Technical Standards for the Recognition of Interest and Accounting Reclassification of Loans and Contingencies of Insurance Companies

CONTINGENCIES OF INSURANCE COMPANIES
Approval: 05/30/2025
Effective Date: 06/16/2025

THE COMMITTEE OF NORMS OF THE CENTRAL RESERVE BANK OF EL SALVADOR, CONSIDERING:

I. That Article 85, first paragraph, of the Insurance Companies Law, establishes the manner in which the accounting of insurance companies shall be kept, as well as the criteria for consolidating their operations and financial statements.

II. That Article 2, first paragraph, of the Law for the Supervision and Regulation of the Financial System, establishes that the Financial Supervision and Regulation System aims to preserve the stability of the financial system and ensure its efficiency and transparency, as well as to ensure the safety and solidity of the members of the financial system in accordance with what is established in said Law, other applicable laws, regulations, and technical standards issued for this purpose, all in concordance with international best practices on the matter.

III. That Article 3, letter c), of the Law for the Supervision and Regulation of the Financial System, establishes that it is the responsibility of the Superintendency 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.

IV. That Article 35, letter f), of the Law for the Supervision and Regulation of the Financial System, establishes that it is the obligation of the supervised entities to adequately disclose the economic and financial reality, and to have the backing of their internal and external audits.

V. That Article 99, third paragraph, letter c), of the Law for the Supervision and Regulation of the Financial System, establishes that it corresponds to the Committee of Norms of the Central Reserve Bank of El Salvador to approve the Technical Standards for the preparation, approval, presentation, and dissemination of the Financial Statements and supplementary information of the members of the financial system; to determine the accounting obligations and the principles according to which they must keep their accounting; and to establish criteria for the valuation of assets, liabilities, and the establishment of provisions and reserves for risks.

VI. That in accordance with Article 101, fourth paragraph, of the Law for the Supervision and Regulation of the Financial System, the powers to approve, modify, and repeal technical standards that must be complied with by the members of the financial system and other supervised entities are transferred to the Central Reserve Bank of El Salvador.

CONTINGENCIES OF INSURANCE COMPANIES
Approval: 05/30/2025
Effective Date: 06/16/2025

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

AGREES to issue the following:
TECHNICAL STANDARDS FOR THE RECOGNITION OF INTEREST AND ACCOUNTING RECLASSIFICATION OF LOANS AND CONTINGENCIES OF THE INSURANCE COMPANIES

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

Object
Art. 1.- These Standards aim to establish the criteria for the recognition of interest accrued in active operations, as well as the transfer of loans from current portfolio to past-due portfolio, the conversion of a contingency into a loan due to the default of guarantees, and the suspension of the recognition of interest originated on active operations that have been in default for more than ninety days.

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) Central Bank: Central Reserve Bank of El Salvador; b) Entity(ies): Subjects referred to in Article 2 of these Standards; and c) Accounting Manual: Accounting Manual for Insurance Companies.

CONTINGENCIES OF INSURANCE COMPANIES
Approval: 05/30/2025
Effective Date: 06/16/2025

CHAPTER II
RECOGNITION OF INTEREST ON ACTIVE OPERATIONS

Art. 4.- Interest receivable shall be recognized daily in account 1398.
Entities that have operational or technological limitations to make the daily provision shall do so at least at the end of each month.
Penalty interest shall be accounted for until it is received.

Art. 5.- Interest that, while in off-balance sheet accounts, passes to become part of interest receivable, is integrated into the capital of a new credit, or is paid with loans granted by the same entity, shall be accounted for as a deferred liability in account 2901 Other Liabilities of the Accounting Manual. This deferred liability shall decrease only by cash recoveries. The creditor and its debtors may freely agree on the payment method for interest that, while in off-balance sheet accounts, passes to become part of the asset.

CHAPTER III
RECLASSIFICATION OF LOANS, CONTINGENCIES, AND SUSPENSION OF INTEREST RECOGNITION

General Rules
Art. 6.- A default of more than ninety (90) days on a installment or on the principal and interest balance of loans shall cause the principal to be classified as past-due portfolio. The default may be on principal, interest, or both.

Art. 7.- Extensions granted by the entities to the debtor shall not modify the delinquency status of the loan.

Art. 8.- The deadlines for transfers established in these Standards are maximums, so entities may reduce them.

Art. 9.- The accounting of interest on loans shall be suspended in the following cases:
a) Loans with more than 90 days past due; and b) Current loans with principal and interest balances in default for more than 90 days.
In cases of suspension of interest provision, entities must keep control of the provisioned interest and the interest that will accrue in the future in the off-balance sheet account "Interest Suspended on Past-Due Loans" of the Accounting Manual, while delinquency exists.

Reclassification
Art. 10.- Only the principal shall be transferred from current portfolio to past-due portfolio.
The causes motivating the transfer are the following:

CONTINGENCIES OF INSURANCE COMPANIES
Approval: 05/30/2025
Effective Date: 06/16/2025

a) Loans that have installments or balances with default exceeding ninety days; and b) Loans from the moment the Board of Directors of the entity or the relevant authority decided to collect it through judicial means.

Art. 11.- A loan whose principal is registered as past-due portfolio may be reintegrated into the current portfolio when it has no installments or balances with default exceeding 90 days. From the transfer, the corresponding interest shall continue to be provided for in balance sheet accounts.

Art. 12.- Loans granted to pay the principal and interest at maturity shall be considered past due for the purposes of these Standards.

Art. 13.- Receivables from past-due premiums, regardless of how they are documented, must also be transferred to the past-due portfolio.

Art. 14.- When the payment of a guarantee is made effective due to client default, in addition to recording the expense for the claim payment in account 4107 Guarantees, the amount thereof must also be accounted for as a past-due loan in account 1303 Past-Due against account 1399 Provisions for Loans, until the document converting it into a loan is issued or until its total recovery. In the case mentioned in the previous paragraph, the contingent liability shall be eliminated in the respective off-balance sheet account.

Art. 15.- The provisions established in this Chapter III of these Standards are also applicable to loans guaranteed by policies when they exceed the surrender value.

CHAPTER IV
OTHER PROVISIONS AND EFFECTIVE DATE

Sanctions
Art. 16.- Non-compliance with the provisions contained in these Standards shall be sanctioned in accordance with what is established in the Law for the Supervision and Regulation of the Financial System.

Repeal
Art. 17.- These Standards repeal the
[Reference missing], approved by the Board of Directors of the Superintendency of the Financial System in Session No. CD-30/1998 on May 20, 1998, and the [Reference missing], approved by the Board of Directors of the Superintendency of the Financial System in Session No. CD-55/2000 on October 19, 2000, whose Organic Law was repealed by Legislative Decree No. 592,

CONTINGENCIES OF INSURANCE COMPANIES
Approval: 05/30/2025
Effective Date: 06/16/2025

which contains the Law for the Supervision and Regulation of the Financial System, published in the Official Diary No. 23, Volume 390, on February 2, 2011.

Unforeseen Aspects
Art. 18.- Matters not foreseen in the regulation of these Standards shall be resolved by the Central Bank through its Committee of Norms.

Effective Date
Art. 19.- These Standards shall enter into effect on June 16, two thousand twenty-five.