REGULATION

ON

SUPERVISION OF INSURANCE BUSINESS

Regulation on Supervision of Insurance Business

CONTENTS

Chapter 1 General Provisions

Section 1. General Principles

§1-1.	Purpose

§1-2.	Definitions

§1-3.	Scope of Credit Extension

§1-4.	Scope of Equity Capital

Section 2. Insurance Policy Agreements Concluded with Foreign Insurers

§1-5.	Scope of Application

§1-6.	Insurance Policy Agreement Execution

§1-7.	Advertising

§1-8.	Insurance Policy Subscription

§1-9.	Verification

§1-10.	Insurance Policy Agreements Refused for Domestic Subscription

Chapter 2. Authorization of the Insurance Business

Section 1. Licence

§2-1.	Classification of the Insurance Business Items

§2-2.	Separation of the Licence Procedures

§2-3.	Guidance on the Application for Licence

§2-4.	Application and Review for Licence

§2-5.	Supplementation of the Documents

§2-6.	Standards of Review for Licence

§2-7.	Maintenance of Manpower and Physical Facilities

§2-8.	Approval of Change in Large Shareholder

Section 2. Operating Capital

§2-9.	Paying In Operating Capital

Section 3. Solicitation Rate Standards on Telemarketing Insurers

§2-10.	Operation of the Telemarketing Insurers

Section 4. Ancillary Business

§2-11.	Reporting of the Ancillary Business

§2-12.	Specific Standards on the Classification of Concurrent and Ancillary Business

Chapter 3 Insurance Company

Section 1. Executive Officer and Compliance Officer

§3-1.	Qualifications of Officer

§3-2.	Method and Procedure of Verification of Qualifications for Officers and Compliance Officer

§3-3.	Specific Standards on Internal Control

§3-4.	Reporting Requirements

§3-5.	Domestic Asset Holding by Foreign Insurer's Korea Office

Chapter 4 Solicitation

Section 1. Solicitors

Subsection 1. Insurance Agent

§4-1.	Insurance Agent and Broker's Deposit

§4-2.	Installing the Insurance Agency's Branch Office

§4-3.	Restrictions on the Insurance Agency Registration

§4-4.	Executing the Insurance Agency Agreement

§4-5.	Termination of the Agency Agreement

§4-6.	Special Cases on the Jointly Acquired Insurance Agreement

§4-7.	Executive Directors and Users of the Insurance Agency

§4-8.	Calculation Standards on the Self Agreement

§4-9.	Obligations of the Insurance Agency

§4-10.	Preparation of the Book

§4-11.	Facilities of the Insurance Agency

§4-12.	Trainees of the Insurance Agency

§4-13.	Specific Standards on the Insurance Products Marketable by the Financial Institution's Insurance Agency

§4-14.	Specific Standards on Solicitation by the Financial Institution's Insurance Agency

§4-15.	Restrictions on the Sales Proportion of the Financial Institution's Insurance Agency

§4-16.	Disclosure of the Financial Institution's Insurance Agency Solicitation Fees

Subsection 2. Insurance Broker

§4-17.	Concurrent Businesses of the Insurance Broker

§4-18.	Examination Subjects and Taking for the Insurance Brokerage

§4-19.	Scope of the Insurance Broker's Business

§4-20.	Executive Directors or Assistants

§4-21.	Installation and Closing of the Branch Office

§4-22.	Insurance Broker's Solicitation Consignment

§4-23.	Calculation Standards on the Business Deposit

§4-24.	Reduced Deposit

§4-25.	Policy Agreement Execution Form

§4-26.	Scope of the Concurrent Management Prohibited

§4-27.	Submission of the Calculation Documents

§4-28.	Invoicing the Insurance Brokerage Fees

§4-29.	Opening and Reporting of the Insurance Brokerage Account

§4-30.	Application for the Exception on Revocation of the Insurance Broker Registration

Section 2. Compliance Requirements on Solicitation

Subsection 1. General Requirements

§4-31.	Creating the Solicitation Order

§4-32.	Reasonable Execution of the Business Expenses

§4-33.	Sound Management of the Insurance Premium Receipt System

§4-34.	Insurance Guide Materials

§4-35.	Managing the Insurance Guide Materials

§4-36.	Cautions in Telemarketing

§4-37.	Exemption of Signature by Telephone Solicitation

§4-38.	Cyber Mall Installation and Operation Standards

Subsection 2. Prohibited Acts of the Financial Institution's Insurance Agency

§4-39.	Prohibited Acts of the Financial Institution's Insurance Agency

Section 3. Supplementary Rules

§4-40.	Solicitation Training

§4-41.	Training on the Variable Insurance Policy Agreement Solicitation

§4-42.	Management of the Unfair Solicitation Activities

§4-43.	Notification on the Revocation of Registration

Chapter 5 Asset Management

Section 1. Methods and Standards on Asset Management

§5-1.	Scope of Public Interest Business

§5-2.	Investment Standards on Foreign Exchange and Derivative Transactions

§5-3.	Designation of the Shareholders Exercising De Facto Influence

§5-4.	Guidelines on Unfair Transactions with Large Shareholders

§5-5.	Standards on Single Transaction Value in the Event of Transaction with

§5-6.	Designation and Management of the Special Account

§5-7.	Fund Transfer on the Special Accounts

§5-8.	Loans to the Insurance Company's Executive Officers and Employees

§5-9.	Small and Medium Sized Enterprise Loans of the Life Insurance Company

§5-10.	Application Standards on the Asset Management Ratios

§5-11.	Exceptions to the Special Account Asset Management Restrictions

§5-12.	Exceptions to the Asset Management Restrictions

Section 2. Subsidiaries

§5-13.	Assumption of the Subsidiary Approval

Section 3. Supplementary Rules

§5-14.	Special Cases on Asset Management

§5-15.	Maintenance of Order in the Financial Transaction

Section 4. Supervision of the Foreign Exchange Business

Subsection 1. Registration of a Foreign Exchange Business Institution

§5-16.	Definitions

§5-17.	Requirements for Registration

§5-18.	Modifications of Registration

Subsection 2. Management of Soundness of Foreign Exchange Business

§5-19.	Liquidity Risk Management

§5-20.	Classification of the Foreign Exchange Position

§5-21.	Ceiling on the Foreign Exchange Position

§5-22.	Recognition of Separate Ceiling on the Foreign Exchange Position

§5-23.	Management of Ceiling on the Foreign Exchange Position

§5-24.	Exceptions to Management of the Ceiling on the Foreign Exchange Position

§5-25.	Internal Management of the Institution Conducting Foreign Exchange Business

§5-26.	Preclusion

Subsection 3. Sanctions Against Violations of the Regulation on Soundness of Foreign Exchange Business

§5-27.	Sanctions Against Violation of Liquidity Ratio in Foreign Currency

§5-28.	Sanctions Against Violations of the Limit on Foreign Exchange Position

§5-29.	Status Report on Sanctions

Subsection 4. Reporting on Foreign Exchange

§5-30.	Reporting

Chapter 6 Insurance Accounting

Section 1. General Principles

§6-1.	Purpose and Scope of the Accounting of Insurance Supervision

§6-2.	Drafting of Financial Statements

§6-3.	Amortization of the Acquisition Costs

§6-4.	Depreciation

§6-5.	Revaluated Assets

§6-6.	Accounting of the Rededuction

§6-7.	Settlement of Accounts

§6-8.	Submission of the Business Operation Report

Subsection 2. Life Insurance Business

§6-9.	Preparation Standards on the Financial Statements of Life Insurers

§6-10.	Classification of the Valuation Gains an Losses on Available-for-Sale Securities

§6-11.	Accumulation of the Policy Reserve

§6-12.	Interest Rates and Risks Applied to the Premium Reserve

§6-13.	Disposition of Surplus Before Policyholders' Dividend Reserve

§6-14.	Calculation and Accumulation of the Policyholders' Dividends

§6-15.	Accounting of the Revaluation Reserve

Subsection 3. Non Life Insurance Business

§6-16.	Standards on the Drafting of Financial Statements

§6-17.	Recognition of Subrogation Right as Income

§6-18.	Insurance Policy Reserve

§6-19.	Accounting of Surplus before Policyholders' Dividend Reserve

§6-20.	Calculation and Accumulation of the Policyholders' Dividends

Subsection 4. Special Accounts

§6-21.	Definitions

§6-22.	Accounting Principles of the Special Accounts

§6-23.	Financial Statements of the Special Accounts

§6-24.	Income and Expenses Adjustment of the Special Accounts

§6-25.	Valuation of the Special Accounts' Assets and Liabilities

§6-26.	Accumulation of the Policyholders' Reserve for the Special Accounts

§6-27.	Disposition of the profit and loss Resulting from the Operation of Special Accounts

Chapter 7 Supervision

Section 1. Standards on Financial Soundness

Subsection 1. Solvency Margin

§7-1.	Solvency Margin

§7-2.	Standard Amount of the Solvency Margin

Subsection 2. Asset Quality

§7-3. Asset Classification

§7-4. Loan Loss Provisioning Standards

Subsection 3. Risk Management Standards

§7-5.	Risk Management System

§7-6.	Risk Management Organization

§7-7.	Specific Standards of the Risk Management

§7-8.	Maintaining Records on the Derivative Transactions

Subsection 4. Borrowings

§7-9.	Borrowings

§7-10.	Subordinated Debts

§7-11.	Bond Issuance

Subsection 5. Reinsurance

§7-12.	Reporting of the Reinsurance Agreement

§7-13.	Accounting

Section 2. Evaluation of the Financial Soundness

§7-14.	Management Performance Evaluation

§7-15.	Risk Assessment

§7-16.	Execution of the Management Improvement Agreement

Section 3. Prompt Corrective Actions

§7-17.	Management Improvement Recommendation

§7-18.	Management Improvement Request

§7-19.	Management Improvement Order

§7-20.	Submission, Evaluation and etc. of Management Improvement Plan

§7-21.	Implementation Period of Management Improvement Plan

§7-22.	Measures Following the Failure of Implementing the Management Improvement Plan

§7-23.	Suspension, Attenuation or Exemption from the Prompt Corrective

Section 4. Authorization of Dissolution and Merger

§7-24.	Scope of Application

§7-25.	Separation of the Authorization Procedures

§7-26.	Guidance on Procedures for the Authorization

§7-27.	Application for the Preliminary Authorization

§7-28.	Public Announcement on the Preliminary Authorization Application

§7-29.	Review of the Preliminary Authorization

§7-30.	Waiver of the Preliminary Authorization Procedures

§7-31.	Decision on the Preliminary Authorization

§7-32.	Application for the Authorization

§7-33.	Authorization

§7-34.	Supplementation of the Documents

§7-35.	Standards of Review on the Concurrent Businesses

§7-36.	Standards of Review on the Merger Authorization

§7-37.	Standards of Review on the Resolution and Authorization of Dissolution

§7-38.	Standards of Review on the Authorization of Conversion

§7-39.	Standards of Review on the Authorization of Business Transfer

§7-40.	Standards of Review on the Authorization of Transfer of Contracts

Section 5. Due Diligence for the Determination of Insolvent Insurance Company

§7-41.	Insurance Company Valuated

§7-42.	Scope of the Valuation

§7-43.	Emergency Measures

Section 6. Disclosure

§7-44.	Management Disclosure

§7-45.	Disclosure of Insurance Products

§7-46.	Comparison and Disclosure of Insurance Products

Section 7. General Insurance Management

§7-47.	Verification of the Insurance Subscription

Section 8. Submission Standards on Insurance Products

Subsection 1. General Principles

§7-48.	Purpose

§7-49.	Definitions

§7-50.	Automobile Insurance

Subsection 2. Business Manual

Clause 1. General Provisions

§7-51.	Principles on the Preparation of Business Manual

§7-52.	Information Required

Clause 2. Life Insurance

§7-53.	General Standards on the Preparation of Business Manual

§7-54.	Group Insurance

§7-55.	Retirement Insurance

Clause 3. Non Life Insurance

§7-56.	General Standards on the Preparation of Business Manual

Clause 4. Third Insurance

§7-57.	General Standards on the Preparation of Business Manual

Subsection 3. Policy

Clause 1. General Provisions

§7-58.	Principles on the Preparation of Policy

§7-59.	Terms Required

Clause 2. Life Insurance

§7-60.	General Standards on the Insurance Product Designing

Clause 3. Non Life Insurance

§7-61.	General Standards on Insurance Product Designing

Clause 4. Third Insurance

§7-62.	General Standards on the Insurance Product Designing

Subsection 4. Insurance Premiums and Policy Reserve Calculation Manual

Clause 1. General Provisions

§7-63.	Principles on the Calculation of Premium

§7-64.	Information Required

Clause 2. Life Insurance

§7-65.	Calculation Standards on the Insurance Premiums

§7-66.	Calculation Standards on the Assumed Risk Rates

§7-67.	Calculation Standards on the Assumed Cost Ratio

§7-68.	Application Standards on the Assumed Interest Rate

§7-69.	Calculation of the Policy Reserve

§7-70.	Calculation of the Surrender Value

§7-71.	Calculation Standards on the Insurance Policy Subscription Value

§7-72.	Method of Change for the Insurance Policy Agreement

Clause 3. Non Life Insurance

§7-73.	Calculation Standards on the General Non Life Premiums

§7-74.	Waiver of Terms Required for the General Non Life Insurance

§7-75.	Calculation Standards on the General Non Life Insurance's Assumed Risk Rates

§7-76.	Calculation of the Additional Insurance Premium Rate for General Non Life Insurance

§7-77.	Preparation Standards on the Long Term Non Life Insurance Premium and Policy Reserve

Clause 4. Third Insurance

§7-78.	Preparation Standards on the Insurance Premiums and Policy Reserve

Clause 5. Income Management

§7-79.	Source of Income Analysis

§7-80.	Appropriation and Allocation of the Costs

Clause 6. Submission Procedures

§7-81.	Documents Submitted

Section 9. Standards of Review on Insurance Products

§7-82.	Review of the Insurance Products

§7-83.	Policy

§7-84.	Business Manual

§7-85.	Insurance Premiums and Policy Reserve Calculation Manual

§7-86.	Specific Standards on the Insurance Product Review

Chapter 8 Insurance Investigation Council

§8-1.	Composition of the Insurance Investigation Council

Chapter 9 Insurance Organizations

Section 1. Insurance Organizations

§9-1.	Reporting

§9-2.	Availability of the Documents and Books

§9-3.	Dissolution Report

§9-4.	Authorization for the Disposition of the Residual Assets

§9-5.	Method and Procedures on Providing the Insurance Rate Calculating Institution's Information

Section 2. Actuaries and Claim Adjusters

Subsection 1. Actuaries

§9-6.	Classification of the Actuaries

§9-7.	Designation of the Actuaries' Training Institution

§9-8.	Submission of the Senior Actuary's Opinions to the Chief Executive Officer

§9-9.	Submission of the Senior Actuary's Opinion

§9-10.	Appointment and Dismissal of the Senior Actuary

§9-11.	Senior Actuary's Assistants

Subsection 2. Claim Adjusters

§9-12.	Classifications of the Claim Adjusters

§9-13.	Designation of the Claim Adjuster's Training Institution

§9-14.	Prohibited Acts of the Independent Claim Adjusters

§9-15.	Utilization of the Assistants

§9-16.	Appointment of Claim Adjuster by the Policyholder

§9-17.	Compensation

§9-18.	Duties of Actuary and Claim Adjuster

§9-19.	Tradename

§9-20.	Duties of the Insurer

§9-21.	Receipt and Disposition Procedures for the Adjustment Report

Chapter 10 Supplementary Provisions

§10-1.	Third Party Protection by the Non Life Insurance Policy

§10-2.	Prevention of Accidents

§10-3.	Assistance

§10-4.	Business Consignment

Addenda

Amended fully on September 26, 2003 FSC 2003-44

CHAPTER 1.

GENERAL PROVISIONS

Section 1.

General Principles

§1-1. Purpose

The purpose of this Regulation is to define matters needed for the efficient supervision of the insurance businesses applicable under the jurisdiction of the Financial Supervisory Commission (hereinafter, "the FSC") in accordance with the Insurance Business Act (hereinafter, "the Act"), Enforcement Decree of the Act (hereinafter, "the Decree"), Enforcement Rules of the Act (hereinafter, "the Rules"), Act on the Establishment of Financial Supervisory Organizations, Enforcement Decree of the Act on the Establishment of Financial Supervisory Organizations, Foreign Exchange Act, Enforcement Decree of the Foreign Exchange Act, and other insurance related statutes (hereinafter, "the insurance related statutes").

§1-2. Definitions

"Insurance business" defined hereinunder means one that is applicable under any of the following;

1. Insurance company, insurance solicitor, insurance agent, and insurance broker provided under Article 2 paragraph (5) and paragraphs (8) through (10) of the Act;

2. Foreign insurers' Korea offices established in accordance with the provisions of Article 12 of the Act (hereinafter, "domestic offices");

3. Actuary, actuary business, adjustor, and adjustment business registered in accordance with the provisions of Article 182, Article 183, Article 186, and Article 187 of the Act;

4. Insurance association established in accordance with the provisions of Article 175 of the Act (hereinafter, "the Association");

5. Insurance premium prorating institution established in accordance with the provisions of Article 176 of the Act;

6. Insurance related organization established in accordance with the provisions of Article 178 of the Act; and

7. Korea Fire Protection Association established in accordance with the provisions of Article 11 of the Act on Indemnification for Damages and Loss Resulting from Fire and Insurance Policy Subscription.

§1-3. Scope of Credit Extension

The scope of credits extended in accordance with Article 2 subparagraph 12 of the Act and Article 2 paragraphs (1) and (2) of the Decree are as provided in the annexed Table 1.

§1-4. Scope of Equity Capital

The scope of equity capital determined by the FSC in accordance with Article 4 of the Decree shall be paid in capital, capital surplus, earnings surplus, and the cumulative sum provisioned against loss for the assets classified as "normal" and "precautionary" under the provisions of Article 7-3 pursuant to Article 7-4 which is deducted by the goodwill.

Section 2.

Insurance Policy Agreements Concluded with Foreign Insurers

§1-5. Scope of Application

The purpose of this Section is to define matters needed for, and pertaining to, the solicitation and verification of insurance policy agreements executed by foreign insurers and residents (defined under the Foreign Exchange Act).

§1-6. Insurance Policy Agreement Execution

(1) Foreign insurers may execute insurance policy agreements with the residents by postal mail, telephone, facsimile, and computer.

(2) Foreign insurers shall not consign, or delegate powers, to any insurance company, insurance solicitor, insurance agent, or insurance broker for the intermediation or representation for executing insurance policy agreements; provided that executing reinsurance agreement via an insurance broker shall be an exception.

(3) Foreign insurers shall not have their executive directors or employees engaged in the execution or solicitation of insurance policy agreements in the Republic of Korea.

§1-7. Advertising

(1) Foreign insurers may advertise insurance products by newspapers, television, radio, magazines, and computerized communication, etc. in the Republic of Korea.

(2) When intending to advertise in accordance with the provisions of paragraph (1), foreign insurers shall report to the Governor of the Financial Supervisory Service (hereinafter, "the Governor") in advance by attaching the documents provided under each of the following subparagraphs;

1. Foreign insurer's tradename and principal place of business intended to be advertised; and

2. Contents of the advertisement.

(3) In advertising in accordance with the provisions of Article 1, foreign insurers shall provide a disclaimer in Korean, expressly providing that the insurance policy agreements executed with foreign insurers are not protected by the policyholder protection system under the Insurance Business Act of the Republic of Korea.

(4) In advertising in accordance with the provisions of paragraph (1), foreign insurers shall be prohibited from providing any of the following in the contents of the advertisement;

1. Falsifications pertaining to the insurance policy agreement or contents which will deceive or mislead the policyholder;

2. Prospects on dividends payout and earnings allocation; and

3. Comparisons made against other insurers on any part of the insurance policy agreement.

(5) The Governor may take actions necessary to restrict the advertising activities of a foreign insurer in violation of the provisions of paragraphs (2) through (4) by requiring disclosure of the specifics of the violation, and if necessary, other required acts.

§1-8. Insurance Policy Subscription

(1) The residents are prohibited from executing any insurance policy agreement with foreign insurer through an insurance company, insurance solicitor, insurance agent, and insurance broker located in the Republic of Korea; provided that executing reinsurance agreement via an insurance broker shall be an exception.

§1-9. Verification

(1) The residents may request the Association to check whether the insurance policy agreement intending to execute with a foreign insurer is permissible under Article 7 of the Decree.

(2) In receipt of a request as provided under paragraph (1), the Association shall immediately provide a check and shall not refuse to do so without due justifications.

§1-10. Insurance Policy Agreements Refused for Domestic Subscription

(1) The Association may provide insurers with a form drafted to make evidence of the resident's refusal of the domestic insurance policy subscription in accordance with Article 7 paragraph (1) subparagraph 2 of the Decree.

(2) Insurers shall make available the form provided by the Association in accordance with paragraph (1) in their headquarters and branch offices.

CHAPTER 2.

AUTHORIZATION OF THE INSURANCE BUSINESS

Section 1.

Licence

§2-1. Classification of the Insurance Business Items

Classification of the insurance business items under Article 4 paragraph (1) of the Act shall be as prescribed in the Appendix Sheet 1.

§2-2. Separation of the Licence Procedures

Procedures of licence shall be divided into a preliminary licence and a licence, as specifically prescribed under the Appendix Sheet 2.

§2-3. Guidance on the Application for Licence

The Governor of the Financial Supervisory Service (hereinafter, the Governor) may respond either in writing, interviews, or consultations, to any questions or inquiries submitted by any person(s) applying for a license under the provisions of Article 4 of the Act or his/her agent(s) (hereinafter in this Section, an applicant), on the matters including, but not limited to, the license procedures, review standards, and application form (inclusive of appended documents; hereinafter in this Section as such).

§2-4. Application and Review for Licence

(1) An applicant for a licence of insurance business shall submit an application in accordance with the format prescribed under the pertinent Appendix Sheet from 3 through 4 to the FSC.

(2) In receipt of an application for licence provided under paragraph (1), the FSC may have the Governor conduct a field examination for the purpose of confirming compliance with the terms and conditions of preliminary licence, to which the full cooperation of the applicant is required.

(3) In its decision to deny licence as a result of the review of the authorization application submitted, the FSC shall so notify the applicant with the facts and grounds included in writing.

(4) A successful applicant shall perform the licensed business within six months from the date of license. If the initiation period is determined on a separate basis at the time of license, however, or when the extension of the period is approved, the six-month requirement shall not be applied.

(5) In the event of licence application, the FSC may request for the opinions of the parties of interest or hold a hearing session in accordance with Article 9 paragraph (3) of the Rules.

§2-5. Supplementation of the Documents

(1) The FSC may request an applicant of submission of any supplementary or additional documents within a time frame it prescribes, if necessary for the review of a preliminary license or license.

(2) When conditions exist under licence issued in accordance with the provisions of Article 4 paragraph (4) of the Act, the applicant shall report to the FSC on the results of their performance without any delay.

§2-6. Standards of Review for Licence

(1) Specific standards pertinent to the manpower and physical facilities in accordance with the provisions of Article 10 paragraph (1) of the Decree shall be as provided in the appendix Table 2.

(2) Specific standards pertinent to the business plan requirements in accordance with the provisions of Article 10 paragraph (2) of the Decree shall be as provided in the appendix Table 3.

(3) Specific standards pertinent to the requirements of major contributors in accordance with the provisions of Article 10 paragraph (4) of the Decree shall be as provided in the appendix Table 4.

(4) Foreign insurer intending to receive licence for the insurance business shall satisfy requirements provided under each of the following subparagraphs; provided, however, the provisions of paragraphs (1) and (2) shall be applied to the specific requirements of the manpower, physical facilities, and the business plan.

1. That the insurance businesses provided under Article 4 paragraph (1) of the Act and intending to conduct in Korea shall be engaged in accordance with foreign statutes;

2. That the credit ratings recently provided by international credit rating agencies shall be suit to invest; and

3. That it shall be free of any history of criminal prosecution greater than fines, or administrative decision greater than warning, by its national government or supervisory authority in connection with its conduct of the insurance business during the recent 3 years.

§2-7. Maintenance of Manpower and Physical Facilities

(1) Even after obtaining the authorization, the insurer shall retain and maintain the manpower and physical facilities satisfying the standards provided in Article 2-6 paragraph (1) Appendix Table 2.

(2) Notwithstanding the provisions of paragraph (1), should the insurer fail to meet the requirements provided under paragraph (1) by reason of the overseas relocation of the IT facilities and third party consignment of the IT facilities while intending to change the manpower and physical facilities, it shall apply for an approval with the FSC in accordance with the appendix sheet 5.

(3) In making approval in accordance with the proviso of Article 6 paragraph (3) of the Act, the FSC shall decide whether to approve or not within 60 days from the date of the application for an approval by checking whether the requirements provided under Article 10 paragraph (6) of the Decree are satisfied, the results of which shall be notified to the applicant. The time consumed for supplementing any information on the approval application, however, shall not be counted towards the requirement verification and notification terms.

§2-8. Approval of Change in Large Shareholder

Any person intending to become the large shareholder by acquiring shares of an insurer in accordance with the provisions of Article 6 paragraph (4) of the Act shall submit an application provided in the appendix sheet 6 in accordance with Article 8 paragraph (1) of the Rules to the FSC.

Section 2.

Operating Capital

§2-9. Paying In Operating Capital

Operating capital shall be paid in by the Korean Won currency in accordance with the provisions of Article 14 of the Decree.

Section 3.

Solicitation Rate Standards on Telemarketing Insurers

§2-10. Operation of the Telemarketing Insurers

(1) Solicitation rate resulting from the use of telecommunication devices of the telemarketing insurers shall be calculated based upon the number of insurance policy agreements and premiums as provided in the previous year's business report submitted to the Governor in accordance with the provisions of Article 118 of the Act. For a person intending to receive licence for conducting the insurance business as a telemarketing insurer, the rate shall be calculated based upon the number of insurance policy agreements and premiums provided in the business plans attached to the application provided in the appendix sheet 3.

(2) In calculating the solicitation rate in accordance with paragraph (1), the premiums received for the life insurance and long term non life insurance products shall be calculated in combination with the initial premiums paid based upon a monthly basis, whereas any other non life insurance products shall be calculated in combination with the primary policy premiums.

(3) Telemarketing insurers must equip the following systems in addition to the IT facilities to conduct the insurance business as provided in the appendix Table 2 for the stable IT system operation.

1. Recording system for telephone marketing;

2. Contingency backup system;

3. Dualized system (database server, web server, intranet, and Internet terminals, among others); and

4. Security system capable of encrypting customers' personal information (resident identification number, credit card number, and bank account number, etc.).

(4) Telemarketing insurers must operate departments and specific manpower operating the telecommunications system provided under paragraph (3).

Section 4.

Ancillary Business

§2-11. Reporting of the Ancillary Business

(1) Insurer having conducted ancillary businesses provided under Article 11 paragraph (1) subparagraphs 1 and 3 of the Act shall report to the FSC on each of the following within 1 month therefrom;

1. Purpose of conducting the ancillary businesses;

2. Work manual and pro forma financial statements on the ancillary businesses; and

3. Documents on agreement or documents evidencing registration and report, if registration and reporting are required by third party alliance or other statutes.

(2) Insurer having terminated ancillary businesses shall report to the FSC within 1 month therefrom by attaching the documents showing the business performance for the recent 3 business years, together with reasons.

§2-12. Specific Standards on the Classification of Concurrent and Ancillary Business

(1) In accordance with Article 17 paragraph (2) of the Decree, assets, liabilities, income and expenses of the concurrent and ancillary businesses and those of insurance business shall be classified, booked, and accounted based upon reasonable allocation standards.

(2) The Governor may decide allocation standards on profit and loss of the concurrent and ancillary business and the insurance business.

CHAPTER 3.

INSURANCE COMPANY

Section 1.

Executive Officer and Compliance Officer

§3-1. Qualifications of Officer

"Timeframe determined by the Financial Supervisory Commission not in excess of 4 years by the type of action taken" means each of the following;

1. Suspension from office against an officer: four years after expiry date of suspension from office;

2. Reprimand warning to officers: three years after date of the reprimand warning;

3. Reprimand to employee (salary reduction or heavier): the period during which promotion in position or grade is not allowed by the type of reprimand as determined by the Governor

§3-2. Method and Procedure of Verification of Qualifications for Officers and Compliance Officer

(1) An insurer shall promptly notify to the Governor any appointment or dismissal of officer and compliance officer, and in the event of appointment, an insurer shall attach the documents as prescribed by the Governor for verifying that the appointee is not applicable under any one of the disqualification items of paragraph (2) below.

(2) The Governor may, when he finds that the appointee is applicable under any one of the following subparagraphs, notify the insurer concerned thereof and take necessary actions such as demand for re-appointment.

1. An outside officer: when applicable under the disqualification items under Article 13 and Article 15 paragraph (4) of the Act;

2. A member of the audit committee and not an outside officer: when applicable under the disqualification items under Article 13 and Article 16 paragraph (3) of the Act ;

3. An officer not applicable under subparagraphs 1 and 2: when applicable under the disqualification items under Article 13 of the Act; and

4. A compliance officer: when inapplicable under the requirements of Article 17 paragraph (4) of the Decree.

§3-3. Specific Standards on Internal Control

An insurer's internal control standards in accordance with the provisions of Article 22 of the Decree shall reflect the requirements provided in the annexed Table 5.

§3-4. Reporting Requirements

Domestic offices shall report to the Governor on the following in accordance with Article 132, Article 131 paragraph (1), Article 136 paragraph (1), Article 133, and Article 134 of the Act;

1. Headquarters' balance sheet and income statement for every business year : within 2 months from the date of settlement;

2. Domestic office's expenses and personnel status for every year : until February of the subsequent year;

3. Change in the chief executive officer of the domestic office : within 2 weeks from the date of change;

4. Change in the headquarters' name, business suspension, revocation of business license or registration, acquisition, dissolution, and bankruptcy : within 2 weeks from the date of cause; and

5. Establishment, relocation and closing of domestic office : within 2 weeks from the date of establishment, relocation, or closing.

§3-5. Domestic Asset Holding by Foreign Insurer's Korea Office

(1) In the event of shortage of the assets it must retain in the Republic of Korea as a result of the settlement every business year in accordance with the provisions of Article 75 of the Act, a foreign insurer's Korea office shall cover the shortage by receiving the funds from its headquarters within 60 days from the date of settlement; provided where the Governor determines it necessary and by the resolution of the FSC that such a coverage is needed even prior to the settlement, the coverage shall be provided within 30 days from the instruction issued by the Governor.

(2) In the event of coverage in accordance with paragraph (1) or wiring the assets in excess of the ceiling provided under Article 75 of the Act according to the Foreign Exchange Act and other related statutes, the foreign insurer's Korea office shall so report to the Governor within 10 days therefrom.

CHAPTER 4.

SOLICITATION

Section 1.

Solicitors

Subsection 1.

Insurance Agent

§4-1. Insurance Agent and Broker's Deposit

(1) "Institution designated by the Financial Supervisory Commission" as provided under Article 87 paragraph (3) and Article 89 paragraph (3) of the Act means the insurance company executing agreement with agency in the case of an insurance agent, and the Financial Supervisory Service in the case of an insurance broker.

(2) "Securities recognized by the Financial Supervisory Commission" as provided under Article 33 paragraph (4) subparagraph 1 and Article 37 paragraph (5) of the Decree means the securities applicable under each of the following subparagraphs;

1. Securities provided under Article 2 paragraph (1) subparagraphs 1 through 4 of the Securities Exchange Act;

2. Bond type beneficiary certificates issued by trustee company in accordance with the Securities Investment Trust Business Act; and

3. Public bond type beneficiary certificates issued by trustor company in accordance with the Trust Business Act.

(3) "Guarantee insurance certificates recognized by the Financial Supervisory Commission" as provided under Article 33 paragraph (4) subparagraph 2 of the Decree means the performance guaranteeing insurance certificates issued by domestic guarantee insurers, insuring the insurance companies, whereas "guarantee insurance certificates recognized by the Financial Supervisory Commission" as provided under Article 37 paragraph (5) of the Decree means the licensing guarantee insurance certificates issued by domestic guarantee insurers, insuring the Financial Supervisory Service.

(4) "Institution recognized by the Financial Supervisory Commission" as provided under Article 33 paragraph (4) subparagraph 3 and Article 37 paragraph (5) of the Decree means an institution provided under the provisions of Article 2 paragraph (1) subparagraph 2 of the Banking Business Act.

(5) "Timeframe determined by the Financial Supervisory Commission" as provided under Article 33 paragraph (5) and Article 37 paragraph (5) of the Decree means 14 days from the date a notice is issued on the shortage of deposit.

§4-2. Installing the Insurance Agency's Branch Office

(1) Insurance agency as a business (hereinafter, "insurance agency") may install and operate branch offices.

(2) Branch office provided under paragraph (1) means a place other than the insurance agency's registered or reported address, where solicitation activities continue; however, two branch offices may not be installed at an identical address. This provision, however, may not apply where a financial institution having registered or intending to register as an insurance agency or insurance broker in accordance with the provisions of Article 91 of the Act, has a multiple number of offices, by reason of acquisition, merger or physical classification, whose names and accounting are distinguished under a single, identical address and whose managers are registered on a separate basis.

(3) Insurance agency must be a company established in accordance with the Commercial Code, and a qualified agency (satisfying the requirements provided in the annexed Table 3 subparagraph 2 of the Decree; hereinafter the same) shall be engaged in the agency business on an all time basis.

(4) The Governor shall determine all other matters necessary for the installation and closing of an agency.

§4-3. Restrictions on the Insurance Agency Registration

(1) "Juridical person or organization recognized to be in fact exercising influence in accordance with the methods and standards determined by the Financial Supervisory Commission" means the sum of the investments or contributions which is made by an institution provided under Article 32 paragraph (1) of the Decree, financial holding company, or financial institutions provided under Article 91 paragraph (1) of the Act applicable under each of the following subparagraphs;

1. In excess of 15 percent of the total investments or contributions made;

2. Largest investor or contributor;

(2) "Person recognized by the Financial Supervisory Commission" as provided under Article 32 paragraph (5) of the Decree means a person applicable under each of the following subparagraphs;

1. Non profit business or organization;

2. Freight transportation business and its executive directors and employees provided under Article 3 paragraph (2) of the Freight Vehicle Transportation Business Act or Article 10 paragraph (1) of the Passenger Vehicle Transportation Business Act;

3. Pyramid sales business registered in accordance with the Act on Marketing and Sales by Visitation and its executive directors and employees;

4. Business or organization closely related to insurance sales such as automobile manufacturer or dealership (excluding used car or imported car dealerships), in case of non life insurance agency;

5. A person intending to operate an insurance agency, primarily targeting self agreement in accordance with the provisions of Article 101 of the Act; and

6. A person against whom a directive or a disciplinary action greater than suspension of duties is taken in accordance with the Act by the Governor or the insurance company in question, the term of which has not elapsed 2 years from the date it is taken (or the suspension of duties term, where applicable).

§4-4. Executing the Insurance Agency Agreement

(1) An insurance company intending to execute agency agreement with an insurance agency shall execute it within the scope of business classified by the agency.

(2) The agency agreement executed in accordance with the provisoins of paragraph (1) shall be at least 1 year, in which event any changes in the terms of the agreement shall be counted in time towards the date it is executed.

(3) In the event the agency intends to execute a new agreement with another insurance company, it shall have the new insurance company to submit a report on the execution of the agreement in accordance with the annexed Form 7 to the President of the Association.

(4) In the event the agency intends to concurrently conduct solicitation by executing agency agreement with an insurance company conducting other insurance businesses, it shall satisfy each of the registration requirements for varying insurance businesses provided under Article 30 paragraph (2) of the Decree;

(5) In the event the agency intends to concurrently conduct solicitation in accordance with the provisions of paragraph (4), it shall submit the following documents to the Governor via the insurance company intending to execute the agency agreement with;

1. Concurrent business report provided in the annexed Form 8;

2. Documents evidencing registration requirements of the insurance business intending to concurrently conduct; and

3. Registration certificate.

§4-5. Termination of the Agency Agreement

(1) Parties to agency agreement shall be prohibited from terminating the agreement during the term of the agreement without due justifications. Party to the agreement shall also not be changed without prior consent of the other. Where an insurance agency is applicable under any of the following subparagraph, an insurance company shall terminate the agency agreement in question;

1. Where the insurance agency is applicable under any of the subparagraphs of Article 88 paragraph (1) of the Act;

2. Where the insurance agency is applicable under Article 93 paragraph (1) subparagraphs 3 through 6;

3. Where the insurance agency is determined to have no intention to conduct insurance business, for having no earnings performance over 3 months or not paying the deposit, unless otherwise for justifiable reasons, such as disease or child delivery;

4. Where the insurance agency has not covered lacking qualified personnel within 3 months; and

5. Where the insurance agency has been subject to disciplinary actions on at least 3 occasions for warning, among others, by the Governor within the recent 3 years.

(2) Where in receipt of a request for the termination of the agency agreement from another during the term of the agreement, a party to the agreement shall decide and notify the other of the termination within 10 days from the date of receipt.

(3) Where the agency agreement is terminated in accordance with the provisions of paragraph (2), the insurance company shall report to the President of the Association in accordance with the format provided in the annexed Form 9 within 14 days from the date of the termination.

§4-6. Special Cases on the Jointly Acquired Insurance Agreement

In the event insurance agreement on identical risks is jointly acquired by the insurance company having consigned solicitation in conjunction with other insurance company, the insurance solicitor or agency shall be deemed to have executed an insurance solicitor or agency agreement with the said insurance company.

§4-7. Executive Directors and Users of the Insurance Agency

(1) An insurance agency shall report to the Association on the executive directors and users of the agency it intends to seek.

(2) Upon receipt of the report made in accordance with the provisions of paragraph (1), President of the Association shall review whether the provisions of Article 4-3 paragraph (2) apply and decide whether to accept and acknowledge the report.

(3) The financial institution's insurance agency registered in accordance with Article 91 of the Act shall report to the Association on the employees provided under Article 40 paragraph (4) of the Decree;

(4) The insurance agency's executive directors or users provided under paragraph (1) shall not be applicable under Article 86 paragraph (1) of the Act and shall be qualified for the insurance agency registration in accordance with the provisions of Article 87 of the Act by the type of insurance business intended for solicitation or those qualified for the insurance solicitor registration in accordance with the provisions of Article 84 of the Act.

(5) The executive directors and users provided under the provisions of paragraph (1) shall be prohibited from concurrently acting as the executive director or employee of the insurance company, insurance solicitor, agency trainee, insurance agency, insurance broker, or those of any other insurance agency and broker.

⑹ The insurance agency shall not employ any person applicable under Article 4-3 paragraph (2) as its executive director or user.

§4-8. Calculation Standards on the Self Agreement

The calculation of the cumulative premiums corresponding to the self agreement provided under Article 101 paragraph (2) shall be based upon the performance achieved and resulting from the previous business year, without due consideration for any term less than a year.

§4-9. Obligations of the Insurance Agency

(1) Insurance agency shall comply with the obligations provided under the following subparagraphs;

1. Compliance requirements provided under relevant statutes or regulations;

2. Obligation to factually inform the insurance policyholder on the insurance policy agreement;

3. Obligation to inform the insurance policyholder on the insurance company having consigned solicitation in the event of solicitation;

4. Obligation to maintain confidentiality of the information obtained in connection with the insurance policy agreement;

5. Obligation to provide services pertinent to managing the insurance policy agreements solicited for;

6. Obligation to diligently record, prepare, and report the book; and

7. Other due diligence and good faith requirements for the insurance policy holder.

(2) Insurance agency shall not use a tradename or a title that may result in its misidentification as an insurance company.

§4-10. Preparation of the Book

(1) Insurance agency shall prepare and make available the books provided under each of the following subparagraphs;

1. Ledger on the insurance premiums received;

2. Ledger on the insurance policy agreements determined by the insurance company having consigned solicitation;

3. File binder on the receipts of deposits made in the insurance company's bank account in accordance with the provisions of paragraph (2); and

4. Other documents required by the insurance company having consigned solicitation.

(2) Insurance agency shall immediately deposit the premiums received on every policy agreement executed into the solicitation consigning insurance company's bank account, unless provided otherwise by agreement with the insurance company or special circumstance.

(3) In the event of agency agreement executed with two insurance companies, the insurance agency shall prepare and make available the documents in which terms of the insurance policy agreement are recorded by each insurance company.

(4) The books and documents provided under paragraphs (1) and (3) may be managed by replacing them with electronic data or facility provided by the insurance company.

§4-11. Facilities of the Insurance Agency

(1) Insurance agency shall post the signs indicative of the following in visible areas;

1. Registration number;

2. Tradename or title; and

3. Insurance company having consigned solicitation.

(2) Insurance agency shall affix the certificate of registration (photocopy of the certificate, for a branch office) in an appropriate location inside the office.

(3) Insurance agency shall be prohibited from using a tradename or title identical to that of other insurance agencies within the identical city or district (district within metropolitan areas).

§4-12. Trainees of the Insurance Agency

(1) Provisions of this Regulation on the insurance agency shall be applied to the trainees of the agency.

(2) Wages paid to the trainees shall be covered by the fees of the agency.

(3) Insurance company may designate specific guidelines on the operation of an insurance agency trainee system, if any.

§4-13. Specific Standards on the Insurance Products Marketable by the Financial Institution's Insurance Agency

(1) "Credit life insurance" as provided under the annexed Table 4 subparagraph (1) b) of the Decree means an insurance that pays for the outstanding balance of the loan taken out by the insured from a financial institution in the event of his or her death.

(2) "Comprehensive insurance" as provided under the annexed Table 4 subparagraph (1) e) of the Decree means a business insurance that pays for damages and loss combining and resulting in three events among fire, theft, damage, and explosion of personal property, bodily injury, fire, mechanical, suspension, and liabilities of business.

(3) "Credit non life insurance" as provided under the annexed Table 4 subparagraph (1) f) of the Decree means an insurance that pays for the outstanding balance of the loan taken out by the insured from a financial institution in the event of his or her death caused by assault and battery.

§4-14. Specific Standards on Solicitation by the Financial Institution's Insurance Agency

(1) In making solicitations on the homepage on the Internet in accordance with the provisions of Article 40 paragraph (30) subparagraph 2 of the Decree, insurance policy design and subscription shall be provided through the Internet.

(2) "Branch office" as provided under Article 40 paragraphs (3), (4), and (7) of the Decree means headquarters of a financial institution's insurance agency provided under the provisions of Article 91 paragraph (2) of the Act (hereinafter, "the financial institution's insurance agency") or a branch office of the financial institution's insurance agency provided under the provisions of Article 4-2, the location of which is intended for conducting the businesses corresponding to the essentials of the financial institution provided under Article 3 of the Regulation on the Financial Institution's Business Consignment.

(3) Businesses potentially vulnerable to unfair solicitation such as the loans provided under the provisions of Article 40 paragraph (4) of the Decree means the businesses conducted within the scope of credit extension as provided in the annexed Table 2 of the Regulation on the Supervision of Banking Business.

§4-15. Restrictions on the Sales Proportion of the Financial Institution's Insurance Agency

(1) The financial institution's insurance agency, among others, shall report to the Governor within one month from the end of the business year on the total solicitation and rate of the products newly marketed (hereinafter, "sales proportion") by insurance company based upon the agency's business year in accordance with the provisions of Article 50 paragraph (5) of the Decree in the format provided in the annexed Form 10.

(2) The sales proportion provided under paragraph (1) shall be calculated based upon the sum of the initial premiums received on a monthly payment basis for the newly subscribed for the life insurance and long term non life insurance products, and based upon the sum of the initial premiums received for the newly subscribed for all other non life insurance products.

(3) "Insurance company having special relationship as determined by the Financial Supervisory Commission" as provided under the provisions of Article 40 paragraph (6) of the Decree means an insurance company that executes agency agreement with the financial institution's insurance agency, among others (hereinafter in this Article, "the insurance company in question") and any that is applicable under the following subparagraphs;

1. Insurance company whose largest shareholder is identical;

2. Insurance company jointly ventured by the insurance company in question and the financial institution's insurance agency;

3. Insurance company jointly ventured by a domestic or foreign business holding at least 15 percent of the share in the insurance company in question and the financial institution's insurance agency, among others;

4. Insurance company jointly ventured by the insurance company's holding company and the financial institution's insurance agency, among others;

5. Insurance company jointly ventured by the insurance company in question and the holding company of the financial institution's insurance agency, among others; and

6. Insurance company jointly ventured by a domestic or foreign business holding at least 15 percent of the share in the insurance company in question and the holding company of the financial institution's insurance agency, among others.

(4) In the event the financial institution's insurance agency with subsidiaries directly or cross sell the products of the subsidiaries of each other, the sales proportion shall be calculated in combination with that of the subsidiaries of its own.

§4-16. Disclosure of the Financial Institution's Insurance Agency Solicitation Fees

(1) The solicitation fees applied to the financial institution's insurance agency having consigned solicitation, among others, shall be calculated based upon the standards provided under the following subparagraphs and shall be provided to the financial institution's insurance agency and the Association;

1. Insurance premium : insurance premium calculated by product based upon the "Insurance Premium Calculation Standards by Insurance Product Group" in the annexed Table 6;

2. Solicitation fees : solicitation fees scheduled for each insurance policy agreement; and

3. Solicitation fee rate : (Solicitation fee □ Insurance premium) □ 100.

(2) Insurance company and the Association shall compare and disclose the solicitation fee rate on the Internet homepage in accordance with the provisions of Article 40 paragraph (7) of the Decree.

(3) Disclosure made in accordance with Article 40 paragraph (7) of the Decree shall include the following;

1. Title of the insurance company having consigned solicitation;

2. Title of the financial institution's insurance company consigned with the solicitation; and

3. Title of the insurance product group and its solicitation fee rate as provided under paragraph (1).

(4) The provisions of paragraphs (1) and (2) and Article 40 paragraph (7) of the Decre shall be applied even in the event of changes in the solicitation fee rate.

Subsection 2.

Insurance Broker

§4-17. Concurrent Businesses of the Insurance Broker

(1) A person registered for the insurance brokerage in accordance with the provisions of Article 89 and intending to conduct the brokerage for other insurance businesses, shall report to the Governor by attaching the certificate of registration and a photocopy of the certificate on passing the brokerage examination on other insurance businesses to the concurrent business report in accordance with the format provided in the annexed Form 11.

(2) A corporate intending to concurrently conduct the insurance brokerage for other insurance businesses in accordance with the provisions of paragraph (1) shall satisfy the registration requirements provided under Article 34 of the Decree by the type of insurance business intending to conduct.

§4-18. Examination Subjects and Taking for the Insurance Brokerage

(1) "Institution designated by the Financial Supervisory Commission" as provided under Article 34 paragraph (2) Annexed Table 3 of the Decree means the Financial Supervisory Service.

(2) The subjects and points of the insurance brokerage examination provided under Article 34 paragraph (2) Annexed Table 3 of the Decree shall be as provided in the annexed Table 7.

(3) The insurance brokerage examination may be conducted in a combination of multiple choice, written section and entries.

(4) The insurance brokerage examination shall in principle be conducted once every year; provided that it may be conducted twice per year where the Governor deems it necessary to do so to maintain the supply of the brokers;

(5) Successful applicants of the insurance brokerage examination shall have scored at least 40 percentile on each subject and at least 60 percentile in total. Where the Governor has made a public announcement on the expected number of successful applicants in advance, however, the successful applicants may be determined from the number of the expected in the order of highest points scored based upon the total percentile among those who have scored at least 40 percentile on every subject. Where the expected successful applicants should exceed the number expected because of the applicants having scored identically, they shall all be qualified and the identical score shall be counted up to two decimal points.

⑹ The Governor shall make a public announcement in at least one daily newspaper 30 days prior to the date of the examination on the following;

1. Date, time and location of the examination;

2. Testing method and subjects;

3. Application requirements and procedures; and

4. Other information.

⑺ Applicants for the examination shall pay the examination fee determined by the Governor in cash to the Governor, and the fees shall not be refunded in any circumstances.

⑻ The Governor may determine specifics needed for the conducting of the examination.

§4-19. Scope of the Insurance Broker's Business

(1) An insurance broker may provide brokerage service on the execution of insurance policy agreement and any incidental risk management counsel as provided under the provisions of Article 34 by classification.

(2) "Risk management counsel" as provided under paragraph (1) means checking, evaluating and analyzing the client's risks incidental to the brokerage services provided in executing insurance agency agreement, further to reviewing and inspecting the insurance planning or designing, together with counseling with the inclusion of advice on invoicing.

§4-20. Executive Directors or Assistants

(1) An insurance broker shall be prohibited from employing a person applicable under Article 89 paragraph (2) subparagraphs 1 through 4-1 as its executive director, or a person applicable under the provisions of Article 36 paragraph (1) of the Decree as its assistant (user engaged in the insurance brokerage business; hereinafter the same in this Article).

(2) An insurance broker shall report to the Governor on the executive directors and assistants it intends to employ.

(3) Assistants provided under paragraph (2) shall be qualified to register for the insurance brokerage by type of insurance business intended for solicitation, or qualified to register for the insurance agency or insurance solicitor.

(4) Executive directors and assistants reported in accordance with the provisions of paragraph (2) shall be prohibited from concurrently acting as executive directors of an insurance company, insurance solicitors, insurance agencies (including executive directors and users), and chief executive officer, executive director and user of any other insurance broker.

§4-21. Installation and Closing of the Branch Office

(1) In the event an insurance broker as a corporate (hereinafter, "insurance broker as a corporate") intends to install a branch office, it shall submit to the Governor documents evidencing qualifications of the branch manager (qualified in the insurance brokerage examination as provided under Article 34 paragraph (2) Annexed Table 3 subparagraph 3 a) of the Decree; hereinafter the same in this Article) together with the report.

(2) A qualified branch manager shall be assigned to the branch office of an insurance broker as a corporate.

(3) An insurance broker as a corporate shall close its branch office where applicable under any of the following subparagraphs;

1. Where it has not started business within 6 months from the point in time report on the installation of branch office was made;

2. Where the insurance broker as a corporate has closed its business and changed its status to an individual; and

3. Where the absence of branch manager is not replaced by a new manager within 3 months.

(4) Where an insurance broker as a corporate has closed its branch office in accordance with the provisions of paragraph (3), it shall report to the Governor within 7 days from the date of closing.

(5) The provisions of Article 4-2 paragraph (2) shall be applied to the branch offices of insurance brokers as corporate.

§4-22. Insurance Broker's Solicitation Consignment

(1) An insurance broker shall not pay for any other than the fees pertaining to the execution of insurance policy agreement or solicitation consignment made to an insurance company, its executive directors and employees, and an insurance solicitor.

(2) An insurance company, its executive directors and employees, and an insurance solicitor shall be prohibited from consigning an insurance broker with solicitation.

(3) An insurance broker shall be prohibited from jointly taking agreements identical to those taken by an insurance company, its executive directors and employees, insurance solicitor, and an insurance agency.

(4) An insurance broker shall not engage in unfair brokerage activities and shall prevent complaints and disputes arising out of the terms of insurance policy by helping policyholders precisely understand the information therein pertinent.

(5) An insurance broker shall maintain the independence of the businesses conducted by ensuring that the insurance brokerage agreements are not extended to any specific insurance company.

§4-23. Calculation Standards on the Business Deposit

(1) The business year for an insurance broker as provided under the provisions of Article 19 of the Rules shall be from January 1st to December 31st of every year.

(2) "Total income pertaining to the insurance brokerage" as provided under Article 19 of the Rules shall be the sum of the fees, payments and any others received by the insurance broker in question in connection with intermediating the execution of insurance policy agreements.

§4-24. Reduced Deposit

(1) An insurance broker intending to reduce the deposit in accordance with the provisions of Article 37 paragraph (3) of the Decree shall submit to the Governor the application provided in the annexed Form 12 providing the following information by attaching the documents provided under paragraph (3) thereto;

1. Business deposit and status of the deposit;

2. Background and purpose of applying for the reduction in the deposit; and

3. Amount intending to reduce by.

(2) An insurance broker shall immediately turn over the reduced deposit, in the event the insurance broker liability policy agreement is expired or extinguished for any reason.

(3) The documents that shall be attached to the application for reduced deposit include;

1. Photocopy of the liability insurance policy certificate; and

2. Other documents needed to explain reasons for the application.

§4-25. Policy Agreement Execution Form

"Matters determined by the Financial Supervisory Commission" as provided under Article 41 paragraph (1) subparagraph 1 of the Decree means each of the following;

1. Insurance broker's tradename or title, address and the name of its chief executive officer;

2. Insurance broker's registration number;

3. Acquiring insurance company's tradename or title and address;

4. Parties to insurance policy agreement, insured, and tradename or title and name of the beneficiary;

5. Date of the insurance policy agreement executed;

6. Type and contents of the insurance policy agreement;

7. Purpose and value of the insurance policy;

8. Insured value;

9. Term and expiration of the insurance policy; and

10. Premiums and payment method.

§4-26. Scope of the Concurrent Management Prohibited

An insurance broker shall be prohibited from engaging in the acts provided under the provisions of Article 92 paragraph (2) of the Act and the acts provided under the following;

1. Mutual contribution;

2. Provision of convenience such as money, goods of consumption, and information, among others; in which event, "provision of convenience" means providing the money, goods of consumption, services and the information obtained from clients (with the exclusion of individual client's consent obtained in advance);

3. Joint use of the office; in which event, "joint use of the office" means use of the office or the state of the office being located within the identical building, potentially resulting in a confusion for the clients; and

4. Exchange of personnel; in which event, "exchange of personnel" means dispatching assistants or executive directors and employees (with the exclusion of the retired personnel).

§4-27. Submission of the Calculation Documents

An insurance broker shall close its book on December 31st of every year and shall submit the following documents to the Governor within 2 months from the closing date of the book;

1. Business report;

2. Balance sheet;

3. Income statement; and

4. Statement on the appropriation of earnings surplus or loss (restricted to business entities).

§4-28. Invoicing the Insurance Brokerage Fees

(1) An insurance broker shall invoice the insurance company for the fees, payment and any others denoted by certain rate of the premiums received in connection with the intermediation of executing the insurance policy agreements, and shall not invoice the parties to the policy agreement.

(2) Notwithstanding the provisions of paragraph (1), the insurance broker may directly invoice the parties to the insurance policy agreement, among others, to the extent the terms of written agreements with the parties allow, for any payment other than the premiums and payments provided in exchange for the services provided, as separate from the intermediation pertinent to executing the policy agreement.

(3) An insurance broker shall notify the policy agreement of the details of the invoice to the parties prior to providing the services in question for the purposes of directly invoicing the parties to the agreement, together with the premiums and payments provided under the provisions of paragraph (2).

§4-29. Opening and Reporting of the Insurance Brokerage Account

(1) An insurance broker shall open and report immediately to the Governor the account exclusively used for managing all fund transactions pertaining to the insurance brokerage business, such as receipt of brokerage fees on the execution of insurance policy agreements and premiums payment made to the insurance company, at the very moment of starting the business; the requirement of reporting remains the same where any change or closing of the account takes place.

(2) An insurance broker shall deposit all income including premiums received in connection with the brokerage into the exclusive account.

(3) An insurance broker shall pay the insurance company the premiums received from the policyholder on the same day, unless provided otherwise by separate agreement with the insurance company.

(4) An insurance broker shall make available documents evidencing withdrawal or deposit made from the account in connection with the fees received from the policyholders, intermediation, interests accrued, and account maintenance (where rate of fees and execution of policy agreement documentation shall be made available for a withdrawal of fees).

(5) An insurance broker may make payments pertinent to the brokerage to the insured and the insurance company only through the exclusive account.

§4-30. Application for the Exception on Revocation of the Insurance Broker Registration

To apply for the exception on the revocation of the insurance broker registration in accordance with the provisions of Article 39 paragraph (3) of the Decree, the insurance broker shall immediately submit to the FSC by attaching the following documents as soon as its liabilities exceed its assets;

1. Balance sheet as of the liabilities are in excess of the assets;

2. Reasons for the liabilities exceeding the assets and action plans; and

3. Other documents for reference.

Section 2.

Compliance Requirements on Solicitation

Subsection 1.

General Requirements

§4-31. Creating the Solicitation Order

(1) An insurance company shall not engage in unfair solicitation activities and shall create a fair business environment, thereby establishing a solicitation order, enhancing public confidence in the insurance, and protecting the interests of the policyholders.

(2) A person qualified to solicit in accordance with the provisions of Article 83 of the Act (hereinafter, "solicitors") shall prevent complaints and disputes arising out of the insurance policyholders by helping them precisely understand the terms of the policy, while complying with the statutes on the solicitation and any other rules and regulations pertinent toward maintaining a sound solicitation order.

(3) An insurance company and solicitors shall not consign, and pay fees for, solicitation to the solicitors consigned by other insurance companies, and the solicitors shall be prohibited from soliciting for any other than the insurance company having consigned.

(4) Solicitors shall be prohibited from issuing receipts in advance without receiving the insurance premiums, and shall be prohibited from receiving promissory notes that will be cleared after the grace period on the payment as provided by the terms of the policy in case of installment delivery.

(5) Solicitors shall issue receipts designated by the insurance company having consigned solicitation when the premiums are received; provided that the receipts may not be issued if the premiums are received via credit cards or financial institutions, including the postal office.

⑹ Solicitors cannot settle insurance contracts that one has solicited as solicited by others, and vice versa.

⑺ Solicitors are prohibited from preparing and executing policy agreements by providing name other than the actual name of the insured or the parties to the agreement (as provided under the provisions of Article 2 paragraph (4) of the Act on the Real Name and Confidentiality for Financial Transactions).

§4-32. Reasonable Execution of the Business Expenses

(1) An insurance company shall appropriately develop and enforce its own payment standards to allow fees, commission and others to be disbursed to the insurance brokers, agencies and solicitors within the scope of the business expenses scheduled in the premium and reserve calculation guidelines by product.

(2) An insurance company may pay other fees than those provided under paragraph (1) in the event of income resulting from the agreements solicited by the insurance agencies.

(3) In the execution of the expenses in connection with the solicitation, an insurance company shall ensure that the expenses are matched against the material terms of the transactions and are appropriately accounted for in the sealed receipts, among others.

(4) An insurance company shall be prohibited from executing other expenses than transportation and general and administrative expenses in executing policy agreement (with the exclusion of automobile and travel insurances) with the large shareholders provided under Article 2 paragraph (16) of the Act and the subsidiaries other than those provided under Article 50 paragraph (1) of the Decree.

§4-33. Sound Management of the Insurance Premium Receipt System

(1) An insurance company shall collect and receive the premiums prior to the start of the insurance period, unless provided otherwise by separate agreement based in the initial documents as with non life insurer or approved by the Governor.

(2) Insurance premiums shall in principle be collected and received in cash and, in the event of non household non life insurance, checks dated in advance or cashier's checks may be received (hereinafter in this Article, "promissory notes" including those endorsable). The insurance premiums paid for the export and import of products, however, may be collected within 5 days from the issuance of certificates, and collection of the premiums wired overseas may be governed by the customs and practices of the country in question.

(3) Checks dated in advance or promissory notes on which premiums are paid shall be paid and settled within one month from the date of acquisition. In such an event, interests calculated by the average bank deposit rate for 1 year maturity disclosed by the insurance rate calculating institution shall be added to the premiums in question. In the event one month elapses, they shall automatically be dishonored and the interest bearing term shall be limited to the date of payment and settlement. For the insurance policies provided with grace period on payment, checks dated in advance shall be cleared and settled by the expiring date of the grace period from the date of acquisition, one month in excess of which they shall be settled by the expiring date of the grace period.

(4) Interest calculation for the checks dated in advance or promissory notes shall be conducted from the date subsequent to acquiring the promissory notes; provided that the advance payment agreement on a termed insurance policy shall be calculated from the date of the start of the liability coverage.

(5) The insurance company may provide a grace period of up to 2 months for the receipt of premiums from the issuance of certificates on the policy agreements to which the Government (or self governing organizations) is a party or for which the Government pays premiums.

⑹ The special agreement on insurance premium calculation provided under paragraph (1) may be exercised for the policyholder whose monthly average number of the policies are at least 25 and whose monthly average premiums paid are at least KRW 5 million during the past 6 months.

§4-34. Insurance Guide Materials

(1) An insurance company shall provide the following information in preparing the insurance guide materials;

1. Matters provided under Article 95 paragraph (1) of the Act;

2. Matters provided under Article 42 paragraph (3) of the Decree;

3. Matters provided under Article 42 paragraph (1) of the Decree in the event of variable insurance policy agreement;

4. Insurance premiums and requesting method and procedures for reduced origination fees, terms of agreement on refinancing the insurance value, subscriptions fees, and that insurance premiums will be varied depending upon the value insured, in the event of non life insurance policy agreements; and

5. Other information the Governor deems it necessary for the purposes of protecting the policyholders.

(2) An insurance company shall not provide the following information that may cause misunderstanding on the part of the information acquirer in its preparation of the insurance guide materials;

1. Matters provided under Article 42 paragraph (2) of the Decree;

2. Information stating that benefits are extended to certain policyholders; and

3. Other information the Governor deems it necessary for the purposes of protecting the policyholders.

(3) "Circumstances or events designated by the Financial Supervisory Commission" as provided under Article 95 paragraph (3) of the Act means the severance payment insurance providing dividends payout, enabling future payouts based upon the performance of the previous five years. In such an event, it shall be clearly noted that the future dividend payouts are only estimates and that they might differ from the future actual payouts.

§4-35. Managing the Insurance Guide Materials

(1) An insurance company shall designate a department responsible for managing the insurance guide materials and shall also ensure that the personnel involved in executing and soliciting policy agreements and the insurance guide materials developed within use the materials after its reviews and provides administrative numbers. Persons other than the insurance brokers shall be prohibited from using the insurance guide materials that were not reviewed by the insurance company.

(2) An insurance company shall have an insurance actuary or product valuation department participate in the review of the insurance guide materials in accordance with paragraph (1).

(3) The Governor may require appropriate actions such as amendment, disposal, and correction in press release on the insurance guide materials that are not appropriate and prepared by the insurance company, among others.

§4-36. Cautions in Telemarketing

(1) Persons marketing insurance products utilizing telephone, postal mail, and computer, among others, (hereinafter, "telemarketing") shall be those allowed and provided under Article 83 of the Act;

(2) Persons conducting telemarketing business shall comply with relevant statutes on the collection, utilization and provision of personal information, and shall ensure by instructions and training that the personnel involved in the telemarketing and sales do not cause injuries or inconvenience to the clients as a result of any disclosure.

§4-37. Exemption of Signature by Telephone Solicitation

"Circumstances and events determined by the Financial Supervisory Commission" as provided under Article 43 paragraph (3) of the Decree means any that is applicable under the following subparagraphs;

1. For life insurance policy, policyholder, insured, and beneficiary shall be identical; or policyholder and insured shall be identical and the beneficiary shall be legal successor to the policyholder; whereas for non life insurance policy, the policy agreement shall be such that the policyholder and insured are identical;

2. A system for questioning, explaining and recording all matters, such as personal identification, terms of policy, premium payment, insurance period, notification obligation, and terms and conditions of policy agreement, among others, that are needed for executing insurance policy agreement and securing evidences on the policyholder's response and affirmative information; and

3. Statement of confirmation documenting the voice recorded in accordance with paragraph (2) shall be delivered to the policyholder and, in the event of a request by the policyholder and insured for the verification of the voice recording, it shall be verifiable.

§4-38. Cyber Mall Installation and Operation Standards

(1) In a cyber mall intended for solicitation, the following information shall be provided for the convenience of the users;

1. Name or tradename or title of the person installing the cyber mall, telephone, address, tradename or title of the consigning insurance company, and administrative number assigned in accordance with the provisions of Article 43 paragraph (4) subparagraph (1) of the Decree;

2. (Electronic) signature and cautions for subscribing to insurance policy, such as disadvantages in the event of breach of notification obligation;

3. Information on changes in the terms of agreement, such as withdrawal of subscription, cancellation of agreement following failure to pay premiums, revival of agreement, and notification obligation, among others;

4. Information on the insurance policyholder protection, such as deposit protection system, insurance counseling, and arbitration, among others;

5. Information on the refund of the insurance premiums, such as shortage in the penalties charged in terminating policy agreement;

6. Critical information on the insurance products such as terms of guarantee, scope of subscription qualifications and uninsured damages and liabilities; and

7. Other information that policyholders should be aware of.

(2) An insurance company intending to execute insurance policy agreements or extend loans by computer, among other electronic means, shall develop and use terms and conditions that provide rights and obligations of the insurer and the insurance service users for the purposes of ensuring stability of the transaction and protecting the service users.

Subsection 2.

Prohibited Acts of the Financial Institution's Insurance Agency

§4-39. Prohibited Acts of the Financial Institution's Insurance Agency

(1) "Standards determined by the Financial Supervisory Commission" as provided under Article 48 paragraph (3) of the Decree means objectively proving that the financial institution's insurance agency, among others, has contributed to the resulting differences in the rates of risks in the agreements solicited. Solicitation fees, however, may be reduced in the event of loss in the rates of risks in the agreements solicited by the financial institution's insurance agency, among others.

(2) Matters determined by the Financial Supervisory Commission as provided under Article 100 paragraph (4) of the Decree, Article 40 paragraph (8) of the Decree, and Article 48 paragraph (5) of the Decree are as follows;

1. Prohibited Acts

a. Acts of deploying insurance company's executive directors and employees, insurance solicitors, or other insurance agency and insurance brokers in the headquarters and branch offices of the financial institution's insurance agency to carry out solicitation activities (hereinafter, "internal deployment of the financial institution"); and

b. The following acts recognized to be the exercise of unfair influence upon the insurance company's management;

(a) Act of requiring the financial institution's agency or third party service or product purchase;

(b) Act of requiring third party's personal information, such as policyholder's, without due process;

(c) Act of requiring manpower support or transferring labor costs against conventional terms of transaction;

(d) Act of requiring changes in the IT system unilaterally;

(e) Act of requiring placement of restrictions on the use of information on policyholders; and

(f) Act of requiring placement of certain restrictions on the insurance company's assets created through the insurance policy agreements solicited.

2. Compliance Requirements

a. Place of solicitation shall be easily identifiable for subscribers, by installing sign boards as provided under Article 100 paragraph (2) subparagraph 3 of the Act;

b. Subscriber shall be availed with easy identification of the executive directors or employees qualified to conduct solicitation in accordance with the provisions of Article 40 paragraph (3) of the Decree;

c. Accounting shall be performed so as to distinguish income and expenses directly or indirectly resulting in connection with the agency or intermediation in executing policy agreement, and the contractual relations between the financial institution's insurance agency and the insurance company, among others;

d. Matters provided under Article 100 paragraphs (1) and (2) of the Act shall be notified orally and in writing prior to marketing and selling the insurance products; and

e. Policyholders shall be ensured not to misunderstand the insurance products sold by the financial institution's insurance agency, among others, as their own.

Section 3.

Supplementary Rules

§4-40. Solicitation Training

(1) "Institution designated by the Financial Supervisory Commission" as provided under Article 27 paragraph (2) Annexed Table subparagraph (1) of the Decree means an institution applicable under each of the following;

1. Insurance company;

2. Association; and

3. Insurance training institute established in accordance with the provisions of Article 178 paragraph (1) of the Act (hereinafter, "the Insurance Training Institute").

(2) The institution provided under paragraph (1) shall conduct trainings on the basic knowledge, laws and regulations on the solicitation, actual business, and terms and conditions of policy, among others.

(3) A person who successfully finished training programs provided under Article 27 paragraph (2) Annexed Table 3 subparagraph (1) of the Decree means a person who has completed the training programs provided under paragraph (2) and qualified in the examination conducted by the Association.

§4-41. Training on the Variable Insurance Policy Agreement Solicitation

(1) In the event any person provided under Article 83 of the Act intends to solicit variable insurance policy agreement, he or she shall qualify in the examinations provided under the following subparagraphs in accordance with the provisions of Article 56 paragraph (2) of the Decree;

1. Qualification examiantion for the variable insurance policy agreement solicitation, conducted by the Association; and

2. Comprehensive asset manager examination, conducted by the Association.

(2) The president of the Association shall determine specific standards needed for the operation and management of the examinations provided under paragraph (1) subparagraphs 1 and 2.

§4-42. Management of the Unfair Solicitation Activities

(1) When an insurance company discovers acts, which is breach of the laws or equity, committed by the personnel employed by, or consigned by the insurance company, it shall report them to the Governor, unless provided otherwise by other special regulations.

(2) The Governor shall record personal information on any individual applicable under the following subparagraphs;

1. Executive directors and employees of an insurance company in receipt of disciplinary action greater than suspension of duties by the FSC or the Governor or an action greater than suspension of duties by the employer insurance company;

2. Insurance broker, chief executive officer, and chief executive director of the insurance agency whose registration has been revoked or whose business has been suspended;

3. Qualified personnel of the insurance broker and agency as a business whose registration has been revoked as a result of their act;

4. Executive directors and employees of the insurance broker, in receipt of suspension of duties as a result of examination performed in accordance the provisions of Article 136 of the Act; and

5. Insurance solicitor, insurance agency's executive directors and users, and insurance agency's trainees whose registration has been revoked or whose business has been suspended.

§4-43. Notification on the Revocation of Registration

The Governor shall notify the Association and insurance company of the list of the solicitors whose registration has been revoked or whose business has been suspended.

CHAPTER 5.

ASSET MANAGEMENT

Section 1.

Methods and Standards on Asset Management

§5-1. Scope of Public Interest Business

(1) "Scope determined by the Financial Supervisory Commission" as provided under Article 49 paragraph (1) subparagraph 1 of the Decree means a circumstance or an event in which the purpose of displaying in the place of business under social conventions is recognized and allowed.

(2) The scope of public interest business provided under Article 49 paragraph (1) subparagraph 2 of the Decree is as follows;

1. Business capable of making contributions to the national health and welfare improvements : housing project, social welfare project, medical project and others recognized by the Governor;

2. Business capable of making contributions to the arts and cultural promotions : regular exhibitions, performance centers and others recognized as necessary by the Governor; and

3. Public interest business jointly ventured by insurance company or one that is based upon the revaluated reserves, whose contents and methods are approved or decided by the Public Interest Business Steering Committee which is organized according to the provision made by the Governor.

(3) Real estate properties used by the insurance company in the public interest business provided under paragraph (2) subparagraph 2 shall be considered business facilities provided under Article 49 paragraph (2) subparagraph 1 of the Decree.

§5-2. Investment Standards on Foreign Exchange and Derivative Transactions

"Standards determined by the Financial Supervisory Commission" as provided under Article 49 paragraph (3) subparagraph 1 of the Decree are as provided in the annexed Tables 8 and 9.

§5-3. Designation of the Shareholders Exercising De Facto Influence

The Governor may require insurance company and its shareholders of the materials needed to check whether they are applicable under Article 6 paragraph (2) subparagraph 2 of the Decree.

§5-4. Guidelines on Unfair Transactions with Large Shareholders

Guidelines on "severely adverse conditions" in the event of transactions with the insurance company's large shareholder or subsidiaries as provided under Article 111 paragraph (1) subparagraph 2 and Article 116 subparagraph 1 of the Act are as provided in the annexed Table 10.

§5-5. Standards on Single Transaction Value in the Event of Transaction with Large Shareholder

(1) The single transaction value provided under Article 57 paragraph (1) of the Decree shall be calculated based upon the value agreed upon under each individual credit extension agreement (acquisition amount in the event of acquiring bonds or stocks under a single, identical agreement, as provided under Article 111 paragraph (2) of the Act; hereinafter the same in this Article) executed with, and as per, the identical individual or business entity (including renewal, reaging, and extension of the existing agreement). Where a multiple number of agreements are executed on the same day as with the identical individual or business entity, however, it shall be calculated based upon the sum of all individual values of the agreements.

(2) "Other matters determined by the Financial Supervisory Commission" as provided under Article 57 paragraph (2) of the Decree means the status of credits extended to large shareholders inclusive of purpose of the funds by type of credits extended, term of extension, interest rates applied among others terms of transaction, type of security or collateral and its appraised value, special terms or conditions and the credits extended to the identical individual or business entity.

§5-6. Designation and Management of the Special Account

(1) An insurance company shall designate and operate the insurance policy agreements applicable under the following subparagraphs as special accounts in accordance with the provisions of Article 108 paragraph (1) of the Act and Article 52 of the Decree;

1. Pension savings life insurance policy agreement and pension savings non life insurance policy agreement provided under the provisions of Article 86-2 of the Special Tax Exemption Restrictions Act;

2. Severance payment insurance policy agreement provided under Article 34 of the Labor Standards Act;

3. Variable insurance policy agreement marketed and sold by life insurer;

4. Tax relief personal pension non life insurance policy agreement provided under Article 86 of the Special Tax Exemption Restrictions Act; and

5. Long term non life insurance policy agreement marketed and sold by non life insurer.

(2) Special accounts shall be managed by the insurance policies provided under paragraph (1) and be classified as to whether there are dividends to pay out; provided that the variable insurance policy agreements provided under paragraph (1) subparagraph 3 may have two or more special accounts to designate and manage.

(3) Subjects managed under the special accounts are cumulative premiums and profits from their management.

(4) Cumulative premiums provided under paragraph (3) shall be as follows;

1. For paragraph (1) subparagraphs 1, 2, 4 and 5, they shall be the net premiums paid and accumulated as provided by the insurance premium and reserve calculation method, whereas any agreements whose net premiums are not divided shall be calculated as follows; provided that the cumulative premiums of the insurance policy agreements provided under paragraph (1) subparagraph 1 and 4 shall be the value calculated and non amortized new premiums based upon the premium and reserve calculation method. Cumulative premiums as of the end of insurance year / (1+Expected rate) - Cumulative premiums as of the end of the previous insurance year; and

2. For paragraph (1) subparagraph 3, value with the exclusion of the those needed to cover deaths and risks as per the term in question, among the net premiums.

§5-7. Fund Transfer on the Special Accounts

(1) Fund transfers made in between the special and ordinary accounts shall be limited to where applicable under each of the following subparagraphs;

1. Transfers made for collecting premiums corresponding to the special accounts and for paying insurance premiums, dividends and refunds;

2. Transfers made from the policy agreements for which premiums are fully paid or monthly premiums are not paid, to ordinary accounts on risk insurance premiums resulting from the non elapsed term as per the non paid monthly policy agreements, among others;

3. Transfers made for management fees, repayment on loans, and for collecting the principal;

4. Transfers made via The Bank of Korea or commercial banks' network for paying and settling for bonds outside the market; and

5. Other transfers acknowledged to be necessary for maintaining the special accounts.

(2) Transfers provided under the provisions of paragraph (1) shall be made within 5 business days from the date of cause; provided the cause for the transfers for the policy agreements provided under Article 5-6 paragraph (1) subparagraphs 1, 4 and 5 has occurred in between the 1st and the 15th of every month, transfers shall be made by the last day of the month in question, and if it has occurred in between the 16th and the last day of the month, they shall be made by the 15th of the subsequent month.

(3) Inter account transfers provided under paragraph (1) shall be calculated as follows;

1. For Article 5-6 paragraph (1) subparagraphs 1, 2, 4 and 5, the interest accruing as a result of the transfers made in between the special and ordinary accounts shall be the primary lending rates of he insurance company in question; and

2. For Article 5-6 paragraph (1) subparagraph 3, the calculation of the transfers made in between the special and ordinary accounts shall be the basis price of the special account as of the date of payment and settlement.

(4) The special account assets shall be traded by the distribution markets, among others.

(5) Management of the special accounts' initial investment assets carried over from the ordinary accounts in accordance with the provisions of Article 53 paragraph (4) subparagraph 3 of the Decree shall be governed by every special account as under the following subparagraphs;

1. The lesser of 1 percent of the total accounts or KRW 10 billion shall be the ceiling;

2. In the event the special account assets should exceed 200 percent of the initial investments made as of the end of business year, the initial investments shall be carried over to the ordinary accounts within 6 months based upon the special account's basis price; and

3. Transfer or carry over of the initial investment shall be made in cash.

§5-8. Loans to the Insurance Company's Executive Officers and Employees

(1) "Small sum loans designated by the Financial Supervisory Commission" as provided under Article 105 paragraph (1) subparagraph 6 and Article 116 subparagraph 3 of the Act means the loans provided under each of the following subparagraphs; provided where it is applicable under Article 116 subparagraph 3 of the Act, its lending terms shall be the same to those of the ordinary customers;

1. Ordinary consumer loans : KRW 20 million or less;

2. Housing loans (including ordinary consumer loans) : KRW 50 million or less; and

3. Coverage loans (including ordinary and housing loans) : KRW 60 million or less.

(2) The Governor shall decide matters pertinent to the calculation of the loans, among others, provided under paragraph (1).

§5-9. Small and Medium Sized Enterprise Loans of the Life Insurance Company

A life insurer shall loan out 35 percent or greater of the annual increase in the corporate loans(with the exclusion of those to the banks and securities companies) to the small and medium sized enterprises.

§5-10. Application Standards on the Asset Management Ratios

Standards pertaining to the application of the asset management ratios provided under Article 106, Article 107, and Article 116 of the Act; Article 3, Article 4, Article 49, Article 50, and Article 53 of the Decree; and Article 1-3, Article 5-2, Article 5-7, Article 5-8, and Article 5-9 of this Regulation shall be as provided in the annexed Table 11.

§5-11. Exceptions to the Special Account Asset Management Restrictions

The provisions of Article 53 paragraph (1) of the Decree shall not be applied in the event of any changes in the insurance company's asset conditions by reasons other than those contributing to the insurance company's intentions, such as changes in the asset values and execution of the security rights.

§5-12. Exceptions to the Asset Management Restrictions

(1) In connection with the insurance company's asset management restrictions, and where applicable under any of the following subparagraphs, it shall be deemed to have been approved in accordance with the provisions of Article 107 subparagraph 2 of the Act; provided that this provision shall not be applied where restrictions should apply as to the competition within the relevant markets following the ownership of at least 20 percent of the total stocks with voting right issued by other company in accordance with each of the following subparagraphs and as a result of the consultations with the Fair Trade Commission in accordance with Article 24 paragraph (3) of the Act on Structural Improvement of the Financial Industry;

1. Where the value of the assets under management is increased as a result of the receipt of payment in recovery, forcible execution, and other forms of collecting loans;

2. Where the stocks are acquired by debt equity swap as per the corporate applicable under any of the following items;

a. Corporate determined to undergo liquidation procedures by the Corporate Liquidation Act;

b. Corporate determined to undergo composition by the Composition Act;

c. Corporate undergoing workout in accordance with the Corporate Restructuring Promotion Act or the Agreement with Creditor Financial Institution for the Promotion of Corporate Restructuring; and

3. Where the stocks are acquired as a result of the exercise of rights to the convertible bonds or bonds with warrant in possession by the insurance company in question.

(2) To consult with the Fair Trade Commission in accordance with the proviso of paragraph (1), the insurance company shall report to the FSC in advance in the event it acquires 20 percent or greater of the total number of the stocks with voting right issued by other company.

(3) Circumstances and events recognized by the FSC under Article 51 of the Decree means each of the following subparagraphs;

1. Where collection within time is unreasonable since the term of the assets already under management has not yet arrived, or where disposition of the assets within time would be significantly adverse to the insurance company's asset quality;

2. Where causes not attributable to the insurance company's intention continue for a long term and, although the continued asset management doesn't make harm to the insurance company's asset quality, resulting in the severe deterioration of the management stability of the counter party to the transaction, if halted; and

3. Where it is similarly applicable according to the subparagraphs 1 and 2, in such case even if the non satisfaction of the asset management ratios continue for a period but does not gravely affect the insurance company's asset quality.

(4) The insurance company in excess of the asset management ratios provided under Article 106 of the Act, Article 50 of the Decree, and Article 53 of the Decree by reasons provided under Article 107 of the Act shall be prohibited from engaging in acts that contributes to increase the value of the assets under management provided under the said provisions.

(5) Where applicable under any of the subparagraphs of paragraph (3), the Governor shall designate the term to extend the period in which any excess of the asset management ratios may be resolved.

Section 2.

Subsidiaries

§5-13. Assumption of the Subsidiary Approval

(1) In the event an insurance company owns a company primarily engaged in the businesses provided under Article 59 paragraph (2) subparagraphs 1, 4, and 6 as its subsidiary, it shall be deemed to have obtained an approval under Article 115 paragraph (1) of the Act; provided that this provision shall not apply where the stocks and total shares in its subsidiary exceeds 5 percent of the total assets of the company owned (the same is applied to special accounts).

(2) In the event of any changes in its shareholding in its subsidiary, the insurance company shall submit documents provided under Article 60 paragraph (1) of the Decree within 7 days from the date of the change; provided that such a submission may be omitted if there is no change in the documents and contents already submitted.

Section 3.

Supplementary Rules

§5-14. Special Cases on Asset Management

(1) In the event an insurance company intends to acquire beneficiary certificates of a securities investment trust or stocks of a securities investment company for the purposes of entrusting a trustee company established under the Securities Investment Trust Act or an asset management company established under the Securities Investment Company Act (hereinafter, "the asset manager") with the asset management, each of the following standards shall be complied with;

1. That it shall be a securities investment trust company established under Article 33 paragraph (2) of the Securities Investment Trust Act, or a securities investment company(hereinafter, "the privately placed single fund") established under Article 79 paragraph (1) of the Securities Investment Company Act, whose beneficiary or shareholder shall each be a single insurance company;

2. That the asset management guidelines specifying the purpose of asset management, operating strategy such as major investment targets, investment restrictions, performance assessment, and termination of contract, among others, shall be observed; and

3. That the following items shall be included in the internal control standards under Article 17 of the Act and Article 22 of the Decree;

a. Matters pertaining to the appointment, dismissal and the process of appointment and dismissal of the asset manager;

b. Matters pertaining to the estimation of the asset manager's asset management performance and valuation;

c. Matters pertaining to the organization for the purposes of monitoring the propriety of the asset management by the asset manager;

d. Matters pertaining to developing a system for integrating and managing the assets invested by the insurance company, i.e., securities, and the privately placed single funds; and

e. Other matters needed for the sound asset management by the insurance company.

(2) In the event the insurance company holds "the privately placed single fund's beneficiary certificates or stocks," the assets of the privately placed single fund in question shall provide the basis in the application of the provisions of Articles 105 through 107 of the Act and Articles 53 through 55 of the Decree. The same shall apply with respect to the insurance company reaching any specific monetary trust agreement with a trust company established under the Trust Business Act in accordance with Article 3 paragraph (2) subparagraph 1 of the Enforcement Decree of the Trust Business Act.

(3) With respect to a securities investment trust or a securities investment company other than the privately placed single fund, whose beneficiary or shareholder is a single insurance company (hereinafter, "the publicly placed single fund"), the provisions of paragraph (1) subparagraphs 2 and 3 and paragraph (2) shall be applied mutatis mutandis.

§5-15. Maintenance of Order in the Financial Transaction

(1) An insurance company shall not require borrowers including their spouses and families, to enter into insurance policy agreement under the terms that are overly burdensome at the execution of loan (hereinafter, "binding insurance contract").

(2) The scope and standards of the binding insurance contract provided under paragraph (1) shall be governed by the stipulations of the Governor.

(3) An insurance company shall not engage in acts to evade the application of the provisions on the asset management restrictions provided under the laws, statutes, decrees and this Regulation.

(4) An insurance company shall not engage in unsound business activities as to require a blank check in connection with executing insurance contract or extending loans.

(5) In the event an insurance company intends to execute subordinated credits (loans, acquisition of corporate bonds, or deposits made under the condition in accordance with Article 7-10 paragraph (1) subparagraphs 2 through 4; hereinafter the same) to financial institutions (provided under the provisions of Article 2 paragraph (1) of the Act on Structural Improvement of the Financial Industry), it shall comply with the following standards;

1. That its solvency margin of the end of the previous quarter shall be at least 100 percent; and

2. That the institution to receive subordinated credits shall not be a financial institution subject to prompt corrective action or placed under grace period under the provisions of Article 10 of the Act on Structural Improvement of the Financial Industry.

Section 4.

Supervision of the Foreign Exchange Business

Subsection 1.

Registration of a Foreign Exchange Business Institution

§5-16. Definitions

"Institution conducting foreign exchange business" herein this Chapter means an insurance company having completed registration of the foreign exchange business in accordance with the provisions of Article 8 paragraph (1) of the Foreign Exchange Transaction Act.

§5-17. Requirements for Registration

(1) "Financial condition requirements applied to the financial institutions in question and determined by the Financial Supervisory Commission" as provided under Article 13 paragraph (2) subparagraph 1 of the Enforcement Decree of the Foreign Exchange Transaction Act means each of the following;

1. Minimum capital requirements provided under Article 9 of the Act; and

2. Standards on financial conditions provided under Article 65 of the Decree.

(2) In the event of a request by the Minister of Finance and Economy for the verification of the satisfaction of the registration requirements in accordance with the provisions of Article 13 paragraph (3) of the Enforcement Decree of the Foreign Exchange Transaction Act, the Governor shall verify in accordance with the requirements provided under paragraph (1).

§5-18. Modifications of Registration

(1) In the event a foreign exchange business conducting institution intends to newly install or close its office in Korea, or change its address in accordance with the provisions of Article 16 paragraph (1) of the Enforcement Decree of the Foreign Exchange Transaction Act, it shall report to the Governor 7 days prior to such a change.

(2) Matters necessary related with the reportings provided under paragraph (1) shall be determined by the Governor.

Subsection 2.

Management of Soundness of Foreign Exchange Business

§5-19. Liquidity Risk Management

(1) Foreign exchange business conducting institutions shall classify the foreign currency assets and liabilities by each remaining term to maturity in accordance with the provisions of Article 21 paragraph (4) of the Enforcement Decree of the Foreign Exchange Transaction Act, and shall maintain the ratios provided under the following subparagraphs; provided that this provision shall not apply where the ratio of foreign currency liabilities to the total assets are lower than 1 percent;

1. Ratio of the liabilities whose remaining term to maturity is 3 months divided to the assets whose remaining term to maturity is 3 months : 80 percent or greater; and

2. Foreign currency assets and liabilities' maturity mismatch ratio :

a. Where the remaining term to maturity is 7 days or less, the ratio of assets in excess of liabilities : 0 percent or greater; and

b. Where the remaining term to maturity is 1 month or less, the ratio of liabilities in excess of assets : 10 percent or less.

(2) The classification, scope and ratio calculation of the remaining terms to maturity provided under the provisions of paragraph (1) shall be governed by the stipulations of the Governor.

§5-20. Classification of the Foreign Exchange Position

(1) The foreign exchange business conducting institution's overall position by each foreign currency shall be classified as follows;

1. Foreign exchange over-bought position refers to the difference between the following total amounts where the total amount of spot and futures assets balance exceeds that of spot and futures liabilities balance; and

2. Foreign currency over-sold position refers to the difference between the following total amounts where the total amount of spot and futures liabilities balance exceeds that of spot and futures assets balance.

(2) The foreign exchange position of an institution conducting foreign exchange business shall be whichever the larger of the total amount of overall over-bought position and that of overall over-sold position for each foreign currency.

(3) The Governor shall determine the scope of the foreign currency assets and liabilities under paragraph (1).

§5-21. Ceiling on the Foreign Exchange Position

(1) The ceiling on the foreign exchange position of an institution conducting foreign exchange business shall be as follows;

1. Foreign currency over-bought position : 20 percent of the solvency margin as of the end of the previous quarter on the basis of the total amount of overall over-bought position for each foreign currency; and

2. Foreign currency over-sold position : 20 percent of the solvency margin as of the end of the previous quarter on the basis of the total amount of overall over-sold position for each foreign currency.

(2) The solvency margin provided under paragraph (1) shall be calculated in accordance with the provisions of Article 7-1 and converted into the U.S. dollars based upon the exchange rate determined by the Governor.

§5-22. Recognition of Separate Ceiling on the Foreign Exchange Position

(1) The Governor may allow separate ceiling other than those provided under Article 5-21 to the domestic branches of a foreign insurer who wants permission of separate ceiling on foreign currency purchased to hedge foreign exchange risks for earned surplus carried forward to the following term, and to an institution conducting foreign exchange business deemed in need of excess over ceiling.

(2) Permission of separate ceiling provided under paragraph (1) shall be one year or less and other specific matters on the permission shall be determined by the Governor.

§5-23. Management of Ceiling on the Foreign Exchange Position

(1) An institution conducting foreign exchange business shall confirm the compliance status on ceiling for foreign exchange position based upon remaining balance for every business day; provided, however, in the case of the foreign exchange position for Saturdays and holidays of the foreign exchange market in New York, confirmation shall be made based upon the average remaining balance with the addition of that from the following business day.

(2) An institution conducting foreign exchange business, which fails to observe ceiling on foreign exchange position, shall report to the Governor within three business days from the date of failure.

(3) An institution conducting foreign exchange business shall report daily status of foreign exchange position to the Governor on a monthly basis in accordance with the stipulations of the Governor.

(4) The Governor may require an institution conducting foreign exchange business to submit evidentiary data or make books and documents available for inspection for the purposes of ceiling management.

§5-24. Exceptions to Management of the Ceiling on the Foreign Exchange Position

Foreign exchange position resulting from structural elements of an institution conducting foreign exchange business shall be excluded from ceiling management where applicable under any one of the following subparagraphs;

1. Foreign currency purchased for hedging foreign exchange risks of capital or business funds; and

2. Foreign currency purchased and separately recognized for domestic branch of a foreign institution to hedge foreign exchange risks of earned surplus carried forward to the following term.

§5-25. Internal Management of the Institution Conducting Foreign Exchange Business

(1) An institution conducting foreign exchange business shall establish and operate its internal management standards for each kind of risks arising out of foreign currency transactions, such as country risks, large credit risks, financial derivatives transaction risks, market risks and others under Article 21 subparagraph 6 of the Enforcement Decree of the Foreign Exchange Transactions Act.

(2) In the event an institution conducting foreign exchange business intends to establish and alter the management standards or make foreign currency transactions beyond the management standards under paragraph (1), it shall obtain an approval from the Risk Management Committee in accordance with the provisions of Article 7-6.

(3) The Governor shall establish exemplary standards by type of risks provided under paragraph (1) and, where the risk management standards of an institution conducting foreign exchange business should be determined inappropriate, may require corrections thereof.

§5-26. Preclusion

(1) The provisions of Articles 5-19 and 5-25 shall not be applied to the institutions conducting foreign exchange business, whose head offices are located overseas.

(2) The provisions of Article 5-23 paragraphs (2) and (3) and Article 5-28 paragraph (1) and (2) shall not be applied to the institutions conducting foreign exchange business, which do not engage in transactions provided under Article 2-12 paragraph (2) subparagraph 3 item d of the Regulation on the Foreign Exchange Transactions.

Subsection 3.

Sanctions Against Violations of the Regulation on Soundness of Foreign Exchange Business

§5-27. Sanctions Against Violation of Liquidity Ratio in Foreign Currency

(1) In the event an institution conducting foreign exchange business fails to maintain the ratios provided under Article 5-19 twice or less during the past one year period (and three times or less during the past one year period with respect to the ratios provided under Article 5-19 paragraph (1) subparagraph 2 item a), it shall submit an explanatory statement and recovery plan to the Governor on each violation within 20 days therefrom.

(2) In the event an institution conducting foreign exchange business fails to achieve and maintain the ratios provided under Article 5-19 three times during the past one year period, ascended ratios provided under the following subparagraphs shall be applied notwithstanding the provisions of Article 5-19;

1. Ratio provided under Article 5-19 paragraph (1) subparagraph 1 : 85 percent or greater; and

2. Ratio provided under Article 5-19 paragraph (1) subparagraph 2 item b : 5 percent or less.

(3) Where an institution conducting foreign exchange business is applicable under the following subparagraphs, it shall suspend new foreign currency borrowings maturing in three months or less (with the exclusion of call money maturing in 30 days or less) until it achieves the ratios provided under the following subparagraphs;

1. Failure to achieve and maintain the ratios provided under paragraph (2) subparagraph 1 or Article 5-19 paragraph (1) subparagraph 1 at least four times during the past one year period : 85 percent or greater;

2. Failure to achieve and maintain the ratios provided under Article 5-19 paragraph (1) subparagraph 2 item a at least four times during the past one year period : 5 percent or greater; and

3. Failure to achieve and maintain the ratios provided under paragraph (2) subparagraph 1 or Article 5-19 paragraph (1) subparagraph 2 item b at least four times during the past one year period : 5 percent or less.

(4) Even though sanctions are applicable under paragraph (2) or (3), where it is inextricable due to economic and financial circumstances domestic and abroad, the Governor may recommend exemption, suspension or removal of sanctions in effect to the FSC; and in the case of the sanction subject to exemption shall not be counted toward the number of violation.

(5) In the event an institution conducting foreign exchange business fails to achieve and maintain the ratios provided under Articles 5-19 at least twice during the past one year period, the Governor may take actions necessary against the institution such as shortening the length of reporting cycle, among others, as provided under Article 5-30.

§5-28. Sanctions Against Violations of the Limit on Foreign Exchange Position

(1) The Governor may impose a sanction in accordance with the following subparagraphs in the event institutions conducting foreign exchange business violate the ceiling on the foreign exchange position as a result of confirmation provided under Article 5-23 paragraph (1);

1. When violating once during the past one year period from the date of violation : warning; and

2. When violating twice during the past one year period from the date of violation: reduction of the daily average violating amounts per day multiplied by the number of days violating beyond the foreign exchange position.

(2) Institutions conducting foreign exchange business shall be subject to a double reduction from the ceiling pursuant to paragraph (1) subparagraph 2 where applicable under any of the following subparagraphs;

1. When violating three times or more within the last one year from the date of ceiling violation;

2. When committing the violation on purpose; and

3. When reporting of matters provided under Article 5-23 paragraph (2) has not been made within three working days from the first date of violation.

(3) Where causes of excess over ceiling such as reduction of equity capital, among others, are recognized to be inextricable in the course of issuing sanctions under paragraphs (1) and (2), the Governor may exempt, suspend, or remove the sanction concerned. Where exemption of sanction is granted, the sanction concerned shall not be counted toward the number of violation.

(4) Where an institution conducting foreign exchange business has not performed reporting duty or has made a false report, the Governor may take such actions as issuing a warning, correction order, or reduction of ceiling on foreign exchange position for a specified term.

§5-29. Status Report on Sanctions

When imposing sanctions against institutions conducting foreign exchange business in violation of Articles 5-27 and 5-28, the Governor shall report on the status of sanctions to the FSC within one month from the end of every quarter.

Subsection 4.

Reporting on Foreign Exchange

§5-30. Reporting

An institution conducting foreign exchange business shall report on the current status of its assets and liabilities in foreign currency, its current status of financing and operation of funds in foreign currency and other matters necessary in accordance with the stipulations of the Governor.

CHAPTER 6.

INSURANCE ACCOUNTING

Section 1.

General Principles

§6-1. Purpose and Scope of the Accounting of Insurance Supervision

The purpose of this Chapter is to define the matters concerning the accounting standards to be used for the supervision of insurers, and the matters of equivalent nature not prescribed under this Chapter shall be governed by the Statement of Corporate Accounting Standards (or the Corporate Accounting Standards and the Accounting Standard for Insurance Industry, if the Statement of Corporate Accounting Standards are not available).

§6-2. Drafting of Financial Statements

(1) The financial statements of an insurer shall consist of a balance sheet, an income statement, a statement of appropriation of retained earnings, a statement of disposition of deficit, and a statement of cash flows.

(2) The financial statements shall be drafted in the form of juxtaposing the financial information pertaining to the current accounting year and the preceding accounting year, with headings and titles provided in English as well as in Korean. The monthly balance sheet and statement of income, however, may be drafted in the form of presenting financial information pertaining to the current accounting year alone.

(3) The format of financial statements, accounting standards by accounting item and calculating standards for foreign currency account mandated in the Enforcement Decree of Foreign Exchange Transaction Act shall be determined by the Governor.

§6-3. Amortization of the Acquisition Costs

(1) Acquisition costs spent shall be amortized by policy within the scope of the business expenses scheduled in the premium and reserve calculation by product. However, the amount exceeding the expected acquisition costs, and the acquisition costs in cases where the ratio of loading charge is disproportionately distributed toward the initial insurance period for successful collection of the acquisition costs in an early stage, shall be recognized as expenses incurred in the current accounting year.

(2)  Acquisition costs shall be equally amortized over the term of the premium payment; provided where the non amortized cost by insurance company is greater than the difference resulting from between the net premiums type premium reserve paid and another for the redemption upon cancellation, the amount in excess shall be amortized during the accounting year in question.

(3) The amortization of acquisition costs provided under paragraph (2) shall be carried out over a period of seven years, in case the premium payment period exceeds seven years; where there is any non amortized amount left over as of the policy cancellation date (in case an insurance contract becomes invalid before cancellation, the invalidation date), such remainder shall be amortized in the accounting year in which the cancellation date is covered.

§6-4. Depreciation

Buildings, structures and intangible assets shall be depreciated by the fixed amount method, while other assets to be depreciated shall be subject to the fixed rate method.

§6-5. Revaluated Assets

In the event assets were revaluated in accordance with the Asset Revaluation Act, they shall be accounted for based upon the revaluated value.

§6-6. Accounting of the Rededuction

(1) An insurance company engaged in rededuction business (including acquisition of agreements, in whole or in part, retained by the institutions conducting the deduction business in accordance with relevant statutes) in accordance with Article 16 paragraph (3) subparagraph 1 g) shall comply with accounting standards on reinsurance as per the earnings resulting from the rededuction to combine them in the income statement by account item.

(2) The insurance company shall not execute or account for the expenses incurred by the performance in solicitation, such as new acquisition costs other than transportation and general and administrative expenses in connection with rededuction based upon the performance of solicitation.

§6-7. Settlement of Accounts

(1) For accurate indication of the business performance and financial standings of the fiscal year, an insurer shall draft its statements on the settlement of accounts for the fiscal year in accordance with the provisions of relevant statutes or instructions issued by the FSC or the Governor.

(2) Where and as necessary, the Governor may prescribe guidelines for the settlement of accounts and mandate provisional settlement during an fiscal year.

(3) In accordance with the provisions of Article 118 of the Act, an insurer shall prepare and submit to the Governor the following;

1. Business report;

2. Financial statements and supplementary schedules;

3. Audit report; and

4. Amortization of funds and payment of interests borne on the funds.

(4) The format and contents of the business report provided under paragraph (3) subparagraph 1 shall be determined by the Governor.

§6-8. Submission of the Business Operation Report

An insurer shall submit to the Governor a report stating the details of business in operation in accordance with the stipulations of the Governor.

Subsection 2.

Life Insurance Business

§6-9. Preparation Standards on the Financial Statements of Life Insurers

(1) A balance sheet shall be comprised of assets, liabilities, and shareholders' equity; assets shall be classified into operating assets, non-operating assets, and assets under separate accounts; liabilities shall be classified into policy reserve, adjustment of policyholders' share, other liabilities, and liabilities under separate accounts; shareholders' equity shall be classified into paid-in capital, capital surplus, retained earnings, and capital adjustments.

(2) For the purposes of accurate reporting on business performance of an insurer, an income statement shall classify all revenues and expenses pertaining to the accounting period by their sources, while each revenue item shall be matched with its corresponding expense item on an accrual basis.

(3) An income statement shall be comprised of statements on insurance income or loss, investment income or loss, increase in (or refund of) policy reserve, operating income or loss, other income or loss, separate account income or loss, profit or loss before extraordinary profit or loss, net income or loss before corporate income tax expenses, corporate income tax expenses, and net income or loss.

(4) Income and expense, in principle, shall be indicated in gross amounts, and no revenues or expenses shall be excluded from the income statement through offsetting the revenue items against the expense items. Policy reserve, however, shall be provided in a net value.

§6-10. Classification of the Valuation Gains an Losses on Available-for-Sale Securities

(1) Gains and losses on the valuation of available-for-sale securities and investment securities accounted for by the equity method shall be classified separately under policyholders' adjustment account and capital adjustment account at the end of the fiscal year, in accordance with the current year's distribution ratio of the policyholders' share and the shareholders' share against the surplus before provisioning the policyholders' dividend reserve as under Article 6-13. Whereas, the value resulting in the policyholders' adjustment account from the losses on valuation of available-for-sale securities and investment securities accounted for by the equity method shall not exceed the sum of policyholders' dividends reserve and policyholders' dividend stabilization reserve as of the end of the fiscal year.

(2) Gains and losses provided under paragraph (1) shall be first adjusted in the capital account during the fiscal year, and shall be settled later at the end of each fiscal year.

§6-11. Accumulation of the Policy Reserve

(1) A policy reserve for insurance contracts shall be classified into a premium reserve, an unearned premium reserve, a reserve for outstanding claims, a policyholders' dividend reserve, a policyholders' profit dividend reserve, and an reinsurance premium reserve.

(2) A premium reserve shall be the value calculated pursuant to Article 6-12 for payment of future claims with respect to insurance policies whose events for payment of claims have not yet occurred as of the date of balance sheet; provided where the reserve is less than zero, it shall be zero.

(3) An unearned premium reserve, which is the premium whose applicable period has not yet arrived as of the end of the current fiscal year, out of the premiums whose payment dates have matured before the end of the current fiscal year, shall be the amount calculated according to the manual for calculation of premium and policy reserve.

(4) A reserve for outstanding claims shall be a provision for claims, cash surrender values or policyholders' dividend which are in dispute (limited to the cases pending before the Financial Disputes Settlement Committee) or in litigation pertaining to policies whose events for payment of claims, etc. have arisen as of the end of each fiscal year, for claims determined but not yet paid, and for claims not determined and therefore not yet settled.

(5) A policyholders' dividends reserve shall be classified into an interest rate guarantee reserve, a mortality dividend reserve, an interest rate dividend reserve, an expenses dividend reserve, a long-term policy dividend reserve, and a revaluation dividend reserve.

⑹ A policyholders' profit dividend reserve means the value to be accumulated in a lump-sum on the basis of business performance in accordance with statutes or policy terms and conditions, for the purposes of provisioning for the policyholders' dividends in the future.

⑺ In the event of ceding insurance, the reinsured value shall be presented under the provision for ceded insurance by subtracting it from policy reserve; in the event of assuming insurance, the entire value of the policy reserve not accumulated by the ceding insurer shall be accumulated under the provision for reinsurance premiums.

§6-12. Interest Rates and Risks Applied to the Premium Reserve

(1) The following basic rates shall be applied to the calculation of premium reserve:

1. Interest rates set forth by the Governor (hereinafter, "the standard interest rate");

2. Risk rate set forth by the Governor (hereinafter, "the standard risk rate"). Assumed risk rates applied to the calculation of premium, however, shall be regarded as the standard risk rates for risks without any designated standard risk rates.

(2) The standard interest rate of the year in which an insurance policy is issued will be applied throughout the entire term of the policy. However, for the reserves for variable rate insurance contracts, the highest interest rate among interest rates stated in the manual for calculation of premium and policy reserve shall be applied.

(3) Notwithstanding the provisions of paragraph (1), where there is a discrepancy between the premium reserve calculated by applying the basic rates used for calculation of premium against each interest rate and risk rate and the premium reserve calculated by applying the basic rates under paragraph (1), the larger shall be the premium reserve.

§6-13. Disposition of Surplus Before Policyholders' Dividend Reserve

(1) A life insurer shall, at the end of each fiscal year, first accumulate a policy reserve (which include the amount required for interest rate guarantee dividend and exclude the policyholder dividends newly accrued during the fiscal year in excess of the dividends newly reserved at the end of the previous fiscal year), and the remainder (hereinafter "the surplus before policyholders' dividend reserve") shall be divided into participating and non-participating insurance income or loss and capital account investment income or loss, whereunder the non-participating insurance income or loss and capital account investment income or loss shall be recognized as shareholders' share and the shareholders' share in the participating insurance income shall be 10 percent or less, and the balance shall be allocated to the policyholders' share.

(2) The shareholders' share under paragraph (1) may be used for income tax payment, replenishment of deficit, dividend to shareholders, etc.

(3) The policyholders' share under paragraph (1) may be used or accumulated for policyholders' dividend.

(4) The dividend to shareholders under paragraph (2) may be distributed in accordance with the articles of incorporation, if the solvency margin ratio as of the end of the fiscal year is 100 percent or greater.

(5) An insurer shall attach statements of dispositions pursuant to paragraph (1) to the documents provided under Article 6-14 paragraph (7) for its settlement of accounts every fiscal year.

§6-14. Calculation and Accumulation of the Policyholders' Dividends

(1) Policyholders' dividends shall be composed of interest rate dividend, long-term policy dividend, mortality dividend, and expense dividend, and the reserve for the policyholders' dividend shall be classified into policyholder's dividend reserve (interest rate dividend reserve, long-term policy dividend reserve, mortality dividend reserve, and expense dividend reserve) and policyholders' profit dividend reserve.

(2) Insurance policies subject to policyholders' dividend contract and the standards for dividend calculation, among others, provided under paragraph (1) shall be determined by the Governor.

(3) The policyholders' share calculated in accordance with Article 6-13 paragraph (1) shall be accumulated under the policyholders' dividend reserve, and the balance thereof shall be transferred, in a lump-sum, to a policyholders' profit dividend reserve. A life insurer with a deficit carried forward, however, may use the balance for replenishment of its deficit, in the event the deficit still remains after replenishing it with the shareholders' share calculated in accordance with Article 6-13 paragraph (1).

(4) A life insurer with a negative surplus before policyholders' dividend reserve, if the insurer makes profit from its sources of earning (the difference between the expected risk rates and the actual risk rates; the same with interest rates and business expense), may accumulate a policyholders' dividend reserve for such sources of earning.

(5) A life insurer shall appropriate the policyholders' profit dividend reserve accumulated in a gross amount before the fiscal year concerning firstly for the policyholders' dividend reserve, whereas the policyholders' dividends not accruing on the dividends reserve shall be added to the policyholders' profit dividends reserve accumulated in a gross value. The policyholders' dividends resulting in excess of the policyholders' dividends reserve newly accumulated at the end of the previous fiscal year shall be deducted by, and in the sequence of, the policyholders' profit dividends reserve accumulated in a gross value prior to the fiscal year in question, policyholders' share calculated and provided under Article 6-13 paragraph (1), and the shareholders' share.

(6) A life insurer shall appropriate the policyholders' profit dividend reserve accumulated in a gross amount pursuant to paragraph (3) for its source of policyholders' dividend for individual policyholders within 5 years from the end of the fiscal year concerned.

(7) A life insurer shall submit documents pertaining to the basis and calculation of the policyholders' dividends reserve to the Governor by the end of June every year.

(8) Policyholders' dividend under paragraph (2) shall be paid at the end of the policy year for each type of insurance contracts separately, to which the interest earnings accrued during the period from dividend occurrence to actual payment under the interest dividend rate of the insurer for the applicable policy year shall be added. The rate determined by the life insurer, however, shall be greater than the minimum rate among the scheduled rates by insurance product sold during the previous fiscal year.

(9) A life insurer shall pay out dividends by whichever a method the policyholder chooses among payment in cash, offsetting with premiums to be paid, and adding to insurance benefit or surrender value. The policyholders' dividend for individual annuity policy and annuity deposit policy under Articles 86 and 86-2 of the Special Tax Exemption Restrictions Act, however, shall be paid at the time of contract termination or after the commencement of annuity in an added amount to the annuity benefit, as corresponding to the interest earnings credited under the interest pursuant to paragraph(8) for the applicable period; when offsetting the policyholders' dividend for retirement insurance with the premiums, expense charges shall not be added in the premium calculation.

§6-15. Accounting of the Revaluation Reserve

(1) A life insurer shall allocate 90 percent or greater of its revaluation reserve (corresponding to the remaining balance, in the case of revaluation performed pursuant to the Assets Revaluation Act, it is leftover after subtracting the deficit carried forward and the revaluation income tax from revaluation revenue in the balance sheet as of the date one day prior to the revaluation basic date) to the policyholders' share and the remainder to the shareholders' share.

(2) The shareholders' share under paragraph (1) may be appropriated for replenishment of the deficit carried forward incurred after the revaluation date, or for transferring into capital account.

(3) The policyholders' share under paragraph (1) shall be recognized as liabilities, and shall be allocated upon the approval of the Governor, as follows:

1. 1/2 or more of the policyholders' share shall be recognized as policyholders' share of the past, and shall be invested in non-profit organizations; and

2. Leftover of the policyholders' share after the investment under subparagraph 1 shall be paid to the holders of the insurance policies that have been in force for more than a year as of the date one day prior to the revaluation, in amounts proportional to the premium reserve.

(4) A life insurer, when appropriating the shareholders' share pursuant to paragraph (2), shall submit to the Governor the documentation concerning the accounting method of revaluation reserve provided under paragraph (1) and a detailed plan on accounting of the policyholders' portion under paragraph (3).

(5) The investment in non-profit organization under paragraph (3) subparagraph 1 and the payment under subparagraph 2 of the same paragraph shall be executed beginning from the fiscal year in which the life insurer starts its transfer into capital account.

Subsection 3.

Non Life Insurance Business

§6-16. Standards on the Drafting of Financial Statements

(1) A balance sheet shall be composed of statements on assets, liabilities, and shareholders' equity; assets shall be classified into operating assets, non-operating assets, and assets in separate accounts; liabilities shall be classified into insurance reserve, other liabilities and liabilities in separate accounts; shareholders' equity shall be classified into paid-in capital, capital surplus, retained earnings and capital adjustments.

(2) In the statement of profit and loss, the profit and loss shall be classified according to their originated sources of the very accounting period and each of the revenue item shall be in correspondence with the related expense item for the purposes of reporting the business performance of a non life insurer.

(3) An income statement shall state earned premium, incurred losses, increase in (or refund from) policyholders' dividend reserve, net operating expenses, transfer to (or refund from) contingency reserve, operating income or loss, separate account income or loss, ordinary income or loss, net income or loss before corporate income tax expense, corporate income tax expenses, and net income or loss.

§6-17. Recognition of Subrogation Right as Income

(1) An insurer shall recognize as revenue the estimated amount collectible through sales of collateralized assets or exercise of subrogation rights or any other rights which have been acquired in the course of settling the claims already paid as of the date of settlement of accounts.

(2) Either the empirical ratio calculated on the basis of claim collections through exercise of subrogation rights for a specified period in the past (three to five years), or the amount calculated by mutatis mutandis application of Article 7-3, shall be employed for the estimation of amount collectible. The method employed, however, shall be consistently applied throughout every period.

§6-18. Insurance Policy Reserve

(1) An insurance reserve shall be classified into the policy and contingency reserves.

(2) The policy reserve shall be further classified into a reserve for outstanding claims, a long-term savings insurance premium reserve, an unearned premium reserve, a policyholders' dividend reserve and a policyholders' profit dividend reserve.

(3) A long-term savings insurance premium reserve shall be the value calculated pursuant to Article 6-12 for payment of future claims with respect to insurance policies which is valid at the date of balance sheet. In case the premium reserve is less than a zero, it shall be regarded as a zero.

(4) The unearned premium reserve shall be the premiums accumulated and corresponding to the term following collection of the premiums whose date of payment has arrived prior to the end of the fiscal year, the calculation basis of which shall be determined by the Governor.

(5) The policy reserve shall be the amount unpaid for the policies whose cause for coverage has occurred as of the end of every fiscal year and shall be calculated by each claim per incident or a statistical method, among others, the calculation basis of which shall be determined by the Governor.

(6) Accumulation and carry over standards for the contingency reserve shall be as follows;

1. The contingency reserve shall be accumulated by taking the value in between 50 percent and 100 percent of the value calculated under the following formula until it reaches 50 percent of the premiums earned over one year period prior to the date of the balance sheet. Cumulative contingency reserve = Retained premiums by type of insurance x Scheduled rate of return.

2. The contingency reserve may take any excess in the event of loss that results in excess of 100 percent of the rate of loss and retaining earnings by type of insurance (fire insurance, maritime insurance, automobile insurance, special type insurance, guarantee insurance, overseas casualties, and original insurance); provided that it shall not exceed the net loss before the transfer into the contingency reserve.

3. The scheduled rate of return provided under paragraph (1) means the rate determined in the initial documents; provided that the scheduled rates of return for the natural disaster and overseas original insurances shall be applied at 2 percent.

§6-19. Accounting of Surplus before Policyholders' Dividend Reserve

The provisions of Article 6-13 shall be applied to the accounting of the retained earnings before the policyholders' dividend reserve for the non-life insurer.

§6-20. Calculation and Accumulation of the Policyholders' Dividends

(1) Policyholders' dividends shall be classified into interest rate dividend, mortality dividend and expense dividend; the reserve for policyholders' dividend shall be classified into policyholders' dividend reserve (interest rate dividend reserve, mortality dividend reserve and expense dividend reserve) and policyholders' profit dividend reserve.

(2) The policyholders' share calculated pursuant to Article 6-19 shall be accumulated under the policyholders' dividend reserve, and the remaining share shall be accumulated in a gross amount under the policyholders' profit dividend reserve.

(3) The provisions of Article 6-14 paragraphs (2) and (4) through (9) shall be applied to the non life insurers.

Subsection 4.

Special Accounts

§6-21. Definitions

The terms used herein this Subsection shall be defined as follows;

1. "Variable insurance special account" means a special account managed for reverting the entire gains on the management of the premiums paid to the policyholders.

2. "Principal investment yield guarantee type special account" means an account whose income structure is identical to that of an ordinary account, but which is managed on a separate basis for guaranteeing the rights to receive benefits.

3. "Policyholders' reserve" means the sum resulting from adding or deducting the premiums and interest earnings transferred from the general account, investment income (or loss) in separate account and dividend accrued thereto.

§6-22. Accounting Principles of the Special Accounts

Special accounts shall be separated from ordinary accounts and processed independently, and an insurer shall present the financial position and business performance of its special accounts accurately.

§6-23. Financial Statements of the Special Accounts

(1) Assets and liabilities of special accounts shall be presented in gross amounts on the balance sheet of ordinary accounts as "special account assets" and "special account liabilities".

(2) Income and expenses pertaining to the variable insurance special accounts shall not be presented in the ordinary accounts' income statement, whereas income and expenses of an investment yield guarantee type special account shall be presented in gross amounts in the ordinary accounts' income statement as "special account income" and "special account expenses".

(3) Notwithstanding the provisions of paragraphs (1) and (2), insurance policy agreements provided under Article 5-6 paragraph (1) subparagraphs 2 through 4 shall be included in the balance sheet and the income statement of ordinary accounts in gross amounts for each account item.

(4) The format of the balance sheet and income statement of special accounts shall be determined by the Governor.

(5) Income and expenses of the special accounts shall be calculated for each special account. Accounting of such income and expenses, however, may be executed in gross amounts for the variable insurance special accounts on a separate basis.

§6-24. Income and Expenses Adjustment of the Special Accounts

(1) Income and expenses adjustment for the variable insurance special accounts shall, in principle, be executed daily including holidays.

(2) Accounting procedures for ordinary accounts shall be applied to the income and expenses adjustment for the investment yield guarantee type special accounts.

§6-25. Valuation of the Special Accounts' Assets and Liabilities

(1) Valuation of the assets under special accounts provided under Article 54 of the Decree shall be conducted for each special account.

(2) Valuation of the assets other than the securities in accordance with Article 54 paragraph (1) subparagraph 2 of the Decree shall be in accordance with the Statement of Corporate Accounting Standards (or the Corporate Accounting Standards and the Accounting Standard for Insurance Industry, if the Statement of Corporate Accounting Standards are not available).

(3) When marking marketable securities applicable under special account assets to market, the valuation gains resulting from the fiscal year shall be presented as "adjustment of valuation gains", which shall be replaced by marketable securities accounts at the time of the settlement of accounts.

(4) The foreign currency denominated income resulting from the special accounts' fiscal year shall be presented as "adjustment of the foreign currency denominated profit and loss," which shall be replaced by assets and liabilities accounts at the time of the settlement of accounts.

(5) Matters pertaining to the special accounts' asset valuation and not provided under this Regulation shall be governed by the accounting methods employed for the ordinary accounts.

§6-26. Accumulation of the Policyholders' Reserve for the Special Accounts

The policyholders' reserve for special accounts shall be accumulated as follows;

1. For the variable insurance, the total profit and loss resulting from the special accounts shall be accumulated at the end of a fiscal year under the policyholder's reserves of the corresponding insurance policies; and

2. For the investment yield guarantee type, the policyholder's reserves calculated in accordance with the calculation manual for premiums and policy reserves of ordinary accounts shall be accumulated.

§6-27. Disposition of the profit and loss Resulting from the Operation of Special Accounts

The losses resulting from the operation of special accounts as provided under Article 5-6 paragraph (1) subparagraph 2 shall be first covered by the policyholders' profit dividend reserves of the special accounts and, if insufficient, any shortfall shall be covered by the shareholders' share.

CHAPTER 7.

SUPERVISION

Section 1.

Standards on Financial Soundness

Subsection 1.

Solvency Margin

§7-1. Solvency Margin

The solvency margin provided under Article 65 paragraph (1) subparagraph 1 of the Decree shall be calculated by the methods provided under the following subparagraphs; provided subparagraph 1 items h, i and l shall apply to the life insurer's solvency margin calculation, whereas subparagraph 1 items j and k shall apply to the non-life insurer's solvency margin calculation;

1. Items Added

a. Paid-in capital;

b. Capital surplus;

c. Retained earnings;

d. Capital adjustment;

e. Allowance for loan losses; the allowance, however, for the assets classified as "normal" and "precautionary" pursuant to Article 7-3 may only be recognized for the solvency margin to the extent they are accumulated in accordance with Article 7-4;

f. Subordinated debts provided under Article 7-9 paragraph (1) subparagraph 5; provided that they may be reflected in the solvency margin within the scope of paid-in capital and, if the remaining term is 5 years or less, 20 percent shall be deducted every year;

g. Excess participating policyholder dividend reserve;

h. Reserve for policyholders dividend stabilization;

i. Reserve in excess of the amount resulting from deducting the non amortized acquisition costs (provided under the provisions of Article 7-70; hereinafter the same) from the net premium type premium reserve;

j. Contingency reserve;

k. Reserve in excess of the surrender value in time of cancellation from the savings premium; and

l. Valuation gains and losses on available-for-sale securities and investment securities accounted for by equity method of the policyholders' share adjustment.

2. Items Deducted

a. Non amortized acquisition cost;

b. Intangible assets such as goodwill;

c. Prepaid expenses; and

d. Deferred taxes.

3. Subsidiaries' over shortage of capital; provided that of the end of quarter capital and shortfall calculated in accordance with the capital adequacy standards determined by the FSC (in accordance with the provisions of Articles 7-1 and 7-2 for overseas entities engaged in the insurance business, and with the exclusion of the net income for the subsidiaries subject to the equity method valuation), the value corresponding to the insurance company's share shall be deducted and, for the subsidiaries void of the capital adequacy standards in question, the value corresponding to the insurance company's share among the net asset shortfalls (assets - liabilities) shall be deducted.

§7-2. Standard Amount of the Solvency Margin

(1) The standard amount of solvency margin for life insurers applied in accordance with the provisions of Article 65 paragraph (1) subparagraph 2 of the Decree shall be calculated by aggregating the amount as follows. The policy reserve provided under subparagraph 1 shall be calculated by deducting the excess participating policyholders dividend reserve from the policy reserve under Article 120 of the Act; the calculation methods and the corresponding ratio of the net insurance amount and insurance risk factor under subparagraphs 1 and 2 shall be in compliance with the annexed Table 12.

1. (Net premium type policy reserve - Non amortized acquisition cost) x Corresponding ratio of the risk factor of policy reserve (=4%); and

2. Net insurance benefits x Corresponding ratio of the insurance risk factor.

(2) The standard amount of solvency margin for non-life insurers applied in accordance with Article 65 paragraph (1) subparagraph 2 of the Decree shall be calculated by aggregating the amount as follows. Insurance policy agreements provided under Article 5-6 paragragh (1) subparagraghs 2 and 3, however, shall be excluded from the standard amount of solvency margin.

1. The standard amount of solvency margin for general insurance shall be whichever is greater between a premium-based amount and a claim-based amount, where the premium-based solvency margin is produced from the net written premium for the preceding one year multiplied by premium-based solvency margin ratio, while the claim-based solvency margin is produced from average annual incurred losses for the preceding three years multiplied by claim-based solvency margin ratio. The premium-based solvency margin ratio and the claim-based solvency margin ratio in this case shall be as follows:

a. Premium-based solvency margin ratio : 17.8%; and

b. Claim-based solvency margin ratio : 25.2%

2. The standard amount of solvency margin for long term insurance shall be 4% of the policy reserve of the long term insurance. Excess participating policyholder dividend reserve and unamortized acquisition cost, however, shall be subtracted from calculating the policy reserve.

3. The standard amount of solvency margin for the insurance risk of a long-term insurance shall be calculated by using the net written risk premium and incurred losses (net claims paid + increase in outstanding claims reserves) in accordance with the methods provided under subparagraph 1.

Subsection 2.

Asset Quality

§7-3. Asset Classification

(1) In accordance with the provisions of Article 65 paragraph (2) subparagraph 2 of the Decree, by regularly examining the debt servicing capability and financial transactions of debtors, an insurer shall classify the soundness of its holding assets into "normal", "precautionary", "substandard", "doubtful" and "estimated loss", and shall accumulate and maintain an adequate amount of loan loss provisioning.

(2) The holding assets provided under paragraph (1) correspond to the assets provided under the following subparagraphs and include the equivalent assets in the special accounts;

1. Loans provided under the Accounting Standards of Insurance Business (hereinafter, "the loans") prescribed by the Futures and Securities Commission (hereinafter, the Accounting Standards of Insurance Business);

2. Marketable securities;

3. Accounts receivable in insurance;

4. Accounts receivable, accrued income, payment on account, and bills receivable or dishonored; and

5. Any other assets whose classification is deemed necessary by an insurer.

(3) For the purposes of maintaining objectivity and adequacy in the asset quality classification and accumulation of loan loss provisioning under paragraph (1), an insurer shall build and operate an internal control system necessary by maintaining independent loan monitoring functions, among others.

(4) For the asset quality classification and accumulation of loan loss provisioning provided under paragraph (1), an insurer shall establish its own specific standards of asset quality classification including the debt servicing capabilities of its debtors and accumulation of loan loss provisioning (hereinafter, "specific standards"), reflective of the standards provided under the annexed Table 13 and Article 7-4.

(5) An insurer shall secure soundness of the assets by the early amortization of the assets classified as "doubtful" and "estimated loss".

(6) An insurer shall report the matters provided under the following subparagraphs to the Governor in respect of the classification of asset quality. Where applicable under subparagraph 1, the report shall be filed promptly at the time the event for reporting arises; in case of subparagraph 2, within one month from the end of each quarter, and within two months from the end of the business year.

1. Contents of any formulation or revision of its specific standards; and

2. Current status on the asset quality classification and accumulation of loan loss provisioning.

(7) The Governor shall examine the asset quality classification and accumulation of loan loss provisioning of insurers and, if found inadequate, may require corrections.

§7-4. Loan Loss Provisioning Standards

(1) An insurer shall accumulate loan loss provisioning in the amount prescribed under the following subparagraphs with respect to its assets applicable under Article 7-3 paragraph (2) subparagraphs 1, and 3 through 5 as of the date of settlement of accounts (including its quarterly preliminary settlement of accounts), in accordance with the results of asset quality classification. Notwithstanding the provisions of paragraphs (1) and (2), however, the provisioning rates for the household loans (consumer loans, housing loans, and other forms of consumer loans extended to individuals not registered for business, among others) shall be 0.75 percent or greater for those classified as "normal" and 5 percent or greater for the "precautionary."

1. 0.5% or greater of the assets classified as "normal";

2. 2% or greater of the assets classified as "precautionary";

3. 20% or greater of the assets classified as "substandard";

4. 50% or greater of the assets classified as "doubtful"; and

5. 100% of the assets classified as "estimated loss".

(2) Notwithstanding the provisions of paragraph (1), an insurer may waive accumulating the loan loss provisioning for the assets whose borrower is the Government of the Republic of Korea or municipalities, call loans among credit loans classified as "normal", accrued income which is not accrued upon credit loans, and payment on account which is not in nature of a loan.

(3) Notwithstanding the provisions of paragraph (1), where there is or is expected to be an insurer's loss in excess of 0.5 percent of its total assets as of the end of the previous month due to a major financial incident provided under the Regulation on Examination and Disciplination of the Financial Institutions, the Governor may require the insurer in question to accumulate the total amount of the expected loss as loan loss provisioning by the end of the quarter.

(4) When the asset quality classification is conducted on the expected loss after loan loss provisioning is made pursuant to paragraph (3), an insurer may retrieve the said provisioning and accumulate loan loss provisioning pursuant to paragraph (1).

Subsection 3.

Risk Management Standards

§7-5. Risk Management System

(1) Pursuant to Article 65 paragraph (2) subparagraph 3 of the Decree, an insurer shall have in place a risk management system that can timely identify, measure, monitor and control risks that arise in the course of its insurance business, assets management or other business operation.

(2) An insurer shall measure and manage major risks that arise from various transaction, such as insurance risk, interest rate risk, market risk and credit risks.

(3) An insurer shall reflect the results of risk measurement conducted in accordance with paragraph (2) in setting management targets such as the solvency margin.

(4) An insurer shall, in order to manage risks efficiently, set and operate limits on risks and transactions by insurance coverage, by divisions or departments, by transactions and by persons in charge.

(5) The Governor may require an insurer to submit specific information on the risk calculation where necessary for the purposes of securing the insurance company's financial soundness and guidance, etc.

(6) An insurer shall be able to identify and monitor changes in major risks in consolidated manner with its subsidiaries.

§7-6. Risk Management Organization

(1) The board of directors of an insurer (excluding the foreign insurers' Korea offices) shall deliberate and vote on the matters provided under the following subparagraphs. Where necessary for efficient risk management, a risk management committee may be established within the board of directors (hereinafter, "the Risk Management Committee").

1. Development of basic guidelines for risk management consistent with management strategy;

2. Determination of risk level within acceptable range for the coverage by insurer;

3. Approval of adequate investment level and the permissible level of loss; and

4. Establishment and revision of the specific standards of risk management.

(2) An insurer (limited to an insurer designated by the Governor considering its asset size) shall establish a working level unit that can assist the board of directors or the risk management committee in respect of risk management.

(3) The working level unit provided under paragraph (2) shall be operated independently without any relation to the business and asset management departments, and shall perform the following tasks;

1. Check and analysis of the operation of risk limits;

2. Operation of the risk management information system; and

3. Timely supply of the information on risk management to the board of directors or the risk management committee.

§7-7. Specific Standards of the Risk Management

(1) An insurer shall develop basic procedures and standards for compliance by its executive directors and employees in the course of performing the risk management business (hereinafter, "specific standards of risk management").

(2) The following shall be described in the specific standards of risk management provided under paragraph (1);

a. Risk assessment methods;

b. Setting and management of the limits by type of risk;

c. Target solvency level;

d. Internal reporting and approval systems;

e. Internal disciplinary actions and procedures for the violation of the specific standards of risk management; and

f. Structure and operation of the risk management organization.

§7-8. Maintaining Records on the Derivative Transactions

An insurer shall prepare and maintain records on the transactions that are not provided in the financial statements such as futures, forward, options and swaps, among other derivatives, as of the point in time of their occurrence.

Subsection 4.

Borrowings

§7-9. Borrowings

In accordance with the provisions of Article 58 paragraphs (2) and (4) of the Decree, the methods provided under the following subparagraphs shall be the only methods available for an insurer to borrow to maintain an appropriate liquidity;

1. Overdraft from the bank;

2. Sales of RPs;

3. Call money;

4. Borrowings from the Government of supporting funds for Government bonds subscription;

5. Issuance of subordinated debts or bonds (hereinafter, "subordinated debts");

6. Borrowings from the head office (only for the Korea branches of foreign insurers);

7. Bonds issuance; and

8. Commercial papers issuance.

§7-10. Subordinated Debts

(1) The subordinated debts provided under Article 7-9 paragraph (5) shall satisfy the following requirements;

1. That the borrowing period or maturity shall be five years or longer;

2. That prepayment shall not be permitted;

3. That it shall be unsecured and with subordination agreement (referring to special agreement that the claim for payment held by a subordinated creditor should take effect after senior creditors have been fully repaid, in the event of bankruptcy); and

4. That it shall be under the condition that the right to offset shall not be allowed unless senior creditors have been fully repaid, in the event of bankruptcy.

(2) An insurer intending to raise funds by subordinated debts shall file for it in advance with the Governor, appending thereto the documents containing each of the following:

1. Fund raising amount;

2. Grantor of credit;

3. Funding rates; and

4. Materials certifying the fulfillment of requirements under paragraph (1).

(3) An insurer shall not provide, directly or indirectly, support to a grantor of subordinated funds by extending loans, among others.

(4) Notwithstanding the provisions of paragraph (1) subparagraph 2, if the following requirements are met or the solvency margin ratio after the redemption of subordinated debts is 150 percent or greater, an insurer may prepay for its subordinated debts upon the approval of the Governor.

1. That the solvency margin ratio shall be 100 percent or greater;

2. That it shall clearly be proved that the subordinated debt concerned will be replaced by capital-oriented fund such as capital increase and etc., and that such amount shall exceed the amount of subordinated debt to be repaid. Subordinated debt, which will be repaid before term and whose remaining term is longer than the original term and fund condition such as interest rate is favorable will be deemed as capital-oriented fund;

3. That there shall be a statement or clause in the subordinated debt contract to the effect of allowing prepayment when in receipt of the Governors prior approval, or a separate agreement to that effect has to be reached between the parties concerned; and

4. That it shall be acknowledged that under the volatility of the financial market, the interest rate of the subordinated debt is significantly disadvantageous to the insurer.

(5) An insurer intending to prepay for the subordinated debts and having satisfied the requirements under paragraph (4) shall request for the Governor's approval by submitting documents verifying that all of the requirements under paragraph (4) have been met, along with its financing plan.

(6) An insurer in receipt of the Governor's approval who satisfied the following requirements under paragraph (4) shall repay for the subordinated debts concerned after the replacement funds are fully raised.

§7-11. Bond Issuance

(1) The bond issuance provided under Article 58 paragraph (2) subparagraph 2 of the Decree shall be made only for avoiding losses resulting from the assets and liabilities mismatch, among others, or for satisfying the requirements on financial conditions as provided under Article 123 of the Act.

(2) The commercial paper issuance provided under Article 58 paragraph (2) subparagraph 2 of the Decree shall be restricted unless it is made by way of acquisition, discount, or intermediation of a financial institution (established in accordance with the provisions of Article 2 paragraph (1) of the Act on Structural Improvement of the Financial Industry).

Subsection 5.

Reinsurance

§7-12. Reporting of the Reinsurance Agreement

(1) Where a reinsurance agreement applicable under the following subparagraphs for at least one year of term is entered into, or whose terms and conditions are modified or changed, insurer shall report its contents to the Governor in advance in accordance with the format stipulated by the Governor;

1. Reinsurance premiums calculated and reflective of the expected return on investment; and

2. Reinsurer's limited liability

(2) The provisions of Article 7-82 shall be applied mutatis mutandis to review propriety of the reinsurance agreement.

§7-13. Accounting

(1) With respect to reinsurance agreement whose term is longer than one year, the accounting shall be performed as benefits and expenses incurred under the agreement such that insurance premium, insurance benefits and commissions are distributed fairly.

(2) With respect to agreement failing to meet the requirements provided under Article 63 paragraph (3), the accounting shall be performed as the money deposited or money payable.

Section 2.

Evaluation of the Financial Soundness

§7-14. Management Performance Evaluation

(1) The Governor shall evaluate the management performance of insurers (hereinafter, " management performance evaluation") to supervise the soundness of their management practices.

(2) The Governor may reflect the results of the management performance evaluation in the supervisory and examining functions.

(3) The headquarters of insurers, their overseas branches and subsidiaries shall be subject to the evaluation of management performance, and the ratings of the management performance evaluation shall be classified into five grades: 1st grade (strong), 2nd grade (satisfactory), 3rd grade (less than satisfactory), 4th grade (deficient), and 5th grade (critically deficient); provided that insurers whose term of business since inception has not elapsed two years may be excluded from the evaluation.

(4) The specifics of management performance evaluation, including the evaluation method and establishment of evaluation ratings, provided under paragraph (1) shall be determined by the Governor.

§7-15. Risk Assessment

(1) The Governor may reflect the results of the insurance company's risk assessment in the supervisory and examination functions, such as management performance evaluation.

(2) Specifics of the risk assessment provided under paragraph (1) shall be governed by the stipulations of the Governor.

§7-16. Execution of the Management Improvement Agreement

With respect to an insurer whose solvency margin is considered to deteriorate, or which is considered to have certain managerial weakness following the management performance evaluation or risk assessment, the Governor may require the insurer concerned to submit an improvement plan or memoranda, or otherwise settle a management improvement agreement; however, this provision shall not apply to an insurer in receipt of management improvement recommendation, management improvement request or management improvement order (hereinafter, "prompt corrective actions") under Articles 7-17 through 7-19.

Section 3.

Prompt Corrective Actions

§7-17. Management Improvement Recommendation

(1) The Governor shall subject an insurer applicable under any one of the following subparagraphs to the implementation of the recommendation(s) it issues (hereinafter referred to as "management improvement recommendation"):

1. When the solvency margin ratio is 50% or above and less than 100%;

2. When the overall evaluation rating following the management performance evaluation is third grade (less than satisfactory) or higher while in receipt of fourth grade (deficient) or lower for its solvency margin or assets soundness; or

3. When an insurer is adjudged to be apparently applicable under subparagraphs 1 or 2 due to the occurrence of a major financial incident or non-performing assets.

(2) Recommendation(s) under paragraph (1) corresponds to recommendation of measures applicable under either all or part of the following subparagraphs. Subparagraphs 9 and 10, however, shall be applied only to non-life insurers.

1. Increase or decrease in paid-in capital;

2. Reduction of operating expenses;

3. Improvement in efficiency of sales offices management;

4. Restriction on investment in fixed assets;

5. Disposal of non-performing assets;

6. Improvement in personnel organization and the organizational structure;

7. Restriction on shareholders' or policyholders' dividend;

8. Restriction on initiating new business and on new capital investment;

9. Prohibition of acquiring its own share; and

10. Rate adjustment

(3) When issuing the recommendation under paragraph (1), the Governor may issue warnings or attentions against the insurer in question or its officers involved.

§7-18. Management Improvement Request

(1) In the event an insurer is applicable under any one of the following subparagraphs, the FSC may subject the insurer to the implementation of applicable requirement(s) it issues (hereinafter referred to as "management improvement request"):

1. When the solvency margin ratio is 0% or above and less than 50%;

2. When the overall evaluation rating is fourth grade (deficient) or lower following the management performance evaluation; or

3. When an insurer is adjudged to be apparently applicable under subparagraphs 1 or 2 due to occurrence of major financial incidents or non- performing assets.

(2) Requirement(s) under paragraph (1) corresponds to request of measures applicable under either all or part of the following subparagraphs. Subparagraph 8, however, shall be applied only to non-life insurers.

1. Closure, consolidation, or restriction on opening new sales offices;

2. Request of replacement of officers;

3. Partial suspension of insurance business;

4. Reduction of personnel and organization;

5. Establishing plans for merger, admission into a financial holding company as a subsidiary (including admission into a financial holding company as a subsidiary after incorporating individually or jointly with other financial institutions), third-party takeover, and full or partial transfer of business operation;

6. Restriction on holding risky assets, and disposition of assets;

7. Closure of subsidiaries;

8. Disposition of reinsurance placement; and

9. All or part of the measures under Article 7-17 paragraph (2).

§7-19. Management Improvement Order

(1) In the event an insurer is applicable under any one of the following subparagraphs, the FSC may subject the insurer to the implementation of applicable order(s) it issues (hereinafter, "management improvement order"):

1. When an insurer is an insolvent financial institution under Article 2 subparagraph 3 of the Act on Structural Improvement of the Financial Industry; or

2. When the solvency margin ratio is below 0%.

(2) Order(s) under paragraph (1) corresponds to order of measures applicable under either all or part of the following subparagraphs. However, retirement of all stocks, suspension of entire insurance business, transfer of entire business operation, and transfer of all contracts shall be ordered only against an insurer which is an insolvent financial institution under paragraph (1) subparagraph 1, or which fails to meet the standard under paragraph (1) subparagraph 2 and is adjudged to warrant detriment to sound insurance transaction system and the rights and interests of policyholders.

1. Retirement of all or part of the issued stocks;

2. Suspension of officers from office, and appointment of conservator;

3. Suspension of entire insurance business for less than six months;

4. Full or partial transfer of contracts;

5. Establishment of plans for merger, admission into a financial holding company as a subsidiary (including cases of admission into a financial holding company after incorporating individually or jointly with other financial institutions);

6. Third-party takeover of the insurance business in question;

7. Complete or partial transfer of business operation; and

8. All or part of measures mentioned in Article 7-18 paragraph (2).

§7-20. Submission, Evaluation and etc. of Management Improvement Plan

(1) An Insurer in receipt of management improvement recommendation, management improvement requirement, or management improvement order shall submit to the Governor a plan reflecting the contents of the management improvement recommendation, management improvement requirement or management improvement order (hereinafter, "management improvement plan"), within the time frame prescribed by the pertinent authority not to exceed two months after such measures are taken.

(2) The decision on the approval of the plan submitted by an insurer in receipt of a management improvement recommendation shall be made by the Governor, whereas the decision on the approval of the plan submitted by an insurer in receipt of a management improvement requirement or management improvement order shall be made by the FSC, within one month from the date of submission of the respective plan(s).

(3) For the issuance of a management improvement recommendation, requirement, or order, the Governor shall receive a review of the Management Assessment Committee comprised of outside professionals in advance prior to making an approval decision pursuant to the provisions under paragraph (2). This, however, shall not apply in the event of emergency or deliberation deemed unnecessary by the Governor.

(4) When a management improvement plan submitted by an insurer in receipt of a management improvement recommendation pursuant to paragraph (1) fails to prove feasible and valid, the Governor shall disapprove it, in which case the FSC shall require the insurer to implement all or part of the measures applicable under Article 7-18 paragraph (2).

(5) When a management improvement plan submitted by an insurer in receipt of a management improvement requirement fails to prove feasible and valid, the FSC shall disapprove it and requirement the insurer to implement all or part of the measures applicable under Article 7-18 paragraph (2), and in the event a management improvement plan reflective of the subsequent request is found unfeasible or invalid, the FSC shall disapprove it and order the insurer to implement all or part of the measures applicable under Article 7-19 paragraph (2).

(6) The Governor shall determine specific matters pertaining to the organization and operation of the Management Assessment Committee under paragraph (3).

(7) An insurer whose management improvement plan is approved under paragraph (2) shall submit to the Governor a quarterly report on the result of the implementation of the plan within 10 days after the end of each quarter; when the results of the implementation are found to be insufficient or impractical due to changes in the business environment (such as changes in pertinent laws and regulations), the Governor may take necessary measures such as requiring the insurer to amend the management improvement plan or urging the insurer to implement the plan within a specified period of time.

(8) When requiring an insurer to amend major contents of its management improvement plan or urging an insurer to implement its plan within a specified period of time pursuant to paragraph (7), the Governor shall report the matter to the FSC beforehand.

(9) When an insurer submits its management improvement plan with its major contents amended pursuant to paragraph (7), paragraphs (2) through (6) may be applied.

§7-21. Implementation Period of Management Improvement Plan

(1) The period for implementing the management improvement plan by an insurer in receipt of a management improvement recommendation shall be within 1 year from the date of approval.

(2) The period for implementing the management improvement plan by an insurer in receipt of a management improvement requirement shall be within one and a half year from the date of approval. When an insurer in receipt of a management improvement recommendation receives a management improvement requirement, however, in the course of implementing its management improvement plan, the implementation period shall not exceed one and a half year from the approval date of the plan submitted following the management improvement recommendation.

(3) The period for implementing the management improvement plan by an insurer in receipt of a management improvement order shall be determined by the FSC.

(4) When an insurer, whose implementation period for its management improvement plan has expired, is found to have fully improved its management status such as showing full compliance with the standards under Article 65 paragraph (2) subparagraph 1 of the Decree, the pertinent authority shall notify the insurer of the termination of the measures taken; when an insurer fails to meet the goals of its management improvement plan even after the expiration of the implementation period, any of the prompt corrective actions may be taken depending on the management condition at the time of the expiration.

§7-22. Measures Following the Failure of Implementing the Management Improvement Plan

(1) When the Governor finds from his examination that an insurer in receipt of a management improvement recommendation has failed to implement its management improvement plan, the FSC shall issue a management improvement request.

(2) When an insurer in receipt of a management improvement requirement fails to implement material parts of its management improvement plan, the Governor may urge the insurer to implement its management improvement plan within a time frame it prescribes. This time frame may be excluded in the implementation period of the management improvement plan.

(3) When an insurer does not implement material parts of its management improvement plan even after the urging from the Governor under paragraph (2), or when an insurer is adjudged to be unable to conduct normal management operation due to failure in the implementation of its plan, the FSC shall subject the insurer to a management improvement order.

(4) When an insurer in receipt of a management improvement order has failed to implement its management improvement plan, the FSC may take measures provided under the following subparagraphs.

1. Suspension of entire insurance business;

2. Revocation of permission of insurance business; and

3. Any other measures adjudged necessary for the protection of policyholders.

§7-23. Suspension, Attenuation or Exemption from the Prompt Corrective Actions

(1) When an insurer subject to prompt corrective actions is adjudged as apparently not applicable at present, or in near future, under the requirements of the prompt corrective actions owing to increase in capital or disposition of assets, or when there exist any events equivalent or corresponding thereto, the pertinent authority may suspend issuing prompt corrective actions for a specified period of time.

(2) When the management condition of an insurer in receipt of prompt corrective actions has been significantly improved by early achievement of its management improvement plan through capital increase or resolution of non-performing credits, the pertinent authority may attenuate, or exempt the insurer from, the prompt corrective actions.

Section 4.

Authorization of Dissolution and Merger

§7-24. Scope of Application

This Section shall apply to the authorizations applicable under the following subparagraphs;

1. Authorization of concurrently undertaking businesses in accordance with the provisions of Article 11 paragraph (11) subparagraph 2 of the Act;

2. Resolution of the dissolution and authorization of the merger and transfer of contracts provided under the provisions of Article 139 of the Act;

3. Authorization of the business transfer and assignment provided under the provisions of Article 150 of the Act; and

4. Authorization of merger or conversion provided under the provisions of Article 4 of the Act on Structural Improvement of the Financial Industry.

§7-25. Separation of the Authorization Procedures

The authorization procedures shall be divided into the preliminary licence and licence, as specifically prescribed under the Appendix Table 13.

§7-26. Guidance on Procedures for the Authorization

The Governor may respond either in writing, interviews, or consultations, to any questions or inquiries submitted by any persons applying for a authorization under the provisions of this Section or his/her agents(hereinafter in this Section, "applicant"), on the matters including, but not limited to, the authorization procedures, review standards, and application form (inclusive of appended documents; hereinafter in this Section as such).

§7-27. Application for the Preliminary Authorization

An applicant for the preliminary authorization shall submit the preliminary authorization application provided in the appendix sheet 14 through 19 to the FSC by the scope of application in accordance with the provisions of Article 7-24.

§7-28. Public Announcement on the Preliminary Authorization Application

(1) In the event of a preliminary authorization application, the FSC shall publicly announce in the press release or the Internet homepage on the applicant, date of application, background and reasons for the application, and suggestions in order to obtain the opinions of the parties of interest.

(2) Where it is deemed necessary for the review of the preliminary authorization, the FSC may hold a hearing to listen to the opinions of the parties of interest separately from the public announcement made in accordance with the provisions of paragraph (1) and in the event it may have effects upon the financial markets.

(3) For the adverse opinions received in accordance with the provisions of paragraphs (1) and (2), the FSC may decide a timeframe in which the applicant is encouraged to explain.

§7-29. Review of the Preliminary Authorization

(1) The FSC shall check for the veracity of the information provided in the preliminary authorization application and shall review whether the application meets the review standards provided under relevant statutes and this Section based upon the opinions provided by the parties of interest, general public and relevant institutions and organizations, among others.

(2) The FSC may organize and operate an evaluation committee to assess the feasibility of the business plan.

(3) The FSC may conduct a field examination for the purposes of confirming the contents of application and holding interviews with the initiator and the management.

§7-30. Waiver of the Preliminary Authorization Procedures

Where the applicant has made a preliminary authorization application applicable under any of the following, the FSC may waive the preliminary authorization procedures;

1. Where authorization is issued for concurrently conducting other businesses; and

2. Where prompt processing is needed for restructuring and customer protection purposes, or where the satisfaction of authorization requirements yields no absolute merits of undergoing the preliminary authorization procedures.

§7-31. Decision on the Preliminary Authorization

(1) Decision on the preliminary authorization application shall be made in accordance with the standards of review provided under relevant statutes and this Section.

(2) Conditions may be attached to the preliminary authorization, and the refusal of preliminary authorization shall be notified in writing.

§7-32. Application for the Authorization

An applicant for the authorization shall submit to the FSC an authorization application provided in the appendix sheet 20 through 22 and the appendix sheet 2, 13, and 14 of the Rules.

§7-33. Authorization

(1) Decision on the authorization application shall be made in accordance with the standards of review provided under relevant statutes and this Section.

(2) Conditions may be attached to the preliminary authorization, and the refusal of preliminary authorization shall be notified in writing.

(3) The FSC may conduct a field examination to check the performance of requirements of the preliminary authorization, for which the applicant shall cooperate.

(4) The applicant shall start business activities subject to the authorization within 6 months from the date of authorization, unless provided otherwise at the time of the authorization or by the approval of the FSC.

§7-34. Supplementation of the Documents

(1) The FSC may request an applicant of submission of any supplementary or additional documents within a time frame it prescribes, if necessary for the review of a preliminary authorization or authorization.

(2) When conditions exits under authorization issued, the applicant shall report to the FSC on the results of their performance without any delay.

§7-35. Standards of Review on the Concurrent Businesses

The standards of review for the authorization of concurrent businesses are as follows, provided that the provisions of paragraph (4) shall be restricted to the foreign insurers' Korea offices;

1. That the concurrent business(es) shall contribute to the improvement of services to the policyholder, the insured and other parties of interest, as well as to the development of the insurance industry;

2. That the concurrent business(es), in light of the expected business volume and prospective income and loss, shall not impose any adverse effects on the soundness of the insurer's management, and shall contribute to the expansion of its profit basis;

3. That the insurer shall have the pertinent organizational structure and expert workforces necessary for the efficient operation of the concurrent business(es), and shall establish a proper operational system for separation from its insurance business, and the measures to prevent conflict of interests; and

4. That the headquarters shall be conducting the business identical to the concurrent business in its own country, and the operation of the concurrent business shall be approved by the headquarters.

§7-36. Standards of Review on the Merger Authorization

The provisions of Article 4 paragraph (3) of the Act on Structural Improvement of the Financial Industry shall be applied for the standards of review on the merger authorization.

1. That the contents of the competition report and analysis prepared by the market surveying institution or a professional research institution (analyses of potential for the restriction of competition by merger, among others, or for the consumers to be disadvantaged by the insurance services) designated by the FSC shall be appropriate;

2. That the opinions of the Fair Trade Commission on the restrictability of competition shall be appropriate;

3. That the insurance company continuing and surviving after merger shall comply with the requirements provided under Article 65 paragraph (2) subparagraph 1 of the Decree (hereinafter, "solvency margin standards");

4. That the estimated financial statements and earnings forecasting for 3 years following merger shall be reasonable based upon the business plans; and

5. That the resolution plan for the businesses that will not be conducted following merger, in the event of a merger among the different business conducting financial institutions, shall be appropriate.

§7-37. Standards of Review on the Resolution and Authorization of Dissolution

The standards of review on the resolution and authorization of dissolution shall be as follows;

1. That it shall be unavoidable in view of the insurance company's management and financial conditions;

2. That it shall not adversely affect protecting the rights of policyholders, insured and other parties of interest, and maintaining the financial order; and

3. That there shall be no issue in the performance of procedures provided under the law, Commercial Code, and other relevant statutes.

§7-38. Standards of Review on the Authorization of Conversion

(1) In authorizing the conversion of a financial institution other than an insurance company into an insurance, the provisions of Article 4 paragraph (3) of the Act on Structural Improvement of the Financial Industry shall be applied; in such an event, "standards determined by the Financial Supervisory Commission" as provided under subparagraph 5 of the same paragraph of the same Article means the requirements provided under Article 6 of the Act.

(2) In authorizing the conversion of an insurance company into a non insurance institution, the provisions of Article 4 paragraph (3) of the Act on Structural Improvement of the Financial Industry shall be applied; in such an event, "standards determined by the Financial Supervisory Commission" as provided under subparagraph 5 of the same paragraph of the same Article means the requirements provided under Article 7-37.

§7-39. Standards of Review on the Authorization of Business Transfer

The provisions of Article 7-36 shall be applied to the authorization of business acquisition, and the provisions of Article 7-37 shall be applied to the authorization of business transfer.

§7-40. Standards of Review on the Authorization of Transfer of Contracts

Standards of review on the authorization of transfer of contracts shall be as follows;

1. That it shall be unavoidable in view of the insurance company's management and financial conditions;

2. That it shall not have adverse effects upon protecting the rights of policyholders, insured, and other parties of interest and maintaining the financial order;

3. That it shall be allowed to hold assets recognized to be necessary for protecting the interests of policyholders and creditors.

Section 5.

Due Diligence for the Determination of Insolvent Insurance Company

§7-41. Insurance Company Valuated

An insurance company applicable for the assets and liabilities valuation for the determination of insolvent insurer in accordance with the provisions of Article 2 paragraph (3) of the Act on Structural Improvement of the Financial Industry shall be as follows;

1. Insurer whose asset quality has significantly deteriorated and whose liabilities are determined by the Governor to be severely risky;

2. Insurer whose solvency margin is mediocre; and

3. Insurer whose rating is risky as a result of the management performance evaluation under the categories determined by the Governor.

§7-42. Scope of the Valuation

(1) The assets and liabilities valuation provided under Article 7-41 shall in principle be conducted as per each account heading of the assets and liabilities provided in the insurance company's balance sheet (including special accounts and footnotes) as of the end of the previous month.

(2) The valuation provided under paragraph (1) shall be in accordance with the following;

1. Valuation shall be based upon the book value in the event the book value fails to reflect the material value; and

2. Market value or the material value deducted by the estimated loss shall be adjusted for the valuation for the items that the market value fails to reflect the material value.

(3) Specifics of the valuation for each item of the assets and liabilities in accordance with the provisions of paragraph (2) shall be determined by the Governor.

(4) The Governor may require the insurance company subject to the valuation of the information needed for the assets and liabilities valuation and, where necessary, may perform due diligence in the offices of the insurance company in question.

§7-43. Emergency Measures

(1) Where an insurer is applicable under the following subparagraphs and is adjudged as capable of causing harm to the interests of policyholders, the FSC may have the Governor take emergency measures to eliminate such possibilities. In an emergency situation where the FSC cannot be convened, however, the Governor may take measures necessary and, if so, shall report the matter to the FSC without delay.

1. When there is a shortage of assets for policy reserves and when it is impossible to repay borrowed money because of temporary liquidity crunch due to inundation of cancellation of insurance contracts; or

2. When it is impossible or difficult to conduct normal operation of business due to occurrences of unexpected incidents such as suspension of operation, inundation of cancellation of insurance contracts or labor disputes.

(2) The "measures necessary" provided under paragraph (1) corresponds to the measures under the following subparagraphs:

1. Restrictions on fee income and loans;

2. Suspension of payment of all or part of claims;

3. Restrictions on debt servicing activities;

4. Disposition of assets;

5. Suspension of business operation;

6. Consignment of the asset management and business operation;

7. Transfer of contracts; and

8. Any other measures recognized by the FSC.

Section 6.

Disclosure

§7-44. Management Disclosure

(1) An insurer shall disclose the matters provided under the following subparagraphs within three months from the date of settlement pursuant to the provisions of Article 124 paragraph (1) of the Act. However, the disclosure on the results of the quarterly provisional settlement shall be made within two months from the provisional settlement date.

1. Matters specified under Article 67 paragraph (1) subparagraphs 1 and 2 of the Decree;

2. Matters on organization and manpower;

3. Matters on management indicators such as stability, profitability, and productivity;

4. Matters on risk management, such as setting specific standards of risk management and status of operation;

5. Decision on changes in accounting standards, significantly affecting the management and assets, among others;

6. Matters that may significantly affect the insurance company's parties of interest, such as resolutions of the shareholders' meeting; and

7. Matters with a significant impact on the insurance business, such as management policy, and risk management, among others, as required by the Governor separately;

(2) The specific items and method of the disclosure under paragraph (1) shall be in compliance with the Uniform Standards of Management Disclosure for Insurance Business, as determined by President of the Association.

(3) An insurer shall promptly make public disclosure on the matters applicable under any one of the following subparagraphs:

1. Matters specified under Article 67 paragraph (1) subparagraphs 3 and 4 of the Decree;

2. Substance and nature of bad assets (corresponding to substandard, doubtful and estimated loss by asset quality classification; hereinafter as such) or financial incidents, etc;

3. Substance and nature of any emergency measures taken pursuant to Article 7-43;

4. Facts or decisions that may potentially have significant effects upon the company's management environment.

(4) When making public disclosure pursuant to paragraphs (1) and (3), an insurer shall disclose the same information on the management disclosure feature on its Internet homepage.

(5) The subjects, contents, and methods, among others. of the disclosure under paragraph (3) shall be determined by the Governor.

(6) In the event an insurer makes disclosure of matters provided under paragraphs (1) through (5) without due diligence by falsification or omission of material facts, the Governor may require the insurance company of redisclosure or corrections.

§7-45. Disclosure of Insurance Products

(1) An insurer shall allot a product disclosure feature on its Internet homepage, wherein policyholders, etc. may verify the matters concerning the products as provided under the following subparagraphs; provided that the enrollee practice provided under subparagraph 2 shall not apply to the group or general non life insurances (excluding automobile insurance);

1. Insurance guide;

2. Product summary, enrollee practice, business manual and insurance policy(including the pre change insurance policy and the insurance policy whose term has not elapsed two years after being suspended from sales);

3. Applicable interest rate for interest rate-indexed products and policy loan rates;

4. Matters under following items in case of variable insurance contents provided under Article 5-6 paragraph (1) subparagraph 3;

a. Assets and liabilities and composition of assets in each special account at the end of every month.

b. Base price and rate of return on investment in the assets under each special account on a daily basis;

c. Fees on the special account management; and

d. Operation manual on variable insurance.

5. Matters under following items in case of contracts provided under Article 5-6 paragraph 1 subparagraphs 1 and 2;

a. Assets and liabilities and composition of assets in each special account at the end of every month; and

b. Expected interest rates for the three preceding years(including applicable interest rate and minimum guarantee interest rate for interest-indexed insurance) and dividend payout ratio on the basis of difference between assumed interest rate and effective interest rate for the three preceding years.

6. Policyholder dividends calculation basis, policyholder dividend payout ratio, and interest rates applied to reserve for dividend payout.

7. Other matters recognized as necessary by the Governor for protecting policyholders, among others.

(2) An insurance company or personnel employed in the solicitation shall provide policyholder with the insurance policy and insurance guide materials as follows;

1. At the date of insurance contract, the following documents shall be provided with their explanations; provided that items a through c shall not apply to group and general non life insurances;

a. Insurance guide;

b. Product summary;

c. Enrollee practice;

d. A copy of application form and insurance policy; and

e. Operation manual for variable insurance contract.

2. An insurer shall provide policyholders with the insurance contract statement continuing over one year based upon the expiration date of the business year; provided that for variable insurance contracts, the insurance contract statement shall be provided at least once per half a year, and the policyholders shall be allowed to check any changes in the terms of contracts through the Internet homepage on an all time basis.

(3) Policyholders may apply for the review of the following documents at the insurance company's headquarters, and the company shall allow the review absent special reasons;

1. Basic forms and documents;

2. Following items on the books and documents pertaining to the special accounts of variable insurance, for variable insurance policyholders;

a. Statement on assets;

b. Ledger on base price;

c. Financial statement and details attached; and

d. Statement on the securities transactions.

(4) The Governor may determine specifics on the preparation of insurance guide, product summary, enrollee practice, insurance contract statement, and operation manual on variable insurance, among others, as provided under the provisions of paragraphs 1 and 2.

§7-46. Comparison and Disclosure of Insurance Products

(1) The Association shall compare and publicly disclose the following matters on its Internet homepage by comparing them by insurance company and type of insurance; provided that group insurance, general non life insurance(excluding automobile insurance), and the insurance products marketed in alliance with specific organizations shall be excluded;

1. Guarantee terms and insurance premium, surrender value, assumed interest rate (applicable interest rate), and other matters; and

2. Article 7-45 paragraph (1) subparagraphs 4 through 6.

(2) The insurance company shall immediately notify the Association of any changes made in the terms of insurance products compared and disclosed in accordance with paragraph (1), the contents of which shall be reflected by the Association.

(3) The Committee on Insurance Product Disclosure may determine specific standards and procedures, among others, for the comparison and disclosure provided under paragraphs (1) and (2).

(4) Even where a person other than the Association makes comparison and disclosure in accordance with the provisions of Article 124 paragraph (5) of the Act, he shall obverve the standards and methods provided under paragraph (3) to do so based upon such objective evidence including the insurer's disclosed information, further to specifying sources of the information used. Where he intends to do so differently from those provided under paragraph (1) or compare and disclose only a part of it, he shall consult with the Committee on insurance product disclosure in accordance with the provisions of Article 124 paragraph (3) of the Act.

Section 7.

General Insurance Management

§7-47. Verification of the Insurance Subscription

(1) To prevent failure to claim benefits in the event of lack of knowledge of the insurance policy subscription by the beneficiaries or their families (hereinafter, "beneficiaries") following death, the Association shall promptly notify of the facts of the subscription upon request by the policyholder.

(2) The Association shall install and operate windows and IT system for the verification and control of the insurance subscription information.

(3) Insurers shall cooperate to ensure the Association's efficient undertaking of the businesses provided under paragraphs (1) and (2).

Section 8.

Submission Standards on Insurance Products

Subsection 1.

General Principles

§7-48. Purpose

The purpose of this Section is to define the "standards determined by the Financial Supervisory Commission" in accordance with Article 127 paragraph (2) of the Act and Article 71 paragraph (1) subparagraph 1 and the annexed Table 1 of the Decree.

§7-49. Definitions

(1) The terms used herein this Section shall be defined as follows;

1. "An insurance product" means a composite of business manuals, insurance policy(hereinafter, "policy"), and insurance premiums and policy reserve calculation manual, wherein an insurer states or indicates, for the purposes of payment of insurance benefit on the occurrence of accidents covered specified in the insurance policy, its business operation for each insurance contract or for each unit of risks insured, the terms and conditions of contracts, and the method of calculation of premium;

2. "Reference risk rates" means the risk rates reported to the FSC by the rate calculating institution in accordance with the provisions of Article 176 paragraph (4) of the Act and Article 87 paragraph (1) of the Decree;

3. "Guarantee type insurance" means the insurance whose benefits paid in the duration of life does not exceed the premiums paid to date, whereas the "net gurantee type insurance" means the guarantee type insurance that does not pay for benefits in the duration of life, whereas "other guarantee type insurance" means the guarantee type insurance other than the net guarantee type insurance;

4. "Savings type insurance" means the insurance other than the guarantee type insurance, whose benefits paid in the duration of life exceeds the premiums paid to date;

5. "Annuity" means the insurance provided for paying living expenses in the event of survival past a certain age in life;

6. "Interest rate indexed type insurance" means the insurance whose interest rate applied to policy reserve varies depending upon the company's return on asset and market rates, etc.;

7. "Main contract" means the insurance that could be marketed and sold regardless of rider, whereas "rider" means the insurance product which attaches systems to the main contract for the purpose of adding guarantees or conveniences of policyholders, etc.;

8. "Primary insured" means the insured who will benefit from the insurance policy, whereas the "secondary insured" means the insured second to the primary;

9. "Base age" means 40 years of age and it shall be applied based upon payment on previous term (or the longest term of payment, if it is not available), monthly payment and men; provided, absent 40 years of age and in the event of age maturing insurance (including life insurance and annuity), the mid age of the subscription age shall be the base age;

10. "General non life insurance" means the non life insurance for which assumed interest rates are not applied in the premiums calculation and whose net premium is comprised only of the risk premiums; and

11. "Long term non life insurance" means the non life insurance excluding the general non life insurance.

§7-50. Automobile Insurance

Notwithstanding this Section, the submission standards on automobile insurance shall be as provided in the annexed Table 14.

Subsection 2.

Business Manual

Clause 1. General Provisions

§7-51. Principles on the Preparation of Business Manual

(1) That specifics on the execution, maintenance and management of the insurance contract shall be provided, that the rights of policyholders may not be restricted without having basis in the business manual, and that it shall be provided that what is necessary may be determined within a scope limited;

(2) That there shall be no terms in conflict with relevant statutes or resulting in unsound insurance business activities, and that there shall be no unreasonable information such as discriminating policyholders;

(3) That there shall be no terms which reduce the policyholder's rights or expand the policyholder's obligations, and reduce the insurer's obligations without having a basis on the policy; and

(4) That the insurer shall utilize the standard business manual designated by the Governor in preparing its business manual; provided where each insurance product differs from the company's business manual, it may be amended for use in the form of an annexed form.

§7-52. Information Required

The insurance company shall provide the following information in preparing its business manual;

1. Region where the insurance business is conducted; insurance businesses conducted; scope of the insured or the insuring purpose;

2. Branch, offices, representative offices, and agents;

3. Restrictions on the insurance benefits and period;

4. Insured, or selection of the insuring purpose, and procedures on the execution of insurance contract;

5. Collection of insurance premiums, payment of insurance benefits and redemption of the insurance premiums;

6. Insurance certificates, insurance application forms, and details;

7. Receipt of reinsurance;

8. Riders;

9. Earnings on insurance contract, or retained earnings allocation;

10. Loans extended in accordance with the policy;

11. Changes in insurance contract such as insurance benefits, types, or terms;

12. Risks and examination of the insuring purpose; and

13. Other matters provided under the policy, to be decided by the insurer.

Clause 2. Life Insurance

§7-53. General Standards on the Preparation of Business Manual

The insurance company shall ensure that the following standards are satisfied in preparing the company's business manual or business manual of each insurance product;

1. The insurance product's title shall appropriately reflect the contents of the product, and shall not be used in congruence with that of other insurers'(excluding riders);

2. The insurance period shall be annually based within the term of whole life; provided, however, where the risks are calculated for use as per a term of one year or less, or where short term rates are applied, the term may be set to meet the unit of the risk rate calculation;

3. The term of payment for the insurance premiums shall be annually based within the scope of the insurance period, and the payment cycle may be a single payment, monthly payment, bimonthly payment, trimonthly payment, half yearly payment, and annual payment;

4. Additional payment of the insurance premiums shall be within twice the payment ceiling of the basic premiums of the main contract, and the mid term withdrawal of the cumulative premiums may be allowed within a certain range of the surrender value;

5. Premiums may be discounted within the range of the assumed cost, in which event the discount conditions and rates shall be specifically provided;

6. Rider may be operable within the range in which the special features of the main contract are met and, where rider is added to the main contract, it shall be in conformity with the insurance product subscription standards provided in this Section; and

7. Where rider is forcibly or regularly added to the main contract, the method and ceiling of the addition shall be specifically provided.

§7-54. Group Insurance

(1) Group insurance means an insurance for which the head of the group or organization subscribes to for the constituents of an organization whose structure is clear and whose agreement is controllable, in satisfaction of the following requirements;

1. Eligible groups include :

a. Organizations employing 5 or more employees, such as an identical company, workplace, government organizations, state owned enterprises, and unions, among others; provided where classification is made such as workplace, ranks and positions, and occupation, the classification of the organization shall be governed by relevant statutes;

b. Organizations employing 5 or more constituents such as non profit organizations, bar association, and medical doctors association, among others;

c. Other organizations employing 5 or more constituents, whose identities are clear bearing identical risks and whose contract is controllable.

2. The insured group shall be comprised of at least 5 persons who executed the identical insurance contract, identified under the eligible organizations provided under paragraph (1), and they may have their spouse, children, parents, or parents in law as secondary insured.

3. Where only a part of a group are subscribing, risks of their organization and the insured groups' risks beared shall be maintained identically, in satisfaction of one of the following requirements;

a. That it shall be managed under contract between the organization and the union as a welfare program provided under the organization's bylaws; provided that there shall be consultations by and among the head of the organization and the head of the labor union or company union consultation committee that can represent the head of the organization and the insured, as a result of which part of the premiums paid shall be borne by the organization or the head of the organization; and

b. Organizations provided under subparagraph 1 items b and c shall require agreement by and between the head of the organization and the insurance company in accordance with bylaws.

(2) Where part of the premiums is paid by each insured, he or she shall be entitled to exercise policyholder's rights in proportion to the contribution made.

(3) Where there should be changes in the insured as a result of new employment or retirement, the policyholder shall obtain consent of the insured to add or change the insured, whereby the insured having made contribution to part of the premiums paid shall be eligible for conversion to individual contract, in which event the premiums appropriate for the individual risks shall be calculated or adjusted.

§7-55. Retirement Insurance

(1) Retirement insurance is an insurance by which the constituents of an organization upon their retirement are entitled to annuity or one time payment of the retirement funds, where the head of the organization insures the constituents as the insured, in satisfaction of the requirements provided under the provisions of Article 34 of the Labor Standards Act.

(2) The insurance company shall regularly recalculate the insurance premiums every 5 years from the date of contract and, in the event of any cause potentially affecting the premiums such as changes in the system, layoff, and interim payout of the retirement funds, among others, may recalculate the premiums in consultation with the policyholder.

(3) Where the policy reserve should exceed the estimated retirement funds corresponding to the target cumulative ratio as a result of the premiums recalculation, the excess may be calculated in conjunction with the premiums; where the policy reserve should exceed the insured organization's estimated retirement funds, the excess may be returned to the policyholder.

Clause 3. Non Life Insurance

§7-56. General Standards on the Preparation of Business Manual

(1) The insurance period for the general non life insurance shall be 3 years or less; provided that exceptions may apply for the guarantee insurance and the insurance whose period is not determined at the date of contract.

(2) The insurance period for the long term non life insurance shall be 15 years or less, and the guarantee type insurance may be 15 years or longer.

(3) With the exclusion of paragraphs (1) and (2), the provisions of Clause 2 shall be applied for the standards on the non life insurance's business manual; provided that Article 7-53 subparagraphs 3 through 5 shall be excluded for the general non life insurance.

Clause 4. Third Insurance

§7-57. General Standards on the Preparation of Business Manual

(1) The provisions of Clause 2 shall be applied for business manual of third insurance; provided that the provisions of Article 7-53 subparagraphs 2 through 5 shall be excluded for the general non life insurance.

(2) Notwithstanding the provisions of paragraph (1), in providing guarantee for deaths resulting from diseases by the insurance company capable of conducting the non life insurance businesses (excluding reinsurance and guarantee insurance), the following requirements shall be satisfied;

1. That the insurance period shall be 80 years of age or less;

2. That the ceiling on benefits paid for death caused by disease shall be KRW 200 million or less per individual; and

3. That the redemption paid upon maturity shall be within the scope of the cumulative premiums paid.

Subsection 3.

Policy

Clause 1. General Provisions

§7-58. Principles on the Preparation of Policy

(1) Policy shall be provided in ways easy for policyholders to understand and shall not be prepared against reasonable expectations of the policyholder and public interest.

(2) It shall not be prepared against relevant statutes such as the Commercial Code and the Act on Regulation of Terms and Conditions or against unreasonable reduction or expansion of the policyholder's rights or obligations.

(3) It shall not restrict benefits such as overly extending the risks not insured against.

(4) It shall not provide terms by which the utility as insurance significantly falls short or unreasonable risks are insured against.

(5) It shall not provide terms by which the policyholder's moral hazard is induced as a result of the terms insured such as causes of payment and insurance benefits paid are exaggerated.

(6) Standard policy determined by the Governor shall be used in preparing policy for each insurance product; provided where the use of standard policy is not feasible in view of each product's special features, they may be amended for use, however.

§7-59. Terms Required

The following terms shall be provided in preparing the policy;

1. Causes for the insurer to pay insurance benefits;

2. Causes for the nullification of the insurance contract;

3. Exemptions for the insurer's liability;

4. Scope of the insurer's obligations and the term of performance of the obligations;

5. Losses suffered by the policyholder or the insured in the event of non performance of the obligations;

6. Causes for the partial or entire insurance contract termination and, if applicable, rights and obligations of the parties;

7. Scope of the rights to dividends or retained earnings by the policyholder, insured, or the beneficiary;

8. Interest rates, performance calculation and disclosure method, in the event of any changes in the benefits based upon the applicable interest rates or the performance of asset management;

9. Terms on the deposit protection and the policyholder's right protection; and

10. Other terms that the policyholder should be aware of as a significant part of the insurance contract.

Clause 2. Life Insurance

§7-60. General Standards on the Insurance Product Designing

In designing insurance products or preparing the policy, the following requirements shall be satisfied;

1. Insurance benefits paid upon death of the insured shall be greater than the surrender value and the premiums paid; provided that this provision may not be applied after the commencement of the annuity payment in case of annuity.

2. For the insurance paying cumulative premiums in addition upon death of the insured, the benefits paid upon death with the exclusion of the cumulative premiums paid shall be at least 5 percent of the premiums paid (whereby the ceiling on the basic premiums shall be the basis and, if the insurance period is 10 years or longer, it may be 10 years) discounted by the standard rate provided under the provisions of Article 6-12; provided that this provision may not be applied for the annuity and savings insurance.

3. For savings type insurance, the benefits paid during the term of life (cumulative premiums at the commencement of annuity, for annuity) shall be greater than the premiums paid.

4. Surviving annuity in the annuity shall be paid upon guarantee for at least 5 years after the commencement of the annuity payment.

5. For disability insurance, each product shall be designed by providing breadth of consideration up to twice the value of the expenses that will be consumed depending upon the level of disability and treatments needed; provided that exceptions may be provided where guarantee is added by the option of the policyholder.

6. Where guarantee is added by specializing certain risks, the product shall be designed so that the guaranteed value against the specialized risks is up to 500 percent of the guarantee value against the ordinary risks; provided that 500 percent or greater may be provided in the event guarantee is added by the option of the policyholder, or designed distinctly in view of the expenses that will be consumed by the elvel of disability and disease treatment.

7. The cumulative premiums paid by net premium method shall not be negative as a result of, or caused by designing reflective of any thing other than risk rates and the product's special features; where surviving insurance has been designated, the surrender value at the time of surviving benefits payment, shall be greater than the surviving benefit.

8. For certain diseases availing adverse selection by the policyholder, the minimum term uninsured may be set after the start of coverage(the date of the first premium payment) and, in the event of cancer arising during the term uninsured, the guarantee may be null and void.

9. Minimum death benefits, among others, shall be set for the variable insurance and interest rate indexed type insurance.

10. Even where risks insured are all extinguished by death, etc., or even where death does not occur, insurance contract may be terminated where any additional utility of insurance does not exist.

11. Where the payment of premiums or maintenance of insurance contract is difficult for the policyholder or the insured for any incidents arising during the term of insurance, the payment shall be waived or the policyholder shall be provided with an option for the waiver at the insurance contract is executed; provided that the waiver may not be set in the event of group or savings type insurance.

12. In designing the benefits, benefits shall not be changed without reasonable cause or consistency and, even in the event of any change, the submission standards of insurance products provided under this Section shall be complied with.

13. Rider shall be developed into guarantee type insurance.

Clause 3. Non Life Insurance

§7-61. General Standards on Insurance Product Designing

(1) For pension savings non life insurance provided under the provisions of Article 86-2 of the Special Tax Exemption Restrictions Act (hereinafter, "pension savings non life insurance"), the term of pension payment shall be at least 5 years but less than 25 years.

(2) Long term non life insurance shall be developed into only the guarantee type insurance; provided that exceptions shall be provided only where the insuring period is at least 1 year but less than 15 years.

(3) With the exclusion of paragraphs (1) and (2), standards on product designing for the long term non life insurance (including the pension savings non life insurance and retirement insurance) shall be governed by the provisions of Clause 4; provided that the proviso of Article 7-62 paragraph (4) shall be excluded.

Clause 4. Third Insurance

§7-62. General Standards on the Insurance Product Designing

(1) The third insurance shall be developed into only the guarantee type insurance; provided that the non life insurance company's shall be an exception if the insurance period is at least 1 year but less than 15 years.

(2) In the event of death by any cause not provided under the policy, it may be designed so that policy reserve is paid and the contract is extinguished.

(3) Benefits insured under the policy may be designed based upon a fixed value or the actual losses incurred (hereinafter, "the actual losses").

(4) As for the risks designed based upon the actual losses, advance notice on subscription (restricted to the insurance covering the actual losses) for other company (including life insurer and non life insurer) may be added, and compensation may be provided in accordance with Article 672 of the Commercial Code; provided that the contract may not be terminated on the grounds of violation of the obligation to provide advance notice on subscription before entering into the contract.

(5) Matters not provided under this Clause shall be governed by the provisions of Clause 2; provided that the provisions of Article 7-60 paragraphs (2), (4), (5), (9), and (11) may be excluded for the non life insurer.

Subsection 4.

Insurance Premiums and Policy Reserve Calculation Manual

Clause 1. General Provisions

§7-63. Principles on the Calculation of Premium

(1) An insurer shall calculate premium rates using the law of large numbers and statistic credibility methods, based on objective and reliable data, in accordance with the following standards;

1. That premium rates shall be calculated on a reasonable basis for securing sources of insurance benefit and maintaining soundness of insurance business operations;

2. That premium rates shall be adequate and appropriate, and not be excessive or deficient;

3. That premium rates shall be equitable to all policyholders, and not be unduly discriminatory;

4. That premium rates shall be in conformity with the calculation basis and the benefit under the policy.

(2) Notwithstanding the provisions of paragraph (1), in the absence of, or for deficient, past empirical data, an insurer may calculate premium rates based on objective domestic and or foreign statistical data or any other materials related to risk rates.

(3) The provisions of paragraph (1) shall be applied where premium rates are modified to reflect price-fluctuation, medical advances, and risk variables.

§7-64. Information Required

In preparing the insurance premiums and policy reserve calculation manual, the following terms shall be provided;

1. Matters pertaining to the assumed risk rates;

2. Matters pertaining to the assumed interest rates;

3. Matters pertaining to the assumed cost ratio;

4. Matters pertaining to the calculation of surrender value;

5. Matters pertaining to the calculation of insurance premiums;

6. Matters pertaining to the calculation of policy reserve;

7. Matters pertaining to the calculation of insurance benefits, types and terms in the event of change; and

8. Other matters necessary for the actuarial calculation.

Clause 2. Life Insurance

§7-65. Calculation Standards on the Insurance Premiums

(1) Insurance premiums shall be classified and applied by sex and age based upon the insured; provided that the classification and calculation by age may not be applied where applicable under the following;

1. Where all risks insured against are calculated as a single risk rate;

2. Where the secondary insured's age is decided by the age of the primary insured in the joint life insurance;

3. Where single age or group age is applied for lack of significant difference between insurance premiums by age; and

4. Where the risk rates are calculated by the unit of insured group, or where the insured group's average insurance age or average age is applied.

(2) Insurance premiums shall be calculated by the payment cycle.

(3) Insurance premiums may be applied by the average of the payment term or the incremental form during a certain duration of time.

(4) For the contract whose premiums payment is waived, it shall be assumed that the premiums will be paid on the date of payment for the purposes of the policy reserve calculation.

(5) Insurance premiums for the retirement insurance shall be calculated in a fixed value or based upon the wages paid; previous liabilities shall be amortized in a fixed value or rate within 10 years (including one time amortization).

§7-66. Calculation Standards on the Assumed Risk Rates

(1) Risk rates shall be classified and calculated by sex and age; provided that the calculation may be conducted by single or group rate if the differences in sex and age are minimal.

(2) Risk rates shall be identically applied against identical risks; provided that exceptions may be provided for specializing the insured.

(3) Risks insured against by the policy and statistics on risks in terms of their calculation, among others, shall be identical; provided where it is necessary for developing reasonable terms, exceptions may be provided to the extent that the insurance premium rates are reasonable.

(4) Assumed retirement rate and promotion rate shall be calculated and applied based upon the statistics derived from 3 years of the subscribing group; provided where the statistics could not be derived for a group of less than 300 persons for 3 years, the reference retirement and promotion rates shall be applied.

§7-67. Calculation Standards on the Assumed Cost Ratio

(1) The assumed cost ratio shall be classified for determination into the assumed acquisition cost ratio, assumed maintenance cost ratio, and the assumed collection cost ratio based upon the followings;

1. Acquisition cost : assessed based upon the costs incurred by solicitation;

2. Maintenance cost : assessed based upon the costs needed for maintenance of the policy contracts; and

3. Collection cost : assessed based upon the costs incurred in connection with the insurance premiums collection.

(2) As for the variable insurance, fees may be assessed separately from the assumed cost ratio provided under paragraph (1), such as the special account management fees, minimum death insurance fees, and minimum policy reserve guarantee fees, among others.

(3) The assumed cost ratio shall be classified and calculated by each insurance product and distribution channel.

§7-68. Application Standards on the Assumed Interest Rate

(1) The minimum guarantee interest rate shall be set for the interest rate indexed type insurance.

(2) The assumed interest rate in the form of disclosure made by the insurance company among the interest rate indexed type insurances (hereinafter, "the disclosed rate") shall be applied in accordance with the following methods based upon the insurance company's rate of return on the asset investment;

1. The disclosed rate shall be calculated from averaging the rate of return on asset investment and objective external indicators such as rate of return on corporate bonds and government bonds, among others, and apply the adjustment rate by considering the future income to decide the disclosed rate;

2. The ceiling on the deduction on the adjustment rate provided under subparagraph 1 shall be 20 percent of the disclosed rate.

3. The rate of return on asset investment provided under subparagraph 1 shall be calculated based upon the Company's investment earnings from 6 months prior to the calculation, and the investment expenses used for the investment expenses rate shall be calculated by a reasonable method by reflecting the expenses directly made;

4. Where the disclosed rate is calculated by discrimination by each insurance product, asset management and classifications pertaining to the product shall be developed, or they shall be managed as special accounts, thereby securing a reasonable basis;

(3) Even where the policy loan rates provided under terms and conditions are applied by discrimination from the insurance products for the policy loan rate-indexed type insurance product, the provisions of paragraph (2) subparagraph 4 shall be applied; and

(4) As for the interest rate indexed type insurance, the applied rates in the event of interim termination may be applied within 5 years from the date of contract.

§7-69. Calculation of the Policy Reserve

(1) The cumulative insurance premiums shall be set to the net premium reserve, and the cumulative premiums as of the end of the fiscal year shall be calculated in accordance with the elapsed time on a monthly basis as follows;

[eqn: t + {m over 12}]V = [eqn: t]V + [eqn: m over 12]([eqn: t + 1]V - [eqn: t]V)

Provided, m : number of months in which payments were made; [eqn: t]V : net insurance premium type cumulative premiums as of the end of insurance year.

(2) The cumulative premiums of the joint life insurance shall be classified and set depending upon whether the primary insured and the secondary insured are alive and, where the residual guarantee details should vary depending upon causes for the insurance benefits payment, they may be classified and accumulated.

(3) The insurance premiums shall be calculated based upon the premiums annually paid; provided that for the insurance under which premiums paid are paid out during life, they shall be paid by the payment cycle of the insurance premiums.

(4) The insurance premiums to be paid forward shall be calculated as follows;

Cumulative premiums to be paid forward = [eqn: m'-t over m' ·P]

Provided, m□: payment cycle (2,3,6,12), t : number of months in which payments were made, P : net insurance premiums paid

§7-70. Calculation of the Surrender Value

(1) The surrender value shall be the greater of the value calculated from the premiums and policy reserve calculation guidelines and that from the following;

1. Non amortized acquisition costs shall be deducted from the net insurance type cumulative premiums as follows; provided where the value resulting therefrom is negative, then it shall be a zero.

[eqn: t]W = [eqn: t]V(N) - [eqn: { 12·m - t' } over {12·m }]·□

Provided, [eqn: t]W : surrender value, [eqn: t]V(N) : net insurance type cumulative premiums, □ : assumed acquisition costs, t : number of months in which payments were made, m : amortization term for acquisition costs, t' : number of months in which payments were made;

2. The amortization term of the acquisition costs provided under subparagraph 1 shall be the insurance premiums payment term and, where the payment term is 7 years or longer, then it shall be 7 years;

3. The base rates applied in the calculation of the net insurance type cumulative premiums and non amortized acquisition costs provided under subparagraph 1 shall be the following;

a. The lesser of 125 percent of the standard interest rate provided under Article 6-12 paragraph (1) and the assumed interest rate applied in the calculated of premiums; provided that interest rates calculated from the premiums and policy reserve calculation guidelines shall be applied to the reserve of the interest rate indexed type insurance;

b. The lesser of the ceiling of acquisition cost ratio determined by insurance type as under the annexed Table 15 and the assumed acquisition cost ratio applied in the premiums calculation; and

c. The assumed risk rates applied in the premiums calculation.

(2) The insurer shall pay the policyholder the premiums remaining to cover the insurance period in the event of cancellation in addition to the surrender value paid in accordance with the provisions of paragraph (1).

§7-71. Calculation Standards on the Insurance Policy Subscription Value

Calculation standards for the insurance subscription value shall be as provided in the annexed Table 16.

§7-72. Method of Change for the Insurance Policy Agreement

Calculation standards for changing the subscription value, insurance item, or insuring period, among others, shall be as provided in the annexed Table 17.

Clause 3. Non Life Insurance

§7-73. Calculation Standards on the General Non Life Premiums

(1) Insurance premiums shall be calculated and reflective of the additional permiums to the net insurance premiums.

(2) Minimum premiums may be determined by special features of the risks insured against.

(3) Matters pertinent to the discount and surcharge of the net insurance premium rate, and the discount of the additional premium rate shall be specifically determined by insurance product, and the discount of additional premium rate may be determined within the scope of the assumed cost; in such an event, specifics on the standards of the aforesaid shall be included in the premiums and policy reserve calculation manual.

§7-74. Waiver of Terms Required for the General Non Life Insurance

(1) Where applicable under any of the following subparagraphs, the insurance premium rates, among others, of the terms required in the premiums and policy reserve calculation manual may not be required;

1. Where insurer is incapable of calculating the insurance premium rate against security or collateral risks due to shortage of domestic experience in statistics, and where it is required to use the rate negotiated with the reinsurer; provided that this provision shall not apply to the personal injury risks; and

2. Where it is a corporate type insurance and applicable under the followings;

a. Air insurance, space insurance, maritime insurance and insurance for ships weighing over 500 tons;

b. Fire insurance in excess of KRW 150 billion of the security value;

c. Construction insurance, assembly insurance, and others similar whose security value subscribed under policy is in excess of KRW 100 billion;

d. Liability coverage void of reference insurance rate; and

e. Insurance policy contract void of reference insurance premium rate for collective security, among the insurances securing multiple risks as a single certificate.

(2) Where applicable under paragraph (1), the insurer shall retain the evidence on the rate calculation, such as performance and terms of negotiation with the reinsurer.

(3) The insurer shall control the net insurance premium rate by security and statistics on benefits for insurance contract provided under paragraph (1).

§7-75. Calculation Standards on the General Non Life Insurance's Assumed Risk Rates

(1) Statistics used in the risk rate calculation shall be in accordance with the followings;

1. Statistics shall be applied on an annual basis, and their term shall in principle be the recent 5 years; provided that the term may vary in view of the statistics' credibility and the risks' special features;

2. Statistics may be amended for use in the event of any change in the insurance premium rate and benefits payment standards, among others, during the statistical period provided under subparagraph 1;

3. Appropriate weight may be added to the annual statistics in the event the statistical term provided under subparagraph 1 is 1 year or longer;

4. For risks continuing over a long term until benefits are paid from the occurrence of incident, trends in the losses by year may be reflected;

5. Change variables in the income level, consumer price, economic trends, and technological advancement affecting the assumed risk rate calculation, may be reflected.

(2) Risk rates shall be in conformity with the following standards;

1. Risk rates shall be identical to the risks insured against under the policy; provided that exceptions may be provided where the insurance rates' appropriateness is not affected for the purposes of developing reasonable terms;

2. Risk rates shall be used identically for the risks identical by risk group; provided that exceptions may be provided where risk groups are specialized;

3. Risk rates shall appropriately reflect special features and size of the risks insured against and available for easy application;

4. Restrictions on deductibles and compensation shall be reflected in the risk rates, in the event they affect the benefits payment; and

5. Safety rate may be reflected in the risk rates if the loss rate is unstable or large losses are likely to result.

(3) Risk rates may be changed where applicable under any of the followings;

1. Changes in the experienced loss rate;

2. Change or development of the policy and assumed risk rate structure, among others;

3. Changes in the policyholder protection or economic conditions; and

4. Other non insurance environment changes, such as statutory amendment, administrative action, or change of the guarantee fund.

(4) Change of the risk rates provided under the provisions of paragraph (3) shall in principle be made once per year (3 times per year for guarantee insurance); provided that exceptions shall be provided for the changes in the rates provided under paragraph (3) subparagraphs 2 through 4.

(5) Changes in the risk rates provided under the provisions of paragraph (3) may be adjusted within 25 percent; provided that exceptions shall be provided where changes in the policy, rate structure change or development, or losses are reflected.

§7-76. Calculation of the Additional Insurance Premium Rate for General Non Life Insurance

(1) Additional insurance premium rates shall be classified into the assumed cost ratio and assumed rate of return.

(2) The assumed cost ratio provided under paragraph (1) shall be calculated based upon the business performance during the past 1 year; provided that it may be appropriately adjusted where the performance could not be reflected due to temporary change of costs.

(3) The assumed cost ratio may be calculated by each insurance product or by each marketing channel.

§7-77. Preparation Standards on the Long Term Non Life Insurance Premium and Policy Reserve

(1) Insurance premiums and risk rates for the injury insurance may not be calculated by sex and age.

(2) As for non life insurer, insurance policy subscription value for calculating the ceiling on the acquisition cost ratio by insurance type as provided under the annexed Table 15 shall be calculated by multiplying the subscription value of the term insurance to the risk premiums as per the term insurance net premiums based upon the base age.

(3) With the exclusion of paragraphs (1) and (2), calculation of the insurance premium rates for the long term non life insurance (including pension savings non life insurance and retirement insurance) and preparation of the premiums and policy reserve calculation manual shall be governed by the provisions of Clause 2.

Clause 4. Third Insurance

§7-78. Preparation Standards on the Insurance Premiums and Policy Reserve

(1) Insurance premiums and risk rates for the non life insurer's injury insurance may not be calculated by sex and age.

(2) As for non life insurer, insurance policy subscription value for calculating the ceiling on the acquisition cost ratio by insurance type as provided under the annexed Table 15 shall be calculated by multiplying the subscription value of the term insurance to the risk premiums as per the term insurance net premiums based upon the base age.

(3) With the exclusion of paragraphs (1) and (2), calculation of the insurance rates for the long term non life insurance (including pension savings non life insurance and retirement insurance) and preparation of the premiums and policy reserve calculation manual shall be governed by the provisions of Clause 2; provided that for general non life insurance, the provisions of Articles 7-67 through 7-72 shall be excluded.

Clause 5. Income Management

§7-79. Source of Income Analysis

(1) An insurer shall analyze income by source for the purposes of utilizing the information obtained as the basis for calculating policyholder dividends and insurance premiums.

(2) Source of income analysis standards and formats for the life insurance and long term non life insurance (including individual pension insurance, pension savings insurance and retirement insurance) provided under the provisions of paragraph (1) shall be determined by the Governor.

§7-80. Appropriation and Allocation of the Costs

In preparing business report in accordance with the provisions of Article 6-8, appropriation of the assumed cost and allocation standards of the actual cost, among others, shall be determined by the Governor.

Clause 6. Submission Procedures

§7-81. Documents Submitted

(1) In reporting or submitting insurance products in accordance with Article 127 of the Act and Article 71 of the Decree, an insurer shall submit the following documents to the Governor;

1. Insurance product report (submission form);

2. Basic documentation on the applicable insurance product;

3. Certification by appointed actuary;

4. Certification by the insurance rate calculating institution as provided under Article 71 paragraph (4) subparagraph 2 of the Decree; and

5. Other documents determined by the Governor as necessary for checking the propriety of the insurance rates.

(2) Notwithstanding the provisions of paragraph (1), part of the documents may not be submitted depending upon the following classifications;

1. Where applicable under the followings, documents provided under paragraph (1) subparagraph 4;

a. Where the risk rates reported or submitted are used, or where minimal adjustment is made for changes in the assumed interest rate and assumed cost ratio;

b. Where there is no change in the insurance premium rate;

c. Where the domestic and foreign reinsurers' insurance premium rates are used due to shortage in domestic statistics; and

d. Where the insurance does not employ assumed interest rates, and where the risk rates reported or submitted are used, or where changes are made in the variable rates of the risk rates do not exceed the scope of the basic documents reported or submitted.

2. Where applicable under any of the followings, the documents provided under paragraph (1) may be replaced by submitting the change table checked and certified by the appointed actuary;

a. Where changes are made by statutory amendment or the FSC's order;

b. Where changes are made to expand the policyholder's rights and interest or reduce his or her obligations;

c.  Where changes are made in matters that do not affect the policyholder's rights and obligations;

d. Where the terms and conditions not affecting the insurance premium rates are used (restricted to the policy authorized);

e. Where changes are made in the insurance certificate or insurance policy application form;

f. Where changes are made in the assumed interest rates or insurance premium rates following changes in the reference insurance premium rates without changes in the payment; and

g. Where general non life insurance products using the reinsurers' insurance premium rates are jointly acquired by a multiple number of insurers and the representative of the insurers makes the report.

(3) In submitting the basic documents in accordance with Article 127 paragraph (2) of the Act and Article 100 paragraph (1) Annexed Table 5 subparagraph 12 of the Decree, the insurer shall submit the status on product sales on a quarterly basis separately from those provided under paragraph (1).

(4) The format and information required in accordance with paragraphs (1) through (3) shall be governed by the stipulations of the Governor.

Section 9.

Standards of Review on Insurance Products

§7-82. Review of the Insurance Products

(1) The Governor shall review the insurance products reported or submitted by the insurers in accordance with the provisions of Articles 7-83 through 7-85.

(2) Where applicable under any of the followings as a result of the review of the insurance products in accordance with the provisions of paragraph (1), the Governor may refuse to accept the report on the insurance products, recommend changes in accordance with Article 71 paragraph (3) of the Decree, and may order for the suspension of sales of, or for the change of, the insurance products in question in accordance with Article 131 paragraph (2) of the Act;

1. Where there is a potential for unfavorably affecting public interest, policyholder's interest, and the insurer's sound management; and

2. Where there is any terms and conditions in violation of relevant statutes or unfavorable to the policyholder.

(3) As for the terms and conditions that may result in the policyholder's misunderstanding of the insurance products submitted or vague terms and conditions, the Governor may recommend changes of them prior to taking the actions provided under paragraph (2).

§7-83. Policy

The Governor shall review the followings with respect to the policy;

1. Whether there is any expression that is difficult or unclear for the policyholder to understand;

2. Whether they are designed against the policyholder's reasonable expectations or public interest;

3. Where there is any expression that reduces the policyholder's rights and interest or expands his or her obligations;

4. Whether there is any terms and conditions that may not be in accordance with the general insurance principles or in violation of the insurance relevant statutes; and

5. Whether there are terms and conditions articulated, which the policyholder should be aware of.

§7-84. Business Manual

The Governor shall review the followings with respect to the business manual;

1. Matters pertaining to insurance item and term, and the insured's selection and execution of the policy contract;

2. Matters pertaining to the insurance discount, redemption, dividends and increase in the premiums;

3. Matters pertaining to the business undertaking methods by insurance items such as interest rate indexed type insurance and group insurance; and

4. Other matters pertaining to the appropriateness of the business method.

§7-85. Insurance Premiums and Policy Reserve Calculation Manual

The Governor shall review the following with respect to the insurance premiums and policy reserve calculation manual;

1. Whether the assumed risk rates appropriately reflect the statistics;

2. Whether the assumed cost ratio is determined fairly and reasonably by insurance type and item;

3. Whether the assumed interest rate or disclosed rates are appropriately determined; and

4. Whether they are in accordance with the principles on the calculation of the premium pursuant to Article 129 of the Act.

§7-86. Specific Standards on the Insurance Product Review

The Governor may determine specific standards in reviewing the policy, business manual, and the premiums and policy reserve calculation manual as provided under Articles 7-83 through 7-85.

CHAPTER 8.

INSURANCE INVESTIGATION COUNCIL

§8-1. Composition of the Insurance Investigation Council

"Institution designated by the Financial Supervisory Commission" as provided under Article 76 paragraph (1) subparagraph 4 of the Decree means an institution applicable under the following;

1. National Health Insurance established by the National Health Insurance Act;

2. National Pension Administration established by the National Pension Act; and

3. Workers Compensation Administration established by the Workers Compensation and Insurance Act.

CHAPTER 9.

INSURANCE ORGANIZATIONS

Section 1.

Insurance Organizations

§9-1. Reporting

Insurance organizations shall report to the Governor on matters applicable under the following;

1. Appointment of executive director＞ within 7 days;

2. Annual business plans and budget on revenue and expenditures (including changes): prior to the start of the business year; and

3. Annual business performance and results of the settlement＞within 3 months from the end of every business year.

§9-2. Availability of the Documents and Books

Insurance organizations shall make available the following documents and books;

1. Articles of incorporation;

2. List of executive directors and employees;

3. Documents on the institutional intentions;

4. Books and evidentiary documents on the revenue and expenditures; and

5. Ledgers on assets and liabilities.

§9-3. Dissolution Report

(1) In the event an insurance organization is dissolved, its head shall immediately report to the FSC on the following;

1. Date of the dissolution;

2. Cause of the dissolution;

3. Assets at the time of the dissolution;

4. Photocopy of transcripts of the general shareholders' or board of directors meeting; and

5. Name and address of the applicant for the dissolution, if appointed.

§9-4. Authorization for the Disposition of the Residual Assets

(1) Where head of an insurance organization, or dissolution applicant, intends to apply for the disposition of the residual assets after dissolution, he or she shall attach the following documents for submission to the Governor;

1. Types of assets to be disposed of;

2. Their values;

3. Methods of disposition; and

4. Other references.

(2) Head of an insurance organization, or dissolution applicant, shall report to the FSC on the results of the disposition completed.

§9-5. Method and Procedures on Providing the Insurance Rate Calculating Institution's Information

(1) In providing personal information retained to any third party in accordance with Article 91 paragraph (1) of the Decree, an insurance rate calculating institution shall record and manage the following;

1. Recipient of the information;

2. Information provided;

3. Purpose of the provision; and

4. Method of provision.

(2) Specific standards on the personal information's processor, user procedures, and methods retained by the insurance rate calculating institution shall be as provided in the annexed Table 18.

Section 2.

Actuaries and Claim Adjusters

Subsection 1.

Actuaries

§9-6. Classification of the Actuaries

Actuaries shall be classified into any one of the following subparagraphs.

1. Actuary employed : an actuary employed by an insurer;

2. Independent actuary : an actuary not employed by an insurer but conducting the actuarial business by profession; and

3. Senior actuary : a senior actuary responsible for certifying the calculation of policy reserve and others as provided under Article 184 paragraph (1) of the Act.

§9-7. Designation of the Actuaries' Training Institution

The training institution designated by the FSC provided under Article 50 of the Rules means an institution engaged in the insurance actuarial business as provided under the provisions of Article 183 of the Act.

§9-8. Submission of the Senior Actuary's Opinions to the Chief Executive Officer

Matters submitted to the chief executive officer in accordance with the provisions of Article 96 paragraph (3) of the Decree shall be as follows;

1. Basic documents provided under Article 5 paragraph (3) of the Act; and

2. Matters pertaining to the basic documents, among the disclosed information on products.

§9-9. Submission of the Senior Actuary's Opinion

(1) An insurer shall submit to the Governor the following statement of opinions within 3 months from the end of every business year, among the senior actuary's statements of opinions in accordance with the provisions of Article 96 paragraph (3) of the Decree;

1. Policy reserve, contingency reserve, and other reserves; and

2. Retained earnings allocation and disposition and the policyholder's dividends.

(2) The Governor may have the independent actuary designated by the Governor to review the statement of opinions for determining the propriety of the senior actuary's opinions submitted in accordance with the provisions of paragraph (1)

(3) Where the independent actuary determines that the opinions are inappropriate as a result of reviewing the opinions in accordance with paragraph (2), the Governor may listen to the senior actuary's opinions.

(4) The preparation standards of the senior actuary's statement of opinions provided under paragraph (1) shall be determined by the Governor.

§9-10. Appointment and Dismissal of the Senior Actuary

(1) An insurer shall submit the following documents to the FSC upon appointing the senior actuary as provided under Article 45 paragraph (1) of the Rules or a person to replace as provided under Article 45 paragraph (4) of the Rules within 7 days from the appointment;

1. Name and resident identification number;

2. Insurance actuary registration date and number; and

3. Professional career records.

(2) An insurer intending to dismiss the senior actuary in accordance with the provisions of Article 45 paragraph (1) of the Rules shall submit the following documents to the FSC;

1. Scheduled date of dismissal; and

2. Reasons for the dismissal.

(3) Where an insurer reports on the appointment of the senior actuary in accordance with the provisions of Article 45 paragraph (1) subparagraph 1, the FSC shall check whether the senior actuary qualifies under the requirements provided under Article 95 paragraph (1) of the Decree and, where an insurer reports on the dismissal of the senior actuary in accordance with the provisions of Article 45 paragraph (1) subparagraph 2 of the Rules, shall review the propriety of the reasons for the dismissal, among others.

§9-11. Senior Actuary's Assistants

(1) An insurer whose values provided under the following are each at least KRW 300 billion shall employ at least an assistant for the senior actuary (hereinafter, "assistant"); provided where the values are each at least KRW 1 trillion, at least 2 assistants, and where they are each at least KRW 5 trillion, at least 3 assistants shall be provided;

1. Life insurer or third insurer : insurance fees income (including the reinsurance income) or policy reserve as of the end of the preceding business year; and

2. Non life insurer : origination fees or policy reserve as of the preceding business year.

(2) The insurer shall provide IT facilities, among others, needed for the examination and verification by the senior actuary.

Subsection 2.

Claim Adjusters

§9-12. Classifications of the Claim Adjusters

Claim adjusters shall be classified by the type of duties into any one of the following subparagraphs:

1. Claim adjuster employed: claim adjuster employed by a non-life insurer; and

2. Independent adjuster: claim adjuster not employed by a non-life insurer but conducting claim adjustment business independently by profession.

§9-13. Designation of the Claim Adjuster's Training Institution

The training institution designated by the FSC provided under Article 54 of the Rules shall be as follows;

1. Korea Fire Insurance Association; and

2. Businesses conducting the claim adjustment business in accordance with the provisions of Article 187 of the Act.

§9-14. Prohibited Acts of the Independent Claim Adjusters

An independent claim adjuster or a claim adjuster employed by an independent claim adjuster shall not engage in any practice of the following subparagraphs.

1. Requesting payment of insurance benefit by proxy;

2. Making a promise of a certain amount of indemnification, or proposing the insurance benefit considerably exceeding the amount payable under policy contracts;

3. Taking compensations such as cash, among others, from a lawyer, hospital, auto shop and others in exchange for referral or recommendation services;

4. Inducing unnecessary lawsuits or complaints, and taking compensation in exchange for referral, recommendation, acting by proxy and others;

5. Undertaking claim adjustment business through unauthorized brokers;

6. Agreeing or compromising with insurers upon insurance benefits; and

7. Any other unlawful acts to attract claim adjustment business by agreeing to settle matters unrelated to the claim adjustment.

§9-15. Utilization of the Assistants

(1) A claim adjuster may, where necessary for conducting his or her business of claim adjustment, use an assistant who satisfies the standards set by the Governor.

(2) The Governor may, where necessary for maintaining a sound business order, determine the management of assistants including the number and the scope of business under paragraph (1).

(3) The business activities of an assistant under paragraph (1) shall be considered those of the claim adjuster who employs the assistant.

§9-16. Appointment of Claim Adjuster by the Policyholder

(1) "A policyholder, among others" under Article 185 of the Act means a policyholder, an insured, a beneficiary, a victim or any other parties of interest to the event covered.

(2) A policyholder may designate a claim adjuster where applicable under any one of the following subparagraphs:

1. Where a policyholder notifies the insurer of his or her intention to appoint a claim adjuster prior to the commencement of the claim adjustment and obtains consent therefrom;

2. Where the insurer fails to start conducting claim adjustment seven days after having been notified of the occurrence of the event covered without proper justifications;

3. Where the policyholder rejects the result of the claim adjustment made by a claim adjuster employed or appointed by the insurer; and

4. Where the policyholder intends to appoint claim adjuster independently from the insurer.

(3) Remuneration for the claim adjuster who is appointed under paragraph (2), in principle, shall be paid by the insurer when and as applicable under paragraph (2) subparagraphs 1 and 2, and by the policyholder under paragraph (2) subparagraphs 3 and 4.

(4) The policyholder shall, upon the appointment of a claim adjuster, notify the insurer of such fact without delay, and in this case the appointed claim adjuster may notify the insurer on behalf of the policyholder.

§9-17. Compensation

(1) Compensation for an independent claim adjuster shall be made based on the standards under the following subparagraphs;

1. Standards set by an agreement made between the insurers' association and the claim adjusters association, if the compensation is to be paid by the insurer; and

2. Standards set by the claim adjusters association, if the compensation is to be paid by a policyholder (referring to the policyholder, the insured, the beneficiary, the victim and other any other parties concerned in relation to the insured loss).

(2) Setting or altering of the compensation standards provided under paragraph (1) subparagraph 1 shall be promptly filed to the Governor, and the compensation standards provided under paragraph (1) subparagraph 2 shall be approved by the Governor.

§9-18. Duties of Actuary and Claim Adjuster

(1) Upon carrying out the activities provided under the provisions of Article 188, a claim adjuster shall immediately prepare, certify and seal the claim adjustment articulating the information determined by the Governor for submission to the insurer (including policyholder in the event of an independent claim adjuster appointed by the policyholder in accordance with the proviso of Article 185 of the Act); provided that it may not be prepared in the event loss is minimal or if the benefits are paid immediately after the incident occurred.

(2) A claim adjuster shall explain the matters determined by the Governor among those of the claim adjustment provided under the provisions of paragraph (1) to the insurer and claimer.

§9-19. Tradename

(1) The person conducting actuarial business by profession shall use the term "actuary or actuarial" in the trade name.

(2) The person conducting claim adjustment business as profession shall use the term "claim adjustment" in the tradename.

§9-20. Duties of the Insurer

(1) An insurer shall not engage in any conducts that may affect work conducted by an actuary or a claim adjuster; or any conducts that may unfairly cause personnel disadvantages to the actuary or a claim adjuster without due justifications.

(2) An insurer shall cooperate with the actuary or the claim adjuster upon receiving request for materials necessary for speedy and fair conduct of their work; except when the insurer notifies to the actuary or the claim adjuster in writing the reasons for refusal to cooperate as in any case under the following subparagraphs;

1. Requesting materials irrelevant to the actuarial or claim adjustment business of the concerned case;

2. Requesting materials that overlap with those already provided prior to the request;

3. Requesting materials with contents known to the public; and

4. Requesting materials considered clearly inappropriate;

(3) An insurer shall designate the claim adjuster who are in charge of affairs of the claim adjustment or review the insurance benefit and inform a claimer(including an independent claim adjuster if a claimer designates an independent claim adjuster).

(4) An insurer shall allow the policyholder, the insured and the claimer to inspect the adjustment report made or submitted by the claim adjuster or submit the copies to them at their request.

(5) When paying the insurance benefit, an insurer shall submit the particular sheets of payment of insurance benefit stating the detailed evaluating standards to the beneficiary.

§9-21. Receipt and Disposition Procedures for the Adjustment Report

(1) An insurer shall not reject the claim adjuster's submission of the adjustment report and shall not pay the insurance benefits without submission of the report, unless where applicable under the proviso of Article 9-18 paragraph (1).

(2) An insurer shall pay the insurance benefits immediately after receiving the claim adjuster's documents of claim adjustment. However, where the cases applicable under any one of the following subparagraphs cause the payment of the claim to delay, the insurer shall inform a claimer of reasons for delaying the payment of the claim within ten days from receipt;

1. Where the adjustment report is proved to be contrary to the actual fact or its own review and confirmation;

2. Where the content of the adjustment report goes against pertinent statutes and regulations and policy provisions;

3. Where the claimer objects to the content of the adjustment report; and

4. Where a complaint or a lawsuit has been filed or when an investigation is being conducted by an investigation authority.

(3) Where the adjustment report submitted by a claim adjuster is applicable under paragraph (2) subparagraph (1) or (2) and necessary for correction and supplementation (hereinafter, "revision"), the insurer shall request in writing the claim adjuster or the claimer, stating the detailed reasons and justification within ten days from the submission date of the report.

(4) A claim adjuster or a claimer shall revise the adjustment report immediately at insurer's request of revision pursuant to paragraph (3) or submit written justifications for the submitted adjustment report to an insurer.

(5) An insurer shall review and pay the insurance benefits after receiving written revisions or opinions under paragraph (4) and may not make a request for revision again except in the cases applicable under any of the following subparagraphs.

1. Where there are objective and clear counter evidences stating the unfairness of the revised adjustment reports or written opinions; and

2. Where the circumstances are applicable under paragraph (2) subparagraph (1) or (2)(except the already requested reasons of revision)

(6) An insurer shall pay the insurance benefit in accordance with the adjustment report of which procedure pursuant to paragraphs (2) to (5) is over except the cases applicable under the proviso of Article 9-18 paragraph (2). However, the insurer may determine and pay the insurance benefit in accordance with the adjustment report where applicable under any of the following subparagraphs;

1. Where a filed complaint or a lawsuit makes the insurance benefit for an insurer to pay different from the insurance benefit as of the adjustment report; and

2. Where a claimer's submission of written justifications of the unfairness of the adjustment is accepted by the insurer and thereby the insurance benefit for an insurer to pay is made different from the adjustment report.

CHAPTER 10.

SUPPLEMENTARY PROVISIONS

§10-1. Third Party Protection by the Non Life Insurance Policy

(1) "Long term insurance policy agreement designated by the Financial Supervisory Commission" as provided under Article 81 paragraph (2) of the Decree means the agreement provided under Article 7-49 subparagraph 11.

(2) Annual contribution to be made by a non life insurer in accordance with the provisions of Article 81 paragraph (4) of the Decree shall be decided as follows;

1. Where the total contribution to be made by a non life insurer is less than 50 percent of the deposit insurance paid in the business year prior to the cause of the contribution in accordance with Article 16 paragraph (1) of the Enforcement Decree of the Deposit Protection Act (hereinafter, "deposit insurance paid"), it shall be the entire contribution; and

2. Where the total contribution to be made by a non life insurer is greater than 50 percent of the deposit insurance paid, 50 percent of the deposit insurance paid shall be the annual contribution and, where the remainder of the contribution of the latest paid year is less than 50 percent of the deposit insurance paid, the said remainder shall be the annual contribution.

§10-2. Prevention of Accidents

(1) An insurance institution shall establish and implement preventive measures as reflective of its situation.

(2) Matters necessary for the prevention of accidents shall be separately determined by the Governor.

§10-3. Assistance

(1) The Governor shall assist the FSC's businesses in accordance with the following;

1. Reports and applications submitted for the FSC (excluding those provided under the provisions of Chapter 2 Section 2);

2. Drafts for the FSC;

3. Execution of the FSC regulations or decisions; and

4. Commissions and directives of the FSC, among others.

§10-4. Business Consignment

Other businesses needed for the execution of the businesses conducted in accordance with the decisions of the Financial Supervisory Commission as provided under Article 100 paragraph (1) Annexed Table 5 subparagraph 33 of the Decree shall be as provided under the following;

1. Acceptance of reports on subsidiaries provided under the provisions of Article 115 paragraph (1) of the Act;

2. Right to take actions against domestic offices, insurance agencies and insurance brokers as provided under the provisions of Article 132 and Article 131 paragraph (1) of the Act;

3. Authorization of the asset disposition by the insurer transferring agreements as provided under Article 144 paragraphs (1) and (3) of the Act;

4. Approval of borrowings made for securing insurance assistance funds for third parties by the Non Life Insurance Association as provided under Article 171 paragraph (1) of the Act;

5. Supervision of insurance actuary, senior actuary, claim adjuster, insurance actuarial business and claim adjustment business as provided under the provisions of Article 192 and Article 131 paragraph (1), and Article 133 of the Act;

6. Public announcement of the authorization, among others, provided under Article 195 of the Act;

7. Approval of the foreign insurer's policy agreement as provided under Article 7 paragraph (1) subparagraph 5 of the Act;

8. Order to increase the insurance agency's business deposit as provided under Article 33 paragraph (2) of the Decree;

9. Order to increase the insurance broker's business deposit as provided under Article 37 paragraph (2) of the Decree;

10. Reduction of the insurance broker's business deposit as provided under Article 37 paragraph (3) of the Decree;

11. Return of the insurance broker's business deposit as provided under Article 37 paragraph (4) of the Decree;

12. Evaluation of management performance and risk assessment for securing the insurer's financial soundness as provided under Article 66 of the Decree;

13. Acceptance of the examination report on reference insurance rates as provided under Article 87 paragraph (3) of the Decree;

14. Registration of changes in the insurance actuary's registration information as provided under Article 92 paragraph (3) of the Decree; and

15. Registration of changes in the claim adjuster's registration information as provided under Article 97 paragraph (3) of the Decree.

Addenda

(September 26, 2003)

§1. Enforcement Date

This Regulation shall be effective on the date of promulgation.

§2. Abrogated Regulations

The provisions under the following subparagraphs shall be repealed at the same time this Regulation is enforced;

1. Notice on Calculation Standards of the Derivative Products and Their Maximum Losses (BOGAMGYEONG 6133-10111), October 14, 2002; and

2. Notice on the Overseas Investment Guidelines (BOGAMGYEONG 6121-10068), October 24, 2002.

§3. Interim Measures in General

Actions taken under the provisions repealed upon enforcement of this Regulation as under Article 2 of the Addenda, and under the previous Regulation on Supervision of the Insurance Business, shall be considered to have been executed pursuant to this Regulation.

§4. Relation with Other Regulations

Where the previous Regulation on Supervision of the Insurance Business is provided in other regulations at the time this Regulation is enforced, it shall be considered that this Regulation has been provided.

§5. Interim Measures on Manpower and Physical Facilities Maintenance

In applying the provisions of Article 2-7, and where am insurer engaged in the insurance business prior to the enforcement of this Regulation fails to satisfy the requirements provided under Article 2-7 paragraph (1) at the time this Regulation is enforce, it shall satisfy them within 3 years from the date of enforcement of this Regulation.

§6. Interim Measures on the Main Contribution Requirements

The provisions of Article 2-6 paragraph (3) Annexed Table 4 subparagraph 1 f) and subparagraph b) shall be applied to the persons in receipt of actions after this Regulation is enforced.

§7. Interim Measures on the Executive Director Qualifications

The provisions of Article 3-1 shall be applied to the executive directors appointed after this Regulation is enforced.

§8. Interim Measures on the Internal Control Standards

An insurer shall reflect the provisions of Article 3-3 to its internal control standards by August 30, 2004.

§9. Interim Measures on the Internal Solicitation by Financial Institution

The provisions of Article 4-39 paragraph (2) subparagraph 1 a) shall be applied from August 30, 2005 for the insurer and its allies for the solicitation conducted internally by entry into office for 90 percent or greater of the policies and fee income achieved from the previous business year.

§10. Applicable Cases on Qualification for the Variable Insurance Solicitation

The insurance brokers (including executive directors and employees) and agencies (including executive directors and qualified users) trained for the variable insurance solicitation by the Insurance Training Institute or a life insurer prior to the enforcement of this Regulation shall be deemed to have completed the training on the variable insurance solicitation trainings provided under Article 56 paragraph (2) of the Decree, notwithstanding the provisions of Article 4-41 paragraph (1).

§11. Interim Measures on the Method of Distributing Existing Assets Accrued of Policy Agreements Subject to Special Accounts

The existing assets acquired through long-term non-life insurance policy agreements and tax-benefited individual annuity non-life insurance contracts under Article 5-6 paragraph (1) subparagraphs 1 and 5, shall be distributed to the relevant special accounts in accordance with the settled accounts of the business year 2000 as follows;

1. Decide on the amount of the liabilities and capital subject to the special accounts, then classify corresponding assets into special account assets;

2. Liabilities of the special account shall include long-term-deposit-type premium reserve, unearned premium reserve, policyholders' dividend reserve, policyholders' profit dividend reserve, outstanding claims, non-return premium, deposit for rental, among others, of the agreements concerned;

3. As for the capital of the special account, evaluated income and loss of marketable securities among items for capital adjustment shall be distributed according to the size of the investment securities in the individual special account; and

4. Assets that directly fall under a certain account shall be distributed in the account concerned. Assets that does not fall directly under a certain account shall be distributed according to the nature of the assets by applying method of respective management of assets, method of management of shares by unit of assets, and method of management of shares by group of assets. Assets distributed by the above methods shall be returned to the account concerned by March 31, 2005. However, this provision shall not apply to real estate properties distributed for the use in conducting long-term non-life insurance business.

§12. Interim Measures on the Insurer's Executive Directors and Employees

For the executive directors and employees whose lending ceiling provided under Article 5-8 paragraph (1) has been exceed at the time this Regulation is enforced, they shall be required to service at least 10 percent of the value in excess at each maturing point in time for extension to resolve the excess.

§13. Interim Measures on the Resolution of Excess in the Asset Management Ratio Ceiling

(1) In applying "within 1 year" as provided under the proviso of Article 107 of the Act, where the asset management ratio has been exceed at the enforcement of the Act, August 30, 2003 shall be deemed the date of settlement.

(2) Excess in the asset management ratio provided under Article 106 of the Act as of August 30, 2003 for real estate properties shall be required to meet the requirements provided under Article 106 of the Act and Article 53 paragraph (1) of the Decree by April 30, 2007.

(3) The real estate properties acquired for business by an insurer shall be used for the objective set within 5 years from the date of acquisition, and any properties not satisfying the requirements provided under Article 49 paragraph (2) of the Decree among those acquired in accordance with Article 5-11 of this Regulation shall be disposed of within 5 years from the acquisition.

§14. Interim Measures on Special Case of the Asset Management

In applying the provisions of Article 5-14 to the privately or publicly placed single funds created prior to January 3, 2003, the provisions of Article 5-14 paragraph (1) subparagraph 2 shall be applied to the beneficiary certificates or stocks of either funds acquired after January 3, 2003.

§15. Applicable Cases on the Subordinated Funds

In calculating solvency margin ratio in order to apply Article 5-15 paragraph (5) subparagraph 1 to a life insurer, the determined ratio shall be 100 percent, notwithstanding the provisions of subparagraph 3 of the Appendix Table 4.

§16. Partial Exemption of the Business Report Submission Requirement

For Korea offices of the foreign insurers engaged in business primarily targeting foreigners, the business report provided under the provisions of Article 6-8 shall be submitted on the solicitation performance by insurance product and solicitors.

§17. Interim Measures on the Management Improvement Agreement

Any management normalization plan submitted to the Governor by an insurer financially aided by the Government, among others, as of the date of enforcement of this Regulation shall be deemed one provided under the provisions of Article 7-20.

§18. Interim Measures on the Insurance Product Disclosure

Previous provisions may be applied in lieu of provisions of Articles 7-45 and 7-46 until September 30, 2003.

§19. Applicable Cases on the Basic Document Preparation Standards

(1) Report and other activities made in accordance with the previous insurance regulations for supervision at the time this Regulation is in force shall be deemed to have been made in accordance with this Regulation.

(2) Previous provisions shall be applied until August 29, 2005 for Article 7-56 paragraph (2), Article 7-57 paragraph (2) subparagraphs 1 and 3, Article 7-61 paragraph (2), Article 7-62 paragraph (1), and Article 7-65 paragraph (2) in connection with preparing basic documents.

(3) Previous provisions may be applied until September 30, 2003 for the calculation of redemption value, among the provisions of Article 7-77 paragraph (3).

§20. Applicable Cases on the Insurance Brokerage Examination

The examination subjects classified for the insurance broker as provided under the annexed Table 7 of this Regulation shall be applied starting the examinations conducted in 2004.