Standards for the Accounting of Permanent Share Investments of Insurance Companies

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 1 of 3 CDSSF-06/2001 NCS-017 STANDARDS FOR THE ACCOUNTING OF PERMANENT SHARE INVESTMENTS OF INSURANCE COMPANIES Approval: 08/02/2001 Effective Date: 01/03/2001

The Board of Directors of the Superintendence of the Financial System, based on the regulatory power contained in letter c) of Article 10 of the Organic Law of the Superintendence of the Financial System and to comply with articles 37 and 85 of the Insurance Companies Law and article 26 of its regulations, issues the:

STANDARDS FOR THE ACCOUNTING OF PERMANENT SHARE INVESTMENTS OF INSURANCE COMPANIES

CHAPTER I OBJECT AND SUBJECTS

Object Art. 1.- The object of these Standards is to define the timing and value of the recording of investments in shares of Salvadoran and foreign companies by insurance companies.

Art. 2.- The subjects obligated to comply with these Standards are the following: a) Insurance companies incorporated in El Salvador; b) Branches of foreign insurers; and c) Cooperative associations that provide insurance services.

When insurance companies are mentioned in this Standard, it shall be understood that they refer to the subjects mentioned in the letters of this article; likewise, when the Superintendence is mentioned, it shall be understood that it refers to the Superintendence of the Financial System.

CHAPTER II ACCOUNTING PROCESS

Initial Recording Art. 3.- Insurance companies shall record at acquisition cost the shares they acquire from Salvadoran or foreign companies.

When the acquisition value is greater than the book value of the issuing entity, the insurance company shall transfer the excess value to a deferred charges account, which shall be amortized annually over a period of up to three years counted from the date of acquisition of the investment.

Valuation of Shares Art. 4.- The valuation of permanent share investments shall be based on the equity method.

This method consists of initially recording the share investment at acquisition cost, which shall be adjusted periodically to recognize the proportional share of the profits or

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 2 of 3 CDSSF-06/2001 NCS-017 STANDARDS FOR THE ACCOUNTING OF PERMANENT SHARE INVESTMENTS OF INSURANCE COMPANIES Approval: 08/02/2001 Effective Date: 01/03/2001

losses of the issuing company subsequent to the date of acquisition. If it is profit, this shall be recorded in the respective subaccount of account 5705 "FINANCIAL AND INVESTMENT INCOME", and if it is a loss, in the respective subaccount of account 4702 "LOSSES FROM DEVALUATION OF INVESTMENTS".

The value of the investment shall be adjusted on December 31 of each year, based on the book value of the issuing entity.

Adjustments that increase the value of investments shall not include amounts from the revaluation of property owned by the entity.

Cash Sale of Investments Art. 5.- The cash sale of shares registered as permanent investments, when the sale price is higher than the value of the investment recorded in the accounting of the insurance company, shall cause a debit in cash for the sale price; a credit in the account that records the investments up to their value; and for the difference between the sale price and the value of the investment, a credit in the extraordinary income account.

In the case where the sale price is lower than the value of the investment recorded in the accounting of the insurance company, it shall cause a debit in cash for the sale price; a credit in the account that records the investments up to the sale price; and for the difference between the sale price and the value of the investment, a debit shall be made to the extraordinary expenses account.

Credit Sale of Investments Art. 6.- The credit sale of shares of Salvadoran or foreign subsidiaries, when the sale price is higher than the value of the investment recorded in the accounting of the insurance company, shall cause a debit in the asset account that records the right to collect for the sale price; a credit in the account that records the investments up to their value; and for the difference between the sale price and the value of the investment, a credit in the corresponding deferred credits account. The deferred value shall be reduced when this balance is lower than the receivable account balance, with a credit to the extraordinary income account.

In the case where the sale price is lower than the value of the investment recorded in the accounting of the insurance company, it shall cause a debit in the asset account that records the right to collect for the sale price; a credit in the account that records the investments up to the sale price; and for the difference between the sale price and the value of the investment, a debit shall be made to the extraordinary expenses account.

Alameda Juan Pablo II, between 15 and 17 Av. Norte, San Salvador, El Salvador. Tel. (503) 2281-8000 www.bcr.gob.sv Page 3 of 3 CDSSF-06/2001 NCS-017 STANDARDS FOR THE ACCOUNTING OF PERMANENT SHARE INVESTMENTS OF INSURANCE COMPANIES Approval: 08/02/2001 Effective Date: 01/03/2001

CHAPTER III OTHER PROVISIONS AND EFFECTIVE DATE

Stock Dividends and Shares from Capitalization of Revaluations Art. 7.- When the insurance company receives shares from the capitalization of dividends or revaluations of subsidiaries, it shall not make any recording in equity accounts because the economic interest of the shareholder insurance company is not modified; however, they must be disclosed in the note of material facts.

The movement of securities representing shares shall be recorded in control accounts.

Shares Acquired Before the Effective Date of These Standards Art. 8.- The period to amortize the premium on shares acquired prior to the effective date of these provisions shall be counted from January 1, 2001.

Art. 9.- Matters not contemplated in these Standards shall be resolved by the Board of Directors of the Superintendence of the Financial System.

Effective Date Art. 10.- These Standards shall enter into effect as of March 1, 2001.