Interim report for the period January - September 2000

INTERIM REPORT For the period January - September 2000* * Sales increased by 62 per cent, to SEK 154 billion * The operating result for the core businesses rose by 45 per cent, to SEK 5,309 million * The group's operating result increased by SEK 1,498 million, to SEK 5,423 million * Assets under management increased by 24 per cent and passed SEK 1,000 billion Comments by Lars-Eric Petersson, President and CEO: nd "Skandia continues to grow sales for the 22 consecutive quarter. Skandia's sales benefit over the long term from the underlying demographic trend. Sales in the near term can be affected by legislative changes and turbulence and uncertainty in the world's stock markets, among other things. During the first quarter of the year these near-term influences had a positive impact on sales, while a slowdown effect on sales growth could be noticed during the second and third quarters. Having said that, the sales increase during the third quarter was strong, with an increase of 32 percent compared with the same quarter last year. "Our core businesses continue to show steady result improvement. In order to further enhance sales in the American market, the number of wholesalers has been expanded since mid-year by 16, to 102 today. At the same time, new products have been introduced to the market. "The result trend, along with the launch of new products and the continued build-up of our distribution power, bodes well for the future." OVERVIEW The operating result for the core businesses increased to SEK 5,309 million (3,651). The return on net asset value for the core businesses, before tax, was 29 per cent on a moving twelve-month basis (29 per cent for the full year 1999). Sales for Long-Term Savings rose 63 per cent, to SEK 152,307 million (93,551). The operating result for Long-Term Savings more than doubled, to SEK 5,654 million (2,653). Assets under management increased by SEK 203 billion (24 per cent) since the start of the year, to SEK 1,036 billion. Of this amount, SEK 624 billion consists of assets under external management. The group's operating result amounted to SEK 5,423 million (3,925), and the return on the group's adjusted net asset value, after tax, was 28 per cent on a moving twelve-month basis (24 per cent for the full year 1999). CORE BUSINESSES Long-Term Savings Market and Sales Sales rose 63 per cent, to SEK 152,307 million (93,551). At constant exchange rates the increase was 55 per cent. Essentially all markets reported record sales, which more than doubled in many cases. Skandia's goal is to broaden operations geographically and thereby reduce its dependence on individual markets. Sales of unit linked assurance rose 65 per cent (57 per cent at constant exchange rates) during the first nine months of the year. New sales increased by 74 per cent (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). Sales of mutual fund savings products (without an insurance element) rose 67 per cent (58 per cent at constant exchange rates), to SEK 42,818 million (25,714). Payments to customers through withdrawals from mutual fund savings products amounted to SEK 8,816 million (3,156). Withdrawals were below underlying assumptions. USA Skandia's sales during the first nine months of the year rose 41 per cent, to USD 10,167 million. Sales of variable annuities rose 38 per cent, to USD 6,864 million, while sales of mutual fund savings products rose 47 per cent, to USD 3,303 million. Sales were affected during the third quarter by adverse market conditions which favour guaranteed products, which are only included in American Skandia's product offering to a limited extent. Assets under management increased during the first nine months of the year by 17 per cent, to USD 40 billion. UK The British operation doubled its sales to GBP 3,044 million (1,462). Unit linked sales rose 111 per cent, while sales of mutual fund savings products increased by 101 per cent. New sales of unit linked assurance rose 103 per cent. Skandia Life's share of the group's total sales rose during the third quarter to 31 per cent, compared with 21 per cent for the full year 1999. Assets under management increased during the first nine months of the year by 25 per cent, to GBP 13 billion. Sweden Sales increased by 94 per cent, to SEK 8,056 million (4,150). Growth was strong for both unit linked assurance and mutual fund savings products. New sales of unit linked assurance rose 122 per cent. Assets under management increased during the first nine months of the year by 24 per cent, to SEK 39 billion. New Markets In Germany, sales rose 102 per cent in local currency, to SEK 900 million. The unit linked market is growing fast, and unit linked assurance now accounts for more than 20 per cent of the total life market, compared with 5 per cent five years ago. Changes in the tax code in Germany are expected to contribute to greater sales of equity-related savings products. In Japan, sales rose 272 per cent in local currency, to SEK 649 million (148). The increase is mainly attributable to the launch of a new, single- premium variable annuity product. Following last year's record-fast growth in Italy, the trend in the stock markets and uncertainty about future legislation have led to a 7 per cent decline in sales in local currency, to SEK 3,554 million. In Spain, sales of unit linked assurance rose 41 per cent in local currency, to SEK 2,063 million. Sales of traditional life assurance in Spain are decreasing as a result of a shift in focus towards unit linked assurance products. Assets Under Management Assets under management have increased since the start of the year by 29 per cent, to SEK 673 billion, broken down as follows: unit linked assurance SEK 544 billion, mutual fund savings products SEK 114 billion, and life assurance SEK 15 billion. Payments to Policyholders Payments to unit linked policyholders on a moving twelve-month basis amounted to 8.2 per cent of technical provisions (6.9 per cent at the start of the year). Surrenders accounted for 6.9 percentage points of this total (5.7), which is 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 5,572 million (2,633). Costs for asset management and surrenders were lower than underlying assumptions, which had a positive result impact. The result for new business increased by 68 per cent to SEK 1,912 million (1,138), corresponding to a profit margin, expressed as a percentage of new sales, of 13.3 per cent, compared with 12.3 per cent for the full year 1999. The assumptions for calculating the result of new business are not changed during the year. Consequently, changes in the profit margin from one quarter to another are not a reflection of changes in product prices. The development of the profit margin in individual markets is explained entirely by costs in relation to sales volume, which leads to greater or lower economies of scale. The cost trend follows sales volume with a time- lag. The decrease in the profit margin from 14.3 per cent at mid-year to 13.3 per cent as per 30 September 2000 is attributable to lower economies of scale. In the USA, the profit margin is at the same level as for the full year 1999, 17.7 per cent. The decrease during the third quarter is explained by a higher level of costs in relation to sales volume, which has a negative impact on the net margin in the short term. Measures have already been implemented to reduce the cost level and simultaneously increase efficiency. The profit margin for new sales improved in the UK and Sweden due to the rise in sales. The accumulated growth in the value of funds under management in excess of underlying assumptions is spread out over a three-year period. This is done to better reflect the operation's long-term result and profitability development. The accumulated equalization amount as per 30 September was SEK 789 million, compared with SEK 3,423 million at the start of the year. This decrease corresponds to the linear amortization of earlier provisions and the growth in value during the period in relation to underlying long- term assumptions. Mutual Funds Operations reached break-even during the first quarter of 2000, and the result for the period amounted to SEK 53 million (-91). Life Assurance The operating result for life assurance was SEK 29 million (111). Net Asset Value and Return The operating result, after deducting financing costs, rose 113 per cent to SEK 5,654 million (2,653). The return on net asset value, after financing costs and taxes, was 32 per cent (17) on a moving twelve-month basis. Asset Management Assets under management, consisting of assets from companies in the Skandia group, external clients, and fund management, have increased since the start of the year by SEK 47 billion to SEK 363 billion. Assets under management include SEK 41 billion in managed mutual fund assets, an increase of SEK 12 billion since the start of the year. 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 78 million (75) after interest expenses and goodwill amortization. In September the remaining, outstanding 49 per cent of Carlson Investment Management was acquired. Investment Income Investment assets in the parent company amounted to SEK 4.2 billion. The return on these assets was 7.9 per cent, or SEK 332 million. Businesses SkandiaBanken SkandiaBanken's operating result was SEK 59 million (80). The result was affected by higher costs for investments in a new stock trading system and start-up costs in Norway. Internet-based stock trading and fund commissions developed well. Deposits in SkandiaBanken increased to SEK 14.8 billion. The bank has a total of 370,000 customers, an increase of 50,000 during the year. Lifeline Lifeline sells products in the areas of health and medical care, group insurance, and competence insurance. Operations are developing favourably, and interest in Lifeline's products is great. Lifeline's result increased to SEK 39 million (30). 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 increased to SEK 59 million (57). Other Companies The operating result for other companies, including finance companies that are being wound up, was SEK 40 million (23). Group Expenses Group expenses comprise management and structural costs, as well as goodwill amortization. Exchange Rate Effects Exchange rate movements had a positive impact during the period. Sales for Long-Term Savings increased by SEK 7,588 million, and the operating result for the group increased by SEK 262 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. Skandia's share of If's operating result amounted to SEK -200 million (447). The combined ratio has improved gradually during the year, to 109.9 per cent. The sale of Vesta Skadeforsikring entailed payment of a dividend by If to Skandia, totalling SEK 1.9 billion. After receipt of this dividend, Skandia's equity share in the property & casualty operations of If amounts to SEK 4.5 billion. BALANCE SHEET AND NET ASSET VALUE Total assets increased by SEK 109.3 billion compared with the start of the year, to SEK 597.8 billion. Long-Term Savings accounted for an increase of SEK 113.1 billion. External borrowings decreased by SEK 1.1 billion to SEK 7.9 billion, excluding the parent company's subordinated loans. Net asset value amounted to SEK 33,873 million (SEK 29,220 million at the start of the year). Capital employed in the group, which in addition to net asset value consists of borrowings to finance investments in subsidiaries, amounted to SEK 42.4 billion (37.5). Of these funds, SEK 33.9 billion (23.5) pertains to Long-Term Savings, while SEK 4.5 billion pertains to the financing of Skandia's share of the P&C insurance operations in If. Stockholm, 1 November 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 Investor Relations, tel. +46-8-788 3643 Financial calendar for Skandia: 10 November 2000, October sales 11 December 2000, November sales 19 January 2001, December sales 14 February 2001, year-end report for 2000 27 March 2001, Annual General Meeting ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/11/01/20001031BIT01560/bit0001.doc The full report http://www.bit.se/bitonline/2000/11/01/20001031BIT01560/bit0002.pdf The full report