INTERIM REPORT For the period January - March 2000

INTERIM REPORT For the period January - March 2000* @ Sales increased by 118 per cent, to SEK 59 billion @ Skandia took the number one position during the first quarter in sales of variable annuities in the USA @ The operating result for the core businesses rose 105 per cent, to SEK 2,053 million @ The group's operating result increased by SEK 957 million, to SEK 2,202 million @ Assets under management increased by SEK 124 billion since year-end 1999, to SEK 957 billion Comments by Lars-Eric Petersson, President and CEO: "Skandia's sales successes continue. We are pleased to report twenty consecutive quarters of sales growth. The work on developing the market's best products and continuously strengthening our distribution network is paying off, and we have now been ranked as the world's second-largest unit linked assurance company by the actuarial consulting firm Tillinghast. Our prospects for continued good growth look favourable. "It is not only our sales that we are pleased about, but also a higher profit margin for new unit linked business. This is mainly due to the appreciable economies of scales that we are now seeing from the growing level of assets under management. "In April we received regulatory clearance for the sales of Vesta in Norway and NIG in the UK. The restructuring of the Skandia group into a pure-play savings and asset management company is thereby complete. "The work on integrating the three units included in If P&C Insurance continues with undiminished intensity, although sweeping changes in the board and management of Pohjola have led to a slight delay in the Finnish integration. However, all documents have been submitted to the Finnish Financial Supervision Authority, and swift regulatory approval should be possible." OVERVIEW The operating result for the core businesses more than doubled, to SEK 2,053 million (1,003). The return on net asset value for the core businesses, before tax, was 30 per cent (29 per cent at year-end 1999) on a moving twelve-month basis. Sales for Long-Term Savings increased by 119 per cent. The operating result for Long-Term Savings increased to SEK 1,990 million (855). Assets under management increased by SEK 124 billion (15 per cent) since year-end, to SEK 957 billion. Of this amount, SEK 543 billion consists of assets under external management, relating to Long-Term Savings. The restructuring of the group into a savings and asset management company has entailed the release of investment assets. These funds are now being used to increase investments in core businesses. The investment return decreased to SEK 107 million (191) as a natural consequence of this. The final regulatory clearance was received for the acquisition of 51 per cent of Carlson Investment Management. Skandia has an option to acquire the remaining 49 per cent. The operating result, including P&C insurance, was SEK 2,202 million (1,245), and the return on total net asset value, after tax, was 31 per cent (29 per cent at year-end 1999) on a moving twelve-month basis. In April the required regulatory approval was received for the sales of Vesta Liv and NIG Skandia. As in previous first-quarter interim reports, no expense charge has been taken for ongoing incentive programmes. The charge will instead be made against the half-year interim result. CORE BUSINESSES Long-Term Savings Market and Sales Sales totalled SEK 58,965 million (26,934), an increase of 119 per cent. At constant exchange rates the increase was 107 per cent. Following record growth of 65 per cent in 1999, Skandia became the world's second-largest provider of unit linked assurance, based on a newly released study conducted by the actuarial consulting firm Tillinghast. Sales of unit linked assurance increased by 117 per cent during the first quarter (106 per cent at constant exchange rates). Sales of mutual fund savings products (without an insurance element) also reached new record levels and increased by 147 per cent, to SEK 18,597 million. At constant exchange rates the increase was 133 per cent. Skandia's sales in the USA reached a new record level during the first quarter, rising 111 per cent to USD 4,342 million. Through a 90 per cent increase in sales, to USD 2,723 million, Skandia took the number one spot in the US variable annuities market (measured in terms of sales). Sales of mutual fund savings products increased by 158 per cent, to USD 1,619 million. The growth rate was particularly strong in the financial institutions distribution channel, despite the fact that the recently signed distribution agreements with Merrill Lynch, Morgan Stanley Dean Witter and Salomon Smith Barney have not yet had an effect. The sales success can be credited to a broader product offering and increased distribution capacity, as well as to a favourable return for the funds relative to the indexes. Assets under management increased during the first quarter by 17 per cent, to USD 41 billion. For Skandia's British operations, sales increased strongly in the local market which, together with continued sales successes in markets outside the UK, contributed to a 109 per cent sales increase, to GBP 994 million (476). Sales of unit linked assurance grew by 128 per cent, while sales of mutual fund savings products increased by 68 per cent. New sales of unit linked assurance rose by 121 per cent. In the Swedish market, sales increased by 118 per cent. Growth was strong for unit linked assurance and mutual fund savings products. The strong growth continued in the Italian market, despite greater competition, and sales amounted to SEK 1,442 million (783). In Japan, sales rose 300 per cent, to SEK 190 million (41), due to the launch of a new variable annuity product. The effort to market unit linked assurance in Spain led to a 700 per cent rise in sales, to SEK 878 million. In the German-speaking markets, too, the sales trend was favourable. Sales of traditional life assurance decreased following the divestment of the Norwegian company Vesta Liv and Skandia Liv Denmark. In these countries, as in Spain, a strategic reorientation is taking place, with a focus on greater sales of unit linked assurance products. The life assurance operation in Denmark is now being conducted and developed by the mutual company Skandia Liv. Assets under management increased during the first quarter by SEK 76 billion (15 per cent), to SEK 598 billion, broken down as follows: unit linked assurance SEK 486 billion, mutual fund savings products SEK 97 billion, and life assurance SEK 15 billion. Payments to unit linked policyholders amounted to 7.1 per cent of technical provisions on a moving twelve-month basis (6.9 per cent for the full year 1999). Surrenders accounted for 5.9 percentage points of the total (5.7), which is well within the limits of underlying assumptions. For mutual fund savings products, payments to policyholders through withdrawals from funds amounted to SEK 2,757 million (863), which is also well within the limits of underlying assumptions. Operating Result and Profitability Unit Linked Assurance The operating result for unit linked assurance more than doubled, to SEK 2,102 million (915). The result of new business increased to SEK 801 million (310), which gave a strong improvement in the profit margin, expressed as a percentage of new sales, from 12.3 per cent for the full year 1999 to 16.0 per cent. The strong growth in premiums as well as in assets under management has contributed to economies of scale and thus lower costs and higher margins. Growth in the value of funds under management exceeded underlying assumptions, which also had a positive result impact. The profit recognition of value created by this appreciation is spread out over a three-year period. This is done to better reflect the operation's long- term result and profitability development. The retained equalization amount as per 31 March was SEK 4,148 million, compared with SEK 3,423 million at year-end 1999. Mutual Fund Savings Products For mutual fund savings products, sales increased to SEK 18,597 million (7,517) and withdrawals to SEK 2,757 million (863). In contrast to unit linked assurance business, for mutual fund savings products no present value calculations of anticipated future earnings are made, and acquisition costs are not deferred. We have now reached break-even and achieved a positive result during the first quarter, totalling SEK 19 million (-18). Life Assurance The operating result for life assurance was SEK 21 million (52). Net Asset Value and Return The operating result, after deducting financing costs, increased by 133 per cent to SEK 1,990 million (855). The return on net asset value, after financing costs and taxes, was 27 per cent (14) on a moving twelve-month basis. Asset Management Assets under management, including assets from companies in the Skandia group, external clients, and fund management, increased during the first quarter by SEK 47 billion to SEK 362 billion. The acquisition of Carlson Investment Management added SEK 33 billion in assets under management and some one hundred institutional clients. During the first quarter, some twenty additional institutional assignments were received. Assets under management include SEK 39 billion in managed mutual fund assets, an increase of SEK 10 billion, of which Carlson accounted for SEK 8 billion. Commissions from asset management are partly fixed and partly performance- related, and the latter are determined on an annual basis in arrears. The result amounted to SEK 16 million (22), excluding the performance-related commission. Investment Strategy Skandia's management assignments are based on the clients' choice of investment horizon and risk level, and within these parameters, the goal is to maximize the return on managed assets. Investment Income Investment assets in the parent company amounted to SEK 7 billion after investments in core businesses and repayment of debt. The investment return was SEK 107 million. Businesses SkandiaBanken SkandiaBanken's operating result increased to SEK 29 million (14), mainly due to greater revenue from Internet-based stock trading. SkandiaBanken's business is based on Internet and telephone service. Deposits in SkandiaBanken increased to SEK 12.9 billion. The bank has 331,000 customers. Starting on 27 April 2000, deposit business is also conducted in Norway through a branch office. Lifeline Product development and marketing of the Lifeline concept was intensified during the spring. This entailed, among other things, the launch of a new, unique medical insurance plan - Skandia Preferred Health Care. Development and distribution of products are Lifeline's principal focus. This work is proceeding well. After the end of the first quarter, health care insurance for individuals was introduced. This product met a favourable response in the Swedish market. Lifeline's result improved to SEK 10 million (6). Skandia Marketing Ltd. Skandia Marketing distributes savings and insurance products for Skandia and If in the Swedish and Danish markets. Business is developing well, and the result improved to SEK 18 million (10). During the year the company will be conducting a campaign to market financial services to individuals. Other Companies The operating result for other companies, including finance companies that are being wound up, was SEK -6 million (-11). Group Expenses Group expenses comprise management and structural costs, as well as goodwill amortization. At the Annual General Meeting on 5 April 2000, a stock option programme was established, which takes effect on 15 May 2000. The start price for this year's grant from the programme will be the average price of Skandia shares during the week of 8-12 May. The existing incentive programmes have been extended by the Board until the stock option programme takes effect. The cost of these programmes - a performance-based programme in Long-Term Savings, the 1997-99 incentive programme for senior executives, and Skandianen - will be reported in the half-year interim result. Exchange Rate Effects Exchange rate movements had a positive impact during the period. Sales for Long-Term Savings increased by 12 per cent and the operating result for the group increased by 8 per cent after recalculation to higher average exchange rates compared with the preceding year. PROPERTY & CASUALTY INSURANCE The formation of If P&C Insurance is taking place in a number of projects, which are proceeding according to plan. The property & casualty insurance market remains highly competitive, which, as in 1999, had an adverse effect on the technical result. However, compared with the full year 1999, the combined ratio decreased. Operating expenses are developing according to plan. The operating result for property & casualty insurance amounted to SEK 149 million (242), corresponding to 42 per cent of If's result. BALANCE SHEET AND NET ASSET VALUE Total assets increased by SEK 58.5 billion compared with year-end 1999, to SEK 547.0 billion. Long-Term Savings accounted for an increase of SEK 54.7 billion. External borrowings increased by SEK 1.8 billion to SEK 10.8 billion, excluding the parent company's subordinated loans. Net asset value amounted to SEK 30,776 million (SEK 29,220 million at year-end 1999). Capital employed in the group, which in addition to net asset value consists of borrowings to finance investments in subsidiaries, amounted to SEK 40.1 billion (37.5). Of these funds, SEK 26.7 billion (23.5) pertains to Long-Term Savings, while SEK 6.6 billion pertains to the financing of Skandia's share of the P&C insurance operations in If. Stockholm, 8 May 2000 Lars-Eric Petersson President and CEO For questions, please call: Ulf Spång, Chief Financial Officer, tel. +46-8-788 2905 Harry Vos, Head of Group Business Control, tel. +46-8-788 3643 Financial calendar for Skandia: 9 August, interim report January-June 2000 1 November, interim report January-September 2000 A capital market day will be held in New York on 11 May. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/05/08/20000508BIT00040/bit0001.doc http://www.bit.se/bitonline/2000/05/08/20000508BIT00040/bit0002.pdf