Resolution No. 0924-98: Approval of Special Rules for General Insurance with a Term Exceeding One Year

Lima, September 7, 1998
Superintendent of Banking and Insurance Resolution No. 924-98

The Superintendent of Banking and Insurance

CONSIDERING:

That, the General Law of the Financial System and the Insurance System and the Organic Law of the Superintendent of Banking and Insurance - Law No. 26702, hereinafter the General Law, states in its Article 329 that insurance with coverage periods longer than one year must be subject to the regulations issued by this Superintendency;

That, in order to safeguard the solvency of companies in the insurance system, it is necessary to establish that insurance with coverage periods longer than one year must be backed by eligible investments, as well as to specify the applicable accounting treatment for such insurance;

Having heard the opinion of the Adjunct Superintendencies of Insurance and Legal Advice; and,

In exercise of the powers conferred by items 9 and 13 of Article 349 of the General Law;

RESOLVES:

Article First.- Approve the special rules applicable to general insurance with a term exceeding one year, which form an integral part of this Resolution.

Article Second.- This Resolution enters into force the day following the date of its publication in the official newspaper "El Peruano".

Register, communicate, and publish.

MARTÍN NARANJO LANDERER
Superintendent of Banking and Insurance

SPECIAL RULES APPLICABLE TO GENERAL INSURANCE WITH A TERM EXCEEDING ONE YEAR

1. Scope
   The provisions contained in this Resolution are applicable to insurance companies and, where applicable, to insurance brokers.

2. Recognition of Income
   2.1 Insurance companies shall recognize as income the current portion of the premium for general insurance with a term exceeding one year. The current portion is considered to be that which covers one year from the start date of the policy's validity. Furthermore, the non-current portion shall be considered as deferred income, according to the dynamics set forth in item 6 of this Resolution. Upon completion of the first year of coverage, the company shall proceed to recognize the portion corresponding to the second year, and so on.

2.2 Regarding general insurance with a term exceeding one year, the recognition as an expense of the insurance and reinsurance commission shall be carried out in accordance with the provisions of the preceding item.

3. Eligible Investments
   3.1 The amount of deferred income corresponding to general insurance with a term exceeding one year shall generate a technical obligation, which must be backed by eligible investments as provided in SBS Resolution No. 165-98 of June 17 of the current year. 1

3.2 Annexes No. 1 and No. 2 of SBS Resolution No. 165-98 of June 17 of the current year are hereby replaced by the annexes set forth in this Resolution. 2

4. Indebtedness
   Annex No. 5 of SBS Resolution No. 813-97 of November 17, 1997 is hereby replaced by the annex set forth in this Resolution. 3

5. Payment of Insurance Commission
   5.1 In the event that the modification or termination of the general insurance contract with a term exceeding one year results in the total or partial refund of the premium, the insurance broker is required to reimburse the proportional part of the commission received.

5.2 If the insurance company finances the payment of the premium under the special regime, the commission shall be paid proportionally to the payments received by the company.

6. Accounting Treatment

1 SBS Resolution No. 165-98 declared ineffective by SBS Resolution No. 039-2002 of January 19, 2002 2 Correspond to annexes Nos. 1 and 2 of SBS Resolution No. 039-2002 of January 19, 2002 3 SBS Resolution No. 813-97 of November 17, 1997 repealed by Resolution No. 764-2001 of October 15, 2001.

From the effective date of this Resolution, insurance companies must consider the following modifications in the Chart of Accounts for Companies in the Insurance System:

CATALOG
SIA
2903 DEFERRED PREMIUMS...... *
2903.00 (RISK)...... *
2903.00.01 INSURANCE PREMIUMS...... *
2903.00.02 INSURANCE PREMIUM COMMISSIONS ...... *
2903.00.03 CEDED PREMIUMS...... *

DESCRIPTION AND DYNAMICS
SIA
ACCOUNT: 2903 DEFERRED PREMIUMS *
2903.00 (Risk) *
2903.00.01 Insurance Premiums *
2903.00.02 Insurance Premium Commissions *
2903.00.03 Ceded Premiums *

DESCRIPTION: This account records the portion of premiums for general insurance with a term exceeding one year that does not correspond to the current fiscal year. The company will gradually incorporate such portion into the corresponding fiscal year.

DYNAMICS
DEBITS: - For the portion corresponding to agency commissions that correspond to future fiscal years.

• For the portion corresponding to ceded reinsurance of production from future fiscal years.
• For the application of insurance premiums to the current fiscal year.
  CREDITS: - For the portion of insurance premiums, with a term exceeding one year, that does not correspond to the current fiscal year.
• For the application of commissions and ceded reinsurance in the current fiscal year.

7. Adaptation Period
   Companies must adapt their eligible investments in accordance with this Resolution according to the following schedule:
   By December 31, 1998: 30% of the obligation.
   By March 31, 1999: 60% of the obligation.
   By June 30, 1999: 100% of the obligation.