Norm on Investment Limits for Insurance, Reinsurance, and Surety Companies

RESOLUTION NO. CD-SIBOIF-908-1-SEPT22-2015
Dated September 22, 2015

NORM 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 Article 39 of Law No. 733, General Law of Insurance, Reinsurance, and Surety, published in La Gaceta, Official Gazette No. 162, 163, and 164, on August 25, 26, and 27, 2010, in its relevant parts, establishes that technical and mathematical reserves, share capital and capital reserves, and other funds of insurance companies must be backed by investments of high security, liquidity, and profitability, and in accordance with the currency corresponding to the operation that generated them. The investment policy must establish that the investments of said companies meet these characteristics.

II

That Article 40 of the aforementioned Law empowers the Board of Directors of this Superintendence, following the guidelines established in the aforementioned Article 39, to establish through general norms the instruments, maximum concentration percentages, markets, and minimum requirements that insurance companies must comply with in the investment of their assets, fully backing their technical and mathematical reserves, capital and share capital reserves, and other funds.

III

That in accordance with the considerations set forth above and based on the powers provided for in Articles 4 and 5, numeral 1), 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.

In exercise of its powers,

HAS ISSUED,

The following:

NORM ON INVESTMENT LIMITS FOR INSURANCE, REINSURANCE, AND SURETY COMPANIES

CHAPTER I
GENERAL PROVISIONS

Article 1. Purpose and Scope.- The purpose of this norm is to regulate the different investments and their limits, in the country and abroad, that insurance, reinsurance, and surety institutions may carry out to back their technical and mathematical reserves, capital, capital reserves, and other funds, with the aim that these meet the characteristics of security, liquidity, and profitability established in the General Insurance Law.

These provisions are applicable to insurance, reinsurance, and surety institutions subject to the authorization, supervision, surveillance, and audit of the Superintendence.

Article 2. Concepts.-
1 For the purposes of this norm, 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, share capital, and capital reserves of the company, allow it to carry out its corporate purpose.

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

c) Unmatured credits for premiums receivable: Refers to those premiums 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 within 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) Insurance and Reinsurance 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 Law of Insurance, Reinsurance, and Surety, published in La Gaceta, Official Gazette No. 162, 163, and 164, on August 25, 26, and 27, 2010, contained in Law No. 974, Law of the Nicaraguan Legal Digest of the Banking and Finance Subject Matter, published in La Gaceta, Official Gazette No. 164, on August 27, 2018, and its reforms.

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

j) Operational needs for cash availability: Refers, among others, to operational needs required to make payments for claims, 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: Estimated amount corresponding to reinsurers for claims occurred and 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 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, that by their own legal configuration and transmission regime may be subject to negotiation in a stock market.

CHAPTER II
ON INVESTMENTS

Article 3. Investment Requirements.- Investments representing Capital, Capital Reserves, Technical and Mathematical Reserves, and other funds must have a high degree of security, liquidity, and profitability, as established in Article 39 of the General Insurance Law.

Article 4. Maximum investment amount of the Investment Sufficiency Calculation Base in the country and abroad.-
2 Insurance and reinsurance institutions may invest one hundred percent (100%) of their Investment Sufficiency Calculation Base in the country and up to a maximum of 20% of the same abroad.

Article 5. Minimum Investment.- The investments made by insurance and reinsurance institutions shall not be less than the amount resulting from the sum of their Investment Sufficiency Calculation Base, in accordance with Annex A - Calculation of Investment Sufficiency attached, which becomes part of this norm.

Article 6. Free assignment or transfer of investments.- Investments affected by any type of encumbrance, prohibition, seizure, litigation, precautionary measures, suspensive or resolutive conditions, nor those that are the subject of any other act or contract that prevents their free assignment or transfer, shall not be considered as investments backing the Investment Sufficiency Calculation Base, as established in Article 41 of the General Insurance Law.

CHAPTER III
LIMITS BY TYPE OF INVESTMENT

Article 7. Limits by type of investment in the country.-
3 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 according to 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 according to the law on the matter and accounted for in accordance with current accounting regulations.

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

d) According to their operational needs for cash availability, deposited in interest-bearing availability accounts at 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. Demand deposits in financial institutions in the country are not 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 by the Superintendence for such purposes, issued by Nicaraguan companies, and accounted for as established in the Accounting Framework. Within the same percentage, they may also invest in participations in 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 participations in real estate investment funds and real estate development funds registered in the registry kept by the Superintendence for such purposes.

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

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

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

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 credits for premiums receivable 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.-
4 The following shall be considered as investments abroad backing the Investment Sufficiency Calculation Base, without exceeding in total twenty percent (20%) of the same:

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-class risk qualification in accordance with what is established in Article 21 of this norm. 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-class qualification, provided that these do not exceed the amount of the guarantee granted by the Federal Deposit Insurance Corporation (FDIC). Insurance and reinsurance institutions may maintain current or brokerage accounts in first-class financial institutions according to their operational needs, which, for the purposes of this norm, 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 in fixed income securities issued or guaranteed by the Departments of the Treasury or their equivalent, of the member countries of the European Union.

d) In participations of financial investment funds constituted abroad, that invest exclusively in fixed income securities, authorized for public offering, and that have an investment-grade risk qualification.

The investments established in this article must be traded on a stock exchange or regulated market and accounted for as established in the Accounting Framework.

The limits established in Articles 7 and 8 of this norm must be reported to the Superintendence in Annex B - "Investment Limits", which becomes part of this norm.

Article 9. Investments of the excess of the Investment Sufficiency Calculation Base.-
5 The excess of the Investment Sufficiency Calculation Base may be freely invested in the instruments referred to in Article 7 of this norm, excepting those established in letters h), i), j), and k) of said article. Likewise, they may invest the excess of the Investment Sufficiency Calculation Base in any of the instruments referred to in Article 8 of this norm, without exceeding the global limit of up to 50% of the total investments in securities registered as investments at fair value with changes in earnings, investments at fair value with changes in other comprehensive income, and investments at amortized cost.

CHAPTER IV
CONCENTRATION LIMITS

Article 10. Limit per natural or legal person.- Insurance and reinsurance institutions may lend or invest in a single natural or legal person, a percentage of their Capital and Capital Reserves, in accordance with the concentration limits established in Article 71 of the General Insurance Law and the regulations on the matter issued by the Board of Directors of the Superintendence.

Article 11. Investments in capital instruments to exercise share control.- Insurance and reinsurance institutions, with prior authorization of the Superintendent, may invest in capital instruments issued by another insurer, banks, or non-bank financial institutions, national or foreign, in accordance with what is established in Article 181 of the General Insurance Law.

Article 12. On the Encumbrance of Deposits and Investments.- It is prohibited for insurance institutions to constitute any type of encumbrance on deposit certificates held in, or investments in securities issued by, other entities that back technical and mathematical reserves, share capital, capital reserves, and other funds. The foregoing prohibition is exempted for encumbrances constituted for the purpose of obtaining direct financing for the depositing or investing entity; in the case of deposit certificates, such financing must be provided directly by the depositing entity to the depositing entity.

In no case shall investments on which an encumbrance has been constituted be included in the investment sufficiency calculation.

In the case of deposits held in foreign financial institutions not supervised by the Superintendence, qualified as acceptable depositary entities according to this norm, insurance and reinsurance depositing institutions, at the time of investment, must obtain from the depositary entities, for direct transmission by them to the Superintendence, a certification that the latter have been informed of the prohibition established in the preceding paragraph and that they accept the deposits under the condition of complying with said prohibition. In the event that the depositary entity is a related party of the depositor, the former must additionally obtain, from the supervisory body of the depositary entity, for direct transmission by said body to the Superintendence, a certification that said body has been informed of the prohibition established in this article.

Article 13. Evidence of existence of deposits and investments.- Insurance and reinsurance institutions must maintain sufficient and appropriate evidence backing the existence of deposits held in, or investments in securities issued by, other entities, as they appear in the financial statements of the audited institution, regardless of whether these instruments are negotiable or non-negotiable, traded or not traded on a stock exchange or regulated market, physical or dematerialized.

Sufficient and appropriate evidence is considered to be purchase confirmations and account statements issued by the stock exchange position or insurance and reinsurance institution where the transaction was made, custody certificates of physical or dematerialized securities issued by the custody entity, and others considered appropriate by the Superintendence.

CHAPTER V
CURRENCY MATCHING

Article 14. Currency Matching.- Share Capital, Capital Reserves, other funds of insurance and reinsurance institutions, and Technical and Mathematical Reserves for policies issued in córdobas with value maintenance or in foreign currency, must be fully backed by liquid investments, either in córdobas with value maintenance, or in foreign currency, as appropriate.

Article 15. Identifiable Record of Investments.- The investments of insurance and reinsurance institutions must be structured coherently with the nature and duration of the insurance, reinsurance, and surety obligations they back, in terms of term, currency, and expected yield, all in accordance with Annex C - Identifiable Record of Investments, which is an integral part of this norm.

Investments of reserves for obligations with a maturity of less than six months must be maintained in liquid assets. Those backing obligations greater than six months but less than one year may be maintained in less liquid investments but that can provide the insurer with sufficient liquid resources within that same term, in accordance with Annex C of this norm.

Investments of guaranteed values of individual life insurance policies must be fully identified and backed by short-term and totally liquid investments, in accordance with Annex C of this norm.

CHAPTER VI
VALUATION OF INVESTMENTS

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

Article 17. Accounting of Profits in Shares.- When an insurance institution receives profits in shares, it shall account for the acquisition in the asset, but shall create a deductive reserve for the total value of the shares acquired, unless the issuing society has had for three consecutive years immediately prior, profits higher than the average interest rate for one-year time deposits by the banking system during the last three (3) years, and cash distribution at least in two of those three years, higher than the banking savings deposit rate of the country of origin of the issuing society.

The created reserve shall be cancelled, provided that the shares subsequently generate for at least three consecutive years, profits higher than the average interest rate for one-year time deposits by the banking system of the country of origin of the issuing society, during the last three (3) years, and dividends distributed in cash, higher than the average interest rate in savings deposits, at least in two of the 3 mentioned years.

Article 18. Capital-Representative Investments.- Shares of institutions that have not distributed cash dividends by a percentage of the real value of the share, higher than the rate in savings deposits, at least in two (2) of the last three (3) years, shall not be accepted as part of the investment sufficiency calculation defined in Article 5 of this norm.

Article 19. Accounting, Evaluation, and Provisions of Adjudicated Assets.- Assets adjudicated judicially or given in payment of credits shall be accounted for, evaluated, and provided for, in accordance with what is established in the regulations governing the matter on credit risk management.

CHAPTER VII
RISK RATING AGENCIES

Article 20. Selection of rating agencies.-
7 For the purposes of local or international rating, only ratings issued by the risk rating agencies established in the table of the following Article 21 shall be considered.

Article 21. First-Class Entities.-
8 First-class entities shall be determined as those entities whose obligations are rated within the following ranges:

Risk Rating Agency	Rating Categories
	Issuer Obligations	Short-Term Obligations	Long-Term Obligations	Sovereign Risk
Fitch IBCA	Rating BBB or higher	Rating F3 or higher	Rating BBB or higher	Rating BBB or higher
Moody's Investors Services	Rating Baa or higher	Rating P-3 or higher	Rating Baa or higher	Rating Baa or higher
Standard & Poor's Corporation	Rating BBB or higher	Rating A3 or higher	Rating BBB or higher	Rating BBB or higher
Dominion Bond Rating Services Limited	Rating BBB or higher	Rating A3 or higher	Rating BBB or higher	Rating BBB or higher
AM Best Company

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1 Art. 2, amended on December 11, 2018 – Resolution CD-SIBOIF-1089-1-DIC11-2018 2 Art. 4, amended on May 29, 2023 - Resolution CD-SIBOIF-1380-1-MAY29-2023 3 Art. 7, amended on December 11, 2018 - Resolution CD-SIBOIF-1089-1-DIC11-2018 Art. 7, amended on February 20, 2018 - Resolution CD-SIBOIF-1042-1-FEB20-2018 4 Art. 8, amended on May 29, 2023 - Resolution CD-SIBOIF-1380-1-MAY29-2023 Art. 8, amended on December 11, 2018 - Resolution CD-SIBOIF-1089-1-DIC11-2018 5 Art. 9, amended on May 29, 2023 - Resolution CD-SIBOIF-1380-1-MAY29-2023 6 Art. 16, amended on December 11, 2018 - Resolution CD-SIBOIF-1089-1-DIC11-2018 7 Article 20, amended on March 5, 2025 - Resolution CDMF-VII-3-25. 8 Article 21, amended on March 5, 2025 - Resolution CDMF-VII-3-25.