1

Key events in 2000

KEY EVENTS IN 2000

SPP was highly successful in the premium pension selection process. 10.8 per cent ofpeople who made an active choice chose SPP.

Taken overall, SPP Liv is the third largest life insurance company in Sweden with a market share of 13 per cent measured in value of new business.

At year-end 2000 the market value of investments according to the balance sheetwas SEK 86.3 bn (82.1). The total return on investments amounted to SEK 2.8 bn(13.2).

Premiums written amounted to SEK 10.0 bn (7.5). The increase was mainly due toa large portion of single premiums in conjunction with early retirement and increasedsales of unit linked insurance. New business measured in annual premium amountedto SE 6.6 bn (4.4) during the year.

The balance on the technical account for life insurance business amounted to SEK –4 m (10,553). The net loss for the year was SEK 497 m (profit 10,043).

The expense ratio fell to 9.1 per cent (9.7).

SPP Liv’s surplus, the collective reserve, amounted to SEK 13.1 bn (14.5) at theend of 2000. The collective solvency margin decreased to 119 per cent (123).

The average bonus rate during the year, before deduction for operating expensesand yield tax, was 10.9 per cent (7.5). The bonus rate was reduced to 7.0 per cent on1 February 2001.

SPP Liv acquired 50 per cent of Nordben Life and Pension Insurance Co Ltd.Nordben offers insurance solutions for people employed abroad in multinational,Nordic corporations.

An agreement for the sale of the SPP brand, SPP Livförsäkring AB and SPP Fonder AB was concluded between the parent company Alecta pensionsförsäkring, ömsesidigt and Svenska Handelsbanken AB. The takeover is planned to take place on 7 March 2001.

2

A successful year

It is appropriate to devote the first lines of thesecomments to something that really made animpression during the year – the premium pensionselection process. This placed the SPP brand onthe map as a realistic alternative and this was alsothe fundamental aim of our participation.

A pension choiceThe important factors in the premium pensionselection process were that people were given anew opportunity to influence their financial future,that they really seized this opportunity, and thatthey saw this as a pension choice rather thansimply choosing a fund.

I hope that it is individual people who will bethe real winners of the premium pension choiceand naturally I am also pleased that 10.8 per centactively chose SPP. This success surprised manypeople and was well above our own expectations.Our high credibility as a pensions company,mainly among our own customers, was the deciding factor.

Strong three yearsWhen summing up the past year, I can concludethat SPP Liv is Sweden’s third largest life insurancecompany, measured in terms of total new busi-

ness, and holds a leading position in occupationalpensions and private pension savings. Premiumincome rose 33 per cent, which means that theincrease over the past three years has been 118per cent.

The competence, concentration and devotionshowed by our employees have been a strongcontributory factor to this success. At the sametime, three of the life insurance market’s keysegments – occupational pensions, private pen-sions and endowment insurance – have shown an increase and we believe in continued stronggrowth over the next three years.

Companies and organisationsWhen we formulated our business strategy in1995, we were convinced that individuals wouldacquire greater influence over their pensions.Since our brand was so strong out inthe workplaces, where direct dis-tribution is cost effective, wechose to be the pension part-ner for business and organi-sations. We chose the work-place as our marketplace.

PRES IDENT ’S COMMENTS

”We believe in continued

strong growth for

the market over

the next three years.

The first year of the 21st century was the

most successful in SPP Liv’s seven-year

history. Our premium income rose by

more than 30 per cent and SPP came third

in the premium pension selection process.

The response from individuals and

companies to our different approach to

pensions feels extremely inspiring, and we

are well placed for continued development

as the pension partner of choice for the

workplace. This is also the main reason for

Handelsbanken’s acquisition of SPP Liv

and together we will attain a very strong

position.

In our year-old customer-driven organisation eachbusiness area – Key Accounts, Companies andIndividuals – has total business responsibility forits customers. They have access to a broad rangeof financial protection and savings, including tra-ditional insurance and unit linked insurance, aswell as defined contribution and defined benefitsolutions.

Penetration for our simple and flexible pensionplans has been very high. Products in the insurancemarket are not exactly known for being intelligible.We offer customers just three components: Sick-ness benefit, survivors’ pension and pension forthemselves. Choose the components, decide ontheir distribution. Done.

Greater distribution powerIn 2000, premium income topped the SEK 10 bnmark for the first time. Having started as a livelynewcomer in the first years we have grown intoan obvious benchmark when it comes to occupa-tional pensions. We are entering 2001 with some18,000 corporate customers and 650,000 insur-ance contracts.

Naturally this powerful growth puts an enor-mous strain on the organisation. Substantialinvestment is involved in developing insurancesystems, the organisation and the brand. Thenumber of employees rose by 28 per cent last yearand will increase by more or less as much thisyear since we are taking over services previouslyprovided by Alecta pensionsförsäkring. We haveone of the most flexible insurance systems inSweden and we are now focusing on strength-ening cost efficiency and our ability to handlelarge volumes.

By combining qualified advisory services at thecompanies with easily accessible, broad solutionson the Internet, we strengthen our distributionpower and build on our basic strategy to be aleading player in the workplace market.

Security for the individualWe focus determinedly on the expressed needs ofour customers. Our customer advisors and keyaccount managers conduct a continuous dialoguewith their clients. They are updatedon changes to the customer’ssituation and can keep theminformed about howchanges relating to pen-sions can affect bothemployer andemployees. The financialsecurity of the individualis constantly in focus.

Our vision is to be a lead-ing player as the pensions partnerfor the workplace in a growing European market.It is important for us to be able to accompany ourmajor customers out into Europe. The two lifeinsurance companies based outside Sweden,Nordben and Euroben, are key tools here. Nord-ben takes care of Swedes working abroad whileEuroben works with Swedish companies’ localemployees abroad.

New ownerDuring a year when all the important things wentwell, we have known that we are to have a newowner. It therefore feels good to be able to act asspokesman for all my colleagues at SPP Liv whoare looking forward to the inspiration and securitythat comes from having a new owner which isprofessional, financially strong and has a similarcustomer approach. In addition, we are acquiringcompetence and products which provide an excel-lent complement to our own range.

Anders ÖstrydPresident

PRES IDENT ’S COMMENTS 3

”It is important for us

to be able to accompany

our major customers out

into Europe.

4

This is SPP Liv

SPP Liv offers financial security solutions

with a main focus on the segment of the

occupational pension market that is ex-

posed to competition. In addition, SPP Liv

offers private complements in the form of

sickness, life and pension insurance to

employees and members of organisations.

SPP Liv conducts insurance business within trad-itional life insurance and unit linked insurance aswell as complementary advisory and consultingservices. The company also markets funds andmanagement services.

In 1999, the Board of the SPP Group decidedto hive off the operations exposed to competitionand that the parent company should concentrateon the ITP insurance based on a collective agree-ment between SAF and PTK.

The parent company Försäkringsbolaget SPP,ömsesidigt and Svenska Handelsbanken (publ.)agreed in December 2000 that the bank wouldacquire the SPP brand, SPP Livförsäkring AB andSPP Fonder AB. An application to purchase wassubmitted to the Competition Authority and theSwedish Financial Supervisory Authority.

On 1 February 2001, the parent companychanged its name to Alecta pensionsförsäkring,ömsesidigt.

Later in February, the authorities announcedthat they had no objections to the acquisition.The takeover is planned for 7 March 2001.SPP Liv will be a wholly owned subsidiary ofSvenska Handelsbanken AB.

The main focus of operations is unchanged. At the end of the financial year, the company had599 (468) employees and was represented in 14locations in Sweden. The head office is located inStockholm.

On 1 January 2000, SPP Liv acquired the share-holding in Nordben Life and Pension InsuranceCo Ltd which was previously owned by Alecta.This holding comprises 50 per cent of the sharesin Nordben which is domiciled in Guernsey.Other owners are the Norwegian company Storebrand ASA (25 per cent) and the Finnishcompanies Försäkringsbolaget Sampo Liv (15 percent) and Ömsesidiga PensionsförsäkringsbolagetVarma-Sampo (10 per cent). Nordben’s mission isto offer insurance solutions for people employedabroad in multinational, Nordic corporations.SPP Liv also includes Euroben Life and Pension

ORGAN ISAT ION

ORGAN ISAT ION 5

SPP LIVFÖRSÄKRING AB

SPP LIVPENSIONSTJÄNST AB

SPP KONSULT AB

SPP LIVFONDFÖRSÄKRING AB

NORDBEN 50% EUROBEN 50%

SPP KUNDCENTER AB

Ltd which insures Nordic companies’ localemployees outside Sweden. Euroben is ownedjointly with Storebrand ASA of Norway and isdomiciled in Ireland with branch offices in Swe-den and Norway.

SPP Liv’s business strategy is based on custom-er segments and the organisation has three busi-ness areas: Key Accounts (major employers),Companies and Individuals.

The business areas are responsible for the enti-re customer process from business developmentto customer care. The business area for individ-uals has been set up because a growing number ofpeople can now make their own choice withinoccupational pensions as well.

The business areas have separate profit respon-sibility. They receive support from central staffsand three business support units with responsibil-ity for IT infrastructure and the Internet, productand information systems development, systemsmanagement and data production.

The subsidiary SPP Konsult’s business specialistscontribute qualified advice, mainly in connectionwith pension solutions for large companies.

PRESIDENT

STAFFS FINANCE

KEY ACCOUNTS COMPANIES

PROCESS/PRODUCTDEVELOPMENT

IS/IT DEVELOPMENT

PRODUCTIONSUPPORT

INDIVIDUALS

6

The pensions partner for the workplace

STRATEG I ES

It is natural to discuss occupational pen-

sions at work and that is why the work-

place is SPP Liv’s marketplace. It is

through the workplace that we reach the

individuals we are really there for. SPP Liv

is endeavouring to strengthen its position

in the workplace and the company-paid

part of the occupational pension market.

SPP Liv offers financial security solutions withoccupational pensions and other insurance as wellas insurance advice and administration. The finan-cial security of the individual forms the basis ofall development, service and investment manage-ment at SPP Liv. Solutions are designed entirelyaccording to the wishes of the individual and with-out the complications that normally characterisepensions and insurance linked savings.

Three business areasOperations are divided into three business areasdepending on the customer’s situation: KeyAccounts, Companies and Individuals. The inten-tion is to make it easier for employers to recruitand retain valued employees and handle theirpension and financial security solutions for theiremployees. The associations in the salariedemployee sector, which are key stakeholders, willbe able to offer their members clear added valuethrough co-operation with SPP Liv.

The individuals market, the sector of the marketwhere the individual makes a choice, even if theemployer pays, is growing and of strategic signifi-cance. Furthermore, more than one million em-ployees will receive via their workplace an offerfrom SPP Liv involving complementary privatesavings in 2001. For the individual the terms areparticularly advantageous due to lower costs, andfor SPP Liv the distribution costs are lower thanvia traditional marketing. This has proved to be ahighly effective method which provides a highproportion of final deals.

European visionSwedish companies are international and need apension partner throughout their geographical

operating area. This is reflected in SPP Liv’svision to be a leading player as the pension part-ner for the workplace in a growing Europeanmarket. Large Swedish companies already haveaccess to a broad range of products and servicesfrom SPP Liv for their employees abroad and theextension of branches, partnerships and offices inLondon and elsewhere will provide even greateropportunities. The company also owns 50 per centof the life insurance companies Nordben andEuroben.

Strategy without bordersDespite the basic international vision, SPP Liv’sstrategy remains the same today as when thecompany started. The simple concept meets fun-damental needs and lines of development whichlook the same throughout Europe as they do inSweden. People in gainful employment want togive themselves and their families extra financialsecurity during employment followed by freedom,preferably with a touch of luxury. Financial secur-ity solutions should be individually designed andat the same time easy to understand.

The situation of large companies is similarregardless of whether the head office is in Lon-don, Frankfurt or Brussels. They need to attractcompetent people and demand a continuous dia-logue with and clear information from a compe-tent pensions partner. They all value security andcredibility. This makes the business easy to exportand apply in foreign markets.

Multi-year development workStrategic development work is part of a multi-year plan where the main items in 2001, as inprevious years, will be to build further on SPP’sPensionsPlan, to set up electronic market andcommunication sites, to increase distributionpower and to strengthen the brand. A new com-pany customer centre and a new individual cus-tomer centre will be set up in 2001. Co-operationwith brokers and franchise-holders will be inten-sified. Investments in IT will continue to be exten-sive and development work will include a portalplatform for the Internet. A growing number ofcompanies and employees are taking advantage of

STRATEG I ES 7

the opportunity to obtain an overview of theircover on SPP Liv’s website. The Internet is also animportant distribution channel for some productsfor the individual market.

SPP’s PensionsPlanIt must be simpler with SPP Liv, for both the com-pany and the individual. Simplicity is very muchcharacteristic of SPP’s PensionsPlan which wasdeveloped in recent years and now accounts forabout 40 per cent of premium income.

The plan consists of three parts: “SicknessBenefit”, “Survivors’ Pension” and “Your Pen-sion”. The choice is simple. First decide whichcomponents should be included and then howlarge each part should be. A plan can includeeverything from one person to large groups of

employees. Unlike many other life insurance com-panies, SPP Liv offers both defined contributionand defined benefit solutions.

As a complement to insurance products, SPPLiv offers • consulting and advisory services• profit sharing systems, foundations, pension

liability calculations and forecasts, individualadvice, redundancy solutions and advice on taxand legal matters

• qualified administration and service for bothlarge and small pension solutions for companieswith or without operations outside Sweden

• investment management • different forms of risk management. Among

other things, SPP Liv is a member of two inter-national networks, Insurope and IGP.

Operations in the occupational pension market are domin-

ated by company-paid financial security solutions. To a

growing extent it is the individual who chooses the pension

company. SPP Liv is also making every effort to develop its

services and increase market shares in the sector of the

market where the individual both pays and decides.

Each offer is simple and gives the insured almost unlimited

flexibility to decide the distribution between security through

savings and security through limited risk. The choice is

between sickness benefit, survivors’ pension and your

pension. Subject to the employer’s approval, the insured

chooses both which components should be included in the

solution and how the premium should be allocated.

The organisation is customer-driven and divided into three

business areas based on target groups. Key Accounts takes

care of the really big corporate customers. Companies works

with medium-sized and slightly smaller companies, while

Individuals has direct contact with individual insured via

companies or organisations.

COMPANYPAYS

INDIVIDUALPAYS

COMPANYDECIDES

INDIVIDUALDECIDES

INDIVIDUALS

COMPANIES

MUNICIPALITIES

ORG.

KEY ACCOUNTS

The Swedish life insurance market can be

divided into two levels depending on who

decides and who pays. The diagrams show

what is included in the various sub-markets

and trends.

Parts of the occupational pension market today

are protected against competition because sup-

pliers have received exclusivity agreements. This

proportion is steadily decreasing in favour of

occupational pension solutions exposed to com-

petition, which is SPP Liv’s main market. In con-

junction with deregulation, the right to decide is

being transferred increasingly to the individual.

Substantial growth is expected within the market

segment where the company pays the premiums

but the individual can choose the insurance provider.

In the occupational pension market there are

solutions where the employer makes the decisions,

and solutions where the individual, the employee,

makes the decisions. The first-mentioned category

includes early retirement pensions, some collectively

agreed plans and voluntary occupational pensions.

The latter category includes alternative ITP, ITPK,

SAF-LO occupational pensions, individual choice

for employees in municipalities and county councils

(PFA98 pension agreement) and premium pension.

8

The life insurance market

MARKET

Company decides

Com

pany

pay

sIn

divi

dual

pay

s

Individual decides

Company decides

Com

pany

pay

sIn

divi

dual

pay

s

Individual decides

Protected occupational pension– ITP– state pension– AMF sickness insuranceCompetitive occupational pension– collectively agreed– voluntary employer plans– early retirement pension– pension supplements– PFA 98

Competitive occupational pension– alternative ITP; ITPK, PFA 98, pension under

SAF/LO agreement–premium pension

– pension supplements– solutions for high earners

Voluntary group insurance– group sickness– group life– group accident

Private pension and life insurance– life insurance

– pension insurance– endowment insurance

– sickness insurance

TRENDS

Protected occupationalpensionSteady decrease

Competitive occupationalpensionSteady increase

Competitiveoccupational pensionVery strong increase

Individual paysVoluntary group insuranceLargely unchanged

Private pension and lifeinsurance

Weak increase

COMPETITIVE LIFE INSURANCE

One of the most important factors for determin-

ing market development in the life insurance

market exposed to competition in which SPP Liv

operates, is new business. In the life insurance

market new business is measured in the form of a

standard value calculation for new insurance,

known as value of new business.*

New business can be divided into four sub-

markets: occupational pensions, private pension

insurance, endowment insurance and private sick-

ness insurance.

The total value of new business in real num-

bers has risen by almost 30 per cent each year

over the last five years. The greatest growth has

been for endowment insurance, but the increase

in the occupational pension sector was also very

strong.

More than 70 per cent of total value of new

business last year comprised unit linked insurance.

Five years ago the proportion was less than 40

per cent.

Skandia is the market leader followed by SEB

Trygg Liv. Both Skandia and SEB Trygg Liv oper-

ate in all the sub-markets. SPP Liv is the third lar-

gest company, even though the company’s new

business almost solely comprises occupational

pensions and private pension insurance. Handels-

banken’s acquisition of SPP Liv will make the

bank one of the two leading companies in the life

insurance market.

COMPETITIVE

OCCUPATIONAL PENSION INSURANCEThe value of new business in the occupationalpension market has accelerated over the last twoyears with an increase of 55 per cent in 2000. Theproportion of unit linked insurance was over 50per cent.

Skandia was the leader last year with a share of35 per cent followed by SPP Liv with 25 per cent.It is gratifying that SPP Liv’s market share hasrisen by 3 percentage points since 1998.

The market situation within each sub-sector isdescribed below. Unfortunately other measuresmust be used for these instead of value of newbusiness, and this involves using different measures for the portfolio as a whole.

Early retirement pensionsDue to its long experience and considerable com-petence, SPP Liv has a very strong position in themarket for early retirement pensions. New insur-ance business in this area over the last five yearsis estimated at an average of almost SEK 2 bn peryear and SPP Liv is estimated to have capturedapproximately 80 per cent of this market.

9MARKET

0

20

40

60

80

100

120

00989796959493

Endowment insurancePrivate pensionOccupational pension

COMPETITIVE LIFE INSURANCEInflation adjusted value of new business

Private sickness insurance

Source: Swedish Insurance Federation

99

SEK bn

140

160

Skandia29 (27)%

SEB Trygg Liv 15(16)%

Alecta 3(3)%

SPP Liv 13 (11)%

Others 9 (9)%

FöreningsSpar-banken 10 (13)%

Handels-banken 8 (9)%

COMPETITIVE LIFE INSURANCEMarket shares of value of new business 2000 (1999)

Merita-NB 4 (4)%

LF-Wasa 9(9)%

Source: Swedish Insurance Federation

*Calculation of market shares (value of new business): The Swedish Insurance Fede-ration reports market shares within Swedish life insurance exposed to competition.Shares are measured by combining single premiums and premiums that are current,i.e. monthly or annual premiums. The value of new business equals single premiumsplus ten times the annual total of current premiums.

LF-Wasa 9.4(10.9)%

SEB Trygg 13.1(13.3)%

Alecta 5.7 (7.0)%

Others 6.2 (5.3)%

Skandia 34.5(37.6)%

SPP Liv 25.0 (23.6)%

COMPETITIVE OCCUPATIONAL PENSIONMarket shares of value of new business 2000 (1999)

AMF Pension 3.8 (0.7)%SHB 2.3 (1.5)%

Source: Swedish Insurance Federation

10

Competitive collectively agreed plansSPP Liv also has a strong position in this sectorwhere the collective agreement specifies the bene-fits but the company can choose the supplier.New insurance business is expected to increasesubstantially over the next few years as a result ofthe new pension agreement for municipalities andcounty councils, PFA98, where SPP Liv intends tobe a significant player.

Voluntary occupational pensions Voluntary occupational pensions have seen stronggrowth in recent years. Many small and mediumsized companies which do not have collectivelyagreed occupational pensions are taking out vol-untary occupational pensions for their employees.In 2000, SPP Liv strengthened its distribution tothis customer group by developing a successfulfranchise concept. SPP Liv expects to achieve astrong position in this sector as well.

Alternative ITPGood real salary increases for certain groups ofsalaried employees in recent years have led to astrong increase in new business for alternative ITP,even though most employees who belong to thismarket have not yet made a choice. Many have notmade a choice because many employers have notyet permitted alternative choices. Out of those whohave made a choice so far roughly 50 per centchose SPP Liv.

ITPKThe market increased more in 2000 than it has inrecent years, mainly because employees at savingsinstitutes have been included in this market witheffect from last year. At year-end 2000 this mar-ket included 660,000 individuals. SPP Liv is themarket leader with 27 per cent of the number ofinsured. The closest rival is SEB Trygg Liv with18 per cent.

SAF-LO labour market pensionThis market became open to competition in 1998.SPP Liv has only focused on this market to a limited extent and therefore only has a marketshare of approximately one per cent.

PFA 98 individual choiceApproximately one million employees in munici-palities and county councils have now made achoice, similar to ITPK and SAF-LO labour mar-ket pension, for a premium which corresponds tobetween three and four per cent of salary. Half ofthe wage-earners made a choice and SPP Livreceived a market share of 7 per cent, thus achiev-ing the goal of 40,000 new customers.

Premium pensionThe first selection of funds in the premium pen-sion system took place in autumn 2000. 4.4 mil-lion savers with a total premium for 1995–1998of SEK 56 bn were included. SPP came third inthis selection process with a 7.4 per cent share oftotal invested premium. The market leader wasFöreningsSparbanken with a 14.0 per cent share.More than SEK 15 bn will be invested every yearin the future.

PRIVATELY PAID LIFE INSURANCEThe privately paid market can be divided intopension insurance, endowment insurance andsickness insurance.

Private pension insurancePrivate pension insurance is a significantly smallermarket than occupational pension insurance. Thevalue of new business has risen by an annual aver-age of 10 per cent over the last five years. Onereason for the low rate of increase compared withoccupational pensions is the direct competitionwith Individual Pension Savings (IPS) with banks.

MARKET

Skandia 30 (23)%

Others 4 (7)%

Merita-NB 3 (4)%

SHB 12 (9)% SPP Liv 17 (17)%

SEB Trygg 11 (12)%

LF-Wasa 12 (13)%

Folksam 10 (14)%

PRIVATE PENSION INSURANCEShares of value of new business 2000 (1999)

Most new business now goes to unit linked insur-ance which last year accounted for more than 70per cent of the value of new business.

SPP Liv’s market share has increased substan-tially since 1996, from 2 per cent to 17 per centin 2000. This makes SPP Liv the second largestcompany after Skandia, which had 30 per cent ofnew business.

Endowment insuranceThis market is about the same size as the occupa-tional pension market in terms of new business.Skandia is the market leader with 24 per cent.Handelsbanken’s market share amounted to 14per cent. SPP Liv has so far had a significantshare of this market.

Private sickness insuranceThis market is very small compared with theothers. The value of new business has hardly vari-ed at all over the last five years. SPP Liv has notoperated in this market.

CUSTOMERSAt year-end 2000, the number of premium-payingcompanies amounted to 17,500 (15,800) and thenumber of insurance contracts totalled 649,400(549,900).

The number of unit-linked insurance contractswas 166,300 (104,700).

Number, 31 December 2000 1999

Insured in active employment 480,700 402,300

Paid-up policyholders 94,000 81,300

Retirement pensioners 65,100 57,900

Sickness cases 3,000 2,600

Survivors receiving benefits 6,600 5,800

Total 649,400 549,900

12 THE GOOD ELL I PSE

Good leadership and dedication

Good leadership can make employees feel

involved and systems can be used to create

satisfied customers which leads to strong

loyalty to the brand and good profitability.

That is the basis for the development of

SPP Liv which is a knowledge company

where the key assets are the employees,

their competence and the large computer

systems. These must interact well towards

the customers if the company is to con-

tinue to be successful.

Competence – a pivotal requirementCustomers regard competence as being the keyfactor in their choice of insurance company. It isalso here that the company is given the highestmarks by companies’ personnel departments. Thisrequirement also includes the ability to explaincomplicated pension solutions. SPP Liv has there-fore invested considerable resources in developingthe role of managers and communicators bothinternally and in their sales and advisory activities.

A manager at SPP Liv must be objective-oriented,dedicated and communicative. The fast growth andcomplicated processes of change that confrontSPP Liv make extra demands on managers.

Managers’ ability to achieve results, enthuse and communicate

visions, goals, strategies andcustomers’ requirements is ofdecisive importance for thecompany’s success. Majorresources are therefore alloca-

ted to leadership development.SPP Liv’s management index

amounted to 51 in 200 which is com-parable to other employers with salariedemployees in the private sector.

Dedicated employees with the knowledge and ability to understandthe customers’ situation and supply clear and intelligible solutionsare crucial for customer satisfaction. Employee turnover is very low.SPP Liv’s human capital index amounted to 647 in 2000 which is higher than other employers with salaried employees in the privatesector. 65 per cent of employees felt strong dedication.

Effective processes and tools are essential ifemployees are to be able to meet customers’ needs.The new insurance system provides faster solutionsto customer requirements and simpler administra-tion because increasing levels of competence arestored in the system.

Goodleadership

Dedicatedemployees

Strongbrand

Satisfiedcustomers

• More customers• Loyal customers

• Extra sales• Higher premium income• Larger managed assets

• Lower operating expenses• Profitable growth

One decisive factor for success is loyalcustomers. Customers must be morethan satisfied if they are to remainloyal to a company. Loyalty amongSPP Liv’s customers is high.Customer care will be strength-ened in the company’s newcustomer-responsive organisa-tion. Customer loyalty among ITPKinsured was 93 per cent which is higher than similar statistics amongrival companies.

The SPP brand holds a very strong position among the company’s customersand in particular among those responsible for pensions at the large companies.Among individuals, the strongest position is among well-educated, middle-agedemployees with high salaries. SPP’s image has strengthened significantlyamong individual customers in recent years. SPP is perceived as a secure andreliable supplier. In 2000, SPP was the fourth best known brand among thepublic with the second highest positive attitude among Swedish life insurancecompanies. Among high-earners, SPP is ranked among the three most trustedplayers in the financial sector.

They must be good at motivating themselves andtheir colleagues and be able to communicate theoverall picture and place the work of their colleaguesin a larger context.

Training in communicative leadershipOur goal is to facilitate managers’ communicationwith employees. This was supported by the fol-lowing activities in 2000:• Management Forum – All the company’s man-

agers and leaders meet 2–3 times/year in order tocreate a common approach and increase dia-logue between managers.

• Training in the processes of change – Managerswere given special training so that they feel wellprepared and can handle communication withemployees in the event of major changes, such asa new owner.

Career planningIn 2000, SPP Liv also carried out a programmedesigned to create better opportunities for em-ployees, together with their manager, to takeresponsibility for their own competence develop-ment.

SPP Liv’s employees must know what goals andresults are to be achieved and how to reach them.The success of the company depends on everyemployee being:• Objective-oriented – accepting responsibility for

their work and for agreed goals.• Dedicated – interested in learning new things

and in developing.• Communicative – co-operating and actively

seeking information.

Business schoolIn order to ensure recruitment of new competenceto our market organisation, a sales school hasbeen created within our business school.

14 UN I T L INKED INSURANCE

There is a change in the market for savings

in pension insurance both for private and

occupational pensions. Out of all new

business in premiums today, 70 per cent is

unit linked insurance.

Through its subsidiary SPP Liv Fondförsäkring,SPP Liv offers pension savings in funds in combi-nation with insurance. SPP Liv’s customers canalso save in mutual funds without an insurancecomponent.

SPP Liv markets all funds at SPP Fonder whichmanages funds within three categories: equityfunds, fixed-income funds and mixed funds. Thefunds have different profiles with regard to riskand return potential.

Returns and risks in savingsSavings in funds is a way of spreading risks withall the advantages that this provides and thechoice of fund profile decides the level of risk thatthe person saving wishes to accept. Exactly howgreat the risk diversification will be depends,among other things, on the fund objective. Regularsavings also limit risk due to more units at a lowerprice (given the same regular savings amount).

SPP Fonder’s activitiesFund management is conducted by SPP Fonder andmost fund categories performed mainly on a parwith their benchmarks. The fixed-income instru-ments provided a positive return while funds witha large proportion of equities performed less welldue to the weak trend on the stock market.

SPP Fonder’s objective is to create a high returnfor the company’s customers in relation to the levelof risk in each fund combined with cost effectivemanagement. In the financial year, SPP Fonderparticipated successfully in the premium pensionselection process which together with other

efforts made 2000 SPP Fonder’s most successfulyear so far. SPP Fonder became the third largestmanager of premium pension assets and has beenentrusted to manage more than SEK 4 bn of theseassets on behalf of 400,000 Swedes. SPP Fondermade a substantial reduction to its managementcharges on 1 April 2000.

In September, SPP Fonder launched a new web-site which has been much appreciated by custom-ers and the trade press. In the future this can bethe most efficient and used trading venue for thecompany’s products.

At year-end SPP Fonder’s managed SEK 9,181 m(3,327), an increase of more than 250 per cent.SEK 6,230 m (1,465) was new savings. The numberof customers amounted to 168,000, of whom146,000 make regular savings in unit linkedinsurance. The Swedish unit linked market hadassets under management of approximatelySEK 898 bn (855) at year-end.

Unit Linked Insurance

SEK m

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

97 98 99 0096

9,000

10,000

FUND ASSETS IN SPP FONDER

15UN I T L INKED INSURANCE

RANGE OF FUNDS – ALL TYPES OF FUNDS

SPP Generation Funds – SimplicitySPP Fonder has developed Generation Funds forpeople who want their savings to automaticallychange character as they grow older and/orapproach the time when they will be taking out themoney. SPP was first in the Swedish market withGeneration Funds and today many suppliers havefollowed SPP’s lead and developed their own funds.

The Generation Funds were the big winner in thepremium pension selection process. The risk profile– and therefore the return potential – changes overtime and falls gradually as the payment date ap-proaches. The advantage is that the saver does notneed to change the risk profile, SPP changes thecomposition of the fund towards increasingly safeinvestments.

Since September 2000, the Generation Fundshave also provided an opportunity to invest inforeign equities.

SPP GENERATION FUNDS Risk level Equities Return, %portion, % 2000 Average since start*

SPP Generation 1970s Low 100 – 1.4 26.2SPP Generation 1960s I 90 0.5 26.2SPP Generation 1950s I 70 2.6 22.1SPP Generation 1940s I 40 2.9 14.8SPP Generation 1930s Lowest 20 2.8 8.5

* 1996–2000, except SPP Generation 1970s 1999–2000.

Stock index funds – Limited risk and low chargesIndex funds aim to follow development in theirrespective markets so that the risk taken by thesaver coincides with choice of market and theinherent risk in that market. Low commissionand efficient management combined with the factthat index management does not require analysisof individual companies, keeps down costs. Thestock index funds closely track their benchmarks.During the year, SPP Fonder’s charges were at avery competitive level in international terms. Therange of index funds was extended in 2000 withthe Global Etisk and Nasdaq stock index funds.

Otherwise, the stock index funds are linked todifferent geographical markets: Sweden, Europe,the US and Japan.

STOCK INDEX FUNDS Return Benchmark%, 2000 %

SPP Aktieindexfond Europa 0.8 – 0.5 FTSE Eurotop 100SPP Aktieindexfond Sverige – 10.8 – 11.9 OMXSPP Aktieindexfond Japan – 30.8 – 31.8 Topix 100SPP Aktieindexfond USA 0.4 – 0.8 S&P 500SPP Aktieindexfond Nasdaq 100 – 31.0 – 30.5 Nasdaq 100SPP Aktieindexfond Global Etisk – 4.9 – 6.5 Dow Jones Sustainability*

* DJS Group Index World excl. tobacco, alcohol, gambling.

Equity and fixed-income funds SPP Aktiefond Sverige invests in shares and equi-ty-related securities with a wide spread across dif-ferent sectors in Sweden. SPP Obligationsfondinvests in liquid Swedish fixed-income securitiesissued by the government and mortgage institutions.SPP Penningmarknadsfond invests in Swedishfixed-income securities with short maturities issuedby the government and mortgage institutions. EMUAktiefond and EMU Blandfond invest in sharesand securities on European stock exchanges witha broad spread of companies and sectors.

SPP EQUITY AND Risk level Return, %FIXED-INCOME FUNDS 2000 Average since the start*

SPP Aktiefond Sverige I 1.2 30.7SPP Obligationsfond I 8.2 7.6SPP Penningmarknadsfond I 4.1 4.4SPP EMU Aktiefond I 9.4 17.7SPP EMU Blandfond I 8.9 7.5

* 1996–2000 except SPP EMU funds 1999–2000.

External funds and international managementFive external funds are managed by Capital Inter-national, Schroder Investment Management andStorebrand. The funds have very different object-ives and risk profiles and provide a complement toSPP’s own funds.

EXTERNAL FUNDS Risk level Return, %2000 Average since 1 Jan. 1995*

Capital International Fund I 1.0 21.6Capital International

Emerging Markets Fund I – 24.8 15.9Schroder US Smaller

Companies Fund I 46.6 22.9Schroder Pacific Equity I – 27.1 2.7Storebrand Global Miljö I – 6.3 16.3

* Annually since 1 January 1996 for Storebrand Global Miljö.

17

MARKETS

Macroeconomic factorsThe global economy became even stronger in2000 with positive growth and a big increase inworld trade.

Growth rose in the US as a result of a signifi-cant increase in private consumption and a strongrise in investment.

In Europe, the economy became stronger andreal incomes rose. This led to increased privateconsumption while exports grew. The Japaneseeconomic remains uncertain. The rate of growthin private consumption is low and the sustain-ability of the recovery which started in 1999 isuncertain.

The growth rate in Sweden remained highwithin all sections of the economy.

Credit and foreign exchange marketsGrowth and strongly rising crude oil prices led toconcern about increased inflation in several quarters. This led to many central banks raisingtheir key lending rates at the beginning of theyear, which resulted in rising long-term interestrates in the first quarter.

In the rest of the year, however, long-term rateson government bonds fell, as oil prices did not

create the anticipated inflationary pressure. Publicfinances in the US and Europe improved whichled to reduced government borrowing require-ments.

The euro weakened substantially against theUS dollar and the Japanese yen despite the centralbanks’ efforts to counteract this trend.

Stock markets2000 was dominated by extreme price fluctua-tions on the world’s stock markets. The yearbegan with sharp price rises for companies intechnology, media and telecommunications. Thencame a substantial correction as investors startedto question the expectations on the companies in“the new economy.”

The markets calmed down in the summer andshare prices rose slowly driven by companies inthe banking and pharmaceutical sectors.

September and October, however, broughtanother fall for shares in companies within com-puter manufacture and mobile telephony. A slightrecovery occurred at the end of the year. TheFT/S&P World Index fell by a total of 8.9 percent in 2000. The Stockholm Exchange (AFGX)fell by 12.2 per cent.

I NVESTMENT MANAGEMENT

Swedishfixed-income 42%

Foreign fixed-income 16%

Swedishequities 23%

Foreign equities 19%

INVESTMENTSTraditional life insurance

Market value 31 Dec. 2000SEK 83,460 m

Sweden 55.5%USA 20.8%

Europe 17.3%

Japan 6.4%

EQUITY INVESTMENTSTraditional life insurance

Market value 31 Dec. 2000SEK 35,314 m

SwedishGovernment 49%

Foreigngovernments 24%

Mortgageinstitutions 21%

Other Swedish issuers 3%

FIXED-INCOME INVESTMENTSTraditional life insurance

Market value 31 Dec. 2000SEK 48,146 m

Other foreign issuers 4%

18 R ISK MANAGEMENT

Effective risk management provides security

Insurance operations involve some risk

acceptance in exchange for a premium.

The insurance component can be large or

small and sometimes insurance contains no

savings at all but only covers risks. Experi-

ence and expertise contribute to the assess-

ment and management of risks in an insur-

ance portfolio. Effective risk management

enables the provision of sustainable finan-

cial security solutions for customers.

For every part of its operations SPP Liv has a welldeveloped system of analysis, valuation and controlwhich limits the risks the company takes day byday and in individual deals.

In a life insurance company there are risks bothin the insurance business and in investment man-agement. In the insurance business these includeinsurance risks and administrative risks. Invest-ment management operations are exposed tomarket risks, currency risks and liquidity risks.

Insurance riskSPP Liv manages insurance risks in different waysdepending on the type of insurance. Collective-agreement based pension plans require inclusivesupport which eliminates selection risks. Otheroccupational pension insurance is subject tohealth checks for morbidity and mortality risks.Furthermore, reinsurance is taken out for largeindividual risks. The company only offers privatecustomers standardised products with a low risk.

The price or premium for the insurance is setbased on the assessed insurance risk and the stipu-lated base rate. The premium can be changedduring the insurance period which reduces therisk taken by the company.

Administrative risk Administrative risks include inadequacies in theorganisation, internal control, risk assessmentand reporting. In order to limit such risks thereare effective routines for internal control, author-isation requirements for different systems andother routines, and tools which contribute to aneffective and reliable organisation. Investments in

IT systems also help to improve efficiency andquality.

Financial risks in unit linked insuranceIn unit linked insurance savings the policyholdertakes all the financial risk involved in the savings.The value development is linked entirely to the fundunits’ market value at the time. There is no guaran-teed minimum return in unit linked insurance.

Policyholders’ fundsPolicyholders’ funds function as a buffer againstvariations in the company’s insurance risks andreturn on investment. The reserve contains thefunds put aside by the company for use if, forexample, the bonus rate has been slightly higherthan return for a period. A change in provisionsto this reserve should always be seen against thebackground of the fact that the company’s com-mitments are generally very long term.

New Swedish Insurance Business Act and interest

rate when calculating liabilitiesA new Swedish Insurance Business Act came intoforce on 1 January 2000. Important changesinclude the fact that profit distributions from lifeinsurance companies are now allowed, althoughthe Articles of Association must be changed first.Handelsbanken intends to start a process desig-ned to reconstruct SPP Liv into a profit distribu-ting company. The new Act also facilitates com-petition and product development and givespolicyholders better insight into operations andprotection. The older wording in the InsuranceBusiness Act may be applied, however, until year-end 2001.

On the basis of falling interest rates in recentyears and a directive from the EU, in 1999 theSwedish Financial Supervisory Authority reducedthe highest interest rate assumption a Swedishinsurance company may apply when deciding itslife insurance provisions. As a result of this change,SPP Liv reduced the interest rate used for calcula-tion of life insurance provisions from four to threeper cent before tax.

In 1998, an interest rate reduction was also madefollowing a directive from the Swedish FinancialSupervisory Authority. SPP Liv applies interim rules

19R ISK MANAGEMENT

with interim bases for the total increased debt andtherefore spreads the earnings effect over severalyears. Interim bases will cease to apply at thebeginning of 2002 since the new Insurance Busi-ness Act must then be applied. On that date SPPLiv will have about SEK 7.5 bn left to expense.

Risks within investment managementIn order to limit the risks of securities trading thisis controlled by legislation, directives from theSwedish Financial Supervisory Authority, and SPPLiv’s Board through investment regulations.Diversification between different asset classesspreads risks and investment performance is com-pared with different benchmarks.

Organisationally, responsibility for investmentdecisions, liquidity management, risk assessmentand reporting is placed at different functions whichenhances the security of investment management.

Effective IT systems allow daily and highlyaccurate follow up. The IT systems have authorisa-tion checks which provide added security.

Market riskMarket risk is the risk that the value of the invest-ment portfolio will be negatively affected by changesin interest rates, shares prices or exchange rates.In order to limit market risk, SPP Liv works witha normal portfolio where the allocation betweendifferent asset classes is defined. Within each assetclass there is a deviation mandate which the port-folio manager must stay within. In addition, thereis a defined maximum active risk, known as track-ing error, for each class of asset and for the totalinvestment portfolio.

The use of derivative instruments such as Swedishinterest-rate, stock index and currency futures andcurrency swaps, reduces the risks from major pricefluctuations and makes management more effective.

Sensitivity analysisA number of factors affect the Group’s operationsand assets under management. If only one variableat a time should change, which is never the case inreality, the result would be as described in thetable below.

SEK m %

Equities 353 0.4

Fixed-income 2,022 2.4

The table shows how the market value theoret-ically would be affected by a one percentage pointchange in the market value of equities and a onepercentage point change in the general interestrate level in Sweden, the US, the EMU area andthe UK with regard to fixed-income investments.

Currency riskCurrency risk is controlled by deciding whichasset classes should be hedged and the deviationmandate in relation to the currency exposure inthe normal portfolio. The total currency exposurefor SPP Liv was 17.7 per cent (14.7).

CURRENCY EXPOSURE

Currency Exposure in SEK m

USD 6,929.5

GBP 1,927.9

JPY 2,492.0

EUR 2,683.5

CHF 547.8

Others 219.3

Liquidity riskLiquidity risk is the risk of loss if a financialinstrument cannot be sold immediately without asubstantial price reduction.

SPP Liv limits liquidity risks by mainly invest-ing in Swedish and foreign government securitiesand in equities with good liquidity.

Major investmentsSPP Liv has two investments which exceed fiveper cent of total assets: FöreningsSparbanken SEK 5,243 m and Ericsson 5,186 m.

Administrative risk in investment managementAdministrative risks include inadequacies in theorganisation, internal control, risk assessmentand reporting. SPP Liv handles such risks througha strict division of responsibility, effective IT sup-port with suitable authorisation routines, andefficient routines for internal control. This workis managed by a special internal audit unit.

20 CL I ENT COMPANY FUNDS

SPP Liv’s collective reserve amounted to SEK13,124 m at year-end 2000. This gives a solvencymargin of 119 per cent which represents a decreaseof four percentage points compared with theprevious year. The solvency margin expresses therelationship between the market value of assetsand commitments to policyholders. SPP Liv appliestwo principles for determining surplus and bonusrate depending on the insurance commitment.The present surplus funds policy for collective-agreement related occupational pension will bereviewed in 2001 when a decision will also bemade on whether a new allocation of surplusfunds will be made.

Over-funding and client company fundsIn the last years of the 1990s the return on invest-ments was very high and inflation was low. Thereserve then rose more than was required to secureinsurance commitments and surplus funds werebuilt up.

SPP Liv’s Board has made a decision in principleto adhere to Alecta pensionsförsäkring, ömse-sidigt’s collective reserve policy for insurancewithin collective-agreement related occupationalpensions. This means that SEK 2 bn was earmark-ed from the surplus funds at year-end 1998 forpension improvements to be agreed between SAFand PTK. At the same time, SEK 9 bn was allocatedto SPP Liv’s corporate customers. More than halfof the funds placed at the disposal of the partieswere used for measures within the ITP Plan in1999.

The use of client company funds has been exa-mined by the Swedish Competition Authority andfollowing extensive deliberations the rules for useand application of client company funds werefinally established on 28 April 2000.

Summary of the rulesBriefly, the areas chosen for use of client companyfunds, once an initial cash payment of 20 per centhas been made, mean that funds can be used forpayment of 80 per cent of:• current ITP premiums to Alecta pensionsför-

säkring or SPP Liv• ITPK premiums to Förenade Liv• premiums for so-called alternative ITP to a free-

ly chosen insurance company (for high-earners)

• single premiums for PRI redemption in Alectapensionsförsäkring

• premiums to a freely chosen insurance com-pany* for pensions not regulated in the ITPPlan, such as- single premium for early retirement pension- current premiums to complement traditional

ITP- single premiums or current premiums for

other pension over and above ITP

*A decision on this must be made together withrepresentatives for the ITP insured at the company.

Following a review by Alecta pensionsförsäk-ring, client company funds can also be transferredto another ITP-affiliated company.

Client company funds in 2000Cash payments started in September 2000, whichmeant that each eligible company was paid up toSEK 100,000 from the funds or 20 per cent of thefunds, whichever amount was the largest. If theclient company funds for an individual companywere less than SEK 100,000 the full amount waspaid directly. In this way, 3,900 companies in SPPLiv received their entire amount in cash.

Starting in November, 80 per cent of invoicedpremiums for collective-agreement related occu-pational pension could be taken from client com-pany funds, unless the employer had specifiedotherwise. This meant that companies used SEK134 m for November and December 2000.

Customer accountsUse to pay premiums, including single premiums,started on 1 December 2000. Since the clientcompanies received compensation from Alectapensionsförsäkring in arrears for these premiums,SPP Liv offered a customer account solution tocustomers who wished payment of premiums.This meant that the customers did not need topay the entire amount in advance to SPP Liv butcould spread their premium payments over alonger period. For SPP Liv new sales of single pre-miums for early retirement pension or other pen-sion commitments rose sharply in the final monthsof the year and amounted to approximately SEK5 bn, represented by premiums written in both2000 and 2001.

Collective reserve and client company funds