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:

(a) Complete personal data of the insurer and the contractor;

(b) Specification of the insured person, asset or insured benefit;

(c) Risks covered and exclusions;

(d) Date and term;

(e) Declared value, the sum assured or scope of coverage;

(f) Franchises and deductibles agreed;

(g) Schedule of instalments of the premium;

(h) Official registration of the broker and the commission to be received, if applicable;

(i) 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;

(j) 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.

It is not possible. The General Law provides that any individual or legal entity engaged in granting insurance coverages, insurance intermediation, or other complementary activities must have prior authorisation from the SBS and must follow the established conditions for its incorporation and functioning. Nonetheless, residents in Peru can take out insurance and reinsurance abroad. However, there are activities that foreign companies cannot perform in Peru without a licence or authorisation (e.g., commercialisation).

Those operating without the appropriate authorisation are subject to administrative sanctions amounting up to 200 taxation units (£196,085.31 approx.) 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 (February 2020), Q1 2020 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:

(a) 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;

(b) failing to take the necessary measures to correct the irregularities in management;

(c) 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;

(d) 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;

(e) 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;

(f) 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.

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

(a) assets are not taxed or subject to any precautionary measure;

(b) 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;

(c) 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 marketing 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.

Yes. The regulation (SBS No. 1121-2017) provides that distance selling is only allowed for mass-market insurance undertaken individually or in groups, as well as for car insurance. The SBS determines by general rule the use of distance selling for any other insurance product.

At least, and depending on the type of insurance, companies using distance selling must expressly indicate that it is an insurance promotion and provide detailed information to the potential contracting party or insured.

Within the term of fifteen (15) days following the effective date of conclusion, companies must make available or send the insurance policy or the certificate of insurance to the contracting parties or insured, as the case may be, either in hard copy or by virtual means.

It is worth stressing that the information embodied in the technological media used must remain available for the contracting party if it finally undertakes the insurance, and for the SBS, when required.

Regulations on protection and defence prioritise consumers’ interests, given the disadvantages to them arising from the particular 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).

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 (£19,608.53 approximately).

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.

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.

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.

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.