Interim report 3/2010. Report from the board of directors - Income statement & Balance sheet - Notes

Transcription

1 Interim report 3/2010 Report from the board of directors - Income statement & Balance sheet - Notes

2 Content Report from the board of directors 3 - Key figures 3 4 Group accounts after the third quarter Income statement 8 - Balance sheet 9 - Notes to the Group accounts 12 Accounts after the third quarter 2010 Kommunal Landspensjonskasse - Income statement 22 - Balance sheet 23 - Notes to the accounts 25

3 - Interim report second quarter 2010 Very satisfactory returns for our pensions customers Key elements:: Value-adjusted returns 2,9 prosent, 5,1 per cent so far this year Securities Adjustment Fund at NOK 4,9 billion at the end of the third quarter Other added value NOK 4.2 billion KLP's solvency and balance sheet structure is well matched to current and future solvency requirements Strong financial development Positive developments in the financial markets contributed to strong financial results in the third quarter. The Group's operating profits were strengthened by NOK 5.0 billion during the quarter and amount to NOK 6.5 billion so far this year. Total assets increased by NOK 3.4 billion to NOK billion as at The Group's capital adequacy amounted to 11.6 per cent and core capital adequacy 8.9 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 pensions customers are also owners of the Company. KLP is the parent company in the KLP Group that delivers financial services aimed at the public sector and public sector employees. The result after the third quarter 2010 Returns Over the third quarter the pension customers' assets have increased by a total of NOK 6.1 billion in returns, of which NOK 4.6 billion represents a surplus in excess of the guaranteed interest rate. The returns result taken to book so far this year thus amounts to NOK 3.4 billion after allocations to the Securities Adjustment Fund of NOK 2.5 million. Value-adjusted returns were 2.9 per cent for the quarter, 5.1 per cent so far this year. Book returns were 1.7 per cent, 3.9 per cent so far this year. If added value in long-term bonds and fixed rate lending is included, the value-adjusted return was 3.0 per cent for the quarter, 6.0 per cent so far this year. Risk result There were no unexpected risk matters of significance in the Company's insurance portfolio during the third quarter. The risk result in group pension was NOK 44 million for the quarter, NOK 89 million so far this year. Up to half of the positive risk result may be allocated to the Risk Equalisation Fund whilst the remainder is returned to the pension customers through the Premium Fund. Administration result The Company's administration result shows a surplus of NOK 19 million in the third quarter. So far this year the administration result amounts to NOK 79 million. This is NOK 51 million lower than the corresponding result last year as a result of KLP having reduced the expenses premiums in 2010 so that the Company's cost effective operation benefits the pension customers directly. Other result elements Net income from investments in the corporate portfolio was NOK 193 million in the quarter, NOK 511 million so far this year. KLP has dynamic risk management so the interest guarantee premium can be kept at a low-level. Income taken to book from the interest guarantee premium was NOK 47 million for the quarter, NOK 137 million so far this year. The total profit for the Company was NOK 154 million for the quarter, NOK 412 million so far this 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 Q Result Q Result ) Provisional allocation to customers. Up to half of the positive risk result can be allocated the Risk Equalisation Fund 3

4 Key figures - the common portfolio Per cent Q Q3 Year indicate that KLP is well adapted to meeting the capital requirements in Solvency II. Return on capital I Return on capital II Return on capital III Capital adequacy Solvency margin ratio Insurance-related operating expenses as a percentage of average customer funds) Premium income Premium income was NOK million for the quarter, an increase of NOK million compared to the third quarter of. The premium figures include discrete indexation premium resulting from increased pension obligations following the annual pay settlement and new National Insurance basic sum ("G"). Discrete indexation premium of NOK (6 633) million is included in the third quarter figures. Financial strength and capital-related matters At the end of the third quarter total assets in KLP were NOK (215.8 ) billion. Total assets in the Group were NOK billion (254.4). KLP capital adequacy at the end of the third quarter was 12.3 per cent and core capital adequacy was 9.4 per cent. Solvency margin adequacy continues at a very strong level of 216 per cent (182 per cent). At the end of the quarter KLP had total solvency capital of NOK 34.6 billion, representing 16.8 per cent of the insurance funds with interest guarantees. Solvency capital was increased by NOK 5.6 billion during the quarter. The Company s solvency is assessed as good in relation to the risk profile and the authorities requirements. Claims Pensions and other claims paid during the third quarter amounted to NOK (2 149) million. Management of the Group portfolio The assets in the common portfolio totalled NOK (194.3) billion and as at 30 September were invested as follows: Assets Per cent Portion Return as at Q Return as at Q3 Portion Shares Short-term bonds Long-term/HTM bonds Lending Property Other financial assets 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. KLP is now carrying 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 1) Figures in brackets give the corresponding value as at the third quarter in 4 Equities Total exposure in shares including share derivatives amounted to 15.1 per cent. Seen in isolation the third quarter provided very good equity returns. The fall in value during the second quarter was recouped and the equity portfolio has contributed a positive return so far this year. Short-term bonds Short-term bonds and money market instruments amounted to 23.5 per cent of the assets in the common portfolio as at 30 September. The return on Norwegian and global government bonds has been good so far during The Norwegian government bond index produced a somewhat lower return over the third quarter than in the two previous quarters, whereas the global government bond index has produced a good return throughout all three quarters.

5 The international corporate bonds index that KLP follows, which comprises bonds rated BBB or higher, produced a very good return over the third quarter. This results from falling global interest rates. On the other hand credit premiums have shown a modest rise over the first nine months of the year. This has had a negative impact on the prices. Bonds held-to-maturity Investment in bonds held to maturity amounted to 33.2 per cent of the common portfolio as at 30 September The portfolio is well diversified and comprises securities issued by highly credit-worthy institutions. Properties Property investments amounted to 11.7 per cent of the common portfolio as at 30 September KLP carries out a thorough valuation of its property stock each quarter. Up to now during 2010 the markets have recouped to a certain extent the drop in value over 2008 and. This has produced a write-up of property values in the common portfolio during the third quarter 2010 of NOK 665 million (including currency and funds) and in total NOK 1273 million so far this year (including currency and funds). Value-adjusted return in the third quarter was 3.6 per cent in the common portfolio and 9.3 per cent so far this year (including property funds). KLP bought Schweigaards gate 17 in August. Skatt Øst hires the whole building. 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 third quarter and 3.8 per cent so far in Product and market matters Only one of KLP's municipal customers has put its pension scheme out to tender this year, whereas nine of the competitors' customers have put their schemes out to tender. This shows that KLP is a competitive provider of public sector occupational pensions. KLP's good customer relationships are also confirmed by customer satisfaction measurements in which the Company has achieved strong results. KLP is working with determination to maintain a high level of service and has set ambitious targets for timely accuracy in case processing. It is pleasing to note that target achievement in these areas is very good. 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. Lending KLP's lending portfolio was NOK 32.3 billion, an increase of NOK 3.9 billion since the start of the year. The portfolio was divided into NOK 24.3 billion in lending to local authorities and other employers, and NOK 8.0 billion in mortgage-secured housing loans. The lending portfolio is characterised by high quality, with no losses on municipal loans and very modest loss provisions on housing loans. Surplus values not brougt to book was NOK 0.4 billion 30 September. KLP Bedriftspensjon has been in business for three years and is now seeing strong growth in the number of new customers, the majority in the market for defined contribution pensions. KLP Bedriftspensjon achieved a value-adjusted return of 3.2 per cent on the common portfolio during the third quarter and 5.6 per cent so far this year. 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 pensions profiles achieved the following returns during the third quarter: Return on the corporate portfolio The corporate portfolio covers investment of owners' equity and borrowed Tier 1 and Tier 2 capital. Profile return P90 P70 P50 P30 Q3 9.6 % 6.6 % 6.4 % 4.9 % Year to date 2.4 % 3.7 % 5.0 % 5.8 % Return 36.8 % 30.7 % 23.7 % 17.7 % As a result of good returns in the common portfolio the returns result increased by NOK 6.5 million during the third quarter to 5

6 NOK 8.6 million so far this year. The company's administration result continues to be impacted by low volume in relation to the level of investment in systems and other costs. The administration result for the third quarter was NOK -6.4 million and NOK million so far this year. The risk result amounted to NOK 0.2 million during the third quarter, NOK 3.4 million so far this year. In the course of the quarter the company was strengthened through a capital expansion of NOK 25 million. 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 associated sectors. Notwithstanding strong competition net new sales are showing positive development in both the personal market and the employers segments. In the third quarter 2010 KLP Skadeforsikring AS recorded a profit of NOK 48 million, NOK 60 million so far this year. The financial return for the period was satisfactory with a total return of 2.5 per cent, 5.2 per cent so far in During 2010 the insurance business has been characterised by a greater number of major claims than normal, impacting profits. The company has maintained a good capital base with satisfactory buffers against further negative claims development and, as at 30 September 2010, had capital adequacy of 27.1 per cent against the authorities' minimum of 8 per cent. to KLP's securities funds from customers external to the Group amounted to NOK 963 million as at the third quarter Increased management volume and cost-effective operation helped KLP Fondsforvaltning to reduce the fund charges of two actively managed securities funds towards the end of the quarter. In this way KLP Fondsforvaltning is providing external investors with the opportunity to benefit from the KLP Group's professional securities management at very competitive prices. The companies' total profits amounted to NOK 7.3 million after the third quarter. KLP Banken KLP Banken's results bear witness to it's still being in its start-up phase in which costs accrue associated with the start-up of the business. The KLP Banken Group shows a loss of NOK 8.0 million so far this year, the third quarter producing a deficit of NOK 3.1 million. Solvency in the banking group is good with capital adequacy of 17.6 per cent against the authorities' requirement of 8.0 per cent. KLP Banken manages, on its own behalf and on behalf of KLP a public lending portfolio of NOK 50.5 billion as well as a home mortgage portfolio of NOK 8.8 million. KLP Kommunekreditt AS, which is the banking group's special enterprise issuing covered bonds secured in public sector loans, has issued bonds for NOK 6.5 billion during the third quarter. KLP Banken has received the issuer rating A- from Fitch Ratings, while KLP Kommunekreditt's covered bond 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. KLP Kapitalforvaltning and KLP Fondsforvaltning KLP Kapitalforvaltning ASA and KLP Fondsforvaltning AS comprise the KLP Group's securities management operation. In total at the end of the third quarter 2010 NOK billion was under management in the securities funds and discretionary portfolios. The majority of the assets are managed on behalf of Kommunal Landspensjonskasse and its subsidiaries in the KLP Group. Assets managed on behalf of external investors amounted to NOK 12.8 billion at the end of the third quarter. Net new subscription Group activities Social responsibility KLP was one of the principal sponsors of the conference at Sauda, in Rogaland Norway, on Fairtrade and Ethical Trading held during the third quarter. KLP has also awarded the prize Not at any price to Helse Sør-Øst RHF (the South Eastern Norway Regional Health Authority). This price is awarded to a person or an organisation in the public sector that has worked in a special way to promote ethical aspects of procurement. 6

7 Rating Several companies in the Group have received ratings in connection with the establishment of KLP Kommunekreditt's lending program for covered bonds. In addition to its Standard & Poor s rating, the financial strength of the parent company, Kommunal Landspensjonskasse, is now rated by Fitch Ratings (A+) and Moody s Investor Service (A2). Future prospects The volatility there has been in the financial markets throughout the first three quarters of the year underlines the importance of strong solvency and good risk management. In addition it is expected that the new solvency regulations, Solvency II, will contribute to stronger solvency requirements. KLP will therefore continue to emphasise the maintenance of strong solvency to meet market challenges in the short term and regulatory changes in the future. The general interest rate level is currently at a low level compared to the estimated interest rate KLP has guaranteed its insurance customers. KLP has invested its assets in such a way that the company is well prepared for a scenario in which interest rates remain low in the immediate years. KLP considers it important to maintain good solvency in order to be able to place funds in assets expected to have high returns. KLP has worked with determination over time on campaigns to make KLP and the Group's product spectrum better known in the market. Measurements indicate that this effort has been successful, contributing to enabling continued growth. Oslo, 27th October 2010 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 third 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 Result Revaluation own properties Currency effects foreign affiliates Total other comprehensive income Total comprehensive income

9 Group accounts after the third 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 at fair value over P/L 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 ,9 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 Debt to credit institutions Covered bonds issued 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 Other current liabilities Total owners' equity an liabilities OFF BALANCE SHEET ITEMS Contingent liabilities

10 Group accounts after the third 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 third 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 third 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 accounts. 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 and the interim report 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 Q3-10 Q2-10 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09 Q4-08 KLP Group Profit before tax Total assets Owners' equity Capital adequacy 11.6 % 11.6 % n/a 12.0 % n/a 11.7 % n/a 13,5 % 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 n/a 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 216 % 219 % 220 % 222 % 182 % 188 % 191 % 196 % Capital adequacy 12.3 % 12.2 % 12.7 % 12.6 % 12.3 % 12.6 % 14.1 % 14.6 % Core capital ratio 9.4 % 9.2 % 9.7 % 9.6 % 9.1 % 9.3 % 10.4 % 10.7 % Boook return on common portfolio 3.9 % 2.2 % 1.2 % 6.4 % 5.5 % 3.0 % 0.3 % 1.0 % Vaue-adjusted return on common portfolio 5.1 % 2.1 % 2.2 % 7.7 % 5.8 % 3.0 % 0.3 % -3.0 % Return on unit-linked portfolio 5.3 % 1.7 % 2.6 % 9.2 % 6.8 % 3.5 % 0.1 % n/a Return on corporate portfolio 3.8 % 2.4 % 1.1 % 6.7 % 4.3 % 2.8 % 0.6 % 4,0 % 12

13 Notes to the Group accounts after the third quarter 2010 Q3-10 Q2-10 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09 Q4-08 KLP Skadeforsikring AS Profit before tax Gross premium due Premium income for own account Owners' equity Claims ratio 94.2 % % % 66.5 % 67.7 % 70.1 % 67.2 % 70.6 % Combined-ratio % % % 95.5 % 95.4 % 96.5 % 97.8 % 97.3 % Return on assets under management 5.2 % 2.7 % 2.5 % 8.3 % 6.4 % 3.6 % 0.7 % 0.5 % Capital adequacy 27.1 % 29.8 % 29.9 % 33.6 % 29.1 % 30.5 % 33.0 % 39.3 % 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 23.1 % 11.9 % 14.2 % 18.9 % 25.1 % 28.5 % 33.1 % 21.7 % Book capital return on common portfolio 5.1 % 3.1 % 2.0 % 7.1 % 4.7 % 3.2 % 1.0 % 1.1 % Value-adjusted capital return on common portfolio 5.6 % 2.4 % 2.5 % 8.3 % 5.9 % 3.5 % 1.0 % -2.3 % Return on defined unit-linked contribution pensions 4.4 % -2.0 % 2.9 % 23.3 % 17.7 % 8.3 % -2.1 % % Return on corporate portfolio 4.6 % 2.4 % 1.4 % 8.4 % 7.4 % 4.5 % 1.0 % -0.8 % 13

14 Notes to the Group accounts after the third quarter 2010 Q3-10 Q2-10 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09 Q4-08 KLP Banken Group Profit/loss before tax n/a n/a Net interest income n/a n/a Other operating income n/a n/a Operating expenses and depreciation n/a n/a Net realized/unrealized changes in financial instruments to fair value n/a n/a Contributions n/a n/a Housing mortgages granted n/a n/a Loan(s) with public guarantee(s) n/a n/a Defaulted loans n/a n/a Borrowing on the issuance of securities n/a n/a Other borrowing n/a n/a Total assets n/a n/a Average total assets n/a n/a Owners' equity n/a n/a Net interest rate 0.08 % 0.03 % 0.02 % 0.83 % 0.67 % 0.40 % n/a n/a Profit/loss from general operations before tax % % % 0.04 % 0.02 % 0.04 % n/a n/a Profit/loss from general operations excl. fair value assessments before tax % % % 0.49 % 0.52 % 0.34 % n/a n/a Return on owners' equity before tax % % % 0.51 % 0.34 % 0.60 % n/a n/a Capital adequacy 17.6 % 17.9 % 16.2 % 16.0 % n/a n/a n/a n/a Number of personal customers n/a n/a Of which members in KLP n/a n/a KLP Kapitalforvaltning and KLP Fondsforvaltning AS Profit/loss before tax ,4 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 Q3-10 Q2-10 Q1-10 Q4-09 Q3-09 Q2-09 Q1-09 Q4-08 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 third 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 third quarter 2010 Note 6 Financial liabilities Ominal value in NOK Currency Interest rate Due date Book value 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 Covered bonds Liabilities to credit institutions KLP Kreditt 0 NOK KLP Kreditt NOK Floating KLP Kreditt NOK Floating Value adjustment relating to bonds measured at real value NOK 23 Total liabilities to credit institutions Deposits from customers ¹ Private 656 NOK 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

17 Notes to the Group accounts after the third quarter 2010 Note 8 Fair value hierarchy Assets Debt instruments at fair value 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 427 Total debt instruments at fair value Equity capital instruments at fair value through profit/loss 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 equity capital instruments at fair value through profit/loss 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 Assets in defined contribution-based life insurance Level 1: Value based on prices in an active market 103 Level 2: Value based on observable market data - Level 3: Value based on other than observable market data - Total assets in defined contribution-based life insurance 103 Lending local government, enterprises & individual customers/fair value over profit/loss 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 loans to local government, enterprises & individual customers/fair value over profit/loss Total financial assets valued at fair value

18 Notes to the Group accounts after the third quarter 2010 Note 8 Fair value hierarchy (cont'd.) s Liabilities Financial derivatives Level 1: Value based on prices in an active market - Level 2: Value based on observable market data 741 Level 3: Value based on other than observable market data - Total financial derivatives 741 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 Changes in Level 3 Shares unlisted Opening balance Sold: -1 Bought: 1 Unrealised change -2 Realised loss/gain: 1 Closing balance Private Equity Opening balance Sold: -79 Bought: 243 Unrealised change -46 Realised loss/gain: 22 Closing balance

19 Notes to the Group accounts after the third quarter 2010 Note 9 Credit risk 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 at fair value - fixed interest fund units 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 Financial derivatives classified as assets Denmark Finland Norway Great Britain Switserland Sweden Germany USA Other Total

20 Notes to the Group accounts after the third quarter 2010 Note 9 Credit risk, cont'd. AAA AA A BBB Unrated/ NIG Totalt Debt instruments classified as loans and receivables - at amortised cost Financial and credit enterprises Government guarantee Savings bank Government and government guarantee within OECD Public sector enterprises and Covered Bonds Other Total Debt instruments classified as loans and receivables - at amortised cost Financial and credit enterprises Government guarantee Savings bank Government and government guarantee within OECD Public sector enterprises and Covered Bonds Other Total Assets in defined contribution life insurance Fixed income fund Total Total securities % 20 % 35 % 100 % Total 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. 20

21 Notes to the Group accounts after the third quarter 2010 Note 10 Indexation premium The increase in insurance obligations resulting from annual adjustment of the National Insurance basic sum (G) and pay settlements for occupationally active members is financed through a discrete indexation premium. This discrete premium and the increase in insurance obligations are brought to account simultaneously once the effect is known, i.e. normally during the second half of the year. In the accounts at the end of the third quarter 2010 this effect has been reflected through an estimate based on the annual pay and national insurance settlement. The indexation premium taken to income in the third quarter amounts to NOK 7.9 billion. A final statement will be made at the end of the year. 21

22 Accounts after the third 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

23 Accounts after the third 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 5 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 ,7 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

24 Accounts after the third 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 Surplus fund Group life Other modifications Total modifications Equity

25 Notes to the accounts after the third 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 and the interim report for 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, 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 30th September 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 Non-allocated profit/loss on insurance contracts in the common portfolio Insurance-related provisions obligations under contract

26 Notes to the accounts after the third quarter 2010 Note 5 Financial assets Financial assets corporate portfolio Investments held to maturity Bonds loans and receivables Total financial assets valued at amortised cost Shares and holdings Bonds and other fixed-return securities Lending and receivables Financial derivatives Other financial assets Total financial assets valued at fair value Total financial assets corporate portfolio Financial assets common portfolio Investments held to maturity Bonds loans and receivables Lending Total financial assets valued at amortised cost Shares and holdings Bonds and other fixed-return securities Lending and receivables Financial derivatives Other financial assets Total financial assets valued at fair value Total financial assets common portfolio Financial assets investment choice portfolio Investments held to maturity Bonds loans and receivables Lending Total financial assets valued at amortised cost Shares and holdings Bonds and other fixed-return securities Lending and receivables Financial derivatives Other financial assets Financial assets valued at fair value Total financial assets investment choice portfolio Total financial assets

27 Notes to the accounts after the third quarter 2010 Note 6 Transactions with related parties On 15 June 2010 KLP took over loans/receivables of NOK 4,032 million from KLP Kreditt AS on 15 June The amount included the principal, interest accrued, and premium. KLP granted KLP Banken AS two short-term loans at the end of the first quarter. The loans amounted to NOK 1.3 billion and NOK 2.0 billion respectively. As agreed, these loans were repaid during the second quarter. The loans were granted at market rate (NIBOR + margin). During the second quarter, KLP Banken AS w as granted two further loans by KLP. One of the loans (of NOK 0.5 billion) was repaid during the quarter as agreed, whereas the other loan (of NOK 2.5 billion) falls due on 15 September. Market conditions (NIBOR + margin) applied to both loans. Note 7 Indexation premium The increase in insurance obligations resulting from annual adjustment of the National Insurance basic sum (G) and pay settlements for occupationally active members is financed through a discrete indexation premium. This discrete premium and the increase in insurance obligations are brought to account simultaneously once the effect is known, i.e. normally during the second half of the year. In the accounts at the end of the third quarter 2010 this effect has been reflected through an estimate based on the annual pay and national insurance settlement. The indexation premium taken to income in the third quarter amounts to NOK 7.9 billion. A final statement will be made at the end of the year. 27

28 Kommunal Landspensjonskasse Org.no P.O. Box 400 Sentrum, 0103 Oslo Head office Dronning Eufemias gate 10, Oslo, Norway Tel: Fax: Regional office Vågsallmenningen 16, Bergen, Norway Tel: Fax: