BEST DOCTORS INSURANCE LIMITED - BMA · Best Doctors Insurance Limited (the "Company") was incorporated under the laws of Bermuda on August 25, 2008. The Company commenced writing

BEST DOCTORS INSURANCE LIMITED

Consolidated Financial Statements (With Independent Auditor's Report Thereon)

March 31, 2016 and December 31, 2014

Best Doctors Insurance Litnited Index March31} 20'16 and December 31,2014

lndependent Audlt0r rs Report

Consolidated Financial Stllfeuumts

Consolidated Balance Shc~ts

Consolidated Statements ofln ome and Comprehensive Income

Consol ldated Statements ofChanges in Shareholder' s Equity

Consolidated St:;~tements of Cash Flows

Notes to Consolidated Financial Statements

Poge(s)

2

3

4

6- 19

The Board of Directors Best Doctors Insurance Limited

KPMG Audit Limited Crown House 4 Par-la-Ville Road Hamilton HM 08 Bermuda

Independent Auditor's Report

Ma iling Address: P.O. Box HM 906 Hamilton HM OX Bermuda

Telephone Fax Internet

+1 441 295 5063 +1 441 295 9132 www.kpmq brn

We have audited the accompanying consolidated financial statements of Best Doctors Insurance Limited and its subsidiruy, which comprises the consolidated balance sheets as of March 31, 2016 and December 31, 2014 and the related consolidated statements of income and comprehensive income, changes in shareholder's equity, and cash flows for the 15-month and 12-month periods then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for tlte Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated fmancial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the prepru·ation and fair presentation of consolidated fmancial statements that are free from material misstatement, whether due to fraud or eiTor.

Auditor's Respo11sibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standru·ds generally accepted in the United States of America. Those standru·ds require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements ru·e free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement ofthe consolidated financial statements, whether due to fi·aud or enor. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated 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. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated fmancial 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 consolidated financial statements referred to above present fairly in all material respects, the financial position of Best Doctors insurance Limited and its subsidiary as ofMarch 31, 2016 and December 31, 2014, and the results of their operations and their cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

Chartered Professional Accountants Hamilton, Bermuda October 31 , 2016

e 2016 KPMG Audit Limited, a Bermuda limited liability company anc:l a member fi [rn of the KPMG notwork of independent l"n9mber firms aff iliated wilh KPMG Interna tional Cooperative rKPMG International" ~. a Swiss entity. Al l rights reserved,


Consolidated Balance Sheets

March 31 , 2016 and December 31 , 2014 (Expressed in United States Doflars)

Assets Cash and cash equivalents (Notes 3 and 13) Restricted cash (Notes 3 and 13) Investments, available for sale at fair value (Amortized cost: 2016- $29, 142,873; 2014- $38,869,404) (Notes 3 and 4) Accrued interest receivable Insurance balances receivable Loans receivable fi"om related companies (Note 5) Receivable from related company (Note 5) Losses recoverable from reinsurers (Note 12) Due from investment broker Paid losses receivable (Note 12) Accounts receivable Deferred acquisition costs Tax indemnity asset Prepaid expenses Funds withheld Claim funding

Total assets

Liabilities Reserve for outstanding losses and loss expenses (Note 6) Unearned premium reserve Insurance balances payable Reinsurance balances payable Derivative liability (Note 13) Commission payable Claims payable Accounts payable and accrued expenses Due to related companies

Total liabilities

Shareholder's equity Share capital (Note 11) Additional paid in capital Accumulated other comprehensive income Retained earnings

Total shareholder' s equity

Total liabilities and shareholder's equity

The accompanying notes are an integral part of these financial statements. Signed on behalf of the Board

Director ----------------------

2

$ 1,204,471

$

$

$

755,546

29,848,339 127,505

20,560,130 24,992,995 20,504,987 10,782,987 4,481 ,503 4,173,023 1,187,072

19,684,658 641 ,630 173,961

139,118,807

18,859,739 69,019,837

2,073,743 15,502,619

235,662 5,717,602

33 ,119 1,521,038

I 12.963.359

120,000 5,200,000

703,296 20,132,152

26,155,448

$ 139,118,807

$ 2,197,819

$

$

$

$

1,005,061

39,264,384 339,683

15,072,761 11,916,206

711,025 15,827,599

67,070 7,686,588

254,843

94,343,039

12,863,089 54,727,338

2,031,202 140,186

4,262, 136

469,660 335,582

74,829,193

120,000 5,200,000

392,810 13,801,036

19,513,846

94,343,039

Director --------------------~


Consolidated Statements of Income and Comprehensive Income

Period/Year Ended March 31, 2016 and December 31, 2014 (Expressed in United States Dollars)

2016 2014

Undenvriting income Gross premiums written $ 182,529,43 9 $ 118,627,661 Reinsurance premium ceded {16,558,917) (894,299)

Net premiums written 165 '970,522 117,733,362 Movement in unearned premiums (14,393.142) {14,203,530)

Net premiums earned 151 ,577,380 I 03,529,832 Transaction fee income 2,545,937 1,812,454

Total underwriting income 154,123,317 I 05,342,286

Underwriting expenses Losses and loss expenses incurred (Note 6) 68 ,483,926 47,926,001 Commission fees 45,578,251 28,877,633 Claims and supp011 management fees (Note 8) 26,519,083 22,665,920

Total underwriting expenses 140,581 ,260 99,469,554

Net underwriting income 13,542,057 5,872,732

Other income (expenses) Net investment income (Note 7) 1,718,908 1,088,428 Net gain (loss) on derivatives (235 ,662) General and administrative expenses (4,170,265) (2,780,231) Management fees to related companies (Note 5) (4,500,000)

Net income before tax $ 6,355,038 $ 4,180,929 Tax expense (Note 9) (23 ,922)

Net income after tax $ 6,331.116 $ 4.180,929

Other comprehensive income: Net holdings gains arising during the period 690,070 1,670,759 Reclassification adjustments for net realized gains recorded in net income (379,584) (262,360)

Change in net unrealized gains on investments 310 486 1,408,399

Comprehensive income $ 6,641 ,602 $ 5,589,328

The accompanying notes are an integral part of these financial statements.

3


Consolidated Statements of Changes in Shareholder's Equity

Period/Year Ended March 31,2016 and December 31,2014 (Expressed in United States Dollars)

Additional Accumulated other Share paid in comprehensive Retained Shareholder's

Capital Capital income (loss) earnings .ffililly

Balance December 31,2013 $ 120,000 $5,200,000 $ (1 ,015,589) $ 9,620,107 $ 13,924,518

Unrealized gains on investments 1,408,399 1,408,399

Net income 4,180,929 4,180,929

Balance December 31, 2014 $ 120,000 $5,200,000 $ 392,810 $ 13,801,036 $ 19,513,846

Unrealized gains on investments 310,486 310,486

Net income 6,331,116 6,331,116

Balance March 31, 2016 $ 120,000 $5,200,000 $ 703 ,296 $ 20,132,152 $ 26,155,448

The accompanying notes are an integral part of these .financial statements.

4

BEST DOCTORS INSURANCE LIMJTED

Consolidated Statements of Cash Flows PeriodNear Ended March 31, 2016 and December 31 , 2014 (Expressed in United States Dollars)

2016 2014 Cash flows from operating activities Net income $ 6,331,116 $ 4,180,929 Adjustments to reconcile net income to net cash Provided by operating activities:

Amortization on investments 298,535 270,928 Realized gains (379,584) (262,360) Foreign exchange losses 9,641

Changes in non-cash working capital : Accrued interest receivable 212,178 (167,860) Insurance balances receivable (5,487,369) (5,283,627) Non-cash change in loans receivable from related companies (Note 5) 1,250, 189 (142,327) Losses recoverable from reinsurers (10,782,987) Paid losses receivable (4,173,023) 2, 166,330 Accounts receivable (476,047) (251 ,034) Funds withheld 7,686,588 (5,379,982) Receivable from a related company (Note 5) (20,489,965) (I ,483,629) Deferred reinsurance 75,000 Deferred acquisition costs (3 ,857,059) (4,614,576) Tax indemnity asset (641 ,630) Claims funding 254,843 (2,657) Prepaid expenses (106,891) (44,711) Reserve for outstanding losses and loss expenses 5,996,650 1,526,707 Unearned premium reserve 14,292,499 13,976,120 Insurance balances payable 42,541 (657,744) Reinsurance balances payable 15,362,433 100,794 Commission payable 1,455 ,466 1,304,279 Claims payable 33,119 Derivative liability 235,662 Due to related companies (335,582) Accounts payable and accrued expenses 1,051,378 331.299

Cash flows (used in) provided by operating activities 7.773,060 5,651.520

Cash flows from investing activities Purchase of investments (59,520,890) (86,425, 120) Proceeds on sale of investments 64,846,967 77,419,403 Letter of credit facility from bank - restricted cash 249,515 Loan payments received from related companies 3,000,000 Loans made to related companies (Note 5) (14,342,000) ( 4,000,000)

Cash flows provided by (used in) investing activities (8,766,408) (10,005,717)

Effect on exchange rate changes on cash (9,641)

Net decrease in cash and cash equivalents (993,348) (4,363,838)

Cash and cash equivalents at beginning of period/year 2,197,819 6.561.657

Cash and cash equivalents at end of period/year $ 1,204,471 $ 2,197,819

The accompanying notes are an integral part of these financial statements.

5




1. General

Best Doctors Insurance Limited (the "Company") was incorporated under the laws of Bermuda on August 25, 2008. The Company commenced writing business on March 1, 2009. The Company is currently registered as a Class 3B insurer under the Insurance Act 1978 of Bermuda and related regulations to write general business .

The Company was a wholly owned subsidiary of Best Doctors (Gibraltar) Holdings Limited, a company incorporated in Gibraltar, and the ultimate parent company was Best Doctors Inc. (BDI) until July 1, 2015. On July 2, 2015, the Company was acquired by Tamsin (Holdings) Limited (Tamsin), a Bermuda domiciled holding company. Tamsin is a subsidiary of Primary Group Limited (Primary) a Bermuda based investments holding company for a group of predominantly small to medium size businesses engaged in insurance and other financial distribution activities . In connection with the acquisition, the Company changed its year-end from December 31 to March 31. The Company insures the yearly healthcare risks of individuals and corporations, located in Canada, Latin America and the Caribbean, on claims-made and occurrence bases.

The Company currently provides cover to a limit of $5 ,000,000 or less per person per policy year depending on the policy agreements. The Company retains the first$ 1,000,000 (20 14: $500,000) of its gross liability per covered person per contract year. Prior to January 1, 2016, PartnerRe America Insurance Company reinsured 100% of the Company's contractual liability for all business in excess of $1 ,000,000 (20 14: $500,000) per covered person up to $5,000,000, per contract year with respect to claims incurred during the contract year and paid by the Company and reported to the insurer during the contract year or within the subsequent 12 months period following the end of the contract year. Effective January l , 2016, the Company entered into an agreement to cede 80% of the losses on these lines of business to RGA Worldwide Reinsurance Company, Ltd.

The Company is a coverholder of Lloyd 's with Binding Authority under Hardy Underwriting (Hardy), with a direct relationship therein. Under the Binding Authority, the Company via Best Doctors Insurance Holdings LLC is responsible for insurance administration services for Lloyd's group policies in Trinidad and Tobago and Canada including underwriting, premium collection, policy issuance, commission payments, and claims processing operations. Quota share agreements were executed between Hardy and the Company covering 30% of claims incurred for the businesses in Trinidad and Tobago and in Canada.

2. Summary of significant accounting policies

The accompanying fmancial statements are prepared in conformity with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company incorporated a 100% owned subsidiary in Aruba, Best Doctors Insurance VBA (BDIVBA) on November 29, 2013. BDIVBA started to write insurance business in Amba in March 2014. The consolidated financial statements include the results of Best Doctors Insurance Limited and BDIVBA.

(a) Principles of consolidation

All intercompany transactions and balances have been eliminated in consolidation.

(b) Change in financial year end

The Company has changed its financial year end from December 31 to March 31 . Therefore, the current year figures in the financial statements cover the period January 1, 2015 through March 31 , 2016.

(c) Foreign currency

The reporting currency of the Company and its subsidiary is the U.S. dollar, which is the functional currency of the Company . Gains and losses arising from transactions denominated in a foreign currency are included in net income

6



March 31, 2016 and December 3 I, 2014

2. Summary of significant accounting policies (continued)

(d) Comprehensive income

Comprehensive income is defined to include all changes in the shareholder's equity during the year other than those resulting from investments by and contributions from shareholder. Comprehensive income includes net income and other comprehensive income. The Company's other comprehensive income includes unrealized gains and losses on available-for-sale investments .

(e) Premiums written, reinsurance premium ceded and net premium earned

Premiums written and reinsurance premium ceded are recorded on the accrual basis. Premiums are recognized as income on a pro-rata basis over the terms of the underlying contracts with the unearned portion deferred in the balance sheet. Reinsurance premiums ceded are earned over the terms of the respective reinsurance policies with any unearned portion deferred in the balance sheet.

(/) Commission .foes and deferred acquisition costs

Commissions include internally generated costs as well as brokerage fees are paid to sales agents and agencies once the contract is effective and premium paid. The commission payment is entered as deferred acquisition costs . Deferred acquisition costs are reclassified to commission expense as the revenue from the underlying insurance contract is earned.

(g) Transactionfee income

Transaction fee income represents administrative fees which are charged to each policyholder, and recognized at a fixed rate at inception of the policy.

(h) Reserve for outstanding losses and loss acfjustment expenses

The reserve for outstanding losses and loss adjustment expenses is provided on the basis of current estimates made by claims personnel, the Company's actuary, and independent actuarial consultants . Management believes that the reserve for outstanding losses and loss adjustment expenses will be adequate to cover the ultimate net cost of losses incwTed to the balance sheet date. This reserve is an estimate and actual losses may be significantly greater or lesser than the amount recorded. It is reasonably possible that management will need to revise this estimate significantly as new information arises. Any subsequent differences arising are recorded in the year in which they are detetmined. The reserve for outstanding losses and loss adjustment expenses is not discounted.

(i) Investments and investment income

Investments are classified as available-for-sale and stated at fair value. The market valuation changes in investments are reported under other comprehensive income. Fair value of the government securities are based on quoted market prices and fair value of fixed income securities are based on bid prices and matrix pricing for less liquid securities as provided by leading pricing services. The independent pricing sources obtain actual transaction prices for securities that have quoted prices in active markets.

Investment income consists of realized gains and losses on the sale of investments , interest income and amottization of premium or discount on fixed interest securities purchased at amounts different from their par value.

7

BEST DOCTORS INSURANCE LlMITED


March 31,2016 and December 31,2014

2. Summary of significant accounting policies (continued)

OJ Cash and cash equivalents

Cash and cash equivalents include certain highly liquid debt instruments with maturities of three months or less when purchased.

(k) Recent Accounting Pronouncement

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Fopic 606) , which creates a new comprehensive revenue recognition standard that will serve as a single source of revenue guidance for all companies in all industries. The guidance applies to all companies that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of non-financial assets, unless those contracts are within the scope of other standards, such as insurance contracts. ASU No. 2014-09's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU No. 20 14-09 becomes effective for the Company during the first quarter of20 17 and may be applied retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. Early application is not pe1mitted. The Company is currently evaluating ASU No. 2014-09 to determine the potential impact that adopting this standard will have on its consolidated financial statements.

3. Concentrations of credit risk

As of March 31, 2016, restricted and unrestricted cash and cash equivalents of which comprise $755,546 and $703 ,636, respectively, (2014- $755,061 and $1,825,042), are held by one bank domiciled in Bermuda. BDIVBA holds $500,835 (2014 - $370,538) as unrestricted cash and cash equivalents in one bank domiciled in Aruba. Management believes that they are high credit quality financial institutions. The Company's management evaluates the financial strength and stability of these institutions on an ongoing basis.lnvestments, which include fixed interest securities and bonds, are not concentrated in any corporation or industry with no more than 10% (20 14- I 0%) held in any one security excluding US Treasury bills and US Federal agencies . All the securities are held by one bank in Cayman Islands.

8




4. Investments

The amortized cost and fair value of investments at March 31 , 20 16 and December 31 , 2014 are as follows :

Amortized Unrealized Unrealized Fair As ofMarch 31,2016 cost losses gains value

< 12 months < 12 months

U.S. Government obligations $ 16,515,969 $ $ 426,599 $ 16,942,568 U.S. Federal agencies 1,755,660 58,561 1,814,221 Mortgage backed securities 5,856,408 83,296 5,939,704 Corporate obligations 4,994,868 (33,93 8) 170,948 5,131,878 Short term investments 19 968 19 968

Total $ 29, 142,873 $ (33 ,938) $ 739,404 $ 29,848,339

Amortized Unrealized Unrealized Fair As at December 3 I , 20 14 cost losses gains value

< 12 months < 12 months

U.S. Government obligations 23,108,618 {25,210) 139,255 23,222,663 U.S. Federal agencies 997,275 64,683 1,061,958 Mortgage backed securities 8,122,499 80,908 8,203,407 Foreign bonds and notes 932,953 49,702 982,655 Corporate obligations 5,696,566 (34,440) 120,082 5,782,208 Short term investments II 493 11 493

Total $ 38,869,404 $ (59,650) $ 454,630 $ 39,264,384

9


Notes to Consolidated F inancial Statements


4. Investments (continued)

The amortized cost and estimated fair value of investments at March 31, 2016 and December 31, 2014 are shown below by contractual maturity.

As at March 31.2016

Due in one year or less ............ .. .. .. .............. ....... .. .............. .... ... $ Due after one year through five years ........................ .... .......... .. Due after five years through ten years ...................................... . Due after ten years ............ .. ...... .. .... ........... .. .. .. ......................... .

Mortgage backed securities .. ... ..... ...... ... ... ... .. ....... ........ .. .......... .

$

As at December 31, 2014

Due in one year or less............ .. .. ............................................. $ Due after one year through five years ................ .. .. .. ...... ........ .. Due after five years through ten years ............................. ... .. . .. Due after ten years .. .... ....................... ... .................. .............. .. .

M01tgage backed securities .... .. ........... .... .. .................. ........... .

$

Amortized Cost

2,367,471 $ 8,421,244 7,207,662 5,290,088

23,286,465 5,856,408

29, 142,873 $

Amortized Cost

11,493 $ 14,932,844 8,365,046 7,437,522

30,746,905 8, 122,499

38,869,404 $

Fair Va lue

2,368,544 8,522,474 7,410,3 99 5,607,218

23,908,635 5,939,704

29,848,339

Fair Value

11 ,493 14,931,391 8,420,092 7,698,001

31,060,977 8,203,407

39,264,384

Expected maturities may differ fi·om contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, and the lenders may have the right to put the securities back to the borrower.

The following table sets forth certain information regarding the investment ratings of the Company's investments as of March 31, 2016 and December 31, 2014:

2016 2014

Fair Value % Fa ir Value %

AAA ··· ··· ·· ··· ········· ··· ··· ···· ·· ··· ······ ······· ·· ·· $ $ 34,422,85 1 87.7 AA ...... ... ... ... ... ...... ....... ..... .. .. ... ... .. ... ..... 25,684,162 86.0 1,173,241 3.0 A ........ . ............................ . ....... 4,144,208 14.0 3,656,799 9.3 Not Rated .... .................. .. ... .............. .. .. 19,969 11,493

$ 29,848,339 100.0 $ 39,264,384 100.0

10





Fair Value of Investments

In accordance with ASC 820, the fair value of investments is disclosed based on a fair value hierarchy that reflect the quality of inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to unobservable inputs (Level 3 measurements) . The three levels of fair value hierarchy under ASC 820 are described below:

Level 1 -Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets than are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3 -Model derived valuations in which one or more significant inputs or significant value drivers, are unobservable.

As required by ASC 820, when the inputs used to measure fair value fall within different levels of hierarchy, the level within which the fair value measurements is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety . Thus, a Level 3 fair value measurement may include inputs that are observable (Level l and 2) and unobservable (Level 3).

The Company used the following valuation techniques and assumptions in estimating the value of our financial instruments as well as the general classification of such financial instruments pursuant to the above fair value hierarchy.

Fixed interest securities

At each valuation date, the fair values of the Company's fixed interest securities are based on prices provided by investment managers who obtain market data from numerous independent pricing services. The pricing services used by the investment manager obtain actual transaction prices for securities that have quoted prices in active markets.

The following describes the significant inputs generally used to determine the fair value of our fixed interest securities by asset class.

Government obligations Financial debt instruments backed by the US government. They include treasury bonds, treasury bills, and savings bonds fall into this category. These are considered observable inputs therefore, the fair value of the securiti.es are classified as Level I.

Federal agencies These securities are debt instruments issued by federal credit agencies. These securities are fully backed by the U.S. government guarantee but not by its full faith and credit. These securities have a ve1y high credit rating - second only to Treasury bonds - and have maturity periods from one month to 15 years. Their yields vary the way that market conditions, maturities, size ofthe issue, and tax status vary. Sold by a nationwide group of banks and dealers, these securities raise money to fund public needs such as road building, low-cost housing, urban renewal, and also to provide low interest rate loans to farmers, small business owners, and veterans . The agencies that can

11



March 31, 2016 and December 31 , 2014


issue these securities include Federal Home Loan Bank, Federal Home Loan Mortgage Association (Freddie Mac), Federal National Mo11gage Association (Fannie Mae), and Federal Farm Credit Bureau. These are considered observable inputs therefore, the fair value of the securities are classified as Level 2.

Foreign bonds and notes This category relates to a bond that is issued in a domestic market by a foreign entity, in the domestic market's currency. A foreign bond is most often issued by a foreign firm to raise capital in a domestic market that would be most interested in purchasing the firm's debt. These are considered observable inputs therefore, the fair value of the securities are classified as Level 2.

Corporate obligations (guaranteed by foreign government) The guarantors for securities in this sector are foreign governments . When evaluating these securities, the pricing services may gather information from market sources and integrate other observations from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. For securities in which trade volume is low, the pricing services may also utilize data from more frequently traded securities with similar attributes. These are considered observable inputs therefore, the fair value of the securities are classified as Level 2.

Corporate obligations Corporate obligations consist of investment-grade debt of a wide variety of well-known corporate issuers . When evaluating these securities, the pricing services may gather information from market sources regarding the issuer of the security, obtain credit data, as well as other observations from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market infommtion including actual trade volumes, when available . The pricing services may also consider the specific terms and conditions of the securities, including any specific features which may influence risk . These are considered observable inputs therefore, the fair value of the securities are classified as Level 2.

Mortgage-backed securities Mortgage-backed securities include both agency and non-agency originated securities . The significant inputs used to determine the fair value of these securities includes the spread above the risk-free yield curve, reported trades, benchmark yields , broker/dealer quotes, prepayment speeds, and default rates . These are considered observable market inputs and, therefore, the fair value of these securities are classified within Level 2.

Short-term investments Short-term investments are comprised of diversified money market securities that can be easily liquidated within a year 's time period . As of December 31 , 2014, these investments are maintained in the Goldman Sachs US$ Liquid Reserves Fund. This fund is designed to maximize income by investing in high quality securities . These are considered observable market inputs and, therefore, the fair value of these securities are classified within Level 2.

12

BEST DOCfORS INSURANCE LIMITED




The following table presents the analysis of the Company's investment by level of input:

As at March 31,2016

U.S. Government obligations U.S. Federal agencies Corporate obligations Short-term investments Mortgage-backed securities

Total investments at fair value

As at December 3 I. 20 14

U.S. Government obligations U.S. Federal agencies Corporate obligations Foreign bonds and notes Short-term investments Mortgage-backed securities

Total investments at fair value

5. Related party loans and receivables

Loan receivable from BDI (a) Receivables from BDI (a) Loans receivable from Tamsin (a) Receivables from Tamsin (a)

$

$

$

$

Interest receivable on related party loans

Levell

16,942,568 $

16,942,568 $

Level I

23,222,663 $

23 ,222,663 $

Receivables from Best Doctors Insurance Holdings LLC (b) Receivables from Best Doctors Canada Insurance Services (c) Management fees payable to related party

13

Level2

$ 1,814,221 5,131,878

19,968 5,939,704

12,905,771 $

Level2

$ 1,061,958 5,782,208

982,655 11,493

8,203,407

16,041,721 $

As at March 3 I , 20 16

$

21,342,000 7,724,595

291 ,773 20,504,987

134,627 ( 4,500,000)

$45 ,497,982

Level3 Total

$ 16,942,568 1,814,221 5,131 ,878

19,968 5,939,704

$ 29,848,339

Level3 Total

$ 23,222,663 1,061,958 5,782,208

982,655 11,493

8,203.407

$ 39,264,384

As at December 31, 2014

$ 7,000,000 4,620,664

295,542

$11,916,206



March 31, 20 16 and December 31, 20 14

5. Related party loans and receivables (continued)

a) On November 16, 2013 , the Company entered into a loan agreement with Best Doctors Inc. (BDI), whereby the Company made available up to$& million at an interest rate ofLibor + 2% per annum to BDI. The amount of $7,000,000 was loaned to BDI as at December 31,2014. Effective July 10, 2015, this loan was assigned to Tamsin (Holdings) Limited as part of the acquisition of the Company. The balance is included in loans receivable from Tams in as of March 31 , 20 16 . It is unsecured and has no fixed tem1s of repayment.

Two additional loans totaling $14,342,000 were made to Tamsin during the year. The first loan in the amount of $12,300,000 bears an interest rate of LIBOR+2 per annum. The second loan in the amount of $2,042,000 bears an interest rate of3% per annum. Both loans are unsecured.

When the Company was acquired on July 2, 2015, all amounts that were receivable from BDl were assigned to Tamsin in connection with the purchase and sale agreement. At year-end, $7,724,595 is due from Tamsin related to these receivables . This balance is unsecured, non-interest bearing and has no fixed terms of repayment.

In October 2016, the Company restructured the entire balance due from Tamsin in the amount of $29,35&,36& under a Term Loan Facility Agreement with a limit of$30,000,000. The loan bears interest at a rate of3% per annum. The loan is payable in full by December 31 , 2021 provided that the Company may be able to request early repayments of up to $2m prior to the due date to meet any solvency or liquidity requirements.

b) Best Doctors Insurance Holdings LLC (BDIH) is an affiliated company that performs shared services for the Company under a Support Services Agreement. BDIH collects premiums and pays insurance claims on behalf of the Company, and remits the net cash to the Company. At year-end, $20,504,987 is receivable from BOTH representing the unpaid portion the net premiums collected between October 2015 and March 2016 . This balance is unsecured, non-interest bearing and has no fixed terms of repayment.

c) Best Doctor Canada Insurance Services (BDCIS) is an affiliated company. At year end. $134,627 is receivable from BDCIS representing claims paid on their behalf.

14



March 31, 2016 and December 31 , 20 14

6. Reserve for outstanding losses and loss adjustment expenses.

The summary of changes in reserve for outstanding losses and loss adjustment expenses for March 31, 2016 and December 31, 2014 is as follows:

2016 2014

Gross and net balance at beginning of year $ 12,863,089 $11,336,3 82

Incurred related to: CutTent year 68,931,176 47,837,160 Prior year (447,250) 88,841

Total incurred 68,483,926 47,926,001

Paid re lated to : Current year (61,254,424) (38,081,681) Prior year (12 ,015,839) (8,317.613)

Total paid (73,270,263) (46,399,294)

Net balance at end of year $ 8,076,752 $12,863,089 Plus reinsurance recoverab le 10,782,987

Gross balance at end of year $ 18,859,739 $ 12,863,089

15




6. Reserve fm· outstanding losses and loss adjustment expenses (continued)

The establishment of the reserve for outstanding losses and loss adjustment expenses is based on known facts and interpretation of circumstances and is therefore a complex and dynamic process influenced by a large variety of factors. These factors include the Company's experience with similar cases and historical trends involving claim payment patterns, pending levels of unpaid claims, claim severity, and frequency patterns.

Other factors impacting the reserve include the continually evolving and changing regulatory and legal environment, actuarial studies, the professional experience and expertise of the Company's management and affiliated adjusters retained to hand le individual claims, the quality ofthe data used for projection purposes, existing claims management and settlement practices , the effect of inflationary trends on future claim settlement costs, court decisions, economic conditions and public attitudes. In addition, time can be a critical part of the provision determination, since the longer the span between the incidence of a loss and the payment or settlement of a claim, the more variable the ultimate settlement amount can be. Consequently, the establishment of the reserve for outstanding losses and loss adjustment expenses relies on the judgement and opinion of a large number of individuals, on historical precedent and trends, on prevailing legal, economic, social and regulatory trends, and on expectations as to future developments. The process of dete1mining the reserve necessarily involves risks that the actual results will deviate, perhaps substantially, from the best estimate made.

7. Investment income

Details of inveshnent income at March 31, 2016 and December 31, 2014 are shown below:

Interest income Realized gains (losses) Amortization on fixed income securities Loan interest income Investment management fees Custody fees

Total

$

$

16

2016

1,450,481 379,584

(298,535) 360,941

(148,317) (25.246)

1,718,908

$

$

2014

1,124,636 262,360

(270,927) 99,629

( 116,463) (10,807)

l ,088,428




8. Related-party transactions

Related party loans and receivables are discussed in Note 5.

The Company has a contract with BDIH to provide claim management and support services to the Company . In 2016, the Company incurred expenses of $26,519,083 (20 14: $22,665,920) in connection with this contract.

9. Taxation

(a) Bermuda

Under current Bermuda law the Company is not required to pay any taxes in Bermuda on either income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that in the event of any such taxes being imposed, the Company will be exempted from taxation until the year 2035.

(b) Aruba

The Company 's wholly owned subsidiary, BDTVBA is subject to corporate tax in Aruba. The corporate tax rate for the calendar year 2015 is 28%. Beginning in January 1'', 2016 the new effective corporate tax rate is 25%. Tax expense for the year is $23,922.

(c) Uncertain Tax Positions

The FASB Accounting Standards Codification (ASC) 740, Income Taxes addresses the accounting for uncertainty in income taxes recognized in a company's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return .

As a result of the acquisition of the Company on July I , 2015, the entity became the primary obligor to respective tax authorities on all of the Company's pre-acquisition tax liabilities. The Sale and Purchase Agreement included a tax indemnification for the pre-acquisition tax liabilities including any uncertain tax positions. A pre-acquisition tax risk exists that the Company may be deemed to have operated a US trade or business, because certain core business operations of the Company, such as day to day management, underwriting and pricing decisions were made in the us.

The US imposes an income tax on the effectively connected income ("ECI") of foreign corporations engaged in a US trade or business ("USTB"). As such, the uncertain tax position is whether the Company's entities have engaged in a USTB during fiscal year ended 30 March 2016 ("FY 2016").

Unless reduced by a treaty or the Internal Revenue Code ("fRC"), a foreign corporation engaged in a USTB is generally subject to a branch profits withholding tax ("US BPT") of 30% on the amount of net profit related to the USTB activities.

17




9. Taxation (continued).

(c) Uncertain Tax Positions (continued)

The tax reserves for US BPT under ASC 740-10 for this tax risk from 20 12 (oldest open year) through July 1, 2015 are as follows:

Year of Exposure Date Statute of Limitation Expires Tax Exposure

2015 (thru 1 July) 15-Sep-19 $ 96,669 2014 15-Sep-18 222,623 2013 15-Sep-17 155,000 2012 15-Sep-16 167 338

Total $ 641 ,630

Tn addition to the tax liability, an asset has been recorded for the full amount representing the indemnification from BDI in connection with the Sale and Purchase Agreement.

10 . Statutory requirements

The Company is required by its license to maintain capital and surplus greater than a minimum statutory amount determined as the greater of $1,000,000, IS percent of reserve for outstanding loss and loss adjustment expense, a prescribed pmtion of net premiums written, or 25% of the Enhanced Capital Requirement calculated based on a standardized model prescribed by the Bermuda Monetary Authority. At March 31, 2016, the Company met the required minimum statutory capital and surplus.

Actual statutory capital and surplus, as determined using statutory accounting principles, is $24,093 ,043 (20 14: $19,460,986):

The Company is also required to maintain a minimum liquidity ratio whereby the value of its relevant assets as defined is not less than 75% of its relevant liabilities . Relevant assets include cash and cash equivalents, investments, accrued income receivable, other receivables, funds withheld and insurance balances receivable.

Cetiain categories of assets do not qualifY as relevant assets under the statute. Relevant liabilities are comprised of reserve for outstanding loss and loss adjustment expense and other liabilities, less sundry liabilities as defined .

At March 31 , 2016 and December 31 , 2014, the Company was required to maintain relevant assets of approximately $76,272,892 and $55,901,629, respectively, while actual relevant assets were approximately $82,910, 114 and $73,949,854 at March 31 , 2016 and December 31 , 2014 respectively. The minimum liquidity ratio requirement was therefore met .

II. Share capital and contributed surplus

The Company' s authorized share capital is 120,000 common shares of the par value $1 each, of which 120,000 are issued and fully paid at March 31, 20 16.

18




12. Reinsurance

Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. Consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies . The outstanding losses recoverable from the Company' s reinsurers at March 31,2016 are $10,782,987 (2014: $Nil). The entire recoverable is due from a single reinsurer, which has a credit rating of A+(Superior) from AM Best.

13. Derivatives

Effective January I, 20 16, the Company entered into a swap agreement with RGA Worldwide Reinsurance Company, Ltd . (RGA), a reinsurance company domiciled in Barbados, in order to assume the equivalent economic outcome of insurance business that is originated by other companies in the Best Doctors and Now Health Insurance group. The Now Health Insurance group (Nlll) is a group of entities which are under common control with the Company. NHI acts as an insurance intermediary in several countries around the world . None of the NHI entities are insurance companies and they do not assume or retain any insurance risk.

RGA will assume insurance risk generated by all entities in the NHI and Best Doctors group of companies. Under the swap agreement, the Company will pay or receive a margin of up to +/- 7% of the equivalent gross premium assumed (notional premiums) by RGA entities if the actual loss ratio across the group is above or below a pre-agreed global loss ratio. The swap is designed to be equivalent to a loss corridor with the Company assuming the risk between +/- 7% of a specified loss ratio and RGA retaining all the risks and rewards outside of that range. There are no premium or claims payments between the Company and RGA in connection with this arrangement.

For the period from January 1 to March 31, 2016, the notional premiums under the swap are $6,650, 133, and the expected loss ratio is 51% for the period from January I, 2016 to March 31, 2017. At March 31 , 2016, the derivative liability is valued at $235,662.

Under a Custody Agreement, the Company is required to post collateral of$1 ,600,000 which will be held by Bank of New York Mellon as custodian. The Company posted the collateral in September 2016.

14. Letter of c•·edit

As at March 31,2016 and December 31 , 2014, the Company has in issue a letter of credit in favor ofHardy Syndicate 382 amounting to $755,000 which was issued in the normal course of insurance operations. The letter of credit is collateralized by cash and cash equivalents. This is classified as restricted cash on the balance sheet amounting $755,546 (2014: $1,005,061).

Another letter of credit was issued in July 2013 for $250,000 in favor of BF&M and was cancelled in December 2015.

15. Subsequent events

The Company has evaluated subsequent events through October 31, 2016 which is the date the financial statements were available to be issued, and concluded that there were no such events that require adjustments to the audited financial statements or disclosure in the notes to the financial statements.

19

Documents

BEST DOCTORS INSURANCE LIMITED - BMA · Best Doctors Insurance Limited (the "Company") was incorporated under the laws of Bermuda on August 25, 2008. The Company commenced writing