STOCKHOLM, Sweden, Aug. 8, 2002 (PRIMEZONE) -- Skandia:
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 Engstrom
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.
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