Interim report january–march 2006

All data in this interim report are prepared in accordance with IFRS JANUARY–MARCH: • Skandia is a member of the Old Mutual Group. As a result of Old Mutual's acquisition and the subsequent low free float, Skandia's shares will be delisted from the Stockholm Stock Exchange. The last day of trading in Skandia shares at the Stock Exchange will be 5 June 2006, but as previously announced, trading will continue through an alternative marketplace. • Total premiums and deposits increased by 50% to SEK 40,555 million (27,022). New sales of unit-linked assurance increased by 22% to SEK 3,303 million (2,702) and mutual fund deposits increased by 77% to SEK 13,273 million (7,478). • Revenues rose 16% to SEK 4,347 million (3,756). • Expenses rose 18% to SEK -3,968 million (-3,370). • Profit before tax for the period was SEK 379 million (386). • Profit before tax for unit-linked assurance was SEK 572 million (582). • Profit before tax for mutual funds increased to SEK 25 million from a loss of SEK -16 million. • Profit after tax for the period, including the result for discontinued operations, was SEK 336 million (423). • Funds under management rose by 8% since 31 December 2005 to SEK 612 billion. • Earnings per share before and after dilution were SEK 0.32 (0.41). • Return on shareholders' equity was 11% (13%) . • Cash flow from operating activities, excluding changes in deposits and lending in the bank operation, was SEK 0.3 billion (0.5). First quarter IFRS result I am pleased to report that the company shows strong growth during the first quarter of 2006. Total premiums and deposits increased by 50% to SEK 40,555 million (27,022). As reported earlier in the month, unit-linked assurance new sales increased by 22 % to SEK 3,303 million and mutual fund deposits increased by 77% to SEK 13,273 million. Particularly good progress was made in the UK in unit-linked assurance where our team took advantage of the arrival of A-day and increased new sales of pension products by nearly 100% and there was a huge jump in mutual fund deposits in the Europe and Latin America division. Funds under management rose by 8% to SEK 612 billion, due to net inflows from clients of SEK 21,409 million, together with the impact of favourable markets. Revenues rose 16% to SEK 4,347 million (3,756), mainly due to a 33% rise in fees from customers. Expenses rose 18% to SEK -3,968 million (-3,370), mainly due to higher commissions in connection to the rise in new sales. Profit before tax was at a similar level to 2005 at SEK 379 million (386). After tax profits were lower as net tax decreased, mainly due to a lower net contribution from policyholder tax in the UK. A lower after tax profit in combination with a higher shareholders' equity led to a reduction in return on shareholders' equity from 13% to 11%. Within unit-linked assurance, profit before tax amounted to SEK 572 million (582). Higher revenues arising from asset based charges were offset by higher commissions expenses which grew as a result of the increase in new sales for unit-linked assurance. The 2005 result included the last effects of the exceptional demand in Germany (SEK 80 million). There was a reduction in investment income within unit-linked assurance compared to first quarter 2005 which was positively affected by first time application of IFRS. Administration expenses grew considerably more slowly, by 10%, than the increase in new sales of 22% for unit-linked assurance. These expenses are also lower than the two previous quarters. Good growth in profits of mutual funds has been experienced due to the gradual maturing of the businesses, particularly within the divisions Europe & Latin America and UK & Offshore. Profit was SEK 25 million compared to a loss of SEK -16 million during first quarter 2005. Within the operating divisions, the Nordic business profits were up 22% to SEK 289 million, with expenses being tightly managed. Market share in Sweden for unit-linked assurance was stable with new sales growing 10%. We expect increased competition in the future with an increase in a number of niche players in the market. In the UK & Offshore division, continued buoyant equity markets and a steady inflow to funds under management generated higher revenues and contributed to improvements in both unit-linked assurance and mutual funds. The profit before tax increased by 20% to SEK 348 million (291). Mutual fund deposits were up sharply by 59%. In the Europe & Latin America division, the SEK 80 million profit from the exceptional demand in Germany last year meant that earnings were much lower in 2006, although we are happy that the trend will be positive from here onwards. Excluding the one-off effect in 2005, the German operation improved its result before taxes by 12% in local currency. In mutual funds deposits were up very sharply, the loss a year earlier was reversed and a profit was reported for the quarter. Shareholders’ equity increased to SEK 12.9 billion, with the impact of a lower effect from the elimination of treasury shares, the issue of option-related shares and the result for the period all contributing to this positive development. Net cash flow from operating activities for the period was positive. We are now 80 days into our 100 day review of Skandia, and the work to integrate the company into Old Mutual is proceeding according to plan. We are looking forward to providing all investors with full EV information on the Old Mutual basis, as well as addressing many of the strategic issues we face, on 20 June. Julian Roberts Chief Executive Result for the period before tax The result before tax amounted to SEK 379 million (386). The result before tax for unit-linked assurance remained at a stable level and was SEK 572 million (582). However, the result for unit-linked assurance in the first quarter of 2005 was favourably affected in the amount of SEK 80 million by a change in deferred acquisition costs (DAC) attributable to the sharp rise in sales in Germany at year-end 2004. Revenues for unit-linked assurance increased by 17% while expenses rose 23% compared with the same period last year. Commission expenses increased at a higher rate due to the increase in sales. Result improvements were achieved in the mutual funds business segment, moving from a loss of SEK -16 million in the first quarter of 2005 to a profit of SEK 25 million for the first quarter of 2006, thanks to a 48% rise in revenue. All divisions are contributing to the improvement in mutual fund business. The result of the banking business was down slightly compared with the same period last year, mainly due to higher costs in connection with increased volumes and investments in connection with adoption of the Basel II regulations. The result for other businesses was SEK 16 million (24). The result for joint-group functions was SEK -320 million (-301), of which structural costs accounted for SEK -137 million (-40). Revenues Total revenues rose 16% to SEK 4,347 million (3,765). Of this amount, fees from customers accounted for SEK 3,507 million (2,628), an increase of 33%. The trend from previous quarters remains, and a continued rise in net inflows in funds under management, together with growth in the value of funds, has resulted in an increase in fund-based fees in both unit-linked assurance and mutual funds. Fund-based fees accounted for 55% of total fees, compared with 49% in the same quarter a year ago. Premium-based fees from unit-linked assurance business rose 14%. Premium-based fees, and in certain countries also fund-based fees, are charged in the initial years of a contract. These fees are deferred and recognised over the life of the respective contracts. The increase primarily in premium-based fee revenue also entailed an increase in deferred fee income. Premiums attributable to risk insurance rose 22% to SEK 851 million (699), mainly due to an increase in life assurance, but also in healthcare insurance and the risk element of unit-linked assurance. Higher interest rates led to negative changes in value in the bond portfolio within life assurance, but at the same time a positive impact on technical reserves. Also, there was a reduction in investment income within unit-linked assurance compared to first quarter 2005 which was positively affected by first time application of IFRS. The decrease in net interest income in the banking operation has been offset by higher commission revenue from securities trading. Expenses Total expenses rose 18%, mainly due to an increase in commissions and administrative expenses. Claims incurred in life assurance and risk insurance decreased slightly compared with a year ago. Commissions rose 30%, to SEK -1,769 million (-1,362), due to an increase in new sales of unit-linked assurance and a rise in mutual fund deposits. This also led to a 26% increase (excluding last year's one-time effect of SEK 80 million) in the change in deferred acquisition costs and accrued commission expense, to SEK 572 million (454). Administrative expenses rose by 10%, mainly due to higher personnel costs in all divisions. Administrative expenses also include SEK -137 million (-40) in structural costs. The increase is mainly attributable to costs associated with the bid process and costs for the integration with the Old Mutual Group. Administrative expenses during the first quarter of 2005 included a SEK -105 million charge for Value Added Tax. Compared to the fourth quarter of 2005, administrative expenses decreased by 11%. Result for the period after tax The result for the period after tax was SEK 336 million (423) and included SEK -8 million (-) pertaining to discontinued operations, attributable to American Skandia. After tax profits were lower as net tax decreased, mainly due to a lower net contribution from policyholder tax in the UK. Earnings per share were SEK 0.32 (0.41) before and after dilution. A policyholder tax is charged to policyholders in the form of fees. In the company’s income statement this is reported under “Policyholder tax charge”. The group’s combined tax charge, including the policyholder tax, increased to SEK -1,368 million (-599). The increase is mainly attributable to an increase in policyholder taxes in the UK as a result of the favourable growth in the value of funds under management. Balance sheet and shareholders' equity Total assets increased to SEK 593 billion, compared with SEK 551 billion at the start of the year, mainly due to an increase in unit-linked assets and volume growth in the banking operation. Shareholders' equity increased and amounted to SEK 12.9 billion, compared with SEK 12.1 billion at the start of the year. Borrowings, including financial reinsurance, decreased from SEK 3.7 billion as per 31 December 2005 to SEK 3.6 billion on 31 March 2006. Elimination of certain fund holdings of shares in Skandia Insurance Company Ltd (publ.) has decreased shareholders’ equity as per 31 March 2006 by SEK 11 million compared with SEK 247 million as per 31 December 2005. Cash flow Cash flow from operating activities, excluding changes in deposits and lending in the banking operation, amounted to SEK 0.3 billion (0.5). Cash flow from investing activities was SEK 0.7 billion (0.2). Payments pertaining to American Skandia and structural costs are expected to be made during 2006. Premiums and deposits Skandia’s total premiums and deposits increased sharply during the period, to SEK 40,555 million (27,022). This represents an increase of 50%. For unit-linked assurance, premiums and deposits rose 40%, to SEK 26,454 million (18,878). The largest increases were posted by the UK & Offshore division and Europe & Latin America division at 44% and 54%, respectively. As announced on 10 May 2006, new sales of unit-linked assurance increased by 22%, to SEK 3,303 million (2,702). Mutual fund deposits increased by 77% to SEK 13,273 million (7,478) Funds under management Unit-linked funds under management continue to develop favourably and increased by 8%, to SEK 456,409 million, compared with SEK 422,770 million at the start of the year. The net inflow of unit-linked assurance business was SEK 15,252 million (10,745). Changes in value amounted to SEK 28,055 million (7,886) and currency effects amounted to SEK -6,166 million (7,925). Funds under management for mutual fund business also increased, to SEK 155,905 million, compared with SEK 143,279 million at the start of the year. The net inflow amounted to SEK 6,157 million (3,584). Changes in value (net after fees) amounted to SEK 8,763 million (1,709). Results per division The result before tax for the UK & Offshore division improved to SEK 348 million (291). Continued buoyant equity markets and a steady inflow of funds under management generated higher revenues and contributed to improvements in both unit-linked assurance and mutual funds. Fund-based fees rose 50% in the division. Bankhall also showed an improvement, from SEK 3 million to SEK 19 million. The lower result before tax for the Europe & Latin America division is due primarily to the one-off effect of SEK 80 million a year earlier in Germany, and to the fact that the first quarter of 2006 was charged with certain one-time costs mainly related to Spain. Excluding the one-off effect in 2005, the German operation improved its result before taxes by 12% in local currency. In mutual funds, the loss a year earlier was reversed and a profit was reported for the quarter. The result for the Nordic division increased to SEK 289 million (236), mainly due to an improvement in unit-linked assurance, where revenues rose 26% and expenses by 16%. The result for mutual fund business improved, while earnings of the banking operation were down slightly. The result for Private Healthcare and Group Insurance decreased to SEK -3 million (21), mainly due to the dissolution of a reserve during the first quarter a year earlier and slightly higher claim costs. Disputes The status of disputes that Skandia is involved in is described in the 2005 Annual Report on page 82. A ruling in the suit filed by a consumer organisation in Austria against Skandia's subsidiary in Austria, Skandia Leben, has been made in favour of the consumer organisation. The ruling has been appealed by Skandia Leben. The reserve provision of approximately EUR 0.2 million remains. No material changes have taken place with respect to ongoing disputes. Post–balance sheet events At Skandia's Annual General Meeting on 27 April 2006, all directors were re-elected. The accounting firm KPMG Bohlins AB was elected as Skandia's auditor. The Annual General Meeting resolved to distribute SEK 0.40 (0.35) per share to the shareholders. Old Mutual plc declared that it waived its right at this Annual General Meeting to the share dividend for 2005 for all of its shares in Skandia. Reporting of embedded value As previously announced, this report includes no information about embedded value (EV). In connection with Old Mutual's acquisition of Skandia, work was started on the adaptation of reporting and calculation of Skandia's embedded value to Old Mutual's principles. The effects on embedded value of these adaptations will be presented in connection with Old Mutual's Capital Market Day on 20 June 2006 in London. Other financial information As a result of Old Mutual's acquisition, Skandia's shares will be delisted from the Stockholm Stock Exchange. The last day of trading in Skandia shares on the Stockholm Stock Exchange will be on 5 June 2006. In connection with the delisting, Skandia will announce alternative trading opportunities for the remaining shares. Following this, Skandia will no longer publish any interim reports. As a consolidated member of the Old Mutual Group, Skandia will be included in the financial reports published by Old Mutual. Old Mutual will publish an interim report for the second quarter on 14 September 2006. *) Livförsäkringsaktiebolaget Skandia is not consolidated and is therefore not included in the interim report. All comparison figures pertain to the corresponding period in 2005, unless indicated otherwise. For information on this report, please contact: Skandia Jan Erik Back, Chief Financial Officer, tel. +46-8-788 25 00 Eva Groth, Investor Relations, tel. +46-8-788 25 00 Old Mutual Malcolm Bell, Investor Relations, tel. +44-20-7002 7166 Skandia's financial reports: Skandia’s published financial reports are available on Skandia’s website: www.skandia.com. Reports can also be ordered by phone: +46-8-788 25 00. Old Mutual's financial reports: Old Mutual's published financial reports are available on Old Mutual's website: www.oldmutual.com.