KLP INSURANCE – ANNUAL REPORT 2004 KLP INSURANCE – ANNUAL REPORT KLP Insurance Tel: +47 22 03 35 00 Karl Johans gate 41 B Fax: +47 22 03 36 00 P.O. Box 1733 Vika [email protected] N-0121 Oslo www.klp.no Annual Report 2004 EVENTS IN 2004 JANUARY 2004 APRIL 2004 Tomorrow’s pensions Annual General Meeting in KLP KLP’s January Conference “Public pensions at a crossroads” KLP holds its AGM on 22 April. is held in cooperation with the trade organisation Fagfor- bundet. The theme of the year is the Modernised National Subordinated loan gives greater freedom of action Insurance Scheme and the effect this will have on public KLP takes up a subordinated loan for around NOK 1 billion, sector service pensions. which is included in the company’s capital base. The loan strengthens and improves the company’s capital structure. Modernised National Insurance Scheme The Pension Commission presents its report on the Mod- MAY 2004 ernised National Insurance Scheme. The report looks at the challenges we face to secure future pensions. Important ruling for the non-life company KLP Skadeforsikring is awarded the right of recourse after a KLP suggestions on ethical investments school fire in the county of Vestfold. It is the first time that KLP Forsikring submits suggestions to the Ministry of Finance KLP Skadeforsikring seeks recourse in such a matter. on ethical investments for the Petroleum Fund. Purchase of efficient office properties FEBRUARY 2004 KLP Eiendom invests in office premises at Helsfyr with a total value of NOK 370 million. ECON/FAFO report on KLP’s choice of form of incorporation ECON and FAFO deliver a fact-based examination of the pre- JUNE 2004 misses and arguments for various equity capital models for KLP. The report concludes that there is no clear recommen- Ethical requirements produce results dation for the choice of company model. The KLP list of excluded companies is published for the fourth time. Active dialogue with both Nomura Securities and Nestlé Police station in Trondheim opened have contributed to improvements which make KLP now Official opening of the new police station, which is built by choose to include these companies in its investment universe KLP Eiendom Trondheim. again. Ownership meetings in KLP Three women at the top KLP conducts ownership meetings for municipalities and compa- At the company’s Supervisory Board meeting, three women nies. A central theme is KLP’s plans for conversion to a limited are elected to the top positions. company. 138 delegates are elected to the General Meeting. JULY 2004 MARCH 2004 Conversion of IT systems completed Strong credit rating for KLP KLP finishes the conversion of its IT sys- The international rating agency Standard & Poor’s gives KLP tems. The conversion, which is probably the high rating of “A- with stable outlook”. The rating means Norway’s largest integration project in life that KLP is seen as having a strong financial position, but may insurance, is undertaken to adapt the com- be affected by any unfavourable development in the markets pany’s services to a new range of products. in which the company operates. The new system solution provides greater product flexibility and a better service to Survey of disability pensions customers. KLP establishes a cooperation project with NAVO and RHF/HF to survey and analyse causes and trends in relation to dis- AUGUST 2004 ability occurence in health companies. KLP invests in Fornebu KLP supports the Blue Cross KLP Eiendom buys Fornebu Park Hotel. The hotel has KLP draws up a cooperation agreement with the Blue Cross. a very good location in an area where strong growth The process is connected to the cooperation concerning pre- is expected in future. ventative work in general and the “Children in the Danger Zone” project in particular. 2 CONTENTS SEPTEMBER 2004 2 Events in 2004 4 Key figures and commentary Board confirms demutualisation decision 7 Foreword from the CEO KLP’s Board of Directors concludes that it is in the com- 8 This is KLP Insurance pany’s best interests to demutualise it in accordance with 10 KLP's governance structure the customer model. Report and accounts OCTOBER 2004 12 Report for 2004 21 Profit and loss account KLP Government adopts Revised Transfer Agreement 22 Balance KLP The Government adopts the revised Transfer Agreement in 24 Consolidated accounts - profit and loss account line with the proposal from the Ministry of Modernisation. 25 Consolidated accounts - balance sheet All employers affiliated to the Transfer Agreement outside 26 Cash flow analysis KLP and group the statutory schemes must participate in an insurance 28 Auditors report scheme that will apply from 1 January 2004. The Govern- 29 Declarations ment’s decision means that all life insurance companies are treated equally in relation to the Transfer Agreement. KLP Insurance This means that customers’ relationship to the Transfer 31 Our social responsibility - for days to come Agreement is independent of KLP’s form of incorporation. 32 Membership trends at KLP KLP has always been closely involved in the work on the 33 Non-life insurance agreement. 34 KLP's Fund and Asset Management 35 KLP Eiendom AS Storting adopts new life insurance act The Storting (Norwegian Parliament) adopts the Finance 37 Notes Committee’s recommendation for amendments to the Insurance Business Act. This means the establishment of a 79 Representatives, management and contact sharper distinction between the insureds’ and the com- details KLP Insurance pany’s assets, a clearer sharing of risk between customer and company, and clearer pricing of each part of a product and each service. The new law is expected to come into force in 2006/07. NOVEMBER 2004 KLP publishes list of excluded companies KLP updates its list of companies that are excluded from its investment portfolio. There are now 15 companies on the list, and for the first time two companies are excluded from KLP’s investment portfolio on the grounds of corruption. DECEMBER 2004 Customers loyal to KLP Text and concept: KLP Forsikring In all, 30 municipalities give provisional notice of transfer Pictures front cover: from KLP by 1 October 2004. Of these, 22 choose to remain Mother and daughter © Bjørn Rørslett / NN / Samfoto with the company and, in addition, one returns from a The oak © Svein Grønvold / NN / Samfoto competing life-insurance company. Old hands © Jens Sølvberg / Samfoto Cog wheel © Mikael Andersson / Mira / Samfoto Government follows up Pensions Commission Portraits: Bjørn Halfdansen / Terje Skåre The Government presents its Report to the Storting Translation: Translatørbyrået Styren “Pensjonsreform – trygghet for pensjonene” (Pension Designs and graphic production: Saturn reform - security for pensions). Most of the Commission’s Print run: 4000 Norwegian and 1000 English recommendations are kept in the Report to the Storting. April 2005 KEY FIGURES AND COMMENTARY GOOD RESULTS FOR KLP Kommunal Landspensjonskasse (KLP) achieved very good results in 2004. The company had net financial income of NOK 8.8 b in 2004, compared with just over NOK 9 b the year before. The profit for 2004 before distribution between the company and customers was NOK 3.2 b. This gives the company a value-adjusted return of 6.9 per cent (booked 6.0 per cent). Including value-adjustments on the hold-to-maturity portfolio, the return on invested cap- ital was 7.7 per cent. Ordinary premiums amounted to NOK 8.9 b and the adjustment pre- mium for the pay and national insurance settlement was NOK 4.8 b. Combined premium income for 2004 amounted to NOK 13.6 b, around NOK 1 b more than the year before. The healthy profit for the year was partly used to strengthen the company’s finances through a transfer of NOK 1.1 b to supplementary reserves. At the same time KLP booked around NOK 1.9 b to the customers’ premium reserve. The profit for the year of NOK 143 m was transferred to the company’s equity fund. ASSET MANAGEMENT, FINANCIAL STRENGTH AND RATING KLP’s total assets grew in 2004 by nearly NOK 15 b to NOK 142 b. Almost 40 per cent of the financial assets are invested in bonds held to maturity. This will ensure stable earnings even in the years to come in spite of low interest rates. The proportion of equities increased from 8.5 per cent to 13.2 per cent at the end of the year (16.2 per cent including derivatives). KLP’s overall buffer capital was strengthened by almost NOK 3 b to NOK 8.4 b at the end of the year. In addition the company has surplus values of NOK 5.2 b in its portfolio of bonds held to maturity. The company’s solvency ratio increased during the year from 158 per cent to 175 per cent at the year-end. Owing to the increased proportion of equities in relation to bonds and loans combined with an increased balance sheet, the capital adequacy fell from 16.2 per cent at the beginning of the year to 14.0 per cent at the end of the year. The capital adequacy ratio is still well above the minimum requirement of 8 per cent. In 2004 KLP took up a perpetual subordinated loan and repaid a time-limited subordinated loan. The perpetual subordinated loan is recognised as core capital by the Financial Super- visory Authority of Norway. At the end of the year the company had a credit rating from Standard & Poor’s of “A- with a stable outlook”. PENSION INSURANCE Customers have great confidence in KLP. The net transfer out of premium reserves has shown a downward trend over the last three years.