Gjensidige Forsikring ASA

Quarterly Report • Jul 14, 2020

Highlights First half-year and second quarter 2020 report

In the following, the figures in brackets indicate the amount or percentage for the corresponding period in the previous year.

Year-to-date

• Profit/loss before tax expense: NOK 69.3 million (92.8)
• Operating income: NOK 207.3 million (197.2)
• Operating expenses: NOK 150.9 million (127.3)
• Operating margin: 27.22 per cent (35.46)
• Return on equity, annualised: 11.2 per cent (17.6)
• Solvency capital (SF): NOK 2,460.0 million (2,490.6)
• Solvency margin (SF): 148.3 per cent (136.8)
• Assets under management: NOK 37,131.0 million (34,167.4)

Second quarter

• Profit/loss before tax expense: NOK 33.6 million (39.4)
• Operating income: NOK 101.9 million (99.6)
• Operating expenses: NOK 76.4 million (64.3)
• Operating margin: 25.06 per cent (35.44)

Profit performance

NOK millions	Q2 2020	Q2 2019	1.1.-30.6.2020	1.1.-30.6.2019	1.1.-31.12.2019
Administration fees	38.9	37.7	77.7	75.3	152.3
Insurance income	20.1	21.4	43.2	42.8	111.4
Management income etc.	42.9	40.4	86.5	79.2	167.2
Operating expenses	(76.4)	(64.3)	(150.9)	(127.3)	(275.6)
Net operating income	25.5	35.3	56.4	69.9	155.3
Net financial income	8.1	4.1	12.9	22.8	41.5
Profit/(loss) before tax expense	33.6	39.4	69.3	92.8	196.9
Operating margin 1	25.06%	35.44%	27.22%	35.46%	36.05%

¹ Operating margin = net operating income/total income

Stable revenues but increased costs lowered profit before tax

Year-to-date development

Earnings performance

The profit before tax expense was NOK 69,3 million (92,8). The decline was due to lower net financial income and higher operating expenses.

Operating income

Total operating income amounted to NOK 207.3 million (197.2).

Administration fees and insurance income were NOK 77.7 million (75.3) and NOK 43.2 million (42.8) respectively. The growth was somewhat subdued following the loss of one large client during the first quarter.

Management income increased to NOK 86.5 million (79.2) mainly as a result of increased assets under management, compared with the same period last year. The growth in management income was somewhat subdued following decrease in assets under management towards the end of the first quarter, as a result of the financial turmoil.

Operating expenses

Operating expenses increased to NOK 150,9 million (127.3), mainly driven by increased depreciation costs following a shortened depreciation timeframe for IT-investments. Higher head counts in response to the growth in business volume also had an impact on operating expenses.

Net financial income

Net financial income, including returns on both the group policy portfolio and the corporate portfolio, amounted to NOK 12.9 million (22.8). The decline was due to non-recurring gains from divestments last year and modest returns during the first quarter following the financial turmoil.

Paid-up policy portfolio

The recognised return on the paid-up policy portfolio was 0,5 per cent (1.7). The average annual interest guarantee was 3.4 per cent.

Assets under management

Assets under management decreased by NOK 204.1 million from year end 2019. This was due to the loss of one large account and the negative development in the financial markets. Total pension assets under management amounted to NOK 37.131,0 million (34,167.4) including the group policy portfolio of NOK 7,376.1 million (6,946.2).

Solvency position

The solvency margin reported at the end of the period was 148.3 per cent, down from 151.7 per cent in the last quarter.

Development during the quarter

Earnings performance

The profit before tax expense was NOK 33.6 million (39.4). The Covid-19 pandemic had a negligible impact on the result for the quarter.

Operating income

Total operating income amounted to NOK 101.9 million (99.6).

Administration fees were NOK 38.9 million (37.7) and insurance income was NOK 20.1 million (21.4). Management income was NOK 42.9 million (40.4) due to growth in assets under management.

Operating expenses

Operating expenses were NOK 76.4 million (64.3) for the same reasons as described above.

Net financial income

Net financial income was NOK 8.1 million (4.1) as a result of good returns on real estate investments and the recovery in the financial markets.

Events after the balance sheet date

No significant events have occurred after the end of the quarter.

Outlook

Gjensidige Pensjonsforsikring AS offers occupational pension and disability pension products to individuals. The defined contributions market remains competitive but highly active, creating ample business opportunities. The results achieved over the last few years substantiate the fact that the company is well positioned to further develop its business.

Key risk and uncertainty factors

Gjensidige Pensjonsforsikring's (GPF) risks mainly include insurance, financial and operational risk. The risks are reported on a regular basis and assessed in accordance with the principles, strategies and risk thresholds defined by the board.

Insurance risk

Insurance risk can be divided as follows:

Risk of long life – lower mortality than expected Disability risk – higher disability than expected Mortality risk – higher mortality than expected

The company is exposed to mortality risk by dependents, longevity risk related to paid-up policies (with guaranteed payments for a given age or lifelong) and disability risk by occupational or individual policies. GPF has greatest exposure to disability risk, followed by exposure to longevity and mortality.

The Insurance risk is considered satisfactory and the uncertainty surrounding not reported cases (IBNR) are handled through claims reserves. By the end of 2018 required reservations for longevity set out in K2013 were completed.

The company has a reinsurance agreement with the parent company Gjensidige Forsikring ASA and external vendors, which provides a satisfactory coverage in case of major variations in incurred claims.

Financial risk

Financial risk is a collective term for several types of risks associated with financial assets. Financial risk can be divided into market risk, credit risk and liquidity risk. These risks are arising from GPF's operational and investment activities. They are managed aggregated and handled through the asset management strategy drawn up for the company.

The group portfolio has guaranteed interest rates and thus represents a financial risk. The main risk components are interest rates, credit spread and property. In spite of generally low interest rates, it is expected that the company will succeed in fulfilling the interest rate guarantees the next few years through

expected returns and use of additional reserves. In the longer term, it is more challenging.

The company portfolio is held in the form of bank deposits in Norwegian kroner and investments in money market funds. The risk of losses on receivables is considered to be minor.

Operating risk

The company continuously assesses its own risk situation in accordance with approved procedures for internal control. As part of the annual planning and budgeting a risk assessment is drawn up where the main risks, both long- and short term are described together with necessary measures. This is adopted by the board and followed up. So far, the company has not been exposed to unwanted events that have had significant financial consequences. This development is expected to continue, and the operational risk is considered to be moderate.

Covid-19

The outbreak of the corona virus, Covid-19, and the measures taken by the authorities to reduce the infection rate have had considerable financial consequences and triggered significant turmoil in the financial markets.

The Covid-19 pandemic outbreak has had a limited impact on the pension operations so far. The business is mainly exposed to the effects of the outbreak through reductions in assets under management, increase in disability cases and dismissals and bankruptcies. Changes in assets have an immediate impact on revenues. As the financial markets recovered during the second quarter the amount of assets are nearly at the same level as before the outbreak. Effects of increased disability cases are usually visible after one year due to a comprehensive assessment process. Layoffs and bankruptcies do not have any substantial immediate impacts as the assets remain invested. In the longer run both disability and layoffs/bankruptcies may have negative impacts on the company's earnings.

Oslo, 13 July 2020

The Board of Gjensidige Pensjonsforsikring AS

Income statement

NOK millions	Q2 2020	Q2 2019	1.1.-30.6.2020	1.1.-30.6.2019	1.1.-31.12.2019
Technical account
Gross written premium	905.8	929.2	1,942.1	1,912.3	3,938.9
Ceded reinsurance premiums	(16.5)	(15.5)	(42.2)	(33.7)	(65.4)
Transfer of premium reserves from other insurance	396.2	(11.3)	833.2	916.9	1,684.1
companies/pension funds
Total premiums for own account	1,285.4	902.4	2,733.1	2,795.6	5,557.6
Income from investments in associates	(6.5)	8.0	22.9	24.9	73.7
Interest income and dividends etc. from financial assets	40.3	40.8	83.0	81.2	170.4
Unrealised gains and losses on investments	12.6	4.5	(19.3)	16.2	17.7
Realised gains and losses on investments	0.1	1.5	(48.8)	15.1	18.3
Total net income from investments in the group policy portfolio	46.4	54.8	37.9	137.5	280.2
Income from investments in associates	(10.3)	9.4	29.4	22.4	66.2
Interest income and dividends etc. from financial assets			19.5	19.1	19.1
Unrealised gains and losses on investments	2,626.4	197.8	(1,512.4)	1,545.7	2,709.9
Realised gains and losses on investments	156.3	344.2	587.7	652.2	989.4
Total net income from investments in the investment portfolio	2,772.4	551.4	(875.8)	2,239.5	3,784.7
Other insurance-related income	42.9	40.4	86.5	79.2	167.2
Gross claims paid	(156.1)	(155.0)	(311.8)	(303.1)	(635.5)
- Paid claims, reinsurers' share	6.3	17.2	5.9	19.2	19.2
Transfer of premium reserve and statutory reserves to other	(240.2)	(837.1)	(1,703.9)	(1,306.7)	(2,143.7)
insurance companies/pension funds Total claims	(390.0)	(974.9)	(2,009.9)	(1,590.6)	(2,760.0)
Change in premium reserve, gross	(119.3)	(125.1)	(231.6)	(303.6)	(513.5)
Change in premium reserves, reinsurers' share	13.2	14.6	35.6	29.9	63.1
Change in statutory reserves	(0.1)	0.2	(0.2)	(1.1)	(42.5)
Change in value adjustment fund	(1.1)	(4.2)	20.2	(13.6)	(15.5)
Change in premium fund, deposit fund and the pension surplus fund			1.5	1.6	1.5
Total changes in reserves for the group policy portfolio	(107.3)	(114.4)	(174.5)	(286.9)	(506.9)
Change in premium reserve	(3,668.8)	(1,081.4)	(981.9)	(4,201.6)	(7,455.2)
Change in other provisions	117.5	739.4	1,355.2	1,080.3	1,426.5
Total changes in reserves for investment portfolio	(3,551.3)	(342.1)	373.3	(3,121.3)	(6,028.7)
Profit on investment result	1.4	(2.8)	41.6	(13.7)	(3.9)
Risk result allocated to insurance contracts	4.1	(11.9)	5.5	(21.2)	(22.1)
Total funds allocated to the insurance contracts	5.5	(14.6)	47.1	(34.9)	(26.0)
Management expenses	(2.2)	(3.5)	(4.2)	(7.4)	(14.7)
Sales expenses	(4.7)	(5.8)	(10.5)	(10.6)	(19.7)
Insurance-related administration expenses (incl. commissions for	(69.5)	(55.0)	(136.2)	(109.2)	(241.2)
reinsurance received) Total insurance-related operating expenses	(76.4)	(64.3)	(150.9)	(127.3)	(275.6)
Profit/(loss) of technical account	27.7	38.7	66.6	90.7	192.6
Interest income and dividends etc. from financial assets	1.7	1.3	11.1	2.4	11.1
Unrealised gains and losses on investments	4.5	1.8	(4.4)	3.8	3.2
Realised gains and losses on investments	2.9	1.1	3.0	2.3	3.4
Total net income from investments in the company portfolio	9.2	4.1	9.8	8.5	17.7
Other expenses	(3.3)	(3.3)	(7.0)	(6.5)	(13.4)
Profit/(loss) on non-technical account	5.9	0.8	2.7	2.0	4.3
Profit/(loss) before tax expense	33.6	39.4	69.3	92.8	196.9
Tax expense	(8.4)	(9.9)	(17.3)	(23.2)	(48.6)
Profit/(loss) before other comprehensive income	25.2	29.6	52.0	69.6	148.3
Remeasurement of the net defined benefit liability/asset					(0.8)
Tax on items that are not reclassified to profit or loss					0.2
Total items that are not reclassified to profit or loss					(0.6)
Total comprehensive income	25.2	29.6	52.0	69.6	147.7

Statement of financial position

NOK millions	30.6.2020	30.6.2019	31.12.2019
Assets
Other intangible assets	32.2	58.6	48.1
Total intangible assets	32.2	58.6	48.1
Buildings and other real estate
Right-of-use property	8.9	26.3	10.3
Financial assets at amortised cost
Loans and receivables	252.1	233.6	225.9
Financial assets measured at fair-value
Shares and similar interests	9.3	18.8	6.3
Bonds and other securities with fixed income	706.8	642.0	751.5
Cash and cash equivalents		1.4
Total financial assets	977.1	922.0	993.9
Receivables related to direct operations	16.5	5.4	7.8
Other receivables	129.2	127.2	232.3
Total receivables	145.7	132.6	240.1
Cash and cash equivalents	304.7	207.2	118.3
Pension assets	2.4	1.4	2.4
Total other assets	307.1	208.6	120.7
Prepaid expenses and earned, not received income	1.6	13.8	1.2
Total assets in the company portfolio	1,463.7	1,335.6	1,404.0
Subsidiaries and associates
Shares in associates	969.8	922.2	958.2
Financial assets measured at amortised cost
Loans and receivables	5,284.9	5,016.0	5,020.4
Financial assets measured at fair-value
Bonds and other securities with fixed income	595.9	560.6	824.0
Cash and cash equivalents	115.2	15.4	23.9
Total investments in the group policy portfolio	6,965.9	6,516.4	6,826.5
Reinsurers' share of insurance-related liabilities in general insurance, gross	489.8	415.8	454.2
Subsidiaries and associates
Shares in associates	1,525.5	828.1	1,290.3
Financial assets measured at fair value
Shares and similar interests	24,090.5	23,341.4	24,502.5
Bonds and other securities with fixed income	4,079.1	2,965.6	4,196.5
Receivables in the investment option portfolio	31.0	45.8	73.3
Cash and cash equivalents	28.7	40.4	68.2
Total investments in the investment option portfolio	29,754.9	27,221.3	30,130.9
Total assets in the customer portfolio	37,210.6	34,153.5	37,411.6
Total assets	38,674.2	35,489.1	38,815.6

NOK millions	30.6.2020	30.6.2019	31.12.2019
Equity and liabilities
Paid in capital
Share capital	39.0	39.0	39.0
Other paid-in capital	82.6	82.1	82.3
Total paid-in equity	121.6	121.1	121.3
Retained equity
Risk equalisation fund	38.0	15.3	38.0
Other earned equity	795.0	687.6	743.0
Total earned equity	832.9	702.8	780.9
Total equity	954.5	823.9	902.2
Subordinated debt	299.9	299.8	299.8
Premium reserves	7,136.6	6,648.0	6,896.1
Additional statutory reserves	284.2	242.6	284.0
Market value adjustment reserves	1.1	19.4	21.2
Premium fund, deposit fund and the pension surplus fund	1.4	1.3	2.9
Unallocated surplus fond	(47.1)	34.9
Total insurance obligations in life insurance - the group policy portfolio	7,376.1	6,946.2	7,204.2
Premium reserves	29,484.7	26,926.6	29,843.5
Premium fund, deposit fund and the pension surplus fund	270.2	294.7	287.4
Total insurance obligations in life insurance - the investment option portfolio	29,754.9	27,221.3	30,130.9
Pension liabilities etc.	2.5	2.5	2.5
Tax liabilities
Period tax liabilities	62.1	19.9	57.5
Provisions for deferred taxes	39.4	48.8	39.4
Total provisions for liabilities	104.0	71.2	99.5
Liabilities related to direct insurance	53.6	29.9	52.7
Liabilities related to reinsurance	54.3	21.8	32.9
Other liabilities	55.6	58.3	76.9
Total liabilities	163.5	110.0	162.5
Accrued expenses and deferred income	21.4	16.8	16.5
Total equity and liabilities	38,674.2	35,489.1	38,815.6

Statement of changes in equity

			Remeasure ment of the
			net defined	Risk
		Other paid in	benefit	equalisation	Other earned
NOK millions	Share capital	capital	liab./asset	fund	equity	Total equity
Equity as at 31.12.2018	39.0	81.8	(0.4)	15.3	618.4	754.0
1.1.-31.12.2019
Comprehensive income
Profit/(loss) before comprehensive income					148.3	148.3
Total components of other comprehensive income			(0.6)			(0.6)
Total comprehensive income			(0.6)		148.3	147.7
Risk equalisation fund				22.7	(22.7)
Transactions with owners of the company
Equity-settled share-based payment transactions		0.5				0.5
Equity as at 31.12.2019	39.0	82.3	(1.0)	38.0	743.9	902.2
1.1.-30.6.2020
Comprehensive income
Profit/(loss) before comprehensive income					52.0	52.0
Total comprehensive income					52.0	52.0
Transactions with owners of the company
Equity-settled share-based payment transactions		0.3				0.3
Equity as at 30.6.2020	39.0	82.6	(1.0)	38.0	795.9	954.5
1.1.-30.6.2019
Comprehensive income
Profit/(loss) before comprehensive income					69.6	69.6
Total comprehensive income					69.6	69.6
Transactions with owners of the company
Equity-settled share-based payment transactions		0.3				0.3
Equity as at 30.6.2019	39.0	82.1	(0.4)	15.3	688.0	823.9

Statement of cash flows

NOK millions	1.1.-30.6.2020	1.1.-30.6.2019	1.1.-31.12.2019
Cash flow from operating activities
Premiums paid, net of reinsurance	2,789.0	2,430.8	4,927.2
Claims paid, net of reinsurance	(306.0)	(283.9)	(616.3)
Net receipts/payments of premium reserve transfers	(1,622.5)	(1,306.7)	(2,143.7)
Net receipts/payments from financial assets	(465.6)	(697.9)	(1,895.7)
Operating expenses paid, including commissions	(141.1)	(100.9)	(261.3)
Taxes paid	(6.4)	(15.8)	(12.5)
Net cash flow from operating activities	259.1	25.7	(2.4)
Cash flow from investing activities
Net receipts/payments on sale/acquisition of owner-occupied property, plant and equipment	(0.8)	(9.6)	(27.1)
Dividend between Group companies		(100.0)	(100.0)
Net cash flow from investing activities	(0.8)	(109.6)	(127.1)
Cash flow from financing activities
Net receipts/payments on subordinated debt	(7.0)	(6.4)	(13.3)
Repayment of lease liabilities	(1.3)	(1.2)	(2.4)
Payment of interest related to lease liabilities	(0.1)	(0.4)	(0.7)
Net cash flow from financing activities	(8.4)	(8.1)	(16.4)
Net cash flow	238.2	(92.0)	(145.9)
Cash and cash equivalents at the start of the period	210.4	356.3	356.3
Cash and cash equivalents at the end of the period	448.6	264.3	210.4
Net cash flow	238.2	(92.0)	(145.9)
Specification of cash and cash equivalents
Cash and deposits with credit institutions	448.6	264.3	210.4
Total cash and cash equivalents	448.6	264.3	210.4

Notes

1. Accounting policies

The financial statements as of the second quarter of 2020, concluded on 30 June 2020, comprise Gjensidige Pensjonsforsikring AS (GPF) and associated companies. Except of the changes described below, the accounting policies applied in the interim report is the same as those used in the annual report for 2019.

The financial statements as of the second quarter of 2020 have been prepared in accordance with the Norwegian Accounting Act and Norwegian Financial Reporting Regulations for Insurance Companies (FOR 2015-12-12-1824). The interim report does not include all the information required in a complete annual report and should be read in conjunction with the annual report for 2019.

New standards and interpretations not yet adopted

A number of new standards, changes to standards and interpretations have been issued for financial years beginning after 1 January 2020. They have not been applied when preparing these consolidated financial statements. Those that may be relevant to GPF are mentioned below. GPF does not plan early implementation of these standards.

IFRS 9 Financial instruments (2014) in the insurance operations

IFRS 9 addresses the accounting for financial instruments and is effective for annual periods beginning on or after 1 January 2018. The standard introduces new requirements for the classification and measurement of financial assets, including a new expected loss model for the recognition of impairment losses, and changed requirements for hedge accounting.

IFRS 9 contains three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income, and fair value through profit or loss. Financial assets will be classified either at amortised cost, at fair value through other comprehensive income, or at fair value through profit or loss, depending on how they are managed and which contractual cash flow properties they have. IFRS 9 introduces a new requirement in connection with financial liabilities earmarked at fair value: where changes in fair value that can be attributed to the liabilities' credit risk are presented in other comprehensive income rather than over profit or loss.

Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (2016) The amendments to IFRS 4 permit entities that predominantly undertake insurance activities the option to defer the effective date of IFRS 9 until 1 January 2023. The effect of such a deferral is that the entities concerned may continue to report under the existing standard, IAS 39 Financial Instruments. In addition, the insurance sector of a financial conglomerate is allowed to defer the application of IFRS 9 until 1 January 2023, where all of the following conditions are met:

• no financial instruments are transferred between the insurance sector and any other sector of the financial conglomerate other than financial instruments that are measured at fair value with changes in fair value recognised through the profit of loss account by both sectors involved in such transfers
• the financial conglomerate states in the consolidated financial statements which insurance entities in the group are applying IAS 39
• disclosures requested by IFRS 7 are provided separately for the insurance sector applying IAS 39 and for the rest of the group applying IFRS 9

GPF is an entity that predominantly undertake insurance activities and has therefore decided to make use of this exception.

IFRS 17 Insurance Contracts (2017)

IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued. IFRS 17 is a complex standard that includes some fundamental differences to current accounting for liability measurement and profit recognition. Insurance contracts will be recognised at a risk-adjusted present value of the future cash flows plus an amount representing the unearned profit in the group of contracts (the contractual service margin). If a group of contracts is or become loss-making, the loss will be recognised immediately. Insurance revenue, insurance service expenses and insurance finance income or expenses will be presented separately. IFRS 17 is effective from 1 January 2023. The standard is expected to have an effect on the group's financial statements, significantly changing the measurement and presentation of income and expenses.

Based on our preliminary assessments and on the basis of current operations, other amendments to standards and interpretation statements will not have a significant effect.

The preparation of interim accounts involves the application of assessments, estimates and assumptions that affect the use of accounting policies and the amounts recognised for assets and liabilities, revenues and expenses. The actual results may deviate from these estimates. The most material assessments involved in applying the accounting policies and the most important sources of uncertainty in the estimates are the same in connection with preparing the interim report as in the annual report for 2019.

All amounts are shown in NOK millions unless otherwise indicated. Due to rounding-off differences, figures and percentages may not exactly add up to the exact total figures.

A complete or limited audit of the interim report has not been carried out.

2. Financial assets and liabilities

Fair value

Financial assets and liabilities measured at fair value are carried at the amount each asset/liability can be settled to in an orderly transaction between market participants at the measurements date at the prevailing market conditions.

Different valuation techniques and methods are used to estimate fair value depending on the type of financial instruments and to which extent they are traded in active markets. Instruments are classified in their entirety in one of three valuation levels in a hierarchy on the basis of the lowest level of input that is significant to the fair value measurement in its entirety.

The different valuation levels and which financial assets/liabilities that are included in the respective levels are accounted for below.

Quoted prices in active markets

Quoted prices in active markets are considered the best estimate of an asset/liability's fair value. A financial asset/liability is considered valued based on quoted prices in active markets if fair value is estimated based on easily and regularly available prices and these prices represent actual and regularly occurring transactions at arm's length principle. Financial assets/liabilities valued based on quoted prices in active markets are classified as level one in the valuation hierarchy.

The following financial assets are classified as level one in the valuation hierarchy

• Listed shares
• Norwegian government/government backed bonds and other fixed income securities
• Exchange traded funds

Valuation based on observable market data

When quoted prices in active markets are not available, the fair value of financial assets/ liabilities is preferably estimated on the basis of valuation techniques based on observable market data.

A financial asset/liability is considered valued based on observable market data if fair value is estimated with reference to prices that are not quoted, but are observable either directly (as prices) or indirectly (derived from prices).

The following financial assets/liabilities are classified as level two in the valuation hierarchy

• Currency futures, equity options, forward rate agreements and currency swaps, in which fair value is derived from the value of underlying instruments. These derivatives are valued using common valuation techniques for derivatives (option pricing models etc.).
• Equity funds, bond funds, hedge funds and combination funds, in which fair value is estimated based on the fair value of the underlying investments of the funds.
• Bonds, certificates or index bonds that are unlisted, or that are listed but where transactions are not occurring regularly. The unlisted instruments in this category are valued based on observable yield curves and estimated credit spreads where applicable.
• Interest-bearing liabilities (banking activities) measured at fair value. These liabilities are valued based on observable credit spreads.
• Listed subordinated notes where transactions are not occurring regularly.

Valuation based on non-observable market data When neither quoted prices in active markets nor observable market data is available, the fair value of financial assets/liabilities is estimated based on valuation techniques which are based on non-observable market data.

A financial asset/liability is considered valued based on nonobservable market data if fair value is estimated without being based on quoted prices in active markets or observable market data. Financial assets/liabilities valued based on non-observable market data are classified as level three in the valuation hierarchy.

The only financial assets classified as level three in the valuation hierarchy are share in Norsk Pensjon.

Gjensidige Pensjonsforsikring AS

NOK millions	Carrying amount as at 30.6.2020	Fair value as at 30.6.2020	Carrying amount as at 30.6.2019	Fair value as at 30.6.2019
Financial assets
Financial assets at fair value through profit or loss, designated upon initial recognition
Shares and similar interests	9.3	9.3	18.8	18.8
Bonds and other fixed income securities	1,302.7	1,302.7	1,202.6	1,202.6
Shares and similar interests in life insurance with investment options	24,090.5	24,090.5	23,341.4	23,341.4
Bonds and other fixed income securities in life insurance with investment options	4,079.1	4,519.1	2,965.6	2,965.6
Loans and receivables
Bonds and other fixed income securities classified as loans and receivables	5,537.0	6,014.2	5,249.6	5,438.1
Receivables related to direct operations and reinsurance	47.5	47.5	53.4	53.4
Other receivables	129.2	129.2	127.2	127.2
Cash and cash equivalents	448.6	448.6	264.3	264.3
Total financial assets	35,644.0	36,561.2	33,222.9	33,411.4
Financial liabilities
Financial liabilities at amortised cost
Subordinated debt	299.9	304.0	299.8	303.5
Other liabilities	55.6	45.3	58.3	58.3
Liabilities related to direct insurance and reinsurance	107.9	107.9	51.7	51.7
Total financial liabilities	463.4	457.2	409.8	413.5
Gain/(loss) not recognised in profit or loss		473.0		184.8

Valuation hierarchy 2020

The table shows a valuation hierarchy where financial assets/liabilities are divided into three levels based on the method of valuation.

	Level 1	Level 2	Level 3
		Valuation	Valuation
		techniques	techniques
	Quoted prices	based on	based on non
	in active	observable	observable
NOK millions	markets	market data	market data	Total
Financial assets
Financial assets at fair value through profit or loss, designated upon initial recognition
Shares and similar interests		9.1	0.2	9.3
Bonds and other fixed income securities		1,302.7		1,302.7
Shares and similar interests in life insurance with investment options		24,069.9		24,069.9
Bonds and other fixed income securities in life insurance with investment options		4,079.1		4,519.1
Financial assets at amortised cost
Bonds and other fixed income securities classified as loans and receivables		6,014.2		6,014.2
Financial liabilities at amortised cost
Subordinated debt		304.0		304.0

Investments in funds have been reclassified from level 1 to level 2 in the valuation hierarchy from 4Q2019

Valuation hierarchy 2019

The table shows a valuation hierarchy where financial assets/liabilities are divided into three levels based on the method of valuation.

NOK millions	Level 1 Quoted prices in active markets	Level 2 Valuation techniques based on observable market data	Level 3 Valuation techniques based on non observable market data	Total
Financial assets
Financial assets at fair value through profit or loss, designated upon initial recognition
Shares and similar interests	18.6		0.2	18.8
Bonds and other fixed income securities		1,202.6		1,202.6
Shares and similar interests in life insurance with investment options	23,304.3	37.0		23,341.4
Bonds and other fixed income securities in life insurance with investment options	2,945.6	20.0		2,965.6
Financial assets at amortised cost
Bonds and other fixed income securities classified as loans and receivables		5,438.1		5,438.1
Financial liabilities at amortised cost
Subordinated debt		303.5		303.5

Reconciliation of financial assets valued based on non-observable market data (level 3) 2020

NOK millions	As at 1.1.2020	Net realised/ unrealised gains recognised in profit or loss	Purch ases	Sales	Settle ments	Transfers into/out of level 3	As at 30.6.2020	Amount of net realised/ unrealised gains recognised in profit or loss that are attributable to instruments held as at 30.6.2020
Shares and similar interests	0.2						0.2
Total	0.2						0.2

Reconciliation of financial assets valued based on non-observable market data (level 3) 2019

								Amount of net
								realised/
								unrealised gains
		Net realised/						recognised in
		unrealised						profit or loss that
		gains						are attributable
		recognised				Transfers		to instruments
	As at	in profit or	Purch		Settle	into/out of	As at	held as at
NOK millions	1.1.2019	loss	ases	Sales	ments	level 3	30.6.2019	30.6.2019
Shares and similar interests	0.2						0.2
Total	0.2						0.2

3. Related parties

There have not been any significant transactions with related parties other than ordinary current agreements conducted at arm's length distance.

4. Contingent liabilities

We have no contingent liabilities.

Declaration

Today, the Board and the CEO have considered and approved the half-yearly report for Gjensidige Pensjonsforsikring AS for the period 1 January to 30 June 2020.

We confirm to the best of our knowledge that the condensed set of financial statements for the period 1 January to 30 June 2020 has been prepared in accordance with current accounting standards and gives a true and fair view of the company assets, liabilities, financial position and result for the period viewed in their entirety.

Furthermore, that the interim management report includes a fair review of any significant events that arose during the six-month period and their effect on the half-yearly financial report, a description of the principal risks and uncertainties for the business in the following accounting period and related parties' significant transactions.

Oslo, 13 July 2020

The Board of Gjensidige Pensjonsforsikring AS

Alternative performance measures and key figures

		Q2 2020	Q2 2019	1.1.-30.6.2020	1.1.-30.6.2019	1.1.-31.12.2019
Assets under management pension, at the end of the period NOK millions				37,131.0	34,167.4	37,335.1
of which the group policy portfolio	NOK millions			7,376.1	6,946.2	7,204.2
Operating margin 1,9	%	25.06	35.44	27.22	35.46	36.05
Recognised return on the paid-up policy portfolio 2	%			0.47	1.74	4.34
Value-adjusted return on the paid-up policy portfolio 3	%			(0.01)	2.18	4.72
Share of shared commercial customers 4	%			66.5	68.0	67.5
Return on equity, annualised 5,9	%			11.2	17.6	17.9
Solvency capital (SF) 6	NOK millions			2,460.0	2,490.6	2,678.6
Solvency margin (SF) 7	%			148.3	136.8	140.3
Minimum capital requirement 8	NOK millions			718.1	567.2	670.2

¹ Operating margin = net operating income/total income

²Recognised return on the paid-up policy portfolio = realised return on the portfolio

³Value-adjusted return on the paid-up policy portfolio = total return on the portfolio

⁴Shared customers = customers having both pension and general insurance products with Gjensidige

5 Return on equity, annualised = Shareholders' share of net profit for the period/average shareholders' equity for the period, annualised

6 Solvency capital (SF) = Solvency capital /Capital requirement under the Solvency II standard formula

7 Solvency margin (SF) = Solvency capital available under the Solvency II standard formula

8 Minimum capital requirement under the Solvency II standard formula

9 Defined as alternative performance measure (APM). APMs are described on www.gjensidige.no/reporting in document named APMs Gjensidige Forsikring Group Q2 2020