LocalTapiola General Mutual Insurance Company. Close to you throughout your life

Transcription

1 LocalTapiola General Mutual Insurance Company Close to you throughout your life Annual Report 2013

2 LocalTapiola General grants some of LocalTapiola Group's voluntary non-life insurance policies and the Group's statutory non-life insurance policies, such as vehicle insurance. The company is Finland's largest non-life insurer and its roots stretch back over 150 years. Close to you throughout your life LocalTapiola includes enthusiastic drivers, mothers and fathers, athletes, pet owners, boaters, house builders, world travellers, investors and entrepreneurs. Therefore, we offer the same solutions we want and use ourselves. We handle your most important matters with competence and genuine care. Table of Contents Review by the Managing Director 2 Report of the Board of Directors 1 January 31 December Notes to the financial statements 15 Accounting principles 15 Risks and risk management 23 Calculation of key figures 38 Parent companys profit and loss account, balance sheet, cash flow statement and notes 43 Groups profit and loss account, balance sheet, cash flow statement and notes 70 Board of Directors proposal for distribution of profit 107 Signatures to the report of the Board of Directors and financial statements 107 Auditor s note 108 Auditor s report 109 Statement of the Supervisory Board 110 LocalTapiola in brief LocalTapiola Group is a mutual group of companies owned by its customers. It serves private customers, farmers, entrepreneurs, corporate customers and organisations. We offer non-life and life insurance services as well as investment and saving services. We also provide pension insurance and banking services. LocalTapiola's online reporting LocalTapiola's online annual report 2013 and the companies' annual reports and investment reviews will be available during week 15 in PDF format at the following address:

3 LocalTapiola General in brief is part of LocalTapiola Group. The company is responsible for the Group's statutory non-life insurance policies, such as vehicle insurance policies, and statutory accident insurance policies, insurance policies for large customers and non-life insurance policies in the greater Helsinki area. Services for individuals Voluntary insurance policies that enable you to insure the important things in life, such as your home, cars and vehicles, animals and forests Statutory insurance policies, such as vehicle insurance A comprehensive network of offices all over Finland Personal service, online service and telephone service for handling matters related to insurance and compensation Services for corporate customers Personnel solutions for risk management and insurance Solutions for risk management and insurance relating to assets and operations Personal service, telephone service and Corporate Online Service for handling insurance matters 1

4 ANNUAL REPORT 2013 We were able to improve profitability Our successes in 2013 included the excellent transfer business for statutory accident insurance, improved claims services and promotion of integration. During the period under review, customer satisfaction remained good. The most challenging tasks during the year were to increase sales and to curb customer departures. Managing Director Jukka Kinnunen N on-life insurance saw moderate market development in Slow national economic growth, slackening of exports and a slowdown in the trade and construction sectors was reflected in reduced growth opportunities for non-life insurance. Competition in the industry continues to be based on pricing and customer benefit programmes. Competition will be intensified by If's new distribution partnership with Nordea as well as the active online offering by POP Insurance. Our goals for 2013 included providing customer benefits, ensuring growth, improving profitability and continuing the integration work according to plan. Customer satisfaction remained good. As for customer benefit development, we focused on preparing new non-life insurance products for The reform of the benefit programme and the cooperation agreement concluded with S Group at the end of the year, including S bonus, were important steps. To achieve growth in premium income, we invested in strengthened customer retention and enhanced sales. However, we have not as yet managed to reach these goals as forecast. There was a decrease in the number of customers and the growth in premium income remained below the 4% target. As a result, our market share declined by approximately 1% in However, we achieved a satisfactory result and the combined ratio is less than 100%. 2 More than 70 new customers were gained in the transfer of statutory accident insurance for large companies. Statutory accident insurance highlight of the year In terms of improving profitability, we were moving in the right direction. We succeeded in introducing new statutory accident insurance payment systems, and in motor liability insurance we moved more towards risk-based pricing. In voluntary non-life insurance, claims developed favourably, even though storm damage in December had a somewhat negative impact on the whole year. As part of the integration process, we successfully transferred voluntary claim portfolios to the 19 regional companies. All of the tasks involved in transferring the policies

5 were successfully completed on schedule. The quality of the claims service remained good throughout the year, despite numerous changes. One of the most important changes was building a claims service model together with the regional companies. We were highly successful in getting statutory workers' compensation insurance transferred to us. The annual objective of the Large Companies unit was a positive transfer result, which turned out to be one of the best results in its history. Net premium income stood at EUR 3.4 million. The company gained more than 70 new customers and customer retention was very good. Efficiency of sales activities to improve in 2014 Following the merger arrangements, non-recurring largescale ICT development work is almost complete and the expense load in the central company will decrease. The preconditions for improved results are therefore in place, but the investment environment remains challenging. Investment markets will remain unstable in Interest rates will stay low and return on equity investments is expected to remain low. We still need to strike the right balance in the new Group structure between common operating models and regional competitive factors. These efforts need to be sustained in However, it is by no means certain that we will reach our growth objectives as trends in the Finnish economy may dampen our growth. In 2014, we will improve the efficiency of our sales activities and sales management, harmonise the benefit programme and work towards strengthening customer loyalty. We also need clearer customer communication. These factors will also bring an upturn in premium income. Objectives for 2014 Key figures LocalTapiola General key figures * 2011 * Turnover, EUR m 1, , Operating profit/loss, EUR m Total result, EUR m Premium income, EUR m Solvency, solvency ratio, % Combined ratio, % Customer bonuses, EUR m * The figures are pro forma (the combined figure for Tapiola General and Local Insurance Mutual Company). LocalTapiola General's premium income by customer category, 31 December 2013, % Households 56 Farms 12 SMEs, entrepreneurs and other forms of company 24 Major customers 8 The focus areas are growth and electronic services. Results will be improved by using risk-based pricing and cutting expenses. Quick and successful reform of business operations E-commerce products must be developed further. Supporting and ensuring sales. We must ensure that premium income increases and customer departures decrease. Enhancement of risk-based pricing Correct pricing and risk selection to ensure competitiveness. Strong support for high-potential business operations Supporting growth in greater Helsinki and strengthening the Large Companies operations. Reduction of operating expenses High operating expenses restrict competitiveness. 3

6 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY REPORT OF BOARD OF DIRECTORS 1 January 31 December 2013 s (LocalTapiola General) line of business covers all types of voluntary and statutory non-life insurance. LocalTapiola General includes LocalTapiola Bank Plc and its subsidiary LocalTapiola Asset Management Ltd as well as Tapiola Data Ltd, an ICT service provider, and its subsidiary LTC Otso Oy. LocalTapiola General's operating profit increased to EUR million (pro forma *) EUR million). After eliminating the effect of changes to the calculation bases and the integration costs, the comparable operating profit was EUR million (EUR million). The company s overall result before business transfers was EUR million (EUR million) and its comparable overall result was EUR million (EUR million). Premium income increased by 1.3 per cent to EUR million (EUR million). The growth in premium income from direct insurance was 1.2 per cent. The comparable growth in premium income from direct insurance was 2.3 per cent. The comparable combined expense ratio excluding unwinding of discount expenses from which the adjustment to the calculation bases of claim handling provision and integration costs have been eliminated, was 94.5 per cent (95.0%). The official combined ratio was 88.5 per cent (96.1%). The return on capital employed at current value was 4.0 per cent (8.1%). The company s solvency capital totalled EUR 1,646.2 million (EUR 1,791.7 million). The solvency ratio (solvency capital in relation to premiums earned) before business transfers was per cent (210.9%). The solvency margin was 8.2 (7.1) times the minimum value. The Group's operating profit in the banking and asset management services business increased to EUR 10.9 million (EUR 6.1 million). Low interest rates affected the interest margin, which was EUR 18.9 million (EUR 19.4 million). Bank receivables from the public and public corporations increased by EUR million to EUR 1,840.3 million (EUR 1,671.3 million). Liabilities to the public and public corporations increased by EUR 38.1 million to EUR 1,689.0 million (EUR 1,650.9 million). Fund capital in the mutual funds managed by LocalTapiola Asset Management Ltd increased by 23.7 per cent to EUR 2,972.8 million (2,403.7 million). Formation of LocalTapiola Group LocalTapiola Group officially began operating on 1 January The company group was created as a result of the merger of Tapiola General Mutual Insurance Company and Local Insurance Mutual Company on 31 December The Group includes LocalTapiola General Mutual Insurance Company (non-life insurance), LocalTapiola Mutual Life Insurance Company, 19 regional companies engaged in voluntary non-life insurance business, as well as a bank, asset management and real estate asset management companies. Employee pension insurance is offered to customers via Elo Mutual Pension Insurance Company, which was established by merging Mutual Insurance Company Pension Fennia into LocalTapiola Mutual Pension Insurance Company at the beginning of Transfers of insurance portfolios and business transfers On 31 December 2013, LocalTapiola General transferred the voluntary non-life insurance policies taken out by private customers, farmers and small and medium-sized companies, except for the policies of customers in Greater Helsinki, to the 19 regional companies. LocalTapiola General Mutual Insurance Company will continue to handle the statutory non-life insurance policies (employers liability, motor liability, patient injury) and, of the voluntary insurance lines, insurance policies for large corporate customers, as well as credit, guarantee, pharmaceutical and environmental insurance policies in addition to the abovementioned insurance policies of customers in Greater Helsinki. When the insurance portfolios were transferred along with business activities, LocalTapiola General transferred the insurance policies relating to regional insurance portfolios, the equalisation provision including technical provisions (EUR million) and the assets covering technical provisions (EUR million) as well as other assets belonging to regional insurance operations (EUR 60.1 million), liabilities and provisions (EUR 12.1 million) to the regional companies. New guarantee shares issued by the regional companies totalling EUR 64.6 million were received as compensation. When the business was transferred, personnel in the local areas were also transferred to the regional companies. *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 4

7 2 (11) Customers and customer benefits The number of customers in the non-life insurance private household customer sector was 1,288,830 (1,292,940) and there were 149,768 (149,742) corporate customers. LocalTapiola General's subsidiary, LocalTapiola Bank Plc, acquired 19,273 new customers, having 274,002 (254,729) banking customers at the year-end. The funds managed by LocalTapiola Asset Management Ltd gained 2,999 new customers, which increased the number of customers to nearly 34,422 (31,423) at the year-end. The number of unit holders increased by 6,821 to 70,070 (63,249). The surplus of LocalTapiola Group s operations is used for the benefit of owner-customers through premium reductions, customer bonuses and service development. The service benefits of owner-customers include a free-ofcharge coverage review and Emergency Service. Some of the profit is used to strengthen the company s solvency, thereby protecting customers future interests. The overall value of the benefits given to Tapiola Group s ownercustomers increased to EUR 85.6 million (EUR 84.5 million), including customer bonuses, loyalty discounts, service benefits and discounts based on cooperation agreements. The figure includes benefits granted through LocalTapiola Bank, the value of which came to EUR 10.5 million (EUR 12.1 million). The bank s benefits were granted as loyalty benefits and as interest rates that are more favourable than market rates. Operating environment Non-life insurance The Federation of Finnish Financial Services (FK) estimates that premium income from direct insurance will increase by about six per cent. Premium income from employers liability insurance is expected to decrease because it is mainly driven by the employment rate, which was lower in the current year than in the previous year. Premium income from motor liability insurance, voluntary motor vehicle insurance and fire and other property insurance is expected to increase from the previous year. The FK expects claims on insurance companies to increase only moderately. Investment activities In 2013, there were two major turning points in the operating environment of investment markets, the first of which was the strengthening of global growth prospects. The exceptionally long recession in the eurozone ended in the second quarter of the year and the acute economic crisis began to subside, even in the most problematic countries. Thanks to Europe's recovery, a global recovery was no longer entirely dependent on US economic growth. On the other hand, the economic outlook in emerging economies remained highly uncertain and began to stabilise only at the very end of the year. In addition, the impact of the global economic recovery on the development of Finland's overall production was less marked than expected, and there was no substantial improvement in the economic outlook during The other major turning point was expected to occur in central banks' monetary policy. In the spring, the US Federal Reserve began to signal that they may have to cut back on recovery measures for the monetary economy. The Fed's new policy also had a major impact on investment markets as the liquidity offered by central banks had significantly supported increases in asset values. During the summer, interest rates increased and risk premiums widened. Fixedincome investment markets in emerging economies, which had perhaps benefited the most from abundant liquidity over the previous years, were hardest hit by the repricing of risks. The equity markets recovered quite rapidly from the decrease of share prices in February as macroeconomic indicators encouraged risk-taking in the investment markets. The increase in risky assets accelerated in the autumn, when the US Federal Reserve surprised the markets by announcing that, for the time being, it will not cut back on quantitative stimulus measures. Long-term interest rates in the US and Germany decreased clearly from the summer's peak levels. Not even the US federal budget dispute and government shutdown at the beginning of October were able to cause major disruptions in the markets. Shares were clearly the best-performing asset class in Share prices in developed economies returned an average of over 19 per cent in euro terms. Emerging markets suffered from the structural slowdown of growth and fears of a tighter monetary economy. Share prices in emerging markets decreased by an average of almost seven per cent in euro terms. In fixed-income investments, government bonds in the euro zone yielded 2.2 per cent. On the foreign exchange market, the euro strengthened against all major currencies. The US dollar weakened by 4,4 per cent against the euro, by 2,1 per cent against the UK pound and by 20,8 per cent against the Japanese yen. The European real estate markets were characterised by the European economic crisis in 2013, when the real estate markets of Southern Europe Spain, Portugal and, in particular, Greece were in deep recession. In these European markets, purchases were mainly made by speculative risk investors. Activity was brought to the UK and German markets when institutional investors were seeking a safe haven for their money in quality real estate located in sought-after submarkets. In London, the prices of high-end real estate rose, boosted by strong international investor demand, while for some properties, return levels have already fallen to the levels seen before the economic crisis. In Germany, real estate markets were steady as local real estate investors sought steady cash flows for their investments. The poor availability of financing represented a bottleneck for many real estate projects. The mood in the Finnish real estate investment market picked up slightly at the end of Investment demand focused on prime properties, where competitive bidding was seen. Due to economic uncertainty and the weak rental market, higher-risk real estate is priced very cautiously and demand for it is low. The financial markets remain challenging. However, financing is available for the right projects at *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 5

8 ANNUAL REPORT (11) reasonable terms. The number of completed sales remained low, although several significant real estate transactions were seen during the year. There was a moderate amount of activity in the rental market for business premises during the year. However, the demand-supply situation remained challenging, particularly in the Greater Helsinki premises market. Group structure In addition to the parent company, the LocalTapiola General Group includes the subsidiaries LocalTapiola Bank Plc (share of ownership 78.0 per cent (73.2%)), Tapiola Data Ltd (51.1 per cent (51.1%)), Aura-Karelia Ltd (100 per cent (100%)) as well as 27 (29) housing associations and real estate companies and six (6) other companies that do not engage in business operations. Associated companies include LocalTapiola Real Estate Asset Management Ltd, as well as four (4) real estate companies and three (3) other companies that do not engage in business operations. Turva Mutual Insurance Company is a subsidiary of LocalTapiola General, since all of the company s guarantee share owners have signed an addendum to the mutual guarantee share owner agreement stating that LocalTapiola General has the right to appoint the majority of the Board of Directors of Turva should the company wish to exercise this right. LocalTapiola General s share of the Turva guarantee capital is per cent. Turva guarantee capital amounts to EUR 10,145, Mutual guarantee share owners of a mutual company do not have any right to other assets of the company outside the guarantee capital and guarantee capital interest paid from excess funds based on a decision of the general meeting; the interest may be up to 12 per cent a year. As a result of the above, financial statement data for Turva has not been included in the LocalTapiola General consolidated financial statements. Thus, a correct depiction is given of the results of the operations and financial position of the LocalTapiola General Group. Premium income and claims paid LocalTapiola General s premium income increased by 1.3 per cent to EUR million (EUR million). Direct business (underwritten) premium income increased by 1.2 per cent to EUR million (EUR million). Future reinsurance premium income increased by 2.0 per cent to EUR 64.9 million (EUR 63.6 million). The comparable increase of premium income is 2.3 per cent when the effect of the change in calculation method, which increased the premium income in the previous year, is eliminated. The claims paid totalled EUR million (EUR million), down 7.9 per cent on the previous year. The compensation paid under direct business (underwritten) decreased by 5.2 per cent to EUR million (EUR million). The compensation paid under reinsurance assumed decreased by 31.7 per cent to EUR 45.5 million (EUR 66.6 million). The financial statements were burdened by one (1) claim in excess of one million euros. Claims expenditure came to EUR 7.6 million, whereas the corresponding figure for the previous year was EUR 15.8 million. Employers liability insurance premium income fell by 8.4 per cent to EUR million (EUR million). In comparable terms, premium income decreased by 3.4 per cent. A change in the calculation method implemented during the comparison period increased the premium income in the previous year by EUR 8.4 million. The weakened employment rate is reflected in premium income through reduced payrolls. Voluntary accident and health insurance premium income came to EUR million (EUR 95.5 million), an increase of 6.5 per cent on the previous year. Motor liability insurance premium income fell by 1.8 per cent to EUR million (EUR million). Premiums written for motor vehicle insurance (motor vehicles) increased by 3.6 per cent to EUR million (EUR million). Fire and property insurance premium income was EUR million (EUR million), an increase of 5.9 per cent compared to the previous year. General liability insurance premium income increased by 21.1 per cent to EUR 34.1 million (EUR 28.2 million). Credit losses from outstanding premiums totalled EUR 5.1 million (EUR 7.5 million). Technical provision LocalTapiola General s equalisation provision in relation to technical provisions at own risk was EUR 2,371.5 million (EUR 2,795.0 million). The decrease in technical provisions is explained by a business transfer on 31 December 2013, which resulted in technical provisions decreasing by EUR million. Combined ratio (excl. unwinding of discount expense) and operating expenses LocalTapiola General's combined ratio excluding the unwinding of discount expenses was 88.5 per cent (96.1%). The risk ratio stood at 54.3 per cent (64.5%), the claims handling cost ratio at 7.3 per cent (7.3%) and the expense ratio at 26.9 per cent (24.3%). During the financial period, changes were made to the calculation bases of claim handling provision and to the collective provision of motor liability insurance. The changes in the calculation bases improved the result by a total of EUR 71.5 million. The ongoing integration process increased operating expenses. When the effect of the abovementioned items on the combined expense ratio is eliminated, the comparable combined expense ratio was 94.5 per cent (95.0%). The comparable risk ratio stood at 62.6 per cent (65.1%) and the operating expenses ratio was 31.9 per cent (29.9%). Operating expenses in the profit and loss account stood at EUR million (EUR million), an increase of 12.0 per cent year-on-year. Claims management expenses were *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 6

9 4 (11) EUR 62.8 million (EUR 62.1 million). Investment management expenses were EUR 6.5 million (EUR 6.8 million). Other income and expenses LocalTapiola General s service sales include the provision of head office services such as marketing, communications, legal, personnel and internal audit services, as well as the provision of corporate customer business services to the regional companies, LocalTapiola Bank, LocalTapiola Asset Management and LocalTapiola Mutual Pension Insurance Company. In addition, LocalTapiola General offers vehicle registration services to the Finnish Vehicle Administration (AKE). Returns from the sale of these services are included in the profit and loss account under Other returns, and expenses for producing these services are included in the profit and loss account under Other expenses. The transactions are carried out under customary commercial terms. Other returns and expenses totalled EUR 2.5 million (EUR 2.1 million) net. Investments at current value non-life insurance LocalTapiola General's net investment income at fair value amounted to EUR million (EUR million), or 4.0 per cent (8.1%). The average five-year annual return on investment was 5.4 per cent and the average ten-year annual return was 5.4 per cent. In 2013, listed shares and loans were allocated a slightly increased weighting, while the weighting of bonds decreased. Investment assets at current value stood at EUR 3,535.1 million (EUR 3,839.7 million). In the business transfer, investments at current value were transferred to the regional companies to the total value of EUR million. Equity investments Equity investments totalled EUR million (EUR million), accounting for 25.8 per cent (21.5%) of all investments. Finnish shares accounted for 12.4 per cent (16.3%) of direct listed equity investments, which amounted to EUR million (EUR million). Equity investments yielded 11.1 per cent (13.0%). Fixed-income investments Equity investments totalled EUR 1,993.5 million (EUR 2,211.3 million), accounting for 56.4 per cent (57.6%) of all investments. The modified duration of the portfolio, which indicates its interest rate risk, was 3.3 (3.4) years. Fixedincome investments yielded 1.2 per cent (8.1%). Real estate investments Real estate investments totalled EUR million (EUR million), or 17.8 per cent (20.7%) of all investments. Direct real estate investments accounted for 77.2 per cent (80.7%) and indirect real estate investments mutual funds and undertakings for collective investment in transferable securities accounted for 22.8 per cent (19.3%) of all real estate investments. The rate of return from real estate at current value was 5.0 per cent (4.4%) The return from real estate investment funds and UCITS was 5.1 per cent (4.8%). Direct real estate investments yielded 5.0 per cent (4.3%). The average vacancy rate of real estate properties was 9.2 per cent (4.4%). Other investments The current value of other investments was EUR 0.0 million (EUR 7.8 million). Other investments accounted for 0.0 per cent (0.2%) of total investments. Return on other investments was 2.6 per cent (0.0%). Result LocalTapiola General recorded an operating profit of EUR million (EUR million). The change in the difference between current and book values weakened the overall result before the business transfers by EUR 11.4 million (improved by EUR million) to EUR million (EUR million). After eliminating the effect of changes to the calculation bases and the integration costs, the comparable operating profit was EUR million (EUR million). The overall result after the business transfers stood at EUR million. Due to the business transfers, the difference between fair value and book value decreased by EUR 73.3 million. Solvency The solvency margin of LocalTapiola General, which describes the amount by which the company s assets exceed its liabilities and other comparable commitments, totalled EUR 1,162.5 million (EUR 1,175.6 million). The minimum solvency margin was EUR million (EUR million). The solvency margin was 8.2 (7.1) times that of the minimum value. Solvency capital was EUR 1,646.2 million (EUR 1,791.7 million), the solvency ratio before the business transfers was per cent (210.9 %). Risk-carrying capacity in non-life insurance LocalTapiola General's Board of Directors bears the overall responsibility for the company's risk management. The Board determines the risk management targets, limits of risk taking, responsibilities, metrics and monitoring principles for each activity. Investment and risk management plans are drawn up annually in the company and approved by the Board of Directors. The Board also monitors the status of risk management and the development of key risks on a regular basis. Business units recognise and analyse risks threatening their operations and objectives in connection with both strategic and annual planning and daily activities. The importance of preparing for risks is assessed by analysing the probability of the risks occurring, as well as possible implications of their realisation. The managing director and the managers of business units are responsible for risk management activities relating to their own operations. Risk management supervision is always the responsibility of a party other than the one responsible for operational *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 7

10 ANNUAL REPORT (11) activities. Internal Audit supports the management and Board of Directors in implementing and developing risk management. The Audit Committee, which assists the Cooperation Committee of the Supervisory Boards, also monitors and evaluates risks. The most significant risks in operations are insurance risks in non-life insurance, market risks associated with investments, operational risks, risks related to the operating environment and risks related to strategic intent. The major insurance risks in non-life insurance relate to the pricing of insurance products, inflation, changes in mortality rate, occupational diseases and reinsurance covers. Market risks are caused by fluctuations in market values, including fluctuations resulting from changes in interest rates, share prices and exchange rates. Operational risks refer to the risk of losses caused by insufficient or failed internal processes, personnel, systems and external factors. Legal risks are included in operational risks, Risks related to the operating environment and strategic intent include risks associated with the general operating environment, changes in the markets and customer behaviour, the competitive situation and competitors, and the content of the strategy. The formation of the LocalTapiola conglomerate and the regional company strategy based on local accessibility and new partnerships offer Finland's leading insurance-driven conglomerate significant business opportunities for success. Significant risks are also associated with mergers and new partnerships, and the management of these requires control of the overall structure and well-functioning risk management systems. A simultaneously prevailing uncertain financial operating environment, restructuring of our own operations and outsourcing measures create further challenges for LocalTapiola's risk management. The LocalTapiola conglomerate forms a financial and insurance conglomerate referred to in the Act on the Supervision of Financial and Insurance Conglomerates as well as a group referred to in the upcoming Solvency II legislation. LocalTapiola General acts as the conglomerate's leading company and it is its task to ensure that the conglomerate and its companies fulfil legal requirements relating to solvency and risk management. To ensure this, conglomeratelevel risk management and internal audit policies have been defined for LocalTapiola, as well as core risk management and solvency management principles and other guidelines. LocalTapiola's non-life insurance companies are the most solvent businesses in the non-life insurance sector in Finland. Thus, the conglomerate's solvency is built on a firm foundation despite the economic uncertainty. LocalTapiola conglomerate's solvency management will be based on guaranteeing customers' continuous financial security through the good solvency of the entire conglomerate and its companies. Due to the postponement of the Solvency II Directive, regulations contained in Solvency II are being adopted in phases in the European Union and in Finland. As of the beginning of 2014, new provisions of the Insurance Companies Act have taken effect, as well as guidelines issued by the European Insurance and Occupational Pensions Authority (EIOPA) concerning the insurance companies' and the group's governance system, own risk and solvency reporting and reporting to the authorities. According to the current estimate, the actual Solvency II regulations will take effect at the beginning of LocalTapiola has prepared for the new regulations by updating the insurance companies' and conglomerate-level governance to comply with the provisions of the new Insurance Companies Act as well as by developing the solvency and risk management calculation, reporting systems and practices to comply with the requirements. In addition to ensuring compliance with the regulations, these measures create the basis for more comprehensive and effective solvency and risk management at LocalTapiola. For more detailed information on LocalTapiola General s risk management and most significant risks, please see the section Risks and risk management in the notes to the financial statements. Banking and Investment Services Banking The banking operations' receivables from the public and public corporations increased by EUR million to EUR 1,840.3 million (EUR 1,671.3 million), while the deposit base grew by EUR million to EUR 1,751.9 million (EUR 1,634.4 million). LocalTapiola Bank s market share of deposits remained at 1.2 per cent (1.2%). The bank s credit risks did not increase significantly. Reference rates remained low throughout The 12-month Euribor interest rate was per cent (0.543%) at the end of The LocalTapiola Prime rate decreased from per cent to per cent on 24 June 2013 and to per cent on 25 October Low interest rates over the long term have restricted banks interest income on lending. The expenses of asset management have not decreased correspondingly. Therefore, banks' interest margin development has been based on increased loan margins. Banks' expenses have been increased by more extensive regulation and bank tax, among other factors. Due to increased expenses, the interest margins charged on lending have increased. Investment service business The customer funds managed by LocalTapiola Asset Management grew by 10.7 per cent to EUR 8,593.4 million (EUR 7,763.2 million). Positive development in the private banking service and institutional investment contributed to the growth in capital under management. The recovery in equity markets also increased the value of assets in LocalTapiola's funds and other customer assets. LocalTapiola Asset Management manages a total of 31 equity, fixed-income and balanced funds. The fund capital in the mutual funds managed by LocalTapiola Asset Management Ltd increased by EUR million from EUR 2,403.7 to EUR 2,972.8 million during the financial period. The company s market share in the fund market was 4.0 per cent (3.6%), and it was the eighth (8th) largest in the market *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 8

11 6 (11) share comparison by the Federation of Finnish Financial Services (FK). Asset management customers' capital increased by EUR million to EUR 5,625.2 million (EUR 5,359.5 million). Banking and Investment Services: financial performance The Group's operating profit in the banking and asset management services business increased to EUR 10.9 million (EUR 6.1 million). The low interest rate level burdened the development of the interest margin, which was EUR 18.9 million (EUR 19.4 million). Net commission income on banking and investment services stood at EUR 25.7 million (EUR 14.7 million). A nonrecurring item that reduced the commission income of Local Tapiola Asset Management in the comparison period, an increase in fund capital, and the recovery of the investment markets contributed to the increase in commission income. The cost-return ratio of banking and investment services was 0.8 (0.8). The solvency of Banking and Investment Services The solvency ratio of LocalTapiola Bank Plc was 17.2 per cent (13.9%) at the end of the financial year. The solvency ratio of primary own funds was 16.3 per cent (12.2%). The solvency ratio of the Bank Group was 16.4 per cent (12.7%) and the ratio with primary own funds was 15.3 per cent (10.9%). LocalTapiola Bank s equity capital was increased with a directed equity issue during the financial year. The equity capital increase amounted to EUR 9.0 million and an amount of EUR 21.0 million was transferred to invested distributable reserves. The solvency ratio of LocalTapiola Asset Management Ltd was 17.9 per cent (21.9%). The risk position of Banking and Investment Services The Bank Group s risk management is based on risk management concepts, the purpose of risk management, strategic intent and the willingness to take risks defined in LocalTapiola Group, as well as on official regulations. The Group companies Boards of Directors bear overall responsibility for risk management. The Boards determine the risk management targets, limits of risk taking, responsibilities, indicators and monitoring principles for each activity. Risk management plans are drawn up annually in the companies and approved by the Boards of Directors. The Boards also monitor the status of risk management and the development of key risks on a regular basis. The Bank Group s Risk Management Committee and Balance Sheet Management Committee monitor and manage risk management. The Group s corresponding organs direct the work of these Committees. Risks threatening operations and goals are identified and analysed in business units in connection with both strategic and annual planning and daily activities. The importance of preparing for risks is assessed by analysing the probability of the risks occurring, as well as possible implications of their realisation. The risk management measures and related responsibilities are defined in the risk management plans. Responsibility for risk management supervision has been separated from responsibility for operational activities. Internal Audit supports the management and Board of Directors in implementing and developing risk management. The Audit Committee, which assists the Cooperation Committee of the Supervisory Boards, monitors and assesses operational risks as well as risks associated with the general operating environment and strategic risks. No significant changes took place in risk management principles compared to the previous year. Capital adequacy requirements are calculated for strategic and operational risks on the basis of risk mapping and the scope of the operation. Capital adequacy requirements are part of the economic capital calculation model. The internal solvency management process (ICAAP) of the Bank Group, which is used to define the amount of economic capital, has been described in greater detail in the notes to the financial statements LocalTapiola Bank Plc's notes to the financial statements regarding risk include a more detailed description of the organisation of the Bank Group's risk management and the monitoring of different risk classes as well as risk levels. More detailed information on the risk management and the most significant risks of the banking and investment service business is available in the section on risks and risk management in the notes to the financial statements. Solvency in an insurance and financial conglomerate LocalTapiola Group forms a conglomerate as referred to in the Act on the Supervision of Financial and Insurance Conglomerates. The insurance and financial conglomerate includes the following companies: LocalTapiola General Mutual Insurance Company and its non-consolidated subsidiary, Turva Mutual Insurance Company, 19 regional nonlife insurance companies, LocalTapiola Mutual Life Assurance Company, and companies operating in the financial sector ( LocalTapiola Bank Plc and its subsidiary LocalTapiola Asset Management Ltd, as well as Tapiola Data Ltd, an ICT service provider). The company at the head of LocalTapiola Group is. The coordinating supervisory authority of the conglomerate was the Financial Supervision Authority. Solvency management Solvency management is a part of the conglomerate s risk management. Because Tapiola Group is a mutual company, its solvency management focuses on good solvency to ensure the financial security of customers at all times. Solvency management is based on a proactive and comprehensive approach, which builds on strategic and operational plans. The solvency of the Group and its companies, as well as the development of solvency, is monitored regularly and comprehensively with statutory and internal solvency and risk reports. The main risks and the probability of their realisa- *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 9

12 ANNUAL REPORT (11) tion, as well as their potential impact on the Group and its companies if realised, are assessed as a part of the business planning process. This enables the Group companies to proactively implement any measures needed to strengthen and maintain solvency. The Group s solvency management is described in greater detail in the section on risks and risk management in the notes to the financial statements. Solvency statement of the insurance and financial conglomerate The Act on the Supervision of Financial and Insurance Conglomerates provides that the amount of a conglomerate s own funds must at all times be at least equal to the minimum amount of the conglomerate s own funds. On the basis of the calculation, it can be noted that the Group s solvency is approximately 3.3 (3.5) times the required minimum. Corporate governance in LocalTapiola General LocalTapiola General has reported on its corporate governance separately from the Board of Directors report, in accordance with recommendation 54 concerning Finnish listed companies corporate governance (15 June 2010). LocalTapiola General adheres to good corporate governance, which is based on the legislation concerning the insurance sector, as well as the regulations and guidelines issued by the Financial Supervisory Authority. More extensive information on LocalTapiola s corporate governance is available on the company s website, Annual General Meeting LocalTapiola General's Annual General Meeting was held on 15 May The meeting approved the financial statements for 2012, decided on the use of the company's result and elected the company's auditor. The meeting confirmed the number of members of the Supervisory Board and elected the new members. Of Tapiola General s Supervisory Board members whose turn it was to resign, the following were re-elected: Iiro Ketola (Elected Representative, LocalTapiola Group), Veli- Matti Kilpeläinen (Managing Director, Varkauden Asuntomarkkinat Oy), Matti Kähkönen (Executive Director, Disabled War Veterans Association Of Finland), Timo Leppänen (Managing Director, Kajaanin tilitaito Oy), Folke Lindström (Chairman of the Board of Directors, Commercial Councillor Förlags Ab Lindan Kustannus Oy), Ulla-Maija Moisio (Master of Laws trained on the bench, Teollisuuden Voima Oyj), Pentti Neitola (farmer), Eero Nykänen (police constable, retired), Kati Partanen (farmer), Markku Tuuna (Master of Laws trained on the bench, Lawyer's office Markku Tuuna Ky) and Jouko Virranniemi (Industrial Counsellor, Pölkky Oy). The following were elected as new members: Taavi Heikkilä (Managing Director, Hämeenmaa Cooperative Society), Sanna Leivo (Chairman of the Board of Directors, Leivon Leipomo Oy), Anu Ojala (Director of Finance and Business Operations, Lemminkäinen Talo Oy) and Heikki J. Perälä (CEO, Helsinki Region Chamber of Commerce). KPMG Oy Ab was elected as the auditing firm, and the auditor with the main responsibility is Mikko Haavisto, Authorised Public Accountant. A decision was also made at the Annual General Meeting on assigning the regional non-life insurance portfolios and the related business operations to LocalTapiola Group's 19 regional non-life insurance companies. Supervisory board LocalTapiola General s Supervisory Board held its organising meeting on 5 June The meeting elected the Chairman and Deputy Chairmen to the Supervisory Board. Antti Lemmetyinen, Councillor of Social Welfare, was elected as Chairman of the Supervisory Board. Juha Marttila, Chairman of the Central Union of Agricultural Producers and Forest Owners MTK, was elected as First Deputy Chairman of the Supervisory Board. Jouko Virranniemi, Industrial Counsellor, Pölkky Oy, was elected as the Second Deputy Chairman of the Supervisory Board and Pauliina Haijanen, Master of Laws trained on the bench, Municipal Counsellor, was elected as Third Deputy Chairman. The Supervisory Board met five times. On average, 78,6% of the members participated in the meetings. The salaries and remunerations paid to the Supervisory Board members, their pension commitments, money loans and terms thereof, as well as guarantees and contingent liabilities are presented in section of the notes to the profit and loss account. Committees of the Supervisory Board Co-operation Committee The Cooperation Committee, which comprises the Chairmen of the Supervisory Boards of LocalTapiola General and LocalTapiola Life, held its organising meeting on 5 June Antti Lemmetyinen was elected as Chairman and Jouko Havunen as Deputy Chairman of the Cooperation Committee. The Cooperation Committee met 11 times. On average, 95,9% of the members participated in the meetings. *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 10

13 8 (11) The Cooperation Committee s Audit Committee Jouko Havunen (Chairman), Pauliina Haijanen and Marjut Nordström were elected as members of the Cooperation Committee's Audit Committee. The Audit Committee held six meetings. On average, 88,9% of the members participated in the meetings. The Cooperation Committee's Compensation Committee On 15 January 2013, the Cooperation Committee established a separate Compensation Committee with the task of assisting the Cooperation Committee in matters relating to the compensation of senior managers in accordance with its rules of procedure. The Chairman of the Compensation Committee from 15 January 2013 to 5 June 2013 was Antti Lemmetyinen, Councillor of Social Welfare, and the members were Jouko Virranniemi, Managing Director, and Hans Böhling, Managing Director. At its organising meeting held on 5 June 2013, the Cooperation Committee elected Antti Lemmetyinen (Chairman), Jouko Virranniemi and Ralf Wickström as members of the Compensation Committee. The Compensation Committee met four times. On average, 91,7% of the members participated in the meetings. Board of Directors In accordance with the Supervisory Board's decision dated 7 February 2012, the number of members of the Boards of Directors during the three-year term from 2013 to 2015 will be eight until 30 June 2013 and seven thereafter until the end of the term. Additionally, Ralf Wickström, a member of the Board of Directors, announced his resignation from the Board of Directors on 30 June Until the end of June 2013, the members of the Board of Directors comprised three of LocalTapiola Group's Group Directors responsible for the business areas, two representatives of the regional companies, one person appointed by Local Insurance and one person appointed by Tapiola. Board members as of 1 January 2013 President Erkki Moisander, Chairman Asmo Kalpala, Board Member from 1 January 30 June 2013 Ralf Wickström, Board Member from 1 January 30 June 2013 Harri Lauslahti, Group Director Jari Sundström, Group Director, Deputy Chairman Jari Eklund, Group Director Marjatta Leiviskä, Managing Director, LocalTapiola Lappi Mutual Insurance Company Pentti Kuusela, Managing Director, LocalTapiola Pirkanmaa Mutual Insurance Company The Board of Directors met 26 times. The attendance rate at meetings was 94.4 per cent. The salaries and remuneration paid to the members of the Board of Directors, their pension commitments, money loans and terms thereof, as well as guarantees and contingent liabilities, are specified in Section of the Notes to the profit and loss account. Managing Director Jukka Kinnunen, Master of Science in Economics, holds the post of Managing Director of LocalTapiola General. Mika Makkonen, Master of Laws and Master of Business Administration, is Deputy Managing Director. The salaries and perquisites paid to the Managing Director totalled EUR 299,136, including EUR 91,296 of merit pay. The management s merit pay is based on the achievement of company-specific, three-year strategic objectives (maximum 30 per cent) and on the achievement of annual objectives (maximum 40 per cent). The Managing Director s retirement age is 63. The agreed compensation for premature termination of the employment relationship is a sum corresponding to 12 months salary. Supervisory authority LocalTapiola General is a non-life insurance company subject to public supervision by the Financial Supervisory Authority operating under the Bank of Finland. The FIN-FSA ensures that insurance companies comply with legislation and sound insurance practices, and apply appropriate methods in their operations. It monitors and assesses the financial position, appropriateness of management, supervision and risk management systems, operating prerequisites and changes in the operating environment of the supervised companies. Personnel The personnel are employed by both LocalTapiola General Mutual Insurance Company and LocalTapiola Mutual Life Insurance Company. During the financial period, Group services provided services to the different legal companies of LocalTapiola Group, while LocalTapiola General provided the central head office and similar services and LocalTapiola Life the sales and customer services for private households, as well as web services. The service providers and service users have signed outsourcing agreements on shared services. In the beginning of September 2013, the personnel producing services for the Bank Group in customer telephone service, legal services, financial management and risk management, as well as the personnel in the branch network, a total of 190 people, were transferred to LocalTapiola Bank with a business transfer. The number of employees in the non-life insurance and life insurance companies averaged 2,286 (1,926) in the financial period. The number of employees allocated to non-life insurance in proportion to wages paid averaged 1,883 (1,454) in the financial period. The number of employees in LocalTapiola General's units averaged 733 (522). The increase in the average number of personnel compared with the previous year is explained by the merger of Local Insurance Mutual Company with Tapiola General on 31 December *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 11

14 ANNUAL REPORT (11) In the business transfer, personnel in the local areas were transferred to the regional companies on 31 December A total of 457 employees transferred from LocalTapiola General to the regional companies. The number of employees in LocalTapiola Bank Plc averaged 179 (113). The number of employees in LocalTapiola Asset Management Ltd averaged 51 (50). As a result of outsourcing functions, Tapiola Data Ltd had no personnel at the end of the financial period (an average of 280 in 2012). The number of employees in Aura-Karelia Ltd averaged 14 (17). The number of employees in LocalTapiola General Group Ltd averaged 2,573 (2,498). The number of employees in relation to payroll was 2,128 (1,914) Compensation LocalTapiola General complies with LocalTapiola Group s salary and compensation schemes. The schemes are planned and prepared under the leadership of HR in cooperation with financial and risk management services, legal services and representatives of business operations, including representation from the regional companies and the Cooperation Committee of the Supervisory Boards. If necessary, external consultants are used. The Supervisory Boards Cooperation Committee decides on LocalTapiola Group s salary and compensation schemes, as well as the compensation for the President and members of the Board of Directors. Otherwise, decisions are made by the companies Boards of Directors. Remuneration for managers is based on the company group's strategy. The indicators are based on the key figures relating to the targets of the business operations. The remuneration is established as the product of the outcome rate of the above-mentioned elements, the maximum remuneration percentage based on the position and the annual salary. The maximum remuneration percentages vary between 30 and 120 per cent. The amount of merit pay granted to clerical employees may not exceed seven per cent of the annual salary, except for some experts in investments and asset management, as well as in risk management, whose maximum merit pay may not exceed 83 per cent of the annual salary. The objectives are determined on the basis of the Group's strategy and business targets, and they can be either team-specific or personal. The achievement of targets is evaluated in performance review discussions. The sales organisation s salary schemes include various alternatives for rewarding performance, and their proportion of the total salary varies from a few per cent to approximately fifty per cent. Some employees in the Group's investment organisation had their own long-term merit pay model during the preceding strategy period in which the merit pay was determined for a three-year period based on investment returns compared to an index. Delayed payments of this merit pay will be made until Bonus levels varied annually between 10 and 33 per cent of the annual salary. During the validity of this merit pay scheme, the maximum annual bonus was 50 per cent of the annual salary. Based on the results, annual payments are also made to LocalTapiola Group's personnel fund, established in This profit bonus item is mainly determined by the companies' profits, efficiency and growth in accordance with the Act on Personnel Funds. The payment is subtracted from the preliminary estimate of the result of the financial period. The salaries of LocalTapiola Group s management and professional employees are based on HAY job evaluations and points, which in turn are based on benchmarking information from the financing industry. A.M. Best Co. granted LocalTapiola General a rating of A (Excellent) LocalTapiola General was awarded an A (Excellent) rating by A.M. Best Co, the oldest and most highly respected rating institution specialised in the insurance business and situated in the USA. A.M. Best has rated Tapiola as of 2006 and the rating has been A (Excellent) on each occasion. According to A.M. Best's press release issued on 17 January 2014, the excellent rating of LocalTapiola General was due to strong profit development in the insurance business and the company's strong solvency outlook. A low number of large accidents has contributed to the good profit development. The rating is needed in business and in insurance and banking operations whenever a customer or partner requires it. From the perspective of corporate image and reputation, a good rating increases reliability and respect. Events during the financial year Non-life insurance LocalTapiola Group entered a new strategy period at the beginning of LocalTapiola General's strategic goals for 2013 included providing customer benefits, ensuring growth, improving profitability and continuing the integration work according to plan. As regards integration work, one of the key focus areas has been preparation for business transfers. The business transfers require a considerable amount of ICT work as well as generation of new types of service packages for the new products offered in the traditional sales channels and online. Furthermore, product conversions have required a significant amount of preparation as regards both sales and service concepts as well as in the construction of mechanical conversions. During the financial period, work has continued on the implementation of profitability measures, revision of service processes, improvement of claim service levels and development of new products. Organisational changes were implemented during the financial period. At the beginning of 2013, the claims services for personal accident and travel insurance were transferred back to LocalTapiola General from LocalTapiola Life. A change in the organisational structure was implemented at the beginning of June in which a Service Centre was set up to support the regional companies and at the same time, the corporate customer business organisation was incorpo- *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 12

15 10 (11) rated in the non-life insurance company. The aim of the changes was to clarify the division of responsibilities and to unify service processes. LocalTapiola General's subsidiary Tapiola Data Ltd and ICT service company Logica (now known as CGI) signed a letter of intent on 24 May 2012 on establishing an ICT service company. The joint venture began operating on 1 February The new company, LTC-Otso Ltd, develops and offers banking- and insurance-sector ICT services for the LocalTapiola Group, Etera and Turva. A total of 240 employees transferred from Tapiola Data to the new company. LTC-Otso's operations are based in Espoo and Tampere. S Group and LocalTapiola Group signed agreements on strategic cooperation and bonus cooperation on 25 November The intention is to restart bonus cooperation as regards insurance on 1 June 2014 after a break of a few years. Concerning the deepening of strategic cooperation between S Group and LocalTapiola new forms of cooperation are currently under investigation. The Omnibus II Directive, which amended the Solvency II Directive, was approved in the European Parliament in November The Solvency II Directive and the related standardised reporting will be applied as of 1 January As of 1 January 2014, the Financial Supervisory Authority has validated the guidelines issued on 31 October 2013 by the European Insurance and Occupational Pensions Authority (EIOPA) for national supervisors. The guidelines include instructions for supervised companies on preparing for Solvency II coming into force on 1 January The guidelines concern the governance of insurance companies, including risk assessment (previously known as ORSA), criteria for the pre-assessment of internal models and reporting delivered to the supervisor. LocalTapiola General continues to prepare for the Solvency II Directive on the basis of the guidelines as part of LocalTapiola Group's preparations. Banking and Investment Services On 11 April 2013, the Board of Directors of Tapiola Bank Ltd decided in its meeting on a change of company form and name to a public limited company as of 8 June The company's name is: LähiTapiola Pankki Oyj in Finnish, LokalTapiola Bank ABp in Swedish and LocalTapiola Bank Plc in English. The name of Tapiola Asset Management Ltd changed on 8 June 2013 to LocalTapiola Asset Management Ltd. A corresponding change was made to the names of the managed funds. A set of agreements was concluded between LocalTapiola Group and S Group, which was announced on 6 June The parties agreed to merge S Bank and LocalTapiola Bank to form a new S Bank. S Group owns 75 per cent and LocalTapiola Group 25 per cent of the new bank, which will begin operating on 1 May At the same time, the parties agreed to transfer LocalTapiola Asset Management's mutual fund operations to a fund management company to be incorporated into the S Group. The intention is to execute the transfer on 1 March In connection with the management of the funds being transferred, LocalTapiola Asset Management will give up its fund management licence and apply for an investment company licence. The company will become LocalTapiola General's subsidiary. In October 2013, LocalTapiola Asset Management established a new fixed-income fund, LocalTapiola Nordic Corporate Interest. The main focus of the fund's investments is in Nordic companies' corporate bonds. LocalTapiola Bank has been registered as the insurance agent of LocalTapiola General, 19 regional companies and LocalTapiola Life Assurance Company. Corporate social responsibility As a mutual company owned by its customers, LocalTapiola General's primary responsibility is towards its customers. LocalTapiola aims for sustainable solutions, openness and transparency in its operations. The development of LocalTapiola's corporate responsibility policy is based on the Group companies various roles in and impacts on society. The Board of Directors has approved common principles of corporate responsibility for the group of companies. Day-to-day operations are guided by responsibility commitments to customers, personnel, the environment, local communities and society. The main theme is promoting the security, welfare and prosperity of people throughout their lives, with young people and seniors being the key target groups. The Group aims to continuously improve the comprehensibility and clarity of its products and services. Investments are made in improving the personnel's competence and expertise to ensure that customers are provided with reliable specialist services. In a target-oriented manner, LocalTapiola aims to decrease its environmental footprint by improving the energy efficiency of its properties and by encouraging the use of online services and operating methods. Furthermore, LocalTapiola aims to promote social responsibility by contributing to measures that prevent the exclusion of people and enhance financial skills, as well as those that combat the grey economy, among other things. LocalTapiola invests its customers' assets in accordance with the principles for responsible investing. Taking care of solvency is a factor of financial responsibility and it supports social stability. The regional companies' presence, actions and impact provide genuine interaction with nearby communities and are a clear example of the company's local presence. LocalTapiola is committed to the ICC Business Charter for Sustainable Development and to the United Nations Principles for Responsible Investment. LocalTapiola s office buildings in Espoo and the office in Tampere participate in the WWF Green Office environmental management system. LocalTapiola Group has reported on its social responsibility and the realisation of responsible business operations in its annual report 2013 under "Close to you throughout your life". It is available online at *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 13

16 11 (11) ANNUAL REPORT 2013 Future prospects Non-life insurance business The deceleration of growth in the Finnish national economy is also reflected in the form of slower growth in the non-life insurance business. The new organisation of the LocalTapiola Group calls for an adequate balance between common operational models and regional competitive factors. The focus will be on following through the planned ICT projects, product reforms, services concepts and product conversions. We will also invest in the development of online, mobile and electronic claims services. Maintaining sufficient profitability requires strong management and a focus on pricing that corresponds to risk will see the launch of many things that will be visible to customers, such as strategic cooperation with the S Group, new products and the website. The outlook for the European real estate market in 2014 is slightly brighter than in previous years. We are nearly past the worst of the eurozone crisis, and the positive impact of the German economy is slowly beginning to have a positive effect on the markets of neighbouring economies. Southern European real estate markets seem to have passed their nadir. The availability of real estate financing has improved slightly, and this will also increase the liquidity of the real estate markets in The outlook for the Finnish commercial real estate market for 2014 is fairly moderate. If the budding economic growth takes hold in the Finnish economy, the outlook for the rental markets may be slightly better in the latter part of the year. No significant changes are in sight for the availability and price of financing, and investment demand is expected to slowly increase if the outlook for the real economy improves. Investments Global economic growth accelerated in the second half of 2013 and, based on anticipatory indicators in developed economies, economic conditions are also expected to strengthen in the early part of All in all, 2014 will be better than the previous year in terms of economic growth. In the eurozone, the basic economic trend is more favourable than in the previous year. However, there is no strong upswing in sight only slightly positive growth at best. High unemployment and a moderate increase in salaries will slow down the recovery of consumer demand. On the other hand, weak growth prospects do not encourage investments and the public authorities will have no choice but to tighten their belts. Competitive devaluations and protectionism, in turn, will put a brake on global trade recovery. The sources of sustainable growth will continue to be scarce. During 2014, GDP development in the most important emerging economies will set out on a new path of long-term growth. This means growth of about 6 7 per cent for China and India and a growth rate of about 3 4 per cent for Brazil and Russia. Within emerging markets, the focus of growth is shifting from the BRIC countries to new, less developed areas. In the BRIC countries, growth is being slowed down by several structural problems, such as sloped demand structures, ineffective public sectors and labour competence bottlenecks. However, many African countries are entering a phase of stronger growth. From the point of view of the investment markets, the outlook for the operating environment continues to be rather favourable: there are positive changes, but economic growth in the main market areas will remain so low for a long time to come that central banks will not be able to start tightening their monetary policies to a significant extent for quite some time. Investment risks, however, will be increased by structural economic changes and the associated political risks, as well as by the weaker predictability of the global economic cycle. *) LocalTapiola General: The comparative figures presented in parentheses for the items on the income statement are pro forma figures. As regards the items on the income statement and the key figures, these figures show what the items would have been if the merger of Tapiola General and Local Insurance, which occurred on 31 December 2012, had taken place at the beginning of the previous financial year. 14

17 Notes to the financial statements Accounting principles Notes to the financial statements The financial statements of (LocalTapiola General) have been prepared in accordance with the Accountancy Act, the Companies Act and the Insurance Companies Act. In addition, the Decree of the Ministry of Social Affairs and Health on financial statements and consolidated financial statements of insurance companies and the provisions of the Accounting Decree, as prescribed in the above Decree, are complied with. Finally, the decisions, regulations and instructions issued by the authorities regulating insurance companies the Ministry of Social Affairs and Health and the Financial Supervisory Authority are adhered to. Valuation and allocation of intangible assets Other long-term expenditure Other long-term expenditure includes capitalised costs of renovations in apartments and design costs of ICT systems. These are stated in the balance sheet at cost less planned depreciation. Valuation and allocation of investments Real estate and shares in real estate Buildings and other constructions are stated at cost less planned depreciation or at current value, whichever is lower. Shares in real estate are stated at the lower of cost and current value. Revaluations may have been made on the values of real estate and shares in real estate if the values were significantly higher over a long period of time than the historical cost at the end of the financial year. The counter-item of the revaluation of real estate or shares in real estate classified as investments has been recognised as income since 1978, and earlier revaluations have been entered in the revaluation reserve in restricted capital and reserves. The counter-item of an investment classified as fixed assets has been entered in the revaluation reserve of restricted capital and reserves. Previous value adjustments of investments are reversed in the profit and loss account at most up to the historical cost if the current value rises. Shares and holdings Shares and holdings are stated at the lower of cost and current value. Acquisition cost is calculated using the average price method. Previous write-downs of shares and holdings are reversed to the extent that the current value exceeds the book value. Loaned securities are included in the balance sheet. Information on loaned securities is presented in the notes to the balance sheet.. Debt securities Debt securities include bonds and other money market instruments. Debt securities are stated at cost in the balance sheet. Acquisition cost is calculated using the average price method. The difference between the nominal value and acquisition cost of debt instruments is released or charged to interest income during the term to maturity. The counter-item has been entered as an increase or decrease of the acquisition cost of the debt security. Value adjustments owing to interest rate fluctuations or other reasons have been recorded as have value readjustments, if the current value of a debt security has at a later date exceeded the adjusted acquisition cost,, at most up to the original acquisition cost. 15

18 ANNUAL REPORT 2013 Notes to the financial statements Accounting principles Loans, deposits and deposits with ceding undertakings Loans, deposits and deposits with ceding undertakings are stated at nominal value or a permanently lower, likely realisable value. Derivative contracts Valuation of receivables Derivative contracts are mainly used for hedging investment portfolios. In the accounts, however, derivatives are primarily treated as non-hedging, even though they are effective for hedging purposes. Gains and losses incurred during the financial year from the closing or lapsing of contracts have been entered as income or expenses for the financial year. Non-hedging derivatives A negative difference between the current value and higher book value of a non-hedging derivative or a derivative treated as non-hedging is entered as an expense. Unrealised gains are not recognised. The potential maximum loss from non-hedging derivative contracts is deducted from the solvency margin. Application of hedging calculation When using hedging calculation, a decrease in the value of a derivative is not entered to the extent that an increase in the value of the hedged item covers the change. Any loss exceeding the increase in the value of the hedged item is entered as an expense. The difference between the current value and the lower book value of a derivative is entered as income from the hedged item up to the amount entered as expense. If no value change is entered in the profit and loss account for the hedged balance sheet item, no valuation income or expense arising from the hedging derivative is recognised. Premiums receivable Premiums receivable are stated at their maximum likely realisable value. Lapsed contracts have been deducted from the nominal value of premiums receivable based on experience, which gives the likely realisable value. Receivables that are not likely to be settled are recognised as credit losses. Foreign currency items Receivables and liabilities in foreign currencies have been translated into euros at the rates quoted by the European Central Bank on the day of closing of the accounts. The rate used for other investments is that of the moment of acquisition or of the day of closing of the accounts, whichever is lower. Exchange rate differences have been entered as adjustments on the income and expenses concerned. Exchange rate differences concerning cash at bank and in hand and deposits, as well as items that cannot be entered directly as adjustments on income or expenses, have been recognised as exchange gains or losses from investment activities. 2(8) 16

19 Notes to the financial statements Accounting principles Depreciation Acquisition costs of buildings and their components, equipment, intangible rights and long-term expenditure have been capitalised and are entered as expenses under planned depreciation over their expected useful lives. The estimated average depreciation periods of the various commodity groups are as follows: Intangible assets Renovations in apartments IT system design expenses Real estates Residential, office and hotel buildings Department store buildings and other store buildings Industrial buildings, warehouses, and similar buildings Building components, reducing balance method 25% 5 yrs 5 10 yrs yrs yrs yrs Equipment Office machinery, equipment, etc., reducing balance method, 25% The effect of renovations in buildings on their lifetime is assessed separately. As regards revaluations released to income, depreciation has been carried out according to the expected useful life of the item in question. The accumulated difference between write-offs in the accounts and depreciation according to plan is recorded in the balance sheet under liabilities, in the item Accumulated appropriations, depreciation difference, and the increase or decrease during the financial year is stated in the profit and loss account as a separate item. Accumulated appropriations Depreciation difference See Depreciation Voluntary provisions Provisions have been made that must be recognised as revenue according to fiscal and accountancy legislation. Obligatory provisions Direct taxes Pension and unemployment pension expenditure arising from future obligations that concerns the most recently or previously ended financial year has been deducted from income as obligatory pension provisions. Provisions for interest on late payments for unfinished claims have been deducted from income as other provisions. Direct taxes have been entered in the profit and loss account on an accrual basis. 3(8) 17

20 ANNUAL REPORT 2013 Notes to the financial statements Accounting principles Deferred tax assets and tax liabilities Deferred tax assets and liabilities pertaining to timing differences between taxable profit and accounting profit and to other temporary differences are shown in the notes to the financial statements. The notes include deferred tax liability calculated based on the valuation difference between the current and book values that is deemed likely to become payable during the next year. Deferred tax liabilities for one year have been taken into account when calculating key figures. Other liabilities Liabilities other than technical provisions are stated in the balance sheet at nominal value. Definition of current value of investments Real estate investments Real estate and shares in real estates are stated at market-based current values. The valuation principles and practices as set out in the IVS (International Valuation Standards) and good real estate valuation practices (so-called AKA criteria) are applied in the valuation of real estate investments. Residential buildings are valued using a sales value method based on reference sales. Commercial real estate is valued using a yield value method based on cash flow or a sales value method if representative sales price data is available. Values of special items are defined using a marketbased evaluation method deemed best suited for the item. The current value of real estate funded by state housing loans is the assignment price as defined in section 10 of the Act on the Use, Assignment and Redemption of State-Subsidized (ARAVA) Rental Dwellings and Buildings (1190/1993). Valuations are either conducted by external authorised property valuers or LocalTapiola Real Estate Asset Management s experts, instructed and audited by an external authorised property valuer in accordance with the requirements of the Financial Supervisory Authority. Shares, holdings and debt securities As regards quoted securities and securities for which there is a market, the latest trading price or, if not available, the bid price is used as the current value. Current value of other investments is the likely realisable value, book value or value based on substance. The current value of private equity funds is the acquisition cost or the management company s estimate of the fund s current value. Loans, deposits and deposits with ceding undertakings The current value of loans, deposits and deposits with ceding undertakings is the nominal value, taking into consideration any reduction in the nominal value to the likely value required by the risk of credit loss. Account of technical provisions deductions and compounding used in calculating claims provision Provision for unearned premiums Provision for unearned premiums includes that part of premiums written during the accounting period and previous years whose risk relates to a time after the accounting period. The same compounding is used also for future reinsurance premiums. The amount of provision for unearned 18 4(8)

21 Notes to the financial statements Accounting principles premiums is calculated in accordance with the pro rata parte temporis principle. Activated insurance acquisition costs have not been deducted from the provision for unearned premiums, and the provision for unearned premiums does not include provision for unexpired risks. Compounding is applied only in provision for unearned premiums for perpetual forest and perpetual fire insurance with a technical rate of interest of 4.5 per cent. Provision for claims outstanding Provisions for claims outstanding include outstanding claims to be paid by the company after the current accounting period that have been accrued from claims and other occurrences of insured events before or during the accounting period. Provision for claims outstanding includes an equalisation provision. The equalisation provision is a buffer calculated for years with plenty of claims that is used to secure adequacy of technical provisions also when factors influencing technical provisions fluctuate in an unfavourable manner. The Financial Supervision Authority confirms the calculation methods for the equalisation provision for each company. A technical rate of interest of 2.1 per cent is applied to provision for pension-type benefit claims, including provision for IBNR claims. In the calculation of the provision for pension-type claims, the reference mortality model K2011 for non-life insurance is applied. The model was prepared in cooperation between the Federation of Accident Insurance Institutions and the Finnish Motor Insurers Centre. Account of the personnel s pension cover and the allocation of pension expenditure The personnel s statutory pension cover has been arranged through basic Employees Pensions Act (TyEL) insurance taken out from LocalTapiola Mutual Pension Insurance Company and supplementary cover from LocalTapiola Mutual Life Insurance Company, in which the benefits include old-age, disability and survivors' pension, as well as death benefit for family members. As a rule, the supplementary pension increases the pension annually by 0.2 per cent of the annual income on which the pension as defined in the Employees Pensions Act is based. Employees are entitled to the additional benefit after five years of employment. The supplementary pension encompasses the entire period of employment relationship. Full-time members of the Board of Directors who are employed by LocalTapiola General and LocalTapiola Life have a retirement age of 63. The retirement age of the managing director is 63 years. and that of other directors is the general retirement age, i.e., years. The supplementary pension cover has been arranged through a supplementary pension with LocalTapiola Mutual Life Assurance Company. Pension insurance contributions have been recorded on an accrual basis. Employment termination benefits When benefits are paid to an employee upon dismissal or agreed termination of employment, these benefits are recognised as expense when the company has irrevocably committed to terminate the employee s employment. Other liabilities related to the benefits of dismissed employees that are likely to arise on the basis of various contracts have been estimated at the closing of the accounts and have been recognised as expense and liabilities. 5(8) 19

22 ANNUAL REPORT 2013 Notes to the financial statements Accounting principles Changes in accounting principles affecting the comparability of the results for the financial year with those of the previous financial year Business transfers on 31 December 2013 On 31 December 2013, transferred the voluntary non-life insurance policies taken out by private customers and micro companies as well as small and medium-sized companies, except for the policies of customers in Greater Helsinki, to the 19 regional companies. The company transferred the insurance policies relating to regional insurance portfolios, the equalisation provision including technical provisions and the assets covering the technical provisions, as well as other assets, liabilities and provisions belonging to regional insurance operations, to the regional companies. As compensation, it received new guarantee shares issued by the regional companies. In the profit and loss account, the effect of the insurance portfolio transfer on the change in technical provisions is presented separately under change in technical provision and under reinsurers' change in technical provisions. The technical provisions are covered by investments such as shares and units, real estate or shares in real estate, money market and capital market instruments, receivables as well as cash at bank and in hand. The transferred cover for technical provisions fulfils the requirements of insurance company legislation and, as regards its structure and risk, it is as appropriate as possible for the transferred technical provisions. In addition to the assets covering the technical provisions, investments were transferred to the regional companies in such a way that the legal requirements set for insurance companies' solvency margins were met at a sufficient and appropriate level. The solvency margin describes an insurance company's solvency and it refers to the amount by which an insurance company s assets must be deemed to exceed the company's liabilities and other comparable commitments. Furthermore, the tangible and intangible assets relating to the transferred insurance operations as well as other receivables and liabilities were transferred to the regional companies insofar as they related to the transferred business operations. The depreciation difference was transferred to the receiving regional company insofar as it applied to the transferred assets. There are no provisions allocated to the transferred insurance business. Activated acquisition costs of the ICT systems in joint use were not transferred to the regional companies in the business transfer. The data for the comparison year, Local Insurance Mutual Company merged into Mutual Insurance Company Tapiola on 31 December 2012 In conjunction with the merger, the accounts of the receiving and merging companies were consolidated. The balance sheet of the merging company, Local Insurance Mutual Company, was consolidated into the balance sheet of the receiving company, Tapiola General Mutual Insurance Company. The assets and liabilities were transferred to the receiving company's balance sheet at book value. Profit and loss account items were not consolidated. Thus, the profit and loss account figures for the comparison year presented in the official financial statements are the figures of Tapiola General Mutual Insurance Company and the balance sheet figures are consolidated figures. Pro forma figures are also presented in the report of the Board of Directors. The purpose of the pro forma figures is to make certain items in the financial statements for the financial period comparable with the financial period and with the corresponding data in the previous financial statements or, as regards the items on the profit and loss account and key figures, to provide the information of what the said items would have been had the merger of Local Insurance taken place at the start of the financial period. Thus, the figures for Tapiola General and Local Insurance have been combined. 20 6(8)

23 Notes to the financial statements Accounting principles Consolidated financial statements The LocalTapiola General Group includes Tapiola Bank Plc, a group of companies offering banking and investment services, Tapiola Data Ltd, which provides IT services, and other companies. The LocalTapiola Bank sub-group includes the bank s subsidiary, LocalTapiola Asset Management Ltd. In addition, the bank is a shareholder in Ab Compass Card Oy Ltd. The assets and liabilities of the insurance and financial operations are reported separately in the consolidated balance sheet and, correspondingly, the income and expenses of the insurance and financial operations are reported separately in the consolidated profit and loss account. The balance sheets and profit and loss accounts of the Group's service companies have been combined in the line of business that the service has been provided to. The business transactions between the companies in the insurance and financial sectors are presented as elimination items of the profit and loss accounts and balance sheets of the lines of business. The financial statements of those Group companies that Chapter 9 of the Act on Credit Institutions or Chapter 8 of the Insurance Companies Act are applicable to are combined in the consolidated financial statements without changing the accounting principles required by these provisions. All of the Turva Mutual Insurance Company guarantee share owners have signed an addendum to the mutual guarantee share owner agreement stating that has the right to appoint the majority of the board of directors for Turva, should the company wish to exercise this right. Thus, Turva is a subsidiary of LocalTapiola General. LocalTapiola General s share of the Turva guarantee capital is per cent. The financial statement data of Turva has not been included in the consolidated financial statements based on the Accounting Act, Chapter 6, Section 3, subsection 1. The law states that the financial statements of a subsidiary may be left out from the consolidated financial statements if combination is not necessary in order to offer a correct and adequate depiction of the results of the operations and financial position of the Group. A mutual company guarantee share owner does not have a right to any other assets of the company than guarantee capital. Turva guarantee capital amounts to EUR 10,145, The consolidated financial statements are a combination of the profit and loss accounts, balance sheets and notes to the statements of the parent company and its subsidiaries. The following are eliminated in these consolidated statements: intra-group receivables and liabilities, income and expenses, profit distribution, internal gains and losses, and mutual share ownership. The Group's share ownership and share ownership within the Group has been eliminated using the acquisition method. Minority interest in capital and reserves and profit is shown as a separate item in the profit and loss account and balance sheet. Subsidiaries acquired during the financial year are included in the consolidated statements as of the acquisition date, and subsidiaries sold during the period up to the moment of sale. Associated undertakings, i.e., companies in which the Group holds 20 50% of the votes, have been included in the consolidated statements using the equity method. Housing and mutual real estate companies are not combined as associated companies in the consolidated financial statements even when the requirements for votes and ownership are met. Non-mutual real estate associated undertakings have been consolidated as associated corporations. Deferred tax liabilities are stated in the consolidated financial statements and deferred tax assets in the balance sheet. Deferred tax assets and liabilities resulting from combining measures are stated in the balance sheet when their future tax effects must be deemed probable for the Group companies they relate to. The change in voluntary provisions and depreciation difference has been divided between the change in deferred tax liabilities and profit. The corresponding balance sheet items have been divided into deferred tax liabilities and capital and reserves, taking into account the minority interest. 7(8) 21

24 ANNUAL REPORT 2013 Notes to the financial statements Accounting principles The revaluations of the housing and real estate subsidiaries shares in the insurance sector have been entered as revaluations of the subsidiaries real estate. The consolidation goodwill arising from the elimination has been allocated primarily to the subsidiary s assets, taking into account their current value. The consolidation goodwill will be amortised according to plan, in line with other assets. Unallocated consolidated goodwill is recorded in the balance sheet under Intangible assets as a separate item and will be amortised according to plan over five years. Group reserve is included in the balance sheet under Liabilities as a separate item and released to income within a maximum of five years. Intra-group direct insurance business has not been eliminated. However, in the consolidated financial statements, intra-group reinsurance, excluding equalisation provision, has been eliminated. 22 8(8)

25 1 LocalTapiola Mutual Insurance Company, Notes on risk management 1. General risk management principles 1.1 Basis for risk management The purpose of risk management is to prepare, within the defined willingness to take risks, for threats and opportunities arising from changes in the internal and external circumstances in order to achieve strategic and operational targets. The Group s risk management is based on risk management concepts, the purpose of risk management, strategic intent and the willingness to take risks defined in LocalTapiola Group, as well as official regulations. The aim is to promote the continuity of customers financial security and support reaching of the Group's operational and financial targets. Good solvency is emphasised due to the mutual company form. Risk management refers to active and proactive operations aimed at identifying, assessing, limiting, utilising and monitoring business risks and new opportunities arising from changing external and internal conditions or LocalTapiola s strategic intent. The company s willingness to take risks is based on the following principles: Risk-taking supports achievement of strategic business goals and annual plans. Risks are defined so that they do not threaten the operations or economic stability of the entire conglomerate or its individual company. The conglomerate's companies and operations must stay within the specifically set risk limits. The repercussions of the risks for the conglomerate or its individual company can be identified and taken into account in the operations. In accordance with the principles of corporate responsibility, the company manages its risks and communicates on them in such a way that customers and other stakeholders can rely on LocalTapiola as their partner. 1.2 Key areas of risk management The company's risk rating is based on the following division into main categories and sub-categories: 23

26 ANNUAL REPORT Risk management implementation and supervision responsibilities Overall responsibility for the organisation of the companies' risk management lies with the company s Board of Directors. The Board defines risk management targets, the willingness to take risks, limits of risk taking, responsibilities, metrics and monitoring principles. The Board annually confirms the company s risk management plan and other plans associated with risk management, ensures that they are taken into account in the operational plans and monitors the implementation of and compliance with these plans. The Board also monitors the status of risk management in the company and the development of key risks on a regular basis. As a basis for the work of the Board of Directors, rules of procedure have been drawn up specifying the tasks of the Board and the reports and statements on risk management and the most significant risks to be discussed regularly. The Board's central risk management duties are: to be in charge of the organisation and monitoring of risk and solvency management so that they fulfil statutory requirements and are at an adequate level taking business risks into account approve key policies, principles and plans connected with risk and solvency management and reports on risks and solvency position decide on significant risk and solvency management measures define the willingness to take risks to guide operations in different target areas. The company's managing director and executives of the companies are responsible for the practical preparation and implementation the company's risk management and for monitoring the implementation. The company's business units are responsible for identifying risks and carrying out related risk management measures relating to their own operations. Supervisors are responsible for ensuring that the continuity of the supervision measures included in business processes is secured and that reliable and up-to-date information on supervision results is always available. The rules of procedure of the various Management Groups and committees define their tasks in risk management. All LocalTapiola employees are responsible for implementing risk management in their work and have an obligation to report any risks observed or areas for improvement identified in risk management, primarily to their supervisors or to another person in charge of risk management. Risk management supervision is always the responsibility of a party other than the one responsible for operational activities. The various parties associated with risk management, e.g., the actuarial, risk management, financial, controller, compliance and balance sheet management operations, assist the company's Board of Directors and management in the practical implementation of risk management supervision and risk monitoring. Internal Audit supports the company s Board of Directors and management in the implementation and development of internal control and risk management by assessing, at regular intervals, the realisation and procedures of risk management. The Audit Committee, which assists the Cooperation Committee of the Supervisory Boards, also monitors and evaluates risks. The auditing function also supervises the implementation of risk management. Detailed risk management responsibilities in various risk categories are described in policies complementing LocalTapiola's risk management policy and in risk category specific operating principles. 1.4 Reporting The aim of reporting is to produce reliable, comprehensive and up-to-date financial information to support decision-making. The accuracy of financial information is ensured through sufficiently up-to-date and frequent reporting, regular balancing routines, extensive and up-to-date documentation of the calculation methods and systems used in reporting and the organisational separation of decision-making and reporting functions within businesses. 24

27 3 The rules of procedure of the company's Board of Directors, Management Groups and various committees related to risk management define the reports and statements to be discussed regularly, which deal extensively with key risks and risk management. The Insurance Supervision Authority's regulations and guidelines define the reports and other clarifications to be delivered to the authorities regarding risks and risk management. 2. Solvency management 2.1 General solvency management principles LocalTapiola conglomerate's solvency management is based on guaranteeing customers' continuous financial security through the good solvency of the conglomerate and its companies, taking into account the mutual company form. The objective and business idea of the LocalTapiola conglomerate is to offer its customers comprehensive insurance, banking and asset management services utilising synergy benefits within the group of companies. For this reason, the LocalTapiola conglomerate is considered by the market to be a uniform group even though it consists of companies that are legally separate entities. If the solvency of an individual company within the LocalTapiola conglomerate is weakened or even jeopardised, this may also jeopardise the reputation of other companies within the conglomerate and thus can be very damaging for their business operations. The bases for LocalTapiola conglomerate's solvency management were defined in the agreement concluded by Tapiola and Local Insurance when the two companies merged. The LocalTapiola conglomerate forms a financial and insurance conglomerate as referred to in the Act on the Supervision of Financial and Insurance Conglomerates as well as a group as referred to in the upcoming Solvency II legislation. Local- Tapiola General acts as the conglomerate's leading company and it is tasked with ensuring that the conglomerate and its companies fulfil legal requirements relating to solvency. In connection with the Memorandum of Association, a Joint Liability Agreement has been concluded between LocalTapiola General and the regional companies, which defines the principles governing in which situations and how the measures required for ensuring solvency and capital management (relating to capital management) are implemented. Solvency management is part of LocalTapiola conglomerate's risk management and it complies with the conglomerate's risk management policy. Solvency management is based on current legislation on solvency, as well as on the conglomerate's and companies' strategies. Based on this, an internal solvency target (willingness to take risks as regards solvency management) is defined for the conglomerate and the companies, taking into account their risk-bearing capacity in relation to legal requirements. Risk tolerance and risk limits are defined on the basis of the willingness to take risks. As the LocalTapiola conglomerate is a mutual group of companies, its access to external capital is limited. For this reason, the LocalTapiola conglomerate and its companies determine their solvency requirements by setting objectives defining how much solvency capital the companies must maintain in excess of the target stipulated in legislation. The objectives of solvency management for the entire LocalTapiola conglomerate and for its individual companies are as follows: Ensuring that the solvency position fulfils legal requirements and meets internal solvency objectives while ensuring that the risk level is within the defined risk tolerance boundaries. Ensuring that the solvency position will also fulfil legal requirements in business forecasts and in the event of unexpected but possible stresses or scenarios. Defining and implementing any necessary measures to ensure that requirements and objectives related to the solvency position are fulfilled. 25

28 ANNUAL REPORT The LocalTapiola conglomerate implements three lines of defence as defined in its risk management policy (see the section on general principles for risk management). The solvency management model is based on the same three lines of defence as risk management. Overall responsibility for the organisation of solvency management lies with the company s Board of Directors. The principles and plans related to solvency management are defined in the LocalTapiola conglomerate's principles for solvency management and Local- Tapiola's solvency management plan, both of which have been approved by the company's Board of Directors. The solvency of the LocalTapiola conglomerate and its companies is regularly monitored with quarterly solvency reports by the Boards of Directors. The report includes statutory solvency requirements, as well as the values of internal solvency indicators at the time of calculation and their development in different scenarios. The scenarios include alternative development paths for the economy and investment markets. In addition to this, the impact of market risks on the solvency of the conglomerate's insurance companies is monitored and managed using monthly solvency reports (which may also be prepared more frequently if deemed necessary). These are used as the basis for reporting to the companies' Boards of Directors. 2.2 Development of risk management in preparation for Solvency II The on-going Solvency II EU project aims at reforming the solvency system of insurance companies. The project concerns life insurance and non-life insurance companies as well as insurance conglomerates. The aim of this project is to create a monitoring system that takes the risks of insurance operations into account in a comprehensive manner. In the Solvency II project, the development of new quantitative solvency requirements dependent on a company s specific risk profile is of key importance. The Solvency II solvency system will consist of three pillars: Pillar 1: Quantitative solvency requirements. Pillar 2: Qualitative requirements for corporate governance, risk management and internal control, as well as requirements concerning the company s ability to comprehensively assess and manage its solvency and risks. Regulations on the supervision process of supervisory authorities. Pillar 3: Requirement to communicate on solvency and risk. The adoption of the Solvency II directive has been postponed. It is now due to enter into force on 1 January However, the requirements set out in the directive regarding corporate governance, risk management, internal control and companies' own risk and solvency assessments entered into force at the beginning of 2014 when the Insurance Companies Act was amended. Furthermore, the European Insurance and Occupational Pensions Authority (EIOPA) has laid down further rules regarding the aforementioned areas and reporting requirements. These will be adopted in Finland in early 2014 as part of the Finnish Financial Supervisory Authority's set of rules and guidelines for insurance companies. In itself, this will not lead to any new legally binding solvency requirements. The current requirements will remain in force but the conglomerate and its insurance companies must be able to assess their solvency positions in accordance with Solvency II. LocalTapiola's solvency management policies focus on requirements that are currently in force. However, as the adoption of Solvency II approaches, it will be necessary to monitor the solvency of the conglomerate and its individual insurance companies using both systems. From 2014 up until the adoption of Solvency II, indicators based on Solvency II will be used alongside the indicators based on the current rules. LocalTapiola is running a Solvency project and follow-up projects to prepare it for the adoption of the new regulations. These projects are scheduled for and consist of five sub-entities: life insurance, non-life insurance, investment and balance sheet management, the Group and implementation of the SII system. The primary objective of the project is to fulfil the requirements resulting from the Solvency II Directive. In addition to these mandatory requirements, the aim of the project is to develop financial (riskbased) business planning, information management, accounting and reporting to meet the needs of Solvency II and financial business planning, as well as change management when moving to Solvency II and financial business planning. 26

29 5 LocalTapiola General has participated in the Solvency II quantitative impact studies. In these studies, insurance companies in the EU have been assessing the impact of solvency requirements under Solvency II. The results show that LocalTapiola General and its conglomerate clearly meet the solvency requirements under preparation. 3. Insurance operations risk management The risks of the company's insurance operations are market risks associated with investments and insurance risks in non-life insurance. Market risks are changes in the market value of assets or in the amount of liabilities that are the result of changes or fluctuations (volatility) in financial variables, such as interest rates, share prices, exchange rates or real estate values. The major insurance risks in non-life insurance relate to the pricing of insurance products and risk selection, inflation, interest rate fluctuations, changes in mortality rate, occupational diseases and reinsurance covers. 3.1 Investment risk management Definition of risks and risk management strategies Pricing risk refers to the fact that insurance premiums are not enough to cover claims and operating expenses due to insurance contracts. The major pricing risks are connected with the adequacy of risk payments for the tariff models used as well as profitability and claim supervision processes and taking these processes into account in insurance pricing and subscription policies. The insurance subscribing policy of LocalTapiola General defines the insurance risks allowed. The company's financial equity model is used to define profitability objectives for various insurance types. The Board of Directors approves the entire company s, as well as customer segment- and insurance class - specific combined ratio targets. Furthermore, the pricing strategy is used to guide the person in charge of risks and to guarantee justified pricing. Inflation risk is connected with long-term cash flow claims. These include, for example, claims connected with health care and rehabilitation for personal injuries. An inflation risk is realised if, due to inflation, the level of compensation paid exceeds the level assumed when determining prices and liability for damages. In this case, the premiums and liability for damages prove to be insufficient. Risk of occupational diseases is insured as a part of employers liability insurance and it is governed by the Accident Insurance Act and also by a separate Occupational Diseases Act that includes a definition of occupational disease. An occupational disease is a health hazard due to an employment relation that is not a short-term injury like accidents at work. Occupational diseases are usually caused by several years of exposure and appear several years after the exposure. An occupational disease is an illness that is caused mainly by physical, chemical or biological factors. Insuring the risk of occupational diseases causes, in particular, a pricing risk. Occupational diseases also involve the risk of inadequate technical provisions, which is realised if the amount reserved for technical provisions is not sufficient to pay compensations for occupational diseases that are unknown in the year of provision and occur at a later time. Risks due to interest rate fluctuation are connected with pension-type claims. When calculating the claims provision, the resulting long-term cash flows of known damages are discounted using the technical rate of interest. A risk will be realised if profits corresponding to at least the unwinding of discount expense cannot be acquired for the assets bearing these liabilities. The risk of inadequate technical provisions is realised if the amount reserved for technical provisions is not sufficient to pay compensations the company is committed to that become payable after the year of provision. The longevity risk is a part of the risk of inadequate technical provisions. This refers to uncertainty connected with the evaluation of claims incurred due to uncertainty in evaluating future mortality rates. In non-life insurance, the longevity risk mainly refers to pension liability comprising capital value of pensiontype claims included in accident, motor vehicle and patient insurance technical provisions. These pension 27

30 ANNUAL REPORT liabilities are mainly life-time ones. The longevity risk of pension liability is realised if the mortality rate proves to be lower than expected in the future, in which case pensions must be paid out for a longer time than had been expected. In the determination of technical provisions, defining principles for technical provisions in the various insurance classes are defined. The definitions are prudent with respect to interest rate and mortality as well as other definition principles. The adequacy of the technical provision is monitored annually and revisions are made when necessary. Risks connected with reinsurance covers concern the trustworthiness of reinsurers, the diversification principles to be followed in acquiring cover and the principles followed for single major risk targets, especially with respect to securing reinsurance cover before stating direct business premium risks. Furthermore, evaluation errors connected with EML evaluations (Estimated Maximum Loss) may be highly detrimental if realised. Risks connected with reinsurance cover are managed using a reinsurance programme and instructions for acquiring reinsurance cover as confirmed by the company's Board of Directors Risk management processes The business units of LocalTapiola General are responsible for reaching the targets defined using the underwriting policy and pricing strategy, as well as the internal business model. Special attention is paid to taking risks into account when pricing insurance products. For major customers, risks are increasingly often estimated by using the company s own statistics. Risks connected with pricing and the level of insurance premiums are managed by continuously developing the reporting and calculation methods. The systems provide correct and up-to-date information used to implement the changes required in the insurance premium level as quickly as possible. Risks connected with claims incurred are also being managed by underwriting a limited number of especially high risk premiums or leaving them out completely. The risk of technical provision s adequacy is connected, in particular, with insurance classes in which longterm continuous pension-type claims are paid out. Most of these are claims for employers liability insurance and motor liability insurance. For these, a mortality model developed by the Federation of Accident Insurance Institutions and the Finnish Motor Insurer s Centre in cooperation is used. As of 2003, we have used in our financial statements a so-called cohort model in which the mortality of a pensioner is influenced by his or her age, sex and year of birth. To manage the interest rate risk, compounding is carried out securely in such a way that the technical rate of interest does not exceed the securely determined level of investment income on the assets covering liabilities over the estimated average settlement of damages. In statutory insurance classes, index increases paid in connection with pensions are not reserved in technical provisions. Their annual financing is taken care of by a method of distribution that all insurance companies giving out statutory insurance types are obligated by law to participate in. Correspondingly, as concerns the expenses from medical treatment and medical rehabilitation under statutory accident insurance and motor liability insurance, the company only needs to prepare for inflation risk in relation to claims outstanding for ten years after the damage has occurred. After this, the expenses are financed from the payas-you-go system. In motor liability insurance, the scheme applies to medical treatment and medical rehabilitation expenses incurred from damages in or after 2005, whereas the expenses incurred from damages that occurred prior to 2005 will be financed by the pay-as-you-go scheme after For certain types of claims, establishing the final amount of claims may take several years, These include, in particular, claims for life insurance and general liability insurance. Definition of unfinished and unknown claims is included in the calculation bases for technical provisions. This part of technical provisions is defined using statistical and mathematical methods. The adequacy of technical provisions is monitored annually and revisions are made when necessary. 28

31 7 The structure of the insurance portfolio, different volumes for the insurance classes, possible cumulative risks and the company s solvency are taken into account when planning reinsurance cover and programmes related to direct insurance risks. Based on these factors, excess points are set for each insurance class that define the maximum amount to be held at own risk for single risks. LocalTapiola General only approves companies that are adequately solvent and creditworthy as reinsurers. Most of the reinsurance is placed with companies whose credit rating by Standard & Poor is at least class A. Reinsurance cover is acquired in a decentralised manner from an adequate number of reinsurers. The company's Board of Directors has set limits on the maximum proportion of the reinsurance portfolio that can be placed with a single reinsurer and the maximum value of a single reinsurance premium. Most reinsurance is relative. We prepare for risks connected with the availability of reinsurance and adequate coverage through close cooperation between direct business and reinsurance, and by making any necessary revisions in direct business contracts and tenders in a timely manner. Customer risks are reduced by using customer selection instructions, by monitoring adherence to these instructions, by using a register of claims and by using insurance investigators, for example. The impact of large risk concentrations are minimised by the Board of Directors reviewing the concentrations on a regular basis. It is important to ensure that underwriting and pricing authorisations are maintained by the business units to enable prudential customer selection and pricing that correlates with risk. The company's Research Team studies and prevents insurance crime targeted at insurance operations. Checking potential customers data prior to selecting customers and studying unclear claims are important aspects of the Research Team s operations. More serious cases are handed over to the authorities. Effective customer selection aims at keeping credit losses and claims incurred at the desired level Technical provisions According to the Insurance Companies Act, insurance companies must apply safe calculation bases when defining technical provisions. Technical provisions must always be sufficient so that the company can meet its obligations according to reasonable estimates. The Insurance Companies Act contains more detailed provisions on the principles to be complied with when calculating technical provisions. The Financial Supervisory Authority must be notified of the calculation bases for technical provisions prior to the end of a financial year. The provision for unearned premiums is defined using coefficients specified for each insurance class. The coefficients are determined in compliance with the pro rata clause. In other words, the provision for unexpired risks represents that part of the premium income that corresponds to the share of insurance periods in future financial years of the insurance periods of agreements made in the current financial year. Compensation for major individual claims that become payable after closing of the accounts is reserved on a case-by-case basis by compensation experts in each business unit in accordance with written instructions issued by an actuary. The limit that compensations must exceed in order to be reserved on a case-by-case basis is defined mainly on the basis of the volume for each insurance class and/or claim type. When defining the provision for pension-type claims, the mortality model issued to the companies by the Federation of Accident Insurance Institutions and the Finnish Motor Insurer s Centre is used. The provision for so-called other known and unknown claims (collective provision) is defined statistically by using normal actuarial methods. The methods use so-called run-off triangles formed from the compensation history that describe the settlement of claims. When calculating the collective provision for pensiontype compensation of non-statutory insurance classes, future inflation is assumed to be the same as the average for the past years used in the evaluation. In statutory insurance classes, the index increases for pension-type claims are financed by a pay-as-you-go scheme that all insurance companies giving out the said type of insurance are obligated by law to participate in. To increase the coverage of the collective provision, a security supplement is made part of the provision. 29

32 ANNUAL REPORT A claim handling provision is reserved for future handling of claims that have occurred prior to the closing of the accounts. The provision is defined for each insurance class as a relative share of the total amount of the actual liability. Compounding is applied only when defining damage-specific provisions for pension-type claims and the provision for unearned premiums of perpetual insurance. The technical rates of interest are 2.1 and 4.5 per cent, respectively Quantitative information about technical provisions The tables below show the structure of technical provisions. TECHNICAL PROVISIONS Provision for unearned premiums Known pension-type claims 1,130 1,084 Other actual provision for claims outstanding Claims settlement provision Total 1,915 2,222 Reinsurers' share Total at own risk 1,888 2,179 Equalisation provision Technical provision 2,371 2,795 ACTUAL TECHNICAL PROVISIONS BY INSURANCE CLASS GROUP Statutory accident Motor liability 1,022 1,034 Other property * General liability Other direct insurance Total direct business 1,872 2,175 Future reinsurance Non-life insurance, total 1,915 2,222 Reinsurers' share Actual technical provisions 1,888 2,179 *) Includes insurance classes fire and other forces of nature, other damage to property as well as other pure financial losses. 30

33 9 3.2 Risk management Operating principles The aim of the company's investment operations is to secure its solvency and maximise returns at the selected risk level. Asset allocation is guided by the limits set by solvency, the structure of technical provisions and eligibility for the solvency margin, as well as the return requirement. In the long term, investment returns must exceed the total return target required by the customer benefit policy. Investment operations aim to reach a high and stable returns in the long term in all conditions at moderate risk. Investments are diversified sufficiently across and within the asset classes. Individual risks and responsibilities are controlled by establishing limits and investment criteria. Investment operations must ensure adequate liquidity under all circumstances. In addition, the investment portfolio must be sufficiently simple Organisation of market risk management The company's Asset and Liability Committee (ALCO) is an expert organ for managing, monitoring and reviewing balance sheet risks and it reports directly to the Board of Directors. It is responsible for ensuring that the company s balance sheet risk management is organised in an appropriate manner and that the company's capital is efficiently used. The Committee draws up, at regular intervals, a proposal on strategic market risk-taking and the associated investment targets and restrictions (limits) and submits it to the Board of Directors for approval. The limits cover investment price and interest risks, including the characteristics and requirements of the technical provisions. The defined risk limits and the results of risk-taking are constantly monitored. The Committee is also responsible for making decisions related to the Group's capital management and capitalisation. The Board of Directors appoints an Investment Control Committee, which is responsible for the practical organisation of investment operations and the operational supervision of market risks. The Committee makes sure that the investment return target as per the strategy approved by the Board of Directors is achieved. Furthermore, it monitors, develops, controls and decides upon liquidity and concentration risk management Risk management processes The risk management process is based on guidelines, supervision of their implementation in operations, regular risk reporting and self-assessment. The guidelines include a market risk strategy, an investment plan and a derivatives policy, among others. In addition, the company takes market risks based on its approved solvency management, capital management and liquidity management principles. The company s Board of Directors annually confirms an investment plan that determines the targeted allocation of investments and expected returns, instrument-specific ranges, diversification and liquidity targets, and powers of decision. The purpose of diversification is to secure a sufficient level of return regardless of market conditions, both within and between instrument categories. The diversification principles apply to various business sectors, countries and investment targets. Individual risks and responsibilities are controlled by establishing limits and investment criteria. Sufficient liquidity is ensured by the structure of the investment portfolio. As regards derivatives, a more detailed policy approved by the Board of Directors is used. The policy describes the principles governing the use of derivatives. Derivatives can be used to reduce risks relating to equity, foreign exchange and fixed-income investments, among others. Adequate analyses, diversification, derivatives and counterparty risk limits are used with the aim of securing freedom of action in all market conditions. Real estate investment risks are analysed separately. Investment risks and returns are monitored using standard market risk and reporting methods. The reports are used to regularly monitor the development of fixed-income, real estate and equity investments, as well as any risks related to them. The reports also ensure compliance with the operational principles defined in 31

34 ANNUAL REPORT the investment plan. The company uses a risk management system based on investment-specific risk monitoring Market risk and solvency management The effect of market risks on the company s solvency is monitored and managed in accordance with the current solvency practice (Solvency I). Furthermore, solvency is monitored in compliance with current solvency regulations applied to conglomerates. Preparations for the future Solvency II framework are underway. In the short term, the current solvency practice is the more significant and limiting system. The most significant change in solvency calculation will be that under Solvency II, in addition to assets, also technical provision will be valued at market terms to current value. Hence, the value of technical provisions and the amount of solvency capital will be particularly dependent on interest rate levels, and the significance of interest rate risk management will increase. Another significant change is the minimum solvency capital requirement based on the company's risk level. The purpose of market risk management is to secure the company's solvency for the next twelve months with sufficient probability. The risk of investment value changes is continuously monitored with a probabilistic model based on historic investment values and the correlation of value changes between different investment classes. The risk is monitored by using both long-term average values for volatility and estimated key risk figures from a shorter period of time. When necessary, investment operations are controlled more strictly, in accordance with the traffic light principle, and are based on continuous market risk monitoring. A green light refers to a situation where asset managers are able to operate in accordance with the normal investment plan limits. A yellow light relates to a situation when any increases in investment market risks or a neutral investment allocation within the investment plan are no longer acceptable in view of the risk content of the balance sheet. A red light refers to a situation where the balance sheet risks are too high and active risk reduction measures are needed. In the yellow and red light risk positions, tightened limits for investment risks, and possible risk reduction measures, are defined. The total risk is defined in such a manner that the solvency margin remains on a secure level also in the event of any of the risks occurring Quantitative information about the risk structure of the investment portfolio The table below shows an investment sensitivity analysis that describes the impact of changes occurring in the values of instruments at the closing of the accounts on solvency capital Impact of change Share Value of real quotations estate -10% -20% Interest level +1 percentage point Solvency capital EUR m 1, Solvency ratio, % Return on investment, %

35 11 4. Operational risk management 4.1 Definition of risks Operational risks refer to the risk of losses caused by insufficient or failed internal processes, personnel, systems and external factors. Legal risks and risks of damage are included in operational risks. Risks related to business planning refer to risks within annual planning choices, target-setting and business change situations. 4.2 Risk management processes Using a standard risk mapping methodology, operational risks are mapped as part of the annual planning process and whenever the risk situation changes significantly. Mapping is carried out from the perspectives of both the conglomerate's organisational structure (companies, Group services) and, separately, of any risk areas of particular importance (such as law, information security and security). In addition, risk mapping is carried out separately for each initiative, project, and significant change in business operations. Risks are assessed with regard to the probability of the risks occurring and their impact. On the basis of the assessment, risks are prioritised as risks requiring immediate action, risks requiring active management and risks which, at the time of assessment, are minimal but may become significant in the future. Specified risk management plans are drawn up for risks requiring immediate action and active management. These plans include, for example, information on the risk owner, supervision and reporting as well as an estimate of the adequacy of current risk management activities. In the pursuit of business processes that are flawless and reliable, business processes must include a sufficient amount of supervision or control measures which will ensure the legitimateness and quality of operations. Supervision measures are described in detail in the company's internal audit policy. Close calls or risks that have occurred are regularly monitored and reported. The aim of monitoring is to Learn from the occurred events and prevent them from re-occurring in the future; Identify the most significant risks and challenges in our operational activities; and Help improve and correct our working methods, processes and information systems. Risk events are monitored at unit level. The Group s risk management services prepare a quarterly summary report to the management and Board of Directors. Insurance and financing companies are required by law to prepare for maintaining activities regarded as necessary for the operation of the markets under extraordinary circumstances. In practice, this means drawing up anticipatory plans, developing organisational responses and making important emergency arrangements to ensure continuity of operations. The purpose of contingency and preparedness planning is to prevent the occurrence of disruptions and crises threatening business operations, as well as to enable the management of these emergencies and their consequences. In addition, there are separate procedures and guidelines for risk management, for example: Process risks System risks Legal risks Security risks Information security risks Project risks Insurable risks (own insurance cover) 33

36 ANNUAL REPORT Description of material risks and expectations for 2014 Material operational risks are often connected with the disturbance-free functioning of information systems, the reliability of business processes that are visible to the customer, as well as changes and unexpected events in the operating environment. In addition, extensive competence requirements, management of change and focusing of efficiency measures require active risk management measures. The risk mapping process showed that the operational risks that apply to 2014 are very similar to those in the previous year. Key risks are associated with information systems, business processes and management of change situations. In 2014, business risk management will continue to focus on charting and implementing the requirements of the Solvency II framework. In addition, attention will be paid to improving the continuity and quality of the existing risk management processes. 5. Management of risks associated with the operating environment and strategy 5.1 Definition of risks Risks related to the operating environment and strategic intent include risks associated with the general operating environment, changes in the markets and customer behaviour, the nature of competition and competitors, own strategic choices and operating as a Group and group investments. 5.2 Risk management processes Significant risks related to the operating environment and strategic intent are identified and the probability of their occurrence and the significance of potential occurrence is assessed annually in conjunction with the strategy process. This is undertaken through self-assessment. The procedure is carried out in accordance with the strategy process s responsibility allocation and order of implementation. To reduce and diminish the risks identified and to utilise opportunities, those responsible for the strategy process plan and implement risk management measures, which are implemented as part of the annual plans of the various parts of the organisation. 5.3 Description of material risks and expectations for 2014 The biggest risks concerning the operating environment were associated with the uncertainty of global economic development. This was a consequence of both the repercussions of the crisis in the financial sector, as well as the problems relating to the indebtedness of the US and some European Union member states. The insurance and banking sectors are very centralized, and competition focuses mainly on loyalty benefits and service fees. As a repercussion of this, the intensity of competition may become unbalanced and alternatives limited in the markets. Competition was also strongly guided by the aim of expanding the selection of supplementary services through networks. The company's strategy is derived from mutuality. The congruency of the interests of customers and owners continued to provide a good basis for growth and improvement of profitability. A possible risk may arise from the bases and benefits of mutuality being insufficiently well known in the markets. Expectations for risks in 2014 are very similar to those in the latter half of the previous year. Uncertainty will continue or even increase in the eurozone and globally, and competition will become increasingly centralised, partly due to possible structural changes of competitors. 34

37 13 6. Risk management for the credit institution and investment service business LocalTapiola Bank Group s risk management is based on risk management concepts, the duties of risk management, strategic intent and the willingness to take risks as defined by the LocalTapiola Group. It is also based on official regulations, taking into account the special requirements of banking. 6.1 LocalTapiola Bank's risk management The bank s operations are guided by the strategy, annual risk management, investment and business plans and operating principles, as well as the principles, limits and decision-making principles concerning crediting and investments, and related monitoring measures as approved by the Board of Directors of the bank. It is the task of the bank s management to implement the bank s internal auditing, taking account of legislation and official regulations, the bank s Articles of Association and the decisions and guidelines issued by the Board of Directors. The Bank s Managing Director is responsible for organising the risk management function. The organisation has a risk management committee, which, in accordance with its rules of procedure, prepares and supervises risk management guidelines and compliance with them. In daily business operations, the Credit Director is responsible for risk management as regards credit risks, the Balance Sheet Management Committee as regards balance sheet risks, and the head of each business area as regards operational risks. This division of responsibility has been implemented in order to ensure comprehensive risk management, as well as to identify all material risks and their combined effect on the bank s operational result and own funds. Credit risks Credit risk refers to the risk of a loss caused by the bank's contracting parties not being able to discharge their obligations and the collateral received not securing the receivables. Credit-granting and the quality of the credit process are essential for credit risk management. LocalTapiola Bank was founded to supplement the Group s service range, particularly in the private sector. As a result of the Local Insurance merger, the range of services offered to farmers and small companies has expanded. The Bank s customers comprise of those that centralise their business in the Group, as well as new customers coming to the Bank on the basis of the new opportunities offered by it. The customers are households and the main product in crediting is housing loans. As a rule, unsecured credit risks are not taken. The customer s solvency and financial buffers must secure a low-risk loan portfolio for the bank. Careful credit-granting is based on the customers credit rating, a centralised credit decision process, careful insurance policies and safe credit-granting authorisations. Credit-granting to private persons and the assessment of the need for capital relating to credit are based on the risk classifications which have been used since the start of the Bank s operations. The borrower s solvency and financial buffers are taken into account in the risk classification. Both classification criteria use a five-class evaluation scale, so there are a total of 25 risk classes in the matrix. A value of 1 25 has been determined for each cell in the matrix, which are used in the reports when risk classes are combined. Three risk classes are used in regular reporting. A relative maximum limit has been set in the risk management plan for the loans with the highest risk content. 35

38 ANNUAL REPORT Risk level EUR m share EUR m share Lower than normal % % Normal % % Higher than normal % % Total 1, % 1, % The risk class is used to guide the margin requirement. In addition to the prudent collateral requirement, the customer s solvency as a result of a possible rise in interest rate levels is assessed in risk classification, among other things. The management group modifies the guidelines for credit pricing in accordance with the risk management plan and the general market situation. Market risks The aim of taking market risks is to achieve a reasonable return in relation to the risks. The most significant risks for LocalTapiola Bank s business operations are interest rate risk and liquidity risk of the balance sheet. Prudent limits are set for these. Interest rate risk Interest rate risk refers to the bank s performance changing in the event of unfavourable interest rate trends (including maturity, reference rate and interest rate adjustment period risks). The interest rate risk is measured both as cash flow interest rate risk based on the current value and as 12-month income risk. A limit in relation to the Bank's own funds has been set for both risks. Financing risk Financing risk arises when the maturities of receivables and liabilities are different. Financing risk is monitored on the basis of maturity classes. In each of the maturity classes to be monitored, possible underfunding may not exceed the amount defined in the risk management plan. If the risk limit is exceeded, the deficit can be covered with the financial conglomerate s internal financing limits. The conglomerate s internal financing limits must cover 100 per cent of the deficit created. Liquidity risks The liquidity risk is managed with a strategy approved by the Board of Directors and with a contingency plan safeguarding the implementation of the strategy. LocalTapiola Bank maintains a sufficient liquidity reserve, which covers sudden changes in the cash situation. The principle is to determine the size of the reserve in such a way that at least one month s unanticipated market disturbance can be managed with it. The sufficiency of liquid assets is assessed using two different indicators. For both of these, the liquidity reserve must exceed the amount of liquid assets required as indicated by the liquidity stress. Currency risks Overall and currency-specific limits have been set for currency operations. The bank had no currencydenominated business operations during the financial year. Price risks The price risk refers to the risks connected with the development of the market value of investments and holdings. In fixed-income investments, the price risk may affect the current value of investments as a result of changes in credit, interest rate or spread risks. The Group's most significant price risk mainly concerns the fixed-income investments managed by the bank's treasury and the related interest rate risk. The purpose of the investments is to act as the Group s liquidity reserve. The limits set in the risk management plan set the limits for investment activities. 36

39 15 LocalTapiola Asset Management risk management The above-mentioned principles of LocalTapiola Group and the bank have been followed in the subsidiary s risk management. The methods of risk mapping, reporting, assessment of the need for capital, and contingency planning are consistent within the Bank Group. 37

40 ANNUAL REPORT 2013 LocalTapiola General Mutual Insurance Company Notes to the financial statements Formulae and principles for the calculation of key figures 1) GENERAL KEY FIGURES DESCRIBING FINANCIAL DEVELOPMENT 1.1 Turnover = Non-life insurance turnover: + Premiums written before reinsurers share + Net investment income in the profit and loss account + Other income 1.2 Operating profit or loss and overall result Non-life insurance company performance analysis Premiums earned Claims incurred Operating expenses Other technical income and expenses Balance on technical account before change in equalisation provision Investment income and expenses as well as revaluations, adjustments and changes in value Other income and expenses Share in profit/loss of associated undertakings 1) Operating profit or loss Change in equalisation provision Profit or loss before extraordinary items Extraordinary income Extraordinary expenses Profit or loss before appropriations and taxes Income taxes and other direct taxes Minority interests 1) Profit or loss for the financial year Total result 1) Applies to the consolidated financial statements + Operating profit/loss +/- Change in off-balance-sheet valuation gains/losses, current value reserve and revaluation reserve 1.3 A Net return on capital employed (at current value) Net investment income at current value in proportion to capital employed is calculated for each type of investment and the whole investment portfolio taking into account cash flows during the period. Yield for the financial period is calculated using a so-called modified Dietz formula (a time- and money-weighted formula) such that capital employed is calculated by adding the cash flows during the period to the market value at the start of the period, weighted 1( 5) 38

41 Formulae and principles for the calculation of key figures LocalTapiola General Mutual Insurance Company Notes to the financial statements by the relative share of the length of the entire period that remains from the transaction date or from the middle of the transaction month to the end of the period. 1.3 B Itemisation of net investment income + Direct net investment income in books + Changes in book values + Change in the difference between current and book value Investment allocation at current value Long-term fixed-income funds are included in bonds and short-term funds in money market investments. Investments in mutual funds and similar undertakings for collective investments in transferable securities that invest in real estate and real estate undertakings are included in real estate investments. Estimated differences between current and book value when adjusting items for derivatives and premiums for provisional premiums are allocated to the underlying asset. Purchase price receivables and debts connected with investments are not included in investments. The investment allocation includes deposits with credit institutions included in balance sheet investments. 1.5 Return on assets, percentage (current value) = ± Operating profit or loss + Interest paid and other financial expenses + Unwinding of discount expense ± Revaluation/reversal entered in revaluation reserve /current value reserve ± Change in unrealised gains/losses from investments x Balance sheet total ± Unrealised gains/losses from investments The divisor is calculated as an average value of the balance sheet values for the current financial year and the previous financial year. In non-life insurance, technical rate of interest expense refers to the impact of dissolution of discounted provision for claims outstanding in the company s claims incurred when the company discounts capital-like pensions and/or any other provisions for claims outstanding. The rate is calculated by multiplying discounted provision for claims outstanding at the beginning of the year by the effective technical rate of interest at the end of the previous year. In this key figure, other financial expenses include items due to liabilities other than interest expenses, e.g., exchange gains and losses for interest-bearing liabilities entered in the profit and loss account. 2( 5) 39

42 ANNUAL REPORT 2013 LocalTapiola General Mutual Insurance Company Notes to the financial statements Formulae and principles for the calculation of key figures 1.6 Average number of personnel during the financial year The key figure is calculated as a mean value of the number of personnel at the end of each calendar month. Any part-time employees are taken into account in the number of personnel. All persons receiving salary during the financial year are included in personnel. 2) KEY FIGURES DESCRIBING FINANCIAL DEVELOPMENT OF NON-LIFE INSURANCE 2.1 Premium income = Gross premiums written before reinsurers share 2.2. Loss ratio percentage = Claims incurred x 100 Premiums earned Loss ratio (excl. unwinding of discount expense), percentage = Claims incurred (excl. unwinding of discount expense) x 100 Premiums earned The key figure is calculated after the reinsurers share. Risk ratio percentage = Claims incurred excluding claims handling expenses x 100 Premiums earned 2.3 Expense ratio, percentage = Operating expenses x 100 Premiums earned The key figure is calculated after the reinsurers share. Operating expenses ratio percentage = Operating expenses + claims handling expenses x 100 Premiums earned 2.4 Combined ratio, percentage = + Loss ratio + Expense ratio 3( 5) 40

43 Formulae and principles for the calculation of key figures Combined ratio (excl. unwinding of discount expense)= + Loss ratio (excl. unwinding of discount expense) + Expense ratio LocalTapiola General Mutual Insurance Company Notes to the financial statements 2.5 Solvency margin in reporting currency = 2.6 Solvency margin ratio + Capital and reserves after deduction of proposed distribution of profits + Accumulated appropriations ± Unrealised gains/losses from investments ± Deferred tax liabilities + Subordinated loans (with permission from the Insurance Supervision Authority) - Intangible assets ± Other items prescribed by law Solvency margin in relation to the minimum value The minimum value of solvency margin is defined in the Insurance Companies Act. The solvency margin of an insurance company must exceed this value. 2.7 Equalisation provision in reporting currency 2.8 Solvency capital in reporting currency = + Solvency margin + Equalisation provision + Minority interest 1) 1) Applies to the consolidated financial statements 2.9 Solvency capital s share of technical reserves as percentage = Solvency capital x 100 Technical provisions equalisation provision Technical provisions are calculated after the reinsurers share Solvency ratio, percentage = Solvency capital x 100 Premiums earned for 12 months Premiums earned are calculated for twelve previous months after the share of reinsurers. 4( 5) 41

44 ANNUAL REPORT 2013 LocalTapiola General Mutual Insurance Company Notes to the financial statements Formulae and principles for the calculation of key figures 3) KEY FIGURES DESCRIBING FINANCIAL DEVELOPMENT OF THE CREDIT INSTITUTION AND INVESTMENT SERVICE BUSINESS 3.1 Cost-return ratio = 3.2 Turnover = Administrative expenses + depreciation and value adjustments on tangible and intangible assets + other business expenses Interest margin + return on equity investments + net commission income + net return on security trading and currency operations + net return on available-for-sale financial assets + net result for hedging calculation + net income from investment property + other business income + share in results of associated undertakings (net) Combined sum of interest yield, leasing income, return on equity investments, commission income, net return on security trading and currency operations, net return on saleable financial assets, net return on hedging calculation, net income from investment property and other business income 5( 5) 42

45 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY PROFIT AND LOSS ACCOUNT TECHNICAL ACCOUNT Premiums earned Premiums written , ,67 Reinsurers share , , , ,73 Change in provision for unearned premiums Total change ,00 Business transfer decrease , , ,00 Reinsurers share Total change ,00 Business transfer decrease , , , , , , ,73 Other technical income 0,00 0,00 Claims incurred Claims paid , ,87 Reinsurers share , , , ,67 Change in provision for outstanding claims Total change ,00 Business transfer decrease , , ,00 Reinsurers share Total change ,00 Business transfer decrease , , , , , , ,67 Operating expenses , ,03 Balance on technical account before change in equalization provision , ,03 Change in equalization provision Total change ,00 Business transfer decrease , , ,00 Balance on technical account , ,97 NON-TECHNICAL ACCOUNT Balance on technical account , ,97 Investment income , ,41 Investment charges , ,34 Revaluation adjustments on investments , , , ,72 Other income 4 Other , ,54 Other expenses 4 Other , ,69 Direct taxes on ordinary activities Taxes for the financial period , ,94 Taxes for previous financial periods , , , ,10 Profit/loss on ordinary activities , ,50 Profit/loss after extraordinary items , ,50 Appropriations Change in depreciation difference , ,64 Profit for the accounting period , ,86 43

46 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Balance sheet Assets Intangible assets Other expenses with long-term effects , ,81 Investments 5 Real estate investments 6 Real estate and shares in real estate , ,48 Loans to group companies , , , ,66 Investments in group companies and participating interests 7 Shares in group companies , ,50 Debt securities and loans of companies in same group , ,00 Shares and holdings in participating interests , , , ,54 Other investments Shares and holdings , ,31 Debt securities , ,31 Loans guaranteed by mortgages , ,95 Other loans , ,65 Deposits 0, , , ,06 Deposits with ceding undertakings , , , ,10 Debtors 15 Arising out of direct insurance operations Policyholders , ,86 Debtors arising out of reinsurance operations , ,06 Other debtors , , , ,53 Other assets Tangible assets Machinery and equipment , ,95 Other tangible assets , , , ,68 Cash at bank and in hand , ,35 Other assets , , , ,68 Prepayments and accrued income Accrued interest and rent , ,62 Other prepayments and accrued income , , , ,46 Total assets , ,58 Liabilities Capital and reserves 10 Initial reserve , ,35 Guarantee capital 0,00 0,00 Revaluation reserve , ,97 Other reserves , ,91 Profit for the accounting period , , , ,09 Accumulated appropriations 11 Accumulated depreciation difference , ,73 Technical provisions Provision for unearned premiums , ,00 Reinsurers' share , , , ,00 Provision for outstanding claims , ,00 Reinsurers' share , , , ,00 Equalization provision , , , ,00 Obligatory provisions Other obligatory provisions , , , ,79 Deposits received from reinsurers 5 361, ,33 Creditors 15 Arising out of direct insurance operations , ,21 Arising out of reinsurance operations , ,64 Other creditors , , , ,24 Accruals and deferred income , ,40 Total liabilities , ,58 44

47 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Indirect cash flow statement Cash flow from operations Profit from ordinary activities / profit before extraordinary items , ,50 Adjustments Changes in technical provisions , ,00 Business transfer decrease ,00 0,00 Merger increase ,00 Value adjustments and revaluation of investments , ,52 Changes in other obligatory provisions , ,41 Depreciation according to plan , ,11 Other non-cash income and expenses 0, ,22 Other adjustments , ,95 Cash flow before change in working capital , ,51 Change in working capital: Increase (-) / decrease (+) in non-interest-bearing short-term receivables , ,53 Business transfer decrease ,01 0,00 Merger increase ,58 Increase (+) / decrease (-) in non-interest-bearing short-term debts , ,52 Business transfer decrease ,20 0,00 Merger increase 0, ,44 Cash flow from operations before financial items and taxes , ,64 Direct taxes paid , , , ,43 Cash flow from operations , ,43 Cash flow from investments Investments in assets (excl. cash and cash equivalents) , ,07 Business transfer decrease ,03 0,00 Merger increase ,42 Capital gains from investments (excl. cash and cash equivalents) , ,16 Investments in tangible and intangible assets as well as other assets and capital gains (net) , ,43 Business transfer decrease ,20 0,00 Merger increase 0, ,86 Cash flow from investments , ,06 Cash flow from financial Repayment of guarantee capital ,23 Interest on guarantee capital paid and other distribution of profit , ,66 Cash flow from financial , ,89 Change in cash and cash equivalents , ,48 Cash and cash equivalents at the start of the year , ,53 Cash and cash equivalents at the end of the year , ,35 Merger increase , ,01 45

48 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY NOTES TO PROFIT AND LOSS ACCOUNT 1. Premiums written Direct insurance Finland , , , ,48 Reinsurance , ,19 Gross premiums written , ,67 before reinsurers' share 1.1. Items depreciated from premiums written Credit loss on outstanding premiums , ,51 PAYG system fees , ,62 Premium tax , ,30 Fire brigade charge , ,27 Road safety charge , ,00 Labour protection charge , ,00 Total , ,70 46

49 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY NOTES TO PROFIT AND LOSS ACCOUNT 2. Result divided into groups of insurance class Premiums written Premiums earned Claims incurred Operating expenses Reinsurers Balance on before reinsurers before reinsurers before reinsurers before commissions share technical account share share share for reinsurance and before net profit shares investment income Statutory workers' , , , , , ,16 compensation , , , , , , , , , , , ,15 Non-statutory accident , , , , , ,79 and health , , , , , , , , , , , ,47 Motor vehicle liability , , , , , , , , , , , , , , , , , ,07 Land vehicles , , , , , , , , , , , , , , , , , ,73 Marine, aviation, , , , , , ,63 railway rolling stock , , , , , ,86 and transport , , , , , ,81 Fire and other , , , , , ,48 damage to property , , , , , , , , , , , ,28 General liability , , , , , , , , , , , , , , , , , ,57 Credit and suretyship , , , , , , , , , , , , , , , , , ,75 Legal expenses , , , ,54 0, , , , , ,22 0, , , , , ,12 0, ,39 Other , , , , , , , , , , , , , , , , , ,00 Direct insurance , , , , , ,09 total , , , , , , , , , , , ,65 Reinsurance , , , , , , , , , , , , , , , , , ,04 Total , , , , , , , , , , , , , , , , , ,69 Change in ,00 equalization provision , ,00 Balance on ,66 technical account , ,69 47

50 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY NOTES TO PROFIT AND LOSS ACCOUNT 3. Operating expenses and notes concerning personnel and members of corporate bodies Total operating expenses by activity Claims management expenses , ,58 Operating expenses , ,03 Investment operating expenses , ,19 Other expenses , ,69 Total , , Profit and loss account item operating expenses Insurance policy acquisition costs Commissions for direct insurance , ,64 Commissions for reinsurance assumed and profit shares , ,78 Other insurance policy acquisition costs , , , ,18 Insurance policy management expenses , ,48 Administrative expenses , ,08 Commissions for reinsurance ceded and profit shares , ,71 Total , , Notes concerning personnel and members of corporate bodies Personnel expenses Salaries and remunerations , ,90 Pension expenses , ,31 Other personnel expenses , ,45 Total , , Management s salaries and remunerations, pension commitments, monetary loans and terms thereof, as well as guarantees and contingent liabilities Managing director and deputy managing director Salaries and remunerations , ,00 Pension commitments The retirement age of the managing director is 63 and that of the deputy managing director is stated by the law Monetary loans and terms thereof No monetary loans granted Guarantees and contingent liabilities No guarantees or contingent liabilities granted Board members and deputy board members Salaries and remunerations , ,00 Pension commitments The agreed pensionable age of board members and deputy board members is Monetary loans and terms thereof No monetary loans granted Guarantees and contingent liabilities No guarantees or contingent liabilities granted Supervisory board Salaries and remunerations , ,00 Pension commitments No pension commitments. Monetary loans and terms thereof No monetary loans granted Guarantees and contingent liabilities No guarantees or contingent liabilities granted Average number of personnel during the financial year Office staff Sales staff Auditor s fees by assignment category Auditing , ,04 Assignments referred to in section 1, subsection 1, paragraph 2 of the Auditing Act 0, ,10 Tax advice 6 250, ,43 Other services , ,49 Total , ,06 48

51 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY NOTES TO PROFIT AND LOSS ACCOUNT Specification of net investment income Investment income Income from group companies Dividend income , ,24 Interest income , ,66 Other income , , , ,61 Income from participating interests Dividend income , , , ,00 Income from real estate investments in group companies Interest income , ,84 Other income , , , ,60 Income from real estate investments in other companies Interest income , ,93 Other income , , , ,10 Income from other investments Dividend income , ,62 Interest income , ,86 Other income , , , ,46 Total , ,77 Value readjustments , ,22 Realized gains , ,42 Total , ,41 Investment charges Expenses arising from real estate investments From group companies , ,46 Other companies , , , ,99 Expenses arising from other investments , ,48 Interest paid and other expenses on liabilities From group companies , ,63 Other companies , , , ,48 Total , ,99 Value adjustments and depreciation Value adjustments , ,39 Planned depreciation on buildings , , , ,09 Realized losses , ,26 Total , ,34 Net investment income before revaluations and , ,07 revaluation adjustments Revaluation adjustments on investments , , , ,35 Net investment income in the profit and loss account , , Specification of other income and expenses Other income Services sold to partner companies , ,38 Other other income , , , ,54 Other expenses Expenses for services sold , ,60 Transfer to personnel fund , ,76 Other other expenses , , , ,69 49

52 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Current value of investments and difference between in valuation Investments Remaining Book value Current value Remaining Book value Current value acquisition cost acquisition cost Real estate investments Real estate , , , , , ,14 Real estate shares in group companies , , , , , ,10 Real estate shares in participating interests , , , , , ,40 Other real estate shares , , , , , ,44 Loans to group companies , , , , , , , , , , , ,26 Investments in group companies Shares and holdings , , , , , ,50 Debt securities , , , , , ,00 Loans receivable , , , , , , , , , , , ,50 Investments in participating interests Shares and holdings , , , , , , , , , , , ,04 Other investments Shares and holdings , , , , , ,45 Debt securities , , , , , ,81 Loans guaranteed by mortgages , , , , , ,95 Other loans , , , , , ,65 Deposits 0,00 0,00 0, , , , , , , , , ,70 Deposits with ceding undertakings , , , , , , , , , , , ,34 50

53 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Current value of investments and difference in valuation The remaining acquisition cost of debt securities includes: Difference between the nominal value and acquisition cost released (+) or charged (-) to interest income , ,22 Book value comprises Revaluations released to income , ,10 Other revaluations , , , ,41 Difference in valuation (difference between current value and book value) , , Difference in valuation of non-hedging derivatives , ,38 51

54 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Real estate investment Changes in real estate investments Real estate and Loans to group Loans to participating shares in real estate companies interests Acquisition cost on 1 Jan , ,18 0,00 Increase , ,00 0,00 Decrease , ,48 0,00 Acquisition cost on 31 Dec , ,70 0,00 Accumulated depreciation on 1 Jan ,22 Accumulated depreciation related to deductions and transfers ,30 Depreciation for the financial year ,02 Accumulated depreciation on 31 Dec ,94 Value adjustments on 1 Jan ,39 Value adjustments related to deductions and transfers ,05 Value adjustments for the financial year ,00 Value adjustments on 31 Dec ,34 Revaluations on 1 Jan ,41 Decrease ,60 Revaluations on 31 Dec ,81 Book value on 31 Dec , ,70 0,00 Real estate and shares in real estate occupied for own activities 2013 Remaining acquisition cost ,02 Book value ,45 Current value ,11 52

55 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Investments in group companies and participating interests Shares and holdings in group companies Acquisition cost on 1 Jan , ,26 Increase ,00 0,00 Decrease 0, ,76 Acquisition cost on 31 Dec , ,50 Value adjustments on 1 Jan. 0, ,76 Value readjustment 0, ,76 Value adjustments on 31 Dec ,37 0,00 Book value on 31 Dec , ,50 Shares and holdings in participating interests Acquisition cost on 1 Jan , ,04 Decrease 0,00 0,00 Acquisition cost on 31 Dec , ,04 Book value on 31 Dec , ,04 Total , ,54 53

56 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY NOTES TO BALANCE SHEET Investments in group companies Shares and holdings Domicile Share of Capital and Profit/loss for the stock % reserves accounting period Aura-Karelia Oy Espoo 100, , ,50 Turva Mutual Insurance Company Tampere 67, , ,85 Kestap Ky Espoo 100, ,12-229,17 Omre Oy Espoo 100, ,13-230,29 Provina Oy Helsinki 100, ,00 0,00 LocalTapiola Bank Oyj Espoo 78, , ,39 Tapiola Safety Oy Espoo 100, ,97-231,43 Tapiolan Revontuli Oy Espoo 100, , ,73 Tieto-Tapiola Oy Espoo 51, , ,88 Tietotyö Oy Espoo 100, , ,80 Total , , Investments in participating interests Shares and holdings Domicile Share of Capital and Profit/loss for the stock % reserves accounting period LähiTapiola Real Estate Oy Espoo 50, , ,27 Oirabi Oy Espoo 50, ,44-229,84 Vakuutusneuvonta Aura Espoo 33, ,58-223,86 Vakuutusneuvonta Pohja Espoo 33, ,43-224,02 Total , ,55 54

57 7.3 NOTES TO BALANCE SHEET LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Security Share of Number Book value Current value Home country stocks % Finnish companies, listed Amer- Sports Oyj 0, , , ,32 Finland Fortum Oyj 0, , , ,16 Finland Ilkka-Yhtyma Oyj 0, , , ,54 Finland Kone Oyj B 0, , , ,00 Finland Lassila & Tikanoja Oyj 0, , , ,94 Finland Nokian Renkaat Oyj 0, , , ,00 Finland Stockmann Oyj B 0, , , ,56 Finland Vacon Oyj 0, , , ,00 Finland Vaisala Oyj A 1, , , ,00 Finland Other , , ,00 Finland Total , ,52 Finnish companies, non-listed Autovahinkokeskus Oy 18, , , ,07 Finland Fingrid Oyj 1,50 50, , ,27 Finland LokalTapiola Sydkusten 100,00 339, , ,95 Finland LähiTapiola Etelä 100,00 250, , ,11 Finland LähiTapiola Etelä-Pohjanmaa 100,00 44, , ,67 Finland LähiTapiola Itä 100,00 303, , ,92 Finland LähiTapiola Kaakkois-Suomi 100,00 310, , ,69 Finland LähiTapiola Kainuu-Koillismaa 92,38 431, , ,73 Finland LähiTapiola Keski-Suomi 100,00 43, , ,61 Finland LähiTapiola Keskinäinen Henkivakuutusyhtiö 98, , , ,09 Finland LähiTapiola Lappi 100,00 593, , ,03 Finland LähiTapiola Loimi-Häme 100,00 514, , ,47 Finland LähiTapiola Lännen 100,00 211, , ,54 Finland LähiTapiola Pirkanmaa 100,00 423, , ,96 Finland LähiTapiola Pohjanmaa 100,00 200, , ,78 Finland LähiTapiola Pohjoinen 100,00 643, , ,71 Finland LähiTapiola Satakunta 100,00 220, , ,26 Finland LähiTapiola Savo 100,00 322, , ,20 Finland LähiTapiola Savo-Karjala 42,98 453, , ,36 Finland LähiTapiola Uusimaa 84,09 674, , ,45 Finland LähiTapiola Varsinais-Suomi 100,00 393, , ,68 Finland LähiTapiola Vellamo 100,00 562, , ,61 Finland Pihlajalinna Oy 7, , , ,24 Finland Rederiaktiebolaget Eckerö 1 sid. 1, , , ,00 Finland Satel Oy 12,63 625, , ,00 Finland Sato Oyj 2, , , ,40 Finland Seligson & Co Oyj 14, , , ,00 Finland Other , , ,91 Finland Total , ,71 Foreign companies, listed ABB 0, , , ,96 Switzerland AMEC 0, , , ,47 Great Britain Adidas 0, , , ,00 Germany Amphenol 0, , , ,15 United States BASF 0, , , ,00 Germany Bayer 0, , , ,00 Germany Campbell Soup 0, , , ,39 United States Carl Zeiss Meditec 0, , , ,87 Germany Carrefour 0, , , ,00 France Covidien 0, , , ,99 Ireland DNB 0, , , ,90 Norway Daimler 0, , , ,00 Germany Deckers Outdoor 0, , , ,95 United States Deutsche Bank Ag-Registered 0, , , ,00 Germany Eaton 0, , , ,08 Ireland Ekornes 0, , , ,78 Norway Hennes & Mauritz 0, , , ,98 Sweden Hologic 0, , , ,64 United States Inmarsat 0, , , ,55 Great Britain International Business Machines 0, , , ,56 United States 55

58 ANNUAL REPORT 2013 Mednax 0, , , ,52 United States National Grid 0, , , ,07 Great Britain Nestle 0, , , ,71 Switzerland Pepco Holdings 0, , , ,46 United States Pepsi 0, , , ,99 United States Reed Elsevier NV 0, , , ,00 Netherlands SAP 0, , , ,00 Germany SES 0, , , ,00 Luxemburg SKF 0, , , ,26 Sweden Sanofi 0, , , ,00 France Stada Arzneimittel 0, , , ,00 Germany Syngenta 0, , , ,27 Switzerland Technip 0, , , ,00 France Telenor 0, , , ,26 Norway TeliaSonera 0, , , ,00 Sweden Teva Pharmaceutical Industries 0, , , ,01 United States Thermo Fisher Scientific 0, , , ,86 United States US Bancorp 0, , , ,22 United States United Technologies 0, , , ,19 United States VF 0, , , ,72 United States Vienna Insurance Group 0, , , ,40 Austria Vinci 0, , , ,00 France Volkswagen 0, , , ,00 Germany WPP 0, , , ,42 Great Britain Waste Management 0, , , ,16 United States Zurich Insurance Group 0, , , ,30 Switzerland ebay 0, , , ,55 United States Total , ,64 Foreign companies, non-listed European Alliance Partners Company 9, , , ,80 Switzerland Other 337, , ,67 Total , ,47 Mutual funds BNP Paribas Global Senior Corporate Loans , ,08 Finland FIM Brazil , ,38 Brazil FIM Korko Optimaattori K , ,54 Finland FIM RUSSIA , ,92 Finland LähiTapiola Aasia-Tyynimeri A , ,06 Finland LähiTapiola Eurooppa A , ,69 Finland LähiTapiola High Yield A , ,99 Finland LähiTapiola Hyvinvointi A , ,36 Finland LähiTapiola Infra A , ,54 Finland LähiTapiola Itä-Eurooppa A , ,56 Finland LähiTapiola Japani A , ,15 Finland LähiTapiola Kassakorko A , ,61 Finland LähiTapiola Kasvu A , ,33 Finland LähiTapiola Kehittyvät Korkomarkkinat A , ,12 Finland LähiTapiola Kehittyvät Markkinat A , ,28 Finland LähiTapiola Korkomaailma A , ,17 Finland LähiTapiola Kuluttaja A , ,99 Finland LähiTapiola Lyhytkorko A , ,90 Finland LähiTapiola Osinko A , ,64 Finland LähiTapiola Pitkäkorko A , ,73 Finland LähiTapiola Pohjoinen Yrityskorko A , ,79 Finland LähiTapiola Suoja A , ,02 Finland LähiTapiola Suomi A , ,90 Finland LähiTapiola USA A , ,60 Finland LähiTapiola Yrityskorko A , ,83 Finland Natixis Loomis Sayles Senior Loan Fund , ,64 Luxemburg Pimco Socially Responsible EM Bond Fund I-EUR HA , ,98 Ireland Robeco Lux-o-rente I EUR , ,69 Luxemburg Other , ,11 Total , ,60 Capital mutual funds AXA LBO Fund IV FCPR , ,97 France AXA LBO Fund IV Supplementary FCPR , ,58 France AXA LBO Fund V Core , ,39 France AXA Secondary Fund IV L.P , ,52 Jersey 56

59 AXA Secondary Fund V L.P , ,15 Jersey Aberdeen European Shopping Property Fund SICAV , ,12 Luxemburg Aberdeen Property Funds SICAV Pan-Nordic , ,96 Luxemburg Altor Fund II (No. 1) Limited Partnership , ,00 Jersey Altor Fund III , ,37 Jersey Amanda III Eastern Private Equity L.P , ,98 Finland Amanda V East L.P , ,37 Finland Apax Europe VII - B, L.P , ,99 Great Britain Apax VIII - A L.P , ,66 Guernsey Beechbrook Mezzanine II L.P , ,43 Great Britain BlackRock Europe Property Fund III , ,29 Great Britain Bowmark Capital Partners IV, L.P , ,93 Great Britain Bridgepoint Europe III, L.P , ,00 Great Britain Bridgepoint Europe IV F L.P , ,22 Great Britain CBRE European Industrial Fund CV , ,00 Netherlands CapMan Equity VII A L.P , ,00 Guernsey CapMan Hotels RE Ky , ,94 Finland CapMan RE II Ky , ,73 Finland CapMan Real Estate I Ky , ,35 Finland Capvis Equity III L.P , ,00 Jersey Charterhouse Capital Partners VIII LP No , ,70 Great Britain Crescent Mezzanine Partners VI, L.P , ,71 United States European Added Value Fund, L.P , ,08 Great Britain European Fund Investments II Limited Partnership , ,22 Great Britain Gresham 4A , ,00 Great Britain HealthCap IV Bis L.P , ,40 United States ICECAPITAL Housing Fund II Ky , ,23 Finland ICG Europe Fund V , ,74 Jersey ICG-Longbow UK Real Estate Debt Investments III S.á.r.l , ,37 Luxemburg Indigo Capital V L.P , ,67 Great Britain Industri Kapital 2004 Limited Partnership III , ,22 Jersey Industri Kapital 2007 Limited Partnership III , ,75 Jersey Lindsay Goldberg III L.P , ,40 United States LähiTapiola APFF Feeder I Ky , ,57 Finland LähiTapiola Asuntorahasto Prime Ky , ,00 Finland LähiTapiola KR PK2 Ky , ,80 Finland MB Equity Fund IV Ky , ,49 Finland MezzVest III, L.P , ,86 Jersey Nexit INFOCOM II L.P , ,60 Guernsey Nordic Mezzanine Fund III Limited Partnership , ,58 Great Britain PBW II Real Estate Fund S.A , ,24 Luxemburg Partners Group U.S. Venture 2004, L.P , ,43 United States Real Estate Debt & Secondaries Ky , ,19 Finland Real Estate Fund of Funds II Ky , ,01 Finland Rockspring PanEuropean Limited Partnership , ,00 Great Britain Russian and Baltics Retail Properties Ky , ,00 Finland TPG Partners VI, LP , ,84 United States Tapiola KR I Ky , ,28 Finland Tapiola KR III Ky , ,23 Finland Tapiola KR IV Ky , ,41 Finland The Fourth Cinven Fund (No. 4) Limited Partnership , ,74 Great Britain The Triton Fund III L.P , ,00 Jersey Top Tier Venture Capital III, L.P , ,68 United States Top Tier Venture Capital IV, L.P , ,23 United States TuuliTapiola Ky , ,00 Finland Other , ,91 Total , ,53 Total other investments, shares and holdings , ,47 57

60 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Other investments 8.1. Other loans, itemised by type of security: Bank guarantee , ,00 Other security , ,41 Remaining acquisition cost , ,41 Unsecured, total remaining acquisition cost , , , , Total subordinated loans Other loans receivable from Group companies ,00 0,00 Other loans receivable , ,39 Total remaining acquisition cost , ,39 58

61 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Changes in tangible and intangible assets Intangible rights and Machinery and other expenses with equipment long-term effects Acquisition cost on 1 Jan , ,05 Items written off the previous year , ,49 Increase , ,26 Decrease , ,90 Decrease, business transfer , ,80 Acquisition cost on 31 Dec , ,12 Accumulated depreciation on 1 Jan , ,10 Items written off the previous year , ,49 Depreciation for the financial year, business transfer , ,44 Depreciation for the financial year , ,74 Accumulated depreciation on 31 Dec , ,91 Book value on 31 Dec , ,21 59

62 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Changes in capital and reserves 1 Jan. Increase Decrease 31 Dec. Initial reserve ,35 0,00 0, ,35 Guarantee capital 0,00 0,00 0,00 0,00 Revaluation reserve ,97 0,00 0, ,97 Security reserve , ,86 0, ,77 Contingency reserve , , , ,16 Profit for the financial year , , , ,49 Total changes in capital and reserves , , , , Itemisation of revaluation reserve Revaluation of fixed assets ,97 Total , Account of distributable profits Profit for the financial year ,49 + Other unrestricted capital and reserves Security reserve ,77 Contingency reserve ,16 Total distributable profits ,42 60

63 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Accumulated appropriations Depreciation difference Depreciation difference on 1 Jan , ,09 Increase 0, ,67 Decrease , ,03 Depreciation difference on 31 Dec , , , , Provision for claims outstanding Uncontested recourse receivables deducted from provisions for claims outstanding Statutory accident , , Other obligatory provisions Provision for interest on late payments for unfinished claims , ,20 Provision for unemployment security deductible , , , , Deferred tax liabilities Tax liability calculated on the basis of timing differences and other temporary differences between taxable profit and accounting profit , ,83 Tax debt calculated based on valuation gains/losses that is deemed likely to become payable during the next year , , , ,83 61

64 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Receivables and liabilities 15.1 Itemisation of receivables Receivables from Group companies Other receivables , , , , Itemisation of liabilities Liabilities to group companies Other liabilities , , , , Itemisation of accruals and deferred income Liabilities to personnel , ,27 Other accruals and deferred income , , , ,40 62

65 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Notes concerning guarantees and contingent liabilities Security Security/pledges/ Amount of Security/pledges/ Amount of guarantees and liability guarantees and liability other commitments other commitments As security for own debts Assets pledged as security for derivative contracts 0,00 0,00 0,00 0,00 Guarantees, reinsurance 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0, Off-balance-sheet guarantees and contingent liabilities Derivative contracts Interest derivatives Option contracts, open Underlying instrument 0, ,23 Current value 0, ,81 Interest rate swap Underlying instrument 0, ,00 Current value 0, ,82 Currency derivatives Forward and futures contracts, open Underlying instrument , ,34 Current value , ,95 Leasing liabilities Amount to be paid in the current financial year , ,28 Amount to be paid in the coming years , , , ,47 Rent liabilities Amount to be paid in the current financial year , ,55 Amount to be paid in the coming years , , , ,53 Value-added tax liabilities Joint liability relating to collective value-added tax registration Group companies , ,87 Associated undertakings , ,89 Partner companies , , , ,09 Inspection responsibility of real estate investments under section 120 of the Value Added Tax Act - 10 years inspection period Company , ,87 Other companies of the group , , , ,64 Other commitments Investment commitments 0, ,74 Subscription commitments , ,74 Granted limit , , , ,48 LocalTapiola General and the regional companies have signed an agreement on joint and several liability. The agreement specifies the principles to ensure solvency of the companies included in the group led by LocalTapiola General. 63

66 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Related party loans (Insurance Companies Act, Chapter 8, section 11) s loans to participating interests and to goup companies are EUR ,65. The loan period is in principal years and the interest rate fixed Related party transactions (Accounting Ordinance, Chapter 2, section 7b) The company has not carried out related party transactions involving any other than conventional commercial terms and conditions. 64

67 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY Notes to balance sheet 31 December Notes concerning solvency Solvency margin Capital and reserves after deduction of proposed distribution of profits , ,09 Accumulated appropriations , ,73 Difference between current and book values of assets , ,62 Intangible assets (-) , ,81 ICA Chapter 11 5, ,00 Off-balance-sheet commitments - - Other items , , , ,47 Minimum solvency margin (Insurance Companies Act, Chapter 11, section 7) , ,00 An equalisation provision calculated for years with plenty of claims that is used to secure adequacy of technical provisions , ,00 Equalisation provision in relation to full amount % 79,5 67,0 Solvency ratio percentage, i.e., solvency margin and equalisation provision in relation to premiums earned at own risk for the 12 prior months (%) 1) , , , , ,6 Solvency capital percentage in technical provisions, i.e., solvency margin and equalisation provision in relation to technical provisions at own risk minus equalisation provision (%) 1) , , , , ,5 1) Tax debt calculated based on valuation gains/losses that is deemed likely to become payable during the next year. 65

68 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS KEY FIGURES EUR Mill General key figures describing financial development Operating profit/loos 234,1 143,1-45,7 7,2 83,0 Total profit/loss 222,7 230,4-52,5 51,6 149,1 Return on capital employed (at current value), % 4,0 8,0 3,4 5,4 7,2 Return on assets, % 6,0 8,8-1,1 2,3 5,9 Average number of personnel during financial year Number of employees in relation to payroll Key figures describing the financial development of non-life insurance Premium income 903,6 726,7 712,3 691,9 675,1 Loss ratio (excl. unwinding of discount expense), % 61,6 71,2 93,8 86,2 77,0 Loss ratio % 65,2 74,3 96,6 88,8 79,5 Expense ratio, % 26,9 25,5 25,8 26,2 25,7 Combined ratio (excl. unwinding of discount expense), % 88,5 96,7 119,5 112,4 102,7 Combined ratio, % 92,2 99,8 122,4 115,0 105,2 Solvency margin in reporting currency 1 162, ,6 840,2 824,0 759,8 Minimum solvency margin (Insurance Companies Act, Chapter 11, section 7) 142,1 166,2 136,9 128,6 120,4 Solvency margin in relation to minimum value 8,2 7,1 6,1 6,4 6,3 Equalisation provision in reporting currency 483,7 616,0 456,4 532,0 557,3 Solvency capital in reporting currency 1 646, , , , ,0 Solvency capital of technical provisions, % 87,2 82,2 76,1 87,9 89,5 Solvency ratio, % 234,6 210,9 194,3 206,7 203,6 66

69 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY OTHER NOTES PERFORMANCE ANALYSIS Change Change % Premiums earned ,0 24,3 % Claims incurred ,0 9,2 % Operating expenses ,0 31,2 % Other technical income and charges Change in guarantee fund Balance on technical account before change in ,0 64,7 % equalisation provision Investment income and expenses as well as revaluations and adjustments thereof ,0 18,0 % Other income and expenses ,0 15,2 % Operating profit/loss ,0 63,6 % Change in equalisation provision ,0 99,1 % Profit or loss before extraordinary items ,0 19,2 % Profit or loss before appropriations and taxes ,0 19,2 % Appropriations ,0 462,9 % Direct taxes ,0 88,1 % Total result ,0 8,3 % Operating profit/loss ,0 63,6 % Change in the difference between current and book values before business transfer ,0 113,0 % Total result before business transfer ,0 3,3 % Effect of business transfer on change in the difference between current and book values Total result after business transfer

70 1) Accrued interest included 2) Includes cash at bank and in hand and purchase money claims and purchase money obligations 3) Includes also mixed funds if those can't set elsewhere ANNUAL REPORT ) Includes fixed assets and mezzanine funds and also infrastructure investments 5) Includes also unlisted real estate investment companies 6) Includes all types of hedge fund investments regardless of the strategy of the fund 7) Includes items that can not be included in other investments classes 8) Risk breakdown can be shown from reference periods as the knowledge cumulates (not with retroactive effect). If the numbers are shown from reference periods and the periods are not completely comparable, it must be informed. Net investment income at current value 1 January 31 December 2013 Net investment income at current value 8) 1-12/ / / /2009 EUR million EUR million % % % % % Fixed-income investments 27, ,9 1,2 8,1 5,0 3,7 7,0 Loan receivables 1) 6,6 176,6 3,8 3,3 3,9 3,5 4,2 Bonds 20, ,2 1,1 9,0 5,3 3,9 7,9 Other money market instruments and deposits 1), 2) 0,7 238,1 0,3 1,5 2,1 1,1 2,4 Equities and shares 100,4 903,5 11,1 13,0-2,6 13,4 19,9 Listed equities and shares 3) 104,4 549,2 19,0 16,7-12,6 16,9 34,8 Private equity investments ⁴) 14,4 149,0 9,7 12,9 20,4 13,8-12,6 Unlisted equities and shares 5) -18,4 205,3-9,0 4,2 4,3 4,7 4,2 Real estate investments 36,3 726,6 5,0 4,4 6,3 3,1-1,8 Direct real estate investments 26,7 537,4 5,0 4,3 6,1 4,6 1,4 Real estate funds and joint investments 9,6 189,2 5,1 4,8 6,7-2,3-12,3 Other investments -0,1 4,0-2,6 0,0-9,7-13,1 6,6 Hedge fund investments ⁶) -0,1 4,0-2,6 0,0-9,7-13,1 6,6 Commodity investments 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Other investments ⁷) 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Investments total 163, ,0 4,2 8,3 3,7 5,6 7,4 Unallocated return, costs and operating expenses -5,7 Capital employed 9) 1-12/2013 Return % on capital employed Net investment income at current value 158, ,0 4,0 8,1 3,4 5,4 7,1 1) Accrued interest included 2) Includes cash at bank and in hand and purchase money claims and purchase money obligations 3) Includes also mixed funds if those can't set elsewhere 4) Includes fixed assets and mezzanine funds and also infrastructure investments 5) Includes also unlisted real estate investment companies 6) Includes all types of hedge fund investments regardless of the strategy of the fund 7) Includes items that can not be included in other investments classes 8) Change in market values at the end and beginning of the reporting period - cash 9) Capital employed = Market value at the beginning of the period + daily/monthly time-weighted cash flows. 68

71 Asset allocation and return (at current value) 1 January 31 December 2013 Basic breakdown Risk breakdown ⁸) EUR million % EUR million % EUR million % ¹⁰) Fixed-income investments 1 993,5 56, ,3 57, ,5 56,4 Loan receivables 1) 207,5 5,9 114,5 3,0 207,5 5,9 Bonds 1 590,3 45, ,7 48, ,3 45,0 Other money market instruments and deposits 1), 2) 195,7 5,5 230,0 6,0 195,7 5,5 Equities and shares 913,2 25,8 826,9 21,5 913,2 25,8 Listed equities and shares 3) 492,5 13,9 486,5 12,7 492,5 13,9 Private equity investments ⁴) 156,6 4,4 151,2 3,9 156,6 4,4 Unlisted equities and shares 5) 264,0 7,5 189,2 4,9 264,0 7,5 Real estate investments 628,4 17,8 793,7 20,7 628,4 17,8 Direct real estate investments 485,2 13,7 640,3 16,7 485,2 13,7 Real estate funds and joint investments 143,1 4,0 153,4 4,0 143,1 4,0 Other investments 0,0 0,0 7,8 0,2 0,0 0,0 Hedge fund investments ⁶) 0,0 0,0 7,8 0,2 0,0 0,0 Commodity investments 0,0 0,0 0,0 0,0 0,0 0,0 Other investments ⁷) 0,0 0,0 0,0 0,0 0,0 0,0 Investments total 3 535,1 100, ,7 100, ,1 100,0 The modified duration of bond investments 3,3 1) Accrued interest included 2) Includes cash at bank and in hand and purchase money claims and purchase money obligations 3) Includes also mixed funds if those can't set elsewhere 4) Includes fixed assets and mezzanine funds and also infrastructure investments 5) Includes also unlisted real estate investment companies 6) Includes all types of hedge fund investments regardless of the strategy of the fund 7) Includes items that can not be included in other investments classes 8) Risk breakdown can be shown from reference periods as the knowledge cumulates (not with retroactive effect). If the numbers are shown from reference periods and the periods are not completely comparable, it must be informed. Net investment income at current value 1 January 31 December 2013 Net investment income at current value 8) Capital employed 9) Return % on capital employed 1-12/ / / / /2009 EUR million EUR million % % % % % Fixed-income investments 27, ,9 1,2 8,1 5,0 3,7 7,0 Loan receivables 1) 6,6 176,6 3,8 3,3 3,9 3,5 4,2 Bonds 20, ,2 1,1 9,0 5,3 3,9 7,9 Other money market instruments and deposits 1), 2) 0,7 238,1 0,3 1,5 2,1 1,1 2,4 Equities and shares 100,4 903,5 11,1 13,0-2,6 13,4 19,9 Listed equities and shares 3) 104,4 549,2 19,0 16,7-12,6 16,9 34,8 Private equity investments ⁴) 14,4 149,0 9,7 12,9 20,4 13,8-12,6 Unlisted equities and shares 5) -18,4 205,3-9,0 4,2 4,3 4,7 4,2 Real estate investments 36,3 726,6 5,0 4,4 6,3 3,1-1,8 Direct real estate investments 26,7 537,4 5,0 4,3 6,1 4,6 1,4 Real estate funds and joint investments 9,6 189,2 5,1 4,8 6,7-2,3-12,3 Other investments -0,1 4,0-2,6 0,0-9,7-13,1 6,6 Hedge fund investments ⁶) -0,1 4,0-2,6 0,0-9,7-13,1 6,6 Commodity investments 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Other investments ⁷) 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Investments total 163, ,0 4,2 8,3 3,7 5,6 7,4 Unallocated return, costs and operating expenses -5,7 Net investment income at current value 158, ,0 4,0 8,1 3,4 5,4 7,1 1) Accrued interest included 2) Includes cash at bank and in hand and purchase money claims and purchase money obligations 3) Includes also mixed funds if those can't set elsewhere 4) Includes fixed assets and mezzanine funds and also infrastructure investments 5) Includes also unlisted real estate investment companies 6) Includes all types of hedge fund investments regardless of the strategy of the fund 7) Includes items that can not be included in other investments classes 8) Change in market values at the end and beginning of the reporting period - cash 9) Capital employed = Market value at the beginning of the period + daily/monthly time-weighted cash flows. 69

72 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP PROFIT AND LOSS ACCOUNT Technical account: Premiums earned Premiums written , ,60 Reinsurers share , , , ,66 Change in provision for unearned premiums Total change ,00 Business transfer decrease , , ,00 Reinsurers share Total change ,00 Business transfer decrease , , , , , , ,66 Other technical income 0,00 0,00 Claims incurred Claims paid , ,47 Reinsurers share , , , ,27 Change in provision for outstanding claims , , , ,00 Reinsurers share , , , , , ,27 Change in Guarantee fund 0,00 0,00 Operating expenses , ,23 Other technical charges 0,00 0,00 Balance on technical account before change in equalization provision , ,84 Change in equalization provision Total change ,00 Business transfer decrease , , , ,00 Balance on technical account , ,84 Non-technical account: Balance on technical account , ,84 Investment income , ,20 Investment charges , ,85 Revaluation adjustments on investments , , , ,00 Other income 4 Other , ,02 Other expenses 4 Other , ,44 Share of profit/loss of participating interests , ,94 Elimination items I , ,13 Profit/loss before extraordinary items , ,81 Credit institution and investment service business calculation: Interest income , ,35 Net income from leasing business , ,99 Interest expenses , ,86 Interest margin , ,48 Return on equity investments , ,30 Commission income , ,82 Commission expenses , ,40 Net income from security trading , ,44 Net income from available-for-sale financial assets , ,14 Other business income , ,28 Administrative expenses Personnel expenses Salaries and remuneration , ,44 Other personnel expenses Pension expenses , ,01 Other personnel expenses , , , ,28 Other administrative expenses , , , ,70 Depreciation and value adjustments on tangible and intangible assets , ,42 Other business expenses , ,49 Value adjustment loss on credits and other commitments , ,47 Share of profit/loss of associated undertakings , ,62 Elimination items I , ,77 Operating profit/loss , ,59 Non-life insurance profit/loss before extraordinary items , ,81 Credit institution and investment service business operating profit/loss , ,59 Profit/loss before taxes , ,40 Direct taxes on ordinary activities Taxes for the period , ,81 Taxes for previous periods , ,96 Deferred taxes , , , ,15 Minority interest in profit/loss for the financial year , ,07 Profit/loss for the accounting period , ,18 70

73 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP BALANCE SHEET ASSETS Insurance operations, assets: Intangible assets 9 Intangible rights , ,29 Other expenses with long-term effects , ,44 Prepayments , , ,73 Investments 5 Real estate investments 6 Real estate and shares in real estate , ,01 Loans to participating interests 0, ,10 0, ,01 Investments in group companies and participating interests 7 Shares and holdings in group companies , ,96 Debt securities and loans of companies in same group , ,00 Shares and holdings in participating interests , ,98 Debt securities and loans in participating interests 0, ,96 0, ,94 Other investments Shares and holdings , ,24 Debt securities , ,31 Loans guaranteed by mortgages , ,95 Other loans , ,65 Deposits 0, ,84 Other investments 0, ,28 0, ,99 Deposits with ceding undertakings , , , ,77 Debtors 15 Arising out of direct insurance operations Policyholders , ,86 Intermediaries 0, ,24 0, ,86 Debtors arising out of reinsurance operations , ,06 Other debtors , ,11 Deferred tax receivables , , , ,38 Other assets Tangible assets Machinery and equipment , ,76 Other tangible assets , , , ,69 Cash at bank and in hand , ,98 Other assets , , , ,32 Prepayments and accrued income Accrued interest and rent , ,63 Other prepayments and accrued income , , , ,64 Elimination items II , ,04 Total , ,80 Credit institution and investment service business, assets: Cash assets , ,96 Certificates of claim entitling to central bank financing 30,44,45,46 Government obligations , ,50 Other , , , ,71 Receivables from credit institutions 28,44,45,46 Payable on demand , ,99 Other , , , ,78 Receivables from the public and public corporations 29,44,45,46 Payable on demand , ,13 Other , , , ,63 Leasing objects , ,24 Certificates of claim 30,44,45,46 From others , , , ,88 Shares and holdings 32, , ,28 Shares and holdings in participating interests 32, , ,66 Derivative contracts , ,24 Intangible assets 34, , ,53 Tangible assets 35 Other tangible assets , , , ,71 Other assets , ,27 Prepayments and accrued income , ,80 Tax receivables , ,00 Elimination items II , ,95 Total , ,74 TOTAL ASSETS , ,54 71

74 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP BALANCE SHEET LIABILITIES Capital and reserves: 10 Initial reserve , ,34 Guarantee capital 0,00 0,00 Revaluation reserve , ,38 Fair value reserve , ,43 Other reserves , ,92 The share of voluntary provisions and depreciation difference transferred to capital and reserves , ,36 Loss/profit brought forward , ,76 Profit/loss for the accounting period , ,18 Change in depreciation difference and voluntary provisions included in the profit for the accounting period , , , , , ,11 Minority interest , ,70 Insurance operations, liabilities: Technical provisions Provision for unearned premiums , ,00 Reinsurers share , , , ,00 Provision for outstanding claims , ,00 Reinsurers share , , , ,00 Equalization provision , ,00 Guarantee fund 0, ,00 0, ,00 Obligatory provisions Pension provisions 0,00 0,00 Other obligatory provisions , , , ,03 Deposits received from reinsurers 5 361, ,33 Creditors Arising out of direct insurance operations , ,47 Arising out of reinsurance operations , ,64 Loans from insurance companies , ,76 Other creditors , ,64 Deferred tax liabilities 11/ , , , ,07 Accruals and deferred income , ,25 Elimination items II , ,24 Total , ,44 Credit institution and investment service business, liabilities: Liabilities to credit institutions 44,45,46 Payable on demand , ,67 Liabilities to the public and public corporations 44,45,46 Deposits Payable on demand , ,31 Other , , , ,02 Bonds issued to the public 39,44,45, , ,44 Derivative contracts and other liabilities held for trading 40,45, , ,61 Other liabilities , ,36 Accruals and deferred income , ,26 Liabilities that have lower priority than other liabilities 43,44, , ,00 Tax liabilities , ,58 Elimination items II , ,65 Total , ,29 TOTAL LIABILITIES , ,54 72

75 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP Indirect cash flow statement Cash flow from operations - Insurance Profit/loss from ordinary activities, insurance , ,96 Adjustments Change in technical provisions , ,00 Business transfer decrease ,00 Merger increase 0, ,00 Value adjustments and revaluation of investments , ,48 Change in obligatory provisions , ,41 Planned depreciation , ,56 Other income and expenses 0, ,22 Other adjustments , ,87 Cash flow before change in working capital , ,54 Change in working capital: Current receivables, non-interest-bearing, increase (-) / decrease (+) , ,82 Business transfer decrease ,01 Merger increase 0, ,78 Current liabilities, non-interest-bearing, increase (+) / decrease (-) , ,49 Business transfer decrease ,20 Merger increase 0, ,89 Cash flow from operations before financial items and taxes , ,10 Interest paid and other financial expenses , ,72 Direct taxes paid , ,33 Cash flow from operations - Insurance , ,05 Cash flow from operations - Credit institution and investment services Credit institution and investment service business operating profit/loss , ,52 Adjustments Depreciation and value adjustments , ,42 Unrealised changes in values , ,15 Value adjustment loss on credits and other receivables , ,47 Other adjustments , ,62 Adjusted operating profit , ,18 Change in the assets and liabilities of the business: Certificates of claim (over three months) , ,20 Receivables from the public and public corporations , ,34 Leasing objects , ,76 Shares, holdings and derivative contracts , ,43 Other prepayments, assets, and accrued income , ,33 Liabilities to credit institutions , ,16 Liabilities to the public and public corporations , ,53 Bonds and derivative contracts issued , ,44 Other liabilities, accruals, and deferred income , ,61 Direct taxes paid , ,64 Cash flow from operations - Credit institution and investment services , ,90 Cash flow from investments - Insurance Investments in assets (excl. cash and cash equivalents) , ,81 Business transfer decrease ,03 Merger increase 0, ,26 Capital gains from investments (excl. cash and cash equivalents) , ,86 Increase/decrease in minority share , ,58 Investments in tangible and intangible assets as well as other assets and capital gains (net) , ,01 Business transfer decrease ,20 Merger increase 0, ,86 Cash flow from investments - Insurance , ,26 Cash flow from investments - Credit institution and investment services Investments in tangible and intangible assets , ,29 Investments in shares and holdings ,68 0,00 Investments in shares in participating interests 2 702, ,00 Investments in shares dividents ,41 Cash flow from investments - Credit institution and investment services , ,29 Cash flow from financing activities Loans raised - insurance operations , ,35 Repayment of debt -insurance operations 0,00 0,00 Withdrawal and repayment of long-term loans -Credit institution and Investment services 0, ,00 Increase/decrease in capital and reserves , ,91 Merger increase 0, ,76 Guarantee capital paid 0, ,23 Dividends/interest on guarantee capital paid and other distribution of profit , ,00 Cash flow from financing activities , ,27 Change in cash and cash equivalents , ,67 Cash and cash equivalents at the beginning of the financial year - insurance , ,85 Cash and cash equivalents at the beginning of the financial year - credit institution and investment services , ,44 Cash and cash equivalents at the beginning of the financial year , ,29 Cash and cash equivalents at the end of the financial year - insurance , ,92 Merger increase 0, , ,58 Cash and cash equivalents at the end of the financial year - credit institution and investment services , ,38 Cash and cash equivalents at the end of the financial year , ,96 Cash and cash equivalents in insurance operations = + Cash at bank and in hand - Elimination item Cash and cash equivalents in credit institution and investment service business = + Cash assets + Receivables from credit institutions +Certificates of claim (under 3 months) 73

76 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP ELIMINATION ITEMS I NOTES TO PROFIT AND LOSS ACCOUNT Insurance operations: Claims paid , ,63 Operating expenses , ,57 Investment income , ,44 Investment charges , ,98 Other income , ,41 Other expenses 70, ,49 Share of profit/loss of participating interests , ,31 Total , ,13 Credit institution and investment service operations: Interest expenses , ,41 Commission income , ,03 Commission expenses , ,02 Other business income , ,21 Administrative expenses , ,51 Other business expenses , ,53 Total , ,77 II NOTES TO BALANCE SHEET Assets Insurance operations: Shares and holdings in group companies , ,00 Deposits in group companies 0,00 0,00 Debt securities of companies in same group , ,00 Shares and holdings in participating interests , ,76 Other debtors , ,54 Cash at bank and in hand , ,06 Accrued interest and rent , ,29 Other prepayments and accrued income 0, ,39 Total , ,04 Credit institution and investment service operations: Intangible rights , ,34 Other assets , ,61 Prepayments and accrued income ,00 0,00 Total , ,95 Liabilities Insurance operations: Other creditors ,70 0,00 Accruals and deferred income , ,24 Total , ,24 Credit institution and investment service operations: Liabilities to the public and public corporations Payable on demand , ,06 Other liabilities , ,91 Accruals and deferred income , ,68 Liabilities with lower priority than other liabilities , ,00 Total , ,65 74

77 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO PROFIT AND LOSS ACCOUNT - INSURANCE 1. Premiums written Direct insurance Finland , ,48 EEA countries 0,00 0,00 Other Countries 0, ,24 0, ,48 Reinsurance , ,12 Gross premiums written , ,60 before reinsurers' share 1.1. Items depreciated from premiums written Credit loss on outstanding premiums , ,51 PAYG system fees , ,62 Premium tax , ,30 Fire brigade charge , ,27 Road safety charge , ,00 Labour protection charge , ,00 Total , ,70 75

78 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO PROFIT AND LOSS ACCOUNT - INSURANCE 2. Result divided into groups of insurance class Premiums written Premiums earned Claims incurred Operating expenses Reinsurers Balance on before reinsurers before reinsurers before reinsurers before commissions share technical account share share share for reinsurance and before net profit shares investment income Statutory workers' , , , , , ,23 compensation , , , , , , , , , , , ,75 Non-statutory accident , , , , , ,84 and health , , , , , , , , , , , ,62 Motor vehicle liability , , , , , , , , , , , , , , , , , ,72 Land vehicles , , , , , , , , , , , , , , , , , ,49 Marine, aviation, , , , , , ,97 railway rolling stock , , , , , ,74 and transport , , , , , ,57 Fire and other , , , , , ,73 damage to property , , , , , , , , , , , ,31 General liability , , , , , , , , , , , , , , , , , ,71 Credit and suretyship , , , , , , , , , , , , , , , , , ,05 Legal expenses , , , ,58 0, , , , , ,67 0, , , , , ,13 0, ,40 Other , , , , , , , , , , , , , , , , , ,77 Direct insurance , , , , , ,25 total , , , , , , , , , , , ,17 Reinsurance , , , , , , , , , , , , , , , , , ,01 Total , , , , , , , , , , , , , , , , , ,18 Change in ,00 Guarantee fund , ,00 Other technical ,00 income and charges , ,00 Change in ,00 equalization provision , ,00 Balance on ,51 technical account , ,18 Elimination items , , , , , , , , ,53 Profit and loss account ,50 item Balance on ,84 technical account ,72 76

79 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO PROFIT AND LOSS ACCOUNT - INSURANCE 3. Operating expenses and notes concerning personnel and members of corporate bodies 3.1. Total operating expenses by activity Group Elimination items Income statement Group Elimination items Income statement Claims management expenses , , , , , ,81 Operating expenses , , , , , ,23 Investment operating expenses , , , , , ,19 Other expenses ,72 70, , , , ,44 Total , , , , , , Profit and loss account item operating expenses Insurance policy acquisition costs Commissions for direct insurance ,34 0, , ,64 0, ,64 Commissions for reinsurance assumed and profit shares ,27 0, , ,33 0, ,33 Other insurance policy acquisition costs , , , , , , , , , , , ,76 Insurance policy management expenses , , , , , ,63 Administrative expenses , , , , , ,55 Commissions for reinsurance ceded and profit shares ,81 0, , ,71 0, ,71 Total , , , , , , Notes concerning personnel and members of corporate bodies Personnel expenses Salaries and remunerations , ,97 Pension expenses , ,99 Other personnel expenses , ,08 Total , , Management s salaries and remunerations, pension commitments, monetary loans and terms thereof, as well as guarantees and contingent liabilities Managing director and deputy managing director Salaries and remunerations , ,00 Pension commitments Toimitusjohtajan eläkeikä/eroamisikä on 63 vuotta ja sijaisen eläkeikä/eroamisikä määräytyy lain mukaan. Monetary loans and terms thereof Ei annettu rahalainoja Guarantees and contingent liabilities Ei annettu vakuuksia ja vastuusitoumuksia Board members and deputy board members Salaries and remunerations , ,00 Pension commitments Yhtiöön toimisuhteessa oleville hallituksen jäsenille ja varajäsenille on eläkeiäksi sovittu vuotta. Monetary loans and terms thereof Ei annettu rahalainoja Guarantees and contingent liabilities Ei annettu vakuuksia ja vastuusitoumuksia Supervisory board Salaries and remunerations , ,00 Pension commitments Ei eläkesitoumuksia. Monetary loans and terms thereof Ei annettu rahalainoja Guarantees and contingent liabilities Ei annettu vakuuksia ja vastuusitoumuksia Average number of personnel during the financial year Office staff Sales staff Auditor s fees by assignment category Auditing , ,04 Assignments referred to in section 1, subsection 1, paragraph 2 of the Auditing Act 0, ,10 Tax advice 6 250, ,43 Other services , ,49 Total , ,06 77

80 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO PROFIT AND LOSS ACCOUNT - INSURANCE 4.1. Specification of net investment income Investment income Income from group companies Dividend income , ,24 Income from participating interests Interest income 0,00 0,00 Income from real estate investments in participating interests Interest income 0,00 0,00 Income from real estate investments in other companies Interest income , ,93 Other income , , , ,31 Income from other investments Dividend income , ,26 Interest income , ,88 Other income , , , ,87 Total , ,42 Value readjustments , ,22 Realized gains , ,12 Total , ,76 Including elimination items: Income from group companies Interest income , ,15 Other income , , , ,86 Income from real estate investments in group companies Other income , ,58 Total , ,44 Investment income in the profit and loss account , ,20 78

81 TAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO PROFIT AND LOSS ACCOUNT - INSURANCE 4.2. Specification of net investment income Investment charges Expenses arising from real estate investments Other companies , ,98 Expenses arising from other investments , ,03 Interest paid and other expenses on liabilities Participating interests 0,00 0,00 Other companies , , , ,72 Total , ,73 Value adjustments and depreciation Value adjustments , ,39 Planned depreciation on buildings , , , ,88 Realized losses , ,26 Total , ,87 Including elimination items: Expenses arising from real estate investments Other companies , ,97 Expenses arising from other investments , ,01 Total , ,98 Investment charges in the profit and loss account , ,85 Net investment income before revaluations and revaluation adjustments , ,89 Revaluation adjustments on investments , ,35 Net investment income , ,54 Net investment income in the profit and loss account , , Specification of other income and expenses Other income Services sold to partner companies , ,97 Other other income , , , ,61 Including elimination items: Other income Services sold to partner companies , ,41 Other income in the profit and loss account , ,02 Other expenses Amortisation of consolidated goodwill 0, ,04 Expenses for services sold , ,89 Transfer to personnel fund , ,76 Other other expenses ,91-535, , ,95 Including elimination items: Other expenses Expenses for services sold -70, ,49 Other expenses in the profit and loss account , ,44 79

82 ANNUAL REPORT

83 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET - INSURANCE 31 DECEMBER Current value of investments and difference in valuation Remaining acquisition cost of debt securities includes: Difference between the nominal value and acquisition cost released (+) or charged (-) to interest income 0,00 0,00 Book value comprises Revaluations released to income , ,18 Other revaluations , , , ,85 Difference in valuation gains/losses , , Difference in valuation of non-hedging derivatives , ,38 81

84 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET - INSURANCE 31 DECEMBER Real estate investments Changes in real estate investments: 2013 Real estate and shares in real estate Acquisition cost on 1 Jan ,47 Items written off in the previous year ,96 Increase ,07 Merger increase 0,00 Decrease ,61 Transfers between items ,50 Acquisition cost on 31 Dec ,47 Accumulated depreciation on 1 Jan ,32 Items written off in the previous year ,96 Merger increase 0,00 Accumulated depreciation related to deductions and transfers ,42 Depreciation for the financial year ,75 Accumulated depreciation on 31 Dec ,69 Value adjustments on 1 Jan ,25 Value adjustments related to deductions and transfers ,12 Value adjustments for the financial year ,00 Merger increase 0,00 Value readjustments ,07 Value adjustments on 31 Dec ,20 Revaluations on 1 Jan ,11 Increase 0,00 Merger increase 0,00 Decrease ,60 Transfers between items 0,00 Revaluations on 31 Dec ,51 Book value on 31 Dec ,10 Real estate and shares in real estate occupied for own activities Remaining acquisition cost ,48 Book value ,91 Current value ,34 82

85 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET - INSURANCE 31 DECEMBER Investments in Group companies and participating interests Shares and holdings in group companies Acquisition cost on 1 Jan ,96 Increase 3 100,00 Decrease 0,00 Transfers between items 0,00 Acquisition cost on 31 Dec ,96 Book value on 31 Dec ,96 Including elimination items: Acquisition cost on 1 Jan ,00 Increase ,00 Decrease 0,00 Acquisition cost on 31 Dec ,00 Balance sheet item Shares and holdings in group companies ,96 Shares and holdings in participating interests Acquisition cost on 1 Jan ,22 Increase ,99 Decrease ,00 Transfers between items 0,00 Acquisition cost on 31 Dec ,21 Book value on 31 Dec ,21 Including elimination items: Acquisition cost on 1 Jan ,76 Increase ,03 Decrease 0,00 Acquisition cost on 31 Dec ,79 Balance sheet item Shares and holdings in participating interests ,00 83

86 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET - INSURANCE 31 DECEMBER Investments in group companies Shares and holdings Registered Share of Capital and Profit/loss for the office guarantee capital, % reserves accounting period Turva Mutual Insurance Company Tampere 67, , ,85 Provina Ltd. Helsinki 100, ,00 0,00 Total , , Investments in participating interests Shares and holdings Registered Share of stock, % Capital and Profit/loss for the office reserves accounting period Tapiola Real Estate Ltd. Espoo 50, , ,27 Oirabi Ltd. Espoo 50, ,44-229,84 Vakuutusneuvonta Aura Espoo 33, ,58-223,86 Vakuutusneuvonta Pohja Espoo 33, ,43-224,02 Total , ,55 84

87 7.3 NOTES TO BALANCE SHEET LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP OTHER INVESTMENTS 31 December 2013 Security Share of Number Book value Current value Home country Stocks, % Finnish companies, listed Amer- Sports Oyj 0, , , ,32 Finland Fortum Oyj 0, , , ,16 Finland Ilkka-Yhtyma Oyj 0, , , ,54 Finland Kone Oyj B 0, , , ,00 Finland Lassila & Tikanoja Oyj 0, , , ,94 Finland Nokian Renkaat Oyj 0, , , ,00 Finland Stockmann Oyj B 0, , , ,56 Finland Vacon Oyj 0, , , ,00 Finland Vaisala Oyj A 1, , , ,00 Finland Other , , ,00 Total , ,52 Finnish companies, non-listed Autovahinkokeskus Oy 18, , , ,07 Finland Fingrid Oyj 1,50 50, , ,27 Finland LokalTapiola Sydkusten 100,00 339, , ,95 Finland LocalTapiola Etelä 100,00 250, , ,11 Finland LocalTapiola Etelä-Pohjanmaa 100,00 44, , ,67 Finland LocalTapiola Itä 100,00 303, , ,92 Finland LocalTapiola Kaakkois-Suomi 100,00 310, , ,69 Finland LocalTapiola Kainuu-Koillismaa 92,38 431, , ,73 Finland LocalTapiola Keski-Suomi 100,00 43, , ,61 Finland LocalTapiola Mutual Life Insurance Company 98, , , ,09 Finland LocalTapiola Lappi 100,00 593, , ,03 Finland LocalTapiola Loimi-Häme 100,00 514, , ,47 Finland LocalTapiola Lännen 100,00 211, , ,54 Finland LocalTapiola Pirkanmaa 100,00 423, , ,96 Finland LocalTapiola Pohjanmaa 100,00 200, , ,78 Finland LocalTapiola Pohjoinen 100,00 643, , ,71 Finland LocalTapiola Satakunta 100,00 220, , ,26 Finland LocalTapiola Savo 100,00 322, , ,20 Finland LocalTapiola Savo-Karjala 42,98 453, , ,36 Finland LocalTapiola Uusimaa 84,09 674, , ,45 Finland LocalTapiola Varsinais-Suomi 100,00 393, , ,68 Finland LocalTapiola Vellamo 100,00 562, , ,61 Finland Pihlajalinna Oy 7, , , ,24 Finland Rederiaktiebolaget Eckerö 1 sid. 1, , , ,00 Finland Satel Oy 12,63 625, , ,00 Finland Sato Oyj 2, , , ,40 Finland Seligson & Co Oyj 14, , , ,00 Finland Other , , ,37 Total , ,17 Foreign companies, listed ABB 0, , , ,96 Switzerland AMEC 0, , , ,47 Great Britain Adidas 0, , , ,00 Germany Amphenol 0, , , ,15 United States BASF 0, , , ,00 Germany Bayer 0, , , ,00 Germany Campbell Soup 0, , , ,39 United States Carl Zeiss Meditec 0, , , ,87 Germany Carrefour 0, , , ,00 France Covidien 0, , , ,99 Ireland DNB 0, , , ,90 Norway Daimler 0, , , ,00 Germany Deckers Outdoor 0, , , ,95 United States Deutsche Bank Ag-Registered 0, , , ,00 Germany Eaton 0, , , ,08 Ireland Ekornes 0, , , ,78 Norway Hennes & Mauritz 0, , , ,98 Sweden Hologic 0, , , ,64 United States Inmarsat 0, , , ,55 Great Britain International Business Machines 0, , , ,56 United States Mednax 0, , , ,52 United States National Grid 0, , , ,07 Great Britain Nestle 0, , , ,71 Switzerland Pepco Holdings 0, , , ,46 United States Pepsi 0, , , ,99 United States Reed Elsevier NV 0, , , ,00 The Netherlands SAP 0, , , ,00 Germany SES 0, , , ,00 Luxemburg SKF 0, , , ,26 Sweden Sanofi 0, , , ,00 France 85

88 ANNUAL REPORT 2013 Stada Arzneimittel 0, , , ,00 Germany Syngenta 0, , , ,27 Switzerland Technip 0, , , ,00 France Telenor 0, , , ,26 Norway TeliaSonera 0, , , ,00 Sweden Teva Pharmaceutical Industries 0, , , ,01 United States Thermo Fisher Scientific 0, , , ,86 United States US Bancorp 0, , , ,22 United States United Technologies 0, , , ,19 United States VF 0, , , ,72 United States Vienna Insurance Group 0, , , ,40 Austria Vinci 0, , , ,00 France Volkswagen 0, , , ,00 Germany WPP 0, , , ,42 Great Britain Waste Management 0, , , ,16 United States Zurich Insurance Group 0, , , ,30 Switzerland ebay 0, , , ,55 United States Total , ,64 Foreign companies, non-listed European Alliance Partners Company 9, , , ,80 Switzerland Other 337, , ,67 Total , ,47 Mutual funds BNP Paribas Global Senior Corporate Loans , ,08 Finland FIM Brazil , ,38 Brasilien FIM Korko Optimaattori K , ,54 Finland FIM RUSSIA , ,92 Finland LocalTapiola Aasia-Tyynimeri A , ,06 Finland LocalTapiola Eurooppa A , ,69 Finland LocalTapiola High Yield A , ,99 Finland LocalTapiola Hyvinvointi A , ,36 Finland LocalTapiola Infra A , ,54 Finland LocalTapiola Itä-Eurooppa A , ,56 Finland LocalTapiola Japani A , ,15 Finland LocalTapiola Kassakorko A , ,61 Finland LocalTapiola Kasvu A , ,33 Finland LocalTapiola Kehittyvät Korkomarkkinat A , ,12 Finland LocalTapiola Kehittyvät Markkinat A , ,28 Finland LocalTapiola Korkomaailma A , ,17 Finland LocalTapiola Kuluttaja A , ,99 Finland LocalTapiola Lyhytkorko A , ,90 Finland LocalTapiola Osinko A , ,64 Finland LocalTapiola Pitkäkorko A , ,73 Finland LocalTapiola Pohjoinen Yrityskorko A , ,79 Finland LocalTapiola Suoja A , ,02 Finland LocalTapiola Suomi A , ,90 Finland LocalTapiola USA A , ,60 Finland LocalTapiola Yrityskorko A , ,83 Finland Natixis Loomis Sayles Senior Loan Fund , ,64 Luxembourg Pimco Socially Responsible EM Bond Fund I-EUR HA , ,98 Ireland Robeco Lux-o-rente I EUR , ,69 Luxembourg Other , ,11 Total , ,60 Capital mutual funds AXA LBO Fund IV FCPR , ,97 France AXA LBO Fund IV Supplementary FCPR , ,58 France AXA LBO Fund V Core , ,39 France AXA Secondary Fund IV L.P , ,52 Jersey AXA Secondary Fund V L.P , ,15 Jersey Aberdeen European Shopping Property Fund SICAV , ,12 Luxembourg Aberdeen Property Funds SICAV Pan-Nordic , ,96 Luxembourg Altor Fund II (No. 1) Limited Partnership , ,00 Jersey Altor Fund III , ,37 Jersey Amanda III Eastern Private Equity L.P , ,98 Finland Amanda V East L.P , ,37 Finland Apax Europe VII - B, L.P , ,99 Great Britain Apax VIII - A L.P , ,66 Guernsey Beechbrook Mezzanine II L.P , ,43 Great Britain BlackRock Europe Property Fund III , ,29 Great Britain Bowmark Capital Partners IV, L.P , ,93 Great Britain Bridgepoint Europe III, L.P , ,00 Great Britain Bridgepoint Europe IV F L.P , ,22 Great Britain CBRE European Industrial Fund CV , ,00 The Netherlands CapMan Equity VII A L.P , ,00 Guernsey CapMan Hotels RE Ky , ,94 Finland CapMan RE II Ky , ,73 Finland CapMan Real Estate I Ky , ,35 Finland Capvis Equity III L.P , ,00 Jersey 86

89 Charterhouse Capital Partners VIII LP No , ,70 Great Britain Crescent Mezzanine Partners VI, L.P , ,71 United States European Added Value Fund, L.P , ,08 Great Britain European Fund Investments II Limited Partnership , ,22 Great Britain Gresham 4A , ,00 Great Britain HealthCap IV Bis L.P , ,40 United States ICECAPITAL Housing Fund II Ky , ,23 Finland ICG Europe Fund V , ,74 Jersey ICG-Longbow UK Real Estate Debt Investments III S.á.r.l , ,37 Luxembourg Indigo Capital V L.P , ,67 Great Britain Industri Kapital 2004 Limited Partnership III , ,22 Jersey Industri Kapital 2007 Limited Partnership III , ,75 Jersey Lindsay Goldberg III L.P , ,40 United States LocalTapiola APFF Feeder I Ky , ,57 Finland LocalTapiola Asuntorahasto Prime Ky , ,00 Finland LocalTapiola KR PK2 Ky , ,80 Finland MB Equity Fund IV Ky , ,49 Finland MezzVest III, L.P , ,86 Jersey Nexit INFOCOM II L.P , ,60 Guernsey Nordic Mezzanine Fund III Limited Partnership , ,58 Great Britain PBW II Real Estate Fund S.A , ,24 Luxembourg Partners Group U.S. Venture 2004, L.P , ,43 United States Real Estate Debt & Secondaries Ky , ,19 Finland Real Estate Fund of Funds II Ky , ,01 Finland Rockspring PanEuropean Limited Partnership , ,00 Great Britain Russian and Baltics Retail Properties Ky , ,00 Finland TPG Partners VI, LP , ,84 United States Tapiola KR I Ky , ,28 Finland Tapiola KR III Ky , ,23 Finland Tapiola KR IV Ky , ,41 Finland The Fourth Cinven Fund (No. 4) Limited Partnership , ,74 Great Britain The Triton Fund III L.P , ,00 Jersey Top Tier Venture Capital III, L.P , ,68 United States Top Tier Venture Capital IV, L.P , ,23 United States TuuliTapiola Ky , ,00 Finland Other , ,91 Total , ,53 Total other investments, shares and holdings , ,90 87

90 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET - INSURANCE 31 DECEMBER Other investments 8.1. Other loans receivable, itemised by type of security: Bank guarantee , ,00 Insurance policy 0,00 0,00 Other security , ,41 Remaining acquisition cost , ,41 Unsecured, total remaining acquisition cost , , , , Total subordinated loans Other loans receivable from Group companies ,00 0,00 Other loans receivable , ,39 Total remaining acquisition cost , ,39 88

91 89

92 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET 31 DECEMBER Changes in capital and reserves Increase Decrease Initial reserve ,34 0,00 0, ,34 Guarantee capital 0,00 0,00 0,00 0,00 Revaluation reserve ,38 0,00 0, ,38 Current value reserve ,43 0, , ,22 Security reserve , ,85 0, ,77 Contingency reserve , , , ,79 The share of voluntary provisions and depreciation difference transferred to capital and reserves ,36 0, , ,59 Loss/profit brought forward , ,10 0, ,67 Profit/loss for the accounting period , , , ,78 Change in depreciation difference and voluntary provisions included in profit for the financial year , , , , , , , ,18 Total changes in capital and reserves , , , , Itemisation of revaluation reserve Revaluation reserve on 1 Jan ,38 Increase 0,00 Cancellation of revaluations 0,00 Revaluation reserve on 31 Dec ,38 Relating to fixed assets ,38 90

93 91

94 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET - INSURANCE 31 DECEMBER Provision for outstanding claims Uncontested recourse receivables deducted from provisions for claims outstanding Statutory accident , , Other obligatory provisions Provision for interest on late payments for unfinished claims , ,20 Provision for unemployment security deductible , , , , Deferred tax assets Deferred tax asset from negative depreciation difference , ,78 Deferred tax relating to the elimination of the internal system trade , , , , Deferred tax liabilities Deferred tax liabilities arising from the division of depreciation difference and provisions , ,55 Tax liability calculated on the basis of timing differences and other temporary differences between taxable profit and accounting profit , ,83 Tax debt calculated based on valuation gains/losses that is deemed likely to become payable during the next year , , , ,38 92

95 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET - INSURANCE 31 DECEMBER Receivables and liabilities 15.1 Itemisation of receivables Receivables from participating interests Other receivables , , , , Itemisation of liabilities Liabilities to participating interests Other liabilities 0,00 0,00 0,00 0, Itemisation of accruals and deferred income Provisional premiums 0,00 0,00 Liabilities to personnel , ,27 Valuation loss on derivatives 0,00 0,00 Other accruals and deferred income , , , ,01 Including an elimination item: Other accruals and deferred income , ,24 Balance sheet item Accruals and deferred income , ,25 93

96 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET - INSURANCE 31 DECEMBER Notes concerning guarantees and contingent liabilities Security Security/pledges/ Amount of Security/pledges/ Amount of guarantees and other liability guarantees and other liability commitments commitments As security for own debts Real estate mortgages 0,00 0, , ,00 Guarantee, reinsurance 0,00 0,00 0,00 0,00 0,00 0, , , Off-balance-sheet guarantees and contingent liabilities Derivative contracts Interest derivatives Forward and futures contracts, open Underlying instrument 0,00 0,00 Current value 0,00 0,00 Option contracts, open Underlying instrument 0, ,23 Current value 0, ,81 Interest rate swap Underlying instrument 0, ,00 Current value 0, ,82 Currency derivatives Forward and futures contracts, open Underlying instrument , ,34 Current value , ,95 Leasing liabilities Amount to be paid in the current financial year , ,28 Amount to be paid in the coming years , , , ,47 Value-added tax liabilities Joint liability relating to collective valueadded tax registration Participating interests , ,89 Partner companies , , , ,22 Inspection responsibility of real estate investments under section 120 of the Value Added Tax Act - 10 years inspection period Group companies , ,32 Other companies , , , ,64 Other commitments Investment commitments 0, ,74 Subscription commitments , ,74 Granted limit , , , ,48 94

97 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET - INSURANCE 31 DECEMBER Related party loans (Insurance Companies Act, Chapter 8, section 11) s loans to participating interests are EUR ,95. The loan period is in principal years and the interest rate fixed Related party transactions (Accounting Ordinance, Chapter 2, section 7b) The company has not carried out related party transactions involving any other than conventional commercial terms and conditions. 95

98 ANNUAL REPORT

99 97

100 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO PROFIT AND LOSS ACCOUNT - CREDIT INSTITUTION AND INVESTMENT SERVICES Notes concerning profit and loss account Tangible assets Other tangible assets Planned depreciation Depreciation and value adjustments on tangible and intangible assets, total , , , , Value adjustment losses from credits, other commitments and other financial assets Contract-specific value Group-specific value Value adjustment losses 2013 adjustment losses, gross adjustment losses, gross Decrease Profit and loss account Receivables from the public and public corporations , , , ,08 Other 0,00 0,00 0,00 0,00 Value adjustment losses, total , , , ,08 Contract-specific value Group-specific value Value adjustment losses 2012 adjustment losses, gross adjustment losses, gross Decrease Profit and loss account Receivables from the public and public corporations , , , ,47 Other 0,00 0,00 0,00 0,00 Value adjustment losses, total , , , ,47 98

101 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO BALANCE SHEET - CREDIT INSTITUTION AND INVESTMENT SERVICES 31 DECEMBER 2013 Notes concerning balance sheet items 28. Receivables from credit institutions Payable Other than those 2013 Payable Other than those 2012 on demand payable on demand Total on demand payable on demand Total From the central bank 0, , ,24 0, , ,79 From Finnish credit institutions , , , , , ,99 Receivables from credit institutions, total , , , , , , Receivables from the public and public corporations Corporate customers and housing associations , ,64 Financial and insurance institutions 9 177, ,22 Households , ,00 Non-profit-making corporations serving households , ,29 Foreign countries , ,28 Receivables from the public and public corporations, total , ,43 Value adjustment losses at the beginning of the year , ,00 Receivable-specific value adjustment losses recorded during the financial year , ,00 Receivable-specific cancellations of value adjustment losses recorded during the financial year , ,00 Group-specific value adjustment losses recorded during the financial year , ,00 Value adjustment losses at the end of the year included in the balance sheet item , , Certificates of claim Issued by public corporations, entitling to central bank financing Government-issued bonds kept until due date, publicly listed , ,21 Bank-issued bonds kept until due date, publicly listed ,44 Available-for-sale, publicly listed government-issued bonds , ,50 Publicly listed bonds issued by companies ,40 Total , ,71 Issued by parties other than public corporations Available-for-sale, publicly listed commercial papers issued by banks for which interest income has not been accrued , ,88 Available-for-sale, publicly listed bonds issued by banks ,00 0,00 Available-for-sale, publicly listed bonds issued by companies 0,00 0,00 Available-for-sale, publicly listed commercial papers ,03 0,00 Total , , Property rented by financial leasing Machinery and equipment , , Shares and holdings Publicly,of which in credit listed Other Total institutions Shares and holdings available-for-sale 0, , ,93 0,00 Shares and holdings in participating interests 0, , ,36 0,00 Total 0, , ,29 0,00 - of which at acquisition cost 0, , ,93 0, Derivative contracts Share derivatives, liabilities held for trading Options contracts Purchased , ,24 Nominal value of underlying asset Current value Remaining maturity Contracts concluded for purposes other than hedging under 1 yr 1-5 yrs over 5 yrs Total positive negative Share derivatives Options contracts Purchased , ,54 0, , , Intangible assets IT expenses , ,20 Goodwill 0,00-0,01 Other intangible assets 0,00 0,00 Total , ,19 Including an elimination item: IT expenses , ,34 Intangible assets in balance sheet , ,53 99

102 ANNUAL REPORT Changes in tangible and intangible assets during the financial year Intangible assets Acquisition cost on 1 Jan ,67 Increase ,30 Decrease Transfers Acquisition cost on 31 Dec ,97 Accumulated depreciation and value adjustments on 1 Jan ,13 Accumulated depreciation related to deductions Depreciation for the financial year ,74 Accumulated depreciation and value adjustments on 31 Dec ,87 Book value on 31 Dec ,10 Tangible assets Acquisition cost on 1 Jan ,91 Increase ,35 Decrease ,68 Transfers 0,00 Acquisition cost on 31 Dec ,58 Accumulated depreciation and value adjustments on 1 Jan ,19 Accumulated depreciation related to deductions and transfers 0,00 Depreciation for the financial year ,86 Accumulated depreciation and value adjustments on 31 Dec ,05 Book value on 31 Dec , Other assets Receivables on payment intermediation 0,63 172,03 Other receivables , ,63 Total , ,66 Including an elimination item: Other receivables , ,61 Other assets in balance sheet , , Prepayments and accrued income Interest receivable , ,01 Other prepayments and accrued income , ,79 Prepayments paid ,56 0,00 Total , , Deferred tax assets and liabilities Deferred tax assets On balanced loss , ,00 Deferred tax liabilities Booked from the current value fund , ,58 Deferred taxes in profit and loss account , ,00 Deferred taxes calculated from the current value reserve 0,00 0, Bonds issued to the public by credit institutions Certificates of deposit and commercial papers, book value , ,40 - nominal value , , Derivative contracts and other liabilities held for trading Share derivatives Financial liabilities managed together with financial assets held for trading , , Other liabilities Liabilities on payment intermediation , ,52 Other , ,93 Total , ,45 Including an elimination item: Other , ,91 Other liabilities in balance sheet , , Accruals and deferred income Interest payable , ,92 Other accruals and deferred income , ,25 Prepayments received , ,41 Total , ,58 Including an elimination item: Interest payable 2 896, ,29 Other accruals and deferred income 0, ,39 Accruals and deferred income in balance sheet , ,26 100

103 43. Liabilities that have lower priority than other liabilities Tapiola Bank Ltd debenture loan 1/2006, nominal value EUR 10,000,000 Loan period of 30 June 2006 to 30 June 2016, right to premature repayment after 5 years, interest 12-month Euribor % units p.a. until 30 June 2011 and 12-month Euribor % units p.a. thereafter , ,00 Tapiola Bank Ltd debenture loan 1/2007, nominal value EUR 10,000,000 Loan period of 21 May 2007 to 21 May 2017, right to premature repayment after 5 years, interest 3-month Euribor % units p.a. until 21 May 2012 and 3-month Euribor % units p.a. thereafter 0,00 0,00 Tapiola Bank Ltd debenture loan 1/2011, nominal value EUR 15,000,000 Loan period of 30 June 2011 to 30 June 2016, interest 12-month Euribor % units p.a. until 30 June , , Maturity distribution of financial assets and liabilities under 3 months 3 to 12 months 1 to 5 years 5 to 10 years over 10 years Total Certificates of claim entitling to central bank finance , , , ,00 0, ,44 Receivables from credit institutions ,02 0,00 0,00 0,00 0, ,02 Receivables from the public and public corporations , , , , , ,73 Leasing objects 0,00 0,00 0,00 0,00 0,00 0,00 Certificates of claim , , ,00 0,00 0, ,05 Liabilities to credit institutions , , ,00 0,00 0, ,75 Liabilities to the public and public corporations , , ,99 0,00 0, ,04 Bonds issued to the public , , ,19 0,00 0, ,79 Liabilities that have lower priority than other liabilities 0,00 0, ,00 0,00 0, ,00 Including an elimination item: Liabilities to the public and public corporations , ,76 Balance sheet item Liabilities to the public and public corporations , Specification of balance sheet items into Finnish and foreign-currency items Balance sheet item, Finnish currency Receivables from credit institutions , ,78 Receivables from the public and public corporations , ,43 Certificates of claim , ,59 Derivative contracts , ,24 Other assets, incl. cash assets , ,70 Credit institution and investment service business, assets , ,74 Including an elimination item: Other assets, incl. cash assets , , Liabilities to credit institutions , ,67 Liabilities to the public and public corporations , ,96 Bonds issued to the public , ,44 Derivative contracts and liabilities held for trading , ,61 Other liabilities , ,61 Credit institution and investment service business, liabilities , ,29 Including elimination items: Liabilities to the public and public corporations , ,06 Other liabilities , ,30 Total , , Current values and book values of financial assets and liabilities Book value Current value Book value Current value Financial assets Cash assets , , , ,96 Receivables from credit institutions , , , ,78 Receivables from the public and public corporations 0,00 0, , ,43 Leasing objects , , , ,24 Certificates of claim , , , ,59 Shares and holdings , , , ,28 Shares and holdings in participating interests , , , ,66 Derivative contracts , , , ,24 Financial liabilities Liabilities to credit institutions , , , ,67 Liabilities to the public and public corporations , , , ,96 Bonds issued to the public , , , ,44 Derivative contracts and liabilities held for trading , , , ,61 Other liabilities that have lower priority than other liabilities , , , ,00 Including an elimination item: Liabilities to the public and public corporations , , , ,06 Balance sheet item Liabilities to the public and public corporations , , , ,02 101

104 ANNUAL REPORT 2013 Notes concerning guarantees and contingent liabilities 47. Guarantees given Other collateral Other collateral Given for own credits Liabilities to credit institutions , , , , , ,00 Given on behalf of others , ,99 of which to related-party management 0,00 0, Pension liabilities Personnel's statutory pension cover arranged through insurance Personnel's supplementary pension cover arranged through insurance Pension liabilities outside the accounts 0,00 0, Off-balance-sheet commitments Itemisation by capital commitment type Guarantees , ,99 Unused credit facilities , ,15 Total , , Other off-balance-sheet facilities Joint liability relating to collective registering for value-added taxation (Value Added Tax Act, section 188) , ,45 Notes concerning personnel and management 51. Number of personnel Average Permanent full-time personnel Permanent part-time personnel 14 6 Fixed-term personnel 10 9 Total Salaries and remuneration paid to the management Salaries and remuneration Managing director and acting managing director , ,99 Ordinary and deputy board members 9 800, ,00 Total , , Credits, guarantees and off-balance-sheet commitments granted to the management Ordinary and deputy board members, managing director and acting managing director Credits granted , ,54 Guarantees and other off-balance-sheet commitments granted 0,00 0, Pension commitments of the management The management's statutory and supplementary pension cover have been arranged through insurance. 55. Shareholdings Capital and reserve Profit/loss for the Registered office Share of ownership on 31 Dec. financial year Tapiola Asset Management Ltd Espoo 100, , ,57 Ab Compass Card Oy Ltd Maarianhamina 34, , , Information on asset management services Customer assets 0,00 0,00 Assets in discretionary asset management 0,00 0,00 Including an elimination item: 0,00 0, Auditor s fees Auditing , ,31 Assignments within the meaning of the provisions of the Auditing 4 103, ,85 Tax advice ,04 0,00 Other services , ,20 Total , ,36 102

105 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO THE FINANCIAL STATEMENTS KEY FIGURES M Key figures describing financial development of non-life insurance business Operating profit/loss 263,7 142,0-49,6 8,0 Total result 183,4 227,2-56,4 52,1 Return on capital employed (at current value), parent company, % 4,0 8,0 3,4 5,4 Return on assets, % 5,6 8,8-1,2 2,4 Key figures describing financial development of non-life insurance Premium income 903,6 726,7 712,4 692,0 Loss ratio (excl. unwinding of discount expense), % 61,3 70,8 93,4 85,7 Loss ratio % 65,0 73,8 96,2 88,3 Expense ratio, % 26,8 26,0 26,6 26,6 Combined ratio (excl. unwinding of discount expense), % 88,1 96,8 120,0 112,3 Combined ratio % 91,8 99,9 122,8 115,0 Minimum solvency margin (Insurance Companies Act, Equalisation provision in reporting currency 483,7 616,0 456,4 532,0 Minority interest 46,3 56,7 53,4 45,2 103

106 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP NOTES TO THE FINANCIAL STATEMENTS KEY FIGURES M Key figures describing financial development of the credit institution and investment service Receivables from credit institutions 20,6 79,9 123,0 23,6 Receivables from the public and public corporations 1 840, , , ,7 Liabilities to credit institutions 47,6 43,3 19,4 0,0 Liabilities to the public and public corporations 1 689, , , ,7 Fund capital 2 315, , , ,8 Managed customer funds 6 417, , , ,8 Interest margin 18,9 19,4 18,2 14,3 Turnover 63,8 60,5 67,6 57,1 Net commission income 25,7 14,7 15,3 15,3 Operating profit/loss 10,9 6,1 4,8 1,6 and its share of turnover, % 17,2 10,1 6,8 2,7 Cost/return ratio 0,8 0,8 0,9 0,9 Numbers of Group employees Number of employees Insurance Credit institution and investment service business Number of employees in relation to payroll

107 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP OTHER NOTES PERFORMANCE ANALYSIS Change Change-% Premiums earned ,3 Claims incurred ,4 Operating expenses ,9 Balance on technical account before change in equalisation provision ,6 Investment income and expenses as well as revaluations and adjustments thereof ,7 Other income and expenses ,6 Share of profit/loss of associated undertakings ,7 Operating profit/loss ,8 Change in equalisation provision ,1 Profit or loss before extraordinary items ,7 Operating profit/loss ,8 Change in the difference between current and book values ,2 Total result ,3 Including elimination items: Claims incurred ,4 Operating expenses ,3 Investment income and expenses as well as revaluations 0 and adjustments thereof ,3 Other income and expenses ,8 Share of profit/loss of associated undertakings ,6 Total ,9 105

108 ANNUAL REPORT 2013 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY GROUP SUBSIDIARIES AND PARTICIPATING INTERESTS 31 Dec Registered Share of SUBSIDIARIES office ownership 1 Real estate company Adoxa Espoo 100,0 % 2 Limited company Akapo-Leasing Espoo 51,11 % 3 Limited company Aura-Karelia Espoo 100,0 % 4 Real estate company Auralax Espoo 100,0 % 5 Housing cooperative Ajurinkuja Espoo 100,0 % 6 Real estate company Bulevardi 28 Helsinki 83,96 % 7 Housing cooperative Espoon Anni Espoo 100,0 % 8 Housing cooperative Espoon Aura Espoo 100,0 % 9 Housing cooperative Espoon Lintuvaarantie 30 Espoo 100,0 % 10 Housing cooperative Espoon Nöykkis Espoo 89,54 % 11 Housing cooperative Espoon Piispankivi Espoo 100,0 % 12 Housing cooperative Espoon Valkeakuulas Espoo 100,0 % 13 Housing cooperative Espoon Zanseninkuja 2 Espoo 100,0 % 14 Housing cooperative Helsingin Ajomies Helsinki 100,0 % 15 Housing cooperative Helsingin Kaunotar Helsinki 100,0 % 16 Housing cooperative Helsingin Sauvontie 7 Helsinki 100,0 % 17 Limited company Kaisaniemenkatu 1 Helsinki 78,2 % 18 Limited partnership Kestap Espoo 100,0 % 19 Housing cooperative Kivelänkatu 3 Helsinki 100,0 % 20 Ki Limited company Lintutörmä Espoo 100,0 % 21 TavarataloReal estate company L.Kela Espoo 100,0 % 22 Real estate company Lahden Vapaudenkatu 13 Lahti 100,0 % 23 Real estate company Lappeenrannan Myllymäki 2 Espoo 100,0 % 24 Housing cooperative Mannerheimintie 61 Helsinki 100,0 % 25 Limited company Omre Espoo 100,0 % 26 Housing cooperative Tampereen Atalan Linnapiha Tampere 100,0 % 27 Limited company LähiTapiola Pankki, group Espoo 78,04 % 28 Limited company Tapiolan Revontuli Espoo 100,0 % 29 Limited company Tapiola-Safety Espoo 100,0 % 30 Limited company Tieto-Tapiola Espoo 51,11 % 31 Limited company Tietotyö Espoo 100,0 % 32 Limited company Tukholmakatu 2 Helsinki 100,0 % 33 Real estate company Vaasan Lemmenpolku 1 Espoo 100,0 % 34 Housing cooperative Vantaan Kiulukuja Vantaa 100,0 % 35 Real estate company Vantaan Kärkikuja Vantaa 100,0 % 36 Real estate company Vantaan Tuupakantie 32 Espoo 100,0 % Registered Share of PARTICIPATING INTERESTS office ownership 1 Limited company Glasnost Espoo 33,3 % 2 Limited company Kampintorni Espoo 50,0 % 3 Limited company LocalTapiola Kiinteistövarainhoito, group Espoo 50,0 % 4 Limited company Oirabi Espoo 50,0 % 5 Limited company Pohja-yhtymä Espoo 28,8 % 6 Limited company Vakuutusneuvonta Aura Espoo 33,3 % 7 Limited company Vakuutusneuvonta Pohja Espoo 33,3 % 106

109 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY PROPOSAL FOR DISTRIBUTION OF PROFIT The Board of Directors proposes that EUR ,49 of the profit for the financial year Transferred to the security reserve ,00 Transferred to the contingency reserve ,49 If the Board s proposal for the handling of the result is adopted, the company s capital and reserves will stand as follows: Initial reserve ,35 Guarantee capital 0,00 Revaluation reserve ,97 Security reserve ,77 Contingency reserve , ,74 SIGNATURES TO THE REPORT OF THE BOARD OF DIRECTORS AND FINANCIAL STATEMENTS DATED 31 DECEMBER 2013 Espoo, March 20th, 2014 Erkki Moisander Jari Sundström Jari Eklund Pentti Kuusela Harri Lauslahti Marjatta Leiviskä Jukka Kinnunen CEO 107

110 LOCALTAPIOLA GENERAL MUTUAL INSURANCE COMPANY ANNUAL REPORT 2013 AUDITOR S NOTE A report has been issued today on the audit performed. Espoo, April 1st, 2014 KPMG Oy AB Authorised Public Accountants Mikko Haavisto Authorised Public Accountant 108

111 Auditors report To the Annual General Meeting of We have audited the accounting records, financial statements, the report of the Board of Directors and the administration of for the financial year 1 January 31 December The financial statements comprise the balance sheets, profit and loss accounts, cash flow statements and notes to the financial statements for both the consolidated company and the parent company. Responsibility of the Board of Directors and the Managing Director The Board of Directors and the Managing Director are responsible for the preparation of financial statements and the report of the Board of Directors that give a true and fair view in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company s accounts and finances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner. Auditor s responsibility Our responsibility is to express an opinion on the financial statements, on the consolidated financial statements and on the report of the Board of Directors based on our audit. The Auditing Act requires that we comply with the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the report of the Board of Directors are free from material misstatement, and whether the members of the Board of Directors of the parent company and the Managing Director are guilty of an act or negligence which may result in liability in damages towards the company, or whether they have violated the Insurance Companies Act, the Companies Act or the articles of association of the company. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of financial statements and report of the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Statement In our opinion, the financial statements and the report of the Board of Directors give a true and fair view of both the consolidated and the parent company s financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements. Espoo, 1 April 2014 KPMG OY AB Mikko Haavisto Authorised Public Accountant 109

112 ANNUAL REPORT 2013 STATEMENT OF THE SUPERVISORY BOARD After examining the financial statements, consolidated financial statements and auditors report for 2013, the Supervisory Board proposes that the financial statements and the consolidated financial statements be approved and the proposal by the Board of Directors for distribution of profit be adopted. Espoo, 3 April 2014 Antti Lemmetyinen Chairman of the Supervisory Board 110

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116 LocalTapiola is close to you throughout your life LocalTapiola is close to you everywhere in Finland. Our regional companies offer comprehensive insurance, savings and investment services. We also provide banking services. We are your partner in matters related to security, well-being and the economy. Welcome to the new LocalTapiola. LocalTapiola Group Street address: Revontulenkuja 1 FI Espoo Postal address: FI LocalTapiola Tel: Fax: