Technical Standards for the Liquidation or Conservation of Extraordinary Assets of Insurance Companies

NCF-05
EXTRAORDINARY ASSETS OF INSURANCE COMPANIES
Approval: 26/06/2024
Validity: 07/16/2024

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

CONSIDERING:

I. That Article 94 of the Insurance Companies Law establishes that insurance companies may accept any type of guarantees and acquire movable and immovable property of any kind, when such acceptance or acquisition is carried out in the cases established in said article.

II. That Article 95, first paragraph, of the Insurance Companies Law establishes that the extraordinary assets acquired by insurance companies in accordance with Article 94 of said Law must be liquidated within a period of two years counted from the date of their acquisition. In justified cases, this period may be extended by the Superintendence of the Financial System for up to one hundred and eighty days.

III. That Article 95, second paragraph, of the Insurance Companies Law establishes that, if upon the expiration of the deadlines to liquidate the extraordinary assets, the company has not liquidated the extraordinary assets, it will be obliged to provision them as a loss in its accounting and sell them at public auction within sixty days following the date on which the deadline expires.

IV. That Article 95, sixth paragraph, of the Insurance Companies Law establishes that insurance companies may retain their extraordinary assets provided they are destined for works that constitute a benefit to the community, for cultural purposes, goods for their own use or for the welfare of their personnel, with prior authorization from the Superintendence of the Financial System, subject to the limits prescribed in said Law.

V. That Article 3, letter c), of the Supervision and Regulation of the Financial System Law establishes that it is the responsibility of the Superintendence of the Financial System to proactively monitor the risks of the members of the financial system and the manner in which they manage them, ensuring the prudent maintenance of their solvency and liquidity.

VI. That Article 7, letter e), of the Supervision and Regulation of the Financial System Law establishes that the Superintendence of the Financial System is responsible for the supervision of insurance companies, their branches abroad, and the branches of foreign insurance companies established in the country.

THEREFORE,

NCF-05
EXTRAORDINARY ASSETS OF INSURANCE COMPANIES
Approval: 26/06/2024
Validity: 07/16/2024

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

AGREES to issue the following:

TECHNICAL STANDARDS FOR THE LIQUIDATION OR CONSERVATION OF EXTRAORDINARY ASSETS OF INSURANCE COMPANIES

CHAPTER I
OBJECTIVE, SUBJECTS AND TERMS

Objective
Art. 1.- These Standards aim to establish the criteria that the obligated subjects must comply with for the liquidation or conservation of extraordinary assets.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are:
a) Insurance companies incorporated in El Salvador; b) Branches of foreign insurance companies established and authorized in the country; and c) Cooperative associations providing insurance services incorporated in the country.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Extraordinary assets: Those guarantees or movable and immovable property referred to in Article 94 of the Insurance Companies Law; b) Central Bank: Central Bank of Reserve of El Salvador; c) Entity: Subject referred to in Article 2 of these Standards; d) Law: Insurance Companies Law; and e) Superintendence: Superintendence of the Financial System.

NCF-05
EXTRAORDINARY ASSETS OF INSURANCE COMPANIES
Approval: 26/06/2024
Validity: 07/16/2024

CHAPTER II
LIQUIDATION OF EXTRAORDINARY ASSETS

Liquidation Deadline
Art. 4.- Entities will have a period of two years to liquidate the extraordinary assets they acquire; said period will be counted from the date of acquisition, and in duly justified cases, they may request the Superintendence for an extension of up to one hundred and eighty days for its liquidation. If the deadlines mentioned in the first paragraph of this article have elapsed and the liquidation of the asset has not been carried out, what is established in Chapter IV of these Standards will apply.

CHAPTER III
ON THE EXTENSION FOR THE LIQUIDATION OF EXTRAORDINARY ASSETS

Request for extension for the liquidation of extraordinary assets Art. 5.- The entity interested in obtaining an extension for the liquidation of extraordinary assets must submit a request to the Superintendence at least thirty days in advance of the expiration date of the deadline established in Article 4 of these Standards, attaching the description of the asset, the background of ownership, and other considerations that justify the request. The justification must contain evidence of the sales efforts made through different marketing channels and with sufficient repetition to obtain positive results. The request and documentation may be submitted through the means made available by the Superintendence, which may be electronic. In any case, the period referred to in the first paragraph of Article 6 of these Standards will begin to run from the next business day after the request has been submitted.

Procedure for authorization of extension request Art. 6.- Upon receipt of the request for extension for the liquidation of extraordinary assets, in accordance with Article 5 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined by the Law and these Standards, having a period of up to twenty business days to authorize or deny the extension for the liquidation of extraordinary assets.

NCF-05
EXTRAORDINARY ASSETS OF INSURANCE COMPANIES
Approval: 26/06/2024
Validity: 07/16/2024

If the request is not accompanied by the complete and duly formatted information detailed in Article 5 of these Standards, the Superintendence, due to the lack of necessary requirements, may require said entity to, within a period of ten business days counted from the day following the notification, present the missing documents, a period that may be extended at the request of the interested entity when there are reasons justifying it. The Superintendence in the same notice will indicate to the entity that if the information is not completed within the aforementioned period, the request will be archived without further procedure, without prejudice to its right to submit a new request. If after the analysis of the documentation presented in accordance with Article 5 of these Standards, the Superintendence has observations or when the documentation or information presented is not sufficient to establish the facts or information intended to be accredited, the Superintendence may notify the respective entity to remedy the deficiencies communicated or present additional documentation or information requested. The entity will have a maximum period of ten business days counted from the day following the notification, to resolve the observations or present the additional information required by the Superintendence. The Superintendence may, through a reasoned resolution, extend by up to another ten business days, the period indicated in the previous paragraph, when the nature of the observations or deficiencies notified so requires.

Extension Period
Art. 7.- The entity interested in requesting an extension for the liquidation of extraordinary assets may submit to the Superintendence a request for extension of the period indicated in the fifth paragraph of Article 6 of these Standards, before the expiration of said period, stating the grounds for the request and proposing, if applicable, the relevant proof. The extension period may not exceed ten business days and will begin from the next business day after the expiration date of the original period.

Suspension of the period
Art. 8.- The period of twenty business days indicated in the first paragraph of Article 6 of these Standards will be suspended for the days that elapse between the notification of the requirement to complete information or documentation referred to in the second and fifth paragraphs of said article, until the observations required by the Superintendence are remedied.

NCF-05
EXTRAORDINARY ASSETS OF INSURANCE COMPANIES
Approval: 26/06/2024
Validity: 07/16/2024

Resolution
Art. 9.- Once the complete and duly formatted documents have been submitted, the Superintendence will respond to the entity's request through a resolution, which it will notify within a maximum period of three business days from the date the resolution is issued.
If the resolution is negative or the extension period has expired without the asset being liquidated, the entity must provision it as a loss in its accounting and sell it at public auction within sixty days following the date of expiration of the liquidation period.

CHAPTER IV
PUBLIC AUCTION SALE

Publication of public auction
Art. 10.- The entity that has not liquidated the extraordinary assets within the deadlines indicated in the first paragraph of Article 4 of these Standards must sell them at public auction within sixty days following the date on which the deadline expired.
Prior to the auction, it must publish three notices in two printed media of national circulation or another digital publication platform with greater or equal coverage or on its website, in accordance with what is established in the current legal framework. The notice must indicate the following:
a) The day, place, and time of the auction; b) Brief description of the asset and its location in the case of real estate; and c) The value that will serve as the base for the auction.
The last publication must be made at least fifteen days in advance of the date of the auction.

Art. 11.- The value that will serve as the base to initiate the auction will be the real value of the assets, as estimated by the entity itself.

Art. 12.- The entity must communicate to the Superintendence, at least ten business days in advance, the date, time, and place where the public auction will take place. The aforementioned communication must contain:
a) Evidence of the publication of the notices referred to in Article 10 of these Standards; b) Description of the asset to be auctioned; c) Base price of the auction and value according to accounting records; d) Name of the expropriator of the asset; and

NCF-05
EXTRAORDINARY ASSETS OF INSURANCE COMPANIES
Approval: 26/06/2024
Validity: 07/16/2024

e) Detail of previous auctions, if any.
The process must be carried out by the unit responsible for extraordinary assets, in the presence of a delegate from internal audit and another from the legal unit. When the Superintendence deems it convenient, it will appoint delegates to supervise the act.

Art. 13.- Upon completion of the event, the entity's representative will draw up a record stating the place, day, time, and other aspects related to the auction, indicating the general details of the buyer. The record must be signed by the entity's representative and the buyer. The internal audit delegate of the entity and of the Superintendence, if appointed, shall only prepare a report attaching a copy of the record. Within five business days following, the entity must send to the Superintendence a certified copy of the record and the internal audit report.

Art. 14.- If there are no bidders on the scheduled date and time, the auctions will be repeated at least every six months, taking as a base each time a price that is lower than the previous one by an amount of up to twenty percent.

Art. 15.- When for any reason the auction is not carried out, the corresponding record must also be drawn up, which must be signed by the representative or representatives delegated by the entity for such purposes and by the delegate of the Superintendence, pointing out the incidents of the case; indicating that the next one will be held at the latest within six months following the date of the previous one, prior to the corresponding publications.

Art. 16.- If after an auction has been carried out, but before the six months have elapsed to repeat the auction in accordance with Article 14 of these Standards, a buyer appears who offers a sum equal to or greater than the value that served as the base for the last auction, the entity may sell the asset without the need to carry out the next auction.

Art. 17.- When the Superintendence detects irregularities in the auction process, it may require that it be repeated, provided that the transfer of the asset has not been formalized.

NCF-05
EXTRAORDINARY ASSETS OF INSURANCE COMPANIES
Approval: 26/06/2024
Validity: 07/16/2024

CHAPTER V
PROCEDURE TO RETAIN ASSETS

Art. 18.- When an entity wishes to retain an extraordinary asset for its own use, cultural purposes, community benefit, or employee welfare, it must submit a request to the Superintendence, attaching the background related to the asset and the justification of the use to be given to it. In this case, it must demonstrate that the investment to be made plus the net balances of its fixed assets does not exceed the percentage established in letter p) of Article 34 of the Law. The request and documentation may be submitted through the means made available by the Superintendence, which may be electronic. In any case, the period referred to in Article 19 of these Standards will begin to run from the next business day after the request has been submitted.

Art. 19.- Upon receipt of the request for authorization to retain an extraordinary asset in accordance with Article 18 of these Standards, the Superintendence will proceed to verify compliance with the requirements defined by the Law and these Standards, having a period of up to twenty business days, following the same procedure established in Articles 6 to 9 of these Standards.

Art. 20.- If the resolution on the retention of the asset is favorable, the accounting transfer of the asset must be carried out, as appropriate and in accordance with the Accounting Catalog.

CHAPTER VI
OTHER PROVISIONS AND VALIDITY

Sanctions
Art. 21.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Supervision and Regulation of the Financial System Law.

Repeal
Art. 22.-
-07), approved by the Board of Directors of the Superintendence of the Financial System in Session No. CD-59/1998, of September 3, 1998, whose Organic Law was repealed by Legislative Decree No. 592 which contains the Supervision and Regulation of the Financial System Law, published in Official Diary No. 23, Volume No. 390, dated February 2, 2011.

NCF-05
EXTRAORDINARY ASSETS OF INSURANCE COMPANIES
Approval: 26/06/2024
Validity: 07/16/2024

Transitory
Art. 23.- Requests and procedures submitted in accordance with what is established in (NPS4-07), and which were pending at the time these Standards enter into force, will continue and conclude in accordance with the regulations under which they began.

Unforeseen Aspects
Art. 24.- 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. 25.- These Standards will enter into force from July sixteen, two thousand twenty-four.