Interim report January - June 2002

INTERIM REPORT For the period January-June 2002*) · Sales for the period totalled SEK 63 billion (76) · Sales increased by 3% during the second quarter compared with the first quarter · The profit margin rose by 0.9 percentage points compared with the first quarter of 2002, to 9.3% for the period · The result of operations for the second quarter was SEK 485 million (1,338) · The group's operating result for the period was SEK 360 million (- 948) after financial effects and items affecting comparability · Borrowings decreased by SEK 6.1 billion, and the cash position is strong · Net asset value decreased by 2% during the first half, to SEK 36.6 billion · Favourable solvency position due to limited exposure to guarantees Comments by Lars-Eric Petersson, President and CEO: We strengthened our financial position during the period, improved our margins overall, and experienced a continued net inflow of managed assets. For the month of July, we can report sales of SEK 10.6 billion, compared with SEK 8.9 billion in June. As for our presence and continued development in the world's ten leading economies, we are not satisfied with the development in the US market. However, we are tackling the problems, and the new product offering in the USA is making a positive contribution to profit margins. Our position in the UK, especially after the purchase of Bankhall, makes Skandia one of the strongest players in the market. We have started operations in France and submitted a licence to conduct business in China. We are pursuing every venture with an open approach in an effort to find optimal forms of working and cooperation in each market. The wait-and-see attitude in the financial markets during the first quarter has now been transformed into a declining market. Naturally this has entailed a greater level of caution in demand for savings products in general. Our priorities remain intact for the second half of 2002. This applies for product development and distribution power as well as a stronger focus on profitability and efficiency. Cost cuts are being pursued continuously by adapting the organization to the prevailing market conditions. Through our well-proven business model and product design, with limited exposure to guaranteed products and investment risk, we are not facing the same solvency issues and related regulatory challenges currently prevailing in parts of the traditional life assurance industry. All this, along with our talented employees, makes us set to take on an even tougher market situation. We do this with the knowledge that long- term savings is a growth area around the world. The mounting burden on state social security systems and the demographic trend point clearly in this direction. OVERVIEW Sales of unit linked assurance amounted to SEK 45.3 billion (51.3). The lower level of sales is attributable to the uncertainty, volatility and continued decline in the world's stock markets, which have led to lower demand for equity-related products, and exchange rate effects. However, sales during the second quarter were higher than in the preceding three quarters. The profit margin during the second quarter was 9.7%, which was also an improvement compared with the preceding three quarters and is mainly attributable to cost-cutting. Cost cuts are being made continuously through an adaptation of the organization to the prevailing market conditions. Sales of mutual fund savings products decreased by 26%, to SEK 15.5 billion. Here, too, sales were higher than in the preceding three quarters. Net flows in funds under management remained positive, at SEK 23 billion. Funds under management have decreased by 8% during the last six months due to the stock market decline, and by a further 10% due to lower exchange rates. The group's financial position, as well as liquidity, improved during the first half of the year. Borrowings decreased during the first half by SEK 6.1 billion, mainly through the repayment of loans totalling SEK 5.2 billion. The debt-equity ratio has decreased considerably. The result of operations for the group decreased by 37% to SEK 1,345 million (2,142). The result decline is attributable to the stock market decline and lower sales volumes, but also to positive one-time effects in unit linked assurance that were included in the result for the first half of 2001. The direct impact of the stock market decline on investment assets is negative. The group's risk exposure is limited. The operational return on net asset value was 9% (16%). The operating result, which includes financial effects and items affecting comparability, amounted to SEK 360 million (-948). The financial effects attributable to the trend in the capital markets were negative during the first half of the year, at SEK -3.0 billion. During the second quarter the sale of Skandia Asset Management was completed, generating a capital gain of SEK 2.0 billion. Exposure to credit losses is low. Credit losses during the first half of the year were less than SEK 0.1 billion. With respect to Skandia's risk exposure, please refer to the sensitivity analysis on p. 13 and the more extensive risk analysis in Skandia's 2001 Annual Report (pp. 20-22). INSURANCE AND SAVINGS PRODUCTS Market and Sales Unit Linked Assurance Sales of unit linked assurance decreased by 12% compared with June 2001. However, sales have increased successively during the last three quarters. New sales decreased by 21% (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 in the USA decreased by 18% in local currency. Despite weak market conditions in the last two years, sales have stabilized since the third quarter of 2001. Sales during the second quarter of 2002 were the highest of the last four quarters, indicating a continued improvement in market position. The focus on the core variable annuity and mutual fund products entails a considerable increase in Skandia's distribution capacity in the independent brokers segment. In the British operation, sales were down 12% in local currency. The sales decline is mainly attributable to weak market conditions. During the second quarter, however, sales - as well as new sales - rose by 7% and 10%, respectively, compared with the first quarter of 2002. Sales in Sweden decreased by 8%. Skandia is the market leader and has a balanced product portfolio. According to the most recent available statistics, Skandia's market share rose further during the first quarter of 2002, to 33%. New sales decreased by 37%. This is mainly attributable to a substantial inflow from individual contracts in the collective pensions segment during the same period a year ago. In Germany, sales increased by 20% in local currency. Skandia has built up a product portfolio that is contributing to stable sales growth. In Japan, sales through new distribution agreements are reaching record levels. During the first half of the year sales increased by 275% in local currency. Payments to policyholders, expressed as a percentage of assets under management, amounted to 9.7% on a moving 12-month basis (9.8% at year- end 2001). Surrenders accounted for 8.3 percentage points of this total, which is the same level as for the full-year 2001. At the end of June Skandia commenced operations in France. Mutual Fund Savings Products Following a period of falling sales associated with the stock market decline, sales increased for the third consecutive quarter, to SEK 15.5 billion. However, sales were down 26% compared with the same period a year earlier. Sales in the USA have stabilized and were essentially unchanged compared with the preceding two quarters. Compared with the first half of 2001, sales were down 52% in local currency. In the UK, sales rose sharply compared with the first quarter of 2002, to SEK 5.3 billion. Skandia's market share has increased gradually in a contracting market. Sales in the German market are showing continued strong development. Life Assurance Sales in Spain decreased as a result of a shift in focus toward unit linked assurance products. Consequently, assets under management decreased from SEK 15.4 billion to SEK 13.5 billion. Result and Profitability Unit Linked Assurance Cost-cutting measures are having an effect, and thus the result for newly written business during the second quarter was the highest of the last four quarters. However, the result for newly written business during the year was lower than a year earlier due to lower sales volumes. At 9.3%, the profit margin was slightly higher than for the full-year 2001 and is at a satisfactory level for most markets, with exception for the USA. The profit margin rose for the third consecutive quarter in the USA, however. In the UK the margin strengthened during the second quarter. The positive trend is attributable to gradually higher volumes and cost reductions. The new product offering in the USA is also making a positive contribution to profit margins. In Sweden the profit margin continued to be strong. In other markets, however, the margin decreased on the whole compared with a year earlier, mainly due to the sharp rise in sales volume in Japan, where full cost coverage has not yet been achieved. The result of operations decreased to SEK 1,737 million (2,226) due to lower sales volumes and a lower investment return caused by the trend in the financial markets. Depreciation of the value of Skandia's own investment portfolio is limited. Mutual Fund Savings Products The result was SEK -147 million (32). The poorer result is due to the stock market decline, which has led to lower fees from funds under management. The result was also charged with development costs totalling approximately SEK 44 million. Life Assurance The result for life assurance was SEK 79 million (58). BUSINESSES SkandiaBanken's result decreased to SEK 16 million (41) and was charged with costs for marketing in Denmark, among other things. SkandiaBanken grew its customer base during the first half by 86,000, to 1,207,000 customers. Lifeline's result decreased to SEK -19 million (19) due to costs associated with system development. The result for Businesses was charged with costs for the group's Global Business Development unit and start-up costs for the banking business in Switzerland. The bank will open for business on Friday, 9 August 2002. Earnings of the group's treasury unit improved strongly. Group Expenses Group expenses comprise management and structural costs. During the second quarter, adaptations to the prevailing market conditions gave rise to higher structural costs. Further adaptation of the group's organization is taking place continuously, which will lead to continued cost reductions. Starting in 2002, goodwill amortization is allocated to the respective business units. Exchange Rate Effects Sales were negatively affected by SEK 1,388 million and the operating result positively by SEK 36 million. Total assets decreased by SEK 68 billion since the start of the year as a result of currency movements. Other Events During the second quarter it was announced that Skandia and the Chinese company Beijing State-owned Asset Management Corporation Limited have signed an agreement to start a joint-venture life assurance company in China. An application for a licence to conduct life assurance business has also been submitted to the Chinese authorities. Skandia has had a representative office in Shanghai since 1998. BALANCE SHEET AND NET ASSET VALUE Skandia's financial position strengthened during the first half of the year. Borrowings decreased, and liquidity is good. Unconditional, unutilized credit facilities amounted to SEK 11.6 billion, compared with SEK 9.4 billion at the start of the year. During the first quarter, Skandia carried out the acquisition of Bankhall, a network of Independent Financial Advisers in the UK. This resulted in a SEK 3.0 billion increase in goodwill. Goodwill decreased by SEK 1.0 billion through the sale of Skandia Asset Management. Skandia today owns 19% of If, which means that If is no longer reported in accordance with the equity method. Consequently, If's continuing result is no longer included in Skandia's result. Skandia continuously conducts a market valuation of its holding in If, which is reported in the balance sheet as an investment asset valued at SEK 2.8 billion. Net asset value amounted to SEK 36.6 billion (SEK 37.2 billion at year- end 2001). Shareholders' equity increased to SEK 21.2 billion, compared with SEK 20.5 billion at the start of the year, reaching its highest level ever. Shareholders' equity in the group has increased by SEK 3.1 billion since 1999, i.e., before the stock market began declining. Risk Exposure and Solvency Capital The group's solvency capital has thus also developed well. Skandia has a restrictive investment and risk policy. Consequently, exposure to credit losses in Skandia's own bond portfolio is very limited. Similarly, the portion of equities and equity funds in the portfolio is very low. In a declining stock market, ordinarily the need of risk and solvency capital in the insurance operations rises. However, Skandia has consciously limited its risk undertaking in the insurance operations with respect to guaranteed commitments, at the same time that its investment risk is low. For example, Skandia's guarantees pertaining to mortality risks in the US market are considerably lower than what is generally offered in the market. Products with guaranteed yields are not included in the product range. If necessary, Skandia's capacity to provide its operations with additional solvency capital and financing is good due to its strong cash position and the favourable development of the group's shareholders' equity. In calculating solvency capital, deferred acquisition costs in key markets such as the USA and the UK are taken into account only to a limited extent. Consequently, the solvency requirements in these markets would not increase even if deferred acquisition costs were to be written down. There is no need to write down deferred acquisition costs. Borrowing and Liquidity Cash flow from operating activities was unchanged compared with a year earlier. The stock market decline entails lower revenues in the form of fees, which has been offset by cost-cutting measures and lower acquisition costs. Borrowings decreased by SEK 6.1 billion during the first half, mainly due to the repayment of SEK 5.2 billion in loans, but also to exchange rate effects. Borrowings are thus at the level they were at in March 2000. Subordinated loans totalling SEK 850 million have been floated which, along with debt repayment, have contributed to a sharp improvement in the group's debt-equity ratio. The net flow from acquisitions and sales of businesses was positive in the amount of SEK 1.3 billion. The funds previously deposited for the acquisition of Bankhall, totalling SEK 3.2 billion, have been paid out in connection with the completion of the acquisition. Stockholm, 8 August 2002 Lars-Eric Petersson President and CEO ------------------------------------- For questions, please contact: Jan Erik Back, Chief Financial Officer, tel. +46-8-788 3720 Michael Wolf, Chief Investment Officer, tel. +46-8-788 4559 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. Aside from an adaptation to new accounting recommendations of the Swedish Financial Accounting Standards Council, which took effect on 1 January 2002, the interim report has been prepared in accordance with the same accounting principles as in the 2001 Annual Report. The new recommendations have not had any material impact on the group's profit and loss account or balance sheet. Financial calendar: 12 September 2001, August sales release 30 October 2002, interim report January-September 12 February 2003, year-end report 2002 Skandia's published financial reports are available on Skandia's website: www.skandia.com. Skandia's website also provides links to the webcast of the conference call on Thursday, 8 August 2002. In addition to the interim report, Skandia has also published the document Financial Supplement Q2 2002 on www.skandia.com, under Investor Relations/Reports and Events/Interim Reports. Skandia Insurance Company Ltd. Auditors' Review Report We have conducted a limited review of this interim report in accordance with the recommendation issued by FAR. A limited review is considerably less in scope than an audit. Nothing has come to our attention that indicates that the interim report does not fulfil the requirements of the Swedish Stock Exchange Act and the instructions and general guidelines of the Swedish Financial Supervisory Authority on annual accounts for insurance companies. Stockholm, Sweden, 8 August 2002 Jan Birgerson Carl Lindgren Anders Engström Authorized Public Authorized Public Authorized Public Accountant Accountant Accountant appointed by the Swedish Financial Supervisory Authority GROUP OVERVIEW Moving 12- month figures 2002 2001 2002 2001 2001 2002 SEK million June June Q 2 Q 2 Dec. June Sales Unit linked assurance 45,336 51,272 23,051 25,445 93,502 87,566 Mutual funds 15,471 20,825 8,243 9,824 34,831 29,477 Life assurance 520 657 273 313 1,276 1,139 Direct sales of funds 1) 1,328 2,616 264 1,966 3,781 2,493 Businesses 244 215 118 108 414 443 Total sales 62,899 75,585 31,949 37,656 133,804 121,118 Result summary Unit linked assurance 1,737 2,226 782 1,349 4,341 3,852 Mutual funds -147 32 -89 19 -28 -207 Life assurance 79 58 20 24 111 132 Businesses -56 38 -69 57 41 -53 Group expenses -268 -212 -159 -111 -469 -525 Result of operations 1,345 2,142 485 1,338 3,996 3,199 Financial effects unit -3,001 -3,090 -2,311 257 -5,085 -4,996 linked assurance Items affecting 2,016 - 2,016 - - 2,016 comparability Operating result 2) 360 -948 190 1,595 -1,089 219 Assets under management, 840 988 953 SEK billion Funds under management, SEK 535 658 623 billion Net asset value, SEK 37 37 37 billion 3) Shareholders' equity, SEK 21 21 21 billion Total assets, SEK billion 536 634 611 Operational return on net 9 16 12 asset value % 3) 4) Return on adjusted net 3 14 2 asset value, % 3) 4) Return on shareholders' 6 11 0 equity, % 3) 4) Per-share data Operating result per share 0.35 -0.93 0.19 1.56 -1.06 before dilution, SEK Earnings per share before 1.62 0.28 1.46 0.48 -0.05 dilution, SEK 3) Earnings per share after 1.61 0.28 1.46 0.47 -0.05 dilution, SEK 3) 5) Net asset value per share, 35.74 36.41 36.38 SEK Shareholders' equity per 20.70 20.47 20.07 share, SEK 1) Direct sales of funds for 2001 have been recalculated due to the sale of Skandia Asset Management (SAM). 2) The holding in If now amounts to 19 %, which means that If is no longer reported in accordance with the equity method. For the sake of comparison, earlier periods have also been adjusted accordingly. The share in result of If for these periods amounted to SEK - 361 million as per June 2001, SEK -1,015 million as per Dec. 2001 and SEK 84 million for Q2 2001. For the key ratio operating result per share this corresponds to SEK -0.35 as per June 2001, SEK -1.00 as per Dec. 2001 and SEK 0.08 for Q2 2001. 3) For definition, see page 20. 4) All return measurements for shareholders' equity and net asset value pertain to moving twelve-month figures. 5) According to recommendation RR18 of the Swedish Financial Accounting Standards Council, the dilutive effect is calculated if the key ratio "Earnings per share" deteriorates. GROUP OVERVIEW - QUARTERLY ANALYSIS 2002 2002 2001 2001 2001 SEK million Q2 Q 1 Q 4 Q 3 Q 2 Sales Unit linked assurance 23,051 22,285 21,708 20,522 25,445 Mutual funds 8,243 7,228 6,975 7,031 9,824 Life assurance 273 247 381 238 313 Direct sales of funds 264 1,064 578 587 1,966 Businesses 118 126 106 93 108 Total sales 31,949 30,950 29,748 28,471 37,656 Result summary Unit linked assurance 782 955 1,379 736 1,349 Mutual funds -89 -58 -18 -42 19 Life assurance 20 59 25 28 24 Businesses -69 13 -3 6 57 Group expenses -159 -109 -133 -124 -111 Result of operations 485 860 1,250 604 1,338 Financial effects unit -2,311 -690 2,347 -4,342 257 linked assurance Items affecting 2,016 - - - - comparability Operating result 190 170 3,597 -3,738 1,595 CHANGE IN FUNDS UNDER MANAGEMENT UNIT LINKED ASSURANCE 2002 % of 2001 % of assets assets SEK million 6 mos. at start 12 mos. at start of year of year Unit linked assurance at 503,671 500,993 start of year Sales 45,336 9.0% 93,502 18.7% Withdrawals -27,226 -5.4% -49,010 -9.8% Change in value -40,601 -8.1% -85,472 -17.1% Currency effects -48,533 -9.6% 43,658 8.7% Unit linked assurance at 432,647 -14,1% 503,671 + 0,5% end of period MUTUAL FUNDS 2002 % of 2001 % of assets assets SEK million 6 mos. at start 12 mos. at start of year of year Savings in mutual funds 113,268 107,591 at start of year Sales 15,471 13.7% 34,831 32.4% Withdrawals -10,535 -9.3% -21,837 -20.3% Change in value -10,419 -9.2% -16,910 -15.7% Currency effects -11,774 -10.4% 9,593 8.9% Savings in mutual funds 96,011 -15,2% 113,268 + 5,3% at end of period TOTAL FUNDS UNDER MANAGEMENT 2002 2001 SEK million 6 mos. 12 mos. Unit linked assurance 432,647 503,671 Mutual funds 96,011 113,268 Directly distributed 5,844 6,284 funds Funds under management 534,502 623,223 SENSITIVITY ANALYSIS UNIT LINKED ASSURANCE Effect on operating result for unit linked assurance (before tax) of a one percentage point increase in interest- rate, growth and inflation assumptions Effect on operating result (before tax) Fund growt Infla h tion Exposu Discou assum assum re nt p- p- Total SEK VBIF rate tions tions effect million 1) 2) USA 5,962 -461 422 -65 -104 UK 10,155 -462 286 -29 -205 Sweden 4,717 -452 389 -39 -102 Other 3,931 -194 121 -70 -143 Markets Total 24,765 -1,569 1,218 -203 -554 One-time effect of a 1% +/- 170 increase/decrease in stock market 1) Before deduction of taxes and deferred acquisition costs. 2) Before equalization of financial effects. TRADING ANALYSIS, UNIT LINKED ASSURANCE 2002 2001 2001 SEK 6 mos. 6 mos. 12 mos. million Total annualized 6,677 8,477 15,038 new sales 1) Present value of new business for 618 850 1,381 the year Return on value of contracts in 1,417 1,464 3,095 force from previous years Outcome compared with operative 54 480 361 assumptions Change in operative 100 -25 600 assumptions Value-added from 2,189 2,769 5,437 operations Business start-ups and other -36 -79 -180 overheads Financing costs -416 -464 -916 Result of operations, unit linked 1,737 2,226 4,341 assurance Financial -3,001 -3,090 -5,085 effects 2) Operating result, unit linked -1,264 -864 -744 assurance Profit margin, new sales 3) 9.3% 10.0% 9.2% 1) Periodic premiums recalculated to full-year figures plus 1/10 of single premiums during the period. 2) The effect on the present value of future revenues attributable to the fact that the change in financial markets differs from assumptions on fund growth and interest rates. 3) Present value of new business for the year in relation to total annualized new sales. INCOME AND EXPENSE ANALYSIS, UNIT LINKED ASSURANCE 2002 2001 2001 SEK 6 mos. 6 mos. 12 million mos. Gross 4,886 6,025 11,845 contribution Acquisitio -3,918 -4,338 -8,289 n costs Administrative -1,145 -1,117 -2,698 expenses Change in deferred 336 566 830 acquisition costs Technical 159 1,136 1,688 result Investment 282 206 466 income Financing -416 -464 -916 costs Change in surplus value of unit -1,289 -1,742 -1,982 linked business in force Operating result, unit -1,264 -864 -744 linked NEW SALES AND PROFIT MARGIN, UNIT LINKED ASSURANCE PER GEOGRAPHIC AREA Present value of new Annualized new business for the Profit margin, new sales year sales 2002 2001 2001 2002 2001 2001 2002 2001 2001 SEK 6 6 12 6 6 12 6 6 mos. 12 million mos. mos. mos. mos. mos. mos. mos. mos. USA 1,883 2,326 4,219 -3 14 -57 -0.2% 0.6% -1.4% UK 1) 2,336 2,740 5,065 266 281 507 11.4% 10.3% 10.0% Sweden 1,454 2,299 3,539 249 393 631 17.1% 17.1% 17.8% Other 1,004 1,112 2,215 106 162 300 10.6% 14.6% 13.5% markets Total 6,677 8,477 15,038 618 850 1,381 9.3% 10.0% 9.2% 1) In this context the UK pertains to businesses with the headoffice in the UK and thus also includes Royal Skandia, the branch offices in Finland and Norway, and sales of Critical Illness insurance in Germany. STATEMENT OF CASH FLOWS 2002 2001 2001 SEK billion 6 6 12 mos. mos. mos. Cash flow from operating activities -0.3 -0.3 0.1 1) Cash flow from 4.2 -0.2 -4.8 investment operations 2) 3) Cash flow from -4.8 0.3 6.0 financing activities 4) Net cash flow for the -0.9 -0.2 1.3 period Liquid assets at the 4.6 3.1 3.1 start of the period Exchange rate differences -0.4 0.2 0.2 in liquid assets Liquid assets at the 3.3 3.1 4.6 end of the period 1) Cash flow from operating activities during the first half of 2002 was unchanged compared with a year earlier. The stock market decline entails lower revenues in the form of fees, which has been offset by cost-cutting measures and lower acquisition costs. 2) Purchases and sales of investment assets, which are a natural element of an insurance company's operations, are reported as cash flow from investment operations. Cash flow has been affected by the direct yield from investments, but not by the unrealised changes in value these have had. 3) The net flow from acquisitions and sales of businesses during the first half of 2002 was positive in the amount of SEK 1.3 billion. The funds previously deposited for the acquisition of Bankhall, totalling SEK 3.2 billion, have been paid out in connection with the completion of the acquisition. 4) Cash flow from financing activities during the first half of 2002 was affected by the repayment of loans totalling SEK 5.2 billion. NET ASSET VALUE 2002 2001 SEK million 30 June 31 Dec. Shareholders' 21,192 20,538 equity Deferred taxes, 4,900 4,346 net Surplus value of unit linked business in force after 10,394 12,249 deferred tax Other surplus 94 103 values Net asset value 36,580 37,236 Subordinated loans 1,057 214 Risk-bearing 37,637 37,450 capital CHANGE IN NET ASSET VALUE AND SHAREHOLDERS' EQUITY Net Shareholders' asset value equity 2002 2002 2001 SEK million 30 30 30 June June June Opening balance 37,236 20,538 20,749 Operating 360 1,649 433 result/Result before taxes Income taxes 1) 187 -5 -141 Change in surplus -6 - - value of bonds Deferred tax on surplus value of unit linked -53 - - business in force 1) Dividend -307 -307 -614 Translation -851 -697 536 differences Minority interests 14 14 -6 Closing balance 36,580 21,192 20,957 1) During the period, a reduction in deferred income tax expense of approximately SEK 450 million and a corresponding reduction in deferred tax liability was recorded. The amount was previously included in surplus value of unit linked business in force, which is reported net of tax. PROFIT AND LOSS ACCOUNT 2002 2001 2002 2001 2001 SEK million 6 mos. 6 mos. Q 2 Q 2 12 mos. Technical account, property & casualty insurance business Premiums earned, net of 211 192 106 93 398 reinsurance Allocated investment return transferred from the non-technical account 20 21 10 11 41 Claims incurred, net of -148 -137 -80 -67 -248 reinsurance Operating expenses -84 -51 -52 -27 -135 Technical result, property & -1 25 -16 10 56 casualty insurance business Technical account, life assurance business Premiums written, net of 44,734 51,017 22,591 25,410 92,982 reinsurance Investment income, including -34,506 -38,032 -36,679 17,601 -68,579 unrealized changes in value Claims incurred, net of -27,183 -24,682 -13,780 -12,425 -48,798 reinsurance Change in other technical provisions where the investment risk is borne by the life 20,690 14,660 29,507 -27,623 29,209 assurance policyholders Operating expenses 1) -4,601 -4,758 -2,580 -2,743 -9,889 Change in CARVM offset 1) 73 1,039 269 -229 3,251 Other technical provisions 1,035 1,950 380 777 3,623 Technical result, life 242 1,194 -292 768 1,799 assurance business Non-technical account Investment income, including 215 140 136 145 370 unrealized changes in value 2) Financing costs -293 -398 -107 -204 -775 Mutual funds -143 35 -87 20 -19 Other operations 2) -13 42 -19 18 -5 Amortization of goodwill -106 -52 -56 -26 -117 Structural costs -59 -32 -39 -20 -94 Joint-group management -209 -160 -120 -81 -322 expenses Items affecting comparability 2,016 - 2,016 - - Share in result of If - -361 - 84 -1,015 Pre-tax result 1,649 433 1,416 714 -122 Paid and deferred tax 3) -5 -141 74 -225 64 Minority interests in result 14 -6 8 -3 3 for the period Result for the period 1,658 286 1,498 486 -55 Key ratios Average number of shares 1,024 1,024 1,024 1,024 1,024 before dilution, millions Average number of shares 1,027 1,025 1,025 1,024 1,024 after dilution, millions 4) Earnings per share before 1.62 0.28 1.46 0.48 -0.05 dilution, SEK Earnings per share after 1.61 0.28 1.46 0.47 -0.05 dilution, SEK 5) 6) Direct yield, % 0.8 1.3 2.7 Total return, % -0.1 -0.2 1.5 1) In the US operations, DAC is carried net of the "CARVM offset", broadly representing the present value of the lesser of surrender and other charges. Currently, the CARVM offset is primarily affected by account values, and thus a reduction in account value reduces the CARVM offset. 2) Comparison figures for 2001 have been recalculated so that SkandiaBanken includes Skandia Marketing. 3) During the period, a reduction in deferred income tax expense of approximately SEK 450 million and a corresponding reduction in deferred tax liability was recorded. The amount was previously included in surplus value of unit linked business in force, which is reported net of tax. 4) Data on the number of shares after dilution takes into account Skandia's stock option programme for the years 2000-2002 to the extent it has entailed any dilution. 5) According to recommendation RR18 of the Swedish Financial Accounting Standards Council, the dilutive effect is calculated if the key ratio "Earnings per share" deteriorates. 6) Earnings per share are calculated as the result for the period divided by the average number of shares outstanding. OPERATING RESULT SEK million Unit P&C Items 2002 linked Mutu Lif Busi- Gro insu affect Operat al e up r- ing ing 6 mos. assura fund ass ness exp ance compar result nce s ura es . abilit nce y Technical result P&C insurance -21 20 -1 Life assurance 159 83 242 Non-technical result Investment income 282 -47 -20 215 Financing costs -416 -4 127 -293 Change in surplus value of unit linked business in force -1,289 -1,289 Mutual funds -143 -143 Other businesses -13 -13 Amortization of goodwill -4 -102 -106 Structural costs -59 -59 Joint-group management - -209 expenses 209 Items affecting 2,016 2,016 comparability Operating result -1,264 -147 79 -56 - 0 2,016 360 268 Of which, change in surplus value of unit linked business in 1,289 1,289 force Pre-tax result 25 -147 79 -56 - 0 2,016 1,649 268 Unit P&C Items 2001 linked Mutu Lif Busi- Gro insu affect Operat al e up r- ing ing 6 mos. assuranc fund ass ness exp ance compar result e s ura es . abilit nce y Technical result P&C insurance 4 21 25 Life assurance 1,136 58 1,194 Non-technical result Investment income 206 -45 -21 140 1) Financing costs -464 -3 69 -398 Change in surplus value of unit linked business in -1,742 -1,742 force Mutual funds 35 35 Other businesses 42 42 1) Amortization of goodwill -32 -20 -52 Structural costs -32 -32 Joint-group management - -160 expenses 160 Operating result -864 32 58 38 - 0 -948 212 Of which, change in surplus value of unit linked business in 1,742 1,742 force Investment income, share in result -361 -361 of If Pre-tax result 878 32 58 38 - -361 433 212 1) Comparison figures for 2001 have been recalculated so that SkandiaBanken includes Skandia Marketing. BALANCE SHEET SUMMARY SEK billion 2002 2001 Shareholders' 2002 2001 equity, Assets 30 31 provisions and 30 31 June Dec. liabilities June Dec. Intangible assets 3.3 1.3 Shareholders' 21.2 20.5 equity Shares in 0.1 4.5 Minority interests 0.1 0.0 associated companies 4) Investments 3) 4) 25.5 26.3 Subordinated loans 1.1 0.2 2) Investments, unit 432. 503.7 Technical 20.9 22.1 linked assurance 6 provisions 1) Reinsurers' share Provisions, unit 417.2 487.1 of linked assurance 1) technical 13.3 17.9 Liabilities in provisions 1) bank operations Assets in bank and finance 35.8 29.5 operations companies 2) and finance 38.5 32.4 Deferred tax 5.3 4.7 companies liability Debtors 5.0 4.4 Borrowings 2) 10.4 17.3 Tangible assets 0.7 0.8 Deposits from 14.2 19.0 reinsurers Cash at bank and 3.3 4.6 Other creditors 6.8 6.7 in hand Other assets 0.1 0.5 Reinsurers' share of Deferred 12.2 13.1 deferred 0.5 0.6 acquisition costs acquisition costs 1) 5) 1) Other prepayments Other accruals and and accrued income 1.1 1.1 deferred income 2.2 2.9 Shareholders' equity, Assets 535. 610.6 provisions and 535.7 610.6 7 liabilities 1) Technical provisions, net, after deducting deferred acquisition costs Life assurance 12.3 14.2 Unit linked 399.9 463.7 assurance Property & 0.9 0.9 casualty insurance Total 413.1 478.8 2) Group borrowings, excl. subordinated loans in Skandia Insurance Company Ltd. Borrowings as per balance sheet, 11.5 17.5 including subordinated loans Additional borrowings by finance companies and bank 0.0 0.1 operations Borrowings, gross 11.5 17.6 Less: subordinated loans in Skandia Insurance -1.1 -0.2 Company Ltd. Borrowings, net 10.4 17.4 3) Investments, current value Investments as per 25.5 26.3 balance sheet Recalculation to 0.5 0.7 current value Cash at bank and 3.3 4.6 in hand Securities 0.1 0.5 settlement claims, net Accrued interest 0.4 0.3 income Debt derivatives 0.0 -0.1 Total 29.8 32.3 Of which: Investments, life 13.5 15.4 assurance Investments, unit 7.7 8.9 linked assurance Investments, 0.6 0.8 mutual funds Other investment 6.0 3.5 assets Deposit for the 0.0 3.2 acquisition of Bankhall Currency 2.0 0.5 derivatives Deposits with 0.0 0.0 ceding undertakings Total 29.8 32.3 4) Starting in 2002 Skandia owns 19% of If, which means that If is no longer reported in accordance with the equity method. If is therefore reported in the balance sheet as an investment. 5) Deferred acquisition costs Deferred acquisition costs 19.7 21.9 before CARVM offset CARVM offset* -7.5 -8.8 Total 12.2 13.1 * See page 16, note 1 for explanation. RESULT OF OPERATIONS, BUSINESSES 2002 2001 2001 SEK million 6 mos. 6 mos. 12 mos. SkandiaBanken 16 41 79 Global Business -96 -15 -13 Development Group Treasury 168 37 96 Asset Management 15 72 17 Lifeline -19 19 74 Finance companies 7 7 9 Skandia Bank -59 -74 -122 (Switzerland) Other -88 -49 -99 Total -56 38 41 GROUP EXPENSES 2002 2001 2001 SEK million 6 mos. 6 mos. 12 mos. Amortization of goodwill -20 -53 Structural costs -59 -32 -94 Joint-group management -209 -160 -322 expenses Total -268 -212 -469 EXCHANGE RATES 2002 2002 2001 2001 2001 SEK 30 31 31 30 30 June June Mar. Dec. Sept. EUR Closing rate 9.08 9,04 9.33 9.72 9.22 EUR Average rate 9.14 9,14 9.29 9.22 9.08 GBP Closing rate 14.01 14,75 15.32 15.68 15.31 GBP Average rate 14.73 14,98 15.01 14.91 14.69 USD Closing rate 9.19 10,36 10.58 10.67 10.89 USD Average rate 10.18 10,51 10.43 10.37 10.26 JPY Closing rate 0.077 0,078 0.081 0.090 0.087 JPY Average rate 0.079 0,079 0.086 0.086 0.085 Average rates indicate the average rates for the period 1 January through the respective book-closing dates in 2002 and 2001. Glossar y Adjusted net asset value: Net asset value after deduction for net deferred taxes and investment in If. Annualized new sales: Periodic premiums recalculated to full-year figures, plus 1/10 of single premiums during the period. Capital employed: Net asset value, borrowings for investments in subsidiaries, and minority interests. Financial effects: The effect on the present value of future fees caused by the deviation of the financial market trend from assumptions on fund growth and interest rates. Funds under management: Assets under management for unit linked assurance and mutual funds. Gross contribution: Unit linked assurance fees after deduction of necessary actuarial reserves. Net asset value: Shareholders' equity as per the balance sheet, net deferred tax liability, surplus values of unit linked business in force after deducting deferred tax, and unrealized changes in the value of fixed-income securities. Operating result: Pre-tax result plus changes in surplus values of unit linked business in force. The operating result for 2001 does not include Skandia's share in If's result. Premiums earned: The portion of premium income attributable to the period, i.e., premiums written less reinsurance premiums, adjusted for the portion of premiums not yet earned. Premiums written: Total premiums received during the period or taken up as a receivable at the end of the period. Result of operations: Operating result before financial effects in unit linked assurance and items affecting comparability. Solvency capital: Capital requirement for conducting insurance business according to the applicable rules in the respective countries. Surplus value of unit linked business in force: The present value of calculated future surpluses from the annual fees paid by policyholders for contracts in force. The group's operating result includes the change in these surplus values for the period. Technical result, life assurance: The balance on the technical account for life assurance, including direct investment income and changes in value of investment assets belonging to the insurance operations. Technical result, property & casualty insurance: Premiums earned less claim costs and operating expenses, plus the investment return transferred from the non-technical account. Value-added from operations (unit linked assurance): Result of operations excluding financing costs, costs for business start-ups, other overheads and financial effects. Key Ratios Direct yield: Direct investment income (before deducting administrative expenses) as a percentage of a weighted average of the current value of investments. Earnings per share: The result for the period divided by the average number of shares outstanding. Operational return on net asset value: The result of operations for the last 12-month period in relation to average net asset value adjusted for investments in associated companies. Profit margin: Present value of new business for the year in relation to total annualized new sales. Return on adjusted net asset value: Operating result for the last 12-month period plus other changes in surplus values, less current and deferred tax and minority interests, in relation to adjusted average net asset value. Return on shareholders' equity: Result for the last 12-month period in relation to average shareholders' equity. Total return: The sum of direct investment income (before deducting administrative expenses) and realized and unrealized changes in value, as a percentage of a weighted average of the current value of investments. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/08/08/20020807BIT00880/wkr0001.doc http://www.waymaker.net/bitonline/2002/08/08/20020807BIT00880/wkr0002.pdf

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