S&P Revises Skandia Outlook to Negative

November 26, 2003

Standard & Poor’s Ratings Services announced that it has revised its outlook on Sweden’s long-term savings provider Skandia Insurance Co. Ltd. (Skandia) to negative from stable. S&P also affirmed ithe company’s ‘A’ long-term counterparty credit and ‘A-‘ long-term senior unsecured debt ratings.

“The outlook revision reflects the challenges that Skandia faces to improve operating cash flows and earnings without impairing its business position,” stated S&P credit analyst Mark Button. “The ratings affirmation reflects Standard & Poor’s expectation that Skandia has sufficient flexibility within rating tolerances to manage through a challenging 2004.”

The bulletin noted the Skandia group’s “strong international position in unit-linked life assurance, strong capitalization, and strong access to liquidity,” as supporting the current rating.

S&P said that “offsetting factors are the group’s poor recent earnings performance, negative operating cash flows, and concentrated business profile. At Sept. 30, 2003, Skandia’s funds under management totaled Swedish krona 299 billion (EUR33.5 billion) [$39.8 billion].”

“Maintenance of the ratings is predicated on Skandia continuing to improve cash flows and, importantly, generating positive operating cash flows by early 2005,” Button continued.

S&P said it “expects Skandia to achieve a pretax ROA of at least 35 basis points in 2004. New business is expected to increase by 5 percent-10 percent in 2004 as investor appetite for equity-linked products returns. Management is also expected to continue improving confidence in Skandia. Material losses are not expected to emerge, either from the representations, warranties, and indemnities provided to Prudential Financial Inc. in relation to the sale of American Skandia Inc., or from the independent investigations into Skandia. Failure to meet Standard & Poor’s expectations could result in the ratings being lowered by one notch.”

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