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
Overview insurance activities in CE
K&H Life and the life market in Hungary
ARGOSZ and the non-life market in Hungary
Developing insurance activities in Central Europe, focus on Hungary
8
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
Overview insurance activities in CE
K&H Life and the life market in Hungary
ARGOSZ Insurance Co. and the non-life market in Hungary
Developing insurance activities in Central Europe, focus on 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
Non-life market situation 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
Non-life market situation in Hungary
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