Lima, 1 March 2017

S.B.S. Resolution No. 931-2017

The Superintendent of Banking, Insurance and Private Pension Fund Administrators

WHEREAS:

That, numeral 30.1 of article 30 of the General Law on Land Transport and Traffic, approved by Law No. 27181 and its amending norms, states that the Associations of Regional or Provincial Funds against Traffic Accidents (AFOCAT) are regulated, supervised, overseen and controlled by the Superintendency of Banking, Insurance and Private Pension Fund Administrators, in accordance with the powers established in article 345 and following articles of the General Law of the Financial System and the Insurance System and Organic Law of the Superintendency of Banking and Insurance, approved by Law No. 26702 and its amending norms, hereinafter the General Law;

That, by Supreme Decree No. 039-2008-MTC, Supreme Decree No. 040-2006-MTC was amended, which approved the Regulation for the Supervision of the Associations of Regional or Provincial Funds against Traffic Accidents and for the Operation of the Central Risk Registry of Accident Rates derived from Traffic Accidents, establishing in its article 4, subsection e) that this Superintendency has the powers, among others, to regulate the scope of the information, formats, financial statements and statistics required from the AFOCAT;

That, numeral 29.2 of article 29 of the aforementioned Regulation establishes that the methodology for calculating the Solvency Fund and other provisions regarding its control and supervision shall be established by the Superintendency;

That, it is necessary to establish the methodology for calculating the Solvency Fund, as it is a fundamental risk parameter for the control and supervision of the solvency of the Fund administered by the AFOCAT;

That, in order to gather the opinions of the general public regarding the regulatory proposal, the pre-publication of the draft resolution on the matter was ordered on the Superintendency's electronic portal, under the provisions of the Thirty-Second Final and Complementary Provision of the General Law and Supreme Decree No. 001-2009-JUS;

With the approval of the Deputy Superintendencies of Insurance and Legal Advisory; and,

In use of the powers conferred by article 30 of the General Law on Land Transport and Traffic, as well as numerals 7, 9 and 13 of article 349 of the General Law;

RESOLVES:

Article One.- To approve the Regulation of the Solvency Fund for the AFOCAT, in the following terms:

"REGULATION OF THE SOLVENCY FUND FOR THE AFOCAT

Article 1.- Scope

This Regulation applies to the Associations of Regional or Provincial Funds against Traffic Accidents, hereinafter AFOCAT, in accordance with the provisions of numeral 30.1 of article 30 of the General Law on Land Transport and Traffic, approved by Law No. 27181 and its amending norms.

This Regulation is approved within the framework of the provisions established in the Regulation for the Supervision of the Associations of Regional or Provincial Funds against Traffic Accidents and for the Operation of the Central Risk Registry of Accident Rates derived from Traffic Accidents, approved by Supreme Decree No. 040-2006-MTC and its amending norms, hereinafter the AFOCAT Regulation.

Article 2- Definitions

For the purposes of this Regulation, the definitions contained in the AFOCAT Regulation must be considered, in addition to the following:

a) AFOCAT (Association of Regional or Provincial Funds against Traffic Accidents): Person of private legal nature constituted as an association in accordance with the Civil Code and made up of natural and/or legal persons that have a concession or authorization granted by the competent authority for the provision of provincial, urban and interurban passenger transport services, including mototaxis, with the main purpose of administering the Regional or Provincial Funds against Traffic Accidents made up of the contributions of its members or associates, and may carry out other activities complementary to its main purpose, provided that said association has authorization to issue CAT.

b) CAT: Certificate against Traffic Accidents issued by the AFOCAT.

c) Fund (Regional or Provincial Fund against Traffic Accidents): Autonomous patrimony constituted by the risk contributions of the members of the AFOCAT, including the return generated by said contributions, with the purpose of covering the consequences of death or injuries derived from traffic accidents in which the vehicles of its members that have the CAT have been involved.

d) Solvency Fund: Risk parameter that depends on the estimation of future risks based on risk contributions and accident rate statistics, whose calculation is made in accordance with this norm.

e) Minimum Fund: Minimum amount set by the AFOCAT Regulation.

f) MTC: Ministry of Transport and Communications.

g) Registry: Registry of the AFOCAT.

h) AFOCAT Regulation: Regulation for the Supervision of the Associations of Regional or Provincial Funds against Traffic Accidents (AFOCAT) and for the Operation of the Central

Risk Registry of Accident Rates derived from Traffic Accidents, Supreme Decree No. 040-2006- MTC and amending norms. i) Superintendency: Superintendency of Banking, Insurance and Private Pension Fund Administrators.

Article 3.- General provisions

3.1 The Solvency Fund represents the estimated current value of pending indemnities and future indemnities payable, derived from the CAT issued by the AFOCAT.

3.2 The Solvency Fund shall be calculated based on the information provided by the fiduciary and the information available from the AFOCAT itself.

3.3 The calculation of the Solvency Fund must be performed by a technical professional who meets the following conditions:

a) Professional with a university degree in one of the specialties of economics, economic or industrial engineering, accounting, administration, finance, mathematics, statistics or related fields.

b) Must have professional experience of no less than five (5) years in statistical work or three (3) years in insurance statistical work, which must be accredited and documented as part of the curriculum vitae.

3.4 Based on the information reported by the AFOCAT and the results of the supervision carried out, the Superintendency may order by Official Letter the recalculation or the application of a different amount of the Solvency Fund in the following cases:

a) The calculation of the Solvency Fund is not submitted.

b) An incorrect application of the methodology in the calculation of the Solvency Fund is detected.

c) Errors are detected in the database used for the calculation of the Solvency Fund.

d) Others determined by the Superintendency.

3.5 The Solvency Fund has three components: Solvency Fund for Incurred Claims, Solvency Fund for Not Incurred Claims and Solvency Fund for Claims Deviation.

3.6 The methodology and the calculation procedure of the Solvency Fund are detailed in Annex No. 1 of this Regulation. Likewise, the methodology and the calculation procedure of the Solvency Fund for Incurred But Not Reported Claims are detailed in Annex No. 2 of this Regulation.

For purposes of the calculation of the Solvency Fund for Incurred But Not Reported Claims, the AFOCAT shall apply the simplified method or optionally the incurred claims method according to the number of years of information and the operational capacity they have. In the event the AFOCAT opts for the Incurred Claims Method for the estimation of the Solvency Fund for Incurred But Not Reported Claims, it must request prior authorization from this Superintendency.

3.7 For new AFOCATs, the application rate of the Solvency Fund for Claims Deviation, variable "e", referred to in numeral 1 of Annex No. 1 of this Regulation, shall be increased at a rate of 20% per year until reaching 100%, within a period that must not exceed 5 years computed from its registration in the Registry.

3.8 The amount of the Fund may not be less than the Solvency Fund nor the Minimum Fund; that is, the Fund may not be less than the maximum between the Solvency Fund and the Minimum Fund. Otherwise, the provisions established in articles 30 and 47 of the AFOCAT Regulation are applicable.

Article 4.- Information Requirement

The AFOCAT must submit the information indicated in Annex No. 3 of this Regulation on a semi-annual basis (in physical format and in Excel spreadsheet) according to the following schedule:

• The calculation of the Solvency Fund as of 31 December of each year shall be submitted together with the audited financial statements, that is, the maximum submission deadline shall be 31 March of the year following the one to which the information corresponds.

• The calculation of the Solvency Fund as of 30 June of each year shall be submitted together with the financial statements of the Fund, that is, the maximum submission deadline is thirty (30) calendar days after 30 June.

Article 5.- Fund Surplus

In accordance with the provisions of numeral 27.6 of article 27 of the AFOCAT Regulation, when the Fund is greater than the Solvency Fund and the Minimum Fund, the AFOCAT may request authorization from the Superintendency to directly administer the surplus, under the following conditions:

a) The Solvency Fund must be calculated for a period of no less than one year, considering the variable "e" (numeral 1 of Annex No. 1 of this Regulation) as 100%.

b) The AFOCAT must have maintained the amount of the Fund above the Solvency Fund and the Minimum Fund for a period of no less than one year.

c) The AFOCAT must present an investment plan for the surpluses, duly supported, taking into account the materiality of the surpluses and that contemplates periodic reports to the Superintendency.

d) The surpluses must be invested in activities related to the purpose of the Fund.

TRANSITORY PROVISIONS

First.- Adaptation period for compliance with the Solvency Fund as a limit1

An adaptation period is granted for compliance with the provisions of numeral 3.8 of article 3 of this Regulation, solely with respect to the fact that the Fund cannot be less than the Solvency Fund, in accordance with the following:

Calculation date	Minimum amount of the Fund
31/12/2017, 30/06/2018	50% of the Solvency Fund
31/12/2018, 30/06/2019, 31/12/2019, 30/06/2020 and 31/12/2020	65% of the Solvency Fund

[1] Provision modified by Resolution SBS No. 2137-2020, published on 07.09.2020.

SUPERINTENDENCY OF BANKING, INSURANCE AND AFP Republic of Peru

Calculation date	Minimum amount of the Fund
30/06/2021	70% of the Solvency Fund
31/12/2021	80% of the Solvency Fund
30/06/2022	90% of the Solvency Fund
31/12/2022 onwards	100% of the Solvency Fund

Second.- Solvency Fund for Claims Deviation2

The application rate of the Solvency Fund for Claims Deviation, variable "e", referred to in numeral 1 of Annex No. 1 of this Regulation, shall have the following values:

Calculation date	Variable "e"
31/12/2017, 30/06/2018	20%
31/12/2018, 30/06/2019, 31/12/2019, 30/06/2020 and 31/12/2020	40%
30/06/2021	50%
31/12/2021	60%
30/06/2022	80%
31/12/2022 onwards	100%”

Third.- Person responsible for calculating the Solvency Fund

An adaptation period is granted until 31 December 2021 for compliance with the provisions of numeral 3.3 of article 3 of this Regulation. During this period, a worker of the AFOCAT may be designated to be in charge of calculating the Solvency Fund, provided that they meet the following conditions:

a) Hold a bachelor's degree in one of the specialties of economics, engineering, accounting, administration, finance, mathematics, statistics or related fields.

b) Have attended at least one (1) training session on the calculation of the Solvency Fund conducted by this Superintendency.

It is necessary to specify that at all times the AFOCAT is responsible for the calculation of the Solvency Fund and for compliance with this Regulation.

[2] Provision amended by Resolution SBS No. 2137-2020, published on 07.09.2020.

Republic of Peru

SUPERINTENDENCY OF BANKING, INSURANCE AND AFP

Los Laureles No. 214

• Lima 27
• Peru Tel.: (511)6309000 Fax: (511) 6309239

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Los Laureles No. 214 - Lima 27 - Peru Tel.: (511)6309000 Fax: (511) 6309239

ANNEX No. 1 Methodology for Calculating the Solvency Fund

1. Solvency Fund

The Solvency Fund (FS) is obtained with the following formula:

FS = FSSO + FSSNO + e*FSDS

Where

FSSO	:	Solvency Fund for Incurred Claims.
FSSNO	:	Solvency Fund for Claims Not Incurred.
FSDS	:	Solvency Fund for Claims Deviation.
e	:	Application rate of the Solvency Fund for Claims Deviation, as provided in numeral 3.7 of article 3 and the Second Transitory Provision of this Regulation.

2. Solvency Fund for Incurred Claims

The Solvency Fund for Incurred Claims (FSSO) is estimated as follows:

FSSO = FSSOC + FSSONC

Where

FSSOC	:	Solvency Fund for Known Incurred Claims.
FSSONC	:	Solvency Fund for Unknown Incurred Claims.

2.1 Solvency Fund for Known Incurred Claims

The Solvency Fund for Known Incurred Claims (FSSOC) is equivalent to the total sum of claims that have occurred and are known to the AFOCAT at the calculation date, but that are pending settlement or payment.

FSSOC = Claims Pending Settlement + Claims Pending Payment

a) Claims pending settlement

A claim pending settlement is a claim known to the AFOCAT, but for which the right to the benefit, the identification of the beneficiary or the amount of the benefit has not been definitively determined as of the date, with the claim being in the settlement process or with the settlement process not initiated.

This reserve corresponds to the best estimate of the benefits that the AFOCAT expects to pay, case by case and by type of coverage, net of payments made, considering its own statistics and the characteristics and severity of the accident, including information from guarantee letters and the assessment of the diagnosis of each injured person.

b) Claims pending payment

Los Laureles No. 214 - Lima 27 - Peru Tel.: (511)6309000 Fax: (511) 6309239

A claim pending payment is a known claim that has been definitively settled, but that is pending payment as of the reporting date. These claims must be estimated case by case and by type of coverage, recording the amount pending indemnification and which is indicated in the claim settlement document or sheet.

2.2 Solvency Fund for Unknown Incurred Claims

The calculation procedure must be based on the methods detailed in Annex No. 2 of this Regulation.

3. Solvency Fund for Claims Not Incurred

The Solvency Fund for Claims Not Incurred (FSSNO) is estimated as the sum of the unearned portion of the Risk Contribution of each CAT, at the calculation date of the Solvency Fund.



 n i 1 i i
FSSNO a .AR
Vigencia total del CAT i
Número of days remaining in force del CAT i a i 

Where n
:
Number of CAT in force at the date of calculation of the Solvency Fund.
ARi
:
Risk Contribution of CAT i

4. Solvency Fund for Claims Deviation.

It is equivalent to the greater of the amounts resulting from applying the following criteria:

4.1 Based on the CAT issued: 23.5% of the Risk Contributions of the CAT issued in the last 12 months or, failing that, the available annualized information.

4.2 Based on claims: 46% of the annual average of claims occurring in the last 36 months or, failing that, the available annualized information.

Los Laureles No. 214 - Lima 27 - Peru Tel.: (511)6309000 Fax: (511) 6309239

ANNEX No. 2 Method for calculating the Solvency Fund for Incurred But Not Reported Claims

I. SIMPLIFIED METHOD

Solvency fund for incurred but not reported claims:

Where: FSSONC: Solvency fund for incurred but not reported claims. CSP: Average Claims Cost, determined as the cost of claims for the analyzed period, divided by the number of claims reported in the same period. A claim is understood to correspond to one injured person. The cost of the claim includes the indemnities of all coverages. Cost of claims for the period: Reserves pending settlement and payment at the end of the period (calculation date), plus payments made during the period, minus reserves pending settlement and payment at the beginning of the period. SD: Number of daily claims reported, determined as the number of claims reported in the period divided by the number of days in the period. PPD: Average time of delay in filing the claim report, determined as the difference in days between the date of occurrence of the accident and the date of presentation or notification of the claim and registration in the AFOCAT information system of any of the benefits. The average is determined for the set of all claims reported in the period. Period: Period of 12 consecutive months (365 days), prior to the closing date on which the reserves are calculated.

II. INCURRED CLAIMS METHOD

Incurred claims are understood as accumulated paid claims plus the reserve for claims pending settlement and/or payment.

When using this method, the information about incurred claims is ordered by periods of occurrence to show their evolution over successive equidistant development periods. By adding the successive periods of occurrence, a triangle is formed.

Minimum information required

The AFOCAT must have at least three years of historical claims information.

Procedure

Step 1.- Grouping of information Group the historical claims information into periods of occurrence and development. The AFOCAT must select, for each type of coverage (death, medical expenses, temporary disability, permanent disability and burial), the grouping of claims on a quarterly, semi-annual or annual basis.

Alternatively, and according to the state of the available information, the historical claims information may be grouped by injured person (adding the indemnities of all coverages) on a quarterly, semi-annual or annual basis.

SUPERINTENDENCY OF BANKING, INSURANCE AND AFP Republic of Peru

Los Laureles No. 214 - Lima 27 - Peru Tel.: (511)6309000 Fax: (511) 6309239

Step 2.- Construction of the triangles

Construct two (02) tables. One table must contain the periods of occurrence on the vertical axis and the payment periods on the horizontal axis; in the second table, the vertical axis will correspond to the periods of occurrence and the horizontal axis to the reserve periods. The construction of the tables must be subject to the following:

a) Table of paid claims

This table must contain, for each period of occurrence, the value of the claims paid in a given development period.

	Triangle of Paid Claims
	Development period (j)
Period of occurrence (i)	1	2	…	n-i+1	…	n-1	n
1	P1,1	P1,2	…	P1,n-i+1	…	P1,n-1	P1,n
2	P2,1	P2,2	…	P2,n-i+1	…	P2,n-1
…	…	…	…	…	…
i	Pi,1	Pi,2	…	Pi,n-i+1
…	…	…	…
n-1	Pn-1,1	Pn-1,2
n	Pn,1

Where:

Pi,j: Corresponds to the value of the claims occurring in period “i” and whose payment was made in the development period “j”. The sum of the values of the main diagonal must correspond to the total claims paid in the last period considered.

i: Corresponds to the period of occurrence.

j: Corresponds to the payment period.

b) Table of reported claims (claims reserve)

This table must contain, for each period of occurrence, the value of the claims reserved individually and that remain reserved in each development period.

	Triangle of Reserved Claims
	Development period (j)
Period of occurrence (i)	1	2	…	n-i+1	…	n-1	n
1	R1,1	R1,2	…	R1,n-i+1	…	R1,n-1	R1,n
2	R2,1	R2,2	…	R2,n-i+1	…	R2,n-1
…	…	…	…	…	…
i	Ri,1	Ri,2	…	Ri,n-i+1
…	…	…	…
n-1	Rn-1,1	Rn-1,2
n	Rn,1

Where:

Ri,j:
Corresponds to the estimated and reserved values individually of the claims occurred in period “i”, which have not been paid and settled completely and remain reserved at period “j”; said values contain in addition the reserved values of claims that also occurred in period “i” but that were claimed and reserved in period “j” inclusive. The sum of the values of the main diagonal must correspond to the total of claims pending payment plus claims pending settlement. i:
Corresponds to the occurrence period. j:
Corresponds to the last reserve period.

Step 3.- Construction of the cumulative paid claims triangles.

	Triangle of Cumulative Paid Claims
	Development period (j)
Occurrence period (i)	1	2	…	n-i+1	…	n-1	n
1	PA1,1	PA1,2	…	PA1,n-i+1	…	PA1,n-1	PA1,n
2	PA2,1	PA2,2	…	PA2,n-i+1	…	PA2,n-1
…	…	…	…	…	…
i	PAi,1	PAi,2	…	PAi,n-i+1
…	…	…	…
n-1	PAn-1,1	PAn-1,2
n	PAn,1

Where: PAi,j: Corresponds to the claims occurring in period “i” that have been paid up to development period “j” inclusive.

j t i j i t PA P 1 , ,

Step 4.- Construction of the incurred claims triangles.

	Triangle of Incurred Claims
	Development period (j)
Occurrence period (i)	1	2	…	n-i+1	…	n-1	n
1	I1,1	I1,2	…	I1,n-i+1	…	I1,n-1	I1,n
2	I2,1	I2,2	…	I2,n-i+1	…	I2,n-1
…	…	…	…	…	…
i	Ii,1	Ii,2	…	Ii,n-i+1
…	…	…	…
n-1	In-1,1	In-1,2
n	In,1

Where:
Ii,j:
Corresponds to the value of the claims occurring in period “i”, which have been paid up to the development period “j” inclusive or which are reserved at period “j”. i:
Corresponds to the occurrence period. j:
Corresponds to the payment or reserve period.

Step 5.- Construction of development factors. The development factors (FDS) are calculated to measure the evolution of each occurrence period from one development period to the next. The historical development factors are used as a basis to select the most appropriate development factors to project the claims of incomplete occurrence periods to their final development (ultimate value or expected ultimate loss).

These factors, plus the experience gathered throughout previous estimates and an analysis of the changes that occurred in the business and in the market, must be the basis for selecting the appropriate development factors to project the claims of “immature” occurrence periods (those that have not yet reached their ultimate value or expected ultimate loss).

The company must select a development factor for each development period. This selection of the factor must be made from the weighted average of all available factors.

If it is considered that this method does not represent the evolution of the expected claims experience, some other criterion may be used, which must be duly documented in a methodology. To support a different selection of factors, it must be recorded that the historical experience in the development of claims has been analyzed.

Selected Factors	FDS1	FDS2	FDS3	FDS4	…	FDSn-1

Step 6.- Selection of the tail factor. The tail factor (FDSn) is understood as the one that allows projecting the ultimate claims experience beyond the observed history. This factor is applicable to the last column of the triangle.

The tail factor must be determined taking into account the trend evidenced by the data, general market considerations and those specific to the AFOCAT, as well as sector-specific market statistics and trends.

Step 7.- Calculation of cumulative development factors

Where:
FDA:
Corresponds to the cumulative development factor.
FDSn:
Corresponds to the selected tail factor.

Step 8.- Calculation of the expected ultimate loss.

In order to determine the expected ultimate loss (UPE) for each of the occurrence periods “i”, the cumulative development factor (FDAn-i+1) must be multiplied by the value in position “n-i+1” of row “i” of the incurred claims triangle.

The calculation methodology for determining the ultimate value of the claims or the expected ultimate loss is detailed below.

Occurrence period [i]	Development period [j]	Incurred Claims [Ii,j] (main diagonal)	Cumulative Development Factors [FDAj]	Last Expected Loss corresponding to occurrence period "i" [UPEi]
1	n	I1,n	FDAn	UPE1 = I1,n* FDAn
2	n-1	I2,n-1	FDAn-1	UPE 2 = I2,n-1 * FDAn-1
…	…	…	…	…
i	n-i+1	Ii,n-i+1	FDAn-i+1	UPE i = Ii,n-i+1 * FDAn-i+1
…	…	…	…	…
n	1	In,1	FDA1	UPE n = In,1 * FDA1

Step 9.- Solvency fund for incurred but not reported claims

The last expected loss calculated in the previous step contains the overall estimate of all claims, which is why, in order to obtain the incurred but not reported claims, the paid and reserved claims (incurred claims) must be subtracted from the last expected loss as of the closing date of the financial information.

Occurrence period [i]	Development period [j]	Incurred Claims [Ii,j] (main diagonal)	Last Expected Loss corresponding to occurrence period "i" [UPEi]	Incurred But Not Reported Claim corresponding to occurrence period "i" [SONCi]
1	n	I1,n	UPE1	SONC1 = UPE1 – I1,n
2	n-1	I2,n-1	UPE 2	SONC2 = UPE2 – I2,n-1
…	…	…	…	…
i	n-i+1	Ii,n-i+1	UPE i	SONCi = UPEi – Ii,n-i+1
…	…	…	…	…
n	1	In,1	UPE n	SONCn = UPEn – In,1

Where:

SONCi:
Incurred But Not Reported Claims corresponding to the occurrence period “i”.
FSSONC:
Solvency Fund for Incurred But Not Reported Claims.

Los Laureles No. 214 - Lima 27 - Peru Tel.: (511)6309000 Fax: (511) 6309239

ANNEX No. 3

Summary of the calculation of the Solvency Fund

As of: ___ of _________________ of 20___
In soles

CONCEPTS	Amount
1. SOLVENCY FUND FOR INCURRED CLAIMS (1.1 + 1.2)
1.1) SOLVENCY FUND FOR INCURRED KNOWN CLAIMS
1.1.a) CLAIMS PENDING SETTLEMENT
1.1.b) CLAIMS PENDING PAYMENT
1.2) SOLVENCY FUND FOR INCURRED BUT NOT REPORTED CLAIMS
2. SOLVENCY FUND FOR UNINCURRED CLAIMS
3. SOLVENCY FUND FOR CLAIMS DEVIATION
4. APPLICATION FACTOR FOR CLAIMS DEVIATION (e)
5. TOTAL SOLVENCY FUND (1+2)+(3x4)

Legal Representative of the AFOCAT
Technical Officer of the AFOCAT”

Los Laureles No. 214 - Lima 27 - Peru Tel.: (511)6309000 Fax: (511) 6309239

Second Article.- This resolution shall enter into force the day after its publication in the Official Gazette "El Peruano".

Register it, communicate it, and publish it,

SOCORRO HEYSEN ZEGARRA
Superintendent of Banking, Insurance and Private Pension Fund Administrators