CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 CONTENTS Page Independent Auditor’s Report 1 Balance Sheet 2 Statement of Operations 3 Statement of Changes in Shareholder's Equity 4-5 Statement of Cash Flows 6 Notes to the Financial Statements 7 - 25 Supplementary financial information not forming part of the audited financial statements - Balance Sheet as of May 31, 2015 26 - Statement of Operations as of May 31, 2015 27 - Statement of Cash Flows as of May 31, 2015 28 - 29 INDEPENDENT AUDITOR’S REPORT To the Board of Directors of CCRIF SPC We have audited the accompanying financial statements on pages 2 – 25 of the Core, EQ/TC SP, XSR SP, LPC SP and CA SP each as defined in Note 1 of the financial statements which comprise the balance sheets as at May 31, 2016, and the related statements of operations, changes in shareholder’s equity 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 accounting principles generally accepted in the United States of America, 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. Auditor's 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 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 the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the Core, EQ/TC SP, XSR SP, LPC SP and CA SP as at May 31, 2016, and each of their financial performance and each of their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. September 16, 2016 PricewaterhouseCoopers , 18 Forum Lane, Caman Bay, P.O. Box 258, Grand Cayman, KY1- 1104, Cayman Islands, T: +1 (345) 949 7000, F: +1 (345) 949 7352, www.pwc.com/ky -1- CCRIF SPC BALANCE SHEET AT MAY 31, 2016 (Expressed in United States dollars) Core EQ/TC SP XSR SP LPC SP CA SP $ $ $ $ $ ASSETS Cash and cash equivalents (Note 4) 3,386,022 1,892,992 2,913,421 744,720 632,920 Investments, at fair value (Note 5) 54,679,207 42,608,698 18,400,234 4,289,493 - Development costs (Note 16) 460,167 - - - - Accrued interest 376,427 403,349 177,557 33,962 - Unrealized gains on forward contracts (Note 8) 20,953 73,492 19,685 6,213 - Due from Donor Funds - - - - 260,650 Due from Core (Note 17) - 13,420,008 - - 193,640 Due from Segregated Portfolios (Note 17) 2,500 1,285,000 15,000 - - Premium Receivable - - 496,711 - - Prepaid expenses 16,031 - - - - Total assets 58,941,307 59,683,539 22,022,608 5,074,388 1,087,210 LIABILITIES AND SHAREHOLDER’S EQUITY Liabilities Accounts payable and accrued expenses 223,392 92,114 23,992 6,293 4,241 Due to Core (Note 17) - - 2,500 - - Due to Segregated Portfolios (Note 17) 13,613,648 - 1,285,000 - 15,000 Participation fee deposits (Note 7) - 13,232,508 - - 1,000,000 Total liabilities 13,837,040 13,324,622 1,311,492 6,293 1,019,241 Shareholder’s equity Share capital (Note 9) 1,000 - - - - Non-voting redeemable preference shares (Note 9) - 1 1 1 1 Share premium (Note 9) 119,000 42,499,999 24,999,999 4,999,999 - Retained earnings / (accumulated deficit) 44,984,267 3,858,917 (4,288,884) 68,095 67,968 Total shareholder’s equity 45,104,267 46,358,917 20,711,116 5,068,095 67,969 Total liabilities and shareholder’s equity 58,941,307 59,683,539 22,022,608 5,074,388 1,087,210 Approved for issuance on behalf of the Board of Directors of CCRIF SPC by: Milo Pearson September 16, 2016 6 Director Date Desiree Cherebin September 16, 2016 6 Director Date The accompanying notes on pages 7-25 are an integral part of these financial statements. -2- CCRIF SPC STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) Core EQ/TC SP XSR SP LPC SP CA SP $ $ $ $ $ Operating income Income from parametric insurance contracts (Note 2) - 24,325,646 6,816,085 - 1,000,000 Discounts awarded on parametric insurance contracts - (13,294,562) (986,343) - - Expenses on parametric reinsurance contracts (Note 2) - (9,121,276) (4,100,000) - (521,300) Net income on parametric contracts - 1,909,808 1,729,742 - 478,700 Ceding commissions on parametric reinsurance contracts - 267,771 - - - Total operating income - 2,177,579 1,729,742 - 478,700 Operating expenses Claims paid on parametric insurance contracts (Note 11) - - 2,402,153 - - Claims recovered on parametric insurance contracts (Note 11) - - - - - Brokerage, facility supervisor and risk management specialist fees 785,265 45,564 6,250 - - Total operating expenses 785,265 45,564 2,408,403 - - Net operating income / (loss) (785,265) 2,132,015 (678,661) - 478,700 Other income and expenses Net investment income (Note 12) 756,723 434,195 178,979 31,254 104 Income from Donor Funds (Note 6) 9,239 - - - 581,300 Amortisation of development costs (Note 16) (83,166) - - - - Technical assistance expenses (659,921) - - - - Central American Initiative (Note 10) 227,010 - - - (227,010) Segregated portfolio rental fees 2,575,000 (1,500,000) (400,000) - (675,000) Administrative expenses (Note 14) (1,336,132) (44,568) (235,129) 3,494 (90,126) Net income / (loss) for the year 703,488 1,021,642 (1,134,811) 34,748 67,968 The accompanying notes on pages 7-25 are an integral part of these financial statements. -3- CCRIF SPC STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY (Expressed in United States dollars) Core Non-voting Share redeemable Share Retained Capital preference shares premium earnings Total Balance at May 31, 2015 $ 1,000 $ - $ 119,000 $ 44,280,779 $ 44,400,779 Net income for the year - - - 703,488 703,488 Balance at May 31, 2016 $ 1,000 $ - $ 119,000 $ 44,984,267 $ 45,104,267 EQ/TC SP Non-voting Share redeemable Share Retained Capital preference shares premium earnings Total Balance at May 31, 2015 $ - $ 1 $ 42,499,999 $ 2,837,275 $ 45,337,275 Net income for the year - - - 1,021,642 1,021,642 Balance at May 31, 2016 $ - $ 1 $ 42,499,999 $ 3,858,917 $ 46,358,917 XSR SP Non-voting Share redeemable Share Accumulated Capital preference shares premium deficit Total Balance at May 31, 2015 $ - $ 1 $ 24,999,999 $( 3,154,073) $ 21,845,927 Net loss for the year - - - ( 1,134,811) ( 1,134,811) Balance at May 31, 2016 $ - $ 1 $ 24,999,999 $( 4,288,884) $ 20,711,116 LPC SP Non-voting Share redeemable Share Retained Capital preference shares premium earnings Total Balance at May 31, 2015 $ - $ 1 $ 4,999,999 $ 33,347 $ 5,033,347 Net income for the year - - - 34,748 34,748 Balance at May 31, 2016 $ - $ 1 $ 4,999,999 $ 68,095 $ 5,068,095 The accompanying notes on pages 7-25 are an integral part of these financial statements. -4- CCRIF SPC STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY (Expressed in United States dollars) CA SP Non-voting Share redeemable Share Retained Capital preference shares premium earnings Total Balance at May 31, 2015 $ - $ - $ - $ - $ - Preference shares issued - 1 - - 1 Net income for the year - - - 67,968 67,968 Balance at May 31, 2016 $ - $ 1 $ - $ 67,968 $ 67,969 The accompanying notes on pages 7-25 are an integral part of these financial statements. -5- CCRIF SPC STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) Core EQ/TC SP XSR SP LPC SP CA SP $ $ $ $ $ Operating activities Net income/ (loss) for the year 703,488 1,021,642 (1,134,811) 34,748 67,968 Adjustments to reconcile net income/(loss) to net cash from operating activities: Adjustment for items not affecting cash: Change in fair value of investments 279,088 171,509 109,907 303 - Net realized losses on investments 486,100 620,050 296,210 99,123 Change in unrealized gain on derivatives (225,383) (396,587) (159,803) (49,135) Amortisation of development cost 83,166 - - - - Trading Securities: Purchase of securities (19,439,929) ( 17,944,798) (6,331,115) (1,327,492) - Proceeds from sale of securities 16,715,071 11,434,935 5,576,279 1,635,232 - Changes in assets and liabilities: Due from Core - 321,759 127,574 - ( 193,640) Due from Segregated portfolios 11,440 ( 1,285,000) 2,531,538 - - Accrued interest (13,034) 17,914 19,085 15,137 - Amounts due from Donor Funds - - - - ( 260,650) Premium receivable - - (496,711) - - Prepaid expenses 74,593 - - - - Accounts payable and accrued expenses (169,727) 43,506 ( 44,980) ( 4,647) 4,241 Income from parametric contracts received in advance - ( 1,425,000) ( 106,250) - - Due to Core - - 2,500 ( 13,940) - Due to Segregated Portfolios (255,693) (2,546,538) 1,285,000 - 15,000 Net cash provided by / (used in) operating activities (1,750,820) (9,966,608) 1,674,423 389,329 ( 367,081) Investing activities Development costs (155,000) - - - - Net cash used in investing activities (155,000) - - - - Financing activities Participation fee deposits* - ( 187,500) - - 1,000,000 Share capital received - - - - 1 Net change in cash and cash equivalents (1,905,820) (10,154,108) 1,674,423 389,329 632,920 Cash and cash equivalents at the beginning of year 5,291,842 12,047,100 1,238,998 355,391 - Cash and cash equivalents at the end of year 3,386,022 1,892,992 2,913,421 744,720 632,920 Interest and dividends received 1,675,956 1,422,510 692,909 155,069 104 *Non-cash decrease in participation fee deposits in EQ/TC SP was utilized to settle certain premium payments from parametric contracts in EQ/TC SP (Note 7). Non cash transactions between the Core and SP’s are disclosed in Note 17. The accompanying notes on pages 7-25 are an integral part of these financial statements. -6- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 1. Incorporation and principal activity The Company was incorporated as Caribbean Catastrophe Risk Insurance Facility on February 27, 2007 under the laws of the Cayman Islands and obtained an insurance licence under the provisions of the Cayman Islands Insurance Law on May 23, 2007. On May 27, 2014 the Company re-registered as a Segregated Portfolio Company under the name of CCRIF SPC. The Company’s sole shareholder is Mourant Ozannes Corporate Services (Cayman) Limited as is trustee (the “Trustee”) of the CCRIF Star Trust (the “Trust”). The non-voting redeemable preference shares of each segregated portfolio (Note 9) are also held by the Trust. The principal activity of the Company, through the establishment of various segregated portfolios (the “Segregated Portfolios”), is to provide catastrophe risk coverage through parametric insurance contracts, specifically relating to tropical cyclones, earthquakes and excess rainfall events (“events”), to certain Caribbean and Central American countries (“Participating Countries”). As of May 31, 2016, the Company comprises the general assets (the “Core”), which undertakes no underwriting activities, and four Segregated Portfolios (“SP”s), namely: • Caribbean EQ/TC SP (“EQ/TC”) – provides earthquake and tropical cyclone coverage to Caribbean governments • Caribbean XSR SP (“XSR”) – provides excess rainfall coverage to Caribbean governments • Loan Portfolio Cover SP (“LPC”) – provides loan portfolio coverage to financial institutions in Caribbean countries. • Central America SP (“CA SP”) - provides earthquake and tropical cyclone coverage to Central American governments Collectively the Core and SPs are referred to as “CCRIF SPC”. In accordance with the relevant Cayman Islands laws, the assets and liabilities of the Segregated Portfolios are required to be kept separate and segregated from the assets and liabilities of the Core. Further, the assets and liabilities of each Segregated Portfolio are required to be kept segregated, separate and separately identifiable from the assets and liabilities of any other Segregated Portfolio. In the case of insolvency with respect to the general business activities, creditors will be entitled to recourse only to the extent of the assets of the Core. In the case of insolvency with respect to or attributable to a particular Segregated Portfolio, creditors will be entitled to have recourse only to the assets attributable to such Segregated Portfolio; such a claim shall not extend to the assets attributable to the Core or any other Segregated Portfolio. The Core and SPs all use common service providers, share common processes, accounting systems, control environment, management and apply common accounting policies. 2. Parametric contracts Each Participating Country determines the level of aggregate coverage and attachment points which are then used to determine their individual premiums. Claims are based on model-derived estimates of government losses generated using a pre-defined and escrowed catastrophe loss model and input data regarding the nature of each physical hazard event, as set out in the “Claims Procedures Manual” (hereinafter the “Claim Payout”) and not with reference to actual losses incurred by the respective Participating Countries. Accordingly, Claim Payouts are not triggered by actual losses but rather the occurrence of the specified events within the defined policy parameters. -7- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 2. Parametric contracts (continued) EQ/TC SP has ceded layers of this exposure to commercial reinsurers and the International Bank for Reconstruction and Development (“IBRD”). The following is a summary of the coverage in the program for the period up to May 31, 2016:  EQ/TC SP retains all losses up to $30 million.  100% of the next $138 million of losses are reinsured with quality reinsurers with an A.M. Best rating of at least A and the IBRD.  EQ/TC SP retains all subsequent losses above $168 million. The modelled probability of a loss reaching this layer has been indicated to be a 1-in-1,000 year loss event. For the 2015/16 policy year (which terminated on May 31, 2016), the combined aggregate coverage limits for all Participating Countries in the EQ/TC SP were $294 million for tropical cyclone events and $147 million for earthquake events, respectively. XSR SP has ceded layers of this exposure to a commercial reinsurer. The following is a summary of the coverage in the program for the period up to May 31, 2016:  XSR SP retains all losses up to $7 million.  100% of the next $35 million of losses are reinsured with a quality reinsurer with an A.M. Best rating of A+.  XSR SP retains all subsequent losses above $42 million. The modelled probability of a loss reaching this layer has been indicated to be a 1-in-5,000 year loss event. For the 2015/16 policy year (which terminated on May 31, 2016), the combined aggregate coverage limits for all Participating Countries in the XSR SP were $55 million. CA SP has ceded layers of this exposure to a commercial reinsurers. The following is a summary of the coverage in the program for the period up to May 31, 2016:  CA SP retains all losses up to $1.5 million.  100% of the next $16 million of losses are reinsured with a quality reinsurer with an A.M. Best rating of A+.  CA SP retains all subsequent losses above $17.5 million. The modelled probability of a loss reaching this layer has been indicated to be a 1-in-80 year loss event. For the 2015/16 policy year (which terminated on May 31, 2016), the combined aggregate coverage limits for all Participating Countries in the CA SP were $8 million for tropical cyclone events and $10 million for earthquake events, respectively. Losses are determined in accordance with the formulae set out in the contracts and are recorded as an expense on occurrence of a covered event. At May 31, 2016, there were no unpaid losses. LPC coverage has not yet commenced. 3. Significant accounting policies These financial statements on pages 2-25 have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are stated in United States dollars. A summary of the significant accounting and reporting policies used in preparing the accompanying financial statements is as follows: -8- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 3. Significant accounting policies (continued) Management estimates and assumptions: The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from these estimates. Cash and cash equivalents: Cash and cash equivalents comprise of call accounts with banker and investment custodians. Investments: Investments consist of investments in equities, exchange-traded funds, retail mutual funds, corporate and government debt securities and short-term investments. Investment securities are traded with the objective of generating profits on short-term differences in market prices; accordingly, investments are classified as trading securities and are measured at fair value. The fair value of exchange-traded funds is based on quoted market prices. The fair value of equity and fixed income securities are determined based on quoted market prices and/or prices determined using generally accepted pricing models as provided by the investment manager and custodian. The fair value of the retail mutual funds is based on the daily net asset values provided by fund administrators. Unrealized gains and losses on investments are recorded as a change in fair value in the Statement of Operations. Realized gains and losses on investments are determined on the specific identification method and are credited or charged to the Statement of Operations. Interest and dividend income is recorded on the accruals basis. Forward and futures contracts: Investment managers are permitted to invest, within prescribed limits, in financial exchange traded futures contracts for managing the asset allocation and duration of the fixed income portfolio. Initial margin deposits are made upon entering into futures contracts and can be made either in cash or securities. During the period the futures contracts are open, changes in the value of the contracts are recognized as unrealized gains or losses by “marking-to-market” on a daily basis to reflect the market value of the contracts at the end of each day’s trading. Variation margin payments are made or received, depending upon whether unrealized losses or gains are incurred. When the contracts are closed realized gain or loss is recorded equal to the difference between the proceeds from (or cost of) the closing transaction and the basis in the contracts. Futures contracts are valued based on exchange traded prices. Investment managers are also permitted to invest in forward foreign exchange contracts to hedge or obtain exposure to foreign currency fluctuations in its securities which are denominated in currencies other than the U.S. dollar. These contracts are also valued daily using the “marking-to-market” method and are recognized in the balance sheet at their fair value, being the unrealized gains or losses on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date. Open forward and futures contracts are valued using Level 1 and Level 2 inputs (as defined in the accounting policy below), respectively. Realized gains and losses and movement in unrealized gains and losses on both futures and foreign currency forward contracts are recorded as a component of investment income in the Statement of Operations. Over-the-counter (“OTC”) options: Investment managers are permitted to purchase and write OTC options to hedge against or obtain exposure to changes in the value of equities. OTC options are generally valued based on estimates provided by broker dealers or derived from proprietary/external pricing models using quoted inputs based on the terms of the contracts. Movement in unrealized gains and losses on OTC options are recorded as a component of investment income in the Statement of Operations. Open OTC options are valued using Level 2 inputs (as defined in the fair value measurements accounting policy below). -9- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 3. Significant accounting policies (continued) Other Options and Warrants: Investment managers are permitted to purchase exchange-traded options and warrants to hedge against or obtain exposure to changes in equity price. When an option or warrant is purchased, an amount equal to the premium paid is recorded as an investment and is subsequently adjusted to the current market value of the option or warrant purchased. Premiums paid for the purchase of options or warrants which expire unexercised are treated as realized losses on derivative contracts. If a purchased put option is exercised, the premium is subtracted from the proceeds of the sale of the underlying security, foreign currency or commodity in determining whether gain or loss have been realized on derivative contracts. If a purchased call option or warrant is exercised, the premium increases the cost basis of the purchased security, foreign currency or commodity. Movement in unrealized gains and losses on other options and warrants are recorded as a component of investment income in the Statement of Operations. Open options and warrants are valued using Level 2 inputs (as defined in the fair value measurements accounting policy below). Fair value measurements: US GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under US GAAP are as follows: Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that CCRIF SPC has the ability to access at the measurement date; Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; Level 3 Inputs that are unobservable. Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors for debt securities. The fair value of investments in common stocks and exchange-traded funds is based on the last traded price. Net Asset Values (“NAV”) are used to estimate the fair value of investments in non-exchange traded mutual funds. Investments in debt securities are valued based on observable inputs for similar securities and may include broker quotes. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the investment managers and custodians. The investment manager and custodian consider observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant markets. The categorization of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the investment advisors’ perceived risk of that instrument. Investments are initially recorded at cost on trade date (being the fair value at date of acquisition) and are subsequently re-valued to fair value. Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed equities, exchange-traded funds and certain short-term, investments. The investment manager does not adjust the quoted price for such instruments. - 10 - CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 3. Significant accounting policies (continued) Investments that trade in markets that are considered to be less active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include liquid corporate debt securities and non-exchange traded mutual funds. As Level 2 investments include positions that may not be traded in active markets and/or may subject to transfer restrictions, valuations may be adjusted, generally based on available market information. None of the investments are classified within Level 3. Income from Donor Funds: In accordance with the agreements described in Note 6, income from Donor Funds is recorded on an accruals basis when costs reimbursable under the grant agreements were incurred and are contractually reimbursable. Income and expenses from parametric contracts: Amounts payable/receivable for claims under the parametric policies written and ceded does not correlate directly to the policyholder's incurred insurable loss (see Note 2 for details). Accordingly, these policies are not accounted for as insurance contracts within these financial statements. Income from parametric contracts is initially recognized as a liability (reinsurance expense ceded: as an asset) and subsequently reported at fair value. All subsequent changes in fair value of the parametric contracts are recognized in earnings as income (reinsurance expenses) attributable to parametric contracts. The fair value of the contracts is determined based on management's best estimate of the discounted payouts (recoveries) resulting from the reasonably probable occurrence, magnitude and location of insured/reinsured events (based on historical trends and statistics) during the unexpired period of the contracts. At May 31, 2016, there was no unexpired period on either the written or ceded parametric contracts; accordingly, the fair value of these instruments was $Nil and accordingly, all income and expenses on such contracts are recognized as income/expense in the Statement of Operations. The net realized gains on the parametric contracts are comprised of the following line items within the Statement of Operations: Income from parametric insurance contracts, Discounts awarded on parametric insurance contracts and Claims paid on parametric insurance contracts, and are $11,031,084 in EQ/TC SP, $3,427,589 in XSR SP and $1,000,000 in CA SP for the year ended May 31, 2016. Participation fee deposits: Participation fee deposits are paid by Participating Countries to enter the program. Deposits received are recorded as a liability in the financial statements. Participation fee deposits are recognized as income when:  they are no longer refundable to the Participating Countries (see Note 7); and/or  they are required to fund losses (see Note 7) Deposits that are utilized to fund losses will be reinstated to the extent available from subsequent retained earnings up to the maximum amount of the initial deposits. Foreign currency translation: Foreign currency assets and liabilities are converted to U.S. dollars at the rate of exchange prevailing at the balance sheet date. Transactions in foreign currencies are converted into U.S. dollars at the rate of exchange prevailing at the date of the transaction. Foreign exchange differences are included in the Statement of Operations in the year to which they relate. Uncertain income tax positions: The authoritative US GAAP guidance on accounting for, and disclosure of, uncertainty in income tax positions requires CCRIF SPC to determine whether an income tax position is more likely than not to be sustained upon examination by the relevant tax authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For income tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements, if any, is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. The application of this authoritative guidance has had no effect on the financial statements. - 11 - CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 3. Significant accounting policies (continued) Provision for uncollectible receivables: Management evaluates credit quality by evaluating the exposure to individual counterparties; where warranted management also considers the credit rating of financial position, operating results and or payment history of the counterparty. Management establishes provisions for amounts for which collection is considered doubtful. Adjustments for previous assessments are recognized as income in the year in which they are determined. No receivables are due in more than 12 months. At May 31, 2016, no receivables were determined to be past due or impaired and, accordingly, no provision for doubtful collection has been established. Development costs: Development costs are amounts capitalized with respect to the development of the second generation catastrophe loss model which became operational, effective June 1, 2010, upgrade to the second generation loss model which became operational subsequent to May 31, 2012 and the excess rainfall model which became operational in 2014. The development costs are amortized on a straight line basis over 10 years for loss models (and 3 years for model upgrades), (being management’s best estimate of the expected useful life) from the date the respective models become operational. Segregated Portfolios: Each segregated portfolio’s assets, liabilities and transactions are kept segregated and separately identifiable and accordingly each segregated portfolio is a separately identifiable financial reporting unit which respectively maintains segregated accounting records. Each individual Segregated Portfolio is established in connection with the issuance of separate non-voting redeemable preference shares which are attributable to an individual segregated portfolio. The preference shares of each Segregated Portfolio are held by the Trust. Accordingly, as the Core has no ownership or beneficial interests in the net assets of any Segregated Portfolio, the results of the Segregated Portfolios are not consolidated and no transactions between Segregated Portfolios and/or the Core are eliminated. Separate financial statements are prepared for the Core and each Segregated Portfolio and presented collectively in columnar format. Segregated Portfolio rental fees: The Board of Directors may, at its discretion, charge rental fees to the Segregated Portfolios. Such fees represent a discretionary allocation of central costs necessarily incurred by the Core in the operation of the Segregated Portfolios. Rental fee income and expenses is recorded by the Core and Segregated Portfolios, respectively, when declared by the Board of Directors and in the amounts so determined by the Board of Directors. 4. Cash and cash equivalents Cash and cash equivalents comprise accounts held by two banks in the Cayman Islands, along with cash and margin call accounts held with the investment managers, and are managed within guidelines established by the Board of Directors. 5. Investments During the year, London and Capital and Butterfield Bank were engaged to provide asset management services under the terms of the related investment management agreements. - 12 - CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 5. Investments (continued) The following tables summarize the investments that are measured at fair value at May 31, 2016: Fair Value Measurements Determined Using: Core Level 1 Level 2 Level 3 inputs inputs inputs Total At May 31, 2016: Non-exchange traded mutual funds $ - $ 2,988,715 $ - $ 2,988,715 Exchange traded options 32,656 32,656 Exchange-traded funds 1,284,777 - - 1,284,777 Equity investments - Communications 426,490 - - 426,490 - Consumer, Cyclical 145,419 - - 145,419 - Consumer, Non-cyclical 1,279,224 - - 1,279,224 - Technology 277,660 - - 277,660 Corporate debt securities - 46,449,255 - 46,449,255 Government sponsored debt securities - 1,795,011 - 1,795,011 $ 3,446,226 $ 51,232,981 $ - $ 54,679,207 Fair Value Measurements Determined Using: EQ/TC SP Level 1 Level 2 Level 3 inputs inputs inputs Total At May 31, 2016: Equity investments - Communications $ 778,096 $ - $ - $ 778,096 - Consumer, Cyclical 265,340 - - 265,340 - Consumer, Non-cyclical 2,334,093 - - 2,334,093 - Technology 506,500 - - 506,500 Exchange traded options 58,782 58,782 Corporate debt securities - 35,195,331 - 35,195,331 Government sponsored debt securities - 3,470,556 - 3,470,556 $ 3,942,811 $ 38,665,887 $ - $ 42,608,698 Fair Value Measurements Determined Using: XSR SP Level 1 Level 2 Level 3 inputs inputs inputs Total At May 31, 2016 Equity investments - Communications $ 338,475 $ - $ - $ 338,475 - Consumer, Cyclical 115,457 - - 115,457 - Consumer, Non-cyclical 1,015,246 - - 1,015,246 - Technology 220,304 - - 220,304 Exchange-traded options 25,094 - - 25,094 Corporate debt securities - 15,157,483 - 15,157,483 Government sponsored debt securities - 1,528,175 - 1,528,175 $ 1,714,576 $ 16,685,658 $ - $ 18,400,234 -13- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 5. Investments (continued) Fair Value Measurements Determined Using: LPC SP Level 1 Level 2 Level 3 inputs inputs inputs Total At May 31, 2016: Equity investments - Communications $ 81,397 $ - $ - $ 81,397 - Consumer, Cyclical 27,767 - - 27,767 - Consumer, Non-cyclical 244,275 - - 244,275 - Technology 53,028 - - 53,028 Exchange-traded options 5,844 5,844 Corporate debt securities - 3,534,234 - 3,534,234 Government sponsored debt securities - 342,948 - 342,948 $ 412,311 $ 3,877,182 $ - $ 4,289,493 The cost of investments for Core, EQ/TC, XSR and LPC at May 31, 2016 are $ 54,961,685, $ 43,313,510, $18,763,444 and $4,377,715 respectively. At May 31, 2016, the Core holds positions in two non-exchange traded open ended mutual funds, both incorporated in Ireland. The objective of both of these funds is to seek to maximise total return consistent with preservation of capital and prudent investment management. Management considers these funds to be relatively liquid as the funds process subscriptions and redemptions on a daily basis, subject to their respective terms and conditions. Under certain circumstances, the administrator of the funds has the ability to suspend redemptions if it is considered to be in the best interests of the shareholder company of the funds as a whole. There are no unfunded commitments to these mutual funds. Core EQ/TC SP XSR SP LPC SP Percentage of debt securities 39% 31% 29% 52% issued by US counterparties Percentage of debt securities 15% 28% 25% 15% issued by UK counterparties Percentage of debt securities 46% 41% 46% 33% issued by counterparties based other countries Core EQ/TC SP XSR SP LPC SP Percentage of debt securities 42% 36% 33% 41% graded as A- or higher Percentage of debt securities 48% 49% 53% 53% graded as higher than BBB- but lower than A- Percentage of non-investment 10% 15% 14% 6% graded debt securities below BBB- or not rated -14- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 5. Investments (continued) The average maturity of fixed income securities as at May 31, 2016 is disclosed in the table below: Core EQ/TC SP XSR SP LPC SP Average maturity 5.35years 5.86years 6.06years 3.13years The company is exposed to foreign exchange risk on debt securities that corresponds to the jurisdiction of the issuing counterparties. Short term investments consist of cash held with the investment managers, term deposits and margin call accounts (see Note 8). The margin call accounts are restricted cash balances required to be posted with respect to the futures contracts (see Note 3 and 8). The margin call accounts have balances of $310,360 in the Core, $659,219 in EQ/TC SP, $238,086 in XSR SP and $63,161 in LPC SP at May 31, 2016. 6. Donor Funds Core: The Munich Climate Insurance Initiative (“MCII”) is funded by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety. Under the agreement, the Core is eligible to receive funding for reimbursable costs involving the time costs and travel expenses of the Facility Supervisor project team in partnership with MicroEnsure (an independent entity specialising in the development of micro-insurance programs) to perform market research and assess demand for new micro- insurance parametric products, specifically for community business groups and regional development banks. CA SP: Effective October 14, 2015, an agreement was entered into between the International Bank for Reconstruction and Development/International Development Association (World Bank) acting as administrator of the Central America and Caribbean Catastrophe Risk Insurance Program Multi-Donor Trust Fund, and CA SP on behalf of CCRIF SPC (the “Recipient”) as per CCRIF TF Grant No TF0A0564. The grant is for US$19.5 million to CCRIF SPC for a Central America and Caribbean Catastrophe Risk Insurance Project. The Donor Funds will finance Parametric Earthquake Risk Insurance and Parametric Climate Risk Insurance for CA SP Participating Countries. During the year ended May 31, 2016, $9,239 donor fund income relating to MCII Costs and $581,300 relating to the World Bank project were recorded in the statement of operations in the Core and CA SP respectively. 7. Participation fees deposits Participating fee deposits represent non-recurring amounts required to be paid by each Participating Country to enter a CCRIF SPC program. The deposits are equivalent to a proportion of the annual premiums written in respect of each Participating Country. It is Management’s intent that participation fee deposits are available to fund losses in the event that funds from retained earnings and reinsurers are insufficient. If deposits are used to fund losses, it is also Management’s intent that any subsequent earnings will be used to reinstate the deposits to their original carrying value; however, for the period from inception to May 31, 2016, no deposits have been used to pay losses. The participation fees are refundable, without interest, in the event that the CCRIF SPC does not renew the coverage to participating countries. Participation fees are not refundable if a Participating Country leaves the program for more than one year in any five year period, and would be recognized as income at that point. Participating Countries, who leave the program resulting in participation fees being voided, may, at the discretion of the Directors, be required to repay participation fees if they want to rejoin the program subsequently. -15- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 7. Participation fees deposits (continued) Further, participation fees deposits are partially refundable when a Participating Country’s premium is reduced due to a reduction in coverage purchased, to the extent of the revised annual premiums. During the year ended May 31, 2011, the Board of Directors approved a modification to the participation agreements such that up to 50% of the participation fees deposits paid by the Participating Countries could be used towards their respective premiums and during the year ended May 31, 2016, one Participating Countries elected to use a proportion of participation fee deposits held by EQ/TC SP to partially settle its premium (refer to Statements of Cash Flow for amount). 8. Derivative instruments Derivatives are used for hedging purposes and portfolio management. Derivative instruments transactions include futures, forwards, and options with each instrument's primary risk exposure being interest rate, credit, foreign exchange, equity or commodity risk. The fair value of these derivative instruments are included as separate line items in the balance sheet with changes in fair value reflected as net change in unrealized gains/(losses) on derivatives as a component of the investment income line item in the Statement of Operations (see Note 12). The following tables indicate the realized and unrealized gains and losses on derivatives, by contract type, as included in investment income in the Statement of Operations for the year ended May 31, 2016 (see Note 12). Core Gross Gross Net Change in realized realized realized unrealized gains loss loss gains Futures on fixed income securities $ 134,566 $( 136,501) $( 1,935) $ 36,218 Foreign exchange contracts 287,759 ( 398,168) ( 110,409) 189,165 Total $ 422,325 $( 534,669) $( 112,344) $ 225,383 EQ/TC SP Gross Gross Net Change in realized realized realized unrealized gains loss loss gains Futures on fixed income securities $ 152,251 $( 229,770) $( 77,519) $ 136,828 Foreign exchange contracts 471,309 ( 653,943) ( 182,634) 259,759 Total $ 623,560 $( 883,713) $( 260,153) $ 396,587 XSR SP Gross Gross Net Change in realized realized realized unrealized gains loss loss gains Futures on fixed income securities $ 81,167 $( 106,006) $( 24,839) $ 4,695 Foreign exchange contracts 205,790 ( 277,353) ( 71,563) 155,108 Total $ 286,957 $( 383,359) $( 96,402) $ 159,803 -16- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 8. Derivative instruments (continued) LPC SP Gross Gross Net Change in realized realized realized unrealized gains loss gains/ (loss) gains Futures on fixed income securities $ 9,265 $( 4,736) $ 4,529 - Foreign exchange contracts 60,901 ( 80,533) ( 19,632) 49,135 Total $ 70,166 $( 85,269) $( 15,103) $ 49,135 The exposures on derivative contracts are generally short-term as these contracts are settled or lapse within a short time frame. The positions held in foreign exchange contracts at May 31, 2016, are reflective of the average positions held in forward and futures contracts during the year. With respect to futures and option contracts, the maximum notional exposure at any one point in time during the year ended May 31, 2016 were: Core Futures: $6,090,019 Options: $ 6,293,124 EQ/TC SP Futures: $9,788,025 Options: $10,073,808 XSR SP Futures: $4,374,675 Options: $ 4,668,660 LPC SP Futures: $1,216,888 Options: $ 675,000 The following outstanding foreign exchange contracts were held as at May 31, 2016: Core Maturity date Notional value Fair Values United States Dollars future June 15, 2016 $4,591,191 $ 45,262 (bought US$ sold €) (at future rate of US$1.11: €1) United States Dollars future June 13, 2016 $2,442,994 ( 29,997) (bought US$ sold £) (at future rate of US$1.4467:£) United States 10 year note September 30, 2016 $1,400,000 5,688 futures $ 20,953 EQ/TC SP Maturity date Notional value Fair Values United States Dollars future June 15, 2016 $10,573,652 $ 112,220 (bought US$ sold €) (at future rate of US$1.11:€1 ) United States Dollars future June 13, 2016 $3,981,175 ( 48,884) (bought US$ sold £) (at future rate of US$1.4467 :£1 ) United States 10 year note future September 30, 2016 $2,500,000 10,156 $ 73,492 -17- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 8. Derivative instruments (continued) XSR SP Maturity date Notional value Fair Values United States Dollars future June 15, 2016 $3,617,302 $ 37,397 (bought US$ sold €) (at future rate of US$ 1.11: €1 ) United States Dollars future June 13, 2016 $1,809,625 ( 22,220) (bought US$ sold £) (at future rate of US$ 1.4467: £1 ) United States 10 year note September 30, 2016 $1,100,000 4,508 future $ 19,685 LPC SP Maturity date Notional value Fair Values United States Dollars future June 15, 2016 $1,113,016 $ 12,879 (bought US$ sold €) (at future rate of US$1.11: € 1 ) United States Dollars future June 13, 2016 $542,888 ( 6,666) (bought US$ sold £) (at future rate of US$1.4467: £1 ) $ 6,213 9. Share capital and share premium The authorised share capital of CCRIF SPC is $50,000 divided into 1,000 voting ordinary shares with a nominal or par value of $1.00 per share and 49,000 non-voting redeemable preference shares of $1.00 each. The following amounts are issued and fully paid. Core EQ/TC SP XSR SP LPC SP CA SP Share capital $ 1,000 $ - $ - $ - $ - Non-voting redeemable preference shares - 1 1 1 1 Share premium 119,000 42,499,999 24,999,999 4,999,999 - $120,000 $42,500,000 $25,000,000 $ 5,000,000 $ 1 The holders of the general common shares are entitled to receive notice of, attend and vote at any general meeting of CCRIF SPC. Holders of non-voting redeemable segregated portfolio shares have no right to receive notice of or attend any general meetings of CCRIF SPC, nor have any right to vote at any such meetings in respect of such shares. Holders of non-voting redeemable segregated portfolio shares have the right to dividends or other distributions, subject to a directors’ resolution as to the timing and amount of such dividends, have the right to a return of capital of CCRIF SPC upon winding up of CCRIF SPC, in preference to that of the Ordinary shares, and the shares can be redeemed by CCRIF SPC. The share premium account represents the excess of the proceeds from issued share capital over the par value of the shares issued. The share premium account was established in accordance with the Cayman Islands Companies Law, which restricts the uses of these reserves. Pursuant to the CCRIF SPC’s Articles of Association, the Directors may declare and authorize payment of dividends out of profits of CCRIF SPC. Payment of any dividends is subject to approval by the Cayman Islands Monetary Authority (“CIMA”). -18- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 9. Share capital and share premium (continued) Under the Cayman Islands Insurance Law the Company is required to maintain a minimum and prescribed net worth of $100,000. CIMA has statutory powers that enable it to use its discretion to require CCRIF SPC to conduct its operations in accordance with general or specific conditions which may be imposed by CIMA or may be agreed between CIMA and CCRIF SPC. Generally, such matters are set out in the Business Plan which CCRIF SPC files with CIMA and, amongst others, includes reference to the risks assumed and retained by CCRIF SPC, the funding and capitalization levels, and investment policies. 10. Central American Initiative During the year ended May 31, 2016 expenditure was charged by the Core to CA SP relating to extension of the Tropical Cyclone and Earthquake programme towards the countries of Central America, represented by the Council of Finance Ministers of those countries (the “COSEFIN Countries”). 11. Claims paid There was one event which triggered claim payment to Participating Country in the XSR SP. Total claim payment in the year ending May 31, 2016 was $2,402,153. No amounts were recovered from reinsurers in respect of this claim. 12. Net Investment Income Core EQ/TC SP XSR SP LPC SP CA SP Net Investment income comprises: Interest and dividend income $ 1,688,990 $ 1,404,596 $ 673,824 $ 139,932 $ 104 Change in fair value of investments ( 279,088) ( 171,509) ( 109,907) ( 303) - Net realized losses on sale of investments ( 486,100) ( 620,050) ( 296,210) ( 99,123) - Investment management, custody and fund administration fees ( 287,351) ( 325,706) ( 156,695) ( 42,770) - Foreign exchange gains / (losses) 7,233 10,430 4,566 (514) - Net realized losses on derivative instruments (Note 8) ( 112,344) ( 260,153) ( 96,402) ( 15,103) - Change in unrealized gains on derivative instruments (Note 8) 225,383 396,587 159,803 49,135 - $ 756,723 $ 434,195 $ 178,979 $ 31,254 $ 104 13. Related party transactions During the year ended May 31, 2016, the Core incurred the Trustee and Enforcer fees of $27,553 on behalf of the Trust. During the year ended May 31, 2016, key management compensation consisted of salaries and expenses amounting to $436,601 for three employees which are included within administration expenses. -19- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 14. Administration expenses Administration expenses comprise: Core EQ/TC SP XSR SP LPC SP CA SP Audit and other professional fees $ 81,793 $ 42,750 $ 213,000 $ - $ 20,250 Captive management fees 134,000 - 15,000 (4,500) 34,000 Consultancy fees 39,137 - - - - Board and executive management remuneration 705,744 - - - - Directors’ and Officers’ insurance 23,719 - - - - Legal fees 8,945 - - - 15,744 Government fees 11,461 671 671 671 1,280 Meeting expenses 116,854 - - - - Publicity, conferences & workshops 114,577 - 5,000 - - Trust expenses (Note 13) 27,553 - - - 17,100 Munich Climate Initiative Project (Note 6)* 47,862 - - - - Sundry expenses and bank charges 24,487 1,147 1,458 335 1,752 $ 1,336,132 $ 44,568 $ 235,129 $( 3,494) $ 90,126 * Parts of these expenses were reimbursed under a grant. 15. Taxation No income, capital or premium taxes are levied in the Cayman Islands and CCRIF SPC has been granted an exemption until May 29, 2027, for any such taxes that might be introduced. CCRIF SPC intends to conduct its affairs so as not to be liable for taxes in any other jurisdiction. Accordingly, no provision for taxation has been made in these financial statements. 16. Development costs Second Second Generation Excess Carib & CA Carib & Core Generation Loss Model Rainfall Drought CA XSR Loss Model Upgrade Model Model Model Total Cost: Balance carried forward $ 180,000 $ 379,755 $ 375,000 $ - $ - $ 934,755 at May 31, 2015 Additions during the year - - 55,000 50,000 50,000 155,000 Balance carried forward $ 180,000 $ 379,755 $ 430,000 $ 50,000 $ 50,000 $ 1,089,755 at May 31, 2016 -20- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 16. Development costs (continued) Second Second Generation Excess Carib & CA Carib & Generation Loss Model Rainfall Drought CA XSR Accumulated amortisation: Loss Model Upgrade Model Model Model Total Balance carried forward at $ 90,000 $ 379,755 $ 76,667 $ - $ - $ 546,422 May 31, 2015 Amortisation charge for the 18,000 - 65,166 - - 83,166 year Balance carried forward at 108,000 379,755 141,833 - - 629,588 May 31, 2016 Net book value at May 31, $ 72,000 $ - $ 288,167 $ 50,000 $ 50,000 $ 460,167 2016 Development costs above represent fees paid to third parties for development of computer loss modeling software which is necessary for the underwriting operations of CCRIF SPC. 17. Due to / from Core and Due to / from Segregated Portfolios During the year ended May 31, 2016, the XSR SP bank account received premiums of $1,285,000 which relate to premiums for insurance policies written by the EQ/TC SP. This amount was outstanding at May 31, 2016. During the year ended May 31, 2016, the following transactions occurred between the Core and the Segregated Portfolios: EQ/TC SP CA SP Participation fee deposit transferred by Core to EQ/TC SP $ 13,420,008 $ - Expenses reimbursement through Core - 193,640 Total due from Core $ 13,420,008 $ 193,640 Core EQ/TC SP XSR SP Expenses paid by XSR SP on behalf of CA SP $ - $ - $ 15,000 Premium received by XSR SP on behalf of EQ/ TC SP - 1,285,000 - Expenses paid by Core on behalf of SP 2,500 - - Total due from Segregated Portfolios $ 2,500 $ 1,285,000 $ 15,000 -21- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 17. Due to / from Core and Due to / from Segregated Portfolios (continued) XSR SP Expenses paid by Core on behalf of SP $ 2,500 Total due to Core $ 2,500 Core XSR SP CA SP Participation fee deposit transferred by Core to EQ/ TC SP $ 13,420,008 $ - $ - Expenses reimbursement through Core 193,640 - - SP premium received by XSR SP on behalf of EQ/TC - 1,285,000 - Expenses paid by XSR SP on behalf of CA SP - - 15,000 Total due to Segregated Portfolios $ 13,613,648 $ 1,285,000 $ 15,000 During the year ended May 31, 2016, the Board of Directors approved segregated portfolio rental fees charged by the Core to the Segregated Portfolios of $1,500,000 to EQ/TC SP, $400,000 to XSR SP and $675,000 to CA SP. 18. Certain risks and financial instruments (a) Geographical concentration of risk The CCRIF SPC’s principal activity comprises parametric catastrophe risk coverage for Participating Countries in the Caribbean region. (b) Fair value With the exception of balances in respect of insurance contracts, which are specifically excluded under U.S. GAAP, the carrying amounts of all financial instruments, except for investments, approximate their fair values due to their short-term maturities, and have been determined using Level 2 inputs; aside from cash and cash equivalents which have been determined using Level 1 inputs. Investments and derivative instruments are carried at fair value as described in Notes 3, 5 and 8. (c) Credit risk Financial assets potentially subject to concentrations of credit risk consist of cash and cash equivalents, investments in debt instruments and accrued interest receivable. The maximum amount of loss at May 31, 2016 would incur if the counterparties to the transactions do not meet their obligations, which would be the carrying amount of such assets in the balance sheet. Cash and cash equivalents and investments are placed with or held in custody by high credit quality financial institutions. Similarly, the investment policy requires that the investment managers invest in securities with a high credit quality (see Note 5). EQ/TC, XSR and CA SP have entered into parametric reinsurance arrangements with unrelated reinsurers. Parametric reinsurance ceded contracts do not relieve the EQ/TC, XSR or CA SP from their obligations under the parametric insurance contracts they have issued. EQ/TC, XSR and CA SP remain liable under its parametric insurance contracts for the portion reinsured to the extent that reinsurers do not meet their obligations to the Company assumed under the parametric reinsurance agreements. The credit risk is managed by transacting only with counterparties considered highly reputable and creditworthy and within established investment/derivative guidelines. (d) Interest rate risk The fair value of investments in fixed interest securities will be affected by movements in interest rates. An analysis of the investment portfolios is shown in Note 5. The fair value of the futures contracts may also be affected by movements in interest rates. -22- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 18. Certain risks and financial instruments (continued) (e) Market risk Market risk exists to the extent that the values of monetary assets fluctuate as a result of changes in market prices. Changes in market prices can arise from factors specific to individual securities, their respective issuers, securities/markets to which they are linked, or factors affecting all securities traded in a particular market. Relevant factors are both volatility and liquidity of specific securities and of the markets in which the investments are held. (f) Liquidity risk Liquidity risk exists to the extent that investments may not be sold/ redeemed on a timely basis to settle losses. The liquidity risk is mitigated by maintaining a proportion of assets in cash and short-term investments. (g) Foreign exchange risk In the normal course of business, the assets and liabilities may be held in currencies other than U.S. dollars. To reduce its risk to foreign exchange fluctuations forward foreign exchange contracts may be entered to. Forward foreign currency contracts result in exposure to currency risks to the extent of any mismatch between foreign exchange forward contracts and the corresponding financial instruments denominated in foreign currencies. Foreign currency forward contracts commit to purchase or sell the designated foreign currency at a fixed rate of exchange on a future date. The fair value of the forward foreign exchange contracts will fluctuate as a result of changes in the corresponding market rate of exchange. See Note 8 for details of forward foreign exchange contracts entered into during the period. (h) Futures contracts risk In the normal course of business financial futures are held and traded and are carried at fair value. These futures contracts represent future commitments to purchase financial instruments on specific terms at specified future dates. The fair value of the futures contracts will fluctuate corresponding to the fair value of the underlying financial instruments (see Note 8). The notional value of the underlying financial instruments represents the maximum risk of loss. The Directors consider this risk to be mitigated because of the short terms of the futures contracts and the underlying financial instruments being investment grade. (i) Swaps The Group enters into swap contracts to manage interest rate risk and hedge or obtain exposure to credit risk. The Group uses CDSs to provide protection against or obtain exposure to the credit default risks of sovereign or corporate issuers. CDSs involve greater risks than if the Group had invested in the reference obligation directly. In addition to general market risks, CDSs are subject to liquidity risk and counterparty credit risk. The Group enters into CDSs with counterparties meeting certain criteria for financial strength. Where the Group is buying protection, the Group will recover none of the payments made to purchase that protection should a credit event not occur. During the year ended May 31, 2016 the Group did not sell credit protection. In connection with equity swap contracts, cash or securities may be posted to or received from the swap counterparty in accordance with the terms of the swap contract. The Group earns or pays interest on cash posted or received as collateral. Off-balance sheet risks associated with all swap contracts involve the possibility that there may not be a liquid market for these agreements, that the counterparty to the contract may default on its obligation to perform and that there may be adverse changes in currency rates, credit status, market prices and interest rates. Notional contract amounts are presented in Note 8 to indicate the extent of the Group’s exposure to such instruments. At May 31, 2016, the Group had no open swap contracts (see Note 8). -23- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 18. Certain risks and financial instruments (continued) (j) Options Transactions in options carry a high degree of risk. The following section describes the primary types of option contracts that may be held and traded and the corresponding risks. Purchased call options represent right to purchase a stock at a set price (the "exercise price") on a future specified date (in return for a premium i.e. the price paid for the option) but create no obligation to buy the stock but rather the right to do so until the expiration date. If the stock price at expiration is above the exercise price by more than the premium paid, the transaction will result in a gain. If the stock price at expiration is lower than the exercise price, the call option will expire worthless and the loss recorded will be the amount of the premium paid (plus any transaction costs). Compared to owning the respective stock, purchased call options leverage upside gains when a stock price increases because for the same amount of money, there is exposure to a much larger number of the securities, however, unlike owning the stock (when the entire cost of the investment is at risk), the maximum loss that can be incurred with a purchased call option is the premium paid plus transaction costs. Purchased put options represent the right to sell a stock at a fixed exercise price on a future specified date but create no obligation to sell the stock but rather the right to do so until the expiration date. If the stock price at expiration is below the exercise price by more than the premium paid, the transaction will result in a gain. If the stock price at expiration is above the exercise price, the purchased put option will expire worthless and the loss recorded will be the amount of the premium paid (plus any transaction costs). Compared to selling short the respective stock, purchased put options leverage upside gains when a stock price decreases because for the same amount of capital invested and pledged as security, there is exposure to a much larger number of the securities, however, unlike selling a stock short (when there downside risk is unlimited for the duration the security is sold short), the maximum loss that can be incurred with a purchased put option is the premium paid plus transaction costs. Written put options represent an obligation to buy the stock at a fixed exercise price at the buyer's option. Selling (writing) options represents a significantly higher degree of risk. If the stock price at expiration is above the exercise price, the Written put option will result in a gain equal to the amount of the premium received (less any transaction costs). If the stock price at expiration is below the exercise price by more than the amount of the premium, the written put options will result in a loss, with the potential loss being up to the full value of the exercise price of the stock for the entire contract quantity. Compared to owning the respective stock, written put options limit upside gains to the premium received less transaction costs but leverage downside losses gains when a stock price decreases because for the same amount of capital invested and pledged as security which increases the risk of significantly larger losses. Written call options represent the obligation to sell the stock at a fixed exercise price at the buyer's option and represent the highest possible degree of risk. If the stock price decreases, the written call options will result in a gain equal to the amount of the premium received (less any transaction costs). If the stock price increases over the exercise price, for the entire contract quantity, by more than the amount of the premium received, the written call options will result in a loss. Since a share price has no limits to how far it can rise, where a written call option is not covered (i.e. the corresponding quantity of the underlying security is not owned. The written call option is exposed to unlimited risk of loss. Compared to selling short the respective stock, written call options create exposure to leveraged downside losses when a stock price increases because for the same amount of capital invested and pledged as security which increases the risk of significantly larger losses. (k) Custody risk There are risks involved in dealing with a custodian who settles trades. Under certain circumstances, the securities and other assets deposited with the custodian may be exposed to a credit risk with regard to such parties. In addition, there may be practical or time problems associated with enforcing the rights to assets in the case of an insolvency of any such party. -24- CCRIF SPC FINANCIAL STATEMENTS FOR THE YEAR ENDED MAY 31, 2016 (Expressed in United States dollars) 19. Subsequent events Management has performed a subsequent events review from June 1, 2016 to September 16, 2016, being the date that the financial statements were available to be issued. Management concluded that the following subsequent events require additional disclosure in these financial statements. Subsequent to year end, Tropical cyclone Earl affected one of the Participating Countries under the Company's parametric contracts. However, preliminary runs of the Company's loss model indicated that none of the affected Participating Countries had reached the attachment points that would trigger a claim and therefore no payout is due. Subsequent to year end, an Earthquake event affected one of the Participating Countries under the Company's parametric contracts. The Participating Country has reached the attachment point that would trigger a claim and therefore payout of $500,000 was made by the Central America SP. This amount is fully recoverable under the donor fund arrangement disclosed in Note 6 Subsequent to year end, an excess rainfall event affected one of the Participating Countries under the Company's parametric contracts. The Participating Country has reached the attachment point that would trigger a claim and therefore payout of $261,073 will be made by XSR SP. -25- SUPPLEMENTAL INFORMATION CCRIF SPC BALANCE SHEET MAY 31, 2015 (Expressed in United States dollars) Core EQ/TC SP XSR SP LPC SP $ $ $ $ ASSETS Cash and cash equivalents 5,291,842 12,047,100 1,238,998 355,391 Investments, at fair value 52,719,537 36,890,394 18,051,515 4,696,659 Development costs 388,333 - - - Accrued interest 363,393 421,263 196,642 49,099 Due from Core Company - 13,741,767 127,574 - Due from Segregated Portfolios 13,940 - 2,546,538 - Prepaid expenses 90,624 - - - Total assets 58,867,669 63,100,524 22,161,267 5,101,149 LIABILITIES AND SHAREHOLDER’S EQUITY Liabilities Accounts payable and accrued expenses 393,119 48,608 68,972 10,940 Unrealized losses on forward contracts 204,430 323,095 140,118 42,922 Due to Core Company - - - 13,940 Due to Segregated Portfolios 13,869,341 2,546,538 - - Income from parametric contracts received in advance - 1,425,000 106,250 - Participation fee deposits - 13,420,008 - - Total liabilities 14,466,890 17,763,249 315,340 67,802 Shareholder’s equity Share capital 1,000 - - - Non-voting redeemable preference shares - 1 1 1 Share premium 119,000 42,499,999 24,999,999 4,999,999 Retained earnings / (accumulated deficit) 44,280,779 2,837,275 (3,154,073) 33,347 Total shareholder’s equity 44,400,779 45,337,275 21,845,927 5,033,347 Total liabilities and shareholder’s equity 58,867,669 63,100,524 22,161,267 5,101,149 - 26 - SUPPLEMENTAL INFORMATION CCRIF SPC STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2015 (Expressed in United States dollars) Core EQ/TC SP XSR SP LPC SP $ $ $ $ Operating income Income from parametric insurance contracts - 18,357,500 3,591,250 - Discounts awarded on parametric insurance contracts - (5,340,288) (1,044,712) - Expenses on parametric reinsurance contracts - (9,281,279) (3,000,000) - Net income / (loss) on parametric contracts - 3,735,933 (453,462) - Ceding commissions on parametric reinsurance contracts - 218,478 - - Total operating income - 3,954,411 (453,462) - Operating expenses Claims paid on parametric insurance contracts - - 3,393,004 - Claims recovered on parametric insurance contracts - - (893,004) - Brokerage and facility supervisor fees 686,072 111,394 25,000 - Total operating expenses 686,072 111,394 2,525,000 - Net operating income / (loss) (686,072) 3,843,017 (2,978,462) - Other income and expenses Investment income 2,292,664 629,163 299,690 37,847 Income from Donor Funds 83,544 - - - Amortisation of development costs (55,667) - - - Technical assistance expenses (428,341) - - - Central American Initiative (108,903) - - - Segregated portfolio rental fees 1,900,000 (1,500,000) (400,000) - Administrative expenses (1,421,732) (134,905) (75,301) (4,500) Net income / (loss) for the year 1,575,493 2,837,275 (3,154,073) 33,347 - 27 - SUPPLEMENTAL INFORMATION CCRIF SPC STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MAY 31, 2015 (Expressed in United States dollars) Core EQ/TC SP XSR SP LPC SP $ $ $ $ Operating activities Net income for the year 1,575,493 2,837,275 (3,154,073) 33,347 Adjustments to reconcile net income to net cash from operating activities: Adjustment for items not affecting cash: Participation fee deposits used towards income from parametric contracts* - (410,000) - - Change in fair value of investments 3,363,870 533,303 253,303 87,919 Net realized (gains) / losses on investments (1,111,674) 127,043 71,032 32,109 Change in unrealized loss on derivative instruments 380,375 323,095 140,118 42,923 Amortisation of development cost 55,667 - - - Trading Securities: Purchase of securities (41,781,564) (8,703,397) (3,924,882) (1,162,407) Proceeds from sale of securities 50,681,962 7,488,877 3,611,545 867,910 Net movement in short term investments 1,422,284 Due from investment broker 568,691 - - - Changes in assets and liabilities: Accrued interest 681,953 (421,263) (196,642) (49,099) Amounts due from Donor Funds 66,948 - - - Prepaid expenses 124,423 - - - Accounts payable (174,529) 48,608 68,972 10,940 Income from parametric contracts received in advance (2,475,000) 1,425,000 106,250 - Participation fee deposits (13,830,008) 13,830,008 Due to / (from) Core 13,855,401 (13,741,767) (127,574) 13,940 Due to / (from) Segregated Portfolios - 2,546,538 (2,546,538) - Net cash provided by / (used in) operating activities 13,404,292 5,883,320 (5,698,489) (122,418) Investing activities Development costs (245,000) - - - Net cash used in investing activities (245,000) - - - Financing activities** Capital distribution (13,579,076) - - - Contribution of capital - 6,163,780 6,937,487 477,809 Net cash provided by / (used in) in financing activities (13,579,076) 6,163,780 6,937,487 477,809 Net change in cash and cash equivalents (419,784) 12,047,100 1,238,998 355,391 Cash and cash equivalents at the beginning of year 5,711,626 - - - Cash and cash equivalents at the end of year 5,291,842 12,047,100 1,238,998 355,391 Interest and dividends received 3,345,048 280,708 144,995 25,738 - 28 - SUPPLEMENTAL INFORMATION CCRIF SPC STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MAY 31, 2015 (Expressed in United States dollars) *Non-cash decrease in participation fee deposits in EQ/TC SP was utilized to settle certain premium payments from parametric contracts in EQ/TC SP. ** Financing activities include the following cash and non-cash components. The non-cash distributions/contributions represent distributions/ contributions in specie of marketable investment securities which were distributed/contributed at fair market value on the date of distribution/ contribution. Core EQ/TC SP XSR SP LPC SP $ $ $ $ Cash distribution/contribution (13,579,076) 6,163,780 6,937,487 477,809 Non-cash distribution/contribution (58,920,924) 36,336,220 18,062,513 4,522,191 Total (72,500,000) 42,500,000 25,000,000 5,000,000 - 29 -