Year-End Report 1998
YEAR-END REPORT 1998* * Sales increased by 22 per cent and exceeded SEK 90 billion. * In the long-term savings segment, sales rose 30 per cent to more than SEK 71 billion. * The operating result was MSEK 3,634 (6,010). * Assets under management rose 26 per cent to SEK 596 billion. * Planned future stock market listing for property & casualty insurance operations. * Skandia's shares to be listed on the Frankfurt Stock Exchange. * The Board of Directors proposes an increase of 20 per cent in the dividend per share, to SEK 0.90. Comments by Lars-Eric Petersson, President and CEO: "Nineteen ninety-eight was a successful year for Skandia. Sales rose 22 per cent and exceeded SEK 90 billion. We are successfully introducing new long- term savings products and are pleased with the strong growth for these products as well as for our traditional unit linked assurance products. In addition, during the year Skandia launched its Competence Insurance product, which meets the demands in the labour market for continuous competence development. "Skandia's asset management experienced a turbulent year. A strong first half was followed by a sharp correction in the world's stock markets. We also experienced falling interest rates around the world. In spite of this, we could report a healthy investment return following a strong recovery in the final months of the year. "Our property & casualty insurance operations continue to wrestle with fierce competition and subsequent pressure on premiums. Despite this, we saw a rise in earned premium in our home markets for the first time in many years. We are continuing our rationalization plan - above all through greater integration of the Nordic operations. Our ambitious process of change will be generating positive earnings effects in the years ahead. "The sale of the reinsurance operations and the Italian property & casualty operations marks the conclusion of the refocusing and restructuring programme initiated in 1997. Skandia has thereby created a strong financial platform which makes us well-equipped for the challenges placed upon us by competitors and other market forces. "Planning for a stock market listing of our property & casualty insurance operations will enable us to even more clearly communicate and increase the transparency of Skandia's operations. "The market has taken note of our efforts, and during the year we received a number of distinctions for quality customer care and professionalism. With these comes an obligation, but even more so, an incentive and the motivation to continue on our chosen path." GROUP RESULT DEVELOPMENT Sales rose 22 per cent during the period, to MSEK 90,003. The increase for Long-Term Savings was 30 per cent. The operating result was MSEK 3,634 (6,010). The return on net asset value was 14 per cent (26). Due to strong growth in written premium as well as funds under management, the result for long-term savings business improved to MSEK 3,066 (2,080). The interest-rate and growth assumptions that form the basis for calculating the operating result have been adjusted to the declining interest rates. These adjustments gave a positive one-time effect of MSEK 522 on the operating result for the fourth quarter. Investment income including changes in value decreased compared with the record level a year earlier, which explains the decline in the operating result for the property & and casualty insurance operations, to MSEK 1,531 (4,487). The technical result before investment income was impacted by higher claim costs and higher IT costs. BUSINESS UNITS Long-Term Savings Market and Sales Sales totalled MSEK 71,048 (54,608) in 1998, an increase of 30 per cent. Sales reached new record levels in the USA, the UK and Sweden. Sales of other savings products (savings products without an insurance component) more than doubled, to MSEK 10,303. Measured at constant exchange rates, sales of long- term savings products increased by 26 per cent. Sales in the USA rose 30 per cent to MUSD 4,900 (3,764). Sales of variable annuities increased by 12.5 per cent, while sales of other savings products doubled several times over. In Sweden the sales increase was 23 per cent. Sales in the UK rose 15 per cent in local currency, with new sales increasing by 21 per cent. Other markets in Europe showed strong sales increases. Combined sales in Switzerland, Germany and Austria increased by 37 per cent at constant exchange rates. Sales are also rising rapidly in Japan and Italy. New operations were established in Poland and Denmark. In the market segment consisting of life assurance outside Sweden, sales increased by 17 per cent. Assets under management increased by 38 per cent during the year, or SEK 90 billion, to SEK 325.4 billion. Of this total, unit linked assurance accounted for SEK 259.7 billion, life assurance for SEK 38.8 billion, and other savings products for SEK 26.9 billion. Payments to unit linked policyholders amounted to 7.5 per cent (7.0) of technical provisions. Of this total, surrenders accounted for 6.0 per cent (5.7), which is within the limits of adopted assumptions. The increase is primarily attributable to an ageing portfolio and to the fact that certain policies allow for withdrawals when the funds' capital growth exceeds set assumptions. Operating Result and Profitability Unit Linked Assurance The operating result for unit linked assurance increased to MSEK 3,265 (1,884), following a one-time effect of MSEK 822 attributable to lower interest rates. At constant exchange rates, excluding the one-time effect, the result improved by 32 per cent in the USA and by 63 per cent in Sweden. Life Assurance The operating result for life assurance was MSEK -159 (196). The result took a negative one-time effect of MSEK 300 in Denmark due to lower interest rates. Other Savings Products For savings products without an insurance element, deposits totalled MSEK 12,769 (6,223) and withdrawals MSEK 2,466 (2,697). Acquisition costs are not deferred, which explains why the result for other savings products - after deducting all costs for marketing, and system and product development - was negative. This is in line with set plans. The assets built up in the business form the foundation for future revenues and subsequent positive results. Net Asset Value The return on net asset value, after interest expenses and taxes, was 14 per cent (18). Property & Casualty Insurance Market and Sales Premiums written amounted to MSEK 18,955 (19,289). Essentially all markets showed a rise in written premium, however, due to the sale of the Italian operations, total written premium was approximately SEK 1 billion lower. 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. Marine&Energy continued to show falling premium levels. Operating Result and Profitability The technical result before investment income was affected by higher claim costs and charges taken for future investments in production systems. Investment income including changes in value in the equities portfolio remained high, but was lower than the record level set a year ago. The operating result therefore decreased to MSEK 1,531 (4,487). Technical Result Before Investment Income The technical result before investment income was MSEK -1,955 (-1,629). Claims experience improved in Sweden, as well as in Norway for private insurance. The claims trend for commercial insurance in Norway remained negative, which led to an unacceptable result. Therefore, an action programme including premium rate increases has been initiated. Marine&Energy showed a strong result despite continued pressure on premiums. In Denmark, substantial reserve strengthening was conducted for medical malpractice insurance. No new medical malpractice business was written during the year. NIG Skandia's result deteriorated somewhat, mainly due to lower premium rates in the British motor insurance market. The acquisition of Hibernian UK was completed. The technical result expressed as a percentage of net technical provisions averaged 5.8 per cent for the last five-year period. This can be viewed as an interest expense and can be compared with the total yield, which was 9.9 per cent for the same period. Investment Income Investment income amounted to MSEK 3,486 (6,116). Due to the strong recovery of the stock market during the final months of the year, the overall return for the equities portfolio was good. The lower direct yield is associated with lower interest rates. Investments amounted to SEK 44.5 billion (45.4). The total yield was 9.1 per cent, and the total yield of the equities portfolio was 11.0 per cent. During the last five years the average return for the equities portfolio was 20.8 per cent. Asset Management Assets Under Management Assets under management, which comprise all investments in the group and assets managed on behalf of customers, increased by 26 percent, or SEK 124 billion, to SEK 596 billion. Of this amount, Skandia's own asset management unit manages SEK 205 billion on behalf of Swedish Skandia Life and SEK 44.5 billion for own account. The result from management of the latter two amounts accrues to the consolidated profit and loss account. Investment Strategy Skandia strives to have a balanced portfolio of fixed-income securities, equities and real estate in its management of investments for own account. 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 compared with the USA and especially Asia, including Japan. 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 31 per cent (31). Real estate holdings decreased in accordance with the adopted strategy through sales totalling SEK 1.5 billion (1.2). Other Operations SkandiaBanken SkandiaBanken's operating income amounted to MSEK 75 (104) after fully expensed development costs of MSEK 26 for the build-up of an Internet investment marketplace and Internet equities trading service. In September SkandiaBanken was named as Sweden's best Internet bank by the personal investment magazine Privata Affärer, and in December it was named Bank of the Year. In addition, for the third year in a row, SkandiaBanken Fonder was named Fund Manager of the Year by the personal savings magazine Sparöversikt. Finance Companies The operating result for finance companies, pertaining mainly to operations that are being discontinued, was a surplus of MSEK 16 (23). Restructuring of the Group The reinsurance operations within Skandia International were divested through sales to Hannover Re and Fairfax Financial Holdings. The deals were completed in September and October, respectively, and do not involve any guarantee commitments pertaining to technical provisions. The deals gave rise to capital gains of MSEK 475, of which MSEK 250 pertained to 1997, and the remaining MSEK 225 to 1998. The sale of the two Italian property & casualty insurance companies has been completed. The sale, which entailed a pre-tax loss of MSEK 205, does not involve any guarantee commitments pertaining to technical provisions. In connection with the sale, a positive tax effect of MSEK 309 arose. These sales mark the conclusion of the restructuring programme that was reported on in the 1996 year-end accounts, and the restructuring reserve provision made at that time has been fully utilized. Other Expenses Other expenses include joint-group management expenses, goodwill amortization, interest expenses, and costs for testing and upgrading IT systems ahead of the millennium shift and for the introduction of the euro. A charge of MSEK 180 has been taken in the year-end accounts for a profit- sharing plan for senior managers and for the Skandianen profit-sharing plan. Currency Effects Currency movements had a positive impact during the year. Premiums written and the operating result rose by 4 per cent and 6 per cent, respectively, after recalculation to higher average exchange rates compared with the preceding year. BALANCE SHEET AND NET ASSET VALUE Total assets increased during the year by SEK 84.0 billion to SEK 374.7 billion. Long-Term Savings accounted for SEK 73 billion of this increase. Borrowing decreased by SEK 0.4 billion to SEK 7.1 billion, excluding the parent company's subordinated loans. These increased through the issue of SEK 1.0 billion and now amount to SEK 2.2 billion. During the year Skandia Insurance Company Ltd. acquired the outstanding minority interest in Skandia Investment AB from Swedish Skandia Life, which decreased minority interests in the balance sheet by SEK 0.4 billion. Net asset value amounted to MSEK 24,833 (22,708). The solvency margin was 169 per cent, compared with 154 per cent at year-end 1997. SIGNIFICANT POST-BALANCE SHEET EVENTS On 7 January 1999, MeritaNordbanken's entire shareholding in Pohjola Group Insurance Corporation was acquired. The acquired shares correspond to 23.6 per cent of the votes and 12.7 per cent of the capital in Pohjola. Following the acquisition, Skandia's share of the votes and capital in Pohjola amounts to 32.5 per cent and 23.6 per cent, respectively. An agreement was reached with Fairfax Financial Holdings concerning final settlement of outstanding commitments pertaining to the sale in 1996 of the North American reinsurance operations in Skandia America. The agreement, which is conditional upon regulatory approval, is within the framework of existing provisions. As a result of this agreement, provisions for claims outstanding and receivables from reinsurers will decrease by SEK 1.2 billion. Pursuant to the decision of an extraordinary general meeting of Skandia Insurance Company Ltd. on 16 November 1998, most of the company's portfolio of insurance business was transferred in early 1999 to the subsidiary Skandia Property and Casualty Insurance Company Ltd. (formerly SkandiaNord). The portfolio transfer is part of the group's restructuring, whereby from this point on the property & casualty insurance operations will be conducted via Skandia Property and Casualty Insurance Company Ltd. The Board of Directors has given the president and CEO the mandate to prepare the property & casualty insurance operations for a stock market listing within a few years. A stock market listing of the operations will create better opportunities to actively participate in the restructuring of the Nordic property & casualty insurance market, which will be intensifying in the coming years. The intention is that, following the stock market listing of the operations, Skandia will retain a 20-49 per cent stake in the company. Also, Skandia decided today to apply for a listing of its shares on the Frankfurt Stock Exchange. Skandia's shares have been listed on the Stockholm, London and Copenhagen stock exchanges for some time. The Frankfurt listing should be viewed in light of Skandia's rapidly expanding savings operations in continental Europe, the rising interest in equity investments in Germany, and the new currency, the euro. YEAR 2000 COMPLIANCE Several projects are being carried out to secure systems and routines ahead of the changeover to the new millennium. The projects report to Skandia's executive management. The set timetable is being followed, and most of the activities have already been implemented. During the period in which Skandia's Year 2000 project was in its most critical stages and had the greatest volume of activity, KPMG and Ernst & Young audited the adaptation of the group's IT systems. Their assignment was concluded on 31 October 1998. Skandia publishes information on a regular basis about the group's state of readiness as regards the turn of the century for its shareholders, customers and employees. More information on Skandia's adaptation work ahead of the turn of the century, including statements from Ernst & Young and KPMG, can be found on Skandia's website: www.skandia.se. Stockholm, Sweden, 18 February 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 The Board of Directors proposes a dividend of SEK 0.90 per share for the 1998 financial year, and 13 April 1999 as the record date for payment of the dividend. Provided that the Annual General Meeting approves the proposal, dividends are expected to be sent out from the VPC (the Swedish Securities Register Centre) on 20 April 1999. The Annual General Meeting of Skandia Insurance Company Ltd. (publ.) will be held on Thursday, 8 April 1999, at 3:00 p.m. Location: Folkets Hus, (Kongresshallen), Barnhusgatan 12-14, Stockholm. The Annual Report is expected to be distributed to shareholders by mail in mid-March. Extra copies can be ordered by contacting Skandia at tel. +46-8-788 10 00, by fax at +46-8-788 26 85, or via the Internet at http://www.skandia.se. Skandia will be publishing the following financial reports in 1999: 29 April, three-month interim report 5 August, half-year interim report 27 October, nine-month interim report GROUP OVERVIEW MSEK Moving 12-month figures 1998 1998 1998 1998 1997 Dec. Sept. June March Dec. Sales Sales, unit linked and 66 544 60 749 56 823 53 649 50 773 other savings products Premiums written, life 4 504 4 284 3 529 3 576 3 835 assurance Total sales, long-term 71 048 65 033 60 352 57 225 54 608 savings Premiums written, 18 955 18 189 18 255 19 078 19 289 property & casualty insurance Total sales 90 003 83 222 78 607 76 303 73 897 Result summary Unit linked assurance 3 225 1 964 2 122 1 996 1 884 and other savings products Life assurance -159 25 177 216 196 Operating result, long- 3 066 1 989 2 299 2 212 2 080 term savings Technical result before -1 955 -1 604 -1 510 -1 710 -1 629 1) investment income Investment income 3 486 1 161 6 093 7 327 6 116 Operating result, 1 531 -443 4 583 5 617 4 487 property & casualty insurance Other operations 156 174 205 517 431 Other expenses -1 119 -1 216 -1 144 -975 -988 Operating result 3 634 504 5 943 7 371 6 010 2) Net asset value 24 833 22 323 25 501 25 321 22 708 2) Shareholders' equity 14 975 13 649 16 030 15 887 14 051 Managed assets, long-term 325 408 276 591 284 122 264 980 235 033 2) savings 2) Total assets 374 713 329 442 340 426 322 396 290 725 Return on net asset 14 0 22 31 26 value, % Return on shareholders' 9 1 25 33 27 equity, % Solvency margin, % 169 158 183 171 154 3) Per-share data Operating result per 7,10 0,98 11,61 14,40 11,74 share, SEK Earnings per share, SEK 2,43 0,36 6,95 8,84 6,65 4) Net asset value per 48,52 43,62 49,83 49,48 44,37 2) share, SEK Shareholders' equity per 29,26 26,67 31,32 31,04 27,46 2) share, SEK 1) In the group overview, starting with the first quarter of 1998 the technical result is reported before investment income. Accordingly, the comparison figures have also been changed. 2) Figures as per closing date. 3) At Skandia's Annual General Meeting on 27 April 1998, the decision was made on a 5:1 split of Skandia's shares. The comparison figures in the per-share data have been recalculated accordingly. 4) Earnings per share are calculated as the result for the year divided by the number of shares at year-end. LONG-TERM SAVINGS MSEK Operating result Sales 1998 1997 1998 1997 USA 1 422 1 027 33 070 28 053 UK 671 633 15 188 13 378 Sweden 498 293 4 873 4 052 Switzerland/Germa 100 69 1 810 1 212 ny/Austria Spain -1 -3 717 369 Other -247 -135 583 183 Unit linked assurance, excl. one-time effect 2 443 1 884 56 241 47 247 One-time effect 822 - pertaining to declining interest rates Unit linked 3 265 1 884 assurance USA -57 5 885 501 UK 8 3 998 2 365 Other 9 420 660 Other savings -40 10 303 3 526 1) products Spain 114 93 3 037 2 601 Norway 4 54 961 763 Denmark 22 41 411 404 Other 1 8 95 67 Life assurance, excl. one-time 141 196 4 504 3 835 effect One-time effect pertaining to declining -300 - interest rates Life assurance -159 196 Total 3 066 2 080 71 048 54 608 Return on net 14 18 2) asset value 2) Weighted quarterly average 1) SALES OF OTHER SAVINGS PRODUCTS MSEK Deposits Withdrawals Sales 1998 1997 1998 1997 1998 1997 USA 6 134 623 -249 -122 5 885 501 UK 4 571 2 651 -573 -286 3 998 2 365 Other 2 064 2 949 -1 644 -2 289 420 660 Other savings 12 6 223 -2 466 -2 697 10 3 526 products 769 303 NEW BUSINESS, UNIT LINKED ASSURANCE, JANUARY - DECEMBER 1998 3) MSEK Single premium Annual premium 1998 1997 1998 1997 USA 33 070 28 053 UK 11 754 10 698 1 168 867 Sweden 2 352 2 149 985 452 3) Periodic premiums recalculated to full-year figures. ASSETS UNDER MANAGEMENT, LONG-TERM SAVINGS MSEK 1998 1997 31 Dec. 31 Dec. USA 146 062 96 199 UK 85 516 69 866 Sweden 19 278 14 162 Switzerland/Germany/Au 6 342 4 329 stria Spain 1 079 369 Other 1 417 771 Unit linked assurance 259 694 185 696 Spain 26 078 22 669 Norway 8 855 7 482 Denmark 3 635 2 973 Other 282 74 Life assurance 38 850 33 198 USA 7 589 526 UK 9 976 5 171 Other 9 299 10 442 Other savings products 26 864 16 139 Total 325 408 235 033 ONE-TIME EFFECT FOR UNIT LINKED ASSURANCE PERTAINING TO DECLINING INTEREST RATES Assumptions 1998 1997 Effect on operating result, 1998 % % MSEK Present value 2 339 discounting USA 9,25 15,00 UK 9,00 13,50 Sweden 9,00 14,25 Capital cost of -560 solvency capital Fund growth -957 USA 7,00 8,00 UK 6,00 8,00 Sweden 6,00 9,50 Total effect on operating result, unit 822 linked assurance Of the one-time effect, totalling MSEK 822, MSEK 476 is attributable to the USA, MSEK 289 to the UK, and MSEK 57 to other countries. Fund growth in 1998 is indicated before asset-based fee of 1 per cent for the USA and the UK, and 1.5 per cent for Sweden. Interest-rate assumptions for the present value discounting are based on the risk-free interest rate for 10-year government bonds after taxes, plus 6 percentage points. PROPERTY & CASUALTY INSURANCE MSEK OPERATING RESULT 1998 1997 Technical result before investment income -1 955 -1 629 Investment income 3 486 6 116 Operating result, property & casualty 1 531 4 487 insurance Return on capital employed 11 31 TECHNICAL RESULT MSEK Technical result Technical result* before investment income 1998 1997 1998 1997 Nordic insurance Sweden -554 -729 304 197 Norway -496 -114 -173 262 Denmark -232 -78 -119 32 Marine&Energy -3 -70 40 2 Other -92 -7 -75 -9 Total -1 377 -998 -23 484 International insurance NIG Skandia -337 -268 -27 10 Sinser 0 -13 12 0 Total -337 -281 -15 10 Other Operations undergoing restructuring Italy - -142 - 0 Business in run-off -78 -50 - 0 Other -163 -158 -73 -75 Total -241 -350 -73 -75 Total, property & casualty -1 955 -1 629 -111 419 insurance * In accordance with the Annual Accounts Act for Insurance Companies, i.e., including allocated investment return. KEY RATIOS 1998 1997 Nordic insurance Claims ratio, net, % 89 87 Expense ratio, % 23 22 Combined ratio, net, % 112 109 International insurance Claims ratio, net, % 67 69 Expense ratio, % 43 40 Combined ratio, net, % 110 109 Total, property & casualty insurance Claims ratio, net, % 85 83 Expense ratio, % 28 27 Combined ratio, net, % 113 110 PROPERTY & CASUALTY INSURANCE MSEK Gross premiums Net written premiums earned PREMIUMS 1998 1997 1998 1997 Nordic insurance Sweden 6 704 6 691 5 447 5 483 Norway 4 560 4 112 3 613 3 750 Denmark 1 736 1 567 1 635 1 386 Marine&Energy 573 730 360 468 Other 113 98 107 50 Total 13 686 13 198 11 162 11 137 International insurance NIG Skandia 4 472 4 404 3 228 2 850 Sinser 132 111 90 96 Total 4 604 4 515 3 318 2 946 Other Operations undergoing restructuring Italy - 1 006 - 992 Business in run-off 160 52 73 117 Other 505 518 -1 -55 Total 665 1 576 72 1 054 Total, property & casualty 18 955 19 289 14 552 15 137 insurance INVESTMENT INCOME MSEK 1998 1997 Changes in value Bonds and short-term investments 445 170 1 188 3 672 Equities Real estate 113 212 Loans -4 -22 Total changes in value 1 742 4 032 Direct investment income 1 745 2 139 Foreign exchange gains/losses -1 -55 Investment income 3 486 6 116 Allocated investment return transferred to the technical account -1 844 -2 048 Investment income, net 1 642 4 068 Direct yield, % 4,8 5,3 Total yield, % 9,1 14,9 TOTAL YIELD 1998 1997 % Bonds and short-term investments 8,2 6,7 Equities 11,0 36,8 Real 9,5 11,0 estate Loans 6,4 3,9 Total 9,1 14,9 BREAKDOWN OF INVESTMENTS IN PROPERTY & CASUALTY INSURANCE OPERATIONS/ 1) CURRENT VALUES MSEK 2) 1998 SEK NOK GBP USD DKK Other Total % 31 Dec. Short-term investments 4 628 529 140 -564 289 446 5 468 12% Bonds 1 707 1 849 6 739 4 312 2 601 2 966 20 174 46% Loans 2 1 941 3 10 0 3 1 959 4% Equities 3 218 1 458 2 013 1 383 237 5 459 13 768 31% Real estate 1 485 787 221 0 421 181 3 095 7% Total 11 040 6 564 9 116 5 141 3 548 9 055 44 464 100% 25% 15% 21% 11% 8% 20% 100% 1997 SEK NOK GBP USD DKK Other Total % 31 Dec. Short-term investments 3 779 677 891 229 235 1 142 6 953 15% Bonds 1 932 3 185 5 359 4 070 2 104 2 221 18 871 42% Loans -14 1 619 2 19 1 8 1 635 3% Equities 4 756 2 391 1 494 990 407 3 873 13 911 31% Real estate 2 022 609 210 0 382 844 4 067 9% Total 12 475 8 481 7 956 5 308 3 129 8 088 45 437 100% 27% 19% 17% 12% 7% 18% 100% 1) Pertains to investments in the property & casualty insurance operations, including participating interests and excluding forward exchange contracts. 2) Other currencies are broken down as follows: MSEK 1998 Other Other Total 31 Dec. world Europe Other Short-term 7 439 446 investments Bonds 134 2 832 2 966 Loans 3 3 Equities 101 5 358 5 459 Real estate 23 158 181 Total 265 8 790 9 055 OTHER OPERATIONS MSEK 1998 1997 SkandiaBanken 75 104 Skandia International 225 250 Italy -205 - Other operations 61 77 Total 156 431 OTHER EXPENSES MSEK 1998 1997 Interest expenses for borrowing -505 -440 Amortization of goodwill -115 -104 Profit-sharing plans -180 -252 Joint-group management expenses -319 -192 Total -1 119 -988 NET ASSET VALUE AND SOLVENCY MARGIN MSEK 1998 1997 31 Dec. 31 Dec. Shareholders' equity 14 975 14 051 Deferred tax 3 821 4 235 Surplus value, unit linked business 5 468 3 897 in force Other surplus values 569 525 Net asset value 24 833 22 708 1) Subordinated loans 2 175 1 785 Risk-bearing capital 27 008 24 493 Risk-bearing premium 15 998 15 879 Solvency margin, % 169 154 1) Including the subordinated loan floated in December 1997, paid-in in January 1998. CHANGE IN NET ASSET VALUE MSEK Net asset value, December 1997 22 708 Operating result 3 634 Change in surplus value of bonds 11 Deferred tax (of which, unit linked business in force, -988) -903 Income taxes paid -346 Translation differences 111 Minority interests 2 Dividend paid out -384 Net asset value, December 1998 24 833 OPERATING RESULT Property & Allocated MSEK casualty investment Longterm Operati ng 1998 insurance return savings Other result Technical result, -1 877 1 754 -123 property & casualty insurance Technical result, life -78 90 528 540 assurance Non-technical result Investment income, 3 486 -1 844 179 1 821 non-technical Interest expense for -505 -505 borrowing Change in surplus 2 399 2 399 value of unit linked business in force Other savings -40 -40 products Other operations 156 156 Amortization of -115 -115 goodwill Allocation to profit- -180 -180 sharing plans Joint-group -319 -319 management expenses Operating result 1 531 0 3 066 -963 3 634 Of which, change in surplus value of -2 399 -2 399 unit linked business in force Pre-tax result 1 531 0 667 -963 1 235 OPERATING RESULT Property & Allocated MSEK casualty investmentLong-term Operating 1997 insurance return savings Other result Technical result, -1 558 1 975 417 property & casualty insurance Technical result, life -71 73 879 881 assurance Non-technical result Investment income, 6 116 -2 048 67 4 135 non-technical Interest expense for -440 -440 borrowing Change in surplus 1 134 1 134 value of unit linked business in force Other operations 431 431 Amortization of -104 -104 goodwill Allocation to profit- -252 -252 sharing plans Joint-group -192 -192 management expenses Operating result 4 487 0 2 080 -557 6 010 Of which, change in surplus value of -1 134 -1 134 unit linked business in force Pre-tax result 4 487 0 946 -557 4 876 PROFIT AND LOSS ACCOUNT MSEK 1998 1997 Technical account, property & casualty insurance business Premiums earned, net of 14 552 15 137 reinsurance Allocated investment 1 754 1 975 return transferred from the non-technical account Claims incurred, net of -12 -12 640 reinsurance 350 Operating expenses -4 114 -4 074 Other technical income 35 19 and charges Technical result, -123 417 property & casualty insurance business Technical account, life assurance business Premiums written, net 60 260 50 753 of reinsurance Investment income, 32 335 19 904 including unrealized changes in value Claims incurred, net of -20 -12 266 reinsurance 826 Change in other technical provisions where the investment risk is borne by the -64 -48 421 policyholders 251 Operating expenses -5 278 -4 252 Other technical -1 790 -4 910 provisions Allocated investment 90 73 return transferred from the non-technical account Technical result, life 540 881 assurance business Non-technical account Investment income, 1 821 4 135 including unrealized changes in value Interest expenses for -505 -440 borrowing Other savings products -40 - Other operations 156 431 Amortization of -115 -104 goodwill Allocation to profit- -180 -252 sharing plans Joint-group management -319 -192 expenses Pre-tax result 1 235 4 876 Paid and deferred tax 13 -1 276 Minority interests in -6 -198 result for the period Result for the period 1 242 3 402 BALANCE SHEET SUMMARY SEK billion 1998 1997Shareholders' 1998 1997 equity, Assets 31 Dec. 31 Dec.provisions and 31 Dec. 31 Dec. liabilities Goodwill 0,1 0,2Shareholders' 15,0 14,1 equity 3) Investments 80,1 76,0Minority 0,0 0,4 interests Investments, unit 255,5 182,5Deferred tax 3,8 4,3 linked liability Reinsurers' share of Subordinated 2,3 1,1 2) loans 2) technical 8,0 6,7Borrowing 6,3 6,5 1) provisions Debtors 6,0 6,3Technical 76,6 70,1 1) provisions Tangible assets 0,8 0,6Provisions, unit 247,7 175,8 1) linked Cash at bank and in 3,3 2,7Creditors 8,4 7,2 hand Other assets 0,2 0,3Reinsurers' share of deferred Deferred acquisition 3,6 2,8 acquisition 0,2 0,1 1) 1) costs costs Other prepayments and Other accruals and accrued income 2,7 1,9 deferred 1,9 2,1 income Assets in finance 1,6 1,6Liabilities in 0,7 0,8 companies finance 2) companies Assets in bank 12,8 9,1Liabilities in 11,8 8,2 operations bank operations 2) Shareholders' equity, Assets 374,7 290,7provisions and 374,7 290,7 liabilities 1) Technical provisions, net, after deducting deferred acquisition costs Life assurance 34,6 29,9 Unit linked assurance 246,6 175,7 Property & casualty 31,7 30,9 insurance Total 312,9 236,5 2) Group borrowing, excluding subordinated loans in Skandia Insurance Company Ltd. Borrowing as per 8,6 7,6 balance sheet Additional borrowing by finance companies and bank 0,7 0,7 operations Subordinated - 0,2 debentures in bank operations Less: subordinated loans in Skandia Insurance Company -2,2 -1,0 Ltd. Total 7,1 7,5 3) Investments, current value Investments as per 80,1 76,0 balance sheet Recalculation to 3,5 2,4 current value Cash at bank and in 3,3 2,7 hand Securities settlement 0,0 0,1 claims, net Accrued interest 1,2 1,0 income Liability derivatives -0,1 0,0 Total 88,0 82,2 Of which: Investments, life 38,8 33,2 assurance Investments, unit 4,2 3,4 linked Other investments, 0,3 0,0 long-term savings Investments, property 44,5 45,4 & casualty insurance Deposits with ceding 0,2 0,2 undertakings Total 88,0 82,2 NORDIC INSURANCE 1) Recalculation of 1997 accounts As part of Skandia's efforts to increase transparency in the accounts, starting with the first quarter of 1998, premiums written and the technical result for the property & casualty insurance operations are being reported per geographical area. This means that premiums written and the technical result for Skandia Industry are broken down by country. The recalculation per geographical area compared with previously issued reports is shown in the table below. To facilitate analysis, starting in 1998, the technical result is reported both before and after allocation of investment income. In addition, net premiums earned are specified per geographical area. Premiums written January-December 1997 As per annual Geographical Breakdown report reallocation by country Sweden 5 041 1 650 6 691 Norway 4 000 112 4 112 Denmark 1 298 269 1 567 Industry 2 122 -2 122 0 Marine&Energy 730 730 Other 7 91 98 Total 13 198 0 13 198 2) Technical result January-December 1997 As per annual Geographical Breakdown report reallocation by country Sweden 147 50 197 Norway 225 37 262 Denmark 2 30 32 Industry 187 -187 0 Marine&Energy 2 2 Other -79 70 -9 Total 484 0 484 1) In the 1998 Year-End Report, Nordic insurance is reported per country. 2) In accordance with the Annual Accounts Act for Insurance Companies, i.e., including allocated investment return. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/02/18/19990218BIT00470/bit0001.pdf The full report http://www.bit.se/bitonline/1999/02/18/19990218BIT00470/bit0002.xls Tables