JPRF-S-2022-043 — Reform of the Section on Coverage of the Private Insurance Fund Regarding Group or Collective Life Insurance Policies

Resolution No. JPRF-S-2022-043 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING: That, Article 226 of the Constitution of the Republic of Ecuador prescribes: “State institutions, their agencies, dependencies, public servants, and persons acting by virtue of 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 to fulfill their purposes and make effective the enjoyment and exercise of the rights recognized in the Constitution.”; That, Article 13 of the Organic Code of Monetary and Financial Affairs, Book I, creates the Financial Policy and Regulation Board as part of the Executive Branch, responsible for formulating credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; That, Article 5 of the aforementioned Organic Code establishes that the formulation of policies and regulations in the insurance sector is an exclusive power of the Executive Branch and aims to achieve the objectives set forth in Articles 284 and 302 of the Constitution of the Republic of Ecuador, which refer to economic stability, as well as those established in the National Development Plan; That, Article 9 ibidem provides that regulatory and control bodies and the Deposit Insurance Corporation, Liquidity Fund, and Private Insurance Fund shall have the duty to coordinate actions to fulfill their purposes and make effective the enjoyment and exercise of the rights recognized in the Constitution; That, items 1 and 2 of Article 14 of the aforementioned Organic Code of Monetary and Financial Affairs, Book I, regarding the scope of competence of the Financial Policy and Regulation Board, mandate: “1. Formulate credit, financial, including insurance policy, prepaid comprehensive health care services, and securities policies”; and “2. Issue regulations that allow maintaining the integrity, solidity, sustainability, and stability of the national financial, securities, insurance, and prepaid comprehensive health care services systems in accordance with what is provided in Article 309 of the Constitution of the Republic of Ecuador (…)”; That, the third-to-last paragraph of the aforementioned Article 14 ibidem determines that: “To fulfill these functions, the Financial Policy and Regulation Board shall issue rules in matters within its competence, without altering legal provisions. The Financial Policy and Regulation Board may issue regulations by segments, economic activities, and other criteria. (…)”; That, Article 14.1 of the aforementioned Organic Code establishes that 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;

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That, Article 79 of the Organic Code of Monetary and Financial Affairs, Book I, establishes that the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation is a non-financial public law legal entity with administrative and operational autonomy; That, items 3 and 5 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, as well as pay the private insurance premium; That, Article 344 of the aforementioned Organic Code, referring to the purpose of the Private Insurance Fund, provides that those insured in the public and private sectors who have active policies, with the full premium paid, in private insurance system companies shall be protected by the coverage determined in said legal body, 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 692 of the Commercial Code mandates that, for the purposes of said legal body, the insurer is the legally authorized legal entity to operate in the Republic of Ecuador that assumes the risks specified in the insurance contract; applicant or policyholder is the natural or legal person who contracts the insurance, either on their own behalf or for a specific or determinable third party who transfers the risks to the insurer; insured is the natural or legal person interested in the transfer of risks; and beneficiary is the natural or legal person who shall receive, in case of a claim, the proceeds of the insurance; prescribing said article that a single person may hold the qualities of applicant, insured, and beneficiary; That, Article 2 of Section I “Classification of Risks”, Chapter VIII “Of Policies and Rates”, Title II “Of the Constitution, Organization, Activities and Functioning”, Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities and Insurance Resolutions, states that, for the classification of risks referred to in the aforementioned section, the concept of “PERSON INSURANCE” is considered, which contains Life Insurance, which in turn encompasses, among others, the following insurance: (…) “2. Group life (insurance code 2).- Coverages contracted on behalf of a group of persons during a specific period”; That, Article 3 of Section II “Of the Coverage of the Private Insurance Fund”, Chapter I “General Rules 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, regarding the coverage of the Private Insurance Fund, establishes that: “Art. 3.- The coverage of the Private Insurance Fund, in accordance with what is provided in Article 80, item 10; and Article 344, second paragraph of the Organic Code of Monetary and Financial Affairs, shall be limited to the payment, by the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE), of pending claims at the date the forced liquidation of a private insurance system company is declared, which shall be paid by COSEDE up to the total protected amount of the Private Insurance Fund.

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Pending claims shall be understood as those that have occurred and been accepted by the insurance company in forced liquidation. Regarding claims that have occurred and have not been reported, the insured may report them to the liquidator, who shall be responsible for accepting or rejecting them. The liquidator shall deliver to COSEDE the database of insured persons or beneficiaries, which shall obligatorily include the value of each claim, with which the payment of the Private Insurance Fund coverage will be made.”; That, Article 6 of the aforementioned Section II “Of the Coverage of the Private Insurance Fund”, Chapter I “General Rules 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, provides the following: “COSEDE shall 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 shall be reviewed at least annually by the Monetary and Financial Policy 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, the third-to-last paragraph of Article 14.1 of the Organic Code of Monetary and Financial Affairs, 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-2022-0376-OFICIO dated September 19, 2022, the General Manager of the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation (COSEDE), Mgs. Silvana Raquel Salazar Torres, presents to the Financial Policy and Regulation Board a proposal to reform the regulation on the payment of the Private Insurance premium regarding group life insurance policies, in application of what is provided in the third-to-last paragraph of Article 14.1 of the Organic Code of Monetary and Financial Affairs, Book I; for which she attached Report COSEDE-CMSF-ITV-2022-026 dated September 16, 2022, signed by the Technical Coordinator of Financial Security Mechanisms of COSEDE, as well as the corresponding draft resolution; That, Transitory Provision Fifty-Fourth of Article 106 of the Organic Law Reforming the Organic Code of Monetary and Financial Affairs for the Defense of Dollarization, published in Official Register Supplement No. 433 of May 3, 2021, states that: “Resolutions contained in the Codification of Monetary, Financial, Securities and Insurance Resolutions of the Monetary and Financial Policy Board and norms issued by control bodies shall remain in effect until the Monetary and Financial Policy Board and the Financial Policy and Regulation Board decide what corresponds, within the scope of their competencies.”;

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That, the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-SETEC-2022-0074-M dated October 19, 2022, submits to the President of the Board the following reports: i) Technical Report No. JPRF-CT-2022-0036 dated October 19, 2022, issued by the Board's Technical Coordination, concludes that it is necessary to recognize the group insurance modality, whose beneficiaries or insured would be covered under a single contract in the name of a natural or legal person who on behalf of and in the name of a third party, contracts risk coverage with the insurer; and recommends elevating to the knowledge and resolution of the members of the Financial Policy and Regulation Board the inclusion in the regulation of the concept of group or collective life insurance for the payment of the private insurance premium; ii) Legal Report No. JPRF-CJ-2022-0042 dated October 19, 2022, issued by the Board's Legal Coordination, concludes that the Financial Policy and Regulation Board, as responsible for formulating policy and regulation of the insurance system, has legal competence to issue secondary regulation related to the Private Insurance Fund, and in its absence, to review and resolve regarding the reforms formulated to the regulation on the payment of the Private Insurance premium regarding group life insurance policies, in accordance with what is provided in Articles 14 and 14.1 item 13 of the Organic Code of Monetary and Financial Affairs, Book I. Additionally, it states that the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation has the authority to propose regulatory projects to the Financial Policy and Regulation Board, within the framework of its competencies, in accordance with the third-to-last paragraph of Article 14.1 of the Organic Code of Monetary and Financial Affairs, Book I, in conjunction with Article 9 ibidem. Finally, it concludes that the proposal presented by the Deposit Insurance, Liquidity Fund, and Private Insurance Fund Corporation, which has been analyzed and defined by the Board's Technical Coordination, is legally viable, under the terms and conditions set forth in Technical Report No. JPRF-CT-2022-0036 dated October 19, 2022; That, the Financial Policy and Regulation Board, in an extraordinary session held via technological means, convened on October 19, 2022 and carried out via video conference on October 21, 2022, reviewed Memorandum No. JPRF-SETEC-2022-0074-M dated October 19, 2022, issued by the Board's Technical Secretary; as well as the aforementioned reports from the Technical Coordination and Legal Coordination, in addition to the corresponding draft resolution; That, the Financial Policy and Regulation Board, in an extraordinary session held via technological means, convened on October 19, 2022 and carried out via video conference on October 21, 2022, reviewed and approved the following Resolution; and, In exercise of its functions,

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RESOLVES: ARTÍCULO ÚNICO.- The text of Article 6 of Section II “Of the Coverage of the Private Insurance Fund”, Chapter I “General Rules 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, is hereby replaced with the following: “Art. 6.- COSEDE shall 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 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. For group life insurance cases, the Private Insurance premium shall be paid to the onerous beneficiary and to the free beneficiary(ies) designated in the policy, for each insured, without collectively exceeding the maximum coverage amount of the Private Insurance Fund established in the preceding paragraph. This amount shall cover all coverages established in the group life insurance policy. Payment to the insured or to the free beneficiary(ies) of all pending claims, which an insured maintains in the same insurance company, shall not exceed the maximum coverage amount established in the first paragraph.” DISPOSICIÓN FINAL.- This Resolution shall enter into force as of the present date, without prejudice to its publication in the Official Register. This Resolution shall be published on the website of the Financial Policy and Regulation Board, within a maximum term of two days from its issuance. COMUNÍQUESE.- Given in the Metropolitan District of Quito, on October 21, 2022. LA PRESIDENTE, Mgs. María Paulina Vela Zambrano The preceding 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 October 21, 2022.- I HEREBY CERTIFY. SECRETARIA TÉCNICA Dra. Nelly Arias Zavala