SBS Resolution No. 0079-2006: Deduction of Goodwill from Effective Equity of Financial and Insurance Companies

Lima, January 27, 2006
S.B.S. Resolution
No. 79-2006

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 amendments, hereinafter the General Law, in its articles 185 and 299, establishes the items that determine the effective equity of companies in the financial and insurance systems;

That, by Law No. 28184 promulgated on February 9, 2004, the aforementioned articles of the General Law were modified, with the aim of considering goodwill or commercial credit (goodwill) resulting from the reorganization of the company, as well as the acquisition of investments, as a deductible item for the determination of the Effective Equity of companies in the financial and insurance systems, establishing an adjustment period;

That, in accordance with SBS Resolution No. 895-98 of September 1, 1998 and its modifying norms, the Accounting Manual for Companies of the Financial System, hereinafter the Accounting Manual, was approved;

That, the aforementioned Accounting Manual contains Chapter V "Annexes and Reports to Financial Statements", forming part of said Chapter Reports No. 2 - Annex A "Risk-Weighted Assets and Contingent Credits" and No. 3 "Effective Equity";

That, it is necessary to adjust Reports No. 2 and No. 3 mentioned above, to the modification established in Law No. 26702 indicated above;

That, by SBS Resolution No. 764-2001, the Regulation on capital requirements of insurance and reinsurance companies, as well as the corresponding information submission formats, were approved;

Being in accordance with the opinion of the Deputy Superintendencies of Banking and Microfinance, Insurance, Risks, Legal Advice, as well as the Economic Studies Management;

And,

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

RESOLVES:

Article First.- Modify in Chapter V "Annexes and Reports to Financial Statements" of the Accounting Manual for Companies of the Financial System, Reports No. 2 - Annex A "Risk-Weighted Assets and Contingent Credits" and No. 3 "Effective Equity", according to Annex 1 attached to this Resolution.

Article Second.- Modify article 2 of the Regulation on Capital Requirements of Insurance and Reinsurance Companies approved by SBS Resolution No. 764-2001 of October 15, 2001, as indicated below:

"Determination
Article 2º.- The effective equity, also called total effective equity, which companies must demonstrate is obtained from the accounting equity based on the information contained in the corresponding financial statements, according to the following procedure:
2.1 The paid-in capital, the additional capital premium, the legal reserve and the facultative reserves, if any, are added;
2.2 The computable portion of subordinated debt is added in accordance with what is provided in letter b) of number 1 of article 299º and in article 301º of the General Law and the regulations established by this Superintendence;
2.3 The profits of previous years and of the current year are added, prior to the declaration referred to in article 187º of the General Law;
2.4 The amount of any investment made in subordinated debt of insurance companies in the country or abroad is subtracted;
2.5 The amount of any investment in shares representing the social capital of insurance companies in the country or abroad is subtracted;
2.6 The amount of goodwill or commercial credit (goodwill) resulting from the reorganization of the company, as well as from the acquisition of investments, is subtracted;
2.7 The losses of previous years and of the current year are subtracted; and
2.8 Any deficit of provisions resulting from the valuation of assets is deducted."

Article Third.- Modify Annex 1 "Effective Equity" of the Regulation on Capital Requirements of Insurance and Reinsurance Companies approved by SBS Resolution No. 764-2001 of October 15, 2001, according to Annex 2 attached to this Resolution.

Article Fourth.- Report No. 2 – Annex B "Summary of Risk-Weighted Assets and Contingent Credit Risks and Capital Requirements for Market Risks" as well as Report No. 3 "Effective Equity" will be sent to this Superintendence, in addition to the printed form, through the External Capture and Validation Sub-module (SUCAVE).

Article Fifth.- This Resolution enters into force from the submission of the information corresponding to December 31, 2005, with the exception of what is provided in Article Fourth which enters into force from the submission of the information corresponding to the month of January 2006.

Register, communicate and publish.

JUAN JOSÉ MARTHANS LEÓN
Superintendent of Banks, Insurance and Private Pension Fund Administrators

ANNEX 1
Modify Chapter V "Annexes and Reports to Financial Statements" of the Accounting Manual, according to the following:

1. Modify in Report No. 2 - Annex A "Risk-Weighted Assets and Contingent Credits", in assets with 100% weighting the following:

8. Intangible Assets: Amortizable Expenses Except goodwill

2. Incorporate into the last line of Report No. 3 "Effective Equity", as detailed below:

ACCOUNTS OF
ACCOUNTING
MANUAL
Name
AMOUNT S/. COMMENTS -
OBSERVATIONS
:
:
Less:
(1904.07 – 1904.09.07) +
17 (p)
(Goodwill)

Goodwill resulting from the reorganization of the company, as well as from the acquisition of investments. The balance of pending amortization must be considered. (Number 8 of article 185° of the General Law) (p) Part corresponding to the accounts of item 17 "Permanent Investments" in which the unamortized balance of goodwill resulting from the acquisition of investments is recorded.

ANNEX 2
ANNEX 1
EFFECTIVE EQUITY
(ARTICLE 299º - LAW Nº 26702)
INSURANCE COMPANY : ......
TO ..... OF ...... OF ......
ACCOUNTING
CODES
CONCEPTS BRANCHES
GENERAL S/.
LIFE BRANCHES
S/.
CONSOLIDATED
TOTAL
S/.
COMMENTS
OBSERVATIONS

A. 3001 + 3002

• 3008 +
  Paid-in Capital
  31 + Additional Capital
  3301 + Legal Reserves
  3302 + Facultative Reserves
  3303 Released Shares

B. 2101.00.02 +
2102.00.02 +
2103.00.02 +
2104.00.02 +
2105.02.01 +
2108.01.02 +
2108.05.01
Subordinated Debt - computable portion
According to article 299º.
Record in the "Amount" column the balance registered in row G of
Annex No. 2 Subordinated debt
assigned to effective equity, according to what is established in the Regulation on Subordinated Debt.

C. 3801.01 + Undistributed Profits Prior to the declaration referred to
3803.01 Profit of the exercise Prior to the declaration referred to
art. 187º art. 187º

SUB – TOTAL

Less:

D. Amount of any investment made in subordinated debt of insurance companies in the country and abroad According to the information contained in Annexes 4 and 5 of the information on investments - SBS Resolution No. 039-2002 1

E. Amount of any investment in shares representing the social capital of insurance companies in the country and abroad. According to the information contained in Annex 6 of the information on investments - SBS Resolution No. 039-2002 1

F 1901.02 +
1908.01.02 –
1909.02 1
Amount of commercial credit goodwill by reorganization of the company, as well as by the acquisition of investments. Law No. 28184.

G. 3802 + Accumulated Losses
3803.02 Loss of the exercise In case the year's result, to
date, is negative
H. Deficit of provisions resulting from asset valuation

EFFECTIVE EQUITY A + B + C - D - E - F - G - H

1 Errata published on 09-02-2006

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GENERAL MANAGER
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GENERAL ACCOUNTANT