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KBC Group Life insurance business Embedded value as at 31 Dec 2005 and analysis of change and sensitivity. Foto gebouw. Cautionary Statements.

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KBC GroupLife insurance businessEmbedded value as at 31 Dec 2005 and analysis of change and sensitivity

Foto gebouw

cautionary statements
Cautionary Statements
  • Embedded Value is the result of cash-flow projections with underlyingassumptions 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.
  • 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
life insurance activity sales
Life insurance activity:Sales

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

6 382 502


3 609 717


2 547 557


2 230 521


1 666 842


1 867 037


1 341 980


1 097 465


(Premium income without the application of IFRS deposit accounting)

life insurance activity technical provisions
Life insurance activity:Technical provisions

18 677 101427%

13 494 338309%

10 614 953243%

8 697 296199%

7 589 874174%

6 783 772155%

5 662 602129%

4 373 520100%

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

embedded value terminology
Embedded Value:Terminology

KBC standard

“Embedded Value”

Embedded Value

Embedded Value




VBI**(PVFP- CostTied Surplus)

Value In Force







PV TiedSurplus, Life




Other Allocated Surplus

Other Allocated Surplus

Other Allocated 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

embedded value overview
Embedded Value: Overview

(in ’000 EUR)


  • 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
adjusted net asset value anav composition
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

adjusted net asset value anav composition1
Adjusted Net Asset Value (ANAV): Composition

as at 31/12/2005 (in ’000 EUR)

('000 EUR)

+74 271

+219 468

-74 597

-349 937

3 198 958

3 068 163



asset adjustments

equity adjustments

tax assets and liab.

Shareholders’ equity

additional reserves, life

* Shareholders’ equity after dividend payout

adjusted net asset value anav roll forward 2004 2005
Adjusted Net Asset Value (ANAV):Roll-forward, 2004 – 2005

(in ’000 EUR)

+ 28 816

+454 561

+461 852

+175 480

-527 000

3 068 163

2 474 453


Profit in 2005

Dividends Paid

Anav 31/12/2005

Asset Value Adjustments

Reported Anav 31/12/2004

Restated Anav 01/01/2005

value of business in force vbi scope
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

value of business in force vbi assumptions1
Value of Business in Force (VBI): 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
    • 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
value of business in force vbi assumptions2
Value of Business in Force (VBI): Assumptions

* Based on the bond yield in the long run - weighted Average Cost of Capital, taking into account partial funding with subordinated loans

value of business in force vbi overview
Value of Business in Force (VBI): Overview

(in ’000 EUR, only reserves of modelled business)

value of business in force vbi sensitivities
Value of Business in Force (VBI): Sensitivities

Effect of non-econonmic parameters on VBI:

Effect of economic parameters on VBI:

value of business in force vbi roll forward 2004 2005
Value of Business in Force (VBI):Roll-forward, 2004 – 2005

(in EUR)

+96 502 780

+4 806 442

-11 437 100

+33 307 748

-14 832 901

-4 505 681

-56 154 239

468 323 796

420 636 746

VBI 31/12/2004

VBI 31/12/2004

model changes

Cashflow to ANAV

Variances over 2005

VNB as of 31/12/2005

Unwinding discounting

Change econ.assumptions

Change non-econ. assumptions

value of new business vnb sensitivities at date of sale
Value of New Business (VNB): Sensitivities (at date of sale)

Non-Economic Sensitivities:

Economic Sensitivities:


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.

contact information
Contact information

Investor Relations OfficeLuc Cool, Head of IRLuc Albrecht, Financial Communications OfficerTamara Bollaerts, IR CoordinatorMarina Kanamori, CSR Communications OfficerNele Kindt, IR AnalystE-mail:

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