Technical Standards for the Equity Fund Requirement of Reciprocal Guarantee Societies and Reinsurers of Reciprocal Guarantee Societies

REINSURERS OF RECIPROCAL GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024

THE COMMITTEE OF STANDARDS OF THE CENTRAL RESERVE BANK OF EL SALVADOR,

CONSIDERING:
I. That Article 56, first paragraph, of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises, establishes that the relationship between the Equity Fund and the sum of its weighted assets will be twelve percent for Reciprocal Guarantee Companies.
II. That Article 84 of the Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises, establishes the requirement for the Equity Fund and Solvency of Reciprocal Guarantee Companies and Reinsurers.
III. That Article 7, letter h), of the Law of Supervision and Regulation of the Financial System, establishes that the Supervision of Reciprocal Guarantee Companies and their local Reinsurers corresponds to the Financial System Superintendence.
IV. That Article 99, third paragraph, letter a), of the Law of Supervision and Regulation of the Financial System, establishes that the Committee of Standards of the Central Reserve Bank of El Salvador is responsible for approving technical standards on any other aspect inherent to risk management by supervised entities.
V. That in accordance with Article 101, fourth paragraph, of the Law of Supervision and Regulation of the Financial System, the powers to approve, modify, and repeal technical standards that must be complied with by members of the financial system and other supervised entities are transferred to the Central Reserve Bank of El Salvador.

THEREFORE,

by virtue of the regulatory powers conferred by Article 99 of the Law of Supervision and Regulation of the Financial System,

AGREES to issue the following:

TECHNICAL STANDARDS FOR THE EQUITY FUND REQUIREMENT OF RECIPROCAL GUARANTEE COMPANIES AND REINSURERS OF RECIPROCAL GUARANTEE COMPANIES

REINSURERS OF RECIPROCAL GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024

CHAPTER I
OBJECT, SUBJECTS AND TERMS

Object
Art. 1.- These Standards aim to establish the provisions that allow the calculation of the equity fund requirements for Reciprocal Guarantee Companies and Reinsurers of Reciprocal Guarantee Companies.

Subjects
Art. 2.- The subjects obliged to comply with the provisions established in these Standards are:
a) Reciprocal Guarantee Companies; and b) Reinsurers of Reciprocal Guarantee Companies

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Central Bank: Central Reserve Bank of El Salvador; b) Development Bank: Development Bank of the Republic of El Salvador; c) Law: Law of the Reciprocal Guarantee System for Micro, Small and Medium Rural and Urban Enterprises; d) Reinsurer(s): Reinsurer(s) of Reciprocal Guarantee Companies; e) Company or Companies of Guarantee: Reciprocal Guarantee Company or Companies; and f) Superintendence: Financial System Superintendence.

CHAPTER II
COMPONENTS OF THE EQUITY FUND

Equity Fund
Art. 4.- The equity fund will be the sum of Primary Capital plus Supplementary Capital, deducting from these any capital participation in other companies. Reserves or provisions for liabilities, nor those intended to cover pension, retirement, and other benefits that the company grants to its personnel, mandatory or voluntary, shall not be counted as equity fund. Depreciations and provisions for uncollectibility of loans shall also not be counted.

Primary Capital
Art. 5.- To determine primary capital, the following components must be considered:

REINSURERS OF RECIPROCAL GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024

a) Paid-in social capital; b) Legal reserve; c) Technical provision fund; and d) Other capital reserves, derived from received profits.

Supplementary Capital
Art. 6.- In the determination of supplementary capital, the following components must be considered:
a) Results from previous exercises, on which no decision has been taken; b) Undistributable profits related to accrued but uncollected products; c) Fifty percent (50%) of the profits of the current exercise, net of the Income Tax provision; and d) Fifty percent (50%) of voluntary health reserves (general risk reserves).

From the sum of all the above components, the value of accumulated losses and current exercise losses, if any, must be deducted.

CHAPTER III
EQUITY FUND REQUIREMENTS

Weighting of Assets
Art. 7.- Reciprocal Guarantee Companies and Reinsurers must present at all times a relationship between their equity fund and the sum of their weighted assets, future rights, and contingencies of at least twelve percent.

Art. 8.- The weighting of assets, future rights, and contingencies, net of depreciation and valuation provisions, shall be carried out as follows:
a) Without weighting:
i) Cash on hand; ii) Investments in securities issued or guaranteed by the State, the Central Bank, or the Development Bank; and iii) Stock market investments made in securities issued or guaranteed by the State, the Central Bank, or the Development Bank. b) Weighted at fifty percent (50%):
i) Money deposits in local banks; ii) Bonds and guarantees that are not fully secured with money deposits; and iii) Reinsurance of bonds and guarantees that are not fully secured with money deposits.

REINSURERS OF RECIPROCAL GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024

c) Weighted at one hundred percent (100%):
The total value of assets not contemplated in the previous letters shall be weighted at one hundred percent (100%).

Minimum Equity Fund
Art. 9.- In no case shall the equity fund of a Guarantee Company or a Reinsurer be less than the minimum required paid-in social capital, determined in accordance with the Law.

CHAPTER IV
CALCULATION DATE AND REPORTING TO THE SUPERINTENDENCE

Art. 10.- The Guarantee Company or Reinsurer must establish the position of its equity fund on the last day of each month and remit it to the Superintendence within the first eight business days of the following month, except for the months of June and December, which shall be within the first ten business days, according to the models presented in Annex No. 1 and No. 2, which must include the entity's seal and the signature of the manager or equivalent position. (1)

The deadlines mentioned in the previous paragraph do not constitute an exception to report on equity fund insufficiencies, and in the event of such insufficiency, it must be reported to the Superintendence within five calendar days following the event, mentioning the details of the measures and commitments considered necessary to remedy the deficiency.

Art. 11.- Obligated subjects must keep in their files, for a period of no less than one year, the documents and off-balance sheet information used for the calculation of the equity fund requirement.

Art. 12.- The Superintendence may request the calculation of equity fund requirements at any date it deems convenient.

Art. 13.- Bonds, reinsurance, and guarantees granted will be weighted only for the values not covered by reinsurance contracts.

CHAPTER V
OTHER PROVISIONS AND VALIDITY

Sanctions
Art. 14.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law of Supervision and Regulation of the Financial System.

REINSURERS OF RECIPROCAL GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024

Repeal
Art. 15.- These Standards will repeal the "Application Standards for the Equity Fund Requirement of Reciprocal Guarantee Companies and Reinsurers of Reciprocal Guarantee Companies" (NPSGR3-02), approved by the Board of Directors of the Financial System Superintendence in Session No. CD42/2003 on October 8, 2003, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law of Supervision and Regulation of the Financial System, published in the Official Journal No. 23, Volume No. 390, on February 2, 2011.

Unforeseen Aspects
Art. 16.- Aspects not provided for in the regulatory matter in these Standards will be resolved by the Central Bank through its Committee of Standards.

Validity
Art. 17.- These Standards will enter into force as of January 2, 2024.

MODIFICATIONS:
(1) Modification in Article 10, approved by the Central Bank through its Committee of Standards, in Session No. CN-04/2026, on May 25, 2026, with validity as of June 9, 2026.

REINSURERS OF RECIPROCAL GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024

Annex No. 1

REPORT OF THE CALCULATION OF EQUITY FUND REQUIREMENTS

Entity: Reference Date: _______________

BALANCE WEIGHTING
BALANCE
WEIGHTED BALANCE

I. TOTAL WEIGHTED ASSETS
II. 12.0% REQUIREMENT ON WEIGHTED ASSETS

DETERMINATION OF EQUITY FUND

PRIMARY CAPITAL
3110 PAID-IN SOCIAL CAPITAL 100.0%
3120 CAPITAL RESERVES 100.0%
3130 TECHNICAL PROVISION FUND 100.0%

Total Primary Capital
PLUS
SUPPLEMENTARY CAPITAL
3150 RESULTS TO APPLY
315001 RESULTS FROM PREVIOUS EXERCISES 100.0% 315002 RESULTS OF CURRENT EXERCISE 50.0% 3210 UNDISTRIBUTABLE PROFITS 100.0% 323002 GENERAL RISK RESERVES 50.0% MINUS:
LOSSES -100.0%
Total Supplementary Capital (up to the sum of primary capital) TOTAL PRIMARY AND SUPPLEMENTARY CAPITAL MINUS:
1260 RIGHTS AND PARTICIPATIONS
1260000101 Participations in national companies - ML 100.0% 1260000102 Participations in national companies - ME 100.0%
III. TOTAL EQUITY FUND
IV. SURPLUS OR (DEFICIENCY) (III - II)
V. EQUITY COEFFICIENT (III / I)
________________________________________________ Name and signature of responsible official

REINSURERS OF RECIPROCAL GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024

Annex No. 2

ENTITY:________________________________________________________________________

CALCULATION OF EQUITY FUND REQUIREMENT ON ________ OF ________ OF ________ (IN THOUSANDS OF US$)

Account Code
Assets, future rights, and contingencies subject to risk weighting Balance Weighting Factor Weighted Balance

1110 AVAILABLE FUNDS
01 CASH 0.0%
02 DEPOSITS IN FINANCIAL INSTITUTIONS 50.0% 1121 DOCUMENTS ACQUIRED UP TO ONE YEAR MATURITY 01 REPURCHASE OPERATIONS WITH THE CENTRAL RESERVE BANK 0.0% 02 REPURCHASE OPERATIONS WITH STATE ENTITIES 0.0% 03 REPURCHASE OPERATIONS WITH PRIVATE COMPANIES 100.0% 04 REPURCHASE OPERATIONS WITH INDIVIDUALS 100.0% 05 REPURCHASE OPERATIONS WITH BANKS AND FINANCIALS 100.0% 06 REPURCHASE OPERATIONS WITH OTHER ENTITIES OF THE FINANCIAL SYSTEM 100.0% 07 STOCK MARKET OPERATIONS 0101 Issued by the Central Reserve Bank - ML 0.0% 0102 Issued by the Central Reserve Bank - ME 0.0% 0201 Issued by State entities – ML 0.0% 0202 Issued by State entities – ME 0.0% 0301 Issued by private companies – ML 100.0% 0302 Issued by private companies – ME 100.0% 0501 Issued by banks – ML 100.0% 0502 Issued by banks – ME 100.0% 0601 Issued by other entities of the Financial System - ML 100.0% 0602 Issued by other entities of the Financial System - ME 100.0% 0701 Issued by foreign entities – ML 100.0% 0702 Issued by foreign entities – ME 100.0% 1128 OVERDUE DOCUMENTS 100.0% 1129 PROVISION FOR LOSSES -100.0% 1130 FINANCIAL INVESTMENTS 01 SECURITIES HELD FOR TRADING 0101 Issued by the Central Reserve Bank - ML 0.0% 0102 Issued by the Central Reserve Bank - ME 0.0% 0201 Issued by State entities – ML 0.0% 0202 Issued by State entities – ME 0.0% 0301 Issued by private companies – ML 100.0% 0302 Issued by private companies – ME 100.0% 0501 Issued by banks – ML 100.0% 0502 Issued by banks – ME 100.0% 0601 Issued by other entities of the Financial System - ML 100.0% 0602 Issued by other entities of the Financial System - ME 100.0% 0701 Issued by foreign entities – ML 100.0% 0702 Issued by foreign entities – ME 100.0% 9901 Interest and other receivables – ML 100.0% 9902 Interest and other receivables – ME 100.0% 02 SECURITIES TRANSFERRED 0101 Issued by the Central Reserve Bank - ML 0.0% 0102 Issued by the Central Reserve Bank - ME 0.0% 0201 Issued by State entities – ML 0.0% 0202 Issued by State entities – ME 0.0% 0301 Issued by private companies – ML 100.0% 0302 Issued by private companies – ME 100.0%

REINSURERS OF RECIPROCAL GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024

Annex No. 2

ENTITY:________________________________________________________________________

CALCULATION OF EQUITY FUND REQUIREMENT ON ________ OF ________ OF ________ (IN THOUSANDS OF US$)

Account Code
Assets, future rights, and contingencies subject to risk weighting Balance Weighting Factor Weighted Balance

0501 Issued by banks – ML 100.0%
0502 Issued by banks – ME 100.0%
0601 Issued by other entities of the Financial System - ML 100.0% 0602 Issued by other entities of the Financial System - ME 100.0% 0701 Issued by foreign entities – ML 100.0% 0702 Issued by foreign entities – ME 100.0% 9901 Interest and other receivables - ML 100.0% 9902 Interest and other receivables - ME 100.0% 03 SECURITIES HELD TO MATURITY 0101 Issued by the Central Reserve Bank - ML 0.0% 0102 Issued by the Central Reserve Bank - ME 0.0% 0201 Issued by State entities – ML 0.0% 0202 Issued by State entities – ME 0.0% 0301 Issued by private companies - ML 100.0% 0302 Issued by private companies - ME 100.0% 0501 Issued by banks - ML 100.0% 0502 Issued by banks - ME 100.0% 0601 Issued by other entities of the Financial System - ML 100.0% 0602 Issued by other entities of the Financial System - ME 100.0% 0701 Issued by foreign entities – ML 100.0% 0702 Issued by foreign entities – ME 100.0% 9901 Interest and other receivables - ML 100.0% 9902 Interest and other receivables - ME 100.0% 04 SECURITIES AVAILABLE FOR SALE 0101 Issued by the Central Reserve Bank - ML 0.0% 0102 Issued by the Central Reserve Bank - ME 0.0% 0201 Issued by State entities – ML 0.0% 0202 Issued by State entities – ME 0.0% 0301 Issued by private companies - ML 100.0% 0302 Issued by private companies - ME 100.0% 0501 Issued by banks - ML 100.0% 0502 Issued by banks - ME 100.0% 0601 Issued by other entities of the Financial System - ML 100.0% 0602 Issued by other entities of the Financial System - ME 100.0% 0701 Issued by foreign entities – ML 100.0% 0702 Issued by foreign entities – ME 100.0% 9901 Interest and other receivables - ML 100.0% 9902 Interest and other receivables - ME 100.0% 1138 OVERDUE INVESTMENTS 01 HELD FOR TRADING 0101 Issued by the Central Reserve Bank - ML 0.0% 0102 Issued by the Central Reserve Bank - ME 0.0% 0201 Issued by State entities – ML 0.0% 0202 Issued by State entities – ME 0.0% 0301 Issued by private companies - ML 100.0% 0302 Issued by private companies - ME 100.0% 0501 Issued by banks - ML 100.0% 0502 Issued by banks - ME 100.0%

REINSURERS OF RECIPROCAL GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024

Annex No. 2

ENTITY:________________________________________________________________________

CALCULATION OF EQUITY FUND REQUIREMENT ON ________ OF ________ OF ________ (IN THOUSANDS OF US$)

Account Code
Assets, future rights, and contingencies subject to risk weighting Balance Weighting Factor Weighted Balance

0601 Issued by other entities of the Financial System - ML 100.0% 0602 Issued by other entities of the Financial System - ME 100.0% 0701 Issued by foreign entities – ML 100.0% 0702 Issued by foreign entities – ME 100.0% 9901 Interest and other receivables - ML 100.0% 9902 Interest and other receivables - ME 100.0% 02 HELD TO MATURITY 0101 Issued by the BCR - ML 0.0% 0102 Issued by the BCR - ME 0.0% 0201 Issued by the State - ML 0.0% 0202 Issued by the State - ME 0.0% 0301 Issued by private companies - ML 100.0% 0302 Issued by private companies - ME 100.0% 0501 Issued by banks - ML 100.0% 0502 Issued by banks - ME 100.0% 0601 Issued by other entities of the Financial System - ML 100.0% 0602 Issued by other entities of the Financial System - ME 100.0% 0701 Issued by foreign entities – ML 100.0% 0702 Issued by foreign entities – ME 100.0% 9901 Interest and other receivables - ML 100.0% 9902 Interest and other receivables - ME 100.0% 03 AVAILABLE FOR SALE 0101 Issued by the BCR - ML 0.0% 0102 Issued by the BCR - ME 0.0% 0201 Issued by the State - ML 0.0% 0202 Issued by the State - ME 0.0% 0301 Issued by private companies - ML 100.0% 0302 Issued by private companies - ME 100.0% 0501 Issued by banks - ML 100.0% 0502 Issued by banks - ME 100.0% 0601 Issued by other entities of the Financial System - ML 100.0% 0602 Issued by other entities of the Financial System - ME 100.0% 0701 Issued by foreign entities – ML 100.0% 0702 Issued by foreign entities – ME 100.0% 9901 Interest and other receivables - ML 100.0% 9902 Interest and other receivables - ME 100.0% 1139 PROVISION FOR INVESTMENT RISK -100.0% 113TVB ANDES AL * BANDESAL SECURITIES -100.0% 1141 PAYMENT AGREEMENTS UP TO ONE YEAR 100.0% 1142 PAYMENT AGREEMENTS MORE THAN ONE YEAR 100.0% 1148 DEFAULTED PAYMENT AGREEMENTS 100.0% 1149 PROVISION FOR PAYMENT AGREEMENTS -100.0% 1220 ASSETS RECEIVED IN PAYMENT OR ADJUDICATED 100.0% 1229 REGISTERED SURPLUSES PENDING COLLECTION -100.0% 1230 INVENTORY 100.0% 1240 PREPAID EXPENSES AND DEFERRED CHARGES 100.0% 1250 ACCOUNTS RECEIVABLE 100.0%

REINSURERS OF RECIPROCAL GUARANTEE COMPANIES Approval: 12/14/2023 Validity: 01/02/2024

Annex No. 2

ENTITY:________________________________________________________________________

CALCULATION OF EQUITY FUND REQUIREMENT ON ________ OF ________ OF ________ (IN THOUSANDS OF US$)

Account Code
Assets, future rights, and contingencies subject to risk weighting Balance Weighting Factor Weighted Balance

1259 PROVISION FOR UNCOLLECTIBILITY OF ACCOUNTS RECEIVABLE -100.0% 1260 00 0201 EMPLOYEE FOOD FUND 100.0% 1310 NON-DEPRECIABLE 100.0% 1320 DEPRECIABLE 100.0% 1329 ACCUMULATED DEPRECIATION -100.0% 1330 AMORTIZABLE 100.0% 1341 ASSETS RECEIVED IN FINANCIAL LEASE 100.0% 1349 ACCUMULATED DEPRECIATION OF ASSETS IN FINANCIAL LEASE -100.0% 4111 LIVE RISKS FOR GUARANTEES 50.0% 4119 PROVISION FOR LOSSES -50.0% 4121 LIVE RISKS FOR ACCEPTED REINSURANCES 50.0% 4129 PROVISION FOR LOSSES -50.0% TOTAL WEIGHTED ASSETS