Suomi Mutual is a mutual insurance company, i.e. it is owned by the policyholders. The company's mission is to manage insurance and the related investment portfolios for its existing customers. Our primary goal is to act for the benefit of our customers. We aim to obtain the best possible return permitted by our risk-bearing capacity, while ensuring that our operational efficiency is maintained.

We distribute our annual operating profit and the solvency capital released through maturing insurance policies to our customers in the form of additional benefits to the degree permitted by our risk-bearing capacity. These additional benefits include customer bonuses for all policyholders, as well as the Suomi Mutual special benefits and additional special benefits attached to all insurance policies that were taken out before July 1, 1997 and remain in force.

Suomi Mutual stabilized its operations in 2006. There were no large-scale decisions as was the case for the previous two years, i.e. the agreement on the new division of labour between Suomi Mutual and Pohjola and the consequent cessation of underwriting new insurance policies, and the sale of Pohjola to OKO Bank in 2005.

Performance in 2006 was good

We moved into 2006 at a risk level that was deliberately lower than the year before. We did not invest all the profit gained from the sale of the Pohjola holding in the first half of the year. The rise in interest rate levels decreased the profit from fixed income investment significantly. In June we decided to give equities more weight in our investment allocation. The decision proved to be the correct one: because of it, our investment profit grew significantly. Even though profits from bond investment remained low, we exceeded the market-based profit target. This was achieved through decisions in the latter part of the year to shorten the average duration of bond investments.

The net return for investments for the entire year was 6.5%. We achieved the set targets in each investment class. Our performance also exceeded targets established on the basis of customer expectations. This was achieved through slightly smaller than planned investment. For these reasons I consider that on the whole our 2006 performance was good.

We improved our knowledge of our insurance portfolio

In view of planning Suomi Mutual operations, it is important to be able to assess how the insurance portfolio will develop in the coming years. This is particularly important for investment planning. We set ourselves the aim of bringing both know-how and technical skills into the company to assist us in assessing the development of our insurance portfolio as accurately as possible.

During the financial year, we were able to utilize the first results of this investment. We now have a very clear picture on how the company's technical provisions will develop in the next 20 years. We also have at our disposal predicted trends for the number of insurance policies and policyholders.

Predicting trends will be ongoing. Our aim is to better integrate forecasts regarding the development of the insurance portfolio with investment planning. In addition, we aim to link the forecasts with any anticipated changes in the regulation of life insurance companies, for example, an EU level review of solvency requirements.

Increase in additional benefits extended to all policyholders

No policyholder has invested equity-related assets in Suomi Mutual. The company's net assets have been created through profits made on the insurance policies of current and former policyholders and the related investments. The company's need for solvency capital will no longer increase.

The distribution of additional special benefits to our customers was commenced, following related decisions made during the previous financial year. In accordance with the decision, holders of insurance policies with previously conditionally promised new benefits received very large additional special benefits during the financial year.

Due to favourable development, it is estimated that the amount of distributable solvency capital will be significantly greater than the remaining amount of the aforementioned conditionally promised benefits. For this reason we decided to increase the customer bonuses on the entire insurance portfolio in 2006. Part of the recovered solvency capital will now be directed at financing these customer bonuses. The aim of the decision is to ensure that as many customers as possible can enjoy the recovered capital prior to the expiry of their insurance policies.

Cooperation with the OP Bank Group off to a successful start

Following the sale of the holding in Pohjola, Suomi Mutual operations that were previously outsourced to Pohjola and its subsidiaries have now been outsourced to the OP Bank Group. During the financial year, all agreements related to the outsourced services were transferred to the OP Bank Group, as agreed in connection with the Pohjola sale. Thus the period of notice was extended in certain agreements that are vital for Suomi Mutual. Other changes were mainly technical in nature. I have been very pleased with the spirit of the negotiations. It is obvious that the OP Bank Group is keen to manage the outsourced Suomi Mutual functions to their best ability.

Election year 2006

As in earlier years, the election for the Suomi Mutual Policyholders' Representative Assembly was organized through a postal ballot in November. In the election, replacements were elected for the next six years for the 25 representatives whose terms expired. The voting percentage remained at its previous level. This demonstrates that customer interest in the company has not diminished since Suomi Mutual ceased to underwrite new insurance policies.

Based on calculations regarding the future number of insurance policies, I would assess that the decisions made last year on corporate governance were the correct ones. In light of the estimated development of our insurance portfolio I consider it probable that the current representational governance model will remain in place for a long time.

Basis for 2007 good

Decisions regarding additional benefits are made on a yearly basis. For technical reasons, the decisions must be made well before the end of the year, at the beginning of November. Last year our performance was good in the last quarter in particular. As a result our solvency ratio grew on the previous year. Thus we are in a significantly better situation than usual for the coming year. Pending any unexpected problems on the investment market, we will be able to continue granting significant additional benefits in 2007.

Our small number of staff performed well in 2006. Our cooperation partners who are responsible for our insurance and investment portfolios have also operated efficiently, and the spirit of cooperation has been excellent. I would like to express my thanks to both the staff and our cooperation partners.

Cooperation with administrative bodies has remained good. I would like to thank the members of the Board of Directors, the Supervisory Board, and the Policyholders' Representative Assembly, which acts as the General Meeting. In 2007 the governance arrangements of Suomi Mutual will change significantly. The Supervisory Board will be abolished in the Annual General Meeting this year, and in the future, the Annual General Meeting will select members for the Board of Directors for a term that equals the time between two Annual General Meetings. These previously agreed changes will bring the Suomi Mutual administration up to date and thereby ensure that it can function efficiently and effectively.

I would like to thank our customers for their trust in our company. From their perspective, the future of the company looks bright. In light of current information, the return on insurance savings will remain good.

 

Eino Halonen