AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

Transcription

1 2004 AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

2 2 ANNUAL REPORT Business name AS If Eesti Kindlustus Registration number Address Pronksi 19, Tallinn Phone Fax Web page Core activity Beginning of financial year End of financial year Managing director Auditor Provision of non-life insurance services 1 January 31 December AS PricewaterhouseCoopers Attached documents 1. Auditor s report 2. Profit allocation proposal AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

3 CONTENTS 3 CONTENTS Management report 4 Key figures Annual financial statements 11 Statements of the management board 11 Profit and loss statement 12 Technical account, motor third party liability insurance 13 Balance sheet 14 Cash flow statement 16 Statement of changes in capital and reserves 17 Notes to the annual financial statements 18 Signatures 36 Auditor s report 37 Profit allocation proposal 38 AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

4 MANAGEMENT REPORT 4 MANAGEMENT REPORT AS If Eesti Kindlustus as part of the Nordic region largest insurance groups If P&C Insurance, is a non-life insurance company which, as the market leader, has operated in the Estonian insurance market since In 2004, the company s market share was 41%. Of premiums collected, corporate and private sectors made up 60% and 40%, respectively. The largest types of insurance were voluntary motor own damage insurance (35%), property insurance (28%) and mandatory motor third party liability insurance (27%). In 2004, AS If Eesti Kindlustus collected insurance premiums in the amount of 980 million kroons, thereby earning a net profit of 186 million kroons. The year was successful both in terms of the company s growth (insurance premiums were collected for 28% more than in 2003) as well as improved profitability (the decline of the combined ratio from 91.9% to 83.4%). As of , the company s insurance technical provisions net of reinsurance amounted to 634 million kroons (growth of 29% as compared to 2003), for which financial investments amounting to million kroons will provide a strong liquidity reserve. Considerable growth occurred in return on investments (annualised return of 4.8% in 2004, compared to 3.48% in 2003). As of , the company s solvency capital was 306 million kroons, e xceeding almost twice the required level (156 million kroons). AS If Eesti Kindlustus has its sales and customer service offices all over Estonia, the largest centres being in Tallinn (incl. the company s management), Tartu and Pärnu. The company s business activities include both direct sales to corporate and private customers as well as sales through brokers and other intermediaries. In 2004, the company's average number of employees was 503. In conjunction with the growth of automation of business processes and the upgrading of applicable service models, the number of employees has decreased over the last couple of years (the average number of employees in 2003: 544, 2002: 593). In 2004, wages and salaries amounted to million kroons (this amount includes wage-based taxes), including the remuneration of the members of the Management Board (also performing the executive management responsibilities) of 4.3 million kroons. No remuneration was paid to the members of the Supervisory Board in the financial year. ECONOMIC ENVIRONMENT AND NON-LIFE INSURANCE MARKET Based on the stage of development of the Estonian economy, the Estonian non-life insurance market is an emerging market, characterised by fast growth and changes in development trends. The economic growth of the Baltic countries, including Estonia, exceeds significantly the growth rate of the economies of developed countries (2004: Estonia s GDP growth rate of 6.2%), this favourable situation is forecasted to continue in the near future. AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

5 MANAGEMENT REPORT 5 In addition to decent economic growth, the fast growth of the non-life insurance market is supported by additional demand on account of uninsured risks due to the society s increasing demands related to long-term economic and social stability. Loan and leasing interest rates that continue to stay at an extraordinary low level promote the acquisition of assets for longterm use (properties, automobiles, durable goods), as a result of which the volume of assets potentially requiring insurance will increase. The most significant event of 2004 was the accession of Estonia with the European Union on 1 May, which is expected to have a longterm positive impact on economic development. This event did not have a significant direct impact on the insurance industry in 2004; the opening up of the market to competition may become a significant development factor in the long term. In 2004, insurance premiums in the amount of 2.37 billion kroons (1.7% of GDP) were collected in the insurance market, with premiums of the corporate sector making up 70% and private sector making up 30% of voluntary types of insurance. The growth of collected insurance premiums was 15.2% as compared to the year before. It is worth mentioning that the growth rate was lower than the 19.7% growth rate of 2003 and this declining trend is clearly visible during the year (quarterly growth rates of 16% in the 1st, 20% in the 2nd, 10% in the 3rd and 14% in the 4th quarter). Based on these facts, it is reasonable to assume that the fast increase of insurance demand stemming from the purchases of automobiles and real estate properties supported by low interest rates provided by banks and leasing companies is coming to an end and for the future, more moderate growth of the non-life insurance market can be expected. Taking into consideration the large proportion of uninsured properties (especially in the private sector) and the relatively low proportion of insurance premiums in GDP when compared with developed markets, the growth of insurance premiums in the market should nevertheless exceed 10%. The role of the mandatory motor third party liability insurance as the driving force of the growth of the property insurance market is changing. In 2003, the mandatory motor third party liability insurance premiums increased by 11.2% as compared to 2003 (19.7% in 2003 vs. 2002), the continuing slowdown of the growth rate should be expected due to the falloff of new demand and tight price competition. On the other hand, moderate growth of voluntary insurance lines should accelerate in conjunction with the increasing level of prosperity of the population and the related higher awareness of the need to hedge risks. Despite some changes in the structure of the market growth by insurance lines, a major decline of the relative importance of the insurance lines related to motor vehicles is not to be expected. ESTONIAN NON-LIFE INSURANCE MARKET 2004/ % 40% 35% 30% 25% 20% 15% 10% 5% 0% 29,1 % 30,1% 37,8% 36,4% 10,1% 10,0% 12,3% 12,4% 2,5% 2,6% 4,3% 4,5% 3,9% 4,0% Comp. Motor TPL Motor own damage Household property Corporate property Liability Personal accident Other AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

6 MANAGEMENT REPORT 6 The proportion of motor own damage and motor third party liability insurance in the portfolio of AS If Eesti Kindlustus is somewhat lower than in the overall market, despite the growth rates of both insurance lines exceeding that of the market. The relative importance of property insurance among insurance premiums collected by the company is higher than that of the market, both for corporate as well as private clients. The reason for the growth rate of property insurance of private persons being lower than that of the market is related to the historical composition of the base portfolio of AS If Eesti Kindlustus, the major part of which is made up of old buildings with relatively low insurance value. The insurance premiums collected on the renewal of such contracts are less than the insurance premiums for new buildings coming to the market and the proportion of the respective portfolio in the market is falling. Of the market growth of property insurance of private persons in absolute terms, the share of AS If Eesti Kindlustus was 53%, exceeding the overall market share of the company. 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% STRUCTURE OF INSURANCE PORTFOLIO, If Eesti Kindlustus vs market 27,0% 29,1% 37,8% 35,1% 14,8% 10,1% 14,0% 12,3% Comp. Motor TPL Motor own damage Household property Corporate property If Eesti Kindlustus Estonian non-life insurance market In 2004, there were no significant changes in the competitive positions of the main market participants. The leadership position of AS If Eesti Kindlustus has strengthened on account of Ergo Kindlustus and smaller insurance companies. Zürich Kindlustus Eesti AS liquidated its business activities in the Baltic countries and its portfolio (mostly contracts with corporate customers) were partly assumed by other Estonian insurance companies. International insurance groups (Scandinavia, Germany) prevail among the owners of non-life insurance companies; Salva Kindlustus, partly based on local capital is in the fourth place in terms of the market share. 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% ESTONIAN NON-LIFE INSURANCE MARKET 2004/2003 Market distribution between companies 26,1% 27,3% Ergo If Eesti Kindlustus Inges Nordicum Salva Seesam Zürich ,4% 37,3% 3,9% 4,1% 3,3% 4,1% 10,8% 10,9% 14,2% 13,7% 0% 1,6% 0,4% 1,0% ELKF AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

7 MANAGEMENT REPORT 7 The Estonian non-life insurance is characterised by strong consolidation, in 2004, 92.5% of all insurance premiums were collected by four largest insurers (2003: 89.2%). The present market distribution has developed over the last couple of years and based on the internal development factors of the market, it should remain intact in the near future. The situation may change due to the opening up of the market to new competitors which could bring major readjustments with regard to market shares of current market participants. As to the structure of the distribution channels, the role of broker firms in the Estonian non-life insurance market is worth attention. According to the data from 2003, brokers collected 29% of insurance premiums and their share in the voluntary motor own damage insurance amounted to 50%. The disproportions in the above-provided numbers refer to the leadership position of broker firms belonging to the major Estonian banking groups in the sales of insurance agreements entered into for properties acquired under loan and lease financing terms. The above-described market allocation is specific to the Estonian non-life insurance market and is related to the synergies between the highly consolidated banking sector and the main demand factors of non-life insurance. When analysing the dynamics of the sales structure of AS If Eesti Kindlustus by distribution channels in 2004, the continuation of this trend and even further strengthening in the market can be forecasted. Based on financial indicators, the stability in the Estonian non-life insurance market and the strong financial position of market participants providing credibility to policyholders in the long term have been attained. The profitability of Estonian insurance sector is higher than that of more developed markets (the market s average combined ratio in 2004: 83.4%) which is a necessary prerequisite for long-term financial stability in the market of low volumes. The market s average payout ratio has somewhat increased (49.4% in 2004 vs. 48.3% in 2003), but of the main insurance lines, only the payout ratio of the motor third party liability insurance has increased significantly (65.1% in 2004 vs. 57.7% in 2003). FINANCIAL RESULTS OF AS IF EESTI KINDLUSTUS With regard to economic activities, AS If Eesti Kindlustus had a successful year in Based on strong cash flow, the company s financial position improved considerably, creating credibility for its policyholders. The growth of insurance premiums collected by AS If Eesti Kindlustus was faster than the growth of the overall non-life insurance market. Insurance premiums of million kroons were collected in 2004, which was 27.9% higher than million in The growth on the non-life insurance market without If Eesti Kindlustus was 7.5% as compared to 2003 (the market as a whole grew by 15.2%). The company s strong financial position is supported by the growth in cost efficiency (the expense ratio fell to 25.9% as compared to 29.9% a year ago) and the improvements in the selection of risks for the insurance portfolio (loss ratio of 57.5% in 2004 as compared to 62.0% in 2003). In 2004, the technical profit was million kroons (2003: 53.9 million kroons). In the reporting year, investment income amounted to 40.3 million kroons (2003: 20.3 million kroons), revenue and expenses from other activities resulted in a loss of 1.7 million kroons. In 2004, the net profit of AS If Eesti Kindlustus was million kroons (2003: 75.2 million kroons). AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

8 MANAGEMENT REPORT 8 Resulting from the positive cash flow of insurance activities, the volume of assets increased from million kroons at the beginning of the year to million kroons as of The additional funds were invested in financial investments resulting in the growth of the volume of the investment portfolio to 1,018.0 million kroons (as of , million kroons). As of the end of the year, the total amount of financial investments exceeded the insurance technical provisions by 384 million kroons, providing the company with extra liquidity reserves. INVESTMENT ACTIVITIES The accounted net income on investments of 40.3 million kroons earned in the financial year made a good contribution to the growth of the company s net profit. Significantly larger profit earned on investments resulted from the growth of the portfolio (1 018 million kroons on vs. 692 million kroons on ) and higher net yield. The net yield of the portfolio was 4.80% (2003: 3.48%) including the yield of the bond portfolio of 4.42%, equity portfolio of 20.1% and on deposits, 2.37%. In the first half of 2004, asset management agreements were entered into with AS Ühispanga Varahaldus, AS Hansa Investeerimisfondid and AS Sampo Baltic Asset Management. During this time period, the portfolio was restructured in accordance with the new investment strategy. The average credit rating of the total bond portfolio is A- (Standard & Poors). The investment portfolio of If Eesti Kindlustus is mostly made up of a fixed income portfolio of prudent strategy (average rating: A), one third of the asset volume is made up of a fixed income portfolio with higher credit risk (average rating: BBB) and considered foreign currency risk. Also, there is a small proportion of equity investments of the Baltic countries and the Central and Eastern Europe. As of the end of the year 69.5% of the portfolio had been invested directly in bonds, 16.7% in fixed income and money market funds and 7.7% in deposits. The proportion of equity investments was 6.1%. Regionally, 41.1% of the portfolio had been invested directly in OECD Europe A-zone bonds, 23.1% in the bonds of the Baltic countries as well Central and Eastern Europe. Investments in money market and fixed income funds as well as direct investments in fixed income instruments of other regions totalled 22%. FINANCIAL INVESTMENTS 2004 Shares and equity funds 6,1% Deposits 7,7% Fixed income funds 13,9% Money market funds 2,8% Bonds 69,5% AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

9 MANAGEMENT REPORT 9 In 2004, direct investments into bonds increased significantly in the portfolio of If Eesti Kindlustus and the share of money market funds decreased. The above-mentioned changes supported the growth in return on investments in 2004; favourable market trends had a positive impact on profitability. BUSINESS ACTIVITIES IN THE FINANCIAL YEAR AND PLANS FOR THE FUTURE To improve the efficiency of the company s business activities, the focus in 2004 was on the improvement of the risks assessment and selection of the insurance portfolio, as well as on the simplification of the customer service processes and increasing the quality of services. A major prerequisite for the attainment of these goals is the development of the info technology infrastructure and the improvement of the processes supporting the insurance activities. An important course of action is the simplification of insurance products, which should ensure the unambiguous understandability of coverable risks and avoid excessive amount of time spent and paper consumed when entering into insurance agreements. We will continue to increase the speed and quality of claim settlement process, to ensure making motivated and fair indemnification decisions as fast as possible. Considerable changes took place in the customer service of private customers. The Contact Centre was opened enabling easy and time-efficient conclusion of contracts for the customers. The opening of the Contact Centre enabled to increase the cost efficiencies of the customer service process. Besides the Contact Centre, we are developing phone and internet based service with the goal of offering our customers a wide choice of channels to communicate with the company. We took a major step in utilising the opportunities of internet technology; beginning with 2005, customers who have bought a new automobile, have the opportunity to conclude a motor own damage insurance agreement over the Internet. The projects launched within the framework of the above-provided development trends enabled to increase the profitability of AS If Eesti Kindlustus and to improve the cash flow in the financial year, evident in the improvement of the financial indicators as compared to 2003.The development of business processes while taking into consideration the chosen priorities will also continue in In the area of customer service, the main project involves the development and implementation of the model of the Business Customer Management. When developing the technologies, we shall pay more attention to the application of the opportunities of the Internet environment both for creating additional value for the customer as well as increasing the efficiencies of the company s activities. Mihkel Uibopuu Member of Management Board Katrin Rasmann Member of Management Board Andres Sooniste Member of Management Board AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

10 KEY FIGURES KEY FIGURES Group Gross premiums written 980,319, ,934, ,814,705 Claims paid, gross 431,157, ,439, ,366,944 Operating expenses, gross 231,209, ,967, ,102,780 Technical result 147,369,647 53,859,266 17,699,741 Net profit 186,009,719 75,197,842 35,395,531 Expense ratio * 25,9% 29,9% 36,1% Loss ratio* 57,5% 62,0% 60,8% Combined ratio * 83,4% 91,9% 96,9% Financial investments ,823,991 Annual return on investments ** 4,8% 3,48% Total assets 1,186,088, ,598, ,512,574 Capital and reserves 501,086, ,076, ,367,105 * Formulas: Expense ratio Loss ratio Combined ratio Annual return on investments Net operating expenses + Other technical expenses, net of reinsurance/premiums earned, net of reinsurance + Exchange gain on settlements with reinsurers Claims incurred, net of reinsurance / Premiums earned, net of reinsurance + Exchange gain on settlements with reinsurers Expense ratio + Loss ratio Income on financial investments / Average financial investments per period ** Due to a change in accounting policy from 1 of January 2003, the figure for return on investments is not comparable to those of earlier periods. AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

11 ANNUAL FINANCIAL STATEMENTS 11 ANNUAL FINANCIAL STATEMENTS STATEMENT OF THE MANAGEMENT BOARD The management board acknowledges its responsibility for the preparation, integrity and fair presentation of the annual financial statements of AS If Eesti Kindlustus for 2004 as set out on pages 11 to 35 of this report, and confirms that to the best of its knowledge, information and belief: - the accounting policies applied in the preparation of the annual accounts comply with accounting principles generally accepted in Estonia; - the annual financial statements give a true and fair view of the financial positions of AS If Eesti Kindlustus and AS If Eesti Kindlustus group and the results of their operation and - AS If Eesti Kindlustus and group company AS If Kinnisvarahaldus are going concerns. Mihkel Uibopuu Member of Management Board Katrin Rasmann Member of Management Board Andres Sooniste Member of Management Board Tallinn, 31 March 2005

12 ANNUAL FINANCIAL STATEMENTS 12 PROFIT AND LOSS STATEMENT Group Parent company Note TECHNICAL ACCOUNT, NON-LIFE INSURANCE Premiums earned, net of reinsurance 2 Gross premiums written 980,319, ,934, ,319, ,934,797 Premiums ceded -35,084,146-26,239,602-35,084,146-26,239,602 Change in provision for unearned premiums and unexpired risks -57,490,699-59,217,751-57,490,699-59,217,751 Reinsurers share in change in provision for unearned premiums and unexpired risks 452,984-6,364, ,984-6,364,791 Total 888,197, ,112, ,197, , Exchange gain on settlements with reinsurers 2,586 85,679 2,586 85,679 Claims incurred, net of reinsurance 3 Claims paid -431,157, ,439, ,935, ,212,511 Reinsurers share in claims paid 4,042,269 12,279,404 4,042,269 12,279,404 Change in provision for claims outstanding -87,179,096-73,379,626-87,179,096-73,379,626 Reinsurers share in change in provision for claims outstanding 3,448,437-6,700,328 3,448,437-6,700,328 Total -510,845, ,240, ,623, ,013,061 Net operating expenses 4-223,574, ,920, ,502, ,220,296 Other technical expenses, net of reinsurance -6,411,018-4,178,717-6,411,018-4,178,717 TECHNICAL ACCOUNT 147,369,647 53,859, ,663,600 52,786,258 NON-TECHNICAL ACCOUNT Income from subsidiary ,197,899 4,062,056 Income from financial investments 6 26,000,743 16,578,780 26,000,069 16,576,108 Gain/loss on sale of investments 2,149, ,212 2,149, ,949 Gain/loss on value adjustments on investments 14,579,294 4,542,767 14,579,294 4,542,767 Investments management expenses -2,385,864-1,292,124-2,361,879-1,251,079 Total 40,343,658 20,330,635 44,564,868 24,396,801 Other income 6,065,110 4,450,284 3,035,414 1,415,512 Other expenses -7,768,696-3,442,343-7,254,162-3,400,728 NET PROFIT FOR THE FINANCIAL YEAR 186,009,719 75,197, ,009,719 75,197,842 Notes presented on pages are the inseparable part of the Consolidated and the Parent s Financial Statements.

13 ANNUAL FINANCIAL STATEMENTS 13 TECHNICAL ACCOUNT, MOTOR THIRD PARTY LIABILITY INSURANCE (PARENT COMPANY) Premiums earned, net of reinsurance Gross premiums written 264,907, ,174,699 Premiums ceded -3,464,745-3,380,717 Change in provision for unearned premiums and unexpired risks -15,307,084-18,759,754 Reinsurers share in change in provision for unearned premiums and unexpired risks 0-2,930 Total 246,135, ,031,298 Claims incurred, net of reinsurance Claims paid -161,270, ,544,110 Claims handling expenses -10,988,125-8,402,836 Amounts recovered from recourses & salvage 11,822,768 8,414,359 Total claims paid -160,435, ,532,587 Reinsurers share in claims paid 2,027, ,064 Change in provision for claims outstanding -35,501,277-34,383,478 incl. provision for annuities -2,201,343-11,459,915 Reinsurers share in change in provision for claims outstanding -2,359,204 1,226,602 incl. provision for annuities -740,271 1,860,373 Total -196,268, ,886,399 Net operating expenses Acquisition costs -29,849,015-25,022,227 Change in deferred acquisition costs 984,820 1,197,231 Administrative costs -6,838,093-5,940,880 Total -35,702,288-29,765,876 Other technical charges, net of reinsurance Membership fee Traffic Insurance Foundation -6,404,457-3,931,388 TECHNICAL RESULT 7,759,790 8,447,636 Notes presented on pages are the inseparable part of the Consolidated and the Parent s Financial Statements.

14 ANNUAL FINANCIAL STATEMENTS 14 BALANCE SHEET Group Parent company Note ASSETS Cash and bank accounts 7,077, ,314,523 Debtors Debtors of direct insurance business 11,375,683 12,789,699 11,375,683 12,789,699 Debtors of reinsurance business 3,775,604 3,701,059 3,775,604 3,701,059 Other debtors 410, , , ,369 Total 15,561,922 16,718,418 15,518,653 16,616,127 Accrued income and prepaid expenses Accrued income 515, , , ,735 Deferred acquisition cost 29,449,698 23,932,446 29,449,698 23,932,446 Other prepaid expenses 9 2,812,803 1,153,046 2,812,803 1,431,869 Total 32,778,371 25,728,227 32,778,371 26,007,050 Investments Investments in subsidiary ,292,281 92,434,548 Other financial investments 7 1,017,963, ,141,232 1,017,963, ,141,232 Total 1,017,963, ,141,232 1,109,255, ,575,780 Intangible assets 10 9,206,106 4,102,258 9,206,106 4,102,258 Tangible assets ,501, ,498,773 12,843,073 10,848,725 TOTAL ASSETS 1,186,088, ,598,505 1,185,904, ,464,463 Notes presented on pages are the inseparable part of the Consolidated and the Parent s Financial Statements.

15 ANNUAL FINANCIAL STATEMENTS 15 BALANCE SHEET Group Parent company Note LIABILITIES Creditors Creditors of direct insurance business 16,569,643 14,466,911 16,569,643 14,466,911 Creditors of reinsurance business 6,083,984 5,641,842 6,083,984 5,641,842 Other creditors 7,815,164 2,655,704 7,717,838 2,614,220 Total 30,468,791 22,764,457 30,371,465 22,722,973 Accrued expenses and deferred income Accrued income 12 20,438,073 18,516,466 20,351,251 18,423,908 Reinsurers share in deferred acquisition costs 145,629 59, ,629 59,808 Total 20,583,702 18,576,274 20,496,880 18,483,716 Technical provision Provision for unearned premiums and unexpired risks 289,931, ,893, ,931, ,893,664 Gross 292,447, ,758, ,447, ,758,841 Reinsurers share -2,515,816-1,865,177-2,515,816-1,865,177 Provision for claims outstanding ,018, , ,018, ,287,537 Gross 405,712, ,629, ,712, ,629,478 Reinsurers share -61,694,548-44,341,941-61,694,548-44,341,941 Total 633,949, ,181, ,949, ,181,201 Total liabilities 685,002, ,521, ,817, ,387,890 CAPITAL AND RESERVES Share capital ,000, ,000, ,000, ,000,000 Share premium 57,559,617 57,559,617 57,559,617 57,559,617 Reserve capital 18,361,209 10,841,425 18,361,209 10,841,425 Accumulated profits 139,155,747 71,477, ,155,747 71,477,689 Net profit for the financial year 186,009,718 75,197, ,009,718 75,197,842 Total capital and reserves 501,086, ,076, ,086, ,076,573 TOTAL LIABILITIES, CAPITAL AND RESERVES 1,186,088, ,598,505 1,185,904, ,464,463 Notes presented on pages are the inseparable part of the Consolidated and the Parent s Financial Statements.

16 ANNUAL FINANCIAL STATEMENTS 16 CASH FLOW STATEMENT Group Parent company Insurance activities Gross premiums received 984,886, ,721, ,886, ,721,504 Claims paid -429,851, ,652, ,025, ,425,201 Payments to Traffic Insurance Foundation -7,729,044-5,519,184-7,729,044-5,519,184 Cash flows from reinsurance, net -28,302,912-36,112,876-28,302,912-36,112,876 Operating expenses -219,680, ,612, ,527, ,408,861 Other receipts 3,089,353 7,545, ,559 2,497,402 Other payments -5,217,885-2,574,961-5,169,490-2,414,307 Net cash from insurance activities 297,195, ,794, ,868, ,338,477 Investing activities Income on shares and proceeds on sale of shares 291,003, ,422, ,003, ,338,097 Income on fixed income securities and proceeds on sale of fixed income securities 336,752, ,225, ,752, ,225,845 Income on deposits and expiry of deposits 690,491, ,155, ,490, ,155,952 Income on tangible assets and proceeds on sale of tangible assets 316,000 1,502, ,000 1,502,983 Repayment of loan taken by subsidiary ,100,000 Investment in shares -223,967, ,735, ,967, ,735,668 Investment in fixed income securities -665,710, ,717, ,710, ,717,889 Investment in deposits -711,084, ,432, ,084, ,432,720 Investment in tangible and intangible assets -13,307,421-17,724,032-12,683,748-7,677,737 Provision of loan to subsidiary ,000,000 Investment charges paid -2,020,229-1,148,205-1,996,245-1,199,558 Net cash used in investing activities -297,527, ,450, ,880, ,440,696 Net increase/decrease in cash -332,316-5,656,331-1,011,875-5,102,219 Change in cash and bank accounts -332,316-5,656,331-1,011,875-5,102,219 Notes presented on pages are the inseparable part of the Consolidated and the Parent s Financial Statements.

17 ANNUAL FINANCIAL STATEMENTS 17 STATEMENT OF CHANGES IN CAPITAL AND RESERVES Share capital Share premium General reserve Accumulated Total profits/losses ,000,000 57,559,617 7,301,872 65,505, ,367,106 Effect of changes in accounting policies ,511,625 9,511,625 Restated balance 100,000,000 57,559,617 7,301,872 75,017, ,878,731 Increase of capital reserve 0 0 3,539,553-3,539,553 0 Net profit for the year ,197,842 75,197, ,000,000 57,559,617 10,841, ,675, ,076, ,000,000 57,559,617 10,841, ,675, ,076,573 Increase of capital reserve 0 0 7,519,784-7,519,784 0 Net profit for the period ,009, ,009, ,000,000 57,559,617 18,361, ,165, ,086,291 For additional information on capital and reserves, please refer to Note 17. Notes presented on pages are the inseparable part of the Consolidated and the Parent s Financial Statements.

18 ANNUAL FINANCIAL STATEMENTS 18 NOTES TO THE FINANCIAL STATEMENTS NOTE 1. ACCOUNTING POLICIES AND MEASUREMENT BASES USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS BASES FOR PREPARATION The financial statements of the parent company of AS If Eesti Kindlustus and the consolidated financial statements of the parent company and its subsidiary have been prepared in compliance with the generally accepted accounting principles in Estonia, under the historical cost convention except for the circumstances that have been described in the following accounting policies and where a different principle is required by a standard of the Accounting Standards Board. The information in the financial statements has been presented in Estonian kroons, unless another unit is referred to. COMPARABILITY The financial statements have been prepared based on the consistency and comparability principles, the changes in methodology and their effect are explained in the respective notes. GROUP ACCOUNTING The consolidated financial statements include the financial information of all subsidiaries controlled by the parent company. A subsidiary is considered to be under the control of the parent if the parent owns more than one half of the voting power of the subsidiary, is capable of governing its operating or financial policies or if the parent has the right to elect or remove most of the members of the supervisory board. All subsidiaries have been consolidated in the group s financial statements on a line-by-line basis. All transactions and balances between the group companies have been eliminated in full. A subsidiary is consolidated from the date on which control is transferred to the group and is no longer consolidated from the date on which control ceases. The purchase method of accounting is used to account for the acquisition of a subsidiary. According to the purchase method, the assets and liabilities of the acquired subsidiary are recognised at their fair values. The difference between the cost of the acquisition and the fair value of the acquired net assets is recorded as goodwill. The investments in subsidiaries are accounted for in the parent s balance sheet under the equity method. Under this method, the investment is initially recorded at cost and the carrying amount is increased or decreased to recognise the investor s share of the profits or losses of the investee after the date of acquisition and also to recognise the amortisation of goodwill arising from the acquisition. ASSETS AND LIABILITIES DENOMINATED IN A FOREIGN CURRENCY Foreign currency transactions are recorded in the books after being translated into Estonian kroons based on the foreign currency exchange rates of the Bank of Estonia prevailing on the transaction date. Monetary assets and liabilities denominated in foreign currencies have been translated using the foreign currency exchange rate of the Bank of Estonia prevailing on the balance sheet date. Revenue and expenses arising from the translation are recognised in the income statement of the financial year. CASH AND BANK Cash and bank comprise cash on hand and the balances of demand deposits with banks.

19 ANNUAL FINANCIAL STATEMENTS 19 RECEIVABLES Receivables from policyholders, receivables from reinsurance and other receivables are recognised at the nominal value on the date on which the receivable arises and are subsequently carried at amortised cost. Each receivable is assessed on an individual basis. When it is probable that the group is unable to collect all amounts due according to the original terms of receivables, an allowance is set up for the impairment of these receivables. Receivables deemed as uncollectible have been written off the balance sheet. DEFERRED ACQUISITION COSTS Acquisition costs directly related to the premiums that are carried over to the next period are recognised in the balance sheet as deferred acquisition costs. Direct acquisition costs are recorded in the balance sheet on the basis of the ratio of the gross provision for unearned premiums to gross premiums written. FINANCIAL INVESTMENTS If Eesti Kindlustus has acquired securities for the purpose of trading and generally the objective is not to hold them until maturity, therefore financial investments into securities, equity funds, bonds and other fixed income securities have been recognised in the balance sheet as financial assets for trading and they have been measured at their fair value. For determining the fair value, the market value of the financial investment on the balance sheet date which is the quoted bid price of the reliable stock exchange has been used as the basis. Financial investments are initially recognised on the transaction date. Gains and losses arising on the change in the fair value are recognised in the item Profit (loss) from the change in the fair value of investments in the income statement of the financial year. DERIVATIVES Derivatives (futures, forward, swap and option contracts) are initially recognised in the balance sheet at cost. Gains and losses on financial instruments are recorded as income or expenses in the income statement. The company does not apply hedge accounting principles for accounting for derivatives. FINANCIAL LIABILITIES Financial liabilities include payables to policyholders and reinsurance providers as well as other payables and accrued expenses. Financial liabilities are initially recognised at cost, which also includes all costs directly related to the acquisition; on the transaction date and thereafter, they are measured at amortised cost. The amortised cost of short-term liabilities normally equals their nominal value; therefore the short-term liabilities are stated in the balance sheet in their redemption value. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are assets used in the operations of the company with the useful life of over one year and the cost of over 10,000 kroons. Items of property, plant and equipment are recognised at the lower of cost less accumulated depreciation and recoverable amount and they are depreciated on a straight-line basis over the estimated useful lives. All other subsequent repair and maintenance expenditure made to ensure and preserve the future economic benefits derived from the assets, is charged to the income statement in the period in which it is incurred.

20 ANNUAL FINANCIAL STATEMENTS 20 Land is not depreciated. The fee for the right of superficies is depreciated over the term of the right of superficies. The deprecation rates of non-current assets are as follows: Buildings 2% per year Computer technology 33% per year Means of transportation 20% per year Other non-current assets 20-33% per year INTANGIBLE ASSETS Intangible assets include patents, licenses and other contractual rights as well as purchased computer software for which expenditures have been incurred. Intangible assets are recorded in the balance sheet at cost less any accumulated amortisation. Contractual rights and computer software are amortised on a straight-line basis over the estimated useful lives, but not more than 5 years. ACCOUNTING FOR LEASES Leases of non-current assets whose risks and rewards of ownership have been transferred to the lessee are classified as a finance leases. Other leases are classified as operating leases. Assets leased under the finance lease terms are recorded at the net present value of the lease payments. Operating lease payments are charged to the income statement over the lease term in accordance with the terms of the agreement. PROVISION FOR UNEARNED PREMIUMS The provision for unearned premiums is set up for future losses and operating expenses that may arise during the term of the insurance agreement depending on which portion of the collected insurance premium has been received for the future insurance service. The provision for unearned premiums is calculated separately for each agreement, based on the share of the unexpired term of the agreement of the total term of the agreement. PROVISIONS FOR CLAIMS OUTSTANDING The provision for claims outstanding is set up for claims incurred but not yet settled, including claims incurred but not yet reported (IBNR). The provision for claims outstanding includes both indemnification as well as claim handling expenses. The provision for claims outstanding is calculated using the valuation of single claims as well as statistical methods (IBNR provision). The provision for claims outstanding is not discounted, except for the provision for motor third party liability annuities that is discounted to the net present value using standard actuarial methods and the index of the pension increase and the discount rate recommended by the guarantee fund. GROSS PREMIUMS COLLECTED Gross premiums collected are premiums received and receivable under the insurance agreements or in case of instalment payments, those instalment payments with the due date in the accounting period. If the due date of the first instalment payment is later than the effective date of the contract, the recognition of insurance premiums is based on the effective date of the contract. Insurance premiums and instalment payments received for agreements whose effective date is later than the balance sheet date, are recognised as a prepayment.

21 ANNUAL FINANCIAL STATEMENTS 21 EXPENSES The company s expenses are divided according to their function as follows: acquisition costs, claims handling expenses, administrative expenses, investment management expenses and other expenses. Starting 2003, the allocation of expenses between acquisition costs and administrative expense was changed so that the company s business activities are better reflected. Claims handling expenses are included in claims paid in the income statement. The net operating expenses in the technical account of the income statement include acquisition costs and administrative expenses that have been adjusted for the change in deferred acquisition costs less commissions and profits received from reinsurers. Other technical expenses include payments to the Estonian Traffic Insurance Foundation and foreign exchange rate losses on settlements with reinsurers. TAXATION In accordance with the Income Tax Act, beginning with 1 January 2000 it is not the net profit of entities but dividends that are taxed at the rate of 24/76 of the amount paid out as net dividends (until 31 December 2004: the tax rate was 26/74) and on which the income tax paid before 1 January 2000 can be deducted using the respective coefficient. Therefore the entities have no timing differences between the recognition of income and expenses that would result in deferred income tax assets or liabilities. The corporate income tax arising from the payment of dividends is accounted for as an expense in the period when dividends are declared, regardless of the actual payment date or the period for which the dividends are paid. The maximum possible income tax amount that would accompany the distribution of dividends is presented in Note 16. RESERVE CAPITAL In accordance with the Commercial Code and the Insurance Activities Act, the reserve capital has been set up. Reserve capital is formed from annual net profit allocations. During each financial year, at least one-tenth of the net profit shall be entered in the reserve capital, until the reserve capital reaches the maximum amount for share capital set out in the articles of association. Reserve capital may be used to cover a loss, or to increase share capital. Payments shall not be made to shareholders from the reserve.

22 ANNUAL FINANCIAL STATEMENTS 22 NOTE 2. TECHNICAL RESULT BY 3 MAJOR INSURANCE LINES Fire and other damage to property Motor own damage Motor TPL Gross premiums written 278,910, ,904, ,563, ,584, ,907, ,174,699 Premiums earned, gross 267,084, ,057, ,666, ,949, ,600, ,414,945 Claims paid, gross -99,883,900-88,054, ,864, ,516, ,937, ,916,065 Operating expenses, gross -81,477,881-73,550,318-97,816,646-79,284,936-35,702,288-29,765,876 incl. commissions -12,928,029-8,128,511-35,208,424-22,932,940-12,852,672-9,164,590 Payments to Traffic Insurance Foundation ,404,457-3,931,388 Result of outward reinsurance -7,073,379-18,139,839-1,537,187-1,878,361-3,796,452-1,353,981 Technical result 78,649,310 35,313,355 29,447,895 8,269,303 7,759,790 8,447,636 NOTE 3. CLAIMS PAID Group Parent company Claims paid -430,326, ,633, ,326, ,633,928 Claims handling expenses -25,904,559-19,154,043-26,682,528-20,926,823 Amounts recovered from recourses and salvage 25,074,056 21,348,240 25,074,056 21,348,240 Total -431,157, ,439, ,935, ,212,511 NOTE 4. NET OPERATING EXPENSES Group Parent company Acquisition costs -195,197, ,589, ,634, ,716,087 Change in deferred acquisition costs 5,517,251 3,984,757 5,517,251 3,984,757 Administrative expenses -36,011,702-41,378,001-36,503,121-39,551,359 Reinsurance commissions and profit participation 2,204,008 2,082,077 2,204,008 2,082,077 Reinsurers share in change in deferred acquisition costs -85, ,316-85, ,316 Total -223,574, ,920, ,502, ,220,296

23 ANNUAL FINANCIAL STATEMENTS 23 NOTE 5. EXPENSES Group Parent company Personnel expenses 132,813, ,092, ,905, ,242,816 Commissions to intermediaries 65,254,706 43,550,474 65,254,706 43,550,472 Data processing 12,201,446 16,165,220 12,201,446 16,162,560 Expenses on premises 15,582,229 15,150,248 17,434,025 16,886,836 Other operating expenses 33,648,173 28,454,739 33,386,517 27,602,664 Total operating expenses 259,500, ,413, ,182, ,445,347 Allocation: Acquisition costs 195,197, ,589, ,634, ,716,086 Administrative expenses 36,011,702 41,378,001 36,503,121 39,551,359 Handling expenses 25,904,559 19,154,043 26,682,528 20,926,823 Investment management expenses 2,385,864 1,292,124 2,361,879 1,251,079 Total 259,500, ,413, ,182, ,445,347 NOTE 6. INCOME ON FINANCIAL INVESTMENTS (excl. shares in subsidiaries) Group Parent company Income on financial investments (excl. shares in subsidiaries) Interest income on fixed income securities 22,876,697 14,425,805 22,876,697 14,425,805 Interest income on deposits 2,025,281 1,916,735 2,024,607 1,914,063 Dividends received 1,098, ,098, ,240 Total 26,000,743 16,578,780 26,000,069 16,576,108

24 ANNUAL FINANCIAL STATEMENTS 24 NOTE 7. FINANCIAL INVESTMENTS Group Table Acquisition cost Market value Book value Shares and shares in equity funds Shares 34,183,802 3,416,041 39,664,834 4,193,020 39,664,834 4,193,020 Shares in equity funds Shares in Estonian equity funds 8,199,497 5,000,000 10,899,583 5,470,119 10,899,583 5,470,119 Shares in Finnish equity funds 12,361,367 12,361,367 11,340,256 10,307,427 11,340,256 10,307,427 Total shares in equity funds 20,560,864 17,361,367 22,239,839 15,777,546 22,239,839 15,777,546 Total shares and shares in equity funds I 54,744,666 20,777,408 61,904,673 19,970,566 61,904,673 19,970,566 FIXED INCOME SECURITIES Shares in Estonian money market funds 28,267,357 96,385,234 28,362,087 96,495,630 28,362,087 96,495,630 Debt securities Estonian debt securities 115,137, ,210, ,516, ,667, ,516, ,667,674 Foreign debt securities 575,090, ,441, ,337, ,659, ,337, ,659,038 Total debt securities II 690,228, ,652, ,854, ,326, ,854, ,326,712 Shares in debt securities funds Shares in Estonian debt securities funds 87,596,065 87,596,065 97,455,928 93,492,058 97,455,928 93,492,058 Shares in Finnish debt securities funds 36,861,041 70,230,295 44,051,384 75,434,655 44,051,384 75,434,655 Total shares in debt securities funds 124,457, ,826, ,507, ,926, , ,926,713 Total fixed income securities 842,952, ,864, ,724, ,749, ,724, ,749,055

25 ANNUAL FINANCIAL STATEMENTS 25 NOTE 7. FINANCIAL INVESTMENTS (continued) Group Table Acquisition cost Market value Book value DEPOSITS Deposits with Estonian credit institutions III 78,125,576 60,421,611 78,125,576 60,421,611 78,125,576 60,421,611 Derivatives currency IV 174,686* 174,686* TOTAL FINANCIAL INVESTMENTS 975,823, ,063,088 1,017,928,944* 692,141,232 1,017,928,944* 692,141,232 *This item includes derivatives with negative market value EEK 34,135 shown on the line Other creditors in balance sheet BOOK VALUES OF FINANCIAL INVESTMENTS AND BANK ACCOUNTS BY CURRENCIES (amounts have been translated to EEK using the Bank of Estonia exchange rates as of 31 December 2004) Group EEK EUR USD LVL LTL HUF PLN CHF NOK Total EEK Shares and shares in equity funds 24,205,175 15,470,958 8,208,016 14,020,524 61,904,673 Shares in money market funds 24,336,735 4,025,352 28,362,087 Debt securities 86,104, ,199,494 16,907,219 12,129,387 14,977,600 6,862,602 10,673, ,854,610 Shares in debt securities funds 97,455,928 44,051, ,507,312 Deposits with credit institutions 77,204, ,398 78,125,576 Cash and bank accounts 6,150, , , ,284 3,967 65,602 7,077,281 Total 315,457, ,938,463 17,385,300 20,446,687 28,998,124 6,862,602 10,673,386 3,967 65,602 1,024,831,539 Percentage, % 30,7% 60,9% 1,7% 2,0% 2,95% 0,7% 1,04% 0% 0,01% 100%

26 ANNUAL FINANCIAL STATEMENTS 26 NOTE 7. FINANCIAL INVESTMENTS (continued) TABLE I. SHARES AND SHARES IN EQUITY FUNDS Listed shares Country Number Book value Issuer of shares EEK Industrial AS Norma EE 43,500 4,410,464 AS SAF Tehnika LV 10,950 3,755,530 AB Snaige LT 55,145 4,420,051 Vilniaus Vingis LT 18, ,124 Olvi OYJ FI 20,000 4,130,702 AB Rytu Skirstomieji Tinklai LT 59, , 998 AB Grigiskes LT 19, ,793 AB Rokiskio Suris LT 1, ,409 Financial industry AS Hansapank EE 47,000 7,067,100 Shipping AS Latvijas ku gniecība LV 55, ,609 AS Rigas ku gu būvētava LV 120,000 2,905,164 Telecommunication Eesti Telekom EE 7, ,919 AS Lietuvas Telekomas LT 627,500 6,109,422 Power engineering AB Mazeikiu Nafta LT 31, ,314 AB Lietuvos Dujos LT 31, ,778 AB Klaipedos Nafta LT 50, ,636 AS Latvijas Gāze LV 2, ,486 AS Ventspils Nafta LV 17, ,227 Total listed shares ,724 Unlisted shares Country Number Book value Issuer of shares EEK Rocca al Mare Suurhall EE 10 1,000 Teede REV-2 EE 5, ,110 Total unlisted shares 983,110 Total shares ,834 Shares in equity funds Country Number Book value Issuer of shares EEK Sampo New Europe Fund EE 439,367 8,378,729 Sampo European Equity Fund FI 4 119,675 11,340,256 Hansa Russian Equity Fund EE 3,460 2,520,855 Total shares in equity funds 22,239,839 TOTAL SHARES AND SHARES IN EQUITY FUNDS 61,904,673

27 ANNUAL FINANCIAL STATEMENTS 27 NOTE 7. FINANCIAL INVESTMENTS (continued) TABLE II DEBT SECURITIES Acquisition cost Market value* % Market value % Debt securities issued by Estonian local governments and state-owned foundations 5,859, 609 5,865,654 1% Debt securities issued by Estonian financial institutions 71,791,150 77,297,448 72,985,912 10% 79,103,408 23% Debt securities issued by Estonian companies 43,346,619 48,053,849 46,531,056 7% 50,698,611 15% Debt securities issued by foreign governments 127,904,370 48,159, ,770,816 19% 49,090,301 14% Debt securities issued by foreign financial institutions 239,551,893 82,291, ,218,227 34% 83,085,931 24% Debt securities issued by foreign companies 207,634,291 76,990, ,348,599 30% 78,482,807 23% Total 690,228, ,652, ,854, % 346,326, % * Includes the market value of unlisted securities of EEK The yields of securities fall between 2.06 and 10.25% per year until redemption. The book value of debt securities does not differ from their market value. Held-for-trading securities are reported at fair value, which is their market value at the balance sheet date. Issuers ratings (S & P) Share in market value AAA 16,15% AA 2,08% A 48,28% BBB 20,14% BB 4,89% Without a rating 8,46% Total 100% TABLE III DEPOSITS BY MATURITY Up to 1 month 37,574,836 26,389,716 Up to 3 months 14,900,000 12,000,000 Up to 6 months 17,650,740 15,571,022 6 months to one year 8,000,000 6,460,873 Total 78,125,576 60,421,611 Return on deposits ranges from 1% to 2,75%

28 ANNUAL FINANCIAL STATEMENTS 28 TABLE IV- CURRENCY DERIVATIVES Rate of Nominal Book value LTL EEK agreement value EEK Maturity date forward -2,700,000 12,195,360 4, ,195,360-39, USD EEK forward -50, ,925 11, ,925 6, swap -743,247 8,639,880 11,6245 8,639, , swap -626,659 7,284,290 11,6240 7,284,290 97, GBP EUR spot 66,193-93,506 0,7079 1,462,968 1, swap -66,193 93,971 0,7044 1,470,237 5, USD EUR spot 388, ,794 1,3595 4,471,438-14, swap -388, ,772 1,3644 4,455,445-1, JPY EUR spot 13,975,420-99, ,00 1,550,741 12, swap -13,975,420 99, ,57 1,555,489-7, Total 174,687 Net income on derivatives 420,825

29 ANNUAL FINANCIAL STATEMENTS 29 NOTE 8. INVESTMENT IN SUBSIDIARY AS IF KINNISVARAHALDUS Activity: real estate management Legal address: Pronksi 19 Tallinn AS If Kinnisvarahaldus Acquisition cost of the shares 73,724,662 Number of shares ,790,000 Interest 100% Equity at ,556,244 Share capital 87,900,000 Share premium 986,674 Capital reserve 195,903 Accumulated losses -6,724,232 Net profit for the financial year 4,197,899 Book value of the investment in parent company s balance sheet at ,434,548 Incl. loan from parent 1 at ,076,203 Subsidiary s net profit for the financial year 4,197,899 Total profit under the equity method for ,197,899 Change in loan balance -5,340,166 Book value of the investment in parent company s balance sheet at ,292,281 Incl. loan from parent 1 at ,736,038 1 On 1 October 2002 AS If Eesti Kindlustus and AS If Kinnisvarahaldus concluded an open-ended loan agreement under which the subsidiary received an interest free loan to finance the construction of an office building that was to be rented to the parent. During the financial year, the subsidiary repaid EEK 5,340,165 by offsetting rental invoices.

30 ANNUAL FINANCIAL STATEMENTS 30 NOTE 9. PREPAID EXPENSES Group Parent company Supervision fee to the Financial Supervision Authority 1,708, ,708,807 0 Payments for software licenses 547, ,503 0 Insurance payments 275, , , ,397 Other prepaid expenses 280, , , ,472 Total 2,812,803 1,153,046 2,812,803 1,431,869 NOTE 10. MOVEMENTS IN INTANGIBLE ASSETS Software Cost Group Parent company ,597,561 19,597,561 Acquisition 7,143,508 7,143, ,741,069 26,741,069 Amortisation ,495,303 15,495,303 Accrued 2,039,660 2,039,660 amortisation ,534,963 17,534,963 Net book value ,102,258 4,102, ,206,106 9,206,106

31 ANNUAL FINANCIAL STATEMENTS 31 NOTE 11. MOVEMENTS IN TANGIBLE ASSETS Group Land Buildings Total land Other tangible Total and buildings assets Cost ,052, ,261, ,313,902 29,777, ,091,160 Acquisition 577, ,532 5,571,418 6,148,950 Sales -1,178,716-1,178,717 Write-off -560, , ,052, ,839, ,891,434 33,609, ,501,075 Depreciation ,093,568 21,093,568 21,498,819 42,592,387 Depreciation of items sold -1,110,827-1,110,827 Depreciation of items written off -560, ,318 Accrued depreciation 2,210,069 2,210,069 3,868,165 6,078, ,303,637 23,303,637 23,695,838 46,999,475 Net book value ,052,389 89,167,945 95,220,334 8,278, ,498, ,052,389 87,535,408 93,587,797 9,913, ,501,600 Land Buildings Total land and buildings Other tangible assets Total Parent company ,591 4,996,015 5,059,606 27,549,218 32,608,824 Acquisition 5,540,238 5,540,238 Sales -1,178,717-1,178,717 Write-off -560, , ,591 4,996,015 5,059,606 31,350,422 36,410,028 Depreciation ,340,434 1,340,434 20,419,665 21,760,099 Depreciation of items sold -1,110,827-1,110,827 Depreciation of items written off -560, ,318 Accrued depreciation 99,920 99,920 3,378,080 3,478, ,440,354 1,440,354 22,126,600 23,566,954 Net book value ,591 3,655,581 3,719,172 7,129,553 10,848, ,591 3,555,661 3,619,252 9,223,821 12,843,073

32 ANNUAL FINANCIAL STATEMENTS 32 NOTE 12. ACCRUED EXPENSES Group Parent company Tax liabilities 9,427,856 8,266,377 9,341,035 8,219,993 Payables to employees 5,102,202 4,843,241 5,102,202 4,843,241 Reserve for yearly bonuses (inc. payroll taxes) 4,108,260 2,803,500 4,108,260 2,803,500 Vacation pay and social tax liability 1,549,987 2,390,853 1,549,987 2,390,853 Other accrued expenses 249, , , ,321 Total 20,438,073 18,516,466 20,351,252 18,423,908 NOTE 13. PROVISION FOR CLAIMS OUTSTANDING Group Parent company Provision for claims incurred but not settled 250,853, ,266, ,853, ,266,597 Provision for claims incurred but not reported (IBNR) 143,325,391 97,369, ,325,391 97,369,176 Provision for handling expenses 11,533,448 8,993,705 11,533,448 8,993,705 Total provision for claims outstanding 405,712, ,629, ,712, ,629,478 Reinsurers share in provision for claims outstanding 61,694,548 44,341,941 61,694,548 44,341,941 Total provision for claims outstanding, net of reinsurance 344,018, ,287, ,018, ,287,537 LISA 14. PORTFOLIO TRANSFER On December 9, 2004 AS If Eesti Kindlustus signed the agreement on the transfer of the insurance portfolio with Zürich Kindlustuse Eesti AS that became effective on December 28, According to the agreement technical provisions were received as follows: Provision for unearned premiums Provision for claims outstanding Total 197,655 kr 13,904,170 kr 14,101,825 kr Zürich Kindlustuse Eesti AS transferred to AS If Eesti Kindlustus EEK 14,101,825 in cash as coverage assets for technical provisions.

33 ANNUAL FINANCIAL STATEMENTS 33 NOTE 15. CONFIRMATION BY CHIEF ACTUARY At 31 December 2004 the technical provisions of AS If Eesti Kindlustus totalled EEK 698,159,939 including the reinsurers share of EEK 64,210,364. Based on the information available on the inherent risks of the insurance portfolio, I hereby confirm that the technical provisions of AS If Eesti Kindlustus as of 31 December 2004 have been calculated in accordance with generally accepted actuarial principles and the company s effective internal regulations and that the provisions are adequate for covering the liabilities arising from the company s insurance portfolio. Karin Kukk peaaktuaar NOTE 16. CONTINGENT LIABILITIES INCOME TAX At 31 December 2004, undistributed profits amounted to EEK 325,165,465. The income tax liability that would arise if all of the undistributed profits were distributed as dividends amounts to EEK 78,039,712. Thus, the maximum amount that could be distributed as the net dividend is EEK 247,125,753. The maximum contingent income tax liability has been calculated under the assumption that the net dividend, and the dividend tax reported in the income statement for 2005 cannot exceed the distributable profits as of 31 December NOTE 17. CAPITAL AND RESERVES At 31 December 2004 AS If Eesti Kindlustus had issued 10,000,000 shares and all shares are fully paid for. The par value of a share is EEK 10. According to the Articles of Association, the minimum and maximum number of shares is 5,000,000 and 20,000,000 respectively. The company s sole shareholder is If P&C Insurance Company Ltd, a company domiciled in Finland and a subsidiary of the Swedish-based If P&C Insurance Holding Ltd. On 28 April 2004 the general meeting decided that the reserve capital should be increased to the extent of EEK 7,519,784. After the transfer, accumulated profits amounted to EEK 139,155,747. NOTE 18. OPERATING LEASE Office premises and cars are held under operating lease. During the financial year the group s operating lease expenses amounted to EEK 9,252,756. At 31 December 2004 our operating lease liabilities broke down as follows: Payable within 1 year EEK 3,052,235 Payable within 1-5 years EEK 6,325,178 kr. We let office premises under the terms of operating lease. The premises are let to non-group tenants. Operating lease income of the period amounted to EEK 2,451,090.

34 ANNUAL FINANCIAL STATEMENTS 34 NOTE 19. OFF-BALANCE SHEET ASSETS AND LIABILITIES At 31 December 2004 claims of recourse totalled EEK 64,347,960. The amount collected from the claims of recourse during the year is EEK 6,680,266. As of the year-end AS If Eesti Kindlustus had filed claims of EEK 32,684,547. Claims filed against AS If Eesti Kindlustus of EEK 9,219,397 have been considered in the calculation of technical provisions. As of the year-end AS If Eesti Kindlustus owned the salvage assets in market value of EEK 2,928,643. NOTE 20. TRANSACTIONS WITH RELATED PARTIES Related parties Related parties include the company s shareholders, entities under the same control with the company, entities controlled by the company, the company s employees, members of the management board and council, close family members of the above and other persons significantly influenced by the above. Transactions with members of the management board, council and other persons on management s position During the financial year premiums written under insurance contracts with members of the management totalled EEK 36,298. The remuneration of the management board and council has been disclosed in the management report. Other transactions with related parties Group companies Company have concluded reinsurance agreements with companies belonging to If Skadeförsäkring Holding AB group. According to the conditions of reinsurance deposits premiums paid to If P&C Insurance Company Ltd were booked into costs proportionally per month. Accrued and transferred premiums Accrued and transferred commissions and indemnities If Skadeförsäkring Holding AB 18,732,026 1,410, Receivable If Skadeförsäkring Holding AB 3,447,832 Payable If Skadeförsäkring Holding AB 4,055, ,270 The share of group companies on financial investments: Cash and bank accounts AS Sampo Pank, Estonia ,441 Deposits AS Sampo Pank, Estonia 48,029,542 48,621,611 Fixed income securities AS Sampo Pank, Estonia 20,284,775 24,524,569 Sampo Bank plc., Finland 15,811,348 15,775,986

35 ANNUAL FINANCIAL STATEMENTS 35 AS If Eesti Kindlustus has purchased services from group companies and sold services to group companies as follows: Services purchased Services sold AS Sampo Elukindlustus 14, ,029 Sampo Liising AS 7,306,782 Sampo Kinnisvarahalduse AS 1,177,137 AS Sampo Pank 1,136, ,226 Sampo Varahalduse AS 609,825 66,170 AAS If Latvia 39,580 UAB If Draudimas 32,739 IF Vahinkovakuutusyhtio OY 407,095 IF Norway 2,650 IF Denmark Receivable AS Sampo Elukindlustus 4,681 82,684 Sampo Varahalduse AS 8,202 If Vahinkovakuutusyhtio OY 2,433 AAS If Latvia 8,657 10,560 UAB If Draudimas 22,373 9,610 IF Denmark 750 Payable Sampo Kinnisvarahalduse AS 3,630 5,982 Sampo Varahalduse AS 173,305 The prices used in transactions with the parent and other group companies did not differ from the market ones. Other companies and persons During the financial year we sold employees salvaged assets of EEK 236,647 (during the financial year we received from sales of salvaged assets EEK 18,397,900).

36 SIGNATURES 36 SIGNATURES The management board of AS If Eesti Kindlustus has prepared the management report and the annual financial statements for MANAGEMENT BOARD: Chairman Mihkel Uibopuu Member Katrin Rasmann Member Andres Sooniste Member The council has reviewed the annual report prepared by the management board, including the management report and the annual financial statements, and has approved its presentation to the general meeting of the shareholders. COUNCIL: Hannu Taavi Kokkonen Council Gunnar Rogstad Member Tom Melbye Eide Member Ake Ricard Wennerklint Member Ivar Martinsen Member AS IF EESTI KINDLUSTUS ANNUAL REPORT 2004

37 37 AUDITOR`S REPORT To shareholders of AS If Kindlustus We have audited the consolidated annual financial statement of AS If Kindlustus (parent company) and its subsidiary (group) that is on pages and for which the board of parent company is liable for. Our task is to provide an opinion based on the results of auditing the afore- mentioned annual financial statement. We performed the audit in accordance with international accounting standards. These standards require that the audit be planned and performed in a way that would enable to decide with sufficient certainty if the annual financial report is drawn up in a correct manner in essential part. During audit, the sources of information of the financial statement are checked on a random basis. The audit also includes critical analysis of the used accounting principles and management s assessments of accounting as well as a general statement about the overall presentation of the financial statement. We believe that the audit grants us sufficient grounds to provide our opinion. In our opinion the afore- mentioned annual financial statement reflects correctly and fairly the financial situation of the parent company and group at 31 December 2004 in an essential part. The economic results and cash flows are reflected in accordance with Estonian GAAP (Generally Accepted Accounting Principles). Urmas Kaarlep AS PricewaterhouseCoopers Relika Mell sworn auditor