KBC Group Solvency II External Communication More infomation: www.kbc.com KBC Group - Investor Relations Office Email: investor.relations@kbc.com 1
Contents 1 Solvency II : From SI to SII at KBC 2 Key features Solvency II : Fundamental differences vs Solvency I 3 Solvency Own Funds 4 Solvency Capital Requirements per risk category 5 KBC Solvency II : sensitivities 6 Wrap up : SII @ KBC 2
Solvency II From SI to SII at KBC Solvency I Solvency II Uneven playing field Aims at a more level playing field Punishes prudent behaviour Limited (supervisory) reporting Rewards active risk management Full set financial (supervisory) reporting SII @ KBC One size fits all Impact on product mix no changes at KBC STANDARD FORMULA MODEL APPROACH SI Ratio: 276% Based on 3Q15 numbers Available Capital: 2,76b EUR From accounting based to economic/fair value based Technical provisions at best estimate + Risk Margin All assets @ market value SII Ratio: 242% Based on 3Q15 numbers Total Own Funds: 3,62b EUR NO TRANSITIONAL MEASURES VOLATILITY ADJUSTMENT (SII RATIO without VA 225%) Required Solvency margin : 1,00b EUR Looks detailed at all risks Full risk driven approach Total SCR 1,50b EUR 3
Key features Solvency II Fundamental differences vs. Solvency I Solvency I Solvency II Assets Liabilities Surplus Assets Liabilities Surplus Solvency II: Three Pillar Approach Solvency I Capital Requirement Available Capital Solvency II Capital Requirement MCR SCR Available Capital 1 Quantification How we measure risks SCR & Own Funds Book value of Assets Non-dynamic Based on Book values Technical Provisions = Accounting reserves for insurance liabilities Market value of Assets Dynamic Based on Market Values Market value of liabilities Life (Best Estimate + RM) Market value of liabilities Non-Life (Best Estimate + RM) Technical provisions 2 3 Governance How we manage risks Disclosure How we report Risk Management (ORSA & SRP) Reporting to supervisor & disclosure to public 4
KBC Solvency Own Funds Own Funds 30.09.2015 Waterfall (data 30/9/15) Additional Tier-2 which qualifies as capital 50 Full upstream of statutory BGAAP results. 1.017 514 18 234 70 3.619 500 Tier 2 2.916 500 157 339 Volatility Adjustment (VA): VA mitigates impact from declining bond prices (asset side of BS) owing to low liquidity or exceptional expansion of spreads by applying an fixed add-on to the risk-free curve which is used to discount the insurance liability cash flows. VA aims to avoid pro-cyclical investment behavior of insurers VA has a stabilizing effect on available capital and SII ratio. VA add-on % is determined by EIOPA 3.119 Tier 1 IFRS PSE 30.09.2015 Expected dividend pay-out Subordinated Liability Goodwill and other intangibles Revaluation HTM bonds and L&R Revaluation real estate Revaluation Technical provisions Reinsurance recoverables Volatility adjustment Other Own Funds 30.09.2015 5
Solvency capital requirement per risk category SCR SCR waterfall (data 30/9/15) Solvency Capital Requirement (SCR): Based on V-a-R, with shocks supposed to happen every 200y (99,5% conf.level, 1y horizon) All risk types (incl. sub risk types) are considered (Assets & Liabilities) The SCR of each individual (sub-) risk type is calculated as difference between available capital under best estimate and stressed estimate conditions. 1.419 131 552 Underwriting 215 500 868 1.949 128 141 SII allows to take into account that losses (after SII shocks) can partially be recuperated in future by deferred taxes. 438 1.498 For KBC Insurance diversification benefits are mainly between subrisk types and main risk types, limited diversification benefit from operating in different countries Market Counterparty Life Health Non-Life Diversification Basic SCR Operational Adj. Techn. default Prov. Adj. Deferred Taxes Total SCR 6
KBC Solvency II Sensitivities : Biggest impact from VA and spread risk movements Individual impacts on KBC SII ratio: Interest Rate +100bps SII ratio: 244% Base case scenario 30/09/2015 Bond Spreads +50bps SII ratio: 207% Available capital 3.619 Required capital 1.498 SII-ratio 242% Other shocks Equity shock: - 40% SII ratio: 241% Property Shock: - 25% SII ratio: 237% Volatility Adjustment No VA SII: 225% 7
Wrap up SII @ KBC Strong Solvency II ratio at 242% under Standard Formula model approach Solvency II ratio resilient to a wide range of shocks KBC clearly well positioned amongst its peers in the European insurance industry. 8