JPRF-S-2021-007 — Determination of Accumulation Amount, Coverage, and Contribution Percentage for Private Insurance

Financial Policy and Regulation Board Resolution No. JPRF-S-2021-007

THE FINANCIAL POLICY AND REGULATION BOARD

CONSIDERING:

That Article 226 of the Constitution of the Republic orders: "The institutions of the State, 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. They shall have the duty to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of the rights recognized in the Constitution."

That Article 9 of the Organic Monetary and Financial Code provides that: "Regulatory and control bodies and the Deposit Insurance Corporation, Liquidity Fund, and Private Insurance Fund shall have the duty to coordinate actions for the fulfillment of their purposes and to make effective the enjoyment and exercise of the rights recognized in the Constitution, for which purpose they shall exchange data or reports related to entities subject to their regulation and control. Information subject to secrecy and confidentiality shall be treated in accordance with the provisions of this Code."

That Article 13 of the Organic Monetary and Financial Code, Book I, creates the Financial Policy and Regulation Board as part of the Executive Function. The Board is a legal entity of public law, with administrative, financial, and operational autonomy, responsible for formulating credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation.

That number 13 of Article 14.1 of the Organic Monetary and Financial Code, Book I, prescribes as a function of the Financial Policy and Regulation Board: "Issue secondary regulations related to the Deposit Insurance, Liquidity Fund, and Private Insurance Fund."

That the second paragraph of Article 14.1 of the Organic Monetary and Financial Code, Book I, provides that the legal representative of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation may propose regulatory projects for consideration by the Financial Policy and Regulation Board, backed by respective technical reports.

That Article 79 of the Organic Monetary and Financial Code, Book I, mandates that the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (hereinafter, COSEDE) is a legal entity of public law, non-financial, with operational administrative autonomy.

That Article 80 of the Organic Monetary and Financial Code, Book I, provides that the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation has the following functions: (...) 3. Administer the Private Insurance Fund and the resources that constitute it; (...) 5. Pay for private insurance; (...) 10. Cover the risks of legally constituted private insurance companies in the country that enter forced liquidation;"

That Article 344 of the Organic Monetary and Financial Code, Book I, mandates: "Art. 344.- Object of the Private Insurance Fund. The insured in the public and private sectors who have active policies, with the full premium paid, in companies within the private insurance system, shall be protected by the coverage determined in this legal body. - 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 349 of the Organic Monetary and Financial Code, Book I, provides 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 issue, at the percentage fixed annually by the Monetary and Financial Policy 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 shall not exceed, in any case, 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 the financing of its activities.- The resources of the Fund must be invested observing the principles of security, liquidity, diversification, and profitability and must be framed within the investment policies approved by the Board.- The resources of the Fund cannot be destined to cover administrative expenses nor for payment of investments in fixed assets of the Corporation.- The resources of the Private Insurance Fund shall be accumulated up to the amount determined by the Monetary and Financial Policy Board, based on the technical report to be prepared and presented by the Corporation."

That General Provision Twenty-Ninth of the Organic Monetary and Financial Code provides that: "In existing legislation where reference is made to the 'Monetary and Financial Policy Board', replace it with 'Financial Policy and Regulation Board';"

That Transitory Provision Fifty-Fourth added to the Organic Monetary and Financial Code by the Organic Law Reforming the Organic Monetary and Financial Code for the Defense of Dollarization, prescribes: "Transitory Regime of Resolutions of the Codification of the Monetary and Financial Policy Board. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy Board and the norms issued by control bodies shall maintain their validity until the Monetary and Financial Policy Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies."

That Article 11 of Section III "OF THE RESOURCES OF THE PRIVATE INSURANCE FUND", Chapter I "GENERAL NORMS OF THE PRIVATE INSURANCE FUND", Title V "OF THE PRIVATE INSURANCE FUND", Book III "PRIVATE INSURANCE SYSTEM" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, prescribes that: "Art. 11.- Insurance companies in the private insurance system shall make a basic contribution of up to 0.7% on the value of net premiums of direct insurance; and a variable contribution of up to 0.8% of the same value based on risk ratings, whose maximum percentage shall not exceed, in any case, 120% of the basic contribution; as provided in the Organic Monetary and Financial Code.- For the calculation of the aforementioned contribution, the total amount of net premiums issued for direct insurance of the immediate previous year shall be used. The resulting value shall be distributed in 12 equal monthly payments, which shall be made within the first 15 days of each month."

That Chapter II, Title V "OF THE PRIVATE INSURANCE FUND", of Book III "PRIVATE INSURANCE SYSTEM" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions establishes the norms to fix the basic contribution, as well as the risk-adjusted variable contribution to the Private Insurance Fund;

That Article One of Chapter III "Norm to Determine the Amount of the Equity of the Private Insurance Fund", Title V "Of the Private Insurance Fund", Book III "Private Insurance System", of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, determines in USD 72,000,000.00 (Seventy-two million United States dollars 00/100) the amount up to which the equity of the Private Insurance Fund shall be accumulated;

That General Provision First of Chapter III "Norm to Determine the Amount of the Equity of the Private Insurance Fund", Title V "Of the Private Insurance Fund", Book III "Private Insurance System", of the Codification of Resolutions of the Monetary and Financial Policy Board, prescribes that the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation shall annually present to the Financial Policy and 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 be accumulated, as established in Article 349 of the Organic Monetary and Financial Code;

That Article 6 of Section II "Of the coverage of the private insurance fund", of Chapter I "General norms of the private insurance fund", Title V "Of the private insurance fund", Book III "Private Insurance System" of the Codification of Resolutions of the Monetary and Financial Policy Board, orders that: "COSEDE shall pay for Private Insurance, based on the capacity of the Private Insurance Fund, up to the total protected amount of USD 1,500.00 per insured person or beneficiary, which shall be reviewed at least annually by the Financial Policy and Regulation Board in accordance with the performance levels of the Private Insurance Fund, the claim frequency of the private insurance system, and the risk level of insurance companies."

That Transitory Provision Seventh of Chapter I "General Norms of the Private Insurance Fund", Title V "Of the Private Insurance Fund", Book III "Private Insurance System", of the Codification of Resolutions of the Monetary and Financial Policy Board provided to maintain, until December 31, 2021, the total protected amount of USD 1,500.00 per insured person or beneficiary as coverage for the Private Insurance Fund;

That the General Manager and, in such capacity, legal representative, of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation, via letter No. COSEDE-COSEDE-2021-0712-OFICIO of December 20, 2021, addressed to the President of the Financial Policy and Regulation Board, submitted technical and legal reports on: the basic and variable contributions that insurance companies of the Private Insurance System must make to the Private Insurance Fund; the review of the amount up to which the Private Insurance Fund must be accumulated; and, the coverage amount of the Private Insurance Fund, respectively;

That via memorandum No. COSEDE-DIR-2020-0003-M of December 9, 2020, the President of the Board of Directors of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation, in accordance with what is provided in number 11 of Article 85 of the Organic Monetary and Financial Code, proposed, at that time, to the Monetary and Financial Policy Board the amount of USD 1,500.00 per insured person or beneficiary, as coverage for private insurance. That collegiate body is currently not integrated; however, this fact cannot be an obstacle for insured persons in this system to have legal certainty regarding the maximum coverage amount during the year 2022. The General Manager of COSEDE has proposed maintaining the same coverage amount for the year 2022, thereby complying with the principle of collaboration between COSEDE and the Regulatory Body, moreover, such proposal is framed within the power granted by the Law published in the Official Register Supplement No. 443 of May 3, 2021 (a norm subsequent to Art. 85.11) which is inserted in the second and third paragraphs of Article 14.1 of the Organic Monetary and Financial Code;

That the Technical Secretary of the Financial Policy and Regulation Board via memorandum No. JPRF-SETEC-2021-0006-M of December 27, 2021, sent to the President of the JPRF the technical and legal analyses supporting the pertinence of this resolution, contained in reports No. JPRF-CT-2021-005 and No. JPRF-CJ-2021-0007 of December 27, 2021, respectively;

That the Financial Policy and Regulation Board, in an extraordinary session held via technological means, convened on December 27, 2021, on December 30, 2021, knew and approved the text of the following resolution; and,

In exercise of its functions,

RESOLVES:

ARTICLE 1.- Substitute articles 1, 2, and 3 of Chapter II "Norm to Fix the Contribution to the Private Insurance Fund", Title V "Of 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.- Fix a basic contribution of 0.15% on the value of net premiums of direct insurance of insurance companies in the Private Insurance System for the year 2021.

Art. 2.- The risk-adjusted variable contribution (CAR) of insurance companies in the Private Insurance System, corresponding to the 2021 economic exercise, shall 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- 0.0432% AA+, AA, AA- 0.09% A+, A, A- 0.13% BBB+, BBB, BBB- 0.17% BB+, less than BB+ 0.22%

The risk-adjusted variable contribution (CAR) shall be calculated based on the last risk rating of the insurance companies for the year 2021 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, via letter, to the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation about any modification to the last risk rating of the insurance companies for the year 2021.

In the event that insurance companies in the Private Insurance System have two or more risk ratings on the same date, the lowest rating shall be taken for the effect of the risk-adjusted variable contribution (CAR).

Art. 3.- The values of the basic contribution and risk-adjusted variable contribution established in articles 1 and 2 of this Chapter that insurance companies must pay to the Private Insurance Fund shall be calculated using as a base the total amount of net premiums issued for direct insurance of the 2020 economic exercise. The contributions shall be paid in twelve monthly installments starting from the month of January of the year 2022."

ARTICLE 2.- Substitute in Book III "Private Insurance System", Title V "Of the Private Insurance Fund", Chapter III "Norm to Determine the Amount of the Equity of the Private Insurance Fund" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, article one with the following:

"ARTICLE ONE.- Determine in USD 75,000,000.00 (Seventy-five million United States dollars 00/100) the amount up to which the equity of the Private Insurance Fund shall be accumulated."

ARTICLE 3.- Substitute in Chapter I "General Norms of the Private Insurance Fund", Title V "Of the Private Insurance Fund", Book III "Private Insurance System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, Transitory Provision Seventh, with the following:

"SEVENTH.- Maintain for the 2022 economic exercise the total protected amount of USD 1,500.00, per insured person or beneficiary, as coverage for the Private Insurance Fund."

FINAL PROVISION.- This resolution shall 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 30, 2021.

THE PRESIDENT, Mgs. María Paulina Vela Zambrano

The resolution above 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 30, 2021.- I CERTIFY.

TECHNICAL SECRETARY Dra. Nelly Arias Zavala