Skandia's 'A' Financial Strength Rtg Affmd by S&P.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 6/25/98--Standard & Poor's today affirmed its single-'A' insurer financial strength and counterparty credit ratings of Skandia Insurance Co. Ltd. and certain related entities (see list below).

The affirmations reflect the continued strengthening of Skandia group's (Skandia) business franchise through further strong expansion of the life and unit linked assurance business and the divestment of noncore activities within the nonlife unit. Other rating factors include very strong risk-based capitalization, but an historically below average operating performance. In addition, Standard & Poor's believes that, in the Nordic region, Skandia is constrained by its limited access to bankassurance distribution channels.

MAJOR RATING FACTORS:

-- Skandia is a major force in the life and nonlife sectors in Sweden and the nonlife sector in Norway. This strong Nordic business position is complemented by the group's rapidly growing global presence in the field of life and unit linked assurance business. Skandia is the sixth-largest variable annuity provider in the U.S. and the fifth-largest player in the U.K. unit linked market.

-- Skandia's capitalization improved further during 1997 and, in terms of Standard & Poor's risk-based capital model, was very strong at 1.6 times (x) the required level at Dec. 31, 1997. Debt leverage remains consistent with the rating level at 24.6%, as does interest coverage at 7.2x.

-- Skandia's risk profile and its ability to focus resources on core activities have been improved through the sale of Skandia International Insurance Corp. (insurer financial strength, triple-'B'-plus/Watch Pos/--) and, very recently, two heavily unprofitable Italian motor insurers, Multiass Assicurazioni S.p.A. and Uniass Assicurazioni S.p.A.

-- Skandia's financial flexibility has improved considerably during recent years. This reflects the group's much reduced debt leverage and its proven ability to access debt capital and secure significant committed bank facilities.

-- Although much improved in 1997, Skandia's profitability has been relatively modest in recent years. Since 1993, the nonlife combined ratio has averaged 113.1% and return on equity has averaged 10.9%. Given the somewhat benign claims environment and the recently very favorable investment market conditions, Standard & Poor's regards these results as disappointing. However, bottom-line profitability over this four year period has been impacted by a number of nonrecurring items. In particular, restructuring costs, relating to the nonlife activities, of Swedish krona (SKr) 1.4 billion (US$178 million) significantly impaired the profitability of the 1996 year.

-- Currently, Skandia has limited access to the distribution network or customer base of an established major bank. As a result, Standard & Poor's believes that Skandia is constrained as it increasingly competes with banks and bankassurers for a share of the growing Nordic life and savings market.

EXPECTATIONS:

-- Growth in unit linked business will continue, as Skandia's network expands across the globe.

-- Risk-based capitalization and debt leverage will remain at levels consistent with a single-'A' rating.

-- Profitability will improve as the nonlife operations bear fruit following the recent restructuring and also in line with an increased contribution from the unit linked business. The nonlife combined ratio will in the future average about 108%.

Under current Swedish law, policyholder and debtholder interests are ranked pari passu. It now seems likely that, during 1999 or early 2000, this law will change and debtholders' interests will be made subordinate to those of policyholders. If and when this change occurs, Skandia Capital AB's senior debt rating is likely to be revised to one notch below Skandia's insurer financial strength rating. AFFIRMED RATINGS: Skandia Insurance Co. Ltd. -0-

   Insurer financial strength           A
   Subordinated debt                    BBB+
Vesta Forsikring AS
   Insurer financial strength           A
American Skandia Life Assurance Corp.
   Insurer financial strength           A
Skandia Capital AB
(Gtd: Skandia Insurance Co. Ltd.)
   Senior debt                          A
Skandia International Capital Corp.
(Gtd: Skandia Insurance Co. Ltd.)
   Commercial paper                     A-1

CONTACT: Dominic Skeet, London (44) 171-826-3563,

Corinne Cunningham, London (44) 171-826-3550.

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