Suomi Mutual's Financial Statements Bulletin 2008     

18 March 2009

Solvency Maintenance Comes before Additional Benefits

In 2008, poor investment market performance was also reflected in the financial results recorded by Suomi Mutual Life Assurance Company (Suomi Mutual). Net investment income was –4.0%, which was weak vis-à-vis company targets but remained at least satisfactory in view of the market conditions.  With uncertain world economic outlook, the company gave priority to securing its customers' insurance savings over granting additional benefits to its customers. Solvency capital returned by the company to its customers in the previous three years totals almost one billion euros.

Suomi Mutual, which ceased to underwrite new businesses a few years ago, manages its insurance and investment portfolios for the benefit of its customers on a long-term basis. It has almost 300,000 policyholders. Additional benefits paid to customers have been high in the last few years, because the company has returned solvency capital to policyholders.

Late last year, the Board of Directors decided to declare roughly EUR 10 million in additional benefits to be distributed to customers. Only insurance savings with technical interest of 3.5% enjoy customer bonuses, i.e. lower than that of the company's other insurance savings contracts. The company will not return its solvency capital for 2008 in terms of high additional benefits since solvency maintenance is now the company's primary objective. Good solvency serves as a buffer to secure customer assets during difficult times while making it possible to aim at higher returns when markets begin to pick up.

Consolidated solvency capital decreased by EUR 217 million to EUR 997 million year on year. However, the solvency ratio remained good, 19.9% (21.9).

Insurance portfolio retention improves market share

The company's net premiums written totalled EUR 75 million. A total of EUR 10 million of the EUR 85 million consolidated premiums written came from subsidiaries in the Baltic countries and Poland sold to Vienna Insurance Group of Austria in February 2008.

Claims paid by Suomi Mutual increased by EUR 123 million to EUR 536 million.

Suomi Mutual's market share of insurance savings rose to 15.2% (14.7) although the company no longer underwrites new business. This rise was due to insurance portfolio retention and the fact that the insurance portfolio does not contain any unit-linked policies whose fair values have fallen as a result of the financial crisis.

Operating expenses totalled EUR 15 million (21) and the expense ratio stood at 100%.

Net investment income of –4.0%

On 31 December 2008, Suomi Mutual's investment portfolio at fair value came to EUR 6,004 million (6,801).

The company's net investment income stood at –4.0% (5.6), which was weak vis-à-vis the company's targets but still satisfactory in view of the 2008 market conditions, and net investment income in euros came to EUR –267 million (366). The company succeeded in hedging its equity investments. Income from interest-rate swaps hedging technical provisions was remarkably high in the investment environment prevailing last year. Without that income, net investment income would have stood at – 8.7%.

Of all investments, 20% was allocated to equities and various equity and venture capital funds, as against 28% a year earlier. At the end of the financial year, almost half of the equity investments were, however, hedged using derivatives. Various fixed-income instruments accounted for 63% (57) of the portfolio and real estate investments for 11% (8). Real estate investments here also include investments in mutual funds and UCITS investing in real estate holdings. Alternative investments, or absolute return funds and commodity investments, accounted for 5% (7) of the parent company's investment assets.

Less generous additional benefits for 2008

Owing to the loss reported for 2008, the company did not declare any major special additional benefits or customer bonuses for 2008 – only roughly EUR 10 million (411). During 2005−07, the company declared a total of around one billion euros in various additional benefits for its customers. By refraining from distributing additional benefits in large amounts, the company can maintain its solvency at a sufficient level aimed at securing its customers' savings and additional benefits in the long term. Additional benefits for 2008 were allocated only to policies whose minimum return under insurance contracts is lower than other contracts.

The company's old policies earn over 7% of total annual return on savings at its best, consisting of technical interest of 4.5% and a previously declared special benefit of 2.7%. This applies to currently effective polices held by Suomi Mutual since 1 July 1997. The additional benefit of old risk insurance policies includes a reduction of 30% on insurance premiums.

These old policies were earlier given a conditional promise on additional special benefits, of which some EUR 200 million remain unfulfilled after the financial year 2008. The company will continue to distribute additional special benefits as allowed by its solvency. In these circumstances, Suomi Mutual will distribute solvency capital on other insurance policies in terms of increased customer bonuses in the manner specified separately. However, there is no sign of as unusually high additional benefits as distributed in the previous years. The company will not give any preliminary statements of the amounts or schedules for the distribution of special additional benefits.

Suomi Mutual Life Assurance Company

Markku Vesterinen
President and CEO

APPENDIX Group financial performance (key figures and ratios, analysis of financial result, solvency, net investment income investment mix)

FOR FURTHER INFORMATION, PLEASE CONTACT:
Markku Vesterinen, President and CEO, tel. +358 (0)10 253 2844 or +358 (0)50 348 3502
Timo Hukka, Chief Investment Officer, tel. +358 (0)10 253 2002 or +358 (0)40 519 0510
Kai Niemi, Chief Financial Officer, tel. +358 (0)10 253 2803 or +358 (0)40 820 5927