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OP Financial Group Report by the Executive Board and Financial Statements 2018 OP OP Financial Group's Report by the Executive Board and Financial Statements 2018

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OP Financial Group Report by the Executive Board and Financial Statements 2018 OP OP Financial Group's Report by the Executive Board and Financial Statements 2018 OP Financial Group Report by the Executive Board and Financial Statements 2018 OP OP Financial Group's Report by the Executive Board and Financial Statements 2018 Contents Report by the Executive Board .................................................................................................................................................................................................5 Operating environment...............................................................................................................................................................................................................8 Earnings analysis and balance sheet .......................................................................................................................................................................................9 2018 highlights ..........................................................................................................................................................................................................................12 OP Financial Group’s strategic targets and focus areas ....................................................................................................................................................13 Promotion of the prosperity and wellbeing of owner-customers and in the operating region ..............................................................................13 Report on non-financial information .....................................................................................................................................................................................15 Solvency .......................................................................................................................................................................................................................................17 Risk exposure ..............................................................................................................................................................................................................................19 Financial performance by segment .......................................................................................................................................................................................22 Banking ........................................................................................................................................................................................................................................22 Non-life Insurance .....................................................................................................................................................................................................................24 Wealth Management .................................................................................................................................................................................................................26 Other Operations ........................................................................................................................................................................................................................28 Capital expenditure and service development ....................................................................................................................................................................29 Personnel and remuneration ..................................................................................................................................................................................................29 Changes in OP Financial Group’s structure ..........................................................................................................................................................................30 Governance of OP Cooperative ...............................................................................................................................................................................................31 Legal structure of the amalgamation of the cooperative banks and OP Financial Group ........................................................................................31 Outlook for 2019........................................................................................................................................................................................................................33 Key income statement and balance sheet items, and financial indicators ...................................................................................................................34 Formulas for key ratios .............................................................................................................................................................................................................36 Income statement ......................................................................................................................................................................................................................39 Statement of comprehensive income ...................................................................................................................................................................................39 Balance sheet ..............................................................................................................................................................................................................................40 Statement of changes in equity ..............................................................................................................................................................................................41 Cash flow statement ..................................................................................................................................................................................................................42 Segment reporting ....................................................................................................................................................................................................................44 Contents of the notes 47 1. Accounting policies 50 2. Risk management and capital adequacy management principles 77 3. Changes in accounting policies and presentation 97 Notes to the income statement 105 4. Net interest income 105 5. Net insurance income 106 6. Net commissions and fees 106 7. Net investment income 108 8. Other operating income 110 9. Personnel costs 110 10. Depreciation/amortisation and impairment loss 111 11. Other operating expenses 111 12. Impairment loss on receivables 112 13. OP bonuses to owner-customers 113 14. Temporary exemption (overlay approach) 113 15. Income tax 113 Notes to assets 114 16. Liquid assets 114 17. Receivables from credit institutions 114 18. Derivative contracts 114 19. Receivables from customers 115 20. Investment assets 116 21. Assets covering unit-linked contracts 118 22. Investments accounted for using the equity method 118 23. Intangible assets 119 2 OP OP Financial Group's Report by the Executive Board and Financial Statements 2018 24. Property, plant and equipment 122 25. Other assets 123 26. Tax assets and liabilities 123 Notes to liabilities and equity 125 27. Liabilities to credit institutions 125 28. Derivative contracts 125 29. Liabilities to customers 126 30. Insurance liabilities 127 31. Liabilities from unit-linked insurance and investment contracts 132 32. Debt securities issued to the public 132 33. Provisions and other liabilities 134 34. Subordinated liabilities 140 35. Equity capital 141 Other notes to the balance sheet 144 36. Notes and bonds eligible for central bank refinancing 144 37. Subordinated notes and bonds 144 38. Collateral given 144 39. Financial collateral held 144 40. Classification of financial assets and liabilities 145 41. Recurring fair value measurements by valuation technique 146 Notes to contingent liabilities and derivatives 151 42. Off-balance-sheet commitments 151 43. Contingent liabilities and assets 151 44. Operating leases 151 45. Derivative contracts 152 46. Financial assets and liabilities offset in the balance sheet or subject to enforceable master netting arrangements or similar agreements 157 Other notes 159 47. Ownership interests in subsidiaries, structured entities and joint operations 159 48. Information by country 167 49. Related-party transactions 167 50. Variable remuneration 169 51. Loss allowance regarding receivables and notes and bonds 173 52. Events after the balance sheet date 180 Notes to risk management 181 OP Financial Group’s risk exposure 181 53. OP Financial Group’s risk tolerances 181 54. OP Financial Group’s exposure split by geographic region and exposure class 183 55. Impairment loss recognised on financial assets 184 Risk exposure by Banking 185 56. Receivables from credit institutions and customers, and doubtful receivables 185 57. Credit losses and impairment losses 187 58. OP Financial Group’s funding structure 187 59. Financial assets and liabilities by residual term to maturity 188 60. Maturities of financial assets and liabilities by maturity or repricing 190 61. Sensitivity analysis of interest rate and market risk 191 62. Liquidity buffer 192 Risk exposure by Non-life Insurance 192 63. Non-life Insurance risk-bearing
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