JPRF-S-2024-0137 — Reforms to the "General Rules of the Private Insurance Fund"

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Government Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-S-2024-0137 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: Whereas, Article 82 of the Constitution of the Republic of Ecuador stipulates that the right to legal certainty is based on respect for the Constitution and the existence of prior, clear, public laws applied by competent authorities; Whereas, Article 226 of the Supreme Law stipulates that State institutions, their agencies, dependencies, public officials, and persons acting under state authority shall only exercise the competencies and powers attributed to them in the Constitution and the law; having the duty to coordinate necessary actions to effectively fulfill the rights recognized in the Constitution; Whereas, Article 227 of the Supreme Law establishes that Public Administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, decentralization, coordination, participation, planning, transparency, and evaluation; Whereas, among the objectives of the Organic Monetary and Financial Code are ensuring that the exercise of financial, securities, and insurance activities is consistent and integrated; as well as ensuring the sustainability of the national financial system and the insurance and securities regimes; and guaranteeing compliance with the obligations of each of the sectors and entities that comprise them, in accordance with numbers 2 and 4 of Article 3 of the aforementioned organic code, in Book I; Whereas, Article 13 of the Organic Monetary and Financial Code, Book I, created the Financial Policy and Regulation Board, part of the Executive Branch, as a public law legal entity, with administrative, financial, and operational autonomy, responsible for formulating credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; Whereas, Article 14 ibidem, in numbers 1, 2, and 3, provides that it falls within the competence of the Financial Policy and Regulation Board to formulate insurance policies; issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the insurance system; and, also, to issue micro-prudential regulations for the insurance sector; Whereas, Article 14.1 of the same Organic Code, Book I, in number 13, establishes that, to perform its functions, the Financial Policy and Regulation Board must fulfill the duty and exercise the power to issue secondary regulations related to Deposit Insurance, Liquidity Fund, and Private Insurance Fund; Whereas, Article 14.1 of the aforementioned Organic Code, in numbers 7 letter d), 8, 13, 17, and 27, determines that, to perform its functions, the Financial Policy and Regulation Board must fulfill the duty and exercise the power to issue the prudential regulatory framework to which insurance entities must adhere; review reports that, within their competencies, the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation presents regarding the state of the insurance system; issue secondary regulations related to Deposit Insurance, Liquidity Fund, and Private Insurance Fund; dictate regulations governing insurance and reinsurance; and, exercise the remaining functions, duties, and powers assigned to it by the Organic Monetary and Financial Code and the law, respectively; Whereas, number 1 of Article 25.1 ibidem prescribes, as one of the functions of the Technical Secretariat of the Financial Policy and Regulation Board, the preparation of technical and legal reports that support the regulatory proposals that the Financial Policy and Regulation Board will issue;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Government Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Whereas, Article 79 of the Organic Monetary and Financial Code, Book I, states that the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation is a non-financial public law legal entity, with administrative and operational autonomy; and that numbers 3, 5, and 10 of Article 80 ibidem determine that, among the functions of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation, are to administer the Private Insurance Fund and the resources that constitute it, pay private insurance premiums, and cover the risks of legally constituted private insurance companies in the country that enter forced liquidation; Whereas, number 11 of Article 85 of the Organic Monetary and Financial Code, Book I, states as a function of the Board of Directors of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation: “Propose to the Financial Policy and Regulation Board the amount of private insurance coverage”; Whereas, Article 344 of the aforementioned organic code, when referring to the object of the Private Insurance Fund, stipulates that those protected by the coverage determined in said legal body are the insured in the public and private sectors who have active policies, with the full premium paid, in companies of the private insurance system; additionally determining that Private Deposit Insurance will cover, within the amount established by the Board, the value of pending claims at the date of forced liquidation; Whereas, Article 346 ibidem prescribes that, to determine the amount protected by the coverage and its return to the insured or beneficiary, the total of all policies registered by each natural or legal person, public or private, in the private insurance system company, at the date of the start of forced liquidation ordered by the control body, will be computed; Whereas, Article 347 of the aforementioned organic code establishes that the Private Insurance Fund will be activated from the notification made by the control body to the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation, with the declaration of forced liquidation of a private insurance system company; stating that the receipt by insured or beneficiaries of the values paid by the Corporation will produce the subrogation of full right in favor of the same, of creditor rights against the insurance company subject to the forced liquidation process, and providing that resources recovered by virtue of that subrogation will enter the Private Insurance Fund; Whereas, Article 349 of the Organic Monetary and Financial Code, Book I, states the resources of the Insurance Fund, being these: a basic contribution of up to 0.7% on the value of net premiums of direct insurance that all insurance companies will carry out, in the percentage fixed annually by the Financial Policy and Regulation Board; and a variable contribution of up to 0.8% of the same value based on risk ratings, also fixed by the Board, whose maximum percentage may not exceed, in any case, 120% of the basic contribution; the proportion of the contribution determined in Article 67 of Book III of this Code; the return on investments and net profits of each annual exercise of the Private Insurance Fund; the donations it receives; and, those from loans or contingent lines obtained for financing its activities. Additionally, the Fund's resources must be invested observing the principles of security, liquidity, diversification, and profitability and framed within the investment policies approved by the Board; taking into consideration that the Fund's resources cannot be destined to cover administrative expenses nor for payment of investments in fixed assets of the Corporation; Whereas, the last paragraph of Article 349 of the aforementioned Organic Code establishes that the resources of the Private Insurance Fund will accumulate up to the amount determined by the Financial Policy and Regulation Board, based on the technical report to be prepared and presented by the Corporation (COSEDE);

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Government Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Whereas, General Provision Twenty-Ninth of the Organic Monetary and Financial Code, Book I, added by the Organic Reformatory Law to the Organic Monetary and Financial Code for the Defense of Dollarization, provides that in existing legislation where reference is made to the “Financial Policy and Monetary Regulation Board” it shall be replaced by “Financial Policy and Regulation Board”; Whereas, Transitory Provision Fiftieth-Fourth of the aforementioned Code prescribes that “resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Financial Policy and Monetary Regulation Board and norms issued by control bodies will maintain their validity until the Financial Policy and Monetary Board and the Financial Policy and Regulation Board resolve what corresponds, within their competencies.”; Whereas, Article 15 of the Organic Administrative Code, with reference to the principle of responsibility, provides that the State will respond for damages as a consequence of the lack or deficiency in the provision of public services or actions or omissions of its public officials or subjects of private rights acting in exercise of a public power delegated by the State and its dependents, controlled or contractors, with the State making effective the responsibility of the public official for willful or negligent acts or omissions, stating that no public official is exempt from responsibility; Whereas, Article 67 of the Organic Monetary and Financial Code, Book III (General Insurance Law), states that funds to cover expenses of the control body in the private insurance sector and contributions to the Private Insurance Fund will be obtained from a 3.5% contribution on the value of net premiums of direct insurance, which may be increased up to 5%, by resolution of the Financial Policy and Regulation Board and at the request of the head of this control body, in accordance with the powers contained in the law for the approval of the control organism's budget. Insurance companies will act as withholding agents for this contribution; Whereas, Article 6 of Section II “On the Coverage of the Private Insurance Fund”, Chapter I “General Rules of the Private Insurance Fund”, Title V “On the Private Insurance Fund” of Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, establishes that: “COSEDE will pay Private Insurance coverage, based on the capacity of the Private Insurance Fund, up to a total protected amount of USD 1,500.00 per insured or beneficiary, which must be reviewed at least annually by the Financial Policy and Regulation Board in accordance with the performance levels of the Private Insurance Fund, the loss ratio of the private insurance system, and the risk level of insurance companies.”; Whereas, the General Provision of Chapter III “Norm to Determine the Amount of the Private Insurance Fund's Equity”, Title V “On the Private Insurance Fund” of Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions states that: “The Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation will annually present to the Financial Policy and Monetary Regulation Board the technical report incorporating the risk levels of insurance companies and the performance levels of the Private Insurance Fund, for the review of the amount up to which the Private Insurance Fund must accumulate, as established in article 349 of the Organic Monetary and Financial Code”; Whereas, the norms relating to the coverage amount of the Private Insurance Fund, the basic and variable contributions to the Private Insurance Fund, and the amount up to which the Fund's resources must accumulate, contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions, were reformed by the Financial Policy and Regulation Board through Resolution No. JPRF-S-2023-092 of December 22, 2023;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Government Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Whereas, the third-to-last paragraph of Article 14.1 of the Organic Monetary and Financial Code, Book I, determines that the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation, through its legal representative, may propose regulatory projects for consideration by the Financial Policy and Regulation Board, backed by the respective technical reports; Whereas, through Letter No. COSEDE-COSEDE-2024-0370-OFICIO of December 11, 2024, the General Manager of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE) presented to the Technical Secretariat of the Financial Policy and Regulation Board the following technical reports: (i) Reserved Technical Report No. CTRE-FSP-2024-005 of December 10, 2024, titled “Technical Report on the position of the optimal level of the Private Insurance Fund”, issued by the Risk and Studies Technical Coordination of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE), relating to the amount up to which the Private Insurance Fund must accumulate; (ii) Reserved Technical Report No. CTRE-FSP-2024-006 of December 9, 2024, issued by the Risk and Studies Technical Coordination of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE), regarding the “Annual review of the coverage value of the Private Insurance Fund”; and, (iii) Reserved Technical Report No. CTRE-FSP-2024-007 of December 10, 2024, issued by the Risk and Studies Technical Coordination of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE), relating to the “Proposal for the application of the basic and variable risk contributions applicable to the value of net premiums of direct insurance carried out by insurance companies belonging to the Private Insurance System”, for consideration by this Board; Whereas, through Letter No. COSEDE-COSEDE-2024-0376-OFICIO of December 16, 2024, the Acting General Manager of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE) sent to the President of the Financial Policy and Regulation Board the aforementioned Reserved Technical Reports No. CTRE-FSP-2024-005, No. CTRE-FSP-2024-006 and CTRE-FSP-2024-007; Whereas, the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2024-0117-M of December 27, 2024, forwards to the Acting President of the Board the Technical Report No. JPRF-CTVS-2024-008 of December 26, 2024, issued by the Technical Coordination of Policy and Regulation of the Securities and Insurance System of this Board, and the Legal Report No. JPRF-CJF-2024-063 of December 27, 2024, issued by the Legal Coordination of Policy and Financial Standards of this Board, as well as the respective draft resolution; Whereas, the Financial Policy and Regulation Board, in a closed in-person ordinary session held on December 31, 2024, reviewed Memorandum No. JPRF-ST-2024-0117-M of December 27, 2024, issued by the Technical Secretary of the Board; as well as the aforementioned Technical Report No. JPRF-CTVS-2024-008 and Legal Report No. JPRF-CJF-2024-063, in addition to the corresponding draft resolution; Whereas, the Financial Policy and Regulation Board, in a closed in-person ordinary session held on December 31, 2024, reviewed and approved the following Resolution; and, In exercise of its functions, RESOLVES: ARTICLE FIRST.- Substitute the text of the Seventh Transitory Provision of Chapter I “General Rules of the Private Insurance Fund”, Title V “On the Private Insurance Fund”, Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Government Financial Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | “For the 2025 fiscal year, the total protected amount is set at USD 2,000.00 per insured or beneficiary, as coverage of the Private Insurance Fund. This amount may be reviewed annually by the Financial Policy and Regulation Board based on the report sent by the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE), by November, or if necessary, at any time, for extraordinary causes.” ARTICLE SECOND.- Substitute Articles 1, 2, and 3 of Chapter II “Norm to Fix the Contribution to the Private Insurance Fund”, Title V “On the Private Insurance Fund” of Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following: “Art. 1.- A basic contribution of 0.12% on the value of net premiums of direct insurance of insurance companies of the Private Insurance System is fixed, corresponding to the 2024 fiscal year. This percentage will be reviewed annually by the Financial Policy and Regulation Board based on the report sent by the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE), by November, or if necessary, at any time, for extraordinary causes.” “Art. 2.- The risk-adjusted variable contribution (CAR) of insurance companies of the Private Insurance System, corresponding to the 2024 fiscal year, will be fixed based on the risk ratings assigned by external rating agencies and communicated to the respective control body in accordance with the following table:

Risk Rating	CAR (annual)
AAA+, AAA, AAA-	0.0288%
AA+, AA, AA-	0.058%
A+, A, A-	0.086%
BBB+, BBB, BBB-	0.115%
BB+, less than BB+	0.144%
The risk-adjusted variable contribution (CAR) will be calculated based on the last risk rating of the insurance companies for the year 2024 that has been formally communicated by the control body to the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation. The control body must notify, immediately, by letter to the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation of any modification to the last risk rating of the insurance companies for the year 2024.
In the event that insurance companies of the Private Insurance System have two or more risk ratings on the same date, the lowest rating will be taken for the purpose of the risk-adjusted variable contribution (CAR).”
“Art. 3.- The values of the basic and risk-adjusted variable contributions established in Articles 1 and 2 of this Chapter that insurance companies must pay to the Private Insurance Fund will be calculated using as a base the total amount of net premiums issued for direct insurance of the 2023 fiscal year. The contributions will be paid in twelve monthly installments starting in January of 2025.
When the coverage level, understood as the ratio between the private insurance fund's equity and the contingent cost, is below ninety percent (90%), an extraordinary financing mechanism will be activated, which will be defined and proposed by the Board of Directors of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation to the Financial Policy and Regulation Board.”
ARTICLE THIRD.- Substitute the Sole Article of Chapter III “Norm to Determine the Amount of the Private Insurance Fund's Equity”, Title V “On the Private Insurance Fund” of Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:
“Art. 1.- The amount up to which the equity of the Private Insurance Fund will accumulate is determined at USD 78,000,000.00 (Seventy-eight million United States dollars 00/100).
This amount may be reviewed annually by the Financial Policy and Regulation Board based on the report sent by the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE), by November, or if necessary, at any time, for extraordinary causes.”
ARTICLE FOURTH.- In the General Provision of Chapter III “Norm to Determine the Amount of the Private Insurance Fund's Equity”, Title V “On the Private Insurance Fund” of Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, substitute the phrase “Financial Policy and Monetary Regulation Board” with the following: “Financial Policy and Regulation Board”.
SOLE GENERAL PROVISION.- The Superintendence of Companies, Securities, and Insurance will communicate to the respective controlled entities the content of this Resolution.
FINAL PROVISION.- This Resolution will enter into force as of the present date, without prejudice to its publication in the Official Register, and will be published on the institutional website of the Financial Policy and Regulation Board within a maximum term of two days from its issuance.
COMMUNICATED.- Given in the Metropolitan District of Quito, on December 31, 2024.
THE PRESIDENT,
Mgs. María Paulina Vela Zambrano
The aforementioned Resolution was processed and signed by Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on December 31, 2024.