Skandia: The Board of Directors' information to the Annual General Meeting


STOCKHOLM, Sweden, March 16, 2005 (PRIMEZONE) -- Skandia: The Board of Directors' information to the Annual General Meeting regarding:

-- the Board's investigation of the prospects of directing claims for damages at former directors,

-- the Board's recommendation to the Annual General Meeting to approve a friendly settlement reached with Lars Ramqvist, and

-- the Board's investigation of the prospects of directing claims fordamages at former auditors

Points of departure

Skandia is currently party to a number of disputes stemming from the past. Handling these disputes is a delicate task for the Board, which must take into consideration what is in the best interest of Skandia and Skandia's shareholders. The Board's assignment from the shareholders is to manage and develop Skandia's business for the benefit of the company's policyholders and customers in such a way that it creates long-term value for the company and thus for its shareholders.

Certain disputes or potential disputes entail material financial exposure for Skandia, while others are more a matter of principle or of general interest. The Board is of the opinion that as a business enterprise with extensive international operations, Skandia should only initiate such legal processes that are clearly judged to benefit the company's business activities and thus its shareholders. Disputes that are more a matter of principle are not to be pursued by Skandia at the expense of all shareholders. The latter applies especially in view of the fact that such processes often entail major indirect costs for Skandia and thus its shareholders, since the Board and certain employees must dedicate a substantial amount of time to these processes instead of developing Skandia's business. The direct costs for recent years' investigations and processes at Skandia are soon nearing a couple-hundred million Swedish kronor, while the indirect costs are considered to considerably greater.

The legal investigation on directors' and auditors' liability The Annual General Meeting held on 15 April 2004 resolved to not grant discharge of liability to the directors who served on Skandia's board during the period 1 January -- 15 April 2003. The same applied for Skandia's CEO during that period of time. Against the background of that resolution, in summer 2004 the Board commissioned attorneys Otto Rydbeck and Peter Danowsky to investigate jointly, but to form independent opinions, as to whether there were grounds to hold any director or directors of Skandia's former boards liable for damages. Their investigation covered both the time during which discharge from liability was not granted as well as earlier. This investigative assignment was later widened to also include Skandia's former auditors.

Former Skandia directors

At the Board's meeting on 22 December 2004, the result of Otto Rydbeck and Peter Danowsky's legal investigation regarding Skandia's former directors was presented. The lawyers were not entirely in agreement with respect to their opinions and recommendations, which shows that the issues are difficult to assess and that the outcome of any processes is uncertain.

From the presentation it was learned:

-- That the statute of limitations for directors' liability for 2000 expired at year-end 2003. Consequently, the directors cannot be held liable for the period up to and including 31 December 2000.

-- That the statute of limitations for directors' liability for2001 would expire at year-end 2004.

-- That claims for damages can be made after the end of the above-mentioned limitation periods only if Skandia can show that a director has harmed the company through criminal action.

-- That, under Swedish law, the directors' liability for damages must be challenged individually, and that the directors cannot be held collectively liable for damages

-- That with respect to Lars Ramqvist, who was Chairman of the Board and chairman of the Compensation Committee and Audit Committee up and until the Annual General Meeting on 15 April 2003, Otto Rydbeck and Peter Danowsky had formed differing opinions. Danowsky felt that there was a legal basis to direct claims for damages, while Rydbeck felt that any suit seeking damages was associated with considerable uncertainty, both with respect to the law and in terms of evidence

-- That with respect to Bengt Braun, who was Vice Chairman of the Board and a member of the Compensation Committee until 17 April 2001 and who thereafter left Skandia's board, both lawyers came to the conclusionthat the prospects of success in a legal action were very small

-- That with respect to Boel Flodgren, who was a member of the Board and its Audit Committee during the time in question, both lawyers came to the opinion that the prospects of success in a legal action were very small

-- That with respect to the other directors who served on the Board from 1 January -- 15 April 2003, nothing had been found that could lead to liability for damages

With respect to Lars Ramqvist it was reported:

-- That in Peter Danowsky's opinion, there was an opportunity to hold Lars Ramqvist liable for damages for one event in 2000, even though the statute of limitations for his normal liability as a director has expired for that year. In his capacity as Chairman of the Board, Ramqvist had a responsibility to make sure that the Board's decisions were made in the proper manner. Failure to fulfil this responsibility is a punishable offence. In Danowsky's opinion, it can be claimed that this responsibility was neglected in the Board's decision in early 2000 to extend the ``Sharetracker" and ``Wealthbuilder" bonus programmes. The statute of limitations has expired for criminal liability, but not for any liability for damages if the rules were not adhered to. In Danowsky's opinion, this could entail liability for damages on the part of Lars Ramqvist. Rydbeck had doubts about this opinion.

-- That in 2001, circumstances arose which should have given Ramqvist reason to exercise better oversight with respect to the outcome of the Wealthbuilder bonus programme. Had better control been exercised, Lars-Eric Petersson's removal of the cap for the Wealthbuilder programme could have surfaced to the board, and Skandia's loss at least could have been limited.According to Danowsky, Ramqvist could be held liable for damages for this failure.

-- That also during the period 2002 -- 15 April 2003, there were circumstances that should have given Ramqvist reason to ask further questions to the executive management and the external auditors regarding the reporting of the costs for the Sharetracker and Wealthbuilder programmes. If, however, it only pertained to that period, the likelihood of a successful outcome in a legal action would not be high enough to justify a lawsuit against Ramqvist.

-- That the damage that Ramqvist, through his carelessness, may have caused or avoided to limit is difficult to quantify. In a lawsuit claiming damages, it must also be taken into account that the applicable legislation includes an adjustment provision. Among the factors that must therefore be taken into account are that Ramqvist, as far as has been determined, did not intentionally cause any harm to Skandia, that Skandia at the time had a respected executive management, and that Skandia had several external auditors who were very familiar with the company's conditions and the issues at hand, and who therefore could have been expected to raise a warning flag when something wrong or improper occurred.

-- That in assessing the amount of damages, Ramqvist's financial situation must also be taken into account, i.e., his ability to pay damages, plus the fact that he was not a beneficiary of any bonus programme at Skandia.

-- That Skandia would have to bear a large share of the legal costs if Skandia were to direct claims for damages in a considerably higher amount than what ultimately may be awarded by a court ruling

-- That after weighing in all aspects, Danowsky felt that a suit should be filed against Lars Ramqvist, while Rydbeck was of the opposite opinion.

With respect to Bengt Braun it was reported:

-- That Braun was serving on the Board when the Sharetracker and Wealthbuilder programmes were originally approved, that he was one of the directors who had been assigned with the task of deciding on individual grants in the bonus programmes, and that he participated in the decision to extend the programme and from May 2000 was a member of the Compensation Committee, which according to its instructions was particularly responsible for handling matters concerning the bonus programmes. Comparatively high standards can be placed on him in any assessment of his prudence.

-- That even if Braun out of carelessness during the period 1997--2000 may have played a part in the unreasonable outcome of the bonus programmes, no claims for damages can be directed against him due to the statute of limitations.

-- That the statute of limitations had not expired for any claims for damages for carelessness in connection with Braun's board duties during the period 1 January--17 April 2001, but that the only concrete circumstance that could be tied to allegations of carelessness during this period was that Braun did not note that the outcome of Wealthbuilder, which was presented in a note in the 2000 Annual Report, was not in agreement with what the Board, in his view, had previously decided on. However, the task of checking the annual report in detail was not Braun's responsibility. Added to this is the fact that Lars-Eric Petersson and the AGM-elected auditors, who were aware that larger amounts than those reported would be paid out and that the information in the note was incorrect, did not appear to have informed the Board of this.

-- That the prospects of winning in a lawsuit seeking damages from Bengt Braun based on the grounds outlined above were therefore considered to be very small.

With respect to Boel Flodgren it was reported:

-- That Boel Flodgren was serving on the Board when the Sharetracker and Wealthbuilder programmes were originally decided on, but that she did not participate in the individual grants to the participants.

-- That in retrospect it can be stated that it would have been warranted of Flodgren in 2000 to have brought up the issue of examining the value calculations for the Wealthbuilder programme with Lars Ramqvist, but that it is doubtful if she -- by not doing so -- can be considered to have been careless and in such way that can justify liability for damages, and that the statute of limitation for any carelessness in 2000 has expired for all circumstances.

-- That Flodgren, who was a member of the Audit Committee, did not react to the fact that the outcome of Wealthbuilder reported in the 2000 Annual Report dramatically differed from the highest amount which, by her understanding, was the cap that the Board had decided on. However, Flodgren did not have equally extensive knowledge about the bonus programmes that Lars Ramqvist and the other directors had who were previously members of the Board's executive council or Compensation Committee. Further, it should be noted that Lars-Eric Petersson and the AGM-elected auditors, who knew that larger amounts than those reported would be paid out and that the information in the note in the annual report was incorrect, did not appear to have informed the Board or Audit Committee about this.

-- That Flodgren asked some relevant questions in the Board and in the Audit Committee with respect to the bonus programmes and the company's risks, however, the answers she received from persons in the executive management at that time and from the external auditors in some cases were incomplete and misleading.

-- That the prospects of winning in a lawsuit seeking damages from Boel Flodgren were therefore considered to be very small.

With respect to the other directors it was reported:

-- That none of the other directors who were not granted discharge of liability for the period 1 January 2003 -- 15 April 2003, except for Lars-Eric Petersson, with whom arbitration proceedings are currently inprogress, had participated in the individual grants of participation inSharetracker and Wealthbuilder.

-- That Lars Ramqvist had not taken up the issue of examining the value calculations of Wealthbuilder on the Compensation Committee's agenda, and the directors who were members of that committee therefore had not concerned themselves with that issue to a greater extent than the other directors.

-- That the prospects of winning a lawsuit seeking damages against the other directors due to inadequate oversight and follow-up of the Wealthbuilder and Sharetracker programmes in 2001 -- 2003 were essentially non-existent, since Ramqvist -- in his capacity as Chairman of the Board, and as chairman of the Audit Committee and Compensation Committee -- was the person on the Board who had responsibility for ensuring that the division of duties between the Board and its committees was adequate and that no issues fell between two stools, and that Lars-Eric Petersson and the external auditors, despite their knowledge about the shortcomings in how the programmes were applied, did not appear to inform that Board about this.

Finally, it was reported:

-- That with respect to the period for which discharge of liability was not granted, i.e., 1 January 2003 -- 15 April 2003, no other information has emerged with could give rise to liability for damages.

The Board's handling and considerations regarding the settlement with Lars Ramqvist

In view of the report that was presented, on 22 December 2004 the Board decided to sue Lars Ramqvist for SEK 25 million before the year's end, if he was not willing to enter into settlement discussions and, pending the outcome of these, to accept a continuance of the statute of limitations for his liability as a director for 2001, which would otherwise expire at year-end 2004. The conceived amount cited in the suit was based on what the Board considered to be a justified starting point for a lawsuit. It is the Board's opinion that the amount could be adjusted downward by a court, even if Skandia were to obtain a favourable ruling in its suit. In addition, the Board's opinion was that the direct costs for a process would be substantial.

Ramqvist accepted the continuance of the statute of limitation through 15 May 2005, in accordance with an agreement of 27 December 2004. Settlement negotiations were thereafter initiated.

The settlement negotiations resulted at the end of January in Ramqvist stating that he was prepared to publicly declare that he has a moral responsibility for the events that occurred at Skandia, and that as a consequence of this, he was also prepared to pay back the director's fees he received in 2000 and 2001. These amounted to slightly more than SEK 2.2 million. In assessing the settlement amount, the following factors, among others, should be taken into account: the Board's overall opinion about the limited prospects of success in a legal process, the risk of a material adjustment in the amount demanded in damages even if success were achieved as a matter of principle in the process, the substantial direct as well as indirect costs of such a process, the time that would pass before any damages would be awarded by a court, and the negative exposure that the Skandia brand would suffer during a court process that goes on for several years. This is in line with the general points of departure outlined in the introduction that the Board has for its decisions. Further, in the Board's opinion, an important factor that should be weighed in is that through the proposed settlement, Ramqvist has accepted a moral responsibility for the events that occurred at Skandia. In this context it can also be noted that the principle of repaying directors' fees received was also applied in the early 1990s in connection with the banking crisis in Sweden at that time. The Swedish government, in its capacity as owner, applied this principle with respect to several banks which sustained very substantial credit losses do to poor board work, among other things. The credit losses in these cases were many times larger than the costs incurred by Skandia due to the criticised bonus programmes.

A precondition for the Board to be prepared to enter into a friendly settlement was that Ramqvist would not be indicted, i.e., that senior prosecutor Christer van der Kwast would drop his preliminary investigation against Ramqvist.

At a board meeting on 31 January 2005, the Board discussed the settlement agreement that had been negotiated with Lars Ramqvist that same day. By that time the senior prosecutor had also announced that he had dropped his preliminary investigation against Ramqvist.

In his decision to drop the investigation, van der Kwast states that on 22 June 2004 he served a writ to Lars Ramqvist informing him that he was under criminal investigation. In this writ, van der Kwast stated that Ramqvist was under suspicion of having abused his position of trust, since after receiving knowledge that the cap for the Wealthbuilder programme had been removed, he did not take any action to limit the company's costs for the programme. In his writ, van der Kwast estimated the damage at SEK 546 million. In his decision to drop the investigation eight months later, after the completed preliminary investigation, van der Kwast did not give any indication that Ramqvist had caused damage to Skandia. Information in the media that van der Kwast was purported to have stated that Ramqvist had caused damage of SEK 546 million is thus incorrect. This statement has also been denied by van der Kwast. In his decision to drop the investigation, the senior prosecutor stated:

In my opinion, what has emerged from the investigation lends support to the conclusion that Ramqvist in several respects failed in his role as chairman of the board and as chairman of the compensation committee in connection with the handling of the extension of the Wealthbuilder programme, and that this affected the course of events. However, based on the information at hand, it cannot be verified that Ramqvist, through his actions or negligence, intentionally abused his position of trust in the company and thereby caused damage to the company.

With respect to van der Kwast's opinion, the Board noted that the senior prosecutor did not feel he could verify that Lars Ramqvist was guilty of the crime he had been served a writ for, and that the conditions that the prosecutor's investigation pertained to concerned the year 2000. As noted above, the statute of limitations for these circumstances has expired with respect to liability for damages not based on criminal action.

Against the background of the conditions reported above, the Board is of the opinion that the proposed settlement is clearly better for Skandia than uncertain litigation in the courts over damages. This opinion was arrived at after very extensive considerations.

In summary, for the Board's position on a friendly settlement with Lars Ramqvist, it was very important that Ramqvist declared that he accepts his share of moral responsibility for what occurred at Skandia. In the Board's unanimous opinion, for Skandia the repayment of fees for 2000 and 2001 is a much better alternative than a prolonged, costly and -- not least -- uncertain legal process.

The Board's recommendation to the Annual General Meeting with respect to directors' liability Against the background of the above, the Board recommends that the shareholders at the Annual General Meeting on 14 April 2005 resolve to approve the settlement agreed upon with Lars Ramqvist dated 31 January 2005, entailing that Lars Ramqvist will repay the director's fees he received for 2000 and 2001, together amounting to SEK 2,216,667.

Former auditors

Due to the fact that the statute of limitations for the directors' liability for 2001 was set to expire at year-end 2004, while the statute of limitations for the auditors' liability will not expire until 17 April 2005 (three years after the Annual General Meeting of 17 April 2002), the legal investigation was initially focused on former company directors. After year-end 2004, attorney Peter Danowsky has continued his investigation of the issue of whether there are grounds to direct claims for damages against one or more of Skandia's former auditors. This investigation has not yet been concluded.

Against this background, for the time being the Board is not issuing any recommendation to the Annual General Meeting on 14 April 2005 with respect to auditors' liability.

Stockholm, March 2005 The Board of Directors of Skandia Insurance Company Ltd

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