Shin Kong Financial Holding Co., Ltd. and Subsidiaries

Shin Kong Financial Holding Co., Ltd. and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016 and Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT The Board of Directors and Shareholders Shin Kong Financial Holding Co., Ltd. Opinion We have audited the accompanying consolidated financial statements of Shin Kong Financial Holding Co., Ltd. and its subsidiaries (the Group), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, based on our audits and the audit report of the other auditors referred to in the Other Matters section of our report, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended, in accordance with the Regulations Governing the Preparation of Financial Statements by Financial Holding Companies, Regulations Governing the Preparation of Financial Statements by Insurance Companies, Guidelines Governing the Preparation of Financial Statements by Securities Firms, Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, Guidelines Governing the Preparation of Financial Reports by Public Banks and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants, Rules Governing the Audit of Financial Statements of Financial Institutions by Certified Public Accountants, and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Based on our audits and the audit report of the other auditors, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2017. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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Key audit matters for the Group’s consolidated financial statements for the year ended December 31, 2017 are stated as follows: Valuation of Reserve for Life Insurance Liability and Liability Adequacy Test The description of the key audit matter: As described in Note 32a(3) of the accompanying consolidated financial statements, the reserve for life insurance liability amounted to NT$2,295,349,605 thousand 71% of total consolidated liabilities. Note 32a(6) also describes the exemption from a reserve for liability adequacy after testing and valuation by management. Management adopts actuarial models and several significant assumptions for estimating the reserve for life insurance liability and the reserve for liability adequacy. Judging the reserve for life insurance liability involves significant assumptions, which include mortality rate, discount rate, lapse rate, morbidity rate, etc. The setup of assumptions are based on legislation, regulations, knowledge of the Group’s actual experience and industry-specific experience. The tests performed in respect of the reserve for liability adequacy on insurance contracts are in accordance with regulations enacted by the Actuarial Institute of the Republic of China, and the setup of future test discount rates accounts for the Group’s best estimate scenario as well as the rate of portfolio return under the current information. Refer to Notes 4, 5e and 32 to the accompanying consolidated financial statements for the details on the related information, accounting policies, accounting estimations and assumption uncertainty for the reserve for life insurance liability and the reserve for liability adequacy test. Since any changes in the actuarial models and important assumptions may lead to significant impacts on the results of the reserves for life insurance liability and for liability adequacy test estimations, the reserves for life insurance liability and for liability adequacy test were identified as a key audit matter. Corresponding audit procedures: 1. We understand the internal controls related to management’s estimations of the reserves for

life insurance liability and for liability adequacy test as well as evaluate the operating effectiveness of these internal controls.

2. We obtain actuarial reports regarding management’s estimations of the reserves for life

insurance liability and for liability adequacy test as well as evaluate the Group’s contracted actuarial specialist’s professional ability and competence.

3. We appoint a Deloitte member firm actuarial specialist to perform the following procedures,

and we compare the results with the actuarial report published by the Group’s contracted actuary in order to evaluate the rationality of the actuarial models and significant assumptions regarding the recognition of the reserve for life insurance liability applied by management. The main audit procedures are described as follows:

a. The actuarial specialist from the Deloitte member firm randomly samples the Group’s

insurance products to examine whether the calculations of the reserve for life insurance liability were in accordance with the regulations.

b. The actuarial specialist from the Deloitte member firm focuses on the actuarial models and

important assumptions of selected insurance policies and verifies the recognized amount of the reserve for life insurance liability.

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c. The actuarial specialist from the Deloitte member firm performs profiling tests focused on long term insurance policies to identify any abnormal situations with recognized amounts of reserve of life insurance liability on single insurance policies.

d. The actuarial specialist from the Deloitte member firm uses the previously recognized

amounts of the reserve for life insurance liability in consideration with the business development for this year and performs a ratio analysis of the reasonableness of the reserve for life insurance liability to estimate the overall recognized amount of reserve for life insurance liability this year.

4. We appoint a Deloitte member firm actuarial specialist to perform the following procedures,

and we compare the results with the actuarial report published by the Group’s contracted actuary in order to evaluate the rationality of the actuarial models and significant assumptions regarding the recognition of the reserve for liability adequacy test applied by management. The main audit procedures are described as follows: a. We sample newly issued insurance products from this year to test the accuracy of the

product classifications. b. We sample the significant assumptions provided by the Group for our audit in order to

examine whether the assumptions were consistent with regulations and the important built-in assumptions in the information system.

c. We focus on the tests of selected insurance policies in order to evaluate the actuarial

models and important assumptions applied by the Group for the reserve for liability adequacy test, and we perform individual recalculations.

d. We perform a comparative analysis of the prior year results in consideration with the

impact of the current business development in order to evaluate the rationality of the calculation of the reserve for liability adequacy test.

Valuation of Financial Instruments at Fair Value through Profit or Loss with Quoted Price in Non-active Markets The description of the audit key matter: As described in Note 50 to the accompanying consolidated financial statements as of December 31, 2017, the Group held financial instruments at fair value through profit or loss with public quoted price in non-active markets. The Level 2 and Level 3 financial instruments which amounted to NT$114,988,871 thousand of consolidated assets and NT$2,911,401 thousand of consolidated liabilities were significant. The financial instruments at fair value through profit or loss with public quoted price in non-active markets were mainly derivative financial instruments, stocks and bond investments. For the above financial instruments, the management of the Group applied valuation models and external valuation information to determine the fair values. Refer to Notes 4m, 5d, 8, 9, and 50b to the accompanying consolidated financial statements for details on the relevant information, accounting policies, accounting estimations, and assumption uncertainty for the valuation of financial instruments at fair value through profit or loss with quoted price in non-active market. The amount of the financial instruments was material; in addition, the valuation models included the adjusted observable and unobservable inputs, which were involved in the critical judgments and estimations from management. Therefore, the financial instruments above were considered to be a key audit matter.

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Corresponding audit procedures: 1. We understand the internal controls related to management’s valuation of the financial

instruments at fair value through profit or loss with quoted price in non-active market as well as evaluate the design of the internal controls.

2. We appoint a Deloitte member firm specialist to evaluate whether the valuation model and assumptions adopted by management were reasonable for the Level 3 financial instruments.

3. We sample public information and recalculate the results of the valuation or obtain external

valuation information to evaluate whether the carrying amount of the Level 2 financial instruments are reasonable.

Estimated Impairment of Loans and Overdue Loans The description of the key audit matter: As discussed in Note 13 of the accompanying consolidated financial statements, loans and overdue loans amounted to NT$589,305,084 thousand, representing 17% of the consolidated total assets as of December 31, 2017; and the impairment loss was NT$811,258 thousand, representing 0.34% of the profit from operations for the year ended December 31, 2017. The balance of the loans and overdue loans was material for the consolidated financial statements as a whole. In addition, as presented in Note 5f, the determination of impairment involved critical judgments and estimations from management regarding future cash flow estimations, annual recovery, incidences of historical impairment, and the recognized period of loss. Therefore, the impairment of loans and overdue loans was determined to be a key audit matter. Refer to Notes 4m, 5f, and 13 to the accompanying consolidated financial statements for details on the related information, accounting policies, accounting estimations, and assumption uncertainty for the estimations for the impairment of loans and overdue loans. Corresponding audit procedures: 1. We understand the internal controls related to the impairment assessment of loans and overdue

loans as well as evaluate the design of internal controls. 2. We sample loans and overdue loans with significant impairment and evaluate whether the

value of collateral used for the future cash flow estimations was reasonable for the individual impairment assessment.

3. We focus on the impairment of loans and overdue loans of the Group as a whole,

understanding and testing the important inputs of impairment models (annual recovery, incidences of historical impairment and the recognized period of loss) in order to evaluate the rationality of the future cash flow estimations used to conform with the current experience and economic situation.

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Recognition of Interest Revenue from the Foreign Debt Investments and Loans The description of the key audit matter: The carrying amount of interest revenue from the Group was NT$93,943,443 thousand and was primarily generated from foreign and domestic debt investments, discounts and loans, and bank deposits. Interest revenue from foreign debt investments, discounts and loans and other sources was NT$64,310,504 thousand, NT$20,411,147 thousand and NT$9,221,792 thousand, respectively. Since the first two sources of interest revenue represented 68% and 22% of the total interest revenue, respectively, and the aggregate amount accounted for 36% of the profit from operations, it was determined to be significant to the financial statements. The Group recognized foreign debt investment interest revenue based on results determined by the custodian bank and reviewed by management. In addition, the Group used computer systems to calculate loan interest according to the terms of each credit case at the end of each month, and the recognition of interest revenue mainly relied on the system calculations. Refer to Notes 4s and 37 to the accompanying consolidated financial statements for details on the related information and accounting policies for the recognition of interest revenue. As presented above, the interest revenue from foreign debt investments and loans were significant to the consolidated financial statements as a whole. In addition, management reviewed the interest revenue calculated by the custodian bank or generated by the system calculations. As the outcome of the calculation would influence the recognition of interest revenue, the interest revenue from foreign debt investments and loans was determined to be a key audit matter. Corresponding audit procedures. For interest revenue from foreign debt investments: 1. We understand the internal controls related to management’s recognition of interest revenue

from foreign debt investments as well as evaluate the design of the internal controls. 2. We examine whether the data for the interest revenue provided by the custodian bank is

consistent with the amount from the information system, and we verify whether the carrying amount of the interest revenue from foreign debt investments is accurate.

3. We sample and recalculate the effective interest rate and the interest revenue to evaluate

whether the carrying amount of the interest revenue is reasonable. For interest revenue from loans: 1. We understand and test the internal controls related to the accuracy of interest revenue

recognition, which includes understanding and testing the internal controls of the computer system and application system.

2. We sample interest revenue calculated monthly from the system and confirm the loan contracts

of credit cases to make sure that the terms of the loans are in accordance with the system calculations. In addition, we recalculate the interest revenue and compare it with the system calculations to verify if there are any significant differences between the two results.

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Other Matters We did not audit the consolidated financial statements of MasterLink Securities Co. and its subsidiaries, in which the total assets were 2.84% and 2.68% of the consolidated total assets as of December 31, 2017 and 2016, respectively; the profit from operations was 1.83% and 1.47% of the consolidated profit from operations for the years ended December 31, 2017 and 2016, respectively; and the comprehensive income was 3.45% and (1.00%) of the consolidated total comprehensive income for the years ended December 31, 2017 and 2016, respectively. The aforementioned consolidated financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as they relate to the amounts included in the Group’s accompanying consolidated financial statements for MasterLink Securities Co. and its subsidiaries, are based solely on the reports of other auditors. Responsibilities of Management and Those Charged with Governance for the Consolidated

Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Statements by Financial Holding Companies, Regulations Governing the Preparation of Financial Statements by Insurance Companies, Guidelines Governing the Preparation of Financial Statements by Securities Firms, Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants, and Guidelines Governing the Preparation of Financial Reports by Public Banks and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free form material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the audit committee, are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control, including the financial reporting process, relevant

to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements,

including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities

or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2017 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors’ report are Wang-Seng Lin and Cheng-Hung Kuo. Deloitte & Touche Taipei, Taiwan Republic of China February 27, 2018

Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China. For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements except the notes there to have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

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SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

2017 2016

ASSETS Amount % Amount % CASH AND CASH EQUIVALENTS (Notes 4 and 6) $ 104,540,929 3 $ 48,594,815 2 DUE FROM CENTRAL BANK AND OTHER BANKS (Note 7) 36,877,507 1 80,861,581 3 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8 and 40) 162,295,384 5 111,206,127 4 AVAILABLE-FOR-SALE FINANCIAL ASSETS (Notes 4, 9 and 40) 423,514,613 13 362,155,777 11 NOTES AND BONDS PURCHASED UNDER RESALE AGREEMENTS (Notes 4, 10 and 40) 9,500,275 - 15,483,759 - ACCOUNTS RECEIVABLE (Notes 4, 11 and 13) 68,774,189 2 83,891,232 3 CURRENT TAX ASSETS (Notes 4 and 39) 3,048,330 - 4,282,426 - NONCURRENT ASSETS CLASSIFIED AS HELD FOR SALE (Notes 4 and 12) 37,976 - - - LOANS, NET (Notes 4, 13 and 40) 697,269,130 21 688,641,256 22 HELD-TO-MATURITY FINANCIAL ASSETS (Notes 4, 14 and 41) 980,606,580 29 761,286,083 24 FINANCIAL ASSETS MEASURED AT COST (Notes 4 and 17) 2,915,219 - 3,281,110 - DEBT INVESTMENTS WITH NO ACTIVE MARKET (Notes 4 and 18) 657,169,492 20 753,941,406 24 ASSETS ON INSURANCE PRODUCTS - SEPARATE-ACCOUNT (Notes 4 and 30) 46,637,540 1 55,237,519 2 MISCELLANEOUS FINANCIAL ASSETS 6,499,531 - 3,578,415 - INVESTMENT PROPERTIES (Notes 4, 19 and 41) 108,999,896 3 110,288,861 3 PROPERTY AND EQUIPMENT (Notes 4, 20 and 41) 31,454,925 1 28,819,220 1 INTANGIBLE ASSETS, NET (Notes 4 and 21) 2,953,112 - 2,858,002 - DEFERRED TAX ASSETS (Notes 4 and 39) 14,072,574 - 13,668,876 - OTHER ASSETS (Notes 4, 22, 40 and 41) 27,221,247 1 29,596,107 1 TOTAL $ 3,384,388,449 100 $ 3,157,672,572 100 LIABILITIES AND EQUITY DUE TO CENTRAL BANK AND OTHER BANKS (Note 23) $ 3,871,190 - $ 2,685,360 - FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8 and 40) 4,247,263 - 24,096,961 1 NOTES AND BONDS ISSUED UNDER REPURCHASE AGREEMENTS (Notes 4, 25 and 40) 36,373,039 1 26,987,935 1 COMMERCIAL PAPER PAYABLE (Note 24) 1,499,936 - - - ACCRUED EXPENSES 6,722,295 - 6,117,391 - BONDS PAYABLE - CURRENT PORTION (Note 27) 3,500,000 - 4,075,817 - OTHER PAYABLES (Note 31) 23,787,447 1 21,293,850 1 CURRENT TAX LIABILITIES (Notes 4 and 39) 195,952 - 134,266 - DEPOSITS AND REMITTANCES (Notes 26 and 40) 686,523,027 20 657,104,926 21 BONDS PAYABLE (Notes 4 and 27) 51,008,565 2 45,802,604 1 OTHER LOANS (Note 28) 1,588,332 - 2,653,000 - PROVISIONS

Insurance liability reserves (Notes 4 and 32) 2,323,833,724 69 2,139,079,588 68 Reserve for employee benefits (Notes 4 and 29) 1,687,129 - 854,667 - Other reserves 415,586 - 174,747 -

LIABILITIES ON INSURANCE PRODUCTS - SEPARATE-ACCOUNT (Notes 4 and 30) 46,637,540 1 55,237,519 2 MISCELLANEOUS FINANCIAL LIABILITIES 16,733,523 1 18,368,709 1 DEFERRED TAX LIABILITIES (Notes 4 and 39) 3,539,977 - 4,131,864 - OTHER ADVANCE RECEIPTS 4,007,801 - 5,053,806 - OTHER LIABILITIES 12,245,522 - 8,251,477 -

Total liabilities 3,228,417,848 95 3,022,104,487 96 EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 4 and 33)

Share capital Ordinary shares 102,419,027 3 102,281,441 3

Capital surplus 10,033,789 - 9,577,224 1 Retained earnings

Legal reserve 4,464,679 - 3,983,647 - Special reserve 27,217,124 1 27,235,954 1 Unappropriated earnings 10,441,856 - 4,031,680 -

Other equity Exchange differences on translating foreign operations 69,907 - 115,451 - Unrealized losses on available-for-sale financial assets (12,852,496) - (23,921,607) (1 )

Treasury shares (483,387) - (1,907,115) -

Total equity attributable to owners of the Company 141,310,499 4 121,396,675 4 NON-CONTROLLING INTERESTS (Notes 15 and 33) 14,660,102 1 14,171,410 -

Total equity 155,970,601 5 135,568,085 4 TOTAL $ 3,384,388,449 100 $ 3,157,672,572 100 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 27, 2018)

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SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Percentage

Increase 2017 2016 (Decrease) Amount % Amount % % INTEREST INCOME (Notes 4, 37

and 40) $ 93,943,443 39 $ 86,649,751 37 8 INTEREST EXPENSE (Notes 27

and 40) (5,363,242) (2) (5,120,388) (2) 5 NET INTEREST INCOME 88,580,201 37 81,529,363 35 9 NET INCOME AND GAINS (LOSS)

OTHER THAN INTEREST INCOME Net processing fee and commission

loss (Notes 30, 35 and 40) (6,454,143) (3) (9,027,415) (4) (29) Net income on life insurance operation

(Notes 4, 32 and 36) 141,355,051 60 154,479,700 66 (8) Gain on financial assets and liabilities

at fair value through profit or loss (Notes 27 and 37) 67,504,463 28 10,349,401 4 552

Realized gain on available-for-sale financial assets (Note 37) 22,960,323 10 10,402,030 4 121

Realized gain on held-to-maturity financial assets (Note 37) - - 761 - (100)

Share of gain of associates and joint ventures (Notes 4 and 16) - - 55,404 - (100)

Gain on investment properties (Notes 37 and 40) 3,527,255 2 3,545,125 2 (1)

Exchange loss (87,212,071) (37) (28,511,724) (12) 206 Loss on reversal of impairment loss on

investment assets (Note 37) (26,628) - (489,468) - (95) Gain on financial assets measured at

cost (Note 37) 102,137 - 75,188 - 36 Realized gain on debt investments

with no active market (Note 37) 7,127,692 3 10,387,243 4 (31) Other miscellaneous income, net

(Note 40) (248,454) - 1,151,759 1 (122) PROFIT FROM OPERATIONS 237,215,826 100 233,947,367 100 1 NET CHANGES IN INSURANCE

LIABILITY RESERVES (Notes 4 and 32) (200,585,847) (85) (204,356,270) (87) (2)

(Continued)

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Percentage

Increase 2017 2016 (Decrease) Amount % Amount % % PROVISION FOR BAD DEBT

EXPENSES (Notes 4 and 13) $ (2,135,557) (1) $ (1,415,312) (1) 51 OPERATING EXPENSES (Notes 38

and 40) Employee benefits expense (14,504,739) (6) (13,931,378) (6) 4 Depreciation and amortization

expenses (1,994,292) (1) (1,989,004) (1) - Other selling and administrative

expenses (7,819,455) (3) (7,127,959) (3) 10

Total operating expenses (24,318,486) (10) (23,048,341) (10) 6 CONSOLIDATED INCOME BEFORE

INCOME TAX 10,175,936 4 5,127,444 2 98 INCOME TAX BENEFIT (EXPENSE)

(Notes 4 and 39) 1,042,940 1 (28,934) - 3,705 CONSOLIDATED NET INCOME 11,218,876 5 5,098,510 2 120 OTHER COMPREHENSIVE INCOME

Items that may not be reclassified subsequently to profit or loss: Remeasurement of defined benefit

plans (Note 29) (1,980,317) (1) (940,491) - 111 Income tax relating to items that

may not be reclassified subsequently to profit or loss (Note 39) 336,654 - 159,884 - 111

(Continued)

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Percentage

Increase 2017 2016 (Decrease) Amount % Amount % %

Items that may be reclassified subsequently to profit or loss: Exchange differences on translating

foreign operations $ (80,340) - $ (161,137) - (50) Unrealized gain on

available-for-sale financial assets 12,634,024 6 10,241,615 4 23 Share of the other comprehensive

loss of associates and joint ventures accounted for using the equity method - - (12,236) - 100

Income tax relating to items that may be reclassified subsequently to profit or loss (Note 39) (1,618,861) (1) (1,409,973) - 15

Total other comprehensive

income, net of income tax 9,291,160 4 7,877,662 4 18 TOTAL COMPREHENSIVE INCOME $ 20,510,036 9 $ 12,976,172 6 58 NET INCOME ATTRIBUTABLE TO:

Owners of the Company $ 10,531,170 5 $ 4,810,317 2 119 Non-controlling interests 687,706 - 288,193 - 139

$ 11,218,876 5 $ 5,098,510 2 120

TOTAL COMPREHENSIVE INCOME

ATTRIBUTABLE TO: Owners of the Company $ 19,964,952 9 $ 13,045,990 6 53 Non-controlling interests 545,084 - (69,818) - 881

$ 20,510,036 9 $ 12,976,172 6 58

EARNINGS PER SHARE (Note 34)

Basic $1.05 $0.48 Diluted $0.98 $0.45

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 27, 2018) (Concluded)

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SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars)

Equity Attributable to Owners of the Company Other Equity

Retained Earnings Exchange

Differences on Unrealized Losses on

Total Equity Attributable to

Unappropriated Translating Available-for-sale Owners of the Non-controlling Ordinary Shares Capital Surplus Legal Reserve Special Reserve Earnings Foreign Operations Financial Assets Treasury Shares Company Interests Total BALANCE AT JANUARY 1, 2016 $ 102,281,441 $ 9,557,397 $ 3,405,633 $ 22,695,543 $ 5,118,425 $ 232,457 $ (33,053,872 ) $ (1,907,115 ) $ 108,329,909 $ 14,803,423 $ 123,133,332 Appropriation of 2015 earnings

Legal reserve - - 578,014 - (578,014 ) - - - - - - Special reserve - - - 4,540,411 (4,540,411 ) - - - - - -

Cash dividends distributed by subsidiaries - - - - - - - - - (425,032 ) (425,032 ) Buy-back of treasury shares by subsidiaries - 20,171 - - - 161 788 - 21,120 (137,163 ) (116,043 ) Others - (344 ) - - - - - - (344 ) - (344 ) Net income for the year ended December 31, 2016 - - - - 4,810,317 - - - 4,810,317 288,193 5,098,510 Other comprehensive (loss) income, net of tax for the year ended

December 31, 2016 - - - - (778,637 ) (117,167 ) 9,131,477 - 8,235,673 (358,011 ) 7,877,662 Total comprehensive income (loss) for the year ended December 31, 2016 - - - - 4,031,680 (117,167 ) 9,131,477 - 13,045,990 (69,818 ) 12,976,172 BALANCE AT DECEMBER 31, 2016 102,281,441 9,577,224 3,983,647 27,235,954 4,031,680 115,451 (23,921,607 ) (1,907,115 ) 121,396,675 14,171,410 135,568,085 Special reserve reversed under Rule No. 1010012865 issued by the FSC - - - (18,830 ) 18,830 - - - - - - Appropriation of 2016 earnings

Legal reserve - - 481,032 - (481,032 ) - - - - - - Cash dividends distributed by the Company - - - - (2,045,628 ) - - - (2,045,628 ) - (2,045,628 )

Cash dividends distributed by subsidiaries - - - - - - - - - (139,247 ) (139,247 ) Buy-back of treasury shares by subsidiaries - 15,610 - - - (20 ) (451 ) - 15,139 (120,990 ) (105,851 ) Disposal of partial interest in subsidiaries - 112,481 - - - - (22,908 ) - 89,573 203,845 293,418 Equity component of convertible bonds issued by the Company - 185,600 - - - - - - 185,600 - 185,600 Share-based payment transactions - 157,511 - - - - - 1,423,728 1,581,239 - 1,581,239 Convertible bonds converted to ordinary shares 137,586 (14,637 ) - - - - - - 122,949 - 122,949 Net income for the year ended December 31, 2017 - - - - 10,531,170 - - - 10,531,170 687,706 11,218,876 Other comprehensive (loss) income, net of tax for the year ended

December 31, 2017 - - - - (1,613,164 ) (45,524 ) 11,092,470 - 9,433,782 (142,622 ) 9,291,160 Total comprehensive income (loss) for the year ended December 31, 2017 - - - - 8,918,006 (45,524 ) 11,092,470 - 19,964,952 545,084 20,510,036 BALANCE AT DECEMBER 31, 2017 $ 102,419,027 $ 10,033,789 $ 4,464,679 $ 27,217,124 $ 10,441,856 $ 69,907 $ (12,852,496 ) $ (483,387 ) $ 141,310,499 $ 14,660,102 $ 155,970,601 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 27, 2018)

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SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars) 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES

Consolidated income before income tax $ 10,175,936 $ 5,127,444Adjustments for:

Depreciation expenses 1,653,031 1,646,335Amortization expenses 341,261 342,669Provision for doubtful accounts 2,135,557 1,415,312Profit on financial assets and liabilities at fair value through profit or

loss (67,504,463) (10,349,401)Interest expense 5,363,242 5,120,388Interest income (93,943,443) (86,649,751)Dividend income (10,470,226) (7,265,845)Changes in insurance liability reserves 184,754,136 195,258,580Compensation cost of share-based payments 216,200 -Gain of associates and joint venture accounting for using equity

method - (55,404)Loss on disposal of property and equipment 5,739 3,808Gain on disposal of investment properties (29,436) (5,805)Gain on sale of investments (19,719,926) (13,599,377)Impairment loss recognized on financial asset 729 489,468Loss on reversal of impairment on non-financial asset 25,899 -

Net changes in operating assets and liabilities (Increase) decrease in due from the Central Bank and other banks (676,253) 21,381(Increase) decrease in financial assets at fair value through profit or

loss (14,184) 37,953,666Increase in available-for-sale financial assets (37,286,241) (11,915,059)Decrease (increase) in notes and bonds purchased under resale

agreements 5,983,484 (6,659,610)Decrease (increase) in receivables 15,310,600 (17,890,521)Increase in loans (9,385,909) (10,592,096)Increase in held-to-maturity financial assets (213,687,649) (381,250,197)Decrease in other financial assets 107,132,518 170,882,658Decrease in other assets 6,501 1,481,844Increase (decrease) in due to Central Bank and other banks 1,185,830 (4,959,495)Decrease in financial liabilities at fair value through profit or loss (3,679,910) (11,334,025)Increase (decrease) in payables 2,331,030 (2,019,356)(Decrease) increase in other financial liabilities (1,635,186) 1,979,219Increase in other liabilities 1,033,094 469,464Increase in deposits and remittances 29,418,101 17,717,619Decrease in reserve for employee benefits (1,147,855) (2,498,890)

Cash used in operations (92,107,793) (127,134,977)Interests received 80,183,087 71,832,735Dividends received 10,791,217 8,112,035Interests paid (4,560,577) (5,151,688)Income tax paid (54,763) (1,776,545)

Net cash used in operating activities (5,748,829) (54,118,440)

(Continued)

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SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars) 2017 2016 CASH FLOWS FROM INVESTING ACTIVITIES

Disposal of partial interest in the subsidiaries $ 293,418 $ -Capital return received from investments accounted for using the

equity method - 2,789Acquisition of property and equipment (1,664,967) (1,386,360)Proceeds from disposal of property and equipment 6,267 5,260Decrease in guarantee deposits paid 2,614,025 7,936,324Acquisition of intangible assets (286,810) (157,030)Acquisition of investment properties (1,644,528) (595,233)Proceeds from disposal of investments properties 209,507 58,603(Increase) decrease in other assets (169,782) 232,241

Net cash (used in) provided by investing activities (642,870) 6,096,594

CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in commercial paper payable 1,499,936 (1,299,811)Proceeds from issue of corporate bonds 9,000,000 16,000,000Repayments of corporate bonds (4,136,161) (6,500,000)Decrease in other loans (1,064,668) (684,793)Increase (decrease) in notes and bonds issued under repurchase

agreements 9,385,104 (13,336,771)Increase (decrease) in guarantee deposits received 1,914,946 (9,804)Cost of treasury shares buyback 1,365,039 -Dividends paid (2,045,628) -Non-controlling interests changes (245,098) (541,075)Other financing activities - (344)

Net cash provided by (used in) financing activities 15,673,470 (6,372,598)

EFFECT OF EXCHANGE RATE CHANGES 2,004,016 489,138 NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS 11,285,787 (53,905,306) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 112,522,186 166,427,492 CASH AND CASH EQUIVALENTS, END OF YEAR $ 123,807,973 $ 112,522,186

(Continued)

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SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars) Reconciliation of the amounts in the consolidated statements of cash flows with the equivalent items reported in the consolidated balance sheets at December 31, 2017 and 2016: December 31 2017 2016 Cash and cash equivalents reported in consolidated balance sheets $ 104,540,929 $ 48,594,815Due from Central Bank and other banks qualifying for cash and cash

equivalents under the definition of IAS 7 19,267,044 63,927,371Cash and cash equivalents at end of year $ 123,807,973 $ 112,522,186 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 27, 2018) (Concluded)

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SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL INFORMATION

Shin Kong Financial Holding Co., Ltd. (the “Company” or SKFHC) is a financial holding company established by Shin Kong Life Insurance Co., Ltd. (SKLIC) and Shin Kong Securities Co., Ltd. (SKSC, originally named Li Shih Securities Co., Ltd.) through a share swap and is listed on the Taiwan Stock Exchange Corporation (TWSE) since February 19, 2002. The Company is mainly engaged in managing its subsidiaries and investing in business approved by relevant authorities. The Company and its subsidiaries are collectively referred to as the “Group”. To expand the area and scale of operations and utilize the comprehensive efficiency and competitiveness of financial institutes, the Company issued 208,504 thousand shares to acquire Taiwan Shin Kong Commercial Bank Co., Ltd. (TSKCB, formerly known as United-Credit Commercial Bank Co., Ltd.) as a wholly owned subsidiary. The Company issued 661,850 thousand shares to acquire 100% equity interest of Macoto Bank Co., Ltd. (Macoto Bank) on October 3, 2005 through share swap. On December 31, 2005, Macoto Bank merged with TSKCB and Macoto Bank was the surviving company. At the same time, Macoto Bank was renamed into TSKCB. To expand the sale of asset management and enhance the synergy of channel integration and resource sharing, the Company purchase 100% of shares of Shin Kong Investment Trust Co., Ltd. (SKITC) in July 2006. SKLIC was established in July 1963 and its shares were listed on TWSE in December 1993. SKLIC’s business is mainly in life insurance, including individual and group life, accident, health, and so on. Its headquarters is located in Taipei City, with 23 branch offices throughout the country. TSKCB was approved to be a commercial bank by the Ministry of Finance on September 23, 1996 under Letter Tai-Tsai-Rong No. 85546025. TSKCB acquired company license from the Ministry of Economic Affairs on December 31, 1996 and operating permit from the Ministry of Finance on January 1, 1997. TSKCB is engaged in banking business allowed by the Banking Act of the ROC and other services approved by the authorities, and it had 106 branches as of December 31, 2017, including business department, trust departments, foreign exchange transaction department, and an offshore banking branch in Taiwan. MasterLink Securities Corp. (MLSC) was established by the approval of the Ministry of Economic Affairs on March 23, 1989 and started to operate on May 29, 1989, and it is listed on TWSE since September 16, 2002. MLSC is mainly engaged in securities brokering, underwriting, processing share registration matters, futures brokering, dealing service related to futures, security transfer services and other services approved by the authorities. As of December 31, 2017, MLSC had 49 branches. On September 24, 2009, Shin Kong Securities Co., Ltd. (SKSC) was resolved to dissolution at January 5, 2010 by the board of directors on behalf of shareholders. As of December 31, 2017, the liquidation process of SKSC was not completed.

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SKITC is mainly engaged in negotiable securities investment trust, securities and investment advisory business, carte blanche investment, concurrent future trust business and other services approved by the Securities and Futures Bureau of the Financial Supervisory Commission (FSC). On October 9, 2006, SKITC merged with New Light Asset Management Co., Ltd., and SKITC was the surviving company. Shin Kong Venture Capital International Co., Ltd. (SKVIC) was established on April 20, 2011. SKVIC is mainly engaged in venture capital business. SKVIC established Lion Investment (Samoa) Co., Ltd. on May 11, 2011. Shin Kong Property Insurance Agency Co., Ltd. (SKPIAC) is engaged in property and casualty insurance agency business. Taiwan Shin Kong Insurance Brokerage Co., Ltd. (TSKIBC), formerly known as Shin Kong Insurance Brokerage Co., Ltd. (SKIBC), is engaged in property and casualty insurance and life insurance brokerage business. On August 31, 2006, SKIBC merged with TSKIBC, and SKIBC was the surviving company and was renamed into TSKIBC. On March 14, 2014, TSKIBC was resolved to dissolution by the board of directors on behalf of shareholders at March 29, 2014. As of December 31, 2017, the liquidation process of TSKIBC was not completed. Shin Kong Life Real Estate Service Company (SKLRESC) was established on July 12, 1988 and obtained operating permit on August 17, 1988. SKLRESC is mainly engaged in management services, sanitary services, repair and maintenance of utilities equipment, commerce and installation of water-proof, burglarproof, and fire alarm equipment, commerce and installation of car parking equipment, operation of parking lots, housing brokerage, and real estate business management. Shin Fu Insurance Agency Co., Ltd. (SFIAC, originally named Shin Kong Life Insurance Agency Co., Ltd.) is engaged in life insurance agency business. Shin Kong Marketing Consultant Co., Ltd. (SKMC) is mainly engaged in consulting services for loan market, investment advisory, credit service, human dispatch, agency service, data processing service, information software service, electronic information supply service, general advertising service and non-store retailing. Shin Kong Leasing (Suzhou) Co., Ltd. (SKLSC) was established on September 15, 2011. SKLSC is mainly engaged in financial leasing business.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on February 27, 2018.

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3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports

by Securities Issuers and the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed and issued into effect by the FSC Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect by the FSC would not have any material impact on the Group’s accounting policies: Amendments to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets” The amendments clarify that the recoverable amount of an asset or a cash-generating unit is disclosed only when an impairment loss on the asset has been recognized or reversed during the period. Furthermore, if the recoverable amount for which impairment loss has been recognized or reversed is the fair value less costs of disposal, the Group is required to disclose the fair value hierarchy. If the fair value measurements are categorized within Level 3, the valuation technique and key assumptions used to measure the fair value are disclosed. The discount rate used is disclosed if such fair value less costs of disposal is measured by using the present value technique. The amendments should be applied retrospectively starting from January 1, 2017. Refer to Note 19 for related disclosures.

b. The Regulations Governing the Preparation of Financial Reports by Securities Issuers and the

International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) (collectively, the “IFRSs”) endorsed by the FSC for application starting from 2018

New IFRSs Effective Date

Announced by IASB (Note 1) Annual Improvements to IFRSs 2014-2016 Cycle Note 2 Amendments to IFRS 2 “Classification and Measurement of

Share-based Payment Transactions” January 1, 2018

Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”

January 1, 2018

IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of

IFRS 9 and Transition Disclosures” January 1, 2018

IFRS 15 “Revenue from Contracts with Customers” January 1, 2018 Amendments to IFRS 15 “Clarifications to IFRS 15 Revenue from

Contracts with Customers” January 1, 2018

Amendment to IAS 7 “Disclosure Initiative” January 1, 2017 Amendments to IAS 12 “Recognition of Deferred Tax Assets for

Unrealized Losses” January 1, 2017

Amendments to IAS 40 “Transfers of Investment Property” January 1, 2018 IFRIC 22 “Foreign Currency Transactions and Advance

Consideration” January 1, 2018

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on

or after their respective effective dates. Note 2: The amendment to IFRS 12 is retrospectively applied for annual periods beginning on or after

January 1, 2017; the amendments to IAS 28 are retrospectively applied for annual periods beginning on or after January 1, 2018.

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1) Annual Improvements to IFRSs 2014-2016 Cycle

Several standards, including IFRS 12 “Disclosure of Interests in Other Entities” and IAS 28 “Investments in Associates and Joint Ventures,” were amended in this annual improvement. The amendment to IFRS 12 clarifies that when an entity’s interest in a subsidiary, a joint venture or an associate is classified as held for sale or is included in a disposal group that is classified as held for sale, the entity is not required to disclose summarized financial information of that subsidiary, joint venture or associate in accordance with IFRS 12. However, all other requirements in IFRS 12 apply to interests in entities classified as held for sale in accordance with IFRS 5. The Group will apply the aforementioned amendment retrospectively.

2) IFRS 9 “Financial Instruments” and related amendments Classification, measurement and impairment of financial assets With regard to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below. For the Group’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows: a) For debt instruments, if they are held within a business model whose objective is to collect

contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with any impairment loss recognized in profit or loss. Interest revenue is recognized in profit or loss by using the effective interest method;

b) For debt instruments, if they are held within a business model whose objective is achieved by

both collecting contractual cash flows and selling financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gains or losses shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Except for the above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

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The Group analyzed the facts and circumstances of its financial assets that exist at December 31, 2017 and performed the assessment of the impact of IFRS 9 on the classification and measurement of financial assets. Under IFRS 9: a) Listed shares, emerging market shares, and unlisted shares classified as available-for-sale will

be classified as at fair value through profit or loss. Listed shares, emerging market shares, and unlisted shares classified as available-for-sale will be designated as at fair value through other comprehensive income and the fair value gains or losses accumulated in other equity will be transferred directly to retained earnings instead of being reclassified to profit or loss on disposal. Besides this, unlisted shares measured at cost will be measured at fair value instead;

b) Mutual funds classified as available-for-sale will be classified as at fair value through profit or

loss because the contractual cash flows are not solely payments of principal and interest on the principal outstanding and they are not equity instruments; and

c) Debt investments classified as held-to-maturity financial assets/debt investments with no active

market and measured at amortized cost will be classified as measured at amortized cost under IFRS 9 because, on initial recognition, the contractual cash flows that are solely payments of principal and interest on the principal outstanding and these investments are held within a business model whose objective is to collect contractual cash flows/will be classified as at fair value through other comprehensive income under IFRS 9, because, on initial recognition, the contractual cash flows that are solely payments of principal and interest on the principal outstanding and these investments are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets/will be classified as at fair value through profit or loss, because, on initial recognition, the contractual cash flows are solely payments of principal and interest on the principal outstanding but the objective of the Group’s business model is not to collect contractual cash flows and neither is it achieved both by collecting contractual cash flows and selling financial assets/will be classified as at fair value through profit or loss, because, on initial recognition, the contractual cash flows are not solely payments of principal and interest on the principal outstanding.

IFRS 9 requires impairment loss on financial assets to be recognized by using the “Expected Credit Losses Model”. A loss allowance is required for financial assets measured at amortized cost, investments in debt instruments measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full-lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full-lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction. For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss. The Group has performed a preliminary assessment in which it will apply the simplified approach to recognize full-lifetime expected credit losses for trade receivables, contract assets and lease receivables. In relation to debt instrument investments and financial guarantee contracts, the Group will assess whether there has been a significant increase in credit risk to determine whether to recognize 12-month or full-lifetime expected credit losses. In general, the Group anticipates that the application of the expected credit losses model of IFRS 9 will result in an earlier recognition of credit losses for financial assets.

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The Group elects not to restate prior reporting periods when applying the requirements for the classification, measurement and impairment of financial assets under IFRS 9 with the cumulative effect of the initial application recognized at the date of initial application and will provide the disclosures related to the classification and the adjustment information upon initial application of IFRS 9. The anticipated impact on assets, liabilities and equity of retrospective application of the requirements for the classification, measurement and impairment of financial assets as of January 1, 2018 is set out below:

Carrying Amount as of December 31,

2017

Adjustments Arising from

Initial Application

Adjusted Carrying

Amount as of January 1, 2018

Impact on assets, liabilities and equity Financial assets at fair value through

profit or loss - current $ 162,295,384 $ 163,194,124 $ 325,489,508Financial assets at fair value through

other comprehensive income - current - 633,933,516 633,933,516

Available-for-sale financial assets - current 423,514,613 (423,514,613) -

Held-to-maturity financial assets 980,606,580 (980,606,580) -Financial assets measured at

amortized cost - current - 1,292,247,664 1,292,247,664Financial assets measured at cost -

current 2,915,219 (2,915,219) -Debt investments with no active

market - current 657,169,492 (657,169,492) -Account receivable 68,774,189 (528,978) 68,245,211Loans, net 697,269,130 (993,676) 696,275,454Deferred tax assets 14,072,574 65,515 14,138,089 Total effect on assets $ 3,006,617,181 $ 23,712,261 $ 3,030,329,442 Other reserve $ 415,586 $ 29,353 $ 444,939Deferred tax liabilities 3,539,977 3,901,236 7,441,213 Total effect on liabilities $ 3,955,563 $ 3,930,589 $ 7,886,152 Retained earnings $ 42,123,659 $ (4,760,005) $ 37,363,654Other equity (12,782,589) 24,485,583 11,702,994Non-controlling interests 14,660,102 56,094 14,716,196 Total effect on equity $ 44,001,172 $ 19,781,672 $ 63,782,844

3) IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations from January 1, 2018.

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When applying IFRS 15, an entity shall recognize revenue by applying the following steps: Identify the contract with the customer; Identify the performance obligations in the contract; Determine the transaction price; Allocate the transaction price to the performance obligations in the contract; and Recognize revenue when the entity satisfies a performance obligation. The Group elects to retrospectively apply IFRS 15 to contracts that are not complete on January 1, 2018 and recognize the cumulative effect of the change in retained earnings on January 1, 2018. For all contract modifications that occurred on or before December 31, 2017, the Group will not apply the requirements in IFRS 15 individually to each of the modifications, and will identify the performance obligations and determine and allocate transaction prices in a manner that reflects the aggregate effect of all modifications that occurred before December 31, 2017. Whether applying current standards or applying IFRS 15, the revenue from all contracts of the Group’s customers is a single component. The Group assesses that the application of IFRS 15 does not affect assets, liabilities and equity as of December 31, 2017 and comprehensive income and cash flows for the year ended December 31, 2017.

4) IFRIC 22 “Foreign Currency Transactions and Advance Consideration” IAS 21 stipulated that a foreign currency transaction shall be recorded on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. IFRIC 22 further explains that the date of the transaction is the date on which an entity recognizes a non-monetary asset or non-monetary liability from payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine the date of the transaction for each payment or receipt of advance consideration. The Group will apply IFRIC 22 prospectively to all assets, expenses and income recognized on or after January 1, 2018 within the scope of the interpretation.

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New IFRSs

Effective Date Announced by IASB (Note 1)

Annual Improvements to IFRSs 2015-2017 Cycle January 1, 2019 Amendments to IFRS 9 “Prepayment Features with Negative

Compensation” January 1, 2019 (Note 2)

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

To be determined by IASB

IFRS 16 “Leases” January 1, 2019 (Note 3) IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 28 “Long-term Interests in Associates and Joint

Ventures” January 1, 2019

IFRIC 23 “Uncertainty Over Income Tax Treatments” January 1, 2019 Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on

or after their respective effective dates. Note 2: The FSC permits the election for early adoption of the amendments starting from 2018.

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Note 3: On December 19, 2017, the FSC announced that IFRS 16 will take effect starting from January 1, 2019.

1) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its

Associate or Joint Venture” The amendments stipulate that, when an entity sells or contributes assets that constitute a business (as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transaction is recognized in full. Also, when an entity loses control of a subsidiary that contains a business but retains significant influence or joint control, the gain or loss resulting from the transaction is recognized in full. Conversely, when an entity sells or contributes assets that do not constitute a business to an associate or joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does not contain a business but retains significant influence or joint control over an associate or a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss is eliminated.

2) IFRS 16 “Leases” IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations. Under IFRS 16, if the Group is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the consolidated balance sheets except for low-value and short-term leases. The Group may elect to apply the accounting method similar to the accounting for operating leases under IAS 17 to low-value and short-term leases. On the consolidated statements of comprehensive income, the Group should present the depreciation expense charged on right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed by using the effective interest method. On the consolidated statements of cash flows, cash payments for the principal portion of lease liabilities are classified within financing activities; cash payments for the interest portion are classified within operating activities. The application of IFRS 16 is not expected to have a material impact on the accounting of the Group as lessor. When IFRS 16 becomes effective, the Group may elect to apply this standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this standard recognized at the date of initial application.

3) IFRS 17 “Insurance Contracts”

IFRS 17 sets out the accounting standards for insurance contracts that will supersede IFRS 4. The main standards of IFRS 17 are as follows: Level of aggregation IFRS 17 requires the Group to identify portfolios of insurance contracts, which comprises contracts that are subject to similar risks and managed together. Contracts within a product line would be expected to have similar risks and hence would be expected to be in the same portfolio if they are managed together. Each portfolio of insurance contracts issued shall be divided into a minimum of: a) A group of contracts that are onerous at initial recognition;

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b) A group of contracts that at initial recognition have no significant possibility of becoming onerous subsequently;

c) A group of the remaining contracts in the portfolio. The Group is not permitted to include contracts issued more than one year apart in the same group. Recognition The Group shall recognize a group of insurance contracts it issues from the earliest of the following: a) The beginning of the coverage period of the group of contracts; b) The date when the first payment from a policyholder in the group becomes due; and c) For a group of onerous contracts, when the group becomes onerous. Measurement The Group shall include all the future cash flows within the boundary of each contract in the Group. The fulfilment cash flows comprises estimates of future cash flows, an adjustment to reflect the time value of money, and a risk adjustment for non-financial risk. The contractual service margin represents the unearned profit of the group of insurance contracts that the Group will recognize as it provides services in the future. This is measured on initial recognition of a group of insurance contracts at an amount that, unless the group of contracts is onerous, results in no income or expenses arising from: a) The initial recognition of an amount for the fulfilment cash flows; b) The derecognition at that date of any asset or liability recognized for insurance acquisition cash

flows; and c) Any cash flows arising from the contracts in the group at that date. Subsequent measurement On subsequent measurement, the carrying amount of a group of insurance contracts at the end of each reporting period shall be the sum of the liability for remaining coverage and the liability for incurred claims. The liability for remaining coverage comprises the fulfilment cash flows related to future services and the contractual service margin of the group at that date. On subsequent measurement, if a group of insurance contracts becomes onerous or more onerous, that excess shall be recognized in profit or loss. Onerous contracts An insurance contract is onerous at initial recognition if the total of the fulfilment cash flows, any previously recognized acquisition cash flows and any cash flows arising from the contract at that date is a net outflow. The Group shall recognize a loss in profit or loss for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows and the contractual service margin of the group being zero. The contractual service margin cannot increase and no revenue can be recognized, until the onerous amount previously recognized has been reversed in profit or loss as part of a service expense.

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Premium allocation approach The Group may simplify the measurement of the liability for remaining coverage of a group of insurance contracts using the Premium Allocation Approach (PAA) on the condition that, at the inception of the group: a) The Group reasonably expects that this will be a reasonable approximation of the general

model, or b) The coverage period of each contract in the group is one year or less. At the inception of the group, if the Group expects significant variances in the fulfilment cash flows during the period before a claim is incurred, such contracts are not eligible to apply the PAA. When using the PAA, the liability for remaining coverage shall be initially recognized as the premiums, if any, received at initial recognition, minus any insurance acquisition cash flows. Subsequently the carrying amount of the liability is the carrying amount at the start of the reporting period plus the premiums received in the period, minus insurance acquisition cash flows, plus amortization of acquisition cash flows, minus the amount recognized as insurance revenue for coverage provided in that period, and minus any investment component paid or transferred to the liability for incurred claims. Investment contracts with discretionary participation features An investment contract with discretionary participation features is a financial instrument and it does not include a transfer of significant insurance risk. It is in the scope of the standard only if the issuer also issues insurance contracts. The requirements of the Standard are modified for such investment contracts. Modification and derecognition If the terms of an insurance contract are modified, the Group shall derecognize the original contract and recognize the modified contract as a new contract if there is a substantive modification, based on meeting any of the specified criteria. The Group shall derecognize an insurance contract when it is extinguished, or if any of the conditions of a substantive modification of an insurance contract are met. Transition The Group shall apply the standard retrospectively unless impracticable, in which case entities have the option of using either the modified retrospective approach or the fair value approach. Under the modified retrospective approach, an entity shall utilize reasonable and supportable information and maximize the use of information that would have been used to apply a full retrospective approach, but need only use information available without undue cost or effort. The Group shall apply fair value approach if reasonable and supportable information is unavailable. Under the fair value approach, the Group determines the contractual service margin at the transition date as the difference between the fair value of a group of insurance contracts at that date and the fulfilment cash flows measured at that date.

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4) IFRIC 23 “Uncertainty Over Income Tax Treatments” IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Group should assume that the taxation authority will have full knowledge of all related information when making related examinations. If the Group concludes that it is probable that the taxation authority will accept an uncertain tax treatment, the Group should determine the taxable profit, tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatments used or planned to be used in its income tax filings. If it is not probable that the taxation authority will accept an uncertain tax treatment, the Group should make estimates using either the most likely amount or the expected value of the tax treatment, depending on which method the entity expects to better predict the resolution of the uncertainty. The Group has to reassess its judgments and estimates if facts and circumstances change. On initial application, the Group shall apply IFRIC 23 either retrospectively to each prior reporting period presented, if this is possible without the use of hindsight, or retrospectively with the cumulative effect of the initial application of IFRIC 23 recognized at the date of initial application.

5) Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” The amendments clarified that IFRS 9 shall be applied to account for other financial instruments in an associate or joint venture to which the equity method is not applied. These included long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. When the amendments become effective, the Group shall apply the amendments retrospectively. However, the Group may elect to recognize the cumulative effect of the initial application of the amendments in the opening carrying amount at the date of initial application, or to restate prior periods if, and only if, it is possible without the use of hindsight.

6) Amendments to IFRS 9 “Prepayment Features with Negative Compensation” IFRS 9 stipulated that if a contractual term of a financial asset permits the issuer (i.e. the debtor) to prepay a debt instrument or permits the holder (i.e. the creditor) to put a debt instrument back to the issuer before maturity and the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination, the financial asset has contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. The amendments further explained that reasonable compensation may be paid or received by either of the parties, i.e. a party may receive reasonable compensation when it chooses to terminate the contract early. When the amendments become effective, the Group shall apply the amendments retrospectively. However, the Group may elect to recognize the cumulative effect of the initial application of the amendments in the opening carrying amount at the date of initial application, or to restate prior periods if, and only if, it is possible without the use of hindsight.

7) Annual Improvements to IFRSs 2015-2017 Cycle Several standards, including IFRS 3, IFRS 11, IAS 12 and IAS 23 “Borrowing Costs”, were amended in this annual improvement. IAS 23 was amended to clarify that, if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalization rate on general borrowings. The amendment shall be applied prospectively.

Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed.

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4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Financial Holding Companies, Regulations Governing the Preparation of Financial Statements by Insurance Companies, Guidelines Governing the Preparation of Financial Reports by Public Banks, Guidelines Governing the Preparation of Financial Statements by Securities Firms, Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants and IFRSs as endorsed by the FSC. Basis of Preparation The consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values. The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: a. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; b. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the

asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). c. Level 3 inputs are unobservable inputs for the asset or liability. Classification of Current and Non-current Assets and Liabilities The assets and liabilities in the consolidated financial statements are classified according to the nature of each account and stated in the order of their liquidity rather than divided into current or noncurrent accounts. Basis of Consolidation Principles for preparing consolidated financial statements

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company. Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Company.

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See Note 15 and Table 4 following these Notes to Consolidated Financial Statements for the detailed information of subsidiaries, including the percentage of ownership and main business.

Foreign Currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period. Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Non-monetary items that are measured at historical cost in a foreign currency are not retranslated. For the purposes of presenting consolidated financial statements, the assets and liabilities of the foreign operations (including of the subsidiaries, associates, joint ventures or branches operations in other countries or currencies used different with the Company) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are recognized in other comprehensive income (attributed to the owners of the Company and non-controlling interests as appropriate). On the disposal of a foreign operation (i.e. a disposal of the Company’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss. In relation to a partial disposal of a subsidiary that does not result in the Company losing control over the subsidiary, the proportionate share of accumulated exchange differences is re-attributed to non-controlling interests of the subsidiary and is not recognized in profit or loss. For all other partial disposals, the proportionate share of the accumulated exchange differences recognized in other comprehensive income is reclassified to profit or loss. Investment in Associates and Joint Ventures An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Joint venture is a joint arrangement whereby the Group and other parties that have joint control of the arrangement have rights to the net assets of the arrangement. Under the equity method, an investment in an associate and joint venture is initially recognized at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate and joint venture. The Group also recognizes the changes in the Group’s share of equity of associates and joint ventures. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets and liabilities of an associate or a joint venture at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Group’s

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share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss. When the Group subscribes for additional new shares of the associate and joint venture at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate and joint venture. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in the Group’s share of equity of associates and joint ventures. If the Group’s ownership interest is reduced due to the additional subscription of the new shares of associate and joint venture, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate and joint venture is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings. When the Group’s share of losses of an associate and a joint venture equals or exceeds its interest in that associate and joint venture (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of the Group’s net investment in the associate and joint venture), the Group discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate and joint venture. The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is deducted from the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases. The Group discontinues the use of the equity method from the date on which its investment ceases to be an associate and a joint venture. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate and the joint venture attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate and the joint venture. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate and the joint venture on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Group continues to apply the equity method and does not remeasured the retained interest. When a group entity transacts with its associate and joint venture, profits and losses resulting from the transactions with the associate and joint venture are recognized in the Group’ consolidated financial statements only to the extent of interests in the associate and the joint venture that are not related to the Group. Property and Equipment Property and equipment are stated at cost, less accumulated depreciation and accumulated impairment loss. Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Cost includes professional fees. Such properties are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

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Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Investment Properties Investment properties are properties held to earn rentals or for capital appreciation (including property under construction for such purposes). Investment properties also include land held for a currently undetermined future use. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method. Investment properties under construction are stated at cost less accumulated impairment loss. Cost includes professional fees. Depreciation of these assets commences when the assets are ready for their intended use. Any gain or loss arising on derecognition of the property is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is included in profit or loss in the period in which the property is derecognized. Goodwill Goodwill arising from the acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment loss. For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired, by comparing its carrying amount, including the attributable goodwill, with its recoverable amount. However, if the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods. If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that unit, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal, and is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. Intangible Assets Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization. Amortization is recognized on a straight-line basis. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless the Group expects to dispose of the intangible asset before the end of its economic life. Any changes in estimates are accounted for on a prospective basis.

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On derecognition of an intangible asset, the difference between the net disposal proceeds and the carrying amount of the asset are recognized in profit or loss. Impairment of Tangible and Intangible Assets Other Than Goodwill At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis of allocation/Corporate assets are allocated to the smallest group of cash-generating units on a reasonable and consistent allocation basis. Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount, with the resulting impairment loss recognized in profit or loss. When an impairment loss is subsequently reversed, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss. Assets Held for Sale Assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. To meet the criteria for the sale being highly probable, the appropriate level of management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Assets classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. Recognition of depreciation of those assets would cease. Financial Instruments Financial assets and financial liabilities are recognized when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. a. Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

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1) Measurement category

Financial assets are classified into the following categories: Financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets, and loans and receivables. a) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss. Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 50.

b) Held-to-maturity investments Commercial paper, corporate bonds, bank debentures, domestic and foreign government bonds, which are above specific credit ratings and the Group has positive intent and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.

c) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Available-for-sale financial assets are measured at fair value. Changes in the carrying amount of available-for-sale monetary financial assets relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed of or is determined to be impaired. Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group’s right to receive the dividends is established. Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and are presented in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between carrying amount and fair value is recognized in other comprehensive income on financial assets. Any impairment losses are recognized in profit and loss.

d) Loans and receivables Loans and receivables (including receivables, cash and cash equivalent, debt investments with no active market, and loans) are measured at amortized cost using the effective interest method,

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less any impairment, except for short-term receivables when the effect of discounting is immaterial. Cash equivalent includes time deposits and commercial paper with original maturities within three months from the date of acquisition, highly liquid, readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

2) Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. a) Loans and accounts receivable (including held-to-maturity financial assets and debt securities

with no active market) SKLIC and TSKCB evaluate the collectability of credit assets based on the financial conditions of the borrowers and the payments of principal or interests as well as the values of specific loans’ collaterals assessed by the companies according to the conditions of the collaterals and the length of time overdue, in accordance with Regulation Governing the Procedures for Insurance Companies to Evaluates Assets and Deal with Nonperforming/Non-accrual Loans and Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Non-accrual Loans issued by the FSC. Unsound credit assets are classified into four categories as those require special mention, substandard, doubtful, and losses, with the minimum loan loss provision and guarantee reserve as the sum of 2%, 10%, 50% and 100% of above four categories of unsound credit assets, respectively. Besides, additional allowance for doubtful accounts should be provided as 0.5% of normal credit assets excluding policy loans, premium loans and loans to government institutions. TSKCB provides allowance of doubtful accounts at least 1% of total loans according to the Rule No. 10010006830 issued by the Bank Bureau. The allowance of doubtful accounts for property loan should be reserved at least 1.5% according to Rule No. 10300329440 issued by the Bank Bureau. Credit assets deemed uncollectible are written off after the approval of the board of directors. Loans and accounts receivable are assessed for impairment at the end of each reporting period and considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the accounts receivable, the estimated future cash flows of the asset have been affected. Objective evidence of impairment could include: Significant financial difficulty of the debtor; Accounts receivable becoming overdue; or It is becoming probable that the debtor will enter bankruptcy or financial re-organization. For financial assets carried at amortized cost, such as loans and accounts receivable, assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables and loans.

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For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

b) Available-for-sale financial assets For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract, such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for that financial asset because of financial difficulties. When an available-for-sale financial asset is considered to be impaired, cumulative losses previously recognized in other comprehensive income are reclassified to profit or loss in the period. In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, the impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

c) Financial assets carried at cost For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of loans and receivables, where the carrying amount is reduced through the use of an allowance account. When loans and receivable and other receivables are considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss except for uncollectible trade receivables and other receivables that are written off against the allowance account.

3) Derecognition of financial assets The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

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On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.

b. Equity instruments Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs. Repurchase of the Company’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

c. Financial liabilities 1) Subsequent measurement

Except financial liabilities at fair value through profit or loss, all the financial liabilities are measured at amortized cost using the effective interest method. Financial liabilities are classified as at fair value through profit or loss when the financial liability is either held for trading or it is designated as at fair value through profit or loss. Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any interest or dividend paid on the financial liability.

2) Derecognition of financial liabilities The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

d. Convertible bonds The component parts of compound instruments (convertible bonds) issued by the Group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. On initial recognition, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or the instrument’s maturity date. Any embedded derivative liability is measured at fair value. The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to capital surplus - share premium. When the conversion option remains unexercised at maturity, the balance recognized in equity will be transferred to capital surplus - share premium.

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Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component.

e. Derivative financial instruments The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts, interest rate swaps and foreign exchange options. Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability. Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at fair value through profit or loss.

Margin Trading, Short Sale and Re-financing for Security Business The Group recognizes margin loans as loans to customers for stock purchases on margin while providing financing to investors. Margin loans made by the Group are collateralized by securities purchased using the margin loans. These collateralized securities are only recorded in memorandum instead of statutory accounts. After the security investors settle the margin loan, these pledged securities are returned to investors. The Group receives deposits from security investors for short sale services to investors. The deposits are recorded as deposits on short-sale transactions. The amounts collected from selling of short sale securities (net of securities transaction tax, brokerage fee and handling fee) are kept by the Group as collateral and recorded as payable for short-sale transactions. The securities lent to clients as short sale are recorded in memorandum. The deposits and payable for short sale are returned to security investors after investors settle the short-sale transactions. The Group borrows loans from other securities lenders when the Group does not have sufficient fund to conduct margin trading. Besides, the Group borrows securities from other securities lenders when the Group does not have sufficient securities to conduct securities trading, for which the deposits paid are recorded as refinancing margins, and the related amounts for sales of borrowed securities collected from clients are collateralized to the securities lenders and recorded as refinancing deposits receivable. The Group recorded the receivables from security investors in the security business as accounts receivable, with allowance for doubtful accounts based on their collectability on balance sheet date. The collaterals received in the security business are recorded in memorandum. When the Group loans or lends securities, the sources of securities are owned securities, lent securities from short sale through the system of Taiwan Stock Exchange, and collateralized securities from short sale through security business. When owned securities are lent, these owned securities are reclassified as lent securities and measured at fair value on valuation date; when securities from other sources are lent, the transactions are only recorded in memorandum as of balance sheet date instead of in financial statements.

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The securities collaterals received in the security business are only recorded in memorandum instead of statutory accounts, and transactions of collaterals should be recorded for every client; cash collaterals are recorded as deposits received for securities lending. The proceeds from security lending and processing fee are recorded as security lending income. Separate Accounts The Group sells investment type insurance policies. The insurance premiums paid by policyholders, net of several expenses of the insurance companies, according to agreed terms are invested in separate accounts at allocation agreed with or directed by the policyholders. The value of the separate-account assets on the valuation date is measured in accordance with the related regulations and generally accepted accounting principles. The assets and liabilities of separate accounts, which are generated either from insurance contracts or from insurance contracts with features of financial instrument, are recorded in assets on insurance products - separate accounts and liabilities on insurance products - separate accounts. The revenues and expenses of separate accounts, which represent income and expenses, pursuant to IFRS 4 “Insurance Contracts”, are recorded in income on insurance products - separate accounts and disbursements on insurance products - separate accounts. Insurance Liabilities Reserves SKLIC provides reserve for insurance products and financial instruments with discretionary participation feature pursuant to the Regulations Governing Calculation of Various Reserves for Operations, which are attested by actuaries accredited by the FSC. Except that the provision for short-term group insurance should be based on premium income received according to Tai-Tsai-Bao No. 852367814, other provision methodology is stated as follows: a. Reserve for unearned premiums

Reserve for unearned premiums of effective policies with a term less than one year and of accident insurance with a term exceeding one year is provided by policy type according to the risk for the remaining policy period.

b. Reserve for claim payments Reserve for claim payments is for claims which are reported but not yet paid and incurred but not yet reported. Reserve for claim payments reported but not yet paid is provided by case based on actual data. Reserve for claim payments incurred but not yet reported is provided as follows: 1) Health insurance and life insurance with a term less than one year is provided by insurance based on

past claims experience and expenses in accordance with actuarial principle, such as loss triangle; and

2) Accident insurance is provided by insurance based on past claims experience and expenses in

accordance with actuarial principle, such as loss triangle.

c. Reserve for life insurance liability Reserve for life insurance liability is provided according to modified standards stated by Article 12 of the Regulations Governing Calculation of Various Reserves for Operations and other calculation descriptions of insurance product reported to and approved by authorities, based on the mortality table and projected interest rate in effect at the time when each insurance product is reported to and approved by the authorities.

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For the effective policies whose policy dividends are applicable to the dividends formula of Tai-Tsai-Bao No. 800484251, the amount of decrease in dividends due to the netting-off of gain and loss from mortality margin and from interest margin in current period should be provided in reserve for life insurance liability of long-term effective policies.

d. Special reserve for life insurance The Group sells participating life insurance. According to related regulations, at annual closing, special reserve for participating policy dividends should be provided according to income before tax of participating life insurance business each year, which is calculated based on Expenses and Revenues Allocation Principles of Participating and Nonparticipating Life Insurance reported to authorities, and should be reversed on declaration date. If the balance of special reserve for participating policy dividends is negative, special reserve for dividend risks should be provided in equal amount. SKLIC measured investment properties at fair value according to Article 32 of Regulations Governing the Preparation of Financial Statements by Insurance Companies, and the surplus should be first offset by the negative effect of other accounts due to first-time adoption of IFRSs and then provided as a special reserve for insurance liabilities as of the date of transition to IFRSs. Please refer to Note 32.

e. Reserve for insufficient premiums New life insurance, health insurance and annuity policies written since 2001, with terms exceeding one year and with premiums lower than the corresponding liability reserve required by regulations, are subject to reserve for insufficient premiums, and the amount by which the premium falls short of the liability reserve is provided as reserve for insufficient premiums.

f. Liability adequacy reserve Liability adequacy reserve is based on the result of liability adequacy test according to IFRS 4.

Liability Adequacy Test Liability adequacy test is performed in accordance with IFRS 4. The adequacy test of insurance liabilities is applied to recognized insurance liabilities based on current estimates of future cash flows from insurance policies. If the insurance liabilities are insufficient, the deficiency should be recognized as liability adequacy reserve. Reserve for Changes in Foreign Exchange Valuation The reserve for changes in foreign exchange valuation is provided for by life insurance companies to manage the foreign exchange risk, lower cost and strengthen solvency. SKLIC provides this reserve according to Article 23-1 of Regulations Governing Calculation of Various Reserves for Operations for its foreign investment assets. Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable. a. Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.

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Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

b. Rendering of services Service revenue is recognized when it is realized or realizable and most of service is provided.

c. For insurance contracts and financial instruments with discretionary participation feature, the first-year premiums are recognized as received and the underwriting procedures completed, and the renewal premiums are recognized as scheduled and received. Acquisition costs, such as commissions are recognized in profit or loss as related insurance contracts become effective.

d. Gain or loss on sales of securities and processing fee income are recognized when security transactions

complete. e. For security underwriting business, processing fee income for subscription is recognized as received,

and processing fee income and related expense for underwriting are recognized as underwriting contract is completed.

f. Income from registrar business is recognized by month according to contracts. g. Handling expenses for agency business and operation are recognized on transaction completion. Classification of Insurance Products An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. The Group identifies significant insurance risk as significant extra payments incurred only if there is an insured event, and excluding the circumstances without commercial substance (that is, the economic effect is small). Insurance contract with the nature of financial instruments is a contract that makes the contract issuer exposed to financial risk and without significant insurance risk. Financial risk is the risk that one or multiple interest rates, the price of financial instruments, commodity price, exchange rate, price index, insurance premium index, credit ratings, credit index or other variables (if it is a non-financial variable, it has to be non-specific to both parties) will change in the future. The policy that initially met the definition of insurance contract remains an insurance contract until all of the rights and obligations expire, even though the insurance risk has been significantly reduced through the duration of insurance. However, if significant insurance risk of the insurance contract with the nature of financial instruments is transferred to the Group afterwards, it shall be reclassified into insurance contract. Insurance contracts whether or not with the nature of financial instruments can also be classified as whether or not with discretionary participation feature. Discretionary participation feature is a contractual right to receive, as a supplement to guaranteed benefits, additional benefits: a. That is likely to be a significant portion of the total contractual benefits; b. Whose amount or timing is contractually at the discretion of the issuer; and c. That is contractually based on:

1) The performance of a specified pool of contracts or a specified type of contract; 2) Realized and/or unrealized investment returns on a specified pool of assets held by the Group; or 3) The profit or loss of the Group, fund or other entity that issues the contract.

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An embedded derivative shall be separated from its host contract and accounted for as a derivative when (1) the economic risks and characteristics of the embedded derivative are not closely related to those of the host contract; (2) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and (3) the entire instrument is not measured at fair value with changes in fair value recognized in the income statement. Reinsurance In order to limit potential losses from certain risk events, the Group enters into reinsurance agreements with the reinsurers according to its business needs and related insurance regulations. The Group cannot refuse to perform the obligations to the insured on the ground the reinsurers has failed to fulfill their obligations. The Group’s rights to the reinsurers, including reinsurance assets, claims recovered from reinsurers, and net due from reinsurers and ceding companies, are required to be tested for impairment testing on a regular basis. An impairment loss is recognized when there is objective evidence that an event happens after initial recognition causing the Group to be unable to collect receivables as stated in contract and the irrecoverable amount can be reliably measured. The difference between the recoverable amount and the book value of the underlying right is recognized as an impairment loss. The reinsurance contract is classified by whether or not the Group transfers significant insurance risk to the reinsurers. If significant insurance risk is not transferred, the contract should apply deposit accounting. For the reinsurance contract with significant insurance risk transferred, if the Group can evaluate the deposit component individually, the insurance component and the deposit component are unbundled separately. That is, the difference between the contract consideration the Group receives or pays and the amount of the insurance component is recognized as financial liabilities or assets instead of revenues or expenses. The financial assets or liabilities are recognized and measured at fair value, which is based on the discounted value of future cash flows. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. a. The Group as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease unless another systematic basis is representative of the time pattern of the lessee’s benefit from the use of the leased asset.

b. The Group as lessee Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

c. Leasehold land for own use When a lease includes both land and building elements, the Group assesses the classification of each element as finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Group.

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Employee Benefits a. Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

b. Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions. Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost) and net interest on the net defined benefit liability (asset) are recognized as employee benefits expense in the period they occur. Remeasurement, comprising actuarial gains and losses and the return on plan assets, is recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Net defined benefit liability (asset) represents the actual deficit (surplus) in the Group’s defined benefit plan. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

c. Other long-term employee benefits

Other long-term employee benefits are accounted for in the same way as the accounting required for defined benefit plan except that remeasurement is recognized in profit or loss.

d. Termination benefits

A liability for a termination benefit is recognized at the earlier of when the Group can no longer withdraw the offer of the termination benefit and when the Group recognizes any related restructuring costs.

Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. a. Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain the earnings. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

b. Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all (deductible temporary differences, unused loss carry forward and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures) to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

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Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint arrangements, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

c. Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. The Company and its subsidiaries which the Company holds more than 90% of the outstanding shares adopt the accounting treatment of the consolidated income tax return. The difference of current income tax and deferred income tax between consolidated income tax return and the sum of income tax of the subsidiaries included in the consolidated tax return is considered as the Company’s income tax adjustment. Any distribution of cash payments and receipts among the consolidated group members is recorded as receivable or payable.

Securities Purchased/Sold Under Resale/Repurchase Agreements Securities purchased under resale agreements and securities sold under repurchase agreements are generally treated as collateralized financing transactions. Interest earned on resale agreements or interest incurred on repurchase agreements is recognized as interest revenue or interest expense over the life of each agreement.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

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a. Held-to-maturity financial assets

Management has reviewed the Group’s held-to-maturity financial assets in light of its capital maintenance and liquidity requirements and has confirmed the Group’s positive intention and ability to hold those assets to maturity.

b. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

c. Income taxes As of December 31, 2017 and 2016, the carrying amount of deferred tax assets in relation to unused tax losses was $179,441 thousand and $7,746,490 thousand, respectively. As of December 31, 2017 and 2016 no deferred tax asset has been recognized on tax losses of $39,076,120 thousand and $39,663,120 thousand, respectively, due to the unpredictability of future profit streams. The realizability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognized in profit or loss for the period in which such a reversal takes place.

d. Valuation of financial instruments at fair value through profit or loss with quoted price in no active markets As described in Note 50 to the accompanying consolidated financial statements, for the years ended December 31, 2017 and 2016, the Group held financial instruments at fair value through profit or loss with public quoted price in non-active markets. The Level 2 and Level 3 financial instruments which amounted to $114,988,871 thousand and $113,068,543 thousand, respectively, of assets and $2,911,401 thousand and $21,513,631 thousand, respectively, of liabilities were significant. The financial instruments at fair value through profit or loss with public quoted prices in non-active markets were mainly derivative financial instruments and bond investments. For the above financial instruments, the management of the Group applied valuation models to determine the fair values. Note 50 provides detailed information about the key assumptions used in the determination of the fair value of financial instruments and the sensitivity tests of these assumptions.

e. Valuation of reserve for life insurance liability and liability adequacy test Management adopts actuarial models and several significant assumptions for estimating the reserve for life insurance liability and the reserve for liability adequacy. Judging the reserve for life insurance liability involves significant assumptions, which include mortality rate, discount rate, lapse rate, morbidity rate, etc. The setup of assumptions are based on legislation, regulations, knowledge of the Group’s actual experience and industry-specific experience. The tests performed in respect of the reserve for liability adequacy on insurance contracts are in accordance with regulations enacted by the Actuarial Institute of the Republic of China, and the setup of future test discount rates accounts for the Group’s best estimate scenario as well as the rate of portfolio return under the current information. The management examines these estimates continuously and made adjustments when necessary, but actual results may differ from these estimates.

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f. Impairment of loans, debt securities with no active market and held-to-maturity financial assets

The occurrence of objective evidence of impairment loss on loans will impact the assumptions of cash flows. The amount of impairment loss is measured as the difference between an asset’s carrying amount and the present value of its estimated future cash flows (excluding future credit loss that had not yet happened) discounted at its original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise. Refer to Note 13 for the carrying amount and the allowance for impairment loss recognized on loans. On the other hand, the amount of the impairment loss for debt securities with no an active market and held-to-maturity financial assets is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The management’s estimates and analysis of future cash flows were based on the past loss experience of assets with similar credit risk characteristic. To decrease the gap between the estimates and actual losses, methodology and assumption of estimated future cash flows are reviewed periodically.

6. CASH AND CASH EQUIVALENTS

December 31 2017 2016 Cash on hand $ 5,538,382 $ 5,549,919Checking accounts and demand deposits 65,432,272 26,876,710Time deposits with original maturities less than three months 29,226,739 11,866,881Checks for clearing 3,476,593 3,241,394Cash equivalents 1,243,280 1,418,723Less: Guarantee deposits paid (376,337) (358,812) $ 104,540,929 $ 48,594,815 The interest rate intervals of time deposits mature in three months at the end of the reporting period were as follows: December 31 2017 2016 Time deposits (domestic and foreign) 0.14%-5.33% 0.07%-9.80%

7. DUE FROM CENTRAL BANK AND OTHER BANKS

December 31 2017 2016 Checking account reserve $ 17,365,620 $ 28,556,673Demand account reserve 17,610,463 16,934,210Inter-bank clearing account 804,537 800,539Foreign currency deposit reserve 89,544 159,372Time deposit from Central Bank - 32,700,000Due from banks 1,007,343 1,710,787 $ 36,877,507 $ 80,861,581

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The deposit reserves, which are calculated by multiplying the average monthly balances of all deposit accounts by the legally required ratio, are kept in the Central Bank of China. Among above reserves, the demand account reserve can be used only for the monthly adjustment of the deposit reserve, and others can be used any time.

8. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

December 31 2017 2016 Financial assets held for trading Domestic investments

Listed shares and emerging market shares $ 9,105,555 $ 7,222,322Beneficial certificates 4,118,837 9,710,335Corporate bonds and bank debentures 24,377,360 24,318,749Government bonds 5,578,017 4,229,541Commercial paper 13,912,228 9,426,830Negotiable time deposits 81,219,370 37,009,270Currency options 308,063 3,164,888Currency swap contracts 5,237,423 335,282Asset swap options 793,651 402,907Equity swap contracts 171,771 199,362Short-term notes 798,579 798,762Lending securities 46,843 Others 256,225 361,583

145,923,922 97,179,831Foreign investments

Listed shares 10,226,743 8,900,121Beneficial certificates 2,107,943 3,923,024Bonds 252,466 499,523Foreign exchange forward contracts 3,340,413 321,623Interest rate swap contracts 144,836 146,200

16,072,401 13,790,491 $ 161,996,323 $ 110,970,322 Financial assets designated at FVTPL Asset swap-linked corporate bonds $ 299,061 $ 235,805 Financial liabilities held for trading Domestic investments

Currency swap contracts $ 246,043 $ 11,618,781Currency options 308,144 3,202,418Assets swap options 908,396 511,871Borrowed securities payable - non-hedge 360,964 678,282Borrowed securities payable - hedge 340,038 545,040Interest rate swap contracts 154,868 146,267Equity swap contracts 171,771 199,362Share warrants liabilities, net 617,001 469,427Short options liabilities - futures 17,860 21,889

(Continued)

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December 31 2017 2016

Asset swap IRS contract value $ 143,876 $ 103,924Bonds purchased under resale agreements - short sale - 569,370Others 210,905 1,625,339 3,479,866 19,691,970

Foreign investments Foreign exchange forward contracts 45,200 3,326,628

$ 3,525,066 $ 23,018,598 Financial liabilities designated at FVTPL Structured instrument notes - credit-linked $ 722,197 $ 1,078,363

(Concluded) a. SKLIC entered into trust agreements with Mega International Commercial Bank to invest in foreign

securities in a prescribed manner. Furthermore, SKLIC reached a discretionary investment agreement with Asset Management One Hong Kong Ltd. (“AMO”), JP Morgan Asset Management Co., Ltd., Goldman Sachs Assets Management Co., Ltd., BlackRock Assets Management Co., Ltd., GAM Holding Ltd., Shin Kong Investment Trust Co., Ltd., Fuh Hwa Securities Investment Trust Co., Ltd., and MasterLink Securities Investment Advisory Co., Ltd. consigning these companies to invest in foreign securities. As of December 31, 2017, above transactions were as follows:

Consigning

Amount Advanced to Consignee (Note 1) Mega International Commercial Bank US$2 billion NT$ 908,632 thousand AMO US$100 million NT$ 5,176,633 thousand JP Morgan Asset Management Co., Ltd. NT$ 15,939 thousand (Note 2)Goldman Sachs Assets Management Co., Ltd. NT$ 170,539 thousand (Note 3)BlackRock Assets Management Co., Ltd. US$50 million NT$ 1,531,412 thousand GAM US$120 million NT$ 3,999,415 thousand Shin Kong Investment Trust Co., Ltd. US$5 billion NT$ 5,025,364 thousand Fuh Hwa Securities Investment Trust Co., Ltd. US$1 billion NT$ 1,278,938 thousand MasterLink Securities Investment Advisory

Co., Ltd. US$2 billion NT$ 2,001,885 thousand

Note 1: The entrusted transactions include financial assets designated at FVTPL, available-for-sale

financial assets, and debt investments with no active market. Note 2: The Group terminated the discretionary investment agreement with JP Morgan Asset

Management Co., Ltd. on March 16, 2016. As of December 31, 2017, the discretionary assets have not been settled.

Note 3: The Group terminated the discretionary investment agreement with Goldman Sachs Assets

Management Co., Ltd. on June 28, 2017. As of December 31, 2017, the discretionary assets have not been settled.

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b. SKLIC entered into derivative instruments during the years ended December 31, 2017 and 2016 to manage exposures to exchange rate and interest rate fluctuations. The financial risk management objective of SKLIC is to minimize risks due to changes in fair value or cash flows. SKLIC did not adopt hedge accounting for derivative instruments. SKLIC’s settled gain (loss), realized (loss) gain, exchange gain or loss, and net changes of reserve for changes in foreign exchange valuation in relation to currency derivatives were as follows:

December 31 2017 2016 Currency derivatives

Settled gain $ 40,493,570 $ 14,125,453Realized gain (loss) 23,699,352 (377,095)

Exchange gain or loss Gross amount of exchange loss (108,548,578) (86,546,427)Gross amount of exchange gain 21,396,818 57,948,540

Net changes of reserve for changes in foreign exchange valuation 554,791 3,767,084 $ (22,404,047) $ (11,082,445)

c. TSKCB entered into derivative instruments for the customer needs and for managing its foreign

currency demand and risk control. d. MLSC entered into derivative instruments from exchange market, which did not result in material

liquidity risk. e. As of December 31, 2017 and 2016, the Group’s outstanding derivative contracts were summarized as

follows:

(In Thousands)

December 31, 2017 Contract Amount Foreign exchange forward contracts US$ 15,005,000 NT$ 1,694,476Currency swap contracts US$ 20,477,000 NT$ 57,775,590Foreign exchange swap contracts US$ 43,000Equity swap contracts NT$ 1,337,258Currency options NT$ 4,441,764Asset swap options NT$ 185,600Interest rate swap contracts NT$ 8,442,678Short options liabilities - futures NT$ 16,215Structured instrument notes - credit linked NT$ 720,100Cross-currency forward contracts NT$ 522,259Call options - futures NT$ 6,708Stock index future contracts NT$ 451,716

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(In Thousands)

December 31, 2016 Contract Amount Foreign exchange forward contracts US$ 11,234,000 NT$ 16,106,022Currency swap contracts US$ 19,653,000 NT$ 67,500,762Equity swap contracts NT$ 1,604,559Currency options NT$ 56,788,205Asset swap options NT$ 531,500Interest rate swap contracts NT$ 4,103,770Short options liabilities - futures NT$ 22,250Structured instrument notes - credit linked NT$ 1,076,196

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS

December 31 2017 2016 Domestic investments

Listed shares and emerging market shares $ 230,105,176 $ 170,581,875Unlisted shares 1,210,206 1,326,645Preference shares 13,960,162 11,318,273Beneficial certificates 10,397,011 3,957,443Real estate investment trust fund beneficial certificates and

beneficial certificates of financial assets 4,546,674 5,478,859Bonds 45,112,216 39,775,251 305,331,445 232,438,346

Foreign investments Listed shares 32,332,068 40,191,621Beneficial certificates 4,231,811 3,884,027Bonds 71,415,565 80,527,906Preference shares 10,203,724 5,113,877

118,183,168 129,717,431 $ 423,514,613 $ 362,155,777

10. NOTES AND BONDS PURCHASED UNDER RESALE AGREEMENTS

December 31 2017 2016 Investment amount $ 9,500,275 $ 15,483,759 Interest rate 0.34%-0.43% 0.21%-0.5%

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11. ACCOUNTS RECEIVABLE, NET

December 31 2017 2016 Notes receivable $ 1,232,731 $ 1,650,181Accounts receivable 10,199,763 10,070,269Interest receivable 25,726,436 24,286,568Forward contracts receivable 1,737,829 2,084,257Bank acceptance receivable 809,279 946,431Receivables of transactions on securities 479,616 22,450,012Receivables of margin trading 14,241,544 10,405,148Receivables of trade 8,917,342 6,348,954Earned revenue receivable 1,426,999 881,075Others 6,395,197 6,167,173 71,166,736 85,290,068Less: Allowance for impairment loss (Note 13) (2,392,547) (1,398,836) $ 68,774,189 $ 83,891,232

12. ASSETS CLASSIFIED AS HELD FOR SALE

December 31 2017 2016 Cost $ 63,875 $ - Less: Allowance for impairment loss (25,899) - $ 37,976 $ - For the year ended December 31, 2017, the board of directors of SKLIC approved the sale of land of Rui’an Section in Taipei, with a carrying amount of $37,976 thousand. For the year ended December 31, 2017, SKLIC sold Nanjing Park Building in Taipei; refer to Note 37. Since SKLIC could not complete the plan of sale, SKLIC reclassified the land and buildings of the Manhattan building from assets classified as held-for-sale to investment properties for the year ended December 31, 2016, with a recognized depreciation of $21,348 thousand.

13. LOANS, NET

December 31 2017 2016 Policy loans $ 98,706,662 $ 102,156,462Premium loans 9,257,384 9,112,177Loans 591,088,962 583,254,772Overdue loans 5,578,404 1,656,527 704,631,412 696,179,938Allowance for impairment loss (7,362,282) (7,538,682) $ 697,269,130 $ 688,641,256

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Movements in the allowance for impairment loss recognized on loans and overdue loans, and accounts receivable and other financial assets were as follows: 2016

Loans and

Overdue Loans

Accounts Receivable and

Other Assets Total Balance, January 1, 2016 $ 7,573,743 $ 866,267 $ 8,440,010 Impairment losses recognized 685,755 743,961 1,429,716 Write-off as uncollectible (1,365,206) (111,095) (1,476,301)Amounts recovered from prior year write-off 647,030 125,485 772,515 Net exchange differences (2,640) (19,261) (21,901) Balance, December 31, 2016 $ 7,538,682 $ 1,605,357 $ 9,144,039 2017

Loans and

Overdue Loans

Accounts Receivable and

Other Assets Total Balance, January 1, 2017 $ 7,538,682 $ 1,605,357 $ 9,144,039Impairment losses recognized 811,258 1,083,367 1,894,625Write-off as uncollectible (1,416,516) (217,126) (1,633,642)Amounts recovered from prior year write-off 482,081 132,978 615,059Net exchange differences (53,223) (108,628) (161,851) Balance, December 31, 2017 $ 7,362,282 $ 2,495,948 $ 9,858,230

Loans and receivables generated originally were covered in the scope of impairment assessment, and the results were as follows:

Impairment Assessment

Items

December 31, 2017

Loans Accounts Receivable and Other

Assets

Gross AmountAllowance for Impairment

Loss Gross Amount

Allowance for Impairment

Loss

With objective evidence of impairment

Individual impairment assessment

$ 7,424,963 $ 1,155,227 $ 1,377,890 $ 835,859

Collective impairment assessment

2,086,703 691,177 2,571,126 1,440,609

Without objective evidence of impairment


587,155,700 767,144 73,183,047 217,466

Items

December 31, 2016

Loans Accounts Receivable and Other

Assets

Gross AmountAllowance for Impairment

Loss Gross Amount

Allowance for Impairment

Loss

With objective evidence of impairment

Individual impairment assessment

$ 3,381,183 $ 606,931 $ 1,540,793 $ 916,754


2,181,163 728,571 3,044,918 517,574

Without objective evidence of impairment


579,348,953 826,536 140,167,233 78,684

- 52 -

Note 1: The above allowance for impairment losses was calculated in accordance with credit risk-related

requirements under IAS 39 “Financial Instruments: Recognition and Measurement.” However, the Group’s allowance for impairment losses was incurred under the Rule No. 10010006830 issued by FSC and Regulations Governing Public Disclosure of Life Insurance Enterprises and was provided before December 31, 2016. As of December 31, 2017 and 2016, the Group’s loans and allowances for impairment loss of overdue loans were $7,362,282 thousand and $7,538,682 thousand, respectively.

Note 2: Policy loans and premium loans is not included in the gross amount of loans. As of December

31, 2017 and 2016, the policy loans and premium loans were $107,964,046 thousand and $111,268,639 thousand, respectively.

14. HELD-TO-MATURITY INVESTMENTS

December 31 2017 2016 Government bonds $ 208,438,654 $ 210,426,817Corporate bonds 37,781,497 37,376,024Bank debentures 5,400,000 5,901,034Negotiable certificates of deposits 300 -Less: Guarantee deposits paid (Note 22) (9,382,300) (9,382,000) 242,238,151 244,321,875Foreign investments

Bond 738,368,429 516,964,208 $ 980,606,580 $ 761,286,083 Refer to Note 41 for information relating to held-to-maturity financial assets pledged as security.

15. SUBSIDIARIES a. Subsidiaries and joint ventures included in consolidated financial statements

% of Ownership December 31

Investor Investee Main Business 2017 2016 SKFHC SKLIC Insurance 100.00 100.00 SKSC Securities 100.00

(Note 1)100.00

(Note 1) TSKCB Banking 100.00 100.00 TSKIBC Insurance brokerage 100.00

(Note 1)100.00

(Note 1) SKITC Entrusted investments 100.00 100.00 SKVIC Venture capital 100.00 100.00 SKPIAC Property insurance agency 100.00 100.00 MLSC Securities 33.45

(Note 3)33.21

(Note 3)SKLIC SKLRESC Building management 72.01 90.01 TSKCB SFIAC (Note 5) Life insurance agency 100.00 100.00 SKMC Promotion marketing 100.00

(Note 2)100.00

(Note 2)

(Continued)

- 53 -

% of Ownership December 31

Investor Investee Main Business 2017 2016 MLSC MasterLink Futures Co., Ltd. Futures brokerage and trading 100.00 100.00 MasterLink Venture Management

Corp., Ltd. Management consulting 100.00 100.00

MasterLink Venture Capital Corp., Ltd.

Venture capital, operations such as investing, transferring, reinvesting and management entrusted to professional venture investment management institutes

100.00 100.00

MasterLink Securities Investment Advisory Corp.

Research and analysis about securities investment, publication of investment research reports, securities investment consulting services and discretionary investment services

100.00 100.00

MasterLink Securities (B.V.I.) Corporation (MLSBC)

1. Southeast Asia investment transfer service of securities

2. Other approved securities investment

100.00 100.00

MasterLink Insurance Agency Co., Ltd.

Life insurance agency 100.00 100.00

MasterLink Venture Management Corporation (Tianjin)

Management consulting 100.00 (Note 4)

100.00 (Note 4)

MasterLink Venture Capital Corporation (Tianjin)

Venture capital 100.00 (Note 4)

100.00 (Note 4)

MasterLink (Hong Kong) Consulting services, industry report and research 99.99 99.99 Shanghai MasterLink Investment

Advisory Corp. Securities investment consulting and training

services 100.00 100.00

MLSBC MasterLink Agency (Hong Kong) Agency of securities 99.99 99.99 SKVIC Lion Investment (Samoa) Co., Ltd. Reinvestment 100.00 100.00 Lion Investment

(Samoa) Co., Ltd. SKLSC Financial lease 100.00 100.00

(Concluded) On April 28, 2017, the board of directors of SKLIC approved the sale of the subsidiary, SKLRESC, to Yi Kong Security Co., Ltd. for the total amount $293,418 thousand, net of tax, based on $32.7 per share for 9,000 thousand shares. The transaction was completed in May 2017. Although SKLIC sold the equity interest of its subsidiary, SKLIC did not lose the control of the subsidiary. According to IFRS 10, the difference amount of $89,573 thousand between the disposal amount and the carrying amount and the unrealized losses on available-for-sale financial assets in other equity in the amount of $22,908 thousand were regarded as an equity transaction and recorded as capital surplus. Note 1: As of December 31, 2017, the liquidation process of SKSC and TSKIBC was not completed

because income tax return was not assessed yet. Note 2: The ownership percentage includes the indirect equity interest owned by SKLIAC, a

subsidiary of TSKCB. Note 3: Subsidiary is defined under Rule No. 4 issued by Financial Holding Act. Note 4: The ownership percentage includes the indirect equity interest owned by MasterLink Venture

Capital Corp. Ltd. and a subsidiary of MLSC. Note 5: Shin Kong Life Insurance Agency Co., Ltd. was renamed as Shin Fu Insurance Agency Co.,

Ltd. on May 19, 2017.

b. All of the subsidiaries are included in the consolidated financial statements.

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c. Details of subsidiaries that have material non-controlling interests

Proportion of Ownership and Voting Rights Held by

Non-controlling Interests December 31 Name of Subsidiary 2017 2016 MasterLink Securities Corp. 66.55% 66.79%

Profit (Income) Allocated to

Non-controlling Interests Accumulated Non-controlling

Interests For the Year Ended For the Year Ended December 31 December 31

Name of Subsidiary 2017 2016 2017 2016 MasterLink Securities Corp. $ 627,103 $ 271,878 $ 14,311,828 $ 14,066,556 The summarized financial information in respect of MasterLink Securities Corp. and subsidiaries below represents amounts before intragroup eliminations. 1) Refer to Note 44 for information of consolidated balance sheet and consolidated statements of

comprehensive income.

2) Cash flow 2017 2016 Operating activities $ (2,338,997) $ 1,001,387 Investing activities 179,806 (283,690)Financing activities 2,269,418 (2,220,750) Net cash inflow (outflow) $ 110,227 $ (1,503,053)

16. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

December 31 2017 2016

Carrying Value

% of Ownership and Voting

Rights Carrying Value

% of Ownership and Voting

Rights Associates that are not individually material Centillion Venture Capital Co., Ltd. $ - - $ - - Joint venture that are not individually material Shin-Kong Hainan Life Insurance Co. - 50.00 - 50.00 $ - $ -

- 55 -

Refer to Table 3 “Information on Investments in Mainland China” following the Notes to Consolidated Financial Statements for information of nature of activities, principal place of business and country of incorporation of the associates. On September 6, 2016, the board of the directors of SKLIC approved the sale of the joint venture, Shin-Kong Hainan Life Insurance Co. (“SKHLIC”), to Shenzhen Po-lin Asset Management Co., Ltd. at the total amount of CNY375,000 thousand based on an agreed upon CNY3 per share for 125 million shares, representing 25% of the total shares of SKHLIC. On September 13, 2016, the parties signed the share transfer agreement which was approved by the board of the directors of SKHLIC on November 4, 2016. Also, the Group collected the earnest money in the amount of CNY50,000 thousand which was recorded as deposits received. To ensure the obligation of both parties, SKLIC signed the deposit payment agreement for the share transfer with Shenzhen Po-lin Asset Management Co., Ltd. on March 31, 2017 and received a share transfer deposit of CNY250,000 thousand. As of December 31, 2017, the transaction is still in progress and waiting for the fulfillment of legal procedures as well as approval from regulatory authorities in China. In addition, in November 2016, the board of the directors of SKHLIC approved the revision of the Company’s Articles of Incorporation and its contract of joint venture. Regarding the issuance of ordinary shares for cash, the shareholders of the joint venture originally subscribed for capital contribution based on their existing percentage of ownership in the joint venture; however, all parties should follow the Company Act and the related regulations for the revision. For the year ended December 31, 2016, SKLIC has collected the prepayments for investments accounted for by using the equity method which were from SKHLIC’s plan for the issuance of ordinary shares for cash in 2015. SKLIC evaluated that they have no legal obligation, constructive obligation, and prepayments to SKHLIC in the future. According to IAS 28, SKLIC should discontinue the recognition of its share of the loss of the joint venture as its share of the loss is equal to or over its shares of the joint venture. Thus, for the year ended December 31, 2016, SKLIC reversed the credit amount of the investments accounted for other liabilities by using the equity method and discontinued the recognition of its share of the loss. Centillion Venture Capital Co., Ltd. began liquidation on June 22, 2016. The liquidation has been completed in February 2017. The summarized financial information below represents amounts shown in the associates’ and joint ventures’ financial statements prepared in accordance with IFRSs adjusted by the Group for equity accounting purposes. Centillion Venture Capital Co., Ltd. For the Year Ended December 31 2017 2016 The Group’s share of:

Profit from continuing operations $ $ 705 Other comprehensive income - Total comprehensive income for the year $ $ 705

Shin-Kong Hainan Life Insurance Co. For the Year Ended December 31 2017 2016 The Group’s share of:

Profit from continuing operations $ - $ 54,699 Other comprehensive loss - (12,236)

Total comprehensive income for the year $ - $ 42,463

- 56 -

Except for the investments accounted for using the equity method and the share of profit or loss and other comprehensive income of Centillion Venture Capital Co., Ltd., the investments accounted for using the equity method and the share of profit or loss and other comprehensive income of other associates and joint ventures were based on financial statements audited by auditors. Management believes there is no material impact on the equity method accounting or the calculation of the share of profit or loss and other comprehensive income even if the financial statements of Centillion Venture Capital Co., Ltd. have not been audited. The Group’s share of losses of the joint venture is limited to its interest in that joint venture. The amount of unrecognized share of losses of the joint venture extracted from audited financial statements of the joint venture for the period was as follows: For the Year Ended December 31 2017 2016 Unrecognized share of losses of associates for the year $ (203,890) $ (294,301) As of December 31, 2017, the accumulated unrecognized share of losses of the joint venture was $498,191 thousand.

17. FINANCIAL ASSETS MEASURED AT COST

December 31 2017 2016 Unlisted shares $ 2,915,219 $ 3,281,110 Management believed that the above unlisted equity investments held by the Group, whose fair value cannot be reliably measured due to the range of reasonable fair value estimates was so significant; therefore they were measured at cost less impairment at the end of reporting period.

18. DEBT INVESTMENT WITH NO ACTIVE MARKET

December 31 2017 2016 Domestic investments

Corporate bonds and bank debentures $ 7,270,474 $ 7,271,874Time deposits with original maturity more than 3 months 534,934 2,686,171

7,805,408 9,958,045Foreign investments

Bonds 503,797,558 561,825,205Mortgage backed securities 15,345,148 26,363,024Callable bonds 130,221,378 155,795,132 649,364,084 743,983,361 $ 657,169,492 $ 753,941,406

a. The market interest rates of the time deposits with original maturity more than 3 months were

0.14%-3.10% and 0.16%-2.70%, respectively, as of December 31, 2017 and 2016. b. Refer to Note 8 for information of foreign investments entrusted to financial institutions.

- 57 -

19. INVESTMENT PROPERTIES

Land Buildings Accessories of

Buildings

Prepayment for Buildings and

Constructions in Progress Total

Cost Balance, January 1, 2016 $ 76,984,911 $ 33,134,510 $ 4,206,000 $ 357,571 $ 114,682,992Additions 53 23,645 5,074 566,461 595,233Disposals (42,093 ) (13,509 ) - - (55,602 )Transferred from property and equipment 217,138 526,213 2,400 - 745,751Transferred to property and equipment (853,467 ) (229,886 ) (17,197 ) - (1,100,550 )Transferred from assets classified as held

for sale 3,805,500 1,001,627 81,778 - 4,888,905Other reclassifications - - 12,379 (12,379 ) -Balance, December 31, 2016 80,112,042 34,442,600 4,290,434 911,653 119,756,729 Accumulated depreciation Balance, January 1, 2016 - 6,182,578 1,905,234 - 8,087,812Depreciation expense - 786,967 151,211 - 938,178Disposals - (2,804 ) - - (2,804 )Transferred from property and equipment - 156,870 152 - 157,022Transferred to property and equipment - (93,300 ) - - (93,300 )Transferred from assets classified as held

for sale - 263,949 54,158 - 318,107Balance, December 31, 2016 - 7,294,260 2,110,755 - 9,405,015 Accumulated impairment Balance, January 1, 2016 32,598 25,637 - - 58,235Additions - - - - -Disposals - - - - -Transferred from property and equipment 2,277 2,341 - - 4,618Transferred to property and equipment - - - - -Balance, December 31, 2016 34,875 27,978 - - 62,853 Carrying amounts at December 31, 2016 $ 80,077,167 $ 27,120,362 $ 2,179,679 $ 911,653 $ 110,288,861 Cost Balance, January 1, 2017 $ 80,112,042 $ 34,442,600 $ 4,290,434 $ 911,653 $ 119,756,729Additions 40 5,498 28 1,638,962 1,644,528Disposals - (10,205 ) - - (10,205 )Transferred from property and equipment 288,298 1,967,850 82,769 - 2,338,917Transferred to property and equipment (1,963,849 ) (1,083,323 ) (1,266,300 ) - (4,313,472 )Transferred from assets classified as held

for sale (223,850 ) (23,959 ) (268 ) - (248,077 )Other reclassifications - - 653 (653 ) -Balance, December 31, 2017 78,212,681 35,298,461 3,107,316 2,549,962 119,168,420 Accumulated depreciation Balance, January 1, 2017 - 7,294,260 2,110,755 - 9,405,015Depreciation expense - 778,538 151,089 - 929,627Disposals - (1,533 ) - - (1,533 )Transferred from property and equipment - 56,618 328 - 56,946Transferred to property and equipment - (271,852 ) - - (271,852 )Transferred from assets classified as held

for sale - (12,764 ) (39 ) - (12,803 )Balance, December 31, 2017 - 7,843,267 2,262,133 - 10,105,400 Accumulated impairment Balance, January 1, 2017 34,875 27,978 - - 62,853Additions 25,899 - - - 25,899Transferred from property and equipment 58 213 - - 271 Transferred to property and equipment (25,899 ) - - - (25,899 )Balance, December 31, 2017 34,933 28,191 - - 63,124 Carrying amounts at December 31, 2017 $ 78,177,748 $ 27,427,003 $ 845,183 $ 2,549,962 $ 108,999,896

- 58 -

a. All of the Group’s investments properties were held under freehold interests. The investment properties held by the Group were depreciated on straight-line basis over the estimated useful lives of the asset:

Buildings 30-62 yearsAccessories of buildings

Elevators 20-25 yearsExterior walls 25-30 yearsAir conditioning units 18-25 yearsExtinguishing equipment 20-25 yearsOthers 3-25 years

b. The fair values were based on level 3 inputs and valuations carried out at December 31, 2017 and 2016,

respectively, by an independent qualified professional valuer. The valuation was arrived at by the sales comparison approach, income approach and cost approach. The most significant unobservable input adopted is the capitalization rate. The fair values of investment properties were as follows:

December 31 2017 2016 Fair values $ 150,850,698 $ 153,779,534

c. Refer to Note 41 for information of real estate investment pledged as security. d. In 2017, the Group sold the land of Rui’an Section in Taipei in a public auction. Since the public

auction price was lower than the carrying amount, the impairment loss in the amount of $25,899 thousand was recognized in 2017. The Group determined the recoverable amount of investment properties on the basis of their fair value less costs of disposal. The fair value of the recoverable amount was categorized as a Level 1 measurement.

e. As of December 31, 2017, the ownership of the foreign investment properties, held in name of the

Group, was unrestricted. 20. PROPERTY AND EQUIPMENT

Land Buildings and

Accessories Transportation

Equipment Other

Equipment Construction in Progress Total

Cost Balance, January 1, 2016 $ 17,515,463 $ 12,679,635 $ 88,751 $ 6,040,233 $ 1,189,335 $ 37,513,417Additions 84 6,263 8,848 336,484 1,034,681 1,386,360Disposals - (6,442 ) (7,753 ) (174,517 ) - (188,712 )Transferred from investment

properties 853,467 247,083 - - - 1,100,550Transferred to investment

properties (217,138 ) (528,613 ) - - - (745,751 )Other reclassifications 232,525 4,219 - 26,744 (360,813 ) (97,325 )Net exchange differences - - - (2,102 ) (30 ) (2,132 )Balance, December 31, 2016 18,384,401 12,402,145 89,846 6,226,842 1,863,173 38,966,407 Accumulated depreciation Balance, January 1, 2016 - 4,698,083 41,825 4,529,854 - 9,269,762Depreciation expense - 236,480 10,490 461,187 - 708,157Disposals - (6,442 ) (5,201 ) (168,001 ) - (179,644 )Transferred from investment

properties - 93,300 - - - 93,300Transferred to investment

properties - (157,022 ) - - - (157,022 )Net exchange differences - - - (1,455 ) - (1,455 )Balance, December 31, 2016 - 4,864,399 47,114 4,821,585 - 9,733,098

(Continued)

- 59 -

Land Buildings and

Accessories Transportation

Equipment Other

Equipment Construction in Progress Total

Accumulated impairment Balance, January 1, 2016 $ 398,766 $ 19,941 $ - $ - $ - $ 418,707Additions - - - - - -Disposals - - - - - -Transfer to investment

properties (2,277 ) (2,341 ) - - - (4,618 )Balance, December 31, 2016 396,489 17,600 - - - 414,089 Carrying amount,

December 31, 2016 $ 17,987,912 $ 7,520,146 $ 42,732 $ 1,405,257 $ 1,863,173 $ 28,819,220 Cost Balance, January 1, 2017 $ 18,384,401 $ 12,402,145 $ 89,846 $ 6,226,842 $ 1,863,173 $ 38,966,407Additions - 79,765 5,449 469,053 1,110,700 1,664,967Disposals - (17,751 ) (14,065 ) (240,838 ) - (272,654 )Transferred from investment

properties 1,963,849 2,349,623 - - - 4,313,472Transferred to investment

properties (288,298 ) (1,594,870 ) - - (455,749 ) (2,338,917 )Other reclassifications - 1,764,277 - 38,181 (1,855,840 ) (53,382 )Net exchange differences - - - (2,743 ) (188 ) (2,931 )Balance, December 31, 2017 20,059,952 14,983,189 81,230 6,490,495 662,096 42,276,962 Accumulated depreciation Balance, January 1, 2017 - 4,864,399 47,114 4,821,585 - 9,733,098Depreciation expense - 250,569 9,770 463,065 - 723,404Disposals - (17,481 ) (9,409 ) (233,758 ) - (260,648 )Transferred from investment

properties - 271,852 - - - 271,852Transferred to investment

properties - (56,946 ) - - - (56,946 )Other reclassifications - - - (21 ) - (21 )Net exchange differences - - - (2,520 ) - (2,520 )Balance, December 31, 2017 - 5,312,393 47,475 5,048,351 - 10,408,219 Accumulated impairment Balance, January 1, 2017 396,489 17,600 - - - 414,089Additions - - - - - -Disposals - - - - - -Transfer to investment

properties (58 ) (213 ) - - - (271 )Balance, December 31, 2017 396,431 17,387 - - - 413,818 Carrying amount,

December 31, 2017 $ 19,663,521 $ 9,653,409 $ 33,755 $ 1,442,144 $ 662,096 $ 31,454,925

(Concluded) a. Property and equipment are depreciated on straight-line basis over the estimated useful life of the asset

as follows:

Buildings 25-60 yearsAccessories of buildings

Elevators 20-25 yearsExterior walls 25-30 yearsAir conditioning units 18-25 yearsExtinguishing equipment 20-25 yearsOthers 2-25 years

Transportation equipment 2-7 yearsOther equipment

Dynamos 18-20 yearsAir conditioning units 10-20 yearsOthers 2-20 years

- 60 -

b. Refer to Note 41 for information of property and equipment pledged as security.

21. INTANGIBLE ASSETS, NET

December 31 2017 2016 Goodwill $ 2,884,640 $ 2,884,640 Accumulated impairment (549,594) (549,594) 2,335,046 2,335,046 Computer software 618,066 522,956 $ 2,953,112 $ 2,858,002 a. The acquisitions and variations of goodwill were summarized as follows:

1) TSKCB recognized as goodwill the excess of purchase price over net asset from acquisition of other financial institutions, amounting to $2,082,113 thousand, and the difference between cost and fair value, amounting to $817 thousand. The goodwill was previously amortized on a straight-line basis over 20 and 5 years, and stopped amortization starting January 1, 2006. As of December 31, 2017, the carrying amount of the goodwill was $1,243,923 thousand.

2) The Group acquired 100% equity interest of SKITC in 2006. The excess of purchase price over

net asset, amounting to $1,478,750 thousand, was recognized as goodwill. 3) The Group acquired 25.32% equity interest of MLSC in batches since 2007. The excess of

purchase price over net asset, amounting to $161,967 thousand, was recognized as goodwill. 4) As of December 31, 2017, accumulated impairment loss was $549,594 thousand.

b. Movements in computer software were as follows:

2016

Computer Software

Prepaid Computer Software Total

Balance, January 1 $ 507,000 $ 18,326 $ 525,326 Additions 115,805 41,225 157,030 Amortization (256,618) - (256,618) Net exchange differences (107) - (107) Reclassification 127,804 (30,479) 97,325 Balance, December 31 $ 493,884 $ 29,072 $ 522,956

- 61 -

2017

Computer Software

Prepaid Computer Software Total

Balance, January 1 $ 493,884 $ 29,072 $ 522,956Additions 143,657 143,153 286,810Amortization (244,895) - (244,895)Net exchange differences (166) - (166)Reclassification 91,094 (37,733) 53,361 Balance, December 31 $ 483,574 $ 134,492 $ 618,066 Intangible assets are amortized on a straight - line basis over 3 to 10 years.

22. OTHER ASSETS

December 31 2017 2016 Prepaid expenses $ 227,628 $ 280,067Insurance Industry Stability Fund 4,063,514 3,537,819Less: Reserve for Insurance Industry Stability Fund (4,063,514) (3,537,819)Guarantee deposits paid (Note 41) 14,064,017 16,677,742Restricted assets - time deposit and compensation deposit (Note 41) 1,175,095 1,176,811Deferred expenses 333,988 72,624Overdue receivable 103,401 223,876Less: Allowance for impairment loss (Note 13) (103,401) (206,521)Reinsurance assets 466,384 308,879Lease prepayments for superficies 9,573,804 9,760,036Receivable for underwriting of securities 404,653 90,613Prepayment for investments using equity method - -Others 975,678 1,211,980 $ 27,221,247 $ 29,596,107 a. Under Tai-Tsai-Bao No. 811769212 issued by the Ministry of Finance on December 31, 1992, one

thousandth (1/1000) of premiums should be contributed to the Insurance Industry Stability Fund starting from January 1, 1993. According to “the standard of Life and Property Insurance Stabilization Fund”, starting from July 1, 2014, the contribution to the Insurance Industry Stability Fund of Life Insurance Enterprises should be based on the premium income and contribution rate calculated using the difference between capital adequacy ratio and management performance rating indicator. The credit account, reserve for Insurance Industry Stability Fund, is a contra account of the Insurance Industry Stability Fund.

- 62 -

b. Guarantee deposits paid comprised:

December 31 2017 2016 Insurance operation guarantee deposit $ 9,182,000 $ 9,182,000Deposit for foreign currencies 724,030 3,532,583Bank operation guarantee deposit 440,165 431,574Deposit for futures and options trading 421,812 451,845Deposit for derivatives trading 596,695 -Securities operation guarantee deposit 870,000 880,000Clearing and settlement fund 305,783 276,156Security lending guarantee deposits 814,333 1,289,250Other guarantee deposits 709,199 634,334 $ 14,064,017 $ 16,677,742 1) Based on Article 141 of the Insurance Law, insurance operation guarantee deposit should be

deposited in the Central Bank equal to 15% of an insurance company’ paid-in capital. Article 142 of the same law further stipulates that this deposit can only be refunded if the insurance company ceases its business operations and completes the required liquidation process. As of December 31, 2017 and 2016, SKLIC deposited government bonds to the special treasury account as operating guarantee deposit.

2) TSKCB provided bank operation guarantee deposit and deposit for foreign currencies according to

related laws and agreed percentage of fair values of contracts as performance bonds when engaged in derivative transactions.

3) When engaged in futures transactions, both of buyer and seller should provide guarantee deposits

based on the value of the contract for performance in the future or for principal loss in liquidation. For the years ended December 31, 2017 and 2016, the government bond with carrying amount of $200,000 thousand should be included into guarantee deposits of futures transactions.

4) Based on the Securities and Exchange Act, MLSC provided operating guarantee deposit and settlement fund. Based on the Securities and Exchange Act and Rules Governing Securities Firms, SKITC provided operating guarantee deposit.

5) To meet the requirement of deposit for non-central liquidation derivatives issued by Basel

Committee on Banking Supervision and International Organization of Securities Commissions, SKLIC provided bank deposits in the amount of $596,695 thousand as the deposit for currency derivatives trading.

c. Lease prepayments for superficies comprised:

1) The Group purchased the superficies right of A12 in Xinyi Dist. by tender from Taipei City

Government in November 2003, whose duration was 50 years to December 2153. 2) The Group purchased the superficies right of Xinban Section in Banqiao Dist. from Taiwan

Tobacco & Liquor Corporation in June 2013, whose duration was 50 years to June 2163. 3) The Group purchased the superficies right of Dalong Section in Datong Dist. from CPC

Corporation, Taiwan in October 2013, whose duration was 50 years to October 2163. 4) The Group purchased the superficies right of Nangang Business Section by tender from Taipei City

Government in March 2014, whose duration was 60 years to March 2074.

- 63 -

5) The Group purchased the superficies right of Wenhua Section in Banqiao Dist from CPC Corporation, Taiwan in October 2014, whose duration was 50 years to October 2064.

6) The Group purchased the superficies right of London City in United Kingdom from Gracechurch

Street No. 1 Limited, whose remaining duration was 141 years and ten months to October 2157.

d. As of December 31, 2017, the ownership of the foreign investment properties, held in name of the Group, was unrestricted.

23. DUE TO CENTRAL BANK AND OTHER BANKS

December 31 2017 2016 Call loans from banks $ 3,432,520 $ 2,186,471 Due to Chunghwa Post Co., Ltd. 436,976 481,941 Due to banks 1,694 16,948 $ 3,871,190 $ 2,685,360

24. COMMERCIAL PAPER PAYABLE

December 31 2017 2016 Nominal amount $ 1,500,000 $ - Less: Discount amount (64) - $ 1,499,936 $ - Interest rate 0.53%-0.56% - Outstanding short-term bills payable were as follows: December 31, 2017

Promissory Institution Nominal Amount

Discount Amount

Carrying Amount

Interest Rate Collateral

Commercial paper Hua Nan Bank business

department $ 500,000 $ (16) $ 499,984 0.53% None Fubon Bank Anhe branch 500,000 (21) 499,979 0.55% None Sunny Bank 500,000 (27) 499,973 0.56% None $ 1,500,000 $ (64) $ 1,499,936

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25. NOTES AND BONDS ISSUED UNDER REPURCHASE AGREEMENTS

December 31 2017 2016 Notes and bonds issued under repurchase agreements $ 36,373,039 $ 26,987,935 Interest rate 0.31%-4.30% 0.3%-10.3%

26. DEPOSITS AND REMITTANCES

December 31 2017 2016 Savings account deposits $ 336,880,403 $ 332,185,905Time deposits 217,637,674 195,163,919Demand deposits 111,867,289 112,843,220Checking account deposits 7,680,943 7,715,308Negotiable time deposits 12,278,000 9,105,200Remittances outstanding 178,718 91,374 $ 686,523,027 $ 657,104,926

27. BONDS PAYABLE

December 31 2017 2016 Debentures payable $ 20,000,000 $ 20,000,000Bonds payable 34,508,565 29,878,421 54,508,565 49,878,421Less: Portion due within a year (3,500,000) (4,075,817) $ 51,008,565 $ 45,802,604 a. Debentures payable

December 31 2017 2016 Secondary financial debenture

First subordinated debenture of 2010 $ 3,000,000 $ 3,000,000First subordinated debenture of 2011 3,000,000 3,000,000Second subordinated debenture of 2011 2,000,000 2,000,000First subordinated debenture of 2012 4,000,000 4,000,000First subordinated debenture of 2014 2,500,000 2,500,000Second subordinated debenture of 2014 2,500,000 2,500,000First subordinated debenture of 2016 3,000,000 3,000,000

20,000,000 20,000,000Less: Portion due within a year (3,500,000) - $ 16,500,000 $ 20,000,000

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1) TSKCB issued the first non-cumulative secondary financial debenture without maturity date on June 30, 2010, which was approved under Rule No. 09900171020 issued by the Banking Bureau of the FSC on May 14, 2010. Details of the financial debenture issuance were summarized as follows: a) Total approved principal: $3,000,000 thousand. b) Principal issued: $3,000,000 thousand. c) Denomination: $10,000 thousand, issued at par. d) Period: Without maturity date. e) Nominal interest rate: Fixed interest rate of 3.50% from the day issued to tenth year; if the

Company does not redeem, the fixed interest rate will be adjusted to 4.50% on the next day the bond is issued to tenth year.

f) Early redemption right: When expiring within 10 years from the issuance date, if TSKCB’s

Capital Adequacy Ratio after redemption conforms to the relevant authorities’ minimum regulation, TSKCB can early redeem each bond at par value plus accrued interest after approval by the relevant authorities.

g) The interest is paid annually from the issue date.

2) TSKCB issued the first secondary financial debenture on March 30, 2011, which was approved by Rule No. 10000035830 issued by the Banking Bureau of the FSC on February 14, 2011. Details of the financial debenture issuance were summarized as follows: a) Total approved principal: $3,000,000 thousand. b) Principal issued: $3,000,000 thousand. c) Denomination: $10,000 thousand, issued at par. d) Period: 7 years with maturity on March 30, 2018. e) Nominal interest rate: Fixed interest rate. f) Repayment: The financial debenture will be fully paid on the maturity date. g) The interest is paid annually from the issue date.

3) TSKCB issued the second secondary financial debenture on September 26, 2011, which was

approved by Rule No. 10000301920 issued by the Banking Bureau of the FSC on September 2, 2011. Details of the financial debenture issuance were summarized as follows: a) Total approved principal: $2,000,000 thousand. b) Principal issued: $2,000,000 thousand. c) Denomination: $10,000 thousand, issued at par. d) Period: Debenture I - 10 years with maturity on September 26, 2021. Debenture II - 7 years

with maturity on September 26, 2018. e) Nominal interest rate: Fixed interest rate.

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f) Repayment: The financial debenture will be fully paid on the maturity date. g) The interest is paid annually from the issue date.

4) TSKCB issued the first secondary financial debenture on December 28, 2012, which was approved under Rule No. 10100401120 issued by the Banking Bureau of the FSC on December 21, 2012. Details of the financial debenture issuance were summarized as follows: a) Total approved principal: $4,000,000 thousand. b) Principal issued: $4,000,000 thousand. c) Denomination: $10,000 thousand, issued at par. d) Period: Debenture I - 7 years with maturity on December 28, 2019. Debenture II - 10 years

with maturity on December 28, 2022. e) Nominal interest rate: Fixed interest rate. f) Repayment: The financial debenture will be fully paid on the maturity date. g) The interest is paid annually from the issue date.

5) TSKCB issued its first subordinated debenture on June 25, 2014, which was approved on April 30,

2014 under Rule No. 10300114440 issued by the Banking Bureau of the FSC. Details of the financial debenture issuance are summarized as follows: a) Total approved principal: $5,000,000 thousand. b) Principal issued: $2,500,000 thousand. c) Denomination: $10,000 thousand, issued at par. d) Period: Without maturity date. e) Nominal interest rate: Fixed interest rate. f) Early redemption right: Within five years from the issuance date and with the relevant

authorities’ approval, TSKCB may early redeem each bond at par value if its capital adequacy ratio meets the authorities’ minimum requirement.

g) The interest is paid annually from the issue date.

6) TSKCB issued the second subordinated financial debenture on December 15, 2014, which was approved on April 30, 2014 under Rule No. 10300114440 issued by the Banking Bureau of the FSC. Details of the financial debenture issuance are summarized as follows: a) Total approved principal: $5,000,000 thousand. b) Principal issued: $2,500,000 thousand. c) Denomination: $10,000 thousand, issued at par. d) Period: 10 years, with maturity on December 15, 2024.

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e) Nominal interest rate: Fixed interest rate. f) Repayment: Full repayment is due on the maturity date. g) The interest is payable annually from the issue date.

7) TSKCB issued its first subordinated financial debenture on January 29, 2016, which was approved on December 22, 2015 under Rule No. 10400308600 issued by the Banking Bureau of the FSC. Details of the financial debenture issuance are summarized as follows: a) Total approved principal: $3,000,000 thousand. b) Principal issued: $3,000,000 thousand. c) Denomination: $10,000 thousand, issued at par. d) Period: Debenture I - 7 years, with maturity on January 29, 2023. Debenture II - 10 years,

with maturity on January 29, 2026. e) Nominal interest rate: Fixed interest rate. f) Repayment: Full repayment is due on the maturity date. g) The interest is payable annually from the issue date.

b. Bonds payable

December 31 2017 2016 Domestic cumulative subordinate corporate bond of 2012

without maturity date - first issue $ 5,000,000 $ 5,000,000Domestic cumulative subordinate corporate bond of 2016

without maturity date - first issue 13,000,000 13,000,000Domestic unsecured convertible bond - second issue - 4,095,900Domestic unsecured convertible bond - third issue 4,849,300 5,000,000Domestic unsecured convertible bond - fourth issue 3,982,700 -Domestic unsecured corporate bond of 2015 - first issue 3,000,000 3,000,000Domestic unsecured corporate bond of 2017 - first issue 5,000,000 - 34,832,000 30,095,900Less: Unamortized discount on domestic unsecured convertible

bond - second issue - (20,083)Less: Unamortized discount on domestic unsecured convertible

bond - third issue (120,089) (197,396)Less: Unamortized discount on domestic unsecured convertible

bond - fourth issue (203,346) -Less: Portion due within a year - (4,075,817) $ 34,508,565 $ 25,802,604 1) SKLIC issued its first domestic cumulative subordinate corporate bond without maturity on

December 10, 2012 which was approved under Rule No. 10102908010 issued by the Insurance Bureau of the FSC and Rule No. 1010051395 issued by the FSC. Details of the bond payable issuance are summarized as follows: a) Principal issued: $5,000,000 thousand.

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b) Denomination and issue price: $1,000 thousand each, issued at par. c) Period: Without maturity date. d) Nominal interest rate: There is a fixed interest rate of 3.35% from the issue date to the tenth

year; if not redeemed by the Company, the fixed interest rate will be adjusted to 4.35% on the day following the bond’s issue date to the tenth year.

e) The interest is paid annually from the issue date. f) Early redemption right: Within 10 years from the issue date, at which time the condition of

expiry is met, if SKLIC’s Capital Adequacy Ratio after redemption is two times more than the minimum Capital Adequacy Ratio required by the authorities’ regulation, SKLIC is able to proceed with early redemption of each bond at par value plus accrued interest after the approval by the relevant authorities. SKLIC can redeem such bonds quarterly.

g) Bonds form: Incorporeally issued.

2) SKLIC issued its first domestic cumulative subordinate corporate bond without maturity on October 31, 2016 which was approved under Rule No. 10502911780 issued by the Insurance Bureau of the FSC and Rule No. 10500291131 issued by the Taipei Exchange. Details of the bond payable issuance are summarized as follows: a) Principal issued: $13,000,000 thousand. b) Denomination and issue price: $1,000 thousand each, issued at par. c) Period: Without maturity date. d) Early redemption right: Within 10 years from the issue date, at which time the condition of

expiry is met, if SKLIC’s Capital Adequacy Ratio after redemption is two times more than the minimum Capital Adequacy Ratio required by the authorities’ regulation, SKLIC is able to proceed with early redemption of each bond at par value plus accrued interest after the approval by the relevant authorities.

e) Nominal interest rate: There is a fixed interest rate of 3.80% from the issue date to the tenth

year; if not redeemed by the Company, 1% will be added to the fixed interest rate on the day following the bond’s issue date to the tenth year.

f) The interest is paid annually from the issue date. g) Bonds form: Incorporeally issued.

3) To improve the capital structure, the Company issued the second unsecured convertible bonds on April 23, 2012, which were approved by Rule No. 1010008908 issued by the FSC. Details of the bond payable issuance were summarized as follows: a) Principal issued: $5,000,000 thousand. b) Denomination and issue price: $100 thousand each, issued in full. c) Nominal interest rate: 0%. d) Period: 5 years, from April 23, 2012 to April 23, 2017.

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e) Redemption at the Company’s option: i. Redemption at maturity:

Unless previously redeemed, converted, or canceled as herein provided, the Company will redeem each bond at par value.

ii. Redemption before maturity: At any time on or after three months of the issue date until the 40th day before the maturity date, the Company may redeem the whole bonds at par value if the closing price for 30 consecutive trading days exceeds 30% of the conversion price. At any time on or after one month of the issue date until the 40th day before the maturity date, the Company may redeem the whole bonds at par value if the unredeemed bonds are less than $500,000 thousand (10% of original principal issued).

f) Redemption at the bondholders’ option: The bondholders may request the Company to redeem their bonds at par value plus interest compensation (annual profit rate at 0.5%) in cash after three years of the issue date.

g) Conversion: i. Conversion period:

Any time after one month of the issue date until the 10th day before the maturity date.

ii. Conversion price:

The conversion premium rate of 114.13% multiplied by the standard price, which is the simple arithmetic average calculated at the closing price of one, three or five business days before conversion price deciding date. The conversion price is set at $10.50 per share.

iii. Adjustment to conversion price:

i) Adjusted according to the rules of anti-dilution (ex-right, ex-dividend and ordinary

shares issued for cash, etc.). ii) The conversion price is revised downward when SKFHC carries out the offering,

issuing, or private placement of securities with ordinary shares conversion option or warranty or grants entitlement to ordinary shares (not for capital increase for cash); the conversion price is not adjusted upward. As of December 31, 2017 and 2016, the conversion price of bond were $9.1 per share.

h) SKFHC separated the conversion, put and call options from the host liabilities and recorded

them as equity (please refer to Note 33 b.) and liability components. The components were recognized as embedded derivatives and non-derivative liabilities. The embedded derivatives measured at fair value on December 31, 2017 and 2016 were $0 thousand, and the net value of non-derivative bonds payable, which were measured at amortized cost, were $0 thousand and $4,075,817 thousand as of December 31, 2017 and 2016.

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i) For the years ended December 31, 2017 and 2016, respectively, SKFHC recognized amortization of discount on bonds of $20,084 thousand and $65,144 thousand, and valuation gain on financial liabilities of $0 thousand, as interest expense and valuation gains or losses on financial assets and liabilities at FVTPL, respectively for the issued second unsecured convertible bonds.

j) As of December 31, 2016, $40,600 thousand and $863,500 thousand of the second domestic

unsecured convertible bonds issued by SKFHC were converted and redeemed, respectively. k) As of December 31, 2017, the second domestic unsecured convertible bonds issued by SKFHC

were all redeemed at maturity.

4) To improve its capital structure, the Company issued the third convertible bonds on August 27, 2014, which was approved under Rule No. 1030029702 issued by the FSC. Details of the bond payable issuance are summarized as follows: a) Principal issued: $5,000,000 thousand. b) Denomination and issue price: $100 thousand each, issued at par. c) Nominal interest rate: 0%. d) Period: 5 years, from August 27, 2014 to August 27, 2019. e) Redemption at the Company’s option:

i. Redemption at maturity:

Unless previously redeemed, converted, or canceled, the Company will redeem each bond at par value.

ii. Redemption before maturity: At any time after one month of the issue date until the 40th day before the maturity date, the Company may redeem the whole bonds at par value if the closing price for 30 consecutive trading days exceeds 30% of the conversion price. At any time after one month of the issue date until the 40th day before the maturity date, the Company may redeem the whole bonds at par value if the unredeemed bonds are less than $500,000 thousand (10% of original principal issued).

f) Redemption at the bondholders’ option:

The bondholders may request the Company to redeem their bonds at par value in cash after three years from the issue date.

g) Conversion method: i. Conversion period:

Any time after one month of the issue date until the maturity date.

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ii. Conversion price: The conversion premium rate is 109.83% multiplied by the standard price, which is the simple arithmetic average calculated at the closing price of one, three or five business days before the date of deciding the conversion price. The conversion price was NT$10.50 per share.

iii. Adjustment to conversion price: i) The conversion price is adjusted in accordance with the rules of anti-dilution (ex-right,

ex-dividend and ordinary shares issued for cash, etc.). ii) The conversion price is revised downward when SKFHC carries out the offering,

issuing, or private placement of securities with ordinary shares conversion option or warranty or grants entitlement to ordinary shares (not for capital increase for cash); the conversion price is not adjusted upward. As of December 31, 2017 and 2016, the bond conversion price were NT$9.17 and NT$9.41 per share.


them as equity (please refer to Note 33 b.) and liability components. The components were recognized as embedded derivatives and non-derivative liabilities. The fair value of the embedded derivatives as of December 31, 2017 and 2016 were $(485) thousand and $5,000 thousand, respectively, and the net value of non-derivative bonds payable, which was measured at amortized cost, were $4,729,211 thousand and $4,802,604 thousand, respectively, as of December 31, 2017 and 2016.

i) For the years ended December 31, 2017 and 2016, SKFHC recognized the amortization of

discount on bonds of $77,307 thousand and $72,465 thousand, respectively and the valuation loss of $5,485 thousand and $31,000 thousand, respectively, on financial liabilities under interest expense and valuation gains or losses on financial assets and liabilities at FVTPL, respectively, for the issued third unsecured convertible bonds.

j) As of December 31, 2017, $109,200 thousand and $41,500 thousand of the third domestic

unsecured convertible bonds issued by SKFHC were converted and redeemed, respectively. 5) The Company issued the fourth convertible bonds on August 22, 2017, which was approved under

Rule No. 1060017794 issued by the FSC. Details of the bond payable issuance are summarized as follows: a) Principal issued: $4,000,000 thousand. b) Denomination and issue price: $100 thousand each, issued at par. c) Nominal interest rate: 0%. d) Period: 5 years, from August 22, 2017 to August 22, 2022. e) Redemption at the Company’s option:

i. Redemption at maturity:

Unless previously redeemed, converted, or canceled, the Company will redeem each bond at par value.

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ii. Redemption before maturity: At any time after one month of the issue date until the 40th day before the maturity date, the Company may redeem the whole bonds at par value if the closing price for 30 consecutive trading days exceeds 30% of the conversion price. At any time after one month of the issue date until the 40th day before the maturity date, the Company may redeem the whole bonds at par value if the unredeemed bonds are less than $400,000 thousand (10% of original principal issued).

f) Redemption at the bondholders’ option:

The bondholders may request the Company to redeem their bonds at par value in cash after three years from the issue date.

g) Conversion method: i. Conversion period:

Any time after three month of the issue date until the maturity date.

ii. Conversion price: The conversion premium rate is 110% multiplied by the standard price, which is the simple arithmetic average calculated at the closing price of one, three or five business days before the date of deciding the conversion price. The conversion price was NT$9.35 per share.

iii. Adjustment to conversion price:

i) The conversion price is adjusted in accordance with the rules of anti-dilution (ex-right,

ex-dividend and ordinary shares issued for cash, etc.). ii) The conversion price is revised downward when SKFHC carries out the offering,

issuing, or private placement of securities with ordinary shares conversion option or warranty or grants entitlement to ordinary shares (not for capital increase for cash); the conversion price is not adjusted upward. As of December 31, 2017, the bond conversion price was NT$9.35 per share.


them as equity (please refer to Note 33 b.) and liability components. The components were recognized as embedded derivatives and non-derivative liabilities. As of December 31, 2017, the fair value of the embedded derivatives was $10,351 thousand and the net value of non-derivative bonds payable, which was measured at amortized cost, was $3,779,354 thousand.

i) For the year ended December 31, 2017, SKFHC recognized the amortization of discount on

bonds of $16,253 thousand and the valuation gain of $23,601 thousand on financial assets under interest expense and valuation gains or losses on financial assets and liabilities at FVTPL, respectively, for the issued fourth unsecured convertible bonds.

j) As of December 31, 2017, $17,300 thousand of the fourth domestic unsecured convertible

bonds issued by SKFHC had been converted.

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6) SKFHC issued the first domestic unsecured corporate bonds on July 22, 2015, which was approved by Rule No. 1040024200 issued by the FSC. Details of the bond payable issuance were summarized as follows: a) Principal issued: $3,000,000 thousand. b) Denomination and issue price: $1,000 thousand each, issued at par. c) Period: 5 years, from July 22, 2015 to July 22, 2020. d) Repayment: On maturity. e) Nominal interest rate: 1.42%. f) Interest is paid annually from the issue date. g) Bonds form: Incorporeally issued.

7) SKFHC issued the first domestic unsecured corporate bonds on April 5, 2017, which was approved

by Rule No. 10600053121 issued by the FSC. Details of the bond payable issuance were summarized as follows: a) Principal issued: $5,000,000 thousand. b) Denomination and issue price: $1,000 thousand each, issued at par. c) Period: 5 years, from April 5, 2017 to April 5, 2022. d) Repayment: On maturity. e) Nominal interest rate: 1.25%. f) Interest is paid annually from the issue date. g) Bonds form: Incorporeally issued.

28. OTHER LOANS

December 31 2017 2016

Interest Rate

%Ending Balance

Interest Rate %

Ending Balance

Pledged loans 0.7 $ 480,000 0.7 $ 148,000Credit loans 0.86-5.66 1,108,332 0.65-1.42 2,505,000 $ 1,588,332 $ 2,653,000 As of December 31, 2017, the Company provided 42,000 thousand shares of SKLIC and 500,000 thousand shares of TSKCB for credit line. Refer to Note 41 for information of pledged assets.

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29. PROVISIONS 2017 2016 Net defined benefit liability $ 1,650,804 $ 782,075 Other employee benefit liability 36,325 72,592 $ 1,687,129 $ 854,667 a. Defined contribution plans

The Company and domestic subsidiaries adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed defined contribution plan. Under the LPA, an entity makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. The employees of subsidiaries in China are members of a state-managed retirement benefit plan operated by the government of China. The subsidiary is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit plan is to make the specified contributions.

b. Defined benefit plans

The defined benefit plan adopted by the Group in accordance with the Labor Standards Law is operated by the government. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Group contributes proportional amount of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. Before the end of each year, the Group assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Group is required to fund the difference in one appropriation that should be made before the end of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Group has no right to influence the investment policy and strategy. Also, SKLIC established the Committee of Pension Trust Fund to manage said pension fund. The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit plans were as follows: December 31 2017 2016 Present value of defined benefit obligation $ 9,618,914 $ 8,182,832 Fair value of plan assets (7,968,110) (7,400,757) Net defined benefit liability $ 1,650,804 $ 782,075

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Movements in net defined benefit liability (asset) were as follows:

Present Value of the Defined

Benefit Obligation

Fair Value of the Plan Assets

Net Defined Benefit

Liability (Asset) Balance at January 1, 2016 $ 8,385,816 $ (6,051,325) $ 2,334,491 Service cost

Current service cost 147,844 - 147,844 Past service cost 2,221 - 2,221 Net interest expense (income) 117,650 (113,081) 4,569

Recognized in profit or loss 267,715 (113,081) 154,634 Remeasurement

Return on plan assets (excluding amounts included in net interest) - (8,897) (8,897)

Actuarial loss - changes in demographic assumptions 74,699 - 74,699

Actuarial loss - changes in financial assumptions 71,650 - 71,650

Actuarial loss - experience adjustments 803,039 - 803,039 Recognized in other comprehensive income 949,388 (8,897) 940,491 Contributions from the employer - (2,646,515) (2,646,515)Benefits paid (1,419,061) 1,419,061 - Others (1,026) - (1,026)Balance at December 31, 2016 8,182,832 (7,400,757) 782,075 Service cost

Current service cost 147,732 - 147,732 Past service cost 1,550 - 1,550 Net interest expense (income) 96,903 (97,034) (131)

Recognized in profit or loss 246,185 (97,034) 149,151 Remeasurement

Return on plan assets (excluding amounts included in net interest) - (396,843) (396,843)

Actuarial loss - changes in demographic assumptions 233,546 - 233,546

Actuarial loss - changes in financial assumptions 42,412 - 42,412

Actuarial loss - experience adjustments 2,101,202 - 2,101,202 Recognized in other comprehensive income 2,377,160 (396,843) 1,980,317 Contributions from the employer - (1,259,704) (1,259,704)Benefits paid (1,186,228) 1,186,228 - Others (1,035) - (1,035) Balance at December 31, 2017 $ 9,618,914 $ (7,968,110) $ 1,650,804 Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the following risks: 1) Investment risk: The plan assets are invested in domestic (foreign) equity and debt securities,

bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

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2) Interest risk: A decrease in the bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the

future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

4) Changes in demographic assumptions risk: The present value of the defined benefit obligation is

calculated by reference to the turnover rate of plan participants. As such, a decrease in the turnover rate of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Measure Date Discount Rate

Expected Increasing Rate

on Salary December 31, 2017 SKLIC 1.21% 3.00%SKLRESC 1.13% 2.00%SKITC 1.25% 2.75%MLSC 1.02%-1.05% 0.05%-1.00%TSKCB 1.13% 2.25%SKMC 1.13% 2.25%SKLIAC 1.38% 3.25% December 31, 2016 SKLIC 1.32% 3.00% SKLRESC 1.13% 2.00% SKITC 1.38% 2.75% MLSC 1.20%-1.25% 0.05-1% TSKCB 1.13% 2.25% SKMC 1.25% 2.25% SKLIAC 1.38% 3.25% As of December 31, 2017 and 2016, the turnover rate of SKLIC were 0.00%-15.00% and 1.00%-55.00%, respectively. If possible reasonable change in the turnover rate will occur and all other assumptions will remain constant, by increasing the turnover rate in 0.5%, the present value of the defined benefit obligation of SKLIC would decrease $41,022 thousand and $22,297 thousand, respectively, as of December 31, 2017 and 2016; by decreasing the turnover rate in 0.5%, the present value of the defined benefit obligation of SKLIC would increase $41,264 thousand and $22,824 thousand, respectively, as of December 31, 2017 and 2016.

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If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows: December 31 2017 2016 Discount rate(s)

0.5% increase $ (300,446) $ (223,431) 0.5% decrease $ 319,230 $ 237,311

Expected rate(s) of salary increase 0.5% increase $ 311,870 $ 228,578 0.5% decrease $ (296,608) $ (217,471)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. December 31 2017 2016 The expected contributions to the plan for the next year $ 277,058 $ 286,028 The average duration of the defined benefit obligation 4-15 years 5-16 years Shares and bonds of the consolidated entities, affiliates, and related parties held by the pension trust fund in the custody of the Committee of Pension Trust Funds were summarized as follows:

Unit: Share/Units

December 31 Name Category 2017 2016

Shares SKFHC Listed shares 103,133,145 94,313,145Taiwan-Sok Shin Kong

Security Co., Ltd. Listed shares 17,334,883 17,334,883

Shinhai Gas Corporation Listed shares 3,404,636 3,404,636 123,872,664 115,052,664 Beneficial certificates SKITC Shin Kong Global Biotech &

Health Care - 2,441,800

Corporate bonds SKLIC Cumulative subordinate corporate

bond of 2012 without maturity date

130 units 130 units

SKLIC Cumulative subordinate corporate bond of 2016 without maturity date

70 units 700 units

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30. INSURANCE PRODUCTS - SEPARATE ACCOUNT December 31 2017 2016 Separate account assets

Beneficial certificates $ 34,364,476 $ 32,893,701Bonds 11,890,700 22,300,687Accounts receivable 381,066 43,131Bank deposits 1,298 -

$ 46,637,540 $ 55,237,519Separate account liabilities

Reserves Accounts payable $ 45,779,109 $ 54,245,368Investment contracts 55,549 17,072 802,882 975,079

$ 46,637,540 $ 55,237,519 The related account balances were summarized as follows: 2017 2016 Income on insurance products - separate account

Premium income $ 5,216,579 $ 3,299,872Gain and loss on fair value change of financial assets and

liabilities designated as at FVTPL 2,642,577 1,929,524Exchange gain and loss (1,695,597) (1,350,406)Interest income and fund distributions 1,619,475 1,895,163Other gains (979) (1,099)

$ 7,782,055 $ 5,773,054 Disbursement on insurance products - separate account

Insurance claims and payment $ 10,285,851 $ 8,004,146Cash surrender value 4,682,942 5,153,927Net change in insurance reserves - insurance contract (8,440,613) (8,630,735)Payment of maintenance fee 1,253,875 1,245,716 $ 7,782,055 $ 5,773,054

For the years ended December 31, 2017 and 2016, SKLIC managed separate account and received from dealers sales rebates of $82,470 thousand and $103,850 thousand, respectively, as processing fee income and commission income.

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31. OTHER PAYABLES

December 31 2017 2016 Payable of transactions on securities $ 3,823 $ 1,855,139Forward contracts payable 1,737,469 2,083,960Settlement accounts payable 10,414,513 6,913,086Payable of check clearing 3,476,593 3,241,394Bank acceptance bill 809,280 946,431Trust fund payable 167,236 97,452Interest and dividend payable 760,348 678,863Payable for short-sale transactions 1,585,369 1,223,474Payable for insurance payment 441,016 468,187Collection payable 269,281 328,862Commissions payable 800,837 1,294,913Others 3,321,682 2,162,089 $ 23,787,447 $ 21,293,850

32. INSURANCE LIABILITY RESERVES

Insurance liability reserves as of December 31, 2017 and 2016 were as follows: December 31 2017 2016 Reserve for unearned premiums $ 8,001,801 $ 7,706,372Reserve for claim payments 2,784,735 2,388,724Reserve for life insurance liability 2,295,349,605 2,103,270,091Special reserve for life insurance 7,764,324 14,685,296Reserve for insufficient premiums 7,382,034 7,923,089Reserve for change in foreign exchange valuation (Note 48) 2,551,225 3,106,016 $ 2,323,833,724 $ 2,139,079,588 Net changes of insurance liability reserves were as follows: 2017 2016 Provision of reserve for life insurance liability $ (207,562,568) $ (207,734,196)Recovery of special reserve for life insurance 6,920,972 6,597,142(Provision) recovery of reserve for claim payments (398,222) 2,362Recovery (provision) of reserve for insufficient premiums 453,971 (3,221,578) (200,585,847) (204,356,270)(Provision) recovery of reserve for unearned premiums (Note 36) (307,382) 41,233Recovery of reserve for change in foreign exchange valuation

(Note 36) 554,791 3,767,084 $ (200,338,438) $ (200,547,953)

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a. Insurance liabilities for insurance contracts and financial instruments with discretionary participation feature As of December 31, 2017 and 2016, each category and movements of reserve for insurance contracts and financial instruments with discretionary participation feature of the Group were as follows: 1) Reserve for unearned premiums

December 31 2017 2016

Insurance Contracts

Financial Instruments

with Discretionary Participation

Feature Total Insurance Contracts



Feature Total Individual life insurance $ 472 $ 10 $ 482 $ 215 $ 8 $ 223Individual accident

insurance 3,460,640 - 3,460,640 3,429,758 - 3,429,758Individual health

insurance 3,550,461 - 3,550,461 3,390,825 - 3,390,825Group insurance 950,853 - 950,853 844,440 - 844,440Investment type insurance 39,365 - 39,365 41,126 - 41,126 8,001,791 10 8,001,801 7,706,364 8 7,706,372Less: Ceded reserve for

unearned premiums Individual life

insurance 40,824 - 40,824 55,814 - 55,814Individual accident

insurance 1,746 - 1,746 1,095 - 1,095Individual health

insurance 46,804 - 46,804 44,579 - 44,579Investment type

insurance 64 - 64 58 - 58 89,438 - 89,438 101,546 - 101,546 $ 7,912,353 $ 10 $ 7,912,363 $ 7,604,818 $ 8 $ 7,604,826

Movements in reserve for unearned premiums were as follows: 2017 2016

Insurance Contracts






Feature Total Balance, January 1 $ 7,706,364 $ 8 $ 7,706,372 $ 7,730,795 $ 9 $ 7,730,804Provision 9,018,231 8 9,018,239 8,519,162 11 8,519,173Recovery (8,722,804 ) (6 ) (8,722,810 ) (8,543,593 ) (12 ) (8,543,605 )Balance, December 31 8,001,791 10 8,001,801 7,706,364 8 7,706,372Less: Ceded reserve for

unearned premiums Balance, January 1, net 101,546 - 101,546 84,852 - 84,852Increase 467,688 - 467,688 553,643 - 553,643Decrease (479,641 ) - (479,641 ) (536,842 ) - (536,842 )Net exchange

differences (155 ) - (155 ) (107 ) - (107 )Balance, December 31 89,438 - 89,438 101,546 - 101,546

Balance, December 31,

net $ 7,912,353 $ 10 $ 7,912,363 $ 7,604,818 $ 8 $ 7,604,826

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2) Reserve for claim payments

December 31 2017 2016

Insurance Contracts






Feature Total Individual life insurance

Reported but not paid $ 200,232 $ - $ 200,232 $ 158,003 $ - $ 158,003Incurred but not

reported 5,348 3 5,351 5,502 2 5,504Individual accident

insurance Reported but not paid 175,182 - 175,182 140,845 - 140,845Incurred but not

reported 952,592 - 952,592 854,656 - 854,656Individual health

insurance Reported but not paid 83,729 - 83,729 70,220 - 70,220Incurred but not

reported 898,462 - 898,462 790,060 - 790,060Group insurance

Reported but not paid 37,331 - 37,331 32,448 - 32,448Incurred but not

reported 393,269 - 393,269 301,892 - 301,892Investment type insurance

Reported but not paid 38,587 - 38,587 35,096 - 35,096 2,784,732 3 2,784,735 2,388,722 2 2,388,724Less: Ceded reserve for

claim payments - - - - - - $ 2,784,732 $ 3 $ 2,784,735 $ 2,388,722 $ 2 $ 2,388,724

Movements in reserve for claim payments were as follows: 2017 2016

Insurance Contracts






Feature Total Balance, January 1 $ 2,388,722 $ 2 $ 2,388,724 $ 2,387,726 $ 3,833 $ 2,391,559 Provision 3,401,621 1 3,401,622 2,894,478 - 2,894,478 Recovery (3,003,400 ) - (3,003,400 ) (2,893,009 ) (3,831 ) (2,896,840 )Net exchange differences (2,211 ) - (2,211 ) (473 ) - (473 )Balance, December 31 2,784,732 3 2,784,735 2,388,722 2 2,388,724 Less: Ceded reserve for

claim payments - - - - - - Balance, December 31, net $ 2,784,732 $ 3 $ 2,784,735 $ 2,388,722 $ 2 $ 2,388,724

3) Reserve for life insurance liability:

December 31 2017 2016

Insurance Contracts

Financial Instruments with

Discretionary Participation




Feature Total Life insurance $ 2,065,116,436 $ 4,948,082 $ 2,070,064,518 $ 1,892,211,441 $ 5,313,344 $ 1,897,524,785 Health insurance 194,633,715 - 194,633,715 171,173,280 - 171,173,280 Annuity insurance 501,639 29,836,885 30,338,524 556,068 33,508,479 34,064,547 Investment type insurance 312,848 - 312,848 507,479 - 507,479 2,260,564,638 34,784,967 2,295,349,605 2,064,448,268 38,821,823 2,103,270,091 Less: Ceded reserve for life

insurance liability - - - - - - $ 2,260,564,638 $ 34,784,967 $ 2,295,349,605 $ 2,064,448,268 $ 38,821,823 $ 2,103,270,091

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Movements in reserve for life insurance liability were as follows: 2017 2016

Insurance Contracts






Feature Total Balance, January 1 $ 2,064,448,268 $ 38,821,823 $ 2,103,270,091 $ 1,850,534,213 $ 50,264,282 $ 1,900,798,495 Provision 315,335,969 1,088,491 316,424,460 293,913,573 870,716 294,784,289 Recovery (103,736,545 ) (5,125,347 ) (108,861,892 ) (74,736,918 ) (12,313,175 ) (87,050,093 )Net exchange differences (15,483,054 ) - (15,483,054 ) (5,262,600 ) - (5,262,600 )Balance, December 31 2,260,564,638 34,784,967 2,295,349,605 2,064,448,268 38,821,823 2,103,270,091 Less: Ceded reserve for life

insurance liability - - - - - - Balance, December 31, net $ 2,260,564,638 $ 34,784,967 $ 2,295,349,605 $ 2,064,448,268 $ 38,821,823 $ 2,103,270,091

4) Special reserve for life insurance:

December 31 2017 2016

Insurance Contracts

Effect of Transition to

IFRSs Total Insurance Contracts

Effect of Transition to

IFRSs Total Reserve for participating

policy dividends $ 2,198,940 $ - $ 2,198,940 $ 2,119,912 $ - $ 2,119,912 Surplus of fair value

measurement of investment properties offset by the negative effect of transition to IFRSs - 5,565,384 5,565,384 - 12,565,384 12,565,384

$ 2,198,940 $ 5,565,384 $ 7,764,324 $ 2,119,912 $ 12,565,384 $ 14,685,296

Movements in special reserve for life insurance were as follows: 2017 2016

Insurance Contracts

Surplus of Fair Value

Measurement of Investment Properties

Offset by the Negative Effect of Transition to

IFRSs Total Insurance Contracts

Surplus of Fair Value

Measurement of Investment Properties

Offset by the Negative Effect of Transition to

IFRSs Total Balance, January 1 $ 2,119,912 $ 12,565,384 $ 14,685,296 $ 1,717,054 $ 19,565,384 $ 21,282,438 Provision of reserve for

participating policy dividends 471,630 - 471,630 683,521 - 683,521

Recovery of reserve for participating policy dividends (392,602 ) - (392,602 ) (280,663 ) - (280,663 )

Recovery of appreciation of investment properties following the first-time adoption of IFRSs - (7,000,000 ) (7,000,000 ) - (7,000,000 ) (7,000,000 )

Balance, December 31 $ 2,198,940 $ 5,565,384 $ 7,764,324 $ 2,119,912 $ 12,565,384 $ 14,685,296

Note 1: The Group did not provide special reserve for financial instruments with discretionary

participation feature. Note 2: Under Rule No. 10502915790 issued on February 14, 2017 and Rule No. 10402914880

issued on February 17, 2016, the Group was approved to recover its special reserve for property which was appreciated monthly at a total amount of $7,000,000 thousand for both years ended December 31, 2017 and 2016. As of December 31, 2017 and 2016, the Group has recovered an amount of $7,000,000 thousand for each.

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5) Reserve for insufficient premiums:

December 31 2017 2016

Insurance Contracts






Feature Total Individual life insurance $ 7,124,259 $ - $ 7,124,259 $ 7,648,338 $ - $ 7,648,338 Individual health insurance 257,775 - 257,775 274,751 - 274,751 7,382,034 - 7,382,034 7,923,089 - 7,923,089 Less: Ceded reserve for

insufficient premiums - - - - - - $ 7,382,034 $ - $ 7,382,034 $ 7,923,089 $ - $ 7,923,089

Movements in reserve for insufficient premiums were as follows: December 31 2017 2016

Insurance Contracts






Feature Total Balance, January 1 $ 7,923,089 $ - $ 7,923,089 $ 4,744,612 $ - $ 4,744,612 Provision 550,981 - 550,981 3,461,247 - 3,461,247 Recovery (1,004,952 ) - (1,004,952 ) (239,669 ) - (239,669 )Net exchange differences (87,084 ) - (87,084 ) (43,101 ) - (43,101 )Balance, December 31 7,382,034 - 7,382,034 7,923,089 - 7,923,089 Less: Ceded reserve for

insufficient premiums - - - - - - Balance, December 31, net $ 7,382,034 $ - $ 7,382,034 $ 7,923,089 $ - $ 7,923,089

6) Reserve for liability adequacy

Insurance Contracts and Financial Instruments with

Discretionary Participation Feature December 31 2017 2016 Reserve for life insurance $ 2,295,349,605 $ 2,103,270,091Reserve for unearned premiums 8,001,801 7,706,372Reserve for claim payments 2,784,735 2,388,724Reserve for insufficient premiums 7,382,034 7,923,089Special reserve for life insurance 9,285,277 16,206,249 2,322,803,452 2,137,494,525Less: Intangible assets - - Book value of insurance obligation $ 2,322,803,452 $ 2,137,494,525 Current estimates of cash flows $ 2,000,015,399 $ 1,900,717,234Balance of reserve for liability adequacy $ - $ - As of December 31, 2017 and 2016, the Group was not required to provide reserve for liability adequacy after evaluation.

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Method used in the liability adequacy test is shown as follows: December 31, 2017 and 2016 Test method Total premium measurement method Tested group All insurance contracts as a whole Assumptions The assumption of discount rate of every year was based on the best estimate

scenario as well as the rate of return on investment with current information b. Net insurance premium income:

2017 2016

Insurance Contracts






Feature Total Gross written

premiums $ 276,295,542 $ 390,184 $ 276,685,726 $ 261,723,916 $ 42,780 $ 261,766,696Reinsurance

premiums 32,343 - 32,343 34,065 - 34,065Total insurance

income 276,327,885 390,184 276,718,069 261,757,981 42,780 261,800,761Less: Reinsurance

expenses (1,136,019 ) - (1,136,019 ) (1,117,772 ) - (1,117,772 )Net changes in

reserve for unearned premiums (307,380 ) (2 ) (307,382 ) 41,232 1 41,233

Net insurance

premium income $ 274,884,486 $ 390,182 $ 275,274,668 $ 260,681,441 $ 42,781 $ 260,724,222

c. Net insurance benefits and claims:

2017 2016

Insurance Contracts






Feature Total Gross written

insurance benefits and claims $ 129,254,295 $ 5,125,722 $ 134,380,017 $ 97,623,377 $ 12,313,497 $ 109,936,874

Reinsurance claims 11,119 - 11,119 11,612 - 11,612Insurance benefits

and claims 129,265,414 5,125,722 134,391,136 97,634,989 12,313,497 109,948,486Less: Claims

recovered from reinsurers (456,229 ) - (456,229 ) (410,079 ) - (410,079 )

Net insurance

benefits and claims $ 128,809,185 $ 5,125,722 $ 133,934,907 $ 97,224,910 $ 12,313,497 $ 109,538,407

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33. EQUITY a. Share capital

December 31 2017 2016 Number of shares authorized (in thousands) 12,000,000 12,000,000Shares authorized $ 120,000,000 $ 120,000,000Number of shares issued and fully paid (in thousands) 10,241,903 10,228,144Shares issued $ 102,419,027 $ 102,281,441 Fully paid ordinary shares, which have a par value of $10, carry one vote per share and carry a right a dividend. The Group issued 42,088 thousand units of Global Depositary Receipt (GDR) in the amount of 1,052,200 thousand shares of ordinary shares, each GDR unit is equal to 25 shares of ordinary shares. As of December 31, 2017, the outstanding GDRs were 432 thousand units, equal to 10,798 thousand shares of ordinary shares.

b. Capital surplus 1) Capital surplus comprised:

December 31 2017 2016 Additional paid-in capital $ 8,869,788 $ 8,876,315Conversion option of convertible bonds 509,332 598,396Others 654,669 102,513 $ 10,033,789 $ 9,577,224

2) The source and utilization of additional paid-in capital were summarized as follows:

December 31 2017 2016 From subsidiaries

Capital surplus $ 42,260 $ 42,260Legal surplus 5,407,818 5,407,818Special surplus 2,134,509 2,134,509Retained earnings 1,207,446 1,207,446 8,792,033 8,792,033

Total share capital of subsidiaries exceeding the Company’s paid-in capital 2,584,153 2,584,153

11,376,186 11,376,186Changes after establishment of the Company

Changes in long-term equity investment (234,245) (234,245)Conversion of convertible bonds 7,814,006 7,820,533Issuance of ordinary shares and share conversions 20,333,347 20,333,347Retirement of treasury shares (128,277) (128,277)Offset of accumulated deficit (30,291,229) (30,291,229)

(2,506,398) (2,499,871) $ 8,869,788 $ 8,876,315

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3) The capital surplus recorded during the conversion of financial institution may be distributed as

cash dividends according to the fourth paragraph of Article 47 of Financial Holding Company Act and other related requirements if not restricted by other regulation or may be transferred to capital in the year of conversion with the proportion of the transfer not limited by Article 72-1 of Regulations Governing the Offering and Issuance of Securities by Securities Issuers. The unrestricted retained earnings of the financial institution presents the remaining balance after the appropriation of legal reserve or special reserve as required by law.

c. Retained earnings and dividend policy

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The shareholders held their regular meeting on June 8, 2016 and, in that meeting, resolved amendments to the Company’s Articles of Incorporation (the “Articles”), particularly the amendment to the policy on dividend distribution and the addition of the policy on the distribution of employees’ compensation. Under the dividend policy as set forth in the amended Articles, where the Company made profit in a fiscal year, the profit shall be first utilized for paying taxes, offsetting losses of previous years, setting aside a legal reserve until the legal reserve equals the Company’s paid-in capital, setting aside or reversing a special reserve in accordance with the laws and regulations, and then any remaining profit together with any undistributed retained earnings shall be used by the Company’s board of directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’ meeting for the distribution of dividends and bonuses to shareholders. For the policies on the distribution of employees’ compensation and remuneration of directors and supervisors before and after amendment, refer to Note 38 (a), employee benefits expense. In order for the Company to continue to expand its scale and increase profitability in line with its long-term financial strategy and future demand for capital, the Company adopted a dividend policy in framing a proposal for the distribution of annual earnings for the purpose of sustainable development, whereby share dividends, if declared, shall exceed 10% of the total dividends declared for the year. The appropriation of earnings to a legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. The legal reserve may be used to offset deficits. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash. The appropriations of earnings for 2016 and 2015 approved in the shareholders’ meetings on June 16, 2017 and June 8, 2016, respectively, were as follows: Appropriation of Earnings For the Year Ended December 31 2016 2015 Legal reserve $ 481,032 $ 578,014 Special reserve - 4,540,411 Cash dividends 2,045,628 -

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d. Special reserve comprised:

December 31 2017 2016 Special reserve for unrealized loss on financial instruments (1) $ 18,915,262 $ 18,915,262Transferred special reserve from reserve for trading default and

for trading loss (2) 156,585 156,585Special reserve reclassified from liability (3) 3,377,273 3,377,273Special reserve appropriated following first-time adoption of

IFRSs (4) 4,768,004 4,786,834 $ 27,217,124 $ 27,235,954 1) Under Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive titled

“Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs”, the Company should appropriate or reverse to a special reserve. Any special reserve appropriated may be reversed to the extent that the net debit balance reverses and thereafter distributed.

2) Under Rule No. 09900738571 and No. 10000002891 issued by the FSC, the reserve for trading

default and reserve for trading loss which had been provided before December 31, 2010 should be transferred to special reserve under shareholders’ equity. TSKCB and MLSC transferred to special reserve $60,508 thousand (reserve for trading loss $72,902 thousand net of deferred tax asset $12,394 thousand) and $291,852 thousand (reserve for trading default and reserve for trading loss $282,811 thousand net of deferred tax asset $48,077 thousand), respectively. The special reserve can be used only to offset a deficit or, when it has reached the amount of paid-in capital, up to 50% thereof may be transferred to paid-in capital.

3) According to the revised Regulations Governing Calculation of Various Reserves for Operations on

February 7, 2012, SKLIC transferred the balance of special reserve for catastrophe and for contingent claim, net of tax, from liability to special reserve.

4) Special reserves appropriated following first-time adoption of IFRSs

For the first-time adoption of IFRSs, 2013, the Company appropriated to special reserve the amounts that were the same as the unrealized revaluation increment, $4,812,157 thousand, cumulative translation differences, $124,142 thousand, and the increment of $20,398 thousand according to article No. 32 under Regulations Governing the Preparation of Financial Statements by Insurance Companies. If the special reserve appropriated on the first-time adoption of IFRSs relates to unrealized revaluation increment, the special reserve may be reversed on the disposal or reclassification of the related asset. A proportionate share of the special reserve relating to exchange differences arising from the translation of the financial statements of foreign operations will be reversed on the Group’s disposal of foreign operations; on the Group’s loss of significant influence, however, the entire special reserve will be reversed. Investment properties have been disposed of and the related special reserve had been reversed; thus, cumulative balance of special reserve was $188,693 thousand as of December 31, 2017.

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e. Others equity items - unrealized gain (loss) on available-for-sale financial assets For the Year Ended December 31 2017 2016 Balance at January 1 $ (23,921,607) $ (33,053,872)Unrealized gain or loss arising on revaluation of

available-for-sale financial assets 21,840,193 13,763,721Buy-back of treasury shares by subsidiaries (451) 788Disposal of partial interests in subsidiaries (22,908) -Income tax related to unrealized gain arising on revaluation of

available-for-sale financial assets (3,561,926) (1,939,864)Cumulative gain or loss reclassified to profit or loss on sale of

available-for-sale financial assets (9,128,862) (3,210,035)Income tax related to the amounts reclassified to profit or loss on

disposal of available-for-sale financial assets 1,943,065 529,891Share of unrealized gain on revaluation of available-for-sale

financial assets of associates accounted for using the equity method - (12,236)

Balance at December 31 $ (12,852,496) $ (23,921,607) Unrealized gain or loss on available-for-sale financial assets was the cumulative gain or loss generated from fair value measurement of available-for-sale financial assets, which was recognized as other comprehensive income net of the amount of reclassification to profit or loss due to sale of or impairment on these assets.

f. Non-controlling interests For the Year Ended December 31 2017 2016 Balance at January 1 $ 14,171,410 $ 14,803,423Attributable to non-controlling interests:

Share of profit for the year 687,706 288,193Exchange difference arising on translation of foreign entities (34,816) (43,970)Unrealized gain or loss on available-for-sale financial assets (77,307) (312,071)Share of other comprehensive income of associates accounted

for using the equity method (36,746) Remeasurement of defined benefit plan 6,247 (2,373)Income tax related to remeasurement of defined benefit plan (120,990) 403Buy-back of treasury shares by subsidiaries 203,845 (137,163)

Cash dividend attributed to non-controlling interest (139,247) (425,032) Balance at December 31 $ 14,660,102 $ 14,171,410

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g. Treasury shares

Purpose of Buy-Back

Shares Transferred to Employees (In Thousands of

Shares) Number of shares at January 1, 2016 200,000 Increase during the year - Number of shares at December 31, 2016 200,000 Number of shares at January 1, 2017 200,000 Transfer shares to employees (149,307) Number of shares at December 31, 2017 50,693 Under the Securities and Exchange Act, the Company shall neither pledge treasury shares nor exercise shareholders’ rights on these shares, such as rights to dividends and to vote. On November 24, 2017, the board of directors of the Company approved to transfer 200,000 thousand shares of the treasury shares to employees on the basis of the regulation of the Company for transferring the buy-back of shares to employees. As of December 31, 2017, the Company transferred 149,307 shares with the transfer price of NT$9.17. In 2017, the Company’s expense incurred by share-based payment transactions was $216,000 thousand.

34. EARNINGS PER SHARE

Unit: NT$ Per Share

For the Year Ended December 31 2017 2016 Basic earnings per share $ 1.05 $ 0.48 Diluted earnings per share $ 0.98 $ 0.45 The earnings and weighted average number of ordinary shares outstanding in the computation of earnings per share were as follows: Net Profit for the Year For the Year Ended December 31 2017 2016 Earnings used in the computation of basic earnings per share $ 10,531,170 $ 4,810,317Effect of potentially dilutive ordinary shares:

Convertible bonds 108,805 137,609 Earnings used in the computation of diluted earnings per share $ 10,639,975 $ 4,947,926

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Weighted average number of ordinary shares outstanding (in thousand shares): For the Year Ended December 31 2017 2016 Weighted average number of ordinary shares in computation of basic

earnings per share 10,035,661 10,028,144 Effect of potentially dilutive ordinary shares:

Convertible bonds 873,043 981,449 Weighted average number of ordinary shares used in the

computation of diluted earnings per share 10,908,704 11,009,593 If the Group offered to settle compensation or bonuses paid to employees in cash or shares, the Group assumed the entire amount of the compensation or bonuses will be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, as the effect is dilutive. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the number of shares to be distributed to employees is resolved in the following year.

35. NET PROCESSING FEE AND COMMISSION (LOSS) INCOME For the Year Ended December 31 2017 2016 Processing fee and commission income

Processing fee income $ 6,129,785 $ 5,295,377Commission income 324,255 293,237

6,454,040 5,588,614Processing fee and commission expense

Commission expense 11,479,765 13,247,492Processing fee expense 1,428,418 1,368,537

12,908,183 14,616,029 $ (6,454,143) $ (9,027,415)

36. NET INCOME FROM LIFE INSURANCE OPERATION

For the Year Ended December 31 2017 2016 Income from life insurance operation

Gross written premiums $ 276,685,726 $ 261,766,696Reinsurance premiums 32,343 34,065Total insurance income 276,718,069 261,800,761Less: Reinsurance expenses (1,136,019) (1,117,772)Net changes in reserve for unearned premiums (307,382) 41,233Net insurance premium income 275,274,668 260,724,222Changes in reserve for changes in foreign exchange valuation 554,791 3,767,084Income on insurance products - separate account (Note 30) 7,782,055 5,773,054

283,611,514 270,264,360(Continued)

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For the Year Ended December 31 2017 2016 Expenses on life insurance operation

Insurance benefits and claims $ 134,391,136 $ 109,948,486Less: Benefits and claims recovered from reinsurers (456,229) (410,079)Net insurance benefits and claims 133,934,907 109,538,407Acquisition expenses 13,742 13,606Insurance Industry Stability Fund 525,759 459,593Disbursement on insurance products - separate account (Note 30) 7,782,055 5,773,054

142,256,463 115,784,660 $ 141,355,051 $ 154,479,700

(Concluded) 37. GAIN ON INVESTMENTS

For the Year Ended December 31 2017 2016 Interest income

Cash in bank $ 1,545,187 $ 1,437,508Financial instruments at FVTPL 125 2,925Available-for-sale financial assets 4,162,767 5,026,123Held-to-maturity financial assets 34,201,916 19,687,545Debt investments with no active market 32,993,392 38,986,062Loans 20,411,147 20,315,252Others 628,909 1,194,336

$ 93,943,443 $ 86,649,751 Gain (loss) on financial assets and liabilities as at FVTPL

Gain (loss) on changes in fair value $ 24,433,889 $ (776,348)Dividend income 135,557 430,999Gain (loss) on disposal of investments

Non-derivative instruments 2,744,616 (4,165,834)Derivative instruments 40,060,191 14,506,851

Distributions from foreign investments 130,210 353,733 $ 67,504,463 $ 10,349,401 Realized gain on available-for-sale assets

Gain on disposal of investments $ 12,594,285 $ 3,210,035Dividend income 8,928,973 5,779,847Distributions from foreign investments 1,437,065 1,412,148

$ 22,960,323 $ 10,402,030 Gain on investment properties

Rental income (Note 40) $ 3,497,819 $ 3,539,320Gain on disposal of investment properties 29,436 5,805

$ 3,527,255 $ 3,545,125

(Continued)

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For the Year Ended December 31 2017 2016 (Impairment loss recognized) gain on reversal of implement

Available-for-sale financial assets $ - $ (456,033)Financial assets carried at cost (729) (33,435)Assets held for sale (25,899) -

$ (26,628) $ (489,468) Realized gain on financial assets measured at cost

Dividend income $ 104,188 $ 73,850(Loss) gain on disposal of investments (2,051) 1,338

$ 102,137 $ 75,188 Realized gain on debt investments with no an active market

Gain on disposal of investments $ 7,127,692 $ 10,387,243

Realized gain on held-to-maturity financial assets Gain on disposal of investments $ - $ 761

(Concluded) For the year ended December 31, 2017, SKLIC disposed of Nanjing Park Building in Taipei with net proceeds of $209,507 thousand, which was the gross selling price of $209,984 thousand less other tax and a selling cost of $477 thousand, and the carrying amount of disposed investment properties was $171,399 thousand, resulting in gain on disposal of $38,108 thousand, recorded as a gain on investment properties. For the year ended December 31, 2017, SKLIC applied lost registration for removing Neihu Yangguang Street building because of urban renewal, resulting in a loss on disposal of $8,672 thousand, recorded as a gain on investment properties. For the year ended December 31, 2016, SKLIC applied lost registration for removing Chongqing houses, resulting in a loss on disposal of $10,705 thousand, recorded as a gain on investment properties. For the year ended December 31, 2017, SKLIC’s investment property, land of Rui’an Section in Taipei has a carrying amount of $63,875, which exceeds the recoverable amount of $37,976 thousand, resulting in a recognition of an impairment loss of $25,899 thousand.

- 93 -

38. NET PROFIT (LOSS) AND OTHER COMPREHENSIVE INCOME (LOSS) FROM CONTINUING OPERATIONS a. Employee benefits expense

The bonuses to employees and remuneration to directors and supervisors for 2017 and 2016 For the Year Ended December 31 2017 2016 Short-term benefits

Salary $ 16,511,853 $ 15,562,687Labor and health insurance 1,166,799 1,149,352

Termination benefits 682,760 643,410Other employee benefits 586,284 505,913 Total employee benefits expense $ 18,947,696 $ 17,861,362 An analysis of employee benefits expense by function

Profit from operations $ 4,430,480 $ 3,929,984Operating expenses 14,517,216 13,931,378 $ 18,947,696 $ 17,861,362

In compliance with the Company Act as amended in May 2015 and the amended Articles of Incorporation of the Company approved by the shareholders in their meeting on June 2016, the Company accrued employees’ compensation and remuneration of directors and supervisors at the rates no less than 0.01% and no higher than 1%, respectively, of net profit before income tax, employees’ compensation, and remuneration of directors and supervisors. The bonuses to employees and remuneration to directors and supervisors for 2017 and 2016, were as follows: Accrual rate For the Year Ended December 31 2017 2016 Employees’ compensation 0.03% 0.01% Remuneration of directors and supervisors 0.28% 0.07% 2017 2016 Cash Dividends Cash Dividends Bonus to employees $ 3,250 $ 470 Remuneration of directors and supervisors 31,000 3,100 If there is a change in the proposed amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in accounting estimate. There was no difference between the actual amounts of employees’ compensation and remuneration of directors and supervisors paid and the amounts recognized in the consolidated financial statements for the year ended December 31, 2016. Information on the employees’ compensation and remuneration to directors and supervisors resolved by the Company’s board of directors in 2018 and 2017 is available at the Market Observation Post System website of the Taiwan Stock Exchange.

- 94 -

b. Depreciation and amortization For the Year Ended December 31 2017 2016 Property and equipment $ 723,404 $ 708,157 Investment properties 929,627 938,178 Intangible assets 244,895 256,618 Other assets 96,366 86,051 $ 1,994,292 $ 1,989,004 An analysis of depreciation by function

Operating expenses $ 1,653,031 $ 1,646,335 An analysis of amortization by function

Operating expenses $ 341,261 $ 342,669 As of December 31, 2017 and 2016, the number of the Group’s employees were 19,520 and 18,393, respectively. The basis of determination is the same as the basis of calculating employee benefits expense.

39. INCOME TAX a. Income tax recognized in profit or loss

The major components of tax expense were as follows: For the Year Ended December 31 2017 2016 Current tax

In respect of the current year $ (758,972) $ (981,943)Income tax expense of unappropriated earnings (152,012) (657)Land value increment tax (30,422) - Adjustments for prior periods (293,446) (445,080)

Deferred tax In respect of the current year 2,277,792 1,398,746

Income tax expense recognized in profit or loss $ 1,042,940 $ (28,934) A reconciliation of accounting profit and income tax expenses is as follows: For the Year Ended December 31 2017 2016 Profit before tax from continuing operations $ 10,175,936 $ 5,127,444 Income tax expense calculated at the statutory rate $ (1,729,910) $ (871,664)Nondeductible expenses in determining taxable income (96,417) (99,633)Tax-exempt income 3,454,309 1,925,823 Unrecognized deductible temporary differences 75,026 93,912 Unrecognized loss carryforwards 228,854 49,338

(Continued)

- 95 -

For the Year Ended December 31 2017 2016 Additional income tax under the Alternative Minimum Tax Act $ (8,354) $ (2,705)Income tax on unappropriated earnings (152,012) (657)Land value increment tax (30,422) -Withholding tax on foreign income without tax deduction (364,355) (639,838)Effect of different tax rate of group entities operating in other

jurisdictions (35,213) (42,296)Adjustments for prior years’ tax (293,446) (445,080)Others (5,120) 3,866 Income tax expense recognized in profit or loss $ 1,042,940 $ (28,934)

(Concluded) The applicable tax rate used above is the corporate tax rate of 17% payable by the Group in the ROC, while the applicable tax rate used by subsidiaries in China is 25%. Tax rates used by other group entities operating in other jurisdictions are based on the tax laws in those jurisdictions. In February 2018, it was announced by the President that the Income Tax Act in the ROC was amended and, starting from 2018, the corporate income tax rate will be adjusted from 17% to 20%. In addition, the rate of the corporate surtax applicable to 2018 unappropriated earnings will be reduced from 10% to 5%. Deferred tax assets and deferred tax liabilities recognized as at December 31, 2017 are expected to be adjusted and would increase by $2,274,166 thousand and $126,009 thousand, respectively, in 2018. As the status of the 2017 distribution of retained earnings is uncertain, the additional 10% surtax on undistributed retained earnings in 2016 are not reliably determinable.

b. Income tax recognized in other comprehensive income

For the Year Ended December 31 2017 2016 Deferred tax Recognized in other comprehensive income

Unrealized gain or loss on available-for-sale financial assets $ (3,561,926) $ 1,939,864 Remeasurement of the defined benefit plan 336,654 (159,884)

Arising on income and expenses reclassified from equity to profit or loss: On disposal of available-for-sale financial assets 1,943,065 (529,891)

Expense (benefit) on total income tax recognized in other

comprehensive income $ (1,282,207) $ 1,250,089 c. Current tax assets and liabilities

December 31 2017 2016 Current tax assets

Tax refund receivable $ 3,048,330 $ 4,282,426 Current tax liabilities

Income tax payable $ 195,952 $ 134,266

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d. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows: For the year ended December 31, 2017

Opening Balance

Recognized in Profit or Loss

Recognized in Other

Comprehensive Income Others Closing Balance

Deferred tax assets Temporary differences

Differences in depreciation of properties $ 218,768 $ 4,888 $ - $ - $ 223,656

Defined benefit obligation 133,993 (189,268 ) 336,608 - 281,333Unrealized gain (loss) on financial

assets 1,484,014 9,306,554 - - 10,790,568Unrealized gain on available-for-sale

financial assets 3,725,495 - (1,618,861 ) - 2,106,634Doubtful account 328,725 129,610 - - 458,335Others 31,391 1,216 - - 32,607Tax losses 7,746,490 (7,567,049 ) - - 179,441

$ 13,668,876 $ 1,685,951 $ (1,282,253 ) $ - $ 14,072,574 Deferred tax liabilities Temporary differences

Fair value of investment properties $ 336,888 $ (11,979 ) $ - $ - $ 324,909Amortization of goodwill 198,248 16,993 - - 215,241Unrealized gain (loss) on financial

assets 662,303 (584,044 ) - - 78,259Others 19,022 (205 ) (46 ) - 18,771Reserve of land increment tax 2,915,403 (12,606 ) - - 2,902,797

$ 4,131,864 $ (591,841 ) $ (46 ) $ - $ 3,539,977

For the year ended December 31, 2016

Opening Balance

Recognized in Profit or Loss

Recognized in Other

Comprehensive Income Others Closing Balance

Deferred tax assets Temporary differences

Differences in depreciation of properties $ 211,510 $ 7,258 $ - $ - $ 218,768

Defined benefit obligation 402,101 (427,912 ) 159,804 - 133,993Unrealized gain (loss) on financial

assets 600,329 883,685 - - 1,484,014Unrealized gain on available-for-sale

financial assets 5,135,468 - (1,409,973 ) - 3,725,495Doubtful account 283,900 44,825 - - 328,725Others 32,811 (1,420 ) - - 31,391Tax losses 10,688,776 (2,868,848 ) - (73,438 ) 7,746,490

$ 17,354,895 $ (2,362,412 ) $ (1,250,169 ) $ (73,438 ) $ 13,668,876 Deferred tax liabilities Temporary differences

Fair value of investment properties $ 348,867 $ (11,979 ) $ - $ - $ 336,888Amortization of goodwill 184,437 13,811 - - 198,248Unrealized gain (loss) on financial

assets 4,339,778 (3,677,475 ) - - 662,303Others 92,433 (73,331 ) (80 ) - 19,022Reserve of land increment tax 2,927,587 (12,184 ) - - 2,915,403

$ 7,893,102 $ (3,761,158 ) $ (80 ) $ - $ 4,131,864

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Note: Reclassified income tax payable for linked-tax and deferred tax assets. e. Deductible temporary differences, unused loss carryforwards and unused investment credits for which

no deferred tax assets have been recognized in consolidated balance sheets

December 31 2017 2016 Loss carryforwards $ 39,076,120 $ 39,663,120Impairment losses on assets $ 788,400 $ 1,102,204

f. Information about unused loss carryforwards

Loss carryforwards as of December 31, 2017 comprised of: Unused Amount Expiry Year $ 1,055,538 2019 39,076,120 2025 $ 40,131,658

g. Integrated income tax

As of December 31, 2017 and 2016, the imputation credits accounts were as follows: December 31 2017 2016 Unappropriated earnings

Unappropriated earnings generated on and after January 1, 1998 $ 10,441,856 $ 4,031,680

Imputation credits accounts $ 153,160 $ 105,003 For the Year Ended December 31

2017

(Expected) 2016

(Actual) Creditable ratio for distribution of earnings Note 8.16% Note: Since the amended Income Tax Act announced in February 2018 abolished the imputation tax

system, no creditable ratio for distribution of earnings in 2018 is expected.

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h. Income tax assessments The income tax returns of the Group examined by authorities were as follows: Examined Year SKFHC 2012 SKLIC 2012 SKSC 2012 TSKCB 2012 SKLRESC 2015 TSKIBC 2012 SKMC 2016 SKLIAC 2015 SKIB 2012 SKITC 2012 MLSC 2014 The consolidated income tax returns of the Company and its subsidiaries which adopted consolidated income tax through 2012 were assessed by the tax authority, and the tax difference of 2011 and 2012 were recorded in the year ended December 31, 2017. For the difference between the amounts declared and assessed in 2010, 2011, and 2012, the Company had filed for administrative remedy within legal time limit. MLSC’s income tax returns from 2012 to 2014 have been assessed by the tax authority. MLSC did not agree with the assessments of the taxes from 2012 to 2014 and had filed an appeal for administrative remedy within the legal time limit.

40. RELATED-PARTY TRANSACTIONS

a. The related parties and their relationships with the Group are as follows:

Related Party Relationship

Wu, Tung-Chin Key management personnel Li, Chi-Chu Key management personnel Hong, Wen-Dong and other directors Key management personnel Shin-Kong Hainan Life Insurance Co. Joint venture company Shin Kong Enterprise Co., Ltd. Its chairman is a relative of the Company’s chairman Tong Yin Investment Co. Its chairman is a relative of the Company’s chairman Auto21 Co., Ltd. Its chairman is a relative of the Company’s chairman Skin Kong Shien Ya International Co., Ltd. Its chairman is a relative of the Company’s chairman Ruey-Chin Enterprise Co., Ltd. Its chairman is a relative of the Company’s chairman Shin Cheng Investment Co., Ltd. Its chairman is a relative of the Company’s chairman Ying Ying Investment Co., Ltd. Its chairman is a relative of the Company’s chairman Shin Kong Hae Yang Co., Ltd. Its chairman is a relative of the Company’s chairman Rue-Ying Enterprise Co., Ltd. Its chairman is a relative of the Company’s chairman Seed Studio Co., Ltd. Its chairman is a relative of the Company’s chairman The Great Taipei Gas Corp. Its chairman is a relative of the Company’s chairman Shin Kong Construction and Development Co.,

Ltd. Its chairman is a relative of the Company’s chairman

Shin Kong Recreation Co., Ltd. Its chairman is a relative of the Company’s chairman (Continued)

- 99 -


Shian-Da Co., Ltd. Its chairman is a relative of the Company’s chairman Tong Shan Investment Co., Ltd. Its director key management personal of the CompanySkin Kong Lease Co., Ltd. Its director key management personal of the CompanyShin Sheng Co., Ltd. Its director key management personal of the CompanyGui Yuan Investment Co., Ltd. Its director key management personal of the CompanyShin Kong Farm Co., Ltd. Its director key management personal of the CompanyYung Kwang Co., Ltd. Its director key management personal of the CompanySkin Kong Lohas Co., Ltd. Its director is a relative of the Company’s chairman Shinhai Gas Corporation Its director is a relative of the Company’s chairman Shin-bao Car Rental Co., Ltd. Its director is a relative of the Company’s chairman Lian-an Service Co., Ltd. Its director is a relative of the Company’s chairman Shin Natural Gas Co., Ltd. Its director is a relative of the Company’s chairman Hsin-Pao Investment Co., Ltd. Its director is a relative of the Company’s chairman Hsin-Pao Technology Co., Ltd. Its director is a relative of the Company’s chairman Shin Kong Communication Co., Ltd. Its director is a relative of the Company’s chairman Jaspervilla Co., Ltd. Its director is a relative of the Company’s chairman Shin Kong MedicalClub Its vice chairman is a relative of the Company’s

chairman Shin Kong Real Estate Co., Ltd. Its chairman is a key management personnel of the

Company Taiwan Shin Kong Construction Management

Co., Ltd. Its chairman is a key management personnel of the

Company Shin Kong Investment Co., Ltd. Its chairman is a key management personnel of the

Company Shin Kong International Investment Co., Ltd. Its chairman is a key management personnel of the

Company Wu Tung-Chin Charity Foundation Its chairman is a key management personnel of the

Company Shin Kong the Wu’s Foundation Its chairman is a key management personnel of the

Company Shin Kong Wu Ho-Su Cultural Foundation Its chairman is a key management personnel of the

Company Shin Kong Life Charity Foundation Its chairman is a key management personnel of the

Company Shin Kong Life Scholarship Foundation Its chairman is a key management personnel of the

Company Shin Kong Bank Cultural and Educational

Foundation Its chairman is a key management personnel of the

Company Shin Kong Wu Ho-Su Memorial Hospital

(Shin Kong Memorial Hospital) Its chairman is a key management personnel of the

Company Shin Kong Wu Ho-Su First Aid Foundation Its chairman is a key management personnel of the

Company Shin Kong Spinning Co., Ltd. Its director is a key management personnel of the

Company Shin Kong Mitsukoshi Department Store Co.,

Ltd. Its director is a key management personnel of the

Company Sian Shun Enterprise Co. Its director is a key management personnel of the

Company Wang Tien Woolen Textile Co., Ltd. Its director is a key management personnel of the

Company (Continued)

- 100 -


Taiwan Fuhbic Corp. Its director is a key management personnel of the

Company Great Taipei Broadband Co., Ltd. Its director is a key management personnel of the

Company Chi-Ye Chemical Engineering Co., Ltd. Its director is a key management personnel of the

Company Pei-Tou Hotel Co., Ltd. Its director is a key management personnel of the

Company Yi Kong Security Co., Ltd. Its director is a key management personnel of the

Company Taiwan Institute for Sustainable Energy Its director is a key management personnel of the

Company Shin Kong Synthetic Fiber Corp. Its director key management personal of the CompanyPQ International Co., Ltd. Its director is a key management personnel of SKLICTaiwan Security Co., Ltd. Its director is a key management personnel of SKLICShin Lung Natural Gas Co. Its director is a key management personnel of SKLICSwiss Hotel Co., Ltd. Its director is a key management personnel of SKLICBoa-shun Automatic Co., Ltd. Its director is a key management personnel of SKLICTaiwan-Sok Shin Kong Security Co., Ltd. Its chairman is a key management personnel of

SKLIC Yi Kong Building Management Service Co.,

Ltd. Its chairman is a key management personnel of

SKLIC Taiwan Leasing Co., Ltd. (Note 1) Its supervisor is a key management personnel of

SKLIC Xin-Yi Construction Co., Ltd. Its chairman is a key management personnel of

SKLIC Sin-pei Co., Ltd. Its supervisor is a key management personnel of

SKLIC Wu, Anthony T.S. Related party in substance Wu, Thomas T.L. Related party in substance Wu, Tung-Sheng Related party in substance Kuo Wu, Ru-Yue Related party in substance Wu, Bein-Sen Related party in substance Su, Jun-hong Related party in substance Ubright Optronics Co., Ltd. Related party in substance Ruey-Shin Enterprise Co., Ltd. Related party in substance Taishin International Bank Co., Ltd. Related party in substance Hung Shin Enterprise Co., Ltd. Related party in substance Chin Shan Investment Co., Ltd. Related party in substance Taishin Financial Holding Co., Ltd. Related party in substance YuPang Investment Co., Ltd. Related party in substance Hsin Hsien Industrial Co. Related party in substance An Long Enterprise Co., Ltd. Related party in substance Shin Kong Materials Technology Co., Ltd. Related party in substance Hou Sheng Chemical Co. Related party in substance Shin Kong Chao-Feng Co., Ltd. Related party in substance TacBright Optronics Co., Ltd. Related party in substance Shin Kong Fire & Marine Insurance Company Related party in substance Hung Shin Enterprise Co., Ltd. Related party in substance SBright Optronics Co., Ltd. Related party in substance

(Continued)

- 101 -


Taishin Investment Trust Co., Ltd. Related party in substance Taishin Securities Co., Ltd. Related party in substance Shin Kong Asset Management Company Related party in substance ShinSoft Co., Ltd. Related party in substance White Cloudy Village Enterprise Co., Ltd. Related party in substance Chia Her Industrial Co., Ltd. Related party in substance New Light International Co., Ltd. Related party in substance Whu Shih Consulting Company Co., Ltd. Related party in substance MienHao Enterprise Co., Ltd. Related party in substance Hong Tai Electric Industrial Co., Ltd. Related party in substance Hong-Qi Co. Related party in substance KueiHsin Enterprise Co., Ltd. Related party in substance Tsui Yuan Investment Co., Ltd. Related party in substance ChiaBan Investment Co., Ltd. Related party in substance The Foundation for Excellent Journalism

Award Related party in substance

Taishin Holdings Insurance Brokers Co., Ltd. Related party in substance Northeast Corner Recreation Co., Ltd. Related party in substance Shin-Kong Global Venture Capital Corp. Related party in substance Taiwan Shin Kong Construction Co. Related party in substance ChaoBan Investment Co., Ltd. Related party in substance Hsin Ming Enterprise Co., Ltd. Related party in substance Hsin Hsen Construction Co., Ltd. Related party in substance Hui Feng Investment Co., Ltd. Related party in substance Tung Sheng Media Co., Ltd. Related party in substance Eaibel Enterprises, Inc. Related party in substance Other related party in substance Independent director of the Company, spouse and the

relative within second degree of kinship of the subsidiaries, director, and associate and related party in substance of the Company

(Concluded) Note 1: Under liquidation procedure as of December 31, 2017. Note 2: The Company classified the above relationship into four categories: (1) associate, (2) key

management personnel, (3) related party in substance and (4) others. This classification is a basis for disclosure of transactions with related parties.

b. Except for significant intra-group transactions that have been eliminated on consolidation and are not

disclosed in this note, significant transactions with related parties were as follows: 1) Secured loans

a) Secured loans of related parties due to SKLIC were as follows: Loans

December 31 Interest Income Year Amount % Amount % 2017 $ 138,385 - $ 8,317 -2016 698,728 - 20,800 -

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For the Year Ended December 31, 2017

Classification Name Highest BalancePeriod-End

Balance

Status Content of Guarantee

Interest Revenue

Difference of Terms with Third Party Loans

Nonperforming Loans

Other loans Others Wang Tien Woolen

Textile Co., Ltd. $ 506,120 $ - $ - $ - Real estate $ 5,480 None

Key management personnel 5,124 4,753 4,753 - Real estate 89 None Related party in substance 176,159 133,632 133,632 - Real estate 2,747 None


Classification Name Highest BalancePeriod-End

Balance

Status Content of Guarantee

Interest Revenue


Nonperforming Loans

Other loans Others Wang Tien Woolen

Textile Co., Ltd. $ 506,120 $ 506,120 $ 506,120 $ - Real estate $ 16,098 None

Key management personnel 31,855 31,855 - Real estate 586 None Related party in substance 160,753 160,753 - Real estate 4,116 None

The terms and conditions of the above secured loans to related parties were on an arm’s length basis.

b) Secured loans of related parties due to from TSKCB were as follows: Loans December 31 Interest Income Year Amount % Amount % 2017 $ 2,162,446 - $ 36,862 -2016 1,930,893 - 35,138 -


Classification Number or Name Highest BalancePeriod-End

Balance

StatusContent of

Guarantee Interest Revenue


Nonperforming Loans

Consuming loans

24 $ 17,260 $ 14,875 $ 14,875 $ - Vehicle $ 135 None

Residential mortgage loans

58 374,342 311,641 311,641 - Real estate 4,866 None

Other loans Related party in substance Shin Kong Chao-Feng

Co., Ltd. 810,000 650,000 650,000 - Real estate 11,599 None

Whu Shih Consulting Co. 272,000 261,800 261,800 - Real estate, listed securities

3,309 None

Hong-Qi Co. 226,900 222,900 222,900 - Real estate, listed securities

3,084 None

Others 150,000 150,000 150,000 - Real estate, listed securities

2,401 None

Others Wang Tien Woolen

Textile Co., Ltd. 500,000 460,000 460,000 - Real estate 9,746 None

Others 123,729 91,230 91,230 - Real estate 1,600 None Key management personnel 24,000 - - - Real estate 122 None


Classification Number or Name Highest BalancePeriod-End

Balance

StatusContent of

Guarantee Interest Revenue


Nonperforming Loans

Consuming loans

17 $ 8,337 $ 4,048 $ 4,048 $ - Vehicle $ 187 None

Residential mortgage loans

61 405,228 283,836 283,936 - Real estate 4,838 None

Other loans Related party in substance Shin Kong Chao-Feng

Co., Ltd. 600,000 600,000 600,000 - Real estate 10,540 None

Hong-Qi Co. 144,500 143,900 143,900 - Real estate, listed securities

2,247 None

Whu Shih Consulting Co. 140,200 138,000 138,000 - Real estate, listed securities

2,191 None

Hsin-Ming Enterprise Co., Ltd.

74,000 - - - Real estate 508

Ruey-shin Enterprise Co., Ltd.

180,000 - - - Real estate 104 None

Others 160,000 150,000 150,000 - Real estate, listed securities

1,924 None

Others Wang Tien Woolen

Textile Co., Ltd. 500,000 500,000 500,000 - Real estate 10,027 None

Sin-pei Co., Ltd. 58,000 - - - Real estate 441 None Others 149,911 87,109 87,109 - Real estate 1,770 None Key management personnel 24,000 24,000 24,000 - Real estate 361 None

- 103 -

According to Articles 32 and 33 of the Banking Act, unsecured credit cannot be extended to any interested party except consumer loans and loans extended to the government and secured credit to an interested party shall be fully secured, of which the terms shall not be more favorable than those terms offered to the same category customer. Guarantee


Related Party Highest Balance

Period-end Balance

Guarantee Reserve Balance

Interest Rate (%)

Content of Guarantee

Related party in substance

Ruey-shin Enterprise Co., Ltd. $ 285,000 $ 80,000 $ - 0.50 Real estate Others

Shin Kong Synthetic Fiber Corp. 28,677 - - 0.50 Listed securities Skin Kong Spinning Co., Ltd. 7,149 5,419 - 0.50 Listed securities $ 85,419


Related Party Highest Balance

Period-end Balance

Guarantee Reserve Balance

Interest Rate (%)

Content of Guarantee


Ruey-shin Enterprise Co., Ltd. $ 250,000 $ 235,000 $ - 0.50 Real estate UBright Optronics Co., Ltd. 3,786 - - 0.75 Deposits

Others Tong Shan Investment Co., Ltd. 95,000 - - 0.50 Real estate Skin Kong Spinning Co., Ltd. 7,149 7,149 - 0.50 Listed securities Shin Kong Synthetic Fiber Corp. 141,588 28,677 - 0.50 Listed securities $ 270,826

2) Deposits


Related Party Year-end Balance Interest Rate Interest Income


Shin Kong Fire & Marine Insurance Company $ 723,966 0.00%-0.60% $ 1,279

Hung Shin Enterprise Co., Ltd. 275,568 0.00%-0.53% 150 UBright Optronics Co., Ltd. 110,355 0.00%-1.04% 153 New Light International Co., Ltd. 76,252 0.00%-0.40% 291 Ruey-Shin Enterprise Co., Ltd. 11,466 0.00%-0.05% 9 TacBright Optronics Co., Ltd. 9,125 0.00%-1.13% 71 Others 117,028 119

1,323,760 2,072 Others

Shin Kong Synthetic Fiber Corp. 98,719 0.00%-1.04% 214 The Great Taipei Gas Corp. 621,619 0.00%-0.45% 1,249 Yi Kong Securities Co., Ltd. 340,130 0.00%-0.40% 115 Shin Kong Spinning Co., Ltd. 47,592 0.00%-1.04% 89 Yi Kong Building Management Service 46,618 0.00%-0.62% 22 Shin Sheng Co., Ltd. 49,123 0.00%-0.05% 26 Jasperivilla Co., Ltd. 183,016 0.00%-0.63% 42

(Continued)

- 104 -



Shin Kong Memorial Hospital $ 480,285 0.00%-0.30% $ 138 Shin Kong Hae Yang Co., Ltd. 7,627 0.00%-0.05% 15 Shin Kong Life Charity Foundation 59,737 0.00%-0.40% 133 Shin Kong Wu Ho-Su Cultural

Foundation 93,260 0.00%-1.15% 963 Wu Tung-Chin Charity Foundation 64,582 0.00%-1.15% 636 Others 1,348,782 9,091

3,441,090 12,733 $ 4,764,850 $ 14,805

(Concluded)




Shin Kong Fire & Marine Insurance Company $ 1,526,995 0.00%-0.81% $ 1,362

Hung Shin Enterprise Co., Ltd. 275,124 0.00%-0.13% 246 UBright Optronics Co., Ltd. 162,705 0.00%-1.28% 664 New Light International Co., Ltd. 80,603 0.00%-1.21% 392 Shin Soft Co., Ltd. 78,146 0.00%-1.21% 87 Shin Kong Materials Technology Co.,

Ltd. 51,590 0.00%-0.30% 87 Others 80,335 88

2,255,498 2,926 Others

The Great Taipei Gas Corp. 385,369 0.00%-0.65% 448 Yi Kong Securities Co., Ltd. 237,072 0.00%-0.40% 123 Shin Kong Synthetic Fiber Corp. 230,523 0.00%-0.30% 73 Shin Kong Spinning Co., Ltd. 94,371 0.00%-1.23% 62 Yi Kong Building Management Service 87,443 0.00%-0.62% 78 Shin Kong Mitsukoshi Department Store

Co., Ltd. 78,179 0.00%-0.13% 39 Shin Kong Construction and

Development Co., Ltd. 52,862 0.00%-0.13% 50 Shin Kong Memorial Hospital 89,739 0.00%-0.08% 131 Shin Kong Wu Ho-Su Cultural

Foundation 103,284 0.00%-1.38% 1,106 Wu Tung-Chin Charity Foundation 63,536 0.00%-1.38% 679 Others 1,582,639 10,180

3,005,017 12,969 $ 5,260,515 $ 15,895 The transaction terms with related parties do not significantly differ from those with ordinary customers except for 6.15% interest rate on the employee deposits for the years 2017 and 2016, respectively.

- 105 -

3) Lease of investment property to related parties

a) Rentals received for leasing investment properties to related party were as follow:

For the Year Ended December 31 2017 2016 Amount % Amount % Others

Shin Kong Mitsukoshi Department Store Co., Ltd. $ 457,378 13 $ 457,205 13

Shin Kong Wu Ho-Su Memorial Hospital 32,448 1 30,680 1

Others 109,631 3 72,453 2 599,457 17 560,338 16

Related party in substance 24,609 1 19,921 1 $ 624,066 18 $ 580,259 17

b) All lease transactions with related parties were made under arm’s length terms. Above rentals

received were excluded VAT.

c) As of December 31, 2017 and 2016, deposits received for lease of properties to related parties were $35,724 thousand and $24,822 thousand, respectively.

4) Other miscellaneous income (loss)

For the Year Ended December 31 2017 2016

Other Operating Revenue

Building Management

Cost

Other Operating Revenue

Building Management

Cost Others $ 155,818 $ 124,621 $ 140,428 $ 110,462 Related party in substance 24,956 298 17,526 - $ 180,774 $ 124,919 $ 157,954 $ 110,462

5) Lease of real estate from related parties

As of December 31, 2017 and 2016, deposits paid for lease of properties from related parties were as follows: December 31 2017 2016 Others $ 10,606 $ 10,605 Related party in substance - 948 $ 10,606 $ 11,553 Above deposits were paid for lease of operating locations. Upon termination of the lease contract and return of the leased properties, these deposits will be refunded without interest.

- 106 -

6) Commission expense For the Year Ended December 31 2017 2016 Related party in substance

Taishin Holdings Insurance Brokers Co., Ltd. $ - $ 199,427 Taishin International Bank Co., Ltd. 848,645 814,071 Shin Kong Fire & Marine Insurance Company 2,339 2,360

$ 850,984 $ 1,015,858

7) Processing fee income For the Year Ended December 31 2017 2016 Related party in substance

Shin Kong Fire & Marine Insurance Company $ 321,736 $ 302,814

8) Processing fee expense For the Year Ended December 31 2017 2016 Related party in substance

Shin Kong Fire & Marine Insurance Company $ 5,710 $ 5,880 9) Operating expenses

a) Building management expense

For the Year Ended December 31 2017 2016 Others

Yi Kong Building Management Service Co., Ltd. $ 12,776 $ 13,108 b) Insurance expense

For the Year Ended December 31 2017 2016 Related party in substance

Shin Kong Fire & Marine Insurance Co., Ltd. $ 46,846 $ 43,074 c) Rental expense

For the Year Ended December 31 2017 2016 Others $ 54,497 $ 96,574 Related party in substance 2,472 7,082 $ 56,969 $ 103,656

- 107 -

The rentals of related parties were negotiated according to quotation of those in the neighborhood and paid every month.

d) Postage expense


Great Taipei Broadband Co., Ltd. $ 24,167 $ 23,990 Jaspervilla Co., Ltd. - 4 $ 24,167 $ 23,994

e) Professional service expense


Jaspervilla Co., Ltd. $ 38,073 $ 37,759 Taiwan-Sok Shin Kong Security Co., Ltd. 18,726 17,566 $ 56,799 $ 55,325

f) Donation expense

SKLIC donated $4,000 thousand, $5,000 thousand and $2,155 thousand to Shin Kong Life Charity Foundation, which was approved by SKLIC’s board of directors on January 20, 2017, March 24, 2017 and April 22, 2016.

10) Beneficial certificates

For the Year Ended December 31 2017 2016 Related party in substance

Taishin Investment Trust Co., Ltd. $ 13,778 $ - The Group acquired and disposed of several mutual funds from Taishin International Bank during the years ended December 31, 2017 and 2016; the mutual funds were as follows: For the Year Ended December 31 2017 2016 Buy $ 1,520,000 $ 2,646,000 Sell $ 1,508,288 $ 2,650,110

11) Bonds purchased under resale agreements


Highest Balance

Month with Highest Balance

Ending Balance

Interest Rate (%)

Interest Income


Taishin International Bank $ 1,685,000 July 2017 and August 2017

$ 300,000 0.40-0.45 $ 2,949

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Highest Balance


Ending Balance

Interest Rate (%)

Interest Income


Taishin International Bank $ 2,790,000 March 2016 and April 2016

$ 800,000 0.35-0.50 $ 4,753

12) Notes purchased under resale agreements


Highest Balance


Ending Balance

Interest Rate (%)

Interest Income


Taishin International Bank $ 359,797 January 2017 $ - 0.38-0.42 $ 194


Highest Balance


Ending Balance

Interest Rate (%)

Interest Income


Taishin International Bank $ 359,718 December 2016 $ 359,718 0.35-0.55 $ 166

13) Bond investment The non-cumulative secondary financial debentures without maturity dates issued by Taishin International Bank and held by the Group were $453,119 thousand and $456,491 thousand as of December 31, 2017 and 2016, respectively.

14) Securities processing fees and other expenses For the Year Ended December 31 2017 2016 Related party in substance

Taishin Securities Co., Ltd. $ 3,214 $ 4,927

15) Securities lending For the Year Ended December 31 2017 2016 Lending Borrowings Lending Borrowings Related party in substance

Taishin Securities Co., Ltd. $ 15 $ - $ - $ -

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16) Loan guarantees provided by directors of SKFHC and TSKCB

For the Year Ended December 31, 2017 Loan Account Highest Balance Ending Balance

Key management

personnel

Wu, Ben-Sen ChaoBan Investment Co Ltd $ 643 $ 548 Hung, Shin-chi Ruey Fang Agriculture Co., Ltd. 16,000 - Hung, Shin-chi Whu Shin Consulting Co. 272,000 261,800 Hung, Shin-chi Hong-Qi Co. 226,900 222,900 Hung, Shin-chi Sin-pei Co., Ltd. 8,200 8,200 $ 523,743 $ 493,448

For the Year Ended December 31, 2016 Loan Account Highest Balance Ending Balance

Key management

personnel

Wu, Ben-Sen ChaoBan Investment Co., Ltd. $ 746 $ 643 The loan guarantees of the directors of SKFHC and TSKCB for TSKCB were made under arm’s length basis.

17) Disposal of investments accounted for using the equity method On April 28, 2017, the board of directors of SKLIC approved the sale of the subsidiary, SKLRESC, to Shin Pao Investment Co., Ltd. for 2,000 thousand shares, Yi Kong Security Co., Ltd. for 1,500 thousand shares, Yi Kong Building Management Service Co., Ltd. for 1,500 thousand shares, ShinSoft Co., Ltd. for 1,500 thousand shares, Taiwan Security Co., Ltd. for 1,500 thousand shares, and Shin Pao Technology Co., Ltd. for 1,000 thousand shares. Based on $32.7 per share, the amount of the disposal was $293,418 thousand, net of tax. The transaction was completed in May 2017. Although SKLIC sold the equity interest of its subsidiary, SKLIC did not lose control of the subsidiary. According to IFRS 10, the difference amount of $89,573 thousand between the disposal amount and the carrying amount and the unrealized losses on available-for-sale financial assets in other equity in the amount of $22,908 thousand were regarded as equity transaction and recorded as capital surplus.

c. Compensation of key management personnel

For the Year Ended December 31 2017 2016 Short-term employee benefits $ 511,172 $ 460,770 Post-employment benefits 7,883 8,950 Other long-term employee benefits 41,030 22,765 $ 560,085 $ 492,485 The remuneration of directors and key executives was determined with regard to the performance of individuals and market trends.

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41. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

December 31 Financial Statement Account Pledged Assets 2017 2016

Held-to-maturity financial assets

(including guarantee deposits paid) Government bonds $ 13,051,200 $ 13,042,900

Property and equipment Land and buildings 1,618,082 1,770,216Investment properties Land and buildings 180,912 40,094Miscellaneous assets, others Guarantee deposits 870,000 880,000Miscellaneous assets, others Restricted assets - time

deposits and compensative deposits

1,175,095 1,176,811

42. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

a. As of December 31, 2017, SKLIC had 17 open purchase contracts and construction contracts signed for

investment properties; the contract price payables in the future were as follows:

Amount 2018-2023 $ 9,017,920

b. As of December 31, 2017 and 2016, TSKCB had the following commitments and contingent liabilities:

December 31 2017 2016 Guarantees $ 17,661,903 $ 14,555,004Letters of credit 5,226,809 5,487,441Trust liabilities 137,307,787 152,288,151Loan commitments (excluding credit card) 183,842,829 201,289,628

c. According to Article 17 of the implementation rules of Trust Law, TSKCB disclosed its balance sheet of trust account and asset items as follows:

Trust Balance Sheet

December 31, 2017 and 2016

Trust Assets 2017 2016 Trust Liabilities 2017 2016 Cash in banks $ 2,450,904 $ 2,317,161 Securities under custody payable Short-term investments Securities under custody

Mutual fund 64,166,408 64,469,444 payable $ 4,143,860 $ 3,604,781 Bond investments 44,473,007 55,788,395 Trust capital Share investments 53,392 45,461 Trust by cash 111,159,056 122,625,111

Securities under custody Trust by real estate 22,365,626 26,407,527 Securities under custody 4,143,861 3,604,781 Reserve and accumulated deficit

Real estate Accumulated (deficit) earnings (392,578 ) (3,981,776 )Land 18,294,550 20,097,474 Exchange losses (86 ) (42 )Buildings 18,131 27,880 Net income (loss) 31,909 3,632,550 Construction in process 3,707,534 5,937,555

$ 137,307,787 $ 152,288,151 $ 137,307,787 $ 152,288,151

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Trust Account Income Statement For the Years Ended December 31, 2017 and 2016

2017 2016 Trust income

Interest revenue $ 4,299 $ 5,288 Preference shares dividend income 1,999,040 1,903,983 Ordinary shares dividend income 1,572 - Gain on disposal of assets 1,435,326 1,741,526 Realized capital gain 2,286,304 2,421,847 5,726,541 6,072,644

Trust expense Management fee (94,779) (53,087)Processing expense (290) (404)Loss on disposal of assets (5,599,435) (2,386,307)Other expense (13) (14) (5,694,517) (2,439,812)

Income before tax 32,024 3,632,832 Income tax expense (115) (282) Net income $ 31,909 $ 3,632,550

Trust Assets

December 31, 2017 and 2016

2017 2016 Cash in banks $ 2,450,904 $ 2,317,161Short-term investments

Mutual fund 64,166,408 64,469,444Bond investments 44,473,007 55,788,395Ordinary share investments 53,392 45,461

Securities under custody Securities under custody 4,143,861 3,604,781

Real estate Land 18,294,550 20,097,474Buildings 18,131 27,880Construction in process 3,707,534 5,937,555

$ 137,307,787 $ 152,288,151

d. As of December 31, 2017, MLSC and its subsidiaries had the following commitments and contingent liabilities: 1) As of December 31, 2017, the construction contracts signed by MLSC amounted to $76,570

thousand in total, for which MLSC paid $52,684 thousand and recorded as other assets. 2) On August 8, 2011, MasterLink Futures Co., Ltd. suffered an additional loss from close position

due to an insufficient deposit by an investor. After defaulting and receiving partial repayments, the investor still owed $94 million to MasterLink Futures Co., Ltd. On the other hand, the investor has sued MasterLink Futures Co., Ltd. and has petitioned for provisional execution and provisional attachment against MasterLink Futures Co., Ltd. for leaking information of the transaction. The litigations are still in progress.

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e. Operating lease arrangements

1) The Group as lessee Operating leases relate to leases of land and buildings with lease terms between 1 and 7 years and 50 years for superficies rights. The Group does not have a bargain purchase option to acquire the leased land at the expiration of the lease periods. As of December 31, 2017 and 2016, the Group had to pay refundable deposits for operating lease agreements of $302,580 thousand and $305,738 thousand, respectively. The future minimum lease payments of non-cancellable operating lease commitments were as follows: December 31 2017 2016 No later than 1 year $ 881,046 $ 877,839 Later than 1 year and not later than 5 years 2,123,857 1,759,147 Later than 5 years 5,956,935 6,137,509 $ 8,961,838 $ 8,774,495 The lease payments recognized in profit or loss for the current period were as follows: For the Year Ended December 31 2017 2016 Minimum lease payments $ 882,065 $ 880,507

2) The Group as lessor

Operating leases relate to the investment property owned by the Group with lease terms between 5 to 10 years. The lessee does not have a bargain purchase option to acquire the property at the expiry of the lease period. As of December 31, 2017 and 2016, the Group received operating lease deposits of $807,360 thousand and $704,521 thousand, respectively. The future minimum lease payments of non-cancellable operating leases were as follows: December 31 2017 2016 Not later than 1 year $ 3,010,342 $ 2,891,785Later than 1 year and not later than 5 years 7,401,441 7,225,868Later than 5 years 5,120,288 5,001,465 $ 15,532,071 $ 15,119,118

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43. INFORMATION ON BUSINESS SEGMENTS

2017

Segment Item

Insurance Security Banking Others Combined

Net interest income (expense) $ 76,475,576 $ 901,845 $ 11,293,952 $ (91,172) $ 88,580,201Net income and gains other than interest

income 141,818,030 3,313,696 2,850,441 653,458 148,635,625Profit from operations 218,293,606 4,215,541 14,144,393 562,286 237,215,826Net changes in insurance liability

reserves (200,585,847) - - - (200,585,847)Bad debt expense 161,010 25,117 (2,321,684) - (2,135,557)Operating expenses (12,209,726) (3,164,666) (7,897,219) (1,046,875) (24,318,486)Consolidated income (loss) before

income tax 5,659,043 1,075,992 3,925,490 (484,589) 10,175,936Income tax (expense) benefit 2,442,570 (127,611) (806,316) (465,703) 1,042,940Consolidated net income (loss) 8,101,613 948,381 3,119,174 (950,292) 11,218,876

2016

Segment

Item Insurance Security Banking Others Combined

Net interest income (expense) $ 69,852,815 $ 969,678 $ 10,842,071 $ (135,201) $ 81,529,363Net income and gains other than interest

income 147,281,968 2,308,862 2,225,126 602,048 152,418,004Profit from operations 217,134,783 3,278,540 13,067,197 466,847 233,947,367Net changes in insurance liability

reserves (204,356,270) - - - (204,356,270)Bad debt expense (151,595) (249) (1,263,468) - (1,415,312)Operating expenses (11,800,045) (2,890,389) (7,652,341) (705,566) (23,048,341)Consolidated income (loss) before

income tax 826,873 387,902 4,151,388 (238,719) 5,127,444Income tax (expense) benefit 749,638 (35,900) (875,676) 133,004 (28,934)Consolidated net income (loss) 1,576,511 352,002 3,275,712 (105,715) 5,098,510

Note: The transactions between SKFHC and its subsidiaries were eliminated from the above table.

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44. FINANCIAL STATEMENTS OF SHIN KONG FINANCIAL HOLDING CO., LTD. AND CONDENSED FINANCIAL STATEMENTS OF SUBSIDIARIES

a. Financial statements of the Company

Shin Kong Financial Holding Co., Ltd.

Balance Sheets December 31, 2017 and 2016

(In Thousands of New Taiwan Dollars) ASSETS 2017 2016 LIABILITIES AND EQUITY 2017 2016 CASH AND CASH EQUIVALENTS $ 5,756,675 $ 3,750,151 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS $ 10,351 $ 5,000CURRENT TAX ASSETS 3,045,740 4,277,707 SHORT-TERM LOANS 20,000 1,005,000FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 485 - ACCRUED EXPENSE 146,608 78,929OTHER FINANCIAL ASSETS 4,617 3,443 OTHER PAYABLES 5,011,027 6,958,398INVESTMENT ACCOUNTED FOR USING EQUITY METHOD 153,482,419 133,172,535 BONDS PAYABLE - CURRENT PORTION - 4,075,817PROPERTY AND EQUIPMENT, NET 9,524 10,674 BONDS PAYABLE 16,508,565 7,802,604INTANGIBLE ASSETS, NET 795 1,227 LONG-TERM LOANS - 1,500,000OTHER ASSETS 807,459 1,918,948 OTHER LIABILITIES 100,664 312,262 Total liabilities 21,797,215 21,738,010 EQUITY Ordinary shares 102,419,027 102,281,441 Capital surplus 10,033,789 9,577,224 Retained earnings Legal reserve 4,464,679 3,983,647 Special reserve 27,217,124 27,235,954 Unappropriated retained earnings 10,441,856 4,031,680 Other equity Exchange difference on translating foreign operations 69,907 115,451 Unrealized losses on available-for-sale financial assets (12,852,496) (23,921,607) Treasury shares (483,387) (1,907,115) Total equity 141,310,499 121,396,675 TOTAL $ 163,107,714 $ 143,134,685 TOTAL $ 163,107,714 $ 143,134,685

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Statements of Income For the Years Ended December 31, 2017 and 2016

(In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2017 2016 REVENUE

Share of subsidiaries $ 11,644,192 $ 5,055,174Other income 57,382 69,198

Total revenue 11,701,574 5,124,372

EXPENSES AND LOSSES Operating expenses (520,187) (224,477)Interest expense (212,712) (211,831)Other expenses and losses (1,416) (6)

Total expenses and losses (734,315) (436,314)

INCOME BEFORE TAX 10,967,259 4,688,058 INCOME TAX (EXPENSE) BENEFIT (436,089) 122,259 NET INCOME 10,531,170 4,810,317 OTHER COMPREHENSIVE INCOME

Share of other comprehensive income of subsidiaries 9,433,782 8,235,673 TOTAL COMPREHENSIVE INCOME $ 19,964,952 $ 13,045,990 EARNINGS PER SHARE

Basic $1.05 $0.48Diluted $0.98 $0.45

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Statements of Changes in Equity For the Years Ended December 31, 2017 and 2016

(In Thousands of New Taiwan Dollars)

Other Equity Exchange Differences on Unrealized Retained Earnings Translating Losses on Share Capital Unappropriated Foreign Available-for-sale Ordinary Shares Capital Surplus Legal Reserve Special Reserve Earnings Operations Financial Assets Treasury Shares Total BALANCE, JANUARY 1, 2015 $ 102,281,441 $ 9,557,397 $ 3,405,633 $ 22,695,543 $ 5,118,425 $ 232,457 $ (33,053,872) $ (1,907,115) $ 108,329,909 Appropriation of 2015 net earnings

Legal reserve - - 578,014 - (578,014) - - - - Special reserve - - - 4,540,411 (4,540,411) - - - -

Buy-back of treasury shares by subsidiaries - 20,171 - - - 161 788 - 21,120 Others - (344) - - - - - - (344) Net income for the year ended December 31, 2016 - - - - 4,810,317 - - - 4,810,317 Other comprehensive (loss) income, net of tax for the year ended

December 31, 2016 - - - - (778,637) (117,167) 9,131,477 - 8,235,673 Total comprehensive income (loss) for the year ended December 31,

2016 - - - - 4,031,680 (117,167) 9,131,477 - 13,045,990 BALANCE AT DECEMBER 31, 2016 102,281,441 9,577,224 3,983,647 27,235,954 4,030,680 115,451 (23,921,607) (1,907,115) 121,396,675 Special reserve reversed under Rule No. 1010012865 issued by the FSC - - - (18,830) 18,830 - - - - Appropriation of 2016 earnings

Legal reserve - - 481,032 - (481,032) - - - - Cash dividends distributed by the Company - - - - (2,045,628) - - - (2,045,628)

Buy-back of treasury shares - 15,610 - - - (20) (451) - 15,139 Disposal of partial interest in subsidiaries - 112,481 - - - - (22,908) - 89,573 Equity component of convertible bonds issued by the Company - 185,600 - - - - - - 185,600 Share-based payment transactions - 157,511 - - - - - 1,423,728 1,581,239 Convertible bonds converted to ordinary shares 137,586 (14,637) - - - - - - 122,949 Net income for the year ended December 31, 2017 - - - - 10,531,170 - - - 10,531,170 Other comprehensive (loss) income, net of tax for the year ended

December 31, 2017 - - - - (1,613,164) (45,524) 11,092,470 - 9,433,782 Total comprehensive income (loss) for the year ended December 31,

2017 - - - - 8,918,006 (45,524) 11,092,470 - 19,964,952 BALANCE AT DECEMBER 31, 2017 $ 102,419,027 $ 10,033,789 $ 4,464,679 $ 27,217,124 $ 10,441,856 $ 69,907 $ (12,852,496) $ (483,387) $ 141,310,499

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Statements of Cash Flows For the Years Ended December 31, 2017 and 2016

(In Thousands of New Taiwan Dollars) 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 10,967,259 $ 4,688,058Depreciation expenses and amortization expense 4,392 3,771Gain on financial assets and liabilities at fair value through

profit or loss (29,086) (31,000)Compensation cost of share-based payments 216,200 -Share of profit of subsidiaries (11,644,192) (5,055,174)Gain on disposal of property and equipment (64) -Interest income (22,205) (15,844)Interest expense 212,712 211,831Net changes in operating assets and liabilities Other assets 5,508 (4,982)Accrued expenses 24,098 (22)Other payables 30,093 1,063Other liabilities - 45Cash used in operations (235,285) (202,254)Interests received 21,031 16,319Dividends received 661,203 753,525Interests paid (60,325) (75,125)Income tax paid (75,604) (1,474)

Net cash provided by operating activities 311,020 490,991

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of property and equipment 1,915 -Acquisitions of property and equipment (4,601) (5,063)Acquisition of intangible assets (60) -

Net cash used in investing activities (2,746) (5,063)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of bonds 9,000,000 -Buy-back of treasury shares 1,365,039 -Repayment of bonds (4,136,161) -Payment to cash dividends (2,045,628) -Decrease in short-term loans (985,000) (495,000)Decrease in long-term loans (1,500,000) -Other financing activities - (344)

Net cash provided by (used in) financing activities 1,698,250 (495,344) NET DECREASE IN CASH AND CASH EQUIVALENTS 2,006,524 (9,416) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,750,151 3,759,567 CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,756,675 $ 3,750,151

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b. Condensed balance sheets and statements of comprehensive income of subsidiaries

1) Condensed balance sheets:

Shin Kong Life Insurance Company

Condensed Consolidated Balance Sheets December 31, 2017 and 2016


2017 2016 2017 2016 Assets Liabilities Cash and cash equivalents $ 104,246,920 $ 61,346,120 Payables $ 6,164,931 $ 7,523,786Accounts receivable 27,209,569 47,581,021 Current tax liabilities - 11,024Current tax assets 4,934,890 6,908,596 Financial liabilities 18,046,188 33,503,715Assets held for sale 37,976 - Reserves 1,082,368 411,336Investments 2,258,794,267 2,097,986,474 Deferred tax liabilities 3,149,737 3,175,796Reinsurance assets 466,384 308,879 Insurance liabilities 2,325,354,677 2,140,600,541Property and equipment 19,957,769 17,596,838 Other liabilities 5,454,803 5,498,324Intangible assets 365,497 308,794 Liabilities on insurance products - separate-account 46,637,540 55,237,519Deferred tax assets 13,283,552 12,473,451 Total liabilities 2,405,890,244 2,245,962,041Other assets 20,756,513 19,986,424 Assets on insurance products - separate account 46,637,540 55,237,519 Equity Ordinary shares 57,975,606 57,975,606 Capital surplus 21,075,224 20,962,743 Retained earnings 24,521,448 18,924,138 Other equity (13,119,949) (24,195,266) Non-controlling interests 348,274 104,854 Total equity 90,800,603 73,772,075 Total $ 2,496,690,847 $ 2,319,734,116 Total $ 2,496,690,847 $ 2,319,734,116

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Shin Kong Securities Co., Ltd.

Condensed Balance Sheets December 31, 2017 and 2016


2017 2016 2017 2016 Assets Liabilities Current assets $ 77,176 $ 77,176 Payment to be distributed $ 77,298 $ 77,298Other assets 122 122 Equity Total equity - - Total $ 77,298 $ 77,298 Total $ 77,298 $ 77,298

Taiwan Shin Kong Commercial Bank Co., Ltd.

Condensed Consolidated Balance Sheets

December 31, 2017 and 2016 (In Thousands of New Taiwan Dollars)

2017 2016 2017 2016 Assets Liabilities Cash and cash equivalents $ 17,499,740 $ 14,903,230 Due to Central Bank and other banks $ 3,871,190 $ 2,685,360Due from Central Bank of China and other banks 36,877,507 80,861,581 Financial liabilities at fair value through profit or loss 1,135,052 4,958,593Financial assets at fair value through profit or loss 96,626,591 51,787,739 Notes and bonds issued under repurchase agreements 2,810,712 500,000Accounts receivable 15,551,079 17,304,780 Accounts payable 10,577,802 10,216,151Loans, net 527,758,576 501,314,983 Current tax liabilities 782,069 1,874,751Current tax assets 1,677 4,102 Deposits and remittances 712,252,717 686,883,032Available-for-sale financial assets 50,342,169 45,388,028 Debentures payable 20,000,000 20,000,000Held-to-maturity financial assets 46,734,307 46,298,488 Miscellaneous financial liabilities 6,349,841 4,423,338Miscellaneous financial assets 10,972,858 11,726,137 Other liabilities 2,220,817 1,641,878Property and equipment 5,548,825 5,373,784 Total liabilities 760,000,200 733,183,103Investment properties 1,024,742 1,216,411 Intangible assets 1,492,283 1,453,429 Equity Deferred tax assets 704,359 547,179 Other assets 1,353,256 4,200,544 Ordinary shares 36,914,212 34,354,025 Capital surplus 870,795 870,795 Retained earnings 14,182,218 13,466,766 Other equity 520,544 505,726 Total equity 52,487,769 49,197,312 Total $ 812,487,969 $ 782,380,415 Total $ 812,487,969 $ 782,380,415

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Shin Kong Insurance Brokerage Co., Ltd.



2017 2016 2017 2016 Assets Liabilities Current assets $ 1,895 $ 1,895 Current liabilities $ 2,042 $ 2,042Other assets 2,000 2,000 Equity Ordinary shares - - Unappropriated retained earnings 1,853 1,853 Total equity 1,853 1,853 Total $ 3,895 $ 3,895 Total $ 3,895 $ 3,895

Shin Kong Investment Trust Co., Ltd.

Condensed Balance Sheets

December 31, 2017 and 2016 (In Thousands of New Taiwan Dollars)

2017 2016 2017 2016 Assets Liabilities Current assets $ 588,817 $ 636,584 Total liabilities $ 84,853 $ 99,805Property and equipment 5,291 6,429 Intangible assets 2,724 2,667 Equity Other assets 119,060 116,766 Ordinary shares 400,000 400,000 Capital surplus 123,083 123,083 Retained earnings 111,796 140,087 Other equity (3,840) (529) Total equity 631,039 662,641 Total $ 715,892 $ 762,446 Total $ 715,892 $ 762,446

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MasterLink Securities Co., Ltd.

Condensed Consolidated Balance Sheets December 31, 2017 and 2016


2017 2016 2017 2016 Assets Liabilities Current assets $ 90,839,965 $ 78,904,918 Current liabilities $ 74,265,128 $ 62,886,444Non-current assets 5,113,735 5,763,366 Other liabilities 183,184 720,959 Total liabilities 74,448,312 63,607,403 Equity Ordinary shares 15,996,099 16,245,099 Capital surplus 29,059 25,452 Retained earnings 6,161,913 5,399,216 Other equity (384,827) (195,987) Treasury shares (296,856) (412,899) Total equity 21,505,388 21,060,881 Total $ 95,953,700 $ 84,668,284 Total $ 95,953,700 $ 84,668,284

Shin Kong Venture Capital International Co., Ltd.



2017 2016 2017 2016 Assets Liabilities Current assets $ 89,796 $ 58,014 Total liabilities $ 4,267 $ 2,802Investments accounted for using equity method 857,279 824,213 Other assets 575,560 585,115 Equity Ordinary shares 1,550,000 1,550,000 (Accumulated deficit) retained earnings 15,996 (37,451) Other equity (47,628) (48,009) Total equity 1,518,368 1,464,540 Total $ 1,522,635 $ 1,467,342 Total $ 1,522,635 $ 1,467,342

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Shin Kong Property Insurance Agency Co., Ltd.



2017 2016 2017 2016 Assets Liabilities Current assets $ 143,043 $ 124,449 Total liabilities $ 68,747 $ 56,310Property and equipment 530 853 Intangible assets 254 442 Equity Other assets 2,240 2,226 Ordinary shares 10,000 6,000 Legal reserve 6,789 6,789 Unappropriated retained earnings 60,531 58,871 Total equity 77,320 71,660 Total $ 146,067 $ 127,970 Total $ 146,067 $ 127,970

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2) Condensed statements of operations of subsidiaries

Shin Kong Life Insurance Company

Condensed Consolidated Statements of Comprehensive Income For the Years Ended December 31, 2017 and 2016

(In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2017 2016 Operating revenue $ 374,664,896 $ 347,703,940Operating costs (355,997,071) (334,422,806)Operating expenses (13,730,351) (13,983,799)Operating income 4,937,474 (702,665)Net non-operating income (403,511) 114,041Income (loss) before income tax 4,533,963 (588,624)Income tax benefit (expense) 2,437,932 726,980Net income 6,971,895 138,356Other comprehensive income (loss) 9,798,198 9,211,348 Total comprehensive income (loss) $ 16,770,093 $ 9,349,704 Earnings per share

Basic $1.19 $0.02

Shin Kong Securities Co., Ltd.


(In Thousands of New Taiwan Dollars) 2017 2016 Net income $ - $ - Other comprehensive income - - Total comprehensive income $ - $ -

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Taiwan Shin Kong Commercial Bank Co., Ltd.


(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2017 2016 Net interest income $ 11,191,420 $ 10,688,464Net income and gains other than interest income 4,245,966 4,060,800Profit from operations 15,437,386 14,749,264Provision for bad-debt expenses (2,321,685) (1,263,468)Operating expenses (8,250,153) (7,979,805)Income before income tax 4,865,548 5,505,991Income tax expense (806,316) (875,676)Net income 4,059,232 4,630,315Other comprehensive loss (268,775) (711,527) Total comprehensive income $ 3,790,457 $ 3,918,788 Earnings per share

Basic $1.10 $1.35

Shin Kong Insurance Brokerage Co., Ltd.

Condensed Statements of Comprehensive Income For the Years Ended December 31, 2017 and 2016

(In Thousands of New Taiwan Dollars, Except Loss Per Share)

2017 2016 Net income $ - $ - Other comprehensive income - - Total comprehensive loss $ - $ -

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Shin Kong Investment Trust Co., Ltd.



2017 2016 Operating revenue $ 221,470 $ 207,598 Operating expenses (201,101) (184,688) Operating income 20,369 22,910 Non-operating income and expense 14,163 8,208 Income before tax 34,532 31,118 Income tax (expense) benefit (3,968) 54,779 Net income 30,564 85,897 Other comprehensive loss (3,367) (1,203) Total comprehensive income $ 27,197 $ 84,694 Earnings per share

Basic $0.76 $2.15

MasterLink Securities Co., Ltd.



2017 2016 Revenue $ 4,920,133 $ 3,742,363 Cost (4,008,831) (3,723,667)Operating income 911,302 18,696 Other income and losses 158,613 424,268 Net income before tax 1,069,915 442,964 Income tax expense (127,611) (35,900)Net income 942,304 407,064 Other comprehensive loss (235,279) (536,613) Total comprehensive income (loss) $ 707,025 $ (129,549) Earnings per share

Basic $0.60 $0.25

- 126 -

Shin Kong Venture Capital International Co., Ltd.



2017 2016 Revenue $ 68,720 $ 35,026 Costs (13,435) (7,873) Net income before tax 55,285 27,153 Income tax expense (1,837) (1,765) Net income 53,448 25,388 Other comprehensive income (loss) 381 (84,343) Total comprehensive income (loss) $ 53,829 $ (58,955) Earnings per share

Basic $0.31 $0.16

Shin Kong Property Insurance Agency Co., Ltd.



2017 2016 Operating revenue $ 321,736 $ 302,814 Operating costs and expenses (254,799) (238,725) Operating income 66,937 64,089 Non-operating income 123 146 Net income before tax 67,060 64,235 Income tax expense (11,400) (11,477) Net income 55,660 52,758 Other comprehensive income - - Total comprehensive income $ 55,660 $ 52,758 Earnings per share

Basic $55.66 $87.93

The above condensed (consolidated) balance sheets and statements of comprehensive income of subsidiaries were audited by auditors in accordance with auditing standards generally accepted in the ROC.

3) Allocation of revenue, costs, expenses resulting from intercompany sharing of resources:

To benefit from economies of scale and multiple product selling operations, TSKCB and MLSC planned and processed the use of SKLIC’s service centers and business equipment by the Group. So far, Taipei and Ban Qiao service centers were formally approved to carry on business. The rentals paid by TSKCB and MLSC to SKLIC for the years ended December 31, 2017 and 2016 were $251,797 thousand and $224,213 thousand; $30,015 thousand and $24,419 thousand, respectively.

- 127 -

SKLIC share common trading platform with MLSC to trade securities and bonds. The processing fees and terms of payment for both related and third parties are similar. Processing fees paid by SKLIC to MLSC for the years ended December 31, 2017 and 2016 were $60,667 thousand and $69,965 thousand, respectively.

4) Capital adequacy information specified in the Regulations Governing the Preparation of Financial

Statements by Financial Holding Companies:

a) SKFHC’s Group Capital Adequacy Ratio as of December 31, 2017:

Unit: In Thousands of New Taiwan Dollars; %

ItemCompany

% Owned by SKFHC

Qualified Capital Statutory Capital

Financial holding company $ 141,309,704 $ 154,304,504Banking subsidiary 100% 68,044,909 48,176,922Bills finance subsidiary - - -Security subsidiary Note 5,416,815 2,319,730Insurance subsidiary 100% 139,578,445 108,431,996Trust subsidiary - - -Futures subsidiary - - -Venture capital subsidiary 100% 1,518,368 761,318Others - 708,359 450,904Deduction 167,196,924 153,482,419Total (A) 189,379,676 (B) 160,962,955Group capital adequacy ratio (C)=(A)÷(B) (C) 117.65% Note: The security subsidiary represented 33.45% ownership of MLSC.

b) SKFHC’s Eligible Capital as of December 31, 2017:

Unit: In Thousands of New Taiwan Dollars

Items Amount Ordinary shares $ 102,419,027Ordinary shares advance receipt -Capital surplus 10,033,789Legal reserve 4,464,679Special reserve 27,217,124Accumulated earnings 10,441,856Equity adjustments (12,782,589)

Preference shares According to Tier 1 capital rules and quota - Other preference shares -

Subordinated debt According to Tier 1 capital rules and quota - Other subordinated debt -

Less goodwill 731Less deferred assets 64Less treasury shares 483,387Total eligible capital 141,309,704

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45. ASSET QUALITY OF TSKCB - NONPERFORMING LOAN AND OVERDUE ACCOUNTS

a. Asset quality

Item Affair

December 31, 2017 Nonperforming Loans (Note 1)

Total Loan NPL Ratio

(Note 2) Loan Loss

Reserve Coverage Ratio

(Note 3) Business

finance Secured $ 476,895 $ 127,110,904 0.38% $ 1,341,081 281.21% Unsecured 29,967 119,006,159 0.03% 1,624,696 5421.66%

Consumer finance

Mortgage (Note) 162,904 123,969,794 0.13% 1,293,317 793.91% Cash card - 1,885 - 1,329 0.00% Micro credit (Note) 50,894 35,553,268 0.14% 672,551 1321.48%

Other (Note) Secured 567,056 127,253,046 0.45% 1,395,607 246.11% Unsecured 14,099 1,031,686 1.37% 28,084 199.19%

Loans 1,301,815 533,926,742 0.24% 6,356,665 488.29%

Item Affair

December 31, 2016 Nonperforming Loans (Note 1)

Total Loan NPL Ratio

(Note 2) Loan Loss

Reserve Coverage Ratio

(Note 3) Business

finance Secured $ 129,700 $ 124,882,510 0.10% $ 1,324,372 1021.10% Unsecured 348,619 121,896,368 0.29% 1,776,821 509.67%

Consumer finance

Mortgage (Note) 89,773 112,169,100 0.08% 1,162,636 1295.08% Cash card - 2,558 - 1,675 - Micro credit (Note) 147,253 33,427,179 0.44% 812,732 551.93%

Other (Note) Secured 574,971 114,135,369 0.50% 1,267,172 220.39% Unsecured 3,774 961,962 0.39% 22,069 584.75%

Loans 1,294,090 507,475,046 0.26% 6,367,477 492.04%

Items

Category

December 31, 2017 Overdue

Receivable Accounts

Receivable Delinquency

Ratio Allowance for Credit Losses

Coverage Ratio

Credit card $ 19,110 $ 7,532,794 0.25% $ 103,215 540% Accounts receivable without recourse

(Note 7) - 1,051,681 - 16,886 -

Items

Category

December 31, 2016 Overdue

Receivable Accounts

Receivable Delinquency

Ratio Allowance for Credit Losses

Coverage Ratio

Credit card $ 20,162 $ 7,635,308 0.26% $ 102,678 509.28% Accounts receivable without recourse

(Note 7) 50,000 1,065,017 4.69% 68,261 136.52%

Non-reportable overdue loans and receivable

December 31, 2017 December 31, 2016

Non-reportable NPL Balance

Non-reportable Overdue

Receivable Balance

Non-reportable NPL Balance

Non-reportable Overdue

Receivable Balance

Non-reportable amount upon performance of debt negotiation program (Note 8) $ 20,279 $ 148,555 $ 29,473 $ 174,053

Amount received from performance of debt negotiation program (Note 9) 178,743 284,763 196,503 302,684

Total 199,022 433,318 225,976 476,737

Note 1: The amount recognized as nonperforming loans (NPLs) is in compliance with the “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Nonperforming/Non-accrual Loans.” Nonperforming credit loans represent the amounts of nonperforming loans reported to the FSC, as required by the FSC in its letter dated July 6, 2005 (Ref. No. 094400378).

Note 2: Nonperforming loan ratio = Nonperforming loans ÷ Outstanding loan balance; Nonperforming

credit loan ratio = Nonperforming loans ÷ Accounts receivable balance.

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Note 3: Allowance for loans ratio = Allowance for doubtful loans ÷ Overdue loans; Allowance for credit card ratio = Allowance for doubtful credit card ÷ Overdue loans.

Note 4: Home mortgage refers to financing obtained to buy, build, or fix houses owned by the

borrowers’ spouse or children, with the house used as loan collateral. Note 5: Micro credit is covered by the FSC pronouncement dated December 19, 2005 (Ref

No. 09440010950) and is excluded from credit card and cash card loans. Note 6: ”Others” under consumer loans refers to secured or unsecured loans other than mortgage loans,

cash cards, micro credit, and credit cards. Note 7: As required by the FSC in its letter dated July 19, 2005 (Ref No. 094000494), provision for

bad debt is recognized once no compensation is made by a factor or insurance company for accounts receivable factored without recourse.

Note 8: Accounts under “loans not required to be classified as NPL upon performance of a debt

negotiation program” and “accounts receivable not required to be classified as overdue receivable upon debt negotiation program” were processed according the FSC pronouncement dated April 25, 2006 (Ref No. 09510001270).

Note 9: Accounts under “loans not required to be classified as NPL upon performance of a debt

discharge program and rehabilitation program” and “accounts receivable not required to be classified as overdue receivable upon debt discharge program and rehabilitation program” were processed according the FSC pronouncement dated September 15, 2008 (Ref No. 09700318940).

b. Concentration of credit extensions

(In Thousands of New Taiwan Dollars, %)

December 31, 2017 Ranking (Note 1)

Group Business Name (Note 2) Amount (Note 3)

Percentage of Net Worth (%)

1 Group A (016499 other financial services not elsewhere classified)

$ 3,080,000 5.87

2 Group B (016700 real estate development) 2,502,319 4.77 3 Group C (016640 fund management) 2,285,095 4.35 4 Group D (016700 real estate development) 2,125,000 4.05 5 Group E (012699 manufacture of other electronic parts

and components not elsewhere classified) 2,000,000 3.81

6 Group F (011810 chemical material manufacturing) 1,836,185 3.50 7 Group G (012411 smelting and refining of iron and

steel) 1,679,067 3.20

8 Group H (016811 real estate rental and purchase) 1,650,000 3.14 9 Group I (014615 wholesale of metal construction

materials) 1,633,958 3.11

10 Group J (012641 manufacture of liquid crystal panel and components)

1,593,379 3.04

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(In Thousands of New Taiwan Dollars, %)

December 31, 2016 Ranking (Note 1)

Group Business Name (Note 2) Amount (Note 3)

Percentage of Net Worth (%)

1 Group A (016499 other financial services not elsewhere classified)

$ 3,402,725 6.92

2 Group B (016640 fund management) 2,285,095 4.64 3 Group C (012699 manufacture of other electronic parts

and components not elsewhere classified) 2,000,000 4.07

4 Group D (016700 real estate development) 1,866,205 3.79 5 Group E (016811 real estate rental and purchase) 1,700,000 3.46 6 Group F (016700 real estate development) 1,596,760 3.25 7 Group G (014615 wholesale of metal construction

materials) 1,571,975 3.20

8 Group H (016611 securities firms) 1,496,421 3.04 9 Group I (012411 smelting and refining of iron and steel) 1,439,127 2.93

10 Group J (016811 real estate rental and purchase) 1,438,125 2.92

Note 1: The ranking is arranged in descending order of outstanding loan balance, excluding all the government entities and nation-owned enterprises. If the borrower is a member company of a group then the disclosed amount will be the total granted loan amount of that entire group.

Note 2: According to Article 6 of the “Supplementary Provisions to the Stock Exchange Corporation

Criteria for the Review of Securities Listings”, ”Group” refers to the entity that has a controlling or subordinate relationship with the counterparty that obtained loans from the bank.

Note 3: Credit balance means the sum of all the loan (including import bill negotiated, discounted

export bills negotiated, overdrafts, short-term secured and unsecured loans, marginal receivables, medium-term secured and unsecured loans, long-term secured and unsecured loans and overdue receivables), exchange bills negotiated, accounts receivable factored without recourse, acceptances receivable, and guarantees issued.

c. Interest rate sensitivity information

Analysis of Assets and Liabilities Sensitivity (N.T. Dollars)

(In Thousands of New Taiwan Dollars; %)

Item December 31, 2017

1-90 Days 91-180 Days 181 Days-1 YearMore Than

1 Year Total

Interest-sensitive assets $ 514,523,575 $ 23,729,031 $ 12,665,556 $ 100,264,741 $ 651,182,903 Interest-sensitive liabilities 205,035,356 310,907,042 85,568,485 21,275,362 622,786,246 Interest-sensitive gap 309,488,219 (287,178,012 ) (72,902,929 ) 78,989,379 28,396,657 Net equity 52,487,769 Ratio of interest-sensitive assets to liabilities 104.56 Ratio of interest sensitivity gap to net equity 54.10

(In Thousands of New Taiwan Dollars; %)


1-90 Days 91-180 Days 181 Days-1 YearMore Than

1 Year Total

Interest-sensitive assets $ 469,806,846 $ 23,536,014 $ 11,950,853 $ 106,921,834 $ 612,215,547 Interest-sensitive liabilities 202,278,517 281,756,964 90,525,642 26,096,124 601,657,247 Interest-sensitive gap 266,528,329 (258,220,950 ) (78,574,789 ) 80,825,710 10,558,300 Net equity 49,197,312 Ratio of interest-sensitive assets to liabilities 101.75 Ratio of interest sensitivity gap to net equity 21.46

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Note 1: The above amounts included only New Taiwan dollar amounts held by the head office and branches of the bank (i.e., excluding foreign currency).

Note 2: Interest rate-sensitive assets and liabilities mean the revenues or costs of interest-earning

assets and interest-bearing liabilities affected by interest rate changes. Note 3: Interest rate sensitivity gap = Interest-rate-sensitive assets - Interest-rate-sensitive liabilities. Note 4: Ratio of interest rate-sensitive assets to liabilities = Interest rate-sensitive assets ÷ Interest

rate-sensitive liabilities (in New Taiwan dollars).

Analysis of Assets and Liabilities Sensitivity (U.S. Dollars)

(In Thousands of U.S. Dollars; %)


1-90 Days 91-180 Days 181 Days-

1 Year More Than

1 Year Total

Interest-sensitive assets $ 1,992,487 $ 306,571 $ 12,394 $ 705,944 $ 3,017,396 Interest-sensitive liabilities 2,413,846 259,170 332,041 67,044 3,072,101 Interest-sensitive gap (421,359) 47,401 (319,647) 638,900 (54,705)Net equity 1,758,502 Ratio of interest-sensitive assets to liabilities 98.22 Ratio of interest sensitivity gap to net equity (3.11)

(In Thousands of U.S. Dollars; %)


1-90 Days 91-180 Days 181 Days-

1 Year More Than

1 Year Total

Interest-sensitive assets $ 1,039,264 $ 284,029 $ 81,685 $ 1,179,059 $ 2,584,037 Interest-sensitive liabilities 2,122,582 242,748 230,959 48,607 2,644,896 Interest-sensitive gap (1,083,318) 41,281 (149,274) 1,130,452 (60,859)Net equity 1,524,128 Ratio of interest-sensitive assets to liabilities 97.70 Ratio of interest sensitivity gap to net equity (3.99)

Note 1: The above amounts included only U.S. dollar amounts held by the head office, domestic

branches, OBU and overseas branches of the bank and excluded contingent assets and contingent liabilities.

Note 2: Interest rate-sensitive assets and liabilities mean the revenues or costs of interest-earning

assets and interest-bearing liabilities affected by interest rate changes. Note 3: Interest rate sensitivity gap = Interest rate-sensitive assets - Interest rate-sensitive liabilities. Note 4: Ratio of interest rate-sensitive assets to liabilities = Interest rate-sensitive assets ÷ Interest

rate-sensitive liabilities (in U.S. dollars)

d. Profitability

Items December 31, 2017 December 31, 2016

Return on assets Before tax 0.61 0.70 After tax 0.51 0.59

Return on equity Before tax 9.57 11.57 After tax 7.98 9.75

Profit margin 26.45 31.58

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Note 1: Return on assets = Income before (after) tax/Average total assets.

Note 2: Return on equity = Income after tax/Average equity.

Note 3: Profit margin = Income after tax/Net income. Note 4: Income before (after) tax is the income accumulated from the beginning of the year to the end

of the period.

e. Maturity analysis of assets and liabilities

Maturity Analysis of Assets and Liabilities (N.T. Dollars)


Total Amount Due to December 31, 2017

1-10 Days 11-30 Days 31-90 Days 91-180 Days 181 Days-1 YearMore Than

1 YearMain capital inflow

on maturity $ 737,075,771 $ 134,811,431 $ 28,757,978 $ 61,618,444 $ 60,761,382 $ 50,901,157 $ 400,225,379Main capital outflow

on maturity 864,446,288 43,806,682 67,364,355 117,477,448 140,166,366 184,841,779 310,789,658Gap (127,370,517 ) 91,004,749 (38,606,377 ) (55,859,004 ) (79,404,984 ) (133,940,622 ) 89,435,721



1-10 Days 11-30 Days 31-90 Days 91-180 Days 181 Days-1 YearMore Than

1 YearMain capital inflow

on maturity $ 721,270,764 $ 131,668,445 $ 29,577,157 $ 82,825,225 $ 73,180,661 $ 75,293,827 $ 328,725,449Main capital outflow

on maturity 844,632,180 43,441,818 65,472,972 135,810,203 122,881,469 187,905,366 289,120,352Gap (123,361,416 ) 88,226,627 (35,895,815 ) (52,984,978 ) (49,700,808 ) (112,611,539 ) 39,605,097

Note: The above amounts included only New Taiwan dollar amounts held by the head office and

domestic branches of the bank (i.e., excluding foreign currency).

Maturity Analysis of Assets and Liabilities (U.S. Dollars)

(In Thousands of U.S. Dollars)


1-30 Days 31-90 Days 91-180 Days 181 Days-1 YearMore Than

1 Year Main capital inflow on maturity $ 5,040,916 $ 975,437 $ 796,893 $ 862,305 $ 521,981 $ 1,884,300 Main capital outflow on maturity 6,879,652 1,453,142 1,211,967 1,424,009 1,855,644 934,890Gap (1,838,736 ) (477,705 ) (415,074 ) (561,704 ) (1,333,663 ) 949,410

(In Thousands of U.S. Dollars)


1-30 Days 31-90 Days 91-180 Days 181 Days-1 YearMore Than

1 Year Main capital inflow on maturity $ 4,858,050 $ 996,877 $ 1,277,511 $ 852,491 $ 155,299 $ 1,575,872 Main capital outflow on maturity 7,105,474 2,506,257 1,562,655 1,380,308 1,467,787 188,467 Gap (2,247,424 ) (1,509,380 ) (285,144 ) (527,817 ) (1,312,488 ) 1,387,405

Note 1: The above amounts included only U.S. dollars amounts held by the head office, domestic branches, OBU and overseas branches of the bank and accounted on book value.

Note 2: The oversea assets to total assets more than 10% will be reported as supplementary disclosure.

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46. THE PROFITABILITY OF THE COMPANY, THE GROUP AND THE INVESTEES

Unit: %

2017 Return on Assets Return on Equity Net Income

Ratio Before Tax After Tax Before Tax After Tax The Group 0.31 0.34 6.98 7.70 4.73 The Company 7.17 6.89 8.36 8.03 91.68 SKLIC 0.19 0.29 5.52 8.49 38.16 TSKCB 0.61 0.51 9.57 7.98 26.29 MLSC 1.18 1.04 5.03 4.43 21.66

Unit: %

2016 Return on Assets Return on Equity Net Income

Ratio Before Tax After Tax Before Tax After Tax The Group 0.17 0.17 3.96 3.94 2.18 The Company 3.44 3.53 4.08 4.19 97.92 SKLIC (0.03) 0.01 (0.85) 0.20 1.03 TSKCB 0.70 0.59 11.59 9.75 31.39 MLSC 0.48 0.44 2.06 1.89 11.80

Note: Net income ratio = Net income/Net revenue

47. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND

LIABILITIES

The following information was aggregated by the foreign currencies other than functional currencies of the Group entities and the exchange rates between foreign currencies and respective functional currencies were disclosed.

December 31, 2017

Foreign

Currencies Exchange Rate New Taiwan

Dollars Financial assets Monetary items

USD $ 49,152,816 29.8480 $ 1,467,113,247AUD 2,430,564 23.2635 56,543,426CNH 11,136,667 4.5788 50,992,571CNY 3,345,285 4.5836 15,333,446HKD 653,222 3.8189 2,494,589GBP 61,093 40.2053 2,456,282JPY 7,322,806 0.2649 1,939,811EUR 47,433 35.6743 1,692,144

(Continued)

- 134 -

December 31, 2017

Foreign


Dollars Non-monetary items

USD $ 2,677,159 29.8480 $ 79,907,847CNY 1,504,104 4.5836 6,894,213AUD 229,021 23.2635 5,327,833ZAR 1,972,524 2.4180 4,769,563HKD 810,714 3.8189 3,096,035EUR 66,371 35.6743 2,367,749GBP 18,728 40.2053 752,983JPY 2,682,018 0.2649 710,466

Financial liabilities Monetary items

USD 3,100,292 29.8480 92,537,516AUD 318,044 23.2635 7,398,817CNY 1,479,830 4.5836 6,782,949HKD 605,501 3.8189 2,312,348JPY 7,537,217 0.2649 1,996,609ZAR 821,031 2.4180 1,985,253EUR 48,946 35.6743 1,746,114CAD 13,726 23.7738 326,319

Non-monetary items USD 529,904 29.8480 15,816,575CNY 507,534 4.5836 2,326,333ZAR 156,796 2.4180 379,133

(Concluded)

December 31, 2016

Foreign


Dollars Financial assets Monetary items

USD $ 40,321,377 32.2790 $ 1,301,533,728CNH 12,801,208 4.6218 59,164,623AUD 1,699,866 23.3022 39,610,618CNY 3,178,428 4.6445 14,762,209BRL 503,509 9.9177 4,993,651GBP 92,342 39.6096 3,657,630JPY 6,783,245 0.2757 1,870,141HKD 431,491 4.1622 1,795,952

(Continued)

- 135 -

December 31, 2016

Foreign


Dollars Non-monetary items

USD $ 2,586,588 32.2790 $ 83,492,474CNY 2,927,815 4.6445 13,598,237EUR 219,218 33.9188 7,435,611AUD 218,921 23.3022 5,101,341ZAR 1,708,232 2.3681 4,045,264IDR 459,112,504 0.0024 1,101,870GBP 18,250 39.6096 722,875JPY 2,327,758 0.2757 641,763

Financial liabilities Monetary items

USD 2,733,876 32.2790 88,246,783CNY 1,627,782 4.6445 7,560,233AUD 270,504 23.3022 6,303,338EUR 68,733 33.9188 2,331,341HKD 521,236 4.1622 2,169,488JPY 5,555,720 0.2757 1,531,712ZAR 645,540 2.3681 1,528,703GBP 9,436 39.6096 373,756

Non-monetary items USD 861,725 32.2790 27,815,621CNY 1,800,285 4.6445 8,361,424ZAR 196,549 2.3681 465,448EUR 1,000 33.9188 33,919

(Concluded) 48. OTHER

a. SKLIC’s hedging strategies and exposure:

1) Simulations and measures in the case of significant fluctuations of foreign exchange When special or significant events happen to the macroeconomic environment such as the September 11 terrorist attack in the U.S., the September 21 earthquake in Taiwan, the United Kingdom leaving the European Union or the exchange rate of the N.T. dollar against the U.S. dollar fluctuates over a pre-determined level, an emergency meeting will be held to discuss corresponding measures.

2) Foreign exchange hedging strategy

SKLIC mainly uses traditional hedging instruments. The Department of Investment evaluates various factors such as market liquidity, hedging cost, and investing environment, then chooses the hedging instruments with the optimal long-term cost efficiency, and executes foreign exchange hedges according to approved intervals and targets.

- 136 -

3) SKLIC’s control mechanism of foreign exchange risk a) Control of hedging ratio on foreign exchange

The Department of Risk Management periodically monitors whether the hedging ratio on foreign exchange satisfies the standards set by Asset & Liability Management Committee.

b) Control of value-at-risk of foreign exchange exposure The Department of Risk Management calculates value-at-risk of foreign exchange exposure every week, and evaluates the market risk of foreign exchange exposure to forecast the possible losses from foreign exchange exposure due to changes in foreign exchange rates in certain periods and confidence intervals. When value-at-risk of foreign exchange exposure exceeds the limit, the Department of Risk Management will issue warning notice or hold emergency meetings to discuss corresponding measures.

c) Control of foreign exchange gains or losses The Department of Risk Management monitors foreign exchange gains or losses of the foreign investment position every day. When losses exceed a certain level, the Department of Risk Management will issue warning notice or hold emergency meetings to discuss corresponding measures.

d) Control of reserve for changes in foreign exchange valuation SKLIC takes the ratio of monthly ending balance of reserve for changes in foreign exchange valuation to the beginning balance as the warning criteria. When losses exceed a certain level, the Department of Risk Management will issue warning notice or hold emergency meetings to discuss corresponding measures.

e) Foreign exchange hedging instruments SKLIC mainly uses traditional hedging instruments. The Department of Investment evaluates various factors such as market liquidity, hedging cost, and investing environment and chooses the hedging instruments with the optimal long-term cost efficiency.

b. Movements in reserve for changes in foreign exchange valuation:

For the Year Ended December 31 2017 2016 Balance at January 1 $ 3,106,016 $ 6,873,100Provision

Compulsory provision 1,373,977 1,287,408Additional provision 1,530,372 2,592,390 2,904,349 3,879,798

Reversal (3,459,140) (7,646,882) Balance at December 31 $ 2,551,225 $ 3,106,016

- 137 -

c. Effect of reserve for changes in foreign exchange valuation: For the year ended December 31, 2017

Affected Accounts Amounts If Not

Applied Amounts If Applied

Effects

Profit attributable to owner of the Company $ 10,070,693 $ 10,531,170 $ 460,477Earnings per share 1.00 1.05 0.05Reserve for changes in foreign exchange

valuation - 2,551,225 2,551,225Equity attributable to owner of the Company 140,459,482 141,310,499 851,017 For the year ended December 31, 2016

Affected Accounts Amounts If Not

Applied Amounts If Applied

Effects

Profit attributable to owner of the Company $ 1,683,637 $ 4,810,317 $ 3,126,680Earnings per share 0.17 0.48 0.31Reserve for changes in foreign exchange

valuation - 3,106,016 3,106,016Equity attributable to owner of the Company 121,006,135 121,396,675 390,540 Profit if not applied with reserve for change in foreign exchange valuation: Profit if applied with reserve for changes in foreign exchange valuation ± (Net changes in reserve for changes in foreign exchange valuation) × 83%.

49. SUPPLEMENTAL DISCLOSURES

a. Information about significant transactions:

Code Description Explanation

1 Accumulated purchases and sales balance of specific investee’s marketable securities over $300 million or 10% of the paid-in capital

None

2 Acquisition or disposal of individual real estate at prices over $300 million or 10% of the paid-in capital

None

3 Discount on processing fee the transactions with related parties over $5 million

None

4 Receivables from related parties over $300 million or 10% of the paid-in capital

None

5 Disposal of nonperforming loans by subsidiaries None 6 Related information of financial assets securitization or real estate

securitization by subsidiaries None

7 Other significant transaction which may affect the decisions of users of the financial statements

None

- 138 -

b. Information of investees

Code Description Explanation 1 Information regarding investee companies and percentage of ownership Table 2 2 Acquisition and disposal of real estate at prices over $300 million or 10%

of the paid-in capital None

3 Discount on processing fee for transactions with related parties over $5 million

None

4 Receivables from related parties over $300 million or 10% of the paid-in capital

None

5 Disposal of nonperforming loans by investees None 6 Related information of financial assets securitization or real estate

securitization by investees None

7 Other significant transaction which may affect the decisions of users of the financial statements

None

8 Financing provided to others Note 9 Endorsements/guarantees provided Table 1 10 Marketable securities held as of December 31, 2013 Table 3 and Note11 Marketable securities acquired or disposed of at costs or prices over $300

million or 10% of the paid-in capital None

12 Derivative transactions Notes 8 and 50 Note: Disclosure requirement is not applicable to SKLIC, TSKCB and MLSC.

c. Investment in mainland China

Code Description Explanation 1 Name principal business activities, paid-in capital, method of investment,

inward and outward remittance of funds, ownership percentage, investment income, carrying amount of the investment, repatriation of investment income, and limit of investment in investee in the mainland China area.

Table 5

2 Significant transaction elements like price, disbursement condition and unrealizable income generated directly or indirectly through a third area, by investee in mainland China.

None

3 Notes, endorsements and collaterals provided directly or indirectly through a third area by investee in mainland China.

None

4 Capital financing directly or indirectly through a third area by investee in mainland China.

None

5 Other significant transactions which may affect the decisions of users of the financial statements

None

d. The important intercompany transactions among the Group are disclosed in Table 6 following the Notes

to Consolidated Financial Statements.

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50. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments a. Fair value of financial instruments not measured at fair value

Except as detailed in the following table, the financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values or their fair values cannot be reliably measured.

December 31 2017 2016

Item Carrying Amount Fair Value Carrying Amount Fair Value Financial assets Debt investments with no active market $ 657,169,492 $ 682,013,369 $ 753,941,406 $ 735,181,492Held-to-maturity investments 980,606,580 1,020,825,236 761,286,083 761,302,884Refundable deposits 14,064,016 15,103,917 16,677,742 17,020,037Deposits received Financial liabilities Deposits received 5,447,971 5,405,629 3,533,025 3,512,912

Fair value hierarchy presented above were as below: December 31, 2017 Level 1 Level 2 Level 3 Total Financial assets Debt investments with no active market $ - $ 400,385,588 $ 281,627,781 $ 682,013,369Held-to-maturity investments 327,128,749 319,616,404 374,080,083 1,020,825,236Refundable deposits - 15,103,917 - 15,103,917 Financial liabilities Deposits received - 5,405,629 - 5,405,629

December 31, 2016 Level 1 Level 2 Level 3 Total Financial assets Debt investments with no active market $ - $ 408,101,457 $ 327,080,035 $ 735,181,492Held-to-maturity investments 244,419,005 280,028,564 236,855,315 761,302,884Refundable deposits - 17,020,037 - 17,020,037Deposits received Financial liabilities Deposits received - 3,512,912 - 3,512,912

The fair values of the financial assets and financial liabilities included in the Level 2 and Level 3 categories above have been determined in accordance with income approaches based on a discounted cash flow analysis, with the most significant unobservable inputs being the discount rate that reflects the credit risk of counterparties.

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b. Fair value of financial instruments that are measured at fair value. 1) Fair value hierarchy

December 31, 2017 Item Total Level 1 Level 2 Level 3

Non-derivatives Assets

Financial assets at FVTPL Share investments $ 19,332,298 $ 19,332,298 $ - $ -Debt investments 30,207,843 19,317,183 10,890,660 -Others 102,203,800 99,656,418 2,547,382 -

Available-for-sale financial assets Share investments 277,607,612 276,397,406 - 1,210,206Debt investments 126,731,505 38,839,973 87,891,532 -Others 19,175,496 17,271,323 1,904,173 -

Liabilities Financial liabilities at FVTPL 701,002 701,002 - -

Derivatives Assets

Financial assets at FVTPL 10,551,443 6,525 10,245,857 299,061Liabilities

Financial liabilities at FVTPL 3,546,261 634,860 2,911,401 -

December 31, 2016 Item Total Level 1 Level 2 Level 3

Non-derivatives Assets

Financial assets at FVTPL Share investments $ 16,122,443 $ 16,122,443 $ - $ -Debt investments 29,047,813 19,135,311 9,912,502 -Others 60,868,221 60,069,459 798,762 -

Available-for-sale financial assets Share investments 223,418,414 210,737,364 11,318,273 1,362,777Debt investments 125,417,034 40,856,022 84,561,012 -Others 13,320,329 13,320,329 - -

Liabilities Financial liabilities at FVTPL 2,092,014 2,092,014 - -

Derivatives Assets

Financial assets at FVTPL 5,167,650 52,433 5,115,217 -Liabilities

Financial liabilities at FVTPL 22,004,947 491,316 21,513,631 - As of December 31, 2017 and 2016, the financial instruments, classified as Level 2 and Level 3 were in the amount of $114,988,871 thousand and $113,068,453 thousand, respectively, in assets and in the amount of $2,911,401 thousand and $21,513,631 thousand, respectively, in liabilities.

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The transfers between Levels 1 and 2 were as follows: December 31, 2017

Item Products

The Amount Transferred

from Levels 1 to 2


from Levels 2 to 1

Financial assets at FVTPL Government bonds $ - $ 1,850,000 Corporate bonds 3,104,760 10,500,000 Beneficial certificates 1,748,803 - $ 4,853,563 $ 12,350,000 Financial assets at AFS Beneficial certificates $ 1,758,973 $ - December 31, 2016

Item Products


from Levels 1 to 2


from Levels 2 to 1

Financial assets at FVTPL Corporate bonds $ 2,276,440 $ 9,257,600 The central government bonds, corporate bonds, and beneficial certificates, which are held by the Group, are not debt securities and beneficial certificates in the active market; thus, the amount of those assets were transferred from Level 1 to Level 2. Resulting from increasing liquidity of the corporate bonds market, the amount of the assets from Level 2 were transferred to Level 1.

2) Reconciliation of Level 3 fair value measurements of financial instruments For the year ended December 31, 2017

Item January 1,

2017

Profit or Loss Increase in

Current YearDecrease in Current Year

December 31, 2017 Recognized in

Profit or Loss

Recognized in Other

Comprehensive Income

Purchase or Issuance

Sale, Disposal or Settlement

Transferred from Level 3

Non-derivatives Available-for-sale

financial assets $ 1,362,777 $ - $ (116,440 ) $ - $ - $ (36,131 ) $ 1,210,206 Derivatives Financial assets at

fair value through profit or loss - 581 - 447,720 (149,240 ) - 299,061

Total $ 1,362,777 $ 581 $ (116,440 ) $ 447,720 $ (149,240 ) $ (36,131 ) $ 1,509,267

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For the year ended December 31, 2016

Item January 1,

2017

Profit or Loss Increase in

Current YearDecrease in Current Year

December 31, 2017 Recognized in

Profit or Loss

Recognized in Other

Comprehensive Income

Purchase or Issuance

Sale, Disposal or Settlement

Transferred from Level 3

Non-derivatives Available-for-sale

financial assets $ 1,379,130 $ - $ (16,353 ) $ - $ - $ - $ 1,362,777

In the second quarter of the year ended December 31, 2017, the unlisted shares held by the Group were transferred from Level 3 to Level 1 in the amount of $36,131 thousand. The total gains or losses for the year ended December 31, 2017 included an unrealized loss on available-for-sale financial assets of $116,440 thousand and a realized gain on available-for-sale financial assets of $581 thousand related to assets measured at fair value according to the Level 3 fair value measurement and held at the end of the reporting date. The total gains or losses for the year ended December 31, 2016 included an unrealized loss on available-for-sale financial assets of $16,353 thousand relating to assets measured at fair value according to the Level 3 fair value measurement and held at the end of the reporting date.

3) Valuation techniques and inputs applied for the purpose of Level 2 fair value measurement

Financial Instruments Valuation Techniques and Inputs Domestic and foreign debt securities Discounted cash flow: Future cash flows are discounted

based on credit spread and market interest rate. Foreign mutual funds Quoted price in non-active market. Derivatives Evaluation of forward exchange at market price:

Forward exchange is evaluated and calculated in accordance with notional amounts, contract forward rate and market forward rate.

4) Valuation techniques and inputs applied for the purpose of Level 3 fair value measurement

The theoretical value of unlisted shares is calculated using the market multiple approach and the discounted cash flow approach which are based on the attributes of the assets and conform to theory and the market practice. The sources of the valuation information are from an independent system and financial statements. The sources of information are updated and evaluated to ensure that the valuation is reasonable. Adopted by the Group, the significant unobservable inputs for Level 3 valuation included the net income growth rate, the cost of equity capital, the discount for a lack of marketability and the price-book ratio. In the second quarter of the year ended December 31, 2017, the Group held and used the price-book ratio to evaluate the unlisted shares, which were transferred to Level 1. Therefore, for the year ended December 31, 2017, the Group adopts the net income growth rate, the cost of equity capital, and the discount for a lack of marketability for the significant unobservable inputs of Level 3 valuation.

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December 31 2017 2016 Net income growth rate 2.80% 2.79% Cost of equity capital 6.00% 6.00% Discount for lack of marketability 30% 30% Price-book ratio - 0.830% In order to reflect the influence of significant unobservable inputs, assuming all other variables were held constant, the market value would increase (decrease) as follows: December 31, 2017 Risk Factors Difference (+/-) Effective Value Net income growth rate -10% $ (62,738) Cost of equity capital +10% (151,649) Discount for lack of marketability +10% (51,870) December 31, 2016 Risk Factors Difference (+/-) Effective Value Net income growth rate -10% $ (72,331) Cost of equity capital +10% (166,380) Discount for lack of marketability +10% (58,407) Price-book ratio -10% (3,613)

c. Categories of financial instruments

December 31 2017 2016 Financial assets Fair value through profit or loss $ 162,295,384 $ 111,206,127Held-to-maturity investments 980,606,580 761,286,083Available-for-sale financial assets (Note 3) 426,429,832 365,436,887Loans and receivable

Cash and cash equivalents 104,540,929 48,594,815Due from Central Bank and other bank 36,877,507 80,861,581Debt investments without an active market 657,169,492 753,941,406Bond issued under repurchase agreement 9,500,275 15,483,759Loans 697,269,130 688,641,256Account receivable 68,774,189 83,891,232Miscellaneous financial assets 6,499,531 3,578,415Refundable deposits 14,064,016 16,677,742 1,594,695,069 1,691,670,206

(Continued)

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December 31 2017 2016 Financial liabilities Fair value through profit or loss $ 4,247,263 $ 24,096,961Amortized cost

Commercial papers 1,499,936 -Due from Central Bank and other bank 3,871,190 2,685,360Bond issued under repurchase agreement 36,373,039 26,987,935Bond payable 54,508,565 49,878,421Other loans 1,588,332 2,653,000Accrued expense 6,722,295 6,117,391Other payable 23,787,447 21,293,850Deposits and remittances 686,523,027 657,104,926Deposits received 5,447,971 3,533,025 $ 820,321,802 $ 770,253,908

(Concluded) Note: The balance included available-for-sale financial assets measured at cost.

d. Financial risk management objectives and policies

1) SKFHC’s financial risk information

a) Market risk The Company’s debt investments mainly consist of fixed interest rate bonds; accordingly, the fair value of these investments would be affected by changes in market interest rate.

b) Credit risk Credit risk represents the potential loss that would be incurred by the Company if the counterparty breached contracts, affecting the credit risk concentration, components and contract amounts. As of December 31, 2017 and 2016, the credit risk amounted to zero, which was evaluated based on the financial instruments with positive values at the balance sheet date.

c) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations in the scheduled time. The foreign exchange forward contracts the Company engaged in were only for hedging exchange rates and settled in net amount, which did not result in a large cash outflow; therefore, the cash flow risk was not significant.

2) Risk management and hedging strategies

Risk management system The Group is mainly engaged in finance-related business, and thus the industry and the relevant regulations affect the Group’s risk management and hedge strategies. To meet the authorities’ requirements, the Company adopted the overall risk management system to identify, measure, monitor and control the market risk, credit risk (including concentration of risk), liquidity risk and other risks.

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The Group established the position of chief risk-management officer to execute the Group’s risk management policy and integrate the Group’s risk management resources to increase the efficiency. The chief risk-management officer prepares a management report to the board of directors periodically to enable them to understand the Group’s circumstances of risk management. To execute risk management, the Group established risk-management committee, as well as convened meetings quarterly to understand the overall report of its subsidiaries and the modified acts and related current news made by the risk-management department. The committee makes its consensus and policy for the risk exposure of subsidiaries, and the risk-management department will transact it. The risk-management department of the Company is in charge of the Group’s risk control and executes varied risk management mechanism in accordance with the regulations. Risk-management department is also the executive organization to implement the risk-management committee’s consensus and policy. The Group firmly believes that the key factor of building risk-management culture and popularizing risk-management system is from the support of administrators. Therefore, the risk-management committee is composed of high-level managers of subsidiaries to make the risk exposures known by the administrators. Hedging strategies The Group is mainly engaged in finance-related business, and therefore the investing target is restricted by the authorities. As a result, the Group makes its hedging strategies with sustaining appropriate liquidity in consideration of relevant acts, economic circumstances, competitive conditions and market prices. The Group’s hedge activities are mainly for the avoidance of market price risk and cash flow risk, and the main risk factors are interest rate and currency fluctuations. To hedge interest rate risk, a large part of the Group’s financial instruments are fixed-interest-rate instruments. The Group also transferred the transactions linked to monetary market to that with fixed rate. Interest rate swap contracts are the prime hedging instruments against interest rate fluctuations. In addition, cross currency swaps, swap options, interest rate caps and floors, and other derivatives may be used as hedging instruments.

3) Financial risk management objectives and policies of SKLIC SKLIC’s major financial instruments include equity and debt investments, derivatives, accounts receivable, accounts payable and bonds payable. SKLIC’s corporate treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the SKLIC through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk. SKLIC sought to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives was governed by SKLIC’s policies approved by the board of directors, which provided written principles on foreign exchange risk, interest rate risk, credit risk and the use of financial derivatives. The corporate treasury function reports quarterly to SKLIC’s risk management committee which subordinated to the board of director an independent body that monitors risks and policies implemented to mitigate risk exposures.

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a) Market risk SKLIC’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates (see (iii) below), interest rates (see (iv) below) and price fluctuations (see (v) below). SKLIC entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk, interest rate risk and risk of price fluctuation, including: Forward foreign exchange contracts and interest rate swap to hedge the exchange rate risk

arising on foreign currency assets and liabilities; and Index Futures and options to mitigate the price fluctuation of equity securities. There had been no change to SKLIC’s exposure to market risks or the manner in which these risks were managed and measured. Market risk exposures were measured using value-at-risk (VaR) and stress test and were supplemented by sensitivity analysis. i. Value at Risk (VaR) analysis

The VaR measures estimate the potential loss resulted market risks on investment portfolio in over a given holding period for a specified confidence level. SKLIC adopts two-week 99% VaR number as measures indicators.

ii. Stress test Besides the module of VaR, SKLIC and its subsidiaries adopted stress test periodically to measure potential risk of an extremely extraordinary event. The investment positions were measured using stress test by simple sensitivity analysis and scenario analysis. This test covered position losses caused by changes in risk factors in various historical scenarios. Simple sensitivity Simple sensitivity is a method to measure the changes in value of investment portfolio resulted from changes in specific risk factors. Scenario analysis Scenario analysis is a method to measure the changes in value of an investment portfolio in a stressful event, of which two methods are as follows: Historical scenario

Select a prior period of a historical event, take the fluctuations of risk factors into consideration and calculate the losses of the investment portfolio occurred for the event.

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Hypothetical scenario Set assumptions for possible extreme market variations in the future based on reasonable expectation, take the fluctuations in risk factors into consideration and calculate the losses of the investment portfolio occurred for the event. The corporate treasury function regularly reports historical scenario and hypothetical scenario to SKLIC’s risk management committee as the basis of risk analysis, risk early - warning system and operation management.

Stress Test Table

2017


Risk Factors Exchange Difference (+/-) Effective ValueEquity risk (stock index) -10% $ (30,839,811)Interest risk (yield curve) +20bps (1,652,967)Foreign currency risk (foreign exchange) N.T. dollar devalued $1 against

U.S. dollar (9,035,514)

Commodity risk (commodity price) -10% -

Stress Test Table 2016


Risk Factors Exchange Difference (+/-) Effective Value

Equity risk (stock index) -10% $ (25,447,686)Interest risk (yield curve) +20bps (1,640,666)Foreign currency risk (foreign exchange) N.T. dollar devalued $1 against

U.S. dollar (5,964,896)

Commodity risk (commodity price) -10% - iii. Foreign currency risk

SKLIC and its subsidiaries managed exchange rate exposures to the extent policy approved by forward foreign exchange contracts and foreign exchange swap contracts.

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The carrying amounts of SKLIC and its subsidiaries’ foreign currency denominated monetary assets and monetary liabilities as well as non-monetary assets and liabilities at the end of the reporting period were as follows: December 31, 2017

Foreign

Currencies Exchange Rate N.T. Dollars Financial assets Monetary items

USD $ 47,004,997 29.8480 $ 1,403,005,145AUD 2,365,441 23.2635 55,028,510CNH 11,136,667 4.5788 50,992,872CNY 2,552,895 4.5836 11,701,469GBP 53,397 40.2053 2,146,860BRL 95,888 9.0107 864,017

Non-monetary items USD 1,484,670 29.8480 44,314,435HKD 746,706 3.8189 2,851,618EUR 66,371 35.6743 2,367,751GBP 18,728 40.2053 752,982JPY 2,682,018 0.2649 710,570CHF 18,857 30.5507 576,094

Financial liabilities Non-monetary items

USD 1,547 29.8480 46,188 December 31, 2016

Foreign

Currencies Exchange Rate N.T. Dollars Financial assets Monetary items

USD $ 38,528,632 32.2790 $ 1,243,665,720CNH 12,801,208 4.6218 59,165,262AUD 1,657,236 23.3022 38,617,250CNY 2,525,415 4.6445 11,729,357BRL 503,509 9.9177 4,993,630GBP 83,164 39.6096 3,294,100

Non-monetary items USD 1,319,537 32.2790 42,593,344EUR 215,018 33.9188 7,293,160IDR 459,112,504 0.0024 1,102,246GBP 18,250 39.6096 722,894JPY 2,327,758 0.2757 641,682CHF 16,701 31.5502 526,912

(Continued)

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Foreign

Currencies Exchange Rate N.T. Dollars Financial liabilities Monetary items

USD $ 21,785 32.2790 $ 703,200AUD 10,000 23.3022 233,022

Non-monetary items USD 480,303 32.2790 15,503,715

(Concluded) As of December 31, 2017 and 2016, SKLIC and its subsidiaries used foreign exchange forward contracts and foreign exchange swap contracts to mitigate exchange rate exposure, whose nominal principal totally amounted to $1,059,066,736 thousand and $997,001,473 thousand. SKLIC negotiated the terms of the hedge derivatives to match the terms of the hedged item to maximize hedge effectiveness. Sensitivity analysis SKLIC and its subsidiaries were mainly exposed to the currency USD. The following table details SKLIC’s sensitivity to a 1% increase and decrease in New Taiwan dollars (the functional currency) against the relevant foreign currencies. 1% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting period for a 1% change in foreign currency rates. A positive number below indicates an increase in post-tax profit associated with New Taiwan dollars strengthen 1% against the relevant currency. For a 1% weakening of New Taiwan dollars against the relevant currency, there would be an equal and opposite impact on post-tax profit and the balances below would be negative. Currency USD Impact For the Year Ended December 31 2017 2016 Profit or loss $ 2,696,920 $ 1,925,409 The impacts in above table were net effects of exchange fluctuation risk by considering the foreign currency monetary assets and related hedging financial derivative instruments.

iv. Interest rate risk SKLIC and its subsidiaries were exposed to interest rate risk because of investments in both of fixed-rate financial assets and floating financial assets. SKLIC and its subsidiaries managed the risk by maintaining an appropriate mix of fixed-rate and floating borrowings. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied.

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The carrying amount of SKLIC and its subsidiaries financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows: December 31 2017 2016 Fair value interest rate risk

Financial assets $ 1,655,147,112 $ 1,528,718,413Cash flow interest rate risk

Financial assets 11,544,377 18,135,136 Sensitivity analysis The sensitivity analyses below were determined based on SKLIC’s exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A basis point increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. A positive number below indicates an increase in income before tax and pre-tax other comprehensive income associated with 1 basis point decrease in interest rate. If interest rates had been 1 basis point higher, there would be an equal and opposite impact on income before tax and pre-tax other comprehensive income and the balance below would be negative. Currency USD Impact For the Year Ended December 31 2017 2016 Pre-tax other comprehensive profit or loss $ 82,320 $ 82,033 The changes in the fair value of available-for-sale fixed-rate instruments were the main reasons for the changes in Pre-tax profit or loss and Pre-tax other comprehensive profit or loss.

v. Other price risk SKLIC and its subsidiaries were exposed to equity price risk through investments in listed equity securities. Equity investments are held for strategic associated with the assets and liability management rather than trading purposes. SKLIC and its subsidiaries’ equity price risk was mainly concentrated on equity instruments operating in electronics industry sector quoted in the Taiwan Stock Exchange. In addition, SKLIC and its subsidiaries had appointed a special team to monitor the price risk and will consider hedging the risk exposure should the need arise.

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Sensitivity analysis A positive number below indicated an increase in income before tax, pre-tax other comprehensive income due to the changes in the fair value of held-for-trading investments and the changes in fair value of available-for-sale shares associated with 1% increase in equity prices. If equity prices had been 1% lower, there would be an equal and opposite impact on income before tax, pre-tax other comprehensive income due to the changes in the fair value of held-for-trading investments and changes in fair value of available-for-sale shares. Effects 2017 2016 Income before tax $ 134,487 $ 207,046 Pre-tax other comprehensive income 2,949,796 2,337,723

b) Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to SKLIC and its subsidiaries. As at the end of the reporting period, the maximum exposure to credit risk which will cause a financial loss to SKLIC and its subsidiaries due to failure of counterparties to discharge an obligation could arise from the carrying amount of the respective recognized financial assets as stated in the balance sheets. SKLIC and its subsidiaries adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. SKLIC and its subsidiaries only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available and, if not available, SKLIC and its subsidiaries use other publicly available financial information and its own trading records to rate its major customers. SKLIC and its subsidiaries’ exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. In order to minimize credit risk, management of SKLIC and its subsidiaries delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, SKLIC and its subsidiaries review the recoverable amount of each individual trade debt at the end of the reporting period to ensure that adequate allowances are made for irrecoverable amounts. In this regard, management believes the credit risk was significantly reduced. The credit risk on liquid funds and derivatives was limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. SKLIC and its subsidiaries’ investment objects spread in various industry sectors and geographical locations. Ongoing credit evaluation is performed on financial condition of investment object and credit risk exposure is controlled under risk management strategy.

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Apart from Verizon Communications Inc. and HSBC Bank, the largest customers, SKLIC and its subsidiaries did not have significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. SKLIC and its subsidiaries define counterparties as having similar characteristics if they are related entities. Concentration of credit risk related to Verizon Communications Inc. and HSBC Bank did not exceed 3% of capital employed at any time during the years ended 2017 and 2016. Concentration of credit risk to any other counterparty did not exceed 3% of capital employed at any time during the years ended 2017 and 2016. SKLIC and its subsidiaries’ concentration of credit risk by geographical locations was mainly in US, which accounted for 29.01% and 27.40% of the total foreign investments as of December 31, 2017 and 2016, respectively. SKLIC and its subsidiaries’ concentration of credit risk of 11.24% and 10.52% in total transaction amounts as of December 31, 2017 and 2016, respectively, was related to SKLIC and its subsidiaries’ five largest customer.

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The credit risks of SKLIC resulted from financial instrument transactions in operating activities, including debt investment and loan. The possibility of large losses to investment portfolio caused by a single event of credit risk due to significant concentration was lowered by regular statistics and monitoring of concentrations as follows: i. The amount of exposure to credit risk - industry sector

December 31, 2017

Government Finance Energy Commodity Industry MSCI CPI Technology Telecommunication Public Utility Total Held-to-sale financial assets $ 248,844 $ 3,622 $ - $ - $ - $ 47,768 $ 87,720 $ 255,388 $ - $ - $ 643,342 Available-for-sale financial assets 10,203,472 62,475,364 893,564 801,275 - 457,806 - - - 2,446,255 77,277,736 Debt investments with no activity market 7,487,432 376,525,441 46,247,853 15,604,895 10,669,417 26,618,757 11,461,703 8,805,160 95,605,423 46,313,274 645,339,355 Held-to-maturity financial assets 507,635,798 284,773,993 23,321,646 5,156,291 299,974 8,954,401 3,320,802 13,431,600 76,720,062 19,637,694 943,252,261 Total 525,575,546 723,778,420 70,463,063 21,562,461 10,969,391 36,078,732 14,870,225 22,492,148 172,325,485 68,397,223 1,666,512,694 % of total 31.54% 43.43% 4.23% 1.29% 0.66% 2.17% 0.89% 1.35% 10.34% 4.10% 100.00%

December 31, 2016

Government Finance Energy Commodity Industry MSCI CPI Technology Telecommunication Public Utility Total Held-to-sale financial assets $ 388,720 $ 386,375 $ - $ - $ 54,418 $ 67,407 $ 86,860 $ 333,879 $ 204,510 $ - $ 1,522,169 Available-for-sale financial assets 17,077,188 56,448,987 1,690,425 808,804 985,169 1,478,910 - - - 3,295,334 81,784,817 Debt investments with no activity market 11,000,616 458,948,966 60,678,513 19,190,561 13,230,709 37,663,553 12,433,235 17,753,450 73,192,118 35,087,261 739,178,982 Held-to-maturity financial assets 446,462,004 191,323,376 24,004,939 - 299,915 9,683,700 - 9,683,700 25,156,497 17,753,450 724,367,581 Total 474,928,528 707,107,704 86,373,877 19,999,365 14,570,211 48,893,570 12,520,095 27,771,029 98,553,125 56,136,045 1,546,853,549 % of total 30.71% 45.71% 5.58% 1.29% 0.94% 3.16% 0.81% 1.80% 6.37% 3.63% 100.00%

ii. The amount of exposure to credit risk - geographical location

December 31, 2017

Financial Assets Taiwan North America Eurozone Non-EU Europe Asia Latin America Middle East/Africa Global Total Held-to-sale financial assets $ 390,876 $ 338 $ - $ - $ 252,128 $ - $ - $ - $ 643,342 Available-for-sale financial assets 24,032,037 - 5,911,758 5,442,574 35,194,932 788,443 3,852,302 2,055,690 77,277,736 Debt investments with no activity market 6,740,000 278,976,571 102,654,982 143,607,370 75,276,529 19,115,384 16,279,284 2,689,235 645,339,355 Held-to-maturity financial assets 211,417,386 306,412,605 91,209,407 86,060,782 67,502,689 31,177,304 149,472,088 - 943,252,261 Total 242,580,299 585,389,514 199,776,147 235,110,726 178,226,278 51,081,131 169,603,674 4,744,925 1,666,512,694 % of total 14.55% 35.13% 11.99% 14.11% 10.69% 3.07% 10.18% 0.28% 100.00%

December 31, 2016

Financial Assets Taiwan North America Eurozone Non-EU Europe Asia Latin America Middle East/Africa Global Total Held-to-sale financial assets $ 1,022,646 $ 358 $ - $ 107,149 $ 392,016 $ - $ - $ - $ 1,522,169 Available-for-sale financial assets 17,882,767 602,930 4,569,325 4,200,995 38,600,804 4,759,763 9,089,899 2,078,334 81,784,817 Debt investments with no activity market 6,740,000 304,198,743 118,496,334 174,968,817 93,113,753 25,649,606 13,225,503 2,786,226 739,178,982 Held-to-maturity financial assets 213,541,996 192,774,065 73,817,296 77,129,971 53,609,084 28,235,430 85,259,739 - 724,367,581 Total 239,187,409 497,576,096 196,882,955 256,406,932 185,715,657 58,644,799 107,575,141 4,864,560 1,546,853,549 % of total 15.46% 32.17% 12.73% 16.58% 12.01% 3.79% 6.95% 0.31% 100.00%

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Regarding credit quality, SKLIC regularly tracked credit ratings by each credit rating agency for normal assets that were neither past due nor impaired, which were classified into low credit risk, medium credit risk and high credit risk according to their credit ratings. The definition of each level of risk is as follows: Low credit risk Credit rating of BBB or above means the issuers or counterparties have adequate capacity to meet financial commitment. Even in adverse economic conditions or negative situations, they still have strong capacity to deal with. Medium credit risk Credit rating of BBB-/BB+ means the issuers or counterparties have moderate capacity to meet financial commitment. Adverse economic conditions or negative situations may weaken their financial conditions, resulting in a sign of impairment or losses to SKLIC. High credit risk Credit rating below BB or no credit rating means the issuers or counterparties are remote to meet financial commitment. Adverse economic conditions or negative situations will reduce their capacity and willingness to meet financial commitment. SKLIC provided impairment losses regarding each financial asset in accordance with IFRSs, and the carry amounts after impairment can properly reflect the current value of the asset in the principle of conservative estimates. Credit quality information of financial assets, including those past due but not impaired and impaired items with related impairments, was as follows:

Credit Quality of Financial Asset Analysis December 31, 2017

Low Credit Risk Medium

Credit Risk High Credit Risk

Past Due but Not Impaired

Impaired Accumulated Impairment

Total

Held-to-sale financial assets $ 643,342 $ - $ - $ - $ - $ - $ 643,342 Available-for-sale financial

assets 68,828,104 7,661,189 788,443 - - - 77,277,736 Debt investments with no

activity market 609,080,521 30,001,857 6,256,977 - - - 645,339,355 Held-to-maturity financial

assets 824,750,700 93,689,499 24,812,062 - - - 943,252,261 Total 1,503,302,667 131,352,545 31,857,482 - - - 1,666,512,694 % of total 90.21% 7.88% 1.91% - - - 100.00% December 31, 2016

Low Credit Risk Medium

Credit Risk High Credit Risk

Past Due but Not Impaired

Impaired Accumulated Impairment

Total

Held-to-sale financial assets $ 1,522,169 $ - $ - $ - $ - $ - $ 1,522,169 Available-for-sale financial

assets 69,295,134 12,489,683 - - - - 81,784,817 Debt investments with no

activity market 679,358,397 40,389,185 19,431,400 - - - 739,178,982 Held-to-maturity financial

assets 605,816,106 118,551,475 - - - - 724,367,581 Total 1,355,991,806 171,430,343 19,431,400 - - - 1,546,853,549 % of total 87.66% 11.08% 1.26% - - - 100.00%

Note 1: Normal assets and impaired items included debt instruments but excluded funds and

stocks. The amounts of impaired items were the gross amounts of impaired assets (before net of accumulated impairment).

Note 2: The credit rating for normal assets was simultaneously considered all the ratings

declared by S&P, Moody’s, Fitch and Taiwan Rating, and was chosen by the middle of the first three ratings or the lower of two ratings.

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Loan Arrangements by Geographical Location (Excluding Policy Loans and Premium Loans)

December 31, 2017

Northern Region

Central RegionSouthern Region

Eastern Region Total

Secured loans $ 36,884,637 $ 9,148,252 $ 11,399,441 $ 557,241 $ 57,989,571Overdue loans 4,541,682 12,424 8,328 120 4,562,554Total 41,426,319 9,160,676 11,407,769 557,361 62,552,125% of total 66.23% 14.64% 18.24% 0.89% 100.00% December 31, 2016

Northern Region

Central RegionSouthern Region

Eastern Region Total

Secured loans $ 50,889,649 $ 11,364,814 $ 13,442,624 $ 846,878 $ 76,543,965Overdue loans 661,379 14,772 8,718 5 684,874Total 51,551,028 11,379,586 13,451,342 846,883 77,228,839% of total 66.75% 14.73% 17.42% 1.10% 100.00%

Loans (Excluding Policy Loans and Premium Loans)

December 31, 2017

With Objective Evidence of

Impairment

Without Objective

Evidence of Impairment

Individual

Impairment Collective


Impairment Total

(Carry Amount) Allowance for

Impairment Loss Balance, Net Individual consumers $ 99,686 $ 168,331 $ 49,655,089 $ 49,923,106 $ 303,488 $ 49,619,618 Business consumers 4,528,913 351 8,191,794 12,721,058 205,509 12,515,549 $ 4,628,599 $ 168,682 $ 57,846,883 $ 62,644,164 $ 508,997 $ 62,135,167 December 31, 2016

With Objective Evidence of

Impairment

Without Objective


Individual



Impairment Total

(Carry Amount) Allowance for

Impairment Loss Balance, Net Individual consumers $ 111,407 $ 148,317 $ 60,932,666 $ 61,192,390 $ 53,567 $ 61,138,823 Business consumers 630,873 510 15,482,069 16,113,452 175,548 15,937,904 $ 742,280 $ 148,827 $ 76,414,735 $ 77,305,842 $ 229,115 $ 77,076,727

Note: Interest receivable and temporary payments were included in the gross amount of

secured loan. The aging of the loans past due but not impaired was as follows:

31-60 Days 61-90 Days Total December 31, 2017 $ 287,093 $ 162,458 $ 449,551 December 31, 2016 436,362 140,853 577,215

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c) Liquidity risk SKLIC and its subsidiaries had sufficient working capital to meet financial commitment; therefore, there was no liquidity risk due to the shortage of capital in response to performing contract obligations. Majority of debt investments and stocks of SKLIC and its subsidiaries with active market and, therefore, are expected to be easily disposed in markets rapidly at the price near fair values. The foreign exchange forward contracts, currency swap contracts and currency options SKLIC and its subsidiaries entered into were fixed and for hedging, and these contracts were to be settled in net or gross and did not require huge cash position, resulting in no material cash flow risk. Liquidity and interest risk rate tables The following table details the SKLIC and its subsidiaries’ remaining contractual maturity for non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which SKLIC and its subsidiaries can be required to pay. The tables included both interest and principal cash flows. December 31, 2017

On Demand or Less than 3 Months

3 Months to 1 Year 1-5 Years 5+ Years

Non-derivative financial liabilities Non-interest bearing $ 4,972,960 $ 176,560 $ 927,759 $ 51,463 Fixed interest rate liabilities - 661,500 7,646,000 14,976,000 Reserve for outstanding loss 216,767 113,506 178,787 28,965 December 31, 2016



Non-derivative financial liabilities Non-interest bearing $ 6,459,468 $ 575,347 $ 422,473 $ 48,000 Fixed interest rate liabilities - 661,500 2,646,000 20,637,500 Reserve for outstanding loss 170,437 98,526 145,352 25,842 The following table details SKLIC and its subsidiaries’ expected maturity for some of non-derivative financial assets. The tables below had been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets. The inclusion of information on non-derivative financial assets is necessary in order to understand SKLIC and its subsidiaries’ liquidity risk management as the liquidity is managed on a net asset and liability basis.

- 157 -

December 31, 2017



Non-derivative financial assets Domestic $ 5,216,070 $ 11,181,265 $ 53,155,293 $ 269,673,641Abroad 18,129,005 37,356,907 244,794,035 2,621,938,713 December 31, 2016



Non-derivative financial assets Domestic $ 3,559,660 $ 3,256,470 $ 64,599,026 $ 261,040,918Abroad 20,670,208 40,166,411 225,734,457 2,505,845,177 The amounts included above for variable interest rate instruments for both non-derivative financial assets and liabilities was subject to change if changes in variable interest rates differ from those estimates of interest rates determined at the end of the reporting period. The following table detailed SKLIC and its subsidiaries’ liquidity analysis for derivative financial instruments. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves at the end of the reporting period. December 31, 2017

On Demand or Less than

1 Month 1-3 Months3 Months to

1 Year 1-5 Years 5+ Years Net settled Foreign exchange forward

contracts $ 1,064,415 $ 1,537,621 $ 783,180 $ - $ - Gross settled Exchange rate swaps

Inflows $ 606,431 $ 1,068,965 $ 3,069,184 $ - $ -Outflows (27,084) (241) (18,863) - -

Foreign exchange forward contracts Inflows 110,218 50,665 - - -Outflows - (1,526) - - -

$ 689,565 $ 1,117,863 $ 3,050,321 $ - $ -

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December 31, 2016

On Demand or Less than

1 Month 1-3 Months3 Months to

1 Year 1-5 Years 5+ Years Net settled Foreign exchange forward

contracts $ 510,572 $ (4,370,030) $ - $ - $ - Gross settled Exchange rate swaps

Inflows $ 35,198 $ 12,130 $ - $ - $ -Outflows (1,250,400) (5,044,183) (5,345,717) - -

Foreign exchange forward contracts Inflows - - - - -Outflows (3,957) - - - -

$ (1,219,159) $ (5,032,053) $ (5,345,717) $ - $ -

d) Transfer of financial assets The transferred financial assets of SKLIC and its subsidiaries are mainly securities under repurchase agreements or equity securities under lending agreements. SKLIC and its subsidiaries cannot sell or pledge these transferred financial assets during the valid transaction period. Therefore, SKLIC and is subsidiaries do not completely derecognize the transferred assets. The table below discloses the information of financial assets that are not completely derecognized and the associated financial liabilities. December 31, 2017

Type of Financial Assets

Carrying Amount of

the Transferred

Financial Assets

Carrying Amount of Relevant Financial Liabilities

Fair Value of the

Transferred Financial

Assets

Fair Value of Relevant Financial Liabilities

Fair Value Net Position

Available-for-sale financial asset security lending agreements $ 5,544,243 $ - $ 5,544,243 $ - $ 5,544,243

December 31, 2016

Type of Financial Assets

Carrying Amount of

the Transferred

Financial Assets

Carrying Amount of Relevant Financial Liabilities

Fair Value of the

Transferred Financial

Assets

Fair Value of Relevant Financial Liabilities

Fair Value Net Position

Available-for-sale financial asset security lending agreements $ 2,811,612 $ - $ 2,811,612 $ - $ 2,811,612

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e) Offsetting financial assets and financial liabilities The derivatives held by SKLIC and its subsidiaries did not meet the offsetting criteria pursuant to IFRS, but was covered by enforceable master netting arrangements or similar agreements signed with counterparties. Derivatives under enforceable master netting arrangements or similar agreements can be settled on a net basis of financial assets and financial liabilities if two parties decide to settle on net basis, or if not, settle on gross basis. If one party defaults, the other party can choose to settle on net basis. The tables below present the information on financial assets and financial liabilities that have been offset. December 31, 2017 Financial Assets That Have Been Offset or That Are Covered by Enforceable Master Netting Arrangements or

Similar Agreements

Financial Assets

Gross Amounts of Recognized Financial Assets (a)

Gross Amounts of Recognized Financial

Liabilities Set Off in the

Balance Sheet (b)

Net Amounts of Financial

Assets Presented in the Balance

Sheet (c)=(a)-(b)

Related Amounts Not Set Off in the Balance Sheet (d)

Net Amount (e)=(c)-(d) Financial

Instruments (Note)

Cash Collateral Received

Derivative $ 8,289,153 $ - $ 8,289,153 $ 8,289,153 $ - $ -

Financial Liabilities That Have Been Offset or That Are Covered by Enforceable Master Netting

Arrangements or Similar Agreements

Financial Liabilities


Liabilities (a)


Assets Set Off in the Balance

Sheet (b)

Net Amounts of Financial Liabilities

Presented in the Balance

Sheet (c)=(a)-(b)



Instruments (Note)


Derivative $ 46,188 $ - $ 46,188 $ 46,188 $ - $ -

Note: Included master netting arrangements and non-cash financial collateral. December 31, 2016 Financial Assets That Have Been Offset or That Are Covered by Enforceable Master Netting Arrangements or

Similar Agreements

Financial Assets




Balance Sheet (b)



Sheet (c)=(a)-(b)



Instruments (Note)


Derivative $ 47,328 $ - $ 47,328 $ 47,328 $ - $ -

Financial Liabilities That Have Been Offset or That Are Covered by Enforceable Master Netting

Arrangements or Similar Agreements



Liabilities (a)



Sheet (b)


Presented in the Balance

Sheet (c)=(a)-(b)



Instruments (Note)


Derivative $ 15,503,715 $ - $ 15,503,715 $ 15,703,715 $ - $ -

- 160 -

Note: Included master netting arrangement and non-cash financial collateral.

f) Reclassifications i. On July 1, 2008, SKLIC reclassified its financial assets and the fair values at the

reclassification date were as follows:

Before

Reclassification After

Reclassification Financial assets at fair value through profit or loss $ 12,520,818 $ -Available-for-sale financial assets - 12,520,818 $ 12,520,818 $ 12,520,818 The carrying amounts and fair values of the reclassified financial assets for 2017 and 2016 (excluding those that had been derecognized) were as follows: December 31 2017 2016

Carrying Amount Fair Value


Available-for-sale

financial assets $ 298,583 $ 298,583 $ 297,626 $ 297,626 The gains or losses recorded for the reclassified financial assets (excluding those that had been derecognized for 2017 and 2016, and the pro forma gains or losses assuming no reclassification had been made were as follows: 2017 2016

Gains (Losses)

RecordedPro Forma

Gains (Losses)Gains (Losses)

Recorded Pro Forma

Gains (Losses) Available-for-sale

financial assets $ - $ (172,815) $ - $ (178,058) In order to strengthen assets and liability management and to be aligned with long-term liabilities, SKLIC changed investment intention of certain available-for-sale financial assets. On January 31, 2011, SKLIC reclassified certain available-for-sale financial assets into held-to-maturity financial assets and the fair values on the reclassification date were as follows:

Before


Reclassification Available-for-sale financial assets $ 55,069,490 $ -Held-to-maturity financial assets - 55,069,490 $ 55,069,490 $ 55,069,490

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The carry amount and the fair values of the reclassified financial assets as of January 31, 2011 were as follows:

Carry Amount Fair Value Held-to-maturity financial assets $ 55,069,490 $ 55,069,490 The carrying amounts and the fair values of the reclassified financial assets for the years ended December 31, 2017 and 2016 (excluding those that had been derecognized) were as follows: December 31 2017 2016



Held-to-maturity

financial assets $ 54,787,605 $ 59,997,536 $ 55,617,891 $ 57,995,907 Since the reclassification date, January 31, 2011, these financial assets were booked as held-to-maturity financial assets, and pro forma gains or losses assuming no reclassification had been made were as follows: Carrying Amount Pro Forma Gains (Losses)

Profit or Loss

Unrealized Gains or Losses Profit or Loss

Unrealized Gains or Losses

Held-to-maturity

financial assets $ 574,716 $ (957,184) $ 562,515 $ 3,513,149 ii. Reclassified information of SKLIC’s subsidiaries

On July 1, 2008, SKLRESC reclassified its financial assets and the fair values at the reclassification date were as follows:

Before


Reclassification Financial assets at fair value through profit or loss $ 184,807 $ - Available-for-sale financial assets - 184,807 $ 184,807 $ 184,807 The carrying amounts and fair values of the reclassified financial assets (excluding those that had been derecognized) were as follows: December 31 2017 2016



Available-for-sale

financial assets $ 217,389 $ 217,389 $ 214,606 $ 214,606

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The gains or losses recorded for the reclassified financial assets (excluding those that had been derecognized) for 2017 and 2016 and the pro forma gains or losses assuming no reclassification had been made were as follows: 2017 2016

Gains (Losses)

Recorded Pro Forma

Gains (Losses)Gains (Losses)

Recorded Pro Forma

Gains (Losses) Available-for-sale

financial assets $ - $ (8,664) $ - $ (3,547) 4) Financial risk information of TSKCB

a) Market risk

Fair values of bond investments, bills, loans and other financial instruments engaged by TSKCB and its subsidiaries fluctuate due to changes in market interest rates. Value at Risk (VaR) TSKCB and its subsidiaries used VaR model and stress test to evaluate the risk of trading portfolio, and to estimate the market risk and maximal losses of holding positions on the assumptions of changes in certain market conditions. The limits were set by the boards of TSKCB and its subsidiaries and controlled by risk management department every day. VaR is the estimate for the potential losses of current positions due to adverse market changes. Since VaR is the maximal potential losses which TSKCB and its subsidiaries may assume, the actual losses would be possible to exceed the estimated VaR. In the VaR model, TSKCB and its subsidiaries were assumed to sustain the positions at minimal holding period, at which the market volatilities were similar to those at prior periods. Historical market volatilities were evaluated according to past historical data, and the VaR of owned positions was evaluated by historical simulation method. The actual calculation results were used to periodically monitor and test the accuracy of inputs and assumptions adopted in the calculation. However, the use of above-mentioned evaluation does not avoid losses due to extreme market volatilities. Since VaR is an important internal risk-control method of TSKCB and its subsidiaries, the board of director resets the limit of VaR for trading portfolio annually. The daily exposure to risk is reviewed by risk management department of TSKCB and its subsidiaries. December 31, 2017 Average Highest Lowest VaR of foreign exchange $ 53,120 $ 89,074 $ 39,412 VaR of interest rate 7,154 12,265 4,706 VaR of equity securities 11,421 21,945 4,172 Total 58,733 105,022 40,419 December 31, 2016 Average Highest Lowest VaR of foreign exchange $ 63,761 $ 95,368 $ 31,432 VaR of interest rate 9,254 14,838 6,675 VaR of equity securities 24,715 62,391 10,247 Total 76,226 113,953 40,100

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b) Credit risk A loss would occur on the financial assets held by TSKCB if the counterparty breached contracts. TSKCB follows a strict credit policy to assess and approve all credit lines and guarantees. The secured loans were 71% of the total loans as of December 31, 2017. 22% of guarantees and letters of credit were secured by collaterals and the collaterals were usually provided as real estate, cash, merchandize, securities and other assets. If the counterparty defaults, TSKCB will execute its compulsory rights on the collateral or other mortgage, which could effectively lower credit risk. The maximum exposure to credit risk is the commitment amount without taking account of fair values of collaterals. Credit risks hedging policies i. Collateral

In order to lower the credit risk, TSKCB and its subsidiaries adopt a series of policies as well as measures for credit business. One of the most common ways is having the borrower to provide collaterals. In the aspect of collateral management and the loan-to value assessment, TSKCB and its subsidiaries specify a certain range of acceptable collaterals and implement the procedures for valuating, managing and arranging of the collaterals to secure the claim. In order to lower the credit risk, the credit contracts, on the other hand, establish the claim preservation and collateral clause which allow creditor to decrease line of credit, shorten or terminate the loan terms when certain credit events happened.

ii. Limits of credit risk and control of significant concentration of credit risk

In order to avoid significant concentration of risk, TSKCB and its subsidiaries limit credit balance under related regulations to single counterparty or single group. Several limits of investment are established under investment regulations and risk control rules of equity investment to same Corporation or Group. Furthermore, TSKCB set up credit limits for industry, business group, nationality, credit extensions secured by pledges of shares in order to control and oversee concentration risk of each asset. The integrated system enables TSKCB and its subsidiaries to oversee different kinds of concentration of credit risk, such as counterparty, business group, affiliate, industry, nationality, final risk of county, etc.

iii. Other credit enhancement

In order to lower credit risk, TSKCB and its subsidiaries have right of offset under credit contract which allows TSKCB and its subsidiaries to take money from borrower’s deposit account to make a payment on a debt when certain credit events happened.

The credit risk was evaluated based on the financial instruments with positive fair values at balance sheet date and off-balance-sheet commitment and guarantee contracts. The maximum exposure to credit risk of the various financial instruments held by TSKCB, the maximum exposure to credit risk is the same with the carrying amounts except the following: December 31

Items 2017 2016 Guarantee $ 17,661,903 $ 14,555,004Letters of credit 5,226,809 5,487,441Loan commitments (excluding credit card) 183,842,829 201,289,628

- 164 -

Significant concentration of credit risk occurs when counterparties to financial instruments prominently concentrate on one party or group, or those in similar business lines or with similar economic characteristics, which exposes them to economic or other factors in a similar level. The specialty of credit risk concentration includes nature of business activities engaged by debtors. TSKCB did not have concentration of credit risk on individual clients or transaction counterparties, but TSKCB had transactions with counterparties in similar industries or in similar regions. As of December 31, 2017, TSKCB’s credit exposure was as follows:

Industry Contract Amount

Maximum Credit

Exposure Natural persons $ 329,328,040 $ 329,328,040Banking and insurance 211,576,322 211,576,322Manufacturing 90,332,622 90,332,622Real estate leasing 43,564,382 43,564,382Wholesale and retail 30,687,399 30,687,399Servicing 16,913,542 16,913,542Public utility 13,325,408 13,325,408Others 23,807,072 23,807,071 $ 759,534,787 $ 759,534,786

Area Contract Amount

Maximum Credit

Exposure Domestic $ 653,053,461 $ 653,053,458American region 33,073,273 33,073,273Europe 22,413,411 22,413,411Asian region 33,491,913 33,491,913Oceania 15,999,596 15,999,597African region 1,503,133 1,503,134 $ 759,534,787 $ 759,534,786

- 165 -

Certain financial assets held by TSKCB and its subsidiaries, such as cash and cash equivalents due from Central Bank and other banks, financial assets at FVTPL, bonds purchased under resale agreements and refundable deposits, are exposed to low credit risks because their counterparties have high credit ratings. Except the above assets, credit quality analyses on financial assets were as follows: i. Credit quality analysis on loans and receivables

December 31, 2017

Neither Past Due Nor Impaired Past Due But Not Impaired

(B) Impaired (C)

Total (A)+(B)+(C)

Provision for Impairment Losses (D)

Net (A)+(B)+ (C)-(D) Strong Medium Weak Total (A)

With Objective Evidence of Impairment

With No Objective


Receivables Credit cards $ 6,450,306 $ 676,256 $ 602,532 $ 7,729,094 $ 120,725 $ 34,871 $ 7,884,690 $ 31,560 $ 19,533 $ 7,833,597 Others 36,953,350 634,294 435,985 38,023,629 34,566 3,883,357 41,941,552 2,214,361 163,269 39,563,922

Discounts and loans 425,611,787 82,402,319 15,536,465 523,550,571 5,660,365 4,715,806 533,926,742 1,567,406 537,145 531,822,191

December 31, 2016


(B) Impaired (C)

Total (A)+(B)+(C)

Provision for Impairment Losses (D)

Net (A)+(B)+ (C)-(D) Strong Medium Weak Total (A)

With Objective Evidence of Impairment

With No Objective


Receivables Credit cards $ 6,127,326 $ 864,365 $ 731,911 $ 7,723,602 $ 130,797 $ 34,367 $ 7,888,766 $ 30,988 $ 17,839 $ 7,839,939 Others 83,932,807 527,825 204,267 84,664,899 33,200 4,522,530 89,220,629 1,374,676 26,193 87,819,760

Discounts and loans 402,881,024 81,862,014 12,198,371 496,941,409 5,861,289 4,672,348 507,475,046 1,286,262 646,661 505,542,123

- 166 -

ii. Credit quality analysis on loans neither past due nor impaired (based on credit ratings of clients)

December 31, 2017 Neither Past Due Nor Impaired

Strong Medium Weak Total Consumer loans

Residential mortgage $ 230,334,772 $ 82,574 $ 627,374 $ 231,044,720Debit card - - 567 567Petit credit 24,420,710 17,778,428 2,044,812 44,243,950Communicate credit 498,715 65,346 10,484 574,545Others 5,814,302 - 12,300 5,826,602

Corporate loans Secured 102,626,434 19,010,791 3,477,012 125,114,237Unsecured 61,916,854 45,465,180 9,363,916 116,745,950

Total $ 425,611,787 $ 82,403,319 $ 15,536,465 $ 523,550,571


Strong Medium Weak Total Consumer loans

Residential mortgage $ 208,522,088 $ 93,617 $ 533,334 $ 209,149,039Debit card - - 803 803Petit credit 23,012,639 14,619,708 1,588,955 39,221,302Communicate credit 485,440 50,783 6,567 542,790Others 5,440,327 - 13,351 5,453,678

Corporate loans Secured 98,241,138 21,554,994 3,354,330 123,150,462Unsecured 67,179,392 45,542,912 6,701,031 119,423,335

Total $ 402,881,024 $ 81,862,014 $ 12,198,371 $ 496,941,409

iii. Credit quality analysis on security investment

December 31, 2017 Neither Past Due Nor Impaired Past Due But

Not Impaired (B)

Impaired (C)

Total (A)+(B)+(C)

Provision for Impairment Loss

(D)

Net (A)+(B)+(C)-(D)Level 1 Level 2 Level 3 Subtotal (A)

Available-for-sale financial assets Bonds $ 42,489,181 $ 6,964,587 $ - $ 49,453,768 $ - $ - $ 49,453,768 $ - $ 49,453,768 Others - 888,401 - 888,401 - - 888,401 - 888,401

Held-to-maturity financial assets Bonds 38,543,714 8,190,593 - 46,734,307 - - 46,734,307 - 46,734,307

Other financial assets Equity 31,632 - 131,394 163,026 - - 163,026 - 163,026 Bonds 1,713,461 9,051,269 - 10,764,730 - - 10,764,730 - 10,764,730

December 31, 2016


(B)

Impaired (C)

Total (A)+(B)+(C)

Provision for Impairment Loss

(D)

Net (A)+(B)+(C)-(D)Level 1 Level 2 Level 3 Subtotal (A)

Available-for-sale financial assets Bonds $ 39,399,470 $ 4,232,747 $ - $ 43,632,217 $ - $ - $ 43,632,217 $ - $ 43,632,217 Equity - - 123,530 123,530 - - 123,530 - 123,530 Others - 1,632,281 - 1,632,281 - - 1,632,281 - 1,632,281

Held-to-maturity financial assets Bonds 38,057,766 8,240,722 - 46,298,488 - - 46,298,488 - 46,298,488

Other financial assets Equity 31,631 - 132,772 164,403 - - 164,403 - 164,403 Bonds 2,134,617 9,409,762 - 11,544,379 - - 11,544,379 - 11,544,379

iv. The aging of financial assets past due but not impaired

The processing delays by be borrowers and other administrative factors may cause financial assets to be past due but not impaired. According to the internal rules governing the TSKCB and its subsidiaries’ risk management, financial asset past due within 90 days are not deemed as impaired, unless other evidence exists that indicate impairment.

- 167 -

The aging of financial assets past due but not impaired was as follows:


Past Due Up to 1 Month

Past Due within 1-3 Months

Total

Receivables Credit cards $ 89,739 $ 30,986 $ 120,725 Others 20,431 14,135 34,566

$ 110,170 $ 45,121 $ 155,291 Discounts and loans

Consumer loans Residential mortgage $ 2,506,104 $ 1,194,513 $ 3,700,617 Debit card 953 63 1,016 Petit credit 1,083,965 384,438 1,468,403 Others 95,282 17,992 113,274

3,686,304 1,597,006 5,283,310 Corporate loans

Secured 132,102 179,233 311,335 Unsecured 33,301 32,419 65,720

165,403 211,652 377,055 $ 3,851,707 $ 1,808,658 $ 5,660,365


Past Due Up to 1 Month

Past Due within 1-3 Months

Total

Receivables Credit cards $ 100,326 $ 30,471 $ 130,797 Others 18,928 14,272 33,200

$ 119,254 $ 44,743 $ 163,997 Discounts and loans

Consumer loans Residential mortgage $ 2,627,991 $ 1,143,775 $ 3,771,766 Debit card 1,261 83 1,344 Petit credit 1,187,351 451,264 1,638,615 Others 68,995 18,526 87,521

3,885,598 1,613,648 5,499,246 Corporate loans

Secured 81,398 28,078 109,476 Unsecured 152,807 99,760 252,567

234,205 127,838 362,043 $ 4,119,803 $ 1,741,486 $ 5,861,289

c) Liquidity risk

Ratios of liquidity reserves were 19% and 20% as of December 31, 2017 and 2016, respectively. Since the capital and working capital are sufficient to perform all the contracted obligations, there will be no liquidity risk in this regard. Since it’s remote that derivatives held by TSKCB cannot be sold at reasonable prices in the market, the liquidity risks should be low.

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TSKCB held cash and high quality liquid interest accrued assets to meet repayment obligation and emergent currency demand in the market. The asset held for liquidity risk management included cash and cash equivalents, due from Central Bank and other banks, available-for-sale financial assets, held-to-maturity financial assets and debt investments with no active market. The maturity analysis of non-derivative financial liabilities The analysis of cash outflows of non-derivative financial liabilities was presented by the residual maturities as of the balance sheet dates. Since the amounts of cash outflows were based on contractual cash flows, certain items may not correspond to related amounts in the consolidated balance sheets.

December 31, 2017 0-30 Days 31-90 Days 91-180 Days 181 Days -

1 Year Over 1 Year Total

Due to the Central Bank and other banks $ 1,387,730 $ 2,139,412 $ 236,219 $ 106,453 $ 1,376 $ 3,871,190

Notes and bonds issued under repurchase agreements 2,228,869 586,558 - - - 2,815,427

Payables 8,482,862 596,640 715,011 213,231 570,058 10,577,802 Deposits and

remittances 151,845,355 104,562,603 98,395,730 130,925,350 226,523,679 712,252,717 Bank debentures - - 3,000,000 500,000 16,500,000 20,000,000 Other items of cash

outflow on maturity 923,083 338,352 563,299 984,941 5,360,137 8,169,812

December 31, 2016 0-30 Days 31-90 Days 91-180 Days

181 Days - 1 Year

Over 1 Year Total

Due to the Central Bank and other banks $ 695,674 $ 1,466,406 $ 362,676 $ 150,850 $ 9,754 $ 2,685,360

Notes and bonds issued under repurchase agreements 500,100 - - - - 500,100

Payables 8,055,192 685,782 566,702 229,689 678,786 10,216,151 Deposits and

remittances 148,797,401 106,375,418 80,606,011 135,110,633 215,993,569 686,883,032 Bank debentures - - - - 20,000,000 20,000,000 Other items of cash

outflow on maturity 814,641 51,907 168,426 194,107 4,452,235 5,681,316

The maturity analysis of derivative financial liabilities i. Derivative financial liabilities to be settled at net

The derivatives to be settled at net held by TSKCB and its subsidiaries include: i) Currency derivatives: Currency options and non-delivery forwards; ii) Commodity options: Commodity swap contracts and commodity options. The basic element to realize the derivative financial instruments shown in the consolidated balance sheets is to assess the maturities of contracts. Since the amounts in the maturity analyses of derivative financial liabilities were based on contractual cash flows, certain items may not correspond to related amounts in the consolidated balance sheets. The maturity analysis of derivative financial liabilities was as follows:

December 31, 2017 0-30 Days 31-90 Days 91-180 Days 181 Days -

1 Year Over 1 Year Total

Derivative financial liabilities at FVTPL Currency derivatives $ - $ 14,721 $ - $ 2,522 $ - $ 17,243

December 31, 2016 0-30 Days 31-90 Days 91-180 Days

181 Days - 1 Year

Over 1 Year Total

Derivative financial liabilities at FVTPL Currency derivatives $ 183,263 $ 555,462 $ 905,318 $ 310,906 $ - $ 1,954,949Commodity options 4,879 10,732 15,999 5,333 - 36,943

Total $ 188,142 $ 566,194 $ 921,317 $ 316,239 $ - $ 1,991,892

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ii. Derivative financial liabilities to be settled at gross The derivatives to be settled at gross held by TSKCB and its subsidiaries include: i) Currency derivatives: Currency options and forward exchange contracts; ii) Interest derivatives: Cross currency swap contracts; and interest rate swap contracts. The analysis of cash flows of derivative financial instruments was presented by residual maturities as of the balance sheets dates. The basic element is to realize the derivative financial instruments shown in the consolidated balance sheet. Since the amounts in the maturity analyses were based on contractual cash flows, certain items may not correspond to related amounts in the consolidated balance sheets. The maturity analysis of derivative financial liabilities was as follows:

December 31, 2017 0-30 Days 31-90 Days 91-180 Days 181 Days - 1 Year Over 1 Year Total Derivative financial liabilities at fair value

through profit or loss Currency derivatives

Cash outflow $ 11,844,468 $ 11,200,937 $ 18,232,109 $ 9,704,707 $ - $ 50,982,220 Cash inflow 11,765,495 11,116,900 18,210,711 9,778,205 - 50,871,311

Interest derivatives Cash outflow - 21,154 - - - 21,154 Cash inflow - 20,975 - - - 20,974

Total cash outflow 11,844,468 11,222,091 18,232,109 9,704,707 - 51,003,375 Total cash inflow 11,765,495 11,137,875 18,210,711 9,778,205 - 51,892,286 Net cash flow $ (78,973 ) $ (84,216 ) $ (21,398 ) $ 73,498 $ - $ (111,089 )

December 31, 2016 0-30 Days 31-90 Days 91-180 Days 181 Days - 1 Year Over 1 Year Total

Derivative financial liabilities at fair value through profit or loss Currency derivatives

Cash outflow $ 10,543,519 $ 26,436,483 $ 20,233,731 $ 982,751 $ - $ 58,196,484 Cash inflow 10,372,264 25,699,550 19,629,582 917,596 - 56,618,992

Interest derivatives Cash outflow 33,903 - 89 19,457 - 53,449 Cash inflow 32,517 - 77 19,277 - 51,871

Total cash outflow 10,577,422 26,436,483 20,233,820 1,002,208 - 58,249,933 Total cash inflow 10,404,781 25,699,550 19,629,659 936,873 - 56,670,863 Net cash flow $ (172,641 ) $ (736,933 ) $ (604,161 ) $ (65,335 ) $ - $ (1,579,070 )

d) The maturity analysis of off-balance sheet items

The analysis of maturities of off-balance sheet items was based on the residual maturities as of the consolidated balance sheet dates. For the financial guarantee contracts issued, the maximum amounts of the guarantees were included in the earliest periods when the guarantees were required to be performed. The amounts in the maturity analysis of off-balance sheet items were based on contractual cash flows, certain items may not correspond to related amounts shown in the consolidated balance sheets.

December 31, 2017 0-30 Days 31-90 Days 91-180 Days 181 Days - 1 Year Over 1 Year Total Loan commitments issued $ - $ 56,114 $ 913,958 $ 55,900 $ 2,009,413 $ 3,035,385 Credit card commitments 2,901 9,145 141,989 206,222 1,847,381 2,207,638 Letters of credit issued yet unused 1,386,804 3,502,971 328,052 - 8,982 5,226,809 Other guarantees 6,442,490 3,449,941 1,883,879 3,186,688 2,698,905 17,661,903 Total $ 7,832,195 $ 7,018,171 $ 3,267,878 $ 3,448,810 $ 6,564,681 $ 28,131,735

December 31, 2016 0-30 Days 31-90 Days 91-180 Days 181 Days - 1 Year Over 1 Year Total

Loan commitments issued $ 21,930 $ 20,000 $ 40,713 $ 163,501 $ 1,840,539 $ 2,086,683 Credit card commitments 1,633 2,958 81,748 256,279 1,938,853 2,281,471 Letters of credit issued yet unused 1,235,437 3,207,871 892,617 144,900 6,616 5,487,441 Other guarantees 4,211,137 2,112,428 1,147,883 2,611,773 4,471,783 14,555,004 Total $ 5,470,137 $ 5,343,257 $ 2,162,961 $ 3,176,453 $ 8,257,791 $ 24,410,599

e) Cash flow interest rate risk

The floating-rate assets held and liabilities assumed by TSKCB could result in future cash flow fluctuations due to changes in market interest rates. However, TSKCB controlled cash flow gaps to lower the cash flow risks due to changes in interest rates.

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f) Offsetting financial assets and financial liabilities TSKCB was not eligible to present certain financial assets and financial liabilities on a net basis on the balance sheet since the offsetting criteria of financial instruments under IAS No. 32, paragraph 42 were not met. TSKCB did not meet the offsetting criteria pursuant to IAS, but had enforceable master netting arrangements or similar agreements signed with counterparties. Thus, financial instruments under above agreements can be settled on a net basis of financial assets and financial liabilities if two parties decide to settle on net basis, or if not, settle in gross basis. If one party defaults, the other party can choose to settle on net basis. The tables below present the information on financial assets and financial liabilities that have been offset.

December 31, 2017

Financial Assets That Have Been Offset or That Are Covered By Enforceable Master Netting Arrangements or Similar Agreements

Financial Assets




Balance Sheet (b)



Sheet (c)=(a)-(b)


Net (e)=(c)-(d) Financial

Instruments (Note)


Derivatives $ 1,494,993 $ - $ 1,494,993 $ - $ 150,440 $ 1,344,553

December 31, 2017

Financial Liabilities That Have Been Offset or That Are Covered By Enforceable Master Netting Arrangements or Similar Agreements



Gross Amounts of RecognizedFinancial


Sheet (b)



Sheet (c)=(a)-(b)



Instruments (Note)


Derivatives $ 1,135,052 $ - $ 1,135,052 $ - $ 724,030 $ 411,022Repurchase

agreements and loan of securities 2,810,712 - 2,810,712 2,804,856 - 5,855

December 31, 2016

Financial Assets That Have Been Offset or That Are Covered By Enforceable Master Netting Arrangements or Similar Agreements

Financial Assets




Balance Sheet (b)



Sheet (c)=(a)-(b)



Instruments (Note)


Derivatives $ 5,220,137 $ - $ 5,220,137 $ - $ 879,017 $ 4,341,120

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December 31, 2016

Financial Liabilities That Have Been Offset or That Are Covered By Enforceable Master Netting Arrangements or Similar Agreements



Gross Amounts of RecognizedFinancial


Sheet (b)



Sheet (c)=(a)-(b)



Instruments (Note)


Derivatives $ 4,958,593 $ - $ 4,958,593 $ - $ 3,532,583 $ 1,426,010Repurchase

agreements and loan of securities 500,000 - 500,000 520,152 - (20,152)

Note: Included master netting arrangement and non-cash financial collateral.

5) TSKCB’S hedging strategy

The risk control activities and hedging strategy of TSKCB are affected by the client-service-driven banking industry and the regulatory environment; to fulfill its objectives, an overall risk management and control system was adopted to identify, evaluate, and control all risks. The objective of market risk management of TSKCB is to achieve optimal risk position, maintain adequate liquidity position, and manage all market risk by considering the economic environment, competition, market risk, and impact on net interest income. In order to achieve this goal, TSKCB’s hedging activities concentrate on two main control factors: Net future cash flow and market risk. TSKCB uses two types of hedging relationship to manage the two factors: Cash flow hedge and fair value hedge. Cash flow hedge is used to avoid interest rate risk, and fair value hedge is used to reduce market value risk. Fair value hedge involves transfer of fixed income or structured transaction to floating income. TSKCB uses fair value hedge to transfer non-monetary-linked bonds to become monetary-linked bonds following the current policy. TSKCB set up the strategy of fair value hedge of interest rate exposure to hedge certain loans, deposits, and fixed interest or structured liabilities. TSKCB primarily uses interest rate swaps to hedge fair value risk. In addition, cross-currency swaps, swap options, interest rate caps and floors, and other derivatives may be used as hedging instruments. Two main goals of TSKCB’s cash flow hedge are: (1) transferring monetary-linked transaction to become fixed interest transaction to minimize interest rate risk, and (2) avoiding exchange rate risk arising from forecast transaction. TSKCB primarily uses interest swap as a cash flow hedging instrument, and forward exchange contract to avoid risk arising from exchange rate. In addition, cross-currency swaps, swap options, interest rate caps and floors, and other derivatives may be used as cash flow hedging instruments.

6) Financial risk information of SKITC a) Market risk

The main financial risks SKITC exposed to are the risk of changes in foreign currency exchange rates (see (i) below) and the risk of changes in interest rates (see (ii) below). There had been no change to SKITC’s exposure to market risks or the manner in which these risks were managed and measured.

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i. Foreign currency risk

SKITC had service revenue denominated in foreign currencies and consulting fees paid to overseas entities, and, therefore, SKITC exposed to foreign currency risk. The above transactions generated 21% of annual sales of SKITC. The carrying amounts of SKLITC’s foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period were as follows: December 31 2017 2016 Assets USD $ 21,996 $ 8,206 CNY 25,568 36,311 EUR 814 859 AUD 10 14,684 Liabilities USD 448 278 Sensitivity analysis SKITC was mainly exposed to the currency USD, currency AUD and currency CNY. The following table details SKITC’s sensitivity to a 1% increase and decrease in New Taiwan dollars (the functional currency) against the relevant foreign currencies. 1% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting period for a 1% change in foreign currency rates. A positive number below indicates an increase in post-tax net income associated with New Taiwan dollars strengthening 1% against the relevant currency. For a 1% weakening of New Taiwan dollars against the relevant currency, there would be an equal and opposite impact on net income and other equity and the balances below would be negative. USD Impact AUD Impact CNY Impact

For the Year Ended

December 31 For the Year Ended

December 31 For the Year Ended

December 31 2017 2016 2017 2016 2017 2016 Profit or loss $ 179 $ 66 $ - $ 122 $ 212 $ 301

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ii. Interest rate risk The carrying amount of SKITC’s financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows. December 31 2017 2016 Fair value interest rate risk

Financial liabilities $ 541,934 $ 608,753 Sensitivity analysis SKITC’s exposure to fair value interest rate risk for financial assets mainly concentrated on time deposits (including those with maturity more than 3 months) operating deposits and after deposits. Since the interest rates of these financial assets were fixed as undertaking and were not affected by changes in interest rates, these financial assets were not included in the sensitivity analysis.

b) Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to SKITC. As at the end of the reporting period, SKITC’s maximum exposure to credit risk which will cause a financial loss to SKITC due to failure of counterparties to discharge an obligation. SKITC adopted a policy of only dealing with creditworthy counterparties and supervising credit risk exposure and credit rating, where appropriate, as a means of mitigating the risk of financial loss from defaults. Further, SKITC’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. SKITC’s management income was based on the funds SKITC managed, calculated and accumulated according to their net asset values, and received monthly. SKITC did not have significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. When the counterparty of consulting income was a related party, SKITC identified it as a counterparty having similar characteristics.

c) Liquidity risk SKITC manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deems adequate to finance the SKITC’s operations and mitigate the effects of fluctuations in cash flow. SKITC’s operating funds are deemed sufficient to meet the cash flow demand, therefore, liquidity risk is not considered to be significant.

7) MLSC’s financial risk information a) Financial risk management objectives and policies

i. Risk management policies

Under an acceptable risk level, MLSC progressively engaged in several businesses and enhanced the quality and quantity of revenues.

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For establishing the width and depth of risk management, the width was based on eight major risks developed into a three-level risk-control structure, and the depth was built up through self-evaluation and monitoring to ensure management of the eight major risks and to pursue systematization, computerization, and disciplines. Business departments should effectively control their involved risks for event, regulation, liquidity, market, model, credit, operation, and systems. Risk-monitoring units should continuously monitor business activities and make timely feedback, and the auditing office should perform audits responsive to the risks.

ii. Risk management system

MLSC and its subsidiaries aggregated risk management policies, structure and segregation of duties of risk management organization and risk control procedures into “Risk Managements Requirements.” The requirements, which was drafted by Risk Management Office and approved by the board of directors, is the foundation for MLSC and its subsidiaries’ risk management and regulation of MLSC and its subsidiaries’ significant risk management items, such as risk management organizations and duties, risk management policies, and control procedures. The risk management system of MLSC and its subsidiaries covered all kinds of risks faced in operating process, including risks for event, market, credit, liquidity, model, regulation, operation and system, risk-monitoring units should continuously monitor business activities and make timely feedback, and auditing office should perform audits responsive to the risks.

iii. Risk management organizations

i) Risk management organizations included the board of directors, Risk Management Committee, risk management office, business departments and other relevant departments (Compliance Office, Auditing Office), and were responsible for monitoring, planning and performing.

ii) MLSC and its subsidiaries set up Risk Management Committee, which is under the

board of directors and responsible for planning risk management and monitoring its effectiveness, and the committee holds meeting at least every two months.

iii) Risk Management Office was responsible for evaluating risks and monitoring the

performing of affairs and subordinate to general manager. iv. Risk control procedures

Risk control procedures of MLSC and its subsidiaries included risk identification, risk evaluation, monitoring of risk, reporting of risk and response to risk. The impacts and responses to all kinds of risks are as follows: i) Event risk management

To avoid the situations that major natural disasters and accidents result in obstacles to the order of normal business operation or losses, MLSC and its subsidiaries established “Crisis Management Procedures” to rapidly respond to major natural disasters and accidents and to maintain the order of normal business operation.

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ii) Regulation risk management To avoid the situations that government regulations and contracts are not complied due to null contracts, exceeding authority, omission of conditions, incomprehensive requirements, and etc. and losses incurred, Compliance Office is responsible for pre-review of contract legality as well as monitoring and investigating the compliance of each business.

iii) Liquidity risk management To respond to market liquidity risk and significant changes in market prices when

processing or offsetting positions due to insufficient depth or disorder of market, MLSC and its subsidiaries established liquidity risk management procedures with detailed requirement of risk management for each business to control the risk by limiting holding positions under a certain percentage of average trade value after considering the concentration of holding positions and market trades.

To respond to capital liquidity risk due to settlement obligation or contract

responsibility not performed caused by failing to acquire sufficient funds or to realize assets, MLSC and its subsidiaries control cash flows every day as well as established several financial targets, such as loan stability target, and loan liquidity target, and emergency liquidity provision.

iv) Market risk management

To avoid losses due to fluctuations of market prices, including stock prices, interest

rates, and foreign exchange rates, the authorized limits, pre-warning of losses, risk appetite, stop loss limit, risk indicator limit (such as Greeks and DV01), risk values, market risk limit and limit for stress test of market risk are established for an individual position and overall positions according to the properties of different commodities.

For the model of risk value measurement, MLSC and its subsidiaries adopted

variance-covariance method to calculate the VaR for one day at 99% confidence level, and performed retrospective testing periodically to ensure the effectiveness of the model.

To evaluate the impact to value of investment portfolio due to abnormal significant

market changes, stress test is performed by hypothetical scenario, historical scenario, and sensitivity analysis.

v) Model risk management

To maintain the operation and management of model, strengthen the risk management of derivative instruments, and lower the model risk that results from inappropriate assumptions of model, inputs, or evaluation, MLSC and its subsidiaries established operating procedures for model development, verification, custody, and modifications and validated prices before issue, confirmed after transactions, checked monthly evaluation, and verified gain or loss upon maturity and early termination to avoid model risk.

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vi) Credit risk management To avoid the financial and business losses because counterparties, including issuers of securities, counterparties of contracts, and debtors, were unable to perform contract obligations, MLSC and its subsidiaries established procedures for authorizations, notifications, monitoring of limits, and exception management, set up lines of credit according to counterparties and their credit ratings by different levels, examined the credit ratings and exposures of counterparties and issuers, and developed forecasting models for credit defaults, such as KMV and Z-score.

vii) Operation risk management To avoid losses directly or indirectly caused by lapses in internal process, personnel, or system, or external events, each operation of MLSC and its subsidiaries is performed in conformity with procedures and control points of internal control and audited regularly or irregularly by Auditing Office according to internal audit implementation rules.

viii) System risk management To avoid the situations that management systems cannot work due to system gaps resulting in obstacles to achievement of target, systems cannot ensure that company governance and business are performed properly, or organizations are regulated precisely, or authority or systems are not modified to keep up with changes in laws and regulations or company policies, the business departments set up and follow the rules for business or the regulations, and monitored by Risk Management Office, Compliance Office, and Auditing Office to implement system risk management.

b) Market risk Market risk is the risk that losses would occur to investment portfolio of MLSC and its subsidiaries due to changes in risk factors, such as market price, interest rate and foreign exchange rate. MLSC and its subsidiaries adopted market risk management tools, such as sensitivity test, Value-at-Risk and stress test, to calculate quantitative information of each kind of financial instruments every day in order to realize the exposures to market risks of the whole company and completely and efficaciously identify, evaluate, monitor and control market risk. i. Sensitivity analysis

Sensitivity analysis is a measure of how investment portfolio will fluctuate as risk factors change, such as stock price, interest rate and volatility. Risk factors can be divided into equity type and interest rate type according to their nature. MLSC and its subsidiaries used the following sensitivity tests to evaluate and monitor exposures to such risks: Equity type i) Delta: The impact to price of commodity as a result of one unit changes in target price. ii) Gamma: The impact to Delta of commodity as a result of one unit changes in target

price. iii) Theta: The impact to price of commodity as a result of one unit changes in maturity. iv) Rho: The impact to price of commodity as a result of one unit changes in market

interest rate.

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Interest rate type i) Price Value of Basic Point (PVBP): The impact to price of commodity as a result of

1BP (0.01%) change in interest rate. ii) Convexity: The impact of PVBP (or DV01) of commodity as a result of 1BP change in

interest rate.

ii. Value-at-Risk Value-at-Risk is a quantitative presentation of risk to measure the maximum losses to investment portfolio during a specific interval at a certain confidence level due to the worst event occurring in the market. MLSC and its subsidiaries calculate Value-at-Risk for next one day at 99% confidence level. To effectively measure the maximum potential losses of financial instruments and investment portfolios and use these data in market risk management, MLSC and its subsidiaries continuously perform model verification and periodic retrospective test to validate the accuracy of quantitative model, ensuring the soundness, reasonableness, and completeness of the model.

VaR Statistic for One-day Operating Activity December 31, 2017 Amount End of the year $ 73,445 Average 78,756 Lowest 56,866 Highest 94,926 December 31, 2016 Amount End of the year $ 106,622 Average 152,769 Lowest 87,640 Highest 250,169

VaR Statistics for Risk Factors of Operating Activity

2017 Equity Interest Rate

Foreign Exchange

Rate Total December 31, 2017 $ 58,056 $ 24,288 $ 7,582 $ 73,445 Average 63,165 25,599 11,466 78,756 Lowest 46,621 20,177 1,548 56,866 Highest 85,067 34,234 35,148 94,926

2016 Equity Interest Rate

Foreign Exchange

Rate Total December 31, 2016 $ 97,355 $ 23,115 $ 9,707 $ 106,622 Average 139,158 34,675 11,554 152,769 Lowest 78,531 23,115 4,361 87,640 Highest 227,327 45,003 25,214 250,169

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iii. Stress test

Value-at-Risk is an estimate of maximum losses at a specific confidence level, but it cannot forecast the potential risk exposure of all investment portfolios as a result of an extraordinary change in financial market; therefore, MLSC and its subsidiaries evaluated the losses of all investment portfolios at extraordinary scenarios through stress test. For the basis of risk analysis, risk pre-warning, and business management, MLSC and its subsidiaries periodically summarize results of sensitivity test, hypothetical scenario and historical scenario as a stress test report as follows: Historical scenario How the values of investment portfolio would fluctuate was evaluated according to variations of risk factors during specific extraordinary events in the past financial markets, including 921 earthquake, 911 terrorist attack, 319 shooting, 915 Lehman financial crisis, 311 Japan earthquake and tsunami and 806 S&P’s downgrade of U.S. Treasuries. Hypothetical scenario The variations of the values of investment portfolio were evaluated under specific stress events for extreme measurement assumptions, including 50 bps increase in yield curve, 15% decrease in stock index, 27% decrease in stock index, 15% increase in a share market index change in volatility and 5% appreciate in NTD. Sensitivity analysis Sensitivity test is a measure of how investment portfolio fluctuates as a result of changes in specific risk factors. The changes in values of investment portfolios were evaluated in various scenarios of equity type and interest rate type, of which the scenarios were set with the following TAIEX and government bond yield rate: In order to have comprehensive scenario covered by each risk factor, the measurement of Vega risk (a share market index change in volatility) combined with foreign exchange risk (depreciation/appreciation in NTD) is added into risk categories since second quarter in 2015.

Type Factors Scenario Contents Equity TAIEX (%) (30) (20) (10) 0 10 20 30 Interest rate Government bond yield

rate (bps) - 50 25 0 (25) (50) -

Stress Test Table

December 31, 2017

Risk factors Risk price Difference Profit or Loss on Investment

Positions Equity risk Stock index -30% $ (1,916,803)Interest risk Yield curve +50 bps (812,559)Vega risk A share market index

change in volatility +15% (759,886)

Foreign exchange risk Foreign exchange rate +5% (23,201)

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December 31, 2016

Risk factors Risk price Difference Profit or Loss on Investment

Positions Equity risk Stock index -30% $ (1,721,043)Interest risk Yield curve +50 bps (701,838)Vega risk A share market index

change in volatility +15% (160,063)

Foreign exchange risk Foreign exchange rate +5% (9,577)

c) Credit risk management i. Credit risk management system

To avoid financial and business loss because counterparties, including issuers of securities and counterparties of contracts and debtors, were unable to perform contract obligations, MLSC and its subsidiaries established procedures for authorizations, notifications, monitoring of limits and exception management in rules of risk management, ensuring the completeness of credit risk management system, and measuring and monitoring of credit risk limits in daily reports as implementation of control system of credit risk management. The credit risk management system is as follows: i) Authorization and notification

The authorization and notification for credit risk of each business were regulated in the rules of business risk management for business departments to comply and implement control.

ii) Credit assessment before transaction To control credit risk, credit of counterparties should be cautiously assessed before closing transaction and compliance of transactions should be monitored.

iii) Credit level management To control credit risk, MLSC and its subsidiaries established rules of credit level management for counterparties with different credit levels and the rules of business risk management for business departments required to set up lines of credit and control by different levels.

iv) Credit monitoring after transaction Credits of the counterparties of positions are periodically examined after transaction and the rules of credit monitoring are established for credit risk control, periodical assessment and monitoring. Business department issued evaluations on credit levels of counterparties for juristic-person clients every month, which are reviewed by the management of departments and preserved by Risk Management Office.

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v) Quantification techniques for credit risk The quantification techniques for credit risk are divided into counterparties and transaction objects as follows: Counterparties: Risk exposure limits are evaluated at different levels by industry

or by TCRI rating, and the credit risk exposures are monitored and examined against limits every day.

Transaction objects: To evaluate the credit risk of transaction objects, besides

TCRI rating and Z-Score model, KMV credit module was developed to calculate the possibility of default according to daily stock price information and credit levels are compared with TCRI ratings and divided into levels to minimize Type I error and Type II error.

- KMV model

MLSC and its subsidiaries developed KMV model as internal rating module for listed stocks and emerging stocks, which produced the distance of default (DD) and possibility of default (PD), and, according to the actual defaults of listed companies and emerging stock companies in Taiwan, they formulated the table of possibilities of default for the securities issued by listed companies and emerging stock companies, including stocks, corporate bonds and convertible bonds as the criteria to convert KMV model possibilities of default and internal credit ratings. Possibilities of default and credit ratings of listed companies and emerging market companies are summarized in Risk Management Information System (Risk MIS) as a reference of credit for investing and controlling margin loan and stock loan.

- Z-Score and TCRI Introduction of Altman Z-Score and TCRI in Taiwan Economic Journal and development of examination criteria for credit risk levels helped identify the credit risk levels of investment object and monitor the changes in credit risk.

ii. Credit risk for financial instruments MLSC and its subsidiaries held financial assets with potential credit risk, including cash in banks, debt securities, over-the-counter derivatives, bonds and notes purchased under resale agreements, margin loans and short sales, guarantee deposits, deposits for futures, other deposits and accounts receivable. i) Cash and cash equivalents

Cash and cash equivalents include time deposits, demand deposits, checking accounts and commercial papers, and MLSC and its subsidiaries engaged in these transactions with domestic financial institutions.

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ii) Financial assets at FVTPL - current

Debt securities

Debt securities include bonds, convertible bonds and bond funds.

- Bonds Bonds held by MLSC and its subsidiaries primarily comprised of government bonds (central and local) and corporate bonds (including bank debentures), and the corporate bonds were grouped and managed by secured and unsecured bonds. Of all secured and unsecured corporate bonds, the issuers ratings were twBBB or above, and holding positions with ratings twA- or below should not exceed 20% of total authorized limits. Therefore, the credit risk of bonds was not material.

- Convertible bonds Convertible bonds held by MLSC and its subsidiaries were primarily issued by domestic legal entities and grouped and managed by secured and unsecured convertible bonds. For convertible bonds, the issuers ratings were twBBB or above; for unsecured convertible bonds, the issuers’ ratings should be twBBB- or above, and credit linked note and assets swap were issued to transfer the credit risks to external investors and lower the retained credit risks from issuers.

- Bond funds Bond funds held by MLSC and its subsidiaries were primarily money market funds and were not material to total bonds.

Over-the-counter (OTC) derivatives Before transaction of OTC derivatives, MLSC and its subsidiaries should sign ISDA contracts with legal entity counterparties as agreements of such transactions for both parties, and the agreements are the main contract for each OTC derivative transaction. If any party defaults or early terminates contract, all covered open interest should be closed-out-netting under the requirements of the agreements. OTC derivatives engaged by MLSC and its subsidiaries included interest rate swap, bond option, asset swap of convertible bonds, structured instrument, stock option and foreign exchange forward, and the primary counterparties were domestic institutions.

Deposits for futures When engaged in futures in secondary markets, MLSC and its subsidiaries should provide deposits to margin accounts appointed by futures companies as guarantee funds for performing contract obligations. These transactions are mainly processed by MLSC’s subsidiaries, and, accordingly, such credit risks were low.

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Bonds purchased under resale agreements When engaged in bonds or notes purchased under resale agreements, MLSC and its subsidiaries should agree the amounts, interests and periods of the transactions, and provide agreed amounts to counterparties, which are guaranteed by the target bonds or notes, and credit risk on counterparties could be lowered effectively. The bonds or notes are sold back to the counterparties upon maturity at agreed prices, and MLSC and its subsidiaries assume the credit risks during the transactions.

Margin loans and short sales For margin loans and short sales, MLSC and its subsidiaries assume credit risks from counterparties; such risks exist in both transactions. Credit risks from counterparties could be lowered by obtaining collaterals and were not material because the counterparties were financial institutions with high credit ratings.

Other current assets Other current assets represented cash provided by MLSC and its subsidiaries as collaterals or for restricted purposes, whose custodians were domestic financial institutions with high credit ratings.

Financial assets measured at cost Financial assets measured at cost held by MLSC and its subsidiaries were mainly domestic unlisted stocks.

Other deposits Other deposits were mainly operation guarantee deposits, clearing and settlement fund and other guarantee deposits. Operation guarantee deposits are kept in domestic bank with high credit ratings, and clearing and settlement fund is provided to Taiwan Stock Exchange for use when one of market transaction counterparties do not perform delivery or payment of obligation; the credit risks from these deposits’ custodians are not material; other guarantee deposits represented cash or other assets provided as guarantee, which were deposited to large number of entities with insignificant amounts, and, accordingly, the credit risks were diversified and no significant exposure to credit risk existed.

iii. Management of credit risk quality by levels

Internal credit ratings evaluated by MLSC and its subsidiaries were classified into low credit risk, medium credit risk, high credit risk and default (impaired), explained as follows:

i) Low credit risk: Entities have adequate capacity to meet financial commitment; even if

facing significant uncertainties or adverse conditions, they still have stable capacity to deal with the creditor.

ii) Medium credit risk: Entities have moderate capacity to meet financial commitment;

adverse economic conditions or changes in environments may weaken their capacity to meet financial commitments.

iii) High credit risk: Entities have weak capacity to meet financial commitment; exposed

to long-term significant uncertain factor or adverse business, financial or economic conditions; their capacity to meet financial commitments may fall insufficient.

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iv) Default (impaired): Entities have no capacity to meet financial commitment in current situations or did not perform contract obligations and potential losses were estimated according to exposures.

The internal and external credit ratings presented in the following cable were listed reflecting ratings which may be similar but not directly associated:

Internal Credit Risk Level Credit Rating from

Taiwan Rating TCRI Indicator of Taiwan

Economic Journal Low credit risk twAAA - twBBB- 1-4 Medium credit risk twBB+ - twBB 5-6 High credit risk twBB+ - twC 7-9 Default (impaired) D D

iv Credit quality

Credit Quality Table of Financial assets

December 31, 2017 Neither Past Due Nor Impaired Past Due But Not

Impaired Impaired

Provision for Impairment

Losses Total

Financial Assets Low Medium High

Cash and equivalents $ 4,480,151 $ 19,375 $ - $ - $ - $ - $ 4,499,526 Financial assets at

FVTPL 31,454,259 2,965,279 17,010 - - - 34,436,548 Bonds purchased

under resale agreements 4,983,539 - - - - - 4,983,539

Customer margin deposit 7,290,978 - - - - - 7,290,978

Accounts receivable 10,593,151 3,812 - - - - 10,596,963 Refinancing

guarantee deposits receivable 2,429 - - - - - 2,429

Margin loans receivable 13,197,158 95,677 - - - - 13,292,835

Refinancing guarantee deposits 2,541 - - - - - 2,541

Receivable of securities payment 948,709 - - - - - 948,709

Guaranteed receivable for security borrowing 364,537 - - - - - 364,537

Refundable deposits for security borrowing 814,333 - - - - - 814,333

Other current assets 2,770,095 - 5,000 - - - 2,775,095 Other non-current

assets 1,749,004 30,017 - - - - 1,779,021 Total 78,650,884 3,114,160 22,010 - - - 81,787,054 % of total 96.16% 3.81% 0.03% 0.00% 0.00% 0.00% 100.00%


Past Due But Not Impaired

Impaired Provision for Impairment

Losses Total

Financial Assets Low Medium High

Cash and equivalents $ 4,403,364 $ 33,394 $ 229 $ - $ - $ - $ 4,436,987 Financial assets at

FVTPL 27,060,397 3,520,027 17,244 - - - 30,597,668 Bonds purchased

under resale agreements 3,366,678 747,233 250,310 - - - 4,364,221

Customer margin deposit 7,274,076 - - - - - 7,274,076

Accounts receivable 7,816,986 5,237 - - - - 7,822,223 Refinancing

guarantee deposits receivable 4,947 - - - - - 4,947

Margin loans receivable 10,010,232 34,074 - - - - 10,044,306

Refinancing guarantee deposits 5,401 - - - - - 5,401

Receivable of securities payment 360,842 - - - - - 360,842

Guaranteed receivable for security borrowing 563,996 - - - - - 563,996

Refundable deposits for security borrowing 1,289,250 - - - - - 1,289,250

Other current assets 2,771,811 - 5,000 - - - 2,776,811 Other non-current

assets 1,702,909 33,208 - - - - 1,736,117 Total 66,630,889 4,373,173 272,783 - - - 71,276,845 % of total 93.47% 6.14% 0.39% 0.00% 0.00% 0.00% 100.00%

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d) Liquidity management

MLSC and its subsidiaries managed capital by the use of bank loans, bonds purchased under resale agreements, and bills to achieve a flexible use of capital and capital stability. The derivatives engaged in by MLSC and its subsidiaries were traded in secondary markets and did not result in a material risk; the liquidity risk from OTC derivatives were under control since MLSC and its subsidiaries were the main market players. The maturity analysis of financial liabilities was as follows: December 31, 2017 Payment Term

Up to One

Month 1-3 Months 3-12 Months 1-5 Years xxx Total Short-term loans $ 1,180,000 $ - $ - $ - $ - $ 1,180,000Commercial paper 1,499,936 - - - - 1,499,936Bonds issued under

repurchase agreements 28,654,317 2,152,354 2,708,925 - - 33,515,596Bills issued under repurchase

agreements 798,543 - - - - 798,543Financial liabilities at FVTPL 117,265 220,646 2,046,071 926,683 - 3,310,665

Non-derivative financial liabilities - - 701,002 - - 701,002

Derivative financial liabilities 117,265 220,646 1,345,069 926,683 - 2,609,663

Deposits received for securities loan - - 1,431,572 - - 1,431,572

Guarantee payable for securities loans - - 1,585,369 - - 1,585,369

Deposits for securities borrowing - - 1,783,676 - - 1,783,676

Notes/accounts payable 11,195,069 - - - - 11,195,069Other payable 155,962 297,430 66,734 53,651 91,389 665,166Other financial liabilities -

current 6,908,650 562,641 1,999,904 - - 9,471,195Others 1,003 15,948 8,378 54,337 - 79,666 $ 50,510,745 $ 3,249,019 $ 11,630,629 $ 1,034,671 $ 91,389 $ 66,516,454

December 31, 2016 Payment Term

Up to One

Month 1-3 Months 3-12 Months 1-5 Years xxx Total Short-term loans $ 148,000 $ - $ - $ - $ - $ 148,000Bonds issued under

repurchase agreements 22,991,324 3,800,813 - - - 26,792,137Bills issued under repurchase

agreements 798,514 - - - - 798,514Financial liabilities at FVTPL 931,803 109,808 2,435,131 978,968 - 4,455,710

Non-derivative financial liabilities 868,692 - 1,223,322 - - 2,092,014

Derivative financial liabilities 63,111 109,808 1,211,809 978,968 - 2,363,696

Deposits received for securities loan - - 1,080,773 - - 1,080,773

Guarantee payable for securities loans - - 1,223,474 - - 1,223,474

Deposits for securities borrowing - - 1,356,171 - - 1,356,171

Notes/accounts payable 7,715,296 - - - - 7,715,296Other payable 163,162 150,063 100,078 56,989 76,067 546,359Other financial liabilities -

current 4,099,193 7,022,859 800 - - 11,122,852Others - 16,331 7,127 40,342 - 63,800 $ 36,847,292 $ 11,099,874 $ 6,203,554 $ 1,076,299 $ 76,067 $ 55,303,086

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e) Transfers of financial assets i. Derecognition of a financial asset other than in its entirety

The transferred financial assets of MLSC and its subsidiary, which were not eligible to derecognition in its entirety, were mainly the debt securities that were available for counterparties as pledges under repurchase agreements and the equity securities that were lent under security lending agreement. The transaction in fact is secured pledge loans, the related liability occurs since MLSC and its subsidiary has responsibility to buyback transferred financial asset at the fixed price in the future. For this type of transactions, MLSC and its subsidiaries cannot use, sell or pledge transferred financial assets within the valid period, but is exposed to interest risk and credit risk; thus transferred financial assets are not derecognized in entirety. Financial assets that are not derecognized in entirety and related financial liability were as follow:

As of December 31, 2017

Category of Financial Asset

Carrying Amount of

Transferred Financial Asset

Carrying Amount of

Related Financial Liability

Fair Value of Transferred

Financial Asset

Fair Value of Related

Financial Liability

Fair Value of Net Positions

Financial assets at fair value through profit or loss Repurchase agreements $ 33,685,746 $ 33,515,596 $ 33,685,746 $ 33,515,596 $ 170,150Bonds transaction 470,800 701,002 470,800 701,002 (230,202)


Category of Financial Asset

Carrying Amount of

Transferred Financial Asset

Carrying Amount of

Related Financial Liability

Fair Value of Transferred

Financial Asset

Fair Value of Related

Financial Liability

Fair Value of Net Positions

Financial assets at fair value through profit or loss Repurchase agreements $ 28,896,916 $ 26,792,137 $ 28,896,916 $ 26,792,137 $ 2,104,779Bonds transaction 777,141 1,223,322 777,141 1,223,322 (446,181)

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ii. Derecognition of a transferred financial asset in its entirety MLSC and its subsidiaries entered into Asset Swap, and its trading purpose was to sell the convertible corporate bonds that were acquired through brokering or underwriting. Payments were received when selling to counterparties and during the contract period, the seller exchanged agreed interests with counterparties for fixed coupons and interest compensation while retaining the right to buy back convertible corporate bonds from counterparties at any time before contractual maturities. Transferred financial assets were derecognized as MLSC and its subsidiaries lost control over them since the counterparties had the right to sell their financial assets to third parties without having additional restrictions. However, MLSC and its subsidiaries still had the right to buy back the transferred asset. The maximum exposure to loss would be the carrying amount. Transferred assets and the related financial liabilities under the criteria for derecognition in entirety were analyzed as follows:


Type of Continuing Involvement

Cash Outflows to Repurchase Transferred

(Derecognized) Financial

Assets

Carrying Amount of Continuing

Involvement in the Balance

Sheet

Fair Value of Continuing Involvement

Maximum Exposure to

Loss Financial

Assets at Fair Value Through Profit or Loss

Assets Liabilities

Purchased call options $ 8,927,000 $ 585,494 $ 585,494 $ - $ 786,145



Cash Outflows to Repurchase Transferred

(Derecognized) Financial

Assets

Carrying Amount of Continuing

Involvement in the Balance

Sheet

Fair Value of Continuing Involvement

Maximum Exposure to

Loss Financial

Assets at Fair Value Through Profit or Loss

Assets Liabilities

Purchased call options $ 6,235,200 $ 357,661 $ 357,661 $ - $ 375,474

The table below had been drawn up based on the undiscounted cash flows of financial assets to be transferred (derecognized) upon buy-back on maturity. The information of cash flows is disclosed according to expected maturity from end of reporting period.

As of December 31, 2017 Type of Continuing

Involvement Less Than1 Month

1-3 Months 3-6 Months6 Months -1

Year 1-3 Years

More Than 3 Years

Total

Purchased call options $ 312,400 $ 118,000 $ 787,200 $ 2,426,200 $ 4,993,200 $ 290,000 $ 8,927,000



Less Than1 Month

1-3 Months 3-6 Months6 Months -1

Year 1-3 Years

More Than 3 Years

Total

Purchased call options $ 106,300 $ 127,300 $ 686,600 $ 1,085,600 $ 4,133,700 $ 95,700 $ 6,235,200

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The table below had been drawn up based on gain or loss recognized on transfer date as well as income and expenses from continuing involvement recognized in the current period and recognized cumulatively by type of continuing involvement - purchased call options.



Gain or Loss Recognized at Transfer Date

Gain/(Loss) from Continuing

Involvement Recognized in the Current Period


Involvement Recognized

Cumulatively Purchased call options $ 3,826 $ 200,651 $ 200,651



Gain or Loss Recognized at Transfer Date


Involvement Recognized in the Current Period


Involvement Recognized

Cumulatively Purchased call options $ (1,803) $ 17,813 $ 17,813

f) Offsetting financial assets and financial liabilities The derivatives and bonds issued under repurchase agreements of MLSC and its subsidiaries did not meet the offsetting criteria pursuant to IFRS, but was covered by enforceable master netting arrangements or similar agreements signed with counterparties. Derivatives under enforceable master netting arrangements or similar agreements can be settled on a net basis of financial assets and financial liabilities if two parties decide to settle on net basis, or if not, settle on gross basis. If one party defaults, the other party can choose to settle on net basis. The tables below present the information on financial assets and financial liabilities that have been offset. As of December 31, 2017

Financial Assets That Have Been Offset or That Are Covered by Enforceable Master Netting Arrangements or Similar Agreements

Financial Assets

Gross Amounts of Recognized

Financial Assets

(a)


Financial Liabilities Set

Off in the Balance Sheet

(b)



Sheet (c)=(a)-(b)


Net Amount(e)=(c)-(d) Financial

Instruments (Note)


Derivatives $ 184,910 $ - $ 184,910 $ 184,910 $ - $ -Repurchase agreements 4,983,539 - 4,983,539 4,983,539 - -Total $ 5,168,449 $ - $ 5,168,449 $ 5,168,449 $ - $ -

Financial Liabilities That Have Been Offset or That Are Covered By Enforceable Master Netting Arrangements or

Similar Agreements




(a)


Financial Assets Set Off in the Balance

Sheet (b)


Presented inthe Balance

Sheet (c)=(a)-(b)



Instruments (Note)


Derivatives $ 293,141 $ - $ 293,141 $ 184,910 $ - $ 108,231Repurchase agreements 33,515,596 - 33,515,596 33,515,596 - -Total $ 33,808,737 $ - $ 33,808,737 $ 33,700,506 $ - $ 108,231

Note: Included master netting arrangements and non-cash financial collateral.

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Financial Assets That Have Been Offset or That Are Covered by Enforceable Master Netting Arrangements or Similar Agreements

Financial Assets


Financial Assets

(a)


Financial Liabilities Set

Off in the Balance Sheet

(b)



Sheet (c)=(a)-(b)



Instruments (Note)


Derivatives $ 235,674 $ - $ 235,674 $ 235,674 $ - $ -Repurchase agreements 4,364,221 - 4,364,221 4,364,221 - -Total $ 4,599,895 $ - $ 4,599,895 $ 4,599,895 $ - $ -

Financial Liabilities That Have Been Offset or That Are Covered By Enforceable Master Netting Arrangements or

Similar Agreements




(a)


Financial Assets Set Off in the Balance

Sheet (b)


Presented inthe Balance

Sheet (c)=(a)-(b)



Instruments (Note)


Derivatives $ 318,932 $ - $ 318,932 $ 235,674 $ - $ 83,258Repurchase agreements 26,792,137 - 26,792,137 26,792,137 - -Total $ 27,111,069 $ - $ 27,111,069 $ 27,027,811 $ - $ 83,258

Note: Included master netting arrangements and non-cash financial collateral.

8) The property and coverage of risk of insurance contract:

a) Risk management i. The policies of risk management

According to related laws and business needs, SKLIC’s board of directors passed a resolution of “SKLIC’s risk management policies”, which clearly regulated the objectives and strategies of risk management, risk appetite and limit, the organization and responsibility of risk management, and the category and management of business management risk.

ii. The objectives of risk management The objectives of SKLIC’s risk management are to protect assets, ensure the adequacy of risk-based capital (RBC), increase stockholders’ value and conform with related laws, and under the premise of the balance between risk and return, to promote the sound operation and development.

iii. The principles of risk management SKLIC manages risks strategically. When making decisions, SKLIC takes risks into consideration, and through qualitative and quantitative management, carries out risk identification, evaluation, response, monitoring and controlling, keeping every risk it might encounter in operating activities endurable, in order to pursue stable operating policies and persist in the spirit of thorough implementation.

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iv. Organization and responsibility

In order to effectively plan, supervise and implement risk management, SKLIC established “Risk Management Committee” under the board of directors and related units independent to business units. The risk management levels and responsibilities are as follows: The board of directors approves risk management policies. Audit committee controls the existing or potential risk. Risk Management Committee regularly evaluates risk tolerance. Risk management related units analyze and evaluate the change of risks. Business units implement risk management activities within the scope of jurisdiction.

v. The category and management of business operating risk

SKLIC’s business operating risks include insurance risk, market risk, credit risk, liquidity risk, concentration risk, operation risk, information security risk, asset - liability matching risk and other risks which are included in the resolutions of the parent company’s Risk Management Committee or SKLIC’s board of directors. In consideration of abovementioned business management risk, SKLIC complies with laws and regulations, builds adequate management system, and strictly implements policies.

b) Insurance risk information i. Sensitivity of insurance risk

SKLIC’s sensitivity analysis of insurance risk are based on the effect of individual changes in current year’s financial revenues, operating expenses, insurance payments related to death or morbidity and termination fees (assuming other assumptions unchanged) on net income before tax and stockholder’s equity. The assumptions are illustrated as follows: Financial revenues include gains from lease of real estate, dividends and bonuses from

financial assets and interest from fund application. Operating expenses include selling and administrative expenses and staff training

expenses. Insurance payments related to death or morbidity are payments occurring due to

insurance business and the insured’s death or morbidity. Termination fees are refunds due to termination or invalidity of insurance contracts.

The Effects of Changes in Sensitivity Factors on Income Before Tax and Shareholders’ Equity

2017

Changes in

Assumptions

Changes in Income Before

Tax

Changes in Stockholders’

Equity Financial revenue Decrease % $ (4,580,089) $ (3,801,474)Operating expenses Increase % (1,302,429) (1,081,016)Insurance payments related to

death or morbidity Increase % (1,193,287) (990,428)

Termination fees Increase % 84,909 70,474 Note: The abovementioned assumption factors and analysis are based on SKLIC’s

financial information of 2017.

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Supplemental: The result is not linear; therefore, it is unable to estimate the extent of influence by

interpolation method or extrapolation method. Assumption factors may not change and there may be correlation between different

changes. Sensitivity analysis will not take into consideration the factors and effects that market

changes have on business, such as buying or selling positions, changing asset allocation and adjustment to declared interest of insurance contracts.

The calculation of changes in stockholders’ equity is based on the amount net of income

tax. ii. The illustration of insurance risk concentration

SKLIC’s main insurance products are life insurance, annuity insurance, accident insurance and health insurance, and the business is mainly in the Republic of China. Also, there is no significant difference in insurance contracts between different regions. SKLIC’s premium income is mainly from individual life insurance, individual health insurance and individual accident insurance in order. The insurance payments are mainly for refund benefit payments, endowment payments, termination fees and death benefits. According to Regulations Governing Calculation of Various Reserve for Operations, due to heavy reparations when there are catastrophes and in order to deal with unusual changes in loss rate of different insurance and insurance payments, SKLIC provides special reserve for catastrophe and for contingent claim. The aforementioned catastrophe is one the government declared as a severe disaster, and the cumulative net indemnities of all the insurance products for an individual company are up to $30 million and the cumulative indemnities for all the life insurance companies are up to $1 billion. The provision above for special reserve for catastrophe and for contingent claim is recognized, net of tax as special reserve under stockholders’ equity.

iii. Claims development SKLIC provided reserve for claims, whether or not it is reported, for projected future payments and related costs. The provision for reserves is highly complicated since there are many uncertain causes, estimation and judgment. Some claim reports may be delayed to SKLIC, and the estimation is related to past claim experiences and subjective judgment when estimating possible payments for the claims not yet reported. The claim reserve per book is estimated on the basis of available information at present. Therefore, it is unable to make sure the claim reserve on the date of balance sheet is equal to the actual payments, which will deviate from original estimation as the claim goes on. The following tables show the claims development (excluding the claims whose payment amount and payment date have already been known in one year). Every accident year means the year the accident happens, the horizontal axis is the year of development, and every slash is the cumulative payment incurring for every accident year in the end of the year. The cumulative payments include the claims whether or not it is sure to happen, and illustrate how SKLIC estimates payments for every accident year as time passes. The conditions and trends that influence SKLIC’s reserve provision may not be the same when claims develop. Therefore, the projected payments may not actually happen.

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Claims development of direct business

Accident

Year Development Trend of Direct Business Indemnities

Claim Reserve1 2 3 4 5 6 7 8 9 10

2007 $ 7,147,491 $ 8,298,732 $ 8,445,585 $ 8,461,069 $ 8,466,907 $ 8,476,270 $ 8,478,197 $ 8,480,036 $ 8,481,022 $ 8,482,402 $ 8,483,319 $ 917 2008 7,731,713 9,001,070 9,096,938 9,121,438 9,127,395 9,127,105 9,129,066 9,131,223 9,133,002 9,134,375 9,135,371 2,369 2009 7,444,424 8,619,250 8,703,329 8,723,885 8,729,315 8,732,863 8,737,718 8,739,991 8,741,230 8,742,536 8,743,452 3,461 2010 7,742,952 8,992,417 9,072,001 9,088,278 9,094,208 9,099,636 9,103,742 9,105,921 9,107,216 9,108,574 9,109,521 5,779 2011 8,141,047 9,553,787 9,653,160 9,663,804 9,672,962 9,676,628 9,679,909 9,682,209 9,683,577 9,685,005 9,685,997 9,369 2012 8,078,552 9,683,694 9,801,362 9,810,714 9,801,910 9,806,982 9,810,519 9,812,879 9,814,283 9,815,749 9,816,767 14,857 2013 8,518,615 10,038,213 10,175,452 10,199,563 10,203,998 10,209,184 10,212,767 10,215,215 10,216,673 10,218,187 10,219,235 19,672 2014 8,923,364 10,542,638 10,679,327 10,699,101 10,703,745 10,709,211 10,713,007 10,715,588 10,717,127 10,718,714 10,719,802 40,475 2015 9,198,959 10,929,346 11,058,656 11,078,810 11,083,720 11,089,360 11,093,304 11,096,014 11,097,641 11,099,262 11,100,338 170,992 2016 10,160,238 11,925,143 12,064,380 12,085,944 12,091,536 12,097,546 12,101,730 12,104,708 12,106,509 12,108,242 12,109,352 1,949,114

Claim reserve for unreported and unpaid claims 2,249,674 Add: Reported but unpaid claims 535,061 Claim reserve, balance $ 2,784,735

Claims development of retained business

Accident

Year Development Trend of Direct Business Indemnities

Claim Reserve1 2 3 4 5 6 7 8 9 10

2007 $ 7,096,814 $ 8,219,830 $ 8,324,604 $ 8,340,088 $ 8,345,925 $ 8,352,140 $ 8,354,067 $ 8,355,906 $ 8,356,892 $ 8,358,272 $ 8,359,174 $ 902 2008 7,582,795 8,846,204 8,942,073 8,966,572 8,972,319 8,972,030 8,973,990 8,976,148 8,977,926 8,979,285 8,980,267 2,341 2009 7,555,173 8,729,999 8,814,078 8,831,168 8,836,598 8,840,145 8,845,001 8,847,273 8,848,511 8,849,814 8,850,726 3,453 2010 7,720,205 8,969,670 9,036,346 9,052,624 9,058,554 9,063,981 9,068,087 9,070,260 9,071,551 9,072,903 9,073,845 5,758 2011 8,116,594 9,504,738 9,604,036 9,614,675 9,623,833 9,627,499 9,630,751 9,633,045 9,634,410 9,635,832 9,636,817 9,318 2012 8,022,087 9,606,764 9,724,004 9,733,357 9,724,553 9,729,046 9,732,519 9,734,863 9,736,259 9,737,710 9,738,712 14,159 2013 8,478,682 9,983,657 10,120,878 10,144,985 10,148,952 10,153,570 10,157,115 10,159,551 10,161,002 10,162,509 10,163,551 18,566 2014 8,867,506 10,478,028 10,610,273 10,629,384 10,633,521 10,638,394 10,642,149 10,644,715 10,646,246 10,647,823 10,648,905 38,632 2015 9,135,101 10,856,453 10,977,265 10,996,751 11,001,080 11,006,148 11,010,069 11,012,763 11,014,382 11,015,993 11,017,061 160,608 2016 10,120,357 11,872,254 12,002,664 12,023,572 12,028,538 12,033,943 12,038,084 12,041,048 12,042,840 12,044,565 12,045,670 1,925,313

Claim reserve for unreported and unpaid claims 2,179,050 Add: Reported but unpaid claims 535,061 Claim reserve, balance $ 2,714,111

c) The credit risk, liquidity risk and market risk of insurance contracts

i. Credit risk

SKLIC enacted Shin Kong Life Insurance Company’s Credit Risk Management Policies and established risk limit and required regular credit examination to control credit risks of investment objectives and counterparties. Undertaking large insurance risks is the core business of the insurance industry, and SKLIC’s business scale is large enough to undertake considerable insurance risks. However, if certain risks are over-concentrated or significantly uncertain, reinsurance will be used to decentralize risks and reinsurance companies’ credit ratings should meet the related regulations. Therefore, compared to retained risk, SKLIC’s reinsurance risk is not significant.

ii. Liquidity risk SKLIC enacted Shin Kong Life Insurance Company’s Liquidity Risk Control and Management Policies as the basis of controlling and managing fund liquidity risk and market liquidity risk. Also, SKLIC makes use of asset and liability matching model to project future assets and liabilities’ cash flows, to ensure there are enough cash flows to satisfy project liability obligations, as the basis of a long-term controlling and managing measures of liquidity risk. Besides, based on the regulation of reserve provision, the book value of contracts are all higher than surrender value. Therefore, the liquidity risk from contract termination is not significant. In consideration of materiality principle, there will be no cash flow analysis disclosure on maturity date when policyholders execute options to lapse.

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iii. Market risk According to the Regulations Governing Calculation of Various Reserves for Operations and other rulings promulgated by regulators, SKLIC calculates and provides various reserves for life insurance liabilities of insurance products based on projected interest rate and undertaking rate regulated by regulatory authorities. Since projected interest rate is determined when selling insurance products, it will not fluctuate as market interest rate does. Regulatory authorities considered a long-term level when it regulated the interest rate, which will not change with present market risk variables in the same time, same way or at the same amount. If the result of liability adequacy test is inadequate, the insufficient amount should be provided as liability adequacy reserve. Otherwise, reasonably possible changes in market risks would not influence SKLIC’s amount of liabilities of insurance products. In addition, for the calculation of reserve for life insurance liability, it is not likely that regulatory authorities will change the projected interest rate from fixed interest rate to floating rate fluctuating with market interest rate. Therefore, it is unlikely that market risk will, through liabilities of insurance products, have a significant effect on net income.

iv. Embedded derivatives

SKLIC’s embedded derivatives are mainly of lapse options without significant market risk, and SKLIC did not have any unique insurance products with significant market risk.

51. CAPITAL MANAGEMENT

a. Management objectives of capital adequacy The Company manages the Group’s owned capital to meet the requirements of regulations and achieve the minimum required Group capital adequacy ratio as the basis objective of capital management. To ensure the Company owns sufficient capital to assume risks, the Company evaluates the risks according to the portfolio amount and characteristics. The Group’s risk on capital is calculated according to requirements regulated by authorities.

b. Management procedures for capital adequacy The Group’s capital adequacy is summarized, calculated and controlled by the Company’s Risk Management Department and reported to Risk Management Committee and board of directors quarterly in compliance with requirements of authorities and internal regulations, and delivered to authorities half-yearly. The key points of management procedures for the Group’s capital adequacy are as follows: 1) Calculations and control procedures should be in accordance with the Regulations Governing the

Consolidated Capital Adequacy of Financial Holding Companies and the Regulations Governing the Capital Adequacy of SKFHC.

2) The Company sets the annual control objective of capital adequacy for the Group and primary

subsidiaries at the beginning of the year, and reported to and approved by Risk Management Committee and board of directors, and responsible units manage capital adequacy periodically to comply with legal requirements and internal target.

- 193 -

3) The Company sets pre-warning value for above control objectives. When capital adequacy ratio decreases to pre-warning value, responsible units issues warning notice to require related units to propose corresponding improvement plan and perform these procedures.

c. Capital adequacy ratio as of December 31, 2017

The Group’s audited capital adequacy ratio as of December 31, 2017 was 117.65%, which complied with authorities’ requirements and internal control objectives.

52. OPERATING SEGMENT FINANCIAL INFORMATION

a. General information of operating segment:

The Group’s provides the information of assessing performance, which focusing on the nature of business operation and are divided into four reportable segments, including insurance segment, bank segment, securities segment and others. The accounting policies are the same as the summary of significant accounting policies in Note 4. The Group’s segment profits are evaluated on the basis of operating profits before tax, excluding extraordinary gain or loss.

b. The Group’s reportable profit by segment for the years ended December 31, 2017 and 2016 is as

follows:

2017

Insurance Segment Bank Segment

Securities Segment Others

Elimination Between Segments Total

Total net profit of

reportable segments $ 218,681,360 $ 15,437,386 $ 4,350,250 $ 689,800 $ (1,729,757 ) $ 237,429,039

Reportable segment profit $ 4,542,633 $ 4,865,548 $ 1,069,915 $ 163,174 $ 10,641,270

2016

Insurance Segment Bank Segment

Securities Segment Others


Total net profit of

reportable segments $ 217,749,295 $ 14,749,263 $ 3,449,510 $ 602,983 $ (2,415,434 ) $ 234,135,617

Reportable segment profit $ (583,562 ) $ 5,505,991 $ 442,964 $ 129,167 $ 5,494,560

c. The reconciliation of segment revenues, profits, assets and liabilities:

2017 2016

Total net profit of reportable segments $ 237,429,039 $ 234,135,617Other net loss (156,745) (142,638)Elimination between segments (56,468) (45,612) Total net profit $ 237,215,826 $ 233,947,367 Total reportable segment profit before tax $ 10,641,270 $ 5,494,560Other loss (465,334) (367,116) Total net profit (loss) before tax $ 10,175,936 $ 5,127,444

- 194 -

December 31, 2017

Insurance Segment Bank Segment Securities Segment Others


Total reportable

segment assets $ 2,495,072,227 $ 812,487,969 $ 96,030,990 $ 2,884,123 $ (26,533,005 ) $ 3,379,942,304Non-allocable items

Other assets - - - - - 10,677,017Elimination

between segments - - - - - (6,230,872 )

Total assets $ 2,495,072,227 $ 812,487,969 $ 96,030,990 $ 2,884,123 $ (26,533,005 ) $ 3,384,388,449 Total reportable

segment liabilities $ 2,404,271,624 $ 760,000,200 $ 74,525,602 $ 655,541 $ (27,839,775 ) $ 3,211,613,192Non-allocable items

Other liabilities - - - - - 21,797,213Elimination


Total liabilities $ 2,404,271,624 $ 760,000,200 $ 74,525,602 $ 655,541 $ (27,839,775 ) $ 3,228,417,848

December 31, 2016

Insurance Segment Bank Segment Securities Segment Others


Total reportable

segment assets $ 2,318,115,496 $ 782,380,415 $ 84,744,621 $ 2,441,341 $ (35,657,335 ) $ 3,152,024,538Non-allocable items

Other assets - - - - - 11,005,200Elimination


Total assets $ 2,318,115,496 $ 782,380,415 $ 84,744,621 $ 2,441,341 $ (35,657,335 ) $ 3,157,672,572 Total reportable

segment liabilities $ 2,244,343,419 $ 733,183,103 $ 63,683,740 $ 240,648 $ (33,919,194 ) $ 3,007,531,716Non-allocable items

Other liabilities - - - - - 21,738,008Elimination


Total liabilities $ 2,244,343,419 $ 733,183,103 $ 63,683,740 $ 240,648 $ (33,919,194 ) $ 3,022,104,487

53. NOTES DISCLOSED AS REQUIRED BY THE CONSOLIDATED REPORT ON OPERATIONS

AND THE STANDARDS GOVERNING THE COMPILATION OF THE REPORT ON AFFILIATION AND OF THE CONSOLIDATED FINANCIAL STATEMENTS OF RELATED CORPORATIONS a. Summary of subsidiaries: Refer to Notes 1 and 15. b. Changes in the subsidiaries in the consolidated financial statements for this period: Refer to Notes 1

and 15. c. Subsidiaries excluded from the consolidated financial statements for this period: None. d. Adjustments and provisions dealing with different accounting fiscal year between the subsidiary and the

controlling company: None. e. Adjustments and provisions dealing with different accounting policies between the subsidiary and the

controlling company: None. f. Particular risks for the operation of foreign subsidiaries: None.

- 195 -

g. Legal or contractual limitations imposed on the distribution of retained earnings of various affiliates:

1) SKLIC Based on the Company Act of the ROC and the Articles of Incorporation of SKLIC, SKLIC’s annual earnings, net of tax and any deficit, should be appropriated in the following order: a) A legal reserve and, if required, a special reserve based on relevant regulations; b) Annual dividends to SKLIC’s Classes A and B preference shareholders. The board of directors prepares an earnings distribution plan based on the residual distributable earnings and submits the plan to annual regular meeting of shareholders for approval. According to Rule No. 10202501992 issued by the FSC on February 28, 2013, except for the appropriation of preference share liability, insurance companies that tended to appropriate earning by cash dividends declaration shall first notify their decision to the FSC. The agency would comprehensively examine their financial condition. Further, based on Rule No. 910074195 issued by the Department of Insurance, any revenue arising from the contingent claim reserves in excess of 30% of the current year’s retained premium should not be distributed as dividends or be used for any other purposes, unless there is prior approval by the authorities. The restricted amount should be appropriated as special reserve according to the resolution of the shareholders in the following year.

2) TSKCB

TSKCB’s Articles of Incorporation provide that TSKCB’s annual earnings shall be appropriated in the following order; a) Payment of taxes; b) Offset accumulated deficit, if any; c) 30% thereafter, if any, as legal reserve; d) Provision or reversal of special reserve, according to Securities and Exchange Act and

authority’s regulations; e) The board of directors prepares an earnings distribution plan based on the residual distributable

earnings and submits the plan to annual regular meeting of stockholders for approval. The appropriation of item (d) will be proposed and approved by the board of directors. However, the reversed amount distributed as employees’ compensation in the past year should not be included. The maximum of cash dividends should not exceed 15% of the amount of capital until reserve equals to the amount of capital. Cash or assets distribution should be restricted if the capital adequacy ratio doesn’t reach the authority’s requirement.

- 196 -

3) MLSC

MLSC’s Articles of Incorporation provide that MLSC’s annual earnings shall be appropriated in the following order: a) Payment of taxes; b) Offset accumulated deficit, if any; c) 10% thereafter, if any, as legal reserve; d) Provision or reversal of special reserve, according to Securities and Exchange Act and

authority’s regulations. e) The board of directors prepares an earnings distribution plan based on the residual distributable

earnings and submits the plan to annual regular meeting of shareholders for approval.

h. Amortization method and period of consolidated debits (credits): None i. Individual disclosure items (subsidiaries with total assets and operating income exceeding 10% of those

of the parent company) 1) Eliminated transactions: See Table 6. 2) Capital financing: Not applicable. 3) Endorsement/guarantee: None. 4) Derivative financial instruments: Notes 8 and 50. 5) Major contingent events: Note 42. 6) Major subsequent events: None. 7) Holding of securities and marketable securities

(In Thousands of New Taiwan Dollars, Except for Number of Shares)

Holding Company Type/Name Quantity Cost Market

Price/Net Worth

Ownership Interest

Collateral

Highest Number of

Shares Held During the

Period Shin Kong Holding Common stock: Co., Ltd. SKLIC 5,797,561 $ 90,016,410 $ 90,491,909 100.00 Collateral 42,000

thousand shares

SKSC - - 77,298 - TSKIBC - - 1,853 - SKITC 40,000 2,075,862 1,560,195 100.00 TSKCB 3,691,421 29,278,880 52,487,769 100.00 Collateral 500,000

thousand shares

MLSC 524,035 6,565,132 7,267,707 33.45 SKVIC 155,000 1,550,000 1,518,368 100.00 SKPIA 1,000 7,724 77,320 100.00

Note: No additional disclosure is required for insurance, banking, and securities subsidiaries.

j. Others: None.

- 197 -

TABLE 1

SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES ENDORSEMENT/GUARANTEE PROVIDED FOR THE YEAR ENDED DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

No. Endorsement/

Guarantee Provider

Guaranteed Party Limits on

Endorsement/ Guarantee Amount Provided to Each Guaranteed Party

(Note 2)

Maximum Balance for the Year

Outstanding Endorsement/

Guarantee at the End of the Period

Actual Borrowing Amount

Amount of Endorsement/

Guarantee Collateralized by

Properties

Ratio of Accumulated Endorsement/

Guarantee to Net Equity Per Latest

Financial Statements

Maximum Endorsement/

Guarantee Amount Allowable (Note 3)

Endorsement/ Guarantee Given

by Parent on Behalf of

Subsidiaries

Endorsement/ Guarantee Given by Subsidiaries on Behalf of Parent

Endorsement/ Guarantee Given

on Behalf of Companies in

Mainland China

Company Nature of

Relationship

1 SKVIC SKLSC Subsidiaries directly

held over 50% equity

Note 2 $ 722,737 $ 722,737 $ 126,689 $ - - $ 7,591,840 Yes No Yes

2 MLSC Muster Link (Hong

Kong) Subsidiaries directly

held over 50% equity

$ 4,277,061 600,000 - - - - 8,554,122 Yes No No

Note 1: Parent company is number 0; subsidiaries are sequentially numbered starting from 1. Note 2: Limits on endorsement/guarantee amount provided to each guaranteed party: Not greater than twice the net value of SKVIC on December 31, 2017; except for the subsidiaries whose voting right were 100% directly or indirectly held by SKLSC. The above situation would be unrestricted

by the ruling of limits on endorsement/guarantee amount. Note 3: Maximum endorsement/guarantee amount allowable: Not greater than five times the net value of SKVIC on December 31, 2017; $1,518,368 x 5 = $7,591,840.

- 198 -

TABLE 2

SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES INFORMATION REGARDING INVESTEE COMPANIES FOR THE YEAR ENDED DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Investor Company Name of Investee

(Note 1) Location Principal Business Activity

Ownership Interest (%), End of Period

Carrying Value, End of

Period

Investment Gain (Loss)

Number of Shares Held by the Company and Related Parties (Note 1)

Remarks Number of

Shares

Potential Number of

Shares (Note 2)

Number of Shares

Ownership Interest (%)

SKFHC SKLIC F-31, No. 66, Chung Hsiao West Road, Sec. 1, Taipei Insurance 100.00 $ 90,491,909 $ 6,918,488 5,797,561 5,797,561 100.00 Note 3 SKSC (Note 4) F-4, No. 456, Sin Yi Road, Sec. 4, Taipei Security - 77,298 - - - - Note 3 TSKIBC (Note 4) F-19, No. 66, Chung Hsiao West Road, Sec. 1, Taipei Insurance brokerage - 1,853 - - - - Note 3 TSKCB 3F-1, 4F, 5F, 5F-1, 20F, 21F, No. 32, Songren Road, Taipei;

4F, 5F, 20F, 21F, No. 36, Songren Road, Taipei Banking 100.00 52,487,769 4,059,232 3,691,421 3,691,421 100.00 Note 3

SKITC F-12, No. 123, Nan Chin East Road, Sec. 2, Taipei Entrusted investments 100.00 1,560,195 30,564 40,000 40,000 100.00 Note 3 MLSC 1-3F. No. 209, Fuxing South Road, Sec. 1, Taipei Security brokerage, dealing and underwriting 33.45 7,267,707 315,201 524,035 524,035 33.45 Note 3 SKVIC F-38. No. 66, Chung Hsiao West Road, Sec. 1, Taipei Venture capital 100.00 1,518,368 53,448 155,000 155,000 100.00 Note 3 SKPIA F-19. No. 66, Chung Hsiao West Road, Sec. 1, Taipei Property insurance agency 100.00 77,320 56,472 1,000 1,000 100.00 Note 3 Note 1: All the owned shares and potential shares of investee company held by the Company, director, supervisors, general manager, vice general manager, and its related parties defined under the Company Act are included. Note 2: a. The potential shares are those shares obtained through a transfer, on the assumption of share transfer, from equity securities purchased or derivative instrument contracts signed and linked to investee company’s equity based on agreed transaction terms and undertaking intention, and for

the purpose of investing in company under the provisions of Article 36, Item 2 and Article 37 of the ROC Company Law. b. The equity securities mentioned above are referred to as the securities regulated by of Article 11, Item 1 of Securities and Exchange Act Enforcement Rules, for example, convertible bond and warrant. c. The derivative instrument contracts mentioned above are specified as those derivative instruments defined by IAS 39, for example, stock option.

Note 3: The carrying amount and investment gain (loss) have been eliminated for the consolidation purpose. Note 4: Shin Kong Securities Co., Ltd. and Taiwan Shin Kong Insurance Brokerage Co., Ltd. are under liquidation as of December 31, 2017.

- 199 -

TABLE 3

SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES MARKETABLE SECURITIES HELD DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars, Except for Number of Shares)

Holding Company Type of Marketable Securities and Name Issuer’s Relationship to the

Holding Company Financial Statement Account

End of Year 2017 NoteUnits/Shares

(‘000) Carrying Value

Ownership Interest (%)

Market Price

SKLRESC Listed shares The Great Taipei Gas Corp. Affiliate Available-for-sale financial assets 12,157 $ 324,601 - $ 324,601 Shin Kong Synthetic Fibers Corp. Affiliate Available-for-sale financial assets 6,840 68,739 - 68,739 Taiwan-Sok Shin Kong Security Co., Ltd. Affiliate Available-for-sale financial assets 5,637 217,868 - 217,868 Shin Kong Spinning Co., Ltd. None Available-for-sale financial assets 6,203 279,755 - 279,755 O-Bank None Available-for-sale financial assets 5,000 44,550 - 44,550 Others None Available-for-sale financial assets 550 29,346 - 29,346 Unlisted shares Yi-Kong Security Affiliate Financial assets at cost 5,607 57,125 15.50 57,125 Yu Chi Venture Capital None Financial assets at cost 1,050 10,500 2.50 10,500 Great Taipei Broadband Co., Ltd. None Financial assets at cost 10,000 40,500 6.67 40,500 PK II Venture Capital Group None Financial assets at cost 347 2,050 4.29 2,050 Lian-An Serve None Financial assets at cost 5 50 0.20 50 SKSIC Beneficial certificates Shin Kong U.S. Harvest None Available-for-sale financial assets 1,561 15,079 - 15,079 SKIT Fortune Balanced Fund None Available-for-sale financial assets 272 4,558 - 4,558 Yuanta Daily CSI300 Bull 2X ETF None Available-for-sale financial assets 258 4,894 - 4,894 Yuanta Daily Taiwan 50 Bear-1X None Available-for-sale financial assets 1,250 16,488 - 16,488 Yuanta S&P GSCI Crude Oil 1X Inverse ER Futures ETF None Available-for-sale financial assets 542 9,181 - 9,181 Unlisted shares FundRich None Financial assets at cost 367 3,274 - 3,274 SKVIC Listed shares Aerospace Industrial Development Corporation None Available-for-sale financial assets 166 6,147 - 6,147 OTC shares Zimmite None Available-for-sale financial assets 484 24,801 - 24,801 Emerging market shares SCSB None Available-for-sale financial assets 538 18,062 - 18,062 Somnic Inc. None Available-for-sale financial assets 213 6,861 - 6,861

- 200 -

TABLE 4

SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES PUBLIC ANNOUNCEMENTS IN COMPLIANCE WITH ARTICLE 46 OF THE FINANCIAL HOLDING COMPANY ACT DECEMBER 31, 2017 (In Millions of New Taiwan Dollars, Unless Specified Otherwise)

Name Amount of Credit, Endorsement or

Other Transactions

Percentage to the Financial Holding

Company’s Net Worth

1. The same natural person or juridical person Public Bonds of Central Government $ 221,854 157.00 Kingdom of Saudi Arabia 103,786 73.45 United Mexican States 79,176 56.03 Central Bank of the Republic of China Department of Banking 70,000 49.54 Verizon Communications Inc. 61,143 43.27 Goldman Sachs Group Inc. 58,563 41.44 AT&T Inc. 52,400 37.08 Republic of Indonesia 46,702 33.05 JPMorgan Chase & Co. 46,123 32.64 Citigroup Inc. 44,389 31.41 Standard Chartered PLC 42,797 30.29 Deutsche Bank AG 42,641 30.18 Chunghwa Telecom Co., Ltd. 42,377 29.99 Bank of America Corp. 36,721 25.99 HSBC Holdings PLC 36,137 25.57 Electricite De France Sa 33,549 23.74 Taiwan Mobile Co., Ltd. 32,893 23.28 Lloyds Bank PLC 32,397 22.92 Societe Generale SA 29,558 20.92 Barclays Bank PLC 29,490 20.87 Morgan Stanley 27,226 19.27 Fed Republic of Brazil 26,276 18.59 Taiwan Power Company 25,047 17.72 Russian Federation 24,754 17.52 Republic of South Africa 22,270 15.76 Hon Hai Precision Ind. Co., Ltd. 22,189 15.70 Credit Suisse AG 20,132 14.25 Abu Dhabi Commercial Bank PJSC 18,329 12.97 Wells Fargo & Co. 16,752 11.85 Far EasTone Telecommunication Co., Ltd. 16,694 11.81 Taiwan Semiconductor Manufacturing Co., Ltd. 16,359 11.58 Cooperatieve Rabobank UA 15,789 11.17 BNP Paribas SA 15,664 11.08 Apple Inc. 14,343 10.15 Fubon Financial Holding Co., Ltd. 13,786 9.76

(Continued)

- 201 -


Other Transactions



Comcast Corp. $ 13,722 9.71 Anheuser-Busch InBev 13,545 9.59 Natixis SA 12,738 9.01 Vodafone Group Plc 11,862 8.39 Formosa Chemicals and Fiber Corporation 11,659 8.25 Intel Corp. 11,599 8.21 State of Qatar 11,359 8.04 Grupo Televisa Sab 11,017 7.80 Bpce Sa 10,629 7.52 America Movil Sab De Cv 9,726 6.88 Transcanada Pipelines Ltd 9,539 6.75 National Bank of Abu Dhabi PJSC 9,499 6.72 Taiwan Plastics Industry Co., Ltd. 9,370 6.63 Far Easton New Century Corp. 9,109 6.45 Republic of Turkey 8,869 6.28 PSBC 8,842 6.26 CTBC Bank Co., Ltd. 8,758 6.20 Fannie Mae 8,585 6.08 Codelco Inc. 8,473 6.00 Nan Ya Plastics Corporation 8,393 5.94 Halliburton Co. 8,380 5.93 Australia & New Zealand Banking Group 8,304 5.88 Dah Chung Bills Financial Corp. 8,194 5.80 Commonwealth Bank of Australia 8,008 5.67 Cathay Financial Holding Co., Ltd. 7,907 5.60 Vale Sa 7,466 5.28 Cathay United Bank Co., Ltd. 6,894 4.88 China Construction Bank 6,833 4.84 Conocophillips 6,696 4.74 iShares MSCI Brazil Capped ETF 6,694 4.74 Exelon Generation Co. LLC 6,605 4.67 HSBC Bank Plc 6,596 4.67 Gilead Sciences Inc. 6,585 4.66 UBS AG 6,237 4.41 Ford Motor Co. 6,085 4.31 CREDIT AGRICOLE CORPORATE AND INVESTMENT

BANK 6,009 4.25 21st Century Fox America Inc. 5,954 4.21 GAZPROM (GAZ CAPITAL SA) 5,880 4.16 General Electric Co 5,824 4.12 Telefonica Emisiones Sau 5,796 4.10 Yuanta Securities Investment Trust 5,725 4.05 China Development Bank 5,579 3.95 Taiwan Cement Co., Ltd. 5,496 3.89 Petroleo Brasileiro Sa 5,475 3.87 Westpac Banking Corp. 5,460 3.86

(Continued)

- 202 -


Other Transactions



Southern Co. $ 5,428 3.84 Enel Finance Intl NV 5,424 3.84 Royal Bank of Canada 5,320 3.76 Cathay Life Insurance Co., Ltd. 5,300 3.75 E.SUN COMMERCIAL BANK 5,184 3.67 Abbvie Inc. 5,084 3.60 Fubon Life Insurance Co., Ltd. 5,000 3.54 Reliance Industries Ltd. 4,853 3.43 Freddie Mac 4,650 3.29 Sberbank of Russia Pjsc 4,628 3.28 China Steel Co., Ltd. 4,591 3.25 Chinatrust Financial Holding Co., Ltd. 4,585 3.24 State Grid Corp of China 4,566 3.23 Land Bank of Taiwan 4,543 3.21 Fu Chuang Construction Co., Ltd. 4,520 3.20 Wharf Holdings Ltd. 4,352 3.08 KGI Bank Co., Ltd. 4,318 3.06 Bank of Tokyo Mitsubishi UFJ Ltd. 4,215 2.98 Shanghai Commercial and savings Bank 4,205 2.98 Manulife Financial Corp. 4,190 2.97 Mega International Commercial Bank 4,166 2.95 China Airlines Co., Ltd. 4,156 2.94 Bank of Communications 4,145 2.93 Grand Bills Finance Corp. 4,143 2.93 Kazakhstan Temir Zholy JSC 4,140 2.93 Siliconware Precision Industries Co., Ltd. 4,089 2.89 Abu Dhabi National Energy Co. 4,077 2.89 Pension Funds 4,004 2.83 Media Tek Inc. 3,997 2.83 International Business Machines Corp 3,833 2.71 Mega Financial Holding Co., Ltd. 3,809 2.70 Taiwan Cooperative Bank 3,774 2.67 Bed Bath & Beyond Inc. 3,762 2.66 Suncor Energy Inc. 3,753 2.66 Macquarie Group Ltd. 3,753 2.66 Bank of China Ltd. 3,624 2.56 Nomura International Funding P 3,533 2.50 Taiwan Secom Co., Ltd. 3,532 2.50 Citibank NA 3,481 2.46 Taipei Funbon Commercial Bank Co., Ltd. 3,469 2.45 China Development Industrial Bank 3,447 2.44 CVS Health Corp. 3,423 2.42 Taiwan Finance Corporation 3,404 2.41 Prudential Plc 3,276 2.32 BlackBerry Ltd. 3,212 2.27 AXA SA 3,200 2.26

(Continued)

- 203 -


Other Transactions



AU Optronics Corp. $ 3,171 2.24 Phillips 66 3,154 2.23 Bank of Nova Scotia 3,143 2.22 Delta Electronics, Inc. 3,136 2.22 Huang Hsuang construction Co. 3,130 2.21 Kommunalbanken As 3,128 2.21 US Treasury 3,599 2.55 CNOOC Ltd. 3,103 2.20 Advanced Semiconductor Engineering, Inc. 3,097 2.19 Shin Kong No. 1 Real Estate Investment Trust 3,086 2.18 Total 2,034,186 1,439.52

2. The same related party

Jheng, Min-chen 4,520 3.20 LiaoLi, Shu-Hua 4,209 2.98 Hu, Ding-Wu 3,797 2.69 Total 12,526 8.86

3. The same affiliate

Republic of China government 291,854 206.53 Goldman Sachs Group Inc. and affiliate 58,927 41.70 Fubon Financial Holding Co., Ltd. and affiliate 55,148 39.03 China government and state-owned enterprise 48,822 34.55 Indonesian government and state-owned enterprise 47,956 33.94 JPMorgan Chase & Co. and affiliate 46,918 33.20 Citigroup Inc. and affiliate 44,669 31.61 HSBC Holdings Plc and affiliate 43,437 30.74 Deutsche Bank Ag and affiliate 43,260 30.61 Standard Chartered PLC and affiliate 42,989 30.42 Bank of America Corp. and affiliate 36,944 26.14 Lloyds and affiliate 32,881 23.27 Russian Federation and state-owned enterprise 32,080 22.70 Formosa Plastic Corporation and affiliate 31,688 22.42 Societe Generale and affiliate 30,966 21.91 Far Easton New Century Corp. and affiliate 29,742 21.05 Barclays PLC and affiliate 29,619 20.96 Morgan Stanley and affiliate 27,298 19.32 Hon Hai Precision Ind. Co., Ltd. and affiliate 22,959 16.25 Credit Suisse Group Ag and affiliate 21,939 15.53 U.S. government and state-owned enterprise 19,005 13.45 United Arab Emirates and state-owned enterprise 18,722 13.25 Wells Fargo & Co and affiliate 17,496 12.38 BlackRock Inc. and affiliate 17,323 12.26 Cathay Financial Holding Co., Ltd. and affiliate 17,288 12.23 BNP Paribas and affiliate 15,865 11.23 Chinatrust Financial Holding Co., Ltd. and affiliate 14,525 10.28

(Continued)

- 204 -


Other Transactions



Mega Financial Holding Co., Ltd. and affiliate $ 10,655 7.54 China Development Financial Holding Corporation and

affiliate 10,624 7.52 United Microelectronics Corp. and affiliate 9,879 6.99 Yuanta Financial Holding and affiliate 9,561 6.77 Australia & New Zealand Banking and affiliate 8,379 5.93 Uni-President and affiliate 7,059 5.00 Credit Agricole Group and affiliate 6,929 4.90 Shin Kong Financial Holding Co., Ltd. and affiliate 6,797 4.81 UBS Group AG and affiliate 6,360 4.50 Macquarie Group Ltd and affiliate 5,886 4.17 Evergreen Marine Corp. and affiliate 5,749 4.07 China Steel Co., Ltd. and affiliate 5,046 3.57 Huang Hsuang construction Co. and affiliate 4,245 3.00 Mitsubishi UFJ Financial Group and affiliate 4,230 2.99 Ruentex Shin Co., Ltd. and affiliate 4,047 2.86 Advanced Semiconductor Engineering, Inc. and affiliate 4,014 2.84 Taiwan Cooperative Bank and affiliate 3,974 2.81 AU Optronics Corp. and affiliate 3,900 2.76 Taishin Financial Holding Co., Ltd. and affiliate 3,873 2.74 SinoPac Financial Holding Co., Ltd. and affiliate 3,576 2.53 WPG Holdings and affiliate 3,509 2.48 Kingcom of Thailand and state-owned enterprise 3,074 2.18 ING and affiliate 3,015 2.13 Total 1,274,701 902.06

(Concluded)

- 205 -

TABLE 5

SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES INVESTMENTS IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars, Unless Specified Otherwise) 1. SKLIC

Investee Company

Main Businesses and Products

Total Amount of Paid-in

Capital (CNY in

Thousand)

Method of Investment

Accumulated Outflow of Investment

from Taiwan as of

January 1, 2017

Investment Flows Accumulated Outflow of Investment

from Taiwan as of December 31,

2017

Investee Company’s

Earnings (Losses)

Percentage of Ownership

(%)

Equity in the Earnings (Losses)

Carrying Value as of

December 31, 2017

Accumulated Inward

Remittance of Earnings as of December 31,

2017

Outflow Inflow

SKHLIC (Note) Insurance $ 2,191,900

(CNY 500,000) Invest China directly $ 1,095,950 $ - $ - $ 1,095,950 $ (395,031) 50 $ - $ - N/A

Accumulated Investment in Mainland China as of

December 31, 2017

Investment Amounts Authorized by

Investment Commission, MOEA Limit on Investment

$1,095,950 US$75,330 $54,271,397

Note 1: SKLIC was approved by the Ministry of Finance and Ministry of Economic Affairs Investment Commission to establish an insurance company in mainland China in its letter in 2003. SKLIC obtained the approval of the China Insurance Regulatory Commission (Ref. No. (96) Bao-Jian-Guo-Ji No. 1254), and SKLIC and HNA Group prepared to establish the Chinese and foreign joint venture life insurance company. SKLIC remitted the investment fund amount of CNY250,000 thousand, or the equivalent of US$36,150 thousand, on June 6, 2008. SKHLIC started operation on April 27, 2009. SKLIC applied to increase its investment in mainland China by CNY250,000, or the equivalent of US$39,180. This investment was approved by the Investment Commission, MOEA on August 30, 2012. The investment fund amount of CNY250,000 thousand was collected on March 10, 2016.

Note 2: Location: Beijing, China. Note 3: Status of capital funds and related income: As of December 31, 2017, SKHLIC’s capital funds, which were deposited in banks or were invested in securities and policy loans, totaled $2,165,897 thousand, and the investment income

for the year then ended was $113,637 thousand. Note 4: Provision methodology and balances of insurance liability reserves:

December 31,

2017 Reserve for unearned premiums $ 14 Reserve for claim payments 29 Reserve for life insurance liability 3,119,047 $ 3,119,090

(Continued)

- 206 -

a. Reserve for unearned premiums for short-term insurance universal insurance and for risk premiums with individual terms of less than one year is provided by policy type in accordance with the risk for the remaining policy period. b. Reserve for claim payments is provided by insurance based on past claims experience and expenses in accordance with actuarial principle, and reserve for claim payments reported but not yet paid is provided by case based on

actual data. c. Reserve for life insurance liability is provided according to modified standards stated by the Regulations Governing Calculation of Various Reserves for Operations. The calculation uses mortality table and projected interest rate

of reserve regulations in China.

Note 5: Percentage of insurance income: 0.16%. Note 6: Percentage of insurance benefits and claims: 0.73%.

2. SKVIC

Investee Company



Capital



from Taiwan as of

January 1, 2017



2017


Earnings (Losses)


(%)

Equity in the Earnings (Losses) (Note 2)


December 31, 2017

Accumulated Inward


2017

Outflow Inflow

SKLSC Financial leasing US$ 30,000 Note US$ 30,000 $ - $ - US$ 30,000 $ 43,203 100 $ 43,203 $ 857,196 N/A

Accumulated Investment in

Mainland China as of December 31, 2017



US$30,000 US$30,000 NT$911,021

Note: The investment was approved by the Investment Commission, MOEA (Ref. No. (100) No. 10000274430) on August 3, 2011. SKVIC established Lion Investment (Samoa) Co., Ltd. - SKLSC which was approved on September 15, 2011, and the main business was financial leasing.

(Continued)

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3. MLSC

Investee Company



Capital



from Taiwan as of

January 1, 2017



2017


Earnings (Losses)


(%)

Equity in the Earnings (Losses)


December 31, 2017

Accumulated Inward


2017

Outflow Inflow

MLSC (HK)

Shanghai Representative (Note 1)

Consulting services industry report and research

N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Shanghai

MasterLink Investment Advisory Corp. (Tianjin)

Securities investment consulting and training services

$ 13,774 (Note 2) $ 13,774 $ - $ - $ 13,774 $ 419 100 $ 419 $ 24,714 $ -

MasterLink

Venture Management Corp. (Tianjin)

Management consulting, investment consulting

50,450 (Note 3) 50,450 - - 50,450 3,494 100 3,494 55,091 -

MasterLink

Venture Capital Corp. (Tianjin)

Venture capital consulting and management

504,500 (Note 4) 504,500 - - 504,500 (3,874) 100 (3,874) 450,366 -

Accumulated Investment in Mainland China as of

December 31, 2017



$568,724 $518,274 $12,903,233

Note 1: MLSC Shanghai Representative was approved by the China Securities Regulatory Commission on October 22, 1998 and registered on January 11, 1999. On July 14, 2015, MLSC Shanghai Representative was approved under Rule

No. 1040025759 issued by the FSC to cancel its registration and was approved by the Shanghai Administration for Industry and Commerce (No. 02201512175017) on May 15, 2016 to cancel the registration. Note 2: The investment was approved board of director of MLSC and by the Investment Commission, MOEA (Ref. No. (85) No. 85020739) on December 30, 1996. MLSC established MasterLink Securities (B.V.I.) - MasterLink

Investment Advisory Corp. which was approved on May 30, 1997, and the main business was securities investment consulting and training services. MLSC’s name was altered to Shanghai MasterLink Investment Advisory Corp. through the MOEA on June 27, 1997, and it was approved by the MOEA which increased its authorized paid-in capital to US$500 thousand on July 1997. Shanghai MasterLink Investment Advisory Corp.’s name was altered to Shanghai MasterLink Investment Advisory Corp. (Tianjin), which was approved by Rule No. 1050011978 issued by the FSC on April 14, 2016.

Note 3: Directly investing in China was approved by board of director of MLSC and by the Investment Commission, MOEA (No. 10300317070) on December 29, 2014. The operation license was acquired on February 15, 2015. Note 4: Directly investing in China was approved by board of director of MLSC and by the Investment Commission, MOEA (No. 10300317060) on January 6, 2015. The operation license was acquired on February 15, 2015.

(Concluded)

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TABLE 6

SHIN KONG FINANCIAL HOLDING CO., LTD. AND SUBSIDIARIES SUMMARY OF INTERCOMPANY TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2017 (In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Ref. No. (Note 1)

Name of Company Name of Counterparty Relationship

(Note 2)

Transactions (Note 5)

Account Amount Terms

% of Total Consolidated Operating Income or Total

Consolidated Assets (Note 3)

Year ended December 31, 2017

0 SKFHC TSKCB a Cash and cash equivalents $ 5,393,079 Note 4 - SKLIC a Income tax payable for linked-tax 4,934,890 Note 4 - TSKCB a Income tax receivable for linked-tax 751,783 Note 4 -

1 SKLIC SKLRESC c Management expenses 343,450 Note 4 - SKLRESC c Earned revenue receivable 1,425,987 Note 4 - TSKCB c Cash and cash equivalents 18,827,744 Note 4 1 TSKCB c Rent revenue 251,797 Note 4 - MLSC c Bond purchase under resale agreement 751,811 Note 4 -

2 TSKCB SKLIC c Processing fee income 1,288,122 Note 4 1 SKTIC c Deposits and remittances 155,422 Note 4 - MLSC c Deposits and remittances 2,822,036 Note 4 - MasterLink Future Co., Ltd. c Deposits and remittances 1,038,046 Note 4 - MasterLink Venture Capital Corp. c Deposits and remittances 209,492 Note 4 - SKMC c Deposits and remittances 174,509 Note 4 -

3 MLSC MasterLink Future Co., Ltd. c Customer guarantee account 743,443 Note 4 -

Note 1: Parent company is number 0; subsidiaries are sequentially numbered starting from 1. Note 2: Categories of relationship:

a. Parent company to subsidiary. b. Subsidiary to parent company. c. Between subsidiaries.

Note 3: Percentage of transaction amount to total consolidated operating income and assets is calculated as follows:

For balance sheet accounts: Transaction amount ÷ Total consolidated assets For income statement accounts: Accumulated transaction amount ÷ Total consolidated profit from operations.

Note 4: Terms and conditions of related party transactions are made on arm’s length basis. Note 5: Transaction amount minimum of $100 million.

Shin Kong Financial Holding Co., Ltd. and Subsidiaries

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