Good financial returns had a positive impact on KLP’s results in the first quarter
KLP achieved a return of 2.5 per cent on the pension assets in the common portfolio in the first quarter.
A sound equity market and interest rates above the guaranteed interest rate have contributed positively to the financial returns in the first quarter.
Strong capital adequacy at 316 per cent.
KLP – a customer-owned group
The KLP Group is made up of the following companies: Kommunal Landspensjonskasse (KLP) and its subsidiaries KLP Banken, KLP Skadeforsikring, KLP Kapitalforvaltning, KLP Forsikringsservice and KLP Eiendom.
At the end of the first quarter of 2023, the Group had total assets of NOK 948.1 billion, an increase of NOK 47.9 billion in the quarter.
Kommunal Landspensjonskasse
Pension schemes within the public sector are offered and administered by the Group’s parent company, Kommunal Landspensjonskasse. Out of KLP’s total assets of NOK 742.1 billion, NOK 668.2 billion is linked to insurance liabilities within public-sector occupational pensions.
All retirement pension cases were converted to a new pension system during the first quarter and will be processed there. This is an important step in the extensive change programme underway in KLP.
There has been a consultation on the regulations for a new public-sector early retirement pension (AFP). The new public-sector AFP is designed as a lifetime benefit and will start with the 1963 cohort when they turn 62 in 2025. KLP has submitted a detailed response. A legislative process is expected in the autumn.
Implementation of new accounting rules
Financial instruments
New rules for the measurement and valuation of financial instruments were implemented in the first quarter. These will be treated from 1 January 2023 in accordance with the rules in the international financial reporting standard IFRS 9 Financial Instruments.
The purpose of the new rules is to simplify the accounting treatment of financial instruments. There are now two factors that determine this; the characteristics of the instrument and the company’s business model. Another purpose is to make provision for expected losses on financial instruments measured at amortised cost. Previous rules had no requirement for provisions for expected credit losses.
Comparative figures from previous periods have not been restated as there is no requirement for this.
The transitional effect in the company accounts as of 01.01.2023 amounts to minus NOK 2 million on equity and minus NOK 13 million on the buffer fund. The change is related to provisions for expected losses on investments measured at amortised cost.
For the Group, the transitional effect on equity amounts to minus NOK 12.0 billion after tax. The transitional effect is mainly due to the fact that financial instruments previously measured at amortised cost are now measured at fair value with changes in value through profit/loss. From 1 January 2022, unrecognised changes in the value of these instruments will therefore be included in the financial statements. The reason for the increased measurement of financial instruments at fair value with changes in value through profit/loss in the consolidated accounts is that insurance liabilities are discounted using a market-based interest-rate curve. This means that changes in the recognised value of insurance liabilities related to changes in interest rates will be partly offset by changes in the recognised value of income from interest on the associated financial instruments.
Refer to KLP’s annual report for 2022, Note 37 (to the company accounts) and Note 37 (to the consolidated accounts), for further discussion of the transition to new accounting policies for financial assets.
Insurance contracts
The international accounting standard for recognition and measurement of insurance contracts, IFRS 17, entered into force from 1 January 2023. It is not permitted to use the standard in the company accounts of life insurance companies, but it must be implemented in the consolidated accounts of groups reporting under IFRS.
One purpose of the new standard is to provide for better valuation and performance measurement of insurance contracts, along with increased transparency over the business and greater comparability.
IFRS 17 recognises that the purpose of mutual insurance companies is not to generate profits for external owners, but to provide insurance cover to members. Value creation for a mutual enterprise cannot therefore be measured in the same way as for a private limited company, for example. Profits or losses from the business will be distributed among current or future members of the mutual insurance company. Profits to members in excess of those deriving from the obligations attached to the insurance contracts are set aside as a debt to current and future members. This acts as a buffer against future losses. As a general rule, mutual enterprises have neither profit nor equity. Equity may nevertheless arise because the standard requires net assets in the business set aside for members to be always measured at market value, whereas some assets and liabilities are not measured at market value, either because this is not permitted under other accounting rules or because the Group has chosen another valuation method where this was possible. This then produces a measurement difference related to certain assets and liabilities. This measurement difference will constitute equity in the mutual enterprise. The change in measurement difference is a profit to the enterprise. KLP has identified surplus assets set aside as debt to current or future members for the residual value of the business, and any changes in this, together with monies paid into the members’ premium fund, will give a picture of KLP’s value creation.
The insurance liabilities are measured by estimating future cash flows related to the insurance contract and discounting them using a market-based interest rate curve that takes account of the liquidity in KLP’s insurance contracts. A risk adjustment is then applied for non-financial risk.
Comparable figures have been prepared for 2022. The equity effect of implementing the standard amounted to minus NOK 48.9 billion on 01.01.2022. Refer to Note 37 to the consolidated accounts in the annual report for 2022 for further details of the transition to IFRS 17.
Implementation of IFRS 17 will have no impact on capital adequacy ratio.
Results for the first quarter of 2023
Group
The best estimate of liabilities related to insurance contracts entitling the policyholder to the residual value of the business increased by NOK 33.6 (-65.4) billion in the quarter and amounts to NOK 383.1 (384.0) billion. NOK 31.3 (-67.7) billion of the increase is related to discount effects from falling long-term interest rates throughout the quarter. Despite an increase of NOK 17.6 billion in the value of underlying net assets, the residual value to policyholders fell from NOK 337.3 billion to NOK 319.6 billion in the quarter. The total liability to policy-holders entitled to residual value thus amounts to NOK 702.7 (686.9) billion as of 31.03.2023.
The Group has also issued ordinary insurance contracts within non-life insurance. Liabilities related to this business increased from NOK 3.2 billion to NOK 4.0 billion through the first quarter.
The consolidated profit/loss amounted to NOK -43 (10,480) million, and was due to differences in recognised value changes and changes in the market value of net assets. Cumulatively, this valuation difference amounts to NOK -3,630 (2,293) million, and corresponds to the Group’s equity. The big change from the first quarter of last year to the first quarter of this year is partly due to the fact that, in implementing IFRS 9 from 1 January 2023, the Group has changed the measurement of a significant proportion of financial instruments from amortised cost to market value.
Company result
Investment result
KLP achieved an investment result (returns in excess of the average guaranteed rate of return) of NOK 13.2 (-7.9) billion in the first quarter. The return on the common portfolio was 2.5 per cent.
Risk result
There was a negative trend in disability in the quarter which had a negative effect on the risk result. On the other hand, excess mortality had a positive effect on the result. In total, the risk result amounts to NOK 71 (105) million in the first quarter. The risk events in the stock have been within expectations throughout the year and will vary from quarter to quarter.
Administration result
The company’s administration result shows a surplus of NOK 54 (-9) million in the first quarter. Insurance-related operating costs came to NOK 377 (368) million in the first quarter.
Total profit/loss
Total profit/loss to the company stands at NOK 454 (388) million for the first quarter. The customer result is NOK 13.2 (-7.8) billion for the year.
NOK millions
Customers
Company
Total
Investment result
13 117
116
13 233
Risk result
71
71
Interest guarantee premium
68
68
Administration result
54
54
Net income from investments in the corporate portfolio and other income/expenses in non-technical accounts
302
302
Tax
-108
-108
Other profit/loss elements
23
23
Profit/loss after Q1 2023
13 188
454
13 642
Profit/loss after Q1 2022
-7 752
388
-7 365
Financial strength and capital-related matters
KLP’s total assets increased by NOK 31.8 billion in the first quarter and amount to NOK 742.1 billion. The premium reserve increased by NOK 1.7 billion to NOK 520.3 billion in the same period.
The buffer fund amounts to NOK 102.2 billion after the first quarter. There is also a positive interim result of NOK 13.2 billion in the customer result.
Without applying transitional rules, the company’s capital adequacy ratio is 316 per cent. Taking account of the transitional arrangement for technical provisions, capital adequacy was 316 per cent.
KLP’s target is a capital adequacy of at least 150 per cent without applying transitional rules. Capital adequacy is well over this target and reflects the Company’s good financial strength.
Key figures
Per cent
At 31.03.2023
At 31.03.2022
Return on the common portfolio
2,5
-0,8
Return incl. value changes in hold-to-maturity bonds and lending
2,6
-2,3
The returns figures apply to the common portfolio
Capital adequacy, Solvency II
316
332
Capital adequacy, Solvency II, with transitional measures
316
332
Premium income
Premium income excluding premium reserves received on transfers in amounts to NOK 7.6 (7.1) billion at the end of the first quarter.
Claims/benefits
Pensions paid and other claims, excluding ceded premium reserves, amounted to NOK 6.2 (5.8) billion for the first quarter.
Management of the common portfolio
The assets in the common portfolio totalled NOK 690.9 (662.5) billion and were invested as shown below:
Assets
At 31.03.2023
At 31.03.2022
All figures in per cent
Proportion
Return
Proportion
Return
Equities
31,5 %
6,7 %
30,1 %
-3,2 %
Short-term bonds
11,6 %
1,7 %
13,1 %
-4,6 %
Long-term/HTM bonds
28,7 %
0,8 %
28,4 %
0,8 %
Lending
11,8 %
0,8 %
12,1 %
0,5 %
Property
14,7 %
-0,2 %
14,0 %
1,4 %
Other financial assets
1,6 %
0,8 %
2,3 %
0,1 %
Equities
Total exposure in shares and alternative investments, including equity derivatives, was 31.5 per cent at the end of the first quarter. The total return on shares and alternative investments was 6.7 per cent in the quarter. The return on KLP’s global equities was 8.4 per cent, while KLP’s Norwegian equity portfolio returned 1.6 per cent in the first quarter.
The currency hedging ratio for equities in developed markets and the most liquid currencies in emerging markets was between 50 and 70 per cent. In the first quarter, the Norwegian krone depreciated against the US dollar and the euro, among other currencies. Currency hedging made a negative contribution to the return on equity in this quarter.
Short-term bonds and money market instruments measured at fair value
Short-term bonds accounted for 11.6 per cent and money-market instruments 1.6 per cent of the assets in the common portfolio at the end of the quarter. There was some movement in Norwegian, European and US long-term government bond yields through the quarter, but these ended down in the first quarter, while short-term yields rose. KLP’s global government bond index achieved a currency-hedged return of 2.7 per cent in the quarter, while the return on the Norwegian government bond index was 1.7 per cent. Increased global credit margins contributed to a quarterly return of 2.7 per cent on KLP’s global corporate bond index, while the return on the Norwegian corporate bond index was 0.9 per cent. Short-term bonds produced a total return of 1.7 per cent in the first quarter. The money market return was 0.8 per cent for the quarter.
Bonds measured at amortised cost
Investment in bonds measured at amortised cost made up 28.7 per cent of the common portfolio at the end of the quarter. Unrecognised decreases in value in the portfolio rose in the first quarter and amounted to NOK 10.4 billion at the end of the quarter. The portfolio is well diversified and consists of securities issued by creditworthy borrowers. The return measured at amortised cost in the first quarter was 0.8 per cent.
Property
Property investments, including Norwegian and international property funds, accounted for 14.7 per cent of the common portfolio. Property values in the common portfolio were adjusted downwards by NOK 980.3 million in the quarter. Property investments in the common portfolio achieved a return of minus 0.2 per cent in the first quarter. The returns include currency hedging and property funds.
Lending
Lending in the common portfolio totals NOK 79.2 billion. This is split between NOK 68.0 billion in loans to the public sector, NOK 0.7 billion in loans with government guarantees and NOK 2.9 billion in secured mortgage loans, with the remaining NOK 7.6 billion made up of other secured loans. The lending portfolio is of high quality, with no losses on municipal loans and very modest provisions for losses on mortgage loans. Unrecognised decreases in value in the lending portfolio (fixed-interest loans) totalled NOK 1.4 billion at the end of the quarter. The return for the first quarter was 0.8 percent.
Returns on the corporate portfolio
The corporate portfolio covers the placement of owners’ equity and subordinated loans/hybrid Tier 1 and Tier 2 securities.
The corporate portfolio is managed with a moderate-risk long-term investment horizon, with the objective of stable returns. Investments in the corporate portfolio achieved a return of 0.9 per cent in the first quarter.
Business areas of the subsidiaries
Non-life insurance
The first quarter of 2023 is the first time KLP Skadeforsikring AS has presented its accounts with the insurance contracts reported in accordance with IFRS 17. This means that some key figures will not be directly comparable with previous years’ reporting. With the introduction of the new standard, the comparative figures have been reworked.
The first quarter shows a profit before tax and other provisions of NOK 99.3 (56.9) million. Financial income is higher than expected and accounts for some of the good result. Because of one large claim, the underwriting result is weaker than expected. Previous years’ reserves were liquidated in the quarter.
Volume growth so far this year is NOK 263 million, and premium volume was NOK 2,456 (2,105) million at the end of the first quarter. The increase is primarily due to increased premiums, both generally and within specific segments. Insurance income increased by 15.4 per cent, or NOK 84 million, compared with the same time in 2022. For the public-sector and corporate markets, income increased by 19.8 per cent, while the corresponding increase for the retail market was 9.8 per cent.
One large claim was reported in the first quarter, of which the company covered NOK 76 million. Any excess is covered by the company’s reinsurers.
In recent years, KLP Skadeforsikring AS has seen several fire claims from the waste industry, some of them very large. The company’s reinsurers are therefore restrictive in their offering within this customer group, and the company plans to reduce its exposure to this industry. This has led to stricter conditions for the industry.
Reversals of previous years’ claims are still positive, and gains of NOK 11 million have been taken to income so far this year, equivalent to 0.5 per cent of the reserves at the beginning of the year.
Key figures for the company
At 31.03.2023
At 31.03.2022
At 31.12.2022
Claims ratio
93,8
64,9
75,8
Cost ratio
14,9
14,6
14,5
Combined ratio
108,6
79,5
90,4
Net financial income in the first quarter was NOK 148.7 (-49.3) million, equivalent to 2.7 (-0.9) per cent. The quarter has been characterised by large movements in the international financial markets. Overall, the equity portfolio had a quarterly return of 9.3 per cent. The company’s investments in fixed income funds also had a positive return of 1.6 per cent, as a result of a reduction in interest rates and reduced credit premiums. The company’s long-term bonds had a yield of 0.8 per cent. The return on property investments was 5.5 per cent, after a write-up of NOK 32 million on real estate assets.
The capital adequacy ratio was slightly reduced from 222 per cent at the end of 2022 to 218 per cent at the end of the first quarter.
Asset and fund management
KLP Kapitalforvaltning AS provides securities management in the KLP Group. It had a total of NOK 671 billion under management at the end of the first quarter, of which NOK 151 billion was for external customers. The majority of the assets are managed on behalf of KLP and its subsidiaries.
Net new subscriptions to the KLP funds were NOK 3.7 billion in the first quarter. External customers had positive net new subscriptions of NOK 5 billion in the quarter.
The company achieved a profit before tax of NOK 11.3 million in the first quarter.
Bank
The KLP Banken Group finances mortgages and other credit to individual customers (retail market) as well as loans to municipalities, county municipalities and companies that provide public services (public-sector market). The Bank’s lending business is financed by deposits from private customers and companies, loans from the securities market and owners’ equity. The Bank also manages a substantial volume of lending financed by pension assets in KLP.
As of 31 March, the KLP Banken Group had loans to customers totalling NOK 42.7 (40.6) billion. Mortgage loans in the retail market and public-sector loans totalled NOK 23.3 (22.6) billion and 19.4 (18.0) billion respectively.
The KLP Banken Group manages NOK 2.9 (3.0) billion in mortgage loans and NOK 74.1 (72.6) billion in loans to public-sector borrowers and other businesses on behalf of KLP.
The Bank’s mortgage products are aimed at the target group of members of the KLP pension schemes. Net mortgage growth in the first quarter was NOK 75 million, which is considerably lower than at the same time last year.
Lending volume to the public-sector market on KLP Banken Group’s balance sheet increased by NOK 0.2 (0.2) billion through the quarter. Loans to public-sector borrowers managed on behalf of KLP increased by NOK 0.5 (0.1) billion in the same period.
The bank’s lending margins have continued from autumn 2022 at a somewhat higher level than in the first quarter of 2022. Higher interest rates have also contributed to higher earnings on the Bank’s loans financed by equity. The Bank’s operating income, in the form of net interest income, was NOK 110.2 (72.1) million at the end of the first quarter.
The KLP Banken Group’s external financing consists mainly of deposits and bonds. Deposit growth so far this year is NOK 0.4 (0.5) billion. At the reporting date, deposits from individuals and enterprises amounted to NOK 14.1 (13.4) billion. Liabilities created on issuance of securities totalled NOK 32.0 (31.9) billion. The securities debt is mainly covered bonds issued by KLP Kommunekreditt AS and KLP Boligkreditt AS.
Operating expenses and depreciation amounted to NOK 71.4 (64.0) million in the first quarter.
In the year to date, losses and loss provisions on loans in the retail market amounted to NOK 0.3 (0.1) million. Nor have we experienced any losses related to public-sector lending in this quarter.
The KLP Banken Group had a pre-tax operating profit of NOK 53.1 million (18.3) in the first quarter. Broken down by area, profits were NOK 35.4 (8.3) million in the retail market and NOK 17.7 (10.0) million in the public-sector market.
Corporate social responsibility
A pilot study was recently completed to examine financing solutions for green maritime infrastructure. Institutional investors are among the players who could take on a greater role and provide capital to finance the major upgrade that is needed in the maritime sector. KLP is one of the institutional investors leading the way in this work.
KLP also actively contributes to achieving the global climate goals and nature targets. The issue of seabed mining is one of many examples where the objectives could conflict with each other, and where difficult trade-offs have to be made. In a consultation response to the Ministry of Petroleum and Energy, KLP stresses that the precautionary principle dictates that, until we have a better knowledge base, we should hold off on commercially oriented exploration and mining on the seabed. KLP also supports an international proposal for a temporary suspension of offshore mining.
KLP considers climate change and nature loss to be both a direct financial risk and an indirect systemic risk for our global society. KLP has published a new expectation document that sets out KLP’s expectations for how companies should manage climate and nature risk. The aim is to minimise KLP’s exposure to natural and climate-related risks, and to ensure that our financial goals are achieved in a way that supports social and economic development within the Earth’s tolerance limits. KLP has also introduced stricter guidelines for voting and will vote against board resolutions in companies that produce the largest emissions without having a credible transition plan.
During the first quarter, KLP received approval for its Nordic Swan eco-labelled funds according to new criteria. The new criteria have a greater focus on climate and biodiversity, set higher standards for the exercise of active ownership, and implement EU rules on sustainable finance.
In the first quarter of the year, just under NOK 40 million was lent to new projects that met the requirements for green loans in KLP Banken.
A study is underway to look at the possibility of establishing a web-based system to help municipal councils and government to gain a better insight into the overall status of the building stock for customers with non-life insurance in KLP.
Future prospects and events after the end of the quarter
The world is still marked by heightened geopolitical tension and the war in Ukraine. Higher inflation and interest rates may raise challenges to the global economy, but could also provide good opportunities for generating surplus returns over and beyond the interest rate guarantee for KLP.
Last year, Storebrand filed a complaint against Norway with the ESA, alleging that KLP is receiving unlawful state aid, and that Norwegian municipalities and health trusts have breached the rules on public procurement. The Norwegian government, represented by the Ministry of Local Government and Rural Affairs, has responded to the Authority in a letter rejecting the complaints. The case is now with the ESA, and it could turn into a long drawn-out process.
Income statement KLP Group
NOTE
NOK MILLIONS
Q1 2023
Q1 2022
01.01.2022 -31.12.2022
3, 5
Insurance service result
139
244
2 022
Net income from investments measured at fair value with changes in P/L
27 830
1 203
8 748
Net income from investments not measured at fair value with changes in P/L
18
-13 598
-37 425
4
Fair value adjustment investment properties and rental income
496
1 261
6 558
Net credit loss from financial assets not measured at fair value
0
1
0
Net interest income banking
110
72
371
Unit holder's value change in consolidated securites funds
-12 135
7 237
15 966
Total net income
16 319
-3 824
-5 783
Policyholder's share of changes in fair value of underlying items
-17 620
14 878
21 992
Other insurance related financial cost
-20
36
49
5
Net insurance related financial cost
-17 640
14 914
22 040
Net insurance services and financial result
-1 182
11 334
18 279
6
Net costs subordinated loan and hybrid Tier 1 securities
-467
160
-169
Operating expenses
-315
-309
-1 159
Other income
8
36
305
Other expenses
-92
-2
-25
Pre-tax income
-2 049
11 219
17 232
Cost of taxes 1
-330
-184
-826
Income
-2 379
11 035
16 405
12
Actuarial loss and profit on post employment benefit obligations
31
426
132
Tax on items that will not be reclassified to profit or loss
-5
-67
-17
Items that will not be reclassified to profit or loss
26
358
115
Revaluation real property for use in own operation
-8
43
-43
4
Currency translation foreign properites
2 315
-945
148
Tax on items that will be reclassified to profit or loss
2
-11
11
Items that will be reclassified to income particular specific conditions are met
2 309
-913
116
Total other comprehensive income
2 336
-555
231
Total comprehensive income
-43
10 480
16 637
1 Unit holders share of taxes in consolidated security funds
-87
-80
-359
Financial position statement KLP Group
NOTE
NOK MILLIONS
31/03/2023
31/03/2022
31/12/2022
Deferred tax assets
46
51
48
Other intangible assets
1 135
854
1 049
Tangible fixed assets
2 617
2 741
2 633
Investments in associated companies and joint venture
5 779
5 221
5 456
4, 9
Investment property
96 333
89 280
93 992
5
Reinsurance contract assets
820
341
736
7, 9
Fixed income securitites and other debt instruments at fair value
375 173
184 010
181 802
7
Fixed income securitites and other debt instruments at amortized costs
2 193
191 811
198 752
7, 9
Lending local government, enterprises & retail customers at fair value through profit / loss
77 635
56
0
7
Lending local government, enterprises & retail customers at amortized costs
43 509
118 828
121 360
7, 9
Equity capital instruments at fair value through profit/loss
315 118
287 036
282 399
7, 9
Financial derivatives
1 442
6 578
6 820
7
Receivables
23 283
12 635
1 700
Cash and bank deposits
2 978
2 971
3 321
TOTAL ASSETS
948 061
902 413
900 068
7, 8
Hybrid Tier 1 securities
1 644
1 505
1 428
7, 8
Subordinated loan capital
3 345
2 939
3 147
12
Pension obligations
812
474
815
5
Insurance obligations with the right to residual value
702 733
682 100
686 861
5
Other insurance liabilities
3 965
3 012
3 181
7, 8
Covered bonds issued
30 945
30 960
32 430
7, 8
Debt to credit institutions
3 949
12 933
6 683
7, 8
Liabilities to and deposits from customers
14 136
13 372
13 779
7
Financial derivatives
11 561
1 409
3 158
Deferred tax
1 163
1 427
1 153
14
Other current liabilities
25 459
15 061
4 152
Equity
-3 630
2 293
8 450
Unit holders`s interest in consolidated securites funds
151 979
134 927
134 831
TOTAL EQUITY AND LIABILITIES
948 061
902 413
900 068
Contingent liabilities
32 833
27 001
31 083
Changes in owners’ equity KLP Group
2023 NOK MILLIONS
Equity
Owners’ equity 31 December 2022
8 450
Change of principle 01.01.2023, IFRS 9 1
- 12 037
Owners’ equity 1 January 2023
- 3 587
Income
- 2 379
Items that will not be reclassified to income
26
Items that will be reclassified to income later when particular conditions are met
2 309
Total other comprehensive income
2 336
Total comprehensive income
- 43
Owners’ equity 31 March 2023
- 3 630
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
11 035
Items that will not be reclassified to income
358
Items that will be reclassified to income later when particular conditions are met
- 913
Total other comprehensive income
- 555
Total comprehensive income
10 480
Owners’ equity 31 March 2022
2 293
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
16 405
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
16 637
Owners’ equity 31 December 2022
8 450
1 For more information see the annual report 2022, note 37, points 37.1.11 and 37.2.5 Transitional effects.
Statement of cashflowKLP Group
NOK MILLIONS
01.01.2023 -31.03.2023
01.01.2022 -31.12.2022
01.01.2022 -30.09.2022
01.01.2022 -30.06.2022
01.01.2022 -31.03.2022
Net cash flow from operational activities
116
36 130
42 855
40 710
-1 917
Net cash flow from investment activities 1
-113
-346
-250
-173
-82
Net cash flow from financing activities 2
-347
-35 851
-42 493
-40 153
1 583
Net changes in cash and bank deposits
-344
-66
113
385
-417
Holdings of cash and bank deposits at start of period
3 321
3 388
3 388
3 388
3 388
Holdings of cash and bank deposits at end of period
2 978
3 321
3 500
3 773
2 971
1 Payments on the purchase of tangible fixed assets.
2 Net receipts of owners’ equity contribution, rising of new loans and repayment of debt, in addition to payments from unit holders in consolidated security funds.
Notes to the financial statementKLP Group
Note 1 Accounting principles –and estimates
Accounting principles
The financial statements in this interim report show the Kommunal Landspensjonskasse (KLP) group financial statements and parent company financial statements for the period 01.01.2023 – 31.03.2023. The accounts have not been audited.
That part of the interim report that relates to the Group financial statements has been prepared in accordance with IAS 34 Interim financial Reporting.
Two new accounting standards came into force for the financial year starting 01.01.2023 and have been adopted by the Group. They are IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments. IFRS 17 requires comparative figures for 2022, so the implementation effect of this standard, minus NOK 48.9 billion after tax, was posted to Group equity from 01.01.2022. IFRS 9 does not require comparative figures, so the implementation effect of this standard of minus NOK 12.0 billion was posted to Group equity from 01.01.2023. Final figures for the implementation effect for IFRS 9 have been reduced by NOK 1.6 billion from our preliminary estimates given in the annual report for 2022. The change reflects a change in measurement method. For more information on the accounting principles associated with these standards, and the transitional effects, refer to the Group’s annual report for 2022, Note 37.
No other changes have been made to the accounting principles that affect the interim financial statements as of 31.03.2023. Refer to the Group’s annual report for 2022 for a more detailed description of accounting principles.
The interim financial statements do not contain all the information required for complete annual financial statements, and this interim report should be read in conjunction with the annual financial statements for 2022. The annual report can be retrieved from www.klp.no.
Accounting estimates
In preparing the interim financial statements, we have exercised discretion and used estimates and assumptions that affect the accounting figures. Actual figures may differ from the estimates used.
The measurement of insurance contracts under IFRS 17 uses a number of new parameters that are fraught with considerable uncertainty. The most important for the various business areas are:
Life insurance activities
All cash flows arising from the insurance contracts that are within the contract limit are included in the measurement of the insurance contract. Future cash flows are calculated using assumptions of future annual wage growth/adjustment derived from a projection of the NAM (Norwegian Aggregate Model). The model produces a macro projection of key economic variables year by year based on the economic situation at the measurement date.
The cash flow calculations use best estimates of mortality and disability.
The cash flows are discounted with an interest rate curve that takes account of the time value of money and any financial risk that is not included in the estimated cash flows. The interest rate curve is based on the EIOPA interest rate curve with an illiquidity mark-up.
The risk adjustment for non-financial risk is based on the risk appetite in the life insurance business and a 95% confidence level, and amounts to 7.77% of the insurance liability in 2023.
Non-life insurance activities
The claims provisions are estimated from the company’s historical payment patterns.
The claims provisions are discounted with an interest rate curve that takes account of the time value of money and any financial risk that is not included in the estimated payments. The interest rate curve is based on the EIOPA interest rate curve with an illiquidity mark-up.
Insurance income under IFRS 17 corresponds to pro-rata premiums earned, adjusted for seasonal variations.
Seasonal variations are estimated from the historical variation in the company’s history of claims received through the year.
Risk adjustment has also been introduced.
The risk adjustment is derived from the company’s risk appetite.
The risk adjustment represents an addition to technical provisions so there is a 75% probability that they will be sufficient to cover all insurance obligations.
The risk adjustment for non-financial risk is based on the risk appetite in the non-life insurance business and a 75% confidence level, and amounts to 4.3 % of the insurance liability at 31.03.2023.
For more information, refer to the Group’s annual financial statements for 2022, Note 37.
Note 2 Segment information
NOK MILLIONS
Group pensions pub. sect. & group life
Non-life insurance
Banking
Asset management
Other
Eliminations
Total
Q1 2023
Q1 2023
Q1 2023
Q1 2023
Q1 2023
Q1 2023
Q1 2023
Result from insurance services
34
57
0
0
0
48
139
Net financial income from investments
18 007
151
103
6
0
10 187
28 454
Policyholder's share of changes in fair value of underlying items
-17 620
0
0
0
0
0
-17 620
Other insurance related financial cost
0
-20
0
0
0
0
-20
Unit holder's value change in consolidated security funds
0
0
0
0
0
-12 135
-12 135
Total income
421
188
103
6
0
-1 900
-1 182
Net costs subordinated loan and hybrid Tier 1 securities
-467
0
0
0
0
0
-467
Operating expenses
0
-89
-70
-138
-3
-14
-315
Other income
0
0
21
144
3
-161
8
Other expenses
80
0
-1
0
0
-171
-92
Pre-tax income
34
99
53
11
0
-2 246
-2 049
Cost of taxes
-108
-25
37
-3
0
-232
-330
Income
-74
75
90
8
0
-2 477
-2 379
Total other comprehensive income
26
3
1
2
0
2 303
2 336
Total comprehensive income
-48
77
91
11
0
-174
-43
Assets
728 102
6 948
49 373
631
11
162 996
948 061
Liabilities
731 790
4 501
46 365
227
3
168 804
951 691
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.
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 offers 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 3 Insurance service result
NOK MILLIONS
Q1 2023
Insurance income
1 046
Insurance service expenses
-922
Reinsurance income
14
Insurance service result
139
Note 4 Investment property
NOK MILLIONS
Q1 2023
Net rental income
929
Net value adjustment
-433
Net income from investment properties
496
Currency translate foreign properites (taken to other comprehensive income)
2 315
Net income from investment properties included currency translate
2 811
NOK MILLIONS
31.03.2023
Investment property 01.01.
93 992
Value adjustment, including currency translation
1 882
Net additions
431
Other changes
27
Investment property
96 333
Note 5 Technical provisions
NOK MILLIONS
Estimates of present value of future cash flows
Risk adjustment for non financial risk
Residual value
Total
Insurance obligations with the right to residual value 1 January 2023
322 226
27 304
337 331
686 861
Changes that realte to current services
16
-50
0
-34
Change in risk adjustment for non-financial risk and for risk expired
-50
-50
Experience adjustment not related to future service
16
16
Insurance service result
16
-50
0
-34
Change in risk adjustment for non-financial risk at the start of the period
-2 257
2 257
0
Accured interest
3 351
261
-3 612
0
Released cash flows
1 055
1 055
Changes in estimates related to future service
1 518
118
-1 636
0
Change due to changes in discount curve
29 052
2 258
-31 310
0
Result addes to policyholders' residual value
16 564
16 564
Insurance related financial cost
34 977
380
-17 737
17 620
Premium
332
332
Claims and other insurance service expenses
-2 046
-2 046
Total cash flows
-1 714
-1 714
Insurance obligations with the right to residual value 31 March 2023
355 505
27 633
319 594
702 733
Liability for incurred claims (LIC)
NOK MILLIONS
Estimates of present value of future cash flows
Risk adjustment for non-financial risk
Liabilities for remaining coverage
Receivables offset in liabilities
Total
Other insurance liabilities 1 January 2023
2 808
115
309
-52
3 181
Insurance income
-630
-630
Claims
550
22
572
Expenses
42
2
44
Other movements realted to current service
-4
-4
Changes that relate to past service
-12
-13
-24
Insurance service expenses
581
7
587
Insurance service result
581
7
-630
-43
Insurance related financial cost
29
6
35
Premium
-446
-446
Claims and other insurance service expenses
1 249
1 249
Total cash flows
-446
1 249
803
Total cash flows
-11
-11
Other insurance liabilities 31 March 2023
2 972
928
-63
3 965
Liability for incurred claims (LIC)
NOK MILLIONS
Estimates of present value of future cash flows
Risk adjustment for non-financial risk
Liabilities for remaining coverage
Receivables offset in liabilities
Total
Reinsurance contracts assets 1 January 2023
673
30
0
32
736
Premium paid - reinsurance
-40
-40
Recoveries of incurred claims and other insurance service expenses
55
3
0
Reinsurance expenses -related to past service
-4
0
0
Insurance service expenses
51
3
54
Insurance service result
51
3
-40
14
Insurance related financial cost
7
9
15
Premium
-10
82
72
Repayments
0
Total cash flows
-10
82
72
Other changes
-16
-16
Reinsurance contracts assets 31 March 2023
720
42
42
16
820
NOK MILLIONS
Insurance obligation with the right to residual value
Other insurance liabilities
Reinsurance
Intercompany eliminations
Total
Specification of P/L items per product group Q1 2023
Insurance service result
34
43
14
48
139
Insurance related financial cost
-17 620
-35
15
0
-17 640
Note 6 Subordinated loans and perpetual hybrid tier 1 securities
NOK MILLIONS
Q1 2023
SUBORDINATED LOANS
Interest costs
-41
Value changes
-211
Net costs subordinated loans
-252
PERPETUAL HYBRID TIER 1 SECURITIES
Interest costs
-19
Value changes
-197
Net costs perpetual hybrid tier 1 securities
-216
Net costs subordinated loan and hybrid Tier 1 securities
-467
This note gives a specification of the line "Net costs subordinated loan and hybrid Tier 1 securities" in the income statement.
The fluctuations in value change are predominantly due to the loans being denominated in foreign currency. The subordinated loan is issued in euros and the perpetual hybrid Tier 1 security are issued in Japanese yen.
Note 7 Fair value of financial assets and liabilites
Fair value is to be a representative price based on what the equivalent assets 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. Prices are compared with prices from Bloomberg in order to uncover any errors.
c) Norwegian fixed-income securities – other than government ones
Norwegian fixed-income securities except government are mainly priced directly on prices from Nordic Bond Pricing. Securities that are not covered by Nordic Bond Pricing are priced theoretically. The theoretical price is based on the assumed present value on the sale of the position. A zero-coupon curve is used for discounting. The zero-coupon curve is adjusted upwards by means of a credit spread, which is to take account of the risk the bond entails. The credit spread is calculated on the basis of a spread curve taking account of the duration of the bond. Nordic Bond Pricing is the main source of spread curves. They provide company-specific curves and curves for Norwegian savings banks, municipalities and energy. Savings banks have various spread curves based on total assets. For companies where Nordic Bond Pricing do not deliver spread curves, the Group use spread curves from three Norwegian banks. When spread curves are available from more than one of these banks, an equal-weighted average is used. If a bond lacks an appropriate spread curve, spread from a comparable bond from the same issuer is used.
d) Fixed-income securities issued by foreign enterprises but denominated in NOK
Fair value is calculated on the same general principles as those applied on Norwegian fixed-income securities described above.
e) Receivables on credit institutions
The fair value of these are 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 price 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 tables below give a more detailed specification of the content of the different classes of assets and financial liabilities.
NOK MILLIONS
31/03/2023
Book value
Fair value
FIXED-INCOME SECURITIES AND OTHER DEBT INSTRUMENTS AT AMORTIZED COST
Norwegian bonds
993
964
Foreign bonds
1 201
1 125
Fixed-income securities and other debt instruments at amortized cost
2 193
2 089
LENDING LOCAL GOVERNMENT, ENTERPRISES & RETAIL CUSTOMERS AT FAIR VALUE THROUGH PROFIT/LOSS
Loans secured by mortgage
2 848
2 848
Loans to local government sector or enterprises with local government guarantee
68 986
68 986
Loans abroad secured by mortage and local government guarantee
5 230
5 230
Other lending
571
571
Total loans to local government, enterprises & retail customers
77 635
77 635
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
42 717
42 724
Loans to and receivables from central banks
73
73
Loans to and receivables from credit institutions
718
718
Total loans to local government, enterprises & retail customers
43 509
43 516
DEBT INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Norwegian bonds
123 002
123 002
Norwegian certificates
6 816
6 816
Foreign bonds
201 670
201 670
Foreign certificates
456
456
Investments with credit institutions
43 228
43 228
Total debt instruments
375 173
375 173
EQUITY CAPITAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Shares
265 829
265 829
Equity funds
42 176
42 176
Property funds
7 113
7 113
Total equity capital instruments
315 118
315 118
RECEIVABLES
Receivables related to direct business
459
459
Receivables related to securites
22 231
22 231
Prepaid rent related to real estate activites
148
148
Other receivables
445
445
Total other loans and receivables including receivables from policyholders
23 283
23 283
FINANCIAL LIABILITIES - AT AMORTIZED COST
Debt to credit institutions
1 054
1 054
Covered bonds issued
30 945
30 945
Liabilities and deposits from customers
14 136
14 136
Total financial liabilities
46 135
46 135
FINANCIAL LIABILITIES - AT FAIR VALUE THROUGH PROFIT OR LOSS
Debt to credit institutions
2 894
2 894
Hybrid Tier 1 securities
1 644
1 644
Subordinated loan capital
3 345
3 345
Total financial liabilities
7 883
7 883
NOK MILLIONS
31/03/2023
Assets
Liabilities
FINANCIAL DERIVATIVES - AT FAIR VALUE THROUGH PROFIT OR LOSS
Forward exchange contracts
218
8 783
Interest rate swaps
451
2 778
Interest rate and currency swaps
640
0
Share option
133
0
Total financial derivatives
1 442
11 561
Note 8 Borrowing
NOK MILLIONS
Nominal in NOK
Currency
Interest
Due date
Book value 31.03.2023
FIXED - TERM SUBORDINATED LOAN
Kommunal Landspensjonskasse
2 530
EUR
Fixed ¹
2045
3 345
Total subordinated loan capital
2 530
-
-
-
3 345
HYBRID TIER 1 SECURITIES
Kommunal Landspensjonskasse
984
JPY
Fixed ²
2034
1 644
Total hybrid Tier 1 securities
984
-
-
-
1 644
COVERED BONDS
KLP Kommunekreditt AS
1 652
NOK
Floating
2023
1 660
KLP Kommunekreditt AS
5 000
NOK
Floating
2024
5 019
KLP Kommunekreditt AS
5 000
NOK
Floating
2025
5 010
KLP Kommunekreditt AS
5 000
NOK
Floating
2026
5 036
KLP Kommunekreditt AS
1 000
NOK
Fixed
2027
1 021
KLP Kommunekreditt AS
700
NOK
Fixed
2029
714
KLP Boligkreditt AS
423
NOK
Floating
2023
424
KLP Boligkreditt AS
2 500
NOK
Floating
2024
2 501
KLP Boligkreditt AS
2 500
NOK
Floating
2025
2 501
KLP Boligkreditt AS
4 500
NOK
Floating
2026
4 524
KLP Boligkreditt AS
2 500
NOK
Floating
2027
2 511
Other
23
Total covered bonds
30 775
-
-
-
30 945
DEBT TO CREDIT INSTITUTIONS
KLP Banken AS
300
NOK
Floating
2023
301
KLP Banken AS
450
NOK
Floating
2024
452
KLP Banken AS
300
NOK
Floating
2025
301
KLP Fond
813
NOK
Floating
2023
813
KLP Fond
1 117
NOK
Fixed
2023
1 117
Kommunal Landspensjonskasse
851
NOK
Floating
2023
851
Other
NOK
Floating
113
Total liabilities to credit institutions
3 832
-
-
-
3 949
LIABILITIES AND DEPOSITS FROM CUSTOMERS ³
Retail
11 876
NOK
11 876
Business
2 221
NOK
2 221
Foreign
39
NOK
39
Liabilities to and deposits from customers
14 136
-
14 136
Total financial liabilities
52 256
54 018
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 9 Fair value hierarchy
31.03.2023 NOK MILLIONS
Level 1
Level 2
Level 3
Total
ASSETS BOOKED AT FAIR VALUE
Land/plots
0
0
1 368
1 368
Buildings
0
0
94 965
94 965
Investment property
0
0
96 333
96 333
Lending at fair value
0
77 635
0
77 635
Certificates
1 465
5 808
0
7 273
Bonds
24 002
300 705
0
324 707
Fixed-income funds
0
9 217
11 149
20 365
Bonds and other fixed-income securities
25 466
315 729
11 149
352 344
Loans and receivables
21 770
1 058
0
22 829
Shares
257 029
5 448
3 352
265 829
Equity funds
2 268
0
54
2 322
Property funds
0
2 242
4 871
7 113
Special funds
0
0
0
0
Private Equity
0
0
39 853
39 853
Shares and units
259 298
7 690
48 130
315 118
Financial derivatives
0
1 442
0
1 442
Total assets at fair value
306 534
403 555
155 611
865 701
LIABILITIES BOOKED AT FAIR VALUE
Financial derivatives
0
11 561
0
11 561
Debt to credit institutions ¹
1 777
1 117
0
2 894
Total financial liabilities at fair value
1 777
12 678
0
14 455
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 1 055 million per 31.03.2023.
Changes in Level 3, Investment Property
Book value 31.03.2023
Opening balance 1 January
93 992
Sold
0
Bought
431
Unrealised changes
1 882
Other changes
27
Closing balance 31.03.
96 333
Realised gains/losses
0
Changes in Level 3, Financial Assets
Book value 31.03.2023
Opening balance 1 January
53 407
Sold
-556
Bought
2 981
Unrealised changes
3 447
Closing balance 31.03.
59 279
Realised gains/losses
315
Closing balance 31.03.
155 611
Unrealised changes and realized gains / losses are reflected on the line "Net value changes on financial instruments" in the consolidated income statement.
The table "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 easily 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 interest rate paths.
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.
Valuations related to items in the various levels are described in Note 9. For description of the pricing of investment property, please see the annual financial statements.
No sensitivity analysis has been carried out on securities included in Level 3. A sensitivity analysis for investment property is available in the annual report. 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 7 781 million as of 31.03.2023.
With regard to transferring securities between the levels, a limit is set for the number of trading days and the amount of trading for shares by separating Level 1 and Level 2. 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.
In the 1st quarter, NOK 446 million in stocks moved from Level 1 to Level 2, NOK 93 million moved from Level 1 to Level 3, NOK 793 million moved from level 2 to level 1 and NOK 4 million moved from level 2 to level 3 This is due to changes in liquidity.
Note 10 Presentation of assets and liabilities that are subject to net settlement
31.03.2023 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
1 442
0
1 442
-523
-1 007
-1 769
260
260
Repos
1 003
0
1 003
-1 003
0
0
0
0
Total
2 445
0
2 445
-1 527
-1 007
-1 769
260
260
LIABILITIES
Financial derivatives
11 561
0
11 561
-523
-888
-6 831
3 330
3 274
Repos
1 118
0
1 118
0
0
0
1 118
115
Total
12 679
0
12 679
-523
-888
-6 831
4 448
3 389
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 11 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 capital appears from the Solvency II balance sheet and Hybrid Tier 1 securities. Tier 2 capital consist of subordinated loans and ancillary own funds. Starting 30.09.2022 the risk equalization fund will also be considered tier 2 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. Capital that may be included in Tier 2 capital 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 282 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 282 per cent.
31.03.2023
Solvency II - SCR ratio
282%
NOK BILLIONS
31.03.2023
Simplified Solvency II Financial Position Statement
Assets, book value
746
Added values - hold-to-maturity portfolio/loans and receivables
-12
Added values - other lending
-1
Other added/lesser values
0
Deferred tax asset
0
Total assets - solvency II
733
NOK BILLIONS
31.03.2023
Simplified Solvency II Financial Position Statement
Best estimate
647
Risk margin
13
Hybrid Tier 1 securities/Subordinated loan capital
5
Other liabilities
26
Deferred tax liabilities
0
Total liabilities - solvency II
690
Excess of assets over liabilities
42
- Deferred tax asset
0
- Risk equalization fund (tier 2 own funds starting 30.09.2022)
-5
+ Hybrid Tier 1 securities
2
Tier 1 basic own funds
39
Total eligible tier 1 own funds
39
Subordinated loans
3
Risk equalization fund (tier 2 own funds starting 30.09.2022)
5
Tier 2 basic own funds
8
Ancillary own funds
13
Tier 2 ancillary own funds
13
Deduction for max. eligible tier 2 own funds
-13
Total eligible tier 2 own funds
8
Deferred tax asset
0
Total eligible tier 3 own funds
0
Solvency II total eligible own funds
47
Solvency capital requirement (SCR)
17
Solvency II- SCR ratio
282%
Note 12 Pension obligations
NOK MILLIONS
31.03.2023
Capitalized net liability 01.01.
815
Capitalized pension costs
48
Capitalized financial costs
7
Actuarial gains and losses
-31
Premiums / contributions received
-27
Capitalized net liability 31.03.
812
Assumptions
31.03.2023
Discount rate
3,00%
Salary growth
3,50%
The National Insurance basic amount (G)
3,25%
Pension increases
2,60%
Social security contribution rate
14,10%
Capital activity tax
5,00%
The effect of changes in pension assumptions reduces the pension liability for employees with NOK 31 million as of 31.03.2023. The change is recognized in other comprehensive income in the income statement.
Note 13 Loss provisions on fixed-income securities and loans to customers at amortised cost
This note shows expected credit loss provisions on fixed-income securities measured at amortised cost in KLP Skadeforsikring AS as well as provisions for losses on loans to customers in KLP Banken AS.
Refer to note 26 in the annual report for KLP Skadeforsikring AS and respectively note 2 and note 10 in the annual report for KLP Banken AS, for a detailed description of both models.
Expected credit loss (ECL) on fixed-income securities measured at amortised cost
NOK THOUSANDS
12 months ECL
Lifetime ECL (not credit impaired)
Lifetime ECL (credit impaired)
stage 1
stage 2
stage 3
Total stage 1-3
Opening balance ECL 01.01.2023
261
42
0
303
Transfer to stage 1
0
0
0
0
Transfer to stage 2
0
0
0
0
Transfer to stage 3
0
0
0
0
Net changes
0
0
0
0
New losses
6
0
0
6
Write-offs
-11
-24
0
-34
Change in risk model
0
0
0
0
Closing balance ECL 31.03.2023
256
19
0
275
Changes (01.01.2023 - 31.03.2023)
-5
-23
0
-28
Expected credit loss (ECL) loans to customers – all segments
NOK THOUSANDS
12 months ECL
Lifetime ECL (not credit impaired)
Lifetime ECL (credit impaired)
stage 1
stage 2
stage 3
Total stage 1-3
Opening balance ECL 01.01.2023
2 390
2 090
998
5 478
Transfer to stage 1
370
-309
-61
0
Transfer to stage 2
-22
27
-4
0
Transfer to stage 3
-1
-78
79
0
Net changes
-344
696
88
440
New losses
109
2
2
113
Write-offs
-90
-79
-120
-289
Change in risk model
0
0
0
0
Closing balance ECL 31.03.2023
2 413
2 349
981
5 742
Changes (01.01.2023 - 31.03.2023)
22
259
-16
264
This includes provisions for losses on loans and receivables - unused credit
2 931
Expected credit loss (ECL) loans to customers – mortgage
NOK THOUSANDS
12 months ECL
Lifetime ECL (not credit impaired)
Lifetime ECL (credit impaired)
stage 1
stage 2
stage 3
Total stage 1-3
Opening balance ECL 01.01.2023
144
207
422
774
Transfer to stage 1
3
-3
0
0
Transfer to stage 2
-5
5
0
0
Transfer to stage 3
0
-34
34
0
Net changes
21
72
104
197
New losses
46
2
0
48
Write-offs
-15
-42
-24
-81
Change in risk model
0
0
0
0
Closing balance ECL 31.03.2023
194
208
536
939
Changes (01.01.2023 - 31.03.2023)
50
1
114
165
This includes provisions for losses on loans and receivables - unused credit on mortgages
7
Expected credit loss (ECL) – public lending
NOK THOUSANDS
12 months ECL
Lifetime ECL (not credit impaired)
Lifetime ECL (credit impaired)
stage 1
stage 2
stage 3
Total stage 1-3
Opening balance ECL 01.01.2023
184
0
0
184
Transfer to stage 1
0
0
0
0
Transfer to stage 2
0
0
0
0
Transfer to stage 3
0
0
0
0
Net changes
-2
0
0
-2
New losses
9
0
0
9
Write-offs
-5
0
0
-5
Change in risk model
0
0
0
0
Closing balance ECL 31.03.2023
186
0
0
186
Changes (01.01.2023 - 31.03.2023)
2
0
0
2
Expected credit loss (ECL) – credit card
NOK THOUSANDS
12 months ECL
Lifetime ECL (not credit impaired)
Lifetime ECL (credit impaired)
stage 1
stage 2
stage 3
Total stage 1-3
Opening balance ECL 01.01.2023
2 040
1 883
516
4 440
Transfer to stage 1
366
-306
-61
0
Transfer to stage 2
-17
21
-4
0
Transfer to stage 3
-1
-45
45
0
Net changes
-363
624
-17
245
New losses
53
0
0
53
Write-offs
-70
-37
-95
-202
Change in risk model
0
0
0
0
Closing balance ECL 31.03.2023
2 009
2 140
386
4 535
Changes (01.01.2023 - 31.03.2023)
-31
257
-131
96
This includes provisions for losses on loans and receivables - unused credit on credit card
2 923
Expected credit loss (ECL) loans to customers – senior loans
NOK THOUSANDS
12 months ECL
Lifetime ECL (not credit impaired)
Lifetime ECL (credit impaired)
stage 1
stage 2
stage 3
Total stage 1-3
Opening balance ECL 01.01.2023
21
0
0
21
Transfer to stage 1
0
0
0
0
Transfer to stage 2
0
0
0
0
Transfer to stage 3
0
0
0
0
Net changes
0
0
0
0
New losses
2
0
0
2
Write-offs
-1
0
0
-1
Change in risk model
0
0
0
0
Closing balance ECL 31.03.2023
22
0
0
22
Changes (01.01.2023 - 31.03.2023)
1
0
0
1
This includes provisions for losses on loans and receivables - unused credit on senior loans
1
Expected credit loss (ECL) loans to customers – overdrafts deposit accounts
NOK THOUSANDS
12 months ECL
Lifetime ECL (not credit impaired)
Lifetime ECL (credit impaired)
stage 1
stage 2
stage 3
Total stage 1-3
Opening balance ECL 01.01.2023
0
0
60
60
Transfer to stage 1
0
0
0
0
Transfer to stage 2
0
0
0
0
Transfer to stage 3
0
0
0
0
Net changes
0
0
0
0
New losses
0
0
2
2
Write-offs
0
0
-1
-1
Change in risk model
0
0
0
0
Closing balance ECL 31.03.2023
0
0
61
61
Changes (01.01.2023 - 31.03.2023)
0
0
1
1
Note 14 Other current liabilites
NOK MILLIONS
31.03.2023
Short-term payables trade in securities
22 881
Incurred not assessed taxes
471
Accounts payable
616
Public fees
563
Other current liabilities
928
Total other current liabilities
25 459
Key figures – Accumulated
NOK MILLIONS
Q1 2023
Q4 2022
Q3 2022
Q2 2022
Q1 2022
KLP GROUP
Total assets
948 061
900 068
913 144
900 195
902 413
Equity
-3 630
8 450
12 823
9 800
2 293
Solvency SCR ratio
282%
304%
306%
304%
299%
Number of employees in the Group
1 091
1 093
1 095
1 081
1 060
KOMMUNAL LANDSPENSJONSKASSE
Profit before tax
539
918
461
216
71
Premium income for own account
7 663
50 523
40 248
33 081
7 503
- of which inflow of premium reserve
91
386
386
386
376
Insurance customers' funds incl. acc. profit
8 331
28 517
22 453
16 367
10 642
- of which funds with guaranteed returns
2 125
4 659
4 658
4 658
4 875
Net investment common portfolio
690 902
660 381
671 095
660 834
662 500
Net investment choice portfolio
2 683
2 609
2 602
2 665
2 588
Insurance funds incl. earnings for the year
668 235
654 324
641 805
654 482
644 226
- of which funds with guaranteed interest
552 840
552 101
542 820
548 891
526 324
Solvency capital requirement (SCR)
46 768
46 158
46 307
44 901
44 809
Solvency SCR ratio
316%
318%
341%
340%
332%
Riskprofit
71
558
963
550
105
Return profits
13 232
-20 006
-27 421
-20 374
-7 894
Administration profit
54
-17
56
-22
-9
Solvency capital
151 550
140 958
129 556
138 338
151 201
Value-adjusted return on common portfolio
2,5 %
-1,1 %
-2,6 %
-2,1 %
-2,3 %
Return on unit-linked portfolio
3,4 %
-2,5 %
-4,2 %
-3,5 %
-1,2 %
Return on corporate portfolio
0,9 %
2,8 %
1,4 %
0,9 %
0,6 %
KLP SKADEFORSIKRING AS
Profit before tax
99
111
49
88
57
Insurance income
630
2 200
1 629
1 071
546
Owners' equity
2 446
2 369
2 339
2 367
2 370
Claims ratio
93,9 %
80,8 %
80,3 %
73,4 %
79,6 %
Combined-ratio
13,9 %
14,5 %
14,2 %
15,3 %
15,5 %
Return on assets under management
2,7 %
-1,7 %
-2,5 %
-2,1 %
-0,9 %
Solvency capital requirement (SCR)
2 309
2 222
2 250
2 273
2 329
Solvency SCR ratio
215%
222%
219%
225%
222%
Annual premium in force – retail market
982
954
933
918
893
Annual premium in force – public sector market
1 474
1 341
1 325
1 318
1 210
Net new subscriptions (accumulated within the year)
20
121
123
113
7
KLP BANKEN GROUP
Profit/loss before tax
53
181
98
43
18
Net interest income
110
369
258
159
72
Other operating income
21
85
63
43
20
Operating expenses and depreciation
-71
-247
-181
-123
-64
Net realized/unrealized changes in financial instruments to fair value