Skandia: Interim Report January-March 2006

JANUARY-MARCH:

-- Skandia is a member of the Old Mutual Group. As a result of Old Mutual's acquisition and the subsequent low free float, Skandia's shares will be delisted from the Stockholm Stock Exchange. The last day of trading in Skandia shares at the Stock Exchange will be 5 June 2006, but as previously announced, trading will continue through an alternative marketplace.

-- Total premiums and deposits increased by 50% to SEK 40,555 million (27,022). New sales of unit-linked assurance increased by 22% to SEK 3,303 million (2,702) and mutual fund deposits increased by 77% to SEK 13,273 million (7,478).

-- Revenues rose 16% to SEK 4,347 million (3,756).

-- Expenses rose 18% to SEK -3,968 million (-3,370).

-- Profit before tax for the period was SEK 379 million (386).

-- Profit before tax for unit-linked assurance was SEK 572 million (582).

-- Profit before tax for mutual funds increased to SEK 25 million from a loss of SEK -16 million.

-- Profit after tax for the period, including the result for discontinued operations, was SEK 336 million (423).

-- Funds under management rose by 8% since 31 December 2005 to SEK 612 billion.

-- Earnings per share before and after dilution were SEK 0.32 (0.41).

-- Return on shareholders' equity was 11% (13%) .

-- Cash flow from operating activities, excluding changes in deposits and lending in the bank operation, was SEK 0.3 billion (0.5).

First quarter IFRS result

I am pleased to report that the company shows strong growth duringthe first quarter of 2006.

Total premiums and deposits increased by 50% to SEK 40,555 million(27,022). As reported earlier in the month, unit-linked assurance newsales increased by 22 % to SEK 3,303 million and mutual fund depositsincreased by 77% to SEK 13,273 million. Particularly good progress wasmade in the UK in unit-linked assurance where our team took advantageof the arrival of A-day and increased new sales of pension products bynearly 100% and there was a huge jump in mutual fund deposits in theEurope and Latin America division.

Funds under management rose by 8% to SEK 612 billion, due to netinflows from clients of SEK 21,409 million, together with the impactof favourable markets.

Revenues rose 16% to SEK 4,347 million (3,756), mainly due to a33% rise in fees from customers. Expenses rose 18% to SEK -3,968million (-3,370), mainly due to higher commissions in connection tothe rise in new sales.

Profit before tax was at a similar level to 2005 at SEK 379million (386). After tax profits were lower as net tax decreased,mainly due to a lower net contribution from policyholder tax in theUK. A lower after tax profit in combination with a highershareholders' equity led to a reduction in return on shareholders'equity from 13% to 11%.

Within unit-linked assurance, profit before tax amounted to SEK572 million (582). Higher revenues arising from asset based chargeswere offset by higher commissions expenses which grew as a result ofthe increase in new sales for unit-linked assurance. The 2005 resultincluded the last effects of the exceptional demand in Germany (SEK 80million). There was a reduction in investment income withinunit-linked assurance compared to first quarter 2005 which waspositively affected by first time application of IFRS. Administrationexpenses grew considerably more slowly, by 10%, than the increase innew sales of 22% for unit-linked assurance. These expenses are alsolower than the two previous quarters.

Good growth in profits of mutual funds has been experienced due tothe gradual maturing of the businesses, particularly within thedivisions Europe & Latin America and UK & Offshore. Profit was SEK 25million compared to a loss of SEK -16 million during first quarter2005.

Within the operating divisions, the Nordic business profits wereup 22% to SEK 289 million, with expenses being tightly managed. Marketshare in Sweden for unit-linked assurance was stable with new salesgrowing 10%. We expect increased competition in the future with anincrease in a number of niche players in the market.

In the UK & Offshore division, continued buoyant equity marketsand a steady inflow to funds under management generated higherrevenues and contributed to improvements in both unit-linked assuranceand mutual funds. The profit before tax increased by 20% to SEK 348million (291). Mutual fund deposits were up sharply by 59%.

In the Europe & Latin America division, the SEK 80 million profitfrom the exceptional demand in Germany last year meant that earningswere much lower in 2006, although we are happy that the trend will bepositive from here onwards. Excluding the one-off effect in 2005, theGerman operation improved its result before taxes by 12% in localcurrency. In mutual funds deposits were up very sharply, the loss ayear earlier was reversed and a profit was reported for the quarter.

Shareholders' equity increased to SEK 12.9 billion, with theimpact of a lower effect from the elimination of treasury shares, theissue of option-related shares and the result for the period allcontributing to this positive development. Net cash flow fromoperating activities for the period was positive.

We are now 80 days into our 100 day review of Skandia, and thework to integrate the company into Old Mutual is proceeding accordingto plan. We are looking forward to providing all investors with fullEV information on the Old Mutual basis, as well as addressing many ofthe strategic issues we face, on 20 June.

Julian Roberts

Chief Executive

Result for the period before tax

The result before tax amounted to SEK 379 million (386). Theresult before tax for unit-linked assurance remained at a stable leveland was SEK 572 million (582). However, the result for unit-linkedassurance in the first quarter of 2005 was favourably affected in theamount of SEK 80 million by a change in deferred acquisition costs(DAC) attributable to the sharp rise in sales in Germany at year-end2004. Revenues for unit-linked assurance increased by 17% whileexpenses rose 23% compared with the same period last year. Commissionexpenses increased at a higher rate due to the increase in sales.Result improvements were achieved in the mutual funds businesssegment, moving from a loss of SEK -16 million in the first quarter of2005 to a profit of SEK 25 million for the first quarter of 2006,thanks to a 48% rise in revenue. All divisions are contributing to theimprovement in mutual fund business. The result of the bankingbusiness was down slightly compared with the same period last year,mainly due to higher costs in connection with increased volumes andinvestments in connection with adoption of the Basel II regulations.The result for other businesses was SEK 16 million (24). The resultfor joint-group functions was SEK -320 million (-301), of whichstructural costs accounted for SEK -137 million (-40).

Revenues

Total revenues rose 16% to SEK 4,347 million (3,765). Of thisamount, fees from customers accounted for SEK 3,507 million (2,628),an increase of 33%. The trend from previous quarters remains, and acontinued rise in net inflows in funds under management, together withgrowth in the value of funds, has resulted in an increase infund-based fees in both unit-linked assurance and mutual funds.Fund-based fees accounted for 55% of total fees, compared with 49% inthe same quarter a year ago. Premium-based fees from unit-linkedassurance business rose 14%. Premium-based fees, and in certaincountries also fund-based fees, are charged in the initial years of acontract. These fees are deferred and recognised over the life of therespective contracts. The increase primarily in premium-based feerevenue also entailed an increase in deferred fee income.

Premiums attributable to risk insurance rose 22% to SEK 851million (699), mainly due to an increase in life assurance, but alsoin healthcare insurance and the risk element of unit-linked assurance.Higher interest rates led to negative changes in value in the bondportfolio within life assurance, but at the same time a positiveimpact on technical reserves. Also, there was a reduction ininvestment income within unit-linked assurance compared to firstquarter 2005 which was positively affected by first time applicationof IFRS. The decrease in net interest income in the banking operationhas been offset by higher commission revenue from securities trading.

Expenses

Total expenses rose 18%, mainly due to an increase in commissionsand administrative expenses.

Claims incurred in life assurance and risk insurance decreasedslightly compared with a year ago. Commissions rose 30%, to SEK -1,769million (-1,362), due to an increase in new sales of unit-linkedassurance and a rise in mutual fund deposits. This also led to a 26%increase (excluding last year's one-time effect of SEK 80 million) inthe change in deferred acquisition costs and accrued commissionexpense, to SEK 572 million (454).

Administrative expenses rose by 10%, mainly due to higherpersonnel costs in all divisions. Administrative expenses also includeSEK -137 million (-40) in structural costs. The increase is mainlyattributable to costs associated with the bid process and costs forthe integration with the Old Mutual Group. Administrative expensesduring the first quarter of 2005 included a SEK -105 million chargefor Value Added Tax. Compared to the fourth quarter of 2005,administrative expenses decreased by 11%.

Result for the period after tax

The result for the period after tax was SEK 336 million (423) andincluded SEK -8 million (-) pertaining to discontinued operations,attributable to American Skandia. After tax profits were lower as nettax decreased, mainly due to a lower net contribution frompolicyholder tax in the UK. Earnings per share were SEK 0.32 (0.41)before and after dilution. A policyholder tax is charged topolicyholders in the form of fees. In the company's income statementthis is reported under "Policyholder tax charge". The group's combinedtax charge, including the policyholder tax, increased to SEK -1,368million (-599). The increase is mainly attributable to an increase inpolicyholder taxes in the UK as a result of the favourable growth inthe value of funds under management.

Balance sheet and shareholders' equity

Total assets increased to SEK 593 billion, compared with SEK 551billion at the start of the year, mainly due to an increase inunit-linked assets and volume growth in the banking operation.

Shareholders' equity increased and amounted to SEK 12.9 billion,compared with SEK 12.1 billion at the start of the year. Borrowings,including financial reinsurance, decreased from SEK 3.7 billion as per31 December 2005 to SEK 3.6 billion on 31 March 2006. Elimination ofcertain fund holdings of shares in Skandia Insurance Company Ltd(publ.) has decreased shareholders' equity as per 31 March 2006 by SEK11 million compared with SEK 247 million as per 31 December 2005.

Cash flow

Cash flow from operating activities, excluding changes in depositsand lending in the banking operation, amounted to SEK 0.3 billion(0.5). Cash flow from investing activities was SEK 0.7 billion (0.2).Payments pertaining to American Skandia and structural costs areexpected to be made during 2006.

Premiums and deposits

Skandia's total premiums and deposits increased sharply during theperiod, to SEK 40,555 million (27,022). This represents an increase of50%. For unit-linked assurance, premiums and deposits rose 40%, to SEK26,454 million (18,878). The largest increases were posted by the UK &Offshore division and Europe & Latin America division at 44% and 54%,respectively. As announced on 10 May 2006, new sales of unit-linkedassurance increased by 22%, to SEK 3,303 million (2,702). Mutual funddeposits increased by 77% to SEK 13,273 million (7,478)

Funds under management

Unit-linked funds under management continue to develop favourablyand increased by 8%, to SEK 456,409 million, compared with SEK 422,770million at the start of the year. The net inflow of unit-linkedassurance business was SEK 15,252 million (10,745). Changes in valueamounted to SEK 28,055 million (7,886) and currency effects amountedto SEK -6,166 million (7,925).

Funds under management for mutual fund business also increased, toSEK 155,905 million, compared with SEK 143,279 million at the start ofthe year. The net inflow amounted to SEK 6,157 million (3,584).Changes in value (net after fees) amounted to SEK 8,763 million(1,709).

Results per division

The result before tax for the UK & Offshore division improved toSEK 348 million (291). Continued buoyant equity markets and a steadyinflow of funds under management generated higher revenues andcontributed to improvements in both unit-linked assurance and mutualfunds. Fund-based fees rose 50% in the division. Bankhall also showedan improvement, from SEK 3 million to SEK 19 million.

The lower result before tax for the Europe & Latin Americadivision is due primarily to the one-off effect of SEK 80 million ayear earlier in Germany, and to the fact that the first quarter of2006 was charged with certain one-time costs mainly related to Spain.Excluding the one-off effect in 2005, the German operation improvedits result before taxes by 12% in local currency. In mutual funds, theloss a year earlier was reversed and a profit was reported for thequarter.

The result for the Nordic division increased to SEK 289 million(236), mainly due to an improvement in unit-linked assurance, whererevenues rose 26% and expenses by 16%. The result for mutual fundbusiness improved, while earnings of the banking operation were downslightly. The result for Private Healthcare and Group Insurancedecreased to SEK -3 million (21), mainly due to the dissolution of areserve during the first quarter a year earlier and slightly higherclaim costs.

Disputes

The status of disputes that Skandia is involved in is described inthe 2005 Annual Report on page 82. A ruling in the suit filed by aconsumer organisation in Austria against Skandia's subsidiary inAustria, Skandia Leben, has been made in favour of the consumerorganisation. The ruling has been appealed by Skandia Leben. Thereserve provision of approximately EUR 0.2 million remains. Nomaterial changes have taken place with respect to ongoing disputes.

Post-balance sheet events

At Skandia's Annual General Meeting on 27 April 2006, alldirectors were re-elected. The accounting firm KPMG Bohlins AB waselected as Skandia's auditor. The Annual General Meeting resolved todistribute SEK 0.40 (0.35) per share to the shareholders. Old Mutualplc declared that it waived its right at this Annual General Meetingto the share dividend for 2005 for all of its shares in Skandia.

Reporting of embedded value

As previously announced, this report includes no information aboutembedded value (EV). In connection with Old Mutual's acquisition ofSkandia, work was started on the adaptation of reporting andcalculation of Skandia's embedded value to Old Mutual's principles.The effects on embedded value of these adaptations will be presentedin connection with Old Mutual's Capital Market Day on 20 June 2006 inLondon.

Other financial information

As a result of Old Mutual's acquisition, Skandia's shares will bedelisted from the Stockholm Stock Exchange. The last day of trading inSkandia shares on the Stockholm Stock Exchange will be on 5 June 2006.In connection with the delisting, Skandia will announce alternativetrading opportunities for the remaining shares. Following this,Skandia will no longer publish any interim reports. As a consolidatedmember of the Old Mutual Group, Skandia will be included in thefinancial reports published by Old Mutual. Old Mutual will publish aninterim report for the second quarter on 14 September 2006.

*) Livforsakringsaktiebolaget Skandia is not consolidated and istherefore not included in the interim report. All comparison figurespertain to the corresponding period in 2005, unless indicatedotherwise.

Skandia's financial reports:

Skandia's published financial reports are available on Skandia'swebsite: www.skandia.com. Reports can also be ordered by phone:+46-8-788 25 00.

Old Mutual's financial reports:

Old Mutual's published financial reports are available on OldMutual's website: www.oldmutual.com.

This information was brought to you by Waymakerhttp://www.waymaker.net