OP Life Assurance Company

Transcription

1 OP Life Assurance Company Annual Report 2011

2 Table of Contents From the Managing Director...3 Report of the Board of Directors...6 Income Statement Parent Company Balance Sheet Parent Company Income Statement Group Balance Sheet Group Cash Flow Statement Parent Company Cash Flow Statement Group Notes to Parent company and Consolidated Financial Statements Signatures to the Financial Statements and the Report of the Board of Directors Auditor s Report OP Life Assurance Company Ltd is a company wholly owned by OP-Pohjola Group Owners on 31 Dec Holding (%) OP-Pohjola Group Central Cooperative 76 Pohjola Bank plc member co-operative banks 15 OP Life Assurance Company Ltd PL 308, Helsinki, finland Tel (0) Fax +358 (0) OP Life Assurance Company 2

3 From the Managing Director Difficult year in the investment market, success in CRM 2011 was a difficult year for investors. Having recovered from the 2008 financial crisis, the market slid into a new one centred on Europe. The problems worsened towards the end of the year, pushing most investors returns for the year into the red. In interest-bearing insurance, where the company pays fixed returns to customers and bears the investment risk on their behalf, the negative outcome in investment operations was directly reflected in the company s fair value result. This led to a poor overall result for OP Life Assurance in In unit-linked insurance, in which the customer bears the risk for returns on selected investments, a stable performance was recorded. In recent years, the life insurance sector as a whole has noticeably shifted its emphasis towards unit-linked insurance. This is partly in preparation for new regulations that will take effect in 2013, significantly tightening capital requirements on interest-bearing insurance. The strategy of OP Life Assurance Company is to strengthen its market position within unit-linked savings. There is also a strong focus on market share in pension and term life insurance. The company performed well in these segments in The company made special efforts to develop customerfriendly financial management services, modernising its product offering for OP Private customers, and creating a deposit-based alternative for its unit-linked product selection. The proportion of unit-linked savings grew to 47.5 per cent (2010 comparative: 43.5 per cent) of total savings, and the company increased its market share to 25.3 per cent (24.5 per cent). Announced towards the end of the year, OP-Pohjola Group Central Cooperative s acquisition of Skandia Life s Finnish business operations will also strengthen OP- Pohjola Group s position in unit-linked insurance. Skandia Life holds around 100,000 insurance contracts, all of them unit-linked. Its market share in unit-linked savings is around 12 per cent. The year was a success in terms of customer liaison. One indication of this is that the company now serves more than one million insurance policyholders (including the Suomi Mutual insurance portfolio). The one-million insured mark was reached in summer OP Pohjola still boasts the most efficient insurance management in the sector and the highest quality measured in terms of customer satisfaction. In order to further improve its quality, the company has been overhauling its main information systems for several years. The outcomes of this project were tested in the first bank branches in late Testing will expand to all branches during 2012, with the aim of transferring some 600,000 endowment and pension insurance policies to the new system in Cautious outlook for 2012 The company is entering the New Year with prudent expectations. Customers have an increasing need to enhance their personal financial security, but uncertainty in the investment market poses a challenge to returns. Our outlook for the development of the investment market is cautiously positive; we expect the profitability of the insurance business to remain at the previous years levels. Over the next few years, there will be significant changes in the legislative and regulatory framework affecting the life insurance industry, but the company is well positioned in this regard and will continue taking steps to adapt to these changes in Annual Report 2011

4 From the Managing Director A key measure will lie in transferring the clientele of Skandia Life to OP-Pohjola Group in a way which feels seamless to customers, while increasing their customer satisfaction thanks to an expanding service portfolio. I wish to express my warmest thanks to our customers, partners and personnel, as well as to our owner cooperative banks, Pohjola Bank and the OP-Pohjola Group Central Cooperative. Based on the trust you have shown in us, we are able to continue growing into Finland s largest, leading life insurance company. February 2012 Jarmo Kuisma Managing Director OP Life Assurance Company 4

5 OP Life Assurance Company key figures, millions of euros Premiums written (direct insurance) , Insurance savings on 31 December 6,026 5,358 6,065 7,079 6,733 Savings from unit-linked insurance 2,373 1,610 2,380 3,138 3,253 Savings from interest-bearing insurance 3,653 3,748 3,685 3,941 3,480 Share of unit-linked insurance in insurance savings, % 39% 30% 39% 44% 48% Technical interest credited to customers Bonuses paid to customers Benefits paid to customers , Solvency capital Minimum solvency margin Market share by premiums written 31% 29% 25% 39% 25% Life insurance performance analysis, millions of euros Premiums written , Net investment income + revaluations and revaluation adjustments 226-1, Benefits paid , Changes in technical provisions before bonuses and changes in equalisation provision , Operating expenses Balance on technical account before bonuses and rebates and changes in equalisation provision Other income and expenses Operating profit Changes in equalisation provision Bonuses Profit/loss before appropriations and taxes Income tax and appropriations Profit/loss for the period Annual Report 2011

6 Report of the Board of Directors for 2011 Industry developments For life insurance companies, 2011 was a year of contrasts. From January to July, premiums written continued their steady growth and companies overall earnings remained positive. In mid-july, the Eurozone debt crisis sharpened and the global economic outlook weakened. As a consequence, demand for savings products from life insurance companies declined, weakening the earnings and solvency of such companies. After two years of growth, the value of customers unit-linked savings also fell. Total premiums written by life insurance companies fell to 3.3 billion (2010 comparative: 4.8 billion), 32 per cent down from the previous year. The decrease in premiums written was due to a significant reduction in capital redemption policy premiums, which were down to 0.8 billion ( 1.6 billion), and to a decrease in group pension premiums because no major portfolio transfers were made in The reduction in premiums written and the decrease in value of unit-linked insurance savings meant a negative trend in the growth of life insurance companies insurance savings. Insurance savings were down by 3 per cent to 32.2 billion ( 33.2 billion). (Millions of euros) Industry OP Life Assurance Company 2011 Alteration 2011 Alteration Premiums written 3, % % of which unit-linked 2, % % Insurance savings 32,205-2,9% 6, % of which unit-linked 12,833 0,0% 3, % Consumer interest in tax-subsidised pension savings remained low. The terms and conditions of individual pension plans were tightened at the beginning of 2010, when the tax incentive for individual pensions was extended to include bound long-term savings accounts offered by banks, fund management companies, and investment service companies. Life insurance companies sold 7,680 (11,949) new individual pension insurance policies and an estimated 10,000 (10,000) new bound savings accounts. This shows that tax-subsidised pension savings are insufficiently attractive in their current form. The average age of the Finnish population will rise sharply in the coming years, leading to an increase in ageing-related care expenses. The greatest change to impact on the operations of Finnish life insurance companies in forthcoming years will be the reform of solvency calculations (Solvency II). According to preliminary reports, Solvency II will come into effect as of the beginning of This reform will significantly transform the business of life insurance companies. Calculation of solvency capital requirements (SCR) covers all material risks for which insurance companies must prepare. The better a company manages its insurance and investment risks, the lower its SCR becomes. With the reform, the focus of life insurance companies operations will increasingly shift towards unit-linked insurance and term life insurance. According to a Solvency II impact study published by the Financial Supervisory Authority (spring 2011), Finnish life insurance companies will be able to fulfil the new SCR. The company s operations in 2011 OP Life Assurance Company s strategy is to strengthen the company s market share in the fields of unit-linked life insurance, pensions and term life insurance. Other strategic targets include the development of the company s investment operations and risk management to support its business operations, while taking into account the requirements of Solvency II. In product and service development, the company creates value-added services for its customers by offering products that complement the service range of member cooperative banks. In 2011, the company was relatively successful in fulfilling its strategy. In unit-linked life insurance, the company s market share grew to 25.3 per cent (24.5 per cent), and OP Life Assurance Company 6

7 unit-linked technical provisions share of the company s overall technical provisions grew to 47.5 per cent (43.5 per cent). Results for premiums written for pension and term life insurance were below the industry average. No major portfolio transfers were made in 2011, which significantly reduced pension premiums written. A decrease in loan repayment security insurance reduced the premiums written in term insurance. Preparations for the adoption of Solvency II were well under way. Risk management in insurance and investment operations was enhanced by starting to hedge the market risks associated with technical provisions, using secured interest-rate derivatives, while the risk level of investment operations was reduced. At the beginning of the year, the company launched an initiative to significantly reduce its interest-bearing technical provisions before the adoption of Solvency II. As part of the initiative, customers were offered new low-risk, fair return investment options (OP-Henki Kukkaro product family) as an alternative to interest-bearing endowment insurance policies. Demand for these new products exceeded expectations. With regard to product and service development, the company focused on developing financial management services that are as effortless as possible for the customer. 8,000 INSURANCE SAVINGS, millions of euros 20% In the spring, the company launched the OP Investment Service, in which investment decisions are made on the customer s behalf, by an active committee comprising top portfolio managers from OP-Pohjola Group. This service encompasses the gift and inheritance tax benefits of unit-linked insurance. Some reforms were made to the individual unit-linked insurance policy offered to OP Private customers. This is a policy that combines direct investment instruments with the benefits of insurance savings. Customers may choose between a consultative investment strategy and a financial management investment strategy. As an alternative to interest-bearing endowment insurance, the company developed the new deposit-based OP-Henki Kukkaro family of products, which is highly suitable even for elderly customers. This product family was very well received. During 2011, there was a campaign to awaken Finns risk awareness through active marketing of term life insurance. The product was also made available online. 6,000 4,000 2, Savings from interest-bearing insurance Savings from unit-linked insurance Change, % 15% 10% 5% 0% -5% -10% -15% Modernisation of insurance management systems progressed to the piloting stage, which began in the summer with an internal production pilot and expanded later in the year to testing in bank branches. The system will be taken into production use for new sales during Converting old policies from the old system to the new will mainly take place in This project is based on the integration of a software package, acquired from an external systems supplier, into OP-Pohjola s system environment. 7 Annual Report 2011

8 During the year under review, the company carried out extensive preparations for the acquisition of the Finnish business operations of Skandia Life, which were finalised in December The buyer in the deal is the OP- Pohjola Group Central Cooperative. This transaction is slated for completion on 30 June 2012, assuming that the necessary official authorisations are granted. If implemented, the acquisition will significantly strengthen the OP-Pohjola Group s market position within insurance savings and financial management. The company also worked on a new strategy, to be finalised in spring Investment operations 2011 was an eventful year in the global economy. There was a devastating earthquake in Japan, and unrest in the Arab world raised oil prices. In the autumn, a new President was appointed to the ECB, who had to begin by lowering key interest rates, presenting new bank bailout packages and buying up sovereign bonds from countries with troubled economies. Numerous crisis summits were held in the Eurozone during the year, and Western countries credit ratings fell one by one. One turning point was in July/August, when the market finally lost confidence in the EU s Greece bailout package, while in the US, the failure of domestic negotiations concerning the raising of the federal debt ceiling led to the loss of the country s AAA credit rating. The company continued to prepare for the Solvency II reform of solvency capital calculations, lowering the risk level of investment operations and starting to hedge the market risks associated with technical provisions. Hedging against interest-rate risk in technical provisions was accomplished using secured interest-rate derivatives, whose market value at year-end was 62 million. The company also improved its investment processes, implementing measures such as the adoption of the Riskmetrics Riskmanager system. In unit-linked insurance, the investment product range was expanded with the launch of the OP-Henki Kukkaro I III investment baskets. These products significantly furthered the shift of technical provisions from interest-bearing to being unit-linked. This had a major impact on investment assets, as investments were actively sold in that portfolio during the year. The company s investment philosophy is based on a total return target pursued by applying an open architecture approach. At the end of the year, investments excluding the secured interest-rate derivatives used to hedge technical provisions totalled 3,976 million ( 4,716 million). During 2011, the allocation of investments was actively modified in line with the company s investment plan. The company actively sold its structured investments. The duration of the company s fixed-income investments was kept short, being 3.0 years (3.0) at yearend. Investment income, excluding income from the secured interest-rate derivatives used to hedge technical provisions, totalled -1.5 per cent (9.5 per cent), falling short of the target for the year. Investments (millions of euros) 2011 Share 2010 Share Alteration Money-market investments % % -230 Bonds and notes 1, % 2, % -374 Equities % % -203 Property investments % % 43 Alternative investments % % -68 Unlisted equities % % 41 Other liquid investments % % 51 Total 3, % 4, % -740 Assets covering unit-linked insurance contracts amounted to 3,262 (3,147) million. OP Life Assurance Company 8

9 Insurance operations In insurance operations, the company s strategic objective is to maintain its returns and efficiency at the forefront of the industry, while also taking care of high-quality insurance portfolio management. This objective was fulfilled in The company s underwriting result remained at a good level and the insurance portfolio was managed well, without any significant disruptions. Operational development efforts within insurance had a particular focus on reducing interest-bearing technical provisions, developing OP-Private services and increasing sales of term life insurance. The company s premiums written fell by 56.1 per cent to 812 million ( 1,847 million), and technical provisions by 4.8 per cent to 6,869 million ( 7,214 million). The reason for the sharp decline lay in the previous year s large non-recurrent portfolio transfers in group pension insurance, which increased the figures for Premiums written in unit-linked endowment insurance remained at almost the previous year s level, despite the uncertainty in the investment market. There was a 413 million negative change in the value of unit-linked savings, due to the highly uncertain investment market and the sharp decline in share prices. A record 302 million was transferred from interest-bearing technical provisions to unit-linked technical provisions, and the share of unit-linked technical provisions of all technical provisions grew to 47.5 per cent (43.5 per cent). (Millions of euros) Premiums written Technical provisions 2011 Share 2010 Share 2011 Share 2010 Share Unit-linked life insurance and capital redemption policies % % 2, % 2, % Pension insurance % % 2, % 2, % Term life insurance % % % % Interest-bearing endowment insurance and capital redemption policies % % 1, % 1, % Other technical provisions % % Total % 1, % 6, % 7, % A total of 64,209 (75,096) new insurance policies were sold in the course of the year. The company s year-end insurance portfolio consisted of some 680,000 (657,000) policies, with 727,000 (710,000) insured persons. The company made concerted efforts to replace its interest-bearing pension and endowment insurance policies with unit-linked insurance policies, and 15,494 of these switches were made. In addition to managing its own insurance portfolio, OP Life Assurance Company is, within the scope of a separate management agreement, responsible for managing the insurance policies of approximately 271,000 (284,000) customers of Suomi Mutual Life Assurance Company. During the period under review, the company paid 782 million ( 1,212 million) in benefits. The decrease in benefit payments was especially due to the fact that the comparison year (2010) included capital redemption policies coming to maturity and being surrendered as part of a group pension portfolio transfer. Surrenders share 9 Annual Report 2011

10 of the benefits paid was 341 million ( 748), while 206 million ( 259 million) of savings matured, 116 million ( 114 million) was paid out in death benefits, 1 million ( 1 million) was paid out in other benefits under term life insurance, and 117 million ( 87 million) was paid in pensions. At the end of the financial year, there were 24,493 (22,694) pensions in payment. The efficiency of the company s business operations remained at a good level. Operating expenses rose to 68 million ( 58 million), as sales commissions paid to sales channels increased to 52 million ( 41 million). Other operating expenses fell by 1 million to 16 million ( 17 million). The cost ratio was per cent (95.5 per cent). If expenses exclude commissions paid to sales channels, and income includes all earnings intended for covering operating expenses, that ratio declined to 29.4 per cent (28.6 per cent). Result The company s financial statements and consolidated financial statements have been prepared according to the Finnish Accounting Standards (FAS). The company s result is consolidated with OP-Pohjola Group s result in line with the International Financial Reporting Standards (IFRS). Earnings before tax amounted to 90 million ( 200 million). Net investment income, excluding income from assets covering unit-linked insurance, totalled 4 million ( 314 million). Valuation differences between the book value and fair value of investments decreased by 21 million from the beginning to the end of the year, ending at 174 million ( 195 million). The company s earnings before tax, taking account of the change in valuation difference (earnings at fair value), was 111 million ( 196 million). OP Life Assurance Company s strategic goal is to achieve earnings at fair value of over 400 million during Total earnings at fair value for were 358 million, so despite the low figure for 2011, the company is still on target. The risk result grew to 27 million ( 19 million), but the expense result fell to 24 million ( 37 million). The fall was due to the increase in sales commissions paid to sales channels. SOLVENCY MARGIN, millions of euros SOLVENCY RATIO, per cent COST RATIO % 120% % 12% 8% 4% 100% 80% 60% 40% 20% % Cost ratio Cost ratio (excl. commissions, incl. all income) 2011 Minimum solvency margin Solvency margin Solvency ratio OP Life Assurance Company 10

11 Risk management Technical interest credited for insurance amounted to 121 million ( 122 million). A total of 2 million ( 15 million) was distributed in bonuses for insurance policies and 27 million ( 12 million) was released from the provision for future customer bonuses. A 40 million ( 0) mortality supplement was made to the group pensions technical provisions, and 16 million ( 0) was released from the equalisation provisions. Solvency OP Life Assurance Company Ltd is part of the financially sound OP-Pohjola Group, which enables efficient capitalisation. In its strategy, the company has defined maintenance of solvency as one of its key goals, the strategic target being to keep the solvency ratio at a minimum of 12 per cent. At the end of the year, the company s solvency ratio was 12.9 per cent (15.9 per cent). The solvency margin was 552 million ( 737 million); this does not include the 62 million valuation difference from secured interest-rate derivatives used to hedge against interest-rate risk in technical provisions. The statutory minimum solvency margin was 202 million ( 218 million). 298,657 NUMBER OF PERSONS INSURED on 31 December , ,963 Savings insurance Individual pension insurance Group pension insurance Term life insurance Capital redemption policies 195,769 OP Life Assurance Company s strategic goal is that its risk management operations should support the company s business, using the company s main competitors as the minimum benchmark in this field. The objective of risk management is to support the implementation of the company s strategy, with a view to ensuring the implementation of correct measures and the sufficiency of capital in order to safeguard the company s operations, even in unexpected situations. The company also has a solvency target set in its strategy. The Board of Directors annually ratifies the solvency and risk management principles according to which the company s risks are managed. The key risks comprise underwriting risks associated with the insurance portfolio, interest-rate risk associated with technical provisions, market risks associated with investment operations, liquidity risk, and operational risks. The company s total risk exposure and its components are regularly reported to the Board of Directors. In 2011, the company adopted the OP-Pohjola Group s shared operational risk management system, whose operational risk analyses were also updated. Preparations were made for the Solvency II reform by revising the solvency capital calculation model and adopting monthly tracking of related solvency calculations. In risk management, the company was active in modelling the interestrate risk involved in technical provisions, and hedged against it using secured interest-rate derivatives. For the purpose of managing investment risk, the company s risk indicators were revised and their calculation was transferred to the new Riskmetrics Riskmanager system. The new risk indicators were taken into use at the start of The solvency and risk management principles, the related organisation, and key risks are described in the notes to the financial statements. 11 Annual Report 2011

12 The principle of equity and evaluation of its fulfilment According to the Insurance Companies Act, life insurance companies must distribute a reasonable proportion of the surplus produced by insurance to policies which, in their contractual terms, entitle to bonuses. However, this distribution of bonuses may not endanger the company s solvency. According to OP Life Assurance Company s bonus distribution goals, approved by the Board of Directors, the company pays bonuses whenever its insurance portfolios have yielded a surplus. In endowment insurance and pension plans, such a surplus may be generated from the return exceeding the technical rate of interest, which is partly returned as bonuses to the policyholders. Part of the surplus is reserved for costs arising from capital received from owners and, if necessary, for the strengthening of solvency. The company confirms the amount of bonuses on an annual basis and aims at continuity in the level of bonuses i.e., aiming to limit fluctuations between good and bad years. Since the technical rate of interest (4.5% 1.5%) varies from one insurance portfolio to another, the company also aims to ensure that the total interest credited does not depend on the technical rate of interest. Another objective is that long-term and tied savings, such as pension plans, entitle customers to larger bonuses than short-term insurance savings, which are sensitive to surrender. In term life insurance, a surplus may be generated if the insurance premiums are larger than the benefits paid from said insurance plus the operating expenses arising from the management of the insurance. The surplus enables the company to pay benefits that are larger than promised or to charge lower premiums in the following year. An evaluation of the fulfilment of the equity principle is presented in the notes to the financial statements. Personnel During the reporting year, OP Life Assurance Company employed an average of 152 (148) people, with women accounting for 69 per cent and men for 31 per cent. The average employee age was 44 years. OP Life Assurance Company operates in close cooperation with the other members of the OP-Pohjola Group and has outsourced some of its functions to the OP-Pohjola Group Central Cooperative and its subsidiaries and associated companies. OP Life Assurance Company applies the salary and incentive systems agreed for the OP-Pohjola Group. A short-term performance-based bonus is paid to personnel if the agreed annual targets set for the operations are met. Long-term rewards include payments to the personnel fund and management bonuses according to principles agreed upon in advance. A job satisfaction survey is conducted annually, covering all personnel. According to the 2011 survey, the work atmosphere was good. On a scale of 1 to 5, the personnel job satisfaction index was 3.88 (3.96). Major events after the balance sheet date There were no major events after the balance sheet date. Outlook The global economic outlook for 2012 is uneven. The Eurozone remains overshadowed by the debt crisis and economic growth in the area will be weak. Similarly, the prospects for the Finnish economy for 2012 are subdued. The European Central Bank will continue to support the economy by increasing market liquidity. EURIBOR rates are exceptionally low. OP Life Assurance Company 12

13 The company s predictions for 2012 are cautious. Premiums written are expected to remain at the previous year s level. The company s performance is fundamentally affected by investment market developments. The company s basic view of the investment market in 2012 is somewhat positive, and it expects the profitability of the insurance business to reach the previous years levels. If the deal made by the OP-Pohjola Group Central Cooperative to acquire the Finnish business of Skandia Life goes through, it will significantly enhance the unitlinked business of OP-Pohjola s life insurance segment, and thereby increase the segment s prospects for success. Management and auditors The company s management and governance are determined on the basis of the provisions of the Insurance Companies Act and the Limited Liability Companies Act, as well as the Articles of Association ratified for the company. The general meeting of shareholders, which exercises the highest decision-making power within the company, convened at the Annual General Meeting on 28 March The meeting agenda covered all issues to be discussed at the AGM in accordance with the Articles of Association. The AGM approved the Board of Directors as consisting of six members. During the year under review, Ilari Jämsen resigned from the Board. At the end of the reporting year, the members of the Board were: Tony Vepsäläinen, Director, Business Operations, OP- Pohjola Group Central Cooperative (Chairman of the Board) Harri Luhtala, CFO, OP-Pohjola Group Central Cooperative Petri Viertiö, CRO, Pohjola Bank plc Timo Laine, President, Päijät-Hämeen Osuuspankki (OP-Pohjola Group member bank) Olli-Pekka Saario, Vice Managing Director, Turun Seudun Osuuspankki (OP-Pohjola Group member bank) The Board convened 14 times in The company s Managing Director was Jarmo Kuisma, with Karri Alameri as his deputy. The company s auditors are the Authorised Public Accounting Firm KPMG Oy Ab, with Timo Nummi, Authorised Public Accountant, as the head auditor. Ownership and changes in group structure OP-Pohjola Group is composed of 205 member cooperative banks and the OP-Pohjola Group Central Cooperative (the central institution owned by the member banks), alongside the latter s subsidiaries and affiliates. OP Life Assurance Company Ltd is a subsidiary of the OP-Pohjola Group Central Cooperative. OP Life Assurance Company has 559,357 shares, all of which represent an equal number of votes at the general meeting. OP-Pohjola Group Central Cooperative owns 76 per cent of the company s shares, Pohjola Bank plc owns nine per cent and the 146 member cooperative banks together own 15 per cent. There were no changes in OP Life Assurance Company s group structure during the year under review. Proposal of the Board of Directors for distribution of profits On 31 December 2011, the distributable funds of the parent company totalled 263,708, The Board of Directors proposes that a dividend of per share be distributed, totalling 20,136,852.00, and that the remaining 243,571, be left in the retained earnings account. 13 Annual Report 2011

14 Parent company Income Statement (thousands of euros) Note 1/1/ /12/2011 1/1/ /12/2010 Technical account Premiums written Premiums written 2 811,594 1,846,606 Reinsurers share -27, ,139-27,987 1,818,619 Investment income 8,9 524, ,883 Increases in value 8,9 11, ,991 Claims incurred Benefits paid 4-782,485-1,211,948 Reinsurers share 9, ,917 7,192-1,204,756 Changes in provision for unpaid claims 31, ,436 Reinsurers share , ,619,289 Changes in life insurance provision Changes in life insurance provision 314, ,187 Reinsurers share 10, ,973 10, ,736 Operating expenses 4,5,6-68,114-57,639 Investment expenses 8,9-927, ,853 Balance on technical account -92, ,975 Non-technical account Other income 11,492 12,271 Other expenses Amortisation on goodwill -2,916-2,916 Other expenses -5,807-8,724-6,574-9,490 Profit on ordinary activities -89, ,757 Appropriations Change in depreciation difference Income taxes 7 Taxes for the period and previous periods ,194 Deferred tax 20,833 20, ,194 Profit/loss for the period -69, ,544 OP Life Assurance Company 14

15 Balance Sheet (thousands of euros) Parent company Note 31/12/ /12/2010 Assets Intangible assets 10 Goodwill 8,749 11,665 Other long-term expenditure 21,192 29,941 15,483 27,148 Investments 11,12 Property investments Properties and property shares 141, ,511 Loan receivables from Group companies 77, ,937 60, ,434 Investments in Group companies and affiliated companies 13 Shares and participations in Group companies 14 7,000 14,276 Financial instruments issued by Group companies 237, , , ,177 Other investments 14 Shares and participations 2,378,162 2,648,388 Financial instruments 943,603 1,214,996 Deposits 3,321,765 3,785, ,400 3,975,784 4,418,395 Investments covering unit-linked insurance 15 3,261,883 3,147,450 Receivables from direct insurance operations from policyholders 13,176 7,492 from reinsurance operations Other receivables 16 92, ,181 Deferred tax assets 46, ,678 25, ,692 Other assets Tangible assets, machinery and equipment Cash in hand and bank receivables 104, ,380 67,153 67,189 Prepayments and accrued income 17 Interest and rent 20,911 23,753 Other prepayments and accrued income 20, ,794 Total assets 7,355,019 7,898,668 Equity and liabilities Shareholders equity 18 Share capital 145, ,433 Other funds 118, ,264 Paid-up unrestricted equity reserve 399, ,559 Profit/loss for the previous period -184, ,644 Profit/loss for the period -69, , , ,156 Accumulated appropriations Depreciation difference Subordinated loan 19 90,830 90,830 Technical provisions 21 Life insurance provision 2,924,434 3,359,312 Reinsurers share -69,877 2,854,557-59,151 3,300,161 Provision for unpaid claims 685, ,278 Reinsurers share ,526 3,539, ,440 4,015,601 Technical provisions for unit-linked insurance 21 Technical provisions 3,259,217 3,138,586 Liabilities from direct insurance operations 1,656 1,342 from reinsurance operations 2,554 2,236 Other liabilities 22 45,727 49, , ,600 Accrued expenses 23 6,366 20,878 Total equity and liabilities 7,355,019 7,898, Annual Report 2011

16 Consolidated Income Statement (thousands of euros) Note 1/1/ /12/2011 1/1/ /12/2010 Technical account Premiums written Premiums written 2 811,594 1,846,606 Reinsurers share -27, ,139-27,987 1,818,619 Investment income 8,9 522, ,492 Increases in value 8,9 11, ,991 Claims incurred Benefits paid 4-782,485-1,211,948 Reinsurers share 9, ,917 7,192-1,204,756 Changes in provision for unpaid claims 31, ,436 Reinsurers share , ,619,289 Changes in life insurance provision Changes in life insurance provision 314, ,187 Reinsurers share 10, ,973 10, ,736 Operating expenses 4,5,6-68,081-57,639 Investment expenses 8,9-925, ,365 Balance on technical account -92, ,072 Non-technical account Other income 11,492 12,271 Other expenses Amortisation on goodwill -2,916-2,916 Other expenses -6,445-9,362-6,720-9,637 Income tax on ordinary activities 7 Taxes for the period and previous periods ,199 Deferred tax 21,590 21, ,053 Minority interest - 11 Profit/loss for the year -69, ,666 OP Life Assurance Company 16

17 Consolidated Balance Sheet (thousands of euros) Note Assets Intangible assets 10 Goodwill 8,749 11,665 Consolidated goodwill 6,418 6,041 Other long-term expenditure 21,192 36,359 15,483 33,189 Investments 11,12 Property investments Properties and property shares 214, ,403 Investments in Group companies and affiliated companies 13 Shares and participations in Group companies 14 7,000 14,276 Financial instruments issued by Group companies 237, , , ,177 Other investments 14 Shares and participations 2,378,162 2,648,388 Financial instruments 943,603 1,214,996 Deposits 3,321,765 3,781, ,400 3,975,784 4,414,364 Investments covering unit-linked insurance 15 3,261,883 3,147,450 Receivables from direct insurance operations from policyholders 12,168 6,527 from reinsurance operations Other receivables 16 94, ,996 Deferred tax assets 7 46, ,247 25, ,543 Other assets Tangible assets, machinery and equipment Cash in hand and bank receivables 104, ,380 67,158 67,195 Prepayments and accrued income 17 Interest and rent 20,914 23,793 Other prepayments and accrued income 20,914 59,117 82,911 Total assets 7,357,926 7,901,652 Equity and liabilities Shareholders equity 18 Share capital 145, ,433 Other funds 118, ,264 Paid-up unrestricted equity reserve 399, ,559 Profit/loss for the previous period -189, ,482 Profit/loss for the period -69, , , ,440 Subordinated loans 19 90,830 90,830 Technical provisions 21 Life insurance provision 2,924,434 3,359,312 Reinsurers share -69,877 2,854,557-59,151 3,300,161 Provision for unpaid claims 685, ,278 Reinsurers share ,526 3,539, ,440 4,015,601 Technical provisions for unit-linked insurance 21 Technical provisions 3,259,217 3,138,586 Liabilities from direct insurance operations 1, from reinsurance operations 2,554 2,236 Other liabilities 22 45,528 98,028 Deferred tax liabilities 7 7,388 57,126 7, ,522 Accrued expenses 23 6,575 24,674 Total equity and liabilities 7,357,926 7,901, Annual Report 2011

18 Cash Flow Statement (thousands of euros) Parent company Cash flow from operating activities Profit/loss before extraordinary items -69, ,544 Adjustments Changes in technical provisions -345,416 1,057,623 Increases/decreases in value of investments 438, ,275 Unrealised exchange gains/losses 2, Planned depreciation 3,104 3,157 Other adjustments 100, ,153 Cash flow before changes in working capital 128, ,080 Changes in working capital Increase (-)/decrease (+) in current non-interest-bearing business receivables -19,730 85,505 Increase (-)/decrease (+) in current non-interest-bearing liabilities 9,702-59,190 Cash flow from operating activities before financial items and taxes 118, ,396 Paid interest and payments on other business financing costs Income tax paid A Total cash flow from operating activities 118, ,396 Cash flow from investing activities Payments into investments (excl. cash and cash equivalents) -29, ,040 Proceeds from investments (excl. cash and cash equivalents) 3, ,464 Investments in and proceeds from tangible and intangible assets and other property (net) -5,702-3,274 B Total cash flow from investing activities -31, ,850 Cash flow from financing activities Investments of shareholders equity Paid dividends/guaranteed capital interest and other distribution of profits -50,342 C Total cash flow from financing activities -50,342 Change in cash and cash equivalents (A+B+C) 37,223-16,454 Cash and cash equivalents at beginning of period 67,153 83,606 Cash and cash equivalents at end of period 104,376 67,153 OP Life Assurance Company 18

19 Consolidated Cash Flow Statement (thousands of euros) Group Cash flow from operating activities Profit before extraordinary items -69, ,666 Adjustments Changes in technical provisions -345,416 1,057,623 Increases/decreases in value of investments 438, ,275 Unrealised exchange gains/losses 2, Planned depreciation 9,078 7,754 Other income and expenses that do not include payments 11 Other adjustments 97, ,091 Cash flow before changes in working capital 133, ,872 Changes in working capital Increase (-)/decrease (+) in current non-interest-bearing business receivables 92,922 85,392 Increase (-)/decrease (+) in current non-interest-bearing liabilities -79,524-59,596 Cash flow from operating activities before financial items and taxes 146, ,668 Paid interest and payments on other business financing costs Income tax paid A Total cash flow from operating activities 146, ,668 Cash flow from investing activities Payments into investments (excl. cash and cash equivalents) 56, ,408 Proceeds from investments (excl. cash and cash equivalents) -108, ,464 Investments in and proceeds from tangible and intangible assets and other property (net) -6,718-4,077 B Total cash flow from investing activities -58, ,021 Cash flow from financing activities Paid dividends/guaranteed capital interest and other distribution of profits -50, C Total cash flow from financing activities -50, Change in cash and cash equivalents (A+B+C) 37,217-17,367 Cash and cash equivalents at beginning of period 67,158 84,525 Cash and cash equivalents at end of period 104,376 67, Annual Report 2011

20 Notes to Parent company and Consolidated Financial Statements 1. Accounting principles 2. Premiums written 3. Bonuses 4. Total operating expenses by income statement item and function 5. Itemisation of personnel expenses, personnel and executive management 6. Auditors fees 7. Taxes 8. Net investment income 9. Net investment income from unit-linked insurance 10. Changes in intangible assets and machinery and equipment 11. Book value, fair value and valuation difference of investments 12. Property investments 13. Investments in Group companies 14. Shares and participations 15. Investments covering unit-linked insurance 16. Receivables 17. Prepayments and accrued income 18. Shareholders equity 19. Subordinated debt 20. Shareholders 21. Technical provisions 22. Liabilities 23. Accrued expenses 24. Securities and contingent liabilities 25. Solvency 26. Key figures 27. Solvency and risk management principles OP Life Assurance Company 20

21 Notes Note 1. Accounting principles General notes The financial statements have been prepared and presented in accordance with the applicable valid legislation, as well as the rules and regulations issued by the Finnish Ministry of Social Affairs and Health and the Financial Supervisory Authority. Consolidated financial statements OP Life Assurance Company prepares consolidated financial statements encompassing OP Life Assurance Company and subsidiaries where the parent company holds more than 50 per cent of the votes. The companies that belong to the Group are specified in the notes, while any changes to the Group structure are presented in the report of the Board of Directors. The consolidated financial statements have been prepared as combinations of the parent company and subsidiaries income statements, balance sheets, and notes. Transactions, receivables and liabilities between the companies have been eliminated. Share ownership within the Group has been eliminated according to the acquisition cost method. Subsidiaries acquired during the year are included from the acquisition date or the transaction completion date. The difference between the acquisition cost and the company s equity on the acquisition date is primarily allocated to the properties of the subsidiaries and is depreciated according to plan. OP Life Assurance Company Ltd is a subsidiary of OP- Pohjola Group Central Cooperative, and the company and its subsidiaries are consolidated line by line with OP-Pohjola Group Central Cooperative s financial statements, which are prepared in accordance with International Financial Reporting Standards. For consolidation purposes, all information has been converted to follow the IFRS system. For said conversion, OP Life Assurance Company follows IFRS accounting principles that are uniform with those of the OP-Pohjola Group. Valuation and allocation principles and methods Intangible assets and equipment are valued at cost less planned depreciation or amortisation. Figures for property shares and building projects are stated cost or fair value, whichever is lower. 21 Annual Report 2011

22 Values of investment shares and units are stated at cost or fair value, whichever is lower. Previously performed impairment will be returned as the fair value increases, at most to the original acquisition cost. Sharääes and units are measured in line with the average price principle. Shares and participations included under fixed assets are valued at acquisition cost or, if there is a permanent value decrease, at the lower fair value. Acquisition cost is calculated using the FIFO method. Financial instruments are recorded at acquisition cost. The difference between the nominal value and acquisition cost is recognised in interest income or its deduction, and the counterpart is entered as an increase or decrease in said acquisition costs. Receivables and investments similar to receivables are presented at their nominal value or a lower fair value. All derivative contracts are entered in the books as non-hedging, even if operationally they are used for hedging purposes. Contracts that are open on the balance sheet date are measured at fair value on that date. Valuation losses are recognised fully in the income statement, whereas valuation losses are not recognised. Any valuation differences of investments and derivatives not entered in the income statement, and any maximum losses from non-hedging derivatives, are taken into account in the solvency margin calculation. Investments that serve as assets covering unit-linked insurance have been recognised at fair value in the balance sheet. Any increases or adjustments in their value, as well as their impairment and impairment returns, are recognised through profit and loss. Receivables, investments treated as receivables, and liabilities denominated in a foreign currency have been converted according to the buying rate of the financial statement date quoted by the European Central Bank. Other investments have been recognised at the exchange rate of the date of purchase or, if it is lower, at the rate of the financial statement date, but so that the impact of the exchange rate and market price has not been separated in the valuation of investment shares and units. Exchange rate differences are presented in other investment income and expenses. Fair values of assets Property holdings are valued annually on the basis of the associated net income, location, and market situation. The company s in-house experts and outside expertise are used in the valuation. For shares and financial instruments listed on an official stock exchange or otherwise subject to public trading, the fair value is the final buying price according to continuing trading or, failing that, the final trading price on the balance sheet date. If the balance sheet date is not a trading day or if there is no quoted price, the corresponding prices from the preceding day are used. The probable selling price or the remaining acquisition price is used as the fair value of other shares and financial instruments. Nominal value is used as the fair value of deposits. Nominal value or a lower probable value is used as the fair value of receivables. Depreciation and amortisation Depreciation or amortisation is calculated according to plan, following eliminations based on the financial life- OP Life Assurance Company 22

23 time of property items in accordance with OP-Pohjola Group s calculation principles. The following plan has been used in the calculation of depreciation or amortisation: Intangible assets Straight-line Years depreciation Intangible rights 3 5 Goodwill 10 IT software 2 6 Tangible assets Straight-line Years depreciation Office machines and equipment 3 10 IT hardware 3 5 Properties Straight-line Years depreciation Business and industrial buildings Intangible rights for buildings Capitalised repair and modification work Depreciation pursuant to the Business Income Tax Act exceeding the planned amount is presented as changes in depreciation difference, a separate item in the income statement. Expenses by function and taxes Operating expenses are allocated to functions according to the matching principle. Function-specific expenses are presented in the income statement under operating expenses (insurance acquisition, management, and administrative expenses), benefits paid, investment expenses (expenses arising from the management of property and other investment operations), and other expenses. The calculation of taxes for the financial year is based on the taxable profit to be calculated in accordance with the tax regulations. Deferred tax liabilities are itemised under the note Taxes. The deferred tax liability included in property investments in the consolidated financial statements is presented as consolidated goodwill and deferred tax liability in the consolidated balance sheet, and as amortisation on consolidated goodwill and a change in deferred tax liability in the consolidated income statement. The accumulated amortisation difference has been divided into change in deferred tax liability and profit for the period and also into deferred tax liability and shareholders equity less minority interest. The share included in equity does not comprise distributable unrestricted equity. Deferred tax liabilities are calculated using a 24.5 per cent tax rate. Deferred tax assets are presented as a separate item on the balance sheet. Pension plan The personnel s statutory pension cover has been arranged through pension insurance taken out with OP Bank Group Pension Fund or insurance companies. Insurance premiums have been expensed as incurred. In addition, some employees are within the scope of additional pension cover from the OP Bank Group Pension Foundation or insurance companies. The amount of pension liability was fully covered on the balance sheet date. Technical provisions Benefits based on insurance contracts are recognised as an expense on the income statement. Technical provisions are calculated by determining the capital value of future benefits, policy administration expenses and future premiums. The calculation uses actuarial assumptions related to force of interest, mortality, incapacity to 23 Annual Report 2011

24 work and operating expenses. The provisions are recalculated on every balance sheet date using the assumptions made when pricing the insurance in question. The interest rate used in discounting is fixed and can be at most equal to the rate used in pricing the insurance. The interest rate may not exceed the expected return on the assets that cover the provisions or the maximum level set by the authorities. Technical provisions have been calculated according to the calculation bases approved by the Board of Directors. The life insurance provision and liabilities for accrued pensions are usually calculated separately for each insurance. Each customer bonus decision creates an increase in the technical provisions. Technical provisions for unit-linked insurance are, however, recognised at fair value in the same way as the assets covering the liability. Policy acquisition costs have not been Zillmerised in these or previous financial statements. Principle of equity With the exception of unit-linked insurance policies, almost all life insurance policies and some capital redemption policies entitle the holder, besides the agreed bonuses, to a discretionary share of the surplus (in the form of a customer bonus or other benefits), which often forms a significant part of the overall benefits included in the policy but whose sum and timing are to be decided by the company. Some unit-linked insurance policies also have the possibility of receiving a discretionary share of the surplus; this can be done by directing some of the savings from the insurance to an interestbearing portion. The surplus-sharing practice is based on the so-called principle of equity defined in the Finnish Insurance Companies Act, which requires that a reasonable portion of the surplus produced by insurance policies be returned as bonuses to the policyholders, unless the company is prevented from doing so by solvency capital requirements. The company must aim for continuity in the granting of bonuses. The principle of equity does not, however, entitle shareholders or policyholders to debt receivables. The goals for the principle of equity can be found in the report of the Board of Directors and via Any additional bonuses will be decided upon by the Board. OP Life Assurance Company 24

25 Methods of calculation for key figures Key figures are calculated according to instructions for insurance companies from the Financial Supervisory Authority. Turnover = + premiums written before reinsurers share + net investment income on the income statement + other income Return on assets, % = + operating profit + interest expenses and other financial expenses + unwinding of discount + revaluation/revaluation reversal entered in revaluation reserve/fair value reserve x changes in valuation differences for investments + balance-sheet total + technical provisions for unit-linked insurance + valuation differences for investments Expense ratio, % = total operating expenses/opening balance sheet total x 100 Expense ratio, % = + total operating expenses before change in deferred acquisition costs + claim settlement expenses x 100 total expense loadings Solvency margin Calculation shown in notes. Solvency capital = Solvency margin + equalisation provision Net investment income on invested capital Net return on investment operations, at fair value in proportion to the invested capital, is calculated separately for each investment type and for the total invested amount, taking into account time-weighted cash flows. Return for the period is calculated using the adapted Dietz formula. 25 Annual Report 2011

26 Note 2. Premiums written (thousands of euros) Group and parent company Life insurance Direct insurance In Finland 811,444 1,846,462 Reinsurance Premiums written before reinsurers share 811,594 1,846,606 Life insurance Unit-linked life insurance 401, ,223 Other individual life insurance 110, ,049 Unit-linked capital redemption policy 60, ,402 Other capital redemption policy 14, ,094 Employees group life insurance 9,384 11,303 Other group life insurance 1,946 1,934 Total 598,511 1,087,003 Pension insurance Unit-linked individual pension insurance 85,029 90,814 Other individual pension insurance 45,241 50,178 Unit-linked group pension insurance 8,600 5,760 Other group pension insurance 74, ,708 Total 212, ,459 Total premiums written for direct insurance 811,444 1,846,462 Recurring insurance premium 452, ,358 Lump sum premiums 359,293 1,344,104 Total 811,444 1,846,462 Premiums from contracts not granting entitlement to bonuses 52,211 58,939 Premiums from contracts granting entitlement to bonuses 190, ,325 Premiums from unit-linked insurance 569, ,198 Total 811, ,462 OP Life Assurance Company 26

27 Note 3. Bonuses and the impact of the principle of equity on the financial statements In 2011, OP Life Assurance Company distributed bonuses complying with Chapter 13, Section 2 of the Insurance Companies Act to insurance policies entitled to such bonuses, in line with the bonus distribution targets approved and published by the Board of Directors. The company s returns on investment were low during the year due to the European debt crisis and subsequent economic uncertainty. This led to there being no surplus, which meant that bonuses were lowered from the previous year. OP Life Assurance Company aims at crediting a higher return on pension plans than on insurance savings that are sensitive to surrender. Accordingly, for 2011, the company distributed an average overall bonus of 3.6 per cent (4.5 per cent) on individual and group pension insurance and 3.1 per cent (3.1 per cent) on savings insurance. In addition, fixed additions to the sums insured were granted for term life insurance policies. The expected returns of risk-free and low-risk investments fell to an exceptionally low level in 2010 and continued to decline during This was particularly true for bonds issued by governments with a good credit rating. The return level of a 10-year Finnish government bond was 2.3 per cent and that of a five-year bond was 1.0 per cent (compared to 3.2 and 1.9 per cent, respectively). This decline in return levels led to better returns for low-risk fixed-income investments, but mostly poor returns on other investments. Today s low interest rates indicate an outlook of continued low return potential for investments. During the year, the company made a 40 million supplement to its group pension liability. This was due to an increase in policyholder life expectancy compared to earlier calculation values. The supplement led to the release of some funds from provisions for future group pension customer bonuses, because the policyholders are now expected to draw their pensions over a longer period than what was assumed when pricing the pension plans. The following tables show the impact of technical interest and bonuses credited on the financial statements. Total interest credited to policies in 2011 Technical interest, Total return, Technical interest credited, Impact of bonuses, Total credited, average average millions of euros millions of euros millions of euros Individual life insurance 3,1% 3,1% Individual pension insurance 3,6% 3,8% Group pension insurance 3,5% 3,5% Capital redemption policies 3,4% 3,0% Other interest and bonuses Average/total 3,3% 3,4% Increase in provision for future customer bonuses Impact on results, net Annual Report 2011

28 Note 4. Total operating expenses by income statement item and function (thousands of euros) Group and parent company Benefits paid Direct insurance Life insurance 650,477 1,116,637 Pension insurance 131,940 95,137 Reinsurance Benefits paid, total 782,485 1,211,948 Of which: Surrenders 341, ,420 Maturity benefits 206, ,530 Others 234, , ,998 1,211,948 Unit-linked insurance share of total benefits paid 305, ,408 Operating expenses Insurance acquisition costs Direct insurance fees 52,108 40,639 Fees on future reinsurance Other insurance acquisition costs 8,097 60,205 7,467 48,105 Change in capitalised acquisition costs of insurance Insurance management costs 11,379 11,443 Administrative expenses 3,174 3,476 Fees on current reinsurance -6,644-5,385 Total operating expenses 68,114 57,639 Overall operating expenses by function Benefits paid 1,856 1,956 Operating expenses 68,114 57,639 Investment management costs 3,068 4,282 Other expenses 11,478 4,925 Overall operating expenses 84,517 68,802 Overall operating expenses include: Planned depreciation on intangible assets and machinery and equipment Scrapping of intangible assets and machinery and equipment 1 Capital gains/losses on intangible assets and machinery and equipment The cost of car parking spaces in the group s own use, totalling 33,000, was eliminated from the consolidated operating expenses. OP Life Assurance Company 28

29 Note 5. Itemisation of personnel expenses, personnel and executive management (thousands of euros) Group and parent company Personnel expenses on income statement Wages and salaries 8,835 7,870 Pension costs 1,529 1,423 Other indirect personnel costs Total on income statement 10,835 9,669 Average number of personnel Average number of personnel during the financial year Managing Director and Board members Executive salaries and emoluments Board members and Managing Director No loans have been given to the Managing Director or Board members. No securities or contingent liabilities apply to the Managing Director and Board members. The company has no pension commitments related to the positions of Managing Director or Board members. OP Life Assurance Company has no business transactions of the nature referred to in Chapter 2, Section 7b of the Accounting Ordinance. Any business transactions performed by OP Life Assurance Company with its related parties are carried out on market terms. Personnel fund The company is a member of the OP Personnel Fund. The performance-based reward sum paid to the OP Personnel Fund in 2011 was based on achievement of the following targets: OP-Pohjola Group s earnings before tax, with a weighting of 40%, growth of the OP-Pohjola Group s market share among corporate customers, with a weighting of 30%, and change in the number of loyal customers, with a weighting of 30%. Approximately 3% (3%) of the total salaries of the members of the personnel fund has been allocated to the transfer of rewards to the personnel fund for Long-term management incentive scheme up to 2010 There was formerly a long-term incentive scheme for management, applied to selected persons appointed by the OP-Pohjola Group. Persons included in the scheme were entitled to rewards based on their monthly salary depending on the fulfilment of annual targets, in the ways specified in the scheme. Rewards according 29 Annual Report 2011

30 to this scheme were paid as a combination of Pohjola Bank Plc shares and cash, within two years of the end of the earning period. Rewards are allocated as personnel expenses according to the earning and commitment periods up to New incentive schemes in 2011 New, more specific EU-wide regulations concerning variable rewards for the financial sector came into effect on 1 January OP-Pohjola Group s new remuneration schemes comply with the new regulations and are based on the Group s strategic objectives. The OP-Pohjola Group s variable remuneration principles take account of the Group s risk position and risk management methods. Performance targets are measured so as not to incentivise excessive risk-taking among personnel. Long-term variable remuneration is based on fulfilment of the OP-Pohjola Group s group-level objectives, whereas short-term variable remuneration is based on fulfilment of the targets of a Group company or business unit. Maximum remuneration levels are specified for the system. The long-term management share-based remuneration scheme consists of three consecutive earning periods, the first one running from 1 January 2011 to 31 December The reward for this earning period will be paid after a deferment in three equal instalments by the end of June each year in In the short-term schemes, the earning period is one calendar year and rewards are mainly paid in cash. These short-term schemes are company-specific and cover all personnel of the OP-Pohjola Group. Note 6. Auditors fees (thousands of euros) Group Auditors fees Auditing fees Tax consultancy Other fees 16 Total Due to late invoicing, the income statement for 2011 does not include 111,000 in tax consultancy fees and 17,000 in auditing fees that apply to the year. The figures are itemised in the Notes. Parent company Auditors fees Auditing fees Tax consultancy Other fees 16 Total OP Life Assurance Company 30

31 Note 7. Taxes (thousands of euros) Group Income statement items Income tax/deferred tax Taxes for the period and previous periods, tax at source ,199 Change in deferred tax -21, Total income taxes on ordinary activities -21,354 36,053 Balance sheet items Tax assets Deferred tax assets 46,053 25,220 Deferred tax liabilities 7,388 7,236 Deferred tax assets eliminated from balance sheet 23,961 26,972 due to unlikelihood of receipt Deferred tax liability related to investment valuation differences 28,310 51,976 Parent company Income statement items Income tax/deferred tax Taxes for the period and previous periods, tax at source Change in deferred tax -20,833 36,021 Total income taxes on ordinary activities -20,597 36,194 Balance sheet items Tax receivables Deferred tax assets 46,053 25,220 Deferred tax liabilities Based on appropriations Deferred tax assets eliminated from balance sheet 23,961 26,972 due to unlikelihood of receipt Deferred tax liability related to investment valuation differences 27,309 50, Annual Report 2011

32 Note 8. Net investment income (thousands of euros) Group Investment income Income from investments in Group companies Dividend income Interest income 8,450 8,780 5,417 6,017 Income from property investments Other income from Group companies 8,927 6,736 from others 11,788 20,715 12,532 19,268 Income from other investments Dividend income 72,908 48,980 Interest income from Group companies 1, from others 49,911 44,863 Other income from Group companies 8,424 9,640 from others 32, ,826 35, ,307 Total 194, ,592 Reversals of impairment 19,311 85,567 Capital gains 309, ,333 Total investment income 522, ,492 Expenses from property investments -9,366-8,854 Expenses from other investments -9,897-13,985 Interest expenses and other liability expenses to Group companies -5,445-5,655 to others -8-5, ,852 Total -24,716-28,691 Impairment and depreciation Impairment ,283 Planned depreciation on buildings ,664-4,760-37,043 Capital losses -427, ,632 Total investment expenses -745, ,365 Net investment income before value increases and their adjustments -222, ,127 Increases in value 11,041 Adjustment to increases in value -179,685 Net investment income in the income statement -391, ,127 OP Life Assurance Company 32

33 (thousands of euros) Parent company Investment income Income from investments in Group companies Dividend income Interest income 8,450 8,780 5,417 6,017 Income from property investments Interest income from Group companies 1,940 Other income from Group companies 8,927 6,736 from others 10,943 19,870 11,528 20,203 Income from other investments Dividend income 72,908 48,980 Interest income from Group companies 1, from others 51,857 44,870 Other income from Group companies 8,424 9,640 from others 32, ,772 35, ,315 Total 195, ,535 Reversals of impairment 19,311 85,567 Capital gains 309, ,781 Total investment income 524, Investment expenses Expenses from property investments -14,399-14,121 Expenses from other investments -11,050-13,985 Interest expenses and other liability expenses to Group companies -5,445-5,655 to others -17-5, ,673 Total -30,911-33,779 Impairment and depreciation Impairment -289,037-32,283 Planned depreciation on buildings , ,442 Capital losses -427, ,632 Total investment expenses -747, ,853 Net investment income before value increases and their adjustments -222, ,030 Increases in value 11, ,991 Adjustment to increases in value -179, ,643 Net investment income in the income statement -391, , Annual Report 2011

34 Note 9. Net investment income from unit-linked insurance Group and parent company (thousands of euros) Investment income 42,559 86,160 Investment expenses -141,407-98,848-9,337 76,823 Net investment income before unrealised value changes on investments Unrealised increases in value of investments 19, ,333 Unrealised decreases in value of investments -315, ,348 29, ,991 Net investment income in the income statement -395, ,814 OP Life Assurance Company 34

35 Note 10. Changes in intangible assets and machinery and equipment (thousands of euros) Group Other long- Group term Machinery goodwill expenses Goodwill and equipment Acquisition cost on 1 January 6,041 20,445 29, Increases 1,015 5,726 2 Decreases 49 Acquisition cost on 31 December 7,056 26,171 29, Accrued depreciation/amortisation on 1 January 4,962 17, Depreciation/amortisation for the period , Accrued depreciation/amortisation on deductions and transfers -31 Impairment Accrued depreciation/amortisation on 31 December 638 4,979 20, Book value on 31 December ,418 21,192 8,749 5 Book value on 31 December ,041 15,483 11, Parent company Other longterm Machinery expenses Goodwill and equipment Total Acquisition cost on 1 January 20,445 29, ,830 Increases 5, ,728 Decreases Acquisition cost on 31 December 26,171 29, ,508 Accrued depreciation and impairment on 1 January 4,962 17, ,645 Depreciation/amortisation for the period 17 2, ,950 Accrued depreciation/amortisation on deductions and transfers -31 Impairment Accrued depreciation/amortisation on 31 December 4,979 20, ,594 Book value on 31 December ,192 8, ,914 Book value on 31 December ,483 11, , Annual Report 2011

36 Note 11. Book value, fair value and valuation difference of investments Group (thousands of euros) Remaining Book Fair Remaining Book Fair acquisition cost value value acquisition cost value value Property investments Properties 201, , , , , ,600 Other shares in properties 127,791 13,092 20,615 16,728 16,728 27,321 Investments in Group companies Shares and participations 7,000 7,000 9,059 14,276 14,276 17,543 Financial instruments 237, , , , , ,480 Other investments Shares and participations 2,378,162 2,378,162 2,469,867 2,648,388 2,648,388 2,807,461 Financial instruments 942, , ,457 1,214,996 1,214,996 1,211,466 Loan receivables Deposits within the Group 112, , ,400 Total 3,895,842 3,781,143 3,896,993 4,414,364 4,414,364 4,614,271 The remaining acquisition cost of financial instruments includes: -the difference between nominal value and acquisition cost recognised as interest income (+) or its deduction (-) 3,429 2,058 Valuation difference (difference between fair value and carrying amount) 115, ,907 OP Life Assurance Company 36

37 Parent company (thousands of euros) Remaining Book Fair Remaining Book Fair acquisition cost value value acquisition cost value value Property investments Properties 5,415 5,415 5,916 5,569 5,569 6,756 Property shares in Group companies 123, , , , , ,921 Other property shares 12,791 12,791 20,314 15,719 15,719 26,312 Loan receivables from Group companies 77,267 77,267 77,267 60,923 60,923 60,923 Investments in Group companies Shares and participations 7,000 7,000 9,059 14,276 14,276 17,543 Financial instruments 237, , , , , ,480 Other investments Shares and participations 2,378,162 2,378,162 2,469,867 2,648,388 2,648,388 2,807,461 Financial instruments 942, , ,457 1,214,996 1,214,996 1,211,466 Loan receivables Deposits within the Group 112, , Total 3,785,226 3,785,226 3,896,692 4,418,395 4,418,395 4,613,262 The remaining acquisition cost of financial instruments includes: -the difference between nominal value and acquisition cost recognised as interest income (+) or its deduction (-) 3,429 2,058 Valuation difference (difference between fair value and carrying amount) 111, , Annual Report 2011

38 Note 12. Property investments Group (thousands of euros) Properties and shares in properties Acquisition cost on 1 January 205,403 Increases 35,142 Decreases -25,691 Book value on 31 December ,854 Book value on 31 December ,403 Parent company (thousands of euros) Loan receivables Shares in properties in Properties and from Group companies Group companies shares in properties Acquisition cost on 1 January 60, ,223 21,973 Increases 22,542 9,752 Decreases -6,198-13,513-2,928 Acquisition cost on 31 December 77, ,463 19,045 Accrued depreciation/amortisation on 1 January 685 Depreciation/amortisation for the period 154 Accrued depreciation/amortisation on 31 December 839 Book value on 31 December , ,463 18,206 Book value on 31 December , ,223 21,288 The company has no investment properties in its own use. OP Life Assurance Company 38

39 Group companies Domicile Group holding Arkadiankatu 23 Kiint Oy Helsinki 100% Espoon Omenaterassi As Oy Espoo 100% Espoon Piispanterassi As Oy Espoo 100% Espoon Tietäjäntie 10 Kiint Oy Espoo 100% Kiinteistö Oy Säästöraha Oulu 100% Kiinteistö Oy Tullikirjurinkuja 2 Helsinki 100% Kiinteistö Oy Vantaan Linjatie 5 Helsinki 100% Kiinteistö Oy OPK-Vallila Helsinki 100% Piispankalliontie Kiint Oy Espoo 100% Helsingin Kaarlenkadun Fenno Kiint Oy Helsinki 100% Ansatie 5 Kiint Oy Helsinki 100% Hankkionkatu 8 Kiint Oy Tampere 100% Uusi Paino Kiint Oy Tampere 100% Quartetto Intermezzo Kiint Oy Helsinki 100% Asunto Oy Helsingin Neitoniemi Helsinki 100% All Group companies are consolidated into the parent company s financial statements. Note 13. Investments in Group companies Group and parent company (thousands of euros) Shares and participations Acquisition cost on 1 January 14,276 Increases 2,865 Decreases -10,141 Acquisition cost on 31 December 7,000 Book value on 31 December ,000 Book value on 31 December , Annual Report 2011

40 Note 14. Shares and participations Group and parent company (thousands of euros) Domicile Book value Fair value Holding, % Finnish shares and participations Group companies Pohjola Bank plc Finland 4,135 6, Real Estate Fund Finland III Ky Finland 2,865 2,865 Group companies, total 7,000 9,059 Other companies listed Amer Sports Plc Finland 1,471 1, Cargotec Plc Finland Fortum Oyj Finland 4,292 4, Huhtamäki Oyj Finland 1,223 1, Kemira Oyj Finland Kesko Corporation Finland KONE Corporation Finland 2,340 2, Lassila & Tikanoja Plc Finland Metso Corporation Finland 2,261 2, M-real Corporation Finland Neste Oil Corporation Finland 4,166 4, Nokia Plc Finland 3,566 3, Nokian Renkaat Oyj Finland 2,069 2, Outotec Oyj Finland Sampo Plc Finland 2,308 2, Sanoma Oyj Finland Stora Enso Oyj Finland 1,012 1, Tieto Corporation Finland UPM-Kymmene Corporation Finland 1,908 1, Wärtsilä Corporation Finland 1,249 1, YIT Corporation Finland 1,191 1, Nordea Bank AB FDR Sweden 2,346 2, TeliaSonera AB Sweden 2,187 2, Other shares 1,158 1,222 Other companies unlisted Arenna Oy Finland 727 1, Avara Oy Finland 4,565 9, Tornator Oy Finland 6,000 27, The Forest Company Limited Guernsey 8,365 8, Zais Financial Corporation United States 7,221 7,221 Other companies, total 67,491 95,335 All shares, total 74, ,394 OP Life Assurance Company 40

41 Domicile Book value Fair value Holding, % Mutual funds Finnish mutual funds Aktia Emerging Market Local Currency Bond+ Finland 39,891 39,891 Armada Mezzanine Fund II Finland 2,803 2,928 Armada Mezzanine Fund III Ky Finland 1,944 2,327 CapMan Hotels RE Ky Finland 13,566 13,566 CapMan Technology Fund 2007, Secondary Finland 1,762 1,839 Danske Invest Kestävä Arvo Osake K Finland 46,029 47,537 Finnmezzanine Rahasto III B Ky Finland Fondita Nordic Micro Cap Finland 5,375 5,375 ICECAPITAL Africa -B Acc Finland 6,817 6,817 Inveni Secondaries Fund II Ky, Secondary Finland Kasvurahastojen Rahasto Ky Finland 1,173 1,173 KJK Fund SICAV -SIF-Baltic States Finland 3,460 3,460 MB Equity Fund IV Ky Finland 1,049 1,051 OP-America Index Finland 6,987 6,987 OP-Delta Finland 45,815 45,815 OP-EMD Local Currency Finland 25,233 25,233 OP-Euro Finland 66,552 66,708 OP-Europe Value Finland 3,399 3,399 OP-Europe Equity Finland 18,147 18,147 OP-Europe Dividend Finland 5,898 5,898 OP-Europe Theme Finland 6,385 6,385 OP-Focus Finland 28,385 28,385 OP-High Yield Finland 113, ,320 OP-Climate Finland 9,853 9,853 OP-Emerging Markets Equity Finland 14,862 14,862 OP-Fixed Income Portfolio Finland 189, ,201 OP-Yield Finland 141, ,165 OP-Bond Yield Finland 27,292 27,292 OP-Nordic Index Finland 2,000 2,164 OP-Commodity Finland 13,601 13,601 OP-Inflation-Linked Bond Finland 93,801 93,801 OP-Finland Value Finland 13,805 13,805 OP-Finland Small Cap Fund Finland 1,155 1,155 OP-Russia Finland 16,237 16,237 OP-Corporate Bond Finland 159, ,224 OP-Corporate Bond Prima Finland 41,658 41,658 Promotion Equity I Ky Finland 1,185 1,185 Real Estate Fund Finland 1 Ky Finland 5,447 5,447 Real Estate Fund of Funds II Ky Finland 6,405 6,405 Selected Mezzanine Funds I Ky Finland 5,000 5,077 Selected Private Equity Funds I Ky Finland 4,526 4,526 Suomi Välirahoitusrahasto I Ky Finland 1,402 1,528 Vaaka Partners Buyout I Ky Finland 1,727 1,727 Other funds Finland 978 1,095 Total 1,195,797 1,198, Annual Report 2011

42 Domicile Book value Fair value Holding, % Foreign mutual funds Aberdeen Indirect Property Partners Sweden 14,090 14,090 Aberdeen Indirect Property Partners II Sweden 10,953 10,953 Access Capital Fund III Mid-market BO Europe LP Guernsey 9,525 11,193 Access Capital Fund III Technology Europe LP Guernsey 4,801 4,801 Access Capital Fund IV LP - Growth Buy-Out Europe Guernsey 8,100 8,875 Access Capital LP II B OP Great Britain 1,079 1,079 Allied Capital Senior Debt Fund Ltd class A2 Ser 1 Cayman Islands 5,197 8,107 Allied Capital Senior Debt Fund Ltd class A2 Ser13 Cayman Islands 1,633 2,642 Allied Capital Senior Debt Fund Ltd class A2 Ser19 Cayman Islands 1,615 2,603 Almack Mezzanine I LP Great Britain 6,788 7,455 Almack Mezzanine II Unleveraged LP Great Britain 10,903 10,903 Alternative Property Income Venture Fund, L.P. France 12,613 12,613 Amber Trust II SCA Luxembourg 3,101 3,601 Amber Trust SCA Luxembourg Axa Infrastructure Partners A France 9,775 11,206 BGF - European Focus Fund A2 Luxembourg 2,512 2,627 BGF - GBL Global High Yield Bond Fund HedgedA2 Luxembourg 30,549 32,888 BlueBay Emerg. Market Corp. Bond Fund I -Euro Base Luxembourg 43,525 43,525 BlueBay Emerging Market Opp Fund EUR Class I Luxembourg 33,463 33,463 BlueBay Emerging Markets LC Bond Base Perf I Luxembourg 28,163 28,638 BlueBay Global Convertible Bond - I Base Class Great Britain 41,060 41,060 Bridgepoint Europe IV F Great Britain 10,883 10,883 Bridgepoint III C Great Britain 7,997 8,480 Brown Advisory US Equity Growth Fund Ireland 21,840 23,021 CapMan Buyout VIII Fund A L.P. Guernsey 2,275 2,275 CapMan Buyout VIII Fund A L.P., Secondary Guernsey 4,059 4,265 Cheyne Total Return Credit Fund 1 Inc., Class L Cayman Islands 3,501 3,946 Coller International Partners V-A LP Guernsey 4,272 6,562 CRM US Equity Opportunities S Ireland 42,009 42,009 Crown Global Private EQ plc, Europe BO Sub-Fund Ireland 1,644 2,257 Danske Invest Europe High Dividend I Luxembourg 36,663 36,663 Danske Private Equity Partners IV (EUR-B) K/S Denmark 1,159 1,159 Danske Private Equity Partners IV (USD-B) K/S Denmark 1,443 1,539 Dimensional Emerging Market Value Fund Ireland 26,714 26,714 Europa Fund II LP Great Britain 1,857 1,857 Europa Fund III LP Great Britain 5,561 5,561 European Retail Income Venture France 6,521 6,521 European Retail Income Venture II France 7,327 7,327 Fidelity Funds - China Consumer A Dis Luxembourg 5,393 5,393 Franklin Templeton European Real Estate F O F Luxembourg 11,627 11,627 Fugu Credit Plc F1 Ireland 1,570 1,570 GAM Star Plc - China Equity A Acc Ireland 16,438 16,438 GAM Star Plc - China Equity I Distr Ireland 6,630 6,630 GEM Benelux Fund II Netherlands Green Way Arbitrage-The Designated Investment A1 Luxembourg GS Capital Partners V Offshore L.P. United States 4,203 6,408 GS Capital Partners VI Offshore LP United States 6,003 6,003 Hexagone III France 2,413 2,446 HgCapital 6 L.P. Great Britain 7,036 7,036 OP Life Assurance Company 42

43 Domicile Book value Fair value Holding, % ICG European Fund 2006 LP Great Britain 12,907 16,023 ING (L) Invest Europe Opportunites I Luxembourg 34,721 34,721 Invesco Pan European Structured Equity Fund Luxembourg 4,000 4,177 Invesco Perpetual UK Aggressive Fund Distr. Great Britain 3,685 3,685 Investcorp EMOF CFO Class C Equity Notes Cayman Islands 5,625 5,625 JPMorgan Funds - JF ASEAN Equity Fund A acc Luxembourg 3,240 3,281 Kotak - India Midcap Fund I Acc Luxembourg 7,479 7,479 Lexington Capital Partners VI-A, L.P. United States 5,738 6,705 Lexington Middle Market Investors II, L.P. United States 6,918 8,026 Lexington Middle Market Investors, L.P. United States 4,794 7,137 MGP Asia Fund III LP Bermuda 9,075 9,684 Mirae AGD -Korea Equity Fund I$ Luxembourg 2,716 2,716 Montanaro European Smaller Companies Fund Ireland 13,536 13,536 Oak Hill Credit Opportunities Fund Class B 10/2007 Cayman Islands 4,947 6,016 Odin Offshore Norway 16,186 16,186 Partners Group Direct Investments 2006, L.P. Switzerland 15,667 15,667 Partners Group Global Real Estate 2008, L.P. Switzerland 6,720 7,746 Paul Capital Partners IX L.P. United States 6,927 8,244 Paul Capital Partners VIII-C L.P. United States 1,050 2,075 Polaris Private Equity III K/S Denmark 1,583 1,583 R2 Alpha Strategies I fund - Euro Class I Ireland 97,507 97,507 R2 Crystal Fund - Euro Class 1 Ireland 39,413 39,413 RCP Fund V, L.P. United States 8,420 8,586 Robeco US Large Cap Equities I USD Luxembourg 32,895 34,101 RREEF Pan-European Infrastructure Fund LP Great Britain 9,645 12,411 Samena Angel Fund I Cayman Islands 10,105 13,712 Schroder Alternative Solutions -Commodity C Acc H Luxembourg 5,324 5,324 Schroder AS Agriculture Fund I Eur Acc Luxembourg 12,634 12,634 Sovereign Capital Limited Partnership III Great Britain 2,535 2,535 SVG Diamond Holdings II Limited Jersey 5,711 5,711 Symphony Credit Opportunities Fund United States 2,565 2,565 Symphony Credit Opportunities Fund New E-2 United States 2,766 8,119 TCW/Crescent Mezzanine Partners VC LP United States 8,133 9,553 Threadneedle Lux Enhanced Commodities I Luxembourg 36,794 36,794 Top Tier Venture Capital Management III L.L.C United States 10,705 13,632 William Blair - Emerging Markets Growth Fund I Luxembourg 47,335 47,335 William Blair - US ALL Cap Growth Fund D Luxembourg 45,180 45,558 Vision Asia Investment Holding Side Pocket Class F Cayman Islands Vision Asia Maximus Fund - Class D - Series 01 Cayman Islands 7,050 7,050 ZAIS CDO Opportunity Fund Ltd Class B Series 3 Cayman Islands 6,456 12,069 Zais Matrix VI-A, Ltd Participating Shares Cayman Islands 7,275 7,275 Zais Zephyr A-1 Ltd Participating Shares (10/07) Cayman Islands 14,634 14,634 Other funds 5,077 8,849 Total 1,114,874 1,175,703 MUTUAL FUNDS, TOTAL 2,310,671 2,374,532 SHARES AND PARTICIPATIONS, TOTAL 2,385,162 2,478, Annual Report 2011

44 Note 15. Investments covering unit-linked insurance (thousands of euros) Group and parent company Original Fair value Original Fair value acquisition cost (book value) acquisition cost (book value) Shares and participations 2,793,351 2,700,215 2,773,739 3,102,999 Fixed-income investments 137, ,079 10,303 10,349 Deposits and bank receivables 376, ,985 10,915 10,915 Other investments 45,352 41,603 22,180 23,187 Total 3,353,281 3,261,883 2,817,137 3,147,450 Investments acquired in advance (-) -13,150-2,666-11,292-8,864 Investments corresponding to 3,340,131 3,259,217 2,805,845 3,138,586 technical provisions for unit-linked insurance Original acquisition cost Fair value (book value) Shares and participations Elisa 1,295 1,383 Eq Pikkujättiläiset A 875 1,172 Eq Varainhoito Eläke 10,302 12,137 Eq Varainhoito Sijoitus 6,694 7,617 Erikoissijoitusrahasto Populus 1,468 1,339 Fidelity America Fund - A Usd 2,209 2,653 Fidelity American Growth Fund A 1,993 2,085 Fidelity China Focus Fund - A Usd 1,205 1,319 Fidelity Emerging Markets Fund - A Usd 4,688 5,749 Fidelity Euro Balanced Fund A 4,017 4,012 Fidelity Euro Blue Chip A 1,737 1,595 Fidelity European Growth Fund A 8,762 9,344 Fidelity European Smaller Co. Fund - A 3,137 3,841 Fidelity Funds - Global Health Care A Acc Eur 925 1,129 Fidelity Global Focus Fund A- Eur Shares Fidelity Global Telecommunications A-Acc-Eur Fidelity India Focus Fund A Fidelity Japan Smaller Companies Fund A OP Life Assurance Company 44

45 Original acquisition cost Fair value (book value) Fidelity Latin America Fund - A Usd 1,580 1,928 Fidelity Nordic Fund A 1,514 1,523 Fidelity Pacific Fund - A Usd 3,818 4,889 Fidelity Portfolio Selector Global Growth Fund A 1,064 1,180 FIM Likvidi FIM Asset Management Pension 35,455 36,682 FIM Asset Management Investment 26,417 25,382 Fortum 3,899 3,437 Huhtamäki Ishares Msci Canada Fund Etf 4,006 4,018 Ishares Stoxx Europe 600 Banks De Eur Etf 3,908 4,029 Jpm - Emerging Europe, Middle East And Africa Eq A 1,092 1,137 Kemira Kesko B Kone B Limestone Fund Global Dynamic Opportunities 10+I (Acc) 2,854 2,867 Metso 1,111 1,043 Nokia 4,080 2,614 Nokian Renkaat 1, Nordea Bank Ab Fdr 1,318 1,196 OP-Asia Tigers A 83,671 82,850 OP-Absolute Portfolio A 11,094 11,016 OP-America A 28,701 29,570 OP-America Index A OP-Delta A 94,072 88,741 OP-Emd Hard Currency A 9,094 9,374 OP-Emd Local Currency A 15,538 15,822 OP-Emd Local Currency Short Term A 2,109 2,124 OP-Emd Portfolio A 59,337 59,148 OP-Euro A 225, ,334 OP-Europe Value A 41,694 29,697 OP-Europe Index A OP-Europe Equity A 43,693 43,021 OP-Europe Dividend A 2,249 2,093 OP-Europe Small Cap A 52,400 45,446 OP-Europe Theme A 5,908 5,117 OP-Focus A 67,239 57,899 OP-Henki Asia Index 16,763 15,280 OP-Henki America Index 61,808 64,755 OP-Henki Europe Index 24,421 25,704 OP-Henki Emerging Markets Equity 1,227 1,203 OP-Henki Latin America 1, OP-Henki Maltti 49,581 49,053 OP-Henki Nordic Index 25,813 26,969 OP-Henki Valtti 29,569 30, Annual Report 2011

46 Original acquisition cost Fair value (book value) OP-Henki Valtti II 31,963 31,393 OP-Henki Valtti III 13,753 13,042 OP-High Yield A 62,105 59,521 OP-Horizon 2015 A 19,763 20,041 OP-Horizon 2025 A 33,341 32,311 OP-Horizon 2035 A 22,181 21,510 OP-Horizon 2045 A 2,200 1,921 OP-Climate A 21,444 16,335 OP-India A 51,303 45,000 OP-Eastern Europe A 66,213 50,189 OP-Japan A 6,771 6,878 OP-Emerging Asia A 1,639 1,684 OP-Emerging Europe A 3,049 1,949 OP-China A 53,001 51,610 OP-Property A 11,206 9,580 OP-Fixed Income Plus A 81,391 84,602 OP-Fixed Income Portfolio 10 A 13,187 12,523 OP-Fixed Income Portfolio A 187, ,813 OP-Yield A 5,286 5,223 OP-Yield II A OP-Liquidity A 224, ,013 OP-World II A 64,615 66,258 OP-Bond A 17,834 17,911 OP-Bond Prima A 42,478 43,931 OP-Bond Yield A OP-Pirkka A 31,601 29,475 OP-Pohjoismaat Index Mutual Fund A OP-Capital Guaranteed ,085 10,876 OP-Commodity A 12,298 10,936 OP-Inflation-Linked Bond A 5,743 5,703 OP-Investment Service 25 63,520 62,365 OP-Investment Service 50 41,265 38,978 OP-Investment Service 75 9,890 9,023 OP-Solid A 15,197 12,294 OP-Spektri A 16,664 14,009 OP-Finland Value A 51,767 51,177 OP-Finland Small Cap A 30,113 23,523 OP-Tactical Portfolio A 22,037 22,759 OP-Tuotto A 109, ,476 OP-Convertible A 5,339 4,872 OP-Russia A 103,736 84,310 OP-Corporate Bond A 18,439 18,807 OP-Corporate Bond Prima A 57,100 57,451 Pohjola Asset Management Pohjola Asset Management 60 2,374 2,333 OP Life Assurance Company 46

47 Original acquisition cost Fair value (book value) Pohjola Asset Management E 20 6,092 6,069 Pohjola Asset Management E 60 5,672 5,600 R2 Alpha Strategies I Fund - Euro Class II 1,777 1,768 R2 Crystal Fund - Euro Class 1 3,314 3,474 Raiffeisen International Bank 3, Rautaruukki Sampo A 1, Sanoma SEB Gyllenberg High Yield B SEB Gyllenberg Money Manager B SEB Gyllenberg Asset Management Pension 8,871 10,172 SEB Gyllenberg Asset Management Investment 1,804 2,068 Sif5 Oltenia Snaige (Top) Stora Enso R 1, Teliasonera Ab 1,581 1,527 UBAM - Europe Equity A Cap 2,254 2,073 UPM-Kymmene 1,972 1,630 YIT Total shares and participations 2,793,351 2,700,215 Fixed-income investments Ahlstrom Oyj 4.50% 10/11/ /11/2015 Rm-Loan Amer Sports Plc 11/6/ /6/2015 Rm-Loan Limestone Fund Global Dynamic Opportunities 10+I (Acc) 1,994 2,005 M-Real 8.75% ,146 2,075 Neste Oil 14/9/ /9/2016 Rm-Loan Norske Skogindustri 7 Pct , Oko Bank Plc Var Undated OKO Rahasto-Obligaatio II/2007, loan 81,418 82,875 Pohjola Korko Ekstra I/2011 6,000 6,044 Pohjola Luottokori 11/2011,12.0% 10/01/2017 1,360 1,360 Pohjola Pitkäkorko II/2011 3,000 3,071 Pohjola Rahasto-Obligaatio I/ ,571 27,821 Pohjola Finland Ftd 5/2008, 20/03/2013 1,109 1,134 Pohjola Finland Ftd 9/2011,10/01/2017 1,119 1,147 Stora Enso Oyj Pct Svenska Handelsbank 3.75 Pct ,102 4,105 Uponor Oyj 2011/Rm-Loan 21/6/2018 1,301 1,248 Yit-Yhtymä Oyj 2011/Rm-Loan Total fixed-income investments 137, ,079 Total deposits and bank receivables 376, ,985 Total other investments 45,352 41, Annual Report 2011

48 Note 16. Receivables (thousands of euros) Group Other receivables Receivables from securities trading 9, ,258 Advance payments made 67,723 Pension advances 8,504 7,822 Other receivables from Group companies 1,067 Other receivables 7,433 3,916 Total 94, ,021 Parent company Other receivables Receivables from securities trading 9, ,252 Advance payments made 67,717 59,025 Pension advances 8,415 7,915 Receivables from Group companies 82 Other receivables 7,022 1,906 Total 92, ,181 Receivables from Group companies 1,437 OP Life Assurance Company 48

49 Note 17. Prepayments and accrued income (thousands of euros) Group Interest and rent 20,655 23,222 Other prepayments and accrued income from Group companies, interest and rent Other prepayments and accrued income Total 20,914 23,886 Parent company Interest and rent 20,911 23,753 Other prepayments and accrued income 41 Total 20,911 23, Annual Report 2011

50 Note 18. Shareholders equity Group Share capital on 1 Jan/31 Dec 145,432, ,432, Other funds on 1 Jan/31 Dec 118,263, ,263, Reserve fund on 1 January ,559, Increase/decrease ,559, Reserve fund on 31 December Paid-up unrestricted equity reserve on 1 January 399,559, ,000, Increase/decrease ,559, Paid-up unrestricted equity reserve on 31 December 399,559, ,559, Retained earnings on 1 January -138,816, ,481, Dividend distribution -50,342, Increase/decrease Retained earnings on 31 December -189,158, ,481, Profit/loss for the period -69,002, ,665, Total restricted equity 145,432, ,432, Total unrestricted equity 259,662, ,006, Total equity 405,095, ,439, Distributable funds 256,365, ,606, OP Life Assurance Company 50

51 Parent company Share capital on 1 Jan/31 Dec 145,432, ,432, Other funds on 1 Jan/31 Dec 118,263, ,263, Paid-up unrestricted equity reserve on 1 Jan/31 Dec 399,559, ,559, Profit/loss from previous periods on 1 January -297,644, ,573, Change during period 113,201, ,929, Profit/loss from previous periods on 31 December -184,442, ,644, Profit/loss for the period -69,671, ,543, Total restricted equity 145,432, ,432, Total unrestricted equity/distributable funds 263,708, ,722, Total equity 409,141, ,155, Note 19. Subordinated debt (thousands of euros) Group and parent company Subordinated debt Perpetual bond ,830 25,830 Perpetual bond ,000 10,000 Perpetual bond ,000 10,000 Perpetual bond ,000 45,000 90,830 90,830 All the subordinated bonds are valid until further notice. The creditor for the 1999 and 2001 bonds is the OP Pension Foundation. The creditor for the 2003 and 2004 bonds is the OP-Pohjola Group Central Cooperative. The interest rate on the OP Pension Foundation bonds is the six-month EURIBOR plus a 4 per cent margin. The interest rate on the Central Cooperative s 2004 bond is the 12-month EURIBOR plus a 4 per cent margin. The 2003 bond has a fixed interest rate coupon at 5.8% until 18 December 2013, after which the interest will be tied to the six-month EURIBOR plus a 2 per cent margin. 51 Annual Report 2011

52 Note 20. OP Life Assurance Company Oy Shareholders Number of shares Holding Cooperative banks 83, % OP-Pohjola Group Central Cooperative 425, % Pohjola Bank plc 50, % Total 559, % The nominal value of one share is 260. Note 21. Technical provisions (thousands of euros) Group and parent company Life insurance provision 6,161,381 6,482,316 Transfer liability supplement Provision for unpaid claims 707, ,860 Pension benefits 670, ,693 Average interest rate used in calculating provision 3.35% 3.26% Technical provisions for unit-linked insurance Technical provisions Life insurance provision 3,236,947 3,123,004 Provision for unpaid claims 22,270 15,582 Total 3,259,217 3,138,586 OP Life Assurance Company 52

53 Note 22. Liabilities (thousands of euros) Group Other liabilities Liabilities from securities trading 33,570 91,655 Sales commissions 1,171 3,428 Personnel expenses 208 2,772 Other liabilities 10, Total 45,528 98,028 Parent company Other liabilities Liabilities from securities trading 34,157 91,655 Sales commissions 5,469 3,428 Advance payments Personnel expenses 208 2,772 Other liabilities 5,688 2,053 Total 45, ,022 Liabilities to Group companies 4, Annual Report 2011

54 Note 23. Accrued expenses (thousands of euros) Group Personnel expenses 1,662 1,536 Interest 2,904 16,714 Derivative contracts 908 2,001 Others 1,100 4,423 Total 6,575 24,674 Parent company Personnel expenses 1,662 1,536 Interest 2,902 16,714 Derivative contracts 608 1,888 Others Total 6,366 20,878 OP Life Assurance Company 54

55 Note 24. Securities and contingent liabilities (thousands of euros) Group and parent company Securities and contingent liabilities Investment liabilities 212, ,239 VAT refund liability Parent company 5 5 Group Leasing liabilities Amount to be paid during the current period Amount to be paid later Securities for derivative trading Pledges Derivative contracts (for hedging purposes) Currency derivatives Forward and futures contracts Fair value ,860 Intrinsic value of underlying security 99, ,751 Derivative contracts (other) Interest-rate derivatives Forward and futures contracts Fair value Intrinsic value of underlying security 55,023 Interest rate swap Fair value 62,309 Intrinsic value of underlying security 810,000 Equity derivatives Forward and futures contracts Fair value Intrinsic value of underlying security 51,547 Option contracts Bought, fair value Intrinsic value of underlying security Issued, fair value Intrinsic value of underlying security 55 Annual Report 2011

56 Note 25. Solvency Parent company (thousands of euros) Solvency margin Equity after deduction of the proposed distribution of profits 389, , , , ,784 Accumulated appropriations Valuation difference between the fair value and book value of assets on the balance sheet 111, , ,957-14,344 91,381 Deferred tax -17,000 Intangible assets -29,941-27,148-26,865-24,939-22,259 Subordinated loans 90,830 90,830 90,830 90,765 90,687 Capital value of future surpluses 24,651 Other items -9,416-1,457-12,216-1,844 Total 552, , , , ,748 Minimum solvency margin according to Chapter 11, Section 12 of the Insurance Companies Act 202, , , , ,243 Solvency margin ratio 273% 338% 280% 125% 227% Equalisation provision included in technical provision for years with numerous claims. 6,615 22,968 22,160 21,350 19,656 Solvency capital 559, , , , ,404 Solvency ratio as % of technical provisions 12.9 % 15.9 % 12.8 % 6.2 % 10.4 % (Solvency margin and equalisation provision in relation to the technical provisions that are the company s responsibility less the equalisation provision and 75% of the technical provisions for unit-linked insurance.) OP Life Assurance Company 56

57 Note 26. Key figures Parent company (thousands of euros) Turnover 431,479 2,546,898 1,372, ,343 1,098,868 Operating profit/loss -84, ,425 76, ,748 67,386 Market share by premiums written 25.0% 38.6% 25.2% 29.3% 30.8% Expense ratio, % (operating expenses/total loading income) 107.6% 95.5% 84.0% 75.2% 73.4% Expense ratio, % (operating expenses/opening balance sheet total) 1.1% 1.0% 1.1% 0.9% 0.9% Return on assets, % -0.3% 9.0% 7.2% -9.6% 3.0% Result analysis Premiums written 784,139 1,818, , , ,820 Net investment income + revaluations and revaluation adjustments -391, , ,821-1,091, ,652 Benefits paid -772,917-1,204, , , ,837 Change in technical provisions before bonuses and changes in equalisation provision 363,794-1,012, , , ,396 Operating expenses -68,114-57,639-47,468-43,306-43,002 Other technical income and expenses Balance on technical account before bonuses -84, ,425 76, ,748 64,236 tasoitusmäärän muutosta Other income/expenses 2,768 2,781 2,323 6,149 3,149 Operating profit/loss -81, ,207 79, ,599 67,386 Changes in equalisation provision 16, ,694-1,544 Bonuses -24,260-33,642-19,143-11,481-8,839 Profit/loss before appropriations and taxes -89, ,757 59, ,774 57,002 Appropriations Income tax and other direct taxes 20,597-36,194-15,174 75,972-15,141 Profit/loss for the period -69, ,544 43, ,803 41, Annual Report 2011

58 (thousands of euros) Analysis of net investment income Direct net income 140, ,764 93,294 86, ,455 Loan receivables Bonds and notes 58,029 49,852 41,298 81,252 70,588 Other financial instruments and deposits 101 1,104 8,923 1,264 1,218 Shares and participations 87,839 61,952 41,255-3,533 39,655 Property investments 7,462 6,088 8,822 12,448 7,410 Other investments -5,351-5,458-5,536-5,344-5,309 Income, expenses and operating expenses -8,080-4,773-1, unallocated to any investment type Changes in book value 1 ) Shares and participations -136, ,430 61, ,408 15,491 Bonds and notes -133, , , ,538 66,461 Property investments -4,995-4,245-92, ,801-51,010 Other investments 1,975 1, Net investment income at book value 3, , , , ,945 Change in difference between fair value and book value 2) ) Shares and participations -20,817 71, , ,725-56,484 Bonds and notes -68,577 61,654 21,384-38,761-29,660 Property investments -13,749 10, ,527-67,307-37,274 Other investments -1, ,451 Net investment income at fair value -17, , , ,456 72,462 Net investment income from derivatives -38,584-40,990-14,805-52,161 28,280 1 ) Capital gains and losses and other changes in book value. 2) Off-balance-sheet changes in value. OP Life Assurance Company 58

59 Investment distribution at fair value Bonds and notes 1,021,528 1,108, , ,742 1,254,299 Other financial instruments 262, , , ,309 88,364 Shares and participations 1,913,142 2,190,824 2,226,897 1,519,298 2,048,201 of which shares and equity funds 908,936 1,071, , , ,316 bond funds 1,004,206 1,119,358 1,519,216 1,317,903 1,329,885 Alternative investments 390, , , , ,375 of which shares and participations 291, , , , ,518 fixed-income instruments 99, ,345 15,561 14,891 12,857 Property investments 391, , , , ,168 Total investment assets 3,979,322 4,634,465 4,125,644 3,888,213 4,192,407 Investments covering unit-linked insurance 3,261,883 3,147,450 2,381,452 1,614,106 2,373,965 Modified duration of the bond portfolio (D mod = D/ 1+r) Includes transferred interest 59 Annual Report 2011

60 (thousands of euros) Net investment income on invested capital at fair value Net investment. Restricted Return on income at fair capital, restricted value, euros 1) euros 2) capital, % Bonds 3) 72,496 2,129, *of which bond funds -12,779 1,025, Other financial instruments and deposits 3) 3, , *of which bond funds 1, , Shares and participations -133,612 1,058, Property investments 4) 25, , * of which mutual funds and UCITS 16, , Other investments 23, , Investments, total -9,149 4,316, Unallocated income, charges, and operating expenses -8, Net investment income at fair value -17,228 4,316, ) Net investment income at fair value = change in the market values at the end and beginning of the period - cash flows during the period. Cash flow refers to the difference between purchases/expenses and sales/income. 2) Invested capital = market value at the beginning of the period + daily/monthly time-weighted cash flows. 3) Includes income from bond funds recorded under the investments in question in statistics. 4) Includes income from mutual funds and UCITS recorded under property investments in statistics. OP Life Assurance Company 60

61 Solvency and risk management principles Note 27. Solvency and risk management principles Principles of risk management Controlled risk-taking and risk-bearing are an integral part of OP Life Assurance Company s business operations. Risks that require attention include risks related to day-to-day business, as well as to the business and financial operating environment. Risk management in the company is divided into three levels. On the first level, business units manage and report risks within their respective areas as part of their day-to-day activities. At the second level, the company s risk management function supports, guides and supervises the risk management and reporting activities carried out by the business units. On the third level, OP-Pohjola Group s internal audit reviews risk management processes and the veracity and sufficiency of risk reporting on a regular basis. The purpose of risk management is to identify, assess and control business risks. Key risks comprise underwriting risks, market risks associated with investment operations and technical provisions, and operational risks. The risk management function conducts a risk mapping on a quarterly basis and performs a risk analysis examining the company s total risk exposure and key risks. The results of the risk analysis are reported to the Board of Directors, the risks identified are included in the scope of continuous monitoring, and limits are set in order to ensure the continuity of the company s operations and solvency. Risks borne by the company are covered with sufficient capital against the realisation of the risk. Undesirable risks related to day-to-day business and the operating environment are minimised by improving operating models and practices and through responsible and reliable administration. The company reports its solvency position to competent authorities within the framework of both Solvency I and the early warning calculation model. The objective of the company s risk management is to ensure that the company s solvency meets both the requirements set in the internal solvency calculation (the economic capital method) and those set by authorities. Risk management organisation In the OP-Pohjola Group, risk management and internal control are steered at Group level. The implementation of risk management and internal control principles in day-to-day business and reporting are supervised by the company s internal risk management and compliance function. In OP Life Assurance Company, the highest decisionmaking body addressing issues related to risk management and solvency management is the Board of Directors. The company s Managing Director, who reports to the Board of Directors, is responsible for planning, preparing and implementing internal control and risk management in accordance with the Board s decisions. The company s Chief Risk Officer (CRO), who reports to the managing director, develops and implements risk management and solvency management principles, and supervises practices applied to managing risks. The Chief Actuary, who reports to the Board of Directors and the 61 Annual Report 2011