Compilation of Insurance and Reinsurance Rules – Technical Reserves for Collective Disability and Death Insurance and Reserves for Pension Annuity Insurance

Montevideo, October 14, 2024
Ref: COMPILATION OF INSURANCE AND REINSURANCE RULES – Technical Reserves for Collective Disability and Death Insurance and Reserves for Pension Annuity Insurance.
The market is informed that, on October 7, 2024, the Superintendencia de Servicios Financieros adopted the following resolution:

1. SUBSTITUTE in Chapter II – Pension Insurance, of Title II – Technical Reserves, of Book II – Stability and Solvency of the Compilation of Insurance and Reinsurance Rules, Articles 31 and 34 with the following:

ARTICLE 31 (TECHNICAL RESERVES OF COLLECTIVE DISABILITY AND DEATH INSURANCE).

Insurance companies operating the coverage of collective disability and death insurance (transitory subsidy for partial incapacity and insufficiency of balances) provided for in Articles 57 and 59 of Law No. 16.713 of September 3, 1995, and its amendments, shall constitute the different classes of reserves indicated below:

a. Reserve for Liquidated Claims to be Paid:
It shall be constituted for those claims whose pension benefits defined in Articles 57 and 59 of Law No. 16.713 have been settled and for which the insurance company is making, or will make, payment of the corresponding benefits, as follows:

i. Transitory subsidy for partial incapacity: The value of this reserve shall be calculated for each of the liquidated claims and shall be equivalent to the actuarial present value of the benefit to be paid during the period in which it must be paid. The actuarial present value shall be established in Uruguayan pesos and updated at the close of each month based on the variation of the Average Nominal Salaries Index (IMSN). For the purposes of this calculation, the characteristics of the current beneficiaries must be considered: sex, age, payment term of the benefits, etc.;

Diagonal Fabini 777 - C.P. 11100 - Tel.: (598 2) 1967 - Montevideo, Uruguay - www.bcu.gub.uy CIRCULAR NO. 2464

ii. Insufficiency of balance: It shall be determined for each claim as the difference between the actuarial present value of the monthly benefit to be paid to the insured or beneficiary, which shall be reported by the insurance company responsible for serving said monthly benefit, and the balance accumulated in the individual savings account.
The value of the reserve for liquidated claims to be paid shall in no case be reduced by the application of reinsurance contracts.

b. Reserve for Claims Pending Settlement:
It shall be constituted for those claims reported to the insurance company and whose benefits defined in Articles 57 and 59 of Law No. 16.713 are, for any reason, pending settlement and consequently no payment has yet been made in concept of benefit.

i. Transitory subsidy for partial incapacity: The value of this reserve shall be calculated for each of the claims and shall be equivalent to the actuarial present value of the benefit estimated to be paid.

ii. Insufficiency of balance: It shall be determined for each claim as the difference between the actuarial present value of the monthly benefit estimated to correspond to be paid to the insured or beneficiary and the balance accumulated in the individual savings account.
In cases where the available information is insufficient, the insurance company shall base its calculations on duly substantiated estimates.
The reserve for claims pending settlement shall be constituted in accordance with the following criteria:

1. In the event of death, upon receiving the respective communication from the Social Security Bank (Banco de Previsión Social) or the administrator of pension savings funds.

2. In the event of incapacity, upon receiving the communication from the Social Security Bank informing of the application filed by the insured and for an amount equivalent to 50% (fifty percent) of the estimated actuarial present value to be paid.

3. Upon the Board of Directors of the Social Security Bank issuing the pertinent resolution approving the incapacity, the reserve shall be increased to 100% (one hundred percent) of the estimated actuarial present value to be paid.

Diagonal Fabini 777 - C.P. 11100 - Tel.: (598 2) 1967 - Montevideo, Uruguay - www.bcu.gub.uy CIRCULAR NO. 2464

4. The amount constituted under the preceding numeral 2 may only be derecognized after 2 (two) years have passed from the notification by the Social Security Bank regarding the application without a resolution having been adopted regarding it, or when the Board of Directors of the Social Security Bank issues a resolution denying the benefit, and provided that it is definitive (not subject to appeal).

c. Reserve for Claims Occurred but Not Sufficiently Reported
The Reserve for Claims Occurred but Not Sufficiently Reported is constituted to cover the eventual deficiency in the liability originating from the insufficiency of information referred to in the previous letter. This reserve, which must be calculated monthly using appropriate techniques, shall be constituted for an amount not less than 5% (five percent) of the amount calculated as the Reserve for Claims Pending Settlement.

d. Reserve for Claims Occurred but Not Reported The Reserve for Claims Occurred but Not Reported shall be constituted for those claims that have occurred by the calculation date but have not yet been reported to the insurance company.
The value of this reserve, which must be calculated monthly using appropriate techniques, shall in no case be less than 10% (ten percent) of the premiums issued in concept of collective disability and death insurance in the last year prior to the calculation date.

e. Reserve for Calculation Insufficiency
This reserve shall be constituted considering that there are different situations that could modify the actuarial present values obtained previously, which are difficult to estimate.
The value of this reserve, which must be calculated monthly using appropriate techniques, shall in no case be less than 5% (five percent) of the sum of the values corresponding to the previously defined reserves.
Separately from the estimation of the reserves detailed in letters b., c. and d., the reinsurer's participation shall be calculated considering the corresponding reinsurance contracts, provided they permanently meet the conditions established in Title VI. The calculated amounts shall be shown in regularization accounts of the constituted reserve. Non-proportional reinsurance contracts shall be computed provided the amount can be established precisely and its determination is adequately substantiated and available to the Superintendencia de Servicios Financieros.

TRANSITIONAL PROVISION established by Circulars No. 2.362 and 2.363 of dates November 12 and 19, 2020, respectively:

“Insurance companies may adapt to the modifications established in letters c., d. and e. above within a period of ten years counted from the effective date.
For these purposes, at the close of the 2021 fiscal year, the ratio between its accounting balance and the amount of the reserve according to the regime established in this article shall be determined for each type of reserve.
In the event that this ratio (R) is less than 1, starting from January 1, 2022, it shall be:
a. calculate the amount of each reserve according to the frequency and method established in this article, and b. account for an adjustment such that, at the close of each month, the accounting balance of each reserve is, at minimum, equal to the amount determined in a. multiplied by an adaptation factor (F). The adaptation factor shall be:
F = R + [ (1 – R) / 120 ] x M
M shall be equal to 1 in January 2022, 2 in February 2022, 3 in March 2022 and so on until reaching 120 in December 2031.
Starting from the information corresponding to March 31, 2022, the reserve requirement according to the current regime, the accounting balance of the reserve, and the percentage pending to be constituted shall be indicated in notes to the financial statements.”

Diagonal Fabini 777 - C.P. 11100 - Tel.: (598 2) 1967 - Montevideo, Uruguay - www.bcu.gub.uy CIRCULAR NO. 2464

ARTICLE 34 (RESERVES OF PENSION ANNUITY INSURANCE).

Insurance companies operating the coverage of life annuities and temporary annuities referred to in Articles 97 and following of this Compilation shall constitute a mathematical reserve for each policy issued equivalent to the actuarial present value of the monthly benefit to be paid to the insured and their potential beneficiaries, if applicable. The actuarial present value shall be established in Uruguayan pesos and updated at the close of each month based on the variation of the Average Nominal Salaries Index (IMSN) and shall in no case be reduced by the application of reinsurance contracts. For the purposes of calculating the actuarial present value, the characteristics of the insured and possible beneficiaries, if applicable, shall be considered: sex, age, status (disabled or not disabled), pension assignment, and the payment term of the benefits. Likewise, a reserve for calculation insufficiency shall be constituted considering that there are different situations that could modify the actuarial present values obtained previously, which are difficult to estimate, such as: appearance of new beneficiaries, possible disability of the unmarried child under 21 years of age, changes in the current family situation, etc. The value of this reserve, which must be calculated monthly using appropriate techniques, shall in no case be less than 5% (five percent) of the constituted mathematical reserve.

TRANSITIONAL PROVISION established by Circulars No. 2.362 and 2.363 of dates November 12 and 19, 2020, respectively:

“Insurance companies may adapt to what is established regarding the reserve for calculation insufficiency within a period of ten years counted from the effective date.
For these purposes, at the close of the 2021 fiscal year, the ratio between the accounting balance of said reserve and its amount according to the regime established in this article shall be determined.
In the event that this ratio (R) is less than 1, starting from January 1, 2022, it shall be:
a. calculate the amount of the reserve according to the frequency and method established in this article, and b. account for an adjustment such that, at the close of each month, the accounting balance of the reserve is, at minimum, equal to the amount determined in a. multiplied by an adaptation factor (F). The adaptation factor shall be:
F = R + [ (1 – R) / 120 ] x M
M shall be equal to 1 in January 2022, 2 in February 2022, 3 in March 2022 and so on until reaching 120 in December 2031.
Starting from the information corresponding to March 31, 2022, the reserve requirement according to the current regime, the accounting balance of the reserve, and the percentage pending to be constituted shall be indicated in notes to the financial statements.”

Diagonal Fabini 777 - C.P. 11100 - Tel.: (598 2) 1967 - Montevideo, Uruguay - www.bcu.gub.uy CIRCULAR NO. 2464

2. The modifications established above shall govern starting from January 1, 2025.

CRISITINA RIVERO
Intendant of Financial Supervision
2024-50-1-01046

Diagonal Fabini 777 - C.P. 11100 - Tel.: (598 2) 1967 - Montevideo, Uruguay - www.bcu.gub.uy CIRCULAR NO. 2464