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Practical guide to IFRS

IFRS 10 for the insurance industry
At a glance
IFRS 10, Consolidated financial statements (IFRS 10 or the standard), introduces new guidance on control and consolidation. This standard, which combines the concepts of power and exposure to variable returns, is effective for financial years beginning on or after 1 January 2013. Early adoption is permitted. The European Financial Reporting Advisory Group (EFRAG) advised the European Union (EU) in June 2012 to adopt IFRS 10 and the other standards related to the consolidation project. However, their advice was to postpone the mandatory effective date to 1 January 2014, although with early adoption permitted. The EU has yet to decide whether to adopt this recommendation; a decision is expected by the end of 2012. The key principle in the new standard is that control exists, and consolidation is required, only if the investor has power over the investee, exposure to variable returns from its involvement with the investee and the ability to use its power over the investee to affect its returns. Management should reassess control if facts and circumstances indicate changes to any of these three elements of control. The standard will affect some entities more than others. The consolidation conclusion is not expected to change for most straightforward entities. However, changes can result in complex cases. Entities that are most likely to be affected potentially include investors in: entities with a dominant investor that does not possess a majority voting interest, where the remaining votes are held by widely-dispersed shareholders (de facto control); entities that issue or hold significant potential voting rights; structured entities (sometimes referred to as special purpose entities or SPEs); asset management entities; and silos, which are ring-fenced parts of a wider entity that are deemed separate entities for accounting purposes. In difficult cases, the precise facts and circumstances will affect the analysis under IFRS 10. IFRS 10 does not provide bright lines; management will need to consider many factors. A separate standard, IFRS 12, Disclosure of interests in other entities, sets out disclosures for investor/investee relationships. We believe that insurance entities could be affected in particular, if they are involved in structured entities and asset management activities or have silos. This publication provides an overview of the elements of IFRS 10 that are, in our view, most relevant to insurance entities with these types of structures, and provides related examples. This paper should be used as a supplement to the PwC practical guide, Consolidated financial statements redefining control. In addition, insurers may find the PwC practical guide to IFRS 10, Applying IFRS 10 to asset management activities useful.

September 2012

Contents
At a glance Overview of IFRS 10 IFRS 10 application examples: Deemed separate entities (silos) Structured entities Investment products 7 12 14 1 2

Unit-linked 18 contracts variable returns analysis Lloyds structures 20 syndicates

Practical guide to IFRS IFRS 10 for the insurance industry

Overview of IFRS 10
Applicability of IFRS 10
Only an entity can be consolidated under IFRS 10, so it is important to identify whether an entity exists. This is straightforward in most cases. However, an entity may not always be a legal entity or it may be a ring-fenced portion of a larger entity. In some cases, it may be difficult to ascertain if an entity exists and so whether IFRS 10 applies. IFRS 10 does not define the word entity and as there is little other guidance elsewhere in the IFRS literature, management might need to use judgement to determine whether an entity exists. assessing the purpose and design of an entity and who (if anyone) controls it: (a) downside risks and upside potential that the investee was designed to create; (b) downside risks and upside potential that investee was designed to pass on to other parties in the transaction; and (c) whether the investor is exposed to those risks and upside potential.

Power
An investor has power over an investee when the investor has existing substantive rights that give it the current ability to direct the relevant activities. Where equity instruments clearly determine voting rights and powers to control, the majority shareholder has control in the absence of other factors. When two or more investors must act together to direct activities that affect returns, neither investor has control. An insurer can have power over an investee either by voting rights or by contract. Structured entities exist if voting rights do not have a significant effect on an investees return. In this case, voting rights are not the dominant factor in deciding who has control, but rather relevant activities are directed by contractual rights. This is discussed further below. Relevant activities IFRS 10 defines relevant activities as those activities of the investee that significantly affect the investees returns. IFRS 10 offers a wide range of possible relevant activities including but not limited to: (a) sales and purchases of goods and services; (b) management of financial assets before and after default; (c) selection, acquisition and disposal of assets; (d) research and development; and (e) determining a funding structure or obtaining funding.

The principle of control contains three elements

IFRS 10 establishes control as the basis for consolidation. Control requires three elements to be present. An investor must have all of the following: power over the investee; exposure or rights to variable returns from its involvement with the investee; and the ability to use its power to affect the amount of returns. The individual elements for assessing whether one entity controls another entity are discussed below.

Purpose and design of the investee

The purpose and design of an investee could affect the assessment of what the relevant activities are, how those activities are decided, who can direct those activities, and who can receive returns from those activities. The consideration of purpose and design may make it clear that the entity is controlled by voting or potential voting rights. In other cases, voting rights may not significantly affect an investees returns, and the investee may be controlled by contractual arrangements. In those cases, the following should be considered in

PwC: Practical guide to IFRS IFRS 10 for the insurance industry

Decisions over relevant activities may include operating, capital and budgetary decisions; or the appointment, remuneration and termination of service providers or key management. Power over relevant activities An investor must have rights that provide the current ability to direct relevant activities in order to have power. This ability can stem from a wide variety of rights, including voting or potential voting rights, rights to appoint or remove decision-makers including key management, veto rights and contractual rights. Generally, when the investee has a range of relevant activities that require continuous substantive decisions, voting or similar rights will provide power. In other cases, voting rights do not have a significant effect on returns and structured entities exist. The existence of structured entities requires consideration of further factors to determine who (if anyone) has power. Substantive and protective rights IFRS 10 requires only substantive rights to be considered in the assessment of power. Protective rights which are designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate are not considered. The standard provides guidance on distinguishing between the two. Voting and potential voting rights An investor with more than half of the voting rights has power when the relevant activities are directed by the majority vote, the voting rights are substantive and they provide the current ability to direct the relevant activities. An investor with less than a majority of voting rights can also gain power through contractual arrangements, through de facto control, by having potential voting rights or a combination of these. De facto control An investor with less than a majority of the voting rights may hold the largest block of voting rights with the remaining

voting rights widely-dispersed. The investor may have the practical ability to unilaterally direct the investee unless a sufficient number of the remaining dispersed investors act in concert to oppose the influential investor. Such concerted action may be hard to organise if it requires the collective action of a large number of unrelated investors. Potential voting rights Potential voting rights are defined as rights to obtain voting rights of an investee, such as those arising from convertible instruments or options. The issues to consider in determining if such potential voting rights give the holder of them power include: (a) whether the potential voting rights are substantive or protective; (b) if there are other voting or decision rights held by the investor; and (c) the purpose and design of the potential voting right instrument and the purpose and design of any other involvement the investor has with the investee. This involves both an assessment of terms and conditions, and the investors apparent expectations, motives and reasons for agreeing to those terms and conditions. An important change under IFRS 10 is the requirement to consider the financial position of potential voting rights (that is, whether in or out of the money) as a factor in assessing control. Potential voting rights that are deeply out of the money can result in those rights being regarded as non-substantive in the absence of a non-financial incentive for the holder to exercise them. Structured entities Voting rights may not have a significant effect on an investees returns. For example, voting rights might relate to administrative tasks only and with contractual arrangements dictating how the investee should carry out its activities. These entities are described as structured entities in IFRSs 10 and 12. All substantive powers in such entities may appear to have been surrendered 3

PwC: Practical guide to IFRS IFRS 10 for the insurance industry

to contracts that impose rigid control over the entitys activities. None of the parties may appear to have power. However, such entities may be indirectly controlled by one of the

parties involved. Further analysis is required to determine if there is a party with control. An investor should consider the following factors when determining whether it has power.

(a) Is investor exposed to downside risks and upside potential that investee was designed to create and pass on (IFRS 10 B8)? (b) Is investor involved in design of investee at inception (IFRS 10 B51 para 37)? Do the terms of decisions made at investees inception provide the investor with rights that provide power? (IFRS 10 B51) (c) Do contractual arrangements established at inception provide investor with rights over closely related activities (IFRS 10 B52 para 38) (d) Does investor hold rights over relevant activities that arise only upon the occurrence of contingent events (IFRS 10 B53 para 40)? (e) Does investor have a commitment to ensure that investee operates as designed (IFRS 10 B54 para 41)? (f) Do other factors indicate that investor has power (IFRS 10 B17)?

Indicator of investor power

Yes

Involvement and decisions made at the investees inception as part of its design IFRS 10 requires management to consider the involvement of various participants in the design of the investee at inception. Such involvement is not sufficient by itself to demonstrate control. However, participants who were involved in the design may have the opportunity to obtain powerful rights. Decisions made at the investees inception should be evaluated to determine whether the transaction terms provide any participant with rights that are sufficient to constitute power. Contractual arrangements established at investees inception The structured entity is often governed not only by its constitution documents but by contracts that bind the structured entity to its original purpose. These include call rights, put rights, liquidation rights and other contractual arrangements that may provide investors with power. When these contractual

arrangements involve activities that are closely related to the investee, these are considered relevant activities. This is true even if the activities do not occur within the structured entity itself but in another entity. Rights to direct relevant activities that arise upon the occurrence of certain events IFRS 10 requires management to consider decision rights that take effect only when particular circumstances arise or events occur. An investor with these rights can have power even if those circumstances have not yet arisen. Commitment to ensure that investee operates as designed Such an explicit or implicit commitment by an investor may increase exposure to variability of returns and heighten the likelihood of control. However, this factor is insufficient by itself to demonstrate power or prevent other parties from having power.

PwC: Practical guide to IFRS IFRS 10 for the insurance industry

Variable returns
Variable returns are defined as returns that are not fixed and have the potential to vary as a result of the performance of an investee. They can be positive, negative or both. IFRS 10 identifies a wide variety of possible returns, ranging from traditional dividends and interest to servicing fees, changes in the fair value of an investment, exposures arising from credit or liquidity support, tax benefits, access to future liquidity, economies of scale, cost savings and gaining proprietary knowledge. Variability is assessed based on the substance of the arrangement, regardless of legal form. For example, contractuallyfixed interest payments could be highly variable if credit risk is high. Asset management fees that are contractually fixed could nevertheless be subject to variability if the investee has a high risk of non-performance.

factors to consider; several are determinative, but the majority are judgemental and need to be considered together in assessing the overall relationship. An agent is ...a party primarily engaged to act on behalf and for the benefit of another party or parties (the principal(s)) and therefore does not control the investee when it exercises its decision-making authority. This means that if an asset manager is agent, it acts primarily on behalf of others (the investors in the fund) and so does not control the fund. However, if the asset manager acts primarily for itself, it will be a principal and will therefore control the fund. The application guidance in IFRS 10 states that a decision-maker (that is, the asset manager) should consider the overall relationship between itself, the investee (that is, the fund) and other parties involved with the investee (that is, third-party investors in the fund) in determining whether it is acting as agent. Factors that management should consider are: 1. scope of the asset managers decision-making authority;

Link between power and returns principal versus agent

An agent is a party engaged to act on behalf of another party (the principal). A principal may delegate some of its decision-making authority over the investee to the agent, but the agent does not control the investee when it exercises such powers on behalf of the principal. The decision-making rights of the agent should be treated as being held by the principal directly in assessing control. Power resides with the principal rather than the agent. The overall relationship between the decision-maker and other parties involved with the investee must be assessed to determine whether the decision-maker acts as an agent. Analysis of principal-agency relationships under IFRS 10 Insurance groups often are asset managers and so must determine whether they are an agent or a principal in relation to the funds they manage. The standard sets out a number of specific

2. rights held by other parties; 3. remuneration to which it is entitled; and 4. exposure to variability of returns. The first two factors deal with the extent of the asset managers power over the fund and the extent of any restrictions on those powers. For example, an asset management agreement gives the asset manager power over the relevant activities of the fund (day-to-day management). However, if investors can remove the asset manager at any point in time without cause, by a majority vote, and there are only five investors in the fund, then the managers power over the fund seems to be limited through substantive removal rights held by other parties. In fact, IFRS 10 states that when a single party holds substantive removal rights and can remove the decisionmaker without cause, this, in isolation, is sufficient to conclude that the decision maker is an agent. This is determinative rather than judgemental.

PwC: Practical guide to IFRS IFRS 10 for the insurance industry

The third and fourth factors relate to the returns criterion; they require the asset manager to consider the magnitude and variability of the returns it gets (expected and maximum) from the fund relative to the total returns from the funds activities. For example, a managers exposure to a funds variable returns might be limited to the on-market management fees it receives. The manager might be an agent where the fees do not expose it sufficiently to magnitude and variability of returns. In other circumstances, the manager might be exposed to variable returns through some or all of: management fees, performance fees, carried interest and investments in the fund. Management should analyse carefully whether all sources of returns in aggregate, along with consideration of the asset managers power over the fund, are sufficient to indicate that the manager is a principal. With regards to remuneration, in determining whether the fund manager is a principal or agent, IFRS 10 requires the fund manager to consider whether the following two conditions exist: (a) the remuneration of the decision maker is commensurate with the services provided; and (b) the remuneration agreement includes only terms, conditions or amounts that are customarily present in arrangements for similar services and level of skills negotiated on an arms length basis. The fund manager cannot be an agent unless these conditions are met. However, meeting those conditions in isolation is not sufficient to conclude that the fund manager is an agent. We believe that insurance entities could be affected if they are involved in asset management activities. The PwC practical guide to IFRS 10, Applying IFRS 10 to asset management activities explains the principles for these asset management activities in detail and provides a number of practical examples.

Silos
A portion of an investee is deemed to be a separate entity for accounting purposes (a silo) when, in substance: (a) the specified assets and related credit enhancements, if any, are the only source of payment for specified liabilities of, or specified other interests in the investee; and (b) parties other than those with the specified liability do not have rights or obligations over the specified assets and the cash flows from those assets. So, in substance, all assets, liabilities and equity of that deemed separate entity are ring-fenced from the rest of the investee. If the assets, liabilities or other interests constitute a silo, the insurer must then determine whether it can control the silo based on the IFRS 10 criteria. If the insurer controls the silo, the insurer consolidates the silo. If a party other than the insurer controls the silo, the insurer would exclude the silo from consolidation even if it consolidated the rest of the investee.

Disclosures
The disclosure requirements for subsidiaries as well as for an entitys interests in associates, joint arrangements and unconsolidated structured entities are set out in IFRS 12, Disclosure of interests in other entities. The objective of IFRS 12 is to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entitys interests in other entities. IFRS 12 allows reporting entities to judge the level of detail required in the disclosures and the emphasis of the disclosures. IFRS 12 disclosures only apply to involvements that meet the definition of interests in another entity. IFRS 12 provides detailed guidance on what is meant by interests in another entity. This question is particularly relevant for 6

PwC: Practical guide to IFRS IFRS 10 for the insurance industry

disclosures about unconsolidated structured entities, as it determines the scope of such disclosures. The purpose and design of a structured entity should be considered in making a judgement as to when a relationship represents an interest. IFRS 12 requires a reporting entity to disclose significant judgements and assumptions made in determining whether it controls, jointly controls, significantly influences or has interests in other entities. This includes, for example, reassessment of control due to changes in

facts and circumstances, override of presumptions of control (or non-control) when voting rights exceed (or fall below) 50% and assessment of principal-agent relationships in consolidation. In addition to qualitative information, the standard requires disclosure of certain quantitative information, including summarised financial information depending on the type of interest (e.g. subsidiary with non-controlling interest, unconsolidated structured entity).

IFRS 10 application examples

This section deals with a number of examples that could apply to an insurance entity when interpreting IFRS 10 either to determine whether control exists or whether IFRS 10 applies at all to a certain structure. The examples give a brief background, example facts, an analysis and a conclusion on how, if at all, IFRS 10 would apply in the specific example.
Example 1 Protected cell arrangement

Protected cell arrangements are typically established for investors who wish to undertake insurance business in certain jurisdictions. The investor pays a fee to a registered insurer to set up and manage a protected insurance cell. The investor (A) will specify the type of insurance it wants to undertake and the investments it wants to place in its cell (Cell A). Cell A then writes insurance policies that are backed by the assets that Investor A has deposited in Cell A. The liabilities from insurance policies written within Cell A can only be met by assets in Cell A. If the assets in Cell A are insufficient, neither the policyholders nor the Investor A have any recourse (even in bankruptcy) to either the assets in other cells managed by the registered insurer or to the assets of the registered insurer itself. None of the assets in Cell A are accessible to the creditors of the registered insurer, even in bankruptcy of the registered insurer. The registered insurer receives a fee for managing the cell and performing underwriting services, and is legally the named holder of the assets and issuer of the insurance policies written by the cell.

Deemed separate entities (silos)

The following examples on cells and sub fund structures as well as separate accounts are aimed at clarifying what constitutes a silo or deemed separate entity under IFRS 10. Cells and sub fund structures Background IFRS 10 requires certain criteria to be met before a portion of an entity is deemed to be a separate entity for accounting purposes under IFRS 10. The issue is the extent to which judgement and substance are relevant in applying these criteria in cases where there is no strict legal separation of the specified assets and liabilities under all circumstances.

PwC: Practical guide to IFRS IFRS 10 for the insurance industry

Insurer

Cell A
Assets Liabilities

Cell B
Assets Liabilities

Cell C
Assets Liabilities

Investor A

Investor B

Investor C

Example 2 Unprotected cell arrangement The cell arrangement is the same as above, except that the cell structure is unprotected. On a day-to-day basis, only the assets of Cell A can be used to settle the liabilities of Cell A. However, if there is a shortfall in the assets of Cell A, Cell A would in the first instance be replenished by Investor A. Should Investor A also be unable to make up the shortfall, the assets of the registered insurer and/or the other cells can be used. This is the key difference from Example 1. For example, accessing assets other than those in the relevant cell could happen in the following contractually agreed situation: when the assets invested by investors into Cell A are depleted and when the Cell A investors are bankrupt and cannot pay the insurance liabilities. In such a case, any remaining insurance risk reverts back to the registered insurer. The cells are regarded as being ring fenced under usual day-to-day situations, although legally this is not the case in all possible situations (that is, in an extreme situation such as bankruptcy of Investor A).

Example 3 Umbrella fund A fund manager establishes an umbrella fund for retail investors, which has three unitised sub funds. The sub-funds are not separate legal entities but are all part of one legal entity the umbrella fund. Investors can choose which sub-fund they wish to acquire units in, and their investment is in the relevant sub-fund rather than the umbrella fund. Each subfund holds different types of assets and has a different investment mandate. On a day-to-day basis, the assets of each subfund are segregated from those of the other sub-funds and from the umbrella fund, and support only the units of that sub fund. If an investor redeems units from a sub-fund, it receives only its relative proportion of the assets held in that sub fund. However, in certain remote situations (for example, mis-selling fraud or negligence), unit holders in the subfund can access assets of the other subfunds and/or the umbrella fund. Payments from other cells or from the umbrella fund to a sub-fund to cover its liabilities are seen as remote, as this would only happen in very rare cases; payments from other funds or the umbrella fund would not be made if the assets decrease in value. The investment risk of each sub fund is borne entirely by the sub fund investor except for fraud or negligence. For the examples, the question is whether the cells or sub-funds are deemed separate entities or silos for the purposes of considering consolidation under IFRS 10.

PwC: Practical guide to IFRS IFRS 10 for the insurance industry

Analysis In all three examples, there is ring fencing of normal day-to-day activities. However, the examples differ in terms of the circumstances in which ring fencing may be broken. Example 1 appears to be a silo, as there is ring fencing in all situations that is, specified assets are the only source of payments for specified liabilities in all cases. So the conditions for there to be a silo or deemed separate entity (as described further below in IFRS 10 B77) are met. Examples 2 and 3 require further consideration, given that payments can be required to be made from assets other than those of the specific cell or sub-fund in certain circumstances. IFRS 10 B77 requires an investor to treat a portion of an investee as a deemed separate entity only if the following condition is met: Specified assets of the investee.are the only source of payment for specified liabilities of, or specified other interests in, the investee. Parties other than those with the specified liability do not have rights or obligations related to the specified assets or to residual cash flows from those assets. In substance none of the returns from the specified assets can be used by the remaining investee and none of the liabilities of the deemed separate entity are payable from the assets of the remaining investee. Thus, in substance all the assets, liabilities and equity of that deemed separate entity are ringfenced from the overall investee. Such a deemed separate entity is often called a silo. Note: The words in substance in IFRS 10 B77 prevent any structuring around the silo requirements by inserting a nonsubstantive clause to preclude a silo from existing. In addition, without the reference to substance, the guidance would not converge with US GAAP. The overall aim of the IASB was to broadly mirror US GAAP on silos (see IFRS 10 BC148).

Therefore, in our view, a non-substantive clause allowing payment from other cells or sub-funds would not preclude a silo from existing under IFRS 10. On the other hand, if a remote but genuine substantive clause exists allowing payment from other cells or sub-funds in a structure that would otherwise be a silo, the structure would not be a silo under IFRS 10. A substantive clause would be indicated, inter alia, if the presence of that clause was a factor that investors would consider in making their investment decision. The ring fencing in example 2 can be broken if the assets within the cell and the assets of the investor are not sufficient to cover the insured events. We believe that this would be an example of a substantive clause that is significant to an investor. Hence the cell in example 2 would not be a silo under IFRS 10. With regards to example 3, the reporting entity would have to use judgement in determining whether the contractual clause to inject further funds into the sub-fund in case of fraud or negligence is substantive. If such a clause was added merely for structuring reasons to avoid the sub-fund being a deemed separate entity, the clause would be nonsubstantive and the sub-fund in example 3 would be a silo. Conversely, in the more normal case when the clause does have substance for example, there are occasional instances of fraud or misselling and assets would have to be injected into the affected sub-fund to cover for this then such a clause may be substantive and the sub-fund would not be a silo. Conclusion Example 1 is a clear silo under IFRS 10, as there is ring fencing in all scenarios. Example 2 is not a silo, as there are substantive clauses in the unprotected cell agreements that break the silo when existing assets are insufficient to meet all insurance risks and the investors in the silo became bankrupt. Example 3 may or may not be a silo, depending on judgement as to whether the contractual clauses are substantive or not.

PwC: Practical guide to IFRS IFRS 10 for the insurance industry

Separate accounts Background An insurer offering a separate account insurance product may need to consider the application of IFRS 10 to specified assets and liabilities of such a structure. IFRS 10 generally applies to entities but a portion of an investee may be a deemed separate entity that is, a silo if certain criteria are met. If a separate account contract structure were to meet the silo criteria in IFRS 10 and thus be a deemed separate

entity, the insurer offering such a product would have to analyse if it controls the separate account under IFRS 10. If it did not have control, the assets and liabilities of the silo would not be included in the insurers balance sheet. Conversely, if the separate account structure is not an entity or a deemed separate entity, the insurer would include the individual assets and liabilities arising from the separate account in its balance sheet.

Example A typical separate account structure is shown on the next page. The following characteristics typically exist in separate account arrangements: The separate account arrangement is recognised legally; that is, the assets in the separate account are held in a separate investment account that is established and maintained under relevant regulations. A separate account is not a separate legal entity but is a legally restricted fund. The separate account assets supporting the contract liabilities are legally owned by the insurer but are legally insulated from the general account liabilities of the insurer because separate account assets are not available to cover liabilities except the liabilities to the separate account policyholders. The insurer must as a result of contractual, statutory or regulatory requirements invest the policyholders funds within the separate account as directed by the policyholder in any of the designated investment alternatives made available by the insurer, or in accordance with specific investment objectives or policies established in the contract.

All investment performance, net of contract fees and assessments, must as a result of contractual, statutory or regulatory requirements be passed through to the individual policyholder. The contract specifies conditions under which there is a minimum guarantee, but not a ceiling, as a ceiling would prohibit all investment performance from being passed through to the policyholder. The contract between the investor and insurer creates an obligation of the insurer that is not extinguished by the segregation of funds in the separate account. The annuitisation option guarantee, as well as any other minimum guarantees and benefits provided by the contract, are funded through the insurers general account assets and not the separate account assets. There is no provision in the separate account contract that prohibits settlement of the separate account liabilities using assets from the insurance entitys general accounts. For example, in the event of a policyholder withdrawal, an insurer can either sell the specified assets supporting the policyholder liability or it can choose to use cash from the general account to satisfy the obligation.

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Separate account structure

Policyholder Benefits to policyholder: Pass through of investment returns of specified assets less mortality and expense (M&E) fee. Guaranteed annuitisation option at guaranteed rates. Some provide other guaranteed minimum benefits, such as minimum returns or minimum death benefits. Insurer Separate account assets Cash invested into separate account assets; insurer subtracts periodic M&E fee. Separate account liability Separate account assets returns are passed through to investor less the M&E fee. Guarantee liability Insurer also provides guaranteed annuitisation option at minimum guaranteed mortality and interest rates and may provide other guaranteed minimum benefits.

Cash Benefits

Analysis The separate account structure is not a legal entity. However, management needs to consider whether under IFRS 10 the specified separate account assets and separate account liabilities are a deemed separate entity (that is, a silo). IFRS 10 B77 requires, as a condition for a deemed separate entity, that specified assets of the investee....are the only source of payment for specified liabilities of.... the investee and that in substance none of the returns from the specified assets can be used by the remaining investee and none of the liabilities of the deemed separate entity are payable from the assets of the remaining investee. In the example, which is typical of many separate account structures, there is no provision in the separate account contract that prohibits settlement of the separate account liabilities using assets from the insurance entitys general accounts. In addition, satisfaction of some of the liabilities to the policyholder will be met from the insurers general account, such as the annuitisation option, as well as any other guaranteed minimum benefits. The separate account structure acts as a form of collateral for the insurers

promise to pass through the investment performance of the fund to the policyholder; however, the assets in the separate account are not the only source of assets the insurer will use to service the policyholder liabilities. So the separate account is not a deemed separate entity under IFRS 10. Conclusion The separate account structure as described above would not be a deemed separate entity under IFRS 10. The insurer will therefore recognise on its balance sheet both the separate account assets (for example, securities, loans, real estate) and the policyholder liabilities. In other fact patterns where satisfaction of the liability to the policyholder is met exclusively using separate account assets, further analysis would be required to determine if the structure could be a deemed separate entity controlled by a party other than the insurer. If the structure is a deemed separate entity, the insurer will need to analyse if it has power over the structure as well as exposure to variability of returns that the structure provides. Refer to the section Unit linked contracts variable returns analysis for relevant considerations on an insurers exposure to variability of returns.

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Structured entities
Insurance entities often enter into arrangements involving structured entities. The insurer has to determine whether to consolidate the structured entity or not. This determination may be complex. The following example provides a consolidation analysis for a structured entity formed to issue catastrophe bonds.

Catastrophe bonds Background A catastrophe bond (cat bond) structure is an alternative way for an insurer to obtain reinsurance cover for catastrophe exposures such as earthquakes and hurricanes. Cat bonds are risk-linked securities that transfer a specific risk from the insurance company to investors, typically through a structured entity sponsored by the insurer which then issues the cat bonds. The issue is whether the insurer that transfers its catastrophe risk to the structured entity should consolidate the entity. hurricane, as determined by published hurricane data). The maximum payout is limited to the amount of principal on the catastrophe bonds issued by the structured entity. This agreement may sometimes be in the form of a reinsurance agreement between the insurer and the structured entity. From the standpoint of the investors in the catastrophe bonds, in the case where there is no loss event, they receive full debt repayment after three years, including a return equal to the three annual insurer fee payments for bearing the catastrophe risk plus the returns earned on the money market fund. In the case where there is a catastrophe event covered by the agreement, the investors repayment is limited to any amounts remaining in the entity after claim payments are made to the insurer. The substance of the arrangement is that the insurer is passing on a portion of its catastrophe risk to the structured entity, which in turn passes that risk along to the investors. The following diagram gives an overview of the structure.

Example An insurer establishes a three-year limited life entity that issues catastrophe bonds with a three-year maturity to a small group of sophisticated investors. The bonds are the only instruments issued by the entity, and the insurer holds none of them. There are no voting rights in the entity. The agreement requires the funds received, which act as collateral for the insurance risk, to be invested in a high-quality money market fund. Should there be a need for any reinvestment (for example, a downgrade of investments in the money market fund that would trigger reinvestment), a trustee, named in the debt agreement, would execute the reinvestment decisions based on guidelines specified in the debt agreement. The insurance company pays an annual fee to the structured entity in exchange for a promise by the structured entity that if a specified risk event occurs (for example, a hurricane hitting Florida), the structured entity will pay the insurer a set amount using a predetermined formula (for example, based on the severity of the

Insurance company Trustee

Pre-agreed investment guidelines Three annual fee payments Payments on trigger events Dividends + fee payments + debt principal (if no trigger event)

Money market fund

Dividends and investment Investments

SPV

Debt principal

Investors

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Analysis Purpose and design, and exposure or rights to variable returns As described in the overview, when assessing control, an investor considers the purpose and design of the entity. When the entity is designed so that voting rights are not the dominant factor in deciding who controls it, consideration should be given to (a) the downside risks and upside potential that the entity was designed to create; (b) the downside risks and upside potential that the entity was designed to pass on to other parties in the transaction; and (c) whether the investor (the insurer) is exposed to those risks and upside potential. The purpose and design of the structured entity is to receive an attractive return from the annual fee and fund investments (the upside potential) in exchange for taking on catastrophe risk of the sponsoring insurer (the downside risk). This upside potential and downside risk are then passed on to the bond investors in the form of the investors receipt of the fund returns and insurer fees, and absorption of the insurance risk and consequently the variability of the payout of the cat bond residual after possible insurance losses. The insurer therefore acts as a creator of risk to the structured entity rather than an absorber of risk. The insurers upside potential and downside risk are the opposite of those of the structured entity. That is, while the insurer may receive a variable return in the form of variable claim payments, the amount of which are contingent on the occurrence of a catastrophe event, this does not represent exposure to downside risk variability, but instead the insurers rights to upside potential compensation. The insurer is however exposed to the structured entitys credit risk if the trigger event occurs and the entity needs to make a payment. However, this exposure is remote because it requires both the occurrence of the trigger event and the default of the money market fund before it results in losses to the insurer. Such an exposure to variability seems insignificant compared to the variability

contributed by the insurer to the entity relating to the catastrophe risk. Relevant activities and power In terms of who exercises power over the relevant activities of the entity, the relevant activities of the structured entity in this example are very limited; everything is pre-agreed in a contract between the insurer and the investors except for reinvestment decisions. The entity exists only for a fixed number of years, which cannot be extended, with a three-year contract specifying fixed contract terms for the catastrophe cover. The catastrophe claim payment is calculated based on a specified formula computed using external market derived hurricane data, such that the insurer has no influence (power) over the amount of the claim payment. The investment in the high-quality money market fund is preagreed and cannot be changed except if there is a downgrade of the invested funds. In this case, the trustee makes reinvestment decisions in accordance with investment guidelines; however, these are pre-agreed on a mutual basis between the insurer and investors at contract inception. Therefore neither the insurer nor the investors has power over the trustee. The only relevant activity is reinvestment of funds, and the insurer has no power to direct that activity and thus does not have power over the entity. Conclusion The insurer should not consolidate the structured entity, as it does not have power over the entity nor is it exposed to the variable returns of the entity and therefore does not control it.

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Investment products
An insurance group may offer a variety of investment products to investors, which may not be insurance policies. For example, investments in retail funds including money-market funds may be offered. The insurance entity may also itself invest its own monies obtained from insurance premiums into a fund. An insurance entity has to determine how IFRS 10 applies to such investment structures and whether to consolidate certain investment vehicles. We analyse the considerations for retail funds and specific money market funds in this section. Retail funds Background The asset portfolio of an insurance group (the Group) is likely to include investments in retail funds. Often such groups engage also in fund managing activities. When determining whether a fund should be consolidated into the Group, the question arises whether the Group acts in the capacity of a principal or agent in relation to the fund. A principal controls the fund and consolidates; an agent does not.

Example An insurance holding company and one of its subsidiaries (Sub 1) hold shares or units in Fund F, which is managed by another subsidiary in the group. Sub 1 and the fund manager are both 100% subsidiaries of the holding company. Third-party investors are able to, and do, invest in the fund without being a policyholder of the insurer. The fund manager has set up the fund for relatively unsophisticated investors, and the investment mandate states it can invest in any equities traded on the London Stock Exchange. The direct holdings in Fund F are as indicated below and there is an on-market management fee of 1% of net asset values (NAV) accruing to the fund manager. The funds shareholders have rights to remove the fund manager without cause with a three-month notice period. They can do so by voting in a meeting that can be called at any time by investors holding 10% or more of the units in issue. However, the shareholders are widely dispersed, with holdings of less than 0.5% each, and have no realistic means by which to organise themselves. The units are immediately puttable back to the fund. In the Groups consolidated accounts, would F be consolidated?

Insurance holding company

100%

100%

Fund manager
35% 5%

Sub 1

Dispersed thirdparty holders

60%

FundF F Fund

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Analysis The Group must determine whether it is an agent or a principal in relation to Fund F. Factors to consider include the: 1. scope of the fund managers decision-making authority; 2. rights held by other parties; 3. remuneration to which it is entitled; and 4. exposure to variability of returns from other interests. The first two factors relate to assessing the extent of the fund managers power over the fund and the extent of any restrictions on those powers. The second two factors relate to the returns criterion and require the fund manager to consider the magnitude and variability of the returns it gets from the fund relative to the total returns from the funds activities. Scope of the fund managers decisionmaking authority Decision-making authority refers to decisions over the relevant activities of the fund. The relevant activities are the ones affecting the funds returns. They are the asset selection decisions made, including holding, managing and disposing of assets. Another relevant activity is the determination of the investment mandate and parameters for investing. As the fund has been set up to provide investment opportunities to relatively unsophisticated investors, the fund manager is realistically the only party involved in determining the purpose and design of the fund and in outlining the investment mandate. Under the mandate, the manager can invest in any equities traded on the London Stock Exchange. Within the context of IFRS 10, this represents sufficiently wide decisionmaking discretion; and corresponding with example 14 in IFRS 10 B72, this may indicate that the asset manager has significant power to direct the relevant activities of the fund. This therefore indicates that the fund manager (and the Group through controlling the fund manager) has power.

Rights held by other parties IFRS 10 states that if a single party has the right to remove the fund manager without cause this has the effect that the fund manager is an agent (IFRS 10 B65). If such rights are not present, additional considerations are needed to determine whether the asset manager is principal or agent. These include how substantive the removal rights are where agreement of a number of investors is required to exercise them. The shareholders have in this example rights to remove the fund manager without cause with a threemonth notice period. They can do so by voting in a meeting that can be called at any time by investors holding 10% or more of the units in issue. The unit holders are so dispersed that, apart from the Group itself, none of them holds 10% or more and they have no realistic means to organise themselves so as to achieve the required holding; so the rights to remove the fund manager are considered non-substantive. In practice, it is very unlikely that they would call a meeting specifically to vote out the fund manager; rather unit holders would be more likely to put back their units. Remuneration The fund managers fee is at arms length and a fixed percentage of the NAV. Under IFRS 10 B69, this would be an indication, if taken on its own, that the fund manager is an agent. However, the Group in this case has other exposure to further variable returns through investments, which will also need to be taken into account to determine if control exists. The fund manager on its own would not have sufficient exposure to variable returns, but the Group who controls the fund manager and also has a direct investment may. Exposure to variability of returns from other interests The greater the magnitude and variability of its exposure, the more likely the Group is to control. IFRS 10 does not define bright lines as to what constitutes sufficient exposure to variable returns to give control. The exposure must be evaluated relative to the total variability of the funds returns. Here the Group has a 35% investment. In addition, the Group 15

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controls a subsidiary, which has a further 5% investment. The Group also receives a fee of 1% of NAV. All of these expose the Group to variable returns. The examples 13-14 in IFRS 10 B72 indicate that the level of variable returns must be sufficiently high to conclude that the Group is acting as principal and so should consolidate the fund, when the asset manager has power. Notwithstanding an analysis of the other factors, in example 14A the fund managers exposure comprises a 20% performance fee (manager earns 20% of total returns if hurdle is achieved), a direct investment of 2% plus a management fee of 1% of NAV. In that example, it is concluded that the level of exposure indicates no control. In example 14B, the same exposures exist as in 14A except that instead of a 2% direct investment, there is now a 20% direct investment (alongside with the same performance fee and management fee). Here it is concluded that the level of exposure indicates control. In our example, the magnitude of exposure may actually be higher than example 14B, as the entity in 14B may not always reach the performance target. Conclusion The Group controls Fund F because: it has power over Fund Fs relevant activities through controlling the fund manager who has this power; rights held by other parties to kick out the manager are not sufficiently substantive to remove power; and the Group has sufficient exposure to variable returns of Fund F. Money market funds consolidation reassessment Background In some cases, insurance groups may act as a fund manager of a money-market fund (MMF) and not have a direct investment in the fund. When there is no direct investment and the fund manager is paid an on-market fee that is not expected to absorb a significant amount of the variability of the fund, under

normal circumstances the insurance group would not consolidate the MMF. However, IFRS 10 requires a reassessment of whether the group controls the fund if facts and circumstances indicate that there are changes to one or more of the elements of control. IFRS 10 notes that the initial assessment of control including the insurance companys status as principal/agent would not change simply because of a change in market conditions (for example, a change in the funds returns driven by market conditions), unless the change in market conditions changes one of the control elements or the overall principal/agent relationship. The following is an example of a situation where poor economic conditions severely reduce a MMFs return. Example A fund manager controlled by an insurer has set up and manages an MMF. The fund manager has decided on the investment strategy, and it can choose MMF investments from a wide pool. The fund is an open-ended mutual fund whose units are held by widely dispersed investors. The unit holders do not have the right to remove the fund manager, but they can redeem the units they hold at any time. As a result of poor market conditions (for example, very low interest rates), the performance of the fund is below 1% per annum, and the fund manager receives an annual fee of 0.5% of the net asset value (NAV) of the fund. The manager only earns this fee; it has no other fees and no investment in the fund. The fee at the time of set-up was on-market. In prior periods, the MMF has not been consolidated by the insurer because the magnitude of returns compared to the total return of the fund was not sufficiently high (annual fee of 0.5% of NAV). What factors should the fund manager consider in deciding whether a consolidation reassessment is necessary given the management fees now represent more than 50% of the income of the fund?

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Analysis The core question is whether the current economic conditions mean that the control relationship needs to be reassessed. IFRS 10 para 8 would lead to this, as it requires continuous reassessment of control and the change in economics indicates a change in one of the elements of control (exposure to variability that in turn affects the principal/agent analysis). The overall principle is therefore to establish if the relationship of the fund manager to the fund has changed and whether the fund manager is still acting principally as an agent for the other investors or whether it is now acting principally on its own behalf and to protect its own fee. Given the change in the economic environment, a reassessment is required, which means the analysis of principal versus agent should be re-performed to establish if the relationship between the fund manager and the investors has now changed. IFRS 10 requires a fund manager to consolidate a fund if it controls the fund. The fund manager has to determine if the overall relationship it has with the fund and the other parties is that of a principal or of an agent. If the fund manager is an agent, it does not control the fund. The criteria to take into account are: 1. scope of the fund managers decision-making authority; 2. rights held by other parties; 3. remuneration to which it is entitled; and 4. exposure to variability of returns from other interests. The fund manager has power over the relevant activities of the MMF as it sets the investment strategy and can invest in a variety of money market instruments to achieve a return for the unit holders. There are no rights held by other parties that may restrict this power (that is, no kick out rights). Looking at these factors only, the manager would have power as it

selects investments and there are no kick out rights. The fund manager is also exposed to variable returns from the annual management fee based on the funds NAV. The remuneration was set at market and is commensurate with the services provided. Off-market fees would indicate that the fund manager is a principal and a fund manager can only be an agent if remuneration is set at market rates. In this example, the fund manager has no other interest in the fund. Nevertheless, the remuneration in the current poor market conditions represents more than half of the income of the fund on an absolute basis. Is this magnitude of exposure therefore sufficiently high to conclude power exists despite the fee being on market? Consideration of exposure to variability should be performed over the funds lifetime rather than at a point in time. In addition, the fund manager considers the returns that are expected from the investee (and its share), as well as maximum and minimum exposure to variability. The fund manager should consider its absolute share of returns as well as its exposure to variability from the fund (magnitude and variability (IFRS 10 B72(a)). In particular, the last criterion on exposure to variability of returns is critical, as the other criteria are fairly clear. Whether or not the consolidation analysis produces a different outcome depends on facts and circumstances. If the fund manager now receives more than half of the MMF returns through the NAV management fee, the fund manager needs to look carefully at the original economics when setting up the fund, and any measures the fund manager may employ now to alleviate the poor market for example, fee waiver or redemption suspension. The following factors should therefore be considered.

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Factors Expected duration of poor market conditions / existence at MMF set up

Analysis to determine whether the fund manager now has control If the current poor returns and length of time they are expected to persist are within the distribution of returns considered when the MMF was set up this indicates there is no overall change in the way the fund manager manages the fund (as that of an agent). However, if the present poor conditions or length of time they are expected to persist were not envisaged at the time of set up, they would not have been included in the MMFs initial purpose and design. This could therefore indicate the fund manager now controls the fund and should consolidate it. This is because the fund manager may now be approaching this fund with a different goal: to protect its interest and therefore acting as principal. In the case where the fund manager grants (either explicitly or implicitly) financial support or puts in place a fee waiver, this is more likely to indicate control for the fund manager, because it creates more exposure to variability of returns. It may be that the returns to the investors become fixed and downside variability is primarily borne by the fund manager. This should be included in the variability analysis. It is also necessary to consider the effect of any right of the fund manager to suspend redemptions in accordance with the prospectus. If the fund manager can suspend all redemptions without cause, then it is more likely that the fund manager is acting on its own behalf because it continues to earn its fee based on funds that the investors cannot access. Also investors are unable to exercise influence by redeeming their units (that is, by voting with their feet); so have given the fund manager more power.

Fee waiver implied financial support

Redemption suspension

Conclusion There is a need for reassessment, but the outcome of a re-performance of the original analysis depends on facts and circumstances. If a change in the relationship between the fund manager and the MMF has occurred, the MMF would now need to be consolidated. A change in relationship could arise for example, if the poor conditions or the period for which they are expected to last were not foreseen at the outset, or if the fund manager now waives its fee or now suspends redemptions. The reason why these would point towards a change in relationship is because such factors would indicate that the fund manager now acts as a principal.

Unit linked contracts variable returns analysis

Background Insurance companies may issue unitlinked insurance contracts to policyholders. When assessing whether or to what extent an insurer is exposed to variable returns from an investment fund, the question arises whether the return on investments in the fund that back unit-linked insurance contracts should be included in the variability analysis or not. This assessment is part of the question whether the insurance company should consolidate the unit linked fund in its consolidated financial statements. The insurance company may contemplate whether, despite possibly having power over a unit-linked fund, it fails the exposure to variability criterion, as all the returns from the fund are passed on to policyholders.

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Insurance parent
100% shares 100% shares

Asset manager
100% units

Insurance Co
Premiums and claims

Unit-linked fund
Policyholders Portfolio of assets

Example Insurance Co issues unit-linked insurance contracts to the policyholders. Premiums are paid by the policyholder to the insurance company, which forms the basis of the policyholders account value. Each policyholder decides on the profile of investments that it would like its premiums to be invested into; each policyholder can change that investment selection throughout the life of the policy. In practice, the insurance group has set up a number of funds with different underlying portfolios of assets. Based on the policyholders investment selection and desired level of risk, the insurance company purchases and allocates units in the fund(s) to the policyholders account value. The asset manager also makes the decisions on the purchase and sale of investments within the underlying fund portfolio. All investment decisions are therefore made by the insurance group and not by the policyholders. The insurance group arguably has the power to affect variable Analysis As described in the Example section, the insurance company has power. The focus and analysis in this example is on whether the insurance company is exposed to variable returns. The insurance group receives variable returns from the fund in the form of both asset management fees and investment returns from its investments in the fund.

returns of the fund. The policyholders account value is subsequently credited with the return from those funds, such that the account value bears the up- and down-side performance risk of the underlying investments of those funds. Upon termination (that is, on surrender, death or maturity) the Insurance Co pays the account value claim out to the policyholder in cash. The insurer is not contractually obliged to invest in particular funds; instead an obligation is created for the insurer to generate and credit the account value with returns that are similar to the returns that the policyholder would have received for their selected profile of investments. In addition, even though the insurer has invested monies received from the policyholders, it is not obliged to sell those investments on policy termination; that is, the insurer can use its other liquid resources to pay policyholders their account value. Finally, the policyholders account value is not ring fenced such that on bankruptcy those assets may be used to meet other obligations of the insurer. Typically, the asset management fee alone is unlikely to lead to the insurance group being exposed to sufficient variable returns to trigger consolidation of the fund. However, the question arises as to whether the insurance group is exposed to the variable returns from the fund given that the return is credited to the policyholders account value and thus is subsequently paid out to the policyholder 19

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when a claim is made. That is, some might argue that the insurance group has a minimal net exposure to variable investment returns. However, as the insurance company has directly purchased all of the units in the fund, the insurance group is exposed to, and benefits from, 100% of the risks and rewards from that fund. This includes 100% exposure to the variable investment returns. Conclusion IFRS 10 requires investors to consolidate investees where they have power over the investee, exposure to variable returns and an ability to use their power to affect the variable returns from the investee. As the insurance group has power over the fund to affect investment returns and has exposure to sufficient variable returns, it should consolidate the investment fund in this example.

activities of the syndicate (for example, performs underwriting, investment management services, claims operations); a standard agency agreement signed by each member sets out the relationship between the managing agent and that member on an individual basis. If a member has concerns that an agent is not acting in accordance with its fiduciary duties, it can ask Lloyds to review the position of the agent, although in practice removing a managing agent would be a difficult and drawn out process. A Lloyds syndicate is not a separate legal entity. It is simply a group of Names who have joined a particular syndicate for a particular underwriting year. Each policy issued at Lloyds consists of individual contracts made on behalf of individual Names and the syndicate does nothing on its own behalf. The syndicate cannot therefore contract or be sued in its own name. Any legal action is taken in the names of the members of the syndicate rather than the in the name of the syndicate itself. Syndicates do not hold bank accounts or investments in their own name; assets are instead held within a premium trust fund (PTF) in trust for each member in accordance with a deed. Lloyds mandates the use of PTFs to provide security to the policyholders that claims will be paid. The PTF is a therefore a fund into which all premiums due to the member are received, and from which all claims and expenses are paid on behalf of the member. Amounts are distributed to the members at the end of that syndicate year of accounts life (normally three years). We now analyse if a Lloyds syndicate should be consolidated under IFRS 10 or if possibly IFRS 11 applies. The latter would be the case if the syndicate was a joint arrangement.

Lloyds structures syndicates

Background The issue is whether the insurance operations of a Lloyds syndicate would be required in certain instances to be consolidated by either the Managing Agent that manages the syndicate or a capital provider (a Name). Lloyds of London (Lloyds) is an insurance and reinsurance market place where members mutually agree on the pooling and spreading of insurance risk. Members can be individuals (Names) or corporate capital vehicles (CCVs) or a combination of both. Lloyds syndicates are associations formed by Members and they operate as annual business ventures where members participate in a particular year of account. Each syndicate has a Managing Agent that manages and oversees the

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Example structure Insurance company

100% 100% Individual Name A 15% 15% 55% 15% Individual Name B

Corporate capital vehicle Managing agent

Individual Name C

Premiums and claims

Premium trust fund

Policyholder/ assured

Syndicate

Analysis IFRS 10 IFRS 10 only applies where the potential subsidiary is an entity (see IFRS 10 para 5 and Appendix A). If the syndicate is not an entity, it would be out of scope of IFRS 10. Entity is not defined in IFRS 10, and there is little other guidance elsewhere in the current IFRS literature. Because the syndicate is not a legal entity, cannot contract or be sued in its own name, and each policy issued at Lloyds consists of individual contracts made on behalf of individual Names, the syndicate is not an entity for purposes of IFRS 10. As a Lloyds syndicate is not an entity, it is not in the scope of IFRS 10. IFRS 11 IFRS 11 applies to joint arrangements, where the parties are bound by a contractual arrangement and that arrangement gives two or more of those parties joint control of the arrangement. There must therefore be joint control, which is the contractually agreed sharing of control of an arrangement, which exists when decisions about the relevant activities

require the unanimous consent of the parties sharing control. As the contractual agreements are between each member and the managing agent and not between the members, there is no contractual agreement between the members to share control of the syndicate. There is also no requirement for unanimous consent between the members; instead, each member delegates authority via the agency contract to the managing agent to act on each members behalf. As there is no joint control, the syndicate does not constitute a joint arrangement under IFRS 11. Conclusion As the Lloyds syndicate arrangement is outside the scope of IFRSs 10 and 11, entities that participate in syndicates should only account for the relevant proportion of the insurance or reinsurance contracts they have entered into on their own behalf. This is often referred to as the proprietary approach.

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Concluding remarks
The examples above show that insurance or reinsurance groups may enter into a variety of contracts involving structured entities, investment and insurance structures. These can be complex and tailored to specific investors or client needs. The purpose of this guide is not to cover all possible scenarios but to highlight the thought-process that insurance groups will need to apply to analyse their own structures under IFRS 10. In our view, insurance entities should not underestimate the tasks that lie ahead in implementing IFRS 10 as the underlying contracts and the resulting analyses are likely to be complex.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. It does not take into account any objectives, financial situation or needs of any recipient; any recipient should not act upon the information contained in this publication without obtaining independent professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2012 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

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