Q3 2023 Interim report KLP Group, sustainability and KLP
KLP Group
Report for the third quarter of 2023
In brief
Competitive return in a quarter marked by weak performance in the financial and property markets
Value-adjusted return on the common portfolio of minus 0.3 per cent in the third quarter and 3.9 per cent in the year to date
Total profit on the customer portfolio of NOK 16 billion to the end of the third quarter.
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 third quarter of 2023, the Group had total assets of NOK 972.3 billion, an increase of NOK 72.2 billion in the year to date.
The Group's parent company, Kommunal Landspensjonskasse gjensidig forsikringselskap (KLP), offers public-sector occupational pensions to municipalities, county authorities, health enterprises and businesses affiliated to the public sector.
Corporate result
Investment result
KLP has guaranteed to provide customers on public-sector occupational pensions with financial income equivalent to NOK 3.2 billion in the third quarter. Actual financial income amounts to NOK -2.2 billion after property investments have been written down by NOK 3.4 billion. The write-downs on property are due to a higher required rate of return resulting from higher interest rates. KLP thus made a loss (shortfall in returns) from the management of customer funds of NOK 5.4 billion in the third quarter. The investment result amounts to NOK 15.8 (-27.3) billion up to the third quarter. The return on customer funds in the common portfolio was 3.9 per cent for the year to date.
Risk result
The risk result is an indication of whether disability and mortality in the insurance stock is developing as expected.
Through the third quarter there was somewhat lower disability than assumed by KLP, but so far this year disability is higher than expected. The result so far this year related to disability amounts to NOK -313 million.
Mortality has been higher than expected, although the effect was far smaller in the third quarter than in the first half-year. So far this year, the result related to mortality amounts to NOK 606 million.
The risk result related to survivors’ cover amounts to NOK 30 million so far this year. The total risk result thus amounts to NOK 364 million so far this year.
Administration result
The difference between the cost elements within premium income, withdrawals from management reserves and insurance-related operating expenses constitutes the administration result. The Company’s administration result shows a surplus of NOK 176 (56) million so far this year, of which NOK 114 million fell in the third quarter. Insurance-related operating expenses came to NOK 1.1 (1.1) billion so far this year.
Total profit/loss
Total profit/loss to the Company stands at NOK 1.1 (0.5) billion for the year to date. The customer result is NOK 16 (-26.3) billion so far this year.
NOK millions
Customers
Company
Total
Investment result
15,642
181
15,822
Risk result
364
-
364
Interest guarantee premium
217
217
Administration result
176
176
Net income from investments in the corporate portfolio and other income/expenses in non-technical accounts
561
561
Tax
-264
-264
Other profit/loss elements
256
256
Profit/loss after Q3 2023
16,006
1,127
17,133
Profit/loss after Q3 2022
-26,327
473
-25,854
Financial strength and capital-related matters
KLP’s total assets have increased by NOK 61.5 billion in the year to date and amount to NOK 771.8 billion. The premium reserve increased by NOK 46.3 billion to NOK 564.8 billion in the same period.
The buffer fund amounts to NOK 101.9 billion after the third quarter. The fund can be used to cover the lack of return from the management of customer funds and is thus a financial buffer. A positive interim result to customers of NOK 16 billion also constitutes a buffer.
Without applying transitional rules, the Company’s solvency capital requirement (SCR) is 368 per cent. This is a change of 38 percentage points in the quarter, and is due to a new calculation methodology for longevity and disability risk, which increased cover by 24 percentage points while payments of annual equity contributions accounted for 15 percentage points.
KLP's target is for capital adeqauacy to exceed 150 per cent. Solvency is well above this target and thus enables sound and stable management of customer funds in a multi-year perspective.
Key figures
Per cent
At 30.09.2023
At 30.09.2022
Return on the common portfolio
3.9
-2.6
Return incl. value changes in hold-to-maturity bonds and lending
2.8
-5.9
The returns figures apply to the common portfolio
Capital adequacy, Solvency II
368
341
Capital adequacy, Solvency II, with transitional measures
368
341
Premium income
Premium income excluding premium reserves received on transfers in amounts to NOK 59.9 (40.2) billion at the end of the third quarter. Of this, premiums related to the regulation of accrued rights amount to NOK 37.5 (20) billion.
Claims/benefits
Pensions paid and other claims, excluding ceded premium reserves, amounted to NOK 19.4 (17.8) billion at the end of the third quarter.
Management of the common portfolio
The assets in the common portfolio totalled NOK 718.2 (671.1) billion:
Assets
At 30.09.2023
At 30.09.2022
All figures in per cent
Proportion
Return
Proportion
Return
Equities
30,9 %
10,6 %
29,1 %
-11,9 %
Short-term bonds
29,1 %
2,6 %
29,1 %
2,5 %
Long-term/HTM bonds
13,4 %
-3,3 %
15,1 %
8,8 %
Lending
11,5 %
2,8 %
12,2 %
1,7 %
Property
10,8 %
0,9 %
12,3 %
-10,9 %
Other financial assets
4,2 %
3,1 %
2,1 %
0,5 %
Equities
Total exposure in shares and alternative investments, including equity derivatives, was 30.9 per cent at the end of the third quarter. The total return on shares and alternative investments was minus 1.0 per cent in the quarter. The return on KLP’s global equities was minus 3.0 per cent, while KLP’s Norwegian equity portfolio returned 6.1 per cent in the 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 third quarter, the Norwegian krone strengthened against the US dollar and the euro, among other currencies. Currency hedging had a positive impact on the return on shares this quarter.
Short-term bonds and money market instruments measured at fair value
Short-term bonds accounted for 10.8 per cent and money-market instruments 4.2 per cent of the assets in the common portfolio at the end of the quarter. Norwegian, Eurozone and US government interest rates all rose during the third quarter. KLP’s global government bond index achieved a currency-hedged return of minus 2.3 per cent in the quarter, while the return on the Norwegian government bond index was minus 0.3 per cent. Global credit margins fell slightly through the quarter. The quarterly return on KLP's global credit bond index was minus 2.1 per cent, while the return on the Norwegian bond index was 1.0 per cent. Short-term bonds produced a total return of minus 0.3 per cent in the third quarter.
The money market return was 1.3 per cent for the quarter.
Bonds measured at amortised cost
Investments in bonds recognised at amortised cost made up around 29.1 per cent of the common portfolio at the end of the quarter. Unrecognised decreases in value in the portfolio amounted to NOK 16.9 billion at the end of the third quarter. The portfolio is well diversified and consists of securities issued by creditworthy borrowers. The return measured at amortised cost in the third quarter was 1.0 per cent.
Property
Property investments, including Norwegian and international property funds, accounted for 13.4 per cent of the common portfolio. Property values in the common portfolio were adjusted downwards by NOK 6.0 billion in the third quarter. The write-downs are based on higher required rates of return due to higher interest rates.
Property investments in the common portfolio achieved a return of minus 3.3 per cent in the year to date. The returns include currency hedging and property funds. There is still uncertainty associated with the effects of the various factors that influence the property market, including interest rates, required rate of return, inflation and costs.
Lending
Lending in the common portfolio totals NOK 81 billion. This is split between NOK 70.9 billion in loans to the public sector, NOK 2.9 billion in secured mortgage loans and NOK 0.2 billion in loans with government guarantees, with the remaining NOK 7 billion made up of direct lending. 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 1.7 billion at the end of the quarter. Returns so far this year are 3.7 per cent
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 0.6 per cent in the third quarter, and 2.0 per cent for the year to date. The return in the quarter is affected by write-downs of property investments.
Other matters
The market situation
The market situation for public-sector occupational pensions is stable. We have received notice of termination from two local government customers who have decided to move to another provider. On the corporate side, there are a small number of companies that are considering which pension solution to take in the future and which provider they might want to use.
Special age rules
At the end of August, the Government and public-sector employers’ and employee organisations entered into an agreement on pension rules for persons with special age limits who were born in 1963 or later. The new rules involve a change to the ordinary pension rules that apply to these cohorts. The first pensions under the new rules can be paid in 2025 when the 1963 cohort turns 62. Within KLP, almost 40 per cent of members who are in work have a special age limit. Among other things, the solution entails a gradual shift in the special age limits over time, in line with the proposal presented by the Pensions Committee in its report from 2022. The agreement also states that a process will be initiated to assess the future need for special age limits.
Business areas of the subsidiaries
Non-life insurance
Operating profit before tax was NOK 255 (-49.3) million at the end of the third quarter. The third quarter also yielded a good result, with a profit of NOK 65 (loss of 39) million. The improved performance is mainly due to satisfactory insurance results and reversals of previous years' reserves. Operating costs are also lower than expected.
Premium volume stood at NOK 2,575 million at the end of the third quarter, an increase of NOK 283 million from the position at 31.12.2022. Insurance income has increased by NOK 235 million, or 14.5 per cent, since the same time in 2022, and amounts to NOK 1,863 million. The retail market shows growth of NOK 70 million, or 10.4 per cent, while the public-sector and corporate market shows growth of NOK 165 million, or 17.3 per cent. The solid growth in the public-sector and corporate market is due mainly to substantial premium increases in some high-risk segments.
The insurance result (premiums minus claims paid in 2023), was NOK 252 (314) million at 30.09.2023. Both the property and motor insurance sectors within the retail market produced weak results. Increased material costs resulting from higher inflation are contributing to this trend, but the Company is also seeing an increased claims rate in the motor segment. Over time, the Company's premiums will be adjusted upwards to reflect the increased costs. Storms in August also led to somewhat higher than normal claims rates in these sectors.
No new major claims were reported in connection with ordinary business during the quarter. For the year to date, two claims exceeding NOK 20 million have been reported. Reversal of previous years’ claims is still positive, and this year NOK 105 million has so far been taken to income, equivalent to 4.9 per cent of the reserves at the beginning of the year.
There was one major natural disaster event during the quarter, related to heavy rain with subsequent flooding and water penetration. The total gross claim amount related to this event is estimated at NOK 1.8 billion, of which NOK 1.35 billion is covered by the Norwegian Natural Perils Pool. The Company's share of the natural perils is estimated at NOK 89 million. Reinsurance covers NOK 34 million of the Company's costs. A natural disaster reported earlier in 2023 has also taken a turn for the worse, and the Company's share of this claim is now NOK 50 million, an increase of NOK 5 million.
Key figures for the Company
At 30.09.2023
At 30.09.2022
At 31.12.2022
Claims ratio
78.9
104.4
98.3
Reinsurance ratio
4.7
-25.4
-19
Cost ratio
13.0
13.6
13.9
Total cost ratio
96.6
92.5
93.2
Net financial income at 30.09.3023 was NOK 185 (-136.9) million, representing a return of 3.3 (minus 2.5) per cent. Returns for the third quarter in isolation were NOK -12 (-24) million, or minus 0.2 (minus 0.4) per cent. So far this year, the equity portfolio has returned 14.2 (minus 16.2) per cent. As of the first half-year, the Company’s investments in interest-bearing funds had a return of 1.8 (minus 7.6) per cent, while long-term bonds
returned 4.4 (2.5) per cent in the same period. The return on the property investments was 0 (10.1) per cent, following a write-down of property values by NOK 26 million this year. The third quarter in isolation saw a return of minus 2.2 per cent on equities, 0.3 per cent on interest-bearing instruments and 2.0 per cent on long-term bonds. Property investments returned minus 3.7 per cent in the quarter.
The Company’s financial position is good, with a solvency capital requirement (SCR) of 246 per cent at the end of the third quarter, compared to 222 per cent at the end of 2022 and 222 per cent after the second quarter of 2023.
Asset and fund management
KLP Kapitalforvaltning AS provides securities management in the KLP Group. It had a total of NOK 715 billion under management at the end of the third quarter, of which NOK 162 billion was for external customers.
The majority of the assets are managed on behalf of KLP and its subsidiaries.
Net subscriptions to the KLP funds were NOK 12.1 billion in the first three quarters of the year, of which NOK 10.8 billion came from external customers. The number of direct unit-holders at the end of the third quarter was 36,901.
KLP Kapitalforvaltning AS made a profit before tax of NOK 42.2 million to 30.09.2023.
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.
At the end of the third quarter, the KLP Banken Group achieved an operating profit before tax of NOK 203.1 (97.5) million, of which the third quarter in isolation accounted for NOK 81.6 (55.0) million. The change is mainly related to increased net interest income in both business areas and reduced losses on financial instruments. Broken down by area, profits for the second quarter were NOK 139.0 (57.8) million in the retail market and NOK 64.1 (39.7) million in the public-sector market.
The KLP Banken Group’s total lending as of 30 September 2023 amounted to NOK 43.1 (42.1) billion. The split between the retail and public-sector markets was NOK 23.7 (23.4) billion and 19.4 (18.7) billion respectively.
KLP Banken manages NOK 2.9 (3.0) billion in mortgage loans and NOK 75.9 (73.8) billion in loans to public-sector borrowers and other businesses on behalf of KLP.
In the year to date, losses and loss provisions in the retail market amounted to NOK 1.0 (-0.1) million. Losses and provisions are mainly in the retail market. Nor were any losses on public-sector lending recognised in the third quarter.
Group
From 2023 onwards, the KLP Group will present its accounts in accordance with the new accounting standard IFRS 17 Insurance Contracts. The new standard takes account account of the fact that KLP is mutually owned, and that the policy-holders for public-sector occupational pensions are entitled to all value creation in the Group. This means that, according to IFRS 17, the Group has no equity and the profit/loss will be zero.
However, the Group has reported equity of minus NOK 3,555 million as of 30.09.2023. This equity arises because policy-holders are entitled to the fair value of all assets and liabilities in the business, but some assets and liabilities are not recognised at fair value. There is then a valuation difference which constitutes equity in a mutual insurance company. The change in valuation difference in the period, NOK 129 million in the third quarter/NOK 86 million so far this year, will then be posted to profit/loss.
The Group's insurance liabilities related to contracts for public-sector occupational pensions amounted to NOK 734 billion at 30.09. This is an increase of NOK 27 billion in the quarter, and NOK 47 billion in the year to date. NOK 20 billion of the growth in the year is due to an increase in the value of assets and liabilities transferred to policy-holders.
Refer also to Note 37 to the 2022 financial statements for a further description of the transition to IFRS 17.
Corporate social responsibility
Labour and skills could constitute a bottleneck in the green transition. This is shown in the report “Enough people?” from KLP and the Norwegian Climate Foundation. The report analyses projections for labour needs in various sectors in Norway. Even with moderate estimates for growth in the “industrial adventure sectors”, heads and hands are a scarce commodity. Healthcare and other sectors also need a bigger workforce, and Norway does not have enough manpower to do everything at the same time. We will have to prioritise the collective resources in our society, and ensure that enough people are trained in the skills that are most needed.
In the third quarter, KLP continued its efforts to establish direct dialogue with Chinese companies in the mining industry. KLP therefore participated in a mineral conference in Chengdu, where the aim was to follow up on mining companies KLP has invested in, and raise topics such as human rights, climate and nature impact directly with the companies.
In the third quarter, KLP Skadeforsikring entered into a partnership to promote sustainable building management and claim prevention in the local government sector.
Change in the Board of Directors
In October, the Deputy Chair of the Board, Ingunn Trosholmen, was appointed State Secretary in the Prime Minister’s office. She took office on 16 October, and stepped down from the Board of KLP at the same time.
Future prospects and events after the end of the quarter
The world is still marked by heightened geopolitical tension and war in Ukraine and the Middle East. Higher inflation and interest rates could pose challenges to the global economy, but KLP has solid financial buffers to withstand financial turbulence. If interest rates are kept at the current levels, conditions are favourable for returns to help to reduce pension costs going forward.
Investment in operational efficiency and unique user experiences
The change programme is currently the most important strategic initiative in KLP. The programme is establishing a new pension platform that will create new and unique user experiences, increase cost efficiency and prepare the business for a new supplementary pension from 2025.
Through the initiative, members and pensioners will be provided with new self-service interfaces to offer individual simulations and guidance, a fully digital application dialogue and access to their own policies. A new case management solution, the ‘Pension System’, will provide for automated processing of applications, time-driven transitions and changes.
The new platform has so far been used on old-age pensions and today's AFP (early retirement) cover. All old-age pension cases are now processed in the new Pension System, and all new applications for AFP will also be included in the new solution. About 70 per cent of all new applications and transitions to old-age pensions are now handled fully automatically. Of all computer-initiated changes, about 60 percent are handled fully automatically. This provides good user experiences and cost-effective case management.
The change programme is now gearing up for the introduction of disability and survivors' pensions into the Pension System. Work is also underway to prepare KLP for a new industry-wide reimbursement solution and a new supplementary pension.
Reserves increased from 01.01.2024
The mortality basis in the Pension Scheme for Hospital Doctors will be strengthened from 01.01.2024 after several years of negative results on longevity in this scheme. The conditions for women in this scheme to re-enter the abour market are also changing. Preliminary calculations indicate that the two changes combined will require an increase of NOK 2.5 billion in premium reserves, equivalent to around 6 per cent of the total premium reserve under the scheme.
The public-sector occupational pension market
Norway was reported to the ESA in 2022 for two matters relating to the public-sector occupational pension market. One case alleges that Norway is providing KLP with unlawful state aid, while the other complaint is that municipalities and health enterprises are breaching the rules for public procurement. Earlier this year it emerged that the Norwegian state, represented by the Ministry of Local Government and District Affairs, had responded to the ESA in a letter rejecting the complaints.
The case is now with the Authority, and no decisions have yet been made. Nor have there been any decisions in the case in which the Norwegian Competition Authority is investigating whether KLP has abused its dominant position. KLP is assisting by providing information and answering questions raised by the Norwegian Competition Authority in its investigations.
Income statement KLP Group
NOTE
NOK MILLIONS
Q3 2023
Q3 2022
01.01.2023 -30.09.2023
01.01.2022 -30.09.2022
01.01.2022 -31.12.2022
3, 5
Insurance service result
- 1 022
- 235
- 956
163
2 022
Net income from investments measured at fair value with changes in P/L
-2 474
-8 931
39 116
-54 186
-37 425
Net income from investments not measured at fair value with changes in P/L
20
3 644
59
8 968
8 748
4
Fair value adjustment investment properties and rental income
-2 394
1 267
-2 456
8 310
6 558
Net credit loss from financial assets not measured at fair value
-234
0
-234
0
0
Net interest income banking
119
100
341
259
371
Unit holder's value change in consolidated securites funds
3 891
329
-16 648
19 605
15 966
Total net income
-1 070
-3 591
20 178
-17 043
-5 783
Policyholder's share of changes in fair value of underlying items
3 361
7 170
-18 585
38 513
21 992
Other insurance related financial cost
-4
14
2
62
49
5
Net insurance related financial cost
3 357
7 183
-18 583
38 576
22 040
Net insurance services and financial result
1 264
3 357
640
21 696
18 279
6
Net costs subordinated loan and hybrid Tier 1 securities
145
-236
-406
-370
-169
Operating expenses
-264
-242
-886
-806
-1 159
Other income
179
45
196
306
305
Other expenses
110
19
-105
-20
-25
Pre-tax income
1 435
2 944
-561
20 805
17 232
Cost of taxes 1
-271
-307
-1 032
-690
-826
Income
1 164
2 637
-1 592
20 115
16 405
12
Actuarial loss and profit on post employment benefit obligations
-47
9
349
74
132
Tax on items that will not be reclassified to profit or loss
8
-1
-55
-12
-17
Items that will not be reclassified to profit or loss
-40
8
294
63
115
Revaluation real property for use in own operation
-131
-24
-252
165
-43
4
Currency translation foreign properites
-897
397
1 573
709
148
Tax on items that will be reclassified to profit or loss
33
6
63
-41
11
Items that will be reclassified to income particular specific conditions are met
-995
379
1 384
833
116
Total other comprehensive income
-1 035
387
1 679
895
231
Total comprehensive income 2
129
3 024
86
21 010
16 637
1 Unit holders share of taxes in consolidated security funds
-89
103
-293
-80
-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 30.09.2023 of minus NOK 3,555 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 129 million in the third quarter/NOK 86 million so far this year, will thus appear as a result.
Financial position statement KLP Group
NOTE
NOK MILLIONS
30.09.2023
30.09.2022
31.12.2022
Deferred tax assets
25
54
48
Other intangible assets
1 300
979
1 049
Tangible fixed assets
2 341
2 859
2 633
Investments in associated companies and joint venture
5 969
5 784
5 456
4, 9
Investment property
91 957
96 889
93 992
5
Reinsurance contract assets
738
738
736
7, 9
Fixed income securitites and other debt instruments at fair value
386 448
180 765
181 802
7
Fixed income securitites and other debt instruments at amortized costs
2 226
199 984
198 752
7, 9
Lending local government, enterprises & retail customers at fair value through profit / loss
78 825
0
0
7
Lending local government, enterprises & retail customers at amortized costs
44 473
121 519
121 360
7, 9
Equity capital instruments at fair value through profit/loss
338 407
278 379
282 399
7, 9
Financial derivatives
3 894
1 613
6 820
7
Receivables
12 675
20 080
1 810
Cash and bank deposits
3 068
3 500
3 321
TOTAL ASSETS
972 345
913 144
900 178
7, 8
Hybrid Tier 1 securities
1 470
1 650
1 428
7, 8
Subordinated loan capital
3 271
3 162
3 147
12
Pension obligations
398
841
815
5
Insurance obligations with the right to residual value
733 875
670 366
686 780
5
Other insurance liabilities
3 612
3 370
3 181
7, 8
Covered bonds issued
30 661
31 445
32 430
7, 8
Debt to credit institutions
3 674
3 670
6 683
7, 8
Liabilities to and deposits from customers
14 351
13 607
13 779
7
Financial derivatives
5 060
21 989
3 158
Deferred tax
1 084
1 535
1 153
14
Other current liabilities
15 592
21 911
4 343
Equity
-3 555
12 823
8 450
Unit holders`s interest in consolidated securites funds
162 855
126 774
134 831
TOTAL EQUITY AND LIABILITIES
972 345
913 144
900 178
Contingent liabilities
32 981
34 188
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
- 1 592
Items that will not be reclassified to income
294
Items that will be reclassified to income later when particular conditions are met
1 384
Total other comprehensive income
1 679
Total comprehensive income
86
Other changes
- 55
Owners’ equity 30 September 2023
- 3 555
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
20 115
Items that will not be reclassified to income
63
Items that will be reclassified to income later when particular conditions are met
833
Total other comprehensive income
895
Total comprehensive income
21 010
Owners’ equity 30 September 2022
12 823
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 -30.09.2023
01.01.2023 -30.06.2023
01.01.2023 -31.03.2023
01.01.2022 -31.12.2022
01.01.2022 -30.09.2022
Net cash flow from operational activities
-14 051
-3 581
116
36 130
42 855
Net cash flow from investment activities 1
-351
-252
-113
-346
-250
Net cash flow from financing activities 2
14 149
3 812
-347
-35 851
-42 493
Net changes in cash and bank deposits
-254
-21
-344
-66
113
Holdings of cash and bank deposits at start of period
3 321
3 321
3 321
3 388
3 388
Holdings of cash and bank deposits at end of period
3 068
3 301
2 978
3 321
3 500
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 – 30.09.2023. 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.
The accounting standard IFRS 17 Insurance contracts entered into force for the financial year which started on 1st January 2023, and has been adopted by the Group. IFRS 17 requires comparative figures for 2022, so the implementation effect of this standard of minus NOK 48.9 billion after tax, was posted to Group equity from 01.01.2022.
As a result of IFRS 17 being implemented, the voluntary exemption from using IFRS 9 Financial instruments for insurance-based business also ceases. KLP used this exception in the consolidated accounts, and has thus implemented IFRS 9 from and including 1st January 2023. 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 30.09.2023. 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 in 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
01.01.2023 -30.09.2023
01.01.2022 -30.09.2022
01.01.2022 -31.12.2022
01.01.2023 -30.09.2023
01.01.2022 -30.09.2022
01.01.2022 -31.12.2022
01.01.2023 -30.09.2023
01.01.2022 -30.09.2022
01.01.2022 -31.12.2022
01.01.2023 -30.09.2023
01.01.2022 -30.09.2022
01.01.2022 -31.12.2022
Result from insurance services
-1 341
-272
1 374
306
343
457
0
0
0
0
0
0
Net financial income from investments
19 845
-17 285
-7 050
189
-137
-91
337
218
345
10
-6
0
Policyholder's share of changes in fair value of underlying items
-18 585
40 460
23 494
0
0
0
0
0
0
0
0
0
Other insurance related financial cost
0
0
0
2
62
49
0
0
0
0
0
0
Unit holder's value change in consolidated security funds
0
0
0
0
0
0
0
0
0
0
0
0
Total income
-81
22 903
17 818
497
268
414
337
218
345
10
-6
0
Net costs subordinated loan and hybrid Tier 1 securities
-406
-370
-169
0
0
0
0
0
0
0
0
0
Operating expenses
0
-1
-1
-247
-221
-310
-197
-177
-245
-393
-464
-602
Other income
166
398
482
5
2
7
68
62
84
424
451
607
Other expenses
295
-7
-8
0
0
0
-5
-5
-4
0
0
0
Pre-tax income
-25
22 924
18 122
255
49
111
203
97
180
42
-19
5
Cost of taxes
-183
-42
-115
-73
-12
-53
-2
5
-17
-11
5
-2
Income
-208
22 882
18 007
182
37
59
201
102
163
32
-14
3
Total other comprehensive income
294
63
115
38
6
19
14
3
11
28
6
11
Total comprehensive income
86
22 944
18 122
220
43
77
216
106
174
59
-8
14
Assets
749 614
720 883
709 219
6 672
6 166
6 109
49 403
49 369
50 511
612
594
635
Liabilities
753 167
705 958
699 115
4 083
3 831
3 739
46 271
46 472
47 544
160
223
241
NOK MILLIONS
Other
Eliminations
Total
01.01.2023 -30.06.2023
01.01.2022 -30.06.2022
01.01.2022 -31.12.2022
01.01.2023 -30.06.2023
01.01.2022 -30.06.2022
01.01.2022 -31.12.2022
01.01.2023 -30.06.2023
01.01.2022 -30.06.2022
01.01.2022 -31.12.2022
Result from insurance services
0
0
0
79
92
191
-956
163
2 022
Net financial income from investments
0
0
0
16 445
-19 438
-14 953
36 826
-36 648
-21 749
Policyholder's share of changes in fair value of underlying items
0
0
0
0
-1 947
-1 502
-18 585
38 513
21 992
Other insurance related financial cost
0
0
0
0
0
0
2
62
49
Unit holder's value change in consolidated security funds
0
0
0
-16 648
19 605
15 966
-16 648
19 605
15 966
Total income
0
0
0
-124
-1 688
-298
640
21 695
18 279
Net costs subordinated loan and hybrid Tier 1 securities
0
0
0
0
0
0
-406
-370
-169
Operating expenses
-9
-8
-11
-40
64
9
-886
-806
-1 159
Other income
9
9
12
-477
-616
-887
196
306
305
Other expenses
0
0
0
-395
-8
-13
-105
-20
-25
Pre-tax income
1
1
2
-1 036
-2 248
-1 189
-561
20 805
17 232
Cost of taxes
0
0
0
-763
-645
-639
-1 032
-690
-826
Income
0
1
1
-1 799
-2 893
-1 828
-1 592
20 115
16 405
Total other comprehensive income
1
0
0
1 304
818
76
1 679
895
231
Total comprehensive income
1
1
2
-496
-2 075
-1 753
86
21 010
16 637
Assets
10
9
11
166 034
136 120
133 694
972 345
913 144
900 178
Liabilities
2
2
3
172 219
143 834
141 085
975 901
900 320
891 728
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
Q3 2023
Q3 2022
01.01.2023 -30.09.2023
01.01.2022 -30.09.2022
01.01.2022 -31.12.2022
Insurance income
-186
571
1 637
2 435
8 333
Insurance service expenses
-810
-1 221
-2 505
-2 686
-6 729
Reinsurance income (+)/ cost (-)
-26
415
-88
414
418
Insurance service result
-1 022
-235
-956
163
2 022
Note 4 Investment property
NOK MILLIONS
Q3 2023
Q3 2022
01.01.2023 -30.09.2023
01.01.2022 -30.09.2022
01.01.2022 -31.12.2022
Net rental income
1 053
814
2 862
2 360
3 219
Net value adjustment
-3 447
454
-5 318
5 951
3 338
Net income from investment properties
-2 394
1 267
-2 456
8 310
6 558
Currency translate foreign properites (taken to other comprehensive income)
-897
397
1 573
709
148
Net income from investment properties included currency translate
- 3 290
1 665
- 883
9 020
6 706
NOK MILLIONS
30.09.2023
30.09.2022
31.12.2022
Investment property 01.01.
93 992
89 535
89 535
Value adjustment, including currency translation
- 3 745
6 660
3 486
Net additions
1 744
719
991
Other changes
- 34
- 25
- 20
Investment property
91 957
96 889
93 992
Note 5 Technical provisions
From and including 2023, the group reports insurance liabilities according to IFRS 17. The standard requires comparison figures one year back, so that the opening balance according to the new standard will be 01.01.2022.
The transition from the insurance liabilities according to previous rules to new rules is shown below:
NOK MILLIONS
Insurance liabilites linked to insurance contracts with the right to residual value
Earned pension benefits with the agreement's calculation basis and basic interest (gross premium reserve) 31/12/2021
486 277
Administration reserve and reserve related to incurreed,but not reported claims and reserves related to reported, but not setteled claims
-18 737
Net premium reserve 31.12.2021
467 540
Net move of earned premiereserves 01.01.2022
-3 318
Earned pension benefits with the insurance contracts calculation basis and base rate (net premium reserve)
464 222
Earned pension benefits with best estimate calculation basis and discount curve for IFRS 17
403 400
Cash flows related to future premiums and associated accrual of pension benefits and other cash flows within the boundary of the contracts with best estimate calculation basis, salary growth curve and cash discount curve for IFRS 17*
-30 089
Premiumfund balance
41 006
Best estimate pension liabilities 01.01.2022 before risk adjustment
414 317
Risk adjustment
35 107
Best estimate pension liabilites 01.01.2022 including risk adjustment
449 424
Residual value
248 260
Insurance liablities
697 684
* Other cash flows consist of cost premiums, costs, interest guarantee premiums, equity grants and contributions to premium funds
NOK MILLIONS
Other insurance liabilities
LRC*
LIC*
LIC Reinsurance
Provision 31.12.2021/01.01.2022
236
2 382
335
Effect of seasonal variation
9
0
0
Discounting
0
-134
-7
Provision 01.01.2022 before risk adjustment
245
2 248
328
Risik adjustment
0
95
13
Provision 01.01.2022 including risk adjustment
245
2 343
341
LRC = Liability for remaining coverage
LIC = Liability for incurred claims
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
337 250
686 780
Changes that realte to current services
Change in risk adjustment for non-financial risk for risk expired
1 303
1 303
Experience adjustment not related to future service
38
38
Insurance service result
38
1 303
1 341
Change in risk adjustment for non-financial risk at the start of the period
-2 257
2 257
0
Accured interest
10 210
794
-11 004
0
Released cash flows
-10 381
-10 381
Changes in estimates related to future service
32 307
2 511
-34 819
0
Change due to changes in discount curve
-41 739
-3 244
44 983
0
Result addes to policyholders' residual value
28 965
28 965
Insurance related financial cost
-9 602
-2 197
30 384
18 585
Premium
1 024
0
0
1 024
Claims and other insurance service expenses (incl. Investmentcomponents)
26 082
0
0
26 082
Total cash flows
27 106
0
0
27 106
Other changes
0
0
64
64
Insurance obligations with the right to residual value 30 September 2023
339 768
26 410
367 697
733 875
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
Total
Other insurance liabilities 1 January 2023
2 790
115
276
3 181
Insurance income
0
0
-1 864
-1 864
Claims
1 498
61
0
1 559
Expenses
115
4
0
119
Other movements realted to current service
-25
0
-25
Changes that relate to past service
-151
-33
0
-184
Insurance service expenses
1 462
8
0
1 470
Insurance service result
1 462
8
-1 864
-394
Insurance related financial cost
13
3
0
16
Premium
-1 367
0
-1 367
Claims and other insurance service expenses
0
0
2 182
2 182
Total cash flows
-1 367
0
2 182
815
Other changes
-6
0
-1
-6
Other insurance liabilities 30 September 2023
2 892
125
595
3 612
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
Total
Reinsurance contracts assets 1 January 2023
705
30
0
736
Premium paid - reinsurance
0
0
-122
-122
Recoveries of incurred claims and other insurance service expenses
88
5
0
93
Reinsurance expenses -related to past service
-54
-5
0
-59
Insurance service expenses
34
0
0
34
Insurance service result
34
0
-122
-88
Insurance related financial cost
10
8
0
18
Premium
-55
0
154
99
Total cash flows
-55
0
154
99
Other changes
-27
0
0
-27
Reinsurance contracts assets 30 September 2023
667
38
32
738
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 Q3 2023
Insurance service result
-1 341
394
-88
79
-956
Net insurance related financial cost
-18 585
-16
18
0
-18 583
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 2022
414 317
35 107
248 260
697 685
Changes that realte to current services
0
0
0
0
Change in risk adjustment for non-financial risk for risk expired
0
398
0
398
Experience adjustment not related to future service
-126
0
0
-126
Insurance service result
-126
398
0
272
Change in risk adjustment for non-financial risk at the start of the period
0
0
0
0
Accured interest
5 234
444
-5 678
0
Released cash flows
-8 045
0
0
-8 045
Changes in estimates related to future service
1 294
110
-1 404
0
Change due to changes in discount curve
-113 502
-9 618
123 120
0
Result addes to policyholders' residual value
0
0
-32 415
-32 415
Insurance related financial cost
-115 020
-9 064
83 624
-40 460
Premium
41 975
0
0
41 975
Claims and other insurance service expenses (incl. Investmentcomponents)
-29 105
0
0
-29 105
Total cash flows
12 870
0
0
12 870
Insurance obligations with the right to residual value 30 September 2022
312 041
26 441
331 884
670 366
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
Total
Other insurance liabilities 1 January 2022
2 266
95
225
2 586
Insurance income
0
0
-1 629
-1 629
Claims
1 650
64
0
1 713
Expenses
117
4
0
122
Other movements realted to current service
0
-21
0
-21
Changes that relate to past service
-89
-25
0
-114
Insurance service expenses
1 678
22
0
1 700
Insurance service result
1 678
22
-1 629
71
Insurance related financial cost
-59
-5
0
-64
Premium
-1 152
0
0
-1 152
Claims and other insurance service expenses
0
0
1 941
1 941
Total cash flows
-1 152
0
1 941
789
Other changes
-2
0
-11
-13
Other insurance liabilities 30 September 2022
2 732
112
526
3 370
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
Total
Reinsurance contracts assets 1 January 2022
328
13
-1
340
Premium paid - reinsurance
0
0
-73
-73
Recoveries of incurred claims and other insurance service expenses
463
21
0
484
Reinsurance expenses -related to past service
6
-4
0
3
Insurance service expenses
470
17
0
487
Insurance service result
470
17
-73
414
Insurance related financial cost
-1
0
0
-1
Premium
0
0
98
98
Repayents
-92
0
0
-92
Total cash flows
-92
0
98
6
Other changes
-21
0
0
-21
Reinsurance contracts assets 30 September 2022
684
31
24
739
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 Q3 2022
Insurance service result
-272
-71
414
92
163
Insurance related financial cost
40 460
64
-1
-1 947
38 576
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 2022
414 317
35 107
248 260
697 685
Changes that realte to current services
0
0
0
0
Change in risk adjustment for non-financial risk for risk expired
0
167
0
167
Experience adjustment not related to future service
-1 541
0
0
-1 541
Insurance service result
-1 541
167
0
-1 374
Change in risk adjustment for non-financial risk at the start of the period
0
0
0
0
Accured interest
7 055
598
-7 653
0
Released cash flows
-10 456
0
0
-10 456
Changes in estimates related to future service
2 689
228
-2 917
0
Change due to changes in discount curve
-103 802
-8 796
112 597
0
Result addes to policyholders' residual value
0
0
-13 038
-13 038
Insurance related financial cost
-104 513
-7 970
88 990
-23 494
Premium
53 502
0
0
53 502
Claims and other insurance service expenses (incl. Investmentcomponents)
-39 539
0
0
-39 539
Total cash flows
13 963
0
0
13 963
Insurance obligations with the right to residual value 31 December 2022
322 226
27 304
337 250
686 780
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
Total
Other insurance liabilities 1 January 2022
2 266
95
225
2 586
Insurance income
0
0
-2 200
-2 200
Claims
2 068
80
0
2 148
Expenses
153
5
0
159
Other movements realted to current service
0
-31
0
-31
Changes that relate to past service
-84
-30
0
-113
Insurance service expenses
2 138
25
0
2 162
Insurance service result
2 138
25
-2 200
-38
Insurance related financial cost
-44
-5
0
-48
Premium
0
0
0
0
Claims and other insurance service expenses
-1 570
0
2 265
694
Total cash flows
-1 570
0
2 265
694
Other changes
-1
0
-13
-13
Other insurance liabilities 31 December 2022
2 790
115
276
3 181
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
Total
Reinsurance contracts assets 1 January 2022
328
13
-1
340
Premium paid - reinsurance
0
0
-97
-97
Recoveries of incurred claims and other insurance service expenses
475
21
0
497
Reinsurance expenses -related to past service
23
-4
0
19
Insurance service expenses
498
17
0
515
Insurance service result
498
17
-97
418
Insurance related financial cost
0
0
0
0
Premium
0
0
98
98
Repayments
-122
0
0
-122
Total cash flows
-122
0
98
-24
Other changes
1
0
0
1
Reinsurance contracts assets 31 Decemeber 2022
705
30
0
736
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 Q4 2022
Insurance service result
1 374
38
418
191
2 022
Insurance related financial cost
23 494
48
0
-1 502
22 040
Important assumptions
Discount curve for IFRS 17
Expected cash flows from the insurance contracts will mature at various times in the future.
The future cash flows are therefore discounted to the value on the balance sheet date with an interest rate curve that is determined on the balance sheet date.
The discount curve for IFRS 17 is generally determined according to the same principles as the curve EIOPA calculates for Solvency II purposes.
The main difference is that EIOPA's estimate for volatility adjustment is replaced with an estimate for the illiquidity spread in the bond market, and this is calibrated to the illiquidity degree of the KLP's obligation.
Selected values of discounting curves for IFRS 17 are listed below:
Year
30.09.2023
30.09.2022
31.12.2022
1
5.7%
4.3%
4.2%
2
5.3%
4.0%
4.0%
3
4.8%
4.0%
3.9%
4
4.5%
4.0%
3.8%
5
4.4%
4.0%
3.9%
10
4.7%
4.3%
4.3%
15
4.3%
4.0%
4.0%
25
3.8%
3.7%
3.7%
50
3.5%
3.5%
3.5%
75
3.5%
3.5%
3.5%
100
3.5%
3.5%
3.5%
Salary growth curve
Future cash flows within the contract boundary are calculated with assumptions about annual future salary growth/regulation as stated in the table below.
The salary growth curve is projected by the NAM model (Norwegian aggregate model), which makes a macro projection of key economic figures (salary growth, inflation, etc.) year by year.
Year
30.09.2023
30.09.2022
31.12.2022
1
5.3%
3.3%
4.5%
5
4.8%
4.8%
4.3%
10
3.8%
4.1%
3.8%
15
3.4%
3.8%
3.3%
25
3.3%
3.4%
3.4%
50
3.5%
3.4%
3.4%
80
3.5%
3.4%
3.4%
Sensitivity - the discount curve according to IFRS 17
For insurance contracts with a right to residual value, interest rate changes will have a major impact on the best estimate of the pension liabilites
NOK MILLIONS
Best estimate pension liability
Calculated with the interest rate curve as of 30.09
337 863
All interest rates in the discount rate curve are increased by 0.5% points
234 169
All interest rates in the discount rate curve are reduced by 0.5% points
498 544
Note 6 Subordinated loans and perpetual hybrid tier 1 securities
NOK MILLIONS
Q3 2023
Q3 2022
01.01.2023 -30.09.2023
01.01.2022 -30.09.2022
01.01.2022 -31.12.2022
SUBORDINATED LOANS
Interest costs
-35
-35
-118
-99
-131
Value changes
111
-102
-208
-190
-143
Net costs subordinated loans
76
-136
-326
-289
-274
PERPETUAL HYBRID TIER 1 SECURITIES
Interest costs
-20
-20
-58
-56
-72
Value changes
90
-79
-22
-25
176
Net costs perpetual hybrid tier 1 securities
70
-100
-80
-81
104
Net costs subordinated loan and hybrid Tier 1 securities
145
-236
-406
-370
-169
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
30.09.2023
30.09.2022
31.12.2022
Book value
Fair value
Book value
Fair value
Book value
Fair value
FIXED-INCOME SECURITIES AND OTHER DEBT INSTRUMENTS AT AMORTIZED COST
Norwegian bonds
1 006
935
64 739
60 308
65 861
62 754
Foreign bonds
1 220
1 108
135 245
126 432
132 892
125 280
Fixed-income securities and other debt instruments at amortized cost
2 226
2 043
199 984
186 740
198 752
188 034
LENDING LOCAL GOVERNMENT, ENTERPRISES & RETAIL CUSTOMERS AT FAIR VALUE THROUGH PROFIT/LOSS
Loans secured by mortgage
2 590
2 590
0
0
0
0
Loans to local government sector or enterprises with local government guarantee
70 941
70 941
0
0
0
0
Loans abroad secured by mortage and local government guarantee
4 704
4 704
0
0
0
0
Other lending
590
590
0
0
0
0
Total loans to local government, enterprises & retail customers
78 825
78 825
0
0
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
43 124
43 135
26 277
26 169
26 107
24 701
Loans to and receivables from central banks
75
75
0
0
0
0
Loans to local government sector or enterprises with local government guarantee
0
0
89 025
87 361
89 743
88 342
Loans abroad secured by mortage and local government guarantee
0
0
6 172
6 172
5 352
5 352
Loans to and receivables from credit institutions
1 274
1 274
0
0
0
0
Other lending
0
0
46
46
158
158
Total loans to local government, enterprises & retail customers
44 473
44 484
121 519
119 748
121 360
118 553
DEBT INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Norwegian bonds
126 710
126 710
57 010
57 010
58 922
58 922
Norwegian certificates
11 625
11 625
8 793
8 793
7 648
7 648
Foreign bonds
199 448
199 448
77 254
77 254
72 565
72 565
Foreign certificates
891
891
430
430
420
420
Investments with credit institutions
47 773
47 773
37 278
37 278
42 246
42 246
Total debt instruments
386 448
386 448
180 765
180 765
181 802
181 802
EQUITY CAPITAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Shares
286 692
286 692
233 630
233 630
238 730
238 730
Equity funds
44 915
44 915
38 054
38 054
37 155
37 155
Property funds
6 800
6 800
6 695
6 695
6 514
6 514
Total equity capital instruments
338 407
338 407
278 379
278 379
282 399
282 399
RECEIVABLES
Receivables related to direct business
908
908
1 706
1 706
379
379
Receivables related to securites
10 958
10 958
17 907
17 907
912
912
Prepaid rent related to real estate activites
148
148
130
130
0
0
Other receivables
661
661
338
338
518
518
Total other loans and receivables including receivables from policyholders
12 675
12 675
20 080
20 080
1 810
1 810
FINANCIAL LIABILITIES - AT AMORTIZED COST
Debt to credit institutions
955
955
1 168
1 168
1 055
1 055
Covered bonds issued
30 661
30 641
31 445
31 289
32 430
32 402
Liabilities and deposits from customers
14 351
14 351
13 607
13 607
13 779
13 779
Hybrid Tier 1 securities
0
0
1 650
1 393
1 428
1 428
Subordinated loan capital
0
0
3 162
3 059
3 147
3 093
Total financial liabilities
45 967
45 947
51 032
50 516
51 839
51 757
FINANCIAL LIABILITIES - AT FAIR VALUE THROUGH PROFIT OR LOSS
Debt to credit institutions
2 719
2 719
2 502
2 502
5 628
5 628
Hybrid Tier 1 securities
1 470
1 470
0
0
0
0
Subordinated loan capital
3 271
3 271
0
0
0
0
Total financial liabilities
7 460
7 460
2 502
2 502
5 628
5 628
NOK MILLIONS
30.09.2023
30.09.2022
31.12.2022
Assets
Liabilities
Assets
Liabilities
Assets
Liabilities
FINANCIAL DERIVATIVES - AT FAIR VALUE THROUGH PROFIT OR LOSS
Forward exchange contracts
2 720
2 384
294
16 818
5 024
1 570
Interest rate swaps
708
2 676
450
2 576
1 077
194
Interest rate and currency swaps
466
0
751
2 593
583
1 393
Share option
0
0
118
2
135
0
Total financial derivatives
3 894
5 060
1 613
21 989
6 820
3 158
Note 8 Borrowing
NOK MILLIONS
Nominal in NOK
Currency
Interest
Due date
Book value 30.09.2023
Book value 30.09.2022
Book value 31.12.2022
FIXED - TERM SUBORDINATED LOAN
Kommunal Landspensjonskasse
2 530
EUR
Fixed ¹
2045
3 271
3 162
3 147
Total subordinated loan capital
2 530
-
-
-
3 271
3 162
3 147
HYBRID TIER 1 SECURITIES
Kommunal Landspensjonskasse
984
JPY
Fixed ²
2034
1 470
1 650
1 428
Total hybrid Tier 1 securities
984
-
-
-
1 470
1 650
1 428
COVERED BONDS
KLP Kommunekreditt AS
0
NOK
Floating
2023
0
3 285
2 985
KLP Kommunekreditt AS
1 603
NOK
Floating
2024
1 612
5 015
5 021
KLP Kommunekreditt AS
5 000
NOK
Floating
2025
5 014
5 008
5 010
KLP Kommunekreditt AS
5 000
NOK
Floating
2026
5 050
5 022
5 036
KLP Kommunekreditt AS
1 000
NOK
Fixed
2027
1 026
505
1 012
KLP Kommunekreditt AS
6 000
NOK
Floating
2027
6 051
0
0
KLP Kommunekreditt AS
700
NOK
Fixed
2029
729
0
706
KLP Boligkreditt AS
0
NOK
Floating
2023
0
1 602
1 603
KLP Boligkreditt AS
1 689
NOK
Floating
2024
1 690
2 501
2 501
KLP Boligkreditt AS
2 500
NOK
Floating
2025
2 501
2 500
2 501
KLP Boligkreditt AS
4 500
NOK
Floating
2026
4 535
3 514
3 521
KLP Boligkreditt AS
2 500
NOK
Floating
2027
2 516
2 508
2 512
Other
-63
-17
22
Total covered bonds
30 492
-
-
-
30 661
31 445
32 430
DEBT TO CREDIT INSTITUTIONS
KLP Banken AS
0
NOK
Floating
2022
0
114
0
KLP Banken AS
0
NOK
Floating
2023
0
301
300
KLP Banken AS
450
NOK
Floating
2024
453
452
450
KLP Banken AS
300
NOK
Floating
2025
301
301
303
KLP Banken AS
200
NOK
Floating
2025
201
0
0
KLP Fond
0
NOK
Floating
2022
0
274
0
KLP Fond
0
NOK
Fixed
2022
0
1 256
0
KLP Fond
616
NOK
Floating
2023
616
0
1 302
KLP Fond
1 042
NOK
Fixed
2023
1 042
0
1 540
Kommunal Landspensjonskasse
0
NOK
Floating
2022
0
881
0
Kommunal Landspensjonskasse
0
NOK
Floating
2022
0
0
0
Kommunal Landspensjonskasse
956
NOK
Floating
2023
956
0
0
Kommunal Landspensjonskasse
0
NOK
Fixed
2023
0
0
2 678
Other
105
91
110
Total liabilities to credit institutions
3 564
-
-
-
3 674
3 670
6 683
LIABILITIES AND DEPOSITS FROM CUSTOMERS ³
Retail
12 114
NOK
12 114
11 786
11 722
Business
2 193
NOK
2 193
1 786
2 021
Foreign
43
NOK
43
35
37
Liabilities to and deposits from customers
14 351
-
14 351
13 607
13 779
Total financial liabilities
51 920
53 426
53 534
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 9 Fair value hierarchy
30.09.2023 NOK MILLIONS
Level 1
Level 2
Level 3
Total
ASSETS BOOKED AT FAIR VALUE
Land/plots
0
0
1 366
1 366
Buildings
0
0
90 591
90 591
Investment property
0
0
91 957
91 957
Lending at fair value
0
78 825
0
78 825
Certificates
2 411
10 106
0
12 516
Bonds
25 637
300 561
0
326 198
Fixed-income funds
0
8 948
13 257
22 206
Bonds and other fixed-income securities
28 048
319 615
13 257
360 920
Loans and receivables
24 400
1 128
0
25 528
Shares
274 787
8 203
3 701
286 691
Equity funds
2 297
0
51
2 349
Property funds
0
2 095
4 705
6 800
Special funds
0
0
0
0
Private Equity
0
0
42 567
42 567
Shares and units
277 085
10 299
51 024
338 407
Financial derivatives
0
3 894
0
3 894
Total assets at fair value
329 533
413 761
156 238
899 531
LIABILITIES BOOKED AT FAIR VALUE
Financial derivatives
0
5 060
0
5 060
Debt to credit institutions ¹
1 677
1 042
0
2 719
Total financial liabilities at fair value
1 677
6 102
0
7 779
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 955 million per 30.09.2023.
30.09.2022 NOK MILLIONS
Level 1
Level 2
Level 3
Total
ASSETS BOOKED AT FAIR VALUE
Land/plots
0
0
1 081
1 081
Buildings
0
0
95 808
95 808
Investment property
0
0
96 889
96 889
Lending at fair value
0
0
Certificates
2 104
7 118
0
9 223
Bonds
22 139
98 149
0
120 288
Fixed-income funds
13 995
7 541
9 573
31 109
Bonds and other fixed-income securities
38 239
112 808
9 573
160 620
Loans and receivables
19 009
1 135
0
20 144
Shares
224 270
5 210
3 361
232 841
Equity funds
2 092
0
56
2 148
Property funds
0
2 324
4 371
6 695
Special funds
0
0
0
Private Equity
0
0
36 694
36 694
Shares and units
226 363
7 534
44 483
278 379
Financial derivatives
0
1 613
0
1 613
Total assets at fair value
283 610
123 090
150 945
557 646
LIABILITIES BOOKED AT FAIR VALUE
Financial derivatives
0
21 989
0
21 989
Debt to credit institutions ¹
1 246
1 256
0
2 502
Total financial liabilities at fair value
1 246
23 245
0
24 491
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
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
Total financial liabilities at fair value
4 326
4 460
0
8 786
Changes in Level 3, Investment Property
Book value 30.09.2023
Book value 30.09.2022
Book value 31.12.2022
Opening balance 1 January
93 992
89 535
89 535
Sold
0
-108
-148
Bought
1 744
827
1 139
Unrealised changes
-3 745
6 660
3 486
Other changes
-34
-25
-20
Closing balance 30.09./31.12.
91 957
96 889
93 992
Realised gains/losses
0
0
0
Changes in Level 3, Financial Assets
Book value 30.09.2023
Book value 30.09.2022
Book value 31.12.2022
Opening balance 1 January
53 407
40 122
40 122
Sold
-2 387
-4 241
-5 749
Bought
9 250
11 106
14 524
Unrealised changes
4 011
7 069
4 510
Closing balance 30.09./31.12.
64 281
54 056
53 407
Realised gains/losses
957
1 718
2 322
Closing balance 30.09./31.12.
156 238
150 945
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 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 7 812 million as of 30.09.2023.
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.
During the 3rd quarter, NOK 1 626 million in stocks moved from Level 1 to Level 2, NOK 164 million moved from Level 1 to Level 3 and NOK 691 million moved from level 2 to level 1. The movements is due to changes in liquidity.
Note 10 Presentation of assets and liabilities that are subject to net settlement
30.09.2023 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
3 894
0
3 894
-2 454
-1 199
-3 172
200
401
Repos
3 130
0
3 130
-800
0
0
2 329
2 329
Total
7 024
0
7 024
-3 255
-1 199
-3 172
2 530
2 730
LIABILITIES
Financial derivatives
5 060
0
5 060
-2 454
-907
-1 067
2 246
2 245
Repos
1 043
0
1 043
0
0
0
1 043
243
Total
6 103
0
6 103
-2 454
-907
-1 067
3 290
2 488
30.09.2022 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
1 613
0
1 613
-615
-1 008
-1 094
273
273
Repos
500
0
500
-500
0
0
0
0
Total
2 113
0
2 113
-1 115
-1 008
-1 094
273
273
LIABILITIES
Financial derivatives
21 989
0
21 989
-615
-2 362
-13 930
5 197
4 740
Repos
1 257
0
1 257
0
0
0
1 257
757
Total
23 246
0
23 246
-615
-2 362
-13 930
6 453
5 497
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 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 332 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 332 per cent.
30.09.2023
30.09.2022
31.12.2022
Solvency II - SCR ratio
332 %
306 %
288 %
NOK BILLIONS
30.09.2023
30.09.2022
31.12.2022
Simplified Solvency II Financial Position Statement
Assets, book value
775
724
713
Added values - hold-to-maturity portfolio/loans and receivables
-18
-16
-13
Added values - other lending
-2
-2
-2
Other added/lesser values
0
0
0
Deferred tax asset
0
0
0
Total assets - solvency II
755
707
699
NOK BILLIONS
30.09.2023
30.09.2022
31.12.2022
Simplified Solvency II Financial Position Statement
Assets, book value
775
724
713
Added values - hold-to-maturity portfolio/loans and receivables
-18
-16
-13
Added values - other lending
-2
-2
-2
Other added/lesser values
0
0
0
Deferred tax asset
0
0
0
Total assets - solvency II
755
707
699
NOK BILLIONS
30.09.2023
30.09.2022
31.12.2022
Simplified Solvency II Financial Position Statement
Best estimate
677
616
632
Risk margin
10
11
12
Hybrid Tier 1 securities/Subordinated loan capital
4
5
5
Other liabilities
17
32
9
Deferred tax liabilities
0
0
0
Total liabilities - solvency II
709
664
657
Excess of assets over liabilities
47
43
42
- Deferred tax asset
0
0
0
- Risk equalization fund (tier 2 own funds starting 30.09.2022)
-5
-5
-5
+ Hybrid Tier 1 securities
1
2
1
Tier 1 basic own funds
43
39
38
Total eligible tier 1 own funds
43
39
38
Subordinated loans
3
3
3
Risk equalization fund (tier 2 own funds starting 30.09.2022)
5
5
5
Tier 2 basic own funds
8
8
8
Ancillary own funds
14
13
13
Tier 2 ancillary own funds
14
13
13
Deduction for max. eligible tier 2 own funds
-16
-14
-14
Total eligible tier 2 own funds
7
7
7
Deferred tax asset
0
0
0
Total eligible tier 3 own funds
0
0
0
Solvency II total eligible own funds
50
46
46
Solvency capital requirement (SCR)
15
15
16
Solvency II- SCR ratio
332 %
306 %
288 %
Note 12 Pension obligations
NOK MILLIONS
30.09.2023
30.09.2022
31.12.2022
Capitalized net liability 01.01.
815
870
870
Capitalized pension costs
145
153
215
Capitalized financial costs
21
15
19
Actuarial gains and losses
-349
-74
-132
Premiums / contributions received
-234
-123
-157
Capitalized net liability 30.09./31.12.
398
841
815
Assumptions
30.09.2023
30.09.2022
31.12.2022
Discount rate
4.00%
3.20%
3,00 %
Salary growth
4.00%
3.75%
3,50 %
The National Insurance basic amount (G)
3.50%
3.50%
3,25 %
Pension increases
2.90%
2.75%
2,60 %
Social security contribution rate
14.10%
14.10%
14,10 %
Capital activity tax
5.00%
5.00%
5,00 %
The effect of changes in pension assumptions reduces the pension liability for employees with NOK 349 million as of 30.09.2023. 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
-30
-5
0
-36
New losses
25
0
0
25
Write-offs
-13
-24
0
-36
Change in risk model
0
0
0
0
Closing balance ECL 30.09.2023
242
14
0
256
Changes (01.01.2023 - 30.09.2023)
-19
-29
0
-47
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
675
-531
-145
0
Transfer to stage 2
-36
40
-4
0
Transfer to stage 3
-2
-78
80
0
Net changes
-736
1 383
300
947
New losses
288
94
183
564
Write-offs
-214
-331
-240
-785
Change in risk model
45
0
0
45
Closing balance ECL 30.09.2023
2 409
2 667
1 172
6 249
Changes (01.01.2023 - 30.09.2023)
19
577
175
771
This includes provisions for losses on loans and receivables - unused credit
3 140
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
773
Transfer to stage 1
8
-8
0
0
Transfer to stage 2
-7
7
0
0
Transfer to stage 3
0
-34
34
0
Net changes
-36
251
221
437
New losses
67
17
154
238
Write-offs
-27
-44
-91
-162
Change in risk model
0
0
0
0
Closing balance ECL 30.09.2023
149
397
740
1 285
Changes (01.01.2023 - 30.09.2023)
5
189
318
512
This includes provisions for losses on loans and receivables - unused credit on mortgages
8
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
-8
0
0
-8
New losses
23
0
0
23
Write-offs
-15
0
0
-15
Change in risk model
0
0
0
0
Closing balance ECL 30.09.2023
184
0
0
184
Changes (01.01.2023 - 30.09.2023)
0
0
0
0
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
667
-523
-145
0
Transfer to stage 2
-29
33
-4
0
Transfer to stage 3
-2
-44
47
0
Net changes
-692
1 132
42
482
New losses
194
77
6
277
Write-offs
-171
-287
-135
-592
Change in risk model
45
0
0
45
Closing balance ECL 30.09.2023
2 052
2 271
328
4 650
Changes (01.01.2023 - 30.09.2023)
12
388
-189
211
This includes provisions for losses on loans and receivables - unused credit on credit card
3 132
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
1
0
0
1
New losses
4
0
0
4
Write-offs
-2
0
0
-2
Change in risk model
0
0
0
0
Closing balance ECL 30.09.2023
24
0
0
24
Changes (01.01.2023 - 30.09.2023)
3
0
0
3
This includes provisions for losses on loans and receivables - unused credit on senior loans
0
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
37
37
New losses
0
0
23
23
Write-offs
0
0
-14
-14
Change in risk model
0
0
0
0
Closing balance ECL 30.09.2023
0
0
106
106
Changes (01.01.2023 - 30.09.2023)
0
0
46
46
Note 14 Other current liabilites
NOK MILLIONS
30.09.2023
30.09.2022
31.12.2022
Short-term payables trade in securities
12 574
18 989
1 699
Incurred not assessed taxes
974
275
671
Accounts payable
276
164
256
Public fees
595
545
629
Other current liabilities
1 173
1 939
1 088
Total other current liabilities
15 592
21 911
4 343
Key figures – Accumulated
NOK MILLIONS
Q3 2023
Q2 2023
Q1 2023
Q4 2022
Q3 2022
Q2 2022
Q1 2022
Q4 2021
KLP GROUP
Total assets
972 345
956 311
948 061
900 178
913 144
900 199
902 413
901 270
Equity
-3 555
-3 623
-3 630
8 450
12 823
9 800
2 293
40 732
Solvency SCR ratio
332 %
297 %
282 %
288 %
306 %
304 %
299 %
287 %
Number of employees in the Group
1 120
1 099
1 091
1 093
1 095
1 081
1 060
1 048
KOMMUNAL LANDSPENSJONSKASSE
Profit before tax
1 136
774
539
918
461
216
71
288
Premium income for own account
60 032
51 102
7 663
50 523
40 248
33 081
7 503
50 161
- of which inflow of premium reserve
91
91
91
386
386
386
376
0
Insurance customers' funds incl. acc. profit
21 501
14 840
8 331
28 517
22 453
16 367
10 642
30 438
- of which funds with guaranteed returns
2 125
2 121
2 125
4 659
4 658
4 658
4 875
8 346
Net investment common portfolio
718 214
701 944
690 902
660 366
671 095
660 834
662 500
659 281
Net investment choice portfolio
2 730
2 833
2 683
2 609
2 602
2 665
2 588
2 199
Insurance funds incl. earnings for the year
704 815
715 239
668 235
654 324
641 805
654 482
644 226
652 444
- of which funds with guaranteed interest
586 941
592 053
552 840
552 101
542 820
548 891
526 324
526 235
Solvency capital requirement (SCR)
49 918
47 317
46 768
46 158
46 307
44 901
44 809
45 190
Solvency SCR ratio
368 %
330 %
316 %
318 %
341 %
340 %
332 %
316 %
Riskprofit
364
270
71
558
963
550
105
589
Return profits
15 822
21 243
13 232
-20 006
-27 421
-20 374
-7 894
15 134
Administration profit
176
62
54
-17
56
-22
-9
35
Solvency capital
147 893
151 993
151 550
140 958
129 556
138 338
151 201
196 049
Value-adjusted return on common portfolio
3,9 %
4,2 %
2,5 %
-1,1 %
-2,6 %
-2,1 %
-2,3 %
8,4 %
Return on unit-linked portfolio
4,8 %
5,6 %
3,4 %
-2,5 %
-4,2 %
-3,5 %
-1,2 %
8,9 %
Return on corporate portfolio
2,1 %
1,5 %
0,9 %
2,8 %
1,4 %
0,9 %
0,6 %
3,4 %
KLP SKADEFORSIKRING AS
Profit before tax
255
189
99
111
49
88
57
0
Insurance income
1 863
1 230
630
2 200
1 629
1 071
546
0
Owners' equity
2 589
2 543
2 446
2 369
2 339
2 367
2 370
0
Claims ratio
83,6 %
87,6 %
91,7 %
80,8 %
80,3 %
73,4 %
79,6 %
76,4 %
Combined-ratio
13,0 %
13,9 %
13,9 %
14,5 %
14,2 %
15,3 %
15,5 %
92,1 %
Return on assets under management
3,3 %
3,6 %
2,7 %
-1,7 %
-2,5 %
-2,1 %
-0,9 %
5,0 %
Solvency capital requirement (SCR)
2 514
2 377
2 309
2 222
2 250
2 273
2 329
2 278
Solvency SCR ratio
246 %
222 %
215 %
222 %
219 %
225 %
222 %
224 %
Annual premium in force – retail market
1 042
1 013
982
954
933
918
893
871
Annual premium in force – public sector market
1 533
1 521
1 474
1 341
1 325
1 318
1 210
1 149
Net new subscriptions (accumulated within the year)
61
43
20
121
123
113
7
91
KLP BANKEN GROUP
Profit/loss before tax
203
122
53
181
98
43
18
116
Net interest income
340
221
110
369
258
159
72
309
Other operating income
67
44
21
85
63
43
20
79
Operating expenses and depreciation
-201
-134
-71
-247
-181
-123
-64
-239
Net realized/unrealized changes in financial instruments to fair value