Interim report 1/2012. Report from the board of directors - Income statement & Balance sheet - Notes

Transcription

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

2 Contents Report from the Board of directors 3 - Results 4 - Key figures 4 Group accounts after the first quarter - Income statement 8 - Balance 9 - Notes to the Group accounts 12 Non-financial accounts interim report 29 Accounts after the fourth quarter Kommunal Landspensjonskasse gjensidig forsikringsselskap - Income statement 30 - Balance 31 - Notes to the accounts 33

3 Interim report after first quarter A good first quarter with good returns and strengthened reserves Group operating profit of NOK 5.3 billion and total income for customers in excess of NOK 5 billion Strong value-adjusted return - common portfolio public sector occupational pensions 2.7 per cent Total solvency capital increased by NOK 4.1 billion to NOK 41.3 billion, i.e per cent of insurance funds with interest guarantee KLP a customer-owned company in development (KLP). Of the Group's total assets of NOK 315 billion, NOK 253 billion represents pension funds belonging to this customer group. The KLP Group is the leading provider of occupational pensions, group life and non-life insurance to the local government sector and health enterprises, the second largest lender in the local government sector and the leading Norwegian provider of indextracker funds products. KLP's progress continues into. At the end of the quarter the Group had total assets of NOK 315 billion and an operating profit of NOK 5281 million. Throughout KLP strengthened its position as the leading provider of public sector occupational pensions when 7 of the 8 local administrations that put their pension schemes out to tender selected KLP as their provider from the start of. This is reflected in the financial statements at the end of the first quarter and involves a positive transfer balance of NOK 1.5 billion. Value-adjusted returns on our life customers' assets were good during the first quarter mainly because of very high returns on equities. Reduced credit premiums in the bonds market have also contributed to the good return during the quarter. Kommunal Landspensjonskasse gjensidig forsikringsselskap (KLP) Pension schemes within the public sector are offered and managed by the Group's parent company Kommunal Landspensjonskasse Result in the first quarter Returns result Once again in the first quarter of, KLP achieved a good returns result (return in excess of guaranteed interest rate) of NOK 1.2 billion (1.9). Financial income from customer assets was NOK 6.5 billion (2.8) during the quarter. Value-adjusted return on the common portfolio was 2.7 per cent for the quarter and book return was 1.2 per cent. Risk result There were no unexpected risk matters of significance in the Company's insurance portfolio during the first quarter. The risk result for allocation was NOK 64 million for the quarter. It is provisionally allocated with NOK 33 million to customer profit and NOK 31 million to corporate income provision in the risk equalisation fund. Administration result The Company's administration result shows a surplus of NOK 8 million (30) in the first quarter. This reflects KLP exercising good control of its cost level. Insurance-related operating expenses represent 0.33 per cent of customer funds, i.e. the same level as for. Combined income The total profit for the Company was NOK 235 million for the quarter. The total profit to customers was NOK 1301 million. 1) Figures in brackets give corresponding values for 3

4 Result Customers The company Total Returns result Risk result Interest guarantee premium Administration profit loss 8 8 Net income from investments in the corporate portfolio Return from owners' equity contributions credited to customers Income Income Imcome Premium income Premium income without premium reserves received on transfer was NOK million (3 252). A substantial part of the increase is explained by change in the accounting procedures for premiums associated with salary and G indexation, as well as increased premium rates for as a result of reduced guaranteed interest rates. Benefits/Claims Pensions paid and other claims increased by 13.1 per cent and amounted to NOK million (2 336) in the first quarter. Financial strength and capital-related matters Total assets show a growth during the quarter of NOK 21.4 billion and total NOK billion. The growth is partly a result of current liabilities in connection with settlement of securities trades straddling 12 as well as growth in the insurance obligations. Capital adequacy at KLP at the end of the quarter was 11.0 per cent (11.5) and core capital adequacy was 8.8 per cent (9.0). Transfer of customer funds The net effect of transfer decided in autumn with effect from 1 January was brought to account during the quarter in the amount of NOK million (-234). Management of the common portfolio The assets in the common portfolio totalled NOK billion (240.4) and were invested as shown below: The securities adjustment fund was strengthened by NOK 3.6 billion to NOK 8.6 billion during the quarter and constitutes a solid buffer against fluctuations in the financial markets. Supplementary reserves total NOK 12.3 billion. At the end of the quarter KLP had total solvency capital of NOK 41.3 billion, corresponding to 17.9 per cent of the insurance funds with interest guarantee. Assets Per cent Portion Return Portion Return Shares Short-term bonds Long-term/HTM bonds Lending Property Other financial assets The Board of Directors considers the Company's solvency satisfactory in relation to the composition of the financial position and prevailing market conditions, both under the current and the future requirements of the authorities. Key figures So far 1 Year Per cent Capital return I Capital return II Capital return III Capital adequacy Solvency margin ratio Shares Total exposure in shares including share derivatives represented 17.5 per cent. The equities markets showed strong positive development during the quarter, partly in the light of signs of incipient economic growth in important markets such as the USA. KLP's global index rose 11.2 per cent and the Oslo Stock Exchange was up 10.8 per cent. Short-term bonds Short-term bonds and money market instruments represented 4

5 21.6 per cent of the assets in the common portfolio. The international credit bond index KLP uses had a currency hedged return of 2.9 per cent during the first quarter of, a result of reduced credit premiums. The index for international government bonds had a more modest development at 0.7 per cent. Bonds held to maturity Investments in bonds held to maturity represented 32.4 per cent of the common portfolio. Added value not brought to book amounted to NOK 3043 million. The portfolio is well diversified and comprises securities issued by highly credit-worthy institutions. No write-downs have been carried out as a result of credit losses during. Property Property investments represented 11.8 per cent of the common portfolio. KLP conducts a thorough value assessment of its property holdings each quarter. The examination during the first quarter shows stability in pricing of central properties with long, secure contracts. The property values in the common portfolio were virtually unchanged during the first quarter. The return on the business in the common portfolio was 1.9 per cent. During the period property was acquired for about NOK 1.2 billion. return of 1.4 per cent during the first quarter. Regulatory framework, product and market conditions The implementation of the Solvency II regulations seems to have been delayed somewhat. It is expected that the new capital requirements will only be implemented from 2014 onwards while the supervisory authorities will spend 2013 ensuring that the companies will be in a position to comply with the new regulations. In addition there is discussion of various transitional rules beyond 2014, but the scope and the duration of the transitional rules has not been clarified. When Solvency II comes into force it is expected that current capital requirements associated with capital adequacy, core capital adequacy and traditional solvency margin will no longer apply. Important clarifications remain to be made concerning the rules for tariff adjustment as a result of the development of greater longevity, and public sector occupational pensions for those born in 1954 and later. These clarifications are expected this year or next. The market situation for public sector occupational pension appears stable for, even though some increase in tender activity is expected. However it is still too early to say for certain how the situation will develop through the year. The business areas of the subsidiaries Lending Private occupational pensions Lending in the common portfolio was NOK 27.2 billion. This was divided between NOK 18.8 billion in lending to local administrations and other organisations, and NOK 8.4 billion in housing mortgages. The lending portfolio is characterised by high quality, with no losses on local government loans and very modest loss provisions on housing loans. Added value not brought to book in the lending portfolio (fixed interest rate loans) amounted to NOK 257 million on 31 March. Return on the corporate portfolio The corporate portfolio covers investment of owners' equity and borrowed Tier 1 and Tier 2 capital. 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 The Group's private occupational pension effort is conducted through its subsidiary KLP Bedriftspensjon AS. There is high market activity in KLP Bedriftspensjon and this is providing satisfactory volume growth. The company exceeded NOK 1 billion in total assets during the quarter. 110 new customers signed pension agreements with KLP Bedriftspensjon in the first quarter, of which 20 per cent were transfers from other insurance companies. KLP Bedriftspensjon achieved good results on its customer funds, with a book return in the common portfolio of 1.6 per cent and a value-adjusted return of 2.3 per cent in the first quarter. The defined contribution pension customers achieved a return of 6.1 per cent for the quarter. 5

6 Profit for the pension customers for the first quarter amounted to NOK 4.7 million. KLP Skadeforsikring has good solvency and meets all the minimum requirements of the Financial Supervisory Authority of Norway by a very good margin. The administration result continues to be marked by low business volume in relation to the level of investment in systems and other costs. Including the negative administration result of NOK 7.4 million the Company's comprehensive income for the first quarter was NOK -5.1 million. Returns customer assets Per cent Year Common portfolio Capital return I Capital return II Defined contribution pension with investment option (unit linked) Profil P Profil P Profil P Profil P Profil P Profil P Profil P Profil P Profil PM Tore Tenold has been appointed the new Managing Director of KLP Skadeforsikring AS, taking over during the second half of the year. Kapitalforvaltning and Fondsforvaltning KLP Kapitalforvaltning AS and KLP Fondsforvaltning AS comprise the KLP Group's securities management operation. In total NOK 214 billion was under management at the end of the first quarter. This is an increase of NOK 28 billion compared to the same date last year. The majority of the assets are managed on behalf of Kommunal Landspensjonskasse and subsidiaries in the KLP Group. Net new subscriptions in the KLP funds during the first quarter were NOK 2.7 billion. Of this NOK 1.6 billion comes from customers outside the Group. KLP Kapitalforvaltning AS and KLP Fondsforvaltning AS achieved a combined result of NOK -1 million during the first quarter. The numbers at the end of the profile names indicate percentage of shares in the portfolio KLP Banken Non-life insurance Ordinary operating profit for the first quarter was NOK 23.2 compared with NOK 13.0 for the same period. As a result of high-frequency claims within both property and motor insurance the technical result was somewhat weaker than expected. Total claims ratio was per cent (91.6 per cent). The claims ratio for own account for was 97.8 per cent. Financial returns during the quarter have been good. In particular development in equities has contributed positively. Total financial return was NOK 76.5 million (39.7), corresponding to 2.4 per cent. The company continues to experience good sales in the personal customer market and total volume is now NOK 136 million. Volume is also increasing in the public sector/corporate segment and has now passed NOK 565 million in annual premiums. In February KLP Banken could celebrate its second birthday as an operating online bank. KLP Banken s business embraces two areas. One is the personal customer area (retail banking), the other is the public sector market aimed at municipalities, county administrations, health enterprises and these customers' activities. The main products are loans and deposits. Corporate deposits were launched in February and have had a positive reception. Everyday online and card banking services have been introduced for customers and KLP Banken is receiving comprehensively good feedback on its services. The Bank's lending growth is in line with expectations whereas the volume of deposits is somewhat lower. Total assets after the first quarter were NOK 29.9 billion (28.2). Pre-tax profits were NOK 26.4 million (1.6) in the first quarter. Solvency in the bank is good with capital adequacy of 16.7 per cent. 6

7 Corporate responsibility The KLP Group sets requirements for its suppliers in regard to quality, the environment and ethics. KLP aims to be a responsible purchaser and safeguard considerations of human rights, labour rights, the environment and ethical business principles in accordance with KLP's espousal of the UN Global Compact. Exclusion from KLP's investments will normally have consequences for the same companies as suppliers of goods and services to the Group. Attention is also drawn to the non-financial accounts that are a part of this report. A responsible investor and owner KLP and the KLP funds are active owners and attach importance to using their voting rights at general meetings. Future prospects Even though the upswing in the equity markets may appear to have abated after the end of the quarter, there still seems to be a fundamentally positive view of nascent economic growth in important markets, which may to a certain extent counterbalance the continuing problems in the south of Europe. In the longer term, continuing low interest rates will challenge the objective of stable, good earnings. Good solvency and a large portfolio of bonds held to maturity are a good starting point to achieving good results in the future as well. KLP works continuously on preparing for transition to the new solvency rules for insurance under Solvency II. The regulations are comprehensive and preparing implementation is time-consuming. KLP is well positioned in regard to the requirements of the regulations. KLP is a customer-owned company. Work on further developing the Company's products and services for the good of its owners and customers therefore remains crucial. KLP will continue in the future to achieve low costs, good returns and customer-friendly service in order to contribute to competitive value creation. Oslo, 8 May The Board of directors Kommunal Landspensjonskasse gjensidig forsikringsselskap Arne Øren Finn Jebsen Gunn Marit Helgesen Chair Deputy chair Marit Torgersen Herlof Nilssen Jan Helge Gulbrandsen Siv Holland Elected by and from the employees Freddy Larsen Elected by and from the employees 7

8 Group accounts after first quarter Notes Income statement Group Year 4 Premium income for own account Current return on financial investments Net interest income from bank Net value change on financial instruments Net income from investment properties Other income Total income Claims for own account Change in provisions 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 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 first quarter Notes Balance 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 ,13 Lending to municipalities, companies and private individuals at fair value over P&L Lending to municipalities, companies and private individuals ,13 Debt instruments at fair value over P/L Equity instruments at fair value over P/L ,13 Financial derivatives Receivables 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 Pension obligations Technical provisions - life insurance Provisions in life insurance with investment option Premiums, claims and contingency fund provisions - non-life insurance Covered bonds issued Debt to financial institutions Deposits from and liabilities to customers Financial derivatives Deferred tax Other short term debt Total liabilities Total owners' equity and liabilities Contingent liabilities

10 Group accounts after first quarter Changes in Owner's 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 Total other changes 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 Other changes Reclassification of funds in non-life insurance Total other changes Equity

11 Group accounts after first quarter 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

12 Notes to the Group accounts after the first quarter Note 1 Accounting principles- and estimates 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 It is recommended that this interim report be read in conjunction with the annual report for The annual report may be obtained at Premium income for own account/change in technical provisions Salary changes and change to the National Insurance basic amount (G) for members of KLP's defined benefits pension schemes affect the insurance liabilities and this is financed by a discrete indexation premium paid by the employer. Previously the effect of these provisions and the premium income were recognised on invoicing of the discrete indexation premium. From the start of indexation premiums linked to salary and G-indexation are being estimated and taken to income on the date the liability increase is registered. Until the indexation premium supplement is invoiced the accrued liability resulting from registered salary adjustments will appear as premiums receivable or, alternatively, as current liabilities to policyholders if the supplement has been prepaid. Similarly, the factors mentioned above result in an increase in changes taken through profit or loss in insurance liabilities - contractual obligations by corresponding amounts from the same date. The net effect on income and owners' equity will thus be nil. Net effect of the estimate change is increased premium income and increased liabilities of NOK 734 million in against. Note 2 Key figures - accumulated -12 Q4-11 Q3-11 Q Q4-10 Q3-10 Q2-10 KLP Group Profit before tax Total assets Owners' equity Capital adequacy 10.5 % 10.9 % 11.0 % 10.8 % 11.0 % 11.5 % 11.6 % 11.6 % Number of employees in the Group

13 Notes to the Group accounts after the first quarter -12 Q4-11 Q3-11 Q Q4-10 Q3-10 Q2-10 Kommunal Landspensjonskasse gjensidig forsikringsselskap 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 % 244 % 227 % 227 % 230 % 224 % 216 % 219 % Capital adequacy 11.0 % 11.5 % 11.4 % 11.2 % 11.5 % 12.0 % 12.3 % 12.2 % Core capital ratio 8.8 % 9.1 % 9.0 % 8.8 % 9.0 % 9.3 % 9.4 % 9.2 % Boook return on common portfolio 1.2 % 4.5 % 3.7 % 3.1 % 1.6 % 5.1 % 3.9 % 2.2 % Value-adjusted return on common portfolio 2.7 % 3.2 % 1.1 % 2.3 % 1.2 % 7.5 % 5.1 % 2.1 % Return on unit-linked portfolio 3.4 % 2.2 % -0.3 % 1.9 % 1.1 % 8.6 % 5.3 % 1.7 % Return on corporate portfolio 1.4 % 4.2 % 3.5 % 3.3 % 1.7 % 5.2 % 3.8 % 2.4 % KLP Skadeforsikring AS Profit before tax Gross premium due Premium income for own account Owners' equity Claims ratio % 88.3 % 82.5 % 82.3 % 94.4 % 91.5 % 94.2 % % Combined-ratio % % % % % % % % Return on assets under management 2.4 % 4.5 % 2.6 % 2.8 % 1.3 % 7.2 % 5.2 % 2.7 % Capital adequacy 29.8 % 31.8 % 30.9 % 30.0 % 31.5 % 32.0 % 27.1 % 29.8 % Tier 1 and Tier 2 capital Annual premium in force retail market Annual premium in force public sector market Net new subscriptions (accumulated within the year)

14 Notes to the Group accounts after the first quarter -12 Q4-11 Q3-11 Q Q4-10 Q3-10 Q2-10 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 11.2 % 13.9 % 9.4 % 12.0 % 16.8 % 19.6 % 23.1 % 11.9 % Book capital return on common portfolio 1.6 % 6.3 % 3.8 % 4.2 % 2.6 % 6.0 % 5.1 % 3.1 % Value-adjusted capital return on common portfolio 2.3 % 3.7 % 1.3 % 2.6 % 1.5 % 8.3 % 5.6 % 2.4 % Return on defined unit-linked contribution pensions 6.1 % 0.2 % -3.9 % 1.9 % 1.5 % 9.3 % 4.4 % -2.0 % Return on corporate portfolio 1.9 % 4.8 % 3.2 % 1.9 % 0.6 % 5.0 % 4.6 % 2.4 % KLP Banken Group Profit/loss before tax Net interest income Other operating income Operating expenses and depreciation Net realized/unrealized changes in financial instruments to fair value Contributions 2 115, , , , , ,7 656,2 539,7 Housing mortgages granted 1 653, , , , , ,6 797,9 345,1 Loan(s) with public guarantee(s) Defaulted loans Borrowing on the issuance of securities Other borrowing Total assets Average total assets Owners' equity Net interest rate 0.04 % 0.07 % 0.04 % 0.04 % 0.04 % 0.10 % 0.08 % 0.03 % Profit/loss from general operations before tax 0.09 % % % % 0.01 % 0.11 % % % Profit/loss from general operations excl. fair value assessments before tax 0.03 % % % % 0.00 % % % % Return on owners' equity before tax 2.25 % % % % 0.13 % 3.02 % % % Capital adequacy 17.2 % 14.4 % 15.6 % 17.1 % 17.7 % 14.2 % 17.6 % 17.9 % Number of personal customers Of which members in KLP KLP Kapitalforvaltning AS and KLP Fondsforvaltning AS Profit/loss before tax Total assets under management Assets managed for external customers

15 Notes to the Group accounts after the first quarter Note 3 Segment information - profit/loss (i.a.w. IFRS) by business area Time series result - by quarter -12 Q4-11 Q3-11 Q Q4-10 Q3-10 Q2-10 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 Note 4 Operating expenses Year Staff costs Depreciation Other operating costs Total operating expenses Note 5 Investment property Profit/loss Year Profit/loss property Value adjustment Net income from investment properties Balance Value: investment property - opening balance Value adjustment Net increase Other changes Value: investment property - closing balance

16 Notes to the Group accounts after the first quarter Note 6 Other income Year Supplement contractual early retirement scheme (AFP) Fee income Other income/expenses Total other income Note 7 Subordinated loan and Perpetual hybrid Tier 1 securities Year Subordinated loan Interest costs ¹ Value changes Total subordinated loan Perpetual hybrid Tier 1 securities Interest costs Value changes Total Perpetual hybrid Tier 1 securities Net costs subordinated loan and perpetual hybrid Tier 1 securities ¹ Besides pure interest costs this includes recognition through profit/loss of a discount on one subordinated loan. The note provides a specification of the line "Net costs subordinated loan and perpetual hybrid Tier 1 securities" attributed to interest costs and value change during the stated periods. The large fluctuations in value change are predominantly due to the loans being denominated in foreign currency. One subordinated loan is issued in euros, whereas the other subordinated loan and the perpetual hybrid Tier 1 securities are issued in Japanese yen. Hedge accounting is used on the hybrid Tier 1 securities. The two subordinated loans have ordinary financial hedging. In practice, the use of hedging involves a minimal total income effect if account is taken of the hedged object and the hedging instrument together. For more information concerning hedging and terms of the subordinated loans and perpetual hybrid Tier 1 securities attention is drawn to the annual report. Note 8 Operating costs Year Staff costs Depreciation Other operating expenses Total operating expenses

17 Notes to the Group accounts after the first quarter Note 9 Other expenses Year Expenses AFP Other expenses Total other expenses Note 10 Financial liabilities Nominal value in NOK 1 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 KLP Kommunekreditt AS 0 NOK Floating KLP Kommunekreditt AS NOK Floating KLP Kommunekreditt AS SEK Floating KLP Kommunekreditt AS NOK Floating KLP Kommunekreditt AS NOK Floating KLP Kommunekreditt AS 430 SEK Floating KLP Kommunekreditt AS NOK Floating KLP Kommunekreditt AS NOK Fixed KLP Kommunekreditt AS 750 NOK Fixed Valuation adjustment and accrued interest Total covered bonds Liabilities to credit institutions KLP Kreditt AS 0 NOK Floating KLP Banken AS NOK Fixed KLP Banken AS 500 NOK Floating KLP Banken AS NOK Floating Kommunal Landspensjonskasse 601 NOK/EUR/ USD Floating Total liabilities to credit institutions Deposits from customers ¹ Private NOK Business 31 NOK Total contributions from customers Total financial liabilities ¹ There are no contractual due dates for deposits. The note shows the financial liabilities the Group has at the end of the reporting period. 17

18 Notes to the Group accounts after the first quarter Note 11 Fair value hierarchy Assets 1 Lending local authorities, enterprises and personal customers 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 Lending local authorities, enterprises and personal customers Debt instruments (bonds, certificates and investments in financial institutions) 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 Debt instruments (bonds, certificates and investments in financial institutions) Owners' equity instruments (shares; equity and property funds; and alternative investments) 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 Owners' equity instruments (shares; equity and property funds; and alternative investments) 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 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 Financial derivatives Debt to financial institutions 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 0 0 Debt to financial institutions Total financial liabilities at fair value

19 Notes to the Group accounts after the first quarter Note 11 Fair value hierarchy, contd. Changes in level 3 Year Opening balance Sold Bought Unrealised change Realised loss/gain Closing balance In addition to the assets listed, assets in defined contribution plans also fall within the realm of the fair value hierarchy. Those assets are not included in the table, however, of the NOK 229 million concerned NOK 104 million relate to equity investments and participation under level 1, and 126 million to debt instruments at fair value under level 1 as of. Changes in level 3 (Q3 columns) reflects changes in book-value for the year to date. 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. The financial instruments included in level three in the KLP Group include un-listed stocks and private equity. Note 12 Accounts receivable Short-term receivable trade in securities Premium receivable Reinsurance share of gross outstanding claims provisions Other receivable Total receivable

20 Notes to the Group accounts after the first quarter Note 13 Credit risk AAA AA A BBB NR/ NIG Total Debt instruments held to maturity - at amortised cost Financial and credit enterprises Public guarantee Savings banks Government and government guarantee within OECD State enterprises and Covered Bonds Other Total Debt instruments classified as loans and receivables - at amortised cost Banks Financial and credit enterprises Public guarantee Government and government guarantee within OECD State enterprises and Covered Bonds Other Total Debt instruments at fair value - bonds and other securities with fixed returns Banks Financial and credit enterprises Public guarantee Government and government guarantee within OECD State enterprises and Covered Bonds Other Total Financial derivatives classified as assets Denmark Finland Norway Switzerland Sweden Germany USA Total

21 Notes to the Group accounts after the first quarter Note 13 Credit risk, contd. AAA AA A BBB Debt instruments at fair value - fixed income fund units Government and government guarantee within OECD Other Total NR/ NIG Total Debt instruments at fair value - lending and receivables Denmark Norway Great Britain Sweden Finland USA Total Total securities Lending local government, enterprises & personal customers¹ 0 % 20 % 35 % 100 % Totalt Public sector¹ Credit institutions Private individuals Total AAA AA A BBB Debt instrument held to maturity - at amortised cost Financial and credit enterprises Public guarantee Savings banks Government and government guarantee within OECD State enterprises and Covered Bonds Other Total NR/ NIG Total Debt instruments classified as loans and receivables -at amortised cost Financial and credit enterprises Public guarantee Savings banks Government and government guarantee within OECD State enterprises and Covered Bonds Other Total

22 Notes to the Group accounts after the first quarter Note 13 Credit risk, contd AAA AA A BBB Debt instruments at fair value - bonds and other securities with fixed returns Financial and credit enterprises Public guarantee Savings banks Government and government guarantee within OECD State enterprises and Covered Bonds Other Total NR/ NIG Total Financial derivatives classified as assets Denmark Finland Norway Great Britain Switzerland Sweden Germany USA Total Debt instruments at fair value - fixed income fund units Public sector, Financial and credit enterprises Government and government guarantee within OECD Other Total Debt instruments at fair value - lending and receivables Denmark Finland France Norway Sweden Great Britain USA Total Total securities Lending local government, enterprises & personal customers¹ 0 % 20 % 35 % 100 % Total Public sector¹ Companies Private individuals Total

23 Notes to the Group accounts after the first quarter Note 13 Credit risk, contd. Emphasis is placed on diversification of credit exposure to avoid concentration of credit risk against individual debtors. To monitor credit risk in lending and investments a special credit committee has been established, meeting regularly. The limits for credit risk against the individual debtor are set by the committee. Changes in debtors' credit assessments are monitored and followed up by KLP Kapitalforvaltning. The Group has good balance between Norwegian bonds and international bonds and has a portfolio of exclusively good credit notes. The Group can be said to have a high concentration of debt instruments directed at the Norwegian public sector, however this does not imply concentration risk in the ordinary meaning since the counterparty risk is minimal. Only ratings from Standard and Poor's have been used in the note grouping. KLP Group also uses ratings from Moody's Investor Services and Fitch Ratings and all three are considered equal as a basis for investments in interest-bearing securities. The table shows exposure against the rating categories that S & P uses, where AAA is linked to securities with the highest creditworthiness. Non-rated/non-investment-grade mostly applies to individual Norwegian financial institutions, municipalities/county authorities and other investments within Norwegian finance. KLP Group has strict guidelines for investments in interest-bearing securities, which also apply to investments falling into this category. The lines in the note coincide with the financial position statement layout. The exceptions are debt instruments at fair value, which are divided into three categories in the note and lending which is shown combined in the note, but is shown in two lines in the financial position statement (fair value and amortised cost). Geographic extract of debt instruments - Exposure against profiled countries in the Eurozone (PIIGS 2 ) Acquisition cost Unrealised gain/loss Of which due to rate of exchange Market value Book value Spain Fixed income securities at fair value Fixed income securities at amortised cost Total Spain Italy Fixed income securities at fair value Fixed income securities at amortised cost Total Italy Total In Spain and Italy pure government debt represents 178 million and 2355 million respectively, and government guaranteed securities 835 million and 0 million (market value) as at 31 March. Rating Spain Italy Moody s A3 A3 Standard & Poor s A BBB+ Fitch A A- 23

24 Notes to the Group accounts after the first quarter Note 13 Credit risk, contd Acquisition cost Unrealised gain/loss Of which due to rate of exchange Market value Book value Spain Fixed income securities at fair value Fixed income securities at amortised cost Total Spain Italy Fixed income securities at fair value Fixed income securities at amortised cost Total Italy Total In Spain and Italy pure government debt represents 167 million and million respectively, and government guaranteed securities million and 0 million (market value) on 31 December Rating Spain Italy Moody s A1 A2 Standard & Poor s AA- A Fitch AA- A+ 1 The credit risk to which lending is exposed is calculated based on the regulations on minimum capital adequacy requirements, and the rules that apply on determining the basis for calculations. The loans are shown separately since they are not included in the same rating categories. ² The acronym PIIGS refers to the countries assumed to be most exposed as a result of the market disquiet concerning government debt in the Eurozone and is used in regard to Portugal, Ireland, Italy, Greece, Spain. The overview shows government debt the KLP Group holds against selected countries, and the rating. The countries in the table are selected on the basis of the profile they have gained as exposed economies in the Eurozone, and in the continuing unease about debt. The debt unease is primarily based on the fear of default in government debt. In Greece, the country where the probability of default is highest, the KLP Group has no fixed income securities. The KLP Group has no government securities in Ireland and Portugal as at 31 March. The securities measured at amortised have not been written down. 24

25 Notes to the Group accounts after the first quarter Note 14 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 Note 15 Other short term liabilities Short-term liabilities securities Advance tax-deduction pension scheme Accounts payable Other short-term liabilities Total other short-term liabilities

26 Notes to the Group accounts after the first quarter Note 16 Interest rate risk Up to 3 months From 3 mnths. to 12 mnths. From 1 year to 5 years From 5 years to 10 years Over 10 years Changes in cashflow Total Assets Mutual funds shares 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 Spesialfondsandeler Lending and receivables Lending Total assets Liabilities Deposit Liabilities created on issue of securities Liabilities to financial institutions Financial derivatives classified as liabilities Hybrid capital, subordinated loans Call Money Total liabilities Total Up to 3 months From 3 mnths. to 12 mnths. From 1 year to 5 years From 5 years to 10 years Over 10 years Changes in cashflow Total Assets Mutual funds shares 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 Shares in Non-UCIT funds Lending and receivables Lending Total assets