ACCOUNTING STANDARD

FOR

INSURANCE INDUSTRY

Accounting Standard for Insurance Industry

CONTENTS

I.	General Provisions

1.	Purpose

2.	Scope of Application

3.	Definitions

4.	Grouping and Classification of Accounts for Financial Statement Presentation

II.	Balance sheet

5.	Preparation of Balance Sheet

6.	Grouping and Classification of Assets

7.	Cash and Due from Banks

8.	Trading Securities

9.	Investment Securities

10.	Reclassification of Securities

11.	Loans Receivable

12.	Fixed assets

13.	Other Assets

14.	Classification of Liabilities

15.	Policy Reserves

16.	Accounting for Anticipated Premium Deficiency

17.	Policyholders' Equity Adjustment

18.	Catastrophe Reserves

19.	Other Liabilities

III.	Income Statement

20.	Revenue Recognition

21.	Preparation of Income Statement

22.	Operating Revenues

23.	Operating Expenses

24.	Non-Operating Revenues and Expenses

25.	Extraordinary Gains and Losses

IV.	Measurement of Assets and Liabilities

26.	Valuation of Trading Securities

27.	Valuation of Investment Securities

28.	Establishment of Allowance for Bad Debts

29.	Accounting for Restructuring of Receivables

30.	Measurement of Investment Properties

31.	Acquisition Costs

V.	Notes to Financial Statements

32.	Notes to Financial Statements

33.	Separate Accounts

34.	Other Implementation Details

Addenda

Enacted on December 10, 1998

Amended on December 8, 1999

Amended on December 20, 2001

CHAPTER Ⅰ

GENERAL PROVISIONS

1. Purpose

In accordance with Article 90 of the Financial Accounting Standards for Business Enterprises (hereinafter referred to as "the FAS"), this Standard prescribes the standards for financial accounting and reporting by firms in the insurance industry. This Standard provides guidance on the matters for which there are no relevant provisions in the FAS or which need different accounting treatment because of the industrial peculiarities in insurance.

2. Scope of Application

Insurance companies operating in the insurance industry on a regular basis are required to apply this Standard when preparing financial statements for general purpose external financial reporting.

(2-1) Insurance companies are those whose the main operating business is insurance. Insurance refers to providing economic protection from risks over a specified future period. The major types of risk are death, disease, injury, and property damage. The insurance should have following features. If not, it should not be regarded as insurance despite the use of the term, insurance.

(2-1-1) A policyholder should deposit or pay premiums to an insurance company prior to occurrence or detection of insurable accidents;

(2-1-2) When an insurance contract takes effect, the insurance company does not know the amount and the date of insurance payments to be paid under the contract.

(2-2) The insurance company are required to apply this Standard, the FAS and the Interpretations of FAS in preparing financial statements to be audited by an independent auditor under the Act on External Audit of Corporations (hereinafter referred to as the External Audit Act). For the businesses prescribed in Clause (2) of Article 7 of the Act, the industry-specific accounting standards should be applied. For the matters that are not covered in this Standard, the FAS and the Interpretations of FAS, generally accepted industry accounting conventions may be applied to the extent that they are consistent with Article 2 and Article 3 of the FAS.

(2-3) Insurance companies established under the Insurance Business Act but not subject to external audit under the External Audit Act and other corporations conducting similar operations as insurance companies established under the Insurance Business Act may adopt the relevant provisions of this Standard, depending upon the characteristics of their operations.

3. Definitions

A. The insurance contract period refers to a period from the time when the liability of an insurance company commences to the time when such liability ends.

B. The premium payment period refers to a unit period over which an insurance premium is computed based on risks statistically estimated.

C. The long-term insurance contract refers to the insurance contract which falls under one of the following items respectively:

1.	The insurance contract which pays a refund during the period of insurance or at the termination or cancellation thereof; and

2.	The insurance contract effective for one (1) year or longer with two or more payments of premiums, Periodic premiums are computed on average and thus no proportional relationship exists between the premium by period and the ratio of risk by period.

D. The short-term insurance contract refers to a contract other than the long-term insurance contract.

E. The loading charge refers to the premium added to compensate for business expenses.

F. The level loading charge refers to the loading charge evenly distributed over the collection period.

G. The net premium refers to a premium net of the level loading charge.

H. Securities refer to the securities and financial options prescribed in Article 2 of the Securities and Exchange Act. However, in case the corporate bonds issued by a method other than public offering and the notes issued for the purpose of fund-raising are purchased directly from the issuer, those corporate bonds and notes are not included in the securities in this Standard. In addition, financial options inseparable from the assets subject to exercise of options are not included in the securities in this Standard.

I. The Standardized transaction is a transaction through the securities market where fulfillment is guaranteed by a standardized clearing system.

(3-1) The premium payment period refers to the unit period for which risks are statistically measured. In general, most risks are measured on a yearly basis, but the risks related to continuous activities (cargo handling, construction work, etc.) may be measured on the basis of the activity period (shorter or longer than one (1) year) as a unit.

(3-2) In the short-term insurance contract, a proportional relationship exists substantially between the premium by period and the ratio of risk by period. But among the contracts which have proportional relationship between premium and ratio of risk, those contracts which pay a refund during the insurance contract period or at the termination or cancellation thereof should be classified into long-term insurance contracts because these contracts are required to reserve premiums for appropriating the fund.

(3-3) If loading charges are not leveled over period but computed higher in earlier periods for early recovery of acquisition costs, the net premium should be calculated as a premium net of the unleveled loading charges.

(3-4) Financial options shall include options whose underlying assets are stock index, exchange rate, or interest rate, etc.

(3-5) Commercial Papers (CP) and privately placed bonds which are excluded from the definition of securities should be classified as loans.

4. Grouping and Classification of Accounts for Financial Statement Presentation

A. Accounts prescribed in this Standard should be used to enhance comparability of accounting information unless there is a special reason to do otherwise. However, accounts that are not material in nature or amount may be combined with similar accounts.

B. Accounts not prescribed in this Standard but material in nature or amount should be presented separately in a manner that best represents their content.

CHAPTER II

BALANCE SHEET

5. Preparation of Balance Sheet

A. The balance sheet should present fairly all assets, liabilities, and stockholders' equity as of the balance sheet date in order to show clearly the financial position of the entity.

B. A sample format of balance sheet is provided in annexed Form 1, and it may be prepared in the account format, if necessary.

(5-1) Temporary accounts, such as suspense payments or suspense receipts, should be replaced with relevant account headings which accurately describe their nature.

(5-2) Memorandum accounts should not be presented as assets or liabilities in the balance sheet because they do not meet the criteria for assets or liabilities. If material, they should be presented in the accompanying footnotes.

(5-3) When securities are sold or bought in a standardized transaction, the date of contracting should be used as a transaction date.

(5-4) In the case that a balance sheet is prepared in the condensed format provided in the FAS, detailed information, which would be reported if Form 1 were used, should be disclosed in the accompanying notes.

6. Grouping and Classification of Assets

Assets should be classified into cash and due from banks, trading securities, investment securities, loans receivable, fixed assets, and other assets.

7. Cash and Due from Banks

Cash and due from banks include the following:

- Cash

- Due from banks

- Money-in-trust (except for special money-in-trust)

- Deposits on retirement insurance

- Deposits on futures trading

(7-1) Special money-in-trust refers to a money trust for which the trust assets are managed as instructed by the truster. For this, the trust assets (such as stocks, government and municipal bonds, corporate bonds, etc.) should be accounted for in the same manner as for the regular assets that the company holds.

8. Trading Securities

A. Trading securities include those securities which have been acquired for short- term capital gains. In this case, equity securities such as stocks and investment in capital should be marketable securities. However, stocks issued by related parties and debt securities purchased with the intention of holding to their maturity date (held-to-maturity debt securities) should not be included in trading securities.

B. Trading securities encompass stocks, government and municipal bonds, corporate bonds and beneficiary certificates.

9. Investment Securities

A. Investment securities refer to those securities which no not belong to trading securities.

B. Investment securities include stocks, investments in capital, government and municipal bonds, corporate bonds and beneficiary certificates.

(8-1) Investments in capital include investments in the Securities Market Stabilization Fund ("SMSF").

10. Reclassification of Securities

Classification of trading versus investment securities should be made at the time of acquisition and they should be accounted for accordingly. Trading securities may be reclassified later to investment securities, but reclassification of investment securities is not allowed.

(10-1) The reason for not allowing investment securities to be reclassified later is that gains or losses on valuation of trading securities are reported in the income statement, while gains or losses on valuation of investment securities are reported as capital adjustments in the balance sheet. Thus, reclassification of investment securities is not allowed to prevent possibility of earnings manipulation.

(10-2) Securities received in the liquidating process of the SMSF should be treated as acquisition of new securities and should be classified as either trading securities or investment securities depending on the intention of holding them.

11. Loans Receivable

A. Irrespective of the form of transaction, funds lent with the intention of receiving interests and with an agreement of paying back the principal and interests should be treated as loans. Indemnity receivables arising from payments on guarantees should also be classified as loans.

B. Loans shall, in accordance with the types of lending, be classified into call loan' policy loans' loan on securities' mortgage loan' credit loan' bill discount' guarantee loan' and other loans.

B. Loans include the following:

- Call loans

- Policy loans

- Loans on securities

- Mortgage loans

- Credit loans

- Loans on notes discounted

- Loans on payment guarantees

- Other loans

(11-1) Call loans refer to loans through call brokers.

(11-2) Policy loans refer to loans in accordance with an insurance contract term and conditions.

(11-3) Loan on securities refer to loans with securities pledged.

(11-4) Mortgage loans refer to loans with mortgages.

(11-5) Credit loans refer to loans on credit, i.e., without any mortgages or pledges.

(11-6) Loans on notes discounted refer to loans by discounting commercial papers, trading bills and so on.

(11-7) Loans on payment guarantees refer to loans guaranteed by the Government, local government, or financial institutions.

(11-8) Other loans include all the other loans which do not belong to any of the above classifications.

12. Fixed Assets

Fixed assets encompass investment assets, tangible assets, intangible assets, etc.

(12-1) Investment assets include those assets which have been acquired for investment purposes such as investment properties and other investment assets, but do not include investment securities. Investment properties refer to real estate rented to other parties. If real estate is used for operation and simultaneously rented in part, it should be separated into investment assets and fixed assets on the basis of occupied area or in consideration of its future use.

13. Other Assets

Other assets are those which do not belong to any of the above classifications. They include insurance receivable, other receivables, deposits (leasehold rights, telex and telephone subscription rights, rent deposits, operation deposits, etc.), accrued revenues, prepaid expenses, reimbursable claims, separate account assets, acquisition costs, deferred income tax charge, etc.

(13-1) Insurance receivable refer to premiums accrued and claims entitled, etc pursuant to the insurance transactions (including reinsurance transactions) as of the balance sheet date.

(13-2) Reimbursable claims refer to the amount that can be recovered through disposal of pledged assets or exercise of reimbursement rights which are obtained in the process of settling insured accidents. The amount should be computed in accordance with 28.

14. Classification of Liabilities

Liabilities should be classified into policy reserves, policyholder's equity adjustment, catastrophe reserves, bonds payable, and other liabilities.

15. Policy Reserves

A. When an insurance contract is made, policy reserves should be appropriated in consideration of the future claims, refunds, policyholder dividends, and related expenses.

B. The amount collectible from reinsurance contracts, termed reinsurance reserves, should be reported as a deduction from policy reserves.

C. Policy reserves should include premium reserves, reserves for outstanding claims, unearned premium reserves, reserves for policyholder dividends and profit-sharing dividends, and reinsurance premium reserves.

1.	Premium reserves refer to a difference between the present value of claims payable to policyholders and the present value of net premiums to be collected after the balance sheet date for the long-term insurance contracts in effect as of the balance sheet date.

2.	Reserves for outstanding claims refer to estimated claims payable upon an insured accident which occurred before the balance sheet date and for which the amount of claims payable is not determined yet. For an insurance contract on payment guarantees, reserves for outstanding claims should be appropriated in accordance with 28, although insured accidents have not occurred yet.

3.	Unearned premium reserves refer to premiums due, but of which recognition is deferred over the future periods.

4.	Reserves for policyholer dividends refer to the amount to be reserved for appropriation for dividends to policyholders (such as interest rate difference guarantee dividends, long-term policy special dividends, and mortality rate difference dividends, etc.) in accordance with the statutes or the contract terms and conditions;

5.	Reserves for policyholder profit-sharing dividends refer to the amount to be appropriated in lump sum in proportion to financial performance in accordance with the statutes or the contract terms and conditions in order to supplement policyholder dividends or policy reserves in the future.

6.	Reinsurance premium reserves refer to a difference between the present value of claims payable to other insurance companies and the present value of reinsurance premiums to be collected after the balance sheet date for the long-term insurance contracts in effect. as of the balance sheet date.

(15-1) Policy reserves should be calculated under the assumption of expected profit, expected mortality (survival) rate, expected claim rate, expected accident frequency, expected cancellation rate, expected business expenses, etc. These assumptions should be applied consistently except for the case of premium deficiency as in 16.

(15-2) Premium reserves may be calculated as a difference between the present value of net premiums due and the present value of claims paid as of the balance sheet date.

(15-3) In estimating reserves for outstanding claims, the expenses to be incurred in the course of settlement of insured event such as a law suit or arbitration should be added, and the claims to be reimbursed through sale of pledged assets or exercise of reimbursement rights which are obtained in the course of settlement of the insured event should be deducted.

(15-4) For an insurance contract on payment guarantees, reserves for outstanding claims should be appropriated, although insured events have not occurred yet. The rationale is as follows. Occurrence of insured events is directly related to insolvency of the principal debtor. Insolvency does not occur abruptly but proceeds over time. That is, even though payments on guarantees are to be made in a subsequent period, if insolvency of the principal debtor manifests by decline in credit rating and deterioration of profitability, anticipatory recognition of reserves is appropriate in light of the matching principle. Therefore, when the occurrence of an insured event is not directly related to past insolvency of the principal debtor, reserves for outstanding claims should not be appropriated before the occurrence of an insured event. For example, in the case of a performance guarantee insurance, when an insured event occurs which is not predictable in view of the past history, reserves for outstanding claims are not necessarily appropriated.

(15-5) Unearned premium reserves should be calculated on the basis of day or month. However, unearned premium reserves may be calculated on the basis of an average insurance period if insurance periods are different even for the same type of insurance.

16. Accounting for Anticipated Premium Deficiency

A. Premium deficiency refers to the difference when the outstanding premium reserves as of the balance sheet date is smaller than the present value of the claims to be paid net of the present value of net premium to be collected. If the interest rate assumed in appropriating premium reserves is higher than the interest rate of one-year time deposit as of the balance sheet date and it is expected that this trend will continue for a long period, the acquisition costs amounting to premium deficiency should be additionally amortized.

B. If premium deficiency is higher than the amortization of acquisition costs, policyholder profit dividend reserves or policyholder profit dividend stabilization reserves should be converted into premium reserves. If policyholder profit dividend reserves or policyholder profit dividend stabilization reserves are null or insufficient, premium reserves should be additionally appropriated to that insufficiency.

(16-1) The interest rate of one-year time deposit is defined as the lowest among the interest rates pronounced by commercial banks.

(16-2) Premium deficiency should be computed by types of insurance contract.

17. Policyholders' Equity Adjustment

Policyholders' equity adjustment refers to policyholder profit dividend stabilization reserves, reserves for contribution to public welfare, and gains or losses on valuation of investment securities.

(17-1) Policyholder profit dividend stabilization reserves refer to the amount reserved for the purpose of making profit dividends to policyholders stably from the revaluation excess under the Asset Revaluation Act..

(17-2) Reserves for contribution to public welfare refer to the amount reserved for the contribution to public welfare from the revaluation excess under the Asset Revaluation Act.

(17-3) Gains or losses on valuation of investment securities refer to the amount equivalent to policyholders' equity portion among the gains or losses on valuation of investment securities in accordance with [27C] and [27G].

18. Catastrophe Reserves

A portion of premiums imposed for future potential catastrophe should be appropriated as catastrophe reserves every period consistently, and catastrophe reserves should be first used in offsetting the losses from an insured accident in a big scale.

(18-1) A portion of premiums imposed for future potential catastrophe refers to the amount of premiums computed in excess of expected claims and expected business expenses.

(18-2) Judgement on whether an insured accident is a scale big enough to require the use of catastrophe reserves is guided by industry practices, and consistency should be maintained in this judgement.

19. Other Liabilities

Other liabilities include all the other liabilities that do not belong to any of the above classifications as follows:

- Insurance accounts payable

- Other payables

- Accrued payables

- Accrued dividend payables

- Separate account charges

- Separate account liabilities

- Deferred income tax credit

(19-1) Insurance accounts payable include premiums payable, claims payable, premium refunds (calculated from the date that the contract becomes ineffective if it occurs prior to contract termination), exclusive of the amount allocated to policy reserves.

(19-2) Separate account charges are to account for the funds provided from the separate accounts which should be maintained for some insurance companies.

CHAPTER III

INCOME STATEMENT

20. Revenue Recognition

A. Premium revenue should be recognized at the time when it is due. In the case of the insurance contracts that the first premium (limited to the case of term premium) or the full amount of premium (referring to the case of single premium) is not collected as of the beginning date of the insurance period under a deferment agreement, such premium could be recognized as revenue in the fiscal year to which the beginning date such insurance belongs.

B. In principle, interest revenue earned from due from banks, loans, and marketable securities should be recognized as time passes. However, depending upon the degree of its collectibility, different methods of recognizing interest revenue may be employed.

C. When transactions of securities are undertaken in a standardized way, gain or loss on disposition of securities should be recognized at the date of sale.

(20-1) Revenue should not recognized when payments of premium are deferred or exempted, or when the contract becomes ineffective.

(20-2) When securities are bought or sold in a standardized transaction method, gain or loss on disposition of securities should be recognized at the date of sale, since benefits and risks of the securities are transferred at the date of sale.

(20-3) Term premiums refer to premiums to be collected in installments over the contract period.

(20-4) In the case that different methods of revenue recognition are employed because of the collectibility problem, recognition of interest revenue should be done as follows: Interest revenue accrued from collectible receivables prescribed in (28-1) may be recognized as accrued interest revenue because it is realizable. However, interest revenue accrued from uncollectable receivables should not be recognized as accrued interest revenue because realization is unlikely. For other receivables, past experience and industry practice should be the basis for deciding whether to recognize interest revenue, and this rule should be applied consistently in subsequent periods.

21. Preparation of Income Statement

A. In order to present fairly the results of business operations, the income statement should present all revenues earned in the current accounting period, and all matching expenses incurred in generating the revenues.

B. The income statement should be divided into the following sections: operating income (operating loss), ordinary income (ordinary loss), income before income taxes (loss before income taxes), income tax expense, and net income (net loss) for the period.

C. Operating income (operating loss) should be presented by subtracting operating expenses from operating revenues.

D. Ordinary income (ordinary loss) should be presented by adding non-operating income to, and deducting non-operating expenses from operating income (operating loss).

E. Income before income taxes (loss before income taxes) should be presented by adding extraordinary gains to, and deducting extraordinary losses from ordinary income (ordinary loss).

F. Net income (net loss) for the period should be presented by deducting income tax expense from income before income taxes (loss before income taxes).

G. A sample format of the income statement is presented in annexed From 2.

(21-1) In the case that an income statement is prepared in the condensed format provided in the FAS, detailed information, which would be reported if Form 2 were used, should be disclosed in the accompanying notes.

22. Operating Revenues

A. Operating revenues are revenues earned from the main operating activities of insurance companies. Operating revenues include the following:

- Premium revenue

- Reinsurance claims revenue

- Interest revenue

- Dividend revenue

- Rental revenue

- Fees and commissions

- Gain on disposition of trading securities

- Gain on valuation of trading securities

- Gain from reimbursable claims

- Other operating revenues

(22-1) Premium revenue includes direct premium revenue and reinsurance premium revenue.

(22-2) Interest revenue includes interest on deposits, interest on trading securities, interest on investment securities, and interest on loans.

(22-3) Dividend revenue includes dividend on trading securities and investment securities.

(22-4) Fees and commissions are commissions and fees received in return for services rendered in conjunction with their ordinary operating activities.

(22-5) Gain from reimbursable claims arises from recognizing reimbursable claims in the amount that can be recovered through disposal of pledged assets or exercise of reimbursement rights which are obtained in the process of settling insured accidents.

(22-6) Other operating revenues include refund of policy reserves.

23. Operating Expenses

A. Operating expenses are expenses incurred from the main operating activities. Operating expenses include the following:

- Transfer to premium reserves

- Transfer to reserves for outstanding claims

- Transfer to unearned premium reserves

- Transfer to reserves for policyholer dividends

- Transfer to policyholder profit dividend reserves

- Transfer to reinsurance premium reserves

- Transfer to catastrophe reserves

- Premium expenses

- Dividend paid

- Refunds expenses

- Reinsurance claims expenses

- Interest expenses

- Loss on disposition of trading securities

- Loss on valuation of trading securities

- Business expenses

- Amortization of acquisition costs

B. The sum of transfer to premium reserves, transfer to reserves for outstanding claims, transfer to unearned premium reserves, transfer to reserves for policyholder dividends, transfer to policyholder profit dividend reserves, and transfer to reinsurance premium reserves may be recorded as transfer to policy reserves.

(23-1) Transfer to premium reserves is an increase of premium reserves for the current period.

(23-2) Transfer to reserves for outstanding claims is an increase of reserves for outstanding claims for the current period and the amount of changes in reserves for outstanding claims continuously revised. The changes in reserves for outstanding claims include the interest added due to timing difference between the occurrence of an insured event and the payment of claims.

(23-3) Transfer to unearned premium reserves is an increase of unearned premium reserves for the current period.

(23-4) Transfer to policyholder dividend reserves is an increase of policyholder dividend reserves for the current period.

(23-5) Transfer to policyholder profit dividend reserves is an increase of policyholder profit dividend reserves for the current period.

(23-6) Operating expenses should be recognized when incurred, except for acquisition costs classified as other assets.

(23-7) When an insured event occurs and the amount of claims payable is fixed, claims expense, an operating expense item, should be recorded to that amount.

24. Non-Operating Revenues and Expenses

A. Non-operating revenues include the following:

- Gain on disposition of investment securities

- Restoration of investment securities impairment loss

- Restoration of equity securities impairment loss

- Gain on valuation of investments using the equity method of accounting

- Gain on valuation of investment in the Securities Market Stabilization Fund(SMSF)

- Gain on disposition of real estates

- Gain on disposition of tangible assets

B. Non-operating expenses include the following :

- Loss on disposition of investment securities

- Restoration of investment securities impairment loss

- Restoration of equity securities impairment loss

- Loss on valuation of investments using the equity method of accounting

- Loss on valuation of investment in the SMSF

- Loss on disposition of real estates

- Loss on disposition of tangible assets

25. Extraordinary Gains and Losses

A. Extraordinary gains should include unusual and non-recurring gains, gain from assets contributed, gain on exemption of debts, gain on insurance settlements and other extraordinary gains.

B. Extraordinary losses should include unusual and non-recurring losses, casually losses and other extraordinary losses.

CHAPTER IV

MEASUREMENT OF ASSETS AND LIABILITIES

26. Valuation of Trading Securities

A. For equity securities classified as trading securities, acquisition cost should be determined by adding incidental costs to the purchase price, and applying the weighted average or moving average method. These securities should be reported at fair value in the balance sheet.

B. For debt securities (bonds) classified as trading securities, acquisition cost should be determined by adding incidental costs to the purchase price, and applying the specific identification method, weighted average or moving average method.

C. In determining the unit cost of trading securities, the weighted average or moving average method should be applied by each class of securities.

D. For debt securities (bonds), information about face value, acquisition cost, carrying amount adjusted by applying the effective interest method and fair value should be disclosed in the accompanying notes. Such information should be presented by category of the method of measuring fair value.

(26-1) The fair value of trading securities should be measured as follows:

1.	For trading securities other than bonds, fair value should be the closing market price as of the balance sheet date. In the case that no closing price exits at the balance sheet date, the most recent closing price before the balance sheet date should be used.

2.	Fair value of bonds shall be measured on the basis of an objective and reasonable price selected from the following:

- Closing market price as of the date of balance sheet;

- Closing market price on the most recent transaction day quoted by a generally accepted price survey;

- Value estimated from the yield for valuation of bonds disclosed by bond dealers.

- Value estimated from the yield for valuation of bonds disclosed by the authorized independent securities rating agencies.

Authorized independent rating agencies include agencies designated as bond price rating agencies by the Governor pursuant to Article 12-2 of the Rules on Enforcement of Securities Investment Trust Business Act.

27. Valuation of Investment Securities

A. The acquisition cost of equity securities classified as investment securities should be determined by adding incidental purchase expenditures to the purchase price, and applying the weighted-average or moving-average method to each class of securities.

B. Marketable equity securities classified as investment securities should be reported at fair value in the balance sheet.

C. Notwithstanding [27B], for the investment in equity securities which gives the investor company the ability to exercise significant influence over the investee company, the investment amount evaluated under the equity method should be used as the balance sheet amount. The difference between the carrying value and the restated balance sheet amount should be accounted for as follows. The difference due to the investee's net income or loss should be recognized as gain or loss on valuation using the equity method of accounting in the income statement. The difference due to changes in the investee's retained earnings should be reported as the increase or decrease in the investor's retained earnings. When the difference results from changes in the investee's capital surplus or capital adjustments, it should be reported as the increase or decrease in the investor's capital adjustments.

D. In the case that the fair value of investment in equity securities (excluding equity securities subject to valuation by the equity method) has declined and the decline is not restorable, the difference between the previous book value and the fair value should be reported as investment stocks impairment loss in the income statement. If equity securities are not marketable securities, the net asset value of the investee company is used as fair value.

E. The acquisition cost of debt securities (bonds) classified as investment securities should be determined by adding incidental purchase expenditures to the purchase price, and applying the specific identification method, weighted average or moving average method to each class of securities.

F. For investment in bonds whose face value differs form the acquisition cost, the difference should be amortized using the effective interest method, and the unamortized cost should be reported in the balance sheet. However, when the acquisition cost of bonds other than held-to-maturity bonds ("available-for-sale bonds") differs from their fair value, the fair value should be reported in the balance sheet. (For bonds whose acquisition cost and face value differ, fair value should be compared with the unamortized cost.)

G. Gain on valuation of investment securities (excluding gain on valuation using the equity method and gain on valuation of investment in the SMSF) should be offset against loss on valuation of investment securities (excluding loss on valuation using the equity method and loss on valuation of investment in the SMSF), and the net gain or loss should be reported as a capital adjustment in the balance sheet.

H. In the case that the fair value of investment in bonds has declined and the decline is not restorable, the difference between the previous book value and the fair value should be reported as investment bonds impairment loss in the income statement.

I. In the case of reclassification of trading securities to investment securities, investment securities should be reported at fair value as of the balance sheet date. The difference between the carrying value of previous trading securities and the balance sheet amount of investment securities should be recognized as gain or loss on valuation of trading securities in the income statement.

J. Fair value of investment securities should be determined in accordance with (26-1). Net asset value of investment securities should be measured as the net assets presented on the most recent balance sheet of the stock issuing company.

K. For investments in equity securities, a note disclosure should be made on the following: the investee company name, number of stocks owned, holding ratio, acquisition cost, fair value or net asset value, investment value evaluated by the equity method (only for investment in stocks accounted for by the equity method), and book value. For investments in held-to-maturity and available-for-sale bonds, a note disclosure for each of them should be made on the following: face value, acquisition cost, unamortized cost obtained by applying the effective interest method, fair value, and measurement method for fair value.

L. Investments in the SMSF should be reported in the balance sheet at the investor's share of fair value of the SMSF net assets (the amount determined by measuring assets and liabilities at fair value). The difference between the new balance sheet amount and the carrying amount before adjustment should be recognized as gain or loss on valuation of investments in the SMSF in the income statement.

(27-1) Investments in bonds should be classified as either held-to-maturity bonds or available-for-sale bonds at the time of their acquisition, depending on management's intention. In the following cases, however, held-to-maturity bonds should be reclassified into available- for-sale bonds:

1.	When a portion of held-to-maturity bonds are sold, the remaining bonds;

2.	Bonds that have to be sold before maturity by law;

3.	Bonds on which an impairment loss is to be recognized in accordance with [27H].

(27-2) Gain or loss on valuation of investment securities reported as a capital adjustment should be netted against additional valuation gain or loss arising in subsequent periods. Information on such netting should be disclosed in a note to the financial statements. Gain or loss on valuation of investment securities should be deducted from or added to the gain or loss on disposition of investment securities when the investment securities are disposed. In the case that the carrying value of investment securities is written down and an impairment loss is recognized, the previously recognized valuation gain or loss should be deducted from or added to the investment securities impairment loss.

(27-3) In the case that investments in bonds are measured in accordance with [27F], the amortization should be added to or deducted from the bonds' interest revenue. In the case of measuring at fair value pursuant to the proviso of [27F], the difference between amortized cost and fair value should be reported as a capital adjustment.

(27-4) For investment securities whose carrying amounts were written down in previous periods in accordance with [27D] and [27H], fair value at fiscal-year end should be reported in the balance sheet if the fair value is greater than the book value and the restoration of fair value is deemed permanent. In this case, the difference between the previous book value and the fair value should be accounted for as follows:

1.	If the fair value at fiscal-year end is less than the acquisition cost, the difference should be recognized as restoration of investment stocks impairment loss or restoration of investment bonds impairment loss in the income statement. (For bonds whose acquisition cost and face value differ, fair value should be compared to amortized cost obtained by applying the effective interest method.); or

2.	If the fair value at fiscal-year end is greater than the acquisition cost, the difference between the acquisition cost and the book value should be accounted for in the same way as above Item 1, and the difference between the fair value and the acquisition cost should be reported as a capital adjustment.

(27-5) Stocks received from the SMSF should be valued at fair value at the time of distribution and presented as trading securities or investment securities. The fair value of these securities should be accounted for as a return of investment. In the case of cash dividend from the SMSF, it should also be treated as a return of investment.

28. Establishment of Allowance for Bad Debts

A. For loans (including accrued interest revenues thereof) whose collectibility is doubtful, allowance for bad debts should be established based on percentage of bad debts estimated on a reasonable and objective basis. Different percentages uncollectable may be applied to loans with different probabilities of collectibility, but the estimated percentages should be applied consistently in subsequent periods unless there is no special reason to change.

B. Uncollectable loans should first be written off against the allowance for bad debts, and, if the allowance is not sufficient to absorb uncollectable loans, the amount in excess of the allowance should be accounted for as bad debt expense.

C. Allowance for bad debts may be presented as a deduction from the related loan account or the aggregate amount may be presented as a single deduction from the total of loans and other assets. In the latter case, details of allowance for bad debts should be disclosed in the accompanying note.

D. A note disclosure should be provided on the following items:

1.	Criteria used to classify debtors' credit rating;

2.	Amounts of collectible loans, doubtful loans and uncollectible loans respectively,

and criteria used to classify them;

3.	Estimates of bed debts and percentage uncollectible, and bases for estimation;

4.	Details of uncollectible loans for which legal expiration dates have not arrived or claims are still effective;

5.	Ratio of allowance for doubtful accounts to total loans outstanding over the past three years;

6.	Other significant accounting policies related to uncollectible loans.

(28-1) Classification of loans into collectible loans, doubtful loans and uncollectable loans should be made as follows:

1.	Based upon the debtor's financial position, debtors should be classified into normal debtors, debtors under observation, and delinquent debtors;

2.	Of the loans made to normal debtors, loans on which principal and interests are not in arrears should be classified as collectible loans.

The remaining loans should be classified as either collectible loans or doubtful loans in accordance with Item 3 below;

3.	Of the loans made to debtors under observation, loans, whose collectivity is deemed certain considering the value of collateral assets and the guarantor's ability to pay, should be classified as collectible loans, and all other loans should be classified as doubtful loans.

(Even if loans have not been secured, the fair value of debtor's assets in excess of debtor's obligations to the senior creditors may be included in collateral assets.

4.	Of the loans to delinquent debtors, loans, whose collectivity is deemed certain considering the value of collateral assets and the guarantor's ability to pay, should be classified as collectible loans, and all other loans should be classified as uncollectible loans.

(28-2) Classification of debtors into normal debtors, debtors under observation or delinquent debtors may be done based upon past experience or industry practices. Debtors under observation can be further divided. The criteria used to classify debtors should be applied consistently in subsequent periods unless there is a special reason to do otherwise. Debtors belonging to the following categories should be classified as delinquent debtors:

1.	A debtor with payments on loans in arrears for more than six (6) months;

2.	A debtor classified as a red-rated customer(a customer with the lowest credit rating) by the credit information exchange and management covenant of financial institutions;

3.	A corporate debtor that is in the process of (or has applied for) a reorganization under the Company Reorganization Act;

4.	A corporate debtor that is in the process of (or has applied for) a composition under the Composition Act;

5.	A debtor whose business has been closed for more than six(6) months;

6.	A corporate debtor that has been issued a disclaimer of CPA audit opinion on its most recent financial statements.

(28-3) In establishing allowance for bad debts, if industry practices regarding debtor classification and evaluation of collectibility of loans are not materially different from the provision in this Standard, the industry practices may be applied.

29. Accounting for Restructuring of Receivables

A. When the carrying value of receivables has become different from their present value due to a restructuring of receivables caused by the commencement of reorganization or composition procedures or by a mutual agreement between the parties involved, the receivables should be reported at present value in the balance sheet. The difference between the carrying value before adjustment and the new balance sheet amount should be written off against the allowance for bad debts, and if the allowance is not sufficient to absorb the difference, the amount in excess of the allowance should be accounted for as bad debt expense.

B. The difference between the carrying value before adjustment and the present value described in [29A] should be reported as present value discount and directly deducted from the carrying value of the related receivable. Present value discount should be amortized by applying the effective interest method, and the amortized amount should be reported as interest revenue.

C. The discount rate to be used in measuring the present value of restructured receivables should be an appropriate interest rate prevailing at the time of initial transaction for the receivable (historical effective interest rate). However, in the case that the original interest was a variable interest rate, the discount rate for present value measurement should be an appropriate interest rate prevailing at the time of restructuring.

D. A note disclosure should be made regarding details of restructuring including interest rate and repayment period.

(29-1) Restructuring of receivables refers to modifications of contractual terms to alleviate debtor's burden by lowering interest rates or granting an extension of maturity date.

(29-2) Present value measurement for restructured receivables is related to bad debt expense but does not reflect additional loan risk after restructuring. Thus, [28] should be applied to restructured receivables.

30. Measurement of Investment Properties

Investment properties should be presented net of accumulated depreciation and allowances for loss on value decline.

(30-1) Allowances for loss on value decline are the difference between the carrying amount and the fair value of investment properties, and should be presented as a deduction from investment properties.

31. Acquisition Costs

A. Acquisition costs arising from a long-term insurance contract (excluding the excess amount of assumed acquisition costs, and the same hereinafter) should be equally amortized over the contract period. In case the contract period exceeds seven (7) years, they should be amortized for seven (7) years, and when the unamortized portion remains on the cancellation date (in case the contract becomes ineffective before cancellation, such date, and the same hereinafter), such portion should be amortized in lump sum in the fiscal year to which such cancellation date belongs.

B. Notwithstanding [31A], in case the portion of loading charges are allocated unproportionately large for the early periods although premiums are computed evenly over the contract period, acquisition costs in a long-term insurance contract should be expensed in the current period.

C. Acquisition costs in a short-term insurance contract should be equally amortized over the contract period, and if canceled, it should be amortized following [31A]. However, acquisition costs in a short-term insurance contract lasting one (1) year or shorter, should be expensed in the current period..

(31-1) Acquisition costs are paid in lump sum in the year of contract, but premiums are collected over the contract period Thus for a proper matching between revenues and expenses, it is deemed appropriate to amortize acquisition costs using the effective interest method. However, in part for simplicity of computation and in part in accordance with the historical cost principle applied in recording assets, acquisition costs are amortized evenly over the contract period.

(31-2) Acquisition costs included in other assets should be in the amount of actual expenditure. In case the actual expenditure is larger than the expected amount, only the expected amount should be capitalized and the excess of the actual over the expected should be expensed in the current period.

(31-3) Acquisition costs in a long term insurance contract included in other assets should be, in principle, amortized by the method mentioned in Item 1 below. However, the amount calculated by the method mentioned in Item 2 below does not differ materially from that by the method in Item 1, the method in Item 2 could be applied:

1.	Amortization by insurance contracts

2.	Subtracting the difference of premium reserves as of the balance sheet date between under the net premium method and the cancellation refund method from the sum of unamortized acquisition costs at the previous year-end and acquisition costs incurred for the current period.

CHAPTER V.

NOTES TO FINANCIAL STATEMENTS

32. Notes to Financial Statements

The following should be disclosed in the notes to financial statements.

1.	Significant accounting policies

2.	Details of loans by remaining period

3.	Details of accounts receivable and payable of insurance

4.	Estimation basis of reimbursable claims

5.	Details and changes of policy reserves by type of insurance (beginning balance, additional appropriations, payments and ending balances)

6.	Guaranteed amount by type of guarantee insurance, and changes in and appropriation provisions of reserves for outstanding claims

7.	details of outwards reinsurance by type of insurance

8.	Details of changes in catastrophe reserves by type of insurance, and appropriation provisions and uses of the reserves

9.	Premium revenues by type of insurance (individual, group, direct premiums and reinsurance premiums)

10.	Expenditures, amount expensed and deferred, and current period amortization of acquisition costs by type of insurance

11.	Details of business expenses

12.	Description of major transactions with related parties

13.	Other items which have a significant influence on the financial statements, and material items necessary for understanding the financial statements.

33. Separate Accounts

Assets and liabilities of the insurance contracts which are separately administrated from the general account in the asset management and income distribution should be recorded in gross amount as assets and liabilities in the separate accounts in the balance sheet. The balance sheet and income statement for the separate accounts should be disclosed in the notes to financial statements.

34. Other Implementation Details

Other details necessary in implementing this Standard may be separately prescribed by the Chairman of the SFC.

Addenda

(December 10, 1998)

1. Effective Date

This Standard shall be effective on December 12, 1998.

2. Applicability General

This Standard should be applied from the first fiscal year beginning on or after the effective date.

3. Applicability to Premium Reserves and Acquisition Costs

15 and 31 may apply to the insurance contracted before the end of the fiscal year to which the effective date of this Standard belongs. In this case, the acquisition costs which are deductible at the time of cancellation as of the end of the fiscal year to which the effective date of this Standard belongs should be capitalized in that fiscal year, and simultaneously recorded as extraordinary gain with the account title of recovery of acquisition costs. The premium reserves to be additionally appropriated as of the end of the fiscal year to which the effective date of this Standard belongs should be recorded as extraordinary loss with the account title of additional premium reserves in that fiscal year.

4. Applicability to Deferred Business Expenses

In relation to accounting for business expenses pursuant to 23, the business expenses which are reported as assets at the end of the fiscal year to which the effective date of this Standard belongs should be fully amortized as a decrease of retained earnings in the fiscal year immediately following the effective date of this Standard.

5. Applicability to Valuation of Trading Securities

In application of 26, among the difference between the book value and the fair value of trading securities as of the end of the fiscal year immediately following the effective date of this Standard, the amount originated before the end of the fiscal year to which the effective date of this Standard belongs should be added to or deducted from retained earnings as gain or loss on valuation of trading securities.

6. Interim measure on Valuation of Investment Securities

In application of 27F, the previous standards may be applied to adjust the difference between the acquisition cost and the face value of investment bonds acquired before the end of the fiscal year to which the effective date of this Standard belongs.

7. Applicability to Investment in SMSF

In application of [27L], in case the carrying amount of the investment in the SMSF at the end of the fiscal year to which the effective date of this Standard belongs is different from the investor's proportionate share of fair value of the fund's net assets (the amount determined by valuing assets and liabilities at fair market value), the difference should be accounted for as an addition to, or a deduction from, the beginning retained earnings of the first fiscal year beginning on or after the effective date, shown as gain or loss on valuation of investment in the SMSF.

8. Applicability to Valuation Using Equity Method

As for investment stocks subject to valuation using the equity method of accounting but acquired before the end of the fiscal year to which the effective date of this Standard belongs, [27C] may be applied assuming the stocks are acquired on the first day of the fiscal year of initial application following the effective date of this Standard.

9. Applicability to Reserves for Outstanding Claims

In application of 15C2, the transferred amount to reserves for outstanding claims for the guarantees contracts undertaken before the end of the fiscal year, for which any payments on guarantees have not made, should be accounted for as a reduction of retained earnings in the fiscal year of initial application following the effective date of this Standard.

10. Applicability to Article 97 Reserves

The reserves appropriated pursuant to Article 97 of the Insurance Business Act as of the end of the fiscal year to which the effective date of this Standard belongs should be accounted for as extraordinary gain by recovering the full amount in the fiscal year of initial application following the effective date of this Standard.

11. Applicability to Accounting for Restructuring of Receivables

As for receivables restructured before the end of the fiscal year to which the effective date of this Standard belongs, 29 should be applied as of the beginning date of the fiscal year of initial application following the effective date of this Standard. Gain or loss attributable to prior years should be accounted for as an increase or a decrease in the beginning retained earnings of the fiscal year of initial application following the effective date of this Standard.

12. Interim Measure on Comparative Presentation

For the fiscal year of initial application of this Standard, financial statements for previous fiscal years may be omitted.

Addendum

(December 9, 1999)

This Standard shall be effective on December 9, 1999.

Addendum

(December 31, 2001)

This Standard shall be effective on December 31, 2001. This Standard shall be applied from the first fiscal year from which this Standard becomes effective. This Standard may also be applied toward the fiscal year in which the effective date of this Standard belongs.