1.6% 1.4% +0.2%p
Value of In-force Business (d = b - c)
1,316.6 1,041.7 274.9 26.4%
Value Margin (d/a) 9.5% 9.5% +0.0%p
49- . Value of in-force business (VIB)
PV of Future ProfitPV of Future Profit Margin : 11.1%, increased by 0.1%pMargin : 11.1%, increased by 0.1%p
IncreasedIncreased 473.0bn 473.0bn YoYYoY to 2,154.0bnto 2,154.0bn
33.52,154.0
-69.4
Variances
Unit : KRW Bn
Change in Net Asset value- Dividend : -39.3- Accumulated other comprehensive income: -4.7- Adjusted Capital changes : -18.4- Etc. : 95.9(Capital increase with
consideration:96.0)
-49.1
39.4
RDROperationalAssumptionChange
EconomicAssumptionChange
General AccountInvestmentincome
P&COperatingResults
Change inNet Asset Value
OtherOperatingResults
Convert to K-IFRS
58
Ⅳ. P/EV
59. P/EV
Stock price, EVPS (EV per share), P/EVStock price, EVPS (EV per share), P/EV
FY2009 FY2010
W7,350
W12,917
P/EV
StockPrice
EVPS
W12,900
W19,825
Current(2012.5.15)
StockPrice
EVPSStock price
EVPS
W11,750
W22,2750.53x0.57x
0.65x
60
. Sensitivities
61. Sensitivities ( In-force business )
Unit : KRW Bn
Interest Loss ratio
Lapse Expense ※
-10%
+10%
-10%
+10%
-10%
+10%
+50bp
-50bp
71.6 (5%)
-66.4(-5%)
56.0 (4%)
-55.9(-4%)
160.6 (12%)
-157.7 (-12%)
273.3 (21%)
-272.5 (-21%)Expense sensitivity does not apply to commission and other expenses.Interest sensitivity includes changes in crediting rate.
62. Sensitivities ( New Business )
Unit : KRW Bn
Loss ratio
Lapse
-10%
+10%
-10%
+10%
-10%
+10%
+50bp
-50bp
17.9(7%)
-16.5 (-6%)
21.8 (8%)
-21.8 (-8%)
25.6 (9%)
-25.2 (-9%)
47.2 (17%)
-47.2 (-17%)
Expense ※
Interest
Expense sensitivity does not apply to commission and other expenses.Interest sensitivity includes changes in crediting rate.
63. Sensitivities ( Others )
Unit : KRW Bn
ItemRisk Discount Rate
10.0% 11.0% 12.0%
Adjusted Net Worth 837.4
Shareholder’s Equity 899.0
Adjusted Capital -61.6
Value of In-force Business 1,422.4 1,316.6 1,221.6
PV of future profit 1,632.1 1,542.9 1,462.3
Cost of Capital 209.6 226.3 240.7
Embedded Value 2,259.8 2,154.0 2,059.0
Value of 1-year New Business 296.7 274.4 254.4
PV of future profit 338.6 319.4 302.1
Cost of Capital 41.9 45.0 47.7
64
. Review Statement
65. Review Statement - Towers Watson
Towers Watson has reviewed the methodology and assumptions used to determine the results of Meritz’sEmbedded Value as at 31 March 2012 and the value of new business written in the twelve months to 31 March 2012 for the long-term insurance business.
Towers Watson has concluded that: The methodology used is consistent with recent industry practice for traditional deterministic embedded value
reporting in Korea. In particular the values have been based on a deterministic projection of future profits, with allowance for risk through the use of a risk discount rate specified by Meritz and an explicit adjustment for the cost of holding an amount of solvency capital;
The operating assumptions have been set with appropriate regard to past, current and expected future experience; and
The economic assumptions used have made allowance for the company's current and expected future asset mix and investment strategy, are internally consistent and consistent with observable market data.
Towers Watson has also reviewed the results of the calculations made by Meritz, including a number of checks of the models and processes, and considers that the results have been determined in a manner consistent with the methodology and assumptions described in this report and has confirmed that any issues discovered do not have a material impact on the disclosed embedded value as at 31 March 2012 or the disclosed value of new business written in the twelve months to 31 March 2012 for the long-term insurance business.
In arriving at these conclusions, Towers Watson relied on data and information provided by Meritz. This opinion is made solely to Meritz in accordance with the terms of Towers Watson's engagement letter. To the fullest extent permitted by applicable law, Towers Watson does not accept or assume any responsibility, duty of care or liability to anyone other than Meritz for or in connection with its review work, the opinions it has formed, or for any statement set forth in this opinion.
6666[Appendix] Convert to FY2010 K-IFRS
Unit : KRW Bn
CategoryK-IFRS(A)
K-GAAP(B) Difference(A-B)
CapitalCapital (a)(a)
Capital stock-common
Premium on stock
Retained earnings(Except for Catastrophe Reserve)
Other components of equity
Catastrophe Reserve
Adjusted Capital (b)Adjusted Capital (b)
Catastrophe Reserve
Allowance for Bad Debt
Intangible asset
Prepaid cost
Adjusted Net Worth (Adjusted Net Worth (a+ba+b))
67[Appendix] FY2012 Forecast
▶▶ VIB forecastVIB forecast : 1,608.8bn, increase by 22.2% compared to FY2011: 1,608.8bn, increase by 22.2% compared to FY2011
▶▶ VNB ForecastVNB Forecast : 325.0bn, increase 18.4% compared to FY2011: 325.0bn, increase 18.4% compared to FY2011
Category
NB Initial Premium
PVFP Risk margin Other margin VNB
Ratio Multiple Ratio Ratio PM
Protection
Saving
Annuity
Total
Protection
Saving
Annuity
Total
Unit : KRW Bn
※PVFP : PV of Future Premium
69[Appendix] EV Methodology
EmbeddedValue
Represents embedded value of a companyFocuses on future distributable earnings to the shareholderDeterministic assumptions and risk discount rates are used (Traditional EV)
AdjustedNet Worth
Market adjusted value of company’s net assetIncludes adjustments to statutory net assetsAdjusted Net Worth = Shareholder’s Equity + Adjustments to Statutory Net Assets
=
Value of In-forceBusiness
Present value of future after tax profit net of cost of capitalConsidering the operational and economic best estimate assumptions ofthe long term business
Net Total Loan 1,237.4 954.3 790.2 568.7Note1) NPL ratio = Substandard & below /TotalNote2) Based on K-IFRSNote3) Coverage ratio = Total Provision / substandard & belowNote4) FSB Standard (including retirement accounts, 30 days Overdue principal and interest, Delinquency on Policyholder loan)
FY2011 is based on K-IFRS, others are K-GAAPNote1) Corporate Credit : Including Unsecured private placement bondsNote2) Corporate secured : Including mortgage bond, RP, CP