Counterparty risk is the risk that a counterparty to an agreement does not comply with provisions of the agreement. Landsvirkjun’s counterparty risk arises first and foremost due to the Company’s energy contracts and derivatives contracts used for risk management purposes. Though the amounts involved are considerably high, the risk is limited with the Company´s requirements for counterparty quality.
Landsvirkjun has set a benchmark for derivatives which involves that no derivative agreements are made with financial companies that have a lower rating than A- from Standard and Poor’s or a comparable rating from other recognised credit rating agencies. Before entering into energy contracts the financial standing of the relevant companies and their parent companies is thoroughly reviewed, if applicable.