SBS Resolution No. 2239-2021: Modification of Circular regarding technical reserves for disability, survival, and burial expense insurance in the Private Pension System

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511) 630-9000 Lima, July 30, 2021 S.B.S. Resolution No. 2239 -2021 The Superintendent of Banking, Insurance, and Private Pension Fund Administrators

CONSIDERING:

That, Article 306 of the General Law of the Financial System and of the Insurance System and Organic Law of the Superintendency of Banking and Insurance, Law No. 26702 and its amendments, hereinafter referred to as the General Law, establishes that insurance and/or reinsurance companies must constitute technical reserves monthly, which correspond to the best estimate of their obligations towards policyholders and/or beneficiaries arising from the underwriting of insurance contracts;

That, Article 347 of the General Law establishes that the Superintendency's purpose is to safeguard the interests of the public, ensuring the economic and financial solidity of companies subject to its control;

That, Circular No. S-603-2003 regarding Technical Reserves for Disability, Survival, and Burial Expense Insurance of the Private Pension System (PPS), establishes, among other aspects, the calculation of the reserve rate referred to in Circular No. S-601-2003;

That, through SBS Resolution No. 6394-2016, the Regulation of the Reserve for Risks in Course was approved, which establishes, among other provisions, the methodology for calculating the Reserve for Premium Insufficiency (RIP) and the guidelines that insurance and/or reinsurance companies must follow;

That, through SBS Resolution No. 1856-2020, the Regulation of the Technical Reserve for Claims was approved, which incorporates improvements in the guidelines and procedures for calculating the best estimate of the technical reserve for claims, including the reserve for incurred but not reported claims (IBNR);

That, through Supreme Decree No. 044-2020-PCM, published on March 15, 2020, a State of National Emergency was declared as a consequence of the COVID-19 outbreak, which has been extended until the present. The COVID-19 pandemic has increased the number of claims for those insurances covering mortality risk; in this sense, in order to mitigate the impact of excess mortality caused by the pandemic on insurance and/or reinsurance companies, it is pertinent to apply the following measures: i) modify the calculation methodology of the reserve rate used for calculating the technical reserve for disability, survival, and burial expense insurance of the PPS; ii) modify the calculation methodology of the RIP for the risk grouping of short-term group or individual life insurances; and iii) incorporate

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511) 630-9000 adjustment percentages for the constitution of the IBNR reserve for those life insurance risks, other than annuity insurances, and medical assistance;

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

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

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

RESOLVES:

Article First.- Modify numeral 2.2 of the general provisions of Circular No. S-603-2003, with reference to the technical reserves for disability, survival, and burial expense insurance of the Private Pension System, in the following terms:

“2.2. The interest rate applicable for the calculation of technical reserves is called the “Reserve Rate”, and is determined monthly by this Superintendency and for each currency.
This rate is calculated as the average of the discount rates referred to in Circular No. S-601-2003, of the last twelve (12) months, including that of the current month.”

Article Second.- Modify paragraph 6.2.1 of the Regulation of the Reserve for Risks in Course, approved by SBS Resolution No. 6394-2016 and its modifying norms, in the following terms:

“6.2.1 The information to be considered for the calculation of the RIP corresponds to the last twenty-four (24) months (reference period); except for the following risk groupings:
a) “Civil Liability” and “Credit and Bonds”, where said period is forty-eight (48) months; b) “Short-term group or individual life insurances (with validity less than or equal to one year)”, where the RIP must be calculated considering the most favorable scenario of: i) information from the last twenty-four (24) months, or ii) information from the last forty-eight (48) months.”

Article Third.- Incorporate the Fourth and Fifth Supplementary and Transitional Provisions to the Regulation of the Technical Reserve for Claims, approved by SBS Resolution No. 1856-2020, in the following terms:

“Fourth.- Gradual recognition of the IBNR reserve for life insurances other than annuities, and medical assistance

Companies may gradually constitute the gross, ceded, and net IBNR reserve for the following risk codes from Chapter II of the Accounting Plan for companies in the insurance system:
medical assistance (64), long-term individual life (71), particular group life (72), workers' law life (73), decennial insurance (74), long-term burial (79), short-term individual life (80),

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511) 630-9000 short-term burial (81), ex-workers' law life (82), and pension insurances for disability (91), survival (92), and burial (93).

The gradual recognition of the IBNR reserve consists of applying a minimum percentage to the estimate of the gross, ceded, and net IBNR reserve over a period of two (2) years. This percentage starts at sixty percent (60%) for the month of July 2021, and increases (linearly) with monthly frequency until completing 100% from the month of July 2023, according to what is established below.

Month
Minimum Percentage of
Constitution of the
IBNR Reserve
Jul-21 60.00%
Aug-21 61.67%
Sep-21 63.33%
Oct-21 65.00%
Nov-21 66.67%
Dec-21 68.33%
Jan-22 70.00%
Feb-22 71.67%
Mar-22 73.33%
Apr-22 75.00%
May-22 76.67%
Jun-22 78.33%
Jul-22 80.00%
Aug-22 81.67%
Sep-22 83.33%
Oct-22 85.00%
Nov-22 86.67%
Dec-22 88.33%
Jan-23 90.00%
Feb-23 91.67%
Mar-23 93.33%
Apr-23 95.00%
May-23 96.67%
Jun-23 98.33%
From Jul-23 onwards 100.00%

Companies that voluntarily adhere to the gradual recognition of the IBNR reserve for the aforementioned risks must consider that the table above contains minimum percentages and that companies may constitute the IBNR reserve above these. Likewise, they must take into account that July 2023 is the maximum date to recognize 100% of said reserve.

Companies that adhere to the gradual recognition of the IBNR reserve for the aforementioned risks must disclose this in notes to their Financial Statements, indicating, at a minimum, the total estimate of the gross, ceded, and net IBNR reserve as well as the amount recognized

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511) 630-9000 accountingly at the date of preparation of the financial information. Disclosures must be made during the time they are applying this gradual recognition of the IBNR reserve.

Regarding ceded IBNR, this must consider the application of the cession percentage of reinsurance contracts in force at the estimation date on the amount of the IBNR reserve considering the previously mentioned gradual recognition, being recorded in the corresponding accounts.

Through Multiple Letter, the Superintendency may request information that allows monitoring of compliance with the detailed schedule.

The release of IBNR reserves that occurs due to the application of the gradual recognition of IBNR affects the result of the fiscal year.

The gradual recognition of the IBNR reserve applies as an exception to what is established in article 7.2 of this Regulation, during the period established in the schedule for companies managing risks 91, 92, and 93 of SISCO 4 and SISCO 5.

Fifth.- Information on voluntary adherence to the gradual recognition of the IBNR reserve for life insurances other than annuities, and medical assistance

Companies that decide to adhere to the gradual recognition of the IBNR reserve under the terms indicated in the Fourth Final and Transitional Provision of this Regulation must communicate this previously to the Superintendency, specifying the start month, the risk codes to which the measure will apply, and whether they will apply the minimum percentage or some higher percentage. In case a company adheres on a date subsequent to the start of application of the measure (July 2021), the minimum percentage of constitution of the IBNR reserve to be considered initially is the one in effect in the month of adherence.

Companies wishing to apply the gradual recognition must send to the Superintendency the Board Agreement or equivalent body, in which the commitment to capitalize profits obtained during the period in which this measure is applied is stated, for at least an amount equivalent to the unconstituted net IBNR reserve.

Likewise, companies adopting the measure must consider applying it as part of the points to be addressed in the quarterly report on the calculation of technical reserves for claims mentioned in article 8° of this Regulation.”

Article Fourth.- This resolution enters into force the day following its publication in the official newspaper “El Peruano”.

Register, communicate, and publish.

MARIA DEL SOCORRO HEYSEN ZEGARRA
SUPERINTENDENT OF BANKING, INSURANCE, AND AFP

Los Laureles Nº 214 - Lima 27 - Perú Telf. : (511) 630-9000