KLP annual report 2015 Open, clear, responsible, commited Geir Teigo, Operations manager, KLP Eiendom Annual report 2015 Group Chief Executive Officer’s preface 4 GROUP ACCOUNTS Development the last five years 7 Income statement 75 Balance sheet 76 Growth and profitability 9 Statement of changes in owners equity 78 Important events in i 2015 10 In 2015 KLP hosted an internal photo contest where the staff were Statement of cash flows 79 History 1949-2016 12 to visualize one of KLP’s values: Open, Clear, Responsible and Notes Group 80 Committed, or "For the days to come". The pension system 13 Olav Storm, photographer, was head of the jury. What KLP offers 14 NON-FINANCIAL ACCOUNTS This is KLP 16 Non-financial Accounts at We present some of the contributions in this annual report. Group senior management 30 year-end 31 December 136 Notes 137 Materiality and vulnerability analysis 32 Audit report 141 Asset management at KLP 35 Employee accounting 37 ACCOUNTS KLP Risk management and internal control 38 Income statement 144 Balance sheet 146 Pensions and life insurance 40 Statement of changes in owners equity 149 Statement of cash flows 150 Non-life insuranse 42 Notes KLP 151 Asset management 44 Property 46 AUDIT REPORT 218 Banking 48 Declarations 220 Norwegian Code of Practice for KLP Boards of Directors 225 Corporate Governance (NUES) 52 Elected representatives 227 Annual report of the Board of Directors for 2015 56 The Board of Directors in KLP 70 PREFACE 5 A steady course 2015 was another exciting year. KLP delivered good results in turbulent financial markets. We have kept costs down even as the breadth of our services grows. And we have committed ourselves to effective processes and good customer communication. 2015 was a nerve-wracking year for anyone with investments demand more of us as a company. At the same time, we need in the financial markets. This year was also proof that KLP is to adapt to new reforms and changing regulations. That is equipped to deal with the fluctuations even when things are why we have implemented processes to enable us to handle most unsettled. We delivered good results, and we are well customers and members more effectively without increasing prepared for the possibility of tough times. Value-adjusted and our costs. Throughout 2015, we worked systematically on book returns for 2015 closed at 4.0 and 3.6 per cent respec- efficiency improvement projects right across the Group, and tively, and the Group had total assets of NOK 543 billion at the we are seeing great effects: in particular, we have signifi- end of the year. cantly reduced perceived processing times for customers. We are also working hard on digitisation, to meet our customers’ Low interest rates - a challenge expectations for beneficial self-service solutions and user- KLP manages around NOK 425 billion for existing and future friendliness. pensioners. We have to ensure that our 900,000 pensioners and members get the pension they are entitled to. At the same Better information time, we have to provide a guaranteed return to our owners. We aim to get better at writing in a language and style which are easier for most people to understand. We have involved Weak economic growth prospects and low interest rates create all our staff in a language project to ensure that all commu- headaches for anyone managing money – and we are also see- nication that comes out of KLP is simple, clear, relevant and ing higher risk premiums on debt instruments, unsettled stock based around what our customers need to know. Good work markets and lower raw material prices. Against this backdrop, it has already brought promising results. We will continue our is important to have sufficient solvency to withstand future mar- effort in this field. ket fluctuations. That is why we have chosen to strengthen our financial buffers to be best prepared to face challenging markets. A steady course Nobody knows what the future holds, but many people would It matters how the money is managed agree that the outlook is more uncertain than it has been for a Managing large pension funds also carries great responsibility. long time. The financial markets reacts quick to negative news KLP aims to contribute to sustainable development all over the and creates strong volatility We do know, however, that KLP has For the days to come world, and signed the UN Global Compact as early as 2003. By a solid foundation for future growth. We will continue to build Gisle Hunvik, Senior consultant, IT doing so, KLP undertakes to observe the Compact’s ten prin- on this solidity and focus on smarter working, both to meet ciples, covering human rights, labour, the environment and customers’ needs for services from us and to keep costs down. anti-corruption. In 2014 we made an important decision: we withdrew from companies that earn more than 50 percent of KLP aims to be a predictable partner, strengthening customers’ their income from coal. In the autumn of 2015, we lowered finances, simplifying their everyday life, helping to make them the limit to 30 percent. At the same time, we decided to invest attractive employers and contributing to a more sustainable pu- half a billion kroner in renewable power generation in emer- blic sector. That is why we are making systematic efforts to ging economies, where there is a great need for energy. We are develop products and services that we find our owners and their doing this by expanding our partnership with Norfund. employees need. This work has been going on for a long time and will continue in 2016. KLP’s owners should feel confident KLP has always been open about who is excluded from our that we will deliver competitive returns, low costs and good ser- portfolios, and why. We are open because we welcome other vice in the future too. Our goal is un- people’s views on what we do, whether they criticise us or copy changing: we aim to be the best us. In this way we hope to contribute to a more sustainable partner for the days to come, development. whatever they may bring. Effective processes and better customer service KLP has had a significant influx of new customers for public- sector occupational pension in recent years. Since 2013, a total of 86 municipalities, one county administration and 375 enterprises have chosen us as their new provider. More and more members and an increasing number of pensioners SVERRE THORNES GROUP CEO 7 Development over the last 5 years NOK millions KLP Group 2015 2014 2013 2012 2011 Pre-tax income 5 128 1 189 1 157 997 653 Total assets 543 262 490 894 399 257 331 783 291 784 Owners' equity 23 260 17 558 15 268 13 630 12 064 Capital adequacy ratio 11,5 % 9.2 % 10.0 % 10.3 % 10.9 % Number of employees 939 899 856 808 775 Kommunal Landspensjonskasse 2015 2014 2013 2012 2011 Pre-tax income 4 858 959 950 772 705 Premium income (without premium reserves transferred in) 29 541 32 280 24 928 27 477 21 641 Net transfers in/out of premium reserves and other funds 10 182 28 677 6 178 1 484 -156 Income to customers 20 650 6 959 10 420 5 455 3 594 of which supplementary reserves 3 122 3 568 - - 2 143 of which to Premium Fund 5 138 3 391 5 891 2 365 1 451 Insurance funds 412 363 378 602 312 127 275 860 243 439 Total assets 457 453 415 030 339 592 299 708 261 746 Owners' equity 23 204 17 454 15 089 13 472 11 941 Solvency capital 87 086 73 909 46 897 44 132 36 190 Solvency capital measured against insurance funds with interest guarantee 23,5 % 21.6 % 16.2 % 17.4 % 16.0 % Capital adequacy ratio 12,0 % 9.5 % 10.3 % 10.6 % 11.5 % Solvency margin ratio 279,5 % 228.1 % 228.8 % 233.2 % 243.5 % Return on the common portfolio: - book return 3.6 % 4.3 % 6.4 % 5.0 % 4.5 % - value-adjusted return 4.0 % 6.9 % 6.7 % 6.7 % 3.2 % - value-adjusted return including surplus value on assets recognize at amortized cost 2.8 % 9.5 % 6.4 % 7.5 % 3.9 % Return investment options portfolio 4.0 % 6.7 % 8.8 % 7.5 % 2.2 % Insurance-related administration costs measured against average customer funds 0.25 % 0.23 % 0.28 % 0.32 % 0.34 % Number of premium-paying members 435 363 418 133 367 967 316 298 309 333 Commited Number of pensioners 240 821 230 241 197 837 182 562 172 272 Number of employees 533 524 502 477 460 Lene Inngjerdingen, Special Consultant, Contract Management and operation KLP Bedriftspensjon AS 2015 2014 2013 2012 2011 Pre-tax income -24 -23 -22 -25 -24 Premium income (without premium reserves transferred in) 336 261 188 126 93 Net inward/outward transfer of premium reserves 129 140 189 216 182 Income to customers 22 24 7 15 16 Total assets 2 943 2 270 1 792 1 317 904 Capital adequacy ratio 35.4 % 12.7 % 14.7 % 9.6 % 13.9 % KLP Skadeforsikring AS 2015 2014 2013 2012 2011 Pre-tax income 173 304 190 105 25 Annual premium 1 113 921 832 750 650 Combined ratio 98.8 % 98.1 % 103.7 % 107.8 % 118.1 % Capital adequacy ratio 48.9 % 44.0 % 40.0 % 34.1 % 31.8 % KLP Banken Group 2015 2014 2013 2012 2011 Pre-tax income 50 29 87 84 -62 Deposits 7 426 6 251 4 407 2 946 1 840 Lending 26 359 24 946 21 317 21 875 28 416 Capital adequacy ratio 17.6 % 16.9 % 19.6 % 20.1 % 14.4 % KLP Kapitalforvaltning AS 2015 2014 2013 2012 2011 Pre-tax income 46 56 33 21 26 Assets for management in total 398 471 370 840 287 077 252 037 215 915 Of which assets for management from external customers 44 797 36 130 28 171 21 153 13 650 8 ANNUAL REPORT 2015 9 Growth and profitability PEOPLE WITH ACCRUING PUBLIC SECTOR OCCUPATIONAL NET TRANSFERS IN TO LIFE INSURANCE NOK million 28 816 1 400 000 1 342 423 30 000 1 232 322 1 062 401 1 200 000 995 340 25 000 947 713 911 875 1 000 000 878