Best Rates Skandia ‘A’

A.M. Best Co. has assigned a financial strength rating of “A” (Excellent) and an issuer credit rating of “a+” to Sweden’s Skandia Insurance Company Limited and Skandia Life Assurance Company Limited, which is based in the UK. The outlook for both ratings is stable.

“The rating reflects the company’s strong business profile in its core markets, improving financial performance and very strong risk-adjusted capitalisation,” said Best. “Skandia benefits from a strong business profile in its core markets, with leading positions in the United Kingdom and Sweden,” Best continued. “The company also has a significant scale of business in Germany and Colombia.”

Best said it believes that “Skandia will continue its strong growth of long-term saving products in 2007. The demand for pension products will remain high throughout most of Europe–in line with the continuing reductions of state pensions–and the demand for open architecture products is likely to increase in the United Kingdom. In the first nine months of 2006, Skandia reported a 19 percent growth of annualised new sales of unit-linked business, and mutual funds deposits grew strongly by 74 percent. Unit-linked assurance and mutual funds accounted for 69 percent and 29 percent, respectively, of Skandia’s premiums and deposits in 2005, resulting in the potential for high earnings volatility.”

The rating agency also indicated that it “expects Skandia to report improving financial performance in 2006 (technical performance of SEK 1.1 billion (USD 156 million) pre-policyholder tax charge in 2005), mainly driven by growth of both insurance and investment products.” However, Best also said that it “believes that the management expenses will increase in 2006 as a result of the integration process of Skandia into Old Mutual and further development of Skandia’s investment platforms. The management expenses are likely to decrease by 2008 when Skandia’s new operating structure is in place–post-acquisition.”

Nonetheless, Best concludes that, in its opinion, “Skandia’s risk-adjusted capitalisation will remain very strong in 2006 with increased retained earnings partly offset by the strain from increased business volumes. New business strain on risk-adjusted capitalisation is minimal due to the high proportion of unit-linked business. An offsetting factor is the high dependence on value of in-force business.”