ACCOUNTING POLICIES

Premiums

Premiums are charged once a guarantee has been issued. For investment and counter guarantees, premiums are charged at regular intervals. As a result, the income statement has been supplemented with estimated premiums for these guarantee types, and for binding offers. These items are included in the balance sheet under the heading ‘Receivables from guarantee holders’. For premiums in arrears, the premiums are charged as payments fall due under the guaranteed credit. The nominal premium in arrears claim, after adjustment for present value and risk, is carried as an asset under Receivables from guarantee holders. Newly recorded premiums in arrears and any claims in previously recorded premiums in arrears are reported as premium income. Periodising the present value adjustment, plus any changes in discount rates, is reported under other interest income.

Valuation of exposure

EKN’s fixed exposure is defined as outstanding guarantees, newly due amounts in problem transactions, notified postponements and binding offers. The currency for part of the long-term exposure remains undetermined at the date of contract and is thus booked in SEK.

The risk valuation of outstanding exposure is based on the premium level for risks with corresponding time to maturity at the time of valuation. A deduction is made from that part of the premium estimated to equal the administration costs. For major commercial risks a follow-up of the development of the project or the company is conducted, as well as of the premium assessed at the time of evaluation to reflect the remaining risk. These valuations result in an estimated expected risk of exposure loss under normal circumstances. In the event that part of the exposure has been reinsured, the risk for the re-insurer is estimated (see also note 2).

As a large part of EKN’s exposure is concentrated on a limited number of countries, losses in these particular countries can produce an outcome considerably more negative than normally expected. Thus special provision is made for unexpected loss in the exposure. The estimate is made on the basis of a fixed degree of security of 95%. The previously used term ’risk concentration’ is now called ’unexpected loss’.

Valuation of indemnified claims

The definition of outstanding claims is based on the indemnification amounts paid out by EKN. Deduction is made for amounts recovered or written off. Capitalised moratorium interest, overdue moratorium interest and accrued moratorium interest not yet due are added. Demands for penalty interest are not added to claims until the amount of the claim is agreed with the debtor.

Large commercial claims are investigated and valued from case to case. Valuation of claims is made in phased 5% steps. For claims against countries, the assessment is based on the country’s debt burden, its level of income, plus the extent to which it has managed its debt payments. This assessment is supplemented with details on general risk level for the country and the term of EKN’s outstanding claim. Other supplementary details used may be, for example, the prospects for claim sales or debt write-downs. As with exposure, a specific reduction is made on the claim value taking into account the fact that most claims are also concentrated on a limited number of countries with a view to ensuring a 95% probability that the stated claim value will be realised.

Other valuations

Valuation of assets and liabilities in foreign currency is based on closing day rate. Valuation of other assets and liabilities, plus accruals and deferrals of income and expenses, has been made according to normal accounting principles.

Other

By long-term investments is meant investments with an original term exceeding one year. This is in accordance with Chapter 5 Section 1 of the Annual Reports and Budget Information Ordinance (SFS 2000:605).

Computers and other computer equipment are written off over 3 years. Other office furniture and fittings are written off over 5 years.

The Swedish National Financial Management Authority has in a decision dated 11 February 2003 given EKN exemption from the terms in the Annual Reports and Budget Information Ordinance (SFS 2000:605) regarding the form of the income statement, the balance sheet and the statement of source and application of funds.

In accordance with the Terms of Reference for 2008, EKN is exempted from Section 23 of the Capital Procurement Ordinance (SFS 1996:1188).