Resolution No. 1142-99: Regulation of the Unexpired Risk Reserve

Lima, December 31, 1999
Superintendent of Banking and Insurance Resolution No. 1142-99 The Superintendent of Banking and Insurance CONSIDERING:
That, through Article 306 of the General Law of the Financial System and the Insurance System and the Organic Law of the Superintendence of Banking and Insurance, Law No. 26702, modified by Laws No. 27008 and No. 27102, hereinafter the General Law, it is established that insurance and/or reinsurance companies must constitute, monthly, the technical reserves, including the unexpired risk reserve; That, it is necessary to update the regulations for the constitution of the unexpired risk reserve, in order that they adequately reflect the commitments assumed by insurance and/or reinsurance companies; Being in accordance with the opinion of the Adjunct Superintendencies of Insurance and Legal Advice; and, In exercise of the powers conferred by numbers 7 and 9 of Article 349 of the General Law; RESOLVES:
First Article.- Approve the Regulation of the Unexpired Risk Reserve, which forms an integral part of this Resolution.
Second Article.- Repeal Circular No. S-554-93 of December 17, 1993 and Circular Letter No. 712-94 of February 11, 1994.
Third Article.- This Resolution enters into force the day following its publication in the official newspaper "El Peruano".
Register, communicate and publish.
MARTÍN NARANJO LANDERER
Superintendent of Banking and Insurance

REGULATION OF THE UNEXPIRED RISK RESERVE
Article 1st.- Scope
This regulation is applicable to the companies indicated in letter D of Article 16 of the General Law, hereinafter the companies.
Article 2nd.- Unexpired risk reserve
The unexpired risk reserve, hereinafter the reserve, aims to cover the obligations corresponding to general branch insurance, which are generated in the validity period not extinguished as of the date of its constitution (1).
Article 3rd.- Method of calculating the reserve
The reserve must be calculated at the close of each month, as the result of the sum of two components: the unearned premium reserve and the premium deficiency reserve. The unearned premium reserve is obtained as follows:
a) The portion corresponding to direct insurance premiums is calculated policy by policy, or by coverage certificates in the case of corporate or collective insurance, applying to the respective calculation base, the unexpired portion of the total risk in number of days. b) To the amount obtained, the portion corresponding to accepted reinsurance premiums is added, which is obtained by applying the procedure described in the previous letter, contract by contract. c) To the resulting amount, the portion of ceded reinsurance is deducted, which is obtained by applying to the ceded premium the unexpired portion of the risk, indicated in letters a) or b). Ceded premiums must consider the deduction of reinsurance commissions and/or premium discounts (1). The calculation base indicated in letter a) consists of the aforementioned premiums, minus agency commissions and taxes. The deduction of the agency commission will have as its limit the amount resulting from the lesser between the paid commission or that which appears in the respective technical note reported to this Superintendence (1). The premium deficiency reserve is constituted when the unearned premium reserve proves insufficient to cover all future risks and expenses corresponding to the coverage period not extinguished as of its calculation date, with the provisions issued by this Superintendence being applicable.
Article 4th.- Insurance with a validity greater than one year
For the calculation of the reserve for insurance with a validity greater than one year, the calculation method contemplated in the previous article will be used, considering the current portion of the premium of said insurance, that is, that which corresponds to one year of coverage from the start date of the policy's validity, in accordance with SBS Resolution No. 924-98 of September 7, 1998.
Article 5th.- Computer system for calculating the reserve
Companies must have a computer system that allows the automatic calculation of the reserve and that contains, at least, the following information:
a) Branch or risk. b) Number of the insurance policy, coverage certificate, or reinsurance contract, as applicable. c) Start date of validity. d) End date of validity. e) Issue date. f) Validity period in number of days. g) Unexpired validity period. h) Total premium without taxes. In the case of insurance with a validity greater than one year, the current portion of the premium will be considered, in accordance with Article 4 of this regulation. i) Amount of the paid agency commission (1). j) Amount of the agency commission considered in the technical note (1). k) Calculation base, as established in Article 3 of this regulation (1). l) Amount of the reserve for direct insurance or accepted reinsurance, as applicable (1). m) Amount of the corresponding ceded premium (1). n) Amount of the reinsurance commission and/or premium discount (2). o) Amount of the reserve for risk cession (2).
Article 6th.- Information to this Superintendence
Companies will report monthly to this Superintendence the information contained in the Annex of this Regulation, which constitutes the summary of the reserve calculation carried out on the total of the relevant insurance policies or reinsurance contracts. This information must be submitted starting from January 31, 2000 together with the corresponding financial statements.
Article 7th.- Accounting record of the method change (1)
The accounting record of the method change must be made prospectively, in accordance with the alternative treatment admitted by IAS 8 "Net profit or loss for the period, fundamental errors and changes in accounting policies", in items 41 "Adjustment of technical reserves of insurance and accepted reinsurance premiums" and 51 "Adjustment of technical reserves of ceded premiums" respectively. The accounting effect resulting from the change in methodology as of December 31, 2000, must be revealed in notes to the financial statements. TRANSITIONAL PROVISION FIRST.- Companies will have an adaptation period from the entry into force of this regulation until June 30, 2000. SECOND.- In order to carry out the deduction of the agency commission indicated in the third paragraph of Article 3 of this Regulation, companies must present and/or update, before this Superintendence if applicable, the technical notes of the products they offer. For this effect, companies will have an adaptation period that will expire on December 31, 2001. Before the aforementioned date, companies may apply the aforementioned deduction, according to the payment made for the agency commission (2).

(1) Modified by SBS Resolution No. 779-2000 of 24.10.2000, effective from the information corresponding to the month of December 2000.

(1) Modified by SBS Resolution No. 779-2000 of 24.10.2000 effective from the information corresponding to the month of December 2000. (2) Created by SBS Resolution No. 779-2000 of 24.10.2000 effective from the information corresponding to the month of December 2000.

(1) Modified by SBS Resolution No. 779-2000 of 24.10.2000 effective from the information corresponding to the month of December 2000. (2) Created by SBS Resolution No. 779-2000 of 24.10.2000 effective from the information corresponding to the month of December 2000.

ANNEX SG-1A 3
SUMMARY OF THE CALCULATION OF THE UNEXPIRED RISK RESERVE DIRECT INSURANCE As of ______ CURRENCY______ Branch / Risk Direct Insurance Ceded Reinsurance Unexpired Risk Reserve (Retained) (C) = (A)– (B) No. of Policies Calculation Base (Total) Risk Not Expired in No. of Days (Average) Validity Period in No. of Days (Average) Reserve (Total) (A) Ceded Premium (Total) Reserve (Ceded) (B) TOTAL

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General Manager

Actuary (advisor)

3
Annex numbering modified by SBS Resolution No. 2842-2012 of 11-05-2012.

ANNEX SG-1B 3
SUMMARY OF THE CALCULATION OF THE UNEXPIRED RISK RESERVE ACCEPTED REINSURANCE As of ______ CURRENCY______ Branch / Risk Accepted Reinsurance Ceded Reinsurance Unexpired Risk Reserve (Retained) (C) = (A)– (B) No. of Contracts Calculation Base (Total) Risk Not Expired in No. of Days (Average) Validity Period in No. of Days (Average) Reserve (Total) (A) Ceded Premium (Total) Reserve (Ceded) (B) TOTAL

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General Manager

Actuary (advisor)

3
Annex numbering modified by SBS Resolution No. 2842-2012 of 11-05-2012.