Technical Standards for the Disposal and Acquisition of Assets by Insurance Companies

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 1 of 7 CNBCR-05/2024 NRP-68 TECHNICAL STANDARDS FOR THE DISPOSAL AND ACQUISITION OF ASSETS BY INSURANCE COMPANIES Approval: 06/28/2024 Validity: 07/16/2024

THE COMMITTEE OF STANDARDS OF THE CENTRAL RESERVE BANK OF EL SALVADOR,

CONSIDERING:

I. That Article 26 of the Insurance Companies Law establishes that insurance companies may not dispose of any title or assets of any kind in favor of directors, managers, administrators, and shareholders, their spouses or relatives up to the third degree of consanguinity and second degree of affinity, and to companies in which they participate with more than twenty-five percent (25%) of share capital; nor may they acquire assets from them for consideration, unless decided unanimously by the board of directors and authorized by the Superintendence. This provision does not apply to those assets whose value does not exceed zero point five percent (0.5%) of the capital and capital reserves of the respective company. In cases where the disposed or acquired assets exceed two percent (2%) of the paid-up share capital and capital reserves of the company, the requirements established in said provision must be met.

II. That Article 3, literal c) of the Law on Supervision and Regulation of the Financial System establishes that it is the responsibility of the Financial System Superintendence to preventively monitor the risks of the members of the financial system and the manner in which they manage them, ensuring the prudent maintenance of their solvency and liquidity.

III. That Article 7, literal e) of the Law on Supervision and Regulation of the Financial System establishes that the Financial System Superintendence is responsible for the supervision of insurance companies, their branches abroad, and the branches of foreign insurance companies established in the country.

IV. That Article 32, first paragraph of the Law on Supervision and Regulation of the Financial System establishes that the Financial System Superintendence may require supervised entities to provide direct access to all data, reports, or documents regarding their operations through the means and form it defines.

THEREFORE,

in virtue of the regulatory powers conferred by Article 99 of the Law on Supervision and Regulation of the Financial System,

AGREES to issue the following:

TECHNICAL STANDARDS FOR THE DISPOSAL AND ACQUISITION OF ASSETS BY INSURANCE COMPANIES

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CHAPTER I OBJECT, SUBJECTS, AND TERMS

Object Art. 1.- These Standards aim to establish the requirements that insurance companies must meet when carrying out transactions of any kind of assets with their managers, directors, administrators, shareholders, and with the companies in which these persons participate with more than twenty-five percent (25%) of share capital.

Subjects Art. 2.- The subjects obliged to comply with the provisions established in these Standards are: a) Insurance companies constituted in El Salvador; b) Branches of foreign Insurance Companies established and authorized in the country; and c) Cooperative associations providing insurance services constituted in the country.

Terms Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning: a) Central Bank: Central Reserve Bank of El Salvador; b) Entity: Subjects referred to in Article 2 of these Standards; c) Kinship: Family relationship that exists between two or more persons, which can be by consanguinity, affinity, or adoption; d) Board of Directors: Collegiate body in charge of the administration of the entity, with functions of supervision, direction, and control, or equivalent body; in the case of Cooperative Associations, it will be the Board of Administration or as defined in its Creation Law; e) General Shareholders' Meeting: It is the highest authority of the entity, as applicable. This term will also serve to refer to the General Assemblies of Members of Cooperative Associations subject to these Standards; and f) Superintendence: Financial System Superintendence.

CHAPTER II REGULATED TRANSACTIONS AND EXCEPTIONS

Persons Art. 4.- The entity must comply with these Standards when the transactions carried out are with the following persons: a) Shareholders; b) Directors;

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Spouses and relatives up to the third degree of consanguinity and second degree of affinity of the persons mentioned in literals a), b), c), and d) of the first paragraph of this article are included as the same subject.

Kinship by consanguinity and by affinity Art. 5.- The kinships by consanguinity and by affinity that entities must observe are the following: a) First degree of consanguinity is the kinship between parent (mother) and child (son/daughter); b) Second degree of consanguinity is that which exists between grandparent (grandfather/grandmother) and grandchild, and between siblings; c) Third degree of consanguinity is that which exists between great-grandparent and great-grandchild, and between uncles/aunts and nephews/nieces; d) First degree of affinity is that which exists between father/mother-in-law and daughter/son-in-law, and between stepfather/stepmother and stepchild; and e) Second degree of affinity is that which exists between brothers-in-law/sisters-in-law.

Transfer of assets Art. 6.- The transfer of assets of any nature, by the entity with the persons established in Article 4 of these Standards, will be subject, according to each case, to the following: a) In the case of assets whose value exceeds zero point five percent (0.5%) and up to two percent (2%) of its capital and capital reserves, it must previously have: i. Agreement of the Board of Directors of the entity, taken unanimously or by the corresponding body; and ii. Authorization of the Superintendence, based on the verification of the corresponding requirements. b) In the case of assets whose value exceeds two percent (2%) of its capital and capital reserves, it must previously have: i. Approval of the Ordinary General Meeting of Shareholders agreed upon with the simple majority of votes of the shares present; and ii. Authorization of the Superintendence, which will grant it whenever such operations are carried out under the same conditions applicable to third parties in similar cases.

The balance of share capital and capital reserves, which will serve as a reference to determine the limits of asset transfer of the respective entity, will be that presented on the date of each operation. c) For the purposes of the percentage relationships established in literal b) of this article, in the case of leased real estate subject to being acquired by the entity, in which said entity has made investments in constructions, its acquisition value will be formed according to the following: i. The disbursement to be made on the date of purchase; ii. The value of the investments made in the real estate; and iii. The financial and administrative costs of such investments, as if the financing had been granted to the owners of the real estate.

Exceptions Art. 7.- These Standards do not apply to transactions of any kind of assets, between the entity and the persons established in Article 4 of these Standards, whose value does not exceed zero point five percent (0.5%) of the capital and capital reserves of the respective entity.

CHAPTER III APPLICATION FOR AUTHORIZATION

Art. 8.- The entity must present to the Superintendence the corresponding application to carry out the transaction, signed by the legal representative, and in the case of real estate, accompanied by the appraisal carried out by an independent expert registered in the Register of Appraisers of the Superintendence. The appraisal report must comply with the minimum requirements established in [Reference Missing in Source, likely NRP-27], approved by the Central Bank through its Committee of Standards. The application must attach the certification of the Board of Directors agreement or General Shareholders' Meeting agreement, as applicable, in which the asset transaction was approved; it must also contain the arguments supporting the decision to buy or sell a specific asset and the value of the transaction as provided in literal c) of Article 6 of these Standards.

Art. 9.- The application and documentation may be presented through the means made available by the Superintendence, which may be electronic. In any case, the deadline referred to in the first paragraph of Article 10 of these Standards will begin to run from the next business day after the application has been presented.

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CHAPTER IV PROCEDURE FOR APPLICATION FOR AUTHORIZATION

Authorization procedure for transactions with assets Art. 10.- Upon receipt of the application to carry out transactions with assets, in accordance with what is established in Article 8 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined by the Insurance Companies Law and in these Standards, having a period of up to twenty (20) business days to authorize or deny the authorization to carry out transactions with assets. Once this period has expired and without communicating observations to the requesting entity, the Superintendence will proceed to authorize the application to carry out transactions with assets.

If the application is not accompanied by the complete and proper information detailed in Article 8 of these Standards, the Superintendence, due to the lack of necessary requirements, may require the applicant to present the missing documents within a period of ten (10) business days counted from the day following the notification, a period that may be extended at the request of the interested entity when there are reasons justifying such extension.

In the same notice, the Superintendence will indicate to the applicant that if the information is not completed within the aforementioned period, the Superintendence will proceed, without further procedure, to archive the application, reserving the right to present a new application.

If after the analysis of the documentation presented in accordance with Article 8 of these Standards, the Superintendence has observations or when the documentation or information presented is not sufficient to establish the facts or information intended to be proven, the Superintendence may notify the respective applicant to remedy the deficiencies communicated or present additional documentation or information requested.

The applicant will have a maximum period of ten (10) business days counted from the day following the notification, to resolve the observations or present the additional information required by the Superintendence.

The Superintendence may, through a reasoned resolution, extend by up to another ten (10) business days, the period indicated in the previous paragraph, when the nature of the observations or deficiencies notified so requires.

Extension Period Art. 11.- The applicant may present to the Superintendence an application for extension of the period indicated in the fifth paragraph of Article 10 of these Standards, before the expiration of said period, stating the grounds on which it is based and proposing, if applicable, the pertinent proof.

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The extension period may not exceed ten (10) business days and will begin from the next business day following the expiration date of the original period.

Suspension of the period Art. 12.- The period of twenty (20) business days indicated in the first paragraph of Article 10 of these Standards will be suspended for the days that elapse between the notification of the requirement to complete information or documentation referred to in the second and fifth paragraphs of said article, until the observations required by the Superintendence are remedied.

Resolution Art. 13.- Once the complete and proper documentation has been presented, the Superintendence will issue a resolution on the application to carry out transactions with the assets, which it will notify within a maximum period of three (3) business days from the date the resolution is issued.

CHAPTER V OTHER PROVISIONS AND VALIDITY

Sanctions Art. 14.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Repeal Art. 15.- [Reference Missing in Source, likely NRP-06], approved by the Board of Directors of the Financial System Superintendence in Session No. CD-57/1998 on August 31, 1998, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law on Supervision and Regulation of the Financial System, published in the Official Journal No. 23, Volume No. 390, of February 2, 2011.

Transitory Art. 16.- Applications presented under [Reference Missing in Source, likely NRP-06] and that were pending at the time these Standards enter into force, will be continued and concluded in accordance with the regulations under which they began.

Unforeseen Aspects Art. 17.- Aspects not provided for in the regulatory matter in these Standards will be resolved by the Central Bank through its Committee of Standards.

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Validity Art. 18.- These Standards will enter into force from July 16, two thousand twenty-four.

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