Resolution SBS No. 0514-2009: Approves the Regulation for the Trading and Accounting of Derivative Financial Products in Insurance Companies

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)2218990 Fax: (511) 4417760 Lima, January 30, 2009 Resolution S.B.S.
No. 514 -2009

The Superintendent of Banking, Insurance and Private Pension Fund Administrators

CONSIDERING:

That, in accordance with Article 318 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 and its amendments, hereinafter General Law, insurance and/or reinsurance companies are authorized to carry out all operations, acts, and contracts to extend risk coverages;

That by Resolution SBS No. 037-2008, the Regulation for Integral Risk Management was approved, incorporating provisions that take into account, among other documents, the Integrated Framework for Corporate Risk Management, published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), applicable to all supervised companies.

That, with the aim of contributing to the adequate management of the risks that insurance and/or reinsurance companies face due to their operations, it is necessary to establish the conditions for these companies to carry out operations with derivative financial products, preferably for hedging purposes, under the framework of adequate risk management;

That, likewise, it is necessary to establish guidelines for the accounting recording of said derivative financial products, in accordance with international accounting standards;

Being in accordance with the opinion of the Deputy Superintendencies of Insurance, Risk, and Legal Advice, as well as the Economic Studies Management;

And, in exercise of the powers conferred by numbers 7, 9, and 13 of Article 349 of the General Law;

RESOLVES:

Article First.- Approve the Regulation for the Trading and Accounting of Derivative Financial Products in Insurance Companies, which forms an integral part of this Resolution.

Article Second.- Approve Procedure No. 121 of the Single Text of Administrative Procedures – TUPA of the Superintendence of Banking, Insurance and Private Pension Fund Administrators, approved by Resolution SBS No. 131-2002 of February 11, 2002, in accordance with the text attached to this Resolution and published in accordance with what is established in Supreme Decree No. 004-2008-PCM, regulation of Law No. 29091. (Institutional Portal: www.sbs.gob.pe ).

Article Third.- Modify the Chart of Accounts for Companies of the Insurance System, approved by Resolution SBS No. 348-95 of May 11, 1995, according to Annex A attached to this Resolution and published on the Institutional Portal (www.sbs.gob.pe), in accordance with what is established in Supreme Decree No. 001-2009-JUS.

Article Fourth.- This Resolution enters into force on February 01, 2009, granting an adaptation period until the submission of the information corresponding to the month of March 2009. 1

Register, communicate, and publish,

FELIPE TAM FOX
Superintendent of Banking, Insurance and Private Pension Fund Administrators

Deadline extended until 06.30.2009 by Resolution SBS No. 2084-2009 of 02-04-2009

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)2218990 Fax: (511) 4417760 2

REGULATION FOR THE TRADING AND ACCOUNTING OF DERIVATIVE FINANCIAL PRODUCTS IN INSURANCE COMPANIES

CHAPTER I
GENERAL ASPECTS

Article 1º. - Scope
The provisions of this Regulation are applicable to insurance and/or reinsurance companies included in letter D of Article 16 of the General Law, hereinafter companies. Companies may only contract derivative financial products for hedging purposes and when it concerns investments in combined financial instruments 2.

Article 2º. - Definitions
For the purposes of this Regulation, the following definitions are considered:

a) Underlying asset.- Underlying variable from which the prices of derivative financial products depend. b) Clearing house.- Entities that act as counterparties in futures and options contracts entered into in centralized trading mechanisms for these operations. c) Commodities.- Primary or basic goods consisting of physical products, which can be exchanged in a secondary market, including precious metals but excluding gold, which is treated as a currency. d) Firm commitment.- Mandatory agreement to exchange a certain amount of resources at a determined price on a specified future date or dates. e) SMV.- Securities Market Superintendence 3 f) Credit derivative.- Financial instrument whose payments depend on the credit quality of the issuer of a reference asset. This instrument allows a party, referred to as the risk transferor, to transfer the credit risk of a reference asset to another party, referred to as the risk acceptor, without requiring the sale of the asset. g) Implicit derivative.- Component of a combined financial instrument 4 that also includes a non-derivative main contract (host contract), whose effect is that some of the cash flows of the combined instrument 5 vary in a manner similar to the derivative financial product, considered independently. h) Hedge effectiveness.- The degree to which changes in the fair value or cash flows of the hedged item, directly attributable to the hedged risk, are offset by changes in the fair value or cash flows of the derivative financial product for hedging purposes. i) Freely accessible price sources.- Those provided through Bloomberg, Reuters, Datatec, or other information systems of similar characteristics that provide services in the country; as well as stock exchanges supervised and regulated by the corresponding securities market authorities. j) Hedging instrument.- It is a derivative financial product designated, or only in the case of currency risk hedging, a non-derivative financial asset or a non-derivative financial liability, whose fair value or generated cash flows are expected to offset changes in the fair value or cash flows of the hedged item.

Instrument denomination modified by Resolution SBS No. 7034-2012 of 19-09-2012 Denomination modified by Resolution SBS No. 7034-2012 of 19-09-2012 Instrument denomination modified by Resolution SBS No. 7034-2012 of 19-09-2012 Instrument denomination modified by Resolution SBS No. 7034-2012 of 19-09-2012

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)2218990 Fax: (511) 4417760 4 k) Debt representative instrument.- A value that represents an obligation on the part of the issuer, has a nominal value and may be amortizable. The yield of these values is associated with an interest rate, another value, basket of values, or index of debt representative values. l) Capital representative instrument.- Those instruments representing rights to equity participation or share titles, including instruments where the magnitude of their expected partial or total return is not certain, fixed, or determinable at the time of acquisition. m) General Law.- General Law of the Financial System and the Insurance System and Organic Law of the Superintendence of Banking and Insurance, Law No. 26702 and its modifying laws. n) Settlement by differences.- That which is carried out based on the change in the value of the financial assets subject to the contract. o) Chart of Accounts.- Chart of Accounts for Companies of the Insurance System approved by Resolution SBS No. 348-95 of May 11, 1995 and its modifying norms. p) Hedged item.- It is an asset, a liability, a firm commitment, a highly probable forecasted transaction, or a net investment in a foreign business that exposes the entity to the risk of changes in fair value or future cash flows, and is designated to be hedged. q) Derivative financial product.- Financial instrument that meets the following conditions:
(a) its fair value fluctuates in response to changes in the level or price of an underlying asset, (b) it does not require a net initial investment or only obliges to make an investment lower than that required in contracts that respond similarly to changes in market variables and (c) it is settled on a future date. r) Fair value.- Amount by which an asset can be exchanged or a liability settled between interested parties, duly informed and in conditions of mutual independence. s) Regulation of Eligible Investments.- Regulation of Eligible Investments of Insurance Companies, approved by Resolution SBS No. 039-2002 and its amendments. t) Regulation of Integral Risk Management.- Regulation of Integral Risk Management, approved by Resolution SBS No. 037-2008. u) Regulation of Classification and Valuation.- Regulation of Classification and Valuation of Investments of Insurance Companies, approved by Resolution SBS No. 513-2009 of December 2008. v) Forecasted transaction.- Anticipated future operation but not committed.

Article 3°.- Excluded operations
This regulation governs all derivative financial products contracted by companies except those referred to to employee benefit plans and remunerations based on capital representative instruments of the company. Conventional purchases or sales of financial assets, including spot exchange operations, whose settlement date occurs up to three (3) business days after their trade date, shall not be considered derivative financial products, unless these require or allow settlement by differences, in which case, they will be accounted for as derivatives during the period between the contracting date and the settlement date.

Article 4º.- Permitted underlying assets
Companies may contract derivative financial products on the following underlying assets:
a) Currencies.

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)2218990 Fax: (511) 4417760 5 b) Interest rates. c) Commodities. d) Debt and capital representative instruments, provided they are eligible for the hedging of technical obligations. e) Stock market indices supervised by the SMV 6 or other regulatory bodies of similar competence. f) Credit risk of a debt representative instrument, another financial obligation, or some issuer, in the case of credit derivatives. g) Others authorized by the Superintendence through a general nature norm.

The interest rates and indices mentioned in letters (b) and (e) respectively, must be of public knowledge, quoted, and widely recognized in active financial markets, and have a historical series disseminated in freely accessible price sources. Companies shall not contract derivative financial products whose fair value cannot be determined reliably.

Article 5º.- Counterparty of derivative financial operations
Companies may contract derivative financial products traded in centralized or non-centralized trading mechanisms.

Contracts in non-centralized trading mechanisms:
In the case of contracts in non-centralized trading mechanisms, when the counterparty is a financial institution, it must be authorized and supervised by the Superintendence or by the regulatory authorities of similar competence in the country in which said institution is constituted. Likewise, the counterparty or the debt titles issued by said counterparty, in case it did not have a risk classification, must have a minimum risk classification equivalent to investment grade, as appropriate.

Contracts in centralized mechanisms:
For the case of contracts in centralized mechanisms, companies may carry out operations with derivative financial products with clearing houses authorized and supervised by the SMV 7 or by an equivalent authority of the securities and/or financial market of the country in which the centralized trading mechanism is constituted.

CHAPTER II
REQUIREMENTS AND AUTHORIZATION TO OPERATE WITH DERIVATIVE FINANCIAL PRODUCTS

Article 6º.- Minimum requirements for carrying out operations with derivative financial products
Companies that operate with derivative financial products or combined financial instruments 8 that have a derivative financial product as a component must meet the following minimum requirements:

a) Have documented policies and procedures approved by the Board of Directors for the management of risks inherent to operations with derivative financial products, which must include the establishment of internal exposure limits that take into account the stated objectives and the comprehensive risk profile of the company; b) Have documented policies, procedures, and methodologies, as well as adequate computer systems, for the permanent valuation of derivative financial products at fair value and the calculation of hedge effectiveness if applicable, which must be approved by the Board of Directors and evaluated with a minimum annual periodicity; c) Have documented policies and procedures, approved by the Board of Directors, for the adequate and permanently controlled operation of derivative financial products in such a way as to ensure compliance with the company's policies and regulatory requirements. d) Define the purposes and conditions of use of derivative financial products; e) Establish functions and delimit particular responsibilities of the areas involved in the trading, recording, and control of operations with derivative financial products, safeguarding due independence and avoiding potential conflicts of interest between said areas. For this purpose, the provisions of Article 8° must be considered; and, f) Have manuals containing, at least, all the aspects indicated in the paragraphs of this article and in attention to the provisions of Article 7°.

Article 7º.- Documentation
The policies and procedures established for the operation of derivative financial products and for the management of their risks must be clearly defined and adequately documented in the Policies and Procedures Manuals and in the Risk Management Manuals as specified by Article 2 of the Regulation of Integral Risk Management. Likewise, said manuals must be permanently updated, approved by the Board of Directors, and be available to the Superintendence.

Article 8°.- Responsibility of the Risk Unit
In addition to what is established in the Regulation of Integral Risk Management, the head of the Risk Unit of companies that operate with derivative financial products is responsible for:
a) Ensuring the adequate management of the risks to which companies are exposed by positions in said financial products; b) Ensuring compliance with the policies, procedures, and limits established in the policies and procedures manuals approved by the Board of Directors; c) Keeping an operational record of the daily fair value of positions in derivative financial products; and d) Keeping the Risk Committee or the Board of Directors and the General Management informed about the identification, evaluation, and monitoring of risks and exposure limits of derivative financial products.

Article 9º.- Authorization to operate with derivative financial products
Companies wishing to operate with derivative financial products must have prior authorization from the Superintendence. These authorizations will be granted by type of contract (forward, future, swap, or option) and by underlying asset, described in Article 4°, and may comprise more than one type of contract and underlying.

Companies must submit to the Superintendence an authorization request signed by the General Manager accompanied by a "Derivative Financial Products Report", with all the information and documentation required in the following paragraph. Once the complete documentation is received, the Superintendence will analyze it and notify the company of its final decision in accordance with Article 11°.

The "Derivative Financial Products Report" must be coordinated in the company with the Trading, Recording, Accounting, Legal, Internal Audit, and Risk Unit areas or their equivalents, and be approved by the Risk Committee before its submission to the Superintendence. The minutes of the Risk Committee where said approval is recorded must be attached to the authorization request.

The minimum content of the "Derivative Financial Products Report" will be the following:
1 Executive Summary: Main aspects of the impact study on the company's risk profile.
2 Description of the derivative financial product.
2.1 Types of contracts (forwards, futures, swaps, or options).
2.2 Underlying assets of the contracts.
2.3 Intention of contracting. Description and characteristics of the positions and risks intended to be covered, in the case of derivatives for hedging purposes.
3 Valuation
3.1 Methodologies, procedures, and availability of prices and rates in freely accessible price sources, for its valuation.
4 Risk Management
4.1 Identified risks (market, credit, operational, liquidity, etc.) that would be generated by the subscription of the derivative financial product.
4.2 Methods and systems for measuring identified risks.
4.3 Methodology for calculating hedge effectiveness.
4.4 Internal limits, alerts, mitigants, and other tools established to control identified risks.
5 Operational Aspects
5.1 Description of electronic systems or other means to be used in the trading of the product.
5.2 Description of computer programs to be used for the control and monitoring of positions.
5.3 Description of the recording systems used for its accounting.
5.4 Description of the responsibilities of the officials who will participate directly in the trading, recording, valuation, and risk control and audit of the requested products, specifying their location within the company's organization and line of report.
5.5 Relevant training received by the officials who will participate directly in the trading, recording, valuation, risk control, and audit of the requested products.
5.6 Accounting circuits of the requested products, specifying the analytical accounts involved according to the Chart of Accounts, for their recognition, periodic valuation, and settlement.
5.7 Framework and specific contracts, preferably, related to framework agreements for contracting that enjoy general acceptance in international markets, such as those approved by the International Swaps and Derivatives Association (ISDA), as long as they do not oppose local norms.
6 Market Aspects
6.1 Description of the available markets for trading the product.
7 Additional Documentation
7.1 Copy of the Board of Directors agreement or equivalent body on the authorization granted for the realization of new derivative financial products.

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)2218990 Fax: (511) 4417760 8
7.2 Declaration of compliance with the requirements established in this Regulation, signed by the General Manager of the company.
7.3 Other documentation that the company considers necessary for the adequate implementation of operations with derivative financial products.
7.4 Other requirements that the Superintendence deems pertinent, in order to demonstrate the company's capacity to operate with derivative financial products.

Article 10°.- Authorization to take positions in derivatives implicit in combined instruments 9 10
To take positions in derivatives implicit in combined financial instruments 11 acquired or issued, companies will be subject to the requirements and authorization process as provided in Articles 9° and 11°. The following instruments are exempt from said authorization:
a) Debt representative instruments that have some prepayment or early sale option; or b) Adjustable Deposit Certificates of the Central Reserve Bank of Peru.

Article 11°.- Authorization period
Within a maximum period of sixty (60) business days calculated from the presentation of the complete documentation indicated in Article 9°, the Superintendence, if deemed appropriate, issues the respective authorization.

Article 12º.- Revocation of authorization
Without prejudice to what is established in the current Sanctions Regulation, the Superintendence will order the revocation of the authorization granted for the contracting of derivative financial products, when it determines that the company does not comply with what is established in this regulation and other complementary norms, and, in particular, when there is evidence that the company is not adequately managing the risks of its derivative financial products or is carrying out operations outside the scope of its authorization.

CHAPTER III
DERIVATIVE FINANCIAL PRODUCTS FOR HEDGING PURPOSES

Article 13°.- Derivative financial products for hedging purposes
A derivative financial product will be considered as a hedge if it meets the following conditions:
a. At the moment of initiating the hedge, there is formal designation and documentation of the hedge relationship, as well as the objective and risk management strategy with respect to the hedge. This documentation must include the identification of the hedging instrument, the hedged position, and the nature of the risk being covered, and must indicate the methodology for calculating hedge effectiveness; b. The hedge must be highly effective in achieving the offset of changes in the fair value or cash flows of the hedged item directly attributable to the hedged risk, and the results of prospective and retrospective tests must be within the 80%-125% range.
c. It is designated as a hedge for its entire remaining term.

Title of the article modified by Resolution SBS No. 17011-2010 of 09-12-2010 10 Instrument denomination modified by Resolution SBS No. 7034-2012 of 19-09-2012 11 Instrument denomination modified by Resolution SBS No. 7034-2012 of 19-09-2012 12 Article modified by Resolution SBS No. 17011-2010 of 09-12-2010

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 9 Furthermore, a financial derivative product may be designated as a hedge for more than one type of risk provided that: (a) the risks covered can be clearly identified, (b) the effectiveness of the hedge can be demonstrated, and (c) it is possible to ensure that there is a specific designation of the hedging instrument and of the different risk positions. Furthermore, two or more financial derivative products, or portions thereof, may be considered in combination and designated jointly as hedging instruments, including the case where the risks of some derivatives offset those from others. A derivative instrument that combines a written and a purchased option will not meet the requirements as a hedging instrument if its net effect is that of a written option (for which a net premium is received). Notwithstanding, a hedging financial derivative product that meets all the conditions described above may be registered accounting-wise as a derivative instrument for trading purposes as provided in Chapter IV.

Article 14.- Hedge Effectiveness
The effectiveness of a hedge shall be measured reliably prospectively, at the time of designation of the financial derivative product for hedging purposes, and retrospectively, with a minimum frequency of monthly. For the performance of prospective tests, the company may employ statistical techniques that it considers relevant to capture the probable future effectiveness of the hedge in question throughout its duration. For similar hedges, the company must use the same prospective methodology, unless it appropriately justifies the use of other methodologies. For the calculation of the aforementioned tests, companies will use the method or methods that best suit their risk management strategy and may even adopt different methods for different classes of hedges. The documentation on the methods used and the strategy followed by the company must include procedures for evaluating efficiency and must be available to the Superintendency.

Article 15.- Documentation required for financial derivative products for hedging purposes
Companies must document the hedging strategy in advance and adequately. The trading area, or another area with similar functions, must document the hedge relationship and the objective and risk management strategy to undertake the hedge. Such documentation must allow for a precise identification and description of the following elements at a minimum:
a) Type of hedge. b) Terms of the hedged item. c) Risk covered. d) Date of designation of the hedge relationship. e) Duration of the hedge. f) Terms of the financial derivative product for hedging purposes. g) Methodology used in the prospective test, specifying, if applicable, the risk factors excluded from the measurement. h) Methodology to be used in the retrospective test, specifying, if applicable, the risk factors excluded from the measurement. i) Development of the prospective test and effectiveness obtained.

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 10 The methodologies by which the company will measure the effectiveness of such hedge, both prospectively and retrospectively, must be previously approved in the company by its Risk Committee. A copy of the aforementioned documentation must be sent to the Superintendency within a maximum period of five (5) business days after the financial derivative product for hedging purposes has been registered, in electronic version, attaching the corresponding spreadsheets. The Superintendency will communicate to the company the channel through which such documentation must be sent.

CHAPTER IV
ACCOUNTING RECORDING AND VALUATION OF FINANCIAL DERIVATIVE PRODUCTS

Article 16.- Accounting recording and valuation of financial derivative products
The accounting recording and valuation of financial derivative products are governed by what is established in IAS 39, Financial Instruments: Recognition and Measurement, and its Application Guide, in force in Peru, provided that they do not conflict with what is established in this Regulation. Financial derivative products must be registered accounting-wise on the date of negotiation. For accounting recording purposes, financial derivative products must be classified into one of the following two categories: (a) financial derivative products for trading or (b) financial derivative products for hedging purposes.

Article 16-A.- Types of accounting hedges 14
The accounting hedges subject to this Regulation may be of three types:
a. Fair value hedges: Cover exposure to changes in the fair value of recognized assets or liabilities or unrecognized firm commitments, or a recognized portion of such assets, liabilities, or firm commitments, which can be attributed to a particular risk and can affect the period's result. As long as the effectiveness of the hedge can be measured, only a percentage of the fair value of the instrument subject to the hedge can be considered as the hedged item. b. Cash flow hedges: Cover exposure to the variation in cash flows that is attributed to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction and that can affect the period's result. As long as the effectiveness of the hedge can be measured, the uncertainty regarding only some of the future cash flows of the instrument subject to the hedge or even a portion thereof (for example, those related to a specific reference rate) can be considered as the hedged item.
c. Hedge of a net investment in a foreign operation: The definitions of foreign business and net investment in a foreign operation are the same as those indicated in IAS 21 "The Effects of Changes in Foreign Exchange Rates". Hedges of a net investment in a foreign business, including the hedge of a monetary item that is accounted for as part of a net investment, will be accounted for similarly to cash flow hedges.
The hedge of foreign currency risk of a firm commitment may be accounted for alternatively as a fair value hedge or as a cash flow hedge.

13 Paragraph modified by Resolution SBS No. 4007-2015 of 08-07-2015 14 Article incorporated by Resolution SBS No. 7034-2012 of 19-09-2012

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 11

Article 17.- Embedded Derivative
When the separation of an embedded derivative from the host contract occurs, the embedded derivatives must be registered and valued as financial products for trading, unless designated for hedging purposes. In either of the two cases, they must be reported separately in Annex ES-17 15 "Positions in Financial Derivative Instruments".

CHAPTER V
CLASSIFICATION AND CALCULATION OF LIMITS

Article 18.- Classification and calculation of limits
The classification and calculation of limits of investments eligible for the coverage of technical obligations, which are covered by financial derivative products, will be carried out independently of the hedging financial derivative product.

Article 19.- Cross Operations
When a contract involves two currencies different from the national currency (cross operation), it will be treated as a purchase or a sale depending on the position (long or short, respectively) in the currency different from the American dollar (for positions in American dollars and in another foreign currency) or in the currency in which the agreed nominal amount is expressed (for positions in two foreign currencies different from the American dollar).

CHAPTER VI
INFORMATION ON FINANCIAL DERIVATIVE PRODUCTS

Article 20.- Information
Companies must present monthly to the Superintendency information on their positions in financial derivative products according to the attached Annex ES-17 16 "Positions in Financial Derivative Products", which must be presented through the SUCAVE software within fifteen (15) calendar days following the close of each month. Furthermore, companies must keep documentation related to each operation carried out with financial derivative products available to the Superintendency.

CHAPTER VII
FINAL AND TRANSITORY PROVISIONS

First.- Financial derivative products agreed by companies before the entry into force of this Regulation 17 Second.- Settlement of operations with hedging financial derivative products of companies

15 Annex numbering incorporated by Resolution SBS No. 2842-2012 of 11-05-2012.
16 Annex numbering incorporated by Resolution SBS No. 2842-2012 of 11-05-2012.
17 First Final and Transitory Provision repealed by Resolution SBS No. 5587-2009 of 11-06-2009.

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 12 When the hedged portion of a hedge operation is sold, the company will have three (3) months to restructure the financial derivative product or assign it to a new item, complying with the requirements established for such operation to be considered as a hedge. If the deadline expires and the company has not carried out any of the described actions, it must proceed to sell the financial derivative product. When a hedge operation ceases to meet the requirement established in letter b) of Article 13°, referred to the effectiveness of the hedge, the company will have three (3) months to remedy such non-compliance. If the deadline expires and the non-compliance persists, the company must proceed to sell the financial derivative product. Similarly, in case the Superintendency considers the documentation of the hedging strategy unsatisfactory, as provided in Article 15°, the company must dissolve the hedging strategy; and consequently, liquidate its position regarding the financial derivative product, within the next thirty (30) calendar days, counted from the day following the day on which the Superintendency requires the dissolution of said strategy.

Third.- Limits
The Superintendency will issue, through a general character norm, the limits applicable to operations with financial derivative products.

Fourth.- Application of the Regulation of Classification and Valuation The provisions established in the Regulation of Classification and Valuation are of complementary application to this Regulation.

Fifth.- Authorization of specific operations. 18 In the case of operations with combined financial instruments 19 that incorporate embedded derivatives, to which Article 10° of the Regulation refers, companies may request specific authorization from the Superintendency, provided that they comply with the documentation required in Article 9°, within the authorization period established in Article 11°.

18 Fifth Final and Transitory Provision incorporated by Resolution SBS No. 17011-2010 of 09-12-2010.
19 Instrument denomination modified by Resolution SBS No. 7034-2012 of 19-09-2012

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760

• Annex numbering incorporated by Resolution SBS No. 2842-2012 of 11-05-2012
  SUPERINTENDENCY OF BANKING, INSURANCE AND AFP ANNEX ES-17* COMPANY:
  POSITIONS IN FINANCIAL DERIVATIVE PRODUCTS (1) CODE:……………… (EXPRESSED IN THOUSANDS OF NEW SOLES) (2) AT DE Forward Operations with F.E.
  Account a
  For Each Contract or Operation
  Vigilant
  Balance or
  Account
  Agreed Nominal Amount
  (expressedin the agreed currency)
  Description of the
  Operation
  (3,i)
  Start
  Date
  Expiration
  Date or
  Counterparty (4)
  Spot Exchange
  Rate
  Agreed
  Exchange
  Rate
  Market Value (Present Value) (5)
  Intention of
  Contracting /
  Registration (6)
  Hedge of the Instrument ( 7)
  Payment Method ( 8)
  Annual Interest
  Rates
  Used at
  Pricing
  Name (a)
  Resident /
  Non
  Resident
  (b)
  Document
  (c)
  Financial /
  Non
  Financial
  (d)
  Initial
  At close on the reporting date
  By Interest
  Rate
  By Exchange
  Rate.
  Total
  Hedged Item
  /Related
  Instrument(a)
  Percentage of coverage
  (b)
  Hedge
  Effectiveness
  (c)
  ( A )
  (9)
  ( B )
  (9)
  Purchase Forwards
  Sale Forwards
  Purchase Swaps
  Sale Swaps
  Purchase Futures and others
  Sale Futures and others
  Net Position (10)
  )
  Operations with F.E. Options
  Account a
  For Each Contract or Operation
  Vigilant
  Balance or
  Account
  Agreed Nominal Amount
  (expressedin the agreed currency)
  Description of the
  Operation
  (3,ii)
  Start
  Date
  Expiration
  Date or
  Counterparty (4)
  Spot Exchange
  Rate
  Agreed
  Exchange
  Rate
  Premium
  Paid
  Delta ( 12)
  Gamma
  (12)
  Vega ( 12)
  Price
  (Present
  Value)
  (5)
  Intention of
  Contracting /
  Registration (6)
  Hedge of the Instrument ( 7)
  Payment
  Method
  (8)
  Annual Interest
  Rates
  Used at
  Pricing
  Name (a)
  Resident /
  Non
  Resident
  (b)
  Document
  (c)
  Financial /
  Non
  Financial
  (d)
  Initial
  At Close on the reporting date
  Hedged
  Item
  /Related
  Instrument
  (a)
  Percentage of coverage
  (b)
  Hedge
  Effectiveness
  (c)
  ( A )
  (9)
  ( B )
  (9)
  Purchase of Call Options
  Purchase of Put Options
  Sale of Call Options
  Sale of Put Options
  Positions in Options (Call and Put) (11i) (11ii) Forward Operations on Interest Rates Account a For Each Contract or Operation Vigilant Balance or Account Agreed Nominal Amount (expressedin the agreed currency) Description of the Operation (3iii) Start Date Expiration Date or Counterparty (4) Annual Spot Rate (A) (14) Annual Spot Rate (B) (14) Agreed Annual Rates Market Value (Present Value ) (5) Intention of Contracting / Registration ( 6) Hedge of the Instrument ( 7) Payment Method ( 8) (13) Name (a) Resident / Non Resident (b) Document (c) Financial / Non Financial (d) Initial At close on the reporting date Initial At close on the reporting date (A) (14) (B) (14) Hedged Item /Related Instrument (a) Percentage of coverage (b) Hedge Effectiveness (c) Forward Rate Agreements (FRAs) Interest Rate Swaps Operations with Interest Rate Options Purchases of options (caps, floors, etc.) Sales of options (caps, floors, etc.) Other Financial Derivative Products Account a For Each Contract or Operation Vigilant Balance or Account Agreed Nominal Amount (expressedin the agreed currency) Description of the Operation (3 iv) ) Start Date Expiration Date or Counterparty (4) Components (15) Spot Prices Agreed Prices Market Value (Present Value ) (5) Intention of Contracting (6) Hedge of the Instrument ( 7) Payment Method (8) Name (a) Resident / Non Resident (b) Document (c) Financial / Non Financial (d) Hedged Item /Related Instrument (a) Percentage of coverage (b) Hedge Effectiveness (c) Monthly periodicity, at the end of each month, with a maximum of 2 calendar days to send the information in printed form. ……………… ……………… ……………… GENERAL MANAGER ACCOUNTANT C.P.C. N° PREPARED BY (16)

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 13 METHODOLOGICAL NOTES OF ANNEX ES-17 2

1. For each contract or operation in force.
2. Except in the column of the Agreed Nominal Amount, which will be registered in the agreed currency.
3. The operation must be described:
   i. In the case of a Forward, Swap, Future specify the currency that is delivered and the currency that is received at maturity.
   ii. In the case of a Foreign Currency Option, specify the currency that is delivered, the currency that is received at maturity and if it is term (European) or early date (American).
   iii. In the case of an FRA, Interest Rate Swap, detail the interest rate that is received, the interest rate that is paid, and the currency to which they apply.
   iv. Detail the entity or reference assets.
4. Consider the following:
   a. In the case of legal entities, state the corporate name. b. Indicate R if the counterparty is Resident in the country, or NR if it is Non-Resident.
   c. For residents:

• In the case of natural persons state DNI and for foreign natural persons resident in the country foreigner's card or passport.
• In the case of legal entities state RUC.
  For non-residents:
• State country of origin according to Table "ISO 3166 Code List"
  d. Indicate F if the counterparty is a company belonging to the financial conglomerate as defined in article 11° of Resolution SBS No. 445-2000, or NF if it does not belong to said conglomerate.

5. The company must carry out the assumptions and methodologies it deems convenient, which must be available to the Superintendency. For the case of Forwards and Currency Swaps, the Present Value will be presented decomposed into two parts: (i) the effect of Interest Rates on the Present Value of the positions, and (ii) the effect of the Exchange Rate on the Present Value of the positions.
6. Indicate NIE if it is Trading generated by investment in a structured instrument, NCE if it is Trading generated by an Economic-Financial Hedging operation, or C if it is "Accounting Hedge".
7. Consider the following:
   a. Detail the instrument(s) or operation(s) that are being hedged, or the main instrument of the structured product. The ISIN code must be detailed. In case of not having the mentioned code, develop a brief description. b. Detail the percentage of coverage, in case it is a partial hedge.
   c. The resulting value of the ratio that indicates the effectiveness of the hedge on the date of the last accounting information sent to the Superintendency, according to the methodology described in the documentation of the Hedging Strategy, a requirement demanded by article 15° of the Regulation for the Negotiation and Accounting of Financial Derivative Products in Insurance Companies.
8. Specify if the final payment is for the total volume of the operation –"with delivery"- or only for the difference between agreed price and spot price at maturity -'without delivery'-. In addition to the above, for Currency and Interest Rate Swaps, detail the frequency of payments during the life of the contract, and if there are exchanges for the nominal amount at the beginning and end of the contract. For Interest Rate Swaps that include variable rates, detail the frequency with which these are repriced. For CDS and Total

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

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 14 Return Swaps detail the frequency of payments and if the settlement in case of realization of the credit event is in cash or in kind.
9. The Interest Rate (A) corresponds to the currency that is received and the Interest Rate (B) to the currency that is delivered.
10. Net position in financial derivative products (Forward Operations with F.E.): Total of future purchases of foreign currency minus the total of future sales of foreign currency through financial derivative products.
11. Net position in accounting terms in F.E. options:
i. Call Option Purchase position minus Call Option Sale position.
ii. Put Option Purchase position minus Put Option Sale position.
12. Delta (δ), Gamma (Γ) and Vega (ν) determined for the option according to the Black Scholes formula if applicable (European type options), or according to another valuation model of prior knowledge of the Superintendency.
13. The Agreed Nominal Amount column must correspond to the balance of the accounts included in accounts 8005.02 and 8203.02.
14. The Interest Rate (A) is the one that is received, and the Interest Rate (B) is the one that is delivered.
15. If the derivative results from the combination of simpler derivatives, detail the name of the strategy and the derivatives that compose it. E.g.: a Call Spread is composed with the purchase of a Call Option and the sale of a Call Option at different strike prices on the same underlying asset.
16. The head or person in charge of the Risk Unit must sign in the part corresponding to "Prepared By", taking responsibility for the information sent to the Superintendency.
*

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 15
ANNEX A
MODIFICATIONS TO THE CHART OF ACCOUNTS FOR COMPANIES OF THE INSURANCE SYSTEM
I. Chapter III "Accounting Table and Chart of Accounts" is modified in the following terms

1. Accounts 1605 and 2005 both named "Financial Derivative Products" are created, with the following detail:
   1605 FINANCIAL DERIVATIVE PRODUCTS
   1605.01 DERIVATIVES FOR TRADING
   1605.01.01 FOREIGN CURRENCY DERIVATIVES
   1605.01.02 INTEREST RATE DERIVATIVES
   1605.01.03 DERIVATIVES OF INSTRUMENTS REPRESENTING DEBT AND CAPITAL
   1605.01.04 COMMODITY DERIVATIVES
   1605.01.05 INDEX DERIVATIVES
   1605.01.06 CREDIT DERIVATIVES
   1605.01.09 OTHER FINANCIAL DERIVATIVE PRODUCTS
   1605.02 DERIVATIVES FOR HEDGING PURPOSES
   1605.02.01 FAIR VALUE HEDGES
   1605.02.02 CASH FLOW HEDGES
   1605.02.03 MACRO-HEDGES OF FAIR VALUE
   BY INTEREST RATE RISKS
   1605.03 ADJUSTMENTS TO ASSETS FOR MACRO-HEDGES OF
   FAIR VALUE BY INTEREST RATE RISK
   2005 FINANCIAL DERIVATIVE PRODUCTS
   2005.01 DERIVATIVES FOR TRADING
   2005.01.01 FOREIGN CURRENCY DERIVATIVES
   2005.01.02 INTEREST RATE DERIVATIVES
   2005.01.03 DERIVATIVES OF INSTRUMENTS REPRESENTING DEBT AND CAPITAL
   2005.01.04 COMMODITY DERIVATIVES
   2005.01.05 INDEX DERIVATIVES
   2005.01.06 CREDIT DERIVATIVES
   2005.01.09 OTHER FINANCIAL DERIVATIVE PRODUCTS
   2005.02 DERIVATIVES FOR HEDGING PURPOSES
   2005.02.01 FAIR VALUE HEDGES
   2005.02.02 CASH FLOW HEDGES
   2005.02.03 MACRO-HEDGES OF FAIR VALUE
   BY INTEREST RATE RISKS
   2005.03 ADJUSTMENTS TO ASSETS FOR MACRO-HEDGES OF

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 16

FAIR VALUE FOR INTEREST RATE RISK

2. The following account is added under item 35 "Unrealized Results"
   3504 FOR CASH FLOW HEDGING

3. The following analytical accounts are added to sub-accounts 4605.03 and 5609.03
   "Exchange Differences"
   4605.03.03 LOSS ON FINANCIAL DERIVATIVE PRODUCTS FOR TRADING IN FX
   4605.03.04 LOSS ON FINANCIAL DERIVATIVE PRODUCTS FOR HEDGING PURPOSES IN FX
   5609.03.03 GAIN ON FINANCIAL DERIVATIVE PRODUCTS FOR TRADING IN FX
   5609.03.04 GAIN ON FINANCIAL DERIVATIVE PRODUCTS FOR HEDGING PURPOSES IN FX

4. Account 4607 "Expenses from Financial Derivative Products" and 5607 "Income from Financial Derivative Products" are opened with the detail indicated below:
   4607 EXPENSES FROM FINANCIAL DERIVATIVE PRODUCTS
   4607.01 DERIVATIVES FOR TRADING
   4607.01.01 FOREIGN CURRENCY DERIVATIVES
   4607.01.02 INTEREST RATE DERIVATIVES
   4607.01.03 DERIVATIVES OF DEBT AND CAPITAL REPRESENTATIVE INSTRUMENTS
   4607.01.04 COMMODITY DERIVATIVES
   4607.01.05 INDEX DERIVATIVES
   4607.01.06 CREDIT DERIVATIVES
   4607.01.09 OTHER FINANCIAL DERIVATIVE PRODUCTS
   4607.02 DERIVATIVES FOR HEDGING PURPOSES
   4607.02.01 FAIR VALUE HEDGES
   4607.02.02 CASH FLOW HEDGES
   4607.02.03 MACRO-FAIR VALUE HEDGES FOR INTEREST RATE RISKS
   4607.03 ADJUSTMENTS OF ITEMS HEDGED AT FAIR VALUE
   4607.03.01 FAIR VALUE HEDGES
   4607.03.02 MACRO-HEDGES FOR INTEREST RATE RISK
   5607 INCOME FROM FINANCIAL DERIVATIVE PRODUCTS
   5607.01 DERIVATIVES FOR TRADING
   5607.01.01 FOREIGN CURRENCY DERIVATIVES
   5607.01.02 INTEREST RATE DERIVATIVES
   5607.01.03 DERIVATIVES OF DEBT AND CAPITAL REPRESENTATIVE INSTRUMENTS
   5607.01.04 COMMODITY DERIVATIVES
   5607.01.05 INDEX DERIVATIVES

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 17
5607.01.06 CREDIT DERIVATIVES
5607.01.09 OTHER FINANCIAL DERIVATIVE PRODUCTS
5607.02 DERIVATIVES FOR HEDGING PURPOSES
5607.02.01 FAIR VALUE HEDGES
5607.02.02 CASH FLOW HEDGES
5607.02.03 MACRO-FAIR VALUE HEDGES FOR INTEREST RATE RISKS
5607.03 ADJUSTMENTS OF ITEMS HEDGED AT FAIR VALUE
5607.03.01 FAIR VALUE HEDGES
5607.03.02 MACRO-HEDGES FOR INTEREST RATE RISK

5. The denomination of account 8005, as well as the sub-accounts indicated below, are modified:
   8005 RIGHTS FROM FINANCIAL DERIVATIVE PRODUCTS
   8005.01 FOREIGN CURRENCY DERIVATIVES
   8005.02 INTEREST RATE DERIVATIVES
   8005.03 DERIVATIVES OF DEBT AND CAPITAL REPRESENTATIVE INSTRUMENTS
   8005.04 COMMODITY DERIVATIVES
   8005.05 INDEX DERIVATIVES
   8005.06 CREDIT DERIVATIVES
   8005.09 OTHER FINANCIAL DERIVATIVE PRODUCTS

6. Account 8203 is incorporated, with the detail indicated below:
   8203 OBLIGATIONS FROM FINANCIAL DERIVATIVE PRODUCTS
   8203.01 FOREIGN CURRENCY DERIVATIVES
   8203.02 INTEREST RATE DERIVATIVES
   8203.03 DERIVATIVES OF DEBT AND CAPITAL REPRESENTATIVE INSTRUMENTS
   8203.04 COMMODITY DERIVATIVES
   8203.05 INDEX DERIVATIVES
   8203.06 CREDIT DERIVATIVES
   8203.09 OTHER FINANCIAL DERIVATIVE PRODUCTS

II. The modifications to Chapter IV "Description and Dynamics" indicated below are made:

1. Account 1605 "Financial Derivative Products" is incorporated with the detail indicated below:
   ACCOUNT: 1605 FINANCIAL DERIVATIVE PRODUCTS
   DESCRIPTION: This account records the rights acquired by contracts with financial derivative instruments, which are generated by their valuation in accordance with the provisions of this Superintendence. DYNAMICS

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 18 DEBITS: - For the recognition of the fair value of financial derivative products.

• For variations in the fair value of financial derivative products, and of the items hedged in a fair value hedge for interest rate risk of a portfolio (Macro-hedges).
  CREDITS: - For variations in the fair value of financial derivative products and of the items hedged in a fair value hedge for interest rate risk of a portfolio (Macro-hedges).
• For their liquidation or cancellation.
• For the amortization of the fair value adjustment made to a hedged item, in case of interruption of the accounting hedge.

2. Account 2005 "Financial Derivative Products" is incorporated with the detail indicated below:
   ACCOUNT: 2005 FINANCIAL DERIVATIVE PRODUCTS
   DESCRIPTION: This account records the obligations arising from operations with financial derivative instruments, which are generated by their valuation in accordance with the provisions of this Superintendence. DYNAMICS DEBITS: - For variations in the fair value of financial derivative products and of the items hedged in a fair value hedge for interest rate risk of a portfolio (Macro-hedges).

• For their liquidation or cancellation.
• For the amortization of the fair value adjustment made to a hedged item, in case of interruption of the accounting hedge.
  CREDITS: - For the recognition of the fair value of financial derivative products.
• For variations in the fair value of financial derivative products and of the items hedged in a fair value hedge for interest rate risk of a portfolio (Macro-hedges).

3. The descriptions and dynamics of item 35 "Unrealized Results" are modified, as indicated below:
   ITEM: 35 UNREALIZED RESULTS
   DESCRIPTION: It comprises exchange differences arising in a monetary item that forms part of the net investment in a foreign business of the company in accordance with IAS 21. Subsequently, they will be recognized in the results of the period when the foreign business is disposed of. Likewise, the unrealized profit or loss from the valuation of cash flow hedging derivative products is recorded. ACCOUNT: 3504 FOR CASH FLOW HEDGING DESCRIPTION: This account records the unrealized results from cash flow hedges in accordance with the accounting treatment of financial derivative products.

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 19 DYNAMICS DEBITS: - For the effective portion of the fair value adjustments of the financial derivative product in a cash flow hedge.

• For the transfer to the accounts of the Statement of Profit or Loss or to the cost of the non-financial asset or liability, in accordance with the accounting treatment for financial products described in item 16.
  CREDITS: - For the effective portion of the fair value adjustments of the financial derivative product in a cash flow hedge.
• For the transfer to the accounts of the Statement of Profit or Loss or to the cost of the non-financial asset or liability, in accordance with the accounting treatment for financial products described in item 16.

4. The description of account 4605 "Financial Charges" is modified and additions are made to the accounting dynamics, as indicated below:
   ACCOUNT: 4605 FINANCIAL CHARGES
   DESCRIPTION: This account records financial expenses related to the investment segment, financial derivative instruments, and other operations.
   DYNAMICS
   DEBITS: - For variations in the fair value of the financial derivative product and for the loss on the hedged item in a fair value hedge, as a result of exchange rate fluctuations, in accordance with the accounting treatment for financial products described in account 2005.

5. Account 4607 "Expenses from Financial Derivative Products" is added with the following description and accounting dynamics:
   ACCOUNT: 4607 EXPENSES FROM FINANCIAL DERIVATIVE PRODUCTS DESCRIPTION: This account records financial expenses arising from losses on financial derivative products and from the hedged items attributable in an accounting hedge in accordance with the accounting treatment of financial derivative products. The treatment of account 2005 applies to it. DYNAMICS DEBITS: - For variations in the fair value of the financial derivative product and for the loss on the hedged item in a fair value hedge, in accordance with the accounting treatment for financial products described in account 2005.

• For the ineffective portion of the financial derivative product in a cash flow hedge and for variations in its fair value when the hedged items are recognized in results.
  CREDITS: - For reversals and adjustments specific to the accounting period.

6. Account 5607 "Income from Financial Derivative Products" is added with the following description and accounting dynamics:
   ACCOUNT: 5607 INCOME FROM FINANCIAL DERIVATIVE PRODUCTS DESCRIPTION: This account records financial income arising from gains on financial derivative products and from the hedged items attributable in an accounting hedge in accordance with the accounting treatment of financial derivative products. The treatment of account 1605 applies to it.

Los Laureles Nº 214 - Lima 27 - Peru Tel. : (511)2218990 Fax: (511) 4417760 20 DYNAMICS DEBITS: - For reversals and adjustments specific to the accounting period.
CREDITS: - For variations in the fair value of the financial derivative product and for the loss on the hedged item in a fair value hedge, in accordance with the accounting treatment for financial products described in account 1605.

• For the ineffective portion of the financial derivative product in a cash flow hedge and for variations in its fair value when the hedged items are recognized in results.

7. The accounting dynamics of account 5609 "Other Financial Income" are modified with the following additions:
   ACCOUNT: 5609 OTHER FINANCIAL INCOME
   DYNAMICS
   DEBITS: - For reversals and adjustments specific to the accounting period, including the inflation adjustment.
   CREDITS: - For variations in the fair value of the financial derivative product and for the loss on the hedged item in a fair value hedge, as a result of exchange rate fluctuations, in accordance with the accounting treatment for financial products described in account 1605.

8. The dynamics applicable to account 8005 "Rights from Financial Derivative Products" are added as indicated below:
   DYNAMICS
   DEBITS: - For the nominal value of rights acquired by operations with derivative instruments.
   CREDITS: - For the liquidation of rights acquired by operations with financial derivative instruments.

9. The dynamics of account 8203 "Obligations from Financial Derivative Products" are added with the detail indicated below:
   DYNAMICS
   DEBITS: - For the liquidation of obligations acquired by operations with financial derivative instruments.
   CREDITS: - For the nominal value of obligations acquired by operations with financial derivative instruments.

III. The following modifications are made to the Balance Sheet (Form "A") and Statement of Profit or Loss (Form "B"), as well as to their grouping norms:

1. The Receivables item of Form "A" Balance Sheet will be presented as indicated below, considering the corresponding grouping additionally:

Presentation in Form "A"	Grouping Norms
Other Receivables (net)	16 Except 1601.02, 1604.05 and 1605 Receivables from Financial Derivative Products for Trading

2. The Taxes, Participations and Other Payables item of Form "A" Balance Sheet will be presented as indicated below, considering the corresponding grouping additionally:

Presentation in Form "A"	Grouping Norms
Taxes, participations and other payables	20 Less (2007 + 2001.02 + 2005) Payables from Financial Derivative Products for Trading

IV. Modify the Conceptual Accounting Framework, as indicated below:

1. Incorporate the following text after the provisions of the title "Financial Investments":

"TREATMENT FOR FINANCIAL DERIVATIVE PRODUCTS
Financial derivative products are instruments that meet three characteristics: i) their value changes in response to changes in a certain interest rate, in the price of a financial instrument, in the price of quoted commodities, in the exchange rate, in the price index or interest rate index, in a credit rating or index, or based on another variable, assuming that, in the case of a non-financial variable, it is not specific to one of the parties to the contract, ii) it requires an initial net investment that is very small or null compared to other contracts that respond similarly to changes in market variables, and, iii) it is settled on a future date.

Insurance companies may enter into financial derivative products for hedging purposes, and may only operate with financial derivative products for trading when they are investments in structured instruments with embedded derivatives.

The accounting treatment of financial derivative products will adhere to what is stipulated below, which collects the essential aspects of International Accounting Standard (IAS) No. 39 "Financial Instruments: Recognition and Measurement" in force in Peru. Consequently, said IAS and its Application Guide apply, insofar as they do not oppose the treatment exposed below.

Classification of Financial Derivative Products At the outset, financial derivative products must be classified into one of the following two categories:
(a) Financial derivative products for trading; or, (b) Financial derivative products for accounting hedge purposes.

Initial Recognition
All financial derivative products must be recorded at their fair value in the Balance Sheet, on the date of negotiation or contracting.
Simultaneously, they must be recorded in accounts 8005 "Rights from Financial Derivative Products" and 8203 "Obligations from Financial Derivative Products", as applicable, at their nominal or par value. The recording will be made by contract. All contracts denominated in foreign currency must be recorded at the spot exchange rate. When a contract involves two currencies different from the national currency, it will be treated as a purchase or a sale depending on the position (long or short, respectively) in the currency in which the agreed nominal amount is expressed.

Subsequent Recognition and Valuation
(a) Financial derivative products for trading
Subsequently, changes in the fair value of financial derivative products for trading will be accounted for in the sub-accounts of income and expense accounts, 5607.01 "Income from Financial Derivative Products for Trading", and 4607.01 "Expenses from Financial Derivative Products for Trading", with the corresponding accounts 1605.01 "Financial Derivative Products for Trading" or 2005.01 "Financial Derivative Products for Trading", as applicable to an income or an expense, respectively. Gains and losses from exchange differences will be recorded in analytical accounts 5609.03.05 and 4605.03.05, respectively.

(b) Financial derivative products for accounting hedge purposes Subsequently, changes in the fair value of financial derivative products for hedging purposes will be recorded depending on the type of accounting hedge. Accounting hedges can be of two types:

1. Fair Value Hedge

2. Cash Flow Hedge

3. Fair Value Hedges
   In a fair value accounting hedge, both the financial derivative product and the hedged item are valued and recognized at fair value, affecting income and expense accounts, accounted for as follows:
   i) Gains or losses resulting from variations in the fair value of the financial derivative product are recognized in the period's results, recorded in analytical accounts 5607.02.01 and 4607.02.01, with the corresponding analytical accounts 1605.02.01 and 2005.02.01, as applicable to an income or an expense, respectively. ii) The gain or loss on the attributable hedged item, which is a financial asset or liability, resulting from variations in fair value, will be recognized in the period's results, recording the adjustments in analytical accounts 5607.03.01 and 4607.03.01, with the corresponding asset and liability accounts of the hedged items as the counterpart.

Under this accounting method, the general rule of affecting adjustments of a financial derivative product is not changed, but the accounting record of those asset or liability items that were not recognized at fair value is changed. Gains or losses from exchange differences of financial derivative products will be accounted for in analytical accounts 5609.03.06 and 4605.03.06, respectively.

Fair Value Hedges for Interest Rate Risk of a Portfolio (Macro-hedges) In a fair value hedge that qualifies as a macro-hedge, the treatment will be as follows:
i) Fair value adjustments of the financial derivative product will be recognized as gains or losses, recorded in analytical accounts 5607.02.03 and 4607.02.03, with the corresponding analytical accounts 1605.02.03 and 2005.02.03, as applicable to an income or an expense, respectively. ii) The gain or loss on the attributable hedged item, resulting from variations in fair value, will be recognized in the period's results, recording the adjustments in analytical accounts 5607.03.02 and 4607.03.02, with accounts 1605.03 and 2005.03 as the counterpart, respectively. Gains or losses from exchange differences of financial derivative products will be accounted for in analytical accounts 5609.03.06 and 4605.03.06, respectively.

2. Cash Flow Hedges
   A properly designated, documented, and highly effective cash flow accounting hedge will be accounted for as follows:
   i) The effective portion of the fair value adjustments of the financial derivative product is recognized in the equity account 3504 "Unrealized results from cash flow hedges", with the corresponding analytical accounts 1605.02.02 and 2005.02.02, designated "Cash Flow Hedges", as applicable to a gain or a loss, respectively. This adjustment will correspond to the lower value, in absolute terms, between: a) the valuation of financial derivative products, accumulated since the beginning of the hedge; and, b) the accumulated change since the beginning of the hedge in the fair value of the expected cash flows of the hedged item. ii) The ineffective portion of the financial derivative product must be recognized in income and expense accounts, analytical accounts 4607.02.02 and 5607.02.02, designated "Cash Flow Hedges", with the corresponding analytical accounts 1605.02.02 and 2005.02.02, designated "Cash Flow Hedges", as applicable to a gain or a loss, respectively. In this way, cash flow hedge accounting affects the accounting treatment of the financial derivative product but not of the hedged item. Gains and losses recognized in equity account 3504 will affect the result accounts affecting the Statement of Profit or Loss, in the same periods in which the hedged items are recognized in results. For this purpose, the following treatment will be followed:
   a) If the hedge of a forecast transaction results in a financial asset or liability, the loss or gain recognized in equity accounts will be recognized in expenses or income, affecting the Statement of Profit or Loss

accounted for in the same accounts of the covered item, in the period or periods in which the interest of the associated financial asset or liability accrues. In the event that there is evidence that part or all of the amount recognized in equity will not be recovered, the amount not expected to be recovered will be recognized in the result of the period. b) If the hedge of a forecast transaction results in a non-financial asset or liability, the loss or gain recognized in equity shall be included in the acquisition cost of the non-financial asset or liability. c) In the case of cash flow hedges other than those indicated in a) and b), the amounts recognized in equity accounts shall be recognized in the income statement accounts in the period or periods in which the forecast covered transaction affects the result. The gain or loss from exchange differences on financial derivative products that form part of a cash flow hedge shall be accounted for in analytical accounts 5609.03.06 and 4605.03.06, respectively.

3. Prospective discontinuation of hedge accounting
   Upon the discontinuation of hedge accounting, the following treatment shall be followed, prospectively:

Fair Value Hedge a) The amount of the adjustment resulting from accounting for the hedged items at fair value, which are accounted for at amortized cost, shall be amortized against the result of the period using the effective interest rate method, recalculated on the date amortization begins. b) Exceptionally, in the case of a fair value hedge of interest rate risk exposure, when amortization using the effective interest rate is impracticable, amortization shall be performed linearly.

Cash Flow Hedge a) If the hedging instrument expires, is sold, settled, or exercised, or the hedge no longer meets the requirements for hedge accounting, the gain or loss accounted for in equity accounts shall remain in said accounts until the forecast transaction takes place. When this occurs, the criteria indicated in a), b), and c) of section 2 of cash flow hedge, noted above, shall be followed. b) If the forecast transaction is not expected to occur, the gain or loss accounted for in equity accounts shall be recognized in the result of the period. c) If the company revokes the designation, the gain or loss accounted for in equity accounts shall remain until the forecast transaction occurs. When this happens, it shall be accounted for in accordance with the criteria indicated in a), b), and c) of section 2 of cash flow hedge, noted above. If the transaction is not expected to occur, the accumulated result in equity accounts shall be recognized directly in the result of the period.”