Asset & Liability Management,

a Bancinsurance Story

Presentation by Gilbert Mittler,

CFO Fortis

Investor Day, 2 October 2003

Agenda

• Risks@Fortis
• Fortis Risk organization
• ALM fundamentals
• ALM@work:
- Bancinsurance diversification
- Duration of Equity & Earnings at Risk at Fortis Bank
- Reduced Insurance exposure to equities
- Insurance guarantees and yields
• Conclusion

1
Risks@Fortis
Risk taking is our daily business

We understand the risks,

we know how to quantify and manage them.

2
Risks@Fortis

ALM Risk is the second largest risk managed

by Fortis

Credit
Insurance
Operational

Trading ALM
EUR 14.3 billion Economic Capital
end of 2002

3
Fortis risk organisation
The Risk Web

4
Fortis risk organisation
The ONE Company concept
Group

Fortis Risk Committee

Fortis

Insurance ALCO Central

Fortis

Bank Mgt Committee

Risk Risk
Insurance

OMPC
Bank or

Committee Bank
CPC
Credit
CCC

Fortis AG Network Banking

Businesses

Fortis ASR Merchant Banking

Middle offices
FB Insurance
Private Professional
Fortis, Inc. Investors Services

5
Fortis risk organisation
ALM organisation

•Top level
•Fortis Risk Committee

•Operational level
•1 ALM Committee Bank
- Local ALM Committees in countries
•1 Insurance Risk Committee
- Local Risk Committees in businesses

One central operational department

regrouping and coordinating scarce resources

6
ALM fundamentals
ALM management is essential
WHY
ƒ Fortis provides products to its
customers with different
maturities and risks
ƒ Assets and liabilities as well as
embedded options are managed
through ALM
ƒ ALM manages and quantifies
ƒ Interest rate risk
ƒ Equity risk
ƒ Forex risk
ƒ Liquidity risk
HOW
ƒ ALM policies and limits are set
and controlled centrally
ƒ Within limits and policies the
businesses manage their
balance sheet based on:
ƒ Solvency and risk appetite
ƒ View on asset classes
ƒ Return to customers
ƒ Competitors behaviour
ƒ Optimization of those factors is
the result of trade-offs
ƒ Investing in modern ALM
resources and systems
improves risk management
7
ALM Fundamentals
We measure ALM risk through Economic capital

•ALM Economic Capital Fair Value

is defined in terms of the
volatility of Fortis´ Fair
Value due to changes in

Probability of outcome
Expected
value
market factors Current
value ALM
Economic
Capital
•Fair Value is the net
economic value of Worst Case
value
Fortis’ assets and AA
confidence
level
liabilities Year 0 Year 1

ALM Economic Capital definition:

• Holding period: 1 year
• Confidence level: 99.97%
• Historic data: 30 years
8
ALM@work

• Bancinsurance diversification

• Duration of Equity & Earnings at Risk at Fortis

Bank

• Reduced Insurance exposure to equities

• Insurance guarantees and yields

9
ALM@work
Bancinsurance diversification

A Bancinsurance Story

-16%

17.0

14.3
Bank
Insurance Fortis

2002 Economic Capital

EUR billion
10
ALM@work
Bancinsurance diversification

FORTIS
• Manage ALM at Group level
• Opposite interest rate risk in Bank and Insurance

BANK INSURANCE
•Relative long term assets but •Long term liabilities, long term
short term funding assets

•Duration of assets is longer than •Duration of liabilities is longer

the duration of liabilities than the assets
•Bank benefits from steep yield •Insurance benefits from high
curve and lowering of yield long term
- interest rates and high
curves stock markets
11
1
ALM@work
Bancinsurance diversification

Combination of Bank and Insurance reduces impact on the

fair value of Fortis in different market scenarios

Fair value sensitivity

Interest rate down

Shifts
Twists
Inflections
Interest rate up

FX fall (-35%)
Insurance Bank Non-Euro Equity fall (-44%)
Euro Equity fall (-50%)
Real estate fall (-28%)

12
ALM@work
Bancinsurance diversification

A Bancinsurance Story

-16%

17.0

14.3
Bank
Insurance Fortis

2002 Economic Capital

EUR billion
13
ALM@work
Duration of Equity & Earnings at Risk at Fortis Bank

VALUE REPORTING EARNINGS REPORTING

• Risk measures • Risk measures

- Fair value - Interest margin evolution
- Duration of Equity - Earnings at Risk
- Basis point sensitivity • P/L approach
- VAR • Short term, 3 years
• Economic approach • Dynamic or going concern
• Long term, all cash flows
to maturity or re-pricing
• Static

14
ALM@work
Duration of Equity at Fortis Bank

Duration of Equity is below the «10 years» limit

11.00

10.00
Limit
9.00

8.00

7.00

6.00

5.00

4.00
1

3
01

02

03
2
1

2
1

3
r -0

r -0

r -0
t-0
t -0

l-0
l-0

l-0
n-

n-

n-
Ap

Ap

Ap
Ju

Ju

Ju
Oc
Oc
Ja

Ja

Ja
Duration of Equity is the duration that must be attributed to the difference
between the value of the assets and the value of the liabilities in order for
the total balance sheet to be insensitive to interest rate changes’
15
ALM@work
Earnings at Risk at Fortis Bank
Earnings evolution is simulated using multiple interest
rate scenario’s

• Central scenario
• current yield curves

• Future scenario’s
• Higher: Parallel shift +1%
• Lower: Parallel shift –1%
• Steeper:Short term -1% and Long term +1%
• Flatter: Short term +1% and Long term -1%

• Earnings at Risk is the difference of net interest income

between the worst scenario and the central scenario
2003 2004 2005
1.1% 4.3% 8.6%
16
ALM@work
Reduced Insurance exposure to equities

Fortis investment portfolio Fortis investment portfolio

June 30, 2002 June 30, 2003
EUR 138 billion EUR 146 billion
9% 5%

Equities Equities
EUR 13 billion EUR 8.1 billion
Insurance Insurance
EUR 10.8 billion EUR 6.3 billion

17
ALM@work
Reduced Insurance exposure to equities

June 30, 2002 June 30, 2003

Investment EUR 47.8 billion Investment EUR 51.3 billion
Equities EUR 10.8 billion or 23% Equities EUR 6.3 billion or 12%

Equity 23% Equity 12%

Real Estate 9% Real Estate 10%
Bonds 68% Bonds 78%

• Equity exposure reduced from 23% to 12%

• Net equity exposure on total Assets [excluding segregated funds] is
only 7.5% end of June 2003
• A movement of the markets of 10% has a net impact on solvency of
EUR 300 million compared with EUR 600 million end 2002

18
ALM@work
Reduced Insurance exposure to equities

Shift in asset mix

• Equity risk has decreased
• Interest rate risk has increased slightly
Economic Capital
Insurance Pool

Q4 2001
Q4 2002
Q2 2003

€ Equities € Yield Curve

19
ALM@work
Reduced Insurance exposure to equities

Shift in asset mix Overall,

• Equity risk has decreased
• Interest rate risk has increased
lower
slightly risk profile
Economic Capital
Economic Capital Economic Capital Fortis
Insurance Pool Bank Pool

Q4 2001
Q4 2002
Q4 2001 Q4 2001
Q4 2002
Q2 2003 Q4 2002
Q2 2003
Q2 2003

€ Equities € Yield Curve € Equities € Yield Curve

€ Equities € Yield Curve TOTAL

20
ALM@work
Insurance guarantees and yields

Due to the EUR 1.2 billion Low Interest Rate Reserve, the
average technical rate of the Profit Sharing policies in
Belgium and The Netherlands is 3.8%

Customer Company

Average Average
Guarantee LIRR Guarantee
4.3 % 3.8 %

•Average book yield on the bond portfolio in Belgium and The

Netherlands is 5.5 %
•Average duration of this bond portfolio is between 8 to 9 years

21
Risks@Fortis

We understand, quantify and manage risks

-16%

Fortis

a Bancinsurance Story

22
 -16%
Logo Page
Fortis

a Bancinsurance Story

23
Annexes ALM@work
Group diversification

Conservative Economic Capital assumptions

Change
Upward shift
140%

120%

Changes Euro yield

100%

80%
curve
60% Twist Euro Equity –50%
40%

Real Estate –28%

20%

0%
1M 3M 6M 1Y 2Y 3Y 4Y 5Y 7Y 10Y 20Y 30Y
USD Forex –35%
-20%

-40%
USD Equity –44%
Inflection
-60%