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Is a disaster knocking on the door?: The earthquake alert in Lima and the New Regulations for the Constitution of the Catastrophic Risk Reserve

Published 24 January 2022

A few days ago, Eng. Raúl Delgado Sayan (a well-regarded professor of the National University of Engineering - UNI), made a comment that went viral on social media, stating that the energy accumulated in the subsoil of Lima is equivalent to 300 million tons of dynamite, and we are at risk of repeating a similar event to the 1746 earthquake (the worst earthquake in our history), with incalculable material damage and human losses.

If this macro event occurs, the government and insurance system would be put to the test, in relation to the so-called catastrophic risks. Related to this, the SBS recently approved the new regulation for the Constitution of the Catastrophic Risk Reserve – SBS Resolution No. 03661-2021.

The regulation in question: i) Sets out a section of definitions, which highlights the definition of catastrophic risk; ii) Establishes the procedure for calculating the monthly reserve; iii) Offers a proposal for the calculation of LAR as well as a basic methodology in case the insured decides to use their own calculation formula; iv) The special treatment that corresponds when the insurers have catastrophic reinsurance; v) The obligation to request authorization from SBS whenever it is necessary to use the reserve for partial or total payments; among other relevant provisions.

Authors

Pedro Richter

Lima

+ (551) 225 5333

prichter@tcpr-abogados.com.pe

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