Lima, 17 March 2010

S.B.S. Resolution No. 2507-2010

The Superintendent of Banking, Insurance and
Private Pension Fund Administrators:

CONSIDERING:

That, pursuant to Article 347° of the General Law of the Financial System and the Insurance System and Organic Law of the Superintendent of Banking and Insurance, Law No. 26702 and its amendments, hereinafter the General Law, it is the responsibility of the Superintendent to defend the interests of the public, safeguarding the economic and financial soundness of the natural and legal persons subject to its control, for which purpose it is necessary for supervised companies to have a risk control system that enables them to identify, measure, control and report the risks they face in their operations.

That, by SBS Resolution No. 037-2008, the Risk Management Regulations were approved, which incorporate provisions that take into consideration, among other documents, the Enterprise Risk Management Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), applicable to the set of supervised companies;

That, within this framework, it is considered necessary to approve measures for the measurement of exchange rate risk to which insurance system companies are exposed, as well as to set limits on the overall overbought and oversold position in foreign currency;

That, in order to gather the opinions of the general public regarding the proposed amendments to the regulations of the Insurance System, the pre-publication of the draft resolution establishing the measurement of exchange rate risk was arranged on the Superintendent's electronic portal, pursuant to the provisions of Supreme Decree No. 001-2009-JUS;

In view of the opinions expressed by the Deputy Superintendents of Insurance, Risks, Economic Studies, and Legal Advisory;

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

RESOLVES:

Article First.- To approve the Regulation on the measurement of exchange rate risk in insurance companies, in accordance with the following text:

"REGULATION ON THE MEASUREMENT OF EXCHANGE RATE RISK IN INSURANCE COMPANIES

CHAPTER I GENERAL ASPECTS

Article 1°.- Scope

This Regulation applies to the companies included in letter D of Article 16° of the General Law of the Financial System and the Insurance System and Organic Law of the Superintendent of Banking and Insurance, Law No. 26702, hereinafter companies.

Article 2°.- Definitions

For the purposes of this Regulation, the following definitions shall apply:

a) Long position: A position that represents a current, future or optional right for the companies.

b) Short position: A position that represents a current, future or optional obligation for the companies.

c) Overall oversold position: The negative balance of the overall position.

d) Overall overbought position: The positive balance of the overall position.

e) Financial derivative product: As defined in the Regulation for the trading and accounting of financial derivative products in insurance companies, approved by SBS Resolution No. 514-2009 of 30 January 2009.

f) Exchange rate risk: The possibility of losses arising from fluctuations in exchange rates.

g) Superintendent: The Superintendent of Banking, Insurance and Private Pension Fund Administrators.

Article 3°.- Responsibility of the companies

The companies shall adequately identify, measure, control and report the level of exchange rate risk they face. Likewise, it shall be the responsibility of the Board of Directors to approve policies and procedures for the management of such risk and to ensure that Management adopts the necessary measures to monitor and control this risk.

Article 4°.- Information to the Superintendent

The companies shall submit to the Superintendent within the fifteen (15) calendar days following the close of each month, through the external capture and validation submodule –SUCAVE, the following annexes:

i) Annex ES-19A1: Measurement of exchange rate risk.

ii) Annex ES-19B1: Position in United States dollars.

CHAPTER II MEASUREMENT OF EXCHANGE RATE RISK

Article 5°.- Exchange rate risk measurement indicator

Without prejudice to the methodologies implemented for the calculation of exchange rate risk, the companies shall estimate an exchange rate risk measurement indicator, in accordance with the following instructions:

a) The overall position for each currency shall be taken.

b) The overall long positions and the overall short positions of all currencies shall be summed separately, in order to obtain an aggregate long position and a short one.

c) The following factors shall be applied:

[1] Annex numbering amended by SBS Resolution No. 2842-2012 of 11-05-2012.

i) 4.0% to the absolute value of the largest aggregate overall position (long or short), to obtain exchange rate risk measurements for horizons of ten (10) days;

ii) 5.9% to the absolute value of the largest aggregate overall position (long or short), to obtain exchange rate risk measurements for horizons of one (01) month; and,

iii) 20% to the absolute value of the largest aggregate overall position (long or short), to obtain exchange rate risk measurements for horizons of one (01) year.

d) The results obtained shall be expressed as a percentage of 35% of the solvency equity.

The calculation of the exchange rate risk measurement indicator shall be included in Annex ES-19A1.

Article 6°.- Calculation of the overall position in foreign currency

The overall position in each foreign currency shall be calculated as the sum of the following components:

a) The balance sheet exchange position: The difference between total assets and total liabilities held in each currency.

b) The net position in financial derivative products: The difference between the accounting balance of long positions and the accounting balance of short positions in forwards, futures, swaps and other financial derivative instruments of currencies.

Article 7°.- Limit on the overall position in United States dollars.2

Companies shall calculate their overall position in United States dollars daily as a percentage of effective equity. The monthly average of this percentage must comply with the following limits:

a) The overall short position in United States dollars may not exceed ten percent (10%) of effective equity.

b) The overall long position in United States dollars may not exceed fifty percent (50%) of effective equity.

For the daily calculation of this percentage, methodologies and assumptions may be established to estimate assets and liabilities that, by their nature, are not subject to an exact calculation on a daily basis. The methodologies and assumptions must be duly documented and approved by the Board of Directors, and must be submitted to the Superintendency upon the entry into force of this Regulation. Changes to the methodologies and assumptions must be substantiated and communicated to the Superintendency within the next five (05) calendar days of the date on which they were approved.

Companies shall establish internal limits for overall positions in currencies other than the United States dollar.

TRANSITIONAL PROVISION

Sole.- Adaptation period for the application of the limits on the overall position in United States dollars

Companies, in order to comply with the limits on the overall position in United States dollars established in article 7°, shall have an adaptation period until 30 November 2010.”

[1] Annex numbering modified by SBS Resolution N° 2842-2012 of 11-05-2012.

[2] Article modified by SBS Resolution N° 5026-2017 of 27-12-2017

Article Second.- Approve Annexes ES-19A1, Measurement of Exchange Rate Risk, and ES-19B1, Position in United States Dollars, which shall be published on the Institutional Portal (www.sbs.gob.pe), in accordance with the provisions of Supreme Decree N° 001-2009-JUS.

Article Third.- Amend section II, insurance and/or reinsurance companies, of the annex on scheduled activities for insurance and reinsurance companies of the Internal Audit Regulation, approved by SBS Resolution Nº 11699-2008, in accordance with the following instructions:

Amend items 1) and 16) and include item 17), in accordance with the following texts:

" II. INSURANCE AND/OR REINSURANCE COMPANIES:

1) Evaluation of the management of risks other than technical insurance risks, which include operational, market, credit risk, among others; as well as evaluation of compliance with the procedures used for the identification, measurement, control and reporting of such risks.

…

16) Evaluation of compliance with the regulatory limits established by the Superintendency.

17) Evaluation of the quality of the information presented to the Superintendency on financial statements and accounting information (forms, annexes, reports and statements) required by the rules issued by the Superintendency.”

Include as the last paragraph in the aforementioned Section II the following text:

“The other examinations and reports that companies must periodically carry out in accordance with the current provisions of this Superintendency.”

Article Fourth.- Modify annex 3 of the Sanctions Regulation, approved by Resolution SBS N° 816-2005, referring to specific infractions of the Insurance System, in accordance with the following indications:

Add the following classification in the section on Serious Infractions:

" 22 B) Failure to comply with the limits to the global position in foreign currency approved by the Regulation for the measurement of foreign exchange risk in companies of the insurance system.”

Article Fifth.- This resolution shall enter into force as of 01 July 2010.

FELIPE TAM FOX
Superintendent of Banking, Insurance and
Private Administrators of Pension Funds

ANNEX ES-19A MEASUREMENT OF FOREIGN EXCHANGE RISK On……. of ….. of….. Expressed in nuevos soles

Company:……………………………………………………………………………

I. EXPOSURE IN FOREIGN CURRENCY

Exchange position Net position Position
Assets Liabilities of the balance sheet in FC in derivatives global in FC (a) (b) (a) + (b) Long Short Long Short of FC x (1) x (2) x (3) x (4) x (5) (6) = (2+3+4+5) (7)=(1+6) Position in other financial products derived from FC Currencies Position in forward of FC American dollar Euro Japanese yen Pound Sterling Canadian dollar Swiss franc Danish krone Norwegian krone Swedish krona Real Boliviano Chinese yuan Mexican peso Australian dollar Chilean peso Colombian peso Other currencies TOTAL ME

II. EXCHANGE RISK MEASUREMENT INDICATOR

Amount / 35% of solvency equity
Concept Factor Amount
Largest aggregate global position in currencies A Exchange risk 10 days 4.0% B Monthly exchange risk 5.9% C Annual exchange risk 20.0% D

Annex amended by SBS Resolution No. 438-2013 of 21-01-2013

METHODOLOGICAL NOTES TO ANNEX ES-19A1

EXCHANGE RISK MEASUREMENT

1. Treatment of currency positions

This section describes the procedure for recording the positions arising from certain types of financial instruments in Annex No. ES-19A1. It must be determined whether each of these positions is long or short, in accordance with the position assumed with respect to the respective underlying asset. For the purposes of this annex, the recording of currency positions must be expressed in nuevos soles, using for that purpose the accounting exchange rate corresponding to the date of the annex. In the case of currency options, the Superintendency shall determine by Circular the methodology for including them in the calculation of the exchange risk measurement indicator.

a) Currency forwards and futures: They must be treated as two positions, one in the currency received (long position) and another in the currency delivered (short position), for an amount equivalent to the accounting balance.

b) Currency swaps: They must be treated as two positions, one in the currency received (long position) and another in the currency delivered (short position), for an amount equivalent to the accounting balance.

2. Positions in foreign currency

For the calculation of positions in foreign currency, the following procedure must be applied:

a) In column (1), the balance exchange position in foreign currency must be recorded, which is defined as the difference between total assets and total liabilities, for each of the currencies. The results must be recorded with the corresponding sign (+ or -). Previously, total assets must be recorded in column (a), and total liabilities in column (b). Liabilities must be recorded with a negative sign (-).

b) The amount in column (2) must be equal to the sum of the accounting balances of the long positions in forwards, for each of the currencies.

c) The amount in column (3) must be equal to the sum of the accounting balances of the short positions in forwards, for each of the currencies. The results must be recorded with a negative sign (-).

d) The amount in column (4) must be equal to the sum of the accounting balances of the long positions in futures, swaps and other financial derivative products of currencies, for each of the currencies.

e) The amount in column (5) must be equal to the sum of the accounting balances of the short positions in futures, swaps and other financial derivative products of currencies, for each of the currencies. The results must be recorded with a negative sign (-).

[1] Annex numbering amended by SBS Resolution No. 2842-2012 of 11-05-2012.

f) In column (6), the net position in financial derivative products must be recorded, which will be equal to the difference between the sum of the long positions and the sum of the short positions in said products. The results must be recorded with the corresponding sign (+ or -).

g) In column (7), the global position for each currency must be recorded, which will be equal to the sum of the balance exchange position (column 1) and the net position in financial derivative products (column 6). The results must be recorded with the corresponding sign (+ or -).

h) Next, the aggregate global position in currencies must be calculated. This position is defined as the maximum between the absolute value of the sum of the long global positions and the absolute value of the sum of the short global positions. The result must be recorded in cell A.

Max(PLi , PCi)

3. Exchange risk measurement

a) Factors of 4.0%, 5.9% and 20.0% shall be applied to the aggregate global position in currencies, to obtain exchange risk measurements for horizons of 10 days, one month and one year, respectively. The results must be recorded in cells B, C and D, as applicable.

b) Finally, the results obtained in the previous step must be expressed as a percentage of 35% of the solvency equity.

ANNEX No. ES-19B1 POSITION IN UNITED STATES OF AMERICA DOLLARS (USD) As of ….. of ….. of ….. Expressed in nuevos soles

Day	Balance exchange position in USD	Global position in USD	Global position in USD / Effective equity
(1)	(2)	(3)	(4)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
Monthly average

[1] Annex numbering modified by Resolution SBS N° 2842-2012 of 11-05-2012.

METHODOLOGICAL NOTES OF ANNEX N° ES-19B1

POSITION IN UNITED STATES DOLLARS

This section describes the procedure for recording the daily evolution of the position in United States dollars in Annex N° ES-19B1. For the purposes of this annex, the recording of positions in United States dollars must be expressed in nuevos soles, using for this purpose the accounting exchange rate of the corresponding day.

For the recording of the position in United States dollars, the following procedure must be applied:

a) Column (1) corresponds to the calendar day of the corresponding month. Only columns (2), (3) and (4) must be filled in for rows corresponding to business days; otherwise they must be left blank.

b) Column (2) must record the balance sheet exchange position in United States dollars. The results must be recorded with the corresponding sign (+ or -).

c) Column (3) must record the overall position in United States dollars. The results must be recorded with the corresponding sign (+ or -).

d) Column (4) must express the overall position in United States dollars as a percentage of effective equity.

e) The effective equity shall correspond to that of the month prior to the month of calculation.

f) The monthly average shall be calculated as the average of the result obtained on the business days of the month.