S&P Puts Pohjola on CreditWatch/Positive Following OKO Bank Tender Offer

September 13, 2005

Standard & Poor’s Ratings Services announced that it has placed its counterparty credit and insurer financial strength ratings on Finnish insurer Pohjola Non-life Insurance Co. Ltd. on CreditWatch with positive implications.

S&P took the action after Finland’s OKO Bank (OKO Osuuspankkien Keskuspankki Oyj) (rated “AA-/Negative/A-1+”) announced it has reached share purchase agreements with majority shareholders to acquire 58.5 percent of Pohjola’s shares and has launched a public tender offer for the remaining shares. In a companion announcement S&P put the bank’s ratings on CreditWatch/Negative.

“The CreditWatch placement reflects Standard & Poor’s expectation that Pohjola will become a strategically important subsidiary to the higher rated OKO Bank, once it becomes clear that the deal will receive regulatory approval and will be successfully completed,” said the bulletin.

“Due to the mere size of the transaction and, on the face of it, the reasonable fit of Pohjola into the existing cooperative OP Bank group, in which OKO Bank is the central institution, the acquisition appears to be a long-term strategic transaction,” stated S&P credit analyst Ralf Bender. “Product mixes fit well, with Pohjola’s life and asset-management functions supplementing the bank’s relatively smaller market share compared with its main businesses, and adding a strong non-life business to the new group.”

S&P also said: “The joint life and asset-management functions are likely to allow the group to draw synergies. Customer groups complement each other well, with Pohjola more active in cities, while OKO Bank is stronger in rural areas.”

“The CreditWatch placement is expected to be resolved, once Standard & Poor’s is convinced that the transaction will proceed and gain regulatory approval,” Bender indicated. As a strategically important subsidiary, the rating on Pohjola would then most likely be raised to ‘A+’ with a negative outlook, with the rating capped one notch below the rating of its parent and the outlook aligned to the parent company.

“Moreover,” S&P continued, “Pohjola is expected to benefit from the integration into the wider OP bank group in terms of distribution power, access to a wider customer base, and reduced earnings volatility within the diversified bancassurance group. On a stand-alone basis, Standard & Poor’s expects Pohjola to remain at least strongly capitalized. The quality of the operating result is expected to remain sound at an underwriting level, with a combined ratio of less than 100 percent at least based on local GAAP or 95 percent on an International-Financial-Reporting-Standards basis expected for 2005. Standard & Poor’s expects Pohjola to maintain its strong competitive position in the Finnish market, but to remain dependent on the market’s underwriting profitability.”

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