SBS Resolution No. 603-2016: Amending Regulations on Capital Instruments and Solvency Requirements and Approving Other Measures

Lima, February 3, 2016
SBS Resolution
No. 603-2016
The Superintendent of Banking, Insurance, and Private Pension Fund Administrators

CONSIDERING:

That, item 2 of letter A of Article 184 of the General Law of the Financial System and of the Insurance System and the Organic Law of the Superintendence of Banking and Insurance, Law No. 26702 and its modifying norms, hereinafter the General Law, includes as elements of basic equity or level 1 equity of financial system companies, profits from previous and current fiscal years that have a capitalization agreement;

That, the last paragraph of Article 184 of the General Law establishes that the Superintendence will regulate the additional requirements that the components of the effective equity of financial system companies must meet;

That, Article 299 of the General Law establishes that for the determination of eligible effective equity to cover insurance and/or reinsurance risks, profits from previous and current fiscal years that have a capitalization agreement are considered;

That, it is necessary to establish requirements for capitalization agreements to be considered for the computation of effective equity, requirements for the computation of legal reserves and discretionary reserves in effective equity, as well as to establish prudential measures when capitalization agreements are not implemented within the established timeframes;

That, likewise, it is necessary to modify Report No. 3 "Effective Equity" of the Accounting Manual for financial system companies and Annex No. ES-7 "Effective Equity" corresponding to insurance and reinsurance companies;

That, additionally, it is considered convenient to make modifications to the Regulation on the computation of capital instruments in the effective equity of financial system companies, approved by SBS Resolution No. 4595-2009; to the Regulation on solvency requirements of insurance and reinsurance companies, approved by SBS Resolution No. 1124-2006 and its modifying norms; to the Regulation on Classification and Valuation of Investments of Financial System Companies, approved by SBS Resolution No. 7033-2012; to the Regulation on Classification and Valuation of Investments of Insurance Companies, approved by SBS Resolution No. 7034-2012; to the Sanctions Regulation, approved by SBS Resolution No. 816-2005 and its modifying norms; as well as to the Regulation for the requirement of additional effective equity, approved by SBS Resolution No. 8425-2011 and its modifying norms;

That, in order to collect opinions from the general public regarding the proposed modifications to the regulations, the draft Resolution on the matter was published on the Superintendence's electronic portal, 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 Deputy Superintendents of Banking and Microfinance, Insurance, Risks, Economic Studies, and Legal Advisory; and,

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

RESOLVES:

Article First.- Modify the "Regulation on the computation of capital instruments in the effective equity of financial system companies", approved by SBS Resolution No. 4595-2009, according to the following:

1. Modify the name of the Regulation to the following: "Regulation on the computation of reserves, profits, and capital instruments in the effective equity of financial system companies".

2. Modify Article 1 "Scope" in accordance with the following:

"Article 1.- Scope
This norm applies to companies included in letters A, B, and C of Article 16 of the General Law, to the National Bank, to the Development Financial Corporation (COFIDE), to the Agricultural Bank, and to the MIVIVIENDA S.A. Fund, hereinafter companies."

3. Incorporate as items 8 and 9 of Article 2 "Definitions" the following:

"Article 2.- Definitions
For the purposes of this regulation, the following definitions shall be considered:
(...)
8. Profit capitalization agreement: Agreement of the General Shareholders' Meeting or other equivalent body to capitalize the entire or part of the profits obtained in the last fiscal year or in previous fiscal years. The profits (of the last fiscal year or of previous fiscal years) are determined based on audited Financial Statements (with a favorable or unqualified opinion) and approved by the General Shareholders' Meeting or other equivalent body.

9. Future profit capitalization agreement: Agreement of the General Shareholders' Meeting or other equivalent body or other competent body, by which it is committed that the entire or part of the profits generated in the current fiscal year will be capitalized once said current fiscal year ends. The aforementioned agreement can only be modified when it implies an increase in the amount of profits to be capitalized or when authorization from the Superintendence is obtained. At the end of the current fiscal year and once the audited Financial Statements (with a favorable or unqualified opinion) are approved, the aforementioned agreement, due to its irrevocable nature, must be ratified through a capitalization agreement of the amount of profits obtained, adopted by the General Shareholders' Meeting or other equivalent body. The maximum deadline for ratification is March 31 of the year following the current fiscal year, unless the Superintendence grants an extension."

10. Incorporate as Article 12 "Delegation of powers to commit future profit capitalization" the following text:

"Article 12.- Delegation of powers to commit future profit capitalization The General Shareholders' Meeting or other equivalent body may delegate to the Board of Directors or other equivalent body the power to commit the capitalization of future profits for purposes of their computation in effective equity."

5. Incorporate as Article 13 "Profits computable in effective equity" the following text:

"Article 13.- Profits computable in effective equity For profits from previous and current fiscal years to be included in the computation of effective equity, the following must be met:
a. There must be a profit capitalization agreement or a future profit capitalization agreement, as applicable. b. The agreement must be submitted to the Superintendence within a maximum of ten (10) business days, counted from the date of adoption of the agreement.
c. In the case of profits from previous fiscal years, the profit capitalization agreement must indicate the amount of profits and the timing of implementation, taking into account the maximum permitted deadlines.
d. In the case of profits from the current fiscal year, the future profit capitalization agreement must indicate the amount or percentage of profits and the timing of implementation, taking into account the maximum permitted deadlines. e. In the case of profits from previous fiscal years, the profit capitalization agreement must be adopted based on audited Financial Statements with a favorable or unqualified opinion. Capitalization agreements for profits from previous fiscal years cannot be taken based on unaudited Financial Statements or audited Financial Statements without a favorable opinion or with qualifications."

6. Incorporate as Article 14 "Deadlines for implementing the profit capitalization agreement or future profit capitalization agreement" the following text:

"Article 14.- Deadlines for implementing the profit capitalization agreement or future profit capitalization agreement The profit capitalization agreement must be implemented within a maximum of sixty (60) calendar days, counted from the date of adoption of the agreement. Implementation of the agreement is understood as compliance with all formalities required by current regulations to register the capital increase in the corresponding records. The future profit capitalization agreement, after its ratification, must be implemented within a maximum of sixty (60) calendar days. The Superintendence may extend the implementation deadline at the request of the company, provided it submits supporting documentation."

7. Incorporate as Article 15 "Prudential measures applicable for non-implementation of profit capitalization agreements" the following text:

"Article 15.- Prudential measures applicable for non-implementation of profit capitalization agreements When the company does not implement a profit capitalization agreement or future profit capitalization agreement within the timeframe provided in Article 14 of this regulation, said agreement ceases to be considered for purposes of computing effective equity, and the company cannot distribute dividends until it is implemented or until the Superintendence authorizes it. Likewise, the Superintendence has the power to prohibit said company from including any profit capitalization agreement until it has been implemented, or any future profit capitalization agreement, in the computation of its effective equity for a period of two (2) years, counted from the expiration of the deadline by which the agreement should have been implemented. If within the five (5) years following the non-implementation of a profit capitalization agreement or future profit capitalization agreement, within the established timeframe, the company repeats this conduct, the Superintendence has the power to prohibit said company from including any profit capitalization agreement for a period of five (5) years, counted from the expiration of the deadline to implement the last agreement. The prudential measures indicated in this article do not apply when the company that has a future profit capitalization agreement ultimately obtains losses or profits lower than those it had committed to capitalize. If there are profits lower than those indicated in the future profit capitalization agreement, only the committed profits that were actually obtained can be computed in effective equity. Likewise, the prudential measures do not apply when the non-implementation of the agreements was due to events beyond the company's control, to the satisfaction of the Superintendence."

8. Incorporate as Article 16 "Legal Reserves Computable in Effective Equity" the following text:

"Article 16.- Legal Reserves Computable in Effective Equity Legal reserves constituted by agreement of the General Shareholders' Meeting or equivalent body based on audited Financial Statements (with a favorable or unqualified opinion) and approved are computable in effective equity. Such legal reserves must be determined in accordance with current provisions. Additionally, during a current fiscal year, the company may compute in effective equity 10% of the profits, as legal reserve referred to in Article 67 of the General Law. Any future profit capitalization agreement will be calculated on profits after considering this legal reserve. In the specific case of Municipal Savings and Credit Banks and Popular Credit Municipal Banks, future capitalization agreements will be calculated on profits after considering the legal reserve referred to in the General Law and the special legal reserves indicated in the regulations applicable to them."

9. Incorporate as Article 17 "Discretionary Reserves Computable in Effective Equity" the following text:

"Article 17.- Discretionary Reserves Computable in Effective Equity Discretionary reserves constituted by agreement of the General Shareholders' Meeting or equivalent body based on audited Financial Statements (with a favorable or unqualified opinion) and approved are computable in level 1 effective equity, provided they can only be reduced with the prior consent of the Superintendence. Discretionary reserves other than those indicated in the previous paragraph, constituted by agreement of the General Shareholders' Meeting or equivalent body based on audited Financial Statements (with a favorable or unqualified opinion) and approved, are computable in level 2 effective equity. The discretionary reserves referred to in this paragraph cannot be reduced if such reduction generates non-compliance with the global capital ratio and/or the additional effective equity requirement."

10. Incorporate as Article 18 "Capital in Process Computable in Effective Equity" the following text:

"Article 18.- Capital in Process Computable in Effective Equity Capital in process is computed in effective equity. Capital in process corresponds to capital increases approved by the General Shareholders' Meeting or equivalent body, which have been paid but are in the process of registration in the Public Registries. The deadline for registration in the Public Registries is sixty (60) calendar days. Once the deadline has expired without registration having been made, the aforementioned capital in process will not be computable in effective equity. The deadline referred to in the previous paragraph may be extended by the Superintendence at the request of the company."

Article Second.- Modify the "Regulation on solvency requirements of insurance and reinsurance companies", approved by SBS Resolution No. 1124-2006 and its modifying norms, according to the following:

1. Modify item 2.3 of Article 2 "Determination", according to the following text:

"2.3 The profits from previous and current fiscal years that have a profit capitalization agreement or future profit capitalization agreement, as applicable, are added."

2. Incorporate as Article 2-A "Delegation of powers to increase capital" the following text:

"Delegation of powers to increase capital
Article 2-A.-
The General Shareholders' Meeting or other equivalent body may delegate to the Board of Directors or other equivalent body the power to commit the capitalization of future profits for purposes of their computation in effective equity."

3. Incorporate as Article 2-B "Profits Computable in Effective Equity" the following text:

"Profits Computable in Effective Equity
Article 2-B.-
The profit capitalization agreement is the agreement of the General Shareholders' Meeting or other equivalent body to capitalize the entire or part of the profits obtained in the last fiscal year or in previous fiscal years. The profits (of the last fiscal year or of previous fiscal years) are determined based on audited Financial Statements (with a favorable or unqualified opinion) and approved by the General Shareholders' Meeting or other equivalent body. On the other hand, the future profit capitalization agreement is an agreement of the General Shareholders' Meeting or other equivalent body or other competent body to whom powers have been delegated, by which it is committed that the entire or part of the profits generated in the current fiscal year will be capitalized once said current fiscal year ends. The aforementioned agreement can only be modified when it implies an increase in the amount of profits to be capitalized or when authorization from the Superintendence is obtained. At the end of the current fiscal year and once the audited Financial Statements (with a favorable or unqualified opinion) are approved, the aforementioned agreement, due to its irrevocable nature, must be ratified through a capitalization agreement of the amount of profits obtained, adopted by the General Shareholders' Meeting or other equivalent body. The maximum deadline for ratification is March 31 of the year following the current fiscal year, unless the Superintendence grants an extension. For profits from previous and current fiscal years to be included in the computation of effective equity, the following must be met:
a. There must be a profit capitalization agreement or a future profit capitalization agreement, as applicable. b. The agreement must be submitted to the Superintendence within a maximum of ten (10) business days, counted from the date of adoption of the agreement.
c. In the case of profits from previous fiscal years, the profit capitalization agreement must indicate the amount of profits and the timing of implementation, taking into account the maximum permitted deadlines.
d. In the case of profits from the current fiscal year, the future profit capitalization agreement must indicate the amount or percentage of profits and the timing of implementation, taking into account the maximum permitted deadlines. e. The profit capitalization agreement must be adopted based on audited Financial Statements with a favorable or unqualified opinion. Capitalization agreements for profits cannot be taken based on unaudited Financial Statements or audited Financial Statements without a favorable opinion or with qualifications."

4. Incorporate as Article 2-C "Deadlines for implementing the profit capitalization agreement or future profit capitalization agreement" the following text:

"Deadlines for implementing the profit capitalization agreement or future profit capitalization agreement
Article 2-C.-
The profit capitalization agreement must be implemented within a maximum of sixty (60) calendar days, counted from the date of adoption of the agreement. Implementation of the agreement is understood as compliance with all formalities required by current regulations to register the capital increase in the corresponding records. The future profit capitalization agreement, after its ratification, must be implemented within a maximum of sixty (60) calendar days. The Superintendence may extend the implementation deadline at the request of the company, provided it submits supporting documentation."

5. Incorporate as Article 2-D "Prudential measures applicable for non-implementation of profit capitalization agreements" the following text:

"Prudential measures applicable for non-implementation of profit capitalization agreements
Article 2-D.-
When the company does not implement a profit capitalization agreement or future profit capitalization agreement within the timeframe provided in Article 2-C of this regulation, said agreement ceases to be considered for purposes of computing effective equity, and the company cannot distribute dividends until it is implemented or until the Superintendence authorizes it. Likewise, the Superintendence has the power to prohibit said company from including any profit capitalization agreement until it has been implemented, or any future profit capitalization agreement, in the computation of its effective equity for a period of two (2) years, counted from the expiration of the deadline by which the agreement should have been implemented. If within the five (5) years following the non-implementation of a profit capitalization agreement or future profit capitalization agreement, within the established timeframe, the company repeats this conduct, the Superintendence has the power to prohibit said company from including any profit capitalization agreement for a period of five (5) years, counted from the expiration of the deadline to implement the last agreement. The prudential measures indicated in this article do not apply when the company that has a future profit capitalization agreement ultimately obtains losses or profits lower than those it had committed to capitalize. If there are profits lower than those indicated in the future profit capitalization agreement, only the committed profits that were actually obtained can be computed in effective equity. Likewise, the prudential measures do not apply when the non-implementation of the agreements was due to events beyond the company's control, to the satisfaction of the Superintendence."

6. Incorporate as Article 2-E "Legal Reserves Computable in Effective Equity" the following text:

"Legal Reserves Computable in Effective Equity
Article 2-E.-
Legal reserves constituted by agreement of the General Shareholders' Meeting or equivalent body based on audited Financial Statements (with a favorable or unqualified opinion) and approved are computable in effective equity. Such legal reserves must be determined in accordance with current provisions."

7. Incorporate as Article 2-F "Discretionary Reserves Computable in Effective Equity" the following text:

"Discretionary Reserves Computable in Effective Equity"
Article 2-F°.-
Discretionary reserves established by agreement of the General Shareholders' Meeting or equivalent body, based on audited financial statements (with a favorable or unqualified opinion) and approved, are computable in effective equity. Discretionary reserves may not be reduced if such reduction generates non-compliance with equity requirements."

8. Incorporate as Article 2-G° "Capital in Process Computable in Effective Equity", the following text:
   "Article 2-G°.- Capital in Process Computable in Effective Equity Capital in process is computable in effective equity. Capital in process corresponds to capital increases approved by the General Shareholders' Meeting or equivalent body, which have been paid but are in the process of registration in the Public Registries. The deadline for registration in the Public Registries is sixty (60) calendar days. If the deadline expires without registration having been effected, the aforementioned capital in process will not be computable in effective equity. The deadline referred to in the preceding paragraph may be extended by the Superintendency at the request of the company."

9. Modify the second paragraph of Article 8° regarding the definition of indebtedness, according to the text indicated below:
   "Indebtedness is calculated from the company's total liabilities, determined based on the Statement of Financial Position of the month of the corresponding period, deducting technical reserves considered in liabilities, obligations with insureds arising from insurance contracts, claims against reinsurers when they are not yet due, and those other concepts that by their nature are not considered part of indebtedness, and adding those contingencies, which do not imply credit risk, that had not been registered as liabilities by the companies."

10. Incorporate Annex No. ES-7D "Details of the Calculation of Effective Equity" into Article 10° "Submission of Information". The format of said annex is published on the Institutional Portal (www.sbs.gob.pe) in accordance with what is provided in Supreme Decree No. 001-2009-JUS.

Third Article.- Substitute the description of account 3203 "Capital in Process" of the Accounting Manual for Financial System Companies, approved by SBS Resolution No. 895-98 and modifying norms, with the following:
"Capital in process corresponds to capital increases approved by the General Shareholders' Meeting or equivalent body, which have been paid but are in the process of registration in the Public Registries. The deadline for registration in the Public Registries is sixty (60) calendar days. If the deadline expires without registration having been effected, the aforementioned capital in process will not be computable in effective equity. The deadline referred to in the preceding paragraph may be extended by the Superintendency at the request of the company."

Fourth Article.- Through Annex A attached to this Resolution, which is published on the Institutional Portal (www.sbs.gob.pe) in accordance with what is provided in Supreme Decree No. 001-2009-JUS, the following formats are modified or incorporated:
a. The format of Report No. 3 "Effective Equity" of the Accounting Manual for Financial System Companies, approved by SBS Resolution No. 895-98 and modifying norms, is modified. b. The format of Annex No. ES-7 "Effective Equity" is modified and the format of Annex No. ES-7D "Details of the Calculation of Effective Equity" of the Regulations on Equity Requirements for Insurance and Reinsurance Companies, approved by SBS Resolution No. 1124-2006 and modifying norms, is incorporated.

Fifth Article.- Modify the Sixth Final and Complementary Provision of the Regulations on Classification and Valuation of Investments of Financial System Companies, approved by SBS Resolution No. 7033-2012, as follows:
"Sixth.- Effective Equity and Risk-Weighted Assets Effective Equity The excess of unrealized losses on available-for-sale investments over accumulated profits and current year profit, without an agreement to capitalize profits or an agreement to capitalize future profits, must be deducted from effective equity. In the event that there are no accumulated profits nor current year profit, without an agreement to capitalize profits or an agreement to capitalize future profits, the total of unrealized losses on available-for-sale investments will be deducted from effective equity. Unrealized gains on available-for-sale investments will not form part of effective equity. Risk-Weighted Assets Items or entries that are deducted in the determination of effective equity must not be considered within risk-weighted assets."

Sixth Article.- Modify the Seventh Final and Complementary Provision of the Regulations on Classification and Valuation of Investments of Insurance Companies, approved by SBS Resolution No. 7034-2012, as follows:
"Seventh.- Effective Equity
Effective Equity
The excess of unrealized losses on available-for-sale investments over accumulated profits and current year profit, without an agreement to capitalize profits or an agreement to capitalize future profits, must be deducted from effective equity. In the event that there are no accumulated profits nor current year profit, without an agreement to capitalize profits or an agreement to capitalize future profits, the total of unrealized losses on available-for-sale investments will be deducted from effective equity. Unrealized gains on available-for-sale investments will not form part of effective equity."

Seventh Article.- Modify the Sanctions Regulations approved by SBS Resolution No. 816-2005 and its modifying norms, as follows:

1. Incorporate into Section III "Very Serious Infractions" of Annex 1 "Common Infractions" the following infractions:
   "20) Failing to implement agreements to capitalize profits or agreements to capitalize future profits.

21. Failing to submit the distribution of profits to prior authorization by the Superintendency, when the company has not implemented an agreement to capitalize profits or agreements to capitalize future profits."

Eighth Article.- Modify the first paragraph of Article 16° of the Regulations for the Additional Effective Equity Requirement approved by SBS Resolution No. 8425-2011 and its modifying norms, as follows:
"Article 16°.- Accumulation of Effective Equity over the Economic Cycle When the Rule is Activated When the rule is activated, the company must maintain effective equity superior to the minimum established by the global limit, by the amount obtained by applying the methodology for the effective equity requirement over the economic cycle applicable to it. However, the company may access the benefit of only having to comply with 75% of the effective equity requirement over the economic cycle, provided it has an agreement to capitalize future profits greater than or equal to 50% of the profits generated in the fiscal year. The aforementioned agreement must be sent to the Superintendency. (…)"

Ninth Article.- This regulation shall enter into force on July 1, 2016.
Register, communicate, and publish.
JAVIER MARTÍN POGGI CAMPODÓNICO
Superintendent of Banks, Insurance, and Private Pension Fund Administrators (e)

ANNEX A
Modification of Annexes and Reports of the Accounting Manual for Financial System Companies

1. Modify Report No. 3 "Effective Equity" of the Accounting Manual for Financial System Companies, in the following terms:
   1.1. Incorporate as the last paragraph of "Comments-Observations" in "A. Level 1 Effective Equity – Numeral 3 of Literal A of Article 184°", "B1. Level 2 Effective Equity – Numeral 2 of Literal B of Article 184°" and "B2. Level 3 Effective Equity – Last paragraph of Literal B of Article 184°", the following text:
   "In the case of subordinated instruments, the computation must be made net of treasury subordinated instruments."

1.2. Modify "Numeral 1 of Literal A of Article 184°" as follows:
Numeral 1 of Literal A of Article 184°
3101.01 Common Shares
3101.02 Perpetual Preferred Shares with Non-Accumulative Dividend Right
Plus:
3202.01 Donations
3202.02 Share Premiums - Common Shares
3203.01(p) Share Premiums - Perpetual Preferred Shares with Non-Accumulative Dividend Right 3203.02(p) Capital in Process - Common Shares 3301(p) Capital in Process - Perpetual Preferred Shares with Non-Accumulative Dividend Right 3302(p) Legal Reserve 3303.01(p) Special Legal Reserves

Computable in effective equity is capital in process. Capital in process corresponds to capital increases approved by the General Shareholders' Meeting or equivalent body, which have been paid but are in the process of registration in the Public Registries. The deadline for registration in the Public Registries is sixty (60) calendar days. If the deadline expires without registration having been effected, the aforementioned capital in process will not be computable in effective equity. Legal reserves established by agreement of the General Shareholders' Meeting or equivalent body, based on audited financial statements (with a favorable or unqualified opinion) and approved, are computable in effective equity. Additionally, during an ongoing fiscal year, the company may compute in effective equity 10% of profits, as legal reserve referred to in Article 67° of the General Law. Any future agreement to capitalize profits will be calculated on profits after considering said legal reserve. In the specific case of Municipal Savings and Credit Boxes and Popular Credit Municipal Boxes, future capitalization agreements will be calculated on profits after considering the legal reserve referred to in the General Law and the special legal reserves indicated in the applicable regulations. Discretionary reserves established by agreement of the General Shareholders' Meeting or equivalent body, based on audited financial statements (with a favorable or unqualified opinion) and approved, are computable in Level 1 effective equity, provided they can only be reduced with prior approval of the Superintendency.

1.3. Modify "Numeral 2 of Literal A of Article 184°" as follows:
Numeral 2 of Literal A of Article 184°
Plus:
3801.01 Accumulated Profits with Capitalization Agreement
3901.01 Current Year Net Profit with Capitalization Agreement
Minus:
Agreements that the SBS has required not to consider in Effective Equity.

For accumulated profits and current year net profit to be considered, there must be an agreement to capitalize profits or an agreement to capitalize future profits.
Prudential measures indicated in current regulations apply when the company does not implement an agreement to capitalize profits or an agreement to capitalize future profits.

1.4. Modify "Numeral 3 of Literal A of Article 184°" as follows:
1.4.1. In the line following analytical sub-account 2607.01.03.02(p) "Subordinated", incorporate the following: "2609(p) Reclassifications".
1.4.2. In the line following sub-account 2806.03(p) "Convertible into Shares", incorporate the following:
2809(p) "Reclassifications"
34(p) "Equity Component and Reclassifications".

1.5. Modify "Numeral 4 of Literal A of Article 184°" as follows:
Numeral 4 of Literal A of Article 184°
Minus:
3802.01 (Accumulated Loss)
3802.04(p) or 3802.04 (Unrealized Loss on Available-for-Sale Investments)

Part corresponding to the excess of unrealized losses on available-for-sale investments over accumulated profits and current year profit, without an agreement to capitalize profits or an agreement to capitalize future profits.
In the event that there are no accumulated profits nor current year net profit, without an agreement to capitalize profits or an agreement to capitalize future profits, the total of unrealized losses on available-for-sale investments will be deducted from effective equity.

3902 (Current Year Net Loss)
(Deficit of Provisions) Estimated by the SBS, by External Auditors, or by the company, whichever is higher.

1.6. Modify "Numeral 5 of Literal A of Article 184°" as follows:
1.6.1. Substitute the comments – observations with the following: "Goodwill from business combinations, as well as from the acquisition of investments. The pending amortization balance or the non-impaired balance must be considered, as applicable.
In the case of item 17, the corresponding part of the accounts of said item in which the non-amortized or non-impaired balance of goodwill from the acquisition of investments is registered, as applicable, is recorded."

1.7. Modify the row corresponding to treasury shares in Section A as follows:
1.7.1. In the line following sub-account 3104.09(p) "Other Treasury Shares", incorporate the following:
"Plus or minus:
3204(p) Gains or losses on treasury shares."

1.8. Incorporate as a comment for the row "Numeral 1 of Literal B of Article 184°" of Section B1 as follows:
"Provided that their reduction does not produce non-compliance with the global capital ratio or the additional effective equity requirement."

1.9. Modify the first row of "Numeral 2 of Literal B of Article 184°" of Section B1 as follows:
1.9.1. In the line following analytical sub-account 2607.01.03.02(p) "Subordinated", incorporate the following accounting account: "2609(p) Reclassifications".
1.9.2. In the line following sub-account 2806.03(p) "Convertible into Shares", incorporate the following:
2809(p) "Reclassifications"
34(p) "Equity Component and Reclassifications".

1.10. Modify the second row of "Numeral 2 of Literal B of Article 184°" of Section B1 as follows:
1.10.1. In the line following analytical sub-account 2607.01.03.02(p) "Subordinated", incorporate the following: "2609(p) Reclassifications".
1.10.2. In the line following sub-account 2806.03(p) "Convertible into Shares", incorporate the following:
2809(p) "Reclassifications"
34(p) "Equity Component and Reclassifications".

1.11. Modify the row corresponding to treasury shares in Section B1 as follows:
1.11.1. In the line following sub-account 3104.09(p) "Other Treasury Shares", incorporate the following:
"Plus or minus:
3204(p) Gains or losses on treasury shares."

1.12. Modify the row named "Last paragraph of Literal B of Article 184°" of Section B2 as follows:
1.12.1. In the line following analytical sub-account 2607.01.03.02(p) "Subordinated", incorporate the following: "2609(p) Reclassifications".
1.12.2. In the line following sub-account 2806.03(p) "Convertible into Shares", incorporate the following:
2809(p) "Reclassifications"
34(p) "Equity Component and Reclassifications".

1.13. Modify the row corresponding to treasury shares in Section B2 as follows:
1.13.1. In the line following sub-account 3104.09(p) "Other Treasury Shares", incorporate the following:
"Plus or minus:
3204(p) Gains or losses on treasury shares."

1.14. Incorporate into Section C "Other Deductions" the row named "Adjustments to Investments Deducted from Effective Equity", as follows:
Adjustments to Investments Deducted from Effective Equity Plus:
3801.04 Gain by equity method corresponding to investments deducted from effective equity
3801.03(p) Unrealized gain on available-for-sale investments (part corresponding to investments deducted from effective equity)
5109.04 (p) Gains in investments in subsidiaries and associates (part corresponding to investments deducted from effective equity)
Minus:
3802.05 Loss by equity method corresponding to investments deducted from effective equity
4109.04 (p) Unrealized loss on available-for-sale investments (part corresponding to investments deducted from effective equity)
P losses in investments in subsidiaries and associates (part corresponding to investments deducted from effective equity)

Applicable only in cases where the company has net unrealized gain obtained from the total of its available-for-sale investments.
Applicable only in cases where the company has profits but does not have an agreement to capitalize future profits.
Applicable only in cases where the company has net unrealized gain obtained from the total of its available-for-sale investments.
Applicable only in cases where the company has profits but does not have an agreement to capitalize future profits.

Modification of Annexes of the Regulations on Equity Requirements for Insurance Companies
2. Modify Annex No. ES-7 "Effective Equity", which forms part of the Regulations on Equity Requirements for Insurance Companies, approved by SBS Resolution No. 1124-2006 and modifying norms, in the following terms:
2.1. Modify the "Comments – Observations" of the row corresponding to "Discretionary Reserves" of Literal A, as follows:
"Provided that their reduction does not generate non-compliance with equity requirements."

2.2. Modify the "Comments – Observations" of the row corresponding to Literal B, as follows:
"In accordance with Articles 233° and 299º of the General Law and the Subordinated Debt Regulations applicable to insurance companies. Record in the "Amount" column the balance registered in row H of Annex No. ES-23B "Subordinated Debt Assigned to Effective Equity"."

2.3. Modify the row corresponding to Literal C as follows:
C. 3801.01+ Accumulated Profits with Capitalization Agreement
For accumulated profits to be considered, there must be a capitalization agreement.
3801.04 + Gain by equity method of investments deducted from effective equity.
3801.03(p) + Unrealized gain on available-for-sale investments (part corresponding to investments deducted from effective equity) Applicable only in cases where the company has net unrealized gain obtained from the total of its available-for-sale investments.
3803.01 + Current Year Profit with Capitalization Agreement
For current year profits to be considered, there must be an agreement to capitalize future profits.
5608.09.07(p) Valuation of investments by equity method (part corresponding to investments deducted from effective equity).
Applicable only in cases where the company has profits but does not have an agreement to capitalize future profits.

2.4. Modify the row corresponding to Literal G as follows:
G. 3802.01 Accumulated Losses
3802.04 Loss by equity method of investments deducted from effective equity
3802.02(p) Unrealized loss on available-for-sale investments (part corresponding to investments deducted from effective equity) Applicable only in cases where the company has net unrealized gain obtained from the total of its available-for-sale investments.
3802.02. or 3802.02(p) Unrealized loss on available-for-sale investments
Part corresponding to the excess of unrealized losses on available-for-sale investments over accumulated profits and current year profit, without an agreement to capitalize profits or an agreement to capitalize future profits.
In the event that there are no accumulated profits nor current year net profit, without an agreement to capitalize profits or an agreement to capitalize future profits, the total of unrealized losses on available-for-sale investments will be deducted from effective equity.
3803.02 Current Year Loss In case the year-end result, to date, is negative.
4608.05.06(p) Valuation of investments by equity method (part corresponding to investments deducted from effective equity) Applicable only in cases where the company has profits but does not have an agreement to capitalize future profits.

2.5. Incorporate rows I and J. and modify the last row "Effective Equity" as follows:
I. 34 Treasury Shares
J. Agreements that the SBS has required not to consider in Effective Equity Prudential measures indicated in current regulations apply when the company does not implement an agreement to capitalize profits or an agreement to capitalize future profits. EFFECTIVE EQUITY A + B + C – D – E – F – G – H – I – J

3. Incorporate Annex No. ES-7D "Details of the Calculation of Effective Equity" into Article 10° "Submission of Information" of the Regulations on Equity Requirements for Insurance Companies, approved by SBS Resolution No. 1124-2006 and modifying norms, in accordance with the attached format.

4. Modify Annex No. ES-8 "Indebtedness Limit" of Article 10° "Submission of Information" of the Regulations on Equity Requirements for Insurance Companies, approved by SBS Resolution No. 1124-2006 and modifying norms, in the following terms:
   4.1. Modify the comment corresponding to Item A "Total Liabilities" with the following text:
   "Reported in the monthly Statement of Financial Position generated through the SUCAVE software".

4.2. Modify the comment corresponding to Item C "Technical Reserves for Claims" with the following text: "Corresponds to item 26 without considering account 2605".

4.3. Modify the comment corresponding to Item D "Technical Reserves of Premiums" with the following text: "Corresponds to item 27 without considering accounts 2705 and 2706, and the amount reported in account 1903 is subtracted."

4.4. Modify the comment corresponding to Item F "Accounts Payable to Reinsurers and Co-insurers" with the following text: "Corresponds to item 24 without considering account 2403. The receivables from reinsurers to be deducted are those that are not past the payment period."

4.5. Modify the comment corresponding to Item I "Total Effective Equity" with the following text: "Corresponds to what is reported in Annex ES-7."