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Life Insurance in 2010

Mandatum Life Group consists of Mandatum Life, a wholly-owned subsidiary of Sampo plc, operating in Finland, and its subsidiary Mandatum Life Insurance Baltic SE, which has the form of a European company and is headquartered in Estonia. It operates in the other Baltic countries through branches.

Results, Life Insurance, 2010

EURm 2010 2009 Change %

Premiums written

1,111

803

38

Net income from investments

645

629

3

Other operating income

0 0
-94

Claims incurred

-844

-628

34

Change in liabilities for inv. and ins. contracts

-678

-600

13

Staff costs

-35 -29
23

Other operating expenses

-49 -46 7

Finance costs

-8 -8 0

Profit before taxes

142 121 17
  2010 2009 Change

Expense ratio, %

112.1

111.0

1.1

Return on equity, %

36.2

97.6

-61.4

Average number of staff (FTE)

470

450

20


Sampo Group's life insurance operations continued their fast growth in 2010 with premium income growing almost 40 per cent. Profitability was also good and profit before taxes grew 17 per cent to EUR 142 million (121).

Net investment income, excluding income on unit-linked contracts, amounted to EUR 312 million (270). Net income from unit-linked investments was EUR 333 million (359). During 2010 fair value reserve increased EUR 75 million amounting to EUR 436 million. Return on equity (RoE) in life insurance was 36.2 per cent (97.6).

Mandatum Life Group's investment assets, excluding the assets of EUR 3.1 billion (2.4) covering unit-linked liabilities, amounted to EUR 6.0 billion (5.4) at market values as at 31 December 2010. Fixed income represented 61 per cent (68), equity 28 per cent (23), private equity 4 per cent (4), real estate 3 per cent (3) and other assets 3 per cent (2) of the total assets. Return on investments in 2010 was 11.1 per cent (16.8). At the end of December 2010 duration of fixed income assets was 2.7 years (2.6).

Mandatum Life Group's solvency position is strong. Solvency margin grew to EUR 1,339 million (930) as at 31 December 2010. Mandatum Life's solvency ratio was 25.7 (18.6). Total technical reserves were EUR 7.5 billion (6.8). Unit-linked reserves continued their strong growth and accounted for 3.1 billion (2.4). The share of unit-linked reserves of total technical reserves increased to 41 per cent (35).

In the Finnish operations, the total return for policyholders on with-profit technical provisions in 2010 was 3.0-4.5 per cent, depending on the class of insurance. This means that in addition to the guaranteed interest customer bonuses varying from 0 to 1.1 per cent, depending on the guaranteed interest on policies, were paid.

Majority of Mandatum Life's traditional policies carry a guaranteed interest of 3.5 per cent. Individual policies sold in Finland before 1999 carry a guaranteed interest of 4.5 per cent. The discount rate for these policies has been lowered to 3.5 per cent and subsequently technical reserves have been supplemented with EUR 86 million (95). In addition, EUR 61 million has been reserved to lower the interest rate of all with-profit liabilities to 2.5 per cent in 2011 and to 3.0 per cent in 2012. This supplement decreases the minimum requirement for investment yield to 2.5 per cent and 3.0 per cent for 2011 and 2012, respectively. All in all, Mandatum Life has increased its technical reserves with EUR 147 million due to low level of interest rates.

Life operation's expense ratio remained on previous year's level and was 112.1 per cent (111.0). This ratio does not take into account all fees intended to cover the operating expenses. Assuming all fees were to be taken into account, Mandatum Life Group's expense ratio would have been 90.1 per cent (91.8). Mandatum Life does not defer acquisition costs.

Mandatum Life Group's premium income on own account exceeded for the first time billion euro and amounted to EUR 1,111 million (803). Premiums in the main focus area of unit-linked insurance increased to EUR 843 million (551) and the share of unit-linked premiums was 76 per cent (68) of total premiums. The good sales performance was due to all sales channels working well. Particularly the successful cooperation between the wealth management unit and the proprietary corporate sales force produced excellent results.

A new name was adopted for the Baltic subsidiary in 2010. The company is now called Mandatum Life Insurance Baltic SE. Premium income from the Baltic countries grew by 42 per cent and amounted to EUR 60 million (42).

Mandatum Life's market share in its focus area, unit-linked business, rose to 28.2 per cent (27.8). The company's overall market share in Finland was 22.0 per cent (24.8) and market share in the Baltic countries was 19 per cent (16).

Tax treatment of private persons' savings for old age changed in Finland as of 1 January 2010 with the introduction of a new Act extending the tax deductibility previously enjoyed only by individual pension premiums to a new set of savings products. Mandatum Life decided a year ago to cease actively offering new individual pension products to private persons as the main distributor Sampo Bank focused its efforts on selling the PS accounts created under the new Act. The influence to Mandatum Life's result is minor.

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