Regulation on Investment Operations of Insurers

‘Approved’
Central Bank of the Republic of Azerbaijan Resolution№ 51/1 25 October 2023 Regulation on investment operations of insurers

1. General provisions
   This Regulation has been developed in accordance with Articles 62.2, 78.2 and 79.4 of the Law of the Republic of Azerbaijan ‘on Insurance activity’ (hereinafter – the Law) and determines procedures for the investment of insurer's own funds, as well as funds that secure insurance reserves, and the calculation of its total capital.
2. Definitions
   2.1. The definitions used in this Regulation bear the following meanings:
   2.1.1. carrying value – balance of corresponding assets in accounts of accounting.
   2.1.2. stock exchange listing – a list of securities accepted for trading on the stock
   exchange based on the requirements established by internal rules of the stock exchange.
   2.1.3. mathematical reserves – the insurer's (reinsurer's) obligation to make
   insurance payments for insurance events that have not occurred until the reporting date but may occur in future during the validity of the insurance (reinsurance) agreement.
   2.1.4. government security - a security issued by local and foreign competent
   public authorities for the purposes of this Regulation.
   2.1.5. credit rating – a rating issued as a result of assessment by relevant
   international reputable rating agencies regarding the ability of countries (organizations) to fulfill their long-term financial obligations.
   2.1.6. credit rating group – classification of countries (organizations) from Group
   0, indicating low credit risk, to Group 4, indicating high credit risk, in accordance with
   Annex 4 of this Regulation.
   2.1.7. international reputable rating agencies – organizations that issue a relevant
   credit rating in accordance with the table specified in Annex 4 of this Regulation.
   2.1.8. government guarantee – a financial liability assumed by the Republic of
   Azerbaijan in the manner determined by the Law of the Republic of Azerbaijan ‘on Public debt’ for full or partial performance of obligations on that debt to the lender if the main borrower fails to repay the debt to the lender under the repayment terms and the period agreed with the lender.
   2.1.9. multilateral development bank – an international financial organization
   established by the World Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, the Islamic Development Bank, the European Investment Bank, the European Investment Fund and two or more countries to support economic development.
   2.1.10. eurobond – an international bond issued by the issuer outside its country in
   a foreign currency different from its own currency.

2.2. For the purposes of this Regulation, the lowest credit rating issued by
international reputable rating agencies and valid during the last 12 calendar months preceding the reporting date is considered a credit rating.
2.3. For the purposes of this Regulation, the definition ‘related party’ covers the
persons specified in Article 49-1.1 of the Civil Code of the Republic of Azerbaijan, as well as legal entities in which the person specified in Article 49-1.1.6 of the Civil Code of the Republic of Azerbaijan participates directly or indirectly with at least a 20 percent share.
2.4. The definition 'insurer' used in this Regulation includes insurers, along with
reinsurers in accordance with Article 1.2 of the Law.
2.5. Other definitions used in this Regulation bear meanings specified in the Law.
3. Ratios applied during investment of funds securing insurance reserves
3.1. The following coefficients are applied to the carrying value of assets, where the
funds securing insurance reserves are expressed:
3.1.1. Government securities:
3.1.1.1. government securities of the Republic of Azerbaijan – 100%.
3.1.1.2. government securities of foreign countries:
3.1.1.2.1. government securities of foreign countries included in the minimum
Group 2 credit rating – 100%.
3.1.1.2.2. eurobonds issued by foreign countries included to Group 3 credit rating
– 100%.
3.1.1.2.3. except for sub-item 3.1.1.2.2 of this Regulation, government securities of
foreign countries included in the credit rating group lower than Group 2 credit rating – 0%.
3.1.2. Funds in banks accounts:
3.1.2.1. funds in bank accounts opened with banks located in the territory of the
Republic of Azerbaijan (hereinafter - in the territory of the country):
3.1.2.1.1. funds in bank accounts opened with banks with a maximum of 5 notches
lower than the credit rating of the Republic of Azerbaijan (hereinafter - the country credit rating) – 100%.
3.1.2.1.2. funds in bank accounts opened with banks with a credit rating of 6
notches or lower than the country credit rating or with no credit rating – 80%.
3.1.2.1.3. the remaining part of funds given to portfolio management of investment
companies in the form of cash in the bank account as of the reporting date – 80%.
3.1.2.2. funds in bank accounts opened with banks located outside the territory of
the Republic of Azerbaijan (hereinafter - outside the country):
3.1.2.2.1. funds in bank accounts opened with banks included in the minimum
Group 2 credit rating – 100%.
3.1.2.2.2. funds in bank accounts opened with banks included in the credit rating
group lower than the Group 2 credit rating – 0%.
3.1.3. Carrying value of real estate – 70%.
3.1.4. Non-government securities:
3.1.4.1. non-government securities issued by multilateral development banks:

3.1.4.1.1. non-government securities issued by multilateral development banks
included in the minimum Group 2 credit rating – 100%.
3.1.4.1.2. non-government securities issued by multilateral development banks
included in the credit rating group lower than the Group 2 credit rating group – 0%.
3.1.4.2. non-government securities issued by domestic legal entities:
3.1.4.2.1. non-government securities secured with government guarantee – 100%.
3.1.4.2.2. mortgage bonds issued by the Mortgage and Credit Guarantee Fund of
the Republic of Azerbaijan – 100%.
3.1.4.2.3. the part of non-government securities issued by legal entities secured by
the Mortgage and Credit Guarantee Fund of the Republic of Azerbaijan – 100%.
3.1.4.2.4. non-government securities listed on the Baku Stock Exchange:
3.1.4.2.4.1. non-government securities issued by related party legal entities:

1. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – 60%.
2. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – 40%.
   3.1.4.2.4.2. non-government securities issued by non-related party legal entities:
3. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – 80%.
4. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – 60%.
   3.1.4.2.5. non-government securities not listed on the Baku Stock Exchange:
   3.1.4.2.5.1. non-government securities issued by related party legal entities:
5. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – 30%.
6. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – 20%.
   3.1.4.2.5.2. non-government securities issued by non-related party legal entities:
7. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – 40%.
8. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – 30%.
   3.1.4.3. non-government securities issued by foreign legal entities:
   3.1.4.3.1. non-government securities issued by foreign legal entities included in
   the minimum Group 2 credit rating – 100%.
   3.1.4.3.2. non-government securities issued by foreign legal entities included in
   the credit rating group lower than the Group 2 credit rating – 0%.
   3.1.5. Insurance and reinsurance premiums to be received on insurance and
   reinsurance agreements:
   3.1.5.1. insurance and reinsurance premiums delinquent for 30 days as of the
   reporting date – 100%.
   3.1.5.2. insurance and reinsurance premiums delinquent for 31-45 days as of the
   reporting date – 80%.

3.1.5.3. insurance and reinsurance premiums delinquent for over 45 days as of the
reporting date – 0%.
3.1.6. The share of reinsurers in insurance reserves – 100%.
3.1.7. Amounts of money lent (principal amount) to policyholders or insured
persons under endowment life insurance – 100%.
3.2. Total amounts of upcoming installments of insurance and reinsurance
premiums, which are overdue by more than 45 days under insurance and reinsurance agreements stipulating installment payments to be reimbursed in the future, along with insurance and reinsurance premiums due under agreements whose security period has lapsed by the reporting date, should be accounted for in the allocation specified in sub￾item 3.1.5.3 of this Regulation.
4. Diversification norms to be taken into account during the investment of
funds that secure insurance reserves
4.1. When calculating total amount of funds securing insurance reserves, only the
portion of amounts generated after applying the coefficients specified in Item 3.1 of this Regulation to the carrying values of assets, which meet the diversification norms outlined below, shall be considered:
4.1.1. Government securities:
4.1.1.1. government securities of the Republic of Azerbaijan – up to 100% of
insurance reserves.
4.1.1.2. government securities of foreign countries:
4.1.1.2.1. government securities of foreign countries included in the minimum
Group 1 credit rating – up to 30% of insurance reserves.
4.1.1.2.2. government securities of foreign countries included in the minimum
Group 2 credit rating – subject to a maximum of 10% per country, up to 20% of insurance reserves.
4.1.1.2.3. Eurobonds issued by foreign countries included to Group 3 credit rating
– subject to a maximum of 5% per country, up to 10% of insurance reserves.
4.1.2. Funds in bank accounts:
4.1.2.1. funds in bank accounts opened with banks located in the territory of the
country:
4.1.2.1.1. funds in bank accounts opened with related banks – subject to a
maximum of 20% per bank, up to 50% of insurance reserves.
4.1.2.1.2. funds in bank accounts opened with non-related party banks – subject to
a maximum of 30% per bank, up to 80% of insurance reserves.
4.1.2.1.3. the remaining part of funds given to portfolio management of investment
companies in the form of cash in the bank account as of the reporting date – subject to a maximum of 20% per investment company, up to 50% of insurance reserves.
4.1.2.2. funds in bank accounts opened with banks located outside the country:
4.1.2.2.1. funds in bank accounts opened with related banks:
4.1.2.2.1.1. funds in bank accounts opened with banks included to Group 0 credit
rating – subject to a maximum of 5% per bank, up to 15% of insurance reserves.

4.1.2.2.1.2. funds in bank accounts opened with banks included to Group 1 and 2
credit rating – subject to a maximum of 5 % per bank, up to 10% of insurance reserves.
4.1.2.2.2. funds in bank accounts opened with non-related party banks:
4.1.2.2.2.1. funds in bank accounts opened with banks included to Group 0 credit
rating – subject to a maximum of 10% per bank, up to 30% of insurance reserves.
4.1.2.2.2.2. finds in bank accounts opened with banks included to Groups 1 and 2
credit rating – subject to a maximum of 10% per bank, up to 20% of insurance reserves.
4.1.3. Real estate:
4.1.3.1. real estate owned by the insurer and intended for insurance activities –
subject to a maximum of 5% per real estate, up to 10% of insurance reserves.
4.1.3.2. other real estate for insurance purposes owned by the insurer – subject to a
maximum of 10% per real estate, up to 20% of insurance reserves.
4.1.4. Non-government securities:
4.1.4.1. non-government securities issued by domestic legal entities:
4.1.4.1.1. non-government securities backed with government guarantee – up to
100% of insurance reserves.
4.1.4.1.2. mortgage bonds issued by the Mortgage and Credit Guarantee Fund of
the Republic of Azerbaijan – up to 50% of insurance reserves.
4.1.4.1.3. the portion of non-government securities issued by legal entities backed
by the Mortgage and Credit Guarantee Fund of the Republic of Azerbaijan – up to 50% of insurance reserves.
4.1.4.1.4. Non-government securities listed in the Baku Stock Exchange:
4.1.4.1.4.1. non-government securities issued by related legal entities:

1. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – subject to a maximum of 5% per legal entity, up to 15% of insurance reserves.
2. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – subject to a maximum of 5% per legal entity, up to 10% of insurance reserves.
   4.1.4.1.4.2. non-government securities issued by non-related party legal entities:
3. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – subject to a maximum of 15% per legal entity, up to 30% of insurance reserves.
4. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – subject to a maximum of 10% per legal entity, up to 20% of insurance reserves.
   4.1.4.1.5. Non-government securities not listed in the Baku Stock Exchange:
   4.1.4.1.5.1. non-government securities issued by related legal entities:
5. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – subject to a maximum of 2% per legal entity, up to 10% of insurance reserves.
6. 2. non-government securities issued by legal entities that are 3 notches or
      lower than the country credit rating or with no credit rating – subject to a maximum of 2% per legal entity, up to 5% of insurance reserves.

4.1.4.1.5.2. non-government securities issued by non-related legal entities:

1. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – subject to a maximum of 5% per legal entity, up to 10% of insurance reserves.

2. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – up to 5% of insurance reserves.
   4.1.4.2. non-government securities issued by foreign legal entities:
   4.1.4.2.1. non-government securities issued by multilateral development banks:
   4.1.4.2.1.1. non-government securities included to minimum Group 1 credit rating
   issued by multilateral development banks – subject to a maximum 10% per multilateral development bank, up to 30% of insurance reserves.
   4.1.4.2.1.2. non-government securities included to Group 2 credit rating issued by
   multilateral development banks – subject to a maximum 10% per multilateral development bank, up to 20% of insurance reserves.
   4.1.4.2.2. non-government securities issued by legal entities included to minimum
   Group 2 credit rating and that are not a multilateral development bank – up to 10% of insurance reserves.
   4.1.4.2.3. non-government securities issued in the territory of the country by
   multilateral development banks included to minimum Group 2 credit rating – up to 80% of insurance reserves.
   4.1.5. Insurance and reinsurance premiums to be received on insurance and
   reinsurance agreements:
   4.1.5.1. insurance and reinsurance premiums delinquent up to 30 days as of the
   reporting date – up to 30% of insurance reserves.
   4.1.5.2. insurance and reinsurance premiums delinquent for 31-45 days as of the
   reporting date – up to 10% of insurance reserves.
   4.1.6. The share of reinsurers in insurance reserves:
   4.1.6.1. the share of reinsurers in reported, but not adjusted loss reserves – up to
   100% of insurance reserves.
   4.1.6.2. the share of reinsurers in other reserves – up to 60% of insurance reserves.
   4.1.7. Amounts of money lent (principal amount) to policyholders or insured
   persons under endowment life insurance – up to 50% of mathematical reserves (less the reinsurers' share in mathematical reserves).
   4.2. Total amount of funds securing insurance reserves is equal to the sum of the
   parts of the amounts generated that do not exceed the diversification norms specified in Item 4.1 of this Regulation after applying the coefficients specified in Item 3.1 of this Regulation to carrying values of the assets in which those funds are expressed.
   4.3. Total amount of funds securing insurance reserves should not be less than the
   amount of those reserves.
   4.4. According to Item 4.1 of this Regulation, all investments outside the country
   are considered in 30% of total insurance reserves.
   4.5. All investments under sub-item 4.1.2 of this Regulation are considered in 80%,
   and all investments under sub-item 4.1.3 of this Regulation are considered in 20% of total insurance reserves.

3. Insurer’s own funds and investment of these funds
   5.1. Insurer’s own funds are calculated with the formula specified in Annex 1 of this
   Regulation.
   5.2. To calculate insurer’s total capital the following coefficients are applied to
   carrying values of the assets its own funds are expressed in:
   5.2.1. Government securities:
   5.2.1.1. government securities of the Republic of Azerbaijan– 100%.
   5.2.1.2. government securities of foreign countries:
   5.2.1.2.1. government securities of foreign countries included to minimum Group
   2 credit rating – 100%.
   5.2.1.2.2. Eurobonds issued by foreign countries included to Group 3 credit rating
   – 100%.
   5.2.1.2.3. except for those specified in sub-item 5.2.1.2.2 herein, government
   securities of foreign countries included in the credit rating group lower than the Group 2 credit rating group – 0%.
   5.2.2. Funds in bank accounts:
   5.2.2.1. funds in bank accounts opened with banks located in the territory of the
   country:
   5.2.2.1.1. funds in bank accounts opened with banks with maximum 5 notches
   lower than the country credit rating – 100%.
   5.2.2.1.2. funds in bank accounts opened with banks with maximum 6 notches and
   lower than the country credit rating or with no credit rating – 80%.
   5.2.2.1.3. the remaining part of funds given to portfolio management of investment
   companies in the form of cash in the bank account as of the reporting date – 80%.
   5.2.2.2. funds in bank accounts opened with banks located outside the country:
   5.2.2.2.1. funds in banks opened with banks included to minimum Group 2 credit
   rating – 100%.
   5.2.2.2.2. funds in bank accounts opened with bank included to the credit rating
   group lower than the Group 2 credit rating– 0%.
   5.2.3. Carrying amount of real estate – 70%.
   5.2.4. Non-government securities:
   5.2.4.1. non-government securities issued by multilateral development banks:
   5.2.4.1.1. non-government securities included to minimum Group 2 credit rating
   issued by multilateral development banks – 100%.
   5.2.4.1.2. non-government securities issued by multilateral development banks
   included to the credit rating group lower than the Group 2 credit rating – 0%.
   5.2.4.2. non-government securities issued by domestic legal entities:
   5.2.4.2.1. non-government securities backed with government guarantee– 100%.
   5.2.4.2.2. mortgage bonds issued by the Mortgage and Credit Guarantee Fund of
   the Republic of Azerbaijan – 100%.
   5.2.4.2.3. the portion of non-government securities issued by legal entities backed
   by the Mortgage and Credit Guarantee Fund of the Republic of Azerbaijan – 100%.
   5.2.4.2.4. Non-government securities listed in the Baku Stock Exchange:

5.2.4.2.4.1. non-government securities issued by related legal entities:

1. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – 60%.
2. non-government securities issued by legal entities with 3 notches and lower than
   the country credit rating or with no credit rating – 40%.
   5.2.4.2.4.2. non-government securities issued by non-related legal entities:
3. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – 80%.
4. non-government securities issued by legal entities with 3 notches and lower than
   the country credit rating or with no credit rating – 60%.
   5.2.4.2.5. Non-government securities not listed in the Baku Stock Exchange:
   5.2.4.2.5.1. non-government securities issued by related legal entities:
5. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – 30%.
6. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – 20%.
   5.2.4.2.5.2. non-government securities issued by non-related legal entities:
7. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – 40%.
8. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – 30%.
   5.2.4.3. non-government securities issued by foreign legal entities:
   5.2.4.3.1. non-government securities issued by foreign legal entities included to
   minimum Group 2 credit rating – 100%.
   5.2.4.3.2. non-government securities issued by foreign legal entities included to
   the credit rating group lower than the Group 2 credit rating – 0%.
   5.2.5. Funds invested to authorized capital of legal entities:
   5.2.5.1. funds invested to authorized capital of related party legal entities – 50%.
   5.2.5.2. funds invested to authorized capital of non-related party legal entities–80%.
   5.2.6. Funds lent to own employees – 50%.
9. Diversification norms to be considered during the investment of insurer’s
   own funds
   6.1. When calculating the insurer’s total capital, only the portion of the amounts
   generated after applying the coefficients specified in Item 5.2 of this Regulation to the carrying values of the assets considered in this calculation, which conforms to the following diversification norms, is accepted
   6.1.1. Government securities:
   6.1.1.1. Government securities of the Republic of Azerbaijan – up to 100%.
   6.1.1.2. government securities of foreign countries:
   6.1.1.2.1. government securities of foreign countries included to minimum Group
   1 credit rating – up to 30%.

6.1.1.2.2. government securities of foreign countries included to the Group 2 credit
rating – subject to a maximum of 10% per country, in total up to 20%.
6.1.1.2.3. Eurobonds issued by foreign countries included to the Group 3 credit
rating – subject to a maximum of 5% per country, in total up to 10%.
6.1.2. Funds in bank accounts:
6.1.2.1. funds in bank accounts opened with banks located in the territory of the
country:
6.1.2.1.1. funds in bank accounts opened with related party banks – subject to a
maximum of 20% per bank, in total up to 50%.
6.1.2.1.2. funds in bank accounts opened with non-related party banks – subject to
a maximum 30% per bank, in total up to 80%.
6.1.2.1.3. the remaining part of funds given to portfolio management of investment
companies in the form of cash in the bank account as of the reporting date – subject to a maximum of 20% per investment company, in total up to 50%.
6.1.2.2. funds in bank accounts opened with banks located outside the country:
6.1.2.2.1. funds in bank accounts opened with related banks:
6.1.2.2.1.1. funds in bank accounts opened with banks included to Group 0 credit
rating – subject to a maximum of 5 % per bank, in total up to 15%.
6.1.2.2.1.2. finds in bank accounts opened with banks included to Groups 1 and 2
credit rating – subject to a maximum of 5 % per bank, in total up to 10%.
6.1.2.2.2. funds in bank accounts opened with non-related banks:
6.1.2.2.2.1. funds in bank accounts opened with banks included to Group 0 credit
rating – subject to a maximum of 10% per bank, in total up to 30%.
6.1.2.2.2.2. finds in bank accounts opened with banks included to Groups 1 and 2
credit rating – subject to a maximum of 10% per bank, in total up to 20%.
6.1.3. Carrying amount of real estate:
6.1.3.1. carrying amount of real estate owned by the insurer and which is intended
for insurance activities – subject to a maximum 5% per real estate, in total up to 10%.
6.1.3.2. Carrying amount of other real estate owned by the insurer with investment
purposes – subject to a maximum 10% per real estate, in total up to 20%.
6.1.4. Non-government securities:
6.1.4.1. non-government securities issued by domestic legal entities:
6.1.4.1.1. non-government securities backed with government guarantee – up to
100%.
6.1.4.1.2. mortgage bonds issued by the Mortgage and Credit Guarantee Fund of
the Republic of Azerbaijan – up to 50%.
6.1.4.1.3. the portion of non-government securities issued by legal entities backed
by the Mortgage and Credit Guarantee Fund of the Republic of Azerbaijan – up to 50%.
6.1.4.1.4. Non-government securities listed in the Baku Stock Exchange:
6.1.4.1.4.1. non-government securities issued by related legal entities:

1. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – subject to a maximum of 5% per legal entity, in total up to 15%.

2. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – subject to a maximum of 5% per legal entity, in total up to 10%.
   6.1.4.1.4.2. non-government securities issued by non-related legal entities:

3. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – subject to a maximum of 15% per legal entity, in total up to 30%.

4. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – subject to a maximum of 10% per legal entity, in total up to 20%.
   6.1.4.1.5. Non-government securities not listed in the Baku Stock Exchange:
   6.1.4.1.5.1. non-government securities issued by related legal entities:

5. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – subject to a maximum of 2% per legal entity, in total up to 10%.

6. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – subject to a maximum of 2% per legal entity, in total up to 5%.
   6.1.4.1.5.2. non-government securities issued by non-related legal entities:

7. non-government securities issued by legal entities with maximum 2 notches
   lower than the country credit rating – subject to a maximum of 5% per legal entity, up to 10%.

8. non-government securities issued by legal entities that are 3 notches or lower
   than the country credit rating or with no credit rating – up to 5%.
   6.1.4.2. non-government securities issued by foreign legal entities:
   6.1.4.2.1. non-government securities issued by multilateral development banks:
   6.1.4.2.1.1. non-government securities included to minimum Group 1 credit rating
   issued by multilateral development banks – subject to a maximum 10% per multilateral development bank, up to 30%.
   6.1.4.2.1.2. non-government securities included to Group 2 credit rating issued by
   multilateral development banks – subject to a maximum 10% per multilateral development bank, up to 20%.
   6.1.4.2.2. non-government securities issued by legal entities included to minimum
   Group 2 credit rating and which is not a multilateral development bank – up to 10%.
   6.1.4.2.3. non-government securities issued in the territory of the country by
   multilateral development banks included to minimum Group 2 credit rating – up to 80%.
   6.1.5. Funds invested to authorized capital of legal entities, provided that the
   share of a legal entity in authorized capital does not exceed 5% – up to 10%.
   6.1.6. Funds lent to own staff, provided that total amount of debt to one
   employee does not exceed 1% – up to 5%.
   6.2. All investments outside the country are considered in 30% of own funds on
   Item 6.1 of this Regulation.
   6.3. All investments under sub-item 6.1.2 of this Regulation are considered in 80%,
   and all investments under sub-item 6.1.3 are considered in 20% of own funds.

9. Other requirements related to the investment of funds securing insurance
   reserves and insurer's own funds
   7.1. When a part of non-government securities issued by legal entities is secured
   by the Mortgage and Credit Guarantee Fund of the Republic of Azerbaijan, that part is classified in sub-item 4.1.3 of Annex 2 of this Regulation and relevant coefficients are applied. The unsecured part of that non-government security is classified according to the relevant indicators in sub-items 4.1.4 and 4.1.5 of Annex 2 of this Regulation and relevant coefficients are applied.
   7.2. Assets pledged by the insurer are not included to the securitization of
   insurance reserves and calculation of total capital. Those assets should be only used to secure balance sheet liabilities arising from relevant operations. To distinguish these assets, the words ‘(Pledged by the Insurer)’ should be written in front of the name of the asset in the report form specified in Annex 2 of this Regulation.
   7.3. Assets pledged to the insurer are not included in securitization of insurance
   reserves. In the calculation of the total capital, appropriate coefficients should be applied to those assets in accordance with the classification of the assets acting as collateral. To differentiate those assets, the words ‘(Pledged to the Insurer)’ should be written in front of the name of the asset in the report form specified in Annex 2 of this Regulation.
   7.4. In the report form specified in Annex 3 of this Regulation, balance sheet
   liabilities related to insurance activity (less insurance reserves) and short-term liabilities not related to insurance activity are secured by other liquid assets, except for real estate and non-government securities.
   7.5. In parts 3-6 of this Regulation, credit ratings up to 'B-' or other credit rating
   equivalent to 'B-' in each case are credit ratings that are maximum 5 notches lower than the country credit rating in relation to banks, and maximum 2 notches lower than the country credit rating in relation to legal entities. In this case, the credit rating of the bank with a lower rating than 'B-' or other credit rating equivalent to it is considered to be lower than 5 notches in relation to the country credit rating, and the credit rating of the legal entity is considered to be lower than 2 notches in relation to the country credit rating.

10. Calculation of insurer’s total capital
    Total capital is equal to the sum of the parts of the amounts generated after applying the coefficients specified in Item 5.2 of this Regulation to carrying values of assets accepted for the calculation of this capital, which do not exceed the diversification norms specified in Item 6.1 of this Regulation.

11. Reports on insurer’s investment operations, own funds, and total capital
    9.1. Reports on investment operations, own funds and total capital should be
    developed quarterly by insurers as per Annexes 2 and 3 of this Regulation, in compliance with the following requirements, and should be submitted through the electronic system

of the Central Bank of the Republic of Azerbaijan (hereinafter – the Central Bank) within 20 (twenty) days after the end of each quarter:
9.1.1. indicators required in reports should be fully and correctly reflected in
accordance with the relevant report form.
9.1.2. reports should be approved by enhanced electronic signatures of the
chairperson of the Management Board and the chief accountant of the insurer (or persons temporarily performing their duties).
9.1.3. corresponding amounts in reports should be expressed in manat according
to the official exchange rate of the Central Bank as of the end of the reporting date.
9.1.4. amounts indicated in reports should be marked as zero if they are less than
fifty gapicks, and one manat if they are equal to or greater than fifty gapicks.
9.1.5. it is not allowed to make corrections in any form or have information that
is erased or completely or partially illegible.
9.2. Reports that fail to meet the requirements specified in Item 9.1 of this
Regulation are returned without being analyzed.
10. Transitional provisions
10.1. In upcoming 1 (one) year from the date of entry into force of this Regulation,
insurers should submit reports on investment operations to the Central Bank in accordance with the requirements specified in Annex 5 along with the reports specified in Annexes 2 and 3 of this Regulation.
10.2. The requirements of Part 9 of this Regulation also apply to reports submitted
in accordance with Annex 5 of this Regulation.
10.3. In the next 1 (one) year from the date of entry into force of this Regulation,
final amount of insurer's own funds and total capital is calculated as follows:
where:
Ö_V– final amount of insurer’s own funds.
Ö_V1 – amount of own funds calculated in accordance with the requirements of
Annex 5 of this Regulation on the relevant reporting date.
Ö_V2 – amount of own funds calculated in accordance with the requirements of Annexes 2 and 3 of this Regulation on the relevant reporting date. M_K – final amount of total/aggregate capital of the insurer. M_K1 –amount of total capital calculated as per Annex 5 of this Regulation on the relevant reporting date. M_K2 –amount of total capital calculated as per Annexes 2 and 3 of this Regulation on the relevant reporting date α1– the coefficient reflected in the following table applied to the amount of own funds and total capital calculated as per Annex 5 of this Regulation on the relevant reporting date.

α2– the coefficient reflected in the following table and applied to the amount of own funds and total capital calculated as per Annexes 2 and 3 of this Regulation on the relevant reporting date. Coefficients Q IV 2023 Q I 2024 Q II 2024 Q III 2024 Q IV 2024 α1 100% 75% 50% 25% 0% α2 0% 25% 50% 75% 100%
10.4. Insurers should submit to the Central Bank only the reports prepared as per
Annexes 2 and 3 of this Regulation after 1 (one) year from the date of entry into force of this Regulation.

Annex 1 to the ‘Regulation on investment operations of insurers’
Procedure of calculation of insurer’s own funds A = B - max (C - (max (D1 - 0.3 * E, 0) + max (D2 * 0.8 - 0.1 * E, 0)), 0) - max (F1, E + (F1 - F2)) - G - H - İ - J where:
A – insurer’s own funds.
B – total carrying amount of insurer’s assets.
C –balance sheet liabilities related to insurance activity (less insurance reserves. D1 – insurance and reinsurance premiums not delinquent for over 30 days. D2 – insurance and reinsurance premiums delinquent for over 31-45 days. E – insurance reserves. F1 –total amount of carrying values of insurer's assets, which represent the funds that secure insurance reserves. F2 – sum of the parts of amounts that make up total amount of funds that secure insurer's insurance reserves that do not exceed diversification norms. G – insurer’s balance sheet liabilities not related to insurance activity (except for liabilities on assets pledged as collateral). H – carrying value of assets pledged as collateral. İ – insurer’s off-balance sheet liabilities (sum of amounts guaranteed to be paid). J – Total carrying value of assets not attributed to the group of assets specified in Articles 63.1.1-63.1.6 and 64.1.1-64.1.7 of the Law and (or) funds that secure insurance reserves and other assets that are not considered during the investment of insurer's own funds.

Annex 2 to the ‘Regulation on investment operations of insurers’
Form №HB1
Report on investment of own funds, as well as funds securing insurance reserves and total capital of the insurer Insurer (reinsurer) name: ______________________________________________________________________________ Reporting period: ________________________________________________________________________________________________

No
Asset name
Carrying amounts of assets
Investment of funds securing insurance reserves Investment of insurer’s own funds Carrying value of assets, which are expressed as funds that secure insurance reserves Coefficients specified in sub-items 3.1.1.-3.1.7 of the ‘ Regulation on investment operations of insurers’ % Amounts that make up total amount of funds that secure insurance reserves (Column 4 x Column 5) Relevant insurance reserves specified in sub-items 4.1.1-4.1.7 of the ‘ Regulation on investment operations of insurers’ Actual diversification rates ((Column 6 / Column 7) x 100%) Diversification rates specified in sub-items 4.1.1-4.1.7 of the ‘ Regulation on investment operations of insurers’ Parts of amounts that make up total amount of funds that secure insurance reserves not exceeding diversification norms (where Column 8 ≤ Column 9, Column 6; otherwise, Column 7 x Column 9) Carrying values of assets accepted for calculation of total capital Coefficients specified in sub-items 5.2.1-5.2.6 of the ‘ Regulation on investment operations of insurers’ , % Amounts that make up total capital (Column 11 x Column 12) Actual diversification rates ((Column 13 / result of Column 13)) x 100% Diversification rates specified in sub-items 6.1.1-6.1.6 of the ‘ Regulation on investment operations of insurers’ , % Parts of amounts that make up total capital not exceeding diversification norms (where Column 14 ≤ Column 15, Column 13; otherwise result of Column 13 x Column 15) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

1
Government securities, including
:
X
1.1.
Government securities of the
Republic of
Azerbaijan
100
1.1.1. 100
1.1.2. 100 … 100
Interim total on
1.1
X
1.2. government
securities of foreign countries
X
1.2.1. government
securities of foreign countries included to the minimum Group 1 credit rating 100 30 100 30
1.2.1.1. 100 30 100 30
1.2.1.2. 100 30 100 30
... 100 30 100 30
Interim total on
1.2.1
X
1.2.2. government
securities of foreign countries included to the Group 2 credit rating 100 20 100 20
1.2.2.1. 100 10 100 10
1.2.2.2. 100 10 100 10 … 100 10 100 10

interim total on
1.2.2
X
1.2.3. eurobonds issued by
foreign countries included to the
Group 3 credit rating
100 10 100 10
1.2.3.1. 100
5 100
5
1.2.3.2. 100
5 100
5
... 100
5 100
5 interim total on
1.2.3
X
1.2.4.
Except for sub
-item
1.2.3, government securities of foreign countries included to the credit rating group lower than the Group 2 credit rating 0 1.2.4.1. 0 1.2.4.2. 0 ... 0 interim total on 1.2.4 X interim total on 1.2 X Interim total on 1 X 2 Funds in bank accounts X

2.1. funds in bank
accounts opened with banks located in the territory of the country X 2.1.1. funds in bank accounts opened with related banks X 2.1.1.1. funds in bank accounts opened with banks with maximum 5 notches lower than the country credit rating 100 50 100 50
2.1.1.1.1. 100 20 100 20
2.1.1.1.2. 100 20 100 20 … 100 20 100 20
interim total on
2.1.1.1
X
2.1.1.2. funds in bank
accounts opened with banks with 6 notches and lower credit rating than the country credit rating or with no credit rating 80 50 80 50
2.1.1.2.1. 80 20 80 20
2.1.1.2.2. 80 20 80 20 … 80 20 80 20
interim total on
2.1.1.2
X

interim total on
2.1.1
X
2.1.2. funds in bank
accounts opened with non
-related banks
X
2.1.2.1. funds in bank
accounts opened with banks with maximum 5 notches lower than the country credit rating 100 80 100 80
2.1.2.1.1. 100 30 100 30
2.1.2.1.2. 100 30 100 30 … 100 30 100 30
interim total on
2.1.2.1
X
2.1.2.2. funds in bank
accounts opened with banks with 6 notches and lower credit rating than the country credit rating or with no credit rating 80
2.1.2.2.1. 80 30 80 30
2.1.2.2.2. 80 30 80 30 … 80 30 80 30
interim total on
2.1.2.2
X

interim total on
2.1.2
X
2.1.3. the remaining part
of funds given to portfolio management of investment companies in the form of cash in the bank account as of the reporting date 80 50 80 50
2.1.3.1. 80 20 80 20
2.1.3.2. 80 20 80 20
... 80 20 80 20 interim total on
2.1.3
X interim total on
2.1
X
2.2. funds in bank
accounts opened with banks located outside the country X 2.2.1. funds in bank accounts opened with related banks X 2.2.1.1. funds in bank accounts opened with banks included to Group 0 credit rating 100 15 100 15
2.2.1.1.1. 100
5 100
5
2.2.1.1.2. 100
5 100
5

... 100
5 100
5 interim total on
2.2.1.1
X
2.2.1.2. finds in bank
accounts opened with banks included to Groups 1 and 2 credit rating 100 10 100 10
2.2.1.2.1. 100
5 100
5
2.2.1.2.2. 100
5 100
5
... 100
5 100
5 interim total on
2.2.1.2
X
2.2.1.3. funds in bank
accounts opened with banks included to the credit rating group lower than the Group 2 credit rating 0 2.2.1.3.1. 0 2.2.1.3.2. 0 ... 0 interim total on 2.2.1.3 X interim total on 2.2.1 X 2.2.2. funds in bank accounts opened with non -related banks X

2.2.2.1. funds in bank
accounts opened with banks included to Group 0 credit rating 100 30 100 30
2.2.2.1.1. 100 10 100 10
2.2.2.1.2. 100 10 100 10
... 100 10 100 10 interim total on
2.2.2.1
X
2.2.2.2. finds in bank
accounts opened with banks included to Groups 1 and 2 credit rating 100 20 100 20
2.2.2.2.1. 100 10 100 10
2.2.2.2.2. 100 10 100 10
... 100 10 100 10 interim total on
2.2.2.2
X
2.2.2.3. funds in bank
accounts opened with banks included to the credit rating group lower than the Group 2 credit rating 0 2.2.2.3.1. 0 2.2.2.3.2. 0 ... 0 interim total on 2.2.2.3 X

interim total on
2.2.2
X interim total on
2.2
X interim total on
2
X
3
Real estate, including
:
X
3.1. carrying amount of
real estate owned by the insurer and which is intended for insurance activities 70 10 70 10
3.1.1. 70
5 70
5
3.1.2. 70
5 70
5
... 70
5 70
5 interim total on
3.1
X
3.2.
Carrying amount of other real estate owned by the insurer with investment purposes 70 20 70 20
3.2.1. 70 10 70 10
3.2.2. 70 10 70 10
... 70 10 70 10 interim total on
3.2
X

interim total on
3
X
4
Non
-government securities, including
X
4.1. non
-government securities issued by domestic legal entities X 4.1.1. non -government securities backed with government guarantee 100
4.1.1.1. 100
4.1.1.2. 100
... 100 interim total on
4.1.1
X
4.1.2.
Mortgage bonds issued by the
Mortgage and Credit
Guarantee Fund of the Republic of
Azerbaijan
100 50 100 50
4.1.2.1. 100 50 100 50
4.1.2.2. 100 50 100 50
... 100 50 100 50 interim total on
4.1.2
X
4.1.3. the portion of non

• government
  securities issued by legal entities backed 100 50 100 50

by the Mortgage and
Credit Guarantee
Fund of the
Republic of
Azerbaijan
4.1.3.1. 100 50 100 50
4.1.3.2. 100 50 100 50
... 100 50 100 50 interim total on
4.1.3
X
4.1.4.
Non
-government securities listed in the Baku Stock Exchange X 4.1.4.1. non -government securities issued by related legal entities X 4.1.4.1.1. non -government securities issued by legal entities with maximum 2 notches lower than the country credit rating 60 15 60 15
4.1.4.1.1.1. 60
5 60
5
4.1.4.1.1.2. 60
5 60
5
... 60
5 60
5 interim total on
4.1.4.1.1
X
4.1.4.1.2. non
-government securities issued by legal entities that are 3 notches or lower than the country 40 10 40 10

credit rating or with no credit rating
4.1.4.1.2.1. 40
5 40
5
4.1.4.1.2.2. 40
5 40
5
... 40
5 40
5 interim total on
4.1.4.1.2
X interim total on
4.1.4.1
X
4.1.4.2. non
-government securities issued by non
-related legal entities
X
4.1.4.2.1. non
-government securities issued by legal entities with maximum 2 notches lower than the country credit rating 80 30 80 30
4.1.4.2.1.1. 80 15 80 15
4.1.4.2.1.2. 80 15 80 15
... 80 15 80 15 interim total on
4.1.4.2.1
X
4.1.4.2.2. non
-government securities issued by legal entities that are 3 notches or lower than the country credit rating or with no credit rating 60 20 60 20
4.1.4.2.2.1. 60 10 60 10

4.1.4.2.2.2. 60 10 60 10
... 60 10 60 10 interim total on
4.1.4.2.2
X interim total on
4.1.4.2
X interim total on
4.1.4
X
4.1.5.
Non
-government securities not listed in the Baku Stock Exchange X 4.1.5.1. non -government securities issued by related legal entities X 4.1.5.1.1. non -government securities issued by legal entities with maximum 2 notches lower than the country credit rating 30 10 30 10
4.1.5.1.1.1. 30
2 30
2
4.1.5.1.1.2. 30
2 30
2
... 30
2 30
2 interim total on
4.1.5.1.1
X
4.1.5.1.2. non
-government securities issued by legal entities that are 3 notches or lower than the country 20 5 20 5

credit rating or with no credit rating
4.1.5.1.2.1. 20
2 20
2
4.1.5.1.2.2. 20
2 20
2
... 20
2 20
2 interim total on
4.1.5.1.2
X interim total on
4.1.5.1
X
4.1.5.2. non
-government securities issued by non
-related legal entities
X
4.1.5.2.1. non
-government securities issued by legal entities with maximum 2 notches lower than the country credit rating 40 10 40 10
4.1.5.2.1.1. 40
5 40
5
4.1.5.2.1.2. 40
5 40
5
... 40
5 40
5 interim total on
4.1.5.2.1
X
4.1.5.2.2. non
-government securities issued by legal entities that are 3 notches or lower than the country credit rating or with no credit rating 30 5 30 5
4.1.5.2.2.1. 30
5 30
5

4.1.5.2.2.2. 30
5 30
5
... 30
5 30
5 interim total on
4.1.5.2.2
X interim total on
4.1.5.2
X interim total on
4.1.5
X interim total on
4.1
X
4.2. non
-government securities issued by foreign legal entities X 4.2.1. non -government securities issued by multilateral development banks X 4.2.1.1. non -government securities included to minimum Group 1 credit rating issued by multilateral development banks 100 30 100 30
4.2.1.1.1. 100 10 100 10
4.2.1.1.2. 100 10 100 10
... 100 10 100 10 interim total on
4.2.1.1
X
4.2.1.2. non
-government securities included to 100 20 100 20

Group 2 credit rating issued by multilateral development banks
4.2.1.2.1. 100 10 100 10
4.2.1.2.2. 100 10 100 10
... 100 10 100 10 interim total on
4.2.1.2
X
4.2.1.3. non
-government securities issued by multilateral development banks included to the credit rating group lower than the Group 2 credit rating 0 4.2.1.3.1. 0 4.2.1.3.2. 0 ... 0 interim total on 4.2.1.3 X interim total on 4.2.1 X 4.2.2. non -government securities issued by foreign legal entities that are not multilateral development banks X
4.2.2.1. non
-government securities issued by 100 10 100 10

foreign legal entities included to minimum Group 2 credit rating
4.2.2.1.1. 100 10 100 10
4.2.2.2.2. 100 10 100 10 … 100 10 100 10
interim total on
4.2.2.1
X
4.2.2.2. non
-government securities issued by foreign legal entities included to the credit rating group lower than the Group 2 credit rating 0 4.2.2.2.1. 0 4.2.2.2.2. 0 ... 0 interim total on 4.2.2.2 X interim total on 4.2.2 X 4.2.3. non -government securities issued in the territory of the country by multilateral development banks X 4.2.3.1. non -government securities issued in the territory of the 100 80 100 80

country by multilateral development banks included to minimum Group 2 credit rating
4.2.3.1.1. 100 80 100 80
4.2.3.1.2. 100 80 100 80 … 100 80 100 80
interim total on
4.2.3.1.
X
4.2.3.2. non
-government securities issued in the territory of the country by multilateral development banks included to the credit rating group lower than the Group 2 credit rating 0 4.2.3.2.1. 0 4.2.3.2.2. 0 … 0 interim total on 4.2.3.2. X interim total on 4.2.3 X interim total on 4.2 X

interim total on
4
X
5
Insurance and reinsurance premiums to be received on insurance and reinsurance agreements X 5.1. insurance and reinsurance premiums delinquent up to 30 days as of the reporting date 100 30 X 5.2. insurance and reinsurance premiums delinquent for 31 -45 days as of the reporting date 80 10 X 5.3. insurance and reinsurance premiums delinquent for over 45 days as of the reporting date 0 0 X interim total on 5 X 6 The share of reinsurers in insurance reserves, including :
X

6.1.
The share of reinsurers in reported, but not adjusted loss reserves 100 100 X 6.2. the share of reinsurers in other reserves 100 60 X interim total on 6 X 7 Funds (principal amount) lent to policyholders and the insured on endowment life insurance 100 50 X
7.1. 100 50
X
7.2. 100 50
X
... 100 50
X interim total on
7
X
8
Funds invested to authorized capital of legal entities, including :
X
8.1.
Funds invested to authorized capital of related party legal entities X 50 10 8.1.1. X 50 5 8.1.2. X 50 5 ... X 50 5

interim total on
8.1
X
8.2.
Funds invested to authorized capital of not related party legal entities X 80 10 8.2.1. X 80 5 8.2.2. X 80 5 ... X 80 5 interim total on 8.2 X interim total on 8 X 9 Funds lent to own staff, including per employee :
X 50
5
9.1.
X 50
1
9.2.
X 50
1
…
X 50
1 interim total on
9
X
10 Other assets, including
:
X
10.1.
X
10.2.
X
…
X
TOTAL
X

Note:

1. ‘Other assets’ in Column 2 means other assets on the active part of the balance sheet, except for the assets specified in Items 1-
   9 of that column, and they should be written in the report sequentially (according to the active part of the balance sheet).
2. Total of Column 10 shows total amount of funds securing insurance reserves.
3. Total of Column 16 shows amount of total capital.
4. Total of Column 11 should not be more than the amount of insurer’s own funds calculated in Form №HB2.
5. Assets listed in Column 2 are listed in Column 1 by items, sub-items, and sub-clauses.
6. In each of Columns 10 and 16 columns of the sub-items of the sub-clauses divided into sub-items, on the lines 'Interim total',
   the sum of amounts of parts of amounts channeled to individual assets for a specific group of assets not exceeding the diversification rates set for those assets and amounts channeled to that group of assets in general for this group of assets the smaller of the part not exceeding the specified diversification rate, the sum of the 'Interim totals' of corresponding sub-items is shown in the 'Interim totals' of the subsections, and the sum of the 'Interim totals' of the corresponding sub-items is shown in the 'Interim totals' of the items.
7. In Columns 10 and 16, within each 'Interim total' row for the sub-items not divided into subsections, the sum of the amounts
   allocated to individual assets within a specific asset group should not exceed the diversification rates set for those assets. The 'Interim total' for the items displays the smaller value between the part that adheres to the specified diversification rate and the sum of the 'Interim totals' from corresponding subsections.

Annex 3 to the ‘Regulation on investment operations of insurers’
Form №HB2
Report on insurer’s own funds
Insurer’s (reinsurer’s) Name: __________________________________________________________________ Reporting period: __________________________________________________________________________________ No Indicator code of the row amount (in manat) 1 Total asset value 1000 2 Insurance and reinsurance premiums non-delinquent for over 30 days 1100 3 Insurance and reinsurance premiums delinquent for 31-45 days 1150 4 Insurance reserves 1200 5 Interim total (if «1100» - «1200» * 0,3 ≥ 0, then «1100» - «1200» * 0,3; if «1100» - «1200» * 0,3 < 0 than 0) + (if «1150» * 0,8 - «1200» * 0,1 ≥ 0, then «1150» * 0,8 - «1200»

• 0,1; if «1150» * 0,8 - «1200» * 0,1 < 0 then 0)
  1300
  6 Insurance related balance sheet liabilities (less insurance reserves) 1400 7 Interim total (if «1400» - «1300» ≥ 0, then «1400» - «1300»; if «1400» - «1300» < 0 then 0) 1500 8 Total value of assets that secure insurance reserves 1600 9 Total of the parts of the amounts that make up total amount of funds securing insurance reserves not exceeding diversification norms 1650 10 Interim total (if «1650» - «1200» ≥ 0, then «1600»; if «1650» - «1200» < 0 then «1200» + («1600» - «1650»)) 1700

11
Not insurance related balance sheet liabilities (except for liabilities on pledged assets) 1800 12 Carrying value of pledges assets 1850 13 Off-balance sheet liabilities (total guaranteed amount to be paid) 1900 14 Total carrying value of other assets not attributed to the group of assets specified in Articles 63.1.1-63.1.6 and 64.1.1-64.1.7 of the Republic of Azerbaijan ‘on Insurance activity’ and/or not considered during the investment of funds that secure insurance reserves and insurer’s own funds 2000 15 Insurer’s own funds («1000» - «1500» - «1700» - «1800» - «1850» - «1900» - «2000») 2100

Annex 4 to the ‘Regulation on investment operations of insurers’

Credit rating groups issued by international reputable rating agencies Credit rating group Credit rating Standard& Poor’s (S&P) Fitch Ratings Inc. Moody’s Investors Service A.M. Best Company 0 AAA AAA Aaa aaa 1 AA+ AA+ Aa1 aa+ AA AA Aa2 aa AA- AA- Aa3 aa￾2 A+ A+ A1 a+ A A A2 a A- A- A3 a￾3 BBB+ BBB+ Baa1 bbb+ BBB BBB Baa2 bbb BBB- BBB- Baa3 bbb￾4 BB+ BB+ Ba1 bb+ BB BB Ba2 bb BB- BB- Ba3 bb-

Annex 5 to the ‘Regulation on investment operations
of insurers’
Transitional adjustments related to investment operations of insurers

1. Coefficients used in the investment of funds that secure investment reserves
   1.1. The following coefficients are applied to carrying values of assets that represent
   funds that secure insurance reserves:
   1.1.1. Government securities – 100%.
   1.1.2. Funds in bank accounts – 100%.
   1.1.3. Real estate – 80%.
   1.1.4. Non-government securities – 80%.
   1.1.5. insurance and reinsurance premiums to be received under insurance and
   reinsurance agreements:
   1.1.5.1. insurance and reinsurance premiums non-delinquent and/or delinquent for
   less than 90 days as of the reporting date – 100%.
   1.1.5.2. insurance and reinsurance premiums delinquent for over 90 days as of the
   reporting date – 0%.
   1.1.6. The share of reinsurers in insurance reserves – 100%.
   1.1.7. funds lent to policyholders or the insured on endowment life insurance–100%.
2. Diversification norms to be considered during the investment of funds that secure
   insurance reserves
   2.1. During the calculation of total amount of funds securing insurance reserves, the
   part of amounts that meets the following diversification norms is accepted after applying
   the coefficients specified in Item 1.1 of this Annex to carrying values of the assets in which those funds are expressed:
   2.1.1. Government securities – up to 100% of insurance reserves.
   2.1.2. Funds in bank accounts – subject to a maximum 30% per bank, up to 80% of
   insurance reserves.
   2.1.3. Real estate – subject to a maximum 10% per real estate, up to 20% of insurance
   reserves.
   2.1.4. Non-government securities – up to 15% of insurance reserves.
   2.1.5. insurance and reinsurance premiums to be received under insurance and
   reinsurance agreements, not delinquent and/or delinquent for up to 90 days as of the reporting date – up to 30% of insurance reserves.

2.1.6. The share of reinsurers in insurance reserves (except for the share of reinsurers
in reported, but not adjusted loss reserves) is taken as 75% of insurance reserves. The share of reinsurers in reported, but not adjusted loss reserves is taken in actual amount.
2.1.7. funds lent to policyholders or the insured on endowment life insurance – up
to 50% of mathematical reserves (less the share of reinsurers in mathematical reserves).
2.2. Total amount of funds allocated for insurance reserves equals the aggregate of
received amounts not exceeding the diversification norms outlined in Item 2.1 of this
Annex, adjusted by the coefficients specified in Item 1.1 of this Annex applied to the
carrying values of the assets backing those reserves.
2.3. Total amount of funds securing insurance reserves should not be less than the
amount of those reserves.
3. Insurer’s own funds and the investment of these funds
3.1. Insurer’s own funds are calculated with the below formula:
A = B - max (C - max (D - 0,3 * E, 0), 0) - max (F1, E + (F1 - F2)) - G - İ - J where:
A – insurer’s own funds.
B – total carrying value of insurer’s assets.
C – insurer’s insurance related balance sheet liabilities (less insurance reserves). D – insurance and reinsurance premiums not delinquent for up to 90 days. E – insurance premiums. F1 – total amount of carrying values of assets securing insurer’s insurance reserves. F2 –sum of the parts of amounts that make up total amount of funds that secure insurer's insurance reserves not exceeding diversification norms. G – insurer’s balance sheet liabilities not related to insurance activities. İ – insurer’s off-balance sheet liabilities (total amounts guaranteed to be paid). J – total carrying value of assets not attributed to the group of assets specified in Articles 63.1.1-63.1.6 and 64.1.1-64.1.7 of the Law.
3.2. To calculate insurer's total capital, the following coefficients are applied to
carrying values of its assets, which represent its own funds:
3.2.1. Government securities – 100%.
3.2.2. Funds in bank accounts – 100%.
3.2.3. Outstanding value of real estate – 80%.
3.2.4. Non-government securities – 80%.
3.2.5. Funds invested to authorized capital of other legal entities – 80%.
3.2.6. Funds lent to own staff – 80%.

4. Diversification norms to be considered during the investment of insurer’s own
   funds
   4.1. During the calculation of insurer's total capital, the coefficients specified in Item
   3.2 of this Annex are applied to carrying values of the assets considered in this calculation.
   The portion of the ratio between generated amounts and total sum of those amounts that adheres to the following diversification norms is then accepted:
   4.1.1. Government securities – up to 100%.
   4.1.2. Funds in bank accounts – subject to a maximum 30% per bank, up to 80%.
   4.1.3. Real estate – subject to a maximum 10% per real estate, up to 20%.
   4.1.4. Non-government securities – up to 15%.
   4.1.5. funds invested in authorized capital of other legal entities, provided that the
   share in authorized capital of one legal entity does not exceed 5% and does not exceed 45% of the authorized capital of the relevant legal entity, except for the cases provided for in Article 66.4 of the Law – up to 10%.
   4.1.6. Funds lent to own staff, provided that total amount of debt to one employee
   does not exceed 1% – up to 10%.
5. Procedure of the calculation of insurer’s total capital
   Total capital is equal to the sum of parts of amounts generated after applying the coefficients specified in Item 3.2 of this Annex to carrying values of the assets accepted for the calculation of this capital, not exceeding the diversification norms specified in Item
   4.1 of this Annex.

Form № HB3
Report on the investment of insurer’s own funds, as well as funds securing insurance reserves and total capital Insurer’s (reinsurer’s) name: ____________________________________________________________________________ Reporting date: ____________________________________________________________________________________________ No Asset name Carrying value of assets Investment of funds securing insurance reserves Investment of insurer’s own funds Carrying value of assets, which are expressed as funds that secure insurance reserves Coefficients specified in sub-item 1.1.1-1.1.7 of this
Annex,
%
Amounts that make up total amount of funds that secure insurance reserves (Column 4 x Column 5) Relevant insurance reserves specified in sub- 2.1.1-
2.1.7 of this Annex
Actual diversification rates ((Column 6 / Column 7) x 100%) Diversification rates specified in sub-items 2.1.1-
2.1.7 -of this Annex,
%
Parts of amounts that make up total amount of funds that secure insurance reserves not exceeding diversification norms (where Column 8 ≤ Column 9, Column 6; otherwise, Column 7 x Column 9) Carrying values of assets accepted for calculation of total capital Coefficients specified in sub-items 3.2.1-3.2.6 of this
Annex,
%
Amounts that make up total capital (Column 11 x Column 12) Actual diversification rates ((Column 13 / result of Column 13)) x 100% Diversification rates specified in sub-items 4.1.1-
4.1.6 of this Annex %
Parts of amounts that make up total capital not exceeding diversification norms (where Column 14 ≤ Column 15, Column 13; otherwise result of Column 13 x Column 15) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1 Government securities, including on issues:
100
1.1 100

1.2 100
1.3 100 … 100
interim total on 1
X
2
Funds in bank accounts, including per bank :
100 80 100 80
2.1 100 30 100 30
2.2 100 30 100 30
2.3 100 30 100 30 … 100 30 100 30
interim total on 2
X
3
Real estate, including per property
:
80 20 80 20
3.1 80 10 80 10
3.2 80 10 80 10
3.3 80 10 80 10 … 80 10 80 10
interim total on 3
X
4
Non
-government securities, including on issues :
80 15 80 15
4.1 80 15 80 15

4.2 80 15 80 15
4.3 80 15 80 15
… 80 15 80 15 interim total on 4
X
5
Insurance and reinsurance premiums to be received under insurance and reinsurance agreements X 5.1 insurance and reinsurance premiums not delinquent over 90 days 100 30 X 5.2 insurance and reinsurance premiums delinquent over 90 days 0 0 X interim total on 5 X

6
The share of reinsurers in insurance reserves, including :
X
6.1
The share of reinsurers in reported, but not adjusted loss reserves 100 100 X 6.2 the share of reinsurers in other reserves, except for reported, but not adjusted loss reserves 100 50 X interim total on 6 X 7 Funds lent to policyholders and the insured on endowment life insurance 100 50 X 8 Funds invested in authorized capital of other legal entities, including per legal entity :
X 80 10
8.1
X 80
5
8.2
X 80
5
8.3
X 80
5
…
X 80
5

interim total on 8
X
9
Funds lent to own staff, including per employee:
X 80 10
9.1 X 80 1
9.2 X 80 1
9.3 X 80 1
… X 80 1 interim total on 9
X
10 Other assets, including: X
… … X
TOTAL X
Note:

1. ‘Other assets’ in Column 2 means other assets on the active part of the balance sheet, except for the assets specified in Items 1-9 of that
   column, and they should be written in the report sequentially (according to the active part of the balance sheet).

2. Total of Column 10 shows total amount of funds securing insurance reserves.

3. Total of Column 16 shows amount of total capital.

4. Carrying amounts of assets specified in rows 5, 6 and 7 are written in full amount in Column 9.

5. Total of Column 11 should not be more than the amount of insurer’s own funds calculated in Form №HB4.

6. Except for the 'Interim final' rows relating to assets 5 and 6 in Column 2, in other 'Interim total' rows in Column 10, the amounts allocated
   to individual assets within a specific asset group do not surpass the diversification rates designated for those assets. The allocation is capped at the lesser of the sum of its parts and the total amount designated for that asset group, ensuring it does not exceed the specified diversification rates for that group of assets.

7. In Column 10 on the ‘Interim total’ on assets 5 and 6 in Column 2 the sum of the parts of the amounts directed to individual assets for a
   specific group of assets that do not exceed the diversification rates set for those assets.

8. In column 16 of each 'Interim total' row, the displayed sum is the smaller of two values: the total of amounts allocated to individual assets
   within a specific asset group, ensuring they do not surpass the diversification percentages set for those assets, and the total sum allocated to that asset group overall, ensuring it does not exceed the diversification percentage determined for that group of assets.

Form № HB4
Report on insurer’s own funds
Insurer’s (reinsurer’s) name: __________________________________________________ Reporting period: _____________________________________________________________________ No Indicator Code amount (in manat) 1 Total asset value 1000 2 Insurance and reinsurance premiums non-delinquent for over 90 days 1100 3 Insurance reserves 1200 4 Interim total (if «1100» - «1200» * 0,3 ≥ 0, then «1100» - «1200» * 0,3; if «1100» - «1200» * 0,3 < 0 then 0) 1300 5 Insurance related balance sheet liabilities (less insurance reserves) 1400 6 Interim total (if«1400» - «1300» ≥ 0, then «1400» - «1300»; if «1400»

• «1300» < 0 then 0) 1500
  7 Total value of assets that secure insurance reserves 1600 8 Total of the parts of the amounts that make up total amount of funds securing insurance reserves not exceeding diversification norms 1650 9 Interim total (if «1650» - «1200» ≥ 0, then «1600»; if «1650» - «1200» < 0 then «1200» + («1600» - «1650»)) 1700 10 Not insurance related balance sheet liabilities 1800 11 Off-balance sheet liabilities (total guaranteed amount to be paid) 1900 12 Total carrying value of other assets not attributed to the group of assets specified in Articles 63.1.1-63.1.6 and 64.1.1-64.1.7 of the Republic of Azerbaijan ‘on Insurance activity’ 2000 13 Insurer’s own funds («1000» - «1500» - «1700» - «1800» - «1900» - «2000») 2100