Norm on Management of Premiums Receivable for Insurance, Reinsurance, and Surety Companies

Resolution No. CD-SIBOIF-1116-1-JUN11-2019
Dated June 11, 2019

NORM ON MANAGEMENT OF PREMIUMS RECEIVABLE FOR INSURANCE, REINSURANCE, AND SURETY COMPANIES

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

CONSIDERING

I

That on November 21, 2017, the Standard for the Implementation of the Accounting Framework for Insurance, Reinsurance, and Surety Companies was approved, contained in Resolution No. CD-SIBOIF-1028-1-NOV21-2017, published in La Gaceta No. 240, on December 18, 2017.

II

That the adoption of the new Accounting Framework starting January 1, 2019, contemplates the application of International Accounting Standard Number 8 (IAS 8): "Accounting Policies, Changes in Accounting Estimates and Errors," which establishes, among other aspects, that it is necessary to make estimates for accounts receivable of doubtful collection, among which are overdue premiums in the case of insurance companies, whose losses must be reasonably estimated for the preparation of financial statements.

III

That Article 7 of the Standard on Investment Limits for Insurance, Reinsurance, and Surety Companies (Resolution No. CD-SIBOIF-908-1-SEPT22-2015) recognizes as an investment for non-matured premiums receivable, 40% of premiums less than 60 days past due, which form part of the calculation base for the investment sufficiency of said companies.

IV

That in view of the provisions in the foregoing considerations, it becomes necessary to issue general guidelines to be complied with by insurance, reinsurance, and surety companies for the adequate management of premiums receivable for insurance policies and sureties.

V

That in accordance with the considerations set forth above and based on what is established in Article 5, subsections 1) and 6), and Articles 8 and 60 of Law No. 733, General Law of Insurance, Reinsurance, and Sureties, published in Las Gacetas No. 162, 163, and 164, on August 25, 26, and 27, 2010, respectively; as well as in Article 10, subsections 2) and 10) of Law No. 316, Law of the Superintendent of Banks and Other Financial Institutions, and its reforms; both legal frameworks contained in Law No. 974, Law of the Nicaraguan Legal Digest of the Banking and Finance Sector, 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-1116-1-JUN11-2019

NORM ON MANAGEMENT OF PREMIUMS RECEIVABLE FOR INSURANCE, REINSURANCE, AND SURETY COMPANIES

CHAPTER I
CONCEPTS, OBJECT, AND SCOPE

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

a) Average premium recovery coefficient: The estimated percentage of premiums receivable recovered within a specific timeframe. b) Premium impairment: The probability of non-payment of premiums receivable. c) Days: Calendar days, unless expressly stated that it refers to business days. d) Accounting Framework: The Accounting Framework applicable to Insurance, Reinsurance, and Surety Companies. e) Premiums Receivable: These are premiums pending collection for insurance policies and sureties in force. The calculation base for this standard consists of the commercial premium amount; that is, without considering issuance fees, financing, and taxes. f) Overdue Premiums: Comprises the accumulated balances of installment premiums that remain unpaid after the expiration of the payment date not realized by the insured. g) Provision for Premiums Receivable: Provision constituted on the amount of overdue premiums corresponding to the exercise year that, according to statistical experience from previous years, will not be recovered. h) Insurance Company or Company: An entity that operates in insurance, reinsurance, and sureties, national or foreign, privately, state-owned, or mixed, in accordance with what is established in Law No. 733, General Law of Insurance, Reinsurance, and Sureties, published in Las Gacetas No. 162, 163, and 164, on August 25, 26, and 27, 2010, respectively. i) Superintendent: Superintendent of Banks and Other Financial Institutions. j) Superintendent: Superintendent of Banks and Other Financial Institutions.

Article 2. Object and Scope. - This standard aims to establish general guidelines to be complied with by insurance companies in the management of their premiums receivable for insurance policies and sureties.

CHAPTER II
RESPONSIBILITIES OF THE BOARD OF DIRECTORS

Article 3. Responsibilities of the Board of Directors. - The Board of Directors of the insurance company is responsible for establishing and approving the policies, procedures, manuals, and controls necessary to carry out adequate management of premiums receivable for policies and sureties, considering the following minimum aspects:

a) The control, monitoring, management, and recovery processes for the balances corresponding to premiums receivable, through the management of insurance intermediaries, branches, collections area, and any other means used by the institution. b) The responsibilities and powers delegated to the different persons in charge of the granting, formalization, monitoring, and control of premiums receivable operations. c) The administration and control bodies responsible for implementing and executing the provisions emanating from the board of directors, as well as the provisions established in this standard. d) The accounting treatment regarding the constitution of provisions for overdue premiums, taking into account the criteria established in Article 4 of this standard.

CHAPTER III
PROVISIONING AND CLEANING OF OVERDUE PREMIUMS

Article 4. Constitution of provisions for overdue premiums. - Insurance companies must constitute provisions for overdue premiums in accordance with the following criteria:

a) The provision for premiums receivable must be constituted when impairments are presented due to increases in overdue premiums, recognizing the provision monthly against the income statement account established in the Accounting Framework. b) The provision for overdue premiums will be calculated by lines of business and will be constituted by the net premiums estimated as unrecoverable according to available statistical information, considering additionally the amounts and age of the overdue premiums at the date of each monthly close. c) The calculation of provisions must be performed using statistical experience of at least 3 years, to estimate the average premium recovery coefficient and by difference determine the amount of provision for premium impairment by age for each of the following ranges:

i. From 31 to 60 days,
ii. From 61 to 90 days,
iii. From 91 days and more.

The insurance company, based on its statistics, must estimate a deviation margin of the average premium recovery coefficient obtained and adjust the amount of the provisions for premium impairment.

Article 5. Exception. - Insurance companies must provision 100% before the time ranges established in subsection c) of the preceding Article 4 are met, for those balances of premiums receivable for policies of insured parties who have been declared judicially insolvent, in bankruptcy proceedings, or bankrupt, or with an unknown address in the country.

Article 6. Cleaning. - The total accumulated balances of overdue premiums must be cleaned after one hundred eighty (180) days have passed.

CHAPTER IV
FINAL PROVISIONS

Article 7. Submission of information to the Superintendent. - Insurance companies must submit information on the balances of overdue premiums contained in the annex of this standard, which is an integral part of it, in accordance with the semi-annual information schedule notified by the Superintendent.

Article 8. Modifications to the annex. - The Superintendent is authorized to modify the information contained in the annex of this standard, to the extent that its application so requires.

Article 9. Transitional. - Insurance companies must implement the provisions contained in this standard starting January 1, 2020, with the information from their financial statements corresponding to the annual close of December 31, 2019.

Article 10. Validity. - This standard shall enter into force upon its notification without prejudice to its publication in La Gaceta, Official Journal.

ANNEX

Age of Overdue Premium Balances

Month: ________ / Year: ______

Lines of Business according to Law	Accounting Code of Premium Receivable Account	31 to 60 days; Balance of Overdue Premiums	31 to 60 days; Provision Amount	61 to 90 days; Balance of Overdue Premiums	61 to 90 days; Provision Amount	91 days and more; Balance of Overdue Premiums	91 days and more; Provision Amount	Total Accumulated Balance of Overdue Premiums	Total Amount Provisioned	Net Balance (Total Accumulated Balance minus Total Amount Provisioned)

(F) Ovidio Reyes R. (F) Illegible (Luis Ángel Montenegro Espinoza) (F) Fausto Reyes B. (F) Illegible (Silvio Moisés Casco Marenco) (F) Illegible (Rafael Ángel Avellán Rivas).

RAFAEL ÁNGEL AVELLÁN RIVAS
Secretary of the Board of Directors SIBOIF