Developing Insurance activities in Central Europe Focus on Kbc by xeniawinifredzoe

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									Developing insurance activities in
Central Europe, focus on Hungary
                  David Truman, K&H Life
    Johan De Decker, Argosz Insurance Co.
                                      Investor Day

Developing insurance activities in
                                                     2003
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




                                                        2
                                             Investor Day


        Central European structures                         2003

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

                                                                  3
                                                                                  Investor Day
                         Current presence
                                                                                                 2003
                   in Central Europe - Insurance
As at 31.12.2002
                                                      Poland (non-life / life - 2001)
                                                      Ranking:                 2nd/10th
       Czech Republic (non-life / life- 2001)
                                                      Market share:            13%/1%
       Ranking:            5th/4th
       Market share:       5%/10%



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


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


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


                                                       Years given relate to year of entry by KBC   4
                                                                          Investor Day

                   Relationships
                                                                                         2003
              of KBC insurers to banks
                                            Poland
                                            Acquisition of Warta
          Czech Republic                    Building strategic alliance
          Acquisition of CSOB               with Kredyt Bank
          Pojistovna (formerly IPB)
          Building strategic alliance
          with CSOB


Slovakia
Acquisition of Ergo
(IPB related)


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

                  Slovenia
                  NLB Life greenfield and
                  joint venture with NLB

                                                                                            5
                                             Investor Day


            KBC in Hungary                                  2003

          Effective ownership by KBC

100
90
80
70
60
                                                       Indirect
50
                                                       Direct
40                                                     Total
30
20
10
 0
      K&H Bank       K&H Life   Argosz (non-life)
                                                                  6
                                      Investor Day

Developing insurance activities in
                                                     2003
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




                                                        7
                                             Investor Day


               K&H Life – the Company                       2003

   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



                                                               8
                                                Investor Day


   Life assurance market evolution in CE                        2003

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

5000                                                m EUR
                                                    (current exchange rates)
4500
4000
3500
                                                        Slovenia
3000
                                                        Slovak Rp
2500
                                                        Czech Rp
2000                                                    Hungary
1500                                                    Poland
1000
 500
   0
   1991   1993   1995    1997    1999    2001
                                                                           9
                                           Investor Day

       Key success factors to green-field
                                                          2003
               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

                                                             10
                                                      Investor Day


            Key success factors (continued)                          2003

   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




                                                                             11
                                                                  Investor Day


            K&H Life – a growing business                                           2003
           Number of new
                                   2003 = Plan
           individual policies                          Policies per branch per annum
20000
                                                 120
18000                                            100
16000                                             80
                                                  60
14000                                             40
12000                                             20
                                                   0
10000                                                   1999   2000   2001   2002   2003

 8000
                                                                Market share
 6000                                            2.0%
 4000                                            1.5%
 2000                                            1.0%
    0                                            0.5%
        1999 2000 2001 2002 2003
                                                 0.0%
                                                        1999 2000 2001 2002 2003           12
                                                                      Investor Day


           K&H Life – foundations now in place                                          2003
In m EUR     Premium income                                    Profit loss
     18
                                             In '000 EUR
     16                                              600

     14                                              500
                                                     400      Includes
     12                                                       set-up
                                                     300
                                                              costs
     10                                              200

       8                                             100
                                                       0
       6
                                                            1998   1999   2000   2001   2002   2003
                                                     -100
       4
                                                     -200
       2                                             -300

       0                                             -400

           1999    2001       2003                   -500


                          (*) 2003 = budget
                          (Exchange at current EUR / HUF rates)
                                                                                                      13
                                           Investor Day


           K&H Life – next steps                          2003

   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

                                                             14
                                      Investor Day

Developing insurance activities in
                                                     2003
Central Europe, focus on Hungary


   Overview insurance activities in CE
   K&H Life and the life market in Hungary
   ARGOSZ Insurance Co.
    and the non-life market in Hungary




                                                        15
                                     Investor Day


    ARGOSZ – background                             2003




   Essentially a non-life company
   Founded as greenfield in 1992
   98% KBC owned




                                                       16
                                        Investor Day


    Non-life market situation in Hungary               2003

   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%

                                                          17
                                                  Investor Day


  Non-life market situation in Hungary                           2003


Annual income development non-life market in Hungary

 350
 300
 250
 200
                                                       Income
 150                                                   (in billion HUF)
 100
  50
   0
       1992                              2002
                                         bn HUF


                                                                          18
                                                   Investor Day

     Non-life market situation in Hungary                         2003

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

30

24

18                                                   % Growth HUF
                                                     % Growth EUR
12                                                   % Inflation HUF
 6

 0
     1992                               2002
-6

                                                                       19
                                            Investor Day


                ARGOSZ – strategy                          2003


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




                                                              20
                                             Investor Day


   ARGOSZ – income development                              2003


                                             In m HUF
12 000
10 000
 8 000
 6 000                                            Income

 4 000
 2 000
     0
         1993                         2002

         Average annual market share growth of
                  0.38% over 10 years
                                                               21
                                              Investor Day

       ARGOSZ – income development                           2003

 Annual % growth as compared to inflation

120
100
 80
                                                % Growth HUF
 60
                                                % Growth EUR
 40                                             % Inflation HUF
 20
  0
      1993                             2002


                                                                  22
                                         Investor Day


       ARGOSZ – product mix, 1994                        2003

         Total income 1994 : EUR 2.9 m

                        Other
                Casco    4%
                 9%                               Agri
MTPL                                              39%
 9%




   Commercial
                                  Home
     29%
                                  10%
                                                            23
                                         Investor Day


 ARGOSZ – product mix, 2002                             2003

        Total income 2002 : EUR 47.3 m

             Other       Agri      Home
              3%         9%        10%
Casco
                                              Commercial
 15%
                                                 8%




                        MTPL
                        55%                                24
                                                                   Investor Day


                  ARGOSZ – key figures                                            2003

In m EUR                  2000         2001         2002          2003         2005
                                                                (budget)     (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-        20.3%         9.5%        15.3%        18.5%
                            even
Solvency margin **         158%         300%          245%             N/A        N/A
                                                                2002
 * tax at 18 pct rate for 2003 and beyond
 ** as pct of minimum legal required          Head count         175
                                              Agent count        586

      Amounts in EUR (at EUR 1 = HUF 245 for 2003 and beyond)
                                                                                         25
                                           Investor Day


        ARGOSZ – future objectives                        2003


   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)


                                                             26
                                           Investor Day


ARGOSZ – factors for sustained success 2 0 0 3


      "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


                                                          27

								
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