Year-End Report 2000

YEAR-END REPORT 2000 *) · Sales increased by 48 per cent, to SEK 198 billion · The operating result for the core businesses increased by 22 per cent, to SEK 5,798 million · The group's operating result was SEK 8,029 million · Assets under management increased by 19 per cent, to SEK 992 billion Comments by Lars-Eric Petersson, President and CEO: "Following a year filled with records - in terms of sales results as well as in the number of distinctions for first-rate customer service - the fourth quarter of 2000 had its share of ups and downs. "Our operations in the UK, Sweden and New Markets continued to deliver new sales records - in many cases nearly doubling compared with a year ago. In the US, Skandia's single largest market, the economic slowdown has been reflected in the decline in our growth rate, with a subsequent, relative rise in costs. Due to the highly volatile stock market, our result for the fourth quarter was unsatisfactory. "Cost-cutting measures have been implemented in the US market. These, together with the launch of new products from January to May of this year, create good conditions for continued growth. It is natural for a slowdown in the US economy to impact growth across the entire savings market. In the long term, however, it is the underlying structural need of savings combined with Skandia's product offering and distribution power that builds the foundation for continued good sales growth. We now see opportunities to further increase our market share in both the variable annuity and mutual fund markets. "Through uninterrupted geographical expansion, the importance of individual markets will decrease, and our sustained earnings capacity will increase." OVERVIEW The operating result for the core businesses rose 22 per cent, to SEK 5,798 million (4,756). The return on net asset value for the core businesses, before tax, was 21 per cent (24). Sales of unit linked assurance rose 51 per cent, to SEK 140 billion (93). New sales rose 59 per cent. The operating result increased by 25 per cent, to SEK 6,172 million (4,957). The operating result was adversely affected by the trend in the stock markets during the fourth quarter. Sales of mutual fund savings products rose 44 per cent, to SEK 54 billion. This business achieved a positive result of SEK 12 million (-154) during the year. Assets under management increased by SEK 159 billion, or 19 per cent, compared with the start of the year, to SEK 992 billion. The group's operating result was SEK 8,029 million (8,575), and the return on the group's adjusted net asset value, after tax, was 21 per cent (24). INSURANCE AND SAVINGS PRODUCTS Market and Sales Unit Linked Assurance Sales of unit linked assurance rose 51 per cent during the year. Skandia's goal is to expand operations geographically and thereby reduce the significance of individual markets. New sales increased by 59 per cent (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). During the second half of the year, sales in the USA were affected by adverse market conditions. Such a market favours guaranteed products, which American Skandia offers only to a limited extent. Sales in the USA rose during the year by 20 per cent, to USD 8,217 million. The British operation doubled its sales to GBP 3,100 million (1,591) in a market that showed only marginal growth. New sales of unit linked assurance rose 88 per cent. Skandia's sales successes can be credited to a distinct focus on improved distribution capacity, good returns on funds, a high standard of service and a diversified product portfolio. Sales in Sweden rose 73 percent, to SEK 10,145 million (5,855). New sales rose 122 per cent. An active, conscious focus on an expanded, rich offering of funds and products, highly developed sales support, and a high degree of service towards distributors and customers are the primary factors behind the sales successes. The market share for new sales increased to 25 per cent (20) as per September 2000. In Germany, sales rose 76 per cent in local currency, to SEK 1,216 million. The unit linked market is growing fast and now accounts for more than 24 per cent of the total life market, compared with 5 per cent five years ago. Changes in tax rules will lead to greater sales of equity- related savings products. In Japan, sales rose 224 per cent in local currency, to SEK 1,049 million (277). The increase is mainly attributable to the launch of a new, single- premium variable annuity product. Following the preceding year's record-fast growth in Italy, the stock market trend and uncertainty about future legislation led to a 7 per cent decline in sales for the year in local currency, to SEK 4,707 million. In Spain, sales rose 54 per cent in local currency, to SEK 1,632 million. Payments to policyholders amounted to 8.5 per cent of technical provisions (6.9 per cent at year-end 1999). Surrenders accounted for 7.1 percentage points of this total (5.7), which is well within the limits of underlying assumptions. Assets under management increased by 18 per cent, to SEK 501 billion. Mutual Fund Savings Products Sales of mutual fund savings products (without an insurance element) rose 44 per cent, to SEK 53,575 million (37,129). Sales in the USA rose 19 per cent, to USD 3,965 million. The sales trend was dampened by the negative trend in the stock markets. Sales in the UK doubled, to GBP 963 million. Payments to customers through withdrawals totalled SEK 12,376 million (4,932), which is well within our assumptions and is a decrease in relation to underlying fund volumes. Assets under management increased by 46 per cent, to SEK 99 billion. Life Assurance Sales in Spain are decreasing due to a shift in focus towards unit linked products. Assets under management therefore decreased from SEK 16 billion to SEK 15 billion. Operating Result and Profitability Unit Linked Assurance The operating result increased by 25 per cent, to SEK 6,172 million (4,957). The result was favourably affected by the rise in sales and economies of scale that have been achieved in operations, while the stock market decline had a substantial negative impact. Financial effects had a negative result impact in the USA, in the amount of SEK -920 million for the full year, and SEK -1,912 million for the fourth quarter, mainly due to the decline in the stock markets. The result for new business increased by 51 per cent to SEK 2,243 million (1,483). The contribution of new business to the pre-tax return increased during the year from 11.0 per cent to 11.4 per cent. The higher return is explained by a sales increase that compensates for a lower profit margin. The profit margin expressed as a percentage of new sales decreased to 11.7 per cent, compared with 12.3 per cent in 1999. During the year considerable economies of scale were achieved especially in the UK and Sweden. If the result for new business is adapted to updated assumptions, the profit margin for the group as a whole would increase from 11.7 per cent to 14.2 per cent. To maintain comparability between quarters, the assumptions for calculating the result of new business were unchanged during the year. The development of the profit margin in individual markets is explained entirely by the trend in costs in relation to sales volume, which leads to greater or lower economies of scale. The cost trend normally follows sales volume with a time-lag. In new markets, the profit margin during the fourth quarter was affected by costs for product development and marketing. Adjustment of Assumptions The assumptions for calculating embedded value are updated at the end of each year to reflect the current conditions. Costs for surrenders on the whole have developed favourably, and thus the assumptions have been adjusted downward. Due to economies of scale, the marketing allowance from fund companies has increased, and these assumptions have been adjusted upward. These changes had a positive impact on the result in the amount of SEK 1,809 million. The discount rate is continuously adapted to changes in interest rates in the market. In addition, the discount rate used in the present value calculation has been reduced in order to bring it nearer to the industry standard (see table on p. 15). This had a positive effect on the result in the amount of SEK 1,038 million. The accumulated growth in the value of funds under management in excess of underlying assumptions is spread out over a three-year period. This is done to give a truer picture of the operation's long-term result and profitability development. For individual years in which growth in value falls below assumptions made for the year, the accumulated equalization amount is reduced to cover the deficit, until the equalization amount is zero. In the later part of the year - especially during the fourth quarter - the stock markets developed negatively in relation to the assumptions used for fund growth, which had a negative impact on the result. By year- end the accumulated equalization amount was therefore essentially amortized. Mutual Fund Savings Products Operations reached break-even during the year and showed a positive result at year-end, despite the negative trend in the stock market. The result amounted to SEK 12 million (-154). Life Assurance The result for life assurance was SEK 83 million (80). Return on Net Asset Value The return on net asset value for insurance and savings products, after financing costs and taxes, was 18 per cent (23). Asset Management Assets under management, consisting of assets from companies in the Skandia group, external clients, and fund management, increased during the year by SEK 46 billion to SEK 361 billion. Assets under management include SEK 37 billion in managed mutual fund assets, an increase of SEK 6 billion since the start of the year. Commissions from asset management are partly fixed and partly performance- related, the latter being ultimately determined in proportion to the achieved annual return. The result amounted to SEK 174 million (273) after interest expenses and goodwill amortization. Investment Income Investment assets in the parent company amounted to SEK 4.9 billion. The return on these assets was 3.8 per cent, or SEK 232 million. Businesses SkandiaBanken SkandiaBanken's operating result was SEK 63 million (63). The result was charged with higher costs for investments in a new stock trading system and start-up costs for the branch office in Norway. SkandiaBanken's online stock trading service and fund commissions developed well. Deposits in SkandiaBanken increased to SEK 15.2 billion. The bank has a total of 400,000 customers, an increase of 25 per cent during the year. Lifeline Lifeline sells health care products, group insurance, and competence insurance. Business is developing favourably, and interest in Lifeline's products is great. Lifeline's result increased to SEK 52 million (44). Skandia Marketing Ltd. Skandia Marketing distributes savings and insurance products for Skandia and If in the Swedish and Danish markets. Business is developing well, however, the result fell to SEK 46 million (70). The result for 2000 includes costs of approximately SEK 34 million pertaining to investments in Norway and Sweden. Other Companies The operating result for other companies, including finance companies that are being wound up, was SEK 54 million (50). Group Expenses Group expenses comprise management and structural costs, and goodwill amortization. Items Affecting Comparability Items affecting comparability amounted to SEK 2,785 million (2,566) and include a repayment of SEK 2,471 million in surplus funds from Skandia's occupational pension plans with Skandia Liv, and SEK 314 million (2,566) pertaining to the result from the sale of operations. Exchange Rate Effects Exchange rate movements had a positive impact during the period. Sales increased by SEK 12,565 million, and the operating result for the group increased by SEK 259 million after recalculation to higher average exchange rates compared with the preceding year. PROPERTY & CASUALTY INSURANCE Skandia owns 56 per cent of the Nordic property and casualty insurance company If. Skandia's share of If's operating result amounted to SEK -554 million (SEK 1,253 million, after deducting SEK 271 million in financing costs). The combined ratio improved during the year to 110.2 per cent. However, the stock market decline had a negative impact on the result. The sale of Vesta Skadeforsikring entailed payment of a dividend by If to Skandia, of SEK 1.9 billion. After receipt of this dividend, Skandia's equity share in the property & casualty operations of If amounts to SEK 4.2 billion. BALANCE SHEET AND NET ASSET VALUE Total assets increased by SEK 74.7 billion, to SEK 589.2 billion. Unit linked assurance and mutual fund savings products accounted for an increase of SEK 76.3 billion. External borrowings decreased by SEK 1.2 billion to SEK 7.8 billion, excluding the parent company's subordinated loans. Net asset value amounted to SEK 37,031 million (29,220). Capital employed in the group, which in addition to net asset value consists of borrowings to finance investments in subsidiaries, amounted to SEK 45.6 billion (37.5). Of these funds, SEK 41.4 billion (31.1) pertains to the core businesses, while SEK 4.2 billion pertains to the financing of Skandia's share of the P&C insurance operations in If. Stockholm, 14 February 2001 Lars-Eric Petersson President and CEO For questions, please contact: Ulf Spång, Chief Financial Officer, tel. +46-8-788 2905 Harry Vos, Head of Investor Relations, tel. +46-8-788 3643 The Board of Directors proposes a dividend of SEK 0.60 for the 2000 financial year, and 30 March 2001 as the record date for payment of the dividend. If the Annual General Meeting decides in favour of this proposal, dividends are expected to be sent out from the Swedish Securities Register Centre (VPC) on 4 April 2001. The Annual General Meeting of Skandia Insurance Company Ltd. (publ.) will be held on Tuesday, 27 March 2001, at 4.30 p.m. Location: University of Stockholm, Aula Magna, Frescati, Stockholm. The Annual Report is scheduled for distribution by mail to shareholders in mid-March and can be ordered from Skandia using one of the following alternatives: by phone, +46-8-788 10 00, by fax, +4-8-788 26 85, or via the Internet at http://www.skandia.se. Financial calendar for Skandia: 9 March 2001, February sales 27 March 2001, Annual General Meeting 10 April 2001, March sales 27 April 2001, interim report January-March 2001 8 August 2001, interim report January-June 2001 1 November 2001, interim report January-September 2001 Skandia's published financial reports are available on the Internet: www.skandia.se and www.skandia.com. Skandia's websites also provide links to the live webcast of the analyst and press conference at Operaterassen on Wednesday, 14 February 2001, as well as to the audiocast of the teleconference. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/02/14/20010213BIT01590/bit0001.doc The full Year-end report http://www.bit.se/bitonline/2001/02/14/20010213BIT01590/bit0002.pdf The full Year-end report