Results Jan-March 1999

29 April 1999 INTERIM REPORT For the period January - March 1999* Sales for Long-Term Savings up 73 per cent, to SEK 27 billion Sales in the USA up 116 per cent, to USD 2 billion Operating result for core operations up 48 per cent Development work with the Nordic property & casualty insurance company proceeding according to plan SEK 642 billion in assets under management, an increase of 23 per cent compared with March 1998 Comments by Lars-Eric Petersson, President and CEO: "Our first-quarter sales are a show of strength. Above all, it is gratifying to note that last year's systematic build-up of distribution strength and product offering in the USA has contributed to a 116 per cent growth in sales in the American market. We are also pleased to note that the unit linked assurance operation which we started in Italy in December 1997 was our fourth- largest during the quarter in terms of sales. It shows that with the right distribution strength, the market's best products, and customers that understand the strengths of the fund products, positive results and critical mass can be achieved quickly. "The result for the core operations after financing costs, excluding property & casualty insurance, rose 48 per cent. "The continued launch of competence insurance has been exceptionally well- received, and a long line of companies are now looking at the possibilities of offering this to their employees. We thus continue to expand our offering of welfare-related products and will soon be launching additional products within the Lifeline concept. "Our work on creating a unique, Nordic property & casualty concept has, through expanded ownership in Pohjola, the decision to prepare the property & casualty insurance operations for a stock market listing, and the agreement with Storebrand, now entered the implementation phase." GROUP RESULT DEVELOPMENT The operating result was MSEK 1,245 (2,842). The return on net asset value was 6 per cent (31). Sales for Long-Term Savings rose 73 per cent. Due to the strong growth in sales as well as funds under management, the operating result for Long-Term Savings, after financing costs, rose to MSEK 855 (576). Investment income from investments corresponding to the funds released in connection with preparations for a separate stock market listing of the property & casualty insurance operations amounted to MSEK 191. Assets under management increased by 8 per cent since year-end 1998, or SEK 46 billion, to SEK 642 billion, of which SEK 311 billion is managed by external managers. Assets under management comprise all the group's investments as well as investments and assets managed on behalf of customers. The operating result for property & casualty insurance decreased to MSEK 302 (2,199). Starting on 1 March these operations include the combined property & casualty insurance operations of Skandia and Storebrand, reported as an associated company in accordance with the equity method. The result decline is attributable to generally lower growth in the value of investments compared with the preceding year, but also to a decrease in capital employed - and thus investment assets - allocated to the operations. OPERATIONS Long-Term Savings Market and Sales Sales totalled MSEK 26,934 (15,535), an increase of 73 per cent. Sales reached new record levels, especially in the USA and the UK. Sales of other savings products (without an insurance element) grew many times over, to MSEK 7,517 (2,020). Also measured at constant exchange rates, sales for Long-Term Savings increased by 73 per cent. Sales in the USA rose 116 per cent to MUSD 2,058 (954). Sales of variable annuities increased by 68 per cent, while sales of other savings products increased by 498 per cent. In Sweden the sales increase was 10 per cent. Sales in the UK rose 43 per cent in local currency. Sales gains of 15 per cent were noted for unit linked assurance and 200 per cent for other savings products. Combined sales in Switzerland, Germany and Austria increased by 9 per cent in local currency. Sales in Japan rose 56 per cent. The Italian operation has had very strong development and is Skandia's fourth largest unit linked company in terms of written premium, with sales of MSEK 783. Assets under management increased by 11 per cent during the quarter, or SEK 37.3 billion, to SEK 362.7 billion. Of this total, unit linked assurance accounted for SEK 289.8 billion, life assurance for SEK 37.5 billion, and other savings products for SEK 35.4 billion. Payments to unit linked policyholders amounted to 7.1 per cent of technical provisions on a moving twelve-month basis (7.5 at year-end 1998). Of this total, surrenders accounted for 5.7 per cent (6.0 at year-end 1998), which is well within the limits of adopted assumptions. The decrease is attributable to the substantial growth of the operations. For other savings products, payments to policyholders through withdrawals from funds were level with the preceding year. During the first quarter these amounted to SEK 863 (860). Operating Result and Profitability Unit Linked Assurance The operating result for unit linked assurance increased by 60 per cent to MSEK 915 (571). At constant exchange rates, the result improved in the USA by 84 per cent and in the UK by 49 per cent. During the first quarter, the result was favourably affected by higher sales and fund appreciation. Growth in the value of funds under management strongly exceeded adopted assumptions, which had a positive result impact. The value-added created by this - as well as the effect of other financial factors - is spread out over a three-year period. Without this balancing, the result would have amounted to MSEK 1,286. Life Assurance The operating result for life assurance was MSEK 52 (79). Other Savings Products For savings products without an insurance element, deposits totalled MSEK 7,517 (2,020) and withdrawals MSEK 863 (860). Acquisition costs are not yet deferred, which explains why the result for these savings products - after deducting all costs for marketing, and system and product development - was negative. This is entirely in line with set plans. The assets built up in the operations form the foundation for future revenues. Net Asset Value and Return The operating result, after deducting financing costs, rose 48 per cent to MSEK 855 (576). The return on net asset value, which amounted to 14 per cent after financing costs and taxes, was at the same level as for the full-year 1998. Asset Management Assets under management through management assignments from companies in the Skandia group, external clients, and fund management, increased by 3 per cent since year-end 1998, to SEK 285 billion. Revenues from this management are partly fixed and partly result-based, and are thereby determined on an annual basis retrospectively. The result amounted to MSEK 22, excluding result-based revenues. Since its start in October 1998, Skandia Asset Management has received 16 management assignments from external institutional investors. Other Operations SkandiaBanken SkandiaBanken's operating income amounted to MSEK 14 (34). Skandia Fonder's result is now reported in the Asset Management business unit. SkandiaBanken's deposits have risen by 10 per cent since year-end 1998 and currently amount to SEK 12.6 billion, and the number of customers amounts to 305,000. The number of customers increased during the quarter by nearly 15,000, of whom 8,000 are Internet customers. Finance Companies The operating result for finance companies, which pertains mainly to operations that are being discontinued, was MSEK 11 (10). Investment Income Investment income in the parent company, amounting to MSEK 191, pertains to the return on the funds released in connection with preparations for a separate stock market listing of the property & casualty insurance operations. As previously, the shareholding in Pohjola is valued at the current market price. Other Expenses Other expenses include joint-group management expenses and goodwill amortization. Property & Casualty Insurance Pursuant to the decision of an extraordinary shareholders meeting on 16 November 1998, in early 1999 most of Skandia Insurance Company Ltd.'s insurance portfolio was transferred to the subsidiary Skandia P&C Insurance Company Ltd. (formerly SkandiaNord). The portfolio transfer is a step in the group's restructuring, whereby the property & casualty insurance operations are being conducted from now on through Skandia P&C Insurance Company Ltd. On 22 February, Skandia and Storebrand announced that they are forming a new property & casualty insurance group. The ownership structure will be 56 per cent for Skandia and 44 per cent for Storebrand. The deal is a merger of equals, and thus the votes are being divided 50/50 between both parties. The deal is unconditional between the parties, but requires the necessary regulatory approvals. Market and Sales Premiums written in the property & casualty insurance operations that Skandia conducted during the first two months of the year, prior to the agreement with Storebrand, amounted to MSEK 3,770. The property & casualty insurance market is characterized by continued fierce competition. Written premium was higher due to rate increases in certain segments, such as motor third-party liability insurance and - in Norway - commercial insurance. Marine&Energy showed continued falling premium levels. Operating Result and Profitability The operating result for property & casualty insurance includes Skandia's former property & casualty insurance operations through February. Starting on 1 March, the operating result includes 56 per cent of the combined operations with Storebrand. These operations are reported in accordance with the equity method. NIG Skandia is included for the entire period. The operating result for property & casualty insurance decreased to MSEK 302 (2,199), due to lower investment income. During the first quarter the return on equities was considerably lower than in the preceding year. Another reason is a decrease in capital employed allocated to the property & casualty operations through the agreement with Storebrand. This, in turn, gave rise to lower investment income. Financing costs attributable to the property & casualty operations amounted to MSEK 60. Technical Result Before Investment Income The technical result before investment income for the business Skandia was responsible for prior to the agreement with Storebrand improved somewhat. Claim costs decreased in Sweden as well as Norway. In Norway, an action programme including premium rate increases had a positive impact. Claims experience worsened in Denmark and for Marine&Energy. An action programme has been started in Denmark. Investment Income Total investment income amounted to MSEK 1,157 (2,775). The return on the equities portfolio was favourable, although at a lower level compared with the the first quarter of 1998, when the trend in the stock market was very strong. Investment assets amounted to SEK 44.1 billion (44.5). The total investment return was 2.6 per cent. Of total investment income, MSEK 966 - corresponding to the return on investment assets of SEK 34.7 billion - was allocated to the property & casualty insurance operations. Investment Strategy Skandia strives to maintain a balanced portfolio of fixed-income securities, equities and real estate. The objective is to achieve a good return over the medium term on the technical provisions for property & casualty insurance, without allowing the fluctuations in the return during each moving twelve- month period to become excessively large. In the equities portfolio, investments in Europe were overweighted. Exposure is very limited to the Asian markets, including Japan, and non-existent with respect to the Russian and Latin American markets. The equities allocation in the portfolio is 35 per cent (31). Real estate holdings decreased in accordance with the adopted strategy through sales totalling SEK 2.9 billion (3.1). Currency Effects Currency movements had no major impact during the first quarter. Premiums written in Long-Term Savings were unchanged, and the operating result for the group rose by 1 per cent, after recalculation to higher average exchange rates compared with the preceding year. BALANCE SHEET AND NET ASSET VALUE Total assets decreased by SEK 6.5 billion to SEK 368.2 billion. The decrease is primarily attributable to the agreement with Storebrand. The New P&C Insurance Company is reported as an associated company in accordance with the equity method, whereby total assets decreased by approximately SEK 30 billion. Long-Term Savings accounted for an increase of SEK 30 billion. Borrowings increased by SEK 2.8 billion to SEK 9.9 billion, excluding the parent company's subordinated loans. Net asset value amounted to MSEK 24,860 (year-end 1998: 24,833). Capital employed in the group, which in addition to net asset value consists of borrowings to finance investments in subsidiaries, amounted to SEK 35.9 billion (33.0). Of these funds, SEK 18.3 billion (17.8) pertains to Long-Term Savings, while SEK 7.7 billion pertains to the financing of Skandia's share of Skandia's/Storebrand's property & casualty insurance operations, including SEK 1.5 billion attributable to NIG Skandia. The final capital structure of the new property & casualty insurance operations will be set when the merger is completed. Stockholm, Sweden, 29 April 1999 Lars-Eric Petersson President and CEO For questions, please call: Ulf Spång, Chief Financial Officer, tel. +46-8-788 2905 Harry Vos, Head of Group Business Control, tel. +46-8-788 3643 Skandia will be publishing the following financial reports in 1999: 29 April, three-month interim report 10 August, half-year interim report 27 October, nine-month interim report Skandia Insurance Company Ltd S-103 50 Stockholm Sweden Telephone +46-8-788 10 00 Fax -46-8-788 30 80 www.skandia.se Office: Sveavägen 44 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/29/19990429BIT00540/bit0001.doc The full report http://www.bit.se/bitonline/1999/04/29/19990429BIT00540/bit0002.pdf The full report http://www.bit.se/bitonline/1999/04/29/19990429BIT00540/bit0003.xls Tabels