In July 2012, Law N° 29903 “Ley de reforma del Sistema Privado de Pensiones” was published, which introduced modifications to the Consolidated Text of the Law of Private Pensions System (hereinafter “SPP” by its Spanish acronym), approved through Supreme Decree N°054-97-EF which has the objective to line up the interests of affiliated and the Pensions Funds Administrators (hereinafter “AFP”), promoting a higher profitability of the funds that will be designed for pensions, increase of coverage of affiliates, as well as the improvement of the services rendered by AFP’s, including insurance for disability and pension insurance. The reform of the private pension system divided the portfolio of affiliates in seven fractions, so that insurance companies handle both the obligations and rights together. So when an affiliate requires a pension, it is divided into seven parts, each company has to bear the appropriate portion. The premium is set for the insurance payment is equal for all members of the private pension system, which results in the bidding process described above.
Memoria Anual 2016 Annual Report
In September 2014, the second call for the “Public Tender N°02/2014” took place through which insurance companies were selected to manage the disability, survival and burial expenses in the private pension system under a collective insurance policy (called SISCO) whose coverage will start on January 1, 2015 with a term until 31 December 2016. As a result of the bidding process, La Positiva Vida was awarded a seventh of the portfolio, see note 3(g)(ii).
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As a result, as from January 1, 2016, La Positiva Vida obtained premiums related to the pension insurance business for approximately S/133,151,000 (S/125,003,000 as of December 31, 2015) and the claims related to this risk amounted to an amount approximately S/116,928,000 (S/86,218,000 as of December 31, 2015). It should be noted that this risk is significantly reinsured, therefore transactions with reinsurers have increased significantly, see notes 6 and 7.
On the other hand, on December 16, 2016, a call was made for the “third public tender N°03/2016”, whose coverage began on January 1, 2017 with a validity until December 31, 2018. As a result of the Company was awarded a seventh of the coverage with respect to the risk of disability, survivorship and burial expenses (Insurance for disability) for the periods of coverage indicated in previous lines. (G) LAW ON FREE AVAILABILITY OF THE INDIVIDUAL CAPITALIZATION ACCOUNT (CIC) – In April 2016, Congress approved the Act amending the Single Consolidated Text of the Private Pension System Administration Act, approved by Supreme Decree N°054-97EF, through which the members of Pension Fund Administrators (AFPs) who reach the age of 65 and retire, will be able to choose to receive the corresponding pension in any type of retirement (annuities) or ask the AFP to deliver 95.5 percent of the total available funds from their CIC; in addition, the member may exceptionally use the 25 percent accumulated in the CIC as a guarantee for the initial payment of a mortgage loan for the purchase of a first home. As of December 31, 2016, income from insurance premiums for retirement income decreased by 61 percent compared to the 2015 period (S/83,549,000 and S/214,698,000 as of December 31, 2016 and 2015, respectively), see note 35; likewise, at the level of the insurance market, the premiums for retirement income have decreased by an average of 59 percent. La Positiva Vida’s Management has evaluated the impact of this Law and as a result of this evaluation considers that the effects of this law do not significantly affect the continuity of the La Positiva Vida’s operations. (H) INTERNATIONAL CRISIS During the years 2016 and 2015, the national and international financial markets showed dissimilar behavior regarding the price of stocks and bonds, as well as the depreciation of different currencies against the US dollar. The volatility of financial instruments princes in the stock markets have been influenced by different events in the
global markets, mainly related to the performance of Chinese economy, commodity price volatility, United Kingdom leaving the Europe Union, the presidential election process in the United States, and others. In Management’s opinion, the risks of an economic slowdown in national and international markets have not disappeared; therefore, the volatility of the financial and currency markets will remain. It should be noted that during
the years 2016 and 2015, this volatility had a significant impact on the fair value net of the exchange differences of the Company’s financial investments and its subsidiaries, see notes 11(b) and 12(k). Management will continue to monitor this situation permanently, and considers the impacts will not significantly affect the economic and financial situation due to the diversification of its portfolio and the appropriate risk management implemented in recent years.
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(F) LAW OF REFORMATION OF PRIVATE PENSIONS SYSTEM –
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