Resolution JPRF-S-2023-084: Reform of Technical Financial Prudence Standards and Technical Reserves Including Definitions of Mass Insurance and Instrumentation Process

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador | Resolution No. JPRF-S-2023-084 THE FINANCIAL POLICY AND REGULATION BOARD CONSIDERING:
That, Article 226 of the Constitution of the Republic of Ecuador prescribes that State institutions, their agencies, dependencies, public servants, and persons acting by virtue of a state power shall exercise only the competencies and faculties attributed to them in the Constitution and the law; That, Article 13 of the Organic Monetary and Financial Code, Book I, reformed by the Organic Reformatory Law to the Organic Monetary and Financial Code for the Defense of Dollarization, published in the Official Register Supplement No. 443 of May 3, 2021, created the Financial Policy and Regulation Board, part of the Executive Function, as a public law legal entity, with administrative, financial, and operational autonomy, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; That, Article 14 of the aforementioned Code, Book I, which refers to the scope of the Financial Policy and Regulation Board, determines in numbers 1, 2, and 3 that this collegiate body is responsible, among others, for formulating insurance policies; issuing regulations that allow maintaining the integrity, solidity, sustainability, and stability of the insurance system; and, additionally, issuing micro-prudential regulations for the insurance sector; That, numbers 1, 7, 17, and 25 of Article 14.1 ibidem establish that the Financial Policy and Regulation Board is responsible for fulfilling the duty and exercising the faculty to regulate the creation, constitution, organization, activities, operation, and liquidation of insurance entities; issuing the prudential regulatory framework to which these entities must adhere, a framework that must be coherent and not give rise to regulatory arbitrage; issuing the norms that regulate insurance and reinsurance; as well as, applying the provisions of the Organic Monetary and Financial Code; That, Article 22 of the Organic Monetary and Financial Code, Book III (General Insurance Law), establishes that insurance and reinsurance companies must maintain at all times, the regime of technical reserves, the risk management system, technical equity, and mandatory investments. Furthermore, it determines the obligation of said companies to constitute technical reserves for risks in force; with the Financial Policy and Regulation Board having the faculty to create or modify said reserves; That, the Twenty-Ninth General Provision of the Organic Monetary and Financial Code, Book I, added by the Organic Reformatory Law to the Organic Monetary and Financial Code for the Defense of Dollarization, provides: "In the current legislation where mention is made of the 'Monetary and Financial Policy and Regulation Board', replace it with 'Financial Policy and Regulation Board'."; That, the Fifty-Fourth Transitional Provision of the aforementioned Organic Code, added by the Organic Reformatory Law to the Organic Monetary and Financial Code for the Defense of Dollarization,
provides: "Transitional Regime of Resolutions of the Codification of the Monetary and Financial Policy and Regulation Board. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Monetary and Financial Policy and Regulation Board and the norms issued by control agencies will maintain their validity until the Monetary Policy and Regulation Board and the Financial Policy and Regulation Board resolve what corresponds, within the scope of their competencies."

Resolution No. JPRF-S-2023-084

---

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador | That, the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-ST-2023-0085-M of October 11, 2023, submits to the President of the Board the following reports:
(i) Technical Report No. JPRF-CTVS-2023-006 of October 11, 2023, issued by the Technical Coordination of Policy and Regulation of the Securities and Insurance System, which states that the policy or insurance certificate instrumentation process established in 30 days does not align with the reality of certain lines of insurance business, such as surety bonds or mass insurance, which require increasing the time period to 45 days; on the other hand, in order to establish a single surcharge in the risk in force reserve, it is pertinent to repeal the Tenth General Provision of Chapter V "On Technical Financial Prudence Norms and Technical Reserves", Title II "On Constitution, Organization, Activities and Functioning", Book III "Private Insurance System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions; and, (ii) Legal Report No. JPRF-CJF-2023-048 of October 11, 2023, issued by the Legal Coordination of Policy and Financial Norms of the Board, which concludes that, in accordance with what is provided in numbers 1, 7, 17, and 25 of Article 14.1 of the Organic Monetary and Financial Code, Book I, the Financial Policy and Regulation Board, as responsible for the formulation of insurance policy and regulation, has legal competence to: (i) regulate the creation, constitution, organization, activities, operation, and liquidation of insurance entities; (ii) issue the prudential regulatory framework to which insurance entities must adhere, a framework that must be coherent and not give rise to regulatory arbitrage; (iii) issue the norms that regulate insurance and reinsurance; and, (iv) apply the provisions of the Organic Monetary and Financial Code; among them, Article 22 of its Book III (General Insurance Law) which contains provisions concerning the matter referred to in the proposed reform of norms, related to general or branch solvency requirements for insurance companies and reinsurance companies; That, the Financial Policy and Regulation Board, in an ordinary session held via technological means, convened on October 13, 2023, and carried out through video conference on October 16, 2023, reviewed the Memorandum No. JPRF-ST-2023-0085-M of October 11, 2023, issued by the Technical Secretary of the Board; as well as the aforementioned reports from the Technical Coordination of Policy and Regulation of the Securities and Insurance System and the Legal Coordination of Policy and Financial Norms, in addition to the corresponding draft resolution; That, the Financial Policy and Regulation Board, in an ordinary session held via technological means, convened on October 13, 2023, and carried out through video conference on October 16, 2023, reviewed and approved the following Resolution; and, In exercise of its functions, RESOLVES:
ARTICLE FIRST.- In Article 3 of Subsection I "Scope and Definitions", Section I "Norms on the Technical Reserves Regime", Chapter V "On Technical Financial Prudence Norms and Technical Reserves", Title II "On Constitution, Organization, Activities and Functioning", Book III "Private Insurance System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, incorporate alphabetically the following definitions and renumber them as appropriate:

Resolution No. JPRF-S-2023-084

---

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador | "Instrumentation Process.- It is the set of ordered and planned activities of an operational, administrative, among others, nature that insurance companies must carry out once the insurance contract has been perfected."
"Mass Insurance.- Mass insurance products are easy to understand and handle for people, designed to be marketed in volume through alternative distribution channels."
ARTICLE SECOND.- Substitute the text of number 1 of Article 6 of Subsection III "On the Report of External Auditors and the Control Process", Section I "Norms on the Technical Reserves Regime", Chapter V "On Technical Financial Prudence Norms and Technical Reserves", Title II "On Constitution, Organization, Activities and Functioning", Book III "Private Insurance System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:
"That the instrumentation process of policies or certificates does not exceed a term of one (1) month; except for cases of surety bonds or mass insurance, which shall be a time period of forty-five (45) days from the effective date."
ARTICLE THIRD.- Substitute the text of the second paragraph of the Sixth General Provision of Chapter V "On Technical Financial Prudence Norms and Technical Reserves", Title II "On Constitution, Organization, Activities and Functioning", Book III "Private Insurance System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:
"The instrumentation process of the policy or certificate shall not exceed a term of one (1) month, except for cases of surety bonds or mass insurance, which shall be a time period of forty-five (45) days, from the effective date."
ARTICLE FOURTH.- Substitute the text of number 1 of the Seventh General Provision of Chapter V "On Technical Financial Prudence Norms and Technical Reserves", Title II "On Constitution, Organization, Activities and Functioning", Book III "Private Insurance System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:
"1.- That the dates of the instrumentation process of the policy or certificate exceed the term of one (1) month from the effective date; except for cases of surety bonds or mass insurance where they exceed the time period of forty-five (45) days from the effective date."
ARTICLE FIFTH.- Repeal the Tenth General Provision of Chapter V "On Technical Financial Prudence Norms and Technical Reserves", Title II "On Constitution, Organization, Activities and Functioning", Book III "Private Insurance System" of the Codification of Monetary, Financial, Securities, and Insurance Resolutions.
GENERAL PROVISIONS
FIRST.- The Superintendence of Companies, Securities, and Insurance will communicate to the respective controlled entities the content of this Resolution.

Resolution No. JPRF-S-2023-084

---

Address: Av. Amazonas between Pereira and Unión Nacional de Periodistas, Financial Management Governmental Platform. Yellow Block, 5th Floor | Postal Code: 170507 | Quito - Ecuador | SECOND.- In case of doubt regarding the content or scope of the provisions of this Resolution, it will be for the Superintendence of Companies, Securities, and Insurance to resolve them.
FINAL PROVISION.- This Resolution shall enter into force from the present date, without prejudice to its publication in the Official Register. Publish this Resolution on the website of the Financial Policy and Regulation Board, within a maximum term of two (2) days from its issuance.
COMMUNICATE.- Given in the Metropolitan District of Quito, on October 16, 2023.
THE PRESIDENT,
Mgs. María Paulina Vela Zambrano
The preceding Resolution was processed and signed by Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on October 16, 2023.- I CERTIFY.
TECHNICAL SECRETARY
Mgs. Nelly Arias Zavala