Low return on investments for Suomi Mutual

Suomi Mutual's investment operations performed unsatisfactorily in the first half of 2006. Net investment return at current values was 0.4 per cent, which did not correspond to the targets derived from technical provisions. Despite the downward trend in investment results, Suomi Mutual's risk position remained excellent.

The year 2006 is the second consecutive year when Suomi Mutual no longer underwrites new business. The company is responsible for the management of the insurance portfolio and related investments of over 300 000 customers. 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 return as possible on the customers' insurance savings.

The best indicators measuring Suomi Mutual'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 2006, the company's solvency capital declined by €55 million to €1.3 billion. The company's solvency ratio was 25 per cent (26 per cent in December 2005).

Amount of claims paid exceeded the respective level a year earlier

Because Suomi Mutual no longer underwrites new business, the company does not have a well-founded reason for following up and reporting on its market share.

The amount of claims paid by Suomi Mutual increased. Claims paid amounted to €207 million in the first half of 2006. A year earlier, the corresponding figure was €146 million. The amount of claims paid thus increased by €61 million. Of the increase, savings sums accounted for €51 million and annuities for €9 million, which means that the growth in claims paid does not have a significant impact on the company's results.

Suomi Mutual has outsourced to the OP Bank Group the main part of the management of the company's insurance and investment portfolios. The company employs 13 people. 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 €9 million were slightly less than the budgeted amount and even lower than the operating expenses for the corresponding period a year earlier.

Investment operations performed unsatisfactorily

Suomi Mutual's insurance portfolio includes mainly long-term liabilities. Therefore, the company invests assets, which cover technical provisions and solvency capital, in equities, various fixed-income instruments and real estate properties with an aim to generate as high an absolute return as possible on the company's solvency capital and on customers' savings. The first half of 2006 was therefore very challenging for an investor complying with the above investment strategy.

Interest-bearing instruments yielded negative results owing to an increase in the interest rate level. On the other hand, it improved the company's risk position. In the course of 2005, the company prepared for low interest rates by means of increasing the amount of its technical provisions. Following an upswing in the interest rate level, the company's interest income will exceed the technical guaranteed interest requirement, provided that the interest rates remain on the current level.

As regards equity markets, the year 2006 started with an upward trend which later showed a downturn. The return on the company's investment portfolio was reasonable in the first half of 2006. Owing to the sale of the company's Pohjola holding, which was confirmed in the last quarter of 2005, the equity weight of Suomi Mutual's investment portfolio was, in the first half of the year, lower than the long-term target level. This in turn lowered the overall return on investments.

Return on real estate investments was on par with the target.

Net investment return at current values was 0.4 per cent in the first half of the year. In the respective period in 2005, the company generated an excellent return of 11.0 per cent.

At the end of June, the market value of the company's investment portfolio was over € 6.5 billion. Of the investments, the proportion of various fixed-income instruments was 58 per cent and the proportion of equities 28 per cent. Real estate investments totalled 7 per cent of all investments. The proportion of various alternative investments was 7 per cent of the investments. The latter includes commodities and hedge funds.

Decisions on special benefits in the latter half of 2006

Despite a downturn in the return on investments, Suomi Mutual's risk position remained excellent. The company's solvency ratio of 25 per cent clearly exceeds the target level. Furthermore, increased interest rates improve the company's solvency position.

On the basis of current views, the company can, also in 2006, continue to grant new special benefits to customers according to a plan which was disclosed in the previous annual accounts. A decision on these and other special benefits will, in the same way as earlier, be taken in November - December.

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
Mr Timo Hukka, Chief Investment Officer, tel. +358 10 559 2002 or +358 40 519 0510