Resolution SBS No. 887-2018: Approves the Regulation for the Establishment of Mathematical Reserves for Annuity Insurance and Asset Sufficiency Analysis

Lima, March 7, 2018
Resolution S.B.S.
No. 887-2018
The Superintendent of Banks, Insurance and Private Pension Fund Administrators

CONSIDERING:

That, the General Law of the Financial System and the Insurance System and the Organic Law of the Superintendence of Banks and Insurance, Law No. 26702 and its modifying norms, hereinafter General Law, establishes in its article 306 that insurance and/or reinsurance companies must monthly establish reserves for claims, mathematical, in-force risks, and catastrophic risks;

That, article 308 of the aforementioned General Law states that the mathematical reserve for life insurance is established based on actuarial calculations, taking into account the total number of insurance policies; likewise, the aforementioned article authorizes this Superintendence to issue regulations regarding its calculation;

That, through Resolution SBS No. 562-2002 and its modifying norms, the Regulation for the Establishment of Mathematical Reserves of Insurance based on the Matching of Assets and Liabilities of Insurance Companies was approved;

That, it is necessary to modify the methodology for the calculation of mathematical reserves for annuity insurance associated with the Private Pension System (SPP), so that future obligations for the payment of these annuities are recognized more precisely, based on a prudential criterion to obtain a discount rate resulting from the comparison of the policy sales rate, the risk-free rate, and the average system sales rate of the SPP, as well as employing a methodology that measures asset sufficiency, in terms of term and currency, for the coverage of these obligations;

That, it is considered necessary that the prudential criterion with respect to the discount rate and the methodology for evaluating asset sufficiency must also apply to the stock of policies of the Temporary Regime of the SPP; as well as include in the methodology for measuring mathematical reserves and asset sufficiency the annuities of the Complementary Insurance for Work in Risk (SCTR);

That, for the purpose of collecting public opinions, the pre-publication of the draft resolution approving the Regulation for the Establishment of Mathematical Reserves for Annuity Insurance and Asset Sufficiency Analysis was ordered, 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, and Legal Advisory; and,

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

RESOLVES:

Article First.- Approve the Regulation for the Establishment of Mathematical Reserves for Annuity Insurance and Asset Sufficiency Analysis, as indicated below:

“REGULATION FOR MATHEMATICAL RESERVES OF ANNUITY INSURANCE FROM THE PRIVATE PENSION SYSTEM (SPP) AND THE COMPLEMENTARY INSURANCE FOR WORK IN RISK (SCTR) 1

CHAPTER I
GENERAL ASPECTS

Article 1.- Scope
This Regulation applies to insurance companies included in letter D of article 16 of the General Law, authorized to operate annuity contracts from the Private Pension System (SPP) and annuities from the Complementary Insurance for Work in Risk (SCTR), hereinafter the companies.

Article 2.- Definitions
For the purposes of this Regulation, the following concepts refer to:
a) 2 b) Coverage: Refers to the Retirement, Disability, and Survivorship coverages of SPP annuities and the Disability and Survivorship coverages of SCTR. c) 3 d) Dollars.- United States Dollars. e) VAC Soles.- Soles indexed by the Constant Update Value (VAC) or by the Consumer Price Index (CPI). f) Chart of Accounts.- Chart of Accounts for companies in the Insurance System, approved by Resolution SBS No. 348-95 and its modifying norms. g) Superintendence.- Superintendence of Banks, Insurance and Private Pension Fund Administrators. h) Equivalent Cost Rate.- Discount rate used for the calculation of mathematical reserves for annuity liabilities, defined in the scope of this Regulation. i) Risk-Free Rate.- Internal rate of return derived from the Discount Rate Vector. j) Market Rate.- Interest rate published by the Superintendence in accordance with the provisions of the Regulation for the Establishment of Mathematical Reserves of Insurance based on the Matching of Assets and Liabilities of Insurance Companies, approved by Resolution SBS No. 562-2002 and its modifying norms.

1 Title modified by Resolution SBS No. 1660-2025, published on 09-05-2025, effective from 01-01-2026.
2 Letter repealed by Resolution SBS No. 1660-2025, published on 09-05-2025, effective from 01-01-2026.
3 Letter repealed by Resolution SBS No. 1660-2025, published on 09-05-2025, effective from 01-01-2026.

k) Sales or Quotation Rate.- The implicit discount rate at which the company sells or quotes an insurance policy. It is the rate resulting from equating the single premium of the policy to the present value of the actuarial projection of the pensions it commits to pay for it. This present value is calculated using the mortality tables issued by this Superintendence in current regulations, excluding any expense for sales (commissions or similar) or policy administration of the life annuity. l) Average System Sales or Quotation Rate.- Average system sales or quotation rate, published by this Superintendence. m) 4 n) Discount Rate Vector (DRV).- It is the curve of rates from which the Risk-Free Rate is obtained and is used for the Asset Sufficiency Analysis (ASA). The DRV is determined as indicated in Chapter IV of this Regulation.

CHAPTER II
MATHEMATICAL RESERVES

Article 3.- Mathematical reserve of annuities from the Private Pension System (SPP)
The mathematical reserve is the sum of the present value of actuarial liability flows using the equivalent cost rate, according to the currency and coverage in which these liabilities are denominated. For each currency, coverage, and policy, the equivalent cost rate is determined as the lowest among the policy sales rate, the average system sales rate, and the risk-free rate at the time of the policy's entry into force. The equivalent cost rate remains constant throughout the validity of the policy.

Article 4.- Mathematical reserve of annuities from the Complementary Insurance for Work in Risk (SCTR)
The mathematical reserve for each claim is the sum of the present value of its actuarial liability flows using the equivalent cost rate, according to the respective currency and policy. This rate is determined as the lowest among the risk-free rate on the date of claim settlement and the discount rate published by this Superintendence, in accordance with Circular No. S-601-2003 and its modifying norms. The equivalent cost rate remains constant throughout the validity of the claim.

Article 5.- Reserve in the case of reinsurers and portfolio accepting companies
For the calculation of the mathematical reserve, the total flows of obligations for annuities ceded in reinsurance must be considered. Ceded flows must be recorded separately in the respective accounting account.

For accepted reinsurance or portfolio acquisition, the mathematical reserve must be calculated, discounting the accepted flows at the lowest interest rate among the risk-free rate, the interest rate implicit in the acceptance of liability flows (rate determined based on the reinsurance premium), and the average system sales rate corresponding to the day of acceptance or portfolio acquisition.

Article 6.- Determination of the risk-free rate
The risk-free rate for each policy is the internal rate of return (IRR) that, applied in discounting the liability flows of each policy, allows obtaining a value equal to the present value of said flows applying the DRV on the day of the policy's entry into force. This calculation must be performed considering the DRV of the policy's currency.

CHAPTER III
5

CHAPTER IV
DISCOUNT RATE VECTOR

Article 16.- Determination of the DRV
The Discount Rate Vector (DRV), used for the calculation of annuity mathematical reserves and for the ASA calculation, is calculated from a Zero-Coupon Curve for a moving three-month period, that is, incorporating information from transactions of the last three months prior to the calculation date.

The DRV is calculated for each currency using the Sovereign Curve in Soles, VAC Soles, and the Global Dollar Zero-Coupon Curve published by this Superintendence.

Article 17.- Extrapolation and interpolation of the curve
For the purposes of applying the DRV to policy flows, in the extrapolation of the curve, the last observable point of the Zero-Coupon Curve onwards is used as a constant, while in the interpolation of the curve, the linear method is used.

CHAPTER V
INFORMATION REQUIREMENTS

Article 18.- Information Submission
Companies must submit quarterly and together with the corresponding financial statements, the information indicated below:
a) 6 b) 7 c) 8 d) Annex SV-19: Summary of reserve adequacy

This information must be sent to this Superintendence through the Submódulo de Captura y Validación Externa (SUCAVE) software.

FINAL AND TRANSITORY PROVISIONS

FIRST.- Reclassification of Matching Reserve
The balance of account 2709 “Matching Reserve” associated with the stock of policies contracted until 12.31.18, must be fully reversed against the balances of analytical accounts 2703.00.02 “Excess (deficit) for financial mathematical reserve”, 2704.00.02 “Excess (deficit) for financial mathematical reserve”, and 2706.00.02 “Excess (deficit) for financial mathematical reserve”, as applicable. This accounting entry must be made on 03.31.2019.

5 Chapter III “Asset Sufficiency Analysis” repealed by Resolution SBS No. 1660-2025, published on 09-05-2025, effective from 01-01-2026.
6 Letter repealed by Resolution SBS No. 1660-2025, published on 09-05-2025, effective from 01-01-2026.
7 Letter repealed by Resolution SBS No. 1660-2025, published on 09-05-2025, effective from 01-01-2026.
8 Letter repealed by Resolution SBS No. 1660-2025, published on 09-05-2025, effective from 01-01-2026.

SECOND.- Treatment of mathematical reserves associated with the annuity stock registered until 12.31.2018 For the stock of life annuity policies registered until 12.31.2018 in risk codes 76, 94, and 95 of the Chart of Accounts, mathematical reserves must be calculated henceforth, policy by policy, with the historical market rate published by the Superintendence corresponding to the month of the policy's sale.

In the case of annuities from the Temporary Regime (risk codes 96 and 97 of the Chart of Accounts) and annuities associated with the SPP that are not subject to the Regulation for the Establishment of Mathematical Reserves of Insurance based on the Matching of Assets and Liabilities of Insurance Companies, approved by Resolution SBS No. 562-2002 and its modifying norms, the reserve rate of 3% will continue to be used.

For the stock of life annuity policies registered until 12.31.2018 with risk code 78 of the Chart of Accounts, mathematical reserves must continue to be calculated with a rate of 3%.

Aggregated mathematical reserves at the company level cannot be lower than those reserves that would have been established with the mortality tables in force until 12.31.2018.

THIRD.- First application of the Asset Sufficiency Analysis (ASA) and adequacy plan The first application of the ASA for the purpose of determining whether the accounting entry for the additional reserve for asset insufficiency is appropriate will be carried out on 06.30.2019, in accordance with Article 15.

For internal management and reporting to the Superintendence, companies must carry out the ASA starting from 06.30.2018 on a quarterly basis, and send the results to this Superintendence together with the corresponding financial statements. Likewise, if the ASA results in asset insufficiency, an adequacy plan must be sent to the Superintendence within a period of 10 business days counted from the submission of the ASA information, considering the maximum adequacy date as 06.30.2019.

Article Second.- Modify the Chart of Accounts for companies in the Insurance System, approved by Resolution SBS No. 348-95 and modifying norms, according to Annex No. 2 “Modifications to the Chart of Accounts of companies in the Insurance System” attached to this resolution and available on this Superintendence’s website (www.sbs.gob.pe), in accordance with Supreme Decree No. 001-2009-JUS.

Article Third.- Modify the Regulation on Investments of Insurance Companies, approved by Resolution SBS No. 1041-2016, as follows:

1. Incorporate letter t) into article 2, according to the following text:
   “For the application of this Regulation, the following definitions are considered:
   (…) t) Real estate for own use.- Those real estate properties used by the company for the supply of its services, for administrative purposes, or for any activity inherent to the company.”

2. Modify the second paragraph of the First Final and Transitory Provision, according to the following text:
   “Real estate of the company used for own use; nor direct investments in real estate projects that, upon completion of their construction, will be destined for own use, are not considered eligible for backing technical reserves, but are eligible for capital requirements. For the purposes of the Asset Sufficiency Analysis, only real estate for own use may be treated in accordance with article 8 of the Regulation for the Establishment of Mathematical Reserves for Annuity Insurance and Asset Sufficiency Analysis, approved by Resolution SBS No. 887-2018.”

Article Fourth.- Annexes No. 1, SV-16: Information on asset flows, SV-17: Information on liability flows, SV-18: Summary of Mathematical Reserves, and SV-19: Summary of reserve adequacy, form part of the Regulation approved by this Resolution and are published on the Institutional Portal (www.sbs.gob.pe), in accordance with Supreme Decree No. 001-2009-JUS.

Article Fifth.- This resolution enters into force on January 1, 2019; on which date the Regulation for the Establishment of Mathematical Reserves of Insurance based on the Matching of Assets and Liabilities of Insurance Companies, approved by Resolution SBS No. 562-2002 and its modifying norms; as well as Circular No. S-643-2010 and its modifying norms, are repealed.

Register, communicate, and publish

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