2014 ANNUAL REPORT 2014 ANNUAL REPORT 5 Cost in 2014 Was Maintained at Just 0.37%

CONTENTS

04 Words from the Chairman 10 Honors and Achievements 12 SKFH Overview 22 2014 Operations Review 36 2015 Business Plan 50 Fulfilling Corporate Social Responsibility 60 Financial Highlights Words from the Chairman

In 2014, low inflation, low interest rates, and low growth became the new normal in the global economy. Developed countries faced changing demographics, shrinking labor forces, and slowing wealth creation, while emerging economies, pressured by tighter liquidity in the United States, faced capital flight and economic restructuring. In Taiwan, an aging population, rising rates of dementia and disability, and declining birthrates have heightened care problems and market demand. In order to further meet the protection needs of the people of Taiwan, as well as respond to passage of the draft Long-term Care Service Act in 2014, Shin Kong Financial Holding (SKFH) is actively developing care policies and has completed the roll out of a full line of long-term care (LTC), quasi LTC and disability policies as the iron triangle of its LTC product offering. True to the metaphor that "a bicycle must always move forward to maintain balance," SKFH will seize important trends in 2015, such as the Internet of Things and Big Data. The company will integrate "life insurance, banking, hospital, health management and security" channels to provide wealth management, psychological, health, and security related services and share with customers the values of "discovering health and wealth and lighting up a LOHAS life." The company will also actively invest in and apply innovations in mobile banking, online policy application and third-party payment technologies to increase the value of its financial channels and services and drive growth. In 2015, SKFH will actualize its forward-looking business philosophy through specific strategies designed to continue creating value for shareholders.

Improving Efficiency, Adjusting Earnings Structure In 2014, SKFH continued a strategy to steadily grow its core businesses. Consolidated total assets reached NT$2.8 trillion, up 10.4% from 2013; shareholders' equity increased to NT$110.85 billion, up 9.8% from the year before; and book value per share reached NT$11.27. Consolidated after-tax proﬁt for the year was stable, at NT$7.92 billion. Shin Kong Life Insurance (SKL) grew its core business in 2014, increasing total premium to NT$210.21 billion, up 23.3% from 2013, while first year premium (FYP) grew 60.0% to NT$90.19 billion in the same period. The company's product strategy in 2014 focused on foreign currency traditional policies, with sales amounting to NT$29.24 billion, or 32.4% of total FYP. Foreign currency policies helped SKL to avoid foreign exchange hedging costs and were exempt from overseas investment ceiling, helping SKL to achieve stable interest spreads with proper asset-liability match and increasing recurring income. Moreover, in response to social change, the company continued to pay attention to the problem of aging demographics and LTC policies with the debut of LTC, quasi LTC and disability policies. These three types of policy contributed NT$1.82 billion to sales in 2014, boosting health insurance FYP to NT$3.50 billion, up 47.7% from 2013 and securing a market share of 12.5%. In 2015, SKL will continue to optimize insurance policy packages, promote sales of whole life and health policies, and reduce cost of liability by over 10 bps. Through properly-managed foreign currency hedging, hedging

4 2014 ANNUAL REPORT 2014 ANNUAL REPORT 5 cost in 2014 was maintained at just 0.37%. The Your Customer) management, as well as expand company also recognized domestic and foreign its customer base, with an aim to achieve 10% cash dividends of NT$8.59 billion, and overall revenue growth. Asset quality remained solid. investment return was 4.41%. Consolidated after- The bank's NPL ratio decreased to 0.26% and tax profit was NT$1.71 billion, and consolidated coverage ratio rose to 486.14%, comparable with total assets exceeded NT$1.9 trillion. In the area of industry standards. Looking ahead in 2015, SKB will investment, Taiwan introduced new rules in June continue to rigorously control risks, promote small 2014 exempting investments in foreign currency and medium enterprise (SME) lending, and expand denominated bonds listed on the domestic over- consumer banking operations. The bank is also the-counter bourse from overseas investment limits. committed to increasing non-interest income ratio. SKL therefore actively invested funds from NT dollar In addition, SKB will continue to expand its cash denominated policies in international bonds. At the management operations and increase NT dollar and end of 2014, such investments amounted to about foreign currency demand deposits to lower funding NT$118.76 billion, with an average yield before costs. hedging of 4.4%, much higher than the yield on Other SKFH subsidiaries also performed well domestic bonds. Funds from the sales of foreign in 2014. Shin Kong Investment Trust (SKIT) issued currency policies also were invested in overseas four public funds and one private equity fund. It bonds. The higher yielding foreign currency assets also achieved an industry-beating average return helped the company to increase its overall recurring of 10.2% on domestic equity funds in the past yield after hedging by 20 bps to 3.52%. year. Shin Kong Property Insurance Agency (SKPIA) Shin Kong Bank (SKB) has also continued posted net income of NT$40 million, with number to maintain strong momentum and solid profits of policies sold increasing to 768,000. across business sectors in recent years. In 2014, the bank posted a consolidated after-tax profit Developing Unique Products, of NT$5.16 billion and a return on equity (ROE) Strengthening Integrated of 13.2%. Operations focused on deposit and Marketing loan adjustments and raising customers' overall SKFH has long closely heeded the issue contribution. Loan balances (including revolving of aging. In 2014, the company continued to credit card balances but excluding overdue develop new types of LTC insurance to provide receivables) increased by 7.0% over 2013 to comprehensive LTC protections for the people of NT$482.54 billion; and deposit balances (excluding Taiwan. The company also has integrated affiliate interbank deposits) reached NT$643.85 billion, resources, bringing together "life insurance, up 4.7% from 2013. SKB also grew fee income banking, hospital, health management, and to optimize its earnings structure. Net fee income security" channels to provide one-stop shopping reached NT$3.04 billion, up 11.8% from 2013. service. Through continuous service innovation, Helped by an 85.4% surge in bancassurance fee moreover, SKL has steadily maintained its ﬁrst-place income, wealth management income increased position in the LTC insurance market. 8.8% year-on-year and closed the year at NT$1.84 billion. In 2015, SKB will continue to develop SKFH places high importance on cross- bancassurance joint marketing advantages, selling operations. The company leverages internal strengthen insurance product marketing, and channels and resources to cross-sell life insurance, deepen corporate and retail banking to develop banking, securities, investment trust, property and wealth management business with mass affluent casualty insurance and other financial products. customers and achieve its revenue growth target This has not only strengthened operating synergies of about 20%. In the corporate finance sector, among subsidiaries, but also created service value treasury marketing unit (TMU) income reached for customers and increased customer stickiness. NT$1.04 billion, up 130.8% year-on-year. In 2015, SKFH's cross-selling performance has been SKB will continue to strictly implement KYC (Know improving each year, rising from NT$570 million

6 2014 ANNUAL REPORT in 2011 to NT$1.48 billion in 2014. SKB achieved overseas bases in Vietnam, Myanmar, Indonesia and bancassurance cross-sales of NT$16.35 billion, Cambodia. SKFH also increased the paid-in capital representing 35.0% of SKL's total bancassurance of Shin Kong Venture Capital by NT$1 billion in premium. In April 2014, SKB shifted to a joint 2014, while the latter invested US$20 million in marketing model to promote SKL insurance Shin Kong Leasing to expand operation scale and products. Wealth management consultants have proﬁtability. directly registered as life insurance agents and core Further rounding out its offering of e-services, system marketing tools and education training SKL released its "Shin Kong Online" policy resources have been used to further advance application platform in March 2015, making it even insurance sales. In addition, premium income easier to purchase travel insurance. SKB established through joint promotions by MasterLink Securities a cloud platform to provide online applications and SKL amounted to NT$580 million. In the area for deposit, credit, auto loan, mortgage, credit of bank and securities cooperation, MasterLink card and wealth management services. The bank Securities brought over NT$10 billion in demand also plans to partner with a third-party payment deposits to SKB through recommended customers. platform operator in Taiwan to provide services, Furthermore, customers recommended by SKB including collection and payment transfers, opening made order transactions amounting to NT$31.02 stored value payment accounts, stored value and billion at MasterLink Securities. The two companies payment. have therefore mutually helped each other to expand operations. SKPIA sold non-life insurance Strengthening Corporate products with promotional help from SKL agents, increasing premium income in 2014 to NT$1.21 Governance, Increasing Company billion, a nearly three-year high. In the future, SKFH Value will continue to use internal resources and channel SKFH has established an independent board to provide even better services for customers oversight mechanism, professional management and create higher profits for the company and its team, and rigorous internal auditing and control shareholders. mechanisms, as well as adopted transparent and real-time communication mechanisms and channels Developing Blue Ocean Businesses, that have earned the support and trust of the public Fostering Growth Momentum and stakeholders. The company also continues to strengthen board functions, establish various Shin Kong-HNA Life Insurance (SKHNA Life), strategic committees, implement information a Beijing-based joint venture established by SKL disclosure, strengthen risk management, and and HNA Group in April 2009, had total premium bolster internal control systems to strengthen income of RMB240 million in 2014. The company corporate governance. also developed 76 life, accident, health and other types of policies to meet a range of insurance Integrity is the bedrock of corporate needs. In addition to its Beijing head office, the sustainability. SKFH has led the financial industry company has opened branches in Hainan, Shaanxi in formulating a code of ethics. The company and Jiangsu. Moreover, with a capital adequacy requires directors, supervisors and managers to ratio (CAR) higher than 300%, SKL plans to invest lead by example and scrupulously abides good faith in a high-quality Southeast Asian bank to effectively principles as the elements in promoting corporate use life insurance capital. SKB established its Hong governance. SKFH is also committed to information Kong branch in 2011. The branch gained approval openness and transparency, achieved through a to offer corporate internet banking in July 2013 system including independent directors, investor and in November 2014 was greenlighted to offer relation services, improved content and timeliness personal e-banking to help customers allocate of material information announcements, and capital in real-time. SKB will continue to cultivate prompt disclosure of information on the company's the Asia-Pacific market with the establishment of website. These efforts have earned the company an

2014 ANNUAL REPORT 7 "A" or higher rating in Information Disclosure and megawatts in 2014. Cumulative total energy Transparency Ranking for nine years running. savings during this period exceeded 29.96 megawatts, reducing carbon emissions by over SKFH has also been promoting corporate 21,675 metric tons. In addition, the Shin Kong social responsibility (CSR) practices and operations. Life Tower, South East Building, and Nanjing In 2014, the company established a CSR Technology Building were awarded the Taipei Committee in charge of overall planning of CSR City Government's energy-saving building label strategy, development, communication, execution, in 2014, demonstrating SKFH's commitment and promotion on economic, environmental and and actions to protect the environment. social levels, as well as formulated CSR policies and codes. Since 2011, the company has published ■ For the past five years, SKFH integrated a the "SKFH Corporate Social Responsibility Report" battery recycling program as part of the Shin clearly disclosing the status and achievements Kong National Children's Drawing Contest. In of its CSR work. In 2014, SKFH was honored 2014, the program recovered 1,768 kilograms among the "CommonWealth Corporate Citizen of waste batteries, bringing the five-year total Top 50" by CommonWealth Magazine. SKL's CSR to 13,046 kilograms. The incentive payments report, published annually since 2012, won the earned from the recovered batteries were "Taiwan Corporate Sustainability Award" for three donated to the Parents Association for Persons consecutive years and earned the special honor of with Intellectual Disabilities, Taiwan. the "Social Inclusion Award" in 2014. Climbing High for the Public Good, Developing Strategic and Valuing Environmental Protection: Sustainable Philanthropy ■ A total of 32 Shin Kong Life Tower Run Up activities have been held since 1994. Over SKFH has long promoted charity work with a the years, the activity has been joined by over forward-looking strategy and innovative thinking, 170,000 people and raised over NT$120 million setting a good example for giving back to the for donation to public welfare causes. The 2014 community. The company actively engages in run up was held under the theme of "Running philanthropic and public service work through for a Senior-Friendly Society" and attracted the Shin Kong Life Scholarship Foundation, Shin 10,074 participants. Kong Life Foundation (SKLF) and SKB Education Foundation, and resources of its affiliates. ■ Over 20 years ago, Shin Kong adopted SKFH also has embraced the spirit of working an endangered gorilla named "Baobao." together for the public good, establishing good Moreover, the 2014 Shin Kong Charity Run communication and interaction with stakeholders, was held on July 6, the first birthday of the promoting environmental protection, contributing giant panda "Yuan Zai," with all proceeds enthusiastically to public beneﬁt and charity, culture from the registration fees donated to the Taipei and education, and caring for employee welfare Zoological Society. through tangible action, dedication to CSR, and ■ Shin Kong has held national blood donation creating sustainable enterprise value. drives each year since 2009 and freely provided Caring for the Planet through Energy parking space for a bloodmobile at the Shin Kong Life Tower Plaza. In 2014, a total of Conservation and Carbon Emission 15,170 people showed their care by donating a Reduction: combined 20,475 bags of blood. From 2003 to ■ SKFH takes a proactive approach to energy 2014, the drive has collected 285,899 bags of conservation and reduction of carbon emissions, blood from 153,094 enthusiastic donors. fostering an energy-saving spirit through practical actions. For example, the Shin Kong Strategic and Innovative Philanthropy: Life Tower reduced total electricity usage from ■ In response to the low rate of breast cancer over 35.1 megawatts in 2007 to less than 28.05 screening in Taiwan, SKLF has been organizing

8 2014 ANNUAL REPORT breast cancer prevention workshops throughout based on the results of their health checks. The Taiwan since 2005. Five such workshops were company also holds annual health promotion held in 2014, attracting 441 participants. Over activities to encourage good exercise habits the years, the program has held 102 workshops among employees. and reached more than 8,800 people. ■ To create a safe, high-quality and healthy ■ In order to improve the competitiveness workplace, Shin Kong conducts annual building of indigenous groups, SKLF has arranged disaster prevention drills. The company has also supplementary classes for indigenous children established health centers at five Shin Kong in the Hsinchu County villages of Xinguang buildings and outfitted them with automated and Zhenxibao aboriginal tribe and Zhudong external defibrillator (AED) equipment to protect Township. In 2014, the Shin Kong Charity Trip the life of employees. In 2014, the company was organized to provide opportunities to was recognized for "self-certification of healthy experience tribal ecology and interact more workplace" and by earning the "Health closely with children in indigenous communities. Promotion Mark." ■ In 2003, SKLF Executive Director Cynthia Wu introduced the Legacy Art Works and History Future Outlook Alive senior service programs from New York. In 2015, SKFH will continue to pay close In 2014, the "Active Aging Project" won the attention to the global economic situation and Taiwan Institute for Sustainable Energy's TCSA continue to carry out the following strategies: Social Inclusion Award. ■ Pursue growth in core business, emphasize asset Promoting Financial Education, Building quality and stabilize capital adequacy ratios Stages for Art and Culture: ■ Focus on sales of whole life products and foreign ■ The Shin Kong Life Scholarship Foundation was currency policies, investing acquired funds in established to provide scholarships to gifted international bonds listed in domestic OTC and young students. As of 2014, the foundation foreign currency segregated assets to enhance had provided grants totaling more than NT$240 recurring investment return million to 109,866 students. ■ Acquire high-quality real estate to augment ■ SKFH regularly holds the Shin Kong "Life is rental income Beautiful" Seminar Series. From 2006 to 2014, ■ Control costs and develop business with proper a total of 251 seminars were held, attracting cost-benefit balance 50,494 participants. In 2014, the seminars ■ Drive synergies among subsidiaries were extended to serve the public in Taichung, ■ Kaohsiung and other areas. Tighten risk management ■ Enhance service and fulfil the needs of customers Caring for Employees, Creating Healthy to optimize their value growth Workplaces: ■ Steadily expand in the Mainland China, Hong ■ To build a happy workplace environment, SKL Kong, Southeast Asia and other overseas hold its first employee family day in 2014. The markets, and families of 12,000 employees were invited to ■ Deepen business cooperation with MasterLink join the fun fairs during the activity, highlighting Securities Corp. the company's long-term attention to the spirit of employees and family values. SKFH also won one-star affirmation in the "Fourth Award for Chairman Best Companies to Work" in 2014. Shin Kong Financial Holding Co., Ltd. ■ Each year, Shin Kong arranges regular employee health checks. Professional health managers track and provide guidance to employees

2014 ANNUAL REPORT 9 Honors and Achievements

2014 ■ The Securities & Futures Institute rated SKFH A++, the highest ■ SKL won the "Best Social Responsibility Award," "Best Contribution ranking in the Corporate Information Disclosure and Transparency in Insurance Education Award," "Best Channel Strategy Award" Survey. SKFH won the recognition for the ninth consecutive year and "Best Branch Award" in the fifteenth Insurance Faith, Hope, (2006~2014) and Love Award ■ SKFH was awarded the "CommonWealth Magazine Corporate ■ SKL was picked as the life insurance company with the "Best Citizenship Awards Top-50" Reputation," "Best Agents," "Best Claims Services" and "Most ■ SKFH won the "2014 Award for Best Companies to Work for" held Recommendable" in a nationwide survey of Taiwan's best life by the Department of Labor, Taipei City Government insurance companies conducted by Risk Management, Insurance ■ SKFH was honored with the Greater China Award for Best in and Finance magazine Financial Service in Institutional Market—Insurance, Taiwan by ■ SKL won the Excellence Award in the financial industry category of Hong Kong's Asset Magazine the "2013 Taiwan Corporate Sustainability Awards" by the Taiwan ■ SKL won for the sixteenth consecutive year in the "Best Social Institute for Sustainable Energy Responsibility Award" (1999~2014) of the Insurance Faith, Hope, ■ SKB won the Third Place of "Outstanding Banks in SME Financing" and Love Award awarded by the Financial Supervisory Commission ■ SKL won the "Best Contribution in Insurance Education Award," ■ SKB won the prize as the "Top VISA Infinite Card Issuing bank in "Best Channel Strategy Award"and "Best Branch Award" in the the Taiwan Area" 16th Insurance Faith, Hope, and Love Award ■ SKB won the prize from VISA International for issuance of the first ■ SKL received the Excellence Award in four categories, including 100,000 Shin Kong Mitsukoshi co-branded cards the life insurance company with the "Best Reputation," "Best ■ SKB won the Second Place in the financial category of Global Views Agents," "Best Claims Services" and "Most Recommendable" Monthly's "Best Service Awards" in a nationwide survey of Taiwan's best life insurance companies conducted by Risk Management, Insurance and Finance magazine 2012 ■ SKL won the Taiwan Institute for Sustainable Energy's "Taiwan ■ The Securities & Futures Institute rated SKFH A+ in the Corporate TOP 50 Corporate Sustainability Report Award" for the financial Information Disclosure and Transparency Survey industry and "TCSA Social Inclusion Award" ■ SKFH awarded the "Best Investor Relations Website in Taiwan and ■ SKL ranked first in the life insurance category of the Financial Asia & Pacific" by IR Global Rankings for the fourth consecutive Supervisory Commission's "2014 Micro-Insurance Competition" year (2009-2012) ■ SKL won the Excellence Award for the life insurance industry in ■ SKL was the winner of the Excellence Award in the 2012 Taipei City Manager Today magazine's "Power Brand Survey" Energy Saving Award ■ SKL was ranked as outstanding in the "2014 Digital Service Survey ■ of Benchmark Enterprises" SKL awarded the Second Place in the "A-Group Commercial Industry" group of the Fifth Taipei City Gold Energy Saving Award ■ SKB won Best Innovation for Wealth Management Award of the "2013 Taiwan Best Banking Services and Wealth Management ■ SKL won the "Best Social Responsibility Award," "Best Product Competition" from Excellence Magazine Creativity Award," "Best Contribution in Insurance Education Award," and "Best Communication Department Award" in the ■ SKB won the Eighth Golden Safety Award for Outstanding Fourteenth Insurance Faith, Hope, and Love Award Institutions held by the Joint Credit Information Center ■ ■ SKB was awarded the "Outstanding Financial Institution in Referral SKL won the Silver Award in the Financial Group of the "2012 Export Insurance" by the Ministry of Finance Taiwan Corporate Sustainability Report Awards" ■ SKL was the only insurer among the "CommonWealth Magazine 2013 Corporate Citizenship Awards Top-50" ■ The Securities & Futures Institute rated SKFH A++ in the Corporate ■ SKB was the first private bank to win Third Place in the Ministry Information Disclosure and Transparency Survey of Finance's "Outstanding Financial Institution in Referral Export ■ SKL won the Excellence Award in the A-Group of Commercial Insurance" assessment Industry category of the Taipei City Government's "Sixth Gold ■ SKB was the Second Place winner in the Financial Supervisory Energy Saving Award" Commission's "Outstanding Banks in SME Financing" assessment ■ SKL won the silver awards for "Information Technology ■ SKB was the winner of the top award for achieving "VISA Infinite Excellence," "Risk Management Excellence" and "Personnel Card Consumption Exceeding NT$10 Billion" Training Excellence" in the Fifth Taiwan Insurance Excellence Award

10 2014 ANNUAL REPORT 2011 2009 ■ SKFH won the "Best Investor Relations Website in Taiwan" awarded ■ SKFH won the "Top-five Investor Relations Websites in Greater by IR Global Rankings China" awarded by IR Global Rankings ■ The Securities & Futures Institute rates SKFH A and above in the ■ The Securities & Futures Institute rated SKFH A+, the highest ranking Corporate Information Disclosure and Transparency Survey for the in the Corporate Information Disclosure and Transparency Survey sixth consecutive year ■ SKL won the "Best Social Responsibility Award," "Best Insurance ■ SKL won the "Product Innovation Excellence Award" in the Fourth Professionalism Award" and "Best Contribution in Insurance Taiwan Insurance Excellence Award Education Award" in the Eleventh Insurance Faith, Hope, and Love ■ SKL won the Silver Award under "Taiwan Training Quality System Award (TTQS) Evaluation" ■ SKL won the "Public Welfare Excellence Award" and "Public Welfare ■ SKL won the "Best Social Responsibility Award," "Best Insurance Special Award" in the Third Taiwan Insurance Excellence Award Professionalism Award," "Best Product Creativity Award," ■ SKB won top award for "Most Visa Unlimited Cards Issued in the "Best Contribution in Insurance Education Award," and "Best Asia-Paciﬁc Region" Communication Department Award" in the Thirteenth Insurance Faith, Hope, and Love Award 2008 ■ SKL was the first life insurer to win honorable mention in the ■ The Securities & Futures Institute rated SKFH A+, the highest "National Training Quality Award" ranking in the Corporate Information Disclosure and Transparency ■ SKL won the First Place in the "A-Group Commercial Industry" Survey group of the Fourth Taipei City Gold Energy Saving Award ■ SKL won the "Best Social Responsibility Award," "Best Insurance ■ Former Vice Chairman Chia-Lu Wu won the "Lifetime Achievement Professionalism Award," "Best Channel Strategy Award" and "Best Award" in the Fourth Taiwan Insurance Excellence Award Advertising Image Award for Websites" in the Tenth Insurance Faith, Hope, and Love Award ■ SKB received the Second Place in the Fifth "Outstanding Growth Award in the Wealth Management Bank Evaluation" from Business ■ SKL won the Ninth "Executive Yuan Arts and Business Awards" Today Magazine ■ SKB received the First Place in the Sixth "Outstanding Service ■ SKB recognized for "Excellence in Financial Fraud Prevention" Award for Banking" from Global Views Magazine awarded by the Financial Supervisory Commission ■ Shin Kong-HNA Life Insurance (SKHNA Life) recognized as the 2007 "Best Service Innovation Award" and "Most Popular Phone ■ The Securities & Futures Institute rated SKFH A+, the highest ranking Marketing Product" in the Third Capital Financial Industry Service in the Corporate Information Disclosure and Transparency Survey Innovation Competition in mainland China ■ SKL won the "Best Social Responsibility Award" and "Best Channel Strategy Award" in the Ninth Insurance Faith, Hope, and Love Award 2010 ■ SKL won the Seventh "National Public Service Award" and the ■ SKFH won the "Best Investor Relations Website in Taiwan" awarded "Executive Yuan National HRD InnoPrize" by IR Global Rankings ■ Shin Kong Investment Trust (SKIT) won the Ninth ROC ■ The Securities & Futures Institute rated SKFH A+, the highest "Outstanding Financial Innovation Award" under the "Republic of ranking in the Corporate Information Disclosure and Transparency China Securities and Futures Golden Goblet Award" Survey * ■ SKL won the "Best Social Responsibility Award," "Best Insurance 2006 Professionalism Award," "Best Contribution in Insurance Education ■ SKL awarded "Institutional Investor of the Year" by the Asian Award," and "Best Channel Strategy Award" in the Twelfth Investor Magazine Insurance Faith, Hope, and Love Award * ■ SKL won the Tenth "Executive Yuan Arts and Business Awards" 2005 ■ SKB won the "2010 Gold Award" presented by the Joint Credit ■ SKL won the First Taiwan Insurance Excellence Award in the Information Center categories of "Employee Training" and "Public Service Image" ■ SKHNA Life recognized as the "Most Innovative Insurance * Company" and "Insurance Company with Greatest Market 2004 Potential" in the Second Insurance Service Innovation Competition ■ SKL won the Fifteenth "National Quality Award" in mainland China *Note: Only the important prizes and awards are listed during 2004 to 2006 due to lack of space in the section.

2014 ANNUAL REPORT 11 Living Healthy, Wealthy and Well

Shin Kong Financial Holding (SKFH) and its subsidiary Shin Kong Life Insurance (SKL) are developing new long-term care (LTC) products to comprehensively protect the people of Taiwan, true to the principle of "offering products meeting the full needs of the nation's seniors." To realize this mission, Shin Kong has combined the group's abundant resources and constantly improved by innovating new financial products that add value and enhance business performance.

12 2014 ANNUAL REPORT Seeing the rising opportunities for cloud business to drive innovative business models, SKFH is integrating subsidiaries' online policy application, e-policy, mobile banking, third-party payment, and other new services and channels to fast-track enterprise growth, offer health and wealth protection, and help customers to live well.

2014 ANNUAL REPORT 13 SKFH Overview

SKFH Highlights Unit: NT$ Thousands Year 2014 2013

Capital 98,347,538 93,288,169

Consolidated assets 2,797,836,519 2,535,233,401

Consolidated shareholders' equity 125,473,516 114,801,868

Consolidated net income 7,922,124 10,568,064

EPS (NT$) 0.70 1.05

Return on equity (%) 6.59% 10.04%

Return on assets (%) 0.30% 0.43%

2014 Asset Mix by Subsidiary

(Subsidiary's Share in Percentage) Unit: NT$ Thousands Shin Kong Life Insurance Subsidiary Share of Total Share of Total (%) 70.12% Shin Kong Investment Shin Kong Life Insurance 1,967,766,571 70.12% Trust 0.02% MasterLink Securities Shin Kong Bank 760,122,629 27.09% 2.71% Shin Kong Venture Capital 0.05% Shin Kong Investment Trust 724,840 0.02% Consolidated Shin Kong Venture Capital 1,515,246 0.05% Shin Kong Bank 27.09% assets Shin Kong Property Insurance Agency 84,261 0.01% 2.8 trillion MasterLink Securities 76,030,305 2.71% Shin Kong Property Insurance Agency 0.01% Total 2,806,243,852 100.00%

14 2014 ANNUAL REPORT Unit: NT$ Thousands

Year Total assets Shareholders' equity Operating income Net Income

Shin Kong Life Insurance 2014 1,967,766,571 69,535,667 293,280,069 1,688,067

2013 1,802,449,402 64,902,983 243,868,086 6,517,720

Shin Kong Bank 2014 760,122,629 41,334,659 15,071,853 (1) 5,159,320

2013 693,541,174 36,629,704 12,302,692 (1) 4,061,766

Shin Kong Investment Trust 2014 724,840 586,811 207,793 20,709

2013 646,777 582,952 200,646 28,525

Shin Kong Venture Capital 2014 1,515,246 1,513,655 5,927 (81,622)

2013 571,001 570,147 14,972 12,051

Shin Kong Property Insurance Agency 2014 84,261 47,856 241,258 39,886

2013 10,249 7,970 9,854 1,970

MasterLink Securities 2014 76,030,305 21,436,653 4,888,725 (2) 1,497,524 2013 72,783,642 20,169,890 4,154,778 (2) 840,761

(1) Since there is no operating income item for the banking industry under the Regulations Governing the Preparation of Financial Reports by Public Banks, these figures are net revenues. (2) Since there is no operating income item for the securities industry under the Regulations Governing the Preparation of Financial Reports by Securities Firms, these figures are gross incomes.

2014 ANNUAL REPORT 15 Management Team

Victor Hsu Jason Tsai Tseng-Chang Lee Joel Lin Vice Chairman & President Chairman & President Chairman President

■ Vice Chairman & President, ■ President, Shin Kong Life ■ Chairman & President, Shin Kong ■ Chairman, Shin Kong Shin Kong Financial Holding ■ Vice Director, the Life Bank Investment Trust ■ Spokesperson, Shin Kong Insurance Association of ■ Chairman, Shin Kong Insurance Financial Holding the Republic of China Agency ■ Director, Shin Kong Life

16 2014 ANNUAL REPORT As of 2015 / 05 / 29

Ding-Yi Lee Eric Su Matthew Fang Frank Hung Vice Chairman President Chairman & President Chairman & President

■ Vice Chairman, Shin Kong ■ President, Shin Kong ■ Chairman & President, ■ Chairman & President, Investment Trust Investment Trust Shin Kong Property Insurance Shin Kong Venture Capital Agency ■ Director, Shin Kong Bank

2014 ANNUAL REPORT 17 Shin Kong Financial Holding

Information as of December 31, 2014

90.01% Shin Kong Life Real Estate Service Company 100% Shin Kong Life Insurance Co., Ltd. 50% Shin Kong-HNA Life Insurance Company Ltd. (1) 100% Shin Kong Securities Co., Ltd. (2)

100% Taiwan Shin Kong Insurance Brokers Co., Ltd. (3)

100% Shin Kong Investment Shin Kong Trust Co., Ltd. Financial Holding Co., Ltd. 100% Shin Kong Property Insurance Agency Co., Ltd. (4) 49.7% Shin Kong Marketing Consultant Co., Ltd. 100% Taiwan Shin Kong Commercial Bank 100% 50.3% Co., Ltd. Shin Kong Insurance Agency Co., Ltd.

Shin Kong Venture 100% 100% Lion Investment (Samoa) Co., Capital International Ltd. and subsidiaries (5) Co., Ltd.

Subsidiaries and Afﬁliated 32.24% MasterLink Securities 100% Companies of MasterLink Corporation (6) Securities Corporation (7)

Organization Chart Notes: (1) Shin Kong-HNA Life Insurance Company Ltd. is a life insurance company established as a joint venture between Shin Kong Life Insurance Co., Ltd. and HNA Group Company Ltd. (2) The Board of Directors of SKSC assumed the authority of the shareholders' meeting on September 24, 2009 and resolved that the record date to dissolve SKSC should be January 5, 2010; however, the liquidation process had not been completed as of the end of 2014. (3) The Board of Directors of SKIB assumed the authority of the shareholders' meeting on March 14, 2014 and resolved that the record date to dissolve SKIB should be March 29, 2014; however, the liquidation process had not been completed as of the end of 2014. (4) According to the board resolution passed on October 8, 2013, Shin Kong Property Insurance Agency Co., Ltd. (SKPIA) changed its Chinese name and retained its English name. (5) Shin Kong Leasing Corp. (Suzhou) is a wholly owned subsidiary of Lion Investment (Samoa) Co., Ltd. (6) "Subsidiary" is defined according to Article 4 of the Financial Holding Company Act, not according to the definition of the Company Act. (7) Included companies and holding ratios: MasterLink Futures Co., Ltd. (100%), MasterLink Securities Investment Advisory Corporation (100%), MasterLink British Virgin Islands Corporation (100%), MasterLink Insurance Agency Co., Ltd. (100%), MasterLink Venture Management Corp., Ltd. (100%), MasterLink Venture Capital Corp., Ltd. (100%), MasterLink Securities (HK) Co., Ltd. (100%), Shanghai MasterLink Investment Advisory Corporation (100%), MasterLink Nominees (HK) Ltd. (99.99%).

18 2014 ANNUAL REPORT Credit Ratings

The list below shows credit ratings of SKFH and its major subsidiaries in year 2015:

Shin Kong Financial Holding

National National Agency Outlook Long-term Short-term

Taiwan Ratings twA+ twA-1 Stable

Shin Kong Life

Global Global National National Agency Outlook Long-term Short-term Long-term Short-term

Taiwan Ratings -- -- twAA- -- Stable

Standard & Poor's BBB ------Stable

Shin Kong Bank

Global Global National National Agency Outlook Long-term Short-term Long-term Short-term

Taiwan Ratings -- -- twAA- twA-1+ Stable

Standard & Poor's BBB A-2 -- -- Stable

2014 ANNUAL REPORT 19 Milestones

■ SKFH successfully raised NT$5 billion through a ■ new issue of domestic SKHNA Life officially unsecured convertible opened a branch in corporate bond (CB). Chaoyang District, Beijing. ■ SKHNA Life officially opened a Hainan Branch. ■ SKIT became the master agent for Robeco Offshore Funds.

■ Shin Kong Property Insurance Agency Co., Ltd. is incorporated directly under SKFH and upgraded to subsidiary status, changing its Chinese ■ SKFH successfully raised name but retaining NT$5 billion through a ■ Shin Kong-HNA Life the original English new issue of domestic Insurance Company Ltd. name. unsecured convertible (SKHNA Life) officially corporate bond (CB). ■ SKL celebrated its established, marking 50th anniversary of ■ SKL successfully raised ■ SKB's Hong Kong Branch Shin Kong's entry to establishment. NT$5 billion through officially opened for the mainland Chinese ■ SKFH completed a issuance of perpetual operations. market. cumulative subordinated domestic cash capital ■ Shin Kong Venture Capital ■ NT$13.1 billion raised in corporate bonds. raising of NT$6.5 International Co., Ltd. (SKVC) a successful GDR issue. billion through the officially established. ■ GDR awarded Taiwan issue of 650 million ■ Sub-subsidiary Shin Kong Capital Markets Deal of common shares. Leasing Corp. (Suzhou) the Year by International (Shin Kong Leasing) Financing Review Asia established. magazine. ■ Shaanxi Branch of SKHNA ■ Shin Kong Securities Life permissibly operated. merged with MasterLink Securities Corp.

20 2014 ANNUAL REPORT ■ Dai-ichi Mutual Life Insurance Company of Japan acquired private placement common shares of SKFH in the amount of NT$6.3 billion and acquired preferred shares in Shin Kong Life Insurance (SKL) in the amount of NT$1.7 billion. ■ SKIT became the master agent for DWS Invest Offshore Funds. ■ Macoto Bank incorporated into ■ Shin Kong Financial SKFH and merged with Shin Holding Co., Ltd. (SKFH) Kong Bank to become Taiwan was established and Shin Kong Commercial Bank went public. Co., Ltd. ■ SKFH issued US$250 million Euro Convertible Bond.

■ Shin Kong Life (SKL) and Powerworld Securities (renamed Shin Kong Securities ■ Shin Kong and merged with Insurance MasterLink Securities Brokerage Corp. in 2009) established as merged to form ■ SKFH signed cooperation agreement ■ United-Credit Commercial a subsidiary Shin Kong Financial with Dai-ichi Mutual Life Insurance Bank merged under SKFH of SKFH. Holding Co., Ltd. Company of Japan; Dai-ichi paid NT$7 and renamed Taiwan billion in subscription for SKFH common Shin Kong Commercial shares through private placement. Bank Co., Ltd. (SKB) ■ Shin Kong Investment Trust incorporated ■ New Light Asset into SKFH and merged with New Light Management Company Asset Management to form Shin Kong established as a subsidiary Investment Trust Co., Ltd. (SKIT) of SKFH. ■ Shin Kong Insurance Brokerage Co., ■ SKFH issued US$260 Ltd. and Taiwan Shin Kong Insurance million Euro Convertible Brokers Co., Ltd. merged to form Bond. Taiwan Shin Kong Insurance Brokers Co., Ltd. (SKIB)

2014 ANNUAL REPORT 21 Enhancing Performance, Earning Steady Profits

In 2014, SKFH earned a consolidated after-tax profit of NT$7.92 billion and consolidated comprehensive income of NT$11.35 billion on stable operations. SKL's product strategy focused on NT dollar and foreign currency traditional whole life policies to reduce cost of liability and enhance recurring investment return. Driven by properly- managed foreign currency hedging, SKL reduced its hedging cost to just 0.37%, and investment return was 4.41%. The company also actively marketed foreign currency policies, as well as invested in international bonds and deployed acquired funds to better yielding foreign currency assets, increasing its recurring yield after hedging by 20 bps

22 2014 ANNUAL REPORT over 2013. SKB continued to adjust its deposit and loan structure in a concerted effort to increase net interest spread, reduce funding costs, and increase non-interest income, resulting in a consolidated after-tax profit of NT$5.16 billion. Other subsidiaries also ended the year with a sound performance: Shin Kong Investment Trust (SKIT) enjoyed strong fund performance and steadily grew its agency business. Shin Kong Property Insurance Agency (SKPIA) increased renewal rates for non-life insurance policies and sold 768,000 new policies. Shin Kong Venture Capital continued to help Shin Kong Leasing develop its China business and prudently find investment target in industries with strong prospects and development potential. 2014 ANNUAL REPORT 23 2014 Operations Review

Shin Kong Life Insurance Global market performed well in 2014, NT$1.71 billion, consolidated comprehensive helped by sufﬁcient funds, a gaining recovery and income was NT$4.78 billion, consolidated total consumption in the United States, lower oil prices, assets topped NT$1.9 trillion, and shareholders' price stability, employment improvements, and equity gained by 7.1% to reach NT$69.63 billion higher consumer income. In Taiwan, regulatory over the year. loosening spurred Shin Kong Life Insurance (SKL) SKL generated first year premium (FYP) of to actively reallocate assets. The company invested NT$90.19 billion in 2014, up 60.0% from 2013, funds from NT dollar policies in international bonds supported by strong sales of NT dollar and foreign and funds from foreign currency policies in overseas currency traditional whole life policies. Foreign bonds to enhance recurring yield. This strategy currency traditional policies were a focal product in helped the company to earn an investment return 2014, contributing NT$29.24 billion and 32.4% of of 4.41% and further improve its proﬁt structure. the company's FYP. The company was committed Through proper foreign currency hedging, SKL to stacking foreign currency premium income and reduced its hedging cost to just 0.37% in 2014, a invested in foreign bonds to earn stable interest 25 bps improvement over 2013. SKL recognized spreads, while also eliminating hedging costs. SKL domestic and foreign cash dividends of NT$8.59 also rolled out long-term care (LTC), quasi LTC, and billion. Consolidated after-tax profit reached disability policies in response to Taiwan's aging

Last 5 Years- Total Assets Last 5 Years- First Year Premium Unit: NT$ Millions Unit: NT$ Millions

1,967,767 90,190 1,802,449 83,171 1,645,571 76,562 1,537,518 1,551,850 68,472

56,385 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

Note: IFRSs were adopted from 2012 to 2014, ROC GAAP was adopted from 2010 to 2011.

24 2014 ANNUAL REPORT population and declining birthrate trends. Premium of foreign currency policies and the investment in from these three policy types reached NT$1.82 higher yielding foreign currency assets helped the billion in 2014, boosting FYP from health policies to company to increase its overall recurring yield after NT$3.5 billion, up 47.7% from 2013 and increasing hedging to 3.52%, up 20 bps from 2013. the company's market share to 12.5%. Regulatory changes introduced in Taiwan in Focus on Whole Life Insurance June 2014 exempt investments in foreign-currency- In 2014, SKL responded to expectations of denominated bonds listed on the domestic over-the- higher interest rates due to tapering of quantitative counter bourse from overseas investment limits. SKL easing measures in the U.S., and corresponding responded to this change by actively investing funds market hopes for reduced premiums, by developing acquired from NT dollar policies in international interest sensitive life policies. Holders of these bonds. By the end of 2014, such investments interest sensitive life policies receive rebates that amounted to about NT$118.76 billion, accounting increase with rises in declared interest rates. They for 6.5% of the company's total investments. The also help SKL to avoid negative spreads on high average yield before hedging on these holdings guaranteed rate policies. NT dollar versions of was 4.4%. Even on a hedged basis the yield was these policies include the "Xin-Fu Yi-Sheng Interest much higher than that from domestic bonds. Sales Sensitive Whole Life insurance" and "Xin-Li Yi-

Business Mix Unit: NT$ Millions Individual life insurance Category 2014 Premium Income Share of Total(%) 80.55%

Individual life insurance 169,315 80.55% Annuity insurance 0.97% Individual accident Individual health insurance 29,981 14.26% insurance 3.62%

Individual accident insurance 7,611 3.62% Individual health Total premium insurance 14.26% 210.2 billion Annuity insurance 2,042 0.97% Group insurance 0.60% Group insurance 1,262 0.60%

Total premium 210,211 100.00%

Note: Due to rounding, figures may not add up to the total.

2014 ANNUAL REPORT 25 Sheng Interest Sensitive Whole Life Refundable protection. In 2014, SKL, continued to design fixed- Insurance" policies. SKL also introduced related term and amount investment products, including foreign currency policies based on the medium- and the "Xin-Liang-Xin Variable Life Insurance" providing long-term strengths of the US dollar and renminbi regular fixed investment and death protection, while (RMB), including the "Mei-Fu Yi-Sheng Foreign also offering benefits for full disability assistance. Currency Interest Sensitive Whole Life Insurance" In addition, the company developed exclusive and "Min-Fu Yi-Sheng Renminbi Interest Sensitive investment-linked riders, including the "One- Whole Life Insurance" policies. Through long- Year Cancer Prevention Health Insurance Rider" term policy planning, the company has reduced and "One-Year Surgery Health Insurance Rider" its short-term currency fluctuation risk, while also providing surgery and cancer protection. helping customers to benefit from interest rate and exchange rate preservation and appreciation. Strengthening and Diversifying SKL also further cultivated operations in the long- Marketing Channels term care (LTC) market with the successive release of SKL has developed multiple distribution the "Chang-Zhao Jiu-Jiu Long-Term Care Whole Life channels over the years to provide convenient Insurance" account-type policy covering care fees and comprehensive services meeting the broad and expenditures related to disability and dementia; insurance needs of its customers, including both the quasi LTC "Chang-Hu Jiu-Jiu Whole Life Health internal (agents and direct marketing) and third- Insurance" policy offering protection for 13 specific party (bancassurance, traditional insurance brokers kinds of injuries; and the "Chang-Fu Jiu-Jiu Type A and and cross-industry strategic alliances) channels. B Disability Care Whole Life Health Insurance." SKL Internal channels: Tied agents are SKL's underwrote 57,000 of these three policies in 2014, main sales channel. In 2014, SKL strengthened generating premium income of NT$1.82 billion and recruitment through various projects aimed at consolidating the company's position as the leading actively cultivating human resources and accelerate brand in the LTC insurance sector. organizational rejuvenation, including the "Young SKL is committed to promoting investment Project" and "YES Project." Now in its fourteenth products by unit-cost-averaging method, not only session, the former is focused on cultivating with a focus on mortality and expense gains, but youthful management talent at the grassroots also to provide young upwardly mobile customers level. Over the years, several members from the with channels to spread investment risk through project have been promoted to basic management periodic, fixed amount investment, as well as lower positions. The "YES Project," in turn, aims to recruit the relatively high premium cost of life insurance young, e-savvy agents and provides new model

26 2014 ANNUAL REPORT tablet PCs to strengthen marketing. The "Young Third-party channels: Bancassurance has Service Agent (YSA) Project" recruits young people become the most important sales channel after to provide policy services and enhance service agents in today's insurance market. SKL actively quality to win new contracts. With an eye to both developed cooperative relationships with banks the quantity and quality of its sales team, SKL and securities companies. In 2014, FYP from also provides sequential and interlinked training bancassurance channels reached NT$46.76 billion, curricula through education centers and regional with FYP from high VNB margin regular premiums group training courses, complemented by e-learning accounting for NT$19.73 billion. Joint marketing systems, a nationally syndicated morning broadcast operations with Shin Kong Bank (SKB) increased VNB program and other real-time e-learning platforms. through active promotion of NT dollar and foreign These channels provide sales personnel at all levels currency long-term traditional policies. In 2014, with access to the latest, most accurate and most policy underwriting in partnership with SKB increased practical and pertinent educational content to to NT$16.35 billion, accounting for 35.0% of SKL's boost professional ability, marketing capabilities and FYP from bancassurance channels, underscoring the retention rates, as well as strengthen the company's outstanding synergy from cross-selling. sales organization. SKL actively promoted a "service area" based Proactively Meeting Policyholder Needs service development model across its national agent SKL values the questions and opinions of system. The different service areas help agents to policyholders. In its dedication to providing high- closely interact with customers on their own "turf." quality service, the company actively listens to the The company is also using constantly evolving mobile views of policyholders as a reference in ongoing technology to help agents develop services, including reviews and improvements. The company requires expanding use of tablet PCs, smartphones and other employees to enrich their insurance professional mobile devices, sales support software (such as the knowledge, foster an excellent service attitude and e-mobile secretary app), and e-operations (such as enthusiasm, and provide timely and comprehensive mobile investment application). These tools have also financial and insurance services to meet policyholder been paired with customer relationship management needs. The company continued to promote the systems for target customers to provide clients with following policyholder services in 2014: complete and real-time services, opening up new 1. SKL promoted programs to enhance policyholder market opportunities. SKL also continued to use services and improve policy information, including convenient direct marketing channels, including policyholder surveys, policyholder care, and direct mailing, television, telemarketing, fax, and comprehensive visits. Face-to-face explanations airport counters to meet the insurance and product by service staff help policyholders to understand needs of different customer groups and broaden their policy status and coverage gaps. They also service reach. provide an opportunity to confirm the accuracy of policy information and inform policyholders about high-value service plans. 2. SKL released the industry's first "Free Year Loan" ultra-low interest rate policy loans with an ATM cash loan card to give policyholders greater time flexibility in funds utilization and help them to fully activate their policy assets. During the promotion, a total of 11,364 ATM cash loan cards were utilized. The number of preferential policies reached 14,979 and preferential loan balances topped NT$5 billion. 3. SKL introduced a tablet PC-based e-signature system to help policyholders quickly and easily complete the policy application process, as well

2014 ANNUAL REPORT 27 as facilitate agent development of new business. In 2014, SKL continued to improve market, The technology links with the company's core credit, and business risk management mechanisms. system to quickly verify basic policy information. The company also promoted the following risk It can also be used for notifications and management measures at the levels of risk culture, declarations, reducing underwriting time and system strengthening, control mechanisms and improving administrative efficiency. The company performance measurement: also released a new policy push notification 1. Risk culture: Since the third quarter of 2014, SKL service. Policyholders who are SKL members can has added new members to its Risk Management download an SKL app to their mobile device to Committee to take charge of affairs related track the progress of a new policy application. to human resource, general administration, 4. SKL developed an early warning mechanism to occupational safety and public affairs. This has control and manage complaints. The system enabled more comprehensive risk management assigns different warning lights to complaint coverage throughout the company's business cases on a monthly basis based on the number operations. In addition, committee members of policyholder complaints and the seriousness compile risk reports into quarterly overall risk of the case. Business units that receive a warning management reports. These are regularly presented are required to submit a written improvement to the Board of Directors to give directors and plan by a certain deadline and undergo an supervisors a clearer overview of the company's education and guidance process related to overall risk. The committee also conducts annual the complaint case. The process is aimed at advocacy work to heighten risk awareness among strengthening service concepts and spirit to board members and top executives. reduce the occurrence of complaints. 2. System strengthening: SKL continued to study 5. In addition to its toll-free customer service line, and analyze models generated by the value SKL upgraded its customer service system by at risk (VAR) calculations of its ALGO risk adding online customer service support to its management system to explore resolutions to website and app. The service includes text chat fat tail risk and strengthen market risk controls. and voice chat functions that provide more Refinements were made as well to the evaluation diverse and real-time channels for service-related module technology for complex financial communication. The company also added new products and products lacking open market policy information to its self-help interactive pricing, in line with International Financial phone service to handle inquiries on policy loans Reporting Standards. and premium payments. 3. Control mechanisms: In the area of equity Strengthening Risk Management risk management, SKL amended definition standards for the classification of core domestic Mechanisms equity holdings according to the views of the competent authority to filter out quality stocks worthy of medium- and long-term investment. The company also continued to enhance quality and quantity controls for equity investments, as well as amend financial asset impairment methods. With respect to domestic and foreign stocks and funds, the company formulated a number of quantitative thresholds for objective evidence of impairment to establish a more stringent risk management mechanism. Risk management for foreign currency positions includes monitoring and control of daily losses and gains, as well as regular reviews of hedging ratios to ensure conformance with established

28 2014 ANNUAL REPORT standards. SKL also regularly controls foreign currency risk limits and FX reserve balances in line with provisions of the Insurance Risk Management Code of Practice, as well as conducts stress testing and sensitivity analysis and reporting. 4. Performance measurement: SKL has formulated performance measurements and reward systems for various products to balance risk and return, consistent with provisions of the "Guidelines for the Formulation of Risk-Adjusted Performance Management and Reward System for Investment Departments." Steadily Advancing in the Mainland Life Insurance Market industry of the Taiwan Institute for Sustainable Energy's "2014 Taiwan Corporate Sustainability SKL launched Shin Kong-HNA Life Insurance, Report Awards – Taiwan's Top 50 Corporate a joint venture with HNA Group, in Beijing in April Sustainability Report Award." The company's 2009. The company has drawn on its extensive "Active Aging Project" also earned the "Social experience in Taiwan's life insurance market to Inclusion Award." To expand its positive inﬂuence, establish information systems, product design, SKL has taken concrete action to promote CSR policy administration, recruitment and training principles. It has led the industry in holding supplier systems for the joint venture, laying a solid conferences to encourage suppliers to sign CSR foundation for growth. In 2014, SKHNA Life's letters of commitment, as well as arranged CSR total premium income was RMB240 million. The education and training sessions. In addition, the company has developed 76 insurance products, company has partnered with the ROC Business including 27 life insurance policies, 15 accident Council for Sustainable Development to produce insurance policies, and 34 health insurance policies and publish a traditional Chinese translation of the to meet a broad spectrum of insurance needs Global Reporting Initiative (GRI)'s fourth-generation across channel types. "Sustainability Reporting Guidelines" (GRI G4) In addition to its head office in Beijing, to encourage domestic enterprises to adopt SKHNA Life Insurance has opened provincial-level higher standards for the disclosure of corporate branches in Hainan, Shaanxi and Jiangsu. In the sustainability information. future, the company will continue to cultivate the Looking ahead in 2015, SKL will continue, mainland insurance market through ﬁve channels: through the operations of its CSR Committee, telemarketing, bancassurance, individual insurance (including agents and brokers), group insurance to closely watch economic, environmental, and and online sales. social issues of interest to internal and external stakeholders as a basis for strategic planning and Fulfilling CSR: Winner of the follow-up implementation. The company will also Award of the 2014 Taiwan develop innovative products and services to help customers respond proactively to the social impact Corporate Sustainability Award of declining birthrates and the aging population Corporate social responsibility (CSR) plays an in Taiwan. SKL will continue, under a guiding important role in business sustainability. SKL's long- corporate philosophy of "innovation, service, term commitment to CSR has produced notable integrity and giving back to society," to embrace its achievements that have been widely recognized role as a CSR leader in the life insurance industry over the years. In 2014, the company was again by implementing CSR and contributing to the honored with the Gold Award in the financial betterment of society.

2014 ANNUAL REPORT 29 Shin Kong Bank Shin Kong Bank (SKB) performed strongly on both profitability and business growth in 2014. Pre-provision profit reached NT$7.98 billion, representing a 35.0% gain over 2013. Consolidated after-tax profit for the year was NT$5.16 billion, return on equity (ROE) posted at 13.2%, and consolidated total assets increased by 9.6% to NT$759.91 billion. SKB pursued a strategy of "steady growth and structural adjustment" to sustain gains in its deposit and loan businesses in 2014. The bank's deposit balance (excluding interbank deposits) reached NT$643.85 billion, up 4.7% from 2013, contributing to the bank's asset scale and business increasing from 265.57% in 2013 to 486.14% in momentum. Loan balance (including revolving credit 2014. card balances and excluding overdue receivables) increased by 7.0% to NT$482.54 billion, helped Balancing Risk and Reward, mainly by a 14.6% gain in SME lending. Apart from Differentiating Management of loan operations, SKB actively increased fee income Corporate Loans and treasury marketing unit (TMU) operations to augment non-interest income, contributing to In the corporate banking sector, SKB an 11.8% increase in net fee income in 2014. continued to coordinate with the government's Wealth management operations benefited from SME support policies to expand its customer base, robust sales of insurance policies and funds, with and strengthen risk management mechanisms income gaining 8.8%. In addition, strong customer to improve credit quality and adjust its loan demand for hedging helped to drive TMU income structure to widen interest spreads. Facing heated to NT$1.04 billion, up 130.8% for the year. Loan competition in Taiwan's banking industry and asset quality continued to improve, with the non- low lending spreads, the bank also differentiated performing loan (NPL) ratio falling from 0.42% in management of interest rate pricing on corporate 2013 to 0.26% in 2014 and the coverage ratio loans based on consideration of client risk and

Last 5 Years- Deposit Balance Last 5 Years- Loan Balance Unit: NT$ Millions Unit: NT$ Millions

643,846 482,536 614,930 450,822 556,645 427,211 482,186 375,285 329,762 413,113 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014

Note: Figures exclude interbank deposits. Note: Figures include credit card revolving balances but exclude overdue receivables.

30 2014 ANNUAL REPORT profit contribution. The bank also sought to ratio fell sharply from 0.58% in 2013 to 0.16% in increase customer stickiness by actively expanding 2014, highlighting its success in achieving business its cash management business, precisely grasping growth with consideration to asset quality. customers' cash flow, and thereby increasing the ratio of demand deposits and reducing funding Consumer Banking: Rising costs. The bank also provided a full-range of Profitability ﬁnancial services, including syndicated loan, foreign SKB continued to coordinate with Central exchange, TMU services, wealth management, trade Bank restrictions on mortgages in designated areas finance and factoring. In 2014, overall corporate and high-priced houses, as well as internally control lending grew by 7.5% over 2013. Looking ahead loan-to-value ratios in other areas with relatively in 2015, SKB will continue to strengthen corporate high real estate prices and transaction volumes. SKB banking operations and overall profitability by maintained steady growth in its mortgage business strengthening its loan structure and actively in 2014, with new loans totaling NT$52.02 billion developing non-interest operations. and total loan balance increasing by 6.0% to In the area of risk management, SKB sent NT$179.27 billion. In conjunction with government staff for on-site examinations of customer business policies to stabilize housing prices and stipulations conditions and upstream/downstream transactions. in Article 72-2 of the Banking Act, SKB offered The bank paid attention to post-loan management, favorable interest rates for mortgages in the more regular review of customers' ﬁnancial and business stable segment of owner-occupied-home clients to information, and the setting of alert standards for maintain good asset quality and steadily grow its customer risk grading. Depending on the resulting mortgage business. SKB's mortgage NPL ratio was client profile, the bank may raise the collateral 0.24% in 2014, indicating the bank's gains in both ratio or reduce credit risk exposure to reduce credit lending scale and asset quality. delinquencies. SKB also commissioned independent SKB grew its new unsecured consumer loan industry watchers to thoroughly investigate various business by 9.5% to NT$20.89 billion in 2014. industries and present monthly reports on economic The bank also increased its interest-bearing loan policy and industry trends for the reference of balance by 11.0% to NT$33.94 billion, contributing business units and examination departments. NT$2.09 billion to revenue, up 8.9% from 2013. Moreover, the bank adjusted lending quotas for different industries based on changes in industry In 2014, SKB had 919,000 credit cards conditions to reduce the risk of over-concentration in circulation, up 2.3% from 2013. Annual of loans. SKB's corporate banking overall NPL consumption on SKB cards totaled NT$44.89 billion,

Business Mix Unit: NT$ 1000 Net interest income 63.86% Category 2014 Revenue Share of Total (%)

Net interest income 9,717,450 63.86% Net fee income 19.96% Net fee income 3,037,897 19.96% Operating net Gains on bills and securities 1,379,414 9.07% income Gains on bills and securities 9.07% 15.2 billion Other gains, net 1,081,207 7.11%

Other gains, net 7.11% Total 15,215,968 100.00%

Note: Due to rounding, figures may not add up to the total.

2014 ANNUAL REPORT 31 up 2.7% year-on-year. The bank continued to offer promotions for top grade card customers, such as free airport shuttle, airport lounge, downtown parking, annual spending rewards, and restaurant discounts to boost credit card consumption. The bank also issued department store co-branded cards aimed at different customer groups to expand its credit card market share and develop new customer segments (including co-branded Shin Kong Mitsukoshi, Miramar and E-DA Theme Park cards), co-branded EasyCards, co-branded airline cards (with Japan Airlines), co-branded coffee cards, cash-back cards, and installment cards to provide customers with more options for credit card spending. At the end of 2014, SKB's credit card NPL ratio was just 0.16%, beating the industry average income to NT$1.84 billion in 2014, up 8.8% from of 0.27% and indicating continued stability in asset 2013, helped mainly by shifting its bancassurance quality. operations to a joint marketing model for life SKB also continued to promote mobile insurance operations. Under the new model, payment operations in 2014 to meet the needs of wealth management consultants register directly the digital age. In addition to QR code scanning to as life insurance agents and use life insurance process Chunghwa Telecom payment transactions, marketing tools and training resources, improving the bank released an electronic wallet service that bancassurance performance. In 2014, SKB's frees customers from carrying a large number of non-discretionary money trust balance reached credit cards. NT$138.77 billion, representing a market share of 4.0%, ranking tenth in the industry. The bank will SKB further grew its merchant business to continue to develop bancassurance joint marketing increase acquisition volumes. The bank closed the advantages, strengthen sales of long-dated and year with 2,095 contracted stores and annual retail retirement annuity insurance, and deepen corporate sales volume of acquisition amounted to NT$14.22 and retail banking to develop wealth management billion, an increase of 3.3% over 2013. business with mass affluent customers. The bank Wealth Management: Excellent will also enhance wealth management consultant quality, professional knowledge and marketing Performance ability to increase overall production value and SKB increased its wealth management market competitiveness.

Hong Kong Branch: Continued Profit Growth SKB opened its ﬁrst overseas branch in Hong Kong on May 6, 2011, primarily to serve Taiwanese companies with operations on both sides of the Taiwan Strait. The branch aims to become the first-choice funding management platform for its customers. It also actively visits factories in China to provide customers with high-quality financial services and seize opportunities to serve Taiwanese enterprises, as well as deepen and broaden ﬁnancial product dealings between customers and SKB. The Hong Kong Monetary Authority (HKMA)

32 2014 ANNUAL REPORT authorized the Hong Kong branch to engage protected funds, one overseas portfolio fund, in internet banking operations in July 2013 and one overseas equity fund, and one private equity approved the branch's application to offer personal fund. The two AUD principal-protected funds are account online banking in November 2014. The suited for investment-linked policies to realize branch subsequently launched its corporate synergies from integrated marketing with SKL. From e-banking platform to help customers conveniently December 2013 to January 2014, SKL introduced and quickly allocate funds, attract foreign currency a second version of its "Fu-Wan-Li Variable Life working capital business, and diversify services. Insurance" investment-linked policy tied to this At the end of May 2014, the branch launched its principal-protected fund, generating sales of wealth management business (Type 1 and Type NT$1.53 billion. In the second quarter of 2014, 4), to deepen customer relations, meet customer SKL debuted the third version of the "Fu-Wan-Li investment needs, and build fee income. The Hong Variable Life Insurance" policy linked to the "Shin Kong branch ended 2014 with a deposit balance of Kong AUD 10-Year Principal Protected Fund," with US$400 million, up 14.3% over 2013 and increased sales totaling NT$1.34 billion. SKIT also administers loan balances (including export L/C negotiation) the discretionary trust investment management by 25.4% to US$270 million. Pre-provision profit accounts for SKL's "Fortune Forever," "Shin reached US$2.711 million, and cumulative after-tax Wang," "Xin Fortune Forever," and "Lucky Forever" profit totaled US$1.123 million. All of these figures investment-linked policies. It also took charge of exceeded expectations. such accounts for SKL's "Xin Healthy Forever" investment-linked policy in 2014. These funds have enjoyed sound short and long-term performance. Shin Kong Investment Trust SKIT also dedicated efforts to improving investment performance on discretionary investment policies, At the end of 2014, Shin Kong Investment continued to expand the scale of assets under Trust (SKIT) had NT$29.22 billion in public funds management, and worked closely with other SKFH under management. This figure covers equity funds subsidiaries to jointly create good results. (including fund of funds), balanced funds and money market funds. Of this total, equity and balanced Stellar Fund Performance funds accounted for NT$7.36 billion, and the balance Strategic adjustments and product integrations of money market funds was NT$15.94 billion. helped SKIT to continue into 2014 the strong Integrating with Group Channels performance of its domestic and overseas equity funds in recent years. Domestic equity funds netted to Tap Synergies an industry-beating average return of 10.2% over In 2014, SKIT developed five new funds, the past year. The company's flagship "Shin Kong including two Australian dollar (AUD) principal- Innovative Technology Fund" has returned 16.6%

Business Mix Unit: NT$ 1000 Management Fee Income Category 2014 Amount Share of Total (%) 92.07% Consulting Fee Income Management Fee Income 191,316 92.07% 6.14% Sales Fee Income Operating 1.79% income Sales Fee Income 3,719 1.79% 200 million Consulting Fee Income 12,758 6.14%

Total 207,793 100.00%

2014 ANNUAL REPORT 33 Assets Under Management Unit: NT$ Millions Money Market Funds 54.56% Category 2014 Amount Share of Total (%)

Equity Funds (incl. fund of funds) 7,212 24.68% Equity Funds (incl. fund of funds) 24.68% Money Market Funds 15,943 54.56%

Balanced Funds 149 0.50% AUM Discretionary Accounts billion Principal Guarantee Funds 3,036 10.39% 8.24% 29.2 Private Equity Funds Private Equity Funds 475 1.63% 1.63% Principal Guarantee Funds Discretionary Accounts 2,407 8.24% 10.39%

Total 29,222 100.00% Balanced Funds 0.50%

since 2014, ranking it 15th among 170 domestic and arranged tailored supplemental sales training equity funds and putting it in the industry's top aimed at different customer segments to give quartile. The "Shin Kong Great China Fund" offshore funds a larger role in client asset allocation. and "Shin Kong National Development Fund" The company also continued to carry out project both ranked in the top half of the 170 domestic cooperation and marketing activities to strengthen equity funds (according to the December 2014 fund growth. mutual fund performance evaluation conducted by the Securities Investment Trust and Consulting Association of the R.O.C.). SKIT's overseas funds Shin Kong Property also performed solidly. In the fourth quarter of 2014, the company introduced a fund aimed Insurance Agency at seizing trends in the high potential global 2014 Shin Kong Property Insurance Agency biotech medical sector, achieving breakthrough (SKPIA) posted operating income of NT$241.3 performance. SKIT's discretionary investment million and after-tax profit of NT$39.89 million. management accounts have also performed well. Total premium income was NT$1.3 billion. The "Fu-Yun Nian-Nian" US dollar denominated Auto insurance (including compulsory) policies fund has returned a cumulative 18.7% since its contributed the highest share, representing 79.9% debut in 2011. Through rigorous risk control, SKIT of total premium income, followed by ﬁre insurance expects the fund to continue to achieve its goal of (10.5%), and other insurance (9.6%, including earning steady returns. liability, engineering and marine insurance). The number of outstanding policies grew steadily in Steady Agency Growth 2014 to reach 768,000. In the agency offshore fund segment, SKIT has SKPIA continued to use cross-sales channels served as an agent for funds managed by Robeco and cooperate closely with SKFH subsidiaries to Luxembourg S.A. since 2010. Robeco's fund series comprehensively meet customers' non-life insurance won several honors in the 2014 "Benchmark" fund needs. In 2014, the company partnered with non-life awards. Through agency relations, the company insurers to develop a new type C automobile damage provides investors with a broad range of high- policy combining commodity and car insurance, as quality investment options. In 2014, SKIT expanded well as a comprehensive home ﬁre insurance policy domestic sales channels, strengthened education and other products to meet customer needs and and training in life insurance and banking channels, increase customer protection. SKPIA also sells non-life

34 2014 ANNUAL REPORT Last 5 Years- Premium Income Unit: NT$ Millions

1,455 1,435 1,303 1,150 1,164

2010 2011 2012 2013 2014 a business plan focused on investment in domestic industries, primarily potential companies listed on the emerging stock market, as well as development of China's equipment leasing market through Suzhou-based Shin Kong Leasing, a wholly-owned Last 5 Years- Operating Revenue enterprise established through a third location. Unit: NT$ Millions On the domestic investment front, the company's 338 strategy involves in-depth study and site visits 333 to companies, as well as active integration with resources of other SKFH subsidiaries to carefully identify targets with development potential, 255 251 241 including environmental protection, biotechnology and cultural and creative industries. In China's leasing market, Shin Kong Leasing continued to provide professional financial services aimed at helping SMEs expand production capacity in the Jiangsu and greater Shanghai areas. The company is also using its leasing business as a learning platform 2010 2011 2012 2013 2014 for SKB to better serve Taiwanese companies with operations on both sides of the Taiwan Strait. In 2014, SKFH increased the capitalization of Note: 2010~2013 figures for Shin Kong Insurance Brokers; 2014 SKVC by NT$1 billion to support the subsidiary's figures for Shin Kong Property Insurance Agency further growth. SKVC retained NT$400 million for domestic investment and reinvested NT$600 million policies through life insurance agents, bank wealth in Shin Kong Leasing to help the latter grow more management consultants and tellers, and securities competitively and strengthen its capital structure. salespeople, enabling other SKFH subsidiaries to use Shin Kong Leasing felt the impact of China's this non-life insurance channel to offer a full range economic downturn on profits and adopted in of ﬁnancial products and services, as well as develop 2015 a strategy of cautious, distributed and slower target customer groups and expand life insurance growth that has already netted improvements in sales during the course of handling other business both proﬁts and asset quality. operations. Unit: NT$10,000

Shin Kong Venture Capital Year 2012 2013 2014 Net Profit or Loss 247.5 1,205.1 -8,162.2 Shin Kong Venture Capital (SKVC) carried out

2014 ANNUAL REPORT 35 Enhancing Efficiency, Innovating Distinctiveness

Facing an ever-changing financial environment, SKFH is committed to upending traditional business models with innovative services and a distinctive brand to build customers loyalty and earn steady profits.

The company's business focus in 2015 will include the following: 1. Improving operational efficiency and optimizing earnings structure. 2. Establishing distinctive products and strengthening integrated marketing. 3. Cultivating blue ocean

36 2014 ANNUAL REPORT markets and building growth momentum. 4. Implementing corporate governance and enhancing company value.

SKFH will integrate group resources to provide customers with a full range of high- quality services. The company will implement business plans on a sound and practical foundation, hone advantages and upgrade overall operational efficiency to become customers' first-choice financial service provider.

2014 ANNUAL REPORT 37 20152014 Business年經營計畫 Plan

Shin Kong Life Insurance

Shin Kong Life Insurance (SKL) will pursue a ﬂexibly allocate assets to pragmatically achieve annual business strategy focused on the following areas strategic objectives. SKL will implement the following in 2015: accelerating recruitment and cultivation business plans in 2015: of outstanding young talent, as well as utilizing E-marketing tools to strengthen organizational Optimizing Organizational power and increase operational capacity; vigorously promoting long-term care (LTC), quasi LTC, disability, Constitution foreign currency cancer insurance and other types of SKL will continue to carry out human health policies that respond to structural changes in resource programs to accelerate organizational society, while also increasing overall protections for revitalization. These include the "Young Project" the people of Taiwan in response to the government's focused on cultivating gifted young people for measure on insurance policy conversion; investing future management positions, the "YES Project" to funds from NT dollar policies in international bonds recruit young and e-savvy team members, and the and deploying funds from foreign currency policies "SKY Project" to train young managers for business in overseas bonds to seize market trends, match development. These programs aim to cultivate liability durations, and increase recurring revenue. new blood, attract innovative and talented young The company will also promote services for premier leaders, revitalize the company's business team and policyholders, grasp financial market trends and optimize organizational constitution.

Last 5 Years- In-force Policies Unit: Policies

7,760,359 7,624,164 7,344,042 7,446,044 7,556,415 2010 2011 2012 2013 2014

38 2014 ANNUAL REPORT In addition to growing the organization, key to winning and retaining customers and further SKL is enhancing the professional knowledge and increasing customer contribution. SKL will therefore business functions of agents through on-the- continue to implement service development job training (OJT) programs based on systematic, systems. The previous system of premium-collection institutionalized, and standardized local training. areas will be replaced with service areas. The Through a complete system of recruitment, company will also promote an "All-Out Customer employment, training and retention plans, SKL is Call" project to increase the breadth and depth strengthening the business functions of personnel of customer visits by agents. In addition, SKL will throughout the enterprise and achieving the promote policy conversion to enhance policyholder business target of optimizing organizational well-being. Other initiatives include fully developing constitution. The company is also strengthening electronic and mobile marketing tools using management and evaluation of grassroots units cutting edge technology. Such tools will provide and deepening basic operations to ensure that customers with access to real-time, full-spectrum personnel at all levels faithfully perform their duties and efﬁcient services highlighting SKL's core service to increase organizational strength, performance values, heightening customer satisfaction and capacity and salespeople retention rates. strengthening business competitiveness.

High quality and comprehensive service is the SKL will continue to incentivize internal

Channel Mix Unit: NT$ Millions Agents 51.58% Category 2014 First Year Premium Share of Total(%)

Agents 46,521 51.58%

Bancassurance Bancassurance 36,363 40.32% 40.32% First year premium

Direct marketing, 90.2 billion 7,306 8.10% brokers, and other Direct marketing, brokers, and other Total 90,190 100.00% 8.10%

Note: Due to rounding, figures may not add up to the total.

2014 ANNUAL REPORT 39 and external channels to achieve business goals aging population and declining birthrate trends, through expanded non-agent channels. With as well as responding to the government's LTC respect to bancassurance channels within SKFH, policy and "Ten-year Plan for Long-term Care." the company will continue to help Shin Kong Bank In 2015, the company will vigorously develop the (SKB) sell traditional NT dollar and foreign currency LTC market with the promotion of "LTC Three regular payment policies to enhance value of new Protection" policies aimed at redefining the market business (VNB) and business performance. In the for LTC insurance. These policies cover disability area of external bancassurance channels, SKL will and dementia, 13 specific types of injuries and level deeply cultivate existing cooperation channels to 1 to 11 disabilities, forming an integral LTC safety strengthen strategic alliance relations and increase net. They also provide long-term economic support, value from channel cooperation. Over the past few including supplementary coverage of care costs years, the Financial Supervisory Commission (FSC) and related retirement care expenditures, to help has actively promoted the development of Taiwan Taiwan prepare for the needs of an aging society as an Asia-Pacific financial center. In 2015, the FSC and further confirm SKL's leading position in the greenlighted the establishment of offshore insurance LTC insurance market. units (OIUs). In response to the government's policy, Addressing the risks faced by Taiwan's SKL plans to promptly launch OIU operations to expand its overseas customer base, develop markets in the Asia-Pacific region, and diversify channels to tap new premium revenue.

Creating an Integral LTC Safety Net In the spirit of innovation, service, integrity and giving back to society, SKL is committed to the research and design of policies that best meet the diverse demands of the public. The company's product strategy will continue to focus on promoting high VNB, NT dollar and foreign currency whole life, and health insurance policies. SKL is also dedicated to further meeting the protection needs of the people of Taiwan related to the nation's

40 2014 ANNUAL REPORT seniors and in line with the FSC's insurance policy 1. A range of service channels and methods will be conversion, SKL has offered holders of dozens planned to meet customer needs. The company of whole life traditional life insurance policies to will also use tracking management to ensure convert without premium increases to provide LTC, that customer needs are met. Examples include medical or surgery protection, helping policyholders improving online functions for policy changes, to meet later life funding gaps for treatment and after-sales service, investment-linked policy online care costs related of dementia, disability, or stroke, application to improve policyholder service quality. with comprehensive insurance planning to ensure 2. The company will continue to promote the All- a happy retirement, optimal life, and quality health Out Customer Call program to give policyholders care. On January 1, 2015, the FSC began allowing access to the latest service information and foreign currency health insurance policies. To take media functions, as well as to promote the advantage of the strong US dollar (USD) and lower payment of first-year premiums through bank premium of foreign currency policies, SKL is offering transfers so policyholders can enjoy convenient USD and AUD denominated cancer insurance. and safe channels for premium payments. These policies are distinguished by providing one- time claims at the time of cancer diagnosis instead 3. SKL will continue promote policy loan ATM of requiring itemized claims to be filed with card operations and develop online policy loan supporting documents after treatment. As a result, operations to provide policyholders with more policyholders who travel frequently or reside abroad convenient and flexible channels for policy loans need not worry about currency exchange issues, to meet funding needs. The company will also while also enjoying superior cancer treatment offer special policy loan promotions for different quality and claims efficiency. These policies also target customer groups to reward customers and meet policyholder demand for diverse currency improve fund utilization efficiency. allocation. 4. The company will continue to regularly execute its complaint early warning mechanism to Providing A-to-Z Service strengthen advance warnings for complaints SKL has deeply cultivated a "customer first" and abnormality controls. The system will be culture over the past 50 years. The company is coordinated with review and improvement plans committed to improving service quality and efficiency, and case education and advocacy to improve listening to the needs of policyholders and providing the efficacy of complaint early warning effects attentive service to build customer trust and brand and reduce the occurrence of complaints. The loyalty. In 2015, SKL will continue to advance in these company will also conduct regular reviews to areas through the following initiatives: determine if complaint rates are overly high and

2014 ANNUAL REPORT 41 duly notify risk management units to control and improve the situation. 5. SKL will improve the quality and efficiency of complaint handling, plan enhancements to its internal complaint system, and in conjunction with its toll-free call center CTI system, establish a uniﬁed system to shorten the number of days between receiving and handling complaints. The company will also strengthen the functions of its complaint system to achieve effective follow- up management, collect accurate statistics, analyze complaints, and thereby provide superior policyholder service.

Strategically Allocating Assets income and capital gains by seizing market trends. In 2015, central banks around the world are expected to follow divergent monetary easing Carefully Assessing Expansion in policies. The United States is anticipated to begin ASEAN Countries raising interest rates, while economic factors are Shin Kong-HNA Life Insurance is deploying a prompting Europe, Japan and China to ease further. long-term development strategy to "rapidly scale The US dollar is expected to dominate among up operations on a foundation of long-term value world currencies. In emerging markets, interest growth." The venture currently has five business hike forecasts vary according to each nation's channels, including telemarketing, bancassurance, circumstances. individual life insurance, group insurance, and As for FX hedging, SKL will use forecasting online sales. In 2015, the company's business models and flexibly adjust hedge positions using strategy will be to "increase sales volume by strict risk control mechanisms. The company internal strengths through telemarketing channels, expects the impact of foreign exchange fluctuations structurally adjust and steadily grow bancassurance to progressively lighten going forward. With channels, improve quality by trial marketing in hedging costs effectively controlled, the company's individual insurance channels, realize efficiencies yield after hedging on overseas bonds has and pioneer new ground in group insurance outperformed returns on domestic bonds. SKL channels, establish and vigorously promote online will continue to increase its investment weighting channels, and balance attention to return and in overseas fixed-income assets within approved stability in investment operations while expanding foreign investment limits. Additionally, funds from and deepening institutional development." long-term foreign currency policies, along with SKL is also optimistic about the business investment in international bonds, which was opportunities in the high-growth potential ASEAN recently deregulated, will effectively increase the region. Drawing on its 50 years of experience in company's weighting in foreign investments. In Taiwan and support from the SKB management the area of real estate investment, the company team, SKL is carefully assessing expansion in will continue a policy to activate assets to increase ASEAN countries. The company has opened a income and shareholders' equity. representative office in Hanoi, Vietnam and expects SKL will uphold sound investment principles to apply to open a representative office in Yangon, rooted in a strategic asset allocation (SAA) Myanmar to collect business intelligence and that considers both liability cost and equity risk identify investment opportunities. In the future, tolerance. This will be supported by flexibly adjusted SKL will prioritize ASEAN countries in its overseas tactical asset allocation (TAA) seeking stable fixed expansion plans.

42 2014 ANNUAL REPORT 3. Increasing return on risk-weighted assets: SKB Shin Kong Bank will adopt differentiated management in interest Shin Kong Bank (SKB) will continue its current rate pricing for different loan operations to strategic direction in 2015. Operations will focus on increase customers' overall contribution. The optimizing loan structure, reducing funding costs, bank will also raise the ratio of non-interest increasing non-interest income, and developing income, seek to serve as the lead bank for digital financial services, paying attention to syndicated loans, and strengthen promotion of profitability and capital adequacy under the foreign exchange, trust, guarantee, transaction following business plans: lending, TMU and other financial products. 4. Integrating and upgrading business platforms: Optimizing Loan Structure SKB will strengthen its global e-banking (GEB), SKB aims to steadily improve the efficiency of foreign exchange, cash management and third- lending operations through a strategy of selecting top party payment systems to increase the stickiness quality loans, as well as by strengthening loan audit of corporate banking customers, interpret procedures and post-loan management. Specific customers' cash flow, grow fee income and measures in this regard include the following: demand deposits, and thereby reduce funding costs and increase internal operating efficiency 1. Adjusting loan structure: SKB will strictly adjust and customer satisfaction. and control the direction of lending and continue a strategy centered on steady growth and In the area of risk management, SKB will apply structural adjustment. The bank will reallocate the following mechanisms to strengthen pre-loan to optimize the ratios of various types of lending checks and post-loan management: (i.e. large enterprises, SMEs and corporate and 1. Strengthening management of industry trends: consumer banking) to maintain asset quality and SKB has commissioned independent industry improve loan profitability. watchers to thoroughly study industry trends 2. Promoting SME lending: In conjunction with and provide reports and risk indicators related a system of regional business divisions, SKB is to economic policies and industry trends. enhancing the professional caliber of its loan When appropriate, the bank may increase the officers, further localizing operations, and deeply collateral ratio or reduce credit risk exposure for cultivating customer bases to actively promote a particular customer. It will also regularly review SME lending and increase loan profitability. clients' financial and business information,

2014 ANNUAL REPORT 43 perform risk grading, and supervise branches to Moreover, construction and sales progress will be ensure performance of follow-up management. tracked on a monthly basis to truly assess loan safety. 2. Promoting SME loans with strict risk controls: SKB will strictly examine customers that are in Reducing Funding Costs high-risk industries and have a high default risk. The bank will also more closely monitor credit In order to reduce funding costs, SKB will quality, actively use score cards and internal and continue to develop NT dollar and foreign currency external credit rating tools, and strengthen early demand deposits and control time deposit interest warning mechanisms for loans to reduce default rates, aiming to increase demand deposits by at rates. least NT$20 billion in each of the next three years through the following speciﬁc measures: 3. Strengthening on-site inspection visits to China- based Taiwan companies and overseas customers: 1. Continue to provide a full range of cash flow SKB will regularly or occasionally send staff to management services through cash management make on-site examinations and call on clients to products (comprehensive collection, ACH, GEB, inspect operating conditions and the status of money depositing machines, etc.) to become upstream and downstream transactions to serve customers' main correspondent bank for fund as a major reference in case auditing. The on- allocation and thereby increase the ratio of site examinations and detailed reports of factory demand deposits. visits will provide deeper understanding of how 2. Promote corporate banking and deepen customer customers are using financing, the funding relations, continue to review the deposit sources for loan repayment, and the customer's rewards of corporate borrowers to improve operating conditions. The bank will also manage the performance of corporate demand deposit risk limits and strengthen risk early warning. accounts, and expand employee payroll transfer 4. Conducting on-site examinations of construction operations to increase the demand deposit base loan cases: SKB will closely follow real estate and further optimize deposit structure. trends and price movement, give preference to 3. Continue to develop settlement/transfer collection existing customers adopting trust mechanism, and payment services, NTD and foreign currency and select new customers in keeping with a sub-brokerage, dividend payout, future fund "three goods" policy (good customers, good deposits and other businesses in conjunction with locations, and good revenue). Controls will securities ﬁrms. embrace both regional quotas and overall limits.

44 2014 ANNUAL REPORT 4. Task business units to develop new customers to increase the number of new demand deposit accounts, as well as promote personal e-banking, payment of insurance premiums and utility fees, and other operations to increase customer stickiness and increase demand deposit dealings.

As for controlling time deposit interest rates, corporate customers have the advantages of short- term deposits and high cash flow business, while personal customers create opportunities for credit card and investment business. SKB will therefore assess customer contribution and integrate management of various business lines to support reasonable pricing when expanding deposit scale. Launching Bank 3.0 Financial Services Increasing Non-interest Income Information technology is constantly changing SKB will continue to increase non-interest and the ﬁnancial sector needs to keep pace by re- income to optimize its earnings structure, focusing imagining traditional financial services to meet especially on growing wealth management, TMU the needs of a new generation of consumers. operations and foreign exchange. SKB has been proactive in developing e-business opportunities to provide customers with faster and SKB expects to sustain the high growth of more convenient digital financial services through income from wealth management services into the creation of a Bank 3.0 e-bank. 2015. The bank will continue to realize joint SKB is launching a cloud service platform, marketing synergies in the bancassurance sector planning online application interfaces and new and strengthen marketing of long-dated insurance processes, and providing online applications for policies. SKB will also strengthen coordination deposit, credit, auto loan, mortgage, credit card between its corporate and retail banking operations and wealth management services. Customers to develop wealth management business with mass can directly apply for services online from their affluent customers with assets of NT$3 million or computer, smartphone or tablet PC to experience more. In addition, the bank further promotes wealth more convenient and better service. management services at its Hong Kong branch to inject new business momentum. Recruitment of SKB received regulatory approval to launch wealth management consultants will continue and its "Shin Kong Cross-Border Payment" online such personnel will be provided with comprehensive collection and payment service. The platform training to upgrade their professional knowledge partners with the China-based Tencent Group's and capacity. In the TMU segment, SKB will expand "Tenpay" third-party payment business to provide its customer base and upgrade the professional skill Taiwan businesses with comprehensive planning of and product development ability of marketing staff marketing, logistics and cash ﬂow operations. SKB to meet customer demand for standardized and will also actively seek to partner with domestically well-known third-party payment platform tailored financial products and asset and liability businesses to meet customers' e-commerce service hedging, aiming to grow income by 10% in 2015. needs, including collection and payment transfers, In the foreign exchange sector, SKB will more stored value payment account opening, and stored vigorously promote import and export operations, value and payment services. as well as increase the utilization rate of foreign exchange quotas to increase fee income from Eying opportunities created by the growing foreign exchange operations. ubiquity of mobile devices, SKB launched its NFC

2014 ANNUAL REPORT 45 mobile credit card and QR Code mobile payment fund brand. The company's three major business business in February 2015. These services provide objectives and plans are as follows: the bank's credit card customers with new payment options to increase the amount of credit card Industry-leading Performance transactions and ratio of active cards. In March 1. The company aims to achieve performance of the same year, the bank introduced mobile in the top 50% on relative return funds. It debit and credit cards to increase the convenience will also continue to scale up its flagship Shin of credit card payments, seize new business Kong Innovative Technology Fund to meet opportunities for cash flow transactions, enhance government qualiﬁcations for discretionary fund customer stickiness, and increase demand deposit management. transactions. 2. In addition to its public funds, SKIT has in Looking ahead, SKB will use e-banking as a recent years established stability-focused service platform to actively expand its presence in discretionarily managed accounts coordinated the mobile payment market. The bank will also with SKL's investment-linked policies. Previously, integrate SKFH resources and take full advantage policyholders chose their own investment of group synergies to provide customers with fast, targets, making it difficult to respond to convenient and secure digital ﬁnancial services. market volatility. By entrusting investment trust companies to choose investment targets and Actively Expanding Overseas weightings, customers can earn the best and SKB serves Taiwanese companies with steadiest returns. operations on both sides of the Taiwan Strait 3. SKIT's Investment Management Committee and seizes other business opportunities, with its regularly convenes to review fund investment Hong Kong branch, OBU and SKFH's reinvested performance and assess fund managers. SKIT Shin Kong Leasing Corp. as the main bases of has also introduced a salary incentive system operation. Answering the FSC's call for Taiwan's linking fund performance to remuneration financial institutions to expand their presence and establishing an internal culture of healthy in Asian markets, SKB has also recently been competition. steadily developing operations in various financial markets in Southeast Asia. In November 2013, the Growing Asset Scale bank applied to the Central Bank of Vietnam for From 2015, SKIT will accelerate the pace, permission to open a branch in Binh Duong. In April breadth and scope of new fund development, with 2014, SKB applied to the Central Bank of Myanmar particular emphasis on fixed-income products. for approval to open a representative office in Dedicated units will collect market information and Yangon. The bank also plans to establish operations in Cambodia, Indonesia, mainland China and other countries to expand overseas business.

Shin Kong Investment Trust Performance, scale, and products will be the three major business focuses of Shin Kong Investment Trust (SKIT) in 2015. The company will formulate a three-year strategic guideline and action plan calling for a series of strategic adjustments, planning overhauls, tracking of monthly operations, and strengthening measures aimed at making the company investors' ﬁrst-choice

46 2014 ANNUAL REPORT analyze the political and economic climate and instruments generating stable income. In 2014, SKIT financial policy in Taiwan and around the world, as issued the Shin Kong Global ETF Fund of Funds and well as regularly hold product strategy meetings to Shin Kong AUD 10-Year Principal Protected Fund, formulate product development roadmaps and, in both of which have generated steady dividends. tandem with related departments, complete the In 2015, SKIT plans to offer a fixed-income fund planning and flotation of new funds and rapidly aimed at generating steady income to strengthen upgrade the company's non-money market fund the company's product positioning. assets under management. Understanding that product innovation is In addition, SKIT has successfully issued five the key to boosting competitiveness, SKIT plans in discretionary accounts in partnership with SKL. the second half of 2015 to introduce a principal The company has adopted both single market and protected fund coordinated with pension planning. diversified asset allocation strategies. It also offers In response to the boom in financial products in several payment methods, including investment of China, the company also expects to issue a fixed- accumulated capital and regular disbursements. income fund with additional RMB currency class. In 2015, SKIT will continue to develop dual-track SKIT's business strategy will focus on "synergistic marketing of discretionary funds through SKFH and integration and strategic alliances." The company external channels. will seek to tap blue ocean opportunities on both the product and channel ends, as well as continue SKIT's third-party channel operations range to work with internal and external channel from promotion of discretionary investment-linked partners to build on mutual benefits and reach its mandate to external life insurance channels. The operational targets for the year. company has also formed strategic cooperation ties with bank channels, including new fund custody, filing and sales to consolidate the size of existing funds and achieve a win-win outcome. Shin Kong Property Insurance Agency Setting the Trend in Product Shin Kong Property Insurance Agency (SKPIA) Diversification provides customers with comprehensive non- There has been a strong demand for interest life insurance protection and high-quality services distribution funds in recent years, highlighting in partnership with marketing channels of SKFH the preference in Taiwan for money management subsidiaries and in close cooperation with non-

2014 ANNUAL REPORT 47 life insurance companies. The company is also SKPIA will design, package, and promote dedicated to developing innovative products products suited to the needs of different target meeting customers' insurance needs. Through customer groups. Car insurance is one major product education and sales techniques, SKPIA product category. The company launched the "Jin- is strengthening agents' marketing ability and Shun-Feng" car insurance policy and has designed professional knowledge. These efforts are a policy package combining car and motorcycle supplemented by computerization to improve the excess liability insurance with condolence payment service efficiency and quality of support staff and insurance to provide customers with an extra thereby consolidate and expand the company's level of protection. SKPIA is also integrating its customer base. In 2015, the company will carry out channel strengths to develop several types of non- the following business plans: life insurance service to encourage agents to place greater importance on non-life policies and further Hiring External Consultants to motivate them to call on customers. Upgrade Professional Ability SKPIA offers specialized training to enhance Boosting Administrative Efficiency professional services and strengthen licensing, with Emphasis on Customer Service solicitation and follow-up service capabilities. SKPIA attaches high value to the professional Through its licensing guidance program, the caliber and service enthusiasm of administrative company also encourages agents to take non- support staff, driven by a commitment to provide life insurance exams and become licensed to customers with a full suite of insurance services. The upgrade the professional knowledge and image company has been actively upgrading information in the non-life sector. In addition, SKPIA contracts systems, creating a user-friendly website, and with professional consultants to strengthen basic strengthening use of non-life policy SMS and policy education on automobile and motorcycle insurance view functions to increase non-life policy renewal policies, as well as continues to hold basic and rates. To enhance the quality of administrative advanced education and training courses on services, the company requires partnered non-life insurance practices. The company also periodically insurance companies to maintain highly efficient arranges professional workshops on non-life policy underwriting, paying attention to both speed insurance through various channels to share and accuracy of policy content. SKPIA also partners underwriting knowledge and claims case studies, with SKL service centers throughout Taiwan. The helping agents to develop as industry-leading professional non-life insurance consultants. company has teamed up as well with SKB and MasterLink Securities to encourage their customers Innovating Products to Deepen to enjoy fast, convenient, and high-quality non- Customer Bases life insurance services at service points throughout Taiwan.

Emphasizing Claims Service and Strengthening Complaint Channels SKPIA is proactive in helping policyholders to process claims when losses are suffered. The company periodically provides interim claims reports to keep customers informed of recent progress on their cases. The company is also patient and enthusiastic in addressing policyholder needs and protecting customer interests. Customers who experience improper sales or marketing practices or have claims disputes can call the company's toll- free complaint line to receive specialist assistance.

48 2014 ANNUAL REPORT In 2015, SKVC will continue to help promote Shin Kong Venture Capital the operations of Shin Kong Leasing. Following In 2015, Shin Kong Venture Capital (SKVC) organizational adjustments and improvements to will continue to leverage group resources and its business team, Shin Kong Leasing will strictly strengths to support business growth at subsidiary implement customer management, while also Shin Kong Leasing. The company also completed strengthen pre-loan reviews to ensure recovery and collection of leased equipment ownership and a series of capital increases in Shin Kong Leasing loans. The company will also expand the scope in 2014, providing the latter with funds to expand of cooperation with various types of equipment operations and enhance profitability. The company's suppliers to grow its operations and enhance business strategy will focus on the following areas: profits. With an eye to asset quality and profits, the company will steadily develop lease financing Supporting High-potential Green operations among high-quality Taiwan-funded and Innovative Companies and Using or local small businesses. The company will also Group Resources to Boost Profitability further disperse risk and run local market operations with strict quota controls to prevent excessive risk SKVC's domestic investments will benefit from exposure on any individual customer. Over the an increasingly solid capital structure. The company short-term, Shin Kong Leasing will focus operations will continue to carry out intensive industry in the areas of Shanghai and Jiangsu and expects research and on-site inspection visits, fully utilize to establish a foothold in the Yangtze River Delta group resources, and carefully assess opportunities area. In the mid-term, the company will use its and invest in Internet of Things, environmental transportation and location advantages to extend protection, biotechnology, cultural and creative, operations to major cities in southeast and central and other innovative enterprises. The company will China with high numbers of Taiwan, domestic and identify investment targets in potential and high- foreign enterprises to tap market advantage and growth industries, as well as dispose investment increase business scale and profits. In addition, Shin assets at appropriate times to facilitate funds Kong Leasing will focus on working closely with recovery and enhance overall investment return, SKB. The company has integrated with SKB's Hong Kong branch and OBU channels to serve Taiwanese paying attention to the safety of fund utilization. companies in China. The company's understanding Strengthening Risk Management to of laws, administrative procedures and business habits in China will also lay a solid foundation Maintain Asset Quality and Continuing to for SKB's future development of branches and Disperse Risk and Steadily Grow Business subsidiaries in China.

2014 ANNUAL REPORT 49 Innovative and Sustainable Charity

For a half century, Shin Kong affiliates have realized the corporate mission of founder Mr. Wu Ho-Su to "give back to society" through long-term investment in social welfare and charity. Shin Kong has closely watched social security and health issues with a commitment to co-exist and prosper together with Taiwan, as well as to fulfill its corporate social responsibility (CSR) pledge.

50 2014 ANNUAL REPORT Building on Shin Kong's half-century corporate spirit of "tradition has no destination and innovation knows no boundaries," SKFH has adopted a forward-looking strategy focused on public welfare values, integrating enterprise and other resources to develop innovative charitable programs and make CSR a sustainable ideal and goal.

2014 ANNUAL REPORT 51 Fulfilling Corporate Social Responsibility

to offering products meeting the full needs of the nation's seniors and continue to pioneer new ground in senior-friendly care and services, combining the group's life insurance, banking, hospital, health management and security resources to meet the needs created by Taiwan's aging society and declining birthrates. The company will draw on its extensive resources to offer high-quality senior-friendly care focused on meeting economic, psychological, health, and security value-added care service, using forward-looking innovative thinking SKFH has a long tradition of involvement to promote charity work and corporate social in public service rooted in a corporate mission responsibility. of "giving back to society" established by its founder, Mr. Wu Ho-Su. For over 40 years, Shin Building Sustainable Operations Kong Life Scholarship Foundation has helped with Integrity countless students. Shin Kong Life Foundation (SKLF) has implemented "strategic philanthropy SKFH has a long history of cultivating the programs" for many years and is deeply involved market and establishing goodwill through a in a wide range of public service activities. SKFH philosophy rooted in integrity and giving back to has also made significant and widely lauded society. Integrity is a cornerstone of sustainable contributions in its promotion of social security and operations. SKFH has led the industry in formulating environmental conservation, energy saving, and a code of ethics. It requires directors, supervisors carbon emission reduction. In 2013 and 2014, SKL and managers to lead by example and scrupulously won the gold award for the ﬁnancial industry in the observe good faith principles to shape a culture Taiwan Institute for Sustainable Energy's "Taiwan of corporate integrity. It is also committed to Corporate Sustainability Award - Taiwan Top 50 information openness and transparency, winning Corporate Sustainability Report Award." the Securities and Futures Institute's highest rating for information transparency for nine consecutive Going forward, Shin Kong will be dedicated years. This underscores the success of the company in tangibly realizing its philosophy of corporate * SKFH compiled its "Corporate Social Responsibility Report" and published it on the company's website, as well as Market integrity and responsibility and pledges to investors. Observation Post System. The reports disclose SKFH's corporate philosophy and involvement related to putting CSR principles into Finance is a people-oriented and service-first practice. They also lay out strategic management guidelines for industry. In order to meet customer needs and thorough implementation of CSR. care for stakeholder interests, SKFH implements

52 2014 ANNUAL REPORT corporate governance and is dedicated to improving company has encouraged policyholders to join the business performance to develop sustainably. The "paperless" ranks by using e-application systems to company also values employee welfare, promotes reduce the printing of physical documents. SKFH has environmental protection, contributes to the also promoted e-commerce operations, enhanced public welfare and charity, and works closely with online member platforms, and expanded its APP stakeholders and the general public. The company information platform. In the future, the company has also acted on its belief in working with others will introduce online trading and electronic policy, for the common good to create sustainable customer balance sheet services to create an optimal enterprise value. information service environment and substantially reduce paper-based operations. Caring for the Earth, Protecting Shin Kong is an annual supporter of the the Environment "Lights Out on Summer Solstice," "Earth Hour," and "Light Free Moonlight" on the Mid-Autumn ■ Cherishing the Earth's Resources through Festival activities, taking tangible action to create Energy Conservation and Carbon Emission an energy-saving atmosphere. Led by its CEO, the Reduction company has also long encouraged employees SKFH has made considerable progress in to embrace an energy-saving culture and adopt its campaign to reduce resource use through energy-conservation measures. For example, at e-operations. The company has implemented an its corporate headquarters, Shin Kong Life Tower, e-document system, established e-learning platforms, total electricity usage trended down annually from and enacted a paperless policy. Since 2012, the 35.104 megawatts in 2007 to 28.048 megawatts in

2014 ANNUAL REPORT 53 2014. The energy savings during this period totaled Tower Run Up under the theme of "Running for a over 29.959 megawatts, equal to a more than Senior-Friendly Society." The activity was livened 21,675 metric ton reduction in carbon emissions. up this year with a new senior climber category In addition, the Shin Kong Life Tower, South and "senior triathlon" checkpoint race. With sports East Building, and Nanjing Technology Building participation rising in Taiwan in recent years, the earned the Taipei City Government's Energy run up attracted a record high turnout of 10,074 Label, highlighting the value that SKFH places people. All of the registration fee proceeds were on environmental protection and its diligence to used to purchase practical care aids, such as mobile conserve energy and reduce carbon emissions. showers and pedaled wheelchairs, for donation to the Taipei City Government and New Taipei The "Shin Kong National Children's Drawing City Government. The activity aimed to inspire Contest" entered its fifth consecutive year in enterprises and government to work together to 2014. The event was held simultaneously with a protect the people's safety. Over the years, the run used battery recycling drive that recovered 1,768 up has raised more than NT$120 million for charity, kilograms of waste batteries. Over the past five contributing to the community through action. years, a total of 13,046 kilograms of used batteries have been recycled. All of the incentive payments ■ Shin Kong Charity Run: Protecting the Planet earned from the battery recycling were donated to Shin Kong affiliates have led the industry the Parents Association for Persons with Intellectual in their long-term investment in environmental Disabilities, Taiwan, to support programs for protection. Each year on Children's Day, Shin Kong disadvantaged children, combining environmental protection with the message of care.

■ Climbing High for Public Welfare and Social Care Shin Kong has held the hugely popular Shin Kong Life Tower Run Up annually since 1994, attracting more than 170,000 participants over the years. Each run up highlights a different theme aimed at encouraging the public to "climb high for public welfare," as well as advocate health and promote public safety concepts. SKFH has long been concerned about elderly care issues. In 2014, the company brought together group resources to hold the 32nd Shin Kong Life

54 2014 ANNUAL REPORT sponsors conservation education activities starring the Taipei Zoo's gorilla "Baobao." Shin Kong has also taken action to draw attention to the importance of conservation. The "2014 Shin Kong Charity Run" was held at the Taipei Zoo on July 6, the birthday of giant panda Yuan Zai, the conservation ambassador, under the theme of "Running for Wildlife." The run also included a meticulously planned "Power Walking" checkpoint game, animal cross-dressing show, and a birthday celebration for Yuan Zai. 12,654 runners joined the fun and educational activity to support wildlife conservation. NT$3 million were donated to the Taipei Zoological Society to fund a conservation project aimed at ﬁnding a partner for the gorilla "Baobao." proceeds). All of the funds raised were donated to Huashan Social Welfare Foundation to help live- alone seniors enjoy the warmth of the New Year holiday with family. Since 2010, SKL has provided micro-insurance for disadvantaged families. With a proactive service spirit, company employees have mobilized to promote the importance of micro-insurance throughout Taiwan so that more disadvantaged families can enjoy protection under these policies. These efforts earned SKL first place among life insurers in the Financial Supervisory Commission's 2014 "Micro-Insurance Competition." In order to encourage people to roll up their sleeves and donate blood, SKL and SKB partnered again to launch a national blood donation drive at Caring for Society with Heart 12 locations across Taiwan after the 2014 Lunar SKFH has continuously dedicated resources New Year, taking concrete action to relieve severe to caring for social development in Taiwan in blood shortages and save lives. In addition, Shin areas ranging from disaster relief and support Kong has for 11 years freely provided parking space for police, fire and medical needs to care for for a bloodmobile at the Shin Kong Life Tower disadvantaged groups. The group's involvement has been especially notable in the donation of ﬁre and ambulance vehicles and equipment, as well as support for blood donation drives.

■ Unflagging Care for the Disadvantaged Social graying has presented Taiwan with a growing problem of live-alone seniors who urgently need society's care. To this end, SKL re-partnered with Huashan Social Welfare Foundation in 2014 to hold the "Shin Kong National Charity Fundraiser." The activity was expanded to 33 sites across Taiwan and featured a charity relay race that collected more than NT$3 million and donated invoices (for lottery

2014 ANNUAL REPORT 55 724 members collectively provided nearly 3,000 service hours, further building on a six-year record of achievement. In 2014, the club was recognized for outstanding performance in the "Taipei City General Volunteer Service Unit" assessment.

■ Protecting Women's Health, Supporting Breast Cancer Prevention Since 2005, SKLF has organized breast cancer prevention workshops throughout Taiwan under the themes of "female self-care" and "awakening health consciousness." The program encourages women to care for their health, develop the habit of regular screening and seek early treatment. Five workshops were held in 2014, attracting 441 participants. Over the years, the program has held Plaza. In 2014, a total of 15,170 people donated 102 workshops and benefited more than 8,800 20,475 bags of much-needed blood. From 2003 people. SKLF also regularly partners with the Taiwan to 2014, the drive has collected 285,899 bags Breast Cancer Alliance to hold "Breast Cancer of blood from 153,094 donors, reaffirming Shin Prevention Month" activities as part of its dedicated Kong's dedication to public service. efforts to promote breast cancer prevention.

Creative Programs in Strategic ■ Town & Country Pen Pal Program: Inspiring a Philanthropy New Generation of Indigenous Youth SKLF and the Rainbow Project have In 2003, SKLF Executive Director Cynthia Wu collaborated over the years to recruit young people introduced the concepts of "strategic philanthropy" to serve as local teachers for supplementary from the U.S.-based Rockefeller Foundation in its classes in aboriginal areas of Hsinchu County's planning of philanthropic work. The foundation Zhudong Township and the villages of Xinguang has also made tremendous achievements in its and Zhenxibao in Jianshi Township. The classes focal work areas of indigenous education, women's are taught by locally-hired staff, providing job health, and oral history through public service opportunities, cultivating new generations of programs across Taiwan. teachers, and reducing the urban-rural educational SKLF founded the Shin Kong LOHAS Volunteer resource gap. Club in 2009 to encourage Shin Kong employees SKLF has brought together its volunteer forces and their families to contribute to the community to help young people in indigenous communities to through volunteer service. In 2014, the club's compete. After Typhoon Aere in 2010, the group promoted the "Big Hands Holding Small Hands: Aboriginal Pen Pal" exchange program between Shin Kong volunteers and aboriginal youth to inspire the children to aim high, while also helping them to improve their writing skills. Over 1,200 volunteers have participated in the program to date. One or two meet-ups between the volunteers and their pen pal partners are arranged each year to enrich the topics for letter exchanges. For the foundation's 30th anniversary in 2013, SKLF Executive Director Cynthia Wu expanded the program by inviting outside participants, further building on the positive social inﬂuence of corporate philanthropy.

56 2014 ANNUAL REPORT In 2014, SKLF introduced the "Shin Kong Views Monthly Corporate Social Responsibility Rainbow Holding Hands" and "Outlook Hualien Award, underscoring the positive reaction that it has Industry Experience Tour" charity programs enjoyed from the public. joining the concepts of charity and culture travel Now in their tenth year in Taiwan, Legacy under a new model of volunteer service. Program Art Works and History Alive are the country's first participants learned about indigenous tribal ecology creative aging senior service programs. SKLF has and provided first-hand care for aboriginal children. actively cooperated with outside partners on various During the activity, one could deeply experience senior care activities, achieving remarkable results cross-cultural environment and value, as well as the over the years. In 2014, the foundation's "Active heart-warming spirit of public service in Taiwan. Aging Program" won the Taiwan Institute for ■ Leading the Way in Creative Aging and Sustainable Energy's TCSA Social Inclusion Award. Living Beautifully in Later Life In the decade ahead, the program will focus on SKLF Executive Director Cynthia Wu introduced establishing a resource sharing platform, expanding the "History Alive" and "Legacy Art Works" senior service branches, forming cross-industry alliances, programs from New York-based Elders Share the Arts and integrating affiliate resources to work together (ESTA) in 2003 to promote creative aging in Taiwan, for senior issues and provide innovative programs inspiring a new trend in art-based services. Since aimed at creating "a beautiful later life" for the 2005, the foundation has partnered with Godot people of Taiwan. Theatre on the "History Alive: Art-based Services for the Elderly Program," including annual drama performances released by the "History Alive Life Theater." In 2014, the two organizations teamed up again for the release of a new play called "This Old House Loves to Sing." The play was performed on November 29 to 30 by seniors participating in History Alive acting classes and students at Mingde and Wuchang elementary schools. The play presented the essential life stories of the senior actors, forming a bridge across generations. Since 2010, productions by the History Alive Life Theater series have been watched by nearly 10,000 people. In 2014, the program earned an honorable mention in the Global

2014 ANNUAL REPORT 57 Valuing Education across the SKL's trailblazing "Insurance Star Career Generations Planning and Development Camp" entered its 13th year in 2014. Under the theme of "Shin Kong: Giving ■ Four-decade Tradition of Supporting Scholarship Wings to Dreams," the camp was joined by students Born into poverty, founder Mr. Wu Ho-Su had in insurance-related departments. In addition, SKFH limited educational opportunities growing up: an and the China Youth Corps jointly hold the "Shin experience that fostered his ambition to help all Kong Financial Development Camp for University students pursue a full education. With this goal Students" each year during summer vacation to serve in mind, Mr. Wu established the Shin Kong Life students in academic ﬁelds not related to insurance. Scholarship Foundation in 1973, marking SKL's The camp has attracted enthusiastic participation tenth anniversary and growing success, to award among students with its lively and content-rich high school and college scholarships. In the 42 programs, helping to strengthen knowledge of years since then, the foundation has provided over insurance concepts and money management among NT$240 million in scholarships to 109,866 students. a new generation of young people. The foundation accepts scholarship applications ■ Building a Stage for Rising Art and Culture Stars each March and has introduced a fast and SKFH's "Shin Kong Street Dance Competition" convenient online registration system to provide entered its 11th year, providing a stage for young students with universal and substantive assistance. people to express their passion and talent. In 2014, ■ Planting the Seeds of Dreams by Financial the company partnered with Japanese hip-hop Education promotion group Global Dance Enterprise (GDE). SKFH has long been an active supporter of Well-known dancers from the United States, Japan, financial and insurance education at university Ghana and other countries were invited to take campuses and currently partners 29 colleges and part in dance workshops, provide guidance and universities in Taiwan. In 2014, the company share their experience with the contestants. The transnational exchanges inspired creative dance stepped up industry-academic cooperation rooted sparks and further made this one of the year's in practical and concrete methods. Such programs must-see street dance competitions. help young people with development planning, emphasizing internships, training and employment Creative energy was also given free reign opportunities and helping them to broaden their at the Shin Kong National Children's Drawing vision. SKL employees generously passed on their Contest. Held annually by SKL and SKB, the experience to help interns win ﬁrst and second place program attracts over 10,000 young participants in the "2014 National Technical and Vocational each year. With population aging increasingly in Insurance Education Conference." The students' the public spotlight, the 2014 program focused excellent performance also gave the participating on senior health care, companion care and other SKL units a strong sense of accomplishment. social issues under the theme "A Trip with My

58 2014 ANNUAL REPORT Grandparents." The contest encouraged children's passion for art, while also highlighting inter- generational interaction and heightening public concern for elderly care at home. Children across the country submitted about 15,000 drawings. For the fifth straight year, the contest also included a category for children with intellectual disabilities to give disadvantaged children more room to develop. Their drawings moved both parents and the general public with their unique visual expressions and the inner world they reflected. SKFH also continued to hold the free "Life is Beautiful" seminar this year. Now in its ninth year, the seminar this year focused on the themes of money management, leisure and health. Celebrities and experts in various fields presented speeches SKFH promotes an employee care plan focused and shared their professional knowledge with the on safety, hygiene and health. The company audience. Since 2006, a total of 251 seminars provides regular employee health checks and have been held, attracting 50,494 participants. In offers a wide selection of club activities to enrich 2014, the program was further extended to treat employees' leisure life. Annual health promotion residents of the Taichung and Kaohsiung areas to a activities encourage employees to develop good rich banquet for the mind. exercise habits. In 2014, SKFH arranged the "March for Health" and "Perfect Curves No Longer a Developing Sustainably, Creating a Dream" activities to inspire employees to have Happy Workplace confidence about their health and body. In addition, SKL offers facilities to care for the welfare of female ■ Valuing Employees, Creating a Happy Workplace employees, such as the breast feeding rooms Realizing that people are a company's at Shin Kong Life Tower and its health centers most important assets and the keys to higher across Taiwan, which have won certifications for competitiveness and sustainable operations, SKFH "Outstanding Breast Feeding Rooms." Moreover, has long been dedicated to building a healthy male and female employees both receive maternity workplace culture and providing employees with leave, parental leave, preferential child care, welfare a comprehensive benefit and retirement system. committee fertility subsidies, labor insurance The company values workplace safety and health maternity benefits and other benefits and assistance and building a working environment conducive to to help parents work with peace of mind. employees' physical and mental health. In recognition of these efforts, SKFH was awarded one star in the SKFH attaches great importance to workplace "Fourth Award for Best Companies to Work for." The safety and office environmental health. The company honor further motivates Shin Kong in its commitment annually designates staff to undergo certification to caring for employees' peace of mind. training for firefighting management and first aid In 2014, SKL held the first employee family personnel. It also has equipped its health centers day activity to thank employees for their hard work. at five buildings nationwide with cutting-edge About 12,000 company employees and family automated external defibrillators (AEDs) to protect members joined these four fun fairs, which were employee lives. In addition, disaster escape drills held throughout Taiwan under the theme of the are regularly held at company buildings to amply "Shin Kong Happy Train." The activity highlighted prepare for workplace risks. In 2013, the company the long-term attention to employees and family was honored for "Excellence in Health Promotion." values underlying the corporate spirit of SKL. In 2014, SKFH accomplished "self-certification of healthy workplace" and received the "Health ■ Double Certification for Workplace Safety Promotion Mark" in a double recognition of its and Health commitment to creating a healthy workplace.

2014 ANNUAL REPORT 59 Shin Kong Financial Holding Co., Ltd. and Subsidiaries Consolidated Balance Sheets

2014 2013 ASSETS Amount (%) Amount (%) CASH AND CASH EQUIVALENTS $ 60,836,043 2 $ 43,625,253 2 DUE FROM CENTRAL BANK AND OTHER BANKS 115,815,558 4 120,850,612 5 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 101,669,448 4 91,899,916 4 AVAILABLE-FOR-SALE FINANCIAL ASSETS 397,047,075 14 357,586,019 14 NOTES AND BONDS PURCHASED UNDER RESALE AGREEMENTS 7,861,201 - 3,329,957 - ACCOUNTS RECEIVABLE 73,161,192 3 65,175,198 2 CURRENT TAX ASSETS 3,801,860 - 3,920,628 - NONCURRENT ASSETS CLASSIFIED AS HELD FOR SALE 5,182,190 - 3,594,919 - LOANS, NET 687,204,966 25 656,347,501 26 HELD-TO-MATURITY FINANCIAL ASSETS 367,484,781 13 306,547,795 12 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD 104,587 - 95,083 - FINANCIAL ASSETS MEASURED AT COST 3,692,017 - 4,409,620 - DEBT INVESTMENTS WITH NO ACTIVE MARKET 696,568,128 25 599,104,992 24 ASSETS ON INSURANCE PRODUCTS - SEPARATE ACCOUNT 80,550,144 3 88,546,762 3 MISCELLANEOUS FINANCIAL ASSETS 1,583,986 - 1,706,303 - INVESTMENT PROPERTIES 120,581,900 4 122,990,613 5 PROPERTY AND EQUIPMENT 24,698,737 1 24,687,516 1 INTANGIBLE ASSETS, NET 3,086,638 - 3,166,948 - DEFERRED TAX ASSETS 13,012,937 1 15,097,729 1 OTHER ASSETS 33,893,131 1 22,550,037 1

TOTAL $ 2,797,836,519 100 $ 2,535,233,401 100

60 2014 ANNUAL REPORT December 31, 2014 and 2013 (In Thousands of New Taiwan Dollars)

2014 2013 LIABILITIES AND EQUITY Amount (%) Amount (%) DUE TO CENTRAL BANK AND OTHER BANKS $ 14,332,356 1 $ 4,152,993 - FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 36,045,846 1 9,932,689 1 NOTES AND BONDS ISSUED UNDER REPURCHASE AGREEMENTS 26,298,862 1 21,850,128 1 COMMERCIAL PAPER PAYABLE 2,199,293 - 7,597,049 - ACCRUED EXPENSES 5,286,201 - 4,478,013 - BONDS PAYABLE - CURRENT PORTION 4,700,000 - - - OTHER PAYABLES 34,893,788 1 28,489,093 1 CURRENT TAX LIABILITIES 120,027 - 160,365 - DEPOSITS AND REMITTANCES 622,643,523 22 573,445,108 23 BONDS PAYABLE 37,937,460 2 32,902,418 1 OTHER LOANS 4,835,274 - 8,279,012 - PREFERRED STOCK LIABILITIES - - 1,654,000 -

PROVISIONS Insurance liability reserves 1,769,961,034 64 1,611,173,214 64 Reserve for employee beneﬁts 2,538,884 - 2,215,285 - Other reserves 15,342 - 14,232 -

LIABILITIES ON INSURANCE PRODUCTS - SEPARATE ACCOUNT 80,550,144 3 88,546,762 4 MISCELLANEOUS FINANCIAL LIABILITIES 12,715,122 1 7,055,690 - DEFERRED TAX LIABILITIES 4,062,779 - 3,890,087 - OTHER ADVANCE RECEIPTS 4,166,535 - 5,618,498 - OTHER LIABILITIES 9,060,533 - 8,976,897 - Total liabilities 2,672,363,003 96 2,420,431,533 95

EQUITY ATTRIBUTABLE TO OWNER OF THE COMPANY Share capital Common stock 98,347,538 4 93,288,169 4 Capital surplus 9,515,301 - 9,180,681 - Retained earnings Legal reserve 2,716,597 - 1,717,963 - Special reserve 20,147,436 1 14,952,466 1 Unappropriated earnings 8,335,837 - 14,364,201 - Other equity Exchange differences on translating foreign operations 145,235 - 11,914 - Unrealized losses on available-for-sale ﬁnancial assets ( 28,356,045 ) ( 1 ) ( 32,567,544 ) ( 1 ) Total equity attributable to owner of the Company 110,851,899 4 100,947,850 4

NON-CONTROLLING INTERESTS 14,621,617 - 13,854,018 1 Total equity 125,473,516 4 114,801,868 5 TOTAL $ 2,797,836,519 100 $ 2,535,233,401 100

2014 ANNUAL REPORT 61 Shin Kong Financial Holding Co., Ltd. and Subsidiaries Consolidated Statements of Comprehensive Income

Percentage Increase 2014 2013 (Decrease) Amount (%) Amount (%) % INTEREST INCOME $ 68,733,438 37 $ 61,274,675 42 12 INTEREST EXPENSE ( 6,023,659 ) ( 3 ) ( 5,605,778 ) ( 4 ) 7 NET INTEREST INCOME 62,709,779 34 55,668,897 38 13 NET INCOME AND GAINS OTHER THAN INTEREST INCOME Net processing fee and commission (loss) income ( 2,587,768 ) ( 1 ) 651,139 - ( 497 ) Net income on life insurance operation 90,603,102 49 63,267,521 43 43 Loss on financial assets and liabilities at fair value through profit or loss ( 31,686,395 ) ( 17 ) ( 12,364,511 ) ( 8 ) 156 Realized gain on available-for-sale financial assets 12,954,142 7 10,549,651 7 23 Share of gain or loss of associates 107,067 - ( 5,969 ) - 1,894 Gain on investment properties 3,956,382 2 11,531,745 8 ( 66 ) Exchange gains 39,169,373 21 13,685,953 9 186 (Impairment loss recognized) gain on reversal of impairment on investment assets ( 76,958 ) - 6,416 - ( 1,299 ) Gain on financial assets measured at cost 89,200 - 61,632 - 45 Realized gain on debt investments with no active market 8,001,183 4 4,549,399 3 76 Gain on reversal of decline in market value of collaterals assumed 28,810 - 37,301 - ( 23 ) Other miscellaneous income, net 1,600,432 1 357,569 - 348

PROFIT FROM OPERATIONS 184,868,349 100 147,996,743 100 25 NET CHANGES IN INSURANCE LIABILITY RESERVES ( 147,888,852 ) ( 80 ) ( 111,848,763 ) ( 76 ) 32 PROVISION FOR BAD DEBT EXPENSES ( 1,906,732 ) ( 1 ) ( 773,357 ) - 147

62 2014 ANNUAL REPORT For The Years Ended December 31, 2014 and 2013 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Percentage Increase 2014 2013 (Decrease) Amount (%) Amount (%) % OPERATING EXPENSES Employee benefit expenses ( 14,867,105 ) ( 8 ) ( 13,617,229 ) ( 9 ) 9 Depreciation and amortization expenses ( 1,904,285 ) ( 1 ) ( 1,873,668 ) ( 1 ) 2 Other selling and administrative expenses ( 7,936,235 ) ( 5 ) ( 7,199,124 ) ( 5 ) 10 Total operating expenses ( 24,707,625 ) ( 14 ) ( 22,690,021 ) ( 15 ) 9

CONSOLIDATED INCOME BEFORE INCOME TAX $ 10,365,140 5 $ 12,684,602 9 ( 18 )

INCOME TAX EXPENSE ( 2,443,016 ) ( 1 ) ( 2,116,538 ) ( 2 ) 15

CONSOLIDATED NET INCOME 7,922,124 4 10,568,064 7 ( 25 )

OTHER COMPREHENSIVE INCOME Exchange differences on translating foreign operations 155,013 - 61,751 - 151 Unrealized gain on available-for-sale financial assets 5,178,678 3 2,983,784 2 74 Actuarial loss arising from defined benefit plans ( 1,357,740 ) ( 1 ) ( 1,175,295 ) ( 1 ) 16 Share of other comprehensive (loss) income of associates ( 2,267 ) - 4,447 - ( 151 ) Income tax relating to the components of other comprehensive income ( 545,821 ) - 353,699 1 ( 254 ) Total other comprehensive income, net of income tax 3,427,863 2 2,228,386 2 54

TOTAL COMPREHENSIVE INCOME $ 11,349,987 6 $ 12,796,450 9 ( 11 )

PROFIT ATTRIBUTABLE TO: Owner of the Company $ 6,890,355 4 $ 9,986,345 7 ( 31 ) Non-controlling interests 1,031,769 - 581,719 - 77 $ 7,922,124 4 $ 10,568,064 7 ( 25 ) TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owner of the Company $ 10,131,581 5 $ 12,066,766 8 ( 16 ) Non-controlling interests 1,218,406 1 729,684 1 67 $ 11,349,987 6 $ 12,796,450 9 ( 11 )

EARNINGS PER SHARE Basic $ 0.70 $ 1.05 Diluted $ 0.65 $ 1.00

2014 ANNUAL REPORT 63 Shin Kong Financial Holding Co., Ltd. and Subsidiaries Consolidated Statements of Changes in Equity

Equity Attributable to Owner of the Company

Retained Earnings Share Capital Unappropriated Common Stock Capital Surplus Legal Reserve Special Reserve Earnings BALANCE, JANUARY 1, 2013 $ 84,363,876 $ 9,160,484 $ 736,756 $ 10,164,665 $ 13,783,100

Special reserve provided under Rule No. 1010012863 issued by the FSC - - - 4,936,299 ( 4,936,299 ) Special reserve reversed under Rule No. 1010012865 issued by the FSC - - - ( 168,896 ) 168,896 Special reserve provided under Rule No. 10202508140 issued by the Insurance Bureau - - - 20,398 ( 20,398 )

Appropriation of 2012 earnings Legal reserve - - 981,207 - ( 981,207 ) Share dividends distributed by the Company 2,384,333 - - - ( 2,384,333 ) Cash dividends distributed by the Company - - - - ( 264,926 )

Cash dividends distributed by subsidiaries - - - - - Issue of ordinary shares for cash 6,500,000 - - - - Others - - - - - Share-based payment transactions - 21,723 - - - Convertible bonds converted to ordinary shares 39,960 ( 1,526 ) - - -

Net income for the year ended December 31, 2013 - - - - 9,986,345 Other comprehensive income, net of tax for the year ended December 31, 2013 - - - - ( 986,977 ) Total comprehensive income for the year ended December 31, 2013 - - - - 8,999,368

BALANCE AT DECEMBER 31, 2013 93,288,169 9,180,681 1,717,963 14,952,466 14,364,201

Special reserve reversed under Rule No. 1010012865 issued by the FSC - - - ( 967 ) 967

Appropriation of 2013 net earnings Legal reserve - - 998,634 - ( 998,634 ) Special reserve - - - 5,195,937 ( 5,195,937 ) Cash dividends distributed by the Company - - - - ( 562,152 ) Share dividends distributed by the Company 5,059,369 - - - ( 5,059,369 )

Cash dividends distributed by subsidiaries - - - - - Equity component of convertible bonds issued by the Company - 334,620 - - -

Net income for the year ended December 31, 2014 - - - - 6,890,355 Other comprehensive income, net of tax for the year ended December 31, 2014 - - - - ( 1,103,594 ) Total comprehensive income for the year ended December 31, 2014 - - - - 5,786,761

BALANCE AT DECEMBER 31, 2014 $ 98,347,538 $ 9,515,301 $ 2,716,597 $ 20,147,436 $ 8,335,837

64 2014 ANNUAL REPORT For The Years Ended December 31, 2014 and 2013 (In Thousands of New Taiwan Dollars)

Equity Attributable to Owner of the Company

Other Equity Total Equity Exchange Differences on Unrealized Losses on Available Attributable to Owner Non-controlling Translating Foreign Operations -for-sale Financial Assets of the Company Interests Total ($ 43,261 ) ($ 35,579,767 ) $ 82,585,853 $ 13,129,434 $ 95,715,287

- - - - -

------( 264,926 ) - ( 264,926 )

- - - ( 344,125 ) ( 344,125 ) - - 6,500,000 - 6,500,000 - - - 339,025 339,025 - - 21,723 - 21,723

- - 38,434 - 38,434

- - 9,986,345 581,719 10,568,064

55,175 3,012,223 2,080,421 147,965 2,228,386

55,175 3,012,223 12,066,766 729,684 12,796,450

11,914 ( 32,567,544 ) 100,947,850 13,854,018 114,801,868

- - - - -

------( 562,152 ) - ( 562,152 ) - - - - -

- - - ( 450,807 ) ( 450,807 )

- - 334,620 - 334,620

- - 6,890,355 1,031,769 7,922,124

133,321 4,211,499 3,241,226 186,637 3,427,863

133,321 4,211,499 10,131,581 1,218,406 11,349,987

$ 145,235 ($ 28,356,045 ) $ 110,851,899 $ 14,621,617 $ 125,473,516

2014 ANNUAL REPORT 65 Shin Kong Financial Holding Co., Ltd. and Subsidiaries Consolidated Statements of Cash Flows

2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES Consolidated income before income tax $ 10,365,140 $ 12,684,602 Adjustments for: Depreciation expenses 1,535,642 1,571,212 Amortization expenses 368,643 302,456 Provision for doubtful accounts 1,906,732 773,357 Loss on financial assets and liabilities at fair value through profit or loss 31,686,395 12,364,511 Interest expense 6,023,659 5,605,778 Interest income ( 68,733,438 ) ( 61,274,675 ) Dividend income ( 7,755,042 ) ( 7,378,728 ) Changes in insurance liability reserves 158,787,820 113,523,468 Compensation cost of share-based payments - 21,723 Gain on reversal of decline in market value of collaterals assumed ( 28,810 ) ( 37,301 ) (Gain) loss of associates ( 107,067 ) 5,969 (Gain) loss on disposal of property and equipment ( 599,060 ) 31,953 Loss (gain) on disposal of investment properties 41,145 ( 7,679,112 ) Gains on sale of investments ( 13,289,483 ) ( 7,781,954 ) Gain on reversal of impairment on financial assets ( 20,081 ) ( 89,929 ) Impairment loss recognized on non-financial assets 97,039 83,513 Loss on sale of non-performing loan 65,408 - Loss on disposal of collaterals assumed 15,990 11,719 Net changes in operating assets and liabilities Decrease in due from the Central Bank and other banks 5,035,054 8,486,225 Increase in financial assets at fair value through profit or loss ( 16,436,425 ) ( 39,197,541 ) Increase in available-for-sale financial assets ( 28,345,197 ) ( 4,741,742 ) (Increase) decrease in notes and bonds purchased under resale agreements ( 4,531,244 ) 1,151,762 Increase in receivables ( 6,069,720 ) ( 197,113 ) Increase in loans ( 32,908,523 ) ( 35,652,093 ) Increase in held-to-maturity financial assets ( 62,003,203 ) ( 58,883,051 ) Increase in other financial assets ( 78,986,701 ) ( 66,315,307 ) Increase in other assets ( 908,636 ) ( 1,838,515 ) Increase in due to Central Bank and other banks 10,179,363 931,298 Increase (decrease) in payables 8,125,962 ( 1,423,672 ) Increase in other financial liabilities 5,659,432 2,678,462 (Decrease) increase in other liabilities ( 769,591 ) 5,854,516 Increase in deposits and remittances 49,198,415 56,224,258 Decrease in reserve for employee benefits ( 1,034,141 ) ( 938,067 ) Cash used in operations ( 33,434,523 ) ( 71,122,018 ) Interests received 58,178,575 51,482,412 Dividends received 8,817,697 7,699,217 Interests paid ( 6,836,076 ) ( 6,040,119 ) Income tax paid ( 652,922 ) ( 949,548 ) ( Net cash provided by (used in) operating activities 26,072,751 18,930,056 )

66 2014 ANNUAL REPORT For The Years Ended December 31, 2014 and 2013 (In Thousands of New Taiwan Dollars)

2014 2013 CASH FLOWS FROM INVESTING ACTIVITIES Capital return received from investments accounted for using the equity method $ 95,296 $ 40,950 Acquisition of property and equipment ( 1,145,487 ) ( 784,990 ) Proceeds from disposal of property and equipment 887,228 35,966 Increase in guarantee deposits paid ( 7,012,935 ) ( 797,327 ) Acquisition of intangible assets ( 173,418 ) ( 195,665 ) Proceeds from disposal of collaterals assumed 12,820 25,582 Acquisition of investment properties ( 66,650 ) ( 2,006,282 ) Proceeds from disposal of investments properties 39,835 8,916,343 Proceeds from sale of non-performing loan 111,381 - Increase in other assets ( 3,529,714 ) ( 1,723,133 )

Net cash (used in) provided by investing activities ( 10,781,644 ) 3,511,444

CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in commercial paper payable ( 5,397,756 ) 3,048,180 Proceeds from issue of corporate bonds 5,000,000 - Repayments of corporate bonds - ( 5,000,000 ) Proceeds from issue of bank debentures 5,000,000 - Repayments of bank debentures - ( 5,300,000 ) Increase in other loans - 4,514,014 Decrease in other loan ( 3,443,738 ) - Increase in notes and bonds issued under repurchase agreements 4,448,734 - Decrease in notes and bonds issued under repurchase agreements - ( 9,780,718 ) Repayment of preferred stock liabilities ( 1,654,000 ) - Decrease in guarantee deposits received ( 598,736 ) ( 39,578 ) Proceeds from issue of ordinary shares - 6,500,000 Dividends paid to owners of the Company ( 562,152 ) ( 264,926 ) Dividends paid to non-controlling interests ( 450,807 ) ( 344,125 )

Net cash provided by (used in) financing activities 2,341,545 ( 6,667,153 )

EFFECT OF EXCHANGE RATE CHANGES ( 421,862 ) 225,615

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17,210,790 ( 21,860,150 )

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 43,625,253 65,485,403

CASH AND CASH EQUIVALENTS, END OF YEAR $ 60,836,043 $ 43,625,253

2014 ANNUAL REPORT 67 Shin Kong Financial Holding Co., Ltd. 38F., No. 66, Sec. 1, Chung-Hsiao W. Rd., Taipei, Taiwan Tel: +886-2-2389-5858 Website: www.skfh.com.tw

Shin Kong Life Insurance Co., Ltd. No. 66, Sec. 1, Chung-Hsiao W. Rd., Taipei, Taiwan Tel: +886-2-2389-5858 Website: www.skl.com.tw

Taiwan Shin Kong Commercial Bank Co., Ltd. 5F., No. 36, Songren Rd., Taipei, Taiwan Tel: +886-2-8758-7288 Website: www.skbank.com.tw

Shin Kong Investment Trust Co., Ltd. 12F., No. 123, Sec. 2, Nanjing E. Rd., Taipei, Taiwan Tel: +886-2-2507-1123 Website: www.skit.com.tw

Shin Kong Property Insurance Agency Co., Ltd. 19F., No. 66, Sec. 1, Chung-Hsiao W. Rd., Taipei, Taiwan Tel: +886-2-2389-5858

Shin Kong Venture Capital International Co., Ltd. 38F., No. 66, Sec. 1, Chung-Hsiao W. Rd., Taipei, Taiwan Tel: +886-2-2389-5858

● The inner pages of Shin Kong's annual reports are printed on paper certiﬁed by Forest Stewardship Council (FSC) with eco-friendly soybean-based ink.