Regulation on Recovery Plan Requirements, Implementation Period Calculation, and Reporting Procedures

Regulation on requirements for a recovery plan, calculation of its implementation period, form and procedure for submitting reports on its implementation

1. General provisions
   1.1. The Regulation on requirements for a recovery plan, calculation of its
   implementation period, form and submission of reports on its implementation (hereinafter referred to as the "Regulation") has been developed in accordance with
   Article 96-2.2 of the Law of the Republic of Azerbaijan "On Insurance Activities" (the
   "Law") and determines the requirements for a recovery plan, calculation of its implementation period, form and submission of reports on its implementation, which are required to be applied by the Financial Markets Supervisory Authority of the Republic of Azerbaijan (the “Authority”) when an insurer's financial condition deteriorates and capital losses occur.
   1.2. The terms used in this Regulation shall have the meaning defined in the Law of
   the Republic of Azerbaijan "On Insurance Activities".
2. Requirements for the recovery plan
   2.1. When an insurer's total capital drops to 90 percent of the required amount, the
   Authority requires the insurer to submit a recovery plan (the “Plan”) that includes measures to restore its financial position and lost capital, as well as the timeframe for implementing these measures.
   2.2. The Plan is prepared according to the insurer's activities and considers the
   volume and complexity of the risks to which the insurer is exposed and is approved by the Board of Directors of the insurer.
   2.3. The structure of the Plan is composed of two parts:
   2.3.1. analysis of the insurer's financial situation;
   2.3.2. measures to restore the insurer's financial condition and lost capital.
   2.4. The Plan shall include at least the following:
   2.4.1. the status of the financial indicators specified in Appendix No. 1 on the
   analysis of the insurer's financial condition;
   2.4.2. description of existing and projected risks for the effective and timely
   implementation of the Plan;
   2.4.3. a detailed description of the process for determining the liquidity and value of
   the insurer's main business lines, operations, and assets;
   2.4.4. additional capital and liquid funds to maintain the insurer's solvency or
   restore its financial position;
   2.4.5. measures to be taken to protect and increase the insurer's capital;

2.4.6. calculations of the expected results at the end of each month regarding the
implementation of the Plan for regulatory requirements for aggregate capital and insurance reserves;
2.4.7. measures to identify and regulate the impacts of risks;
2.4.8. evaluation of new insurance (reinsurance) contracts to be concluded,
considering the risks in insurance classes with a high loss rate, to restore the financial situation;
2.4.9. reassessment of reinsurers and reinsurance contracts;
2.4.10. measures planned to be implemented as a result of the analysis to improve
the insurer's financial situation and restore lost capital;
2.4.11. information on the results to be achieved, including the implementation
period of the planned measures and the amount of the predicted indicators.
2.5. The following documents containing information about the Plan (decisions,
orders and instructions of the insurer's management bodies (Board of Directors, Management Board) and other supporting documents) are attached:
2.5.1. documents confirming the decisions of the insurer's executive body on
reducing the insurer's expenses, as well as on re-evaluating the activities of the insurer's branches and (or) representative offices (if any);
2.5.2. a certified copy of the protocol of the executive body of the insurer on the
revaluation of reinsurance contracts and reinsurers under reinsurance contracts;
2.5.3. protocols (if any) confirming the intention of the founders (participants) and
third parties to invest additional funds in the insurer's authorized capital, issue additional shares and securities, or provide other financial assistance to improve the insurer's financial situation;
2.5.4. documents confirming the decisions of the insurer's executive body on
planned measures to ensure the implementation of regulatory requirements for aggregate capital and insurance reserves stipulated by the legislation;
2.5.5. actuarial opinion on the reassessment and justification of insurance tariffs for
insurance classes with a high loss rate;
2.5.6. supporting documents regarding the suspension of the payment of insurer
dividends (if any);
2.5.7. decision of the Board of Directors on imposing a duty on the insurer's
management to implement specific measures within a specified period;
2.5.8. documents reflecting the composition of the insurer's expenses and the
number of the insurer's employees;
2.5.9. forecasted assessments of the insurer's investment operations, insurance, and
other activities (forecast of indicators on the insurer's profit and loss statement, forecasting the composition and structure of the insurer's assets and liabilities);
2.5.10. documents reflecting decisions and instructions on the implementation of
measures to be taken by the insurer in relation to the indicators in the reporting forms in paragraph 4.1 of this Regulation.

3. Plan implementation period
   3.1. The Plan will be prepared and implemented within the following timeframes:
   3.1.1. upon receiving the Authority's written request for the Plan's preparation, the
   insurer shall draft the Plan within the specified timeframe and submit it to the Authority in writing for consideration. The deadline for preparing and submitting the Plan draft for consideration may not exceed 30 business days.
   3.1.2. If the Authority has proposals regarding the draft Plan, it must submit a
   written notification to the insurer within 10 business days, requesting additions and/or amendments to the Plan.
   3.1.3. The insurer is given an additional 5 working days to make additions and/or
   changes. Within that period, the insurer finalizes the project and resubmits it in writing to the Authority.
   3.1.4. If the Authority approves the draft Plan, it will send a written notification to
   the insurer within 5 business days. Once the plan is approved by the Authority, the insurer begins to implement it.
   3.2. The following circumstances are considered when determining the
   implementation period of the plan:
   3.2.1. The implementation period of the measures under the Plan is determined not
   to exceed 6 months, until the insurer's total capital equals its required capital.
   3.2.2. The Plan is considered implemented if there is no capital deficiency within the
   next 6 months after the insurer's capital requirement is met.
4. Reporting forms and submissions regarding the implementation of the Plan
   4.1. Reports on the implementation of the Plan are submitted to the Authority in the
   following forms and at the following intervals, with an increasing summary:
   4.1.1. Report on the implementation status of actions taken under the Plan
   (Appendix 2), weekly, monthly;
   4.1.2. Report on the insurer's financial condition in accordance with the
   requirements of the Plan (Appendix 3), monthly;
   4.1.3. Report on the insurer's assets and liabilities in accordance with the
   requirements of the Plan (Appendix 4), monthly;
   4.1.4. Report on the insurer's income and expenses in accordance with the
   requirements of the Plan (Appendix 5), monthly;
   4.1.5. Report on insurance premiums calculated under insurance contracts, refunded
   premiums and insurance payments (Appendix 6), monthly;
   4.1.6. Report on the investment direction of the insurer's own funds, as well as funds
   providing insurance reserves, and aggregate capital established by Appendix No. 1 of the Regulations on Investment Operations of Insurers approved by the Resolution No. Q-11 of the Ministry of Finance of the Republic of Azerbaijan dated December 21, 2012, Form No. 6, monthly;

4.1.7. Report on the insurer's own funds, as determined by Appendix No. 2 of the
Regulations on Investment Operations of Insurers approved by the Resolution No. Q-11 of the Ministry of Finance of the Republic of Azerbaijan dated December 21, 2012, Form No. 7, monthly;
4.1.8. Report on insurance contracts approved by the Resolution No. Q-08 of the
Ministry of Finance of the Republic of Azerbaijan dated March 27, 2014, Form No. 12, monthly;
4.1.9. Report on calculated insurance (reinsurance) premiums, refunded insurance
(reinsurance) premiums and insurance payments under insurance (reinsurance) contracts approved by the Resolution No. Q-08 of the Ministry of Finance of the Republic of Azerbaijan dated March 27, 2014, Form No. 13, monthly;
4.1.10. Report on reinsurance operations approved by the Resolution No. Q08 of the
Ministry of Finance of the Republic of Azerbaijan dated March 27, 2014, Form No. 15, monthly;
4.1.11. Report on the costs of carrying out work approved by the Resolution No. Q08
of the Ministry of Finance of the Republic of Azerbaijan dated March 27, 2014, Form No. 19, monthly;
4.1.12. Report on commissions calculated for insurance intermediaries approved by
the Resolution No. Q08 of the Ministry of Finance of the Republic of Azerbaijan dated March 27, 2014, Form No. 21, monthly;
4.1.13. Report on some indicators of an insurer (reinsurer) and a legal entity
insurance broker approved by the Resolution No. Q08 of the Ministry of Finance of the Republic of Azerbaijan dated March 27, 2014, Form No. 23, monthly;
4.1.14. Report on the shareholders of the insurer (reinsurer) and persons
participating in their (shareholders') authorized capital approved by the Resolution No. Q08 of the Ministry of Finance of the Republic of Azerbaijan dated March 27, 2014, Form No. 23/I, monthly;
4.1.15. Insurance (Reinsurance) Contract Accounting Journal established by
Appendix No. 1 of the Regulations for the formation of insurance reserves for life
insurance and non-life insurance approved by the Resolution No. Q-01 of the Ministry of Finance of the Republic of Azerbaijan dated December 6, 2011, monthly;
4.1.16. Loss Accounting Journal established by Appendix No. 2 of the Regulations
for Formation of Insurance Reserves for Life Insurance and Non-Life Insurance approved by the Resolution No. Q-01 of the Ministry of Finance of the Republic of Azerbaijan dated December 6, 2011, monthly.
4.2. Reports on the implementation of the Plan must be signed by the Chairman of
the Board of Directors and the Chief Accountant and certified with the seal of that insurer.
4.3. Weekly report forms must be submitted to the Authority within 3 calendar days
after the end of the relevant week, and monthly report forms must be submitted to the Authority within 7 calendar days after the end of the relevant month.

Appendix No. 1
to the Regulation on requirements for a recovery plan, calculation of its implementation period, form and procedure for submitting reports on its implementation Insurer’s financial indicators No. Financial indicators Current status

1. Ratio of calculated insurance premiums to total capital
2. Ratio of total capital to assets
3. Ratio of total capital to insurance reserves
4. Ratio of liquid assets to total assets
5. Ratio of accrued insurance (reinsurance) premiums to total
   assets
6. Ratio of commissions paid to insurance intermediaries to
   capital
7. Conservation ratio
8. Loss ratio
9. Expense ratio
   Note:

• Total equity is calculated by subtracting total liabilities from total assets.
• The conservation ratio is calculated as the ratio of insurance premiums, net of
  reinsurer's share, to total insurance premiums.
• The loss ratio is calculated as the ratio of insurance payments and regulatory
  costs to total earned premiums across the insurance classes and entire insurance portfolio in which the insurer operates.
• The expense ratio is calculated as the ratio of expenses for the entire insurance
  portfolio to the total premiums earned for the entire insurance portfolio.
• Liquid assets include cash in banks, government securities, and other cash.
• The financial indicators provided in Appendix 1 are calculated based on the
  indicators of the last four quarters preceding the reporting period.

Appendix No. 2
to the Regulation on requirements for a recovery plan, calculation of its implementation period, form and procedure for submitting reports on its implementation Report on the status of implementation of actions taken under the Plan No. Name Expectations Work done Results as of the reporting date Deadline 1. 2. 3. 4. 5. ...

Appendix No. 3
to the Regulation on requirements for a recovery plan, calculation of its implementation period, form and procedure for submitting reports on its implementation Report on the insurer's financial condition in accordance with the Plan's requirements
I. OPERATIONAL STATUS: Amount
(in manat)
Calculated insurance (reinsurance) premiums – total:

• Insurance premiums under insurance contracts:
  contracts concluded through insurance intermediaries contracts concluded directly with policyholders
• Reinsurance premiums on reinsurance contracts (risks
  accepted for reinsurance):
  Reinsurance premiums on reinsurance policyholders Reinsurance premiums to be received from brokers Reinsurance premiums accepted from abroad
• Reinsurance premiums on ceded contracts – total

Reinsurance premiums for non-resident reinsurers Reinsurance premiums for resident reinsurers

• Refundable portion of insurance premiums for
  terminated contracts

• the largest portion of the premium refunded for
  terminated contracts in a class class:

• reinsurer's share in the refundable portion of the
  insurance premium

• Accounts receivable under expired contracts – total

• contracts concluded directly with policyholders

• contracts concluded with reinsurance policyholders

• Insurance payments – total:

• Payments on directly initiated insurance contracts –
  total the largest payment made under one contract

• Payments under contracts concluded with insurance
  intermediaries - total the largest payment made under one contract

• Reinsurer’s share of insurance payments under
  reinsurance contracts (risks accepted for reinsurance) the largest payment made under one contract

• Commission received

• Paid commission - total

• Commission paid to insurance agents – total
  highest commission paid per class class: X

• Commission paid to insurance brokers - total
  highest commission paid per class class: X

• Proceeds from the exercise of the right of subrogation

• Employee expenses

• Paid general and administrative expenses - total

• Administrative expenses

• Other income

• Other expenses
  II. CASH AND CASH EQUIVALENTS:

• Cash register

• Currency account

• Deposit account

• Other cash funds
  III. INVESTMENT OPERATIONS STATUS

• Purchase of government securities

• Sale of government securities

• Purchase of non-government securities

• Sale of non-government securities

• Purchase of real estate

• Sale of real estate

• Debts to employees (life and non-life insurance debts
  to employees)

• Debt to policyholders (life insurance debt)

• Payment for other types of investment transactions

• Income from other types of investment transactions
  IV. FINANCIAL OPERATIONS STATUS

• Share capital issuance

• Dividends paid

• Sale and repurchase transactions (REPO/REVERSE
  REPO)

• Other

Appendix No. 4
to the Regulation on requirements for a recovery plan, calculation of its implementation period, form and procedure for submitting reports on its implementation ASSETS As of the beginning of the year As of the end of the reporting period
I. LONG-TERM ASSETS
Land, buildings and equipment
Capitalization of costs related to land, buildings and equipment Investments made to real estate Intangible assets Deferred tax assets Long-term receivables Long-term financial assets:
government securities non-government securities other financial assets Investments accounted for using the equity method Settlements with founders or shareholders Other assets Total long-term assets
II. SHORT-TERM ASSETS
Reserves
Accounts receivables:
direct insurance reinsurance operations:
reinsurance reinsurance policyholder associate entities budget

claims staff debts granted to policyholders other receivables Cash and cash equivalents:
cash register settlement account currency account deposit accounts other cash funds Short-term financial assets government securities non-government securities other financial assets Reinsurers' share in insurance reserves:
in life insurance in non-life insurance
Other short-term assets expenses of future reporting periods advances given imprest accounts Other assets Total short-term assets TOTAL ASSETS CAPITAL AND LIABILITIES
I. CAPITAL
Paid-up nominal (authorized) capital
Emission revenue
Repurchased capital (shares)
Capital reserves:
revaluation reserve other capital reserves

Retained earnings (unpaid loss)
Net profit (loss) for the reporting period Adjustments to profit (loss) due to changes in accounting policies Retained earnings from previous years (unpaid loss) Dividends declared Total capital
II. LONG-TERM LIABILITIES
Insurance reserves:
life insurance non-life insurance
Preventive measures fund
Liabilities generating long-term interest expenses Long-term estimated liabilities Deferred tax liabilities Accounts payable:
remuneration budget

social insurance and security other mandatory payments associate entities other Other long-term liabilities income of the next reporting period received advances Liabilities for reinsurance operations:
reinsurer policyholder under reinsurance
Settlements with founders or shareholders
Other liabilities
Total long-term liabilities
III. SHORT-TERM LIABILITIES
Liabilities generating short-term interest expenses Current estimated liabilities Tax and other mandatory payment obligations Accounts payable:
remuneration budget social insurance and security other mandatory payments associate entities other Other short-term liabilities income of the next reporting period received advances Settlements with founders or shareholders

Total short-term liabilities
TOTAL LIABILITIES
TOTAL CAPITAL AND LIABILITIES
Note: Total amounts guaranteed to be paid*

Appendix No. 5
to the Regulation on requirements for a recovery plan, calculation of its implementation period, form and procedure for submitting reports on its implementation Report on the insurer's income and expenses according to the Plan's requirements Income Amount Main operating income:

• from insurance premiums for direct insurance
• from reinsurance premiums
• from the share of reinsurers in insurance payments
• from commissions on contracts ceded to reinsurance
  Change in net insurance reserves (positive or negative) Investment income Subrogation proceeds Other TOTAL INCOME Expenses Main operating expenses:
• insurance payments and insurance amounts
• regulatory costs for refunded insurance premiums
• insurance premiums ceded to reinsurance
• allocations to the preventive measures fund
• other costs for insurance activities
  Costs for carrying out works
  Other

TOTAL EXPENSES
Financial profit (loss)
The portion of profit allocated to the authorized capital Profit (loss) before tax Profit tax Net profit (loss) for the reporting period

Appendix No. 6
to the Regulation on requirements for a recovery plan, calculation of its implementation period, form and procedure for submitting reports on its implementation Insurance classes Number of contracts Calculated premiums Refund premiums Insurance payments Total Insurer’s share Reinsurer’s share Number of insured events Total Calculated insurance payment Total Granted insurance payment to individuals to legal entities to individuals to legal entities Life insurance including Non-life insurance including Personal insurance

including
Property insurance including
Compulsory insurance - total including
Total