PACIFIC CATASTROPHE RISK INSURANCE COMPANY ANNUAL REPORT For the year ended 30 June 2023 Contents Page Directory 1 Directors' report 2 Directors' responsibility statement 3 Statement of comprehensive revenue and expenses 4 Statement of financial position 5 Statement of changes in equity 6 Statement of cash flows 7 Notes to the financial statements 8 Statement of Service Performance 21 Independent Auditor's report 24 Supplementary information (Unaudited) - Statement of comprehensive revenue and expenses by business line 27 Supplementary information (Unaudited) - Statement of financial position by business line 28 PACIFIC CATASTROPHE RISK INSURANCE COMPANY DIRECTORY For the year ended 30 June 2023 Board of Directors: Barry Whiteside 8 June 2018 Sarah-Jane Wild 25 September 2018 Tine Ponia 10 December 2019 Siosiua T T Utoikamanu 25 November 2021 Darryl M Williamson 29 November 2021 Auditor: Baker Tilly Staples Rodway Auckland Level 9, 45 Queen Street, Auckland 1010 PO Box 3899, Shortland Street, Auckland 1140 New Zealand Banker: ANZ Banking Group Limited Maire Nui Drive, Avarua Rarotonga Cook Islands Registered Office: Asiaciti Trust Pacific Limited Bermuda House Tutakimoa Road Avarua Rarotonga Cook Islands Postal Address: Bermuda House Tutakimoa Road Rarotonga Cook Islands Shareholder: Pacific Catastrophe Risk Insurance Foundation One ordinary share 1 PACIFIC CATASTROPHE RISK INSURANCE COMPANY DIRECTORS' REPORT For the year ended 30 June 2023 Results The net profit after tax for the year ended 30 June 2023 is US $1,406,355, 2022 (US $1,263,995 loss). The net profit after tax includes grant income in which the funds received have a restricted use. This requires that when the funds are utilised a replenishment strategy needs to be put in place. Without access to the Grant Income the entity itself would have a net loss after tax of US $264,124 for the year ended 30 June 2023, 2022 (US $2,069,359 loss ). Grant Income Grant income is key to the establishment of the Company and its future sustainability and also forms a part of the wider Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI). The Grant Income received is in accordance with the PCRAFI Multi-Donor Trust Fund Agreement (Grant Agreement). The Company received Grant Income from the World Bank Multi-Donor Trust Fund equal to US $1,652,583 to fund the operational expenses of the Company (Category 1 as per the Grant Agreement) during the year ended 30 June 2023. Disclosures of Interests by Directors There have been no transactions in which Directors have had an interest. Auditor The Auditor, Baker Tilly Staples Rodway Auckland has been appointed and continues in office in accordance with Section 19 of the Captive Insurance Act 2013. General There has been no change in the main activities of the Company during the period. The Directors consider the state of the Company's affairs to be satisfactory. For and on behalf of the Board of Directors Sarah-Jane Wild Tine Ponia Director & Chairperson Resident Director 30 November 2023 30 November 2023 2 PACIFIC CATASTROPHE RISK INSURANCE COMPANY DIRECTORS' RESPONSIBILITY STATEMENT For the year ended 30 June 2023 The Directors are pleased to present the financial statements of Pacific Catastrophe Risk Insurance Limited for the year ended 30 June 2023 on pages 4 to 23 and the attached unaudited supplementary information on pages 27-28. The Directors are responsible for the preparation of the financial statements in accordance with Cook Islands law and which are in accordance with New Zealand Generally Accepted Accounting Practice which give a true and fair view of the financial position of the Company as at 30 June 2023 and the results of its operations and cash flows for the year ended 30 June 2023. The Directors consider that the financial statements of the Company have been prepared using accounting policies appropriate to the Company circumstances, consistently applied and supported by reasonable and prudent judgments and estimates, and that all applicable New Zealand PBE Accounting Standards have been followed. The Directors have responsibility for the maintenance of a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting. The Directors consider that adequate steps have been taken to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. For and on behalf of the Directors Sarah-Jane Wild Tine Ponia Director & Chairperson Resident Director 3 PACIFIC CATASTROPHE RISK INSURANCE COMPANY STATEMENT OF COMPREHENSIVE REVENUE AND EXPENSES For the year ended 30 June 2023 NOTE TOTAL TOTAL 2023 2022 US$ US$ Gross written premium 1,300,000 1,280,000 Plus / (Less) change in unearned premium (6,795) (6,794) Premium income 1,293,205 1,273,206 Reinsurance premiums (847,000) (792,800) Less change in deferred reinsurance 18,413 6,386 Outwards reinsurance expense (828,587) (786,414) Net premium income 464,618 486,792 Claims expense - - Reinsurance recovery - - Net claims incurred - - Net underwriting profit / (loss) 464,618 486,792 Revenue from non-exchange transactions 9 1,652,583 721,027 Plus / (less) movement in revenue received in advance 9 17,896 84,337 Unrealized investment gain / (loss) 754,027 (1,412,190) Dividends income 793,501 81,792 Interest income 977 33 Revenue from non-underwriting sources 3,218,984 (525,001) 3,683,602 (38,209) Auditor's remuneration 8 (51,750) (34,573) Project audit (15,000) (10,000) CEO remuneration (171,029) (162,679) Finance & planning manager (105,186) - Calculation agent fee - (61,950) Management fee expense (55,500) (111,500) Recruitment agency fee - (13,498) Reinsurance broker fee (52,500) (50,000) Directors' fees (108,769) (54,995) Legal fees (34,856) (49,586) Stakeholder & business development (187,739) - Product development (1,016,387) - Investment advisor (15,822) (12,556) Project coordinator (88,953) (39,300) Website development - (16,011) Monitoring and evaluation specialist fee (107,072) (42,750) Communications manager (124,139) (107,973) Secretariat advisor (48,500) (114,278) D&O insurance (35,633) (33,394) Other expenses (58,412) (310,743) Total expenses (2,277,247) (1,225,786) SURPLUS / (LOSS) FOR THE PERIOD 1,406,355 (1,263,995) TOTAL COMPREHENSIVE REVENUE AND EXPENSES 1,406,355 (1,263,995) The notes to the financial statements form part of and should be read in conjunction with this statement. 4 PACIFIC CATASTROPHE RISK INSURANCE COMPANY STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2023 TOTAL TOTAL NOTE 2023 2022 US$ US$ EQUITY Share capital 3 100,000 100,000 Long Term Reserves (Restricted) 26,928,918 26,590,439 Retained Earnings (Unrestricted) (2,801) (1,070,676) TOTAL EQUITY 27,026,117 25,619,763 Represented By: CURRENT ASSETS Cash and cash equivalents 4 1,845,481 1,352,881 Investments 5 25,905,448 25,060,207 Deferred Reinsurance 287,747 269,335 Other receivable - 1,035 Prepayments 23,397 23,320 TOTAL CURRENT ASSETS 28,062,073 26,706,778 TOTAL ASSETS 28,062,073 26,706,778 CURRENT LIABILITIES Payables 10(e) 614,786 705,044 Other liabilities 50,300 - MDTF Grant - Category 1 Advance 9 & 10 (70,774) (52,878) Unearned premium reserve 441,644 434,849 TOTAL CURRENT LIABILITIES 1,035,956 1,087,015 NET ASSETS 27,026,117 25,619,763 The notes to the financial statements form part of and should be read in conjunction with this statement. 5 PACIFIC CATASTROPHE RISK INSURANCE COMPANY STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2023 Retained Retained Long Term Share Earning Earnings Reserves Capital Unrestricted Restricted Restricted Total US$ US$ US$ US$ US$ Balance at 30 June 2021 100,000 266,878 - 26,516,880 26,883,758 Surplus for the period - (1,263,996) - - (1,263,996) Transfer (to) / from Long Term Reserves - MDTF - - - - - Reallocation to Long Term Reserves Accessed - MDTF - (52,963) - 52,963 - Transfer (to) / from Long Term Reserves - DFID - - - - - Reallocation to Long Term Reserves Accessed - DFID - (20,596) - 20,596 - Other comprehensive revenue and expenses for the period - - - - - Total - (1,337,555) - 73,559 (1,263,996) Balance at 30 June 2022 100,000 (1,070,677) - 26,590,439 25,619,762 Surplus for the period - 1,406,355 - - 1,406,355 Transfer (to) / from Long Term Reserves - MDTF - - - - - Reallocation to Long Term Reserves Accessed - MDTF - (243,705) - 243,705 - Transfer (to) / from Long Term Reserves - DFID - - - - - Reallocation to Long Term Reserves Accessed - DFID - (94,774) - 94,774 - Other comprehensive revenue and expenses for the period - - - - - Total - 1,067,876 - 338,479 1,406,355 Balance at 30 June 2023 100,000 (2,801) - 26,928,918 27,026,117 The notes to the financial statements form part of and should be read in conjunction with this statement. 6 PACIFIC CATASTROPHE RISK INSURANCE COMPANY STATEMENT OF CASH FLOWS For the year ended 30 June 2023 TOTAL TOTAL NOTE 2023 2022 US$ US$ CASH FLOWS FROM OPERATING ACTIVITIES Cash was provided from: Receipts from insurance contracts 1,300,000 1,280,000 1,300,000 1,280,000 Cash was disbursed to: Payments to suppliers (2,343,346) (1,243,855) Reinsurance premiums (819,900) (783,400) (3,163,246) (2,027,255) NET CASH (OUTFLOWS) / INFLOWS FROM OPERATING ACTIVITIES 12 (1,863,246) (747,255) CASH FLOWS FROM INVESTING ACTIVITIES Cash was provided from: Interest received 977 33 Repayment of investment - Term Deposits - - Dividends received 793,501 80,740 Sale of Investments - 346,238 794,478 427,011 Cash was disbursed to: Purchase of Investments (91,215) (380,500) (91,215) (380,500) NET CASH (OUTFLOWS) / INFLOW FROM INVESTING ACTIVITIES 703,262 46,511 CASH FLOWS FROM FINANCING ACTIVITIES Cash was provided from: Receipts from revenue from non-exchange transactions 1,652,583 721,027 NET CASH INFLOW FROM FINANCING ACTIVITIES 1,652,583 721,027 NET (DECREASE) / INCREASE IN CASH HELD 492,600 20,282 Cash and cash equivalents at the beginning of the period 1,352,881 1,332,599 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 1,845,481 1,352,881 Represented by: Bank balance 1,845,481 1,352,881 The notes to the financial statements form part of and should be read in conjunction with this statement. 7 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 1 REPORTING ENTITY Pacific Catastrophe Risk Insurance Company (PCRIC / the Company) is a body constituted in the Cook Islands under the Pacific Catastrophe Risk Insurance Facility Act 2016. The Pacific Catastrophe Risk Insurance Foundation (the Foundation) is the sole shareholder of PCRIC. The purpose of the Company is to undertake captive insurance business within the meaning of the Cook Island Captive Insurance Act 2013. The primary objective of the Company is to provide services for the benefit of the Pacific Island Countries and to establish a sustainable and viable vehicle to assist with post disaster relief in the Pacific. The Company is a Public Benefit Entity (PBE) for financial reporting purposes. These financial statements for the Company are for the year ended 30 June 2023 and were authorised for issue by the Board on 30 November 2023. Basis of Financial Statement Preparation Statement of Compliance These financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP) as required by the Cook Island Captive Insurance Regulations 2013. Management has elected to prepare these financial statements in accordance with Tier 1 PBE accounting standards. The financial statements comply with PBE accounting standards for Tier 1 not-for- profit public benefit entities. The period covered by the financial statements is from 1 July 2022 to 30 June 2023. The comparative balances are the period from 1 July 2021 to 30 June 2022. The financial statements are presented in United States dollars, rounded to the nearest dollar, being the functional currency. The financial statements have been prepared on the historical cost basis unless otherwise stated. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. Going Concern The financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business. The Directors consider it appropriate for these financial statements to be prepared on a going concern basis. Compliance with the Grant Agreement Under the Pacific Catastrophe Risk Assessment and Financing Initiative Multi-Donor Trust Fund Grant Agreement Number TF A4171 dated 16 February 2017 (‘Grant Agreement') between the Company and the International Bank for Reconstruction and Development and the International Development Association, the Company has to ensure compliance with the Grant Agreement. In the event the Company fails to perform any obligation under the Grant Agreement, the World Bank could either: suspend the Company's right to make withdrawals from the Grant Account; or cancel / terminate the right of the Company to make withdrawals with respect to an unwithdrawn amount of the Grant under the Grant Agreement. In addition, under clause 4.05(a) of the World Bank Policy "Standard Conditions for Grants Made by the World Bank Out of Various Funds", the World Bank has the ability to seek a refund if the Company is deemed to be non-compliant with the Grant Agreement and the Terms and Conditions attaching. To date there have been minor instances of non-compliance regarding process matters, and whilst known to the World Bank, these breaches have not been formally waived by them. Management's immediate plans are to closely monitor the performance of its obligations under the Grant Agreement and if the Company anticipates non-compliance of any such obligations, Management would notify the World Bank and seek approval from duly authorised World Bank staff member (or representative) prior to any actions which may be considered as non-compliant. As at 30 June 2023, the Company has cash and cash equivalents of $1.85m and investments available of $25.9m, which provides sufficient operating cashflows for the Company's cashflows requirements for 12 months from the date of the signing of these financial statements, should the World Bank suspend the Company's right to make withdrawals from the Grant Account or cancel / terminate the right of the Company to make withdrawals with respect to an unwithdrawn amount of the grant under the Grant Agreement. 8 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 1 REPORTING ENTITY (continued) Nevertheless the matters referred to above indicate the existence of a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern and that the Company may, as a consequence, be unable to realise its assets and discharge its liabilities in the normal course of business. "Closing date" of the Project The Grant Agreement stipulates the "Closing Date" of the Grant Agreement is December 31, 2022. The World Bank Policy ‘Standard Conditions for Grants Made by the World Bank Out of Various Funds' (the 'Standard Conditions') set forth certain terms and conditions generally applicable to grants made by the World Bank and they apply to the extent specified in the Grant Agreement. The definitions of the Standard Conditions define the “Closing Date" as the date specified in the Grant Agreement (or such later date as the World Bank shall establish by notice to the Company) after which the World Bank may, by notice to the Company, terminate the right of the Recipient to withdraw from the Grant Account. Section 4.03 (e) Cancellation by the World Bank of the Standard Conditions - Closing Date, stipulate that 'the World Bank may, by notice to the Company, terminate the right of the Company to make withdrawals with respect to an unwithdrawn amount of the Grant, and cancel such amount, if, after the Closing Date, there remains an unwithdrawn amount of the Grant. Standards issued and not yet effective and not early adopted PBE IPSAS 41 Financial Instruments replaces the existing guidance in PBE IPSAS 29 Financial Instruments: Recognition and Measurement. PBE IPSAS 41 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. PBE IPSAS 41 is effective for annual reporting periods beginning on or after 1 January 2022, with early adoption permitted. Based on management's initial impact assessment of this Standard, this Standard is not expected to have a material impact on the Company's financial statements. PBE FRS 48 Service Performance Reporting is effective for annual reporting periods beginning on or after 1 January 2022, with early adoption permitted. Based on management's initial impact assessment of this Standard, this Standard is not expected to have a material impact on the Company however its financial statements would need to include Service Performance Reporting, which the Company intends to disclosure upon adoption. PBE IPSAS IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2023, with early adoption permitted. Management is conducting an initial impact assessment of this of Standard. 9 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 1 REPORTING ENTITY (continued) Summary of Significant Accounting Policies The following significant accounting policies have been adopted in the preparation and presentation of the financial statements. Significant accounting policies that do not relate to a specific note are outlined below: Investments Classification The Company designates all of its financial assets as 'at fair value through surplus or deficit' as they are held for trading and available to back insurance liabilities. Assets in this category are classified as current assets if expected to be settled or sold within 12 months, otherwise they are classified as non-current. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, being the date on which the Company commits to purchase or sell the asset. Financial assets carried at fair value through surplus or deficit are initially recognised at fair value, and transaction costs are expensed in the statement of comprehensive revenue and expenses. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets at fair value through surplus or deficit are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through surplus or deficit’ category are presented in the statement of comprehensive revenue and expenses in the period in which they arise. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance date. The quoted market price used for financial assets held by the Company is the current bid price. Disclosure The Company designates all of its financial assets as 'at fair value through surplus or deficit' under PBE IPSAS 29 because they are held for trading in accordance with the Statement of Investment Policy Objectives and reported to Key Management Personnel on a fair value basis. Income Tax The Company is exempt from income tax in accordance with the Pacific Catastrophe Risk Insurance Facility Act 2016. Accordingly, no provision has been made for income tax. Tax advice may be sought to ensure that any operation by PCRIC in other jurisdictions does not jeopardise the entity's position to maintain the tax exempt status. 10 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 2 BASIS OF FINANCIAL STATEMENT PRESENTATION Critical Accounting Estimates and Assumptions The preparation of financial statements in conformity with PBE IPSAS requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenditure. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are also reviewed on an ongoing basis and any changes to the estimates are recognised in the period in which they are revised. For the year ending 30 June 2023, estimation of the fair value of financial assets, as disclosed in note 5 was an area involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and cash at bank and deposits on call, with an original maturity of three months or less, which are readily convertible to cash and are subject to insignificant risk of changes in value. (a) Revenue Recognition Premium Income Premium income is recognised by reference to the pattern of risk and the proportion of the policy period covered by the premium that is completed at balance date. The adequacy of the unearned premium liability is assessed by considering the current estimates of the present value of the expected cash flows relating to future claims arising from the rights and obligations under current insurance contracts against the unearned premium liability. Interest Interest revenue is recognised in profit or loss using the effective interest method. Unrealised investment gains or losses are recognised in profit or loss. Revenue from non-exchange transactions Where a physical asset is acquired for no cost or nominal cost, the fair value of the asset received is recognised as revenue only when the Company has control of the asset. Multi Donor Trust Fund (MDTF) Operational Expense Grant Category 1 is recognised as revenue in the fiscal period in which an eligible expenditure is incurred. MDTF Grant (Category 2 & 3) and Department for International Development (DFID) Grant are recognised in the financial period in which the funds are received. Refer Note 8 for further details on revenue from non-exchange transactions. (b) Outwards Reinsurance Premiums ceded to reinsurers are recognised as an expense in accordance with the incidence of risk and pattern of reinsurance cover received. (c) Claims Expense and Outstanding Claims Claims paid are treated as an expense. Provision is made for the estimated cost of all claims notified but not settled at balance date and claims incurred but not yet reported. Claims incurred must be reported within 40 business days after the date of occurrence of the applicable catastrophe event. During the period ended 30 June 2023 there were no claims reported for which a provision may be required (2022: none). (d) Reinsurance and Other Recoveries Receivable Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid and claims incurred but not reported are assessed in a manner similar to the assessment of outstanding claims. (e) Assets Backing General Insurance Liabilities The assets are assessed under PBE IFRS 4 Insurance Contracts to be assets that are held to back general insurance liabilities. The fair value of these assets are obtained from quoted market prices for equity investments and valuation techniques using observable inputs for managed funds investments. These financial assets are designated as fair value through surplus or deficit. Initial recognition is at fair value in the statement of financial position with any fair value gains or losses recognised in the statement of comprehensive revenue and expenses. Loans and other receivables are initially recognised at fair value, being the amount due. Debts which are known to be uncollectible, are written off. A provision for impairment is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the loans and other receivables. 11 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 2 BASIS OF FINANCIAL STATEMENT PRESENTATION (continued) (f) Other Payables Other payables are recognised when the Company becomes obliged to make future payments resulting from the purchase of goods and services. Payables are recognised at amortised cost. (g) Statement of Cash Flows For the purposes of the statement of cash flows, cash and cash equivalents include bank balances net of outstanding bank overdrafts. The following terms are used in the statement of cash flows: Operating activities are the principal revenue producing activities of the Company and other activities that are not investing or financing activities. Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the Company and funds received under grants. (h) Equity Equity is measured by total assets less total liabilities. Equity is comprised of share capital, retained earnings and long term reserves. Share capital is classified as equity when there is no obligation to transfer cash or other assets. Retained earnings are disaggregated and classified into a number of sub-reserves to enable clearer identification of the specified uses that Company makes of its retained earnings. The components of retained earnings are: * Retained Earnings * Long Term Reserves Reserves represent a particular use to which various parts of equity have been assigned. Retained earnings sub-reserves may be: * Created, by the Company and may be altered without reference to any party, transfers to and from these reserves are at the discretion of Company; or * Legally restricted, under specific conditions accepted as binding by the Company, transfers from these reserves may be made only for specified purposes or when certain conditions are met. The PCRIC retained earnings sub-reserve named Long Term Reserve has been created by the Company for the purpose of: • Identifying and segregating from Retained Earnings the restricted MDTF and DFID funds which can only be used for: * facilitating a quick claim payment whilst waiting on reinsurance to be recovered. * making a claim payment where there is insufficient Retained Earnings to cover the full cost of the claim. (i) Contingent Liability The Company defines this as an obligation (if any), that will only be confirmed through the occurrence or non-occurrence of an uncertain event not wholly within the Company’s control. 12 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 2023 2022 US$ US$ 3. SHARE CAPITAL One ordinary share 100,000 100,000 All ordinary shares are fully paid, have equal voting rights and share equally in dividends and net assets on winding up. The shares have no par value. 4. CASH & CASH EQUIVALENTS 2023 2023 2023 2022 2022 2022 US$ US$ US$ US$ US$ US$ Restricted Unrestricted Restricted Unrestricted Funds Funds Total Funds Funds Total Designated Bank Account/s 126,326 - 126,326 159,769 - 159,769 Premium Account - 1,676,606 1,676,606 - 1,125,367 1,125,367 Total Cash & Cash equivalents 126,326 1,676,606 1,802,932 159,769 1,125,367 1,285,136 Cash - Forsyth Barr - 42,549 42,549 - 67,745 67,745 Cash funds - 42,549 42,549 - 67,745 67,745 The Designated Bank Account and Cash funds have been created to hold the restricted funds. Restricted Funds are those funds received from either the MDTF or DFID. Funds disbursed from the MDTF are designated as follows: Category 1 - Funds for goods, consulting services, non-consulting services, training and operating costs for: - Establishment and operationalisation of the PCRIC - Monitoring and evaluation of the insurance pay-out process - Development of Disaster Risk Insurance Products. Category 2 - Capitalisation Phase 1 (First instalment of project funds for capitalisation) Category 3 - Capitalisation Phase 2 (Second instalment of project funds for capitalisation) Funds received from the MDTF as Category 1 are held within the Designated Bank Account. Funds received as Category 2 and 3 and those funds received from DFID are held within the investments. 2023 2022 5. INVESTMENTS US$ US$ (i) Equity Investments in Listed Funds 4,270,195 3,579,570 (ii) Investments in Managed Funds 21,635,253 21,480,637 25,905,448 25,060,207 (i) these are classified as financial assets at fair value through surplus and deficit with a carrying value of $4,270,195 (30 June 2022 $3,579,570). (ii) these are classified as financial assets at fair value through surplus and deficit with a carrying value of $21,635,253 (30 June 2022 $21,480,637). 6. CREDIT RATING The Company does not have, has not sought and is not required to have a credit rating. The Company is exempted from this requirement as the Company does not insure any third party risks. 13 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 7. INSURANCE CONTRACTS - RISK MANAGEMENT POLICIES AND PROCEDURES The Company was issued with a licence under the Cook Islands Captive Insurance Act 2013 on 10 June 2016. The financial condition and operation of the Company is affected by a number of key risks including insurance risk, interest rate risk, market risk, compliance risk and operational risk. The Company's policies and procedures in respect of managing insurance risk are set out in this note. Objectives in managing risks arising from insurance contracts and policies for mitigating those risks The Company has an objective to control insurance risk thus minimising substantial unexpected losses that would expose the Company to an adverse financial capital loss. The Company has an Operational Manual which has been endorsed by the council of members, this manual sets out the policies and procedures. Key aspects of the processes established to mitigate risks include: - The maintenance and use of management information systems, which provide up to date, reliable data on the risks to which the business is exposed at any point in time. - Models, using information from the management information systems, are used to calculate premiums and monitor claims patterns. Past experience is used as part of the process. The management of assets and liabilities is closely monitored to attempt to match the maturity dates of assets with the expected pattern - of claims. - The investment strategy is to invest in assets as stipulated in the Company's Statement of Investment Policy Objectives (SIPO). - Undertaking reinsurance cover to limit its maximum probable loss. Insurance Risk Insurance exposure is managed by the Company by its ability to review insurance contracts in place and in particular adjust future premium rates. The gross exposure of the Company is US $20,941,389 (2022 US $20,634,269). This is limited through the purchase of reinsurance. Net exposure of the Company is US $9,191,389 (2022 US $8,884,269). Exposure for each of the member countries is: 2023 2022 Member Peril Insured Event Insured Coverage Limit Peril Insured Event Insured Coverage Limit Tropical Tropical Cook Islands Cyclone 1 in 150 Year 2,881,982 Cyclone 1 in 150 Year 2,881,982 Earthquake & Earthquake & Tropical Tropical Samoa Cyclone 1 in 50 Year 10,881,264 Cyclone 1 in 50 Year 10,695,750 Earthquake & Earthquake & Tropical Tropical Tonga Cyclone 1 in 30 Year 7,178,143 Cyclone 1 in 30 Year 7,056,537 Total 20,941,389 20,634,269 14 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 7. INSURANCE CONTRACTS - RISK MANAGEMENT POLICIES AND PROCEDURES (continued) Liquidity Risk Liquidity risk represents the risk that the company may not have the financial ability to meets its contractual obligations. The Company evaluates its liquidity requirements on an ongoing basis, with a special focus at the time of the insurance renewal (1 November each year). The key risk to liquidity is the net exposure retained as noted in the Insurance Risk section of this note. Although the Capital held by the Company is greater than the net exposure the Board makes an assessment of the likelihood of a full claim from each participating country and notes it would require the following: 2023 2022 Event Required Event Required Member Peril Insured for Full Loss Peril Insured for Full Loss Cook Islands Tropical Cyclone 1 in 150 Year Tropical Cyclone 1 in 150 Year Samoa Earthquake & Tropical Cyclone 1 in 50 Year Earthquake & Tropical Cyclone 1 in 50 Year Tonga Earthquake & Tropical Cyclone 1 in 30 Year Earthquake & Tropical Cyclone 1 in 30 Year Credit Risk The credit rating of all participating reinsurers is monitored by the Company's Adviser who is responsible for warning the Board of changes to the credit ratings of any reinsurer involved in the Company's reinsurance programme. The reinsurer credit ratings are listed below and are formally reviewed by the Board each year. Reinsurer Rating Agency Rating HISCOX Insurance AM Best A+ Liberty Specialty Markets Paris Standard & Poor's A Mitsui Sumitomo Insurance Co Ltd, Japan Fitch Ratings A+ Generali Assicurazioni Generali S.p.A Fitch Ratings A+ Financial assets and liabilities arising from insurance and reinsurance contracts are stated in the balance sheet at the amount that best represents the maximum credit exposure at balance date. Liability Adequacy Test The liability adequacy test is an assessment of whether the carrying amount of the recognised liabilities are adequate and is conducted at each reporting date. If current estimates of the expected future cash flows relating to future claims arising from the rights and obligations under current insurance contracts exceed the recognised liabilities then the recognised liabilities are deemed to be deficient. There is no deficiency at 30 June 2022. 2023 2022 8. AUDITOR'S REMUNERATION US$ US$ - Audit of financial statements 51,750 34,573 Total 51,750 34,573 15 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 9. REVENUE FROM NON-EXCHANGE TRANSACTIONS Non-exchange transactions are those where the Company receives value from another entity without giving approximately equal value in exchange. The Company receives non-exchange transactions by way of grant funding under the Multi-Donor Trust Fund Agreement (MDTF) entered into with International Bank for Reconstruction and Development, and the International Development Association. The Company also receives grant funding under the Memorandum of Understanding entered into with the Department for International Development (DFID). Recognition of non-exchange revenue from grants depends on whether the grant comes with any stipulations imposed on the use of a transferred asset. Stipulations that are 'conditions' specifically require the Company to return the inflow of resources received if they are not used in the way stipulated, and therefore do not result in the recognition of a non-exchange revenue until the 'conditions' are satisfied. Stipulations that are 'restrictions' do not specifically require the Company to return the inflow of resources received if they are not utilised in the way stipulated, and therefore do not result in the recognition of a non-exchange liability, which results in the immediate recognition of non- exchange revenue on receipt. 2023 2022 US$ US$ MDTF Grant (Category 2 & 3) - - Opening balance MDTF Revenue received in Advance (52,878) 31,459 MDTF Grant (Category 1) 1,652,583 721,027 MDTF Revenue Received in Advance 70,774 52,878 DFID - - Revenue from non-exchange transactions 1,670,479 805,364 10. RISK MANAGEMENT This note explains the Company's exposure to financial risks and how these risks could affect the Company's future financial performance. (a) Capital Management The Company's capital includes share capital and retained earnings. The Company's policy is to maintain a strong capital base so as to maintain shareholder, creditor and policyholder confidence and to sustain the future development of the business. Financial Resource Requirements under the Captive Insurance Act 2013 When managing capital, the Directors’ objective is to ensure the Company continues as a going concern, at the same time meeting regulatory obligations in regard to minimum capital requirements. The Directors monitor the capital structure of the Company in light of economic factors and regulatory requirements, with a view of making adjustments where necessary. The Company, as a captive insurer, is required to maintain sufficient capital to meet the prescribed minimum requirements in accordance with the Captive Insurance Act 2013, Captive Insurance Regulations 2013 and related regulations (collectively, “the Act”). The methodology and bases for determining the financial resource requirements are in accordance with the requirements of the Act. Under the Act, the Company is required to maintain minimum prescribed capital and surplus of NZ $100,000. 2023 2022 US$ US$ Actual capital 26,714,973 23,988,518 Prescribed minimum capital (expressed in USD equivalent of NZD $100,000) 62,014 62,014 Margin 26,652,959 23,926,504 Margin ratio 429.79 386.82 16 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 10. RISK MANAGEMENT (continued) (b) Market Risk (i) Interest rate risk The Company's interest rate risk arises from the cash component held in its investments portfolio. To manage its exposure to interest rate risk the Company diversifies its investment portfolio. Diversification of the investment portfolio is done in accordance with the limits set by the Company's SIPO. (ii) Foreign exchange risk Foreign currency risk is the risk that the value of the Company's assets and liabilities or revenues and expenditure will fluctuate due to changes in foreign exchange rates. Reinsurance is purchased in United States dollars, irrespective of where the reinsurer is domiciled, and is effective from the same date and time as the Company writes the policy for its premiums and accepts the insurance risk. The Company is not exposed to currency risk as its investments are denominated in United States dollars. (iii) Price risk The Company is exposed to equity securities price risk because of investments held by the Company and classified in the statement of financial position as at fair value through surplus or deficit. The Company is not exposed to commodity price risk. To manage its price risk arising from investments in equity securities, the Company diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Company's SIPO. (c) Credit Risk Management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The failure of a reinsurer to pay claims will constitute a credit risk. The Company minimises this credit risk by reinsuring with reinsurers with a credit ratings of A or above. Financial instruments which potentially subject the Company to credit risk principally consist of cash and cash equivalents held with a counterparty bank. The Company maintains these balances with a counterparty bank having a credit rating of AA- from Standard & Poor's, and does not anticipate a default from the counterparty bank. The carrying amount of financial assets recorded in the financial statements represents the Company's maximum exposure to credit risk. (d) Liquidity Risk Management The Company manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The maturity profile of financial instruments is disclosed in Note 11. (e) Categories of Financial Instruments and fair value hierarchy The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1 : Quoted market prices – financial instruments with quoted prices for identical instruments in active markets. Level 2: Valuation techniques using observable inputs - financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable. Level 3: Valuation techniques with significant non-observable inputs - financial instruments valued using models where one or more significant inputs are not observable. Financial assets: 2023 2022 Assets measured at fair value US$ US$ - Cash and cash equivalent (Level 2) 1,845,481 1,352,881 - Equity Investments in Listed Funds (Level 1) 4,270,195 3,579,570 - Investments in Managed funds (Level 2) 21,635,253 21,480,637 Loans and receivables - Other receivables (Level 3) - 1,035 Total financial assets 27,750,929 26,414,123 17 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 Financial liabilities 2023 2022 Other financial liabilities US$ US$ - Payables (Level 2) 614,786 705,044 - Other liabilities 50,300 - - MDTF grant income category 1 advance (Level 2) (70,774) (52,878) Total financial liabilities 594,312 652,166 (f) Sensitivity Analysis In managing interest rate risk and price risk the Company aims to reduce the impact of short-term fluctuations on the Company's earnings. The table below summarises the impact of increases / decreases of the investment income on the Company's surplus or deficit for the year and on equity. The analysis is based on the assumption that the investment income had increased / decreased by 5% with all other variables held constant: Impact on Total Comprehensive Revenue and Expenses Unrealized investment gain 754,027 (1,412,190) Impact of a +/- 5% change in market prices 37,701 (70,610) Interest income 977 33 Impact of a +/- 5% change in interest rates 49 2 11. MATURITY PROFILE OF FINANCIAL INSTRUMENTS The following tables detail the Company's remaining contractual maturity for its financial instruments. The tables have been drawn up based on the undiscounted cash flows of financial instruments based on the earliest date on which the Company can be required to pay/receive. The table includes both interest and principal cash flows. 1 month up to Up to 1 month 12 months Over one year Total US$ US$ US$ US$ 2023 Financial Liabilities - MDTF grant income category 1 advance - 70,774 - 70,774 - Reinsurance payable - (423,500) - (423,500) - Audit fee payable (23,750) - - (23,750) - Management fee payable (15,000) - - (15,000) - Director Fees (20,000) - - (20,000) - Pacific Catastrophe Risk Insurance Foundation (50,300) - - (50,300) - Communications Manager (8,713) - - (8,713) - Product Development (36,315) - - (36,315) - Secretariat Fee (2,500) - - (2,500) (156,578) (352,726) - (509,304) 18 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 1 month up to Up to 1 month 12 months Over one year Total US$ US$ US$ US$ 2022 Financial Liabilities - MDTF grant income category 1 advance - 52,878 - 52,878 - Reinsurance payable - (396,400) - (396,400) - Audit fee payable - (55,000) - (55,000) - Management fee payable (17,500) - - (17,500) - Director Fees (20,000) - - (20,000) - Pacific Catastrophe Risk Insurance Foundation (50,300) - - (50,300) - Investment Advisor (11,434) - - (11,434) - Communications Manager (15,248) - - (15,248) - Product Development (100,662) - - (100,662) - Secretariat Fee (7,000) - - (7,000) - Monitoring & Evaluation Fees (31,500) - - (31,500) (253,644) (398,522) - (652,166) 12. NET CASH GENERATED BY OPERATING ACTIVITIES Reconciliation of (loss) / profit for the period to net cash generated by operating activities: 2023 2022 US$ US$ (Loss) / Profit for the year 1,406,355 (1,263,995) Less revenue from non-exchange transactions (1,670,479) (797,364) Less interest on Term Deposit (977) (33) Less Unrealised investment gain (754,027) 1,412,190 Less Dividend income (793,501) (81,792) Changes in net assets and liabilities: Deferred reinsurance (18,413) (6,387) Prepayments (77) (733) Payables & MDTF Grant (38,921) (15,934) Unearned premium reserve 6,794 6,794 Net cash (used in)/generated by operating activities (1,863,246) (747,255) 13. RELATED PARTY TRANSACTIONS AND BALANCES The parent of the Company is Pacific Catastrophe Risk Insurance Foundation (PCRIF), which is also the sole shareholder, and therefore is a related party. Contributions made by Fiji to become a member of PCRIF is held by PCRIC since PCRIF does not have a bank account. This is recorded as part of part of payables and the balance as at 30 June 2023 is $50,300 (2022: $50,300) During the year, the Company incurred directors fees of $108,769 (2022: $54,995). During the year, the Company incurred $171,029 (2022: $162,679) on CEO Salary. During the year, the Company incurred $24,564 (2022: $17,656) on travel expenses. 19 PACIFIC CATASTROPHE RISK INSURANCE COMPANY NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 June 2023 14. REPLENISHMENT STRATEGY A requirement of the Grant Agreement is to replenish any reserves utilized to fund a claim. The Board approved a Replenishment Strategy to replenish the Long Term Reserves with 50% of the current year's Operating Profit after taking out the MDTF Cat 3 grant income received. The Replenishment Strategy has remained in place until 31 December 2022. A total of $338,479 (2022: $73,559) was transferred from retained earnings to Long Term Reserves. 15. CONTINGENT LIABILITY The Company insured the Governments of the Cook Islands, Tonga and Samoa. Most countries impose a tax on premiums paid to insurers in overseas jurisdictions. Any such tax obligation is typically the obligation of the insured, however in the event that the insured does not honour any liability, the insurer would be responsible for any tax amounts owing. As at 30 June 2023 (and as at 30 June 2022), Tonga have granted a revocation to exempt the Company from taxes related to premiums effective 1 June 2021 and Samoa have confirmed the Company has no outstanding tax obligation. However, this potential obligation meets the definition a contingent liability. That is, the obligation (if any), will only be confirmed through the occurrence or non-occurrence of an uncertain event not wholly within the Company’s control. 16. EVENTS OCCURRING AFTER BALANCE DATE There has been no matter or circumstance, which has arisen since 30 June 2023 that has significantly affected or may significantly affect the operations in financial years subsequent to 30 June 2023 of the Company. 20 Pacific Catastrophe Risk Insurance Company Statement of Service Performance The Statement of Service provides a snapshot of achievements for respective indicators under the five themes drawn from Pacific Catastrophe Risk Insurance Company's (‘PCRIC’s’) July 2023 to December 2025 Business Plan. The reporting periods below are consistent with PCRIC’s financial reporting periods (July to June). The indicators reported below are selected indicators extracted from PCRIC’s Business Plan, and where applicable, have been amended to ensure compliance with PBE accounting standards for Tier 1 not-for-profit public benefit entities, the Company’s financial reporting framework. It is organised as follows: (1) PCRIC Vision, (2) PCRIC Mission, and (3) PCRIC Strategic Themes and concludes with a table which provides a quantitative and qualitative (closed ended – Yes/No response) for each indicator. PCRIC’s outcomes and achievements will be included in PCRIC’s Annual Report, which is prepared on a calendar year basis. (1) PCRIC Vision To strengthen the resilience of the Pacific region to disaster and climate risks impact. (2) PCRIC Mission To increase the range of disaster risk knowledge, assessment tools and risk transfer products offered to the region and be the partner of choice to support countries in providing cost- effective disaster risk finance (‘DRF’). (3) PCRIC Strategic Objectives and Themes PCRIC operates on the platform of five strategic themes which were developed through a consultative process with the PCRIC Board, service providers, and other regional stakeholders. These interrelated and mutually reinforcing themes establish the framework within which PCRIC pursues its vision and mission, supports member nations, measures performance, and collaboratively engages with others in the DRF ecosystem. 21 • Strategic Theme One: Regional Integration Under this Theme, PCRIC looks to establish a clearly Pacific identity, build client relationships, and leverage regional partner engagements in the DRF space. • Strategic Theme Two: Technical Capability Under this Theme, the focus is on PCRIC positioning itself as a knowledge hub of the region in providing training and awareness on risk transfer instruments and attuning its suite of offering to the evolving need of the Pacific Island Countries (PICs) largely based on its risk profile. • Strategic Theme Three: Compelling Value Proposition Under this Theme, the focus is for PCRIC to deliver on the reasonable expectations of clients and other stakeholders. To achieve this, PCRIC must establish a clear playing field and value proposition, set clear goals, monitor and report on progress and understand and manage external expectations of PCRIC. • Strategic Theme Four: Global Partnering Under this Theme, PCRIC aims to represent and champion Pacific interests on the global stage, understand and fully engage with key elements of the current global climate and resilience landscape as well as build a support network within the sector. • Strategic Theme Five: Operational Excellence Under this theme, PCRIC aims to have best-in-class governance and management capability, robust internal processes, and efficient and effective operational execution, effective capital management, and use of a comprehensive framework for measuring and reporting organisational sustainability and stability. 22 Table1: Statement of Service Performance PCRIC Strategic Themes Indicators Unit July 21 to June 22 July 22 to June 23 Regional Integration - Becoming a Indicator 1: Number of country outreach programs held with Number 4 Nil Pacific Islands Institution PCRIC members and non-member countries Indicator 2: Number of regional workshops on DRF hosted, Number Nil 4 co-hosted, or attended by PCRIC with partners Indicator 3: PCRIC Internship program with University of the Yes/No No Yes South Pacific (USP) and the scholarship program for post- graduate students in PICs launched and implemented. Indicator 5: Number of countries purchasing insurance per Number 3 3 season Technical Capability - Operate Indicator 8: Number of Excess Rainfall and Drought products Number 0 0 Regional Open Risk Information policies sold and Underwriting Platforms Indicator 11: PCRIC funded the development of a decision Yes/ No No Yes modelling tool to give an indication of insurance payouts based on modelled emergency losses. Compelling Value Proposition - Indicator 13: Monitoring of PCRIC's activities and Yes/No No No Appropriate Client Management performance in accordance with the Monitoring and and Broader Stakeholder Evaluation Framework is performed quarterly, semi-annually Expectation and annually. The purpose of this is to provide a clear approach for reporting on and learning from PCRIC activities in accordance with PCRIC's established Business Plan. Indicator 14: Evidence of enhanced visibility of PCRIC due to Yes/ No No No strategic marketing and communication through formal commitment from countries to new insurance contracts. Global Partnering Indicator 15: Evidence of closer engagement with other risk Yes/No No Yes. MOU signed with other pools, regional sovereign, and global partners in the DRF risk pools to collaborate space during COP 27 has helped enhance the company’s visibility. Operational Excellence Indicator 16: PCRIC makes a full insurance payout within 30 Yes/ No N/A as no claims incurred or N/A as no claims incurred or days of the occurrence of a covered (insured) event paid out. paid out. Indicator 17: Investment income above 2.0% annually Yes/ No No Yes 23 Level 9, 45 Queen Street, Auckland 1010 T: +64 9 309 0463 PO Box 3899, Auckland 1140 E: auckland@bakertillysr.nz New Zealand W: www.bakertillysr.nz INDEPENDENT AUDITOR’S REPORT To the Shareholders of Pacific Catastrophe Risk Insurance Company Report on the Audit of the Performance Report Opinion We have audited the performance report of Pacific Catastrophe Risk Insurance Company ('the Company') which comprises the financial statements on pages 4 to 20, and the statement of service performance on pages 21 to 23. The complete set of the financial statements comprise the statement of financial position as at 30 June 2023, the statement of comprehensive revenue and expenses, the statement of changes in equity and the statement of cash flows for the year then ended, and notes to the financial statements, including significant accounting policies. In our opinion the accompanying performance report presents fairly, in all material respects, the financial position of the Company as at 30 June 2023, and the financial performance and cash flows for the year then ended, and the service performance for the year ended 30 June 2023 in accordance with the service performance criteria of the Company in accordance with Public Benefit Entity Standards ('PBE Standards') issued by the New Zealand Accounting Standards Board. Our report is made solely to the Shareholders of the Company. Our audit work has been undertaken so that we might state to the Shareholders of the Company those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Shareholders of the Company as a body, for our audit work, for our report or for the opinions we have formed. Basis for Opinion We conducted our audit of the financial statements in accordance with International Standards on Auditing (New Zealand) (‘ISAs (NZ)’) and the audit of the service performance information in accordance with International Standard on Assurance Engagements (New Zealand) (‘ISAE (NZ) 3000 (Revised)’) Assurance Engagements Other than Audits or Reviews of Historical Financial Information. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statement section of our report. We are independent of the Company in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (‘IESBA Code’), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other than in our capacity as auditor we have no relationship with, or interests in, Pacific Catastrophe Risk Insurance Company. 24 Material Uncertainty Related to Going Concern We draw attention to Note 1 in the financial statements, Basis of Financial Statement Preparation – “Compliance with Grant Agreement”. As highlighted in this note to the financial statements, should the Company fail to perform any obligation under the Grant Agreement, the World Bank could either: suspend the Company’s right to make withdrawals from the Grant Account; or cancel / terminate the right of the Company to make withdrawals with respect to an unwithdrawn amount of the grant the Grant Agreement, and in addition seek a refund of Grant amounts disbursed. To date there have been minor instances of non-compliance regarding process matters with the Grant Agreement, and whilst known to the World Bank, these breaches have not been formally waived by them. As stated in Note 1, these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern to. Our opinion is not modified in respect of this matter. Other Information The Directors are responsible for the other information. The other information comprises the information included in the Company’s annual report for the year ended 30 June 2023 (but does not include the performance report and our auditor’s report thereon). Our opinion on the performance report does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon. In connection with our audit of the performance report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the performance report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Statements The Directors are responsible on behalf of the Company for:  the preparation and fair presentation of the financial statements and the statement of service performance in accordance with PBE Standards;  service performance criteria that are suitable in order to prepare service performance information in accordance with PBE Standards; and  such internal control as the Directors determine is necessary to enable the preparation of the financial statements that is free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible on behalf of the Company for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and 25 using the going concern basis of accounting unless the Directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole, and the statement of service performance are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (NZ) and NZ AS 1 will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of users taken on the basis of this financial statements. A further description of the auditor’s responsibilities for the audit of the financial statements is located at the External Reporting Board’s website at: https://www.xrb.govt.nz/assurance-standards/auditors-responsibilities/audit-report-14/ Matters Relating to the Electronic Presentation of the Audited Performance Report This audit report relates to the performance report of Pacific Catastrophe Risk Insurance Company for the year ended 30 June 2023 included on the Company’s website. The Directors of the Company are responsible for the maintenance and integrity of the Company’s website. We have not been engaged to report on the integrity of the Company’s website. We accept no responsibility for any changes that may have occurred to the performance report since they were initially presented on the website. The audit report refers only to the performance report named above. It does not provide an opinion on any other information which may have been hyper linked to or from this performance report. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited performance report and related audit report dated 30 November 2023 to confirm the information included in the audited performance report presented on this website. Legislation in New Zealand governing the preparation and dissemination of performance report may differ from legislation in other jurisdictions. BAKER TILLY STAPLES RODWAY AUCKLAND Auckland, New Zealand 30 November 2023 26 APPENDIX 1 PACIFIC CATASTROPHE RISK INSURANCE COMPANY SUPPLEMENTARY INFORMATION (UNAUDITED) - STATEMENT OF COMPREHENSIVE REVENUE AND EXPENSES BY BUSINESS LINE For the year ended 30 June 2023 NOTE MDTF Cat 1 MDTF Cat 2-3 DFID PCRIF ENTITY TOTAL MDTF Cat 1 MDTF Cat 2-3 DFID PCRIF ENTITY TOTAL 2023 2023 2023 2023 2023 2023 2022 2022 2022 2022 2022 2022 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Gross written premium - - - - 1,300,000 1,300,000 - - - - 1,280,000 1,280,000 Less change in unearned premium - - - - (6,795) (6,795) - - - - (6,794) (6,794) Premium income - - - - 1,293,205 1,293,205 - - - - 1,273,206 1,273,206 Reinsurance premiums - - - - (847,000) (847,000) - - - - (792,800) (792,800) Less change in deferred reinsurance - - - - 18,413 18,413 - - - - 6,386 6,386 Outwards reinsurance expense - - - - (828,587) (828,587) - - - - (786,414) (786,414) Net premium income - - - - 464,618 464,618 - - - - 486,792 486,792 Claims expense - - - - - - - - - - - - Reinsurance recovery - - - - - - - - - - Net claims incurred - - - - - - - - - - - - Net underwriting (loss) / profit - - - - 464,618 464,618 - - - - 486,792 486,792 Revenue from non-exchange transactions 1,652,583 - - - - 1,652,583 721,027 - - - - 721,027 Plus / (less) movement in revenue received in advance 17,896 - - - - 17,896 84,338 - - - - 84,338 Unrealized investment gain - - - - 754,027 754,027 - - - - (1,412,190) (1,412,190) Dividends income - - - - 793,501 793,501 - - - - 81,792 81,792 Interest income - - - - 977 977 - - - - 33 33 Revenue from non-underwriting sources 1,670,479 - - - 1,548,505 3,218,984 805,365 - - - (1,330,365) (525,000) 1,670,479 - - - 2,013,123 3,683,602 805,365 - - - (843,573) (38,208) Auditor's remuneration 7 - - - - (51,750) (51,750) - - - - (34,573) (34,573) Project Auditor's remuneration (15,000) - - - - (15,000) (10,000) - - - - (10,000) CEO remuneration (86,000) - - - (85,029) (171,029) (162,679) - - - - (162,679) Finance & planning manager (54,480) - - - (50,706) (105,186) - - - - - - Calculation agent fee - - - - - - (60,000) - - - (1,950) (61,950) Management fee expense (37,500) - - - (18,000) (55,500) (37,500) - - - (74,000) (111,500) Recruitment agency fee - - - - - - (13,498) - - - - (13,498) Reinsurance broker fee (17,500) - - - (35,000) (52,500) - - - - (50,000) (50,000) Directors' fees (75,963) - - - (32,806) (108,769) (54,995) - - - - (54,995) Legal fees (39,364) - - - 4,508 (34,856) (10,652) - - - (38,934) (49,586) Stakeholder & business development (135,809) - - - (51,930) (187,739) - - - - - - Product development (888,341) - - - (128,046) (1,016,387) - - - - - - Investment Advisor (6,101) - - - (9,721) (15,822) (12,556) - - - - (12,556) Project coordinator (45,833) - - - (43,120) (88,953) - - - - - - Website development - - - - - - - - - - - - Monitoring and evaluation specialist fee (84,547) - - - (22,525) (107,072) - - - - - - Communications manager (94,185) - - - (29,954) (124,139) - - - - - - Secretariat advisor (59,330) - - - 10,830 (48,500) - - - - - - Consultants - - - - - - (3,250) - - - (36,050) (39,300) D&O Insurance - - - - (35,633) (35,633) - - - - (33,394) (33,394) Other expenses (30,526) - - - (27,886) (58,412) (440,235) - - - (151,520) (591,755) Total expenses (1,670,479) - - - (606,768) (2,277,247) (805,365) - - - (420,421) (1,225,786) SURPLUS FOR THE PERIOD - - - - 1,406,355 1,406,355 - - - - (1,263,994) (1,263,994) TOTAL COMPREHENSIVE REVENUE AND EXPENSES - - - - (1,263,994) 1,406,355 - - - - (1,263,994) (1,263,994) The notes to the financial statements form part of and should be read in conjunction with this appendix. 27 APPENDIX 2 PACIFIC CATASTROPHE RISK INSURANCE COMPANY SUPPLEMENTARY INFORMATION (UNAUDITED) - STATEMENT OF FINANCIAL POSITION BY BUSINESS LINE AS AT 30 JUNE 2023 MDTF Cat 1 MDTF Cat 2-3 DFID PCRIF ENTITY TOTAL MDTF Cat 1 MDTF Cat 2-3 DFID PCRIF ENTITY TOTAL NOTE 2023 2023 2023 2023 2023 2023 2022 2022 2022 2022 2022 2022 US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ EQUITY Share capital 3 - - - - 100,000 100,000 - - - 100,000 100,000 Long Term Reserves - 17,125,425 9,465,014 - - 26,590,439 - 17,072,462 9,444,418 - 26,516,880 Long Term Reserves Replenished / (Accessed) - 243,705 94,774 - - 338,479 - 52,963 20,596 - 73,559 Retained Earnings - - - - (2,801) (2,801) - - - (1,070,676) (1,070,676) TOTAL EQUITY - 17,369,130 9,559,788 - 97,199 27,026,117 - 17,125,425 9,465,014 - (970,676) 25,619,763 Represented By: CURRENT ASSETS Cash and cash equivalents 4 126,326 - 42,549 50,300 1,626,307 1,845,481 159,769 - - 50,300 1,142,812 1,352,881 Term Deposits - - - - - - - - - - - Investments 5 - 19,125,425 7,465,015 - (684,992) 25,905,448 - 19,125,425 7,465,015 (1,530,233) 25,060,207 Deferred Reinsurance - - - - 287,747 287,747 - - - 269,335 269,335 Other receivable - - - - - - 1,035 - - - 1,035 Prepayments - - - - 23,397 23,397 - - 23,320 23,320 TOTAL CURRENT ASSETS 126,326 19,125,425 7,507,564 50,300 1,252,459 28,062,073 160,804 19,125,425 7,465,015 50,300 (94,766) 26,706,778 TOTAL ASSETS 126,326 19,125,425 7,507,564 50,300 1,252,459 28,062,073 160,804 19,125,425 7,465,015 50,300 (94,766) 26,706,778 CURRENT LIABILITIES Payables 10 15,000 - - 50,300 599,786 665,086 213,682 - - 50,300 441,062 705,044 Claim payables - - - - - - - - - - - MDTF Grant - Category 1 Advance 8 (70,774) - - - - (70,774) (52,878) - - - (52,878) Unearned premium reserve - - - - 441,644 441,644 - - - 434,849 434,849 TOTAL CURRENT LIABILITIES (55,774) - - 50,300 1,041,430 1,035,956 160,804 - - 50,300 875,911 1,087,015 NET ASSETS 182,100 19,125,425 7,507,564 - 211,029 27,026,117 - 19,125,425 7,465,015 - (970,677) 25,619,763 The notes to the financial statements form part of and should be read in conjunction with this appendix. 28