Very good investment income for Suomi Mutual in the first half of 2007

22.8.2007
Suomi Mutual's investment income was extremely good in the first half of the year. Net investment income at fair value was 6.5 per cent, which was well above the targets derived from technical provisions. Income was also higher than the benchmark index in all main investment categories.

Suomi Mutual will no longer sell any new insurance policies. Instead, it will focus on managing the existing insurance policies and related investments of its 300,000 clients. The company's key task 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.

The best indicators for success for Suomi Mutual's business operations include an improvement in capital adequacy and a wider range of special benefits provided to its customers.

In the first half of 2007, the company's solvency capital increased by EUR 98 million to a good EUR 1.5 billion.  Solvency ratio was 28.8 per cent (27.5 per cent in December 2006). A factor that has lowered solvency figures this year has been a provision of EUR 250 million in technical reserves for this year's new special benefits.

Investment income at 6.5 per cent

Suomi Mutual's insurance portfolio includes mainly long-term liabilities. Therefore, the company is investing assets – which cover technical provisions and solvency capital – in equities, various fixed-income instruments and real estate properties with the aim of generating as high an absolute return as possible on the company's solvency capital and customers' savings while managing the investment risk.

The first half of 2007 was successful for Suomi Mutual in terms of investment operations, as investment income was higher than the benchmark average in all main investment categories.

As to the fixed-income instruments, the first half remained a challenge. This year Suomi Mutual was able to predict interest-rate developments better than last year. By shortening the duration of its fixed-income investments, the investments made a clear profit, which was also above the benchmark index.

Equity markets were brisk in the first half of 2007. Equity investment income was good, exceeding the benchmark index markedly. 

Real estate investment income, including real estate funds' income, was extremely good and well above the target level.

Net investment income at fair value was 6.5 per cent in the first half of 2007 (0.4 per cent year-on-year).

At the end of June, the market value of the company's investment portfolio was over EUR 6.9 billion. Of the investments, various fixed-income instruments accounted for 50 per cent and equities for 36 per cent. In this figure, private equity investments are included in equity investments. Real estate investments, including real estate funds, totalled 7 per cent of all investments. Various alternative investments also accounted for 7 per cent of the investments. The latter includes commodities and hedge funds.

Amount of claims paid exceeds the respective level a year earlier

Suomi Mutual will no longer report developments in its premiums written and market share, as it does not sell any new insurance policies.

The amount of claims paid by Suomi Mutual increased by EUR 41 million, totalling EUR 248 million in the first half or 2007. In fact, most of the claims are scheduled repayments of insurance savings, which is why the higher amount of claims has no significant effect on the result. 

Suomi Mutual has outsourced to the OP Bank Group the main part of the management of its insurance and investment portfolios. The company has a staff of 13. Its outsourcing contracts are mainly concluded on a long term basis. Therefore, the costs incurred from these contracts are easily predictable. The company's operating expenses of EUR 9.6 million were as budgeted.

Decisions on special benefits in the latter half of 2006

Thanks to the good profit performance, Suomi Mutual's risk exposure improved significantly. It made a provision of EUR 250 million in technical reserves for this year's new special benefits. Despite this, the solvency ratio increased to almost 29 per cent, which is clearly above the target. 

Recent unrest in the investment market will make it more difficult to make forecasts on the second half of the year. However, Suomi Mutual's business strategy is prepared for abrupt changes in the markets, and the company has been acting accordingly in July and August.

On the basis of current views, the company can continue to grant new special benefits to customers in 2007.  It will make a decision on the special benefits in November as usual.

FOR MORE INFORMATION, PLEASE CALL

Mr Eino Halonen, President and CEO, tel. +358 10 253 2000
Mr Markku Vesterinen, Senior Executive Vice President, tel. +358 10 253 2844 or +358 50 3483502
Mr Timo Hukka, Chief Investment Officer, tel. +358 10 253 2002 or +358 40 5190510