Highlights of the year. Contents

Transcription

1 Annual report 2005

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3 2005 Highlights of the year HIGHEST RETURN FOR THE THIRD YEAR RUNNING For the third consecutive year, in 2005, the policyholders in Handelsbanken Liv received significantly higher return than customers of the major companies in the insurance industry that apply bonus rates. The policyholders assets were adjusted upwards by 10.49%, which is 90% of the total return of 11.65%. NEW HEAD OF PENSIONS & INSURANCE AND CHIEF EXECUTIVE OF HANDELSBANKEN LIV Since the beginning of 2006, Michael Zell has been head of Handelsbanken s Pensions & Insurance business area, which includes Handelsbanken Liv and SPP. Michael Zell also became chief executive of Handelsbanken Liv in mid- January At the same time, the previous chief exexcutive, Hans Hagman, became deputy chief executive and head of the Banking business area. Handelsbanken Liv and its sister company SPP continue to be run as two separate companies, each with its own brand. ENDOWMENT PENSIONS NEW PRODUCT IN 2005 The endowment pension insurance solution was a major sales success in 2005 and Handelsbanken s endowment pension products were sold for an amount of SEK 2.6 billion. SUCCESSFUL AGREEMENT WITH CLASS ACTION AGAINST SKANDIA During spring 2005, an agreement was entered into with the class action against Skandia implying an offer to the members of the association to move their savings from Skandia to Handelsbanken Liv. The offer was well-received and new customers are being continually acquired as a result of the agreement which has now been extended to 30 June FIXED OR VARIABLE PAYMENTS THE CUSTOMER S CHOICE Handelsbanken Liv is the first life insurance company in Sweden to offer its customers with defined contribution traditional insurance two payment alternatives: variable or fixed payments. The customer decides whether the payments will follow the consumer price index or whether they will rise or fall depending on the company s return. Contents Highlights of the year 1 Chief executive s comments 2 Administration report 4 Market and sales 4 Asset management 5 Risks and risk control 6 The company s development 8 Alternative income statement 9 Five-year summary 10 Accounting policies 11 Changed accounting policies 14 Income statement 15 Analysis of results 16 Balance sheet 17 Cash flow statement 19 Notes 20 Specification of shares and participating interests 27 Proposed disposition of profits 29 Audit report 30 Management and board 31 Glossary Inside back cover Key figures Premiums written, SEK million Guaranteed rate and risk insurance 3,478 3,281 2,745 2,490 2,350 Unit-linked insurance 8,556 3,910 2,176 2,758 3,528 Total 12,034 7,191 4,921 5,248 5,878 Handelsbanken Liv, together with its sister company SPP, is a market leader with a complete range of life insurance products for occupational and private pensions, as well as wealth management solutions for companies, organisations and private individuals. Managed assets, SEK million Guaranteed rate and risk insurance 26,160 23,314 21,162 18,761 20,003 Unit-linked insurance 48,626 33,216 15,543 12,693 16,733 Total 74,786 56,530 36,705 31,454 36,736 Total return (Insurance with a guaranteed return) HIGHLIGHTS OF THE YEAR HANDELSBANKEN LIV ANNUAL REPORT

4 CHIEF EXECUTIVE S COMMENTS Our model is a winner Handelsbanken Liv was the first profit-distributing life insurance company in Sweden to offer insurance with traditional management. Four years later, I can safely say that our model delivers what it promises, and more for our customers as well as our owners. For the third successive year, our customers with traditional life insurance received the best return in the sector. When we ask our customers what is most important to them in their savings and investments, their reply is usually high returns. Most people also say that they want some form of guarantee. Handelsbanken Liv works with this in mind. For three successive years we have given the best return on insurance assets to our customers who save with traditional insurance, or insurance with guaranteed return as we call it. For 2005, our customers had their insurance assets adjusted upwards by 10.49%. It is no coincidence that we have succeeded so well. We work continually to improve our management of financial risk and to optimise the opportunities to create good returns. Since we only receive part of the return if we exceed the guarantee levels we have promised, we and our customers have a common interest that the surplus should be as high as possible. We take responsibility for the guarantees we issue, not the customers. This provides a security that no mutually run life insurance company can offer. A security that comes from having one of the world s strongest banks behind us an owner which takes responsibility for its life insurance company. Unlike in a mutually run company, where the policyholders themselves, with all their differences and poor opportunities of exercising supervision and control, are expected to provide collective ownership responsibility. With us, every customer with pension savings can monitor the value of his/her own account. We could call ourselves The Individual Life Insurance Company with fairness, security and freedom. About eighteen months ago, more structured work commenced to improve the company s risk result. The effect could already be seen in the positive trend in 2004; and in 2005 the results were even clearer. We have achieved breakeven for our disability insurance operations, which had been the area which had burdened our risk result. Our systematic work of anticipating, identifying and managing operational risks at all levels in the company is ongoing. As regards risk premiums, we know that we charge for the actual cost. This is fully in line with our basic values: we aim to be clear, and consider it fair that each customer bears his/ her own costs. At the beginning of the year, the Grupptalan mot Skandia ( Class Action against Skandia ) association contacted Handelsbanken Liv. The association s committee requested that we serve as a safe haven for its members who, for various reasons, wanted to leave Skandia insurance companies. Our basic values greater freedom, security and fairness and our way of running life insurance operations seemed to appeal to them. The agreement with Grupptalan mot Skandia has been successful for both parties, and has now been extended until 30 June Ever since Handelsbanken Liv was demutualised, we have fought for a true right of transfer on all insurance assets, for new and existing customers alike. This creates a new relationship between customer and supplier, and contributes to an increase in quality. Free competition is normally an obvious guarantee of the right quality and price. So why not in the insurance business? During the year, thousands of customers transferred their assets to Handelsbanken Liv. They utilised the right of transfer that only some life insurance companies offer. In 2006, both of Handelsbanken s life insurance companies, SPP and Handelsbanken Liv, will also introduce the right of transfer in their occupational pensions. This proves that we believe in ourselves. We know that we have something better to offer our customers. Handelsbanken Liv has now expanded the freedom of choice even more. During the year, we developed a new payment model. A customer with a guaranteed interest policy may choose between fixed or variable payments, and thus also influence their insurance when it is time for the money to be paid out. In the past, Handelsbanken Liv has been one of the market leaders in wealth-related insurance solutions. When inheritance and gift taxes were abolished at year-end 2004, we thought that it would put a damper on our sales. Sales of endowment policies did indeed decline somewhat, but our new 2 HANDELSBANKEN LIV ANNUAL REPORT 2005 CHIEF EXECUTIVE S COMMENTS

5 endowment pension product, Kapitalpension, has more than made up for this decline. In 2005, through Handelsbanken s branch network, we substantially increased the sales of selectable collectively agreed occupational pensions the part of the occupational pension where customers themselves make the investment choice. In Norway this year, the law on mandatory occupational pensions is creating a large new market. We are well equipped to claim our part of this unique market event, together with Handelsbanken s branches in Norway and through collaboration with selected insurance brokers. As I see it, the outlook is bright for us to remain an attractive prospect on all our markets thanks to our highly successful model, our strong brand, and the bank branch network through which we work. According to Svenskt Kvalitetsindex, SKI, Handelsbanken Liv is once again a top-ranked life insurance company with the most satisfied customers. For me, this confirmation is extremely important. Without satisfied customers we cannot make money in the long run. Handelsbanken Liv s profit this year shows how well benefits for our customers and benefits for our owners can be combined in the form of life insurance operations that we run. This is the first annual report I have presented as chief executive of Handelsbanken Liv. Together with our sister company SPP, we make up Handelsbanken Pensions & Insurance. My predecessor Hans Hagman is continuing in this area of operations as deputy chief executive and head of the business area called Banking. I would like to conclude by thanking our customers, our collaboration partners and our suppliers, all our colleagues at Handelsbanken branches, and naturally the entire staff of Handelsbanken Liv for excellent collaboration and work well done during the company s best year by far. We have delivered more than we promised and there is scope for even more. Stockholm, February 2006 Michael Zell CHIEF EXECUTIVE S COMMENTS HANDELSBANKEN LIV ANNUAL REPORT

6 Market and sales In 2005, Handelsbanken Liv policyholders saw their capital adjusted upward by 10.49%. This was the third consecutive year that they received significantly higher interest rates than customers of the major companies in the industry that apply bonus rates. Handelsbanken Liv s main markets are wealth management solutions, private pension savings, pension and investment solutions for small companies, and collective agreement occupational pensions. Wealth management solutions for the bank s customers and pension plans for small business owners who are also bank customers are mainly sold by Handelsbanken Liv s insurance advisors through the bank branches. The bank branches receive support from consultants relating to broad market solutions such as private pension insurance, collective agreement occupational pensions and simpler forms of endowment insurance. Handelsbanken Liv s sister company, SPP, works directly with large and medium-size enterprises, municipalities and organisations in the open competitive pensions market. PREMIUMS WRITTEN AND NEW BUSINESS The biggest change in the market during the year was the new product area for endowment pensions, an investment solution that facilitates long-term saving, exemption from wealth tax and a very low policyholder tax. The product area is attractive to people with large savings, as long as wealth tax in Sweden exists in its current form. The market for ordinary endowment insurance decreased somewhat, largely because of the life insurance companies focus on selling endowment pensions. Private, deductible pension savings increased by 5%. The total premium volume in the competitive market for life and pension insurance in Sweden rose to SEK 123.8bn (97.6) a 27% increase, according to the Swedish Insurance Federation s report. Unit-linked insurance in particular increased, mainly due to the new endowment pension product area introduced in the market. New business for the Swedish life insurance companies, measured as single premiums plus regular premiums, totalled SEK 39.5bn (21.6) an increase of 83%. This increase is largely due to the introduction of endowment pensions. HANDELSBANKEN LIV S PREMIUMS WRITTEN AND NEW BUSINESS Here Handelsbanken Liv refers to the unit-linked and traditional insurance marketed under the Handelsbanken Liv brand, without taking into account the fact that SPP Fondförsäkring AB legally belonged to the company beginning in July Handelsbanken Liv s premiums written in Sweden totalled SEK 6.42bn (5.05), equivalent to a total market share of 5.2% (5.2). The increase in premiums written is mainly attributable to the new endowment pension product area, as well as to successes in individually selected collective agreement occupational pensions. One important explanation for the increase is that the bank branches always ask customers if they have made their choice. This resulted in a total of 58,000 new collective agreement pensions in 2005, including 25,000 with guaranteed interest. Within Handelsbanken Liv s core market, endowment insurance and endowment pension products, premiums written totalled SEK 3.05bn (2.34). Handelsbanken new premiums totalled SEK 2.22bn (1.49), resulting in a market share of 5.6% (6.9). Handelsbanken Liv has sold endowment pension products for almost SEK 2.6bn. There is still great potential for additional sales through Handelsbanken s branches, which means the outlook for 2006 continues to be good. MORE CAPITAL FLOWED IN THAN OUT During 2005, SEK 400m flowed into Handelsbanken Liv. Most of the money came from policyholders moving their capital from Skandia. During the year, Handelsbanken Liv reached an agreement with the class action against Skandia and the agreement has been extended to June During the same period, customers moved about SEK 17m from Handelsbanken Liv to other insurers. HANDELSBANKEN LIV FLAUNTS ITS SUCCESS For the third consecutive year, Handelsbanken Liv s customers received a higher return on their funds in 2005 than customers at the big mutual companies. To draw attention to this achievement, a nationwide campaign was carried out in early 2006 in newspaper ads, on large advertising pillars and with posters in the bank branches. INTERNATIONAL BUSINESS CONTINUES TO GROW As Handelsbanken grows abroad, efforts to provide local products are increasing, primarily through the subsidiaries SHB Life AS, with business operations in Finland and Norway, as well as Handelsbanken Liv s Irish company, Euroben Life & Pension Ltd. Overall, new sales increased substantially mainly through the Euroben products Kapitalpension Depå and Kapitalspar Depå, which increased by 900% from SEK 158m to SEK 1,643m. In Norway, a new law has come into force in 2006 requiring mandatory occupational pension at all companies. This has led to increased investments in the form of new employees hired and increased IT support. Sales in Finland were greater than the previous year s sales and the market has now once again begun to grow since the effects of the tax reform implemented in 2005 have diminished. 4 HANDELSBANKEN LIV ANNUAL REPORT 2005 ADMINISTRATION REPORT

7 HANDELSBANKEN LIV 2005 Asset management At Handelsbanken Liv, asset management is conducted to provide long-term, high returns. At the same time, investments must be sufficiently secure so that the return is at least equal to the guarantees customers received. In 2005, management was conducted in two separate portfolios. The portion of investments that matches insurance obligations with guaranteed interest, known as traditional insurance, is managed in a diversified portfolio. In this portfolio, the risks are spread by investing in several different types of assets, consisting of fixed income securities, equities, real estate and alternative asset classes. The portion of investments attributable to the company s equity was mainly invested in fixed income securities. INVESTMENTS FOR SAVINGS CUSTOMERS The total return was 11.65% (6.83). Average total return over the last ten years amounted to 9.1%. Most stock markets performed well during the year. The Stockholm Stock Exchange rose about 33%. The stock market was weaker in the United States, where the return was just a few percent. Handelsbanken Liv actively allocated its assets in order to maintain high exposure to the stock markets in Sweden, Europe and the US. The return on equities was 28.2%. The proportion of equities at 31 December was 34%. In the Swedish bond market, interest rates fell during the spring, reaching record lows during the summer. During the last quarter interest rates rose again, but ended the year at lower levels than at the start of the year. Throughout the year, fixed income portfolios had a relatively short duration. Yield on the fixed income portfolio was 3.4 per cent. The return on real estate was 10.4% (6.4). Yield was higher in 2004 largely due to an upward revaluation of the market value of the real estate. Throughout the year, all asset exposure in foreign currency was hedged. During the year, the Swedish krona weakened in relation to both the US dollar and the euro. Without hedging, the total return would have been somewhat higher. Asset allocation is governed by a benchmark portfolio that is decided on a monthly basis by the company s allocation committee. Current market perceptions are allowed to influence composition, but primarily it is the balance sheet s ability to withstand market fluctuations that dictates the content of the benchmark portfolio. The company s commitments to customers are formulated in absolute terms and these commitments are important features in determining asset allocation. Total return 2005 Swedish equities 33.0 % Foreign equities 25.1 % Fixed income 3.4 % Real estate 10.4 % Other 20.6 % Total % Breakdown of assets Equity investments Fixed income 31 December December December 2005 Fixed income 58 % Equities 34 % Real Estate 6 % Hedge funds 2 % Sweden 39 % Europe 44 % (except Sweden) USA 17 % Swedish government 58 % Swedish mortgageinstitutions 35 % Other Swedish issuers 6 % Foreign issuers 1 % ADMINISTRATION REPORT HANDELSBANKEN LIV ANNUAL REPORT

8 HANDELSBANKEN LIV 2005 Risks and risk control The company s operations involve insurance risks, financial risks and operational risks. The financial risks include market risks, liquidity risks and credit risks. Good risk control is a condition for sound business activity, and the company therefore has several services and departments that are responsible for limiting, measuring and following up risks. The company also has a compliance function with the task of following up the operations to ensure that they are run according to applicable regulations and good practice. With the exception of the senior actuary, the organisation is shared with SPP. FINANCIAL RISK Insurance with a savings component, both pension insurance and endowment insurance, is associated with financial risks. In traditional insurance with a guaranteed return, the financial risk is shared between the individual policyholder and the company. If the total return exceeds the guaranteed rate, the return is allocated so that the policyholder receives 90% and Handelsbanken Liv 10%. As a counterbalance to sharing the return, the policyholder has a guaranteed return on his or her guaranteed capital. For savings in unit-linked insurance, the policyholder accepts the entire financial risk by choosing the funds in which to invest the saved capital. The company does not bear any risk and does not receive any of the return. Risks within asset management Risk generally means uncertainty about future results. The risk component that is most important for Handelsbanken Liv to quantify and control is the possibility that negative variances from an anticipated result should arise. Asset management operations are exposed to market risks, liquidity risks, credit risks and operational risks. The company works with Asset and Liability Management (ALM), which means integrated management of assets and liabilities. Market risk In practice, market risk comprises possible price falls on the company s assets caused by changed interest rates, share prices, property prices or exchange rates. In order to manage market risk, Handelsbanken Liv s allocation committee decides on a benchmark portfolio. The composition of the benchmark portfolio is primarily influenced by the extent to which the balance sheet can withstand market fluctuations. The strenght of the balance sheet is continually calculated by means of stress tests and measuring the impact on the company s available solvency margin. The utilised risk scope is compared to the available risk scope determined by the board. Current market sentiment also affects the composition of the benchmark portfolio, but these considerations take second place. Against the background of a positive view of equities as an asset class, share price risk s portion of total market risk was high in relation to the available risk scope. Liquidity risk Liquidity risk is the risk of loss that results from not being able to sell a financial instrument immediately without a significant price reduction. This risk is limited through most of the total portfolio being invested in listed securities with good liquidity. Credit risk Credit risk is the risk that borrowers or counterparties are unable to meet their commitments to Handelsbanken Liv. The creditworthiness of issuers, borrowers and counterparties is determined via both internal and external credit assessments. Investments in fixed income securities that are not issued by the Swedish state, a municipality or a bank-owned mortgage institution may comprise a maximum of 25% of the fixed income investment. Investment in fixed income securities with a credit rating from an external rating institution below A requires the approval of the board. INSURANCE RISKS Life insurance is a financial product where the result, at least to some extent, is uncertain. This uncertainty depends in some way on the life or health of the insured individual. Life insurance with a savings component is also uncertain in terms of future investment returns. Different types of insurance risks premature death death benefit insurance payment in the event of the death of the insured person longevity life insurance/pension insurance payment as long as the insured person lives disability/accident disability insurance/waiver of premium insurance payment in the event of illness/inability to work combinations many insurance policies offer combinations of the above three. In a mutual insurance company, the policyholder collective takes the risks, since the policyholders have the role of both owner and customer. In a demutualised (profit-distributing) life insurance company such as Handelsbanken Liv, the policyholders no longer need to bear the risks collectively. The risk result is borne by the company. In principle, the company s products are formed such that the compensation amount can be established directly in the claim settlement. Thus, the affect on the results from deviations between estimated and actual claims costs is negligible. Limiting insurance risks Before risk insurance can be granted, a medical risk assessment is performed for the insured party. The purpose is to assess whether and on what terms the insured party can be granted insurance on the basis of his or her state of health. This is essential in order to be able to offer long-term insurance at a reasonable premium in a profitable manner. The 6 HANDELSBANKEN LIV ANNUAL REPORT 2005 ADMINISTRATION REPORT

9 insurance applied for must also meet the policyholder s insurance needs and ability to pay. This is why risk assessment may also include a financial assessment. Future risks Mortality continues to fall, which is positive with regards to death benefit insurance. Falling mortality means a rising average length of life which, on the other hand, may be a concern as regards pension insurance. As this affects the entire life insurance industry, in 2006 the Försäkringstekniska Forskningsnämnden (FTN an industry organisation for the Swedish insurance industry) will conduct a comprehensive analysis of mortality. The aim of the survey is firstly to document actual insurance mortality (= mortality among those who have taken out insurance), broken down by a number of subpopulations. The perhaps most important breakdown is based on the way the policyholder took out the insurance: through an active individual decision or automatically without his or her involvement via a collective agreement or similar solution. Secondly, the analysis includes estimating change trends, which enables a mortality forecast to be made. A mortality forecast is a fundamental factor for pricing both mortality insurance and pension insurance. The products are often designed so that the original premium calculation is based on a mortality that applies throughout the insurance period. The future is not as predictable when it comes to disability insurance. Changes in disability occur much more rapidly than changes in mortality. This is partly due to the difficulties in determining the underlying reason and degree of disability. The rapidly rising disability in the form of people on the sick list in the early years of the twenty-first century represents a major human and socio-economic problem. The large premium increases that ensued made several insurance companies doubtful to the possibility of being able to offer voluntary disability insurance in the future. In 2005, however, the upper limit appeared to have been reached in terms of disability. The entire disability insurance sector has entered a much more balanced phase. Disability insurance products are generally designed in such a way that the insurance company can change the premium annually, which is an option that the company can utilise to balance the rapid changes in disability. Most of Handelsbanken Liv s risk products are priced annually, that is, the company can unilaterally change the premium from year to year. Thus, an incorrect mortality assumption can be corrected with a quick effect on the results. In savings insurance, however, pricing is usually over the life of the contract. A 10% decrease in mortality, which represents an additional 1.0 to 1.5 years life expectancy, would result in a total lower profit of about SEK 200m over a fifty-year period. Those insured with Handelsbanken Liv are primarily private customers and smaller companies. Thus, the company in principle does not have any major concentrations of insurance risks. OPERATIONAL RISKS Operational risks are defined as risks of losses caused by inadequate or erroneous internal routines and system solutions, as well as mistakes made by own employees. The causes may also consist of external events and legal risks. Operational risks may lead to economic losses and a drop in confidence among our customers and in the market. Responsibility for managing operational risks is part of managerial responsibility at all levels. The managers of main departments with function responsibility also have an express responsibility to identify, assess, report, act upon and control operational risks. Regional managers and the chief executives of subsidiaries have equivalent responsibility within their respective units. Sound management of operational risks is also a way of assuring internal control in the company. Major efforts have been made to improve the daily routines so as to reduce operational risks and avoid operational losses. The daily routines have been improved by making the work procedures more efficient. Detailed work descriptions have also been written. These measures have in turn led to increased skills and competence. A key starting point is that division of responsibility and working duties must be defined on the basis of control aspects and be designed to ensure that no single person handles a transaction throughout the entire processing chain. During the year, the company s board of directors established a policy for operational risks, and the chief executive established guidelines for management of such risks. Both the policy and the guidelines follow the general guidelines of the Swedish Financial Supervisory Authority on governance and control of financial companies and general guidelines on reporting significant events. The guidelines include descriptions of how operational risks and losses are to be reported in the company. Furthermore, the overall responsibility for operational risks was transferred to the Risk Management department during the year. The department s tasks include conducting an independent risk check of operational risks and assisting the business operation in its work on operational risks. As a complement to ongoing control of operational risks, and in a similar way to the rest of the Handelsbanken Group, the company performs a self-assessment of operational risks every year. To increase the focus on operational risks even more, it became compulsory during the year for each unit, in conjunction with the annual operations planning process, to conduct an analysis of its own operational risks. The analysis is intended to show the operational risks, their possible consequences, and plans for necessary action to eliminate or reduce the risks. An overall review of the Group s operational risks is conducted twice a year; the results are reported to the central board of Handelsbanken and the board of Handelsbanken Liv. In addition to responsibility for operational risks, the company together with SPP has employees with special responsibility for information security and physical safety. Compliance Compliance is to continuously identify, assess, monitor and inform about risks that may arise due to failure to comply with regulations (such as laws, ordinances and internal instructions). Another duty is to ensure that relevant employees are given information and training on new or changed rules. The risks compliance risks that may result from failure to comply with regulations are increased operational risks, risks of legal sanctions, supervisory sanctions, economic loss, or damage caused by loss of reputation. This function has an independent position in relation to business operations, and it reports directly to the chief executive and company board. ADMINISTRATION REPORT HANDELSBANKEN LIV ANNUAL REPORT

10 HANDELSBANKEN LIV 2005 The company s performance THE HANDELSBANKEN LIV Handelsbanken Liv, corporate identity number , is domiciled in Stockholm. The company is a wholly owned subsidiary of Svenska Handelsbanken AB (publ), company registration number (Handelsbanken). Since 2002, Handelsbanken Liv has conducted both life insurance business with traditional insurance and unit-linked insurance in the same company. The company is demutualised, which means that profits accrue to its owner. The Group also includes the subsidiaries SPP Liv Fondförsäkring AB, SHB Liv Forsikringsaktieselskab A/S (SHB Liv), which provide life insurance products in Norway and Finland, and the Irish insurance company Euroben Life & Pension Ltd (Euroben). Policyholders savings within unit-linked insurance are mainly invested in Handelsbanken s mutual funds. Handelsbanken Liv purchases IT services and asset management from the parent company Handelsbanken. The company also purchases from and sells services to its sister company SPP. Intra-group prices are set within the framework for the work in the planning committees in the Handelsbanken Group. The work of the planning committees complies with the rules and guidelines applied within the Handelsbanken Group. Prices are set at cost, although never higher than market prices. The charge for asset management is based on market prices. In 2005, Handelsbanken Liv carried out internal services for and invoiced its sister company SPP for SEK 94m (72). At the same time, Handelsbanken Liv purchased services for SEK 270m (166) in the same period. OPERATIONS Handelsbanken Liv is the only major life insurance company in Sweden that provides traditional insurance with guaranteed interest rates in a demutualised company. The company also offers transfer rights to other companies for all private individuals as of 1 April Furthermore, customers can switch their form of savings within the company between traditional insurance with guaranteed rates and unit-linked insurance. Handelsbanken Liv, SPP and Handelsbanken offer customers a broad range of savings products related to both pensions and other savings. This takes place within the framework of Handelsbanken s universal bank concept, where life insurance is a natural part of the product range. Sales of savings insurance in other Nordic countries are conducted through the Danish subsidiary SHB Liv Forsikringsaktieselskab which conducts operations through branch offices in Finland and Norway. Sales of risk insurance in Norway are conducted by a branch office. Sales in Denmark and Finland are handled as cross-border operations from Sweden. SIGNIFICANT EVENTS Michael Zell took over as head of Handelsbanken Pension & Insurance on 1 January He was previously the head of Regional Bank Central Sweden at Handelsbanken. On 17 January 2006 Michael Zell took over as chief executive of Handelsbanken Liv, at which time a more market-oriented organisation was presented to create better conditions in order to increase sales. Handelsbanken s Liv s previous chief executive, Hans Hagman, was appointed deputy chief executive of Handelsbanken Liv and head of the Banking business area. During the year, Handelsbanken Liv provided a shareholder contribution of SEK 110m to SPP Liv Fondförsäkring AB and SEK 100m to Euroben because of higher capital requirements as the companies grow. On 1 January 2006, the subsidiary SPP Liv Fondförsäkring AB was sold to sister company SPP Livförsäkring AB. The purchase price was the value in Handelsbanken Liv s books: SEK 1,310m. VOLUME DEVELOPMENT Insurance assets under management amounted to SEK 75bn (57), of which SEK 49bn (33) was invested in unit-linked insurance. The large increase in managed capital is mainly due to the high investment income, as well as to a strong net inflow (paid premiums minus payments). Since approximately 70% of administrative charges on savings insurance is derived from capital charges, the size of assets under management is a key component in the administration result. PREMIUMS WRITTEN Premiums written increased to SEK 12.0bn (7.2), including SEK 8.6bn (3.9) for unit-linked insurance. Premiums written excluding SPP Liv Fondförsäkring increased by 49% to SEK 8.8bn (5.9). This improvement can be explained by a general increase in sales of all products, especially the new Kapitalpension product. Norway accounted for SEK 217m (236) of premiums written, and Finland for SEK 79m (64). SOLVENCY The Group s available solvency margin at 31 December 2005 was SEK 2,478m (1,920). This should be placed in relation to the required solvency, which was to SEK 1,736m (1,441). The solvency ratio thus amounted to 1.43 (1.33). Handelsbanken Liv s target for its solvency ratio is 1.3. CHANGED OPERATING REGULATIONS The occupational pensions directive came into force in Swedish law on 1 January This implies that insurance commitments must be calculated using prudent assumptions. The new rules affect the calculation of the insurance commitments used to calculate the solvency ratio and on the size of the assets which must exists to cover liabilities. For Handelsbanken Liv, this means that the insurance commitments as at 31 December 2005 would increase by some SEK 400m and the available solvency margin would be reduced by the same amount. The divestment of SPP Liv Fondförsäkring on 1 January 2006 means that the available solvency margin simultaneously increases by the same amount, so the company s solvency ratio does not deteriorate. These new rules do not affect the calculation of the insurance commitments in the accounts as they comply with international accounting standards. 8 HANDELSBANKEN LIV ANNUAL REPORT 2005 ADMINISTRATION REPORT

11 HANDELSBANKEN LIV 2005 Alternative income statement (excluding results in non-insurance companies) SEK million Administration result Risk result Financial result Other Result before tax Figures for 2004 restated under IAS/IFRS. Link to statutory income statement Profit before tax according to alternative income statement Profit before tax in non-insurance companies Profit before tax according to statutory income statement The traditional income statement in a life insurance company is difficult to comprehend and offers the reader few opportunities to understand how the result was reached. Among other things, flows, such as premiums written and claims paid, are reported via the income statement. Comparable items in many other sectors are reported in the balance sheet. Internally, Handelsbanken Liv has worked with an alternative income statement which provides a better basis for understanding how the results arise. In the alternative income statement the result is divided into four components: administration result risk result financial result other The result is based on the Handelsbanken Liv Group s pre-tax result and excludes earnings in companies that are not insurance companies. The result is also adjusted for policyholder tax. The profit was SEK 619m (255). The administration result, risk result and financial result all improved substantially during the year. The increase in the administration result was mainly due to higher capital fees, but also to lower costs. The capital fees, which represent some 70% of the income in savings insurance, rose at the same rate as the managed assets, or 32%. Excluding SPP Liv Fondförsäkring, which was acquired in July 2004, costs fell by 4%. The risk result continued to improve significantly. This is mainly due to an improved result in disability insurance. The number of new disability insurance cases fell at the same time as existing provisions for disability could be dissolved. For the first time in several years, the risk result from disability insurance was positive. The total return on policyholders capital was 11.65% (6.83). Since the return exceeded the guaranteed interest rate, the company received 10% of the total return and the policyholders 90%, which means that the yield rate was 10.49% (6.15). The company s share of the return was SEK 237m (138). This was the third consecutive year that policyholders in Handelsbanken Liv received significantly higher return than customers of the major companies in the industry that apply yield rates. The other item includes amortisation of intangible assets of SEK 24m (11) and interest expenses on subordinated loans of SEK 37m (25). Excluding these items, return on the company s equity was SEK 93m (60). The improved result was due to increased exposure of the shareholders equity to the stock market. Handelsbanken Liv s profit is also reported in the Handelsbanken Group as a separate business segment. The segment result differs from the legal result, partly because the business segment results are charged with interest expenses for funding the equity and also intra-group costs. DEFINITIONS OF THE RESULT COMPONENTS The administration result is the difference between the fees charged on the insurance contracts to cover administration and the company s actual costs. The fees charged can be based on the capital, the premium, the number of policies or the amount disbursed. Costs include staff costs, commissions and IT costs. The risk result comprises the fees charged by the company to cover insurance risks and the actual costs of these risks. The insurance risks are mortality, longevity, disability and accident. For products where there is not a specific fee to cover the insurance risk, for most products, 80% of premiums written is attributed as income within the risk result. The remaining 20% is reported as income within the administration result. The financial result consists of the difference between return on assets managed on behalf of the policyholders and that which has been allocated to the policyholders. In unit-linked insurance, customers values change with the return, regardless of whether the return is positive or negative. The financial result for unit-linked insurance is always zero. For traditional insurance with guaranteed rates there are two components that affect the financial result: return allocation and capital contributions to cover the guaranteed capital. If the total return exceeds the guaranteed rate, which is between 3% and 5%, depending on when the policy was taken out, the return is shared. In this case, the customer receives 90%, but never less than the guaranteed rate, and the company the remaining 10%. The company s share of the total return is then an income item within the financial result. Customers are guaranteed to receive a return on the guaranteed capital of at least the guaranteed rate. If the value of a customer s insurance should be less than the guaranteed value, the company provides capital up to the guaranteed value. The return on risk products is also reported within the financial result. Other comprises the return on the assets that are not managed on behalf of the policyholders, amortisation of intangible assets and interest costs on debenture loans. ADMINISTRATION REPORT HANDELSBANKEN LIV ANNUAL REPORT

12 Five-year summary SEK million Result Premiums written ,921 5,248 3,528 Investment income net in insurance business 3,385 1,800 1,437-1, Claims incurred ,213-3,120-1,301 Operating expenses Balance on the technical account, life insurance business Net profit/loss for the year Financial position Land and buildings 1,380 1,310 1,310 1,320 - Shares and participating interests 8,959 7,268 4,835 3, Bonds and other fixed income securities 15,421 14,883 15,084 13, Other financial investments Total investments 25,820 23,573 21,316 18, Investments for which the life insurance policyholders bear the risk 48,626 33,216 15,543 12,693 16,733 Liability for policies with guaranteed rate 25,169 22,314 20,312 18,021 - Shareholders equity 3,932 3,075 2,614 2,494 1,261 Deferred tax Subordinated debenture 1,129 1, Total funding capital 5,702 4,722 3,340 2,955 1,596 Available solvency margin for the insurance group 2,478 1,920 1,548 1, Required solvency margin for the insurance group 1,736 1,441 1,220 1, Solvency ratio Key ratios Management expense ratio, % Total return, savings insurance with guaranteed rate, % Collective consolidation ratio, % PARENT COMPANY Available solvency margin 3,493 3,007 1,591 1, Required solvency margin 1,427 1,235 1,178 1, Solvency ratio The figures for 2004 have been recalculated according to the new accounting policies. The figures for the previous years have not been recalculated. Beginning 1 January 2002, the demutualised, traditional life insurance operations have been carried out in the same company as the unit-linked operations. Previously, traditional operations were carried out in a separate company. The comparative figures for 2001 include only the unit-linked operations. It is not possible to recalculate the comparative figures for 2001 in order to show how the traditional mutual operations would have performed if the company had been demutualised. 10 HANDELSBANKEN LIV ANNUAL REPORT 2005 FIVE-YEAR SUMMARY

13 HANDELSBANKEN LIV 2005 Accounting policies The accounts have been prepared in conformity with the Swedish Annual Accounts Act for Insurance Companies (ÅRFL) and the instructions and general guidelines regarding the annual accounts of insurance companies issued by the Swedish Financial Supervisory Authority (FFFS 2004:21). FFFS 2004:21 implies that the Swedish Accounting Standards Board s recommendation no. 32 and international accounting standards have been applied, with certain limitations (statutory IFRS). Handelsbanken Liv applies the same accounting policies in the parent company as in the Group. CHANGED ACCOUNTING POLICIES The transition to the new accounting policies implies a change in opening shareholders equity of SEK -21 million in the parent company and SEK -79 million in the Group. The comparative figures for 2004 have been restated in accordance with the new accounting policies. The transition has had only a marginal effect on the valuation of assets used to cover liabilities. The effects of the change in accounting policies on the income statement and the balance sheet are shown on page 14. Accounting for insurance contracts The definition of insurance risk has been changed. The change means that all insurance contracts signed with customers which contain a not inconsiderable element of insurance risk are classified as insurance contracts. This classification means that the insurance contracts are valued taking into account the capital value of the company s guaranteed commitments, after deductions for expected premium payments in accordance with IFRS 4. Other parts of the insurance contracts are recognised as financial instruments in accordance with IAS 39. This means that incoming and outgoing payments regarding the customers savings capital are recognised directly in the balance sheet instead of in the income statement as previously. All products in Handelsbanken Liv are divided into components, where it is easy to separate the risk component from the savings component for each individual insurance contract. The whole of technical provisions is normally part of the capital component. The risk component is valued using the risk-taking in the calculation of the premium and is therefore zero. If there is reason to use assumptions which deviate from the assumptions used in calculating the premium, a special provision is made for the risk component. In this way, the statutory accounting moves closer to the alternative income statement (see page 9), which Handelsbanken Liv has used for a long time for internal and external communication purposes to achieve better understanding of how the result arises. The alternative income statement is already used as the basis for how the insurance operations are reported in the parent company s, Handelsbanken s, consolidated accounts. Reporting of acquisition costs Since the savings components of the insurance contracts are reported as financial instruments, prepaid acquisition costs cannot be reported according to the previous accounting policies. The company has therefore dissolved all capitalised acquisition costs. Instead, paid-out commission is capitalised and amortised over the life of the contract. Consolidated financial statements New standards for establishing acquisition balance sheets have been applied. The most important changes are that acquisition balance sheets must be more detailed than in the past and that goodwill is no longer amortised. Now, acquisition balance sheets must include all types of intangible assets which can be distinguished and valued separately, reported at the assessed fair values. This must be performed in the acquisition balance sheet without fulfilment of the normal requirements, where intangible assets should be recognised as assets. The intangible assets must be divided into assets with a definite useful life and assets with an indefinite useful life. The latter category also includes goodwill. For intangible assets without a definite useful life, no amortisation is to be made. The acquisition balance sheets for acquisitions carried out in 2004 have been restated for purposes of comparability in accordance with the new accounting standards. Acquisition balance sheets pertaining to acquisitions before 2004 have been reviewed in order to identify intangible assets which could not be recognised as assets according to the old accounting standards. This review has not identified any new intangible assets in the old acquisition balance sheets. Goodwill and other intangible assets The previous accounting regulations assumed that goodwill and other intangible assets did not have a useful period exceeding 20 years. This assumption has now been removed, and goodwill must not be amortised in the future. Intangible assets are to be divided up into two main categories: those with an indefinite useful life, and those for which a useful life may be assessed. Those for which a useful life may be assessed are subject to amortisation in the same way as before. There should be regular impairment tests of whether the set period of useful life is still reasonable, and of whether there are indications that the asset s value in use may have dropped below the residual value carried in the accounts. For assets with an indefinable useful life, an impairment test must be carried out at least once a year. CONSOLIDATED ACCOUNTS The consolidated accounts include all companies in which Handelsbanken Liv directly or indirectly has a decisive influence. A controlling influence normally exists when the holding amounts to more than 50% of the voting rights. Subsidiaries are consolidated in accordance with the acquisition accounting method. ACCOUNTING POLICIES HANDELSBANKEN LIV ANNUAL REPORT

14 Companies in which Handelsbanken Liv directly or indirectly has a significant influence are reported as associated companies. A significant influence normally exists when the holding amounts to a minimum of 20% and a maximum of 50% of the votes. Associated companies are reported in the consolidated accounts in accordance with the equity method. All foreign operations have activities that could cause their functional currency to deviate from the currency that the Group uses for reporting. In accordance with the Group s decentralised organisation, each operation is run independently and transactions between the parent company and the respective units are only a part of their operations. Salary payments and purchases are normally made in local currency. When translating the foreign subsidiaries balance sheets and income statements, the current rate has been used. Assets, liabilities and minority shares in equity are translated at the closing rate. Shareholders equity is translated at the exchange rate on the date of investment and earning respectively. The income statement is translated according to the average exchange rate for the year. The resulting translation differences have been classed as shareholders equity. INTANGIBLE ASSETS An intangible asset is an identifiable, non-monetary asset without physical substance. An asset is a resource that is expected to provide future economic benefit over which there is control as a result of past events. When acquiring companies, an acquisition balance sheet is drawn up, where identifiable assets and liabilities are valued at fair value at the time of acquisition. On acquisition, this valuation is also performed for intangible assets which do not yet fulfil the requirement for classification as an asset. The reason is that this intangible right may nevertheless have a separable fair value. The part of the acquisition price which cannot be attributed to identifiable assets and liabilities is recognised as goodwill. Acquired brands are reported on the balance sheet at cost after deduction for any amortisation and write-downs for impairment. Internally accrued values in the form of goodwill, trademarks, publishing rights, registers of customers and similar are not reported as assets on the balance sheet. Investments in software developed by the company are carried as an expense on a current basis, where the expenditure refers to maintenance of existing business operations or an existing intangible asset. In the case of development of new intangible assets, or new business operations for existing intangible assets, the direct expenditure accrued is capitalised from the time when it is probable that economic benefit that can be reliably measured will arise. An impairment test is performed when there is any indication that the asset may have decreased in value. In addition, in those cases that the intangible asset has an indefinite useful life, an annual impairment test is done at the same point in time each year. VALUATION OF INVESTMENT ASSETS All investment assets, apart from investments in group companies, are measured at fair value. This means that changes in value, both realised and unrealised. are reported in the income statement. Investments in group companies are valued at the lower of cost and fair value. Land and buildings are valued individually taking cash flows into account. Valuations are conducted by external valuers. Unlisted shares are valued according to the EVCA s principles (European Private Equity and Venture Capital Association). Derivative transactions with a positive market value on the closing date are reported under Investment assets, and transactions with a negative market value are reported under Liabilities. Purchases and sales of money market and capital market instruments on the spot market are subject to trade date accounting. When investments are measured at fair value, deferred tax is calculated on the part of operations subject to income tax. VALUATION OF ASSETS AND LIABILITIES IN FOREIGN CURRENCY Assets and liabilities in foreign currency are valued at the closing rate. PROVISIONS Provisions are reported as a consequence of past events when it is probable that an outflow of resources will be required to settle the obligation. The provision is recorded in the amount estimated to be most probable taking into account the time of settlement. Technical provisions are described separately. INCOME Income is reported in the income statement when it is probable that future economic benefits will be gained and these benefits can be reliably measured. PREMIUMS WRITTTEN Premiums written are reported as premiums and premium fees regarding risk for those insurance contracts that are classified as insurance contracts according to IFRS 4. OTHER TECHNICAL INCOME Other income in the insurance operations are reported here. This includes the reporting of premium fees for contracts that are classified as financial as well as capital charges and other fees (not taxes). Risk income regarding financial contracts is also reported here. INSURANCE CLAIMS Risk costs regarding contracts that are classified as insurance according to IFRS 4 are reported as insurance claims. LIFE INSURANCE PROVISIONS Provisions for life insurance consist of changes in provisions for risk insurance. 12 HANDELSBANKEN LIV ANNUAL REPORT 2005 ACCOUNTING POLICIES

15 OTHER TECHNICAL CHARGES Other technical charges primarily consist of allocated yields with respect to insurance contracts that are classified as investment contracts. Risk costs regarding contracts that are classified as financial according to IFRS 4 are reported here. Amortisation of intangible assets is also reported here. TAX Tax charges paid from the insurance to cover the yield tax are reported under Tax on the year s profit. DEPRECIATION, AMORTISATION AND WRITE-DOWNS OF PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS Depreciation All assets that have been classified as Property and equipment are depreciated over an estimated useful life. A linear depreciation plan is usually applied. Property and equipment that consist of components with different set periods of useful life are divided into different categories with separate depreciation plans. Normally this only applies to properties. Personal computers are normally depreciated over three years and other equipment over five years. Intangible assets are divided into two categories. The first category applies to assets for which it is possible to assess a useful period. These are depreciated over this set period of useful life. The other category involves intangible assets for which it is not possible to establish a definite useful period. These are not depreciated. Instead, they are the object of annual impairment testing. Goodwill is not subject to amortisation. Intangible assets for which it is possible to establish an estimated useful period are amortised. Normally the useful period does not exceed five years. Brand names are normally regarded as having a very long useful life, and thus the amortisation period can be considerably longer. The same applies to customer contracts in the insurance business. The amortisation period is assessed on an individual basis at the time of new acquisition and also on a continuous basis if there are indications that the useful life period may have changed. Write-downs This section describes the criteria applied to write-downs of property and equipment and intangible assets as well as shares in subsidiaries, associated companies and any participation in joint ventures. Write-downs are reported when the recovery value is less than the carrying amount. The recovery value is calculated as the higher of an asset s value in use or net realisable value. The recovery value is determined when there is an indication that the asset has fallen in value. NON-TECHNICAL ACCOUNT Investment income that does not come from the return on assets managed on behalf of the policyholders is reported in the non-technical account. TAX The company pays standard policyholder tax on the assets managed on behalf of policyholders. The return on equity and result from risk insurance are taxed at the ordinary corporation tax rate of 28%. Deferred tax is tax referring to taxable temporary differences between the value of an asset or liability in the accounts and its taxable value. VALUATION OF TECHNICAL PROVISIONS Technical provisions consist of life insurance provisions and provisions for claims outstanding. Mortality assumptions Mortality assumptions vary depending on when various insurance policies were taken out. The assumptions applied are based on joint industry statistics. For most of the portfolio, mortality assumptions developed in 1990 are applied. Provision for claims outstanding Provision for claims outstanding comprises claims incurred at the end of the financial year but not yet paid, as well as the estimated future operating expenses for adjusting these claims. The provision also consists of a reserve for claims incurred, but not yet reported to the company at the close of the financial year. Reinsurance Handelsbanken Liv reinsures most of its major risks with Revios Sweden Reinsurance Co. Ltd. Major risks are amounts for death benefit insurance in excess of SEK 3 million and disabilty and waiver of premium insurance with annual amounts in excess of SEK 180,000. In total, some 0.5% of the total mortality risk and around 6% of the disability risk are reinsured. LIABILITY RELATED TO INSURANCE WITH GUARANTEED INTEREST RATE Liability related to insurance with guaranteed interest rate is calculated for each policy as the higher of the insurance capital and amortised cost. The amortised cost is calculated at a guaranteed interest rate. In addition, the amortised cost is affected by yield tax, charges, mortality and other risk measurements. The guaranteed interest rate and all assumptions are agreed to when the policy is taken out. The company has different guaranteed interest rates in its stock, of which 3% and 5% are the predominant rates. These two rates represent 42% and 57% respectively of the total insurance stock; the other guarantee rates represent 1%. The assumption on charges varies with the products and is generally in line with the percentage charges applied. The assumption concerning tax varies depending when various insurance policies were taken out and the tax levy applicable at the time. The assumption on tax and charges diminishes the guaranteed interest rate applied. ACCOUNTING POLICIES HANDELSBANKEN LIV ANNUAL REPORT

16 HANDELSBANKEN LIV 2005 Changed accounting policies IMPACT ON 2004 INCOME STATEMENT AND BALANCE SHEET Group (SEK million) Income statement 2004 under statutory IAS Change Adopted income statement 2004 SUMMARY INCOME STATEMENT Premiums written (net of reinsurance) 646-6,545 7,191 Investment income, net 2,931-2,931 Other technical income Claims incurred (net of reinsurance) ,199-3,687 Life insurance provisions -5 1,639-1,644 Conditional bonus Unit-linked commitments - 3,425-3,425 Change in other technical provisions (net of reinsurance) -5 5,445-5,450 Operating expenses Other technical charges -3,023-2, Investment income transferred to finance business Balance on the technical account, life insurance business Balance on non-technical account Profit before appropriations and tax Tax Net profit/loss for the year Group Balance sheet 2004 under statutory IAS Change Adopted balance sheet 2004 SUMMARY BALANCE SHEET Intangible assets 3, ,372 Investment assets 23,573-23,573 Investment assets for which the policyholders bear the investment risk 33,144-33,144 Reinsurers share of claims outstanding Receivables Other assets 2,638-2,638 Prepaid commission costs Prepaid acquisition costs Other prepayments and accrued income Total assets 63, ,621 Shareholders equity 3, ,155 Subordinated liabilities 1,129-1,129 Technical provisions 1,056-21,314 22,370 Technical provisions for life insurance for which the policyholders bear the risk - -34,160 34,160 Provisions for taxes Deposits from reinsurers 9-9 Liabilities arising out of direct insurance operations Liabilities arising out of reinsurance operations Derivatives Other liabilities 57,206 55,623 1,583 Accruals and deferred income Total shareholders equity, provisions and liabilities 63, , HANDELSBANKEN LIV ANNUAL REPORT 2005 CHANGED ACCOUNTING POLICIES

17 HANDELSBANKEN LIV 2005 Income statement PARENT COMPANY SEK million TECHNICAL ACCOUNT, LIFE INSURANCE BUSINESS Premiums written Note Premiums ceded Premiums written (net of reinsurance) Investment income Note 2 2,901 1,290 2,439 1,279 Unrealised gains on investments Note Increase in value of investments for which policyholders bear the investment risk 9,107 1,122 4, Other technical income Note Claims incurred (net of reinsurance) Claims paid (gross of reinsurance) Note Reinsurers share Claims paid Change in provision for claims outstanding (gross of reinsurance) Reinsurers share Change in provision for claims outstanding Total claims incurred (net of reinsurance) Life insurance provisions Note Operating expenses Note Investment charges Note Other technical charges Note 9-12,490-3,023-7,118-2,337 Investment income transferred to finance business Balance on the technical account, life insurance business NON-TECHNICAL ACCOUNT Balance on the technical account, life insurance business Investment income Note Unrealised gains on investments Note Investment income transferred from life insurance business Investment charges Note Profit before appropriations and tax Appropriations 15 Profit before tax Tax Note Net profit/loss for the year INCOME STATEMENT HANDELSBANKEN LIV ANNUAL REPORT

18 HANDELSBANKEN LIV 2005 Analysis of results Parent company SEK million Technical account, life insurance business 2005 Total Life insurance Individual insurance DIRECT INSURANCE OF SWEDISH RISKS Non-cancellable disability and accident insurance and waiver Unit-linked of premium insurance insurance Group pension and occupational pension insurance Group insurance Group life and occupational group life insurance Unit-linked insurance Non-cancellable disability and accident insurance and waiver of premium insurance Direct insurance of foreign risks Reinsurance accepted Premiums written (net of reinsurance) Investment income 2,439 1, Unrealised gains on investments Increase in value of investments for which the policyholders bear the investment risk 4,470-3, , Other technical income Claims incurred (net of reinsurance) Change in other technical provisions Operating expenses Investment charges Other technical charges -7,118-1, , Investment income transferred to finance business Balance on the technical account, life insurance business , , PREMIUMS WRITTEN Premiums written (gross) Premiums for reinsurance ceded Total premiums written (net of reinsurance) CLAIMS INCURRED Claims paid (gross) Reinsurers share Change in provision for claims outstanding (gross) Reinsurers share Total claims incurred (net of reinsurance) Technical provisions 31 Dec 2005 Life insurance provisions Provision for claims outstanding Other liabilities Liabilities for insurance with guaranteed return 24,088 19, , Unit-linked insurance commitments 21,778-14, , HANDELSBANKEN LIV ANNUAL REPORT 2005 ANALYSIS OF RESULTS

19 HANDELSBANKEN LIV 2005 Balance sheet PARENT COMPANY SEK million ASSETS Intangible assets Goodwill Note Other intangible assets Note 15 3,190 3, ,213 3,387 Investments Land and buildings Note 16 1,380 1, Shares and participating interests in group companies Note 17 2,476 2,218 Shares and participating interests Note 18 8,959 7,268 8,602 7,173 Bonds and other fixed income securities Note 19 15,421 14,883 14,343 13,721 Other loans Derivatives Note ,820 23,573 25,881 23,565 Investments for which the policyholders bear the investment risk 48,603 33,144 21,760 15,857 Reinsurers share of technical provisions Claims outstanding Receivables Receivables arising out of direct insurance operations Note Receivables arising out of reinsurance operations Other receivables Note Other assets Property and equipment Note Cash at bank and in hand Note 24 3,013 2,633 2,697 2,251 3,021 2,638 2,705 2,256 Prepayments and accrued income Accrued interest income Deferred acquisition costs Note Other prepayments and accrued income Total assets 81,725 63,543 50,800 42,107 BALANCE SHEET HANDELSBANKEN LIV ANNUAL REPORT

20 PARENT COMPANY SEK million SHAREHOLDERS EQUITY, PROVISIONS AND LIABILITIES Shareholders equity Share capital (100,000 shares par value SEK 1,000) Statutory reserve Other restricted reserves 1,642 1, Total restricted shareholders equity 1,762 1, Profit brought forward ,553 1,758 1,515 Net profit/loss for the year Total unrestricted shareholders equity 2,170 1,623 2,241 1,758 Total shareholders equity Note 26 3,932 3,076 2,364 1,878 Subordinated liabilities Note 27 1,129 1,129 1,129 1,129 Technical provisions (gross) Life insurance provisions Note Provision for claims outstanding Note , ,056 Provisions for other risks and charges Provisions for taxes Note Deposits from reinsurers Liabilities Liabilities arising out of direct insurance operations Note Liabilities arising out of reinsurance operations Derivatives Note Other liabilities Note 33 74,804 57,206 46,136 37,805 74,835 57,498 46,162 37,833 Accruals and deferred income Other accruals and deferred income Note Total shareholders equity, provisions and liabilities 81,725 63,543 50,800 42,107 Memorandum items Pledges and comparable collateral for own liabilities and for reported commitments for provisions 76,681 58,086 48,723 39,878 Other pledged assets and comparable collateral Other commitments Note 35 5,731 14,963 5,731 14, HANDELSBANKEN LIV ANNUAL REPORT 2005 BALANCE SHEET

21 HANDELSBANKEN LIV 2005 Cash flow statement OPERATING ACTIVITIES Operating profit Adjustment for non-cash items: Depreciation and write-downs Unrealised gains on investment assets Paid income tax Change in the assets and liabilities of operating activities: Investment assets -18,554-20,650 Liability insurance with guaranteed rate 2,799 2,208 Unit-linked commitments 15,410 17,673 Other -1,133-1,584 Cash flow from operating activities 58-1,307 INVESTING ACTIVITIES Change in property and equipment -1 5 Change in intangible non-current assets Cash flow from investing activities FINANCING ACTIVITIES Subordinated loans Shareholders contribution Group contribution Cash flow from financing activities 323 1,667 Cash flow for the period Liquid funds at beginning of period 2,633 3,218 Cash flow from operating activities 58-1,307 Cash flow from investing activities Cash flow from financing activities 323 1,667 Cash flow at end of period 3,013 2,633 CASH FLOW STATEMENT HANDELSBANKEN LIV ANNUAL REPORT

22 HANDELSBANKEN LIV 2005 Notes NOTE 1 PREMIUMS WRITTEN PARENT COMPANY Paid-in and recognised premiums Total premiums written (gross of reinsurance) (Of which premiums written from Group companies) All premiums are for risk insurance and are regular premiums. Disclosure concerning paid-in premiums booked in the balance sheet: PARENT COMPANY Paid-in and recognised premiums 11,354 6,545 5,824 4,455 11,354 6,545 5,824 4,455 Premiums written for direct insurance Group Regular premiums Single premiums Regular premiums Single premiums Contracts for which policyholders bear the investment risk 5,183 3,373 2, Contracts for insurance with guaranteed rate 2, , ,374 3,980 4,776 1,769 NOTE 2 INVESTMENT INCOME Operating surplus from land and buildings Rental revenue Operating expenses Total operating surplus from land and buildings Dividends received 1, Interest receivable Bonds and other fixed income securities Other interest receivable Total interest receivable (Of which interest receivable from Group companies) (44) (37) (43) (36) NOTE 3 UNREALISED GAINS ON INVESTMENTS Buildings and land Shares and participating interests Bonds and other fixed income securities Other investment assets Total NOTE 4 OTHER TECHNICAL INCOME Premium fees Capital fees Other fees Risk income Total NOTE 5 CLAIMS PAID (GROSS OF REINSURANCE) Claims paid Operating expenses for claims Total Disclosure concerning claims paid booked in the balance sheet Claims paid -3,070-2,488-2,553-2,197 Cancellations and repurchases -1, , Total -4,479-3,186-3,747-2,830 NOTE 6 LIFE INSURANCE PROVISIONS Other technical provisions Total Capital gains, net Shares and participating interests 1, , Bonds and other fixed income securities Other investments Total capital gains, net 1, , Total investment income 2,901 1,290 2,439 1, HANDELSBANKEN LIV ANNUAL REPORT 2005 NOTES

23 NOTE 7 OPERATING EXPENSES Acquisition costs Administrative expenses Reinsurance commissions and profit participating interests Total Operating expenses for claims management Asset management charges Total operating expenses The company s total operating expenses for purchases, administration, claims management and treasury management are broken down into the following items. Commission expense Commission income Staff costs Premises Depreciation Other Total Operating expenses for claims management are reported under the heading Claims paid and operating expenses related to treasury management are reported under Investment charges. STAFF COSTS PARENT COMPANY Salaries and fees Social security costs Pension costs Provision to profit-sharing foundation Other staff costs Total Pension costs relate to paid pension premiums. There are no additional pension obligations. The pension plan for employees follows the plan for bank employees. Of which salaries and fees to the board and chief executive Salaries and fees Pension costs Total Principles for remuneration to senior management The compensation level for senior management is revised annually according to the decision-making process that applies throughout the Handelsbanken Group. One main principle in the process is that compensation may only be issued in the form of fixed salary and customary employee benefits. Variable compensation benefits such as bonus and percentage of profits are not paid. Decision-making process Handelsbanken s board appoints a special remuneration committee composed of two board members, one of whom is appointed chairman of the committee. The remuneration committee convenes when its chairman calls a meeting and its assignments include establishing principles for the salaries, benefits and pensions of chief executives of subsidiaries. Based on these guidelines, the board of Handelsbanken Liv decides the terms for the chief executive. Terms and remuneration of senior management TERMS The retirement age for the chief executive and other senior managers is 65. The pension plan complies with the Bank s occupational pension plan (BTP). Full retirement pension is paid at the following percentages of pensionable salary: Pensionable salary Pension from month component of 65th birthday 7.5 income base amounts 10% income base amounts 65% income base amounts 32.5% Remuneration In 2005, the chief executive Hans Hagman received a total salary of SEK 1,218 (1,096) thousand, of which profit-related salary was SEK 0 (0). In addition, benefits were provided with a total value of SEK 97 (89) thousand. Five (five) other senior managers received remuneration and other benefits of SEK 4,096 (5,136) thousand, of which other benefits comprise SEK 537 (445) thousand. Other senior managers include the senior actuary, head of administration, head of business support, head of finance and head of communications. Non-executive board members, outside the Handelsbanken Group, received fees totalling SEK 65 (53) thousand. No fees were paid to the chairman of the board. No fees were paid to employee representatives on the board and their deputies. The chief executive and other senior managers, in common with other employees in the Handelsbanken Group, received compensation with a unit in Handelsbanken s profit-sharing system Oktogonen. One Swedish unit corresponded to SEK 35 (66) thousand. Number of employees (average during the year) Sweden Norway Finland Denmark Ireland Total All employees are office staff Gender breakdown Men Women Men Women Sweden Norway Finland Ireland Total PARENT COMPANY Gender breakdown Men Women Men Women Sweden Norway Total Staff costs in each country Sweden Norway Finland Denmark Ireland Total SICKNESS ABSENCE RATE IN THE SWEDISH OPERATIONS SICKNESS ABSENCE, % Age Men Women Total Total Of whom on long-term sick leave, percentage points of total sickness absence Total GENDER BREAKDOWN, SENIOR MANAGEMENT The senior management of SPP and Handelsbanken Liv totals 17 people of whom 6 are employed by Handelsbanken Liv. Men Women Senior managers 15 2 of which Handelsbanken Liv 5 1 Board of directors 5 2 NOTES HANDELSBANKEN LIV ANNUAL REPORT

24 FEES TO AUDITORS KPMG Bohlins AB, Audit KPMG Bohlins AB, Consultancy PricewaterhouseCoopers Internal audit Handelsbanken Total NOTE 11 UNREALISED GAINS ON INVESTMENTS Shares and participating interests Fixed income securities Other investment assets Total NOTE 8 INVESTMENT CHARGES Investment management charges NOTE 12 INVESTMENT CHARGES Investment management charges Interest payable Other interest payable Total interest payable (of which costs to Group companies) Interest payable Other interest payable Total interest payable (of which costs to Group companies) (-50) (-48) (-37) (-25) Impairment losses Shares Exchange losses, net Capital losses, net Shares and participating interests Total capital losses, net Capital losses, net Shares and participating interests Total capital losses, net Total NOTE 9 OTHER TECHNICAL CHARGES Allocated return for unit-linked insurance -9,911-1,480-4,842-1,079 Allocated return for guaranteed rate insurance -2,345-1,286-2,263-1,223 Amortisation of intangible assets Other technical charges ,-35 Total -12,490-3,023-7,118-2,337 NOTE 10 INVESTMENT INCOME Dividends received Interest receivable Bonds and other fixed income securities Other interest receivable Total interest receivable Total NOTE 13 TAX ON YEAR S PROFIT Tax cost for the period Adjustment of previous year s tax Deferred tax, Change in temporary differences Total NOTE 14 GOODWILL Cost opening balance Cost of additional goodwill Total cost Accumulated amortisation at beginning of year -1-1 Amortisation for the year - - Total amortisation -1-1 Carrying amount (of which interest receivable from Group companies) (10) (10) (9) (9) Exchange gains, net Capital gains, net Shares and participating interests Fixed income securities Other investments Total capital gains, net Total HANDELSBANKEN LIV ANNUAL REPORT 2005 NOTES

25 NOTE 15 OTHER INTANGIBLE ASSETS Cost opening balance 3,950 3,000 Cost of additional goodwill 950 Total cost 3,950 3,950 Accumulated amortisation at beginning of year Amortisation for the year Total amortisation Carrying amount 3,190 3,364 Handelsbanken guarantees the carrying amount of the SPP brand name. The SPP brand name is amortised over 20 years. NOTE 16 LAND AND BUILDINGS Group Fair value Cost Tax assessment value Carrying amount SEK/ 000 m 2 Yield Vacancy rate space Office and commercial properties 1,380 1, % 0% The yield percentage is calculated as the operating surplus in 2005 in relation to the market value as at 31 December The property portfolio is concentrated to central Stockholm. Of the office and commercial properties, 24% of the space is used for own operations. All properties are appraised externally. The valuations are mainly performed with the aid of cash flow analyses. All properties have been classified as operating properties. NOTE 17 SHARES AND PARTICIPATING INTERESTS IN COMPANIES Parent company 2005 Carrying amount 2004 Carrying amount Company Corporate ID no. Domicile No. of shares Proportion of capital Equity Euroben Life & Pension Ltd Dublin 634, % Handelsbanken Varumärkes AB Stockholm 1, % Svenska RKA International Insurance Services AB Stockholm % Kvarteret Läkaren Fastighetsförvaltning AB Stockholm 1, % Fastighets AB Malmarna Stockholm 10, % Fastigheten Läkaren 9 KB Stockholm 100 % Fastigheten Rännilen 15 KB Stockholm 100 % SHB Liv Forsikringsaktieselskab Copenhagen % SPP Liv Fondförsäkring AB Stockholm % 1,310 1,310 1,200 2,511 2,476 2,218 Opening balance 1 January ,218 Shareholder contribution Euroben 100 Shareholder contribution SPP Liv Fondförsäkring AB 110 Profit from limited partnership and value change 57 Write-down due to share distribution for Kvarteret Läkaren Fastighetsförvaltning AB -9 Closing balance 31 December ,476 NOTE 18 SHARES AND PARTICIPATING INTERESTS Cost Swedish shares and interests 3,661 3,331 3,527 3,242 Foreign shares and interests 5,298 3,937 5,075 3,931 Total 8,959 7,268 8,602 7,173 Of which unlisted shares and interests Cost Swedish shares and interests 3,224 3,206 3,124 3,122 Foreign shares and interests 4,707 3,797 4,487 3,791 Total 7,931 7,003 7,611 6,913 Of which unlisted shares and participating interests För fullständig specifikation av aktier och andelar, se sidan 27. NOTES HANDELSBANKEN LIV ANNUAL REPORT

26 NOTE 19 BONDS AND OTHER FIXED INCOME SECURITIES PARENT COMPANY Fair value Swedish government 7,434 8,924 6,522 7,992 Swedish mortgage institutions 3,966 3,896 3,905 3,818 Other Swedish issuers 3,639 1,460 3,552 1,327 Foreign governments Other foreign issuers Total 15,421 14,883 14,343 13,721 Of which listed 15,342 14,803 14,265 13,641 PARENT COMPANY Amortised cost Swedish government 7,273 8,699 6,399 7,796 Swedish mortgage institutions 3,961 3,851 3,901 3,773 Other Swedish issuers 3,618 1,434 3,535 1,303 Foreign governments Other foreign issuers Total 15,225 14,584 14,190 13,454 Of which listed 15,146 14,505 14,111 13,375 PARENT COMPANY Carrying amount exceeds nominal value Carrying amount less than nominal value Fixed-interest terms at 31 December Fair value 0 3 mths mths 1 yr 6,581 5,696 6,332 5, yrs 5,366 5,103 4,964 4, yrs 1, , More than 10 yrs 1,833 2,504 1,511 2,304 Total 15,421 14,883 14,343 13,721 NOTE 20 DERIVATIVE INSTRUMENTS WITH POSITIVE VALUES Fair Nominal Fair Nominal Group och parent company value value value value Interest rate futures ,003 Forward exchange contracts 60 4, ,390 Total 60 4, ,393 Of which cleared ,003 NOTE 22 OTHER RECEIVABLES Owed by Group companies Other receivables Total NOTE 23 PROPERTY AND EQUIPMENT Cost, opening balance Cost of additional assets Cost of assets sold during the year Exchange rate differences Total cost Depreciation for the year Accumulated depreciation according to plan Accumulated depreciation on assets sold during the year Exchange rate differences Total depreciation Carrying amount NOTE 24 CASH AT BANK AND IN HAND Funds on accounts at Group companies 2,769 2,464 2,589 2,187 Other cash and cash equivalents , 64 Total 3,013 2,633 2,697 2,251 NOTE 25 DEFERRED ACQUISITION COSTS Opening balance Carrying amount of assets acquired during the year Capitalisation for the year Depreciation for the year Closing balance Carrying amount Of which carrying amount with remaining depreciation period in excess of two years NOTE 21 RECEIVABLES ARISING OUT OF DIRECT INSURANCE OPERATIONS Amounts receivable from policyholders Total HANDELSBANKEN LIV ANNUAL REPORT 2005 NOTES

27 NOTE 26 SHAREHOLDERS EQUITY Group Share capital Statutory reserve Reserve for unrealised gains Other restricted reserves Profit brought forward Net profit for the year Closing balance 31 December ,333 1, ,155 Effect of transition to statutory IFRS Dissolution of fund for unrealised gains Closing balance 1 January ,333 1, ,076 Appropriation of profits Change in exchange difference 4 4 Group contribution received Transfer between restricted and unrestricted shareholders equity Net profit/loss for the year Closing balance ,642 1, ,932 Total 2005 Parent company Share capital Statutory reserve Reserve for unrealised gains Other restricted reserves Profit brought forward Net profit for the year Closing balance 31 December , ,899 Effect of transition to statutory IFRS Dissolution of fund for unrealised gains Closing balance 1 January , ,878 Appropriation of profits Change in exchange difference 3 3 Net profit/loss for the year Closing balance , ,364 Total 2005 SPECIFICATION FOR EFFECT OF TRANSITION TO STATUTORY IFRS Change in net profit/loss for the year Reversal of parent company s depreciation of prepaid acquisition costs 5 Reversal of SPP Liv Fondförsäkring s depreciation of prepaid acquisition costs 39 Capitalisation of commission expenses SPP Liv Fondförsäkring 6 Depreciation of commission expenses SPP Liv Fondförsäkring -3 Reversal amortisation of goodwill 26 Amortisation intangible asset SPP Liv Fondförsäkring -11 Total 62 Effect on profits brought forward Dissolution of parent company s prepaid acquisition costs -26 Dissolution of SPP Liv Fondförsäkring s prepaid acquisition costs -193 Capitalisation of commission expenses SPP Liv Fondförsäkring 78 Total -141 Sensitivity analysis, consolidated shareholders equity Price fall shares 10 % -8 Interest rate rise 1 percentage point -11 Yield requirement real estate 2 percentage points -3 Exchange rate fall 10% 0 Net exposure fixed interest terms Group 0 3 mths 3 mths 1 yr 1 5 yrs 5 10 yrs Assets More than 10 yrs Total Bonds and other interest-bearing securities 522 6,581 5,366 1,119 1,833 15,421 Liabilities Liability for guaranteed rate insurance ,068-4,724-15,472-25,169 Net exposure 277 5,921 1,298-3,605-13,639-9,748 NOTES HANDELSBANKEN LIV ANNUAL REPORT

28 NOTE 27 SUBORDINATED LIABILITIES AND PARENT COMPANY Perpetual debenture (from group company) 1,129 1,129 Total 1,129 1,129 NOTE 28 LIFE INSURANCE PROVISIONS NOTE 29 PROVISION FOR CLAIMS OUTSTANDING AND PARENT COMPANY Notified claims Non-notified claims Provision for sickness annuities Total NOTE 30 PROVISIONS FOR TAXES PARENT COMPANY Provision for income and policyholder tax Provision for deferred tax Total NOTE 31 LIABILITIES ARISING OUT OF DIRECT INSURANCE OPERATIONS PARENT COMPANY Owed to insurance companies Total NOTE 32 DERIVATIVE INSTRUMENTS WITH NEGATIVE VALUES Group och parent company Fair value Nominal value PARENT COMPANY Provision for risk insurance Total Fair value Nominal value Interest rate futures ,312 Currency futures 26 1, ,258 Total 26 1, ,570 Of which cleared ,312 NOTE 33 OTHER LIABILITIES Unit-linked commitments Opening balance 33,216 15,543 15,857 14,231 Commitments acquired during year - 14, Paid in 8,553 3,894 3,436 2,186 Paid out -2,531-1,539-2,071-1,379 Value change including dividend 9,911 1,480 4,841 1,078 Other changes Closing balance 48,626 33,216 21,778 15,857 of which due within 12 mths 3,700 2,800 PARENT COMPANY Received unsettled premiums Owed to Group companies Liabilities for guaranteed rate insurance 25,169 22,258 24,088 21,384 Unit-linked commitments 48,626 33,216 21,778 15,857 Other liabilities Total 74,804 57,206 46,136 37,805 Liabilities for guaranteed rate insurance NOTE 34 OTHER ACCRUALS AND DEFERRED INCOME PARENT COMPANY Opening balance 22,258 20,312 21,384 19,675 Paid in 2,828 2,565 2,356 2,187 Paid out -1,913-1,703-1,642-1,507 Allocated yield 2,345 1,286 2,263 1,223 Other changes Closing balance 25,169 22,258 24,088 21,384 Anticipated future payments of liabilities for guaranteed rate insurance 0 3 mths mths 1 yrs yrs 4, yrs 4,724 >10 yrs 15,472 Total 25,169 PARENT COMPANY Accrued operating expenses Accrued commission expenses Accrued interest payable Other accruals Deferred income Total NOTE 35 OTHER COMMITMENTS AND PARENT COMPANY Interest-rate related futures - 6,315 Currency-related futures 5,731 8,648 Total 5,731 14, HANDELSBANKEN LIV ANNUAL REPORT 2005 NOTES

29 HANDELSBANKEN LIV 2005 Specification of shares and participating interests 31 December 2005 SEK million Swedish listed shares Consumer non-durables Number Carrying amount Hakon Invest 15,000 1 Oriflame 50, Finance and real estate Bure 13,900, Castellum 47, Hufvudstaden A 450, Health care Getinge B 100, Swedish unlisted shares and participating interests Number Carrying amount Bergvik Skog AB HealthCap CoInvest KB 13 HealthCap 1999 KB 10 Nordic Capital 3,125 0 Nordic Capital III 3 Nordic Capital IV 153 Nordic Capital V 233 NT Holding AB 31, Priveq III KB 10 Skandia Investment 64 VSM Group AB 43, Industrial goods and services Ballingslöv 194, Gunnebo Industrier AB 170, Haldex 170, Observer 1,480, Proffice B 200,000 3 SAAB B 239, Svedberg B 55, Information technology Ericsson A 1,000, Tietoenator SDB 70, Materials Boliden 350, Holmen B 5, Durables Clas Ohlson, B 54,200 8 Digital Illusion A 100,000 6 Eniro 100, Nobia 128, Swedish fund units Number Carrying amount Handelsbanken Reavinstfond Handelsbanken Räntefond 8,524 1 HB Pensionsfond 40-tal A1 100, HB Pensionsfond 50-tal A1 100, HB Pensionsfond 60-tal A1 100, HB Pensionsfond 70-tal A1 100, HB Pensionsfond 80-tal A1 100, Xact SBX 342, Xact OMX 7,828, Other Swedish fund units Total Swedish shares and participating interests Foreign shares and participating interests Asia Number Carrying amount Ishares MSCI Pacific exkl. Japan 65, Brasil Ishares Brasil 182, Denmark Danske Bank 631, Finland Uponor A 397, YIT 375, France Air Liquide 142, PG Prime Serie 225,000, SPECIFICATION OF SHARES AND PARTICIPATING INTERESTS HANDELSBANKEN LIV ANNUAL REPORT

30 Foreign shares and participating interests cont. Ireland Number Carrying amount CRH 1,018, Jersey Amaranth 427,206 7 Netherlands Royal Dutch Shell A 100, Norway Xact OBX 97, Prosafe 298, Statoil 140, Russia Lukoil ADR 60, Spain Banco Popular Espanol 1,771, Fomento de Const 258, UK Bunzl 2,527, Davis Service Group 1,600, Davis Service Group B 1,538, Diageo 1,697, Johnson Mattey PLC 1,139, Northern Rock 869, Royal Bank of Scotland 86, Signet Group 7,693, Wolseley 1,054, Germany Dow Jones Euro Stoxx 50 2,709, Foreign fund units 913 Number Carrying amount Handelsbanken Amerikafond 2,339 1 Handelsbanken Generationsfond Fond i Fond 80-tal 5,372 1 Handelsbanken Latinamerikafond 7,012 1 Exxon Mobil 54, S & P Depository Receipt (ETF) 1,221,867 1,211 Other foreign funds 9 1,247 Foreign unlisted shares Number Carrying amount Sonion 5,642, Nopco Paper Technology 59, Enermet Group OY 8,858 0 Nybron Flooring International 331, Unlisted foreign convertible loans 82 Number Carrying amount Enermet Group Konvertibel 99/ Total foreign shares and participating interests 5,075 Total shares and participating interests in the parent company 8,602 Additional in the Group Swedish fund units 4 Number Carrying amount Handelsbanken Aktiefond index 24, Other Swedish fund units Foreign fund units Number Carrying amount Handelsbanken Latinamerikafond 7,939 1 CIF Global Equity Fund B 3,639 1 SPP Aktieindexfond Nasdaq ,111 1 Scroder US Small Companies 2,999 1 SPP Aktieindexfond USA 6,667 1 SPP Generationsfond Fond i Fond 40-tal 104, SPP Generationsfond Fond i Fond 50-tal 100, SPP Generationsfond Fond i Fond 60-tal 100, SPP Generationsfond Fond i Fond 70-tal 100, SPP Generationsfond Fond i Fond 80-tal 101, SPP Generationsfond 40-tal 107, SPP Generationsfond 50-tal 222, SPP Generationsfond 60-tal 206, SPP Generationsfond 70-tal 101, Skagen Vekst 2,000 2 Other foreign fund units Total shares and participating interests in the Group 8, HANDELSBANKEN LIV ANNUAL REPORT 2005 SPECIFICATION OF SHARES AND FÖRVALTNINGSBERÄTTELSE PARTICIPATING INTERESTS

31 HANDELSBANKEN LIV 2005 Proposed appropriation of profits The following amount is available for distribution by the annual general meeting: Profit brought forward Net profit for the year SEK 1,758 million SEK 483 million SEK 2,241 million The board and chief executive propose that SEK 17 million per share be distributed to the shareholder, a total of SEK 1,700 million. The remaining SEK 544 million will be carried forward to the next year. The record day for dividend is 2 May 2006 and the dividend will be paid on 9 May When assessing the amount of the company s proposed dividend, account has been taken of the nature of operations, their scope, consolidation requirement and risk-taking. Our assessment is that the above appropriation of profits is prudent and welladapted to the operations as a going concern. Other expected changes in capital have also been taken into account. Unrealised gains and losses on assets and liabilities have affected the shareholders equity by SEK 9 million. STOCKHOLM, 15 MARCH 2006 Björn C Andersson Chairman Thommy Mossinger Vice chairman Ann Christine Forsberg Anki Jönsson Ingvar Lessnert Anders Ohlner Michael Zell Chief executive PROPOSED APPROPRIATION OF PROFITS HANDELSBANKEN LIV ANNUAL REPORT

32 HANDELSBANKEN LIV 2005 Audit report To the Annual General Meeting of Handelsbanken Liv Försäkrings AB, corporate identity number We have audited the annual accounts, the consolidated accounts, the accounting records and the administration of the board of directors and the chief executive of Handelsbanken Liv Försäkrings AB for the year These accounts and the administration of the company and the application of the Swedish Annual Accounts Act for Insurance Companies when preparing the annual accounts and the consolidated accounts are the responsibility of the board of directors and the chief executive. Our responsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain a high but not absolute level of assurance that the annual accounts and the consolidated accounts are free of material misstatement. During the year, the auditing department of Handelsbanken has continuously examined the internal controls and accounts. We have received the reports that have been prepared. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes an assessment of the accounting policies used and of their application by the board of directors and the chief executive, and of the significant estimates and judgements made by the board of directors and the chief executive in the preparation of the annual accounts and consolidated accounts as well as an evaluation of the overall presentation of information in the annual accounts and the consolidated accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the chief executive. We also examined whether any board member or the chief executive has, in any other way, acted in contravention of the Swedish Insurance Business Act, the Swedish Annual Accounts Act for Insurance Companies or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts and the consolidated accounts have been prepared in accordance with the Swedish Annual Accounts Act for Insurance Companies and thereby give a true and fair view of the company s and the Group s financial position and results of operations in accordance with generally accepted auditing standards in Sweden. The administration report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the annual general meeting that the income statement and balance sheet of the parent company and the Group be adopted, that the profit of the parent company be dealt with in accordance with the proposal in the report of the board of directors, and that the members of the board of directors and the chief executive be discharged from liability for the financial year. STOCKHOLM, 17 MARCH 2006 KPMG Bohlins AB Peter Zell Authorised Public Accountant Catarina Ericsson Authorised Public Accountant Appointed by the Swedish Financial Supervisory Authority 30 HANDELSBANKEN LIV ANNUAL REPORT 2005 AUDIT REPORT

33 HANDELSBANKEN LIV 2005 Management Handelsbanken Liv and SPP have a joint organisation. Michael Zell, born 1950 Head of Handelsbanken Pensions & Insurance Chief executive Handelsbanken Liv Chief executive SPP Hans Hagman, born 1963 Head of Bank business area Deputy chief executive Handelsbanken Liv Göran Holgerson, born 1960 Head of SPP business area Deputy chief executive SPP Pehr Wissén, born 1951 Head of Treasury & Risk Deputy chief executive SPP (from 1 May 2006) Björn G Olofsson, born 1950 Head of Administration, systems & processes Deputy chief executive Handelsbanken Liv (from 1 April 2006) Bo Frogner, born 1961 Head of Control and Accounting Gun Ternstedt, born 1952 Head of Human Resources Senior actuary Nils Berner, born 1967 Senior actuary Board of directors Björn C Andersson, born 1946 Chairman Executive vice president of Handelsbanken Member since 1990 Thommy Mossinger, born 1951 Vice chairman Executive Vice President at Handelsbanken Head of Regional Bank Central Sweden Member since 2001 Michael Zell, born 1950 Chief executive of Handelsbanken Liv Chief executive of SPP Head of Handelsbanken Pensions & Insurance Member since 2006 Ann Christine Forsberg, born 1957 Administrative head, Odlander, Fredrikson & Co AB Appointed by Swedish Financial Supervisory Authority Member since 2001 Anki Jönsson, born 1949 Employee representative Member since 2003 Ingvar Lessnert, born 1950 Employee representative Member since 2002 Anders Ohlner, born 1955 Executive Vice President at Handelsbanken Head of Regional Bank Eastern Sweden Member since 2005 MANAGEMENT AND BOARD OF DIRECTORS HANDELSBANKEN LIV ANNUAL REPORT

34 HANDELSBANKEN LIV 2005 Glossary BENCHMARK PORTFOLIO The allocation of assets under management into different asset classes that are judged appropriate in the short term. The benchmark portfolio constitutes the guideline for the asset management assignment but it is also possible for investment managers to diverge from this within set limits. DEMUTUALISATION In a demutualised (profit-distributing) company, the shareholders bear responsibility for the risk capital and it is permitted to distribute profits. In a mutually operated life insurance company, the policyholders bear responsibility for most of the risk capital and profit distribution is not permitted. EXPENSE RATIO Operating expenses in relation to premiums written. GUARANTEED RATE The interest rate used for upward adjustment of the guaranteed capital in an insurance policy with guaranteed interest. MANAGEMENT EXPENSE RATIO Operating expenses for administration, purchases and claims management in relation to average assets under management. PROVISION FOR CLAIMS OUTSTANDING The estimated value of incurred insurance claims that have not yet been paid. SOLVENCY CAPITAL Consists of shareholders equity, untaxed reserves and subordinated debentures. When calculating solvency capital, the provision for deferred tax is reversed. SOLVENCY RATIO The solvency ratio is a measure of the margin the company has to meet its commitments. The ratio for a demutualised, profit-distributing life insurance company cannot be compared with the ratio for a mutual life insurance company. The solvency ratio is the available solvency margin divided by the required solvency margin. The available solvency margin is mainly shareholders equity in the company and any subordinated debentures. The required solvency margin is mainly the sum of 4% of the life insurance provisions, plus 1% of unit-linked insurance commitments, plus 1% of conditional bonus plus % of mortality risks. The solvency ratio must be at least 1.0. TOTAL RETURN The sum of changes in value and return on assets managed for savings customers at a guaranteed rate. The return is calculated after deduction of charges related to asset management. YIELD The sum of interest receivable, interest payable, operating surplus from land and buildings and dividends on shares and participating interests after deduction of operating expenses for asset management. 32 HANDELSBANKEN LIV ANNUAL REPORT 2005 GLOSSARY

35 PRODUCTION: Narva PHOTOS: Håkan Flank, Jacob Felländer and Matton PRINTING: Ekotryck Redners

36 Head office: SPP, SE Stockholm. Street address: Torsgatan 14. Telephone: Fax: