Norm on Reforming Articles 2, 7, 8, and 16 of the Regulation on Investment Limits for Insurance, Reinsurance, and Surety Companies

Page 1 of 8 Resolution No. CD-SIBOIF-1089-1-DIC11-2018 Dated December 11, 2018

REGULATION ON REFORMING ARTICLES 2, 7, 8, AND 16 OF THE REGULATION ON INVESTMENT LIMITS FOR INSURANCE, REINSURANCE, AND SURETY COMPANIES

The Board of Directors of the Superintendence of Banks and Other Financial Institutions,

CONSIDERING

I That on September 22, 2015, the Regulation on Investment Limits for Insurance, Reinsurance, and Surety Companies was approved, contained in Resolution No. CD-SIBOIF-908-1-SEPT22-2015, published in La Gaceta, Official Journal No. 208, on November 3, 2015.

II That it is necessary to adapt the provisions contained in the aforementioned regulation, in accordance with the new Accounting Framework applicable to Insurance, Reinsurance, and Surety Companies, which is based on a combination of International Financial Reporting Standards (IFRS) and prudential regulations issued by this Superintendence.

III That in accordance with the considerations stated above and based on the powers provided for in Articles 4; 5, numeral 1); and 40 of the aforementioned Law No. 733; and Article 3, numeral 13) and Article 10, numeral 1) of Law No. 316, Law of the Superintendence of Banks and Other Financial Institutions, and its reforms; both legal frameworks contained in Law No. 974, Law of the Nicaraguan Legal Digest on Banking and Finance Matters, published in La Gaceta, Official Journal No. 164, on August 27, 2018, and its reforms.

In exercise of its powers,

HAS ISSUED,

The following:

Resolution No. CD-SIBOIF-1089-1-DIC11-2018 REGULATION ON REFORMING ARTICLES 2, 7, 8, AND 16 OF THE REGULATION ON INVESTMENT LIMITS FOR INSURANCE, REINSURANCE, AND SURETY COMPANIES

FIRST: Articles 2, 7, 8, and 16 of the Regulation on Investment Limits for Insurance, Reinsurance, and Surety Companies, contained in Resolution No. CD-SIBOIF-908-1-

Page 2 of 8 SEPT22-2015, dated September 22, 2017, published in La Gaceta, Official Journal No. 208, on November 3, 2015, are hereby reformed, and shall read as follows:

“Article 2. Concepts.- For the purposes of this regulation, the concepts indicated in this article, whether in uppercase or lowercase, singular or plural, shall have the following meanings:

a) Investment Sufficiency Calculation Base: The sum of Capital, Capital Reserves, Technical and Mathematical Reserves, and other funds that, although not part of the technical and mathematical reserves, social capital, and capital reserves of the company, allow it to carry out its corporate purpose.

b) Capital: The amount of subscribed and paid-up social capital.

c) Unmatured Premium Receivables: Refers to those premiums that are less than 60 days past due. Taxes, issuance fees, interest on installment payments of premiums, commissions for intermediaries' accrual, and collection commissions shall not be considered among these.

d) Excesses of the Investment Sufficiency Calculation Base: The difference between the total investments and the minimum investment amount required to back the Investment Sufficiency Calculation Base.

e) Related Groups or Related Interest Units: Those affiliated groups according to the definitions in Article 71 of the General Insurance Law.

f) Insured and Reinsured Institutions: Insurance, reinsurance, and surety institutions, constituted in Nicaragua and authorized by the Superintendence.

g) Investments in Excess of the Investment Sufficiency Calculation Base: Those investments that exceed the amount of investments backing the Investment Sufficiency Calculation Base.

h) General Insurance Law: Law No. 733, General Insurance, Reinsurance, and Surety Law, published in La Gaceta, Official Journals No. 162, 163, and 164, on August 25, 26, and 27, 2010, contained in Law No. 974, Law of the Nicaraguan Legal Digest on Banking and Finance Matters, published in La Gaceta, Official Journal No. 164, on August 27, 2018, and its reforms.

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i) Accounting Framework: Refers to the Accounting Framework for Insurance, Reinsurance, and Surety Companies.

j) Operational Cash Availability Needs: Refer, among others, to operational needs required to make claim payments, payments to suppliers, transfers, and refunds to reinsurers and reinsurance intermediaries for salvage sales, balances due to the reinsurer in cases of claim settlement, or others.

k) Capital Reserves: The Capital Reserves constituted in accordance with Article 38 of the General Insurance Law.

l) Reserves for Pending Claims Due to Reinsurers: The estimated amount corresponding to reinsurers for claims that have occurred and are pending settlement.

m) Technical and Mathematical Reserves: The other reserves indicated and constituted in accordance with Article 35 of the General Insurance Law; less: technical reserves due to reinsurers and reserves for pending claims due to them.

n) Technical Reserves Due to Reinsurers: According to the valuation carried out during and at the end of each fiscal year, what corresponds to reinsurers for ceded risks.

o) Superintendence: Superintendence of Banks and Other Financial Institutions.

p) Superintendent: Superintendent of Banks and Other Financial Institutions.

q) Fixed Income Securities: Debt securities, represented or not in a document, which by their own legal configuration and transmission regime can be subject to negotiation in a stock market.

Article 7. Limits by type of investment in the country.- The following shall be considered as investments backing the Investment Sufficiency Calculation Base:

a) No limit on securities issued or guaranteed by the Central Government of Nicaragua in accordance with the law on the matter and accounted for in accordance with current accounting regulations.

b) No limit on securities issued or guaranteed by the Central Bank of Nicaragua in accordance with the law on the matter and accounted for in accordance with current accounting regulations.

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c) No limit on Repo operations of securities issued by the Central Bank and the Central Government of Nicaragua agreed upon for terms not exceeding twelve (12) months, carried out with national supervised financial institutions or foreign financial institutions qualified as first-tier in accordance with Article 21 of this regulation.

d) According to their operational cash availability needs, deposited in interest-bearing availability accounts in banks or financial institutions authorized and supervised by the Superintendence.

e) 60% of the Investment Sufficiency Calculation Base in time deposits or fixed income securities issued by banks or financial institutions authorized and supervised by the Superintendence of Banks. Current account deposits in financial institutions in the country do not form part of the investments.

f) 20% of the Investment Sufficiency Calculation Base in bills of exchange guaranteed or issued by banks or financial institutions authorized and supervised by the Superintendence of Banks.

g) 25% of the Investment Sufficiency Calculation Base in fixed income securities of public offering, registered in the registry kept for such purposes by the Superintendence, issued by Nicaraguan companies, and accounted for in accordance with what is established in the Accounting Framework. Within the same percentage, they may also invest in shares of financial investment funds constituted in the country, in which at least 60% of their portfolio is invested in fixed income securities; as well as in shares of real estate investment funds and real estate development funds registered in the registry kept for such purposes by the Superintendence.

h) 10% of the Investment Sufficiency Calculation Base in shares of first-class Nicaraguan anonymous societies that are qualified as first-tier issuers in accordance with what is established in Article 21 of this regulation, that are registered in the registry kept for such purposes by the Superintendence, that are negotiable through the country's stock exchanges, and that are accounted for in accordance with what is established in the Accounting Framework.

i) 20% of the Investment Sufficiency Calculation Base in land and buildings owned for the company's use.

j) 20% of the Investment Sufficiency Calculation Base in mortgage loans to natural persons. The regulations governing credit risk management apply to these loans.

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k) 10% of the Investment Sufficiency Calculation Base in personal loans for the acquisition of vehicles with a pledge guarantee on the same. The regulations governing credit risk management apply to these loans.

l. The maximum amount to be considered as an investment for unmatured premium receivables shall be 40% of the same; understood as such, those that are less than 60 days past due.”

Article 8. Limits by type of investment abroad.- They may maintain deposits or invest in the following instruments established in this article, without exceeding in their entirety twenty percent (20%) of the Investment Sufficiency Calculation Base or the amount reported as Catastrophic Reserves, whichever is greater. These investments must be traded on a stock exchange or regulated market, and accounted for in accordance with what is established in the Accounting Framework:

a) Securities issued by Multilateral Credit Organizations of which the country is a member.

b) Deposits and fixed income securities issued by financial institutions with first-tier risk qualification in accordance with what is established in Article 21 of this regulation. Likewise, they may invest in deposits in banks and financial institutions domiciled in the United States of America that do not have the minimum required first-tier qualification, provided that these do not exceed the amount of the guarantee granted by the Federal Deposit Insurance Corporation (FDIC). Insured and reinsured institutions may maintain current or brokerage accounts in first-tier financial institutions according to their operational needs, which, for the purposes of this regulation, do not form part of the investments.

c) Fixed income securities issued or guaranteed by the Department of the Treasury or by institutions of the Federal Government of the United States of America, quoted on the Stock Exchange or regulated market of the United States of America, as well as fixed income securities issued or guaranteed by the Treasury Departments or their equivalent, of the member countries of the European Union.

d) In shares of financial investment funds constituted abroad, which invest exclusively in fixed income securities, authorized for public offering, and which have an investment-grade risk qualification. The limits established in Articles 7 and 8 of this regulation shall be reported to the Superintendence in Annex B - “Investment Limits”, which becomes part of this regulation.

Article 16. Accounting for investments.- Investments in assets of any nature shall be accounted for in accordance with what is established in the Accounting Framework.

SECOND: Annexes “A” and “B” of the “Regulation on Investment Limits for Insurance, Reinsurance, and Surety Companies”, described in the first section of this resolution, are hereby reformed, and shall read as follows:

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ANNEX A CONCEPTS day/month/year INVESTMENTS - CASH (1) PORTFOLIO AT FAIR VALUE WITH CHANGES IN RESULTS PORTFOLIO AT FAIR VALUE WITH CHANGES IN OTHER COMPREHENSIVE INCOME PORTFOLIO AT AMORTIZED COST (2) SHARES, Net (3) TANGIBLE ASSET, Net (4) YIELDS ON INVESTMENT PORTFOLIOS (5) UNMATURED PREMIUM RECEIVABLES (6) CALCULATION BASE (SOCIAL CAPITAL, CAPITAL RESERVES, NET TECHNICAL AND MATHEMATICAL RESERVES) PAID SOCIAL CAPITAL EQUITY RESERVES TECHNICAL AND MATHEMATICAL RESERVES Reserves for Risks in Course Mathematical Reserves Life Insurance Reserves with Single Investment Account Reserves for Pending Claims and/or Payment Reserves/Obligations Pending Fulfillment/Claims Occurred/Not Reported Contingency Reserves Reserves for Catastrophic Risks Reserves for funds for annuities and pensions Contractual Obligations Pending Payment (7) LESS: RESERVES DUE TO REINSURERS AND SURETY COMPANIES LESS: SHARES Reinsurers/Risk in Course Reserve Surety Companies/Risk in Course Reserve Reinsurers/Pending Claims Surety Companies/Pending Claims Claims Paid to Collect from Reinsurers and Surety Companies (8) INVESTMENTS - CALCULATION BASE INVESTMENTS / CALCULATION BASE ACCORDING TO REGULATION 100% OVERCOMPLIANCE OR NON-COMPLIANCE % (8) Note: Only claims from the current fiscal year should be considered. COMPANY: XXX cALCULATION OF INVESTMENT SUFFICIENCY AS OF XX OF XX OF XX FIGURES EXPRESSED IN CÓRDOBAS (1) Note: In accordance with what is provided in letter d) of Article 7 of this Regulation. (2) Note: With reference to credits, only mortgage loans and personal loans with pledge guarantee are considered. (3) Note: In accordance with what is provided in letter h) of Article 7 of this Regulation. (4) Note: In accordance with Art. 6 of the Regulation, those affected by liens, prohibition, litigation, seizure, precautionary measures, etc., shall not be considered as investments of the calculation base. SUPERINTENDENCE OF BANKS AND OTHER FINANCIAL INSTITUTIONS (5) Note: Yields are considered only when they are capitalizable to the investment. (6) Note: The amount to be considered as an investment for unmatured premium receivables shall be 40% of the same; understood as such, those that are less than 60 days past due. Taxes, issuance fees, interest, commissions for intermediaries' accrual, and collection commissions shall not be considered among these. (7) Note: Payments for certain claims, paid in installments according to the contract until cancellation.

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INVESTMENT LIMITS AS OF XX OF XX OF XX ANNEX B EXCHANGE RATE OF THE MONTH XXX CONCEPT CALCULATION BASE % INVESTED/CALCULATION BASE LIMIT BY TYPE OF INVESTMENT RELATIVE VARIATION ACCORDING TO REGULATION TOTAL INVESTMENTS Total investment BY TYPE OF INVESTMENTS IN THE COUNTRY a) Securities issued or guaranteed by the State NO LIMITS b) Securities issued or guaranteed by the Central Bank of Nicaragua (CENI'S AND LETTERS) NO LIMITS c) Repo operations of Securities issued by BCN and Central Government NO LIMITS d) Cash (in accordance with what is provided in letter d) of Article 7 of this Regulation.) e) Time deposits or fixed income securities issued by supervised financial institutions 60% f) Bills of exchange issued or guaranteed by supervised financial institutions - 20% g) Fixed income securities and public offering registered in the Superintendence's registry, issued by Nicaraguan companies and participation in financial investment funds constituted in Nicaragua; as well as, in shares of real estate investment funds and real estate development funds constituted in the country. 25% h) In shares of first-class Nicaraguan anonymous societies, qualified as first-tier issuers and registered in the Superintendence's registry. - 10% i) In land and buildings owned for the company's use - 20% j) Mortgage Loans - 20% k) Personal loans for vehicle acquisition, with pledge guarantee - 10% TOTAL INVESTMENTS IN THE COUNTRY BY TYPE OF INVESTMENTS ABROAD a) Titles issued by multilateral credit organizations - b) Deposits or fixed income securities issued by financial institutions with first-tier risk qualification c) Deposits in Banks and Financial Institutions domiciled in the United States of America that do not have the minimum required qualification, provided they do not exceed the amount of the guarantee granted by the Federal Deposit Insurance Corporation (FDIC) - d) Fixed income securities issued or guaranteed by the Department of the Treasury or by institutions of the Federal Government of the United States of America, quoted on the Stock Exchange or regulated market of the United States of America, as well as fixed income securities issued or guaranteed by the Treasury Departments or their equivalent of the member countries of the European Union. Participation in financial investment funds constituted abroad, which invest exclusively in fixed income securities, authorized for public offering, and which have an investment-grade risk qualification. TOTAL INVESTMENTS ABROAD - 20.00% REGULATION SUPERINTENDENCE OF BANKS AND OTHER FINANCIAL INSTITUTIONS INSURANCE SUPERINTENDENCE COMPANY: XXXX

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THIRD: The accounting provisions established in this regulation shall apply from January 1, 2019; however, for the purposes of implementing IFRS 1 - First-time Adoption of International Financial Reporting Standards, insurance companies shall apply these provisions to the first financial statements generated during the transition period, referred to in the regulation governing the implementation of Accounting Frameworks.

FOURTH: This regulation shall enter into force upon its notification, without prejudice to its subsequent publication in La Gaceta, Official Journal.

(F) S. Rosales C. (F) M. Díaz O. (F) Fausto Reyes B. (F) Illegible (Silvio Moisés Casco Marenco) (F) Illegible (Rafael Ángel Avellán Rivas) Secretary.

RAFAEL ÁNGEL AVELLÁN RIVAS Secretary of the Board of Directors SIBOIF