Resolution SBS No. 4706-2017: Approves Regulations for the Contracting and Management of Reinsurance and Coinsurance and Amends Other Provisions

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511)6309000 Fax: (511) 6309239 1 Lima, December 6, 2017 Resolution S.B.S.
No. 4706 -2017
The Superintendent of Banking, Insurance and
Private Pension Fund Administrators

CONSIDERING:

That, in accordance with Article 323 of the 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 norms, hereinafter General Law, insurance companies may contract reinsurance in the country or abroad, subject to the regulations issued by the Superintendence;

That, by Resolution SBS No. 2982-2010 dated March 25, 2010, the Norms for the Contracting and Management of Reinsurance were approved;

That, based on the experience gathered in the supervision of reinsurance operations and the review of the IAIS Basic Supervisory Principle No. 13 “Reinsurance and other forms of risk transfer”, this Superintendence considers it necessary to clarify the requirements for contracting reinsurance, expand the components of the Annual Reinsurance Plan, regulate other forms of risk transfer such as the contracting of finite reinsurance and fronting, as well as establish criteria for determining risk retention limits, among other aspects aimed at improving the control and supervision of reinsurance operations;

That, it is also necessary to establish provisions for the adequate administration of coinsurance operations, especially regarding the information that coinsuring companies must have to adequately support the policies and claims registered in coinsurance;

That, Article 320 of the General Law states that it is the competence of the Superintendence to verify that the retention amounts established by insurance companies, for the different risks in which they operate, respond to their technical, economic and financial conditions;

That, in accordance with Article 322 of the General Law, the Superintendence may establish exceptions regarding the non-subordination of the insurance contract to the reinsurance contract, so it has been considered necessary to delimit which these exceptions are, in order to facilitate reinsurance management when the reinsurer assumes the entire risk transferred;

That, Article 324 of the General Law establishes the registration requirements for representatives of foreign reinsurance companies in the Registry kept by the Superintendence, making it necessary to establish specific causes for suspension and cancellation of the Registry, as well as complementary provisions for adequate supervision of the representatives of foreign reinsurance companies;

That, by Resolution SBS No. 1797-2011 and its modifying norm, the Regulation of the Registry of Insurance Intermediaries and Auxiliaries was approved, making it necessary to modify said Regulation to adapt it to the provisions of this Resolution regarding the representatives of foreign reinsurance companies;

That, by Resolution SBS No. 11699-2008 and its modifying norms, the Internal Audit Regulation was approved, making it necessary to modify the scheduled activities of the Internal Audit Unit to contemplate the evaluation of coinsurance and reinsurance operations in accordance with the provisions of this Resolution;

That, by Resolution SBS No. 17026-2010 and its modifying norms, the External Audit Regulation was approved, making it necessary to modify the scope of the report on reinsurance and coinsurance operations, in accordance with the provisions of this Resolution;

That, from the review of the information required by the Loss Reserve Regulation, approved by Resolution SBS No. 4095-2013 and its modifying norm, it has been deemed convenient to eliminate the submission of certain annexes;

That, in order to collect public opinions, the draft resolution on the matter was pre-published on the electronic portal of the Superintendence, under the provisions of the Thirty-second Final and Complementary Provision of the General Law and Supreme Decree No. 001-2009-JUS;

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

In exercise of the powers conferred by items 7, 9 and 13 of Article 349 of the General Law;

RESOLVES:

Article First.- Approve the Regulation for the Contracting and Management of Reinsurance and Coinsurance, hereinafter the Regulation, as indicated below:

“REGULATION FOR THE CONTRACTING AND MANAGEMENT OF REINSURANCE AND COINSURANCE

CHAPTER I
GENERAL PROVISIONS

Article 1.- Scope

This Regulation is applicable to the companies indicated in item D of Article 16 of the General Law, hereinafter companies, as well as to reinsurance brokers and to representatives of foreign reinsurance companies, insofar as applicable.

Article 2.- Definitions

For the purposes of this Regulation, the following definitions must be considered:

1. Coinsurance: Insurance operation in which two or more insurance companies concur, with the consent of the insured, to cover the risk proportionally to their participation in the contract, and reinsurance contracts may subsequently be entered into to transfer the assumed risk.

2. Reinsurance Brokers: Legal entity established in the country and duly authorized by the Superintendence, which acts in reinsurance business and contracts as an intermediary between insurance companies and reinsurance companies domiciled in the country or abroad, receiving a commission for its services. Includes representatives of foreign reinsurance brokers.

3. 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 amendments.

4. Insurance Contract Law: Law No. 29946.

5. Reinsurance: Contract by virtue of which an insurance company, called the cedent, transfers all or part of the risks it assumes, in its capacity as insurer of an insurance contract, to another company called the reinsurer.

6. Automatic Reinsurance: Reinsurance contract, also called obligatory reinsurance, in which the cedent and the reinsurer establish the obligatory cession and acceptance of risks corresponding to a specific portfolio or line of insurance, according to the conditions established in the contract.

7. Facultative Reinsurance: Reinsurance contract carried out on an individual risk or policy basis, in which both the cedent and the reinsurer have the option to cede and accept a specific risk or policy, under the conditions established by the cedent to transfer it and the conditions established by the reinsurer to accept it.

8. Facultative-Obligatory Reinsurance: Reinsurance contract by which the cession of risks is established on a facultative basis by the cedent and the obligatory acceptance by the reinsurer with respect to each risk that the cedent wishes to include in the contract.

9. Proportional Reinsurance: Reinsurance contract by which the cedent and the reinsurer proportionally share the coverage of a risk; obliging themselves to share in the same proportion the sum insured, premiums and claims corresponding to said risk, according to the contract conditions.

10. Non-Proportional Reinsurance: Reinsurance contract in which the liability of the reinsurer is activated when the claims of the cedent exceed its retention limit or priority up to the monetary value established in the contract.

11. Lead Reinsurer: Principal reinsurer when there are two or more reinsurers for the same risk, which negotiates the terms and conditions with the cedent company. Generally has the largest participation in the risk coverage.

12. Retention: Risks or amounts that, individually and/or cumulatively, have not been ceded in a reinsurance or coinsurance contract. It includes the priority or deductible, layers of sum insured not covered by reinsurance contracts and other concepts that are under the responsibility of the company.

13. Retrocession: Reinsurance operation in which a reinsurer (retrocedent) transfers to another reinsurer (retrocessionaire) all or part of the risk ceded by the direct insurer or another reinsurer.

14. Reinsurance Risk: The possibility of losses in case of insufficiency of the reinsurance coverage contracted by the cedent insurance company, when the reinsurance needs were not identified, determined or specified adequately in the contracts; or when the reinsurer is not in a position to fulfill its payment commitments, or is not willing to pay them due to discrepancies in the application of the conditions of the insurance and/or reinsurance contract; as well as delays in reinsurer payments that may affect the cedent's cash flows, generating a liquidity risk. It also comprises the risks assumed by the company when it participates as a reinsurer in accepted reinsurance operations.

CHAPTER II
REINSURANCE CONTRACTING

Article 3.- Contracting Forms

3.1 Companies must diversify and disperse the risks they assume through the celebration of reinsurance contracts locally or with foreign reinsurance companies, in accordance with the operations and lines of insurance included in the authorization granted by the Superintendence.

3.2 Reinsurance may be contracted directly with reinsurance companies or through the intermediation of reinsurance brokers who are eligible in the Registry corresponding to this Superintendence. Reinsurance companies must meet one of the following conditions:

1. That they are established in the country.

2. That they are not established in the country, but are eligible in the Registry corresponding to this Superintendence, referred to in Article 324 of the General Law.

3. That they are not established in the country, but have an international risk classification considered non-vulnerable, granted by one of the risk rating companies indicated in this Regulation. The international risk classification cannot be older than eighteen (18) months from the date the information report is submitted to the Superintendence. For this purpose, the following minimum classifications made by the following risk rating companies must be considered:

Risk Rating Company Minimum Classification
Standard & Poor’s BBB
Moody’s Baa2
Fitch Ratings BBB
A. M. Best B+

In the event that there are reinsurance companies with different risk classifications on the date the Annex ES-18A “Premiums ceded by reinsurer” must be submitted, companies must consider in said annex the international risk classification corresponding to the highest risk, according to the equivalence table in Annex I of this Regulation.

4. That the companies have exceptional authorization from the Superintendence to operate with a foreign reinsurer, in a specific line and for a specific term.

Companies interested in contracting with a reinsurer that does not meet any of the conditions indicated in items 1, 2 and 3, must have prior authorization from this Superintendence, for which they must submit a request signed by the general manager and attach, at least, the following information:

a. International risk classification report or a report containing an analysis of the reinsurer's solvency, including its audited financial statements for the two (2) most recent complete fiscal years.

b. Document or report accrediting that the proposed reinsurer has no overdue claims debts or lawsuits in process with the Peruvian insurance system.

c. Detail of the exceptional market situation that obliges contracting with the proposed reinsurer.

3.3 Even if the reinsurer meets any of the conditions previously indicated, the Superintendence may determine and communicate to the company regarding those reinsurers for which there is no reasonable assurance of compliance with their obligations. In such cases, the company has a period of sixty (60) calendar days, counted from the date it receives the communication issued by this Superintendence, to submit the information accrediting the substitution of said reinsurers, in accordance with the indications indicated in said communication. Upon expiration of the term, these reinsurers are considered vulnerable, and the company incurs in unsafe practice.

Article 4.- SBS Code Request for Reinsurance Companies

4.1 Companies must request this Superintendence to assign an SBS code to report the operations they carry out with the reinsurance companies mentioned in item 3 of paragraph 3.2 of Article 3, for which they must send a written communication by the 20th day of each month, indicating at least the following information:

1. Name or corporate name of the reinsurance company.

2. Address and country of incorporation.

3. Regulatory body of the corresponding reinsurance company.

4. Latest report supporting the international risk classification, not older than eighteen (18) months. In case the reinsurer has two or more classifications, the report with the highest risk classification must be submitted.

5. List of automatic and/or facultative reinsurance contracts in which the reinsurer for which the SBS code is requested will participate, indicating, at least, line of insurance, contract term, contracting modality (automatic proportional, facultative proportional, automatic non-proportional and facultative non-proportional); as well as the insurance policyholder, in case of facultative reinsurance.

4.2 Companies must communicate to this Superintendence changes in corporate name of those reinsurers that participate in their active reinsurance contracts, as well as deterioration in the international risk classification that signifies a higher risk.

Article 5.- Reinsurance Contracts

5.1 Companies must have reinsurance contracts signed by the participating reinsurers in each period. The contracts must cover the entire (100%) of the ceded risk. Such contracts must adopt the conditions, forms and methods generally accepted in international practice, and clearly establish the scope of their coverage. What is agreed between the parties to the reinsurance contract does not modify the obligations that, with respect to the policyholder, insured, beneficiary or damaged third party, the company has according to what is established in the General Law, the Insurance Contract Law and the insurance contract, except for what is indicated in Article 7 of this Regulation.

5.2 During the negotiation or renewal process of reinsurance contracts, in cases of direct contracting, and until such process concludes, companies must have provisional coverage or coverage extension, for the thirty (30) days following the end date of the previous term. This provisional coverage must be requested when the contract negotiation does not conclude before the end of the term of the contract in force.

5.3 In cases of contracting through reinsurance brokers, companies must have the consent of said brokers for one hundred percent (100%) of the placement, within the thirty (30) days following the end date of the previous term.

5.4 By the start date of the term of their reinsurance contracts, companies must have the acceptance confirmations of all participating reinsurers in direct placements. In the case of placements made through the intermediation of reinsurance brokers, companies must have the acceptance confirmation of the broker with respect to one hundred percent (100%) of the reinsurance.

5.5 Coverage notes signed by reinsurance brokers may be considered support for reinsurance contracts, if they contain the most important clauses of the contract and are signed, at least, by the lead reinsurer. Regarding the other participating reinsurers, companies must have the document accrediting the confirmation of their acceptance in each case, carried out through some printable medium. Otherwise, the coverage note does not replace the obligation to have signed contracts.

5.6 Prior to the issuance of an insurance policy, companies must have the documentation accrediting the acceptance of the participating reinsurers in the corresponding automatic and/or facultative reinsurance contract for the risk placement.

Article 6.- Minimum Information of Reinsurance Contracts

6.1 Automatic reinsurance contracts must contain, at a minimum, the following information:

1. Cedent company

2. Term period

3. Type of reinsurance

4. Covered risks

5. Exclusions

6. Retention amount or percentage, or the method to determine it

7. Deductible or priority, as applicable

8. Cession amount or percentage, or the method to determine it

9. Reinsurance premium amount or method to determine it and payment dates

10. Reinsurance commission or discount

11. Territorial scope

12. List of clauses incorporated in the contract and their respective conditions, with the exception of standardized clauses that are part of international practice

13. Reinsurance broker and intermediation commission

14. Percentage of participation and name or corporate name of the reinsurer or reinsurers of the contract

6.2 In facultative reinsurance contracts, at least the name of the insurance policyholder, the contract term, the characteristics of the covered risk, the exclusions, the corresponding retention and cession limits, the reinsurance premium and payment date, the participating reinsurers and their respective participation percentages in the contract, as well as the detail of the clauses that form part of the contract and their respective conditions, with the exception of standardized clauses that are part of international practice, must be indicated.

Article 7.- Exception to the autonomy of insurance and reinsurance contracts

7.1 In accordance with what is provided in the second paragraph of Article 322 of the General Law, in the case of insurance contracted under the fronting modality, in which the cession to the reinsurer of the entire (100%) of the contracted coverage is agreed, it may be agreed, by mutual agreement with the insured, that the cedent company is obligated to pay the corresponding indemnity, provided it receives the funds determined in the settlement of the claim from the reinsurer, according to the conditions established in the reinsurance contract.

7.2 For this purpose, the clause establishing said agreement must be incorporated into the insurance policy and the corresponding reinsurance contract, indicating the obligations corresponding to both the insurance company and the reinsurer in the event of a claim.

Article 8.- Renewal or Subscription of Reinsurance Contracts

The renewal or subscription of automatic reinsurance contracts must be reported as part of the Annual Reinsurance Plan, considering the minimum information established in Annex II of this Regulation, and indicating the characteristics of the contracts in force as of January 1.

Likewise, the subscription of new contracts during the first half of the year, which increases the company's retention limits in relation to the information presented in the Annual Reinsurance Plan, requires the modification of the Plan and its corresponding approval, in accordance with Article 18 of this Regulation.

Article 9.- Term or Resolution of Reinsurance Contract

Companies must communicate to this Superintendence the term or resolution of automatic reinsurance contracts that, within thirty (30) calendar days following the end of the term or the end of the provisional coverage, have not been replaced by other reinsurance contracts, informing the reason for the delay and the adjustments made to the liability and the Statement of Results due to the increase in their reserves.

Article 10.- Accepted Reinsurance Operations

10.1 Insurance and reinsurance companies, in accordance with their authorization, may receive risks in reinsurance, reporting their operations quarterly to the Superintendence via Annexes No. ES-18G “Premiums received by accepted reinsurance contract” and ES-18H “Accepted reinsurance claims pending settlement”. For this purpose, companies must request the corresponding SBS code to report operations with cedent companies, via written communication presented by the 20th day of each month, indicating, at least, the following information of cedent companies not domiciled in the country:

1. Name or corporate name

2. Address and country of incorporation

3. Regulatory body of the cedent company

4. List of reinsurance contracts signed with the cedent company for which the SBS code is requested, indicating, at least, line of insurance, contract term, modality

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of contracting (proportional automatic, proportional facultative, non-proportional automatic, and non-proportional facultative), as well as the insurance contractor, in the case of facultative reinsurance.

10.2 With respect to their accepted reinsurance operations, companies must have the documentation that adequately supports the information reported in the aforementioned annexes, such as policies and accepted reinsurance claims duly updated.

10.3 Likewise, companies must have the corresponding reinsurance contracts and retrocession contracts, duly signed.

Article 11.- Association of companies to create reinsurance systems

Companies that, under the provisions of Article 319 of the General Law, decide to associate to form reinsurance companies, must comply with the corresponding provisions of the Regulations for the constitution, reorganization, and establishment of companies and representatives of the Financial and Insurance Systems, approved by SBS Resolution No. 10440-2008 and its modifying norms.

Article 12.- Unsafe practice

12.1 Companies incur in unsafe practice if the contracting of reinsurance is carried out with reinsurers that do not meet the conditions indicated in Article 3 of this norm.

12.2 For the purpose of measuring exposure due to unsafe practice, the amounts coming from the following concepts must be added:

1. The total of ceded premiums corresponding to contracts signed with reinsurers that do not comply with any of the characteristics indicated in subsections 1 to 4 of paragraph 3.2 of Article 3, on the date the report is made to the Superintendency, regardless of the validity of the contract;

2. The sum of ceded premiums to reinsurance companies reported with SBS code 90000 in the information annexes that must be presented to the Superintendency;

3. The reinsurance cost or the minimum premium of contracts that do not comply with the provisions indicated in Article 5; and,

4. The total of ceded premiums to those reinsurers considered vulnerable by the Superintendency in accordance with paragraph 3.3 of Article 3 of this Regulation.

12.3 Companies that incur in unsafe practice must increase their technical obligations by the amount of accumulated ceded premiums at the close of the corresponding quarter. In case that, due to the incorporation of ceded premiums in unsafe practice within the technical obligations, companies incur in investment deficit, they are subject to what is provided in Article 316 of the General Law.

CHAPTER III
FINITE REINSURANCE

Article 13.- Finite reinsurance

13.1 Also known as financial reinsurance, it is the reinsurance contract through which the ceding company transfers, within previously established limits, the present value of the technical obligations derived from the claims of a portfolio of policies. In this

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contract there is a transfer of insurance risk, which includes at the same time the underwriting risk and the temporal risk or risk of the appropriate moment, according to the following:

1. Underwriting risk, is the possibility that the effective amount of indemnities exceeds the expected value.

2. Temporal risk or risk of the appropriate moment, refers to the uncertainty regarding the moment when the payment of indemnities must be made.

13.2 A financial reinsurance contract must present mainly the following characteristics:

1. A combination of risk transfer and financing, as well as considering the time value of money.

2. The responsibility borne by the reinsurer must be limited.

3. Transfer of volatility by considering multiple lines of business or a multi-year coverage period.

4. The ceded premium considers the future financial return generated by the transferred debt so that the expected profitability is part of the underwriting.

5. Participation of the parties to the contract in the potential benefits that will be generated from the finite reinsurance operation.

Article 14.- Authorization to contract finite reinsurance

14.1 Companies that wish to contract finite reinsurance must have prior authorization from the Superintendency, which must be requested for each finite reinsurance contract. For this purpose, companies must present a communication signed by the general manager, consigning at least the following information:

1. Objectives and description of the operation including the detail of the risks to be transferred and financing elements, as well as the identified risks associated with the operation.

2. Draft of the reinsurance contract, collateral and/or secondary agreements, and any other documentation or relevant information in the transaction.

3. Report that accredits that the presented operation comprises a finite reinsurance operation in the terms described in Article 13 of the Regulation, performed by the official in charge of the actuarial function, referred to in Article 7 of the Actuarial Management Regulations for Insurance Companies, approved by SBS Resolution No. 3863-2016.

4. Detail of the proposed accounting treatment, including accounting entries, that the company will use to record the finite reinsurance operation; as well as the effect of the proposed operation on the company's financial statements and the patrimonial requirements in each reporting period and during the validity period of the contract.

5. Projection of the financial statements without the effects and with the effects of the finite reinsurance operation in ratios (solvency ratio, claims ratio, expense ratio, combined index, and others that are relevant).

6. Description of the responsibilities of the areas and position of the officials participating in the recording, valuation, risk control, and audit of the requested operation, specifying their location within the company's organization and reporting line.

14.2 If the contracting of finite reinsurance is authorized, the Superintendency evaluates the evolution of the contract. If the company does not comply with what is provided in this Regulation and other complementary norms and/or when the Superintendency determines that there is evidence that the finite reinsurance risks are not being managed adequately or that operations are being carried out outside the scope of the authorization granted, the company must conclude these operations within a period determined by the Superintendency.

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14.3 Companies may only carry out finite reinsurance operations with reinsurance companies that have at least one of the following international risk classifications:

Company Risk Rating Agency Minimum Rating
Standard & Poor’s AA
Moody’s Aa2
Fitch Ratings AA
A. M. Best A+

14.4 In case there are reinsurance companies with different risk classifications, companies must consider the current classification corresponding to the highest risk.

Article 15.- Accounting record

The accounting record of finite reinsurance operations must consider the separation of the elements of insurance risk transfer considering the underwriting risk and the temporal risk or risk of the appropriate moment, in accordance with the provisions indicated by the Superintendency.

CHAPTER IV
MAXIMUM RETENTION

Article 16.- Maximum retention limit

16.1 The maximum retention limit is the maximum amount that companies can retain for each individual risk or policy, after deducting the ceded part in the various reinsurance contracts in which they participate, considering as part of said limit: deductibles or any other element that reinsurance contracts establish and that may result under the responsibility of the ceding company.

16.2 The maximum retention limits, which form part of the Annual Reinsurance Plan, must be determined and approved by the Board of Directors with annual periodicity. Modifications to said limits, according to the portfolio of insured risks, must be approved by the company's Board of Directors and incorporated into the aforementioned Annual Reinsurance Plan, in accordance with applicable regulations.

Article 17.- Methodology for determining retention limits

17.1 Companies must set their maximum retention limits for each individual risk or policy by applying a methodology that takes into account the following:

1. The volume of premiums that represents the risk in the exercise of its activity.

2. The insured sums per individual policy.

3. The characteristics of the risks they assume, considering the number of claims, severity, and aggregate distribution of claims.

4. The composition of the risk portfolio.

5. The experience obtained regarding the behavior of claims.

6. Deductibles, limits, reinstatements, and similar concepts.

7. Reinsurance policies.

17.2 The methodology for setting maximum retention limits must allow the company to ensure that, with a high degree of reliability, the adopted retention limit is a value such that in probable adverse scenarios of claim occurrence, its solvency is not put at risk.

17.3 Additionally, regarding surety and bond insurance policies, companies must determine a maximum exposure limit per contractor, considering the total insured sums that the company is willing to assume regarding the same contractor; as well as a maximum retention limit for said exposure, considering adverse scenarios that could increase credit risk and/or liquidity risk due to reinsurance. For this purpose, surety and bond insurance policies issued in favor of public entities, under the conditions of unconditional, joint and several, irrevocable, indivisible, automatic realization, and with express waiver of the benefit of excussion, must be considered especially.

17.4 If the maximum retention limit for each individual risk or policy, obtained in accordance with the application of the methodology mentioned above, results in more than five percent (5%) of the effective equity for general branches, with the exception of accident and health, automobile, and earthquake branches, and others determined by the Superintendency; companies must send to this Superintendency a study duly signed by the manager or official responsible for the preparation of the technical notes, in which it is adequately supported that the retention limit does not affect the company's solvency. Individual risks or policies that may be affected by the same simultaneous event must be considered as a single risk, for the purposes of applying the retention limit.

17.5 Non-compliance with the aforementioned retention limit per individual risk or policy, which is not adequately supported with the study indicated in subsection 17.4, will be sanctioned by the Superintendency in accordance with the relevant regulations.

CHAPTER V
REINSURANCE MANAGEMENT

Article 18.- Reinsurance Plan

18.1 The Reinsurance Plan is composed of two components: the Reinsurance Strategy, which reflects the company's risk capacity and its appetite for risk; and the Reinsurance Program, which represents the combination of different modalities and forms of reinsurance that allow the company to comply with its strategy.

18.2 Companies must send annually to this Superintendency, no later than March 30 of each year, the Annual Reinsurance Plan duly approved by the Board of Directors.

18.3 The Reinsurance Strategy must contain, at a minimum, the following information:

1. Objectives of reinsurance contracting, specifying the annual goals that the company expects to achieve in reinsurance matters.

2. Risk cession policies, both in the country and abroad, which are determined according to the company's risk underwriting policies.

3. Underwriting policies for facultative reinsurance contracts, when applicable.

4. Risk retention policies, which must be related to the company's patrimonial capacity, considering the maximum retention limit established in Chapter IV of this Regulation. The methodology used for determining maximum retention limits per risk must be included.

5. Maximum retention limits per risk.

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6. Accepted reinsurance and retrocession policies, both from the local market and abroad, when the company carries out these operations.

7. Methodology for selecting participating reinsurers, which must consider the diversification and credit quality of the reinsurers.

8. Detail of the procedure for continuous monitoring of the solvency of reinsurers, and for replacing reinsurers that decrease their risk classification below the minimum classifications established by the Superintendency, when applicable.

9. Net ratios of ceded premiums commissions and expected claims per risk covered in reinsurance contracts. Likewise, an analysis of the expected and effective cession ratios of the reinsurance contracts considered in the Annual Reinsurance Plan of the previous exercise must be included.

10. Detail of the systems and control mechanisms for the follow-up of reinsurance placements and reinsurance assets, including a report with the results of the independent review of responsibilities and procedures in charge of the Risk Unit.

11. Measures considered to face liquidity risk due to reinsurance in the event of a large-scale claim or a series of claims that could cause difficulties in cash flow, and its impact on the company's patrimonial capacity, especially in the case of accumulation of surety and bond insurance policies with the same contractor, issued in favor of public entities.

12. Area and position of the officials responsible for the design, execution, and supervision of the Plan. The execution and supervision tasks of the Plan must be in charge of different persons and cannot fall on the internal auditor.

18.4 The Reinsurance Program must contain, at a minimum, the following information about automatic reinsurance contracts that are in force on the date of presentation of the Reinsurance Plan:

1. Detail of the different levels of reinsurance coverage and maximum retention limit per risk up to the maximum underwriting amount, as well as the validity of the contracts. In the case of proportional contracts, the percentages and amounts of retention and/or cession, the capacities of the contracts, as well as the total underwriting capacity, must be included, according to the minimum information indicated in Annex II of this Regulation. In the case of non-proportional contracts, the detail of the layers and reinstatements must be included, in accordance with the minimum information indicated in the aforementioned Annex II.

2. Detail of the retention per risk in amount and percentage with respect to the effective equity for general branches, with the exception of accident and health, automobile, and earthquake branches, and others determined by the Superintendency, and of the corresponding net retained premium.

3. Detail of the reinsurers, risk classification, and amounts of their participation in reinsurance contracts.

18.5 Modifications of the risk retention, cession, and acceptance policies in reinsurance, for any concept, as well as maximum retention limits per risk, which form part of the Reinsurance Strategy, must be approved by the Board of Directors within thirty (30) calendar days following the start of validity of the renewals or subscription of new contracts, and must be informed to the Superintendency within ten (10) calendar days following their approval by the Board of Directors.

18.6 Companies must conserve the documents that support the execution and supervision of the Plan, which must be available to the Superintendency.

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Article 19.- Reports on coinsurance and reinsurance

Companies must send a copy of the internal and external audit reports on the management of coinsurance and reinsurance operations. The internal audit report must be sent within thirty (30) calendar days following its issuance, and the external audit report in accordance with the period required in the corresponding regulations.

CHAPTER VI
REINSURANCE INFORMATION

Article 20.- Information to the Superintendency

20.1 Companies must present to the Superintendency the information contained in the following annexes:

Annex ES-18A “Ceded premiums by reinsurer”, with quarterly periodicity.

Annex ES-18E “Claims receivable from automatic reinsurance and facultative reinsurance contracts”, with quarterly periodicity.

Annex ES-18F “Statistical information of reinsurance operations with the foreign market”, with quarterly periodicity.

Annex ES-18G “Premiums received by accepted reinsurance contract”, with quarterly periodicity.

Annex ES-18H “Pending settlement accepted reinsurance claims”, with quarterly periodicity.

Annex ES-18I “Facultative reinsurance contracts”, with quarterly periodicity.

Annex ES-18J “Statistical information of reinsurance operations with the foreign market by country of origin”, with quarterly periodicity.

20.2 For the submission of the annexes, the following deadlines must be observed:

1. Annexes ES-18E, ES-18F, ES-18G, ES-18H, ES-18I, and ES-18J must be sent within fifteen (15) days following the expiration of the respective reporting quarter. Annex ES-18A must be presented within thirty (30) days following the end of the corresponding reporting quarter.

2. The information of the annexes corresponding to the fourth quarter of the year must be presented within thirty (30) days following the end of said quarter.

Article 21.- Minimum information to be maintained in companies

Companies must permanently keep available to the Superintendency the documentation related to current automatic reinsurance and facultative reinsurance contracts, which accredits the following:

1. A file for each reinsurance contract, which must contain at a minimum the following:

a. Information of the reinsurer or reinsurers involved in the contract, considering legal name, domicile with indication of the country of origin, telephone, fax, e-mail, and the corresponding updated international risk classification.

b. Information (if applicable) of the broker that intermediates the contract: legal name, code assigned in the official Register of the Superintendency, and commission.

c. The offer or “slip” of placement conditions.

d. Reinsurance contract duly signed by the participating reinsurers, with indication of their respective participation percentages or, at least, signed by the

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leading reinsurer of the contract. In the latter case, acceptance confirmations issued by the reinsurers must be available, containing the corresponding signatures and/or seals, and/or confirmations made through electronic means by duly authorized persons, in accordance with what is provided in Article 3 of this Regulation.

e. When it comes to placements made through reinsurance brokers, coverage notes duly signed by the person who has the authorization for their signing must be available, as well as the respective formal confirmations of participation in the contract issued by the reinsurers.

2. Documentation that supports the payment of premiums, settlement of balances, or coverage costs carried out through reinsurance brokers or not, in accordance with the periods agreed in the corresponding contracts.

3. Reinsurance received and ceded spreadsheets.

4. Other information requested by the Superintendency to verify the information reported in the annexes indicated in the preceding article.

Article 22.- Automated information system

22.1 Companies must have information systems that facilitate the identification of total risk for adequate contracting and management of reinsurance. Automated information systems must allow verifying the information reported to the Superintendency in the last six (6) months, in accordance with Article 20 of this norm.

22.2 The database from which the information reported to the Superintendency on operations with reinsurers is obtained, must contain at a minimum the information indicated in Annexes No. ES-18A, ES-18E, ES-18F, ES-18G, ES-18H, ES-18I, and ES-18J. This system must allow the export of information to spreadsheet formats, plain text, or other commonly used formats.

CHAPTER VII
REPRESENTATIVES OF FOREIGN REINSURANCE COMPANIES

Article 23.- Legal Representative

23.1 Foreign reinsurance companies require prior authorization from this Superintendency to have a legal representative established in the country, in accordance with what is indicated in Articles 43 and 44 of the General Law, for which, they must request their inscription in the corresponding Register, complying with the requirements established by current regulations.

23.2 Natural or legal persons domiciled in Peru who exercise the representation of foreign reinsurance companies, and who do not have authorization from the Superintendency, will be subject to the closure of their representation offices and the corresponding sanctions, in accordance with the General Law and the Sanctions Regulation.

23.3 The legal representatives of foreign reinsurance companies, registered and enabled in the Register of this Superintendency, must keep a register of the reinsurance contracts that their represented company signs with national insurance companies. Likewise, they must have complete and updated information and documentation on the reinsurance operations carried out by their represented company in the country; as well as the updated risk classification report.

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23.4 This information and documentation must be available to the Superintendence when requested for supervision purposes, in application of Article 48 of the General Law.

Article 24.- Suspension and/or cancellation of registration

24.1 Without prejudice to what is provided in the Regulation of the Registry of Insurance Intermediaries and Auxiliaries, approved by SBS Resolution No. 1797-2011 and its modifying norms, the registration in the Registry may:

1. Be suspended for failing to present the annual report, the audited financial statements and/or Annex III of this Regulation.

2. Be cancelled when the competent authority of the place of its social domicile revokes or cancels the authorization to operate for the foreign reinsurance company, or when the Superintendence becomes aware of the aforementioned facts.

24.2 The effects of the suspension or cancellation as well as the rehabilitation procedure, where applicable, are governed by what is stated in the Regulation of the Registry of Insurance Intermediaries and Auxiliaries, cited above.

Article 25.- Information to the Superintendence

Foreign reinsurance companies, duly registered and authorized in the Registry, must present to the Superintendence, through their legal representative, the following information:

1. Annex III of this Regulation "Contracts of Foreign Reinsurance Companies Registered in the SBS Registry", no later than March 30 of each year.

2. At the close of each fiscal year, the annual report with the audited financial statements of the represented company, no later than June 30 of each year. The financial statements must be apostilled by the official authority of the country of origin.

3. Copy of the latest risk classification report of the company.

CHAPTER VIII

COINSURANCE

Article 26.- Coinsurance Operations

26.1 Coinsurance contracts or agreements must have the prior consent of the insured and be signed by the participating companies. For this purpose, the insurance policies must indicate the coinsuring companies and their respective participations.

26.2 In coinsurance, it may be agreed that the issuance of the insurance policy is the responsibility of one of the coinsuring companies, designated as the leading coinsurance company, which must be in charge of the administration of the coinsured risk. The leading company is responsible for receiving the payment of the total premium, according to the corresponding payment agreement and current provisions. Likewise, it is responsible for distributing the insurance premium among the coinsuring companies, according to the proportions agreed upon in the insurance policy. The monthly coinsurance premium and claim schedules must be accompanied by the corresponding information and documentation of the insurance policies issued in coinsurance.

26.3 In the event of a claim, each coinsuring company is responsible for the participation that corresponds to it in the coinsurance; therefore, the leading coinsurance company must manage with the other coinsurers the payment of their corresponding participations in the claim, in order to make the payment of the total amount to the insured or beneficiary, in accordance with current provisions, not being responsible for paying a percentage greater than that corresponding to its participation.

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26.4 If as part of the coinsurance it is agreed that the payment of the total amount of the claims is the responsibility of the leading coinsurance company, this agreement must be signed by all coinsuring companies and appear in each policy. The leading company must manage the collection corresponding to the participations of the other coinsuring companies through the monthly coinsurance claim schedules, which must be sent together with the information and documentation that supports the settlement and payment process of the claims for their proper registration by the coinsuring companies.

Article 27.- Management of coinsurance operations

For the adequate management of coinsured risks, companies must consider the following:

a) The accounting registration of ceded coinsurance operations must be backed up by copies of the policies, insurance certificates, endorsements, premium and claim schedules, and other documentation issued by the leading company.

b) The leading company must send to the other coinsuring companies a copy of the policy, premium and coinsurance claim schedules and other issued documents, no later than within ten (10) business days, counted from the date of their issuance.

c) Coinsuring companies must account for charges and credits in the respective accounts in the month in which they become aware of the premium and claim movements.

d) Companies must maintain files of insurance policies and claims issued in coinsurance containing the corresponding information, duly updated.

Second Article.- Annexes I, II and III, as well as Annexes No. ES-18A "Premiums ceded by reinsurer", ES-18E "Claims receivable from automatic reinsurance and facultative reinsurance contracts", ES-18F "Statistical information on reinsurance operations with the foreign market", ES-18G "Premiums received by accepted reinsurance contract", ES-18H "Accepted reinsurance claims pending settlement", ES-18I "Facultative reinsurance contracts" and ES-18J "Statistical information on reinsurance operations with the foreign market by country of origin" form part of the Regulation approved by this Resolution and are 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 numeral 2) in section II "Reports applicable to insurance and reinsurance companies" of Annex I "Reports complementary to the responsibility of External Audit Firms", of the External Audit Regulation, approved by SBS Resolution No. 17026-2010 and modifying norms, according to the following:

"2) Review of the management of reinsurance and coinsurance operations, considering compliance with what is provided in the Regulation for the Contracting and Management of Reinsurance and Coinsurance, which must contain:

a) Review of the age of items contained in the balances of current accounts with reinsurers and coinsurers;

b) Analysis of the application of the provision for doubtful collection and impairment of accounts receivable from reinsurers and coinsurers;

c) Analysis of the impairment of technical reserves held by reinsurers and coinsurers;

d) Review of the procedures applied in the management of finite reinsurance operations;

e) Review of the procedures employed in the management of reinsurance risk; and,

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f) Actuarial review of the finite reinsurance operation in accordance with its definition in the Regulation for the Contracting and Management of Reinsurance and Coinsurance. The external audit firm must employ an actuary for this review, and must register their signature in the document that forms part of the working papers. For this purpose, an actuary is considered a person with an undergraduate or master's degree in actuarial sciences. It is desirable that the actuary be a member of a professional association recognized by the International Actuarial Association (IAA)."

Fourth Article.- Modify numeral 4) in section II "Insurance and/or reinsurance companies" of the "Scheduled Activities" Annex, of the Internal Audit Regulation, approved by SBS Resolution No. 11699-2008 and modifying norms, according to the following:

"4) Evaluation of the management of coinsurance and reinsurance, as well as the determination of the quality of reinsurers;"

Fifth Article.- Modify procedure No. 147 "Exceptional authorization for contracting reinsurance with foreign reinsurers" and incorporate procedure No. 172 "Authorization to contract finite reinsurance" into the Single Text of Administrative Procedures - TUPA of the Superintendence of Banking, Insurance and AFP, approved by SBS Resolution No. 3082-2011, in accordance with the text attached to this Resolution and published on the Institutional Portal (www.sbs.gob.pe) in accordance with what is established in Supreme Decree No. 004-2008-PCM, Regulation of Law No. 29091.

Sixth Article.- Include as the second paragraph of Article 11 of the Actuarial Management Regulation for Insurance Companies, approved by SBS Resolution No. 3863-2016, the following text:

"Article 11.- Reasonableness of technical reserves (...)
In the case of policy portfolios or risks that have coverage from finite reinsurance contracts, companies must perform an actuarial valuation that must include the estimation of the claim reserve, analysis of the pattern of claim payments, as well as the respective variabilities."

Seventh Article.- Eliminate Annexes No. ES-26 "Database of paid and recovered claims", ES-27 "Database of reserved claims" and ES-28 "Summary of claim reserve valuation", as well as Article 15 of the Claim Reserve Regulation, approved by SBS Resolution No. 4095-2013 and its modifying norm. The Superintendence will make information requests to companies through Multiple Office. 1

Eighth Article.- Modify the Regulation of the Registry of Insurance Intermediaries and Auxiliaries, approved by SBS Resolution No. 1797-2011 and its modifying norms, in accordance with the following:

1. Modify letter n) of Article 17 "Suspension and cancellation of registration in the Registry", in accordance with the following:

1 The entry into force of the seventh article is from 31.12.2017, modified by SBS Resolution No. 5026-2017 of 27.12.2017.

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"n) In the case of foreign reinsurance brokers registered in the registry, when the authorization that the company has to operate, granted by the competent authority of the place of its social domicile, is withdrawn or cancelled, or the Superintendence becomes aware of the aforementioned facts".

2. Repeal Articles 21 "Obligations of registered reinsurance companies" and 22 "Obligations of the Legal Representative".

Ninth Article.- Modify letter g) of Article 23 of the Corporate Governance and Integrated Risk Management Regulation, approved by SBS Resolution No. 272-2017, in accordance with the following:

"(...)

g) Reinsurance risk: The possibility of losses in the event of insufficiency of the reinsurance coverage contracted by the ceding insurance company, when the reinsurance needs were not identified, determined or specified adequately in the contracts; or when the reinsurer is not capable of fulfilling its payment commitments, or is not willing to pay them due to discrepancies in the application of the conditions of the insurance and/or reinsurance contract; as well as the delay in payments by the reinsurer that may affect the cash flows of the ceding company, generating a liquidity risk. It also includes the risks assumed by the company when it participates as a reinsurer in accepted reinsurance operations."

Tenth Article.- This resolution enters into force on June 1, 2018. From that date, the "Norms for the Contracting and Management of Reinsurance", approved by SBS Resolution No. 2982-2010, are repealed.

The first submission of Annexes ES-18A, ES-18E, ES-18F, ES-18G, ES-18H, ES-18I and ES-18J will be made with the corresponding information for June 2018.

SBS code requests for reinsurance companies initiated before the entry into force of this resolution are governed until their conclusion by the provisions established in SBS Resolution No. 2982-2010.

Register, communicate and publish.

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