currency. For currency swaps, the discount rate has been
adjusted according to current basis swap spreads.
The credit valuation adjustment for derivatives, s, is the
market value of the expected loss of counterparty risks for deri-
vatives. The valuation takes into account the risk mitigation
measures taken by Kommuninvest, such as netting agreements
( agreements) and agreements on the exchange of collateral
( agreements). Netting agreements and exchanges of colla-
teral reduce the expected exposure in the event that a counter-
party defaults. For those of Kommuninvest’s derivative cont-
racts that are cleared with central clearing counterparties,
initial marginal collateral is provided, entailing a further step
in reducing the counterparty risk. For these derivative cont-
racts, is not calculated. For derivative contracts not cleared
by central clearing counterparties, is calculated and ente-
red in the accounts.
The debt value adjustment for derivatives () corresponds
to the credit rating adjustment that Kommuninvest’s derivative
counterparties have through their exposure to Kommuninvest.
Due to the members’ joint and several guarantee and their high
creditworthiness, the debt value adjustment is an insignicant
amount.
Lending to credit institutions, other assets and other liabilities
For these items, the recognised value is an acceptable approxi-
mation of fair value. Lending to credit institutions consists of
bank accounts and repo transactions with a maximum dura-
tion of seven days. Other assets and liabilities consist primarily
of pledged assets/cash collateral received, accounts receivable
and payable, open items, as well as Group-internal receivables
and debts.
Signicant assumptions and uncertainty factors
Kommuninvest has applied the valuation techniques best dee-
med to reect the value of the Company’s assets and liabilities.
Changes in underlying market data could mean changes to the
income statement and balance sheet in respect of unrealised
market values. The valuation curves are also determined on the
basis of current funding and lending margins, increased mar-
gins on lending leading to unrealised losses when the value of
existing business is reduced. Kommuninvest has only a margi-
nal exposure to swap rates and, since it hedges other market
risks, it is changes in funding and lending margins, basis swap
spreads and credit spreads, on holdings in the liquidity reserve
that give rise to the changes in market value.
An increase in the lending price, in relation to swap rates,
by basis points on the assets recognised at fair value would
mean a negative change in net prot of () million.
An increase in the funding cost, in relation to swap rates, by
basis points on the liabilities recognised at fair value would
mean a positive change in net prot of ()million.
Aparallel displacement in the lending and funding price, in
relation to swap rates, by basis points would mean a change
in net prot of +/– (+/– )million. A displacement of the
valuation curve upwards or downwards by basis points for
the nancial instruments valued according to level would
mean a change in income of +/– (+/–)million.
All of the above changes refer to December (com-
parative gures refer to December ) and exclude tax
effects. Impact on equity relates to the tax effect. All market
value effects are unrealised, and as Kommuninvest intends to
hold its assets and liabilities to maturity, this means that these
values will not normally be realised. Exceptions are repurcha-
ses of funding or lending instruments, which always take place
on the investors’ or customers’ initiative respectively, leading to
the market values being realised.
Uncertainty in measurement due to unobservable input data
Input data that cannot be observed in the market consist of
correlations between market data and volatilities in maturities
longer than those for which observable market data are avail-
able. Instruments affected by unobservable input data consist
of issued structured securities with options for premature
redemption and the derivatives that hedge these at the transac-
tion level. The recipient leg of such a derivative always consists
of the warrants in the issued security and the payment leg of the
interbank interest rate +/– a xed margin.
The effect on net prot of these contracts is realised when
Kommuninvest’s funding margins for this type of funding
change. The scope of the change depends on the anticipated
remaining duration of the contracts, which depend in turn on
unobservable data. The effect on net prot from the unobserva-
ble input data that arises is therefore attributable to how input
data affect the estimated remaining maturity of the contracts.
Kommuninvest has calculated the maturity at . years but
estimates that, under reasonable conditions, unobservable
input data lead to an average duration of prematurely cancella-
ble funding in the interval of . – . years. This would have
an effect on net prot in the interval . million – .
million.
Change in value due to changed credit risk
With the joint and several guarantee for Kommuninvest’s fun-
ding provided by the members of the Kommuninvest Coopera-
tive Society, Kommuninvest’s own credit risk is considered to
be negligible.
Changes are only considered to occur in Kommuninvest’s
own credit risk as a consequence of events such as a major
downgrading of the Company’s rating, or signicant amend-
ments to the members’ guarantee undertaking that would
reduce their collective responsibility for the Company’s com-
mitments. Since no such events or changes have occurred, all
variations in funding margins and resulting changes in the
value of borrowings are deemed attributable to general changes
in the market price of credit and liquidity risk and not from
changes in Kommuninvest’s own credit risk.
The credit risk in lending is considered to be the same as
Kommuninvest’s own credit risk. Accordingly, no part of the
change in the value of lending is considered to derive from
changes in credit risk.
The assets in the liquidity reserve hold a very high credit
rating. A change in credit risk affecting their valuation is dee-
med to occur only in connection with signicant downgrades.
Such downgrades have not occurred for any of the issuers,
which is why no changes in the value of the liquidity reserve are
considered to derive from changes in credit risk.
Changed valuation models
The valuation models have been unchanged since the
Annual Report. This also means that the turbulence of recent
years has not caused any changes to valuation models. For pre-
vious changes, see Note in Kommuninvest’s Annual
Report.
Approval of valuation models
The valuation models applied are approved by the and
reported to the Company’s (Asset and Liability Commit-
tee) and Board of Directors. The Finance department is respon-
sible for the valuation process, including the valuation models.
The Risk and Control department is responsible for ensuring
independent control of the quality of valuation models and
market data used in the valuation.
Note 26, continued
FINANCIAL STATEMENTS
91Kommuninvest i Sverige AB, reg. no. 556281–4409 Annual Report 2022