Highlights of Contents

Transcription

1 ANNUAL REPORT 2006

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3 Highlights of 2006 Contents OUTPERFORMED THE INDUSTRY AVERAGE - AGAIN Handelsbanken Liv s traditional life insurance savers saw their savings grow by 7.42%. This is the fourth year running that the company s customers received higher value growth than the industry average for life insurance companies with traditional savings - which for 2006 was 5.83% according to Swedish Insurance Federation statistics. CERTIFICATION BOOSTED BANK BRANCHES SALES IMPACT During the year, some 3,300 staff in banking operations were trained and certified in compliance with the legal requirements for insurance advisers. This further enhanced the sales power and competence in insurance at the branch offices. Insurance plays a very important role in the Bank s investment concept. As a further step in the integration of insurance in the banking business, the insurance advisers were transferred in organisational terms to the respective regional banks. CAPITAL FLOWED IN FROM OTHER COMPANIES Many customers chose to move their pension savings from other insurance companies to Handelsbanken Liv. The company received more than SEK 500m through transfers. During the year, customers were also allowed to move occupational pensions to Handelsbanken Liv. 1 CONTINUED FOCUS ON NORDIC BUSINESS In Norway, a large number of companies became occupational pension customers because of new legislation. Thus, Handelsbanken Liv has become one of the major insurers of mandatory occupational pensions in Norway. In Denmark, work began on being able to offer occupational pension plans to Handelsbanken s existing customers. Growth continued in Finland as well. Highlights of Chief executive s comments 2 Administration report 3 Market and sales 3 Asset management 4 Risks and risk control 5 The company s performance 7 Alternative income statement 8 Five-year summary 9 Accounting policies 10 Income statement 13 Analysis of results 14 Balance sheet 15 Cash flow statement 17 Notes 18 Specification of shares and participating interests 26 Proposed appropriation of profits 28 Audit report 29 Management and board 30 Glossary 31 1 On 1 February 2007, the Government submitted a proposal for changes in Swedish legislation regarding pension insurance. One of the consequences of the legislative change is a temporary stop in transfers of pension insurance policies taken out on or before 1 February The duration of the temporary stop had not been made clear when the annual report went to press. Key figures Premiums written, SEK m Guaranteed yield and risk insurance Unit-linked insurance Total Assets under management. SEK m Guaranteed yield and risk insurance Unit-linked insurance Total 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. Total yield, % (Insurance with guaranteed yield) Includes SPP Liv Fondförsäkring AB from 1 July 2004 to 31 December

4 THE CHIEF EXECUTIVE S COMMENTS Success continues For both owners and customers of Handelsbanken Liv, 2006 was another very good year. For the fourth year running, our yield of 7.42% exceeded the average for traditional life insurance companies as reported by the Swedish Insurance Federation. This gave our customers a good yield at a level well above the guaranteed yield, while providing a full yield split of 10% to the company. The total yield was 8.24%. The administrative result continued to grow to SEK 124 million, representing a 43% increase over the previous year. 1 The risk result remained at a high level at SEK 217 million (192). Due to the good yield, the financial result, which includes the yield split of SEK 196 million (237), was also very good. Taken together, profit increased by 18% to SEK 658 million (542). I would like to comment on cost developments before I leave this brief review of the result. Overall, Handelsbanken Liv and SPP were able to reduce costs by 21%, which is very satisfying. We are reporting costs jointly as nearly all the joint administration takes place within Handelsbanken Liv, which then invoices SPP. This good result enables us to contribute again for another year to the return on equity that is the Handelsbanken Group target. That is the overall objective, but the primary means for achieving it are satisfied customers and low costs. We are very pleased that Handelsbanken Liv, together with its sister company SPP, once again has a top placing in customer satisfaction. Svenskt Kvalitetsindex, which is responsible for the most reputable customer surveys, recently presented a summary of customer satisfaction covering several years. It noted in particular the success achieved by Handelsbanken Liv and SPP. Is it possible for us to further enhance customer satisfaction while continuing to cut costs? We are convinced we can. Therefore, we have implemented an important change in our cooperation with Handelsbanken s branch operations in Sweden. For the Handelsbanken Group, long-term savings, regardless of investment form, is an important issue for the future. For most people, the long-term share of savings is in the form of insurance. The discussions and advice requested by insurance customers are quite similar to the investment advice provided daily by personal financial advisers at the branch offices. In 2006, some 3,300 staff at the branch offices received training and certification in insurance advisory services. This training and enhanced competence, taken together with what otherwise are the same elements in meeting with customers, make it natural to transfer business responsibility for our savings and wealth products in insurance to the bank branch offices. The insurance will be sold by the bank staff in close cooperation with the insurance advisers. The latter were transferred in organisational terms to the Swedish regional bank operations on 1 January We believe that these actions will increase insurance savings among our customers. As product owner, this simplification and clarification of routines, products and sales support strengthen our responsibility and goal at Handelsbanken Liv to provide the branch offices with the best conditions for meeting customer needs. I also want to draw attention to our operations in the rest of the Nordic region, which are also currently having a positive impact on our growth. Operations are expanding primarily in Norway, where we have increased sales substantially due to new legislation promoting occupational pensions. Here as well, the Handelsbanken branch office operations represent an important meeting place for our customers. However, we also have our own sales force and cooperation with external suppliers. We have also had a sharp increase in Finland. During the year, we expanded operations in Denmark and now have an organisation and products in place for continued growth. The highest individual growth was achieved in the subsidiary Handelsbanken Life & Pension, Ltd. in Ireland (name changed from Euroben Life and Pension, Ltd. in January 2007). Capital increased by a full 55% to SEK 5.2 billion. I want to conclude this introduction to our annual report after my first year as chief executive of Handelsbanken Liv by thanking all our customers for their confidence in us. My hope is that our good yield will be seen as an acknowledgement of that confidence. We are in an excellent position for continued success. Stockholm, February 2007 Michael Zell 1 Comparisons with 2005 exclude SPP Fondförsäkring AB. The company was owned by Handelsbanken Liv from 1 June 2004 to 31 December 2005, but it was sold on 1 January 2006 to its sister company SPP Livförsäkring AB. 2

5 HANDELSBANKEN LIV 2006 Market and sales Handelsbanken Liv focuses on providing asset protection solutions, private pension savings and collectively agreed occupational pensions to private individuals through Handelsbanken s branch operations. During the year, the Bank s branches raised the insurance skills of their staff and are now better able to sell insurance solutions, with the support of insurance advisers in more complicated cases. PREMIUMS WRITTEN AND NEW BUSINESS IN THE MARKET The market for regular endowment insurance increased by 18%, while sales of endowment pensions stagnated. This reduced premiums written by 25%. Private savings in pension insurance increased by 13%. Total premium volume in the open competitive life and pension insurance market in Sweden amounted to SEK 130bn (124) according to reports issued by the Swedish Insurance Federation. This represented a 5% increase. Unit-linked insurance performed especially well. New business for the Swedish life insurance companies, measured as single premiums plus regular premiums, totalled SEK 35.9bn (40.0) a decrease of 10%. The decrease was entirely attributable to stagnant sales of endowment pensions. THE COMPANY S PREMIUMS WRITTEN AND NEW BUSINESS Handelsbanken Liv s premiums written in Sweden totalled SEK 6.7bn (6.4), equal to a total market share of 5.2% (5.2). In Handelsbanken Liv s core market, endowment insurance and endowment pension products, premiums written totalled SEK 3.1bn (3.0). Handelsbanken Liv s new premiums written totalled SEK 2.1bn (2.2), resulting in a market share of 5.8% (5.6). The figures here exclude sales of the product known as Kapitalpension Depå, which is provided by Handelsbanken Liv s subsidiary Handelsbanken Life & Pension Limited. INSURANCE IS AN IMPORTANT ELEMENT OF THE INVESTMENT CONCEPT To improve efficiency and clarify roles of responsibility, the sales organisations of Handelsbanken Liv and the sister company SPP were streamlined during the year. As a result, the Bank s resources were strengthened in investment advisory services, as the insurance advisers were transferred to the regional banks in organisational terms. Investment advice concerns not only choice of product but also which tax environment best suits the customer. Endowment insurance and endowment pension products are major choices here. In 2006, some 3,300 bank employees were certified in compliance with the legal requirements for insurance advisers, which further enhanced insurance competence. INCREASED INTEREST FOR ENDOWMENT INSURANCE An increased interest was noted in the sales of endowment insurance, for both the unit-linked and guaranteed yield forms. Kapitalpension Fond and Kapitalpension Depå, which were launched in 2005, continued to sell well in SUCCESS FOR A UNIQUE TYPE OF MUTUAL FUND WITH A GUARANTEE Together with Handelsbanken Mutual Funds, a fund called Garantifond Plus was launched in spring This is a mutual fund well adapted for insurance savings. It offers good chances of achieving a good return, while there is a guarantee against a price fall. By year-end, some SEK 500m in insurance-related funds, especially private pension savings, had been invested in the fund. THE RIGHT TO MOVE INSURANCE TO ANOTHER COMPANY A NATURAL RIGHT Many policyholders in other companies utilised their right to move their pension savings and transferred capital to Handelsbanken Liv. More than SEK 500m was received from other insurance companies, while about SEK 100m left the company. In 2006, it also became possible to move occupational pension capital to and from Handelsbanken Liv. 1 NORDIC SUCCESS In Norway, a large new market was opened by legislation requiring mandatory occupational pensions for all companies. The Norwegian subsidiary SHB Liv A/S gained some 3,000 new corporate customers from successful sales work at the branch offices, its own sales force, and insurance agents. Annual premiums totalled some NOK 100m. During the year, operations were started in Denmark to offer occupational pension schemes, especially to Handelsbanken s corporate customers. To clarify its relationship to the bank, Handelsbanken Liv s subsidiary Euroben Life & Pension Limited, domiciled in Ireland, was renamed Handelsbanken Life & Pension Limited. 1 On 1 February 2007, the Government submitted a proposal for changes in Swedish legislation regarding pension insurance. One of the consequences of the legislative change is a temporary stop in transfers of pension insurance policies taken out on or before 1 February The duration of the temporary stop had not been made clear when the annual report went to press. Another consequence was a stop in the sale of endowment pensions. 3

6 HANDELSBANKEN LIV 2006 Asset management Handelsbanken Liv manages customers insurance assets in both traditional and unit-linked insurance. The objective of this asset management is to create high long-term returns through well-balanced risk-taking. Insurance commitments with guaranteed interest, known as traditional insurance, are managed in a diversified portfolio consisting of fixed income securities, equities, real estate and other assets. Unit-linked policies are mainly invested in mutual funds managed by Handelsbanken Asset Management. Handelsbanken Liv s own equity is chiefly invested in fixed income securities. INVESTMENTS WITH TRADITIONAL MANAGEMENT The total yield on the traditional portfolio was 8.24% (11.65). The average total yield for the past five years is 5.12%. May and June represented a nervous period on global stock markets. After a little more than four months of substantial increases, the stock markets dropped but recovered from mid-june. A summary of the 2006 stock market year shows that the global index increased by 16% in local currency (MSCI World). The Stockholm stock exchange rose by 25% (OMXSB). The return on Handelsbanken Liv s holdings in equities amounted to 18%. The share of equities as at 31 December was 34% and the average for the year was 37%. On the Swedish fixed income market, interest rates rose in the first six months, especially for bonds with long remaining maturity. In the second half of the year, short-term interest rates continued to rise as the Riksbank increased its key rate. But yields fell for instruments with long remaining maturity. All in all, this means that the shortest Swedish bond yields increased by about 0.8 percentage points, the medium term bond yields by 0.6 percentage points and the longest rose by 0.4 percentage points. The Swedish yield curve became flatter in the shorter segment, while it had a negative slope in the longer segment. Return on the fixed income portfolio was 0.6% in The return on properties was 12% (10). During the year, virtually all asset exposures were hedged. The Swedish krona strengthened during the year in relation to currencies in which the company had exposures, so the return was slightly higher than it would have been without these currency hedgings. The asset allocation is steered by a benchmark portfolio that is continuously set by the chief financial officer in consultation with the company s allocation committee. The company s guaranteed commitments to customers are important factors in determining the asset allocation. Total yield 2006 Swedish equities % International equities % Fixed income 0.64 % Property % Other % Total 8.24 % Average allocation of assets, 2006 Allocation of assets, 31 December 2006 Fixed income 55% Fixed income 58% Equities 37% Property 6% Hedge funds 2% Equities 34% Property 6% Hedge funds 2% Equity investments, 31 December 2006 Fixed-income investments, 31 December 2006 Sweden 35% Swedish government 66% Europe except for Sweden 28% USA 25% Japan 5% Emerging Markets 7% Swedish mortgage institutions 26% Other Swedish issuers 7% International issuers 1% 4

7 HANDELSBANKEN LIV 2006 Risks and risk control The company s operations include insurance risks, market risks, liquidity risks, credit risks and operational risks. Handelsbanken Liv is continually working on measuring, following up and limiting these risks. The company s compliance function has been assigned to follow up operations and ensure that they are conducted in accordance with prevailing regulations and sound practices. INSURANCE RISKS For a life insurance contract, the outcome is to some extent uncertain. The uncertainty relates in part to the future yield on the assets, but also to the assured s life or health. The uncertainty that depends on the assured s life or health is called insurance risk and is divided into the following main groups: death payment in the event of the death of the life assured life payment as long as the life assured lives disability/accident payment in the event of illness/inability to work A policy often includes combinations of the three insurance risks. In mutual insurance companies, the policyholder collective bears 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 and its sister company SPP, the policyholders no longer need to bear the risks collectively. The risk result is borne by the company. Limiting insurance risks Before risk insurance can be granted, a medical risk assessment is performed for the applicant. The purpose is to assess if and on what terms the applicant 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 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 in Sweden 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 an economic strain for pension insurance. Försäkringstekniska Forskningsnämnden (FTN an industry organisation for the Swedish insurance industry) conducted a comprehensive analysis of mortality in 2006 for the life insurance business. The purpose of the analysis is to document actual insurance mortality and to identify changing trends, which enable the creation of a mortality forecast. A mortality forecast is a fundamental factor for pricing 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. If actual mortality proves to be 10% lower than the assumptions that are normally used in the sector, which represents an additional 1.0 to 1.5 years of life expectancy, this would result in a total profit reduction for Handelsbanken Liv of about SEK 500m over a 50-year 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 cause and degree of disability. The rapidly rising disability in the form of people signed off sick in the early years of the 2000s led to major premium increases in the business. Several insurance companies doubted they could offer voluntary disability insurance in the future. Since 2005, however, 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. This is an option that the company can utilise to balance the rapid changes in disability. Most of Handelsbanken Liv s risk products products which provide financial compensation in the event of death and disability/accident are priced annually. That is, the company can unilaterally change the premium from year to year. Thus, an incorrect disability or mortality assumption can be corrected, with a rapid effect on the results. The majority of insurance in Handelsbanken Liv consists of occupational pensions issued to private customers and smaller companies. Thus, the company in principle does not have any major concentrations of insurance risks. FINANCIAL RISKS In traditional insurance with guaranteed interest, the insurance company bears the risk of the policyholder not achieving a guaranteed yield on paid premiums. If the total yield exceeds the guaranteed yield, the yield is allocated so that the policyholder receives 90% and Handelsbanken Liv 10%. For savings in unit-linked insurance, the policyholder accepts the entire financial risk. Risk means uncertainty about future results. Asset management operations are exposed to market risks, liquidity risks, credit risks and operational risks. The company is working with an integrated management of assets and liabilities. Market risk Market risk is the risk that price changes in the financial markets such as the markets for interest rates, currencies, equities, commodities or real estate result in changes in value of the company s investments or its commitments. In order to control exposure to different market risks, the insurance company s chief financial officer continually establishes a benchmark portfolio in consultation with an allocation committee. The resistance of the balance sheet is calculated continually by using the historical changes of the market prices to measure the effect on the company s available solvency margin. 5

8 Liquidity risk Liquidity risk is the risk that the company will not be able to meet its payment obligations when they fall due, or that the company will not be able to sell securities at acceptable prices. This risk is limited by a considerable part of the assets being invested in listed securities with good liquidity. Credit risk Credit risk is the risk that a counterparty is unable to meet his commitments to Handelsbanken Liv. The creditworthiness of issuers and counterparties is determined through internal and external credit assessments. Investments in fixed income securities that are not issued by the government, municipalities or a bank-owned mortgage institution may comprise a maximum of 25% of the fixed income investment. Approval from the board is required for investment in fixed income securities with a credit rating from an external rating institution below A. Risk management Now that the company is demutualised (profit-distributing), it assumes part of the financial risk. To measure the economic effect of price variations on the financial markets, the company performs continuous follow-up assessments of these risks. One of the risk measurements used is Value at Risk (VaR). VaR measures the negative outcomes that may arise due to movements in the underlying markets over a specified holding period and for an assumed level of probability. At Handelsbanken Liv, VaR is calculated using a 99% confidence interval and a one-month holding period. The calculations are based on historical simulation and measure the economic effect of the 250 most recent monthly relative changes in valuation parameters. The model used implies that every hundredth month, an economic result appears that exceeds VaR. The main factor affecting the magnitude of VaR, apart from allocation in the traditional insurance portfolio, is the sensitivity of the net deferred capital contribution to changes in liability valuation rates, as well as the contribution s sensitivity to changes in returns in the traditional insurance portfolio. Value at Risk OPERATIONAL RISK Operational risks are defined as risk of losses caused by inadequate or erroneous internal routines and system solutions, as well as mistakes made by own employees. Causes may also consist of external events and legal risks. Operational risks may lead to economic losses and a drop in confidence among customers and on the market. Responsibility for managing operational risks is part of managerial responsibility at all levels. The managers of main departments have an expressed responsibility to identify, assess, report, act upon and control operational risks. Regional managers and the chief executives of subsidiaries have equivalent responsibilities within their respective units. A high level of expertise and appropriate work methods are crucial for keeping the company s operational losses low. As part of the annual operational planning, each unit carries out a survey of the operational risks at the unit. The survey shows the unit s operational risks, the possible consequences of these and actions planned to eliminate or reduce them. Then measures are implemented and follow-up is carried out in daily operations. Handelsbanken s separate reporting system for operational incidents and losses has been used as an aid to this work during the year. Sound management of operational risks is also a way of assuring internal control in the company. A key starting point is that the division of responsibility and working duties must be defined on the basis of control aspects; and they must be designed to ensure that the same person does not handle a transaction throughout the entire processing chain. The risk control function at the treasury unit has the overall responsibility for the methods used for identifying, quantifying and monitoring operational risks as well as assisting the units in their work on operational risks. This function has an independent position in relation to business operations, and it reports directly to the chief executive and company board. Twice a year, an overall review of the company s operational risks is carried out. These risks are then reported to Handelsbanken Liv s board and the central board of Handelsbanken. In addition to responsibility for operational risks, the company has employees with special responsibility for information security and physical safety. VaR for Handelsbanken Liv in

9 HANDELSBANKEN LIV 2006 The company s performance HANDELSBANKEN LIV Handelsbanken Liv, corporate identity number , has its head office in Stockholm. The company is a whollyowned subsidiary of Svenska Handelsbanken AB (publ), corporate identity 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, SHB Liv Forsikringsaktieselskab (SHB Liv), which provides life insurance products in Norway and Finland, and the Irish life insurance company Handelsbanken Life & Pension Ltd (previously called Euroben Life & Pension Ltd). 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 Livförsäkring AB. Internal prices within insurance operations comply 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 2006, Handelsbanken Liv carried out internal services for its sister company SPP and invoiced it for the equivalent of SEK 178m (94). During the same period, Handelsbanken Liv purchased SEK 57m (270) worth of services from SPP. OPERATIONS Handelsbanken Liv provides traditional insurance with guaranteed yield in a profit-distributing company. The company also offers private individuals the right to transfer pension assets to other companies; and for occupational pensions, the same right has existed since 1 April Customers can also switch their form of savings within the company between traditional insurance with guaranteed yield 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. Sales of savings insurance in the other Nordic countries are conducted through the Danish subsidiary SHB Liv, which conducts operations through branch offices in Finland and Norway. Sales of risk insurance in Norway and Finland are conducted by branch offices. Sales in Denmark are handled as cross-border operations from Sweden. SIGNIFICANT EVENTS In January 2006, Michael Zell was appointed head of the Handelsbanken Pensions & Insurance business area. At the same time, he was made chief executive of Handelsbanken Liv. He was previously the head of the Central Sweden regional bank at Handelsbanken. Handelsbanken Liv s previous chief executive Hans Hagman was appointed executive vice president and responsible for the Bank business area. To create a stronger basis for increased sales, a more marketoriented sales organisation was launched during the year. For Handelsbanken Liv, this led to increased focus on providing asset protection solutions and pension savings to private individuals via Handelsbanken s branch operations. As a natural consequence, the insurance advisers were transferred to the respective regional banks on 1 January In 2006, Handelsbanken Liv provided a shareholder contribution of SEK 50m to Handelsbanken Life & Pension Ltd and contributed DKK 20.2m in the form of a new issue of shares to SHB Liv. The reason for these capital contributions was increased capital requirements as the companies continue to grow. On 1 January 2006, the subsidiary SPP Liv Fondförsäkring AB was sold to the sister company SPP Livförsäkring AB. ASSETS UNDER MANAGEMENT Assets under management amounted to SEK 59bn (75), of which SEK 32bn (49) was invested in unit-linked insurance. SPP Liv Fondförsäkring is included in the comparative figures with a figure of SEK 23bn. The increase in assets under management (excluding SPP Fondförsäkring AB) is mainly due to the high capital returns and also to a strong net inflow (premiums paid in minus claims). The net inflow during the year was SEK 4.5bn (7.6), of which SEK 3.0bn refers to SPP Liv Fondförsäkring and is included in the comparative figures. Since approximately 58% of the administration fees come from fees on the capital, the size of the assets managed is a significant part of the administration result. SOLVENCY The Group s available solvency margin as at 31 December 2006 was SEK 3,239m (2,585). This should be placed in relation to the required solvency, which totalled SEK 1,674m (1,736). Thus, the solvency ratio was 1.93 (1.49). 7

10 HANDELSBANKEN LIV 2006 Alternative income statement The traditional income statement in a life insurance company is diffi cult to comprehend and offers the reader few opportunities to understand how the result was reached. Internally, Handelsbanken Liv has worked with an alternative income statement which provides a better basis for understanding how the results arise. Alternative income statement SEK million Administration result Note Risk result Note Financial result Note Other Note Profit before tax in insurance companies The result is based on the Handelsbanken Liv Group s profit before taxes and excludes earnings in companies that are not insurance companies. Profits for Handelsbanken Liv improved substantially for the fourth year running. Excluding SPP Liv Fondförsäkring AB (which was sold on 1 January 2006) from the comparative figure, earnings improved by 18%. Link to statutory income statement Profit before tax in insurance companies Profit in non-insurance companies Profit before tax Tax Profit for the year NOTE 1 Administration result NOTE 3 Financial result Fee income Net fee and commission income 8-41 Operating expenses Total The administration result, which is the difference between the fees charged on the insurance contracts to cover administration and the company s actual costs, increased by SEK 4m. In 2005 the sold company SPP Liv Fondförsäkring AB contributed SEK 33m to the administration result. Excluding SPP Liv Fondförsäkring AB the increase was SEK 37m or 43%. The increase was primarily due to rising income as a result of higher business volumes. Operating expenses includes SEK 178m which refers to services sold to the sister company SPP Liv Försäkring AB and corresponding purchased services of SEK -57m are included in the same item. NOTE 2 Risk result Premiums written Change of unsettled claims 0 59 Claims paid Result of reinsurance -1 7 Other Total Received yield split Other Total The total yield on policyholders capital was 8.24% (11.65). Since the total yield was greater than the guaranteed yield, which is between 3% and 5% depending on when the policy was taken out, the company received 10% of the total yield for all insurance contracts. The policyholders insurance capital was adjusted upwards by 7.42% (10.49%). NOTE 4 Other Yield on equity Interest expense on subordinated loans Amortisation of intangible assets 0-24 Total The Other result item consists of yield on equity, interest expense on subordinated loans and amortisation of intangible assets. During the year some equity has been invested in shares. The risk result, which is the difference between the fees the company charges to cover the insurance risks (mortality, longevity, incapacity and accident) and the actual cost of these, has gradually improved ever since demutualisation on 1 January 2002 and amounted to SEK 217m (194). 8

11 HANDELSBANKEN LIV 2006 Five-year summary SEK million Profit/loss according to alternative income statement Administration result Risk result Financial result Other Profit before tax Profit/loss according to statutory income statement Premiums written Net investment income in insurance business Claims paid Operating expenses Balance on the technical account, life insurance business Profit for the year Financial position Land and buildings Shares and participating interests Bonds and other fixed income securities Derivatives Other financial investments Total investments Investments for which policyholders bear the risk Unit-linked commitments Life insurance provisions and conditional bonuses Equity Deferred tax Subordinated loans Total solvency capital Available solvency margin for the insurance group Required solvency margin for the insurance group Solvency ratio Key ratios Management expense ratio, % Total yield, savings insurance with guaranteed yield, % Collective consolidation ratio, % Available solvency margin Required solvency margin Solvency ratio The figures for 2004 have been restated according to the new accounting policies, with the exception of amended accounting policies for claim reserves where only comparative figures for 2005 have been restated. This is not, however, considered to have any material impact on previous years figures. Previous years figures have not been restated. 9

12 HANDELSBANKEN LIV 2006 Accounting policies This annual report has 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 2005:34). FFFS 2005:34 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 and in the Group. The annual accounts and consolidated accounts were authorised for publication by the board on 12 February The Group s income statement and balance sheet and the parent company s income statement and balance sheet will be presented for adoption at the annual general meeting on 28 March CLASSIFICATION CHANGES In the 2006 annual accounts Handelsbanken Liv has changed the classification of items previously reported under Other liabilities. These items are now classified as follows: Life insurance provisions, Conditional bonuses and Unit-linked commitments. According to FFFS 2006:17, which is applicable as of 2007, these items must be reported under Life provisions, regardless of how they were classified under current accounting rules. Handelsbanken Liv has decided to make this change already in The income statement items have also been changed so that the items affecting life provisions and previously posted under Other technical charges have been moved to the item Change in other technical provisions. CHANGED ACCOUNTING POLICIES The EU occupational pensions directive was transposed into Swedish law on 1 January One implication of this is that a market rate of interest must be used to calculate the insurance obligations. The insurance obligations are at present valued at a risk-free current rate instead of as previously at a maximum rate established by the Financial Supervisory Authority. This has meant that the opening equity as at 1 January 2006 increased by SEK 107m when the company s risk reserves were restated. See also Note 29 Equity. The 2005 comparative figures have also been restated and affected the income items Provision for claims outstanding by SEK 15m and Tax on the year s profits by SEK -5m. Reporting of insurance contracts All insurance contracts that contain a considerable insurance risk have been classified as insurance. Remaining contracts have been classified as investment contracts. 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. This has made it possible to apply separate accounting to the savings elements of the contracts classified as insurance contracts. Handelsbanken Liv reports in-payments and out-payments from customers savings capital directly in the balance sheet. The risk component is normally 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 8) 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 consolidated accounts of the parent company, Handelsbanken. Reporting of acquisition costs Paid out commission is recognised as acquisition costs. These are accrued over the life of the contract in accordance with IAS 18. CONSOLIDATED ACCOUNTS New policies 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 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 policies. 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 life 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 can be assessed. Those for which a useful life can 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 indefinite 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 controlling influence. A controlling influence normally exists when the holding 10

13 amounts to more than 50% of the voting rights. Subsidiaries are consolidated in accordance with the acquisition accounting method. Companies in which Handelsbanken Liv directly or indirectly has a controlling 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 Group s reporting currency. In line with the Group s decentralised organisation, each operation is run independently, and transactions between the parent company and the respective unit represent only 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 method has been used. Assets, liabilities and minority interests in equity have been converted at the closing day rate. 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 equity. INTANGIBLE ASSETS An intangible asset is an identifiable non-monetary asset without physical form. 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 prepared in which identifiable assets and liabilities are measured at fair value at the time of acquisition. This measurement is also performed when acquiring intangible assets that do not yet fulfil the requirement for classification as an asset. The reason for this is that this intangible right may nevertheless have a separable fair value. The part of the acquisition price that cannot be attributed to identifiable assets and liabilities is recognised as goodwill. Acquired brands are recognised in the balance sheet at cost after deduction for any amortisation and impairment losses. Internally accrued values in the form of goodwill, trademarks, publishing rights, customer databases and similar are not reported as assets in the balance sheet. Investments in software developed in-house are carried as an expense on a current basis where the expenditure refers to maintenance of existing business operations or an existing intangible asset. For development of new intangible assets, or new business operations for existing intangible assets, the costs accrued are 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 cases where the intangible asset has an indefinite useful life, an annual impairment test is performed at the same point in time each year. VALUATION OF INVESTMENT ASSETS All investment assets, apart from investments in Group companies, are recorded 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 Equities 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 recorded at the closing-day 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 WRITTEN Reported as premiums written are 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 is reported here. This includes the reporting of premium fees for contracts that are classified as financial as well as capital fees and other charges (not taxes). INSURANCE CLAIMS Risk costs regarding contracts that are classified as insurance according to IFRS 4 are reported as insurance claims. CHANGES IN OTHER TECHNICAL PROVISIONS The change consists of distributed yield relating to insurance with guaranteed interest and unit-linked insurance as well as the change in provisions for surplus premiums. OTHER TECHNICAL COSTS Amortisation of intangible assets is reported here. 11

14 DEPRECIATION AND IMPAIRMENT LOSSES ON 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. The material assets 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 life. These are amortised over this set period of useful life. The other category involves intangible assets for which it is not possible to establish a definite useful life. These are not amortised. 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 life are amortised. Normally the useful life 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. Impairment losses This section describes the criteria applied to impairments of property, equipment and intangible assets as well as shares in subsidiaries, associated companies and any participation in joint ventures. Impairment losses are recognised 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 nontechnical account. TAXES 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 normal corporation tax rate of 28%. Deferred tax is tax referring to temporary differences between the value of an asset or liability in the accounts and its taxable value. Tax charges paid from the insurance to cover the yield tax are reported under Tax on the year s profits. LAND AND BUILDINGS All Handelsbanken Liv s properties have been classified as real estate used in business operations. In accordance with ÅRFL Handelsbanken Liv has decided to report the properties in the same way as properties held for investment purposes. This means that the properties are reported at fair value and that value changes are reported in the income statement. TECHNICAL PROVISIONS Technical provisions consist of life insurance provisions and provisions for unsettled claims. 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 are applied that were developed in Provision for claims outstanding The 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. LIABILITY RELATING TO INSURANCE POLICIES WITH GUARANTEED YIELD Liabilities related to insurance with guaranteed interest rate are 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 portfolio, 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 reduced the guaranteed interest rate applied. LEASING Leases are defined as finance or operating leases. A finance lease implies that the lessor transfers substantially all the risks and rewards associated with ownership to the lessee. Operating leases are all non-financial leases. All Handelsbanken Liv s leases are classified as operating leases. This means that lease charges paid are reported as operating expenses. 12

15 HANDELSBANKEN LIV 2006 Income statement SEK million TECHNICAL ACCOUNT, LIFE INSURANCE BUSINESS Premiums written (net of reinsurance) Note Investment income Note Unrealised gains on investment assets Note Change in value of investment assets for which policyholders bear the investment risk, unit-linked insurance assets Other technical income Note Claims paid (net of reinsurance) Note Change in other technical provisions Note Operating expenses Note Investment charges Note Unrealised losses on investments Note Other technical expenses Note Investment income transferred to financial operations 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 investment assets Note Investment income transferred from insurance operations Investment charges Note Unrealised losses on investments Note Profit before tax Tax Note Profit for the year

16 HANDELSBANKEN LIV 2006 Analysis of results SEK million DIRECT INSURANCE OF SWEDISH RISKS Occupational pension insurance Other life insurance Occupational health insurance and waiver of premium insurance Non-cancellable disability and accident insurance and waiver of premium insurance Defined contribution traditional Unit-linked Individual traditional life Unit-linked Group life and occupational group life Direct insurance of foreign Accepted reinsurance Technical account, life insurance business Total 2006 insurance insurance insurance insurance insurance risks Premiums written (net of reinsurance) Investment income Unrealised gains on investment assets Change in value of investment assets for which policyholders bear the investment risk, unit-linked insurance assets Other technical income Claims paid (net of reinsurance) Change in insurance provisions Operating expenses Investment charges Unrealised losses on investments Investment income transferred to financial operations Balance on the technical account, life insurance business PREMIUMS WRITTEN Premiums written (gross) Premiums ceded Total premiums written (net of reinsurance) CLAIMS PAID Claims paid Gross Reinsurers share Change in provision for claims outstanding Gross Reinsurers share Total Claims paid (net of reinsurance) Technical provisions 31 Dec 2006 Life insurance provisions Provision for claims outstanding Technical provisions for which policyholders bear the risk 31 Dec 2006 Conditional bonus Unit-linked commitments

17 HANDELSBANKEN LIV 2006 Balance sheet SEK million ASSETS Intangible assets Goodwill Note Other intangible assets Note Investment assets Land and buildings Note Shares and participating interests in Group companies Note Shares and participating interests Note Bonds and other fixed income securities Note Other loans Derivatives Note Other financial assets Note Investments for which the policyholders bear the investment risk Unit-linked insurance assets Reinsurers share of technical provisions Claims outstanding Receivables Receivables relating to direct insurance operations Note Receivables in respect of reinsurance Other receivables Note Other assets Tangible assets Note Cash and bank balances Note Prepayments and accrued income Accrued interest income Deferred acquisitions Note Other prepayments and accrued income Total assets

18 SEK million EQUITY, PROVISIONS AND LIABILITIES Equity Share capital (100,000 shares) Statutory reserve Other restricted reserves Profit brought forward Profit for the year Total equity Note Subordinated liabilities Perpetual subordinated loans Technical provisions (gross) Life insurance provisions Note Provision for claims outstanding Note Technical provisions for life insurance for which the policyholders bear the risk Conditional bonus Note Unit-linked commitments Note Provisions for other risks and charges Provisions for taxes Note Deposits from reinsurers Liabilities Liabilities relating to direct insurance operations Note Liabilities relating to reinsurance operations Derivatives Note Other liabilities Note Accruals and deferred income Other accruals and deferred income Note Total equity, provisions and liabilities Memorandum items Pledges and comparable collateral for own liabilities and for commitments reported as provisions Assets registered on behalf of policyholders Other pledged assets and comparable collateral Other commitments Note

19 HANDELSBANKEN LIV 2006 Cash fl ow statement OPERATING ACTIVITIES Operating profit Adjustment for non-cash items: Depreciation and impairment losses Unrealised gains on investment assets Paid income tax Change in the assets and liabilities of operating activities: Investment assets Conditional bonus Life insurance provisions Unit-linked commitments Other Cash flow from operating activities INVESTING ACTIVITIES Change in property and equipment 5-1 Change in intangible assets Cash flow from investing activities FINANCING ACTIVITIES Shareholders contribution Dividends paid Group contribution Cash flow from financing activities Cash flow for the period Liquid funds at beginning of period Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash flow at end of period

20 HANDELSBANKEN LIV 2006 Notes NOTE 1 Premiums written (net of reinsurance) Paid-in and recognised premiums Total premiums written (gross of reinsurance) Premiums ceded to reinsurers Total premiums written (net of reinsurance) (Of which premiums written from Group companies) All premiums are for risk insurance and are regular premiums. Of total premiums written (net of reinsurance), SEK 126m (76) refers to other EEA countries. Disclosure concerning paid-in premiums booked in the balance sheet Paid-in and recognised premiums Total NOTE 3 Unrealised gains on investments Buildings and land Shares and participating interests Bonds and other fixed income securities Derivatives Total NOTE 4 Other technical income Premium fees Capital fees Other fees Risk income Total Premiums written for direct insurance Group Regular premiums One-off premiums Regular premiums One-off premiums Contracts for which policyholders bear the investment risk Contracts for insurance with guaranteed yield Total NOTE 2 Investment income Rental income from land and buildings Dividends received Interest income Bonds and other fixed income securities Other interest income Total interest income (Of which interest income from Group companies) (30) (44) (29) (43) Exchange gains, net Capital gains, net Shares and participating interests Bonds and other fixed income securities Total capital gains, net Total investment income NOTE 5 Claims paid (net of reinsurance) Claims paid (gross of reinsurance) Operating costs for claims management Reinsurers share Total claims paid (net of reinsurance) Changes in provision for claims outstanding (gross) Reinsurers share Total change in provisions for claims outstanding (net of reinsurance) Total claims paid (net of reinsurance) Disclosures concerning claims paid booked in the balance sheet Claims paid Cancellations and repurchases Total NOTE 6 Change in other technical provisions Allocated yield for unit-linked insurance Allocated yield for insurance with guaranteed yield Other changes Total

21 NOTE 7 Operating expenses Acquisition costs Administrative expenses Reinsurance commissions and profit participating interests Total operating expenses Operating costs for claims management Asset management charges Property 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 costs for claims management are reported under the heading Claims paid and operating expenses related to treasury management are reported under Investment charges. Staff costs 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 Of which salaries and fees to the board and chief executive in Ireland is SEK 2m (3) and in Denmark SEK 1m (0). In addition, pension costs for Ireland are SEK 2m (2) and for Denmark SEK 60,000 (0). Principles for remuneration to management The remuneration 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 remuneration may only be issued in the form of fixed salary and customary employee benefits. Variable remuneration 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 Handelsbanken Liv has no agreements on severance pay. At Handelsbanken, the lowest pensionable age for the Bank s executive vice presidents is 60. Between the ages of 60 and 64, their retirement pension is 65% of their salary immediately before retirement. From the age of 65, the pension is 10% of the annual salary up to 7.5 income base amounts. They also receive a pension under the general national insurance scheme. A retirement pension of 65% is paid on the portion of the salary in excess of 7.5 income base amounts. The pensions for the Handelsbanken Liv CEO and two of the EVPs (former EVPs of Handelsbanken and thus covered by the Bank s agreement as above) are accrued gradually during the years up to the age of retirement and are fully accrued by the age of 60. The company is charged annually for the cost at the same rate as the pension is accrued. Accrued pension commitments are guaranteed by the Bank s pension foundation and pension fund, and are vested. If the executives leave the Bank before the stipulated retirement age, a paid-up policy is issued for the pension accrued. The other two EVPs and the others in the management team have a retirement age of 65 and are included in the same retirement plan as the other employees. Remuneration CEO Michael Zell is chief executive for both Handelsbanken Liv and SPP. He is employed by SPP, which pays his salary. In 2005, the chief executive Hans Hagman received a total salary of SEK 1,218,000 of which profit-related salary was SEK 0 (0). In addition, benefits were provided with a total value of SEK 97,000. Four (five) other senior managers received remuneration and other benefits of SEK 4,955,000 (4,096,000), of which other benefits comprised SEK 363,000 (537,000). The group of other senior executives comprises the joint management team for Handelsbanken Liv and SPP. Non-executive board members, outside the Handelsbanken Group, received fees totalling SEK 0 (65,000). No fees were paid to the chairman of the board. Board members who are employees of the Bank receive remuneration and pension benefits by reason of their employment. No further remuneration or pension benefits are paid for serving on the board. The chief executive and other senior managers, in common with other employees in the Handelsbanken Group, were allocated one unit in Handelsbanken s profit-sharing system Oktogonen. One unit for an employee in Sweden amounted to SEK 21,932. Pension plan - other employees From the age of 65, a retirement pension is paid in accordance with the pension agreement between the Employer s Association of the Swedish Banking Institutions (BAO) and Union of Finance Sector Employees and between BAO and SACO (the Swedish Confederation of Professional Associations). The amount is 10% of the annual salary up to 7.5 income base amounts. The retirement pension is 65% of the annual salary on the portion of the salary in the range income base amounts, and 32.5% of the annual salary in the range income base amounts. No retirement pension is paid on the portion of the salary in excess of 30 income base amounts. Number of employees (average during year) Sweden Norway Denmark Finland Ireland Total All employees are office staff Gender breakdown Men Women Men Women Sweden Norway Denmark Finland Ireland Total Gender breakdown Men Women Men Women Sweden Norway Total

22 Staff costs in each country Sweden Norway Denmark Finland Ireland Total Sickness absence rate in the Swedish operations, % Age Men Women Total Men Women Total Total Of whom on long-term sick leave, percentage points of total sickness absence Total Gender breakdown, senior management Handelsbanken Liv and SPP are under joint management. Senior management totals seven people, of whom four are employed by Handelsbanken Liv. Men Women Senior managers 6 1 of which Handelsbanken Liv 3 1 Board of directors 5 1 Fees to auditors KPMG Bohlins AB, Audit KPMG Bohlins AB, Consultancy PricewaterhouseCoopers, Audit Internal audit Handelsbanken Total NOTE 8 Investment charges Operating expenses for land and buildings Investment management charges Interest expense Other interest expense Total interest expense (of which costs to Group companies) (-1) (0) (-1) (0) Impairment losses Shares Exchange losses, net Capital losses, net Bonds and other fixed income securities Derivatives Total capital losses, net Total investment charges NOTE 9 Unrealised losses on investments Bonds and other fixed income securities Derivatives Total NOTE 10 Other technical charges Amortisation of intangible assets Total Audit assignments consist of audits of annual accounts and accounting records, the administration of the board of directors and the chief executive, other assignments that are the responsibility of the company s auditors, and advice and other assistance arising from observations in the course of such an audit or the performance of other such assignments. The remainder is other assignments. 20

23 NOTE 11 Investment income NOTE 14 Unrealised losses on investments Dividends received Interest income Bonds and other fixed income securities Other interest income Total interest income (of which interest income from Group companies) (20) (10) (18) (9) Exchange gains, net Capital gains, net Shares and participating interests Fixed income securities Total capital gains, net Total investment income NOTE 12 Unrealised gains on investments Shares and participating interests Fixed income securities Derivatives Total unrealised gains on investments Fixed income securities Derivatives Total unrealised gains on investments NOTE 15 Tax on the year s profit Tax expense for the period Adjustment of tax for previous years Deferred tax, change in temporary differences Total NOTE 16 Goodwill Acquisition value at beginning of year Total cost Accumulated amortisation at beginning of year -1-1 Amortisation for the year - - Total amortisation -1-1 Book value NOTE 13 Investment charges Asset management charges NOTE 17 Other intangible assets Interest expense Other interest expense Total interest expense (of which costs to Group companies) (-46) (-50) (-42) (-37) Capital losses, net Shares and participating interests Total capital losses, net Total investment charges Acquisition value at beginning of year Acquisition value of divested intangible assets Total acquisition value Accumulated amortisation at beginning of year Accumulated amortisation of divested intangible assets 35 - Amortisation for the year Total amortisation Book value Amortisations are included in Other technical charges in Note 10. The intangible assets consist entirely of the brand name SPP. Handelsbanken guarantees the book value of the SPP brand name. The brand name is amortised over 20 years. 21

24 NOTE 18 Land and buildings Fair value Acquisition Tax assessment value value Book value value SEK/m 2 Yield Vacancy rate space Group 2006 Office and commercial properties % 0% Group 2005 Office and commercial properties % 0% The yield percentage is calculated as the operating surplus in 2006 in relation to the market value as at 31 December The yield decreased to 1.03% (4.51) due to properties that remained unoccupied during a major renovation. The property portfolio is concentrated to central Stockholm. Of the office and commercial properties, 25% (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 19 Shares and participating interests in Group companies Specification of the parent company s direct holdings of participating interests in subsidiaries Company Corporate ID no. Domicile No. of shares Proportion of capital Acquisition value 2006 Book value 2005 Book value Handelsbanken Life & Pension Ltd Dublin % Handelsbanken Varumärkes AB Stockholm % Svenska RKA International Insurance Services AB Stockholm % Kvarteret Läkaren Fastighetsförvaltning AB Stockholm % Fastighets AB Malmarna Stockholm % Fastigheten Läkaren 9 KB Stockholm 100% Fastigheten Rännilen 15 KB Stockholm 100% SHB Liv Forsikringsaktieselskab Copenhagen % SPP Liv Fondförsäkring AB Stockholm % Acquisition value, opening balance 1 January Shareholder contribution Handelsbanken Life & Pension 50 New issue in SHB Liv Forsikringsaktieselskab 24 Profit from limited partnership and value change 119 SPP Liv Fondförsäkring AB, sold Acquisition value, closing balance, 31 December NOTE 20 Shares and participating interests Fair value Swedish shares and participating interests Foreign shares and participating interests Of which unlisted shares and participating interests Acquisition value Swedish shares and interests Foreign shares and interests Of which unlisted shares and interests For a complete specification of shares and participating interests, see page

25 NOTE 21 Bonds and other fixed income securities Fair value Swedish government Swedish mortgage institutions Other Swedish issuers Foreign governments Other foreign issuers Total Of which listed Amortised cost Swedish government Swedish mortgage institutions Other Swedish issuers Foreign governments Other foreign issuers Total Of which listed Book value exceeds nominal value Book value below nominal value Interest rate adjusment periods at 31 December Fair value 0-3 months months 1 year years years More than 10 years Total NOTE 24 Receivables relating to direct insurance operations Amounts receivable from policyholders Total NOTE 25 Other receivables Owed by Group companies Other receivables Total NOTE 26 Property and equipment Acquisition value, opening balance Acquisition value of additional assets Acquisition value of assets sold during the year Exchange rate differences Total acquisition value Depreciation for the year Accumulated depreciation according to plan Accumulated depreciation of assets sold during the year Exchange rate differences Total depreciation Book value Property and equipment refers entirely to equipment. NOTE 22 Derivative instruments with positive values Fair Nominal Fair Nominal Group and parent company value value value value Forward exchange contracts Total NOTE 27 Cash and bank balances Funds in accounts at Group companies Other cash and cash equivalents Total NOTE 23 Other financial assets Repos Total NOTE 28 Deferred commission expenses Opening balance Change from sale of subsidiary Capitalisation for the year Depreciation for the year Closing balance Of which book value with remaining depreciation period in excess of two years

26 NOTE 29 Equity Group Share capital Statutory reserve Other restricted reserves Profit brought forward Profit for the year Total 2006 Closing balance 31 December Transfer of exchange difference Impact of changed accounting principle relating to claim reserve Opening balance 1 January Appropriation of profits Dividend Shareholder contribution received Group contribution received 9 9 Change in exchange differences -5-5 Transfer between other restricted reserves and profit brought forward Profit for the year Closing balance Parent company Share capital Statutory reserve Other restricted reserves Profit brought forward Profit for the year Total 2006 Closing balance 31 December Transfer of exchange difference Impact of changed accounting principle relating to claim reserve Opening balance 1 January Appropriation of profits Dividend Shareholder contribution received Change in exchange differences -5-5 Profit for the year Closing balance Sensitivity analysis consolidated equity Price fall shares 10% -4 Interest rate rise 1 percentage point -3 Increased yield requirement on property 2 percentage points -1 Exchange rate fall 10% 0 Net exposure interest rate adjustment periods, Group 0-3 mths 3 mths 1 yr 1-5 yrs 5-10 yrs More than 10 yrs Total Assets Bonds and other fixed income securities Liabilities Life insurance provisions and conditional bonuses Net exposure NOTE 30 Life insurance provisions Opening balance Incoming payments Outgoing payments Allocated yields Other changes Of which change in conditional bonuses Closing balance NOTE 31 Provision for claims outstanding Notified claims AND Provision for non-life annuities Nonnotified claims and sickness annuities Total 2006 Total 2005 Opening balance Change for the year Closing balance

27 NOTE 32 Conditional bonus Opening balance Change for the year Closing balance NOTE 37 Other liabilities Received unsettled premiums Owed to Group companies Other liabilities Total NOTE 33 Unit-linked commitments Opening balance Commitments sold during the year Incoming payments Outgoing payments Change in value including dividends Other changes Closing balance Of which due within twelve months NOTE 34 Provisions for taxes Provision for income and policyholder tax Provision for deferred taxes Total NOTE 38 Other accruals and deferred income Accrued operating expenses Accrued commission expenses Accrued interest expense Other accruals Deferred income Total NOTE 39 Other commitments AND Nominal value Equity-related futures Interest-rate related futures 63 - Currency-related futures Total NOTE 35 Liabilities relating to direct insurance operations Owed to policyholders Total NOTE 36 Derivative instruments with negative values Group and parent company Fair value Nominal value Fair value Nominal value Equity index futures Interest rate futures Currency forwards Total Of which cleared

28 HANDELSBANKEN LIV 2006 Specifi cation of shares and participating interests 31 December 2006 SEK million Swedish listed shares Number Book value Finance and real estate Bure Investment Kaupthing Bunadarbanki Industrial good and services Ångpanneföreningen B Ballingslöv Gunnebo Ind AB Securitas B Studsvik Information technology Boss Media Ericsson A Micronic Laser Systems Observer Materials Höganäs B Durables ENIRO H&M B Metro A Other Tricorona AB Swedish unlisted shares and participating interests Number Book value Bergvik Skog NC6 Capio AB NC6 Capio Temporär investering NC6 ICA Meny AB Nordic Capital NT Holding AB Healthcap Healthcap Nordic Cap. IV Nordic Cap.III NordicCapital V Priveq III Skandia Inv Swedish mutual fund units Number Book value SHB Generation Fond i Fond 40-tal SHB Generation Fond i Fond 50-tal SHB Generation Fond i Fond 60-tal SHB Generation Fond i Fond 70-tal SHB Generation Fond i Fond 80-tal Xact OMXSB Foreign shares and participating interests Number Book value Denmark Amagerbanken NY Danske Bank DS Norden Själsögruppen Finland Affecto Genima Comptel Elcoteq Outokumpu Oyj Outukumpu technology Perlos PKC Group Rapala Uponor Oy A YIT France Air Liquide Ireland CRH Irland Jersey Amaranth Norway Deep Sea Supply Plc Cermaq Fast Search & Transfer ASA Geo Asa Ocean Rig ODIM Tandberg Television Spain Banco Popular E Ebro Puleva UK Bunzl New Davis Service Group Diageo Johnson Mattey Northern Rock Signet Group Wolseley Switzerland Partners Group Total Swedish shares and participating interests

29 Foreign mutual fund units Number Book value France PG Prime Serie India Ishares MSCI India index fund Japan Topix ETF Luxembourg Aberdeen Indirect Property Partners Asia Norway Xact OBX UK Ishares MSCI Emerging Markets USA Nasdaq S&P Depository Receipt (ETF) Foreign unlisted shares Number Book value Enermet Escrow NC6 Dangaard NC6 Nycomed Nopco Paper Te Sonion Total foreign shares and participating interests Total shares and participating interests in parent company Additional in the Group Swedish mutual fund units Number Book value Handelsbanken Aktiefond index Handelsbanken Europa index Other foreign mutual fund units 3 3 Total shares and participating interests in Group companies

30 HANDELSBANKEN LIV 2006 Recommendation for appropriation of profi ts The following amount is available in the parent company for distribution by the annual general meeting: Profit brought forward SEK 2,344,591,621 Profit for the year SEK 456,615,590 SEK 2,801,207,211 The board and chief executive propose that SEK 4,420 per share be distributed to the shareholder, a total of SEK 442,000,000. The remaining SEK 2,359,207,211 million would be carried forward to the next year. The record day for dividend is Friday, 29 March 2007 and the dividend will be paid on 30 March 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 well-adapted to the operations as a going concern. Unrealised gains and losses on assets and liabilities have had a net effect on the shareholders equity by SEK 19,000,000. STOCKHOLM, 12 FEBRUARY 2007 Björn C Andersson Chairman Håkan Sandberg Deputy chairman Yonnie Bergqvist Åke Danielsson Anki Jönsson Michael Zell Chief executive 28

31 HANDELSBANKEN LIV 2006 Audit report To the general meeting of the shareholders 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 reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. During the year, the internal 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 assessing the accounting principles used and their application by the board of directors and the chief executive and assessing significant estimates made by the board of directors and the chief executive when preparing the annual accounts and consolidated accounts as well as evaluating 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 opinions 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 general meeting of shareholders 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 administration report and that the members of the board of directors and the chief executive be discharged from liability for the financial year. STOCKHOLM, 19 MARCH 2007 KPMG Bohlins AB Peter Zell Authorised public accountant Catarina Ericsson Authorised public accountant Auditor elected by the Swedish Financial Supervisory Authority 29

32 HANDELSBANKEN LIV 2006 Management HANDELSBANKEN LIV AND SPP HAVE A JOINT MANAGEMENT TEAM. MICHAEL ZELL, year of birth 1950 Head of Handelsbanken Pensions & Insurance Chief executive of Handelsbanken Liv Chief executive of SPP Executive vice president of Handelsbanken JAN LARSSON, year of birth 1960 Head of Regional Banking Operations Business Area Executive vice president of Handelsbanken Liv (appointed 1 January 2007). GÖRAN HOLGERSON, year of birth 1960 Head of SPP Business Area Executive vice president of SPP PEHR WISSÉN, year of birth 1951 Head of Treasury & Risk Executive vice president of SPP BJÖRN G OLOFSSON, year of birth 1950 Head of Administration, systems & processes Executive vice president of Handelsbanken Liv BO FROGNER, year of birth 1961 Head of Control and Accounting GUN TERNSTEDT, year of birth 1952 Head of Human Resources ACTUARIES GUNNAR BRÄNNSTAM, year of birth 1960 Chief actuary NILS BERNER, year of birth 1967 Deputy actuary Board of directors BJÖRN C ANDERSSON, year of birth 1946 Chairman Previously executive vice president of Handelsbanken Member since 1990 MICHAEL ZELL, year of birth 1950 Head of Handelsbanken Pensions & Insurance Chief executive of Handelsbanken Liv Chief executive of SPP Executive vice president of Handelsbanken Member since 2006 ÅKE DANIELSSON, year of birth 1960 Employee representative Member since 2006 HÅKAN SANDBERG, year of birth 1948 Deputy chairman Executive vice president of Handelsbanken Member since 2006 YONNIE BERGQVIST, year of birth 1961 Chief executive of Handelsbanken Finans Member since 2006 ANKI JÖNSSON, year of birth 1949 Employee representative Member since

33 HANDELSBANKEN LIV 2006 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 asset management assignments, but it is also possible for asset managers to diverge from this within set limits. DEMUTUALISATION (PROFIT-DISTRIBUTING) In a demutualised (profi t-distributing) company, the shareholders bear responsibility for the risk capital and the company is permitted to distribute profi ts. In a mutually operated life insurance company, the policyholders bear responsibility for most of the risk capital and profi t- distribution is not permitted. GUARANTEED CAPITAL Guaranteed capital is a part of the insurance capital in insurance policies with a guaranteed yield. This capital grows by the guaranteed yield and with premium payments. Fees and taxes and claims paid are deducted from this. GUARANTEED YIELD The interest rate before deduction for fees and tax used for upward adjustment of the guaranteed capital in an insurance policy with a guaranteed yield. LIFE INSURANCE PROVISIONS The value of future guaranteed insurance benefi ts (pension amounts and other guaranteed disbursements) minus the value of future premium payments. SOLVENCY CAPITAL Consists of equity, untaxed reserves and subordinated loans. 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, profi t- distributing life insurance company cannot be compared with the ratio for a life insurance company run on mutual principles. The solvency ratio is the available solvency margin divided by the required solvency margin. The available solvency margin is mainly equity in the company and any subordinated loans. The required solvency margin is mainly the sum of 4% of the guaranteed commitments, plus 1% of unit-linked insurance commitments, plus 1% of conditional bonus, plus % of mortality risks. The solvency ratio must be at least 1. TOTAL YIELD The sum of changes in value and yield on investments managed for savers with guaranteed yield. The yield is calculated after deduction of operating expenses for asset management. YIELD The total of interest income, interest expense, operating surplus from land and buildings, and dividends on shares and participating interests after deduction of operating expenses for asset management. MANAGEMENT EXPENSE RATIO Operating expenses for administration, purchases and claims management in relation to average assets under management. PROVISIONS FOR CLAIMS OUTSTANDING The estimated value of incurred insurance claims that have not yet been paid. 31

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