KBC Bank

1
KBC GroupLife insurance businessEmbedded
value as at 31 Dec 2005 and analysis of change
and sensitivity
Foto gebouw
2
Cautionary Statements

• Embedded Value is the result of cash-flow
  projections with underlying assumptions and
  expectations. The values in this presentation are
  calculated on a deterministic basis.
• Many assumptions, such as the general economic
  conditions, performance of financial markets,
  taxes, changes in laws, frequency and severity of
  insured loss events, mortality and morbidity
  levels and trends, and others, are beyond the
  control of KBC. A modification of assumption can
  result in a significantly different Embedded
  Value. Deviations from assumed experience are
  normal and are to be expected. Even without any
  change in the parameters, actual results will
  vary from those projected due to normal random
  fluctuations.
• Embedded Value cannot be considered as an
  absolute value. This value, together with a
  sensitivity analysis, enables the recipient to
  obtain an idea of the magnitude of the expected
  value created by the insurance activities.
• Under no circumstances should the inclusion of
  the projections (including the relevant
  underlying assumptions and expectations) be
  regarded as a representation, warranty or
  prediction that the business will achieve or is
  likely to achieve any particular results.

3
Contents

• Life insurance activity
• Sales
• Technical charges
• Embedded Value (EV)
• Terminology
• Overview
• Adjusted Net Asset Value (ANAV)
• Components
• Roll forward, 2004-2005
• Value of Business In Force (VBI)
• Scope
• Assumptions
• Sensitivities
• Roll forward, 2004-2005
• Value of New Business (VNB) at date of sale
• Overview
• Sensitivities

4
Life insurance activitySales
(Premium income without the application of IFRS
deposit accounting)
5
Life insurance activityTechnical provisions
Growth in Technical Provisions, Life, 1998-2005
(in 000 EUR)
6
Embedded ValueTerminology
KBC standard
Embedded Value
Embedded Value
Embedded Value
As investment for
VBI(PVFP- CostTied Surplus)
Value In Force (VIF)
PVFP
ANAV
ANAV
TiedSurplus,Life
TiedSurplusLife
PV TiedSurplus, Life
Shareholders Equity
or
Other Allocated Surplus
Other Allocated Surplus
Other Allocated Surplus

Economic
Adjustments
FreeSurplus
FreeSurplus
FreeSurplus
gt Equity adjustmentsgt Asset adjustments gt
Resilience Reserves gt Tax assets and liab.
Other Allocated Surplus Tied Surplus Non
Life Other Tied Surplus
PVFP Present Value of Future Profit VBI
Value of Business In Force
7
Embedded Value Overview
(in 000 EUR)
31/12/2004 31/12/2004 restated 31/12/2005
VBI Life PVFP Cost of tied surplus 420 637 607 844 (187 207) 405 804 594 265 (188 461) 468 324 675 107 (206 783) 15.4 13.6
Tied Surplus, Life 851 794 862 708 1 039 861 20.5
Value In Force 1 272 431 1 268 512 1 508 185 18.9
Other Surplus 1 622 660 1 787 225 2 028 302 13.5
Embedded Value 2 895 091 3 055 737 3 536 487 15.8

• Remarks
• The value of the Non-Life portfolio is not taken
  into account. However, Other Surplus includes
  surplus of both Life and Non-Life activities.
• Restatements of the 2004 figures relate to model
  changes in VBI and IFRS adjustments to the ANAV

8
Adjusted Net Asset Value (ANAV) Composition

• Adjusted Net Asset Value (ANAV)
• Shareholders Equity
• Equity Adjustments
• Minority interests
• /- Asset Adjustments
• Excluding unrealised capital gains on AFS bonds
  backing the life portfolio (buy-and-hold
  philosophy)
• Goodwill deducted
• Additional Reserves
• Additional reserves, life, minus the cost of
  holding those reserves
• - Tax assets and liabilities on the above

9
Adjusted Net Asset Value (ANAV) Composition
as at 31/12/2005 (in 000 EUR)
('000 EUR)
74 271
219 468
-74 597
-349 937
3 198 958
3 068 163

ANAV
equity adjustments
asset adjustments
Shareholders equity
tax assets and liab.
additional reserves, life
Shareholders equity after dividend payout
10
Adjusted Net Asset Value (ANAV)Roll-forward,
2004 2005
(in 000 EUR)
28 816
454 561
461 852
175 480
-527 000
3 068 163
2 474 453
Other
Profit in 2005
Dividends Paid
Anav 31/12/2005
Asset Value Adjustments
Reported Anav 31/12/2004
Restated Anav 01/01/2005
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Value of Business in Force (VBI) Scope

• Modelled
• 86.97 of the mathematical reserves
• 97.88 of the total premium income in 2005
• 99.88 of the new premium income in 2005
• Activities under review
• KBC Insurance Belgium Fidea Vitis Life
• Total technical provisions 17 786 million EUR
• Activities not under review
• Central European subsidiaries (CSOB CZ, CSOB SK,
  KH Life, WARTA Vita)
• Secura (re-insurance)
• Total technical provisions 891 million EUR

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Value of Business in Force (VBI) Assumptions
KBC RBC Requirements(legal requirements) of reserves of sumat risk
Unit-Linked 0.5(0 or 1) 0.375(0.3)
Non-Linked Pension products75 F.I./ 20 S./ 5 P. mix 8.5(4) 0.375(0.3)
Non-Linked Investment products88 F.I./11 S./ 1 P.mix 5.98(4) 0.375(0.3)
The current RBC for Life activities is 188.4 of the legally required solvency margin for the Life business (176 in 2004)
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Value of Business in Force (VBI) Assumptions

• Expenses
• Expenses are allocated to the different products
  and activities in such a way that the total
  expenses in the study equal the total expenses in
  the statutory accounts
• Expenses increase with expected wage inflation
• Future expense reductions programmes and
  synergies are not taken into account
• Mortality
• Assumptions based on most recent industry
  experience were used
• Lapses
• Assumptions based on annual experience,
  investigations of surrenders and paid-ups, with a
  reasonable safety margin
• Assumptions are set according to product and to
  distribution channel

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Value of Business in Force (VBI) Assumptions
2004 2005
10-year bond yield (Rate from 2010 on) 3.6 pa (4.80 pa) 3.5 pa (4.75 pa)
Risk Prem. on equity 2.50 pa 2.50 pa
Risk Premium used for discount rate 3.50 pa 3.50 pa
Discount rate ( Cost of Capital, CoC) 8.30 pa 8.00 pa
Expense (wage) inflation (Rate from 2006 on) 2.20 pa (2.50 pa) 2.20 pa (2.50 pa)
Based on the bond yield in the long run -
weighted Average Cost of Capital, taking into
account partial funding with subordinated loans
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Value of Business in Force (VBI) Overview
(in 000 EUR, only reserves of modelled business)
PVFP VBI VIF PVFP/res. VBI/res. reserves
2004 607 844 420 637 1 272 431 5.4 3.7 11 294 213
2005 675 107 468 324 1 508 185 4.4 3.0 15 418 013
11.3 11.1 17.9 -1.0 -0.7 36.5
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Value of Business in Force (VBI) Sensitivities
Effect of non-econonmic parameters on VBI
Total 10 - 10
Expenses -4.5 4.5
Lapses Dormancy -2.6 3.2
Mortality -2.9 2.9
Effect of economic parameters on VBI
1.0 - 1.0
Discount rate -14.8 16.7
Investment Return 10.8 -16.2
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Value of Business in Force (VBI) Sensitivities

• Changing the solvency margin

Current RBC KBC Insurance 100 of the legal SM 150 of the legal SM 200 of the legal SM
Embedded Value 3 536 487 3 626 004 3 573 093 3 520 183
VIF 1 508 185 1 109 709 1 332 733 1 555 756
VBI 468 324 557 841 504 931 452 020
(in 000 EUR)
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Value of Business in Force (VBI)Roll-forward,
2004 2005
(in EUR)
96 502 780
4 806 442
-11 437 100
33 307 748
-14 832 901
-4 505 681
-56 154 239
468 323 796
420 636 746
VBI 31/12/2004
VBI 31/12/2004
model changes
Cashflow to ANAV
Variances over 2005
VNB as of 31/12/2005
Unwinding discounting
Change econ.assumptions
Change non-econ. assumptions
19
Value of New Business (VNB) Overview (new
business at date of sale)
APE (Annualised Premium Equivalent) PVFP VNB PVFP as of APE VNB as of APE
Total, 2005 570 385 125 733 98 044 22.04 17.19
Total, 2004 324 170 74 487 57 199 22.98 17.64
(in 000 EUR)
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Value of New Business (VNB) Sensitivities (at
date of sale)
Non-Economic Sensitivities
10 - 10
Expenses -5.93 5.93
Lapses -3.19 3.64
Mortality -2.59 2.62
Economic Sensitivities
- 0.5 0.5
Discount rate 5.86 -6.27
Investment Return(excl. disc. rate) -6.23 5.18
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Review

• Lane Clark Peacock Belgium reviewed the
  methodology and assumptions used by KBC Insurance
  in the determination of the Embedded Value at
  31/12/2005, the Value of 2005 New Business and
  the analysis of the change in the value of
  in-force business for the Life Insurance
  activities of KBC Insurance.
• It is the view of Lane Clark Peacock Belgium,
  based on the data made available, that the
  assumptions used are reasonable and that the
  methodology used by KBC Insurance is in line with
  basic principles described in appropriate
  literature.
• Our assignment included a review of the
  calculations.This review was not a detailed
  verification of the correctness of all
  calculations. This review was a limited
  high-level reasonableness checks on the results
  and included a detailed review on a limited
  random sample of contracts of the insurance
  portfolio of KBC Insurance. No material issues
  have been discovered.
• Therefore, based on our work and our validation
  report on the work carried out by KBC Insurance,
  we consider the embedded value, the value of new
  business and the analysis of the change in the
  value of in-force for the life business to be
  reasonable and suitable for inclusion as
  supplementary information to the Groups
  consolidated accounts.

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Contact information

• Investor Relations OfficeLuc Cool, Head of
  IRLuc Albrecht, Financial Communications
  OfficerTamara Bollaerts, IR CoordinatorMarina
  Kanamori, CSR Communications OfficerNele Kindt,
  IR AnalystE-mail investor.relations_at_kbc.com
• Surf to www.kbc.com for the latest update.