Comprehensive financial services. Cooperative principle. Close to the customer. Best loyalty benefits. Finnish roots

Transcription

1 OP-Pohjola Group I Annual Review 2009

2 Comprehensive financial services Cooperative principle Close to the customer Best loyalty benefits Finnish roots Financial publications This Annual Review together with OP-Pohjola Group s Report by the Executive Board and Financial Statements form the financial and insurance conglomerate s Annual Report for Both publications are available in English on our website, at op.fi - In English, as well as in Finnish and Swedish. Printed publications can be ordered free of charge from op.fi - In English - OP-Pohjola Group - Media - Annual report orders. Since all the figures in the Annual Report have been rounded off, adding up individual figures may yield a different result from the sum presented. Pohjola Bank plc, OP-Pohjola Group Central Cooperative s subsidiary listed on NASDAQ OMX Helsinki, publishes its own Annual Report, also available in English. Interim Reports in 2010 OP-Pohjola Group and Pohjola Bank plc will each publish three Interim Reports in 2010: for January March on 5 May 2010, for January June on 4 August 2010 and for January September on 3 November Reports will be published in Finnish, Swedish and English, and will be available on our websites at op.fi and pohjola.fi. Paper copies can be ordered by telephone on +358 (0) or by from viestinta@op.fi.

3 contents OP-Pohjola Group in Brief 2 Chairman s Review 4 Year Highlights 9 Operating Environment 12 Strategy 15 Risk Management 18 Owner-members 22 Corporate Responsibility Management 24 Economic Responsibility 27 Environmental Responsibility 30 Social Responsibility 32 Product and Service Development Review 38 Customers and Service Network 40 Banking and Investment Services 42 Life Insurance 47 Non-life Insurance 52 Pohjola in Brief 56 Structure and Governance of OP-Pohjola Group 60 OP-Pohjola Group Central Cooperative s Supervisory Board 64 OP-Pohjola Group Central Cooperative s Organisation 65 OP-Pohjola Group Central Cooperative s Executive Board 66 Contact Information 68 OP-pohjola group responsibility business operations structure and governance 1

4 OP-POHJOLA GROUP IN BRIEF As Finland s largest financial services group, we offer the most comprehensive and versatile range of banking, investment and insurance services in the country. OP-Pohjola Group is made up of 220 member cooperative banks and OP-Pohjola Group Central Cooperative, owned by the member banks, with its subsidiaries and closely related companies, the most significant of which is Pohjola Bank plc. The Group has three business segments: Banking and Investment Services, Life Insurance and Non-life Insurance. Owner-members Private customers 1.3 million Over 3.7 million Corporate and institutional customers 413,000 Personnel 12,504 Banking and non-life insurance locations 583 OP-Pohjola Group s operations are based on the cooperative movement, and the Group s mission is to promote the prosperity, wellbeing and security of its owner-members, customers and operating regions through its local presence. The fundamental objective of cooperative operations is to provide the services needed by the cooperative s members and customers as competitively as possible. Benefits and added value from cooperative member banks business are, moreover, channelled to owner-members through the customer relationship, for instance in the form of OP bonuses. Group member cooperative banks A member cooperative bank is an independent, local deposit bank engaged in retail banking and owned by its customers. The member cooperative banks number 220. In terms of their corporate form, they are cooperatives where decisions are made under a one member, one vote principle. The banks and the central institution are jointly responsible for the debts and commitments of all OP- Pohjola Group member banks. Member banks provide modern and competitive banking services to their customers, who have the opportunity, through owner-membership, to participate in the bank s administration and decision-making. OP-Pohjola Group Central Cooperative OP-Pohjola Group Central Cooperative is the central institution of the amalgamation of the cooperative banks, the parent company of OP-Pohjola Group Central Cooperative Consolidated and the company heading the financial and insurance conglomerate formed by OP-Pohjola Group. Acting as a development and service centre for OP-Pohjola Group and as a strategic owner institution, the Central Cooperative plays a pivotal role in developing and steering OP-Pohjola Group s business. The Central Cooperative s largest subsidiary is the listed company Pohjola Bank plc. Others include Helsinki OP Bank Plc, which engages in retail banking in the capital region, and OP Life Assurance Company Ltd and OP Fund Management Company Ltd. Pohjola Bank plc Pohjola Bank plc is the Central Cooperative s largest subsidiary. It is a financial services group that offers banking, asset management and non-life insurance services to its customers. For Finnish and global corporate customers, the Group provides comprehensive finance, investment, cash management and non-life insurance services. For private customers, it offers non-life insurance and asset management services. Pohjola acts as OP-Pohjola Group s central bank and is responsible for the Group s liquidity and international operations. The company s series A shares are listed on OMX Nordic Exchange Helsinki, and the number of shareholders is approximately 37,000. Pohjola Insurance Ltd is a subsidiary of Pohjola Bank plc. It engages in non-life insurance operations in Finland and offers comprehensive insurance cover for private, corporate and institutional customers. OP-Pohjola Group s websites include op.fi and pohjola.fi. Cooperative operations create a basis for genuine customer orientation. 2

5 OP-Pohjola Group structure OP-pohjola group 1.3 million OWNER-MEMBERS, OF WHICH 90% ARE HOUSEHOLDS 220 GROUP MEMBER BANKS op-pohjola group central cooperative Pohjola Bank plc Helsinki OP Bank Plc OP Life Assurance Company Ltd OP Fund Management Company Ltd OP Mortgage Bank OP-Kotipankki Oyj Finnish success story

6 Chairman s Review In the midst of the financial crisis, we have followed through a major strategic reform. Backed by a solid financial foundation and defined policies, we wish to participate in reviving the Finnish economy. Particularly during such challenging times, our solid balance sheet and sound value base put our business on a high ground. 4

7 Behind us, we have a dramatic year in economic terms. The meltdown of Finnish GDP was greater than during any of the recession years of the 1990s. With exports falling by a quarter, the rebound must begin from the production level we had four years ago. The future is overshadowed by worsening unemployment and a deepening crisis in the public finances. On the other hand, from the financial sector s perspective the year gone by was ambivalent. The economic plunge almost halted the growth in banking business volumes, lifted credit losses up to a new level and pushed interest income onto a downward slide. By contrast, the favourable investment environment compensated significantly the sector s profit performance, which would have otherwise been endangered. Building the future OP-Pohjola Group s solid financial status has enabled us to continue our growth-oriented business, relying on moderate risk-taking. Even during the crisis, we have also been able to concentrate our efforts on building the future. Last year, we successfully completed an extensive strategy process. While the operating environment changed constantly due to the economic turmoil, our strategy work yielded exceptionally fruitful results, refining our strengths and defining the path towards a revival. Our new strategy makes stronger reference to creating a platform based on the integration of banking and non-life insurance businesses, which will provide us with growth impetus for a very long time to come. New operating models will be implemented to enhance the importance of corporate and institutional services. As part of our strategy, we have also updated development directions for the Group s structure in the forthcoming decades. We are here for our customers Our firmly anchored values emerge both in our strategy work and in our daily business management. Not only our balance sheet but our value base is also strong and healthy. Taken together, these factors confer us with impressive business management power in these difficult times. The cooperative model is thriving and prospering in the 2010s. Customers rather than ourselves are the Group s raison d être. Responsibility, a long-term approach and community spirit are in high demand at the moment. These values will play a natural role in steering us towards sustainable solutions. Integration entails growth and stability Our last year s performance, especially under such difficult conditions, exceeded our expectations. Banking was eroded by much higher credit losses and lower net interest income, while on the other hand, the favourable investment environment was a major boost to Other income. Our earnings at fair value were indeed better than ever before. As regards the integration of our banking and non-life insurance operations, the year 2009 marks a turning point in our history, the cooperative banks becoming the most important channel for selling non-life insurance policies to private customers. Cross-sales of banking and non-life insurance products have exceeded our original targets. We promised our customers that we would offer the best loyalty benefits. Our customers appreciate this promise, which has reinforced our market position. Success requires cooperation 2010 will be full of financial challenges. Nevertheless, I find reassurance in the knowledge that our own operations are on a solid foundation and that our capital adequacy is excellent. Our credit losses appear to equal only a fraction of our capital resources. I look to the future with confidence. Compared to other players, OP-Pohjola Group s outlook is more closely tied to the Finnish economy. Although we can act as a catalyst for growth, we cannot be the Finnish economy s only engine. Indeed, our soaring market share in corporate financing last year is a tangible sign of our willingness and ability to bear responsibility. I would like to thank all of our owner-members and other customers and stakeholders for their trust and the excellent work we have done together. I would also like to thank OP- Pohjola Group s staff and administrative personnel for their commitment to developing our operations. Our joint expertise is a resource worth cherishing in the future too. Helsinki, 11 February 2010 Reijo Karhinen 5

8 YEAR 2009 OP-Pohjola Group s pre-tax earnings, EUR 464 million, were good. Although credit losses were clearly higher and net interest income lower, our earnings nevertheless improved considerably. This can be explained by exceptionally strong increase of Other income and by moderate expense increases. Earnings before tax improved by 25% Total income increased by 13% Expenses increased by 0.8% Net interest income fell by 10.0% Tier 1 ratio stood at 12.6% Pre-tax earnings exceeded last year s level clearly thanks to robust growth of Other operating income, coming to EUR 464 million (372). Impairments and fair value changes reducing the earnings were recognised to an amount of EUR 417 million in 2009 (278). Thanks to recovering capital markets, earnings before tax at fair value were record-high at EUR 1,140 million (-365). The Banking pre-tax earnings fell short of the year before as a result of lower net interest income and higher credit losses, but were nevertheless good considering the current trends. Non-Life Insurance s balance on technical account was very good, which together with higher investment income improved the segment s overall result on the previous year. Non-life Insurance s operating combined ratio improved to 87.7% (91.5). Life Insurance s earnings before tax at fair value were good: EUR 194 million (-565). Earnings before tax were eroded by impairment charges recognised on investments from the fair value reserve. The Group s revenues increased by 13% to EUR 2,051 million (1,823). Net interest income was EUR 1,070 million (1,189), or down by 10% year on year. Other income increased substantially, reaching EUR 981 million (634), up by 55% year on year. Banking s investment and net trading income increased by EUR 202 million as a result of higher derivatives trading income in particular. The previous year s net trading income included a decrease of EUR 74 million in fair value from securities in the liquidity reserve, recognised in the profit and loss. Net commissions, totalling EUR 496 million (433), particularly thanks to higher lending fees, were higher than last year. Fund fees contracted from last year. Expenses stood at EUR 1,248 million (1,238), up by 0.8% year on year, mainly as a result of higher personnel costs. The 4.0% rise in personnel costs resulted mainly from pay increases agreed on in Other administrative expenses and Other operating expenses shrank by a total of EUR 15 million despite a EUR 9 million increase in the Deposit Guarantee Fund contribution. Bonuses paid to owner-members and OP bonus customers rose by 7.7% and totalled EUR 142 million (132). Net impairment losses on loans and receivables increased to EUR 179 million (58). New impairment losses in gross terms totalled EUR 212 million, or up by EUR 130 million from last year. The majority of credit losses derived from corporate exposure. Value readjustments and cancellations of impairment losses totalled EUR 32 million (23). Impairment losses on receivables remained very low, at 0.32% of the loan and guarantee portfolio (0.11%). Good earnings power and risk-bearing capacity carried the Group through a challenging year. 6

9 Earnings before tax, million 1, Net interest income and other income, million 1,400 1,200 1, OP-pohjola group Net interest income Other income Capital base, billion Loans and deposits, billion Capital base Minimum regulatory capital Loans (excl. those 10 mediated from Treasury funds) Deposits Insurance premiums written, million Life insurance savings and mutual fund assets, billion 1,200 1, Premiums written in 200 life insurance Premiums written in non-life insurance Mutual fund assets Insurance savings with guaranteed technical interest Unit-linked insurance savings

10 YEAR 2009 OP-Pohjola Group key indicators Jan Dec 2008 Jan Dec 2009 Change* Earnings before tax, EUR million Banking and Investment Services Non-life Insurance Life Insurance Customer bonuses, EUR million Return on equity,% Return on equity at fair value,% Cost/income,% (Banking and Investment Services) Average personnel 12,615 12, Dec Dec 2009 Change* Total assets, EUR billion Capital adequacy** Tier 1 ratio,% Ratio of capital resources to minimum amount of capital resources*** Non-performing loan losses within loan and guarantee portfolio,% Market share,% Of total loans Of total deposits Of capital invested in mutual funds Of insurance savings through life and pension insurance Jan-Dec 2008 Jan Dec 2009 Change* Of premiums written in life and pension insurance,% * Percentage point change, except for earnings before tax, customers bonuses, total assets and average number of personnel, for which the change is stated in percentages, as well as the ratio of capital resources to minimum amount of capital resources, for which the change is stated as a change in the ratio. ** Pursuant to the Act on the Supervision of Financial and Insurance Conglomerates. *** Pursuant to the Act on Credit institutions. 8

11 2009 highlights OP-pohjola group January February The integration of OP-Pohjola Group s banking and insurance operations progressed well, the number of joint customers exceeding one million in January. In January, OP Prime fell from 3.50% to 3.00%. The decline in interest rates lowered the reference interest rate six times during the year, on the last occasion in September, to 1.70%. OP-Pohjola Group Central Cooperative offered its member cooperative banks the possibility of subscribing for an investment in the supplementary cooperative capital in December The subscription period ended on 2 February 2009, the issue resulting in the subscription of EUR 444 million in supplementary cooperative capital. September November OP-Pohjola Group Central Cooperative s Contact Centre, which is in charge of OP-Pohjola Group s customer online and telephone services, won The Year s Best quality award in the category of large contact centres. It also achieved recognition as the Contact Center of the Year by Help Desk Institute Nordic Oy. OP Mortgage Bank issued a covered bond worth EUR 1.25 billion in international capital markets. The bond has a fixed interest with a coupon rate of 3.125%. The Finnish Government submitted a bill on amalgamations of deposit banks to Parliament. If passed, this bill will replace the current provisions concerning the amalgamation of cooperative banks with new provisions on amalgamations of any deposit banks. March Despite the difficult operating environment, OP-Pohjola Group reinforced its market position to become Finland s largest financial services group in terms of market shares in deposits and loans. Pohjola Asset Management Ltd and OP Fund Management Company Ltd signed the UN Principles for Responsible Investment (UN PRI) and were accredited by the Carbon Disclosure Project (CDP). April Pohjola Bank plc s rights issue of 7 24 April resulted in the subscription of 91,179,502 new series A shares and 25,021,013 new series K shares. Yielding EUR 308 million, the rights issue further strengthened Pohjola s capital base. The number of member banks reduced in In April, the cooperative banks of Kuusjoki, Rekijoki of Kiikala, Kisko and Perniö and Salon Seudun Osuuspankki merged to form Salon Osuuspankki. In turn, the new Pielisen Osuuspankki was formed by the cooperative banks of Lieksa, Nurmes and Valtimo. In December, Kärsämäen Osuuspankki merged with Haapaveden Osuuspankki to form Pyhälaakson Osuuspankki. At the year end, member banks numbered 220. December A strike closed down bank offices from 14 to 16 December. The parties to the dispute, which concerned terms of employment within the banking sector, reached an agreement on 18 December. During the industrial action, the functioning of debit and credit cards and withdrawal of cash from ATMs was ensured. The Finnish Act on long-term saving was adopted. This reform extends the tax incentive so far associated with voluntary pension insurance to other types of bound long-term saving. OP-Pohjola Group will begin providing new products compliant with the Act in April May In May and August, Pohjola issued senior bonds in international capital markets, each worth EUR 750 million. One of them has a maturity of three and the other of five years. June In its June meeting, OP-Pohjola Group Central Cooperative s Supervisory Board confirmed the new OP-Pohjola 2009 Strategy defining the long-term outlines of OP-Pohjola Group s development. In four years, the number of OP Visa cards has increased from 300,000 to one million. In June, we issued the millionth OP Visa card. 9

12 Comprehensive financial services

13 OP-Pohjola Group offers the Finnish market s largest range of banking and insurance services, covering everything that customers expect from their bank as well as their life and non-life insurance provider. Further integration of our banking and insurance services is ongoing.

14 Operating Environment In 2009, the world economy drifted into its deepest recession in decades. The financial crisis coming to a head in late 2008 sent various economic regions around the world into a simultaneous nosedive never seen before. This crisis spread worldwide through lack of confidence in financial markets and through international trade. Central banks and governments were quick to react to the crisis. Central banks cut their key interest rates close to zero and secured money market liquidity by initiating special schemes, while several governments decided to issue state guarantees for bank borrowing to facilitate the funding of banks. Banks in Finland have not resorted to state guarantees. By and large, governments have pursued an unusually expansionary fiscal policy. With economies contracting, tax revenues have plummeted and government expenditure has risen as a result of higher unemployment. In addition to the worsening budget balance caused by the recent economic development, massive fiscal stimulus packages have sent public deficits soaring to record levels in industrialised countries. Swift measures taken by central banks and governments helped to restore confidence in financial markets. The world economy showed signs of stabilisation as early as the second quarter of 2009 and the second half saw a cautious recovery in industrialised countries production figures after a steep fall. The worst of the world economic crisis was over in Key world economic challenges in 2010 Key world economic challenges in 2010 relate to the timely withdrawal of stimulus measures. There is still extraordinarily great uncertainty over future economic development. An improvement in financial market performance enables the gradual withdrawal of special stimulus measures, and we can expect a rise in key interest rates during the second half of 2010 at the earliest. Rapidly increasing public debt during the crisis will limit the scope for fiscal policy measures. Uncertainty over the private sector s ability to spearhead the drive towards economic growth in a situation in which the effects of public measures to boost economic growth will remain subdued cast a shadow over the world economic outlook in Record high unemployment in industrialised countries will restrain consumer spending and create economic uncertainty, while ample idle production capacity and weak consumer demand will curb capital spending. Finnish economy is expected to recover The collapse of international trade hit the Finnish economy violently. In 2009, Finnish exports were roughly a quarter lower than a year ago and capital spending fell sharply and housing construction continued its downward trend. The deteriorating employment situation cast a shadow over households with the result that consumer spending began to decline. When it comes to GDP growth, 2009 was one of the poorest years ever experienced. During the second and third quarters of 2009, the Finnish economy s decline levelled off in the same way as in other industrialised countries is expected to be a year of economic recovery in Finland. Business and consumer confidence has become stronger. Stronger export markets will gradually revive exports and the diminishing GDP*, % Confidence indicators in Finland, balance figure Sources: BEA, Eurostat, Statistics Finland 3 2 Sources: Statistics Finland, Confederation of Finnish Industries EK Change from previous quarter * Seasonally adjusted series USA Euro area Finland Households Industry

15 threat of unemployment arising from the stabilising job market will pave the way for a stronger consumer demand. Capital spending will not probably pick up until Favourable developments in the number of building permits granted and housing starts, and improved housing markets point to a gradual recovery in residential construction spending during During the same year, economic growth is expected to turn positive again. In 2009, the inflation rate slowed to zero. Consumer price increases were chiefly held back by a quick decline in interest rates and a big drop in fuel prices already in late In 2010, the inflation rate will accelerate slightly but will remain modest. Modest rise in interest rates in 2010 Over the course of 2009, Euribor interest rates hit a record low following the cuts of the ECB s key interest rate. The restored confidence in money markets also contributed to lower Euribor rates, which returned risk premiums to their pre-financial crisis level. At the end of 2009, the ECB key interest rate stood at 1.0%, the 3-month Euribor rate at 0.70% and the 12-month Euribor rate at 1.25%. The ECB is not expected to raise its key interest rate until the end of 2010 at the earliest. Short-term money market rates are expected to slowly move higher as early as the first half of 2010 when the ECB begins to restrict liquidity in the money market. Interest rates will remain below average throughout the year. Growth to remain slow in financial markets In 2009, the Finnish banking market began to pick up after the previous year s slowdown, as a result of strong recovery in capital markets and historic low interest rates. Share indices soared across the world from their March rock-bottom, with the OMX Helsinki Cap index a measure of stock prices in Finland climbing by over 60% from its low. In 2009, the sector s loan portfolio grew slightly because demand for home loans remained lively despite a weaker economic environment. Although the economic recovery and a modest increase in interest rates are expected to maintain slight growth in the loan portfolio in 2010 too, we should also reckon with a marked slowdown in growth. The economic crisis was already reflected in corporate financing in 2009 and there are not yet any major signs of improvement on the horizon. Following their strong growth in 2008, deposits began to fall in 2009 because funds from term deposits in particular were transferred to other savings vehicles. Mutual fund assets increased OP-pohjola group Business and consumer confidence has become stronger. Euribor rates and ECB s benchmark rate, % Source: Bank of Finland Euribor (3-month) Euribor (12-month) ECB s benchmark rate Banking market total, EUR billion Sources: Bank of Finland, Federation of Finnish Financial Services and Finnish Association of Mutual Funds Loans Deposits Insurance savings Fund assets

16 Operating Environment vigorously after the previous year s plunge as a result of growth in the volume of net subscriptions and an improvement in the net asset value of funds. The recovery in capital markets also increased insurance savings. After the three poor years, premiums written by life insurance companies began to rise, due mainly to higher premiums written arising from capital redemption contracts. Uncertainty related to legislative amendments to bound long-term savings was reflected in subdued demand for new contracts in Effective since 1 January 2010, this new law governing bound long-term savings is actually expected to stimulate consumer appetite for pension saving again. Within non-life insurance, 2009 was characterised by the vigorous recovery in capital markets, which considerably increased investment income. The economic crisis is expected to affect operations in the sector. During an economic downturn, the number and size of losses and claims tend to go down. In 2009, growth in non-life insurance premiums written slowed down by a few percentage points year on year. This slowdown specifically applies to corporate insurance as a result of a fall in payroll bills and corporate net sales. Key changes in the sector s regulation Change Background / content Status Development of capital adequacy regulation The international financial crisis triggered several amendments in the EU s provisions concerning the capital adequacy of credit institutions. Amendments in the Capital Requirements Directive were adopted by the European Parliament in the spring of 2009 and will enter into force in Several other amendment packages are pending. New solvency rules for insurance undertakings (Solvency II) Solvency II sets out more harmonised and risk-oriented solvency requirements and enables company-specific internal models in solvency calculation. The EU adopted the Solvency II Directive in the spring of With national implementation under planning, these amendments will most probably enter into force in 2013 Tax reform concerning long-term saving National amendment extending taxdeductible saving currently enabled for voluntary pension insurances to deposits, bonds, fund units and equities. Related Acts entered into force on 1 January Offering new services will be enabled as of 1 April Reform of consumer credit regulation Development of international financial supervision Amendments to the Consumer Credit Directive will entail changes in the Finnish Consumer Protection Act and also affect Finnish home mortgages. The financial crisis led the EU to develop cross-border inspection and supervision activities and stricter provisions on actors and products in the financial sector. The Government will most probably submit its proposal in the spring of 2010, with entry into force likely in May The first changes are expected to enter into force during 2010, and subsequent changes on several, later occasions. 14

17 Strategy The new OP-Pohjola 2009 Strategy confirmed in June compiles the Group s key long-term objectives and the competitive edges required to achieve them, as well as development policies. The basic elements of the strategy the Group s mission, goal, core values, and customer promise remained the same. They represent constancy and stability and constitute the strategy s backbone. Long-term financial targets Indicator Minimum target Risk-bearing capacity Capital adequacy under the RAVA Act* 1.50 Profitability Return on economic capital 17.0% Efficiency Growth differential between income and expenses Positive OP-pohjola group * ) Act on the Supervision of Financial and Insurance Conglomerates OP-Pohjola Group s mission is based on the cooperative principle and expresses the Group s long-term and responsible operations for the benefit of customers, owners and society at large. The mission s implementation is further reinforced through the development of corporate governance and drawing up of a Group-level corporate responsibility programme. The goal set indicates the Group s strong willingness to continuously develop products, services and customer experience while contributing to a stronger market position for the Group. Leader status is measured not only by market position but also through the use of qualitative factors such as the Group s corporate and employer image and its overall know-how. The customer promise expresses the essence of OP-Pohjola Group s strategy and business model. The success of our financial group lies in the capacity to provide customers with tangible loyalty benefits, with respect to money as well as quality and smoothness of service. OP-Pohjola Group s key objectives include faster growth than the sector average, moderate risk-taking, strong capital base, efficiency at the level of the main competitors and sufficient profitability. Growth has been at the strategy s core throughout OP-Pohjola Group s history OP-Pohjola Group s strategy processes unbroken chain since the 1970s OKO-80 OP-85 OP-90 OP-90 s review Towards 2002 OP-96 / OP-96 s review OP-98 OP-100 OP-100 plus OP-2002 OP-2004 OP-2006 OP-Pohjola / / /

18 Strategy Strategy in a nutshell Mission Vision Customer promise Key objectives Competitive advantages We promote the sustainable prosperity, wellbeing and security of our owner-members, customers and operating regions through our local presence. We are the leading financial services group in Finland. We will grow at a rate above the market average. We provide the best loyal customer benefits. Growth faster than other players in the sector Moderate risk-taker Strong capital base Efficiency at the main competitors level Sufficient profitability Comprehensive financial services offering Best loyal customer benefits Close to customers Cooperative basis Finnish identity Integration as a source of growth OP-Pohjola Group s key strategic project is to deepen the integration of the banking and non-life insurance operations. In the future, non-life insurance will be an integral part of each member bank s range of products and services. Principally, the Group seeks growth within its clientele by increasing the number of loyal customers who concentrate their banking and non-life insurance transactions with the Group. Banking and non-life insurance services will be combined into a service package that will render loyalty very attractive. While growing, the Group still will safeguard the continuity and profitability of its operations and will continuously improve its efficiency. Priorities include benefiting from the integration of banking and non-life insurance operations, corporate banking, asset management, private customers non-life insurance, and in regional terms the Helsinki Metropolitan Area in particular. The Banking and Investment Services division is seeking abovemarket-average growth. For corporate customers, the growth priority lies with medium-sized companies that have a good rating. With private customers, additional sales to the Group s current customers is emphasised. For Private Banking, the Group s longterm objective is to become the leading provider in Finland. With respect to life insurance, market leadership will be maintained in the selected areas of focus i.e., in unit-linked endowment insurance, pension insurance and term life insurance. For non-life insurance, growth above the market average is sought with the aim of becoming the market leader for private customers; retaining market leadership for corporate customers; retaining the strong position with major customers; and, in the Baltic countries, reinforcing the market position in the long term. OP-Pohjola Group s core values Our core values crystallise those principles and policies that are the most important for OP-Pohjola Group s personnel. They guide our operations and decisions even in difficult times, and they unite us as a Group and a working community. People-first approach Responsibility Prospering together OP-Pohjola Group is for people. A genuine concern for customers and co-workers is the starting point of our operations. We operate locally, regionally and nationally as an exemplary and ethically responsible company. Bolstered by our strong professional skills, we bear responsibility for the high quality and reliability of our services. Prospering together with our customers both points the way to the development of our operations and services. Operating as a unified group gives our customers greater security and improves our service capabilities. 16

19 Competitive edges Market s largest range of banking and insurance services and the sector s most extensive customer data OP-pohjola group Solid ownership base, a Finnish way of operating, and emotional commitment Finnish roots Comprehensive financial services The best loyalty benefits Market s most versatile and rewarding loyalty benefit package COMPETITIVE EDGES Solid cooperative values and intertwinement of customer relationships and ownership, as well as responsible long-term operations for the benefit of owners, customers and the regions in which we operate The cooperative principle Close to the customer Customer-focused operating method, local decision-making and functioning as a company with a human face brand The core of OP-Pohjola Group s brand is to offer a unique package of banking and insurance services that are convenient and support corporate customers business operations. During 2009, Seesam, the non-life insurer of private and corporate customers based in the Baltic countries, decided to adopt the Group s orange logotype and brand policies. Surveys indicate that OP-Pohjola Group s brand is now evoking more and more the Group s entire selection, both banking and insurance services. A large and consistent Group bringing brands together and generating the image of the entire Group s responsibility. A local bank owned by its customers, rewarding the loyalty of its owner-members with OP bonuses. Pohjola bringing special expertise and international competence to the Group, a contribution to the image of safety and well-being. OP-Pohjola Group s sub-brands include: OP Kiinteistökeskus, provider of property brokerage; A-Insurance, the Group s insurer of commercial transport; Eurooppalainen, specialising in travel insurance; and Seesam in the Baltic countries, provider of non-life insurance for private and corporate customers. 17

20 RISK MANAGEMENT OP-Pohjola Group s high risk-bearing capacity, stable risk exposure and responsible operating methods provide its customers with security and help them achieve success. Tier 1 ratio 12.6% Capital base in excess of minimum requirement* 2.1 billion Capital base / economic capital 1.60 * ) Pursuant to the Act on the Supervision of Financial and Insurance Conglomerates Risk management policies defined in OP-Pohjola Group s business strategy constitute the starting point of risk management. In accordance with the strategy confirmed in June 2009, the Group has a moderate attitude towards risk-taking. The purpose of risk management and capital adequacy management is to secure OP-Pohjola Group s risk-bearing capacity and ensure continuity of operations. Sufficient capital resources constitutes one of the key elements of risk-bearing capacity. The more capital is reserved to cover both anticipated and unexpected risks, and the better these risks are managed, the higher the riskbearing capacity. Further pillars of risk-bearing capacity include good corporate governance, internal control, risk management and a long-term capital adequacy management process. OP-Pohjola Group ensures that its entities are professionally managed under sound and prudent business principles by conforming with good corporate governance principles. Internal control ensures that OP-Pohjola Group s targets and objectives are reached and that resources are used economically and efficiently. Furthermore, internal control includes ensuring the reliability and correctness of management reporting as well as compliance with regulations. Risk management process The risk management process includes the identification, measurement and assessment of risks, as well as risk limitation, reporting and supervision. Qualitative and other non-quantifiable risks are limited by ensuring adherence to the Central Cooperative s general capital adequacy management instructions and operating procedures and instructions issued by the top management. Quantifiable risks are limited by means of a risk and supervision limit system that steers operations in member banks, Central Cooperative entities and throughout the Group. Risk indicators are developed by making use of economic capital models in assessing and measuring risks. Economic capital is OP- Pohjola Group s own calculated estimate of the amount of capital that would be sufficient to cover business risks. The essence of capital adequacy management lies in identifying risks and assessing their importance. Sufficient capital is reserved for covering the realisation of identified and unidentified risks. OP-Pohjola Group regularly prepares a capital plan including capitalisation targets, if necessary a backup plan in order to ensure capital adequacy, and calculations estimating the sufficiency of capital. Capital adequacy is primarily maintained through good profitability. The purpose of risk management and capital adequacy management is to secure OP-Pohjola Group s risk-bearing capacity and ensure continuity of operation. OP-Pohjola Group s key business risks Credit risk arising from banking and investment operations Credit and market risks arising from insurance and pension entities investments Net interest income risk related to retail banking operations Liquidity risk Insurance risks pertaining to insurance operations and interest risk associated with insurance contract liabilities Operational risks 18

21 Minimum capital base required by the Act on Supervision of Financial and Insurance Conglomerates, billion OP-pohjola group Minimum amount required by the Act Amount in excess of minimum OP-Pohjola Group s high risk-bearing capacity is based on profitable business operations and a sufficient capital base. The core of its risk-bearing capacity is formed by capital base, under the Act on the Supervision of Financial and Insurance Conglomerates (the so-called RAVA Act), totalling EUR 5.8 billion on 31 December The Group s profit and capital adequacy performance is assessed using, for instance, various stress tests and scenario analyses. Stress tests evaluate how exceptionally serious situations might affect OP-Pohjola Group s operations. Scenario analyses are focused on analysing the effects of risks posed by the operating environment. A difficult operating environment serves to emphasise the importance of risk management Despite the incipient recovery of the global and Finnish economies, the development of the economic operating environment and financial markets remains clouded by greater uncertainty than normal. As a result of the worldwide financial crisis, financial sector regulation is facing a radical overhaul. The uncertainty, accelerating rate of change and more stringent official requirements characterising the operating environment only serve to underline the role played by risk management in OP-Pohjola Group s stewardship of its business activities. Risk management policies play a role in determining the business direction taken and, for example, in price formation. In order to retain its high risk-bearing capacity, OP-Pohjola Group will therefore strive to minimise risk development as efficiently as possible. It will also focus on the future, supporting its customers as they emerge from the recession. 19

22 The cooperative principle

23 OP-Pohjola Group s operations are guided by solid cooperative values, intertwining ownership and customer relationships. Our long-term and responsible operations yield benefits to owners, customers and the operating environment and our mission is to promote sustainable prosperity, wellbeing and security.

24 Owner-members OP-Pohjola Group is there for its customers. The Group has 4.1 million customers, of which 1.3 million are owner-members. The cooperative s owner-members help to develop the bank s services and the local community as a whole. We make decisions and carry our responsibilities jointly, and distribute success. OP-Pohjola Group is a forerunner of corporate responsibility in the financial sector. Owner-members OP bonuses accrued OP bonuses used OP bonuses used for Pohjola s insurance premiums 1.3 million 142 million 132 million 58 million An owner-member is a cooperative bank s customer who has joined as an owner-member of his/her own bank and has paid the bank s cooperative contribution. Owner-membership offers a chance to participate in the bank s administration and decisionmaking and influence the promotion of the region s business life and prosperity. One of the basic values underlying decision-making in cooperatives is the one member, one vote principle. The members elect from amongst their number their own bank s administrative staff. In cooperative banks, the highest decision-making powers are exercised by the Cooperative Meeting or Representative Assembly. Each member can participate in the Cooperative Meeting or vote their own candidate to their bank s Representative Assembly. Helsinki OP Bank Plc, a subsidiary of OP-Pohjola Group Central Cooperative operating in the Helsinki Metropolitan Area, however, has no owner-members due to its corporate form. Decision-making in Group member banks Cooperative Meeting Members exercise their decision-making powers in the Cooperative Meeting Elects Supervisory Board members OR Representative Assembly Representatives elected by members exercise the members decision-making powers Elects Supervisory Board members Supervisory Board Elects Executive Board members and the President Supervises the operations of the member bank s Executive Board and President Executive Board Steers and directs the member bank s operations Defines the direction to take, decides on strategy and business goals President Ensures the responsible directing of daily operations, supporting the strategy 22

25 Five-star customer benefits OP bonuses are an additional loyalty benefit for owner-members. OP bonuses are accumulated from loans, savings, investments and all purchases paid using OP Visa credit. In 2009, the amount of OP bonuses paid out to customers totalled EUR 142 million. OP bonuses have been paid out since OP bonuses can be used automatically to cover regular bank service fees, to pay for non-life insurance premiums, or they can also be paid out to an account. In addition, they can be used for covering one-off service fees such as legal service fees, currency exchange expenses or mutual fund subscription fees. In 2009, the use of bonuses was extended to OP-Kiinteistökeskus estate agents fees. Bonuses can be used for paying a part or the entire commission or fee for estimating the value of your current home or the commission for rented housing. In addition, owner-members of a cooperative bank and Helsinki OP Bank s bonus customers were entitled to a EUR 250 discount on a commission. The best OP-Pohjola Group loyalty benefits are enjoyed by those who are both OP bonus customers and Pohjola Insurance loyal customers, that is, concentrating both their banking and insurance policies with the Group. Such concentration brings, in addition to the discounts enjoyed by Pohjola s loyal customers, a further 3% discount on home, motor, property, accident and travel insurance policies as well as the opportunity to use accrued bonuses to pay for insurance premiums. In 2009, bonuses were used for paying for almost 914,000 premiums, with nearly 228,000 of them being five-star bills i.e. covered entirely by OP bonuses. More and more customers are receiving OP bonuses. All family members bank transactions can accumulate bonuses which can then be used for paying for the banking service fees and premiums for anyone in the family. As there is no upper limit for bonus accumulation, the bonus accrual system can be deemed fair: bonuses are received in proportion to transactions. An owner-member is both a member and owner of his/her cooperative bank. responsibility OP bonus customer benefits for banking and insurance services OP-bonuses Sources of OP Bonuses Loans Savings Investments OP-Visa purchases OP-bonuses can be used to pay for Banking services Pohjola insurance Legal services Property brokerage services Other benefits Daily banking services at a 45% discount Pohjola loyal customers receive an almost 10% discount on most insurance policies EUR 250 discount on OP Kiinteistökeskus real estate agent commissions Opportunity to contribute to the bank s administration OP-Pohjola magazine Diverse benefits from partner companies Bonuses accumulated, million Bonuses used in 2009, EUR 132 million Banking services 50% Insurance policies 44% Paid in cash 6%

26 Corporate responsibility management OP-Pohjola Group s firm roots in Finnish society are reflected in the Group s core values and corporate practices. Our success is based on managing the Group based on a local approach and customers needs, while harmonising our customers and owners interests. Responsibility is an essential element of the Group s value base and strategy. Responsibility in OP-Pohjola Group is guided by: Core values and strategy Corporate Governance Statement Corporate responsibility commitments Environmental Programme As a Finnish player meeting its corporate social responsibilities, OP-Pohjola Group creates prosperity and stability in its operating regions. Local cooperative banks have a genuine need for, and interest in, the success and wellbeing of these regions, as OP- Pohjola Group succeeds alongside its operating regions and customers. The entire Group s operations and decisions are based on its core values. Reflecting a solid cooperative value base, these values also guide our corporate responsibility management. The importance of long-term and responsible operations particularly emerges during difficult times. The core of our business lies in promoting sustainable prosperity, wellbeing and security. We seek to increase owners financial benefits by investing in our service capabilities and offering the best loyalty benefits in the sector. Through its operations, OP-Pohjola Group aims to contribute to regional vitality and to build long-term trust locally. Regional development is also considered when developing the Group s structure. Reliability, responsibility and a good reputation are crucial to the industry. To our Group, responsibility represents a competitive asset. Our responsible operations on an everyday basis are reflected in OP-Pohjola Group s image in the minds of customers, staff as well as management members. The active participation of cooperative banks local management in the Group s development confers special characteristics on our corporate responsibility management. Indeed, the Group s governance involves almost 6,500 persons as members of cooperative banks representative assemblies, supervisory boards and executive boards. Governance is steered by banks statutes, administrative rules of procedure and accepted corporate governance practices. Corporate governance practices concern issues such as transparency, the harmonisation of operating methods and the more efficient flow of information. In analysing customer needs and seeking sustainable development, the banks management are required to look far ahead. This enables member banks to provide the best possible service in the future as well. Our new strategy highlights responsibility The governance organisation played a major role in reshaping OP- Pohjola Group s strategy in We integrated responsibility into the new strategy. Moreover, our long-term objective is to become a forerunner in Finland s financial sector in terms of the development of corporate responsibility. Alongside the strategy s publication in the summer, we investigated the Group s unity through a survey. According to member banks responses, OP-Pohjola Group s strengths included the Group s internal communication and events in support of unity. In the wake of the new strategy, we also initiated the preparation of a new and comprehensive responsibility programme, during which we will define systematic corporate responsibility management within OP-Pohjola Group. Relevant aspects and development targets regarding the Group s responsibility will be specified in the responsibility programme. Economic responsibility aspects are in focus in corporate responsibility issues in the financial sector. Fulfilling economic responsibility may relate, for example, to moderate risk-taking and good corporate governance. A strong risk-bearing capacity and long-term moderate risk-taking, combined with the market s high confidence in our Group, enable us to expand our business even in times of financial difficulty. We at OP-Pohjola Group have a strong will to help our customers to emerge from recession as well as possible. In late 2009, Pohjola Asset Management Ltd and OP Fund Management Company Ltd signed the UN Principles for Responsible Investment (UN PRI) and were accredited by the Carbon Disclosure Project (CDP). This marked the start of a project aimed at identifying environmental and social aspects and taking them into consideration as part of investment operations. The importance of social and environmental aspects has recently emerged in relation to corporate responsibility in the financial sector. Within its own operations, OP-Pohjola Group has been implementing acknowledged methods in responsible human resources management and other areas of social responsibility. 24

27 According to the Corporate Social Responsibility 2009 survey by TNS Radar, consumers consider OP-Pohjola Group as Finland s seventh best company in terms of all CSR aspects. With regard to economic responsibility, OP-Pohjola Group / the cooperative bank was acknowledged for customer care, bonus distribution, owner and customer satisfaction and its local approach. Reporting principles OP-Pohjola Group s corporate responsibility reporting is conducted in the context of annual reporting. Corporate responsibility is appended as part of the Annual Review 2009, while for , separate Corporate Responsibility reports were published alongside the Annual Reports. OP-Pohjola Group will develop its corporate responsibility reporting by taking account of the Group s special features and following the Global Reporting Initiative (GRI) guidelines and their development. At present, OP-Pohjola Group uses GRI as indicative guidelines. Corporate responsibility reporting covers the whole of OP-Pohjola Group. According to the Corporate Social Responsibility 2009 survey by TNS Radar, consumers rated OP-Pohjola Group highest overall in the financial sector, with its best results in economic and social responsibility issues. responsibility Banks are at the core of society Close interaction with stakeholders Being Finland s largest financial services group makes OP-Pohjola Group a significant, responsible player in Finnish society. The Group s voice is heard in many forums. In 2009, the Group s experts and top management engaged in close dialogue with the authorities, regulators, customers, investors and the media concerning the challenges posed by the financial crisis, risk management, the development of the relevant legislation and the bank s responsibility during the recession. Close and versatile interaction with various stakeholders forms an essential element in OP-Pohjola Group s compliance with the Group s values. Interaction with stakeholders will be deepened within the future corporate responsibility programme. OP-Pohjola Group s member cooperative banks are actively involved in the development of their own operating areas. Furthermore, nationwide interaction with stakeholders is based on cooperation with other companies. For instance, OP-Pohjola Group participates in the responsibility working group convened by the Federation of Finnish Financial Services (FK), and OP-Pohjola Group Central Cooperative is also a member of Finnish Business & Society (FiBS). OP-Pohjola Group s lobbying activities are managed on a coordinated basis by OP-Pohjola Group Central Cooperative. Its Supervision of Group Interests function is in charge of national interaction with the public administration and aims at active lobbying and interaction in compliance with good practices. Households Companies Banks Public institutions Other institutions 25

28 corporate responsibility management Interaction with stakeholders Stakeholder Expectations Actions and results Customers and owner-members Capital adequacy, reliability, sector s best expertise, financial benefit, influence opportunities, responsible regional and local operations, versatile service network, comprehensive service range, opportunities to obtain financing when needed. High capital adequacy. Active development of the bonus system. The best loyalty benefits in the sector. Finland s largest multichannel service. Text versions of online services (and an easy-to-use version in Finnish). Influencing opportunities through the service network, feedback system and member banks management. Versatile regional and local operations. Profound knowledge of customers and local decision-making enable quick decisions e.g. on financing. High scores in the CSR survey on the implementation of responsibility. Personnel Responsible HR management, secure jobs, effective interaction, high job satisfaction, equal opportunities, good salary and wages, diverse leisure activities. Strategy steers our operations, service network development and staff numbers. Our aim is to be the most attractive employer in the financial sector. We develop job satisfaction and equal opportunities in a variety of ways and monitor this actively through personnel surveys. The staff are offered good opportunities for competence enhancement. In addition to basic pay, we offer short- and longterm performance bonus schemes. Pay discussions. Leisure time and other activities promoting wellbeing. Competitors Responsible operations, good reputation, intra-sector cooperation where necessary. Regular competitor watch, customer satisfaction and brand surveys. Authorities and decision-makers Reliable and responsible operations, secure jobs, product and service quality, effective risk management, transparent interaction, reliable reporting, provision of expertise in the preparation of legislation. Extensive service network and local decision-making. Strategy steering of the number of staff. Intense dialogue with the authorities. Centralised competences regarding lobbying activities. Schools and universities Local and regional communities Financial support, expertise and assistance in personal financial skills. Supporting the wellbeing of pupils and students. Responsible operations, trust, tax revenue, financing for local companies, branch offices, financial support for regional civil society activities. Universities were granted considerable support in 2009 and a university support policy is defined for providing such support. Cooperative banks play an active role in personal financial skills. In schools, we have implemented projects together with the Young Finland Association, to promote the wellbeing of children and young people. Cooperative banks pay taxes in their local areas and are often the locale s largest corporate lenders. Member banks provide substantial support for local activities. Finland s largest service network. Non-governmental organisations Transparency of operations, financial support, active enhancing of environmental friendliness Nationwide and regional communication, generation of information, financial support. Our Environmental Programme defines targets for enhancing environmental friendliness, Asset Management s commitments promote the inclusion of environmental issues in investment operations. Industry associations Effective and open cooperation, expertise. Versatile actions e.g. alongside the Federation of Finnish Financial Services (FK), the Unico member banks and the Confederation of Finnish Industries (EK). Media Reliability and transparency of communications, quick service and high reachability, expertise. Regular briefings. Genuine interaction in press conferences and personal meetings. High scores in corporate communication surveys. 26

29 ECONOMIC RESPONSIBILITY Aspects of economic responsibility are forming the focus of corporate responsibility issues within the financial sector. Economic responsibility lies at the core of OP-Pohjola Group s operations, their cornerstones being a strong balance sheet and risk-bearing capacity, moderate risk-taking and commitment to the development of society on a long-term basis. During difficult economic times, a financial company s responsibility for its customers and its role as a corporate lender are of the utmost importance. Economic responsibility in OP-Pohjola Group is guided by: Risk management strategies and principles Corporate Governance Statement and Code Legislation, standards, provisions and guidelines pertaining to the financial sector In 2009, the economic recession highlighted the significance of capital adequacy and risk management within financial-sector companies. Importantly, the financial market trusted OP-Pohjola Group, which enabled us to continue lending without disruption, including under circumstances where obtaining financing was vital to companies. In the domain of indirect responsibility, the ability to offer corporate and other financing has become a key issue. Given that OP-Pohjola Group has advocated moderate risktaking, credit losses are expected to remain reasonable, even in the recession. Our market position continued to strengthen, OP-Pohjola Group clearly being Finland s largest financial services group. Our good capital adequacy ratio acts as a buffer against unexpected losses, while our strong balance sheet enables business growth, even in hard times. The Group s sustained finances also reinforce our capacity to bear environmental and social responsibility. OP-Pohjola Group s strong, publicly expressed policy was and remains the desire to help both corporate and private customers withstand the recession as well as possible. Financing operations, for example, have remained normal in the face of the recession the basic principles and criteria governing financing have not been tightened. In the view of the Group, the financial sector plays a central role in driving growth and wellbeing in the economy and in the provision of necessary basic services and opportunities for private customers, companies and institutions. Economic responsibility management OP-Pohjola Group uses a comprehensive range of tools for the management and monitoring of economic responsibility. All risks related to operations are constantly assessed, and quantifiable risks are limited by means of a risk and control limit system that steers operations in member banks, OP-Pohjola Group Central Cooperative s entities and throughout the Group. In the future, sudden changes and more stringent official requirements characterising the operating environment will only serve to emphasise the role played by risk management in OP- Pohjola Group s stewardship of its business activities. In the financial sector, liabilities and commitments often concern the long term. While risk management is central to operations, the solidity of our own value base is also crucial in the long term. Bonuses and other returns to owners The cooperative principle is the essential foundation of OP-Pohjola Group s operations. Economic benefits generated are directed towards owner-members, chiefly through bonuses accumulating from using the Group s services. The Group s goal is to offer its owner-members the best loyalty benefits in the financial sector. To Pohjola s shareholders, economic benefit is channelled mainly through dividends. Cornerstones of OP-Pohjola Group seconomic responsibility Competitiveness Customer promise to customers and owner-members OP bonuses to ownermembers Compensation of our personnel Responsibility alongside stakeholders Continuity of operations responsibility OP-Pohjola Group emphasised its desire to actively provide financing to Finnish companies, notwithstanding the recession. In the last two years, the Group s market share in corporate loans grew markedly. 27

30 ECONOMIC RESPONSIBILITY Service network and local approach OP-Pohjola Group has Finland s largest network of banking and non-life insurance services. This network seeks to ensure that customers have equal opportunities to carry out transactions. Our locations across Finland enable effective interaction with customers and the local community. For more than a hundred years, the Group s mission has been to promote sustainable prosperity, security and the wellbeing of our owner-members, customers and local operating regions. Being genuinely local means that the Group has a face everywhere throughout the country. At the end of 2009, the Group s member banks had branches in a total of 309 municipalities. Cooperative member banks and Pohjola are drivers of their regions employment and purchasing power. Member banks pay taxes to their home municipalities and are often among the largest taxpayers. According to surveys, the Group s customers remained highly satisfied with the Group s operations and services. While the total number of customers continued to increase last year, customer satisfaction remained positive. Personnel In many municipalities, cooperative member banks are major employers. OP-Pohjola Group reinforced its customer service by establishing a new customer service and sales unit in Kuopio. This Contact Centre began operating in February 2009, hiring 34 new employees. Furthermore, Pohjola Insurance also hired 20 new Service Advisors in Kuopio. Suppliers and service providers OP-Pohjola Group is a significant buyer of goods and services in Finland. Particularly within Non-life Insurance Claims Settlement, purchasing plays a key role, since we often aim to pay compensation by providing our customers with a new product replacing the damaged one. The purchase of goods and services is coordinated on a centralised basis, while aiming to take the issue of the product s domestic origin into account. The Group s business is based on a local approach. Cooperative member banks decide on their purchasing independently and buy several services from their own municipalities. With respect to goods purchases, member banks use centralised purchasing. Distribution of economic benefit Purchases from suppliers of goods and services 43.1% Dividends paid and interest on cooperative capital to shareholders 4.5% Bonuses paid to owner-members 8.3% Remuneration 33.5% Donations and sponsorships 0.5% Taxes 10.2% Donations and other contributions to the public good OP-Pohjola Group directs economic benefits towards organisations of general interest through donations and sponsorship. The Group mainly concentrates its nationwide sponsorship on cultural events, taking responsibility issues into consideration. In 2009, OP-Pohjola Group intensified its collaboration with the Helsinki Festival by signing a partner agreement. Other examples of nationwide sponsorship targets include the Savonlinna Opera Festival and the Kuhmo Chamber Music Festival. Cultural sponsorship in 2009 saw the implementation of a new Creative Break concept, assembling Group-supported cultural activities under its umbrella. A significant share of OP-Pohjola Group s sponsorship is local. Member banks bear responsibility for their sponsorship agreements independently, in their own locales. Donations by member banks represent the majority of OP- Pohjola Group s charitable donations. In 2009, member banks supported Finnish universities, the Group-wide contribution exceeding EUR 800,000. In early 2010, Pohjola and Suomi Mutual granted their joint annual Medical Award for the 30th time. Pohjola also grants an annual award to a sports club, in recognition of high-quality association work promoting diverse values. The Pohjola Bank Art Foundation, the OP-Pohjola Group Research Foundation and the Kyösti Haataja Foundation also number among nationwide support operations. In 2009, these foundations distributed a total of some EUR 875,000 in grants. The Pohjola Bank Art Foundation possesses a highly valued collection of musical instruments which it lends to young, talented musicians. The jewel of the collection is an Antonio Stradivari violin from 1702, currently played by Antti Tikkanen. In the 2009 European Parliament elections, OP-Pohjola Group provided no Group-wide support to political parties. 28

31 Economic responsibility Change, % Earnings before tax, million Tier 1 ratio, % Wages and salaries, million Taxes - Income taxes, million VAT, million Contributions to the Deposit Protection Fund, million 2) Interest on ordinary and supplementary cooperative capital, million 2) Customers, thousand 4,143 4, Owner-members, thousand 1,230 1, Bonuses paid to owner-members, million - Accrued bonuses, million Used for banking services Used for insurance premiums Bonuses paid in cash, million Pohjola s shareholders, thousand Dividends from Pohjola Bank plc, million 2) Customer satisfaction, scale Private customers Corporate customers Partners and suppliers - Total, qty 1) 24,710 23, Purchased services, million 1) Donations, other financial support and sponsorship, million responsibility 1) Does not include loss adjustment purchases within Pohjola s non-life insurance 2) Amount paid for 2008 Indirect economic responsibility Financial services play a vital role in securing business opportunities and the overall development of society. OP-Pohjola Group wishes to support its customers activities on a long-term basis. The role of financial services was highlighted during the recession, and OP-Pohjola Group actively engaged in the debate over the significance of corporate and other financing. The Group s own financing operations remained active in 2009, with OP-Pohjola Group s market share in corporate financing growing by 1.9 percentage points. In the midst of the recession, we provided useful information to customers and society. In support of cooperative banks customer service, OP-Pohjola Group Central Cooperative issued regular summaries on the economic situation in Finland. Non-life insurance products provide protection for a customer s business in unexpected, exceptional circumstances. In the development of non-life insurance services, we also take the promotion of the customer s wellbeing and financial security into consideration. Furthermore, OP-Pohjola Group promotes people s understanding of financial matters and their financial literacy. Customers are provided with plenty of information on a range of financial issues, for example, in customer magazines. In addition, the Group s member banks provide assistance to educational establishments by offering them teaching material and arranging speaker visits. Correspondingly, improving financial literacy in Finland is one of the goals of corporate responsibility activities mentioned in the Group s strategy. 29

32 ENVIRONMENTAL RESPONSIBILITY In 2009, OP-Pohjola Group invested in the preparation of a new Environmental Programme. Due for completion in the spring of 2010, the programme will define environmental aspects relevant to the Group and set tangible targets for further action. Environmental responsibility in OP-Pohjola Group is guided by: OP-Pohjola Group s Environmental Programme Commitments of Pohjola Asset Management Ltd and OP Fund Management Company Ltd The key environmental impacts of OP-Pohjola Group s own operations relate to real estate properties and office work. Critical challenges in environmental responsibility, however, concern our indirect environmental responsibility: how to take account of the environmental impacts of customers operations and how to advise customers. In December 2009, the companies handling the Group s investment operations signed the UN Principles for Responsible Investment (UN PRI) and were accredited by the Carbon Disclosure Project (CDP). On this occasion, we also began taking account of environmental issues related to investment objects. OP-Pohjola Group s forthcoming Environmental Programme will review the environmental impacts of the Group s own operations, those caused indirectly by the Group and, as a special theme, the effects of climate change on Non-life Insurance. In cooperation with WWF Finland, the Group has monitored the environmental impacts of its operations and developed the related methods. OP-Pohjola Group Central Cooperative and certain member bank branches have been awarded a WWF Green Office diploma. Consumption of energy and materials OP-Pohjola Group has managed its own energy consumption using the WWF Green Office programme. The Group also participates in the Unico member banks international project to cut energy consumption. For the moment, the Group does not have a policy on the generation methods of energy purchased. In addition to our own office work and real estates, direct energy consumption also concerns the production of our online services. Server systems for the Group s online services are managed by Tieto Corporation, which adopted district cooling produced by Helsingin Energia in its Vallila premises. For OP-Pohjola Group, a key issue is paper consumption, affected most by paper documents and customer magazines mailed to customers. Further decreases in paper consumption have been achieved through the use of online services. OP-Pohjola Group has been actively involved in developing ebilling services. The most significant future measures pertain to electronic contract management and Non-life Insurance eservices. Within the Group, Non-life Insurance sends the largest number of invoices and contracts. Commuting and travel OP-Pohjola Group s operations involve some travel, mainly within Finland. The amount of travel has been reduced by the communications policy and the related online solutions adopted in On Group level, no separate methods are used for controlling employees work journeys. An emission limit of 220 g/km has been set on company cars used by employees in OP-Pohjola Group Central Cooperative, Pohjola and in certain member banks. Indirect environmental responsibility OP-Pohjola Group seeks to inform its customers of green opportunities, for example, through its customer magazines. So far, no comprehensive Group practices exist for assessing the environmental impacts of customers using services provided by the Group. Commitments signed by our investment operations concern the environmental impacts of investment targets and ways of influencing such impacts. In our other operations, similar practices will also be developed in the future. In Non-life Insurance, we have been developing a motor liability insurance whose premiums are based on driving style and kilometres driven on a pay-as-you-drive basis. This service motivates customers to reduce their kilometres driven, while encouraging them to drive outside rush hours. We are committed to this service development through the European Road Safety Charter. The Group s online services play a crucial part in indirect environmental responsibility. Through ebilling services, for instance, they enable reductions in customers paper consumption. OP-Pohjola Group s online services also indirectly affect customers electricity consumption. The Group actively develops the usability of its online services, which can, when necessary, shorten the time spent using a service. OP-Pohjola Group s new Environmental Programme, to be completed in the spring of

33 Environmental responsibility Change, % Materials - Magazines and customer mailings, 1,000 kg 2,145 1, Magazines and customer mailings, g/customer Consumption of office paper, kg/employee 1) ebills received by private customers, 1,000 pcs 789 1, The OP Climate Fund s share of the capital invested in all equity funds, % * Electricity consumption of centralised computer server systems, MWh 6,724 6,726 0 Electricity consumption of offices, kwh/employee 1) 5,575 5, Waste and recycling, kg/employee - Paper collection 2) Biowaste 2) Unsorted waste 2) Land areas owned, million 3) Other real estate owned, million 3) 1,131 1, ) This information pertains to the Central Cooperative and some individual member bank locations 2) This information pertains solely to the head office of OP-Pohjola Group Central Cooperative located in Vallila, Helsinki 3) Book value * Percentage points Paper consumption of customer mailings Trend of ebills volume estimated by OP-Pohjola Group, % responsibility OP-Pohjola magazine 21.2% Other customer magazines and publications 6.8% Bank statements 11.6% Other mailed material (banking services) 30.0% Other mailed material (non-life insurance) 30.4% Customers who also have an ebilling agreement OP-Pohjola Group s Environmental Programme Under preparation in 2009, will be completed in the spring of 2010 Representatives of various OP-Pohjola Group companies and divisions were involved The following were implemented under the project: familiarisation with the financial sector s environmental impacts identification of the Group s direct and indirect environmental impacts materiality assessment of sub-areas The first stage involved the definition of policies and targets for the following sub-areas: our own operations and real estate online services products and services enhancing environmental friendliness consideration of climate change in Pohjola s Non-life Insurance operations The second stage covers the following sub-areas: recognising the environmental impacts of customers operations in non-life insurance and financing decisions recognising and influencing the environmental impacts of partners operations The Group Programme will form the foundation for member banks and their branch offices own environmental programmes Pohjola Asset Management Ltd and OP Fund Management Company Ltd in 2009 gave commitments based on the Group Programme 31

34 SOCIAL RESPONSIBILITY In cooperative operations, responsibility means actions: proactive and responsible day-to-day activities. OP-Pohjola Group bears responsibility for the wellbeing and development of both its staff and its operating area. In the development of our management culture, we focus on leadership by coaching and reinforcing personal responsibility in the workplace. Social responsibility in OP-Pohjola Group is guided by: HR management principles and recommendations Equality plan Vision of competencies Cooperative operations signify that decisions are made by familiar, local people. Cooperative banks owner-members can participate in their own bank s decision-making as representatives of local bank governance and thus influence, for example, the development of services and promote the entire local community s development and vitality. OP-Pohjola Group s governance organisation comprises almost 6,500 persons. Competence enhancement The new strategy completed in 2009 highlights leadership by coaching, responsible lobbying and competence management. We aim to work efficiently and sustainably while ensuring performance, by utilising our staff s strengths and reinforcing each employee s motivation and ability to contribute to the workplace. more than 50 web-based training programmes. In terms of expert duties, we also make use of courses and seminars organised by external service providers. Future talents are recruited through special coaching programmes, which enable talents to develop into supervisors and experts in the financial sector. Continuing coaching programmes will ensure excellence in the future too. Coaching programmes include work-based learning, supplemented by training and mentoring. Last year, 60 members of cooperative banks Executive Boards completed the OP-Pohjola Group Board Member degree. Representatives of cooperative banks management can also develop corporate governance and Board work by participating in development coaching. In OP-Pohjola Group, leadership by coaching supports successful performance at work and the attainment of targets. OP-Pohjola Group seeks to offer its customers the best expertise in the field. Competence management has been employed in the Group for a long time and lies at the core of our business management. Our aim is to consolidate our culture of competence, involving the long-term enhancement of employee skills and Group expertise. Competencies are a priority in OP-Pohjola Group s strategy and their management in the Group is proactive. Competence enhancement is steered in accordance with OP-Pohjola Group s vision of competencies and common development practices. In 2009, our development focus was on reinforcing leadership skills and practices which are based on coaching. Employees skills are developed in a variety of ways, including job rotation, mentoring as well as training and coaching programmes. OP Academy offers a wide range of mainly professional training. In 2009, it organised more than 660 training events and provided Personnel The number of the Group s employees turned downwards during 2009, totalling 248 less than at the end of the previous year. Employees who retired in 2009 were, on average, 61 years old and had served the Group for an average of 33 years. The number of summer trainees totalled some 500 students, notwithstanding the recession. Equality and diversity Promoting equality forms part of OP-Pohjola Group s responsible HR management. Our key policies in equality planning include promoting a good and balanced working community and ensuring a balanced staff structure. We also recommend that those member cooperative banks not falling under the statutory obligation to prepare an equality plan due to their company size nevertheless draw up such a plan as applicable. Many equality aspects are 32

35 Number of employees Personnel by age 15,000 12,000 9,000 Under 30 years 16% years 18% years 28% Over 50 years 38% 6,000 3, responsibility Gender distribution, % Members of cooperative banks management by age Total 2 Salaried employees 3 Experts 4 Supervisors 5 Senior management Under 30 years 0% years 6% years 23% Over 50 years 71% Men Women 0 OP-Pohjola Group Central Cooperative and Pohjola Member banks Members of cooperative banks management by gender Men 68% Women 32% 33

36 SOCIAL RESPONSIBILITY Groups of employees Entire Group Salaried employees 63.0% Experts 23.7% Supervisors 9.4% Senior management 3.9% OP-Pohjola Group Central Cooperative and Pohjola Salaried employees 46.6% Experts 42.2% Supervisors 9.3% Senior management 1.9% Member banks Salaried employees 76.1% Experts 9.0% Supervisors 9.5% Senior management 5.4% charted through personnel surveys, which serve as a basis for developing practices in the workplace. In many of the Group s workplaces, leading and ensuring cooperation between employees of different ages and whose life situations may vary greatly is a key challenge. The Hyvä Ikä (Good Age) programme seeks to identify the strengths of people of different ages and utilise and share knowledge and competencies. The employee s age and life situation is taken into account in leadership and organisation activities, as well as in work planning and development. Competitive compensation OP-Pohjola Group s compensation and incentive schemes are developed on a long-term basis, in support of the Group s growth strategy, solid profit performance and job motivation. Basic pay is determined by the job grade and personal competencies and performance. To some extent, pay increases are also determined based on pay discussions. The Group has both short- and long-term incentive schemes. Long-term schemes include the personnel fund scheme, based on Group performance, and the management incentive scheme. These support sustainable growth, long-term earnings performance and staff commitment. Short-term incentive schemes, i.e. performance-based bonuses, support the attainment of annual targets, emphasising personal performance. Occupational healthcare In 2009, OP-Pohjola Group s approach to managing risks that may reduce the ability to work became an established practice for supporting and promoting employee wellbeing. Early rehabilitation activities promoting coping at work and leisure were continued to the same extent as previously. As an alternative to sick leave, we increasingly managed to provide replacement work to employees. Last year, preparation against the spread of the H1N1 virus took place in the Group s operating region and among its employees. Employee wellbeing The wellbeing of individuals and working communities is monitored and developed proactively. One of the most important indicators of the development and improvement of employee wellbeing is the personnel survey s job satisfaction index. It helps monitor job motivation and incentive, factors affecting job motivation, and organisational performance and the performance of management and leadership work. The Group s largest units conduct personnel surveys annually, although in some member banks they can be carried out less frequently if appropriate. In 2009, personnel surveys were conducted in OP-Pohjola Group Central Cooperative, Pohjola Group and in 26 member banks, covering 56% of the entire Group s personnel. Attractiveness as a workplace OP-Pohjola Group s objective is to be the most attractive employer in the financial sector, and it invests in the development of both its external and internal employer image. Nationwide employer image is mapped annually, including by Universum s survey targeted at young finance-sector professionals and students. We have achieved great success in these. Our internal employer image 34

37 Social responsibility Change, % Administrative officers, persons 6,131 6, Women, % * Men, % * Personnel, persons 1) 12,752 12, Women, % 1) Men, % 1) Performance bonuses, % Share of performance bonuses in pay * Share of people who received performance bonuses among personnel * Personnel turnover, % * Average age, years Training expenses, percentage of total payroll * Retired, persons Sickness absences, percentage of working days * Investment in national expert events, 277, , ) At year s end * Percentage points responsibility is monitored through the personnel survey s employer image index. Furthermore, OP-Pohjola Group Central Cooperative ranked second in the large companies category of the Best Workplaces in Finland survey. Employee relations Pohjola s employees are free to unionise, in compliance with Finnish legislation. The Group cooperates actively with trade unions where necessary. In addition to statutory cooperation, we have also used other forms of cooperation which reinforce dialogue between the employer and employees. Cooperation in occupational safety and health enforcement has been innovative, and we have adopted new risk management practices. Social activities In the domain of social responsibility, OP-Pohjola Group takes account not only of its employees wellbeing but also the general prosperity and wellbeing of its operating regions. In , Pohjola Insurance Ltd commissioned surveys on Finns wellbeing, investigating people s opinions on their personal and the country s wellbeing as well as their development and determinants. Based on the latest wellbeing barometer, Finns consider the services in their home localities to be declining rather than improving. For the third consecutive year, respondents reported that wellbeing in Finland had deteriorated from the previous year. Nevertheless, the most common score for wellbeing in the 2009 survey was either good or reasonable. The Group organises national expert events, which represent significant development and discussion forums in their fields. Such forums include, for example, OP-Pohjola Group s Housing Seminar, Forest Day, Harvest Session and its Future of Entrepreneurship event as well as the theme day of the OP-Pohjola Group Research Foundation. Member banks also arrange similar local events. OP-Pohjola Group also supports and organises children s and youth activities. HIPPO skiing contests and other similar events have proven highly popular sports events. In cooperation with the Young Finland Association, we organised several physical exercise and recreational events in Last year, OP-Pohjola Group s nationwide visual arts competition for children and young people was arranged for the 33rd time, with some 40,000 participating pupils. As part of its social activities, OP-Pohjola Group coordinates its contacts with the public administration and engages in lobbying. The Supervision of Group Interests function aims at ensuring a fruitful operating environment for developing the Group s activities. Indirect social responsibility Promoting Finnish wellbeing also involves the safety of the Group s products and the indirect effects of their use. In particular, nonlife insurance products play a vital role in ensuring customers operations and wellbeing. In 2009, measures conducted concerned, for example, road safety. Pohjola launched a pilot project with a view to creating motor liability insurance on a pay-as-you-drive basis. Moreover, as a signatory to the European Road Safety Charter, Pohjola is committed to the implementation of road safety projects over the next few years. 35

38 Close to the customer

39 Each OP-Pohjola Group s member bank is a regionally operating company whose decision-making takes place close to the customer. The combination of Finland s largest financial service network by far together with customerfocused operating methods makes cooperative banks and the entire OP-Pohjola Group a unique actor on the financial market.

40 Product and Service Development Review OP-Pohjola Group Central Cooperative s duty is to ensure that all products and services offered by OP-Pohjola Group meet customers needs and are easy to use and secure. We continued to invest in product development during the financial crisis, allocating EUR 75 million to the development of products and services in While customers service needs always lie at the core of our product and service development, changes in the industry or relevant legislation are also increasingly triggering reforms. This trend will only be accelerated by the internationalisation of operations and the financial crisis which shook the world. One of the key changes in the operating environment which has steered banks development efforts is the switch over to the Single Euro Payments Area, SEPA. Early on, SEPA mainly entailed changes in handling payment transfers but, by now at the latest, the ensuing developments are visible in other areas and in customers activities. For private customers, the SEPA changes last year meant, for instance, that their conventional bank cards were replaced by OP Visa cards. Other ongoing reforms stemming from official requirements include changes due to the Payment Services Directive, antimoney laundering actions or new solvency provisions. Reforms we implement due to legislative changes are characterised by the fact that they often remain almost unnoticed by customers. However, in terms of the continuity of financial services, they represent absolutely necessary development projects. Comprehensive financial services As the leading financial services group in Finland, OP-Pohjola Group offers its customers a complete range of banking and insurance services. We also have a unique opportunity to combine banking and insurance products into packages that bring customers new added value. This idea is visible in our product and service development. In line with our customer promise, we wish to offer the best loyalty benefits to customers concentrating both their banking and insurance services with the Group. The sharp growth of loyal customers in 2009 is evidence that we have taken the right steps in the development of loyalty benefits. In the future, we will reward our customers not only with bonuses but increasingly also with product and service loyalty benefits. At present, we are also preparing a new CRM strategy. We wish to understand our customers service needs even better and ensure that our service offering provides a perfect service match with our customers, whenever they need them. Development often requires a swift response to changing needs. As a prime example of our agility, we launched the development of a pension savings account immediately after the issue of new official decisions on long-term saving. Although the related legislative schedule and the future Act s final content were long subject to uncertainty, OP-Pohjola Group is ready, being among the forerunners in introducing the new products and services enabled by the Act. Integration is visible to our customers OP-Pohjola Group seeks to be a strongly integrated financial services group. The integration of banking and non-life insurance services challenges us to work as a united team in contributing to our common mission to promote the sustainable prosperity, security and wellbeing of our owner-members, customers and operating regions. By combining banking and insurance products, we are ensuring that the benefits sought from the Pohjola acquisition conducted in 2005 will bring advantages to our Group s customers. In practice, to our clientele these advantages will translate into our unique product and service range, competitive prices and operational reliability. In 2009, integration progressed tangibly in Non-life Insurance services, in particular. Last year s transfer of Non-life Insurance s private customer sales from a separate service network into cooperative banks was a case in point of how a highly integrated financial services group can bring benefits to customers day-today lives. As befits a genuine financial services group, we are now offering non-life insurance policies over local bank counters. Continuous service development We are also constantly improving the fluency of customer transactions conducted via online services. Last year, we introduced Non-life Insurance eservices providing authenticated private customers with more extensive possibilities for managing their insurance. In 2009, some 1.4 million contract customers used our online services at op.fi, with the daily number of visiting customers exceeding 350,000. The number of events continued to grow strongly, with records in online banking once again set in December Finnish banks are forerunners in the development of new services. 38

41 The wider use of online transactions requires that we continuously ensure the services reliability and fluency even with record numbers of users. During recent years, we have implemented major operational changes in our service provision, which have enabled us to improve our price competitiveness and service level, even in relation to a higher number of events. Responsibility for Finnish expertise As Finland s leading financial services group, OP-Pohjola Group bears responsibility for maintaining national knowhow in the sector. Finnish banks have been in the vanguard of developing new services, even by international standards, and we seek to maintain this position in the future. In fact, in addition to its other operations, OP-Pohjola Group Central Cooperative is one of Finland s largest IT service companies. Its professional and committed personnel are playing the lead role in the development of advanced, easy-to-use and secure financial services for Finnish customers. Helsinki, 11 February 2010 business operations Tony Vepsäläinen President of OP-Pohjola Group Central Cooperative 39

42 Customers and Service Network Aiming for long-term total customer relationships, OP-Pohjola Group offers a broad range of banking, investment and insurance services and the country s most extensive service network. Over 4.1 million customers in Finland. Over 1 million customers using both banking and insurance services provided by the Group. The best loyalty benefits. The country s most extensive service network. OP-Pohjola Group seeks to ensure that more and more customers can enjoy smooth and simple transactions and benefits arising from loyalty. A comprehensive need assessment will be conducted for more and more customers, analysing current and future banking and insurance needs and identifying suitable services. The number of customers who use both banking and insurance services already exceeds one million, having increased by 360,000 in four years and still rising steadily. Of OP-Pohjola Group s 4.1 million customers, almost 3.4 million use banking services while more than 1.8 million have insurance with the Group. Although 2009 was financially a challenging year, customers trusted in OP-Pohjola Group. The number of banking customers increased last year by 48,000. The number of loyal customer households grew by 35,000 to more than 420,000 at year end. Our strategic goal is to have 450,000 loyal customer households by the end of According to TNS Gallup s annual survey of bank and insurance company switching, 40.2% (39.4% in the previous year) of Finns use OP-Pohjola Group as their main bank and 20.7% (19.3%) as their main non-life insurance company. A multichannel service network Our customers are served in branch offices, on the Internet and by telephone. Developing the multichannel service network further is one of the top priorities of the Group s strategy. This enables us to meet changing customer needs and also ensure excellent services in all channels when cooperation between several channels is required. Locations OP-Pohjola Group operates from 583 locations, of which 313 offer both banking and non-life insurance services. The network of locations is supplemented by Pohjola Insurance s network of agents. The OP Kiinteistökeskus estate agents, which are subsidiaries of the member banks, have a total of 172 outlets. Online services Online services continued to strengthen their position as the most important channel for banking transactions. At the end of 2009, the number of customers who have made an eservices agreement with OP-Pohjola Group stood at about 1.4 million. Already some 77% of bills were paid over the Internet in Use of insurance, investment, loan and information services online is also rising steadily. In addition, online services play an increasingly significant role as a purchase channel for banking and insurance services. OP-Pohjola. Life with benefits. 40

43 OP-Pohjola Group s service network 31 Dec Dec Dec Dec Dec 2009 eservices Agreements 996,000 1,094,000 1,191,000 1,300,000 1,400,000 Locations providing both banking and insurance services Private Banking locations OP-Kiinteistökeskus estate agents Online customer terminals Payment ATMs Telephone and online customer service OP-Pohjola Group s customers receive personal service both over the phone and online. The Group s goal is to provide high-quality, cost-effective and expert service that is easily available anywhere and anytime. Centralised units specialising in customer service and sales related to banking services Handle consulting and sales related to banking services, provide help in using eservices and support companies in handling payment transfers. Assess customers banking and insurance service needs and book an appointment at a member bank branch, if necessary. As part of a new operation, contact corporate customers and member cooperative banks customers with regard to insurance services. Handled a total of 930,000 customer contacts in Are located in Helsinki, Joensuu, Kuopio and Vaasa. In a survey conducted by Taloustutkimus Oy, the OP telephone service was ranked as the financial sector s best in It also received Yhteyskeskus Laatupalkinto 2009, a quality award for contact centres, and, furthermore, was selected Contact Centre of the Year 2009 in Finland. Pohjola Insurance Ltd s centralised units specialising in non-life insurance Handle the customer s insurance service request, update his or her insurance cover and identify the need for banking services all during one customer call. Handle A-Insurance s telephone service. Handled more than one million customer contacts in Are located in Helsinki, Tampere and Kuopio. Non-life Insurance telephone claims service Receives reports on loss or damage and makes claims settlement decisions regarding some cases. Answered 530,000 calls and received 100,000 notifications of loss last year. Are located in Helsinki and Tampere. OP-Pohjola Group s customers, 1,000 customers business operations Insurance customers Bank and insurance customers Bank customers

44 Banking and Investment Services OP-Pohjola Group is a partner to many Finns in terms of financial management or when buying a home or seeking safe savings vehicles for assets. For companies, OP-Pohjola Group offers lending, cash management and payment transfer services. Banking and Investment Services is OP-Pohjola Group s largest business division. Market share for loans 32.7% for deposits 33.2% for capital invested in mutual funds 23.4% Number of payment and credit cards 2.2 million Number of brokered home sales and purchases in ,300 Year 2009: In the backwash of the financial crisis In 2009, OP-Pohjola Group retained its position as provider of financing for Finnish home-buyers, attaining a 35.9% share of the market at the end of the year. The year saw great changes in terms of margins of home mortgages. While in the summer of 2008 loan margins were still somewhere below 0.5%, during the summer of 2009 they nudged over 1%. The main reason for the higher margins was more expensive wholesale money i.e., the increased cost of banks own funding, caused by the financial crisis. The recovery of the financial markets during 2009 halted the margins rise and turned them to a slight decline in the autumn. New home loans raised in 2009 totalled EUR 5.7 billion (EUR 7.0 billion). The average size of new home mortgages was EUR 68,000 (EUR 73,000) and the average loan period 18 years (20). The share of the largest-size home loans has decreased, and loan periods have become shorter too. This suggests that homebuyers are now more conscientious and moderate with respect to purchasing. The most common reference interest rate for home mortgages is the 12-month Euribor. The downward trend in interest rates also took the average interest rate to an exceptional low, 2.11% for all home loans at the end of A particular feature in 2009 was the high number of customers changing their selected reference interest rate. Several customers sought to change their long Euribor or prime reference interest rate to short Euribors during the spring in order to reduce their interest expenses. In the summer, the situation calmed. The housing market saw great variation over the course of the year. At the end of 2008, residence deals had come almost to a complete standstill. Trading revived in the first half of 2009 and began to accelerate from the summer onwards, exceeding the levels of the previous year. Investors reappeared in the housing market, which further increased demand, particularly for small one- and two-room flats. OP-Kiinteistökeskus estate agents brokered a total of 15,300 residence transactions (14,600), an increase from the year before against the expectations expressed in the first half of the year. OP-Pohjola Group s market shares, % Capital invested in mutual funds, billion Pohjola s funds were transferred in March 2006 to OP Fund Management Company Loans Corporate loans Mortgages Deposits Fund assets OP-Pohjola Group Funds in total

45 Responsibility for corporate financing Effects of the financial crisis were highly prominent in corporate loan demand and supply. Foreign providers of capital retreated from the Finnish market during the crisis autumn of 2008, which increased demand for corporate financing markedly within OP- Pohjola Group. In the course of 2009, need for financing decreased since companies postponed their investments in the midst of financial straits. In January June, banks lending to companies fell by more than 3%, whereas the second half of 2008 had just seen growth of more than 23%. In spite of all this, OP-Pohjola Group increased its market share in corporate loans by nearly a full two percentage points. While the main responsibility for corporate financing lies with Pohjola, member cooperative banks and Helsinki OP Bank have also boosted their market positions as providers of corporate financing. In 2009, EUR 7.1 billion (EUR 9.1 billion) in new corporate and institutional loans was drawn down. More expensive funding was visible in new corporate loans, too, in the form of higher margins. OP-Pohjola Group s objective is to be its customers long-term partner through all economic cycles. This is why we refrained from modifying old loan agreements margins and wanted to respect the agreements also in a difficult economic situation. The objective stated in OP-Pohjola Group s new strategy is to upgrade the Group s corporate business operations and to become the leading financial services group in Finland also in corporate banking. In spite of the weaker economy, customers liquidity problems affecting repayment of loans remained modest. The majority of OP-Pohjola Group s credit losses arose from corporate loans, but the level of these too remained very low. Savers who sought security Distinct changes emerged in saving behaviour in At the beginning of the year, total deposits were at their highest, but as the financial situation became clearer, savings began to flow from term deposits to other savings vehicles. In particular, the share of mutual funds increased markedly. On 31 December 2009, OP Pohjola Group s market share accounted for 33,2% (33.8%) of Finnish financial institutions eurodenominated deposits. Total deposits amounted to EUR 34.6 billion (EUR 34.5 billion). OP-Pohjola Group decisively strengthened its position in the Finnish mutual fund market, attaining a 23.4% (22.5%) share of the capital invested in mutual funds registered in Finland. Measured in terms of Finnish investors assets, the Group s market share rose by 20 percentage points, to climb as high as 28,8%. The Group s market shares regarding investments in mutual funds made by companies, institutions and households saw vigorous improvements. OP-Pohjola Group s Investor Barometer from the autumn of 2009 indicates that Finns are saving more money than previously, over EUR 400 per month. Demand for safe investments in particular is still high. Mutual funds and accounts continue to be the most popular savings and investments. Direct equity investments have also gained popularity, in particular among stock-owning households. This security-orientation demonstrated itself in 2009 in the growth of capital-guaranteed investment. For instance, the sales of capital-guaranteed index loans increased by more than 130%. A legislative reform completed in the autumn of 2009 enables Finns to enjoy extended opportunities to supplement their statutory pension security and tax benefits for the related saving. The new act will introduce a long-term savings account through which a pension savers can benefit from a tax deduction right as soon as they invests in equities, mutual funds, deposits or bonds. OP-Pohjola Group aims to offer a full range of services enabled by the new legislation immediately, in the spring of In December 2009, OP Fund Management Company Ltd and Pohjola Asset Management Ltd signed the United Nations Principles for Responsible Investments (UN PRI). By doing so, they committed to developing their investment activities, with environmental, social and governance (ESG) aspects taken into account in the making of investment decisions. business operations Number of homes traded by OPKK estate agents, Euro-denominated corporate loan portfolio, % 2, month change , , JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC OP-Pohjola Group Markets excl. OP-Pohjola Group

46 Banking and Investment Services Banking and Investment Services, key figures, EUR mill Change, % Earnings before tax, EUR mill Net interest income, EUR mill. 1, Cost/income ratio, % Impairment losses on receivables, EUR mill Non-performing and zero-interest receivables, EUR mill Of the loan and guarantee portfolio, % * Returns to owner-members and OP bonus customers * Percentage points OP Pohjola Group is the forerunner as provider of ebilling services to private and corporate customers. Banking and investment service range Banking and Investment Services is OP-Pohjola Group s largest division. It consists of basic banking services offered for private, corporate and institutional customers: lending, asset management and payment services. Return from savings OP-Pohjola Group offers a comprehensive range of asset management products and services. These include deposits, mutual funds, insurance saving, stock brokerage and debt issuance. OP-Pohjola Group also provides Private Banking services for personalised asset management in a total of 28 units. Thanks to our regional cooperation model, the OP Private service is available from every Group member bank. During 2009, customer assets managed in the Group s Private Banking unit increased by 46.8% and the number of customers by 28.3%. In a Euromoney magazine survey concerning 2009, OP- Pohjola Group s Private Banking activities were ranked highest in Finland s Best Local Bank category, and first place ranking overall in OP Private service is suited to customers with at least EUR 100,000 in assets to invest. In 2009, there were some 485,000 customers who saved regularly through an account, insurance policy or mutual fund. OP-Pohjola Group provides stockbroking services and has some 270,000 custody customers. The customers receive information concerning their investments through custody reports. In addition, the service includes detailed information about returns, risks and cash flows as well as on capital gains on the sale of securities for tax purposes. OP-Pohjola Group s online service offers the most comprehensive investment tools and investment research on the market. In addition to Finnish equities, customers can trade in equities offered on the European and US stock markets. Financing for new homes Residential lending services are designed for buyers and sellers of permanent and leisure-time residences, as well as for builders, tenants and landlords. The residential lending and brokerage services rely on cooperation among the member banks and OP Kiinteistökeskus estate agents, supplemented by Pohjola s insurance policies. In addition to mortgages needed for financing a residence deal, the Group s products include interest-rate cap, repayment security on loans and insurance coverage. The All-in-one Home Mortgage product provides a home loan, a flexible consumer credit facility and home insurance. Home property insurance is available through Pohjola Insurance Ltd. Repayment security insurance providing lenders with protection against major risks is provided by Genworth Financial and OP Life Assurance Company Ltd. The OP Kiinteistökeskus estate agents are subsidiaries of the member banks. Gauged by transaction volume, they are Finland s largest chain operating under a single brand, with a total of 174 outlets. The Group s mortgage bank, OP Mortgage Bank, obtains its funding by issuing mortgage-backed bonds. Deposits, billion Deposits on households' current accounts 12 Companies' current accounts 4 Investment deposits 17 Others 2 44

47 One million OP Visa cards A private customer s basic package for handling daily finances consists of a current account, eservices, online bank statements and an international debit/credit card. For OP bonus customers, a daily finances service package is offered at a more advantageous price. Our customers can easily supplement their service package themselves, too, via our online bank at op.fi. At the moment, international cards are gradually replacing traditional Finnish bank cards. In 2009, the terms credit and debit began establishing themselves also in the common usage in Finnish. More than 85% of OP-Pohjola Group s 2.2 million bank and credit cards are international cards. The summer of 2009 saw the issuing of the one millionth OP Visa card. The OP Visa card range includes OP Visa, OP Visa Gold and OP Visa Platinum credit/debit cards. OP Visa cardholders earn bonuses through the purchases they make with Visa cards. As a result of OP-Pohjola Group and K-Group s co-branded card, by the end of 2009 there were already 746,000 OP Visa cards, OP Visa Electron cards or MasterCards with K-Group s Plussa feature added to them. Consumer credit for other expenses OP-Pohjola Group s consumer lending services cover secured and unsecured consumer credit, used either as revolving credit or for single purchases. Most of the consumer lending consists of secured loans. Unsecured consumer loans are the province of OP Kotipankki Oyj, whose prime service network is formed by the member banks and the online service. On 31 December 2009, the company had a loan portfolio of EUR 736 million (EUR 685 million). Its growth was fuelled, in spite of the challenging economic environment, by sustained demand as well as the higher number and increased use of OP Visa cards. OP Visa combines a debit card and payment and credit facilities. Growth of the loan portfolio was also boosted by the wide use of self-service functions. Pohjola Bank is responsible within OP-Pohjola Group for consumer finance services provided through retailers. One of Pohjola s priorities is vehicle and consumer finance services, and its consumer loans include K-Plussa MasterCard, K-rauta and Rautia accounts with credit facility (hardware), Puustelli-Rahoitus (furniture), and Marimekko MasterCard (garments and designer accessories). Versatile services for companies OP-Pohjola Group offers a variety of alternatives for the daily liquidity management of companies and institutions, for investments and other financing needs. OP-Pohjola Group supports its customers in financial planning and in developing their finance structure. One of the areas of focus is arrangement of finance in capital markets for large and mediumsized companies. In finance company products such as leasing, hire purchase and factoring, collateral is usually the asset to be financed. We also offer comprehensive international financing products. To maintain a company s liquidity, we have several forms of financing, including an overdraft corporate account and factoring. For hedging against risks, we provide, e.g., corporate loan repayment security and interest rate caps and corridors for loans suited to varying market conditions. New online services for corporate customers include the Bank Guarantee Online Service. Pohjola Group provides finance and cash management as well as money, currency and debt capital market services. It grants loans and guarantees as well as leasing and factoring services, arranges financing on the debt market and engages in venture capital investment. business operations Loan portfolio, billion Change, % Home loans Other loans to households ,7 Corporate loans Other loans Total Capital invested in mutual funds,, billion Change, % Equity and hedge funds Balanced funds Long-term bond funds Money market funds Total

48 Banking and Investment Services Pohjola Capital Partners Ltd, a subsidiary of Pohjola Bank plc, focuses on corporate transactions and expansion of profitable SMEs. Equity financing services are offered by Pohjola Corporate Finance Ltd. Pohjola has an extensive global partner network. Pohjola Asset Management Ltd is responsible for the asset management services of the largest corporate and institutional customers. Furthermore, Pohjola Asset Management manages the portfolio of OP mutual funds on a centralised basis. In institutional asset management, Pohjola Asset Management is the market leader. Financing the countryside OP-Pohjola Group s agricultural and forestry customer services include financing, payment transfer, asset management and insurance solutions. We continue to be the market leader in the provision of banking services to agricultural and forestry customers. Our market share in agricultural financing is about 60% brought its challenges to both agriculture and forestry. While the investment aid system under the agricultural financing legislation was reinitiated, investments remained clearly lower than before. This was partly due to the general economic situation and the pressures to cut producer prices, particularly in the dairy and cereal sectors. However, the liquidity of farms remained good. In forestry, the deceleration of the timber trade led to a sharp decline in timber sales revenue. In 2009, Pohjola Insurance Ltd improved its market share as an insurer of farms and forest properties. Into the SEPA era with companies For companies and institutions, OP-Pohjola Group offers tools for managing domestic and cross-border payment transfers, communicates information on money transfers and enables disbursements and transfers of data directly from accounts ledgers. A company can handle its banking securely online or by means of a data link via a batch transfer and also expand its trading to the Internet. Switching over to the Single Euro Payments Area, SEPA, brings many changes to companies everyday business. For private customers, SEPA has meant new payment cards and, in the future, will bring a change in account numbers. In practice, SEPA will render payments anywhere in the area as easy as in the home country. In addition to countries using the euro, SEPA includes the rest of the EU Member States as well as Norway, Iceland, Switzerland and Liechtenstein. Changes arising from SEPA involve accounts, credit transfers, cards and direct debit. The Single Euro Payments Area will be implemented gradually. Adoption of the Single Euro Payments Area system began in January 2008 with the introduction of SEPA transfers. With SEPA Credit Transfer, the price for transferring money from one account to another is the same within Finland and elsewhere within the euro area. Money will arrive on the recipient s account within the euro area in a few days, and, from 2012, the procedure will take no more time than a domestic transfer. After 2010, domestic account numbers will be expressed in the IBAN (International Bank Account Number) format, and payments will require the bank s BIC (Bank Identifier Code). Large companies, in particular, will switch to using international account numbers according to a quite tight schedule. In 2009, Finnish banks agreed on a schedule for switching over to SEPA, which facilitates the development of services. In the beginning, the changes have mainly been technical ones. Future SEPA-related reforms will open up opportunities and tools for companies to control their operations and business or to revamp their cash management or financial management. OP-Pohjola Group stands as a partner of companies in the development of new services. OP-Pohjola Group is also in the forefront in providing electronic billing services to private and corporate customers alike. We were the first bank in Finland to introduce our ebilling service for private customers (implemented in 2005), and by the end of 2009 there were already 860,00 private customers who had activated the service (260,000). Some 60% of private customers using OP-Pohjola Group s online services have indicated their desire to receive bills in electronic form. The total number of B2C ebilling agreements comes to approximately 330 and that of C2C ebilling agreements around 45,000. Companies are continuing to switch to electronic billing at an accelerating pace, and the number of outgoing and incoming ebills is increasing rapidly. 46

49 Life Insurance OP-Pohjola Group offers an extensive range of products for insurance saving and for insuring life and health risks. For corporate and institutional customers, we also have products for rewarding and committing personnel and for supplementing pension cover. Insurance savings from unit-linked schemes 6.1 billion 39% Market share in unit-linked insurance savings 25% Solvency ratio 13.3% OP Life Assurance Company Ltd is OP-Pohjola Group s life insurance company specialising in product and service development and in insurance and claims services. OP Life Assurance Company s objective is to provide OP-Pohjola Group s customers cost-efficiently with high-quality insurance products corresponding to all their life and pension insurance needs. In line with OP Life Assurance Company s strategy redefined in the summer of 2009, the company seeks above-market-average growth in unit-linked saving, pension insurance and term insurance. The company held a 20.4% market share of unit-linked premiums written. Furthermore, 2009 saw many transfers of group pension portfolios, meaning that companies moved their pension liabilities from their own pension funds into an insurance policy. In such group pension portfolio transfers, OP Life Assurance Company has been the market leader for several years, and it also leads the term insurance market. OP Life Assurance Company s product and service development aims, for instance, to regularly introduce new investment instruments in which customers can invest assets accrued in their insurance. In 2009, the company launched three of its own investment portfolios leveraging the company s investment expertise. The investment product range will be further developed during The life insurance industry in transition Following three relatively lean years, total premiums written in the life insurance sector turned upwards in Premiums written were 18% higher than in the previous year, totalling EUR 3,1 billion. The greatest growth driver was capital redemption contracts, the related premiums written tripling to EUR 696 million. Premiums written from term life policies remained at the previous year s level. OP Life Assurance Company s premiums written in 2009 totalled EUR 771 million (767). Unit-linked premiums written came to EUR 377 million, or 19% more than on the previous year. The Government s bill on bound long-term saving eroded the sales of individual pension insurance markedly during the second half of Premiums written in pension insurance came to EUR 235 million (279). Financial uncertainties increased the sales of term policies, and the autumn revival of loan demand had a positive effect on the sales of term policies linked to loans. Premiums written in term insurance came to EUR 71 million (73). The capital adequacy of life insurance companies improved substantially following the recovery of the investment market and companies investment incomes. OP Life Assurance Company s solvency ratio was 13,3% (6,2%) at the end of business operations Life Insurance: key figures Change, % Premiums written, IFRS, million share of unit-linked premiums written, % * Insurance savings, million share of unit-linked savings, % * Earnings before tax (IFRS) at fair value, million Solvency ratio, % * Expense ratio, % * Personnel * Percentage points 47

50 Life Insurance OP-Pohjola Group is an expert in insurance saving and in insuring life and health risks. Private customers OP Life Assurance Company offers OP-Pohjola Group s customers versatile products for insurance saving and insuring life and health risks. Insurance saving products are intended for regular saving over a specified period or one-time investment as well as for supplementing the statutory pension cover. Savings and unitlinked policies are best suited to customers wishing to manage their savings actively yet conveniently. Such policies enable bundling a number of mutual funds or other investment instruments, which may be switched without any surcharge. Taxes are not levied on the return on the savings until the agreement expires. Pension policies are a flexible means of supplementing the statutory pension cover. While pension insurance premiums are deductible in taxation, the pension paid will be taxable income. Pension insurance is a taxsubsidised form of long-term saving wherein customers cannot access their savings prior to the pension period, apart from in exceptional cases. Our product range in tax-subsidised pension saving will be extended as of 1 April 2010 to cover deposits, mutual funds, equities and bonds. Private customers Change, % Unit-linked insurance savings, billion Premiums written in pension insurance, million 105,5 108, Premiums written in term insurance, million ,7 4.1 Insuring life and health risks is still insufficient in Finland, since the greatest risk that may weaken a family s subsistence is the breadwinner s death or permanent incapacity for work. OP Life Assurance Company s term life policies provide opportunities to prepare for these risks. They can be either taken out as separate products or associated with, for example, insurance for credit. Corporate and institutional customers OP Life Assurance Company provides corporate and institutional customers with versatile products for rewarding and committing their employees, supplementing their pension cover and insuring them against personnel risks. Our products are also highly suited to an entrepreneur s own needs. According to estimates, competition for skilled labour will intensify in the coming years. Concern over the sufficiency of statutory pension cover also increases the need for supplementary pension cover. With OP Life Assurance Company s pension policies, a company can reward and commit its key employees and supplement their statutory pension cover. Such pension policies can be taken out either as group pension policies covering all of the company s personnel or a certain group of employees or as individual pension policies concerning individual employees. For a company, pension insurance premiums are tax-deductible business expenses, and the pension paid will be taxed as the recipient s earned income. Corporate and institutional customers Change, % Unit-linked insurance savings, million 162,1 245, Premiums written in pension insurance, million 173,2 125, Premiums written in term insurance, million Often, personnel risks are critical as regards the continuity of the company s business operations. Preparing against them is possible through term insurance, providing cover in the event of an employee s death or incapacity for work. Term policies too can be used for committing the company s key employees or securing the finances of an employee s family against certain risks. Term policies can also be taken out as group or individual policies. In September 2009, the Finnish Government proposed a bill on new, tax-subsidised long-term saving. The bill was passed and the Act entered into force in January 2010, extending the tax incentive of pension saving also to other savings vehicles such as deposits, mutual funds, equities and bonds. Deposit banks, investment service companies and fund management companies can begin offering new products enabled by the Act as of 1 April OP Pohjola Group will begin providing new products compliant with it on that very date. 48

51 Insurance savings, billion Assets managed by OP Life Assurance Company (i.e., insurance savings) total EUR 6.1 billion. For interest-bearing insurance savings, we pay a fixed technical rate of interest and an annually confirmed customer bonus based on the company s result. Return from unit-linked policies is determined by the value performance of the investment assets selected by the customer Unit-linked Interest-bearing Market share in unit-linked insurance savings, % In line with its strategy confirmed in June 2009, one of OP Life Assurance Company s priorities is reinforcing its position in the unit-linked insurance savings market. business operations Number of policyholders 800, , , , , , , ,000 Insurance portfolios managed by OP Life Assurance Company cover more than 600,000 policyholders. Savings and unit-linked policies concern 32% of the policyholders, pension policies 34% and term life policies also 34%. Additionally, Suomi Mutual purchases its insurance portfolio management, involving its more than 300,000 customers, from OP Life Assurance Company

52 The best loyalty benefits

53 Customers concentrating their service use with OP-Pohjola Group are rewarded with the market s best loyalty benefits. This is a way of distributing our business profits to customers in the form of financial benefit, while promoting convenience in transactions. OP bonuses can be used for paying both banking services and non-life insurance premiums.

54 Non-life Insurance OP-Pohjola Group is Finland s leading non-life insurer. Pohjola provides private customers and corporate and institutional customers with a diverse and comprehensive insurance coverage. Our Non-life Insurance business divisions include Private Customers, Corporate Customers and the Baltic States. Insurance premium revenue 943 million Operating combined ratio 87.7 Claims paid 617 million Market share in Finland (2008) 27.5% Personnel in Finland 1,774 In the Finnish non-life insurance market, total premiums written in 2009 by insurance companies are estimated at EUR 3.3 billion. Of total premiums written, statutory insurances account for some 40% and voluntary insurances for 60%. Private households insurances represent more than half of voluntary non-life insurances, the rest being companies and institutions insurances. Some 85% of total premiums written are attributable to the four largest insurance company groups. The Finnish non-life insurance market was hit by a major slowdown in 2009 when the recession reduced insurance premium revenue within corporate insurance in particular, as a result of a fall in payroll bills and corporate net sales. However, Pohjola has retained its market leadership. Last year, the non-life insurance market shrank in Estonia by 11%, in Latvia by 30% and in Lithuania by 26%. Pohjola s market share is 12% in Estonia, 5% in Latvia and 3% in Lithuania. Today, property risks and life and health risks in particular are insured to a smaller extent in Finland than in other Nordic countries. Therefore, growth potential in terms of life and health insurance in Finland is significant. In the Baltic States, the insurance market is young and the ratio of premiums written to GDP is still rather low. While demand exists for extending customers insurance cover, in the current economic situation increasing the premiums written is proving a challenge. Integration creates power The strength of Pohjola Insurance in the Finnish market lies in OP-Pohjola Group s strong market position as well as its extensive branch network and comprehensive range of services. Cooperative banks operations are based on a local approach and profound knowledge of customers, which creates an exceptionally high potential for selling non-life insurances to both private and corporate customers. The key content of our CRM concept for private customers pertains to loyal customer relationships promoting customer retention and the purchase of policies on a one-stop-shop basis. Loyal customer households are defined as households which have taken out Pohjola policies within at least three product lines. In the future, we will begin offering our customers products and services related to wellbeing. Pohjola s Non-life Insurance Pohjola Insurance Ltd A-Insurance Ltd Eurooppalainen Insurance Company Ltd Seesam Estonia Seesam Latvia Seesam Lithuania General insurance Insurance for commercial transport, earthwork and machinery contractors Travel insurance General insurance General insurance General insurance 52

55 Customers Change, % Private customers 1,678,000 1,690, Corporate customers 122, , Non-life Insurance investment portfolio by allocation, % Combined ratio, % Money market Bonds and bond funds Venture capital investments Equities Alternative investments Properties Loyal customer households, growth and total Insurance premium revenue, million business operations 40, ,000 1,000 32, , , , Growth in the number of loyal customer househol ds Number of loyal customer households Target 16,000 8, , , ,

56 NON-Life Insurance Thanks to OP bonuses and loyal customer benefits granted by OP-Pohjola Group to its private customers, customers using both the Group s banking and insurance services can use their OP bonuses earned through banking transactions to pay non-life insurance premiums. In 2009, OP bonuses were used to pay for some 914,300 premiums, with 25% paid in full with bonuses. Bonuses have reduced insurance premiums by an average of EUR 63. As part of cooperation between OP-Pohjola Group and K-Group, K-Plussa loyal customers also earn K-Plussa points by paying their Pohjola insurance premiums, covering home, family and motor vehicle insurance policies. Pohjola s own service offering is complemented by its partner, Ilmarinen Mutual Pension Insurance Company s, statutory employee pension insurances. Aiming at profitable growth The goal of Pohjola Insurance is to continue above-market-average growth, to strengthen its market leadership and to retain the solid profitability of its business operations. Market position in non-life insurance can be reinforced through efficient use of the Group s joint customer base and service network, as well as by intensifying the integration of banking and non-life insurance operations. With respect to both private and corporate customer segments, new customers are sought particularly from member cooperative banks clientele, aiming at comprehensive, permanent customer relationships. Our objective is to increase the number of loyal customer households to 450,000 by the end of 2010, which would mean 50% growth since At present, 55% of Pohjola s loyal customer households are also OP-Pohjola Group s loyal customers. Regarding corporate customers, we aim at increasing our market share particularly in the small and medium-sized companies segment. Products and services related to wellbeing will form a new business growth area assembled around our insurance selection. It will utilise the entire Group s service offering. We will place a special emphasis on new solutions related to wellbeing, OP-Pohjola Group s combination products and new opportunities at the interfaces between the public and private sectors. Non-life insurance refers to bearing the customer s risk against an insurance premium. Non-life Insurance operating profit is based on the balance on technical account and investment income. Balance on technical account refers to insurance premium revenue less claims incurred and operating expenses. The most important profitability indicator is the combined ratio showing the proportion of claims incurred and operating expenses versus insurance premium revenue. Profitability of non-life insurance is supported by e.g. risk-based pricing, proactive loss prevention, reinsuring the greatest individual risks and the efficiency of claims settlement services. In investing assets covering technical provisions, we use a diversified investment portfolio in order to ensure profits and security. Investment activities aim to generate added value for non-life insurance operations. For customers, non-life insurance usually becomes concrete in terms of compensation paid. Pohjola s extensive partner network and efficient purchasing is creating a competitive edge to the company. The member banks are the main sales channel for non-life insurance. 54

57 Even more electronic transactions Our main policies for private customers include statutory and voluntary motor liability policies, household policies and accident, medical treatment expenses and travel policies. We also provide policies under group insurance through, for example, associations. Private customers can buy non-life insurance policies and update their insurance cover at 313 branches of OP-Pohjola Group member banks supplemented with an extensive network of agents. We also have our national telephone service ( in English) and online service. In insurance online services, customers can view their insurance information, submit claims or review loss report details. For companies and institutions, we offer all statutory and voluntary insurances. Our main policies consist of statutory workers compensation insurance, property and business liability insurance and statutory and voluntary corporate motor vehicle insurance policies. Proactive loss prevention, safety counselling and risk management are key elements of both private and corporate customers services. As of 2010, Pohjola Group restructured its organisation so that, for large and medium-sized customers, a dedicated contact person will be responsible for both banking and insurance services vis-à-vis the customer. Swift claims settlement We take pride in providing swift and efficient claims settlement services, thanks to our extensive and comprehensive partner network. Furthermore, Pohjola has entered into partnership with firms representing over 20 industries, such as healthcare services providers, car repair shops, building renovation firms and household appliance retailers, with the aim of ensuring cost-efficient and even-quality claims settlement services and the easy availability of services. The goal of claims settlement is to further improve customer satisfaction and the speed of service. This will be attained through a reform of the claims settlement services operating model and by adopting a new claims settlement system in support of the new operating model. The related planning will begin early in 2010, with the new operating model gradually adopted as of Services on international markets RSA, a world leading non-life insurer with network-based operations in 135 countries, is Pohjola s partner in providing overseas insurance services for corporate customers operating in the international market. In order to limit risks, Pohjola reinsures all of the largest individual risks and any accumulation of risks entailed by possible catastrophes. For risk diversification, Pohjola has 35 reinsurer partners, the main reinsurer being Munich Re. According to an assessment by S&P, all of Pohjola s reinsurance partners are in class A. business operations Non-life Insurance, key figures Change, % Earnings before tax, million Operating combined ratio, % * Operating expense ratio, % * Return on investments at fair value, % * Solvency ratio, % * Personnel 2,018 2, * Percentage points 55

58 POHJOLA IN BRIEF Pohjola is a Finnish financial services group with a mission to promote its customers prosperity, security and wellbeing. To corporate and institutional customers, Pohjola offers a versatile range of banking, non-life insurance and asset management services, while providing private persons with comprehensive non-life insurance and private banking services. Pohjola grows profitably in order to ensure a competitive total shareholder return. Market position as corporate bank 2nd Market position as non-life insurer 1st Market position as institutional asset manager 1st Shareholders 37,000 Employees 3,000 In its operations, Pohjola places a strong emphasis on profitability and increasing the company s value, and is also committed to strong capitalisation and a shareholder-friendly dividend policy. Pohjola Group operates through the following three business segments: Banking, Non-life Insurance and Asset Management. This operating model has also proven effective in the challenging operating environment, and market shares for all divisions improved in In Banking, Pohjola operates as a corporate bank for large and medium-sized companies. The company s market share in corporate lending in Finland was 19,7% at the end of 2009, making Pohjola Finland s second largest corporate lender. Pohjola provides its domestic customers with a diverse range of financial, investment and payment transfer solutions, including at international level, and offers foreign customers banking services for business needs in Finland and the neighbouring regions. Pohjola s goal is to become the market leader as a corporate bank for large customers and, together with OP-Pohjola Group s member cooperative banks, as the leading bank for small and medium-sized companies. Within Non-life Insurance, Pohjola offers private customers as well as corporate and institutional customers with a versatile insurance coverage. Pohjola is Finland s leading non-life insurer of companies and public institutions. In terms of premiums written, Pohjola is Finland s largest non-life insurance company. Pohjola s aim is to continue to strengthen its market share, for example, through comprehensive customer relationships and intense cooperation with OP-Pohjola Group member banks. Asset Management provides asset management services for institutions and private customers. It also bears chief responsibility for OP funds portfolio management. Pohjola is the leading institutional asset manager in Finland, with assets under its management totalling EUR 33.1 billion on 31 December Targets over the economic cycle Target Group Return on equity at fair value, % Tier 1 ratio, % 13 > Financial Banking Operating cost/income ratio, < targets Non-life Insurance Operating combined ratio, % Operating expense ratio, % Solvency ratio, % 92 < Asset Management Operating cost/income ratio, % < Rating TARGET AA rating issued by at least two credit rating agencies DIVIDEND POLICY We aim to distribute a minimum of 50% of earnings per share in dividends, provided that Tier 1 stands at a minimum of 9.5% >_

59 Part of Finland s largest and best-performing financial services group Pohjola is part of OP-Pohjola Group, the leading financial services group in Finland. Being part of OP-Pohjola Group provides Pohjola with a unique competitive edge. The Pohjola and OP-Pohjola Group logo is among Finland s best known. Pohjola also benefits from Finland s largest service network and significant potential for growth and cross-sales. OP-Pohjola Group boasts over four million customers, the number of those using both banking and insurance services exceeding one million. Pohjola Bank acts as OP-Pohjola Group s central bank and is responsible for the Group s liquidity and international operations. OP-Pohjola Group s credit institutions take responsibility for each other s liabilities and commitments, which strengthens Pohjola s credit ratings. Shares and shareholders Pohjola Bank plc shares are divided into Series A and K shares. While Series A shares have been quoted on the Main List of the Helsinki Stock Exchange since 1989, Series K shares can be held only by OP-Pohjola Group s entities. If a dividend is paid, Series A shares entitle their holders to an annual dividend which is at least three (3) cents higher than the dividend declared on Series K shares. On 31 December 2009, Pohjola had 37,000 registered shareholders, representing an increase of 21% during the year. The Business structure POHJOlA group Fitch F1+ AAlargest shareholder was OP-Pohjola Group Central Cooperative, the parent entity of Pohjola, representing 30.0% of all shares and 57.0% of votes. Share performance, turnover and market capitalisation Pohjola s share price fell by 4% in 2009, while the weighted index of the OMX Helsinki CAP rose by 45%. On 31 December 2009, the share closed at EUR 7.55 against EUR 7.88 a year earlier. The share price reached a high of EUR 9.31 and a low of EUR The average number of shares traded was 175 million, as against 119 million a year ago. The market value of all Series A shares totalled EUR 2.4 billion on 31 December Total shareholder return vis-à-vis a group of peer banks and insurance companies Series A share Peer bank group Peer insurer group business operations Banking Non-life Insurance Asset Management Group Functions Corporate Banking Markets Baltic Banking Corporate Customers Private Customers Baltic States Institutional Clients Private Finance Group Treasury Risk Management HR Services Corporate Communications Pohjola s key figures and ratios Earnings before tax, million Earnings per share, Proposed dividend/share (A share), Market capitalisation, (A and K), billion Pohjola Bank s Annual Review, the Report by the Board of Directors and the Financial Statements 2009 are also available at pohjola.fi. Pohjola Bank plc s credit ratings on 31 December 2009 Rating agency Short-term debt Long-term debt Standard & Poor s A-1+ AA- Moody s P-1 Aa2 57

60 Finnish roots

61 The 1.3 million owner-members constitute a solid Finnish ownership base for cooperative banks, entailing our commitment to the home country both in terms of business solutions and emotionally. On the integrating market, this also means offering international services to our customers.

62 Structure and Governance of OP-Pohjola Group OP-Pohjola Group is composed of the amalgamation of the cooperative banks and of other Group companies. Together they form a financial and insurance conglomerate. One of the aims of OP-Pohjola Group s corporate governance is transparency. OP-Pohjola Group includes member cooperative banks; OP-Pohjola Group Central Cooperative with its subsidiaries, the largest of which is Pohjola Bank plc; and Pohjola s Group companies, such as Pohjola Insurance Ltd. OP-Pohjola Group Central Cooperative acts as the central institution for the amalgamation of Group member banks. Amalgamation of cooperative banks The amalgamation of cooperative banks is formed by its central institution, OP-Pohjola Group Central Cooperative; the commercial bank acting as the central bank of the cooperative banks (Pohjola Bank plc); other member credit institutions of the central institution; the companies belonging to the consolidation groups of the central institution; and the member credit institutions, credit and financial institutions or service companies in which one or more of the above-mentioned entities alone or jointly hold, in total, more than half of the voting rights. The amalgamation of cooperative banks is an entity defined in the Finnish Act on Cooperative Banks and Other Cooperative Credit Institutions. Its capital adequacy, liquidity and customer risks are monitored on a consolidated basis, and the central institution and its member credit institutions are ultimately responsible for each other s liabilities and commitments. The financial and insurance conglomerate formed by OP-Pohjola Group OP-Pohjola Group is composed of the amalgamation of the cooperative banks and those companies in which the amalgamated entities hold more than half of the total number of votes. The extent of OP-Pohjola Group differs from that of the amalgamation of the cooperative banks in that OP-Pohjola Group subsumes companies other than credit and financial institutions or service companies. The most important of these are the insurance companies with which the amalgamation forms a financial and insurance conglomerate. The legal structure of the amalgamation of the cooperative banks and the rest of OP-Pohjola Group is discussed in greater detail in the Group s financial statements and the Report by the Executive Board. Member banks Group member cooperative banks are independent, local deposit banks engaged in retail banking and OP-Pohjola Group Central Cooperative s member credit institutions. In terms of their corporate form, they are cooperatives whose basic values underlying decisionmaking include the one member, one vote principle. Within the member cooperative banks, the highest decision-making body is the Representative Assembly or Cooperative Meeting consisting of owner-members, which elects a Supervisory Board for the bank. The Supervisory Board, in turn, elects an Executive Board for the bank. Central Cooperative subsidiary Helsinki OP Bank Plc is responsible for providing corresponding retail banking services in the Helsinki Metropolitan Area. Cooperative bank federations The cooperative bank federations are regional cooperation bodies for the member banks, their corporate form being registered association. Finland is divided among 16 federations of cooperative banks. The purpose of cooperative bank federations is active promotion of their member banks regional cooperation. The federations nominate regional candidates for the OP-Pohjola Group Central Cooperative Supervisory Board. OP-Pohjola Group Central Cooperative OP-Pohjola Group Central Cooperative is the central institution of the amalgamation of cooperative banks. Its members can include credit institutions, as referred to in the Act on Cooperative Banks, whose statutes or articles of association have been approved by the Central Cooperative. The Supervisory Board takes decisions on admitting new members. OP-Pohjola Group Central Cooperative also acts as a strategic owner institution and an undertaking at the head of the financial and insurance conglomerate formed by OP-Pohjola Group. It is also in charge of control and supervision throughout the Group. The Central Cooperative is owned by the member banks. The Central Cooperative has the mission of providing foundations for OP-Pohjola Group s unity and success, and its goal is to be a valued competence and service centre. Cooperative Meeting The Cooperative Meeting and the Supervisory Board elected by it have the highest decision-making powers within OP-Pohjola 60

63 Group Central Cooperative. The Annual General Meeting of the cooperative is held before the end of May in the cooperative s domicile, Helsinki. The Annual Cooperative Meeting deals with the issues mentioned in the OP-Pohjola Group Central Cooperative Statutes, such as the adoption of the parent and consolidated income statement and balance sheet for the previous financial year. The meeting also decides upon discharging the Supervisory Board, Executive Board and President from liability and elects members of the Supervisory Board and an auditor. Board and the head of the Audit function. It also decides on the division of responsibilities among the Executive Board Chairman, the President and the other members of the Executive Board. Under its statutes, the Central Cooperative s Supervisory Board has a minimum of 32 and a maximum of 36 members elected by the Cooperative Meeting. A minimum of 16 and a maximum of 20 members shall be elected to the Supervisory Board, in such a way that the Supervisory Board has at least one member from each of the 16 cooperative bank federation regions. Another 16 members are from areas covered by the federations of cooperative banks, OP-Pohjola Group is Finland s largest Financial Service Group. At the cooperative meeting, members receive a number of votes equal to the amount of the cooperative contributions they have paid in. Member banks with a good financial standing have additional votes as stipulated in greater detail in the Central Cooperative Statutes. However, no single member may cast more than two per cent of the votes represented at the meeting. The Central Cooperative s subsidiaries which are members of the cooperative are entitled to participate in the cooperative meeting with a right to speak but not to vote. Supervisory Board The Supervisory Board shall supervise the Central Cooperative s corporate governance, managed by the Executive Board and the President, and ensure that the cooperative s operations are managed in a professional and prudent manner in accordance with the Cooperatives Act and in the best interests of OP-Pohjola Group. The Supervisory Board must also confirm OP-Pohjola Group s core values, strategy, joint objectives and operational policies and principles. It also confirms the general principles for the supervision of OP-Pohjola Group s capital adequacy and the cooperative s operations and financial targets. Furthermore, the Supervisory Board elects and dismisses the Executive Chairman, the President and the other members and deputy members of the Executive with the number of members from the member banks involved determined on the basis of capital adequacy. The members of the Supervisory Board shall elect from amongst their number a chairman and two vice chairmen. Supervisory Board members emoluments and other benefits The Cooperative Meeting is in charge of deciding on emoluments payable to the members of the Supervisory Board. The Chairman receives EUR 5,000 a month, Vice Chairman EUR 2,500, and regular members EUR 300 per month. Daily allowances and compensation for travel expenses are paid in accordance with the Central Cooperative s travel expenses regulations. Executive Board The Central Cooperative s corporate governance is exercised by the Executive Board, whose members are elected by the Supervisory Board. Members are elected such that they hold their positions until further notice. The Executive Board s task is to direct the Central Cooperative s operations in accordance with the relevant acts of law and the Central Cooperative Statutes. The Executive Board comprises a Chairman, who is called the Executive Chairman; the President, who acts as the Executive structure and governance Salaries and emoluments, Fringe benefits, Executive Board remuneration Executive Board Chairman, Executive Chairman 862, ,914 33,261 32,764 Other Executive Board members and deputy members 2,476,257 2,560, , ,809 61

64 OP-pohjola GROUP Board s Vice Chairman; and, in accordance with the Central Cooperative Statutes, a minimum of two and a maximum of four members and a maximum of four deputy members. At the beginning of 2010, the Executive Board consisted of the Executive Chairman, the Vice Chairman, four members and two deputy members. The Executive Board is collectively responsible for the matters upon which it decides jointly at its meetings. In addition, Executive Board members and deputy members bear operational responsibility for the fields and organisational entities designated the them individually. Executive Board members emoluments and other benefits The OP-Pohjola Group Central Cooperative Supervisory Board shall decide on remuneration and other emoluments and benefits payable to OP-Pohjola Group s Executive Chairman, the Central Cooperative s President, other members and vice members of the Executive Board of the Central Cooperative. Approved by the Supervisory Board, a written executive contract stipulates the terms and conditions governing each Executive Board member s and vice member s employment. The Executive Chairman s retirement age is 62, while the Board members and vice members retire at 63, the pension benefits determined in accordance with pension legislation and OP-Pohjola Group s own pension plans. The period of notice for both the abovementioned persons and the employer is a maximum of 6 months. A regular salary will be paid to them during a notice period added with a severance pay equivalent to a 12-month salary. Pohjola Bank plc Pohjola Bank plc (Pohjola) is a subsidiary of OP-Pohjola Group Central Cooperative. The bank s highest decision-making powers rest with the Annual General Meeting and the Board of Directors elected by it. At the end of 2009, the Board of Directors consisted of eight members, of whom the Chairman and Vice Chairman were also members of the Central Cooperative Executive Board. Pohjola s business is headed by the President and CEO, assisted by the Group Executive Committee, which is made up of key business lines executive vice presidents and heads of other operations. More detailed information on Pohjola Bank plc s corporate governance can be found in the Pohjola Bank plc Annual Review. Other major subsidiaries of OP-Pohjola Group Central Cooperative Helsinki OP Bank Plc is engaged in retail banking in the Helsinki Metropolitan Area. OP Life Assurance Company Ltd runs OP-Pohjola Group s life and pension insurance operations in a centralised manner and sees to their development. The company s portfolio includes life, pension, investment and term insurance services. OP Fund Management Company Ltd manages OP-Pohjola Group s mutual funds. It makes use of the service network of the member banks and Helsinki OP Bank as well as OP-Pohjola Group s online services in selling fund units. OP Mortgage Bank, acting via the member cooperative banks, grants long-term housing loans against full collateral. The bank finances its operations by issuing mortgage-backed bonds. OP-Kotipankki Oyj provides unsecured consumer loans to the cooperative banks private customers. Other institutions OP Pension Fund sees to OP-Pohjola Group s statutory pension security, while OP Pension Foundation handles the supplementary pension security for persons covered by it. OP Bank Group Mutual Insurance Company is OP-Pohjola Group s internal insurance company. It is part of the Group s internal risk management system. OP-Pohjola Group s corporate governance OP-Pohjola Group s operations comply with the laws of Finland and standards issued by virtue of them. OP-Pohjola Group s operations are specifically governed by the Act on Cooperative Banks and other Cooperative Institutions, the Act on Credit Institutions, the Act on the Supervision of Financial and Insurance Conglomerates, the Cooperatives Act and the Insurance Companies Act. Furthermore, Pohjola Bank plc complies with provisions and instructions governing public limited companies. In addition, Pohjola Bank plc complies with the Finnish Corporate Governance Code approved by the Securities Market Association in October However, Pohjola s corporate governance and control system deviates from this code for reasons attributable to the Group structure and intense cooperation between the company and OP- Pohjola Group s other entities. Deviations from the code have been explained in accordance with the comply or explain principle in Pohjola Bank plc s Corporate Governance Statement. Member cooperative banks and cooperative bank federations have confirmed their own corporate governance recommendations. The member bank recommendations concern, for instance, the banks governing bodies and their composition, remuneration, internal control, risk management, internal audit and communication. The recommendation for cooperative bank federations concerns the federations operations and purpose, the formation of their members voting rights, and other issues pertaining to a federation s meetings as well as the terms of office of a federation s Executive Board members. The OP-Pohjola Group Corporate Governance Statement is available at op.fi, under OP-Pohjola Group OP-Pohjola Group in a nutshell. 62

65 Decision-making in OP-Pohjola Group Cooperative Meeting OP-Pohjola Group Central Cooperative s Supervisory Board Executive Chairman Pohjola Bank s Board of Directors OP-Pohjola Group Central Cooperative s Executive Board Direct ownership structure within OP-Pohjola Group on 31 December 2009 Share of ownership, % Member cooperative banks Pohjola Group Central Cooperative Group total OP-Pohjola Group Central Cooperative 100,0 0,0 100,0 Pohjola Bank plc 14,4 30,0 44,6 Pohjola Insurance Ltd 100,0 100,0 Eurooppalainen Insurance Company 100,0 100,0 A-Insurance Ltd 100,0 100,0 Seesam Companies 100,0 100,0 Pohjola Asset Management Ltd 90,0 90,0* Pohjola Corporate Finance Oy 66,0 66,0* Pohjola Property Management Ltd 100,0 100,0 Pohjola Capital Partners Oy 65,0 65,0* Pohjola IT-Procurement Ltd 100,0 100,0 Pohjola Finance Estonia As 100,0 100,0 Pohjola Finance SIA 100,0 100,0 UAB Pohjola Finance 100,0 100,0 OP Life Assurance Company Ltd 15,0 9,0 76,0 100,0 Helsinki OP Bank Plc 100,0 100,0 OP-Kotipankki Oyj 60,7 16,9 18,5 100,0 OP Mortgage Bank 100,0 100,0 OP Fund Management Company Ltd 100,0 100,0 OP IT Procurement LTD 100,0 100,0 OP Bank Group Mutual Insurance Company 78,5 14,9 100,0 structure and governance Member cooperative banks account for 13% and OP-Pohjola Group Central Cooperative for 57% of Pohjola Bank plc s votes. * Other ownership by company staff. 63

66 OP-Pohjola Group Central Cooperative s Supervisory Board Etelä-Pohjanmaa Jorma Vierula, Director, Seinäjoki, Jussi Ruuhela, Managing Director, Alavus, 2009 (2012) * Etelä-Suomi Leif Laine, Managing Director, Hyvinkää, Tomi Korpisaari, Managing Director, Hausjärvi, 2009 (2012) * Jorma Pitkälä, maakuntaneuvos (Finnish honorary title), Hämeenkoski, 2009 (2012) * Kaakkois-Suomi Jarmo Partanen, Professor, Lemi, Kyösti Harju, maanviljelysneuvos (Finnish honorary title), Lappeenranta, 2009 (2012) * Marjo Partio, Managing Director, Jaala, 2009 (2012) * Kainuu Keijo Väänänen, Professor, Vaala, Keski-Pohjanmaa Tapio Kurki, maanviljelysneuvos (Finnish honorary title), Kokkola, Keski-Suomi Jaakko Pehkonen, Professor, Jyväskylä, , Deputy Chairman of the Supervisory Board Heikki Rosti, Managing Director, Jämsä, 2009 (2012) * Lappi Pekka Ahvenjärvi, Lawyer, Tornio, Markku Salomaa, Managing Director, Rovaniemi, 2009 (2012) * Pirkanmaa Olli Lehtilä, Managing Director, Tampere, Timo Viitanen, Headmaster, Pälkäne, 2009 (2012) * Pohjois-Karjala Juhani Leminen, Managing Director, Polvijärvi, Paavo Pelkonen, Professor, Joensuu, 2009 (2012) * Pohjois-Pohjanmaa Paavo Haapakoski, liikuntaneuvos (Finnish honorary title), Pyhäjoki, , Chairman of the Supervisory Board Timo Levo, kauppaneuvos (Finnish honorary title), Oulu, 2009 (2012) Pohjois-Savo Päivi Nerg, Director of Administration, Kuopio, , resigned with effect from 1 Oct 2009 Antti Hult, Managing Director, Kuopio, 2009 (2012) * Satakunta Marita Marttila, Senior Nursing Officer, Vampula, Juhani Suoramaa, rakennusneuvos (Finnish honorary title), Rauma, 2009 (2012) * Jarmo Tuovinen, talousneuvos (Finnish honorary title), Harjavalta, 2009 (2012) * Suur-Savo Kari Manninen, Managing Director, Mikkeli, Markku Lehtosaari, kunnallisneuvos (Finnish honorary title), Savonlinna, 2009 (2012) * Sydkusten Ola Eklund, Product Director, Karjaa, Varsinais-Suomi Jukka Hulkkonen, Managing Director, Halikko, , Deputy Chairman of the Supervisory Board Irja Hirsinummi, Managing Director, Tarvasjoki, 2009 (2012) * Mauri Kontu, Entrepreneur, Uusikaupunki, 2009 (2012) * Österbotten Bo Storsjö, Farmer, Kristiinankaupunki, Other members: Timo Parmasuo, Chairman of the Board, Espoo, Harri Sailas, Managing Director, Helsinki, The term of office of the members of the Supervisory Board is three years. * Members elected on the basis of the capital adequacy of their member banks. While their term of office is a maximum of three years, it may end before this should the allocation of seats among Cooperative Bank Federations change. 64

67 OP-Pohjola Group Central Cooperative s ORGANISATION EXECUTIVE CHAIRMAN Chairman of the Executive Board Reijo Karhinen PRESIDENT Vice Chairman of the Executive Board Tony Vepsäläinen CUSTOMER RELATIONSHIPS AND SERVICE CHANNELS Erkki Böös 1) BANKING AND INVESTMENT SERVICES Harri Nummela 1) ICT AND HR SERVICES Heikki Vitie 1) BUSINESS CONTROL Harri Luhtala 1) AUDIT FUNCTION 3, 5) Leena Kallasvuo CRM and Loyalty Benefits Hanna Hartikainen Marketing Stina Suominen Sales Channels and Support Kai Koskela Contact Centre Jouko Lehtonen OP LIFE ASSURANCE COMPANY LTD Jarmo Kuisma 4) RISK MANAGEMENT Erik Palmén 4) Risk Exposure and Modeling Eva Tüll Credit Risk Management Tuomo Metsäaro OP Bank Group Mutual Insurance Company Tuomo Metsäaro 1) Executive Board member Payment Transfer Services Anne-Mari Tyrkkö Financing Services Mikko Hyttinen OP Mortgage Bank plc Lauri Iloniemi OP-Kotipankki Oyj Kai Patovirta Asset Management Services Mika Kivimäki OP Fund Management Company Ltd Mika Kivimäki 2) Executive Board deputy member 3) Reports to the Executive Chairman ICT Management Marco Halén ICT Services Markku Mäkinen ICT Service Development and Production Services Pekka Sarvi-Peräkylä Application Development and Delivery Services Ilpo Antikainen ICT Competence Centre Arjaleena Smolander Human Resources Marja Tuokko OP Bank Group Pension Fund OP Bank Group Pension Foundation Financial Management Services Matti Nykänen Member Bank Steering Pekka Jaakkola Group Member Banks Internal Audit Timo Valkama Internal Audit of CentralCooperative Consolidated Mauno Jokelainen LEGAL SERVICES AND SUPERVISION OF GROUP INTERESTS 2, 3) Markku Koponen Legal Services Taina Kallio Supervision of Group Interests Jukka Ruuskanen Foundations CORPORATE COMMUNICATIONS 2, 3) Carina Geber-Teir STRATEGIC PLANNING Tom Dahlström 3) structure and governance 4) Reports to the President 5) As of 11 January

68 OP-Pohjola Group Central Cooperative s Executive Board 1 January 2010 Chairman Vice Chairman Reijo Karhinen, b Tony Vepsäläinen, b Erkki Böös, b Harri Luhtala, b Vuorineuvos (Finnish honorary title), Executive Chairman, OP-Pohjola Group President of OP-Pohjola Group Central Cooperative Senior Executive Vice President of the Central Cooperative, Head of Customer Care Services and Sales Channels Head of Business Control, OP-Pohjola Group Central Cooperative Member of the Board since 1994 Member of the Board since 2006 Member of the Board since 2001 Member of the Board since 2007 Domicile: Helsinki Helsinki, Finland Helsinki Helsinki, Finland Education: M.Sc. (Econ. & Bus. Adm.) LL.M., emba Master of Laws trained on the bench, emba M.Sc. (Econ. & Bus. Adm.) Relevant previous experience: Other relevant positions: Shareholding and share-based rights in Pohjola Bank: President of OKOBANK Group Central Cooperative ; Executive Vice President of OKOBANK Group Central Cooperative, Kuopion Osuuspankki, Managing Director ; Savonlinnan Osuuspankki, Managing Director ; Varkauden Osuuspankki, Managing Director ; Juvan Osuuspankki, Assistant Director Federation of Finnish Financial Services, Chairman of the Board of Directors and representative in European Banking Federation; Confederation of Finnish Industries EK, Vice Chairman of the Board of Directors; Ilmarinen Mutual Pension Insurance Company, member of the Board of Directors; Central Chamber of Commerce, member of the Board of Directors; Luottokunta, member of the Supervisory Board; Pohjola Bank plc, Chairman of the Board of Directors; Unico Banking Group, member of the Steering Committee; Housing Fair Finland Co-op, member of the Supervisory Board No. of Series A shares 24,873 on 1 Jan 2009 and 43,189 on 31 Dec 2009 Tampereen Seudun Osuuspankki, Managing Director ; Turun Seudun Osuuspankki, Deputy Managing Director ; Kuopion Osuuspankki, Bank Manager ; Suomen Säästöpankki SSP Oy, Deputy to Area Manager ; Pohjois- Savon Säästöpankki, supervisor duties Luottokunta, Chairman of the Board of Directors; Pohjola Bank plc, Vice Chairman of the Board of Directors No. of Series A shares 409 on 1 Jan 2009 and 1,767 on 31 Dec 2009 Executive Vice President of OKOBANK Group Central Cooperative, Head of Customer Function ; Savonlinnan Osuuspankki, Managing Director ; Huittisten Osuuspankki, Managing Director ; Arsenal Oy, Unit Manager ; Suomen Säästöpankki SSP Oy, Pohjois-Savon Säästöpankki, Regional Manager and member of the Executive Committee ; Porin Seudun Osuuspankki, Area Manager ; Turun Seudun Osuuspankki, Branch Office Manager Patrons Association of Pellervo Economic Research Institute PTT, Vice Chairman of the Board No. of Series A shares 1,181 on 1 Jan 2009 and 3,513 on 31 Dec 2009 Executive Vice President of OKOBANK Group Central Cooperative, various supervisor and management duties Deposit Guarantee Fund, Chairman of the Board; Confederation of Finnish Industries EK, member of Finance and Tax Commission; Federation of Finnish Financial Services, Chairman of the Finance Committee No. of Series A shares 1,174 on 1 Jan 2009 and 2,460 on 31 Dec

69 Deputy member Deputy member Harri Nummela, b Heikki Vitie, b Carina Ceber-Teir, b Markku Koponen, b Head of Banking and Investment Services, OP-Pohjola Group Central Cooperative Senior Executive Vice President, Deputy to the President of OP-Pohjola Group Central Cooperative, Head of ICT and Human Resources Services Senior Vice President, Corporate Communications, OP-Pohjola Group Member of the Board since 2007 Member of the Board since 1994 Deputy member of the Executive Board since 2009 Espoo Espoo Helsinki Sipoo LL.M., emba Executive Vice President of OKOBANK Group Central Cooperative, Senior Vice President and Head of Asset Management Services ; OP Fund Management Company Ltd, Managing Director ; Tampereen Seudun Osuuspankki, Head of Department ; Rahastoyhtiö Pirkanmaa Oy, Managing Director ; TSOP- Pörssi Oy, Managing Director Master of Laws trained on the bench, M.Sc. (Econ.) Executive Vice President of OKOBANK Group Central Cooperative, Head of Service Function , of Group Administration and of Management Support Services ; OKO Bank, Executive Board Secretary ; OP-Pohjola Group, various expert and supervisor positions since 1979 M.Soc.Sc. Varma Mutual Pension Insurance Company, Communications Director March 2009 Senior Vice President, Legal Services and Supervision of Group Interests, OP-Pohjola Group Central Cooperative Secretary of the Boards Deputy member of the Executive Board since 2009 Master of Laws trained on the bench, emba OP-Pohjola Group Central Cooperative, Senior Vice President in charge of Corporate Communications ; OP-Pohjola Group Central Cooperative (and its precursor), Secretary of the Boards since 1996; OKO Bank plc, Secretary of the Executive Board ; OKO Bank plc (Pohjola Bank plc), Secretary of the Board of Directors since 2006; OKO Bank and Opstock Ltd, Issue Financing Chief and Issue Chief ; OP-Pohjola Group, various expert and supervisor duties since 1985 Luottokunta, member of the Supervisory Board; Automatia Pankkiautomaatit Oy, member of the Board of Directors No. of Series A shares 435 on 1 Jan 2009 and 1,298 on 31 Dec 2009 European Association of Co-operative Banks, member of the Executive Committee; Federation of Finnish Financial Services, Chairman of the Labour Market Executive Committee; Oy Porasto Ab, Chairman of the Board of Directors; Deposit Guarantee Fund, Chairman of the Delegation No. of Series A shares 1,179 on 1 Jan 2009 and 3,491 on 31 Dec 2009 Federation of Finnish Financial Services, member of the Communications Committee No. of Series A shares 0 on 1 Jan 2009 and 0 on 31 Dec 2009 HSO-säätiö, Chairman of the Board of Directors No. of Series A shares 428 on 1 Jan 2009 and 1,271 on 31 Dec 2009 structure and governance 67