Resolution SBS No. 1761-2021: Amend the Regulation on Capital Requirements for Insurance and Reinsurance Companies

Los Laureles Nº 214 - Lima 27 - Peru Tel.: (511) 630-9000 Fax: (511) 630-9239 Lima, June 16, 2021 Superintendence Resolution No. 1761-2021 The Superintendent of Banks, Insurance and Private Pension Fund Administrators

CONSIDERING:

That, 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 amendments, hereinafter the General Law, establishes in its Article 298 the minimum capital requirements that insurance and/or reinsurance companies must comply with;

That the Regulation on Capital Requirements for Insurance and Reinsurance Companies, approved by SBS Resolution No. 1124-2006 and amending norms, establishes, among other aspects, the calculation methodology for the solvency margin that insurance and reinsurance companies must follow;

That, by Supreme Decree No. 044-2020-PCM, published on March 15, 2020, a National Emergency State was declared as a consequence of the COVID-19 outbreak, which has been extended to the present. The COVID-19 pandemic has increased the number of claims for pension insurance and group life insurance; in this sense, in order to mitigate the impact of pandemic-induced excess mortality on the capital requirements of insurance and reinsurance companies, it is pertinent to modify the applicable calculation methodology for determining the solvency margin for pension insurance and group life insurance;

Having the approval of the Adjunct Superintendencies of Insurance, Economic Studies, and Legal Advice;

In exercise of the powers conferred by items 7, 9, and 13 of Article 349 of the General Law and based on the exceptional conditions established in item 3.2 of Article 14 of Supreme Decree No. 001-2009-JUS and amending norms;

RESOLVES:

Article First.- Modify item b of item 6.3, as well as item 6.4 of Article 6 of the Regulation on Capital Requirements for Insurance and Reinsurance Companies, approved by SBS Resolution No. 1124-2006 and amending norms, in the following terms:

“6.3. Group Life Insurance
(…)

Los Laureles Nº 214 - Lima 27 - Peru Tel.: (511) 630-9000 Fax: (511) 630-9239

b) Based on claims from the last forty-two (42) months (Table No. 6):
b.1) The amount of accepted insurance and reinsurance claims from the last forty-two (42) months, net of cancellations and recoveries, shall be calculated. b.2) The information corresponding to the six (6) months with the highest claim amount shall be eliminated, so that the calculation base consists of thirty-six (36) months. b.3) The annual average shall be obtained by dividing the sum resulting in b.2) by three (3). b.4) 46% of b.3) shall be obtained. b.5) The amount obtained in b.4) shall be multiplied by the retention ratio calculated in a.4) of this item.

6.4. Pension Insurance and Complementary Insurance for Occupational Risk (SCTR)

6.4.1 Pension Insurance
The solvency margin for pension insurance operations - disability, survival, and funeral expenses - of the Private Pension System (Law No. 25897 and modifications) shall be determined as follows:

Active Portfolio
(…)

b) Based on claims from the last forty-two (42) months (Table No. 8.1):
b.1) The amount of accepted insurance and reinsurance claims from the last forty-two (42) months, net of cancellations, shall be calculated. b.2) The information corresponding to the six (6) months with the highest claim amount shall be eliminated, so that the calculation base consists of thirty-six (36) months. b.3) The annual average shall be obtained by dividing the sum resulting in b.2) by three (3). b.4) 29% of b.3) shall be obtained. b.5) The amount obtained in b.4) shall be multiplied by the retention ratio indicated in a.4) of this item.

Furthermore, the following provisions must be considered:

• Monthly own information of accepted insurance and reinsurance claims, net, must be used. In case it is necessary to complete the required forty-two (42) months in item b.1), monthly market information for accepted net insurance and reinsurance claims for pension insurance, which will be sent by this Superintendence via official letter, must be added.
• The monthly market information must be divided by the total number of lots in the tender and multiplied by the number of lots awarded to the company.
• Once the annual average referred to in item b.3) is obtained, an adjustment for the time elapsed since the start of the contract's validity must be made, until one year is reached. For this purpose, the annual average of claims must be multiplied by the number of months elapsed since the start of the contract's validity, and this result divided by twelve (12).

Run-off Portfolio
Includes previous risk management contracts and previous collective contracts (SISCO) prior to the current SISCO.

Los Laureles Nº 214 - Lima 27 - Peru Tel.: (511) 630-9000 Fax: (511) 630-9239

The solvency margin must be calculated separately for each SISCO contract and for the entire run-off portfolio prior to SISCO.

For contracts other than SISCO IV, the solvency margin is determined based on the information contained in the financial statements and will be equal to the result of applying the following procedure:
a) Based on claims from the last twelve (12) months (Table No. 8.1):
a.1) The amount of accepted insurance and reinsurance claims from the last twelve (12) months, net of cancellations, shall be calculated. a.2) 14.5% of a.1) shall be obtained. a.3) The amount obtained in a.2) shall be multiplied by the retention ratio, which will be obtained from the corresponding reinsurance contract. This retention ratio cannot be less than 0.50.

In the case of the SISCO IV run-off portfolio, the solvency margin will be equal to the result of applying the following procedure and based on the information contained in the financial statements:
a) Based on claims from the last fourteen (14) months (Table No. 8.1):
a.1) The amount of accepted insurance and reinsurance claims from the last twelve (14) months, net of cancellations, shall be calculated. a.2) The information corresponding to the two (2) months with the highest claim amount shall be eliminated, so that the calculation base consists of twelve (12) months. a.3) 14.5% of a.2) shall be obtained. a.4) The amount obtained in a.3) shall be multiplied by the retention ratio, which will be obtained from the corresponding reinsurance contract. This retention ratio cannot be less than 0.50.

The solvency margin for pension insurance will be equivalent to the sum of the result obtained in the active portfolio and in the run-off portfolios, none of these values being less than zero.”

Article Second.- Modify the formats of Tables No. 6, No. 8, and No. 10 of Annex ES-7C “Solvency Margin Information” of the Regulation on Capital Requirements for Insurance and Reinsurance Companies, approved by Resolution No. 1124-2006 and amending norms, according to the annex attached to this resolution, which is published on the Institutional Portal (www.sbs.gob.pe) in accordance with what is established in Supreme Decree No. 001-2009-JUS.

Article Third.- This resolution enters into force the day following its publication in the official newspaper “El Peruano”. The new formats of Tables No. 6, No. 8, and No. 10 of Annex ES-7C “Solvency Margin Information” enter into force starting with the information corresponding to the month of June 2021.

Register, communicate, and publish.

SOCORRO HEYSEN ZEGARRA
Superintendent of Banks, Insurance and Private Pension Fund Administrators

Los Laureles Nº 214 - Lima 27 - Peru Tel.: (511) 630-9000 Fax: (511) 630-9239

ANNEX
ANNEX ES-7C
TABLES 5 AND 6
SOLVENCY MARGIN FOR GROUP LIFE INSURANCE
INSURANCE COMPANY: ……
AS OF …… OF …… OF ……
(…)

Table No. 6
GROUP LIFE INSURANCE - BASED ON CLAIMS
LAST THIRTY-SIX VALID MONTHS
OPERATION ____ months
____ months
____ months
____ months
____ months
TOTAL
Year__ current
(a) (b) (c) (d) (e) (f) =
(a+b+c+d+e)

1. Net Insurance Claims
2. Net Accepted Reinsurance Claims
3. Total Net Claims = (1f + 2f)
   2/ 4. Annual average claims = ( 3f) / 3
4. Basic calculation amount = 0.46 * ( 4f)
5. Retention Ratio = (10c from Table No. 5)
6. SOLVENCY MARGIN = ( 5f * 6f)
   2/ Initially, the last 42 months are considered, then the information corresponding to the 6 months with the highest claim amount is eliminated, so that the base consists of 36 valid months. The number of months considered in each exercise must be indicated.

Los Laureles Nº 214 - Lima 27 - Peru Tel.: (511) 630-9000 Fax: (511) 630-9239

ANNEX ES-7C
TABLES 8.1 AND 8.2
SOLVENCY MARGIN FOR PENSION INSURANCE AND SCTR INSURANCE COMPANY: …… AS OF …… OF …… OF ……

TABLE 8.1
PENSION INSURANCE – BASED ON CLAIMS
HISTORICAL MONTHS
OPERATION ____ months
____ months
____ months
____ months
____ months
TOTAL
Year__ current
(a) (b) (c) (d) (e) (f) =
(a+b+c+d+e)
ACTIVE PORTFOLIO - LAST THIRTY-SIX VALID MONTHS

1. Net Insurance Claims
2. Net Accepted Reinsurance Claims
3. Total Net Claims = (1f + 2f) 1/

4 Annual average claims = (3f) / 3
5. Basic calculation amount = 0.29 * ( 4f)
6. Retention Ratio = (5c from Table No.
7.1)
7. SOLVENCY MARGIN ACTIVE PORTFOLIO = Max(0, (5f) * (6f))

RUN-OFF PORTFOLIO - LAST TWELVE VALID MONTHS 2/ Run Off Portfolio No. 1
8. Total Net Claims
9. Basic calculation amount = 0.145 * ( 8f)
10. Retention ratio (not less than 0.50) 3/
11. Solvency Margin for Run Off Portfolio No.
1 = Max(0, (9f)*(10f))

Run Off Portfolio No. 2
12. Total Net Claims
13. Basic calculation amount = 0.145 * ( 12f)
14. Retention ratio (not less than 0.50) 3/
15. Solvency Margin for Run Off Portfolio No.
2 = Max(0, (13f)*(14f))

Los Laureles Nº 214 - Lima 27 - Peru Tel.: (511) 630-9000 Fax: (511) 630-9239

Run Off Portfolio No. 3
16. Total Net Claims
17. Basic calculation amount = 0.145 * ( 16f)
18. Retention ratio (not less than 0.50) 3/
19. Solvency Margin for Run Off Portfolio No.
3 = Max(0, (17f)*(18f))

Run Off Portfolio No. 4
20. Total Net Claims
21. Basic calculation amount = 0.145 * ( 20f)
22. Retention ratio (not less than 0.50) 3/
23. Solvency Margin for Run Off Portfolio No.
3 = Max(0, (21f)*(22f))

Run Off Portfolio No. 5
24. Total Net Claims 4/

25. Basic calculation amount = 0.145 * ( 24f)
26. Retention ratio (not less than 0.50) 3/
27. Solvency Margin for Run Off Portfolio No.
    3 = Max(0, (25f)*(26f))
28. SOLVENCY MARGIN RUN-OFF PORTFOLIO = (11f + 15f + 19f + 23f + 27f)

Notes:
(1) Initially, the last 42 months are considered, then the information corresponding to the 6 months with the highest claim amount is eliminated, so that the base consists of 36 valid months. The number of months considered in each exercise must be indicated. (2) As stated in item 6.4.1 of the Regulation, the solvency margin must be calculated separately for the entire run-off portfolio prior to SISCO and for each collective contract (SISCO) prior to the current SISCO. Therefore, for this report, the following must be considered: Run Off Portfolio No. 1 = entire run-off portfolio prior to SISCO (individual contracts with AFPs); Run Off Portfolio No. 2 = SISCO 1 in Run Off; Run Off Portfolio No. 3 = SISCO 2 in Run Off; Run Off Portfolio No. 4 = SISCO 3 in Run Off; Run Off Portfolio No. 5 = SISCO 4 in Run Off. (3) The retention ratio will be obtained from the corresponding reinsurance contract. (4) Only in the case of the run-off portfolio corresponding to SISCO 4 are the last 14 months initially considered, then the information corresponding to the 6 months with the highest claim amount is eliminated, so that the base consists of 12 valid months. The number of months considered in each exercise must be indicated. (…)

Los Laureles Nº 214 - Lima 27 - Peru Tel.: (511) 630-9000 Fax: (511) 630-9239

ANNEX ES-7C
TABLE 10
TOTAL SOLVENCY MARGIN
(ARTICLE 303 OF LAW No. 26702)
INSURANCE COMPANY: ………………
AS OF …….. OF ………………… OF ………………
CONCEPTS TOTAL
(…)
4. PENSION INSURANCE : Sum of: i) (4c) and ii) Maximum between (4a) and (4b)
(…)
4c) Run-off portfolio - Based on Claims: (28 f) from Table No. 8.1 (…) …… GENERAL MANAGER …… GENERAL ACCOUNTANT ……