SBS Resolution No. 829-2005: Regulation on Issuer Diversification of Insurance Company Investments

Lima, June 9, 2005
S.B.S. Resolution
No. 829 - 2005

The Superintendent of Banking, Insurance and Private Pension Fund Administrators

CONSIDERING:

That, pursuant to Articles 345 and 347 of the General Law of the Financial System and the Insurance System and Organic Law of the Superintendency of Banking and Securities, Law No. 26702 and its amendments, hereinafter referred to as the General Law, it is the responsibility of the Superintendency of Banking, Insurance and Private Pension Fund Administrators to protect and defend the interests of the public within the scope of the financial and insurance systems, safeguarding the economic and financial solidity of the natural and legal persons that make up said systems;

That, paragraph 18 of Article 349 of the General Law states that it is the authority of the Superintendency to carry out all acts necessary to safeguard the interests of the public;

That, through SBS Resolutions No. 039-2002 and No. 1047-99, the Regulation of Eligible Investments and the Regulation of Classification, Valuation and Provisions of Financial Investments of Insurance Companies were approved, respectively; through which measures were issued that specify the characteristics of the assets backing the technical obligations of the company, as well as the establishment of homogeneous criteria for classification, valuation and provision that allow reflecting the nature of their investments in the financial statements;

That, it is necessary to issue additional measures regarding the investments of insurance companies, with the aim of ensuring the solvency of said companies;

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

And, in exercise of the powers conferred by paragraphs 3 and 18 of Article 349 of the General Law;

RESOLVES:

Article First.- Approve the Regulation on Issuer Diversification of Investments of Insurance Companies, which forms part of this Resolution.

Article Second.- This Resolution shall enter into force the day following its publication in the Official Gazette “El Peruano”.

Register, communicate and publish.

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

REGULATION ON ISSUER DIVERSIFICATION OF INVESTMENTS OF INSURANCE COMPANIES

CHAPTER I
GENERAL ASPECTS

Article 1°.- Scope
This Regulation applies to the insurance companies indicated in letter D of Article 16 of the General Law, hereinafter referred to as companies, and regulates the investment limits per issuer that they must observe for the determination of their investment portfolios.

Article 2°.- Definitions
For the application of this Regulation, the following definitions shall be considered:
a. Central Bank: Central Reserve Bank of Peru; b. Life Companies: Those authorized to provide coverage for risks conditioned upon the existence of the insured, as indicated in the definitions stated in the Glossary of the General Law, and considering what is provided in SBS Resolution No. 937-2001;
c. General Line Companies: Those authorized to provide coverage for all other risks not included in the definition of life lines;
d. Mixed Companies: Those authorized to operate simultaneously in life lines and general lines; e. Funds: Includes investment funds and mutual investment funds; f. Central Government: Central Government of Peru; g. Instruments representing rights over equity participation or share certificates: These are instruments where the magnitude of their expected partial or total return is not certain, fixed, or determinable at the time of acquisition; h. Instruments representing rights over obligations or debt securities: These are instruments whose return, measured until the end of their term, is previously fixed or determinable from the moment of issuance;
i. Short-term obligations: These are short-term instruments whose return, measured until the end of their term, is previously fixed or determinable from the moment of issuance;
j. Investments: Includes the total of investments held by the company; k. Eligible investments: Assets that comply with the provisions contained in the Regulation of Eligible Investments and that can be allocated to cover technical obligations;
l. Real estate investments: Land and buildings owned by the company, including also those real estate properties in which investment has been made through partnerships in participation or other types of mechanisms.
m. Regulation of Eligible Investments: Regulation of Eligible Investments of Insurance Companies, approved by SBS Resolution No. 039-2002 and its amendments; n. Regulation of Classification, Valuation and Provisions: Regulation of Classification, Valuation and Provisions of Financial Investments of Insurance Companies, approved by SBS Resolution No. 1047-99 and its amendments; o. Superintendency: Superintendency of Banking, Insurance and Private Pension Fund Administrators.

CHAPTER II
INVESTMENT LIMITS PER ISSUER

Article 3°.- Investment policy and investment limits per issuer 1
The investment policies of the companies must indicate diversification criteria and risk management policies, which are in accordance with the provisions of this Regulation, and those established in the Investment Regulation and the Regulation of Classification and Valuation of Investments.

The diversification criteria contemplated in said policies must consider maximum limits per issuer calculated based on the effective equity of the companies, which depend on the categories of investments and the line of insurance in which they operate, and which must not exceed those indicated in the following table:

Limits per Issuer Based on the Effective Equity of the Company Investment Category | General Line Companies | Life Line Companies ---|---|--- a) Instruments representing rights over equity participation or share certificates considered non-eligible | 3% | 15% b) Instruments representing rights over obligations or debt securities and short-term obligations considered non-eligible | 4% | 20% c) Participations in funds considered non-eligible (*) | 2% | 10% d) Other investments considered non-eligible | 2% | 10% e) Other investments considered eligible () | 7% | 35%

(*) In the case of Funds, the Asset Management Companies are considered issuers.
() "Other eligible investments" refers to those that were authorized via the authorization process of the Regulation of Investments of Insurance Companies.

Article 4°.- Limits against issuers of the company's economic group
The limits established in the preceding article will be reduced by 50% when dealing with instruments associated with legal entities that are part of the company's economic group. The determination of economic groups will be carried out in accordance with what is provided in the special norms on affiliation and economic group, approved by SBS Resolution No. 445-2000 and its amendments.

Article 5°.- Indirect exposures
Investments made in assets whose risks are associated with underlying instruments will be considered within the maximum limits established by this Regulation, as if they corresponded to direct investments in said instruments. For the purpose of the foregoing, only those underlying instruments that meet the materiality criteria described in the following table will be considered:

1 Article substituted by SBS Resolution No. 1041-2016 of 02-26-2016

Indirect Exposures
Investments Associated with Underlying Instruments | Materiality Criteria ---|--- a) Participations in funds | Greater than or equal to 5% of the fund's equity b) Instruments representing securitized assets or structured fiduciary values or notional | Greater than or equal to 5% of the equity or notional c) Shares of companies whose purpose consists of investment in securities 2 | Greater than or equal to 5% of the company's equity d) Others indicated by the Superintendency. Fixed by Circular

Article 6°.- Mixed companies
Mixed companies must consider the independent application of the limits established in this Regulation, based on the effective equity assigned to each of the lines.
The determination of investments and effective equity is subject to the Accounting Identification Plan referred to in Article 3 of the norms for the accounting identification of operations of life lines and general lines of insurance companies, approved by SBS Resolution No. 1141-99.

Article 7°.- Information reporting 3
Companies must present monthly to this Superintendency the information indicated in Annex ES-6 4 attached "Exposure by Issuer in Instruments Contemplated in the Regulation on Issuer Diversification of Investments of Insurance Companies". The submission of information must be done via SUCAVE.

Article 8°.- Sanction for non-compliance
Non-compliance with what is provided in this Regulation will be considered a serious offense and will be sanctioned in accordance with what is established in the Sanctions Regulation issued by the Superintendency.

Final Provisions
First.- The limits established in this Regulation will not apply to investments, both direct and indirect, in securities issued by the Central Government or the Central Bank, and to investments in subsidiaries contemplated in Chapter II of Title II of Section First of the General Law, Authorization for the Constitution of Subsidiaries.

2 Letter modified by SBS Resolution No. 0799-2008 of 03-27-2008 3 Article modified by SBS Resolution No. 1041-2016 of 02-26-2016.
4 Annex numbering modified by SBS Resolution No. 2842-2012 of 05-11-2012.

Second.- Companies that, at the time of entry into force of this Regulation, present excesses over the established limits, are prohibited from making new investments, both direct and indirect, in issuers where they maintain such excesses. These companies must submit to the Superintendency, within one hundred twenty (120) days of the entry into force of this norm, an adaptation plan approved by the Board of Directors in which the measures to be adopted for the elimination of such excesses are indicated within a period no greater than two (02) years from the entry into force of this norm. 5 The adaptation plan must be approved by the Superintendency, prior to evaluation of its suitability. Likewise, the Superintendency may exceptionally grant an additional deadline, only once. If the granted period expires and the company continues to present excesses, it will be subject to sanction, as provided in Article 8°.

Third.- 6
Fourth.- 7
Fifth.- The limits established for investments in instruments indicated in letter a) of the table "Limits per issuer based on the effective equity of the company" contained in Article 3°, will not be applicable for those investments classified as "Permanent Investments", provided that such investments are made and/or form part of the business strategy of the companies, a condition that these must substantiate to the Superintendency, through the issuance of a report. 8

5 Paragraph added by SBS Resolution No. 1144-2005 of 08-03-2005 6 Provision repealed by SBS Resolution No. 1041-2016 of 02-26-2016.
7 Provision repealed by SBS Resolution No. 1041-2016 of 02-26-2016.
8 Provision incorporated by SBS Resolution No. 0799-2008 of 03-27-2008. Subsequently modified by SBS Resolution No. 1041-2016 of 02-26-2016.

ANNEX ES-6 9 10

EXPOSURE BY ISSUER IN INSTRUMENTS CONTEMPLATED IN THE REGULATION ON ISSUER DIVERSIFICATION OF INVESTMENTS OF INSURANCE COMPANIES

TO ___ / ___ / ___
(In thousands of new soles)
COMPANY AND LINE:
Issuer Name (1) | Type of Issuer (2) | Investment Category(3) | Direct Exposure Value | Indirect Exposure Value (4) | Total Exposure (A)+(B) | Effective Equity (C) | Limit (%) (D) | Regulated Margin (%) (D)-(C) | Exposure Margin (%) ---|---|---|---|---|---|---|---|---|--- (A) | (B) | | | | (C) | | | |

(1) In the case of participations in funds, indicate the name of the managing society.
(2) Indicate "SG" for issuers that integrate the economic group of the company, otherwise indicate "NG".
(3) According to the categories described in Article 3 of the Regulation, according to the following codes: 11 ANE : Instruments representing rights over equity participation or share certificates considered non-eligible BNE : Instruments representing rights over obligations or debt securities and short-term obligations considered non-eligible 12 FNE : Participations in funds considered non-eligible ONE : Other investments considered non-eligible OE Other investments considered eligible (4) As established by Article 5 of the Regulation. (5) Total Exposure / Effective Equity of the company or corresponding line.

9 Annex modified by SBS Resolution No. 0799-2008 of 03-27-2008.
10 Annex numbering modified by SBS Resolution No. 2842-2012 of 05-11-2012.
11 Category eliminated by SBS Resolution No. 1041-2016 of 02-26-2016 12 Category eliminated by SBS Resolution No. 1041-2016 of 02-26-2016