TCI NIB Annual Report 2016 & 2017

TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2017 21. Financial instruments, continued (c) Market risk Market risk is the risk that changes in market prices, such as interest rates and equity prices, will affect NIB’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. NIB’s strategy for the management of market risk is driven by NIB’s investment objectives as reflected in its IPS. NIB’s market risk is managed on a regular basis by the Investment Committee. NIB may not invest in margin transactions; acquisition of shares that would permit the portfolio to exercise control over the issuer; uncovered speculative positions; direct investments in physical commodities; futures contracts and options and derivative investments. (i) Interest rate risk NIB’s operations are subject to the risk of interest rate fluctuation to the extent that interest-earning assets mature or reprice at different times or in differing amounts. Risk management activities are aimed at optimising net interest income, given market interest rate levels consistent with NIB’s strategies. At the reporting date, the interest rate profile of NIB’s interest-bearing financial instruments was: Cash flow sensitivity analysis for fixed rate instruments 2017 2016 Fixed rate instruments: US$ 4,200,000 – Financial assets 48,794,285 41,074,992 Short-term investment Available-for-sale financial assets 5,697,584 868,379 Long-term receivables – – (current and non-current) US$ 58,691,869 41,943,371 Financial liabilities A change of 100 basis points in interest rates for fixed rate instruments at the FINANCIAL reporting date would have increased/(decreased) income in the statement of STATEMENTS income, expense and reserves by US$586,919/(US$586,919) (2016: US$419,434/(US$419,434)) assuming all other variables remained constant. 2017 50 147

TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2017 21. Financial instruments, continued (c) Market risk, continued (i) Interest rate risk, continued While long-term deposits held at TCI Bank were interest bearing, following TCI Bank being placed into provisional liquidation on April 9, 2010, and liquidation on October 29, 2010, interest has ceased to accrue on these amounts. These have therefore been excluded from the above analysis. NIB’s investment portfolio is permitted to utilise derivatives for hedging and income enhancing strategies. However, derivatives are not used to expressly employ leverage or other speculative strategies. Therefore, unless a specific type of security is allowed by the IPS, the Investment Manager must seek permission from the Investment Committee to invest in derivative instruments. Cash flow sensitivity analysis for variable rate instruments 2017 2016 Variable rate instruments: US$ 20,169,929 36,172,693 Financial assets – – Cash and cash equivalents US$ 20,169,929 36,172,693 Financial liabilities A change of 100 basis points in interest rates for variable rate instruments at the reporting date would have increased/(decreased) income in the statement of income, expenses and reserves by US$201,699/(US$201,699) (2016: US$361,727/(US$361,727)) assuming all other variables remained constant. NIB’s interest rate risks are monitored on a regular basis by the Investment Committee and third party investment managers. (ii) Price risk FINANCIAL Price risk is the risk that the fair value of the financial instrument will fluctuate STATEMENTS as a result of changes in market prices other than those arising from interest rate risk, whether caused by factors specific to an individual investment, its 2017 issuer or factors affecting all instruments traded in the market. NIB’s procedures require price risks to be monitored on a regular basis by the Investment Committee and third party investment managers. 148 51

TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2017 21. Financial instruments, continued (c) Market risk, continued (ii) Price risk, continued NIB’s policy over concentration of its investment portfolio profile, based on its IPS, was as follows at March 31: Asset Class 2017 2016 Cash and money market instruments 0–10% 0–10% Non U.S. equities 5–30% 5–30% Fixed income 10–40% 10–40% Hedge Funds 5–15% 5–15% U.S. equities 6–15% 6–15% 6–15% 6–15% Large cap value 0–05% 0–05% Large cap growth 0–05% 0–05% Mid cap growth 2–08% 2–08% Small cap core 0–08% 0–08% Convertibles 0–10% 0–10% Commodities Private equity The following table sets out concentration of the investment portfolio held by NIB at March 31: Asset Class According to IPS 2017 % Amount Cash and money market instruments US$ 13,230,034 5.4% FINANCIAL Non U.S. equities US$ 57,329,340 23.3% STATEMENTS Fixed income 50,037,271 20.4% Hedge Funds 24,506,031 10.0% 2017 U.S. equities 26,617,750 10.8% Large cap value 26,689,464 10.9% Large cap growth 10,443,527 Mid cap growth 10,846,429 4.2% Small cap core 13,740,846 4.4% Convertibles 5.6% Commodities 6,866,402 2.8% Private equity 5,335,626 2.2% 245,642,720 100.0% 52 149

TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2017 21. Financial instruments, continued (c) Market risk, continued (ii) Price risk, continued Asset Class According to IPS 2016 % Amount Cash and money market instruments US$ 15,888,130 7.4% Non U.S. equities US$ 51,651,615 23.9% Fixed income 51,402,641 23.8% Hedge Funds 20,072,535 U.S. equities 9.3% 18,565,536 Large cap value 19,090,811 8.6% Large cap growth 8.9% Mid cap growth 8,160,019 3.8% Small cap core 11,639,801 5.4% Convertibles 10,625,590 4.9% Commodities 2.5% Private equity 5,486,112 1.5% 3,327,997 100.0% 215,910,787 NIB kept its asset allocation within ranges recommended by the IPS at March 31, 2017 and 2016, with the exception of Small cap core U.S. equities at March 31, 2016. The investment portfolio held by NIB at March 31, 2017 and March 31, 2016 was presented in these financial statements as follows: 2017 2016 Cash and cash equivalents US$ 7,405,642 21,115,259 Cash at investment managers Cash at banks – savings and 13,230,034 15,888,130 current accounts 4,200,000 – Short-term investment 215,109,460 178,039,019 Available-for-sale financial assets 5,697,584 868,379 Long-term receivables 245,642,720 215,910,787 US$ FINANCIAL In compliance with internal investment guidelines a money market fund held by STATEMENTS investment managers is considered by NIB as part of available-for-sale financial assets (note 5). 2017 Effective April 1, 2011 the long term deposits held with TCI Bank were, for IPS reporting purposes, written down to zero. The balance reported per the financial statements of US$694,100, net of impairment, (note 10) at March 31, 2017 (2016: US$694,100) has therefore been excluded from the above tables. 150 53

TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2017 21. Financial instruments, continued (c) Market risk, continued (iii) Fair value The following table sets out the fair values of financial instruments measured at fair value/historical value at the reporting date and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised: Carrying Level 1 2017 Level 3 Amount US$ US$ Fair Value US$ Level 2 US$ Cash and cash equivalents 20,639,287 – 20,639,287 – Contributions and other receivables 3,679,532 –– Short-term investment 4,200,000 – 4,200,000 3,679,532 Current portion of long-term – receivables 150,000 – – 150,000 Available-for-sale financial assets 215,109,460 166,315,175 48,794,285 – Long-term receivables Long-term deposits 5,547,584 – – 5,547,584 Accounts payable and accrued 694,100 – – 694,100 expenses (2,413,153) –– (2,413,153) 7,658,063 247,606,810 166,315,175 73,633,572 Carrying Level 1 2016 Level 3 Amount US$ US$ Fair Value US$ Level 2 US$ Cash and cash equivalents 37,006,816 – 37,006,816 – Contributions and other receivables 3,696,239 –– 3,696,239 Current portion of long-term 150,000 – – 150,000 receivables 178,039,019 136,964,027 41,074,992 – Available-for-sale financial assets Long-term receivables 718,379 – – 718,379 Long-term deposits 694,100 – – 694,100 Accounts payable and accrued (2,174,757) –– (2,174,757) expenses 3,083,961 218,129,796 136,964,027 78,081,808 Due to their short-term nature, the carrying amounts of NIB’s certain financial FINANCIAL assets and liabilities approximate their fair value. STATEMENTS The method applied to determine the fair value of long-term receivables at the 2017 reporting date was a discounted cash flow model. This valuation model considers the present value of expected payment, discounted using a risk- adjusted discount rate. 54 151

FINANCIAL TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD STATEMENTS Notes to Financial Statements, continued 2017 Year ended March 31, 2017 21. Financial instruments, continued (c) Market risk, continued (iii) Fair value, continued Observable prices or model inputs are usually available in the market for listed debt and equity securities. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determining fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. If the inputs used to measure the fair value of an asset or liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. NIB’s equity securities classified as available-for-sale financial assets are listed on US and non-US stock exchanges. For such investments, a five percent increase in value at the reporting date would have increased income in the statement of income, expenses and reserves by US$8,315,759 (2016: US$6,848,201) and an equal change in the opposite direction would have decreased income in the statement of income, expenses and reserves by US$8,315,759 (2016: US$6,848,201). The value of NIB’s investment holdings with TCI Bank has been reduced by management’s best estimate following TCI Bank entering provisional and then full liquidation. A 10% decrease in the provision on the gross, non-secured, non-equity, balance would have increase the change in fair value and net income in the statement of income, expenses and reserves for the year by US$1.75 million (2016: US$1.75 million). 22. Capital management Under the Regulations NIB is required to maintain the following reserves: (a) The minimum level of the Long-term Benefit Reserve shall be equivalent to the expenditure for benefits under the Long-term Benefit Branch during the three previous financial years. (b) The minimum level of the Short-term Benefit Reserve shall be equivalent to one- fourth of the expenditure for benefits under the Short-term Benefit Branch during the two previous financial years. 152 55

TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2017 22. Capital management, continued (c) An Employment Injury Benefit Reserve shall be constituted to finance injury benefit, disablement grant, death grant and medical care by transferring thereto annually as much of the excess of income over expenses of the Employment Injury Benefit Branch as is needed to maintain the level of the Employment Injury Benefit Reserve at one-half of the amount paid for the said benefits in the two previous financial years. The Employment Injury Benefit Reserve at March 31, 2017 and 2016 was determined as follows: Paid benefits Required 2017 2016 reserve at March 31, 2017 Injury benefit US$ 606,002 102,393 354,198 Accrued employment – – 718,058 injury costs (note 13) US$ 606,002 102,393 1,072,256 Paid benefits Required 2016 2015 reserve at March 31, 2016 Injury benefit US$ 102,393 44,976 73,685 Accrued employment – – 1,240,058 injury costs (note 13) US$ 102,393 44,976 1,313,743 The US$450,000 expense for medical care costs (note 13) which was recognised during the year ended March 31, 2016 was not included in the Employment Injury Benefit Reserve calculation as it had not been paid at March 31, 2016. At March 31, 2017 NIB management decided to include in the Employment Injury Benefits Reserve the accrued employment injury costs of US$718,058 (2016: US$1,240,058) as these were the expected amounts that would ultimately be paid from this reserve once the exact liability had been determined. During the year ended March 31, 2017 US$241,487 was transferred to the Disablement FINANCIAL and Death Benefit Reserve from the Employment Injury Benefit Reserve (2016: STATEMENTS US$476,652 was transferred from the Disablement and Death Benefit Reserve to the Employment Injury Benefit Reserve) so as to maintain the required reserve for 2017 Employment Injury Benefit at March 31, 2017 and March 31, 2016. There was no change to NIB’s management of capital during the years ended March 31, 2017 and 2016. NIB has complied with the above regulatory imposed capital requirements at the year-end. NIB is not subject to any externally imposed capital requirements. 56 153

FINANCIAL TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD STATEMENTS Notes to Financial Statements, continued 2017 Year ended March 31, 2017 23. Actuarial review Actuarial present value of promised retirement benefits NIB has elected to apply IAS 26 for retirement benefits which requires the actuarial present value of promised retirement benefits to be recognised on the statement of financial position, in the notes to the financial statements or in an accompanying actuarial report. NIB has chosen to disclose the actuarial present value of promised retirement benefits in the notes to these financial statements. The 8th actuarial review of NIB was conducted by Trinity Consulting Ltd. (the Actuary) at March 31, 2016 and a report issued on March 9, 2017 (the 7th actuarial review was conducted by the Actuary at March 31, 2013 and a report issued on June 25, 2014). NIB provides retirement and other benefits to qualifying beneficiaries. A summary of these benefits is disclosed at note 3(e)(iv) to these financial statements. NIB currently finances the Fund by considering expected cash inflows from contributors and cash outflows to beneficiaries over an extended period, alongside the assets that have accumulated to date from contributions exceeding benefit payments. The actuarial present value of promised retirement benefits has been calculated on an accrued benefits basis using a current salary approach. Under this methodology the actuarial present value of promised retirement benefits at March 31, 2016, the date of NIB’s latest actuarial review, was US$459 million (March 31, 2013: US$388 million). The next actuarial review is scheduled to be conducted as at March 31, 2019. The key assumptions and methods used in this calculation were as follows:  Inflation – 2.3% per annum (2013: 2.5% per annum)  Discount rate – 4.5% per annum (2013: 4.5% per annum)  Average retirement age – 65 years old (2013: 63 years old)  Other than in death, all active insured persons in 2015/16 are assumed to reach age 65 (2012/13: 63) and qualify for a retirement pension  Mortality rate – The average life expectancy in 2016 is assumed to be as follows: i. A 65 year old current male beneficiary – 16.2 years (2013: 16.2 years) ii. A 65 year old current female beneficiary – 17.5 years (2013: 17.5 years) The calculation of the actuarial present value of promised retirement benefits is sensitive to the key assumptions and methods used. 154 57

TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2017 23. Actuarial review, continued Actuarial present value of promised retirement benefits, continued The Fund had total reserves of US$191 million at March 31, 2016 (2013: US$153 million excluding provisions for long-term benefits, other than retirement benefits). At March 31, 2016 there was therefore a shortfall of US$268 million (2013: US$235 million) between the total reserves of the Fund of US$191 million (2013: US$153 million) and the actuarial present value of promised retirement benefits of US$459 million (2013: US$388 million (excluding provisions for long-term benefits, other than retirement benefits)). The Directors are examining ways in which this shortfall can be resolved. All key assumptions remained the same for the actuarial present value of promised retirement benefits calculations at March 31, 2016 and at March 31, 2013 with the exception of the inflation rate, which decrease from 2.5% to 2.3%, and the average retirement age, which increased from 63 to 65 years old. If the average retirement age assumption had remained the same the actuarial present value of promised retirement benefits at March 31, 2016 would have increased by US$71 million to US$530 million. If the discount rate had increased from 4.5% to 5% the actuarial present value of promised retirement benefits at March 31, 2016 would have decreased by US$44 million to US$415 million. The actuarial present value of promised retirement benefits at March 31, 2016 and 2013 can be classified as follows: Vested Unvested Total At March 31, 2016 US$ 80,500,000 378,500,000 459,000,000 At March 31, 2013 US$ 59,300,000 328,700,000 388,000,000 Vested benefits are benefits, the rights to which, under the conditions of National FINANCIAL Insurance (Benefit) Regulations, are not conditional on continued employment. STATEMENTS The conditions for the promised retirement benefits to become vested are as follows: 2017 (a) An insured person other than a temporarily resident employed person has attained the age of sixty-five years; and (b) has retired from insurable employment or shows to the satisfaction of NIB that the insured person is no longer substantially employed in insurable employment; and 58 155

TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2017 23. Actuarial review, continued Actuarial present value of promised retirement benefits, continued The conditions for the promised retirement benefits to become vested are as follows:, continued (c) satisfies the relevant contribution conditions; I. that not less than one hundred and fifty contributions (three years) have been paid by the insured person; and II. that not less than five hundred contributions (ten years), including those referred to above, have been paid by or credited to the insured person. The actuarial present value of long-term benefits, other than retirement benefits The actuarial present value of long-term benefits, other than retirement benefits, was quantified by the Actuary at March 31, 2015, 2016 and 2017 and recognised in NIB’s financial statements in accordance with IAS 37, as follows: Present value at Change reporting date during the year At March 31, 2017 US$ 32,280,000 1,880,000 At March 31, 2016 US$ 30,400,000 1,300,000 At March 31, 2015 US$ 29,100,000 2,300,000 The change in present value of long-term benefits, other than retirement benefits, of US$1,880,000 during the year ended March 31, 2017 (2016: US$1,300,000) was recognised in the statement of income, expenses and reserves. The details of the actuarial present value of long-term benefits, other than retirement benefits, at the reporting date was as follows: Long-term benefit branch 2017 2016 Change Invalidity pension US$ during the year Survivors’ benefit US$ Non-contributory old aged pension US$ 10,890,000 FINANCIAL Employment injury benefit branch 13,280,000 11,620,000 (730,000) STATEMENTS Employment injury benefit 10,220,000 3,060,000 Total 3,640,000 2017 27,810,000 3,730,000 (90,000) 4,470,000 25,570,000 2,240,000 32,280,000 4,830,000 (360,000) 30,400,000 1,880,000 156 59

TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD FINANCIAL STATEMENTS Notes to Financial Statements, continued 2017 Year ended March 31, 2017 23. Actuarial review, continued The actuarial present value of long-term benefits, other than retirement benefits The key assumptions and methods used in this calculation of present value of other long- term benefits for 2017 and 2016 were as follows:  Inflation – 2.3% per annum (2016: 2.3% per annum)  Discount rate – 4.5% per annum (2016: 4.5% per annum)  For widows/widowers pension – assume to be paid for life (2016: assume to be paid for life)  For orphan pension – assume to be paid until age of 21 (2016: assume to be paid until age of 21) For invalidity pensions NIB is liable for insured persons who are invalid and less than sixty years of age. For employment injuries NIB is liable for the period the insured person is incapacitated. 24. Contingent liabilities In the ordinary course of its activities NIB is a party to several legal actions. NIB is contingently liable for costs and damages in the event of any adverse finding by the TCI court (the Court) in relation to any of these legal actions. However, it is not possible to predict the decision of the Court or estimate the amount of such awards, if any. Accordingly, no provision has been made in these financial statements regarding these legal proceedings. Management is of the opinion that the resolution of these matters will not have a material impact on NIB’s financial statements. 25. Commitments Employment injury costs NIB is liable, per the Ordinance, for the cost of medical services provided in connection with employment injuries. NIB’s liabilities for medical costs relating to employment injuries for the period from its establishment to March 31, 2010 were settled as part of an Omnibus Agreement with TCIG. For the period from April 1, 2010 to March 31, 2017 NIB made an advance payment to NHIB of US$612,000 towards medical costs in connection with employment injuries in the year ended March 31, 2011 and recognised this payment as an expense in that year. In addition, in November 2016, NIB made another payment to NHIB of US$522,000 towards medical costs in connection with employment injuries in the years ended March 31, 2013 to 2015. 60 157

FINANCIAL TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD STATEMENTS Notes to Financial Statements, continued 2017 Year ended March 31, 2017 25. Commitments, continued Employment injury costs, continued No medical care costs were paid or provided for during the years ended March 31, 2012 and March 31, 2013. Medical costs in connection with employment injuries of US$340,058, US$450,000 and US$450,000 were provided for during the years ended March 31, 2014, March 31, 2015 and March 31, 2016, respectively. No medical care costs were provided for during the year ended March 31, 2017. At March 31, 2017 NIB included in accounts payable and accrued expenses US$718,058 (2016: US$1,240,058) representing NIB’s best estimate of its remaining obligation for medical costs in connection with employment injuries as at that date. Subsequent to the reporting date, and having reached agreement with NHIB, in compliance with the Ordinance, NIB settled its obligations to NHIB for medical costs in connection with employment injuries at March 31, 2017. Investments NIB has committed to contribute capital to the following private equity funds:  In 2015 NIB committed to contribute US$2.5 million to the capital of Strategic Value Special Situations Feeder Fund III, L.P. (Strategic Value Fund), a private equity fund. This obligation to contribute capital to the Strategic Value Fund is irrevocable, unconditional and not subject to any defense, counterclaim or offset of any kind whatsoever. At March 31, 2017 NIB had a remaining contribution commitment to the Strategic Value Fund of US$525,000 (2016: US$800,000).  In 2016 NIB committed to contribute US$5 million to the Portfolio Advisors Private Equity Fund 2015 (Offshore), L.P. (Portfolio Advisors Fund), a private equity fund. This obligation to contribute capital to the Portfolio Advisors Fund is irrevocable and can only be withdrawn or cancelled with the consent of certain partners in accordance with the terms and conditions stipulated in the Portfolio Advisors Fund’s partnership agreement. At March 31, 2017 NIB had a remaining contribution commitment to the Portfolio Advisors Fund of US$2.26 million (2016: US$3.41 million).  In 2016 NIB committed to contribute US$5 million to the NB Strategic Co. – Investment Cayman Partners III LP (NB Strategic Fund), a private equity fund. This obligation to contribute capital to the NB Strategic Fund is irrevocable and can only be withdrawn or cancelled with the consent of certain partners in accordance with the terms and conditions stipulated in the NB Strategic Fund’s partnership agreement. At March 31, 2017 NIB had a remaining contribution commitment to the NB Strategic Fund of US$4.15 million (2016: US$4.62 million). 158 61

TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD FINANCIAL STATEMENTS Notes to Financial Statements, continued Year ended March 31, 2017 2017 26. Subsequent event As stated at notes 13, 16 and 25, at March 31, 2017 NIB included in accounts payable and accrued expenses US$718,058 (2016: US$1,240,058) representing NIB’s best estimate of its remaining obligation for medical costs in connection with employment injuries as at that date. In March 2018 and September 2018, further payments of US$149,000 and US$278,267, respectively, in connection with employment injuries as at March 31, 2017, were made by NIB to NHIB. 62 159