An overview

Net profit attributable to shareholders reached EUR 4.0 billion, 8% lower than in 2006 and including a realised capital gain of EUR 947 million on the sale of CaiFor. We applied a prudent approach, using stringent assumptions, and took an impairment of EUR 2.4 billion pre-tax on our super senior subprime CDO exposure, which mainly impacted the Banking segment result.

Revenue

Total income at Banking climbed 10% to EUR 11.2 billion, with more than half the increase coming from the rise in net interest income and net commissions and fees and the rest from capital gains and the ABN AMRO businesses acquired.

At Insurance, total gross inflow grew by 9% to EUR 18.7 billion. Life advanced 9% to EUR 13.2 billion, thanks to robust growth of bancassurance sales and the inclusion of the newly acquired Hong Kong life insurance business. Non-Life gross written premiums increased by 9% to EUR 5.5 billion, based on sound margins and driven by product innovation across all countries.

Efficiency

Total expenses at Banking went up 12% to EUR 6,928 million in 2007. Two-thirds of this growth was fuelled by business developments at Merchant & Private Banking while the remainder stemmed from Retail Banking and Asset Management. Various investments in growth accounted for 6%, while underlying cost growth was 4%. The cost/income ratio for 2007 stood at 61.9%.

At Insurance, our continued drive to enhance efficiency improved the expense ratios, with the 5% increase in operating costs being offset by 9% premium growth. Strict cost control programmes compensated for start-up costs of new product-market combinations in Europe. The effects of Windstorm Kyrill and floods in the UK and, to a lesser extent, of global capital markets almost halved the technical result to EUR 319 million (down 44%), with the combined ratio amounting to 100%. Excluding the natural disasters, the combined ratio remained at 95.7% versus 96.1% in 2006.

Credit quality

The change in provisions for impairments reached EUR 2.8 billion in 2007, mainly due to the impairments we took on US subprime-related investments (EUR 2.7 billion) at Banking. Fortis applied a prudent approach to impairments, using strict assumptions on the super senior CDO portfolio with subprime exposure. The credit loss ratio – calculated as a percentage of average credit risk-weighted commitments – came in at 116 basis points. Excluding the subprime super senior CDO-related impairments, the overall credit loss ratio arrived at 5 basis points, reflecting strong overall credit quality. Adjusting for the change in IBNR methodology, the credit loss ratio stood at 13 basis points, in line with earlier guidance and still well below the cross-cycle credit loss ratio of around 25 basis points.

Solvency

The amount of our core equity above target increased by EUR 4.4 billion from EUR 1.8 billion to EUR 6.2 billion at year-end 2007. The Tier 1 ratio strengthened from 7.1% to 9.5%, and the core equity ratio improved from 6.0% to 8.6%. The total capital ratio decreased to 10.1% from 11.1% at year-end 2006. Fortis Insurance’s core equity ratio and total solvency ratio declined from 233.5% to 209.2% and from 269.3% to 235.1% respectively. Both ratios are still well above the respective targets of 175% and 225% of the required minimum.

Contribution of ABN AMRO

Net underlying profit of the acquired ABN AMRO activities, excluding a number of one-offs and integration costs, amounted to EUR 1,355 million in 2007, up 17% from EUR 1,158 million in 2006. The ABN AMRO activities acquired in mid-October 2007 contributed EUR 179 million to Fortis’s net profit.