Caribbean Utilities Company, Ltd.  2011  Annual Report Management’s Discussion and Analysis 21 In accordance with the Licences,  when an asset is impaired or disposed  of within the original estimated useful  life, the cost of the asset is reduced  and the net book value is charged  to accumulated depreciation. This  treatment is in accordance with rate  regulated accounting and differs  from the GAAP treatment of a loss  being recognised on the statement  of earnings. The amount charged to  accumulated depreciation is net of  any proceeds received in conjunction  with the disposal of the asset. Insurance proceeds are included  within the criteria. In addition to the coverage  discussed above, the Company has  also purchased an excess layer of an  additional $100.0 million limit on  property and business interruption  (excluding windstorm, earth  movement and flood). The Company’s insurance policy  includes business interruption which  covers losses resulting from the  necessary interruption of business  caused by direct physical loss or  damage to CUC’s covered property  and loss of revenues resulting from  damage to customers’ property. Effective January 1, 2012, the  Company is required to adopt a new  set of accounting standards. Publicly  accountable enterprises in Canada  were required to adopt International  Financial Reporting Standards (“IFRS”)  effective January 1, 2011; however,  qualifying entities with rate regulated  activities were granted an optional  one-year deferral for the adoption of  IFRS due to continued uncertainty  around the timing and adoption of a  rate-regulated accounting standard  by the International Accounting  Standards Board (“IASB”). As a  qualifying entity with rate-regulated  activities, CUC elected to opt for the  The Company maintains a defined  benefit pension plan. There is no  assurance that the pension plan assets  will be able to earn the assumed  rate of returns. The assumed long- term rate of return on pension plan  assets, for the purposes of estimating  pension expense for 2012, is 5%. This  compares to assumed long-term rates  of return of 5% used for 2011. The  loss on pension plan assets during  2011 was 6% (2010: gain of 22%). Market driven changes impacting  the performance of the pension plan  assets may result in material variations  in actual return on pension plan  assets from the assumed return on  the assets causing material changes  in consolidated pension expense and  one-year deferral and, therefore,  continued to prepare its financial  statements in accordance with Part V  of the Canadian Institute of Chartered  Accountants Handbook for all interim  and annual periods ending on or  before December 31, 2011. On June 9, 2011 the OSC granted  Exemptive Relief to qualifying entities  with rate-regulated activities including  CUC for financial years commencing  on or after January 1, 2012 but before  January 1, 2015, and interim periods  therein. The Exemption will terminate  in respect of financial statements  for annual and interim periods  commencing on or after the earlier of:  (a) January 1, 2015; or (b) the date on  which the Company ceases to have  activities subject to rate regulation.  The Company will apply US  GAAP for the purpose of meeting  financial and regulatory reporting  requirements in Canada effective  January 1, 2012. For a full discussion  of the Company’s adoption of new  accounting standards see section on  “Future Accounting Pronouncements” in this MD&A. funding requirements. Net pension  expense is impacted by, among  other things, the amortization of past  service costs and actuarial gains or  losses and expected return on plan  assets. Market driven changes impacting  other pension assumptions, including  the assumed discount rate, may  also result in future consolidated  contributions to pension plans that  differ significantly from current  estimates as well as causing material  changes in consolidated pension  expense. The discount rate assumed  for 2012 is 4.5% compared to the  discount rate assumed during 2011 of  5.5%. There is also measurement  uncertainty associated with  pension expense, future funding  requirements, the accrued benefit  asset, accrued benefit liability  and benefit obligation due to  measurement uncertainty inherent in  the actuarial valuation process.  A discussion of the critical  accounting estimates associated with  pensions is provided in the  “Critical  Accounting Estimates”  section of this  MD&A. Due to continued uncertainty  around the timing and adoption of a  rate regulated accounting standard  by the International Accounting  Standards Board, CUC has evaluated  the option of adopting US GAAP, as  opposed to IFRS, and has decided to  adopt US GAAP effective January 1,  2012. Canadian securities rules allow a  reporting issuer to prepare and file  its financial statements in accordance  with US GAAP by qualifying as a US  SEC Issuer. An SEC Issuer is defined  Transition to New Accounting Standards Defined Benefit Pension Plan Future Accounting Pronouncements Adoption of New Accounting  Standards: