KLP Group
Income statement KLP Group
| NOTE | NOK MILLIONS | 2023 | 2022 |
|---|---|---|---|
| 11 | Insurance income | 1 780 | 3 743 |
| 12 | Insurance service charges | - 3 635 | - 3 677 |
| 13 | Income and costs from reinsurance | - 71 | 418 |
| Insurance service result | - 1 925 | 485 | |
| 14,18 | Net income from investments measured at fair value with changes in P/L | 76 263 | -38 936 |
| 15,18 | Net income from investments not measured at fair value with changes in P/L | 78 | 8 748 |
| 16,18 | Fair value adjustment investment properties and rental income | -2 547 | 6 558 |
| 17,18 | Net income from associated companies and joint ventures | 504 | 310 |
| Net interest income banking | 468 | 371 | |
| Unit holder's value change in consolidated securites funds | -27 286 | 15 966 | |
| Total net income | 47 480 | -6 985 | |
| 18 | Policyholder's share of changes in fair value of underlying items | -44 179 | 24 823 |
| 18 | Other insurance related financial cost | -42 | 49 |
| Net insurance related financial cost | -44 221 | 24 872 | |
| Net insurance services and financial result | 1 334 | 18 372 | |
| Net costs subordinated loan and hybrid Tier 1 securities | -463 | -169 | |
| Operating expenses | -1 124 | -968 | |
| Other income | 77 | 57 | |
| Other expenses | -77 | -77 | |
| Pre-tax income | -253 | 17 216 | |
| 21 | Cost of taxes 1 | -1 031 | -826 |
| Income | -1 284 | 16 389 | |
| 30 | Actuarial loss and profit on post employment benefit obligations | -146 | 132 |
| 21 | Tax on items that will not be reclassified to profit or loss | 22 | -17 |
| Items that will not be reclassified to profit or loss | -125 | 115 | |
| 18 | Revaluation real property for use in own operation | -308 | -43 |
| 16,18 | Currency translation foreign properites | 2 139 | 148 |
| 21 | Tax on items that will be reclassified to profit or loss | 77 | 11 |
| Items that will be reclassified to income particular specific conditions are met | 1 908 | 116 | |
| Total other comprehensive income | 1 784 | 231 | |
| Total comprehensive income 2 | 499 | 16 621 | |
| 1 Unit holders share of taxes in consolidated security funds | -375 | -359 | |
| 2 From and including 2023, the KLP group will submit accounts according to the new accounting standard IFRS 17 Insurance contracts. The new standard takes into account the fact that KLP is mutually owned, and the policyholders on public occupational pensions are entitled to all value creation in the group. This means that according to IFRS 17 the group has no equity and that the result will be zero. However, the group has reported an equity as of 31.12.2023 of minus NOK 3,140 million. This equity arises as a result of the fact that the policyholders are entitled to the fair value of all assets and liabilities in the business, but certain asset and liability items are not accounted for at fair value. This creates a valuation difference that constitutes equity in a mutual insurance company. The period's change in valuation difference NOK 499 million, will thus appear as a result. | |||
Financial position statementKLP Group
| NOTE | NOK MILLIONS | 31.12.2023 | 31.12.2022 | 01.01.2022 |
|---|---|---|---|---|
| 21 | Deferred tax assets | 48 | 48 | 52 |
| 22 | Other intangible assets | 1 379 | 1 049 | 797 |
| 23 | Tangible fixed assets | 2 277 | 2 633 | 2 714 |
| 17 | Investments in associated companies and joint venture | 6 620 | 5 456 | 4 934 |
| 16,26 | Investment property | 92 322 | 93 992 | 89 535 |
| 24 | Reinsurance contract assets | 728 | 736 | 340 |
| 9,25 | Fixed income securitites and other debt instruments at fair value | 410 569 | 181 802 | 188 172 |
| 9,25 | Fixed income securitites and other debt instruments at amortized costs | 2 254 | 198 752 | 190 469 |
| 9,25,26,28 | Lending local government, enterprises & retail customers at fair value through profit / loss | 81 136 | 0 | 79 |
| 9,25,26 | Lending local government, enterprises & retail customers at amortized costs | 42 860 | 121 360 | 118 024 |
| 25,26 | Equity capital instruments at fair value through profit/loss | 354 757 | 282 399 | 294 476 |
| 9,25,26,27 | Financial derivatives | 15 587 | 6 820 | 3 253 |
| 25 | Receivables | 2 674 | 1 700 | 4 756 |
| 9 | Cash and bank deposits | 3 509 | 3 321 | 3 388 |
| TOTAL ASSETS | 1 016 721 | 900 068 | 900 990 | |
| 25,29,32,33,36 | Hybrid Tier 1 securities | 1 434 | 1 428 | 1 604 |
| 25,29,33,36 | Subordinated loan capital | 3 327 | 3 147 | 3 000 |
| 30 | Pension obligations | 913 | 815 | 870 |
| 31 | Insurance obligations with the right to residual value | 762 789 | 686 834 | 697 685 |
| 31 | Other insurance liabilities | 3 392 | 3 181 | 2 586 |
| 25,33,36 | Covered bonds issued | 30 504 | 32 430 | 31 015 |
| 25,33,36 | Debt to credit institutions | 13 041 | 6 683 | 4 199 |
| 26,33 | Liabilities to and deposits from customers | 14 060 | 13 779 | 12 901 |
| 25,26,27 | Financial derivatives | 3 249 | 3 158 | 4 740 |
| 21 | Deferred tax | 1 187 | 1 138 | 1 397 |
| 37 | Other current liabilities | 6 036 | 4 248 | 11 739 |
| 38 | Equity | -3 140 | 8 396 | -8 186 |
| Unit holders`s interest in consolidated securites funds | 179 929 | 134 831 | 137 440 | |
| TOTAL EQUITY AND LIABILITIES | 1 016 721 | 900 068 | 900 990 | |
| 41 | Contingent liabilities | 31 409 | 31 567 | 28 754 |
| Oslo, 20. March 2024 | ||
|---|---|---|
| The Board of Directors of Kommunal Landspensjonskasse gjensidig forsikringsselskap | ||
| TINE SUNDTOFT | KJERSTIN FYLLINGEN | EGIL MATSEN |
| Chair of the Board | ||
| TERJE ROOTWELT | ODD HALDGEIR LARSEN | RUNE SIMENSEN |
| Deputy Chair of the Board | ||
| VIBEKE HELDAL | ERLING BENDIKSEN | |
| Elected by and from among the employees | Elected by and from among the employees | |
| SVERRE THORNES | ||
| CEO | ||
| Signed digital | ||
Changes in owner’s equityKLP Group
| 2023 NOK MILLIONS | Equity |
|---|---|
| Owners’ equity 31 December 2022 | 8 396 |
| Change of principle 01.01.2023, IFRS 9 1 | - 12 035 |
| Owners’ equity 1 January 2023 | - 3 639 |
| Income | - 1 284 |
| Items that will not be reclassified to income | - 125 |
| Items that will be reclassified to income later when particular conditions are met | 1 908 |
| Total other comprehensive income | 1 784 |
| Total comprehensive income | 499 |
| Owners’ equity 31 December 2023 | - 3 140 |
| 2022 NOK MILLIONS | Equity |
|---|---|
| Owners’ equity 31 December 2021 | 40 732 |
| Change of principle 01.01.2022, IFRS 17 1 | - 48 918 |
| Owners’ equity 1 January 2022 | - 8 186 |
| Income | 16 389 |
| Items that will not be reclassified to income | 115 |
| Items that will be reclassified to income later when particular conditions are met | 116 |
| Total other comprehensive income | 231 |
| Total comprehensive income | 16 621 |
| Other changes | - 39 |
| Owners’ equity 31 December 2022 | 8 396 |
| 1 For more information see the annual report 2022, note 37, points 37.1.11 and 37.2.5 Transitional effects. | |
Statement of cash flow KLP Group
| NOK MILLIONS | 2023 | 2022 |
|---|---|---|
| CASH FLOW FROM OPERATING ACTIVITES | ||
| Direct insurance premiums received | 60 044 | 40 882 |
| Reinsurance premiums paid | -164 | -97 |
| Direct insurance claims and benefits paid | -27 441 | -24 765 |
| Reinsurance settlement received for claims and insurance benefits | 116 | 120 |
| Payments received on transfer | 92 | 0 |
| Payments made on transfer | -2 122 | -4 628 |
| Payments to other suppliers for products and services | -1 121 | -2 250 |
| Payments to staff, pension schemes, employer's social security contribution etc. | -1 417 | -1 236 |
| Interest paid | -2 825 | -1 270 |
| Interest received | 16 553 | 10 398 |
| Dividend received | 2 168 | 1 278 |
| Tax and public charges paid | -1 266 | -956 |
| Payments from property operations | 4 582 | 4 107 |
| Net receipts/payments of loans to customers etc. | -1 027 | -1 828 |
| Net receipts on customer deposits banking | 282 | 878 |
| Receipts on the sale of shares | 117 785 | 151 621 |
| Payments on the purchase of shares | -127 596 | -106 361 |
| Receipts on the sale of bonds and certificates | 73 509 | 88 854 |
| Payments on the purchase of bonds and certificates | -120 826 | -134 272 |
| Receipts on the sale of property | 4 | 148 |
| Payments on the purchase of property | -2 559 | -1 104 |
| Net cash flow from purchase/sale of other short-term securities | 2 555 | -4 958 |
| Net cash flows from operating activities | -10 675 | 14 562 |
| CASH FLOW FROM INVESTMENT ACTIVITIES | ||
| Payments on the purchase of tangible fixed assets etc. | -476 | -349 |
| Net cash flows from investment activities | -476 | -349 |
| CASH FLOW FROM FINANCING ACTIVITIES | ||
| The minority's share of operational activities | 12 247 | -16 738 |
| Receipts on loans from credit institutions | 7 200 | 7 150 |
| Disbursements on loans from credit institutions | -9 306 | -5 690 |
| Receipts of owners’ equity contributions | 1 230 | 1 120 |
| Payments on repayment of owners’ equity contributions | -69 | -138 |
| Net cash flows from financing activities | 11 304 | -14 296 |
| Net changes in cash and bank deposits | 152 | -83 |
| Effect of exchange rate changes on cash and cash equivalents | 36 | 17 |
| Holdings of cash and bank deposits at start of period | 3 321 | 3 388 |
| Holdings of cash and bank deposits at end of period | 3 509 | 3 321 |
Notes to the accountsKLP Group
Note 1 General information
Kommunal Landspensjonskasse gjensidig forsikringsselskap (the company) and its subsidiaries (together the group) provide pension, financial, banking and insurance services to private individuals, municipalities and county administrations, health enterprises and to enterprises both in the public and private sectors.
The largest product area is group pensions insurance. Within pension insurance the group offers local government occupational pensions, defined benefit pensions and defined contribution pensions. In addition the group offers group life and non-life insurance, banking services, fund and asset management.
Kommunal Landspensjonskasse (KLP) is a mutual insurance company registered and domiciled in Norway. The company has its head office in Dronning Eufemias gate 10, Oslo.
The Group's annual financial statements, approved by the board on 20 March 2024, may be accessed at www.klp.no.
The group has subordinated loans listed on the London Stock Exchange and part of the groups' issued covered bonds are listed on Oslo Stock Exchange.
Note 2 Material accounting policy information
This note describes the most important accounting principles used in the consolidated financial statements. These principles have been used consistently for all periods presented unless indicated otherwise.
2.1 FUNDAMENTAL PRINCIPLES
The consolidated financial statements for KLP have been prepared in accordance with IFRS® accounting standards, as approved by the EU, with additions set out in the Norwegian Regulations on annual accounts for insurance companies.
To prepare the financial statements in accordance with IFRS accounting standards, management has to make accounting estimates and discretionary valuations. This affects the value of the Group’s assets and liabilities, income and expenses recognised in the financial statements. Actual figures may differ from estimates used. Areas in which discretionary valuations and estimates have been used that are of material significance for the Group are described in Note 3 Important accounting estimates and valuations.
All amounts are presented in NOK millions without decimals unless indicated otherwise.
The financial statements have been prepared in accordance with the going concern assumption.
2.1.1 Changes in accounting principles and disclosures
a) New and amended standards and interpretations which came into effect in 2023
There is one new international accounting standard which came into effect for the financial year starting 1 January 2023 and have been adopted by the Group. This is IFRS 17 Insurance Contracts. The Group has also adopted IFRS 9 Financial Instruments.
- IFRS 17 Insurance Contracts
The new standard for insurance contracts was adopted by the Group from 1 January 2023, and comparative figures for 2022 have also been restated. The definition of what constitutes an insurance contract has not changed, but there have been some clarifications that define what is a qualifying contract to be handled according to IFRS 17. The standard also includes rules on how insurance contracts should be valued and presented. New and extended note requirements have also come in with the introduction of the standard.
For insurance contracts, the principles in the standard require the use of discretion and a number of other interpretations, including the definition of who is the policyholder, and whether issued insurance contracts contain investment components.
The effect of the transition on 1 January 2023 was shown with preliminary figures in Note 37 to the annual accounts for 2022. No significant changes in the opening balance have emerged since that time.
- IFRS 9 Financial Instruments
This standard was adopted by the Group from 1 January 2023. The standard covers the recognition, classification, measurement and derecognition of financial assets and liabilities, and introduces new rules for hedge accounting and a new impairment model for financial assets. IFRS 9 has been implemented prospectively, i.e. comparative figures for previous periods have not been restated. The effect of the transition on 1 January 2023 was shown with preliminary figures in Note 37 to the annual accounts for 2022. No significant changes in transition effects have been found since then - IAS 12 has been amended to make it clear that the global minimum tax (top-up tax, Pillar Two tax) is covered by the accounting standard. However, the effect of this tax on deferred tax does not yet have to be recognised or disclosed. Although this is a mandatory exception, it must be stated that the exception has been applied. Tax payable has to be accrued in the same way as other tax payable and the amount disclosed separately. In the period from the time the tax is adopted until it is actually imposed, there are separate disclosure requirements.
Top-up tax has been introduced in Norway from the fiscal year 2024. The regulations are complex, and it is unclear whether KLP is covered by the rules. Work is in hand to clarify this. It is therefore impossible to give an estimate of the effects the top–up tax will have on the financial statements.
There are no other new or amended IFRS standards or IFRIC interpretations that have come into effect for the 2023 financial year which materially affect the Group’s financial statements
b) Standards, changes and interpretations of existing standards that have not yet entered into force and where the Group has not opted for early application:
There are certain changes in standards and interpretations which take effect for annual accounts beginning on 1 January 2024 or later and which have not been adopted in these accounts. These are not expected to have a significant impact on the accounts.
2.2 INSURANCE CONTRACTS
2.2.1 Main types of issued insurance contracts and purchased reinsurance contracts.
The Group issues the following contracts that are accounted for in line with IFRS 17 Insurance Contracts:
- Life insurance – direct-participation contracts where the policyholder is entitled to net assets.
- These are contracts that include life insurance cover and an investment component. Policyholders are entitled to net assets in the business.
- The Group accounts for these contracts in line with the variable fee method with the adjustments resulting from KLP’s status as a mutual insurance company.
- Issued contracts in the non-life insurance area:
- These contracts include comprehensive and liability cover within personal injury and material damage insurance with a coverage period of up to one year.
- The Group accounts for these contracts in line with the premium allocation method.
- Purchased reinsurance contracts:
- The Group has purchased reinsurance contracts to reduce its risk exposure within non-life insurance.
- The Group accounts for these contracts in line with the premium allocation method.
2.2.2 Definitions and classification
Products sold by the Group are classified as insurance contracts when the Group accepts significant insurance risk from a policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. This assessment is made at the contract level on the contract issue date. In this assessment, the Group considers all of its material rights and obligations, whether they are contractual, legal or regulatory.
The Group determines whether a contract contains significant insurance risk by assessing whether:
- an insured event could mean significant additional amounts would be payable in any scenario that has commercial substance, even if the insured event is extremely unlikely, or
- the expected present value of the contingent cash flows is a small proportion of the expected present value of the remaining cash flows from the insurance contract.
2.2.2.1 Products
The Group offers life and non-life insurance products.
The Group’s life insurance contracts consist of public-sector occupational pensions. These contracts entitle policyholders (current and future) to net assets of the business. There is also risk sharing between contracts. The business is mutually owned and IFRS 17 states that the policyholders’ share of net assets must be measured at fair value and form part of the insurance obligation.
As the residual value of the business is allocated to current or future policyholders, there is no equity in mutual undertakings under IFRS 17, with the exception of measurement differences. Measurement differences arise because policyholders’ share of net assets is measured at market value, while some assets and liabilities cannot be measured at fair value, or another permitted measurement principle has been chosen. The profit/loss to the Group thus consists entirely of the change in measurement differences in the period.
Mutual entities do not have a contractual service margin (CSM), as there is no service margin or profit to the enterprise. Instead of equity and CSM, the Group shows a residual value on the balance sheet which represents the policyholder’s capital in excess of the best estimate of the liabilities including risk adjustment (adjustment for non-financial risk). Changes in residual value represent the profit to policyholders in excess of the expected allocation to the premium fund.
In a mutual entity where the policyholder receives and is unconditionally liable for all residual value in the enterprise, all cash flows for performance of the insurance contract are unconditional probability-weighted expectations. KLP has the right to collect payments from policyholders with residual value in the business if needed. This is a contingent cash flow, and the effect of this right is included in the probability weighting of the cash flows for performance of the insurance contract related to ordinary capital contributions.
The Group has also issued ordinary insurance contracts, i.e. contracts that do not entitle the policyholder to the residual value of the business. These are contracts in the non-life insurance area. These contracts form part of the residual value owned by the policyholders with public-sector occupational pensions. The products offered are in the areas of occupational injury, security and accident, combined fire and burglary, motor vehicle, liability, travel, child cover, group life and individual personal insurance. This part of the business is partially covered through the purchase of reinsurance contracts that cover claims costs above a given amount.
2.2.3 Separation of components from insurance and reinsurance contracts
An insurance contract may contain components such as derivatives or deposits/investments, and obligations to provide goods and non-insurance services. If such components are distinct from the insurance components in the contract, the standard requires the different components in the contract to be separated from the insurance contract itself, for measurement and recognition under other accounting standards than IFRS 17, generally IFRS 9 (Financial Instruments) or IFRS 15 (Revenue from Contracts with Customers).
If the cash flow and the risks associated with the components are mutually dependent on the cash flow and risk in the insurance contract, and cannot be measured separately, the components are not separated from the insurance contracts.
The insurance contracts issued by the Group do not contain any additional components to be separated from the contracts and measured separately.
2.2.3.1 Combination of insurance contracts
An insurance contract with a party may contain several types of cover with different levels of underwriting risk. Where several types of cover are gathered into one contract for practical reasons, and the total price for the contract equals the sum of the prices of the different types sold individually, these will be treated separately in terms of recognition, measurement and presentation.
In cases where multiple contracts have been concluded with the same policyholder at the same time, and where the individual contracts have not been priced independently, the contracts are assessed together for accounting purposes. This applies, for example, to public-sector occupational pensions, which constitute a product package comprising retirement pension, disability pension, spouse's pension, children's pension and early retirement pension (AFP). This product package conforms to laws and tariffs, and the policyholder has to purchase the whole package together. Individual types of cover are not available in the market, nor can they be moved. There is therefore no requirement to separate the different types of cover, and they are considered as a whole.
A contract with multiple types of cover, where the policyholder does not benefit from each separately (e.g. because the different insurances cease at the same time or one ceases if another is terminated), is treated as one contract for accounting purposes. This will be the case, for example, where a policyholder purchases comprehensive/partial damage cover together with liability insurance for motor vehicle and natural perils cover when buying fire insurance.
2.2.4 Aggregation Level
Under IFRS 17, the insurance contracts have to be measured at an aggregated level, and divided into portfolios. A portfolio consists of a set of contracts subject to the same type of insurance risk and managed together.
This means that a product may be split into multiple portfolios based on an assessment of the risk profile of the insured population and how the business is monitored. However, the Group has split the portfolios in such a way that a portfolio cannot contain elements from two different industries. However, one and the same portfolio may contain two or more homogenous risk groups, provided that they belong to the same industry. Insurance contracts issued from different entities in the Group are considered to be managed at the issuing entity level. This is because solvency capital management, which supports the issuance of these contracts, is bounded by these entities.
Each portfolio is divided into groups of insurance contracts which are recognised and measured according to the requirements in IFRS 17. On initial recognition, the Group groups contracts according to when they were issued. A group will contain all contracts issued within a 12-month period. Within the EU/EEA, an exception has been introduced to the rule that insurance contracts issued more than 12 months apart cannot be included in the same group. This exception is subject to certain conditions, and it can only be applied to issued insurance contracts with direct-participation characteristics, and the contracts must be equalised over time. The Group has determined that issued insurance contracts for public-sector occupational pensions meet these requirements, and has therefore made use of the exception. These contracts are therefore grouped into the same portfolio even if they have been issued more than 12 months apart.
In accordance with the standard, the Group divides the portfolios into three groups:
• a group of contracts that are onerous (loss-making) on initial recognition, if any such exist;
• a group of contracts that have no significant possibility on initial recognition of becoming onerous subsequently, if any such exist; and
• a group of the remaining contracts in the portfolio, if any such exist
A contract is considered to be onerous if the sum of the present values of the cash flows, including risk adjustment, associated with the contract is a net cash outflow from the enterprise. The determination of whether a contract or a group of contracts is onerous is based on expectations at the date of initial recognition. If, during the coverage period, a group of contracts is judged to be onerous, the negative difference between unearned premium income and expected claims costs is recognised in the income statement and added to the liability for remaining coverage.
The composition of groups established at initial recognition is not subsequently reassessed.
For non-life insurance contracts that are reported by the premium allocation method, the Group determines that these contracts are not onerous on initial recognition, unless there are facts and circumstances that indicate otherwise.
Where insurance contracts within a portfolio only fall into different groups because of specific restrictions imposed by law or regulation on the Group’s practical ability to set a different price or level of benefits for male and female policyholders, the Group still includes those contracts in the same group.
The Group has not identified any issued insurance contracts that are onerous on recognition, and has no groups with onerous contracts.
2.2.5 Recognition
The Group recognises its groups of insurance contracts from the earliest of the following dates:
• The start of the coverage period for the group of contracts
• The date on which the first payment from a Group policyholder is due (in the absence of a contractual due date, this is taken to be when the first payment is received)
• The date when a group of contracts becomes onerous
2.2.6 Contract boundaries
The measurement of a group of insurance contracts includes all future cash flows expected to arise under each contract in the Group.
In determining which cash flows fall within a contract boundary, the Group considers its substantive rights and obligations arising from the terms of the Contract, and from applicable laws, regulations and customary business practice. The Group determines that cash flows are within the scope of a contract if they arise from substantive rights and obligations existing during the reporting period in which the Group can compel the policyholder to pay the premiums or in which the Group has a substantive obligation to provide the policyholder with insurance contract services.
A substantive obligation to provide insurance contract services ends when the has the practical ability to reassess the risks of the particular policyholder and, as a result, can set a price or level of benefits that fully reflects those risks. If the boundary assessment is carried out at portfolio level rather than individual contract level, the Group must have the practical ability to reprice the portfolio to fully reflect risk from all policyholders. The Group’s pricing does not consider any risks beyond the next reassessment date.
In determining whether all risks have been reflected either in the premium or in the level of benefits, the Group considers all the risks that policyholders would have transferred if the Group had issued the contracts (or the portfolio of contracts) on the renewal date. Similarly, the Group determines its practical ability to set a price that fully reflects the risks in the contract or portfolio on a renewal date by assessing all of the risks it would consider when underwriting equivalent contracts on the renewal date for the remaining service. The assessment of the Group’s practical ability to reprice existing contracts takes account of all contractual, legal and regulatory restrictions. In doing so, the Group disregards restrictions that have no commercial substance. The Group also considers the impact of market competitiveness and commercial considerations on its practical ability to price new contracts and reprice existing contracts. The Group exercises discretion to determine whether such commercial considerations are relevant to deciding whether it has the practical ability at the reporting date.
By estimating expected future cash flows for a group of contracts, the Group applies discretion to assessing future policyholders’ behaviour in exercising the options available to them, e.g. relating to a policyholder’s right to move its insurance contract for public-sector occupational pensions
The Group assesses the contract boundary on initial recognition and at each subsequent reporting date to include the effect of changes in circumstances on the Group’s substantive rights and obligations.
The insurance contracts for public-sector occupational pensions entitle the policyholder to renew the contract each year. The Insurer cannot terminate the contract. When the contract is renewed, the insurer can freely determine the premium for new accruals and regulation of new and previous earnings, but the company cannot reprice previous accruals. So the life insurance business cannot reprice all risk, and the contracts are considered to have (infinitely) long contract boundaries.
With a few exceptions, the Group’s contracts within non-life insurance have a contractual term of 12 months with the option to extend. The Group has no obligation to renew the contracts, and may reprice all risk if they are renewed.
2.2.7 Measurement of insurance contracts
2.2.7.1 Measurement on initial recognition for contracts other than those using the premium allocation method
The Group measures a group of contracts on initial recognition as the sum of the expected fulfilment cash flows within the contract boundary and the contractual share of net assets in the Group.
2.2.7.1.1 Cash flows within the contract boundary
These cash flows are objective and probability-weighted estimates of the present value of future cash flows, including an adjustment for non-financial risk. To arrive at a probability-weighted mean, the Group considers several scenarios to establish a range of possible outcomes, to include all reasonable and supportable information available to it without undue cost or effort, concerning the amount, timing and uncertainty of anticipated future cash flows. The estimates of future cash flows reflect conditions that exist at the time of measurement, including assumptions about the future at this date. The Group estimates expected future cash flows for a group of contracts at the portfolio level and allocates them to the groups in that portfolio in a systematic and rational way.
When estimating future cash flows, the Group includes all cash flows within the contract boundary, including:
• Premiums and any additional cash flows resulting from these premiums
• Claims submitted but not yet paid, damages incurred but not yet reported, future claims expected to arise from the policy and potential cash flows from enforcement of future claims covered by existing insurance contracts
• Payments that vary according to the return on net assets
• Claims processing costs
• Policy management and maintenance costs
• Transaction based fees
• An allocation of fixed and variable costs that can be directly attributed to the fulfilment of insurance contracts, including fixed costs such as accounting, human resources, information technology and support, building depreciation, rent and maintenance and tools
• Costs incurred for the provision of investment-related and investment return services to policyholders
• Other costs specifically charged to the policyholder under the terms of the contract.
The Group’s issued public-sector occupational pension contracts are entitled to the fair value of the Group’s net assets and liabilities, and policyholders in different groups share the return on the same pool of underlying items. The Group determines each group’s share of the returns from the underlying items by first determining the total return at a higher level of aggregation than the groups, and then making an allocation to each group on a systematic and rational basis.
Cash flow estimates include both market variables, which are consistent with observable market prices, and non-market variables, which are not contrary to market information and are based on internal and externally derived data.
The Group updates its estimates at the end of each reporting period using all newly available information, as well as historical evidence and information on trends. The Group sets its current expectations for the probabilities of future events occurring at the end of the reporting period. When developing new estimates, the Group takes account of the latest and previous experience, as well as other information.
2.2.7.1.2 Discount rates
The time value of money and financial risk is measured separately from expected future cash flows with changes in financial risk recognised at the end of each reporting period.
The Group measures the time value of money using discount rates that reflect the liquidity characteristics of the insurance contracts and the characteristics of the cash flows in terms of timing and currency, based as far as possible on observable current market prices. Factors that could affect the discount rates but do not affect the cash flows for the contract are not taken into account.
To determine discount rates for the contract cash flows, the Group uses the bottom-up approach. This is based on swap rates for sufficiently liquid points on the swap curve. The last liquid point is the 10-year interest rate. The source is the same as EIOPA uses to calculate the Solvency II curve. An estimated illiquidity premium is added to reflect the degree of liquidity in the insurance contracts. The illiquidity premium is estimated from a benchmark portfolio of Norwegian government and credit bonds as a residual after estimating the credit premium. These liquid interest points are interpolated and extrapolated against an estimate of long-term interest rates to form a full interest rate curve. The long-term level is derived from historical data for real interest rates, long-term economic growth and Norges Bank’s inflation target.
There is estimate uncertainty in the assessment of illiquidity in insurance products, illiquidity and credit premiums in the benchmark portfolio, the estimates of long-term interest rates and the rate of convergence with the long-term level.
2.2.7.1.3 Risk adjustment for non-financial risk
The Group measures the compensation (reservation price) it will require to bear any non-financial uncertainty about the amount and timing of cash flows arising from insurance contracts. This must be made explicit as an adjustment for non-financial risk in the expected, best estimates for cash flows. The reservation price reflects the subjective attitude to such risk; it is differentiated by time horizon, and makes the business indifferent to taking such risk in the balance sheet. The residual value should be confidence-equivalent to the non-financial risk after the risk adjustment.
Non-financial risk is insurance risk, cost risk, business risk (particularly in the part of the contract for which premiums have not yet been agreed), and estimate risk. The estimate risk is especially high for the part of the contract associated with new accruals far into the future. The risk adjustment is calculated for each expected cash flow and aggregated into a present value. For cash flows related to the marginal effect of new entitlements many decades into the future, the risk adjustment is so large that the amount does not affect the current residual value.
A mutual enterprise does not make a profit and does not enter into contracts with a view to earning risk-adjusted revenues; its purpose is to deliver consistently low pension costs for policyholders. The total risk adjustment for the insurance contracts where policyholders are entitled to net assets is a percentage of the liabilities and corresponds to a confidence level. As a mutual enterprise does not take any profit margins for bearing non-financial risk, the confidence level is expected to represent a residual value that is confidence-equivalent and reflects the fact that insurance risk is covered by the collective at cost. This pulls the confidence level up compared to non-mutual enterprises. Estimate risk associated with long contract boundaries for public-sector occupational pension contracts pulls the confidence level up further.
For issued insurance contracts without the right to net assets, the Group entity issuing these contracts has developed a method for calculating the risk adjustment based on a statistical model of insurance risk. The entity has chosen to use the confidence level method, and the statistical model provides a distribution/outcome space for the non-life insurance results.
2.2.7.1.4 Cash flows from acquiring insurance contracts
The Group includes cash flows from insurance acquisitions in the measurement of a group of insurance contracts if they are directly attributable either the individual contracts in a group, the group itself or the portfolio of insurance contracts to which the group belongs.
The Group estimates, at the portfolio level, cash flows from insurance services that are not directly attributable to the group, but are directly attributable to the portfolio. The Group then assigns them to the group of new and renewed contracts on a systematic and rational basis.
According to IFRS 17, acquisition costs incurred for a portfolio or group of contracts are recognised as an asset when they are incurred, prior to recognition of the group of insurance contracts to which these costs are linked. For contracts with a contract boundary of less than one year, there is an option to charge the costs to profit/loss when they arise. The Group does not have any acquisition costs that form the basis for recognising assets.
2.2.7.1.5 Subsequent measurement
In estimating the total future cash flows for the fulfilment of contractual rights and obligations, the Group distinguishes between those related to claims already incurred and those relating to future service.
At the end of each reporting period, the carrying amount of the group of insurance contracts will reflect a current estimate of the liability for remaining coverage (LRC) at that date and a current estimate of the liability for incurred claims (LIC).
LRC represents the Group’s obligation to assess and pay valid claims under existing contracts for insured events that have not yet occurred, amounts related to other insurance contract services that have not yet been provided (i.e. provision of investment returns and investment-related services) and investment components and other amounts not linked to insurance contract services that have not yet been transferred to LIC. The LRC is made up of (a) the fulfilment cash flows related to future service, and (b) any outstanding premiums for insurance contract services already provided.
The LIC includes the Group’s liability to pay valid claims for insured events that have already occurred, other accrued insurance expenses arising from previous cover, and liability for damages that have occurred but have not yet been reported. It also includes the Group’s obligation to pay amounts that it is obliged to pay to the policyholder under the contract. This includes repayment of investment components when a contract is derecognised. The current estimate of the LIC includes the fulfilment cash flows related to current and past accruals allocated to the Group at the reporting date. The Group’s issued insurance contracts for public-sector occupational pensions do not have an LIC because the payments are always made as they fall due.
2.2.7.1.6 Changes in fulfilment cash flows
At the end of each reporting period, the Group updates the fulfilment cash flows for both the LIC (for issued non-life insurance contracts under the premium allocation method) and the LRC to reflect current estimates of amounts, timing and uncertainty of future cash flows, as well as discount rates and other financial variables.
The Group has a choice of accounting policies that calculate changes in fulfilment cash flows at the end of a reporting period for changes in non-financial assumptions, changes in discount rates and financial assumptions. The Group first calculates the changes in discount rates and financial assumptions on the fulfilment cash flows (as expected at the beginning of the period) and then calculates changes to these cash flows from the change in non-financial assumptions.
Experience adjustments are the difference between:
• The expected cash flow estimate at the beginning of the period and the actual cash flows for premiums received during the period and any related cash flows paid
• The expected cash flow estimate at the beginning of the period and the actual amounts incurred related to insurance service expenses during the period (excluding insurance acquisition costs)
Experience adjustments related to current or previous accruals are taken to profit/loss. For claims incurred (including those not yet reported) and other expenses incurred for insurance services, experience adjustments are always related to current or past services. They are included in the income statement as part of insurance costs.
Experience adjustments related to future service are included in the LRC by adjusting the residual value.
2.2.7.2 Insurance contracts measured by the premium allocation method
The Group uses the premium allocation method to measure non-life insurance contracts with a coverage period for each contract in the group of one year or less.
On initial recognition, the Group measures LRC as the amount of the premiums received in cash. As all issued insurance contracts to which the premium allocation method is applied have a coverage period of one year or less, the Group exercises the option to expense all cash flows from acquiring insurance contracts as and when they accrue.
Premiums paid to the Group for insurance contract services already provided in the period but not yet received at the end of the reporting period are included in the LRC. The carrying amount of the LRC at the end of each subsequent reporting period represents the carrying amount at the start of the reporting period adjusted for the premiums received during the period and the amount recognised as insurance income for contractual insurance services provided during that period.
The Group has determined that there is no significant financing component in the issued non-life insurance contracts with a coverage period of one year or less. The Group does not discount the liability for remaining coverage to reflect the time value of money and financial risk for such insurance contracts.
The Group also applies the premium allocation method to all reinsurance contracts. The coverage period for such reinsurance contracts is up to 12 months.
Using the premium allocation method, the insurance income is measured as the amount allocated from the expected premium income excluding investment components. The allocation is based on the passage of time, except for issued insurance contracts where the claims are seasonal, where it is based on the expected incidence of claims. The Group uses discretion in determining the basis for allocation.
2.2.7.3 Subsequent measurement for direct-participation contracts entitled to net assets in the Group
The Group issues insurance contracts with significant investment-related services, where the policyholders are entitled to net assets of the Group. The Group’s liability to the policyholders consists of the obligation to pay to the policyholders (current or future) the fair value of net assets, in addition to future insurance services provided under the policy. The fair value of net assets is determined using discretion where there are no observable prices in an active market.
The contracts do not have a contractual service margin (CSM - i.e. revenue) as the policyholders are entitled to net assets. Net assets that accrue to the insurance contracts over and above discounted and risk-adjusted fulfilment cash flows on the contract are referred to as residual value and fall to policyholders. Other net assets consist solely of the difference between the fair value of net assets allocated to the policyholders and the accounting value of net assets. This measurement difference is defined as equity, and the change in measurement difference constitutes comprehensive income for the Group in the period. This is not profit-seeking equity in the financial sense, and the profit to policyholders is not included in the comprehensive income for the Group.
2.2.8 Reinsurance contracts held
2.2.8.1 Recognition
The Group uses reinsurance to reduce some of the risk exposures in the field of non-life insurance. Reinsurance contracts held are accounted for under IFRS 17 when they conform to the definition of an insurance contract. This includes the condition that the contract should transfer significant insurance risk.
Reinsurance contracts transfer significant insurance risk only if they transfer to the reinsurer essentially all insurance risk associated with the reinsured parts of the underlying insurance contracts, even if a reinsurance contract does not expose the issuer (the reinsurer) to the possibility of a significant loss.
Reinsurance contracts held are accounted for separately from underlying issued insurance contracts and assessed on an individual contract basis. In aggregating reinsurance contracts, the Group establishes portfolios in the same way as for portfolios of underlying issued insurance contracts. The Group splits a portfolio of its reinsurance contracts into three groups of contracts:
• Contracts that, on initial recognition, have a net gain
• Contracts that, on initial recognition, have no significant possibility of resulting in a net gain later
• Any remaining reinsurance contracts in the portfolio
The reinsurance accounts are accounted for by the premium allocation method. The Group assumes that all reinsurance contracts held in the different portfolios will not result in a net gain on initial recognition, unless facts and circumstances indicate otherwise.
In determining the date of initial recognition of a reinsurance contract that is held, the Group considers whether the terms of the reinsurance contract provide protection against loss on a proportionate basis. The Group recognises a group of reinsurance contracts held that provide proportionate coverage:
• At the start of the coverage period for this group of reinsurance contracts
• On initial recognition of all underlying insurance contracts
The Group recognises a group of non-proportionate reinsurance contracts no earlier than the start of the coverage period for the group or the date on which an underlying loss-making group of contracts is recognised.
The boundary of a held reinsurance contract includes cash flows resulting from the underlying contracts covered by the reinsurance contract. This includes cash flows from insurance contracts expected to be issued by the Group in the future if these contracts are expected to be issued within the scope of the reinsurance contract.
Cash flows are within the boundary of a reinsurance contract held if they arise from the substantive rights and obligations of the insurer existing during the reporting period in which the Group is obliged to pay amounts to the reinsurer or has a substantive right to receive services from the reinsurer.
2.2.8.2 Reinsurance contracts held measured by the premium allocation method
The Group measures reinsurance contracts by the premium allocation method. According to the premium allocation method, the first measurement of the asset for the remaining cover equals the re-insurance premium paid.
The Group measures the amount related to the remaining service by distributing the premium paid over the coverage period. For all reinsurance contracts held, the allocation is based on the passage of time except for reinsurance contracts where claims are seasonal, where it is based on the expected incidence of claims.
2.2.9 Modification and derecognition
The Group derecognises the original insurance contract and recognises the amended contract as a new contract if the terms of the insurance contracts have been modified and the following conditions have been met:
• If the modified terms had been included at contract inception, the Group would have determined that the modified contract:
– was outside the scope of IFRS 17;
– resulted in a different insurance contract because components were separated from the host contract;
– resulted in a significantly different contract boundary;
– would be included in a different group of contracts;
• If the original contact met the definition of an insurance contract with direct participation features, but the modified contract no longer meets this definition
• The Group applied the premium allocation approach to the original contract, but the modifications mean that the contract no longer meets the eligibility criteria for that approach.
If the contract modification meets any of these conditions, the Group performs all assessments that apply at initial recognition, derecognises the original contract and recognises the new modified contract as if it has been entered into for the first time.
If the contract modification meets none of these conditions, the Group treats the effect of the change as changes in estimates of fulfilment cash flows.
For insurance contracts that are recognised with a right to a share in net assets, a change in the estimates of fulfilment cash flows will result in a revised residual value.
For insurance contracts that are accounted for by the premium distribution period, the Group adjusts insurance income forward from the date of the contract amendment.
The Group derecognises an insurance contract when, and only when, the contract is:
• Extinguished (i.e. when the obligation specified in the insurance contract expires or is discharged or cancelled)
• Modified so that the derecognition criteria are met
When the Group derecognises an insurance contract from within a group of contracts, it will:
• Adjust the fulfilment cash flows allocated to the group to eliminate the present value of future cash flows and risk adjustment for non-financial risk related to the rights and obligations that have been derecognised from the group.
When the Group transfers an insurance contract to a third party and this results in derecognition, the Group adjusts the residual value of the group from which the contract has been derecognised for the difference between the change in the carrying amount to the Group caused by the derecognised fulfilment cash flows and the premium charged by the third party for the transfer.
When the Group derecognises an insurance contract due to modification, it derecognises the original insurance contract and recognises a new one.
2.2.10 Presentation
The Group has presented the carrying amount of portfolios of insurance contracts as liabilities. Reinsurance contracts are presented as assets.
The Group disaggregates the amounts included in the consolidated income statement and other comprehensive income into a subtotal for the insurance service result comprising insurance revenue and insurance service expenses and a separate subtotal for net insurance finance income or expenses. The Group has voluntarily included net insurance finance income or expenses in another subtotal: net insurance and investment result, which also includes income from all assets used to cover the Group’s insurance obligations. Risk adjustment for non-financial risk is part of the profit/loss from insurance services.
2.2.10.1 Insurance income
As the Group provides insurance services from a group of issued insurance contracts, the LRC decreases and insurance income is recognised, measured as the amount the Group expects to be entitled to in exchange for these services.
For groups of insurance contracts with direct-participation features, measured by the variable fee approach (VFA), the insurance income consists of the sum of the changes in LRC due to:
• Expenses for insurance services incurred during the period measured at the amounts expected at the beginning of the period, except for:
– Repayment of investment components
– Amount related to transaction-based taxes collected on behalf of third parties
– Expenses for acquiring insurance contracts
– Amounts relating to risk adjustment for non-financial risk
• The change in the risk adjustment for non-financial risk, except for:
– Changes related to future service which adjust the residual value
• Other amounts, such as experience adjustments for premium income related to current or past service, where some insurance income also includes the portion of the premiums related to recovering cash flows associated with insurance acquisition costs included in the insurance service expenses during each period. Both amounts are measured in a systematic way based on the passage of time.
Using the premium allocation method, the Group calculates insurance income for the period on a linear basis over time, by allocating expected premium income including adjustments to actual premiums for each service period. However, when the expected pattern of release from risk during the coverage period deviates significantly from the passage of time, typically as a result of seasonal variation, the premium income is distributed according to the expected pattern of insurance services provided.
The assessment of whether there is seasonal variation is based on an analysis of historical claims rates. The assessment is carried out at portfolio level, and a confidence interval has been specified to assess whether the portfolio has significant seasonal variation. If the claims rate for a portfolio falls outside the confidence interval, this is a strong indication that the portfolio has seasonal variation and a settlement pattern is calculated for use in applying premiums to profit/loss.
At the end of each reporting period, the Group considers whether there has been a change in facts and circumstances indicating a need to change, on a prospective basis, the distribution of premium income due to changes in the expected settlement pattern.
2.2.10.2 Insurance service expenses
Expenses for insurance services arising from a group of issued insurance contracts include:
• Changes in LIC related to claims and expenses incurred during the period excluding repayment of investment components
• Changes in LIC related to claims and expenses incurred during previous periods (related to previous service)
• Other directly attributable insurance costs incurred during the period
• Amortisation of cash flows from insurance acquisitions, which are recognised in the same amount in insurance service expenses and income from insurance contracts
2.2.10.3 Income or expenses from held reinsurance contracts
The Group presents separate income or expenses from a group of reinsurance contracts held and reinsurance finance income or costs in the profit/loss for the period.
Income or expenses from reinsurance contracts are divided into the following two amounts:
• Amounts collected from reinsurers
• A distribution of premiums paid
The Group presents cash flows that are conditional on payments as part of the amount collected from reinsurers. Reinsurance provisions that are not conditional on claims in the underlying contracts are presented as a deduction in the premiums to be paid to the reinsurer which are then recognised in profit/loss.
2.2.10.4 Insurance finance income and expenses
Insurance financing income or expenses present the effect of the time value of money and the change in the time value of money, along with the effect of financial risk and changes in financial risk for a group of insurance contracts and a group of reinsurance contracts.
2.2.10.4.1 Use of OCI presentation for insurance finance income and expenses
The Group has an accounting policy option to present all of the insurance finance income or expense for the period in profit/loss from ordinary operations to the extent that this accords with the respective IFRS standard.
2.2.10.4.2 For direct-participation contracts where the policyholder is entitled to net assets
For direct-participation contracts where the policyholder is entitled to the fair value of net assets in the Group, the change in net assets measured at market value in insurance finance income or expenses is presented in the income statement.
2.2.11 Contracts that existed at the transition date
2.2.11.1 Contracts measured using the fair value approach
The Group has concluded that reasonable and supportable information for applying the retrospective or modified retrospective approach was not available for all insurance contracts issued prior to the transition date. The Group has therefore used the fair value approach for these contracts.
The Group has used reasonable and supportable information available on the transition date to:
• Identify groups of insurance contracts
• Determine whether an insurance contract meets the definition of an insurance contract with direct participation features
2.2.11.1.1 Aggregation Level
The Group included contracts in groups of contracts issued more than one year apart as there was no reasonable and supportable information available to split them up.
2.2.11.1.2 Measurement at the transition date
Using the fair value approach on the transition date, the residual value of the LRC was estimated as the difference between the fair value of net assets and the fulfilment cash flows for the group of contracts at that date. In determining fair value, the Group followed the requirements in IFRS 13 Fair Value Measurement.
2.2.11.1.3 Discount rates
The Group used discount rates on the transition date instead of discount rates on the start-date for recognition.
2.2.11.1.4 Cash flows related to the acquisition of insurance contracts
The Group estimated any asset for cash flows related to the acquisition of insurance contracts that existed on the transition date at an amount equal to the amount the Group would have incurred on the transition date to obtain rights to:
• Recover cash flows from insurance acquisitions from premiums on insurance contracts collected before the transition date, but not yet recognised at the transition date
• Enter into future insurance contracts after the transition date without having to repay the costs already paid
• Achieve future renewals of insurance contracts recognised on transition date
The estimate resulted in an insignificant amount, and the Group has not included an asset for insurance acquisition cash flows in the measurement of the groups of insurance contracts recognised at the transition date.
2.3 FINANCIAL INSTRUMENTS
The Group has used IFRS 9 and IFRS 7R, which apply for the first time to years beginning 1 January 2023 and after.
As permitted in the transitional provisions in IFRS 9, the company has chosen not to restate comparative figures. Comparative figures for 2022 have therefore been reported according to IAS 39 (as it was before IFRS 9), and are not comparable with the information presented for 2023. Differences arising from the transition to IFRS 9 have been charged directly to equity as of 1 January 2023. For more information on this, see Changes in owner’s equity.
2.3.1 Recognition of financial instruments under IFRS 9
The most important accounting policies relating to financial instruments and used from 1 January 2023 (IFRS 9) are described below.
2.3.1.1 Recognition and derecognition
Financial instruments are recognised in the balance sheet from the date when the Group becomes a party to the contractual terms for the instrument. Financial assets are removed from the balance sheet when the rights to receive cash flows from the investment expire or when these rights have been transferred and the Group has transferred most of the risk and all of the potential gain from ownership. Financial liabilities are derecognised when the contractual liabilities have been discharged or cancelled or have expired. Recognition and derecognition of financial instruments are therefore independent of the agreed settlement date.
Financial instruments are measured at fair value on initial recognition. Attributable transaction costs are included in fair value for financial instruments that are not recognised at fair value through profit/loss. Accounts receivable that do not have a significant financing element are valued at the transaction price.
2.3.1.2 Classification and subsequent measurement
2.3.1.2.1 Financial assets
Under IFRS 9, financial assets are classified into the following categories:
- Amortised cost
- Fair value with changes in value through profit or loss
- Fair value with changes in value through other comprehensive income
The measurement category is determined at the time of initial recognition.
| Financial assets | Measurement method IAS 39 | Measurement method IFRS 9 | Reason for reclassification |
|---|---|---|---|
| Debt instruments helt to maturity¹ | Amortised cost | Fair value through profit/loss | Fair value option |
| Debt instruments classified as loans and receivables² | Amortised cost | Fair value through profit/loss | Fair value option |
| Debt instruments helt to maturity¹ | Amortised cost | Amortised cost | Business model |
| Debt instruments classified as loans and receivables² | Amortised cost | Amortised cost | Business model |
| Loans to local government, enterprises & retail customers | Amortised cost | Fair value through profit/loss | Fair value option |
| Loans to local government, enterprises & retail customers | Amortised cost | Amortised cost | Business model |
| Debt instruments at fair value through profit or loss | Fair value through profit/loss | Fair value through profit/loss | Business model |
| Equity capital instruments | Fair value through profit/loss | Fair value through profit/loss | Business model |
| Receivables | Fair value through profit/loss | Fair value through profit/loss | Business model |
| Financial derivatives | Fair value through profit/loss | Fair value through profit/loss | Business model |
| Financial liabilities | Measurement method IAS 39 | Measurement method IFRS 9 | Reason for reclassification |
|---|---|---|---|
| Hybrid tier 1 securities loan | Amortised cost | Fair value through profit/loss | Fair value option |
| Subordinated loan capital | Amortised cost | Fair value through profit/loss | Fair value option |
| Debt to credit institutions (amortised cost) | Amortised cost | Amortised cost | Business model |
| Covered bond issued | Amortised cost | Amortised cost | Business model |
| Liabilities and deposits from customers | Amortised cost | Amortised cost | Business model |
| Debt to credit institutions (fair value) | Fair value through profit/loss | Fair value through profit/loss | Business model |
| Financial derivatives | Fair value through profit/loss | Fair value through profit/loss | Business model |
| ¹ related to life insurance business | |||
| ² related to non-life insurance business | |||
Derivatives and equity instruments
Under IFRS 9, derivatives have to be recognised at fair value with changes in value through profit/loss. However, derivatives classified as hedging instruments must comply with the hedge accounting rules referred to in section 2.3.1.3.
As a general rule, equity instruments should be measured at fair value with changes in value through profit/loss, unless they are not held for trading purposes and are specifically recognised at fair value with changes in value through other comprehensive income. In the Group, all equity instruments are measured at fair value with changes in value through profit/loss.
Debt instruments
The classification and measurement of debt instruments under IFRS 9, apart from equity instruments and derivatives, are based on a combination of the business model for managing the assets and the contractual cash flow characteristics.
A debt instrument is measured at amortised cost if both of the following criteria are met and the financial asset has not been reported at fair value through profit/loss (the “fair value option”):
- The financial asset is held in a business model whose purpose is to keep financial assets in order to receive the contractual cash flows (the “business model criterion”), and
- The contractual terms for the financial asset lead at certain times to cash flows that only include repayments and interest on the principal amount outstanding (the “cash flow criterion”).
Choice of measurement method
Each portfolio is analysed based on the business model used, the types of cash flow that exist and the purpose of the investments.
If a financial instrument is included in a portfolio managed within a business model whose purpose is to receive contractual cash flows consisting only of interest and principal, the financial asset is measured at amortised cost.
If a portfolio of financial instruments is included in a business model whose purpose is to hold the financial assets in order to recover contractual cash flows and to sell, the asset is measured at fair value with changes in value through other comprehensive income. Interest income, currency translation effects and any write-downs are presented under profit/loss from ordinary activities. Changes in value recognised through other comprehensive income have to be reclassified as profit/loss when the assets are sold or otherwise disposed of.
Financial assets included in other types of business model are measured at fair value through profit/loss from ordinary activities.
Fair value option
The Group may designate a debt instrument that meets the criteria to be measured at amortised cost for recognition at fair value through profit/loss if this eliminates or significantly reduces inconsistencies in measurement. This means that, on initial recognition, financial assets and liabilities can be designated at fair value with changes in value through profit/loss even if they are included in a business model that provides for a different measurement method. This earmarking is irrevocable after initial recognition.
The Group has chosen to use the fair value option on a portfolio of debt instruments associated with the life insurance business even if they are included in a business model that provides for measurement at amortised cost with changes in value through other comprehensive income. The rationale for this is that the implementation of IFRS 17 entails recognising insurance liabilities at fair value. Use of the fair value option will then avoid an accounting mismatch.
Impairment model
The implementation of IFRS 9 brings in a new impairment model for financial assets measured at amortised cost. Under the new standard, loss provisions have to be recognised according to the expected credit loss (ECL). The measurement of provisions for expected losses depends on whether the credit risk has increased substantially since initial recognition. The estimated losses are calculated based on a 12-month and a lifetime probability of default (PD), loss given default (LGD) and exposure at default (EAD). The loan loss provisions are presented in three stages:
Stage 1: Expected loss over the next 12 months for all assets not transferred to Stage 2 or 3.
Stage 2: Expected losses over the whole lifetime of assets that have had a significant increase in credit risk since initial recognition, but no objective impairment.
Stage 3: Expected loss for the remaining lifetime of assets that have objective evidence of impairment. In the event of default, we will depart from automatic calculation of expected credit losses and instead make an individual assessment of the expected credit loss.
Below is a description of how loss calculations have been made for the different financial instruments.
Impairment model for interest-bearing securities at amortised cost
This category of securities includes bonds and certificates.
Stage 1: A financial instrument that is not credit-impaired at the time of initial recognition is classified in Stage 1. In Stage 1, the expected credit loss is calculated over the next 12 months, or to maturity if it is within a year.
Stage 2: In the event of a significant increase in credit risk since the date of acquisition, the instrument is moved to Stage 2. The expected credit loss is then calculated for the remaining lifetime of the instrument. A significant increase in credit risk is defined as a fall of at least 3 risk classes (e.g. AAA (1) to A- (4)). Risk classes are divided as shown in the table below.
| Rating | Risk class | Rating | Risk class | Rating | Risk class |
|---|---|---|---|---|---|
| AAA | 1 | BBB+ | 5 | B+ | 11 |
| AA+ | 1 | BBB | 6 | B | 12 |
| AA | 2 | NR | 6 | B- | 13 |
| AA- | 2 | BBB- | 7 | CCC+/- | 14 |
| A+ | 3 | BB+ | 8 | D | 15 |
| A | 3 | BB | 9 | ||
| A- | 4 | BB- | 10 |
Stage 3: Expected loss for the remaining lifetime of assets that have objective evidence of impairment. In the event of default, we will depart from automatic calculation of expected credit losses in the portfolio system and instead make an individual assessment of the expected credit loss.
For Stages 1 and 2, the following model is used for calculating ECL:
Expected credit loss = exposure at default (EAD) x probability of default (PD) x loss given default (LGD).
Exposure at default (EAD): EAD is an estimate of the total loss incurred in the event of a possible default.
For Stages 1 and 2, it is based on the gross carrying amount, while for Stage 3, amortised cost is used. This is shown in the table below.
Probability of default (PD): PD is calculated based on annual, historically observed default rates for each individual rating (S&P). This is based on 25 years of rolling data. PD is updated annually, or when significant changes are observed.
Loss given default (LGD): LGD is based on historically observed repayment rates on loans in default for defined sectors. These are published in annual reports issued by Global Credit Data. The figures are updated annually, and in the event of significant changes.
The table below shows the loss provisions as of 1 January 2023, broken down into the different stages.
| NOK THOUSANDS | Held to maturity | Lending and receivables |
|---|---|---|
| Step 1 | 1 | 260 |
| Step 2 | - | 42 |
| Step 3 | - | - |
Impairment model for residential mortgage loans
Loss calculations for residential mortgages are administered by the Group’s banking business, which has developed PD and LGD models for the mortgage portfolio. One PD model has been developed for new mortgage customers and another for existing mortgage customers. The first model uses data that is available at the time of application and is valid for 3 months after the mortgage is granted. The second model begins after 3 months, and also uses data that depends on the customer’s behaviour profile. Explanatory variables in the base data are age, income, number of reminders sent in the last 12 months, number of overdrawn days in the last 12 months, loan-to-value ratio, co-borrower, default in the last 12 months and product type. The PD model is based on logistic regression, and the factors are reviewed annually and updated as needed. The method gives results that can easily be interpreted and analysed, as well as great explanatory value provided that certain conditions are met. The PD model also makes it possible to combine pure quantitative analyses with expert assessments. A rolling five-year window is used, so the emphasis is on more recent and relevant observations.
Exposure at default (EAD) is calculated as a function of the probability of the contract not being repaid by the specified date. An important part of the loss estimation is to look at the proportion of customers in default whose accounts recover. Loss given default (LGD) depends on several factors. The recovery rate is a significant element in the calculation, i.e. the proportion of customers in default who recover. The observed recovery rate has to be calculated and revalidated each year.
As well as calculating ECL, a probability weighting is applied to various defined scenarios whereby ECL is assessed against optimistic, expected and pessimistic developments. The sum of the weighted scenarios constitutes the expected credit loss. KLP Banken’s risk forum assesses these different scenarios and their weighting on a quarterly basis, based on changes in macro or other factors that may affect the write-downs.
The most important driver for a significant change in credit risk for home mortgage loans is a change in the probability of default (PD) from initial recognition up to the reporting date. A relative change in PD of more than 2.5 over 12 months is considered to be a significant change in credit risk. The change in PD must also be at least 0.6 percentage points over 12 months for the change to be considered significant. Commitments that have been in default for more than 30 days will automatically be placed in Stage 2, and commitments in default for more than 90 days will be placed in Stage 3. The loans go back to Stage 2 and Stage 1 when the criteria for significant change in credit risk and default are no longer fulfilled. A loan in Stage 3 will stay in quarantine for three months before it can be moved back to Stage 2 or 1.
The table below shows how the loss provisions for mortgages measured at amortised cost are divided between the different stages as of 1 January 2023.
| NOK THOUSANDS | Step 1 | Step 2 | Step 3 |
|---|---|---|---|
| Mortgages | 144 | 207 | 422 |
Impairment model for other types of lending
A simplified loss ratio method is used for some types of lending where no separate PD and LGD models have been developed. In the consolidated accounts, this applies to senior loans and credit cards in the retail market, and to public-sector lending.
Senior loans: Senior loans are loans that in practice cannot be defaulted. The risk is only related to a big drop in house prices, and the situation where the outstanding amount on the customer’s death or move into a nursing home exceeds the value of the home at the date of sale. Based on the very low probability of losses on these loans, a simplified loss ratio has been chosen whereby 0.001% of the balance on senior loans is set aside for expected losses. No senior loans will end up in Stage 2 or 3.
Credit cards: For credit cards, the Group has calculated a loss ratio based on the average estimated PD for the credit card portfolio obtained from the external credit rating agency and the average LGD for credit cards for the period 2006-2018 calculated by the debt collection agency and updated in 2021.
Public lending: For public lending, the probability of a loss on these loans is considered to be low. It has therefore been decided to use a simplified loss ratio, with the exception for low credit risk, whereby 0.001% of the balance on public loans has been set aside for expected losses.
The table below shows the loss provisions as of 1 January 2023 for loans using a simplified loss ratio method.
| NOK THOUSANDS | Step 1 | Step 2 | Step 3 |
|---|---|---|---|
| Senior loans | 21 | - | - |
| Public lending | 184 | - | - |
| Credit card | 2 040 | 1 883 | 516 |
| Total | 2 245 | 1 883 | 516 |
2.3.1.2.2 Financial liabilities
Accounting of financial liabilities under IFRS 9 is largely unchanged from the earlier IAS 39. One exception is that, for liabilities specifically recognised at fair value, changes in fair value due to own credit risk are recognised through other income and expenses without reclassification. This applies unless applying the changes in the credit risk on the liability would cause or worsen the accounting mismatch in the result.
The company makes use of the fair value option for hybrid Tier 1 perpetual capital and subordinated loans. Earmarking these loans at fair value through profit/loss will avoid an accounting discrepancy as matching assets are measured at fair value through profit/loss. Changes in credit risk associated with these liabilities will also be measured at fair value through profit/loss, as a mismatch could otherwise occur. Issued covered bonds and other debt instruments that finance lending in the Group’s banking business will continue to be measured at amortised cost in the consolidated financial statements.
2.3.1.3 Hedge accounting
Hedge accounting is an accounting method that allows companies to align their accounting for financial instruments and hedging activities more closely with the underlying transactions.
As of 1 January 2023, the Group has three cases of hedge accounting. One relates to hedging of a fund bond (the hedged item) using a combined interest rate and currency swap (the hedging instrument), while the other two relate to hedging of borrowing and lending with associated interest rate swaps. The practical effect of the transition to IFRS 9 will be minimal and we expect to retain the earlier practice for this hedging relationship. Refer also to Note 32 for more information on hedging relationships in the group.
2.3.1.4 Netting
Financial assets and liabilities are presented net in the statement of financial position when there is an unconditional offsetting entitlement that can be legally enforced and the intention is to settle net, or realise the asset and liability simultaneously.
2.3.1.5 Modification
When the contractual cash flows from a financial instrument are renegotiated or otherwise changed, and the renegotiation or change does not result in derecognition of the financial asset, the gross carrying amount of the financial instrument is recalculated and any gain or loss from the change is taken to profit/loss. The gross carrying amount of the financial instrument is recalculated as the present value of the renegotiated or changed contractual cash flows, discounted by the original effective interest rate of the financial instrument. Any accrued costs or fees adjust the carrying amount of the changed financial instrument and are written down over the changed remaining lifetime.
2.3.2 Accounting for financial instruments used in the period before 1 January 2023
The most important accounting policies relating to financial instruments and used from 1 January 2023 are described below.
2.3.2.1 Classification
Financial instruments are classified on first recognition in one of the following categories:
Financial assets
- Financial assets recognised at fair value through profit or loss
- Loans and receivables recognised at amortised cost
- Hold-to-maturity investments recognised at amortised cost
Financial liabilities
- Financial liabilities recognised at fair value through profit/loss:
- Other financial liabilities recognised at amortised cost:
Financial assets and liabilities for fair value through profit/loss
Within this category it may be mandatory or optional to recognise items at fair value with changes in value through profit or loss.
- Financial assets held for sale are assets acquired primarily with a view to providing a profit from short-term price fluctuations. The Group’s derivatives are included in this category unless they are included as an element of an accounting hedge in accordance with the rules on hedge accounting.
- Financial instruments and liabilities designated for recognition at fair value with changes in value through profit or loss are classified in this category if the financial instruments are managed as a group, where their earnings are assessed and reported to management on the basis of fair value, or if the classification eliminates or reduces accounting inconsistencies in measurement
The financial assets include shares and units/holdings, bonds, certificates and loans, while the financial liabilities cover debt to credit institutions and derivatives.
Loans and receivables recognised at amortised cost
Loans and receivables are financial assets that are not derivatives, have fixed or determinable payments and are not traded on an active market, except for.
- Those which the Group intends to sell in the short term or has earmarked at fair value through profit/loss.
- Those which the Group has earmarked as available for sale
- Those on which the holder will not be able to recover the whole of their initial investment, except for impaired creditworthiness, and which are to be classified as available for sale
Loans and receivables at amortised cost comprise:
- Loans and receivables linked to the investment business;
- Other loans and receivables including receivables from policyholders
Loans and receivables in the investment business include debt instruments classified as loans and receivables i.e. bonds that are not priced in an active market as well as lending to local authorities, enterprises and retail customers.
Hold-to-maturity investments recognised at amortised cost
Hold-to-maturity investments comprise investments that are not derivatives and that have set or determinable payments and a defined date of maturity, which that the Group has the intention and the ability to hold to maturity, with the exception of:
- Those which the company earmarks on initial recognition at fair value through profit or loss;
- Those which the Group has earmarked as available for sale
- Those that meet the definition of loans and receivables.
The category includes bonds recognised at amortised cost.
Other financial liabilities recognised at amortised cost:
The category includes subordinated loans, fund bond loans and issued covered bond loans, as well as liabilities to and deposits from customers.
2.3.2.2 Recognition and measurement
Purchases and sales of financial instruments are recognised at fair value on the trading date, i.e. when the Group has committed itself to buy or sell that financial instrument. Direct costs of purchase are included in acquisition cost except for purchase costs associated with financial instruments at fair value through profit or loss. For these instruments purchase costs are taken to expenses directly. Recognition of financial assets ceases when the Group is no longer entitled to receive the cash flow from the asset or the Group has transferred all risk and entitlements associated with its ownership. Recognition of financial liabilities ceases when the underlying obligation in the contract has been met, been cancelled or expired.
- Measurement at fair value
The principles for calculating fair value related to the various instruments are shown in Note 25.
- Measurement at amortised cost
Financial instruments not measured at fair value are measured at amortised cost using the effective interest rate method. The internal rate of return is set through discounting contractual cash flows over the expected duration. The cash flows include setting-up charges and direct transaction costs as well as any residual value at the end of the expected duration. Amortised cost is the present value of these cash flows discounted by the internal rate of return.
- Write-down of financial assets measured at amortised cost
In assessing whether there is impairment of a financial asset, weight is attached to whether the issuer/debtor has significant financial difficulties and whether there is any breach of contract, including default. An assessment is made as to whether the debtor is likely to go bankrupt, whether there is no longer an active market for the asset because of financial difficulties, or whether a measurable reduction in the expected cash flow from a group of financial assets is observed. The assessment is based exclusively on historical data: future events are not considered, regardless of the degree of probability.
If there is objective evidence of impairment, a write-down is carried out. The write-down is calculated by comparing the new, anticipated cash flows with the original cash flows discounted by the original effective interest rate (assets with fixed interest) or by the effective interest rate at the time of measurement (assets with variable interest). The write-down reduces the carrying amount of the asset and is included in the income statement under “Net return from financial assets“.
Loss assessment and loss write-down is carried out quarterly on individual loans. Loans with unpaid repayments older than 90 days or credits with overdrafts older than 90 days are examined at the end of the reporting period. In addition continuous assessment is carried out of other lending engagements where there is objective proof of impairment.
Lending is also assessed by group. If there is objective proof of impairment in a group of loans, a write-down is carried out.
2.3.3 Presentation, classification and measurement
- Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are recognised in the balance sheet either as “Lending to local government, enterprises and retail customers at fair value through profit/ loss”, “Debt instruments at fair value through profit or loss” or “Equity instruments at fair value through profit or loss”. Interest income and dividends are included in “Net return from investments measured at fair value with changes in value through profit/loss”.
- Financial assets at amortised cost
Financial assets measured at amortised cost are presented in the balance sheet either as “Interest-bearing securities and other debt instruments at amortised cost”, “Lending to local government, enterprises and retail customers at amortised cost”, “Receivables” or “Cash and bank deposits”. Interest income and write-downs are included in “Net return on investments not measured at fair value with changes in value through profit/loss”. For the banking business, interest income is included in the line “Net interest income banking”. Changes in value that can be linked to objective indications of impairment as well as foreign exchange changes are included in the line “Net return on financial assets”.
- Financial liabilities measured at amortised cost Debt to and deposits from customers
Issued financial liabilities measured at amortised cost are presented in the balance sheet under the following items:
Hybrid Tier 1 perpetual capital
Subordinated loans
Covered bonds issued
Liabilities to credit institutions
Liabilities to and deposits from customers
Liabilities to and deposits from customers are recognised at fair value in the financial position statement when the deposit is recorded as transferred to the customer’s account. In subsequent periods, liabilities to and deposits from customers are recognised at amortised cost in accordance with the effective interest rate method. The interest costs are included in the line “Net interest income banking”.
Subordinated loans issued are recognised at fair value when they are taken out, adjusted for purchase costs. On subsequent measurement, subordinated loans are recognised at amortised cost using the effective interest rate method. The method is used to allocate the interest costs over a relevant period and is recognised through profit/loss under “Net costs subordinated loans and hybrid Tier 1 securities”. Subordinated loans in foreign currency are translated to NOK on the balance sheet date. Changes in value from changing exchange rates are is recognised through profit/loss under “Net costs subordinated loans and hybrid Tier 1 securities”.
Hybrid Tier 1 securities are recognised at their nominal value on the date of issue and valued subsequently at amortised cost. For hybrid Tier 1 securities hedged against exchange and interest rate changes (fair value hedging), the carrying amount is adjusted by the change in value of the hedged risk. The change in value is recognised through profit/loss under “Net costs subordinated loans and hybrid Tier 1 securities”.
Covered bond loans are initially recognised at fair value adjusted for purchase costs, i.e. nominal value adjusted for any premium/discount on issue. On subsequent measurement the bond loans are valued at amortised cost by the effective interest method. The costs of interest are included in the line “Net interest income banking” in the income statement. Bond loans issued with fixed interest are recognised in accordance with the rules on fair value hedging inasmuch as they are hedged against change in interest rate level.
- Financial liabilities measured at fair value with changes in value through profit/loss
Financial liabilities measured at fair value with changes in value through profit/loss are presented in the balance sheet under the following items:
Liabilities to credit institutions
Financial derivatives
Liabilities to credit institutions are capitalised at market value on take -up. On subsequent measurement fair value is used when this eliminates or reduces accounting inconsistency. The interest costs are included in the line “Net interest income banking”.
Financial derivatives are recognised at fair value at the time they are contracted. On subsequent measurement the derivatives are recognised at fair value and presented as an asset under “Financial derivatives” if the value is positive and as a liability under “Financial derivatives” if the value is negative. For derivatives that are not part of any hedging relationship, any gains and losses are recognised as they arise under “Net income from investments measured at fair value through profit or loss”.
- Hedge accounting
The Group has used hedge accounting in three cases. In one case, hedge accounting is used to hedge hybrid Tier 1 securities issued (the hedged object) against value changes resulting from changes in interest and exchange rates (fair value hedging). The hedging instrument is a combined interest rate and currency swap. The hedging relationship is documented and the effectiveness of the hedge is measured continuously. The other two cases relate to fair value hedging of fixed-rate lending and borrowing hedged with interest rate swaps. The hedging relationship is documented and its effectiveness is measured on a regular basis.
Changes in the fair value of the hedging instrument are included in the income statement under “Net income from investments measured at fair value with changes in value through profit/loss”. Value changes in the hedging object that can be attributed to the hedge risk are booked as a correction to the carrying amount of the hedged object and included in the income statement at the line for “Net costs subordinated loan and hybrid Tier 1 securities” and “Net interest income banking”. In those instances in which a security has inbuilt derivatives that are not separated out, the value of the derivative will be included in the security’s value as a whole.
2.4 INVESTMENT PROPERTY
Property not used by the Group is classified as investment property. If a property is partially used by the Group and partially leased to external tenants, the part that is leased to external tenants is classified as investment property if it can be subdivided. The Group provides some additional services to tenants of the properties. If these services are considered essential to the management of the property, the property is classified as property for own use and not as investment property.
2.4.1 Recognition and derecognition
Investment property is recognised in the balance sheet when it is likely that future economic benefits arising from the property will accrue to the Group, and when the cost of the investment property can be reliably measured. Investment property is recognised at cost including transaction costs. Costs of an investment property under construction are measured at cost until it is completed.
An investment property is derecognised upon disposal, or when it is taken out of use with final effect and the Group does not expect any further financial gain from disposing of the property. The date of disposal of an investment property that is sold is the date when the recipient gains control over the investment property in accordance with the provisions on fulfilment of an obligation in IFRS 15 Revenue from Contracts with Customers.
2.4.2 Subsequent measurement
Investment property must be measured either at cost or at fair value with changes in value through profit/loss. The Group has chosen to use fair value with changes in value through profit/loss. Fair value is measured in accordance with IFRS 13 Fair Value Measurement..
The Group uses a valuation model to estimate market value. The valuation method is based on discounting the expected net cash flow from the property by the market’s return requirements.
In the first instance, the market rent on currently applicable terms is used in calculating net cash flow, whereas for periods after the expiry of contracts an estimated market rent is used. An income deduction is also taken into account for expected vacancy, expected maintenance/improvement costs and normal operating costs.
The expected cash flow is discounted by a return requirement determined on the basis of the risk-free interest rate (10-year Norwegian Government Bond interest rate) adjusted by a supplement for estimate on a 20-year risk-free interest rate. The estimate for the 20-year interest rate corresponds to the slope of the swap curve between 10 and 20 years. The risk-free rate then has a general property risk applied to find the return requirement for prime properties. Finally a risk premium is added which is determined from the willingness of the investors in the property market to accept risk taking account of matters specific to the property such as geography, property type, contracts, tenants and technical state of the property.
A selection from the Group’s property stock is valued quarterly by external, independent and qualified valuers. In the event of significant deviation from our own assessment of fair value, the differences are analysed and the valuation model’s parameters are adjusted if this proves necessary.
Changes in fair value are recognised in the period during which the gain or loss occurs.
2.4.3 Presentation
Investment property is presented on a separate line in the balance sheet.
Changes in fair value and net rental income are presented in the income statement under “Fair value adjustment of investment properties and rental income”. Any change in the fair value of properties due to exchange rate changes is shown in other comprehensive income under “Currency translation foreign properties”.
Note 3 Important accounting estimates and valuations
3.1 Critical judgements in applying the group’s accounting policies
The following are the critical judgements, apart from those involving estimations (addressed separately below), that the directors have made in the process of applying the Group’s accounting policies and that will have the most significant effect on the amounts recognized in financial statements:
3.1.1 Insurance contracts issued and reinsurance contracts held:
- Assessment of significance of insurance risk: The Group applies its judgement in assessing whether a contract transfers to the issuer significant insurance risk. A contract transfers significant insurance risk only if an insured event could cause the Group to pay additional amounts that are significant in any single scenario.
- Contracts issued that provide policyholders with a residual interest in the business: KLP is mutually owned, where the customers on public occupational pensions are also owners of the business. IFRS 17 has defined criteria for what is considered mutual insurance business, where the policyholder is entitled to the net assets of the business. Determining whether an insurance contract provides the policyholder with a residual interest in the mutual entity, requires consideration of all substantive rights and obligations, whether they arise from a contract, law or regulation. A mutual entity accepts risks from each policyholder and pools that risk. The policyholders with a residual interest in the mutual entity bear the pooled risk collectively in their capacity as owners. The insurance contracts affect or are affected by the cash flows to policyholders of other contracts by requiring the policyholder to share with policyholders of other contracts the returns on the same specified pool of underlying items. This would be either:
- If the policyholder bear a reduction in their share of the returns on the underlying items because of payments to policyholders of other contracts that share in that pool, including payments arising from under guarantees made to policyholders of those other contracts, or
- If the policyholders of other contracts bears a reduction in their share of returns on the underlying items because of payments to the policyholder, including payments arising from guarantees made to the policyholder.
The Group consider that the insurance contracts issued on public occupational pension provide the policyholders with a residual interest in the Group.
Definition of policyholder: The policyholder is the part of det insurance contract entitled to compensation when an insured event occurs. Some of the insurance contracts issued by the Group, have three related parties, where typically the employer insures its employees. The employer pays the premium, but the employee receives the compensation if an insurance event occurs. The Group has used its judgement to assess who is the policyholder.
- Combination of insurance contracts: Determining whether it is necessary to treat a set or series of insurance contracts as a single contract involves significant judgement and careful consideration. In assessing whether a set or series of insurance contracts achieve, or are designed to achieve, an overall commercial effect, the Group determines whether the rights and obligations are different when looked at together compared to when looked at individually and whether the Group is unable to measure one contract without considering the other.
- Consideration whether there are investment components: The Group considers all terms of contracts it issues to determine whether there are amounts payable to the policyholder inn all circumstances, regardless of contract cancellation, maturity, and the occurrence or non-occurrence of an insured event. Some amounts, once paid by the policyholder, are repayable to the policyholder in all circumstances. The Group considers such payments to meet the definition of an investment component, irrespective of whether the amount repayable varies over the term of the contract as the amount is repayable only after it has first been paid by the policyholder.
- Separation of insurance components of an insurance contract: The Group issues some insurance contracts that combine protection for the policyholder against different types of insurance risks in a single contract. IFRS 17 does not require or permit separating insurance components of an insurance contract unless the legal form of a single contract does not reflect the substance of its contractual rights and obligations. In such cases, separate insurance elements must be recognised. Overriding the ‘single contract’ unit of account presumption involves judgement and is not an accounting policy choice. When determining whether a legal contract reflects its substance or not, the Group considers the interdependency between different risks covered, the ability of all components to lapse independently, and the ability to price and sell the components separately.
- Determination of the contract boundary: The measurement of a group of insurance contracts includes all the future cash flows arising within the contract boundary. In determining which cash flows fall within a contract boundary, the Group considers its substantive rights and obligations arising form the terms of the contract, from applicable law, regulation and customary business practices. Cash flows are considered to be outside of the contract boundary if the Group has the practical ability to reprice existing contracts to reflect their reassessed risks, and if the contract’s pricing for coverage up to the date of reassessment only considers the risks until the next reassessment date. The Group applies its judgement in assessing whether it has the practical ability to set a price that fully reflects all the risks in the contract or portfolio. The Group considers contractual, legal and regulatory restrictions when making its assessment and applies judgement to decide whether these restrictions have commercial substance.
- Identification of portfolios: The Group defines a portfolio as insurance contracts subject to similar risks and managed together. Contracts within the same product and industry line are expected to be in the same portfolio as they are similar risks and are managed together. This assessment of which risks are similar and how contracts are manged requires the exercise of judgement.
- Level of aggregation: The Group applies judgement when distinguishing between contracts that have no significant possibility of becoming onerous and other profitable contracts
- Assessment of directly attributable cash flows: The Group uses judgement in assessing whether cash flows are directly attributable to a specific portfolio of insurance contracts. When estimating fulfilment cash flows, the Group allocates fixed and variable overheads fulfilment cash flows directly attributable to the fulfilment of insurance contracts.
- Level of aggregation for determining the risk adjustment for non-financial risk: IFRS 17 does not define the level at which the risk adjustment for non-financial risk should be determined. The level of aggregation for determining the risk adjustment for non-financial risk is not an accounting policy choice and requires judgement. The Group considers that the benefits of diversification occur at an issuing entity level and therefore determines the risk adjustment for non-financial risk at that level. The diversification benefit is then allocated to all groups of insurance contracts for which it has been considered in aggregate. The Group considers that the risk adjustment for non-financial risk allocated to any individual group, as the cost of uncertainty, cannot be negative. Accordingly, when determining the allocation, correlations of non-financial risk between groups are ignored. This is because they have already been considered as part of the diversification benefits in determining the overall entity-level risk adjustment. The Group allocates the total entity-level risk adjustment to groups bases on the percentage of the group’s expected fulfilment cash flows to the total expected fulfilment cash flows.
3.1.2 Financial instruments
- Determination of when there is a significant increase in credit risk on financial instruments valued at amortised cost: The Group has defined trigger points for what is defined as a significant change in credit risk reflecting a change in the calculation of expected credit losses. Loss given default and probability of default are calculated using considerable judgement based on internal and external observable market data.
- Determination of what constitutes an active market for financial instruments: The Group has established requirements for daily turnover as a criterion for whether a market is considered active. The determination is based on discretion.
3.2 Key sources of estimation uncertainty
The following are key estimations that the directors have used in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognized in the financial statements:
3.2.1 Insurance contract assets and liabilities and reinsurance contract assets and liabilities
By applying IFRS 17 to measurement of insurance contracts issued and reinsurance contracts held, the Group has made estimations in the following key areas:
- Future cash flows
- Discount rates
- Risk adjustments for non-financial risk
Every area, including the Group’s estimation methods and assumptions used and other sources of estimation uncertainty are discussed below.
A sensitivity analysis of exposure to insurance risk and its impact on residual value is included in Note 4.
3.2.1.1 Technique for estimation of future cash flows
In estimating fulfilment cash flows included in the contract boundary, the Group uses all the reasonable and supportable information available without undue cost and effort, which includes information about past events, current conditions and future forecasts.
Cash flow estimates include both market variables directly observed in the market or derived directly from markets and non-market variables such as mortality rates, disability rates, accident rates, average claim costs and probabilities of severe claims The Group maximizes the use of observable inputs for market variables and utilizes internally generated group-specific data. For life insurance contracts, the Group uses national statistical data for estimating the mortality rates as the national statistical data is more current than internal mortality statistics.
3.2.1.2 Method of estimating discount rates
In determining discount rates for different products, the Group uses the bottom-up approach. This method excludes the effects of risks present in the assets, but not in the insurance cash flows. Applying this approach, the Group estimates the yield curve from sufficiently liquid swap-rates, a long term ultimate forward rate and assumptions on convergence. A premium reflecting the degree of illiquidity in the insurance contracts is added. This illiquidity premium is based on a reference portfolio of bonds.. One of the key sources of estimation uncertainty is connected to isolating the illiquidity component in observable yield spreads in this reference portfolio. Another key source of estimation uncertainty is determining discount rates beyond the last liquid and observable point of the swap-curve.
To derive the yield curve from the reference portfolio of items, the Group uses observable market inputs such as market prices in an active market. The Group exercises judgement to assess whether swap-rates and an illiquidity premium inferred from traded bonds represents the characteristics of the insurance contracts being measured, with respect to timing, amount and risk.
The Group used the following yield curves to discount cash flows.
| Year | 31.12.2023 | 31.12.2022 |
|---|---|---|
| 1 | 4,842 % | 4,226 % |
| 2 | 4,530 % | 4,040 % |
| 3 | 3,978 % | 3,891 % |
| 4 | 3,606 % | 3,843 % |
| 5 | 3,522 % | 3,901 % |
| 10 | 4,004 % | 4,260 % |
| 15 | 3,853 % | 4,012 % |
| 25 | 3,665 % | 3,722 % |
| 50 | 3,524 % | 3,526 % |
| 75 | 3,503 % | 3,503 % |
| 100 | 3,500 % | 3,500 % |
3.2.1.3 Risk adjustment for non-financial risk
The risk adjustment for non-financial risk is the compensation the Group requires for bearing the uncertainty about the amount and timing of the cash flows arising from insurance risk and other non-financial risks such as lapse risk, expense risk and business- and estimation uncertainty. , The uncertainty increases the further in time you go, and especially for periods where parts of the risk under the contract can be repriced and where the premiums have not yet been determined. The risk adjustment measures the degree of variability of expected future cash flows and applies a Group-specific price for bearing that risk, such that the Group is indifferent to bearing that risk or not. The Group determines the risk adjustment for non-financial risk at the entity level and then allocates it to all the groups of insurance contracts. In estimating the risk adjustment, the Group estimates the risks in fulfilment cash flows allocated to non-financial risk and this implies the additional amount of capital required to make the residual value a certainty equivalent value with respect to non-financial risk. That amount is translated to a percentage applied to fulfilment cash flows. The percentage was set for the life and non-life contracts at 8,7 percent and 4,3 per cent respectively in 2023 (2022: 9,5 percent and 4,1 per cent). This amount corresponds to a confidence level of 95 percent (2022: 95 percent) on the life contracts, 75 percent (2022: 75 percent) on then non-life contracts.
Non-financial risk factors, also referred to as underwriting variables, are the key sources of estimation uncertainty, as they impact estimates of future cash flows and their associated probabilities and affect the amount of projected capital required at the determined confidence level, which in turn impacts the overall amount of risk adjustment for non-financial risk. See Note 4 for further details on the underwriting variables.
3.2.2 Investment property
By applying IFRS 13 Fair Value Measurement on investment properties, the Group has made estimations in following areas:
- Future cash flows
- Discount rates
3.2.2.1 Future cash flows
The main components of future cash flows consisting of:
- Currently applicable terms and conditions, contracts expiry and assumed market rent
- Vacant areas with assumed market rent
- Parking income, parking area and number of places
- Estimated annual inflation
- Annuel rent adjustment as a percentage of inflation
- General vacancy
- Normal annual operating costs
- Normal annual communal costs per square metre
- Upgrading costs per square metre on new lease
- Any further upgrading costs (year and amount)
- Number of months vacancy on each contract expiry
- Assumed final value Year 20
- Nominal return on requirement
Cash flow estimates include both market variables directly observed in the market or derived directly from markets and non-market variables.
3.2.2.2 Discount rate
The discount rate used corresponds to the normal market’s return requirement for similar properties, and is calculated using the top-down method based on the yield from the latest known transactions in similar and relevant properties or other estimates. The discount rate is decomposed where different elements regarding the market yield estimation for different type of property, geographic conditions, contract risk, building risk, and general market yield regarding investment properties. The different risks are calculated on single property level and assessed in relation to each other.
The Group’ s used the following discount rate in different countries as per 31st December:
| Country | 2023 | 2022 |
|---|---|---|
| Norway | 6,55 % - 9,60 % | 5,55 % - 8,95 % |
| Sweden | 6,10 % - 7,50 % | 5,50 % - 7,35 % |
| Denmark | 6,15 % - 8,00 % | 5,80 % - 8,15 % |
3.2.2.3 Sensitivity analyses
At 31 December 2023 the Group’s total carrying amount of Investment Property was 92 322 NOK million (93 992 NOK million as at 31 December 2022).
The sensitivity analysis below shows how the value of one of the Group’s centrally located office properties in Oslo Changes with certain changes in key parameters in the Group’s valuation model. The analysis shows change in value (given as percentage change) for a given change in a parameter on the assumption that all other parameters stay unchanged. In reality there are interdependencies between several variables, so that at change in one parameter will be accompanied by change in one or more other parameters. The sensitivity figures given do not capture such relationships with other variables and are shown only for illustrative purposes. The effect of changes in parameters will vary somewhat from property to property.
| Parameter | Change | Change in value 31.12.2023 | Change in value 31.12.2022 |
|---|---|---|---|
| Return requirement | + 100 bps | -11 % | -12 % |
| -100 bps | 13 % | 15 % | |
| Market rent | 10 % | 8 % | 8 % |
| -10 % | -8 % | -8 % | |
| Exit yield | +100 bps | -8 % | -11 % |
| -100 bps | 12 % | 19 % | |
| Inflation | +50 bps | 6 % | 7 % |
| -50 bps | -6 % | -6 % |
In the analyses above the return requirement means the interest rate used in discounting future cash flows in the model. Market rent is understood as expected rent in the event of renegotiation of existing contracts or on change of tenant. Exit Yield means the yield that is used to calculate the final value in the valuation model’s final analysis period (Year 20).
Note 4 Insurance risk
Insurance risk is the risk that the timing and/or amount of the payment for an insured event may differ from what was expected. The insurance risk is measured and managed at the entity level.
4.1. Insurance risk related to contracts for public-sector occupational pensions
Insurance risk related to insurance contracts issued for public-sector occupational represents the risk that disability and mortality in KLP's membership will develop in a different way from the assumptions used in the calculations. The insured's age and gender may affect that individual’s risk. The insurance risk is therefore priced individually, but the price is equalised at the risk community level. The composition and size of the portfolio will therefore affect the insurance risk. The insurance contracts run until the policyholder chooses to move the contract or it expires. The insurance risk is repriced each year for new accruals under the contract. Historically accrued rights cannot be repriced.
4.1.1. Longevity risk
The insurance risk for longevity is the risk of the insured living longer than expected (retirement pensions). Life expectancy has steadily increased over the last decade. Major factors behind this have been developments in medical science, and changes in diet and lifestyle.
The Group uses analyses of its own insurance data and analyses from Statistics Norway (SSB) of population data to look at changes in life expectancy and annual variations in it. In particular, expected future improvements in mortality (increasing life expectancy) are based on estimates from Statistics Norway. The analyses are used to determine the best estimate for future mortality used to calculate expected future cash flows. Data for recent years may be affected by Covid, so it is not clear that insights from recent history can be used to predict the normal situation going forward.
As the retirement pension is lifelong, increased life expectancy will entail payment over a longer period. Public-sector occupational pensions have a built-in longevity adjustment which reduces this effect by reducing the annual benefit as life expectancy increases and vice versa. The longevity adjustment to pensions is calculated by Statistics Norway based on the improvement in life expectancy across the Norwegian population (regardless of gender) and may be different from the improvement in life expectancy in KLP’s membership.
4.1.2 Mortality risk (survivors’ pensions)
Insurance risk relating to mortality is a risk associated with survivors’ pensions, where the assumptions used differ from our actual experience. This risk is correlated with longevity risk, but has far less impact on KLP’s overall finances.
4.1.3 Disability risk (disability pensions)
For disability pensions, the insurance risk is related to whether the trend in disability differs from the assumptions used. Social factors such as business restructuring, changes in the physical and psychological work environment, changes in official regulations and technological development can affect disability. Recent historical data for disability is also affected by the pandemic. So, here again, it is unclear whether this data can be used to predict the normal situation going forward.
In calculating expected future cash flows in the consolidated accounts, the assumptions on disability risk are based on experience from KLP's insured population.
4.1.4 Management of insurance risk related to insurance contracts for public-sector occupational pensions
The Board has established a framework for insurance risk and guidelines for follow-up.
The Director of the Actuarial and Product department bears the operational responsibility for managing, measuring and monitoring insurance risk on public-sector occupational pensions. The department analyses the trend in risk on an ongoing basis and prepares regular reports and analyses. The department determines the expected cash flows on the insurance contracts partly on the basis of these analyses.
If the analyses show changes in mortality or disability over time in one or more portfolios of contracts, Actuarial and Product draws up proposals for a new calculation base which is then reviewed by the Group entity's risk management committee chaired by the managing director. The managing director bears the overall responsibility for managing and pricing insurance risk and decides on changes in the basis for calculation. The changes are taken into account in determining future cash flows related to the insurance contracts. The Board is kept informed of the changes.
The Group has an independent actuarial function which checks that the Group’s insurance risk is measured and handled in a satisfactory manner.
4.1.5 Sensitivity
The table below shows the effect on the Group’s residual value from changes in the default assumptions used in the best estimates at 31.12.2023 and 31.12.2022. Sensitivity related to costs and transfers out is also included in the overview. The residual value is the part of the insurance obligation that is not included in the best estimate or the risk adjustment. This amount represents a liability of NOK 355 979 million at 31 December 2023, (NOK 337 305 million at 31 December 2022).
| NOK millions | Change | 31.12.2023 | 31.12.2022 |
|---|---|---|---|
| Reduced mortality | -5 % | -4 519 | -5 077 |
| Increased mortality | 5 % | 4 329 | 4 853 |
| Increased disability | 5 % | -401 | -424 |
| Reduced disability | -5 % | 404 | 427 |
| Increased costs | 5 % | -1 303 | -1 329 |
| Reduced costs | -5 % | 1 303 | 1 329 |
| Increased relocation from KLP | 5 % | 6 146 | -8 117 |
| Reduced relocation from KLP | -5 % | -9 612 | 5 229 |
| Increased yield curve | *) | 33 594 | 29 141 |
| Reduced yield curve | **) | -42 074 | -33 014 |
| All changes to assumptions are in % change of the standard assumption applied as of 31/12/2023. | |||
| *) Increased interest rate curve by 50 basis points for the liquid part of the discount rate curve, 1:10 years. Then extrapolated to an estimate for long-term interest based on the sum of long-term real GDP growth and Norges Bank's inflation target. | |||
| **) Reduced by 50 basis points for the liquid part of the discount rate curve, 1:10 years. Then extrapolated to an estimate for long-term interest based on the sum of long-term real GDP growth and Norges Bank's inflation target. | |||
4.2 Insurance risk related to non-life insurance contracts
Insurance risk for the individual insurance contract comprises the probability of an insured event occurring and the uncertainty as to the amount of the claim payment. The uncertainty at the portfolio level is also affected by factors such as changes in legislation and judicial rulings. The larger the portfolio, the smaller the relative insurance risk. The total insurance risk will also be less where the portfolio is geographically diversified and is spread over different insurance products.
The provisions for claims received, including claims processing costs, are set in line with expectations with a risk adjustment added, so the provision is sufficient with 75% probability. The 75% confidence level is set by the company’s Board of Directors and reflects the entity’s risk appetite.
The provisions are discounted using a yield curve such that future financial income from monies set aside is deducted from the provision. If future financial returns deviate from the yield curve used, this will result in a settlement difference for previous claims years’ provisions.
The provisions have expected future inflation for the next few years baked in. If inflation differs from expectations, this will result in a settlement difference for previous years’ provisions and a profit/loss difference on the next year’s underwriting result.
Interest rates and inflation are mutually dependent, so these two risks cancel each other out. Increased inflation which causes a settlement loss will result in higher interest rates, which will in turn produce a settlement gain. Reduced inflation which causes a settlement gain will result in lower interest rates, which will in turn produce a settlement loss.
Premium levels for the company's insurance contracts are determined for 12 months, in line with the agreed coverage period. Any changes in inflation and interest rates will therefore be taken into account in setting premiums in the course of a year. As non-life insurance has a relatively short settlement period and the contracts are of no more than one year’s duration, inflation and exchange rate risk are limited.
4.2.1 Limitation of insurance risk
Guidelines have been prepared for the types of risks the entity accepts in its portfolio. Risks are generally accepted from customers from within the entity’s primary target groups, provided that the scope of the cover falls within the standard products that the entity offers. Premiums are differentiated on the basis of the individual customer’s risk. In borderline cases, special decision-making procedures are followed before the risk can be taken on. Where there are special risks, limitations in the conditions and scope of coverage will be considered.
The entity reduces its insurance risk, including concentration risk, with reinsurance cover that limits the company's retention per claim.
4.2.2 Management of insurance risk
The entity’s Board of Directors has established a framework for insurance risk and drawn up guidelines for managing this risk. Risk management is handled on a daily basis by the entity’s Finance department. The entity has also established a separate risk management committee comprising the senior management group and three other key employees as permanent participants. The Group has established an independent actuarial function which takes the role of an impartial risk management unit.
4.2.3 Claims estimates for non-life insurance
| NOK millions YEAR | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|---|---|---|---|---|
| - at the end off the year | 780 | 835 | 912 | 1 050 | 1 073 | 1 334 | 1 314 | 1 413 | 1 617 | 1 810 |
| - one year after | 793 | 848 | 908 | 1 034 | 1 042 | 1 349 | 1 309 | 1 423 | 1 623 | |
| - two years after | 778 | 854 | 927 | 1 023 | 1 023 | 1 340 | 1 333 | 1 423 | ||
| - threee years after | 766 | 853 | 923 | 1 008 | 1 029 | 1 326 | 1 339 | |||
| - four years after | 751 | 843 | 913 | 982 | 1 017 | 1 314 | ||||
| - five years after | 726 | 829 | 908 | 975 | 1 011 | |||||
| - six year after | 722 | 825 | 900 | 966 | ||||||
| - seven years after | 724 | 818 | 893 | |||||||
| - eight years after | 711 | 795 | ||||||||
| - nine years after | 706 | |||||||||
| Current | ||||||||||
| estimate | 706 | 795 | 893 | 966 | 1 011 | 1 314 | 1 339 | 1 423 | 1 623 | 1 810 |
| Paid | ||||||||||
| claims | 689 | 778 | 871 | 931 | 931 | 1 200 | 1 148 | 1 140 | 1 164 | 877 |
| Remaining provisions | ||||||||||
| for claims | 16 | 17 | 22 | 35 | 80 | 114 | 191 | 283 | 459 | 933 |
| NOK millions | As of 31.12.2023 | |||||||||
| Claims provisions excluding pool arrangements and indirect claims handling costs: | 2 221 | |||||||||
| Claims provisions for pool arrangements: | 136 | |||||||||
| Provision for indirect claims handling costs: | 200 | |||||||||
| Risk adjustments | 89 | |||||||||
| Receivables, regress, etc. booked as claims provisions | -52 | |||||||||
| Discounting effect | -260 | |||||||||
| Total booked after reinsurance (LIC) | 2 334 | |||||||||
| Reinsurance share LIC | 0 | |||||||||
| Gross LIC | 2 334 | |||||||||
| Premium provisions gross (LRC) | 354 | |||||||||
| Receivables regress booked as premium provision (LRC) | -35 | |||||||||
| Gross LRC | 320 | |||||||||
| Reinsurance share LRC | -10 | |||||||||
| Premium provisions after reinsurance LRC | 330 | |||||||||
| Technical insurance provisions gross (LRC+LIC) | 2 654 | |||||||||
| Reinasrurance share of technical insurance provisions (LRC+LIC) | 728 | |||||||||
| Technical insurance provisions after reinsurance (LRC+LIC) | 2 664 | |||||||||
| NOK millions YEAR | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
|---|---|---|---|---|---|---|---|---|---|---|
| - at the end off the year | 538 | 780 | 835 | 912 | 1 050 | 1 073 | 1 334 | 1 314 | 1 413 | 1 617 |
| - one year after | 517 | 793 | 848 | 908 | 1 034 | 1 042 | 1 349 | 1 309 | 1 423 | |
| - two years after | 499 | 778 | 854 | 927 | 1 023 | 1 023 | 1 340 | 1 333 | ||
| - threee years after | 476 | 766 | 853 | 923 | 1 008 | 1 029 | 1 326 | |||
| - four years after | 467 | 751 | 843 | 913 | 982 | 1 017 | ||||
| - five years after | 455 | 726 | 829 | 908 | 975 | |||||
| - six year after | 442 | 722 | 825 | 900 | ||||||
| - seven years after | 436 | 724 | 818 | |||||||
| - eight years after | 432 | 711 | ||||||||
| - nine years after | 426 | |||||||||
| Current | ||||||||||
| estimate | 426 | 711 | 818 | 900 | 975 | 1 017 | 1 326 | 1 333 | 1 423 | 1 617 |
| Paid | ||||||||||
| claims | 407 | 688 | 774 | 863 | 919 | 898 | 1 169 | 1 065 | 991 | 736 |
| Remaining provisions | ||||||||||
| for claims | 19 | 23 | 44 | 37 | 56 | 120 | 157 | 268 | 432 | 881 |
| NOK millions | As of 31.12.2022 | |||||||||
| Claims provisions excluding pool arrangements and indirect claims handling costs: | 2 138 | |||||||||
| Claims provisions for pool arrangements: | 39 | |||||||||
| Provision for indirect claims handling costs: | 192 | |||||||||
| Risk adjustments | 84 | |||||||||
| Receivables, regress, etc. booked as claims provisions | -51 | |||||||||
| Discounting effect | -234 | |||||||||
| Total booked after reinsurance (LIC) | 2 169 | |||||||||
| Reinsurance share LIC | 736 | |||||||||
| Gross LIC | 2 904 | |||||||||
| Premium provisions gross (LRC) | 309 | |||||||||
| Receivables regress booked as premium provision (LRC) | -33 | |||||||||
| Gross LRC | 276 | |||||||||
| Reinsurance share LRC | 0 | |||||||||
| Premium provisions after reinsurance LRC | 276 | |||||||||
| Technical insurance provisions gross (LRC+LIC) | 3 181 | |||||||||
| Reinasrurance share of technical insurance provisions (LRC+LIC) | 736 | |||||||||
| Technical insurance provisions after reinsurance (LRC+LIC) | 2 445 | |||||||||
4.2.4 Sensitivity
The table shows the change in the profit/loss to the entity and the Group’s residual value in the event of changes in key assumptions and parameters used to calculate best estimates.
| NOK millions | Change | 31.12.2023 | 31.12.2022 |
|---|---|---|---|
| Cost | 1 % | 5 | 4 |
| Premium level | 1 % | 24 | 22 |
| Claims payment | 1 % | 17 | 13 |
| Claims provision | 1 % | 17 | 20 |
| Inflation | 1 % | 55 | 52 |
| Interest rate increase* | 1 % | 71 | 81 |
| Interest rate reduction* | -1 % | -76 | -97 |
| All changes to assumptions are in % change of the standard assumption applied as of 31 December 2023. | |||
| *) Changed the interest rate level by +/- 100 basis points throughout the entire yield curve. | |||
Note 5 Financial Market Risk
Market risk
Market risk is the risk of loss resulting from changes in market prices. The market risk depends both on the size of the exposure and on the volatility of market prices. Of the risks on the asset side, share exposure is the biggest financial risk factor, but also market risk linked to fixed-income investments and investment property has a significant potential for loss.
5.1 Management of market risk
The board sets annual limits for market risk through the capital management strategy. This contains limits for market risk in management adapted to risk-bearing capacity. This is followed daily by the administration so that the asset allocation is adapted on an ongoing basis in line with the strategy for the desired utilization of the risk capacity. This reduces the risk of negative results from market risk and provides a return profile that satisfies the requirement for solvency capital coverage as well as preserving enough risk capacity to maintain a stable portfolio risk over time.
All equity and interest rate exposures are included in a risk measurement system that enables the simulation and monitoring of equity and interest rate risk across portfolios. Active risk is managed through fixed limits in relation to the portfolio's benchmark index. Derivatives can be used in the management of market risk for cost- and time-efficient implementation of risk change.
As the insurance liabilities are discounted using a market-based interest rate curve, the Group has chosen to use the fair value option for the accounting of interest-bearing securities linked to the placement of the insurance capital. This means that the interest-bearing investments are entered at market value in the balance sheet, with the change in value above profit and loss account. This will therefore reduce the effect changes in market interest have on the insurance liabilities. However, the effect of interest rate changes on the asset side will not match the interest rate changes on the insurance liabilities because the insurance liabilities on public service pensions have a longer term than it is possible to invest in the Norwegian interest rate market.
5.2 Sensitivity
The effect of changes linked to parameters that have an impact on property values, including changes in market interest rates, is shown in Note 3.
The effect of interest rate changes on insurance liabilities is shown in Note 4.
The effect of interest rate changes on financial instruments is shown in Note 7.
The effect of a 10 per cent drop in the equity markets will have a negative effect on the residual value of NOK 20,821 million.
Note 6 Liquidity risk
Liquidity risk is the risk that the group does not have sufficient liquidity to cover short-term debt, unanticipated residual liabilities that may come due, and ongoing operations without incurring significant additional costs in the form of asset price declines that need to be realized.
The table below specifies the company’s financial obligations ranked by maturity. The amounts given are non-discounted contractual flows of cash.
| 31.12.2023 NOK MILLIONS | Within 1 month | 1-12 months | 1-5 years | 5-10 years | Over 10 years | Total |
|---|---|---|---|---|---|---|
| Subordinated loan ¹ | 0 | 140 | 656 | 736 | 4 991 | 6 523 |
| Perpetual hybrid Tier 1 securities ¹ | 0 | 74 | 296 | 370 | 1 105 | 1 845 |
| Debt to and deposits from customers (without defined maturity) | 14 060 | 0 | 0 | 0 | 0 | 14 060 |
| Covered bonds issued | 0 | 4 477 | 28 741 | 904 | 0 | 34 123 |
| Payables to credit institutions | 1 212 | 483 | 475 | 0 | 0 | 2 170 |
| Financial derivatives | 5 539 | 5 865 | 903 | 779 | 958 | 14 044 |
| Accounts payable | -1 | 0 | 0 | 0 | 0 | -1 |
| Contingent liabilities (without defined maturity) | 31 409 | 0 | 0 | 0 | 0 | 31 409 |
| Total | 52 219 | 11 039 | 31 072 | 2 789 | 7 055 | 104 173 |
If the minority interests are taken out of account, derivatives maturing within one month are reduced with NOK 65 million and derivatives maturing between 1 to 12 months are reduced with NOK 4 million. In addition, payables to credit institutions maturing within one month are reduced with NOK 11 million. Total amount of the financial liabilities for the Group are after these adjustments NOK 103 619 million.
| 31.12.2022 NOK MILLIONS | Within 1 month | 1-12 months | 1-5 years | 5-10 years | Over 10 years | Total |
|---|---|---|---|---|---|---|
| Subordinated loan ¹ | 0 | 131 | 608 | 690 | 4 815 | 6 245 |
| Perpetual hybrid Tier 1 securities ¹ | 0 | 72 | 287 | 359 | 1 215 | 1 933 |
| Debt to and deposits from customers (without defined maturity) | 13 779 | 0 | 0 | 0 | 0 | 13 779 |
| Covered bonds issued | 0 | 5 542 | 28 862 | 940 | 0 | 35 343 |
| Payables to credit institutions | 1 499 | 339 | 778 | 0 | 0 | 2 616 |
| Financial derivatives | 3 370 | 2 085 | 670 | 751 | 612 | 7 488 |
| Accounts payable | 36 | 0 | 0 | 0 | 0 | 36 |
| Contingent liabilities (without defined maturity) | 31 567 | 0 | 0 | 0 | 0 | 31 567 |
| Total | 50 250 | 8 170 | 31 204 | 2 740 | 6 642 | 99 007 |
| 1 Some of the hybrid capital are perpetual. Estimated cash flows are based on expected maturity at the interest adjustment date. | ||||||
If the minority interests are taken out of account, derivatives maturing within one month are reduced with NOK 72 million and derivatives maturing between 1 to 12 months are reduced with NOK 140 million. In addition, payables to credit institutions maturing within one month are reduced with NOK 23 million. Derivatives maturing within between 1 to 5 years increase by NOK 12 million. Total amount of the financial liabilities for the Group are after these adjustments NOK 98 299 million.
The table above shows financial liabilities the Group has, grouped by interest payments and repayment of principal, based on the date payment falls due. The banking business contains the largest proportion of the financial liabilities in the Group.
The risk that the Group would not have adequate liquidity to meet its current liabilities and current operations is very small since a major part of the Group’s assets is liquid. The Group has significant funds invested in the money market, bonds and shares that can be sold in the event of a liquidity requirement. The Group’s liquidity strategy involves the Group always having adequate liquid assets to meet the Group’s liabilities as they fall due without accruing significant costs associated with releasing assets.
Asset composition in the Group’s portfolios should be adequately liquid to be able to cover other liquidity needs that may arise. KLP Kapitalforvaltning has the day-to-day responsibility and reports on the Group’s liquidity. Internal parameters have been established for the size of the liquidity holding. The Group’s risk management unit monitors and reports developments in the liquidity holding continuously. The Group Board determines an asset management and liquidity strategy for the Group annually. The liquidity strategy includes parameters, responsibilities, risk measurement and an emergency plan for liquidity management.
The biggest obligations in the Group are those related to insurance, essentially applying to pension obligations. These obligations are fully founded and the liquidity management is handled in the same way as other obligations.
The table below shows the expected payment profile based on the assumptions for the period.
EXPECTED PAYMENT PROFILE PENSION OBLIGATIONS
The payment profile for insurance liabilities is based on non-discounted values and applies to life insurance and non-life insurance. Insurance liabilities related to the life insurance businesses are discounted in the financial statements and show the present value at the end of the reporting period. The claims reserves are not discounted in the non-life insurance financial statements.
Note 7 Interest rate risk
| 31.12.2023 NOK MILLIONS | ||||||||
|---|---|---|---|---|---|---|---|---|
| Up to 3 months | From 3 months to 12 months | From 1 year to 5 years | From 5 years to 10 years | Over 10 years | Changes in cash flow 01.01.2023 -31.12.2023 | Total | Adjusted for the unit holders' interests in consolidated securities funds | |
| ASSETS | ||||||||
| Financial derivatives classified as assets | 2 | -3 | -54 | 41 | -195 | -9 | -217 | -129 |
| Debt instruments classified as loans and receivables – at amortised cost | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Bonds and other fixed-return securities | -58 | -155 | -4 282 | -7 680 | -2 501 | 219 | -14 456 | -13 262 |
| Fixed income fund holdings | 0 | 0 | 0 | 0 | 0 | 75 | 75 | 0 |
| Lending and receivables | 0 | 0 | 0 | 0 | 0 | 123 | 123 | 123 |
| Lending | 0 | 26 | 611 | 331 | -5 | 947 | 1 911 | 1 911 |
| Cash and bank deposits | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Contingent liabilities ¹ | 0 | 0 | 0 | 0 | 0 | 40 | 40 | 40 |
| Total assets | -55 | -131 | -3 725 | -7 308 | -2 701 | 1 396 | -12 524 | -11 317 |
| LIABILITIES | ||||||||
| Deposit | 0 | 0 | 0 | 0 | 0 | -145 | -145 | -145 |
| Liabilities created on issue of securities | 0 | 0 | 0 | 0 | 0 | -314 | -314 | -314 |
| Financial derivatives classified as liabilities | 2 | -1 | -12 | 4 | 0 | -7 | -14 | -15 |
| Hybrid capital, subordinated loans | 0 | 0 | 45 | 30 | 58 | 0 | 133 | 133 |
| Debt to credit institutions | 0 | 0 | 0 | 0 | 0 | -57 | -57 | -57 |
| Total liabilities | 2 | -1 | 32 | 35 | 58 | -524 | -397 | -399 |
| Total before tax | -53 | -132 | -3 692 | -7 273 | -2 643 | 872 | -12 921 | -11 716 |
| Total after tax | -40 | -99 | -2 769 | -5 455 | -1 982 | 654 | -9 691 | -8 787 |
| 31.12.2022 NOK MILLIONS | ||||||||
|---|---|---|---|---|---|---|---|---|
| Up to 3 months | From 3 months to 12 months | From 1 year to 5 years | From 5 years to 10 years | Over 10 years | Changes in cash flow 01.01.2022 -31.12.2022 | Total | Adjusted for the unit holders' interests in consolidated securities funds | |
| ASSETS | ||||||||
| Financial derivatives classified as assets | 29 | -1 | 8 | 63 | -153 | 5 | -48 | -32 |
| Debt instruments classified as loans and receivables – at amortised cost | 0 | 0 | 0 | 0 | 0 | 13 | 13 | 13 |
| Bonds and other fixed-return securities | -44 | -76 | -1 223 | -1 578 | -1 339 | 282 | -3 979 | -3 101 |
| Fixed income fund holdings | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Lending and receivables | 0 | 0 | 0 | 0 | 0 | 197 | 197 | 178 |
| Lending | 0 | 0 | 0 | 0 | 0 | 884 | 884 | 884 |
| Cash and bank deposits | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Contingent liabilities ¹ | 0 | 0 | 0 | 0 | 0 | 37 | 37 | 37 |
| Total assets | -15 | -77 | -1 215 | -1 516 | -1 492 | 1 418 | -2 897 | -2 022 |
| LIABILITIES | ||||||||
| Deposit | 0 | 0 | 0 | 0 | 0 | -142 | -142 | -142 |
| Liabilities created on issue of securities | 0 | 0 | 0 | 0 | 0 | -335 | -335 | -335 |
| Financial derivatives classified as liabilities | -3 | 0 | -15 | 1 | 0 | -8 | -25 | -24 |
| Hybrid capital, subordinated loans | 0 | 0 | 0 | 34 | 57 | 0 | 91 | 91 |
| Debt to credit institutions | 0 | 0 | 0 | 0 | 0 | -52 | -52 | -52 |
| Total liabilities | -3 | 0 | -15 | 35 | 57 | -536 | -463 | -462 |
| Total before tax | -18 | -77 | -1 230 | -1 481 | -1 435 | 882 | -3 359 | -2 484 |
| Total after tax | -14 | -58 | -922 | -1 111 | -1 076 | 661 | -2 520 | -1 863 |
| ¹ Contingent liabilities are lending agreements that are not yet materialized. | ||||||||
The note shows the effect on profits if market interest rates were to increase by one percent, for fair value risk and variable interest risk.
Change in fair value (fair value risk) is shown in the first five columns and is calculated by the change in fair value of interest bearing instruments if interest rates had been one percent higher at the end of the period. The column change in cash flow shows the change in cash flows if the interest had been one percent higher over the year being reported on. The sum of these results reflects the overall effect that the scenario had given the group during the period being reported on.
The fair value risk applies to fixed interest securities were the market value of the securities is affected by market interest rates. Floating rate risk applies to securities with floating interest rates, where a change in market interest rates affects the cash-flow from the interest bearing securities.
The following securities are included in the note; securities measured at fair value through profit or loss (floating and fixed interest rates), investments held to maturity (only those with floating interest rates) and loans and receivables (only those with floating interest rates). The group has no securities classified as available for sale.
The Groups total interest rate risk is limited as a significant portion of the investments are bonds with fixed interest rates that are classified as held to maturity and loans and receivables, or fixed rate lending, measured at amortized cost. A change in market interest rate does not affect profit or loss for these assets.
Insurance contracts with guaranteed return does not change the accounting value even if interest rates change. Changes in interest rates also has no impact on the guaranteed return, but will have an impact on the achieved return to cover the guaranteed return. This is because the insurance funds are partly invested in debt instruments whose cash flows should help to meet the guaranteed return. Refer to note 4 for the impact on the residual value resulting from changes in the discount rate curve of the obligations.
Note 8 Currency risk
| 31.12.2023 | Fin.l pos. statement items excl. currency derivatives | Currency derivatives | Total | Translation rate | Net position | Net position in NOK adjusted for the minorities share | |||
|---|---|---|---|---|---|---|---|---|---|
| NOK MILLION/ FOREIGN CURRENCY ¹ | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | Currency/NOK | NOK | |
| US dollar | 22 210 | -1 245 | 9 777 | -21 449 | 31 988 | -22 694 | 10,16 | 94 380 | 49 347 |
| Euro | 6 358 | -412 | 4 899 | -9 282 | 11 256 | -9 694 | 11,22 | 17 528 | 9 931 |
| Japanese yen | 247 457 | -343 | 91 197 | -220 150 | 338 654 | -220 494 | 0,07 | 8 512 | 3 802 |
| British Pound | 1 788 | 0 | 1 188 | -2 452 | 2 977 | -2 452 | 12,95 | 6 793 | 3 708 |
| Swedish krone | 27 593 | -21 | 27 282 | -49 933 | 54 875 | -49 954 | 1,01 | 4 959 | 1 031 |
| Danish kroner | 12 534 | -59 | 9 780 | -19 688 | 22 314 | -19 746 | 1,50 | 3 864 | 534 |
| Canadian dollar | 1 114 | 0 | 442 | -1 082 | 1 556 | -1 082 | 7,70 | 3 647 | 1 625 |
| Swiss franc | 556 | 0 | 176 | -446 | 732 | -446 | 12,07 | 3 453 | 1 508 |
| Indian rupi | 26 468 | 0 | 0 | 0 | 26 468 | 0 | 0,12 | 3 230 | 1 770 |
| Hong Kong dollar | 3 900 | 0 | 1 543 | -3 087 | 5 443 | -3 087 | 1,30 | 3 064 | 946 |
| Australian dollar | 875 | 0 | 405 | -912 | 1 280 | -912 | 6,93 | 2 555 | 1 127 |
| Taiwan new dollar | 9 924 | 0 | 0 | -3 127 | 9 924 | -3 127 | 0,33 | 2 249 | 776 |
| Korean won | 321 474 | 0 | 0 | -94 300 | 321 474 | -94 300 | 0,01 | 1 791 | 642 |
| Chinese Yuan | 756 | 0 | 0 | 0 | 756 | 0 | 1,43 | 1 083 | 669 |
| Brazilian real | 511 | 0 | 0 | 0 | 511 | 0 | 2,09 | 1 069 | 577 |
| Singapore dollar | 155 | 0 | 49 | -119 | 203 | -119 | 7,70 | 648 | 334 |
| South African rand | 1 133 | 0 | 0 | 0 | 1 133 | 0 | 0,56 | 629 | 337 |
| Mexican peso | 911 | 0 | 0 | 0 | 911 | 0 | 0,60 | 546 | 294 |
| Other currencies | 2 948 | 1 737 | |||||||
| Total short-term foreign currency positions | 162 949 | 80 695 | |||||||
| Euro | 2 511 | -301 | 120 | -1 483 | 2 631 | -1 784 | 11,22 | 9 500 | 9 500 |
| US dollar | 3 268 | -62 | 508 | -3 451 | 3 776 | -3 513 | 10,16 | 2 675 | 2 675 |
| Danish kroner | 460 | 0 | 0 | 0 | 460 | 0 | 1,50 | 692 | 692 |
| Japanese yen | 14 869 | -11 201 | 0 | 0 | 14 869 | -11 201 | 0,07 | 264 | 264 |
| Australian dollar | 0 | 0 | 0 | 0 | 0 | 0 | 6,93 | 0 | 0 |
| Canadian dollar | 0 | 0 | 0 | 0 | 0 | 0 | 7,70 | 0 | 0 |
| Swiss franc | 0 | 0 | 0 | 0 | 0 | 0 | 12,07 | 0 | 0 |
| Korean won | 2 771 | 0 | 0 | -2 777 | 2 771 | -2 777 | 0,01 | 0 | 0 |
| Swedish krone | 3 279 | 0 | 0 | -3 288 | 3 279 | -3 288 | 1,01 | -9 | -9 |
| British Pound | 144 | 0 | 1 | -156 | 145 | -156 | 12,95 | -147 | -147 |
| Total long-term foreign currency positions | 12 975 | 12 975 | |||||||
| Total net currency positions | 175 925 | 93 671 | |||||||
| 31.12.2022 | Fin.l pos. statement items excl. currency derivatives | Currency derivatives | Total | Translation rate | Net position | Net position in NOK adjusted for the minorities share | |||
|---|---|---|---|---|---|---|---|---|---|
| NOK MILLION/ FOREIGN CURRENCY ¹ | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | Currency/NOK | NOK | |
| US dollar | 18 248 | -934 | 9 053 | -20 606 | 27 300 | -21 540 | 9,85 | 56 750 | 25 962 |
| Euro | 5 749 | -270 | 4 233 | -8 368 | 9 982 | -8 638 | 10,51 | 14 130 | 7 934 |
| Japanske yen | 183 000 | -314 | 73 152 | -173 888 | 256 152 | -174 202 | 0,07 | 6 118 | 2 706 |
| Swedish krone | 28 109 | 0 | 27 506 | -50 802 | 55 615 | -50 802 | 0,95 | 4 550 | 851 |
| British Pound | 1 758 | -37 | 1 096 | -2 441 | 2 854 | -2 478 | 11,85 | 4 462 | 2 231 |
| Danske kroner | 4 507 | 0 | 1 737 | -3 355 | 6 245 | -3 355 | 1,26 | 3 647 | 1 395 |
| Canadian dollar | 1 073 | 0 | 406 | -1 053 | 1 479 | -1 053 | 7,27 | 3 093 | 1 624 |
| Swiss franc | 564 | 0 | 196 | -488 | 761 | -488 | 10,65 | 2 904 | 1 214 |
| Indian rupi | 20 825 | 0 | 0 | 0 | 20 825 | 0 | 0,12 | 2 480 | 1 408 |
| Danish kroner | 12 187 | -32 | 10 302 | -20 804 | 22 489 | -20 836 | 1,41 | 2 337 | -545 |
| Australian dollar | 668 | 0 | 263 | -639 | 930 | -639 | 6,68 | 1 944 | 837 |
| Taiwan new dollar | 7 947 | 0 | 0 | -2 923 | 7 947 | -2 923 | 0,32 | 1 610 | 572 |
| Korean won | 255 170 | 0 | 4 000 | -102 755 | 259 170 | -102 755 | 0,01 | 1 219 | 367 |
| Chinese Yuan | 705 | 0 | 0 | 0 | 705 | 0 | 1,42 | 999 | 630 |
| Brazilian real | 480 | 0 | 0 | 0 | 480 | 0 | 1,87 | 896 | 504 |
| South African rand | 1 092 | 0 | 0 | 0 | 1 092 | 0 | 0,58 | 632 | 352 |
| Emirati dirham | 193 | 0 | 0 | 0 | 193 | 0 | 2,68 | 517 | 295 |
| Other currencies | 3 692 | 2 211 | |||||||
| Total short-term foreign currency positions | 111 982 | 50 548 | |||||||
| Euro | 2 136 | -301 | 48 | -1 220 | 2 183 | -1 521 | 10,51 | 6 959 | 6 959 |
| US dollar | 3 309 | -66 | 22 | -3 127 | 3 331 | -3 193 | 9,85 | 1 353 | 1 353 |
| Danish kroner | 418 | 0 | 0 | 0 | 418 | 0 | 1,41 | 592 | 592 |
| Japanese yen | 14 580 | -10 408 | 0 | 0 | 14 580 | -10 408 | 0,07 | 312 | 312 |
| Swedish krone | 3 306 | 0 | 0 | -3 267 | 3 306 | -3 267 | 0,95 | 37 | 37 |
| Australian dollar | 0 | 0 | 0 | 0 | 0 | 0 | 6,68 | 0 | 0 |
| Canadian dollar | 0 | 0 | 0 | 0 | 0 | 0 | 7,27 | 0 | 0 |
| Swiss franc | 0 | 0 | 0 | 0 | 0 | 0 | 10,65 | 0 | 0 |
| Korean won | 0 | 0 | 0 | 0 | 0 | 0 | 0,01 | 0 | 0 |
| British Pound | 154 | 0 | 0 | -169 | 154 | -169 | 11,85 | -186 | -186 |
| Total long-term foreign currency positions | 9 067 | 9 067 | |||||||
| Total net currency positions | 121 049 | 59 615 | |||||||
| ¹ The table shows total financial position statement items for each individual currency, divided between short and long-term positions. The net position shows the actual currency risk the KLP Group had at the end of the period in NOK. The net position exclued the minority share shows the real currency risk the Group has at the end of the period, because the column is directly related to actual ownership and risk in the Group. Other sums are in local currency. The table shows a hedging ratio for foreign currency at 75 and 81 percent for 2023 and 2022 respectively. | |||||||||
The Group currency-hedges the majority of investments made in foreign currency. Financial hedging of currency exposure is done through derivatives. In principle all of the Group’s fixed-income investments and property investments in foreign currency are hedged back to NOK with the objective of 100 per cent hedging. As of 31 December 2023, the hedging ratio for equities in developed markets and the most liquid currencies in emerging markets was 60 percent with possible fluctuations between 50-70 percent. Other currencies, i.e., less liquid currencies in developed markets and currencies in emerging markets with the exception of the most liquid currencies, are not currency hedged. The reason for this is that these currencies do not have a large enough market and / or liquidity that it is appropriate to hedge currency. This reduction in the hedging of shares, as well as unsecured foreign equity funds, increases the net positions in foreign currencies.
If all currency positions were to change by 1 percent at the same time and in the same direction this would affect the pre-tax result by NOK 1 759 million. For 2022 the effect on the pre-tax result of a 1 percent change in the foreign exchange rates would have been NOK 1 210 million.
Note 9 Credit risk
| 31.12.2023 NOK MILLIONS | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Investment grade AAA to BBB | Lower rating | Public sector guarantee | Bank and finance | Mortgage < 80% ¹ | Mortgage > 80% ¹ | Other | Total | Adjusted for the unit holders' interest in consolidated securites funds | |
| Fixed-income securities measured at amortised cost | 2 157 | 0 | 18 | 0 | 0 | 0 | 79 | 2 254 | 2 254 |
| Debt instruments at fair value - fixed-return securities | 312 649 | 4 979 | 9 807 | 7 491 | 0 | 0 | 26 601 | 361 527 | 328 030 |
| Fixed-income funds | 0 | 0 | 0 | 0 | 0 | 0 | 16 041 | 16 041 | 16 041 |
| Loans and receivables | 32 679 | 0 | 0 | 322 | 0 | 0 | 0 | 33 001 | 19 445 |
| Financial derivatives classified as assets | 15 587 | 0 | 0 | 0 | 0 | 0 | 0 | 15 587 | 12 123 |
| Cash and bank deposits | 3 434 | 0 | 0 | 75 | 0 | 0 | 0 | 3 509 | 3 509 |
| Lending | 0 | 0 | 94 659 | 0 | 23 971 | 3 112 | 2 254 | 123 996 | 123 996 |
| Total | 366 505 | 4 979 | 104 485 | 7 888 | 23 971 | 3 112 | 44 975 | 555 915 | 505 398 |
| SPECIFICATION OF INVESTMENT GRADE NOK MILLIONS | AAA | AA | A | BBB | Total Investment grade |
|---|---|---|---|---|---|
| Fixed-income securities measured at amortised cost | 541 | 221 | 1 011 | 384 | 2 157 |
| Debt instruments at fair value - fixed-return securities | 91 209 | 40 285 | 104 855 | 76 300 | 312 649 |
| Fixed-income funds | 0 | 0 | 0 | 0 | 0 |
| Loans and receivables | 0 | 13 912 | 18 636 | 131 | 32 679 |
| Financial derivatives classified as assets | 0 | 5 904 | 9 683 | 0 | 15 587 |
| Cash and bank deposits | 0 | 2 788 | 646 | 0 | 3 434 |
| Lending | 0 | 0 | 0 | 0 | 0 |
| Total | 91 750 | 63 110 | 134 830 | 76 815 | 366 505 |
| 31.12.2022 NOK MILLIONS | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Investment grade AAA to BBB | Lower rating | Public sector guarantee | Bank and finance | Mortgage < 80% ¹ | Mortgage > 80% ¹ | Other | Total | Adjusted for the unit holders' interest in consolidated securites funds | |
| Fixed-income securities measured at amortised cost | 182 263 | 0 | 551 | 2 784 | 0 | 0 | 13 157 | 198 755 | 198 755 |
| Debt instruments at fair value - fixed-return securities | 124 085 | 2 688 | 6 755 | 4 813 | 0 | 0 | 9 346 | 147 686 | 122 448 |
| Fixed-income funds | 0 | 0 | 0 | 0 | 0 | 0 | 9 835 | 9 835 | 9 835 |
| Loans and receivables | 22 971 | 0 | 0 | 1 323 | 0 | 0 | 0 | 24 294 | 20 582 |
| Financial derivatives classified as assets | 6 820 | 0 | 0 | 0 | 0 | 0 | 0 | 6 820 | 5 501 |
| Cash and bank deposits | 3 248 | 0 | 0 | 73 | 0 | 0 | 0 | 3 321 | 3 321 |
| Lending | - | 0 | 92 617 | 0 | 25 055 | 1 623 | 2 066 | 121 360 | 121 360 |
| Total | 339 388 | 2 688 | 99 923 | 8 992 | 25 055 | 1 623 | 34 403 | 512 071 | 481 801 |
| ¹ These two columns provide information on the proportion of loans with mortgage security within 80% of base value and loans that exceed 80% mortgage of base value. | |||||||||
| SPECIFICATION OF INVESTMENT GRADE NOK MILLIONS | AAA | AA | A | BBB | Total Investment grade |
|---|---|---|---|---|---|
| Fixed-income securities measured at amortised cost | 40 494 | 25 004 | 69 104 | 47 661 | 182 263 |
| Debt instruments at fair value - fixed-return securities | 31 336 | 13 962 | 38 088 | 40 699 | 124 085 |
| Fixed-income funds | 0 | 0 | 0 | 0 | 0 |
| Loans and receivables | 0 | 13 269 | 8 216 | 1 486 | 22 971 |
| Financial derivatives classified as assets | 0 | 3 541 | 3 266 | 13 | 6 820 |
| Cash and bank deposits | 0 | 2 802 | 446 | 0 | 3 248 |
| Lending | 0 | 0 | 0 | 0 | 0 |
| Total | 71 830 | 58 577 | 119 121 | 89 860 | 339 388 |
Credit risk is the risk of financial loss due to the Group's counterparties not being able to meet their obligations. The table above displays the credit risk based on rating agencies estimates of the creditworthiness of the various counterparties. Non-rated assets are placed in the category that best reflects the credit risk based on sector, guarantees etc.
MANAGEMENT OF CREDIT AND CONCENTRATION RISK
The Group has established a credit committee that determines limits for credit risk exposure to individual debtors. Emphasis has been placed on ensuring that credit exposure is diversified to avoid concentration of credit risk towards individual debtors. The credit committee meets regularly to monitor and respond to changes in credit risk.
The Group maintains a well-balanced portfolio between Norwegian and international bond issuers, holding a portfolio consisting exclusively of high-quality credits. Of the group's total credit exposure noted in the table, holding an investment grade, 42 percent is allocated to issuers with a rating of AA- or better. The group has a dedicated international government bond portfolio, and government bonds also constitute a significant portion of the Norwegian bond portfolio.
The Group possesses a high-quality lending portfolio with limited credit risk and historically very low losses. The majority of the Group's loans are mortgage loans with a loan-to-value ratio of up to 80 percent, loans to municipalities, and loans with municipal guarantees. Mortgage loans with collateral amount to 27.1 billion kroner. The value of the collateral exceeds the loans since a substantial portion of the collateral was established in the past, and there has been a significant increase in property prices in recent years.
The Group has limited concentration risk. As no exposures exceed the threshold values defined in the Solvency II regulations, the Group does not incur any capital requirement for concentration risk under the standard method. The management of interest and equity portfolios is designed to inherently limit concentration risk through extensive use of index management. The Group establishes explicit limits for lending, restricting concentration on individual names and groups. Sector concentration is monitored through monthly and quarterly reporting.
Although the Group's investments are well-diversified, there is a clear overweight of the allocation in Norway. This is a conscious and natural consequence of the business, primarily focused on public-sector occupational pensions.
The rating above are gathered from Standard & Poor's, Moody's, Fitch, Scope Ratings and Nordic Credit Rating. The rating is converted to S&P's rating table, where AAA is linked to securities with the highest creditworthiness. The lowest rating of the five is used and all five rating agencies are equal as the basis for investments in fixed income securities. "Other" is mainly securities issued by power companies and other corporate bonds; this amounted to NOK 45 billion per 31.12.2023. KLP Group has strict guidelines for investments in fixed-income securities, which also apply to investments falling into the "Other" 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 amortized cost).
The consolidated accounts includes all the units that KLP Group is considered to have control over. This gives an impression of a higher risk than the actual one, since the risk that the Group does not actually carry appears in the accounts. The outer column includes actual ownership and credit risk of the Group companies and investment funds held by KLP Group at the end of the period.
| NOK MILLIONS | 31.12.2023 | 31.12.2022 | ||
|---|---|---|---|---|
| Consolidated | Adjusted for the unit holders' in consolidated securites funds | Consolidated | Adjusted for the unit holders' in consolidated securites funds | |
| 10 LARGEST COUNTERPARTIES | ||||
| Counterparty 1 | 16 855 | 12 854 | 15 032 | 11 995 |
| Counterparty 2 | 15 212 | 12 035 | 14 514 | 11 891 |
| Counterparty 3 | 11 971 | 10 421 | 10 578 | 7 482 |
| Counterparty 4 | 11 015 | 9 635 | 8 586 | 6 660 |
| Counterparty 5 | 10 581 | 8 534 | 7 828 | 6 377 |
| Counterparty 6 | 10 209 | 6 888 | 7 706 | 5 830 |
| Counterparty 7 | 9 802 | 6 026 | 6 377 | 5 548 |
| Counterparty 8 | 8 864 | 5 607 | 5 878 | 4 928 |
| Counterparty 9 | 7 479 | 5 548 | 5 548 | 4 698 |
| Counterparty 10 | 6 026 | 5 279 | 4 698 | 4 506 |
| Total | 108 014 | 82 826 | 86 745 | 69 916 |
The table above shows the 10 largest counterparties to which the KLP Group has exposure. The amounts stated are book value. "Adjusted for the minority holding" includes only that which is in the Group’s ownership and where the Group retains actual credit risk. The majority of the 10 largest counterparties are either finance institutions or counterparties covered by a public sector guarantee (central or local government guarantee).
PREMIUM RECEIVABLES AND RECEIVABLES IN CONNECTION WITH REINSURANCE
| NOK MILLIONS | 2023 | 2022 |
|---|---|---|
| Premium receivables | 1 408 | 2 196 |
| Write-downs of premium receivables | 0 | 0 |
| Total | 1 408 | 2 197 |
KLP’s premium receivables are primarily in regard to the public sector and the credit risk is considered low. In addition the main group pension/public sector industry is linked to the “Transfer agreement for the public sector“. This transfer agreement has a security scheme intended to help to secure pension rights accrued with employers who cease to exist or do not pay premiums when due in accordance with detailed rules. The Group may thus apply for cover for unpaid demands in this industry from the security arrangement if the demand falls within the security arrangement’s regulations.
CHANGE IN FAIR VALUE AS A RESULT OF CHANGE IN CREDIT RISK
| NOK MILLIONS | 100% ownership in funds | Adjusted to real ownership in funds |
|---|---|---|
| Change in fair value as a result of change in credit risk | 1 891 | 1 510 |
Actual change in fair value depends on both changes in risk-free interest rates and credit spreads. This estimate is an attempt to isolate the change in fair value due to the fact that the credit spread on the bonds has changed during the year. The estimate is calculated by looking at the change in credit spread for each individual bond throughout the year and the bond's cash flow weights remaining maturity (duration) for the bond at the time of reporting. There are many reasons why the credit spread changes, like for example that the credit spread becomes lower when the bond matures, that an issuer is considered more or less risky or that the market demands a higher or lower risk premium for credit bonds in general. If the change in fair value is positive (negative), it indicates that the duration- and value-weighted credit spread has decreased (increased).
The calculation is based on owned assets per 31.12.23, and is made for bonds that are valued at fair value. Government funds and government portfolios have been removed from the calculation basis.
MAXIMUM CREDIT RISK EXPOSURE ON FINANCIAL ASSETS AFFECTED BY THE FAIR VALUE OPTION
| NOK MILLIONS | 31.12.2023 | 31.12.2022 |
|---|---|---|
| Debt instruments at fair value - fixed-return securities | 204 221 | 0 |
| Loans and receivables | 81 136 | 0 |
| Total | 285 357 | 0 |
CHANGE IN FAIR VALUE DUE TO CHANGE IN CREDIT RISK - FINANCIAL ASSETS AFFECTED BY THE FAIR VALUE OPTION
| NOK MILLIONS | This period (01.01.2023 - 31.12.23) | Accumulated |
|---|---|---|
| Debt instruments at fair value - fixed-return securities | 626 | 626 |
The calculation is based on owned assets per 31.12.23, and includes bonds that are affected by the fair value option.
Note 10 Segment information
| NOK MILLIONS | Group pensions pub. sect. & group life | Non-life insurance | Banking | Asset management | Other | Eliminations | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
| Result from insurance services | 0 | 0 | 342 | 457 | 0 | 0 | 0 | 0 | 0 | 0 | -2 268 | 28 | -1 925 | 485 |
| Premium income for own account | 70 326 | 50 523 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -70 326 | -50 523 | 0 | 0 |
| Net financial income from investments | 42 712 | -7 628 | 319 | -91 | 468 | 345 | 23 | 0 | 0 | 0 | 31 245 | -15 576 | 74 766 | -22 950 |
| Claims for own account | -28 261 | -28 517 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 28 261 | 28 517 | 0 | 0 |
| Insurance provisions for own account | -84 315 | -12 773 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 84 315 | 12 773 | 0 | 0 |
| Policyholder's share of changes in fair value of underlying items | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -44 179 | 24 823 | -44 179 | 24 823 |
| Other insurance related financial cost | 0 | 0 | 29 | 49 | 0 | 0 | 0 | 0 | 0 | 0 | -70 | 0 | -42 | 49 |
| Unit holder's value change in consolidated security funds | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -27 286 | 15 966 | -27 286 | 15 966 |
| Total income | 462 | 1 605 | 690 | 414 | 468 | 345 | 23 | 0 | 0 | 0 | -308 | 16 008 | 1 334 | 18 372 |
| Net financial income from investments in companys portefolio | 1 282 | 1 066 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -1 282 | -1 066 | 0 | 0 |
| Net costs subordinated loan and hybrid Tier 1 securities | -443 | -169 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -20 | 0 | -463 | -169 |
| Operating expenses | -1 512 | -1 487 | -356 | -310 | -268 | -245 | -528 | -602 | -12 | -11 | 1 553 | 1 687 | -1 124 | -968 |
| Other income | 1 463 | 1 373 | 10 | 7 | 92 | 84 | 560 | 607 | 13 | 12 | -2 062 | -2 027 | 77 | 57 |
| Other expenses | -1 271 | -1 470 | 0 | 0 | -7 | -4 | 0 | 0 | 0 | 0 | 1 201 | 1 398 | -77 | -77 |
| Pre-tax income | -20 | 918 | 343 | 111 | 285 | 180 | 55 | 6 | 1 | 2 | -917 | 15 999 | -253 | 17 216 |
| Cost of taxes | -82 | -115 | -37 | -53 | -19 | -17 | -12 | -2 | 0 | 0 | -881 | -639 | -1 031 | -826 |
| Income | -101 | 803 | 306 | 59 | 267 | 163 | 42 | 3 | 1 | 1 | -1 799 | 15 360 | -1 284 | 16 389 |
| Total other comprehensive income | -111 | 94 | -10 | 19 | -10 | 11 | -14 | 11 | 0 | 0 | 1 930 | 97 | 1 784 | 231 |
| Total comprehensive income | -213 | 897 | 295 | 77 | 257 | 174 | 29 | 14 | 0 | 2 | 131 | 15 456 | 499 | 16 621 |
| Lending | 22 026 | 17 795 | 0 | 0 | 44 434 | 43 696 | 0 | 0 | 0 | 0 | 57 536 | 59 869 | 123 996 | 121 360 |
| Other assets | 765 141 | 692 472 | 6 559 | 6 109 | 4 494 | 6 815 | 682 | 635 | 11 | 11 | 115 837 | 72 667 | 892 725 | 778 709 |
| Total assets | 787 167 | 710 268 | 6 559 | 6 109 | 48 928 | 50 511 | 682 | 635 | 11 | 11 | 173 373 | 132 535 | 1 016 721 | 900 068 |
| Insurance liabilites | 725 781 | 654 324 | 3 392 | 3 181 | 0 | 0 | 0 | 0 | 0 | 0 | 37 009 | 32 510 | 766 181 | 690 015 |
| Other liabilities | 17 541 | 13 144 | 573 | 559 | 45 754 | 47 544 | 260 | 241 | 4 | 3 | 189 547 | 140 166 | 253 680 | 201 658 |
| Total liabilities | 743 322 | 667 468 | 3 965 | 3 739 | 45 754 | 47 544 | 260 | 241 | 4 | 3 | 226 556 | 172 677 | 1 019 861 | 891 673 |
The KLP Group’s business is divided into the five areas: Group pensions public sector & group life, non-life insurance, banking, asset management and other. All business is directed towards customers in Norway.
PUBLIC SECTOR OCCUPATIONAL PENSION AND GROUP LIFE
Kommunal Landspensjonskasse offers group public sector occupational pensions. This segment is followed up according to NGAAP, which deviates from the IFRS Accounting Standards used in the group. Adjustments have therefore been entered in the elimination column to make the total reconcileable to the consolidated accounts.
NON-LIFE INSURANCE
KLP Skadeforsikring AS offers property and personal injury products to employers within the public and private sectors. In addition a broad specter of standard insurance products is offered to the the retail market.
BANKING
KLP’s banking business embraces the companies KLP Banken AS and its wholly-owned subsidiaries: KLP Kommunekreditt AS and KLP Boligkreditt AS. The banking business covers services such as deposits and lending to the retail market, credit cards, as well as lending with public sector guarantee.
ASSET MANAGEMENT
Asset management is offered from the company KLP Kapitalforvaltning AS. The company offer a broad selection of securities mutual funds both to retail customers and to institutional customers. The securities management has a socially responsible profile.
OTHER
Other segments comprises KLP Forsikringsservice AS which offers a broad specter of services to local authority pension funds.
Note 11 Insurance income
| Directly participating contracts | Non-participating contracts | ||
|---|---|---|---|
| 2023 | Group pensions pub.sects. & group life | Non-life insurance | Total |
| Contracts measured under the VFA | |||
| Amount realted to change in liabilities for reamining coverage | |||
| Expected incurred damages and other insurance service costs | 1 596 | 0 | 1 596 |
| Change in risk assessment for non-financial risk for expired risk in the period | -2 321 | 0 | -2 321 |
| Contracts measured under the PAA | 0 | 2 505 | 2 505 |
| Total insurance income | -725 | 2 505 | 1 780 |
| Directly participating contracts | Non-participating contracts | ||
|---|---|---|---|
| 2022 | Group pensions pub.sects. & group life | Non-life insurance | Total |
| Contracts measured under the VFA | |||
| Amount realted to change in liabilities for reamining coverage | |||
| Expected incurred damages and other insurance service costs | 1 710 | 0 | 1 710 |
| Change in risk assessment for non-financial risk for expired risk in the period | -167 | 0 | -167 |
| Contracts measured under the PAA | 0 | 2 200 | 2 200 |
| Total insurance income | 1 543 | 2 200 | 3 743 |
Note 12 Insurance service charges
| Directly participating contracts | Non-participating contracts | ||
|---|---|---|---|
| 2023 | Group pensions pub.sects. & group life | Non-life insurance | Total |
| Incurred damages and other incurred service costs | -1 543 | -2 092 | -3 635 |
| Total insurance service charges | -1 543 | -2 092 | -3 635 |
| Directly participating contracts | Non-participating contracts | ||
|---|---|---|---|
| 2022 | Group pensions pub.sects. & group life | Non-life insurance | Total |
| Incurred damages and other incurred service costs | -1 515 | -2 162 | -3 677 |
| Total insurance service charges | -1 515 | -2 162 | -3 677 |
Note 13 Income and costs from reinsurance
The group's reinsurance contracts are exclusively linked to non-participating contracts measured under PAA.
| Non-participating contracts | |
|---|---|
| 2023 | |
| Amount related to change for remaining coverage | -52 |
| Reinsurance premium paid | -164 |
| Amounts received from the reinsurers | 145 |
| Net costs from reinsurance contracts | -71 |
| Non-participating contracts | |
|---|---|
| 2022 | |
| Amount related to change for remaining coverage | 19 |
| Reinsurance premium paid | -97 |
| Amounts received from the reinsurers | 497 |
| Net income from reinsurance contracts | 418 |
Note 14 Net income from investments measured at fair value with changes in P/L
| NOK MILLIONS | 2023 | 2022 |
|---|---|---|
| Interest income bank deposits | 684 | 228 |
| Interest income derivatives | 21 | 108 |
| Interest income debt instruments | 11 562 | 2 787 |
| Interest income lending | 3 142 | 1 866 |
| Total interest income financial assets at fair value | 15 408 | 4 989 |
| Value change lending | 202 | 206 |
| Value change shares and units | 36 603 | -34 180 |
| Value change derivatives | 10 080 | 1 616 |
| Value change debt instruments | 8 251 | -6 878 |
| Total value change financial instruments at fair value | 55 136 | -39 236 |
| Realised shares and units | 14 987 | 13 224 |
| Realised derivatives | -22 106 | -21 012 |
| Realised debt instruments | 947 | -5 858 |
| Realised lending | 0 | 1 |
| Total realised financial instruments at fair value | -6 171 | -13 646 |
| Dividend/interest shares and holdings/units | 8 219 | 6 493 |
| Other income and expenses | 3 671 | 2 463 |
| Net return on financial assets | 11 889 | 8 957 |
| Total net income from investments measured at fair value with changes in profit and loss | 76 263 | -38 936 |
Note 15 Net income from investments not measured at fair value with changes in P/L
| NOK MILLIONS | 2023 | 2022 |
|---|---|---|
| Interest income fixed-income securities at amortised cost | 73 | 6 686 |
| Total interest income fixed-income securities at amortied cost | 73 | 6 686 |
| Value change fixed-income securities at amortised cost | 5 | 0 |
| Value change loans at amortised cost | 0 | 0 |
| Total value change financial assets at amortised cost | 5 | 0 |
| Realized fixed-income securitites at amortised cost | 0 | 2 062 |
| Total realized fixed-income securities at amortised cost | 0 | 2 062 |
| Net income from investments not measured at fair value with changes in profit and loss | 78 | 8 748 |
Note 16 Investment property
| NOK MILLIONS | 2023 | 2022 |
|---|---|---|
| Net rental income | 3 835 | 3 213 |
| Net finance income | 34 | 6 |
| Net value adjustment | - 6 420 | 3 338 |
| Realised gains | 4 | 0 |
| Net income from investment properties | -2 547 | 6 558 |
| Currency translate foreign properties (taken to other comprehensive income) | 2 139 | 148 |
| Net income from investment properties included currency translate | - 407 | 6 706 |
| NOK MILLIONS | 2023 | 2022 |
|---|---|---|
| Investment property 01.01. | 93 992 | 89 535 |
| Addition through purchase | 1 387 | 0 |
| Addition through activation | 1 224 | 1 118 |
| Reductions through sale | 0 | - 148 |
| Net write-up/down resulting from change in fair value including currency translation | - 4 280 | 3 486 |
| Investment property 31.12. | 92 322 | 93 992 |
Note 17 Investments in associated companies and joint ventures
| NOK MILLIONS | Office and business address | Organization number | Holding % | Owners equity on first aquisition | Aquisition cost | Book value 31.12.2022 | Additions/ disposals | Value adjustment | Profit / loss share | Equity transactions | Dividend | Book value 31.12.2023 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Norfinance AS | Fridtjof Nansens plass 4 | 912764729 | 46.5% | 92 | 463 | 744 | 4 | 0 | 2 | 0 | -31 | 719 |
| 0160 Oslo | ||||||||||||
| Norsk Pensjon AS | Hansteens gate 2 | 890050212 | 25.0% | 5 | 2 | 2 | 0 | 0 | 0 | 0 | 0 | 2 |
| 0253 Oslo | ||||||||||||
| Fylkeshuset AS | Fylkeshuset, | 930591114 | 48.0% | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 6404 Molde | ||||||||||||
| KLP Norfund Investments IS | Fridtjof Nansens plass 4 | 999548636 | 49.0% | 0 | 1 140 | 918 | 441 | 0 | 84 | 0 | 0 | 1 442 |
| 0160 Oslo | ||||||||||||
| KLP Norfund Investments India AS | Fridtjof Nansens plass 4 | 926888455 | 49,0 % | 0 | 413 | 207 | 206 | 0 | -6 | 0 | 0 | 407 |
| 0160 Oslo | ||||||||||||
| Tensio AS | Kjøpmannsgata 7A | 922828172 | 20.0% | 1 653 | 1 303 | 1 099 | 0 | 0 | 44 | 0 | -50 | 1 093 |
| 7500 Stjørdal | ||||||||||||
| Odal Vind AS | Pausvegen 6 | 924824905 | 41.5% | 330 | 383 | 504 | 0 | 0 | 37 | 0 | -73 | 468 |
| 1927 Rånåsfoss | ||||||||||||
| Runde Holdco AS | Vestre Strømkaien 7 | 923101284 | 20.6% | 400 | 184 | 270 | 0 | 0 | 448 | 0 | 0 | 719 |
| 5008 Bergen | ||||||||||||
| Neas AS | Industriveien 1 | 960684737 | 33.3% | 357 | 343 | 341 | 0 | 0 | 11 | 0 | -5 | 347 |
| 6517 Kristiansund N | ||||||||||||
| SR Energy AB | Rosenlundsg.3 Box 7123 | 30.0% | 600 | 1 269 | 1 319 | 10 | 0 | 86 | 0 | -36 | 1 379 | |
| 402 33 Göteborg | ||||||||||||
| Skaftåsen Bidco AB | BOX 16285 | 23.2% | 86 | 86 | 51 | 0 | 0 | -8 | 0 | 0 | 43 | |
| 103 25 Stockholm | ||||||||||||
| Total in associated companies and joint ventures | 5 585 | 5 456 | 660 | 0 | 700 | 0 | -195 | 6 620 | ||||
All shares have equal voting proportions.
KLP Norfund Investment IS is a joint venture, while the remaining companies are associated companies.
Note 18 Net insurance finance income and expenses
| Direct participating contracts | Non-participating contracts | |||
|---|---|---|---|---|
| 2023 | Public pension scheeme 1 | Skadeforsikring | Eliminering | Total |
| Investment income/expences on underlying assets | ||||
| Interes revenue from financial instruments not measrued at FVTPL | 78 | 78 | -78 | 78 |
| Net incom from financial instruments mesasured at FVTPL | 90 254 | 240 | -240 | 90 254 |
| Net gain/loss from foreign exchange | -15 566 | 0 | 0 | -15 566 |
| Unit holder's value change in consolidated securites funds | -27 286 | 0 | 0 | -27 286 |
| Total investment income/expenses on underlying assets recognised in P&L | 47 480 | 319 | -319 | 47 480 |
| Total investment income/expenses on underlying assets recognised in OCI | 1 831 | 0 | 0 | 1 831 |
| Total net investment income/expenses | 49 312 | 319 | -319 | 49 312 |
| Insurance finance income/expenses from insurance contracts issued | ||||
| Interest accreted | 13 643 | 0 | 13 643 | |
| Effect of changes in interest rates and other financial assumptions | -11 416 | -42 | 42 | -11 416 |
| Changes in fulfilment cashflows of contracts measured applyihng VFA due to changes in fair value of underlying items | -46 447 | -46 447 | ||
| Insurance finance income/expenses from insurance contracts issued | -44 221 | -42 | 42 | -44 221 |
| Total insurance financeincome/expenes from insurance contracts issued recognised in OCI | 1 831 | 0 | 0 | 1 831 |
| Net insurance finance income or expenses | 5 091 | 277 | -277 | 5 091 |
| Direct participating contracts | Non-participating contracts | |||
|---|---|---|---|---|
| 2022 | Public pension scheeme 1 | Skadeforsikring | Elimineringer | Total |
| Investment income/expences on underlying assets | ||||
| Interes revenue from financial instruments not measrued at FVTPL | 8 748 | 73 | -73 | 8 748 |
| Net incom from financial instruments mesasured at FVTPL | -31 667 | -164 | 164 | -31 667 |
| Net gain/loss from foreign exchange | -32 | 0 | 0 | -32 |
| Unit holder's value change in consolidated securites funds | 15 966 | 0 | 0 | 15 966 |
| Total investment income/expenses on underlying assets recognised in P&L | -6 985 | -91 | 91 | -6 985 |
| Total investment income/expenses on underlying assets recognised in OCI | 106 | 0 | 0 | 106 |
| Total net investment income/expenses | -6 879 | -91 | 91 | -6 879 |
| Insurance finance income/expenses from insurance contracts issued | ||||
| Interest accreted | 7 653 | 0 | 0 | 7 653 |
| Effect of changes in interest rates and other financial assumptions | -7 665 | 49 | -49 | -7 665 |
| Changes in fulfilment cashflows of contracts measured applyihng VFA due to changes in fair value of underlying items | 24 884 | 0 | 0 | 24 884 |
| Insurance finance income/expenses from insurance contracts issued | 24 872 | 49 | -49 | 24 872 |
| Total insurance financeincome/expenes from insurance contracts issued recognised in OCI | 106 | 0 | 0 | 106 |
| Net insurance finance income or expenses | 17 992 | -42 | 42 | 17 992 |
| 1 The insurance customers on a public service pension are entitled to all returns from net assets, thus the return from non-life contracts is included in the public service pension. | ||||
| In addition to the fact that they are shown separately in the column for Non-life insurance. | ||||
Note 19 Auditor`s fee
| NOK MILLIONS | 2023 | 2022 |
|---|---|---|
| Ordinary audit | 12,5 | 10,1 |
| Certification services | 1,0 | 0,8 |
| Tax advisory services | 0,0 | 0,1 |
| Non-audit services | 0,2 | 0,6 |
| Total auditor’s fee | 13,7 | 11,7 |
The sums above include VAT.
Note 20 Salary and obligations towards senior management etc.
The KLP Board of Directors has laid down principles and guidelines for remuneration that apply for the entire Group and set up a remuneration committee as a subcommittee of the Board. The committee reports on and carries out checks that the remuneration schemes in the Group are in line with the Board's principles and guidelines.
Senior employees are defined as the senior management team of the Kommunal Landspensjonskasse Group. This comprises the Group Chief Executive Officer, the KLP Group executive vice presidents and managing directors of certain subsidiaries.
Senior employees who were members of the Group senior management before 1 May 2013, are pensionable at the age of 65, but may choose to canage this to aged 70. None of those senior management have chosen to avail themselves of the opportunity to change the retirement age as of 31.12.2023. Persons who were appointed to Group senior management as of 1 May 2013, are pensionable at the age of 70.
All employees of the KLP Group in Norway are registered in KLP's pension scheme for municipalities and companies. The employees earn pension rights in this scheme for salaries up to 12G.
Employees in the KLP Group with salaries above 12 G and for employees with lower retirement age than 67 years, also earn pension benefits for salaries above 12G if they were employed before 2 May 2013 and had a salary above 12G at that time. Full retirement pension in this additional cover amounts to 66% of salary above 12G, and is achieved after at least 30 years of earnings in the scheme. Employees with a special agreement for a lower pension age than 67 years are ensured an old-age pension corresponding to 66% of all pensionable salary up to 67 years. This add-on was closed May 2, 2013 and does not apply to employees who started after that date. Nor does the scheme apply to employees who were employed at this time in KLP, but who only receive salary above 12G after this date.
The Group CEO has severance pay corresponding to one year's salary including supplementary benefits in the event of termination of employment. There are no obligations to provide the Chairman of the Board special consideration or other benefits on termination or change of the appointment. KLP pays directors' liability insurance for members of its Board of Directors.
No member of senior management has performance pay (bonus).
The KLP Group offers loans for various purposes. There are seperate loan terms for employees, and no senior executeves have terms that deviate from this. Loans to external members of the Board of Directors and external members of the Corporate Assembly are only granted under ordinary loan terms.
Fees to Board members are determined by the Corporate Assembly. Fees to deputies and observers are not stated. The Board’s substitutes and observers, and any benefits and loans to them, are not listed in this note unless they were elected as ordinary Board members during the year. A total of NOK 237.000 was paid to observers and substitutes in 2023. This covers four people.
All benefits are shown without the addition of social security contributions and capital activity tax. For Board members elected by and among the employees stated that only about compensation and loans that can be linked to their directorship.
Attention is drawn otherwise to the description of the main principles on determination of remuneration in the KLP Group that may be found at klp.no.
| 2023 | ||||||
|---|---|---|---|---|---|---|
| NOK THOUSANDS | Salary, fees etc. | Other benefits | Annual pension accumulation | Loan | Interest rate as at 31.12.2023 | Paymentsplan1 |
| SENIOR EMPLOYEES | ||||||
| Sverre Thornes, Group CEO | 5 137 | 189 | 1 628 | 14 516 | 4,25/4,70 | A25/HC |
| Cathrine Hellandsvik | 2 323 | 150 | 579 | 6 720 | 4,70/5,50 | A50 |
| Aage E. Schaanning | 4 099 | 152 | 1 281 | 6 182 | 4,70 | HC |
| Gro Myking | 3 056 | 154 | 335 | 6 658 | 4,70 | A53 |
| Rune Hørnes | 3 068 | 154 | 300 | |||
| Kirsten Grutle | 2 100 | 150 | 523 | 481 | 4,70 | HC |
| Jarl Nygaard | 1 915 | 154 | 308 | 578 | 4,70 | HC |
| Ida Louise Skaurum Mo | 2 599 | 154 | 843 | |||
| Hege Hodnesdal, as of 1 August | 1 004 | 64 | 235 | 15 940 | 5,50 | A53 |
| Tore Tenold | 3 455 | 154 | 1 222 | 4 243 | 4,60 | HC |
| Håvard Gulbrandsen | 3 739 | 167 | 1 058 | 1 374 | 4,70 | HC |
| Gunnar Gjørtz | 3 685 | 153 | 1 219 | 0 | 4,70 | HC |
| Marianne Sevaldsen | 3 185 | 151 | 1 313 | 3 738 | 4,70 | A43 |
| Erik Falk | 1 922 | 19 | 452 | 1 363 | 4,70 | A37 |
| Christopher Andrew Nicolson Steen | 1 556 | 58 | 313 | 1 512 | 4,70 | A30/A29 |
| Carl Steinar Lous | 1 547 | 24 | 309 | 3 244 | 4,70 | A39/A27 |
| THE BOARD OF DIRECTORS 2) | ||||||
| Tine Sundtoft, Chair (10 of 10) | 423 | |||||
| Egil Matsen (10 av 10) | 340 | |||||
| Terje Rootwelt (5 av 5) | 160 | |||||
| Kjersti Fyllingen (4 av 5) | 124 | |||||
| Odd Haldgeir Larsen (8 av 10) | 252 | 1 824 | 5,50 | A36 | ||
| Øyvind Brevik (4 av 5) | 153 | |||||
| Ingunn Trosholmen, until October (7 av 8) | 302 | 3 737 | 5,40 | A49 | ||
| Vibeke Heldal, elected by and from the employees (10 of 10) | 313 | 1 566 | 4,70 | A30 | ||
| Erlig Bendiksen, elected by and from the employees (10 of 10) | 252 | |||||
| CORPORATE ASSEMBLY | ||||||
| Total Corporate Assembly, including employee representatives | 747 | 28 871 | ||||
| EMPLOYEES | ||||||
| Loan to employees in the Group at subsidiezed interest rate | 2 312 238 | |||||
| Loan to employees in the Group at ordinary terms and conditions | 118 001 | |||||
| 1) A=Annuity loand, last peyment, HC = Housing Credit | ||||||
| 2) The numbers in brackets represents the number of meetings attended by the total number of meetings held during the period in which the person has been on the board. | ||||||
| 2022 | ||||||
|---|---|---|---|---|---|---|
| NOK THOUSANDS | Salary, fees etc. | Other benefits | Annual pension accumulation | Loan | Interest rate as at 31.12.2022 | Paymentsplan1 |
| SENIOR EMPLOYEES | ||||||
| Sverre Thornes, Group CEO | 4 733 | 220 | 1 556 | 20 000 | 3,50 | HC |
| Cathrine Hellandsvik, as of 1 August | 647 | 112 | 207 | 6 873 | 3,50 | A50 |
| Aage E. Schaanning | 3 912 | 144 | 1 377 | 9 600 | 3,50 | HC |
| Gro Myking | 2 869 | 169 | 362 | 7 710 | 3,50 | A41 |
| Rune Hørnes | 2 923 | 156 | 317 | |||
| Kirsten Grutle | 1 794 | 146 | 246 | |||
| Tore Tenold | 3 297 | 153 | 1 244 | 6 400 | 3,40 | HC |
| Håvard Gulbrandsen | 3 566 | 179 | 1 163 | 7 500 | 3,50 | HC |
| Gunnar Gjørtz | 3 514 | 170 | 1 222 | 6 000 | 3,50 | HC |
| Marianne Sevaldsen | 3 042 | 172 | 1 289 | 3 864 | 3,50 | A43 |
| Leif Magne Andersen, until 1 August | 1 474 | 99 | 474 | 4 820 | 3,30 | A51 |
| THE BOARD OF DIRECTORS 2) | ||||||
| Egil Johansen, Chair until May (5 of 5) | 200 | |||||
| Tine Sundtoft, Chair as of June (5 of 5) | 207 | |||||
| Jenny Følling (5 of 5) | 178 | |||||
| Odd Haldgeir Larsen (10 of 10) | 268 | 1 874 | 4,15 | A35 | ||
| Øyvind Brevik (10 of 10) | 301 | |||||
| Cecilie Dae (7 of 10) | 233 | |||||
| Egil Matsen (10 of 10) | 327 | |||||
| Ingunn Trosholmen (5 of 5) | 148 | |||||
| Vibeke Heldal, elected by and from the employees (10 of 10) | 301 | |||||
| Erlig Bendiksen, elected by and from the employees (10 of 10) | 233 | |||||
| CORPORATE ASSEMBLY | ||||||
| Total Corporate Assembly, including employee representatives | 804 | 40 208 | ||||
| EMPLOYEES | ||||||
| Loan to employees in the Group at subsidiezed interest rate | 2 102 732 | |||||
| Loan to employees in the Group at ordinary terms and conditions | 92 141 | |||||
| 1) A=Annuity loand, last peyment, HC = Housing Credit | ||||||
| 2) The numbers in brackets represents the number of meetings attended by the total number of meetings held during the period in which the person has been on the board. | ||||||
| NOK THOUSANDS | 2023 | 2022 |
|---|---|---|
| The period costs related to lending terms and conditions for employees. | 17 057 | 15 041 |
Note 21 Tax
| NOK MILLIONS | 2023 | 2022 |
|---|---|---|
| Pre-tax income | -253 | 17 216 |
| Other comprehensive income pre-tax | 1 685 | 237 |
| Comprehensive income pre-tax | 1 432 | 17 453 |
| DIFFERENCES BETWEEN ACCOUNTING AND TAX INCOME | ||
| Adjustment of premium | 0 | 3 |
| Tax effects consolidated securities funds | 1 637 | 1 005 |
| Reversal of value reduction, financial assets | 633 | 388 |
| Reversal of value increase financial assets | -1 337 | -617 |
| Book gain on realization of shares and other securities | 79 | 21 |
| Tax gain on realization of shares and other securities | 40 | 1 |
| Share of taxable income in partnerships | 31 | 29 |
| Other permanent differences | -85 | 218 |
| Meaurement difference IFRS 17 | -1 585 | -16 425 |
| Change in differences affecting relationship between book and taxable income | 614 | 329 |
| Taxable income | 1 458 | 2 405 |
| Taxable income, bacic for payable tax | 1 458 | 2 405 |
| Deficit carryforward allowable from previous years | -13 782 | -6 308 |
| Change for the year in carryforward deficit | -3 939 | -7 474 |
| Total carryforward deficit and allowance 31.12. | -17 721 | -13 782 |
| RECONCILIACTION OF BASIS OF DEFERRED TAX | ||
| TAX-INCREASING TEMPORARY DIFFERENCES: | ||
| Gains and losses account | 879 | 1 098 |
| Buildings and other real estate | 9 612 | 10 960 |
| Risk equilization fund | 4 154 | 4 154 |
| Natural disaster fund | 164 | 164 |
| Guarantee scheme | 49 | 49 |
| Reinsurance | 2 | 2 |
| Compensation provisjon | 30 | 0 |
| Security reserve | 216 | 270 |
| Implementation effect IFRS 17 | 138 | 138 |
| Securities | 1 794 | 1 130 |
| Securing loans | 94 | 17 |
| Shares in partnerships | 268 | 320 |
| Lending to customers and credit enterprises | 5 | 0 |
| Claims provisions | 0 | 37 |
| Other differences | 17 | 10 |
| Total tax-increasing temporary differences | 17 422 | 18 350 |
| TAX-REDUCING TEMPORARY DIFFERENCES: | ||
| Fixed assets | 0 | 1 |
| Long-term receivables | -1 162 | -948 |
| Financial instruments | -25 | -39 |
| Lending to customers and credit enterprises | -76 | -86 |
| Pension obligation | -250 | -210 |
| Other liabilities | -81 | -70 |
| Adjusted for 20% of transition regulation 01.01.2018 | -14 | -18 |
| Hedging | 0 | -9 |
| Total tax-reducing temporary differences | -1 607 | -1 380 |
| Net temporary differences | 15 814 | 16 970 |
| Difference not included in the basis for deferred taxes 1 | -4 369 | -4 369 |
| Other differences that are not included in the calculation of deferred tax | -6 779 | -7 902 |
| Carryforward deficit | -17 721 | -13 782 |
| Basis for deferred tax and tax assets | -13 054 | -9 084 |
| 25% deferred tax assets | -3 264 | -2 271 |
| Write-down of deferred tax assets | 4 403 | 3 403 |
| Net deferred tax and tax assets | 1 139 | 1 132 |
| BOOK DEFERRED TAX/ -TAX ASSETS | ||
| - Of which deferred capitalized tax assets | 48 | 48 |
| - Of which capitalized referred tax assets extempt from equalisation | 1 187 | 1 138 |
| Change in deferred tax assets taken to profit/loss | 0 | -4 |
| Change in deferred tax taken to profit/loss | -49 | 249 |
| Wealth tax | -13 | -6 |
| Tax payable taken to profit/loss | -364 | -601 |
| Residual tax | 4 | -27 |
| Withholding tax taken to profit/loss | -510 | -443 |
| Cost of taxes | -932 | -832 |
| Taxes taken to equity | 1 | -82 |
| THE TAX COST IS ENTERED AGAINST THE FOLOOWING ITEMS | ||
| Cost of taxes | -1 031 | -826 |
| Tax on items that will not be reclassified against the comprehensive income statement | 22 | -17 |
| Tax on items that will be reclassified to income later | 77 | 11 |
| Equity | 1 | -82 |
| Total tax taken to profit/loss | -932 | -914 |
| 1Accordning to the new rules deductions will no longer be made for provisions for risk equilization fund, natural disaster fund and guarantee scheme. These funds are subject to transitional rules, so that the total provisions for these funds at the end of the 2017 income year can be deposited in a separate account, where the account is first taxed on the liquidation of the non-life insurance business. The group presents the accounts during continued operations, and assumes that the present value of the liability will be 0. | ||
Note 22 Intangible assets
| NOK millions | IT-systems | Other | 2023 | IT-systems | Other | 2022 |
|---|---|---|---|---|---|---|
| Book value 01.01. | 1 039 | 10 | 1 049 | 785 | 12 | 797 |
| Acquisition cost 01.01. | 2 631 | 22 | 2 653 | 2 293 | 22 | 2 315 |
| Total additions | 456 | 0 | 456 | 339 | 0 | 339 |
| of which internally developed | 0 | 0 | 0 | 0 | 0 | 0 |
| of which bought | 456 | 0 | 456 | 339 | 0 | 339 |
| Disposals | 0 | 0 | 0 | 0 | 0 | 0 |
| Acquisition cost 31.12. | 3 088 | 22 | 3 109 | 2 631 | 22 | 2 653 |
| Accumulated depreciation and write-dows prev.years | -1 593 | -12 | -1 604 | -1 508 | -10 | -1 517 |
| Ordinary depreciation for the year | -118 | -2 | -120 | -85 | -2 | -87 |
| Impairment | -6 | 0 | -6 | 0 | 0 | 0 |
| Accumulated depreciation and write-downs 31.12. | -1 717 | -14 | -1 730 | -1 593 | -12 | -1 604 |
| Book value 31.12. | 1 371 | 8 | 1 379 | 1 039 | 10 | 1 049 |
| Depreciation period | 1 to 20 years | |||||
| 1) Intangible assets contains IT-systems 1 to 20 years | ||||||
| 2) At the end of 2023 there were identified several IT-systems where the book value exceeded the estimated recoverable amount. Estimated recoverable amount is calculated by estimating future earnings with book value. Essentially, some of the investments have no longer value. There are several reasons for this. Among other things, linking it to the outdated functionality due to rule changes and/or technological developments. This resulted in the following assessment: | ||||||
| NOK MILLIONS | 2023 | 2022 |
|---|---|---|
| Book value before impairment | 6 | 0 |
| Recoverable amount | 0 | 0 |
| Impairment | 6 | 0 |
| The impairment is included in "Operating costs" in the financial statement. | ||
Note 23 Tangible fixed assets
| 2023 | 2022 | |||||||
|---|---|---|---|---|---|---|---|---|
| NOK MILLIONS | Property for own use | Vehicles | Machines/ inventory | 2023 | Property for own use | Vehicles | Machines/ inventory | 2022 |
| Book value 01.01. | 2 532 | 1 | 99 | 2 633 | 2 623 | 2 | 89 | 2 714 |
| Acquisition cost 01.01. | 1 438 | 16 | 397 | 1 850 | 1 432 | 16 | 368 | 1 816 |
| Accum. depreciation prev. years | -417 | -14 | -298 | -729 | -363 | -13 | -280 | -657 |
| Accum. value adjustm. prev. years | 1 511 | 0 | -1 | 1 510 | 1 554 | 0 | 0 | 1 553 |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Acquisition | 0 | 0 | 30 | 30 | 6 | 0 | 37 | 42 |
| Assets held for disposal | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -8 |
| Value adjustements | -308 | 0 | 0 | -308 | -43 | 0 | 0 | -43 |
| Depreciation | -48 | -1 | -30 | -79 | -54 | -1 | -26 | -72 |
| Currency impact | 0 | 0 | 1 | 1 | 0 | 0 | 0 | 0 |
| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Acquisition cost 31.12. | 1 438 | 16 | 427 | 1 881 | 1 438 | 16 | 397 | 1 850 |
| Accumulated depriciation 31.12. | -465 | -15 | -328 | -808 | -417 | -14 | -298 | -729 |
| Accumulated value adjustment 31.12. | 1 203 | 0 | 0 | 1 203 | 1 511 | 0 | -1 | 1 510 |
| Book value 31.12. | 2 177 | 1 | 100 | 2 277 | 2 532 | 1 | 99 | 2 633 |
| Economic life | 50 years | 5 years | 3 - 5 years | |||||
| Depreciation method | Straight-line | Balance/ Straight-line | Balance/ Straight-line | |||||
Note 24 Reinsurance contracts assets
The table below shows the reconciliation of the incoming and outgoing balance relating to assets for remaining coverage and assets for incurred claims that we have to our credit from reinsurance. The coverage period for reinsurance contracts has a coverage period of one year, and PAA is used in the accounting measurement.
| 2023 | Remaining coverage component | Accrued claims | Total | |
|---|---|---|---|---|
| NOK MILLIONS | Without loss recovery component | Estimate of the present value of future cash flows | Risk adjustment for non-financial risk | |
| Opening balance reinsurance assets | 0 | 705 | 30 | 736 |
| Opening balance reinsurance liabilites | 0 | 0 | 0 | 0 |
| Opening balance reinsurance | 0 | 705 | 30 | 736 |
| Reinsurance premium | -164 | 0 | 0 | -164 |
| Reinsurance share of insurance costs | 0 | 93 | 0 | 93 |
| Of this year's damages | 0 | 137 | 8 | 145 |
| Including liquidations of deviations of previous years | 0 | -44 | -8 | -52 |
| Financial result from reinsurance | 0 | 16 | 9 | 25 |
| Change in comprehensive income | -164 | 109 | 9 | -46 |
| Reinsurance premium paid | 154 | 0 | 0 | 154 |
| Claims received from reinsurance | 0 | -115 | 0 | -115 |
| Total cashflows | 154 | -115 | 0 | 38 |
| Closing balance reinsurance | -10 | 699 | 39 | 728 |
| Closing balance reinsurance assets | -8 | 699 | 39 | 730 |
| Closing balance reinsurance liabilites | -2 | 0 | 0 | -2 |
| Closing balance reinsurance | -10 | 699 | 39 | 728 |
| 2022 | Gjenværende dekningskomponent | Påløpte krav | Total | |
|---|---|---|---|---|
| NOK MILLIONS | Uten tapsgjenopprettings-komponent | Estimat på nåverdien av fremtidige kontantstrømmer | Risikojustering for ikke finansiell risiko | |
| Opening balance reinsurance assets | 0 | 328 | 13 | 341 |
| Opening balance reinsurance liabilites | -1 | 0 | 0 | -1 |
| Opening balance reinsurance | -1 | 328 | 13 | 340 |
| Reinsurance premium | -97 | 0 | 0 | -97 |
| Reinsurance share of insurance costs | 0 | 498 | 17 | 341 |
| Of this year's damages | 0 | 475 | 21 | 497 |
| Including liquidations of deviations of previous years | 0 | 23 | -4 | 19 |
| Financial result from reinsurance | 0 | 0 | 0 | 0 |
| Change in comprehensive income | -97 | 498 | 17 | 419 |
| Reinsurance premium paid | 98 | 0 | 0 | 98 |
| Claims received from reinsurance | 0 | -121 | 0 | -121 |
| Total cashflows | 98 | -121 | 0 | -23 |
| Closing balance reinsurance | 0 | 705 | 30 | 736 |
| Utgående balanse gjenforsikring | 0 | 705 | 30 | 736 |
| Closing balance reinsurance assets | 0 | 0 | 0 | 0 |
| Closing balance reinsurance liabilites | 0 | 705 | 30 | 736 |
Note 25 Fair value of financial assets and liabilities
Fair value is to be a representative price based on what the equivalent asset or liabilites would be sold for under normal market terms and conditions. A financial instrument is considered as being listed in an active market if listed prices are easily and regularly accessible from a stock exchange, dealer, broker, commercial group, pricing service or regulatory authority, and such prices represent actual transactions that occur regularly at arm’s length. If the market for the security is not active, or the security is not listed on a stock exchange or similar, the Group uses valuation techniques to determine fair value. These are based on information on transactions recently carried out on business conditions, reference to the purchase and sale of similar instruments and pricing by means of externally obtained interest-rate curves and interest-rate differential curves. Estimates are based to the greatest possible extent on external observable market data, and to a small degree on company-specific information.
In the case of this note, there are three different categories of financial instruments: balance sheet classification, accounts classification, and type of instrument. It is for this last category that information is provided about how fair value is derived.
FINANCIAL INSTRUMENTS MEASURED AT AMORTISED COST
This category includes:
- Fixed-income securities and other debt instruments measured at amortised cost
- Lending to local government, enterprises & retail customers measured at amortised cost
- Liabilites to and deposits from customers
- Other debt issued (liabilities)
Financial instruments not measured at fair value are measured at amortised cost by using the effective interest rate method. The internal rate of exchange is determined by discounting contractual cash flows over their expected term. The cash flows include arrangement/up-front fees and direct transaction costs as well as any residual value on the expiry of the expected term. Amortised cost is the present value of these cash flows discounted by the internal rate of interest. This note contains information about the fair value of the financial instruments that are measured at amortised cost.
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE
This category includes:
- Equity instruments
- Fixed-income securities and other debt instruments measured at fair value
- Lending local government, enterprises & retail customers at fair value through profit/loss
- Derivatives (assets and liabilites)
- Debt to credit institutions (liabilites)
- Subordinated loan capital (liabilities)
Below is a list of which types of financial instrument come under the various accounts categories, and how fair value is calculated.
FIXED-INCOME SECURITIES AND OTHER DEBT INSTRUMENTS MEASURED AT FAIR VALUE
a) Foreign fixed-income securities
Foreign fixed-income securities are generally priced based on prices obtained from an index provider. At the same time, prices are compared between several different sources to spot any errors.
The following sources are used:
- Barclays Capital Indices
- Bloomberg
Barclays Capital Indices have first priority (they cover foreign government and foreign credit respecitvely). Then comes Bloomberg based on Bloomberg’s pricing service Business Valuator Accredited in Litigation (BVAL). BVAL has verified prices from Bloomberg.
b) Norwegian fixed-income securities – government
Nordic Bond Pricing is used as the primary source for pricing Norwegian Government Bonds.
c) Norwegian fixed-income securities – other than government ones
Norwegian fixed-income securities (denominated in NOK) are generally priced based on rates from Nordic Bond Pricing. Securities not covered by Nordic Bond Pricing are priced theoretically. The theoretical price should be based on the discounted value of the security's future cash flow. Discounting is done using a swap curve adjusted for credit spread and liquidity spread. The credit spread should, as much as possible, be based on a comparable bond from the same issuer. The liquidity spread is determined subjectively.
d) Fixed-income securities issued by foreign enterprises but denominated in NOK
Fair value is calculated on the same general principles as those applying for Norwegian fixed-income securities described above.
e) Receivables on credit institutions
The fair value of these is considered as being approximately the same as the book value since the terms and conditions of the contract are continually revised in accordance with changes in the market rates.
f) Loans to municipalities and enterprises with municipal guarantee
Receivables are valued by means of a valuation model using relevant credit premium adjustments obtained in the market. For guaranteed loans fair value is calculated as discounted cash flow based on the same interest-rate curves as direct loans, but the credit margin is adjusted to market values for the appropriate combination of guarantee category and type of guarantee. The guarantor is either a state, municipality or a bank
g) Loans secured by mortgage
The principles for calculating fair value are subject to the loans having fixed-interest rates or not. Fair value of fixed-rate loans is calculated by discounting contractual cash flows by the market rate including a relevant risk margin on the reporting date. The fair value of loans with no fixed rate is approximately equal to book value since the terms and conditions of the contract are continually revised in accordance with changes in the market rates.
- EQUITY INSTRUMENTS
h) Shares (listed)
Liquid shares are generally valued on the basis of prices from an index provider. At the same time, prices are compared between different sources in order to spot any errors.
The following sources are used for Norwegian shares:
Oslo Børs/Oslo Stock Exchange (primary source)
Morgan Stanley Capital International (MSCI)
Bloomberg
The following sources are used for foreign shares:
Morgan Stanley Capital International (MSCI) (primary source)
Bloomberg
i) Shares (unlisted)
As far as possible, The Group uses the Norwegian Mutual Funds Association’s industry recommendations. This basically means the following:
The last price traded has key priority. If the last price traded is outside of the bid/offer price in the market, the price is adjusted accordingly. This means that if the last price traded is below the offer price, the price is adjusted upward to the offer price. If it is above the bid price, it is adjusted downward to the bid price.
In cases where there is very little information about the shares, a discretionary assessment is carried out, such as a fundamental analysis of the company, or a broker assessment.
j) Private Equity
Most of the investment in Private Equity goes through funds. The funds’ fair value is to be based on reported market values that follow from the International Private Equity and Venture Capital Valuation Guidelines (’IPEV Guidelines). These guidelines are established by the European Venture Capital Association (EVCA) and are based on the principle of approximate market assessment of the companies. Fair value is calculated on the basis of the funds’ reported market value adjusted for payments in and out during the period between the fund’s last reported market value and the period being reported on for the Group. Direct investments in Private Equity are treated in the same way as with current stocks, but valuation can be daily, quarterly or yearly. In cases where it's possible to obtain information on what co-investments are priced within the funds, it will be considered in the valuation process. Other direct investments are valued based on either cost prices, reported market values from companies or available trading prices.
DERIVATIVES
k) Futures/FRA/IRF
All futures contracts for KLP are traded on the stock exchange. Bloomberg is used as a prices source. Prices are also obtained from another source in order to check that Bloombergs’ prices are correct. Reuters acts as a secondary source.
l) Options
Bloomberg is used as a source for pricing options traded on the stockmarket. Reuters is a secondary source.
m) Interest-rate swaps
Interest-rate swaps are valued in a model that takes observable market data such as interest-rate curves and relevant credit premiums into account .
n) FX-swaps
FX-swaps with a one-year maturity or less are priced on curves that are built up from FX swap-points obtained from Reuters. The market is not considered particularly liquid for FX-swaps with a maturity of more than one year and basis-adjusted swap curves are used for pricing purposes.
- DEBT TO CREDIT INSTITUTIONS
o) Placements with credit institutions and deposits
Placements with credit institutions are made as short-term deposits. Fair value is calculated by discounting contractual cash flows by market rate including a relevant risk margin on the reporting date. Deposits are prices on swap curves.
SUBORDINATED LOAN CAPITAL, OTHER DEBT ISSUED, AND DEPOSITS FROM CUSTOMERS
p) Fair value of subordinated loans
The observable price is used as the fair value of loans listed on an active stock exchange. In the case of other loans that are not part of an active market the fair value is based on an internal valuation model based on observable data.
q) Fair value of subordinated bond/perpetual bond issued
Fair value in this category is determined on the basis of internal valuation models based on external observable data.
r) Covered bonds issued
Fair value in this category is determined on the basis of internal valuation models based on observable data.
s) Deposits from customers
All deposits are without fixed-rate interest. The fair value of these is considered as approximately equal to book value since the contractual terms are continually revised in accordance with the market rate.
The table below provide a closer specification of the content within the various classes of assets and liabilities.
| NOK MILLIONS | 31.12.2023 | 31.12.2022 | ||
|---|---|---|---|---|
| Book value | Fair value | Book value | Fair value | |
| FIXED-INCOME SECURITIES AND OTHER DEBT INSTRUMENTS AT AMORTIZED COST | ||||
| Norwegian bonds | 1 017 | 935 | 65 861 | 62 754 |
| Foreign bonds | 1 237 | 1 108 | 132 892 | 125 280 |
| Fixed-income securities and other debt instruments at amortized cost | 2 254 | 2 043 | 198 752 | 188 034 |
| LENDING LOCAL GOVERNMENT, ENTERPRISES & RETAIL CUSTOMERS AT FAIR VALUE THROUGH PROFIT/LOSS | ||||
| Loans secured by mortgage | 2 564 | 2 564 | 0 | 0 |
| Loans to local government sector or enterprises with local government guarantee | 71 056 | 71 056 | 0 | 0 |
| Loans abroad secured by mortage and local government guarantee | 5 245 | 5 245 | 0 | 0 |
| Other lending | 2 271 | 2 271 | 0 | 0 |
| Total loans to local government, enterprises & retail customers | 81 136 | 81 136 | 0 | 0 |
| lending to local government, enterprises & retail customers – at amortized cost | ||||
| LENDING TO LOCAL GOVERNMENT, ENTERPRISES & RETAIL CUSTOMERS – AT AMORTIZED COST | ||||
| Loans to and receivables from customers | 42 339 | 42 332 | 26 107 | 26 008 |
| Loans to and receivables from central banks | 75 | 75 | 0 | 0 |
| Loans to local government sector or enterprises with local government guarantee | 0 | 0 | 89 743 | 88 342 |
| Loans abroad secured by mortage and local government guarantee | 0 | 0 | 5 352 | 5 352 |
| Loans to and receivables from credit institutions | 446 | 446 | 0 | 0 |
| Other lending | 0 | 0 | 158 | 158 |
| Total loans to local government, enterprises & retail customers | 42 860 | 42 854 | 121 360 | 119 860 |
| DEBT INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Norwegian bonds | 133 716 | 133 716 | 58 922 | 58 922 |
| Norwegian certificates | 8 189 | 8 189 | 7 648 | 7 648 |
| Foreign bonds | 209 125 | 209 125 | 72 565 | 72 565 |
| Foreign certificates | 898 | 898 | 420 | 420 |
| Investments with credit institutions | 58 641 | 58 641 | 42 246 | 42 246 |
| Total debt instruments | 410 569 | 410 569 | 181 802 | 181 802 |
| EQUITY CAPITAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Shares | 302 882 | 302 882 | 238 730 | 238 730 |
| Equity funds | 44 885 | 44 885 | 37 155 | 37 155 |
| Property funds | 6 990 | 6 990 | 6 514 | 6 514 |
| Total equity capital instruments | 354 757 | 354 757 | 282 399 | 282 399 |
| RECEIVABLES | ||||
| Receivables related to direct business | 750 | 750 | 379 | 379 |
| Receivables related to securites | 1 309 | 1 309 | 912 | 912 |
| Prepaid rent related to real estate activites | 148 | 148 | 0 | 0 |
| Other receivables | 466 | 466 | 408 | 408 |
| Total other loans and receivables including receivables from policyholders | 2 674 | 2 674 | 1 700 | 1 700 |
| FINANCIAL LIABILITIES - AT AMORTIZED COST | ||||
| Debt to credit institutions | 905 | 905 | 1 055 | 1 055 |
| Covered bonds issued | 30 504 | 30 526 | 32 430 | 32 402 |
| Liabilities and deposits from customers | 14 060 | 14 060 | 13 779 | 13 779 |
| Hybrid Tier 1 securities | 0 | 0 | 1 428 | 1 428 |
| Subordinated loan capital | 0 | 0 | 3 147 | 3 093 |
| Total financial liabilities | 45 469 | 45 492 | 51 839 | 51 757 |
| FINANCIAL LIABILITIES - AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Debt to credit institutions | 12 137 | 12 137 | 5 628 | 5 628 |
| Hybrid Tier 1 securities | 1 434 | 1 434 | 0 | 0 |
| Subordinated loan capital | 3 327 | 3 327 | 0 | 0 |
| Total financial liabilities | 16 897 | 16 897 | 5 628 | 5 628 |
| NOK MILLIONS | 31.12.2023 | 31.12.2022 | ||
|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | |
| FINANCIAL DERIVATIVES - AT FAIR VALUE THROUGH PROFIT OR LOSS | ||||
| Forward exchange contracts | 13 525 | 1 152 | 5 024 | 1 570 |
| Interest rate swaps | 1 383 | 2 096 | 1 077 | 194 |
| Interest rate and currency swaps | 679 | 0 | 583 | 1 393 |
| Share option | 0 | 0 | 135 | 0 |
| Total financial derivatives | 15 587 | 3 249 | 6 820 | 3 158 |
Note 26 Fair value hierarchy
| 31.12.2023 NOK MILLIONS | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| ASSETS BOOKED AT FAIR VALUE | ||||
| Land/plots | 0 | 0 | 1 283 | 1 283 |
| Buildings | 0 | 0 | 91 040 | 91 040 |
| Investment property | 0 | 0 | 92 322 | 92 322 |
| Lending at fair value | 0 | 81 136 | 0 | 81 136 |
| Certificates | 1 578 | 7 508 | 0 | 9 086 |
| Bonds | 27 564 | 315 287 | 0 | 342 850 |
| Fixed-income funds | 0 | 9 591 | 16 041 | 25 632 |
| Bonds and other fixed-income securities | 29 142 | 332 386 | 16 041 | 377 569 |
| Loans and receivables | 32 349 | 651 | 0 | 33 000 |
| Shares | 293 389 | 5 996 | 3 497 | 302 882 |
| Equity funds | 2 378 | 37 | 2 415 | |
| Property funds | 0 | 1 980 | 5 010 | 6 990 |
| Special funds | 0 | 0 | 0 | 0 |
| Private Equity | 0 | 0 | 42 470 | 42 470 |
| Shares and units | 295 767 | 7 976 | 51 014 | 354 757 |
| Financial derivatives | 0 | 15 587 | 0 | 15 587 |
| Total assets at fair value | 357 258 | 437 735 | 159 377 | 954 370 |
| LIABILITIES BOOKED AT FAIR VALUE | ||||
| Financial derivatives | 0 | 3 249 | 0 | 3 249 |
| Debt to credit institutions ¹ | 11 026 | 1 111 | 0 | 12 137 |
| Subordinated loan capital | 0 | 3 327 | 0 | 3 327 |
| Hybrid Tier 1 securities | 0 | 1 434 | 0 | 1 434 |
| Total financial liabilities at fair value | 11 026 | 9 120 | 0 | 20 146 |
| ¹ The line «Debt to credit institutions» includes liabilities measured at fair value and amortized cost. This line is therefore not reconcilable against the Balance sheet. The liabilities measured at amortized cost amounted to NOK 905 million per 31.12.2023. | ||||
| 31.12.2022 NOK MILLIONS | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| ASSETS BOOKED AT FAIR VALUE | ||||
| Land/plots | 0 | 0 | 1 377 | 1 377 |
| Buildings | 0 | 0 | 92 615 | 92 615 |
| Investment property | 0 | 0 | 93 992 | 93 992 |
| Lending at fair value | 0 | 0 | ||
| Certificates | 2 254 | 5 815 | 0 | 8 069 |
| Bonds | 21 099 | 110 390 | 0 | 131 489 |
| Fixed-income funds | 0 | 8 129 | 9 835 | 17 964 |
| Bonds and other fixed-income securities | 23 353 | 124 333 | 9 835 | 157 521 |
| Loans and receivables | 23 447 | 835 | 0 | 24 281 |
| Shares | 229 463 | 5 131 | 3 378 | 237 972 |
| Equity funds | 2 067 | 0 | 60 | 2 127 |
| Property funds | 0 | 2 165 | 4 349 | 6 514 |
| Special funds | 0 | 0 | 0 | 0 |
| Private Equity | 0 | 0 | 35 785 | 35 785 |
| Shares and units | 231 530 | 7 297 | 43 572 | 282 399 |
| Financial derivatives | 0 | 6 820 | 0 | 6 820 |
| Total assets at fair value | 278 330 | 139 285 | 147 399 | 565 014 |
| LIABILITIES BOOKED AT FAIR VALUE | ||||
| Financial derivatives | 0 | 3 158 | 0 | 3 158 |
| Debt to credit institutions ¹ | 4 326 | 1 302 | 0 | 5 628 |
| Subordinated loan capital | 0 | 3 147 | 0 | 3 147 |
| Hybrid Tier 1 securities | 0 | 1 428 | 0 | 1 428 |
| Total financial liabilities at fair value | 4 326 | 9 035 | 0 | 13 361 |
| Changes in Level 3, Investment Property | Book value 31.12.2023 | Book value 31.12.2022 |
|---|---|---|
| Opening balance 1 January | 93 992 | 89 535 |
| Sold | 0 | -148 |
| Bought | 2 610 | 1 139 |
| Unrealised changes | -4 280 | 3 486 |
| Other changes | 0 | -20 |
| Closing balance 31.12. | 92 322 | 93 992 |
| Realised gains/losses | 4 | 0 |
| Changes in Level 3, Financial Assets | Book value 31.12.2023 | Book value 31.12.2022 |
|---|---|---|
| Opening balance 1 January | 53 407 | 40 122 |
| Sold | -4 923 | -5 749 |
| Bought | 15 430 | 14 524 |
| Unrealised changes | 3 141 | 4 510 |
| Closing balance 31.12. | 67 055 | 53 407 |
| Realised gains/losses | 1 863 | 2 322 |
| Closing balance 31.12. | 159 377 | 147 399 |
Unrealised changes and realized gains / losses are reflected on the line "Net value changes on financial instruments" in the consolidated income statement.
The tables "Changes in level 3" shows changes in level 3 classified instruments in the period indicated.
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 as noted in an active market if noted prices are 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 for identical assets or liabilities that the entity has access to at the reporting date. Examples of instruments at Level 1 are stock market listed securities.
Level 2:
Instruments at this level obtain fair value from observable market data. This includes prices based on identical instruments, but where the instrument does not maintain a high enough trading frequency and is corresponding therefore not considered to be traded in an active market, as well as prices based on assets and price-leading indicators that can be confirmed from market information. Example instruments at Level 2 are fixed income securities priced on the basis of yields curves.
Level 3:
Instruments at Level 3 contain no observable market data or are traded in markets 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 instruments covered at Level 3 in the Group include unlisted shares and Private Equity.
The general principles related to the distribution between levels basically concern whether the asset or liability is listed or not and whether the listing can be stated to be in an active market. As regards shares, there is a further distinction between trading days and amount of trading which separates out listed securities that do not form part of an active market. The values at the end of the reporting period provide the basis for any movement between the levels. Valuations related to items in the various levels are described in note 25, except valuation on investment property which can be found in note 3.
No sensitivity analysis has been carried out on securities included in Level 3. A sensitivity analysis for investment property can be found in note 3. A change in the variables of the pricing is considered of little significance. On a general basis, a 5 percent change in the pricing would produce a change of NOK 7 969 million as of 31.12.2023 on the assets included in level 3.
There are limits set on the number of trading days and trading volume of stocks to distinguish between Level 1 and Level 2. The general principles surrounding level categorization primarily revolve around whether the asset or liability is listed and whether the listing can be considered in an active market. When transferring between levels, the value at the end of the period is used as a starting point.
During the period from 01.01.2023 to 31.12.2023, a net movement of NOK 973 millions in stocks moved from Level 1 to Level 2, NOK 17 millions moved from Level 1 to Level 3, NOK 1 118 million moved from level 2 to level 1 and NOK 1 million moved from level 2 to level 3. This is due to changes in liquidity, based on the guidelines above. Additionally, NOK 135 million in bonds moved from level 2 to level 1.
Note 27 Presentation of assets and liabilities that are subject to net settlement
| 31.12.2023 NOK MILLIONS | Related amounts not presented net | |||||||
|---|---|---|---|---|---|---|---|---|
| Gross financial assets/ liabilities | Gross assets/ liabilities presented net | Book value | Financial instruments | Security in cash | Security in securities | Net amount | Adjusted for the unit holders' interest in consolidated securities funds | |
| ASSETS | ||||||||
| Financial derivatives | 15 587 | 0 | 15 587 | -1 376 | -10 882 | -7 399 | 214 | 209 |
| Repos | 6 172 | 0 | 6 172 | -1 113 | 0 | 0 | 5 058 | 5 058 |
| Total | 21 759 | 0 | 21 759 | -2 489 | -10 882 | -7 399 | 5 272 | 5 267 |
| LIABILITIES | ||||||||
| Financial derivatives | 3 249 | 0 | 3 249 | -1 376 | -25 | -6 | 1 866 | 1 885 |
| Repos | 1 111 | 0 | 1 111 | 0 | 0 | 0 | 1 111 | 0 |
| Total | 4 360 | 0 | 4 360 | -1 376 | -25 | -6 | 2 977 | 1 885 |
| 31.12.2022 NOK MILLIONS | Related amounts not presented net | |||||||
|---|---|---|---|---|---|---|---|---|
| Gross financial assets/ liabilities | Gross assets/ liabilities presented net | Book value | Financial instruments | Security in cash | Security in securities | Net amount | Adjusted for the unit holders' interest in consolidated securities funds | |
| ASSETS | ||||||||
| Financial derivatives | 6 820 | 0 | 6 820 | -1 861 | -3 879 | -1 796 | 470 | 437 |
| Repos | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 6 820 | 0 | 6 820 | -1 861 | -3 879 | -1 796 | 470 | 437 |
| LIABILITIES | ||||||||
| Financial derivatives | 3 158 | 0 | 3 158 | -1 861 | -63 | -235 | 1 256 | 1 256 |
| Repos | 1 304 | 0 | 1 304 | 0 | 0 | 0 | 1 304 | 1 304 |
| Total | 4 462 | 0 | 4 462 | -1 861 | -63 | -235 | 2 560 | 2 560 |
The purpose of the note is to show the potential effect of netting agreements at the KLP Group; what possibilities the KLP Group has to net bilateral agreements against other counterparties should the latter go bankrupt and the remaining amount if all such netting agreements are materialized. The note shows derivative positions and repo agreements in the financial position statement. Repos are a part of the line "Debt to credit institutions" in the balance sheet. The consolidated figures include all entities the KLP Group is considered to have control over. In addition, the outer line shows which de facto net amount remains if all the Groups netting agreements are set off; which only includes subsidiaries and entities, where the Group carries the risk.
Note 28 Mortgage loans and other lending
The Group has a lending portfolio of high quality, with limited credit risk and historically very low losses. In the main the Group provides loans secured on housing with a loan-to-value ratio of less than 80 per cent, loans to local authorities and loans with government (central/local) guarantees. Lending secured through mortgages on housing amounts to about NOK 26.6 billion. The sector diversification of Group lending is very small, since a very high proportion of the loans are provided for the public sector. However the concentration risk this suggests can hardly be perceived as a real risk since the loans are covered by government (central/local) guarantee, representing an extremely low counterparty risk.
| NOK MILLIONS | Local government administration | State and local authority owned enterprises ¹ | Private organizations and enterprises | Employees, pensioners and similar | Total 31.12.2023 | Total 31.12.2022 |
|---|---|---|---|---|---|---|
| Agder | 5 418 | 271 | 2 | 862 | 6 554 | 5 807 |
| Innlandet | 9 240 | 121 | 242 | 1 638 | 11 240 | 10 618 |
| Møre og Romsdal | 5 178 | 340 | 102 | 797 | 6 417 | 6 814 |
| Nordland | 7 388 | 674 | 48 | 1 131 | 9 242 | 8 877 |
| Oslo | 445 | 0 | 1 486 | 2 799 | 4 731 | 4 631 |
| Rogaland | 3 679 | 159 | 190 | 1 941 | 5 969 | 5 913 |
| Svalbard | 326 | 0 | 0 | 0 | 326 | 80 |
| Troms og Finnmark | 6 161 | 1 277 | 408 | 1 311 | 9 158 | 8 970 |
| Trøndelag | 9 971 | 323 | 551 | 1 490 | 12 335 | 12 537 |
| Vestfold og Telemark | 4 984 | 334 | 62 | 2 495 | 7 876 | 7 869 |
| Vestland | 7 393 | 1 492 | 134 | 2 516 | 11 535 | 12 324 |
| Viken | 21 952 | 723 | 1 419 | 9 566 | 33 660 | 31 015 |
| Foreign | 0 | 0 | 5 245 | 11 | 5 256 | 5 363 |
| Not allocated | 0 | 0 | 0 | 44 | 44 | 42 |
| Accrued interests | 641 | 38 | 21 | 49 | 748 | 501 |
| Value adjustment | -1 025 | -70 | -1 095 | 0 | ||
| Total | 81 752 | 5 752 | 9 911 | 26 581 | 123 996 | 121 360 |
| ¹ This category covers local authority business operations, as well as enterprises owned by central and local government | ||||||
Note 29 Subordinated loan capital and hybrid Tier 1 securities
| 2023 NOK MILLIONS | Loan amount currency ² | Loan amount NOK | Book value 31.12.2023 | Due date | ||
|---|---|---|---|---|---|---|
| BORROWINGS ¹ | ||||||
| June 2015 | EUR 294 | 2 530 | 3 361 | 2045 | ||
| Total subordinated loan capital | 2 530 | 3 361 | ||||
| April 2004 | JPY 15 000 | 984 | 1 434 | Perpetual | ||
| Total hybrid tier 1 securites | 984 | 1 434 | ||||
| Total subordinated loan capital and hybrid Tier 1 securities | 3 513 | 4 795 | ||||
| 2022 NOK MILLIONS | Loan amount currency ² | Loan amount NOK | Book value 31.12.2022 | Due date | ||
| BORROWINGS ¹ | ||||||
| June 2015 | EUR 294 | 2 530 | 3 147 | 2045 | ||
| Total subordinated loan capital | 2 530 | 3 147 | ||||
| April 2004 | JPY 15 000 | 984 | 1 428 | Perpetual | ||
| Total hybrid tier 1 securites | 984 | 1 428 | ||||
| Total subordinated loan capital and hybrid Tier 1 securities | 3 513 | 4 575 | ||||
| 2023 NOK MILLIONS | Nominal currency ² | Acquisition cost NOK | Accrued interest | Unrealized currency | Book value 31.12.2023 | Due date |
| Bonds | EUR 292 | 2 524 | 18 | 747 | 3 289 | 2025 |
| Total hedging transactions | 2 524 | 18 | 747 | 3 289 | ||
| 2022 NOK MILLIONS | Nominal currency ² | Acquisition cost NOK | Accrued interest | Unrealized currency | Book value 31.12.2022 | Due date |
| Bonds | EUR 292 | 2 524 | 16 | 540 | 3 081 | 2025 |
| Total hedging transactions | 2 524 | 16 | 540 | 3 081 | ||
| ¹ Interest costs on the two subordinated loans were NOK 155 million (NOK 131 million) and NOK 75 million (NOK 72 million) for the hybrid tier 1 securities in 2023. Figures in brackets are 2022 figures. | ||||||
| ² Amount in local currency (millions) | ||||||
EUR 294:
The interest on the loan is fixed at 4.25 per cent p.a. The loans was issued the 10th of June 2015 and is due in 2045. The loan can be redeemed by KLP after 10 years, and at every interest payment date that follows. The loan is currency hedged with EUR denominated bonds as shown in the table above. This arrangement is not subject to hedge accounting.
JPY 15 000:
The interest on the loan is fixed USD interest of 5.07 per cent p.a. The loan is perpetual but the Group has the right to redeem the loan on 28 April 2034. If KLP does not exercise its redemption right in 2034, the loan will switch to variable interest. The credit margin then increases by 1 percentage point to 6-month JPY LIBOR-interest + a margin of 3.30 per cent p.a. To hedge the interest and exchange risk associated with the loan a combined interest rate and currency swap has been agreed in which KLP pays 3-month NIBOR-interest + a margin of 2.65 per cent p.a. and receives USD-interest of 5.07 per cent p.a. This hedging arrangement is shown in Note 27.
Note 30 Pensions obligations, own employees
The majority of the pension obligation is covered through KLP’s joint pension scheme for local authorities and enterprises (“Fellesordningen“).
The Group also offers a pension scheme in addition to "Fellesordningen". This obligation is covered through operation. "Fellesordningen" is a defined-benefits-based pension scheme that satisfies the requirements for mandatory occupational pensions (obligatorisk tjenestepensjon or OTP). The Group has a contractual early retirement (AFP) scheme.
The accounting treatment of pension obligations is described in more detail in note 2.
| NOK MILLIONS | Joint scheme | Via operation | 2023 | Joint scheme | Via operation | 2022 |
|---|---|---|---|---|---|---|
| PENSION COST | ||||||
| Present value of accumulation for the year | 161 | 10 | 171 | 167 | 11 | 179 |
| Administration cost | 3 | 0 | 3 | 3 | 0 | 3 |
| Planchanges | 0 | 0 | 0 | 3 | 0 | 3 |
| Social security contributions - Pension costs | 23 | 1 | 24 | 22 | 2 | 23 |
| Corporate activity tax - Pension costs | 10 | 0 | 11 | 7 | 0 | 8 |
| Pension costs incl. social security, corporate activity tax and administration cost taken to income | 198 | 12 | 210 | 202 | 13 | 215 |
| NET FINANCIAL COSTS | ||||||
| Interest cost | 82 | 9 | 90 | 53 | 6 | 59 |
| Interest income | -70 | 0 | -70 | -43 | 0 | -43 |
| Management costs | 3 | 0 | 3 | 2 | 0 | 2 |
| Net interest cost | 16 | 9 | 25 | 12 | 6 | 18 |
| Social security contributions - net interest cost | 2 | 1 | 3 | 2 | 1 | 3 |
| Corporate activity tax - net interest cost | 1 | 0 | 1 | 1 | 0 | 1 |
| Net interest cost including social security contributions and corporate activity tax | 19 | 10 | 29 | 15 | 7 | 21 |
| ESTIMATE DEVIATIONS PENSIONS | ||||||
| Actuarial gains (losses) | 105 | 18 | 123 | -99 | -12 | -111 |
| Social security contributions | 15 | 3 | 17 | -14 | -2 | -16 |
| Corporate activity tax | 5 | 1 | 6 | -4 | 0 | -5 |
| Actuarial gains (losses) including social security contributions and corporate activity tax | 125 | 21 | 147 | -117 | -14 | -132 |
| Total pension costs including interest costs and estimate deviation | 342 | 44 | 386 | 99 | 6 | 105 |
| NOK MILLIONS | Joint scheme | Via operation | 2023 | Joint scheme | Via operation | 2022 |
|---|---|---|---|---|---|---|
| PENSION OBLIGASTIONS | ||||||
| Gross accrued pension obligations | 3 008 | 312 | 3 320 | 2 683 | 281 | 2 964 |
| Pension assets | 2 550 | 0 | 2 550 | 2 276 | 0 | 2 276 |
| Net liability before social security costs | 458 | 312 | 770 | 406 | 281 | 687 |
| Social security contributions | 60 | 40 | 100 | 53 | 36 | 89 |
| Corporate activity tax | 25 | 18 | 43 | 22 | 16 | 38 |
| Gross accrued obligations incl. social security costs and corporate activity tax | 3 093 | 369 | 3 463 | 2 758 | 333 | 3 091 |
| Net liability incl. social security costs and corporate activity tax | 543 | 369 | 913 | 482 | 333 | 815 |
| NOK MILLIONS | Joint scheme | Via operation | 2023 | Joint scheme | Via operation | 2022 |
|---|---|---|---|---|---|---|
| RECONCILIATION PENSION OBLIGASTIONS | ||||||
| Capitalized net liability/(assets) 01.01. | 482 | 333 | 815 | 535 | 335 | 870 |
| Pension costs taken to profit/loss | 198 | 12 | 210 | 202 | 13 | 215 |
| Financial costs taken to profit/loss | 19 | 10 | 29 | 15 | 7 | 21 |
| Actuarial gains and losses included social security contributions and corporate activity tax | 125 | 21 | 147 | -117 | -14 | -132 |
| Social security contributions paid in premiums/supplement | -44 | -2 | -46 | -24 | -2 | -25 |
| Capital activity tax contribution paid in premiums/supplement | -10 | 0 | -11 | -6 | 0 | -6 |
| Premium/supplement paid-in including admin | -227 | -6 | -233 | -123 | -5 | -128 |
| Capitalized net liability/(assets) 31.12. this year | 543 | 369 | 912 | 482 | 333 | 815 |
| NOK MILLIONS | Joint scheme | Via operation | 2023 | Joint scheme | Via operation | 2022 |
|---|---|---|---|---|---|---|
| CHANGE IN PENSION OBLIGASTIONS | ||||||
| Gross pension assets 01.01. after planchanges | 2 758 | 333 | 3 091 | 2 747 | 335 | 3 082 |
| Present value of accumulation for the year | 161 | 10 | 171 | 167 | 11 | 179 |
| Interest cost | 85 | 9 | 93 | 53 | 6 | 59 |
| Actuarial losses (gains) gross pension obligation | 140 | 21 | 161 | -183 | -14 | -198 |
| Social security contributions - pension costs | 23 | 1 | 25 | 24 | 2 | 26 |
| Social security contributions - net interest cost | 2 | 1 | 3 | 2 | 1 | 3 |
| Social security contributions paid in premiums/supplement | -33 | -1 | -34 | -18 | -1 | -19 |
| Corporate activity tax - pension costs | 7 | 0 | 8 | 7 | 0 | 8 |
| Corporate activity tax - net interest cost | 1 | 0 | 1 | 1 | 0 | 1 |
| Corporate activity tax paid in premiums/supplement | -10 | 0 | -11 | -6 | 0 | -6 |
| Payments | -40 | -7 | -47 | -37 | -6 | -43 |
| Gross pension obligation 31.12. | 3 093 | 369 | 3 463 | 2 758 | 333 | 3 091 |
| NOK MILLIONS | Joint scheme | Via operation | 2023 | Joint scheme | Via operation | 2022 |
|---|---|---|---|---|---|---|
| CHANGE IN PENSIONS ASSETS | ||||||
| Pension assets 01.01 | 2 276 | 0 | 2 276 | 2 212 | 0 | 2 212 |
| Interest income | 71 | 0 | 71 | 43 | 0 | 43 |
| Actuarial (loss) gain on pension assets | 15 | 0 | 15 | -66 | 0 | -66 |
| Administration cost | -3 | 0 | -3 | -3 | 0 | -3 |
| Financing cost | -2 | 0 | -2 | -2 | 0 | -2 |
| Premium/supplement paid-in including admin | 234 | 7 | 241 | 129 | 6 | 135 |
| Payments | -40 | -7 | -47 | -37 | -6 | -43 |
| Pension assets 31.12 | 2 550 | 0 | 2 550 | 2 276 | 0 | 2 276 |
| NOK MILLIONS | Joint scheme | Via operation | 2023 | Joint scheme | Via operation | 2022 |
|---|---|---|---|---|---|---|
| PENSION SCHEME'S OVER-/UNDER-FINANCING | ||||||
| Present value of the defined benefits pension obligation | 3 093 | 369 | 3 463 | 2 758 | 333 | 3 091 |
| Fair value of the pension assets | 2 550 | 0 | 2 550 | 2 276 | 0 | 2 276 |
| Net pensions liability | 543 | 369 | 912 | 482 | 333 | 815 |
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| FINANCIAL ASSUMPTIONS (COMMON TO ALL PENSION SCHEMES) | ||
| Discount rate | 3.10% | 3.00% |
| Salary growth | 3.50% | 3.50% |
| The National Insurance basic amount (G) | 3.25% | 3.25% |
| Pension increases | 2.80% | 2.60% |
| Social security contribution | 14.10 % | 14.10 % |
| Corporate activity tax | 5.00 % | 5.00 % |
The assumptions as at 31 December 2022 have been applied to measurement of the cost of pension for 2023, whilst for calculation of the pension obligation on 31 December 2023, the assumptions and membership numbers as at 31 December 2023 have been applied. The assumptions are based on the market situation as at 31 December 2023 and are in accordance with the recommendations of the Norwegian Accounting Standards Board (NASB).
ACTUARIAL ASSUMPTIONS
KLP’s JOINT PENSION SCHEME FOR LOCAL AUTHORITIES AND ENTERPRISES ("FELLESORDNINGEN):
An important part of the basis of pension costs and pension obligations is how mortality and disability develop amongst the members of the pension scheme.
KLP uses best estimate based on mortality and disability figures in KLPs customer base
Withdrawal of contractual early retirement (AFP) (per cent in relation to remaining employees):
The costs of AFP depend on how many in each year-group take AFP. On reaching 62 years there are 42.5 per cent who retire with an AFP pension. It is only those who are employed and working right up to retirement who are entitled to AFP. This is taken into account in the calculation of the AFP obligation.
| Voluntary termination for “Fellesordning” (in %) | ||||||
|---|---|---|---|---|---|---|
| Age (in years) | <24 | 24-29 | 30-39 | 40-49 | 50-55 | >55 |
| Turnover | 25% | 15% | 7.5% | 5% | 3% | 0 % |
PENSIONS VIA OPERATIONS
AFP/early retirement is not relevant to this scheme. In regard to mortality the same estimates have been used as for “Fellesordningen".
| Number | Joint scheme | Via operation | 2023 | Joint scheme | Via operation | 2022 |
|---|---|---|---|---|---|---|
| MEMBERSHIP STATUS | ||||||
| Number active | 1 081 | 43 | 1 124 | 900 | 44 | 944 |
| Number deferred (previous employees with deferred entitlements) | 975 | 32 | 1 007 | 747 | 29 | 776 |
| Number of pensioners | 333 | 55 | 388 | 277 | 56 | 333 |
| 2023 | 2022 | |
|---|---|---|
| Composition of the pension assets: | ||
| Property | 13.3% | 14.7% |
| Lending | 11.3% | 12.0% |
| Shares | 31.6% | 30.2% |
| Long-term/HTM bonds | 28.6% | 29.0% |
| Short-term bonds | 11.5% | 12.2% |
| Liquidity/money market | 3.6% | 1.9% |
| Total | 100.0 % | 100.0 % |
The pension funds are based on KLP’s financial funds in the common portfolio. The table shows percentage placing of the pension funds administered by KLP at the end of the year. Value-adjusted return on the assets was 6.39 percent in 2023 and -1.14 percent in 2022.
Expected payment into benefits plans after cessation of employment for the period 1 January 2024 – 31 December 2024 is NOK 243 million.
| Sensitivity analysis as at 31 December 2023 | |
|---|---|
| The discount rate is reduced by 0.5 % | Increase |
| Gross pension obligation | 10.3% |
| Accumulation for the year | 13.6% |
| Salary growth increases by 0.25% | Increase |
| Gross pension obligation | 0.5% |
| Accumulation for the year | 1.4% |
| Mortality is strengthened by 10 % | Increase |
| Gross pension obligation | 2.8% |
| Accumulation for the year | 2.0% |
The sensitivity analysis above is based on all other assumptions being unchanged. In practice that is an unlikely scenario and changes in some assumptions are correlated. The calculation of gross pension obligation and accumulation for the year in the sensitivity analysis has been done using the same method as in calculating gross pension obligation in the financial position statement.
The duration in the Joint scheme is estimated at 19.9 years.
Note 31 Insurance liabilities
A. Directly participating contracts
| Liability for remaining coverage | ||
|---|---|---|
| 2023 | 2022 | |
| Opening balance | 686 834 | 697 685 |
| Canges in the statement of profit or loss and OCI | ||
| Insurance revenue | ||
| Contracts under the fair value approach | 725 | -1 543 |
| Insurance service charges | ||
| Incurred claims and other insurance service expenses | 1 543 | 1 515 |
| Insurance service result | 2 268 | -28 |
| Result addes to policyholders' residual value | 44 179 | -24 823 |
| Total changes in the statement of profit or loss and OCI | 46 447 | -24 851 |
| Cash flows | ||
| Premiums received (including investment components) | 57 921 | 41 389 |
| Claims and other insurance service expenses paid (including invetsment components) | -28 494 | -27 426 |
| Total cash flows | 29 426 | 13 963 |
| Other changes | 81 | 39 |
| Closing balance insurance obligations with the right to residual value | 762 789 | 686 834 |
| 2023 | Estimates of present value of furture cash flows | Risk adjustment for non-financial risk | Residual value under fair value approach | Total |
|---|---|---|---|---|
| Opening balance | 322 226 | 27 304 | 337 305 | 686 834 |
| Changes in the statement of profit or loss and OCI | ||||
| Change in risk adjustment for non-financial risk for risk expired | 2 321 | 2 321 | ||
| Experience adjustments | -53 | -53 | ||
| Insurance finance income or expenses from insurance contracts recognised in OCI | 3 616 | -557 | -19 038 | -15 978 |
| Result added to policyholders' residual value | 22 526 | 37 631 | 60 158 | |
| Total changes in the statement of profit or loss and OCI | 26 089 | 1 764 | 18 594 | 46 447 |
| Cash flows | ||||
| Premiums received (including investment components) | 57 921 | 57 921 | ||
| Claims and other insurance servce expenses paid (including investment components) | -28 494 | -28 494 | ||
| Total cash flowx | 29 426 | 0 | 0 | 29 426 |
| Other changes | 81 | 81 | ||
| Closing balance 31.12.2023 insurance obligations with the right to residual value | 377 742 | 29 068 | 355 979 | 762 789 |
| 2022 | Estimates of present value of furture cash flows | Risk adjustment for non-financial risk | Residual value under fair value approach | Total |
|---|---|---|---|---|
| Opening balance | 414 317 | 35 107 | 248 260 | 697 685 |
| Changes in the statement of profit or loss and OCI | ||||
| Change in risk adjustment for non-financial risk for risk expired | 167 | 167 | ||
| Experience adjustments | -195 | -195 | ||
| Insurance finance income or expenses from insurance contracts recognised in OCI | -105 859 | -7 970 | 102 027 | -11 802 |
| Result added to policyholders' residual value | -13 021 | -13 021 | ||
| Total changes in the statement of profit or loss and OCI | -106 054 | -7 803 | 89 006 | -24 851 |
| Cash flows | ||||
| Premiums received (including investment components) | 41 389 | 41 389 | ||
| Claims and other insurance servce expenses paid (including investment components) | -27 426 | -27 426 | ||
| Total cash flowx | 13 963 | 0 | 0 | 13 963 |
| Other changes | 39 | 39 | ||
| Closing balance 31.12.2022 insurance obligations with the right to residual value | 322 226 | 27 304 | 337 305 | 686 834 |
B. Other insurance liabilities
| Liability for remaining coverage | Liability for incurred claims | Total | ||
|---|---|---|---|---|
| 2023 | Excluding loss component | Estimates of present value of future cash flows | Risk adjustment for non-financial risk | |
| Opening balance | 276 | 2 790 | 115 | 3 181 |
| Insurance revenue | -2 505 | 0 | 0 | -2 505 |
| Insurance service expenses | 0 | 2 084 | 9 | 2 092 |
| Of this year's damages | 0 | 2 201 | 49 | 2 250 |
| Including liquidation defiations for previous years | 0 | -118 | -41 | -158 |
| Insuranceresult before reinsurance | 0 | 2 084 | 9 | 2 092 |
| Insurance finance income or expenses from insurance contracts | 0 | 62 | 5 | 66 |
| Total changes in comprehensive income | -2 505 | 2 146 | 13 | -347 |
| Premiums received | 2 549 | 0 | 0 | 2 549 |
| Clamis | 0 | -1 991 | 0 | -1 991 |
| Total cash flows | 2 549 | -1 991 | 0 | 558 |
| Net closing balance | 320 | 2 944 | 128 | 3 392 |
| Liability for remaining coverage | Liability for incurred claims | Total | ||
|---|---|---|---|---|
| 2022 | Excluding loss component | Estimates of present value of future cash flows | Risk adjustment for non-financial risk | |
| Opening balance | 225 | 2 266 | 95 | 2 586 |
| Insurance revenue | -2 200 | 0 | 0 | -2 200 |
| Insurance service expenses | 0 | 2 138 | 25 | 2 162 |
| Of this year's damages | 0 | 2 221 | 54 | 2 276 |
| Including liquidation defiations for previous years | 0 | -84 | -30 | -113 |
| Insuranceresult before reinsurance | -2 200 | 2 138 | 25 | -38 |
| Insurance finance income or expenses from insurance contracts | 0 | -44 | -5 | -48 |
| Total changes in comprehensive income | -2 200 | 2 094 | 20 | -87 |
| Premiums received | 2 252 | 0 | 0 | 2 252 |
| Clamis | 0 | -1 571 | 0 | -1 571 |
| Total cash flows | 2 252 | -1 571 | 0 | 681 |
| Net closing balance | 276 | 2 790 | 115 | 3 181 |
Note 32 Hedge accounting
| 31.12.2023 NOK MILLIONS | Nominal value | Changed value in hedged risk | Book value 31.12.2023 |
|---|---|---|---|
| KOMMUNAL LANDSPENSJONSKASSE | |||
| HEDGED OBJECT | |||
| Hybrid tier 1 securities | -984 | -450 | -1 434 |
| HEDGING INSTRUMENT | |||
| Combined interest rate and currency swap (CIRCUS) | 984 | 449 | 449 |
| Hedge effectiveness as at 31.12.2023 | 100 % | ||
| Hedge effectiveness through the year | 100 % | ||
| KLP BANKEN GROUP | |||
| HEDGED OBJECT | |||
| Loan | 1 662 | -87 | 1 669 |
| Debt | 1 700 | 7 | 1 700 |
| HEDGING INSTRUMENT | |||
| Interest rate swap loan | 1 662 | -8 | 89 |
| Interest rate swap debt | 1 700 | 87 | -4 |
| Hedge effectiveness as at 31.12.2023 | 99 % | ||
| Hedge effectiveness through the year | 99 % | ||
| 31.12.2022 NOK MILLIONS | Nominal value | Changed value in hedged risk | Book value 31.12.2022 |
|---|---|---|---|
| KOMMUNAL LANDSPENSJONSKASSE | |||
| HEDGED OBJECT | |||
| Hybrid tier 1 securities | -984 | -445 | -1 428 |
| HEDGING INSTRUMENT | |||
| Combined interest rate and currency swap (CIRCUS) | 984 | 465 | 465 |
| Hedge effectiveness as at 31.12.2022 | 102 % | ||
| Hedge effectiveness through the year | 102 % | ||
| KLP BANKHOLDING GROUP | |||
| HEDGED OBJECT | |||
| Loan | 1 789 | -98 | 1 702 |
| Debt | 1 700 | 19 | 1 700 |
| HEDGING INSTRUMENT | |||
| Interest rate swap loan | 1 789 | 72 | 97 |
| Interest rate swap debt | 1 700 | 9 | 16 |
| Hedge effectiveness as at 31.12.2022 | 101 % | ||
| Hedge effectiveness through the year | 101 % | ||
The note shows the financial instruments in the Group subject to hedge accounting, with associated hedging instruments. The hedge effectiveness stands at approx. 100 per cent on the hedge relationships as at 31 December 2023, which means relatively small effects on everything subject to hedge accounting in the Group.
Hybrid Tier 1 securities in foreign currency with fixed interest
The hybrid Tier 1 securities loan is hedged against changes in interest rates and exchange rates through purchase of a combined interest rate and currency swap (CIRCUS). The hedging is brought to account in accordance with the rules on fair value hedging. In practice the hedging involves a swap of currency terms (JPY 15 billion against NOK 0.984 billion) and interest terms (fixed interest at 5.07 per cent against NIBOR +2.6475 per cent) on the borrowing and the combined interest and currency swap respectively. The hedge effectiveness is measured by looking at the change in fair value of the hedged object and the hedging instrument.
The hedge effectiveness is valued retrospectively each month and is then considered effective if the change in fair value between hedged object and hedging instrument lies within the bracket 80 per cent to 125 per cent.
Other hedging relationships
There are two hedging relationship in KLP Kommunekreditt AS. The hedged objects are fixed rate loans and debt, which are hedged with the use of interest rate swaps. For more details - see KLP Kommunekreditt AS' annual report for 2023.
General
Fair value hedging means that the hedged value development of the hedged object is recognized through profit or loss. Correspondingly the value change on the hedging instrument is recognized in profit/loss. See also Note 2.3.1.3 for a detailed description of the hedge accounting in the accounts.
Note 33 Borrowing
| NOK MILLIONS | Nominal in NOK | Currency | Interest | Due date | Book value 31.12.2023 | Book value 31.12.2022 |
|---|---|---|---|---|---|---|
| FIXED - TERM SUBORDINATED LOAN | ||||||
| Kommunal Landspensjonskasse | 2 530 | EUR | Fixed ¹ | 2045 | 3 327 | 3 147 |
| Total subordinated loan capital | 2 530 | - | - | - | 3 327 | 3 147 |
| HYBRID TIER 1 SECURITIES | ||||||
| Kommunal Landspensjonskasse | 984 | JPY | Fixed ² | 2034 | 1 434 | 1 428 |
| Total hybrid Tier 1 securities | 984 | - | - | - | 1 434 | 1 428 |
| COVERED BONDS | ||||||
| KLP Kommunekreditt AS | 0 | NOK | Floating | 2023 | 0 | 2 985 |
| KLP Kommunekreditt AS | 1 553 | NOK | Floating | 2024 | 1 562 | 5 021 |
| KLP Kommunekreditt AS | 5 000 | NOK | Floating | 2025 | 5 015 | 5 010 |
| KLP Kommunekreditt AS | 5 000 | NOK | Floating | 2026 | 5 053 | 5 036 |
| KLP Kommunekreditt AS | 1 000 | NOK | Fixed | 2027 | 1 012 | 1 012 |
| KLP Kommunekreditt AS | 6 000 | NOK | Floating | 2027 | 6 052 | 0 |
| KLP Kommunekreditt AS | 700 | NOK | Fixed | 2029 | 706 | 706 |
| KLP Boligkreditt AS | 0 | NOK | Floating | 2023 | 0 | 1 603 |
| KLP Boligkreditt AS | 1 554 | NOK | Floating | 2024 | 1 555 | 2 501 |
| KLP Boligkreditt AS | 2 500 | NOK | Floating | 2025 | 2 501 | 2 501 |
| KLP Boligkreditt AS | 4 500 | NOK | Floating | 2026 | 4 536 | 3 521 |
| KLP Boligkreditt AS | 2 500 | NOK | Floating | 2027 | 2 516 | 2 512 |
| Other | -4 | 22 | ||||
| Total covered bonds | 30 307 | - | - | - | 30 504 | 32 430 |
| DEBT TO CREDIT INSTITUTIONS | ||||||
| KLP Banken AS | 0 | NOK | Floating | 2023 | 0 | 300 |
| KLP Banken AS | 450 | NOK | Floating | 2024 | 453 | 450 |
| KLP Banken AS | 300 | NOK | Floating | 2025 | 301 | 303 |
| KLP Banken AS | 150 | NOK | Floating | 2026 | 151 | 0 |
| KLP Fond | 4 218 | NOK | Floating | 2023 | 4 218 | 1 302 |
| KLP Fond | 1 111 | NOK | Fixed | 2023 | 1 111 | 1 540 |
| Kommunal Landspensjonskasse | 6 727 | NOK | Floating | 2023 | 6 727 | 2 678 |
| Kommunal Landspensjonskasse | 0 | NOK | Fixed | 2023 | 0 | 0 |
| Other | 80 | 110 | ||||
| Total liabilities to credit institutions | 12 957 | - | - | - | 13 041 | 6 683 |
| LIABILITIES AND DEPOSITS FROM CUSTOMERS ³ | ||||||
| Retail | 12 087 | NOK | 12 087 | 11 722 | ||
| Business | 1 924 | NOK | 1 924 | 2 021 | ||
| Foreign | 50 | NOK | 50 | 37 | ||
| Liabilities to and deposits from customers | 14 060 | - | 14 060 | 13 779 | ||
| Total financial liabilities | 60 837 | 62 366 | 57 467 | |||
| 1 The loan has an interest change date in 2025. | ||||||
| 2 The loan has an interest change date in 2034. | ||||||
| 3 There is no contractual maturity date on deposits. | ||||||
This note shows the financial liabilities that the Group had at the end of the reporting period; where the majority is funding for KLP Bank Group.
The companies listed above are the issuers of the financial debt. Deposits belongs to KLP Banken AS.
Note 34 Transferred assets with restrictions
Transferred assets that are still capitalised
All assets transferred are recognised in the financial position statement if the Group is still exposed to changes in the fair value of the asset. This applies to repurchase agreements and agreements concerning securities lending. Repurchase agreements are a form of borrowing with collateral, whereby the Group sells securities with an agreement to repurchase those securities at a predetermined price. Cash received is recognised as a deposit (debt). Securities transferred in connection with the repurchase agreement are not deducted in the financial position statement. Agreements regarding securities lending are transactions whereby the group lends securities to a counterparty and receives a commission for it. Since both repurchase agreements and securties lending result in the securities being returned to the Group, the risk of value changes rests with the Group. However, the securities are not available to the Group while being transferred. The securities still reported in the financial position statement, and related debt, are assessed at fair value.
| NOK MILLIONS | 31.12.2023 | 31.12.2022 |
|---|---|---|
| REPURCHASE AGREEMENTS | ||
| Certificates and bonds | 1 140 | 1 304 |
| Paid in by credit institutions | 6 172 | 0 |
| SECURITIES LENDING | ||
| Shares | 12 222 | 8 399 |
| Total assets transferred that are still capitalised | 19 534 | 9 702 |
LIABILITIES RELATED TO THE ASSETS
| NOK MILLIONS | 31.12.2023 | 31.12.2022 |
|---|---|---|
| REPURCHASE AGREEMENTS | ||
| Certificates and bonds | 6 170 | 0 |
| Paid in by credit institutions | 1 113 | 1 304 |
| SECURITIES LENDING | ||
| Paid in by credit institutions | 0 | 289 |
| Certificates and bonds | 4 366 | 4 263 |
| Shares | 9 469 | 4 302 |
| Total liabilities | 21 118 | 10 159 |
All the assets in the table above are subject to resale or collateral with the counterparty.
ASSETS TRANSFERRED THAT ARE NOT DEDUCTED, AND RELATED LIABILITIES
The Group receives collateral under reverse repurchase agreements and agreements related to securities borrowing, which it is permitted to sell or pledge under the agreement.
Transactions are carried out in accordance with standard agreements employed by the parties in the financial market. The agreements normally require additional collateral if the values fall below a predetermined level.
According the agreements, the recipient of the collateral has the unlimited right to sell or pledge the collateral in return for providing corresponding collateral on the date of settlement.
SECURITIES RECEIVED THAT ARE PERMITTED TO BE SOLD OR PLEDGED
| NOK MILLIONS | 31.12.2023 | 31.12.2022 |
|---|---|---|
| SECURITIES BORROWING | ||
| Shares | 835 | 511 |
| Of which sold or pledged | 835 | 511 |
| Total assets transferred and still capitalised | 835 | 511 |
Adjusted for the unit holders’ interests in consolidated securities funds, meaning that only the KLP Group de facto ownership and risks are taken into account; assets are reduced by NOK 5 463 million and liabilities associated to the assets are reduced by NOK 6 436 million as of 31.12.2023.
Note 35 Return on capital for life insurance segment
| PERCENT | 2023 | 2022 | 2021 | 2020 | 2019 |
|---|---|---|---|---|---|
| TOTAL OF COMMON PORTOFOLIO | |||||
| Return on capital ¹ | 6.4 | -1.1 | 8.4 | 4.2 | 8.5 |
| SUB-PORTOFOLIOS OF THE INVESTMENT OPTION PORTOFOLIO | |||||
| Balanced portfolio 1 | |||||
| Return on capital ¹ | 6.4 | -1.1 | 8.4 | 4.2 | 8.6 |
| Balanced portfolio 2 | |||||
| Return on capital ¹ | N/A | N/A | 8.3 | 4.2 | 8.5 |
| Moderate portfolio | |||||
| Return on capital ¹ | N/A | N/A | N/A | N/A | N/A |
| INVESTMENT OPTION PORTOFOLIO | |||||
| Return on capital ¹ | 8.3 | -2.5 | 8.9 | 4.2 | 9.9 |
| CORPORATE PORTOFOLIO | |||||
| Return on capital ¹ | 3.0 | 2.8 | 3.4 | 3.1 | 4.3 |
| ¹ Return on capital, formerly known as value-adjusted return, includes all realized and unrealized income from investments in accordance with the current account principles KLP is following. | |||||
The Moderate portfolio was closed at the end of june 2019 and was included in the Balanced portfolio 1 from July 2019 and onwards. Balanced portfolio 2 was closed at the end of 2021, and was included in the Balanced portfolio 1 from the beginning of 2022.
Note 36 Change in liabilities from financing activities
| NOK MILLIONS | 31.12.2022 | Cash flow from financing activities | Cash flow from operating activities | Non-cash changes 1 | 31.12.2023 |
|---|---|---|---|---|---|
| Subordinated loan capital | 3 147 | 2 | 0 | 178 | 3 327 |
| Hybrid Tier 1 securities | 1 428 | 0 | 0 | 6 | 1 434 |
| Debt to credit institutions | 6 683 | 0 | 6 358 | 0 | 13 041 |
| Covered bonds issued | 32 430 | -2 106 | 0 | 179 | 30 504 |
| 43 689 | -2 104 | 6 358 | 363 | 48 306 | |
| ¹ Non-cash flow changes are mainly unrealized currency. | |||||
| NOK MILLIONS | 31.12.2021 | Cash flow from financing activities | Cash flow from operating activities | Non-cash changes 1 | 31.12.2022 |
|---|---|---|---|---|---|
| Subordinated loan capital | 3 000 | 1 | 0 | 146 | 3 147 |
| Hybrid Tier 1 securities | 1 604 | 0 | 0 | -176 | 1 428 |
| Debt to credit institutions | 4 199 | 0 | 2 485 | 0 | 6 683 |
| Covered bonds issued | 31 015 | 1 460 | 0 | -45 | 32 430 |
| 39 818 | 1 461 | 2 485 | -75 | 43 689 |
Note 37 Other current liabilities
| NOK MILLIONS | 31.12.2023 | 31.12.2022 |
|---|---|---|
| Short-term payables trade in securities | 3 357 | 1 699 |
| Incurred not assessed taxes | 888 | 671 |
| Accounts payable | 301 | 256 |
| Public fees | 691 | 629 |
| Other current liabilities | 1 114 | 994 |
| Total other current liabilities | 6 352 | 4 248 |
Note 38 Equity
From and including 2023, the KLP group will submit accounts according to the new accounting standard IFRS 17 Insurance contracts. The new standard takes into account the fact that KLP is mutually owned, and the policyholders on public occupational pensions are entitled to all value creation in the group. This means that according to IFRS 17 the group has no equity and that the result will be zero.
However, the group has reported an equity as of 31.12.2023 of minus NOK 3,140 million. This equity arises as a result of the fact that the policyholders are entitled to the fair value of all assets and liabilities in the business, but certain asset and liability items are not accounted for at fair value. This creates a valuation difference that constitutes equity in a mutual insurance company.The period's change in valuation difference NOK 499 million, will thus appear as a result.
The statement in this note should be seen in connection with the equity statement.
| 31.12.2023 | |||
|---|---|---|---|
| NOK MILLIONS | Book value | Fair value | Difference |
| Bonds | 2 254 | 2 159 | 95 |
| Lending and FV-hedging | 44 509 | 44 503 | 6 |
| Investment in associated companies (equity method) | 5 178 | 7 981 | - 2 803 |
| Deferred tax assets (nominal, usable value) | 48 | 48 | 0 |
| Goodwill | 0 | 470 | - 470 |
| Other intangible assets (LVP) | 1 379 | 1 379 | 0 |
| Asset valued at fair value | 963 353 | 963 353 | 0 |
| Total assets | 1 016 721 | 1 019 893 | - 3 172 |
| Hybrid Tier 1 securities/Subordinated loan capital | 4 761 | 4 761 | 0 |
| Other borrowings and bank deposits | 45 469 | 45 501 | - 33 |
| Pension obligations | 913 | 913 | 0 |
| Deferred tax (nominal value) | 1 055 | 1 055 | 0 |
| Commitments valued at fair value | 967 664 | 967 664 | 0 |
| Total debt | 1 019 861 | 1 019 893 | - 33 |
| Group equity | - 3 140 | 0 | - 3 140 |
| 31.12.2022 | |||
|---|---|---|---|
| NOK MILLIONS | Book value | Fair value | Difference |
| Bonds | 68 282 | 68 373 | - 91 |
| Lending and FV-hedging | 209 543 | 197 290 | 12 253 |
| Investment in associated companies (equity method) | 4 538 | 8 204 | - 3 666 |
| Deferred tax assets (nominal, usable value) | 48 | 48 | 0 |
| Goodwill | 0 | 72 | - 72 |
| Other intangible assets (LVP) | 1 049 | 1 049 | 0 |
| Asset valued at fair value | 616 609 | 616 609 | 0 |
| Total assets | 900 068 | 891 645 | 8 424 |
| Hybrid Tier 1 securities/Subordinated loan capital | 4 575 | 4 575 | 0 |
| Other borrowings and bank deposits | 47 264 | 47 236 | 28 |
| Pension obligations | 3 181 | 3 181 | 0 |
| Deferred tax (nominal value) | 1 153 | 1 153 | 0 |
| Commitments valued at fair value | 835 500 | 835 500 | 0 |
| Total debt | 891 673 | 891 645 | 28 |
| Group equity | 8 396 | 0 | 8 396 |
Note 39 SCR ratio
The Solvency II balance sheet includes assets and liabilities at fair value. For assets that have a different value in the accounts change in balance value are added. There are no observable market values for KLP’s insurance liabilities, which are thus calculated by way of a best estimate based on actuarial assumptions. In addition there is a risk margin that is to reflect a third party’s capital costs by taking over these liabilities.
Tier 1 own funds appears from the Solvency II balance sheet and Hybrid Tier 1 securities. Tier 2 own funds consist of subordinated loans, the risk equalization fund, the natural perils fund and ancillary own funds. The Financial Supervisory Authority of Norway has accepted that KLP’s right to call in further member contribution if necessary, which is laid down in the Company’s articles of association, can be counted as ancillary own funds, the amount corresponding to 2.5 per cent of the Company’s premium reserve. Own funds that may be included in Tier 2 own funds is limited upwards to 50 per cent of SCR.
Without the use of the transitional measure on technical provisions the Company’s SCR ratio is 314 per cent, which is well over the Company’s target of at least 150 per cent. With the transitional measure on technical provisions the SCR ratio is 314 per cent.
| 31.12.2023 | 31.12.2022 | |
|---|---|---|
| Solvency II - SCR ratio | 314 % | 288 % |
| NOK BILLIONS | 31.12.2023 | 31.12.2022 |
|---|---|---|
| Simplified Solvency II Financial Position Statement | ||
| Assets, book value | 790 | 713 |
| Added values - hold-to-maturity portfolio/loans and receivables | -9 | -13 |
| Added values - other lending | -1 | -2 |
| Other added/lesser values | 0 | 0 |
| Deferred tax asset | 0 | 0 |
| Total assets - solvency II | 779 | 699 |
| NOK BILLIONS | 31.12.2023 | 31.12.2022 |
|---|---|---|
| Simplified Solvency II Financial Position Statement | ||
| Best estimate | 706 | 632 |
| Risk margin | 11 | 12 |
| Hybrid Tier 1 securities/Subordinated loan capital | 5 | 5 |
| Other liabilities | 13 | 9 |
| Deferred tax liabilities | 0 | 0 |
| Total liabilities - solvency II | 735 | 657 |
| Excess of assets over liabilities | 44 | 42 |
| - Deferred tax asset | 0 | 0 |
| - Risk equalization fund and natural perils fund | -4 | -5 |
| + Hybrid Tier 1 securities | 1 | 1 |
| Tier 1 basic own funds | 42 | 38 |
| Total eligible tier 1 own funds | 42 | 38 |
| Subordinated loans | 3 | 3 |
| Risk equalization fund and natural perils fund | 4 | 5 |
| Tier 2 basic own funds | 7 | 8 |
| Ancillary own funds | 14 | 13 |
| Tier 2 ancillary own funds | 14 | 13 |
| Deduction for max. eligible tier 2 own funds | -14 | -14 |
| Total eligible tier 2 own funds | 7 | 7 |
| Deferred tax asset | 0 | 0 |
| Total eligible tier 3 own funds | 0 | 0 |
| Eligible own funds to meet the solvency capital requirement | 49 | 46 |
| Market risk | 141 | 109 |
| Counterparty risk | 4 | 3 |
| Life risk | 113 | 95 |
| Non-life risk | 1 | 1 |
| Health risk | 0 | 0 |
| Diversification | -56 | -46 |
| Operational risk | 3 | 3 |
| Loss absorbing capacity of technical provisions | -190 | -149 |
| Loss absorbing capacity deferred tax | -2 | -2 |
| Capital requirement for other financial sectors | 1 | 1 |
| Solvency capital requirement (SCR) | 16 | 16 |
| Minimum consolidated group solvency capital requirement | 5 | 5 |
| Eligible own funds to meet the minimum consolidated group SCR | 39 | 36 |
| Solvency II- SCR ratio | 314 % | 288 % |
Note 40 Number of employees
| 2023 | 2022 | |
|---|---|---|
| Number of permanent employees 31.12. | 1 133 | 1 093 |
| Number of temporary employees 31.12. | 30 | 52 |
| Total number of employees 31.12. | 1 163 | 1 145 |
| Number of full time equivalents permanent employees 31.12. | 1080 | 1 041 |
| Number of full time equivalents temporary employees 31.12. | 12 | 20 |
| Total number of full time equivalents 31.12. | 1 092 | 1 061 |
Note 41 Contingent liabilities
| NOK MILLIONS | 31.12.2023 | 31.12.2022 |
|---|---|---|
| KLP guarantee liability | 2 | 2 |
| Committed, not subscribed investment in private equity and property funds | 27 349 | 27 889 |
| Approved, not paid out KLP Group loan pledge | 4 058 | 3 676 |
| Total contingent liabilities | 31 409 | 31 567 |

