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  1. Developing insurance activities in Central Europe, focus on Hungary David Truman, K&H LifeJohan De Decker, Argosz Insurance Co.

  2. Developing insurance activities in Central Europe, focus on Hungary • Overview insurance activities in CE • K&H Life and the life market in Hungary • ARGOSZ and the non-life market in Hungary

  3. Central European structures • If we can acquire insurers, we will. If not, we will build • CE insurance markets opened to foreign capital in late '80s / early '90s, earlier than KBC entry • In early/mid '90s we had an incidental insurance presence in CE • After KBC merger of 1998, CE became strategic development of 2nd home market In Central Europe our insurance operations are a mix of acquisition, strategic alliance, green-field and joint venture

  4. Current presencein Central Europe - Insurance As at 31.12.2002 Poland (non-life / life - 2001) Ranking: 2nd/10th Market share: 13%/1% Czech Republic (non-life / life- 2001) Ranking: 5th/4th Market share: 5%/10% Slovakia (non-life / life - 2002 ) Ranking: 7th/7th Market share: 2%/4% Hungary (non-life 1992 / life1998) Ranking: 6th/14th Market share: 4%/1% Slovenia ( life 2003) Start-up phase of life assurance cy Years given relate to year of entry by KBC

  5. Relationships of KBC insurers to banks Poland Acquisition of Warta Building strategic alliance with Kredyt Bank Czech Republic Acquisition of CSOB Pojistovna (formerly IPB) Building strategic alliance with CSOB Slovakia Acquisition of Ergo (IPB related) Hungary K&H Life greenfield joint venture with K&H Bank Argosz building strategic alliance with K&H Bank Slovenia NLB Life greenfield and joint venture with NLB

  6. KBC in Hungary Effective ownership by KBC

  7. Developing insurance activities in Central Europe, focus on Hungary • Overview insurance activities in CE • K&H Life and the life market in Hungary • ARGOSZ and the non-life market in Hungary

  8. K&H Life – the Company • Integrated with K&H Bank, start up in 1999 • Operates primarily as a product factory but also assists distributors with training, marketing & sales support • Principal distribution is 163 branches of K&H Bank • Predominant retail focus with saving, investment, credit linked & individual risk products • Group products also manufactured for corporate clients • 22 staff

  9. Life assurance market evolution in CE All these CE countries combined only circa 2 x KBC Insurance life premium income in Belgium m EUR(current exchange rates)

  10. Key success factors to green-field bancassurance • Address positively bankers concerns over : • Product cannibalisation • Capital requirements • Diversion of management time • Cultural mismatch • Perceived additional workload • Communication at all levels as regards reasoning and implications • Integration as regards distribution and customer approach that is complementary to the change process

  11. Key success factors (continued) • Differentiate products (simple, transparent, clarity as to objectives, value for money & innovative) • Keep processes to a minimum and provide IT solutions that remove paperwork • Avoid formalistic methods and break down the barriers of “my business, your business” • Motivation of distribution, particularly through (integrated) incentive schemes

  12. K&H Life – a growing business Number of newindividual policies 2003 = Plan Policies per branch per annum Market share

  13. K&H Life – foundations now in place Premium income In m EUR Profit loss In '000 EUR Includes set-up costs (*) 2003 = budget(Exchange at current EUR / HUF rates)

  14. K&H Life – next steps • Extend : • Distribution by furthering relationship with Argosz agents • Product range by building on initial launch of Capital Guaranteed investment product • Customer base through corporate client relationships • Premium revenue doubling in 2003 to 17 m EUR. Further growth target of 50% in 2004 • 1 m EUR pre-tax profit in 2004 & circa 20% ROE in 2004

  15. Developing insurance activities in Central Europe, focus on Hungary • Overview insurance activities in CE • K&H Life and the life market in Hungary • ARGOSZ Insurance Co. and the non-life market in Hungary

  16. ARGOSZ– background • Essentially a non-life company • Founded as greenfield in 1992 • 98% KBC owned

  17. Non-life market situation in Hungary • From duopoly to free market • Top two companies: market share of 63% • Next 3 companies: market share of ca. 7% each • Per capita non-life premium 2001: 100 EUR(EU average: 733 EUR, Portugal: 349 EUR) • Non-life premium as % of GDP 2001: 1.9%(EU average: 3.2%, Portugal: 2.8%) • Main products :Motor 59%Property 28%

  18. 350 300 250 200 150 100 50 0 1992 2002 Non-life market situation in Hungary Annual income development non-life market in Hungary Income (in billion HUF) bn HUF

  19. % Growth HUF % Growth EUR % Inflation HUF Non-life market situation in Hungary Annual percentage growth of the non-life market in Hungary and of inflation 30 24 18 12 6 0 1992 2002 -6

  20. ARGOSZ– strategy • Target markets: retail medium-sized companies agri clients • Retail distribution through exclusive agents and K&H bank network • SME & agri distribution also through brokers and direct • Gain market share in a strongly growing market

  21. 12 000 10 000 8 000 6 000 4 000 2 000 0 1993 2002 ARGOSZ –income development In m HUF Income Average annual market share growth of 0.38% over 10 years

  22. 120 100 80 % Growth HUF 60 % Growth EUR 40 % Inflation HUF 20 0 1993 2002 ARGOSZ–income development Annual % growth as compared to inflation

  23. ARGOSZ – product mix, 1994 Total income 1994 : EUR 2.9 m

  24. ARGOSZ– product mix, 2002 Total income 2002 : EUR 47.3 m

  25. ARGOSZ –key figures * tax at 18 pct rate for 2003 and beyond ** as pct of minimum legal required Amounts in EUR (at EUR 1 = HUF 245 for 2003 and beyond)

  26. ARGOSZ –future objectives • Strong growth • Organic market share growth of 0.5% per year • No. 5 in non-life ranking in 3 years from now • While maintaining healthy technical results • Expense ratio of 25% or less • Net loss ratio of less than 72% • Combined ratio towards 95% • Generating a ROE of 18% or more (after tax)

  27. ARGOSZ – factors for sustained success • "Ownership" of distribution(tied agents) • Emphasis on cross-selling by agents • Bancassurance (K&H Bank) • Focus on the bottom-line • Excel in basic non-life skills: • Pricing • Risk selection • Claims control