Business Report

During 2022 as countries began to open up as part of the post-pandemic era, the financial impact caused by the US Federal Reserve, and central banks raising interest rates as well as accumulated inventories resulted in a decline in global demand. From a Taiwan’s perspective, exports showed a decline in annual growth starting in the fourth quarter, while domestic demand and individual consumption has performed well after the lockdowns ended. The opening of the borders, international travel (and consumption) has also returned to stronger levels. In terms of investments, the focus in the first half of the year in Taiwan was the expansion of production capacity and deployment of green energy facilities; however, there was a contraction in the second half of the year. In terms of capital markets, Taiwan stocks, which are significantly export oriented, were impacted due to the gradual decline in export orders in the second half of the year. The closing index reached 14,138 at the end of 2022, representing a decrease of 22.4%.

The volatility in global financial markets in 2022 reflected the raising of interest rates by the US Federal Reserve to suppress inflation and normalize monetary policies. Aside from KGI Bank benefiting from interest rate hikes in the US and Taiwan, which led to higher net interest income and maintained asset quality, China Life, KGI Securities, and CDIB Capital Group were impacted by fluctuations in the international capital market. The consolidated after-tax net income for CDF in 2022 was NT$16.39 billion (including NT$0.02 billion from non-controlling interests), with EPS of NT$0.98 after tax and consolidated ROE of 6.5%. Compared with the consolidated after-tax adjusted net income of NT$39.10 billion (including NT$12.06 billion from non-controlling interests) when the one-time sale of the building (of NT$8.00 billion) is excluded, the annual decline was lower than that of other financial holding companies focused on life insurance.

Taiwan Ratings Corp. gave the Company a long-term credit rating of "twAA-," a short-term credit rating of "twA-1+," and a "Stable" outlook in August 2022. The ratings continue to affirm the Group’s stable capital levels. Taiwan Ratings Corp. predicts that even though the market will continue to fluctuate in the next two years, the Group should be able to maintain stable capital and profit levels.

In early 2021, we launched our ABCDE five-year strategy consisting of five parts: (A) Accelerate Digital, designed to make CDF and its subsidiaries into leaders in digital; (B) Become Employer of Choice, designed to achieve a higher level of employee engagement and career development; (C) Customer Focus, designed to make us the most recommended financial services brand in the market; (D) Drive growth, designed to exceed industry benchmarks and, (E) Execution Excellence, designed to deliver outstanding results for all our stakeholders. You can find details and examples of our progress in each one of these areas in our investor pack on our website.

Below are the highlights of the 2022 performance by each main business segment:

(I) Life Insurance business
China Life continues to diversify and actively expand high-value products such as installment payments and health coverage. In response to the aging population and retirement financial management, the company remains focused its core business of insurance coverage, enhancing various protection-type insurance and customized products to satisfy the coverage and financial planning needs of different customer groups. Furthermore, by continuously focusing on the sales of high-value products to enhance the company’s longterm business value, premiums for high-value products reached NT$21 billion, representing an increase of 54% compared to 2021; this led to stable growth on value of new business in 2022. The new contract premium income and total premium income were NT$70.1 billion and NT$179.3 billion respectively in 2022. The market share of new contract premiums reached 9.1%, ranking fourth in the industry

In terms of digital innovation, China Life has continued to invest resources to accelerate digital. The company has formulated the digitally-driven and experience-first comprehensive “2A2D” development strategy blueprint (i.e., the ideas of “Artificial Intelligence," “Agile Culture," “Big Data,” and “Digital Innovation”). The company provides “heartfelt” services with innovative technologies, and it is dedicated to become an iconic life insurance company in innovation and use of InsurTech. We lead the industry in the introduction of facial recognition technology in the insurance application process. The applications have been further expanded in 2022, allowing more customers and salespersons to use remote insurance services. The company received approval from the regulator in April to introduce the insurance agent channel, and further expanded to other channels in November. Online cases have exceeded 36,000, improving administrative efficiency by 25% and resulting in carbon emission savings of 120,000kg. In 2022, the company was awarded the “Digital Insurance Initiative of the Year” award of the Insurance Asia Awards, the “Best Life Insurance Company for Digital Transformation Taiwan” award of the Global Banking & Finance Review Awards, the “Taiwan Sustainable Action Award” of the Taiwan Corporate Sustainability Awards (TCSA), and the “Best Product Award” of the National Brand Yushan Award, demonstrating its capabilities, ideals, and determination in digital innovation.

In terms of customer focus, China Life has continued to deepen corporate culture of treating customers fairly and quickly responds to customer needs and provides solutions. China Life implemented NPS and ranked from No. 5 to No. 1 in the industry in 2022 survey. In addition, the company was recognized by the FSC Treating Customers Fairly Principles Assessment 4 years in a row.

In terms of corporate governance and sustainable management development, China Life incorporates sustainable thinking into its management strategies. The company has established complete climate change risk management based on rigorous and outstanding corporate governance. In 2022, the company was jointly selected by international media as the first Asia Pacific climate leader. It has received the “Taiwan Sustainable Investment Award (TSIA)” for two consecutive years and the “Taiwan Corporate Sustainability Award (TCSA)” for eight consecutive years. It is also the only Taiwanese insurance company to receive the GCSA “Corporate Sustainability Report Award,” demonstrating the recognition of foreign and domestic institutions and stakeholders of the company’s performance.

(II) Banking business
KGI Bank continues to focus on the development and use of FinTech. It is dedicated to building integrated digital service solutions centered around customer experience. The company continued to expand its customer base and enhanced its overall operating performance. In terms of corporate banking, the company provides corporate customers with the most suitable financial solutions and customized professional services through the professional team division and diversified financial products. As of the end of 2022, the overall credit balance for corporate finances was NT$283 billion, representing an increase of 2% compared to 2021. In terms of retail banking, the company upholds the corporate ideal of “customers first,” providing comprehensive financial products and actively optimizing its digital platforms. The quality of service has been affirmed by customers, and it is also reflected in the 2022 NPS result ranking first in the industry. In addition, as of the end of 2022, the loan balance of SME and personal loan was NT$54.5bn and NT$33.8bn, or 22% and 20% YoY, respectively. A new company website was launched in January 2022, providing a better cross-platform reading experience for customers. In addition, a new mobile banking service was launched in October of the same year. Its integrated interface design and optimized menu structure made online transactions more convenient. At the same time, the company launched the new smart customer service, “Mr. Wallet,” providing customers with full voice interactions for asking questions, creating an accessible environment, and implementing friendly financial services. As of the end of 2022, the overall credit balance for retail banking was NT$148.8 billion, representing an increase of 5% compared to 2021. In terms of the global markets, KGI Bank continues to strengthen risk management, dynamically adjust its hedging strategies, and establish asset allocation that yield stable returns. The company provides bond underwriting, financial product marketing, and asset management in response to investment expansion and hedging needs of various channels to provide solutions to its customers in these volatile markets.

In terms of responsible finance and sustainable development, in May 2022, KGI Bank was the first in the domestic banking industry to introduce green deposits, allowing corporate customers to participate in green financing needs and sustainable issues through deposits. Moreover, the company continues to promote and implement the FSC Green Finance Action Plan. It is actively participating in the financing of iconic large-scale renewable energy power plants in Taiwan and supporting the construction of renewable energy generation sites. As of the end of 2022, KGI Bank’s green credit balance reached NT$16.06 billion (based on the definition of the Joint Credit Information Center), representing an increase of 39.5% compared to the previous year. The company has stipulated sustainable finance policies, such as responsible investment policies, sustainable crediting principles, and climate risk management guidelines, to include environmental, social, and corporate governance ESG issues in post-loan management mechanisms, thereby implementing sustainable management with customers.

(III) Venture Capital/Private Equity business
CDIB Capital continues to expand its asset management scale and strengthen its competitive advantages of fund management, including establishing partnerships with leaders of domestic key industries, to cultivate closer investment eco-system and more business opportunities. The company obtained the first China private equity fund manager license through a wholly owned subsidiary, ranking first in domestic peers. Additionally, the company plans to establish an accelerator in Tokyo, Japan, to expand its global deployment. In 2022, the company finished raising funds for a new NTD fund and expanded the scale of an existing USD fund. The cumulative fund commitment reached NT$45.4 billion at the end of 2022. Thirteen funds denominated in New Taiwan dollars, US dollars, and Renminbi are currently under management, with investment mainly in Taiwan, China, and North America. NT$2.8 billion in investment deployment and NT$3.1 billion in investment proceeds were completed in 2022. Cumulatively, completed direct investment drawdown is NT$34.1 billion and the realized proceeds is around NT$10.9 billion, of which, a total of NT$10.2 billion was returned to investors through fund distribution or capital reduction.

Although the volatility of the overall capital market increased in 2022, compressing the investment performance, CDIB Capital’s overall investment positions still performed better than the market returns in the same period. Furthermore, the management team continues to promote cross-selling and operational partnerships within the Group. It is monetizing existing investment positions and establishing investment portfolios with potential growth. The company is expanding the use of bank facilities and disposing non-core real estate assets to gradually lift leverage ratio and increase the overall capital utilization efficiency. The company also focused on cost improvements, operating efficiency increases, and procedural upgrades in terms of operational management and implemented several digitization initiatives.

(IV) Securities business
KGI Securities’ share in the brokerage market was 10.4% in 2022, maintaining its second place in industry. In addition to providing extensive and complete wealth management products and professional services to customers, the company is actively optimizing its customer experience, and launched the first “video digital signing” service among Taiwan’s brokers. Through this service, it can provide investors with convenient online services and investment flexibility. Moreover, the company has introduced online ETF initial offering (IPO) combined with wealth management accounts. The first IPO cooperated with KGI SITE’s "KGI Taiwan Selected High Dividend 30 ETF Fund" showed more than 70% of transactions coming from online transaction, demonstrating the reach of digital innovation. The company maintained first with a 15.8% share on the foreign institutional investor brokerage and second with a 20.3% share of the securities lending business market, demonstrating the high recognition of its professional research and services by international corporations. There were 34 cases of underwriting of initial listings and secondary market fundraising, accounting for a 15% market share and leading the market for ten consecutive years. The combined primary underwriting of corporate bonds in NTD and international bonds reached NT$131.9 billion, reflecting a market share of 12.6% and second position in the industry. The issued call (put) warrants totaled NT$96.4 billion and 9,779 warrants, with market shares of 18% and 20% respectively. The annual warrant transactions accounted for 17% of the market, ranking second in the market. In addition, KGI SITE's public offering funds and ETFs ranked 8th and 6th with NT$162.1 billion and NT$127.6 billion, respectively.

In addition to maintaining its leading position in various businesses of the industry, KGI Securities is dedicated to promoting and implementing responsible finance, friendly finance, various environmental sustainability issues, and diverse green financial products and services. As of the end of 2022, the company’s underwriting and equity financing related to ESG, environmental protection, and green energy reached NT$80 billion. KGI SITE has four public offering funds that comply with the information disclosure and review principles for ESG related funds by regulators, being the most ESG domestic funds issuer in the investment industry

In 2022, CDF was once again listed as a constituent stock in DJSI World and DJSI Emerging Markets for three consecutive years. The overall score ranked CDF fourth in the world and first in Taiwan in the insurance sector. Its overall score ranked fourth internationally and first in Taiwan among the insurance industry. It also ranked in the top 5% of the S&P Global Sustainability Yearbook. The company has been included as a constituent stock in the FTSE4Good Emerging Market Index and FTSE4Good TIP Taiwan ESG Index for six consecutive years. In addition to being included in the Top 100 Taiwan Sustainability Model Companies of the TCSA, the company has also earned the highest "A" score from the Carbon Disclosure Project (CDP). CDF has long been championing education projects via China Development Foundation, KGI Charity Foundation, and our subsidiaries, such as "Heritage 100 & Tutoring 100," "Perfect Nutrition," and "Scholarship for skilled vocational high school students," in advocating the development of a sustainable society. We aim to implement the core value of the "co-creation of society" and eight of the United Nations' Sustainable Development Goals (SDGs). Furthermore, the company continues to promote corporate volunteer projects. In 2022, the total number of service hours of the entire group reached a record high of 77,660 hours, enhancing the attention paid to environmental protection, care for the disadvantaged, elderly care, and local creation by the Group’s employees. Aided by thriving social enterprises and innovation, we integrate resources from the Group, social enterprises, and local creative teams to create a mutually beneficial model for a sustainable local revitalization ecosystem. Volunteering has enhanced the employees' identification with the Company's ESG philosophy, creating positive engagement for our staff and our partners.

In April of 2021, the company committed to reaching “net zero carbon emissions for its full portfolio by 2045”; moreover, the headquarters building on Dunhua North Road and the KGI Securities Dazhi building introduced green energy in December of 2022. Green energy is expected to account for 12% of the Group’s total energy usage, which is equivalent to a 10% annual reduction of carbon emissions from operations.

In 2023, we expect interest rates to remain high, which will affect the economy and trade of many countries impacting global trade. In terms of domestic demand, international travel should drive private consumption. Investment is restricted by the pressure for manufacturers to reduce inventory, and some companies will be more cautious when investing. It is projected that economic growth in Taiwan will slower in 2023 compared to the previous two years.

Finally, we would like to thank all our employees for their hard work as well as our clients, regulators, and our shareholders for their continued support. CDF will continue to enhance risk control mechanism to mitigate operational risks and focus on core strategies to maintain longterm stable business development. We remain committed to the implementation of our ABCDE strategy as we embrace innovation and talent to deliver sustainable financial solutions to our clients, shareholders, and to the community.

Su-Kuo Huang, Chairman
Stefano Paolo Bertamini, President

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