Embedded Value and Analysis of Change KBC Insurance business as at 31/12/2002

Embedded Value and Analysis of Change

KBC Insurance businessas at 31/12/2002

Agenda

KBC Life Insurance Activity & Scope

Terminology

ANAV (“Adjusted Net Asset Value”) Components Roll forward 2001-2002

VBI (“Value of Business In Force”) Components Assumptions Sensitivities Roll forward 2001-2002

VNB at date of sale (“Value of New Business”)

KBC Life Insurance Activity & Scope

KBC Insurance Group: Life Activity

Technical Provisions KBC Insurance

(part Unit Linked) 2001 2002

KBC Insurance (Belgium) 5 800 356 (2 661 792)

6 567 436 (2 543 975)

Fidea (Brokerage Belgium) 558 305(26 160)

610 730(27 074)

Vitis Life (Luxembourg) 1 127 696(262 853)

985 198(240 433)

Others (CSOB, K&H Life,…) 96 215(1 303)

533 932(1 709)

Total 7 589 874(2 952 108)

8 697 296(2 813 191)

(‘000 EUR)

KBC Insurance Group: Life Activity

Growth in Total Life Premium Income 1998-2002 (‘000 EUR)

1 079 465100%

1 341 980122%

1 867 037170%

1 666 842152%

2 230 521203%

926 707407 478 408 475 437 679

1 259 859

170 758934 502

1 458 562 1 229 163

970 662

0

500 000

1 000 000

1 500 000

2 000 000

2 500 000

1998 1999 2000 2001 2002

Non Linked Unit Linked

KBC Insurance Group: Life Activity

Growth in Technical Provisions Life 1998-2002 (‘000 EUR)

8 697 296199%7 589 874

174%6 783 772

155%5 662 602

129%4 373 520100%

4 162 741 4 467 156 4 497 804 4 637 766 5 884 105

1 195 4462 285 968

2 952 108

2 813 191

210 779

0

1 000 000

2 000 000

3 000 000

4 000 000

5 000 000

6 000 000

7 000 000

8 000 000

9 000 000

10 000 000

1998 1999 2000 2001 2002

Non Linked Unit Linked

Main Distribution Channels Life Activity

KBC Bank branches

Savings and investment products Credit-linked risk covers

Insurance agents and other Savings products Group insurance (Mainly SME, partially

based upon referrals from bank branches)

Fidea Brokerage

Vitis Life operation services from Luxembourg

Scope

Subsidiaries under review

KBC Insurance Belgium + Fidea + Vitis Life

total technical provisions : 8 163 364

Modelled: 87 % of the mathematical reserves 92.8 % of the total premium income in 2002 99.7 % of the new premium income in 2002

Subsidiaries not under review

Central European Subsidiaries (CSOB, Warta Vita, K&H Life,…)

total technical provisions : 533 932

Terminology

PV TiedSurplus

Life

Value In

Force

Terminology

“Embedded Value”

ShareholdersEquity

EconomicAdjustments

ANAV

=

Asinvestment

for

Embedded Value

> Equity adjustments> Asset adjustments

> Resilience Reserves > Tax assets and liab.

TiedSurplus

Life

ANAV

Other Surplus

PVFP*VBI**

(PVFP- CostTied Surplus)

TiedSurplus

Lifeor

KBC standard

Embedded Value

Other Surplus

Other Surplus

Other Surplus = Tied Surplus Non Life + Other Tied Surplus

+Free Surplus

*PVFP = Present Value of Future Profits

**VBI = Value of Business In Force

Embedded Value: global figures

(‘000 EUR)

31/12/2001 31/12/2002

VBI LifePVFP

Cost of tied surplus

425 143545 909

(120 766)

365 919511 060

(145 141)

Tied Surplus Life 546 683 588 026

Value In Force 971 826 953 945

Other Surplus 1 989 929 828 716

Embedded Value 2 961 755 1 782 661

ANAV

ANAV : Composition

“Adjusted Net Asset Value” (ANAV) =[+] 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

ANAV : as at 31/12/2002

('000 EUR)

+8 458

-476 892

+186 752

+259 007

-151 513

1 59

0 9

31

1 41

6 7

42

0200 000400 000600 000800 000

1 000 0001 200 0001 400 0001 600 0001 800 000

shar

ehold

ers

equity

equity

adju

stm

ents

asse

t adju

stm

ents

additi

onal re

serv

es n

on life

additi

onal re

serv

es li

fe

tax

asse

ts a

nd liab

.

ANAV

ANAV Change 31/12/2001 – 31/12/2002

+346 868

-190 080

-1 185 451 -91 207

2 53

6 61

2

1 41

6 74

2

0

500 000

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

3 500 000A

NA

V31

/12/

2001

Pro

fit

in 2

002

Div

iden

ds

Pai

d

Ass

et V

alu

eA

dju

stm

ents

Oth

er

AN

AV

31/1

2/20

02

Value of Business In Force(“VBI”)

KBC RBC requirements for Life business

KBC RBC Requirements

(legal requirements)

% of the reserves

% of sum at risk

Unit Linked with legal SM > 01.25%

(1%)

0.375%

(0.3%)

Unit Linked with legal SM = 00.5%

(0%)

0.0%

(0.3%)

Non Linked invested in a 75 B./ 20 S./ 5 P. mix

9.2%

(4%)

0.375%

(0.3%)

The current RBC for Life activities is 197.9% of the legal required solvency margin for the Life Activity

VBI: Economic Assumptions

2001 2002

10 year bond yield

(Rate from 2005 on)

5.50% pa

(5.50%)

4.40% pa

(5.00% pa)

Risk Prem. on equity 3.30% pa 2.50% pa

Risk Premium used for discount rate 3.30% pa 3.50% pa

Discount rate* (= Cost of Capital) 8.80% pa* 8.50% pa*

Wage inflation 3.79% pa 2.80% pa

*Based on the bond yield in the long run

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 wage inflation % (2.80% pa) 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

VBI Overview

(‘000 EUR, only reserves of modelled business)

PVFP VBI VIF PVFP/reserves

VBI/res.

reserves

2001* 545 909 425 143 971 826 8.65% 6.74% 6 311 493

2002 511 060 365 919 953 945 7.19% 5.15% 7 104 098

*2001 Based on data of KBC Insurance Belgium

+ 10% - 10%

Expenses - 4.24% + 4.24%

Lapses - 2.10% + 2.28%

Mortality - 3.45% + 3.45%

+ 0.5% - 0.5%

Discount rate - 7.16% + 7.64%

Investment Return* + 2.76% - 6.94%

VBI : Sensitivity Analysis

Effect on VBI

* The discount rate is changed consistently with the change in investment return

VBI : Sensitivity Analysis

Current RBC KBC

Insurance

100% of the legal

SM

150% of the legal

SM

200% of the legal

SM

Embedded Value 1 782 661 1 856 103 1 820 250 1 784 387

VIF 953 945 736 570 849 322 962 073

VBI 365 919 439 361 403 508 367 645

Changing the solvency margin

(‘000 EUR)

VBI Change 31/12/2001 – 31/12/2002

(EUR)

425

142

515

365

918

865

+5 664 635

+37 911 029

-57 146 590

+75 793 801

-11 054 525

-42 569 640

-67 822 360

200 000 000

250 000 000

300 000 000

350 000 000

400 000 000

450 000 000

500 000 000

550 000 000

VBI 31/

12/2

001

Change

non eco

n. ass

umptio

ns

Unwindin

g dis

countin

g

Cashflo

w to A

NAV

VNB as

of 31/

12/2

002

Varia

nces

over 2

002

Change

in ta

xatio

n

Change

econ.a

ssum

ptions

VBI 31/

12/2

002

VBI Change 31/12/2001 – 31/12/2002

Effect of changing non economic assumptions: 5 664 635 EUR

(in ‘000 EUR) Total %

Mortality 5 382 1.27%

Lapses - 7 796 -1.83%

Expenses 6 833 1.61%

Other 1 246 0.29%

Total 5 665 1.33%

VBI Change 31/12/2001 – 31/12/2002

Effect of ‘new business’ sold in 2002 (as at 31/12/2002): 75 793 801 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

2002 195 250 104 998 75 794 53.78% 38.82%

(‘000 EUR)

VBI Change 31/12/2001 – 31/12/2002

Effect of deviations during 2002: -11 054 525 EUR

Investment returns in 2002: - 23 206 453 EUR

Lapse, mortality, extra premium income, miscellaneous+ 12 151 928 EUR

Effect of changing prospective economic assumptions: - 110 392 000 EUR

- 42 569 640 EUR

The impact of the tax reform in 2003

-67 822 360 EUR

This amount is due to changing the interest expectations and the change in the expected risk premium on equity.

Value of New Business

VNB New business 2002 at date of sale

APE (Annualised Premium Equivalent)

PVFP VNB PVFP as % of APE

VNB as % of APE

2001* 129 786 53 422 45 095 41.41% 34.96%

2002 195 250 92 872 64 587 47.57% 33.08%

(‘000 EUR)

APE Non Linked = regular premium + single premium / 10 APE Unit Linked = total premium / 10

*Based on data of KBC Insurance Belgium

Review

“B&W Deloitte reviewed the methodology used to calculate the embedded values, the value added by new business and the analysis of change in the value of inforce.”

“B&W Deloitte reviewed the assumptions used in the calculation of the embedded value and the value added by new businesss for reasonableness based on the information available”

“Based on our work and our validation report on the work carried out by KBC Insurance, we consider the embedded values, 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”

Cautionary Statements“The calculation of embedded values necessarily makes numerous assumptions with respect to economic conditions, operating conditions, taxes, and other matters, many of which are beyond the KBC’s control. Although the assumptions used represent estimates which KBC Insurance and B&W Deloitte believe are reasonable, actual future experience will vary from that assumed in the calculation of the embedded value results, and such variation may be material. Deviations from assumed experience are normal and are to be expected. Even without any change in perceived environments, and in parameters used to reflect them, actual results will vary from those projected due to normal random fluctuations. Consequently, the inclusion of the embedded value herein should not be regarded as a representation by B&W Deloitte that the stream of future after-tax statutory profits discounted to produce these values will be achieved.

The embedded value presented in this report is based on common actuarial practice with regard to valuation methodology and assumptions. The values are calculated on a deterministic basis. Therefore they do not necessarily capture the cost of any investment guarantees. Our work has not considered the impact of alternative valuation methodologies such as fair values. “

Embedded Value and Analysis of Change

KBC Insurance as at 31/12/2002