NOTES TO FINANCIAL STATEMENTS NOTES TO F I NANC I AL STATEMENTS 10. CLASS C MEMBERS’ RETURNABLE CAPITAL (CONTINUED) Similarly, in respect of the equity grant accretion totaling $14,156,884 (2022: $12,585,094), this is netted off against the Class C loan write up in the Statement of Income as the amount of the equity grant accretion equates the amount of interest expense accreted on Class C funding which the grant is intended to compensate. The amounts equate and there is a $Nil impact on the Statement of Income. The subsequent fair value of the capital commitments has been calculated using discounted cash flow analysis. The interest rate ascertained from recent arm’s length transactions at the time, which are substantially the same as these Class C loans, was 2% (2022: 2%). This interest rate was used to calculate the fair value of these loan commitments at the date of recognition. In relation to the FCDO Capital Commitment, the foreign exchange rate used on initial measurement was the spot exchange rate of GBP to USD on March 17, 2014 (GBP 1 : USD 1.66432). On subsequent measurement at year end, the spot exchange rate on December 31, 2023 was used (GBP 1: USD 1.27319). In relation to the accretion of FCDO loan, an average rate over the period from initial receipt of the loan to the period end was used (GBP1: USD 1.34701). The Class C Members have terms of redemption for all or part of the returnable capital provided to the Company, which are established under the Company Bye-Laws and contractually confirmed in the ‘Return of Funds’ clause in the CCA. A Class C Member ceases to be a Member of the Company on the date that its capital is completely withdrawn from the Company and returned to that Class C Member, under Bye-Law 4.4.3. Bye-Law 5 states: “Class C Member Capital is returnable or may be withdrawn subject to the Company complying with its solvency margin, liquidity ratio, and all requirements of the Insurance Act and satisfying its obligations to its Policy- holders provided that the Company shall use its best endeavours promptly to (and procure that any necessary third party shall) execute and deliver all such documents and perform such acts as may be required for the purpose of such compliance, as follows: • Each Class C Member has the right to have its initial capital returned at the end of the term in accordance with its Capital Commitment Agreement; • Each Class C Member will have its initial Capital returned prior to the end of the term set forth in its Capital Commitment Agreement, with seventy (70) Business Days prior written notice, if two-thirds of the Class A Members vote to return the Capital to such Member prior to the end of such term; • If the Conference of the Parties, decides to discontinue the Company in Bermuda and continue the Company in a jurisdiction outside of Bermuda, each Class C Member will have the right to withdraw the entire amount of its initial Capital prior to the date of continuation. For the avoidance of doubt, the Company will only be discontinued once the initial Capital provided by the Class C Member that has requested the withdrawal of its Capital has been fully repaid; • If the Company is deemed Financially Unsustainable each Class C Member will have the right to withdraw the entire amount of its Capital as it appears in the Capital C Account upon giving written notice to the Company. If the Company is deemed Financially Unsustainable, no further Policy will be issued; • If there is a Legal Violation which cannot be cured in twenty-two (22) Business Days, each Class C Member will have the right to withdraw the entire amount of its Capital as it appears in the Capital C Account upon giving written notice of its intent to withdraw its Capital to the Company. If a Class C Member indicates that it will withdraw its Capital because of a Legal Violation, the Company will not issue Policies until the respective • Class C Member has been repaid. The Company shall repay the Class C Member as soon as legally possible; or • If a Class A Member is given a new Certificate of Good Standing (or holds a Policy under an existing Certificate of Good Standing) and a Class C Member objects, acting reasonably, to such Class A Member’s participation in the Company, such Class C Member may provide the Company with a 155 Business Day written notice of its intent to withdraw its Capital and may subsequently withdraw the entire amount of its Capital as it appears in the Capital C Account at the end of such Class A Member’s paid Policy term. If the Class C Member gives written notice to the Company that it will withdraw its Capital as it appears in the 110
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