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Consolidated Annual Report 2005 Grupo Catalana Occidente, S.A. and Subsidiaries

THE CATALANA OCCIDENTE CONSOLIDATED GROUP 1 YEAR’S SUMMARY AND KEY DATA 2 CONSOLIDATED DIRECTORS’ REPORT

BOARD OF DIRECTORS OF THE PARENT COMPANY 6

MANAGEMENT OF SEGUROS CATALANA OCCIDENTE, S.A. DE SEGUROS Y REASEGUROS 7

COMMERCIAL PERFORMANCE

Income from premiums and Pension Plan and Mutual Fund Contributions 8 Portfolio composition 8 Geographical distribution 9 Sales network– agents 9

PROFIT FOR THE YEAR Profit for the year and proposed distribution 10 Changes in consolidated and attributable profit 10 Distribution of profit 11 Shareholder remuneration 11

PERFORMANCE OF THE BUSINESS BY AREA OF ACTIVITY

Non-life insurance 12 Multirisk insurance 13 Auto insurance 14 Other 15 Reinsurance 16 Life, Pension Plans and Mutual Funds 17 General expenses and commissions 18 Agents’ balances and outstanding premiums 18 Financial result 19

BALANCE SHEET PERFORMANCE

Balance sheet, changes in assets and liabilities due to application of IFRSs 20 Equity 21 Treasury shares 22 Technical provisions and coverage 22 Solvency margin 23 Investments and funds under management 24 Investees 25

SOCIAL AND ENVIRONMENTAL ISSUES The Group’s Contribution to society 26

Customers 26 Group employees 27 Cultural and environmental policy 28 Technological development and investment in new technologies 28

INTERNAL CONTROL: Risk control systems 29 OUTLOOK FOR 2006: Strategy and objectives 30 STANDARDS AND LEGISLATION 31 STOCK MARKET PERFORMANCE 33 AUDIT 34 CONSOLIDATED FINANCIAL STATEMENTS under IFRSs

Consolidated Balance Sheet 36 Consolidated Income Statement 38 Segmental Consolidated Balance Sheet 39 Segmental Consolidated Income Statement 41 Consolidated Statement of Changes in Equity 42 Consolidated Cash Flow Statement 43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS under IFRSs 45 AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS 137

THE CATALANA OCCIDENTE CONSOLIDATED GROUP The Catalana Occidente Consolidated Group is mainly composed of companies which are directly or indirectly related to the insurance business.

The Group's Parent is Grupo Catalana Occidente Sociedad Anónima, which administers and manages all of the investments of the various Group companies. In mid September 2005, Seguros Catalana Occidente exercised the call option it held on 7% of the shares of Atradius NV, bringing the Group’s total investment in the company up to 24.98% and, as a result, Atradius NV was included in the scope of consolidation from that date. In December 2005, an agreement was reached to acquire a further shareholding package of 25%, bringing the Catalana Occidente Group’s forecast investment in Atradius NV up to 49.98% and making it the company’s main shareholder. Atradius NV is the second credit insurance operator worldwide with a turnover of around EUR 1,300 million, and a considerable international presence in 40 countries. Like Crédito y Caución, which is 39.35% owned by the Group, it has autonomous management. The following table lists the companies in the Catalana Occidente Consolidated Group, the total ownership interest held by the Group in each, their line of business and the method used to consolidate them. Note: In the case of Atradius NV, due to its recent acquisition, it has been considered that it did not contribute any profit in 2005. On the basis of the accounting information available in relation to this company, the Group will include Atradius’ results with a time lag of three months.

1

YEAR’S SUMMARY AND KEY DATA 2005 not only saw the consolidation of the results obtained in 2004, but a continued improvement in the quality of our business, with technical costs falling to the last decade’s lowest levels. In relation to the size of the business, in September 2005, the Group exercised the call option on 7.01% of the shares of Atradius NV, the second credit and surety insurance operator worldwide, bringing the Catalana Occidente Group’s direct and indirect investment in Atradius NV up to 24.98%. Subsequently, an agreement was reached to purchase from the other shareholders a further 25%, bringing our investment in 2006 up to 49.98% of the share capital. Confirming the trends announced in our quarterly reports, Consolidated Profit stood at EUR 175.5 million at the year-end, up 37.6%, and Profit Attributable to the Parent amounted to EUR 137.6 million, up 32.8%. This improvement was due first of all to the good performance of technical result in all of the lines, particularly the Auto and Other lines and, secondly, to cost containment. The total volume of income rose to EUR 2,220 million, up 8.7%. Premiums Billed amounted to EUR 1,862 million, up 7.6%, with a notable 17.0% rise on 2004 in the Life line. The boost to Pension Plan and Mutual Fund contributions continued to be of note, with a 61.7% rise to reach a volume of EUR 97 million. Also of note was the improvement in the share price for the third year running, which reached EUR 73.6 per share compared to EUR 44 at the end of 2004, representing a revaluation of 67.3%. Of particular note was the inclusion of the shares in the new Ibex Medium Caps index in May 2005. The outlook and lines of action for 2006 continue to be the same as in prior years and, therefore, we continue working to strengthen internal growth, through the development of our network of agents, by maintaining current technical margins, which we consider to be extremely satisfactory and containing expenses by taking advantage of the synergies between the various Group companies. With all the above, plus the performance of the financial markets, 2006 should be a year of continued growth and consolidation of the profits achieved in 2005 and the starting point for a larger Group that is even better prepared to deal with the challenges to be faced in the future. JESÚS SERRA SANTAMANS On 18 December 2005, our Honorary Chairman and the Founder of the Catalana Occidente Group, Jesús Serra Santamans, died. Jesús Serra Santamans was born in Pont de Vilomara, a small village near Manresa, in 1911. He dedicated his entire life to the world of insurance, becoming one of the most important and prestigious personalities in the Spanish insurance industry. With his enormous vitality and extraordinary business vision, he was the chairman of various companies and institutions, bringing a positive innovative spirit to all his projects and making him deserving of numerous awards, including the Creu de Sant Jordi award given by the Catalonia Autonomous Community Government and the Medalla de Oro al Mérito en el Seguro award. He was the Honorary Chairman of the Catalana Occidente Group until his death.

2

In order to facilitate, as far as possible, the effect of the application of IFRSs to the information considered relevant, the historical series has been included up to the 2005 year-end, in accordance with the practice under Local Spanish Standards, and the data for 2004 and 2005 calculated in accordance with IFRSs have been included in the right-hand margin. To prepare the information contained in this directors’ report, in accordance with the terms stated in the section on the application of International Accounting Standards, the standards approved at each of the 2004 and 2005 year-ends have been taken into account. This means that, for the data relating to the 2004 year-end, IFRSs 32 and 39 on the measurement of assets and IFRS 4 on issues relating to the technical provisions have not been taken into consideration.

3

% Change % Change2001 2002 2003 2004 2005 04-05 2004 2005 04-05

INCOME- PREMIUMS M. € 1,117 1,298 1,300 1,730 1,862 7.6 1,730 1,862 7.6- PENS. PLAN AND MUTUAL FUND CONTRIBUTIONS M. € 23 24 31 60 97 61.7 60 97 61.7TOTAL PREMIUMS AND CONTRIBUTIONS M. € 1,140 1,322 1,331 1,790 1,959 9.4 1,790 1,959 9.4- INVESTMENT RETURNS M. € 172 165 194 238 229 -3.8 253 261 3.2TOTAL INCOME M. € 1,312 1,487 1,525 2,028 2,188 7.9 2,043 2,220 8.7

EQUITY- SHARE CAPITAL M. € 36 36 36 36 36 36 36- EQUITY RESERVES AND VALUATION ADJUSTMENTS M. € 225 231 257 472 583 23.5 485 950 95.9TOTAL EQUITY M. € 261 267 293 508 619 21.9 521 986 89.3

TECHNICAL PROVISIONS M. € 2,743 2,970 3,159 4,447 4,746 6.7 4,399 4,613 4.9

TOTAL EQUITY ANDTECHNICAL PROVISIONS M. € 3,004 3,237 3,452 4,955 5,365 8.3 4,920 5,599 13.8

DISPOSABLEEQUITY M. € 650 681 750 863 1,057 22.5 979 1,246 27.3

E TOTAL FUNDS UNDER MANAGEMENT M. € 2,935 3,194 3,584 5,163 5,975 15.7 5,322 6,073 14.1

F CONSOLIDATED PROFIT M. € 53.2 41.0 76.4 113.9 145.4 27.7 127.5 175.5 37.6

NET PROFIT ATTRIBUTABLE TO MINORITY INTERESTS M. € 12.1 11.0 26.3 23.3 27.6 18.5 23.9 37.9 58.6TO PARENT COMPANY M. € 41.1 30.0 50.1 90.6 117.8 30.0 103.6 137.6 32.8

DATA PER SHAREPROFIT ATTRIBUTED TO PARENT € 1.71 1.25 2.09 3.78 4.91 29.9 4.32 5.73 32.8DIVIDEND PER SHARE € 0.93 0.97 1.02 1.12 1.46 30.4 1.12 1.46 30.4PAY-OUT % 54.2 77.6 48.9 29.7 29.7 - 25.9 25.5 -1.7

KEY DATA

LOCAL SPANISH STANDARDS IFRSs

G

H

A

B

C

D

GRUPO CATALANA OCCIDENTE, S.A. AND SUBSIDIARIES

Consolidated Directors’ Report

5

Honorary Chairman Jesús Serra Santamans Chairman José Mª Serra Farré Vice-Chairman Alberto Thiebaut Oliveira Secretary-Member of the Board Francisco José Arregui Laborda Board Members (1) Mariano Bach Portabella Enrique Giró Godó Jorge Enrich Izard Federico Halpern Blasco José Valero Feliu Gestión de Activos y Valores, S.L. New Grange Holding España, S.L. Olandor, S.L. Serusan, S.A. Villasa, S.A.

Board Committees

Audit Committee Chairman Alberto Thiebaut Oliveira Members Federico Halpern Blasco Gestión de Activos y Valores, S.L. Villasa, S.A. Appointments and Remuneration Committee Chairman Alberto Thiebaut Oliveira Members Jorge Enrich Izard Gestión de Activos y Valores, S.L. Villasa, S.A. The Secretary of the Board of Directors also acts as secretary to these committees.

CHANGES TO THE BOARD OF DIRECTORS In accordance with the Articles of Association, following a report by the Appointments and Remuneration Committee, the Company’s Board of Directors submits a proposal to the General Meeting for the re-election as Directors of Francisco José Arregui Laborda, New Grange Holding España, S.L. and Sercalsegur, S.L.

Died on 18 December 2005 (1) Under a resolution of the Board meeting held on 23 February 2006, Sercalsegur, S.L. was appointed a director.

BOARD OF DIRECTORS OF THE PARENT

6

Chairman José Mª Serra Farré

General Managers Jesús Serra Farré

Francisco José Arregui Laborda Deputy General Managers Luis Terradillos Basoco

Directors Juan Casanovas Arbó

Juan Closa Cañellas Luis Vallvé Arús José Vilá Tortosa

Deputy Directors Luis Estrella De Delás

Iciar Usandizaga Sáinz General Legal

Representatives Benjamín Cármenes Díez Joaquín Codinach Huix Miguel Ferrán Setién Pedro Jorba Mas Tomás Llorca Lloret Enrique Martín Ortola José M. Mújica Arregui Elena Nabal Vicuña Agustín Perlado Hergueta Agustín Mª Peyra Sala José Rabat Casals Pedro Ribes Preckler Juan Rodríguez Martí Ricardo Scotto Tovani Conrado Zanón Lacalle

MANAGEMENT OF SEGUROS CATALANA OCCIDENTE, S.A. DE SEGUROS Y REASEGUROS

7

INCOME FROM PREMIUMS AND PENSION PLAN AND MUTUAL FUND CONTRIBUTIONS Income from premiums billed and Pension Plan and Mutual Fund contributions rose to EUR 1,959 million, a EUR 169 million or 9.4% increase on 2004. Of particular note was the excellent performance of income from premiums in the Life line, up 17.0%, and in the Multirisk line which grew by 11% and, also of note, but to a lesser extent, was the considerable 61.7% increase in Pension Plan and Mutual Fund contributions. The detail by line is shown in the following table:

PORTFOLIO COMPOSITION As a result of the different levels of growth by line, the composition by business line has changed. Of note is the growth in the proportion of the Life lines which, together with Pension Plans and Mutual Funds, account for 29.9% of the portfolio, a 3.2% rise on 2004. Multirisk improved 0.3% and Other and Auto experienced decreases as shown in the following graph.

8

COMMERCIAL PERFORMANCE

8

Diff. % Incr.Lines 2001 2002 2003 2004 2005 05-04 05-04

Multirisk 164 197 214 292 324 32 11.0Other 352 418 468 559 602 43 7.7Auto 355 361 347 462 448 -14 -2.5

TOTAL NON-LIFE INSURANCE 871 976 1,029 1,313 1,374 61 4.6TOTAL LIFE 246 322 271 417 488 71 17.0TOTAL PREMIUMS 1,117 1,298 1,300 1,730 1,862 132 7.6Pens.plans and mutual fund contributions 23 24 31 60 97 37 61.7

TOTAL 1,140 1,322 1,331 1,790 1,959 169 9.4

(figures in millions of euros)

1,1401,322 1,331

1,7901,959

2001 2002 2003 2004 2005

Lines 2001 2002 2003 2004 2005

Multirisk 14.4 14.9 16.1 16.3 16.6

Other 30.9 31.6 35.2 31.2 30.6

Auto 31.1 27.3 26.1 25.8 22.9

Life 21.6 24.4 20.4 23.3 24.9

Pension plans and mutual funds 2.0 1.8 2.3 3.4 5.0

TOTAL 100.0 100.0 100.0 100.0 100.0

Life24.9%

Auto22.9%

Other30.6%

Multirisk

16.6%

P.Plans and Mut. Funds5.0%

GEOGRAPHICAL DISTRIBUTION The Catalana Occidente Group has a broad presence throughout Spain, with 1,035 offices and a considerable foothold in all of the autonomous communities, as shown in the following map.

80 OfficesEUR 97.8 M.

5.3%

30 OfficesEUR 39.1M.

2.1%


1.2%


10.4%


1.7%


1.4%


32.6%

32 OfficesEUR 46.1M.

2.5%


2.3%


3.4%


11%


1.1%

112 OfficesEUR 171 M.

9.2%

117 OfficesSEUR 205.5 M.€

11.0%

43 OfficesEUR 61.2 M.€

3.3%

3 OfficesEUR 2 M.

0.1%


1.2%

2 OfficesEUR 3.8 M.

0.2% SALES NETWORK – AGENTS The Catalana Occidente Group distributes its products mainly through highly qualified Insurance Agents who work exclusively with the Group. Initiatives in 2005 concentrated on increasing the number of these professional agents and improving productivity levels in sales activities. The following table shows the changes in the number of agents by distribution channel compared to 2004.

9

2004 2005Nº

AGENTESNº

AGENTES

Con oficina 680 691Sin oficina 1.170 1.245

1.850 1.936

Corredores 3.022 2.835Tradicionales 3.000 2.997Redes Específicas 2.952 3.075Resto de agentes a tiempo parcial 9.190 9.183

20.014 20.026(*) ErrataData from the previous table were corrected subsequent to the approval of the annual accounts

Agentes Exclusivos

CANALES DE DISTRIBUCIÓN (*)

TOTAL AGENTES

PROFIT FOR THE YEAR AND PROPOSED DISTRIBUTION Consolidated Group profit rose 37.6% on 2004 to EUR 175.5 million. Profit attributable to the parent amounted to EUR 137.6 million, up 32.8% on 2004. The following table shows the main items in the Income Statement, in comparison with 2004, highlighting the improvement in technical costs and, as a result, in technical result, which totalled EUR 426.7 million, a 30.8% increase on 2004.

CHANGES IN CONSOLIDATED AND ATTRIBUTABLE PROFIT (*)

(*) 2000 and 2003 calculated on the basis of Local Spanish Standards and 2004 and 2005 on the basis of IFRSs.

PROFIT FOR THE YEAR

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INCOME STATEMENT 2004 2005 % Incr.Premiums 1,729.9 1,862.2 7.6 Premiums acquired 1,720.7 1,853.8 7.7 Technical cost 1,394.6 1,427.1 2.3TECHNICAL RESULT 326.1 426.7 30.8As a % of premiums acquired 19.0% 23.0%Expenses 239.9 256.2 6.8As a % of premiums acquired 13.9% 13.6%TECHNICAL RESULT AFTER EXPENSES 86.2 170.5 97.8As a % of premiums acquired 5.0% 9.2%FINANCIAL RESULT (*) 75.0 62.4 -16.8As a % of premiums acquired 4.2% 4.0%PROFIT BEFORE TAXES 161.2 232.9 44.5As a % of premiums acquired 9.4% 12.6%Corporation Tax 33.7 57.4 70.3As a % of premiums acquired 2.0% 3.1%PROFIT AFTER TAXES 127.5 175.5 37.6As a % of premiums acquired 7.4% 9.5%ATTRIBUTABLE PROFIT 103.6 137.6 32.8 (*) Includes income and expenses from the non-technical account


103.6

137.6

53.2

76.4

41.0

127.5

175.5

41.1 30.050.1

020406080

100120140160180

2001 2002 2003 2004 2005

CONSOLIDATED PROFIT

ATTRIBUTED PROFIT

DISTRIBUTION OF PROFIT The Individual Net Profit of the Parent, Grupo Catalana Occidente, S.A., amounts to EUR 18.3 million. SHAREHOLDER REMUNERATION The Company’s Annual General Meeting held on 28 April 2005, resolved to distribute a dividend out of reserves of EUR 30,480,000, representing EUR 1.27 per share, which was paid on the following dates: on 13 May, EUR 0.43 per share and on 15 July and 14 October 2005 and February 10, 2006, EUR 0.28 per share. The Company also resolved to pay an interim dividend out of profit for the year, approved by the Board of Directors in March 2006, in the amount of EUR 0.62 per share, making a total sum of EUR 14,880,000. In line with the distribution of dividends in prior years, the dividend theoretically attributable to 2005 profit (July and October 2005 and February and May 2006) amounts to EUR 1.46 per share, up EUR 0.34 on the EUR 1.12 per share paid at the same time in the preceding period.

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PERFORMANCE OF THE BUSINESS BY AREAS OF ACTIVITY NON-LIFE INSURANCE All of the Non-Life Insurance lines performed very favourably in 2005, which is reflected, to a large extent, in the considerable increase in profit and, to a lesser extent, in the greater business volume achieved. In 2005, 478,875 new non-life policies were executed for EUR 186 million, with the policies in our portfolio numbering 3,492,871, up 41,407 on 2004. These circumstances are enabling us to invest in new development projects in these lines which will result in improvements to our products and optimise the quality of the service provided to our customers and agents. In terms of profit, the EUR 214.5 million achieved in Technical-Financial Result in 2005 represents a 63% increase on 2004, which is mainly explained by the ongoing improvement in the technical cost in this line group. The following tables show the comparative figures for the various items in the income statements for 2005 and 2004, together with the performance of the combined ratio (which represents the relationship between the premiums acquired and the sum of expenses, commissions and technical costs).

Changes in the Combined Ratio

87.25

93.9095.70

99.62102.54

85.00

90.00

95.00

100.00

105.00

2001 2002 2003 2004 2005

12

Income Statement 2004 2005 % Incr.Premiums acquired 1,304.8 1,366.7 4.7As a % of premiums acquired 100% 100%Technical Result 285.8 390.3 36.6As a % of premiums acquired 21.9% 28.6%Expenses (*) 202.4 216.4 6.9As a % of premiums acquired 15.5% 15.8%Technical Result after expenses 83.4 173.9 108.5As a % of premiums acquired 6.4% 12.7%Financial Result 48.2 40.6 -15.8As a % of premiums acquired 3.7% 3.0%Technical-financial result 131.6 214.5 63.0As a % of premiums acquired 10.1% 15.7%


MULTIRISK INSURANCE The improvement in the combined ratio in 2004 was sustained in the Multirisk lines, and stood at very similar levels: 92.43% in 2005 compared to 92.66% in 2004. As the following table shows, containment of this ratio is due to the rise in technical costs offset by the fall in commissions and general expenses. The following tables show the changes in the main figures for this line group.


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99.73 99.30 99.10

92.66 92.4390.00

95.00

100.00

105.00

2001 2002 2003 2004 2005

Income Statement 2004 2005 % Incr.Premiums acquired 284.4 313.4 10.2As a % of premiums acquired 100% 100%Technical result 69.0 73.2 6.1As a % of premiums acquired 24.2% 23.4%Expenses 47.3 49.6 4.9As a % of premiums acquired 16.6% 15.8%Technical result after expenses 21.7 23.6 8.8As a % of premiums acquired 7.6% 7.5%Financial result 7.6 6.7 -12.5As a % of premiums acquired 2.7% 2.1%Technical income - financial result 29.3 30.3 3.2As a % of premiums acquired 10.3% 9.6%


2004 2005 % Incr.

Policies sold 173,252 175,520 1.3Policies in the portfolio 1,298,319 1,329,562 2.4

Premiums sold € M. 44 47 6.3Premiums billed € M. 292 324 11.0

Claim counts 309,166 317,183 2.6Claim frequency (no.of claims per 100 policies) 24.1 24.1 -Average cost of claims Euros 468.2 528.8 12.9

Total technical provisons € M. 251 276 10.1

% technical costs % 55.56 56.83 2.3% commissions % 20.19 19.82 -1.8% general expenses % 16.91 15.78 -6.7% Total = Combined ratio % 92.66 92.43 -0.2

AUTO INSURANCE 2005 was an especially important year for the auto line. Not only was a positive technical result obtained for the second year running, but it increased to EUR 47.7 million compared to the EUR 7 million obtained in 2004, supported by the very favourable performance of technical costs which fell 10.3% to less than 60%. Turnover fell 2.5% despite the fact that sales increased 17.4%, which is explained by the reduction in prices applied to the policies in the portfolio in order to pass the improvements in margins in this business onto our customers.


89.62

98.58101.22

104.61

110.44

88.0090.0092.0094.0096.0098.00

100.00102.00104.00106.00108.00110.00112.00

2001 2002 2003 2004 2005

2004 2005 % Incr.

Policies sold 159,453 187,206 17.4Policies in the portfolio 1,154,138 1,136,173 -1.6

Premiums sold € M. 80 82 2.4Premiums billed € M. 462 448 -2.5

Claim counts 261,320 249,874 -4.4Claim frequency (no.of claims per 100 policies) 22.2 21.8 -1.8Average cost of claims Euros 1,218.6 1,077.7 -11.6

Total technical provisons € M. 649 621 -4.3

% technical costs % 69.58 59.31 -14.8% commissions % 11.98 12.20 1.8% general expenses % 17.02 18.11 6.4% Total = Combined ratio % 98.58 89.62 -9.1

Income Statement 2004 2005 % Incr.Premiums acquired 472.5 460.5 -2.5As a % of premiums acquired 100% 100%Technical result 87.1 131.2 50.6As a % of premiums acquired 18.4% 28.5%Expenses 80.0 83.5 4.4As a % of premiums acquired 16.9% 18.1%Technical result after expenses 7.1 47.7 569.2As a % of premiums acquired 1.5% 10.4%Financial result 23.0 17.2 -24.9As a % of premiums acquired 4.9% 3.8%Technical - financial result 30.1 64.9 115.7As a % of premiums acquired 6.4% 14.2%


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OTHER This category includes a wide variety of lines, encompassing credit and surety, accident, third-party liability and health and funeral insurance. The following tables show changes in the main figures in this line group.

The combined ratio in the Other insurance line continued to be the lowest in non-life insurance and improved considerably in 2005, falling 7.35% to 82.69% compared to 90.04% in 2004.


Income Statement 2004 2005 % Incr.Premiums acquired 547.9 593.0 8.2As a % of premiums acquired 100% 100%Technical result 129.7 185.9 43.3As a % of premiums acquired 23.7% 31.4%Expenses 75.1 83.2 10.8As a % of premiums acquired 13.7% 14.0%Technical result after expenses 54.6 102.7 88.1As a % of premiums acquired 10.0% 17.3%Financial result 17.6 16.6 -5.7As a % of premiums acquired 3.2% 2.8%Technical - financial result 72.2 119.3 65.2As a % of premiums acquired 13.2% 20.1%


2004 2005 % Incr.

Policies sold 110,191 116,149 5.4Policies in the portfolio 999,007 1,027,136 2.8

Premiums sold € M. 53 58 9.1Premiums billed € M. 559 602 7.7

Claim counts 127,288 136,344 7.1Claim frequency (no.of claims per 100 policies) 13.1 13.5 3.1Average cost of claims Euros 2,161.8 2,235.7 3.4

Total technical provisons € M. 862 750 -13.0

% technical costs % 63.92 55.87 -12.6% commissions % 12.42 12.79 3.0% general expenses % 13.70 14.03 2.4% Total = Combined ratio % 90.04 82.69 -8.2

95.7594.99

89.7390.04

82.69

82.00

84.00

86.00

88.00

90.00

92.00

94.00

96.00

98.00

100.00

2001 2002 2003 2004 2005

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REINSURANCE Outward reinsurance premiums totalled EUR 225.4 million, a slight 0.3% fall on 2004. This fall contrasts with the 7.6% increase in business recorded and demonstrates our policy of increasing business retention which has been carried out in the last few years and combines with the quality of our risk portfolio. The Group continued to maintain and, in some cases, to surpass, where possible, the rating of the reinsurance companies in the various reinsurers panels. In particular, Münchener, General Re and Swiss Re, which are the main lead insurers in our reinsurers panels, have A+, AAA and AA ratings, respectively. The other companies’ ratings are between AAA and A-. The following table shows the main figures relating to outward reinsurance.

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Income 2004 2005 % Incr.

Outward premiums € M. 226.1 225.4 -0.3

Increase in provision for unearned premiums € M. -6.2 -0.1

Commissions € M. 69.2 67.4 -2.6

Cost of outward reinsurance € M. 163.1 158.1 -3.1

Loss ratio % 121.0 121.1 0.1

Total cost of reinsurance € M. 42.1 37.0 -12.1

LIFE, PENSION PLANS AND MUTUAL FUNDS Turnover and Results This section includes not only life insurance but also pension plans and financial products such as mutual funds which continued to show favourable performance, particularly in terms of business volume, having reached a turnover of EUR 488 million, a 17% increase on 2004. The following table shows the main figures for the line.

2004 2005 % Incr.

Policies sold, pension plans and mutual funds 95,391 102,317 7.3Policies in the portfolio 435,985 437,562 0.4

Premiums sold, pension plan and mutual fund contributions € M. 246 317 28.7Premiums billed € M. 417 488 17.0

Claim count 53,332 63,145 18.4

Volume of managed funds in:

Mathematical provisions and unpaid claims € M. 2,542.4 2,892.0 13.8 Pension plans and mutual funds € M. 285.8 361.0 26.3

The total result in this line group amounted to EUR 16.9 million, a 31.0% decrease on the figures obtained in 2004. This decrease is explained by the impact of the increase in the mathematical provision due to the interest rate set by the Directorate-General of Insurance and Pension Funds.

Income Statement 2004 2005 % Incr.Premiums acquired 415.9 486.9 17.1As a % of premiums acquired 100.0% 100.0%Technical result 40.3 36.3 -10.0As a % of premiums acquired 9.7% 7.5%Expenses 37.4 39.7 6.0As a % of premiums acquired 9.0% 8.2%Technical result after expenses 2.9 -3.4 -As a % of premiums acquired 0.7% 0.7%Financial result 21.5 20.3 -5.9As a % of premiums acquired 5.2% 4.2%Technical-financial result 24.4 16.9 -31.0As a % of premiums acquired 5.9% 3.5%


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GENERAL EXPENSES AND COMMISSIONS The total volume of General Expenses and Commissions amounted to EUR 474 million, up 6.2% on 2004. The detail and historical changes are shown in the following table. The expense efficiency ratio, which measures the relationship between expenses and the volume of business, improved 0.3%.

2001 2002 2003 2004 2005

Commissions 121 138 144 199 215

As a % of premiums 10.8 11.4 11.1 11.5 11.6

General Expenses 171 182 199 247 259

As a % of premiums 15.3 15.1 15.3 14.3 13.9

Total expenses 292 320 343 446 474

As a % of premiums 26.1 26.5 26.4 25.8 25.5


15.3 15.1 15.3 14.3

10.8 11.4 11.1 11.5 11.6

13,9

2001 2002 2003 2004 2005

26.1 26.5 26.4 25.8 25.5

% COMMISSIONS

% GENERAL EXPENSES

AGENTS’ BALANCES AND OUTSTANDING PREMIUMS At the 2005 year-end, the balances for outstanding premiums held by agents amounted to EUR 59 million, equal to 3.2% of premiums. Since 2000, agents’ balances have been decreasing, both as a percentage of premiums and in absolute terms, basically due to the increase in direct debits. Taken globally, the Balances caption includes the amount for premiums that have been billed but not yet sent for collection, relating to split payments for the various insurance contracts which are therefore all pending collection. The changes in recent years in both items are shown below.

2001 2002 2003 2004 2005

Balances of outstanding premiums (issued and not issued) 103 85 79 110 110As a % of premiums 9.2 6.5 6.1 6.4 5.9

Balances of premiums due (sent for collection) 64 52 47 59 59As a % of premiums 5.8 4.0 3.6 3.4 3.2


18

FINANCIAL RESULT The changes in each of the items under financial result are shown below.

2004 2005 % Incr.

Total Net Operating Profit 193.6 219.4 13.3

Provision to the investment valuation allowance 15.3 -0.7 -Consolidation goodwill amortisation and adjustments -1.9 -1.2 -Gains / Losses arising on disposals -1.7 5.6 -

FINANCIAL MARGIN 205.3 223.1 8.7Interest attributed to insureds 123.7 148.3 19.9

FINANCIAL RESULT 81.6 74.8 -8.3


(*)

(*) Application of the new IFRSs at each of the year-ends (2004 and 2005) results in an unequal adjustment, basically due to the fact that IFRS 32 and IFRS 39 are applicable from 1/1/2005 and do not affect 2004. The reversal of the Investment Valuation Allowance would have amounted to EUR 6.1 million if both standards had been applied in 2004.

It must be taken into account that EUR 148.3 million in interest (67.6% of profit from ordinary activities) was taken from financial margin and credited to the mathematical provisions linked to each customer, in accordance with the terms of their contracts.

19

BALANCE SHEET PERFORMANCE BALANCE SHEET As stated at the beginning of this report, the following table includes the closing balance sheets for 2004 and 2005, both under Local Spanish Standards and IFRSs. The most significant effects of the application of IFRSs on assets and liabilities are explained below.

2004 2005 2004 2005

Intangible Assets and Property, Plant and Equipment 360 375 372 376Investments 4,158 4,632 4,190 5,089Reinsurance Share of Technical Provisions 302 293 302 293Deferred Tax Assets 29 24 24 24Receivables 283 255 253 259Prepayments and Accrued Income and Other 118 116 119 116

T O T A L A S S E T S 5,250 5,695 5,260 6,157

Equity 508 619 521 986Technical Provisions 4,447 4,746 4,399 4,613Other Provisions 21 31 63 71Deposits received for outward reinsurance 58 56 58 56Deferred Tax Liabilities 0 0 3 188Payables 203 230 203 230Accrued Expenses and Deferred Income and Other 13 13 13 13T O T A L E Q U I T Y A N D L I A B I L I T I E S 5,250 5,695 5,260 6,157


A S S E T S

E Q U I T Y A N D L I A B I L I T I E S

Balance SheetLOCAL SPANISH

STANDARDS IFRSs

CHANGES IN ASSETS DUE TO THE APPLICATION OF IFRSs (2005)

Reversal of the amortisation of consolidation goodwill in 2004 and 2005 30.3Transfer of goodwill in companies accounted for using the equity method -23.7Depreciation of properties for own use -5.1

1.5

Change in scope of consolidation -4.1Transfer of goodwill in companies accounted for using the equity method 23.7Recognition of financial assets at market value 437.9Amortisation of the appreciation of properties of subsidiaries onconsolidation -1.0

456.5

Changes in the measurement of provisions relating to agents and outstanding premiums 4.0

Total effect on assets of the adoption of IFRSs 462.0

Receivables

Investments

Intangible assets and Property, plant and equipment


20

CHANGES IN LIABILITIES DUE TO APPLICATION OF IFRSs (2005)

Change in scope of consolidation -4.1No amortisation of goodwill 29.1Reversal of equalisation provision 133.8Differences in the measurement of financial assets at market value 205.0Other adjustments 2.4

366.2

Mathematical provision due to recognition of the insureds' share in profits on the recognised gains (Shadow Accounting effect) 119.4

Reduction in mathematical provisions due to the transfer of employee pension obligations -46.1Reversal of the equalisation provision -205.8

-132.5

Reduction in mathematical provisions due to the transfer of employee pension obligations 46.1Adjustment to provisions for tax contingencies -6.1

40.0

Recognition of tax debts due to IFRS adjustments 188.1188.1

Adjustments to the provision for outstanding premiums 0.20.2

Total effect on assets and equity of the adoption of IFRSs 462.0

Debts


Technical Provisions

Equity (effects net of corporation tax)

Other provisions

Deferred tax liabilities

EQUITY Paid-in share capital amounts to EUR 36 million, divided into 24 million shares of EUR 1.5 par value each. Equity amounts to EUR 986 million, calculated under IFRSs, with a EUR 478 million increase on the figures published in 2004, calculated under Local Spanish Standards.

Equity at 31/12/2004 under Local Standards 508.1

Effect of the adoption of IFRSs- Reversal of the amortization of goodwill (04) net of taxes 11.6- Change in the scope of consolidation -5.4- Other effects 6.9

13.1Equity at 31/12/2004 under IFRSs 521.2

Effect of the introduction of IFRS 32 and IFRS 39 and IFRS 4 with effect from 01/01/2005- Due to the recognition of financial gains net of taxes 124.5- Reversal of equalisation provision net of taxes 112.8

237.3Changes in the year

- 2005 consolidated profit 175.5- Change in financial gains 82.0- Payment of dividends to Group shareholders -29.3- Other effects -1.1

227.1

TOTAL EQUITY AT 31/12/2005 under IFRSs 985.6


21

TREASURY SHARES In 2005, the subsidiary Salerno 94 S.A. acquired 13,159 shares and sold 39,968 shares of Grupo Catalana Occidente, reducing the volume of its investment by EUR 77,466 and, as a result, reversed the restricted reserve under Article 79 of the Consolidated Spanish Corporations Law for the same amount. At year-end the Group owns 1.45% of its own shares. In accordance with the new IFRSs, the gains or losses on the disposal of treasury shares must be adjusted and may not be accounted for as an increase in profit or loss for the year, as appropriate, but must be recognised directly as an increase or decrease in equity. TECHNICAL PROVISIONS AND COVERAGE The Group’s Technical Provisions totalled EUR 4,613.1 million, compared to EUR 4,398.6 million in 2004. However, it must be taken into account that IFRS 4 is not applicable to 2004 and, therefore, the technical provisions have not been reduced by the amount relating to the elimination of the equalisation provision.

2004 2005

Unearned premium and expired risk provisions 528.1 536.0Life insurance provisions 2,581.0 2,922.3Claims provision 1,099.1 1,137.7Equalisation provision 173.6Other technical provisions 16.8 17.1

TOTAL TECHNICAL PROVISIONS 4,398.6 4,613.1Less: Provision for uncollected premiums, acquisition commissions and others 237.7 235.9Technical provisions to be covered with eligible assets 4,160.9 4,377.2


IFRSs

The status of coverage by technical provisions at 2005 year-end and the changes over the past few years are shown in the following table, under both Spanish Accounting Standards and IFRSs.

The effect of the application of IFRSs at 2005 year-end is as follows:

132.483.1

215.5

Increased value of eligible assets

Coverage under IFRSs


Decrease in technical provision requirements

22

2001 2002 2003 2004 2005 2004 2005

Technical provisions requirements 2,608.1 2,785.1 2,974.9 4,209.3 4,509.7 4,160.9 4,377.2

Eligible assets 3,056.9 3,309.1 3,604.9 4,970.7 5,648.6 4,989.9 5,731.7Coverage surplus 448.8 524.0 630.0 761.4 1,138.9 829.0 1,354.5

(figures in millions of euros)Local Standards IFRSs

SOLVENCY MARGIN Under Local Spanish Standards, insurance companies must have disposable equity exceeding a certain amount, calculated under the methods defined in the private insurance regulations. The following table shows the solvency margin under the above regulations.

2001 2002 2003 2004 2005 2004 2005

Disposable equity 650 681 750 863 1,057 979 1,246

Minimum solvency margin 185 196 219 328 321 328 321

Surplus solvency margin 465 485 531 535 736 651 925Disposable equity as a % of minimum requirement 351 348 342 263 329 299 388

Local Spanish Standards IFRSs(figures in millions of euros)

The detail of the effect of the adoption of IFRSs on the various dates is shown in the section on equity.

23

INVESTMENTS AND FUNDS UNDER MANAGEMENT Total investments made by the Group amounted to EUR 5,402 million, up 20.2% on 2004. Including the investments relating to Pension Plans and Mutual Funds, they total EUR 6,073 million, up 14.1%. The figures relating to investments are presented for comparison purposes calculated under both Local Spanish Standards and IFRSs, although in the case of IFRSs, it must be considered that IFRS 32 and IFRS 39 on the Measurement of Assets are not applicable to 2004. It must also be taken into account that the application of IAS 16 and IAS 40 on the measurement of investment property, also allows various options, from measuring properties at depreciated cost, as under Spanish legislation, to measuring some or all of them at market value. In this first stage of application of IFRSs, the Group has chosen to measure properties at depreciated cost as this is the most prudent option and because, under the above-mentioned IFRS, properties can always be restated to market value, but may not be accounted for at their depreciated cost once the values have been restated. At the 2004 and 2005 year-ends, unrecognised gains on properties amounted to EUR 258.4 million and EUR 310.5 million, respectively. Total Investments and breakdown

2004 2005 2004 2005Property, plant and equipment 266 272 265 271Investment property 175 182 175 182Financial assets Held-to-maturity financial assets - - - - Available-for-sale financial assets 3,104 2,929 3,097 3,462 Held-for-trading financial assets 159 164 159 199 Other financial assets 2 366 44 254Total financial assets 3,265 3,459 3,300 3,915

Investments on behalf of life-insurance policy -holders who bear the investment risk 261 300 261 300Cash and cash equivalents 495 734 495 734TOTAL INVESTMENTS AND PROPERTY, PLANT AND EQUIPMENT 4,462 4,947 4,496 5,402Unrecognised gains 415 667 540 310Pension plans and mutual funds 286 361 286 361

TOTAL FUNDS UNDER MANAGEMENT 5,163 5,975 5,322 6,073

(1) Investment property and financial assets(2) Investment property


Local Spanish Standards IFRSs

(1) (1) (1) (2)

Breakdown of investments by type in 2005

24

Other investments

15.4%

Properties7.8%

Fixed-income

securities51.5%

Deposits and cash

13.6%

Equity securities

11.7%

INVESTEES Grupo Catalana Occidente is the parent of the consolidated Group. It has capital of EUR 36 million, equity of EUR 180 million and controls the other companies in the Group. As a result of the company restructuring carried out in September 2001, this company became the company administering and managing the various investments of the companies in the consolidated Group. The following table lists the various companies in the consolidated Group, together with the ownership interest held by the Group and the main figures for each of them.

25

2004 2005Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros 100.00% Life and non-life insurance 348.9 3,001.9 1,065.9 9.5 31.8 113.3 256.3Depsa Sociedad Anónima de Seguros y Reaseguros 100.00% Legal defence insurance 8.7 35.0 23.0 3.6 2.0 2.2 10.0Lepanto, S.A. Compañía de Seguros y Reaseguros 99.73% Life and non-life insurance 24.2 178.8 105.1 27.4 2.8 24.2 764.3

Nortehispana, de Seguros y Reaseguros, S.A. 99.52% Funeral insurance 33.6 150.2 81.1 10.3 6.4 6.8 6.3

Catoc Vida, Sociedad Anónima de Seguros 79.20% Life insurance 21.3 110.7 17.6 -4.9 1.0 1.0 0.0

Cosalud, Sociedad Anónima de Seguros 100.00% Health insurance 11.0 11.0 16.1 -4.7 3.1 3.2 3.2Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A. 39.35% Surety and credit insurance 388.1 656.7 288.4 -21.6 37.0 64.0 73.0Tecniseguros, Sociedad de Agencia de Seguros, S.A. 100.00% Insurance agency 0.1 0.3 2.3 15.0 0.0 0.0 0.0Prepersa, Peritación y Prevención de Seguros, A.I.E. 100.00% Adjuster 0.4 0.4 3.2 6.7 0.1 0.0 -100.0

Inversiones Menéndez Pelayo, SICAV, S.A. 100.00% Investment company 21.0 20.9 3.1 -22.5 1.2 1.3 8.3Catoc, Sociedad Anónima de Inversión Mobiliaria 84.09% Investment company 53.6 66.3 2.0 0.0 3.4 -6.4 -288.2

Salerno 94 S.A. 100.00% Investment management 19.0 12.0 0.7 -82.9 2.8 1.4 -50.0Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. 99.71% Life and non-life insurance 144.2 1,297.9 476.6 1.4 16.4 36.5 122.6

C.O. CAPITAL Agencia de Valores, S.A. 100.00% Securities broker 0.3 0.3 0.1 0.0 0.0 0.0 0.0

S.Orbita Sociedad de Agencia de Seguros S.A. 99.71% Securities broker 1.3 0.5 17.3 15.3 0.0 0.0 0.0Seguros Bilbao Fondos S.G.I.I.C. 99.71% Mutual fund manager 1.9 3.2 3.9 18.2 1.9 2.2 15.8

Bilbao Vida y Gestores Financieros, S.A. 99.71% Insurance agency 0.1 0.0 1.2 -53.8 0.1 0.1 0.0

Bilbao Hipotecaria, S.A., E.F.C. 99.71% Loans and mortgage facilities 5.2 21.3 0.7 -12.5 0.3 0.2 -36.7Bilbao Telemark, S.L. 99.71% Retail sale of insurance 0.04 0.0 0.4 0.0 0.0 0.0 0.0

2004 2005

Baqueira Beret, S.A. 49.49% Ski resort 38.8 116.2 50.0 19.3 3.3 5.0 51.5Hercasol, S.A. Sociedad de Inversión de Capital Variable,S.A. 33.52% Investment company 13.8 14.0 1.6 0.0 0.6 0.6 0.0

Inpisa Dos SICAV S.A. 20.82% Investment company 45.8 46.3 4.8 45.5 0.1 2.7 0.0

Asitur Asistencia 28.53% Assistance and repairs 8.5 8.3 86.4 23.6 0.6 0.7 16.7

Calboquer, S.L. 20.00% Medical advisory services 0.3 0.2 1.6 0.0 0.2 0.3 50.0

Atradius N.V. 24.98% Credit insurance 598.6 1,019.6 1,756.9 0.0 50.0 0.0 0.0

(1) The data for Baqueira Beret relate to its financial years ended in June 2005 and June 2004.

% Incr.Investment Income % Incr.Profit

Companies Line of Business

Equity-accounted subsidiaries

Ownership

Ownership Equity

Fully Consolidated Subsidiaries (figures in millions of euros)Profit

Equity Investment Income % Incr. % Incr.Line of Business Company

(1)

26

THE GROUP’S CONTRIBUTION TO SOCIETY The business activities carried on by the Group as a member of the business system entails the transfer of financial resources to the extent that each of the market players takes part in the value generation chain. The Group thus transfers financial resources to society, represented by various groups of which the main ones, by order of investment, are as follows:

CUSTOMERS The Group keeps in regular contact with its customers and agents, with the double aim of keeping its product lines permanently up to date and keeping its finger on the pulse of day-to-day reality, the handling of claims and the problems that may arise with customers and its agents. To do this, we have various procedures, ranging from meetings with major customers and representative agents to surveys on customer satisfaction following a claim. In any event, customers may directly address the customer service office or the customer ombudsman if they have any queries or discrepancies with regard to the acts of any Group company. Customer Service Department and Customer Ombudsman

In 2005, the Group’s various customer service departments handled 1,513 claims: 1,447 were admitted, and of these, 434 (30%) were resolved by upholding either all or some of the claimants’ petitions. In 827 cases (57.2%) the claim was dismissed and in 115 (7.9%), an agreement was reached between the parties. At 31 December 2005, there were 71 cases pending resolution. As regards the Customer and Participant Ombudsman, 459 claims were received in 2005, of which 329 were admitted and 61 (18.5%) were resolved by upholding either all or some of the claimants’ petitions. In 184 cases (55.9%), the claim was dismissed and in 29 (8.8%), an agreement was reached between the parties. At 31 December 2005, there were 55 cases pending resolution. The number of claims received by both channels fell, once claims were separated from the queries or complaints, which were appropriately handled and resolved, thereby avoiding an actual claim being brought.

SOCIAL AND ENVIRONMENTAL ISSUES

2004 2005

Customers, harmed third parties and suppliers due to claims 965 1,052Public authorities 234 235Agents 209 215Employees 110 123Shareholders 25 29

27

GROUP EMPLOYEES Employees

The total number of employees of the various Group companies amounted to 2,824 at 31 December 2005. The detail of the main categories is as follows: The breakdown of the organization, by activity performed, is as follows:

2004 2005

At head office 904 835At underwriting centres 125 121At claims centres 438 490At support and call centres 107 135In Spain 1,256 1,243

TOTAL 2,830 2,824

Other data of interest is shown in the following table:

2001 2002 2003 2004 2005

Managers 63 64 63 85 81

Heads and qualified staff 507 502 518 629 635

Clerks and agency managers 1,649 1,620 1,608 2,084 2,067

Messengers 46 59 57 32 41

TOTAL 2,265 2,245 2,246 2,830 2,824

2004 2005

Female employees as a % of total 38.4 38.9Male employees as a % of total 61.6 61.1Part-time employees as a % of total 90.8 90.8Employees on flexi-time as a % of total 66.8 64.5

Personnel Training

Another issue to highlight is the serious ongoing effort made by the Group in training. The hours spent on training-related activities and other parameters of interest in this area are shown in the following table:

2005

No. of courses given to employees 540

Classroom-based 85% On-line 15%

By content:

Products and internal processes 49% Management skills, HR and languages 26% Computing and office automation 13% Sales, marketing and customer care 9% Occupational risk prevention 3%

Total no. of training hours 86,625Average no. of training hours per employee and year 34.4Participants 10,693

CULTURAL AND ENVIRONMENTAL POLICY Through the various companies and in particular through the Catalana Occidente Foundation, the Group has funded various activities linked to culture, health and medical research, and has also supported non governmental organisations. The Group also directly supports the reinsertion of disabled people, gives funding to various non governmental organisations and publishes both in the Group’s in-house magazines and in those addressed to customers, articles relating to safety, health, employee benefits, etc. As regards environmental policy, the Group does not directly carry on any risk activities. In any event, activities were carried out to optimise waste management, the use of biodegradable materials and recycled paper, and to optimise energy consumption, among others. In addition, the Group holds a 13.53% investment in Fersa Energías Renovables S.A., a company engaged in research, development and exploitation of various alternative energy sources. TECHNOLOGICAL DEVELOPMENT AND INVESTMENT IN NEW TECHNOLOGIES As in previous years, the Group has continued to support the ongoing upgrading and adaptation of its systems, placing particular emphasis in 2005 on sales, underwriting and claims and the information systems. The Group is also focusing major efforts on standardising its investees’ business processes, particularly with respect to the most relevant computer systems and software, regulations, suppliers and shared logistics, in order to achieve a more efficient use of resources and a reduction in costs, thereby increasing competitiveness and providing a better service to customers.

28

INTERNAL CONTROL. Risk Control Systems The Group has an internal control system that focuses on the control of the various risks involved in the business, using different approaches, either through information systems or procedures, systems and structures. It consists of the following:

An area concerning rules and procedures affecting the entire organisation. Internal control procedures, using authorisations, established for the various management areas. The performance of various external audits. External consulting support for areas requiring such support. A structured information system. An internal audit unit which periodically performs audits according to the risk levels.

This system enables appropriate RISK CONTROL to be performed reasonably, and is aimed at covering the SOLVENCY II considerations and, therefore, has been divided into the following three risk groups: Technical risks and risks inherent to the insurance business

These are generated in: policy underwriting, claims management based on deviations in costs or frequencies, changes in the provision for future obligations generated by the coverages offered and deviations in management costs. The activities undertaken to monitor and control these risk principally include:

• Suitable technical standards for policy underwriting purposes. • Analysis of products to determine the sufficiency of premiums or technical provisions. • Solvency, financial and management capacity and continuity in the reinsurers’ business and service. • Policy and initiatives relating to returns on policies.

Financial risks

• Assets in the various portfolios managed are classified according to their characteristics (required return, risk, liquidity, etc).

• Analysis of ALM in relation to the obligations acquired with the insureds. • Credit risk analysis and monitoring. Investments rated below investment grade require express approval. • Direct supervision of the risks department.

Operational risks

This is a different type of risk, divided into five broad groups, described separately:

• General risks. This encompasses legal, technological and strategic risks. These risks are mitigated with the support of the systems in the areas in question and the assistance of external consultants.

• IT risks. Each year, an external audit is performed of the IT area. The Group has a business continuity plan and a backup centre and performs two simulations each year.

• HR risks. There are emergency and building evacuation plans and occupational risk audits are carried out periodically.

• Commercial risks. These include risks involved in commercial practices and sales systems. Controls are performed by the various persons in charge, the control department and the internal audit department.

• Errors and misstatements. This item includes errors and misstatements, as well as internal and external fraud. This risk is controlled by the various persons in charge, the control department and the internal audit department.

29

OUTLOOK FOR 2006: Strategy and Objectives. The Catalana Occidente Group has a formal, participatory planning system which culminates in the distribution of the Group’s Strategic Plan and annual guidelines for all the members of the organisation, which sets in motion a process for the creation of Action Plans and Budgets. The above annual guidelines focus on the objectives which, for 2006, we believe to be a priority for achieving our strategy in the medium and long term which, evidently, would not vary from those set in the last few years, apart from the intensity with which they will be carried out, the level of effectiveness forecast and the costs associated with the whole process. In this respect, the lines of action relating to the guidelines for 2006 concentrate on the following issues:

1.- Intensifying the recruitment and development of new professional agents and improving global productivity in the various distribution networks.

2.- Reviewing and adapting our offering to customers’ and agents’ demands and, in particular, promoting sales in the auto and projected life premiums.

3.- Controlling the performance of the technical margin by combining the objectives concerning the profitability of the products with those concerning the competitiveness of our offering.

4.- Containing expenses, by matching the management of resources with the objectives set, with a clear and determined support for the creation of the network and improving efficiency, promoting savings plans and taking advantage of synergies among the various Group companies.

30

STANDARDS AND LEGISLATION INTERNATIONAL ACCOUNTING STANDARDS A description is provided below of the International Accounting Standards taken into account in the preparation of this financial information. SCOPE OF CONSOLIDATION IAS 28, Accounting for investments in associates: Significant influence is presumed to exist and, therefore, companies in which between 20% and 50% of the voting rights are directly or indirectly held, are consolidated using the equity method. As local regulations set this limit at 3% in the case of listed companies, companies that fall within the 3% to 20% band are excluded from consolidation, i.e. the following companies: Mackerel SICAV, BBVA Catalana Cartera SICAV and Fersa, Energías Renovables. INCOME STATEMENT AND BALANCE SHEET IFRS 3 (previously IAS 22), Business Combinations: This standard establishes that consolidation goodwill is not subject to periodical amortisation but to impairment analysis processes (or evaluation of the decline in value of the investment). Local Spanish standards stipulate that goodwill must be amortised within a period of 5, 10 or 20 years. The goodwill arising on the acquisition of Lepanto and Seguros Bilbao is amortised over 10 years and the goodwill in Baloise, over 5 years. No decline has been detected in the value of the above investments and, therefore, the amounts amortised in 2004 and 2005 under local standards have been adjusted with a credit to income in each year. IFRS 4, Insurance contracts: Introductory paragraph 4 and paragraph 14 stipulate that technical provisions for future claims and, specifically, the current equalisation provision, may not be recognised. The Group has reversed any existing provisions at year-end, following deduction of income tax, giving rise to greater equity. No effects arising from the reclassification of life products as financial products have been detected, or any shortfalls in mathematical provisions as a result of liability adequacy tests. Under paragraph 30, unrealised gains on financial assets allocated to life policies are attributable to the insureds at the same proportion as the income effectively realised on such policies is allocated. According to this accounting policy, known as Shadow Accounting, the insureds’ related shares in future profits have been allocated as the balancing entry for the equity arising from gains on financial assets. IAS 12, Income taxes: The net tax effect of the changes arising from the accounting of the other IASs, particularly the effect on equity, must be recognised. IAS 18, Revenue: The origination fees for the creation of mortgage loans have been recalculated. IAS 19, Employee benefits: The employee retirement commitments have been restated. IAS 32, Financial instruments, disclosure and presentation: Under this IAS, the cost of treasury shares must be deducted from capital instead of being classified as an investment. In addition, any gains on the disposal of treasury shares must be eliminated in the consolidation processes. IAS 36, Impairment of assets: The allowances for bad debts and outstanding premiums have been restated. IAS 37, Provisions, Contingent Liabilities and Contingent Assets: The provisions for liabilities and charges have been restated. IAS 39, Financial Instruments: Recognition and Measurement: Under this IAS, certain assets and liabilities may be measured at market value in certain portfolios defined for that purpose. Although it also allows assets with a defined maturity to be recognised at amortised historical cost, this standard is very stringent with respect to the principle concerning the holding period for the assets classified in this type of portfolios. Therefore, the Group has chosen to classify practically all of its investment securities as marked-to-market securities, thereby giving rise to a substantial amount of gains which, upon first-time application of IASs, net of taxes, are recognised in equity.

31

IAS 16, Property, Plant and Equipment and IAS 40 on Investment Property. Under these IASs, properties may be, but need not be, measured at market value, which would have resulted in the emergence of gains totalling EUR 310.5 million for accounting purposes. These standards provide for a separate reporting treatment for properties for own use, which are broken down under Property, Plant and Equipment, and for properties leased to third parties, which are reported as investment property. APPLICATION DATES All of the International Standards except IAS 32, IAS 39 and IFRS 4 are applicable from the Opening Balance Sheet for 2004, i.e. from 1 January 2004. IAS 32, IAS 39 and IFRS 4 are applicable from the Opening Balance Sheet for 2005, i.e. from 1 January 2005. Optionally, companies are authorised to apply them from 1 January 2004 provided that the companies themselves and their auditors guarantee the accuracy of the adjustments resulting from their application in 2004. INTERNATIONAL STANDARDS: WHAT THE INITIALS MEAN The standards published until June 2003 are called IASs (International Accounting Standards) in English and NICs in Spanish (Normas Internacionales de Contabilidad). Those published since that date are called IFRSs (International Financial Reporting Standards) in English and NIIFs in Spanish (Normas Internacionales de Información Financiera). SOLVENCY MARGIN To date, IFRSs have not provided for a quantified solvency level for insurance companies. The Group has chosen to provide the solvency margin in accordance with local Spanish standards and, in addition, to provide the results that would arise from application of local standards to the amounts determined in accordance with the new IFRSs.

32

CATALANA OCCIDENTEIBEX 35DOW JONES EUROPE STOXX INSURANCE

31/12/2002 31/12/200431/12/2003 31/12/2005

Base 100 at 31/12/2001

73.60 euros

44.00 euros

24.65 euros

19.95 euros

STOCK MARKET PERFORMANCE

Comparative performance of the market price of Grupo Catalana Occidente with the IBEX 35 and the Dow Jones Europe Stoxx Insurance indexes

SHARE PRICE (euros per share)Start of year 44,00 1/01/2005Low 44,00 1/01/2005High 76,30 24/11/2005Year-end 73,60 31/12/2005Average 62,00 2005

STOCK MARKET RATIOSPER (price at 31/12/2005 / attributable earnings per share) 12,8 31/12/2005Yield (2005 dividend / price, %) 2,0% 31/12/2005

Pay-Out (2005 dividend / 2005 attributable profit, %) 25,5% Ejercicio 2005

PROFITABILITY RATIOSROE (2005 attributable profit / 2005 average equity, %) 22,0%ROE (2005 attributable profit / equity at 12/2005, %) 19,1%

OTHER DATA (in euros)No. of shares 24.000.000Par value per share 1,5Daily average trading volume (no. of shares) 11.157Daily average trading volume (thousands of euros) 677.978Dividend per share 1,46Disposible equity per share 51,91(*) ErrataBoth figures were corrected subsequent to the approval of the annual accounts

33

AUDIT At the Annual General Meeting of the consolidated Group’s parent, held on 24 April 2003, it was resolved to appoint "DELOITTE & TOUCHE, S.A." as auditors of the individual Company and of the consolidated Group, for three years, of which 2005 is the third. This firm also audits the subsidiaries Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros and Bilbao, Compañía Sociedad Anónima de Seguros y Reaseguros, S.A., this latter company, under a resolution of its Annual General Meeting held on 8 June 2005, for an initial period of three years. DQ Auditores S.L. audits the other subsidiaries which were fully consolidated, and those relating to the pension funds, for an initial period of three years, running from 2005, with the exception of Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A., which is audited by PricewaterhouseCoopers Auditores, S.L., and Inversiones Menéndez y Pelayo, SICAV, S.A., which is audited by Audihispana Auditores Consultores, S.A. + 5

33

34

GRUPO CATALANA OCCIDENTE, S.A. AND SUBSIDIARIES Consolidated Financial Statements for the year ended 31 December 2005, prepared in accordance with International Financial Reporting Standards

35

GRUPO CATALANA OCCIDENTE AND SUBSIDIARIES(Catalana Occidente Group)CONSOLIDATED BALANCE SHEETS under IRFSs

A S S E T S 31/12/2005

A) INTANGIBLE ASSETS 139.620 142.727

I. Goodwill on consolidation 121.876 121.8761. Fully consolidated companies 121.876 121.876

II. Other intangible assets 17.744 20.851

B) PROPERTY, PLANT AND EQUIPMENT 231.977 233.703

I. Properties for own use 196.342 198.439II. Other items of property, plant and equipment 35.635 35.264

C) INVESTMENTS 3.434.874 4.054.794

I. Investment property 134.977 139.375II. Financial assets-

1. Held-to-maturity financial assets - -2. Available-for-sale financial assets 3.097.020 3.462.120 Equity securities 369.165 422.940 Fixed-income securities 2.427.696 2.693.953 Other assets 308.553 345.227 Less: Allowances 8.394 -3. Financial assets at fair value through profit or loss 159.066 198.963

III. Other financial assets - 43.811 254.3361. Equity-accounted investments 22.826 208.3732. Deposits for inward reinsurance 755 9413. Other investments (loans and receivables) 20.230 45.022

D) INVESTMENTS FOR THE BENEFIT OF LIFE INSURANCE POLICYHOLDERS WHO BEAR THE INVESTMENT RISK 260.628 299.787

F) REINSURER'S SHARE OF TECHNICAL PROVISIONS 302.409 292.879

I. Unearned premium provisions 62.570 63.115II. Life insurance provisions 1.624 1.729III. Claims provisions 236.859 227.002IV. Other technical provisions 1.356 1.033

G) DEFERRED TAX ASSETS 24.122 24.386

H) RECEIVABLES 252.531 258.790

I. Receivables arising from direct insurance and coinsurance transactions 125.722 125.3601. Policyholders, less allowance 118.592 117.7942. Agents, less allowance 3.071 4.1303. Receivables arising from coinsurance transactions 4.059 3.436

II. Receivables arising from reinsurance transactions 5.994 4.136III. Tax assets 3.034 3.234IV. Social security and other receivables 117.781 126.060

I) CASH AND CASH EQUIVALENTS 495.373 733.920

J) PREPAYMENTS AND ACCRUED INCOME 118.361 115.505

I. Premiums written but not issued 16.273 16.587II. Commissions and other acquisition costs 102.088 98.918

TOTAL A S S E T S 5.259.895 6.156.491

(*) Presented for comparison purposes only in all applicable headings. See Note 3.e.The accompanying Notes 1 to 13 are an integral part of the consolidated balance sheet at 31 December 2005.

Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRSs, as adopted by the European Union (seNotes 3 and 16). In the event of a discrepancy, the Spanish-language version prevails.

(Figures in Thousands of Euros)

31/12/2004 (*)

36

GRUPO CATALANA OCCIDENTE AND SUBSIDIARIES(Catalana Occidente Group)CONSOLIDATED BALANCE SHEETS under IRFSs

E Q U I T Y A N D L I A B I L I T I E S 31/12/2005

A) EQUITY 521.183 985.591

I. Share capital 36.000 36.000

II. Reserves 231.805 357.085

III. Less : Treasury shares -7.166 -7.089

IV. Reserves for valuation adjustments - 197.637

V. Exchange differences - -

VI. Retained earnings

1. Unallocated prior years' earnings - -

2. Profit for the year attributable to the Parent 103.579 137.591

a) Consolidated profit 127.529 175.503

b) Profit attributable to minority interests 23.950 37.912

EQUITY ATTRIBUTABLE TO THE PARENT'S SHAREHOLDERS 364.218 721.224

MINORITY INTERESTS 156.965 264.367

B) SUBORDINATED LIABILITIES - -

C) TECHNICAL PROVISIONS 4.138.051 4.313.283

I. Unearned premiums and unexpired risks provisions 528.134 536.038

II. Life insurance provisions 2.320.421 2.622.525

III. Claims provisions 1.099.136 1.137.656

IV. Provisions for policyholder dividends and return premiums 7.191 6.508

V. Other technical provisions 9.612 10.556

VI. Equalisation provision 173.557 -

TECHNICAL PROVISIONS FOR LIFE INSURANCE POLICIES WHERE RISK IS BORNE BY POLICYHOLDERS 260.628 299.787

E) PROVISIONS FOR LIABILITIES AND CHARGES 63.096 70.788

F) DEPOSITS RECEIVED FOR OUTWARD REINSURANCE AND RETROCESSIONS 57.704 56.057

G) DEFERRED TAX LIABILITIES 2.628 188.172

H) PAYABLES 203.450 229.595

I. Debt instruments and other held-for-trading liabilities - -

II. Bank borrowings and other financial liabilities - -

III. Other financial liabilities - -

IV. Payables arising from direct insurance and coinsurance transactions 39.111 39.040

1. Payable to insureds 6.849 5.703

2. Payable to agents 14.049 15.559

3. Conditional debt 16.447 16.447

4. Payables arising from coinsurance transactions 1.766 1.331

V. Payables arising from reinsurance transactions 18.670 15.498

VI. Tax liabilities 38.885 50.895

VII. Other liabilities 106.784 124.162

i) ACCRUED EXPENSES AND DEFERRED INCOME 13.155 13.218

TOTAL EQUITY AND LIABILITIES 5.259.895 6.156.491

(*) Presented for comparison purposes only in all applicable headings. See Note 3.e.The accompanying Notes 1 to 13 are an integral part of the consolidated balance sheet at 31 December 2005.

Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRSs, as adopted by the European Union (seeNotes 3 and 16). In the event of a discrepancy, the Spanish-language version prevails.

31/12/2004 (*)

D)


37

GRUPO CATALANA OCCIDENTE AND SUBSIDIARIES(Catalana Occidente Group)CONSOLIDATED INCOME STATEMENTS under IRFSs

1. Direct insurance premiums written 1.729.875 1.862.204Inward reinsurance premiums written 5.329 5.404

2. Earned premiums less reinsurance 1.493.919 1.633.7693. Other income less expenses 7.355 4.5634. Claims incurred in the year, net of reinsurance 969.058 1.023.5075. Change in other technical provisions 225.551 225.8166. Net operating expenses 347.873 377.5707. Net investment income 181.215 181.9598. Share of profit of minority interests 2.635 3.3399. Unrealised gains and losses on investments 18.608 36.123

10. Profit from ordinary activities 161.250 232.860( 2 + 3 - 4 - 5 - 6 + 7 + 8 + 9)

13. Profit before tax 161.250 232.86014. Income tax 33.721 57.357

15. Profit for the year ( 13 - 14 ) 127.529 175.503

16. Profit attributable to minority interests 23.950 37.912

17. Profit attributable to the Parent's shareholders ( 15 - 16 ) 103.579 137.591

(*) Presented for comparison purposes only in all applicable headings. See Note 3.e.The accompanying Notes 1 to 13 are an integral part of the consolidated income statement at 31 December 2005.

Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRSs, as adopted by the European Union (see Notes 3 and 16). In the event of a discrepancy, the Spanish-language version prevails.

20052004 (*)(Figures in Thousands of Euros)

38

ASSETS LIFE SEGMENT

A) INTANGIBLE ASSETS 74.550 40.130 28.047 142.727I. Goodwill 74.550 40.130 7.196 121.876II. Other intangible assets - - 20.851 20.851

B) PROPERTY, PLANT AND EQUIPMENT 135.680 48.733 49.290 233.703I. Properties for own use 135.680 48.733 14.026 198.439II. Other items of property, plant and equipment - - 35.264 35.264

C) INVESTMENTS 1.496.056 2.356.557 202.181 4.054.794I. Investment property 55.023 80.206 4.146 139.375II. Financial assets

1. Held-to-maturity financial assets - - - -2. Available-for-sale financial assets 1.421.804 2.040.316 - 3.462.1203. Held-for-trading financial assets - 198.963 - 198.963

III. Other financial assets1. Equity-accounted investments 18.339 17.045 172.989 208.3732. Deposits for inward reinsurance 890 51 - 9413. Other investments - 19.976 25.046 45.022

D) INVESTMENTS FOR THE BENEFIT OF LIFE INSURANCE POLICYHOLDERS WHO BEAR RISK - 299.787 - 299.787

F) REINSURER'S SHARE OF TECHNICAL PROVISIONS 287.505 5.374 - 292.879

G) DEFERRED TAX ASSETS - - 24.386 24.386

H) RECEIVABLES 117.793 - 140.997 258.790I. Receivables arising from direct insurance and coinsurance transactions 117.793 - 7.567 125.360II. Receivables arising from reinsurance transactions - - 4.136 4.136III. Tax assets - - 3.234 3.234IV. Social security and other receivables - - 126.060 126.060

I) CASH AND CASH EQUIVALENTS 184.136 569.514 -19.730 733.920

J) PREPAYMENTS AND ACCRUED INCOME 110.663 2.535 2.307 115.505

TOTAL A S S E T S 2.406.383 3.322.630 0 427.478 6.156.491

EQUITY AND LIABILITIES

A) EQUITY 676.004 308.446 1.141 985.591I. Subscribed capital 18.000 18.000 - 36.000II. Reserves 178.542 178.543 - 357.085III. Less: Treasury shares -3.545 -3.544 - -7.089IV. Reserves for valuation adjustments 98.819 98.818 - 197.637VI. Retained earnings

1. Profit for the year 161.652 12.710 1.141 175.5032. Profit for the year attributable to minority interests -37.612 -300 - -37.912

EQUITY ATTRIBUTABLE TO THE PARENT'S SHAREHOLDERS 415.856 304.227 1.141 721.224VII. Minority interests 260.148 4.219 - 264.367

C) TECHNICAL PROVISIONS 1.646.706 2.666.577 - 4.313.283

D)TECHNICAL PROVISIONS FOR LIFE INSURANCE POLICIES WHERE RISKIS BORNE BY POLICYHOLDERS - 299.787 - 299.787

E) PROVISIONS FOR LIABILITIES AND CHARGES - 46.099 24.689 70.788

F)DEPOSITS RECEIVED FOR OUTWARD REINSURANCE AND RETROCESSIONS 54.395 1.662 - 56.057

G) DEFERRED TAX LIABILITIES - - 188.172 188.172

H) PAYABLES 16.447 - 213.148 229.595II. Bank borrowings and other financial liabilities - - - -IV. Payables arising from direct insurance and coinsurance transactions 16.447 - 22.593 39.040V. Payables arising from reinsurance transactions - - 15.498 15.498VI. Tax liabilities - - 50.895 50.895Vii. Other liabilities - - 124.162 124.162

i) ACCRUED EXPENSES AND DEFERRED INCOME 12.831 59 328 13.218

TOTAL EQUITY AND LIABILITIES 2.406.383 3.322.630 427.478 6.156.491

GRUPO CATALANA OCCIDENTE AND SUBSIDIARIES

OTHER SEGMENT TOTAL2005

TOTAL20052005 2005

2005 2005LIFE SEGMENT

2005

2005NON-LIFE SEGMENT

(Catalana Occidente Group)

SEGMENTAL CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2005 under IRFSs(Figures in Thousands of Euros)

NON-LIFE SEGMENT OTHER SEGMENT

39

ASSETS LIFE SEGMENT

A) INTANGIBLE ASSETS 74.550 40.130 24.940 139.620I. Goodwill 74.550 40.130 7.196 121.876II. Other intangible assets - - 17.744 17.744

B) PROPERTY, PLANT AND EQUIPMENT 133.747 46.341 51.889 231.977I. Properties for own use 133.747 46.341 16.254 196.342II. Other items of property, plant and equipment - - 35.635 35.635

C) INVESTMENTS 1.166.312 2.256.053 12.509 3.434.874I. Investment property 59.898 72.093 2.986 134.977II. Financial assets

1. Held-to-maturity financial assets - - - -2. Available-for-sale financial assets 1.098.827 1.998.193 - 3.097.0203. Held-for-trading financial assets - 159.066 - 159.066

III. Other financial assets1. Investments accounted for using the equity method 6.870 15.956 - 22.8262. Deposits for inward reinsurance 717 38 - 7553. Other investments - 10.707 9.523 20.230

D) INVESTMENTS FOR THE BENEFIT OF LIFE INSURANCE POLICYHOLDERS WHO BEAR RISK - 260.628 - 260.628

F) REINSURER'S SHARE OF TECHNICAL PROVISIONS 299.704 2.705 - 302.409

G) DEFERRED TAX ASSETS - - 24.122 24.122

H) RECEIVABLES 118.651 - 133.880 252.531I. Receivables arising from direct insurance and coinsurance transactions 118.651 - 7.071 125.722II. Receivables arising from reinsurance transactions - - 5.994 5.994III. Tax assets - - 3.034 3.034IV. Social security and other receivables - - 117.781 117.781

I) CASH AND CASH EQUIVALENTS 322.507 210.823 -37.957 495.373

J) PREPAYMENTS AND ACCRUED INCOME 114.968 1.665 1.728 118.361

TOTAL A S S E T S 2.230.439 2.818.345 211.111 5.259.895

EQUITY AND LIABILITIES

A) EQUITY 364.342 152.713 4.128 521.183I. Subscribed capital 18.000 18.000 - 36.000II. Reserves 115.903 115.902 - 231.805III. Less: Treasury shares -3.583 -3.583 - -7.166IV. Reserves for valuation adjustments - - - -VI. Retained earnings

1. Profit for the year 104.077 19.324 4.128 127.5292. Profit for the year attributable to minority interests -23.683 -267 - -23.950

EQUITY ATTRIBUTABLE TO THE PARENT'S SHAREHOLDERS 210.714 149.376 4.128 364.218VII. Minority interests 153.628 3.337 - 156.965

C) TECHNICAL PROVISIONS 1.782.221 2.355.830 - 4.138.051

D)TECHNICAL PROVISIONS FOR LIFE INSURANCE POLICIES WHERE RISK IS BORNE BY POLICYHOLDERS - 260.628 - 260.628

E) PROVISIONS FOR LIABILITIES AND CHARGES - 48.325 14.771 63.096

F) DEPOSITS RECEIVED FOR INWARD REINSURANCE AND RETROCESSIONS 56.907 797 - 57.704

G) DEFERRED TAX LIABILITIES - - 2.628 2.628

H) PAYABLES 17.158 - 186.292 203.450II. Bank borrowings and other financial liabilities - - - -IV. Payables arising from direct insurance and coinsurance transactions 17.158 - 21.953 39.111V. Payables arising from reinsurance transactions - - 18.670 18.670VI. Tax liabilities - - 38.885 38.885Vii. Other liabilities - - 106.784 106.784

i) ACCRUED EXPENSES AND DEFERRED INCOME 9.811 52 3.292 13.155

TOTAL EQUITY AND LIABILITIES 2.230.439 2.818.345 211.111 5.259.895

(Catalana Occidente Group)GRUPO CATALANA OCCIDENTE AND SUBSIDIARIES

NON-LIFE SEGMENT OTHER SEGMENT

SEGMENTAL CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2004 under IRFSs(Figures in Thousands of Euros)

2005 20052005

2005NON-LIFE SEGMENT OTHER SEGMENT TOTAL

2005

TOTAL2005

2005 2005LIFE SEGMENT

40

GRUPO CATALANA OCCIDENTE AND SUBSIDIARIES(Catalana Occidente Group)

under IFRSs

1. Direct insurance premiums written 1.313.308 1.373.507Inward reinsurance premiums written 5.160 5.201

2. Earned premiums less reinsurance 1.082.890 1.151.6243. Other technical income less expenses 15.156 19.8954. Claims incurred in the year less reinsurance 693.168 671.8475. Changes in other technical provisions 24.268 3736. Net operating expenses 295.451 324.3937. Non-life technical result 85.159 174.906

( 2 + 3 - 4 - 5 - 6)8. Net investment income 46.100 38.5419. Share of profit of minority interests 338 1.03511. Non-life financial margin 46.438 39.576

( 8 + 9 )12. Non-life technical-financial result 131.597 214.482

( 7 + 11 )

15. Non-life result 131.597 214.482

16. Direct insurance premiums written 416.567 488.697

Inward reinsurance premiums written 169 203

17. Earned premiums less reinsurance 411.029 482.14518. Other technical income less expenses -1.152 -2.88219. Claims incurred in the year less reinsurance 275.890 351.66020. Changes in other technical provisions 201.283 225.44321. Net operating expenses 52.422 53.17722. Net investment income 123.332 129.49823. Share of profit of minority interests 2.211 2.26124. Unrealised gains and losses on investments 18.608 36.123

25. Life technical-financial result 24.433 16.865( 17 + 18 - 19 - 20 - 21 + 22 + 23 + 24 )

28. Life result 24.433 16.865

29. Income from other activities 6.331 6.61930. Expenses from other activities 12.980 19.06931. Net investment income 11.783 13.92032. Share of profit of minority interests 86 43

34. Operating profit from other activities 5.220 1.513( 29 - 30 + 31 + 32 )

37. Profit from other activities 5.220 1.513

38. Profit before tax ( 15 + 28 + 37 ) 161.250 232.86039. Income tax 33.721 57.357

40. Profit for the year ( 38 - 39 ) 127.529 175.503

41. Profit attributable to minority interests 23.950 37.912

42. Profit attributable to the Parent's shareholders ( 40 - 41 ) 103.579 137.591

(*) Presented for comparison purposes only in all applicable headings. See Note 3.e.

The accompanying Notes 1 to 13 are an integral part of the consolidated income statement for 2005.


SEGMENTAL CONSOLIDATED INCOME STATEMENTS AT 31 DECEMBER 2005


OTHER ACTIVITIES

NON-LIFE INSURANCE

LIFE INSURANCE

20052004 (*)

41

GRUPO CATALANA OCCIDENTE AND SUBSIDIARIES(Catalana Occidente Group)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY under IFRSs

Reserves

Share Capital Share PremiumRevaluation

Reserves

Differences Due toAdjustment of

Share Capital to Euros Legal Reserve

Parent's VoluntaryReserves

Reserves at Fully Consolidated Companies

Reserves at Equity-Accounted

CompaniesReserve for

Treasury Shares

Other Reserves Due to Changes in

Accounting Policies

Total Reserves

(Treasury Shares)

Valuation Adjustments and

Exchange Differences

Profit for the Year Attributable to the

Parent Minority Interests Total Equity

Balances reported at 1 January 2004 36.000 1.533 39.795 61 7.212 39.811 147.519 9.421 11.386 - 256.738 - - - 142.447 435.185

Adjustments due to changes in accounting policies - - - - - - -1.746 -2.738 - 2.634 -1.850 - - - 1.501 -349

Reclassifications for presentation purposes - - - - - - - - - - - -11.386 - - - -11.386

Balances restated at 1 January 2004 36.000 1.533 39.795 61 7.212 39.811 145.773 6.683 11.386 2.634 254.888 -11.386 - - 143.948 423.450

Distribution of voluntary reserves - - - - - -24.960 - - - - -24.960 - - - - -24.960

Changes in treasury shares - - - - - 4.220 - - -4.220 - - 4.220 - - - 4.220

Net profit for 2004 - - - - - - - - - - - - - 103.579 23.950 127.529

Allocation of minority interests' share in equity - - - - - - - - - - - - - - -11.614 -11.614

Other changes in minority interests under IFRSs - - - - - - 1.746 -1.928 - - -182 - - - 681 499

Adjustments due to changes in scope of consolidation and other - - - - - - -1.156 3.215 - - 2.059 - - - - 2.059

Balances at 31 December 2004 36.000 1.533 39.795 61 7.212 19.071 146.363 7.970 7.166 2.634 231.805 -7.166 - 103.579 156.965 521.183

Distribution of 2004 profit - - - - - 4.321 84.407 1.894 - 12.957 103.579 - - -103.579 - -Adjustments due to changes in accounting policies under IAS 39, IAS 32 and IFRS 4 - - - - - - - - - 47.977 47.977 - 115.666 - 73.642 237.285

Balances restated at 1 January 2005 36.000 1.533 39.795 61 7.212 23.392 230.770 9.864 7.166 63.568 383.361 -7.166 115.666 - 230.607 758.468

Reclassification of reserves at the Group's Parent - - - - - 75.859 -75.859 - - - - - - - - -

Distribution of voluntary reserves - - - - - -29.280 - - - - -29.280 - - - - -29.280

Net trading results on treasury shares - - - - - - - - - 799 799 - - - - 799

Changes in treasury shares - - - - - 77 - - -77 - - 77 - - - 77

Changes in valuation adjustments - - - - - - - - - - - - 81.971 - - 81.971

Net profit for 2005 - - - - - - - - - - - - - 137.591 37.912 175.503

Allocation of minority interests' share in equity - - - - - - - - - - - - - - -16.072 -16.072

Other changes in minority interests under IFRSs - - - - - - - - - - - - - - 11.920 11.920

Adjustments due to changes in scope of consolidation and measurement of equity-accounted investments - - - - - - -

3.087- -

3.087- - - - 3.087

Adjustments due to changes in scope of consolidation and other - - - - - - -882 - - - -882 - - - - -882

Balances at 31 December 200536.000 1.533 39.795 61 7.212 70.048 154.029 12.951 7.089 64.367 357.085 -7.089 197.637 137.591 264.367 985.591



The accompanying Notes 1 to 13 are an integral part of the consolidated statement of changes in equity at 31 December 2005.

42

GRUPO CATALANA OCCIDENTE AND SUBSIDIARIES(Catalana Occidente Group)CONSOLIDATED CASH FLOW STATEMENTS under IFRSs

Cash flows from operating activitiesIncreases Decreases Increases Decreases

Insurance activities

Premiums received 1.729.875 - 1.862.204 -Benefits and expenses paid - 1.006.605 - 1.092.109Commissions and other remuneration paid to agents - 198.707 - 215.385Cash paid to and on behalf of employees - 107.704 - 136.846Cash paid for other operating expenses - 89.482 - 68.138

Remittances received from coinsurers - - 1.109 -Remittances made to coinsurers - - - 135

Remittances received from reinsurers 186.485 - 182.798 -Remittances made to reinsurers - 226.050 - 225.367Remittances made to cedents - 2.281 - 6.550Remittances received from cedents 5.329 - 5.404 -

Other operating activities

Income from other activities 6.332 - 6.618 -Cash paid to and on behalf of employees - - - -Expenses for other activities - 12.980 - 19.069

Corporation tax payment or refund 2.836 11.006 3.136 23.941

Increase / Decrease in operating assets - - 13.467 -

Increase / Decrease in operating liabilities - 89.302 12.882 -

1.930.857 1.744.117 2.087.618 1.787.540

Net cash flows from operating activities 186.740 300.078

Cash flows from investing activities

Acquisition of property, plant and equipment - 15.128 - 17.150Disposals of property, plant and equipment - - 1.189

Acquisition of properties - 6.480 - 12.925Investment in construction works and projects - 1.174 - 3.252Disposals of properties 8.971 - 3.293 -

Investment property income 15.669 - 18.548 -Interest received 174.943 - 172.662 -Dividends received 5.806 - 10.582 -Other finance income - - 2.521 -Net proceeds on disposal of financial assets - 10.358 2.622 -Investment property expenditure - 7.092 - 5.959Interest paid - - -Other finance costs - 15.381 - 15.133

Investment in group companies, associates and investees - 86.460 - 56.394Other financial assets 429.614 514.526 228.738 362.413Dividends received from group companies, associates and investees 1.543 - 2.199 -Unusual proceeds on disposal of financial assets - - 3.849 -

636.546 656.599 446.203 473.226

Net cash flows from investing activities -20.053 - -27.023 -

Cash flows from financing activities

Dividends paid to shareholders - 30.082 - 34.508

30.082 34.508

Net cash flows from financing activities - 30.082 - 34.508

Changes in cash and cash equivalents in the year 136.605 238.547

CHANGES IN CASH AND CASH EQUIVALENTS IN THE YEAR

Cash and cash equivalents at beginning of year 358.768 495.373

Cash and cash equivalents at end of year 495.373 733.920

Changes in cash and cash equivalents in the year 136.605 238.547


20052004


43

GRUPO CATALANA OCCIDENTE, S.A. AND SUBSIDIARIES Consolidated Financial Statements for the Year Ended 31 December 2005, prepared in accordance with International Financial Reporting Standards

45


47

Grupo Catalana Occidente, S.A. and Subsidiaries (Catalana Occidente Group) Notes to Consolidated Financial Statements for the Year Ended 31 December 2005

1. General information on the Parent and its activities

Grupo Catalana Occidente, Sociedad Anónima (“the Parent Company”) was incorporated for an indefinite period on 18 July 1864, in Spain, initially under the name “La Catalana, Sociedad de Seguros contra Incendios a Prima Fija” and changed its name to Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros in 1988, which was changed to its current name in 2001, following the change in its corporate activities after the transfer of all its insurance and reinsurance business to the subsidiary Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros, through a non-cash contribution of the line of business comprising all the assets and liabilities assigned to the business transferred and all its personnel.

Its corporate purpose is to purchase, subscribe, hold, administer, swap and sell all manner of domestic and foreign securities and shares, for its own account and without engaging in brokerage activities, for the purpose of directing, administering and managing such securities and shares.

The Parent carries on these activities, especially in relation to securities of companies engaging in insurance and reinsurance activities and operations and other operations subject to private insurance regulations, provided that the applicable legal requirements have been met. The Parent is not directly engaged in insurance business activities, which are undertaken by the investees qualified to do so by virtue of the relevant administrative permit. The Directorate General for Insurance and Pension Funds (“DGSFP”) has responsibility for performing the functions assigned by current legislation to the Ministry of Economy and Finance in the areas of private insurance and reinsurance, insurance agency and brokerage services, capitalisation and pension funds.

The Parent directs and manages its investment in the share capital of other companies through the arrangement of the appropriate human and material resources. If and when permitted by its investment in the share capital of these companies, the Parent manages and controls them through its membership in their managing bodies or the supply of management and administration services to such companies.

The subsidiaries Depsa, Sociedad Anónima de Seguros y Reaseguros, Lepanto, S.A. Compañía de Seguros y Reaseguros, Nortehispana, de Seguros y Reaseguros S. A., Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. and Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A. have their own organisational network and structure which is independent from that of the rest of the Group’s insurance companies (see Appendix I).

From an organisational standpoint, the rest of the companies composing the Catalana Occidente Group have a structure involving centralised functions and decentralised operations, with the following Service Centres: two Underwriting Centres (Barcelona and Madrid), six Claims Processing Centres (two in Barcelona and one in Valencia, Madrid, Malaga and Santander), and a Support Centre and a Call Centre, both located at the head office in Sant Cugat.

The Parent has its registered office at Avenida Alcalde Barnils 63, Sant Cugat del Vallés, Barcelona.

The Group has a territorial network comprising 335 branches and sales offices and 700 agencies covering the whole of Spain.

48

The Catalana Occidente Group distributes its products through its extensive territorial network, mainly through professional, full-time agents working exclusively on behalf of the Group, with the aim of providing personal, localised and high-quality advice to customers. The Group also uses part-time agents, life insurance consultants and brokers. At 31 December 2005, the Group had a total of 21,710 agents.

The Group operates in the following lines of insurance through its insurance companies: Life, Accident, Sickness, Health, Auto, Marine, Lake and River Transportation (hull), Aircraft, Freight, Fire and Natural Disasters, Other damage to property (combined Agricultural Insurance, Theft and other), liability (in automobile, aircraft, marine, inland transportation, arising from nuclear or other risks), Credit, Surety, various monetary Losses, Legal Defence, Assistance and Funeral. The Group also manages the pension funds "Catalana Occidente, Fondo de Pensiones", “Catalana Occidente RV, Fondo de Pensiones”,”Catalana Occidente RF1, Fondo de Pensiones”, “Catalana Occidente Empleo 1, Fondo de Pensiones”, “Cat Previsió, Fondo de Pensiones”, “Seguros Bilbao, Fondo de Pensiones” and “Grupo Seguros Bilbao Empleados, Fondo de Pensiones”. The subsidiaries Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros and Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. are the sole founding shareholders and protectors of "Catalana Occidente Previsión, Entidad de Previsión Social Voluntaria en el País Vasco" and “Bilbao, Entidad de Previsión Social Voluntaria”, respectively. The total funds managed by all the above companies amount to EUR 294,676 thousand at 31 December 2005. Gross income accrued for management fees for the various funds totalled EUR 3,856 thousand in 2005, which are recognised in the income statement for the segment ‘Other Activities – Income from Other Activities” less the associated marketing costs.

In view of the business activity carried on by the Group, it has no environmental liability, expenses, assets, provisions or contingencies that might be material with respect to the Group’s equity, financial position or results. Therefore, no specific disclosures relating to environmental issues are included in these notes to consolidated financial statements.

All of the Parent's shares are listed on the Stock Exchange Networking System (Continuous Market). At 31 December 2005, the shares were listed at EUR 73.60 per share.

2. First-Time Adoption of International Accounting Standards

Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council dated 19 July 2002, all companies governed by the laws of a European Union Member State and whose securities are listed on a regulated market of any EU Member State must present their consolidated financial statements for the years beginning on or after January 1, 2005, in accordance with the International Financial Reporting Standards (IFRS) validated by the European Union.

The International Financial Reporting Standards (IFRSs) are the Standards and Interpretations adopted by the International Accounting Standards Committee (IASC). These Standards comprise:

The International Financial Reporting Standards (IFRS),

The International Accounting Standards (IAS), and

The Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or the previous interpretations (SIC) adopted by the former Standing Interpretations Committee.

In keeping with the previous Regulation, the Group presents its first consolidated financial statements for 2005 in accordance with the IFRSs adopted by the European Union at 31 December 2005:

International Standards International Interpretations IAS IFRS SIC IFRIC

1, 2 , 7, 8, 10, 11, 12, 14, 16, 17, 18, 19, 20, 21, 23, 24, 26, 27, 28, 29, 30, 31, 32, 33, 34, 36, 37, 38, 39,

40 and 41.

1, 2, 3, 4 and 5. 7, 10, 12, 13, 15, 21, 25, 27, 29, 31 and 32. 1, 2.

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In Spain, the requirement to present consolidated financial statements under IFRSs approved by the European Union was also governed by Final Provision 11 of Law 62/2003, of 30 December, on tax, administrative, labour and social security measures (Official State Gazette –BOE–, 31 December).

Under IFRS 1 – First-Time Adoption of International Financial Reporting Standards, approved by Regulation (EC) 707/2004, although the Group’s first financial statements prepared in accordance with IFRSs will be those for the year ended 31 December 2005, it is necessary to include, for comparison purposes, the figures for the preceding year, 2004, prepared on a basis consistent with that used to calculate the figures for 2005.

Under IFRS 1, an initial or opening balance sheet had to be prepared at the date of transition to the new international accounting standards, i.e. at 1 January 2004, in the case of the Group (see Note 8.a)).

The accounting policies used by the Group in its opening balance sheet in accordance with IFRSs differ in some cases from those used at the same date under Spanish GAAP. The resulting adjustments arose from events and transactions that took place prior to the date of transition to such international standards. Therefore, pursuant to the treatment provided in IFRS 1, the Group has recognised these adjustments, on the date of transition to IFRSs, directly in reserves.

Notes 8 and 9 include the reconciliations required under IFRS 1, i.e. the reconciliation of equity under Spanish GAAP to the equity obtained by applying the IFRSs at 1 January 2004 and 31 December 2004, and the reconciliation of the income statement for 2004 on the same basis. Also, Note 11 includes the disclosures required under IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors, in the event of changes in accounting policies, including a detail of the adjustments made for each item in the consolidated financial statements affected by the adoption of IAS 32, IAS 39 and IFRS 4, at 1 January 2005.

The Group has used the same accounting policies in its opening balance sheet pursuant to the IFRSs throughout 2004 and 2005, thereby complying with the general principle of retrospective application of all standards in force at 31 December 2005, except in the following cases:

Where the Group has opted to use any of the exemptions from retrospective application of certain standards, exemptions provided by IFRS 1 to assist transition to the new IFRSs, and the prohibitions established in the previous standards in relation to retrospective application of certain rules contained in other international standards, and

The application of IAS 32, IAS 39 and IFRS 4, whose transitional provisions establish that these standards are applicable for years beginning on or after 1 January 2005, as the Group has not opted for early application thereof.

In the latter case, the transition date considered by the Group was 1 January 2005, which was treated, under international accounting standards, as a change in the Group’s accounting policies.

In relation to the exemptions provided in IFRS 1, in the opening balance sheets the Group availed itself of the possibility of avoiding retrospective application, for transactions prior to 1 January 2004, of the standards relating to the following areas:

Business combinations (IFRS 3):

The Group opted not to apply IFRS 3 – Business Combinations retrospectively to business combinations (applicable to both mergers and acquisitions of subsidiaries, associates or joint ventures) carried out prior to the date of transition to IFRSs. As a result of this decision, these transactions had the same classification (acquisition, downstream acquisition, merger, etc.) as in the financial statements prepared in accordance with Spanish GAAP, and the assets and liabilities in the opening balance sheet were measured on the measurement basis required by the new standards.

In addition, the carrying amount of goodwill in the opening balance sheet is the carrying amount at 1 January 2004, under the previous accounting standards, since, following the impairment test performed at that date

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pursuant to IAS 36 – Impairment of Assets, the Group confirmed that goodwill had not been impaired at all. However, it should be noted that goodwill related to the associates is included, for presentation purposes, in the carrying amount of the investment.

Fair value or revaluation as attributed cost (IAS 16 and IAS 40):

− The Group opted to use the revalued amount of property, plant and equipment under Spanish GAAP (Royal Decree-Law 7/1996) as the attributed cost on the revaluation date since such revaluation was, at the time it was performed, comparable to cost, or depreciated cost under IFRSs.

The above option was also used for investment properties (see Note 4.c.1).

Employee benefits (IAS 19)

The Group opted to recognise all the actuarial gains and losses accumulated at the transition date, which were allocated to all the applicable plans and policies taken out (see Note 4.h.1).

Designation of financial instruments previously recognised (IAS 39)

Under IAS 39 – Financial Instruments: Recognition and Measurement, a financial instrument may be designated, on initial recognition, as a financial asset or liability at fair value through profit or loss or as available for sale. The Group completed this designation on the transition date at 1 January 2005, as permitted by IFRS 1 (see Note 4.c.2).

Insurance contracts (IFRS 4)

As permitted by IFRS 1, the Group applied the transitional provisions in IFRS 4 – Insurance Contracts upon first-time application of this standard. Under these transitional provisions, the Group was required to apply IFRS 4 prospectively as from 1 January 2005. This standard restricts changes in the accounting policies used for insurance contracts, including changes that may be made by a first-time adopter (see Note 4.f).

Also, IFRS 1 prohibits retrospective application of certain aspects of the following standards which were mandatory for the Group:

Derecognition of financial assets and liabilities (IAS 39)

Financial assets and liabilities were recognised in the balance sheet at 1 January 2005, on the basis of the version of IAS 39 in force at 31 December 2005. However, pursuant to IFRS 1, the Group did not recognise in the aforementioned balance sheet the assets and liabilities that were derecognised prior to that date.

Estimates (IAS 8)

The estimates made under IFRS at the transition date are consistent with the estimates made for the same date under Spanish GAAP, after the required adjustments to reflect any difference in accounting policies, unless there had been objective evidence that those estimates were in error.

If the Group had to make estimates under IFRSs that were not required under the previous accounting principles, those estimates were made to reflect conditions that existed at the transition date. In particular, estimates made at the date of transition to IFRSs of market prices, interest rates or exchange rates reflect market conditions at that date.

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3. Basis of presentation of the consolidated financial statements

a) True and fair view

The accompanying consolidated financial statements were prepared and presented in accordance with the International Financial Reporting Standards (IFRSs) validated by the European Union (see Note 2) in order to provide a true and fair view of the consolidated equity and consolidated financial position of Grupo Catalana Occidente, S.A. and Subsidiaries at 31 December 2005, and of its consolidated results of operations, changes in consolidated equity and consolidated cash flows for the year then ended.

The accompanying consolidated financial statements, which were prepared by the Board of Directors of the Group’s Parent on 30 March 2006, were obtained from the individual financial statements of Grupo Catalana Occidente and of each of the companies within the scope of consolidation (see Appendixes I and II).

The individual financial statements of Grupo Catalana Occidente and of each of the remaining companies included in the scope of consolidation for 2005 continue to be prepared in accordance with Spanish GAAP and will be submitted for approval by the respective Annual General Meetings within the statutory periods. The Parent’s Board of Directors considers that they will be ratified without any significant changes.

The consolidated financial statements for 2004 prepared in accordance with Spanish GAAP were approved by the Group’s Annual General Meeting on 28 April 2005.

b) Responsibility for the information

The information in these financial statements is the responsibility of the Group’s directors, who have checked with due care that the various controls put in place to ensure the quality of the financial and accounting information, both for the Parent and the Group companies, have operated efficiently.

In the Group’s consolidated financial statements for 2005 estimates were made on certain occasions by the senior executives of the Parent and of the consolidated companies, later ratified by the directors, in order to quantify certain of the assets, liabilities, income, expenses and obligations reported herein. These estimates relate basically to the following:

− The impairment losses on certain assets (see Note 4.c.2),

− The fair value of certain unquoted assets (see Note 4.c),

− The assumptions used in the calculation of the liability adequacy test (see Note 4.f.1),

− The assumptions used to recognise a portion of the unrealised gains on the portfolio of financial assets designated as ‘available for sale’ or ‘at fair value through profit or loss’ as an increase in the balance of the life insurance provisions (see Note 4.f),

− The useful life of the property, plant and equipment and intangible assets (see Notes 4.a and 4.b), and

− The measurement of goodwill arising on consolidation (see Note 4.a).

Although these estimates were made on the basis of the best information available on the events analysed, events that take place in the future might make it necessary to change these estimates (upwards or downwards) in coming years. The effects of changes in accounting estimates would be recognised in the related income statements or equity reserves, subject to the estimate in question.

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c) Consolidation principles

The Group’s scope of consolidation was defined pursuant to the provisions of IAS 27 – Consolidated and Separate Financial Statements and IAS 28 – Investments in Associates (see Appendixes I and II).

In accordance with the consolidation methods applicable in each case, these consolidated financial statements for 2005 include all the Group companies, as provided for in Article 42 of the Commercial Code. At 31 December 2005, Grupo Catalana Occidente, S.A. is not required to prepare consolidated financial statements with a scope greater than that of these consolidated financial statements, as, in turn, it is included in a group headed by CO Sociedad de Gestión y Participación, which prepares its consolidated financial statements separately.

c.1) Subsidiaries

Subsidiaries are defined as entities over which, regardless or their legal form, the Group exercises control, i.e. the power to govern the financial and operating policies of these entities so as to obtain benefits from their activities. Control is presumed to exist when the Group owns, directly or indirectly through other subsidiaries, more than half of the voting power of another entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control also exists when the Group owns half or less of the voting power of another entity when there is:

power over more than half of the voting rights by virtue of an agreement with other investors,

power to govern the financial and operating policies of the entity under a law, a statute or an agreement,

power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body,

power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.

Appendix I to these notes to the consolidated financial statements contains significant information on these companies.

In the case of the ownership interest held in Compañía Española de Seguros y Reaseguros de Crédito y Caución S.A., the Group exercises effective control thereon through a 39.35% interest.

Exceptionally, the subsidiary Valles y Montañas, S.A. –more than 50% of the voting rights of which are directly or indirectly held by the Group– was not included in the scope of consolidation given its immaterial effect at 31 December 2005. Valles y Montañas, S.A. was incorporated in 1962 and has its registered office in Puerto de Navacerrada, Cercedilla, Madrid. Its share capital amounts to EUR 5 thousand and the fair value of this investment, which is classified under “Available-for-Sale Financial Assets – Equity Securities”, amounts to EUR 2 thousand at 31 December 2005.

In addition, the Group has excluded from consolidation the ownership interests held by it at 31 December 2005, in certain mutual funds, at percentages above 50%, since control is intended to be temporary only.

The financial statements of the subsidiaries are fully consolidated with those of the Group. Accordingly, all material balances and effects of the transactions between consolidated companies are eliminated on consolidation. Third-party ownership interests in the Group’s equity are presented in the sub-heading ‘Minority Interests’ in the consolidated balance sheet and profit for the year is presented in the sub-heading ‘Profit Attributable to Minority Interests’ in the consolidated income statement.

The individual financial statements of the Group and the subsidiaries used for the preparation of the consolidated financial statements are prepared at the same date of presentation.

The results of subsidiaries acquired during the year are included in the consolidated income statement from the date of acquisition to year-end.

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c.2) Associates

Associates are entities, other than subsidiaries, over which the Group has significant influence, i.e. the power to participate in the financial and operating policy decisions of the investee but not to exercise full or joint control over such policy.

In general, it is presumed that the Group exercises significant influence if it holds, directly or indirectly, 20% or more of the voting power of the investee, unless it can be clearly demonstrated that such influence does not exist.

The existence of significant influence by the Group is usually evidenced in one or more of the following ways:

representation on the board of directors or equivalent governing body of the investee,

participation in policy-making processes, including participation in decisions about dividends or other distributions,

material transactions between the Group and the investee,

interchange of managerial personnel, or

provision of essential technical information.

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Exceptionally, the following entities (in which the Group directly or indirectly holds more than 20% of their voting power) were not included in the scope of consolidation since they are immaterial to the true and fair view of the consolidated financial statements, and they were classified in the portfolio ‘Available-for-Sale Financial Assets – Equity Securities’ at fair value:

Balances at 31 December 2005

Group’s Consolidated Balance Sheet

Name

% of Voting Power

Year of Incorporation

Registered Office

Acquisition Cost

Fair Value

Valuation Adjustments

Share Capital

Dividends Paid in 2005

SIRESA GIRONINA, S.A.

25% 1997 c/ Córcega, nº 225, Barcelona

258 319 61 197 29

SIRESA GRANADA, S.A.

25% 1998 c/ Córcega,

nº 225, Barcelona

451 471 20 451 55

SIRESA TARRAGONINA, S.A.


nº 225, Barcelona

90 100 10 74 10

SIRESA BARCELONINA, S.A.


nº 225, Barcelona

786 807 21 781 134

SIRESA NOROESTE, S.A.


nº 225, Barcelona

781 1.894 1.113 398 29

SIRESA EUROPEA, S.A.


nº 225, Barcelona

195 404 209 195 24

SIRESA HISPALENSE, S.A.


nº 225, Barcelona

101 126 25 100 4

SIRESA CAROLUS MAGNUS, S.A.


nº 225, Barcelona

650 637 (13) 650 44

SIRESA CERVANTINA, S.A.


nº 225, Barcelona

600 603 3 600 -

In the consolidated financial statements, associates are accounted for using the equity method, whereby the investment is initially recognised at cost and, subsequently, adjusted on the basis of the changes in the Group’s share of net assets of the entity. The Group’s profit for the year includes its share of the profit or loss of the investee, less the treasury shares that may be held by each investee. Owing to the recent acquisition of Atradius NV, it has been considered that this company did not contribute any profit in 2005. On the basis of the accounting information available in relation to this company, the Group will include the results of its investment in Atradius NV with a time lag of three months (see Appendix II).

The most recent available financial statements of the associate are used in applying the equity method. When the reporting dates of the Group and the associate are different, the associate has prepared, for the use of the Group, financial statements at the same date as the financial statements of the Group. When the financial statements of an associate used in applying the equity method are prepared at a different reporting date from that of the Group, the relevant adjustments have been made for the effects of significant transactions or events that have occurred between both dates. This is the case of the financial statements used for the purposes of Baqueira Beret, S.A. and its subsidiaries. The difference between the reporting dates of the Group and those of the associates is in no case more than three months.

If an associate uses accounting policies other than those used by the Group for like transactions and events in similar circumstances, the appropriate adjustments are made to conform the associate’s accounting

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policies to those of the Group when the associate’s financial statements are used by the Group in applying the equity method.

If there is any indication of any impairment loss in the investment in the associate, the impairment loss is deducted in the first place from the goodwill that may still be included in the investment.

d) Inclusions in and exclusions from the scope of consolidation

Catalana Occidente Capital, Agencia de Valores, S.A. was incorporated on 9 February 2005, in response to the Group’s interest to receive and transmit orders on behalf of third parties and provide investment advisory services, all of which in relation to shares in collective investment institutions only. The share capital of this company amounts to EUR 300 thousand and was paid up in full by the subsidiary Seguros Catalana Occidente, S.A. de Seguros y Reaseguros, with the result that the Group’s indirect interest in this brokerage firm is 100%.

The establishment of this brokerage firm was previously authorised by the Ministry of Economy and Finance, at the proposal of the Spanish National Securities Market Commission (CNMV), through a ruling dated 22 December 2004.

The Group’s ownership interest in the associate Beta Tech Inversiones SICAV S.A, 21.99% at 31 December 2004, was excluded from the scope of consolidation on 17 June 2005, since it was fully disposed of. The effect on the consolidated income statement for 2005 amounted to approximately EUR 94 thousand in proceeds on disposal.

On 25 July 2005, the Group acquired 20% of the share capital of Calboquer S.L. through its subsidiary Seguros Catalana Occidente, S.A. de Seguros y Reaseguros, at a cost of EUR 12 thousand.

In September 2005, Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A. and Seguros Catalana Occidente, S.A. de Seguros y Reaseguros exercised the call options available to them at 31 December 2004, on the shares of Atradius AG, with the result that a sum of approximately EUR 129,075 thousand was paid and the Group’s interest in that company rose to 24.98% at 31 December 2005, while the cost of acquisition totalled EUR 172,991 thousand, including implicit goodwill of EUR 23,476 thousand.

Lastly, in 2005 there were changes in the percentages of ownership held at the various listed associates. This situation affected the associate Hercasol S.A. SICAV, in which the Group holds a 33.52% interest at 31 December 2005, and the change in the Group’s treasury shares also meant the inclusion in the scope of consolidation of the associate Inpisa Dos SICAV, S.A. since the beginning of the year, with a percentage of ownership of 20.82%.

The Parent and its subsidiaries served the notices required under Article 86 of the consolidated Spanish Corporations Law in relation to their investees directly or indirectly owned more than 10%, and also those stipulated in Article 53 of Securities Market Law 24/1988.

e) Comparative information

The consolidated financial statements for 2005, comprising the consolidated balance sheet, the consolidated income statement, the consolidated statement of changes in equity, the consolidated cash flow statement and these notes to the consolidated financial statements, are presented for comparison purposes with the same consolidated financial statements for 2004, as required by IAS 1 – Presentation of Financial Statements and NIIF 1 – First-time Adoption of International Financial Reporting Standards. The information provided in relation to 2004 does not constitute the Group’s statutory consolidated financial statements for 2004.

However, in order to ensure a consistent comparison the exemption from the requirement to restate the comparative information at 31 December 2004 relating to IAS 39 and IFRS 4 should be considered. In accordance with IFRS 1, the comparative information provided by the Group at that date need not comply with IAS 32, IAS 39 and IFRS 4.

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Consequently, the Group applied Spanish GAAP to the comparative information presented in relation to financial instruments falling within the scope of IAS 32 and IAS 39 and to that which is presented in relation to the insurance contracts that fall within the scope of IFRS 4 (see Note 11), except for the presentation of the Parent’s shares, which at 31 December 2004, were classified under ‘Investments’ on the asset side of the consolidated balance sheet and were reclassified as a reduction of equity in the financial statements presented.

The various investments have been presented in the consolidated balance sheet at 31 December 2004, by nature and according to the various portfolios defined by the international standards in accordance with the same methods as those used in the adjustments and reclassifications made at 31 December 2004, in connection with the first-time application of IAS 32 and IAS 39.

The main adjustments required for the above comparative information provided at 31 December 2004, through the consolidated balance sheet at that date and the consolidated income statement for 2004 to comply with IAS 32, IAS 39 and IFRS 4 are summarised as follows (see Notes 4.f and 11):

− Classification of financial instruments according to the new portfolios defined by IAS 39 and recognition of such instruments in accordance with the new measurement basis, generally based on the fair value of the financial instruments,

− Separation and measurement at fair value of all derivatives, including derivatives embedded in another host contract, whether they are market derivatives or OTC derivatives, and recognition thereof as on-balance-sheet assets or liabilities,

− Classification of specific hedges on the basis of the new definition provided under IAS 39, testing efficiency prospectively and retrospectively,

− Reclassification of the equalisation provisions as increased Group reserves, net of the potential tax effect,

− Recognition of possible deficiencies that might come to light if the liability adequacy test was calculated,

− Recognition of the discretionary participation features as an increase in life insurance provisions.

Note 11 contains the disclosures required under IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors.

Lastly, for comparison purposes, it should also be noted that the consolidated income statement for 2005 comprises a full year of activity for the subsidiaries in the subgroup headed by Bilbao, Compañía Anónima de Seguros y Reaseguros, whereas the consolidated income statement for 2004 encompasses the activities carried on from February to December 2004.

f) Offsetting

Asset and liability balances must be offset and, therefore, the net amount thereof is presented in the consolidated balance sheet when, and only when, they arise from transactions in which, contractually or by law, offsetting is permitted and the Company intends to settle them on a net basis, or to realise the asset and settle the liability simultaneously.

Certain income and expense items in the consolidated income statement are presented at the net amount and the relevant breakdowns are provided in the notes to these consolidated financial statements.

g) Segment reporting

IAS 14 – Segment Reporting lays down the principles governing the preparation of financial information by business segment and by geographical segment.

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Since the origin and nature of the Group’s risks and returns are significantly influenced by the various classes of insurance products and services offered on the market, and since the Group’s internal organisation, management and internal control structure is built or based on the origin and nature of such risks and returns, the LIFE insurance, NON-LIFE insurance and Other activities segments have been considered as the primary segments. The secondary segments were defined on the basis of the location of the insureds and of the existing management centres.

The defined LIFE insurance segment encompasses all insurance contracts guaranteeing coverage of a risk that may affect the insureds’ existence, physical integrity or health. Conversely, the NON-LIFE insurance segment groups together the insurance contracts other than life insurance contracts. Both segments are subject to different risks and returns. The Other activities segment is used to group together all operations other than, or not related to, the insurance business.

The geographical segments, which have been considered as a secondary reporting basis, are defined by the location of the Group’s markets, i.e. the various Spanish autonomous communities in which the insurance products are sold.

The accounting policies for segment reporting are the same as those adopted to prepare and present the Group’s consolidated financial statements including all the accounting policies relating specifically to the segmental financial information.

The methods of recognition of assets and liabilities, income and expenses in the Group’s primary and secondary segments are as follows:

Considerations prior to allocation

Each of the insurance companies directly or indirectly owned by the Group at 31 December 2005, i.e. Seguros Catalana Occidente S.A. de Seguros y Reaseguros, Depsa S.A. de Seguros y Reaseguros, Lepanto S.A. Compañía de Seguros y Reaseguros, Nortehispana de Seguros y Reaseguros S.A., Catoc Vida S.A. de Seguros, Cosalud S.A. de Seguros, Compañía Española de Seguros y Reaseguros de Crédito y Caución and Bilbao Compañía Anónima de Seguros y Reaseguros, may be classified as single-line or multi-line companies on the basis of the definition of lines of insurance provided by the Directorate-General of Insurance and Pension Funds (DGSFP). Some of these companies also hold in their investment portfolios ownership interests in other non-insurance companies which are associates or subsidiaries from the Group’s standpoint. These investments, together with the rest of the portfolio, may be allocated to the LIFE and/or NON-LIFE technical segments, for the purpose of covering the present and future obligations with the insureds, and the non-technical component of the insurance business, basically for the purpose of obtaining a return on equity, through the Other activities segment.

Both the segmental assets and liabilities and income and expenses were determined prior to the elimination of the intra-group balances and transactions on consolidation, except to the extent that these balances or transactions had taken place between companies within the same segment. This is the prevailing scenario in the Group, with all intra-group transactions being carried out at current market prices.

Segmental allocation of income and expenses

To the LIFE and NON-LIFE segments

All income and expense items directly or indirectly related, using a reasonable basis of allocation, to the segment in question, have been allocated to these segments.

In the case of single-line insurance companies, all LIFE or NON-LIFE technical income and expenses have been allocated together with the finance income and costs arising from the financial assets allocated to each company’s LIFE or NON-LIFE portfolios, respectively. If the LIFE or NON-LIFE investment portfolio includes an ownership interest in a non-insurance subsidiary, its individual income statement is consolidated on a line by line basis, while respecting the segmental allocation performed.

In the case of multi-line insurance companies, the technical income and expenses relating to the LIFE and NON-LIFE insurance activities have been allocated together with the finance income and costs arising from

58

the financial assets allocated to each company’s LIFE or NON-LIFE portfolios, respectively. If the investment portfolios include an ownership interest in a non-insurance subsidiary, its individual income statement is consolidated on a line by line basis, while respecting the LIFE or NON-LIFE segmental allocation performed.

The Group’s share in the profit of associates, which is shown separately in the consolidated income statement, has been allocated to the various existing segments on the basis of the respective investment percentage held in each LIFE and NON-LIFE investment portfolio.

In relation to the internal allocation of other non-technical and non-financial income and expenses, including operating expenses, to the LIFE and NON-LIFE segments, both for single-line and multi-line companies, a cost allocation method based on functional activities has been used, and for this purpose the activities and tasks performed in each business process are identified and the resources used or generated in connection with such activities are assigned to each activity. As a result, a portion of these expenses are allocated to claims incurred in the year less reinsurance, to net investment income, and other income less expenses (see Note 12.n).

To the Other activities segment

Finance income and costs, including investment property income and expenditure, from the non-technical portfolios of the insurance companies, and the results of ownership interests in subsidiaries individually allocated to a non-technical investment portfolio in respect of their parent, were allocated to this segment.

The Group’s share in the profit of associates, which is shown separately in the consolidated income statement, was allocated to the Other activities segment on the basis of the respective investment percentage held in that investment portfolio.

The other non-technical and non-financial income and costs, including income associated with operations, have been allocated to the Other activities segment using a method based on the allocation of income and expenses by functional area in a similar fashion to the method used for the expenses allocated to the LIFE and NON-LIFE segments.

Segmental allocation of assets and liabilities

Segment assets are those which relate to the Group’s insurance and insurance-related operations and are employed by a segment for the purpose of providing its services, including those which are directly attributable to the segment or can be allocated to the segment on a reasonable basis.

Segment assets include investments accounted for under the equity method only if the profit or loss from such investments is included in segment revenue.

Segment liabilities include the Group’s share of the liabilities arising from the segment’s activities that are directly attributable to the segment or can be allocated to the segment on a reasonable basis.

If a segment’s result includes interest expense, its segment liabilities include the related interest-bearing liabilities.

The Group’s consolidated financial statements include appendixes containing consolidated segmental financial information detailing the various income and expense items and segment assets and liabilities, as well as those which have been excluded or have not been allocated, irrespective of the obligation established by the insurance companies included in the Group’s scope of consolidation to provide accounting and statistical information, based on Spanish GAAP, to the DGSFP.

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4. Accounting principles and policies and measurement bases used

The main principles, accounting policies and measurement bases used in preparing the Group’s consolidated financial statements for 2005 were as follows:

a) Intangible assets

a.1) Goodwill

The Group recognises all the acquiree’s identifiable assets, liabilities and contingent liabilities at fair value, at the acquisition date of the business combination, and also recognises the goodwill arising from the difference between the acquisition cost of the business combination and the share acquired of the net fair value of the identifiable assets, liabilities or contingent liabilities.

Future losses or any other costs expected to be incurred as a result of the combination are not liabilities incurred or assumed by the acquirer in exchange for control over the acquiree and, therefore, are not included as part of the cost of the combination.

Goodwill acquired through a business combination is not amortised, but is tested for impairment annually, or more frequently if events or changes in circumstances indicate a possible impairment, in accordance with IAS 36 – Impairment of Assets. Impairment losses, if any, are never reversed in subsequent years.

Pursuant to the exemption indicated in Note 2, goodwill arising prior to the transition date has not been restated by the Group. Accordingly, it is recognised at net historical cost in the balance sheet at the transition date, 1 January 2004, with the particularities specified in the above Note 2.

The Group used the aforementioned accounting principles and measurement bases for business combinations taking place in or after 2004, which affected the purchase of 99.69% of the Bilbao Compañía Anónima de Seguros y Reaseguros subgroup and the increase up to 100% in the ownership interest held in Cosalud, Sociedad Anónima de Seguros.

a.2) Other intangible assets

Intangible assets are recognised if, and only if, they are identifiable, there are future economic benefits associated with the assets and control over such assets, their cost can be estimated reasonably by the Group, and it is probable that the future economic benefits attributed thereto will flow to the Group.

If a potential intangible asset does not meet the strict definition of an intangible asset, the amount arising from its acquisition or internal generation, by the Group, is recognised as an expense when incurred.

Intangible assets are initially measured by the Group at acquisition or production cost and are subsequently measured at cost less any accumulated amortisation and any accumulated impairment losses.

The Group assesses whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of that useful life. At 31 December 2005, the Group has no intangible assets having an indefinite useful life.

To determine whether its intangible assets are impaired, the Group applies IAS 36 – Impairment of Assets.

The Group has elected not to avail itself of the voluntary exemption from retrospective application for all intangible assets subject to IAS 38.

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The specific accounting policies applied to the main intangible assets are as follows:

Portfolio acquisition costs

Portfolio acquisition costs relate basically to the difference paid between the price paid for a portfolio assignment and the related carrying amount. This items also includes, as a totally residual amount, the amounts paid upon acquisition of a group of policies from various agents.

These portfolio acquisition costs are measured in the same fashion as goodwill.

Computer software:

Fully purchased from third parties

Computer software is recorded for the amount paid to acquire ownership or the license to use such software, provided that it is expected to be used over several years.

Internally generated

The Group classifies the generation of these assets into the research phase and the development phase, and no intangible asset arising from the research phase of internal projects is recognised. Expenditure on the research phase is recognised as an expense when it is incurred.

An intangible asset arising from the development phase is recognised if, and only if, the Group can demonstrate its feasibility, its ability and intention to complete the development, its cost and its ability to generate future economic benefits through its use or sale.

The cost of an internally generated intangible asset is the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria, comprising all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management, excluding the general overhead expenditure relating to the persons assigned to the various projects. Accordingly, for presentation purposes all the Group’s computer software is classified as not internally generated assets.

Either in the case of computer software directly purchased from third parties or developed and controlled internally, recurring costs incurred as a result of modifications or updates of computer software or systems, system overhauls and maintenance costs are recognised as an expense in the year in which they are incurred.

All computer software is systematically amortised over the period it is used, on the basis of a maximum useful life of four to five years.

b) Property, plant and equipment

The Group records under this heading all properties for own use and those which are under construction or development for future use as investment property. Upon completion of construction or development, the latter assets are reclassified as investment property.

This heading also includes transportation equipment, furniture and fixtures and computer hardware, among others.

These assets are initially recognised at cost. The costs of extensions and improvements made to the properties held by the Group subsequent to the initial recognition thereof are capitalised to other items of property, plant and equipment provided that they lead to increased capacity, floor area or returns, or to a lengthening of the useful life of the assets. Conversely, upkeep and maintenance expenses are charged to the income statement as incurred.

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The Group has chosen the cost model, i.e. in measurements subsequent to initial recognition, property, plant and equipment are carried at acquisition cost less any accumulated depreciation and, where appropriate, any accumulated impairment losses.

If the payments relating to an investment property are deferred, its cost is the cash price equivalent. The difference between the cash price equivalent and the total payment is recognised as an interest expense over the deferred period.

However, as indicated in Note 2, the Group took the exemption from retrospective application granted in IFRS 1, adopting as attributable cost for the properties owned by Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros and Compañía Española de Seguros y Reaseguros de Crédito y Caución, Sociedad Anónima the purchase cost of such properties, legally revalued under Royal Decree-Law 7/1996 and previous laws. IAS 16 was retrospectively applied to all other properties and items of property, plant and equipment, which did not result in the recognition of significant differences for the subsidiaries Catoc Vida, Sociedad Anónima de Seguros, Lepanto, S.A. Compañía de Seguros y Reaseguros, Nortehispana de Seguros y Reaseguros, S.A., Cosalud, S.A. de Seguros, and Depsa, S.A. de Seguros y Reaseguros.

In general, the Group applies the straight-line systematic depreciation method to the acquisition cost, excluding the residual value, over the following estimated useful lives:

Items of Property, Plant and Equipment Estimated Useful Life Properties (excluding the value of land) 33 to 77 Improvements to owned buildings 10 years Transport equipment 6 to 7 years Computer hardware 4 to 5 years Other items of property, plant and equipment 5 to 10 years

To determine whether an item of property, plant and equipment is impaired, the Group applies IAS 36 – Impairment of Assets.

c) Investments

c.1) Investment properties (for use by third parties)

The following items are classified as ‘Investment Properties’:

− land held for capital appreciation,

− land held for an undetermined future use (if the Group has not determined whether it will use the land as owner-occupied property or for short-term sale),

− buildings owned by the Group and leased out to third parties,

− buildings that are vacant but are held to be leased out to third parties, and

− properties that were investment properties but that at year-end were further developed for future use as investment property.

Certain properties comprise a portion that is held to earn rentals and another portion that is held for own use. If these portions could be sold separately, the Group also accounts for the portions separately. Otherwise, the property is classified as investment property only if an insignificant portion thereof is held for own use.

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Upon initial recognition, acquisition cost comprises the purchase price and any directly attributable expenditure (associated transaction costs). The cost of a self-constructed investment property is its cost at the date when the construction or development is complete.

The treatment of the costs of extension, modernisation or improvements and the methods of calculation of impairment, depreciation systems and useful lives established for investment properties are similar to those used for properties for own use (see Note 4.b).

The fair value of both investment properties and properties for own use which is indicated in Note 12.b was determined on the basis of valuations by independent valuers. In order for this fair value to reflect market conditions at the balance sheet date, the Group makes the relevant recalculation, if the valuation date differs by more than 12 months from the measurement date, in accordance with the parameters established in the valuation.

c.2) Financial assets and liabilities

Classification of financial assets and liabilities

Note 12.c to these consolidated financial statements shows the balances of financial assets outstanding at 31 December 2005, together with their specific nature, classified as follows:

− Financial assets or financial liabilities at fair value through profit or loss:

They are financial assets or liabilities that meet any of the following conditions:

they are classified as held for trading since they are intended to be sold in the short term.

they are classified into financial schemes or portfolios that are allocated to insurance transactions (insurance contracts for which the flows arising from the financial assets are sufficiently coincident in time and quantity with the obligations stemming from a group of consistent policies).

The Group allocates to this portfolio financial instruments with an embedded derivative feature at fair value.

− Loans and receivables:

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, such as mortgage loans, non-mortgage loans and loan advances.

− Available-for-sale financial assets:

This category includes all financial assets that are not classified in the other portfolios.

Investments in associates are accounted for specifically under the sub-heading ‘Equity-Accounted Investments’.

No financial instruments have been classified at 1 January and 31 December 2005, as ‘Held-to-Maturity Investments’. No reclassifications were made in 2005 with respect to the initial allocation made at the transition date.

Recognition and measurement of financial assets and liabilities

Upon initial recognition, the Group measures a financial asset or a financial liability at fair value, adjusted (in the case of a financial asset or a financial liability not recognised at fair value through profit or loss) for the transaction costs that are directly attributable to the purchase or issue thereof.

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Financial assets

After initial recognition, the Group measures financial assets, including derivatives that are assets, at fair value, without any deduction for transaction costs that it may incur on sale, except for certain loans and receivables which are measured at amortised cost using the effective interest rate method.

The fair value of a financial instrument on a given date is taken to be the amount for which it may be bought or sold by knowledgeable, willing buyers and sellers in an arm’s length transaction. The most objective and common reference for the fair value of a financial instrument is the price that would be determined on the basis of the quoted prices published in the active market. When such reference exists, it is used to measure the financial asset. However, in certain cases the price quotations provided by the various counterparties who would be willing to exchange a certain financial asset are also considered.

In the absence of an active market for a financial instrument, the Group determines fair value using generally accepted measurement techniques. In this case, mathematical measurement models are used that have been sufficiently tested by the international financial community, taking into account the specific characteristics of the instrument to be measured and the various types of risk associated therewith. These mathematical models can be directly used by the Group or by the counterparty who acted as seller.

Instruments measured at amortised cost are measured taking into account the effective interest rate method. Amortised cost is taken to be the amount at which the financial instrument was initially measured, minus principal repayments, plus or minus, as appropriate, the cumulative gradual amortisation or allocation, using the effective interest rate method, of any difference between that initial amount and the redemption value upon maturity, minus any reduction for impairment or uncollectibility.

All financial assets except for those recognised at fair value through profit or loss are subject to impairment testing.

Financial liabilities

After initial recognition, in general the Group measures all its financial liabilities at amortised cost using the effective interest rate method.

Recognition of changes arising in the measurement of financial assets and financial liabilities

A gain or loss arising from a change in the fair value of a financial asset or a financial liability, which is not included in a hedging transaction, is recognised as follows:

− A gain or loss on a financial asset or financial liability at fair value through profit or loss is recognised in the income statement for the year.

− A gain or loss on an available-for-sale asset is recognised directly in equity until the financial asset is derecognised, except for impairment losses and exchange gains or losses. The gain or loss previously recognised in equity is recognised in the income statement for the year upon derecognition of the asset.

However, interest calculated using the effective interest rate method is recognised in the income statement for the year (see Note 4.i.2). Dividends on an equity instrument classified as available for sale are recognised in the income statement for the year when the right for the Group to receive payment has been established.

When a financial asset or a financial liability recognised at amortised cost is derecognised, impaired, or the effective interest rate method is used on it, the resulting income and expenses are recognised through the income statement.

Impairment of financial assets

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At each consolidated balance sheet date, the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired.

If such evidence exists, the Group uses the following methods to determine the amount of any impairment losses:

− Financial assets recognised at amortised cost:

The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced through use of an allowance account, while the amount of the loss is recognised in profit or loss.

If, in subsequent periods, the amount of the impairment loss decreases, the previously recognised impairment loss shall be reversed in the income statement.

This category of assets includes receivables held by the Group with certain insureds in connection with uncollected premiums and unissued premiums. In this case the impairment is determined on the basis of the last three years’ cancellation experience, with greater weighting being given to more recent years, and taking into account the months elapsed from the theoretical collection date and each reporting date, as well as the line of insurance in question.

Receivables on the recovery of claims are capitalised when realisation is sufficiently guaranteed.

− Available-for-sale financial assets:

When a significant decline in the fair value of an available-for-sale financial asset occurs, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in profit or loss even though the financial asset has not been derecognised.

Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale are not reversed through profit or loss. However, the reversals that may be applicable to debt instruments are recognised in profit or loss.

c.3) Investments held for the benefit of policyholders

Investments held for the benefit of policyholders who bear the investment risk are measured at cost upon subscription or purchase thereof. This cost price is adjusted through the year as an increase in, or reduction to, the value of the investment, as appropriate, based on its realisable value at that date. Any revaluation or impairment of these assets is recognised with a credit or charge to the LIFE segment’s income statement on a net basis, under the sub-heading “Unrealised Gains and Losses on Investments”.

d) Foreign currency transactions

Transactions in foreign currency (other than the euro, the Group’s functional currency) carried out by the consolidated companies are initially recognised in their respective financial statements at their equivalent euro value calculated at the exchange rates prevailing at the date of the transaction. Subsequently, at each balance sheet date:

− monetary items in foreign currency are translated to euros at the rates prevailing on the balance sheet date,

− non-monetary items in foreign currency which are carried at historical cost are translated to euros at the exchange rates prevailing at the date of the transaction, and

− non-monetary items in foreign currency which are carried at fair value are translated to euros at the exchange rates prevailing on the date on which such fair value is determined.

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e) Corporation tax

The period corporation tax expense is computed on the basis of accounting profit before taxes, determined in accordance with Spanish GAAP, adjusted by permanent differences with regard to taxable profit, i.e. differences between taxable profit and accounting profit before tax that do not reverse in subsequent periods, and those arising from application of IFRSs in respect of which, likewise, no reversal will take place. When the differences in value are recognised in equity, the related income tax is also recognised against equity.

Both temporary differences arising from differences between the carrying amount and the tax base of an asset or liability and tax assets arising from tax credits and rebates and tax losses give rise to deferred tax assets or liabilities, which are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled.

Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised only to the extent that it is considered highly probable that the consolidated companies will have sufficient taxable profits in the future against which the deferred tax asset can be utilised.

A deferred tax liability is recognised for taxable temporary differences arising from investments in subsidiaries and associates, and interests in joint ventures, except when the Group is able to control the reversal of the temporary differences and it is probable that such differences do not reverse in the foreseeable future.

f) Insurance and reinsurance assets and liabilities

The Group has applied the requirements established in IFRS 4 – Insurance Contracts to all the insurance assets and liabilities, as defined in this standard.

f.1) Classification of the portfolio of contracts

The Group has assessed its direct life and non-life portfolio of contracts (including inward reinsurance) and of outward reinsurance taking into account the Implementation Guidance accompanying IFRS 4 and the guidelines issued, other than for statutory purposes, by the DGSFP on 22 December 2004, through the Framework Document on the Accounting System for Insurance Companies in relation to IFRS 4. All contracts have been classified as ‘insurance contracts’.

The Group has not unbundled any deposit components associated with those insurance contracts, and such unbundling is voluntary in nature. Also, it is considered that the surrender options issued to the insurance policyholders have a fair value of zero.

f.2) Measurement of insurance and reinsurance assets and liabilities

In accordance with IFRS 4, the Group has maintained the accounting policies established for insurance contract assets and liabilities that it had applied under Spanish GAAP to insurance contracts, except for the following mandatory procedures:

− eliminate the equalisation provisions which insurance companies are required to recognise under Spanish GAAP, as provided for in the Private Insurance Regulations (ROSSP). The main effect for the Group lies in the equalisation provision made for the credit insurance line through Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A. Given the highly cyclical component of the credit insurance line, the aim of the equalisation provision is to reach technical stability, thereby avoiding the unfavourable random deviations in the claims figure. Particularly, in the individual financial statements of this company, prepared under Spanish GAAP, the period equalisation provision may not be less than 75% of the technical profit of the credit insurance line and it is made until it reaches the limit of 134% of the average of the premiums written (minus outward reinsurance plus retrocessions) during the previous five years. Notwithstanding, as required by IFRS 4 the equalisation provision recognised at the 2004 year-end had to be reclassified as an increase in reserves in the opening consolidated balance sheet prepared under IFRS 4, dated 1 January 2005, net of the related tax effect (see Note 11).

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− carry out the liability adequacy test provided for in IFRS 4. The carrying amount of the technical provisions, less any deferred acquisition costs or any intangible assets related to the insurance contracts under assessment, has been compared against the amount determined as a result of considering current estimates, using market interest rates, of all cash flows under the insurance contracts, and of related cash flows, such as those resulting from embedded options and guarantees.

In the above calculation the Group offsets the deficiencies with the surpluses, considering the various types of insurance included in the life line as a single level of aggregation, for each subsidiary engaged in the insurance business separately considered.

Since the liabilities were adequate at the transition date, on the basis of the calculations made at 31 December 2005, it was not necessary to increase the amount of insurance liabilities recognised at that date.

For the purpose of partially avoiding the mismatches caused by the use of different measurement bases for financial assets, which are classified mainly under the available-for-sale portfolio, and insurance liabilities, the Group has opted to recognise as an increase in the sub-heading ‘Life Insurance Provisions’ the portion of the unrealised gains arising from the above assets, which are expected to be allocated to the insureds as they materialise or through the application of an assumed interest rate higher than the market interest rate (see Note 11).

The main accounting policies applied by the Group in connection with the technical provisions are as follows:

f.2.1) Unearned premiums and unexpired risks provisions

The unearned premiums provision is the proportion of premiums written in the year to be allocated to the period from each year-end to the expiry of the policy period. The Group’s insurance companies calculated this provision for each line of insurance on a policy-by-policy basis, by reference to the premium rates, net, where appropriate, of the loading for contingencies, i.e., commissions and other acquisition costs are not deducted.

The unexpired risks provision is intended to complement the unearned premiums provision to the extent that the amount of this provision is not sufficient to reflect the measurement of all risks and expenses to be covered in relation to the coverage period not closed at year-end. This provision was recorded in accordance with the calculation stipulated by the applicable legislation, considering the technical income by year of occurrence for the closing year jointly with the previous year or the three previous years, subject to the line of insurance in question.

f.2.2) Life insurance provisions

This reserve comprises the unearned premiums provision for insurance policies with a coverage period equal to or shorter than a year and, mainly for other lines of insurance, the mathematical provision. Mathematical provisions, which represent the excess of the current actuarial value of the Company’s future obligations over the value of the premiums payable by policyholders, were calculated on a policy-by-policy basis under an individual capitalisation method, by reference to the inventory premium accrued in the year, in accordance with the Technical Bases of each line of insurance adjusted, as appropriate, for the mortality tables approved by current Spanish legislation.

Also, in certain life insurance lines marketed by Seguros Catalana Occidente, S.A. de Seguros y Reaseguros and Catoc Vida, S.A. de Seguros y Reaseguros, mainly combined life insurance and retirement insurance, upon expiration of the policy the insureds may choose capital or annuity, where interest is fixed as the policy is taken out. The life insurance provisions recognised at 31 December 2005 include, on the basis of each subsidiary’s past experience and the increased estimated cost involved in the second option, the value of these surrender options amounting to EUR 4,802 thousand.

For the various types of Universal insurance and for the periods in which those types of insurance guarantee an interest rate higher than that specified under Article 33.1 of the ROSSP (3 or 6 months), the mathematical

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provision for those periods is determined by reference to the highest applicable interest rate published each year by the DGSFP, rather than the guaranteed interest rate. The effect on the consolidated income statement for 2005 of applying the highest interest rate, 2.42%, was the recognition of an expense amounting to EUR 1,251 thousand.

f.2.3) Claims provisions

These provisions include the total amount of obligations outstanding as a result of claims incurred at year-end. The Group calculated this provision as the difference between the total estimated or certain cost of claims not reported, settled or paid and the aggregate amounts already paid on account of such claims. This provision was calculated on a case-by-case basis for claims not yet settled or paid and on the basis of the experience, as indicated in the Regulations, of claims not yet reported, and includes the internal and external claims management and processing expenses, regardless of origin, whether incurred or to be incurred, until full claim settlement and payment.

f.2.4) Provisions for policyholder dividends and return premiums

These provisions include the earnings accrued to insureds or beneficiaries and not yet allocated at year-end.

f.2.5) Provisions for life insurance policies where risk is assumed by policyholders

The provisions for insurance policies where the investment risk is borne by policyholders are determined by reference to the benchmark indexes or assets used to determine the economic value of the policyholder’s rights.

f.2.6) Other technical provisions – Funeral insurance

This provision is recognised on the basis of the actuarial approach to the transaction, pursuant to the Technical Basis.

g) Treasury shares

The negative balance of the heading ‘Equity – Treasury Shares’ in the consolidated balance sheet relates to the Group’s shares held exclusively by the subsidiary Salerno 94. These shares are carried at acquisition cost. The related adjustments and the gains and losses arising from disposal of treasury shares are credited or charged, as appropriate, to the sub-heading under equity called ‘Reserves for Valuation Adjustments – Gains/Losses on Treasury Shares’.

All the Group’s shares held by the aforementioned subsidiary, Salerno 94, at 31 December 2005, accounted for 1.45% of the capital issued at that date. A summary of the transactions carried out with the Group’s own shares in 2005 is provided in Note 12.j.

h) Provisions for liabilities and charges

The Group’s consolidated financial statements include all the material provisions with respect to which it is considered that it is more likely than not that the obligation will have to be settled. Contingent liabilities are not recognised in the consolidated financial statements.

Provisions, which are quantified on the basis of the best information available on the consequences of the event giving rise to them and are reviewed and adjusted at the end of each year, are used to cater for the specific risks for which they were originally recognised. Provisions are fully or partially reversed when such risks cease to exist or are reduced.

h.1) Provisions for pensions and similar obligations

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The Group companies with the most representative obligations are Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros, Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. and Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A.

These companies have pension obligations covered by defined-contribution and defined-benefit plans, which are in turn covered by externalised policies, pension plans and internal provisions. Also, certain enhancements were made to the collective bargaining agreement for the insurance industry.

The premiums paid on the insurance contracts and the contributions made to pension plans in the year are recognised as expenses in the consolidated income statement.

h.2) Other provisions

The provision for third-party liability and expenses basically includes payables for the payments assumed to be made by the Group under the terms of the agreements entered into with insurance companies, and the estimated amounts needed to meet liabilities, whether probable or certain, such as current lawsuits, severance pay, adjustments payable to employees and other obligations.

Under current Spanish labour legislation, the subsidiaries are required to pay termination benefits to employees terminated without just cause. Any such indemnities are recognised as an expense when the decision is made to dismiss an employee. There are no redundancy plans making it necessary to make a provision in this connection.

i) Recognition of income and expenses

Income and expenses are recognised on an accrual basis, i.e. when the actual flow of the related goods and services occurs, regardless of when the resulting monetary or financial flow arises.

i.1) Income from premiums written

The Group recognises in income in the year the premiums written during the year less cancellations and return premiums, adjusted for changes in premiums written but not issued, which arise from contracts completed or renewed during the year, in relation to which premiums the insurer’s collection right accrues during such period.

The Group’s income through surcharges for part-payment of premiums are recognised as an increase in finance income and accrued over the collection period of the bills generating these surcharges.

i.2) Interest income and expense and similar items

In general, these items are recognised using the effective interest method. Dividends received from other companies are recognised as income as the consolidated companies’ right to receive them arises.

i.3) Claims paid and changes in provisions

Claims incurred comprise both the claims paid during the year and the changes arising in claims-related provisions and the allocable portion of general expenses to be allocated to the claims function.

j) Methods of allocation of expenses by function

The Group initially recognises general expenses by nature and subsequently they are allocated by reference to the segment and the function or activity originating them. As a result, in the accompanying consolidated income statement a portion of the general expenses are shown under ‘Other Income Less Expenses’, ‘Net Investment Income’ and ‘Claims Incurred Less Reinsurance’. All other general expenses are recognised under ‘Net Operating Expenses’ in the consolidated income statement.

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The methods used by the Group’s main subsidiary, which do not differ significantly from those applied by the rest of the Group’s insurance companies for the purposes of the change of method of classification of expenses by nature to a function-based classification, within each business, are as follows:

Personnel expenses

− 100% of the expenses of personnel assigned to the Claims Processing Centres and of personnel from the IT, Organisation, Coinsurance and Technical Management Departments are allocated to claims incurred, based on the time spent on claims processing.

− All the expenses of personnel assigned to the Support Centre and the Call Centre, most of the expenses of branch personnel and the expenses of personnel from the IT, Organisation, Reinsurance and Coinsurance Departments are included under net operating expenses, based on the time spent on the acquisition of insurance contracts and on administrative duties. All Administrative General Management expenses, a minor portion of the expenses of personnel assigned to the Investments Department, all Corporate General Management expenses and a portion of the Chairman’s office expenses, both of which are included under General Management’s and General Secretary’s expenses, are also included.

− Most of the expenses of the personnel assigned to the Investments Department, according to the Group’s organisational structure, are included as a reduction of net investment income.

− A portion of the Chairman’s office expenses, including General Management’s and General Secretary’s expenses, are assigned as a reduction of other income.

Outside services

- Commercial expenses, namely margin, management premiums, agents’ expenses, training and publicity and advertising, are all reclassified as net operating expenses.

- Repair and upkeep expenses, supplies, insurance premiums and stationery, and independent professionals’ expenses, are recognised as a reduction of, or form part of, claims incurred in the year, net investment income, other income less expenses and net operating expenses in proportion to the personnel expenses reclassified to each one of these sub-headings.

- Agency expenses, as part of the expenses associated with other services, are reclassified in full to net operating expenses and the remainder is reclassified to all sub-headings in proportion to the personnel expenses reclassified to each of them.

Taxes other than income tax:

− The expense for taxes other tan income tax is allocated to net operating expenses in full.

Depreciation and amortisation charge:

− The depreciation and amortisation charge on property, plant and equipment, intangible assets and investment property is reclassified to other income less expenses, claims incurred in the year, net investment income and net operating expenses under similar methods as those used for repair and upkeep expenses.

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5. Cash flow statement

Since the Group presented a consolidated cash flow statement prepared in accordance with Spanish GAAP in 2004, a detail of the main reconciling adjustments between the previous statement and the statement prepared in accordance with international standards is, as required under IFRS 1, provided in Note 10.

6. Earnings per share

Basic earnings per share are calculated by dividing the net profit attributable to the Group by the weighted average number of ordinary shares outstanding during the year, excluding the average number of treasury shares held during the year.

The calculation is as follows:

2004 2005 Change Net profit for the year (Thousands of Euros) 103,579 137,591 34,012 Weighted average number of issued shares (Thousands of Shares) (see Note 12.j )

24,000 24,000 -

Less: Treasury shares (Thousands of Shares) (374) (347) 27 Weighted average number of shares outstanding (Thousands of Shares) (*) 23,511 23,640 129

Basic earnings per share (Euros) 4.4056 5.8203 1.4147

(*) At 1 January 2004, there was a total of 604 thousand treasury shares.

Since there are no options on shares, warrants or other equivalent instruments that may cause a potential dilutive effect, basic earnings per share coincide with diluted earnings per share in the years reported.

7. Distribution of profit

The distribution of 2005 profit of Grupo Catalana Occidente, Sociedad Anónima that the Board of Directors will propose for approval by shareholders at the Annual General Meeting is as follows:

Distribution Thousands

of Euros To legal reserve - To voluntary reserves 3,383 To dividends 14,880 Net profit for the year 18,263

On 30 March 2006, the Parent’s Board of Directors approved the distribution of an interim dividend out of 2005 profit amounting to EUR 0.62 per share.

The distribution of 2004 net profit approved by the Annual General Meeting held on 28 April 2005, was to allocate profit for the year, amounting to EUR 4,321 thousand, in full to increase voluntary reserves.

The projected distribution of dividends out of reserves (see Note 12.j) complies with the requirements and limitations established in legislation and in the articles of association in force.

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8. Reconciliation of equity, in accordance with Spanish GAAP, with equity in accordance with IFRSs at 1 January 2004 and 31 December 2004

Following is a reconciliation of the balances in the consolidated balance sheet and consolidated income statement and a definition of certain terms used therein: • Closing balances: the balances in the Group’s consolidated financial statements prepared in accordance

with Spanish GAAP. • Reclassifications: changes arising from the new way of presenting the financial statements. • Adjustments: changes arising from the measurement basis and accounting policies changed by the new

Standards. • Opening IFRS balances: the balances resulting from considering the effect of the adjustments and

reclassifications on the closing balances. • Ref.: reference to the comment explaining the nature of the most significant adjustments and

reclassifications.

a) At 1 January 2004

Thousands of Euros Effect of Changes

ASSETS at 1 January 2004

Balances under

Spanish GAAP Reclassific. Adjustments

Balances under IFRS Ref.

Intangible assets Goodwill on consolidation 26,204 (200) (19) 25,985 Other intangible assets 10,419 - - 10,419 Property, plant and equipment Properties for own use - 125,402 (324) 125,078 a) Other items of property, plant and equipment 33,667 - (2,591) 31,076 (b) Investments Investment property 242,478 (125,402) (725) 116,351 (b) Financial assets 2,531,662 (245,002) (31) 2,286,629 (c) Other financial assets (*) 49,783 (27,060) (4,428) 18,295 (d) Deposits for inward reinsurance 2,972 - - 2,972 Investments for the benefit of life insurance policyholders who bear the investment risk

175,425 - - 175,425

Reinsurer's share of technical provisions 282,915 - - 282,915 Deferred tax assets - 17,992 - 17,992 (e) Receivables Receivables arising from direct insurance and

coinsurance transactions 127,780 - 5,242 133,022 (f)

Receivables arising from reinsurance transactions

13,900 - - 13,900

Tax assets, social security and other receivables

140,951 (17,992) 122,959 (e)

Cash and cash equivalents 49,955 308,811 358,766 (c) Prepayments and accrued income 142,663 (47,935) - 94,728 (g)

Total 3,830,774 (11,386) (2,876) 3,816,512 (*) Under Spanish GAAP, this sub-heading comprises financial assets accounted for using the equity method and treasury shares.

72

(a) EUR 125,402 thousand relating to investment properties used by Group companies have been reclassified.

(b) The construction works capitalised to leased properties have been adjusted against first-time application reserves.

(c) The main reclassifications relate to the inclusion of unmatured accrued interest associated with fixed-income investments and other similar investments amounting to EUR 47,935 thousand and the treatment of all equity investments which are no longer within the scope of consolidation under IFRSs amounting to EUR 15,874 thousand. Also, EUR 308,811 relating to highly liquid, low-risk short-term investments have been reclassified as an increase to the sub-heading ‘Cash and Cash Equivalents’. The balances relating to investments accounted for using the equity method are now included under ‘Other Financial Assets’.

(d) Equity investments that are no longer within the scope of consolidation and the portion of goodwill arising from investments in investees that remain within the scope of consolidation have been reclassified. Also, treasury shares, which were classified under ‘Other Financial Assets’, are now presented as a reduction to equity amounting EUR 11,386 thousand. Lastly, a negative adjustment amounting to EUR 4,428 thousand has been made against first-time application reserves as a result of the change to the scope of consolidation.

(e) A balance of EUR 17,992 thousand relating to deferred tax assets that already existed under Spanish GAAP has been reclassified.

(f) The reassessment of the allowances for bad debts (policyholders and agents) resulted in an upward adjustment against first-time application reserves amounting to EUR 5,242 thousand.

(g) See the reclassification discussed in point (c) relating to unmatured accrued interest on financial assets.

73

Thousands of Euros

Effect of Changes

EQUITY AND LIABILITIES at 1 January 2004

Balances under Spanish GAAP

(*) Reclassific. Adjustments

Balances under IFRSs Ref.

Equity Share capital 36,000 - - 36,000 Reserves 256,738 - (1,850) 254,888 (a) Less: Treasury shares - (11,386) - (11,386) (b) Reserves for valuation adjustments - - - - Exchange differences - - - - Retained earnings - - - - Minority interests 142,447 - 1,501 143,948 (c) Technical provisions Unearned premiums and unexpired risks

provisions 390,384 - - 390,384

Life insurance provisions 1,614,287 (29,402) - 1,584,885 (d) Claims provisions 815,396 - - 815,396 Provisions for policyholder dividends and

return premiums 6,832 - - 6,832

Other technical provisions (**) 154,840 - - 154,840 Provisions for life insurance policies where risk is borne by policyholders

177,221 - - 177,221

Provisions for liabilities and charges 21,632 29,402 (4,042) 46,992 (e) Deposits received for outward reinsurance and retrocessions

54,691 - - 54,691

Deferred tax liabilities - 417 1,107 1,524 (f) Payables Payables arising from direct insurance and

coinsurance transactions 27,901 - 408 28,309

Payables arising from reinsurance transactions

11,162 - - 11,162

Tax and other payables 108,218 (417) - 107,801 Prepayments and accrued income 13,025 - - 13,025

Total 3,830,774 (11,386) (2,876) 3,816,512 (*) After distribution of consolidated profit for 2003. (**) Under Spanish GAAP, this sub-heading comprises the equalisation provision and other technical provisions.

(a) The adjustments to reserves arose from the changes in the scope of consolidation, which led to a decrease in such reserves amounting to EUR 4,484 thousand and to an upward adjustment amounting to EUR 2,634 thousand arising from adjustments made to the opening consolidated balance sheet, which were recognised against first-time application reserves, net of the related tax effect.

(b) The Parent’s treasury shares are presented as an EUR 11,386 thousand reduction in equity.

(c) The EUR 1,501 thousand upward adjustment reflects the portion of the adjustments made to the opening balance sheet that have to be allocated to minority interests.

(d) EUR 29,402 thousand relating to pension obligations to Group employees have been reclassified which are covered through policies taken out from insurance companies belonging to the Group.

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(e) As a result of the reassessment of the provisions for liabilities and charges, including the obligations assumed vis-à-vis the employees and other provisions, a gross balance amounting to EUR 4,042 thousand was released with a credit to first-time application reserves.

(f) The tax effect of the adjustments made against reserves in the opening balance sheet increased deferred taxes by EUR 1,107 thousand.

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b) At 31 December 2004


ASSETS at 31 December 2004

Balances under



Intangible assets Goodwill on consolidation 108,470 (200) 13,606 121,876 (a) Other Intangible Assets 15,942 - 1,802 17,744 (b) Property, plant and equipment Properties for own use - 200,376 (4,034) 196,342 Other items of property, plant and

equipment 35,635 - - 35,635

Investments Investment property 336,227 (200,376) (874) 134,977 Financial assets 3,603,363 (327,243) 196 3,276,316 Other financial assets (*) 50,280 (21,797) (5,657) 22,826 Deposits for inward reinsurance 755 - - 755 Investments for the benefit of life insurance policyholders who bear the investment risk

260,628 - - 260,628

Reinsurer's share of technical provisions 302,409 - - 302,409 Deferred tax assets - 24,122 - 24,122 Receivables Receivables arising from direct insurance

and coinsurance transactions 160,937 (39,807) 4,592 125,722

Receivables arising from reinsurance transactions (**)

5,994 - - 5,994

Tax assets, social security and other receivables (**)

144,909 (24,122) 28 120,815

Cash and cash equivalents 49,448 445,925 - 495,373 Prepayments and accrued income 182,405 (64,044) - 118,361

Total 5,257,402 (7,166) 9,659 5,259,895 (*) Under Spanish GAAP, this sub-heading comprises financial assets accounted for using the equity method and treasury shares. (**) At 31 December 2004, a provision amounting to EUR 6,297 thousand had been recognised under ‘Receivables’, of which EUR 4,726 thousand consisted of receivables relating to reinsurance transactions and EUR 1,541 thousand to other receivables. The respective amounts were reduced from the closing balances.

The amounts that were adjusted in the consolidated balance sheet at 31 December 2004 agree, as to their nature, with the amounts previously reported in the opening balance sheet. There follows a detail of the amounts reported under a different nature:

(a) An upward adjustment amounting to EUR 13,569 thousand was made with a credit to the consolidated income statement, relating to transfers to goodwill made in 2004 that were reversed.

(b) A sum of EUR 1,802 thousand was adjusted with a credit to the consolidated income statement in connection with the amortisation in 2004 of the portfolio acquisition costs, which are recognised under the sub-heading ‘Other Intangible Assets’.

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EQUITY AND LIABILITIES at 31 December 2004

Balances under



Equity Share capital 36,000 - - 36,000 Reserves 233,837 - (2,032) 231,805 (a) Less: Treasury shares - (7,166) - (7,166) Reserves for valuation adjustments - - - - Exchange differences Retained earnings 90,622 - 12,957 103,579 (b) Consolidated profit 113,910 - 13,619 127,529 Profit attributable to minority interests (23,288) - (662) (23,950) Minority interests 154,783 - 2,182 156,965 Technical provisions Unearned premiums and unexpired risks

provisions 528,134 - - 528,134

Life insurance provisions 2,368,746 (48,325) - 2,320,421 Claims provisions 1,099,136 1,099,136 Provisions for policyholder dividends and


Other technical provisions (*) 183,169 - - 183,169 Provisions for life insurance policies where risk is borne by policyholders

260,628 - - 260,628

Provisions for liabilities and charges 20,669 48,325 (5,898) 63,096 Deposits received for outward reinsurance and retrocessions

57,704 - - 57,704

Deferred tax liabilities - 420 2,208 2,628 Payables Payables arising from direct insurance and

coinsurance transactions 38,869 - 242 39,111

Payables arising from reinsurance transactions

18,670 - - 18,670

Tax and other payables 146,089 (420) - 145,669 Prepayments and accrued income 13,155 - - 13,155

Total 5,257,402 (7,166) 9,659 5,259,895 (*) Under Spanish GAAP, this sub-heading comprises the equalisation provision and other technical provisions.

(a) The adjustments to reserves relate to a negative adjustment amounting to EUR 4,666 thousand arising from changes in the scope of consolidation which affected the reserves of companies accounted for using the equity method, and also a EUR 2,634 thousand upward adjustment made to the opening balance sheet.

(b) See Note 9.

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9. Reconciliation of the profit for 2004, in accordance with Spanish GAAP, with the profit for 2004 in accordance with IFRSs

Thousands of Euros

Non-Life Segment

Life Segment

Other Segment

Corporation tax Total Profit

Profit Attributable to Minority Interests

Profit Attributable

to the Parent Ref.

Profit under Spanish GAAP 125,484 23,801 (2,728) (32,647) 113,910 (23,288) 90,622 Adjustments: Goodwill amortisation 3,176 180 12,071 (586) 14,841 (4) 14,837 (a) Provisions for properties for own use and for use by third parties

- - (4,145) 623 (3,522) 103 (3,419) (b)

Provisions for policyholders, agents and lawsuits

1,372 - - (675) 697 (760) (63) (c)

Work on leased premises 2,401 452 - (436) 2,417 (1) 2,416 (d) Change in the scope of consolidation (836) - 22 - (814) - (814) (e) Sum of adjustments 6,113 632 7,948 (1,074) 13,619 (662) 12,957 Profit under IFRSs 131,597 24,433 5,220 (33,721) 127,529 (23,950) 103,579

(a) The Group reversed the amortisation of the goodwill associated with the investments held in Lepanto, Seguros Bilbao, Catoc Vida and Inversiones Menéndez Pelayo amounting to EUR 3,414 thousand, EUR 8,656 thousand, EUR 1,494 thousand and EUR 5 thousand, respectively, before taxes, and of the goodwill associated with the investee Hercasol SICAV, which totals EUR 37 thousand, and with the investment held in Inpisa Dos SICAV, amounting to EUR 19 thousand, formerly considered as an investee under Spanish GAAP. The amortisation of goodwill arising on the assignment of a portfolio of insurance contracts, amounting to EUR 1,802 thousand gross, was also reversed.

(b) The reversals of provisions made in 2004 under Spanish GAAP were eliminated, since such provisions were no longer required at the beginning of the year under IFRSs.

(c) The recalculation of the allowances for uncollected premiums, the balances held with agents and the lawsuits in progress at 31 December 2004, entailed the use of a total gross amount of EUR 1,372 thousand.

(d) The recognition as an expense in the year of the expenses incurred in connection with properties leased out by Group companies involved a total amount of EUR 2,853 thousand before tax.

(e) The change in the scope of consolidation led to the reversal of the profit of certain investees amounting to UR 814 thousand that was taken into account under Spanish GAAP.

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10. Reconciliation of the consolidated cash flow statement for 2004, in accordance with Spanish GAAP, with the consolidated cash flow statement for 2004 in accordance with IFRSs

Except for the effect of the reclassifications of the cash flows reported in the consolidated cash flow statement for 2004 under the new format established in IAS 7, no material adjustments have been made to this statement.

11. Reconciliations at 1 January 2005, as a result of adoption of IAS 32, IAS 39 and IFRS 4

There follows a detail of the adjustments made as a result of the adoption of IFRS 4, IAS 32 and IAS 39 in the consolidated balance sheet at 1 January 2005. A detailed classification by portfolio of the financial assets existing at 31 December 2004, is first provided on the basis of the portfolios defined in IAS 39. These balances are those which are shown in the consolidated balance sheet at 31 December 2004:

Thousands of Euros

Closing

Balances at

31/12/2004 Available-for-Sale

At Fair Value

Through Profit or

Loss

Held-for-

Trading Loans and

Receivables Other Investments Investment property 134,977 - - - - 134,977 Financial assets

• Equity securities 369,165 369,165 - - - -• Fixed-income securities 2,520,732 2,427,696 93,036 - - -• Other assets 374,583 308,553 66,030 - - -• Impairment allowances (8,394) (8,394) - - - -

Other financial assets • Equity-accounted

investments 22,826 - - - - 22,826

• Deposits for inward reinsurance

755 - - - 755 -

• Other investments 20,230 - - - 20,230 - 3,434,874 3,097,020 159,066 - 20,985 157,803

Investments for the benefit of life insurance policyholders who bear the investment risk

260,628 - 260,749 - (121) -

260,628 260,749 - (121) -

Total Investments 3,695,502 3,097,020 419,815 - 20,864 157,803

Rest of sub-headings not affected by IFRS 4, IAS 32 and IAS 39 1,564,393 - - - - 1,564,39

3

TOTAL ASSETS 5,259,895 3,097,020 419,815 - 20,864 1,722,196

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Following the classification of the investments in the various portfolios as defined in IAS 39, the detail of the adjustments made to the various headings in the consolidated balance sheet as a result of the adoption of IFRS 4, IAS 32 and IAS 39, is as follows:


Closing

Balances at 31/12/2004

Adjustments under IFRS 4

Adjustments under IAS 39 and IAS

32

Opening Balances

at 1/1/2005 Ref. Investments Investment property 134,977 - - 134,977 Financial assets

1. Available-for-sale • Equity securities 369,165 - 65,184 434,349 (a) • Fixed-income securities 2,427,696 - 168,360 2,596,056 (a) • Other assets 308,553 - 22,230 330,783 (a) • Impairment allowances (8,394) 8,394 -

2. At fair value through profit or loss 159,066 - 25,809 184,875 (a) Other financial assets

• Equity-accounted investments 22,826 - - 22,826 • Deposits for inward reinsurance 755 - - 755 • Loans and receivables 20,230 - - 20,230

Investments for the benefit of life insurance policyholders who bear the investment risk

260,628 - - 260,628

Total Investments 3,695,502 - 289,977 3,985,479 Rest of sub-headings not affected by IFRS 4, IAS 32 and IAS 39

1,564,393 - - 1,564,393

TOTAL ASSETS 5,259,895 - 289,977 5,549,872

80


Closing


Adjustments under IFRS

4

Adjustments under IAS 39 and IAS

32

Opening Balances

at 1/1/2005 Ref. Equity Share capital 36,000 - - 36,000 Reserves

• Equalisation provision - 46,132 - 46,132 (b) • Other reserves (see Note 12.j ) 231,805 - 1,845 233,650 (a)

Less: Treasury shares (7,166) - - (7,166) Reserves for valuation adjustments - - 115,666 115,666 (a) Exchange differences - - - - Retained earnings 103,579 - - 103,579 Consolidated profit 127,529 - - 127,529 Profit attributable to minority interests (23,950) - - (23,950)

Minority interests 156,965 66,681 6,961 230,607(a) (b)

Technical provisions Unearned premiums and unexpired risks

provisions 528,134 - - 528,134

Life insurance provisions 2,320,421 86,914 - 2,407,335 (a) Claims provisions 1,099,136 - - 1,099,136 Provisions for policyholder dividends and


Other technical provisions • Equalisation provision 173,557 (173,557) - - (b) • Other technical provisions 9,612 - - 9,612

Provisions for life insurance policies where risk is borne by policyholders

260,628 - - 260,628

Deferred tax liabilities 2,628 60,744 78,591 141,963 (a)

(b) Rest of sub-headings not affected by IFRS 4, IAS 32 and IAS 39

337,405 - - 337,405

TOTAL LIABILITIES 5,259,895 86,914 203,063 5,549,872 (a) The measurement of financial assets at fair value at 1 January 2005, led to the recognition of pre-tax gains amounting to EUR 289,977 thousand.

In accordance with the clauses and rights relating to the policyholder dividends provided for in the various life insurance contracts, which dividends are obtained through an effective return which is higher than the minimum return established in the applicable technical bases or through calculations based on the financial return on certain financial asset portfolios, the Group increased its life provisions by EUR 86,914 thousand, thereby recognising the insureds’ interest in the gains not yet realised at 1 January 2005. The recognition of minority interests amounting to EUR 6,961 thousand and a tax effect of EUR 78,591 thousand gave rise to reserves for valuation adjustments amounting to EUR 115,666 thousand (basically available-for-sale portfolios), while the resulting first-time application reserves totalled EUR 1,845 thousand (basically portfolios at fair-value through profit or loss).

(b) The Group has reclassified the equalisation provisions recognised at 1 January 2005, as an increase in reserves at that date. This provision amounted to EUR 173,557 thousand, and an increase in the balance of minority interests was recognised amounting to EUR 66,681 thousand. After discounting the potential tax effect of

81

the new treatment to be given to this provision, amounting to EUR 60,744 thousand, the equity reserves recognised at 1 January 2005, amounted to EUR 46,132 thousand.

12. Disclosures on certain balance sheet and income statement items

a) Intangible assets

Thousands of Euros Other Intangible Assets Not Internally

Generated

Goodwill Computer Software

Portfolio Acquisition

Costs

Other Intangible

Assets

Total Other Intangible

Assets

Cost at 1 January 2005 121,876 21,126 9,854 274 31,254

Accumulated amortisation at 1 January 2005

- (8,821) (4,586) (103) (13,510)

Carrying amount at 1 January 2005

121,876 12,305 5,268 171 17,744

Additions - 7,905 - 33 7,938

Retirements - (2,960) - - (2,960)

Reclassifications and transfers

- 4 - - 4

Amortisation charge - (4,715) (28) (68) (4,811)

Retirements from amortisation

- 2,936 - - 2,936

Impairment losses - - - - -

Cost at 31 December 2005 121,876 26,075 9,854 307 36,236

Accumulated amortisation at 31 December 2005

- (10,600) (4,614) (171) (15,385)

Carrying amount at 31 December 2005

121,876 15,475 5,240 136 20,851

Goodwill

The breakdown of the balance of the sub-heading ‘Goodwill’ in the consolidated balance sheet at 31 December 2005, by company originating such goodwill, is as follows:

Thousands of Euros Company Balances at 31/12/2005

Fully consolidated companies: Lepanto, S.A. de Seguros y Reaseguros 25,945 Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. 94,398 Cosalud, S.A. de Seguros 1,494 Inv. Menéndez Pelayo SICAV, S.A. 39 Gross total 121,876 Less: Impairment losses - Carrying amount 121,876

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No additions or retirements took place in 2005 as a result of business combinations or sales, and no impairment losses occurred affecting consolidation goodwill. According to the estimates and projections available to the Parent’s directors, the projections of income and cash flows of these companies attributable to the Group support the carrying amount of the goodwill recognised. These estimates and projections are based on the following parameters and assumptions:

─ goodwill is allocated to each goodwill-generating subsidiary, representing a cash-generating unit separate from other possible units or segments,

─ the recoverable amount of each unit was determined by reference to its value in use taking

into account the most prudent projections of profit from ordinary activities after tax for the following ten years, and also a residual value of the investments determined by reference to price-earnings ratios (PER) generally accepted in the Spanish insurance industry. The projections of profit from ordinary activities are a reflection of past experience and they are consistent with external sources of information, and a steady growth rate was considered from the fifth year.

─ the discount rate applied to the projections was determined taking into account the

opportunity cost established by the Group’s Parent.

As a result of the above, no impairment losses were recognised in 2005.

Other intangible assets

All these intangible assets have a useful life defined by their nature and the amortisation methods have been detailed in the accounting policies (see Note 4.a.2) ).

At 31 December 2005, intangible assets in use amounted to approximately EUR 2,125 thousand gross, and had been fully amortised. The amortisation of intangible assets was recognised in the consolidated income statement under the following sub-headings and segments:

Use of Amortisation Charged to Income Non-Life Segment Life Segment Other Segment Total

Expenses allocable to claims incurred 685 111 - 796

Net operating expenses 3,218 613 - 3,831 Investment management expenses 72 13 - 85

Other technical expenses 79 20 - 99 Total 4,054 757 - 4,811

The Group did not recognise any impairment losses in 2005.

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b) Property, plant and equipment and investment property

The breakdown by nature of the items making up the balance of this heading and sub-heading of the consolidated balance sheet at 31 December 2005, is as follows:

Other Items of Property, Plant and Equipment

Properties for Own Use Furniture and

Fixtures Transport Equipment

Computer Hardware

Improvements to Owned Buildings

Other Items of Property, Plant and Equipment

Total Property, Plant and

Equipment

Investment Property (for Use by Third

Parties)

Cost at 1 January 2005 230,364 51,894 1,738 15,241 18,150 1,277 88,300 174,800

Accumulated amortisation at 1 January 2005

(32,715) (36,603) (787) (7,891) (7,066) (318) (52,665) (39,345)

Impairment losses (1,307) - - - - - - (478)

Carrying amount at 1 January 2005

196,342 15,291 951 7,350 11,084 959 35,635 134,977

Investments or additions 619 3,349 271 3,207 1,899 485 9,211 12,306

Advances in progress 3,252 - - - - - - -

Reclassifications and transfers 4,244 (1,602) - (4) 1,602 (183) (187) (4,244)

Sales and retirements (1,860) (1,695) (467) (2,769) (913) - (5,844) (539)

Depreciation charge (3,365) (2,285) (231) (2,287) (2,168) (33) (7,004) (3,209)

Retirements from depreciation

- 901 357 1,482 713 - 3,453 153

Impairment losses (793) - - - - - - (115)

Retirements of impairment losses

- - - - - - - 46

Carrying amount at 31 December 2005

198,439 13,959 881 6,979 12,217 1,228 35,264 139,375

Detail of Carrying Amount at 31 December 2005:

Cost at 31 December 2005

236,619 51,946 1,542 15,675 20,738 1,579 91,480 182,322

Accumulated amortisation at 31 December 2005

(36,080) (37,987) (661) (8,696) (8,521) (351) (56,216) (42,400)

Impairment losses (2,100) - - - - - - (547)

At 31 December 2005, there were other items of property, plant and equipment amounting to approximately EUR 26,548 thousand gross, which had been fully depreciated. Properties for own use located abroad amount to EUR 2,452 thousand together with other items of property, plant and equipment amounting to EUR 799 thousand. Also, at that date there were properties under construction involving recognised

84

expenditure amounting to EUR 5,442 thousand to date. These properties are classified together with the rest of properties for own use at 31 December 2005. In 2005 rental income from investment properties owned by the consolidated companies amounted to approximately EUR 16,297 thousand and all operating expenses related thereto amounted to approximately EUR 4,563 thousand (repair and maintenance costs included). Additionally, the Group incurred a cost of EUR 1,978 thousand in connection with direct operating expenses related to investment properties that did not yield any rental income in 2005. Such income and expenses were recognised at their carrying amount under the sub-heading ‘Net Investment Income’ in the consolidated income statement under the following lines:

Net Investment Income Non-Life Segment Life Segment Other Activities

Segment Total

Rental income 3,924 11,520 853 16,297 Leased investment property expenses (1,010) (3,405) (148) (4,563)

Non-leased investment property expenses (1,092) (311) (575) (1,978)

Net total 1,822 7,804 130 9,756

In 1996, pursuant to the provisions of Royal Decree-Law 7/1996, of 7 June, and Provincial Law 6/1996, of 21 November, the consolidated companies Grupo Catalana Occidente, S.A., Inmobiliaria Catoc, S.A. (absorbed by Seguros Catalana Occidente, S.A. at the end of 2001), Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. and Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A. revalued the cost of their land and properties by a total of EUR 53,445 thousand, of which EUR 41,025 thousand relate to the first company, EUR 2,677 thousand to the second, EUR 4,019 thousand to the third, and EUR 5,724 thousand to the fourth.

The market value of the properties used by the Group and of the investment properties is as follows:

Market Value at 31/12/2005

Properties for Own Use

Investment Properties for Use by Third

Parties

Total

Properties allocated to the LIFE segment 67,923 227,763 295,686

Properties allocated to the NON-LIFE segment 206,365 122,746 329,111

Properties allocated to the Other Activities segment 17,057 6,432 23,489

Total 291,345 356,941 648,286

At 31 December 2005, the external valuations had been performed a maximum of three years earlier and updated through the balance sheet date on the basis of property market developments.

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c) Financial assets

The detail at 31 December 2005, of financial assets, excluding equity-accounted financial assets and deposits for inward reinsurance, is as follows:

Financial assets classified by type of portfolio and nature Available-for-

Sale

At Fair Value Through Profit or

Loss Loans and

Receivables Total at

31/12/2005

Equity securities 422,940 - - 422,940

Fixed-income securities 2,693,953 89,064 - 2,783,017

Other financial assets with published price quotations

337,102 72,199 - 409,301

Mortgage loans 8,125 - 20,388 28,513

Non-mortgage loans and loan advances - 37,700 14,752 52,452

Other financial assets without published price quotations

- - 9,882 9,882

Gross total 3,462,120 198,963 45,022 3,706,105 Impairment loss - - - -

Net total 3,462,120 198,963 45,022 3,706,105

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The detail of changes in the balance under this heading in 2005 is as follows:

Available-for-Sale At Fair Value Through Profit or Loss Loans and Receivables

Equity Securities

Fixed-Income

Securities

Other Financial

Assets with Published

Price Quotations

Mortgage Loans

Fixed-Income

Securities

Other Financial

Assets with Published

Price Quotations

Non-Mortgage

Loans

Mortgage Loans

Non-Mortgage Loans and

Loan Advances

Other Financial Assets Without

Published Price

Quotations

Total

Carrying amount at 1 January 2005 (see Note 11)

434,349 2,596,056 321,599 9,184 95,749 89,126 - 20,230 - - 3,566,293

Purchases 108,542 952,976 66,482 150 9,958 1,100 2,961 158 - - 1,142,327 Sales and redemptions (11,507) (890,270) (28,217) (659) (22,044) (21,813) (5,068) - - - (979,578) Reclassifications and transfers (172,991) - (64,441) - - - 39,807 - 14,752 9,882 (172,991) Revaluations against reserves 64,547 35,191 41,679 (550) - - - - - - 140,867 Revaluations against income - - - - 5,401 3,786 - - - - 9,187

Changes in impairment losses - - - - - - - - - - -

Carrying amount at 31 December 2005 422,940 2,693,953 337,102 8,125 89,064 72,199 37,700 20,388 14,752 9,882 3,706,105

Most of the revaluations recognised with a credit to reserves and to the income statement, net of the related tax effect and of the allocation to minority interests, arose from financial instruments quoted on organised markets or, if not quoted, for which a market valuation is available to the Group.

In 2005 the Group derecognised from equity EUR 15,252 thousand and EUR 8,772 thousand relating to unrealised gains and losses in the ‘Available-for-Sale’ portfolio. These amounts were recognised in the consolidated income statement for the period following their realisation.

87

Equity securities

The breakdown of the balances of this sub-heading at 31 December 2005, is as follows:

Thousands of Euros

Available-for-Sale

Shares of listed Spanish companies 281,219 Shares of unlisted Spanish companies 25,186 Shares of listed foreign companies 116,535 Total 422,940

Fixed-income securities

The breakdown of the balances included under this sub-heading at 31 December 2005, is as follows:

Thousands of Euros

Available-for-Sale At Fair Value

through Profit or Loss

Spanish government debt securities, debentures and bonds 884,680 20,541

Foreign debt securities 65,402 10,105 Securities issued by financial institutions and other private entities 1,673,140 58,418

Other fixed-income securities 70,731 - Total 2,693,953 89,064

The average internal rate of return on the portfolio at 31 December 2005, is 5.87%, with an estimated average term of approximately 6 years.

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The maturities of the securities included in this sub-heading, classified by portfolio at 31 December 2005, and taking into account their fair value, are as follows:

Thousands of Euros

Year of Maturity Available-for-

Sale

At Fair Value

through Profit or

Loss Total

2006 271,235 8,770 280,005 2007 161,878 1,864 163,742 2008 151,878 4,519 156,397 2009 366,920 4,394 371,314 2010 199,493 16,747 216,240 2011 116,167 11,205 127,372 2012 141,430 6,266 147,696 2013 202,447 9,636 212,083 2014 105,382 - 105,382 2015 156,783 2,351 159,134 2016 42,462 - 42,462 2017 86,568 - 86,568 2018 51,004 - 51,004 2019 45,351 - 45,351 2020 67,447 - 67,447 2021 11,396 - 11,396 2022 14,718 - 14,718 2023 35,471 - 35,471 2024 2,000 - 2,000 2025 24,554 - 24,554 2026 4,530 - 4,530 2027 5,589 - 5,589 2028 70,917 - 70,917 2029 207,471 - 207,471 2030 1,026 - 1,026 2031 - - - 2032 14,229 - 14,229 2033 3,707 - 3,707 2034 - - - 2035 17,598 - 17,598 2036 - - - 2037 - - - 2038 - - - 2039 55,080 - 55,080 2040 - - - 2041 - 511 511 2042 31,554 9,087 40,641 2043 17,049 13,714 30,763 2044 - - - 2045 9,030 - 9,030 2046 1,589 - 1,589

Total 2,693,953 89,064 2,783,017

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Other financial assets with published price quotations

The detail by type of the investments classified under this sub-heading at 31 December 2005, is as follows:

Thousands of Euros

Available-for-Sale

At Fair Value through Profit or

Loss Shares in Spanish money-market mutual funds 5,393 - Shares in Spanish securities mutual funds Shares in Spanish securities mutual funds

192,259 -

Shares in foreign securities mutual funds 37,093 - Shares in real estate investment trusts 18,961 - Long-term deposits 73,206 72,199 Other financial assets with published price quotations 10,190 - Total 337,102 72,199

The foregoing long-term deposits basically relate to euro deposits, trust deposits and structured deposits held with credit institutions. The counterparties for these deposits are the following institutions:

Thousands of Euros

Available-for-Sale

At Fair Value through Profit or

Loss Landesbank Baden Württemberg 5,889 - Santander London 24,971 - UBS 10,286 - La Caixa 421 - BBVA 2,452 1,636 BSCH London 23,305 - Societé París 5,882 - JP Morgan - 70,563 Total long-term deposits 73,206 72,199

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The maturity of these deposits is as follows:

Thousands of Euros

Year of Maturity Available-for-

Sale

At Fair Value

through Profit or

Loss Total

2007 1,125 - 1,125 2008 2,452 - 2,452 2011 5,882 - 5,882 2015 - 2,690 2,690 2027 21,252 - 21,252 2028 36,606 - 36,606 2033 5,889 - 5,889 2040 - 352 352 2041 - 199 199 2042 - 53,140 53,140 2043 - 12,532 12,532 2044 - 3,286 3,286

Total 73,206 72,199 145,405

The net assets of the mutual funds managed by Seguros Bilbao Fondos, S.A., S.G.I.I.C., and the interest held by Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. in each fund at 31 December 2005 (a portion of which relates to investments held for the benefit of policyholders (see Notes 3.c.1 and 12.e)), are as follows:

Bilbao Compañía Anónima de Seguros y Reaseguros, S.A.

Assets Managed by Seguros

Bilbao Fondos, S.A., S.G.I.I.C. at

31/12/2005 (Thousands of

Euros) Percentage of Ownership (%)

Equity (Thousands of

Euros) Fonbilbao Mixto, FI 3,669 67.88% 2,491

Fonbilbao Acciones, FI 137,084 92.34% 126,583 Fonbilbao Eurobolsa, FI 51,011 91.79% 46,823 Fonbilbao Fondtesoro, FI 20,318 60.78% 12,349 Fonbilbao Renta Fija, FI (*) 3,864 96.94% 3,746 Fonbilbao Global 30, FI 4,482 98.45% 4,413 Fonbilbao Global 50, FI 13,059 96.84% 12,646 Fonbilbao Internacional FI 34,377 92.44% 31,778 Fonbilbao Dinero, FI (**) 10,041 73.28% 7,358

Total 277,905 89.31% 248,187

(*) Formerly Fonbilbao Global 10, FI (**) Formerly Fonbilbao, FI

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Loans and receivables

The detail of the balances making up this sub-heading at 31 December 2005, is as follows:

Thousands of Euros

Available-for-Sale

At Fair Value through Profit

or Loss Loans and

Receivables Mortgage loans 8,125 - 20,388 Non-mortgage loans and loan advances:

• Loans to policyholders – financed premiums - 37,700

• Loan advances - - 13,308

• Loans to agencies - - 338 • Other non-mortgage loans - - 1,106

Other financial assets without published price quotations - - 9,882 Total 8,125 37,700 45,022

The mortgage loans allocated to the ‘Available-for-Sale’ portfolio relate basically to an emphyteutic annuity bearing floating interest and maturing in 2014, which is measured using the discounted cash flows method.

The financed premiums allocated to the ‘At Fair Value through Profit or Loss’ portfolio relate to the premiums in the Group-Life business that the Group financed to third-party policyholders as part of the externalisation of pension obligations that took place in 2002. These loans mature basically in 2011, and bear interest at 5.35% on average.

The short-term deposits and the investments in treasury bills and repurchase agreements are shown in the consolidated balance sheet under the heading ‘Cash and Cash Equivalents’.

The maturities of the mortgage loans held by the Group at amortised cost at 31 December 2005, are as follows:

Thousands of Euros

Year of Maturity Mortgage Loans Due and up to 3 months 613 3 months to 1 year 1,488 1 to 5 years 7,024 After 5 years 11,263 Total 20,388

The above mortgage loans bear interest at rates between 2.18% and 10% per annum. The interest rate is fixed in the first year and floating from the second year. The benchmark rate used is the one-year interbank rate (EURIBOR) or the average mortgage loan rate at over three years.

Impairment losses

No impairment losses on any class of financial assets were recognised in 2005.

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d) Investments accounted for using the equity method (equity-accounted associates)

The detail and changes in 2005 were as follows:

Thousands of Euros

Company Balances at 31/12/2004

Increases Due to Profit for the Year

Other Changes Due to Valuations

Additions to Scope of

Consolidation (Note 3.d )

Sales (Note 3.d )

Transfers and

Reclassifications (Note

3d) Balances at 31/12/2005

Baqueira Beret, S.A. 15,957 2,261 120 - - - 18,338 Hercasol, S.A. SICAV (*) 4,194 278 559 - - - 5,031 Beta Tech Inversiones, SICAV, S.A. 449 - - - (449) - - Asitur Asistencia, S.A. 2,226 192 (85) - - - 2,333 Inpisa Dos, SICAV - 565 - 9,023 - - 9,588 Calboquer, S.L. - 43 - 49 - - 92 Atradius NV (**) - - - - - 172,991 172,991 Gross total 22,826 3,339 594 9,072 (449) 172,991 208,373

Impairment losses - - - - - - -

Net Total 22,826 3,339 594 9,072 (449) 172,991 208,373

(*) Includes goodwill amounting to EUR 200 thousand. (**) Includes goodwill amounting to EUR 23,476 thousand.

The portion of profit for the year, after tax, attributable to the Group in 2005 amounts to EUR 3,339 thousand and is shown under the heading ‘Share of Profit of Minority Interests’ in the consolidated income statement under the segment to which the investments are allocable.

The market value of the investments in associates with published price quotations is as follows:

Value per Share in Euros

Number of Shares Held by the Parent

Hercasol, S.A. SICAV 14.93 326,117 Inpisa Dos, SICAV, S.A. 29.10 312,926

Appendix II includes summarised financial information on these associates, with details of the cumulative amounts of assets, revenues and profit for the year, among others.

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e) Investments and technical provisions of policyholders who bear the investment risk

The changes in 2005 in the accounts under this heading were as follows:

At Fair Value through Profit or Loss Loans and Receivables

Equity Securities

Fixed-Income

Securities

Other Financial Assets

with Published

Price Quotations

Financial Assets without

Published Price

Quotations

Other Assigned Balances Total

Carrying amount at 1 January 2005 (see Note 11)

70,638 105,710 67,125 17,277 (122) (*) 260,628

Purchases 1,318 32,417 9,711 1,047,933 764 1,092,143

Sales and redemptions (1,547) (31,606) (4,425) (1,042,341) (1,079,919)

Positive revaluations against profit

─ Listed 15,924 956 - - - 16,880

─ Unlisted – published price - - 13,969 - - 13,969

─ Unlisted – valuation techniques - - - - - -

Negative revaluations against profit

─ Listed - (23) - - - (23)

─ Unlisted – published price - - (3,891) - - (3,891)

─ Unlisted – valuation techniques - - - - - -

Changes in impairment losses - - - - - -

Carrying amount at December 31, 2005 86,333 107,454 82,489 22,869 642 299,787

(*) Basically due to the fact that the amount of the management fees payable to the Group exceeded the amounts held in current accounts at that date.

The detail of the financial assets without published price quotations and the other balances assigned to the investments for the benefit of life insurance policyholders who bear the investment risk, classified under the “Loans and Receivables” portfolio at 31 December 2005, is as follows:

Loans and Receivables Thousands of Euros

Short-term deposits at credit institutions 21,455 Treasury bills 1,414 Total financial assets with unpublished prices 22,869

Loans and Receivables Thousands of Euros

Banks 1,002 Other payables due to management fees (360) Other - Total other assigned balances 642

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The breakdown by year of maturity of the above fixed-income securities, deposits at credit institutions and other financial assets and assigned balances is as follows:

Thousands of Euros

Year Fixed-Income

Securities

Financial Assets without

Published Price

Quotations

Other Financial

Assets and Other

Assigned Balances Total

2006 23,593 22,869 - 46,462 2007 19,198 - - 19,198 2008 14,012 - - 14,012 2009 23,646 - - 23,646 2010 19,694 - - 19,694 2011 3,056 - - 3,056 2014 1,504 - - 1,504 2015 1,999 - - 1,999

Unmatured accrued interest 752 - - 752 Other investments without specified

maturity - - 169,464 169,464

Total 107,454 22,869 169,464 299,787

At 31 December 2005, the balance of other financial assets with published price quotations which are classified under the “Fair Value through Profit or Loss” portfolio consists entirely of shares in mutual funds. The detail of the balance of invested assets is as follows:

Type of Asset Description (name) Thousands of

Euros

Securities Mutual Fund Beta Dinero 87 Money Market Mutual Fund FONDBILBAO FIAMM (*) 2,219

Securities Mutual Fund FONDBILBAO Mixto (*) 2,491 Securities Mutual Fund FONDBILBAO Acciones (*) 32,428 Securities Mutual Fund FONDBILBAO Eurobolsa (*) 17,542 Securities Mutual Fund FONDBILBAO Fondtesoro (*) 12,348 Securities Mutual Fund FONDBILBAO Renta Fija (*) (**) 225 Securities Mutual Fund FONDBILBAO Global 30 (*) 1,156 Securities Mutual Fund FONDBILBAO Global 50 (*) 4,503 Securities Mutual Fund FONDBILBAO Internacional (*) 9,490

82,489 (*) Funds managed by Seguros Bilbao Fondos, S.A., S.G.I.I.C. See Appendix I.

(**) Formerly Fonbilbao Global 10, FI

The changes in 2005 in the net gains and losses on these assets amounted to EUR 30,849 thousand and EUR (3,914) thousand, respectively, and are shown at their net amount under the heading ‘Unrealised Gains and Losses on Investments” in the income statement relating to the LIFE segment.

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f) Receivables and payables arising from insurance and reinsurance contracts

The detail of the receivables and payables arising from insurance and reinsurance contracts at 31 December 2005, is as follows:

Thousands of Euros

Receivables arising from direct insurance and coinsurance transactions

• Policyholders, uncollected premiums Direct insurance 67,414 Premiums written not yet issued 59,191 (Provision for outstanding premiums) (8,811) 117,794 • Agents Agent, cash accounts 6,160 (Allowance for bad debts) (2,030) 4,130 • Receivables arising from coinsurance transactions,

cash accounts 3,436

Receivables arising from reinsurance transactions 8,570 (Allowance for bad debts) (4,434) 4,136 Total 129,496

Thousands of Euros

Payables arising from direct insurance and coinsurance transactions

• With insureds 5,703 • With agents 15,559 • Conditional debt 16,447 • Payables arising from coinsurance transactions 1,331

39,040 Payables arising from reinsurance transactions 15,498 Total 54,538

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The changes in and detail of the impairment losses recognised in 2005 are shown in the following table, with the various changes under ‘Earned Premiums Less Reinsurance’ and “Net Operating Expenses’ being recognised in the income statement applicable to each segment.

Provision for Outstanding Premiums

Allowance for Agents’ Bad

Debts

Allowance for Reinsurance Bad Debts

Balances at 1 January 2005 (7,593) (2,958) (4,726) Provisions with a charge to profit (1,218) - - Amounts released with a credit to profit

- 928 292

Balances at 31 December 2005 (8,811) (2,030) (4,434)

g) Foreign currency transactions

The equivalent value in euros of the total assets and liabilities held by the Group at 31 December 2005, and the breakdown of the main foreign currency balances, taking into account the nature of the items, is as follows:

Equivalent Value in Euros at 31/12/2005

Assets

Balances Held In:

Financial Instruments – Available-

for-Sale Portfolio

Cash and Cash

Equivalents Liabilities

US dollars 28,278 419 - Pounds sterling 1,404 1,132 - Japanese yen 2,532 828 - Swiss francs 8,275 1,278 - Swedish crowns 664 - - Other currencies 339 - - Total 41,492 3,657 -

The most frequently used year-end average cash exchange rates for the translation to euros of the balances held in foreign currencies, which coincide with those published by the European Central Bank, are as follows:

1 Euro =

At 31/12/05 US dollar 1.1797 Pound sterling 0.68530 Japanese yen 138.90 Swiss franc 1.5551 Swedish crown 9.3885

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The exchange differences arising on translation of the foreign currency balances to euros are generally recognised in the income statement. Nevertheless:

− the exchange differences arising on non-monetary items whose fair value is adjusted against equity are recognised in equity under ‘Valuation Adjustments - Exchange Differences’.

− the exchange differences arising on non-monetary items whose gains and losses are recognised in profit for the year, are also recognised in profit for the year.

h) Tax matters

The sub-headings ‘Receivables – Tax Assets’ and ‘Payables – Tax Liabilities’ include the following tax assets and liabilities at 31 December 2005:

Thousands of Euros Receivables Tax receivables:

• Consolidated tax group assessment 833 • Other tax receivables of other tax

groups or individual companies 1,214

Other items 1,187 Total tax assets 3,234 Payables Taxes payable:

• Other tax payables of other tax groups or individual companies 24,241

Tax on insurance premiums 7,498 Insurance Settlements Consortium and other regulatory bodies 16,620

Social Security agencies 2,536 Total tax liabilities 50,895

In addition, at 31 December 2005, the Group has deferred tax assets totalling EUR 24,386 thousand and deferred tax liabilities totalling EUR 188,172 thousand, recognised under ‘Deferred Tax Assets’ and ‘Deferred Tax Liabilities’. The ‘Deferred Tax Assets’ include EUR 6,496 thousand and EUR 4,856 thousand relating to the receivable resulting from the capitalisation of the tax loss carryforwards and to unused tax credits.

On 14 January 2002, the Tax Agency approved the application of the Special Regime for Groups of Companies for corporation tax purposes to the Company and its subsidiaries (“consolidated tax group”): Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros, Depsa, Sociedad Anónima de Seguros y Reaseguros, Salerno 94, S.A., Prepersa, Sociedad Anónima de Peritación de Seguros y Prevención, Tecniseguros, Sociedad de Agencia de Seguros, S.A., Catoc Vida, Sociedad Anónima de Seguros, Lepanto, Sociedad Anónima Compañía de Seguros y Reaseguros and Nortehispana, de Seguros y Reaseguros, Sociedad Anónima. The profit determined in accordance with tax legislation is subject to 35% on taxable profit.

Following the reregistration in 2004 of Prepersa, Sociedad Anónima de Peritación de Seguros y Prevención as an Economic Interest Grouping (EIG), this company left the above tax group. As provided in Article 49 of Corporation Tax Law, the allocation for corporation tax purposes of taxable profit, tax credits and relief, withholdings and payments on account of the Grouping to each shareholder, will be made at the same proportion as the Grouping’s profit is allocated to such shareholders, pursuant to Article 21 of the Grouping’s articles of association.

98

In 2005, the companies Cosalud, Sociedad Anónima de Seguros and Catalana Occidente Capital, Agencia de Valores, S.A., both wholly owned, directly or indirectly, by the Company at 31 December 2005, joined the tax group.

Also, the subsidiary Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. files consolidated tax returns with the subsidiaries S. Órbita Sociedad Agencia de Seguros, S.A., Bilbao Hipotecaria, S.A., E.F.C., Seguros Bilbao Fondos, S.A., S.G.I.I.C., Bilbao Vida y Gestores Financieros, S.A. and Bilbao Telemark, S.L. The profit determined in accordance with tax legislation is subject to a rate of 32.6% on taxable profit.

The other companies in the scope of consolidation are subject to the general tax rate of 35% except for Catoc, SICAV S.A. (formerly Catoc, Sociedad Anónima de Inversión Mobiliaria) and Inversiones Menéndez Pelayo, S.A. Sociedad de Inversión de Capital Variable, as these are security investment companies whose own equity securities are listed on the stock exchange and are taxed under the special tax regime at a corporation tax rate of 1%.

Reconciliation of the accounting profit to the tax profit

The detail by company of the corporation tax expense as shown in the accompanying consolidated income statement for 2005 in the amount of EUR 57,357 thousand, is as follows:

Thousands of Euros Companies in the consolidated tax Group: Grupo Catalana Occidente, S.A. 112 Seguros Catalana Occidente, S.A. de Seguros y Reaseguros

(2,698)

Depsa, S.A. de Seguros y Reaseguros 1,279 Salerno 94, S.A. 523 Tecniseguros, Sociedad de Agencia de Seguros, S.A. 1 Catoc Vida, Sociedad Anónima de Seguros 576 Cosalud, S.A. de Seguros 1,712 Lepanto S.A., Compañía de Seguros y Reaseguros 1,888 Nortehispana, de Seguros y Reaseguros, S.A. 3,644 Catalana Occidente Capital, Agencia de Valores, S.A. 20 Other consolidated companies: Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. and subsidiaries (tax Group)

15,153

Catoc, SICAV S.A. 35 Inversiones Menéndez Pelayo, SICAV S.A. 11 Compañía Española de Seguros y Reaseguros de Crédito y Caución and subsidiaries

24,506

Adjustments due to application of IFRSs 10,595

Consolidated Group corporation tax 57,357

The positive adjustment to corporation tax recognised by the subsidiary Seguros Catalana Occidente, S.A. de Seguros y Reaseguros in 2005 mainly relates to the tax credits taken at the consolidated tax Group level.

The above company has not offset all of the taxable profit for the year against the available tax losses in order to take the intra-group double taxation credit relating to the dividends obtained from its investees Lepanto, S.A. Compañía de Seguros y Reaseguros and Bilbao, Compañía Anónima de Seguros y Reaseguros, .S.A. in the amount of EUR 53,063 thousand.

In turn, this subsidiary has tax losses available for offset for accounting purposes amounting to an estimated EUR 44,664 thousand at 31 December 2005, arising from the losses sustained when it was called Multinacional Aseguradora, Sociedad Anónima de Seguros y Reaseguros and prior to the portfolio transfer

99

mentioned in Note 1. For tax purposes, the detail of the tax losses available for offset still open for review by the tax authorities and the estimate of the tax losses to be offset in the annual corporation tax return for 2005 for this company, is as follows:

Thousands of Euros Tax Losses

Year Deadline for Offset 31/12/2004

Change in Final Tax

Assessment for 2004

Change in 2005 31/12/2005

1998 2013 27,817 1,232 (29,049) - 1999 2014 55,639 - (17,481) 38,158 2000 2015 25,065 - - 25,065

108,521 1,232 (46,530) 63,223

Further to the policy used under local accounting standards, no assets have been recognised for these tax losses given the uncertainty relating to the future offset of the unused tax credits to date against taxable profits in subsequent years.

The reconciliation between the corporation tax expense resulting from applying the statutory tax rate in force in Spain to the taxable profit obtained by the various companies forming the consolidated tax group and by the other subsidiaries in 2005, and the recognised corporation tax expense, is as follows:

2005 in Thousands of Euros

Consolidated Tax Group

Seguros Bilbao Tax

Group

Crédito y Caución

Security Investment Companies

Consolidated Group Total

Pre-tax profit under Spanish GAAP 164,700 49,376 70,999 (4,962) 280,113

Corporation tax at applicable tax rate (35%, 32.6% and 1%) 35% 32,6% 35% 1% Effect of permanent differences: Investment valuation allowance 12,227 - - - 12,227 Dividend deductions and eliminations (41,797) - - - (41,797) Other (4,468) (76) 909 9,783 6,148 Preliminary taxable profit 130,661 49,300 71,908 4,821 256,691 Offset tax losses (49,835) - - (221) (50,056) Taxable profit 80,826 49,300 71,908 4,600 206,635 Tax rate applicable to taxable profit 28,289 16,022 25,168 46 69,525 Tax credits for: Double taxation of dividends (19,351) (785) (128) - (20,264) International double taxation (169) - - - (169) Investments (1,712) (73) (198) - (1,983) Other - (11) (336) - (347)

Expense for the year under Spanish GAAP 7,057 15,153 24,506 46 46,762

Due to differences between Spanish GAAP and IFRSs 52 1,113 9,449 (19) 10,595

Corporation tax expense for the year recognised against the 2005 income statement 7,109 16,266 33,955 27 57,357

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The detail of the main items giving rise to differences between Spanish GAAP and IFRSs is as follows:

2005 in Thousands of Euros

Consolidated Tax Group

Seguros Bilbao Tax

GroupCrédito y Caución

Security Investment Companies

Consolidated Group Total

Valuation adjustments to financial assets 747 (24) (1,050) (19) (346) Equalisation provision (78) 760 10,536 - 11,218 Amortised goodwill – portfolio acquisition costs - 639 - - 639 Amortisation of capital gains allocated to investment properties and properties for own use (50) (262) (88) - (400)

Other differences (567) - 51 - (516)

Total 52 1,113 9,449 (19) 10,595

In the corporation tax return for 2004 the consolidated tax group took reinvestment tax credits amounting to EUR 1,280 thousand. As required by Article 42.8) of Legislative Royal Decree 4/2004, of 5 March, approving the consolidated Corporation Tax Law, the tax group’s profit in respect of which the aforementioned tax credit was taken and the related reinvestment date are set out below:

Thousands of Euros

Reinvestment Investments Made by the Consolidated Tax Group in

2004

Investments Made by Crédito y

Caución in 2004

Investments Made by Seguros

Bilbao’s Tax Group in 2004

Intangible assets 2,112 2,846 -

Property, plant and equipment 5,114 2,329 996

Investment property - 5,597 -

Financial assets 1,174 - -

Total reinvestments 8,400 10,772 996 To be reinvested in 2004 8,300 580 996 Investments with no tax credits taken at 31/12/2004 100 10,192 -

Taxes recognised in equity and deferred taxes

In addition to the income tax recognised in the consolidated income statements in 2005, the Group recognised EUR 185,885 thousand in consolidated equity.

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The deferred tax assets and liabilities available to the Group at 31 December 2005, are as follows:

Deferred Tax Assets Thousands of Euros

Differences between Spanish GAAP and tax legislation

Credits due to tax losses available for offset 6,496 Pensions externalisation expense 9,885 Accelerated depreciation through balance sheet restatement 727 Uncollected premiums provision 662 Amortisation of portfolio acquisition costs 79 Employment inspection 117 Other deferred tax assets 1,564 Tax credits and reductions available for offset 4,856

TOTAL 24,386

Deferred Tax Liabilities Thousands of Euros

Differences between Spanish GAAP and tax legislation

Finance income from ‘0’ coupon bonds 80

Differences between Spanish GAAP and IFRSs Valuation adjustments to financial assets 113,493 Equalisation provision 71,961 Amortisation of goodwill – portfolio acquisition costs 1,225 Other deferred tax liabilities 1,413TOTAL 188,172

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The entire balance relating to unused tax credits and reductions arose from the subsidiary Seguros Catalana Occidente, S.A. de Seguros y Reaseguros and were generated prior to taxation under the consolidated tax group regime. The nature and amount of the tax incentives taken in 2005 in the preparation of the corporation tax calculation, as well as those not yet used for tax purposes, at 31 December 2005, are as follows:

Thousands of Euros Tax Credits

Year Item Deadline for Offset

Not Yet Taken at 31/12/2004 Taken in 2005

Not Yet Taken at 31/12/2005

1998 Tax credit for double taxation 2005 2 2 - 1999 Tax credit for double taxation 2006 8 - 8 2000 Tax credit for double taxation 2007 4 - 4 2001 Double taxation 2008 109 - 109 2001 Tax credit for reinvestment 2011 1,200 - 1,200 2002 Tax credit for reinvestment 2012 3,535 - 3,535 2005 Tax credit for double taxation 2015

• Intra-group at 50% - 1,026 - • Intra-group at 100% - 19,452 - • International - 169 -

2005 Tax credit for current contribution externalisation 2015 - 96 -

2005 Tax credit for reinvestment 2015 - 971 - 2005 Donations to foundations 2015 - 129 - 2005 Tax credit for R&D activities 2015 - 200 - 2005 Other tax credits 2015 - 15 -

4,858 22,060 4,856

Years open for review by the tax authorities

Under current legislation, tax settlements cannot be considered to be final until the tax returns filed have been inspected by the tax authorities, or until the four-year statute-of-limitations period has expired.

The Parent has the year 2001 onwards open for review by the tax inspection authorities for corporation tax and 2002 through 2005 for all other applicable taxes. The rest of the consolidated companies have, in general, the last four years open for review by the tax inspection authorities for the main applicable taxes.

103

In July 2004 the tax authorities commenced an inspection at Catoc, SICAV, S.A. for corporation tax and for years 1999 through 2001. The inspection assessment of the partial review was issued in November 2005 for an amount of EUR 9,784 thousand. In this assessment, as part of the inspection activities carried out in the industry, the inspection authorities took the view that the subsidiary did not meet the requirements for eligibility set forth in the tax regime for Collective Investment Institutions and, therefore, the applicable corporation tax rate would be 35% instead of 1%. In line with the practice of other companies in the industry, the subsidiary filed an economic-administrative appeal. At 31 December 2005, the tax calculation arising from the assessment and the related penalty are provided for under ‘Provisions for Liabilities and Charges’ (see Notes 12.m) and 12.n)).

In addition, in May 2005, the tax authorities commenced a partial inspection relating to Value Added Tax for the period between the second and fourth quarters (inclusive) of the company Prepersa, Peritación de Seguros y Prevención AIE. This inspection has not been completed but the directors of the company do not expect any material liabilities to arise as a result.

The varying interpretations which can be made of tax regulations and the results of any inspections carried out in the future by the tax authorities in relation to the years open for review might give rise to contingent tax liabilities that cannot be presently objectively quantified. However, in the opinion of the Group’s tax advisors and of its directors, the possibility that any material liabilities may arise in relation to this item in addition to those already recorded is remote.

i) Other receivables and payables

The detail of these sub-headings in the consolidated balance sheet at 31 December 2005, is as follows:

Social Security and Other Receivables Thousands of Euros

Estimated outstanding recoveries (*) 105,248 Receivables under agreements 1,272 Doubtful agents’ balances and other doubtful balances 577 Management fees and other fees receivable 997 Personnel 900 Claims payments and advance payments 1,153 Receivables for leases 275 Sundry receivables 15,638 Total 126,060

Other Payables: Thousands of Euros

Outstanding recoveries (*) 34,812 Deposits received 2,304 Research and Development project loan 1,418 Deferred expenses 44,307 Invoices outstanding 3,687 Sundry payables 37,634 Total 124,162

(*) Pursuant to Article 43 of ROSSP and Article 7 of Ministerial Order dated 23 December 1998, recoveries may be capitalised by institutions operating in the credit and surety insurance business, using statistical methods, provided that they meet certain requirements and that the calculations made be regularly submitted to independent expert assessment.

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Compañía Española de Seguros y Reaseguros Crédito y Caución, S.A. records estimated recoveries under a statistical method developed to this end, which analyzes the past performance of settlements of all reported claims, including concluded claims, and provides an estimate of future performance, in order to make actual use thereof, making a reasonable estimate of expected recoveries through the appropriate projections.

j) Equity attributed to the Parent’s shareholders

Share capital

At 31 December 2005, the Parent’s share capital amounted to EUR 36,000 thousand, consisting of 24,000,000 fully subscribed and paid book-entry shares of EUR 1.50 par value each, with equal voting and dividend rights.

The Parent’s shareholders owning 10% or more of share capital at 31 December 2005, were as follows:

Percentage of

Ownership Corporación Catalana Occidente, S.A. 26.14% La Previsión 96, S.A. 25.00%

Inoc, S.A., which owns the entire share capital of the companies listed in the preceding table, has a 51.14% indirect interest in the Parent at 31 December 2005, and belongs to a group headed by CO Sociedad de Gestión y Participación, S.A.

Reserves

The detail of the reserves at 31 December 2004 and 31 December 2005 is as follows:

Thousands of Euros



Share premium 1,533 1,533 Revaluation reserves 39,795 39,795 Differences due to adjustments of capital to euros 61 61 Legal reserve 7,212 7,212 Parent’s voluntary reserves 19,071 70,048 Reserves in fully consolidated companies 146,363 154,029 Reserves in equity-accounted companies 7,970 12,951 Reserve for treasury shares 7,166 7,089 Reserves 229,171 292,718

Equalisation provisions - 46,132 First-application reserve 2,634 4,479 Reserve for the purchase and sale of treasury shares - 799 Change in other reserves - 12,957 Other reserves due to changes in accounting policies 2,634 64,367 Total reserves 231,805 357,085

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Share premium

The consolidated Corporations Law expressly permits the use of the share premium balance to increase capital and establishes no specific restrictions as to its use.

Revaluation reserves

The balance of this caption in the accompanying balance sheet at 31 December 2005, relates entirely to the “Revaluation Reserve Royal Decree-Law 7/1996, which arose as a result of the EUR 41,026 thousand revaluation performed by the Parent Company in 1996 on land and properties, which was recorded on December 31, 1996 in this caption, net of the single 3% tax, amounting to EUR 1,231 thousand, in accordance with the provisions of this Royal Decree.

In 1998 the tax inspection authorities reviewed the revaluations performed by the Parent and approved the aforementioned account balance, and therefore it can be used, free of tax, to offset any recorded losses which may arise in the future, and to increase share capital. After ten years from the date of the revalued balance sheet, the balance of this account can be taken to unrestricted reserves. In any event, the balance of this account may only be distributed provided that the monetary surplus has been realised. The surplus will be deemed realised in proportion to the depreciation of the assets to which it relates or as the revalued assets are transferred or retired from the accounts. If this balance were used in a manner other than that provided for in Royal Decree-Law 7/1996, it would be subject to tax.

Pursuant to the provisions of the aforementioned Royal Decree-Law and Provincial Law 6/1996, the fully consolidated companies Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A. and Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. revalued their properties in 1996 by EUR 5,724 thousand and EUR 4,019 thousand, respectively, as recorded in the “Revaluation Reserve Royal Decree-Law 7/1996” account, net of the single 3% tax. The Parent’s share of these reserves at these companies is included in the “Reserves at Fully Consolidated Companies” caption of the accompanying consolidated balance sheet.

Differences due to adjustment of share capital to euros

The balance of this reserve arose from the capital reduction carried out in 2001 as a result of the redenomination of share capital into euros. The use of this reserve is subject to the same restrictions as the legal reserve

Legal reserve

Under the consolidated Corporations Law, 10% of profit for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of share capital. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased share capital amount. Otherwise, until the legal reserve exceeds 20% of share capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose. At 31 December 2005, the balance of this reserve represents 20% of share capital.

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Parent’s voluntary reserves

The detail at 31 December 2005 and 2004, is as follows:

Thousands of Euros



Voluntary reserves 8,967 59,944 Merger reserve 9,799 9,799 Other reserves 305 305 Total 19,071 70,048

The balances of these reserves are unrestricted. The merger reserve arose as a result of the absorption of Occidente, Cía. de Seguros y Reaseguros in 1988.

In 2005 four dividends totalling EUR 29,280 thousand were paid out of voluntary reserves, as follows:

The fourth payment approved at the Annual General Meeting held on 28 April 2005, amounting to EUR 6,720 thousand (EUR 0.28 per share), was made on 10 February 2006.

Dividend Per Share

Date of Meeting: Payment Date: in Euros Total in Thousands

of Euros 29 April 2004 11 February 2005 0.23 5,520 28 April 2005 13 May 2005 0.43 10,320 28 April 2005 15 July 2005 0.28 6,720 28 April 2005 14 October 2005 0.28 6,720

29,280

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Reserves at consolidated companies

The breakdown by company of the balances of this account in the consolidated balance sheet at 31 December 2005, net of the effect of the consolidation adjustments, is as follows:

Thousands of

Euros Fully consolidated companies: Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros (*) 15,490 Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. 21,213 Catoc Vida, S.A. de Seguros 761 Cosalud, S.A. de Seguros 8,006 Lepanto, S.A. Cía de Seguros y Reaseguros 26,291 Depsa, S.A. de Seguros y Reaseguros 9,398 Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A. 47,446 Tecniseguros, Sociedad de Agencia de Seguros, S.A. 50 Prepersa, de Peritación de Seguros y Prevención, A.I.E. 298 Salerno 94, S.A. 6,353 Catoc, SICAV, S.A. 17,229 Inversiones Menéndez Pelayo, SICAV, S.A. 1,494

154,029 Equity-accounted companies: Baqueira Beret, S.A. 8,643 Inpisa Dos SICAV, S.A. 2,233 Hercasol SICAV, S.A. 620 Asitur Asistencia, S.A. 1,418 Calboquer, S.L. 37 Atradius AG - 12,951

(*) The Group reclassified EUR 75,859 thousand, reducing the consolidated reserves of the subsidiary Seguros Catalana Occidente, S.A. de Seguros y Reaseguro, and increasing the Parent’s reserves, as a result of the itemised allocation thereof.

Reserves for treasury shares

This reserve was recorded pursuant to Article 79 of the consolidated Corporations Law, and it is a restricted reserve, equal to the capitalised value of the Parent’s shares held by Salerno 94, S.A. at year-end. This reserve will become unrestricted when the circumstances which gave rise to it no longer exist.

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Other Reserves due to changes in accounting policies

The detail of the first-application reserves arising from application of IAS 32, IAS 39 and IFRS 4 and other standards is as follows:

Thousands of Euros Arising from IAS 32

and IAS 39 and IFRS 4

Arising from other Standards Total

Opening balance at 1 January 2004 (See Note 9)

- 2,634 2,634

Opening balance at 1 January 2005 (See Note 11)

47,977 15,591 63,568

Closing balance at 31 December 2005 47,977 16,390 64,367

Reserves due to valuation adjustments

Available-for-sale assets and others

This heading basically encompasses the net amount of the changes in the fair value of financial assets classified as available-for-sale which, as stated in Note 4.c.2, must be classified as an integral part of the Group’s consolidated equity. These changes are recognised in the consolidated income statement when the assets giving rise to them are sold.

The changes in the balance under this heading in 2005 is as follows:

Thousands of Euros Opening balance at 1 January 2005 (See Note 11) 122,281

Net additions due to the generation of unrealised net gains – available-for-sale portfolio

104,688

Net additions due to the generation of unrealised net gains – equity-accounted investments

1,970

Retirements due to the disposal of financial assets (6,480)

Retirements due to allocation to the provision for the share in deferred profit (24,341)

Other changes 389 Closing balance at 31 December 2005 198,507

Exchange differences

The adjustments for this item include the net amount of the exchange differences, arising basically as a result of non-monetary items whose fair value is adjusted against equity.

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The changes in the balance under this heading in 2005 are as follows:

Thousands of Euros 2005

Opening balance (See Note 11) (6,615) Net retirements due to the generation of unrealised gains 5,746

Closing balance (869)

Treasury shares

The balance under this sub-heading which is recorded with a reduction to the equity attributed to the Parent’s shareholders in the consolidated balance sheet at 31 December 2005, in accordance with the presentation requirements under IAS 32, relates to the Grupo Catalana Occidente, S.A. shares owned by the consolidated subsidiary Salerno 94, S.A.

In 2005 the percentage of outstanding shares held by the above company ranged from 1.44% to 1.56%, calculated on a daily basis. The average price of period additions was EUR 53.35 per share, and the average cost price at 31 December 2005, was EUR 20.43 per share. These shares are available for sale with the aim of ensuring liquidity. No other Grupo Catalana Occidente, S.A. shares are held by other Group companies or third parties making use of such shares.

The net earnings in 2005 from transactions involving treasury shares amounting to EUR 799 thousand are recognised in the “Reserves – Other Reserves Due To Application of International Accounting Standards” sub-heading in equity.

The purchases and sales made by Salerno 94, S.A. in 2005 were as follows:

Thousands of Euros Acquisition

Cost Par Value Number of

Shares

Balance at 1 January 2005 7,166 561 373,781 Additions 702 20 13,159 Retirements (779) (60) (39,968) Balance at 31 December 2005 7,089 521 346,972

For the purposes of measurement of consolidated equity at 31 December 2004, the balance of this heading was reduced by the value of the Parent’s treasury shares, which amounted to EUR 7,166 thousand and were recognised in accordance with Spanish accounting principles under “Investments – Parent’s Shares” in the consolidated balance sheet. The 2004 income statement shows a net profit on transactions with these instruments in the amount of EUR 3,405 thousand. This profit is reflected under the sub-heading ‘Net Investment Income’ in the income statement for the Other Activities segment.

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k) Minority interests

The detail, by consolidated company, of the balance of the sub-headings ‘Minority Interests’ and ‘Profit Attributable to Minority Interests’ at 31 December 2005, is as follows:

Thousands of Euros

Company Minority Interests

Profit Attributable to Minority Interests

Catoc Vida, S.A. de Seguros y Reaseguros 3,724 (225) Lepanto, S.A. de Seguros y Reaseguros 226 (11) Nortehispana, S.A. de Seguros y Reaseguros 99 (32) Compañía Española de Crédito y Caución, S.A. de Seguros y Rea. 250,660 (38,842) Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. 666 (106) Catoc SICAV, S.A 8,992 1,304 Total 264,367 (37,912)

The changes under the sub-heading “Minority Interests” in 2005 are shown in the statement of changes in equity.

l) Technical Provisions

The consolidated changes in these provisions in 2005 are as follows:

Thousands of Euros

Provision

Opening Balance

(See Note 11)

Provisions With a

Charge to Profit

Amounts Released with

a Credit to Profit

Transfers to Shares in

Profits

Net Provisions

with a Charge to

Revaluation Reserves

Net Provisions

with a Charge to Finance

Income Closing Balances

Technical provisions: Unearned premiums and unexpired risks

provisions 528,134 536,038 (528,134) - - - 536,038

Mathematical provisions 2,407,335 181,011 - 1,666 24,341 8,172 2,622,525 Claims reserves 1,099,136 1,137,656 (1,099,136) - - - 1,137,656 Policyholder dividends and return

premiums 7,191 983 - (1,666) - - 6,508

Other technical provisions 9,612 10,556 (9,612) - - - 10,556

4,051,408 1,866,244 (1,636,882) - 24,341 8,172 4,313,283 Technical provisions for life insurance

policies where risk is assumed by policyholders

260,628 299,787 (260,628) - - - 299,787

Reinsurer’s share of technical provisions

(outward):

Unearned premiums provisions 62,570 63,115 (62,570) - - - 63,115 Life insurance provision 1,624 1,729 (1,624) - - - 1,729 Claims provision 236,859 227,002 (236,859) - - - 227,002 Other technical provisions 1,356 1,033 (1,356) - - - 1,033

302,409 292,879 (302,409) - - - 292,879

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The detail of the technical provisions for direct insurance at 31 December 2005, in accordance with the various businesses included in the life and non-life segments, is as follows:

Thousands of Euros Provision Non-Life

Auto Multirisk Other Life Total

Technical provisions: Unearned premiums and unexpired risks

provisions 218,401 151,410 166,227

- 536,038

Mathematical provisions - - - 2,622,525 (*) 2,622,525 Claims reserves 375,062 124,945 597,524 40,125 1,137,656 Policyholder dividends and return

premiums - - 2,582

3,926 6,508

Other technical provisions - - 10,556 - 10,556

593,463 276,355 776,889 2,666,576 4,313,283

(*) Includes EUR 14,484 thousand relating to unearned premium reserves for products with coverage of less than one year.

The effect of reinsurance on the 2005 income statement is as follows:

Thousands of Euros

Premiums allocated to outward reinsurance ─ Outward premiums 225,368 ─ Changes in unearned premiums

provision 132

Commissions (*) 67,379 Cost of outward reinsurance 158,121 Claims relating to reinsurance (*) 121,100 Total cost of reinsurance 37,021

(*) The commissions and claims relating to reinsurance are shown in the income statement, netting the headings for net operating expenses and claims incurred in the year less reinsurance, respectively.

m) Provisions for liabilities and charges

The detail at 31 December 2005 is as follows:

Thousands of Euros

Provision for taxes other than income tax 13,508 Provision for pensions and similar obligations 46,098 Other employee obligations 2,268 Payables under agreements with insurers 6,851 Provisions for liabilities 437 Other provisions 1,626 Closing balance 70,788

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Provisions for taxes other than income tax include EUR 9,784 thousand relating to the inspection assessment issued in relation to the subsidiary Catoc, SICAV S.A. (see Notes 12.h) and 12.n)).

A detail of the most significant pension obligations within the Group included under the provision for pensions and similar obligations is as follows:

─ At the end of 2002, Seguros Catalana Occidente, S.A. de Seguros y Reaseguros entered into a new collective bargaining agreement with its employees effective for 2003 through 2006. As a result of this collective bargaining process, the existing obligations were replaced by a single, company-funded, defined-contribution employee welfare and pension system implemented, for current employees, through the “Plan de Pensiones de Empleados de Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros”, assigned to the pension fund “Catalana Occidente Empleo 1, Fondo de Pensiones”, whereas for the rest of pensioners it continues to be implemented through the relevant insurance contracts with non-group insurance companies. In 2005 this subsidiary made contributions to the aforementioned pension plan amounting to EUR 1,710 thousand, and premiums paid to other Group insurance companies under the insurance policies for the remaining obligations amounted to EUR 444 thousand.

In addition, on 31 March 2005, the voluntary employee welfare system for the Group’s Management team came into force in order to provide an adequate supplement to the Social Security benefits by taking out a group life insurance contract with Catoc Vida, S.A. de Seguros y Reaseguros, paying a premium of EUR 108 thousand in 2005.

Under the above collective agreement, this company also has obligations for long-service bonuses. The amount provided for in relation to this item at 31 December 2005, amounts to EUR 1,520 thousand and forms part of the balance of the heading “Provision for Liabilities and Charges – Other Employee Obligations”.

─ Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. is required to pay for a portion of former employees a fixed life annuity until death of the employee, consisting of the difference between the last salary paid while in service and the social security pension payable at that time. This subsidiary took out a policy where the mathematical provisions calculated at the assumed interest rate of 4% cover the actuarially estimated liabilities in connection with these benefits to former employees. The balance relating to this policy, amounting to EUR 14,282 thousand at 31 December 2005, is shown under the sub-heading “Provisions for Liabilities and Charges – Provision for Pensions and Similar Obligations” in the consolidated balance sheet.

A portion of these pension obligations to this subsidiary’s current employees was transferred to external management under the pension fund ‘Grupo Seguros Bilbao Empleados, Fondo de Pensiones’.

This company also has an obligation relating to the various bonuses it offers its employees if they fulfil certain requirements and characteristics. To cover these benefits, this subsidiary took out a policy whereby the provisions calculated at the assumed interest rate of 2.5% cover the actuarially estimated liabilities in connection with these items and also maintains an internal provision. At 31 December 2005, this policy had a balance of EUR 1,238 thousand and the internal provision had a balance of EUR 744 thousand, forming part of the balance of the headings “Provision for Liabilities and Charges – Provision for Pensions and Similar Obligations” and the “Provision for Liabilities and Charges – Other Employee Obligations”, respectively.

─ In order to meet its legal obligations with employees in relation to retirement pensions and additional obligations, the company Crédito y Caución established the related contractual agreements with Catalana Occidente Group companies and other external insurers, which contemplate the assumption of any actuarial technical variances that may occur. The mathematical provisions created for such purposes by the Group companies sufficiently cover the above obligations and total EUR 5,464 thousand at 31 December 2005. The remaining amount is externalised to other external insurers.

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Under the terms of their collective bargaining agreements, other subsidiaries assumed the obligation to supplement the social security retirement pensions paid to their employees, according to the situations and the agreed sums, which obligations were covered, both for former and current employees, primarily with Group insurance companies.

The detail at 31 December 2005 of the value of the obligations acquired with respect to post-employment remuneration by the consolidated subsidiaries is as follows:

Thousands of Euros 2005 Defined Benefit Defined Contribution Pension obligations -

Accrued to current employees 11,705 64,462 Accrued to former employees 34,476 -

In the case of the defined-benefit plans, the amount of the accrued obligations was determined by qualified actuaries applying the projected credit unit calculation method and taking into consideration the actuarial assumptions established in the technical bases. Each employee’s estimated retirement age is the age at which they are first eligible for retirement.

The obligations for defined contribution pensions include EUR 49,523 thousand and EUR 12,977 thousand relating to the value of the employment funds to which a portion of the pension obligations of the subsidiaries Seguros Catalana Occidente, S.A. de Seguros y Reaseguros and Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. are externalised.

At 31 December 2005, the value of the obligations is covered using the various insurance policies, instrumented between the Catalana Occidente Group companies, and pension plans whose allocated assets, in accordance with their fair value, are sufficient for their coverage.

“Actuarial Gains and Losses” are considered to be those arising from variances in the fair value of the assets allocated to the coverage of obligations and significant changes in the actuarial assumptions used to calculate them. As explained in Note 2, the Group has chosen to recognise all of the actuarial gains and losses accumulated at the transaction date in the opening balance sheet, and not take the option at the subsequent closes of using a fluctuation band or corridor to recognise the new actuarial gains and losses that arise.

n) Information on the primary segments

Information on the insurance contracts

Breakdown of the insurance business

The total volume of the accrued accepted direct and reinsurance premiums accrued in 2005 amounted to EUR 1,859,269 thousand. In addition, the Group managed some pension plan and mutual fund contributions not reflected in the consolidated income statement in the amount of EUR 97,000 thousand.

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The detail of the premiums written in 2005 in accordance with the main defined segments is as follows:

Thousands of Euros Non-Life Segment Life Segment Total

Direct insurance premiums written 1,373,507 488,697 1,862,204 Inward reinsurance premiums written 5,201 203 5,404 Change in the allowance for uncollected premiums

(785) 47 (738)

Change in the unearned premiums and unexpired risks provisions relating to direct insurance

(5,889) (1,809) (7,698)

Change in the unearned premiums provision - Inward reinsurance

105 (8) 97

Earned premiums - Direct insurance and inward reinsurance

1,372,139 487,130 1,859,269

Earned premiums - Reinsurance (220,515) (4,985) (225,500) Earned premiums less reinsurance 1,151,624 482,145 1,633,769

Breakdown of the non-life business by premium volume

The breakdown of earned premiums in 2005 for this primary segment are first shown below:

Thousands of Euros Earned premiums in direct insurance and inward reinsurance Multirisk Other Auto Total Direct insurance premiums written 324,164 622,402 426,941 1,373,507 Inward reinsurance premiums written 141 4,964 96 5,201 Change in the allowance for uncollected premiums

65 (601) (249) (785)

Change in the unearned premiums and unexpired risks provisions relating to direct insurance

(10,484) (8,146) 12,741 (5,889)

Change in the unearned premiums provision - Inward reinsurance

(9) 181 (67) 105

Total 313,877 618,800 439,462 1,372,139

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Breakdown of the life business by premium volume

The breakdown in 2005 of the life business (direct insurance), by premium volume, is as follows:

Life Insurance (Direct)

Premiums in Thousands of

Euros Premiums for individual contracts 455,711 Premiums for group insurance contracts 32,986

488,697 Regular premiums 387,220 Single premiums 101,477

488,697 Premiums for contracts without policyholder dividends 145,402 Premiums for contracts with policyholder dividends (1) 268,470 Premiums for contracts where risk is borne by the policyholder 74,825

488,697

(1) Includes insurance contracts with a spread between the guaranteed interest rate and the interest rate per the technical bases.

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Claims incurred in the year less reinsurance and change in other technical provisions

The detail of the claims incurred in the year and the change in other technical provisions is as follows:

Thousands of Euros Claims incurred in the year less reinsurance Non-Life Segment Life Segment Total Claims paid

─ Direct insurance 703,523 345,860 1,049,383 ─ Inward reinsurance 769 247 1,016 ─ Outward reinsurance (112,454) (2,965) (115,419)

Change in the claims provision ─ Direct insurance 38,864 7,747 46,611 ─ Inward reinsurance 1,345 - 1,345 ─ Outward reinsurance (1,579) (575) (2,154)

Expenses attributable to claims 41,379 1,346 42,725 Total 671,847 351,660 1,023,507

Thousands of Euros Change in other technical provisions Non-Life Segment Life Segment Total

Change in the provision for policyholder dividends and return premiums

(571) - (571)

Change in other technical provisions (provisions for funeral insurance, mathematical provisions)

944 186,284 187,228

Change in life insurance provisions where risk is borne by the policyholder

- 39,159 39,159

Total 373 225,443 225,816

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Technical conditions for the main types of life insurance

The technical conditions for the main types of life insurance, which account for more than 5% of life insurance premiums or provisions, are as follows:

2005 Thousands of Euros

Type of Insurance and Coverage Assumed

Interest RateMortality Table

(*) Premiums Mathematical Provision (*)

Policyholder Dividends

Paid Universal Jubilación GKM-80 32,437 332,916 511Claims payable upon retirement (capital or annuity)

Index-linked and 5%

Universal Vida y Jubilación GKM-80 24,411 292,106 376Same as above, plus capital upon death if prior to

retirement

Index-linked, 3% and 5%

Universal Vida y Pensión GKM-80 40,042 280,002 362Same as above

Index-linked, 3.5% and 5%

Universal Ahorro Previsión Index-linked GKM-80 53,797 131,049 975Same as above Patrimonio Eurostoxx 50/ 2005/ 2006/ Índices - GKM/F-80 - 114,108 -Claims payable upon death, investment risk borne by

policyholder

Seguro Colectivo de Jubilación con Participación

en Beneficios 18,595 391,117 201

Claims payable upon retirement (capital or annuity)

22.25, 3.5 and 5% and matched transactions

GRM-70; GRM-80-2; GRM/F-95; PERM/F2000P

Flexivida Seguros Bilbao 5.47% GKM-70/ 80 16,898 176,635 - Plan de Jubilación Seguros Bilbao 4.44% GRM-70 / 80 /

95 28,317 156,930 308 Cuenta ahorro seguro Seguros Bilbao Index-linked GKM - 80 30,704 46,825 - Nortehispana Pensiones 6, 4, 3, 2% GRM – 95 5,487 59,323 1,634Deferred annuity with policyholder dividends Lepanto Pensiones (Mixtos) Deferred annuity with policyholder dividends

5, 4, 2.5% GRM/F – 70 / 80 / 95

7,718 34,971 240

(*) The mortality tables specified in the Technical Bases used by the subsidiaries to calculate their life insurance provisions. Additional reserves are recorded to adapt to the new PERM/F-2000 and GRM/F – 95 tables (see Note 4.f).

The policyholder dividends are allocated, for all types of individual life insurance and certain group life insurance policies, through increases in the life insurance provision in accordance with the term of the various policies. Policyholder dividends for the group life risk business are allocated to the policyholders through premium reductions upon renewal of the policy. Dividends accrued to insureds or policyholders but not yet allocated are recognised in the sub-heading “Technical Provisions – Reserves for Policyholder Dividends and Return Premiums”.

In addition, the sub-heading “Life Insurance Provisions” includes the amount of the unrealised gains arising on the financial assets classified in the available-for-sale portfolios at fair value through profit or loss

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attributable to the insureds at the year-end. These deferred gains amount to EUR 119,427 thousand at 31 December 2005 and the changes in such gains in 2005 were as follows:

Deferred share in profits Thousands of Euros Balance at 1 January 2005 (see Note 11) 86,914 Net additions due to the allocation of net

unrealised gains for the year against equity

24,341

Net additions due to the allocation of net unrealised gains for the year with a charge to income

8,172

Other changes - Balance at 31 December 2005 119,427

The amount of the provision for deferred policyholder dividends at 31 December 2005 represents an overall allocation of 27.67% of the total unrealised gains of the sub portfolios of financial assets associated with insurance contracts with rights to the above policyholder dividends.

Pursuant to the provisions of the current ROSSP, the assumed interest rate used to calculate the life insurance provision was as follows:

a) For obligations assumed since 1 January 1999, in respect of insurance policies with assigned (matched) investments, the subsidiaries have used the interest rate set forth in the technical bases (based on the internal rate of return on such investments). For policies without matched investments the interest rate used was the rate set by the Directorate-General of Insurance and Pension Funds for 2005 (2.42%). The effect on the income statement amounted to EUR 13,742 thousand.

b) For obligations assumed prior to 1 January 1999, the mathematical provisions continue to be calculated at the same assumed interest rate as that used to calculate the premium, up to the limit of the actual return obtained or expected from the investments assigned to meet coverage requirements in respect of these provisions. Since the rate of return on the investments assigned for this purpose in 2005 exceeded the established assumed interest rate, no additional provision was required due to a shortfall in returns, except for certain types of policies issued by the subsidiary Bilbao Compañía Anónima de Seguros y Reaseguros, S.A. in which the actual rate of return obtained was not sufficient to meet also the future administrative expenses relating to such policies. The subsidiary recognised a EUR 10,029 thousand provision to cover these expenses.

Interest on life insurance contracts totalled EUR 140,110 thousand in 2005.

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Other information on the insurance contracts

The changes in the claims provision made at various the dates, on a claims occurrence basis, according to the claims paid and the reserve available for such claims following the year-ends was as follows:

Thousands of Euros

AUTO OTHER MULTIRISK

Claims Occurred up to 31

December 2003

Claims Occurred in

2004

Claims Occurred up

to 31 December

2003

Claims Occurred in

2004

Claims Occurred up

to 31 December

2003

Claims Occurred in

2004

Initially estimated claims provision (*)

381,086 207,223 480,044 316,793 97,797 55,993

Accumulated amounts paid: One year later 156,659 82,956 213,370 232,115 40,704 28,776 Two years later 211,169 - 248,558 - 51,484 -

Re-estimated reserve: One year later 183,664 78,188 207,362 58,455 47,032 14,368 Two years later 111,435 - 170,602 - 34,640 -

Accumulated (Deficit) / Surplus 58,482 46,079 60,884 26,223 11,673 12,849

In percentage terms 15.3% 22.2% 12.7% 8.3% 11.9% 22.9%

(*) Not including the technical provision for claims settlement expenses.

The information relating to the number of claims, claims frequency and the average claims cost for the last two years is as follows:

AUTO OTHER MULTIRISK 2004 2005 2004 2005 2004 2005 Number of claims in the year 261,320 249,874 127,288 136,344 309,166 317,183 Claims frequency (number of claims per 100 policies)

22,2% 21,8% 13,1% 13,5% 24,1% 24,1%

Average claims cost (**) 1,219 1,078 2,162 2,236 468 529

(**) Amount in euros.

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Other income

The detail of the various income and expense items presented by segment under the ‘Other Technical Income Less Expenses’ heading is as follows:

Thousands of Euros Other technical income less expenses Non-Life Segment Life Segment Total

Other technical income 35,125 130 35,255 Change in the allowance for bad debts 98 - 98 Change in agreement benefits pending settlement

(2,130) - (2,130)

Other technical expenses (13,198) (3,012) (16,210) Total 19,895 (2,882) 17,013

The other technical income attributed to the Non-Life segment is basically due to the income from recoveries due to reports issued at the company Compañía Española de Crédito y Caución, S.A. de Seguros y Reaseguros.

The other technical expenses relate to the portion of general expenses borne by the Group which must be considered as technical expenses.

Net operating expenses

The detail of the various income and expense items included under the sub-heading ‘Net Operating Expenses” is as follows:

Thousands of Euros Net operating expenses Non-Life Segment Life Segment Total

Acquisition costs: ─ Commissions 199,627 19,326 218,953 ─ Other allocated acquisition costs 97,691 27,306 124,997

Administrative costs: ─ Allocated administrative costs: 93,456 7,543 100,999

Commissions and share in outward reinsurance (-)

(66,381) (998) (67,379)

Total 324,393 53,177 377,570

121

In addition, the income statement for the “Other Activities” segment for 2005 includes, under the sub-headings “Operating Income” and “Operating Expenses”, the following income and expense items:

Thousands of Euros

Thousands of Euros Operating Income

Other Activities Segment

Operating Expenses Other Activities

Segment Income due to the administration of pension funds

3,856 Catoc SICAV, S.A. tax provision

9,784

Collection premiums 1,726 Allocated personnel expenses

3,353

Other 1,037 Other administrative expenses

3,089

Other expenses 2,843 Total 6,619 Total 19,069

Employees

The breakdown of the employee expenses for 2005 and their allocation to the segmental income statement is as follows:

Thousands of Euros 2005

Wages and Salaries 100,496 Social Security 23,804 External pension fund contributions 3,482 Severance pay and premiums 3,274 Other personnel expenses 5,790 Total 136,846

Use of Provisions charged to Income Non-Life Segment Life Segment Other Segment Total

Other technical income less expenses 3,079 795 - 3,874

Claims incurred in the year less reinsurance 24,543 475 - 25,018

Net operating expenses 88,908 13,723 3,353 105,984 Net investment income 1,591 379 - 1,970 Total 118,121 15,372 3,353 136,846

122

The average number of employees at the Parent and subsidiaries in 2005, by professional category, is as follows:

Professional Category Number

of Persons Executives 81 Supervisors and qualified staff 635 Clerical staff and inspectors 2,067 Messengers etc. 41 2,824

Net investment income

The detail of finance income and costs for 2005, by type and defined segment, is as follows:

Thousands of Euros Net Investment Income Non-Life

Segment Life Segment Other Segment Total

Income from investment property and properties for own use 6,471 11,550 527 18,548

Income from financial assets 48,052 121,138 13,312 182,502 Gains on sales of investment property and properties for own use 299 747 - 1,046

Gains on sales of financial assets 3,736 6,485 5,031 15,252 Losses on sales of investment property and properties for own use (2) (151) - (153)

Losses on sales of financial assets (7,172) (1,278) (330) (8,780)Investment and financial asset management expenses (9,102) (2,832) (3,199) (15,133)

Management expenses on investment property and properties for own use (1,881) (3,857) (221) (5,959)

Depreciation and changes in impairment of investment properties and properties for own use

(1,860) (2,304) (1,200) (5,364)

Total 38,541 129,498 13,920 181,959

123

o) Information on the secondary segments

Income from direct insurance earned premiums

The Group operates across the whole of Spain. The geographical distribution of the direct insurance business in 2005 was as follows:

Thousands of Euros

Direct Insurance

Premiums Earned

Percentage of Ownership

ANDALUSIA 170,957 9.18%

ARAGON 25,191 1.35%

ASTURIAS 39,144 2.10%

BALEARIC ISLANDS 46,084 2.47%

CANARY ISLANDS 22,449 1.21%

CANTABRIA 22,341 1.20%

CASTILLA LA MANCHA 43,363 2.33%

CASTILLA LEON 62,771 3.37%

CATALONIA 606,825 32.58%

BASQUE COUNTRY 194,258 10.43%

EXTREMADURA 20,834 1.12%

GALICIA 97,816 5.25%

LA RIOJA 1,987 0.11%

MADRID 205,351 11.03%

MURCIA 61,176 3.29%

NAVARRE 32,342 1.74%

VALENCIA 205,499 11.04%

CEUTA AND MELILLA 3,816 0.20%

TOTAL 1,862,204 100%

Assets by geographical location

In accordance with the location of the various service centres where the Group’s insurance and complementary businesses are managed, the assets allocated geographically are as follows:

Catalonia Basque Country Madrid Rest of Spain Total Total Assets 3,879,033 1,277,942 999,516 - 6,156,491

124

Acquisitions of property, plant and equipment and intangible assets

Catalonia Basque Country Madrid Rest of Spain Total Acquisitions of property, plant and equipment

─ Properties for own use 547 72 - - 619

─ Other items of property, plant and equipment

4,875 1,204 3,133 - 9,212

Investment property acquisitions 4 9,756 2,546 - 12,306

Acquisitions of “Other Intangible Assets” 4,815 98 3,025 - 7,938

p) Statement of coverage of technical provisions

The summary of the consolidated statement of coverage of the technical provisions at 31 December 2005, prepared in accordance with local Spanish standards established in the Private Insurance Regulations and taking into consideration the technical provision requirements restated under IFRSs and the assets allocated to coverage measured in accordance with the measurement bases included in Note 4, is as follows:

Thousands of Euros LIFE NON-LIFE Total provision requirements 2,909,558 1,467,689 Total assets allocated to meet provision requirements

3,345,881 2,385,836

Surplus / (Deficit) 436,323 918,147

q) Solvency margin statement

In accordance with current Spanish legislation, in each fiscal year the Group must hold disposable equity (solvency margin) and a guarantee fund (one-third of solvency margin) according to legally established minimum percentages and amounts.

The detail of the consolidated solvency margin summary at 31 December 2005, calculated under local Spanish standards and restated in accordance with IFRSs, is as follows:

Thousands of Euros

Total disposable equity 1,245,800 Minimum solvency margin 321,483 Final solvency margin 924,317

At 31 December 2005, the insurance companies presented surpluses in their respective Solvency Margins, and the surpluses at a consolidated level amounted to EUR 924,317 thousand, representing 387.52% of the disposable equity on the required minimum.

125

r) Breakdowns of related parties

Transactions between consolidated Group companies

The detail of the main transactions carried out in 2005 is as follows:

Thousands of Euros Balances per Balance Sheet

Income Expenses Receivables Payables Technical Provisions

Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros’ outward reinsurance to: Depsa S.A. de Seguros y Reaseguros 8,552 9,801 - 1,592 16,377 Nortehispana, de Seguros y Reaseguros, S.A. 639 2,057 26 - 291 Lepanto, S.A. Compañía de Seguros y Reaseguros’ outward reinsurance to: Depsa S.A. de Seguros y Reaseguros 414 882 - 348 - Seguros Catalana Occidente’s inward reinsurance from: Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A. 10,419 9,662 2,175 915 4,579 Group policies written by Depsa, S.A. de Seguros y Reaseguros with Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros 68 28 - - 494

Group policies written by Depsa, S.A. de Seguros y Reaseguros with Catoc Vida, Sociedad Anónima de Seguros y Reaseguros 32 59 - - 876

Group policies written by Lepanto, S.A. Compañía de Seguros y Reaseguros with Catoc Vida, Sociedad Anónima de Seguros y Reaseguros 24 56 - - 1,009 Group policies written by Nortehispana, de Seguros y Reaseguros with Catoc Vida, Sociedad Anónima de Seguros y Reaseguros 9 101 - - 1,219 Group policies written by Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros with Catoc Vida, Sociedad Anónima de Seguros y Reaseguros 1,884 552 - - 21,174

Group policies written by Catoc Vida, Sociedad Anónima de Seguros y Reaseguros with Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros 6 - - - 717 Group policies written by Cosalud, S.A. de Seguros with Seguros Catalana Occidente, S.A. de Seguros y Reaseguros - - - - 81 Group policies written by Compañía Española de Crédito y Caución, S.A. with Seguros Catalana Occidente, S.A. de Seguros y Reaseguros 1,553 379 - - 10,483 Group policies written by Baqueira Beret, S.A. with Seguros Catalana Occidente, S.A. de Seguros y Reaseguros - 528 - - 517 Consolidated taxation with Grupo Catalana Occidente, Sociedad Anónima (2005): Catoc Vida, Sociedad Anónima de Seguros y Reaseguros - - 490 - - Cosalud, S.A. de Seguros - - 1,691 - - Depsa, Sociedad Anónima de Seguros y Reaseguros - - 644 - - Nortehispana, de Seguros y Reaseguros, S.A. - - 1,718 - - Tecniseguros, Sociedad de Agencia de Seguros - - 3 - - Salerno 94, S.A. - - 147 - - Lepanto, S.A. Compañía de Seguros y Reaseguros - - 612 - - Catalana Occidente Capital, Agencia de Valores, S.A. - - 20 - - Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros - - - 5,125 - Other current transactions: Seguros Catalana Occidente, S.A. de Seguros y Reaseguros with Grupo Catalana Occidente, S.A. - 268 - 3 - Seguros Catalana Occidente, S.A. de Seguros y Reaseguros with Prepersa de Peritación de Seguros y Prevención, A..I.E. - 3,088 85 - - Seguros Catalana Occidente, S.A. de Seguros y Reaseguros with Tecniseguros, S.A. 69 1,475 - 57 -

126

All intra-group transactions were duly eliminated in consolidation.

s) Other disclosures (including remuneration of, and other benefits for the directors and fees paid to the auditors).

Remuneration of, and other benefits for, directors and senior executives

The members of the Parent’s Board of Directors and Senior Executives received the following amounts from the subsidiaries in 2005:

Thousands of

Euros Attendance fees and compensation provided for in the articles of association 3,395 Wages and salaries 855 Insurance premiums and pension plan contributions 166 4,416

At 31 December 2005, no loans or advances had been granted by the Parent to the directors, nor had any guarantee obligations been entered into on their behalf.

127

Pursuant to Article 127 ter. of the Spanish Corporations Law, introduced by Law 26/2003, of 17 July, which amends Securities Market Law 24/1988, and the consolidated Spanish Corporations Law, following is a detail of the significant equity interests (above 0.25% of share capital) held directly or indirectly and/or the functions discharged or positions held by the company’s directors in companies engaging in an activity that is identical, similar or complementary to the activity that constitutes the business purpose of Grupo Catalana Occidente, S.A.:

Director Equity Interest Held in and/or Function Discharged at: Position or Function Number of

Shares Percentage of

Ownership Bilbao Compañía Anónima de Seguros y Reaseguros, S.A.

Director - -

Catalana Occidente Capital, Agencia de Valores, S.A.

Chairman - -

Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A.

Director - -

Consorcio Compensación de Seguros (Insurance Settlements Consortium)

Director - -

Lepanto, S.A. Compañía de Seguros y Reaseguros

Chairman - -

Nortehispana de Seguros y Reaseguros, S.A.

Chairman - -

Seguros Catalana Occidente, S.A. de Seguros y Reaseguros.

Chairman - -

Catoc Vida, S.A. de Seguros Sole Director’s Representative

- -

Depsa, S.A. de Seguros y Reaseguros

Sole Director’s Representative

- -

Prepersa Peritación de Seguros y Prevención, A.I.E.

Sole Director’s Representative

- -

José Mª Serra Farré

Tecniseguros, Sociedad de Agencia de Seguros, S.A.

Sole Director’s Representative (*)

- -

128

Director Equity Interest Held in and/or Function Discharged at: Position or Function Number of

Shares Percentage of

Ownership Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A.

Director’s Representative

- - Alberto Thiebaut Oliveira


Deputy Chairman - -

Bilbao Compañía Anónima de Seguros y Reaseguros, S.A.

Chairman (**) - -


Director - -


Director Secretary - -

Nortehispana de Seguros y Reaseguros, S.A.


Francisco José Arregui Laborda



Enrique Giró Godó Seguros Catalana Occidente, S.A. de Seguros y Reaseguros.

Director - -

Mariano Bach Portabella Seguros Catalana Occidente, S.A. de Seguros y Reaseguros.

Director - -


Director - - Federico Halpern Blasco


Director - -


Director - - Jorge Enrich Izard


Director - -

José Valero Feliu Seguros Catalana Occidente, S.A. de Seguros y Reaseguros.

Director - -

New Grange Holding España, S.L.


Director - -

Olandor, S.L. Seguros Catalana Occidente, S.A. de Seguros y Reaseguros.

Director - -

Gestión de Activos y Valores, S.L.


Director - -

Villasa, S.A. Seguros Catalana Occidente, S.A. de Seguros y Reaseguros.

Director - -

Serusan, S.A. Seguros Catalana Occidente, S.A. de Seguros y Reaseguros.

Director - -

(*) Removed in September 2005 (**) Appointed on 1 February 2006

129

Also, following is a detail of the equity interests (above 0.25% of share capital) held directly or indirectly and/or the positions held or functions discharged by the individual representatives of the legal-entity directors listed in the above table, in companies engaging in an activity that is identical, similar or complementary to the activity that constitutes the business purpose of Grupo Catalana Occidente, S.A.:

Director Directors’ Individual Representative

Equity Interest Held in and/or Function Discharged at

Position or Function

No. of Shares

Percentage of Ownership


Director - - Gestión de Activos y Valores, S.L.

Javier Juncadella Salisachs

Seguros Catalana Occidente, S.A. de Seguros y Reaseguros


- -

New Grange Holding España, S.L.

Jordi Mora Magriñà Banc Internacional d’Andorra, S.A.


- -


Chairman - - Serusan, S.A. Jesús Serra Farré



- -


Director - - Villasa, S.A. Javier Villavecchia de Delás



- -

Related-party transactions

Further to Order EHA/3050/2004 of 15 September, it is hereby stated that, besides the dividends received, no related-party transactions took place in 2005 with directors or executives or similar persons for these purposes, except for those pertaining to the company’s ordinary course of business which were performed under normal market conditions and are of scant significance.

Fees paid to the auditors

The fees relating to the financial audit services provided to the companies composing the “Grupo Catalana Occidente, S.A. and Subsidiaries” Group by the main auditors or by other companies related to the main auditors in 2005 amounted to EUR 624 thousand (VAT included). The audit fees charged by other auditors participating in the audit of various Group companies totalled EUR 403 thousand. In addition, the fees charged by the main auditors or by other entities related to the main auditors for other related services amounted to EUR 18 thousand (VAT included). The total fees paid to the main auditors account for less than 1% of their volume of business.

Other relevant information

Inspections in progress

On 5 May 2005, the Directorate-General of Insurance and Pension Funds notified the subsidiary Seguros Catalana Occidente, S.A. de Seguros y Reaseguros of a limited inspection of the analysis of the claims provision relating to non-life products at 31 December 2004, of the analysis of the risks assumed in the Non-Life lines and their technical formulation, of coverage of the above risks through reinsurance, of the transactions performed in the Life line and any other matters it considered appropriate to examine during the course of the review. At the date of preparation of these financial statements, the above review is still underway and no significant effects on equity are expected to result for the above company.

130

Events after the balance-sheet date


On 24 November 2005, in accordance with Article 100.2 of the Corporations Law, the Board of Directors of the subsidiary Seguros Catalana Occidente, S.A. de Seguros y Reaseguros resolved to request the Board of Directors of Lepanto, S.A. Compañía de Seguros y Reaseguros (‘Lepanto’) to call a Special Meeting to deliberate and resolve upon a proposed capital reduction through the redemption of all of the shares owned by the various shareholders of Seguros Catalana Occidente and upon various amendments to the articles of association directly related to such capital reduction.

Given the 99.73% interest held by Seguros Catalana Occidente, S.A. de Seguros y Reaseguros in Lepanto and the small number of shares still owned by third parties, the aim of this transaction is to reorganise the Company in order to achieve the complete integration of Lepanto into the Catalana Occidente Group, while also acting as a liquidity opportunity for the minority shareholders which, according to the approved justifying report, was set at EUR 120 per Lepanto share.

The proposed capital reduction was established at EUR 47,880.47 with a charge to unrestricted reserves, in order to return the contributions at the rate of the above EUR 120 per share, through the redemption of 3,292 shares. In accordance with Articles 164.3 and 148 of the Corporations Law, a capital reduction of this type requires the approval of not only the General Meeting but also of the majority of affected shareholders attending the Meeting pursuant to Article 104 of the above Law.

On 29 December 2005, the Board of Directors of Lepanto resolved to call a Special Meeting which was held on 10 February 2006 and at that meeting, the above-mentioned resolutions relating to the capital reduction were adopted on the same date.

Atradius NV

In December 2005, Seguros Catalana Occidente, S.A. de Seguros y Reaseguros and Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A. executed agreements with other shareholders of Atradius NV to acquire a further 25.01% of the share capital of the latter company, for a price of EUR 17.33 per share, with the result that the total interest held by Seguros Catalana Occidente and Crédito y Caución would rise to 49.99%. Performance of the above agreements is pending the fulfilment of certain conditions precedent, particularly the obtainment of certain government approvals.

In addition, the Group companies Seguros Catalana Occidente and Crédito y Caución, executed an agreement on 16 February 2006 whereby the former sells to the latter its current 12.96% interest in Atradius NV, also at the price of EUR 17.33 per share (plus, under certain circumstances, the related interest). Performance of this agreement is also pending the fulfilment of similar conditions precedent to those stipulated in the agreements mentioned in the preceding paragraph. Under this agreement, Seguros Catalana Occidente undertakes to transfer to Crédito y Caución the rights and obligations acquired by Seguros Catalana Occidente under the agreements mentioned in the preceding paragraph or, where appropriate, the shares of Atradius NV acquired under such agreements.

In addition, on the same date, 16 February 2006, the company Crédito y Caución resolved upon a capital increase which will entail a payments for its shareholders, including capital and share premium, of EUR 236.43 million. This capital increase is at the subscription and payment stage by the shareholders of Crédito y Caución.

13. Explanation added for translation to English

These consolidated financial statements are presented on the basis of IFRSs, as adopted by the European Union. Certain accounting practices applied by the Group that conform with IFRSs may not conform with other generally accepted accounting principles.

131

APPENDIXES

Appendix I:

(Name and Registered Office)

Seguros Catalana Occidente, Sociedad Anónima de Seguros y Reaseguros 2,984,279 126,262 113,311 851,803 -Avenida Alcalde Barnils, 63Sant Cugat del Vallés (Barcelona) (A)

Compañía Española de Seguros y Reaseguros de Crédito y Caución, S.A. and Subsidiaries Paseo de la Castellana, 4 (Madrid) (B)

Catoc Vida, Sociedad Anónima de Seguros LifeAvenida Alcalde Barnils, 63 insurance 79.20% - 79.20% 102,618 16,694 962 2,518 1,083 12,447 -Sant Cugat del Vallés (Barcelona) (C)

Salerno 94, S.A.Avenida Alcalde Barnils, 63 Investment 100% - 100% 19,115 721 16.848 (2) 799 600 - 1,924Sant Cugat del Vallés (Barcelona) (C )

Cosalud, Sociedad Anónima de Seguros HealthPaseo de Gracia, 2 (Barcelona) (C ) insurance 100% - 100% 25,568 2,104 4,575 1,140 3,208 14,950 -

Depsa, Sociedad Anónima de Seguros y Reaseguros Gran Vía de les Corts Catalanes, 645 (Barcelona) (C ) 38,319 1,678 2,256 20,754 -

Bilbao, Compañía Anónima de Seguros y Reaseguros, S.A. and Subsidiaries - 99.71% 99.71% 1,253,838 28,009 56,976 52,469 36.534 (3) 400,330 -Paseo del Puerto, 20Getxo (Vizcaya) (A)

Lepanto, S.A. Compañía de Seguros y Insurance and Reaseguros reinsurance 195,506 2,763 52,577 -Pau Claris, 132 (Barcelona) (C)

Insurance and reinsurance

144,953 -902 6,767 73,525 -

CATOC, SICAV, S.A.Avenida Alcalde Barnils, 63 Investment 50,069 15,315 -8,194 - 1,965Sant Cugat del Vallés (Barcelona) (C)

PREPERSA de Peritación de Seguros y Prevención, A.I.E.

Prevention and appraisals - 100% 100% 929 60 360 - - - 3,213

Avenida Alcalde Barnils, 63 Sant Cugat del Vallés (Barcelona) (C)

Tecniseguros, Sociedad de Agencia de Seguros, S.A. 304 3 2,312 -Avenida Alcalde Barnils, 63Sant Cugat del Vallés (Barcelona) (C)


Securities broker - 100% 100% 390 300 - - - - 147

Avenida Alcalde Barnils, 63Sant Cugat del Vallés (Barcelona) (C)

Inversiones Menéndez Pelayo SICAV, S.A. 59,554 3,968 1,274 - 3,099Avda. Diagonal, 399(Barcelona) (D)

(*)

(1)

(2)

(3)

(A)(B)(C)(D)

Company

Line ofBusiness

List of Subsidiaries at 31 December 2005

1,011,529 121,466 64.041 (1) -

Revenues

% of Voting Power

Earned Premiums

Less Reinsurance

Summarised Financial Information

Direct Indirect TotalTotal

Assets Share CapitalEquity

Reserves

18,030 91,254

Other Reserves

under IFRSs

Profit for the Year

under IFRSs

Insurance and reinsurance 100% - 100%

Credit and surety

insurance 39.35% - 39.35%

Legal defence insurance

100% - 100%

187,359

3,005 1,789

98199.73% 99.73% 18,034

18,030

100% 60

2,427

Nortehispana, de Seguros y Reaseguros, S.A. Pau Claris, 132 (Barcelona) (C)

- 99.52% 99.52% 18,030 9,735

-

38,213

Insurance agency 79 -

- 84.09% 84.09% 8,286

- 100%

Certain financial information provided in relation to the above companies included in the scope of consolidation (total assets, share capital, equity reserves, earned premiums less reinsurance andrevenues) was obtained from their respective audited individual or consolidated financial statements for the year ended 31 December 2005.

Insurance and other insurance-

related activities

203,287

-42,058Investment

- 100% (*) 100% (*) 57,792

All other information (other reserves under IFRSs and profit for the year under IFRSs) was obtained from the information prepared by each company as adapted to the new EU-IFRSs.

Percentage of ownership determined only by reference to outstanding shares. The above equity reserves were discounted for the value of treasury shares.

The parent paid an interim dividend amounting to EUR 2,795 thousand.

Includes reserves amounting to EUR 7,089 thousand for Company shares held by this company under financial assets.

The parent paid an interim dividend amounting to EUR 29,819 thousand.

Audited by Deloitte, S.L.Audited by PricewaterhouseCoopers Auditores, S.L.Audited by DQ Auditores.Audited by AudiHispana.

133

Appendix II:

(Name and Registered Office)

Baqueira Beret, S.A. and Subsidiaries Salardú, Valle de Arán (Lérida) -

Hercasol, S.A. SICAV Avenida Diagonal, 399 (Barcelona) - 33,52% (*) 33,52% (*) 6,103 5,733 -

Calboquer S.L.Villaroel, 177-179 20% 20% 618 60 73 - 333 (1) - 1,64408936 Barcelona

Asitur Asistencia, S.A. Avenida Encuartes, 21 Assistance - 28.53% 28.53% 16,185 2,945 4,559 - 673 - 86,443 Tres Cantos, Madrid

Atradius NV and Subsidiaries - 24.98% 24.98% 2,826,948 56,600 415,479 - 50,047 675,560 -Keizersgracht 271-2871016 ED Ámsterdam (The Netherlands) reinsurance

INPISA Dos SICAV, S.A. - 20.82%(*) 20.82% (*) 51,736 9,924 26,663 6,482 2,714 - 4,833Manuel Arnús, 31 (Barcelona) Investment

(*)

(1)

List of Associates at 31 December 2005

Percentage of ownership determined only by reference to outstanding shares. The above equity reserves were discounted for the value of treasury shares.

Line ofBusiness

Company

Certain financial information provided in relation to the above companies included in the scope of consolidation (total assets, share capital, equity reserves, earned premiums less reinsurance and

revenues) was obtained from their respective audited financial statements for the year ended 31 December 2005, except for Baqueira Beret, S.A., whose audited financial statements relate to the year

ended 30 June 2005, and Atradius NV, whose audited financial statements relate to the year ended 31 December 2004, and were prepared in accordance with EU-IFRSs.

Other Reserves

under IFRSs

Profit for the Year under

IFRSs Revenues

1,572

% of Voting Power Summarised Financial Information

60,698

Share Capital

Equity Reserves

Earned Premiums

Less Reinsurance

1,149 830

Direct Indirect TotalTotal

Assets

9,415 27,710 - 4,568

Telephone Medical, Social,

Psychological Aid and Legal

Advice Services -

Insurance and

59,376

Investment 13,350

Ski resort - 49.49% 49.49%

The company paid an interim dividend amounting to EUR 143 thousand.

All other information (other reserves under IFRSs and profit for the year under IFRSs) was obtained from the information prepared by each company as adapted to the new EU-IFRSs.

In the case of Baqueira Beret, S.A. and subsidiaries, whose fiscal year ends on 30 June, the appropriate adjustments have been included in the above table to ensure that its assets and liabilities, asshown above, reflect the figures consolidated with Baqueira Beret, S.A.'s wholly-owned subsidiaries at 31 December 2005.

134

GRUPO CATALANA OCCIDENTE, S.A. AND SUBSIDIARIES Auditors’ Report on Consolidated Financial Statements

135

Deloitte. Avda. Diagonal, 65408034 BarcelonaEspaña

Te!.: +34 932 804040Fax: +34 932802810www.deloitte.es

Translation of a report originally issued in Spanish based on our work performed in accordance with generallyaccepted auditing standards in Spain and of consolidated financial statements originally issued in Spanish and

prepared in accordance with IFRSs, as adopted by the European Union (see Notes 3 and 13).In the event of a discrepancy, the Spanish-Ianguage version prevails.

AUDITORS' REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

To the Shareholders of

Grupo Catalana Occidente, S.A. and Subsidiaries:

We have audited the consolidated financial statements of Grupo Catalana Occidente, S.A. andSubsidiaries composing the Catalana Occidente Insurance Group (see Appendixes I and 11to theconsolidated financial statements) comprising the consolidated balance sheet at 31 December 2005, andthe related consolidated income statement, consolidated cash flow statement, consolidated statement ofchanges in equity and notes to the consolidated financial statements for the year then ended. Thepreparation ofthese consolidated financial statements is the responsibility ofthe Parent's directors. Ourresponsibility is to express an opinion on the consolidated financial statements taken as a whole basedon our audit work performed in accordance with generalIy accepted auditing standards in Spain, whichrequire examination, by means of selective tests, of the evidence supporting the consolidated financialstatements and evaluation oftheir presentation, ofthe accounting principIes applied and ofthe estimatesmade. Our work did not include an examination of the 2005 financial statements of the fulIyconsolidated Subsidiaries described in Appendix I to the consolidated financial statements. The assetsand eamed premiums of the Subsidiaries not audited by us account for approximately 28% and 32%,respectively, ofthe related consolidated figures. These financial statements were audited by the auditorsindicated in the aforementioned Appendix and our opinion, as expressed in this report, insofar as itrelates to these investments, is based solely on the reports ofthe other auditors.

The accompanying consolidated financial statements for 2005 are the first that the Group has preparedin accordance with Intemational Financial Reporting Standards, as adopted by the European Union(IFRSs), which require, in general, that financial statements present comparative information. In thisregard, as required by corporate and commercial law, for comparison purposes the Parent's directorspresent, in addition to the consolidated figures for 2005 for each item in the consolidatedbalance sheet,consolidated income statement, consolidated cash flow statement, consolidated statement of changes inequity and notes to the consolidated financial statements, the figures for 2004, which were obtained byapplying the IFRSs in force at 31 December 2005. Accordingly, the figures for 2004 differ from thosecontained in the approved consolidated financial statements for 2004, which were prepared inaccordance with the accounting principIes and standards in force in that year. The differences arisingfrom the application of IFRSs to the consolidated equity at 1 January and 31 December 2004, and to theGroup's consolidated profit for 2004 are detailed in Notes 8 and 9 to the accompanying consolidatedfinancial statements. Our opinion refers only to the consolidated financial statements for 2005. On 4April 2005, we issued our auditors' report on the 2004 consolidated financial statements, prepared inaccordance with the accounting principIes and standards in force in that year, in which we expressed anunqualified opinion.

As indicated in Note 2, the Group has applied the exception provided for in IFRS 1, as adopted by theEuropean Union, which permits the application of Intemational Accounting Standards 32 and 39,Financial Instruments, and IFRS 4, Insurance Contracts, from 1 January 2005 onwards, withoutrequiringthat the comparativefiguresfor 2004be adapted.Therefore,the comparabilityof the financialstatements between the two years is affected by this circumstance.

Deloitte, S.l. Inscrita en el Registro Mercantil de Madrid, Tomo 13.650. folio 188, sección 8, hoja M-54414.inscripción 96, CI.F.: 8-79104469. Domicilio Social: Plaza Pablo Ruiz Picasso, 1, Torre Picasso -28020 Madrid

Member ofOeloitte Touche Tohmatsu

In our opinion, the accompanying consolidated financial statements for 2005 present fairly, in allmaterial respects, the consolidated equity and consolidated financial position of the Catalana OccidenteInsurance Groupat 31 December 2005, and the consolidated results of its operations, the changes in theconsolidated equity andoits consolidated cash flows for the year then ended, and contain the requiredinformation, sufficient for their proper interpretation and comprehension, in conformity withIntemational Financial Reporting Standards, as adopted by the European Union which, except asindicated in paragraph 3 above, were applied on a basis consistent with that used in the preparation ofthe financial statements and other information for the preceding year which, as indicated in paragraph 2above, were included in the consolidated financial statements for 2005 for comparison purposes only.

The accompanying consolidated directors' report for 2005 contains the explanations which the Parent'sdirectors consider appropriate about the Group's situation, the evolution of its business and othermatters, but is not an integral part of the consolidated financial statements. We have checked that theaccounting information in the consolidated directors' report is consistent with that contained in theconsolidated financial statements for 2005. Our work as auditors was confined to checking theconsolidated directors' report with the aforementioned scope, and did not include a review of anyinformation other than that drawn from the accounting records of Grupo Catalana Occidente, S.A. andSubsidiaries.

DELOITTERegistered in ROAC under no. S0692

COL.LEGIDE CENSORSJURATSDE COMPTESDE CATALUNYA

Membre exercent:

DELOITTE, S.L.

Any 2006 Núm. c::c.cIID~" STCÓPIA GRATUiTA

Miguel Antonio Pérez ........

4 April 2006

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