Excellent performance for Suomi Mutual in the first half of the year

Suomi Mutual succeeded very well in its investment operations in the first half of 2005. Net investment income at current values was 11.0 per cent in the first six months. This was specifically impacted by the favourable trend in the Pohjola share price and by the company's successful use of the equity markets which continued to show a strong growth.

The new operational model which had been agreed on by Suomi Mutual and Pohjola in 2004 took effect at the beginning of 2005. Accordingly, Suomi Mutual is responsible for the management of the company's remaining insurance portfolio with related investments. As the company no longer underwrites new business, its key task is to be successful in investment operations. In this way, the company secures its financial strength and ensures that its customers will get a competitive return on their insurance savings.

Owing to the new operational model and to the transfer of the related insurance portfolio, the company's figures are not comparative to the year 2004 figures.

In the new situation, the best indicators measuring the company's success in its business operations are the change in the company's solvency position and the amount of various special benefits granted by the company to its customers.

In the first half of the year, the company's solvency capital grew by EUR 384 million to over EUR 1.2 billion. The company's solvency ratio increased to 26 per cent from the 16 per cent level at the end of 2004. Of the increase, around 4 percentage points can be explained by the decrease in the technical provisions resulting from the portfolio transfer.

In addition to the growth in the solvency level, the company has been able to increase its technical provisions, i.e. to prepare for the financing of new special benefits.

Amount of claims paid was lower than in previous year

In the new situation, the company no longer has a well-founded reason for following up and reporting on the market share.

The amount of claims paid by the company decreased. Claims paid in the first half of 2005 amounted to EUR 146 million. The respective figure a year earlier was EUR 232 million.

Suomi Mutual has outsourced to Pohjola the main part of the management of the company's insurance and investment portfolios. Only 14 people are currently in the company's employ. The outsourcing contracts are mainly for a long term. Therefore, the costs incurred from these contracts are well predictable. The company's operating expenses of EUR 9 million were slightly less than the budgeted amount.

Excellent results from investment operations

The insurance portfolio transferred to Pohjola at the turn of the year was, on the basis of the portfolio transfer agreement, mainly covered by various short-term interest rate instruments.

Suomi Mutual has knowingly adjusted its investment portfolio to the new situation over a long period of time. The adjustment already started in autumn 2004.

In a situation where the equity markets performed well, the selected method for the adjustment of the investment portfolio proved to be successful for the company. This alone had a positive impact on the net investment income. In addition, the return on the Pohjola share clearly exceeded the average return on equities in the first half of the year. As the proportion of the Pohjola holding in Suomi Mutual's investment portfolio is significant, the otherwise good performance of the company's investment operations turned out to be excellent for this reason.

Net investment income at current values was 11.0 per cent in the first half of the year. In 2004, the respective result, which was considered very good in view of the company's targets, was 4.4 per cent.

At the end of June, the market value of the company's investment portfolio was slightly less than EUR 6.4 billion. Of the investments, the proportion of fixed-income securities was 51 per cent, money market instruments 10 per cent and equities over 27 per cent. Investments in land and buildings totalled over 6 per cent of all investments. The proportion of various alternative investments was 5 per cent of the investments. The latter includes commodities and hedge funds.

Low interest rates create challenges in the future

The market rates have continued to decline. The technical guaranteed interest of Suomi Mutual's insurance portfolio is 4.5 per cent for the majority of the company's insurance portfolio, which has a significant impact on the return targets for the company's investment operations. Provided that the interest rates on the market remain on the current level or decline further, such a high technical interest will create high return expectations for the company's investment operations. This, in turn, means that the company must take reasonably high investment risks and have a strong financial standing.

Suomi Mutual is also exploring possibilities to efficiently lower risks related to low interest rates and thus ensure the equal treatment of insurance contracts with varying maturities. Decisions on the measures will be taken by the end of this year.

Thanks to the good performance and strong financial standing, the measures can be such that the granting of new special benefits promised to the company's established customers can, in any case, be launched as planned.

FOR MORE INFORMATION, please call

Mr Eino Halonen, President and CEO, tel. +358 10 559 2000
Mr Markku Vesterinen, Senior Executive Vice President, tel. +358 10 559 2844 or +358 50 348 3502