Resolution No. JPRF-S-2022-054: Sets Accumulation Amount, Coverage, and Contribution Percentage for Private Insurance for 2022

Resolution No. JPRF-S-2022-054
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 under state authority shall exercise only the competencies and powers 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 Reforming 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 formulating credit, financial, securities, insurance, and prepaid comprehensive health care service policy and regulation;

That Article 14 of the Organic Monetary and Financial Code, Book I, which refers to the scope of the Financial Policy and Regulation Board, determines that this collegiate body is responsible for formulating insurance policy; issuing regulations that allow maintaining the integrity, solidity, sustainability, and stability of the securities system; and also, issuing micro-prudential regulations for the insurance sector;

That Article 14.1 of the aforementioned Organic Code, in number 13, establishes that, for the performance of its functions, the Financial Policy and Regulation Board must fulfill the duty and exercise the faculty to issue secondary regulation related to the Deposit Insurance, Liquidity Fund, and Private Insurance Fund;

That Article 14.1 of the aforementioned Organic Code, in numbers 7 letter d), 8, 17, and 27, determines that, for the performance of its functions, the Financial Policy and Regulation Board must fulfill the duty and exercise the faculty to issue the prudential regulatory framework to which insurance entities must adhere; to review reports presented by the Deposit Insurance, Liquidity Fund, and Private Insurance Corporation regarding the state of the insurance system; to dictate regulations governing insurance and reinsurance; and to exercise other functions, duties, and faculties assigned by the Organic Monetary and Financial Code and the law;

That Article 79 of the Organic Monetary and Financial Code, Book I, states that the Deposit Insurance, Liquidity Fund, and Private Insurance Corporation is a non-financial public law legal entity, with administrative and operational autonomy;

That numbers 3, 5, and 10 of Article 80 ibidem determine that, among the functions of the Deposit Insurance, Liquidity Fund, and Private Insurance Corporation, are administering the Private Insurance Fund and the resources that constitute it, paying private insurance premiums, and covering the risks of legally constituted private insurance companies in the country that enter forced liquidation;

That number 11 of Article 85 of the Organic Monetary and Financial Code, Book I, states as a function of the Board of Directors of the Deposit Insurance, Liquidity Fund, and Private Insurance Corporation, the following: “Propose to the Financial Policy and Regulation Board the amount of the private insurance coverage”;

Resolution No. JPRF-S-2022-054

That Article 344 of the aforementioned Organic Code, when referring to the object of the Private Insurance Fund, provides that those insured in the public and private sectors who have active policies, with the total premium paid, in companies of the private insurance system, will be protected by the coverage determined in said legal body; additionally determining that the Private Deposit Insurance will cover, within the amount established by the Board, the value of pending claims at the date of forced liquidation;

That Article 346 ibidem determines that, to determine the amount protected by the coverage and its return to the insured or beneficiary, the total of policies registered by each natural or legal person, public or private, in the private insurance system company, at the date of the start of forced liquidation ordered by the control organism, will be computed;

That Article 349 of the Organic Monetary and Financial Code, Book I, states:
“The Private Insurance Fund will be constituted with the following resources, which will be considered public:
a) A basic contribution of up to 0.7% on the value of direct insurance premiums that all insurance companies will issue, in the percentage fixed annually by the Financial Policy and Regulation Board; and a variable contribution of up to 0.8% of the same value based on risk ratings, also fixed by the Board, whose maximum percentage may not exceed, in any case, 120% of the basic contribution; b) The proportion of the contribution determined in Article 67 of Book III of this Code; c) The return on investments and net profits of each annual exercise of the Private Insurance Fund; d) The donations it receives; and, e) Those from loans or contingent lines obtained for the financing of its activities. The Fund's resources must be invested observing the principles of security, liquidity, diversification, and profitability and must be framed within the investment policies approved by the Board. The Fund's resources may not be destined to cover administrative expenses or for payment of investments in fixed assets of the Corporation. (…)”;

That the last paragraph of Article 349 of the aforementioned Organic Code establishes that the resources of the Private Insurance Fund will accumulate up to the amount determined by the Financial Policy and Regulation Board, based on the technical report to be prepared and presented by the Corporation (COSEDE);

That the Twenty-Ninth General Provision of the Organic Monetary and Financial Code, Book I, added by the Organic Reforming Law to the Organic Monetary and Financial Code for the Defense of Dollarization, provides:
“In the current legislation where mention is made of the 'Financial Policy and Regulation Board', replace with 'Financial Policy and Regulation Board'.”;

That the Fifty-Fourth Transitional Provision of the aforementioned Book I of the Organic Code, added by the Organic Reforming Law to the Organic Monetary and Financial Code for the Defense of Dollarization, provides:

Resolution No. JPRF-S-2022-054

“Transitional Regime of Resolutions of the Codification of the Financial Policy and Regulation Board. The resolutions contained in the Codification of Monetary, Financial, Securities, and Insurance Resolutions of the Financial Policy and Regulation Board and the norms issued by control organisms will maintain their validity until the Financial Policy and Regulation Board and the Financial Policy and Regulation Board decide what corresponds, within their competencies.”;

That Article 67 of the Organic Monetary and Financial Code, Book III (General Insurance Law), states that funds to cover the expenses of the control body in the private insurance sector and contributions to the Private Insurance Fund will be obtained from the contribution of 3.5% on the value of direct insurance premiums, which may be increased up to 5%, by resolution of the Financial Policy and Regulation Board and at the request of the head of this control body, in accordance with the attributions contained in the law for the approval of the organism's budget. Insurance companies will act as withholding agents for this contribution;

That Article 6 of Section II “On the Coverage of the Private Insurance Fund”, Chapter I “General Norms of the Private Insurance Fund”, Title V “On the Private Insurance Fund” of Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, establishes the following:
“COSEDE will pay the Private Insurance premium, based on the capacity of the Private Insurance Fund, up to the total protected amount of USD 1,500.00 per insured or beneficiary, which must be reviewed at least annually by the Financial Policy and Regulation Board in accordance with the performance levels of the Private Insurance Fund, the loss ratio of the private insurance system, and the risk level of insurance companies.”;

That the General Provision of Chapter III “Norm to Determine the Amount of the Private Insurance Fund's Equity”, Title V “On the Private Insurance Fund” of Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions states that:
“The Deposit Insurance, Liquidity Fund, and Private Insurance Corporation will annually present to the Financial Policy and Regulation Board the technical report incorporating the risk levels of insurance companies and the performance levels of the Private Insurance Fund, for the review of the amount up to which the Private Insurance Fund must accumulate, as established in Article 349 of the Organic Monetary and Financial Code”;

That the penultimate paragraph of Article 14.1 of the Organic Monetary and Financial Code, Book I, determines that the Deposit Insurance, Liquidity Fund, and Private Insurance Corporation, through its legal representative, may propose regulation projects for consideration by the Financial Policy and Regulation Board, backed by respective technical reports;

That through Letter No. COSEDE-COSEDE-2022-0457-LETTER of December 2, 2022, the General Manager of the Deposit Insurance, Liquidity Fund, and Private Insurance Corporation (COSEDE) informs the Financial Policy and Regulation Board that: “(on December 2, 2022, the extraordinary session of the Board of Directors of the Deposit Insurance, Liquidity Fund, and Private Insurance Corporation was held, in which the proposal for the Private Insurance Coverage Amount to be sent by this collegiate body to the Financial Policy and Regulation Board was approved, in accordance with what is established in Article 85 number 11 of the Organic Monetary and Financial Code”; and attached for this purpose, Reports No. CTRE-FSP-2022-001 and CTPSF-UPN-045-2022 of November 28, 2022, issued by the Technical Coordination of Risks and Studies and by the Technical Coordination of Insurance and Fund Protection, respectively, as well as the draft resolution, for consideration by the Financial Policy and Regulation Board;

That through Memorandum No. COSEDE-COSEDE-2022-0169-MEMORANDUM of December 2, 2022, the General Manager of the Deposit Insurance, Liquidity Fund, and Private Insurance Corporation (COSEDE) submits to the consideration of the Financial Policy and Regulation Board the following reports: (i) Reserved Technical Report No. CTRE-FSP-2022-002 of November 21, 2022 and Report CTPSF-UPN-043-2022 of December 2, 2022, issued by the Technical Coordination of Risks and Studies and by the Technical Coordination of Insurance and Fund Protection, respectively, relating to the review of the amount up to which the Private Insurance Fund must accumulate, with its respective executive summary, presentation, and draft Resolution; and, (ii) Reserved Technical Report No. CTRE-FSP-2022-003 and Report CTPSF-UPN-050-2022 of December 2, 2022, issued by the Technical Coordination of Risks and Studies and by the Technical Coordination of Insurance and Fund Protection, respectively, which relate to the setting of the basic and variable contribution to the Private Insurance Fund by insurance companies, with its respective executive summary, presentation, and draft Resolution;

That the Technical Secretary of the Financial Policy and Regulation Board, through Memorandum No. JPRF-SETEC-2022-0092-M of December 27, 2022, sends to the President of the Board the following reports:
i) Technical Report No. JPRF-CT-2022-0048 of December 27, 2022, issued by the Technical Coordination of the Board, which states that, based on the review of the technical reports presented by COSEDE through Letter No. COSEDE-COSEDE-2022-0457-LETTER and Memorandum No. COSEDE-COSEDE-2022-0169-MEMORANDUM which refer to the following reform proposals: i) Review of the amount up to which the private insurance fund must accumulate, ii) Review of the coverage amount of the private insurance fund, and; iii) Review of the basic and variable contributions on the value of direct insurance premiums issued by insurance companies, it is considered appropriate to accept the recommendations of the aforementioned reports;

ii) Legal Report No. JPRF-CJ-2022-0055 of December 27, 2022, issued by the Legal Coordination of the Board, which concludes that: (i) The Financial Policy and Regulation Board, as responsible for the formulation of policy and issuance of regulation of the insurance system, has legal competence to regulate the coverage amount of the Private Insurance Fund, the basic contribution and variable contribution to the Private Insurance Fund, and the amount up to which the resources of the Private Insurance Fund will accumulate; in accordance with number 13 of Article 14.1 of the Organic Monetary and Financial Code, Book I.; and, (ii) The respective reforms to be made in the Codification of Monetary, Financial, Securities, and Insurance Resolutions are legally viable in light of the legal considerations exposed by this Coordination in the present report and in the terms indicated in Technical Report No. JPRF-CT-2022-0048 of December 27, 2022, issued by the Technical Coordination of this Board;

That the Financial Policy and Regulation Board, in an extraordinary reserved session convened by technological means on December 28, 2022 and carried out via video conference on December 29, 2022, reviewed Memorandum No. JPRF-SETEC-2022-0092-M of December 27, 2022, issued by the Technical Secretary of the Board; as well as the aforementioned reports from the Technical Coordination and the Legal Coordination, in addition to the corresponding draft resolution; and,

In exercise of its functions,

RESOLVES:

ARTICLE FIRST.- Substitute the text of the Seventh Transitional Provision of Chapter I “General Norms of the Private Insurance Fund”, of Title V “On the Private Insurance Fund”, of Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

“SEVENTH.- Maintain for the 2023 economic year the total protected amount of USD 1,500.00, per insured or beneficiary, as coverage of the Private Insurance Fund.”

ARTICLE SECOND.- Substitute the texts of Articles 1, 2, and 3 of Chapter II “Norm to Fix the Contribution to the Private Insurance Fund”, of Title V “On the Private Insurance Fund”, of Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

“Art. 1.- Fix a basic contribution of 0.12% on the value of direct insurance premiums of insurance companies of the Private Insurance System, corresponding to the 2022 economic year.

Art. 2.- The risk-adjusted variable contribution -CAR- of insurance companies of the Private Insurance System, corresponding to the 2022 economic year, will be fixed based on the risk ratings assigned by external rating agencies and communicated to the respective control body in accordance with the following table:

Risk Rating CAR (annual)
AAA+, AAA, AAA- 0.0288%
AA+, AA, AA- 0.058%
A+, A, A- 0.086%
BBB+, BBB, BBB- 0.115%
BB+, less than BB+ 0.144%

The risk-adjusted variable contribution (CAR) will be calculated based on the last risk rating of the insurance companies for the year 2022 that has been formally communicated by the control body to the Deposit Insurance, Liquidity Fund, and Private Insurance Corporation. The control body must notify, immediately, by letter to the Deposit Insurance, Liquidity Fund, and Private Insurance Corporation about any modification to the last risk rating of the insurance companies for the year 2022.

In the event that insurance companies of the Private Insurance System have two or more risk ratings on the same date, the lowest rating will be taken for the purpose of the risk-adjusted variable contribution (CAR).

Art. 3.- The values of the basic contribution and risk-adjusted variable contribution established in Articles 1 and 2 of this Chapter that insurance companies must pay to the Private Insurance Fund will be calculated using as a base the total amount of direct insurance premiums issued in the 2021 economic year. The contributions will be paid in twelve monthly installments starting from the month of January of the year 2023.”

ARTICLE THIRD.- Substitute Article ONE of Chapter III “Norm to Determine the Amount of the Private Insurance Fund's Equity”, of Title V “On the Private Insurance Fund”, of Book III “Private Insurance System” of the Codification of Monetary, Financial, Securities, and Insurance Resolutions, with the following:

“Sole Article.- Determine in USD 78,000,000.00 (Seventy-eight million United States dollars 00/100) the amount up to which the equity of the Private Insurance Fund will accumulate.”

SINGLE GENERAL PROVISION.- The Superintendence of Companies, Securities, and Insurance will communicate to the respective controlled entities the content of this Resolution.

FINAL PROVISION.- This Resolution will 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 days from its issuance.

COMMUNICATE.- Given in the Metropolitan District of Quito, on December 29, 2022.

THE PRESIDENT,
Mgs. María Paulina Vela Zambrano

The aforementioned 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 December 29, 2022.- I CERTIFY.

TECHNICAL SECRETARY
Dr. Nelly Arias Zavala

Lineage: Amended

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