Norms Relating to the Solvency Margin of Insurance Institutions

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NORMS RELATING TO THE SOLVENCY MARGIN
OF INSURANCE INSTITUTIONS
Approved in Resolution CD-SUPERINTENDENCIA-XLIX-1-97 of January 8, 1997

I. MINIMUM AMOUNT OF THE SOLVENCY MARGIN IN DAMAGE INSURANCE.

Art. 1 The solvency margin shall be determined based on the annual amount of premiums, or based on claims paid during the last three fiscal years. The amount of the solvency margin shall be equal to the higher of the results obtained by the aforementioned procedures.

Art. 2 The amount of the solvency margin based on premiums shall be determined as follows:
a) The premiums issued for direct insurance in the fiscal year in question, minus cancellations and plus those from reinsurance taken. b) 18% shall be calculated on the first C$ 50,000,000.00 of premiums according to the previous subsection, plus 16% on the premium amount in excess. c) The result obtained shall be multiplied by the ratio existing in the fiscal year between the amount of net claims (after ceded and retroceded reinsurance) and the gross amount of said claims, provided that this ratio cannot in any case be less than 50%.

Art. 3 The solvency margin based on claims shall be determined as follows:
a) The amount of claims paid for direct business in the fiscal year and the two preceding years, without deduction for ceded or retroceded reinsurance, plus claims paid by reinsurance taken and reserves for pending claims for direct business and reinsurance taken established at the close of the fiscal year. b) To the amount obtained in subsection a), salvage values for claims occurring in the periods referred to in said subsection a) shall be deducted, plus the reserves for pending claims established at the close of the fiscal year preceding those contemplated in both direct insurance and reinsurance taken. c) 26% shall be calculated on one-third of the result of b) up to the first C$ 35,000,000.00, and 23% shall be added to the excess of the indicated figure, if applicable. d) The result obtained in the previous article shall be multiplied by the ratio existing in the fiscal year between the amount of net claims (after ceded and retroceded reinsurance) and the gross amount of said claims, provided that this ratio cannot in any case be less than 50%.

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II. MINIMUM AMOUNT OF THE SOLVENCY MARGIN IN LIFE INSURANCE.

Art. 1 For the life insurance branch, the minimum amount of the solvency margin shall be the sum of the amounts referred to in the following two subsections:
a) 4% of the amount of mathematical reserves for direct insurance (without deducting ceded reinsurance) and those of reinsurance taken shall be multiplied by the ratio existing in the fiscal year between the amount of mathematical reserves, deducting those related to ceded and retroceded reinsurance, and the gross amount of the same, provided that this ratio cannot in any case be less than 85%. b) 0.3% of the sums at risk, without deducting ceded or retroceded reinsurance, shall be multiplied by the ratio existing in the fiscal year between the sums insured, deducting ceded and retroceded reinsurance, and the gross amount of said sums, provided that this ratio cannot in any case be less than 50%.

Art. 2 Notwithstanding what is indicated in the two previous articles, the solvency margins for the following cases shall be as determined in the following subsections:
a) In Additional Benefits, the solvency margin shall be determined as indicated in Damage Insurance. b) In temporary insurance with a term of less than 5 years, the fraction referred to in subsection b) of the previous Article shall be 0.15%. c) In Life Insurance linked to investment funds and for collective retirement fund operations, 1% shall be used instead of the 4% mentioned in subsection a) of Article 1, provided that the insurance company does not assume any investment risk, that the duration of the contract is greater than 5 years, and when the company assumes risks in case of death, 0.3% of the sums at risk shall be added, calculated in the manner provided in subsection b) of Article 1.

Art. 3 The Solvency Margin, calculated as expressed above, must be the amount of equity adequate to maintain Insurance Companies in a position to meet their commitments.
The Solvency Margin shall not in any case be less than the Risk Equity defined in subsection c) of section 5, of Chapter III, regarding DEFINITIONS established on Norms on Debt Limits issued by this Superintendence.

Art. 4 - VALIDITY.- The Regulatory Norms approved by this Resolution shall enter into force from the date on which they are communicated through personal delivery to an authorized official of each of the Insurance Companies.