Interim report 4/2010. Report from the board of directors - Income statement & Balance sheet - Notes

Transcription

1 Interim report 4/2010 Report from the board of directors - Income statement & Balance sheet - Notes

2 Content Report from the board of directors 3 - Key figures 4 Group accounts after the fourth quarter Income statement 8 - Balance sheet 9 - Notes to the Group accounts 12 Accounts after the fourth quarter 2010 Kommunal Landspensjonskasse - Income statement 25 - Balance sheet 26 - Notes to the accounts 28

3 A good year to the benefit of KLP's owners and clients Key elements: value-adjusted return on the Common Portfolio was 2.3 per cent in the fourth quarter, 7.5 per cent for the whole of 2010, the best among the life companies active on the municipal market profits for our pension customers of NOK 9.7 billion of which NOK 2.6 billion is retroceeded to the Premium Fund, NOK 2.1 billion is allocated to supplementary reserves and NOK 5.1 billion is allocated to the Securities Adjustment Fund KLP's solvency and balance sheet structure is well matched to current and future solvency requirements. KLP customer-owned company in development In 2010 KLP had a good returns result and a good profit for the Company, notwithstanding unsettled financial markets through parts of the year. Seen in isolation the fourth quarter produced a very satisfactory profit. The good results in 2010 allow for substantial returns of profits to our pensions customers, while at the same time the Group's solvency is considerably strengthened. At the end of 2010 the Group had total assets of NOK billion and an operating profit of NOK million. The Group's capital adequacy amounted to 11.5 (12.0) per cent and core capital adequacy was 8.9 (9.2) per cent at the end of the quarter. Kommunal Landspensjonskasse (KLP) KLP is a life insurance company with public sector occupational pensions as its main product. The Company is a mutual company in which the public sector occupational pension customers are also owners of the Company. KLP is the parent company in the KLP Group that delivers a wide range of financial products and services aimed at the public sector and public sector employees. Results after the fourth quarter 2010 Returns Over the fourth quarter the pension customers' fund has been supplemented by a total of NOK 5.1 billion in returns, of which NOK 3.5 billion represents a surplus in excess of the guaranteed interest rate. The returns taken to book so far this year thus amount to NOK 4.3 billion after allocations to the Securities Adjustment Fund of NOK 5.1 billion. Value-adjusted returns were 2.3 per cent for the quarter, 7.5 per cent for the year. Book returns were 1.2 per cent for the quarter, 5.1 per cent for the year. If added values in long-term bonds and fixed rate lending are included, the value adjusted return was 1.3 per cent for the quarter, 7.4 per cent for the year. Risk result There were no unexpected risk matters of significance in the Company's insurance portfolio during the fourth quarter. The risk result in group pensions was NOK 100 million for the quarter, NOK 189 million for the year. Administration result The Company's administration result shows a surplus of NOK 3 million in the fourth quarter. For the year the administration result is NOK 82 million. This is NOK 79 million lower than in The reduction in the administration result was not due to a higher level of costs, but is because KLP reduced its expenses premiums in 2010 to allow the Company's cost effective operation to benefit its pension customers. Other result elements Net income from investments in the corporate portfolio was NOK 201 million in the quarter, NOK 712 million for the year. 3

4 - KLP has dynamic risk management so the interest guarantee premium can be kept at a low level. The income taken to book from the interest guarantee premium was NOK 47 million for the quarter, NOK 184 million for the year. The total profit for the Company was NOK 160 million for the quarter, NOK 572 million for the year. Profits Customers The Company Total Interest result Risik result Administration profit/loss Interest guarantee premium Net income corporate portfolio Return on the corporate portfolio credited to customers Result Result Key figures - the common portfolio Per cent Q Q Year 2010 Year 2009 Return on capital I Return on capital II Return on capital III Capital adequacy 12,0 11,8 Solvency margin ratio Insurance-related operating expenses as a percentage of average customer funds) Financial strength and capital-related matters At the end of the fourth quarter total assets in KLP were NOK (223.9 ) billion. Total assets in the Group were NOK 271.7billion (259.0). KLP capital adequacy at the end of the fourth quarter was 12.0 per cent and core capital adequacy was 9.3 per cent. The solvency margin ratio continues at a strong level of 224 per cent (222 per cent). At the end of the quarter KLP had total solvency capital of NOK 32.9 billion, representing 15.7 per cent of the insurance funds with interest guarantees. Solvency capital was increased by NOK 7.6 billion during The Company s solvency is assessed as good in relation to the risk profile and the authorities requirements. New solvency requirements New solvency requirements for insurance companies are being introduced from 2013: Solvency II. The new requirements mean the introduction of measurement of companies' total risk exposure (insurance risk, market risk, counter-party risk and operational risk) against the company's total solvency capital. In preparation for the introduction of new solvency requirements, the Financial Supervisory Authority of Norway introduced a new supervisory methodology and new stress tests in 2008 to measure solvency based on Solvency II. KLP sets great store in a good process leading to the introduction of the new solvency rules. KLP is a company with long experience of risk management and monitoring and over several years the Company has given priority to building up buffer capital. During the fourth quarter KLP carried out a quantitative study (Quantitative Impact Study 5 - QIS5) on the impact of the standard method in the new rules on the Company's capital requirement. KLP has participated in several quantitative studies previously. Both these and the Norwegian FSA's stress tests indicate that KLP is well adapted to meeting the capital requirements in Solvency II. Premium income The premium income for the quarter was NOK 3,385 million, an increase of NOK 358 million over the fourth quarter For the whole of 2010 premium income was NOK 20,345 (18,868) million. The premium figures include discrete indexation premium as a result of increased pension obligations in with the annual pay settlement and the new National Insurance basic sum ("G"). Claims Pensions and other claims paid during the fourth quarter amounted to NOK 2,200 million, NOK million for the year. Management of the common portfolio The assets in the common portfolio totalled NOK 226 billion and as at 31 December 2010 were invested as shown below: Assets Per cent Portion Return as at Q Return as at Q Portion Shares Short-term bonds Long-term/HTM bonds Lending Property Other financial assets ) Figures in brackets give the corresponding values for Q

5 Shares Total exposure in shares including share derivatives amounted to 18.5 per cent. Seen in isolation the fourth quarter provided very good equity returns. The fall in value during the second quarter was recouped in the third quarter and the equities portfolio has contributed a very positive return over the year. Short-term bonds Short-term bonds and money market instruments amounted to 22.5 per cent of the assets in the common portfolio as at 31 December very modest loss provisions on housing loans. Added value not brought to book was NOK 0.3 billion as at 31 December Return on the corporate portfolio The corporate portfolio covers investment of owners' equity and outstanding Tier 1 and Tier 2 debentures. The corporate portfolio is managed with a long-term investment horizon aiming at stable returns and growth in the owners' equity. The investments in the Corporate Portfolio achieved a return of 1.4 per cent during the fourth quarter and 5.2 per cent for the whole of The returns on Norwegian and global government bonds have been good during Nevertheless increasing interest rates in the last quarter have produced a negative return for the quarter seen in isolation. The same is the case for KLP's portfolio of international corporate bonds which comprises bonds with a rating of BBB or higher. Bonds held to maturity Investment in bonds held to maturity amounted to 32.9 per cent of the common portfolio as at Added value not brought to book was NOK 1.4 billion as at 31 December The portfolio is well diversified and comprises securities issued by institutions of eminent creditworthiness. Product and market matters In 2010 KLP achieved an approximate balance in transfers, and thus achieved the best transfer result since the year Only one of KLP's local government customers went out to tender and that one chose to move. On the other hand 17 enterprises chose to transfer to KLP. KLP is working with determination to maintain a high level of service and has set ambitious targets for timely accuracy in case processing. More than 99 per cent of cases were dealt with within the service targets KLP has set. Property Property investments amounted to 11.3 per cent of the common portfolio as at 31 December KLP carries out a thorough valuation of its property stock each quarter. During 2010 the markets have largely recouped the drop in value over 2008 and This has produced a write-up of property values in the common portfolio during the fourth quarter 2010 of NOK 297 million (including currency and funds) and in total NOK 1,634 million for the year (including currency and funds). Value-adjusted return in the fourth quarter was 2.4 per cent in the common portfolio and 11.9 per cent for the year (including property funds). Lending KLP's lending portfolio was NOK 29.6 billion, an increase of NOK 1.2 billion since the start of the year. The portfolio was divided into NOK 22.0 billion in lending to local authorities and other employers, and NOK 7.5 billion in mortgagesecured housing loans. The lending portfolio is characterised by high quality, with no losses on local government loans and KLP's good customer relations are also confirmed by consistently good scores on customer satisfaction surveys. The business areas of the subsidiaries Private occupational pensions Through KLP Bedriftspensjon AS, KLP offers defined benefit and defined contribution pensions to businesses not covered by a pay agreement on public sector occupational pensions. KLP Bedriftspensjon has been in operation for three years and is now beginning to see good results from determined customer work. During 2010 the company has had an increase in total assets of NOK 115 million, split between NOK 21 million on defined benefit pensions and NOK 94 million on defined contribution pensions. KLP Bedriftspensjon achieved a value-adjusted return of 2.6 per cent on the common portfolio during the fourth quarter and 8.3 per cent for the year. 5

6 Customers with defined contribution pensions can choose between several standard saving profiles with different risks, defined through varying proportions of the assets invested in equities. The actual defined contribution pension profiles achieved the following returns for 2010: Profile return P90 P70 P50 P30 Return % % 9.87 % 8.50 % Return % % % % The company's administration result continues to be marked by low volume in relation to the level of investment in systems and other costs. The administration result for the fourth quarter is NOK million and NOK million for the year. The risk result amounted to NOK 0.2 million during the fourth quarter, NOK 3.6 million for the year. Non-life insurance KLP Skadeforsikring AS is a significant provider of non-life insurance to municipalities and county authorities. In addition the company has a growing number of customers within local government enterprises and companies in related sectors. During 2010 KLP Skadeforsikring underwent a certification process in accordance with the ISO 9001 standard and was accredited from the start of the new year. KLP Kapitalforvaltning AS and KLP Fondsforvaltning AS comprise the KLP Group's securities and fund management operation. In total at the end of 2010 NOK 196 billion was under management. The majority of the assets managed are managed on behalf of Kommunal Landspensjonskasse and its subsidiaries in the KLP Group. Asset under management increased by NOK 20 billion from 2009, of which NOK 2.8 billion is growth in assets managed for external institutional customers who invest in KLP's funds products. The management mandates are won in competition with both Norwegian and foreign management operations. Net new subscription in KLP's securities funds from customers external to the Group and private customers amounted to NOK 1.6 billion in KLP Kapitalforvaltning AS achieved profit for the year of NOK 17.8 million and KLP Fondsforvaltning achieved profit for the year of NOK 1.0 million. KLP Banken The KLP Banken Group is showing a profit of NOK 26 million for the year, the fourth quarter producing a profit of NOK 34 million. Solvency in the banking group is good with capital adequacy and core capital adequacy of 14.2 per cent against the authorities' requirement of 8.0 per cent. On behalf of itself and on behalf of KLP, KLP Banken manages a local government loans portfolio of NOK 46.7 billion as well as a total housing mortgage portfolio of NOK 8.8 billion. In the fourth quarter 2010 KLP Skadeforsikring recorded a profit of NOK 18 million, NOK 77.9 million for the year. The financial return for the period was satisfactory with a total return of 1.9 per cent, 7.2 per cent for the year. During 2010 the insurance business has been characterised by a greater number of major claims than normal. But a continuing good financial result and release of previous years' contingency reserves contribute to a good result for the year. The company has maintained a good capital base with solid buffers and, as at 31 December 2010, had capital adequacy of 32 per cent against the authorities' minimum limit of 8 per cent. KLP Kapitalforvaltning and KLP Fondsforvaltning KLP Kommunekreditt AS, which is the banking group's special enterprise issuing bonds secured in public sector loans, has issued bonds for NOK 2.8 billion during the fourth quarter. KLP Banken has received the issuer rating A- from Fitch Ratings, while KLP Kommunekreditt's lending programme has received the best rating AAA from Fitch Ratings and Aaa from Moody s Investor Service. The good rating achieved enables KLP Kommunekreditt to obtain long-term finance at favourable market terms. Group activities Social responsibility KLP Kapitalforvaltning conducts dialogues with companies and excludes companies departing from our ethical guidelines. In total 59 companies were excluded at the end of Three 6

7 companies were re-included in the portfolios in the course of the year. Environmental certification of the units within KLP Eiendom was completed during the fourth quarter. Future prospects The volatility in the financial markets throughout 2010 underlines the importance of strong solvency and good risk management. KLP attaches weight to maintaining strong solvency in order to meet market challenges and regulatory changes in the future. It is particularly important to maintain good solvency in order to be able to place funds in assets for which high returns are expected, a factor that is particularly important in a possible scenario in which interest rates remain low during the immediate years. To be able to offer our customers good solutions is important for KLP. The Company will in future work on strengthening its ability to provide good long-term financing solutions for our municipalities and county authorities. Likewise we intend to improve awareness of the good membership terms and conditions in order thus to secure growth in the personal market. Efficient operation produces lower costs for customers and owners. In 2011 KLP will strengthen its marketing efforts and further develop internet-based sales channels in order to provide the basis for continued growth. Large increases are expected in the number of pension claims in the future and this will place increased requirements on improving efficiency and automating case processing. This will be a priority project in KLP's core area in future. Oslo, 17th February 2011 The Board of Directors of Kommunal Landspensjonskasse Arne Øren Finn Jebsen Gunn Marit Helgesen Chair Deputy chair Ann Inger Døhl Herlof Nilssen Jan Helge Gulbrandsen Siv Holland Employee representative Freddy Larsen Employee representative 7

8 Group accounts after the fourth quarter 2010 Notes Income statement Group Q Q Premium income for own account Current return on financial investments Net gain on financial investments Net income from investment properties Net profit from investments in associated companies Other income Total income Claims for own account Change in provisions for the non-life business Change in technical provisions for the life business Net costs subordinated loans and perpetual subordinated loans Operating expenses Other expenses Total expenses Operating result To/from valuation reserves in life insurance To/from supplementary provisions in life insurance Assets allocated to life insurance customers To/from other reserves Consolidated group profit before tax Tax Result Revaluation own properties Currency effects foreign affiliates Total other comprehensive income Total comprehensive income

9 Group accounts after the fourth quarter 2010 Notes Balance sheet ASSETS Intangible assets Tangible fixed assets Investments in associated companies Investment property Debt instruments held to maturity Debt instruments at fair value in profit/loss account ,9 Lending to municipalities, companies and private individuals ,9 Debt instruments at fair value over P/L Equity instruments at fair value over P/L ,9 Financial derivatives Other loans and receivables incl. receivables from policyholders Assets in life insurance with investment choice Cash and bank deposits Total assets OWNERS' EQUITY AND LIABILITIES Paid-up equity Retained earnings Total equity Perpetual subordinated loan Subordinated loan capital ,8 Debt to credit institutions Covered bonds issued ,8 Debt to and deposits from customers Provisions, unit-linked life insurance Provisions in life insurance with investment options Provisions for premiums, claims and contingency fund, non life insurance Pension liabilities Financial derivatives Deferred tax 21 0 Other current liabilities Total owners' equity an liabilities OFF BALANCE SHEET ITEMS Contingent liabilities

10 Group accounts after the fourth quarter 2010 Cashflow - Group Net cashflow from operational activities Net cashflow from investment activities Net cashflow from financing activities Net changes in cash and bank deposits Holdings of cash and bank deposits at start of period Holdings of cash and bank deposits at end of period

11 Group accounts after the fourth quarter 2010 Changes in Owner's equity 2010 Paid-up equity Retained earnings Total equity Equity Result for the period Other comprehensive income Revaluation of properties for own use Currency effect foreign affiliates Total other comprehensive income Total comprehensive income Transactions with owners Equity paid-in Equity reimbursed Total transactions with owners Equity Paid-up equity Retained earnings Total equity Equity Result for the period Other comprehensive income Revaluation of properties for own use Currency effect foreign affiliates Total other comprehensive income Total comprehensive income Transactions with owners Equity paid-in Equity reimbursed Total transactions with owners Reclassifications Reclassification of funds in non-life insurance Other reclassifications Total reclassifications Equity

12 Notes to the Group accounts after the fourth quarter 2010 Note 1 Accounting principles The accounts in this interim report show the accounts for Kommunal Landspensjonskasse (KLP) and the Group for the period The accounts have not been audited. The Group interim accounts are presented in accordance with internationally EU-approved accounting standards (IAS/ IFRS). This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting and follows the same accounting principles as used in the annual account for The following norms were amended with effect from 1 January 2010: - IFRS 3 Business mergers - IAS 27 Group accounts and fiscal accounts The changes to these accounting norms have not been relative to the Group s business, nor have they impacted on the financial reporting in It is recommended that this interim report be read in conjunction with the annual report for 2009 and the interim report Q1 2010, Q and Q This may be obtained on application to the Company's registered office, Dronning Eufemias gate 10, Oslo, or at Note 2 Key figures - accumulated Q4-10 Q3-10 Q2-10 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09 KLP Konsern Profit before tax Total assets Owners' equity Capital adequacy 11.5 % 11.6 % 11.6 % n/a 12.0 % n/a 11.7 % n/a Number of employees in the Group Kommunal Landspensjonskasse Profit before tax Premium income for own account of which inflow of premium reserve Insurance customers' funds incl. acc. profit of which funds with guaranteed returns Net investment common portfolio Net investment choise portfolio Insurance funds incl. earnings for the year of which funds with guaranteed interest Tier 1 and Tier 2 capital Risk profit Return profits Administration profit Solvency capital Solvency margin ratio 224 % 216 % 219 % 220 % 222 % 182 % 188 % 191 % Capital adequacy 12.0 % 12.3 % 12.2 % 12.7 % 12.6 % 12.3 % 12.6 % 14.1 % Core capital ratio 9.3 % 9.4 % 9.2 % 9.7 % 9.6 % 9.1 % 9.3 % 10.4 % Boook return on common portfolio 5.1 % 3.9 % 2.2 % 1.2 % 6.4 % 5.5 % 3.0 % 0.3 % Vaue-adjusted return on common portfolio 7.5 % 5.1 % 2.1 % 2.2 % 7.7 % 5.8 % 3.0 % 0.3 % Return on unit-linked portfolio 8.6 % 5.3 % 1.7 % 2.6 % 9.2 % 6.8 % 3.5 % 0.1 % Return on corporate portfolio 5.2 % 3.8 % 2.4 % 1.1 % 6.7 % 4.3 % 2.8 % 0.6 % 12

13 Notes to the Group accounts after the fourth quarter 2010 Q4-10 Q3-10 Q2-10 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09 KLP Skadeforsikring AS Profit before tax Gross premium due Premium income for own account Owners' equity Claims ratio 91.5 % 94.2 % % % 66.5 % 67.7 % 70.1 % 67.2 % Combined-ratio % % % % 95.5 % 95.4 % 96.5 % 97.8 % Return on assets under management 7.2 % 5.2 % 2.7 % 2.5 % 8.3 % 6.4 % 3.6 % 0.7 % Capital adequacy 32.0 % 27.1 % 29.8 % 29.9 % 33.6 % 29.1 % 30.5 % 33.0 % Tier 1 and Tier 2 capital Annual premium volume per person Annual premium volume employer Net new subscriptions (accumulated within the year) KLP Bedriftspensjon AS Loss before tax Premium income for own account of which premium reserve added Insurance customers' funds including accumulated profit of which funds with guaranteed returns Investment result Risk result Administration losses Tier 1 and Tier 2 capital Solvency capital Capital adequacy 19.6 % 23.1 % 11.9 % 14.2 % 18.9 % 25.1 % 28.5 % 33.1 % Book capital return on common portfolio 6.0 % 5.1 % 3.1 % 2.0 % 7.1 % 4.7 % 3.2 % 1.0 % Value-adjusted capital return on common portfolio 8.3 % 5.6 % 2.4 % 2.5 % 8.3 % 5.9 % 3.5 % 1.0 % Return on defined unit-linked contribution pensions 9.3 % 4.4 % -2.0 % 2.9 % 23.3 % 17.7 % 8.3 % -2.1 % Return on corporate portfolio 5.0 % 4.6 % 2.4 % 1.4 % 8.4 % 7.4 % 4.5 % 1.0 % 13

14 Notes to the Group accounts after the fourth quarter 2010 Q4-10 Q3-10 Q2-10 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09 KLP Banken Group Profit/loss before tax n/a Net interest income n/a Other operating income n/a Operating expenses and depreciation n/a Net realized/unrealized changes in financial instruments to fair value n/a Contributions n/a Housing mortgages granted n/a Loan(s) with public guarantee(s) n/a Defaulted loans n/a Borrowing on the issuance of securities n/a Other borrowing n/a Total assets n/a Average total assets n/a Owners' equity n/a Net interest rate 0.09 % 0.08 % 0.03 % 0.02 % 0.83 % 0.67 % 0.40 % n/a Profit/loss from general operations before tax 0.08 % % % % 0.04 % 0.02 % 0.04 % n/a Profit/loss from general operations excl. fair value assessments before tax % % % % 0.49 % 0.52 % 0.34 % n/a Return on owners' equity before tax 2.15 % % % % 0.51 % 0.34 % 0.60 % n/a Capital adequacy 14.2 % 17.6 % 17.9 % 16.2 % 16.0 % n/a n/a n/a Number of personal customers n/a Of which members in KLP n/a KLP Kapitalforvaltning and KLP Fondsforvaltning AS Profit/loss before tax Total assets under management Assets managed for external customers Note 3 Segment information - profit/loss (i.a.w. IFRS) by business area Time series result - by quarter Q4-10 Q3-10 Q2-10 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09 Total income Total expenses Consolidated group profit before tax Results by segment Life insurance Non-life Banking Asset management Other business Consolidated group profit before tax

15 Notes to the Group accounts after the fourth quarter 2010 Note 4 Operating expenses By class: Staff costs Depreciation Other operating costs Total operating expenses Note 5 Investment property Profit/loss Profit/loss property Value adjustment Net income from investment properties Balance sheet Value: investment property - opening balance Value adjustment Other changes Value: investment property - closing balance

16 Notes to the Group accounts after the fourth quarter 2010 Note 6 Financial liabilities Nominal value in NOK Currency Interest rate Due date Book value Book value Subordinated loan capital and perpetual subordinated loans Perpetual subordinated loans Kommunal Landspensjonskasse EUR Fixed Perpetual Kommunal Landspensjonskasse 554 JPY Fixed Perpetual Hybrid Tier 1 capital Kommunal Landspensjonskasse 984 JPY Fixed Total subordinated loan capital and perpetual subordinated loans Debt contracted by issuing seccurities Covered bonds ¹ KLP Kommunekreditt NOK Floating KLP Kommunekreditt NOK Floating KLP Kommunekreditt NOK Floating KLP Kommunekreditt NOK Floating KLP Kommunekreditt 250 NOK Fixed Covered bonds Liabilities to credit institutions KLP Kreditt 0 NOK Floating KLP Kreditt NOK Floating Kommunal Landspensjonskasse 330 Floating Value adjustment relating to bonds measured at real value -3 Total liabilities to credit institutions Deposits from customers ¹ Private 905 NOK Næring 121 NOK 121 Total contributions from customers Total financial liabilities ¹ Maturity for contributions is not contractual Note 7 Insurance-related provisions in life Premium reserve Premium funds, buffer funds and pensioners surplus funds Supplementary reserves Securities adjustment fund Other provisions Non-allocated profit/loss of insurance contracts in the common portfolio Insurance-related provisions in life insurance incl. investment options

17 Notes to the Group accounts after the fourth quarter 2010 Note 8 Fair value hierarchy Assets Certificates, bonds, loans and receivables Level 1: Value based on prices in an active market Level 2: Value based on observable market data Level 3: Value based on other than observable market data - - Accrued interest Total certificates, bonds, loans and receivables Shares and assets Level 1: Value based on prices in an active market Level 2: Value based on observable market data Level 3: Value based on other than observable market data Total shares and assets Derivatives and other financial assets Level 1: Value based on prices in an active market - - Level 2: Value based on observable market data Level 3: Value based on other than observable market data - - Total financial derivatives Total financial assets valued at fair value Liabilities Financial derivatives Level 1: Value based on prices in an active market - - Level 2: Value based on observable market data Level 3: Value based on other than observable market data - - Total financial derivatives Debt to credit institutions and other debt Level 1: Value based on prices in an active market Level 2: Value based on observable market data Level 3: Value based on other than observable market data - - Total debt to credit institutions and other debt Total financial liabilities at fair value

18 Notes to the Group accounts after the fourth quarter 2010 Note 8 Fair value hierarchy (cont'd.) Changes in Level 3 Bokført verdi Opening balance Sold -390 Bought 975 Unrealised change 115 Realised loss/gain 66 Closing balance Fair value shall be a representative price based on what a corresponding asset or liability would have been traded for on normal market terms and conditions. Highest quality in regard to fair value is based on listed prices in an active market. A financial instrument is considered to be listed in an active market if the listed price is simply and regularly available from a stock market, dealer, broker, industry grouping, price setting service or regulatory authority and these prices represent actual and regularly occurring transactions at arm s length. Level 1: Instruments at this level obtain fair value from listed prices in an active market (see above) for identical assets or liabilities to which the unit has access at the date of reporting. Examples of instruments at Level I are stock market listed securities. Level 2: Instruments at this level obtain fair value from observable market data, but where the instrument is not considered to have an active market. This principally includes prices based on identical instruments, but where the instrument does not have a sufficiently high trading frequency, as well as prices based on corresponding assets and price-leading indicators that can be confirmed by market information. Examples of instruments at Level 2 are interest-bearing securities priced on the basis of interest rate paths. Level 3: Instruments at Level 3 contain no observable market data or where the market is considered to be inactive. The price is based generally on discrete calculations where the actual fair value may deviate if the instrument were to be traded. 18

19 Notes to the Group accounts after the fourth quarter 2010 Note 9 Credit risk 2010 AAA AA A BBB Unratet/ NIG Total Debt instruments at fair value - bonds and other securities with fixed returns Financial and credit enterprises Public guarantee Savings bank Government and government guarantee within OECD State enterprises and Covered Bonds Other Total Debt instruments classified as loans and receivables - at amortised cost Financial and credit enterprises Public guarantee Savings bank Government and government guarantee within OECD State enterprises and Covered Bonds Other Total Debt instruments at fair value - bonds and certificates Financial and credit enterprises Public guarantee Savings bank Government and government guarantee within OECD State enterprises and Covered Bonds Other Total Financial derivatives classified as assets Denmark Finland Norway Great Britain Switzerland Sweden USA Total

20 Notes to the Group accounts after the fourth quarter 2010 Note 9 Credit risk, cont'd AAA AA A BBB Unratet/ NIG Total Debt instruments at fair value - fixed interest fund units Public sector, financial and credit enterprises Government and government guarantee within OECD Other Total Debt instruments at fair value - loans and receivables Denmark France Norway Great Britain Sweden USA Total Total securities % 20 % 35 % 100 % Total Lending local government, enterprises & pers. customers ¹ Public sector Credit institutions Private individuals Total lending

21 Notes to the Group accounts after the fourth quarter 2010 Note 9 Credit risk, cont'd AAA AA A BBB Unrated/ NIG Total Debt instruments at fair value - bonds and other securities with fixed returns Financial and credit enterprises Public guarantee Savings bank Government and government guarantee within OECD State enterprises and Covered Bonds Other Total Debt instruments classified as loans and receivables - at amortised cost Financial and credit enterprises Public guarantee Savings bank Government and government guarantee within OECD State enterprises and Covered Bonds Other Total Debt instruments at fair value - bonds and certificates Financial and credit enterprises Public guarantee Savings bank Government and government guarantee within OECD State enterprises and Covered Bonds Other Total Financial derivatives classified as assets Denmark Finland Norway Great Britain Switzerland Sweden USA Total

22 Notes to the Group accounts after the fourth quarter 2010 Note 9 Credit risk, cont'd AAA AA A BBB Unrated/ NIG Totalt Debt instruments at fair value - fixed interest fund units Public sector, financial and credit enterprises Government and government guarantee within OECD Other Total Debt instruments at fair value - loans and receivables Denmark France Norway Great Britain Sweden USA Total Total securities % 20 % 35 % 100 % Totalt Lending local government, enterprises & pers. customers ¹ Public sector Credit institutions Private individuals Total lending In the classification in this note Standard & Poor s ratings are used exclusively. The KLP Group also relies on ratings from Moody s Investor Services and Fitch Ratings, and the three are considered equal in relation to investments in fixedincome securities. Non-rated/non-investment grade securities relate mainly to a number of Norwegian financial institutions, municipalities/counties and other investments in Norwegian financial papers. KLP applies strong guidelines for investments in fixed-income securities, also applying to investments under this category. ¹ Credit exposure in lending is compiled on the basis of Norwegian capital adequacy calculations. 35 per cent weighting of public sector applies to lending to housing cooperatives. Lending is itemized separately in so far as they are not included in the same rating-categories. 22

23 Notes to the Group accounts after the fourth quarter 2010 Note 10 Interest rate risk Up to 3 mnths to 1 yrs 5 yrs to 10 Over Changes in cash 3 mnths 12 mnths to 5 yrs yrs 10 yrs flow Total Assets Holdings equity funds¹ Alternative investments Financial derivatives classified as assets Debt instruments classified as loans and receivables at amortised cost Bonds and other fixed-return securities Fixed income fund holdings Lending and receivables Lending Call Money Total Liabilities Deposits Liabilities created on issue of securities Liabilities to financial institutions Financial derivatives classified as liabilities Hybrid Tier 1 securities, subordinated loan capital Call Money Total

24 Notes to the Group accounts after the fourth quarter 2010 Note 10 Interest rate risk, cont'd Up to 3 mnths to 1 yrs 5 yrs to 10 Over Changes in cash 3 mnths 12 mnths to 5 yrs yrs 10 yrs flow Total Assets ² Holdings equity funds ¹ Alternative investments Financial derivatives classified as assets Debt instruments classified as loans and receivables at amortised cost Bonds and other fixed-return securities Fixed income fund holdings Lending Lending and receivables Bonds hedging, perpetual subordinated loan capital Total Liabilities Liabilities created on issue of securities Liabilities to financial institutions Financial derivatives classified as liabilities Hybrid Tier 1 securities, subordinated loan capital Total The note shows the effect on profits on the change in market interest rate of one per cent, for fair value risk and variable interest rate risk. Fair value risk is calculated on the change in fair value of related instruments if the interest rate had been 1 per cent higher at the end of the period. Variable interest rate risk indicates the change in cash flows if the interest rate had been one per cent higher over the year being reported on. The total of these reflects the total impact on profits that the scenario of one per cent higher interest rate would have had on the Group. This note cannot be compared directly with notes from previous years since its formulation is different and covers more than previously. ¹ Equity fund holdings covers that part of the fund that is not shares, but that comprises assets covered by interest rate risk; surplus liquidity in the form of bank accounts and derivatives used for hedging purposes. ² The KLP lending portfolio is not included in the 2009 figures. 24

25 Accounts after the fourth quarter 2010 Kommunal Landspensjonskasse Notes Income statement Q Q Premium income Income from investments in subsidiaries, associated enterprises and jointly controlled enterprises Interest income/dividends on financial assets Value changes on investments Gains and losses realised on investments Net income from investments in the common portfolio Net income from unit-linked portfolio Other insurance-related income Claims Changes in insurance liabilities taken to profit/loss - contractual liabilities Changes in insurance liabilities taken to profit/loss - investment option portfolio separately Funds assigned to insurance contracts - contractual liabilities Insurance-related operating expenses Other insurance-related costs Technical profit/loss Net income from investments in the corporate portfolio Other income Administration costs and other costs associated with the corporate portfolio Non-technical profit/loss COMPREHENSIVE INCOME

26 Accounts after the fourth quarter 2010 Kommunal Landspensjonskasse Notes Balance ASSETS ASSETS IN THE CORPORATE PORTFOLIO Intangible assets Investments Receivables Other assets Total assets in the corporate portfolio ASSETS IN THE CUSTOMER PORTFOLIOS Investments in the common portfolio Shares and holdings in property subsidiaries Receivables from and securities issued by subsidiaries, associated enterprises and jointly controlled enterprises Financial assets valued at amortised cost Financial assets valued at fair value Total assets in the customer portfolios Assets in the investment option portfolio Shares and holdings in property subsidiaries Financial assets at amoritsed costs Financial assets at fair value Total assets in unit-linked portfolio ASSETS OWNERS' EQUITY AND LIABILITIES Owners equity contributed Retained earnings Subordinated loan capital etc Insurance obligations in life insurance - contractual liabilities Insurance liabilities unit-linked portfolio Provision for liabilities Liabilities Accrued costs and prepaid income OWNERS' EQUITY AND LIABILITIES Off-balance sheet items Contingent liabilities

27 Accounts after the fourth quarter 2010 Kommunal Landspensjonskasse Cash flow analysis Net cashflow from operational activities Net cashflow from investment activities Net cashflow from financing activities Net changes in cash and bank deposits Holdings of cash and bank deposits at start of period Holdings of cash and bank deposits at end of period Changes in Owner's equity 2010 Paid-up equity Retained earnings Total equity Equity Total other comprehensive income Total income Transaction with owners Equity paid-in Equity reimbursed Sum transaction with owners Equity Paid-up equity Retained earnings Total equity Equity Total other comprehensive income Total income Transaction with owners Equity paid-in Equity reimbursed Total transaction with owners Other modifications Other modifications Total modifications Equity

28 Notes to the accounts after the fourth quarter 2010 Note 1 Accounting principles The accounts in this interim report show the accounts for Kommunal Landspensjonskasse (KLP) and the Group for the period The accounts have not been audited. The interim accounts do not contain all the information required of full annual accounts. It is recommended that this interim report be read in conjunction with the annual report for 2009 and the interim report for Q1, Q2 and Q This may be obtained on application to the Company's registered office, Dronning Eufemias gate 10, Oslo, or at Similarly to the annual accounts 2009, the interim accounts have been submitted in accordance with Regulation 1241 of 16 December 1998: Regulations on annual accounts etc. for insurance companies (the Annual Accounts Regulations). Note 2 Value-adjustment investment property The portfolio of investment properties including investment properties owned via subsidiaries has been valued as at 31st December Q Q Value adjustment incl. foreign exchange Foreign exchange effect on hedging Net value adjustment incl. exchange hedging Note 3 Operating expenses Q Q Staff costs Depreciation Other operating expenses Insurance related expenses Note 4 Insurance-related provisions obligations under contract Premium reserve Premium fund(s) Supplementary reserve Securities adjustment fund Other provisions Insurance-related provisions obligations under contract