KLP achieved an investment result - the return in excess of that guaranteed by the company to its customers - totalling NOK 3.4 billion during the first half of the year. Sizable fall in values characterised the first quarter, which is partly reversed in the second quarter. Book return was 1.9 per cent, which is higher than value-adjusted return of minus 1.5 per cent. It is use of financial buffers built up in good times that secures a stable positive book return.
The fall in the stock markets during the first half of the year was covered by KLP’s buffer capital, meaning that the recorded return was 1.9 per cent. This is in excess of the guaranteed return which amounts to 1.2 per cent in the same period. The value-adjusted return was -0.5%.
‘The world’s financial markets remain challenging, but we have built up our buffer capital over several years in order to ensure we are equipped for market unrest like this. Despite low returns in the financial markets, KLP still remains very robust and well-equipped to respond to any further unrest for a long time to come without our customers needing to worry,’ says CEO Sverre Thornes.
Special circumstances during the first half of the year
KLP has signed an agreement with DNB Livsforsikring to sell KLP Bedriftspensjon. With the framework for public sector pensions having been resolved, given the limited market for defined contribution pensions in the public sector, and bearing in mind the requirement for major investments in system upgrades to manage the revised framework conditions and provide customers with the best service, it is our view that the time is right to find an owner for the company who will be able to see to the best interests of our customers in future. This takeover requires regulatory approval, and final approval is expected to be granted during the third quarter of 2020. The Norwegian Competition Authority has reached a positive conclusion concerning the deal with no supplementary comments made. The Financial Supervisory Authority of Norway has to date not offered any response in the matter. KLP has recognised a loss of NOK 152 million as a result of the agreement.
KLP bought back EUR 306 million of its own subordinated debt. NOK 291 million in costs related to share premiums during the first half of the year were recognised in the accounts, but we will make significant annual savings over the course of the next 5 years.
The market situation and Covid-19
Thus far, the municipal and regional reforms have only had a moderate impact on KLP’s customer base. At the turn of the year, KLP had transfers in totalling NOK 2.9 billion and transfers out amounting to NOK 7.7 billion. The movements in the customer base at the turn of the year were related to municipal mergers between various municipalities with and without their own pension funds, resulting in some opting to close their own pension schemes and continue using KLP as their provider for the newly formed municipality.
The situation relating to the Covid-19 pandemic has had an impact on KLP. As a mutually owned company, the firm has maintain close dialogue with our customers to provide support during a difficult situation, and we have helped by reducing rates of interest on lending, increasing loan payments to municipalities and halving rent for many of our tenants for a period of three months beyond the government support scheme.
Corporate social responsibility
In June, KLP and 28 other international investors came out in opposition to increasing deforestation in Brazil in a joint letter to the Brazilian authorities. The letter calls for a halt to deforestation in the Amazon. This has led to several top-level online meetings attended by KLP.
KLP has also devoted significant attention to following up with other companies in which we are invested - during the second quarter, the company engaged in dialogue with a total of 198 companies.
The KLP list, which provides an overview of businesses that KLP excludes from its investments, was updated during the month of June. Twelve new firms were added to the list, while four companies were added back to the list.
Further reference is made to the KLP quarterly report for the second quarter, which is available at klp.no.
Key figures at the end of Q2 2020
Value-adjusted return on capital: minus 0.5 per cent
Recorded return on capital: 1.9 per cent
Income from premiums (excluding transferred reserves): NOK 14.3 billion
Pensions and other compensation paid out (excluding transferred reserves): NOK 10.2 billion
KLP Group total assets: NOK 786 billion
For more information, contact:
Chief Executive Sverre Thornes: tel. +47 977 44 007
Group Chief Financial Officer/Executive Vice President, Finance Aage Schaanning: tel. +47 905 24 312
Finance Director Oliver Siem: tel. +47 934 31 820
Information Director Sissel Bjaanæs: tel. +47 932 56 350
Terms and concepts
Recorded return
Returns on the customer funds that are allocated to the insurance customers annually. Comprises financial income from management of the customer assets in life insurance excluding the change in net unrealised added values from equity and bond investments.
Value-adjusted returns
All returns that have been achieved through management of the customer funds, including unrealised values.
Returns result
Returns on customer assets beyond the returns the insurer has guaranteed its customers.