The fortunes of Swedish insurance giant Skandia have finally taken a turn for the better. The shift comes after a rocky period in which the insurer endured sluggish economic conditions, the sale of its prized U.S. unit, and investigations into executive impropriety. Earlier this month, an independent inquiry commissioned by the company found that former Skandia executives concealed bonuses and allowed family members to use corporate apartments. But those officials, who have denied wrongdoing, are long gone. Meantime, sales are rising, cash flow is improving, and a new board is expected to be nominated soon (see BW Online, 12/15/03, "Skandia Comes In from the Cold").
Things have turned around so quickly that on Dec. 10, Moody's Investors Service upgraded Skandia's outlook to "stable" from "developing." That same day, Skandia Chief Financial Officer Jan Erik Back spoke to BusinessWeek London Correspondent Laura Cohn about what the Moody's move means, whether Skandia is worried about being pulled into the mutual-fund scandal because of its old U.S. unit, and where it will go from here. Edited excerpts from their conversation follow:
Q: After all the recent changes at Skandia, did you feel vindicated by the Moody's upgrade?
A: Moody's has had the "developing" outlook on us for some time now. They wanted to follow up on our strategic review, as they mentioned in their press release. To me, it's a very positive outcome.... It means they feel comfort that the strategic review we've been through and the different measures we're taking toward securing our cash flow are taking effect. I see it as very positive confirmation from their side.
Q: But your entire board just resigned. When will you have a new board?
A: When this external investigation made its findings public, the board announced they would resign and [hold] an extraordinary [general meeting] on Jan. 28 so that the owners can form a new board to take Skandia forward. You can assume that a new board will be nominated [at that meeting]. Whether that will include board members from the old board or not is too soon to say.
Q: Other concerns are hanging over Skandia. You recently put out a press release stating that federal and state regulators have asked for information relating to mutual-fund transactions by American Skandia, your old U.S. unit now owned by Prudential Financial. How worried are you about the outcome of that inquiry?
A: In my mind, that's something we needed to put out to be fair to the market, to make it public that this is happening. We're not saying through that statement we think it's going to cost us an arm and a leg. We really don't think it will. I can't rule out that it will cost us something. There are a few remaining risks in American Skandia, I admit. But it's nothing that keeps us up at night. A lot of things have improved over the past 12 to 18 months.
Q: There has also been some speculation among investors that you intend to sell off your British division. When might that happen?
A: We've commented all along that there are no grounds for that whatsoever, either here or in the U.K. The Swedish management team and the U.K. management team have said so consistently. These rumors have been wandering around in different shapes and forms for some time. There's nothing in that.
Q: So you're not concerned by the fact that Britain's market is very competitive at the moment. What does keep you up at night?
A: I sleep good at night. For us, it's just a matter of being a bit more down to earth in the way we run the company.
In the past, Skandia described itself as just a pure growth company. We used to talk about ourselves as an asset gatherer. But we forgot to combine that message with profitability. We have succeeded well in doing that in Continental Europe. In almost every market there, we're growing double-digit numbers in terms of sales -- and we're increasing profits. One doesn't rule out the other.
Q: Why didn't Skandia have this two-pronged goal before?
A: There was clear evidence that in the boom years, people were tempted to sell volumes that in hindsight didn't really meet their profitability target. Skandia was, to some extent, part of the boom just like a lot of other people were and got caught up in the volume thinking.
Q: So aside from Continental Europe, where will Skandia's growth come from next?
A: We have a lot of young companies out there -- in Australia, China. We have a license in China now. We were able to open up in Australia a year ago. We're selling like mad in Australia, and we're very profitable. The U.K. market is much more competitive. The growth in percentage terms is going to be larger in our younger markets.