Excellent year for Suomi Mutual

The year 2005 was one of the best in Suomi Mutual's recent history. The good performance specifically resulted from the 17.5 per cent net investment income, which is excellent in view of both reference indices and the company's return requirements set for business operations.

Suomi Mutual ceased underwriting new business at the beginning of 2005. The company now focuses on the management of its insurance and investment portfolios for the benefit of the company's customers. In 2005, the consolidated operating profit of the Suomi Mutual group stood at EUR 448 million (the operating profit of 2004 was EUR 262 million), of which EUR 258 million was used for special benefits for customers. The investment operations had already earlier performed well, but a significant improvement in the investment return, in particular, contributed to the excellent performance.

The company's solvency capital grew by EUR 418 million to EUR 1 369 million despite the fact that the company, in the financial year, declared new supplementary special benefits and prepared for the low interest rate level in the manner specified later in this release. The Group's solvency ratio was 25.7 per cent (16.1 per cent in 2004).

Accrual of premiums written lower than before

Owing to the termination of underwriting new business and to the portfolio transfers, the consolidated premiums written remained at EUR 121 million. In this situation, the company no longer follows the market share determined on the basis of premiums written. In the future, the company's market share will be calculated on the basis of insurance savings. At the end of 2005, the market share was 14.9 per cent. A year earlier, the corresponding figure was 21.0 per cent. The market share declined because of the terminated sales of new policies and the insurance portfolio transfers to Pohjola, which decreased the amount of insurance savings under the company's management on a one-off basis by over EUR 1.2 billion. In the future, the decline of the market share will be lower.

Costs remained on planned level

Consolidated operating expenses totalled EUR 34 million. They declined significantly but, owing to the new operational model, the expenses are not comparable with those of the previous year. Operating expenses were lower than budgeted. The expense ratio measuring operational efficiency was 99 per cent for the domestic business (100 per cent in 2004). The expense ratio for the whole Group deteriorated from 111 per cent to 116 per cent as a result of the relative growth in the proportion of business operations of foreign subsidiaries generating operational losses.

Excellent results from investment operations – return 17.5 per cent

At the end of 2005, Suomi Mutual's investment portfolio at current values stood at EUR 6 727 million. Despite the portfolio transfers to Pohjola, the investment portfolio grew. Shares, including investments in equity funds, represented 21 per cent of the investment portfolio. Various interest-bearing instruments accounted for 67 per cent and land and buildings for 6 per cent of the portfolio. Land and buildings also include investments in mutual funds and joint investment companies investing in real estate properties. Alternative investments, i.e. investments in absolute return funds and commodities accounted for 6 per cent of all investments. The figures presented here are in compliance with the new regulations issued by the authorities and only apply to the parent company. Owing to the changes in these regulations, comparative figures have not been presented.

The parent company's net investment income at current values was EUR 1 000 million, which represented a 17.5 per cent return on committed capital. Consolidated return was 17.4 per cent. In 2004, consolidated net investment income at current values was 8.6 per cent. Return on investments was excellent in view of reference indices and of the return target defined on the basis of both insurance savings and the return on equity requirements.

Suomi Mutual prepared for low interest rate level

On the basis of insurance contracts, Suomi Mutual will credit customers' insurance savings with a return equalling at least a technical (guaranteed) interest. For a large portion of the contracts, this rate is 4.5 per cent and for the remaining portion of the contracts 3.5 to 4.25 per cent. The relatively high technical interest and the return requirement set for the company's solvency margin increase significantly the return requirement for the company's investment operations in comparison with the current interest rate level.

In order to keep its investment risks under control and to ensure as equal treatment as possible of insurance policies with different maturities, Suomi Mutual in 2005 made provisions for risks resulting from low interest rates. Following these measures, the return requirement set by the company's technical provisions and related to technical interest is currently around 3.25 per cent. The total effect on profit of these provisions was EUR 164 million in 2005 when the previously collected supplementary premium provisions were also used.

Despite the above-mentioned provisions, the customers' insurance savings will continue to be credited with the said technical interest in accordance with insurance contracts.

Distribution of new supplementary special benefits started

Through excellent results, the company was already at the beginning of 2006 able to declare new supplementary special benefits for customers, which is two years earlier than originally expected. The most significant supplementary special benefit was the extra 10 per cent increase declared for insurance savings. In addition, certain further premium reductions were granted for risk policies.

At this point, new supplementary special benefits were only granted for policies which had been continuously valid at Suomi Mutual since at least 1 July 1997. The reason for this was that this insurance portfolio had earlier been given a conditional promise for new supplementary special benefits. The amount of the conditional promise totalled EUR 840 million as at 1 January 2005. When the now declared benefits and the return on the amount yet to be declared are taken into account, around EUR 640 million of the conditional promise still remains unfulfilled. Supplementary special benefits will, in the future, be declared at a pace allowed by the company's solvency. To the extent that the benefits can be granted in excess of the amount described above, these benefits will be granted for the entire insurance portfolio. The company will not give any preliminary estimates on the amounts or schedules for the distribution of further supplementary special benefits.

Suomi Mutual Life Assurance Company

Eino Halonen
President and CEO

ATTACHMENT Financial development of the Group (solvency, investment mix, net   investment income, analysis of profit, key figures)

FOR FURTHER INFORMATION please contact
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
Mr Timo Hukka, Chief Investment Officer, tel. +358 10 559 2002 or +358 40 519 0510