The net result for 2006 amounted to SEK 1.8 billion. EKN’s liquid assets have continued to grow, mainly as the result of large recoveries. The fixed exposure at the year-end was SEK 97.7 billion, an increase from 2005 of SEK 11.4 billion.

EKN has sound finances and is in a strong position to continue providing guarantees for the benefit of Sweden’s export industries. In addition to its own liquid assets, which have grown during the year, EKN has, as a last resort, unlimited borrowing rights at the Swedish National Debt Office.

Net result for the year

The net result for 2006 amounted to SEK 1.8 billion. Equity (agency capital) was SEK 7.6 billion (5.8 billion in 2005). EKN’s equity consists of three main components:

+ liquid assets
+ indemnified claims and their value
- risks in transactions

Liquid assets

EKN’s liquid assets and securities at the year-end totalled SEK 13.3 billion (10.8 billion in 2005). Liquid assets have increased mainly as a result of large recoveries of SEK 1.7 billion (3.2 billion in 2005) plus premium income paid of about SEK 600 million. Indemnifications for the year of SEK 27 million (199 million in 2005) are the lowest in present-day history.

EKN’s assets in SEK are invested with the Swedish National Debt Office, ranging from at sight deposits to 5 year fixed-term investments. Assets in foreign currencies, mainly US dollars and euros, are in deposits at Swedish commercial banks and in corporate and commercial paper ranging from at sight deposits, up to 3 years fixed terms.

Indemnified claims and their net value

The majority of the claims are fixed in long term agreements. The claims change every year through new indemnifications, recoveries of capital and interest, write-offs and changes in foreign exchange rates for claims in foreign currencies.

There were some very big changes in EKN’s stock of claims in 2006. The largest recoveries came from Russia, Brazil and Algeria.

At the year-end, claims were a nominal SEK 8.3 billion, compared to SEK 10.6 billion for the previous year-end. The estimated value of the claims was SEK 1.9 billion after provision for risk. This represents 23 percent of the nominal claims amount – a reduction from the previous year’s 29 percent. The reason is that the highest value claims have been paid off.

Claims arising as a result of political events still account for 90 percent of the nominal claims amount.

Business risks

The premium charged by EKN should reflect the risk in the transaction. In so doing, premiums should provide an adequate reserve for future indemnification payments that EKN can be expected to pay to its guarantee holders.

The fixed exposure, defined as ongoing commitments, recently matured guarantees in problem cases, notified delays in payment, and binding offers, amounted to SEK 97.7 billion. This represents an increase of SEK 11.4 billion compared with the previous year.

Provisions for expected losses were SEK 4.1 billion, an increase of SEK 0.3 billion from 2005. The increase in provisions is explained primarily by the growth in the fixed exposure. That the provision for expected losses shows a relatively modest increase is partly because EKN has upgraded the country risk classification for several countries. In other words, it has become cheaper to insure. The positive trend in risks has also led to a reduced need for provisions for a number of major telecom commitments in India, Russia, Serbia and Indonesia. The provision for expected losses has thus increased, but in relation to the size of the fixed exposure, the provision for expected losses was lower at the 2006 year-end than at the same time in 2005.

Reduced risk concentration

In addition to a risk provision for expected losses, EKN makes provision for unexpected losses or the concentration risk in a transaction. This risk provision is calculated on both outstanding guarantees and claims. A large number of potential future loss scenarios are simulated in EKN’s portfolio risk model. Provision is then made, taking into account the extent of the concentration risk that EKN has in its exposure. The greater the proportion of the portfolio that is dominated by a few major risks, the higher the concentration risk and therefore the greater the need for provisions.

Even though a number of large transactions were added to the fixed exposure during the year, the risk concentration lessened slightly. This was mainly the result of reinsurance operations taken out. Provisions for unexpected losses declined by approx. SEK 0.2 billion to 4.8 billion. The portfolio has thus become somewhat better balanced than in the previous year. Provisions for the total risk on EKN’s exposure to unexpected losses, including claims, amount to SEK 4.9 billion.

Reduced total provision requirement

In total, the provision for expected and unexpected losses in the guarantee exposure was SEK 8.4 billion (SEK 8.7 billion in 2005). This represents just under 9 percent of the fixed exposure at the end of 2006, compared to just above 10 percent at the end of 2005.

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