2014/2015 ANNUAL REPORT Relevant and Sustainable Turks & Caicos Islands NATIONAL INSURANCE BOARD ANNUAL REPORT Financial Report For the Year 2014 / 2015
ANNUAL REPORT 2014 / 2015
2014 / 2015 ANNUAL REPORT CONTENTS 2 Corporate Information 3 The Board of Trustees 4 Audit Committee 4 Tender Committee 4 Budget Committee 4 Investment Committee 5 Management Team 6 Minister’s Remarks 7 Chairman’s Remarks 8 Report on Operations 11 Registrations 12 Contributions 13 Benefits 14 Investment Strategy 19 Human Resource & Administration 25 Statement of Internal Controls 27 Audited Financial Statements 1
2014 / 2015 ANNUAL REPORT CORPORATE INFORMATION OFFICES & LOCATIONS BANKERS ATTORNEYS HEAD OFFICE CIBC FIRSTCARIBBEAN MISICK & STANBROOK P.O. Box 250 INTERNATIONAL BANK Richmond House Church Folly Leeward Highway Box 127 Grand Turk P.O. Box 236 Providenciales Tel No: (649)946-1045/8/9 Providenciales (649)946-4732 Fax: (649)946-1362 Turks & Caicos Islands Email: [email protected] MILLER SIMONS O’SULLIVAN WEBSITE: www.tcinib.tc SCOTIABANK Butterfield Square (TURKS AND CAICOS ISLANDS) P.O. Box 260 PROVO OFFICE Cherokee Road Providenciales Hon. Hilly A. Ewing Building P.O. Box 15 (649)946-4650 P.O. Box 283 Providenciales Providenciales Turks & Caicos Islands GRIFFITH & PARTNERS Tel. No: (649)941-5806/5906 P.O. Box 143 Fax: (649)941-5854 BRITISH CARIBBEAN BANK LTD 82 Cherokee Road Email: [email protected] Governor’s Road Providenciales P.O. Box 270 SOUTH CAICOS Providenciales Lewis Cox Building Turks & Caicos Islands St. Andrews Street Tel. No.: (649)946-3280 AUDITORS Fax: (649)946-3664 Email: [email protected] KPMG The Village at Grace Bay NORTH CAICOS P.O. Box 357 High Rock, Bottle Creek Providenciales North Caicos Turks & Caicos Islands Telephone: (649)946-7200 Fax: (649)946-7110 Email: [email protected] 2
2014 / 2015 ANNUAL REPORT THE BOARD OF TRUSTEES Mrs. Lillian Missick Mr. Hartley Coalbrooke CHAIRMAN DEPUTY CHAIRMAN Mr. Clayton Thomas Mr. Floyd Seymour Mr. Trevor Cooke MEMBER MEMBER MEMBER Mrs. Madeline Potter Ms. Athenee Harvey MEMBER P.S. FINANCE 3
2014 / 2015 ANNUAL REPORT COMMITTEES OF THE BOARD AUDIT COMMITTEE Trevor Cooke Chairman Hartley Coalbrooke Member Member Clayton Thomas BUDGET COMMITTEE Floyd Seymour Chairman Clayton Thomas Member Madeline Potter Member INVESTMENT COMMITTEE Floyd Seymour Chairman Lillian Misick Member Trevor Cooke Member Member Madeline Potter Member Clayton Thomas Member Kenrick Walters Member Sandy Lightourne Member Director / CEO Audley Higgs Investment Manager Colin Heartwell Financial Controller Diandra Mills Marie Smith TENDER COMMITTEE Clayton Thomas Chairman Hartley Coalbrooke Member Member Madeline Potter Director / CEO Colin Heartwell Deputy Director Corporate Services Rhesa Cartwright 4
2014 / 2015 ANNUAL REPORT MANAGEMENT TEAM Colin Heartwell Walter Gardiner Rhesa Cartwright Marie Smith DIRECTOR DEPUTY DIRECTOR DEPUTY DIRECTOR FINANCIAL CONTROLLER OPERATIONS CORPORATE SERVICES Richard Taylor Diandra Mills Leroy Tull Keith Jennings INTERNAL AUDITOR INVESTMENT MANAGER LEGAL COUNSEL INFORMATION SYSTEMS MANAGER Michael Dean Christa Quelch Dorean Williams Cherrie Forbes-Ingham BRANCH MANAGER BRANCH MANAGER MARKETING MANAGER RESEARCH AND PROVIDENCIALES GRAND TURK BUSINESS ANALYST 5
2014 / 2015 ANNUAL REPORT MINISTER’S REMARKS I consider it a privilege to have had the opportunity to serve as Minister for the National Insurance Board during their 2014/15 fiscal year. This institution is held in high regard nationally, and is one of the great institutions of this country. It continues to serve as a testament of what we can achieve as a people when we pool our resources. The National Insurance Programme was established to provide a social safety net for the people of these islands and was founded on the principles of solidarity and on the basis of delivering high quality, customer centered service to every claimant and contributor to the program. The Fund has to date built a reserve exceeding $191M, and is invested in a diverse portfolio of international securities, as well as domestic investments but to a lesser degree. The National Insurance Board has throughout the years honored its obligations to its contributors and beneficiaries. It has extended several cost of living adjustments to pensioners and also increased several benefits to ensure the level of benefits remains relevant. Many of our senior citizens are primarily dependent on their monthly pensions from the NIB. The Board has recorded a fairly strong performance this year with contribution income registering a 11% increase over the previous year. The economy of the Turks and Caicos is rebounding. We are seeing the evidence of this in a moderate increase in employment, and resulting contribution income for the NIB. While the Fund has realized positive single-digit returns over recent years, the investment performance for 2015 is encouraging considering the investment environment with realized income trending significantly higher. The Board continues to manage the investment portfolio in the best interest of the Fund for the People. As we strive to strengthen the social fabric of our country, we continue to explore investment opportunities within the Turks and Caicos which will obtain the desired level of return and also boost the country’s economic development. During my tenure in office, several legislative changes have been enacted. Some have resulted in increases in benefit payments; others have served to strengthen the framework of the program. Whilst twenty years may seem like a long time, the actuarial projections advised that if there are no changes to the parameters of the plan, shortfalls will begin to emerge in 2034. Having been forewarned, we have begun to take small corrective steps that will assure long-term sustainability of the fund whilst maintaining equity for contributors and beneficiaries. These include a reduction factor for early retirement and an assertive effort to manage the cost of administration. We have also legislated a gradual increase of the contribution ceiling from the $2,600 per month as set from the inception of the plan, to $3,000 per month. This change will be effective from April 1, 2015, with subsequent increases for the next two years up to $4,000 per month. This effectively shores up revenues, while making coverage more relevant to the higher paid worker. The Board is encouraged to act expeditiously in the settling of medical care cost for employment injury with NHIP. I believe there are synergistic benefits to be derived from a partnership between these two sister institutions which will inevitably lead to improved compliance, operational efficiency and cost effectiveness. I wish to congratulate the Board, Management and Staff for their efforts in refurbishing the Hon. L. Headley Durham Building as its new office complex; it adds to the landscape of the community. I applaud their steadfast efforts and commitment, and as always, pledge my continued support for the future. Hon. Charles Washington Misick, O.B.E.; J.P. 6
2014 / 2015 ANNUAL REPORT CHAIRMAN’S REMARKS Aristotle, the Greek Philosopher, said “If you would understand anything, observe its beginning and its development.” Aristotle was one of those thinkers who influenced the development of fiduciary principles. He believed that the highest standards of loyalty, honesty and fairness should be the norm in the conduct of business; without these guiding principles, society becomes the victim and suffer dire consequences. This is the standard that the Board of Directors under my chairmanship adopted and continue to apply in its deliberations and execution of its fiduciary responsibility. “Some people don’t like change,” said Elon Musk, “but you need to embrace change if the alternative is disaster.” And, during this 2014 / 15 operational year, the Board found it necessary to initiate and implement a number of changes to ensure the sustainability of the Pension Fund. As expected, some were embraced while others were met with much objection. In the face of this, we were mindful of the words of Judge Benjamin Cardozo back in 1928: “A trustee is held to something stricter than the morals of the marketplace.” So, with our heads to the wind, I believe it is fair to say that the Board of Directors executed its fiduciary duty with loyalty, due care and good faith… the embodiment of fiduciary standard. I wish to express my profound thanks and appreciation to the members for their continued support. It is my pleasure to present to you, the contributors and beneficiaries of the Fund, our 2014 / 2015 Annual Report. Lillian Missick 7
2014 / 2015 ANNUAL REPORT REPORT ON OPERATIONS PERFORMANCE OVERVIEW WĞƌĨŽƌŵĂŶĐĞ/ŶĚŝĐĂƚŽƌƐ ϮϬϭϯͲϮϬϭϰ ϮϬϭϰͲϮϬϭϱ й,E' dŽƚĂůŽŶƚƌŝďƵƚŝŽŶ/ŶĐŽŵĞ Ϯϯ͕ϴϳϬ͕ϭϲϭ Ϯϲ͕ϰϱϳ͕ϴϬϮ ϭϬ͘ϴй dŽƚĂůĞŶĞĨŝƚdžƉĞŶĚŝƚƵƌĞ ϭϭ͕ϱϲϬ͕ϯϯϱ ϭϮ͕ϳϬϬ͕ϰϰϰ ϵ͘ϵй ϲ͕ϲϬϰ͕ϴϯϲ ϰϰй ĚŵŝŶŝƐƚƌĂƚŝǀĞdžƉĞŶĚŝƚƵƌĞ ϰ͕ϱϴϲ͕ϰϭϵ Ͳϳ͘ϭй ϯϲ͕ϯϵϲ͕ϴϴϵ dŽƚĂůŝŶĐŽŵĞĨŽƌƚŚĞLJĞĂƌŝŶĐůƵĚŝŶŐ ϯϵ͕ϭϴϭ͕ϭϭϵ͘ϬϬ ŽƚŚĞƌĐŽŵƉƌĞŚĞŶƐŝǀĞ EĞƚ/ŶĐŽŵĞĨŽƌƚŚĞLJĞĂƌͬ^ƵƌƉůƵƐ Ϯϰ͕ϲϮϱ͕ϲϯϮ ϭϯ͕ϲϰϰ͕ϲϵϰ Ͳϰϰ͘ϲй ϲϮ͘ϵй ϯϳ͘ϱй ͲϮϱ͘ϰй EĞƚ/ŶĐŽŵĞĂƐĂйŽĨdŽƚĂů/ŶĐŽŵĞĨŽƌ ƚŚĞLJĞĂƌ zĞĂƌͲĞŶĚZĞƐĞƌǀĞƐ ϭϳϳ͕ϰϭϱ͕ϴϯϬ ϭϵϭ͕ϬϲϬ͕ϱϮϰ ϳ͘ϳй /ŶǀĞƐƚŵĞŶƚZĞƚƵƌŶ ϴ͘Ϭϲй ϰ͘ϯϯй /ŶǀĞƐƚŵĞŶƚdžƉĞŶƐĞ ϭ͕ϮϬϴ͕ϳϯϯ ϭ͕ϭϰϲ͕ϵϭϱ Ͳϱ͘ϭй ĚŵŝŶdžƉĞŶƐĞĂƐĂйŽĨdžƉĞŶĚŝƚƵƌĞ ĞŶĞĨŝƚ ϭϮ͘ϵй ϭϳй ϰ͘ϭй ĚŵŝŶdžƉĞŶƐĞĂƐйŽĨĐŽŶƚƌŝďƵƚŝŽŶ ϭϵ͘Ϯй Ϯϱй ϱ͘ϴй ŝŶĐŽŵĞ ŽŵƉůŝĂŶĐĞZĂƚĞ ϱϴ ϲϱ ϭϮй ŵƉůŽLJĞƌƐ ϲϯ ϲϭ Ͳϯй ^ĞůĨͲŵƉůŽLJĞĚWĞƌƐŽŶƐ ϱϯ ϲϯ ϭϵй EƵŵďĞƌŽĨWƌŽƐĞĐƵƚŝŽŶƐ ϭ͕ϰϯϭ ϭ͕ϰϱϬ ϭй ^ŚŽƌƚͲƚĞƌŵůĂŝŵƐWƌŽĐĞƐƐĞĚ ϭϵϮ ϭϴϲ Ͳϯй >ŽŶŐdĞƌŵůĂŝŵƐ ϰϯ ϱϬ ϭϲй ŵƉůŽLJŵĞŶƚ/ŶũƵƌLJ 8
2014 / 2015 ANNUAL REPORT BUDGET STRATEGY AND SUMMARY OF FINANCIAL RESULTS The National Insurance Board (NIB) is responsible for the collection of contributions from contributors, the payment of benefits, the investment of surplus funds and the covering of the administrative expenses needed to advance each of these functions. The NIB annual budget is developed and linked to achievement of the organization’s strategic objectives as outlined in its strategic plan. The organization seeks to accomplish this at the lowest possible cost and with the delivery of the best quality of service to the public. Within the overall organizational strategy, specific targets are assigned to each of these functions, the costs associated with the attainment and delivery of these targets in any particular year is reflected in the budget. There was an overall increase of 10.8% in contribution income for the year ended March 31, 2015 over prior financial year ended March 31, 2014. Much of this can be attributed to the recent upturn in economic activity being experienced in the islands as well as an overall increase in the contribution compliance rate. Total income including other comprehensive income for year ended March 31, 2015 was $36.4M while that for the prior year end was $31.18M. This represented a 7.1% decline in income over the prior year. Much of this difference can be attributed to the changes in the market valuation of available for sale securities as at March 31, 2015. Net Income for year ended March 31, 2015 was $13.6M and this represented a decline of 44.6% over prior year end. Benefit expenditure was $12.7M for year ended March 31, 2015 and this represented an increase of 9.9% over prior year. It should be noted that as of March 31, 2015 the NIB recognized the actuarial quantification of other long term benefits other than retirement benefit in its financial statements in accordance with IAS37, “ Provisions, Contingent Liabilities and Contingent Assets” with the appropriate restatement of March 2014 and March 2013 financial statements as required by IAS8. “Accounting Policies, Charges in Accounting Estimates.” Administrative expense for year ended March 31, 2015 was $6.6M and was 44% greater than the prior year end. This increase in administrative expense was mainly due to US$1.5 million impairment losses recognized for surcharge receivable as a result of a change in accounting policy in compliance with IAS 18, Revenue. As at April 1, 2014 the NIB also had a change in its accounting policy regarding the recognition of surcharge income from a cash basis to an accrual basis in its financial statements in compliance with IAS 18. This change in accounting policy was not material as it was not applied retrospectively. NIB however, recognized gross surcharge receivable of $1.72M and an impairment loss of $1.5M in the statement of income and expenses. The ratio of administrative expense as a percentage of expenditure benefit for year ended March 31, 2015 was 17% and this was 4% above the strategic benchmark of 13%. The ratio of administrative expense as a percentage of contribution income also increased from 19.2% per year ended March 31, 2014 to 25% per year ended March 31, 2015. At March 31, 2015 the NIB had reserves of $191M compared to $177.4M in the prior financial year. 9
2014 / 2015 ANNUAL REPORT PROGRAMME OBJECTIVES & PERFORMANCE IMPROVED COMPLIANCE EFFORTS One of the key focus areas this year was to review the operations of the Compliance Department. As a result of that review the Compliance Manual was revised. We have seen an increase in the number of investigations conducted and cases prosecuted. $3.5M was collected this fiscal year as a result of compliance efforts and a more detailed reporting mechanism was developed on compliance efforts for the Board of Directors. FUTURE PLANS The NIB remains committed to the ideology of continuous improvement. The entity has as some of its key initiatives over the next 2-3 years: • The implementation of a world class information system, one that will facilitate online capabilities for the submission of forms and collection of contributions. • Improved customer service delivery to our contributors and beneficiaries, • Improved monitoring capabilities for increased compliance in accordance with the National Insurance Laws • Improved public awareness programs TCI is a growing economy with increasingly sophisticated demands by its stakeholders. The NIB must keep pace with, or even aim to exceed their expectations, in its quest to achieve customer satisfaction. 10
2014 / 2015 ANNUAL REPORT REGISTRATIONS The economy of the Turks & Caicos Islands continues to show signs of growth. We see the trend of increasing numbers of new employer and insured persons registrations continue in 2015. New employer registrations increased 11.6% over 2014 and insured persons registrations increased 13%. With the proposed introduction of the Government’s new Small Business Unit, we hope to see increases in the number of self employed persons in the ensuing years. Providenciales continues to dominate the economic landscape of the Turks & Caicos Islands. NEW REGISTRATIONS BY ISLAND NEW REGISTRATIONS BY CATEGORY 2013 / 2014 2014 / 2015 2013 / 2014 2014 / 2015 152 166 GRAND TURK INSURED 1399 1583 PERSONS SALT CAY 2 1 SOUTH CAICOS 18 23 EMPLOYERS 507 566 MIDDLE CAICOS 0 1 NORTH CAICOS 32 6 SELF EMPLOYED 139 132 PROVIDENCIALES 1181 1373 PERSONS PARROT CAY 11 10 PINE CAY 1 0 UNDEFINED 23 TOTAL 1399 1,583 EMPLOYER INFORMATION 2013 / 2014 2014 / 2015 GRAND TURK 89 99 SALT CAY 22 SOUTH CAICOS 6 17 MIDDLE CAICOS 1 2 NORTH CAICOS 9 13 PROVIDENCIALES 400 433 11
2014 / 2015 ANNUAL REPORT CONTRIBUTIONS CONTRIBUTION INCOME BY SECTOR SECTOR 2012 - 2013 2013 - 2014 2014 - 2015 $24,469,381 PRIVATE SECTOR $21,266,429 $21,989,629 $1,282,678 $703,833 GOVERNMENT $1,021,301 $1,201,220 $1,910 SELF EMPLOYED $629,855 $672,657 $26,457,802 VOLUNTARY $9,406 $6,655 TOTAL $22,926,991 $23,870,161 CONTRIBUTION INCOME & BENEFIT EXPENDITURE (1000) Contribution CInoncotrmibuetion Income Benefit BEexnpeefint diture Expenditure CONTRIBUTION BY ISLAND 2% 2% 0% 0% 24% 24% 74% 74% *UDQG7XUN 3URYLGHQFLDOHV 6RXWK&DLFRV 1RUWK&DLFRV *UDQG7XUN 3URYLGHQFLDOHV 6RXWK&DLFRV 1RUWK&DLFRV 12 ϭϱ ϭϱ
2014 / 2015 ANNUAL REPORT BENEFITS Sickness Benefit continues to NEW BENEFIT APPLICATIONS dominate benefit claims, with maternity benefits trailing. BENEFIT TYPE 2013-2014 2014-2015 The level of the Injury Benefit claims SICKNESS 771 841 continue to be lower than previous MATERNITY ALLOWANCE 287 261 years when the construction industry 348 peaked. MATERNITY GRANT 373 49 Retirement pensions continue to be 0 the primary driver of the benefit cost. INJURY BENEFIT 41 0 This trend is expected to continue as CONSTANT ATTENDANCE ALLOWANCE 0 1 the plan matures and contributors 31 continue to become eligible to higher DISABLEMENT GRANT 0 66 pensions. 2 DISABLEMENT PENSION 2 5 RETIREMENT GRANT 23 15 1 BENEFIT PAYMENTS RETIREMENT PENSION 84 YEAR AMOUNT INVALIDITY PENSION 7 2012 - 2013 $13,884,286 SURVIVOR'S GRANT 2 2013 - 2014 $11,560,335 2014 - 2015 $12,700,444 SURVIVOR'S PENSION 12 NON-CONTRIBUTORY OLD AGE 4 CHANGES IN PENSION DURING THE YEAR TYPES NUMBER OF NEW NEW EXITS BY EXITS BY NUMBER OF OF PENSIONERS ENTRIES ENTRIES DEATH DEATH PENSIONERS AT BEGINNING FEMALE MALE FEMALE PENSION MALE AT END OF YEAR OF YEAR NON-CONTRIBUTORY OLD-AGE PENSION 247 1 8 10 230 SURVIVORS PENSION INVALIDITY PENSION 148 9 5 16 9 137 RETIREMENT PENSION 85 DISABLEMENT PENSION 829 1 84 TOTAL 26 1,335 45 46 16 8 896 1 27 56 51 41 27 1,374 13
2014 / 2015 ANNUAL REPORT INVESTMENT STRATEGY The vitality and prudent management of the National Insurance Fund (NIF) is of paramount importance in ensuring that the Fund is able to meet the future obligations of its contributors. The Investment Department and the Investment Committee of the (NIB) is charged with the responsibility of putting contributions to work to earn a return that will help to ensure (amongst other necessary measures) that the National Insurance System remains sustainable. The NIB has certain advantages that will allow the NIF to remain on a path of financial sustainability. The first is its long- term investment horizon. Because the liabilities of the system are so long term, it enables the NIF to invest in assets that provide exceptional appreciation over time such as Private Equity, an asset class that has recently been introduced into the portfolio. Secondly, the NIB has a window of certainty for investable cash. In the 7th Actuarial Review, the Actuary estimated that the NIB will collect excess contributions out to 2030. This constant flow of cash will fund new investments and help to build a disciplined and well diversified portfolio. The third advantage is the lack of investment restrictions that are placed on the NIF. Unlike many of the systems in the region, there is no currency or international investing restrictions which prevent the fund from accessing valuable investment opportunities abroad The National Insurance Fund has a long-term investment strategy which focuses on the preservation of purchasing power and the long-term growth of capital at an acceptable level of investment return volatility. The National Insurance Fund is invested in a well diversified and disciplined portfolio of securities in accordance with the established Investment Policy Statement. At the beginning of the 2014/2015 financial year, the Board approved changes to the Investment Policy Statement (IPS) which was ratified by the Minister of Finance. Revisions were made to the asset allocation targets given new capital market assumptions. The revised IPS allowed greater exposure to risk assets such as Equities and reduced the target for Fixed Income. New asset classes Private Equity and Commodities were added to further diversify the portfolio. Since the NIF constructed a portfolio of local and international investments over 12 years ago, the asset mix has evolved considerably from basic equities and fixed income to more sophisticated asset classes. These changes are a reflection of the changes in the NIB’s funding position and return requirements as well as new assumptions regarding expected returns in the capital markets. During the year, the Board approved a rebalancing exercise to align the portfolio with its new strategic targets. Nearly $18M was moved out of Cash and into various asset classes. 14
2014 / 2015 ANNUAL REPORT The Fund’s actual asset allocation as at March 2015 compared with the strategic targets as agreed by the Board of Directors in the Investment Policy Statement 2015 is shown below. Asset Class MV @ 3/31/15 Current Strategic Difference Strategic Range ($) Allocation Target Min Max Cash 30,628,019 15% 2% 13% 0% 10% Fixed Income 42,082,025 20% 20% 0% 10% 40% Equities 96,547,233 46% 52% 6% - 17% 70% Hedge Funds 22,287,843 11% 10% 1% 5% 15% Convertibles 11,555,050 5% 6% 1% - 2% 8% Commodities 6,554,880 3% 5% 2% - 0% 8% Private Equity 1,050,000 0% 5% 5% - 0% 10% TOTAL 210,705,050 100% 100% All main asset classes with the exception of Cash closed within their strategic bands. The continual inflow of excess contributions into the Fund and limited domestic investment opportunities has kept Cash above its upper band. At year end, another rebalancing of $7M out of Cash was approved. This was carried out at the beginning of the new fiscal year. INVESTMENT PERFORMANCE The National Insurance Fund delivered returns above its absolute return target of US CPI inflation plus 3% (3.22% in 2014/15) during the financial year. The Fund also beat is Policy Index by 111 basis points. The Fund returned 4.33% and continued to grow through excess contributions and investment income. The year was dominated by central bank activity around the world. The tapering and subsequent end to the Quantitative Easing 3 program in the US and the imposition of negative deposit rates and introduction of Quantitative Easing in the Eurozone had investors cautiously watching markets. The global oversupply of oil and the failure of OPEC to curb production whipped managers who were overweight Energy. Though there were a plethora of geopolitical events, concerns about global growth and a near oil crisis, the US economy kept growing. The economy advanced 2.4% year over year as measured by GDP growth despite a contraction in the first quarter due to the harsh winter. US stocks performed well in 2014 due to rising corporate earnings and an improving economy. The S&P 500 rose by 13.7% (calendar 2014) and 12.75% (financial year 2014/15); another year of gains that has extended the ‘Bull Run’ into its 6th year. Although the NIF beat the Policy Index by 44 basis points, most asset classes underperformed their benchmarks. The excess return over the Policy Index came primarily from the performance of the Alternative Investments and the underweight position in Commodities. Equities, Fixed Income and Cash remain the more heavily weighted asset classes and collectively make up nearly 80% of the portfolio and 70% of the overall return. 15
2014 / 2015 ANNUAL REPORT EQUITIES: The equities portfolio returned 4.12% for the financial year with a weighted contribution of 1.87%. In style performance, the Fund saw its best performers in the Large Cap Growth and Small Cap spaces. Despite the double digit returns in the US equities markets, active managers have had difficulty beating their benchmarks. Managers that came under watch this year for poor performance mostly attributed their strategic positioning of downside capture and overweight positions in Energy and Healthcare for their poor performance over the past year. FIXED INCOME: The Fixed Income portfolio was previously fragmented between several consultants before the single consultant exercise. Once the consolidation occurred, the portfolio was amalgamated under one manager in May 2014. The total Fixed Income portfolio climbed 5.59% during the year. At end March 2014, the yield on the 10 year US Treasury Bond was 2.73% then dipped to 1.94% at end March 2015. This decrease in rates over the year in review has caused bond prices to appreciate. CASH: The Cash portfolio continues to accumulate through excess contributions. Periodic rebalancing exercises will reduce the level of cash over time. Despite this there still remains a high cash balance relative to the strategic target primarily because investment opportunities in Private Equity and Domestic Investments have either been slow to present themselves or have not been fully called as yet. While it would be ideal to place the funds segregated for these types of investments in a better interest bearing, liquid account, the reality is that with interest rates at historical lows, these accounts provide the best return and liquidity. ALTERNATIVES INVESTMENTS: The Hedge Funds portion of the Alternatives portfolio impressively returned 16.67% for the financial year. The main driver of portfolio performance came from the Managed Futures sleeve of the portfolio where the manager returned 51.56% for the year. Managed Futures typically use a quantitative computer algorithm trend-following system based on statistical analysis of market trends and momentum. This manager tends to do well in markedly trending markets. 16
2014 / 2015 ANNUAL REPORT CONVERTIBLES: The Convertibles account produced a 6.85% return for the period underperforming the ML All Convertibles benchmark. Convertibles are held to diversify risk and its performance does not fully correlate with bond or equities markets. When the economy revives, equities tend to rise and the equity characteristics of convertibles give some upside. On the other hand, in a down market, the bond features of convertibles give a defensive yield and reduce the downside. COMMODITIES: The Commodities investment was made in August 2014 through a passive investment vehicle, the DB Powershares Commodity Index Fund ETF. Since the investment was made the NIB has lost over 31% of its investment primarily because of the steep fall in oil prices resultant of a global oversupply. Although the NIB invests in a broad basket of commodities, Energy accounts for nearly 55% of the ETF. UBS analysts estimate that oil prices will rebound by year end. DOMESTIC INVESTMENTS: During the revision of the IPS, the Investment Committee also approved a Domestic Investment Policy. The policy is intended to guide decision making of the Committee for domestic investment proposals and sets out criteria for public and private investments. The Domestic Investment allocation is currently $18M underfunded. The current investments in the portfolio are quickly maturing and projects have been slow in coming to the table. The portfolio contains only fixed income type investments containing loans with the TCIG (originating with TCInvest) and a TCIG bond. Both investments have brought in over $860K this year from the return of principal and interest income. Cumulatively, the portfolio returned 7.19% for the year. PRIVATE EQUITY: The NIF introduced Private Equity (investments made in private companies and not those that are publicly traded) as a new asset class into the portfolio in August 2014 with an investment in a fund which focuses on European distressed debt. The nature of these types of investments is to have an “investment period” where the Fund raises money and spend several years investing in a portfolio of companies. The harvesting period comes years after the initial outlay and is where the Fund begins to reap the reward of their investments. Currently, within the Private Equity sleeve the NIF is in the investment period, where not all of the capital committed has been called. Hence, we do not expect to see any steady returns from this asset class for a few years. 17
2014 / 2015 ANNUAL REPORT THE CHART BELOW ILLUSTRATES THE RETURN PER ASSET CLASS OVER THE PERIOD. RETURN BY ASSET CLASS Ͳϰ͘ϱϱй WƌŝǀĂƚĞƋƵŝƚLJ Ͳϯϭ͘ϰϮй ŽŵŵŽĚŝƚŝĞƐ ŽŶǀĞƌƚŝďůĞƐ ϲ͘ϴϱй ,ĞĚŐĞ&ƵŶĚƐ ϭϲ͘ϲϳй ƋƵŝƚŝĞƐ ϰ͘ϭϮй &ŝdžĞĚ/ŶĐŽŵĞ ϱ͘ϱϵй ĂƐŚ Ϭ͘ϰϬй Ͳϯϱ͘ϬϬй ͲϯϬ͘ϬϬй ͲϮϱ͘ϬϬй ͲϮϬ͘ϬϬй Ͳϭϱ͘ϬϬй ͲϭϬ͘ϬϬй Ͳϱ͘ϬϬй Ϭ͘ϬϬй ϱ͘ϬϬй ϭϬ͘ϬϬй ϭϱ͘ϬϬй ϮϬ͘ϬϬй ϮϬϭϰͬϭϱ In evaluating the investment performance over the period, the Fund’s underweight position in Commodities relative to the Policy In dex helped the portfolio to avoid steeper losses as the performance of the asset class was dismal. While U.S. and International indices delivered returns in the mid-high single-digits, the NIF’s equity portfolio was challenged in beating some of the style benchmarks due to the Energy positions of some managers. The addition of Alternative Investments helped to support investment return. The overweight position in Cash prevented the Fund from potentially earning a better return this year asfunds earmarked for Private Equity and Domestic Investments remained unplaced. Ϯϭ 18
2014 / 2015 ANNUAL REPORT HUMAN RESOURCE & ADMINISTRATION The staff of the National Insurance Board plays an integral role in the institution being the success story that it is today. The NIB has a compliment of well qualified and committed employees. During the year we had a number of persons joining the NIB: EMPLOYEE NAME POSITION DEPARTMENT EMPLOYMENT DATE Dorian Garland Transaction Clerk Operations Provo February 9, 2015 Narada Robinson Driver / Messenger Operations Provo January 26, 2015 Laquille Robinson Transaction Clerk Operations Provo February 2, 2015 Zoe Saunders Accounting Clerk Accounts & Finance August 24, 2014 New Investment Manager makes farewell presentation to David, Investment Manager at farewell gathering. The NIB bid farewell to the following employees this year: EMPLOYEE NAME POSITION DEPARTMENT DEPARTURE DATE Lemano Malcolm Driver / Messenger Operations Provo February 9, 2015 Garrett Jones January 26, 2015 David Hodgson IT Support Officer MIS February 2, 2015 Joanne Glinton October 6, 2014 Diveney Been Investment Manager Investment December 5, 2014 Darcel Smith April 30, 2014 Mary Roberts Transaction Clerk (part time) Operation, South Caicos May 31, 2014 Transaction Clerk Operations, Provo Audit Office Audit Accounting Officer Accounts & Finance 19
2014 / 2015 ANNUAL REPORT The NIB also embraces the opportunity to assist in the development of our youth through our summer internship program. This year the following persons participated in the initiative: TURKS & CAICOS ISLANDS COMMUNITY COLLEGE NAME DATE Raejean Smith (May 2014- August 29, 2014) Zoe Saunders (April 30th - May 23rd, 2014) HJ ROBINSON HIGH WORK EXPERIENCE PROGRAM NAME DATE David Ramos Michael Roach (May 2014) (April 30th - May 23rd, 2014) PROMOTIONS EMPLOYEE NAME PREVIOUS POSITION NEW POSITION DEPARTMENT EFFECTIVE DATE Diandra Mills Investment Officer Investment Manager Investments January 1, 2015 Astrid Williams Accounting Clerk Accounting Officer Accounts & Finance June 1, 2014 20
• Microsoft Outlook 2014 / 2015 ANNUAL REPORT Intermediate training for staff from Senior Officers TRAINING to Management levels. The training took place • Mr. Almondo Ingham, IT Support Officer attended an HP on June 10th and 11th in Printer Repair training in New Jersey, March 10th-14th 2015. the Conference Room of He successfully completed the Laser Printer Service Plus the NIB Grand Turk and courses and has obtained certification in the following areas: Providenciales Offices HP Laser Jet 4014/4015 Printer, HP LaserJet 9000/9050 respectively. Printer, HP LaserJet 4200/4300/4250/4350 Printer, HP Color LaserJet 4600/4650/5500 Printer and HP Network Printer Communications. Caribbean Governance Training Institute The National Insurance Board also took part in the Governance Workshop hosted by Caribbean Governance Training Institute on March 16th to 18th, 2015 in Providenciales. The NIB delegation included Mr. Trevor Cooke, Mr. Floyd Seymour and Miss Rhesa Cartwright. All participants were successful in attaining the Chartered Director certification. 21
2014 / 2015 ANNUAL REPORT OTHER ACTIVITIES The Annual Staff Christmas Function was hosted in Grand Turk and Providenciales with the Long Service awards presented on this occasion. 15 15 YEARS OF SERVICE 20 20 YEARS OF SERVICE Years Almondo Ingham - June 1st Years Karen Gardiner - September 19th Zalmunna Dickenson - June 15th Nib Headquarters Opening December 10, 2014, marked a very special day in the history of the National Insurance Board. For the first time since its establishment in April 1992, the Head Office was officially housed in a building owed by the institution. The Hon. Headly Durtham Building was purchased from the Turks & Caicos Islands Government as part of an omnibus agreement. The building was later fully renovated by Olympic Construction Limited. The Opening Ceremony was celebratory and witnessed by many including specially invited guests from the private and public sectors, the Board of Directors, Management and Staff of the NIB. Greetings were extended by the Governor, H.E. Peter Beckingham, Hon. Akeira Missick, acting in the stead of Hon. Charles Washington Misick; Hon. Lillian Missick; Chair of the NIB and the CEO. Dr. Hugh Fulford was the host for the afternoon, captivating the audience in his usual engaging and debonair manner. Attendees were entertained with cultural renditions, melodious music and a sumptuous spread to tantalize their taste buds. All and all, it was a beautiful, historic occasion indeed! 22
2014 / 2015 ANNUAL REPORT PENSION FUND INVESTING AT THE TCINIB By Diandra Mills, BSc, MSc, Investment Manager Pension provision in the Turks & Caicos Islands is achieved primarily through the publicly mandated contributory scheme known as the National Insurance Ordinance which established the National Insurance Board (NIB) in 1992. From the retirement perspective, this system accepts the contributions of employed persons from age 16 until the age of 65 and pay out a retirement pension until such persons are deceased. From a short-term pecuniary benefit perspective, the system provides income replacement in cases of sickness, maternity, invalidity, survivorship, disablement and death. In all circumstances, the contributions entrusted to the NIB for the payment of these benefits are invested in the best interests of the people of the Turks & Caicos Islands to maximize investment returns to be able to meet the obligations of the Fund. Social security pensions should be viewed as supplementary to personal savings plans (explained fully in the example provided later on). This is not often the case and for most persons as their only source of income in retirement comes from social security. It is therefore essential that social security systems are sound and financially secure to ensure they can provide meaningful pensions for those that qualify into retirement. In order to meet the obligations of the system, social security schemes must be on sound financial footing with sound investment practices. This brings us into the main discussion of this article; pension fund investing at the TCI National Insurance Board. To demonstrate the importance of pension fund investing and why the investment division exists within the NIB, I offer the following illustration: Jane joins the NIB at age 16 and works until she is of retirement age at 65 years. Along with her employer, she makes an 8% monthly contribution on the contribution ceiling of $3,500 each month for 49 years. At 65, Jane would have paid in $164,640 in contributions. At retirement, Jane will receive 60% of her average weekly earnings which equates to $25,200 annually or $2,100 monthly. The general rule of thumb is that income replacement in retirement should range from 60% to 100% of your pre-retirement income depending on the change in your expenditures pre-retirement versus post-retirement as well as the type of lifestyle you wish to attain in retirement. The NIB starts you off at the bottom of that range and is therefore considered ‘supplementary’. If Jane lives up to 10 years after retirement, she would have received a total of $252,000 in retirement benefits. To present the case for responsible pension fund investing, the NIB would need to earn $87,360 on Jane’s original contributions over time to be able to pay her benefits into retirement. If Jane lives longer after retirement, this figure will increase dramatically. At face value, you may appreciate from the illustration the tremendous responsibility of the NIB to make prudent investment decisions to close the gap and deliver on these promises to pay benefits. The ability to achieve this rests on the investment, contribution and benefit policies of the institution. The decisions of the NIB regarding its investments are guided by the ‘Investment Policy Statement’. This document sets out the investment philosophy, goals, objectives and strategies of the Fund. The NIB has identified its investment objective as total assets outgrowing total liabilities to reach a fully funded position and then fund liabilities with low volatility at low cost. A further overriding investment objective is the preservation of purchasing power and long term growth of capital at an acceptable level of investment return volatility. 23
2014 / 2015 ANNUAL REPORT In order to achieve these objectives the NIB has developed an asset strategy with specific guidelines. This strategy is mostly centered around employing the Fund’s assets prudently and responsibly to achieve the stated objectives. Whereas there are many intricacies to pension fund investing there are three fundamental principles that guide the investment strategy and help the Fund to achieve its investment objectives. These are Asset Allocation, Diversification and Rebalancing. Asset allocation as it is formally known is a strategy used in balancing risk and reward by apportioning the Fund’s assets across various asset classes in accordance with the NIB’s risk tolerance, goals and investment horizon. The asset allocation is said to explain 99.47% of the total returns of a portfolio thus comprising a very important component of the investment strategy. The three main asset classes are Equities, Fixed Income and Cash, however as investment products have evolved over the years, more asset classes have emerged offering better diversification in portfolios. At financial year end 2015, the NIB has strategically employed 7 different asset classes constructing a well diversified portfolio balancing the risk reward characteristics of each asset class using strategic targets. These asset classes are not all perfectly correlated with each other and will act differently under different market conditions to protect the portfolio against significant losses. Diversification is related to asset allocation in that it involves allocating funds across different types of investments. Therefore it is also done within asset classes and not simply between asset categories. The goal is the similar to asset allocation in that it is identifying investments (rather than classes) that will not all perform the same in varying market conditions. Diversification takes place across industries, market capitalizations and companies. In the NIB’s portfolio, the investments are well diversified within the asset classes. The Fund is invested in various market capitalizations from small cap to large cap; various styles such as growth and value; various industry sectors such as consumer discretionary, healthcare, technology, financials etc, all through hundreds of companies. The Fund is also concentrated in investments outside of the TCI to take advantage of diversification elements that do not exist in the TCI. In determining what percentage to allocate to each asset class, the NIB uses a sophisticated optimization process. The model considers a number of assumptions, constraints, risk tolerance and investment returns in producing the optimal target allocation for each asset class to ensure that the objectives of the Fund are met. These targets are also used as control mechanisms in ensuring the Fund does not stray from its objectives. Through market activity, the investments in the portfolio will come out of line with the investment goals. Rebalancing brings each asset class back in line with its target through selling or purchasing investments to reestablish the original strategic allocation. The NIB practices regular rebalancing (i.e. at least once per year) to ensure that the portfolio remains at its prescribed level of risk. All three principles are implemented on the advice of the Investment Consultant with the Investment Committee and Board of Directors having ultimate discretionary powers over the Fund. Individual fund managers within the portfolio have full powers over their own strategy and the stocks they pick. The NIB has a tremendous responsibility in ensuring that the decisions taken in the portfolio are well informed and for the best interest of the people of the Turks & Caicos Islands. While the gyrations of the stock market can provoke impulsive decisions, it is the discipline and long-term perspective of the NIB that keeps it committed to its strategy and on the path to achieving the objectives of the Fund. 24
2014 / 2015 ANNUAL REPORT STATEMENT ON INTERNAL CONTROLS Prepared by Marie Smith, Financial Controller STATEMENT OF INTERNAL CONTROLS The Internal Controls of the National Insurance Board (NIB) are all the Policies and Procedures that the NIB have designed to give reasonable assurance regarding the achievement of organizational objectives in the following areas: • Reliability of Financial Reporting • Operational effectiveness and efficiency • Compliance with applicable laws and regulation RESPONSIBILITY The Board of Directors and Management of the NIB are responsible for the internal controls in the organization. The NIB has sought to develop policies and procedures that maintain adequate systems of internal controls in the organization. The system of internal control has been developed to address the following interrelated components: • The Control environment • Risk assessment • Information and communication • Monitoring and Reviewing The NIB has developed a system of internal control that not only includes policies and procedures but also includes control activities which fall into two categories namely that of prevention and detection. These activities are applied throughout the organization at all levels to the various functions and processes and include the following: • Authorization • Documentation • Reconciliation • Security • Separation of duties The NIB constantly seeks to maintain a robust system of internal controls and this is accomplished by frequent review, updating and communicating changes to the policies and procedures to all concerned in the organization. 25
2014 / 2015 ANNUAL REPORT 2015 FINANCIAL STATEMENT TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD YEAR ENDED MARCH 31, 2015 26
CONTENTS TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Financial Statement | Year Ended - March 31, 2015 Independent Auditor's Report 28-30 FINANCIAL Statement of Financial Position 31 STATEMENT Statement of Income, Expenses and Reserves 32 33 2015 Long-Term Benefit Branch 34 Short-Term Benefit Branch 35 Employment Injury Benefit / Disablement and Death Benefit 36 Statement of Changes in Reserves 37 38-91 Statement of Cash Flows Notes to Financial Statement 27
KPMG Ltd. Telephone 649 946 4613 KPMG Building Fax 649 946 4619 PO Box 357 Internet www.kpmg.tc The Village at Grace Bay Providenciales Turks and Caicos Islands, BWI INDEPENDENT AUDITORS’ REPORT To the Board of Directors Turks and Caicos Islands National Insurance Board: FINANCIAL Report on the Financial Statements STATEMENT We have audited the accompanying financial statements of the Turks and Caicos Islands National 2015 Insurance Board (NIB), which comprise the statement of financial position as at March 31, 2015, the statements of income, expenses and reserves, changes in reserves and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Turks and Caicos Islands’ National Insurance Ordinance 1991 and National Insurance (Financial and Accounting) Regulations (hereafter referred to collectively as ‘the Ordinance’), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 28 KPMG Ltd., a Turks and Caicos Islands limited liability company, incorporated under 1 the Turks and Caicos Islands’ Companies Ordinance and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Opinion FINANCIAL In our opinion, these financial statements give a true and fair view of the financial position of NIB as at STATEMENT March 31, 2015, and of its financial performance and its cash flows for the year then ended in accordance with IFRS and the requirements of the Ordinance. 2015 Emphases of Matters Without qualifying our opinion, we draw attention to notes 9, 11, 12, 15 and 24 to these financial statements. As disclosed in notes 9 and 11 to these financial statements on April 9, 2010, TCI Bank Limited (TCI Bank) was placed into provisional liquidation and on October 29, 2010, TCI Bank was placed into liquidation. At March 31, 2015 and 2014, NIB held substantial long-term deposits with TCI Bank, a current account with TCI Bank and an investment in TCI Bank. NIB’s management have made certain fair value adjustments in relation to NIB’s various asset holdings with TCI Bank. Such fair value adjustments are disclosed more fully in the aforementioned notes to these financial statements and they include, but are not restricted to, a 56% fair value adjustment against the carrying value of NIB’s long-term deposits and current account with TCI Bank. As at the date of this report NIB had received interim distributions of 40 cents in the dollar from the liquidator in respect of its long term deposits and current account. The ultimate outcome of this matter cannot presently be determined with certainty and the actual fair value adjustment that will ultimately be needed against the carrying value of NIB’s various asset holdings with TCI Bank under IAS 39, ‘Financial Instruments: Recognition and Measurement’, can only be estimated using information available as at the date of this report and could vary significantly from the estimate provided because of the considerable inherent uncertainty involved. Consequently, the impact on the statement of financial position of the carrying value of these asset holdings with TCI Bank and the impact of the changes in fair value reported in the statements of income, expenses and reserves, as a consequence of TCI Bank being placed into provisional liquidation and subsequently into liquidation, cannot currently be estimated with any reasonable certainty. 29 2
FINANCIAL Emphases of Matters, continued STATEMENT In addition, we draw attention to notes 12, 15 and 24 to these financial statements. NIB is liable, per 2015 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, 2015 NIB made an advance payment to the TCI National Health Insurance Board 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. 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 and US$450,000 were provided for during the years ended March 31, 2014 and March 31, 2015 respectively. At March 31, 2015 NIB included in accounts payable and accrued expenses US$790,058 (2014: US$340,058) representing NIB’s best estimate of its remaining obligation for medical costs in connection with employment injuries as at that date. Despite efforts by NIB, as at the date of this report, no documentation has been provided to NIB to support medical costs incurred in relation to employment injuries for the period April 1, 2010 to March 31, 2015. In the absence of any evidence to the contrary, NIB considers the amounts of US$612,000, US$340,058 and US$450,000, recognised in the year ended March 31, 2011, 2014 and 2015, respectively, represent its best estimate of the total costs incurred for the period April 1, 2010 to March 31, 2015. NIB also considers the amount of US$790,058 (2014: US$340,058) included in accounts payable and accrued expenses at March 31, 2015 represents its best estimate of its outstanding liability as at that date. The ultimate outcome of this matter cannot presently be determined with certainty. NIB’s actual liability can only be estimated using information available as at the date of this report and could vary significantly from the amount provided. Consequently, the associated impact on the statement of financial position, the statement of income, expenses and reserves and statement of changes in reserves cannot currently be estimated with any reasonable certainty. We also draw attention to note 25 to these financial statements. The comparative balances for provisions for long-term benefits, other than retirement benefits, and associated branch reserves have been restated to comply with IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’ and IAS 1, ‘Presentation of Financial Statements’. Restrictions on Use This report is intended solely for the information and use of the Minister of Finance of TCI and the Directors of NIB and should not be relied on by anyone other than these specified parties. Chartered Accountants 3 Providenciales, Turks and Caicos Islands ___________, 2016 30
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Statement of Financial Position At March 31, 2015 with comparative figures at March 31, 2014 and March 31, 2013 2015 2014 2013 (as restated) (as restated) Assets Current assets: Cash and cash equivalents (note 5) US$ 35,275,365 44,905,495 34,315,837 3,243,570 2,790,567 4,418,572 Contributions and other receivables (note 6) 562,721 643,082 623,909 3,470,498 – – Current portion of long-term receivables (note 8) 27,953 27,206 28,451 Current portion of long-term deposits (note 9) 42,580,107 48,366,350 39,386,769 Other assets Non-current assets: 172,540,089 147,024,963 133,870,860 Available-for-sale financial assets (note 7) 2,330,303 2,913,800 3,480,997 Long-term receivables (note 8) 694,100 4,164,598 4,164,598 Long-term deposits (note 9) 3,645,835 2,917,542 2,959,087 Property and equipment (note 10) – – – Investment in TCI Bank Limited (note 11) 179,210,327 157,020,903 144,475,542 US$ 221,790,434 205,387,253 183,862,311 Liabilities and Reserves US$ 1,629,910 1,171,423 1,472,113 Liabilities: 29,100,000 26,800,000 29,600,000 Accounts payable and 30,729,910 27,971,423 31,072,113 accrued expenses (note 12) Provisions for long-term benefits, 141,970,000 133,751,909 115,707,075 FINANCIAL other than retirement benefits (note 22) 21,935,220 19,684,525 16,885,953 STATEMENT 837,091 4,302,542 4,350,636 Reserves: 26,318,213 19,676,854 15,846,534 2015 Long-term benefit branch Short-term benefit branch 191,060,524 177,415,830 152,790,198 Employment injury benefit (note 21) Disablement and death benefit US$ 221,790,434 205,387,253 183,862,311 The accompanying notes are an integral part of these financial statements. These financial statements were approved on behalf of the Board of Directors on ____________, 2016 by the following: Lillian Misick Chairman Walter Gardiner Director 4 31
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Statement of Income, Expenses and Reserves Year ended March 31, 2015 with comparative figures for year ended March 31, 2014 Income: US$ 2015 2014 Contributions: (as restated) Private sector 24,469,381 Civil servants 1,282,678 21,989,629 Self employed 703,833 1,201,220 Voluntary 1,910 672,657 6,655 Surcharges (note 6) 26,457,802 Income from, and net gains on, available-for-sale 2,089,689 23,870,161 434,134 financial assets (note 13) 10,204,428 Interest and other income (note 14) 451,797 5,166,136 492,366 Expenses: 39,203,716 Benefits (note 15) 29,962,797 General and administrative expenses (note 16) (12,700,444) Change in provisions for long-term benefits, (6,604,836) (11,560,335) other than retirement benefits (note 22) (4,586,419) Investment expenses (note 17) (2,300,000) (1,146,915) 2,800,000 Net income before other comprehensive (loss)/income (22,752,195) (1,208,733) Other comprehensive (loss)/income (note 18) (14,555,487) 16,451,521 Net income for year US$ (2,806,827) 15,407,310 13,644,694 9,218,322 24,625,632 Net income for year transferred to: US$ 8,218,091 18,044,834 Long-term benefit branch reserve 2,250,695 2,798,572 Short-term benefit branch reserve (3,465,451) (48,094) Employment injury benefit reserve FINANCIAL 6,641,359 3,830,320 STATEMENT Disablement and death benefit reserve 2015 US$ 13,644,694 24,625,632 The accompanying notes are an integral part of these financial statements. 32 5
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Long-Term Benefit Branch Statement of Income, Expenses and Reserve Year ended March 31, 2015 with comparative figures for year ended March 31, 2014 Income: US$ 2015 2014 Contributions: (as restated) Private sector 16,822,700 Civil servants 1,029,887 15,117,870 Self employed 569,277 964,483 Voluntary 1,910 544,061 6,655 Surcharges 18,423,774 Income from, and net gains on, available-for-sale 1,452,385 16,633,069 305,985 financial assets 7,693,010 Interest and other income 340,605 3,912,283 372,866 Expenses: 27,909,774 Benefits (note 15) 21,224,203 General and administrative expenses (9,985,759) Change in provisions for long-term benefits, (4,425,240) (9,072,080) (3,072,901) other than retirement benefits (2,300,000) Investment expenses (864,647) 2,900,000 (915,366) Net income before other comprehensive (loss)/income (17,575,646) (10,160,347) Other comprehensive (loss)/income 10,334,128 (2,116,037) 11,063,856 Net income for year US$ 8,218,091 6,980,978 18,044,834 The accompanying notes are an integral part of these financial statements. FINANCIAL STATEMENT 2015 6 33
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Short-Term Benefit Branch Statement of Income, Expenses and Reserve Year ended March 31, 2015 with comparative figures for year ended March 31, 2014 2015 2014 (as restated) Income: US$ 3,976,274 3,573,315 Contributions: 134,556 128,596 Private sector 28,088 26,304 Self employed Civil servants 4,138,918 3,728,215 343,291 72,324 Surcharges Income from, and net gains on, available-for-sale 1,132,195 570,947 50,127 54,415 financial assets Interest and other income 5,664,531 4,425,901 Expenses: (1,852,341) (1,732,836) Benefits (note 15) (1,122,822) (779,691) General and administrative expenses (133,586) Investment expenses (127,252) (3,102,415) (2,646,113) Net income before other comprehensive (loss)/income 2,562,116 1,779,788 Other comprehensive (loss)/income (311,421) 1,018,784 2,798,572 Net income for year US$ 2,250,695 The accompanying notes are an integral part of these financial statements. FINANCIAL STATEMENT 2015 34 7
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Employment Injury Benefit / Disablement and Death Benefit Statement of Income, Expenses and Reserves Year ended March 31, 2015 with comparative figures for year ended March 31, 2014 2015 2014 (as restated) Income: US$ 3,670,407 3,298,444 Contributions: 224,703 210,433 Private sector Civil servants 3,895,110 3,508,877 294,013 55,825 Surcharges Income from, and net gains on, available-for-sale 1,379,223 682,906 61,065 65,085 financial assets Interest and other income 5,629,411 4,312,693 Expenses: (1,056,774) (733,827) General and administrative expenses (862,344) (755,419) Benefits (note 15) (155,016) (159,781) Investment expenses Change in provisions for long-term benefits, – (100,000) other than retirement benefits (2,074,134) (1,749,027) Net income before other comprehensive (loss)/income 3,555,277 2,563,666 Other comprehensive (loss)/income (379,369) 1,218,560 3,782,226 Net income for year US$ 3,175,908 Net income for year transferred to: US$ (3,465,451) (48,094) Employment injury benefit reserve US$ 6,641,359 3,830,320 Disablement and death benefit reserve 3,175,908 3,782,226 The accompanying notes are an integral part of these financial statements. FINANCIAL STATEMENT 2015 8 35
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Statement of Changes in Reserves Year ended March 31, 2015 with comparative figures for year ended March 31, 2014 Long-term Short-term Employment Disablement benefit branch benefit injury and death branch benefit benefit Total March 31, 2013 (as restated) US$ 115,707,075 16,885,953 4,350,636 15,846,534 152,790,198 Transfer from 18,044,834 2,798,572 (48,094) 3,830,320 24,625,632 net income (as restated) March 31, 2014 133,751,909 19,684,525 4,302,542 19,676,854 177,415,830 (as restated) Transfer from 8,218,091 2,250,695 (3,465,451) 6,641,359 13,644,694 net income US$ 141,970,000 21,935,220 837,091 26,318,213 191,060,524 March 31, 2015 The accompanying notes are an integral part of these financial statements. FINANCIAL STATEMENT 2015 36 9
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Statement of Cash Flows Year ended March 31, 2015 with comparative figures for year ended March 31, 2014 Cash flows from operating activities: US$ 2015 2014 (as restated) Net income for year 13,644,694 Adjustments for: 24,625,632 (2,620) Gain on sale of property and equipment 20,776 (8,345) Change in fair value of TCIG bonds (note 14) 321,639 20,776 Depreciation of property and equipment (327,159) 297,678 Interest income (note 14) (364,321) Investment expenses on available-for-sale 942,804 1,040,046 financial assets (note 17) (10,204,428) Income from, and net gains on, available-for-sale (5,166,136) 2,806,827 financial assets 7,202,533 (9,218,322) Change in market value of 11,227,008 (480,140) available-for-sale financial assets (747) 558,510 1,245 Changes in operating assets: 458,487 Change in contributions and other receivables (300,690) Change in other assets 2,300,000 9,480,133 (2,800,000) Changes in operating liabilities: 8,686,073 Change in accounts payable and accrued expenses 2,620 Change in provisions for long-term benefits, (1,049,932) 8,345 other than retirement benefits (60,017,134) (256,133) 40,956,805 (67,075,967) Net cash from operating activities 67,266,276 354,296 1,433,816 Cash flows (used in)/from investing activities: FINANCIAL 493,082 377,248 STATEMENT Proceeds from sale of property and equipment 150,000 150,000 Additions to property and equipment (19,110,263) 1,903,585 2015 Net additions to available-for-sale financial assets Net proceeds from available-for-sale financial assets Interest income received Proceeds from partial repayment of TCI Investment Agency Ltd. loans Proceeds from partial repayment of TCIG bonds Net cash (used in)/from investing activities Net (decrease)/increase in cash and cash equivalents US$ (9,630,130) 10,589,658 Cash and cash equivalents at beginning of year 44,905,495 34,315,837 Cash and cash equivalents at end of year 35,275,365 44,905,495 The accompanying notes are an integral part of these financial statements. 10 37
FINANCIAL TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD STATEMENT Notes to Financial Statements 2015 Year ended March 31, 2015 1. General information The Turks and Caicos Islands National Insurance Board (NIB) is a body corporate established in the Turks and Caicos Islands (TCI) on April 6, 1992 pursuant to section 27 of the National Insurance Ordinance 1991 (the Ordinance), as revised. NIB’s primary purpose is to control and manage the National Insurance Fund (“the Fund”) established under section 45 of the Ordinance so as to provide various benefits to persons insured under the Ordinance. NIB’s registered office address is at the Hon. L. Headley Durham building, Grand Turk, TCI. 2. Basis of preparation (a) Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and with the requirements of the Ordinance. There were a number of changes to accounting policies (note 2(e)) during the year, one of which was not applied retrospectively as required by International Accounting Standard, Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8) as the impact was not considered to be material. (b) Basis of measurement These financial statements have been prepared on a fair value basis for all assets held for investment purposes and under the historical cost convention for all other assets and liabilities. The methods used to measure fair values are discussed further in note 4. (c) Functional and presentation currency These financial statements are presented in United States (US) dollars, which is NIB’s functional currency. All financial information presented in US dollars has been rounded to the nearest dollar. (d) Use of estimates and judgements The preparation of these financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. 38 11
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2015 2. Basis of preparation, continued FINANCIAL STATEMENT (d) Use of estimates and judgements, continued 2015 Information about significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts 39 recognised in the financial statements is included in the following notes: Note 6 – Contributions and other receivables Note 9 – Long-term deposits Note 11 – Investment in TCI Bank Limited Note 12 – Accounts payable and accrued expenses Note 15 – Benefits Note 22 – Actuarial review Note 23 – Contingent liabilities Note 24 – Commitments These financial statements have been prepared on a going concern basis. No adjustments or reclassifications have been made that might be necessary if a basis of accounting other than a going concern basis were to be used. (e) Changes in accounting policies On April 1, 2014 NIB changed its accounting policy with respect to recognition of surcharges due on late contributions from a cash basis of accounting to an accruals basis of accounting to comply with IAS 18, Revenue. IAS 8 requires this change in accounting policy to be applied retrospectively when the effect of applying the new accounting policy is material. NIB’s management decided not to restate the corresponding figures as there was no material impact on NIB’s financial statements. On April 1, 2014 NIB also changed its accounting policy to recognise, as a liability, the actuarial present value of long-term benefits, other than retirement benefits, to comply with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. NIB is obligated to provide various benefits to beneficiaries, including long-term benefits such as retirement benefits, survivor’s benefit and invalidity pension. As disclosed in note 22 to these financial statements, for retirement benefits NIB elected to apply IAS 26, ‘Accounting and Reporting by Retirement Benefit Plans’, disclosing the actuarial present value of promised retirement benefits in the notes to the financial statements, using the current salary approach. However, prior to the year ended March 31, 2015, the actuarial present value of long-term benefits, other than retirement benefits, was not included in NIB’s financial statements which was a departure from IAS 37. A more detailed explanation of the restatement of the previously reported 2014 and 2013 balances is provided in note 25 to these financial statements. 12
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2015 FINANCIAL 3. Significant accounting policies STATEMENT The accounting policies set out below have been applied consistently to all periods 2015 presented in these financial statements, and have been applied consistently by NIB. 40 Certain comparative amounts have been reclassified to conform with the current year’s financial statement presentation. (a) Non-derivative financial instruments Non-derivative financial instruments are recognised initially at fair value, plus any directly attributable transaction costs, on the trade date at which NIB becomes a party to the contractual provisions of the instrument. Subsequent to initial recognition, non-derivative financial instruments are measured as described below. Financial assets are derecognised when NIB’s contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by NIB is recognised as a separate asset or liability. Financial liabilities are derecognised when NIB’s contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset, and the net amount presented on the statement of financial position, when, and only when, NIB has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. NIB has the following non-derivative financial instruments: cash and cash equivalents, contributions and other receivables, available-for-sale financial assets, long-term receivables, long-term deposits and accounts payable and accrued expenses. (i) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables held for investment purposes are measured at fair value with changes in fair values recognised in the statement of income, expenses and reserves in accordance with International Accounting Standard 26, ‘Accounting and Reporting by Retirement Benefit Plans’ (IAS 26). 13
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD FINANCIAL STATEMENT Notes to Financial Statements, continued 2015 Year ended March 31, 2015 3. Significant accounting policies, continued (a) Non-derivative financial instruments, continued (i) Loans and receivables, continued Loans and receivables not held for investment purposes are measured at amortised cost subsequent to initial recognition. Loans and receivables comprise: cash and cash equivalents, contributions and other receivables, long-term receivables and long-term deposits. Cash and cash equivalents comprise cash on hand, cash at investment managers and cash at banks - savings and current accounts. Cash equivalents are short-term highly liquid investments with maturities of three months or less from the acquisition date that are subject to an insignificant risk of change of value and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Debt instruments that are not quoted in an active market are classified as loans and receivables. Contributions and other receivables comprise outstanding contributions from private employers and the self-employed, interest receivable and other receivables. (ii) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale and that are not classified in any of the previous categories. NIB’s investments in equity and debt securities are classified as available-for- sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein are recognised as other comprehensive income in the statement of income, expenses and reserves. (iii) Accounts payable and accrued expenses Trade and other payables are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition trade and other payables are measured at amortised cost using the effective interest rate method. 14 41
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2015 FINANCIAL 3. Significant accounting policies, continued STATEMENT (a) Non-derivative financial instruments, continued (iii) Accounts payable and accrued expenses, continued 2015 The effective interest rate method is a method of calculating the amortised cost 42 of a financial liability and allocating the interest expense over the relevant period. The effective interest rate is the rate that discounts the estimated future cash payments through the expected life of the financial instrument. When calculating the effective interest rate, NIB estimates cash flows considering all contractual terms of the financial instrument. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. (b) Provisions A provision is recognised if, as a result of a past event, NIB has a present legal or constructive obligation that can be reliably estimated, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a rate that reflects current market assessments of the time value of money and the risks specific to the liability. Per IAS 26 NIB has an option as to whether it discloses the actuarial present value of promised retirement benefits on the statement of financial position, in the notes to the financial statements or in an accompanying actuarial report. NIB has elected to disclose the actuarial present value of promised retirement benefits in a note to the financial statements (note 22). The actuarial present value of long-term benefits, other than retirement benefits, was quantified by an independent actuary at March 31, 2013, 2014 and 2015 (note 22) and recognised in NIB’s financial statements in accordance with IAS 37 and IAS 1, Presentation of Financial Statements. (c) Property and equipment (i) Recognition and measurement Property and equipment are measured at cost less accumulated depreciation and impairment losses (note 3(f)(ii)). Cost includes expenditures that are directly attributable to the acquisition of property and equipment. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. 15
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2015 3. Significant accounting policies, continued (c) Property and equipment, continued (i) Recognition and measurement, continued When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Gains or losses arising from the disposal of property and equipment are reflected in the statement of income, expenses and reserves. (ii) Subsequent costs The cost of replacing an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to NIB and its cost can be reliably measured. The carrying amount of the replaced part is derecognised. The cost of the day- to-day servicing of property and equipment is recognised in the statement of income, expenses and reserves, as incurred. (iii) Depreciation Depreciation is recognised in the statement of income, expenses and reserves on a straight-line basis over the estimated useful lives of each part of an item of property and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Land is not depreciated. Estimated useful lives for the current and comparative periods are as follows: Buildings 25 years Furniture & Fixtures 3-10 years FINANCIAL STATEMENT Computer Equipment 3-10 years 2015 Motor Vehicles 4 years Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted, if necessary. 16 43
FINANCIAL TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD STATEMENT Notes to Financial Statements, continued 2015 Year ended March 31, 2015 3. Significant accounting policies, continued (d) Reserves The TCI National Insurance (Financial and Accounting) Regulations (the Regulations) require benefits and reserves to be grouped into separate benefit branches (the Benefit Branches) and reserves, respectively, as follows: (i) Long-term Benefit Branch, comprising retirement benefit, invalidity pension, survivors’ benefit, funeral grant and non-contributory old age pension. A Long-term Benefit Reserve is constituted by annually transferring the excess of income over expenses of the Long-term Benefit Branch. (ii) Short-term Benefit Branch, comprising sickness benefit and maternity benefit. A Short-term Benefit Reserve is constituted by annually transferring the excess of income over expenses of the Short-term Benefit Branch. (iii) Employment Injury Benefit Branch, comprising injury benefit, disablement benefit, death benefit, death grant payable on death due to employment injury and medical care. An Employment Injury Benefit Reserve is constituted to finance employment injury benefit, disablement grant, death grant and medical care by annually transferring that part of the net income of the Employment Injury Benefit Branch that is sufficient to maintain the level of the reserve at one-half of the amount paid for the said benefits in the two previous financial years. (iv) A Disablement and Death Benefit Reserve is constituted by annually transferring the remaining net income of the Employment Injury Benefit Branch, after the aforementioned transfer has been made to the Employment Injury Benefit Reserve in accordance with the Regulations. Further information on the allocation of income and expenses to the reserves is shown in note 3(e)(v). 44 17
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD FINANCIAL STATEMENT Notes to Financial Statements, continued 2015 Year ended March 31, 2015 3. Significant accounting policies, continued (e) Revenue and expense recognition (i) Contribution and surcharge income Contribution income is recognised on an accruals basis, at the requisite statutory rates, utilising employer monthly contribution statements, which are settled in arrears. Surcharges are recognised on an accruals basis at the requisite statutory rates. (ii) Rental income Rental income is recognised in the statement of income, expenses and reserves on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income over the term of the lease. (iii) Investment income Investment income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets and change in market value of available-for- sale financial assets. Interest income is recognised in the statement of income, expenses and reserves as it accrues, using the effective interest rate method. Dividend income is recognised in the statement of income, expenses and reserves on the date that NIB’s right to receive payment is established, which, in the case of quoted securities, is the ex-dividend date. Gains on the disposal of available-for-sale financial assets are included in the statement of income, expenses and reserves in the period in which they arise. (iv) Benefits, general and administrative expenses Expenditure on benefits is recognised when NIB’s obligation to make a payment has been established, which is generally upon approval of a claim. General and administrative expenses are recognised on an accruals basis. Long-term benefits such as retirement pension, old age non contributory, survivors, invalidity pension, retirement, funeral and survivors grants are generally recognised upon approval of a claim subject to the provisions of sections 3(1), 53(1), 14(1), 7(1), 3(4), 20(1) and 14(2) of the TCI National Insurance (Benefit) Regulations (the Benefit Regulations), respectively. 18 45
FINANCIAL TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD STATEMENT Notes to Financial Statements, continued 2015 Year ended March 31, 2015 3. Significant accounting policies, continued (e) Revenue and expense recognition, continued (iv) Benefits, general and administrative expenses, continued Short-term benefits such as maternity allowance, sickness and maternity grants are generally recognised upon approval of a claim subject to the provisions of sections 28(1), 22(1) and 33(1) of the Benefit Regulations, respectively. Employment injury benefits such as disablement, death and injury are generally recognised upon approval of a claim subject to the provisions of sections 39(1), 45 and 35(1) of the Benefit Regulations, respectively. As disclosed in notes 3(i) and 22, NIB has chosen to disclose the actuarial present value of promised retirement benefits and other long-term benefits in the notes to these financial statements as per IAS 26. An actuarial valuation is performed every 3 years. The latest valuation was performed as at March 31, 2013. Certain results of the actuarial valuation as at March 31, 2013 are disclosed further in note 22. The actuarial present value of long-term benefits, other than retirement benefits, was quantified by an independent actuary at March 31, 2013, 2014 and 2015 (note 22) and recognised in NIB’s financial statements in accordance with IAS 37. (v) Basis of apportionment of income and expense The statutory rates of total contributions, which are applied on an employed and self-employed person’s earnings and stipulated under sections 4, 14 and 19 of the TCI National Insurance (Contributions) Regulations (the Contributions Regulations), are as follows: Civil Servants 6.85%; Private Sector (general) 8.00%; Private Sector (under section 4(3) of the Contributions Regulations) 2.50%; Self Employed 6.80%; and Voluntary 5.50%. Section 4(3) of the Contributions Regulations relates to the employment of a temporary resident employed person on which contributions are payable at a rate of 2.5% and not the standard 8% for all other private sector workers. Section 13(1) of the Regulations provides that the aforementioned total contribution and surcharge income (note 3(e)(i)) shall be allocated among the Benefit Branches as follows: 46 19
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2015 3. Significant accounting policies, continued (e) Revenue and expense recognition, continued (v) Basis of apportionment of income and expense, continued Long-Term Short-Term Employment Benefit Branch Benefit Injury Benefit Contributions from: 5.50 / 6.85 Branch Branch 5.50 / 8.00 Civil Servants 0.15 / 6.85 1.20 / 6.85 Private Sector (general) – 1.30 / 8.00 1.20 / 8.00 Private Sector (under section 5.50 / 6.80 10.0 / 10.0 1.30 / 2.50 1.20 / 2.50 4(3) of the Contributions 1.30 / 6.80 – Regulations) – Self Employed – Voluntary Section 13(2) of the Regulations provides that income from investments of reserves shall be allocated to the Benefit Branches in proportion to the amount of the reserve of each Benefit Branch at the beginning of the respective year. Investment income for the year ended March 31, 2015 and 2014 was allocated as follows: Long-Term Benefit Branch 2015 2014 Short-Term Benefit Branch Employment Injury Benefit Branch 75.39% 75.73% 11.09% 11.05% 13.52% 13.22% 100.00% 100.00% Section 14(1) of the Regulations provides that expenditure on each benefit shall FINANCIAL be ascribed to the appropriate branch. STATEMENT Section 14(2) of the Regulations provides that the administrative expenditure of 2015 NIB shall be distributed among the Long-Term Benefit Branch, Short-Term Benefit Branch and Employment Injury Benefit Branch in the proportion of 67%, 17% and 16%, respectively. (f) Impairment (i) Financial assets Financial assets held for investment purposes are measured at fair value with changes in fair values recognised in the statement of income, expenses and reserves. 20 47
TURKS AND CAICOS ISLANDS NATIONAL INSURANCE BOARD Notes to Financial Statements, continued Year ended March 31, 2015 FINANCIAL 3. Significant accounting policies, continued STATEMENT (f) Impairment, continued 2015 (i) Financial assets, continued 48 Financial assets not held for investment purposes are assessed at each reporting date to determine whether there is objective evidence that they are impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss events(s) had an impact on the estimated future cash flows of that asset that can be reliably estimated. Objective evidence that financial assets (including equity securities) are impaired can include, amongst other factors, default or delinquency by a debtor, restructuring of an amount due to NIB on terms that NIB would not consider otherwise, indications that a debtor or issuer will enter bankruptcy and the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Financial assets measured at amortised cost NIB considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment NIB uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in the statement of income, expenses and reserves and reflected in an allowance account against loans and receivables. Interest on the impaired asset continues to be recognised. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed in the statement of income, expenses and reserves. 21
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