EX-99.1(E)

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Exhibit 99.1(E)

KB Insurance Co., Ltd and Subsidiaries

Consolidated Financial Statements

December 31, 2016 and 2015

KB Insurance Co., Ltd and Subsidiaries

Index

December 31, 2016 and 2015


	Page(s)

Independent Auditor’s Report		1~2

Consolidated Financial Statements

Consolidated Statements of Financial Position		3

Consolidated Statements of Comprehensive Income		4~5

Consolidated Statements of Changes in Equity		6~7

Consolidated Statements of Cash Flows		8~9

Notes to the Consolidated Financial Statements		10~113

Independent Auditor’s Report

(English Translation of a Report Originally Issued in Korean)

To the Board of Directors and Shareholders of

KB Insurance Co., Ltd

We have audited the accompanying consolidated financial statements of KB Insurance Co., Ltd and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated statement of financial position as of December 31, 2016 and 2015, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the years then ended and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of consolidated financial statements in accordance with the International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean IFRS.

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.

/s/ Samil PricewaterhouseCoopers

March 8, 2017

Seoul, Korea

This report is effective as of March 8, 2017, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

KB Insurance Co., Ltd and Subsidiaries

Consolidated Statements of Financial Position

December 31, 2016 and 2015


(In Korean won)	Note		2016			2015
Assets
Cash and cash equivalents		4,5,8,24,31		834,677,653,102			769,207,926,792
Financial assets at fair value through profit or loss		4,5,9,14,31		1,290,860,050,528			979,945,507,137
Available-for-sale financial assets		4,5,10,24,31		9,608,853,903,915			8,560,472,085,861
Held-to-maturity financial assets		4,5,11,31		3,546,090,842,448			2,148,197,811,515
Loans		4,5,12,31		6,828,086,779,469			6,755,519,047,911
Other receivables		4,5,12,24,31		733,382,030,999			907,175,730,176
Investments in associates		13		—			7,435,741,213
Derivative assets to hedge		4,5,14		6,144,554,921			11,177,788,388
Reinsurance assets		4,15		764,918,770,769			776,233,697,415
Investment property		16,18		269,591,966,071			333,736,147,564
Property and equipment		17,18		791,933,899,454			760,877,896,857
Intangible assets		19		37,875,825,187			41,191,160,904
Assets held-for-sale		20		4,048,353,452			—
Assets of disposal group classified as held for sale		21		—			1,039,888,312,108
Current tax assets				—			2,315,313,716
Deferred tax assets		44		2,349,841,338			2,427,223,829
Deferred acquisition costs		22		1,669,657,180,374			1,654,854,101,613
Other assets		23		44,415,989,149			48,641,426,413
Separate account assets		50		3,006,009,542,068			2,722,036,877,851

Total assets				29,438,897,183,244			27,521,333,797,263

Liabilities
Insurance liabilities		25		22,470,369,354,945			20,447,989,539,790
Financial liabilities at fair value through profit or loss		5,14,26		9,391,492,083			7,001,616,938
Other financial liabilities		5,27,31		531,271,170,296			528,311,743,729
Derivative liabilities to hedge		5,14		147,320,144,868			95,336,345,346
Provisions		28		62,643,117,557			47,277,649,541
Net defined benefit liabilities		29		91,441,864,232			103,397,977,900
Liabilities of disposal group classified as held for sale		21		—			884,469,740,813
Current tax liabilities				7,968,037,388			16,705,084,363
Deferred tax liabilities		44		245,256,460,036			245,563,982,782
Other liabilities		30		40,238,867,784			42,238,270,277
Separate account liabilities		49		3,385,531,301,980			2,991,801,912,071

Total liabilities				26,991,431,811,169			25,410,093,863,550

Equity
Capital stock		32		33,250,000,000			30,000,000,000
Capital surplus		32		348,453,891,932			181,120,621,932
Capital adjustments		32		(8,508,615	)		(8,508,615	)
Accumulated other comprehensive income		32		201,183,492,288			285,657,046,146
Accumulated other comprehensive income of assets held for sale		32		314,081,671			—
Accumulated other comprehensive income of disposal groups		32		—			1,534,340,393
Retained earnings		32		1,859,865,209,578			1,582,383,902,252

Equity attributable to shareholders of the Parent Company				2,443,058,166,854			2,080,687,402,108
Non-controlling interests		32		4,407,205,221			30,552,531,605

Total equity				2,447,465,372,075			2,111,239,933,713

Total liabilities and equity				29,438,897,183,244			27,521,333,797,263

The accompanying notes are an integral part of these consolidated financial statements.

KB Insurance Co., Ltd and Subsidiaries

Consolidated Statements of Comprehensive Income

Years ended December 31, 2016 and 2015


(In Korean won)	Note		2016		2015
Operating revenue
Premium income		33		9,421,905,531,111		9,124,342,819,637
Reinsurance income		35		584,204,859,760		682,091,879,383
Gain from reimbursement		23		487,109,373		—
Recovered expenses		40		101,624,502,703		103,423,710,107
Interest income		6,36		639,108,019,512		615,085,381,934
Dividend income		6		106,004,770,972		65,973,127,494
Gain on valuation and disposal of securities		6,37		83,140,045,338		134,204,797,116
Gain on valuation and disposal of loans and other receivables		6,38		36,827,376		164,076,340
Gain on valuation and disposal of derivatives		6,14,39		58,398,411,778		29,673,128,139
Gain on valuation and disposal of Investments in subsidiaries				152,810,592		352,557,223
Foreign currency transaction gain		6		161,484,645,607		201,780,246,386
Other income		42		63,802,008,544		58,240,200,721
Separate account income		49		98,091,410,100		94,949,906,565

				11,318,440,952,766		11,110,281,831,045

Operating expenses
Change in insurance liabilities		25		2,022,312,916,732		1,942,098,969,592
Insurance claims paid		34		3,412,779,477,452		3,234,418,113,439
Refund of surrender value and dividend expenses		34		2,132,892,831,335		2,291,491,508,146
Reinsurance expenses		35		876,627,601,047		883,531,939,682
Loss from reimbursement		23		—		784,223,510
Claim survey expenses paid		41		207,601,540,102		219,952,379,714
Amortization of deferred acquisition costs		22		655,886,837,183		654,047,419,224
Insurance operating expenses		41		1,013,685,262,024		953,613,019,902
Interest expense		6,36		504,071,079		752,201,426
Loss on valuation and disposal of securities		6,37		82,419,934,049		93,085,193,255
Loss on valuation and disposal of loans and other receivables		6,38		36,972,084,277		11,633,056,110
Loss on valuation and disposal of derivatives		6,14,39		164,350,106,971		172,321,832,759
Loss on investments on subsidiaries and associates				336,794,277		1,004,530,395
Foreign currency transaction loss		6		36,987,793,091		23,039,989,030
Administrative expenses for assets		41		52,750,599,356		78,328,249,647
Loss on changes of reinsurance assets		15		10,737,631,264		130,428,933,316
Administrative expenses for real estate		16		18,736,452,083		16,291,391,710
Other expenses		42		105,854,075,746		66,118,983,627
Separate account expenses		49		98,091,410,100		94,949,906,565

				10,929,527,418,168		10,867,891,841,049

Operating income				388,913,534,598		242,389,989,996

Non-operating income (expenses)
Non-operating income		43		19,379,366,445		4,559,041,271
Non-operating expenses		43		9,934,671,940		4,810,924,051

				9,444,694,505		(251,882,780	)

Profit before income tax from continuing operations				398,358,229,103		242,138,107,216

Income tax expense from continuing operations		44		100,874,083,906		53,463,770,378

Profit for the year from continuing operations		30		297,484,145,197		188,674,336,838

KB Insurance Co., Ltd and Subsidiaries

Consolidated Statements of Comprehensive Income

Years ended December 31, 2016 and 2015


(In Korean won)	Note	2016			2015
Profit for the year from discontinued operations	7		4,625,130,215			(29,326,171,733	)
Profit for the year	32		302,109,275,412			159,348,165,105
Other comprehensive income (loss)	32		(83,818,230,897	)		36,273,649,061
Items that will not be reclassified subsequently to profit or loss
Remeasurements of defined benefit plans	29		10,500,856,701			2,064,447,572
Items that may be subsequently reclassified to profit or loss
Unrealized net change in fair value of available-for-sale financial assets	6		(91,174,447,039	)		42,530,142,800
Effective portion of changes in fair value of cash flow hedges	6		217,989,632			(661,144,807	)
Unrealized net change in other comprehensive income of associate			—			(18,231,841	)
Foreign currency translation differences for foreign operations			3,404,409,983			(4,196,363,119	)
Other comprehensive income arising from separate account			(6,767,040,174	)		(3,445,201,544	)

			(83,818,230,897	)		36,273,649,061

Total comprehensive income for the year			218,291,044,515			195,621,814,166
Profit for the year attributable to:
Shareholders of the Parent Company			301,153,545,810			164,198,627,698
Non-controlling interests			955,729,602			(4,850,462,593	)

			302,109,275,412			159,348,165,105

Total comprehensive income for the year attributable to:
Shareholders of the Parent Company			217,147,381,905			201,073,715,591
Non-controlling interests			1,143,662,610			(5,451,901,425	)

			218,291,044,515			195,621,814,166

Earnings per share
Basic earnings per share	45		5,016			3,117

The accompanying notes are an integral part of these consolidated financial statements.

KB Insurance Co., Ltd and Subsidiaries

Consolidated Statements of Changes in Equity

Years ended December 31, 2016 and 2015


(In Korean won)	Capital stock		Capital surplus		Capital adjustments			Accumulated other comprehensive income			Accumulated other comprehensive income of assets held for sale		Accumulated other comprehensive income of disposal group		Retained earnings			Non- controlling interests			Total
Balance at January 1, 2015		30,000,000,000		49,715,102,618		(56,607,409,411	)		250,316,298,646			—		—		1,443,753,025,693			36,408,619,067			1,753,585,636,613
Total comprehensive income (loss)
Profit(loss) for the year		—		—		—			—			—		—		164,198,627,698			(4,850,462,593	)		159,348,165,105
Net change in fair value of available-for-sale financial assets		—		—		—			43,007,804,370			—		—		—			(477,661,570	)		42,530,142,800
Effective portion of changes in fair value of cash flow hedges		—		—		—			(661,144,807	)		—		—		—			—			(661,144,807	)
Net change in fair value of associates		—		—		—			(18,457,972	)		—		—		—			226,131			(18,231,841	)
Foreign currency translation differences for foreign operations		—		—		—			(4,070,062,000	)		—		—		—			(126,301,119	)		(4,196,363,119	)
Other comprehensive income arising from separate account		—		—		—			(3,445,201,544	)		—		—		—			—			(3,445,201,544	)
Remeasurements of defined benefit plans		—		—		—			2,062,149,846			—		—		—			2,297,726			2,064,447,572
Classified as held-for-sale		—		—		—			(1,534,340,393	)		—		1,534,340,393		—			—			—
Transactions with owners of the Group
Dividends to owners of the Group		—		—		—			—			—		—		(25,854,910,500	)		—			(25,854,910,500	)
Other changes		—		—		—			—			—		—		287,159,361			(287,159,361	)		—
Disposal of treasury stocks		—		131,405,519,314		56,599,754,316			—			—		—		—			—			188,005,273,630
Others
Changes in consolidated subsidiaries		—		—		(853,520	)		—			—		—		—			(117,026,676	)		(117,880,196	)

Balance at December 31, 2015		30,000,000,000		181,120,621,932		(8,508,615	)		285,657,046,146			—		1,534,340,393		1,582,383,902,252			30,552,531,605			2,111,239,933,713

KB Insurance Co., Ltd and Subsidiaries

Consolidated Statements of Changes in Equity

Years ended December 31, 2016 and 2015


(In Korean won)	Capital stock		Capital surplus		Capital adjustments			Accumulated other comprehensive income			Accumulated other comprehensive income of assets held for sale		Accumulated other comprehensive income of disposal groups			Retained earnings			Non-controlling interests			Total
Balance at January 1, 2016		30,000,000,000		181,120,621,932		(8,508,615	)		285,657,046,146			—		1,534,340,393			1,582,383,902,252			30,552,531,605			2,111,239,933,713
Total comprehensive income (loss)
Profit for the year		—		—		—			—			—		—			301,153,545,810			955,729,602			302,109,275,412
Net change in fair value of available-for-sale financial assets		—		—		—			(90,960,993,042	)		—		(174,453,234	)		—			(39,000,763	)		(91,174,447,039	)
Effective portion of changes in fair value of cash flow hedges		—		—		—			217,989,632			—		—			—			—			217,989,632
Foreign currency translation differences for foreign operations		—		—		—			3,177,476,212			—		—			—			226,933,771			3,404,409,983
Other comprehensive income arising from separate account		—		—		—			(6,767,040,174	)		—		—			—			—			(6,767,040,174	)
Remeasurements of defined benefit plans		—		—		—			10,500,856,701			—		—			—			—			10,500,856,701
Transactions with owners of the Group
Dividends to owners of the Group		—		—		—			—			—		—			(24,000,000,000	)		(512,133,600	)		(24,512,133,600	)
Issuance of share capital		3,250,000,000		167,333,270,000		—			—			—		—			—			—			170,583,270,000
Others
Transfer of revaluation of property and equipment		—		—		—			(641,843,187	)		314,081,671		—			327,761,516			—			—
Changes in consolidated subsidiaries		—		—		—			—			—		(1,359,887,159	)		—			(26,776,855,394	)		(28,136,742,553	)

Balance at December 31, 2016		33,250,000,000		348,453,891,932		(8,508,615	)		201,183,492,288			314,081,671		—			1,859,865,209,578			4,407,205,221			2,447,465,372,075

The accompanying notes are an integral part of these consolidated financial statements.

KB Insurance Co., Ltd and Subsidiaries

Consolidated Statements of Cash Flows

Years ended December 31, 2016 and 2015


(In Korean won)	2016			2015
Cash flows from operating activities
Profit before income tax		403,779,590,473			215,726,257,559
Adjustments for:
Interest income		(648,322,899,675	)		(637,396,591,744	)
Interest expense		4,930,812,751			10,086,858,512
Dividend income		(106,042,012,572	)		(66,027,858,554	)
Change in reinsurance assets		10,737,631,264			130,428,933,316
Net loss (gain) from reimbursement		(487,109,373	)		784,223,510
Net gain on valuation and disposal of securities		(13,668,886,953	)		(40,425,659,533	)
Net loss on valuation of loans and other receivables		36,401,935,097			11,106,366,957
Net loss on valuation and disposal of derivatives		109,503,139,330			143,706,362,201
Net gain on Investments in subsidiaries		(9,128,819,454	)		(1,022,915,412	)
Net foreign currency transaction gain		(124,059,734,326	)		(158,268,205,964	)
Change in insurance liabilities		2,022,312,916,732			1,942,098,969,646
Amortization of deferred acquisition costs		655,886,837,183			654,047,419,224
Depreciation		39,929,094,935			41,836,282,157
Amortization of intangible assets		9,505,317,726			10,759,802,915
Impairment loss on intangible assets		138,506,866			1,316,607,582
Net gain on disposal of assets held for sale		(3,945,827,290	)		—
Impairment loss (reversal of impairment loss) on asset group held for sale		(2,122,984,837	)		37,787,910,820
Pension expenses		30,627,258,218			39,065,965,793
Other expenses		56,364,367,042			16,983,671,700

		2,068,559,542,664			2,136,868,143,126

Changes in:
Financial assets at fair value through profit or loss		(282,573,695,148	)		(365,167,203,487	)
Joint compensation fund		(864,862,394	)		(691,220,709	)
Derivative assets to hedge		(6,993,751,040	)		—
Loans		(140,531,468,024	)		(487,497,351,002	)
Other receivables		(539,504,313,663	)		262,297,648,460
Deferred acquisition costs		(670,689,915,944	)		(702,310,028,130	)
Other assets		7,661,543,846			(8,452,016,777	)
Separate account assets		(292,900,157,850	)		(982,413,088,442	)
Financial liabilities at fair value through profit or loss		(96,954,504,073	)		69,185,791,533
Deposits		(13,687,082,155	)		27,391,335,699
Other financial liabilities		734,874,789,444			12,740,019,915
Derivative liabilities to hedge		—			2,064,481,756
Provisions		(41,237,074,037	)		(76,041,194	)
Liability for defined benefit plans		(28,705,030,434	)		(16,552,434,619	)
Other liabilities		8,797,980,478			(3,600,265,919	)
Separate account liabilities		393,729,389,909			844,416,877,244
Foreign currency translation differences for foreign operations		4,538,135,620			5,260,153,391

		(965,040,015,465	)		(1,343,403,342,281	)
Income tax paid		(80,539,613,855	)		(56,409,983,778	)
Interest received		637,724,975,665			652,036,118,326
Interest paid		(2,903,834,371	)		(9,853,798,239	)
Dividends received		107,222,695,271			62,766,031,312

Net cash inflow from operating activities		2,168,803,340,382			1,657,729,426,025

KB Insurance Co., Ltd and Subsidiaries

Consolidated Statements of Cash Flows

Years ended December 31, 2016 and 2015


(In Korean won)	2016			2015
Cash flows from investing activities
Proceeds from sale of available-for-sale financial assets		1,706,399,668,107			2,669,595,101,538
Acquisitions of available-for-sale financial assets		(2,719,802,063,242	)		(3,882,134,610,989	)
Proceeds from redemption of held-to-maturity financial assets		—			34,466,033,617
Acquisitions of held-to-maturity financial assets		(1,391,970,072,282	)		(543,311,900,000	)
Proceeds from sale of property and equipment		1,625,722,151			2,003,074,176
Acquisitions of property and equipment		(17,384,856,110	)		(11,184,290,280	)
Proceeds from sale of intangible assets		9,475,554,109			2,702,930,059
Acquisitions of intangible assets		(12,863,460,236	)		(10,742,463,875	)
Proceeds from sale of assets held for sale		8,170,507,000			—
Net cash flows from disposal of disposal group held-for-sale		87,432,991,066			—
Proceeds from sale of investments in associates and subsidiaries		9,129,204,623			15,526,569,650
Acquisitions of investments in associates and subsidiaries		—			(20,000,000	)
Decrease in guarantee deposits		9,412,782,474			8,981,365,754
Increase in guarantee deposits		(7,665,399,752	)		(5,439,645,826	)
Cash inflows from hedging activities		25,211,244,713			6,075,714,987
Cash outflows from hedging activities		(64,015,071,607	)		(98,459,615,177	)

Net cash outflow from investing activities		(2,356,843,248,986	)		(1,811,941,736,366	)

Cash flows from financing activities
Dividends paid		(24,512,133,600	)		(26,036,502,889	)
Increase in debts		136,697,159,455			164,574,542,405
Decrease in debts		(40,000,000,000	)		—
Increase in guarantee deposits from lessee		3,218,881,732			3,858,234,571
Decrease in guarantee deposits from lessee		(3,585,303,222	)		(4,968,853,330	)
Cash outflow from changes in shares of subsidiaries		—			(91,026,000	)
Disposal of treasury stocks		—			229,957,959,216
Issuance of share capital		170,583,270,000			—

Net cash inflow from financing activities		242,401,874,365			367,294,353,973

Effect of exchange rate fluctuations on cash and cash equivalents		(168,513,806	)		1,178,149,876

Net increase in cash and cash equivalents		54,193,451,955			214,260,193,508
Cash and cash equivalents at the beginning of the year		780,484,201,147			566,224,007,639

Cash and cash equivalents at the end of the year		834,677,653,102			780,484,201,147

Cash and cash equivalents classified as disposal groups		—			11,276,274,355

Cash and cash equivalents in the consolidated financial position at the end of the year		834,677,653,102			769,207,926,792

The accompanying notes are an integral part of these consolidated financial statements

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

1. The Parent Company

Overview of KB Insurance Co., Ltd and its subsidiaries (the “Group”) is as follows.

(1) Overview of the Parent Company

KB Insurance Co., Ltd (the “Parent Company”) was incorporated on January 27, 1959, under the laws of the Republic of Korea to engage in non-life insurance related business and asset management for the business as the Parent Company’s main business model. As of December 31, 2016, the Parent Company has 63 branch offices and 313 business offices. In June 1976, the Parent Company went public on the Korea Stock Exchange. The Parent Company’s major shareholder is KB Financial Group Inc. (39.81%) as of December 31, 2016.

(2) Overview of the consolidated subsidiaries

Details of ownership interests of the consolidated subsidiaries as of December 31, 2016 and 2015, are as follows:


Subsidiaries	Location	Industry	Date of financial statements	2016						2015
Subsidiaries	Location	Industry	Date of financial statements	Owner- ship			Ownership of non-controlling interests			Owner- ship			Ownership of non-controlling interests
Leading Insurance Services, Inc.	USA	Management service	Dec 31		100.00	%		—			100.00	%		—
LIG Insurance (China) Co., Ltd	China	Non-life insurance	Dec 31		100.00	%		—			100.00	%		—
PT. KB Insurance Indonesia	Indonesia	Non-life insurance	Dec 31		70.00	%		30.00	%		70.00	%		30.00	%
LIG Investment & Securities Co., Ltd¹	Korea	Financial investment	Dec 31		—			—			82.35	%		17.65	%
KB Claims Survey & Adjusting	Korea	Claim service	Dec 31		100.00	%		—			100.00	%		—
KB Sonbo CNS Co., Ltd	Korea	Management service	Dec 31		100.00	%		—			100.00	%		—
KB Golden Life Care Co., Ltd²	Korea	Service	Dec 31		100.00	%		—			—			—

¹	The Group decided to sell LIG Investment & Securities Co., Ltd on December 22, 2015, with the approval of the board of directors, and this transaction was completed on June 21, 2016 (deemed disposal date: May 31, 2016) (Note 21).

²	Newly included in consolidation due to a new investment during the year ended December 31, 2016

(3) Overview of the consolidated beneficiary certificates

Details of consolidated beneficiary certificates as of December 31, 2016, are as follows:

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


Company	Location	Industry	Ownership interests
Company	Location	Industry	2016			2015
KB Smart Stepup Private Fund 3^rd	Korea	Financial investment		—			100.00	%
KB Smart Stepup Private Fund 4^th	Korea	Financial investment		—			100.00	%
KB Hope Partner Private Fund Bond 1^st	Korea	Financial investment		100.00	%		100.00	%
Daishin Forte Alpha Private Fund 30^th	Korea	Financial investment		100.00	%		100.00	%
Daishin Forte Alpha Private Fund 31^st	Korea	Financial investment		100.00	%		100.00	%
Daishin Forte Alpha Private Fund 32^nd	Korea	Financial investment		100.00	%		100.00	%
Daishin Forte Alpha Private Fund 33^rd	Korea	Financial investment		100.00	%		100.00	%
Daishin Forte Alpha Private Fund 36^th	Korea	Financial investment		100.00	%		100.00	%
Daishin Forte Alpha Private Fund 43^rd	Korea	Financial investment		100.00	%		100.00	%
Daishin Forte Alpha Private Fund 44^th	Korea	Financial investment		100.00	%		100.00	%
Dongbu Private Fund 16^th	Korea	Financial investment		89.52	%		89.52	%
Mirae Asset Triumph Private Equity Investment Trust 38^th	Korea	Financial investment		100.00	%		100.00	%
Shinhan BNPP Private Fund 42^nd	Korea	Financial investment		100.00	%		100.00	%
Hana Landchip Private Fund 58^th	Korea	Financial investment		99.99	%		99.99	%
Hanwha Private Equity Securities Investment Trust 86^th	Korea	Financial investment		—			100.00	%
Hyundai Aviation Private Fund 3^rd	Korea	Financial investment		99.96	%		99.96	%
Hyundai Power Private Fund 3^rd	Korea	Financial investment		99.95	%		99.95	%
Hyundai Power Professional Investment Type Private Investment Fund No.4	Korea	Financial investment		99.77	%		—
KB U.S. LongShort Private Securities Fund 1	Korea	Financial investment		99.50	%		—

(4) Changes in subsidiaries


Company		Description
LIG Investment & Securities Co., Ltd		Excluded from the consolidation due to disposal of investment
KB Golden Life Care Co., Ltd		Included in the consolidation due to gain of control through a new investment
KB Smart Stepup Private Fund 3^rd		Excluded from the consolidation due to disposal of investment
KB Smart Stepup Private Fund 4^th		Excluded from the consolidation due to disposal of investment
Hanwha Private Equity Securities Investment Trust 86^th		Excluded from the consolidation due to disposal of investment
Hyundai Power Professional Investment Type Private Investment Fund No.4		Included in the consolidation due to gain of control through a new investment
KB U.S. LongShort Private Securities Fund 1		Included in the consolidation due to gain of control through a new investment

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(5) Summarized financial information of subsidiaries and beneficiary securities

Summarized financial information of subsidiaries and beneficiary securities as of December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	Assets		Liabilities		Equity		Revenue		Profit for the year			Total comprehensive income for the year
Company
Leading Insurance Services, Inc.		4,425		585		3,840		14,272		(293	)		(180	)
LIG Insurance (China) Co., Ltd		103,774		60,228		43,546		50,609		2,024			759
PT. KB Insurance Indonesia		25,858		11,168		14,690		16,110		1,358			2,105
KB Claims Survey & Adjusting		28,313		16,738		11,575		102,753		963			989
KB Sonbo CNS Co., Ltd		4,285		3,717		568		33,357		306			306
KB Golden Life Care Co., Ltd		19,533		49		19,484		12		(227	)		(227	)
KB HopePartner 1^st		49,137		5		49,132		2,494		700			700
Daishin Forte Alpha Private Fund 30^th		10,085		8		10,077		526		391			391
Daishin Forte Alpha Private Fund 31^st		20,239		13		20,226		1,083		766			766
Daishin Forte Alpha Private Fund 32^nd		10,043		6		10,037		578		397			397
Daishin Forte Alpha Private Fund 33^rd		10,042		6		10,036		561		393			393
Daishin Forte Alpha Private Fund 36^th		10,233		5		10,228		604		347			347
Daishin Forte Alpha Private Fund 43^rd		10,062		9		10,053		527		324			324
Daishin Forte Alpha Private Fund 44^th		10,039		3		10,036		581		326			326
Dongbu Private Fund 16^th		39,507		23		39,484		3,638		1,943			1,943
Mirae Asset Triumph Private Fund 38^th		49,243		2		49,241		2,315		881			881
Shinhan BNPP Private Fund 42^nd		49,187		—		49,187		1,782		766			766
Hana Landchip Realestate Private Fund 58^th		16,094		674		15,420		1,867		857			857
Hyundai Aviation Private Fund 3^rd		19,779		396		19,383		2,072		1,111			1,111
Hyundai Power Private Fund 3^rd		23,699		108		23,591		4,914		1,722			1,754
Hyundai Power Professional Investment Type Private Investment Trust No.4		44,035		15		44,020		4,854		359			359
KB U.S. LongShort Private Securities Fund 1		20,322		6		20,316		1,834		215			215

		577,934		93,764		484,170		247,343		15,629			15,282

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
(In millions of won)	Assets		Liabilities		Equity		Revenue		Profit for the year			Total comprehensive income for the year
Company
Leading Insurance Services, Inc.		4,050		30		4,020		12,572		5			245
LIG Insurance (China) Co., Ltd		106,181		63,394		42,787		84,049		1,488			1,866
PT. KB Insurance Indonesia		42,074		29,488		12,586		21,518		847			426
LIG Investment & Securities, Co., Ltd		1,078,510		884,777		193,733		138,008		8,462			5,713
KB Claims Survey & Adjusting		26,153		15,567		10,586		98,838		2,287			2,254
KB Sonbo CNS Co., Ltd		3,068		2,806		262		32,312		481			481
KB SmartStepUp 3^rd		9,861		42		9,819		795		48			48
KB SmartStepUp 4^th		9,839		23		9,816		1,165		79			79
KB HopePartner 1^st		50,440		5		50,435		2,727		2,114			2,114
Daishin Forte Alpha Private Fund 30^th		10,049		17		10,032		862		621			621
Daishin Forte Alpha Private Fund 31^st		20,157		33		20,124		2,968		1,149			1,149
Daishin Forte Alpha Private Fund 32^nd		10,006		16		9,990		812		566			566
Daishin Forte Alpha Private Fund 33^rd		10,007		16		9,991		926		585			585
Daishin Forte Alpha Private Fund 36^th		9,904		23		9,881		313		(26	)		(26	)
Daishin Forte Alpha Private Fund 43^rd		10,002		27		9,975		694		319			319
Daishin Forte Alpha Private Fund 44^th		10,120		22		10,098		708		409			409
Dongbu Private Fund 16^th		42,361		2,955		39,406		2,308		1,874			1,874
Mirae Asset Triumph Private Fund 38^th		50,178		178		50,000		2,722		2,080			2,080
Shinhan BNPP Private Fund 42^nd		50,003		—		50,003		2,143		2,020			2,020
Hana Landchip Realestate Private Fund 58^th		15,327		1,292		14,035		1,449		558			558
Hanhwa Private Fund 86^th		50,035		2		50,033		2,147		1,944			1,944
Hyundai Aviation Private Fund 3^rd		21,086		1		21,085		2,554		1,327			1,327
Hyundai Power Private Fund 3^rd		23,464		28		23,436		3,740		2,042			2,151

		1,662,875		1,000,742		662,133		416,330		31,279			28,803

(6) Details of non-controlling interests as of December 31, 2016, are as follows:


(In millions of won)	Profit (loss) for the year to non-controlling interests		Accumulated non-controlling interests		Dividends paid to non-controlling interests
PT. KB Insurance Indonesia		408		4,407		—
LIG Investment & Securities Co., Ltd		548		—		512

		956		4,407		512

2. Significant Accounting Policies

The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

2.1 Basis of Preparation

The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with the International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS). The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Group’s financial position, financial performance or cash flows, is not presented in the accompanying consolidated financial statements.

The consolidated financial statements of the Group have been prepared in accordance with Korean IFRS. These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board (IASB) that have been adopted by the Republic of Korea.

The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

2.2 Changes in Accounting Policies and Disclosure

(1) New and amended standards adopted by the Group

The Group newly applied the following amended standards for the annual period beginning on January 1, 2016, and this application does not have a material impact on the consolidated financial statements.

- Amendment to Korean IFRS 1001, Presentation of Financial Statements

- Amendment to Korean IFRS 1011, Construction Contracts, Korean IFRS 1037, Provisions, Contingent Liabilities and Contingent Assets and Interpretation 2115 Agreements for the Construction of Real Estate

- Amendment to Korean IFRS 1016, Property, plant and equipment, and Korean IFRS 1041, Agriculture and fishing: Productive plants

- Amendment to Korean IFRS 1016, Property, plant and equipment, and Korean IFRS 1038, Intangible assets: Amortization based on revenue

- Amendment to Korean IFRS 1110, Consolidated Financial Statements, Korean IFRS 1028, Investments in Associates and Joint Ventures and Korean IFRS 1112, Disclosure of Interests in Other Entities: Investment Entities: Applying the Consolidation Exception

- Amendment to Korean IFRS 1111, Joint Arrangements

- Annual improvements to Korean IFRS 2012-2014 Cycle

(2) New and amended standards not adopted by the Group

Certain new accounting standards and interpretations that have been published that are not mandatory for December 31, 2016 reporting periods and have not been early adopted by the Group are set out below.

- Amendments to Korean IFRS 1007, Statement of Cash Flows

Amendments to Korean IFRS 1007 Statement of Cash flows requires to provide disclosures of changes in liabilities arising from cash flow and non-cash flow of financing activities separately. This amendment will be effective for annual periods beginning on or after January 1, 2017, with early adoption permitted. The Group does not expect the amendments to have a significant impact on the consolidated financial statements.

- Amendments to Korean IFRS 1012, Income Tax

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Amendments to Korean IFRS 1012 clarify how to account for deferred tax assets related to debt instruments measured at fair value. Korean IFRS 1012 provides requirements on the recognition and measurement of current or deferred tax liabilities or assets. The amendments issued clarify the requirements on recognition of deferred tax assets for unrealized losses, to address diversity in practice. This amendment will be effective for annual periods beginning on or after January 1, 2017, with early adoption permitted. The Group does not expect the amendments to have a significant impact on the consolidated financial statements.

- Amendments to Korean IFRS 1102, Share-based Payment

Amendments to Korean IFRS 1102 clarifies accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. And also, clarifies that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award. This amendment will be effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Group does not expect the amendments to have a significant impact on the consolidated financial statements.

- Korean IFRS 1109, Financial Instruments

The new standard for financial instruments issued on September 25, 2015 is effective for annual periods beginning on or after January 1, 2018 with early application permitted. This standard will replace Korean IFRS 1039 Financial Instruments: Recognition and Measurement. The Group will apply the standards for annual periods beginning on or after January 1, 2018.

The standard requires retrospective application with some exceptions. For example, the entity is not required to restate prior periods in relation to classification, measurement and impairment of financial instruments. The standard requires prospective application of its hedge accounting requirements for all hedging relationships except the accounting for time value of options and other exceptions.

Korean IFRS 1109 Financial Instruments requires all financial assets to be classified and measured on the basis of the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial assets. A new impairment model, an expected credit loss model, is introduced and any subsequent changes in expected credit losses will be recognized in profit or loss. Also, hedge accounting rules amended to extend the hedging relationship, which consists only of eligible hedging instruments and hedged items, qualifies for hedge accounting.

An effective implementation of Korean IFRS 1109 requires preparation processes including financial impact assessment, accounting policy establishment, accounting system development and the system stabilization. The impact on the Group’s financial statements due to the application of the standard is dependent on judgements made in applying the standard, financial instruments held by the Group and macroeconomic variables.

Within the Group, Korean IFRS 1109 Task Force Team (‘TFT’) has been set up to prepare for implementation of Korean IFRS 1109 since October, 2015. The Group has been implementing Korean IFRS 1109 through three stages: Stage 1 (effect analysis), Stage 2 (design and implementation), and Stage 3 (preparation of application). The Group is analyzing the financial impacts of Korean IFRS 1109 on its consolidated financial statements. Meanwhile, the following areas are likely to be affected in general.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


Stage	Period	Process
1	From Oct. to Dec. 2015 (for 3 months)	Analysis of GAAP differences and development of methodology

2	From Jan. to Dec. 2016 (for 12 months)	Development of methodology, definition of business requirement, and the system development

3	From Jan. 2017 to Mar. 2018 (for 15 months)	System test and preparation for opening balances of the financial statements

(a) Classification and Measurement of Financial Assets

When implementing Korean IFRS 1109, the classification of financial assets will be driven by the Group’s business model for managing the financial assets and contractual terms of cash flow. The following table shows the classification of financial assets measured subsequently at amortized cost, at fair value through other comprehensive income and at fair value through profit or loss. If a hybrid contract contains a host that is a financial asset, the classification of the hybrid contract shall be determined for the entire contract without separating the embedded derivative.


Business model	Contractual cash flows characteristics
Business model
	Solely represent payments of principal and interest	All other
Hold the financial asset for the collection of the contractual cash flows	Measured at amortized cost¹	Recognized at fair value through profit or loss²
Hold the financial asset for the collection of the contractual cash flows and trading	Measured at fair value through other comprehensive income¹
Hold for trading and others	Measured at fair value through profit or loss

¹	A designation at fair value through profit or loss is allowed only if such designation mitigates an accounting mismatch (irrevocable).

²	A designation at fair value through other comprehensive income is allowed only if the financial instrument is the equity investment that is not held for trading (irrevocable).

With the implementation of Korean IFRS 1109, the criteria to classify the financial assets at amortized cost or at fair value through other comprehensive income are more strictly applied than the criteria applied with Korean IFRS 1039. Accordingly, the financial assets at fair value through profit or loss may increase by implementing Korean IFRS 1109 and may result an extended fluctuation in profit or loss.

(b) Classification and Measurement of Financial Liabilities

Korean IFRS 1109 requires the amount of the change in the liability’s fair value attributable to changes in the credit risk to be recognized in other comprehensive income, unless this treatment of the credit risk component creates or enlarges a measurement mismatch. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss.

Under Korean IFRS 1039, all financial liabilities designated at fair value through profit or loss recognized their fair value movements in profit or loss. However, under Korean IFRS 1109, certain fair value movements will be recognized in other comprehensive income and as a result, profit or loss from fair value movements may decrease.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Korean IFRS 1109 sets out a new forward looking ‘expected credit loss impairment model’ which replaces the incurred loss model under Korean IFRS 1039 that impaired asset if there is objective evidence and applies to:

- Financial assets measured at amortized cost,

- Debt investments measured at fair value through other comprehensive income, and

- Certain loan commitments and financial guaranteed contracts.

Under Korean IFRS 1109, a credit event (or impairment ‘trigger’) no longer has to occur before credit losses are recognized. The Group will always recognize (at a minimum) 12-month expected credit losses in profit or loss. Lifetime expected losses will be recognized on assets for which there is a significant increase in credit risk after initial recognition.


Stage		Loss allowance
1	No significant increase in credit risk after initial recognition¹	12-month expected credit losses: expected credit losses that result from those default events on the financial instrument that are possible within 12 months after the reporting date

2	Significant increase in credit risk after initial recognition	Lifetime expected credit losses: expected credit losses that result from all possible default events over the life of the financial instrument
3	Objective evidence of impairment

¹	If the financial instrument has low credit risk at the end of the reporting period, the Group may assume that the credit risk has not increased significantly since initial recognition.

Under Korean IFRS 1109, the asset that is credit-impaired at initial recognition would recognize all changes in lifetime expected losses since the initial recognition as a loss allowance with any changes recognized in profit or loss.

(d) Hedge Accounting

Hedge accounting mechanics (fair value hedges, cash flow hedges and hedge of net investments in a foreign operations) required by Korean IFRS 1039 remains unchanged in Korean IFRS 1109, however, the new hedge accounting rules will align the accounting for hedging instruments more closely with the Group’s risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach. Korean IFRS 1109 allows more hedging instruments and hedged items to qualify for hedge accounting, and relaxes the hedge accounting requirement by removing two hedge effectiveness tests that are a prospective test to ensure that the hedging relationship is expected to be highly effective and a quantitative retrospective test (within range of 80-125%) to ensure that the hedging relationship has been highly effective throughout the reporting period.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

With implementation of Korean IFRS 1109, volatility in profit or loss may be reduced as some items that were not eligible as hedged items or hedging instruments under Korean IFRS 1039 are now eligible under Korean IFRS 1109.

- Korean IFRS 1115, Revenue from Contracts with Customers

Korean IFRS 1115 Revenue from Contracts with Customers issued on November 6, 2015 replaces Korean IFRS 1018 Revenue, Korean IFRS 1011 Construction Contracts, Interpretation 2031 Revenue-Barter Transactions Involving Advertising Services, Interpretation 2113 Customer Loyalty Programs, Interpretation 2115 Agreements for the Construction of Real Estate and Interpretation 2118 Transfers of assets from customers.

Korean IFRS 1018 and other, the current standard, provide revenue recognition criteria by type of transactions; such as, sales goods, the rendering of services, interest income, royalty income, dividend income, and construction contracts. However, Korean IFRS 1115, the new standard, is based on the principle that revenue is recognized when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. A new five-step process must be applied before revenue from contract with customer can be recognized:

- Identify contracts with customers

- Identify the separate performance obligation

- Determine the transaction price of the contract

- Allocate the transaction price to each of the separate performance obligations, and

- Recognize the revenue as each performance obligation is satisfied.

This standard is effective for annual periods beginning on or after January 1, 2018, with earlier adoption is permitted. The Group is analyzing financial impacts of Korean IFRS 1115 on its consolidated financial statements.

2.3 Consolidation

The Group prepares the consolidated financial statements in accordance with Korean IFRS 1110, Consolidated Financial Statements.

(1) Subsidiaries

Subsidiaries are companies that are controlled by the Parent Company. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The existence and effects of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date when control is transferred to the Group and de-consolidated from the date when control is lost.

The Group applies the acquisition method to account for business combinations. The consideration transferred is measured at the fair values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Goodwill is initially measured as the excess of the aggregate of the consideration transferred, fair value of non-controlling interest and the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree over the fair value of net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the business acquired, the difference is recognized in profit or loss.

Balances of receivables and payables, income and expenses and unrealized gains on transactions within the Group are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(2) Associates

Associates are all entities over which the Group has significant influence, and investments in associates are initially recognized at acquisition cost using the equity method. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. If there is any objective evidence that the investment in the associate is impaired, the Group recognizes the difference between the recoverable amount of the associate and its book value as impairment loss.

(3) Joint Arrangement

A joint arrangement, wherein two or more parties have joint control, is classified as either a joint operation or a joint venture. A joint operator has rights to the assets, and obligations for the liabilities, relating to the joint operation and recognizes the assets, liabilities, revenues and expenses relating to its interest in a joint operation. A joint-venturer has rights to the net assets relating to the joint venture and accounts for that investment using the equity method.

2.4 Foreign Currency Translation

(a) Functional and Presentation Currency

Items included in the financial statements of the Group are measured using the currency of the primary economic environment in which it operates (“the functional currency”). The functional currency of the Group is Korean won and the same currency is used on the consolidated financial statements.

(b) Transactions and Balances

Foreign currency transactions are recognized by the functional currency with the exchange rate on the date of transactions or the rate on the valuation date in case of revaluation. Foreign exchange gains and losses resulting from the settlement of such transactions or from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in net income. The foreign exchange difference from non-monetary financial assets and liabilities are considered as gains or losses from the change in fair value that the difference in equity instrument at fair value through profit or loss is included in net income and the difference of the instruments that are available-for-sale are recognized in other comprehensive income.

If the functional currencies of the foreign operations are different from the Group’s reporting currency, business performance and financial position are translated by the following method. Unless the functional currency of the foreign operations is the currency under hyper-inflated economy, the assets and liabilities in the consolidated financial statements (including comparative consolidated financial statements) are translated at the closing rate at the end of the reporting period. Average exchange rate during the reporting period is applied on the revenues and expenses on the consolidated statements of comprehensive income including comparative consolidated statements of comprehensive income and the foreign exchange differences from the translation are recognized as other comprehensive income.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Thus they shall be expressed in the functional currency of the foreign operation and shall be translated in Korean won at the closing rate

On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, are reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognized. On the partial disposal of a foreign operation, the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income is reclassified to profit or loss.

2.5 Cash and Cash Equivalents

The Group classifies investment as cash equivalents only when it has a short maturity of, say, three months or less from the date of acquisition. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preferred shares acquired within a short period of their maturity and with a specified redemption date.

2.6 Financial Assets

(a) Recognition and Classification

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, loans and receivables, and held-to-maturity financial assets. Regular way purchases and sales of financial assets are recognized on trade date.

Without separating embedded derivatives from host contracts, the Group designates the hybrid instruments as an item that is recognized at fair value through profit or loss. The financial assets that are accounted as above are foreign currency convertible bonds and derivatives-linked securities.

When a financial asset is recognized initially, the Group measures it at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. After initial recognition, available-for-sale financial assets and financial assets at fair value through profit or loss are measured at their fair values. Loans and receivables and held-to-maturity financial assets are measured at amortized cost using the effective interest method.

A gain or loss arising from a change in the fair value of a financial asset at fair value through profit or loss is recognized in profit or loss. A gain or loss on an available-for-sale financial asset is recognized in other comprehensive income, until the financial asset is derecognized or impaired. At that time, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

(b) Impairment

The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets are impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred, if and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

The objective evidence of the impairments includes significant financial difficulty of the issuer or obligor and more than six-month overdue of principal or interest payment. A significant (30%) or prolonged (6 months) decline in the fair value of an available-for-sale equity instrument below its cost is also objective evidence of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured and recognized in profit or loss through other operating income and expenses.

- Loans and Receivables

If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant (individual assessment of impairment) and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment (collective assessment of impairment).

Individual assessment of impairment

Individual assessment of impairment losses are calculated by discounting the expected future cash flows of a loan at its original effective interest rate and comparing the resultant present value with the loan’s current carrying amount. This process normally encompasses management’s best estimate, such as operating cash flow of the borrower and net realizable value of any collateral held.

Collective assessment of impairment

A methodology based on historical loss experience is used to estimate incurred loss on group of assets for collective assessment of impairment. Such methodology incorporates factors such as type of loans and borrowers, credit rating, size of portfolios, loss emergence period, recovery period and applies probability of incurred default on an individual or group of assets, nominal recovery rate of collaterals and loans and loss given default by type of recovery method. Also, historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The methodology and assumptions used for collective assessment of impairment are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

Impairment loss on loans reduces the carrying amount of the asset through use of an allowance account, and when a loan becomes uncollectable, it is written off against the related allowance account. If, loans and receivables that are previously written off are subsequently collected, the amount of allowance increases, and the adjustment is recognized in profit or loss.

- Available-for-sale financial assets

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss (the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss) that had been recognized in other comprehensive income is reclassified from equity to profit or loss as part of other operating income and expenses.

If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss. However, impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss.

- Held-to-maturity financial assets

If there is objective evidence that an impairment loss on held-to-maturity financial assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The impairment loss on held-to-maturity financial assets is directly deducted from the carrying amount.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. The amount of the reversal is recognized in profit or loss.

If the Group transfers a financial asset, but retains substantially all the risks and rewards of ownership of the financial asset for example, due to a right of recourse in the event of debtor’s defaults, the Group continues to recognize the transferred asset in its entirety and recognize a financial liability for the consideration received.

(d) Offsetting

A financial asset and a financial liability are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. The legally enforceable right to set off is not contingent upon future events and is enforceable under any circumstances – under the normal course of business, the event of default or the event of solvency or bankruptcy

2.7 Derivatives

All derivative financial instruments are measured at fair value. Gains or losses arising from a change in fair value are recognized as follows.

(a) Derivatives for hedge

The Group enters into numerous derivative financial instrument contracts such as currency forwards, interest rate swaps, currency swaps and others to manage its exposures to fluctuations in interest rates and currency exchange, amongst others. It designates certain derivatives as hedging instruments to hedge the risk of changes in fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge) and the risk of changes in cash flow of highly probable forecast transactions and the currency exchange risk at firm commitment (cash flow hedge) .

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

At the inception of the hedge, there is formal designation and documentation of the hedging relationship and the risk management objective and strategy for undertaking the hedge. That documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk.

- Fair value hedge

If derivatives qualify for the fair value hedge, the gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss. Fair value change of hedging instruments and underlying assets (hedged instruments) are recognized under the same account in the consolidated statement of comprehensive incomes that the hedged instruments are included. Fair value hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Once fair value hedge accounting is discontinued, the adjustment to the carrying amount of a hedged instrument is being amortized and recognized in profit or loss.

- Cash flow hedge

If derivatives are designated as a hedging instrument and is qualified for the cash flow hedge, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in other comprehensive income and the ineffective portion of the gain or loss on the hedging instrument is recognized in profit or loss. Cash flow hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. In this case, the cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income remains separately in equity until the forecast transaction occurs. However, if he forecast transaction is no longer expected to occur, in which case any related cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment.

(b) Embedded derivatives

An embedded derivative is separated from the host contract and accounted for as a derivative under these three conditions, if, and only if the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss. The gain or loss from remeasuring an embedded derivative separated from the host contract is recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.

All derivatives but the ones designated as hedging instruments are measured at fair value. The gain or loss from remeasuring other derivatives is recognized in profit or loss..

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

2.8 Non-current Assets Held-for-sale

Non-current assets (or disposal group) are classified as assets held-for-sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. The assets are measured at the lower of their carrying amount and fair value less costs to sell.

2.9 Property and Equipment

Property and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses. The historical cost includes any costs directly attributable to the acquisition of the property. Land is not depreciated whereas other property and equipment are depreciated over their estimated useful lives using the straight-line method. The depreciable amount of the assets is acquisition costs less residual values.

The estimated useful lives of the assets are as follows:


		Estimated useful lives
Buildings		20 ~ 40 years
Other properties and equipment		5 ~ 15 years

The residual value, the useful life and the depreciation method applied to an asset are reviewed at each financial year-end and, if expectations differ from previous estimates or if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the changes are accounted for as a change in an accounting estimate.

2.10 Government Grants

Government grants are recognized at fair value if, and only if there is a reasonable assurance that the Group will comply with the conditions attaching to them and the grants will be received. Government grants related to assets are deducted when the carrying value of the assets are calculated. Government grants related to income are deferred and deducted in reporting the related expense.

2.11 Intangible Assets

Goodwill is measured using the method elaborated in note 2.3(1) and subsequently carried at their cost less any accumulated impairment losses. Intangible assets, except for goodwill are measured initially at cost and subsequently carried at their cost less any accumulated amortization and any accumulated impairment losses.

Internally developed software is sum of the expenditures incurred from the date when conditions of asset recognition is satisfied which include technical feasibility and future economic benefits. As it has indefinite useful life, membership is not amortized. The intangible assets with a finite useful life are amortized with straight-line method.


		Estimated useful lives
Software		5 years
R&D Costs		5 years

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

2.12 Investment Properties

Properties held to earn rentals or for capital appreciation are classified as investment properties. The properties are measured initially at their cost and carried at the cost less any accumulated depreciation and any accumulated impairment losses. The investment properties except for land is depreciated over there estimated useful life, 20 ~ 40 years using the straight-line method.

2.13 Impairment of non-financial assets

Goodwill or the intangible assets with indefinite useful lives are tested for impairment at least annually. Other assets are tested for impairment when there is any indication that an asset may be impaired. An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount which is the higher of its fair value less costs of disposal and its value in use. The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, a reversal of an impairment loss for an asset other than goodwill is recognized in profit or loss.

2.14 Financial Liabilities

(a) Classification and measurement

The Group’s financial liabilities at fair value through profit or loss are financial liabilities held for trading. Financial liabilities incurred principally for the purpose of repurchasing in the near term is classified as the trading liabilities. In addition, derivatives which are not designated for hedging or the ones separated from financial instruments are classified as financial liabilities at fair value through profit or loss.

The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and presents as ‘other financial liabilities’ in the consolidated statement of financial position.

(b) Derecognition

Financial liabilities are derecognized from the consolidated statement of financial position when the obligation specified in the contract is discharged, cancelled or expired or when the terms of an existing financial liability are substantially modified.

2.15 Provisions

Provisions are measured at present value of the best estimate of the expenditure required to settle the present obligation. Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognized as interest expense.

2.16 Current and Deferred Tax

The tax expense for the period consists of current and deferred tax. Tax is recognized and included in profit or loss for the period in the statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The tax expense is measured based on the tax laws that have been enacted or substantively enacted by the end of the reporting period.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Management periodically evaluates tax policies that are applied in tax returns to reflect changes in tax interpretation by the taxation authorities. The Group measures current income tax at the amount expected to be paid to the taxation authorities.

Deferred tax is recognized for temporary differences which is the differences between the carrying amount of an asset or liability and its tax base. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects to recover or settle the carrying amount of its assets and liabilities. However, deferred tax assets and liabilities are not recognized if they arise from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting profit or loss nor taxable profit or loss. Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized.

Deferred tax liability is recognized for taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint arrangements, except to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. In addition, deferred tax asset is recognized for deductible temporary differences arising from such investments to the extent that, and only to the extent that, it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets and liabilities are offset if, and only if the Group has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

2.17 Employee Compensation and Benefits

(a) Post-employment benefits

The Group has both defined contribution and defined benefit plans. A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity. The contributions are recognized as employee benefit expense when an employee has rendered service.

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Typically defined benefit plans define an amount of post-employment benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the consolidated statement of financial position in respect of defined benefit plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds whose term is consistent with the estimated term of the post-employment obligations. The remeasurements of the net defined benefit liability are recognized in other comprehensive income.

If any plan amendments, curtailments, or settlements occur, past service costs or any gains or losses on settlement are recognized in profit or loss.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(b) Share-based payments

The Group enters into share-based payments that provide stock grant to the directors and when the payments are exercised, the Group has the choice of whether it settles the transaction in cash or by issuing equity instruments.

The Group measures the services acquired and the liability incurred at the fair value of the liability and recognizes as share-based payments expenses and accrued expenses. Until the liability is settled, the Group remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period.

2.18 Revenue and Expense Recognition

The Group recognizes revenue when the amounts can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group and specific requirements on the activities of the Group as below are satisfied. Estimates are based on historical experience such as types of clients and transactions and terms of transactions.

(a) Premium income

It is on insurance fee collection dates when the insurance revenue is recognized. However, insurance policies whose initial payments or full payment (single premium policies) have not been made because of deferral of the premium payment are recognized as revenue on the financial year that their inception dates are in. The premiums that are received but its collection date has not come, are accounted as premium in suspense.

(b) Interest revenue and expense

Interest income and expense are recognized using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability, and of allocating the interest income or interest expense over the relevant period. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. In those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instruments, the Group uses the contractual cash flows over the full contractual term of the financial instrument. Interest on impaired financial assets is recognized using the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss.

Dividend income is recognized in profit or loss when the Group’s right to receive payment is established.

2.19 Leases

A lease is an agreement, whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Leases where all the risks and rewards of ownership are not transferred to the Group, as the lessee, are classified as operating leases. Lease payments under operating leases are recognized as expenses on a straight-line basis over the lease term.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Leases where the Group, as the lessee, has substantially all the risks and rewards of ownership are classified as finance leases and recognized as lease assets and liabilities at the lower of the fair value of the leased property and the present value of the minimum lease payments each determined at the inception of the lease.

When the Group is the lessor, a lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership at the inception of the lease. A lease other than a finance lease is classified as an operating lease. Lease income from operating leases is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred by the lessor in negotiating and arranging an operating lease is added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income.

2.20 Insurance Contracts

The Group recognizes a contract as an insurance contract if the contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.

The Group assesses insurance risk of an insurance product using a representative contract. The claims paid when the insured event is occurred and the benefit paid when the insured event is not occurred is considered. If a contract is exposed to financial risk without significant insurance risk, the contract is classified as an investment contract. A contract that initially qualified as an insurance contract remains to be classified as an insurance contract until all rights and obligations are extinguished or expired.

The Group applies K-IFRS No. 1104 ‘Insurance Contracts’ for investment contracts with discretionary participation features. Investment contracts with no discretionary participation features follow K-IFRS No. 1039 ‘Financial Instruments: Recognition and Measurement.

2.21 Insurance Liabilities

In accordance with the Regulation on Supervision of Insurance Businesses (RSIB), the Group is required to maintain policy reserves for insurance claims and policyholders’ dividends, as determined by the RSIB.

(a) Long-term insurance premium reserve

The Group maintains reserves for the portions of premiums (and investment income on such portions), which are refundable to policyholders upon maturity and amounts refundable for policy cancellations under long-term deposit-type insurance.

(b) Reserve for outstanding claims

The reserve for outstanding claims is based on the accumulation of estimated losses reported (estimated losses for claims, cash surrender values or policyholders’ dividends, which are in dispute or in litigation, and estimated losses for claims fixed but not settled) and IBNR (incurred but not reported) prior to the end of the reporting period incurred from the direct business written by the Group and estimated losses received from ceding companies.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

The Group is required to maintain an unearned premium reserve at amounts determined based on lines of insurance and types of policies.

(d) Reserve for participating policyholders’ dividends

The Group is required to maintain a reserve for participating policyholders’ dividends under regulations approved by the Ministry of Strategy and Finance.

(e) Excess participating policyholder dividend reserve

Pursuant to relevant laws and contracts, the Group may provide an excess participating policyholder dividend reserve in accordance with the operating results of related insurance products. The reserve may be used to pay participating policyholder dividends or additional dividends.

(f) Reserve for compensation for losses on dividend-paying insurance contracts

The Group maintains a reserve for compensation for losses on dividend-paying insurance contracts by accumulating a part of policyholders’ shares of profits from the dividend-paying insurance contracts within the limit determined by the Financial Services Commission.

2.22 Insurance Liability Adequacy Test

The Group assesses whether its recognized insurance liabilities are adequate in regard to all contracts that apply K-IFRS No. 1104. The test considers current estimates of all contractual cash flows, and of related cash flows such as claims handling costs, as well as cash flows resulting from embedded options and guarantees. If the test shows that the liability is inadequate, the Group increases the carrying amount of the relevant insurance liabilities by adding the exact amount of the entire deficiency.

When assessing the adequacy of long-term insurance liabilities, estimated future cash flows are discounted at future investment margins and, in case of general and automobile insurance, no discount is applied. For the premiums reserve and unearned premiums reserves, a liability adequacy test considers possible claims in the future, insurance operating expenses, operating premiums and other future cash flows. For claim reserves, a liability adequacy test considers the trend of claims payment to assess the adequacy of individual estimated claims.

2.23 Claims handling expenses

Claims handling expenses are costs related to the processing and payment of accidents covered by insurance. At the end of each reporting period, based on contracts with reasons for payment, such as claims, amount expected to arise in the future is earned as claims adjustment reserves (included in reserve for outstanding claims).

2.24 Compensation receivables

Of the amounts paid for claims during the year, amounts recoverable by exercising compensation and other rights or through disposal of secured assets acquired in the resolution of accidents are accounted for as compensation receivables and deducted directly from insurance reserves in the accompanying consolidated statements of financial position. Compensation receivables are calculated by multiplying the average recovery rate (recovery amount/net claims) for the three years before the end of the reporting period and the amount of net claims for the period of one year prior to the end of the reporting period.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

2.25 Embedded options and guarantees

A certain insurance contracts include embedded options and guarantees such as minimum guarantees. The Group considers those options and guarantees in the liability adequacy test.

2.26 Discretionary participating features

The Group does not recognize the guaranteed element separately from the discretionary participation feature of insurance and investment contracts. It classifies the whole contract as a liability, applying the liability adequacy test.

2.27 Deferred acquisition costs

Acquisition costs arising from personal pension insurances contracts and long-duration contracts that are made after October 1, 2003 are deferred and evenly amortized over the term of premium payment. When the premium payment period is more than seven years, the acquisition cost is deferred and evenly amortized over seven years. In case of cancellation, unamortized balance is entirely amortized during the fiscal year it was cancelled (on the day lapsed when the insurance contract has been lapsed before the cancellation).

2.28 Reinsurance contracts

The Group does not offset the following:

- Reinsurance assets against the related insurance liabilities

- Income or expense from reinsurance contracts against the expense or income from the related insurance contracts

If reinsurance assets are impaired, the Group reduces their carrying amounts accordingly and recognizes that impairment loss in profit or loss.

2.29 Separate account assets (liabilities)

In accordance with Article 108 of the Insurance Business Act and the Regulation on Supervision of Insurance Businesses, the Group is required to maintain separate accounts on the statements of financial position for the assets and liabilities related to corporate pension policies from the other insurance policies. Assets and liabilities separately administered from the general account in the asset management and income distribution are deemed assets and liabilities in segmented reporting. These accounts are presented together as separate account assets (liabilities) in the statements of financial position. Outstanding balance incurred in the transactions between the general and separate accounts are substituted from separate account assets and liabilities, respectively.

In accordance with the Regulation on Supervision of Insurance Business, the Group recognizes income and expenses of principal and interest guarantee type separate accounts (retirement insurance and retirement pension) as separate account income and separate account expenses, respectively.

Operating losses incurred from separate accounts are recovered by charging the dividend reserves for policyholders’ income and any remaining unrecovered loss is charged to shareholders’ equity.

2.30 Emergency risk reserve

In order to prevent the Group from a huge loss due to extraordinary risk, an amount not less than 35% and not more than 100% of the amount multiplied by standard rates of accumulation and earned premium for general and automobile insurance is accumulated in retained earnings as an emergency risk reserve by types of insurance until reaching the greater of 50% of earned premiums (automobile - 40%, guarantee - 150%) of the current or the previous financial year.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

In addition, where an earned risk loss rate (referring to the ratio dividing the amount of loss incurred by earned risk premium) by types of insurance exceeds a certain ratio (fire - 120%, marine automobile casualty - 110%, guarantee - 140%, reinsurance assumed and overseas direct insurance - 80%) and insurance operating losses are incurred, emergency risk reserves are transferred to unappropriated retained earnings within the extent of such exceeding amount. Meanwhile, when the Group accumulates emergency risk reserves, it applies rates limited between 35% and 100% in consideration of an earned risk loss rate.

2.31 Regulatory reserve for credit loss

Where the accumulated amount of allowances for loan losses and allowances for other receivables losses at the end of the reporting period (including a quarterly closing) is less than amounts required by the Financial Supervisory Service (the “FSS”), the Group accumulates such balance as a regulatory reserve for credit loss. When there is an unappropriated deficit, the reserve is accumulated from the time when the unappropriated deficit is appropriated, and where the existing reserve accumulated exceeds the reserve that should be accumulated at the end of the period, such exceeding amount may be reversed.

2.32 Operating Segments

The Group, in order to decide how to allocate resources and to assess performance, divide operating segments based on the internal information which is evaluated regularly by the directors including the chief operating decision maker. Segment information reported to the CEO includes items which are directly attributable and reasonably allocated to the segment. Non-attributable segments are common assets as headquarters building, expenses related to headquarters and income tax assets and liabilities. The chief operating decision maker is responsible for evaluating attributed resources to the segments and the result of the segments, and for operating strategical decision making.

2.33 Approval of Issuance of the Financial Statements

The issuance of the Group’s consolidated financial statements as of and for the year ended December 31, 2016 was approved by the Board of Directors on February 1, 2017, which is subject to change with approval of shareholders at the annual shareholders’ meeting.

3. Significant Accounting Estimates and Assumptions

The Group assumes and estimates about its future events. Assumptions and estimates are assessed regularly given the future events reasonably foreseen by past experience and current situation. The estimates may be different from actual results. The assumptions and estimations that may affect asset and liability adjustments on the next financial year are as follows.

(a) Impairment loss of goodwill

The recoverable amounts of cash-generating units have been determined based on value-in-use calculations to test whether goodwill has suffered any impairment.

(b) Income tax expenses

Income tax expenses are determined by tax code of various countries and the interpretation of taxation authorities, so it is uncertain to figure out exact tax effects.

By the reflux taxes on corporate undistributed profits, for three years from 2015, if the Group does not spend certain amount of its taxable incomes as designated, such as on investment, salary increase and dividends etc., more income tax would be imposed. Therefore, it is needed to reflect the reflux tax effects in calculating current income tax expenses and deferred tax expenses. Because of the complexity to figure out each year’s investment, salary increase and dividends, the income tax expenses for those three years are more likely to be uncertain.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

In principles, fair values of financial instruments that does not have active markets are determined by valuation models. The Group choose an appropriate model and evaluate assumptions used at the end of each reporting period.

(d) Liability for defined benefit plans

Present value of liability for defined benefit plans is influenced by various factors, especially discount rate used by actuarial method.

4.	Financial risk management

4-1. Overview of risk management

(1) Risk management policy and strategy

The financial risks that the Group is exposed to are insurance risk, market risk, credit risk, liquidity risk and others. The Group, in order to counteract efficiently, in fast-changing financial environment, against inner and outer risk factors, manages risks under the limit through recognizing and measuring numeral risks immediately and accurately. The Group also manages to maximize profit compared to risks. In cases of developing insurance instruments and takeovers, the Group establishes strategies in consideration of risks and manages the assets and liabilities in order to maximize the value of the Group through the most adequate financial structures. Moreover, the Group establishes and manages combined risk limit to manage the risks of the Group to be maintained in adequate level in accordance with the available assets of the Group, to prevent holding too many risks. The Group also monitors risks regularly through measurement and ranks, in need of recognizing and measuring risks accurately, and establishes and exercises adequate reactions when needed.

(2) Risk management process

Risk management procedures of the Group are as follows:

- Risk Identification: The Group analyzes the major process of business operation and identifies possible risks. Financial risk, especially, is divided into insurance risk, interest risk, credit risk, liquidity risk and market risk and is considered as major risk.

- Risk measuring: The Group quantifies and measures the amount of insurance risk, interest risk, credit risk and market risk.

- Risk monitoring and controlling: In order to control total risk under available assets, the Group establishes adequate risk limit and monitors whether the limit is excessed. Moreover, the Group establishes and operates pre- and post-management system for major decisions.

- Risk reporting: The Group regularly reports the outcome of the monitoring of risk factors and the treatment to the Risk Management Committee and management.

(3) Evaluation of internal capital adequacy and its management procedure

The Group manages its internal capital adequacy with an internal model and standard model. Market risk measurement system (on 2002), interest risk measurement system (on 2004) and credit risk and insurance risk measurement system (on 2005) was established. By the reestablishment of market/credit risk measurement (on 2013), and interest risk measurement system (on 2014), the internal model is sophisticated. The risk of internal model is always monitored and risk of the Group is managed with the maximum loss criteria (Reliability 99%, Credit risk 99.5%). Also, to maintain an appropriate solvency margin, the Group manages risk limits that are calculated using the RBC method and approved by the Risk Management Committee and the trial test of risk limit management by the internal model has been in use since late 2013. Through all these process, even though unexpected loss occurs, the management process of solvency margin is reinforced to be maintained at a certain level.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(4) Board of Directors (Risk Management Committee) and structure and function of risk management organization

The Risk Management Committee makes decisions in regard to risk management and is consisted of five members including three of independent directors. Regular meetings are held quarterly and if necessary, temporary meetings are held. According to the risk management committee rules, the main contents of approval and reporting are as follows:

i) Resolutions

- Basic policy and strategy of risk management that coincides with the management strategies

- Decision on the level of risk that insurers can handle

- Approval of adequate investment and loss limit

- Establishment and revision of risk management criteria (such as risk management regulations)

ii) Deliberations

- New or additional homogeneous investment that exceeds 1% equity of recent financial year

- Homogeneous investment on non-public company’s share that exceeds 1% equity of recent financial year

- Funding to establish a subsidiary

iii) Reporting

- Entire risk status and measures

- Insurance product and investment product that include newly established risks

- Analysis in cases of crisis

- Advance and evacuation of business

The Risk Management Council is established in order to exercise the operation of risk management policy that is decided by the Risk Management Committee. Moreover, as an organization that practically supports the Risk Management Committee and the Risk Management Council, the risk management department, known as ‘Risk Management Team’, is independently operating on its own and carries out the following roles.

- Supervision of risk management such as calculation and distribution of assets at risk and management of limits

- Operating detailed policies, procedure and work process of risk management

- Report main points of risk management to the Risk Management Committee, Risk Management Council and the Group management

- Development and operation of adequate system to manage risk

- Development and operation of risk management system

(5) Activities for establishing risk management framework

In order to follow the process of risk identification, measuring, monitoring, controlling and reporting, the Group establishes risk management system, prepares ‘risk management regulation’ and ‘Enforcement rule of risk management regulation’ and operates Investment Review Board, Credit Review Committee, General Insurance Product Acceptance Committee, Long-term Product Committee and other committees in order to manage risk associated with important decision making. The risks that the Group has to manage are classified according to the division in which they occur; into insurance risk, asset management risk, ALM risk and operational risk and are differentiated as follows:

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

- Insurance risk: insurance price risk, reserves risk

- ALM risk: interest rate risk, liquidity risk

- Asset management risk: market risk, credit risk

- Operational risk: strategy, law, computing, reputation, fraud and other office related risks

In order to measure individual risk, the Group calculates market risks, credit risk, interest rate risk and insurance risks using RBC method on a quarterly basis. By comparing the result of risk measurement in the system with limit and monitoring the result, when the result exceeds the limit, the measured risks are reduced within a certain deadline by the amount the result exceeding the limit. In addition, after monitoring the status of the risk, the result is reported to the Risk Management Committee and if necessary, countermeasures are established and carried out.

4-2. Insurance risk

(1) Overview

Insurance risk is the risk that arises from a primary operation of insurance companies that is associated with acceptance of insurance contract and payment of claims, and is classified as the insurance price risk and the reserves risk. The insurance price risk is the risk of loss that might occur when the actual risk exceeds the expected risk rate or expected insurance operating expenses ratios in calculation of premiums. It is the risk of loss that arises from differences between actual payment of claims and premiums received from policyholders. The reserves risk is the risk that arises due to a deficit in reserves at the date of assessment, making the Group unable to cover the actual claims payment in the future.

(2) Purposes, policies and procedures to manage risk arising from insurance contracts

The risks associated with insurance contract that the Group faces are the insurance actuarial risk and the acceptance risk. Each risk occurs due to insurance contract’s pricing and conditions of acceptance. In order to minimize acceptance risk, the Group establishes guidelines and procedure for acceptance and out lines specific conditions for acceptance by product. In addition, expected risk level at the date of pricing is compared with actual risk of contracts after acceptance and the interest rate is adjusted accordingly, conditions of sale is changed, sale of goods is interrupted and other measures are taken in order to reduce insurance actuarial risk. The Group has a committee to discuss status of product acceptance risk and interest rate policy. The committee decides important matters to set the processes that allow minimizing the insurance actuarial risk, the acceptance risk and other business related risk.

In addition, according to reinsurance operating standards, the Group establishes an operating strategy of reinsurance for large claims expense due to unexpected catastrophic events. The Group supports so that policyholders are safe and the Group’s stable profit can be achieved. For the long-term goal, the Group manages risk at a comprehensive level to keep its value at the maximum

The Group’s entire risk is calculated by using RBC method. The Group sets the risk appetite limits in order that the calculated risk level is maintained at an appropriate level compared to available capital. Portfolio of assets and products are monitored to improve profit compared to risk.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(3) Exposure to insurance price risk

According to RBC standard, exposure to insurance price risk is defined as net written premiums for prior 1 year that is calculated by adding and subtracting original insurance premium, assumed reinsurance premium and ceded reinsurance premium.

The Group’s exposure to insurance price risk as of December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	Direct insurance		Inward reinsurance		Outward reinsurance			Total
General		866,097		76,191		(568,173	)		374,115
Automobile		1,938,540		—		(41,789	)		1,896,751
Long-term		1,790,285		—		(240,860	)		1,549,425

		4,594,922		76,191		(850,822	)		3,820,291


	2015
(In millions of won)	Direct insurance		Inward reinsurance		Outward reinsurance			Total
General		860,063		77,439		(621,670	)		315,832
Automobile		1,745,486		—		(40,462	)		1,705,024
Long-term		1,572,534		—		(191,140	)		1,381,394

		4,178,083		77,439		(853,272	)		3,402,250

(4) Concentration of Insurance risk

The Group is selling general non-life insurances (fire, maritime, injury, technology, liability, package, title, guarantee and special type insurances), automobile insurances (for private use, for hire, for business, bicycle and other), long-term insurances (long-term non-life, property damage, injury, driver, savings, illness, nursing and pension) and various other insurances. The Group’s risk is distributed through reinsurance, joint acceptance and diversified selling. In addition, insurances that cover serious damage of risk, although with rare possibility of the occurrence of disaster, such as storm and flood insurance are limited, and the Group controls the risk through joint acquisition.

(5) Loss development tables

The Group uses claim development of payments and the estimated ultimate claims for the accident years in order to maintain overall reserve adequacy in respect of general, automobile and long-term insurance. When the estimated ultimate claims are greater than claim payments, the Group establishes additional reserves. Loss development tables as of December 31, 2016, are as follows:

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

i) General Insurance


(In millions of won)	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years
Estimate of gross ultimate claims (A)
2012.1.1 ~ 2012.12.31		137,572		167,671		172,544		176,674		175,983
2013.1.1 ~ 2013.12.31		161,715		192,754		197,590		196,818		—
2014.1.1 ~ 2014.12.31		113,508		130,503		131,972		—		—
2015.1.1 ~ 2015.12.31		120,448		140,764		—		—		—
2016.1.1 ~ 2016.12.31		139,655		—		—		—		—

		672,898		631,692		502,106		373,492		175,983

Gross cumulative claim payments (B)
2012.1.1 ~ 2012.12.31		102,438		156,207		164,788		169,497		171,663
2013.1.1 ~ 2013.12.31		124,607		173,713		187,775		190,420		—
2014.1.1 ~ 2014.12.31		83,276		116,100		122,231		—		—
2015.1.1 ~ 2015.12.31		88,727		125,558		—		—		—
2016.1.1 ~ 2016.12.31		102,591		—		—		—		—

		501,639		571,578		474,794		359,917		171,663

Difference (A-B)		171,259		60,114		27,312		13,575		4,320

ii) Automobile Insurance


(In millions of won)	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years		After 6 years		After 7 years
Estimate of gross ultimate claims (A)
2010.1.1 ~ 2010.12.31		993,509		1,012,484		1,018,097		1,022,687		1,022,856		1,023,197		1,024,700
2011.1.1 ~ 2011.12.31		1,088,801		1,105,501		1,115,281		1,119,872		1,122,637		1,124,045		—
2012.1.1 ~ 2012.12.31		1,117,650		1,146,779		1,155,529		1,162,075		1,164,774		—		—
2013.1.1 ~ 2013.12.31		1,131,945		1,156,535		1,170,968		1,179,458		—		—		—
2014.1.1 ~ 2014.12.31		1,174,611		1,193,832		1,205,524		—		—		—		—
2015.1.1 ~ 2015.12.31		1,227,106		1,245,780		—		—		—		—		—
2016.1.1 ~ 2016.12.31		1,276,939		—		—		—		—		—		—

		8,010,561		6,860,911		5,665,399		4,484,092		3,310,267		2,147,242		1,024,700

Gross cumulative claim payments (B)
2010.1.1 ~ 2010.12.31		850,192		981,338		1,004,341		1,012,469		1,018,391		1,020,229		1,021,299
2011.1.1 ~ 2011.12.31		929,491		1,066,885		1,093,589		1,109,202		1,117,381		1,119,765		—
2012.1.1 ~ 2012.12.31		939,239		1,105,672		1,135,064		1,149,585		1,156,150		—		—
2013.1.1 ~ 2013.12.31		939,569		1,114,063		1,145,110		1,161,624		—		—		—
2014.1.1 ~ 2014.12.31		969,211		1,150,462		1,180,953		—		—		—		—
2015.1.1 ~ 2015.12.31		1,020,975		1,198,241		—		—		—		—		—
2016.1.1 ~ 2016.12.31		1,052,830		—		—		—		—		—		—

		6,701,507		6,616,661		5,559,057		4,432,880		3,291,922		2,139,994		1,021,299

Difference (A-B)		1,309,054		244,250		106,342		51,212		18,345		7,248		3,401

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

iii) Long-term Insurance


(In millions of won)	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years
Estimate of gross ultimate claims (A)
2012.1.1 ~ 2012.12.31		626,361		846,818		871,856		876,265		877,537
2013.1.1 ~ 2013.12.31		709,602		965,587		997,607		1,003,646		—
2014.1.1 ~ 2014.12.31		789,087		1,083,048		1,114,821		—		—
2015.1.1 ~ 2015.12.31		885,476		1,219,393		—		—		—
2016.1.1 ~ 2016.12.31		1,064,744		—		—		—		—

		4,075,270		4,114,846		2,984,284		1,879,911		877,537

Gross cumulative claim payments (B)
2012.1.1 ~ 2012.12.31		588,606		835,182		864,708		872,561		875,323
2013.1.1 ~ 2013.12.31		671,500		953,494		989,957		999,944		—
2014.1.1 ~ 2014.12.31		744,944		1,065,792		1,104,468		—		—
2015.1.1 ~ 2015.12.31		836,471		1,205,130		—		—		—
2016.1.1 ~ 2016.12.31		1,017,243		—		—		—		—

		3,858,764		4,059,598		2,959,133		1,872,505		875,323

Difference (A-B)		216,506		55,248		25,151		7,406		2,214

Loss development tables as of December 31, 2015, are as follows:

i) General Insurance


(In millions of won)	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years
Estimate of gross ultimate claims (A)
2011.1.1 ~ 2011.12.31		129,224		154,398		159,960		161,694		162,623
2012.1.1 ~ 2012.12.31		137,072		166,294		170,767		173,276		—
2013.1.1 ~ 2013.12.31		161,506		191,911		196,768		—		—
2014.1.1 ~ 2014.12.31		111,644		128,464		—		—		—
2015.1.1 ~ 2015.12.31		116,872		—		—		—		—

		656,318		641,067		527,495		334,970		162,623

Gross cumulative claim payments (B)
2011.1.1 ~ 2011.12.31		97,490		140,620		152,696		157,622		160,074
2012.1.1 ~ 2012.12.31		101,938		154,844		163,211		167,864		—
2013.1.1 ~ 2013.12.31		124,607		172,880		186,554		—		—
2014.1.1 ~ 2014.12.31		83,076		115,302		—		—		—
2015.1.1 ~ 2015.12.31		87,851		—		—		—		—

		494,962		583,646		502,461		325,486		160,074

Difference (A-B)		161,356		57,421		25,034		9,484		2,549

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

ii) Automobile Insurance


(In millions of won)	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years		After 6 years		After 7 years
Estimate of gross ultimate claims (A)
2009.1.1 ~ 2009.12.31		790,947		806,669		810,734		813,601		813,827		813,355		813,357
2010.1.1 ~ 2010.12.31		993,509		1,012,484		1,018,097		1,022,687		1,022,856		1,023,197		—
2011.1.1 ~ 2011.12.31		1,088,801		1,105,501		1,115,281		1,119,872		1,122,637		—		—
2012.1.1 ~ 2012.12.31		1,117,650		1,146,779		1,155,529		1,162,075		—		—		—
2013.1.1 ~ 2013.12.31		1,131,945		1,156,535		1,170,968		—		—		—		—
2014.1.1 ~ 2014.12.31		1,174,611		1,193,832		—		—		—		—		—
2015.1.1 ~ 2015.12.31		1,227,106		—		—		—		—		—		—

		7,524,569		6,421,800		5,270,609		4,118,235		2,959,320		1,836,552		813,357

Gross cumulative claim payments(B)
2009.1.1 ~ 2009.12.31		662,783		779,730		797,039		804,149		808,954		810,711		812,359
2010.1.1 ~ 2010.12.31		850,192		981,338		1,004,341		1,012,469		1,018,391		1,020,229		—
2011.1.1 ~ 2011.12.31		929,491		1,066,885		1,093,589		1,109,202		1,117,381		—		—
2012.1.1 ~ 2012.12.31		939,239		1,105,672		1,135,064		1,149,585		—		—		—
2013.1.1 ~ 2013.12.31		939,569		1,114,063		1,145,110		—		—		—		—
2014.1.1 ~ 2014.12.31		969,211		1,150,462		—		—		—		—		—
2015.1.1 ~ 2015.12.31		1,020,975		—		—		—		—		—		—

		6,311,460		6,198,150		5,175,143		4,075,405		2,944,726		1,830,940		812,359

Difference (A-B)		1,213,109		223,650		95,466		42,830		14,594		5,612		998

iii) Long-term Insurance


(In millions of won)	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years
Estimate of gross ultimate claims (A)
2011.1.1 ~ 2011.12.31		574,869		779,908		807,510		815,315		819,250
2012.1.1 ~ 2012.12.31		634,920		885,789		921,919		933,320		—
2013.1.1 ~ 2013.12.31		717,558		1,003,441		1,046,675		—		—
2014.1.1 ~ 2014.12.31		797,967		1,125,417		—		—		—
2015.1.1 ~ 2015.12.31		897,267		—		—		—		—

		3,622,581		3,794,555		2,776,104		1,748,635		819,250

Gross cumulative claim payments (B)
2011.1.1 ~ 2011.12.31		544,181		741,333		764,853		769,759		771,762
2012.1.1 ~ 2012.12.31		597,083		836,335		865,333		873,028		—
2013.1.1 ~ 2013.12.31		679,394		953,234		988,820		—		—
2014.1.1 ~ 2014.12.31		753,756		1,064,064		—		—		—
2015.1.1 ~ 2015.12.31		848,147		—		—		—		—

		3,422,561		3,594,966		2,619,006		1,642,787		771,762

Difference (A-B)		200,020		199,589		157,098		105,848		47,488

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(6) Sensitivity analysis of insurance risk

The Group manages insurance risk by performing sensitivity analysis based on discount rate, loss ratio and insurance operating expenses ratio which are considered to have significant influence on future cash flow, timing and uncertainty. According to result of sensitivity analysis there is no material influence on the capital and net income before tax.


	Assumption change	Effect on LAT
(In millions of won)	Assumption change	2016			2015
Surrenders and termination rates	+10%		141,043			11,408
	-10%		(165,516	)		(634	)
Loss ratio	+10%		2,828,427			2,069,252
	-10%		(2,828,427	)		(2,069,252	)
Insurance operating expenses ratio	+10%		265,278			229,681
	-10%		(265,278	)		(229,681	)
Discount rate	+0.5%		(1,444,527	)		(1,139,425	)
	-0.5%		1,698,991			1,318,607

(7) Liquidity risk of insurance contracts

Liquidity risk arising from insurance contracts is the increase in refunds at maturity caused by concentrations of maturity, the increase in surrender values caused by unexpected amounts in cancellation and the increase in payments of claims caused by catastrophic events. The Group manages payment of refunds payable at maturity by analyzing maturity of insurance. Premium reserve’s maturity structure as of December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	Within 1 year		1~5 years		5~10 years		10~20 years		More 20 years		Total
Long-term insurance non participating
Non-linked	W	69,202		186,161		204,735		75,545		98,289		633,932
Linked		515,859		2,112,904		2,369,933		1,339,255		8,575,454		14,913,405

		585,061		2,299,065		2,574,668		1,414,800		8,673,743		15,547,337

Annuity
Non-linked		5		146		1,566		4,182		1,592		7,491
Linked		147		41,763		260,493		999,093		2,048,178		3,349,674

		152		41,909		262,059		1,003,275		2,049,770		3,357,165

Asset-linked
Linked		375		27,009		—		—		—		27,384
Total
Non-linked		69,207		186,307		206,301		79,727		99,881		641,423
Linked		516,381		2,181,676		2,630,426		2,338,348		10,623,632		18,290,463

		585,588		2,367,983		2,836,727		2,418,075		10,723,513		18,931,886

(*)	Includes long-term investment contract amounting to W112,822 million.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
(In millions of won)	Within 1 year		1~5 years		5~10 years		10~20 years		More 20 years		Total
Long-term insurance non-participating
Non-linked	W	90,800		195,361		252,678		74,402		99,982		713,223
Linked		574,068		1,861,552		2,400,327		1,535,227		6,945,769		13,316,943

		664,868		2,056,913		2,653,005		1,609,629		7,045,751		14,030,166

Long-term insurance participating
Non-linked		784		—		—		—		—		784
Annuity
Non-linked		5		140		1,463		4,159		1,739		7,506
Linked		149		34,742		214,197		895,952		1,923,494		3,068,534

		154		34,882		215,660		900,111		1,925,233		3,076,040

Asset-linked
Linked		—		28,235		—		—		—		28,235
Total
Non-linked		91,589		195,501		254,141		78,561		101,721		721,513
Linked		574,217		1,924,529		2,614,524		2,431,179		8,869,263		16,413,712

		665,806		2,120,030		2,868,665		2,509,740		8,970,984		17,135,225

(*)	Includes long-term investment contract amounting to W115,062 million.

(8) Credit risk of insurance contract

Credit risk of insurance contract is the economic loss arising from non-performing contractual obligations due to decline in credit ratings or default. Through strict internal review, the Group cedes insurance contracts to the insurers rated above BBB- of S&P rating.

As of December 31, 2016, there are 219 reinsurance companies that deal with the Group, and the top three insurance companies’ concentration and credit ratings are as follows:


Reinsurance company	Ratio			Credit rating
KOREAN RE		68.97	%	AA
HDIgerling		3.15	%	AA+
HANNOVER RE		2.66	%	AAA

Exposures to credit risk related to reinsurance as of December 31, 2016 and 2015 were as follows:


(In millions of won)	2016		2015
Reinsurance assets¹		764,919		776,234
Net receivables from reinsurers²		43,284		47,119

		808,203		823,353

¹	Net carrying amounts that deduct impairment loss

²	Net carrying amounts of each reinsurance company that offsets reinsurance accounts receivable and reinsurance accounts payable and deduct allowance for loan losses

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(9) Interest risk of insurance contract

The interest rate risk exposure from the Group’s insurance contracts is the risk of unexpected losses in net interest income or net assets arising from changes in interest rates and it is managed to minimize the loss experienced. For long-term, non-life insurance contracts, the Group calculates exposure of interest-bearing assets and interest-bearing liabilities. Liabilities exposure is premium reserves after subtracting costs of termination deductions. Asset exposure is interest-bearing assets. Assets that receive only fees without interest are excluded from interest bearing assets. Exposures to interest rate risk as of December 31, 2016 and 2015, are as follows:

i) Exposure to interest rate risk


(In millions of won)	2016		2015
Liabilities
Fixed interest rate		639,263		716,786
Variable interest rate		17,805,199		15,642,298

		18,444,462		16,359,084

Assets
Due from banks		134,739		356,960
Financial assets at fair value through profit or loss		430,443		385,700
Available-for-sale financial assets		7,133,036		6,617,308
Held-to-maturity financial assets		3,330,444		1,932,279
Loans		6,677,951		6,599,146

		17,706,613		15,891,393

ii) Measurement and recognition method

Duration is used to measure interest rate risk within risk based solvency test. ALM system for risk based solvency test is utilized to manage interest rate risk internally. In addition, Risk Management Committee sets ALM strategy every year to manage interest rate risk.

iii) Sensitivity to changes in interest rates

Generally, when interest rates rise, the value and duration of assets and liabilities fall, when interest rates fall, value and duration of assets and liabilities increase. When duration of assets is shorter than duration of liabilities, the interest risk is increased if the interest rates fall since increased asset value is smaller than liabilities increase.

iv) Negative spread risk control

To control interest expenses from other liabilities and investment incomes from assets, the Group publicizes its interest rate considering market interest rate and return on invested insurance assets of the Group.

4-3. Credit risk

(1) Overview

Credit risk is the loss arising due to debtor’s default or counterparty’s breach of a contract, which includes the risk of potential loss due to decrease in the value of bonds held (arising from counterparty’s credit rating degrade). Credit risk is caused by a change in value or income in deposits, loans and securities.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(2) Credit risk management

The Group measures credit risk by standard RBC method of Korea Financial Supervisory Service. Credit risk limits are set and managed based on the credit risk resulted from the model. For the Group’s main asset portfolio, limits based on industry and category are set and managed. The Group obtains bonds or loans only when the assets meet the minimum credit rating.

(3) Maximum exposure to credit risk

The Group’s maximum exposure to credit risk without taking account of any collateral held or other credit enhancements as of December 31, 2016 and 2015, is as follows:


(In millions of won)	2016		2015
Financial Assets
Cash and cash equivalents¹		834,670		769,203
Trading assets²		357,744		259,966
Financial assets designated at fair value through profit or loss²		640,937		558,640
Available-for-sale financial assets²		7,069,474		6,597,132
Held-to-maturity financial assets		3,546,091		2,148,198
Loans³		6,828,087		6,755,519
Derivative assets to hedge		6,145		11,178
Other receivables⁴		560,331		757,311
Reinsurance assets⁵		764,919		776,234

		20,608,398		18,633,381

Off-balance sheet items
Commitments		1,771,736		1,537,787

		22,380,134		20,171,168

¹	Cash on hand, which is not under the influence of credit risk, is excluded.

²	Equity securities and beneficiary certificates are excluded.

³	Net carrying amounts adjusted by allowance for doubtful accounts and deferred loan origination cost (fee).

⁴	Net carrying amounts of each client adjusted by unpaid claims, allowance for doubtful accounts and present value discount.

⁵	Net carrying amounts adjusted by impairment of reinsurance assets.

(4) Credit risk of loans

In order to manage credit risk of loans, the Group sets and manages allowance for credit loss. At the end of the reporting period, the Group recognizes impairment if there is objective evidence that there has been a loss in carrying amount of the amortized cost of loans. According to K-IFRS, impairment means an incurred loss; impairment on the basis of expected future transactions and events is not recognized despite its possibility of occurrence. The Group measures the incurred loss of financial asset, and this loss is deducted from the carrying amount of the asset.

i) Loans by past due or impairment as of December 31, 2016 and 2015, were as follows:


(In millions of won)	2016			2015
Neither past due nor impaired		6,745,907			6,676,599
Past due but not impaired		69,637			69,952
Impaired		71,378			40,124

		6,886,922			6,786,675

Allowance of neither past due nor impaired		(12,036	)		(16,116	)
Allowance of past due but not impaired		(1,419	)		(783	)
Allowance of impaired		(45,380	)		(14,257	)
		(58,835	)		(31,156	)

Net carrying value		6,828,087			6,755,519

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

ii) Neither past due nor impaired loans

①	Estimated fair value of collateral for loans that are neither past due nor impaired as of December 31, 2016 and 2015, is as follows:


	2016
			*Collateral and other credit enhancements ()**
(In millions of won)	Loans		Refund of surrender value		Real estate		Guarantee insurance		Movable property and other		Total
Call loans		340		—		—		—		—		—
Policy loans		1,752,542		1,752,542		—		—		—		1,752,542
Loans secured by real estate		2,425,639		—		2,409,394		—		—		2,409,394
Unsecured loans		256,623		—		—		—		—		—
Loans secured by third party guarantee		27,297		—		—		27,297		—		27,297
Other loans		2,283,466		—		65,000		—		356,955		421,955

		6,745,907		1,752,542		2,474,394		27,297		356,955		4,611,188

^(*)	At the lower of the sum of collateral and other credit enhancement, and the loan balances.


	2015
			*Collateral and other credit enhancements ()**
(In millions of won)	Loans		Refund of surrender value		Real estate		Guarantee insurance		Movable property and other		Total
Call loans		40		—		—		—		—		—
Policy loans		1,506,851		1,506,851		—		—		—		1,506,851
Loans secured by real estate		2,655,847		—		2,636,525		—		—		2,636,525
Unsecured loans		207,059		—		—		—		—		—
Loans secured by third party guarantee		29,898		—		—		29,898		—		29,898
Other loans		2,276,904		—		—		—		399,138		399,138

		6,676,599		1,506,851		2,636,525		29,898		399,138		4,572,412

(*)	At the lower of the sum of collateral and other credit enhancement, and the loan balances.

②	Credit quality of loans that are neither past due nor impaired as of December 31, 2016 and 2015, is as follows:


	2016
(In millions of won)	Loans		Normal		Precautionary		Substandard		Doubtful		Presumed loss
Call loans		340		340		—		—		—		—
Policy Loans		1,752,542		1,752,542		—		—		—		—
Loans secured by real estate		2,425,639		2,425,639		—		—		—		—
Unsecured loans		256,623		256,623		—		—		—		—
Loan secured by third party guarantees		27,297		27,297		—		—		—		—
Other loans		2,283,466		2,255,449		28,017		—		—		—

		6,745,907		6,717,890		28,017		—		—		—

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
(In millions of won)	Loans		Normal		Precautionary		Substandard		Doubtful		Presumed loss
Call loans		40		40		—		—		—		—
Policy Loans		1,506,851		1,506,851		—		—		—		—
Loans secured by real estate		2,655,847		2,655,847		—		—		—		—
Unsecured loans		207,059		207,059		—		—		—		—
Loan secured by third party guarantees		29,898		29,898		—		—		—		—
Other loans		2,276,904		2,247,345		29,559		—		—		—

		6,676,599		6,647,040		29,559		—		—		—

iii) Past due but not impaired loans

①	Aging analyses of loans that are past due but not impaired as of December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	1~30 days		31~60 days		61~89 days		Total
Loans secured by real estate		52,189		1,712		1,085		54,986
Unsecured loans		5,817		1,308		1,025		8,150
Loans secured by third party guarantee		75		—		—		75
Other loans		6,426		—		—		6,426

		64,507		3,020		2,110		69,637


	2015
(In millions of won)	1~30 days		31~60 days		61~89 days		Total
Loans secured by real estate		56,079		375		403		56,857
Unsecured loans		3,510		698		475		4,683
Loans secured by third party guarantee		21		50		—		71
Other loans		6,590		1,397		354		8,341

		66,200		2,520		1,232		69,952

②	Estimated fair value of collateral for loans that are past due but not impaired as of December 31, 2016 and 2015, is as follows:


	2016
			*Collateral and other credit enhancements^()**
(In millions of won)	Loans		Real estate		Guarantee insurance		Movable property and other		Total
Loans secured by real estate		54,986		54,584		—		—		54,584
Unsecured loans		8,150		—		—		—		—
Loans secured by third party guarantee		75		—		75		—		75
Other loans		6,426		—		—		3,141		3,141

		69,637		54,584		75		3,141		57,800

^(*)	At the lower of the sum of collateral and other credit enhancement, and the loan balances.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
			*Collateral and other credit enhancements^()**
(In millions of won)	Loans		Real estate		Guarantee insurance		Movable property and other		Total
Loans secured by real estate		56,857		56,468		—		—		56,468
Unsecured loans		4,683		—		—		—		—
Loans secured by third party guarantee		71		—		71		—		71
Other loans		8,341		—		—		8,310		8,310

		69,952		56,468		71		8,310		64,849

^(*)	At the lower of the sum of collateral and other credit enhancement, and the loan balances.

iv) Impaired loans

①	Estimated fair value of collateral for loans that are impaired as of December 31, 2016 and 2015, is as follows:


	2016
			*Collateral and other credit enhancements()**
(In millions of won)	Loans		Real estate		Guarantee insurance		Movable property and other		Total
Policy loans		654		—		—		566		566
Loans secured by real estate		15,537		15,413		—		—		15,413
Unsecured loans		6,375		—		—		—		—
Other loans		48,812		—		—		4,126		4,126

		71,378		15,413		—		4,692		20,105

^(*)

At the lower of the sum of collateral and other credit enhancement, and the loan balances.


	2015
			*Collateral and other credit enhancements ()**
(In millions of won)	Loans		Real estate		Guarantee insurance		Movable property and other		Total
Policy loans		405		—		—		355		355
Loans secured by real estate		16,231		16,132		—		—		16,132
Unsecured loans		2,491		—		—		—		—
Other loans		20,997		—		—		3,376		3,376

		40,124		16,132		—		3,731		19,863

^(*)	At the lower of the sum of collateral and other credit enhancement, and the loan balances.

②	Impairment loss and impairment loss ratio for impaired loans as of December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	Individual assessment							Collective assessment
	Carrying value before impairment loss		Impairment loss		Ratio			Carrying value before impairment loss		Impairment loss		Ratio
Policy loans		W 654		88		13.46	%		—		—		—
Loans secured by real estate		—		—		—			15,537		623		4.01	%
Unsecured loans		—		—		—			6,374		4,555		71.46	%
Other loans		44,686		39,806		89.08	%		4,127		308		7.47	%

		W45,340		39,894		87.99	%		26,039		5,486		21.07	%

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
(In millions of won)	Individual assessment							Collective assessment
	Carrying value before impairment loss		Impairment loss		Ratio			Carrying value before impairment loss		Impairment loss		Ratio
Policy loans		405		50		12.35	%		—		—		—
Loans secured by real estate		—		—		—			16,231		587		3.62	%
Unsecured loans		—		—		—			2,491		1,680		67.44	%
Other loans		17,615		11,784		66.90	%		3,382		156		4.61	%

		18,020		11,834		65.68	%		22,104		2,423		10.96	%

(5) Credit risk of securities

i) Credit risk of debt securities as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Neither past due nor impaired		11,612,757		9,562,365
Impaired		—		958

		11,612,757		9,563,323

ii) Credit ratings of debt securities as of December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	*AAA ~ AA+()**		AA ~ A-		BBB+~ BB+		Unrated		Total
Trading assets		356,255		—		—		—		356,255
Financial assets designated at fair value through profit or loss		298,772		318,026		—		24,139		640,937
Available-for-sale financial assets		4,992,007		1,933,214		10,062		134,191		7,069,474
Held-to-maturity financial assets		3,420,398		40,000		—		85,693		3,546,091

		9,067,432		2,291,240		10,062		244,023		11,612,757

(*)	Debt securities issued by government and municipalities are included.


	2015
(In millions of won)	*AAA ~ AA+()**		AA ~ A-		BBB+~ BB+		Unrated		Total
Trading assets		229,444		29,909		—		—		259,353
Financial assets designated at fair value through profit or loss		264,359		294,281		—		—		558,640
Available-for-sale financial assets		4,535,994		2,050,149		10,585		404		6,597,132
Held-to-maturity financial assets		2,105,903		40,000		—		2,295		2,148,198

		7,135,700		2,414,339		10,585		2,699		9,563,323

(*)	Debt securities issued by government and municipalities are included.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(6) Credit risk of derivative assets

Credit ratings of derivatives as of December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	AAA ~ AA+		AA ~ A-		Total
Trading derivatives
Currency related		1,172		—		1,172
Other		317		—		317

		1,489		—		1,489

Hedging derivatives
Interest rate related		65		—		65

Currency related		5,977		103		6,080

		6,042		103		6,145

Total		7,531		103		7,634


	2015
(In millions of won)	AAA ~ AA+		AA ~ A-		Total
Trading derivatives
Currency related		372		73		445
Other		165		—		165

		537		73		610

Hedging derivatives
Interest rate related		352		—		352
Currency related		10,604		222		10,826

		10,956		222		11,178

Total		11,493		295		11,788

(7) Concentration of credit risk

An analysis of concentration of credit risk of loans and securities by geographical area and industry sector as of December 31, 2016 and 2015, is as follows:

i) Geographical area


	2016
(In millions of won)	Korea		United States		Other		Total
Trading assets		271,294		63,190		23,260		357,744
Financial assets designated at fair value through profit or loss		438,647		—		202,290		640,937
Available-for-sale financial assets		5,003,466		1,047,495		1,018,513		7,069,474
Held-to-maturity financial assets		3,449,994		93,672		2,425		3,546,091
Loans		6,828,035		—		52		6,828,087
Hedging derivatives		6,145		—		—		6,145

		15,997,581		1,204,357		1,246,540		18,448,478

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
(In millions of won)	Korea		United States		Other		Total
Trading assets		259,966		—		—		259,966
Financial assets designated at fair value through profit or loss		475,763		—		82,877		558,640
Available-for-sale financial assets		5,066,382		609,031		921,719		6,597,132
Held-to-maturity financial assets		2,145,903		—		2,295		2,148,198
Loans		6,755,424		—		95		6,755,519
Hedging derivatives		11,178		—		—		11,178

		14,714,616		609,031		1,006,986		16,330,633

ii) Industry sector


	2016
(In millions of won)	Financial institutions		Household		Government owned entity		Real estate		Other		Total
Trading assets		87,940		—		269,804		—		—		357,744
Financial assets designated at fair value through profit or loss		570,177		—		—		—		70,760		640,937
Available-for-sale financial assets		2,636,643		—		2,470,377		—		1,962,454		7,069,474
Held-to-maturity financial assets		182,292		—		3,230,126		—		133,673		3,546,091
Loans		313,693		4,074,043		—		445,667		1,994,684		6,828,087
Hedging derivatives		6,145		—		—		—		—		6,145

		3,796,890		4,074,043		5,970,307		445,667		4,161,571		18,448,478


	2015
(In millions of won)	Financial institutions		Household		Government owned entity		Real estate		Other		Total
Trading assets		73,118		—		153,242		—		33,606		259,966
Financial assets designated at fair value through profit or loss		511,700		—		—		—		46,940		558,640
Available-for-sale financial assets		2,316,479		—		2,783,905		—		1,496,748		6,597,132
Held-to-maturity financial assets		182,008		—		1,926,190		—		40,000		2,148,198
Loans		700,725		4,118,118		—		549,511		1,387,165		6,755,519
Hedging derivatives		11,178		—		—		—		—		11,178

		3,795,208		4,118,118		4,863,337		549,511		3,004,459		16,330,633

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(8) Classification of asset quality for loans and other receivables

Classification of asset quality for loans and other receivables as of December 31, 2016 and 2015, is as follows:


	2016
(In millions of won)	Normal		Precautionary		Substandard		Doubtful		Presumed loss		Total
Loans¹
Call loans		340		—		—		—		—		340
Policy loans		1,753,109		—		—		—		87		1,753,196
Loans secured by real estate		2,461,552		2,763		14,297		911		214		2,479,737
Unsecured loans		262,448		2,332		237		3,061		3,077		271,155
Loans secured by third party guarantees		27,370		1		—		—		—		27,371
Other loans		2,264,938		28,084		771		46,293		1,748		2,341,834

		6,769,757		33,180		15,305		50,265		5,126		6,873,633

Other receivables
Insurance accounts receivables²		106,775		8,843		4,048		3,319		13,545		136,530
Accounts receivables		86,748		11		61		84		808		87,712
Accrued revenue³		33,121		242		33		152		150		33,698
Notes receivables		285		—		—		—		—		285

		226,929		9,096		4,142		3,555		14,503		258,225

		6,996,686		42,276		19,447		53,820		19,629		7,131,858

¹	Amount before adjusting by deferred loan origination fees and costs, allowance for doubtful accounts and present value discount.

²	Amount after offsetting insurance accounts payables by counterparties

³	Accrued interest related to loans


	2015
(In millions of won)	Normal		Precautionary		Substandard		Doubtful		Presumed loss		Total
Loans¹
Call loans		40		—		—		—		—		40
Policy loans		1,507,206		—		—		—		50		1,507,256
Loans secured by real estate		2,692,797		772		15,633		315		193		2,709,710
Unsecured loans		210,584		1,173		153		1,260		1,076		214,246
Loans secured by third party guarantees		29,917		50		—		—		—		29,967
Other loans		2,255,773		31,387		399		1,810		18,782		2,308,151

		6,696,317		33,382		16,185		3,385		20,101		6,769,370

Other receivables
Insurance accounts receivables²		101,192		22,956		2,569		4,037		10,386		141,140
Accounts receivables		79,485		123		114		38		388		80,148
Accrued revenue³		28,073		217		47		103		71		28,511
Notes receivables		410		—		—		—		—		410

		209,160		23,296		2,730		4,178		10,845		250,209

		6,905,477		56,678		18,915		7,563		30,946		7,019,579

¹	Amount before adjusting by deferred loan origination fees and costs, allowance for doubtful accounts and present value discount.

²	Amount after offsetting insurance accounts payables by counterparties

³	Accrued interest related to loans

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

4-4. Liquidity risk

(1) Overview

Liquidity risk is the risk of unexpected losses from change in cash flow by difference of maturities between assets and liabilities and increase in cancellation of insurance contracts. For the control of the risk, the difference of assets and liabilities maturities needs to be solved and the unexpected losses from cash outflow should be minimized.

(2) Liquidity risk management

The Group analyzes differences between funding and the use of funds beforehand to manage liquidity risk. In addition, to evaluate the Group’s liquidity management skills during an extreme crisis situation, the Group uses various crisis scenarios that will be caused due to an increase in surrender value to analyze and manage the liquidity risk.

(3) Maturity analysis of financial liabilities

Maturities of financial liabilities as of December 31, 2016 and 2015, are as follows:

i) Maturities of financial liabilities


	2016
(In millions of won)	On demand		Less than 30 days		1~3 months		3~12 months		1~5 years		More than 5 years		Total
Financial liabilities at fair value through profit or loss
Trading derivatives		9,388		—		—		—		—		3		9,391
Other financial liabilities
Insurance accounts payable		23,617		170,566		110,913		72,388		—		—		377,484
Accrued expenses		230		96,732		—		887		—		—		97,849
Others		6,275		38,768		3,142		873		7,284		—		56,342

		30,122		306,066		114,055		74,148		7,284		—		531,675

Off-balance sheet items
Commitments		1,771,736		—		—		—		—		—		1,771,736

		1,811,246		306,066		114,055		74,148		7,284		3		2,312,802


	2015
(In millions of won)	On demand		Less than 30 days		1~3 months		3~12 months		1~5 years		More than 5 years		Total
Financial liabilities at fair value through profit or loss
Trading derivatives		1,292		2,461		635		1,184		—		1,430		7,002
Other financial liabilities
Insurance accounts payable		21,670		184,975		86,921		85,190		—		—		378,756
Accrued expenses		253		90,047		—		861		—		—		91,161
Others		5,974		39,429		4		5,171		7,588		572		58,738

		27,897		314,451		86,925		91,222		7,588		572		528,655

Off-balance sheet items
Commitments		1,423,187		54,600		60,000		—		—		—		1,537,787

		1,452,376		371,512		147,560		92,406		7,588		2,002		2,073,444

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

ii) Maturities of hedging derivatives liabilities


	2016
(In millions of won)	Less than 30 days			1~3 months			3~12 months			1~5 years			Total
Currency forwards
Cash inflow		124,241			311,322			1,736,605			74,009			2,246,177
Cash outflow		128,765			319,985			1,815,778			78,553			2,343,081

Net cash flow		(4,524	)		(8,663	)		(79,173	)		(4,544	)		(96,904	)

Currency swaps
Cash inflow		2,209			5,345			453,229			462,835			923,618
Cash outflow		2,473			5,931			486,276			488,957			983,637

Net cash flow		(264	)		(586	)		(33,047	)		(26,122	)		(60,019	)

Total
Cash inflow		126,450			316,667			2,189,834			536,844			3,169,795
Cash outflow		131,238			325,916			2,302,054			567,510			3,326,718

Net cash flow		(4,788	)		(9,249	)		(112,220	)		(30,666	)		(156,923	)


	2015
(In millions of won)	Less than 30 days			1~3 months			3~12 months			1~5 years			Total
Currency forwards
Cash inflow		121,393			427,668			1,233,332			242,178			2,024,571
Cash outflow		127,596			449,137			1,277,593			256,111			2,110,437

Net cash flow		(6,203	)		(21,469	)		(44,261	)		(13,933	)		(85,866	)

Currency swaps
Cash inflow		67			1,004			56,677			56,387			114,135
Cash outflow		53			965			60,120			58,854			119,992

Net cash flow		14			39			(3,443	)		(2,467	)		(5,857	)

Total
Cash inflow		121,460			428,672			1,290,009			298,565			2,138,706
Cash outflow		127,649			450,102			1,337,713			314,965			2,230,429

Net cash flow		(6,189	)		(21,430	)		(47,704	)		(16,400	)		(91,723	)

Maturity analysis above is presented using the undiscounted cash flows and based on the Group’s earliest payment date, including principal and interest.

4-5. Market risk

(1) Definition

Market risk is the risk of possible loss that an asset might experience due to changes in stock prices, interest rates, and/or exchange rates. Market risk usually occurs from securities and financial derivatives.

(2) Purpose of market risk management

The goal of market risk management is to prepare for unexpected losses due to the market’s unfavorable changes in interest rates, stock prices and exchange rates managing risk in accordance with the Group’s tolerance levels and maximizing revenue against risks incurred.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(3) Method of market risk management

i) Measurement of market risk

Market risk is measured by Financial Supervisory Service’s standard model. The model provided by the Financial Supervisory Service is based on RBC system, widely used by insurance companies. By analyzing the market’s sensitivity, the Group regularly analyzes its market portfolio risk.

ii) Control of market risk

In order to control market risk, the Group runs a committee, reviews structured securities beforehand and manages the limits. In a way of market risk management, investments that exceed a certain level of risk must be authorized by the investment review committee. Structured securities must be reviewed by the risk management department, separate from the operating department, during an execution of an investment. In addition, in order to control market risk, certain limits, position limits, loss limits, and risk limits are set and regularly checked for compliance.

iii) Report of market risk

Market risk management, important key factors and limit management status are reported regularly to the risk management committee.

(4) Sensitivity analysis

Sensitive analysis of foreign exchange rate, interest rate and stock price as of December 31, 2016 and 2015, are as follows:

i) Exchange rate


(In millions of won)	Effect on profit or loss			Effect on other comprehensive income
December 31, 2016
W100 increase KRW/USD FX Rate		2,309			99
W100 decrease KRW/USD FX Rate		(2,309	)		(99	)
December 31, 2015
W100 increase KRW/USD FX Rate		2,388			686
W100 decrease KRW/USD FX Rate		(2,388	)		(686	)

ii) Interest rate


(In millions of won)	Effect on profit or loss			Effect on other comprehensive income
December 31, 2016
100bp increase		(25,299	)		(479,904	)
100bp decrease		25,299			479,904
December 31, 2015
100bp increase		(23,185	)		(476,523	)
100bp decrease		23,185			476,523

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

iii) Stock price


(In millions of won)	Effect on profit or loss			Effect on other comprehensive income
December 31, 2016
10% increase		2,423			76,317
10% decrease		(2,423	)		(76,317	)
December 31, 2015
10% increase		444			82,756
10% decrease		(444	)		(82,756	)

4-6. Capital adequacy test

(1) Purpose of capital management

The goal of capital management is to maintain the ability to make the payments by having enough assets on hand, even when an unexpected loss occurs.

(2) Subjects of the capital management

Through setting the limit and managing the aggregated and individual risk (insurance/interest rate/credit, operating), the Group manages asset risk. When the limit is set, available capital is taken into consideration to set the limit for asset risk.

i) Available capital is a risk buffer, which helps maintain the ability to make payments when the Group experiences an unexpected loss. Available capital is calculated as core capital and supplementary capital after deduction of certain deduction items and deficit of capital in subsidiaries, described as follows:


		Description
Core capital		Paid-in capital, capital surplus, retained earnings, accumulated other comprehensive income etc.
Supplementary capital		Subordinated debt, hybrid bond, reserve for participating policyholders’ dividends, normal and precautionary amount of bad debt reserve and allowance for credit loss, deferred tax liability regarding emergency risk reserve
Deductions		Deferred acquisition costs, intangible assets (e.g., goodwill), prepaid expenses, deferred tax assets, estimated amount of cash dividends to shareholders, etc.
Subsidiaries’ deficiency of capital		The deficiency in net assets of subsidiaries was increased or decreased based on the insurance company’s ownership amount

ii) Required capital is the amount of risk calculated based on the scale of insurance/interest rate/credit/market/operating risk internal to the Group. The total amount of required capital is calculated based on the correlation between it and the individual risk.


		Definition
Insurance risk		The risk of loss due to unexpected increase in loss ratio.
Interest rate risk		The risk that the decrease in net value, caused by change in interest rate, will have a negative effect on economic status.
Credit risk		The risk that loss will arise due to debtor’s default or counterparty’s breach of contract
Market risk		Risk of loss due to the change in market cost (stock, interest rate, exchange rate)
Operating risk		Risk of loss due to inappropriate internal procedure, human capital, system and external events.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(3) External requirement of capital adequacy and implementation of capital management

For the asset management of insurance companies, supervisory authorities use methods that evaluate the RBC ratio, timely improve the RBC ratio (based on RBC ratio; divided into recommendation, need or command of management improvement), and uses RBC ratio in Risk Assessment and Application System (‘RAAS’). During this process, timely corrective action is used based on the level where the RBC ratio is below 100%. In order to connect the internal model with asset management standard, RBC standard of available capital is applied to risk limits of transcription and limit distribution of individual risk.

(4) Achievement of capital management goal

In order to achieve the goals of asset management, it is operated based on the set limit of aggregated risk and individual risk and its results are regularly reported to the management and risk management risk committee. When setting the limit, the limit is maintained at a level so that payment is possible and compliance with these rules are regularly checked so that the goal of asset management can be reached. In addition, supervisory authorities recommend that RBC ratio is kept at or above 150% and the Group currently maintains at or above this standard as of December 31, 2016 and 2015.

5. Measurement of fair value of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best estimate of the fair value of financial instruments is the quoted price in the active market. The Group believes that the fair value and its measurement method of financial instruments is appropriate and reasonable, however, it may be changed under another measurement method or assumption. As various methods have been adopted to calculate fair value of financial instruments and a number of assumptions have been made, it is hard to reasonably compare the fair values of financial instruments measured by different financial institutions.

(1) Financial instruments measured at amortized costs

The method of measuring fair value of financial instruments measured at amortized cost is as follows:


Accounts		Methodology
Cash and cash equivalents		The difference between carrying amount and fair value of cash and cash equivalents is not significant, so carrying amount is recognized as the fair value.
Loans and other receivables		Fair value of loans is measured by the present value of the amount expected to receive. Expected cash flow is discounted using the interest rate considering current market interest rate and credit spread.
Held-to-maturity financial assets		The average price provided by the KIS bond valuation Inc. and NICE P&I Inc. is used as the fair value.
Other financial liabilities		The difference between carrying value and fair value of other financial liabilities is not significant so the carrying value is recognized as the fair value.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

The carrying value and the fair value of financial instruments measured at amortized cost as of December 31, 2016 and 2015, are as follows:


	2016				2015
(In millions of won)	Carrying value		Fair value		Carrying value		Fair value
Financial assets
Cash and cash equivalents		834,678		834,678		769,208		769,208
Held-to-maturity financial assets		3,546,091		3,641,640		2,148,198		2,367,740
Loans		6,828,087		6,849,850		6,755,519		6,842,596
Other receivables		733,382		732,892		907,176		907,999

		11,942,238		12,059,060		10,580,101		10,887,543

Financial liabilities
Other financial liabilities		531,271		531,271		528,312		528,312

(2) Financial instruments measured at the fair value

The Group classifies and discloses fair value of the financial instruments into the following three-level hierarchy:

(i)	Level 1: Financial instruments measured at quoted prices in active markets for identical instruments are classified as level 1.

(ii)	Level 2: Financial instruments measured using valuation techniques where all significant inputs are observable market data are classified as level 2.

(iii)

Level 3: Financial instruments measured using valuation techniques where one or more significant inputs are not based on observable market data are classified as level 3.

In case that any occurrence that may cause changes in fair value levels, the transfers between levels are deemed to have occurred at the beginning of the financial period.

i) As of December 31, 2016 and 2015, the level of the fair value hierarchy within which the fair value measurement are categorized as follows:


	2016
(In millions of won)	Level 1		Level 2		Level 3		Total
Financial assets
Financial assets at fair value through profit or loss
Trading assets		245,268		404,337		317		649,922
Financial assets designated at fair value through profit or loss		—		43,114		597,823		640,937

		245,268		447,451		598,140		1,290,859

Available-for-sale financial assets¹		631,006		6,835,131		2,137,296		9,603,433
Hedging derivative assets		—		6,145		—		6,145

		876,274		7,288,727		2,735,436		10,900,437

Financial liabilities
Financial liabilities designated at fair value through profit or loss		1,068		8,320		3		9,391
Hedging derivative liabilities		—		147,320		—		147,320

		1,068		155,640		3		156,711

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

¹	Available-for-sale financial assets that are measured at acquisition cost due to the inability to measure the reliable fair value are excluded.


	2015
(In millions of won)	Level 1		Level 2		Level 3		Total
Financial assets
Financial assets at fair value through profit or loss
Trading assets		195,614		195,618		30,074		421,306
Financial assets designated at fair value through profit or loss		—		39,550		519,090		558,640

		195,614		235,168		549,164		979,946

Available-for-sale financial assets¹		1,058,437		5,858,391		1,575,533		8,492,361
Hedging derivative assets		—		11,178		—		11,178

		1,254,051		6,104,737		2,124,697		9,483,485

Financial liabilities
Financial liabilities designated at fair value through profit or loss		1,292		4,279		1,431		7,002
Hedging derivative liabilities		—		95,336		—		95,336

		1,292		99,615		1,431		102,338

¹	Available-for-sale financial assets that are measured at acquisition cost due to the inability to measure the reliable fair value are excluded.

ii) The fair value hierarchy of financial instruments which are not measured at fair value but disclosed in the financial statements as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016
(In millions of won)	Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents		—		834,678		—		834,678
Held to maturity financial assets		2,369,929		1,269,286		2,425		3,641,640
Loans		—		331,492		6,518,358		6,849,850
Other receivables		—		50,266		682,626		732,892

		2,369,929		2,485,722		7,203,409		12,059,060

Financial liabilities
Other financial liabilities		—		—		531,271		531,271


(In millions of won)	2015
(In millions of won)	Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents		—		769,208		—		769,208
Held to maturity financial assets		1,671,236		694,209		2,295		2,367,740
Loans		—		471,094		6,371,502		6,842,596
Other receivables		—		262,643		645,356		907,999

		1,671,236		2,197,154		7,019,153		10,887,543

Financial liabilities
Other financial liabilities		—		—		528,312		528,312

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(3) Financial instruments that are measured at acquisition cost due to inability to measure the reliable fair value as of December 31, 2016 and 2015, are as follows:


(In millions of Korean wons)	2016		2015
Available-for-sale financial assets		5,422		68,111

(4) There was no transfer between level 1 and level 2 for the year ended December 31, 2016.

(5) Valuation techniques and inputs used in measuring fair value of financial instruments classified as level 2 as of December 31, 2016 and 2015, are as follows:


(In millions of won)			2016
	Fair value		Valuation techniques	Inputs
Financial assets
Trading assets		404,337	Discounted cash flow, option pricing model	Price of underlying assets, discount rate, volatility
Financial assets designated at fair value through profit or loss		43,114	Discounted cash flow, option pricing model	Price of underlying assets, discount rate, volatility
Available-for-sale financial assets¹		6,835,131	Discounted cash flow, option pricing model, net asset value	Price of underlying assets, discount rate, volatility
Hedging derivatives		6,145	Discounted cash flow	Discount rate, foreign exchange rate

		7,288,727

Financial liabilities
Financial liabilities designated at fair value through profit or loss		8,320	Discounted cash flow	Discount rate, foreign exchange rate
Hedging derivatives		147,320	Discounted cash flow	Discount rate, foreign exchange rate

		155,640

¹	Valuation inputs to measure the fair values of beneficiary certificates are not disclosed as they are based on prices quoted by asset management companies.


(In millions of won)			2015
	Fair value		Valuation techniques	Inputs
Financial assets
Trading assets		195,618	Discounted cash flow, option pricing model	Price of underlying assets, discount rate, volatility
Financial assets designated at fair value through profit or loss		39,550	Discounted cash flow, option pricing model	Price of underlying assets, discount rate, volatility
Available-for-sale financial assets¹		5,858,391	Discounted cash flow, option pricing model, net asset value	Discount rate
Hedging derivatives		11,178	Discounted cash flow	Discount rate, foreign exchange rate

		6,104,737

Financial liabilities
Financial liabilities designated at fair value through profit or loss		4,279	Discounted cash flow	Discount rate, foreign exchange rate
Hedging derivatives		95,336	Discounted cash flow	Discount rate, foreign exchange rate

		99,615

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

¹	Valuation inputs to measure the fair values of beneficiary certificates are not disclosed as they are based on prices quoted by asset management companies.

(6) Disclosure about financial instruments classified as level 3

i) Changes in level 3 of the fair value hierarchy for the years ended December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	Trading assets			Financial assets designated at fair value through profit or loss			Available-for-sale financial assets			Financial liabilities at fair value through profit or loss
Beginning balance		30,074			519,090			1,575,533			1,431
Total income (loss)
Profit or loss		243			(3,091	)		2,096			(1,428	)
Other comprehensive income		—			—			29,028			—
Purchase		—			161,985			704,935			—
Settlement		(30,000	)		(80,161	)		(232,081	)		—
Reclassification from other levels to level 3¹		—			—			57,785			—

		317			597,823			2,137,296			3

¹	Equity securities that were measured at acquisition costs on the prior period and measured at fair value on this period.


	2015
(In millions of won)	Trading assets		Financial assets designated at fair value through profit or loss			Available-for-sale financial assets			Financial liabilities at fair value through profit or loss
Beginning balance		29,584		352,678			1,196,175			2,182
Total income (loss)
Profit or loss		57		(1,859	)		5,268			(751	)
Other comprehensive income		—		—			39,113			—
Purchase		—		263,084			487,342			—
Settlement		—		(94,813	)		(155,036	)		—
Transfer to assets held for sale		—		—			(2,665	)		—
Reclassification from level 3 to other levels¹		—		—			(31,967	)		—
Reclassification from other levels to level 3²		433		—			38,959			—
Others		—		—			(1,656	)		—

		30,074		519,090			1,575,533			1,431

¹	The amount of equity securities that goes public on this period.

²	Equity securities that were measured at acquisition costs on the prior period and measured at fair value on this period.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

ii) Information about significant unobservable inputs in measuring financial instruments categorized as level 3 as of December 31, 2016 and 2015, are as follows:

2016

(In millions of won)

Fair

value

Valuation

techniques

Significant

unobservable

input

Range of
estimates for
unobservable
input (%)

Fair value measurement
sensitivity to unobservable
input

Financial assets

Trading assets

317

Discounted cash flow, option pricing model

The volatility of the underlying asset

31.579

A significant increase in volatility would result in a greater change in fair value

Correlations

8.6

A significant increase in correlations would result in a greater change in fair value

Financial assets
designated at fair
value through
profit or loss

597,823

Discounted cash flow, option pricing model

The volatility of the underlying asset

5.84~40.80

A significant increase in volatility would result in a greater change in fair value

Correlations

8.6~90.00

A significant increase in correlations would result in a greater change in fair value

Recovery rate

A significant increase in recovery rate would result in a higher fair value.

Available-for-sale
financial assets¹

2,137,296

Discounted cash flow, option pricing model, net asset method

Discount rate

6.76~14.39

A significant increase in discount rate would result in a lower fair value.

Growth rate

0.0~6.5

A significant increase in growth rate would result in a higher fair value

The volatility of the underlying asset

23.82~40.8

A significant increase in volatility would result in a greater change in fair value

Correlations

85.24~89.38

A significant increase in correlations would result in a greater change in fair value

2,735,436

Financial
liabilities

Financial liabilities
at fair value
through profit or
loss

Option pricing model

The volatility of the underlying asset

27~37.95

A significant increase in volatility would result in a greater change in fair value

¹	Valuation inputs to measure the fair values of beneficiary certificates are not disclosed as they are based on prices quoted by asset management companies.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

2015

(In millions of won)

Fair

value

Valuation

techniques

Significant

unobservable

input

Range of
estimates for
unobservable
input (%)

Fair value measurement
sensitivity to unobservable
input

Financial assets

Trading assets

30,074

Discounted cash flow, option pricing model

The volatility of the underlying asset

5.39~40.50

A significant increase in volatility would result in a greater change in fair value.

Correlations

17.33

A significant increase in correlations would result in a greater change in fair value.

Financial assets designated at fair
value through profit or loss

519,090

Discounted cash flow, option pricing model

The volatility of the underlying asset

10.57~50.14

A significant increase in volatility would result in a greater change in fair value.

Correlations

17.33~90.00

A significant increase in correlations would result in a greater change in fair value.

Recovery rate

A significant increase in recovery rate would result in a higher fair value.

Available-for-sale financial assets¹

1,575,533

Discounted cash flow, option pricing model, net asset method

Discount rate

0.85~10.13

A significant increase in discount rate would result in a lower fair value.

Growth rate

1.80~6.42

A significant increase in growth rate would result in a higher fair value

The volatility of the underlying asset

34.90~50.14

A significant increase in volatility would result in a
greater change in fair value.

Correlations

48.27~87.94

A significant increase in correlations would result in a greater change in fair value.

2,124,697

Financial liabilities

Financial liabilities at fair value
through profit or loss

1,431

Option pricing model

The volatility of the underlying asset

34.90~37.20

A significant increase in volatility would result in a greater change in fair value.

¹	Valuation inputs to measure the fair values of beneficiary certificates are not disclosed as they are based on prices quoted by asset management companies.

iii) Sensitivity to changes in unobservable inputs.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Sensitive analysis of changes in unobservable inputs as of December 31, 2016 and 2015, are as follows:


	2016
	Favorable change				Unfavorable change
(In millions of won)	Profit or loss		Other comprehensive income		Profit or loss			Other comprehensive income
Financial Assets
Financial assets at fair value through profit or loss¹		2,408		—		(2,357	)		—
Available-for-sale financial assets²		—		3,078		—			(2,644	)

		2,408		3,078		(2,357	)		(2,644	)

Financial liabilities
Financial liabilities at fair value through profit or loss³		—		—		—			—

¹	Based on increase or decrease in volatility of underlying assets (1%), correlation (1% or 10%) or recovery rate (1%)

²	Based on increase or decrease of discount rate (1%), growth rate (10%), correlation (10%), or volatility of underlying assets (1%), EV/EBITDA (10%), EV/Sales (10%).

³	Based on increase or decrease in volatility of underlying assets (1%).


	2015
	Favorable change				Unfavorable change
(In millions of won)	Profit or loss		Other comprehensive income		Profit or loss			Other comprehensive income
Financial Assets
Financial assets at fair value through profit or loss¹		1,530		—		(1,544	)		—
Available-for-sale financial assets²		—		2,919		—			(2,304	)

		1,530		2,919		(1,544	)		(2,304	)

Financial liabilities
Financial liabilities at fair value through profit or loss³		29		—		(32	)		—

¹	Based on increase or decrease in volatility of underlying assets (1%), correlation (1% or 10%) or recovery rate (1%)

²	Based on increase or decrease of discount rate (1%), growth rate (10%), correlation (10%), or volatility of underlying assets (1%), EV/EBITDA (10%), EV/Sales (10%).

³	Based on increase or decrease in volatility of underlying assets (1%).

(7) Offsetting financial assets and financial liabilities

Details of financial assets and financial liabilities subject to offsetting, enforceable master netting agreements and similar agreements as of December 31, 2016 and 2015, are as follows:


	2016
	Financial assets and liabilities recognized		Offsetting financial assets and liabilities recognized		Financial assets and liabilities recognized after offset		Amount not offsetting in the statements of financial position					Net amounts
(In millions of won)	Financial assets and liabilities recognized		Offsetting financial assets and liabilities recognized				Financial instruments			Cash collateral received		Net amounts
Financial assets
Financial assets at fair value through profit or loss		56		—		56		(56	)		—		—
Hedging derivatives		6,145		—		6,145		(6,145	)		—		—

		6,201		—		6,201		(6,201	)		—		—

Financial liabilities
Financial liabilities at fair value through profit or loss		8,320		—		8,320		(56	)		—		8,264
Hedging derivatives		147,320		—		147,320		(6,145	)		—		141,175

		155,640		—		155,640		(6,201	)		—		149,439

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
	Financial assets and liabilities recognized		Offsetting financial assets and liabilities recognized		Financial assets and liabilities recognized after offset		Amount not offsetting in the statements of financial position					Net amounts
(In millions of won)	Financial assets and liabilities recognized		Offsetting financial assets and liabilities recognized				Financial instruments			Cash collateral received		Net amounts
Financial assets
Financial assets at fair value through profit or loss		281		—		281		(281	)		—		—
Hedging derivatives		11,178		—		11,178		(11,178	)		—		—

		11,459		—		11,459		(11,459	)		—		—

Financial liabilities
Financial liabilities at fair value through profit or loss		4,280		—		4,280		—			—		4,280
Hedging derivatives		95,336		—		95,336		(11,459	)		—		83,877

		99,616		—		99,616		(11,459	)		—		88,157

6. Profit or loss and other comprehensive income of financial instruments

Profit or loss and other comprehensive income of financial instruments by categories for the years ended December 31, 2016 and 2015, are as follows:


	2016
	Profit or loss
(In millions of won)	Interest income (expense)			Dividend income		Gain (loss) on disposal			Gain (loss) on valuation			Impairment loss			Foreign currency transaction gain (loss)			Fees and commission income (expense)			Total			Other comprehensive income
Cash and cash equivalents	W	2,917			—		—			—			—			(169	)		—			2,748			—
Trading assets		8,761			293		3,359			(5,643	)		—			568			—			7,338			—
Financial assets designated at fair value through profit or loss		18,808			—		(5,224	)		(2,447	)		—			8,360			(1,914	)		17,583			—
Available-for-sale financial assets		231,253			105,712		56,649			—			(48,823	)		109,141			509			454,441			(91,174	)
Held-to-maturity financial assets		82,483			—		—			—			—			4,748			—			87,231			—
Hedging derivatives		—			—		25,445			(128,547	)		—			—			—			(103,102	)		218
Loans and other receivables		294,886			—		36			—			(36,971	)		1,849			1,414			261,214			—
Financial liabilities measured at amortized cost		(504	)		—		—			—			—			—			—			(504	)		—

		638,604			106,005		80,265			(136,637	)		(85,794	)		124,497			9			726,949			(90,956	)

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
	Profit or loss
(In millions of won)	Interest income (expense)			Dividend income		Gain (loss) on disposal			Gain (loss) on valuation			Impairment loss			Foreign currency transaction gain (loss)		Fees and commission income (expense)			Total			Other compre- hensive loss
Cash and cash equivalents	W	2,233			—		—			—			—			—		—			2,233			—
Trading assets		9,631			1,597		5,660			1,181			—			3,999		—			22,068			—
Financial assets designated at fair value through profit or loss		15,754			—		(1,582	)		(7,883	)		—			7,405		(2,586	)		11,108			—
Available-for-sale financial assets		214,611			64,376		61,263			—			(18,318	)		146,940		164			469,036			42,530
Held-to-maturity financial assets		65,758			—		942			—			—			2,896		—			69,596			—
Hedging derivatives		—			—		(50,374	)		(92,418	)		—			—		—			(142,792	)		(661	)
Loans and other receivables		307,098			—		(24	)		—			(11,445	)		17,500		1,453			314,582			—
Financial liabilities		(752	)		—		—			—			—			—		—			(752	)		—

	W	614,333			65,973		15,885			(99,120	)		(29,763	)		178,740		(969	)		745,079			41,869

7. Segment information

(1) Segment information

The Group operates insurance, security and other businesses in Korea, the United States of America, China and Indonesia. The Group recognizes its segments in the division through which it has access to the information of generation of income and expenses, segmental appraisal on performance and financial information. By the integration and separation based on the economic similarities between the segments, such as the characteristics of services and significance of generated profit, the recognized segments are divided into three reporting segments as follows:

- Non-life insurance: Engages in business activities such as contracting non-life insurance and other concurrent insurance permitted, collecting premium and paying insurance claims; engages also in permitted concurrent asset management and other incidental services as claim adjustment.

- Securities: Engages in securities business, such as investment trades and investment brokerage

- Others: Consolidated beneficiary certificates and others

(2) Net income of the business segments for the years ended December 31, 2016 and 2015, are as follows;


		2016
(In millions of won)		Non-life insurance			Securities¹			Other segments			Adjustment			Total
Insurance income	Amount		10,112,480			—			—			(4,258	)		10,108,222
Insurance income	Ratio	W	100.04	%		0.00	%		0.00	%		(0.04	%)		100.00	%
Investment income	Amount		890,538			34,707			18,614			(57,018	)		886,841
Investment income	Ratio		100.42	%		3.91	%		2.10	%		(6.43	%)		100.00	%
Insurance expenses	Amount		10,488,514			—			—			(155,990	)		10,332,524
Insurance expenses	Ratio		101.51	%		0.00	%		0.00	%		(1.51	%)		100.00	%
Investment expenses	Amount		349,535			25,028			7,447			(25,922	)		356,088
Investment expenses	Ratio		98.16	%		7.03	%		2.09	%		(7.28	%)		100.00	%
Other income (expenses)	Amount		134,862			(7,177	)		662			(137,314	)		(8,967	)
Other income (expenses)	Ratio	W	(1503.98	%)		80.04	%		(7.38	%)		1531.32	%		100.00	%
Profit from continuing operations	Amount		299,831			—			11,829			(14,176	)		297,484
Profit from continuing operations	Ratio		100.79	%		0.00	%		3.98	%		(4.77	%)		100.00	%
Profit from discontinued operations	Amount		—			2,502			—			2,123			4,625
Profit from discontinued operations	Ratio		0.00	%		54.10	%		0.00	%		45.90	%		100.00	%
Profit for the year	Amount		299,831			2,502			11,829			(12,053	)		302,109
Profit for the year	Ratio		99.25	%		0.83	%		3.92	%		(3.99	%)		100.00	%

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


		2015
(In millions of won)		Non-life insurance			Securities¹			Other segments			Adjustment			Total
Insurance income	Amount		9,914,300			—			—			(4,442	)		9,909,858
Insurance income	Ratio	W	100.04	%		—			—			(0.04	)%		100.00	%
Investment income	Amount		842,421			102,769			25,184			(124,921	)		845,453
Investment income	Ratio		99.64	%		12.16	%		2.98	%		(14.78	)%		100.00	%
Insurance expenses	Amount		10,459,749			—			—			(149,382	)		10,310,367
Insurance expenses	Ratio		101.45	%		—			—			(1.45	)%		100.00	%
Investment expenses	Amount		376,640			78,236			8,099			(89,559	)		373,416
Investment expenses	Ratio		100.86	%		20.95	%		2.17	%		(23.98	)%		100.00	%
Other income (expenses)	Amount		258,032			(16,071	)		3,908			(128,723	)		117,146
Other income (expenses)	Ratio	W	220.27	%		(13.72	)%		3.33	%		(109.88	)%		100.00	%
Profit from continuing operations	Amount		178,364			—			20,993			(10,683	)		188,674
Profit from continuing operations	Ratio		94.54	%		—			11.12	%		(5.66	)%		100.00	%
Profit from discontinued operations	Amount		—			8,462			—			(37,788	)		(29,326	)
Profit from discontinued operations	Ratio		—			(28.85	)%		—			128.85	%		100.00	%
Profit for the year	Amount		178,364			8,462			20,993			(48,471	)		159,348
Profit for the year	Ratio		111.93	%		5.31	%		13.17	%		(30.42	)%		100.00	%

¹	Classified as disposal group held for sale as of December 31, 2015.

(3) Geographical information

The Group operates its business in Korea, the United States of America, China and Indonesia, and Korea is the country in which the Group is headquartered. Geographical operating revenues from external customers for the years ended December 31, 2016 and 2015, and non-current assets as of December 31, 2016 and 2015, are as follows:1) Geographical operating revenues from external customers for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Korea		10,990,349		10,780,273
Other countries		65,990		104,401

		11,056,339		10,884,674

(*)	The amount is insurance and investment income before adjustment for consolidation, and before classified profit of LIG Investment & Securities Co., Ltd as profit from discontinued operations.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

2) Geographical non-current assets as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Korea		1,126,068		1,176,187
Other countries		2,588		1,974

		1,128,656		1,178,161

(*)	Non-current assets of LIG Investment & Securities Co., Ltd, classified as assets held for sale, are included.

8. Cash and cash equivalents

Cash and cash equivalents as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Cash		8		5
Checking account		975		513
Demand deposits		44,320		87,650
Deposit money		11,000		1,150
Deposits in foreign currency		60,916		144,333
Others		717,459		535,557

		834,678		769,208

9. Financial assets at fair value through profit or loss

(1) Trading assets

Trading assets as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Equity securities¹
Stocks		2,033		8,731
Debt securities²
Government and public bonds		237,826		153,242
Special bonds		31,979		33,604
Beneficiary certificates³
Debt type		15,029		13,650
Stock type		—		5,342
Others		240,138		120,037
Securities in foreign currency^{2 3}
Stocks		214		37
Debt securities		86,450		42,598
Beneficiary certificates		34,765		13,544
Other securities⁴
Derivative Linked Securities (DLS)		—		19,707
Derivative Linked Bonds (DLB)		—		10,203
Trading derivatives⁵		1,489		611

		649,923		421,306

¹	Fair values of listed securities are closing prices in the stock market at the end of reporting period.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

²	Fair values of debt securities are the average of valuation prices provided by the KIS bond valuation Inc. and NICE P&I Inc.

³	Fair values of beneficiary certificates are based on prices quoted by asset management companies.

⁴	Fair values of other financial instruments are the average of valuation prices provided by the KIS bond valuation Inc. or NICE P&I Inc.

⁵	Fair values of trading derivatives are the average of valuation prices provided by the KIS bond valuation Inc. and NICE P&I Inc.

(2) Financial assets designated at fair value through profit or loss

Financial assets designated at fair value through profit or loss as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Securities in foreign currency¹
Hybrid securities		249,159		105,878
Others		61,679		59,965
Other securities¹
Equity Linked Securities (ELS)		—		44,692
Equity Linked Bonds (ELB)		20,455		20,044
Derivative Linked Securities (DLS)		179,108		202,282
Derivative Linked Bonds (DLB)		66,031		61,460
Others		64,505		64,319

		640,937		558,640

¹	Fair values of securities of foreign currencies and other securities are the average of valuation prices provided by the KIS bond valuation Inc. or NICE P&I Inc.

Financial assets above are the hybrid financial instrument that includes one or more embedded derivatives. The Group designates the entire instrument at fair value through profit or loss.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

10. Available-for-sale financial assets

Available-for-sale financial assets as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Equity securities¹
Listed equity securities		67,598		172,250
Unlisted equity securities		75,805		76,192
Investments in partnerships		188,126		183,987

		331,529		432,429

Debt securities²
Government and public bonds		413,370		789,317
Special bonds		1,219,082		1,214,713
Bank debenture		649,067		638,907
Corporate bonds		1,361,001		1,142,120

		3,642,520		3,785,057

Beneficiary certificates³
Debt type		50,387		—
Stock type		149,800		160,785
Mixed type		53,976		21,462
Others		1,379,422		926,329

		1,633,585		1,108,576

Securities in foreign currency⁴
Stock		3,731		5,310
Investments in partnerships		89,104		80,762
Debt securities		2,927,219		2,334,380
Others		803,486		539,201

		3,823,540		2,959,653

Other securities⁵
Others		177,680		274,757

		9,608,854		8,560,472

Fair values of listed securities are quoted closing prices of the stock market at the end of reporting period. Except for those that are unable to reliably measure the fair values and therefore are assessed at their acquisition costs, the fair values of unlisted securities and investments are determined based on the Korea Asset Pricing, KIS bond valuation Inc. or NICE P&I Inc.

²	Available-for-sales debt securities’ fair values are the average of valuation prices provided by the KIS bond valuation Inc. or NICE P&I Inc.

³	Fair values of beneficiary certificates are based on prices quoted by asset management companies or valuation prices of independent valuation companies.

⁴

Fair values of investments in partnerships are measured by net asset value. Debt securities’ fair value is the average of valuation prices provided by the KIS bond valuation Inc. and NICE P&I Inc. Debt securities owned by the U.S branch is the posted price or valuation price by independent valuation companies.

⁵	Fair values of other securities are measured based on posted prices, valuation prices by independent valuation companies or based on prices quoted by asset management companies.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

11. Held-to-maturity financial assets

Held-to-maturity financial assets as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Debt securities
Government and public bonds		2,292,686		1,513,259
Special bonds		1,009,656		486,704
Bank debenture		59,312		59,060
Corporate bonds		40,000		40,000
Securities in foreign currency
Bank debenture		144,437		49,175

		3,546,091		2,148,198

12. Loans and other receivables

Loans and other receivables as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Loans
Call loans		340			40
Policy loans		1,753,196			1,507,256
Loans secured by real estate		2,479,737			2,709,710
Unsecured loans		271,155			214,246
Loans secured by third party guarantees		27,371			29,967
Other loans		2,341,834			2,308,150
Deferred loan origination fees and costs		13,289			17,306
Allowance for credit loss		(58,835	)		(31,156	)

		6,828,087			6,755,519

Other receivables
Due from banks		138,300			356,498
Insurance accounts receivables		309,581			291,111
Accounts receivables		87,712			80,148
Accrued revenue		123,306			105,362
Notes receivables		285			410
Guarantee deposits		88,911			90,866
Deposits in court		6,977			2,318
Present value discount		(1,515	)		(2,098	)
Allowance for credit loss		(20,175	)		(17,439	)

		733,382			907,176

Due from banks as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Deposit money		32,599		61,876
Derivatives margin account		18,985		26,963
Specific deposits		64		36
Due from banks		86,652		267,623

		138,300		356,498

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Restricted due from banks as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015		Descriptions
Derivatives margin account		18,985		26,963	Exchange traded derivatives margin account
Specific deposits		64		64	Deposits for the opening checking accounts
Time deposits in foreign currency and others		8,708		9,863	Deposits for operation and others

		27,757		36,890

Insurance accounts receivables as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Insurance receivable		55,995		56,571
Due from agents		7,113		3,206
Co-insurance receivable		15,506		15,115
Receivables related to agency business		17,996		25,078
Reinsurance accounts receivable		106,732		88,561
Overseas reinsurance premiums receivable		104,753		101,136
Deposits on reinsurance treaty ceded		1,486		1,444

		309,581		291,111

Changes in allowance of credit loss of the loans and other receivables for the years ended December 31, 2016 and 2015, are as follows:


	2016								2015
(In millions of won)	Loans			Other Receivables		Total			Loans		Other Receivables		Total
Beginning balance	W	31,156			17,439		48,595			30,276		17,362		47,638
Increase
Impairment loss		34,740			2,232		36,972			10,672		937		11,609
Recoveries from written-off loans		935			516		1,451			697		2		699
Decrease
Reversal		—			1		1			—		164		164
Written-off		9,401			11		9,412			6,954		698		7,652
Others		(1,405	)		—		(1,405	)		1,111		—		1,111
Classified as assets held-for-sale		—			—		—			2,424		—		2,424

Ending balance	W	58,835			20,175		79,010			31,156		17,439		48,595

Changes in deferred loan origination fees and costs for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Beginning balance		17,306			16,120
Increase		5,705			13,780
Decrease		(9,722	)		(12,594	)

Ending balance		13,289			17,306

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

13. Investments in associates

Investments in associates as of December 31, 2016 and 2015, are as follows:

Location

Industry

Date of
financial
statements

Ownership (%)

2016

2015

Kocref Cr-reit XI¹

Korea

Real estate rent

Dec 28, 2016

—

10.00

¹	Liquidated in 2016.

Changes in carrying value of investment in associate for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016
Investees	Owner-ship (%)			Beginning balance		Acquisition		Gain on valuation of equity- method investments¹		Changes in equity of equity- method investments		Dividends			Others			Ending balance
Kocref Cr-reit XI 10.00%		10.00	%		7,436		—		9,129		—		(7,435	)		(9,130	)		—

¹	Gain (loss) on valuation of equity-method investments is included in non-operating income (expenses).


Investees	2015
Investees	Owner-ship (%)			Beginning balance		Acquisition		Gain on valuation of equity- method investments¹		Changes in equity of equity- method investments		Dividends			Others³			Ending balance
Kocref Cr-reit XI 10.00%		10.00	%		7,684		—		886		—		(1,134	)		—			7,436
Kocref Cr-reit VIII		—			2,895		—		—		—		—			(2,895	)		—
KT-LIG ACE Private Equity Fund Co., Ltd		—			229		—		1		—		—			(230	)		—
LIG Special Purpose Acquisition 2nd Co., Ltd²		0.37	%		19		—		5		—		—			(24	)		—
LIG-ES Special Purpose Acquisition Co., Ltd²		0.66	%		—		20		—		2		—			(22	)		—

					10,827		20		892		2		(1,134	)		(3,171	)		7,436

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

¹	Gain (loss) on valuation of equity-method investments is included in non-operating income (expenses).

²	Classified as disposal group held-for-sale in 2015.

³	Impairment loss of disposal group held-for-sale, is included.

Summarized financial information of associates is as follows:


Investees	2015
Investees	Assets		Liabilities		Revenue		Profit or loss		The Group’s share of profit or loss
Kocref Cr-reit XI 10.00%		208,619		128,346		23,850		8,859		886

		208,619		128,346		23,850		8,859		886

14. Derivatives

(1) The notional amounts of derivatives as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Trading
Currency forwards		338,811		239,156
Currency swaps		48,340		—
Other		6,593		6,593

		393,744		245,749

Fair value hedge
Currency forwards		2,770,043		2,726,071
Currency swaps		—		21,638

		2,770,043		2,747,709

Cash flow hedge
Currency swaps		891,937		150,022
Interest rate swaps		63,446		46,880

		955,383		196,902

(2) Fair value of derivative instruments as of December 31, 2016 and 2015, are as follows:


	2016					2015
(In millions of won)	Assets			Liabilities		Assets		Liabilities
Trading
Currency forwards		1,172			8,436		445		5,571
Currency swaps		—			952		—		—
Other		317			3		166		1,431

		1,489			9,391		611		7,002

Hedge
Currency forwards		6,135			92,335		5,796		89,950
Currency swaps		(55	)		54,557		5,030		5,386
Interest rate swaps		65			428		352		—

		6,145			147,320		11,178		95,336

		7,634			156,711		11,789		102,338

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(3) Gains and losses on valuation of derivatives for the years ended December 31, 2016 and 2015, are as follows:


	2016¹					2015²
(In millions of won)	Gain			Loss		Gain			Loss
Profit or loss
Currency forwards		6,520			87,257		6,795			94,148
Currency swaps		14			55,634		1			8,957
Stock related		613			333		3,731			617
Interest related		220			180		149			56
Other		1,580			—		751			779
Credit risk adjustment		55			17		34			92

		9,002			143,421		11,461			104,649

Accumulated other comprehensive income
Currency swaps		1,642			881		(675	)		253
Interest related		(218	)		325		267			—

		1,424			1,206		(408	)		253

		10,426			144,627		11,053			104,902

¹	Income tax effects related to gains and losses on valuation of derivatives classified as accumulated other comprehensive income amount to ￦70 million.

²	Income tax effects related to gains and losses on valuation of derivatives classified as accumulated other comprehensive income amount to ￦212 million.

(4) Hedge accounting

(a) At the end of reporting period, in order to mitigate the risk of change in fair value and risk of change in cash flows of foreign currency bonds caused by changes in exchange rate and interest rate, the Group entered into a currency forward and currency swap contract.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(b) Fair value hedge

Details of valuation gains or losses in fair value hedge accounting for the years ended December 31, 2016 and 2015, are as follows:


	2016				2015
(In millions of won)	Gain		Loss		Gain		Loss
Hedging instrument
Currency forwards		6,149		80,060		5,795		89,248
Currency swaps				—		—		1,452

		6,149		80,060		5,795		90,700

Hedged item
Available-for-sale financial assets		79,558		6,053		79,017		5,407
Held-to-maturity financial assets		—		—		1,294		—
Loans		—		—		1,452		—
Others receivables		503		96		8,937		428

		80,061		6,149		90,700		5,835

①	Details of expected cash flow of cash flow hedge accounting as of December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	1 month or less		3 months or less		1 year or less		5 years or less			Total
Cash flow of derivatives settled in net amounts		76		44		225		(746	)		(401	)
Cash inflow of derivatives settled in gross amounts		2,209		5,345		453,229		462,835			923,618
Cash outflow of derivatives settled in gross amounts		2,472		5,931		486,277		488,957			983,637


	2015
(In millions of won)	1 month or less		3 months or less		1 year or less		5 years or less			More than 5 years		Total
Cash flow of derivatives settled in net amounts		204		74		305		(232	)		—		351
Cash inflow of derivatives settled in gross amounts		67		25,395		37,898		94,108			6,955		164,423
Cash outflow of derivatives settled in gross amounts		53		20,478		39,255		96,384			7,140		163,310

②

Regarding cash flow hedges, the expected maximum period exposed to risk of change in cash flow is up to July 15, 2021. The expected amount of profit or loss on valuation of derivative instruments that will be reclassified from accumulated other comprehensive income to profit or loss within one year upon maturity are ￦1,772 million in profit and ￦803 million in loss.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(d) The amounts reclassified from equity to profit or loss and the ineffective portion of the gain or loss on the hedging instrument recognized in profit or loss for the years ended December 31, 2016 and 2015, are as follows:


	2016						2015
(In millions of won)	Realized			Ineffective			Realized			Ineffective
Currency swaps		(54,188	)		(119	)		(7,039	)		(29	)

15. Reinsurance assets

Changes in reinsurance assets for the years ended December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	Beginning balance		Net increase (decrease)¹			Ending balance
Reserve for outstanding claims
General insurance		465,338		(25,234	)		440,104
Automobile insurance		16,819		(915	)		15,904
Long-term insurance		62,578		21,360			83,938

		544,735		(4,789	)		539,946

Unearned premium reserve
General insurance		214,869		(6,855	)		208,014
Automobile insurance		17,294		584			17,878

		232,163		(6,271	)		225,892

Total reinsurance assets		776,898		(11,060	)		765,838
Allowance for impairment		664		255			919

Total reinsurance assets, net		776,234		(11,315	)		764,919

¹	Gains or losses on foreign currency translation of foreign operations, ￦577 million, is included.


	2015
(In millions of won)	Beginning balance		Net increase (decrease)²			Ending balance
Reserve for outstanding claims
General insurance		568,434		(103,096	)		465,338
Automobile insurance		25,262		(8,443	)		16,819
Long-term insurance		54,746		7,832			62,578

		648,442		(103,707	)		544,735

Unearned premium reserve
General insurance		220,719		(5,850	)		214,869
Automobile insurance		26,583		(9,289	)		17,294

		247,302		(15,139	)		232,163

Total reinsurance assets		895,744		(118,846	)		776,898
Allowance for impairment		787		(123	)		664

Total reinsurance assets, net		894,957		(118,723	)		776,234

¹	Gains or losses on foreign currency translation of foreign operations, ￦11,706 million, is included.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

16.

Investment property

Investment property as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Land
Acquisition costs		84,389			112,197
Building
Acquisition costs		238,079			279,012
Accumulated depreciation		(52,876	)		(57,473	)

		269,592			333,736

Changes in investment property for the years ended December 31, 2016 and 2015 are as follows:


	2016
(In millions of won)	Beginning balance		Depreciation¹			Transfer from(to) property and equipment			Ending balance
Land		112,197		—			(27,808	)		84,389
Building		221,539		(5,917	)		(30,419	)		185,203

		333,736		(5,917	)		(58,227	)		269,592

¹	Depreciation expenses on investment properties are included in administrative expenses for real estate.


	2015
(In millions of won)	Beginning balance		Depreciation¹			Transfer from(to) property and equipment		Ending balance
Land		92,444		—			19,753		112,197
Building		223,303		(6,912	)		5,148		221,539

		315,747		(6,912	)		24,901		333,736

¹	Depreciation expenses on investment properties are included in administrative expenses for real estate.

Fair value of investment properties is appraised by independent certified public appraisers. Fair value of investment property as of December 31, 2016 and 2015, are as follows:


	2016					2015
(In millions of won)	Land		Building			Land		Building
Fair value		110,017		167,214			119,891		216,170
Carrying value		84,389		185,203			112,197		221,539

Difference		25,628		(17,989	)		7,694		(5,369	)

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Rent income and expense on investment property for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Rent income		14,101		20,678
Operating expenses related to investment property		18,276		15,886

17. Property and equipment

Property and equipment as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016
(In millions of won)	Acquisition costs		Accumulated depreciation		Carrying value
Land		213,469		—		213,469
Building		670,614		156,268		514,346
Structure		24,388		4,407		19,981
Equipment		164,685		121,335		43,350
Vehicles		630		413		217
Others		1,327		844		483
Construction in progress		88		—		88

		1,075,201		283,267		791,934


(In millions of won)	2015
(In millions of won)	Acquisition costs		Accumulated depreciation		Carrying value
Land		186,278		—		186,278
Building		662,325		136,005		526,320
Structure		745		219		526
Equipment		165,070		117,961		47,109
Vehicles		737		461		276
Others		1,226		857		369

		1,016,381		255,503		760,878

Changes in the property and equipment for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016
(In millions of won)	Beginning balance		Acquisition		Disposal			Depreciation¹			Transfer from(to) investment		Others²			Assets held for sale			Ending balance
Land		186,278		3,534		(281	)		—			27,808		—			(3,870	)		213,469
Building		526,320		2,646		(2,561	)		(17,179	)		30,419		(20,896	)		(4,403	)		514,346
Structure		526		—		—			(1,443	)		—		20,898			—			19,981
Equipment		47,109		11,104		(262	)		(14,606	)		—		5			—			43,350
Vehicles		276		13		(4	)		(70	)		—		2			—			217
Others		369		—		—			(458	)		—		572			—			483
Construction in progress		—		88		—			—			—		—			—			88

		760,878		17,385		(3,108	)		(33,756	)		58,227		581			(8,273	)		791,934

¹	Depreciation expenses are included in insurance operating expenses, administrative expenses for asset and claim survey expenses paid.

²	Gains or losses on foreign currency translation due to change in exchange rate in foreign operations and transfer from other accounts are included.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
(In millions of won)	Beginning balance		Acquisition		Disposal			Depreciation¹			Transfer from(to) investment			Others²		Impairm- ent loss³			Ending balance
Land		206,154		7		(131	)		—			(19,752	)		—		—			186,278
Building		549,103		684		(1,472	)		(16,846	)		(5,149	)		—		—			526,320
Structure		575		—		—			(49	)		—			—		—			526
Equipment		53,227		12,612		(425	)		(17,399	)		—			28		(934	)		47,109
Vehicles		118		242		(5	)		(79	)		—			—		—			276
Others		802		—		(180	)		(550	)		—			338		(41	)		369

		809,979		13,545		(2,213	)		(34,923	)		(24,901	)		366		(975	)		760,878

¹	Depreciation expenses are included in insurance operating expenses, administrative expenses for asset and claim survey expenses paid.

²	Gains or losses on foreign currency translation due to change in exchange rate in foreign operation and transfer from other accounts are included.

³	Impairment loss of disposal group held for sale is included in profit from discontinued operations.

18. Insured assets

The details of buildings and equipment insured against fire and other casualty as of December 31, 2016 and 2015, are summarized as follows:


	2016
(In millions of won)	Amount insured		Insurance company
Building¹		1,069,767		Samsung Fire Marine Insurance Co., Ltd
Equipment		113,125

		1,182,892


	2015
(In millions of won)	Amount insured		Insurance company
Building¹		1,071,903		Samsung Fire Marine Insurance Co., Ltd
Equipment		120,278

		1,192,181

¹	Building classified as property and equipment and investment property are both included.

Beside the assets above, the Group subscribes directors and officers liability insurance and gas accidents liability insurance from Samsung Fire & Marine Insurance Co., Ltd. The Group also subscribes performance guarantee insurance etc. from Seoul Guarantee Insurance Co., Ltd.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

19. Intangible assets

Intangible assets as of December 31, 2016 and 2015, were as follows:


(In millions of won)	2016
(In millions of won)	Acquisition costs		Accumulated amortization		Accumulated impairment		Carrying value
Membership		23,196		—		6,757		16,439
Software		47,861		39,222		—		8,639
Development cost		132,658		119,890		—		12,768
Others		30		—		—		30

		203,745		159,112		6,757		37,876


(In millions of won)	2015
(In millions of won)	Acquisition costs		Accumulated amortization		Accumulated impairment		Carrying value
Membership		30,820		—		11,167		19,653
Software		43,569		34,207		—		9,362
Development cost		123,412		111,274		—		12,138
Others		38		—		—

		197,839		145,481		11,167		41,191

Changes in the intangible assets for the years ended December 31, 2016 and 2015, were as follows:


(In millions of won)	2016
(In millions of won)	Beginning balance		Acquisitions		Disposal			Amortization¹			Impairment²			Others³		Ending balance
Membership		19,653		4,502		(7,577	)		—			(139	)		—		16,439
Software		9,362		3,120		(24	)		(4,080	)		—			261		8,639
Development cost		12,138		5,108		—			(5,111	)		—			633		12,768
Other		38		—		(8	)		—			—			—		30

		41,191		12,730		(7,609	)		(9,191	)		(139	)		894		37,876

¹	Amortization of intangible assets is included in other expenses.

²	Impairment loss on intangible assets are included in non-operating expenses.

³	Gain (loss) on foreign currency translation due to change in exchange rate in foreign subsidiaries and transfer from other accounts are included.


(In millions of won)	2015
(In millions of won)	Beginning balance		Acquisitions		Disposal			Amortization¹			Impairment²			Others³		Ending balance
Membership		21,030		3,290		(2,088	)		—			(2,579	)		—		19,653
Software		10,823		3,458		(15	)		(4,337	)		(576	)		9		9,362
Development cost		16,318		2,725		—			(6,422	)		(1,076	)		593		12,138
Other		3,057		38		—			—			(3,057	)		—		38

		51,228		9,511		(2,103	)		(10,759	)		(7,288	)		602		41,191

¹	Amortization of intangible assets is included in other expenses.

²	Impairment loss on intangible assets are included in non-operating expenses, and impairment loss related to disposal asset group held-for-sale that amounts to W5,968 million, is included in profit from discontinued operations.

³	Gain (loss) on foreign currency translation due to change in exchange rate in foreign subsidiaries and transfer from other accounts are included.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Intangible assets with indefinite useful life as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Condominium memberships		5,622		5,647
Golf memberships		10,457		13,646
Others		360		360

		16,439		19,653

20. Assets held for sale

The assets classified as assets held for sale as of December 31, 2016 and 2015 are as follows¹:


(In millions of won)	2016		2015
Equipment and properties²		4,048		—

¹	Assets held for sale are measured at the lower of carrying amount and fair value less cost of disposal.

²	The Group classified certain equipment and properties as assets held for sale. The disposal of the assets held for sale was completed during January 2017.

21. Disposal group held-for-sale and profit or loss from discontinued operations

The Group decided to sell LIG Investment & Securities Co., Ltd on December 22, 2015, with approval of the board of directors. Therefore the assets and liabilities related to LIG Investment & Securities Co., Ltd are recognized as disposal group classified as held for sale, and the profit or loss of the related operations are presented as discontinued operations for the year ended December 31, 2015. The sale is completed on June 21, 2016 (deemed disposal date: May 31, 2016).

(1) Details of disposal group held for sale as of December 31, 2016 and 2015, are as follow:


(In millions of won)	2016		2015
Assets of disposal group classified as held for sale
Cash and cash equivalents		—		11,276
Financial assets at fair value through profit or loss		—		835,675
Assets held-for-sale		—		22,310
Loans and receivables		—		170,260
Deferred tax assets		—		367

		—		1,039,888

Liabilities of disposal group classified as held for sale
Deposits		—		122,511
Financial liabilities at fair value through profit or loss		—		249,667
Debts		—		459,876
Other financial liabilities		—		47,258
Defined benefit liabilities		—		1,110
Other liabilities		—		4,048

		—		884,470

Accumulated other comprehensive income of disposal group
Changes in value of available-for-sale financial assets		—		1,481
Share of other comprehensive income of associates		—		5
Remeasurement factors of defined benefit liabilities		—		48

		—		1,534

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(2) Details of profit or loss from discontinued operations of the Group for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Operating income		45,403		138,006
Interest income		9,215		22,311
Dividend income		37		55
Gains from valuation and disposal of securities		18,582		64,120
Gains from valuation and disposal of loans and receivables		257		225
Gain from derivatives		6,616		16,058
Other income		10,696		35,237
Operating expenses		42,503		127,438
Interest expense		4,427		9,335
Loss from valuation and disposal of securities		12,068		48,568
Loss from valuation and disposal of loans and receivables		—		257
Loss from derivatives		8,533		20,075
Other expense		17,475		49,203
Operating profit		2,900		10,568
Non-operating income and expenses		398		808
Non-operating income		418		1,036
Non-operating expense		20		228
Income tax expenses		796		2,914
Income of LIG Investment & Securities, Co., Ltd		2,502		8,462
Impairment loss of disposal group held for sale		—		(37,788	)
Reversal of impairment loss of disposal group held for sale		685		—
Gain from disposal of disposal group held for sale		1,438		—
Profit (loss) from discontinued operations		4,625		(29,326	)

(3) Cash flows from discontinued operations for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Operating activities		(76,521	)		(170,429	)
Investing activities		1,091			6,950
Financing activities		93,721			164,483

		18,291			1,004

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

22. Deferred acquisition costs

Changes in the deferred acquisition costs for the years ended December 31, 2016 and 2015, are as follows.


	2016
	Beginning balance		Expenditure						Decrease		Ending balance
(In millions of won)	Beginning balance		Total		Expensed		Deferred		Decrease		Ending balance
Pension		43,851		4,011		773		3,239		19,654		27,436
Long-term insurance		1,611,003		711,782		44,330		667,451		636,233		1,642,221

		1,654,854		715,793		45,103		670,690		655,887		1,669,657


	2015
	Beginning balance		Expenditure						Decrease		Ending balance
(In millions of won)	Beginning balance		Total		Expensed		Deferred		Decrease		Ending balance
Pension		64,080		6,064		2,058		4,006		24,235		43,851
Long-term insurance		1,542,512		741,984		43,680		698,304		629,813		1,611,003

		1,606,592		748,048		45,738		702,310		654,048		1,654,854

23. Other assets

Other assets as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Compensation receivables		32,344		31,857
Prepaid expenses		8,300		11,562
Advance payments		3,478		5,191
Others		294		31

		44,416		48,641

Changes in the compensation receivables for the years ended December 31, 2016 and 2015, are as follows:


	2016							2015
(In millions of won)	Beginning balance		Increase (Decrease)			Ending balance		Beginning balance		Increase (Decrease)			Ending balance
General insurance		3,869		(481	)		3,388		6,236		(2,367	)		3,869
Automobile insurance		25,627		789			26,416		24,488		1,139			25,627
Long-term insurance		2,361		179			2,540		1,918		443			2,361

		31,857		487			32,344		32,642		(785	)		31,857

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

24.

Assets provided as collateral

Assets provided as collateral as of December 31, 2016 and 2015, are as follows:


(In millions of won)	Collateral provided to		2016		2015		Remark
Cash equivalents		The Korea Securities Finance Corporation		—		3,100		Stock borrowing transactions
Stocks		The Korea Securities Finance Corporation		—		8,291		Stocks borrowing guarantees
Government and public bonds		Industrial Bank and 7 others		503,893		406,898		Swap contract
		ANZ Bank		45,157		47,578		Reinsurance contract
		The Korea Securities Finance Corporation		—		237,205		Bond borrowing transactions
		Korea Securities Depository		—		361,154		Repurchase agreements
Company bonds		Korea Exchange, Inc.		—		12,149		Exchange traded derivatives margin account
Derivatives margin account		Hana Daehan Investment and Securities Co., Ltd		—		7,736		Exchange traded derivatives margin account

				549,050		1,084,111

¹	Assets pledged as collateral of LIG Investment & Securities Co., Ltd, are included in disposal group held-for-sale.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

25. Insurance liabilities

(1) Changes in the insurance liabilities for the years ended December 31, 2016 and 2015 were as follows:


	2016
(In millions of won)	Beginning balance		Net increase (decrease)¹			Ending balance
Long-term insurance premium reserve:
Long-term insurance contract		17,020,163		1,798,901			18,819,064
Long-term investment contract		115,062		(2,240	)		112,822

		17,135,225		1,796,661			18,931,886

Reserve for outstanding claims:
General insurance		904,610		(76,410	)		828,200
Automobile insurance		397,494		41,176			438,670
Long-term insurance		651,899		135,089			786,988

		1,954,003		99,855			2,053,858

Unearned premium reserve:
General insurance		323,080		25,003			367,083
Automobile insurance		881,793		89,954			971,747
Long-term insurance		24,289		(9,067	)		15,222

		1,248,162		105,890			1,354,052

Reserve for participating policyholders’ dividends on long-term insurance		75,637		8,746			84,383
Excess participating policyholders’ dividends reserve on long-term insurance		19,888		5,652			25,540
Reserve for compensation for losses on dividend-paying insurance contracts		15,075		5,575			20,650

		20,447,990		2,022,379			22,470,369

¹	The amounts of net increase or decrease in insurance liabilities include the effects from foreign currencies translation at foreign operations, which is W5,123 million and the decrease in liabilities about investment contract of W5,057 million.


	2015
(In millions of won)	Beginning balance		Net increase (decrease)¹			Ending balance
Long-term insurance premium reserve:
Long-term insurance contract		15,202,111		1,818,052			17,020,163
Long-term investment contract		118,689		(3,627	)		115,062

		15,320,800		1,814,425			17,135,225

Reserve for outstanding claims:
General insurance		949,826		(45,216	)		904,610
Automobile insurance		364,767		32,727			397,494
Long-term insurance		580,602		71,297			651,899

		1,895,195		58,808			1,954,003

Unearned premium reserve:
General insurance		342,536		(456	)		342,080
Automobile insurance		802,479		79,314			881,793
Long-term insurance		25,759		(1,470	)		24,289

		1,170,774		77,388			1,248,162

Reserve for participating policyholders’ dividends on long-term insurance		69,591		6,046			75,637
Excess participating policyholders’ dividends reserve on long-term insurance		15,173		4,715			19,888
Reserve for compensation for losses on dividend-paying insurance contracts		13,140		1,935			15,075

		18,484,673		1,963,317			20,447,990

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

¹	The amounts of net increase or decrease in insurance liabilities include the effects from foreign currencies translation at foreign operations, which is W28,065 million and the decrease in liabilities about investment contract of W6,847 million.

(2) Liability adequacy test

(a) Assumptions for the insurance liability adequacy test as of December 31, 2016, is as follows:


		Basis
Long-term insurance
Discount rate		Future return rate on invested asset based on past investment performance and future estimation
Rate of insurance operating expenses		Expected rate by product type based on the past 1 year experience adjusted for the future Company’s insurance operating expenses policy
Rate of persistency		Rate of persistent insurance contract for the last 5 years
Rate of claim payment		Ratio of claim payment to the anticipated risk premium of the insurer for the last 5 years
General insurance
Rate of insurance operating expenses		Individual event ratio of actual insurance operating expenses to earned premium for the last 1 year
Rate of claim survey expenses paid		Individual event ratio of claim survey expenses paid to claim payment for the last 3 years
Rate of claim payment		Individual event ratio of actual claim payment to earned premium for the last 5 years
Automobile insurance
Rate of insurance operating expenses		Individual collateral ratio of actual insurance operating expenses to earned premium for the last 1 year
Rate of claim survey expenses paid		Individual collateral ratio of claim survey expenses to claim payment for the last 3 years
Rate of claim payment		Individual collateral ratio of actual claim payment to earned premium for the last 5 years

(b) The results of liability adequacy test as of December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	Recognized liabilities¹		Estimated adequate liabilities		Shortfall (surplus)
General insurance		403,619		334,540		(69,079	)
Automobile insurance		1,011,982		966,296		(45,686	)
Long-term insurance		17,149,988		13,932,363		(3,217,625	)

		18,565,589		15,233,199		(3,332,390	)


	2015
(In millions of won)	Recognized liabilities¹		Estimated adequate liabilities		Shortfall (surplus)
General insurance		388,796		333,409		(55,387	)
Automobile insurance		919,068		884,676		(34,392	)
Long-term insurance		15,365,938		12,862,146		(2,503,792	)

		16,673,802		14,080,231		(2,593,571	)

¹	For long-term insurance, it is an amount after deduction of the deferred acquisition costs from insurance premium reserve. For general insurance and automobile insurance, it is an amount including the unearned premium based on original insurance.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

26. Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Derivatives liabilities for trading purpose
Related to currency		9,388		5,571
Others		3		1,431

		9,391		7,002

27. Other financial liabilities

Other financial liabilities as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Insurance accounts payable		377,484		378,756
Accrued expenses		97,849		91,161
Accounts payable		13,054		16,163
Deposit received		12,147		11,835
Security deposit		26,375		26,245
Non-controlling interests		4,362		4,152

		531,271		528,312

Insurance accounts payable as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Claims payable		4,005		7,016
Due to agents		78,288		80,252
Premiums refund payable		2,004		6,051
Coinsurance payable		1,621		646
Payables related to agency business		16,992		27,328
Reinsurance accounts payable		124,445		104,014
Overseas reinsurance premiums payable		107,281		116,870
Deposits on reinsurance treaty ceded		42,848		36,579

		377,484		378,756

28. Provisions

Provisions as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Asset retirement obligation		906		832
Dormant insurance claims liabilities		28,312		30,629
Provisions for undrawn commitment liabilities		18		—
Others		33,407		15,817

		62,643		47,278

Changes in the provisions for the years ended December 31, 2016 and 2015, are as follows:

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


(In millions of won)	2016
(In millions of won)	Beginning balance		Occurrence		Used			Increase¹		Reversal¹			Ending balance
Asset retirement obligation		832		572		—			—		(498	)		906
Dormant insurance claims liabilities		30,629		—		(31,852	)		29,535		—			28,312
Others		15,817		—		(9,385	)		26,975		—			33,407
Undrawn commitments		—		—		—			18		—			18

		47,278		572		(41,237	)		56,528		(498	)		62,643

¹	Increase and reversal of provisions are included in other income and other expenses.


(In millions of won)	2015
(In millions of won)	Beginning balance		Occurrence		Used			Increase¹		Reversal¹			Ending balance
Asset retirement obligation		922		339		(76	)		—		(353	)		832
Dormant insurance claims liabilities		27,613		—		—			3,016		—			30,629
Others		456		—		—			15,561		(200	)		15,817

		28,991		339		(76	)		18,577		(553	)		47,278

¹	Increase and reversal of provisions are included in other income and other expenses.

29. Liability for defined benefit plans and share-based payments

(1) Assets and liabilities for defined benefit plans as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Present value of defined benefit obligation		280,615			269,391
Fair value of plan assets		(189,173	)		(165,993	)

Defined benefit liabilities in the consolidated financial position		91,442			103,398

(2) Changes in the present value of defined benefit obligation for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Beginning balance		269,391			243,651
Current service cost		27,908			27,344
Past service cost		—			9,341
Interest cost		6,927			7,234
Remeasurements gain		(15,598	)		(4,395	)
Benefits paid		(8,600	)		(12,142	)
Transfer in		1,230			329
Transfer out		(658	)		(230	)
Others		15			(631	)
Effect of disposal group held for sale		—			(1,110	)

Ending balance		280,615			269,391

(3) Changes in the fair value of plan assets for the years ended December 31, 2016 and 2015, are as follows:

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


(In millions of won)	2016			2015
Beginning balance		165,993			158,905
Interest income		4,251			4,853
Remeasurements loss		(1,753	)		(1,661	)
Contributions paid		30,256			18,769
Benefits paid		(7,058	)		(10,490	)
Transfer in		1,230			329
Transfer out		(658	)		(230	)
Others		(3,088	)		(4,482	)

Ending balance		189,173			165,993

(4) Profit or loss on liability for defined benefit plans for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Current service cost		27,908			27,344
Past service cost		—			9,341
Interest cost		6,927			7,234
Interest income		(4,251	)		(4,853	)

		30,584			39,066

Profit or loss on liability for defined benefit plans are included in insurance operating expenses, administrative expenses for assets, claim survey expenses paid and other expenses.

(5) Remeasurements recognized as other comprehensive income or loss for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Remeasurement gain (loss)
Return on plan assets		(1,753	)		(1,662	)
Change in demographic assumptions		—			(35	)
Change in financial assumptions		8,217			3,024
Experience adjustment		7,381			1,407

		13,845			2,734
Effect of tax		(3,344	)		(669	)

Remeasurement gain(loss) after the tax effect		10,501			2,065

(6) Details of plan assets as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016						2015
	Assets quoted in an active market		Assets not quoted in an active market		Total		Assets quoted in an active market		Assets not quoted in an active market		Total
Time deposit		—		189,173		189,173		—		160,283		160,283
Debt securities		—		—		—		—		5,500		5,500
Others		—		—		—		—		210		210

		—		189,173		189,173		—		165,993		165,993

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(7) Actuarial assumptions as of December 31, 2016 and 2015, are as follows:


	2016			2015			Descriptions
Discount rate		2.60	%		2.60	%	AAA Corporate bond yields
Rate of salary increase		5.00	%		5.20	%	Average for last 3 years

(8) Sensitivity analysis

(a) Discount rate

(In millions of won)

2016

Present value
when the rate
rises 0.5%
basis points

Present value
when the rate
falls 0.5%
basis points

Present value of liability for defined benefit plans

280,615

261,224

301,961

(b) Rate of salary increase

(In millions of won)

2016

Present value when
the rate rises 0.5%
basis points

Present value when
the rate falls 0.5%
basis points

Present value of liability for defined benefit plans

280,615

301,329

261,579

(9) Maturity analysis of undiscounted pension benefits payable as of December 31, 2016, is as follows:

(In millions of Korean won)

Less than

1 year

1 ~ 2
years

2 ~ 5
years

5 ~ 10
years

More than
10 years

Total

Benefits payable

6,004

6,238

27,282

87,950

1,025,437

1,152,911

The weighted average maturities of the defined benefit obligation as of December 31, 2016 is 14.91 years (2015: 15.32 years).

(10) The amount recognized as expenses related to defined contribution plan for the years ended December 31, 2016 and 2015, are W6,919 million and W7,531 million, respectively.

(11) Share-based payments

KB Financial Group Inc. signs on stock grants contracts with directors of the Parent Company. At the inception, the maximum granting amount is decided and the actual granting amount is upon each director’s performance, which can be shown by the achievement of pre-determined goal.

The Group provided option to the directors and employees for time of deferred payment and ratio and period of payments, during the current financial year. In accordance with the option, after the deferred payment is decided, certain portion of the given payments will be deferred no more than 5 years after the termination of service.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(a) The details of stock grants related to long-term performance as of December 31, 2016, are as follows:


(In shares)	Grant Date		Amount¹		Vesting Condition
1-2		June 24, 2015		3,122	Services fulfillment, achievement of targets on the basis of market and non-market performance ^2,4
1-3		June 24, 2015		54,372	Services fulfillment, achievement of targets on the basis of market and non-market performance ^2,5
2-1		January 1, 2016		6,554	Services fulfillment, achievement of targets on the basis of market and non-market performance ^2,5
3-1		January 5, 2016		1,830	Services fulfillment, achievement of targets on the basis of market and non-market performance ^2,4
4-1		January 14, 2016		9,101	Services fulfillment, achievement of targets on the basis of market and non-market performance ^2,5
5-1		February 1, 2016		4,955	Services fulfillment, achievement of targets on the basis of market and non-market performance ^2,5
6-1		March 18, 2016		25,348	Services fulfillment, achievement of targets on the basis of market and non-market performance ^2,3
Deferred grant in 2015		June 24, 2015		4,316	Services fulfillment, achievement of targets on the basis of market and non-market performance ^2,5

				109,598

¹	Granted shares represent the total number of shares initially granted to directors and employees that have residual shares at the end of reporting period (Deferred grants are residual shares as of December 31, 2016).

²	Certain portion of the granted shares is compensated over a maximum period of three years.

³	30% of the number of certain granted shares to be compensated is determined upon the accomplishment of relative TSR, while 70% is determined upon the accomplishment of Company Performance Results.

⁴	50% of the number of certain granted shares to be compensated is determined upon the accomplishment of Performance Results, while 50% is determined upon the accomplishment of relative TSR.

⁵	30%, 40% and 30% of the number of granted shares to be compensated are determined upon the accomplishment of relative TSR, Performance Results and the Company Performance Results, respectively.

2) The details of stock grants related to short-term performance as of December 31, 2016, are as follows:


(In shares)	Grant date		Granted shares¹		Vesting Condition
Stock granted on 2015		June 24, 2015		25,383	Proportional to service period
Stock granted on 2016		January 1, 2016		47,977	Proportional to service period

				73,360

¹	Granted shares are determined by performance and compensated over three or five years..

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

3) Stock grants are measured at fair value using the Monte Carlo Simulation Model and assumptions used in determining the fair value as of December 31, 2016, are as follows:


(In Korean won)	Expected exercise period (years)		Risk free rate (%)		Fair value (Market performance condition)		Fair value (Non-market performance condition)
Linked to long-term performance
1-2		0 ~ 4		1.57		42,011		42,416
1-3		0 ~ 5		1.57		34,180 ~ 42,824		34,180 ~ 42,824
2-1		1 ~ 4		1.57		41,552		41,552
3-1		1 ~ 4		1.57		42,011		42,416
4-1		1 ~ 4		1.57		41,467		42,012
5-1		1 ~ 4		1.57		41,590		42,012
6-1		1 ~ 5		1.57		41,527		41,838
Deffered granting 2015		0 ~ 2		1.57		—		42,380 ~ 42,680
Linked to short-term performance
granted in 2015		0 ~ 5		1.57		—		41,673 ~ 42,824
granted in 2016		1 ~ 5		1.57		—		41,673 ~ 42,680

Expected volatility is based on the historical volatility of the share price over the most recent period that is generally commensurate with the expected term of the grant. And the current stock price as of December 31, 2016, was used for the underlying asset price. Additionally, the average three-year historical dividend rate was used as the expected dividend rate.

4) The compensation cost that the Parent Company recognized as expenses for share-based payments for the years ended December 31, 2016 and 2015, are ￦5,831 million and ￦2,000 million, respectively. The compensation costs amounting to ￦6,056 million and ￦2,000 million were recognized as long-term accrued expenses for KB Financial Group, Inc. as of December 31, 2016 and 2015, respectively.

30. Other liabilities

Other liabilities as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Unearned revenues		545		771
Advances from clients		—		13,000
Advance premiums received		30,343		19,178
Withholdings		5,946		6,413
Other taxes payable		1,838		1,514
Others		1,567		1,362

		40,239		42,238

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

31. Assets and liabilities denominated in foreign currencies

Assets and liabilities denominated in foreign currencies as of December 31, 2016 and 2015, are as follows:

(In millions of won, In thousands of US Dollar, Australian Dollar, Euro, Japanese Yen, Chinese Yuan, British Pound, Vietnamese Dong, Indonesia Rupiah, Singapore Dollar and Hong Kong Dollar.


			2016				2015
	Currency		Foreign currency		Equivalent in Korean won		Foreign currency		Equivalent in Korean won
Financial assets
Cash and cash equivalents		USD		38,855		46,956		113,912		133,504
		AUD		22		19		42		36
		EUR		204		259		133		170
		SGD		58		48		214		177
		JPY		1,488		15		17		0
		IDR		22,280,599		2,001		16,153,220		1,373
		GBP		126		187		12		21
		CNY		66,020		11,439		50,745		9,057
Financial assets at fair value through profit or loss		USD		357,512		432,053		189,408		221,986
		IDR		2,385,091		214		425,721		36
Available-for-sale securities		USD		3,148,363		3,804,796		2,779,916		3,258,062
		EUR		30,455		38,604		3,487		4,466
		HKD		10,367		1,615		7,026		1,062
		CNY		12,211		2,116		23,799		4,248
		IDR		287,600		26		395,610		34
Held-to-maturity financial assets		USD		117,511		142,013		40,000		46,880
		IDR		27,001,000		2,425		27,001,000		2,295
Loans		USD		48,445		58,546		54,547		63,929
		IDR		584,292		52		1,116,723		95
		JPY		—		—		2,000,000		19,440
Other receivables		AUD		170		148		105		90
		USD		76,862		92,888		247,993		290,649
		EUR		575		729		425		544
		JPY		36,631		380		32,680		318
		GBP		101		149		229		398
		VND		1,866,567		99		1,764,328		92
		IDR		164,043,145		14,731		157,862,651		13,418
		SGD		134		112		—		—
		CNY		365,159		63,268		334,894		59,772

Total assets		AUD		192		167		147		126
		EUR		31,234		39,592		4,045		5,180
		GBP		227		336		241		419
		CNY		443,390		76,822		409,438		73,077
		VND		1,866,567		99		1,764,328		92
		JPY		38,119		395		2,032,697		19,758
		USD		3,787,548		4,577,252		3,425,776		4,015,010
		IDR		216,581,727		19,449		202,954,925		17,251
		SGD		192		160		214		177
		HKD		10,367		1,615		7,026		1,062

Financial liabilities
Other financial liabilities		USD		20,340		24,581		28,492		33,393
		EUR		361		458		804		1,030
		GBP		125		186		175		304
		IDR		21,696,260		1,948		4,005,806		340
		CNY		111,583		19,333		86,340		15,410
		THB		6,043		203		—		—
		JPY		—		—		6,536		64

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

32. Equity

Equity as of December 31, 2016 and 2015, are as follows:


(In millions of won)		2016			2015
Capital stock	Common stock		33,250			30,000
Capital surplus	Share premium		217,046			49,712
	Gain on disposal of treasury stock		131,409			131,409

			348,455			181,121

Capital adjustments	Others		(9	)		(9	)
Capital adjustments
			(9	)		(9	)

Accumulated other comprehensive income	Net change in fair value of available-for-sale financial assets		174,926			265,887
	Net change in fair value of cash flow hedges		881			663
	Foreign currency translation differences for foreign operations		(8,488	)		(11,665	)
	Revaluation of property and equipment		77,411			78,053
	Remeasurements of defined benefit plans		(47,851	)		(58,352	)
	Other comprehensive income arising from separate account		4,304			11,071
			201,183			285,657

Accumulated other comprehensive income for assets held for sale	Revaluation of property and equipment		314			—
Accumulated other comprehensive income of disposal group			—			1,534

Retained earnings	Legal reserve¹		15,000			15,500
	Other reserve		858,391			758,391
	Regulatory reserve for credit loss²		55,922			70,775
	Emergency risk reserve²		619,688			585,162
	Retained earnings before appropriation		310,864			152,556

			1,859,865			1,582,384

Non-controlling interests			4,407			30,553

			2,447,465			2,111,240

In accordance with Korean Commercial Law, the Group is required to reserve over 10% of its dividends as legal reserve on every financial reporting period until the reserve reaches half of its capital. It is restricted to distribute as a cash dividend and allowed to use only for retained earning deficits from prior years and capital transfer by the authorization of shareholders.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

²	Retained earnings restricted to distribute as dividends by appropriation of retained earnings at the end of reporting period

Capital stock as of December 31, 2016 and 2015, are as follows:


	2016		2015
Number of shares authorized		200,000,000		200,000,000
Par value per share (in Korean won)		500		500
Number of shares issued¹		66,500,000		60,000,000

¹	In December 2016, the Group increased share capital by allocation to third parties in order to maintain stable capital adequacy.

Changes in accumulated other comprehensive income for the years ended December 31, 2016 and 2015, are as follows:


	2016

(In millions of won)	Valuation gain (loss) on available-for-sale financial assets			Valuation gain (loss) on cash flow hedges			Foreign currency translation differences for foreign operations			Remeasure- ments of defined benefit plans			Other comprehensive income arising from separate account			Revaluation of property and equipment			Total¹
Beginning balance		265,887			663			(11,665	)		(58,352	)		11,071			78,053			285,657
Net change due to valuation		(34,318	)		—			—			13,845			(5,369	)		—			(25,843	)
Change due to impairment and disposal		(86,434	)		(54,188	)		—			—			(3,558	)		—			(144,179	)
Effect of hedge accounting		—			54,476			—			—			—			—			54,476
Effect of foreign currency movements		753			—			3,177			—			—			—			3,930
Transfer to retained earnings		—			—			—			—			—			(420	)		(420	)
Transfer to assets held for sale		—			—			—			—			—			(314	)		(314	)
Effect of deferred tax		29,038			(70	)		—			(3,344	)		2,160			92			27,876

Ending balance		174,926			881			(8,488	)		(47,851	)		4,304			77,411			201,183

^1.	Non-controlling interest are not included.

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
(In millions of won)	Valuation gain (loss) on available- for-sale financial assets			Valuation gain (loss) on cash flow hedges			Valuation gain (loss) on investments in associates			Foreign currency translation differences for foreign operations			Remeasure- ments of defined benefit plans			Other comprehensive income arising from separate account			Revaluation of property and equipment		Total¹
Beginning balance		224,361			1,324			23			(7,595	)		(60,366	)		14,516			78,053		250,316
Net change due to valuation		59,595			—			2			—			2,731			(1,583	)		—		60,745
Change due to impairment and disposal		(2,969	)		(465	)		(26	)		—			—			(2,962	)		—		(6,422	)
Effect of hedge accounting		—			(407	)		—			—			—			—			—		(407	)
Effect of foreign currency movements		227			—			—			(4,070	)		—			—			—		(3,843	)
Effect of deferred tax		(13,846	)		211			6			—			(669	)		1,100			—		(13,198	)
Accumulated other comprehensive income of disposal group		(1,481	)		—			(5	)		—			(48	)		—			—		(1,534	)

Ending balance		265,887			663			—			(11,665	)		(58,352	)		11,071			78,053		285,657

¹	Non-controlling interest are not included.

Regulatory reserve for credit loss as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Regulatory reserve for credit loss		55,922			70,775
Estimated reversal of regulatory reserve for credit loss		(378	)		(14,032	)

		55,544			56,743

Profit for the period adjusted by regulatory reserve for credit loss for the years ended December 31, 2016 and 2015 were as follows:


(In millions of won)	2016		2015
Profit for the period		302,109		159,348
Reversal of regulatory reserve for credit loss		378		14,032

Profit for the period adjusted by regulatory reserve for credit loss¹		302,487		173,380

Earnings per share adjusted by regulatory reserve for credit loss (in won)		5,038		3,291

¹	Adjusted profit after provision or reversal of reserve for credit losses is not in accordance with Korean IFRS and calculated on the assumption that provision or reversal of reserve for credit losses before income tax is adjusted to the net income.

Emergency risk reserve in the Regulation on Supervision of Insurance Business as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Emergency risk reserve		619,688		585,162
Estimated emergency risk reserve to be provided		43,516		34,526

		663,204		619,688

Profit for the period adjusted by emergency risk reserve for the years ended December 31, 2016 and 2015, were as follows:


(In millions of won)	2016			2015
Profit for the period		302,109			159,348
Provision for emergency risk reserve for loan loss		(43,516	)		(34,526	)

Profit for the period adjusted by emergency risk reserve¹		258,593			124,822

Earnings per share adjusted by emergency risk reserve (in won)		4,307			2,369

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

¹	Adjusted profit after provision or reversal of emergency risk reserve is not in accordance with Korean IFRS and calculated on the assumption that provision or reversal of emergency risk reserve before income tax is adjusted to the net income.

33. Premium Income

Premium income for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016
	General insurance			Automobile insurance			Long-term and individual insurance			Total
Direct premium written by the Group		912,429			2,032,741			6,510,845			9,456,015
Assumed reinsurance premium		75,604			—			—			75,604
Refund of surrender value		(16,572	)		(92,441	)		(700	)		(109,713	)

		971,461			1,940,300			6,510,145			9,421,906


(In millions of won)	2015
	General insurance			Automobile insurance			Long-term and individual insurance			Total
Direct premium written by the Group		911,234			1,833,723			6,407,620			9,152,577
Assumed reinsurance premium		78,584			—			—			78,584
Refund of surrender value		(19,960	)		(86,318	)		(540	)		(106,818	)

		969,858			1,747,405			6,407,080			9,124,343

34. Insurance claims paid, dividend expenses and refunds of surrender value

Insurance claims paid, dividend expenses and refunds of surrender value for the years ended December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	General insurance			Automobile insurance			Long-term and individual insurance			Total
Insurance claims paid
Direct premium written by the Group		583,430			1,429,817			1,443,299			3,456,546
Assumed reinsurance premium		48,318			—			—			48,318
Refund of premium		(10,047	)		(76,504	)		(3,591	)		(90,142	)
Refund of assumed reinsurance premium		(1,943	)		—			—			(1,943	)

		619,758			1,353,313			1,439,708			3,412,779

Dividend expenses		—			—			4,672			4,672
Refunds of surrender value		—			—			2,128,221			2,128,221

		619,758			1,353,313			3,572,601			5,545,672

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
(In millions of won)	General insurance			Automobile insurance			Long-term and individual insurance			Total
Insurance claims paid
Direct premium written by the Group		735,854			1,379,144			1,207,379			3,322,377
Assumed reinsurance premium		27,034			—			—			27,034
Refund of premium		(44,314	)		(67,736	)		(2,366	)		(114,416	)
Refund of assumed reinsurance premium		(577	)		—			—			(577	)

		717,997			1,311,408			1,205,013			3,234,418

Dividend expenses		—			—			4,435			4,435
Refunds of surrender value		—			—			2,287,057			2,287,057

		717,997			1,311,408			3,496,504			5,525,909

35. Reinsurance income and expenses

Income and expenses relating to reinsurance transactions for the years ended December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	General insurance			Automobile insurance			Long-term and individual insurance			Total
Reinsurance Income
Reinsurance claims		341,588			39,334			210,183			591,105
Refund of reinsurance claims		(6,259	)		—			(641	)		(6,900	)

		335,329			39,334			209,542			584,205

Reinsurance expenses
Reinsurance premium		595,629			41,839			243,407			880,875
Reversal of refund of surrender value		(4,247	)		—			—			(4,247	)

		591,382			41,839			243,407			876,628

Reinsurance commissions¹		96,841			(3,097	)		457			94,201
Reinsurance profit commissions¹		2,349			—			2,297			4,646
Assumed reinsurance commissions²		6,672			—			—			6,672
Assumed reinsurance profit commissions²		(21	)		—			—			(21	)

¹	Included in recovered expenses

²	Included in insurance operating expenses


	2015
(In millions of won)	General insurance			Automobile insurance			Long-term and individual insurance			Total
Reinsurance Income
Reinsurance claims		497,010			51,474			168,661			717,145
Refund of reinsurance claims		(34,672	)		—			(381	)		(35,053	)

		462,338			51,474			168,280			682,092

Reinsurance expenses
Reinsurance premium		650,566			40,517			196,554			887,637
Reversal of refund of surrender value		(4,105	)		—			—			(4,105	)

		646,461			40,517			196,554			883,532

Reinsurance commissions¹		98,386			(1,292	)		1,178			98,272
Reinsurance profit commissions¹		(724	)		—			4,118			3,394
Assumed reinsurance commissions²		5,162			—			—			5,162
Assumed reinsurance profit commissions²		(85	)		—			—			(85	)

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

¹	Included in recovered expenses

²	Included in insurance operating expenses

36. Interest income and expense

Interest income and expense for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Interest income
Cash and cash equivalents		2,917		2,233
Trading assets		8,761		9,631
Financial assets designated at fair value through profit or loss		18,808		15,754
Available-for-sale financial assets		231,253		214,611
Held-to-maturity financial assets		82,483		65,758
Loans		285,959		289,079
Other receivables		7,705		16,683
Interest of other income		1,222		1,336

		639,108		615,085

Interest expense
Borrowings		27		342
Other		477		410

		504		752

Interest income recognized on impaired financial assets for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Available-for-sale financial assets		127		226
Loans		1,165		2,036

		1,292		2,262

37.

Gain and loss on valuation and disposal of securities

Gain on valuation and disposal of securities for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Trading assets
Gain on disposal		5,257		42,499
Gain on valuation		3,429		3,910
Financial assets designated at fair value through profit or loss
Gain on disposal		—		937
Gain on valuation		6,338		3,131
Available-for-sale financial assets
Gain on disposal		68,116		82,786
Held-to-maturity financial assets
Gain on redemption		—		942

		83,140		134,205

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Loss on valuation and disposal of securities for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Trading assets
Loss on disposal		4,919		37,752
Loss on valuation		3,202		1,959
Financial assets designated at fair value through profit or loss
Loss on disposal		5,224		2,519
Loss on valuation		8,785		11,014
Available-for-sale financial assets
Loss on disposal		11,467		21,523
Loss on impairment		48,823		18,318

		82,420		93,085

38. Gain and loss on valuation and disposal of loans and other receivables

Gain and loss on valuation and disposal of loans and other receivables for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Reversal of impairment loss		1		164
Gain on disposal		36		—

		37		164

Loss on impairment		36,972		11,609
Loss on disposal		—		24

		36,972		11,633

39. Gain and loss on valuation and disposal of derivatives

Gain and loss on valuation and disposal of derivatives for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Gain on disposal		49,395		18,212
Gain on valuation		9,002		11,461

		58,397		29,673

Loss on disposal		20,930		67,673
Loss on valuation		143,421		104,649

		164,351		172,322

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

40. Recovered expenses

Recovered expenses for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Reinsurance commissions		94,201		98,272
Reinsurance profit commissions		4,646		3,394
Assumed reinsurance interest		59		51
Agent commission		2,719		1,707

		101,625		103,424

41.

Insurance operating expenses, administrative expenses for assets and claim survey expenses paid

Insurance operating expenses, administrative expenses for assets and claim survey expenses paid for the years ended December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	Insurance operating expenses		Administrative expenses for assets		Claim survey expenses paid
Short-term employee benefits		248,092		6,387		110,103
Post-employment benefits		27,008		687		12,163
Other long-term employee benefits		83		2		22
Welfare expenses		8,542		48		14,462
General and administrative expenses		408,039		45,627		38,814
Acquisition cost		68,184		—		—
Agent commission		244,592		—		—
Claim survey expenses paid		—		—		51,767
Claim survey expenses recovered		—		—		(19,729	)
Assumed reinsurance commission paid		6,672		—		—
Others		2,473		—		—

		1,013,685		52,751		207,602


	2015
(In millions of won)	Insurance operating expenses		Administrative expenses for assets		Claim survey expenses paid
Short-term employee benefits		231,307		5,281		109,442
Post-employment benefits		30,643		819		11,815
Other long-term employee benefits		1,114		3		372
Welfare expenses		7,332		112		15,052
General and administrative expenses		363,487		72,113		36,377
Acquisition cost		64,330		—		—
Agent commission		248,822		—		—
Claim survey expenses paid		—		—		73,762
Claim survey expenses recovered		—		—		(26,868	)
Assumed reinsurance commission paid		5,162		—		—
Other		1,416		—		—

		953,613		78,328		219,952

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

42. Other income and expenses

Other income for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Reversal of provision		497		533
Commission income		3,403		2,606
Rent income		19,383		19,665
Separate account revenues		22,951		17,737
Miscellaneous operating income		17,568		17,699

		63,802		58,240

Other expenses for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016	2015
Increase in provision	56,528	18,577
Separate account expenses	581	369
Amortization of intangible assets	9,146	9,254
Other expenses related to the subsidiaries	37,226	34,671
Miscellaneous operating expenses	2,373	3,248
	105,854	66,119

Other expenses related to the subsidiaries for the years ended December 31, 2016 and 2015, are as follow:


(In millions of won)	2016			2015
Compensations		24,879			23,440
Post-employment benefits		2,103			1,911
Welfare expenses		4,797			4,727
Electronic operating expenses		756			688
Rental expenses		(1,020	)		(940	)
Fee and commission		1,045			724
Entertainment expenses		137			121
Advertising		26			31
Depreciation		122			97
Amortization of intangible assets		45			125
Tax and dues		982			930
Others		3,354			2,817

		37,226			34,671

100

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

Commission income for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Consumer loan		1		1
Corporate loan		1,414		1,452
Stocks		5		14
Debt securities		503		150
Others		1,480		989

		3,403		2,606

43. Non-operating income and expenses

Non-operating income for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Gain on disposal of assets held for sale		3,946		—
Gain on valuation of investments in associates		9,129		886
Gain on disposal of property and equipment		276		241
Gain on disposal of intangible assets		1,052		143
Miscellaneous non-operating income		4,976		3,289

		19,379		4,559

Non-operating expenses for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Loss on disposal in non-current assets held for sales		—		3
Donation		2,424		1,275
Impairment of intangible assets		139		3
Loss on disposal of property and equipment		1,758		249
Loss on disposal of intangible assets		71		—
Miscellaneous non-operating expenses		5,542		3,281

		9,934		4,811

44. Income tax expense

Income tax expense for the years ended December 31, 2016 and 2015, are as follows :


(In millions of won)	2016			2015
Current tax expense¹		73,590			76,662
Tax effect of changes in cumulative temporary differences²		(229	)		34,867
Income tax directly applied to equity		28,309			(55,151	)

Income tax expense		101,670			56,378

Income tax expenses from discontinued operations		796			2,914

Income tax expenses from continuing operations		100,874			53,464

¹	Current tax expenses include ￦18 million (2015: ￦2,438 million) from prior year’s tax adjustments and a follow-up payment.

²	Changes in deferred income tax from temporary differences in 2016 include the decrease in deferred income tax liability of ￦829 million (2015: ￦1,415 million) caused by the finalization of prior year’s tax adjustment.

101

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

An analysis of the profit before income tax and income tax expense for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Profit before income tax		403,780			215,726

Income tax at statutory tax rates		97,715			52,206
Adjustments :
Tax-exempt income		(499	)		(196	)
Non-deductible expense		765			1,522
Adjusted tax on tax filing		(19	)		(60	)
Additional payment (refund) of income tax		—			(2,372	)
Tax credits		—			(18	)
Other (Effects of tax on non-refluxing income)		3,708			5,296

Income tax expense		101,670			56,378

Effective tax rate		25.18	%		26.13	%

Movement in deferred tax assets (liabilities) for the years ended December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	Beginning balance			Recognized in profit or loss			Recognized in other comprehensive income			Ending Balance
Liability for defined benefit plans		59,632			6,045			(3,344	)		62,333
Retirement insurance premium		(40,119	)		(5,505	)		—			(45,624	)
Effective interest amortization		1,837			1,663			—			3,500
Emergency risk reserve		(149,964	)		(10,531	)		—			(160,495	)
Loss on impairment of investment securities		21,475			(4,294	)		—			17,181
Loss on impairment of intangible assets		2,824			(1,131	)		—			1,693
Provisions		7,675			(542	)		—			7,133
Depreciation		2,588			(888	)		—			1,700
Advanced depreciation provision		(1,498	)		—			—			(1,498	)
Deferred loan origination fees and cost		(4,503	)		525			—			(3,978	)
Accrued income		(17,475	)		(4,211	)		—			(21,686	)
Compensation receivables		(7,709	)		(118	)		—			(7,827	)
Other		(7,191	)		(7,984	)		—			(15,175	)
Gain (loss) on revaluation of land		(24,216	)		9			92			(24,115	)
Gain (loss) on valuation of available-for-sale securities		(84,885	)		—			29,038			(55,847	)
Gain (loss) on valuation of cash flow hedge		(212	)		—			(70	)		(282	)
Other comprehensive income arising from separate account		(3,535	)		—			2,160			(1,375	)
Deferred tax assets of subsidiaries		2,427			(510	)		433			2,350
Deferred tax liabilities of subsidiaries		(288	)		(608	)		—			(896	)

		(243,137	)		(28,080	)		28,309			(242,908	)

102

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


	2015
(In millions of won)	Beginning balance			Recognized in profit or loss			Recognized in other comprehensive income			Classified as disposal group held for sale			Ending Balance
Liability for defined benefit plans		52,437			7,195			—			—			59,632
Retirement insurance premium		(38,752	)		(1,367	)		—			—			(40,119	)
Effective interest amortization		2,804			(967	)		—			—			1,837
Emergency risk reserve		(141,609	)		(8,355	)		—			—			(149,964	)
Loss on impairment of investment securities		14,913			6,562			—			—			21,475
Loss on impairment of intangible assets		2,632			192			—			—			2,824
Provisions		6,949			726			—			—			7,675
Depreciation		5,527			(2,939	)		—			—			2,588
Advanced depreciation provision		(1,506	)		8			—			—			(1,498	)
Deferred loan origination fees and cost		(3,900	)		(603	)		—			—			(4,503	)
Accrued income		(16,033	)		(1,442	)		—			—			(17,475	)
Compensation receivables		(7,899	)		190			—			—			(7,709	)
Other		15,236			(22,427	)		—			—			(7,191	)
Gain (loss) on revaluation of land		(24,217	)		—			1			—			(24,216	)
Gain (loss) on valuation of available-for-sale securities		(71,460	)		—			(13,425	)		—			(84,885	)
Gain (loss) on valuation of cash flow hedge		(423	)		—			211			—			(212	)
Gain (loss) on valuation of investments in associates		(7	)		—			7			—			—
Other comprehensive income arising from separate account		(4,634	)		—			1,099			—			(3,535	)
Deferred tax assets of subsidiaries		1,514			1,280			—			(367	)		2,427
Deferred tax liabilities of subsidiaries		158			(446	)		—			—			(288	)

		(208,270	)		(22,393	)		(12,107	)		(367	)		(243,137	)

The Group offsets and recognizes deferred income tax assets and deferred income tax liabilities on the consolidated statements of financial position only when the deferred income tax assets and the deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity; and the Group has a legally enforceable right to offset current income tax assets against current income tax liabilities.

Deductible temporary difference which is not recognized as deferred tax assets as of December 31, 2016 and 2015, are as follows:

2016

2015

(In millions of won)

Temporary
difference

Deferred tax
assets

Temporary
difference

Deferred tax
assets

Investment in subsidiaries¹

8,065

1,952

5,233

1,226

103

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

¹	The Group did not recognize deferred tax assets of investment in subsidiaries (excluding consolidated beneficiary certificates) as the related temporary differences are not likely to be utilized in the foreseeable future.

Amounts that were directly charged or credited to equity (or accumulated other comprehensive income) for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016			2015
Gain (loss) on valuation of available-for-sale financial assets		29,038			(13,425	)
Gain (loss) on cash flow hedge		(70	)		211
Gain (loss) on valuation of investments in associates and subsidiaries		—			7
Revaluation of property and equipment		92			(1	)
Remeasurements of defined benefit plans		(3,344	)		(657	)
The accumulated other comprehensive income in separate account		2,160			1,100
Accumulated other comprehensive income related to disposal group		433			(433	)
Gain on disposal of treasury stocks		—			(41,953	)

		28,309			(55,151	)

45. Earnings per Share

Basic earnings per share for the years ended December 31, 2016 and 2015, is as follows:


	2016		2015
Profit for the period (in won) attributable to ordinary equity holders of the Parent Company		301,153,545,810		164,198,627,698
Weighted average number of common shares outstanding¹		60,035,519		52,686,472
Earnings per share (in won)		5,016		3,117

Weighted-average number of common shares outstanding for the years ended December 31, 2016 and 2015, is as follows:


	2016		2015
Weighted average number of issued common shares¹		60,035,519		60,000,000
Weighted average number of treasury stocks held		—		7,313,528
Weighted average number of common shares outstanding		60,035,519		52,686,472

¹	Weighted average number of issued common shares is calculated with consideration of changes due to issuance of share capital during the current financial period.

Diluted earnings per share for the years ended December 31, 2016 and 2015, are the same as basic earnings per share as the Group does not have any diluted securities.

46. Commitments and contingencies

(1) The contract amounts of insurance policies in effect as of December 31, 2016, amount to ￦3,072,061,112 million (2015: ￦2,514,925,922 million).

(2) The Group assumes and cedes a portion of total insurance premiums with Korean Re Co., Ltd and foreign reinsurers including Munich Re. According to arrangements, the Group pays and receives reinsurance premium and commission fee by settlement with counter companies.

104

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(3) Details of commitments between the Group and financial institutions as of December 31, 2016 and 2015, are as follows:


(In millions of won)			Limit
Commitments	Financial institutions		2016		2015
Bills discounts		The Korea Securities Finance Corporation		—		50,000
Half-day call				—		150,000
Loans on operating fund				—		50,000
Securities underwriting financing				—		100,000
Bond dealer’s loan (general)				—		280,000
Commitments on bank overdrafts		Shinhan Bank and others		2,000		5,000
Overdraft intra-day				60,000		120,000

				62,000		755,000

(4) Payment guarantees offered by financial institutions as of December 31, 2016, are as follows:

(In US dollars)

Limit

Amount

Guaranteed
period

Australia and New Zealand Bank

USD 25,000,000

USD 21,830,546

Dec. 31, 2016 ~
Dec. 30, 2017

(5) Other commitments provided by the Group as of December 31, 2016 and 2015 are as follow:


	Undrawn commitments
(In millions of won)	2016		2015
Loan commitments		557,113		740,102
Purchase of security investment		1,214,623		683,085
Purchase guaranteed agreement		—		114,600

		1,771,736		1,537,787

(6) Pending litigations as a defendant as of December 31, 2016 and 2015, are as follows:


	2016
(In millions of won)	Number of litigations		Amount of damage claim		Descriptions
Automobile insurance		1,076		43,318		Compensation claim and others
General/long-term insurance and others		430		270,965		Compensation claim and others

		1,506		314,383


	2015
(In millions of won)	Number of litigations		Amount of damage claim		Descriptions
Automobile insurance		671		45,076		Compensation claim and others
General/long-term insurance and others		406		123,751		Compensation claim and others

		1,077		168,827

105

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

For the above pending litigations as a defendant, the Group has reserved estimated losses as a reserve for outstanding claims. As of December 31, 2016, such litigations are in process and the ultimate outcome of such litigations cannot be predicted.

47. Related Party Transactions

(1) The related parties as of December 31, 2016 and 2015, are as follows:


2016	2015	Relationship
—	Kocref Cr-reit VIII	Associates
Kocref Cr-reit XI	Kocref Cr-reit XI	Associates
—	KT-LIG ACE Private Equity Fund Co., Ltd	Associates
—	LIG Special Purpose Acquisition 2^nd Co., Ltd	Associates
—	LIG-ES Special Purpose Acquisition Co., Ltd	Associates
KB Financial Group Inc.	KB Financial Group Inc.	Others¹
Kookmin Bank	Kookmin Bank	Others²
KB Kookmin Card Co., Ltd	KB Kookmin Card Co., Ltd	Others²
KB Securities Co., Ltd	KB Securities Co., Ltd	Others²
KB Life Insurance Co., Ltd	KB Life Insurance Co., Ltd	Others²
KB Asset Management Co., Ltd	KB Asset Management Co., Ltd	Others²
KB Capital Co., Ltd	KB Capital Co., Ltd	Others²
KB Real Estate Trust Co., Ltd	KB Real Estate Trust Co., Ltd	Others²
KB Investment Co., Ltd	KB Investment Co., Ltd	Others²
KB Credit Information Co., Ltd	KB Credit Information Co., Ltd	Others²
KB Data Systems	KB Data Systems	Others²
KB Savings Bank Co., Ltd	KB Savings Bank Co., Ltd	Others²
Kookmin Bank (China) Ltd	Kookmin Bank (China) Ltd	Others²

¹	Entity over which the Group has significant influence.

²	Subsidiary of KB Financial Group Inc.

(2) Significant transactions which occurred in the normal course of business with related parties for the years ended December 31, 2016 and 2015, are as follows:


		2016
(In millions of won)	Related parties	Revenues		Expenses
Associates	Kocref Cr-reit XI		8,159		—
	LIG Special Purpose Acquisition 2^nd Co., Ltd		7		—
	LIG-ES Special Purpose Acquisition Co., Ltd		7		—
Others	KB Financial Group Inc.		436		4
	Kookmin Bank		16,186		17,765
	KB Kookmin Card Co., Ltd		4,771		10,514
	KB Securities Co., Ltd		1,161		101
	KB Life Insurance Co., Ltd		295		—
	KB Asset Management Co., Ltd		103		474
	KB Capital Co., Ltd		4,430		3,134
	KB Real Estate Trust Co., Ltd		70		—
	KB Investment Co., Ltd		34		—
	KB Credit Information Co., Ltd		6		714
	KB Data Systems		74		170
	KB Savings Bank Co., Ltd		147		2
	Kookmin Bank (China) Ltd and others		319		2

			36,205		32,880

106

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015


		2015
(In millions of won)	Related parties	Revenues		Expenses
Associates	Kocref Cr-reit VIII		6		11
	Kocref Cr-reit XI		1784		—
	KT-LIG ACE Private Equity Fund Co., Ltd		149		—
	LIG-Special Purpose Acquisition 2^nd Co., Ltd		17		—
	LIG-ES Special Purpose Acquisition Co., Ltd		10		—
Others	KB Financial Group Inc.		343		1
	Kookmin Bank		3,064		5,352
	KB Kookmin Card Co., Ltd		1,649		4,139
	KB Securities Co., Ltd		233		17
	KB Life Insurance Co., Ltd		118		4
	KB Asset Management Co., Ltd		65		—
	KB Capital Co., Ltd		1,269		368
	KB Real Estate Trust Co., Ltd		32		—
	KB Investment Co., Ltd		16		—
	KB Credit Information Co., Ltd		4		194
	KB Data Systems		34		—
	KB Savings Bank Co., Ltd		38		8
	LIG System Co., Ltd		600		14,727
	Huseco Co., Ltd		223		17,899
	Lshop Co., Ltd		1		4,931
	LIG NEX 1 Co., Ltd		278		1
	LIG Corp and others		442		780

			10,375		48,432

In accordance with Korean IFRS 1024, the Group includes parent, subsidiaries, parent’s subsidiaries, associates, associates of parent’s subsidiaries, key management (including family members), and post-employment benefit plans of the Group and entities regarded as its related parties in the scope of its related parties.

(3) Repurchase transactions with related parties for the years ended December 31, 2016 and 2015, are as follows:

2016

(In millions of won)

Transaction

Beginning
balance

Increase

(decrease)

Ending
balance

Others

Related Individuals and others

RP Sold

477

(477

)

—

107

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(In millions of won)

2015

Transaction

Beginning
balance

Increase

(decrease)

Ending
balance

Others

Related Individuals and others

RP Sold

6,150

(5,673

)

477

(4) The financing transactions with the related parties for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)		2016
Relationship	Related parties	Investment		Collection
Associate	Kocref Cr-reit XI		—		17,983
Others	KB Wise Star private Real Estate Investment Trust No. 2		20,000		—

			20,000		17,983


(In millions of won)		2015
Relationship	Related parties	Investment		Collection
Associate	LIG Special Purpose Acquisition 2^nd Co., Ltd		20		—

(5) Account balances with related parties as of December 31, 2016 and 2015, are as follows:


		2016
(In millions of won)	Related parties	Receivables		Payables
Others	KB Financial Group Inc.		—		6,349
	Kookmin Bank¹		26,532		12,549
	KB Kookmin Card Co., Ltd²		7,943		7,343
	KB Securities Co., Ltd		10,889		1,639
	KB Life Insurance Co., Ltd		4		213
	KB Asset Management Co., Ltd		—		286
	KB Capital Co., Ltd		241		2,282
	KB Credit Information Co., Ltd		—		57
	KB Data Systems		—		53
	KB Savings Bank Co., Ltd		—		121
	KB Real Estate Trust Co., Ltd		—		35
	KB Investment Co., Ltd		—		16
	Kookmin Bank (China) Ltd and others		7,402		—
	Retirement Pension		—		21,641

			53,011		52,584

108

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

¹	As of December 31, 2016, notional amount of financial derivatives assets and liabilities to Kookmin Bank amounts to ￦250,694 million

²	As of December 31, 2016, limit of unused commitment to KB Kookmin Card Co., Ltd amounts to ￦20,859 million.


		2015
(In millions of won)	Related parties	Receivables		Payables
Investments in associates	Kocref Cr-reit XI		18,188		—
	LIG Special Purpose Acquisition 2^nd Co., Ltd		421		—
	LIG-ES Special Purpose Acquisition Co., Ltd		407		—
Others	Kookmin Bank		1,336		5,240
	KB Kookmin Card Co., Ltd		6,446		6,665
	KB Securities Co., Ltd		8		65
	KB Life Insurance Co., Ltd		20		64
	KB Capital Co., Ltd		4		2,372
	KB Credit Information Co., Ltd		—		14
	Kookmin Bank (China) Ltd and others		7,183		—
	Retirement Pension		—		19,374

			34,013		33,794

¹	As of December 31, 2015, notional amount of financial derivatives assets and liabilities to Kookmin Bank amounts to ￦56,493 million

²	As of December 31, 2015, limit of unused commitment to KB Kookmin Card Co., Ltd amounts to ￦21,601 million.

(6) Collateral the Group provide to the related parties as of December 31, 2016 and 2015, is as follows:

(In millions of won)

Collateral asset

2016

2015

Kookmin Bank

Government bond

50,000

—

(7) The details of assets pledged as collaterals from related parties as of December 31, 2016 and 2015, are as follows:


(In millions of won)	Assets pledged as collateral	2016		2015
KB Wise Star private Real Estate Investment Trust No. 2	Building/Land		26,000		26,000
Kookmin Bank	Securities		50,000		—

(8) Undrawn commitments provided for related parties, as of December 31, 2016 and 2015, are as follows:


(In millions of won)	Related party	2016		2015
Purchase of security investment	KB-Solidus Global Healthcare Fund		8,200		—
Purchase of security investment	KB High-tech Company Investment Fund		2,800		—

109

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

(9) Commitments provided by related parties as of December 31, 2016 and 2015, are as follows:


(In millions of won)	Related party	2016		2015
Debt commitments	Kookmin Bank		—		20,000

(10) Key management personnel, including registered directors and non-registered outside directors compensation for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Short-term employee benefits	W	6,254		7,917
Retirement benefits		409		1,244

	W	6,663		9,161

(11) Loans for management personnel and employees as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Loans secured by real estate	W	242		300
Loans secured by credits		72		3,501
Loans secured by third party guarantees		15,677		19,045

	W	15,991		22,816

48. Interests of unconsolidated structured entity

(1) Nature and range of interests of unconsolidated structured entity

1) The Group is involved in the structured entities through asset-backed securitization, structured financing and investment funds. Details of the unconsolidated structured entities are as follows:


Nature	Purpose	Activity	Method of Financing
Asset-backed securitization	Facilitation of raising funds through transfer of securitization assets	(1) Purchase and transfer of securitization assets (2) Issuance and repayment of ABS	Issuance of ABS based on securitization assets
Structured financing	(1) Granting PF loans to SOC and real estate (2) Granting loans to ships SPC (3) Loans for M&A	(1) Construction of SOC and real estate (2) Building ships or construction (3) M&A	Loan commitments through providing lines of credit and investment agreements
Investment funds	Investment in beneficiary certificates, PEF and partnerships	Management of fund assets, payment of fund fees and allocation of fund profits	Issuance of beneficiary certificates, investments and loans

110

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

2) Total size of the unconsolidated structured entities as of December 31, 2016 and 2015, are as follow:


	2016								2015
	Asset-backed securitization		Structured deposits		Investment funds		Total		Asset-backed securitization		Structured deposits		Investment funds		Total
Total assets		13,242,217		16,022,388		18,202,191		47,466,796		10,882,012		12,441,536		14,467,342		37,790,890

(2) Nature of associated risks

As of December 31, 2016 and 2015, the risks associated with the Group’s interests in unconsolidated structured entities, are as follows:


(In millions of won)	2016
	Asset-backed securitization		Structured deposits		Investment funds		Total
Assets on financial statements
Financial assets at fair value through profit or loss		—		—		240,162		240,162
Available-for-sale financial assets		368,167		39,442		1,857,531		2,265,140
Loans		138,602		945,987		258,266		1,342,855
Other assets		3,080		5,895		1,288		10,263

		509,849		991,324		2,357,247		3,858,420

Liabilities on financial statements
Other liabilities		—		384		16		400
Maximum exposure to loss¹		509,849		1,219,120		3,104,379		4,833,348
Methods of determining the maximum exposure to loss				Loan commitments, investment agreements, purchase commitments and acceptances and guarantees		Investment agreements

¹	Maximum exposure to loss includes the recognized assets in the consolidated statements of financial position of the Group.


(In millions of won)	2015
	Asset-backed securitization		Structured deposits		Investment funds		Total
Assets on financial statements
Financial assets at fair value through profit or loss		—		—		37		37
Available-for-sale financial assets		482,248		512		1,479,995		1,962,755
Loans		210,727		798,971		254,532		1,264,230
Investment in associates		—		—		9,132		9,132
Other assets		3,744		2,357		1,685		7,786

		696,719		801,840		1,745,381		3,243,940

Maximum exposure to loss¹		696,719		929,941		2,179,466		3,806,126
Methods of determining the maximum exposure to loss		—		Loan commitments, investment agreements, purchase commitments and acceptances and guarantees		Investment agreements

111

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

¹	Maximum exposure to loss includes the recognized assets in the consolidated statements of financial position of the Group.

49. Separate account

Separate account statements of financial position as of December 31, 2016 and 2015, are as follows:


(In millions of won)	2016					2015
	Retirement insurance		Retirement pension			Retirement insurance		Retirement pension
Assets¹
Cash and cash equivalents		9,552		75,696			11,273		218,287
Financial assets at fair value through profit or loss		—		100,800			—		223,051
Available-for-sale financial assets		—		2,302,531			—		1,820,689
Held-to-maturity financial assets		—		10,000			—		10,000
Derivative assets to hedge		—		919			—		637
Loans and other receivables		—		506,509			—		438,097
Non-financial assets		—		3			—		3
General accounts receivable¹		142		385,085			1,487		292,536

		9,694		3,381,543			12,760		3,003,300

Liabilities²
Other financial liabilities		4		6,370			6		14,992
General accounts receivable²		34		(6	)		54		9,597
Policyholders reserve (insurance)		9,656		—			12,700		—
Policyholders reserve (investment)		—		3,369,501			—		2,964,105

		9,694		3,375,865			12,760		2,988,694

Equity
Accumulated other comprehensive income		—		5,678			—		14,606

		9,694		3,381,543			12,760		3,003,300

¹	Separate account asset in the financial statement is the total amount of retirement insurance asset and retirement pension asset less the general accounts receivable.

²	Separate account liability in the financial statement is the total amount of retirement insurance liability and retirement pension liability less the general account payable.

Separate account statements of comprehensive Income for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016					2015
	Retirement insurance			Retirement pension		Retirement insurance		Retirement pension
Income
Premium income		—			—		1,360		—
Investment income		147			98,970		197		95,364
Other operating income		134			1,309		113		1,445

		281			100,279		1,670		96,809

Expenses
Policyholders reserve (insurance)		(3,059	)		—		939		—
Policyholders reserve (investment)		—			60,202		—		55,022
Insurance claims paid		3,258			—		642		—
Investment expenses		18			18,691		16		24,053
Other operating expenses		65			21,385		73		17,734

		282			100,278		1,670		96,809

112

KB Insurance Co., Ltd and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

The revenue and expense of participating type specific account (participating retirement pension insurance) were not presented in the consolidated statements of comprehensive income of the general account. Revenue and expense of participating type specific account included in the operating performance above for the years ended December 31, 2016 and 2015 were ￦2,469 million and ￦3,529 million, respectively.

50. Supplemental cash flows information

Cash and cash equivalents in statements of cash flows include deposits that have a short maturity of three months or less from the date of acquisition.

Significant non-cash activities for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Transfer from investment property to owner-occupied property and equipment		58,227		24,901
Transfer from property and equipment to assets held for sale		8,273		—
Transfer from assets related to the subsidiaries to assets held for sale		—		1,039,888
Transfer from assets related to the subsidiaries to liabilities held for sale		—		884,470
Transfer from account payables to available-for-sale financial assets		—		513

51. Operating income

Operating income for the years ended December 31, 2016 and 2015, are as follows:


(In millions of won)	2016		2015
Operating revenue
Insurance operating revenue		10,108,222		9,909,858
Investment revenue		886,841		845,453
Other operating revenue		323,378		354,971

		11,318,441		11,110,282

Operating expenses
Insurance operating expenses		10,332,524		10,310,367
Investment expenses		356,088		373,416
Other operating expenses		240,915		184,109

		10,929,527		10,867,892

Operating income		388,914		242,390

113