Report by the Board of Directors

Suomi Mutual Group

The parent company of the Suomi Mutual Group is Suomi Mutual Life Assurance Company (Suomi Mutual). The Group consists of subsidiaries which underwrite life insurance in Poland, Estonia, Latvia and Lithuania, several real estate companies and one real estate investment company. The Group's parent company no longer underwrites new insurances. It now concentrates on managing its insurance and investment portfolios for the benefit of its existing customers.

Financial result of the Suomi Mutual Group

In 2006, the consolidated operating profit of Suomi Mutual was EUR 287 million. In 2005, the consolidated operating profit was EUR 448 million. The Suomi Mutual Group's book loss was EUR 28 million in 2006. The company's bookkeeping result will continue to be mostly negative in the future, due to solvency capital refunds to insurance holders in the form of additional benefits. Providing additional benefits will encumber the company's financial performance. The majority of the solvency capital is equity. Where additional benefits are financed from equity, the bookkeeping result of the company will be negative. A better picture of the company's operational result is provided by the combined total of the change in the company's solvency capital and the additional benefits granted. This total was EUR 406 million in 2006.

Consolidated net investment income totalled EUR 322 million, which was EUR 449 million less than in 2005. Consolidated investment income at fair value totalled EUR 423 million, which corresponded to a 6.5% return on capital employed. In 2005, the corresponding return on capital employed was EUR 1,001 million, or 17.4%.

Consolidated premiums written increased from EUR 121 million to EUR 124 million. In 2005, the reorganisation of the pool responsible for employees' group life insurance reduced premiums written by EUR 19 million. Therefore the comparable consolidated premiums written fell by EUR 16 million from 2005. The consolidated premiums written for 2006 included EUR 34 million in premium income generated by foreign subsidiaries. In 2005, premiums written by foreign subsidiaries totalled EUR 32 million.

Suomi Mutual managed 14.4% of Finnish insurance savings. In the previous year, this figure was 14.9%.

On 31 December 2006, consolidated solvency capital totalled EUR 1,460 million (EUR 1,369 million in 2005) and the solvency ratio in proportion to technical provisions was 27.4% (25.7%). The parent company's solvency ratio was 27.5%.

Insurance operations

Consolidated premiums written increased to EUR 124 million (EUR 121 million). Life insurance premiums written stood at EUR 46 million (EUR 46 million), thereby remaining unchanged in both the Group and the parent company. Capital redemption business generated just under EUR 40,000 (EUR 1 million) in premiums written. Premiums written in pension insurance were EUR 78 million (EUR 93 million). In Finland, premiums written in pension insurance fell by EUR 17 million, whereas in the subsidiaries, they increased by EUR 2 million. The decrease was due to the expiry of insurances and to changes in the tax treatment of premiums for individual pension insurance, which reduced the maximum contribution eligible for a tax deduction.

Consolidated technical provisions went up to EUR 5,372 million (EUR 5,356 million). They were increased by EUR 315 million due to customer bonuses and special additional benefits declared for part of the company's insurance portfolio. Due to the high level of the parent company's solvency capital, the level of customer bonuses was raised from what it would have been if based purely on long-term return expectations for investments. In this way, solvency capital refunds to customers were extended to the entire insurance portfolio. The company has improved its means of assessing its technical provisions and their development. Similarly, the liability for already declared future special benefits can now be determined by insurance policy. This, together with changed customer behaviour in relation to payments, reduced the liability for future special benefits declared in 2006 by EUR 125 million.

In the year under review, the Group's insurance portfolio remained well in force. Claims paid, including settlement costs, totalled EUR 410 million. The aggregate amount of claims paid in 2005 stood at EUR 305 million. Life insurance benefits paid were EUR 237 million and annuities EUR 170 million in 2006. These included EUR 43 million in surrenders. The savings paid as part of the claims amounted to EUR 168 million, i.e. EUR 82 million more than in 2005.

Consolidated operating expenses stood at EUR 38 million in 2006. The consolidated expense ratio was 111% (116% in 2005). As regards the Group's domestic business, the expense ratio was 100% in 2006. In 2005, the corresponding figure was 99%.

The aggregate risk business continued to show a slight surplus.

Investment operations

The investment portfolio of the Suomi Mutual Group at fair value totalled EUR 6,897 million at the end of 2006. The investment portfolio went up by EUR 108 million in the year under review. In addition to these investments, the Group had a total of EUR 12 million (EUR 8 million in 2005) in investments related to unit-linked insurance at the end of 2006. The income from unit-linked insurance premiums is generated entirely by foreign subsidiaries, as the parent company does not underwrite unit-linked insurance business in Finland.

At the end of 2006, 32% of the parent company's investment portfolio was in equity holdings and different equity and private equity funds. A year ago, this figure was 21%.

The proportion of fixed-income securities and long-term bond funds in the company's investments was 42% (61%) at the end of 2006. At the same time, money-market instruments, deposits and money-market funds accounted for 13% (6%) of the company's investments.

Investments in land and buildings accounted for 7% (6%). Land and buildings also include various indirect real estate investments, such as units in mutual funds investing in real estate properties and real estate companies, and investments in joint investment companies investing in such instruments.

The aggregate proportion of absolute return funds and investments in commodities in the company's investments was 6 per cent, the same as the previous year.

As previously, fixed assets have mainly been valued at the remaining acquisition cost in the balance sheet. In accordance with the principles of bookkeeping prudence, foreign subsidiaries underwriting insurances have been valued at the net asset value used in solvency calculations, or, where grounds exits, lower.

In the financial year, the parent company's return on investments at fair value totalled EUR 420 million which represented a 6.5% return. A year earlier the respective figure was 17.5%. The investment return clearly exceeded the return target derived from the company's technical provisions and the targets set for return on equity. The company's return on investments also exceeded benchmarks in all investment classes.

Customer benefits

The savings of valid individual insurance policies issued by Suomi Mutual before July 1, 1997 were credited with a technical interest of 4.5 per cent and with a special annual bonus of 2.7 per cent financed from an additional benefit provision set up in 1997 and 2000. The latter bonus was originally restricted to those premiums paid in accordance with the payment schedule and to the pension period defined in the pension plan. Of the technical provisions in the old credit portfolio, EUR 160 million no longer receive this 2.7% bonus. In addition to this, it was decided in 2007 to credit these insurances with a special additional benefit of 9%.

Due to the low interest rate level, the long-term investment return expectations have been so low in recent years that insurances with a technical interest of over 4% have not been credited with the usual customer bonuses at all. The company's solvency clearly exceeds the unpaid proportion of the previously conditionally declared special additional benefits on the insurance portfolio as defined in the previous paragraph. For this reason, the Board decided to extend the solvency refunds to the entire insurance portfolio. In accordance with this decision, all savings-based individual insurances with a technical interest of 4.5% will receive a 2% customer bonus in 2007. In addition, other savings-based insurances will be credited with a previously determined customer bonus of 0.5%, i.e. a total of 2.5%. The additional interest rate on capital redemption contracts has been confirmed at a minimum of 2%. Special additional benefits for pure risk insurances were already determined in 2005. Based on that decision, the deduction in insurance premiums will rise from 20% to 30% in 2007.

Of the conditionally declared EUR 840 million special additional benefits, EUR 464 million remain after a decision was reached on the special additional benefits in 2005 and 2006. Once this promise has been completely fulfilled, all additional benefits based on the return and on solvency refunds will be credited to the entire portfolio as customer bonuses. When these bonuses are determined in the future, the type, duration and size of the insurances will be taken into consideration.

Risk management

The Group's risk management is based on a risk management plan approved annually by Suomi Mutual's Board of Directors, and an assessment of the status of risk management. Investment operations are based on an investment plan approved by the Board of Directors, which determines, among other things, investment allocations and the responsibilities and authorisations of those engaged in practical investment operations. The company's risk carrying capacity is taken into account when determining the investment allocation.

The company's risk management principles are described in more detail in the notes to the financial statements.

Staff

The Suomi Mutual Group had 221 employees at the end of 2006, of whom 14 worked for the parent company and 207 employees for foreign subsidiaries. The large proportion of foreign employees in the Group staff is explained by the fact that many services which are outsourced in the Finnish companies are handled by the staff in the foreign subsidiaries. In the year under review, the average number of the Group staff was 222 (249).

Outsourcing contracts

Suomi Mutual has to a large extent outsourced the management of its insurance portfolio and investments. Following the sale of the Pohjola holding, valid contracts with Pohjola were transferred to the OP Bank Group. The contracts were renewed in 2006, with the financial terms remaining unchanged. The new contracts reflect the longer notice periods as agreed in connection with the Pohjola sale, and these will further reduce Suomi Mutual's risks in this area.

Corporate management

Suomi Mutual's Board of Directors comprise Mr Oiva Savela (Chair), Mr Jarmo Rantanen(Deputy Chair), Mr Kari Kaunismaa, Ms Helena Pesola and Mr Jukka Tuori. As of the 2007 Annual General Meeting, the term of the Board of Directors will be from the Annual General Meeting to the next Annual General Meeting. The Board will therefore be elected annually.

The company's Supervisory Board will be abolished at the 2007 Annual General Meeting.

Mr Eino Halonen is the President and Mr Markku Vesterinen the Senior Executive Vice President of Suomi Mutual.

Early 2007

Suomi Mutual has decided to improve its use of capital in its foreign subsidiaries. This will be achieved by merging the Baltic subsidiaries into a European Company, based in Tallinn. As part of this process, Suomi Mutual sold its subsidiaries in Latvia and Lithuania to its subsidiary in Estonia in early 2007.

Outlook

Suomi Mutual's solvency level at the end of the financial year was even better than the maximum level set for it. This is due to the fact that, for technical reasons, additional benefits are decided in October-November. With investment operations very productive at the end of the year, the solvency level exceeded targets. This will enable the company to take investment risks that are reasonable in view of the duration of insurance contracts. Outsourcing contracts have been drawn up in a manner that allows the company to estimate future costs with sufficient accuracy. In this kind of environment, the company's risks are well under control.

Following the sale of the Pohjola holding, cooperation between Pohjola and the savings banks ended. In connection with this, savings banks in 2006 submitted a claim for damages to Suomi Mutual and Pohjola. Suomi Mutual denies the savings banks' claim for damages totalling a maximum of EUR 1.8 million as unfounded. The claim has been submitted to a court of arbitration, with a decision expected in March 2007.

Proposal by the Board of Directors for the handling of loss and distribution of profit

The distributable funds of Suomi Mutual total EUR 754,982,899.90 and those of the Group EUR 804,668,970.52.

The Board of Directors proposes that the loss for the financial year and retained earnings be handled as follows:

Interest of 6% on guarantee capital	30 273,83
From contingency reserve	- 22 902 552,46
To donations for worthy causes	30 000,00
Loss for the financial year	- 22 842 278,63