KBC Bank

1
KBC GroupLife businessEmbedded value as at 31
Dec. 2004 and analysis of change and sensitivity
Foto gebouw
Disclosure date 16 June 2005
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 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 KBCs
  control. A modification of an 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.

3
Content

• Life insurance activity scope
• Terminology
• ANAV (Adjusted Net Asset Value)
• Components
• Roll forward 2003-2004
• VBI (Value of Business In Force)
• Components
• Assumptions
• Sensitivities
• Roll forward 2003-2004
• VNB (Value of New Business)

4
Life business, overview
Growth in Life premium income 1998-2004 (in 000
EUR)
3 609 717 329
2 547 557 232
2 230 521 203
1 666 842 152
1 867 037 170
1 341 980 122
1 079 465 100
Minor changes to published figures in order to
improve model accuracy
5
Life business, overview
Growth in Technical Provisions, Life 1998-2004
(in 000 EUR)
13 494 338309
10 614 953243
8 697 296199
7 589 874174
6 783 772155
5 662 602129
4 373 520100
Minor changes to published figures in order to
improve model accuracy
6
Terminology
KBC standard
Embedded Value
Embedded Value
Embedded Value
As investment for
VBI(PVFP- CostTied Surplus)
Value In Force (VIF)
PVFP
ANAV
ANAV
TiedSurplusLife
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
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Scope of current VBI figures

• Scope of review
• KBC Insurance Belgium Fidea Vitis Life
  total technical provisions 12 845 960 (000
  euros)
• Modelled
• 88 of the mathematical reserves
• 96.8 of the total premium income in 2004
• 99.8 of the new premium income in 2004
• Group entities out of scope
• CEE subsidiaries (CSOB CR, CSOB SR, KH Life,
  Warta Vita) and Secura total technical
  provisions 648 378 (000 euros)

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Embedded Value overview
31/12/2003 31/12/2004
VBI Life PVFP Cost of tied surplus 372 798 564 771 (191 973) 420 637 607 844 (187 207)
Tied Surplus, Life 839 837 851 794
Value In Force 1 212 635 1 272 431
Other Surplus 922 769 1 622 660
Embedded Value 2 135 404 2 895 091
(in 000 EUR)
Some methodological changes took place in the
calculation of the tied surplus, life
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Adjusted Net Asset Value

• Adjusted Net Asset Value (ANAV)
• Shareholders Equity
• Equity Adjustments
• Minority interests
• /- Asset Adjustments
• Unrealized capital gains on the investments,
  except for bond investments in the life
  portfolio (buy-and-hold philosophy)
• Goodwill is deducted
• Additional Reserves
• Catastrophe and equalization reserves
• Additional reserves, life
• - Tax assets and liabilities on the above

10
ANAV as at 31/12/2004
(in 000 EUR)
11
ANAV Chg 31/12/2003 31/12/2004
(in 000 EUR)
12
Value of Business in Force (VBI) non-economic
assumptions

• Expenses
• Expenses are allocated to the different products
  and activities in such a way that the total
  expenses in the study equals the total expenses
  in the statutory accounts
• Expenses increase with expected wage inflation at
  2-3 per annum
• Future expense reduction 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 by product and distribution
  channel

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VBI, RBC requirements
KBC RBC Requirements(legal requirements) of the reserves of sumat risk
Unit-Linked 0.5(0 or 1) 0.375(0.3)
Non-Linked Pension products Mix 75 F.I./ 20 S./ 5 P. 8.5(4) 0.375(0.3)
Non-Linked Investment products Mix 88 F.I./11 S./ 1 P. 5.98(4) 0.375(0.3)
The current RBC for Life activities is 176 of the legal required solvency margin for the Life Activity
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VBI, economic assumptions
2003 2004
10-year bond yield (Rate from 2006 on) 4.17 pa (5.00 pa) 3.6 pa (4.80 pa)
Risk premium 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) 8.50 pa 8.30 pa
Expense (wage) inflation (Rate from 2006 on) 2.90 pa (3.00 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 via subordinated loans

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VBI, overview
PVFP VBI VIF PVFP/reserves VBI/res. reserves
2003 564 771 372 798 1 212 635 6.45 4.26 8 756 832
2004 607 844 420 637 1 272 431 5.38 3.72 11 294 213
(000 EUR, only reserves of modelled business)
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VBI, sensitivity analysis
Effect on VBI
10 - 10
Expenses - 3.95 3.95
Lapses Dormancy - 2.70 2.93
Mortality - 3.12 3.12
0.5 - 0.5
Discount rate - 7.43 7.89
Investment Return 8.58 - 9.68
The discount rate is changed consistently with
the change in investment return. No
profit-sharing was allocated to the 4.75
guarantees in the policies.
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VBI, sensitivity analysis (2)

• 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 2 895 091 2 966 874 2 909 163 2 851 451
VIF 1 272 431 974 843 1 158 342 1 341 841
VBI 420 637 492 421 434 709 376 997
(000 EUR)
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VBI, Chg 31/12/2003 31/12/2004
(EUR)
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Value of New Business (VNB)
New business, 2004 at date of sale
APE PVFP VNB PVFP as of APE VNB as of APE
Total 324 170 74 487 57 199 22.98 17.64
(000 EUR)
Annualized Premium Equivalent (APE) is a
measure of new business volume equal to 100 of
regular premium on new contracts and 10 of
single premiums
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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
  31/12/2004, the Value of 2004 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 check 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 Office Luc CoolNele
  KindtMarina KanamoriTel. 32 2 429 49 16
  E-mail investor.relations_at_kbc.com
• Visit www.kbc.com for the latest update.