1. 4
Life business, embedded value and analysis of change Johan Daemen General Manager, Life insurance
Foto gebouw

2. Agenda Life insurance activity & scope Terminology
ANAV (“Adjusted Net Asset Value”)
Components
Roll forward
VBI (“Value of Business In Force”)
Assumptions
Sensitivities
VNB at date of sale (“Value of New Business”)

3. Life business, overview
Growth in Total Life Premium Income (‘000 EUR)
1998
1999
2000
2001
2002
2003
Non Linked
Unit Linked
232%
203%
170%
152%
122%
100%
Minor changes to published figures in order to improve model accuracy

4. Life business, overview
Growth in Technical Provisions Life (‘000 EUR) %
1998
1999
2000
2001
2002
2003
Non Linked
Unit Linked % % % % %
Minor changes to published figures in order to improve model accuracy

5. Scope Subsidiaries under review :
KBC Insurance Belgium + Fidea + Vitis Life
total technical provisions :
Modelled:
88 % of the mathematical reserves
94.7 % of the total premium income in 2003
99.8 % of the new premium income in 2003
Subsidiaries not under review :
Central European Subsidiaries + Secura (CSOB, K&H Life, Warta Vita, Ergo)
total technical provisions :

6. Terminology “Embedded Value” or KBC standard Value In ForceAs
investment
for
VBI** (PVFP- Cost Tied Surplus)
PVFP*
Value In Force
ANAV
ANAV
Tied Surplus Life
PV Tied Surplus Life
Tied Surplus Life
Shareholders
Equity or =
Other Allocated Surplus
Other Allocated Surplus
Other Allocated Surplus
Economic
Adjustments
Free Surplus
Free Surplus
Free Surplus
> Equity adjustments > Asset adjustments > Resilience Reserves > 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 : total figures
(‘000 EUR)
31/12/2002
31/12/2003
VBI Life
PVFP
Cost of tied surplus
( )
( )
Tied Surplus Life*
Value In Force
Other Surplus
Embedded Value
* Some methodological changes took place in the calculation of the tied surplus life

8. Adjusted Net Asset Value (ANAV): composition
[+] Shareholders Equity
[+] Equity Adjustments
“Provision for financial risks”
[+]/[-] Asset Adjustments
Unrealised capital gains on the investments, except for the bond investments in the life portfolio (“buy-and-hold”-philosophy)
Goodwill is deducted
[+] Additional Reserves
Catastrophe and equalisation reserves
Additional reserves life
[-] Tax assets and liabilities on the above

9. Adjusted Net Asset Value (ANAV): as at 31/12/2003
('000 EUR)
shareholders
equity
adjustments
asset
additional
reserves
Non life
reserves life
tax assets
and liab.
ANAV

10. Adjusted Net Asset Value (ANAV): Change 31/12/2002 – 31/12/2003
Anav
31/12/2002
Profit in 2003
Dividends
Paid
Asset Value
Adjustments
Other
31/12/2003

11. ANAV: KBC RBC requirements for Life business
KBC RBC Requirements (legal requirements)
% of the reserves
% of sum at risk
Unit Linked with legal SM > 0
1.25% (1%)
0.375% (0.3%)
Unit Linked with legal SM = 0
0.5% (0%)
Non Linked Pension products 75 F.I./ 20 S./ 5 P. mix
10.2% (4%)
Non Linked Investment products 87 F.I./11 S./ 2 P.mix
7.97% (4%)
The current RBC for Life activities is 215 % of the legal required solvency margin for the Life Activity

12. Value of Business in Force (VBI): Economic Assumptions
2002
2003
10 year bond yield
(Rate from 2006 on)
4.40% pa
(5.00% pa)
4.17% pa
Risk Prem. on equity
2.50% pa
Risk Premium used for discount rate
3.50% pa
Discount rate* (= Cost of Capital)
8.50% pa*
Wage inflation
2.80% pa
(3.00% pa)
2.90% pa
* Based on the bond yield in the long run

13. Value of Business in Force (VBI): Non Econonomic 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 2-3% per annum
Future expense reductions programs 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 on by product and distribution channel

14. Value of Business in Force (VBI): Overview
(‘000 EUR, only reserves of modelled business)
PVFP
VBI
VIF
PVFP/ reserves
VBI/ res.
reserves
2002
7.19%
5.15%
2003
6.45%
4.26%

15. Value of Business in Force (VBI): Sensitivity Analysis
Effect on VBI
+ 10%
- 10%
Expenses
- 4.77%
+ 4.77%
Lapses
- 2.18%
+ 2.35%
Mortality
- 3.35%
+ 3.36%
+ 0.5%
- 0.5%
Discount rate
- 7.59%
+ 8.09%
Investment Return*
+ 8.49%
- 9.34%
* The discount rate is changed consistently with the change in investment return. No profit sharing was given to the 4.75% guarantees in the policies.

16. Value of Business in Force (VBI): Sensitivity Analysis
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
VIF
VBI
(‘000 EUR)

17. Value of Business in Force (VBI): Change 31/12/2002 – 31/12/2003
(EUR)
VBI 31/12/2002
model Changes
Change non econ. assumptions
Unwinding discounting
Cashflow to ANAV
VNB as of 31/12/2003
Variances over 2003
Change econ.assumptions
VBI 31/12/2003

18. Value of Business in Force (VBI): Change 31/12/2002 – 31/12/2003
Effect of ‘new business’ sold in 2003 (as at 31/12/2003): EUR
APE (Annualised Premium Equivalent)
PVFP of new business at 31/12
VNB of new business at 31/12
PVFP as % of APE
VNB as % of APE
2003
91 087
53 017
43.20%
25.15%
(‘000 EUR)

19. Value of New Business (VNB): New business 2003 at date of sale
APE (Annualised Premium Equivalent)
PVFP
VNB
PVFP as % of APE
VNB as % of APE
Total
76 804
38 649
36.43%
18.33%
(‘000 EUR)

20. Review
Lane Clark & Peacock Belgium reviewed the methodology and assumptions used by KBC Insurance in the determination of the Embedded Value at 31/12/2003, the Value of 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 part 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 Group’s consolidated accounts.

21. 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 like 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 KBC’s control. 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 allows the recipient to obtain an idea of the magnitude of the expected value created by their 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.