Interim Report for the period January - September 2001

INTERIM REPORT For the period January - September 2001*) · Sales amounted to SEK 107 billion (158) · New sales of unit linked assurance decreased by 19 per cent · New sales outside the USA increased by 2 per cent · The operating result for the core businesses before financial effects was SEK 2,746 million (4,149) · The operating result as per September was SEK -5,701 million (5,423) · Assets under management decreased by 5 per cent, to SEK 939 billion, compared with the start of the year Comments by Lars-Eric Petersson, President and CEO: The continued decline in the world's stock markets and the tragic events in New York on September 11 are having a significant impact on the insurance industry: many reinsurance and insurance companies, which offer property insurance, face massive claims. Skandia has no such liabilities. Nevertheless, the disruption of the markets and the subsequent loss of confidence, especially in the USA, has affected Skandia's sales and assets under management, as it has affected many other financial services companies. However, the global spread of Skandia's sales has insulated the company from the worst effects of the rapid decline in the U.S. market. New sales in our key product segment, unit linked assurance, have decreased by only 19 per cent compared with last year, which was Skandia's best sales year ever. In markets outside the USA, sales have risen by 2 per cent. Our rapid-response business model is our strength in turbulent times. We have launched new products especially in the USA and established new sales outlets in a number of markets. We have made substantial product investments ahead of additional launches slated for the rest of the year. All this, together with a positive result for the ongoing activities, means that the group's shareholders' equity and net asset value have increased compared with a year ago. The ongoing process of refining our business activities, product development and distribution strength creates solid opportunities for the future. OVERVIEW The group's operating result was SEK -5,701 million (5,423), and the return on the group's adjusted net asset value, after tax, was -4 per cent on a moving twelve-month basis (21 per cent for the full year 2000). The stock market decline during the first nine months of the year, and especially during the third quarter, has had a negative impact on sales, assets under management and the result. In addition, the stock markets in the USA were closed for nearly a week in September, which entailed that no trading was conducted in funds containing American stocks. Trading volume was low even after the markets reopened. Investment of unit linked assurance capital is determined by the policyholders. Therefore, Skandia has no direct investment or market risk. Since contracts in force span long periods of time, sharp swings in the financial markets during a short period of time affect the present value of future fees. As a consequence of this, the negative financial effects on the result amounted to SEK -7.4 billion (+1.2), of which SEK -4.3 billion arose during the third quarter. Sales of single-premium products have been affected the most by the stock market climate. Sales of unit linked assurance decreased during the first nine months of the year by 34 per cent, to SEK 72 billion (109). However, new sales decreased by only 19 per cent, due to strong development for annual-premium products. Outside the USA new sales rose 2 per cent. Sales of mutual fund savings products decreased to SEK 28 billion (44). The result for newly written unit linked assurance business decreased to SEK 1,112 million (1,912). The profit margin was negatively affected, as lower volumes give rise to poorer cost coverage. This entails continuous adaptation of cost levels. At the same time, product development is being further intensified. For the core businesses, the operating result before financial effects was SEK 2,746 million (4,149) and the return on net asset value before taxes and financial effects was 14 per cent on a moving twelve-month basis (20 per cent for the full year 2000). Skandia's share of If's result amounted to SEK -1,015 million (-200). The decline is attributable to a poorer investment return. Despite the stock market decline, assets under management decreased by only 5 per cent since the start of the year due to a positive net inflow. Assets amounted to SEK 939 billion (SEK 992 billion at year-end 2000). The group's net asset value increased by 3 per cent during the last twelve months, and shareholders' equity increased by 7 per cent. INSURANCE AND SAVINGS PRODUCTS Market and Sales Unit Linked Assurance The impact of trends in individual markets is reduced through geographical diversification. New sales during the first nine months of the year rose by 2 per cent 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 the focus on pension products, new sales of annual-premium products increased by 28 per cent. Measured in terms of new sales, the markets in the USA, the UK and Sweden each represent between 24 and 33 per cent of total, and New Markets increased from 10 per cent to 14 per cent of total. Sales in the USA consist mainly of single-premium variable annuities, which have been strongly affected by the stock market decline. New sales decreased by 55 per cent in local currency. New products were successfully launched during the period. In the UK, new sales decreased by 14 per cent in local currency. However, a 34 per cent drop in sales of single-premium policies was offset in large part by a 27 per cent rise in sales of annual-premium policies - mainly pension plans. New sales in Sweden rose 9 per cent, thanks to successful sales of pension products - mainly in the collectively bargained pensions segment. In New Markets, new sales rose 13 per cent. In Germany, new sales rose 51 per cent in local currency at the same time that the market position is strengthening. A number of new distribution agreements have been signed. Skandia's sales success is continuing in Japan, as evidenced by a 53 per cent rise in new sales, among other things. Sales in Italy and Denmark were hurt by the turbulence in the stock markets, however, sales rose in both Austria and Switzerland. Sales in Spain showed a recovery during the third quarter. Assets under management decreased by 8 per cent from the start of the year, to SEK 460 billion. Payments to policyholders are well within underlying assumptions and amounted to 9.5 per cent in the preceding year, expressed as a percentage of assets under management at the start of the year. The corresponding figure expressed on a moving twelve-month basis was 8.7 per cent as per 30 September 2001. Surrenders accounted for 7.4 percentage points of this total, compared with 8.0 percentage points in 2000. Mutual Fund Savings Products Sales were strongly affected by the stock market decline and decreased to SEK 27,856 million (43,509). Sales totalled USD 1,666 million (3,303) in the USA and GBP 440 million (762) in the UK. Net inflows amounted to SEK 10,957 million and continued to be positive during the third quarter, totalling SEK 1,783 million. Germany continues to show strong growth in sales volumes. Assets under management have decreased during the year by only 3 per cent, despite a decline of 12 per cent during the third quarter to SEK 105 billion. Operating Result and Profitability Unit Linked Assurance Investment of unit linked assurance capital is determined by the policyholders. Therefore, Skandia has no direct investment or market risk. Since contracts in force span long periods of time, sharp swings in the financial markets during a short period of time affect the present value of future fees. The sensitivity analysis presented in the half-year interim report shows that a one per cent increase or decrease in the stock market affects the result by +/- SEK 213 million, respectively. The negative trend in the stock markets during the first half of the year entailed that the trend for the indexes that are relevant for Skandia amounted to minus 15 per cent, compared with assumed fund growth of 3.0 per cent. The negative trend for the stock indexes that are relevant for Skandia was 19 per cent during the third quarter, compared with assumed fund growth of 1.5 per cent. As a result of this, the negative financial effects amounted to SEK -7.4 billion (+1.2), of which SEK -4.3 billion arose during the third quarter. The negative financial effects on the operating result are primarily caused by the impact of the stock market trend on the present value of future fees compared with Skandia's fund growth assumption of approximately 6 per cent per year. However, the unit linked assurance operation is long-term, and therefore the result effect described above will be permanent only under the condition that the stock markets do not recover. The operating result before financial effects was SEK 2,962 million (4,412) for the first nine months of the year. The result was indirectly affected by the stock market decline through lower sales volumes. The result for new business during the year thereby decreased to SEK 1,112 million (1,912), but the profit margin was also negatively affected. Lower volumes give rise to poorer cost coverage, which explains the margin decline from 10.0 per cent during the first half of the year to 9.6 per cent during the first nine months of the year. In a number of markets, measures are being taken to adjust the cost level and thereby improve profit margins. The outcome compared with operative assumptions and the change in operative assumptions decreased somewhat on the whole during the third quarter. An improvement in surrenders was offset by, among other things, a poorer outcome concerning the mortality assumptions. Over time these result items should not have any material impact on the operating result. Mutual Fund Savings Products The negative result trend is attributable to a decrease in assets under management during the third quarter following the stock market decline and substantial investments in infrastructure and new product development. The result was SEK -10 million (53). Life Assurance The result was SEK 86 million (29). Return on Net Asset Value, Insurance and Savings Products The return on adjusted net asset value, before financial effects and after standard tax, was 13 per cent (22) 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, amounted to SEK 341 billion (SEK 361 billion at year-end 2000). Assets under management include SEK 36 billion in managed mutual fund assets (SEK 37 billion at year-end 2000). Skandia Asset Management shows good growth in 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 66 million (78) after interest expenses and goodwill amortization. Investment Income Investment assets in the parent company amounted to SEK 3.4 billion. The return on these assets was SEK 16 million (332). Businesses SkandiaBanken SkandiaBanken's operating result was SEK 33 million (59). 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 28.8 billion. The bank has a total of 575,000 customers, an increase of 44 per cent since the start of the year, including 30,000 customers from the acquisition of Din Bank AS in Denmark. The number of online customers has risen by 103 per cent, to 290,000. Skandia Netline Skandia 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 decreased to SEK -2 million (39). Skandia Marketing Skandia Marketing distributes savings and insurance products for Skandia and If in the Swedish, Danish and Norwegian markets. The result amounted to SEK 22 million (59) and was charged with costs for investments in the operation's expansion, primarily in Norway. Other Companies The operating result for other companies in the group was SEK -96 million (17). The result was charged with approximately SEK 120 million in development costs for the banking operation in Switzerland, which was granted a licence in July. Group Expenses Group expenses comprise management and structural costs, and goodwill amortization. Exchange Rate Effects After recalculation to higher average exchange rates compared with the preceding year, sales increased by SEK 10,298 million, and the operating result for the group decreased by SEK 715 million. Total assets have increased by SEK 52 billion since the start of the year. PROPERTY & CASUALTY INSURANCE Skandia owns 56 per cent of the Nordic property and casualty insurance company If. Skandia's share of If's result was SEK -1,015 million (- 200). Investment income was negatively affected by the continued decline in the stock markets. Cash flow has developed favourably, while the technical result deteriorated during the third quarter, mainly due to a higher claims frequency. During the second quarter it was announced that an agreement has been reached with Sampo under which Sampo's property & casualty insurance operation will be merged with If. The deal was contingent upon Sampo acquiring the Norwegian company Storebrand. In September Sampo withdrew its offer for Storebrand. However, talks with Sampo on the transfer of its property & casualty insurance business to If continue. BALANCE SHEET AND NET ASSET VALUE Total assets decreased by SEK 28.5 billion, compared with year-end 2000, to SEK 560.7 billion. Unit linked assurance and mutual fund savings products accounted for a decrease of SEK 40.5 billion. External borrowings, including the parent company's subordinated loan, increased by SEK 3.2 billion (including an exchange rate effect of SEK 0.8 billion), to SEK 12.3 billion. Liquidity and the group's financing ability are good. A new USD 500 million credit facility with a five-year maturity was signed on 20 July 2001, replacing an existing USD 350 million facility. Unutilized credit amounts to SEK 13 billion, which exceeds the total outstanding amount of debt. Net asset value amounted to SEK 34,920 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 46.7 billion (45.6). Of these funds, SEK 42.6 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, 1 November 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 accounting principles as in the 2000 Annual Report. Financial calendar for Skandia: 13 November 2001, October sales release 13 February 2002, year-end report 2001 ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/11/01/20011101BIT00020/bit0001.doc The full report http://www.waymaker.net/bitonline/2001/11/01/20011101BIT00020/bit0001.pdf The full report