Half-year Report  25 Aug, 2009

Suomi Mutual's return on investments 3.3%

Suomi Mutual's net investment return at current values was 3.3 per cent in the first half of the year, and its solvency improved since 31 December 2008.

Suomi Mutual manages the existing insurance policies and related investments of its approximately 250,000 clients. At the end of June, the market value of the investment portfolio was around EUR 6.0 billion. Suomi Mutual does not sell any new insurance policies. The company's key role is to succeed in its investment operations. In this way the company can ensure solid financial standing and be able to provide as high a return as possible on the customers' insurance savings.

Result developed favourably in the first half

Suomi Mutual's risk position improved in the first half of 2009: the solvency margin increased by EUR 118 million to EUR 1,087 million while the solvency ratio stood at 22.7 per cent (19.9 per cent in December 2008). The company measures success by the change in risk-bearing capacity before decisions on special benefits. This amounted to EUR 40 million in the first half. The company's risk-bearing capacity is the sum of the solvency margin and the change in technical provisions due to the interest rate level.

"We achieved a positive result again after making a loss for a year, but we are nevertheless not fully satisfied, since we fell somewhat short of our target. We are particularly pleased that by the end of June our investments were almost able to catch up what we lost last year. We have kept a tight rein on our operations and made plans on how to react to changes in the market," explains President and CEO Markku Vesterinen.

"The favourable market developments that began in the second quarter of 2009 have continued into the second half. By the end of July, our investment income had more than doubled since 30 June and thereby improved from satisfactory to at least good," he continues.

Investments up

Suomi Mutual's aim is to generate as high a return as possible on the company's solvency capital and customers' savings while managing the investment risk. As a result of the financial crisis, Suomi Mutual too saw its risk-bearing capacity weaken. A mutual company does not have the option of taking on additional capital because of the risk involved, but it must manage on its own instead. This is why the company lowered the risk level of its investment allocation significantly last year. The risk level was increased moderately in the second quarter of 2009.

The first part of the year was divided into two parts – the first quarter continued on the downward trend, while the markets picked up in the second quarter.

"Once again an overpowering spirit of scepticism and despair in the financial market changed almost overnight to hope and greed. Then again, the further into the year we have proceeded, the more justified this optimism appears to be," reckons Chief Investment Officer Timo Hukka.

Suomi Mutual's net investment return at current values was 3.3 per cent in the first half of the year (–3.0 per cent on June 30 2008).

The first half of the year was good in terms of fixed-income investments, which was the result of narrower corporate loan risk premiums. The profits of high-risk corporate loans were particularly high. Fixed-income investment yielded a profit of 4.8 per cent, which includes the money market profit.

Equity markets were brisk in the first half of 2009. Suomi Mutual's equity investment profit stood at 3.3%, falling somewhat short of the target due to writedowns on private equity funds. In addition, we had controlled the risk level by means of forward equity agreements, which lower equity investment profits.

Real estate investment income was 4.2 per cent, almost reaching its target. However, the total real estate investment income was clearly negative owing to poor developments in real estate funds, ending at –5.0 per cent.

As to the alternative investments, hedge funds yielded a good 7.9 per cent profit. Raw material investments yielded a loss, but they represented a small percentage of the overall allocation.

At the end of June, the market value of the company's investment portfolio was around EUR 6.0 billion. Of the investments, various fixed-income instruments accounted for 60 per cent. Equities accounted for 24 per cent, of which about a fifth had been hedged at the end of June. In this figure, capital investments are included in equity investments. Real estate investments, including real estate funds, totalled 11 per cent of all investments, while alternative investments accounted for 5 per cent of the investments.

Investment operations continued stable

Suomi Mutual's consolidated premiums written totalled EUR 26 million on 30 June 2009 (EUR 29 million on 30 June 2008).

The amount of claims paid by Suomi Mutual in the first half were as expected, totalling EUR 205 million (EUR 207 million a year earlier). Most of the claims are scheduled repayments of insurance savings, which is why there is no significant effect on the result.
 
Suomi Mutual has outsourced the management of most of its insurance and investment portfolios to OP-Pohjola Group. The company has a staff of 11. Its outsourcing contracts are mainly concluded on a long-term basis. Therefore, the costs incurred from these contracts are easily predictable. Operating expenses for January–June 2009 totalled EUR 7.4 million (7.6 year-on-year).

Election of Representative Assembly in November

In Suomi Mutual Life Assurance Company, a representative assembly elected from among its policyholders acts as the annual general meeting. A third of the assembly's 75 members will be reaching the end of their terms this autumn. The assembly election will be carried out through a postal ballot between 10 and 30 November 2009. Candidates must be nominated by 11 September 2009. For material related to the election, go to www.suomi-yhtio.fi.

Decisions on special benefits in the latter half of the year

Special benefits will be decided upon in November as usual.

FOR FURTHER INFORMATION, PLEASE CONTACT
Mr Markku Vesterinen, President and CEO, tel. +358 (0)10 253 2844 or +358 (0)50 348 3502
Mr 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