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KBC GroupLife insurance business

Embedded value as at 31 Dec 2005 and analysis of change and sensitivity

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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.

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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

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Life insurance activity:Sales

926 707407 478 408 475 437 679

1 259 8591 780 155

2 524 9071 830 105170 758

934 5021 458 562 1 229 163

970 662

767 402

1 084 810

4 552 397

0

1 000 000

2 000 000

3 000 000

4 000 000

5 000 000

6 000 000

7 000 000

1998 1999 2000 2001 2002 2003 2004 2005

Non Linked Unit Linked

Growth in Total Life Sales, 1998-2005 (in ’000 EUR)

1 097 465

100%

1 341 980

122%

1 867 037

170%

1 666 842152%

2 230 521

203%

2 547 557

232%

3 609 717

329%

6 382 502

582%

(Premium income without the application of IFRS deposit accounting)

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Life insurance activity:Technical provisions

Growth in Technical Provisions, Life, 1998-2005 (in ’000 EUR)

4 373 520100%

5 662 602129%

6 783 772155%

7 589 874174%

8 697 296199%

10 614 953243%

4 162 741 4 467 156 4 497 804 4 637 7665 745 188

7 351 642

9 563 19110 899 596

1 195 4462 285 968

2 952 108

2 952 108

3 263 311

3 931 147

7 777 505

210 779

02 000 0004 000 000

6 000 0008 000 000

10 000 00012 000 00014 000 000

16 000 00018 000 00020 000 000

1998 1999 2000 2001 2002 2003 2004 2005

Non Linked Unit Linked

13 494 338309%

18 677 101427%

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PV TiedSurplus,

Life

Value In

Force(VIF)

Embedded Value:Terminology

“Embedded Value”

Shareholders’Equity

EconomicAdjustments

ANAV

=

FreeSurplus

Asinvestment

for

Embedded Value

> Equity adjustments> Asset adjustments

> Resilience Reserves > Tax assets and liab.

TiedSurplus,

Life

ANAV

Other Allocated Surplus

PVFP*VBI**

(PVFP- CostTied Surplus)

TiedSurplus

Lifeor

KBC standard

Embedded Value

FreeSurplus

FreeSurplus



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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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

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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

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Adjusted Net Asset Value (ANAV): Composition

as at 31/12/2005 (in ’000 EUR)('000 EUR)

3 1

98

95

8

+74 271

-349 937

+219 468

-74 597

3 0

68

16

3

Share

holde

rs’ e

quity

equit

y adju

stmen

ts

asse

t adju

stmen

ts

addit

ional

rese

rves

, life

tax a

sset

s and

liab.

ANAV

* Shareholders’ equity after dividend payout

*

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Adjusted Net Asset Value (ANAV):Roll-forward, 2004 – 2005

(in ’000 EUR)

3 0

68 1

63

+175 480 +461 852

-527 000

+454 561

2 4

74 4

53

+ 28 816

Repor

ted

Anav 3

1/12

/200

4

Resta

ted

Anav 0

1/01

/200

5

Profit

in 20

05

Divide

nds P

aid

Asset

Valu

e Adju

stmen

tsOth

er

Anav 3

1/12

/200

5

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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,

K&H 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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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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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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Total + 10% - 10%

Expenses -4.5% +4.5%

Lapses & Dormancy -2.6% +3.2%

Mortality -2.9% +2.9%

Value of Business in Force (VBI): Sensitivities

Effect of non-econonmic parameters on VBI:

+ 1.0 % - 1.0 %

Discount rate -14.8% +16.7%

Investment Return +10.8% -16.2%

Effect of economic parameters on VBI:

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Value of Business in Force (VBI): Sensitivities

Current RBC KBC

Insurance

100% 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

Changing the solvency margin:

(in ’000 EUR)

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Value of Business in Force (VBI):Roll-forward, 2004 – 2005

(in EUR) +4 806 442

-11 437 100

+96 502 780

-56 154 239

+33 307 748

-4 505 681 -14 832 901

46

8 3

23

79

6

42

0 6

36

74

6

VBI 31/

12/2

004

mod

el ch

ange

s

Chang

e no

n-ec

on. a

ssum

ption

s

Unwind

ing d

iscou

nting

Cashf

low to

ANAV

VNB as o

f 31/

12/2

005

Varian

ces o

ver 2

005

Chang

e ec

on.a

ssum

ption

s

VBI 31/

12/2

004

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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)

+ 10% - 10%

Expenses -5.93% 5.93%

Lapses -3.19% 3.64%

Mortality -2.59% 2.62%

Non-Economic Sensitivities:

- 0.5% + 0.5 %

Discount rate +5.86% -6.27%

Investment Return(excl. disc. rate) -6.23% +5.18%

Economic Sensitivities:

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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 Group’s consolidated accounts.

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Contact information

Investor Relations Office

Luc Cool, Head of IRLuc Albrecht, Financial Communications OfficerTamara Bollaerts, IR CoordinatorMarina Kanamori, CSR Communications OfficerNele Kindt, IR Analyst

E-mail: [email protected]

Surf to www.kbc.com for the latest update.

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