Annual Report 2020

The financial income from managing the pension funds in the common portfolio amounts to NOK 24.2 (44.1) billion, corresponding to a return of 4.2 per cent. Over the year, the valuation reserves decreased from NOK 55.8 billion to NOK 55.1 billion. The returns result is thus NOK 12.6 (10.6) billion.

KLP aims to deliver long-term, competitive returns in the customer portfolios, and stable returns in the corporate portfolio. This is achieved by spreading funds across different investment types and geographical areas.

The investments in the common portfolio are distributed between the different categories of financial assets as shown in the table below:

Only loans and investments in liquidity/money markets failed to produce a return above the stated return guarantee of 2.4 per cent. Value-adjusted returns including securities held to maturity were 5.5 per cent, well above the guaranteed return.

The risk result is an expression of how mortality and disability have developed in the insured population in relation to the assumptions used in the annual setting of premiums.

For the year, the disability result shows a surplus of NOK 646 million. Profit related to longevity risk increased by NOK 7 million to NOK 454 million, while profit related to death/survivors increased by NOK 63 million to NOK 101 million.

No extra disability provisions have been raised as a result of the coronavirus pandemic.

However, the positive risk result, together with the extraordinary risk result, is affected by changed mortality assumptions for 2018, 2019 and 2020 (from Statistics Norway) and a new disability tariff, used to finance the need for increased reserves arising from greater life expectancy among men, as well as a reduction in the base rate. The net risk result is therefore negative by NOK 395 million. The reason for the deficit is that the pension scheme for closed agreements did not have sufficient surplus to cover the reserve requirement. There was also a deficit from the group life schemes of NOK 3 million, making this year’s risk result minus NOK 398 million.

KLP achieved an administration profit of NOK 171 million in 2020, a reduction of NOK 76 million from the previous year. The decrease is mainly due to a reduced contribution from the administration reserve.

KLP has economies of scale as a result of its high market share in public-sector occupational pensions, and can thus continue to provide good service at competitive prices.

The corporate portfolio, which is invested in bonds, property, shares in subsidiaries and other strategic equity investments, achieved a return of 3.1 (4.3) per cent in 2020. A good return on real estate investments is the main reason for the good ROI.

Chart: historical return on the corporate portfolio (last ten years)

Buybacks of subordinated loans and the sale of KLP Bedriftspensjon AS at below book value resulted in a one-off loss in 2020, but will significantly improve future results in the corporate portfolio.

The customer result for the year was NOK 12.4 billion. This is allocated to the customers’ premium fund and supplementary provisions. The Board of Directors is satisfied that the result allows us to strengthen supplementary reserves by more than NOK 8 billion, in addition to a transfer to the premium fund which will indirectly finance much more than the planned payment of equity contributions to KLP in 2021. Interest rates are still low compared to the interest rate guarantee, and increased supplementary provisions, plus high valuation reserves, ensure good long-term management of the pension assets.

The year’s total comprehensive income of NOK 1,021 million is allocated as follows: NOK 611 million to equity contributions and NOK 546 million to other retained earnings, while NOK 136 million will be transferred from the risk equalisation fund.

The Board of KLP considers that the income statement and the statement of financial position for 2020 with notes, statements of cash flows and of changes in owners’ equity, provide good information on the operation through the year and the financial position at the end of the year. The accounts have been drawn up on the assumption of a going concern and the Board confirms that the conditions for this are in place. The Board of Directors considers the risk to the company’s business to be reasonable. The company financial statements for KLP are presented in accordance with the Norwegian Annual Accounts Regulation for life insurance companies. The consolidated financial statements have been presented in accordance with international accounting standards (IFRS/IAS), as approved for use within the EU/EEA.

KLP Bedriftspensjon AS was sold to DNB Livsforsikring AS. From the end of the year, public-sector occupational pension provision changed. This has reduced the strategic importance of KLP Bedriftspensjon to KLP, while the market for private occupational pensions is also changing. The shares were transferred on 22^nd of September 2020. During a transition period after the sale, KLP provided some services to the company to ensure a seamless transition for customers to a new owner. Some services are still being provided to the company through the first quarter of 2021. The sale of KLP Bedriftspensjon resulted in a loss compared to book values in the corporate portfolio. This is primarily related to future commitments that would have been charged to profits over time.

KLP Skadeforsikring had a good year in 2020. The main purpose of the non-life insurance business is to contribute to better non-life insurance products at low prices for owners and their members. The company is a major provider of insurance to this market, comprising companies with public-sector affiliation, and members of the Group’s pension schemes. KLP Skadeforsikring is the market leader in the public-sector market, with a market share of 36.5 per cent.

The profit before tax was NOK 220.0 (165.6) million. The insurance result (premiums minus claims paid) for events occurring in 2020 was NOK 276 million, up from NOK 108 million in 2019. The improvement in profits is due to a general price adjustment and the fact that the company was not exposed to the same number of large claims as the year before. In 2020, three claims over NOK 25 million were recorded, with estimated costs of NOK 107 million, one of which is a ‘natural peril’.

The company is seeing a larger number of medium-sized claims, especially within municipal property insurance. Claims in the range between NOK 5 and 25 million accounted for a total payout of NOK 190 (164) million.

Covid-19 had a greater effect on the company’s operations than on the insurance results. In particular, travel insurance claims increased. In the initial periods, the number of claims made was five to six times higher than normal. The increase related to cancelled trips, evacuation and repatriation. In all, 6,800 claims were filed in the year with a total value of NOK 29 million, compared to 4,500 claims and NOK 23 million in 2019. Because of generally reduced travel in 2020, the tourism industry had a better claims result than in a normal year.

The effect of Covid-19 on the motor insurance segments is also thought to have been positive, and these sectors had lower claims costs than in a normal year. The reason for the improvement is believed to be reduced mobility and less holiday activity.

The authorities added Covid-19 to the list of recognised occupational illnesses in April 2020. The company is the market leader in employer’s liability insurance for public-sector employees, and is therefore particularly exposed from this addition. There is currently considerable uncertainty as to the effect this will have on the underlying insurance risk.

The landslide in Gjerdrum affected the company in the same way as other insurance companies in Norway. The landslide is defined as a ‘natural peril’, and the Norwegian Natural Perils Pool has provisionally estimated the total damage at NOK 900 million. The company’s financial liability is therefore based on its market share within domestic property insurance. There are further costs related to other types of claim arising from the landslide. The total cost to the company is estimated at NOK 47 million, of which the reinsurance programme will cover NOK 15 million.

The company’s total claims ratio fell in 2020 to 83.0 per cent overall. If we disregard reserve adjustments to claims occurring before 2020, the claims ratio was 90.1 per cent: 99.3 per cent for the public sector/corporate market and 78.6 per cent for the retail market.

Payments for previously reported claims decreased by NOK 117 million for all sectors combined, corresponding to 6.4 per cent of the provisions at the beginning of 2020. The settlements are largely related to occupational injury products. Reserves are slightly reduced within property insurance, mainly because of pay-outs on older claims.

The financial markets were highly volatile through the first half of 2020, but showed a steady rise through the second half of the year. The return on investments for the year was very satisfactory. The total return on assets managed was 5 (6.7) per cent. The equity portfolio had a total return of 10.2 per cent. Fixed-income investments in the short and long-term portfolios produced returns of 4.8 and 3.2 per cent respectively. The Company has two real estate investments, in which its stake in a shopping centre was written down, while the office buildings were written up. The net effect was a write-up of NOK 6 million. The portfolio yielded an annual return of 5.2 per cent.

The cost/income ratio for own account was reduced to 17.6 (20.9) per cent in 2020. This was slightly lower than the target level, and is on par with the market in general.

The company meets all regulatory requirements by a good margin. The solvency margin (SCR) at the end of 2020 was 237 (240) per cent. The company has defined a long-term target for its solvency margin of at least 200 percent.

KLP’s banking activities enjoyed good volume growth and delivered a good result in 2020. KLP’s banking business is carried out by the KLP Banken subsidiary group, which comprises KLP Banken AS, KLP Kommunekreditt AS and KLP Boligkreditt AS. KLP Bankholding merged into KLP Banken AS with effect from 1 January 2020, and KLP Banken AS is now the parent company of the banking group. Through its banking business, KLP offers mortgages and other banking services to municipal and county authorities and companies working for the public sector.

KLP Banken is intended to be a direct bank for customers seeking a long-term and predictable partner. This is how the bank aims to be the preferred bank for retail customers who are members of KLP’s pension schemes and find the bank’s services and values attractive.

The Bank aims to provide products and services on competitive terms, to help companies that have chosen KLP as their pension provider to be viewed as attractive employers.

KLP Banken’s presence in the market for loans to the public sector encourages competition and benefits the target group of municipal and county authorities and enterprises related to the public sector by providing access to favourable long-term financing. The bank provides guidance to customers in financing and municipal finances. The bank also manages lending for KLP’s common portfolio.

The banking group’s total lending under management at the end of 2020 was NOK 115.2 billion. Total managed lending volume increased by NOK 9.4 billion in 2020. Of the outstanding loans, NOK 38.2 billion was financed by the banking group and the remainder by KLP. The lending was split between NOK 23.7 billion in mortgages to private individuals and NOK 91.5 billion in loans to public-sector enterprises.

The banking group manages mortgages on its own account in KLP Banken AS and in KLP Boligkreditt AS. It also manages mortgages for KLP. In 2020, the bank paid out NOK 9.2 (7.9) billion in new mortgages. In line with the owners’ wishes, it is pleasing that many young employees in the municipalities have mortgages from KLP Banken AS. The mortgage portfolios taken together had a growth of NOK 2.0 (2.1) billion in 2020.

KLP Banken AS offers credit cards to retail customers. At the end of 2020, drawn credit amounted to NOK 49.2 (63.1) million, across 9,200 (8,500) card users. The introduction of the debt register and the coronavirus pandemic have both contributed to a general reduction in consumer debt.

Through 2020, total deposit volumes from retail customers increased from NOK 9.9 billion to NOK 10.5 billion. The growth in deposits is slightly lower than the year before. This is believed to be related to the low interest rates through 2020. The number of active deposit customers in the retail market is over 42,000, of whom 70 (73) per cent are members of the pension schemes.

KLP Banken AS also offers deposit products to municipalities and businesses. At the end of 2020, deposits from this group came to NOK 1.3 (1.6) billion, which is 11 (18) per cent of total deposits. The bank’s total deposits increased from NOK 11.5 billion to NOK 11.8 billion in 2020.

The KLP Group’s lending to the public sector is managed by KLP Banken AS. On the banking operation’s own account, loans to public borrowers are registered in the subsidiary KLP Kommunekreditt AS. KLP Banken AS also enters into loan agreements for the public sector on behalf of KLP. Total loans to public-sector borrowers stood at NOK 81.6 (73.4) billion at the end of 2020, an annual growth of NOK 8.2 (5.7) billion. Of this, lending for own account amounted to NOK 17.6 (16.5) billion. New loans amounting to NOK 15.3 (12.2) billion were paid out in 2020 to the public sector by companies within the KLP Group.

The banking group’s current capital requirement, including capital buffers, is a 12.5 per cent tier 1 capital ratio and 16.0 per cent capital adequacy. We also maintain a buffer of at least 0.5 per cent of the actual capital requirement for Pillar 1 and Pillar 2 risks, so the bank’s capital target is 16.5 per cent. At the end of 2020, capital adequacy was 19.5 (19.1) per cent.

The KLP Banken Group’s result before tax and other comprehensive income was 136.8 (102.3) million. Of this, NOK 101.5 (75.6) million came from the retail market and NOK 35.2 (26.7) million from the public sector. The return on the bank’s equity was 6.1 (4.8) per cent before tax.

KLP is pleased with developments in KLP Kapitalforvaltning AS. KLP Kapitalforvaltning AS is the Group’s asset management operation within securities and fund management. It had a total of NOK 596 billion under management at the end of 2020. The majority of the assets are managed on behalf of KLP and the subsidiaries in the KLP Group. KLP Kapitalforvaltning AS also offers fund products to members and other external investors.

Asset management increased by NOK 32 billion in 2020. Net new subscriptions to KLP’s securities funds from investors external to the Group and retail customers amounted to NOK 10.4 billion. KLP Kapitalforvaltning AS manages a total of NOK 103 billion for customers outside KLP.

During 2020, four new fund packages were established, so the company was managing 55 securities funds at the end of 2020. The new funds are Nordic Swan certified, which means that they have to satisfy strict requirements with respect to corporate social responsibility. The Swan-certified funds sold well in 2020 and returns were consistently better than for the index funds. KLP Kapitalforvaltning AS is the asset management company with the most Nordic Swan certified funds in the Nordic region.

KLP Kapitalforvaltning AS made a profit before tax of NOK 30.9 (44.3) million in 2020.

KLP Eiendom AS is maintaining a positive growth in property management for KLP. All management and development of the KLP Group’s own properties is carried out through the wholly owned subsidiary KLP Eiendom AS. The company is one of Scandinavia’s largest property players, and has operations in Norway, Sweden, Denmark, Luxembourg and the United Kingdom. The KLP Group’s properties have good locations, a high standard of building, and efficient space utilisation. The property company prizes energy-saving and the environment, and is environmentally certified in accordance with ISO 14001 in Norway, Sweden and Denmark.

The property portfolio has grown substantially in recent years, and accounts for 13.3 per cent of the collective assets. Investments in property have contributed good returns.

With the coronavirus pandemic, the 2020 property year was challenging for hotels and city centre trade. This has weakened the results from these business areas. The office rental market has been largely stable, and with falling return requirements for attractive office buildings, this segment has shown a positive growth in value.

Property management is carried out only on behalf of the companies within the Group and has thus primarily contributed to returns on invested capital for the life insurance customers. Operating profit from property, including shares in external real estate funds, for the common portfolio of public-sector occupational pensions was 6.8 per cent.

KLP Forsikringsservice AS provides insurance-related services to municipal and county council pension funds, including services such as actuarial officers. These services are based on the expertise and systems developed for KLP’s pension business.

KLP Forsikringsservice AS has an agreement for a wide range of services including member and pension administration.

Under the Norwegian Financial Institutions Act, KLP is subject to the Solvency II regulations. Under these rules, a capital requirement is calculated from the total risk exposure the company has within insurance risk, market risk, operational risk, departure risk etc. Buffer capital in the form of the securities adjustment fund, supplementary provisions and risk equalisation fund reduces the capital requirement. Any remaining capital requirements must be covered by the solvency capital. Solvency is the difference between the fair value of the company’s assets and liabilities. For assets that are recognised at a different value in the accounts, the value is adjusted to represent fair value in the Solvency II balance sheet. For KLP’s insurance obligations, there are no observable market values. These are therefore calculated using a best estimate based on actuarial assumptions. There is also a risk margin to reflect the capital costs that would be incurred by a third party in assuming the obligations.

The buffer capital was eventually strengthened through the year despite a significant correction in the stock market in the period after Covid-19 was declared to be a pandemic. The securities adjustment fund decreased by NOK 0.6 billion to NOK 55.1 (55.8) billion. Supplementary reserves increased by NOK 7.2 billion to NOK 43.5 (36.2) billion.

The risk capacity was maintained at a level that indicates that expected returns can be kept above the annual interest guarantee in the solvency calculation.

The solvency capital was increased by NOK 1.0 billion with the payment of the planned and advertised annual owners’ equity contributions. Of the profit for the year, NOK 611 million goes to owners’ equity contributions and NOK 546 million to other retained earnings. The risk equalisation fund within the equity was reduced by NOK 136 million to NOK 5,404 million.

KLP’s mutual status and creditworthy owners provide assurance that the company can meet its future obligations. This is reflected in Solvency II regulations, where this can be counted as solvency capital under more detailed rules. The Financial Supervisory Authority of Norway has agreed that KLP’s recall rights established in its Articles of Association can be classified as supplementary capital in an amount equal to 2.5 per cent of the company’s premium reserve. Today’s approval applies up to 31.12.2023.

As the capital is not paid-up, it ranks as Group 2 or supplementary capital. Solvency II divides the solvency capital into three levels according to loss-absorption capacity, where Group 1 is the best and typically consists of paid-up capital that is free from restrictions in terms of covering any loss in the enterprise. Capital in Tier 2 may not exceed 50 per cent of the capital requirement. As KLP’s premium reserve grew throughout the year, the supplementary capital increased by NOK 0.7 billion to NOK 11.5 billion. The company thus has more capital than can be used in the calculation, as 50 per cent of the capital requirement amounts to NOK 7.3 billion.

The solvency requirement for KLP was slightly up in 2020 at NOK 15.2 (14.6) billion. The eligible solvency capital increased by NOK 7.2 billion to NOK 43.3 billion. This is because the value of the assets increased by more than the liabilities. KLP’s financial strength thus improved throughout the year. Without applying transitional rules, the company’s capital adequacy is 286 (263) per cent. Taking account of the transitional arrangement for technical provisions, capital adequacy is 362 (319) per cent. Capital adequacy is thus well above the internal target of 150 per cent and the regulatory requirement of 100 per cent. For the Group, the solvency margin is 264 (253) per cent.

KLP’s financial strength is rated at A2 by Moody’s Investor Service and A- by Standard & Poor’s, both with supplementary information on expected stable ratings for KLP.

Monitoring and management of risk is a prerequisite for good wealth creation and security for pension assets. Identification, assessment and management of the risk factors, both to insurance and to financial management, are therefore key aspects of KLP’s business. The risk profile is monitored within the individual operational entities and is assessed both by company and combined at Group level.

KLP carries out an annual ‘Own Risk and Solvency Assessment’ (ORSA). The self-assessment conducted in 2020 concluded that the company’s risk management and solvency were consistently good in all areas. The control functions for risk management and actuarial functions are part of the Risk Management and Control section.

KLP’s principal activity is public-sector occupational pension provision. This industry is characterised by predictability and, to a limited degree, by individual events that may affect results significantly. Developments in the incidence of disability and life expectancy affect the risk profile.

KLP uses the K2013 mortality assumptions (tariffs). These were in line with observed mortality rates in the insured population up to and including 2009, as well as the expected future increase in longevity based on Statistics Norway’s projections. In recent years, Statistics Norway has updated its expectations for life expectancy. From 2021 onwards, KLP is strengthening its assumptions about longevity for men. Otherwise, the K2013 tables will be used.

KLP uses even stronger assumptions on longevity in the pension scheme for nurses and the pension scheme for hospital doctors because the people insured in these schemes have greater observed longevity than other groups. The margins in the longevity assumptions are considered to be satisfactory.

As of 01.01.2020 the premium reserve was set aside for all members born in 1954 and after, calculated according to the new harmonisation rules adopted in 2018. Reserves were also recalculated in connection with changes to the rules for public-sector occupational pensions from 01.01.2020. In total, the changes entail a 5 per cent release (NOK 23.2 billion) from the premium reserve. There are differences between the schemes resulting from the recalculations. These funds were allocated as part of the end-of-year close.

From 01.01.2020, new disability tariffs were introduced, in line with updated risk history. Further updates to history mean that the assumptions are changing again from 01.01.2021.

In the field of non-life insurance, the pricing of insurance risks is based on historical claims information, the risk of major claims and reinsurance costs. The company has a large proportion of long-tail business, a factor which, together with a large proportion of business exposed to large claims, contributes to a higher insurance risk than the market generally. This is reflected in a high solvency capital requirement. In order to mitigate this risk, further growth is sought within the retail market and the small-and medium-sized business market. Over time, this will have a stabilising effect on risk and results.

The reinsurance programme limits the company’s own expense per claim event.

KLP guarantees an annual minimum return on the management of its customers’ pension assets linked to defined-benefit schemes. For this guarantee, KLP will charge an annual interest guarantee premium. The interest guarantee premium is priced on the basis of KLP’s solvency, the investment risk that KLP takes, the general trend in interest rates, and any margin. The interest guarantee premium is priced anew each year, which helps to limit the risk associated with the return guarantee. With the good financial strength built up in KLP, the interest guarantee premium can still be kept low even if interest rates are low compared to the annual return guarantee.

Each year KLP works out a strategy for how the pension assets are to be invested. The investment strategy emphasises exploitation of the company’s risk-bearing ability within a framework that dictates stability and the long-term view in asset management. Limits are defined for various financial risks such as credit risk, counterparty exposure, foreign exchange risk, use of derivatives and liquidity risk. A credit policy is also laid down for the Group, and credit limits for total exposure to individual counterparties are set by the Group’s Credit Committee.

The financial risk is continuously monitored to ensure the risk is matched to the risk capability within the limits set in the investment strategy. With low interest rates, the priority is to maintain the company’s ability to bear financial risk over time.

The responsibility for operational risk management and asset allocation lies with a separate organisational unit under the Finance division. This unit directs KLP’s management strategy through mandates and ensures that asset management is within limits set by the Board of Directors. An independent control unit, the Risk Management and Control unit, headed by the CRO (Chief Risk Officer) is responsible for monitoring and reporting whether the management of the company’s assets is being conducted within the limits set, applicable mandates and guidelines provided by the Board.

KLP has good liquidity, with substantial holdings of liquid securities that can be realised at short notice. Quarterly, advance premium collection with 30-day payment terms ensures regular replenishment of liquidity throughout the year. The premium payments are intended to cover commitments that only fall due several years into the future. The true liquidity position thus amounts to more than the balance on the current account, which is the definition of cash and cash equivalents in the cash flow statement.

KLP’s operational risks are associated with undesirable events resulting from failures in internal working processes, employee error, dishonest acts and criminality or external events. All processes throughout the value chain are exposed to various types of operational risk. KLP has developed procedures for identifying, monitoring and taking necessary measures to reduce the risk of undesirable events. It is a general management responsibility at all levels to identify and follow up those deviations that occur.

Group senior management carries out an annual examination of significant operational risks in the business and these are delegated with ownership to an operational manager in the Group senior management team. The Board of Directors annually reviews the risk assessments and documentation on management and control measures established together with a total risk overview. Procedures have been established for independent controls and reporting at various levels. Tasks and functions are distributed so that conflicts of interest are avoided and responsibilities made clear.

The company’s independent Internal Audit function carries out assessments of actuarial, financial and operational risks. Following consultation with the Board and Group senior management, assessment and testing are conducted in areas that are material and exposed to risk in the interests of satisfactory management and control. The result, with any recommendations on necessary measures to be taken, is presented to Group senior management and the Board and is followed up. This is further described in KLP’s annual report in the section on ‘Risk management and internal control’.

The Compliance function in KLP assists Group senior management, the Board and employees in ensuring compliance with regulations and ethical standards. The head of the function reports to the CEO and its reports are discussed by the Board. The function takes a preventive approach through advice, implementation and culture-building, and carries out control activities to maintain a good compliance culture. A more detailed description of the company’s adherence to good corporate governance is given in the annual report, in the section on NUES and in the description of risk management and internal control in KLP.

KLP is constantly working on the necessary adaptations following regulatory changes related to products, solvency and corporate governance. Here KLP has good and established processes within the respective areas. In recent years, the company has also focused on the increasing demand for changes to privacy policies and regulation related to financial crime, including anti-money laundering and sanctions regulations. This work has included technical adjustments, development of appropriate operational procedures, training activities and some organisational changes.

Within the privacy area, this has meant not only ensuring built-in privacy in established solutions, but also building a culture of including privacy impact assessments in all development and decision-making processes. This will be an ongoing task in the future too. In the autumn of 2020, analyses related to the transfer of personal data to countries outside the EU received particular attention as a result of the ‘Schrems II’ judgment from July 2020. This EU judgment invalidated the EU-US Privacy Shield Agreement, which covered transfers of personal data from the EU to the USA, and also has implications for transfers to non-EU countries other than the USA.

There have been efforts to ensure good and effective operational procedures for compliance with anti-money laundering and sanctions regulations in recent years. These received a lot of attention in 2020 also, and better and better operational solutions are being established. The organisation concerned with following up on anti-money laundering efforts has been strengthened with the establishment of a new role with overall responsibility for financial crime in the Group. KLP’s core activities generally carry a low risk of money laundering. However, the Group also covers operations where transactions, customer relationships and other factors may involve a higher risk. This topic will therefore be high on the agenda in the future.

Efforts to establish good mechanisms to ensure compliance with both the data protection regulations and regulation related to work against economic crime will take a particularly high priority in 2021.

KLP’s positioning in 2020 aimed to safeguard and develop its position as the best provider of public-sector occupational pensions and to show us as a leading player in corporate social responsibility. KLP started the new decade with a major social responsibility campaign which told how the company works with responsible investments to push for social improvement, and also continued its efforts to broaden awareness of public-sector occupational pensions. The 21st KLP Local Government Conference, with 300 delegates meeting in Trondheim, was a great success.

When the coronavirus pandemic struck Norway in March, communication plans were reworked and in April the company had a new, situation-based communication strategy in place. However, this communication remained true to the long-term goal for the brand - to promote and support those who were now on the front line in the crisis - Norwegian local government and healthcare workers.

In the wake of the lockdown in March, the company embarked on a major effort to digitise customer communications. Conferences, courses, seminars and large strategic meetings had to take a new form, both design-wise and technically. Webinars were produced and given to both members and owners as early as March/April. KLP’s Climate Conference in autumn 2020 took the form of four live broadcasts from the new Deichman library in Oslo.

When the coronavirus pandemic struck, KLP prioritised meeting its owners’ and customers’ need for information about adjustments to the regulations, including how much a person can work while receiving a public-sector occupational pension. Through 2020, KLP also provided frequent information to customers and owners to reassure them during a tough period, including newsletters, webinars and a dedicated coronavirus web page on klp.no. The coronavirus pandemic led to a sharp increase in internal communication. In close cooperation with contingency management, frequent information was provided to employees in the form of intranet case-studies, videos and webinars about the coronavirus.

KLP’s work on simplifying language and communication to customers has produced good results on all criteria the company uses to measure this. KLP evaluated 201 texts in 2020, from different business areas and on multiple channels. Each evaluation was followed up with tailored writing workshops or other measures.

For the second year in a row, KLP’s annual report for 2019 won gold in the 2020 Farmand prizes, in the class for non-listed companies. KLP maintained a high profile in the media as a pension expert and as a leading corporate social responsibility company.

For KLP’s digital customer interfaces, the company focused on measures to increase usability on all platforms. Based on insight and analysis, KLP worked systematically to make it even easier to navigate and complete user actions. KLP has introduced chat and chatbots to make it easier for members to get in touch with the company and get even quicker responses to their queries.

KLP has very satisfied customers. For public-sector occupational pensions, KLP is now at an all-time high for customer satisfaction among both public-sector and corporate customers. All business areas with one exception reached their customer satisfaction target in 2020. Customers are particularly pleased with the service and expertise of KLP. For the corporate non-life insurance market, KLP is at the top of EPSI’s customer satisfaction barometer for the tenth year in a row.

Results from the customer satisfaction survey in the retail market are above the targets in the group strategy in two out of three business areas and otherwise show stable customer satisfaction.

KLP’s main task is to maintain the company’s leading position as a provider of pensions to the public sector and enterprises affiliated to it, through competitive returns, low costs and high service levels. KLP now faces a number of business opportunities and challenges:

• A desire for continued streamlining of the business to further reduce the costs to customers.
• The need for good advisory services for members and employers in response to increasing overall complexity and wider choice.
• Increased competition, as well as increased awareness and knowledge about pensions and savings in the population could change the market situation in the longer term.
• New technological opportunities mean that we can use our strong position to create further value-added services for our customers and members.

These strategic goals call for aggressive business and technological development. KLP’s IT function will help to speed up the pace of digitisation, in order to be at the forefront of development. KLP uses both new and existing technology to streamline the business and to provide good digital services for employers and members.

KLP will leverage its unique insights into public-sector occupational pensions to develop value-added services through greater efficiency and automation. KLP has therefore launched one of the most comprehensive digitisation initiatives in the industry. Digital services for customers and members should ensure that the company is perceived as the best player within public-sector occupational pensions. Major priorities will be increased automation and self-service through the creation of a new pension platform, as well as new cloud-based solutions for a digital customer interface and a data warehouses, among other things. Work is well under way.

KLP’s IT department has solid expertise in the pension area and the systems that KLP uses today. However, in order to succeed, significant changes must be made in technology, processes and organisation. The technology boost now being implemented requires significantly more implementation capacity than KLP has internally. Strategic partnerships with external players are an essential means of ensuring that we attain sufficient speed in the extensive development work to be carried out.

The EU has produced an action plan for sustainable finance which aims to promote sustainable investments. An important part of the action plan is the EU taxonomy. This is a classification system that will be used to assess whether something is “green” or not. This is an important contribution from the EU to reducing greenwashing and grey areas in determining what is sustainable and what is not, and will have a huge impact on KLP going forward. KLP is required to report in accordance with the EU taxonomy from December 2021.

In September 2020, the consultancy PwC released a report assessing the way in which Norway’s 100 largest companies are working and reporting on climate issues. From a review of publicly available material and reporting, each company is placed in a category based on an overall assessment. KLP was placed in the category with the best overall rating and is one of four companies that can show cuts in emissions in line with the Paris Agreement. We are working systematically to reduce the climate footprint of our property management, lending and investments in other companies.

In 2020, the Board of Directors adopted a new criterion for exclusion as an instrument for KLP as a responsible investor. This criterion states that the company will make due diligence assessments of the investments and may decide to exclude companies on this basis if there is an unacceptable risk of them contributing to a breach of the KLP funds’ policies based on a combination of country, industry and company risk.

Climate change is one of the biggest challenges that we face, and climate-related developments pose a potential risk to financial stability. That is why climate is a topic KLP chooses to place high on the agenda. Of the various sustainable development goals, Goal number 13, “Climate action”, is the one that KLP considers most important to attain. One thing KLP needs to do to achieve this goal is to make climate-friendly investments. One of KLP’s goals is to maintain an investment portfolio in line with the ambitions of the Paris Agreement, and the company is actively working to understand the climate risks that affect pension capital and how the company can exert a positive influence.

KLP also aims to increase climate-friendly investments by at least NOK 6 billion each year. This is an important part of KLP’s investment portfolio and investments that contribute to a genuine move towards a sustainable society. In 2020, KLP increased climate-friendly investments by NOK 8.8 billion, thereby surpassing its target by a good margin. The company has a significantly lower carbon footprint than our benchmark indices, which means that KLP finances only a small share of the world’s emissions.

Investments in climate-friendly infrastructure projects which set KLP apart from other pension providers. KLP uses the leverage it gains from having over NOK 807 billion under management to contribute to faster progress towards a sustainable society, by directing investments at sustainable businesses and solutions. In total, KLP has invested NOK 52.2 billion (8 per cent of KLP’s total investments) in climate-friendly investments in Norway and abroad. KLP has a firm desire to continue investing in the green transformation in Norway and is constantly looking for new investment opportunities.

In early 2020, KLP published the document “KLP’s expectations as an investor”. This sums up KLP’s expectations of the companies we invest in; they should have profitable business models that are not harmful to people or the environment, and that contribute towards the achievement of globally adopted goals for a sustainable future. The document is a basis for discussions on responsible and sustainable wealth creation that KLP has with many companies. In 2020, KLP held meetings with and monitored several companies in relation to workers’ rights, equality, taxes, and human rights violations in China.

KLP made determined efforts in 2020 to increase the number of company dialogues. One discussion that attracted attention was when KLP, along with several other investors, protested in the summer against increasing deforestation in Brazil through a joint open letter to the Brazilian authorities. The letter expressed concern about the depletion of the rainforest and the serious negative developments in the country concerning the environment and human rights. The letter grabbed the attention of the Brazilian authorities. A conference call was then held between the governor of the Central Bank of Brazil and KLP’s CEO. KLP also attended meetings with the vice president and members of the government and members of congress in Brazil.

Another dialogue KLP has taken an active part in is the promotion of infant formula. According to Save the Children, some countries engage in dubious marketing of formula milk. In many cases, the practice is harmful to health and potentially fatal to the children, because the powder is often mixed with dirty water. Infant formula is produced, marketed and sold by several companies that KLP has invested in. KLP therefore takes the issue seriously, and is following this up with the companies and other relevant players. The right of children to good health is an important and concrete issue under Sustainability Goals 2, “Zero hunger” and 3, “Good health”. Through our dialogue, with companies such as Nestlé, Danone, Abbot, Kraft and RB, KLP hopes to contribute to positive changes and to raise awareness of the issue.

KLP Banken issued green loans for a total of NOK 1.15 billion in 2020. Altogether, this gave a market share of just over 56 per cent for green loans to municipalities, county municipalities and companies with public-sector affiliation. One of the largest loans went to new hybrid ferries in Møre og Romsdal county municipality. Since the loan programme was established in April 2019, KLP Banken has lent almost NOK 2.1 billion to sustainable projects in the municipalities.

In 2020, KLP Skadeforsikring continued its work on claim prevention with customers, with a particular focus on the challenges associated with fires in municipal rental properties. There has been a lot of attention on waste management in public buildings, and the measures that need to be taken to ensure full compensation in the event of a fire. One area that still concerns the attention of the municipalities is the possibility of preventing fires in municipal rental properties.

Through KLP’s working environment network, several municipalities have fostered effective steps towards a health-promoting working environment and lower sickness absence, despite Covid-19. In 2020, KLP launched a sick leave calculator for the municipalities, a tool which enables them to see the benefits of efforts to promote health and reduce absence through sickness. The calculator allows the individual authority to get a better overview of the economic potential of reducing sickness absence.

Health-promoting workplaces are also high on the agenda in health enterprises, with a broad focus on cooperation to achieve this. In collaboration with the Centre for Senior Policy, NSF, Spekter, Fagforbundet and Unio, KLP will participate in a research project to build up knowledge about how to keep important professional groups within healthcare in employment for as long as possible. KLP is also working with students from various universities to develop the “Dialogskaper”, a digital tool for tackling and talking about the working environment in their own workplaces.

KLP’s Local Government Conference was held the week before the Norway locked down in March. The Local Government Climate Conference took the form of four interactive live broadcasts in the autumn. The aim remained the same; to provide the principal forum for climate work in the Norwegian local government sector each autumn. Many people watched the broadcasts live or in recordings, and the positive response suggests that KLP’s conference broadcasts will focus on climate in 2021 also. During the broadcasts this autumn, KLP presented its climate prize to the municipalities for the second year. This year’s prize went to Hå municipality in Jæren, for its project to produce biogas from cow dung. Second place went to Vestland county municipality and their project to electrify taxi services in the county. Hamar municipality took third place for Norway’s first circular economy industrial park.

In 2020, KLP joined Skift - the climate initiative for Norwegian business. This is a network of Norwegian companies which aims to drive efforts to reach the country’s climate targets by 2030, in order to ensure competitiveness and also to accelerate the green transformation.

The past year was naturally marked by the coronavirus pandemic, and KLP was no exception. For the company, operations have generally gone on as normal, even though all employees worked from home for much of the year.

In order to ease the situation for customers, emergency loans have been offered to municipalities, and our shopping centre tenants have had their rents reduced.

The company’s employees are the most important input factor for KLP to achieve its targets, so the health, safety and well-being of the employees is important if injuries and undesirable effects are to be avoided. The aim is to facilitate a good physical and psychosocial working environment characterised by job satisfaction. These are important prerequisites for good quality work, better results for the business, greater competitiveness, customer confidence and individual enthusiasm for work. No serious occupational accidents were reported in 2020.

KLP has a target to keep sickness absence below 4.0 per cent. Absence through sickness in 2020 totalled 3.24 per cent, which means that we have reached the target for the second year in a row. Like many other businesses, KLP has also seen lower levels of sickness absence during the coronavirus pandemic. A lot of the work and discussions within KLP have been about how to prevent illness and ill-health as a result of working from home. A number of measures have been taken to contribute to the best possible physical and psycho-social working environment in people’s home offices. There has also been a focus on providing managers with the expertise and support to take good care of their employees through these unusual times.

3.8 per cent of the employees left KLP in 2020.

The employee survey for 2020 shows that KLP still scores high on job satisfaction and commitment. Webinars have been given for managers and employees to raise awareness of what is needed to create a good working environment at a time when we are working from home.

KLP wants to be an attractive workplace where all employees feel that they are respected for who they are, regardless of gender, ethnicity, religion, beliefs, disability, sexual orientation, gender identity, gender expression, age and other vital attributes.

KLP collaborates with FRI (the National Association for Lesbians, Gays, Bisexuals and Transgender People) to run the course on ‘Pink Competence’. The aim is to give staff and managers good advice and ideas on how to talk confidently about sexual orientation and gender expression in the workplace. KLP aims to be an inclusive workplace where people can be themselves. KLP is also a member of the Network for LGBT people (the collective term for lesbian/gay/bisexual/transgender persons) in the workplace, which consists of employers who wish to engage with this issue related to working life.

The induction programme for new employees takes them through KLP’s core values, ethical guidelines and policy for equal opportunities and diversity.

KLP aims to have a gender balance in the company, and is making special efforts to achieve this in executive posts and more responsible positions. The goal is to have at least 40 percent of each gender among managers. On average at all management levels, this goal has been achieved in 2020, but have different distributions at the different management levels. KLP aims to work systematically to achieve a gender balance and has initiated several measures in this area. These initiatives are related to recruiting and capturing female candidates in recruitment processes, the digital job fair #Osskvinner, internship programmes, salary processes with a continued strong focus on equal pay, management development, changing employee attitudes and identifying and developing talented individuals.

KLP’s aim is to offer its employees good, market-matching salary and employment terms and conditions. The subsidiary KLP Kapitalforvaltning AS operates in markets where part of the salary is based on profits achieved and therefore offers salaries that are partly performance-based to employees who have direct responsibility for profits. In accordance with the regulations, payment of this remuneration is spread over several years and is partly linked to the growth in value in selected securities funds, because KLP as a mutual company does not have its own exchange-listed equity instruments. There is no performance-based pay anywhere else in the Group.

KLP’s impact on the external environment and climate comes directly from its own activities, indirectly through partners and suppliers, and through investments in companies and property. KLP has ambitious goals to reduce this footprint. As regards the company’s own operations, KLP’s overall goal is to halve greenhouse gas emissions from 2010 levels by 2030. KLP is well placed to meet this reduction target. This is described in more detail in the Sustainability Report.

The Government and the social partners agreed on a new pension scheme in March 2018, to take effect from 1 January 2020. The aim of a new old-age pension model is that it should give better support during working life and provide for greater mobility between the public and private sectors.

The public-sector pension schemes are anchored partly in law and partly in collective agreements between the employer and employee organisations.

New rules on retirement pensions for members with special age limits are still pending. This also applies to the AFP system, which is changing in 2025 from an early retirement scheme to a lifetime pension benefit, following the pattern from the private sector.

There have been no changes to the Board. The former Deputy Governor of Norges Bank, Egil Matsen, joined the Board as a substitute director in 2020.

KLP prizes good dialogue with its owners. This provides the company with important input to strategic questions and useful feedback on day-to-day operations. As before, KLP arranged owner meetings around the country in 2020 too. The company also attended directors’ meetings in the health enterprises. Semi-annual resource group meetings were also held for councillors/ municipal directors. Resource group meetings for local authority chief executives were also held.

KLP’s articles of association and applicable legislation provide guidelines for corporate governance and management, and define a clear division of roles between governing bodies and executive management. The Board of Directors of KLP carries out an annual review of corporate governance (NUES). As KLP has not issued any equity instruments and so is not exchange-traded, there will be some differences from the Norwegian Code of Practice for Corporate Governance (NUES) as set out in a separate section of the annual report. Election procedures for the corporate assembly are tailored to the direct form of ownership with important stakeholder groups having assured representation on the corporate assembly, in accordance with the company’s Articles of Association.

The Board of Directors has established an Audit Committee, a Remuneration Committee and a Risk Committee. The Board undertakes an annual assessment of its own business and competence.

The company’s vision is for KLP to be the best partner for the days to come. This is a picture of how the company wants owners and customers to see KLP strengthening their finances, simplifying their everyday lives, helping to make customers attractive employers and contributing to a more sustainable public sector. The key to this work are the values: Open, Clear, Responsible and Committed, which all staff should reflect in their dealings with the company’s customers and colleagues.

KLP aims be a pension provider which differentiates itself from other companies operating in the same markets. KLP’s mutual status provides the best starting point for ensuring that any value added will benefit the member businesses. When the company runs at a profit, this is used to lower premiums or boost financial strength, or passed on to member companies in the form of lower costs. The result is reduced payments to KLP. This leaves more money for schools and hospitals, or other priority tasks that our member companies are responsible for. The way in which KLP runs its business therefore has a direct impact on how they discharge their social obligations. In short: “All wealth creation should accrue to the customers. KLPs job is to deliver the best possible services at the lowest possible price.”

KLP’s main goal is to be Norway’s leading provider of pensions to the public sector. KLP aims to deliver secure and competitive pension, financial and insurance services to the public sector, enterprises associated with it, and their employees. KLP’s most important task is therefore to provide pensions with a competitive rate of return over time, the lowest costs and a high level of service. The company’s pension experts have over 10,000 individual pension discussions each year and the customer service desk takes more than 200,000 phone calls.

Managing large assets on behalf of the community carries an obligation. KLP’s management of savings is very important to the company’s customers and owners, but also indirectly to many more people in Norway and abroad. By making capital available, KLP enables companies to grow and create new products and jobs. With this comes increased social responsibility. KLP is fortunate to have committed owners who provide clear direction for how KLP should use the capital responsibly in its investments. Corporate social responsibility is on the agenda for the company every day and in every part of the business.

KLP is a knowledge company with more than 1,000 employees. KLP can and should become more visible as a pension expert so the company’s broad expertise can also benefit others. Pensions have been an increasingly important topic in the media and in the general public debate in recent years. As an expert in this area, KLP will work actively to improve access to knowledge and expertise on pensions and savings. KLP aims to be perceived as a credible and skilled pension adviser – the company’s goal is to be the best.

Major structural changes in the local government sector and changes in our main product, public-sector occupational pensions, each place demands on KLP’s strategic readiness and ability to get better and more efficient. Risk assessments and monitoring are carried out in order to identify the impact that this could have on KLP’s operations, and measures to address this development.

KLP is currently developing new and more efficient technological solutions and adapting its skills to stay competitive. The company is striving bring costs down still further. A good overall customer experience is being developed on the basis of what provides the best customer value. Customers expect self-service solutions and seamless processes with user-friendly interfaces and short response times.

The world is facing major sustainability issues at the local and global level. KLP is part of this picture, and these challenges involve both risks and opportunities. KLP will actively use the powers of influence that the company has, as Norway’s largest life insurance company, in the work for a more sustainable environment. The desire to make a difference in social responsibility and sustainability is central to KLP’s daily operations. An active engagement with society, the environment and responsible investments should contribute to a good development in a long-term perspective. Social responsibility is integrated into all business processes through e.g. responsible management of pension assets, work on ethics and high environmental standards in buildings that KLP owns. KLP has socially engaged owners who want the company to both ensure a good predictable return and also to lead the industry in social responsibility. Above all, the owners want KLP to contribute to achieving the UN Sustainable Development Goals.

With good financial strength, KLP is well positioned to further develop the business in a way that will continue to create good long-term values for customers, owners and their employees.