Norm Reforming Articles 3 and 4 of the Standard for Profit Distribution of Insurance, Reinsurance, and Surety Companies

Page 1 of 4 Resolution No. CD-SIBOIF-1093-1-ENE22-2019 Dated January 22, 2019 NORM REFORMING ARTICLES 3 AND 4 OF THE STANDARD FOR THE DISTRIBUTION OF PROFITS OF INSURANCE, REINSURANCE, AND SURETY COMPANIES

The Board of Directors of the Superintendence of Banks and Other Financial Institutions,

CONSIDERING

I That on February 27, 2018, the Standard for the Distribution of Profits of Insurance, Reinsurance, and Surety Companies was approved, contained in Resolution No. CD-SIBOIF-1043-2-FEB27-2018, published in La Gaceta, Official Gazette No. 58 on March 22, 2018, which in its Articles 3 and 4 establish the conditions and maximum amount of profit distribution, respectively.

II That it is necessary to modify the aforementioned Articles 3 and 4, in order to preserve the financial strength of insurance companies so that they are capable of responding promptly to eventual situations that require an effective response.

III That according to the considerations set forth above and based on the powers established in Article 38 of Law 733, General Law of Insurance, Reinsurance, and Surety, published in La Gaceta No. 162, 163, and 164, on August 25, 26, and 27, 2010; and in Article 3, numeral 13), and Article 10, numerals 1) and 2) of Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions, published in La Gaceta, Official Gazette No. 196, on October 14, 1999, and its reforms; contained in Law No. 974, Law of the Nicaraguan Legal Digest of the Banking and Finance Sector, published in La Gaceta, Official Gazette No. 164, on August 27, 2018, and its reforms.

In exercise of its powers,

HAS ISSUED

The following: Resolution No. CD-SIBOIF-1093-1-ENE22-2019

Page 2 of 4 NORM REFORMING ARTICLES 3 AND 4 OF THE STANDARD FOR THE DISTRIBUTION OF PROFITS OF INSURANCE, REINSURANCE, AND SURETY COMPANIES

FIRST: Articles 3 and 4 of the Standard for the Distribution of Profits of Insurance, Reinsurance, and Surety Companies, contained in Resolution No. CD-SIBOIF-1043-2-FEB27-2018, dated February 27, 2018, published in La Gaceta, Official Gazette No. 58 on March 22, 2018, are hereby amended, and shall read as follows:

“Article 3. Conditions.- For the authorization of profit distribution, insurance companies must submit an authorization request to the Superintendent and comply with the following: a) The Solvency Margin Index must have a ratio in which risk equity is equal to or greater than 2.5 times the Minimum Required Capital, in the last annual fiscal year. b) Reflect a financial liquidity ratio greater than 15% on the Calculation Base for Investment Sufficiency (Share Capital, Capital Reserves, and Technical and Mathematical Reserves), in the last annual fiscal year. For the purposes of this standard, only the items of Cash and Cash Equivalents, Investments at Fair Value with changes in Profit or Loss, Investments at Fair Value with changes in Other Comprehensive Income, Investments at Amortized Cost plus the returns from these investments, as well as the Credit Portfolio, are considered as financial liquidity assets. c) Once the calculation is performed to determine the amount of profits to be distributed, the index indicated in the preceding subsection b) must reflect an over-compliance equal to or greater than 10% on its calculation base for investment sufficiency indicated in the same subsection. This must be complied with by the end of the month in which the evaluation is made. d) The net premium sufficiency combined indicator, that is, the combined ratio of issuance and claims costs to net premiums, must be less than 90% of net premiums issued in the last annual fiscal year. e) The debt limit indicator must be less than 2.5 times its risk equity, in the last annual fiscal year.

Page 3 of 4 f) The premium retention limit indicator must be less than 2 times its risk equity, in the last annual fiscal year. g) Not be in processes of normalization plans or pending provisions for deferment registration. h) The result of the fiscal year subject to the profit distribution request must not present losses. i) Not be in violation of applicable laws and regulations. j) Technical and mathematical reserves must be constituted in accordance with the standard on the matter. k) The investments backing technical mathematical reserves, capital, and capital reserves must be constituted in accordance with the standard on the matter. l) The last external audit report must not contain qualifications or be subject to disclaimers of opinion. m) There must be no pending processes for reclassification or correction of account balances, or records of unaccounted values derived from inspections or audits. n) Other situations that, in the Superintendent’s judgment, warrant restricting profit distribution, when, in the opinion of said official and as a prudential measure, such distribution could harm the stability or solidity of the institution.

For the purposes of the requirements established in subsections a), b), c), d), e), and f) of this article, and what is provided in the following Article 4, insurance companies must accompany their respective authorization request with the corresponding calculation base in Excel format. The Superintendent may exempt, through a reasoned resolution, compliance with some of the conditions provided in this article, based on the particular financial conditions of the respective insurance company.

Article 4. Maximum amount to be distributed.- The amount of accumulated profits from previous periods and the current fiscal year that insurance companies may distribute shall not exceed the value resulting from subtracting fifteen percent (15%) of the current year's profits for capital reserves, fifty percent (50%) of the unearned premium reserves constituted in the last annual fiscal year, and any increase in share capital. The aforementioned 50% factor is based on the actuarial estimation of the average unearned premiums during the year, under the 24ths method.”

SECOND: This standard shall enter into force upon its notification, without prejudice to its subsequent publication in La Gaceta, Official Gazette. (Signed) Ovidio Reyes R. (Signed) M. Díaz O. (Signed) Fausto Reyes (Signed) illegible (Silvio Moisés Casco Marenco) (Signed) Illegible (Rafael Ángel Avellán Rivas)

RAFAEL ÁNGEL AVELLÁN RIVAS Secretary of the Board of Directors SIBOIF