Norm for the Distribution of Profits of Insurance, Reinsurance, and Surety Companies

Resolution No. CD-SIBOIF-1043-2-FEB27-2018
Dated February 27, 2018

NORM FOR THE DISTRIBUTION OF PROFITS OF INSURANCE, REINSURANCE, AND SURETY COMPANIES

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

CONSIDERING

I

That by express provision of Article 2 and Article 3, numeral 3) of Law 316, Law of the Superintendence of Banks and Other Financial Institutions, published in La Gaceta Diario Oficial No. 196, of October 14, 1999, and its reforms; and Articles 1, 2, and 5, numeral 5) of Law 733, "General Law of Insurance, Reinsurance, and Sureties," published in Gaceta No. 162, 163, and 164, of August 25, 26, and 27, 2010, it is the primary function of the Superintendence of Banks and Other Financial Institutions to safeguard the interests of users of the financial system and, in this endeavor, promote the stability and strengthening of insurance companies through adequate supervision that ensures the liquidity, solvency, and capital sufficiency of institutions so that they can respond to obligations assumed with their policyholders by virtue of the insurance policies they issue.

II

That Article 38 of Law 733, General Law of Insurance, Reinsurance, and Sureties, provides that only effectively realized profits may be distributed, with prior authorization from the Superintendent, based on a general norm issued by the Board of Directors of the Superintendence of Banks and Other Financial Institutions.

In exercise of its powers,

RESOLVES

CD-SIBOIF-1043-2-FEB27-2018

To issue the following:

NORM FOR THE DISTRIBUTION OF PROFITS OF INSURANCE, REINSURANCE, AND SURETY COMPANIES

CHAPTER I
CONCEPTS, OBJECT, AND SCOPE

Article 1. Concepts.- For the application of this norm, the concepts indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings:

a) Investment Sufficiency Index: It is the ratio of investments based on the capital and reserve calculation base of insurance companies, as established in the regulations governing the matter on investment limits for insurance companies. b) General Law of Insurance: Law No. 733, General Law of Insurance, Reinsurance, and Sureties, published in Gaceta No. 162, 163, and 164, of August 25, 26, and 27, 2010. c) Risk Equity: It is the difference between the value of total assets minus the value of any asset that does not constitute effective investment and the payable liabilities, as established in the regulations governing the matter on debt limits, premium retention, and investment adequacy. d) Insurance Companies: Entities authorized by the Superintendence, operating in insurance, reinsurance, sureties, and reinsuring, of private, state, or mixed ownership. e) Superintendence: Superintendence of Banks and Other Financial Institutions. f) Superintendent: Superintendent of Banks and Other Financial Institutions.

Article 2. Object and Scope.- This norm aims to establish the guidelines to be complied with by insurance companies to obtain authorization from the Superintendent for the distribution of profits, in accordance with what is established in Article 38 of the General Law of Insurance.

CHAPTER II
CONDITIONS FOR THE DISTRIBUTION OF PROFITS

Article 3. Conditions.-
1 For the authorization of profit distribution, insurance companies must submit an authorization request to the Superintendent and comply with the following:

a) The Solvency Margin Index must have a ratio in which risk equity is equal to or greater than 2.5 times the Required Minimum Capital, in the last annual fiscal year. b) Reflect a financial liquidity ratio greater than 15% on the Calculation Base for Investment Sufficiency (Share Capital, Capital Reserves, and Technical and Mathematical Reserves), in the last annual fiscal year. For the purposes of this norm, financial liquidity assets are considered only the items of Cash and Cash Equivalents, Investments at Fair Value with changes in Income, Investments at Fair Value with changes in Other Comprehensive Income, Investments at Amortized Cost plus the returns from these investments, as well as the Credit Portfolio.

1 Art. 3, amended on January 22, 2019 - Resolution CD-SIBOIF-1093-1-ENE22-2019

c) Once the calculation is performed to determine the amount of profits to be distributed, the index indicated in the preceding subsection b) must reflect an over-compliance equal to or greater than 10% on its calculation base for investment sufficiency indicated in the same subsection. This must be met by the end of the month in which the evaluation is made. d) The net premium sufficiency combined indicator, that is, the combined ratio of issuance and claim costs to net premiums, must be less than 90% of net premiums issued in the last annual fiscal year. e) The debt limit indicator must be less than 2.5 times its risk equity, in the last annual fiscal year. f) The premium retention limit indicator must be less than 2 times its risk equity, in the last annual fiscal year. g) Not be in processes of normalization plans or deferrals of pending provisions for registration. h) The result of the fiscal year subject to the profit distribution request must not show losses. i) Not be in non-compliance with applicable laws and regulations. j) Technical and mathematical reserves must be constituted in accordance with the regulations of the matter. k) The investments backing technical and mathematical reserves, capital, and capital reserves must be constituted in accordance with the regulations of the matter. l) The last external audit report must not contain qualifications or be subject to disclaimers of opinion. m) There must be no pending processes for reclassification or correction of account balances, or records of unaccounted values derived from inspections or audits. n) Other situations that, in the judgment of the Superintendent, warrant restricting the distribution of profits, when, in the opinion of said official and as a prudential measure, such distribution could harm the stability or solidity of the institution.

For the purposes of the requirements established in subsections a), b), c), d), e), and f) of this article, and what is provided in the following Article 4, insurance companies must accompany their respective authorization request with the corresponding calculation base in Excel format.

The Superintendent may exempt, through a reasoned resolution, compliance with some of the conditions provided in this article, based on the particular financial conditions of the respective insurance company.

Article 4. Maximum Amount to be Distributed.-
2 The amount of accumulated profits from previous periods and the current fiscal year that insurance companies may distribute shall not exceed the value resulting from subtracting from these fifteen percent (15%) of the current year's profits for capital reserves, fifty percent (50%) of the unearned premium reserves constituted in the last annual fiscal year, and any increase in share capital. The aforementioned 50% factor is based on the actuarial estimation of the average unearned premiums during the year, under the 24ths method.

Article 5. Power of the Superintendent.- Insurance companies may only distribute the amount of profits in cash that the Superintendent authorizes, in accordance with the power conferred in Article 38 of the General Law of Insurance and what is established in this norm.

CHAPTER III
FINAL PROVISIONS

Article 6. Distribution of Profits in Shares.- In the event that the amount of profits to be distributed is fully capitalized, insurance companies shall only need to submit the authorization request to this effect. If the distribution of profits is partly in cash and partly in shares, insurance companies must comply with the conditions established in Article 3 of this norm for the portion to be distributed in cash.

Article 7. Validity.- This norm shall enter into force upon its notification, without prejudice to its subsequent publication in La Gaceta, Diario Oficial. (f) S. Rosales C. (f) M. Díaz O. (f) Gabriel Pasos Lacayo (f) Fausto Reyes B. (f) illegible (Silvio Moisés Casco Marenco) (f) illegible (Freddy José Blandón Argeñal) illegible (Edelberto Zelaya Castillo) Ad hoc Secretary.

URIEL CERNA BARQUERO
Secretary of the Board of Directors SIBOIF

2 Art. 4, amended on January 22, 2019 - Resolution CD-SIBOIF-1093-1-ENE22-2019