Interim Report for the period January - March 2001

INTERIM REPORT for the period January - March 2001*) * Sales decreased by 37 per cent, to SEK 39 billion * New sales of unit linked assurance outside the USA rose by 11 per cent * Stabilization of sales in the USA since start of year * The operating result for the core businesses was SEK -2,543 million * The group's operating result was SEK -2,988 million * Assets under management decreased by 2 per cent, to SEK 973 billion Comments by Lars-Eric Petersson, President and CEO: "We now have more than twelve months of falling stock markets behind us. It is the longest, unbroken decline in a very long time. Companies in the financial services sector that do business in stock-related savings products face a particularly difficult challenge in this type of business climate. "Skandia is no exception. During the first quarter of 2001 we experienced a substantial drop in sales in the USA, while on the whole, the rest of our markets have maintained sales on a comparable level with last year. In certain markets we have even exceeded last year's sales. "Product development is just as important in a declining market as it is in a rising market. At Skandia we have therefore continued our tireless efforts on developing new products for our various markets, not least in the USA. "In difficult times, business concepts and organizations are put to the test. With its global business concept, Skandia today is well-equipped to meet the future." OVERVIEW The operating result for the core businesses amounted to SEK -2,543 million (2,053). Skandia conducts long-term savings business in which fund growth is assumed to be six per cent per year during the term of contracts in force. In the near term the result is affected - positively as well as negatively - if the trend in the stock market deviates from this assumption. During the first quarter, the stock indexes that are relevant for Skandia decreased by 17.5 per cent, compared with an assumed rise of 1.5 per cent. The trend during the first quarter of 2000 was the exact opposite. The result decline therefore is mainly attributable to financial effects arising due to the difference between the stock market decline during the first quarter and the stock market rise a year earlier. Since 1998 the reported combined financial effect has been SEK 33 million, which indicates that, on the whole, Skandia's assumptions during this period were reasonable. The return on net asset value for the core businesses, before tax, was 4 per cent on a moving twelve-month basis (21 per cent for the full year 2000). Sales of unit linked assurance decreased by 36 per cent, to SEK 26 billion (40), mainly due to a drop in single-premium policies in the USA. Outside the USA, new sales increased due to strong development for annual-premium policies. The decline in total new sales for the group was thereby limited to 18 per cent. Sales of single-premium unit linked assurance policies and lump-sum payments into mutual fund savings products were affected the most by the stock market climate. Sales of mutual fund savings products fell by 42 per cent, to SEK 11 billion (19). Despite the continued stock market decline, sales of mutual fund savings products during the last three quarters have remained more or less on the same level. The stock market decline also had an impact on assets under management. Assets have decreased by 2 per cent since the start of the year, to SEK 973 billion. During the last twelve-month period, assets under management increased by 2 per cent. The group's operating result amounted to SEK -2,988 million (2,202), and the return on the group's adjusted net asset value, after tax, was 9 per cent on a moving twelve-month basis (21 per cent for the full year 2000). INSURANCE AND SAVINGS PRODUCTS Market and Sales Unit Linked Assurance Skandia's goal is to expand operations geographically and thereby reduce the risk of dependence on individual markets. This is demonstrated by the increase in new sales, which rose by 11 per cent during the first quarter outside the USA (new sales defined by the industry-wide definition as periodic premiums recalculated to full-year figures plus 1/10 of single premiums during the period). Due to a focus on pension products, new sales with annual premium increased by 50 per cent. In terms of new sales, the markets in the USA, the UK and Sweden were equally as large, while new markets accounted for 14 per cent of total. Sales in the USA consist primarily of single-premium variable annuities, which were strongly affected by the decline in the stock market and the US economy. Compared with the first quarter of 2000, when the stock exchanges in the USA climbed to all-time highs, sales decreased by 60 per cent, to USD 1,103 million (2,723). Compared with the final quarter of 2000, sales stabilized and are judged to have performed in line with the market in general. A number of new products were launched during the first quarter. The British operation's new sales increased by 3 per cent in local currency due to strong development primarily for annual-premium pension products. Sales in the form of paid-in premiums decreased by 12 per cent, to GBP 653 million (742), due to a decline in sales of single- premium policies. During the first quarter a new product was introduced, Skandia Protect, which has been well-received by the market and is judged to have good prospects for future sales success. New sales in Sweden rose 20 per cent, thanks to successful sales of pension products - mainly in the collectively bargained pensions segment. Sales measured in terms of paid-in premiums increased by 18 per cent, to SEK 3,242 million (2,748). In New Markets, new sales rose by 10 per cent. However, sales in the form of paid-in premiums decreased by 30 per cent, to SEK 2,548 million. This is due to the impact of the stock market decline on single-premium products, at the same time that sales of products with annual premium increased. In Germany, new sales rose 92 per cent in local currency. Sales measured in terms of paid-in premiums rose 22 per cent in local currency, to SEK 370 million. The unit linked market is capturing an ever-greater share of the life assurance market, and changes in tax legislation are expected to further contribute to greater sales of equity-related savings products. Skandia's sales success is continuing in Japan, as evidenced by a 56 per cent rise in paid-in premiums in local currency, to SEK 304 million (190). Following a period of record-fast growth in Italy, sales have now stabilized at a lower level due to the trend in the stock market and changes in tax legislation. Sales decreased by 61 per cent in local currency, to SEK 602 million. Growth remained strong in Austria, Mexico and Switzerland. Assets under management decreased by 4 per cent, to SEK 482 billion. Payments to policyholders for the full year 2000 amounted to 9.5 per cent of assets under management at the start of the year. The corresponding figure on a moving twelve-month basis was 9.0 per cent as per 31 March 2001. Surrenders accounted for 7.5 percentage points of this total, compared with 8.0 percentage points in 2000. Mutual Fund Savings Products Sales of mutual fund savings products (without an insurance element) were strongly affected by the stock market decline, falling 42 per cent to SEK 11,001 million. This can be compared with sales of SEK 18,837 million during the first quarter of 2000. Sales volume during the last three quarters has been at an average level of just over SEK 10 billion. Sales in the USA decreased by 54 per cent, to USD 751 million, and sales in the UK fell by 34 per cent, to GBP 166 million. However, sales in the USA rose by 14 per cent compared with the fourth quarter of 2000. This can be credited to a greater product offering and an increase in the number of funds. Net inflows amounted to USD 359 million. Switzerland and Germany are showing strong growth in sales volumes, while sales in Sweden decreased. Payments to customers have increased, but are well within underlying assumptions, and amounted to SEK 6,514 million (3,020). This, together with the decline in the stock markets, entailed that assets under management remained unchanged since the start of the year, at SEK 99 billion. Operating Result and Profitability Unit Linked Assurance The operating result amounted to SEK -2,470 million (1,951). The result decline is attributable to strongly negative financial effects, compared with strongly positive financial effects during the first quarter of 2000. As described in the sensitivity analysis presented in the 2000 Annual Report, a one per cent change in the stock market affects the operating result by SEK 176 million. During the first quarter, the indexes that are relevant for Skandia fell by 17.5 per cent, compared with an assumption of 1.5 per cent fund growth. This hurt the result by SEK -3,347 million, compared with earnings of SEK 519 million during the first quarter of 2000. The result for new business decreased by 51 per cent, to SEK 395 million (801), which is entirely attributable to lower sales volumes combined with rising costs in the US operation. Based on the volume of new sales during the first quarter, a profit margin of 12.1 per cent is required for the group as a whole during the period in order to be able to achieve a level of profitability that meets the group's required rate of return of 13 per cent after tax. During the first quarter the profit margin was 9.6 per cent, compared with 14.2 per cent for the full year and with otherwise comparable assumptions. The cost overrun in the USA, amounting to slightly more than USD 20 million (in relation to the cost assumptions in the product calculations), had a negative impact of 5.1 per cent on the profit margin. Cost-cutting measures have been implemented, which will reduce the level of expenses in the US operation by USD 38 million on a yearly basis, starting in the second quarter of 2001. The result for new business in the UK rose by 25 per cent, to SEK 150 million. The profit margin, 11.0 per cent, was lower than for the full- year 2000. This is explained by a necessary adjustment of the organization's size to the current sales volume and to a slightly changed product mix. In Sweden, the result for new business rose by 186 per cent to SEK 146 million. The higher profit margin, 14.3 per cent, compared with 12.5 per cent for the full year 2000, can be credited to higher volumes and a favourable product mix. In New Markets, the profit margin improved to 15.9 per cent due to higher new sales combined with greater economies of scale. Mutual Fund Savings Products Operations are at break-even and showed a positive result after investments in infrastructure and new product development. The result amounted to SEK 13 million (19). Life Assurance The result for life assurance was SEK 34 million (20). Return on Net Asset Value The return on adjusted net asset value for insurance and savings products, after financing costs and taxes, was 2 per cent (27) on a moving twelve-month basis. The return before financial effects was 11 per cent (27). Asset Management Assets under management, consisting of assets from companies in the Skandia group, external clients, and fund management, decreased during the first quarter by SEK 2 billion, to SEK 358 billion. Assets under management include SEK 35 billion in managed mutual fund assets, a decrease of SEK 2 billion since the start of the year. During the first quarter Skandia Asset Management received additional discretionary management assignments. Commissions from asset management are partly fixed and partly performance-related, the latter being ultimately determined in proportion to the achieved annual return. The result amounted to SEK 2 million (16) after interest expenses and goodwill amortization. Investment Income Investment assets in the parent company amounted to SEK 4.0 billion. The return on these assets was -1.0 per cent, or SEK -21 million. Businesses SkandiaBanken SkandiaBanken's operating result was SEK 9 million (29). The result was charged with costs for IT infrastructure and stepped-up marketing in connection with establishment in new markets. Deposits in SkandiaBanken increased to SEK 23.0 billion. The bank has a total of 483,000 customers, an increase of 21 per cent since the start of the year. Netline Netline provides products in the areas of Health Care, Group Insurance, Pension Administration and Knowledge Management. The result was charged with product development costs and consequently decreased to SEK -13 million (10). The year-earlier result pertains to Lifeline, which is now part of Netline. Skandia Marketing Ltd. Skandia Marketing distributes savings and insurance products for Skandia and If in the Swedish and Danish markets. Business is developing well, however, the result was unchanged, at SEK 18 million (18). The result includes costs for investments in expansion of operations. Other Companies The operating result for other companies in the group was SEK -18 million (-6). Group Expenses Group expenses comprise management and structural costs, and goodwill amortization. Exchange Rate Effects Sales increased by SEK 2,654 million, and the operating result for the group decreased by SEK 304 million after recalculation to higher average exchange rates compared with the preceding year. PROPERTY & CASUALTY INSURANCE Skandia owns 56 per cent of the Nordic property and casualty insurance company If. Since If will be reporting its first-quarter results on 9 May, Skandia estimates that its share of If's result will amount to SEK -445 million (149). The stock market decline had a negative impact on the result, while cash flow developed favourably during the period. BALANCE SHEET AND NET ASSET VALUE Total assets decreased by SEK 10.6 billion, compared with year-end 2000, to SEK 587.6 billion. Unit linked assurance and mutual fund savings products accounted for a decrease of SEK 19.3 billion. External borrowings increased by SEK 0.6 billion, to SEK 8.3 billion, excluding the parent company's subordinated loans. Liquidity and the group's financing ability are good. The group's debt-equity ratio, calculated in accordance with the guidelines of the credit rating institutions, was 19 per cent, which is level with the past four years. Net asset value amounted to SEK 35,771 million (SEK 37,031 million at year-end 2000). Capital employed in the group, which in addition to net asset value consists of borrowings to finance investments in subsidiaries, amounted to SEK 45.1 billion (45.6). Of these funds, SEK 41.0 billion (41.4) pertains to the core businesses, while SEK 4.1 billion pertains to the financing of Skandia's share of the P&C insurance operations in If. Stockholm, 27 April 2001 Lars-Eric Petersson President and CEO For questions, please contact: Ulf Spång, Chief Financial Officer, tel. +46-8-788 2905 Harry Vos, Head of Investor Relations, tel. +46-8-788 3643 This interim report has been prepared in conformity with the guidelines of the Swedish Financial Supervisory Authority and Recommendation RR20 of the Swedish Financial Accounting Standards Council. The interim report has been prepared in accordance with the same principles as in the 2000 Annual Report. Financial calendar for Skandia: 16 May 2001, April sales release 13 June 2001, May sales release 24 July 2001, June sales release 8 August 2001, interim report January-June 2001 1 November 2001, interim report January-September 2001 Skandia's published financial reports are available on the Internet: www.skandia.com and www.skandia.se. Skandia's websites also provide links to the audiocast of the teleconference on Friday, 27 April 2001. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/04/27/20010426BIT02700/bit0001.doc http://www.bit.se/bitonline/2001/04/27/20010426BIT02700/bit0002.pdf