Resolution SBS No. 4025-2016: Clarification of Authorization Request for Issuing Bonds Referenced in Article 318 of the General Law of the Financial and Insurance Systems and Amendment to the Regulation of Patrimonial Requirements of Insurance and Reinsurance Companies

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 Lima, July 20, 2016 Resolution S.B.S. No. 4025-2016 The Superintendent of Banks, Insurance, and Private Pension Fund Administrators

CONSIDERING:

That, as provided in Articles 300° and 304° of the General Law of the Financial and Insurance Systems and the Organic Law of the Superintendence of Banks and Insurance, Law No. 26702 and its modifying norms, hereinafter General Law, when insurance companies carry out operations subject to credit risk, they must allocate a portion of their effective equity, in the part exceeding their solvency equity, to cover credit risk, observing the norms issued generally by the Superintendence; likewise, these operations are subject to the provisions and limits referred to in Section Two of the General Law;

That, for the purpose of adequately determining the operations of insurance companies subject to credit risk that by their nature are subject to the prudential requirements of the financial system, it is necessary to define the bond referred to in Article 318° of the General Law;

That, through Resolution SBS No. 1124-2006 and its modifying norms, the Regulation of Patrimonial Requirements of Insurance and Reinsurance Companies was approved, in which, among other aspects, the method of calculating the effective equity requirement for credit risk is specified;

That, it is necessary to establish adequate treatment for the regulatory requirements of bonds and caution policies issued by insurance companies, which align the identified risks and the type of management granted to them;

That, for the purpose of collecting opinions from the general public, the pre-publication of the draft resolution on the matter was ordered on the electronic portal of the Superintendence, under the authority of Article 300° and 304° of the General Law of the Financial and Insurance Systems and the Organic Law of the Superintendence of Banks and Insurance, Law No. 26702 and its modifying norms, hereinafter General Law, when insurance companies carry out operations subject to credit risk, they must allocate a portion of their effective equity, in the part exceeding their solvency equity, to cover credit risk, observing the norms issued generally by the Superintendence; likewise, these operations are subject to the provisions and limits referred to in Section Two of the General Law;

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

In exercise of the powers conferred by numbers 7 and 9 of Article 349° of the General Law;

RESOLVES:

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239

Article First.- It is clarified that the authorization request for the issuance of bonds referred to in Article 318° of the General Law of the Financial and Insurance Systems and the Organic Law of the Superintendence of Banks and Insurance, Law No. 26702 and its modifying norms, comprises only the bonds issued by insurance companies considered as guarantees for credit obligations and that have no connection with the obligations referenced in the definition of caution risk in the chart of accounts for insurance system companies. For this purpose, a credit obligation is understood as one consisting of the payment of a sum of money.

For bonds other than those indicated above, the treatment of insurance operations will be applied according to current regulations.

Article Second.- Modify subsection d) of number 3.3 of Article 3° and the first paragraph of Article 4°-A of the Regulation of Patrimonial Requirements of Insurance and Reinsurance Companies, approved by Resolution SBS No. 1124-2006 and its modifying norms, according to the following terms:

“Composition Article 3°.- (...) 3.3 Effective equity requirement for credit risk (...) Assets and contingencies subject to credit risk refer to: (...) d) Bonds granted by companies, referring to those guarantees for credit obligations. For this purpose, a credit obligation is understood as one consisting solely of the payment of a sum of money. (...)”.

“Use of reinsurance as a mitigant of credit risk Article 4°-A.- In the case of bonds considered as guarantees for credit obligations that are backed by a reinsurance contract, said contract may be considered as an eligible personal guarantee, provided that its conditions establish that it is unconditional, irrevocable, automatically enforceable upon request only, and without the benefit of excussion. Likewise, the contract must be signed by at least the leading reinsurer, and in the case of other participating reinsurers, the company must have their respective confirmations of acceptance. (...)”

Article Third.- Modify number 54 of Section II of Chapter II “Risks” of the Chart of Accounts for insurance system companies, approved by Resolution SBS No. 348-95 and modifying norms, in the following terms:

“54 Caution For caution insurance, the insurer undertakes towards the insured, within the limits and conditions established in the contract and applicable law, to indemnify them in case that the contractor or policyholder fails to fulfill their contractual or legal obligations guaranteed, distinct from the delivery of money.

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239

Article Fourth.- This resolution enters into force from the day following its publication in the Official Gazette El Peruano.

Register, communicate, and publish, JAVIER POGGI CAMPODONICO Superintendent of Banks, Insurance, and Private Pension Fund Administrators (e)”