O P-POhjOla GrOuP annual review 2007 OP-Pohjola Group annual review 2007

Transcription

1 OP-Pohjola Group ANNUAL REVIEW 2007

2 Contents 2 OP-Pohjola Group in Brief 4 Chairman s Review 6 OP-Pohjola Group in Core Values and Strategy 13 Market Position 14 Operating Environment 16 Owner-members 18 Corporate Responsibility 20 Human Resources 24 Product and Service Development Review 26 Customers and Service Network 28 Brands 29 Banking and Investment Services 35 Life Insurance 38 Non-life Insurance 42 Pohjola as a Portfolio Investment 44 Structure and Governance of OP-Pohjola Group OP Group Central Cooperative s Financial publications This publication together with OP-Pohjola Group s Financial Statements forms the financial and insurance conglomerate s Annual Report for OP-Pohjola Group s Corporate Responsibility Report will be published separately. The Financial Statements are available on our website at op.fi/english, in the Press section. Annual Reviews can be ordered from > Press > Annual Report orders. Since all the figures in the Annual Report have been rounded off, adding up individual figures may yield a different result from the sum presented. Pohjola Bank plc (until 29 February 2008 OKO Bank plc), the Central Cooperative s subsidiary listed on the Helsinki Stock Exchange, publishes its own Annual Report in Finnish, Swedish and English. Interim Reports in 2008 OP-Pohjola Group and Pohjola Bank plc will each publish three Interim Reports in 2008: for January March on 8 May 2008 for January June on 7 August 2008 for January September on 6 November 2008 The Interim Reports will be published in Finnish, Swedish and English. The Interim Reports are available on our website at and Paper copies can be ordered from OP Bank Group Central Cooperative, Corporate Communications, P.O. Box 308, FI Helsinki, or by telephone +358 (0) , telefax +358 (0) or viestinta@op.fi. 48 Supervisory Board 49 Organisation 50 Executive Board 52 Contact Information

3 OP-Pohjola Group a Full-service Financial Services Company OP-Pohjola Group is a full-service financial services company. It has grown into its present position through many stages, the most recent ones being the most significant ones. The merger of the cooperative bank group and a major insurance group is the crown in a century of development. The Central Lending Fund of the Cooperative Societies Limited Company was founded on 14 May 1902, while Pohjola had already been founded in The first local cooperative credit societies were founded in autumn 1902, and became cooperative banks in OKO Bank became a listed company in Non-life insurance became a new business line with the Pohjola acquisition on 12 September Exactly two years later, the Group was renamed OP-Pohjola Group. The founders of Pohjola and the cooperative banks shared an objective that sprang from common values Finnish independence. The same values, that is, Finnishness, reliability and security, is a strong foundation for the Group s operations also in the future. Major company acquisition in 2005 The new financial services group was created on 12 September 2005, when insurance companies Suomi Mutual and Ilmarinen Mutual sold their Pohjola shares to OKO Bank. The integration of company operations began the same autumn once the necessary official approvals had been received OKO Bank and the first cooperative credit societies are founded 1928 The Central Association of Cooperative Funds is founded 1932 The Guarantee Fund for Cooperative Funds is founded The cooperative credit societies become cooperative banks 1891 Pohjola is founded 1910 Salama is founded 1912 Pohjola becomes a listed company 1932 Pohjola s first general agency abroad is founded in Denmark 1960s 1970 Eurooppalainen becomes a Pohjola subsidiary

4 Later the same year OKO Bank made a share issue concerning the Pohjola acquisition and a tender offer for the entire Pohjola share capital. Once this was over, the company announced it was buying the rest of the shares too. Fund management operations were merged by selling Pohjola s fund management company to OP Bank Group Central Cooperative. Customers were also presented with OP Bank Group s first loyal customer benefit concerning home insurance. Integration of operations in 2006 In 2006, Pohjola s life insurance business was sold to OP Bank Group Central Cooperative and asset management to OKO Bank. The first joint offices were completed, offering banking and non-life insurance services within the same premises. Successful marketing of loyal customer benefits increased the number of customers that handle both their banking and insurance with the Group. Non-life insurance was raised as one of the key operations in the OP-2006 strategy. The customer bases of Group member banks, OKO Bank and Pohjola insurance company created major potential for growth in the sale of all of the Group s products. Most of the integration projects concerning Group services and IT operations were carried out in Information technology plays a key role in both banking and insurance operations, and although the integration has been costly, it is expected to bring major cost savings in the long run. New stage in 2007 September 2007 saw the introduction of the financial services group s new name: OP-Pohjola Group. OKO Bank plc, on the other hand, did not change its name officially until 1 March 2008 to Pohjola Bank plc. Having undergone a major change, the Group adopted names that describe well its current position as Finland s leading financial services group. The new name carries a clear message on the extensive range of services, the Group s great size and its strong Finnish roots. OKO Bank s name change was made because the Pohjola brand is so well known and because at present half of the Group s operations deal with non-life insurance. The Pohjola brand will remain and grow stronger. One common name for the entire listed company also creates a more uniform corporate culture. The names of individual Group member cooperative banks have remained unchanged OKO Bank becomes a listed company 1997 Cooperative created for tighter cooperation between member banks OP Bank Group gets its millionth owner-member 2005 OP Bank Group enters the non-life insurance business 2007 OP Bank Group becomes OP-Pohjola Group Pohjola enters the Baltic countries 2001 Pohjola acquires A-Insurance 2005 Pohjola becomes OKO Bank s subsidiary 2008 OKO Bank becomes Pohjola Bank plc

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6 OP-Pohjola Group has Finland s most extensive range of services. The rewarding thing in the work of a Group member bank s financial advisor and Pohjola s sales advisor is to make tailored solutions that suit the customers life situation. OP-Pohjola Group has an extensive product range, so it is easy to find just the right bank and insurance services. Anna-Maria Huhtinen Sales Advisor Pohjola Insurance Ltd and Kirsimarja Ylipaavalniemi Financial Advisor Hämeenlinnan Seudun Osuuspankki

7 OP-Pohjola Group in Brief OP-Pohjola Group is Finland s largest financial services group. It is made up of independent member cooperative banks and the Group s central institution, OP Bank Group Central Cooperative with its subsidiaries and closely related companies, the largest of which is the listed company Pohjola Bank plc (until 29 February 2008 OKO Bank plc). OP-Pohjola Group offers a comprehensive range of banking, investment and insurance services for both private and corporate customers. control. In addition to Pohjola Bank plc, Central Cooperative s subsidiaries include Helsinki OP Bank Plc, OP Life Assurance Company Ltd and OP Fund Management Company Ltd. Pohjola Bank plc is the Central Cooperative s principal subsidiary. It is a financial services group that offers banking, investment and non-life insurance services. Pohjola Bank plc acts as OP-Pohjola Group s central bank and is in charge of the Group s liquidity and international operations. Pohjola Bank s Series A share is quoted on the Helsinki Stock Exchange, and the company has more than 30,000 shareholders. Pohjola Bank is discussed as a portfolio investment on pages Pohjola Insurance Ltd is a subsidiary of Pohjola Bank plc. It engages in non-life insurance operations in Finland and, through the policies it writes, offers comprehensive security for both private and corporate customers. OP-Pohjola Group s guiding ideology is the cooperative movement. The Group has over four million customers in Finland, nearly a third of whom, or more than 1,200,000, are at the same time owner-members of the cooperative banks. Pohjola also has operations in the Baltic countries with over 200,000 customers. OP-Pohjola Group s mission is to promote the sustainable prosperity as well as well-being and security of its ownermembers, customers and operating regions through its local presence. Owner-membership is discussed on pages OP-Pohjola Group has a payroll of over 12,000 employees. The Group s total assets at the end of 2007 stood at EUR 65.7 billion. The Group has a total of some 630 locations in Finland, and its Internet service portals are op.fi and pohjola.fi. OP-Pohjola Group s business segments are Banking and Investment Services, Life Insurance and Non-life Insurance. These are discussed on pages The cooperative banks are independent, local deposit banks engaged in retail banking. The member banks offer modern and competitive banking services to household customers, small and medium-sized business customers, agricultural and forestry customers and to the public sector. Corresponding retail banking operations in the Greater Helsinki area are the province of the Central Cooperative s subsidiary Helsinki OP Bank Plc. OP Bank Group Central Cooperative (Central Cooperative), owned by the member banks, is OP-Pohjola Group s development and service centre, and strategic owner institution. As a central institution, it is in charge of Group steering and Structure of OP-Pohjola Group OP Fund Management Company Ltd Owner-members 229 member cooperative banks OP Bank Group Central Cooperative Other subsidiaries Non-Life Insurance Pohjola Bank plc Helsinki OP Bank Plc Bank and Investment Services OP Life Assurance Company Ltd OP-POHJOLA GROUP ANNUAL REVIEW 2007

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9 Chairman s Review As Finnish as Finnish can be 2007 was historic because of the name changes OP Bank Group to OP-Pohjola Group and OKO Bank plc to Pohjola Bank plc. But it was not a simple case of changing names: the new names signify our renewal. We are no longer just a banking group, since non-life insurance services feature just as prominently alongside banking and investment services. We respect our customers committed to either of our brands, and for the choices they make. Our customers have also shown that they value the unique benefits and added value our new operating model has given to them. We currently have 900,000 loyal customers who are using both our banking and non-life insurance services, of which some 200,000 have changed over since the acquisition of Pohjola insurance operations. But we still have huge growth potential. Leading insurer The integration of the two operations is a prime example that with the proper arrangements a bank can be an excellent sales channel for non-life insurance products. In terms of premiums written, OP-Pohjola Group has already been Finland s biggest life insurer for a few years, and according to preliminary information we became the leader in non-life insurance too. We have our personnel both in the member banks and in Pohjola Insurance to thank for this. It is their fine attitude and zeal that has created the country s most extensive network of a full range of banking and insurance services in less than two years. Another major achievement in 2007 was the progress we made in keeping our customer promise: loyal customers now receive much more generous benefits than a year ago. And this year we will rise to an even higher level, with the promise of providing the best loyal customer benefits driving our operations further. We will seek growth through loyalty programmes and ensure high customer bonuses by means of continuous efficiency measures. Record result in challenging environment The operating environment had been favourable for a long time until it took a downturn in The serious crisis that started from the US subprime-mortgage market has shown the vulnerability of the global financial market, with extensive repercussions that will continue to be felt in 2008 and the Finnish economy also being affected. The strength of the domestic market and businesses and the jobs they offer still provide a reasonable operating environment for finance sector growth and controlled risk exposure. Although the market situation became much more challenging, OP-Pohjola Group once again made an excellent result and this time also reached a historic milestone. Thanks to a long solid period, the Group has accumulated sound financial buffers which will become more and more important as market volatility increases. Strong position, clear identity OP-Pohjola Group aims to exceed the market growth rate in all conditions. There were some targets we did not quite reach in all business areas, but on the whole we enjoyed continued growth, and the rise in mortgage loans and non-life and life insurance policies was particularly rewarding. I believe we have discovered the right concept of providing better loyalty benefits to our customers and thereby a sustainable way of making the most of our original competitive advantage the cooperative heritage. The firm Finnish ownership, witnessed by over 1.2 million owner-members, backed by our high capital adequacy, will enable long-term planning and continued success for the Group. I would like to thank all our owner-members and other customers and stakeholders for the excellent work we have done together and for their trust. I would also like to thank everybody in OP-Pohjola Group for the past year, both the personnel and members of the administrative bodies. Prospering together is our core value which is more and more important in our reshaped financial services group. The record result and other achievements in 2007 form a good foundation on which we can build further success in an operating environment that is even more challenging in Helsinki, 14 February 2008 Reijo Karhinen OP-POHJOLA GROUP ANNUAL REVIEW 2007

10 OP-Pohjola Group in 2007 With EUR 1,005 million, OP-Pohjola Group posted all-time high earnings before tax (up 26%). The businesses within the financial services group continued their strong growth. Strong growth continues OP-Pohjola Group becomes leading insurer in Finland Loan portfolio up by 13% home mortgages by 14% and corporate loans by 16%. Investment deposits grew by 28%, a major increase, and deposit by 13%. In the challenging market situation, the rise in assets invested in mutual funds slowed down to 6%. Non-life insurance premium revenue rose by 8% and those of private customers by 12%. The market share of premiums written in Life Insurance rose by 2.4 percentage points. According to preliminary information, OP-Pohjola Group became Finland's leading non-life insurer in terms of premiums written. In life insurance, the Group has already been the leading insurer since The number of joint banking and non-life insurance customers increased by 94,000 to 900,000. Best result ever earnings before tax over a billion euros Earnings before tax grew by 26% to EUR 1,005 million. Bonuses paid to customers grew by 74%. Efficiency improved: the growth differential between income and expenses was 11 percentage points. Every business segment improved its year-on-year earnings. Earnings before tax in the last quarter amounted to EUR 247 million. OP-Pohjola Group key indicators Jan Dec 2007 Jan Dec 2006 Change* Earnings before tax, EUR million 1, Banking and Investment Services Non-life Insurance Life Insurance Return on equity,% Return on equity at fair value,% Cost/income,% (Banking and Investment Services) Average personnel 12,378 12, Dec Dec 06 Change* Total assets, EUR billion Capital adequacy** Tier 1 ratio,%** Ratio of own funds to minimum amount of own funds*** Non-performing loan losses within loan and guarantee portfolio,% Market share,% Of total loans Of total deposits Of capital invested in mutual funds Of insurance savings through life and pension insurance Jan Dec 2007 Jan Dec 2006 Change* Of premiums written in life and pension insurance,% * Percentage point change, except for earnings before tax, total assets and average number of personnel, for which the change is stated in percentages, as well as the ratio of own funds to the minimum amount of own funds, for which the change is stated as a change in the ratio. ** Pursuant to the Credit Institutions Act. *** Pursuant to the Act on the Supervision of Financial and Insurance Conglomerates. OP-POHJOLA GROUP ANNUAL REVIEW 2007

11 Strong risk-bearing capacity and a stable risk exposure The Group's own funds were 1.8 billion euros above the statutory minimum. Impairment losses on receivables were low 0.03% of the annualised loan and guarantee portfolio. Non-performing loan losses of the loan and guarantee portfolio remained at last year's level. The financial market disruption has reduced the market value of assets, but on the whole the effect on the Group's result and capital adequacy has been marginal. Year 2008 Owing to market uncertainty concerning changes in the operating environment and to the instability that followed, 2008 earnings before tax are expected to be lower than those of Earnings and total assets OP-Pohjola Group earnings before tax broke the record from the year before and exceeded the one billion mark at EUR 1,005 million. Income increased by 15% and expenses by less than 4%. Customers OP bonuses recognised as expenses grew by 74%. Earnings before tax at fair value rose by 5.8% to EUR 798 million. Earnings growth rested on a strong increase in income. Net interest income rose by 19% to EUR 1,048 million and other income by 12% to EUR 1,198 million. Net investment income from Non-life Insurance increased by 30% to EUR 427 million and that of Life Insurance by 56% to EUR 172 million. At EUR 65 million, the net trading and investment income fell short of last year s figure mainly as a result of negative value changes of notes and bonds at fair value through profit or loss. Expenses stood at EUR 1,129 million, up by 4.2% on a year earlier, almost 60% of this growth owing to higher personnel costs. OP-Pohjola Group s total assets amounted to EUR 65.7 on 31 December 2007 (+10%). Receivables from customers increased by 13% to EUR 44.8 billion, deposits by 13% to EUR 29.0 billion and debt securities issued to the public by 4.3% to EUR 14.1 billion. Equity capital increased by 10% to EUR 5.6 billion. The fair value reserve adjusted for deferred taxes and included in equity totalled EUR 10 million. About half of the decrease in the fair value reserve during the financial year resulted from the sale of equity and notes and bonds and the other half from a dip in the market value of securities. The cooperative capital investments and supplementary cooperative capital investments of the member cooperative banks owner-members totalled EUR 689 million. Capital adequacy Amendments to the Credit Institutions Act pertaining to the capital adequacy reform (Basel II) were adopted in February The transitional provisions permit the calculation of capital adequacy in 2007 as set forth in the previously valid regulations. OP-Pohjola Group will make use of the transitional provisions and publish Earnings before tax Own funds Net interest income and other income million billion million Other own funds Tier 1 own funds Net interest income Other income OP-POHJOLA GROUP ANNUAL REVIEW

12 OP-Pohjola Group in 2007 its first capital-adequacy calculation in compliance with the new regulations for March On 31 December, OP-Pohjola Group s capital adequacy ratio under the Credit Institutions Act stood at 13.8% and Tier 1 capital adequacy ratio at 12.6%. Tier 1 capital totalled EUR 4,826 million. The amount of Tier 2 capital fell by 9.4% to EUR 802 million. Tier 2 capital was reduced by the fair value reserve that was EUR 10 million in the negative as a result of unrealized value adjustments. The fair value reserve was EUR 144 million in the black. Reported risk-weighted commitments grew by 13%, amounting to EUR 38.2 billion. On 31 December, OP-Pohjola Group s own funds calculated according to the Act on the Supervision of Financial and Insurance Conglomerates exceeded the minimum amount specified in the Act by EUR 1,753 million. The conglomerate s good result increased their own capital, with the capital adequacy increasing year-on-year by 4.2%. The capital adequacy ratio stood at 1.52, which was slightly less than on 31 December The US subprime mortgage loans caused a serious market disruption in the latter half of OP-Pohjola Group s home mortgage portfolio does not include credit with such risks as the US subprime loans. The Group does not have direct subprime investments and the Group s indirect risk on the subprime market is very limited. Earnings by business segment Banking and Investment Services The operating fundamentals for Banking and Investment Services remained good. OP-Pohjola Group s strong market position remained stable despite the tight competition. The Group s loan portfolio stood at EUR 44.8 billion, and the guarantee portfolio totalled EUR 2.4 billion. The loan portfolio grew by 13% in The portfolio of home mortgages amounted to EUR 21.5 billion (+14%). OP-Pohjola Group s deposits totalled EUR 29 billion (+13%). The growth took place mainly in investment deposits, which grew by 28% to EUR 14 billion. The Group s loan portfolio stood at EUR 11.3 billion (+16%). Capital invested in OP-Pohjola Group s mutual funds grew by 6.0% to EUR 14.1 billion. On 31 December, assets managed by OKO Bank s asset management were worth EUR 31.3 billion, EUR 13.1 billion of which was invested in OP-Pohjola Group s mutual funds. Banking and Investment Services recorded earnings of EUR 706 million before tax (+10%). The Group s non-performing and zero-interest receivables remained low, totalling EUR 147 million. Non-life Insurance The Non-life Insurance segment January-September earnings before tax were EUR 181 million (78), improvement being largely based on higher net investment income. Changes in the reserving bases improved the balance on technical account. Insurance premium revenue came to EUR 850 million. Claims incurred amounted to EUR 536 million, unchanged from the year before. The combined ratio for the financial year was 92.9%. In Non-life Insurance, the fair value of investments was EUR 2.5 billion. Return on these investments at fair value was 4.8%. Life Insurance Year on year, OP-Pohjola Group s premiums written in life and pension insurance decreased by 7.3% to EUR 794 million. Despite this reduction, OP-Pohjola Group increased its market share in premiums written in life insurance. Premiums written in unitlinked policies accounted for 65.7% of those written in endowment insurance and personal pension insurance. Life insurance claims paid totalled EUR 507 million, of which surrenders accounted for EUR 204 million. Reported pension payout came to EUR 46 million. Return on investments at fair value was 2.6%. Earnings before tax from Life Insurance were EUR 129 million. On 31 December, total insurance contract liabilities within OP Pohjola Group s life insurance operations stood at EUR 6.1 billion (+7,4). Life insurance investment assets, excluding assets covering unit-linked insurance, amounted to EUR 4.2 billion. The most significant change in the investment structure was that investment properties had increased by EUR 0.2 billion to EUR 0.5 billion. Loans and deposits billion Loans (excl. those mediated from Treasury funds) Deposits 8 OP-POHJOLA GROUP ANNUAL REVIEW 2007

13 Highlights of 2007 At the end of 2006, Pohjola Group Ltd merged with OKO Bank, simplifying the corporate structure. Pohjola Non-Life Insurance Company Ltd, A-Insurance Ltd, Eurooppalainen Insurance Company Ltd and Seesam Insurance Companies constitute OKO Bank's subsidiaries, comprising OKO Bank Group's Nonlife Insurance business line. Pohjola Life Insurance Company Ltd merged with OP Life Assurance Company Ltd. Accordingly, structural measures related to the Pohjola acquisition in 2005 were completed at the beginning of On 1 January, Reijo Karhinen took up his duties as the Group's Executive Chairman, while Tony Vepsäläinen took up his duties as President of OP Bank Group Central Cooperative. The 1st of May saw the reduction of bank service charges for daily transactions, aimed at benefiting customers who make regular purchases of banking and insurance services on a one-stop-shopping basis and have adopted the standard range of services for daily transactions. Around 300,000 customers out of the Group's almost one million bonus customers began to enjoy these benefits with immediate effect. Early May saw the beginning of cooperation with the K-Group in terms of insurance services and, more visibly, through the launch of convenient joint cards. By the end of 2007, the number of OP-Pohjola Group cards with the K-Plussa feature totalled around 380,000. In early May, Pohjola joined the K- Group's Plussa loyal-customer programme. On 10 May, OP Mortgage Bank plc, an OP-Pohjola Group Central Cooperative subsidiary, issued its first covered bond in international debt markets. On 2 May, the Arbitral Tribunal, which was appointed by the Central Chamber of Commerce, decided to set the redemption price of the shares in Pohjola Group plc, a subsidiary of OKO Bank plc, at EUR per share, which was EUR 1.00 higher than the price bid by OKO Bank. OKO Bank plc and several former minority shareholders (76.9% of the disputed shares) agreed that the arbitral award issued by the Arbitral Tribunal would remain final between the parties involved. In other respects, the redemption dispute on Pohjola shares is underway at the Helsinki District Court. In June, the OP Bank Group Central Cooperative's Supervisory Board approved a Corporate Governance recommendation for Group member banks, based on transparency, harmonisation of policies and more efficient flow of information. In June, the OP Bank Group Central Cooperative's Supervisory Board also approved revised policy guidelines for the Group's international business operations, whereby the Group may establish operations in neighbouring regions the Baltic countries and Russia. In December, OKO Bank bought all of the shares in K-Finance Ltd, a Kesko Corporation subsidiary, which provides financing services for corporate customers, mainly commercial customers of Kesko Agro, Konekesko and agricultural traders in Finland, Estonia, Latvia and Lithuania. On 12 September, OP Bank Group was renamed OP-Pohjola Group. The Extraordinary General Meeting of 9 October decided that OKO Bank plc be renamed Pohjola Bank plc, officially adopted on 1 March Pohjola Non-Life Insurance Company Ltd was renamed Pohjola Insurance Ltd and the names of OKO's major subsidiaries also changed to conform to the Pohjola brand. In 2007, the Group decided to increase OP bonuses further during Customer bonuses amounted to EUR 49 million in 2006, increasing to EUR 81 million in 2007, and 2008 is expected to generate around EUR 140 in bonuses. In November, OP-Pohjola Group also increased benefits for loyal customers in such a way that they could also use their OP bonuses earned through banking transactions to pay Pohjola non-life insurance premiums. Around 580,000 customers enjoyed this new benefit with immediate effect. In 2007, the number of joint banking and non-life insurance customers increased by over 100,000. On 29 November, The Banker, an international finance magazine, elected OP-Pohjola Group as Bank of the Year in Finland. This was the fourth time the Group won the award, the previous years being 2003, 2004 and The Banker's bases its decision on the fact that the further integration of Pohjola Group into OP Bank achieved significant cost savings, enhancing the combined organisation's competitive strength. All stock exchange and press releases, investor news and interim reports published by OP-Pohjola Group (OP Bank Group until 12 September) and Pohjola Bank plc (OKO Bank plc until 29 February 2008) can be found on their website at op.fi/english. OP-POHJOLA GROUP ANNUAL REVIEW

14 Core Values and Strategy Ideological foundation The cooperative movement is OP-Pohjola Group s ideological foundation and the starting point for its strategic objectives. Owner-members are customers who use the services of a member bank. It follows naturally from this joining together of ownership and patronage that the benefit and added value of the bank s operations are channelled, via the customer relationship, to members and customers. The fundamental objective of cooperative operations is thus not to maximise profits for the owners but to provide, as competitively as possible, the services which the cooperative s members and customers need. Core values A people-first approach OP-Pohjola Group has a human focus. A genuine concern for people - both customers and co-workers is the starting point of our operations. It is easy and pleasant to approach us; we treat people with respect as equals and as individuals. This respect for people runs through every aspect of OP-Pohjola Group s activities. Mission We promote the enduring prosperity, well-being and security of our owner-members, our customers and operating regions through our local presence. Goal We aim to be market leaders in all our core business areas and the leading financial services group in Finland. By the leading financial services group, we mean not only the leading market position, but also the best corporate image in the sector and the best overall know-how along with the country s most comprehensive service network. Responsibility We operate locally, regionally and nationally as an exemplary and ethically responsible enterprise. We build long-term customer relationships based on mutual trust. Bolstered by our strong professional skill, we bear responsibility for the high quality, expertise and reliability of our operations. Prospering together Prospering together with our customers both points the way to and speeds the development of our operations and services. Operating as a unified group gives our customers greater security and improves our service capabilities. The shared will to win of our administrative officers and employees, by breeding continuous success, creates a firm foundation for our good reputation. 10 OP-POHJOLA GROUP ANNUAL REVIEW 2007

15 OP-Pohjola Group s new bonus system offers the best bonus package in the banking and insurance sector, as evidenced by the rising number of owner-members. Pekka Vilhunen with Jarkko Pietiläinen, Sales Director of Pohjola Insurance Ltd. Pekka Vilhunen Managing Director Varkauden Osuuspankki Core business areas and business segments The core business area defined in OP-Pohjola Group s strategy are Asset Management Lending Services Payment Services Non-life Insurance The business segments reported in the Financial Statements are Banking and Investment Services Life Insurance Non-life Insurance Distinguishing factor We are close to the customer. We know our customers and have a better understanding of their needs than others do. We take decisions quickly, in a flexible manner and locally. We have a wide-ranging presence in Finland. The starting point for everything we do is genuine interest and care. It is easy to approach us. Responsibility and community spirit can be seen clearly in every aspect of our operations. We are committed to development that is both active in furthering customer relationships and responsible in our own area of operations. Customer promise We offer the best loyal customer benefits. Our cooperative heritage obliges us to reward our customers. Owner-members are customers who use the Group s services. OP-Pohjola Group s objective is to offer the best and most versatile package of loyal customer benefits, which provide financial upside and convenience for customers. Loyal customer benefits form a key part of the Group s distribution of profits. Strategic objectives OP-Pohjola Group s excellent capital adequacy and good profitability enable it to gear its operations towards growth and strengthen its market position. OP-Pohjola Group offers comprehensive financial services in Finland to both private and corporate customers. Growth in the number of customers and business volume will enable the Group to provide highquality multichannel customer service at competitive prices, to offer good training and development opportunities for its OP-POHJOLA OP-RYHMÄ GROUP VUOSIKERTOMUS ANNUAL REVIEW

16 Core Values and Strategy staff, and improved patronage-based financial benefits for its owner-members. The most ambitious growth targets for market share are in asset management services, payment transfers and consumer and corporate lending. Geographically, the targets are the most ambitious in those parts of Finland where the Group s market share is lowest at the present time. One of the priority areas is Greater Helsinki. The primary development objective of OP-Pohjola Group s business development is to ensure competitive services to the Group s present customers, whose needs for international services will increase in volume and width. In order to achieve this objective, OP-Pohjola Group may also expand its own service network into neighbouring regions in the Baltic countries and Russia. OP-Pohjola Group s growth priority is to achieve an increase, among its own clientele, in the volume of operations and in the extent of services provided. In the coming years, the Group will put special emphasis on increasing cross-selling, that is, selling banking and asset management products to existing insurance customers and vice versa. The Group s target is to increase the number of joint banking and non-life insurance customers to one million by the end of 2008 (900,000 on 31 December 2007). OP-Pohjola Group will maintain its strong market position within its traditional customer groups. It will shore up its position in areas such as private banking, that is, discretionary asset management. In the corporate and institutional sector, growth will be sought above all within medium-sized companies and in public corporations and housing associations. OP-Pohjola Group s success in customer service and operations is based on the member banks entrepreneurial local work. The member banks offerings are rounded out by the services of OP-Pohjola Group s jointly owned companies and the services provided by OP Bank Group Central Cooperative. Pohjola Bank plc plays a key role as a provider of both non-life insurance services and large companies banking and investment services. Pohjola Bank s competitive advantage over most of its competitors lies in its ability and opportunity to provide a package of banking and insurance services on a one-stop shop basis. High capital adequacy and profitability are crucial to our operations. In terms of cost-effectiveness, OP-Pohjola Group and its member banks aim to be at least as good as their main competitors. By means of sophisticated risk management coupled with close internal control, the Group is able to ensure that its growth is manageable and geared to the long term. OP-Pohjola Group is prepared for moderate risk-taking. OP-Pohjola Group s strategy processes are characterised by an extensive internal discussion and interaction. Representatives of companies that belong to the Group take part in various stages of the process. The Central Cooperative s Supervisory Board plays a key role in defining the strategic foundation and in formulating the actual strategy. Long-term performance indicators OP-Pohjola Group Indicators Target Actual 2007 Risk-bearing capacity Non-current own funds/economic capital Minimum of Profitability Return on economic capital Minimum of 17% 22.5% Risk appetite Impairment losses on receivables/ loan and guarantee portfolio Maximum of 0.25% 0.03% Efficiency (Banking and Investment Services) Cost/income ratio Maximum of 50% 49% The formulae for figures are given in the 2007 Report by the Executive Board and in the Financial Statements Bulletin. 12 OP-POHJOLA GROUP ANNUAL REVIEW 2007

17 Market Position OP-Pohjola Group has a strong market position in all its main business areas. Success is measured by reference to the trend in market share of deposits, loans, life and pension insurance, mutual funds, payment services and non-life insurance. Priority areas are discussed in the section on Strategy on pages 10 12, and an overview of the business segments is given on pages OP-Pohjola Group s market share of euro deposits OP-Pohjola Group s market share of euro loans OP-Pohjola Group s market share of payment transfer business in Finland, domestic and foreign outgoing payments (number of claims) % % % Source: Bank of Finland, OP-Pohjola Group Source: Bank of Finland, OP-Pohjola Group * Year 2007 figure not yet available Source: Federation of Finnish Financial Services, OP-Pohjola Group OP-Pohjola Group s* market share of capital in mutual funds registered in Finland OP-Pohjola Group s* market share of insurance savings in life and pension insurance in Finland % % % OP-Pohjola Group s* market share of premiums written in non-life insurance in Finland * Pohjola included from 2005 Source: The Finnish Association of Mutual Funds, OP-Pohjola Group * Pohjola included from 2005 Source: Federation of Finnish Financial Services, OP-Pohjola Group * In , Pohjola was not part of OP Pohjola Group. ** Year 2007 figure not yet available Source: Federation of Finnish Financial Services, OP-Pohjola Group OP-POHJOLA GROUP ANNUAL REVIEW

18 Operating Environment In 2007, the financial market s operating environment was characterised by somewhat mixed feelings. Thanks to the strong economic uptrend that continued until the autumn, demand for banking and insurance services remained brisk. This upturn began to lose momentum towards the end of the year while the exacerbating problems in the US housing market added uncertainty in the world economy. Although this uncertainty is anticipated to prevail in 2008, Finnish economic growth is expected to remain moderate. Employment in Finland, 12-month moving average 1,000 people Source: Statistics Finland Company prospects in Finland, balance figure Industry Construction Services Source: Confederation of Finnish Industries EK Although global economic growth weakened in 2007, growth in the EU remained almost at the previous year s rate. At the same time, however, the US economy suffered a marked slowdown which was exacerbated by the housing market crash in late summer. This bleaker US economic outlook will also cast a shadow over the trend pictures in the fast-growing Asian economies. The US housing market crisis squeezed lending in international markets while widening lending margins. Due to US subprime loans, financial institutions in a number of countries reported hefty losses, which the sector expects to record more of in Central banks increased money-market liquidity several times in an effort to reduce the risk of drifting into a loan slump and the Federal Reserve also cut its benchmark interest rate. The European Central Bank, however, having raised the benchmark interest rate twice during the first half of 2007 to 4.0%, did not change the interest rate during the second half. Finnish economic growth expected to slow in 2008 In 2007, Finland continued to enjoy an upward trend longer than expected although the economy began to slow down slightly in late autumn, with GDP growing by around 4%. As in the previous year, this growth was supported by exports, which increased particularly to Western Europe, Finland s main market area. Housing starts began to decline, but demand for investments in other housing construction projects perked up considerably. Growth in consumer spending remained relatively steady, with higher wages and lower unemployment improving consumer spending power. According to surveys conducted among companies, business conditions remained better than usual in all the main sectors. Output growth in the manufacturing industry slowed down slightly in the second half of the year, although order books remained long. Construction firms also enjoyed largerthan-usual order books but showed a weaker confidence. Growth in service-sector sales slowed down although expectations for future sales remained favourable. Although economic growth is expected to slow down in 2008, due to more tepid growth in exports and consumer spending than in 2007, it is anticipated to remain at the average long-term rate. With consumer confidence remaining strong in 2007, expectations for 2008 have, however, become more cautious. 14 OP-POHJOLA GROUP ANNUAL REVIEW 2007

19 In 2007, consumer prices rose at an accelerating pace of 2.5%, due mostly to higher housing costs. In 2008, the inflation rate is anticipated to stand at over 3%. Greater uncertainty in financial markets The European Central Bank tightened its monetary policy by raising the Euribor rates twice during the first half of In the autumn, the US housing loan crisis increased the volatility of short-term market rates which rose more than long-term market rates. At the end of 2007, the 3-month Euribor rate was 4.69% and the 12-month Euribor rate 4.75%. OP-Pohjola Group raised its OP Prime rate thrice during the first half of the year, standing at 4.25% at the year end. The euro-zone s economic upturn losing momentum speaks in favour of a fall in the Euribor rates in In 2007, the Finnish banking market continued its brisk growth for the fifth year running. In order for the growth to remain at around the previous years pace, the stock market uncertainty should ease and consumers should demonstrate a modest courage in borrowing. In 2007, financial institutions increased their loan portfolio by 11.7%. Despite higher interest rates, the home mortgage portfolio grew by 12.4%, slightly less than a year earlier. Household indebtedness continued to rise and for the first time the ratio of credit to annual disposable income exceeded 100%. The growth rate of corporate loans rose to 12.9% in Greater uncertainty in international financial markets did not practically affect the Finnish corporate bond market. There were still plenty of M&As and transfers of business to the next generation. Deposits with financial institutions grew by 13.9% because higher interest on deposits provided protection against swings in stock markets. Capital market showed favourable developments although the US financial crisis cast a shadow particularly over equity markets towards the end of the year. In Finland, the OMX Helsinki Cap index a measure of stock prices improved by 3.9% in The growth rate of capital invested in mutual funds slowed to 8.3% as a result of the greater second-half uncertainty spreading from international markets. Premiums written in life insurance fell by 8.8% year on year, although insurance savings increased by 3.6%. On a cash and like-for-like basis, premiums written in non-life insurance rose by roughly 5% in Compensation paid by insurance companies increased in 2007 as exceptional weather conditions caused a larger number of losses. Compensation paid under motor vehicle insurance also increased markedly. Euribor rates and ECB main refinancing operations rate Household spending in Finland, percentage of households Stock market indices in Finland and the United States % 1,000 people 3-month Euribor 12-month Euribor ECB main refinancing rate Source: Bank of Finland Are able to save money (left scale) Plan to raise a loan (right scale) Source: Statistics Finland OMX Helsinki CAP (left scale) Standard & Poor s 500 (right scale) Source: OMX, Standard & Poor s OP-POHJOLA GROUP ANNUAL REVIEW

20 There are already almost a million OP bonus customers. The best loyal customer benefits, better customer systems and sales campaign support create the setting for successful customer contacts in all channels. My main job at Keski-Uudenmaan Osuuspankki is to improve this type of expertise and operating practices. Tuula Sjöblom Development Director Keski-Uudenmaan Osuuspankki

21 Owner-members OP-Pohjola Group s objective is to provide the services required by its owner-members and other customers as competitively as possible. At the end of 2007, the number of owner-members came to over 1.2 million. Owner-membership is a distinctive feature of the cooperative bank customer relationship. It offers a chance to participate in the bank s administration and decision-making. This gives members a say in promoting the business life and well-being of the entire community. In addition, owner-membership brings benefits for doing the bulk of one s banking with a member cooperative bank. One of the core values of decision-making in a cooperative is the one member one vote principle. The members elect from amongst their number the administrative officers of their own bank. At the member banks, the highest decision-making authority is exercised by the cooperative meeting or assembly. In 2007, the number of the member banks owner-members grew by more than 40,000. Owing to its company form, Helsinki OP Bank Plc, which operates in the Greater Helsinki area, does not have owner-members. An important financial benefit is OP bonuses that customers earn for doing their banking with us. They are earned automatically each month when an ownermember or a customer of Helsinki OP Bank Plc has a transaction volume, personally or on a family basis, amounting to a minimum of EUR 5,000. OP bonuses can be used to pay for the bank s service charges, and from autumn 2007 also for Pohjola s Extrasure and comprehensive motor vehicle insurance premiums. There were 984,000 (950,000) OP bonus customers at the end of OP bonus customers earned a total of EUR 83 million (48) of bonuses in 2007, and they applied EUR 49 million of bonuses to pay for various services (36). In addition, they were paid EUR 8 million of bonuses in cash (9). When joining as an owner-member of a cooperative bank, the member pays the cooperative contribution, which is set out in the bank s statutes and is generally 100 euros. Owner-members cooperative capital investments and supplementary cooperative capital investments totalled EUR 689 million at the end of 2007 (695 million). According to preliminary information, the member banks will pay a total of EUR 24 million (20) in interest on the cooperative capital and supplementary cooperative capital. OP bonuses to double The prices of the member banks products and services are competitive and transparent for all customers. OP bonuses are a further benefit of continuous patronage. OP-Pohjola Group s good earnings trend will enable the member banks to return, in future, a greater proportion of their earnings to their owner-members. At the end of 2006, a pledge was made to double the amount of bonuses paid out by the beginning of 2008, and this pledge was effected as OP bonus customers will in 2008, for the same amount of transactions, earn more than double the amount of bonuses earned in Year Banking transactions Use value of OP bonuses 2006 EUR 100,000 EUR EUR 100,000 EUR The bonus system also enables member banks to offer supplementary bonuses of their own. The most benefits from patronage of OP-Pohjola Group go to those customers who are both OP bonus customers and also handle their insurance dealings through OP-Pohjola Group. As of the beginning of November 2007, bonuses can also be used for payment of premiums for Pohjola s Extrasure and comprehensive motor vehicle insurance policies. All Pohjola Insurance Ltd s loyal customers receive a 7% discount on home, property, motor liability, accident, travel and motor vehicle insurance policies. On these bonuses, OP bonus customers receive a further 3% bonus as a special benefit. OP magazine and OP Channel and benefits offered by partner companies Owner-members and OP bonus customers are sent the quarterly OP magazine, which presents the latest information on banking, insurance, investment and financial matters. According to a study carried out by Kansallinen Mediatutkimus (National Media Research) in 2007, OP magazine has risen to become Finland s third most-read periodical with over 1.3 million readers. OP magazine is rounded out by the OP Channel online service which offers information to OP-Pohjola Group customers on subjects such as housing and personal finances. OP magazine and OP Channel also provide OP bonus customers and owner-members with information on benefits offered by OP-Pohjola Group s partners such as discount tickets to various events and benefits related to health, home, travel, motoring etc. OP-POHJOLA GROUP ANNUAL REVIEW

22 Corporate Responsibility Corporate social responsibility forms an integral part of OP-Pohjola Group s operations. Throughout its existence, the Group has been part and parcel of Finnish society. The Group s ideological foundations its cooperative heritage provide a solid basis for responsible operations. OP-Pohjola Group reports on its corporate responsibility measures and implementation in a specific Corporate Social Responsibility Report. The objective is to apply a reporting system in accordance with the GRI Guidelines. GRI (Global Reporting Initiative), which is a joint development project and independent organisation comprising a number of stakeholders, develops internationally approved reporting guidelines for corporate social responsibility. Economic responsibility Economic responsibility plays a central role in OP-Pohjola Group s operations. Detailed information on matters related to economic responsibility can be found in the Group s financial statements and annual reports. Operating at a local level is highlighted in OP-Pohjola Group s business. The Group s member banks play an active role in contributing to local economic activities and development in a variety of ways. OP-Pohjola Group is a major taxpayer and provider of employment. The Group also rewards its owner-members and loyal customers with bonuses and loyal customer benefits. In 2007, OP-Pohjola Group made its annual charity donation to the Guides and Scouts of Finland, with a view to taking account of climate change in the goals and implementation of the association s new scout programme. In addition, the then Pohjola Non-Life Insurance Company Ltd and Suomi Mutual Assurance Company Ltd granted the Medical Award 2007 and the former continued to grant the Pohjola awards to promote youngsters physical exercise. Group members organised a nationwide fine arts competition for the 31st time. OKO Bank Art Foundation, OP Bank Group s Research Foundation and the Kyösti Haataja Foundation also contribute to nationwide support activities. In addition to direct charity, OP-Pohjola Group uses sponsorship as a further means of supporting socially responsible initiatives. Nationwide sponsorship in 2007 involved the Savonlinna Opera Festival, the Kuhmo Chamber Music Festival, the Helsinki Festival, the Workers Music Festival in Valkeakoski, Art Centre Salmela and the Finnish National Theatre. 18 OP-POHJOLA GROUP ANNUAL REVIEW 2007

23 Environmental responsibility OP-Pohjola Group s environmental responsibility means that the Group pays special attention to environmental aspects in employee working methods, its services and the selection of partners. Paper plays a key role through its use in various customer magazines and documents sent by post. Development projects aimed at enhancing electronic services form the most significant measures to reduce paper consumption, while the energy consumption of Group premises and facilities management constitute another important area in environmental responsibility. OP-Pohjola Group s service range includes the OP Climate mutual fund, launched on 1 September 2007, with which the previously established OP Sustainable Development mutual fund was integrated. The new fund provides customers with the opportunity to contribute to climate change prevention through their investments. More detailed information on OP-Pohjola Group s corporate responsibility issues can be found in a separate Corporate Responsibility Report. Performance of OP Climate mutual fund* Number of unit holders 1,237 1,993 4,937 Fund assets, EUR million * Formerly OP Sustainable Development Corporate social responsibility OP-Pohjola Group serves its customers through Finland s most extensive banking and insurance services network one of the Group s strengths. The Group also takes account of special-needs groups, such as senior citizens, visually impaired and those with reduced mobility, as evidenced by helppo.op.fi designed for those having difficulty using the ordinary online service. Active involvement in the ongoing social dialogue and interaction with stakeholders form important elements of OP-Pohjola Group s operations. The Group is involved in organising various discussion and development forums, such as OP-Pohjola Group Research Foundation theme day, the OP Wage and Salary Earners Forum, the OP Housing Seminar, the OP Forest Day, the OP Harvest Session and the Future of Entrepreneurship event. In addition, Group member banks and Pohjola are actively involved in social affairs at local level and contribute to the development of their own localities in many ways. OP-Pohjola Group is determined to invest heavily in the wellbeing of its employees. The following section and a separate OP-Pohjola Group Corporate Responsibility Report deal with human resources in greater detail. OP-POHJOLA GROUP ANNUAL REVIEW

24 Human Resources OP-Pohjola Group s values are a peoplefirst approach, reliability and prospering together. They underpin customer service, management and interpersonal relationships among the staff. Principles of human resources management The principles of responsible human resources management are observed across OP-Pohjola Group. They are an important part of the social responsibility aspect of corporate social responsibility. Human resources management consists of five categories: human resources planning, development of employee wellbeing, personnel development, compensation and rewards, and internal communications. Principles have been defined for them and they also come with a set of best practices. Applying the principles is supported by means of training programmes for management and supervisors and through development projects and up-to-date tools. OP-Pohjola Group s management culture is traditionally ethical, responsible and shows respect for people. Human resources principles clarify and enhance human resources management and maintain and strengthen a good corporate and employer image. On a practical level, responsible human resources management means devoting resources to long-term and sustainable top performance. It means bearing responsibility for the personnel in both good and more difficult times. For the personnel it means predictability, reliability and openness. The practical implementation of equality is monitored annually, with the results reported to management and the personnel. The objective is to create equal opportunities in terms of professional and career development, fair pay and rewards and keeping the employees work and personal lives in balance. Structure of the personnel OP-Pohjola Group had a payroll of 12,471 employees at the end of 2007 (12,139 in 2006). The member cooperative banks had a total payroll of 6,732 employees (6,661). The Central Cooperative Consolidated had 5,721 employees (5,459), 3,058 (2,919) of whom worked for Pohjola Bank Group. The largest personnel category in the Group was permanent employees (92%) and full-time employees (90%). Their average age was 44.1 years. Women made up 76% and men 24% of the personnel. In 2007, 897 permanent job contracts were terminated and 694 new ones made. For more detailed information on the personnel structure, see the 2007 Corporate Social Responsibility Report. The integration of OP Bank Group and Pohjola was taken further in The majority of branch offices that used to 20 OP-POHJOLA GROUP ANNUAL REVIEW 2007

25 In our work it is important to be fluent with different ways of being in contact with the customer whether electronically or in person. Applications Manager Terhi Helo in the background. Heikki Tiri System Specialist OP Bank Group Central Cooperative ICT System Development offer only non-life insurance services have been integrated with those that offer banking services. The process adhered to the following principles of business integration: transparency, respect for one another, equality, the identification and adoption of best practices, the deployment of best competencies and a shared strategic intent. The integration was supported by change management training sessions. Skilled personnel As the country s leading financial services group, OP-Pohjola Group offers unique development and career opportunities in Finland. The Group develops its employees competencies on a long-term basis and in view of the strategy, and the personnel are offered a variety of training and development opportunities. Competence development is based on proactive HR planning, and on a personal level, on plans made in performance appraisals. The focus of competence development has been customer-driven sales training by coaching. As the integration has proceeded, the focus has been shifted to support those who concentrate their banking and insurance business in the Group. More and more emphasis is put on the development of management by coaching and leadership skills. OP Academy offers training related to both the business operations in the divisions and to workplace skills, management and leadership duties. In 2007, OP Academy arranged a total of over 700 training sessions in which about 16,700 people participated. Online training has clearly increased and so has one-to-one and small-group coaching and on-the-job counselling. Training expenditure totalled EUR 12.7 million in 2007, accounting for 2.6% of personnel costs. OP Academy provides good opportunities for professional development. The Finance Diploma is designed for new employees and the Further Qualification in Financing and Insurance for more experienced employees. Almost 1,400 people have earned a managememt or leadership diploma based on training programmes lasting at least 12 months. The Successful Manager degree has a strong position as a basic diploma for the Group s management. The latest newcomer is the Sales Manager diploma that is intended to enhance the work of sales managers and supervisors. An emba programme tailored to the needs of OP-Pohjola Group has so far been either completed or started by about 200 managers or experts. In addition to personnel training, OP Academy arranges courses for the member banks administrative officers. To supplement this training, the package for developing Board work OP-POHJOLA GROUP ANNUAL REVIEW

26 Human Resources Our customers show a keen interest in Pohjola Private services, and we are continuously developing new services, models and investment products that meet customer needs better. Johan Wahlsberg Investment Director Pohjola Bank plc Pohjola Asset Management Ltd was updated to enable the member banks Executive Boards to improve their work, either independently or with guidance, in line with good corporate governance. Well-being at work When improving well-being at work, the focus may be on the work itself, workplace, leadership work or the individual, depending on the situation and need. Proactive development creates a capacity for change management in work and operating procedures. In order to support the management, cooperation and sharing of expertise of employees of different ages and situations, OP-Pohjola Group has developed numerous operating models, tools and training. One of these is a new Good Age programme that helps employees of different ages to work together, and to bring together experience and fresh ideas. The training of new employees has also been updated. Efforts to increase well-being at work makes extensive use of personnel surveys. In 2007, surveys were carried out in 49 member banks and the Central Cooperative Consolidated (incl. Pohjola Bank plc), covering 63% of all Group staff. Some member banks conduct these surveys every second year. Job satisfaction and employee well-being at member banks have improved, and the internal employer image is positive. The Central Cooperative Consolidated conducted its first joint personnel survey (including the non-life insurance operations) in autumn Job satisfaction was high: people feel they have a challenging and meaningful job, and the workplace atmosphere and feeling of togetherness help them succeed in their expert duties. OP-Pohjola Group employees have a firm belief in the Group s success. Motivating compensation and rewards Compensation and rewards consist of three parts in OP-Pohjola Group: basic pay and short- and long-term rewards. The basic pay is determined by how challenging the job is and by personal qualifications and performance. In future, some pay rises may be the result of pay negotiations. Short-term rewards, or a bonus system, is in place to promote the achievement of sales and project objectives. About 83% of the personnel received bonuses in 2007, amounting to EUR 25.4 million, or 5.5% of wages and salaries. Long-term rewards are based on the result made by the Group or company. The Personnel Fund and an equity bonus 22 OP-POHJOLA GROUP ANNUAL REVIEW 2007

27 system for management are used to promote sustained growth, long-term top performance and personnel commitment. Some 94% of OP-Pohjola Group s personnel were members in the Group s Personnel Fund in Pension security A total of 347 people retired from the Group last year at an average age of 60.6 years. For the most part, the employers belonging to OP-Pohjola Group have arranged the pension security of their personnel under the Employees Pensions Act within the OP Bank Group Pension Fund, which operates as an employment pension institution in accordance with the Employee Benefit Funds Act. Part of OP-Pohjola Group s personnel are also covered by the OP Bank Group Pension Foundation. The statutory pension security for Pohjola Bank Group s non-life insurance personnel and for part of the personnel of Pohjola Asset Management Limited has been arranged through pension insurance taken out with Ilmarinen Mutual Pension Insurance Company. Supplementary pension security has been arranged by taking out custom-built pension policies of varying content with OP Life Assurance Company Ltd. Challenges of the future The challenge is to ensure that new employees want to continue working for OP-Pohjola Group and that valuable experience within the Group is retained and passed on to other employees. The Group focuses on its ability to stand out as the best employer in the sector. Many people will be retiring from OP-Pohjola Group in the next few years, and to prepare for this, proactive human resources steps have been taken and attention paid to enhancing both the internal and external employer image. The external employer image is monitored annually, and the results in surveys that measure the attractiveness of employers have been good. In a survey made by Universum in 2007, OP-Pohjola Group was the fifth most attractive employer among business students (11th in 2006) and 9th among young professionals (also 9th in 2006). In both surveys, OP-Pohjola Group came top of its sector. OP-Pohjola Group takes part in recruitment fairs around Finland and cooperates with various educational institutions. The Group offers summer jobs to about 700 young people. In addition, once a year the Group recruits builders of the future for a programme lasting about a year to train financial sector supervisors and experts. Personnel age structure in Finland in 2007 Personnel at year-end % % % % % OP-POHJOLA GROUP ANNUAL REVIEW

28 Product and Service Development Review OP Bank Group Central Cooperative is in charge of OP-Pohjola Group s product and service development. Our job is to ensure that the Group s product and service improvements are made well in time and that they arise from genuine customer needs, taking into account changes in the sector and the competitive situation. Our work is based on a deep understanding of customer needs. Over four million customers, the country s most extensive service network and the best range of services in the sector form a solid foundation to create products and services for Finnish customers for Finnish needs, based on Finnish expertise. Unique range of services Our position as Finland s leading financial services group can be seen in many ways in the way we operate. The acquisition of Pohjola insurance operations raised non-life insurance products alongside banking and investment services as an integral part of OP-Pohjola Group s products and services. This gives us a unique opportunity to combine banking and insurance products into packages that bring customers new added value. In 2007 we introduced new combination products related to mortgages and card services. Instead of offering individual products, we want to offer our customers overall solutions in which our full range of services can be utilised to cater for the needs of our extensive customer base. One of our main themes in 2007 was to unify, and partly also to merge, banking and non-life insurance information systems and development operating practices. This is an extensive project, lasting for years, with which we want to ensure that we have cost-effective information systems and that our efforts are channelled to projects that are crucial to the Group s success. In 2007 we invested almost EUR 70 million in product and service development. Finnish product development with European content Financial integration in Europe affects OP-Pohjola Group s products and services more and more every year. In 2007 we focused on capital adequacy reform and risk management; the requirements of the Markets in Financial Instruments Directive (MiFID); and the challenges of launching the Single Euro Payments Area (SEPA). SEPA, which was launched on 28 January 2008, is the most significant monetary reform since cash euros were introduced, with OP-Pohjola Group among the first to offer SEPA services widely through various customer channels. OP-Pohjola Group has set extremely high usability requirements for its services, and we want to do everything possible to ensure that our customers always receive reliable 24 OP-POHJOLA GROUP ANNUAL REVIEW 2007

29 and fluent services even when the number of events rises to record figures. In 2007 our information systems had to cope with up to 30 million events a day, but despite increasing figures, the overall usability of our key systems was 99.95%. Electronic services more and more popular The change in how people use our services continued apace in 2007, with the number of OP-Pohjola Group s online customers almost reaching 1.2 million by the end of the year. Another important change took place in the number of service agreements and applications made online, up by almost 50%. This major shift is an indication of not only customer behaviour but also of the fact that our customers value the usability of our electronic service channels. We will continue to develop our electronic service channels ever further and include comprehensive non-life insurance services on op.fi in the coming years. It is also important to agree how work is divided between the various service channels and to improve cooperation in order to ensure excellent usability and cost-effective operation. But the service expectations of our customers are not limited to the online environment: a leading financial services group must provide comprehensive services also in fixed locations and Contact Centres and the services must be easy to use regardless of the service channel. Benefits for life from OP-Pohjola Group The foundation for any successful company is a committed personnel that is genuinely enthusiastic about its work. At the Central Cooperative, the employees commitment shows not only in the results but also as work well-being. As proof of this, the Central Cooperative came third in Best Workplaces in Finland One of the key accomplishments of 2007 was the development plan for each business division for the coming years. These plans will determine the direction of our business development, and by carrying them out with determination we will ensure that our customers will continue to enjoy a comprehensive selection of the best products and services in the financial services sector. Helsinki, 14 February 2008 Tony Vepsäläinen President of the Central Cooperative OP-POHJOLA GROUP ANNUAL REVIEW

30 Customers and Service Network OP-Pohjola Group has a total of over 4.1 million customers in Finland, of which about 3.2 million are banking customers and some 1.7 million Pohjola insurance customers. The number of joint banking and non-life insurance customers is about 900,000. Pohjola also has operations in the Baltic countries with approximately 200,000 customers. OP-Pohjola Group has a strong position on the financial market in Finland. In 2007, the number of customers continued to increase substantially and stood at 4,086,000 at the end of 2007 (4,046,000 in 2006). OP-Pohjola Group s objective is to cultivate full-spectrum and enduring customer relationships in which the customer s patronage extends to both the banking and insurance services offered by OP- Pohjola Group. The number of joint banking and non-life insurance customers has increased rapidly to 0.9 million (0.8) and the number of owner-members is approximately 1.2 million (1.2). The owner-members are discussed in greater detail on pages OP-Pohjola Group rewards its customers for concentrating their banking and insurance transactions with the Group. Indeed, the number of OP bonus customers has increased to 984,000 (950,000). Pohjola Non-Life Insurance loyal customer criteria were amended, effective on 1 January Calculated under the new criteria, there were some 355,000 loyal customers, and the objective is to increase this figure to 450,000 by the end of The objective of customer care services is to give OP- Pohjola Group a competitive edge. Customer knowledge relies on analysis of customer information used to provide the services and of regular surveys of customer needs. The aim of getting in touch is to find the most appropriate total solutions for the customer. A multichannel service network OP-Pohjola Group s multichannel service network comprises locations, the online service and Contact Centre activities. Developing a multichannel service network is one of the top priorities for OP-Pohjola Group s strategy. This enables the Group to meet changing customer needs and to secure excellent services in all channels also when cooperation between several channels is required. Locations At the end of 2007, OP-Pohjola Group had a total of 630 locations (670), of which 279 (175) offered both banking and non-life insurance services. The objective is to increase the latter to about 300. The network is rounded out by Pohjola Insurance Ltd s rapidly evolving network of agents. The focus is on providing more expert services and even better customer care services. Among the reasons for the de- 26 OP-POHJOLA GROUP ANNUAL REVIEW 2007

31 crease in the total number of locations is that in a number of localities a member bank and Pohjola Insurance have moved into joint premises. OP Kiinteistökeskus estate agents are subsidiaries of the member banks. The chain has a total of 173 outlets. As online services have gained in popularity, the use of ATMs has fallen for several years now. In 2007, only about 5% of OP- Pohjola Group customers bills were paid using payment ATMs. Online Services Online services are solidifying their position as the most important channel for doing one s banking. The number of customers who have made an online service agreement with OP-Pohjola Group was over 1.2 million at the end of 2007, with the number steadily growing. In 2007, about 74% of customers bills were handled over the Internet. Use of insurance services, investment, loan and information services is also rising steadily. In addition, online services are playing an increasingly significant role as a sales channel for banking and insurance services. Contact Centre Activities The centralised Contact Centre serving all the Central Cooperative s member banks, the banks own units for online and telephone services as well as Pohjola Insurance s contact centres together make up OP-Pohjola Group s Contact Centre function. They offer customers personal service over the phone and Internet. The aim is to make service availability easier any time, any place. The Group-level Contact Centre is a centralised service channel for banking that offers service for all OP-Pohjola Group customers and sales support for the member cooperative banks. Its role becomes all the more important when handling high-volume, demanding contacts that require real-time special expertise. The centralised Contact Centre furthermore offers customers expert service for using online services, companies payment transfers and tapping the knowhow of OP-Pohjola Group s staff. Matters that customers are familiar with are agreed over the phone, while more demanding service needs are dealt with by making an appointment at a branch office. The Contact Centre operates in Helsinki, Joensuu and Vaasa, and employs over 190 people. In 2007, the centralised Contact centre handled about 925,000 (888,000) customer contacts. The volume was increased, among other things, by contacting Pohjola Insurance s customers and by handling incoming customer calls for the biggest member banks. In 2007, the OP Call Centre did well again in the survey conducted by Taloustutkimus Oy although now ranking second, after receiving the best marks within the financial services sector last year. Pohjola Insurance Ltd s Call Centres for private and corporate customers attended to a total of over 1,000,000 customer contacts in The Call Centres operated in Helsinki, Tampere and Kuopio and had a staff of about 230. The aim is to try to resolve the customer s service request during the call. The call centres also obtained new loyal customers for Pohjola Insurance and handled annual reviews of companies insurance cover. Via Pohjola Insurance Ltd s Call Centre for claims service, the customer can report loss or damage that has occurred. In 2007, about 500,000 calls were answered and about 80,000 notifications of loss came in. The service employs about 90 claims handlers in Helsinki and Tampere. OP-Pohjola Group s service network 31 Dec Dec 2006 Change from beginning of year, no. Banking and insurance locations Offering both banking and non-life insurance services Offering banking services Offering non-life insurance services OP-Kiinteistökeskus outlets Online customer terminals Payment ATMs Online service contracts 1,191,000 1,094,000 97,100 OP-POHJOLA GROUP ANNUAL REVIEW

32 Brands In September 2007, OP Bank Group was renamed OP-Pohjola Group. Following the acquisition of Pohjola in the autumn of 2005, the integration of the Group s operations and structure had progressed to a stage when it was time to adopt a new name reflecting the uniformity of the Group: OP-Pohjola Group. It is a name descriptive of Finland s leading financial group and reflecting its strong Finnish roots. OKO Bank plc also changed its name. The new name Pohjola Bank plc was officially adopted on 1 March Half of the Bank s business concerns banking and investment services and the other half non-life insurance. The names of individual Group member cooperative banks remained unchanged. Nor were the products and services of private customers affected. OP-Pohjola Group s main brands are OP-Pohjola Group, Group member cooperative banks (bearing the name Osuuspankki in Finnish) and Pohjola. The name OP Bank Group was only used in communication but it was not built into a separate brand. A sub-brand for the Group s name is now being built under the familiar orange logotype. At the core of the brand is a unique package of bank and insurance services that is convenient for customers and supports corporate customers business operations. OP-Pohjola Group is a reliable Finnish pioneer, prospering together with its customers, and the top expert. The uniformity of the Group is also emphasised in marketing communication, the joint slogan being: Benefits for life from OP-Pohjola Group. The Pohjola brand is extremely well known by consumers, businesses and other organisations. OKO Bank was known primarily by investors and large companies. Given that half of the operations consist of non-life insurance and the other half mainly focuses on large companies and organisations, it was justified to choose Pohjola as the new corporate name of the listed company. The brand for the listed company will be developed under the Pohjola name and the orange logotype. The orange logo was immediately recognised by a very high percentage of people 98% of Finns over the age of 18. Pohjola s round, blue logotype will from now on be used as a trade mark for home and family insurance policies. In the streets and the office windows, the blue trade mark will continue to be seen alongside with the Group member banks logotype. The marketing of the Group has been built with careful consideration and on a long-term basis, and this is also reflected in the results: According to a survey on brand recognition conducted in 2007 by market research company Taloustutkimus and marketing magazine Markkinointi & Mainonta, the Osuuspankki brand had risen from 75th to 56th place, being the highest rated finance sector brand. Changes in the brand architecture were a natural followup of long-term streamlining of the Group s nomenclature. It has been a policy for a long time that the Group s company names will not be made into brands unless the companies have direct customer contacts. OP-Pohjola Group serves its customers through the 229 local member cooperative banks, their local OP-Kiinteistökeskus estate agents and the listed company Pohjola Bank plc. The role of the OP-Pohjola brand is to stand out as a leading Finnish financial services group with very extensive services. 28 OP-POHJOLA GROUP ANNUAL REVIEW 2007

33 Banking and Investment Services Banking and Investment Services is the largest of OP-Pohjola Group s business segments. It covers the asset management, lending and payment services for both private and corporate customers. The starting point for banking and investment services is products and services that are competitive in quality and price. The division has a strong market position in nearly all its subareas of operations, its forte being lending and deposits. The most ambitious growth targets are within asset management, consumer lending, corporate banking and payment services. Asset management Asset management is one of OP-Pohjola Group s main priorities. OP-Pohjola Group offers a comprehensive range of asset management products and services. Apart from deposits, mutual funds, insurance saving, stock broking and debt issuance, OP-Pohjola Group has increased its market share within private banking focused on discretionary asset management. On 31 December 2007, the number of customers who save regularly through an account, a mutual fund or an insurance policy was about 316,000 (approx. 263,000). Deposits Deposits improved their position as a vehicle for saving and investment in They appeal to customers because they are trouble-free and secure. OP-Pohjola Group s market share of Finnish financial institutions euro-denominated deposits was 32.2% (32.7%). Total deposits amounted to EUR 29.0 billion (25.8 billion). OP-Pohjola Group offers account alternatives for all needs. Practically every adult Finn has a current account to handle their daily finances, with an appropriate card or credit attached to it. A special purpose account is intended for long-term saving. Its dual interest structure rewards savings growth and length of savings period. Continuous and fixed-term yield accounts are suited to customers that value low risk, convenience and a good profit. They double as hedging interest investments alongside other investment products. Other saving and investment options include ASP (Home Savers Bonus system) and foreign exchange accounts. Combinations of deposits and funds have also become very popular. OP-Pohjola Group s current accounts owned by households contained EUR 10.2 billion on 31 December 2007 (EUR 10.6 billion). There were a total of about EUR 14.0 billion of investment deposits (10.9 billion), most of which were made by households. Mutual funds OP-Pohjola Group s mutual fund are managed by OP Fund Management Company Ltd and the portfolio management mainly by Pohjola Asset Management Limited. Capital invested in mutual funds amounted to EUR 14.1 billion at the end of 2007 (13.3 billion) and the market share of capital invested in mutual funds registered in Finland was 21.4% (21.8%), with a 21.6% share of customers (21.5%). Over EUR 3.7 billion of new capital was invested in funds registered in Finland in A net amount of about EUR 0.6 billion was invested in OP mutual funds in 2007 and they had a total of almost 550,000 unit holders. The growth in mutual fund capital slowed down in the latter part of 2007 because of uncertainty in the international money market. OP Fund Management Company has a comprehensive range of money market and fixed-income funds, balanced funds, equity and other special funds. OP mutual funds enable efficient investments globally into a variety of markets. In addition to an extremely comprehensive selection of funds and solid expertise, OP Fund Management has an extensive distribution network, a highly competent organisation and innovative product development. OP mutual funds are sold by investment professionals in all member cooperative banks and Pohjola Asset Management Limited. In addition to Pohjola Asset Management Limited, portfolio management is handled by international partners such as JP- Morgan, Pimco, Crédit Agricole and Fidelity. The solid expertise and long experience of our portfolio management partners create obvious added value to our customers. Stockbroking and securities custody OP-Pohjola Group has over 240,000 custody customers. The custody system has been substantially improved, with the new custody report providing a quick overview of the customer s investments, including all investment forms such as funds, unit-linked insurance, shares, bonds and savings and invest- OP-POHJOLA GROUP ANNUAL REVIEW

34 Banking and Investment Services ment accounts. Custody services also provide detailed information about yield, risks and cash flows, with the material required by the tax authorities easily extracted. Use of the Market Information Service that is intended as an investment aid has remained popular, with an average of some 60,000 daily visits to the site. New international markets such as Iceland, Germany, and Denmark have been added to the service. OP-Pohjola Group s online service offers the most comprehensive investment tools and investment research on the market. In addition to Finnish equities, customers have been able to use the online service to trade in Swedish, Danish, German, French, Dutch, Belgian and Portuguese shares, and the spectrum of choices is now being expanded. Private banking One of the Group s growth areas is private banking, which offers discretionary, agreement based asset management. OP-Pohjola Group offers this in the entire country: the service network the largest in Finland has been growing steadily and today there are already 26 OP-Private units. The service is suited to individuals who have at least EUR 100,000 of assets to invest. As part of the Investment Consultancy service, an OP Private specialist makes suggestions for changes in the content of the portfolio, but the client is the one who decides on the orders. Under Discretionary Asset Management, a bank expert manages the client s assets and takes investment decisions for the client in accordance with a jointly agreed strategy. In addition to the OP Private units, similar services are offered by Pohjola Private, an arm of Pohjola Asset Management Limited. Institutional asset management Pohjola Asset Management Limited, one of Finland s leading asset managers, is responsible for the asset management services of the largest corporate and institutional customers. Assets under its management amounted to more than EUR 32 billion at the end of 2007, of which OP-Pohjola Group s internal investments accounted for some EUR 20 billion. Over 130 investment professionals are engaged in managing these assets. In addition to its own portfolio management, the company has 16 international partners. Pohjola Private Equity Funds Limited focuses on private equity investment operations, offering asset management services and fund products. Pohjola Property Management Ltd specialises in property investment in Finland and in selecting indirect international real estate funds. Lending OP-Pohjola Group s market share of financial institutions euro-denominated credit in Finland was 31.1% at the end of Mutual fund capital in Finland per fund type Nominal prices of flats in Finland, year-on-year change billion % Money market and bond funds Equity funds Balanced funds Source: The Finnish Association of Mutual Funds Whole country Greater Helsinki area Source: Statistics Finland 30 OP-POHJOLA GROUP ANNUAL REVIEW 2007

35 I work as the secretary to the Executive Vice President of Group Treasury. It is an international operating environment: most of the calls and contacts are from abroad. Anne Hasso Department Secretary Pohjola Bank plc Banking and Investment Services Central Banking and Treasury 2007 (31.1% in 2006). The market share of home mortgages was 34.8% (34.4%) and for corporate loans 25.7% (25.8%). OP- Pohjola Group s entire loan portfolio totalled EUR 44.8 billion (39.6 billion), of which the private customers loan portfolio amounted to EUR 30.6 billion (27.3) and that of corporate and institutional customers to EUR 12.7 billion (11.0 billion). Residential lending OP-Pohjola Group offers services for buyers and sellers of permanent and leisure time residences, as well as for builders, tenants and landlords. The residential lending and brokerage services rely on cooperation between the member banks and OP Kiinteistökeskus estate agents, supplemented by Pohjola s insurance policies. OP-Pohjola Group is the biggest player in Finland s home mortgage market. The portfolio of home mortgages stood at EUR 21.5 billion (18.9 billion). In 2007, the Group s private customers drew down EUR 7.2 billion in new loans (6.9 billion). The Group s portfolio growth was faster than the market growth, with its market share increasing by 0.4% despite intense competition. In 2008 the market demand is expected to taper off. The most widely used reference interest rate for the mortgage portfolio is the 12-month Euribor, although over half of the new mortgages are linked to OP-prime. The average interest rate on new loans grew by about 0.8 percentage points in Various interest rate hedged products have had ever-wider appeal and, as a result, demand for interestcapped loans was record-high for most of OP-Pohjola Group units can grant loans with a fixed interest period of up to 20 years. Customers who take out an interest-capped loan can set an upper limit on the rate. In spring 2007, OP-Pohjola Group launched two new mortgage products: the reverse loan and a long-term single-instalment renovation loan, which offer customers more possibilities to handle increasing housing renovation needs. The new combination product for home mortgages consists of not only the mortgage but also a continuous consumer credit feature and home insurance. Insurance coverage is also part of OP-Pohjola Group s residential lending and brokerage services. Home property insurance is available through Pohjola Insurance Ltd. About a third of home mortgages are covered by repayment protection insurance, offered by Genworth Financial and OP Life Assurance Company Ltd. OP Mortgage Bank obtains its funding by issuing mortgage-backed bonds. In June 2007, it issued OP-Pohjola Group s first covered bond to the international market, worth OP-POHJOLA GROUP ANNUAL REVIEW

36 Banking and Investment Services OP-Pohjola Group is Finland s largest mortgage lender. Our job is to ensure that we can offer our customers the best products and services in the sector also in the future. Jussi Mäkelä Development Director OP Bank Group Central Cooperative, Residential lending one billion euros. The launch was very successful, as the investors desire to buy was triple compared to the bond size. Indeed, OP Mortgage Bank got a very good price for the funding it obtained through the bond. In a survey carried out by Taloustutkimus Oy, OP-Pohjola Group s residential lending service was rated best, for the ninth time running, for all of the criteria studied: interest rate level, loan period, flexibility and expertise. Property brokerage OP Kiinteistökeskus estate agents are subsidiaries of the member banks. Gauged by transaction volume, they are Finland s largest chain operating under a single brand. The chain has a total of 173 outlets. OP Kiinteistökeskus estate agents brokered about 16,300 home purchases in 2007 (16,000). Finnish house prices kept rising in 2007, and those of old apartments almost by 6%. Prices vary increasingly in relation to the location and condition of the home. Property brokerage is becoming more and more competitive, with new operating practices such as auctioning being used. The Ministry of the Environment began to publish home prices on their web site in the summer. In 2008, home prices are expected to continue to rise but at a slower rate. The number of homes bought and sold will probably remain at the level of recent years. The demographic shift to growth centres and the relative growth of small households will bolster home sales. Consumer lending OP-Pohjola Group s consumer lending services cover secured and unsecured consumer loans, which can be either for continuous use or one-time purchases. The portfolio of consumer loans was EUR 3.3 billion at the end of 2007 (2.8 billion). About 84% of consumer lending consisted of secured loans at the end of Interest rate margins changed very little in Unsecured consumer loans are the province of OP- Kotipankki plc, whose prime distribution network is the member banks and the online service. At the end of 2007, the company had a loan portfolio of EUR 561 million (435 million). Growth was fuelled, notably, by good demand and the high number of new OP Visa cards. Growth was also boosted by the ease of use of online self-service functions, such as flexible and special consumer credit. Already more than half of OP-Pohjola Group s approved consumer loan applications are filled in on the Internet. The OP Visa combines credit card and loan facilities. About 52% of Visa cards in Finland are issued by OP-Pohjola Group, and almost 70% of all cards issued in Finland. 32 OP-POHJOLA GROUP ANNUAL REVIEW 2007

37 Pohjola Bank is responsible in OP-Pohjola Group for consumer financing services provided through retailers. One of Pohjola Bank s priorities has been vehicle and consumer financing services. Pohjola Bank s consumer loans include K-Plussa MasterCard, K-rauta Rahoitus (hardware), Puustelli- Rahoitus (furniture) and Marimekko MasterCard (garments and designer accessories). Pohjola Bank s Retail and Wholesale Industry Financing loan portfolio totalled EUR million at the end of 2007 (709.1 million). Corporate banking OP Bank Group offers a variety of alternatives for the daily liquidity management of companies and institutions, for investments and for other financing needs. In 2007, EUR 7.5 billion in new corporate loans was drawn down (5.8 billion). OP-Pohjola Group supports its customers in financial planning and in developing their finance structure. One of the focus areas is arranging finance in the capital markets for large and medium-sized companies. Finance company products serve to support customers business operations and are generally used for funding a given project. The security for the loan is most often the asset to be financed. OP-Pohjola Group s loan portfolio for finance company products amounted to EUR 2.6 billion at the end of 2007 (2.4 billion). To maintain liquidity, OP-Pohjola Group offers several financing options, including an overdraft corporate account and factoring. Protection against risks is offered through facilities such as repayment protection insurance on corporate loans and interest-capped loans and the new interest rate corridor for a loan. Solutions offered to customers are often combinations of services provided by a Group member bank, Pohjola Insurance and Ilmarinen Mutual Pension Insurance Company. Pohjola Bank offers finance and cash management as well as money, currency and debt market services. It grants loans and guarantees as well as leasing and factoring services, arranges financing on the debt market and engages in venture capital activities. Equity financing within OP-Pohjola Group is offered via the mutual funds run by Pohjola Capital Partners Ltd. Its investing operations are geared to the M&A arrangements of small and medium-sized companies. Corporate financing services are offered by Pohjola Corporate Finance Ltd. Pohjola Bank also has cooperation with the European Investment Bank (EIP). Pohjola Bank strives to improve its corporate customers international services. As a practical step in realising this target, Pohjola Bank, based on an agreement signed on 21 December 2007, bought all of the shares in K-Finance Ltd, a Kesko Corporation subsidiary, the acquisition being finalised on 31 January The acquired company provides financing services for corporate customers, mainly professional customers of Kesko Agro, Konekesko and agricultural traders in Finland, Estonia, Latvia and Lithuania. On 30 September 2007, the company had a loan portfolio of about EUR 260 million. Services for agricultural and forestry customers OP-Pohjola Group continues to be the market leader as a provider of banking services to agricultural and forestry customers. The market share of loans extended to the agricultural sector is over 60%. The loan portfolio has continued to rise at an annual rate of about 5%, approaching EUR 3 billion, with about a third accounted for by subsidised financing. The total income from agriculture and forestry rose clearly in Finland in 2007, mainly as a result of higher production volumes. Profitability increased too, although rising input prices also raised production costs significantly. High investment subsidies have boosted the structural development and competitiveness of agriculture. Owing to the redrafting of the Act on the Financing of Rural Industries (329/1999), it has not been possible to apply for most of the investment subsidies since summer The new Act will change the grounds for granting agricultural investment subsidies and interest-subsidised loans. OP-Pohjola Group s agricultural and forestry customer services include financing, payment transfer, asset management and insurance solutions, with forestry owners services as one specific area of focus. One area of focus has been the services to forest owners. In 2007, the private forest owners timber trade income rose to a record two billion euros. OP-Pohjola Group placed a lot of emphasis on forest owners asset management services and forest insurance. Payment Services OP-Pohjola Group s market share of transaction volumes in domestic and foreign payment services in 2006 was 33.0%. The figure for 2007 is not yet available. The weighting given to payment services within the Group s strategy has been raised. In the corporate and institutional sector, the greatest growth will be sought within payment services for mediumsized and large customers. OP-POHJOLA GROUP ANNUAL REVIEW

38 Banking and Investment Services OP-Pohjola Group offers its private customers a variety of tools for handling their daily finances. In May 2007 the Group launched a new service package for the handling of daily finances. The bonuses related to use of the services are enjoyed by over 310,000 Group customers. At the same time, the online bank at op.fi began to sell daily financing services, enabling customers to pick the services they need. Over 95% of the bank cards issued can be used for payments and a mere 4% only for cash withdrawal. The volume of card payments is over four times that of ATM cash withdrawals. Of the over two million debit and credit cards issued by OP-Pohjola Group, international cards account for some 82% (70%). OP-Pohjola Group and K-Group have agreed on long-term cooperation in terms of card development, payment transfer services, cash management and customer financing, and all this work continued well. By the end of 2007, there were already 380,000 OP-Visa, OP-Visa Electron or MasterCards with K-Group s Plussa feature added to them. Service packages are developed for corporate customers using payment transfer services: the first was launched to self-employed customers in May For companies and institutions, OP-Pohjola Group offers tools for managing domestic and foreign payment transfers, communicates information on money transfers and makes possible disbursements and transfers of information directly from a ledger. A company can handle its banking securely online or by means of a data link via a batch transfer and it can furthermore expand its trading to the Internet. The Single Euro Payments Area (SEPA) system will be adopted in , replacing national payment transfer services such as wire transfers, direct debiting and payment cards with European-wide equivalents. SEPA is particularly useful to companies that operate internationally and to private customers that travel a lot, but the changes affect all Finns. OP-Pohjola Group is a pioneer in Finland in terms of SEPA, making the system which enables uniform payment methods within the 31 countries involved, domestic payments included widely available to private and corporate customers right from its inception on 28 January The Group is also the first to receive corporate customers payments in SEPA-compliant format. OP-Pohjola Group is also in the forefront in providing e-billing services to private and corporate customers both in terms of product development and number of users. OP-Pohjola Group was the first bank in Finland to introduce an e-billing service for private customers in By the end of 2007, there were almost 100,000 private customers that had activated the service (20,000). There are some 150 companies which have signed an agreement for private customer e-billing. Some 27,500 corporate customers have made an agreement for the service (21,000). The number of sent and received e-bills is rising fast and use of the service is expanding steadily. 34 OP-POHJOLA GROUP ANNUAL REVIEW 2007

39 Life Insurance OP Pohjola Group s extensive range of life insurance products includes pension policies, savings and unit-linked policies as well as term life insurance and capital redemption contracts for companies. OP Life Assurance Company Ltd is OP-Pohjola Group s life insurance company specialising in product development and insurance production. In the main, Group member banks are responsible for selling products but products are also sold through the service network of Pohjola Insurance Company Ltd. OP Life Assurance Company in its current form was created as a result of Pohjola Life Insurance Company Ltd s merger with it at the end of It currently boasts an extensive product range covering insurance policies for private individuals, group pension insurance and other life insurance for businesses. OP-Pohjola Group is seeking strong growth in the life insurance business. Suomi Mutual Life Assurance Company purchases its policy management services from OP Life Assurance Company. This insurance portfolio contains contracts of some 300,000 customers. In Finland, total premiums written in the life insurance sector continued to fall further, due partly to the subprime crisis in 2007 affecting the general investment climate. OP Life Assurance Company reported premiums written of EUR 859 million (867) and had a market share of 30.8% (28.3). Leading the market in life insurance for the third year in a row, OP-Pohjola Group strengthened its market position. Private customers accounted for around 78% of premiums written and companies and institutions for 22%. Both supply of and demand for life insurance policies shifted towards unit-linked policies, which in 2007 represented up to 54% (55) of all of OP-Pohjola Group s premiums written from life insurance and 39% (37) of insurance savings. Finns have not so far been very active in taking out personal life insurance policies. Term life insurance and individual pension insurance account for an increasing share of all premiums written within the life insurance business. Upgrading and integrating information systems present one of the biggest challenges to OP Life Assurance Company in the near future. Despite delays in the information system project, 2007 saw the launch of a capitalisation redemption contract for companies and the opportunity provided to investors of unit-linked policies to tie the return on their insurance savings to a new capital-guaranteed fund. OP-POHJOLA GROUP ANNUAL REVIEW

40 Life Insurance Claims handling is one of the basic functions of an insurance company. We take pride in providing excellent and friendly claims handling services. Anu Forsberg (middle) with Jessica Hanhisuanto (left) and Anja Kankaanpää. Anu Forsberg Claims Handler OP Life Assurance Company Ltd Private customers Insurance for private customers is sold by Group member banks. Services are also available through Pohjola Insurance Company Ltd, selected external sales channels, the Call Centre and the Internet. On 31 December 2007, private customers insurance savings totalled about EUR 5.3 billion (4.9). Savings and unit-linked policies OP Savings Insurance is a savings life policy intended for regular saving over a period of time or for a one-time investment. It is taken out for a fixed period and may be effective up to the time when the beneficiary reaches the age of 100. OP Unit-linked Insurance is ideal for an active investor. It is a means of bundling a number of mutual funds which may be switched without any surcharge. Taxes are not levied on the return on the savings until the agreement expires. This policy is ideal for long-term saving and investment. Pension policies OP-Pohjola Group s market share accounted for 28% (31) of all new pension policies (number of policies) sold in The Group is the market leader in sales of new policies. A total of around 169,000 customers have a pension policy with OP Pohjola Group. Currently individual pension insurance is the only taxsubsidised form of voluntary pension saving. The OP pension insurance policy enables its holders to retire at the age of 62 or improve their statutory pension cover, or opt for both alternatives. The strengths of OP pension policies lie in their competitive administrative costs, a simple cost structure, clear-cut terms and conditions, and a flexible payment schedule. Term life policies By international standards, term life insurance premiums written are low in Finland. In 2007, OP-Pohjola Group recorded EUR 35.6 million (8.9) in premiums written from term life insurance and held a market share of 18.6% (5.7). Within term life insurance, OP-Pohjola Group supplements its products through partnership with Genworth Financial, an insurance company specialising in payment protection insurance. These supplementary products include repayment security insurance on both personal and corporate loans, and a serious illness policy for private individuals. In 2007, repayment security insurance was included in roughly 34% of new loans. The policy taken out to cover a serious illness provides customers with financial security and freedom of choice and is the most extensive available on the market. 36 OP-POHJOLA GROUP ANNUAL REVIEW 2007

41 Corporate and institutional customers Both Group member banks and Pohjola Insurance Company Ltd sell group and corporate pension policies. A variety of corporate products and their sales to the extensive base of OP- Pohjola Group s customers form one of the priorities for OP Life Assurance Company. The Group is seeking considerable growth in corporate life insurance in particular. Group pension policies Group pension insurance is supplementary pension insurance for companies, which employers can use to supplement the statutory pension cover of their employees or a specific group of employees. The employer and employee may together contribute to insurance savings. OP-Pohjola Group ranks second among players in the group pension insurance market. Given that group pension insurance is a vigorously expanding business, the Group aims to increase its market share, for example, by providing modern products. A defined benefit plan promises the participant a specific benefit at retirement and the insurance cover is customised with respect to the agreed benefits and level. The product range also includes defined contribution policies in which the employer decides on the level of annual premiums forming the basis of pension cover. On 31 December 2007, the portfolio of group pension policies consisted of more than 1,000 (around 700) insurance contracts with over 22,000 (around 16,000) beneficiaries. Assets invested in group pension policies totalled roughly EUR 284 million. Written by Genworth Financial, repayment security insurance on corporate loans enables companies to prepare for personnel risks critical to business continuity. Capital redemption contracts The OP Capital Redemption Contract combines the benefits of both mutual fund and insurance investment, enabling companies to switch between portfolios for assets invested in the insurance, according to their needs. These asset classes involve money markets, long-term fixed-income investment, domestic equity investment and global equity investment saw the launch of a new capital redemption contract OP Investment Contract whose modern features provide better opportunities for insurance investing and portfolio switches according to company needs. Life and pension insurance savings in Finland billion Other insurance for businesses Statutory insurance for a company s personnel provides basic security, which can be improved by taking out voluntary supplementary policies comprising pension, term and accident policies. Term policies enable companies to prepare for personnel risks critical to business continuity while motivating staff. OP Personal Pension Insurance for Corporate Customers is a high-yield choice if the entrepreneur wishes to incentivise and reward its key employees or supplement its pension cover. Accident policies are written by Pohjola Insurance Ltd. OP Life Insurance Company s portfolio contains individual pension policies granted to some 20,000 companies. Companies have taken out term life insurance for around 25,000 employees. Pension insurance Life insurance Source: Federation of Finnish Financial Services OP-POHJOLA GROUP ANNUAL REVIEW

42 Non-life Insurance OP-Pohjola Group provides extensive nonlife insurance coverage for both private and corporate customers. The main policies for private customers include household and motor liability policies and accident, medical expenses and travel policies, while all statutory and voluntary policies as well as extensive risk management services are available for corporate customers. In Finland, OP-Pohjola Group provides insurance services through the following three companies: Pohjola Insurance Ltd, a non-life insurer; A-Insurance Ltd specialising in services for commercial carriers; and Eurooppalainen focusing on travel insurance. The number of the Group s non-life insurance customers in Finland totals more than 1.7 million. OP-Pohjola Group s market share in 2007 accounted for around 27% of Finnish non-life insurance policies. According to preliminary information, the Group has become Finland s leading non-life insurer in terms of premiums written, and this growth target is supported by Pohjola Insurance Ltd s intense cooperation with Group member banks, with a view to establishing total customer relationships. The profitability of non-life insurance operations is ensured through risk-based premium rating, damage prevention and by reinsuring the largest individual risks. Customers have access to our services through 295 branch offices across Finland, 279 of which operate under the same roof with Group member banks. The Group aims to increase the number of its branches providing banking and insurance services to some 300. A dynamic network of agents supplements the branch office network. With around 200,000 customers, the local Seesam companies provide non-life insurance services in the Baltic countries. On 31 December 2007, Non-life Insurance had a total staff of 2,247, accounting for approximately 73% of all Pohjola employees. Private customers The year-end number of loyal customer households with insurance contracts with Pohjola totalled roughly 355,000. By 2010, the aim is to serve 450,000 loyal customer households. In 2007, growth within Private Customers remained strong, stemming mainly from Group member banks customers. A monthly average of 10,000 Group member banks customers expressed their interest in Pohjola s insurance products. In 2007, the total number of joint banking and non-life insurance customers increased by over 100,000. Sales of Extrasure contracts home and family insurance policies continued to grow further, with the number of such contracts concluded in 2007 totalling 50,400 or 17,200 more than a year ago. Pohjola s market share of motor vehicle registrations rose from 19.6% to 21.7%, which was reflected in 38 OP-POHJOLA GROUP ANNUAL REVIEW 2007

43 I deal with insurance, daily allowance, training and rehabilitation issues related to occupational injuries. Our objective is to get people back in health as soon as possible so they can return to work. Minna Niitonniemi Claims Settler Pohjola Insurance Ltd Occupational injuries/ long-term injuries a marked increase in the market share of the total number of vehicles: the year-end market share stood at 21.2% (19.7%). Since November 2007, OP bonus customers have had the opportunity to use their OP bonuses to pay non-life insurance premiums. This represents a major benefit, considering that roughly 580,000 loyal customers who have concentrated their purchases of banking and insurance services can use OP bonuses to pay their insurance premiums. An estimated ten per cent of these customers are able to pay all their insurance premiums by using bonuses. OP-Pohjola Group intensified cooperation with the K-Group. At the beginning of May, Pohjola joined the K-Plussa loyal customer programme. Corporate customers Pohjola holds a strong position as a corporate and publicsector insurer. Based on its own estimate, Pohjola is still the market leader in statutory workers compensation insurance (with a market share of 32% in 2006). Pohjola Insurance got a net number of 1,600 new corporate customers for statutory accident insurance, which is almost 50% more than the year before. Ilmarinen Mutual Pension Insurance Company also reported excellent sales of statutory employee pension insurance contracts. Serving as Pohjola s major channel for sales and customer service, Ilmarinen Mutual Pension Insurance Company manages pension coverage for almost 417,000 employees and 51,000 entrepreneurs. A-Insurance Ltd provides insurance cover for professional carriers and forestry and earth-moving contractors, this customer segment showing above-average growth for businesses. Pohjola is also the leading insurer in customer segments requiring niche expertise, such as underwriting insurance for large corporations. OP-Pohjola Group has set the goal of strengthening Pohjola s position as an insurer of farms. In 2007, around 2,000 new farmers became Pohjola s customers and small companies also increased in numbers. Royal & SunAlliance is Pohjola s partner for overseas insurance services for corporate customers operating in the international market. Baltic countries The Baltic insurance market has developed favourably and will grow much more rapidly than the Finnish market. The ratio of premiums written to GDP is still rather low in the Baltic region, especially with respect to insurance of persons, but economic growth will boost demand for these OP-POHJOLA GROUP ANNUAL REVIEW

44 Non-life Insurance The first fire engineer was hired by Pohjola in 1884 to prevent shingle roof fires. In the early 20th century, Pohjola assisted factory fire brigades by providing them with fire fighting equipment seen in the background. Kim Ruokonen Unit Manager Pohjola Insurance Ltd Corporate Customers Risk Management Services policies. The growing market is characterised by tough competition due to the entry into the market of new international players. The local Seesam companies provide non-life insurance services in the Baltic countries. Seesam is Estonia s third largest insurance company with an around 15% share of the country s non-life insurance policies. Latvia s share is 5% and Lithuania s 3%. Market share growth has flattened out in Estonia, whereas expansion is expected in both Latvia and Lithuania. The majority of the insurance market in the Baltic countries focuses on motor vehicle policies, which have also shown the most remarkable growth. Seesam opened one new branch office in Estonia, two in Latvia and four in Lithuania. Seesam also sells its insurance products on an extensive basis through other distribution channels, such as banks, brokers and agents. 40 OP-POHJOLA GROUP ANNUAL REVIEW 2007

45 95% of claims approved For customers, non-life insurance usually becomes concrete in terms of benefits. In 2007, Pohjola received more than 320,000 loss reports. With around 95% of reported damage or loss leading to benefits, Pohjola paid over EUR 500 million in compensation in Almost 40% of all damage or loss was reported via telephone and online service. Customers have given positive feedback on speedy claims-handling processes and easy claim filing. Strong growth in the insurance portfolio was also reflected in higher claims incurred in 2007, up by 6% year on year, adjusted for extraordinary items. This increase in claims incurred came chiefly from motor vehicle and motor liability insurance contracts, which were characterised by an exceptionally sharp rise in repair costs. Growth in severe road accidents and an above-inflationrate increase in car repair shop costs added to claims incurred. Mass tourism for long-distance destinations was also reflected in traveller s insurance claims incurred, which were higher than a year ago due particularly to repatriation of customers becoming seriously ill. The trend in major losses appeared unfavourable towards the year end. In 2007, the number of losses of over one million euros totalled 12. Pohjola has entered into partnership with firms representing over 20 industries, such as healthcare services providers, car repair shops, building renovation firms and household appliance retailers, with the aim of ensuring cost-efficient and even-quality claims settlement services and the easy availability of services. Large claims (exceeding 200,000) paid by non-life insurance companies in Finland Non-life insurance premiums written in Finland, total million No. billion EUR million (left scale) Number of claims (right scale) * Year 2007 figure not yet available Source: Federation of Finnish Financial Services * Forecast Source: Federation of Finnish Financial Services OP-POHJOLA GROUP ANNUAL REVIEW

46 Pohjola Bank as a Portfolio Investment On 1 March 2008, OKO Bank plc was officially renamed Pohjola Bank plc. This new business name enables the Group to operate under a single name and brand covering all of its operations. Banking and Investment Services Corporate Banking Markets Group Treasury Asset Management Average price of Pohjola Series A share* * Share-issue-adjusted figures Proportional change in Pohjola Series A share and OMX Helsinki CAP index % Pohjola A (share-issue-adjusted figures) OMX Helsinki CAP Pohjola Non-life Insurance Private Customers Corporate Customers Baltic countries Pohjola Bank plc is a Finnish financial services company providing banking, investment and non-life insurance services, and ranks among the leading players in the Finnish financial sector. With over 30,000 shareholders, Pohjola Bank Series A shares have been quoted on the OMX Nordic Exchange Helsinki since Serving businesses, institutions and private individuals, Pohjola Bank Group provides an extensive package of banking and insurance services which are convenient for customers while supporting corporate customers business. Banking and Investment Services and Non-life Insurance constitute Pohjola Bank s lines of business. Strategy In late November 2007, the Board of Directors decided to update the Group s strategy adopted in May 2006 extending into One of the key priorities of this strategy update included the intensified integration of banking and insurance services. The Board also set more challenging long-term financial targets for the Group. Main messages of the strategy: Pohjola Bank places a strong emphasis on its profitability and effective use of capital. The Group seeks growth in all of its business divisions but not at the expense of profitability supported by OP- Pohjola Group's broad customer base and Finland's most renowned banking and insurance brands. As a corporate and investment bank, Pohjola Bank aims to become the market leader as a bank for large corporate customers (as compared with the previous aim of strengthening its second place in the market) and, together with the rest of OP- Pohjola Group, the market leader as a bank for SMEs. Growth in banking services will be boosted by Pohjola Bank's in-depth knowledge of its customers, flexible service, quick decisionmaking, long-termism and high credit ratings. Asset Management aims at the leading market position in Finland. The Group is already Finland's leading provider of asset management services for institutions. Non-life Insurance aims to continue increasing its market share and rise to number one in Finland, underpinned by close cooperation with OP-Pohjola Group member banks. Non-life Insurance will seek growth through risk-based premium rating, which will safeguard profitable operations among 42 OP-POHJOLA GROUP ANNUAL REVIEW 2007

47 household customers, SMEs and agricultural and forestry businesses. Key strategy implementation areas are as follows: 1) Exploiting the business areas shared customer potential and service network 2) New value-adding services 3) International competitiveness Shares and shareholders Pohjola Bank plc shares are divided into Series A and K shares. Series A shares available for the general public are quoted on the OMX Nordic Exchange Helsinki, whereas the holding of Series K shares is restricted to OP Bank Group Central Cooperative and OP-Pohjola Group member banks. At a general meeting of shareholders, Series A shares entitle their holders to one vote and Series K shares five votes. In addition, Series A shares pay an annual dividend which, calculated on the basis of the share s stated value, is at least one percentage point higher than dividends payable on Series K shares. On 31 December 2007, Pohjola Bank had around 30,300 registered shareholders, down by 1,900 on a year earlier. On the same date, almost 29,000 private individuals held Pohjola Bank shares. The largest shareholder was OP Bank Group Central Cooperative, the parent entity of Pohjola Bank, representing 29.9% of shares and 56.9% of votes. The proportion of nominee registered Series A shares decreased slightly on a year earlier, standing at 18% on 31 December Share performance, turnover and market capitalisation In 2007, Pohjola Bank s share price advanced by 3%, while the weighted index of the OMX Helsinki CAP rose by almost 4%. On 31 December 2007, Series A share closed at EUR against EUR a year earlier. The highest price during the year was EUR and the lowest EUR The share trading volume increased considerably, as evidenced by around 147 million shares changing hands during the year as against 104 million a year ago. The market capitalisation of Series A stock increased from EUR 2,024 million at the end of 2006 to EUR 2,085 million. Profit performance 2007 Pohjola Bank Group s earnings before tax came to EUR 288 million (223). On 31 December 2007, the capital adequacy ratio stood at 12.2% (12.9) and Tier 1 ratio at 7.5% (8.2). Banking and Investment Services reported earnings of EUR 141 million before tax (163). The loan portfolio of Corporate Banking grew by 19%, totalling EUR 9.4 billion on 31 December. Assets managed by Asset Management stood at EUR 31.3 billion. Non-life Insurance posted earnings of EUR 181 million (78) before tax. Insurance premium revenue grew to EUR 850 million (788). Insurance premium revenue from private customers grew to EUR 345 million (308) and from corporate customers to EUR 449 million (434). Key figures and ratios Pohjola Bank Group 2006* 2007 Earnings before tax, EUR million Return on equity, % Tier 1 ratio, % Earnings/share at fair value (A share), EUR Proposed dividend/share (A share), EUR Market capitalisation, EUR billion Year-end personnel 2,927 3,058 * Continuous operations. The address of orders for Pohjola Bank s Annual Review 2007 can be found in the front cover flap. Pohjola Bank s Annual Review 2007, the Report by the Board of Directors and the Financial Statements 2007 are also available at OP-POHJOLA GROUP ANNUAL REVIEW

48 The guiding light in the management of the member banks is the members benefit. The important task of administrative officers is to act as a concrete link between the bank and the owner-members and customers. Genuine dialogue creates an atmosphere for success for the entire Group. Aila Liimatainen Chair of Supervisory Board Keski-Suomen Osuuspankki 4

49 Structure and Governance of OP-Pohjola Group OP-Pohjola Group is composed of two parts: the amalgamation of the cooperative banks and the rest of OP-Pohjola Group. Together they form a financial and insurance conglomerate. In June 2007, OP Bank Group Central Cooperative s Supervisory Board approved a Corporate Governance recommendation. It is based on a recommendation by the Central Chamber of Commerce according to which the most extensive unlisted companies as to the nature and extent of their operations or engaging in regionally or nationally significant operations should follow the recommendations for corporate governance systems concerning listed companies as far as possible considering the special features of these companies. Transparency, harmonisation of policies and more efficient information flows form the basis of section 31 of the Group member banks advanced Corporate Governance recommendation. The amalgamation of the cooperative banks is a unique entity in Finland regulated in the Cooperative Banks Act (the Act on Cooperative Banks and Other Cooperative Credit Institutions). It comprises the Group s central institution (OP Bank Group Central Cooperative), the commercial bank that acts as the central bank of the cooperative banks (Pohjola Bank plc), other member credit institutions of the central institution, the companies belonging to the consolidation groups of the central institution and the member credit institutions as well as credit and financial institutions and service companies in which one or more of the above entities alone or jointly hold a total of more than half of the voting rights. Under law the amalgamation of the cooperative banks is monitored as a single entity, and the central institution and its member credit institutions are ultimately responsible for each other s liabilities and commitments. OP-Pohjola Group is comprised of the above-mentioned amalgamation of the cooperative banks and companies in which entities belonging to the amalgamation hold more than half of the total votes. Accordingly, the extent of OP-Pohjola Group differs from the extent of the amalgamation of the cooperative banks in that OP-Pohjola Group also subsumes companies other than credit and financial institutions or service companies. The most important of these are the insurance companies with which the amalgamation forms a financial and insurance conglomerate. The legal structure of the amalgamation of the cooperative banks and the rest of OP-Pohjola Group is discussed in greater detail in the Group s financial statements. The member cooperative banks The member banks are independent, local deposit banks engaged in retail banking. They have the corporate form of a cooperative, in which the basic values underlying decision making include the one member, one vote principle. Within the member cooperative banks, the highest decision-making authority is exercised by the cooperative meeting or assembly, which elects a Supervisory Board for the bank. The Supervisory Board in turn elects an Executive Board for the bank. Corresponding retail banking operations in the greater Helsinki area are the province of the Central Cooperative s wholly owned subsidiary Helsinki OP Bank Plc. Cooperative bank federations The cooperative bank federations are regional cooperation bodies for the member banks. There are 16 federations of cooperative banks in Finland. They name the candidates from their areas to seats on the Supervisory Board of the OP Bank Group Central Cooperative. OP Bank Group Central Cooperative OP-Pohjola Group s central institution is OP Bank Group Central Cooperative. Its members can be the credit institutions, pursuant to the Cooperative Banks Act, whose Statutes or Articles of Association have been approved by the Central Cooperative. Acceptance of membership is decided by the Supervisory Board. Within the OP Bank Group Central Cooperative, the highest decision-making authority rests with the Cooperative Meeting and the Supervisory Board elected by it. Operational decision-making authority is exercised by the Executive Board, which is elected by the Supervisory Board and is made up of management executives. The Central Cooperative is owned by the member banks. The Central Cooperative s mission is to create the potential for realising the Group s joint strategic objectives. The aim is to become the most competent and efficient development and services centre in the field. OP-POHJOLA GROUP ANNUAL REVIEW

50 Structure and Governance of OP-Pohjola Group The Central Cooperative is also the strategic holding company of OP-Pohjola Group. Being the central institution, it is also responsible for the steering and supervision of the whole Group. Cooperative Meeting The Annual Cooperative Meeting of the Central Cooperative is held annually on a day specified by the Supervisory Board but before the end of May at the Cooperative domicile, Helsinki. Extraordinary Cooperative Meetings are held when the Supervisory Board considers it appropriate or when an extraordinary meeting is otherwise required by law. The Annual Cooperative Meeting deals with issues in Section 7 of the Central Cooperative s Statutes, such as the approval of the parent and consolidated income statement and balance sheet for the previous financial year, and election of the members of the Supervisory Board and an auditor. In calculating the votes that can be cast at the meeting, a member receives a number of votes equal to the amount of the primary contributions it has paid in. Member banks with sound capital adequacy have additional votes as described in more detail in the Central Cooperative s Statutes. At the meeting no member, however, can cast more than two per cent of the votes represented at the meeting. At the Annual Cooperative Meeting, a member has only one vote if, due to its own financial difficulties, the member has received financial support based on a resolution passed by the cooperative, which fulfils the characteristics specified in Section 8 of the Central Cooperative s Statutes. Supervisory Board According to the Statutes, the Central Cooperative s Supervisory Board has a minimum of 32 and a maximum of 36 members elected by the Cooperative Meeting. A minimum of 16 and a maximum of 20 members are elected to the Supervisory Board such that the Supervisory Board has at least one member from each of the 16 cooperative bank federation areas. The term of office of these members is three years and of these members, a number that is closest to one third resigns each year. In addition, the Supervisory Board has 16 members elected from the territories of the cooperative bank federations such that the allotment of seats is determined among the Federations on the basis of the capital adequacy of their member banks. The term of office of these members is three years unless the term of office ends prior to this date due to a change in the allotment of seats among the Federations. The members of the Supervisory Board elect from amongst their number a chairman and two vice chairmen. An administrative officer or salaried employee may not be elected to the Supervisory Board from such a member bank which pursuant to Section 8 of the Cooperative s Statutes has only one vote at meetings of the Cooperative, i.e. which has received the financial support set out in said section. According to the Cooperative s Statutes, the task of the Supervisory Board is to oversee the corporate governance of the Cooperative as managed by the Executive Board and the President and to ensure that the Cooperative s operations are managed in an expert and prudent manner in accordance with the Cooperative Societies Act and in the best interests of the Cooperative and OP-Pohjola Group. The Supervisory Board must also confirm OP-Pohjola Group s core values, strategy, joint objectives and operational policies and principles; confirm the general principles for the supervision of OP-Pohjola Group s capital adequacy; elect and dismiss the Executive Chairman, the President and the other members and deputy members of the Executive Board and the head of the Audit function; decide on the division of responsibilities between the Executive Board Chairman, the President and the other members of the Executive Board; confirm the Cooperative s operational and financial targets; and decide on calling a meeting of the Cooperative. Executive Board The Central Cooperative s corporate governance is exercised by the Executive Board, whose task is to direct the Central Cooperative s operations in accordance with the relevant Acts and the Central Cooperative s Statutes. The term of office of a member or deputy member of the Executive Board is for the time being. The Executive Board is composed of a chairman who is called the Executive Chairman, the President, who acts as the Executive Board s Vice Chairman; and, in accordance with the Statutes, a minimum of two and a maximum of four members and a maximum of four deputy members. The Executive Board is collectively responsible for the matters upon which it decides jointly in its meetings. In addition, the members and deputy members of the Executive Board have an operational responsibility for the functional areas and organisational entities that are designated as their individual responsibility. Executive Board members share and option holdings are discussed in greater detail on pages OP-POHJOLA GROUP ANNUAL REVIEW 2007

51 Breakdown of direct shareholdings in OP-Pohjola Group at 31 December 2007 Member Cooperative banks Pohjola Bank Group OP Bank Group Central Cooperative Shareholding and participations, % Group total OP Bank Group Central Cooperative Pohjola Bank plc* 13.2** 29.9** 43.4 Pohjola Insurance Ltd* Eurooppalainen Insurance Company Ltd A-Insurance Ltd Seesam companies Pohjola Asset Management Ltd* Pohjola Corporate Finance Ltd* Pohjola Property Management Ltd Pohjola Capital Partners Ltd* Pohjola Capital East Ltd* Pohjola IT Procurement Ltd OP Life Assurance Company Ltd Helsinki OP Bank Plc OP-Kotipankki Oyj OP Mortgage Bank OP Fund Management Company Ltd FD Finanssidata Oy OP IT Procurement Ltd OP Bank Group Mutual Insurance Company * The Extraordinary General Meeting of OKO Bank plc decided on 9 October 2007 to change the Company s business name to Pohjola Bank plc. The new business name became officially effective on 1 March The names of the major subsidiaries were also changed to conform with the Pohjola brand. ** The member banks accounted for 12.6% and the Central Cooperative for 56.9% of Pohjola Bank plc s votes. Pohjola Bank plc Pohjola Bank plc is a subsidiary of the central institution, OP Bank Group Central Cooperative. Pohjola Bank s highest decision-making authority rests with the Annual General Meeting and the Board of Directors elected by it. At the end of 2007, the Board of Directors was comprised of ten members, five of whom, including the Chairman and Vice Chairman, were members of the Central Cooperative s Executive Board. The Pohjola Bank operations are led by the President, assisted by the Group Executive Committee, which is made up of heads of key business and other operations. Pohjola Bank s corporate governance is discussed in greater detail in its own annual report for OP-Pohjola Group s Corporate Governance Statement can be accessed at the op-fi website: op.fi > OP-Pohjola Group > About OP-Pohjola Group. The Central Cooperative s other major subsidiaries Helsinki OP Bank Plc is engaged in retail banking in the Greater Helsinki area. OP-Pohjola Group s life and pension insurance operations and their development have been centralised within OP Life Assurance Company Ltd. The company s product portfolio includes life, pension, insurance-related investment and risk insurance services. OP Fund Management Company Ltd manages OP Pohjola Group s mutual funds. When selling mutual fund units, the company makes use of the service network of the member banks and Helsinki OP Bank Plc, as well as OP Pohjola Group s Internet services. OP Mortgage Bank, acting via the member cooperative banks, grants long-term housing loans against full collateral. The bank finances its operations by issuing mortgage-backed bonds. OP-Kotipankki Oyj provides unsecured consumer loans to the cooperative banks private customers. FD Finanssidata Oy provides OP-Pohjola Group s IT service-provision systems and support. Other institutions OP Pension Fund sees to OP-Pohjola Group s statutory pension security, while OP Pension Foundation handles the supplementary pension security for persons covered by it. OP Bank Group Mutual Insurance Company is OP-Pohjola Group s internal insurance company. It is part of the Group s internal risk management system. OP-POHJOLA GROUP ANNUAL REVIEW

52 OP Group Central Cooperative s Supervisory Board Etelä-Pohjanmaa Mr Keijo Sulkko, talousneuvos (Finnish honorary title), Seinäjoki, *Mr Pentti Mäkelä, Managing Director, Alajärvi, 2006 (2009), resigned, effective 27 March 2008.** Etelä-Suomi Mr Jari Laaksonen, Managing Director, Asikkala, *Mr Teuvo Mäkinen, principal, Mäntsälä, 2006 (2009) *Mr Matti Niemelä, Chairman of the Board of Directors, Hämeenlinna, 2006 (2009) Kaakkois-Suomi Mr Seppo Penttinen, Professor, Savitaipale, , Chairman of the Supervisory Board *Mr Kyösti Harju, maanviljelysneuvos (Finnish honorary title), Lappeenranta, 2006 (2009) *Ms Marjo Partio, Managing Director, Jaala, 2006 (2009) Kainuu Mr Keijo Väänänen, Professor, Vaala, Keski-Pohjanmaa Mr Tapio Kurki, Director, Kokkola, Keski-Suomi Mr Erkki Laatikainen, Professor, Jyväskylä, *Mr Heikki Rosti, Managing Director, Jämsä, 2006 (2009) Lappi Mr Pekka Ahvenjärvi, Attorney, Tornio, *Mr Markku Salomaa, Managing Director, Rovaniemi, 2006 (2009) Pirkanmaa Mr Olli Lehtilä, Managing Director, Tampere, *Mr Timo Viitanen, Principal, Pälkäne, 2006 (2009) Pohjois-Karjala Mr Juhani Leminen, Managing Director, Polvijärvi, *Mr Markku Lappalainen, Municipal Manager, Ilomantsi, 2006 (2009) Pohjois-Pohjanmaa Mr Paavo Haapakoski, Principal, Pyhäjoki, , Deputy Chairman of the Supervisory Board *Mr Timo Levo, Managing Director, Oulu, 2006 (2009) Pohjois-Savo Ms Päivi Nerg, Director of Administration, Kuopio, *Mr Antti Hult, Managing Director, Kuopio, 2006 (2009) Satakunta Ms Marita Marttila, Senior Nursing Officer, Vampula, *Mr Jukka Ramstedt, kauppaneuvos (Finnish honorary title), Pori, 2006 (2009) *Mr Juhani Suoramaa, rakennusneuvos (Finnish honorary title), Rauma, 2006 (2009) Suur-Savo Mr Pekka Vilhunen, Managing Director, Varkaus, *Mr Markku Lehtosaari, kunnallisneuvos (Finnish honorary title), Savonlinna, 2006 (2009) Sydkusten Mr Ola Eklund, Product Director, Karjaa, Varsinais-Suomi Mr Jukka Hulkkonen, Managing Director, Halikko, , Deputy Chairman of the Supervisory Board *Ms Irja Hirsinummi, Managing Director, Tarvasjoki, 2006 (2009) *Mr Mauri Kontu, Entrepreneur, Uusikaupunki, 2006 (2009) Österbotten Mr Bo Storsjö, Farmer, Kristiinankaupunki, Other members: Mr Esa Härmälä, Managing Director, Helsinki, Mr Seppo Junttila, Secretary General, Helsinki, , resigned, effective 27 March 2008.** Mr Harri Sailas, Managing Director, Helsinki, Ms Tuire Santamäki-Vuori, President, Helsinki, The term of office of the members of the Supervisory Board is three years. OP-Pohjola Group s corporate governance, including the Central Cooperative s Supervisory Board, is discussed on pp of this Annual Review. * The term of office of members elected from the Cooperative Bank Federation area on the basis of the capital adequacy of their member banks is a maximum of three years. The term of office may end before this due to potential changes in the allotment of seats among the Federations. ** The next Ordinary Annual Cooperative Meeting of the Central Cooperative will be held on 27 March OP-POHJOLA GROUP ANNUAL REVIEW 2007

53 OP Group Central Cooperative s Organisation 1 January 2008 Corporate Communications Markku Koponen Executive Chairman Chairman of the Executive Board Reijo Karhinen Strategic Planning Pasi Kämäri President Vice Chairman of the Executive Board Tony Vepsäläinen Banking and Investment Services Harri Nummela* Customer Care Services and sales channels Erkki Böös* ICT and HR Services Heikki Vitie* Finance and Risk Management Harri Luhtala* Audit Markku Niinikoski*** Payment Services Anne-Mari Tyrkkö Customer Care Services and Loyal Customer Benefits Hanna Hartikainen ICT Management Marco Halén Member Bank Steering Pekka Jaakkola Internal Audit of Member Banks Timo Valkama Lending Services Mikko Hyttinen Marketing Stina Suominen ICT Services Markku Mäkinen Risk Management and Financial Steering Support Eva Tüll Internal Audit of OP Bank Group Central Cooperative Mauno Jokelainen Asset Management Services Timo Liukkonen Sales Channels and Sales Support Jari Himanen ICT Service Development and Support Pekka Sarvi-Peräkylä Financial Administration Services Matti Nykänen OP Fund Management Company Ltd Mika Kivimäki Card Services and Consumer Lending Matti Korkeela** Service Systems Ilpo Antikainen OP Life Assurance Company Ltd Jukka Ruuskanen OP-Kotipankki Oyj Kai Patovirta Banking and Insurance Systems Arjaleena Smolander Contact Centre Arto Smedberg HR Services Tarja Joensuu-Sarkio OP Pension Fund OP Pension Foundation Pekka Korhonen Legal Services Taina Kallio Insurance and Pension Investments Magnus Backström * Member of the Executive Board. ** Deputy member of the Executive Board. *** Reports to the Executive Chairman. OP-POHJOLA GROUP ANNUAL REVIEW

54 OP Group Central Cooperative s Executive Board 1 January 2008 Reijo Karhinen Tony Vepsäläinen Erkki Böös Heikki Vitie Chairman Reijo Karhinen b Executive Chairman of OP-Pohjola Group M.Sc. (Econ. & Bus. Adm.) Member of the Board since 1994 Other important positions: Chairman of the Board of Directors of OKO Bank plc Ilmarinen Mutual Pension Insurance Company: Member of the Board of Directors, Federation of Finnish Financial Services: Vice Chairman of the Board of Directors, Central Chamber of Commerce: Member of the Board of Directors, Unico Banking Group: Member of the Steering Committee Holdings of OKO Bank shares and option rights at 1 January 2008: 21,548 Series A shares On the basis of the management incentive scheme: 6,093 Pohjola Bank Series A shares in 2008 and 6,772 shares in 2009*. Vice Chairman Tony Vepsäläinen b President of the OP Bank Group Central Cooperative, LL.M., emba Member of the Board since 2006 Other important positions: Vice Chairman of the Board of Directors of OKO Bank plc Luottokunta: Chairman of the Executive Board Holdings of OKO Bank shares and option rights at 1 January 2008: No shares On the basis of the management incentive scheme: 844 Pohjola Bank Series A shares in 2008 and 1,813 shares in 2009*. Member Erkki Böös b Senior Executive Vice President, Head of Customer Care Services and Sales Channels, OP Bank Group Central Cooperative Master of Laws trained on the bench, emba Member of the Board since 2001 Other important positions: Member of the Board of Directors of OKO Bank plc Luottokunta: Member of the Supervisory Board, Pellervo Economic Research Institute, PTT Sponsors' Association: Vice Chairman of the Board of Directors Holdings of OKO Bank shares and option rights at 1 January 2008: No shares On the basis of the management incentive scheme: 2,487 Pohjola Bank Series A shares in 2008 and 2,764 shares in 2009*. Member Heikki Vitie b Senior Executive Vice President, Deputy to the President of the OP Bank Group Central Cooperative, Head of ICT and Human Resources Services Master of Laws trained on the bench, M.Sc. (Econ.) Member of the Board since 1994 Other important positions: Member of the Board of Directors of OKO Bank plc European Association of Co-operative Banks: Member of the Executive Committee Deposit Guarantee Fund, Chairman of the Delegation Holdings of OKO Bank shares and option rights at 1 January 2008: Related parties hold 4,000 Series A shares On the basis of the management incentive scheme: 2,407 Pohjola Bank Series A shares in 2008 and 2,650 shares in OP-POHJOLA GROUP ANNUAL REVIEW 2007

55 Harri Luhtala Harri Nummela Markku Niinikoski Member Harri Luhtala b Executive Vice President, Head of Finance and Risk Management, OP Bank Group Central Cooperative M.Sc. (Econ. & Bus. Adm.) Member of the Executive Board since 2007 Other important positions: Deposit Guarantee Fund: Chairman of the Board of Directors Holdings of OKO Bank shares and option rights at 1 January 2008: 240 Series A shares On the basis of the management incentive scheme: 904 Pohjola Bank Series A shares in 2008 and 1,012 shares in 2009*. Member Harri Nummela b Executive Vice President, Head of Banking and Investment Services, OP Bank Group Central Cooperative LL.M., emba Member of the Board since 2007 Other important positions: Member of the Board of Directors of OKO Bank plc Holdings of OKO Bank shares and option rights at 1 January 2008: No shares On the basis of the management incentive scheme: 907 Pohjola Bank Series A shares in 2008 and 1,015 shares in 2009*. Chief Audit Executive Markku Niinikoski b Master of Laws trained on the bench Attends Executive Board meetings Holdings of OKO Bank shares and option rights at 1 January ,600 Series A shares On the basis of the management incentive scheme: 1,126 Pohjola Bank Series A shares in 2008 and 1,229 shares in 2009*. Deputy member Matti Korkeela b Executive Vice President, Head of Card Services and Consumer Lending, OP Bank Group Central Cooperative Bachelor of Science Member of the Board since 1997 Other important positions: Automatia Pankkiautomaatit Oy: Deputy Chairman of the Board of Directors. Holdings of OKO Bank shares and option rights at 1 January 2008: No shares On the basis of the management incentive scheme: 1,272 Pohjola Bank Series A shares in 2008 and 1,391 shares in 2009*. Secretary to the Executive Board and the Supervisory Board Markku Koponen b Senior Vice President, Head of OP-Pohjola Group s Corporate Communications Master of Laws trained on the bench, emba Holdings of OKO Bank shares and option rights at 1 January 2008: No shares On the basis of the management incentive scheme: 920 Pohjola Bank Series A shares in 2008 and 1,011 shares in 2009*. * Calculated gross amount less the earned income tax withholding. OP-POHJOLA GROUP ANNUAL REVIEW

56 Contact Information Call Centre for Member cooperative banks private customers +358 (0) Pohjola Insurance Ltd s customers +358 (0) The member banks can be contacted through OP-Pohjola Group s website at OP Bank Group Central Cooperative Teollisuuskatu 1b, Helsinki Postal address: P.O. Box 308, FI Helsinki Exchange +358 (0) Telefax +358 (0) firstname.lastname@op.fi OP Bank Group Central Cooperative subsidiaries Pohjola Bank plc Teollisuuskatu 1b, Helsinki Postal address: P.O. Box 308, FI Pohjola Exchange +358 (0) Telefax +358 (0) firstname.lastname@pohjola.fi Helsinki OP Bank Plc Mikonkatu 13 A, Helsinki Postal address: P.O. Box 670, FI Helsinki Exchange +358 (0) Telefax +358 (0) FD Finanssidata Oy P.O. Box 308, FI Helsinki Exchange +358 (0) Telefax +358 (0) OP Mortgage Bank P.O. Box 308, FI Helsinki Exchange +358 (0) Telefax +358 (0) OP Life Assurance Company Ltd P.O. Box 308, FI Helsinki Exchange +358 (0) Telefax +358 (0) OP-Kotipankki Oyj P.O. Box 1020, FI Helsinki Exchange +358 (0) Telefax +358 (0) OP Fund Management Company Ltd P.O. Box 308, FI Helsinki Exchange +358 (0) Telefax +358 (0) Pohjola Group contact information Pohjola Insurance Ltd Lapinmäentie 1, Helsinki Postal address: FI Pohjola Exchange +358 (0) Telefax +358 (0) firstname.lastname@pohjola.fi Pohjola Capital Partners Ltd P.O. Box 308, FI Pohjola Exchange +358 (0) Telefax +358 (0) Pohjola Corporate Finance Ltd P. O. Box 308, FI Pohjola Exchange +358 (0) Telefax +358 (0) Pohjola Asset Management Ltd Eteläesplanadi 12, FI Helsinki Postal address: P.O.Box 1068, FI Pohjola Exchange +358 (0) Telefax +358 (0) Pohjola Bank plc St Petersburg Representative Office Volinskij pereulok 3A, 11th Floor R St Petersburg Postal address: P.O. Box 301, FI Lappeenranta Telephone Telefax firstname.lastname@pohjola.com Pohjola Bank Tallinn Representative Office Harju 6 EE Tallinn Telephone +358 (0) Telefax +358 (0) firstname.lastname@pohjola.com 52 OP-POHJOLA GROUP ANNUAL REVIEW 2007

57 Graphic Design and Layout: Kreab Photos: Matti Matikainen, Pentti Vänskä (p. 11 and 44) Printing: Libris, Helsinki 2008 OP-POHJOLA GROUP ANNUAL REVIEW

58 Benefits for life from OP-Pohjola. OP-Pohjola Group Annual Review 2007