Shin Kong Financial : 2022 Annual Report

CONTENTS

Operation Highlights

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02

Honors and Achievements

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10

Business Plan

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42

Financial Highlights

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01

Words from the Chairman

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08

SKFH Overview

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20

Sustainable Development

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50

Words from the Chairman

Impact of External Competition,
Regulation, and Overall Business	2022 Business Results
Environment

total assets topping NT$1.2 trillion. Loan balance rose by 4.7% YoY through balanced consideration to revenue and risk control. SKB maintained sound asset quality, with non-performing loan (NPL) ratio and coverage ratio of 0.12% and 1,090.09%, respectively.

In 2022, the world entered a period of rising interest rates that unfolded more quickly than the gradual pace anticipated as the ongoing Ukrainian-Russian War fueled global inflation. The impact seeped beyond financial markets to threaten the real economy. In Taiwan, domestic consumption began to recover as COVID-19 retreated and the economy normalized. How- ever, global inflation posed headwinds that dampened demand, slowed export momentum, and depressed economic growth.

Looking ahead in 2023, US interest rates are likely to peak as inflation expectations fall. Nevertheless, a return to a pre-COVID inflation level of under 2% may prove elusive and interest rates are therefore expected to stay elevated for some time. Other challenges include a notable risk of downside revisions to corporate earnings and limited market liquidity as European and US central banks successively shrink their balance sheets, dragging down economic growth in the first quarter. New COVID outbreaks in post-lockdown China could also affect domestic consumption and manufac- turing. All of these developments have contributed to pessimism in financial markets. The threat of geopolitical conflicts has grown since the outbreak of the Ukrainian-Russian War, including the super power confrontation between China and the US, while climate change poses widespread environmental challenges. Taiwan's financial industry will also need to closely watch and respond to a changing environment and competition in areas including digital and green trans- formation, harmonization with the IFRS17 and ICS stan- dards, open banking, information sharing, climate risk financial indicators, and consumer rights and interests.

Markets faced a tumultuous year in 2022. The Ukrainian-Russian War fanned higher interest rates globally and exacerbated exchange rate volatility for the New Taiwan dollar. The repercussions were deeply felt on the profitability of Taiwan's financial sector. Shin Kong Financial Holding (SKFH) posted a consolidated after-tax profit of NT$2.169 billion, or NT$0.10 per share, short of the company's target. Consolidated sharehold- ers' equity ended the year at NT$212.13 billion (NT$13.41 per share) and consolidated total assets rose 3.5% year-on-year (YoY) to NT$4.85 trillion, preserving SKFH's position as the fifth largest financial holding company in Taiwan based on total assets.

Shin Kong Life Insurance (SKL) posted a consolidated after-tax loss of NT$4.79 billion, mainly due to higher hedging cost and lower capital gains as global equity and bond markets retreated. Consolidated sharehold- ers' equity ended the year at NT$139.432 billion. First year premium (FYP) and total premium posted at NT$53.698 billion and NT$189.463 billion, respectively. The company's product strategy continued to aim for foreign currency policies and value-focused products to reduce hedging cost and build contractual service margin (CSM). FYP from foreign currency policies reached NT$41.282 billion, accounting for 76.9% of total FYP. New policies and effective stacking of renewal premium lowered the company's cost of liabilities by 4 bps (0.04%) YoY to 3.69%.

Shin Kong Bank (SKB) grew consolidated after-tax profit by 4.7% YoY to a record high NT$6.862 billion, a gain driven by an 8.8% gain in net interest income. The bank steadily scaled-up operations, with consolidated

At MasterLink Securities, consolidated after-tax profit ended the year at NT$362 million, weighted down by a 22% fall in the Taiwan stock index and a nearly 40% reduction in trading volume. MasterLink Securities secured a 3.43% share of the brokerage spot market, securing the seventh place in the sector. The company also captured a 5.44% share of the margin loan market, improving its ranking in the sector to the fifth place. It also actively developed multiple profit sources, especially wealth management operations, with AUM averaging more than NT$12.343 billion, up 20.1% YoY.

Shin Kong Investment Trust (SKIT) posted an after-tax profit of NT$43 million. Shin Kong Property Insurance Agency (SKPIA) grew premium income and net income by 8.0% and 12.9% YoY, respectively. Shin Kong Venture Capital (SKVC) outperformed over the year in the areas of financial income and investments, boosting net income by 30.1% YoY.

SKFH promoted "Zero Troubles, Digital All the Way" and agile projects to grow its digital operations to serve more than 2.75 million customers, winning 24 digital awards in Taiwan and abroad in the process. SKL handled 95% of policy applications digitally, and led the industry in introducing digital certificates for signing mobile insurance confirmation agreements and link online claims to the MyData system. SKB handled 90% of transactions digitally. Its OMNI-U digital brand earned the 2022 iF Design Award and German Design Awards. MasterLink Securities handled 80% of trades digitally. It also launched the Win Win go financial management platform with the industry's first fully automatic rebalancing mechanism. In the area of digital and

sustainable transformation, SKFH linked group finan- cial products, services, and information under the "Shin Kong Earth Day" campaign. The company promoted paperless, contact-free finance and worked with customers to reduce carbon emissions by 190 tons, advancing towards its net-zero goal. SKFH also collaborated with ecosystem partners on a "technology co-creation platform" to tap collaborative resources and R&D synergy for technological innovation, such as group supervision technology, image-based verification training centers, robot assistants, and robot modeling. The company continued to promote staff transformation through various initiatives, including the Second SPARK Hero digital technology talent cultivation campaign, digital lectures at colleges and universities, the first Digital Technology Internship Program, and the first annual meeting of "Shin Kong Digital Day: Mastering the Future through Technological Empowerment" to share SKFH's transformation process and achievements and open a new chapter for Shin Kong's transformation.

SKFH deployed integrated marketing mechanisms to optimize resource synergies across its subsidiaries. Mutual assistance and cross-selling operations highlighted the advantages of complementary channels in delivering diversified and convenient financial services to meet customer needs and improve subsidiary perfor- mance. Cross-selling competitions created a marketing atmosphere among employees that significantly improved the performance of cross-selling operations and crossed new milestones in promoting group opera- tions. Investment-linked trust discretionary policies, life insurance regular payment policies, and referral bank OU digital accounts all continued to reach new highs. In 2022, cross-selling and resource integration generated NT$2.5 billion in benefits, up 10% YoY. This success amply demonstrates the channel value of each subsidiary and the spirit of shared prosperity and common good.

SKFH has long been committed to sustainable business operations, giving back to the community, and connecting with the world. In 2022, the company earned a place in the Taiwan Sustainability Index and was selected for the second time as a Dow Jones Sustainability World Index (DJSI World) constituent stock. These achievements fortify SKFH's position as a sustainability leader in the global insurance industry and represent international affirmation of the company's achievements in this area.

SKFH also proactively adopted the United Nations Principles for Responsible Investment (PRI), Principles for Sustainable Insurance (PSI), and "Principles for Responsible Banking (PRB). The company promoted responsible investment, financing, and lending, as well as environmental, social and governance (ESG) prod- ucts. Amid rising global attention to climate issues, SKFH took active measures to check the carbon emissions of investment and financing portfolios, passing the verification process. The company released a Task Force on Climate-Related Financial Disclosures (TCFD) report in Chinese and English. It also earned an "A-" for leadership in the Carbon Disclosure Project (CDP) climate questionnaire appraisal, placing it ahead of 79% of all companies on climate governance performance worldwide.

SKFH's ESG value proposition is "Low Carbon, Innovation, and Common Good." SKL designed the innovative "Shin Kong Shih-Zai-Ann-Shin Permanent Health Insurance Rider" offering enhanced protections for digestive diseases. SKB introduced the "OMNI-U" credit card, which allows customers to compute the carbon impact of their purchases and support tree planting to support carbon reduction. In 2022, the program achieved the goal of planting 2,500 trees. Master- Link Securities Investment Advisory adopted the ESG index for Taiwanese companies created by the Taiwan Economic Journal to deepen participation in ESG investment.

SKFH and its subsidiaries earned awards in Taiwan and abroad in recognition of their business success and excellence in numerous areas. In the area of sustain- ability, SKFH was re-selected in the DJSI World Index and won the Taiwan Top 100 Sustainable Enterprise Award and Taiwan Sustainable Investment Award. SKL won the National Brand Yushan Award in six categories. It was also honored as a "outstanding financial institu- tion" for fair customer treatment by the Financial Supervisory Commission (FSC) and was certified under the ISO international standard for business continuity management. SKB's professional services earned the "Best Digital Financial Services Award" in the Outstanding Bank Rating and Wealth Magazine's "Domestic Bank Best Digital Smart System Award" for wealth manage- ment. In the area of friendly workplaces, the bank earned HR Asia's Best Companies to Work for in Asia Award. MasterLink Securities' widely acclaimed services

and products earned the company the Securities Industry Service Excellence Silver Award in the Best Service in Taiwan Securities evaluation, as well as the first place in Business Today's Best Product Award. MasterLink Securities also won the Trust Awards' "Best Securities Firm for Wealth Management Trust Innovation Award". These honors attest to the achievements and affirmation earned by SKFH and its subsidiaries in the areas of business oper- ation, product development, and professional services.

Overview of 2023 Business Plan

In 2023, SKFH enters its 60th year with a strategic focus on sustainability and innovation. The company will continue to follow prudent business principles, improve group-wide performance, strengthen capital utilization efficiency and risk management mecha- nisms, and pursue a management policy based on the following business plan:

1. Enhancing Profit Sources and Net Worth:

1. SKFH's core business is to effectively manage subsidiaries and guide their strategic develop- ment to improve operating performance and maximize capital efficiency and shareholders' equity. To ensure the capital adequacy and sound financial operations of the company and its subsidiaries, SKFH will also focus on strengthening financial resilience to cope with extreme market volatility, enhance gover- nance to establish a sound corporate culture, and align risk management systems with inter- national norms.
2. SKL will continue to pay attention to value-fo- cused products, promote the sales of protec- tion products and foreign currency policies, build policy value, and reduce cost of liabili- ties. It will also focus on selling invest- ment-linked policies, strengthening controls on risk and hedging cost, optimizing portfolio allocation, increasing eligible capital, and reducing risk-based capital to strengthen its capital adequacy ratio for further alignment with international standards.

1. SKB will steadily grow its main core businesses while improving capital efficiency. It also aims to increase lending scale to stabilize interest income, as well as optimize its deposit struc- ture to reduce funding cost and maintain good liquidity. SKB will strengthen non-interest income businesses and expand revenue sourc- es, including fee income from wealth manage- ment services for high-value customers and income from financial market investments. The bank will use customer group manage- ment and digital tools to improve customer acquisition and marketing efficiency to meet the financial needs of consumers in all aspects of life.
2. MasterLink Securities will optimize the effi- ciency of branch operations and strengthen customer service capacity; expand and diversi- fy revenue sources and increase the level of service revenue; deepen digital promotion models and optimize e-service support; adjust portfolio strategy to generate stable returns; enhance benefits of investment enterprises and expand profits in advantageous areas; and promote sustainability with a focus on compli- ance, fair customer treatment, and corporate governance implementation.

2. Deeply Cultivating Customer Value:

(1)Optimizing Product and Cross-Selling Structure

SKFH is committed to advancing product optimization across its subsidiaries to further meet customer expectations. The company relies on market research, internal analysis, and other methods to gain an in-depth understanding of customers' financial needs and preferences. Based on customer characteristics and life cycles, SKFH designs suitable product mixes to meet customer needs. In addition, the company will continue to optimize its cross-selling structure, develop value-basedcross-selling operations, provide comprehensive cross-selling supporting programs and competitive incentives, and apply a data-driven review process to integrate subsidiary products and ser- vices, develop channel value, and increase SKFH's overall contribution from cross-selling.

Our light and heart are always with you

2022 ANNUAL REPORT Words from the Chairman 04 / 05

(2)Deepening Value Customer Segmentation SKFH will continue to cultivate customer value. The company and its subsidiaries are promoting value customer segmentation to grow millennial customer share and the group's key product holdings. SKFH is also deploying big data analysis to understand the potential financial needs and preferences of value cus- tomers, as well as integrating group resources through focus marketing to drive overall momentum in digital customer acquisition. By deepening relationships with value customers, SKFH aims to provide more professional and refined financial services to its customers.

(3)Increasing the Penetration Rate of Group Product Holdings

SKFH will continue to strengthen development of digital operations, provide a more convenient and fast customer experience, and through group product cross-selling, connect with customer life scenarios. The company will integrate physical and digital channels to provide full-spectrum services, upgrade customer holdings of the group's six major products, and enhance transactional stickiness.

3. Developing Digital Operations to Drive Transformation:

(1)Customer-Centric Digital Transformation Strategy

In 2023, SKFH will retain the core concept of customer-centricity and promote digital transition across group subsidiaries to deliver a seamless customer experience through A-to-Z digital services. To win business from future customers, the group will actively integrate its digital resources and create innovative business models. It will also deeply explore the digital product needs, experiences, and services of millennial customers and create a "future customer service model" through digital technology and become a trusted financial brand in the life journey of millennial customers.

(2)Accelerating Business Innovation Models with Digital Technology

In 2023, SKFH will continue to integrate the

resources of ecosystem partners, expand technology sharing within the group, and jointly create platform R&D synergy. These initiatives will include expanding AI-embedded business processes, deploying Cloud Ready, further leveraging the benefits of data governance and utilization, and developing green technology to improve the customer experience and business synergies. The company is also responding to industry change by actively deploying Future Ready technology capabilities, expanding adoption of low-code/no-code tools, creating "future business operation models," accelerating the group's digital transformation, and enhancing Shin Kong's overall digital resilience.

(3)Fostering a transformational mindset to accelerate transformation momentum

In 2023, SKFH will continue to expand the group's digital and technology citizenship drive to foster a company-wide employee mindset, including the Spark Hero project to expand and cultivate digital technology talent, group digital technology lectures, classes on robotic process automation (RPA), cross-sector talent cultivation, and other programs to accelerate organizational foundation laying. In response to technology trends and changes in the industrial environment and workforce structure, SKFH will continue to adopt emerging technology tools and upgrade employee technology skills, including fully automated workflows, cloud collaboration work modes, and new models for human-robot collaboration to create "future work models for employ- ees" at Shin Kong.

4. International Convergence and Sustainability:

1. SKFH will continue to improve its corporate governance structure. In addition to strength- ening management in the areas of compliance, internal controls and audits, and information security, the company will focus on internaliz- ing and implementing the principles and spirit of fair customer treatment through policy formulation and execution to increase custom- er trust in the Shin Kong brand and support the company's sound operations.

1. Business sustainability is an important issue in modern enterprise management. In 2023, SKFH will continue to aim for a place among the DJSI World constituent stocks, actively improve ESG performance, and respond to the five major promotion points under the FSC's Green Finance Action Plan 3.0. The company will further implement carbon inventories and climate risk management, develop ESG invest- ment and financing, strengthen information disclosure, foster sustainability talent, and col- laborate with the government and industry to move Taiwan towards its net-zero goal.

5. Controlling Risk, Cultivating Talent:

1. SKFH will continue to improve its talent exchange platforms within the group. In addi- tion to conducting a planned common grade talent inventory, career planning communica- tion, and institutionalized cross-company out- standing talent secondment, the company will arrange part-time positions and special com- pany-wide projects to meet business needs and provide diversified talent experience. SKFH will also provide access to robust and comprehensive professional field experience, leadership management development, and cross-financial industry experience to strength- en talent cultivation and business develop- ment in the company and its subsidiaries.
2. SKFH will continue to optimize the information security management and multi-level defense systems in its subsidiaries through information security governance and joint information security defense. Such efforts will be coordi- nated with a mature information security gov- ernance regime according to the inherent risks involved in the company's business develop- ment as the company tracks and manages information security vulnerability indexes. Moreover, under the guidance of the compe- tent authority's "Information Security Action Plan," SKFH will establish a joint information security defense system incorporating the three layers of precaution, prevention, and damage mitigation to build the information security resilience of SKFH and its subsidiaries.

SKFH will also establish a professional competency map for information security positions and provide due advocacy, education, training, and professional certification to systematically foster information security talent. These initiatives seek to enhance the information security functions and capabilities at SKFH and simultaneously heighten employee awareness of information security.

Future Development Strategy

Looking to the future, SKFH will continue to pursue stable profits, develop business synergies, and continue to cultivate value customer groups. The company will also build growth momentum through digitalization and pursue sustainable development to create new business opportunities, maximize shareholder value, and achieve its vision for sustainability.

SKFH's medium to long-term development strategy will remained focused on progress in the following six direc- tions. At the same time, it will develop specific operational plans to build up a foundation for sustainable operations:

Stabilize profitability to increase net worth

Create profit sources and expand markets

Integrate resources to deepen synergy Optimize customer experience through digital transformation

Focus on legal compliance risk control and advance fair customer treatment Implement corporate governance and promote sustainability