Analysis of results

An exceptional year has given a healthy financial surplus of SEK 856 million. Provisions were increased by SEK 1.9 billion.

The result for 2009 was SEK 856 million. This is not far from the 2008 result of SEK 820 million. However, that is where the similarities end. The year 2009 was exceptional. It gave us a premium income of no less than SEK 3.1 billion – a new record that easily beats all previous highs.

But new transactions also give rise to new risks, so we increased our total provisions in 2009 by SEK 1.9 billion. However, the balance sheet remains strong, and our total cash and cash equivalents amounted to no less than SEK 18.1 billion. This can be contrasted with a net figure for risk provisions of SEK 11.4 billion.

Premiums

Net premium income for the year was SEK 3.1 billion. Of this, no less than SEK 1.2 billion came from guarantees for working capital financing, and a large proportion of the premium income came from transactions in the telecoms industry. The premiums that EKN takes reflect the risks in the transactions, and are thus a reserve for future indemnifications that EKN may have to pay to the guarantee holders.

Provisions

The provision for the risk in our exposure is influenced not just by new transactions and changes in the risks in old transactions, but also by the duration of the exposure, changes in interest rates, changes in foreign exchange rates and concentration risks. Together, these factors gave rise to future risk provisions for 2009 of SEK 1.9 billion. As a proportion of EKN’s obligations, the provisions represented 7.2% at the 2009 year-end, and 8.4% at the end of 2008.

In the items included in the net amount, the risk provisions for new transactions were SEK 2.6 billion. In that, working capital guarantees and telecoms transactions represented the lion’s share. Valuation changes in existing exposures also increased the provisions – in the order of SEK 650 million.

This increase in risk can be attributed to markets in Eastern Europe and to a couple of large telecoms transactions. Factors that influenced the need for provisions positively were changes in the duration, changes in interest rates and the strengthening of the Swedish krona against the US dollar and the euro. These changes brought a reduction in risk provisions of SEK 1.6 billion.

In addition to the items above, provisions were made for unanticipated losses (concentration risk) in the exposure. This risk increases when the exposure is dominated by a few major risks. A few major risks increased somewhat during 2009 and the provisions for unanticipated losses were therefore increased by SEK 267 million.

In order to reduce EKN’s risk exposure, some transactions are reinsured. The effect of such reinsurance is included in the above figure, and was less during 2009 compared to the effects at the start of the year. The effect of this reinsurance on EKN’s provisions was SEK 1.3 billion at the year-end, compared to SEK 1.7 billion at the start of the year.

Background to the change in provisions

At the 2009 year-end, EKN’s obligations in binding offers and guarantees amounted to SEK 159 billion – a large increase from the 2008 figure of SEK 112 billion and the 2007 figure of SEK 96 billion. Total provisions, after reinsurance, were SEK 11.4 billion, compared with the 2008 figure of SEK 9.5 billion.

Operating expenses

EKN’s administrative expenses in 2009 totalled SEK 152 million. This is SEK 26 million more than in the previous year. The higher out turn is mainly explained by the increase in salary costs of just over SEK 8 million and higher consultancy fees of around SEK 7 million.

The number of employees was 129, 14 more than in 2008. This should be viewed in relation to the enormous flow of business during the year. The operating cost per transaction has fallen in the last three years, and now stands at SEK 108,000, a reduction since 2007 of SEK 15,000.

Total operating expenses per transaction

Financial management

EKN’s cash and cash equivalents at the year-end were SEK 18.1 billion. This is SEK 1.6 billion more than at the start of the year. The income from EKN’s assets was SEK 508 million, somewhat less than the 2008 figure of SEK 597 million. The reason is the sharp drop in interest rates during the year which led to lower yields on funds invested at sight at the Swedish National Debt Office. A further reason for the low yield was that EKN pursues a conservative investment strategy, and has been even more conservative in the wake of the financial crisis.

EKN’s assets in Swedish kronor are invested at the Debt Office. Other currencies, primarily US dollars and euro, are invested in Swedish commercial banks and in bonds. Durations are from at sight to 5 years.