KLP annual report 2013 Development over the last 5 years NOK millions KLP Group 2013 2012 2011 2010 2009 Pre-tax income -107 997 653 515 776 Total assets 369 757 331 783 291 784 271 736 258 549 Owners' equity 15 268 13 630 12 064 10 749 9 721 Capital adequacy ratio 10.0 % 10.3 % 10.9 % 11.5 % 12.0 % Number of employees 856 808 775 762 741 Kommunal Landspensjonskasse 2013 2012 2011 2010 2009 Pre-tax income 950 772 705 563 738 Premium income (without premium reserves transferred in) 24 928 27 477 21 641 20 291 18 583 Net transfers in/out of premium reserves and other funds 5 753 1 401 -199 -1 335 -1 784 Income to customers 10 421 5 455 3 594 4 651 6 636 of which supplementary reserves - - 2 143 2 070 4 211 of which to premium fund 5 891 2 365 1 451 2 581 2 425 Insurance funds 312 127 275 860 243 439 227 533 204 486 Total assets 339 592 299 708 261 746 244 194 223 863 Owners' equity 15 089 13 472 11 941 10 647 9 642 Solvency capital 46 897 44 132 36 190 33 338 25 329 Solvency capital measured against insurance funds with interest guarantee 16.3 % 17.4 % 16.0 % 15.9 % 13.1 % Capital adequacy ratio 10.3 % 10.6 % 11.5 % 12.0 % 12.6 % Solvency margin ratio 228.8 % 233.2 % 243.5 % 230.6 % 221.5 % Return on the common portfolio: - book return 6.4 % 5.0 % 4.5 % 5.1 % 6.4 % - value-adjusted return 8.8 % 6.7 % 3.2 % 7.5 % 7.7 % - value-adjusted return including VAT on assets recognized at amortized cost 6.4 % 7.5 % 3.9 % 7.4 % 7.6 % Return investment options portfolio 2.2 % 7.5 % 2.2 % 8.6 % 9.2 % Insurance-related administration costs measured against average customer funds 0.28 % 0.32 % 0.34 % 0.34 % 0.33 % Number of premium-paying members 367 967 316 298 309 333 304 985 304 651 Number of pensioners 197 837 182 562 172 272 163 701 155 306 Number of employees 502 477 460 449 427 KLP Bedriftspensjon AS 2013 2012 2011 2010 2009 Pre-tax income -23 -25 -24 -17 -13 Premium income (without premium reserves transferred in) 188 126 93 52 25 Net inward/outward transfer of premium reserves 189 216 182 89 21 Income to customers 8 15 16 10 12 Total assets 1 792 1 317 904 614 436 Capital adequacy ratio 14.7 % 9.6 % 13.9 % 19.6 % 18.9 % KLP Skadeforsikring AS 2013 2012 2011 2010 2009 Pre-tax income 190 105 25 70 217 Annual premium 832 750 650 631 609 Combined ratio 103.7 % 107.8 % 118.1 % 121.9 % 95.5 % Capital adequacy ratio 40.0 % 34.1 % 31.8 % 32.0 % 33.6 % KLP Banken Konsern 2013 2012 2011 2010 2009 Pre-tax income 87 83 -62 36 -39 Deposits 4 407 2 946 1 840 1 026 36 Lending 21 317 21 875 28 416 26 320 33097 Capital adequacy ratio 19.6 % 20.1 % 14.4 % 26.7 % 113.0 % KLP Kapitalforvaltning AS and KLP Fondsforvaltning AS 2013 2012 2011 2010 2009 Pre-tax income 33 21 26 19 12 Assets for management in total 287 077 252 037 215 915 196 046 176 609 Assets for management from external customers 28 171 21 153 13 650 14 132 11 343 Contents Key figures. Development the last five years see inside the cover Group Chief Executive Officer’s preface 5 Good results and additional customers Important events in i 2013 6 This is KLP 11 What KLP offers 28 Group Accounts Income statement 67 The pension system 30 Financial position statement 68 Schedule of changes in owners equity 70 Pensions and life insurance 33 Statement of cash flows 71 Pensions and life insurance Notes Group 72-127 Non-life insuranse 36 Non-financial Accounts Non-financial Accounts at Asset and Fund management 38 year-end 31 December 130 Notes Non-financial Accounts 131 Property 40 Audit report, Non-financial Accounts 133 In 2013 KLP hosted an internal photo contest where the staff were to visualize one of KLP’s values: Open, Clear, Responsible and Banking and municipal lending 42 Accounts KLP Committed, or a dialog between people. Responsible Income statement 136 Olav Storm, photographer, was head of the jury. Gordana Grøttjord-Forberg Annual report of the Financial position statement 138 Board of Directors for 2013 45 Schedule of changes in owners equity 140 Statement of cash flows 141 We present some of the contributions in this annual report. Employee accounting 62 Notes KLP 142-208 KLP Boards of Directors 215 Audit report 212 Elected representatives 216 Declarations 214 Open Anders Eidsnes FOREWORD 5 Good results and additional customers KLP can point to good results for 2013. The Company has a large inflow of new customers, good returns and low costs. For the fifth consecutive year KLP has the best value-adjusted return of the companies competing in the public sector pensions market. Good returns in the equities market, in property and hold-to-ma- billion in premium reserves must change pension provider. This turity bonds were the most important contributors to the good is leading to large-scale transfer activity and during 2014 KLP will result. KLP’s subsidiaries are also making a positive contribution. welcome 48 local authorities as new customers. In addition agree- Value-adjusted and book returns for 2013 ended at 6.7 per cent ments have been reached so far with 48 enterprises with pub- and 6.4 per cent respectively. lic sector occupational pension schemes. This produces combined growth of more than NOK 20 billion in premium reserves and Good solvency and growth 100,000 new members with pension entitlements. KLP has good financial strength. At the end of 2013 KLP had total solvency capital of NOK 46.5 billion, corresponding to 16.1 We can also take pleasure in more and more of our owners’ em- per cent. Solvency capital increased during the year by NOK 2.4 ployees choosing to take advantage of the good members’ offers we billion. At the end of 2013 the KLP Group had total assets of NOK have developed. Those employed by our owners are being offered 369.8 billion, whilst the life company had total assets of NOK advantageous products in banking, nonlife insurance and funds. In 339.6 billion. The life company’s assets are almost entirely assets just a few years KLP has gained more than 50,000 retail customers. accumulated in the current and future pensions of KLP’s owners’ employees. Accepting corporate responsibility Accepting corporate responsibility is important for KLP. In- Larger reserves for the future creased market share and increased pension assets to be man- The longevity of the population is increasing. This means that aged are also accompanied by increased responsibility. In 2013 pensions will be paid out over longer periods. All insurance com- it was 10 years since KLP signed the UN Global Compact, a uni- panies are therefore required to use a large proportion of their versal standard for corporate social responsibility. We have com- surplus to strengthen reserves. KLP is using its good results to mitted ourselves to working to protect the environment, to secure SVERRE THORNES strengthen the pension funds by NOK 4.5 billion. Therefore KLP workers’ and human rights and to oppose corruption. has completed the increase in reserves for longevity already this year. In addition, the good result in 2013 provides the capacity to …. for the days to come return NOK 5.9 million to the customers’ premium fund. With the We shall be our owners’ best partner for the days to come. That is strengthening of the longevity reserves behind us, and with the why our owners’ needs will always be at the centre of our attention. good solvency we have built up since 2008, we will again be in a Our business aims to strengthen their finances, to ease their day- position to be able to share coming surpluses with our customers. to-day life and to strengthen them as employers. KLP has custom- ers and owners that prioritize solvency and a long-term approach At KLP we are very pleased that we managed to complete the in- to asset management. With good financial strength and with em- crease in reserves in regard to the new mortality table for collective ployees who are both competent and committed, we are in the best pension insurance (K2013) by the end of last year. After the end of position to continue achieving good results for our customers and the reporting period, the Financial Supervisory Authority of Norway owners into the future. has sent a letter to all life companies and pension funds headed: Guidelines for increasing reserves and allocation of surpluses to We aim to be a stable and predictable partner, regardless of changes cover increased reserves in group pension insurance. in regulatory frameworks and short-term market changes. KLP’s customers and owners should feel confident that, going forward, This letter provides clarification, inter alia that within a period KLP will continue to deliver good returns, have low costs and pro- of seven years KLP must transfer assets from the Company to vide good service. its public sector occupational pension customers to meet the re- quirement that the Company covers 20 per cent of the increased reserve requirement. Transfers to KLP During 2013 fourteen local authorities and five enterprises with a SVERRE THORNES total of over NOK 6 billion in premium reserves transferred to KLP.