Resolution SBS No. 4095-2013: Approves the Regulation of the Loss Reserve

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 Lima, July 04, 2013 Resolution S.B.S.
No. 4095-2013
The Superintendent of Banks, Insurance and Private Pension Fund Administrators

CONSIDERING

That, Article 306 of the General Law of the Financial System and of the Insurance System and the Organization of the Superintendence of Banks and Insurance, Law No. 26702, and its amendments, hereinafter General Law, establishes that insurance and/or reinsurance companies must constitute technical reserves monthly, which correspond to the obligations that said companies maintain with the insureds corresponding to the policies subscribed;

That, the loss reserve, including that of losses occurred and not reported, of loss settlement expenses, of losses pending settlement and of losses pending payment, corresponds to one of the technical reserves indicated in Article 306 of the General Law;

That, by Resolution SBS No. 1048-99, the methodology for the constitution of the reserve for losses occurred and not reported was established, and, based on the experience gathered over the time elapsed since its entry into force, it is necessary to update the methodology for its constitution;

That, by Resolution SBS No. 7037-2012, effective since January 2013, the Superintendence modified the Chart of Accounts for Companies of the Insurance System approved by Resolution SBS No. 348-95, with the aim of harmonizing its accounting standards with the International Financial Reporting Standards (IFRS);

That, as a consequence of the adaptation to IFRS 4 “Insurance Contracts”, it is required to update the calculation methodologies of the technical reserves in order to concord them with what is established in said accounting standard, in such a way that the commitments assumed with the insureds are adequately reflected;

That, therefore, it is necessary to establish methodologies for the constitution of the loss reserve in all its components, that is, to incorporate those that have been reported to the company and are pending settlement, as well as to establish provisions regarding the reserve for losses that are pending payment, and the reserve for loss settlement expenses, in addition to updating the methodology for the calculation of the reserve for losses occurred and not reported;

That, for the purpose of collecting the opinions of the general public regarding the proposed modifications mentioned above, the pre-publication of the draft resolution was ordered on the electronic portal of the Superintendence, under the authority of what is provided in Supreme Decree No. 001-2009-JUS;

Having the approval of the Adjunct Superintendencies of Private Pension Fund Administrators and Insurance, Economic Studies and Legal Advice; and,

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

RESOLVES:

Article First.- Approve the Regulation of the Loss Reserve, as indicated below:

“REGULATION OF THE LOSS RESERVE

Article 1°.- Scope
This regulation is applicable to the companies indicated in paragraph D of Article 16 of the General Law, hereinafter companies.

Article 2°.- Definitions
For the purposes of the provisions of this standard, the following definitions shall be considered:
a) Statistical method: Triangle Method or Run-off Method in the payment of losses (“run off triangle”); it corresponds to the methodology used for the estimation of loss reserves based on the analysis of the two-dimensional distribution of loss experience over time. b) Development factor: As defined in step 6 of the methodological annex attached to this regulation. c) Tail factor: As defined in step 7 of the methodological annex attached to this regulation. d) Claim: Request for loss coverage. e) Open loss: It is a loss whose consequences may or may not have been indemnified but other payments or procedures may be pending. It corresponds to a loss that is not closed. f) Closed loss: It corresponds to a loss in which the parties have confirmed their acceptance and it is no longer susceptible to being reopened.

Article 3°.- Loss reserve
The loss reserve represents the total amount of the company's pending obligations derived from losses occurred prior to the closing date of the financial information; and it will be equal to the difference between its total estimated or certain cost and the set of amounts already paid by reason of such losses, both for direct insurance and for accepted reinsurance. It comprises the following concepts:

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

a. The reserves for losses pending settlement or losses pending payment.- They correspond to losses occurred and reported by the closing date of the financial information. These reserves are composed of two components:
a1. Losses Pending Settlement.- It corresponds to losses occurred and reported by the closing date of the financial information that are: i) in the process of settlement, whose settlement report has not been completed and ii) those whose settlement process has not started. a2. Losses Pending Payment.- It corresponds to closed losses, that is, to those losses that have been definitively settled, with or without the participation of loss adjusters, and that, on the reporting date of the financial information, have not yet been paid to the policyholder, insured or beneficiary, as applicable. In the case of life insurance, it corresponds to the amount of losses of known amounts, or overdue payments corresponding to annuities, and that are not paid to the insured or beneficiary. b. The reserve for losses occurred and not reported (IBNR).- It corresponds to the reserve for losses that occur during the validity of the policy but are notified, reported or claimed after the closing date of the financial information.
c. The reserve for loss settlement expenses: It corresponds to the sufficient amount to cover the company's expenses necessary for the total settlement and payment of losses.

Article 4°.- General provisions applicable to the loss reserve
The loss reserve is subject to the following general provisions:
i. The officials responsible for the choice, application and truthfulness of any statistical method shall consider, at least, the following:
a. The quality and sufficiency of the data; b. The severity and frequency of associated losses;
c. The homogeneity of the data;
d. The probable time of reporting, as well as the time to fix and establish the final payment; e. The importance of incorporating the cost of money over time; f. The trend and changes in payment patterns, claim patterns and, if applicable, recoveries and salvages; g. Loss settlement expense patterns; and h. Actuarial models, principles and commonly used actuarial guidelines.
ii. Each company must constitute and value the components of the Loss Reserve, applying methodologies that are adequate to the characteristics of its portfolio and its loss experience.
iii. The components of the loss reserve must consider, if applicable, the use of special clauses or conditions agreed in the contracts that limit the period for payment of supplementary claims according to the type of insurance in question.
iv. The amount of the loss reserve to be constituted must incorporate all management and processing expenses of the files, regardless of their origin, incurred and to be incurred, until the total settlement and payment of the loss.
v. Recoveries or amounts to be recovered from losses by exercising the actions corresponding to the companies against the persons responsible for the loss cannot be deducted from the amount of the reserve. Notwithstanding the foregoing, when reserves are calculated using statistical methods, payments may be computed within the triangles, net of recoveries. Recoveries or amounts to be recovered do not refer to co-insurances, deductibles or franchises paid by the insureds, nor to the payment of dividends, profits, bonuses, maturities or surrenders.
vi. Each loss will be subject to an individual valuation which must be duly substantiated, independently of the fact that, additionally, the company uses statistical methods for the calculation of the corresponding reserves.
vii. In the calculation of the components of the loss reserve, the gross reinsurance obligations will be obtained, as well as the reinsurer's participation in said obligations.
viii. Loss reserves must be calculated by currency type and at least by insurance risk, according to the Concordant Risk Table of Chapter II “Risks” established in the Chart of Accounts.
ix. Companies that operate the risks of the complementary work risk insurance (SCTR) and pension insurance, in order to determine the reserve for losses pending settlement or payment, must follow the current and specific provisions that regulate their constitution.

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

Article 5°.- Reserves for losses pending settlement and losses pending payment
The reserve for losses pending payment corresponds to the losses indicated in paragraph a2 of Article 3 of this regulation, both for direct insurance and for accepted reinsurance, and represents the amount that must be provisioned for future loss payments that have occurred and have been reported by the closing date of the financial information, and that are already closed but still pending payment. The reserve must be constituted for the indemnification amount according to what is stated in the settlement report developed by the insurance company or the loss adjuster, and must be maintained as an obligation until the time of payment to the policyholder, insured or beneficiary, as applicable.

The reserve for losses pending settlement (RSPL) is composed of the losses indicated in paragraph a1 of Article 3 of this regulation, both for direct insurance and for accepted reinsurance. The amount of this reserve corresponds to the best estimate of the cost of all those losses occurred and reported before the closing of the period to be reported, and that on the closing date are still open or susceptible to being reopened. For this purpose, statistical methods or other types of methods that seek the same objective must be used.

In addition to the losses indicated in paragraph a1 of Article 3 of this regulation, the following concepts must be part of the RSPL:
i. Losses settled and not paid in full: It includes losses whose settlement has been accepted by the parties, with or without the participation of loss adjusters, and that even having made partial payments are not closed.
ii. Losses settled and questioned by the insured: It includes losses whose amounts have been determined by the company or adjusters, but that have not been accepted by the policyholder, insured or beneficiaries. That is, the amount established as settlement may not be the definitive one, for which reason the state of closed is not assigned to the loss in question.
iii. Losses that are affected by some dispute resolution mechanism or in litigation in the judicial power: They correspond to losses on which actions have been initiated in other instances, due to disagreement with the amount of the indemnification.

The quantification of the amount to be constitutionally constituted must be substantiated in technical studies and in policies and procedures approved by the Board of Directors, which allow determining the payment obligation in a reasonable manner. Such procedures must be made known to this Superintendence prior to their use. For this purpose, the Board of Directors must approve a methodology that includes a confidence interval around the average of losses paid by risk or by grouping, to determine: 1) the minimum amount to reserve for losses occurred of which the settlement amount is unknown, and 2) those losses that will be considered as extraordinary.

Extraordinary losses will be understood as those that on the valuation date meet the following two requirements:

• The loss in question qualifies as an extraordinary loss, under the standards established by the company. These standards must be applied consistently and be recorded in an internal procedure manual, approved by the Board of Directors. Modifications to these standards must be duly justified and approved.
• The pertinent analysis has been carried out and it has been determined that the loss in question is indeed an extraordinary loss, according to the standards established by the company. The latter must be documented in a technical report that must be available to the Superintendence when required.

Losses pending settlement or losses pending payment must be estimated without considering reinsurance cessions. Likewise, the participation by reinsurance ceded in these losses will be calculated separately, considering the proportional reinsurance contracts of each policy. The participation by reinsurance ceded of non-proportional reinsurance contracts may also be recognized, provided that the amount of the reinsurer's participation in a given loss can be determined concretely and objectively.

Article 6°.- Reserve for losses occurred and not reported (IBNR)
The reserve for losses occurred and not reported (IBNR) represents the best estimator for those losses occurred before the closing of the financial information and not reported or claimed on that date, indicated in paragraph b) of Article 3 of this regulation.

The constitution of the IBNR will be mandatory for all insurance risks, with the exception of annuity insurance, both for direct insurance and for accepted reinsurance, and will be estimated using statistical methods. For such purposes, losses must be classified by periods of occurrence and development and their calculation will be carried out at least by insurance risk. The statistical base period for the calculation of this reserve must depend on the development of losses according to the experience of each type of risk. The method to be used must be in accordance with the characteristics of the portfolio and loss experience by each risk or grouping performed.

The IBNR must be estimated using the gross amount of losses without considering the effect of reinsurance. Likewise, the participation by reinsurance ceded will be calculated separately according to proportional reinsurance contracts of each policy. The participation by reinsurance ceded of non-proportional reinsurance contracts may also be recognized, provided that the amount of the reinsurer's participation can be determined concretely and objectively.

For the case of pension insurance, its constitution will be carried out in accordance with this regulation.
When the insurance is managed collectively, the companies that win the bid must present - in a centralized manner - a common methodology that will establish the minimum mandatory reserves to be constituted among them. In case of no agreement between these latter companies, the Superintendence will establish the methodology that they must assume for the minimum mandatory reserves. Each company may constitute additional technical reserves based on what is established in Article 12 of the Actuarial Management Regulation for Insurance Companies. 1

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Article 7°.- Reserve for loss settlement expenses.
This reserve must be estimated for the sufficient amount to cover the company's expenses necessary for the total settlement and payment of losses, considering both direct expenses attributable or assignable to a particular loss, such as the participation of loss adjusters or legal expenses; as well as indirect expenses, that is, those associated with the internal settlement carried out by the company, both for direct insurance and for accepted reinsurance.

Companies must apply their own method for the calculation of indirect expenses. Such methods must be approved by the Board of Directors and must be presented prior to their use to this Superintendence. These indirect expenses include all other expenses corresponding to losses that cannot be directly assigned to them, such as loss offices, salaries and wages of employees, general expenses (telephony, electricity, rents, etc.). In case the methods for determining indirect expenses are modified subsequently, the justification for the change must be presented.

On the other hand, a specific methodology must be included to determine direct or assigned loss settlement expenses, together with the methods for the determination of the IBNR or the RSPL, as applicable, according to what is stated in Article 8.

Article 8°.- Statistical methods for the loss reserve.
Each statistical method used by the company must have the prior authorization of this Superintendence, for which they must present the corresponding request and, consigning at least, the following information:

1. The methodology chosen by which both the gross amount and the retained amount of future obligations derived from losses occurred and not reported, of adjustment or settlement expenses directly related to losses, and in case of losses occurred pending settlement, will be estimated;
2. The statistics or, if applicable, the triangles, on the basis of which the valuation and constitution of the IBNR, direct settlement expenses and, if applicable, the RSPL will be carried out;
3. Hypotheses, assumptions and considerations that have been made in the realization and application of the methodology and that influence the results; and
4. A valuation exercise by which the results of the application of the method submitted for approval are exhibited. The valuation must include the detail of the various calculations and a general summary of balances that the insurance company carries out in order to determine the amount of the aforementioned reserves according to the type of risk or grouping chosen. Likewise, within the valuation exercise, the result of having tested at least the models shown in the methodological annex attached to this Regulation must be incorporated.
5. A “backtesting” type analysis, which shows that the chosen methodology has an adequate capacity to estimate future obligations.

Companies that intend to use a new method or make modifications or substitutions to a previously authorized method, must present a new methodology to the Superintendence before its use, demonstrating that it reflects their experience better. In this case, a comparative analysis between the results obtained according to the new methodology and the previous one must be included. This new methodology will be registered by means of an official letter issued for this purpose by the Superintendence and can only be applied from its receipt.

In case of using a statistical method that determines the IBNR and the RSPL separately, the value obtained from the RSPL resulting from the application of the methodology must be compared with the total of the losses indicated in paragraph a1 of Article 3 and paragraphs i, ii and iii of Article 5. In case the difference is not justified, an adjustment must be made to the total of losses pending settlement calculated individually, in such a way that the result is the one obtained by the application of the statistical method.

On the other hand, companies may separate the loss experience for a risk based on the coverages that comprise it, or group more than one risk with similar loss characteristics. Additionally, the classification can be carried out under the use of other criteria or variables, provided that such segmentation complies with the principle of homogeneity and allows statistical inference.

For the purposes of considering the periods of occurrence and development, the company may, for each risk, group the loss information in a monthly, quarterly, semi-annual or annual manner.

In the construction of the triangles for the purpose of calculating these reserves, extraordinary losses determined according to Article 5 of this regulation may be excluded; however, they must be considered to calculate the ultimate loss experience.

Article 9°.- Insufficient statistics
In the absence of own experience or when the statistics are insufficient, the company must make this situation known to the Superintendence, proposing the method it will use temporarily until it gathers the necessary and sufficient statistics and the deadline for this purpose.

Article 10°.- Calculation methodologies by statistical methods of the Methodological Annex
The components of the loss reserve may be determined according to the statistical methods described in the methodological annex attached to this regulation, and for such purposes, methodologies must be presented in accordance with Article 8 of this regulation, adjusting them to the profile of each portfolio.

Such statistical methods may be used for the calculation of the IBNR and of the reserve for direct or assigned loss settlement expenses.

In case the general application statistical method indicated in the Methodological Annex is used with information on loss settlement expenses assigned to losses, it will not be necessary to carry out the accounting breakdown of this component of the expense reserve.

Article 11°.-

Article 12°.- Automated information system

1 Paragraph modified by Resolution SBS No. 3863-2016 of 07-13-2016

2 Article repealed by Resolution SBS No. 3863-2016 of 07-13-2016

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 Companies must implement information systems that facilitate the quantification of RSPL, IBNR, as well as the settlement expense reserve assigned to claims, through the application of the estimation methodologies addressed in this regulation. Such system must allow verification of the estimation performed by the company, as well as monitoring modifications implemented therein. Likewise, the information used to perform the estimation and establishment of reserves, as indicated in the preceding articles, must be available to this Superintendency for at least three (3) years following the establishment of the loss reserve components. Additionally, the corresponding database from which the calculation of reserves referred to in this regulation is made, must contain, in addition to the information used to estimate the reserves, the information from the annexes indicated in Article 15°. Such system must allow the export of information to spreadsheet formats, plain text, or other commonly used formats. In this regard, the information must allow constructing, as indicated in steps 3 and 4 of the methodological annex of this regulation, the following tables of claim amounts:

• Table of incremental claim payments (net of recoveries, subrogations, or salvages).
• Table of incurred claim reserves.
  Article 13°.- Management of claim files
  Companies must permanently keep claim files available to the Superintendency with the following minimum information:
  a) Notice of the occurrence of the claim. b) Information regarding the insurance policy. c) Communications sent to policyholders, insured parties, or beneficiaries. d) Status of progress in the settlement of the claim. e) Reports issued by insurance auxiliaries (adjusters or appraisers) intervening in the claim settlement process. f) Adjustment agreement, if applicable, signed by the insured. g) Proof of payment of indemnities. h) In the case of files in judicial or arbitral processes, as well as files related to extraordinary claims indicated in Article 5° of this regulation, estimates of amounts to be paid, supporting the corresponding accounting record.
  Article 14°.-
  3
  Article 15°.-
  4
  Article 16°.- Patrimonial and investment requirements
  For compliance with patrimonial and investment requirements, the company must consider retained loss reserves.
  Article 17°.-
  5

3 Article repealed by Resolution SBS No. 3863-2016 of July 13, 2016 4 Article repealed by Resolution SBS No. 4706-2017 of December 6, 2017. The Superintendency will make information requests to companies via Multiple Letter.

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 Second Article.- The methodological annex and the annexes referred to in the Regulation of Loss Reserves will be published on the Institutional Portal (www.sbs.gob.pe), in accordance with what is established in Supreme Decree No. 001-2009-JUS.

Third Article.- Modify the Chart of Accounts of the Insurance System, approved by Resolution SBS No. 348-95, in the terms indicated in Annex No. 2 which forms part of this resolution, which will be published on the Institutional Portal (www.sbs.gob.pe), in accordance with what is established in Supreme Decree No. 001-2009-JUS. Fourth Article.- Incorporate the following numeral in Annex No. 1 “List of Main Officials” of Circular G-119-2004, referring to “Standards for the Registration of Directors, Managers and Main Officials - REDIR”, the following text:
“8. Official responsible for the valuation of technical reserves, in case they do not have manager level.”
Fifth Article.- This resolution will enter into force on August 1, 2013, except for what is provided in the third article, which enters into force starting from the information of October 2013.
Companies will have the following deadlines to adapt to what is provided in this Resolution:

1. For companies participating in the collective management of pension insurance, and who must establish the reserve for occurred and unreported claims referred to in Article 6º of the Regulation of Loss Reserves, they must present to the Superintendency the common methodology prior to October 1, 2013.
2. Companies will have until December 31, 2013, to present the methodologies approved by the Board of Directors, mentioned in Articles 5° and 7° of the Regulation of Loss Reserves.
3. Exceptionally, companies must present to the Superintendency, the annexes ES-26, ES-27 and ES-28 indicated in Article 15° of the Regulation of Loss Reserves with the corresponding databases as of December 31, 2013, granting a deadline for their transmission through the SUCAVE software until April 30, 2014.
4. Companies will have a deadline until December 31, 2013, to present the methodologies mentioned in Article 8° of the Regulation of Loss Reserves, which will be considered authorized for the purpose of initiating their application, without prejudice to the Superintendency being able to make observations subsequent to said methodologies. At that moment, the methodologies provided for in the norms stated in the following paragraph will become void for these companies. In case any company does not present methodologies, the Superintendency will assign a model that they must use temporarily, for the purpose of performing the valuation of IBNR and the reserve for direct expenses for claim settlement until they present their own methods. Exceptionally, the Superintendency may authorize

5 Article repealed by Resolution SBS No. 3863-2016 of July 13, 2016

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 companies an adaptation schedule for the establishment of reserves resulting from the aforementioned methodologies.
On January 1, 2014, the Regulation of Occurred and Unreported Loss Reserves approved by Resolution SBS No. 1048-99 will be repealed. Likewise, Circular No. S-603-2003 will become void insofar as it refers to provisions for the calculation of the occurred and unreported loss reserve for disability, survival, and burial expenses insurance of the private pension system under the additional contribution regime, as well as Circular No. S-552-93 in the part corresponding to provisions relative to the occurred and unreported loss reserve of pension insurance reserves corresponding to the temporary regime. Register, communicate, and publish, JAVIER POGGI CAMPODÓNICO Superintendent of Banks, Insurance and Private Pension Fund Administrators (acting)

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 METHODOLOGICAL ANNEX CALCULATION OF PENDING SETTLEMENT LOSS RESERVE (RSPL) AND INCURRED BUT NOT REPORTED LOSS RESERVE (IBNR) UNDER STATISTICAL METHODS
I. GENERAL APPLICATION STATISTICAL METHOD
For the use of this methodology for the calculation of the incurred but not reported loss reserve (IBNR), the pending settlement loss reserve (RSPL), and the claim settlement expense reserve, under statistical methods, companies must follow the following criteria as well as the procedures defined below:
a) Basis for estimating loss reserves by statistical methods Companies opting to use this methodology must do so considering as a basis incurred losses classified by currency and by risk, according to the Concordant Risk Table of Chapter II “Risks” established in the Chart of Accounts. The loss base will consider total amounts of direct insurance and accepted reinsurance, without making discounts for the application of reinsurance, and must contain direct or assigned expenses for each claim. Incurred losses method This method is based on the assumption that the relative change in the evolution of incurred losses corresponding to a determined occurrence period, estimated from one development period to the next, is similar to the evolution these types of claims had in occurrence periods prior to the same “age” of the claim. Incurred losses are understood as net accumulated paid losses plus reserved losses, considering that the quantification of the latter is not subject to any ratio or probability of acceptance of payments. The implicit assumption of the incurred losses method is that the loss reserve has been consistent over time, that losses have been evaluated in a homogeneous manner, and that there have been no significant changes in the speed at which losses have been reported and settled. By using this method, information about incurred losses is ordered by occurrence periods to show their evolution over successive equidistant development periods. Adding successive occurrence periods forms a triangle. b) Periods for grouping information For the purposes of considering occurrence and development periods, the company may select, for each risk, between grouping claim information monthly, quarterly, semi-annually, or annually. c) Minimum necessary information The company must have at least two years of its own historical claim information.

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 d) Periodicity and valuation date Companies using this statistical method will calculate development factors with the periodicity used in the preparation of triangles for each risk or coverage. Procedure Step 1 – Grouping of information The company must group historical claim information into occurrence and development periods. Step 2 – Treatment of extraordinary claims Solely for the determination of development factors, claims (both paid and pending settlement) considered extraordinary must be excluded in order not to distort results derived from the use of said factors. Step 3 – Construction of triangles The amount of claims considered in the construction of triangles will be gross of reinsurance. The company must gather historical claim information into two tables. One table must contain occurrence periods on the vertical axis and payment periods on the horizontal axis; and the other must contain occurrence periods on the vertical axis and reserve periods on the horizontal axis. The construction of the tables must adhere to the following:
a) Paid claims table
This table must contain, for each occurrence period, the value of claims paid in a given development period, also considering the direct expense incurred by the company for the corresponding settlement of each claim. Consequently, the table will be configured as follows:
Paid Claims Triangle
Development Period (j)
Occurrence Period (i) 1 2 … n-i+1 … n-1 n
1 P1,1 P1,2 … P1,n-i+1 … P1,n-1 P1,n
2 P2,1 P2,2 … P2,n-i+1 … P2,n-1
… … … … … … i Pi,1 Pi,2 … Pi,n-i+1
… … … … n-1 Pn-1,1 Pn-1,2 n Pn,1
Where:
Pi,j: Corresponds to the value of claims occurring in period i and whose payment was made in development period “j”; said value contains the settlement expenses of their corresponding claims. The sum of the diagonal values (Pi,j with j= n –i+1) must correspond to the total of paid claims in the last considered period. i: Corresponds to the occurrence period. j: Corresponds to the payment period.

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 b) Reported claims (reserved) table This table must contain, for each occurrence period, the value of claims notified or reserved individually and that continue reserved in each development period. Reserved Claims Triangle Development Period (j) Occurrence Period (i) 1 2 … n-i+1 … n-1 n 1 R1,1 R1,2 … R1,n-i+1 … R1,n-1 R1,n 2 R2,1 R2,2 … R2,n-i+1 … R2,n-1 … … … … … … i R1,1 R1,2 … Ri,n-i+1 … … … … n-1 Rn-1,1 Rn-1,2 n Rn,1 Where:
Ri,j: Corresponds to the estimated and individually reserved values of claims occurring in period “i”, which have not been paid and fully settled and remain reserved to period “j”; said values also contain the reserved values of claims that also occurred in period “i” but were claimed and reserved in period “j” inclusive; in said values, the settlement expense expected to be carried out for each claim must be added. The sum of the diagonal (when j=n–i+1) must correspond to the total of claims pending payment plus pending settlement claims and direct expenses, reported in accounting. i: Corresponds to the occurrence period. j: Corresponds to the last reserve period. Step 4 – Construction of accumulated paid and incurred loss triangles The company must construct a triangle of accumulated paid losses. This triangle must contain, for each occurrence period, the accumulated value of paid losses in each of the successive development periods. To this end, the triangle of accumulated paid losses will be constructed. Accumulated Paid Losses Triangle Development Period (j) Occurrence Period (i) 1 2 … n-i+1 … n-1 n 1 PA1,1 PA1,2 … PA1,n-i+1 … PA1,n-1 PA1,n 2 PA2,1 PA2,2 … PA2,n-i+1 … PA2,n-1 … … … … … … i PAi,1 PAi,2 … PAi,n-i+1 … … … … n-1 PAn-1,1 PAn-1,2 n PAn,1

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 Where:
PAi,j: corresponds to claims occurring in period “i” and that have been paid up to development period “j” inclusive.
∑(t=1 to j) PAi,t = PAi,j
Then the incurred losses triangle must be constructed.
Incurred Losses Triangle
Development Period (j)
Occurrence Period (i) 1 2 … n-i+1 … n-1 n
1 I1,1 I1,2 … I1,n-i+1 … I1,n-1 I1,n
2 I2,1 I2,2 … I2,n-i+1 … I2,n-1
… … … … … … i Ii,1 Ii,2 … Ii,n-i+1
… … … … n-1 In-1,1 In-1,2 n In,1
Where:
Ii,j = PAi,j + Ri,j
Ii,j: corresponds to the value of claims occurring in period i, that have been paid up to development period “j” inclusive or that are found reserved to period “j”. i: Corresponds to the occurrence period. j: Corresponds to the payment period. Step 5 – Construction of incremental development factors The company must construct the following triangle with incremental development factors. Incremental Development Factors Triangle Development Period (j) Occurrence Period (i) 1 2 … n-i+1 … n-1 1 FDI1,1 FDI1,2 … FDI1,n-i+1 … FDI1,n-1 2 FDI2,1 FDI2,2 … FDI2,n-i+1 … … … … … … i FDIi,1 FDIi,2 … … … … n-1 FDIn-1,1 Where:
FDIi,j = Ii,j+1/Ii,j ∀
1 ≤ i ≤ n-1, 1 ≤ j ≤ n-1

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 Step 6 – Selection of development factors Development factors (DF) are calculated to measure the evolution of each occurrence period from one development period to the next. Historical development factors are used as a basis to select the most appropriate development factors to project claims of incomplete occurrence periods until their final development (ultimate value or ultimate expected loss). Likewise, a tail factor is selected that allows projecting ultimate claimancy beyond the observed history. This tail factor is based on observed trends and characteristics of each risk or coverage. These factors, plus the experience gathered throughout previous estimations and an analysis of changes occurred in the business and in the market, must be the basis for selecting appropriate development factors to project claims of “immature” occurrence periods (those that have not yet reached their ultimate value or ultimate expected loss). The company must select a development factor for each development period. This selection of the factor must be performed from the weighted average of all available factors. If it is considered that this method does not represent the evolution of expected claimancy, another criterion may be used, which must be duly documented in the methodology presented by companies. To justify a different selection of factors, it must be recorded that historical experience in the development of claims has been analyzed. Development factors will be denoted by the acronym DF. Selected Factors DF1 DF2 DF3 DF4 … DFn-1 Step 7 – Selection of the tail factor The tail factor (DFn) is understood as that which allows projecting ultimate claimancy beyond the observed history. This factor is applicable to the last column of the triangle. The tail factor must be determined by the company taking into account the trend evidenced by the data, general market considerations and particularities of the insurer, as well as statistics and market trends specific to the line of business. Step 8 – Calculation of accumulated development factors The accumulated development factor (ADFj) of a development period “j” will be calculated according to the following formula:
∏(h=j to n) DFh = ADFj
DFn corresponds to the selected tail factor.
Step 9 – Determination of ultimate expected loss To determine the ultimate expected loss (UEL) for each of the occurrence periods “i”, the accumulated development factor (ADF(n-i+1)) must be multiplied by the value in position “n-i+1” of row “i” of the accumulated paid losses or incurred losses triangle, as the case may be. The calculation methodology for determining the ultimate value of claims or the ultimate expected loss is detailed below. Incurred losses method Occurrence Period [i] Development Period [j] Incurred Losses [Ii,j] Accumulated Development Factors [ADFj] Ultimate Expected Loss corresponding to occurrence period “i” [UELi] 1 n I1,n ADFn UPE1 = I1,n* ADFn 2 n-1 I2,n-1 ADFn-1 UPE 2 = I2,n-1 * ADFn-1 … … … … … i n-i+1 Ii,n-i+1 ADFn-i+1 UPE i = Ii,n-i+1 * ADFn-i+1 … … … … … n 1 In,1 FDA1 UPE n = In,1 * FDA1 It is important to highlight that extraordinary claims that were excluded for purposes of obtaining the ultimate expected loss must be added in order to have all claims in the determination of the ultimate expected loss. It is also important to mention that the ultimate claimancy obtained contains the global estimate of all claims, which is why to obtain the IBNR reserve, it must be subtracted from the ultimate expected loss, the claims already paid and those that are reserved whether settled or pending payment, as of the closing date of the financial information. In this sense, to obtain an estimate of IBNR plus RSPL jointly, only accumulated paid claims and pending payment claims would have to be subtracted from the ultimate expected loss. Step 10 – Incurred but not reported loss reserve (IBNR) The value corresponding to IBNR for a specific occurrence “i”, will arise from the difference between the ultimate expected loss (UELi) and the incurred losses in period “i”. Thus, the total amount of IBNR will be calculated as follows:
IBNR Reserve
[ ∑(i=1 to n) Max { UPEi - PA(i,n-i+1) - R(i,n-i+1); 0 } ] Where:
UELi: Ultimate expected loss corresponding to occurrence period “i”.
PA(i,n-i+1): Total accumulated paid losses corresponding to occurrence period “i”.
R(i,n-i+1) = : Pending Settlement Claims plus Pending Payment Claims corresponding to occurrence period “i” that remain reserved as of the calculation date.
In the same way, the amount of IBNR plus RSPL is calculated as follows:
IBNR+RSPL Reserves
[ ∑(i=1 to n) Max { UPEi - PA(i,n-i+1) - RP(i,n-i+1); 0 } ] Where:

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 RPi,n-i+1 = : Pending payments losses corresponding to the occurrence period “i” that remain reserved as of the calculation date.
It should be noted that the value obtained for the reserves already includes the estimate of the direct expense reserve assigned to the losses, since in the statistics of both paid and reserved losses, such expense was added.

Step 11 – Treatment of reinsurance coverages
To determine the asset generated by the transfer of risk to the reinsurer, the following steps must be followed:
a) Calculate the ratio, for each occurrence period, between the last element of the diagonal of incurred losses (paid plus reserved) net of reinsurance and divide it by the incurred losses corresponding to each occurrence period considering the total obligation. b) Apply the retention factors obtained in the previous letter to the gross reinsurance loss reserve of each occurrence period to obtain the net reinsurance loss reserve. Once the multiplication is performed, sum all terms for each occurrence period to find the net reinsurance loss reserve. c) The difference between the gross reinsurance loss reserve and the amount obtained in the previous letter (net reinsurance loss reserve) will correspond to the asset generated by the transfer of risk to the reinsurer. In cases where existing reinsurance is non-proportional or when there are technical reasons justifying the consideration of information from net of reinsurance payment and reserve triangles, the net reinsurance loss reserve may be calculated based on such information, provided that the calculation methodology is applied consistently. When there are modifications to existing contracts (for example, “cut-off”), the triangle information, both of payments and reserves, prior to the date of modification must be corrected, so as not to generate distortions in the calculation of development factors. When previously calculated retention factors, in the opinion of the company, differ from the estimated distribution of losses borne by the company as of the reserve calculation date, these factors must be adjusted accordingly and this incorporated into their method showing that its application is better.

Step 12 – Allocation by coverage or line of business of the loss reserve and asset for the reinsurer’s participation In cases of grouping coverages or risks for the calculation of the RSPL (Reported Settlement Pending Losses), the IBNR reserve, the settlement expense reserve assigned to losses, as well as to obtain the reinsurer’s participation, in a manner different from the accounting grouping or specification of risks or coverages, the allocation of each of these concepts by accounting risk will be carried out according to the following procedure:
1) The allocation factor will be determined as the quotient between the total incurred losses, for the occurrence periods considered in the triangle of the corresponding coverages or risks divided by the total incurred losses, considered in said triangle.
2) The gross amount of the loss reserve and the reinsurer’s participation in the loss reserves corresponding to each coverage or risk will result from the product between the factor determined in the previous point and the total reserve amount corresponding to the group in question.
3) The amount of the loss reserve and the reinsurer’s participation corresponding to each accounting risk will result from the sum of those corresponding to each coverage or risk that integrates it.

Step 13 – Statistical method with paid loss information In order to obtain a comparative data point, with respect to the IBNR result obtained as explained in the previous steps, it is important to perform the calculation with the same method but using only paid losses (that is, without reserved losses).

II. SIMPLIFIED METHOD APPLICABLE TO THE DETERMINATION OF INCURRED BUT NOT REPORTED LOSS RESERVE (IBNR)
In the event that the company cannot determine the IBNR based on the general application statistical method due to not having the minimum required information for its use, it must apply the methodologies described below, considering the indicated periods:

Information greater than one year and less than two years For the estimation of IBNR for risks where the company does not have sufficient statistical information, it may use the following simplified method as indicated below:
a) Total IBNR will consist of two (2) components:
i) The IBNR estimated by the simplified method, which aims to capture the reserves corresponding to losses occurred but not reported to the company through estimating the number of these losses and their average value, and; ii) The insufficiently reserved incurred and unreported losses reserve (SIBNR), which seeks to detect the insufficiency of reserves constituted by the company by analyzing their subsequent development. b) For its calculation, at least one year of claims history must be available and twelve mobile months immediately preceding the reserve calculation date will be used.
1) Calculation method:
i) For the calculation of the IBNR estimated by the simplified method, companies will apply the following formula:
IBNR = SD * PPD * CSP
Where:
IBNR: Reserve amount for incurred and unreported losses.
CSP: Average loss cost, determined as the loss cost of the analyzed period, divided by the number of losses reported in the same period.
Loss cost of the period: Reserves at the end of the period, plus payments during the period, minus reserves at the beginning of the period.
SD: Number of daily reported losses, determined as the number of losses reported in the period divided by the number of days in the period.
PPD: Average delay period in presenting loss claims, determined as the difference in days between the occurrence date and the claim presentation date; the average is determined for the set of all losses reported in the period. Period: Period of 12 consecutive months, prior to the closing date on which reserves are calculated. ii) The SIBNR loss estimate will arise from the insufficiency that the reserves at the beginning of the period have generated in the exercise. FactorSIBNR = (Rf + Pe)/ Ri Where:
Ri: Reported loss reserve at the beginning of the period.
Pe: Payments made during the period for losses included in the initial reserve Ri Rf: Reported loss reserve at the end of the period, for losses included in the initial reserve Ri.
Period: Period of 12 consecutive months, prior to the closing date on which reserves are calculated.
Then,
SIBNR= Max (Factor SIBNR -1;0) x Reserve of losses at the end of the period of all losses reported to the company (for the corresponding risk).
2) Total IBNR will be the sum of the reserve for losses occurred but not reported (IBNR) and the reserve for losses occurred and not reported sufficient (SIBNR), also determining the proportion of total risk ceded in reinsurance for the purpose of computing the corresponding asset, whenever the reserve is calculated.

Information less than one year
3) In cases where the company demonstrates that there is insufficient claims experience or when dealing with new products or risks, the company must use as a transitional calculation method for IBNR an amount equivalent to thirty percent (30%) of the maximum or what remains to be paid according to the expected claims frequency of the risk premium.
IBNR = max [30%; (Σ Si / (PCD * PC)) - G]
Where:
Σ Si = Sum of incurred losses as of the valuation date PRD = Earned risk premium PCD = Earned commercial premium G = Direct expenses related to incurred losses PC = Total commercial premium

III. SIMPLIFIED METHOD FOR THE RESERVE OF SETTLEMENT EXPENSES WITH INFORMATION LESS THAN TWO YEARS
In the event that no method is available to calculate loss settlement expenses, the following procedure will be followed:
a) It must be determined based on the relationship between expenses related to losses recorded accountingly, and the amount of losses paid in the period to which the information corresponds. b) The resulting percentage must be multiplied by fifty percent (50%) of the amount of the pending liquidation or payment loss reserve plus one hundred percent (100%) of the amount of the incurred but not reported loss reserve (IBNR). This is, Rg = (G/P) x (50% Rp + 100% RIBRN) Being:
Rg= Reserve of loss settlement expenses
Rp= Reserve of pending liquidation or payment losses RIBRN= Reserve of incurred but not reported losses G= Expenses related to losses paid in the twelve (12) months prior to the reserve calculation P = Accumulated losses paid in the twelve (12) months prior to the reserve calculation The constitution of this reserve must be carried out at least per insurance risk according to the Concordant Risk Table of Chapter II “Risks” established in the Chart of Accounts.

ANEXO Nº 1
6
6 Annex repealed by Resolution SBS No. 3863-2016 of 13-07-2016

ANEXO Nº ES-26 7
7 Annex repealed by Resolution SBS No. 4706-2017 of 13-12-2017

ANEXO Nº ES-27 8
8 Annex repealed by Resolution SBS No. 4706-2017 of 13-12-2017

ANEXO Nº ES-28 9
9 Annex repealed by Resolution SBS No. 4706-2017 of 13-12-2017

ANEXO N° 2
MODIFICATIONS TO THE CHART OF ACCOUNTS FOR COMPANIES IN THE INSURANCE SYSTEM
I. Chapter III “Accounting Table and Catalog of Accounts” is modified, in the terms indicated below:

1. Subaccount 2301.03 “Rentas” is eliminated.
2. Item 26 “Technical Reserves for Losses” is restructured as indicated below:
   26 Technical Reserves for Losses
   2601 Reported losses pending settlement of insurance premiums
   2601.00 (Risk)
   2601.00.01 Losses pending settlement or susceptible to being reopened
   2601.00.02 Losses challenged by the insured
   2601.00.03 Litigated losses
   2601.00.04 Adjustment of RSPL
   2602 Reserve for incurred and unreported losses of insurance premiums (IBNR)
   2602.00 (Risk)
   2603 Reported and unreported losses of accepted reinsurance
   2603.00 (Risk)
   2603.00.01 Losses pending settlement
   2603.00.02 IBNR of accepted reinsurance
   2603.00.04 Adjustment of RSPL
   2603.00.06 Losses pending payment
   2604 Catastrophic risks
   2604.03 Catastrophic reserve for earthquake
   2604.03.01 Priority borne by the company
   2604.03.02 Excess not covered by XL catastrophic contract
   2605 Reported and unreported losses of ceded premiums
   2605.00 (Risk)
   2605.00.01 Losses pending settlement
   2605.00.02 IBNR of ceded premiums
   2605.00.04 Adjustment of RSPL
   2605.00.06 Losses pending payment
   2605.00.09 Loss settlement expenses
   2606 Reported losses pending payment of insurance premiums
   2606.00 (Risk)
   2609 Loss settlement expenses
   2609.00 (Risk)
   2609.00.01 Direct
   2609.00.02 Indirect
3. The following analytical accounts are incorporated into account 4206 “Incurred and unreported losses”:
   4206.00.01 IBNR of Insurance Premiums
   4206.00.02 IBNR of Accepted Insurances
4. The following account, subaccount, and analytical accounts are incorporated:
   4209 Loss settlement expenses and adjustment of RSPL of insurance premiums
   4209.00 (Risk)
   4209.00.01 Direct
   4209.00.02 Indirect
   4209.00.03 Adjustment of RSPL of insurance premiums
   4209.00.04 Adjustment of RSPL of accepted reinsurance
5. The following account, subaccount, and analytical account are incorporated:
   5209 Loss settlement expenses and adjustment of RSPL of ceded premiums
   5209.00 (Risk)
   5209.00.01 Direct
   5209.00.03 Adjustment of RSPL of ceded premiums

II. Modifications to Chapter IV “Description and Dynamics” are made as indicated below:

1. The first debit of item 23 “Accounts payable to insured parties” is modified as indicated below:
   DYNAMICS
   DEBITS: - For payments of maturities, surrenders, profits, and other accounts payable.
2. The description and dynamics of account 2601 “Reported losses pending settlement of insurance premiums” are modified as indicated below:
   DESCRIPTION: This account records estimates of losses occurred and reported as of the closing date of financial information, both for direct insurance and accepted reinsurance, which are: i) in the process of settlement, whose settlement report has not been completed and ii) those whose settlement process has not started. It also includes losses settled and unpaid susceptible to being reopened, losses settled and challenged by the insured, and losses affected by some dispute resolution mechanism or in litigation in the judicial power. DYNAMICS DEBITS: - For adjustment of the reserve constituted in excess.

• For transfer of settled losses to account 2606.
• For transfer of adjustment expenses to account 2203.
• For application of disability or survivorship reserve of the SPP.
  CREDITS: - For individual estimates of the total cost of reported losses.
• For adjustment of the pending settlement loss reserve by statistical models, due to default in the individual estimate of reported losses and pending settlement at the close of the accounting period.
• For constitution of the reserve for obligations arising from the pension system once the loss is communicated by the AFP.
• For burial expenses incurred due to the death of SPP affiliates charged to the loss account.
• For constitution of the reserve for life annuity obligations within the framework of the SPP.

3. The description and dynamics of account 2602 “Reserve for incurred and unreported losses of insurance premiums IBNR” are modified as indicated below:
   DESCRIPTION: This account records the estimate of the reserve for incurred and unreported losses at the close of financial information, calculated in accordance with the provisions of the Superintendence of Banking, Insurance and AFP. It corresponds to the reserve for losses that occur during the validity of the policy but are notified or reported after the closing date of the financial information. DYNAMICS DEBITS: - For a lower estimate compared to the previous period's calculation. CREDITS: - For a higher estimate compared to the previous period's calculation.
4. The description and dynamics of account 2603 “Reported and unreported losses of accepted reinsurance” are modified as indicated below:
   DESCRIPTION: This account records estimates of losses reported by insurers and ceding reinsurers, which are chargeable to the company.
   It includes received losses corresponding to accepted reinsurance contracts, which are: a) pending settlement, b) pending payment, and 3) the IBNR reserve of accepted reinsurance contracts.
   DYNAMICS
   DEBITS: - For adjustments to the reserve constituted in the exercise, due to excess in the estimate of losses, communicated by insurers and reinsurers during the accounting period.

• For payment of losses by the reinsurer, with credit to current accounts payable to insurers and reinsurers corresponding, under item 24.
  CREDITS: - For estimates of losses communicated by ceding insurers and reinsurers.
• For adjustments to the reserve constituted in the period, due to deficiency in the estimate of losses communicated by ceding insurers and reinsurers during the accounting period.

5. The description and dynamics of account 2605 “Reported and unreported losses of ceded premiums” are modified as indicated below:
   DESCRIPTION: This account records the estimate of the reinsurance participation in losses pending settlement or pending payment, including loss settlement expenses, an estimate made separately from those registered in accounts 2601, 2602, 2606, and 2609. They correspond to ceded reinsurance and retrocession. In the case of loss expenses, they correspond only to ceded reinsurance. DYNAMICS DEBITS: - For estimates of losses ceded to reinsurers, according to the corresponding reinsurance contracts.

• For estimate of loss settlement expenses corresponding to reinsurers.
• For adjustment of the reserve originating from deficiency in the estimate of reported or unreported losses within the accounting period.
  CREDITS: - For adjustment of the reserve originating from excess in the estimate of reported or unreported losses, in the accounting period.
• For payment of losses by the insurance company, charged to current accounts of reinsurers under item 14.

6. The description and dynamics of account 2606 “Reported losses pending payment of insurance premiums” are incorporated as indicated below:
   DESCRIPTION: This account records closed losses that have been settled by the insurance company, having defined and accepted by the parties the amount to be paid as the insurance benefit.
   Also recorded are reported losses of life and accident and health insurance whose benefit and indemnification amounts are known.
   DYNAMICS
   DEBITS: - For advances and payment of obligations to insured parties.
   CREDITS: - For losses settled charged to account 2601.

• For reported losses of life and accident and health insurance whose indemnification amounts are known.

7. The description of account 2609 “Loss settlement expenses” is added, along with the corresponding dynamics, as indicated below:
   DESCRIPTION: Corresponds to the reserve estimated at a sufficient amount to face the company's necessary expenses for the total settlement and payment of losses, considering both direct expenses attributable or assignable to a particular loss and indirect expenses, for both direct insurance and accepted reinsurance. DYNAMICS DEBITS: - For adjustment of the reserve originating from excess in the corresponding estimate. CREDITS: - For estimate of expenses related to the settlement and payment of losses that complement the corresponding reserve.

• For adjustment of the reserve originating from deficiency in the corresponding estimate.

8. The following paragraph is added at the end of item 26:
   PRESENTATION: Technical reserves corresponding to ceded reinsurance will be presented as part of assets in the Statement of Financial Position (Form A).
9. The description of account 42 “Losses of insurance premiums and accepted reinsurance” is modified as indicated below:
   DESCRIPTION: Comprises the total cost of obligations assumed by insurers regarding events whose coverage is covered by insurance contracts.
   It also includes the estimate of risks of uncertain frequency and catastrophic effects and of incurred and unreported losses.
10. The description of account 4206 “Incurred and unreported losses” is modified as indicated below:
    DESCRIPTION: This account records movements of the reserve for incurred and unreported losses in accordance with the provisions issued by the Superintendence of Banking, Insurance and AFP corresponding to insurance premiums and accepted reinsurance.
11. The description of account 4209 “Loss settlement expenses and adjustment of RSPL of insurance premiums” is added, along with the corresponding dynamics, as indicated below:
    DESCRIPTION: Corresponds to expenses incurred by the company, both direct and indirect, for the total settlement and payment of losses. It also records the adjustment of the RSPL of insurance premiums and accepted reinsurance. DYNAMICS DEBITS: - For expenses estimated for the total settlement and payment of losses.

• For expense corresponding to the adjustment of the RSPL of insurance premiums.
• For expense corresponding to the adjustment of the RSPL of accepted reinsurance.
  CREDITS: - For adjustments made.

12. The description of account 5209 “Loss settlement expenses and adjustment of RSPL of ceded premiums” is added, along with the corresponding dynamics, as indicated below:
    DESCRIPTION: Corresponds to the participation of reinsurers in loss expenses. It also records the adjustment of the RSPL of ceded premiums.
    DYNAMICS
    DEBITS: - For adjustments made.
    CREDITS: - For the participation of reinsurers in estimated loss settlement expenses.

• For the participation of reinsurers in the adjustment of the RSPL of insurance premiums.

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239
III. The following modifications are made to Chapter V "Financial Statements":
1. The grouping norms for the Statement of Results are modified, as indicated below:
Statement of Results Grouping Norms - Accounts Insurance Premium Claims Net 4201, 4202, 4206, 4207, 4209, less: 5804
IV. The Conceptual Accounting Framework is modified, in the terms indicated below:
1. The title IFRS 4 - Insurance Contract, subtitle f) Liability adequacy test, specifically item i), is modified, and item ii) is eliminated. The text of item i) is indicated below:
“…….
i. Loss Reserve
The loss reserve represents the total amount of the company's obligations pending for accidents that occurred prior to the closing date of the financial information for each period and is equal to the difference between 1) the total estimated or certain cost and 2) the amounts already paid for such accidents, applicable to both direct insurance and accepted reinsurance. It comprises the following concepts:
a. Pending settlement or pending payment accident reserves.- Correspond to accidents that have occurred and been reported by the closing date of the financial information. They consist of two components:
a1. Pending Settlement Accidents.- Those that have occurred and been reported by the closing date of the financial information, and which are: i) in the settlement process, with an unfinished settlement report, and ii) in the settlement process, which has not yet started. Also included are accidents: a) settled but not fully paid because other payments or procedures are pending, b) settled accidents challenged by the insured, and c) those affected by some dispute resolution mechanism or in litigation in the judicial power. a2. Pending Payment Accidents.- Those that have been definitively settled and, at the reporting date of the financial information, have not yet been paid to the policyholder, insured, and/or beneficiary, as applicable. In the case of life insurance, it corresponds to the amount of known-amount accidents or due rent payments that are not yet paid to the insured or beneficiary. b. Incurred but not reported (IBNR) accident reserve.- A reserve for accidents that occur during the validity of the policy but are notified or reported after the closing date of the financial information.
c. Accident settlement expense reserve: Corresponds to the sufficient amount to cover the company's expenses necessary for the total settlement and payment of accidents; it includes expenses assignable, directly or indirectly, to the accidents.
The SBS has regulated specific aspects of the quantification of this reserve, which may consider, complementarily to case-by-case valuation, the use of global statistical methods.

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Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 Accounting record The recording of technical reserves corresponds to the recognition of a liability.
When an accident is notified or reported to the company, or when it is informed through other means, the company must account for the individual valuation established by the company. The recording of accidents must affect the corresponding accounts under heading 42 and accounts 2601 or 2603. In the case of accidents covered by reinsurers, the recording must affect account 2605 and heading 52. When statistical models are used to estimate the global value of the pending settlement loss reserve, the adjustment must be recorded in analytical account 2601.00.04, 2603.00.04, or 2605.00.04, depending on whether it is direct insurance, accepted, or ceded, respectively. This technical reserve cannot be reduced by the value of accident recoveries. These are recorded in off-balance sheet accounts, recognizing income only upon their transfer. Once the accident is settled and closed, it is transferred to account 2606, to subsequently proceed with the corresponding payment, since the use of this account implies total agreement on the amount to be paid. In the case of accidents in life, accident, and health insurance, since these are insurances whose indemnification amount is known by the company, they are recorded directly in account 2606, without previously using account 2601. On the other hand, the proportion of the total cost of accidents borne by reinsurers, calculated according to reinsurance contracts, must be maintained as “reported accidents on ceded premiums” (account 2605), provided that the accidents reported by the corresponding insureds form part of the technical loss reserve. Once the insurance company pays the accident, the balance receivable from the reinsurer must become part of the receivables from reinsurers referred to in heading 14. The IBNR reserve must be estimated for direct insurance, accepted reinsurance, and ceded reinsurance. It is a technical reserve of mandatory constitution for all insurance risks, with the exception of life annuity insurance. The calculation methodology is based primarily on global statistical methods when these can be applied, supported by data from historical experience of accident frequency. Its accounting recording must affect accounts 4206 and 2602, if it concerns direct insurance and accepted reinsurance, and accounts 5204 and 2605 if it concerns ceded reinsurance. The accounting recording of the accident settlement expense reserve must correspond to accounts 4209 and 2609. For the case of the participation of reinsurers in the expenses of ceded premiums, accounts 2605 and 5209 will be used.