developing insurance activities in central europe, focus on hungary

Developing insurance activities in Central Europe, focus on Hungary

David Truman, K&H LifeJohan De Decker, Argosz Insurance Co.

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Investor Day

2 0 0 3Developing insurance activities in Central Europe, focus on Hungary

Overview insurance activities in CE

K&H Life and the life market in Hungary

ARGOSZ and the non-life market in Hungary

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Investor Day

2 0 0 3Central European structures

If we can acquire insurers, we will. If not, we will build

CE insurance markets opened to foreign capital in late '80s / early '90s, earlier than KBC entry

In early/mid '90s we had an incidental insurance presence in CE

After KBC merger of 1998, CE became strategic development of 2nd home market

In Central Europe our insurance operations are a mix of acquisition,

strategic alliance, green-field and

joint venture

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Investor Day

2 0 0 3Current presence

in Central Europe - Insurance

Poland (non-life / life - 2001)Ranking: 2nd/10thMarket share: 13%/1%

Czech Republic (non-life / life- 2001)Ranking: 5th/4thMarket share: 5%/10%

Slovakia (non-life / life - 2002 )Ranking: 7th/7thMarket share: 2%/4%

Hungary (non-life 1992 / life1998)Ranking: 6th/14thMarket share: 4%/1%

Slovenia ( life 2003)Start-up phase of life assurance cy

Years given relate to year of entry by KBC

As at 31.12.2002

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Investor Day

2 0 0 3Relationships

of KBC insurers to banks PolandAcquisition of Warta Building strategic alliance with Kredyt Bank

Czech RepublicAcquisition of CSOB Pojistovna (formerly IPB) Building strategic alliance with CSOB

SlovakiaAcquisition of Ergo (IPB related)

HungaryK&H Life greenfield joint venture with K&H Bank Argosz building strategic alliance with K&H Bank

SloveniaNLB Life greenfield and joint venture with NLB

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Investor Day

2 0 0 3KBC in Hungary

0

10

20

30

40

50

60

70

80

90

100

K&H Bank K&H Life Argosz (non-life)

Indirect

Direct

Total

Effective ownership by KBC

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Investor Day

2 0 0 3



ARGOSZ and the non-life market in Hungary


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Investor Day

2 0 0 3K&H Life – the Company

Integrated with K&H Bank, start up in 1999

Operates primarily as a product factory but also assists distributors with training, marketing & sales support

Principal distribution is 163 branches of K&H Bank

Predominant retail focus with saving, investment, credit linked & individual risk products

Group products also manufactured for corporate clients

22 staff

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Investor Day

2 0 0 3Life assurance market evolution in CE

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1991 1993 1995 1997 1999 2001

Slovenia

Slovak Rp

Czech Rp

Hungary

Poland

m EUR(current exchange rates)

All these CE countries combined only circa 2 x KBC Insurance life premium income in Belgium

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Investor Day

2 0 0 3Key success factors to green-field

bancassurance

Address positively bankers concerns over : Product cannibalisation Capital requirements Diversion of management time Cultural mismatch Perceived additional workload

Communication at all levels as regards reasoning and implications

Integration as regards distribution and customer approach that is complementary to the change process

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Investor Day

2 0 0 3Key success factors (continued)

Differentiate products (simple, transparent, clarity as to objectives, value for money & innovative)

Keep processes to a minimum and provide IT solutions that remove paperwork

Avoid formalistic methods and break down the barriers of “my business, your business”

Motivation of distribution, particularly through (integrated) incentive schemes

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Investor Day

2 0 0 3K&H Life – a growing business

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1999 2000 2001 2002 2003

0

20

40

60

80

100

120

1999 2000 2001 2002 2003

0.0%

0.5%

1.0%

1.5%

2.0%

1999 2000 2001 2002 2003

2003 = PlanNumber of newindividual policies

Market share

Policies per branch per annum

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Investor Day

2 0 0 3K&H Life – foundations now in place

-500

-400

-300

-200

-100

0

100

200

300

400

500

600

1998 1999 2000 2001 2002 2003

0

2

4

6

8

10

12

14

16

18

1999 2001 2003

Includes set-up costs

Premium incomeIn m EUR

In '000 EUR

Profit loss

(*) 2003 = budget(Exchange at current EUR / HUF rates)

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Investor Day

2 0 0 3K&H Life – next steps

Extend : Distribution by furthering relationship with

Argosz agents Product range by building on initial launch of

Capital Guaranteed investment product Customer base through corporate client

relationships

Premium revenue doubling in 2003 to 17 m EUR. Further growth target of 50% in 2004

1 m EUR pre-tax profit in 2004 & circa 20% ROE in 2004

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Investor Day

2 0 0 3



ARGOSZ Insurance Co. and the non-life market in Hungary


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Investor Day

2 0 0 3ARGOSZ – background

Essentially a non-life company

Founded as greenfield in 1992

98% KBC owned

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Investor Day

2 0 0 3

From duopoly to free market

Top two companies : market share of 63%

Next 3 companies : market share of ca. 7% each

Per capita non-life premium 2001 : 100 EUR(EU average : 733 EUR, Portugal : 349 EUR)

Non-life premium as % of GDP 2001 : 1.9%(EU average : 3.2%, Portugal : 2.8%)

Main products : Motor 59%Property 28%

Non-life market situation in Hungary

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Investor Day

2 0 0 3

0

50

100

150

200

250

300

350

1992 2002

Income(in billion HUF)

Annual income development non-life market in Hungary


bn HUF

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Investor Day

2 0 0 3

-6

0

6

12

18

24

30

1992 2002

% Growth HUF

% Growth EUR

% Inflation HUF


Annual percentage growth of the non-life market in Hungary and of inflation

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Investor Day

2 0 0 3ARGOSZ – strategy

Target markets : retailmedium-sized companiesagri clients

Retail distribution through exclusive agents and K&H bank network

SME & agri distribution also through brokers and direct

Gain market share in a strongly growing market

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Investor Day

2 0 0 3

0

2 000

4 000

6 000

8 000

10 000

12 000

1993 2002

Income

ARGOSZ – income development

Average annual market share growth of 0.38% over 10 years

In m HUF

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Investor Day

2 0 0 3ARGOSZ – income development

0

20

40

60

80

100

120

1993 2002

% Growth HUF

% Growth EUR

% Inflation HUF

Annual % growth as compared to inflation

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Investor Day

2 0 0 3ARGOSZ – product mix, 1994

Commercial29%

Home10%

Agri39%

Other4%Casco

9%

MTPL9%

Total income 1994 : EUR 2.9 m

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Investor Day

2 0 0 3ARGOSZ – product mix, 2002

Commercial8%

Home10%

Agri9%

Other3%Casco

15%

MTPL55%

Total income 2002 : EUR 47.3 m

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Investor Day

2 0 0 3

In m EUR 2000 2001 2002 2003 (budget)

2005(budget)

Income 23.9 31.7 47.4 58.8 84.7

Income growth 25% 33% 50% 24% 17%

Net loss ratio 69% 67% 70% 71% 71%

Gross cost ratio 38% 35% 31% 30% 27%

Net combined ratio 109% 101% 103% 100% 98%

Result before tax 0.1 2.1 1.6 3.0 4.8

ROE after tax * Break-even

20.3% 9.5% 15.3% 18.5%

Solvency margin ** 158% 300% 245% N/A N/A

ARGOSZ – key figures

Amounts in EUR (at EUR 1 = HUF 245 for 2003 and beyond)

2002

Head count 175

Agent count 586

* tax at 18 pct rate for 2003 and beyond** as pct of minimum legal required

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Investor Day

2 0 0 3ARGOSZ – future objectives

Strong growth Organic market share growth of 0.5% per year No. 5 in non-life ranking in 3 years from now

While maintaining healthy technical results Expense ratio of 25% or less Net loss ratio of less than 72% Combined ratio towards 95%

Generating a ROE of 18% or more (after tax)

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Investor Day

2 0 0 3ARGOSZ – factors for sustained success

"Ownership" of distribution (tied agents)

Emphasis on cross-selling by agents

Bancassurance (K&H Bank)

Focus on the bottom-line

Excel in basic non-life skills : Pricing Risk selection Claims control

developing insurance activities in central europe, focus on hungary

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