JPRF-S-2023-092 — Determination of the Accumulation Amount, Coverage, and Contribution Percentage of the Private Insurance Fund for 2023

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Government Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-S-2023-092 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 226 of the Constitution of the Republic of Ecuador stipulates that State institutions, their agencies, dependencies, public servants, and persons acting under state authority shall exercise only the competencies and powers attributed to them in the Constitution and the law; That, Article 13 of the Organic Monetary and Financial Code, Book I, reformed by the Organic Reform Law to the Organic Monetary and Financial Code for the Defense of Dollarization, published in the Official Register Supplement No. 443 of May 3, 2021, 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 service policy and regulation; That, Article 14 of the Organic Monetary and Financial Code, Book I, regarding the scope of the Financial Policy and Regulation Board, determines that this collegiate body is responsible for formulating insurance policy; issuing regulations that ensure the integrity, solidity, sustainability, and stability of the insurance system; and also, issuing micro-prudential regulations for the insurance sector; That, Article 14.1 of the same Organic Code, Book I, in number 13, establishes that, for the performance of its functions, the Financial Policy and Regulation Board must fulfill the duty and exercise the power to issue secondary regulation related to the Deposit Insurance, Liquidity Fund, and Private Insurance Fund; That, Article 14.1 of the aforementioned Organic Code, in numbers 7 letter d), 8, 17, and 27, determines that, for the performance of 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; to review reports that, within its competencies, the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation presents regarding the state of the insurance system; to dictate regulations governing insurance and reinsurance; and, to exercise the other functions, duties, and powers assigned to it by the Organic Monetary and Financial Code and the law; That, 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 to be issued by the Financial Policy and Regulation Board; That, 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;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Government Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, 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, the following: “Propose to the Financial Policy and Regulation Board the amount of coverage for private insurance”; That, Article 344 of the aforementioned Organic Code, when referring to the object of the Private Insurance Fund, provides 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 within the private insurance system; additionally determining that the Private Deposit Insurance will cover, within the amount established by the Board, the value of pending claims at the date of forced liquidation; That, Article 346 ibidem stipulates that, to determine the amount protected by coverage and its return to the insured or beneficiary, the total number of 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; That, Article 349 of the Organic Monetary and Financial Code, Book I, states that: “The Private Insurance Fund shall be constituted with the following resources, which shall be considered public: a) 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, under any circumstances, 120% of the basic contribution; b) The proportion of the contribution determined in Article 67 of Book III of this Code; c) The returns on investments and net profits of each annual fiscal year of the Private Insurance Fund; d) Donations received; and, e) Those from loans or contingent lines obtained for financing its activities. The Fund's resources must be invested observing the principles of safety, liquidity, diversification, and profitability and must be framed within the investment policies approved by the Board of Directors. The Fund's resources may not be used to cover administrative expenses or for payment of investments in fixed assets of the Corporation. (…)”; That, the last paragraph of Article 349 of the aforementioned Organic Code establishes that the resources of the Private Insurance Fund shall be accumulated up to the amount determined by the Financial Policy and Regulation Board, based on a technical report to be prepared and submitted by COSEDE;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Government Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, General Provision Twenty-Ninth of the Organic Monetary and Financial Code, Book I, added by the Organic Reform Law to the Organic Monetary and Financial Code for the Defense of Dollarization, provides: “In existing legislation where reference is made to the 'Monetary and Financial Policy and Regulation Board', replace it with 'Financial Policy and Regulation Board'.”; That, Transitory Provision Fifty-Fourth of the aforementioned Book I of the cited Organic Code, added by the Organic Reform Law to the Organic Monetary and Financial Code for the Defense of Dollarization, provides: “Transitory Regime of Resolutions of the Codification of the Monetary and Financial Policy and Regulation Board. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy and Regulation Board and the norms issued by control bodies will maintain their validity until the Monetary and Financial Policy and Regulation Board and the Financial Policy and Regulation Board resolve what corresponds, within their competencies.”; That, 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 established by law for approving the control body's budget. Insurance companies will act as withholding agents for this contribution; That, Article 6 of Section II “On the Coverage of the Private Insurance Fund”, Chapter I “General Norms 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 the following: “COSEDE will pay the Private Insurance premium, based on the capacity of the Private Insurance Fund, up to the 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.”; That, 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 submit to the Monetary and Financial Policy and Regulation Board a 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 be accumulated, as established in Article 349 of the Organic Monetary and Financial Code”;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Government Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, the norms regarding 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 be accumulated, 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-2022-054 of December 29, 2022; That, 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; That, through Letter No. COSEDE-COSEDE-2023-0559-OFICIO of November 15, 2023, the General Manager of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE) brings to the knowledge of the Financial Policy and Regulation Board that: “(…) as recorded in the Minutes of the Ordinary Session by technological means of the Board of Directors of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation No. 012-2023-O of November 9, 2023, the President of the Board of Directors, the Delegate of the Minister of Economy and Finance, and the Delegate of the National Secretary of Planning acknowledge the proposal of contributions and the target level of the Private Insurance Fund, prior to sending it to the Financial Policy and Regulation Board. Likewise, through Resolution No. COSEDE-DIR-2023-055 dated November 9, 2023, the Board of Directors of COSEDE approved the annual review of the value of the coverage of the Private Insurance Fund. (…)”; and, attached for this purpose, the Reserved Technical Report No. CTRE-FSP-2023-012, the Reserved Technical Report No. CTRE-FSP-2023-013, and the Reserved Technical Report No. CTRE-FSP-2023-014, all dated November 14, 2023, issued by the Technical Coordination of Risk and Studies of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE), for consideration by the Financial Policy and Regulation Board; That, the Technical Secretariat of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2023-0113-M of December 19, 2023, forwards to the President of the Board the following reports: i) Technical Report No. JPRF-CTVS-2023-008 of December 18, 2023, issued by the Technical Coordination of Policy and Regulation of the Securities and Insurance System of the Board, which states that, based on the review of the technical reports presented by COSEDE through Letter No. COSEDE-COSEDE-2023-0559-OFICIO of November 15, 2023, which refers to the following reform proposals: i) Review of the amount up to which the Private Insurance Fund must be accumulated; ii) Review of the value of the coverage of the Private Insurance Fund; and, iii) Review of the basic and variable risk contributions applicable on the value of net premiums of direct insurance carried out by insurance companies belonging to the Private Insurance System, it considers it appropriate to accept the recommendations of the aforementioned reports; ii) Legal Report No. JPRF-CJF-2023-073 of December 18, 2023, issued by the Legal Coordination of Policy and Financial Norms of the Board, which concludes that: (i) The Financial Policy and Regulation Board, as responsible for formulating policy and issuing regulation of the insurance system, has legal competence to regulate the coverage amount of the Private Insurance Fund, the basic contribution, and the variable contribution to the Private Insurance Fund, and the amount up to which the Fund's resources will be accumulated; in application of what is prescribed in number 13 of Article 14.1 of the Organic Monetary and Financial Code, Book I; and, (ii) The respective reforms to be made in the Codification of Monetary, Financial, Securities, and Insurance Resolutions are legally viable and do not contravene the current legal framework, in light of the legal considerations exposed by this Coordination in the present report and under the terms indicated in Technical Report No. JPRF-CTVS-2023-008 of December 18, 2023, issued by the Technical Coordination of Policy and Regulation of the Securities and Insurance Sector of the Technical Secretariat of this Board;

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Government Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | That, the Financial Policy and Regulation Board, in a reserved ordinary in-person session held on December 22, 2023, reviewed Memorandum No. JPRF-ST-2023-0113-M of December 19, 2023, issued by the Technical Secretariat of the Board; as well as the aforementioned reports from the Technical Coordination of Policy and Regulation of the Securities and Insurance Sector and the Legal Coordination of Policy and Financial Norms, in addition to the corresponding draft resolution; and, That, the Financial Policy and Regulation Board, in a reserved ordinary in-person session held on December 22, 2023, reviewed and approved the following Resolution; and, In exercise of its functions, RESOLVES: ARTICLE ONE.- In the first paragraph of Article 6 of Section II “On the Coverage of the Private Insurance Fund”, Chapter I “General Norms 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, replace the text “USD 1,500.00” with the following: “USD 2,000.00” ARTICLE TWO.- Replace the text of the Seventh Transitory Provision of Chapter I “General Norms 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: “SEVENTH.- For the 2024 fiscal year, the total protected amount of USD 2,000.00 per insured or beneficiary is established as coverage for the Private Insurance Fund.” ARTICLE THREE.- In 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, make the following reforms: In Article 1, replace the text “2022” with: “2023”. In Article 2, replace the texts “2022” with: “2023”. In Article 3, replace the text “2021” with: “2022”; and, the text “2023” with: “2024”. SINGLE GENERAL PROVISION.- The Superintendence of Companies, Securities, and Insurance will communicate the content of this Resolution to the respective controlled entities.

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Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Government Management Platform. Red Block, 8th floor | Postal Code: 170507 | Quito - Ecuador | FINAL PROVISION.- This Resolution will enter into force from the date of its issuance, without prejudice to its publication in the Official Register. Publish this Resolution on the website of the Financial Policy and Regulation Board, within a maximum term of two days from its issuance. COMMUNICATE.- Given in the Metropolitan District of Quito, on December 22, 2023. 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 22, 2023.- I CERTIFY. TECHNICAL SECRETARY Mgs. Nelly Arias Zavala