MCS02 - Accounting Manual for Insurance Companies

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 1 of 4 CDSSF-56/1999 MCS-02 ACCOUNTING MANUAL FOR INSURANCE COMPANIES Approval: 29/07/1999 Validity: The Board of Directors of the Financial System Superintendence, based on literal c) of article 10 of the Organic Law of the Financial System Superintendence and in compliance with article 85 of the Insurance Companies Law, issues the following: ACCOUNTING MANUAL FOR INSURANCE COMPANIES CHAPTER I OBJECTIVES AND GENERAL PROVISIONS A. OBJECTIVES The Financial System Superintendence has prepared this Accounting Manual for Insurance Companies, which harmonizes with the Insurance Companies Law and complementary provisions in accounting matters and in accordance with international accounting practices and standards. When this Manual refers to insurance companies, it shall be understood to include the insurance cooperatives referred to in article 120 of the aforementioned Law and the branches of foreign insurers established in the country. The Financial System Superintendence in the development of this document shall be referred to as the Superintendence. The objectives of this Manual are:

1. To standardize the accounting recording of operations performed by entities authorized to operate as insurance companies;
2. To obtain financial statements that reflect the economic-financial situation and constitute a useful instrument for the analysis of information, self-control, and decision-making by the administrators and shareholders of the companies, the public users of the services, and other interested parties;
3. To have a homogeneous database that allows the smooth functioning of an early warning indicator system, as well as facilitating the monitoring and control of each of the insurance companies and the system as a whole. B. CONTENT Chapter One contains the objectives and application of the Manual, the general accounting standards, and the coding and naming system for the different levels of aggregation of accounts, codes, and names to identify branches and risks, banking institutions, and insurance companies.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 2 of 4 CDSSF-56/1999 MCS-02 ACCOUNTING MANUAL FOR INSURANCE COMPANIES Approval: 29/07/1999 Validity: Chapter Two contains the Account Catalog, which includes the nomenclature of disaggregated and ordered accounts, according to the different classes, in sections, accounts, and sub-accounts. Chapter Three contemplates the description of the respective elements, sections, and accounts. C. UPDATING OF THE MANUAL Only the Board of Directors of the Superintendence may make changes to this Manual; however, insurance companies may expand the disaggregated accounts, provided that such expansion corresponds to the concept of the account. D. GENERAL ACCOUNTING STANDARDS In addition to the specific standards defined in Chapter III Accounting Descriptions, it is considered appropriate to establish general standards whose application must be observed when recording the operations performed by insurance companies, which are:

1. Preparation of financial statements Financial statements shall be prepared in accordance with the standards established by the Superintendence. In the event of situations not foreseen in those standards, the most conservative alternative of the International Accounting Standards shall be applied; however, when the application of these produces results that are not considered acceptable, excludes important events, or proves impractical, the accountant must apply professional judgment.
2. Prevalence of economic substance over legal form For the accounting recording of operations, the economic essence must prevail over the legal form in which they are agreed, unless there is an express legal provision to the contrary.
3. Recognition of expenses and income For the allocation of expenses and income, except in cases established by specific regulation, the accrual accounting method is applied, meaning that the former are recorded when they are incurred and the latter when they have been earned, regardless of whether they are paid or collected.
4. Accrual and monthly adjustments In order that financial statements are prepared on a uniform basis, it is required that the accounting recognition of results from operations be carried out at least at the end of each month, such as the accrual of income and the recognition of expenses for provisions and depreciation of real estate, furniture, and equipment, balance adjustments in foreign currency due to exchange rate variations, amortization of deferred items, etc.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 3 of 4 CDSSF-56/1999 MCS-02 ACCOUNTING MANUAL FOR INSURANCE COMPANIES Approval: 29/07/1999 Validity: 5. Compensation of balances The balances of asset, liability, and results accounts that are contrary to their nature shall be presented separately in order not to offset them, unless there is an express provision regarding the presentation of financial statements. 6. Accounting of premiums for various risk policies When a single policy covers various risks and one is evidently predominant, the entire premium must be classified under the latter. 7. Allocation of expenses The allocation of expenses, except in those cases where specific regulations are established, shall be carried out as follows: • Those linked to specific income must be imputed to the period in which they are recognized accounting-wise; • Expenses not linked to specific income, but to given periods, must be imputed to the corresponding one; and • The remaining ones must be charged to the periods in which they are known. 8. Recording and archiving of accounting documentation Insurance companies are obligated to keep all accounting, administrative, and other books determined by the Superintendence. The operations recorded therein must be supported by the corresponding supporting documentation, complying with the standards established in the Commercial Code. Legal books must contain accounts up to four digits; and the others must be recorded in auxiliary books. It must also comply with what is established in Title II of Book Two of the Commercial Code, insofar as it does not oppose these standards. Likewise, they must maintain a clear, concrete, and individualized accounting of all their operations, applying unequivocally the standards and procedures established in the accounting regulations issued by the Superintendence. 9. Content of accounting balances Accounting balances must be definitive; consequently, they must not contain data subject to confirmation, clarification, or regularization, when this depends on the insurance company itself.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 4 of 4 CDSSF-56/1999 MCS-02 ACCOUNTING MANUAL FOR INSURANCE COMPANIES Approval: 29/07/1999 Validity: E. RESPONSIBILITY FOR INFORMATION Directors, managers, and employees responsible for the preparation or review of accounting information shall be liable for any errors, omissions, and irregularities it contains. The information received by the Financial System Superintendence may be modified within the deadline established for its submission; once this has expired, it shall be considered definitive. However, the insurance company may request the respective substitution, justifying it appropriately; notwithstanding being authorized to do so, the information shall be considered received out of time for the relevant legal effects. F. ACCOUNT CODIFICATION AND NAMING SYSTEM

1. The codification and naming of the elements, sections, accounts, sub-accounts, and analytical accounts provided for in this Manual has been structured based on a codification and naming system that contemplates different levels of aggregation, distinguishing the following: Element: Identified by the first digit Section: Identified by the second digit Account: Identified by the third and fourth digits Sub-account: Identified by the fifth and sixth digits Currency type: Identified by the seventh digit Sub-account: Identified by the eighth and ninth digits or by the tenth and eleventh, as applicable.
2. The seventh digit may be zero (0), when it is not of interest to distinguish the class of currency represented by the account, one (1) when it represents national currency, or two (2), when it concerns foreign currency.
3. The elements defined in this Manual are the following:
4. Assets;
5. Liabilities;
6. Equity;
7. Expenses;
8. Income;
9. Contingencies and Commitments;
10. Contingencies and Commitments contra;
11. Control Accounts;
12. Control Accounts contra.