Peru: Insurance & Reinsurance

According to the General Banking and Insurance Act, Law No. 26702 (‘General Law’) and the Insurance Contract Act, Law No. 29946 (‘ICA’), the insurers are free to set the conditions of their policies, its rates, and other conditions. The insurance contract concludes with the parties’ consent, although the policy is not issued, nor the premium payment made. Notwithstanding the preceding, the ICA establishes that the minimum requirements that, among others, the policies must contain are the following:

1. Complete personal data of the insurer and the contractor;
2. Specification of the insured person, asset or insured benefit;
3. Risks covered and exclusions;
4. Date and term;
5. Declared value, the sum assured or scope of coverage;
6. Franchises and deductibles agreed;
7. Schedule of instalments of the premium;
8. Official registration of the broker and the commission to be received, if applicable;
9. In cases of life insurance and personal accidents with death or incidental death coverage, the policy must expressly state that the contract is part of the National Information Registry of Life Insurance Contracts and Personal Accidents with coverage of death or accidental death;
10. In cases of property damage insurance, the policy must contain the indication of the performance of the contractor if two policies cover the same risk.

The content of the policies is far more regulated when relates to personal, compulsory and mass insurance. In these cases, the policies must be subject to minimum conditions and clauses, which must be approved by the Superintendence of Banking and Insurance (SBS as per Spanish acronym). Moreover, in said cases, the minimum conditions and clauses of the insurance contracts are upon specific approval by the SBS before application. In other cases, policies must only be submitted to the SBS before usage and application.

Likewise, the ICA has a list of forbidden clauses that, if included in the insurance policies, are null and void.

The General Law regulates equally the different types of insurers: insurance companies of a single branch (general risks), insurance companies of both branches (general risks and life) and reinsurance companies. The main regulatory difference between the different types of insurers is the minimum capital requirement, which varies according to the type of company in the insurance system. The General Law also regulates insurance intermediaries (insurance and reinsurance brokers) and insurance auxiliaries (adjusters and loss experts).

According to the General Law, the SBS authorises and regulates the activities of insurance intermediaries and keeps a record of them. The registry specifies the services of the branches of insurance in which each one may operate, as appropriate. The denomination of insurance intermediaries comprises insurance and reinsurance brokers.

The SBS previously authorises the accomplishment of the intermediation and other activities complementary to these in the contracting of insurance.

All the activities of the insurance system require an enabling title, called ‘operation license’. The SBS holds a registration of insurance intermediaries and auxiliaries. It establishes the insurance’s branches in which these companies are authorised to operate.

Obtaining an operating license to provide insurance services may take between four (04) and fourteen (14) months, depending on the license requested. The given terms consider the time to gather the requirements, their formalisation to be valid in Peru and the term established for the SBS to address the request.

In the case of legal entities, the deadlines above do not include the incorporation process, which could take approximately two (2) months.

Current Peruvian Constitution provides that same conditions apply for both domestic and foreign investments. Therefore, there is no prohibition for foreigners from holding shares in an insurance company.

Notwithstanding the foregoing, the General Law provides that shareholders must meet requirements of moral suitability and economic solvency; that is to say, they should not be encompassed by any of the statutory barriers. Therefore, a shareholder cannot have a felony conviction, be expressly prohibited by their functions in public office, be involved in insolvency proceedings, exceed the maximum percentage of shares allowed in two companies of same nature in the financial system, among others.

Under article 50° of the General Law, any individual or legal entity that either directly or indirectly acquires shares amounting at least one per cent (1%) of the stock capital, within twelve months, must submit to the SBS information needed to adequately identify which are its main economic activities and the structure of its assets. The same applies to those who reach three per cent (3%) participation or more. Moreover, the article 57° of the General Law provides that the SBS should authorise the transfer of shares for more than ten per cent (10%) of the stock capital in favour of a single person.

Peruvian residents can take out insurance or reinsurance abroad. However, these contracts (as well as the issuing companies) are not supervised by the Peruvian Superintendence of Banking and Insurance (SBS). Therefore, the insured cannot file claims or complaints against these foreign companies before the local authority.

On the other hand, foreign insurers cannot offer their products without prior authorization from the SBS. Only with this authorization, the establishments of foreign insurers in the country will have the same rights, but they will be also subject to the same obligations as local insurers.

Opening a branch of an insurance company, requires a prior authorization from the SBS. The Authorization Resolution as well as the certified copy of the Company’s Operating Authorization Resolution must be exhibited at the branch’ or agency’ premises. Once this authorization has been obtained, they will enjoy the same rights and will be subject to the same legal provisions as local companies.

However, the General Law states that the branches are prevented from filing diplomatic claims with respect to the business and operations they carry out in the country, whether they invoke rights derived from their nationality or any other reason. Likewise, creditors domiciled in Peru have a preferential right over the assets of the branch of a foreign insurance company located in Peru, in the event of liquidation of such company or its branch in Peru.

Finally, branches are not required to have a Board of Directors, but they must have a representative with the broadest powers to bind it in all matters relating to the development of its activities.

However, this option is not viable for insurance brokers. It is not possible for a foreign insurance broker to establish branches in Peru. The only way for an insurance broker to operate is by previously following the registration process established in the Regulations of the Registry of Insurance Intermediaries and Auxiliary Companies, Foreign Reinsurance Companies and Cross-Border Insurance Activities, approved by Resolution S.B.S. No. 808-2019.

Those operating without the appropriate authorisation are subject to administrative sanctions amounting up to 200 taxation units (£187,439.28approx.) and criminal penalties (Article 243°- B of the Criminal Code classifies the performance of unauthorised activities as a criminal offence against the economic order).

Quite rigorous. The SBS is a trustworthy entity in terms of audit, supervision and sanctions. The General Law addresses all attributions and specific functions the SBS is entitled to and grant it an appropriate control system over individuals and legal entities under its supervision. Complaint servicing mechanisms for users, provided by both SBS and Indecopi (consumers’ protection authority), reinforce the above.

Considered metrics for this purpose are two: the effective equity and the solvency capital. Insurance and reinsurance companies shall at all times keep effective equity of not less than solvency capital.

Effective equity is the sum of capital accounts minus the amounts invested in subordinated bonds and shares in insurance companies dedicated to other branches. The SBS calculates solvency capital over the basis of the annual amount of the premiums, the average annual claim load or the minimum capital required for the specific type of company in the insurance system.

In addition to this equity requirement, other specific requirements relating to outstanding indebtedness and the provision of guarantee funds and reserves may be added.
Finally, it should be noted that, when supervising solvency, the SBS reviews the information that the insurance companies send monthly, and the financial statements to ensure (i) the effective equity, (ii) the surplus or deficit of the effective equity, (iii) the effective equity destined to cover credit risk, (iv) information on solvency margin, and (v) information on debt limit.

The SBS provides the minimum stock capital for insurers and other entities within the financial system. For this purpose, it applies a general rule that is updated each quarter. As of the date of issuance of this questionnaire (January 2022), Q1 2022 update is still in force and provides as follows:

Yes. While insurers are free to fix the content of their policies, when relating to personal, compulsory and mass insurance, the policies shall be subject to minimum conditions and clauses approved by the SBS. The said authority is entitled to ban policies that do not comply with the law or the minimum conditions approved. Also, the SBS is entitled to require the addition of clauses or conditions that strengthen insurance’s technical and economic foundations, as well as the insured’s protection. In general terms, the spirit of the ICA gears towards the insured and provides that relevant information (coverage, exclusions, how to file a claim, among other provisions) shall always be available for the insured, clearly and transparently.

The SBS supervises the economic groups. The scope of its authority includes identification of economic groups and supervision of them. To this end, the SBS may request information that it deems relevant from all the companies that the economic group comprises.

One of the most critical aspects concerning the supervision of economic groups is the limits applicable to investments made by either related individual or legal entities, which cannot exceed twenty per cent (20%) of the technical reserves, the minimum solvency capital and the guarantee fund of the insurance company. When the issuer belongs to the same holding to which the (re)insurer is part of, the limit halves.

Executives or senior staff must meet several moral and technical requirements. To this extent, directors, managers, and senior officials (such as the heads of risk management areas) should have no negative managerial records, or sanctions, whether administrative or criminal. Likewise, there must be no evidence of their non-compliance with any commercial, financial or tax duty, or of whichever actions involving dishonesty or wilful misconduct. Moreover, they must hold proper professional credentials satisfying the requirement for a professional career that is suitable for the position; that is to say, having carried out career-related specialised or managerial activities within the financial system, or having completed specialised training attested by a university or postgraduate degree.

According to the General Law, directors (or senior managers and their alternates), are primarily liable for:

1. approving operations and adopt agreements in violation of the provisions of the law and, in particular, of the prohibitions or limits established in said law;
2. failing to take the necessary measures to correct the irregularities in management;
3. non-compliance with the provisions of either the SBS or the Central Bank, as well as any failure to deal with any request for information by said authorities;
4. failing to provide information to the SBS, or giving false information concerning facts or operations that may affect the stability and soundness of the company;
5. failing to respond to SBS or Central Bank communications that need to be answered by them, either because the law or the said agencies require so;
6. failing to take appropriate measures to ensure timely completion of internal and external audits.

The SBS punishes these infringements according to their severity. Under both Peruvian Corporations Act and Organic Law of the Bank of Peru, civil or criminal prosecution may be applicable, without prejudice of the foregoing.

Yes, it’s necessary to have a physical presence in the country. For the incorporation of an insurance company, the Single Text of Administrative Procedures of the SBS requires the presentation of a market, financial and management feasibility study, in which the location of the main office, offices, points of sale, security conditions and equipment of the offices, among others, must be presented.

Also, to obtain authorization from the insurance supervisor, companies must previously register to the Public Registries of Peru, for which it is necessary to indicate a physical address in the country.

On the other hand, insurance companies and / or providers of insurance services, domiciled in a country with which Peru maintains an International Treaty in force that has allowed the contracting of maritime transport, commercial aviation, launch and space transport insurance , which cover merchandise, the merchandise transport vehicle, and liability derived from it, as well as reinsurance and retrocession services, can be registered with the authority without the need to establish themselves in the country.

Insurance companies must set appropriate policies and procedures to test, manage and track the subcontracted processes for managing the operational risks associated with outsourcing and/or operational resilience. Such policies and procedures must consider:

1. the selection process of the service provider;
2. preparation of the outsourcing agreement;
3. management and monitoring of the risks associated with the subcontracting agreement;
4. implementation of an effective control environment;
5. establishment of continuity plans.
6. Outsourcing agreements must be formalised through a duly executed contract, which must include service level agreements, and clearly define the responsibilities of the supplier of the company.

Insurers assume full responsibility with any third party for the results of the outsourced processes and may be penalised for the non-compliance. They must also ensure the maintenance of secrecy and confidentiality of the information that might be provided to them.

For any significant outsourcing, a formal analysis of the associated risks must be carried out and reported to the Board for approval. It is understood under ‘significant’ any subcontracting that may expose the company to significant risk, in case of failure or suspension of the service, by affecting its income, solvency, or operational continuity. The outsourcing of one or more risk management functions shall be considered significant.

Moreover, in the case that a company intends to outsource the processing of data to such a significant extent that the service is rendered overseas, it shall be subject to prior express authorisation by the SBS.

Yes. According to Investment Regulations for Insurance Companies (SBS No. 1041-2016), insurers are responsible for determining the eligibility of investments that support their technical obligations. Investments are considered eligible provided that, at both the individual and portfolio level, they reasonably meet as follows:

The assets, including underlying assets, should not be taxed, or subject to any precautionary measure, or bound by contracts or any other act that prevent or restrict their free availability in no way. To this effect, the following is assessed, as a minimum:

1. assets are not taxed or subject to any precautionary measure;
2. escrow agreements for eligible investments include no clauses or measures allowing the use of the assets that support technical obligations as collateral for any other outstanding liability arising from any financial service different from the escrow;
3. no other measures are preventing or restricting the free transfer of assets that support the technical obligations. Partial limitations are assessed and authorised by the SBS, to verify that they do not prevent compliance of the other eligibility criteria. For this purpose, the company must apply for authorisation, with documentation supporting compliance with the eligibility criteria provided above.

Placement of insurance products is only regulated in respect to mass-market insurance. The SBS has approved a framework regulation for the commercialization of insurance products (SBS No. 1121-2017) that governs the modalities available for insurance companies to place massive products. Its key provision is that insurance companies are responsible for any action performed on its behalf by any individual or entity, without regard to the marketing method applied.

The current Regulation for the Commercialization of Insurance Products, Resolution No. 1121-2017, approved by the Superintendency of Banking and Insurance (SBS), incorporated into the insurance system the figure of insurance commercialization through the use of distance systems, which includes the use of telephone, internet or other analogous systems that allow companies to access potential contractors and policyholders in a non-presential way, to promote, offer and market their products, which includes digital commercialization through social networks and price comparison systems. Likewise, the Regulation provides that for all cases of insurance commercialization using distance systems, the companies must implement an adequate support to obtain, keep and safeguard the information provided to the potential insured and his acceptance for the contracting of the insurance, according to the characteristics of the channels used, their own or those of their marketers, which includes video and/or voice recordings or other mechanisms.

In addition, the Insurance System Market Conduct Management Regulation, SBS Resolution No. 4143-2019, specifically regulates the scope of such commercialization, in addition to incorporating the figure of insurance promotion as an advertising mechanism for contracting through distance systems.

These regulations, however, are not applicable to the market the sale of insurance on a cross border basis since, to do so, they need an express authorization from the SBS.

Regulations on protection and defence prioritise consumers’ interests, given the disadvantages to them arising from the circumstances of the financial products.

Provisions for financial products or services, as well as the Regulation on Transparency of Data and Insurance Contract, apply for contracting parties, insureds, and beneficiaries holding a consumer status, as provided by the article 14 of the Customer Protection Code (approved by Law No. 29571).

Said regulations provide on expected suitability of contractual conditions, particularly regarding clarity and transparency of their terms. They address the reporting of relevant information at the preliminary stage, when undertaking the insurance, and within the term of the policy. Said regulation also includes provisions on how the information is released (through the website, informative brochures and even the sales force).

In Peru, it is expressly prohibited to control the prices or rates of products or services.

Peruvian courts are currently undergoing an innovation process that includes the training of all its agents. To this extent, we consider that the courts will become more specialised as the said process moves forward.

Notwithstanding the previous, there are ADR mechanisms that allow complex commercial claims to be settled by agents out of the local courts, e.g., arbitration. Arbitration is highly developed in Peru and has such a level of sophistication, allowing the submission of complex controversies to the decision of a specialised Arbitral Panel.

Yes. The insured is entitled to submit the dispute before a judicial court, without prejudice to his or her right to agree with the insurer the submission of the claim to arbitration, or to any other ADR mechanism, even once the loss has occurred.

Likewise, the parties are free to agree the submission of the disputes arising from an insurance contract to arbitration, provided that the damages or losses claimed equal or are greater than 20 UIT (£18.700,39approximately).

Without prejudice of the arbitration, Peruvian law also includes other mechanisms such as mediation and conciliation.

In Peru, books of (re)insurance are not regulated.

To enhance the market access to insurance as well as to diversify the offering of products. In Peru, it is needed to create a more robust insurance culture, and to promote the offering of innovative products that have been already tested in further developed markets.

Other significant but currently untapped markets are micro-insurance and insurance for environmental damage.

On the other hand, the SBS has always been open and welcomed the participation of new players in the local (re)insurance market. Thus, as of 2021, the SBS contemplates the possibility that actors seeking to incorporate and operate in the country may meet to present their business plan and receive information on the supervisor’s expectations, requirements, procedures, general guidelines, evaluation criteria and how to communicate the results of the evaluation. Likewise, last year, the SBS enacted Resolution 2429-2021, by virtue of which approved the regulations for the temporary performance of activities in innovative models (Regulatory Sandbox), as a temporary experimentation space for innovative business models within the financial and insurance sectors.

One of the main challenges for the insurance market in the face of digital innovation is the exposure of privacy and confidentiality arising from cyberpiracy or attacks.

To address this challenge, insurance companies must manage risks linked to information technology, relating to failures in the security and operational continuity of computer systems, failures in development and implementation of the said systems and with their compatibility and integration, and inadequate investment in technology, among other aspects.

As indicated in question 19, the digitization of insurance or insurance commercialization through the use of distance systems, is regulated by the Regulation for the Commercialization of Insurance Products, Resolution No. 1121-2017, approved by the Superintendency of Banking and Insurance (SBS), which includes the use of telephone, internet or other analogous systems that allow companies to access potential contractors and policyholders in a non-presential way, to promote, offer and market their products, which includes digital commercialization through social networks and price comparison systems.

It is worth mentioning that companies, in any method of commercialization, with or without the use of distance systems, can issue electronic policies, complying with the requirements established in the Regulation.

In relation to claims handling, there is no legal prohibition in Peruvian regulations to send information by digital means for claims management. In this regard, the Regulation for Claims Management and Payments states the obligation to have claims files, which must be made available to the Superintendence of Banking and Insurance; however, it does not state or exclude the possibility of having a digital claims file.

Likewise, as of the creation of the Registry of Companies Specializing in Micro-Filing Services (REMA), the supervised insurance companies may keep and replace documents and information prepared in conventional form and that produced by computer procedures with files kept by means of microforms, for which they must obtain prior authorization from the SBS.

The Personal Data Act (Law No 29733) and its regulation provide on how Peruvian companies should process personal data, stating that full respect to people’s both fundamental and legal rights should be observed. This regulation places duties on companies to ensure proper processing of personal data of customers, suppliers, employees, and other involved persons. These regulations also typify the infringements and set penalties for companies in case of non-compliance with these obligations.

Also, the SBS regulates (Circular Letter No. G-140-2009) management of information security applicable to (re)insurance companies. This regulation sets minimum criteria for identification and management of risks associated with the use of data. Likewise, it requires an adequate combination of policies, procedures, organisational structure, and specialised tools for the data to meet the criteria of confidentiality, integrity, and availability.

The Personal Data Act (Law No 29733) and its regulation regulate the international transfer of personal data to a recipient located in a country other than the country of origin of the personal data, regardless of the medium on which the data is stored, how the transfer was made or the processing it receives, known as transborder flow of personal data.

Peruvian law provides that for the cross-border flow of personal data, a sufficient level of protection must be guaranteed for the personal data to be processed or, at least, comparable to the provisions of the Peruvian law or international standards on the matter. To this end, the holder and the processor of personal data must carry out the transborder flow of personal data only if the recipient country maintains adequate levels of protection in accordance with the Peruvian law. If the recipient country does not have an adequate level of protection, the sender of the transborder flow of personal data must ensure that the processing of personal data is carried out in accordance with the provisions of Peruvian law.

In addition, the regulation orders the registration of the communications of cross-border flow of personal data of the companies in the National Registry of Personal Data Protection, the purpose of this is to make the receiving or importing entity, the country of destination and the purpose of the transfer of personal data publicly known.

Since insurance companies have securities listed on the Stock Exchange, they are obliged to prepare and submit their financial statements and annual report, as well as sustainability and corporate governance reports (includes issues related to environmental and social policies) to the Superintendency of the securities market.

On the other hand, there are no specific ESG regulations or requirements for insurance companies.

Considering that the development of cyber products and services are in vogue, cyber risk insurance could take a new position in the market. However, infrastructure investment remains the highest goal of the Peruvian government; therefore, construction and insurance products associated with this industry will continue leading the market for the next five years.