NORWAY - Kommunal Landspensjonkasse (KLP), one of Norway's largest life insurance companies, has reported a return on capital of -1.3% for the third quarter, although its assets grew to NOK201.8bn (€22.7bn).

The company, which provides pensions to a number of Norwegian municipal authorities, reported total premium income of NOK18.9bn at the end of September, although the negative third-quarter returns meant the book and value-adjusted returns on capital for 2008 reached 0.4% and -3.2% respectively.

KLP claimed the "weak result" followed the acceleration in the stock market decline in September, in particular in Norwegian equities, although it revealed its solvency position is still "very satisfactory", with a capital adequacy of 12.6%, compared to the legal minimum requirement of 8%. 

However the quarterly report showed although the group's equity exposure is just 7.2%, and has been reduced further since the end of September, the "management of the shares in KLP's group portfolio so far this year has produced a negative return of 21.8%".

It attributed this to "strong falls in value both in Norway and internationally", as KLP's Norwegian share index fell 35% in 2008, while KLP's world index - which is currency-hedged against Norwegian kroner and SRI-adjusted - dropped 22%.

Meanwhile, the group's short-term bond portfolio returned -1.3% in the quarter, and -1.4% over the year so far, as the value of the bonds was "negatively influenced" by the failing confidence in banks and financial institutions.

Liquidity and money market instruments performed slightly better for the group with a return of 1.2% between June and September, and 3.5% over the nine-month period, while the long-term bond portfolio produced a return of 4.2%.

In addition, KLP noted: "During the quarter a loss of NOK6.9m in Lehman Brothers shares has been taken to expenses, together with a write-down of NOK162.5m on direct exposure in bonds. In addition there was an indirect exposure through international funds resulting in a value reduction of a similar magnitude."

Following the weak returns, and continued falls in the stock markets at the start of the fourth quarter, KLP confirmed it has "further reduced its risk exposure" to equities and instead has a "correspondingly large proportion of investments in long-term interest-bearing securities with a high regular return that will provide stable and good income for the future".

Sverre Thornes, group chief executive of KLP, said: "The financial crisis and weak financial markets produced a weak result for the third quarter. Developments in the financial markets so far this year have demonstrated the significance of good solvency and solid buffer capital to meet market fluctuations. KLP's investment strategy remains firm with the emphasis on predictability and the long-term."

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