Effective Date: 30/08/2024

NRP-77
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO AN INSURANCE COMPANY

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

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

CONSIDERING:

I. That Article 25, letter f) of the Insurance Companies Law establishes that insurance companies are prohibited from granting credits to the related persons referred to in Articles 27 and 28 of the aforementioned Law, which are intended for the development or alienation under any title of real estate.

II. That Article 27, first and second paragraphs of the Insurance Companies Law establish that insurance companies, as well as their subsidiaries, may not have in their portfolio credits granted to natural or legal persons directly or indirectly related to the ownership of the respective institution, nor acquire securities issued by them in a global amount exceeding fifteen percent (15%) of their paid-in capital and capital reserves, excluding deposits and securities of banks and financial institutions. Furthermore, said amount shall not exceed two percent (2%) of the net total assets of the insurance company or its subsidiaries, after reserves for regularization and depreciation, as applicable. For these purposes, the ownership of the shares of the insurance company must be a minimum of three percent (3%) of the same, including the shares of their spouse and relatives up to the first degree of consanguinity, in the case of natural persons. Autonomous institutions shall not be considered related persons.

III. That Article 27, third and fourth paragraphs of the Insurance Companies Law establish that credits granted to spouses or relatives within the second degree of consanguinity or first degree of affinity of the persons referred to in this article shall be considered related; likewise, credits granted with the purpose of alienating assets that are property of the persons referred to in this article shall be considered related. It also details the circumstances under which credits granted to a company are considered related-party transactions. And that these credits may not be granted on terms more favorable regarding terms, interest rates, or guarantees than those granted to third parties in similar transactions.

IV. That Article 28 of the Insurance Companies Law establishes that the transactions detailed in the first paragraph of said article shall be presumed to be transactions between related parties. It also establishes that external auditors, when issuing their opinion on the financial statements of insurance companies, shall indicate in a separate note the aggregate of credits between related parties, and insurance companies must keep a register of investment operations carried out with natural and legal persons related to the ownership of the respective institution, providing information on this to the Superintendence at least quarterly, within the first ten business days of the following quarter.

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Effective Date: 30/08/2024

NRP-77
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO AN INSURANCE COMPANY

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

V. That Articles 4 and 5 of the Regulations of the Insurance Companies Law establish that direct and indirect linkage between an insurance company and other natural or legal persons shall be understood.

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

VII. That Article 32, first paragraph of the Financial System Supervision and Regulation Law establishes that the Financial System Superintendence may require supervised entities direct access to all data, reports, or documents regarding their operations through the means and form it defines.

VIII. That Article 37, first paragraph of the Financial System Supervision and Regulation Law establishes that supervised entities must facilitate the Superintendence's examination of their business, acts, operations, assets, books, accounts, files, documents, correspondence, databases, and information systems, in all matters pertinent to the supervisory activity. Likewise, their administrators and staff must provide the Superintendence with the background and explanations necessary to clarify any matter within its competence, being obligated to provide the collaboration requested of them.

THEREFORE,

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

AGREES to issue the following:

TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO AN INSURANCE COMPANY

CHAPTER I

OBJECT, SUBJECTS, AND TERMS

Object

Art. 1.- These Standards aim to establish the aspects related to the granting of credits to persons related to insurance companies, in accordance with what is established in the Insurance Companies Law.

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Effective Date: 30/08/2024

NRP-77
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO AN INSURANCE COMPANY

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

Subjects

Art. 2.- The subjects obliged to comply with the provisions established in these Standards are:
a) Insurance Companies constituted in El Salvador; and b) Branches of Foreign Insurance Companies, established and authorized in El Salvador.

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) Law: Insurance Companies Law; c) Kinship: Family relationship that exists between two or more persons, which can be by consanguinity, affinity, or adoption; d) Insurance Companies: Subjects referred to in Article 2 of these Standards; and e) Superintendence: Financial System Superintendence.

CHAPTER II

RELATED PERSONS

Direct Linkages

Art. 4.- Natural persons related to an insurance company are those holding at least three percent (3%) of the common shares of that company; for these purposes, the shares of their spouses and their relatives of the first degree of consanguinity shall be added.

Art. 5.- Legal persons directly related to an insurance company are entities holding at least three percent (3%) of the common shares of that company.

Indirect Linkages

Art. 6.- The following are persons indirectly related to an insurance company:
a) Those in which a related legal person is the direct or indirect holder of common shares in at least three percent (3%). The percentage of indirect shareholding shall be determined by establishing the proportionality corresponding to the related legal person directly in other companies; and b) Those who are direct or indirect holders of at least three percent (3%) of the shares of another entity that has the status of being related to the insurance company. The percentage of indirect shareholding shall be determined by establishing the proportionality corresponding to the legal persons that are shareholders of

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Effective Date: 30/08/2024

NRP-77
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO AN INSURANCE COMPANY

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

the company related directly to the insurance company. When dealing with natural person shareholders, the shares of spouses and relatives of the first degree of consanguinity shall be considered as belonging to the same person.

Exceptions

Art. 7.- In no case shall autonomous state institutions and companies have the status of related persons.

Classes and Degrees of Kinship

Art. 8.- For the purposes of the provisions established in these Standards, the following classes and degrees of kinship are determined:
a) Classes of Kinship:
i. Consanguinity: Exists when the bond uniting persons is of blood, that is, existing between persons who descend from one another or from a common ancestor. When the line of persons is ascending from the other, consanguinity is in a direct line; and when both persons proceed from a common ancestor, and one is not an ancestor of the other, consanguinity is in a collateral or transverse line;
ii. Affinity: Is the kinship that exists between a person and the blood relatives of their spouse or partner. The line of affinity is qualified by the line of consanguinity of the spouses or partners; and
iii. Adoption: Is the kinship that originates between the adopted, the adopters, and the relatives of these, with the same effects as consanguineous kinship.
b) Degrees of Kinship:
i. The degree of kinship by consanguinity is determined by the number of generations, as follows:

1. First degree of consanguinity is the kinship between parent and child; and
2. Second degree of consanguinity is that which exists between grandparent and grandchild, and between siblings.
   ii. The degree of affinity is determined by that of the blood relatives of the spouses or partners, as follows:
3. First degree of affinity is that which exists between father/mother-in-law and son/daughter-in-law, and between stepfather and stepchild; and
4. Second degree of affinity is that which exists between brothers-in-law.
   iii. For the case of degrees of kinship by adoption, the same effects are established as for consanguineous kinship.

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Effective Date: 30/08/2024

NRP-77
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO AN INSURANCE COMPANY

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

CHAPTER III

CREDITS CONSIDERED FOR DETERMINING GRANTING LIMITS

On Credits

Art. 9.- The following financial instruments are considered credits, for the purposes of these Standards:
a) Loan balances; b) Investments in bonds and obligations issued by the credit subject; c) Investments in repo operations carried out outside the stock exchange, in which case the repo seller shall be considered the debtor; and d) Any other obligation that has the character of financing or credit.

In all cases, the corresponding accessories to each of the referred instruments must be added.

Credits to Related Persons

Art. 10.- For the purposes of calculating the maximum limit of credits to related persons and of the credits thus considered, which cannot exceed fifteen percent (15%) of the paid-in capital, or capital assigned in the case of branches, and capital reserves of the insurance company, or two percent (2%) of the net total assets of reserves for regularization and depreciation, whichever is lower of the two, credits to related persons determined in accordance with the provisions established in Chapter II of these Standards must be considered, as well as those corresponding to the following companies:
a) Those in which a shareholder related to the insurance company, their spouse, and relatives of the first degree of consanguinity are holders of at least ten percent (10%) of the common shares. The status of related shareholder must be established based on Articles 4 and 5 of these Standards; b) Those in which a director or manager of the insurance company, their spouse, and relatives of the first degree of consanguinity are holders of at least ten percent (10%) of the common shares; c) Those in which two or more directors or managers of the insurance company, their spouses, and relatives of the first degree of consanguinity are holders jointly of at least twenty-five percent (25%) of the common shares; and d) Those that have common shareholders with the insurance company, whose joint participation is at least twenty-five percent (25%) and in the insurance company at least ten percent (10%). For the determination of the aforementioned percentages, they shall be considered as one person.

For the purposes of these Standards, only paid-in capital and capital reserves obtained from the profits of insurance companies are considered.

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Effective Date: 30/08/2024

NRP-77
TECHNICAL STANDARDS ON THE GRANTING OF CREDITS TO PERSONS RELATED TO AN INSURANCE COMPANY

CENTRAL RESERVE BANK OF EL SALVADOR
GOVERNMENT OF EL SALVADOR

Credits Related by Presumption

Art. 11.- The credits established by the Superintendence in the resolution of presumption in accordance with what is established in the Regulations of the Insurance Companies Law, when it deems the fulfillment of any of the conditions indicated in Articles 27 and 28 of the Law, must be considered in the limits mentioned in Article 9 of these Standards.

Credits to Spouses and Relatives

Art. 12.- For the purposes of calculating the limits mentioned in Article 9 of these Standards, credits granted to spouses and relatives up to the second degree of consanguinity and first degree of affinity of the related shareholders, directors, or managers of the insurance company must be taken into account.

Credits for the Acquisition of Assets

Art. 13.- Also, for the calculation of the corresponding limits, credits granted for the acquisition of assets of the related shareholders, directors, or managers of the insurance company must be considered.

Indirect Credits

Art. 14.- For establishing the corresponding limits, credits in which the related shareholders, directors, or managers of the insurance company, and spouses and relatives up to the second degree of consanguinity and first degree of affinity of the aforementioned, have the status of guarantors, co-debtors, acceptors, or guarantors of bills of exchange shall be taken into account.

Excepted Credits

Art. 15.- Credits granted to spouses and relatives up to the second degree of consanguinity and first degree of affinity of the directors and managers of the insurance company, before these are appointed to such positions, shall not be considered related credits.

Furthermore, credits granted to the related shareholder, their spouse, and relatives up to the second degree of consanguinity and first degree of affinity, before the shareholder had such status, shall not be considered related credits.

These credits shall not be excepted when, subsequent to the appointment of director or the acquisition of the status of related shareholder, they are refinanced, reprogrammed, or modified to the benefit of their debtors.

CHAPTER IV

OTHER PROVISIONS AND EFFECTIVE DATE

On the Submission of Information of Related Persons

Art. 16.- For the purpose that the Superintendence has the information that allows it to verify compliance with the limits established in the Law, Insurance Companies shall submit to the Superintendence in the first three months of each year, regarding their directors and managers, the following information:
a) The names of their spouse and relatives up to the second degree of consanguinity and first degree of affinity; and b) The companies where they are directors or direct shareholders or when through legal persons they exercise patrimonial control over these, indicating the percentage of share participation.

Modifications or additions to the information of letters a) and b) of the first paragraph of this article must be reported within twenty (20) business days following their occurrence.

On Registers

Art. 17.- Insurance companies must maintain updated records in electronic media containing at least the following:
a) List of related persons; b) The credits that are considered for the purposes of calculating the limit of granting related credits; and c) Investment operations carried out with related persons by ownership, of which they will submit information to the Superintendence in the first ten business days of January, April, July, and October of each year. This register must be submitted to the corresponding legalization.

Sanctions

Art. 18.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Financial System Supervision and Regulation Law.

Repeal

Art. 19.- These Standards repeal the "Standards on Credits to Related Persons with an Insurance Company" (NPS3-03), approved by the Board of Directors of the Financial System Superintendence in Session No. CD-81/1999 of December 1, 1999, whose Organic Law was repealed by Legislative Decree No. 592 containing the Financial System Supervision and Regulation Law, published in the Official Journal No. 23, Volume No. 390, dated February 2, 2011.

Unforeseen Aspects

Art. 20.- Unforeseen aspects in regulatory matters in these Standards will be resolved by the Central Bank through its Committee of Standards.

Effective Date

Art. 21.- These Standards will enter into effect as of August 30, 2024.