Capital Adequacy

(2019-03-13)

Capital Base
Pursuant to §9-13, first subsection, of the Norwegian Securities Services Act, Smedvig Asset Allocation AS has received authorization to invite an initial capital endowment corresponding to EUR 125,000. As of December 31, 2018, this was equivalent to NOK 1,243,240

The company must at all times ensure that it has a sufficient capital base to be in compliance with the minimal capital adequacy requirements. The capital base must at all times correspond to the highest of:
1) Initial capital endowment of EUR 125,000.-;
2) Minimum of 25 % of last year’s fixed costs;
3) Minimum 8 % of the calculation base for credit risk, market risk and operational risk (CRD IV);
4) Sufficient capital to comply with ICAAP requirements. As of December 31, 2018, the minimum total capital adequacy requirement was calculated to be NOK 5,218,692

Capital requirements due to the different risk factors were as follows:
– Credit risk NOK 541,613 (calculation base: NOK 6,770,165)
– Operational risk NOK 3,838,637(calculation base: NOK 15,354,548)
– Market risk NOK 0 (calculation base: NOK 0).

As at December 31, 2018 the company’s capital base consisted of:
– Share capital NOK 1,000,000
– Share premium reserve NOK 4,302,000
– Retained earnings NOK 5,929,806

The company has no supplemental capital.

The company’s total capital base was: NOK 11,162,547

Of the capital base, 100 % was Tier 1 capital and 0 % supplemental capital.

The capital base constitutes 50,45 % of the basis of calculation as of December 31, 2018, according to CRD IV.

Calculation Methodology
The company employs the standard method for the calculation of credit risk, market risk and operational risk.

Guidelines and Procedures for Risk Management and Control
The company’s capital base is calculated monthly. Calculated capital adequacy is reported to the board of directors together with the company’s financial statements, and is jointly reviewed by the company’s management and board of directors.

The company has procedures and guidelines for the control and management of credit risk and operational risk.

Credit risk is reduced to a minimum by limiting accounts receivable to maximum one month’s fees and the employment of several counterparts for the investment of the company’s equity capital. Operational risk is managed by close and continuous monitoring of the company’s activities and cost structure. The board of directors has resolved that the company will not have a trading portfolio, nor invest the company’s equity capital in the securities markets in any way. Thus, the company carries no market risk.

Assessment of Total Capital Requirements
The board of directors and the management of the company continuously evaluate the company’s capital requirements relative to the activities in which the company is engaged. The continuous evaluation consists of a review of whether the company’s capital base is sufficient relative to current activities and whether there are changes in the company’s strategy, scope of business or other issues that may result in an increased need for base capital.

Since the turn of the year, the company’s capital adequacy has been well above the requirements for initial capital endowment and capital base.

In its active management agreements, the company has negotiated minimum fees to cover the company’s budgeted operating costs, as well as a small profit. Future profits will be applied to strengthen the company’s capital base.

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