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Gregory
Harrington
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Gregory.Harrington@aporter.com
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(202)
942-5082
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(202)
942-5999 Fax
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555
Twelfth Street, NW
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Washington,
DC 20004-1206
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December
20, 2010
Sharon
Blume
Assistant
Chief Accountant
Division
of Corporation Finance
100 F
Street, N.E.
United
States Securities and Exchange Commission
Washington,
D.C. 20549
Filed
June 18, 2010
File No.
001-14014
This
letters is in response to the letter of the Staff of the Division of Corporation
Finance (the “Staff”) dated November 26, 2010, regarding the above-referenced
filing of Credicorp Ltd. (“Credicorp” or the “Company”) on Form
20-F. Set forth below are Credicorp’s responses to the comments in
the letter. For ease of reference, included below are the Staff’s
comments in their entirety in bold preceding the corresponding responses from
the Company.
Form 20-F for the fiscal
year ended December 31, 2009
Item
18. Financial Statements
Note
3. Significant Accounting Policies
3(e) - Insurance activities,
page F-20
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1.
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We
note your response to prior comment 6, including the fact that you follow
U.S. GAAP for the recognition and measurement of insurance and reinsurance
contracts. Please address the following related to your
insurance activities and related accounting
policies:
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Sharon
Blume
December
20, 2010
Page
2
In
Credicorp’s September 17, 2010 response, the Company indicated that the prior
accounting that became the IFRS accounting policies was based on the Company’s
previous accounting policies. Those policies were based on US
GAAP. Consistent with the IFRS guidance, after that initial adoption
those accounting policies became the IFRS policies and Credicorp no longer
was required to modify those policies if US GAAP deviated from that
point in time when Credicorp converted to IFRS.
Credicorp’s
disclosures take into consideration the materiality of the items. With respect
to the Company’s insurance operations, those operations of Credicorp, while
somewhat significant to certain income statement amounts, are not significant to
the overall balance sheet amounts. Credicorp is providing the following
supplemental information to the Staff to provide a better understanding of how
much its insurance business contributed to Credicorp as of and for the years
ended December 31, 2009 and 2008:
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(i)
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Operating
income of US$192 million and US$116 million, representing 19% and 13% of
total consolidated operating income,
respectively.
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(ii)
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Assets
of US$1,457 million and US$1,231 million, representing 7% and 5% of total
consolidated assets, respectively.
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(iii)
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Technical
liabilities of US$1,019 million and US$968 million, respectively,
representing 5% of total consolidated liabilities for both
years.
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a. Tell
us and revise future filings to disclose whether you hold traditional life
insurance policies, universal life insurance policies, or both. If
both, please disclose the liability amounts recorded related each policy type
for all periods presented.
Response to Comment
1(a):
Credicorp
primarily issues only traditional life insurance products. The
Company does not issue any universal life insurance policies.
Sharon
Blume
December
20, 2010
Page
3
b. We
note your disclosure on page F-68 related to assumptions used in estimating
reserves for your insurance policy types. Please tell us and revise
future filings to describe the terms “life immediate annuity” and “individual
life”. If these terms relate to traditional life insurance policies
and universal life insurance policies, as addressed in bullet point (a) above,
please clearly disclose this fact.
Response to Comment
1(b):
Credicorp
will revise this disclosure for future filings. The title of “Life immediate
annuity” will be replaced with “retirement, disability and survival fixed
pensions” and the title of “individual life” will be replaced
with “traditional life and unit linked insurance contracts.” (Note
that unit linked contracts are not significant to the Company’s portfolio and
represent approximately US$23 million, which is less than 1% of the total
consolidated liabilities at year end 2009.)
As
mentioned in a., the Company does not issue universal life insurance
policies.
c. We
note on page F-21 your disclosure related to Deferred Acquisition Costs (DAC)
which states that these are “direct and indirect costs”
incurred. Please tell us and revise future filings to specifically
state your DAC are those costs that “vary with and are primarily related to
insurance contracts” as defined by ASC 944-30-55-1.
Response to Comment
1(c):
Credicorp
informs that as of December 31, 2009 and 2008, deferred acquisition costs
amounted to US$9.5 million and US$8.1 million, respectively, which represented
less than 0.5% of the Company’s total consolidated assets, and are included in
note 11 “Other assets and other liabilities” to the financial statements (see
F-56).
The
acquisition costs included in DAC are those costs that vary with and comprise
primarily of agent commissions related to the underwriting and policy
issuance. Credicorp will clarify this in future
filings.
Sharon
Blume
December
20, 2010
Page
4
d. Further,
you disclose that, subsequent to initial recognition, DAC are “amortized on a
straight line basis based on the term of expected future
premiums.” Please tell us how this complies with the guidance in ASC
944-30-35-3 (for traditional life insurance policies) and/or paragraphs 4
through 8 of ASC 944-30-35 (for universal life insurance policies)
Response to Comment
1(d):
As
mentioned in a., Credicorp does not issue universal life insurance
policies. The Company defers acquisition costs related only to
traditional life and unit linked insurance contracts.
These
costs are amortized on a straight line basis based on the averaged expiration
period, which represents 6 years. Credicorp believes that any difference between
the amortization period applied and a longer period is not significant to the
Company’s financial statements as whole. Please refer to the response
to comment c. above for the amounts of DAC recorded on the balance sheet of
Credicorp.
e. We
note your disclosure on page F-22 related to Life Insurance Contract
Liabilities, including your statement that the liability is based on “current
assumptions or calculated using the assumptions established at the time the
contract was issued.” Please tell us and revise future filings to
clearly disclose how this complies with the guidance in ASC 944-40-35-5 (for
traditional life insurance policies) and/or ASC 944-40-35-9 (for universal life
insurance policies). Further, please disclose how the liability is
classified and how revenue(s) is recognized.
Response to Comment
1(e):
As
mentioned in a., Credicorp does not issue universal life insurance
policies.
Credicorp
will clarify in future filings that in compliance with IFRS 4, paragraph 37,
“assumptions established at the time the contract was issued” are used to
determine technical liabilities of retirement, disability and survival fixed
pensions and traditional life insurance.
Sharon
Blume
December
20, 2010
Page
5
Credicorp
supplementally advises that the Company uses “current assumptions” to update the
interest accrued for unit linked contracts; however, because this product is not
material to Credicorp’s financial statements as a whole, the Company is not
planning to disclose this in future filings (please refer to the Company’s
response to comment 1(b) above).
Liabilities
from life insurance contracts are classified as technical reserves.
The
revenue recognition for gross premiums for life insurance contracts is disclosed
in letter (h), below.
f. Please
revise future filings to disclose whether a premium deficiency existed at any
period presented related to your traditional life insurance
policies.
Response to Comment
1(f):
Credicorp’s
management, at each reporting date, made an assessment of whether the recognized
life insurance liabilities are adequate, net of related DAC, by performing a
liability adequacy test in accordance with IFRS 4, paragraph 15. As of December
31, 2009, management determined that a premium deficiency did not exist and
therefore it has not recorded additional insurance liabilities because none was
necessary (see F-22 and F-68). In future filings the Company will clarify this
disclosure.
g. We
note your disclosure on page F-23 related to Income Recognition for Gross
Premiums. Please tell us and revise future filings to clearly
disclose your policy related to life insurance policies versus non-life
insurance policies (similar to your disclosure related to insurance contract
liabilities on page F-24).
Response to Comment
1(g):
The
revenue recognition for gross premiums for life insurance contracts is disclosed
in letter (h), and for property and casualty and health (general insurance) is
disclosed in letter (i), below, including the effect of unearned
premiums.
Credicorp
will clarify this in future filings.
Sharon
Blume
December
20, 2010
Page
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h. Tell
us and revise future filings to disclose how your policy related to “gross
recurring premiums on life insurance contracts” complies with paragraphs 3 (for
traditional life insurance policies) and 5 (for universal life insurance
policies) of ASC 944-605-25.
Response to Comment
1(h):
As
mentioned in a., Credicorp does not issue universal life insurance
policies.
The
Company will clarify in future filings the income recognition of life insurance
contracts as follows:
“Gross
recurring premiums on life insurance contracts are recognized as revenue when
due from policyholders.”
i. Tell
us and revise future filings to disclose how your policy related to “gross
general insurance written premiums” complies with paragraphs 1 and 2 of ASC
944-605-25.
Response to Comment
1(i):
Credicorp
wishes to clarify that the Company does not have the type of products described
in paragraph 2 of ASC 944-605-25.
Credicorp
will clarify in future filing the income recognition of gross general insurance
written premiums, as follows:
“Gross
general insurance premiums comprise the total premiums written and are
recognized at the contract inception as a receivable. At the same time,
Credicorp records a reserve for unearned premiums which represents premiums for
risks that have not yet expired. Unearned premiums are recognized into income
over the contract period which is also the coverage and risk
period.”
Please
refer to note 22 for the details of how this is presented in the income
statement.
Sharon
Blume
December
20, 2010
Page
7
j. If
you hold universal life insurance policies, in future filings please revise your
disclosure on page F-24 related to fees and commission income to address your
accounting treatment for life insurance costs and fees.
Response to Comment
1(j):
As
mentioned in a., Credicorp does not issue universal life insurance
policies.
3(i) - Impairment of
financial assets, page F-28
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2.
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We
note your response to prior comment 7 related to your renegotiated
loans. Please address the
following:
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a. Your
disclosure on pages F-30 and 93 imply that, once a loan is modified, it is no
longer classified as past due. However, you do hold modified loans at
December 31, 2009 and 2008 that you consider to be past due or
impaired. Please tell us and revise future filings to disclose your
policy for classifying modified loans as past due or impaired. In
your response please describe the specific conditions that must be met in order
for a modified loan to be classified as current, past due or impaired and/or
transferred between those classifications prior to or subsequent to
modification. Please provide us with your proposed
disclosure.
Response to Comment
2(a):
In future
filings Credicorp will provide more details about the Company’s policy for
classifying modified loans as past due or impaired. Credicorp’s proposed
disclosures are as follows:
“When a
loan is modified, it is no longer considered as past due but it maintains its
previous classification as impaired or not impaired. If the debtor complies with
the new agreement during the following six months, and our analysis of its
payment capacity supports a new improved risk classification, we classify it as
not impaired. If subsequent to the loan modification the debtor fails to comply
with the new agreement, it will be considered impaired.”
Sharon
Blume
December
20, 2010
Page
8
b. We
note in your response that one of the modifications you grant is a reduction of
the interest rate. We were unable to locate that information in your
disclosure. Accordingly, please revise future filings to disclose
this fact.
Response to Comment
2(b):
In future
filings, Credicorp will disclose the fact that one of the modifications that the
Company grants is a reduction of the interest rate.
c. Please
revise future filings to disclose the amount of total renegotiated loans, as
well as the amount of renegotiated past due loans and renegotiated impaired
loans, as of each period. Please provide us with your proposed
disclosure.
Response to Comment
2(c):
Credicorp’s
proposed disclosure related to the amount of total renegotiated loans, as well
as the amount of renegotiated past due loans and renegotiated impaired loans of
each period is as follows:
“As of
December 31, 20XX and 20XX, renegotiated loans amounts to approximately US$ ___
and US$ ___ million, respectively, of which US$ ___ and US$ ___ million,
respectively, are classified as neither past due or impaired, US$ ___ and US$
___ past due but not impaired, and US$ ___ and US$ ___ million impaired but not
past due.”
Form 6-K filed November 12,
2010
General - Non-GAAP
measures
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3.
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We
note your use of certain non-GAAP measures (e.g. core net income, core
operating income, core bottom line results and core earnings) throughout
the filing. We also note your reconciliation of Banco de
Crédito non-GAAP core earnings to GAAP net interest and dividend income on
page 7. However, we were unable to locate a similar
reconciliation or disclosure related to the other, consolidated non-GAAP
measures. Please revise future filings to provide the
disclosures required by Item 10(e) of Regulation S-K for all non-GAAP
measures.
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Sharon
Blume
December
20, 2010
Page
9
Response to Comment
3:
In future
filings, Credicorp will provide the disclosures required by Item 10(e) of
Regulation S-K for all non-GAAP measures.
* * *
Please do
not hesitate to contact me at (202) 942-5082 to discuss this
letter.
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Sincerely,
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Gregory
Harrington
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cc: Mr.
Alvaro Correa
Chief Financial Officer
Credicorp Ltd.