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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR YEAR ENDED DECEMBER 31, 2011 (STATED IN COP MILLION)

With comparative figures for year ended December 31, 2010)

 

NOTE 1

Corporate Nature and Business Purpose

Grupo de Inversiones Suramericana S.A. (the Parent Company) was incorporated as a result of being spun off from Compañía Suramericana de Seguros S.A., by means of Public Deed No. 2295 drawn up December 24, 1997 before the Notary Public No. 14 of the Circuit of Medellin, with all the corresponding accounting formalities duly completed by January 1, 1998. Its main business address is in Medellin, but it is entitled to set up branches, agencies, offices and representations in other parts of the country as well as abroad, should its Board of Directors so decide. The Company’s term of duration expires in 2102.

Its business purpose is to invest in real estate and personal property, and may do so by means of shares, participations or holdings in companies, entities, organizations, funds and any other legally-permitted mechanism that allows for the investment of funds. Likewise, it may invest in securities or instruments yielding either a fixed or variable income, regardless of whether they are listed on a public stock exchange. In any case, the corresponding issuers and/or investees may belong to either the public or private sectors, both at home or abroad.

The Company’s reporting period shall follow that of the normal calendar year, ending on December 31. According to that set out in its by-laws, the Company shall close its books on the cut-off date so as to proceed to draw up its balance sheet and income statement corresponding to the year in question.

The Company is monitored by the Colombian Superintendency of Companies (“Superintendencia de Sociedades”) and comes under the exclusive oversight of the Colombian Superintendency of Finance (“Superintendencia Financiera de Colombia”), given the fact that it is listed as an issuer of securities before the Colombian National Registry of Securities (Registro Nacional de Valores).

At December 31, 2011 the Company had a total of 33 employees all based at its Corporate Headquarters. 

Corporate Profile
GRUPO is the principal shareholder of a group of leading companies operating primarily in Colombia in two key areas: the financial service sector, including commercial banking, insurance and pension funds, and the industrial sector, namely processed foods and cement, ready mix concrete and energy.

In recent years, the companies that make up GRUPO SURA´s investment portfolio have expanded to other countries and regions in the Western Hemisphere, including Central America, the Caribbean, the United States, Peru, Chile, Uruguay and Mexico.

Our principal interests in the Financial Services sector include a 44.7% stake in the voting shares of Bancolombia (equal to 28.9% of its capital stock), this being the largest bank in Colombia in which we are the largest shareholder; as well as our 81.1% stake in Suramericana, the Group´s insurance sub-holding.The remaining 18.9% of Suramericana is owned by the German insurer Münchener Rückversicherungs-Gesellschaft Munich Re, or “Munich Re.” In addition, we have a 48.2% ownership interest in Protección, the second largest private pension fund administrator in Colombia, in which we are the largest shareholder. Our investments in the processed food segment of the local industrial sector include a 35.5% stake in Grupo Nutresa S.A., the largest processed foods conglomerate in Colombia where we are also the largest shareholder.

Our interests in the cement, ready mix concrete and energy segment of the local industrial sector is comprised of a 35.8% stake in Inversiones Argos, in which we are also the largest shareholder. Inversiones Argos S.A. is the majority shareholder of Colombia’s largest cement producer, Cementos Argos, and Colombia’s fourth largest electric generation company, Colinversiones. 

Some of the abovementioned companies also have cross holdings within the Group, which at December 31, 2011 consisted of the following:

  • Bancolombia held a 23.4% ownership interest in Protección;

  • Grupo Nutresa S.A. held stakes of 10,3% of GRUPOSURA´s total shares outstanding and 12,7% of its voting shares, along with a 12,4% stake in Inversiones Argos. On the other hand, Inversiones Argos S.A. and its subsidiaries held stakes of 32.5% in GRUPOSURA´s total shares outstanding and 37,3% of its voting stock, along with a 9,0% ownership interest in Bancolombia S.A. and another 10,4% in Grupo Nutresa.S.A.

Cash dividends received by GRUPO SURA from the companies belonging to the Group both in 2011 and 2010 are set forth in the following table:

For years ended December 31

  2011 2010
Bancolombia S.A. 148,547,284 140,596,334
Grupo Nutresa S.A. 53,806,578 50,421,695
Suramericana S.A. 37,209,399 37,596,624
Inversiones Argos S.A. 35,170,408 41,898,623
Protección S.A. 11,119,951 7,825,439
Others 10,808,603 8,854,754
Total 296,662,223 287,193,469

Out of the entire COP 296.662 million in cash dividends received by GRUPOSURA in 2011, 50.0% came from Bancolombia S.A., 18.1% from Grupo Nutresa S.A., 12.5% from Suramericana and 11.9% from Inversiones Argos S.A.

At December 31, 2011, GRUPOSURA posted a market capitalization of COP 18.547.059 million.

Grupo Sura´s common shares are traded on the Colombian Stock Exchange (Bolsa de Valores de Colombia - BVC) (under the symbol “GRUPOSURA”, and its Level 1 ADRs (American Depositary Receipts) are traded on the “over-the-counter” (OTC)-market in the United States, under the symbol “GIVSY” in the case of our common stock and “GIVPY” for our preferred stock. Our shares are also traded on the Latibex market for Latin American Securities in Euros (Mercado de Valores Latinoamericanos en Euros - LATIBEX”) under the symbol “XGSUR.”

At December 31, 2011, GRUPOSURA held direct ownership interests of 28.8% in Bancolombia, 35.5% in Grupo Nutresa S.A. and 35.8% in Inversiones Argos S.A..

Our Ongoing Expansion
Unquestionably, it was on the international front where we made the greatest inroads in 2011. In keeping with our ongoing growth and expansion plans and guided by responsible investment criteria, we were able to purchase important assets within the region. The most important of these, in terms of both their scale and the leadership position gained, were the pension, insurance and investment fund assets acquired from the Dutch group, ING, in five different Latin American countries, for a total of USD 3.4 billion.

After obtaining the corresponding authorizations in each of the countries in question, we embarked on a period of transition in which we addressed a series of legal, financial, technological, and human resource aspects and designed new brand architecture, amongst others. With this prior ground work, we ensured a smooth transition for more seamless business continuity

The importance of this transaction for GRUPO SURA is amply demonstrated by the following two factors. Firstly, with these recently acquired assets, together with our own prior investments, we became the Number One player on the Latin American pension market. We took over this leadership role with a great deal of responsibility, seeking to further develop this industry in our part of the world. This acquisition also extended our international scale since we are now present in eight countries on the American continent.

Secondly, it has been very gratifying for us to see how this transaction amply demonstrated GRUPOSURA´s robust financial position along with the organizational know-how and capacity we have been able to build up over the years, allowing us now to compete on the highest level with large-scale companies considered to be global benchmarks. As a result we made business history in our part of the world with what was, after all, the largest acquisition ever carried out within the region by a Latin American company.

As we informed the market on December 31, 2011, the final financing framework for this transaction complied, for the most part, with the plans specifically set up for this purpose, and we now have various co-investors on board who have provided us with important support, both in terms of capital as well as their knowledge and expertise. These are the Grupo Bolívar, the General Atlantic Investment Fund and once the legal procedures have been duly completed, the International Finance Corporation (IFC) and the Bancolombia Group.

Our Strengths

  1. GRUPO SURA is the principal shareholder of a group of leading companies operating primarily in Colombia. GRUPO SURA has invested in well established companies who lead the Colombian market. The bulk of these belong to the financial service insurance, social security, pension fund and complementary service sectors and the rest are concentrated in the industrial sectors of food processing, cement and ready-mix concrete production as well as energy generation.

  2. Strong, diversified and growing cash flows from the Group’s companies. GRUPO SURA derives most of its cash flows from dividends paid by a diversified group of companies operating across various industries. In recent years, these companies have consistently paid dividends, which have been increasing by at least the rate of inflation as measured by the CPI.

  3. Strong balance sheet that supports our businesses. At December 31, 2011, GRUPOSURA’s shareholders’ equity totaled COP 18.864.467 million and its total debt-toshareholders’ equity ratio came to 14.4%. GRUPOSURA has historically financed its expansion primarily through operating cash flows and the sale of its non-strategic assets.

  4. Multi-product and multi-channel business model. GRUPO SURA has increased its market share in the financial service sector by developing an integrated business model, allowing us to exploit synergies between our different banking, insurance and pension fund businesses while accessing a wider customer base and creating enhanced customer loyalty. We believe that our integrated business model allows us significant room for margin improvements as we seek to improve revenue synergies from our distribution, operational and administrative structure and to identify promising brands and products that complement our existing ranges. This integrated business model enables us to benefit from an extensive distribution network in Colombia that provides the Group’s principal companies with a competitive advantage and creates high entry barriers that protect our businesses from competition.

  5. Commitment to best practices, corporate governance and sustainable development. Our Corporate Governance Code was first introduced in 2002 and we have been publishing annual corporate governance reports since 2005. The guiding principle behind our corporate governance policies is to champion a business policy governed by principles of fairness, respect, responsibility and transparency and a firm commitment to Colombia and its people. Our Corporate Governance Code follows international standards regarding relationships with regulatory entities, independent board members, board of directors’ roles, board of directors’ committees, control and disclosure of information. In addition, and as part of our emphasis on social responsibility and good corporate citizenship we, in the company of our subsidiaries and affiliates, take part in projects that help improve the quality of life for the more vulnerable communities, by means of institutional contributions and the labors of our own group of volunteers, all of which is channeled through our Suramericana Foundation. In 2011, the Suramericana Foundation invested a total of COP 10.638 million in 14 departments in Colombia.
  6. Experienced management team. We benefit from an experienced and talented management team. Most of the members of our senior management have held executive positions across various industries in Colombia and elsewhere in Latin America.

Our Strategy
Our business strategy is to expand and develop our businesses through strong and sustainable growth by identifying synergies and pursuing business creation and growth opportunities among the companies that belong to the Group. We plan to pursue our business strategy by focusing on the following:

  1. Maintaining leadership in local markets. All of our significant subsidiaries and affiliates are market leaders in Colombia. Bancolombia is the leading financial institution in the country; Suramericana is the leading holding company for the largest insurance companies; Grupo Nutresa is the largest food processing conglomerate; and Inversiones Argos is the holding company for the largest producer in the cement and ready-mix concrete industries. We plan to maintain our leadership in these markets by employing highly-skilled and trained individuals, offering superior products and solutions to our customers, investing in research and development for innovation, fostering customer loyalty by providing a combination of personalized service and high-quality products and services at competitive prices and ensuring that our businesses continue to carry out their operations through our guiding principles of fairness, respect, responsibility and transparency.

  2. Expanding into selected international markets and driving the growth of all those companies that form part of our portfolio of strategic investments in the financial services, insurance, social security, pension fund and complementary services sectors. As far as corporate strategy is concerned and expanding our interests abroad, we adhere to the following key criteria of responsible investment: (i) the political, social and macroeconomic stability of the countries in question; (ii) countries offering growth potential; (iii) companies that are leaders in their respective markets; (iv) acquiring controlling stakes; (v) companies providing positive levels of economic, environmental and social performance; (vi) good corporate governance; and (vii) sound corporate reputation. Based on these criteria and through our subsidiary, Protección, we acquired Administradora de Fondos de Pensiones Crecer, the largest pension fund administration company in El Salvador. We have also acquired, through our subsidiary Suramericana, the insurance firms Asesuisa and Proseguros, which lead their respective markets in El Salvador and the Dominican Republic. Our subsidiary Enlace Operativo acquired the ITO firm, Compuredes; and finally we have our most recent acquisition, ING´s Latin American assets. All the aforementioned assets were acquired in 2011, and in the case of Asesuisa we are still pending approval being granted by the El Salvadorean regulatory authorities.

  3. Promoting synergies amongst our strategic interests. Within our financial services business, we seek to achieve synergies among our businesses through our shared knowledge, information technology and human resource systems as well as the implementation of a multi-product and multi-channel business model through which we offer products and services across different industries. For example, Bancolombia and Suramericana have developed the Bancassurance joint venture through which Suramericana’s subsidiaries offer general insurance products and services at 673 of Bancolombia’s branches throughout Colombia. Suramericana and Protección are also offering and marketing each others’ products in order to increase crossselling opportunities between their respective wide-ranging client bases. We intend to continue promoting similar arrangements across all of our strategic interests in the near futur.

  4. Maintaining and enhancing a strong, diversified stream of cash flows. By expanding our presence in the financial services sector, we seek to maintain and enhance the financial strength of our companies. In so doing, we aim to ensure that our dividend flows continue to be well diversified across various industries and grow at similar or faster rates than in recent years. Also, and to ensure that our growth shall not hamper our strong credit position, we intend to continue with our long-term policy of maintaining conservative leverage levels.

Senior Management
We are managed by our Board of Directors, which, in accordance with our by-laws, consists of seven directors who are elected at annual ordinary shareholders’ meetings. The current members of our Board of Directors were elected by the shareholders in the ordinary shareholder’s meeting held on March 29, 2011. Members of the Board of Directors are elected for two-year terms. The term of each of the current board members expires in March 2013. These may be appointed for additional terms without limitation

The following table sets forth certain information about our current directors:

NAME POSITION
José Alberto Vélez Cadavid Chairman of the Board
Carlos Enrique Piedrahita Arocha Director
Juan Guillermo Londoño Posada Director
Jorge Mario Velásquez Jaramillo Director
Hernando Yepes Arcila¹ Director
Armando Montenegro Trujillo¹ Director
Jaime Bermúdez Merizalde ¹ Director
(1) Independent Member, in accordance with Colombian law.

Board Committees

Committee for Board Matters and Investment
The Committee for Board Matters and Investments is responsible for monitoring both individual directors and the Board of Directors as a whole, as well as the Company’s interests and continued adherence to the policies adopted under the Company’s Corporate Governance Code. This Committee is comprised of two persons, one of whom must be the Chairman of the Board of the Directors and the other the Company’s Chief Executive Officer.

Finance and Audit Committee
The Finance and Audit Committee is responsible for evaluating the Company’s internal control system, ensuring continued adherence to the policies adopted under the Code of Ethics, and evaluating all aspects of the Company’s finances and accounting, including its financial planning, contingency planning, internal risk identification and administrative policies. It is also responsible for reviewing interim and year-end financial statements. This Committee is comprised of three directors, all of whom must have an independent status.

Compensation Committee
The Compensation Committee is responsible for providing general guidelines for the selection and compensation of our executive officers. It is comprised of three directors, one of whom must be the Chairman of the Board of Directors.

Senior Management
GRUPO SURA’s executive officers at December 31 2011 were as follows:

NAME POSITION
David Bojanini García Chief Executive Officer
Andrés Bernal Correa Chief Financial Officer
Mario López López Chief Audit Officer
Fernando Ojalvo Prieto Chief Administrative Officer and Company Secretary

As a subsequent event, Ignacio Calle Cuartas took over the position of Chief Financial Officer in the first quarter of 2012.

Principal Shareholders
Our common stock is listed both on the Colombian Stock Exchange as well as on the LATIBEX market in Europe, and also trades in the form of ADRs on the OTC Market in the United States. In addition to this, on March 9, 2012 Grupo de Inversiones Suramericana S.A. launched a Level 1 ADR program for its preferred shares, thereby placing both types of share at the disposal of international investors on the OTC market in the United States. One ADR represents one preferred share

The following table contains certain information concerning the actual ownership of our common stock at December 31, 2011 with respect to our largest shareholders.

SHAREHOLDER NUMBER OF COMMON SHARES HELD % BENEFICIAL OWNERSHIP
Cementos Argos S.A. 97,183,662 16.89%
Inversiones Argos S.A. 79,446,142 13.81%
Grupo Nutresa S.A. 59,387,803 10.32%
Fondo de Pensiones Obligatorias Porvenir 41,977,584 7.30%
Fondo de Pensiones Obligatorias Proteccion 30,436,172 5.29%
Ubs AG London Branch 30,025,916 5.22%
Fondo de Pensiones Horizonte 24,135,866 4.19%
Ing Fondo de Pensiones 21,046,485 3.66%
Fondo de Pensiones Obligatorias Colfondos Moderado 20,376,805 3.54%
Colombiana de Comercio S.A. 11,105,206 1.93%
Compañía colombiana de inversiones S.A. E.S.P. 10,571,519 1.84%
Skandia Fondo de Pensiones Obligatorias 6,749,911 1.17%
Other Minority Shareholders ¹ 142,929,152 24.84%
575,372,223 100.00%
(1)) Includes 29.198 shareholders, who individually hold less than 1.0% of our common and preferred stock

Financial Risk Management
For the purpose of actively managing credit risk in GRUPO SURA, last year we designed and deployed a methodology to assign quotas to issuers and counterparties so as to limit our exposure to third parties. Here we set up and approved quotas for 25 financial institutions and 16 brokerage firms.

We also approved a set of rules and regulations for conducting transactions on shares belonging to the Company’s portfolio, with issuers who are also related parties. These share negotiation regulations embody all applicable legal provisions and also contain policies that ensure that said transactions are carried out based on sound market practices. The purpose of these regulations was to be able to obtain higher returns on GRUPO SURA’s portfolio, while simultaneously guaranteeing the market utmost transparency as well as full compliance with all applicable legislation.



Internal Control and Corporate Governance

Based on our core principles of transparency, responsibility, respect and fairness, which guide and provide an ethical basis for everything we do as we continue to apply our Code of Good Governance, we have deployed both on a Company as well as subsidiary level, an internal control system that supports the attainment of our corporate goals and helps Senior Management to manage risk all the more effectively.

Our Risk Department continues to detect, grade, appraise and prioritize the main threats and risks at stake, implementing policies and controls in order to mitigate the most important risks relating to operations.

We have also laid on formal information and communication processes and systems so as to ensure an adequate and seamless flow of information both on an internal as well as external level. This technology also offers the required security and quality conditions so as to obtain all the information required for our decision-making process.

Our organizational structure is such that our business, risk, investment and internal auditing areas function quite independently, with each having its sufficient resources in order to carry out its respective functions and responsibilities. Senior Management and process leaders are continually checking the indicators thus produced. For the purpose of independently monitoring our internal control system, we have a team of internal auditors and another team from our statutory auditing firm who periodically submit reports to the Audit Committee which in turn presents these to the Board of Directors.

The Board of Directors supervised the activities of the Audit Committee as well as the other supervisory bodies and was duly informed of all important events occurring within the Company as well as with its subsidiaries and affiliates. It faithfully carried out its functions and duties, especially those relating to reviewing the Company’s Internal Control System and evaluating its financial statements.

Also and in keeping with that stipulated in the Company’s Code of Good Corporate Governance, the Board of Directors expressly states that no conflict of interest was brought to its attention with regard to the transactions carried out or any other matter that could have negatively affected the Company. The operations with shareholders and senior management were carried out in accordance with applicable legislation and on the same terms and conditions afforded to third parties.

GRUPO SURA hereby certifies that it has complied with all applicable intellectual property and copyright legislation; also the products employed, such as the software the Company uses for its normal day-to-day running, are in keeping with all applicable intellectual property and copyright legislation and its brands have been duly registered before the corresponding authorities.

We currently possess sufficient evidence with which to make these statements, these consisting of satisfactory findings from internal audits on the Company´s systems, software development, licensing agreements, purchasing or transferring copyright royalties and resolutions issued by the Colombian Superintendency for Industry and Commerce in confirmation of valid trade mark registrations, amongst others.

Our Consolidated Companies
The following is a breakdown of the companies included in this consolidation and the corresponding stakes held:

COMPANY DIRECT STAKE (%) TOTAL STAKE HELD IN 2011 (%) TOTAL STAKE HELD IN 2010 (%)
Directly Owned:      
Suramericana S.A. 81.13 81.13% 81.13%
Grupo de Inversiones Suramericana Panamá S.A. 100.00% 100.00% 100.00%
Compuredes S.A. 5.74% 100.00%
Grupo Sura Finance 100.00% 100.00% -
Inversiones Internacionales Grupo Sura 100.00% 100.00% -
Enlace Operativo S.A. 94.50% 100.00% -
Inversiones y Construcciones Estratégicas S.A.S. 100.00% 100.00% 73.25%
Grupo de Inversiones Suramericana España, S.L. 25.50% 90.22% 100.00%

 

COMPANY DIRECT STAKE (%) TOTAL STAKE HELD IN 2011 (%) TOTAL STAKE HELD IN 2010 (%)
Indirectly Owned:      
Seguros Generales Suramericana S.A.   81.13% 81.13%
Seguros de Vida Suramericana S.A.   81.13% 81.13%
Administradora de Carteras Colectivas Suramericana S.A.   81.13% 81.13%
Seguros de Riesgos Profesionales Suramericana S.A.   81.13% 81.13%
Servicios de Salud IPS Suramericana S.A.   81.13% 81.13%
Consultoría en Gestión de Riesgos IPS Suramericana S.A.   81.13% 81.13%
EPS y Medicina Prepagada Suramericana S.A.   81.13% 81.13%
Servicios de Vehículos Suramericana S.A. – Autos Sura   - 81.13%
Seguros Suramericana S.A. (Panamá)   76.41% 76.41%
Servicios Generales Suramericana S.A.S.   81.13% 81.13%
Inversura Panamá Internacional S.A.   81.13% 81.13%
Dinámica IPS   81.13% 81.13%
Progreso Compañía de Seguros S.A.   81.11% -
Compuredes S.A. Costa Rica   100.00% -
ING S.A.   100.00% -
ING Compañía de inversiones y servicios LTDA   100.00% -
ING Agencia de valores S.A   100.00% -
ING Admora General de fondos S.A.   100.00% -
ING Promotora de Servicios S.A.   100.00% -
ING Seguros de Vida   100.00% -
ING Data Chile S.A.   100.00% -
ING Chile S.A.   100.00% -
AFP Capital S.A.   100.00% -
Santa Maria Internacional   99.64% -
ING Administradora de Fondos   100.00% -
Afore Holding B.V   100.00% -
ING Latin America Holding B.V.   100.00% -
ING AE Chile Holdings I B.V.   100.00% -
ING AE Chile Holdings II B.V.   100.00% -
ING Asesores   100.00% -
ING Pensiones   100.00% -
ING Investment Management   100.00% -
Inverconsa   99.98% -
ING Afore   100.00% -
Sura Art Collection   80.00% -
ING Wealth Management S.A.   79.93% -
AFP Integra   79.99% -
ING Asset Management   80.00% -
ING Fondos SAF SAC   79.99% -
ING Servicios SAC   100.00% -
ING International Perú S.A.   99.76% -
Afinidad AFAP S.A.   100.00% -
Sura Art Collection   100.00% -
Grupo Holanda B.V.   100.00% -
Grupo de Inversiones Suramericana Holanda B.V.   100.00% -

Below are brief descriptions of each of the companies included in the consolidation, including their main business purpose, place of domicile, nationality, geographical operating area and date of incorporation

  • Portafolio de Inversiones Suramericana S.A. (wound up)
    On January 19, 2011 the Company was issued with Resolution No 610-000004 issued January 19, 2011 by the Colombian Superintendency for Companies, authorizing an amendment to the Company’s by-laws with regard to spinning off Portafolio de Inversiones Suramericana S.A. “Subject to Liquidation” from Grupo de Inversiones Suramericana S.A. This was duly carried out on March 31, 2011 by means of Minutes No. 20 dated May 27 2011, which was duly filed on May 30, 2011 before the Chamber of Commerce in Medellin.

  • Suramericana S.A:
    This Company was incorporated by means of Public Deed No. 689 drawn up May 25, 1999 before the Notary Public No. 14 of the Circuit of Medellin, with all the corresponding accounting formalities duly completed by January 1, 1999. Its main business address is in Medellin, but it is entitled to set up branches, agencies, and offices in other parts of the country as well as abroad, should its Board of Directors so decide. The Company has a term of duration that expires in 2049.

    Its business purpose is to invest in real estate and personal property, and may do so by means of shares, participations or holdings in companies, entities or organizations belonging to the insurance or social security sectors. Likewise, it may invest in securities or instruments yielding either a fixed or variable income, regardless of whether they are listed on a public stock exchange. In any case, the corresponding issuers and/or investees may belong to either the public or private sectors, both at home or abroad

  • Acquisitions

    1. On February 11, 2011, Suramericana S.A. received from its parent company, Grupo de Inversiones Suramericana S.A. a deposit of COP 189,998 for future share subscriptions.
      Suramericana S.A. used this money to increase its investment in its subsidiary Inversura Panamá International and in this way for the latter to complete the acquisition of Aseguradora Suiza Salvadoreña S.A. (ASESUISA), belonging to Banagrícola, which in turn belongs to the Bancolombia Group. The estimated cost of this purchase was initially set at USD 98 million, but upon making the corresponding deposit in dollars, a surplus of COP 3.625 was produced that was subsequently reimbursed to Grupo de Inversiones Suramericana S.A. by means of the sale of shares in the firm Enlace Operativo S.A. for COP 3.006 along with a wire transfer of COP 619. Consequently, the deposit in dollars on this acquisition came to COP 186.372.
      In 2012 Suramericana S.A shall continue with the process of buying up Aseguradora Suiza Salvadoreña S.A. (ASESUISA), which is in the final stage of obtaining the required official authorizations.

    2. In June 2011, Suramericana S.A. increased its investment in its international subsidiary Inversura Panamá Internacional, by USD 22 million so that the latter could purchase the insurance firm, PROSEGUROS S.A. based in the Dominican Republic. This acquisition was duly completed in July of this same year.

    3. On December 28, 2011, Suramericana S.A. increased its investment in the healthcare company Servicios de Salud IPS Suramericana, capitalizing this in the amount of COP 10,010,000 thereby increasing its directly-held stake by 29.7% for a total of 467.070 shares.

  • Grupo de Inversiones Suramericana Panamá S.A.
    The business purpose of this Company is to invest in negotiable securities. It is domiciled in the Panama and provides local coverage. This Company was incorporated on April 29, 1998.

  • Compuredes S.A. Costa Rica
    This Company was incorporated by means of a private instrument drawn up on October 9, 2007. Its registered business address is in San Jose, namely Barrio Francisco Peralta. Los Yoses, 75 meters away from Casa Italia, Building 2947. This Company has a term of duration that expires in 2106. Its main business purpose is to provide services, including advisory services, for information systems, and to conduct sales, including on an installment basis.

  • Grupo Sura Finance:
    This Company was incorporated by means of a private instrument drawn up on March 18, 2011, according to the laws of the Cayman Islands. This is a tax-exempt limited company operating in the Cayman Islands since March 18, 2011.

  • Enlace Operativo S.A.
    This Company was incorporated by means of Public Deed No. 859 drawn up May 31, 2006 before the Notary Public No. 14 of the Circuit of Medellin, with all the corresponding accounting formalities duly completed by June 08, 2006. Its main business address is in Medellin, but it is entitled to set up branches, agencies, and offices in other parts of the country as well as abroad, should its Board of Directors so decide. The Company has a term of duration that expires on May 31, 2056.

    This Company’s main business purpose is to provide and perform data-processing services for social security, labor, tax, accounting and administrative purposes and generally speaking all ancillary services relating to such and which can be outsourced.

    La operación entre las sociedades ENLACE OPERATIVO S.A. y COMPUREDES S.A., se realizó en los siguientes términos: La adquisición del ciento por ciento (100%) del paquete de acciones de la sociedad CompuRedes S.A., a favor de la sociedad Enlace Operativo S.A. en un porcentaje igual al 94.26% y 5.74% a favor de Grupo de Inversiones Suramericana S.A. En este sentido el vendedor es la sociedad de Negocios Belvedere S.A.S., único accionista de la sociedad CompuRedes S.A., y el comprador mayoritario la sociedad Enlace Operativo S.A.

    Acquisitions
    On July 5, 2011, ENLACE OPERATIVO S.A. acquired a 100% stake in CompuRedes S.A., as part of its ongoing expansion plans and in order to consolidate its leadership position in Colombia´s BPO sector. In 2012, it shall to work on the integration between both companies and define their respective operating frameworks.

    This acquisition was subsequently filed before the Colombian Superintendency of Industry and Commerce under Registration No. 10-164763 Process 305, Event 375, Proceeding 440, Folio 001. No subsequent objection was lodged by said authorities given the absence of any possibility of creating an inadmissible distortion of competition, this based on the terms in which the filing was presented, and thus this transaction was successfully concluded.

    This transaction between ENLACE OPERATIVO S.A. and COMPUREDES S.A., was carried out according to the following terms:

    The entire (100%) capital stock belonging to CompuRedes S.A., was purchased, representing a stake of 94.26% for Enlace Operativo S.A. and the remaining 5.74% stake for Grupo de Inversiones Suramericana S.A. The seller was Negocios Belvedere S.A.S., the only shareholder of CompuRedes S.A., and the buyer was Enlace Operativo S.A.

  • Inversiones y Construcciones Estratégicas S.A.S.
    At a meeting held on August 27, 2007, its Board of Directors, by means of Minutes No. 2241 approved the partial spin-off of Compañía Suramericana de Construcciones S.A., and for Inversiones y Construcciones Estratégicas S.A to be incorporated.

    By means of Public Deed No. 1566 drawn up August 30, 2007, before the Notary Public No. 14 of the Circuit of Medellín, this Company was partially spun off from Compañía Suramericana de Construcciones S.A., giving rise to the incorporation of Inversiones y Construcciones Estratégicas S.A.

    Its business purpose is to invest in real estate and movable property, and may do so by means of shares, quotas or holdings in companies, entities, organizations, funds and any other legally-permitted mechanism that allows for the investment of funds. Likewise, it may invest in securities or instruments yielding either fixed or variable income, regardless of whether they are listed on a public stock exchange. In any case, the corresponding issuers and/or investees may belong to either the public or private sectors, both at home or abroad. This Company was incorporated on August 31, 2007.

  • Grupo de Inversiones Suramericana España S.L
    This Company was incorporated by means of Public Deed No. 4888 drawn up on September 28, 2011. Grupo de Inversiones de Suramericana España S.L, (hereinafter “Grupo Sura España”), is a single-shareholder, limited company, parent of a group of controlled companies dedicated to providing insurance and managing pension and retirement savings funds.

    Grupo Sura España is controlled by Grupo Sura, which is domiciled in Colombia, via a 90.22% stake. Grupo Sura España is authorized to operate both in Spain as well as in Latin America namely in Mexico, Chile, Peru, Uruguay and Colombia. It also holds 100% stakes in two investment vehicles, GrupoSura Holanda B.V. and Grupo de Inversiones Suramericana Holanda B.V, both located in Holland. Grupo Sura España was incorporated in Spain and its registered business address is Calle Ayala, 66, 28001, Madrid.

  • Seguros Generales Suramericana S.A.
    This private joint-stock company, incorporated according to Colombian law by means of Public Deed No. 4438, drawn up December 12, 1944 before the Notary Public No. 2 of the Circuit of Medellin is domiciled in Medellin. It has a term of duration that expires in December 2024 and was permitted to operate by means of Resolution No. 01045 issued December 5, 1944 by the Colombian Superintendency of Finance.

    This Company is a financial institution according to the definition contained in Article 90 of Law 45 of 1990. It is monitored and overseen by the Colombian Superintendency of Finance, an official authority attached to the Colombian Ministry of Finance.

    Its business purpose consists of providing insurance and reinsurance, according to the types and branches permitted by law. As part of its insurance business, the Company may validly enter into contracts and agreements in pursuit of its business purpose as well as invest and manage its capital and reserves.

    Pursuant to instructions received from the Colombian Superintendency of Finance, by means of Resolution N° 1756 issued October 04, 2007, the Company registered with the Colombian Registry of Securities Exchange Agents and Brokers. By virtue of this registration, the Company may only purchase and sell securities directly and for its own account, in keeping with that stipulated in Section 7, Book 1, Article 7.1.1.1.1 of Decree 2555 issued in July, 2010.

    This Company entered into a Legal Stability agreement with the Colombian Government, for a term of 20 years, during which time the Company shall be shielded from the tax laws therein stipulated. Furthermore it shall ensure compliance with all the commitments it has acquired such as paying out premiums, carrying out pending investments, amongst others.

  • Administradora de Carteras Colectivas Suramericana S.A.
    Administradora de Carteras Colectivas Suramericana S.A. is a joint-stock company incorporated by means of Public Deed No. 4228 drawn up on July 24, 1964 before Notary Public No. 4 of the Circuit of Medellin. It has a term of duration that expires June 20, 2014.

    The business purpose of Administradora de Carteras Colectivas Suramericana S.A. consists of receiving money and subscriptions from the public so as to set up and manage, according to all applicable legislation, one or several investment funds to encourage, sponsor, promote and facilitate the placement of capital. To this effect, it may purchase, using subscriptions from the public, shares in joint-stock companies as well as partnerships limited by shares or mining companies; as well as other securities or shares issued by Colombian companies; Government debt securities as well as debt securities issued by departmental or district authorities, public establishments, providing these are duly secured, mortgage-backed securities, and mortgage loans granted or issued by companies dedicated to the real estate business.

    The Colombian Government issued Decree 2175 of 2007 which regulated the management of collective investment portfolios handled by investment firms. This Decree stipulated that the Colombian Superintendency of Finance must issue all those rules and regulations to determine the value of the interests held in said collective investment portfolios together with the value of each respective collective portfolio. This decree came into full force and effect on July 1, 2008.

    By means of Communication No. 2009059358-000-000 dated July 30, 2007, the Colombian Superintendency of Finance approved changing the names of Cartera Colectiva Abierta Suramericana Renta Variable (the Suramericana Open-Ended Collective Variable Income Portfolio) to Plan Cartera Colectiva Abierta Renta Variable Sura (Sura Open-Ended Collective Variable-Income Plan) and the Cartera Colectiva Abierta Suramericana Renta Fija (the Suramericana Open-Ended Collective Fixed Income Portfolio) to Plan Cartera Colectiva Abierta Renta Fija Sura ( Sura Open-Ended Collective Fixed- Income Plan) in order to comply with paragraph 2 of Article 108, Decree 2175 of 2007.

    Administradora de Carteras Colectivas Suramericana S.A., manages both the Sura Open-Ended Collective Variable Income Plan as well as the Sura Open-Ended Collective Fixed- Income Plan. The characteristics of both these portfolios are duly stipulated in their corresponding prospectuses.

  • Seguros de Riesgos Profesionales Suramericana S.A.
    This Colombian joint-stock company domiciled in Medellin was incorporated according to Colombian law by means of Public Deed No. 5083, drawn up November 9, 1995 before the Notary Public No. 11 of the Circuit of Medellin. It has a term of duration that expires in 2045 and was permitted to operate by means of Resolution No. 2983 issued December 13, 1995 by the Colombian Superintendency of Finance.

    Its business purpose is to provide personal insurance and life reinsurance operations with regard to its workers’ compensation business, being able to validly enter into and execute all those contracts and agreements with a view to conducting its business purpose, in keeping with all applicable legislation and the rules and regulations issued by the Colombian Superintendency of Finance.

    Pursuant to instructions received from the Colombian Superintendency of Finance, by means of Resolution N° 1812 issued October 13, 2007, the Company registered with the Colombian Registry of Securities Exchange Agents and Brokers. By virtue of this registration, the Company may only purchase and sell securities directly and for its own account, in keeping with that stipulated in Section 7, Book 1, Article 7.1.1.1.1 of Decree 2555 issued in July, 2010.

    This Company entered into a Legal Stability agreement with the Colombian Government, for a term of 19 years, during which time the Company shall be shielded from the tax laws therein stipulated. Furthermore it shall ensure compliance with all the commitments it has acquired such as paying out premiums, carrying out pending investments, amongst others.

  • Servicios de Salud IPS Suramericana S.A.
    Servicios de Salud IPS Suramericana S.A., was incorporated by means of Public Deed No. 5088 drawn up on December 19, 1996 before Notary Public No. 11 of the Circuit of Medellin. It has a term of duration that expires on December 19, 2046. Its business purpose is to provide medical, paramedical and dental services for which it may carry out the following activities: healthcare, disease prevention, diagnostics and treatment by means of general and specialized medical consultations, emergency services, clinical lab tests, medical imaging, surgical procedures, hospitalization, dental consultation and treatment, oral surgery, and all those activities necessary in providing comprehensive healthcare services.

  • Consultoría en Gestión de Riesgos IPS Suramericana S.A.
    This private company was incorporated on April 15, 1996, by means of Public Deed No. 715 drawn up before Notary Public No. 14 of the Circuit of Medellin. It has a term of duration of 50 years, and is domiciled in Medellin. It changed its corporate name by means of Public Deed No. 902 drawn up before Notary Public No. 14 of the Circuit of Medellin, which was subsequently filed before the Chamber of Commerce of Medellin on May 28, 2009 in Ledger No. 9 Reg No. 6950.

    Its business purpose is to provide healthcare services in all areas of human health, including general and specialized outpatient services, diagnostic and therapeutic medicine, hospitalization, emergency services, surgery, diagnostic tests and all those services relating to occupational health.

    Its purpose also extends to importing and purchasing drugs, medicine and medical equipment, and leasing prostheses and other complementary therapeutic devices. The Company may also act as representative for other domestic or foreign companies with similar purposes to those described herein, and in compliance with all applicable legislation as well as all those rules and regulations issued by the Colombian Superintendency of Health.

  • EPS y Medicina Prepagada Suramericana S.A. - EPS Sura
    This Company was incorporated by means of Public Deed No. 203 drawn up on January 31, 1990 before Notary Public No. 11 of the Circuit of Medellin. It has a term of duration that expires on April 19, 2046.

    On May 22, 2009, by means of Public Deed No. 884 drawn up before the Notary Public No. 14 of the Circuit of Medellín, the Company changed its name from Compañía Suramericana de Servicios de Salud S.A. SUSALUD Medicina Prepagada to EPS y Medicina Prepagada Suramericana S.A.

    The Company’s main business purpose is to organize, guarantee and provide healthcare services as well as comprehensive medical and dental services, either on a prepaid basis, in which case the Company shall act as a prepaid healthcare institution, or as part of a program called Susalud Empresa Promotora de Salud, in which case the company will operate as a regular healthcare institution.

    As part of its business purpose, the Company may carry out the following functions:

    In its capacity as a Pre-Paid Healthcare Institution: provide healthcare services in one of several of the following fields: healthcare and disease prevention, general and specialized diagnostic and therapeutic services, hospitalization, emergency services, surgery, diagnostic tests and dental services, provided either directly or by affiliated healthcare professionals or medical institutions or those freely chosen by the user at the discretion of the Company.

    Promoción de la salud y prevención de la enfermedad, consulta general y especializada en medicina diagnóstica y terapéutica, hospitalización, urgencias, cirugía, exámenes de diagnósticos y odontología. Estos servicios podrán ser prestados, bien en forma directa o a través de profesionales de la salud o de instituciones de la salud adscritas o a la libre elección del usuario conforme lo determine la entidad.

    In its capacity as a regular healthcare institution, as part of the mandatory EPS healthcare program, the Company provides the following basic functions:

    • Affiliating and registering the public with the general healthcare social security system, either with the contribution- or the subsidy-based regime.

    • Collecting contributions as delegated by the Solidarity and Guarantee Fund

    • Organizing and guaranteeing, either directly or indirectly, the provision of services covered by the obligatory healthcare plan to its members.

    • Transferring to the Solidarity and Guarantee Fund, within the terms provided by Law 100 of 1993 and any other rules or regulations that should amend or replace such, the difference between the amounts collected in the form of contributions and the value of the corresponding payment units per capita, deducting disability payments and provisions for health care and disease prevention programs.

    • Offering and providing, either directly or indirectly complementary plans for any individual who has an obligatory healthcare plan.

  • Servicios de Vehículos Suramericana S.A. – Autos Sura
    This Company was taken over by Servicios Generales Suramericana S.A.S (the surviving company) as part of a merger that was duly recorded before the Chamber of Commerce of Medellin on March 17, 2011, in Ledger No. 9, Registration No. 4481. The corresponding accounting formalities were duly completed on March 31, 2011.

  • Seguros Suramericana S.A. (Panamá)
    The business purpose of this company is to provide property and life insurance and reinsurance according to the types and branches permitted by law. It is domiciled in Panama City, Panama and was incorporated in 1978, By means of Public Deed No. 6034 drawn up on August 05, 2010, it changed its business name to Seguros Suramericana S.A..

  • Servicios Generales Suramericana S.A.S.
    This Company was incorporated by means of Public Deed No. 1804 drawn up December 06, 2002 before the Notary Public No. 14 of the Circuit of Medellin, with all the corresponding accounting formalities duly completed by January 1, 1998. Its main business address is in Medellin, but it is entitled to set up branches, agencies, and offices in other parts of the country as well as abroad, should its Board of Directors so decide. The Company has a term of duration that expires in December 2052.

    Its business purpose is to invest in both movable and immovable property. In the former case it may do so in the form of shares, participations or holdings in companies. In any event, the corresponding issuers and/or investees may be either private or public entities both at home and abroad. It may also issue loans, credit or financing for third parties using its own funds, and set up and run repair shops for all types of vehicles, import, purchase and sell spare parts and accessories for these same and purchase and sell vehicles as well as conduct vehicle inspections, checks and similar activities, as well as enter into any agreement or contract relating to the above. As part of its business purpose, the Company may acquire, pledge, use, operate, encumber, lease, rent, deposit in a trust or dispose of any type of movable property, transfer, deliver, accept, endorse, negotiate, divest, pay, charge or assign in any manner all types of negotiable instruments or securities; sign all types of civil and commercial documents; participate as creditor or debtor in credit operations; accept or substitute guarantees or counter guarantees, as the case may be, and generally speaking execute all those contracts, agreements or instruments that are directly related to its business purpose and to exercising the rights and complying with all legal or conventional obligations arising from the existence of the Company and the activities it carries out.

    The Company may not receive habitual, large-scale deposits from the public, in keeping with applicable finance and exchange rules and regulations.

    By means of Minutes No. 13 of a Shareholder Meeting held on September 29, 2010, the General Assembly of Shareholders gave its approval to a merger between Servicios Generales Suramericana S.A.S (the surviving company) and Servicios de Vehículos Suramericana S.A.S. This was duly recorded before the Chamber of Commerce of Medellin on March 17, 2011, in Ledger No. 9, Registration No. 4481. The corresponding accounting formalities were duly completed on March 31, 2011.

  • Inversura Panamá Internacional S.A.
    The business purpose of this Company is to invest in negotiable securities. It is domiciled in the Panama and provides local coverage. This Company was first incorporated on December 23, 2002 by means of a private document drawn up in the British Virgin Islands and was subsequently redomiciled in Panama on January 06, 2010 by means of Public Deed No. 408 drawn up before the Notary Public No. 1 of the Circuit of Panama.

  • Diagnóstico y Asistencia Médica S.A. Institución Prestadora de Servicios de Salud Dinámica IPS.
    Diagnóstico y Asistencia Médica S.A. Institución Prestadora de Servicios de Salud – DINAMICA IPS. was incorporated by means of Public Deed No. 929 drawn up on February 24, 1994, before Notary Public No. 11a of the Circuit of Medellin. It has a term of duration that expires on February 24, 2044. The main business purpose of this Company is to provide diagnostic services such as clinical lab and pathological tests, endoscopes, sonograms, medical imaging and mammographies, amongst others.

    Its majority shareholders are EPS y Medicina Prepagada Suramericana S.A., Suramericana S.A. holding stakes of 50.98% and 49.01% respectively. The controlling Parent Company is Grupo de Inversiones Suramericana S.A.

  • Compuredes S.A.
    CompuRedes S.A., is a commercial company that was incorporated by means of Public Deed No. 2517 drawn up on August 16, 1988, before Notary Public No. 2 of Envigado. This Company was subsequently converted from a limited to a joint-stock company and its by-laws were amended to this effect on December 27, 1995, as evidenced in Public Deed No 5 of Notary Public No. 29 of the Circuit of Medellin. Its registered place of business is in Medellin, but it may create branches, offices and agencies in other parts of the country or abroad, as decided by its Board of Directors.

    The Company has a term of duration of 20 years as of December 27, 1995, which can be extended, or the Company may be liquidated, merged or spun off whenever required. According to the Minutes No. 21 of an Extraordinary Shareholders´ Meeting held April 30, 2009, the Company’s term of duration was extended to 2060.

    On May 4, 2011, by means of Public Deed No. 8374 drawn up before Notary Public No. 7 of the Circuit of Medellin, whereby a portion of the assets, liabilities and equity belonging to CompuRedes S.A. was transferred in block form, without being dissolved, to the new real estate Company of Compuredes S.A.

  • Inversiones Internacionales Grupo Sura S.A.
    This Company was incorporated by means of Public Deed No. 1548 drawn up September 15, 2011 before the Notary Public No. 14 of the Circuit of Medellin. Its registered business address is in Medellin, but it is entitled to set up branches, agencies, and offices in other parts of the country as well as abroad, should its Board of Directors so decide. The Company has a term of duration that expires on September 15, 2111.

    Its business purpose is to invest in movable and immovable property. In the case of the former, it may invest in any type of movable property by means of shares, participations or holdings in companies, entities, organizations, funds and any other legally-permitted mechanism that allows for the investment of funds. Likewise, it may invest in commercial paper or securities yielding either fixed or variable income, regardless of whether they are listed on a public stock exchange. In any case, the corresponding issuers and/or investees may belong to either the public or private sectors, both at home or abroad.

  • Progreso Compañía de Seguros S.A.
    Progreso Compañía de Seguros, S. A, was incorporated according to the laws of the Dominican Republic and it is entitled to operate in the branches of property, casualty and personal insurance. The Company is regulated by the Insurance and Surety Law No. 146-02 in the Dominican Republic (the Insurance Law) which was passed on September 11, 2002. The Company duly completed the process of adapting to the new Companies Act in the Dominican Republic by means of an authorization issued by its Shareholders at a meeting held on June 16, 2009. In June 2011, Inversura Panamá Internacional, S.A. purchased a 99.9% stake in this Company. Before then, its majority shareholder was Palm Fund Insurance Investment, S. A., with 99% of its share capital.

    The Company’s registered business address is Avenida John F. Kennedy No. 1, Torre Proseguros, in Santo Domingo, Dominican Republic.

Breakdown of the Consolidation Effect on the Financial Statements
The Parent Company’s financial statements versus its consolidated statements at December 31, 2011 are broken down as follows:

    PARENT COMPANY CONSOLIDATED CONSOLIDATION EFFECT
Total Assets $ 21,590,397 32,301,339 10,710,942
Total Liabilities 2,725,930 13,490,728 10,764,798
Equity 18,864,467 18,810,611 (53,856)
Minority Interest - 1,015,516 1,015,516
Results for the period 332,735 339,846 7,111

The following is a reconciliation of the Parent Company’s net profits with its consolidated net profits for the following years ended December 31:

    2011 2010
Parent company's net profits $ 332,735 696,266
Net results for its Subsidiaries 565,575 1,075,789
898,310 1,772,055
Eliminations that affected consolidated results:
Equity method: (352,222) (1,032,171)
Business combinations – Grupo Sura España, S.L. (169,913) -
Minority interest (36,861) (57,318)
Losses (profits) on sales of investments - 1,668
Net income and expense $ 532 2,443
Consolidated net profits: 339,846 686,677

Transactions with related parties were carried out on an “armslength” basis based on normal market terms and conditions.

The following is a breakdown of the Consolidated Headcount at December 31:

  2011 2010
Total Number of Employees    
Management Personnel ¹ 15,639 7,152
Personnel Expense
Management personnel $ 356,212 285,937

(1) Out of the total number of employees, 6.743 belonged to the companies recently acquired from ING. These did not affect the Company’s personnel expense since said expenditure was already included in the purchase price of said assets.

The following is a breakdown of the assets, liabilities, equity and profits (losses) for each of the companies included in the consolidation

  ASSETS LIABILITIES EQUITY PROFITS (LOSSES)
  2011 2010 2011 2010 2011 2010 2011 2010
Portafolio de Inversiones Suramericana S.A. - en liquidación - 7,292,103 - 3,024 - 7,289,079 - 427,859
Suramericana S.A. 1,783,271 1,370,519 230,660 19,764 1,552,611 1,350,755 196,154 309,254
Grupo de inversiones Suramericana Panamá S.A. 1,836,679 47,554 1,796,597 5,856 40,082 41,698 (5,580) (1,196)
Enlace Operativo S.A. 48,029 8,294 3,989 2,909 44,040 5,385 (4,492) (2,362)
Inversiones y Construcciones Estratégicas S.A.S. 150,273 194,416 17,891 66,022 132,382 128,394 10,724 8,868
Seguros Generales Suramericana S.A. 1,422,853 1,366,553 1,003,999 935,682 418,854 430,871 38,785 148,315
Seguros de Vida Suramericana S.A. 3,448,021 2,926,281 2,675,738 2,251,349 772,283 674,932 99,740 116,276
Administradora de Carteras Colectivas Suramericana S.A. 8,748 9,339 600 769 8,148 8,570 (324) 436
Seguros de Riesgos Profesionales Suramericana S.A. 990,771 828,720 773,999 643,567 216,772 185,153 66,066 55,360
Servicios de Salud IPS Suramericana S.A. 39,594 24,996 28,745 22,693 10,849 2,303 (2,580) (4,021)
Consultoría en Gestion de Riesgos IPS Suramericana S.A. 4,383 3,625 3,455 2,768 928 857 71 9
EPS y Medicina Prepagada Suramericana S.A. 265,020 207,936 202,521 157,915 62,499 50,021 6,374 7,495
Servicios de Vehículos Suramericana S.A. - 4,996 - 1,964 - 3,032 . 32
Seguros Suramericana S.A. (Panamá) 98,060 90,041 75,019 67,079 23,041 22,962 973 (8,718)
Servicios Generales Suramericana S.A. 332,632 257,397 98,544 38,328 234,078 219,069 14,298 16,498
Inversura Panamá Internacional S.A. 265,106 32,178 1,559 - 263,547 32,178 715 1,050
Dinámica IPS S.A. 45,039 28,737 37,925 22,631 7,114 6,106 1,085 635
Compuredes S.A. 25,822 - 15,017 - 10,805 - 60 -
Inversiones Internacionales Grupo Sura S.A. 3,314,295 - 628 - 3,313,667 - (2,288) -
Progreso Compañía de Seguros S.A. 132,376 - 106,376 - 26,000 - (981) -
Grupo Sura Finance 565,534 - 586,686 - (21,152) - (21,171) -
Compuedes Costa Rica 239 - 49 - 190 - 25 -
ING S.A. 1,964,201 - 176,392 - 1,787,809 - - -
ING Compañía de Inversiones y servicios LTDA 1,090,028 - 957 - 1,089,072 - - -
ING Agencia de valores S.A. 18,745 - 15,601 - 3,144 - (10,666) -
ING Admora General de fondos S.A. 34,081 - 30,209 - 3,872 - (7,242) -
ING Promotora de Servicions S.A. 43 - - - 43 - - -
ING Seguros de Vida 1,773,058 - 1,351,782 - 421,276 - 48,998 -
ING Data Chile S.A. 3,177 - 1,231 - 1,946 - 308 -
ING Chile S.A. 9,975 - 14,960 - (4,985) - - -
AFP Capital S.A. 1,820,537 - 329,896 - 1,490,641 - 137,304 -
Santa Maria Internacional 37,311 - 82 - 37,229 - 12,789 -
ING Administradora de Fondos 239,976 - 38,831 - 201,145 - (2,709) -
ING Asesores 14,092 - 17,720 - (1,629) - (11,655) -
ING Pensiones 871,642 - 704,573 - 167,069 - (3,313) -
ING investment Management 45,809 - 15,056 - 30,753 - - -
Inverconsa 6 - 23 - (17) - (55) -
ING afore 1,230,717 - 170,310 - 1,060,407 - - -
Sura Art Collection 38,782 - - - 38,782 - - -
ING Wealth Management S.A. 7,211 - 11 - 7,200 - (38) -
AFP Integra 336,277 - 82,949 - 253,328 - - -
ING Asset Management 2 - 1 - 1 - - -
ING Fondos SAF SAC 6,239 - 1,109 - 5,130 - - -
ING Servicios SAC 8 - - - 8 - - -
ING Int Perú S.A. 42,723 - 158 - 42,565 - (12,042) -
ING International Perú S.A. 59,687 - 702 - 58,985 - 18,234 -
Afinidad AFAP S.A 44,002 - 8,805 - 35,197 - - -
Grupo Sura Holanda B.V. 2,581,067 - 98 - 2,580,969 - - -
Grupo de Inversiones Suramericana Holanda B.V. 3,936,732 - 59 - 3,936,673 - - -
Grupo de Inversiones Suramericana España S.L.U. 6,567,109 - 1,669,802 - 4,897,307 - (1,993) -
37,549,982 14,693,685 12,289,324 4,242,320 25,260,658 10,451,365 565,574 1,075,790
Grupo de Inversiones Suramericana S.A. 21,590,397 18,168,610 2,725,930 607,419 18,864,467 17,561,191 332,735 696,266
Eliminations (32,446,654) (9,956,448) (3,379,701) (87,949) (29,066,953) (9,868,499) (595,575) (1,142,697)
Assets acquired (PPA) 5,607,614 - 839,659 - 4,767,955 - - -
Minority interest - - 1,015,516 227,258 (1,015,516) (227,258) 36,861 57,318
Net consolidated amounts 32,301,339 22,905,847 13,490,728 4,989,048 18,810,611 17,916,799 339,595 686,677

 

NOTE 2

Summary of principal accounting policies

  1. Consolidation Principles
    The consolidated financial statements include the statements for subsidiary companies (where the Parent Company holds more than a 50% of their respective share capital or over which it has full control), applying the global integration method which consists of incorporating into the Parent Company’s financial statements the assets, liabilities, shareholders’ equity, and results for the subsidiaries, after eliminating any reciprocal investments, shareholders’ equity, transactions and balances. Any significant reciprocal balances and transactions between the subsidiary companies were eliminated during the consolidation.

    These financial statements are not comparable with those of the previous year given the acquisition of the ING assets.

  2. Business combinations: On December 31, 2011, Grupo de Inversiones Suramericana España, S.L, acquired 100% of the voting shares of Grupo Sura Holanda B.V and Grupo de inversiones Suramericana Holanda B.V, which held majority stakes in the ING Latin American companies. This included the purchases of insurance companies and pension funds in Mexico, Chile, Uruguay, Peru and Colombia for a total value of USD3.4 billion. This payment was made in cash at the moment this transaction was completed.

    Grupo de Inversiones Suramericana España, S.L, directly purchased these Latin American companies acting in its capacity as an investment vehicle for Grupo de Inversiones Suramericana S.A, in expanding its operations on an international scale.

    Based on that stipulated by the International Financial Reporting Standard No. 3 (IFRS 3) governing Business Combinations, purchased goodwill is recognized as the difference between the value paid and the corresponding fair value of the assets, liabilities as well as the contingent assets and liabilities of the companies thus acquired, net of any intangible asset belonging to the acquired companies. Based on the aforementioned standard, good will is not amortized but subject to impairment appraisals, when there are indications of such.

    Grupo de Inversiones Suramericana España, S.L, holds a 100% stake in the holding companies incorporated in Holland as well as other non-controlling interests in other companies acquired in different countries. Grupo de Inversiones Suramericana S.A, has chosen to measure the acquire, non-controlling stakes as a portion of the net assets acquired, since the aforementioned transactions included the purchase of various direct and indirect stakes in a total of 36 companies in Colombia, Mexico, Chile, Peru and Uruguay.

    This acquisition included a Purchase Price Allocation (PPA) and an Intangible Asset Valuation on the direct and indirect stakes purchased in the Acquired Companies, as shown below.

    Acquired assets and assumed liabilities: The fair value of the assets and liabilities belonging to the Purchaser on the date this acquisition was conducted is as follows:

    Assets $
    Property, plant and equipment   81,531
    Investment properties 265,093
    Other intangible assets 10,364
    Deferred acquisition costs (DAC) 520,212
    Financial assets 3,858,999
    Deferred tax assets 14,547
    Other assets 51,579
    Cash and cash equivalents 160,137
    $ 4,962,462

    Liabilities $
    Financial obligations 165,592
    Deferred income liabilities (DIL) 236,545
    Provision for life insurance (technical reserves) 1,867,071
    Deferred tax liabilities 250,793
    Provisions 48,746
    Accounts payable 296,689
    Employee benefits 64,299
    Capital gains tax payable 24,678
    Other liabilities 4,946
    Total Liabilities 2,959,360

    Total net assets acquired posted at fair value 2,003,102
    Intangible assets recognized as part of the acquisition 1 3,247,992
    Deferred tax on business combination 2 839,658
    Total net identifiable assets posted at fair value 4,411,437

    Non-controlling stakes posted at their fair value 3 223,826
    Goodwill obtained from the acquisition 4 2,359,623
    Consideration transferred on the acquisition $ 6,547,233

    (1) Corresponding to the items identified in the purchasing process which are expected to represent future economic benefits for Grupo de Inversiones Suramericana S.A.

    (2) Deferred tax was calculated based on the tax rate applicable in each country where the intangible assets were acquired.

    (3) The fair value of the non-controlling stake held in Grupo de Inversiones Suramericana España S.L. was determined by calculating the proportions held by each of the companies acquired in the respective net assets acquired; this, in view of the fact that it is not a listed company and therefore there is no available market information on which to base said calculations.

    Since the acquisition was carried out on December 31, 2011, the acquired companies did not report any income, costs and expense or pre-tax earnings on the Company’s financial statements.

    (4) Goodwill was determined based on the value paid minus the fair value of the net assets acquired minus non-controlling stakes.

    The Companies acquired
    The following is a list of the Companies acquired from ING through Grupo de Inversiones Suramericana S.A.

    COMPANY COUNTRY
    ING S.A. Chile
    ING Compañía de inversiones y servicios LTDA Chile
    ING Agencia de valores S.A Chile
    ING Administradora General de fondos S.A. Chile
    ING Promotora de Servicios S.A. Chile
    ING Seguros de Vida Chile
    ING Data Chile S.A. Chile
    ING Chile S.A. Chile
    AFP Capital S.A. Chile
    Santa Maria Internacional Chile
    DCV Vida. S.A. Chile
    Inversiones DCV S.A. Chile
    Administradora de Fondos de Cesantía S.A. Chile
    Servicios de Administración Previsional S.A. Chile
    Deposito Central de Valores Chile
    ING Administradora de Fondos Colombia
    Afore Holding B.V Holanda
    ING Latín América Holding B.V. Holanda
    ING AE Chile Holdings I B.V. Holanda
    ING AE Chile Holdings II B.V. Holanda
    ING Asesores México
    ING Pensiones México
    ING Investment Management México
    Inverconsa México
    ING Afore México
    Sura Art Collection México
    ING Wealth Management S.A. Perú
    AFP Integra Perú
    ING Asset Management Perú
    ING Fondos SAF SAC Perú
    ING Servicios SAC Perú
    ING International Perú S.A. Perú
    ING Pensiones Perú Perú
    Afinidad AFAP S.A. Uruguay
  3. Basis for Preparing and Presenting the Financial Statements
    The consolidated financial statements have been drawn up and presented pursuant to Article 122 of Decree 2641 issued in 1994 as well as the consolidation rules and regulations contained in External Circular No. 002 of 1998 issued by the Colombian Superintendency of Finance, plus the effect of the business combination as described in (b) of the Summary of Principal Accounting Policies.

  4. Cash equivalents
    For the purposes of its Statement of Cash Flows, the Company considers fiduciary rights on ordinary trust funds, as well as negotiable shares and certificates of deposit as cash equivalents.

  5. Investments
    In the case of all those subsidiaries issuing securities

    For valuation purposes, investments are classified according to the following criteria:

    • Their intent and purpose: negotiable and permanent.

    • Their corresponding yield: fixed, variable or a combination thereof

    • Control held over the issuer: controlling and noncontrolling stakes.

    • The reason behind the investment: voluntary or mandatory

    • The rights granted by the security: participating and nonparticipating

    Investments are appraised and posted as follows:

    Negotiable investments: at their market value, and all variations with regard to their latest book values are recorded in the income accounts alongside each investment.

    Controlling investments: these are companies in which more than a 50% stake is held and which appear in the Colombian Commercial Registry as under the Company’s control; the book values of these are either increased or decreased depending on any changes in the subsidiary's equity subsequent to its acquisition, this based on the percentage stake held, and any adjustments made thereto are recorded in the income statement in the capital surplus account.

    The equity method is used, pursuant to that laid out in Joint Circular No. 11 issued August 18, 2005 by the Colombian Superintendency of Companies and the Colombian Superintendency of Finance.

    According to Decree No. 4918 issued December 26, 2007 equity investments in foreign subsidiaries must be restated in the functional currency using the applicable exchange rate, as certified by the Colombian Superintendency of Finance, or any other authority that should replace said Superintendency or act in such capacity, posting the difference between the book value of said assets and their restated value as an increase in the value of the Company’s equity, in the account where equity variances are recorded. When the investment in question is sold off, any adjustments in the exchange difference recorded in the equity accounts shall affect the results for the corresponding period.

    Permanent (non-controlling) investments: should the value of the investments sold be higher than their book cost, the difference represents an increase in their value for the fiscal year and this is posted in the offset equity valuation accounts (revaluation against revaluation surplus). Should the value of the investments sold be lower than their book cost, the difference is charged first to the revaluation account and then to the revaluation surplus account, up to the amount involved and in the event of this value being higher than the corresponding book cost, this is charged to the aforementioned accounts as a lower value of these same, regardless of whether their net balances are quite the opposite.

    Valuation procedure for entities coming under the oversight of the Colombian Superintendency of Finance
    Investments are appraised in keeping with the guidelines, criteria and methodologies stipulated in Chapter 1 of the Basic Accounting and Finance Circular issued by the Colombian Superintendency of Finance.

    Based on the corresponding purposes and strategies of the investment in question, securities may be classified as negotiable investments, investments held to maturity or investments held for sale.

    Any security, instrument or investment in general that has been purchased for the prime purpose of obtaining gains on short-term price fluctuations are classified as negotiable investments. Investments held to maturity consist of those purchased with the intention of keeping for their full terms. Investments held for sale are those made for the purpose of keeping for at least one (1) year as of the date on which they were duly classified in this category, after which they are either reclassified as negotiable or held to maturity or continue as investments held for sale.

    Investments are appraised according to the following provisions:

    Debt securities
    These are securities according the corresponding holder with the status of creditor with regard to the issuer in question.

    Appraisals of negotiable investments or those held for sale are based on a price, benchmark rate or margin which is calculated based on representative market transactions

    In the absence of a price, the corresponding market is estimated by calculating the sum of the present value of future flows of yields and principal, using a Discount Factor (DF) consisting of a rate and a margin that is published daily by INFOVAL or any other agent that the Colombian Superintendency of Finance should authorize for this purpose.

    DF = [(1+BR)*(1+M)] ^ (n/365)

    Where
    DF: Discount Factor
    BR: Annual benchmark rate as calculated on the appraisal date.
    M: Margin for the respective category of security as calculated on the appraisal date.
    n: Number of days between the appraisal date and the due date for the flow in question, this calculated on a basis of a 365-day year.

    Should neither a price nor a margin be available on the appraisal date, the corresponding margin must be calculated based on appraisals of similar securities. All those securities that cannot be appraised based on their price, benchmark rate or margin, must be valued exponentially based on their internal rate of return.

    In the case of securities classified as investments held to maturity these appraised exponentially based on the internal rate of return calculated on the date of purchase.

    Participatory securities
    These are securities according the corresponding holder with the status of co-owner of the issuer in question.

    Participatory securities that are registered with the Colombian Registry of Securities and Issuers and listed with the Colombian Securities Exchange are appraised based on the prices published by the agents authorized by the Colombian Superintendency of Finance for this purpose. These prices are based on information sourced from the different regional exchanges where these are traded. In the event of there being no trades giving rise to a price on the secondary market, as of their date of issue, these must be appraised considering the subsequent changes to the issuer´s equity based on the purchase price or the price published by an agent authorized for this purpose by the Colombian Superintendency of Finance.

    Interests in collective portfolios as well as securities issued as part of securitizations are appraised based on the unit value calculated by the firm managing such on the date immediately preceding the appraisal date even when these are listed on the Colombian stock exchange.

    Participatory securities listed on foreign stock exchanges are appraised based on the closing prices made available on the stock exchange in question on the appraisal date, or failing that the closing price most recently reported by said exchange. Should no closing price be available for the period in question, these must be appraised based on the simple average of closing prices reported during the previous thirty (3) trading days including the appraisal date.

    Participatory securities that are issued and traded in Colombia but not listed on the Colombian stock exchange. These investments must be appraised following any one of the following procedures:

    • The purchase price must be increased or decreased according to the investor´s percentage of any subsequent changes to the issuer´s equity.

    For this purpose, changes to the issuer´s equity are calculated based on duly certified financial statements, at June 30 and December 31 of each year. However, in the event of more recent certified financial statements being made available, these should be used for appraising the corresponding investment. Entities are given a maximum term of three (3) months, subsequent to the cut-off date of their financial statements, to update these changes.

    • Based on the price determined by an agent specialized in appraising movable assets.

    • Based on a method that adequately reflects the economic value of the investment in question, which must be previously authorized by the Colombian Superintendency of Finance.

    Generally speaking, in the case of all those securities denominated in foreign currency, in units of real value or other units, their present value or market value, or the value of its currency or designated unit is duly determined. The value thus obtained must be multiplied by the local market exchange rate applicable on the date the security is appraised as duly certified by the Colombian Superintendency of Finance on said date, or by the value officially recorded for the unit on this same day, as applicable

    Derivatives: Investments in currency forwards

    Currency forwards are appraised on a daily basis in accordance with that stipulated in Chapter XVIII of the Basic Accounting and Finance Circular issued by the Colombian Superintendency of Finance; this based on their fair exchange prices following the guidelines and criteria that must be used by all those entities coming under the oversight of this Superintendency.

    Peso-dollar forward transactions are appraised using the forward points (PIPS) recorded at the daily closing of the forward market, as published by authorized agents.

    In order to calculate the gains or losses obtained on this type of contract, the difference between the forward rate agreed upon and the actual forward rate is calculated on the appraisal date, which must correspond to the remaining term of the derivative in question, and this is converted to its present value using the zero coupon interest rate. For this the following formula is used:

    NUSD * [ TCF – (TCRMspot + PIPSK ) ]
    —————————————————
    1+(rk * k/360)

    Where
    NUSD: Nominal value of the contract stated in US dollars
    FER: Peso-US dollar exchange rate stipulated in the contract and stated in pesos per dollar
    k : Number of days between the valuation date and the stipulated delivery date.
    PIPSk: Forward points (‘mid’) on the peso-US dollar forward market on the appraisal date for a term of k days. This is stated in pesos per US dollar.
    MRRspot: Market representative rate on the date of appraisal stated in pesos per US dollar
    rk: Zero coupon interest rate for a term of k days, according to the guidelines governing discount rates as set out in subsections a), b) and c) of Section 7.2. of the aforementioned Chapter.

    General policies governing derivative operations

    The derivatives held by the Company correspond mainly to hedging operations performed to protect its portfolios and to a lesser extent to speculative transactions conducted within a time frame of up to one (1) year. Structured Products are not limited to this same time horizon and must consist of whollyprotected (100%) capital.

    Based on the derivative and structured products permitted both by law and the Company’s Investment and Risk Committee, the Company is considered to have a MEDIUM risk profile, and therefore its risk tolerance level is set at MEDIUM

    Any transactions involving new structured products, derivatives or operations performed on new underlyings must be authorized by the Investment and Risk Committee after the Investment Department has presented its strategy and this has been duly analyzed by the Risk Department.

    Hedging arrangements were conducted in 2011, for the purpose of mitigating the amount of volatility affecting the Companies´ financial statements in the short term as well as to fulfill the targeted goals.

    Charges, constraints and encumbrances Operations with derivatives reported to date are free of any encumbrance as well as legal and financial constraints.

  6. Accounts receivable
    The provision for this account is based on the estimated collectability of the balances outstanding, according to their particular nature, the following being the most relevant:
    • In the case of all those subsidiaries pertaining to the finance sector, the provision for loan portfolios and the provision for amounts to be collected is set up based on that stipulated by the Colombian Superintendency of Finance.

    • With respect to accounts receivable in the case of the insurance sector that are more than 6 months past due, a provision for 100% of the value of these is set up and charged to the income accounts.

    • Provisions are charged against the income accounts should there be any doubt concerning the collection of the amounts outstanding. The Colombian Superintendency of Health, by means of Resolution 1424 of 2008, requires a provision to be recorded covering eventual losses on revenues due from pre-paid healthcare services and/ or complementary healthcare plans that have remained outstanding for more than 90 days, this equivalent to 100% of the value of the payments owing. As for amounts outstanding corresponding to judicial protection and CTC orders, maternity leave, private individuals, and workers´ compensation, the Company sets up a provision for 5% of the amounts that have remained between 90 and 180 days outstanding, 10% for between 181 and 360 days outstanding, and 100% for amounts more than 360 days outstanding.

      The general provision set up on accounts receivable, based on the amount of days outstanding is as follows:

    PROVISION % DAYS OUTSTANDING
    5 Between 90 and 180 days
    10 Between 181 and 360 days
    15 More than 360 days
    • The rest of our subsidiaries record provisions based on Management estimates regarding their collectability.

  7. Transactions and balances in foreign currencies
    Transactions in foreign currency included in the consolidation are converted to Colombian pesos using the market representative rate as certified by the Colombian Superintendency of Finance on the date these are conducted. Balances in foreign currency are adjusted using the market representative rate applicable on the last day of the month, which at December 31, 2011 and December 31, 2010 came to COP 1.942,70 and COP 1.913,98 per US dollar, respectively. Exchange differences are posted in the income accounts. According to Decree No. 4918 issued December 26, 2007 by the Colombian Ministry for Commerce, Industry and Tourism, exchange differences resulting from equity investments in foreign subsidiaries must be posted as a higher or lower value of the Company’s equity; and when the investment in question is sold off, this value is posted on the income accounts.

  8. Inventories
    Inventories are managed using the permanent inventory system. These are appraised using the average inventory method and their depletion is recognized by charging the respective cost account for the service provided. Inventories of real estate held for sale and plots of land for subsequent development, whether wholly or partly owned (both land and construction in progress together with buildings), are recorded at cost, which shall not exceed its market price.

  9. Realizable assets and assets received as payment
    Assets received in the form of payment are posted at the value paid in kind, this based on technical appraisals.

    Based on that stipulated in External Circular 043 issued in 2011, technical appraisals may not date back more than three years from the date on which the books are closed for the period for which said appraisals are used.

    Should there be a difference in favor of the debtor between the value for which the asset is received and the value of the obligation to be paid, this is posted as an account payable. Should the value of the asset not be enough to cover the amount owing on the obligations a provision is set up on the difference.

    For the purpose of setting up individual provisions on all kinds of assets received in the form of payment, the instructions set out in Chapter III of the Basic Accounting and Finance Circular are followed:

    All realizable assets are posted at their purchase or production cost, which includes all direct and indirect costs and expense that are incurred until they are ready to be used or sold.

    Interest, monetary correction, foreign exchange adjustments, as well as any other financial expense incurred in acquiring, building or assembling assets constitute a higher value of the asset in question, until these are started up or ready to be used or sold.

  10. Intangibles:
    Intangible items consist of acquired goodwill, trademarks, non-competition agreements, contractual relations with clients, goodwill, goods received as part of leasing arrangements, software, trusts and licenses.
  11. Acquired goodwill:
    Acquired goodwill mainly corresponded to the acquisition of the ING assets, Progreso Compañía de Seguros S.A and Compuredes S.A.

  12. Intangible assets, contractual client relations and trademarks:
    Intangible assets, contractual client relations and trademarks were purchased as part of the business combination. The estimated useful life of contractual client relations is between 4 and 22 years, whereas this is indefinite in the case of trademarks.

  13. Leasing
    Rights and obligations relating to leased assets are posted in keeping with the nature of the respective lease, as described below:
    1. Financial leasing arrangements:
      The present value of the rentals and the purchase option is calculated on the date the corresponding contract is signed, this being the cost of the asset which is posted as a fixed asset charging a financial obligation. During the term of the lease contract, the portion of rentals that corresponds to installments of principal on the asset in question is applied as a lower value of the respective liability and the portion corresponding to interest is posted as a financial expense on the income accounts.

      Depreciation is calculated by applying the straight-line method during the asset´s useful life and this is posted as an amortization on the income accounts.

    2. Operating leasing arrangements:
      With this type of contract, no asset or liability is recognized on the assets received. The total value of the rentals is posted on the income statements as leasing expense.

      The terms, conditions and requirements for operating leasing contracts to be recognized as such are found in subsection 1 of paragraph 3 of Article 127-1 of the Colombian Tax Code (the only persons entitled to this form of treatment are lessees reporting total assets for up to the maximum limit for a medium-sized company as stipulated in Article 2 of Law 905 of 2004 , which is equivalent to 610.000 Units of Tax Value).

  14. Property, plant and equipment:
    Property, plant and equipment are recorded at their adjusted cost, including costs and expenses accruing up to the moment the asset is ready for use.

    Any extensions, improvements and extraordinary repairs that significantly increase the useful life of the asset in question are recorded as an added cost, and maintenance and repair costs are charged to expenses as these accrue.

    With regard to performing maintenance on furniture and fixtures, there exists a maintenance program and a team of subcontractors in charge of carrying out repairs and attending incidents as these arise. Visits are scheduled on a regional level each year, and a general check is performed on all our premises. In the case of property, both operating and non-operating throughout the country, when these are occupied, maintenance and repairs are performed upon request, and once the initial evaluation is completed and depending on the extent of the damage or malfunction, the corresponding repair or maintenance work must be completed within four days of having been reported. In the case of unoccupied property a person has been assigned (not for this exclusive purpose) in every city in order to conduct periodic inspections and resolve all issues regarding such property.

    Both real estate and personal property are duly insured against fire, low voltage and theft, as applicable. Real estate is insured against earthquake and fire for its commercial value. Works of art are insured for their appraised commercial value however, it is the Company’s policy not to move furniture or fixtures (including works of art) outside its premises without having obtained the corresponding coverage.

    At December 31, 2011, all the Company’s personal property remained free of any encumbrance, mortgage or pledge. Depreciation is recorded using the straight-line method based on the asset’s estimated useful life in years. The annual depreciation rates for each type of asset are as follows:

      ANNUAL % RATE
    Buildings 2 al 5
    Equipment, furniture and office fixtures 10
    Computer equipment 20
    Vehicles 20
    Medical and dental equipment 10

  15. Prepaid expense and deferred charges:
    These mainly consist of pre-paid expense such as insurance, non proportional contract costs ( amortized during the life of the policy), interest, commissions paid to brokers on pending premiums and deferred charges relating to remodellings, computer programs, office stationery and supplies, improvements to leased assets, organization and preoperating expense, advertising and publicity, contributions and membership fees.
    Prepaid expense is amortized during the period in which the corresponding benefit is obtained. Deferred charges are amortized as follows:
    • Software programs up to a maximum of 3 years

    • Office stationery and suppliers, as these are depleted

    • Organization and pre-operating expense up to a maximum of 5 years.

    • Projects, during the time it takes for their completion.

    • Deferred acquisition costs represent an asset consisting of acquisition costs of insurance contracts which are deferred and amortized. Deferred costs, which vary as new contracts arise or existing contracts are renewed, consist mainly of commissions, expense incurred with signing and delivering contracts and certain brokerage expense.

    • Premiums for more than one year are amortized based on the term of the policy

    • Those corresponding to leased assets are amortized between the term of the contract and their probable useful life, whichever is the shortest.

    • Advertising, publicity, contributions and membership fees, organization and pre-operating expense are amortized over a 12-month period.

  16. Trust rights:
    Real estate and administrative trusts received as part of liquidation and merger proceedings are recorded at the cost of their liquidation multiplied by the percentage stake held.

  17. Valuations:
    The accounting policies applicable to recognizing gains and losses are presented as follows:

    Property, plant and equipment:
    Upon comparing their technical appraisals with their corresponding net book values, when their technical appraisal value is greater than their book value the difference is posted as a gain on the balance sheet, otherwise it is posted as a loss, initially charging the valuation accounts until their value is depleted and then any amount left over is charged to the income accounts.

    Appraisals are performed at least every three years. In the interim these are updated based on either official indicators or the CPI as applicable to the middle income bracket, and published by the Colombian Statistics Bureau (DANE).

    Investments in non-controlling companies:
    Valuations of permanent investments in non-controlling companies correspond to the higher value obtained from comparing their intrinsic value with their book cost which is then recorded in the valuation account crediting the valuation surplus account. Should their intrinsic value be less than their book cost the difference is first charged to the valuation account and then to the valuation surplus account, and should there remain any amount left over this is considered as a loss that affects the aforementioned accounts as a lower value of these, regardless of whether their net balances are quite the opposite.

    Trusts:
    Trust appraisals are posted according to the difference between the value appearing on the corresponding statement and their book cost.

  18. Deferred income:
    This consists of deferred and prepaid income which is amortized during the period it accrues or when the services are provided.

  19. Estimated liabilities and provisions:The preparation of financial statements according to generally-accepted accounting principles requires that Company Management records estimates and provisions that affect the reported values of the Company’s assets and liabilities as well as disclose assets and liabilities of a contingent nature on the date on which the financial statements are drawn up. The real results could therefore differ from the figures thus estimated..

  20. Retirement pensions:
    Retirement pension liabilities are calculated based on actuarial studies, which are drawn up as required by law. Retirement pensions are amortized according to the percentages stipulated by law. The current portion is calculated on the estimated payments to be made during the following year.

    For years ended December 31, 2011 and December 31, 2010, the Company amortized the total value of its retirement pensions. The payments made to retired personnel were charged to the provision.

  21. Memorandum accounts:
    These accounts contain events, circumstances, agreements and contracts that may entail certain rights and obligations which could consequently affect the Company’s financial structure. These include control accounts used for assets, liabilities, equity and management information or for controlling future financial situations and differences between accounting records and tax returns.

  22. Insurance business:
    Provision for premiums pending collection

    The Companies set up a provision for premiums pending collection on earned premiums and policy-issuing expense that have remained outstanding for more than 75 calendar days beginning on the date on which the technical term of the policy, as well as the certificates and exhibits issued based on such, begin. For this the policy-to-policy method, which is one of recognized technical value, is used as required by the Colombian Superintendency of Finance, except in the case of premiums to be collected from the State or Central Bank, providing there is a duly executed agreement with the State, a certificate of budgetary availability has been obtained or the respective budget record has been made to proceed with its corresponding payment.

    As for accounts receivable in the case of the insurance sector, as well as other related assets in the case of accounts receivable corresponding to the insurance business that are more than 6 months past due a provision for 100% of the value of these is set up and charged to the income accounts.

    Provisions for premiums receivable are set up in accordance with that stipulated by the Colombian Superintendency of Finance in External Circulars Nos 100 of 1995 and 036 of 2004, and charged to the income accounts.

    The Workers´ Compensation Companies must set up a provision equivalent to one hundred per cent (100%) of the amounts due and payable as of the first month in which the employer defaults on payment, charging this to the income accounts.

    ARP Sura S.A. has set up the corresponding provisions for its accounts receivable that have remained outstanding up to a term of one year, this based on applicable legal and regulatory case law. It is worthwhile noting that Article 96 of Decree 1295 of 1994, subsequently amended by Article 18 of Law 776 of 2002, stipulates a statute of limitations of one year for all those benefits established by the Workers´ Compensation System, which is why it is not appropriate to set up a provision for said accounts for a longer period of time, since the right to claim such benefits expire within a maximum term of one year, beginning on the date the employer defaults on the payment of these installments.

    Recognition of revenues, costs and expense
    Revenues, costs and expense are recorded on the income accounts as they accrue.

    Revenues on premiums issued are recognized when the respective policies are issued. These revenues are distributed throughout the period by means of the technical reserve. Revenues on premiums issued are reduced when the policies are either cancelled and/or revoked. In the case of the former, the value recorded corresponds to the total value of the premium earned up to the moment it is cancelled due to its payment term having expired.

    The value of savings with regard to life insurance policies is recorded as revenues as well as expense to the reserve. The difference between the corresponding revenue and expense plus returns is posted on the income accounts.

    In the case of each employer, the Workers´ Compensation Company must estimate the value of all mandatory contributions bearing in mind the number of workers that were affiliated during all or part of the period (incoming and outgoing), the wages on which contributions are calculated and the type of risk, as reported on the last payment settlement or affiliation form. Should the employer not report any incident, the estimated value of the corresponding contributions cannot be lower than that contained on the last payment settlement form.

    Breakdown of contributions received

    • Contingency and other coverages. Ninety-four per cent (94%) of the contributions received are assigned to cover workers´ compensation contingencies or to pay the corresponding economic or health benefits, develop programs for the purpose of controlling and preventing occupational risk, providing comprehensive rehabilitation and managing the system.

    • The ATEP fund for prevention and research programs Here five per cent (5%) of the contributions received are assigned to developing programs, campaigns, educational initiatives and conducting research into work-related accidents and occupational disease, pursuant to Article 19 of Decree 1295 of 1994.

    • Work-related risk fund This fund is allotted one per cent (1%) of contributions received, pursuant to Article 19 of Decree 1295 of 1994. This sum is transferred on a monthly basis to the Fiduciaria la Previsora.

    Technical insurance reserves::
    Method used for ongoing risk
    Pursuant to Law 45 of 1990, and Decree No. 839 of 1991, the subsidiaries must calculate the technical reserve for ongoing risks based on 80% of the premiums retained during the year, according to the “eighths” method, except for the following types of insurance:

    BRANCH OF INSURANCE % RETAINED RESERVE FREQUENCY
    Aviation, shipping, mining and oil risk 100 10 Annual
    Global banking management and fidelity as well as financial risk 100 20 Annual
    Transport 100 50 Quarterly

    In the case of insurance for terms of less than one year, the reserve is calculated proportionately to the life of the insurance.

    As of January 2007, Seguros de Vida Suramericana S.A., has calculated its technical reserve for ongoing risk using the policy-to-policy method, as authorized by the Colombian Superintendency of Finance, taking 80% as a basis for its calculation for the first year, 90% for the second and 100% as of the third year. At the Company’s request, the Colombian Superintendency of Finance, by means of Filing N° 2007 000886-001-00 dated February 08, 2007, authorized the Company to continue using 80% as the basis for this calculation.

    As of January 2005, the Company had calculated its technical reserve for ongoing risk using the policy-to-policy method on 100% of the premiums retained. Subsequently the Colombian Superintendency of Finance, by means of Filing N° 2007 000886-001-00 dated February 08, 2007, authorized the Company to continue using 80% as the basis for this calculation.

    At the request of Seguros Generales Suramericana S.A., the Colombian Superintendency of Finance by means of Filing No. 2007073701- 001-000 dated December 31, 2007, authorized the setting up of this reserve using as a basis for its calculation 80% of all those policies entering into full force and effect as of December 1, 2007, except in the case of transport insurance which is governed by the special system regulated by Decree 839 of 1991.

    Pursuant to that stipulated in the paragraph contained in Article 3 of Resolution 1555 issued July 30, 2010, by means of which the mortality tables were updated for recipients of annuities, Seguros de Vida Suramericana S.A., gave notice that differences had been obtained between the value of the mathematical reserve at December 31, 2010 calculated by applying the Table RV08 in its entirety and the reserve calculated on the basis of the gradual adjustments stipulated in Law 100 for pension changeovers and voluntary pensions and that these were pending recognition.

    BRANCH   DIFFERENCE PENDING RECOGNITION
    Law 100 $ 73,264
    Pension changeovers   19,733
    Voluntary pensions $ 409

    The Company opted to set up a reserve for claims incurred but not reported in connection with Policy 4 (valid from 2007 to 2010) namely the adverse deviation regarding the frequency of claims, calculated as the average amount paid out on unreported claims relating to this policy in 2010 and 2011. Furthermore an additional factor of 10% was included which as been duly approved in the budgeted funds for 2011 in order to cover obligations in the mid-term for our pension insurance business, which according to this methodology are not covered.

    The Company also stated that in the case of Educational Annuity Insurance Products (Filing No 2003036515-0 dated July 14, 2003) and Pension Annuity Insurance (Filing No. 2005014623-0 dated March 22, 2005) pertaining to Branch 41 (Voluntary Pensions), the adjustment required in calculating the reserve due to the change in the mortality table is not significant, since this has to do with Temporary Short-Term Annuities, and therefore the gradual adjustment provided by said Resolution was not considered necessary, which was why in October 2010 the Company proceeded to set up 100% of the reserve applying the Table RV08 in its entirety.

    Technical reserve for EPS Sura:
    As of 2007 and pursuant to Decree N° 574 of 2007, subsequently amended by Decrees Nos 1698 of 2007 and 2353 of 2008 the Colombian Superintendency of Health required that technical reserves be calculated, set up and maintained for service authorizations, technical reserves for services charged and reserves for contingencies.

    Technical reserves for service authorizations are equal to 100% of all authorized health services pending collection, up to a maximum term of 12 months or until, a minimum of four months have elapsed since authorization was given without the service having been provided. Once this term has elapsed, without the corresponding invoice having been received, the reserve is duly freed up. This reserve is set up based on the entire amount of components that make up the authorized healthcare service, taking into account the historic average for the previous year of the total amount paid for the service(s) included in the authorization issued. In the case of capitalization agreements, a reserve must be set up within the first five days of each month for an amount equal to a month of the term of the contract. Payments are made charging the reserve thus set up.

    In the case of deposits retained from overseas reinsurers:
    The reserve for deposits for premiums assigned as part of overseas reinsurance arrangements is determined based on the following percentages: aviation, shipping, and mine and oil risks, 10%; global banking management and fidelity together with financial risk 10%; transport and other types of insurance, 20%. It is possible to set up, for the Company’s own account, retained deposits that would otherwise be for the account of the reinsurer with regard to aviation, navigation, mining, and oil, and global banking management insurance, in the case of the parties agreeing not to do so, or using a lower percentage.

    In the case of reported claims pending settlement:
    The reserve for reported claims pending settlement is set up and charged to the income accounts for the estimated amount of individual reported claims, both for those retained by the Company and for accepted reinsurance arrangements

    For reported survivors´ and disability claims, the estimated amount of the settlement to be paid by the Company is recorded for each reported claim pending settlement.

    In the case of unreported claims incurred::
    A reserve is established for claims incurred and not reported, for the sum resulting from the average amount paid out on unreported claims over the previous three-year period, the retained portion, in real terms, being calculated using the CPI corresponding to the previous year.

    In the case of workers´ compensation insurance, the reserve for non reported claims is set up on a quarterly basis based on the difference between 94% of the 50% of the payments accruing (net retained premiums) during this same period, and the total amount of claims paid out, increases in the mathematical reserve and reported claims pending settlement recorded during that quarter.

    In any event, this reserve cannot be less than 5% of the payments accruing during the quarter, nor greater than 25% of the payments accruing over the previous 12-month period.

    The balance of the reserve set up until November 1998 may not be reduced nor freed up. Pursuant to Decree 4310 issued December 21, 2004 by the Colombian Ministry of Finance and Public Credit, which amended Decree 231 of 2002: "beginning on January 1, 2010, the reserve for unreported claims incurred with regard to workers´ compensation insurance shall be subject to the general framework stipulated in Article 7, Decree, 839 of 1991, or any other regulatory decree that should amend, extend or replace such”.

    The reserve for pending unreported claims from previous periods with respect to disability and survivors´ insurance is adjusted on a quarterly basis and calculated for each policy on the earned portion of the risk, as stipulated in Decree 2345 of 1995.

    For all those companies that do not qualify for the treatment contained in the aforementioned decrees, reserves for claims are calculated on a case-by-case basis, or using approximations based on experience. Provisions may be set up on unreported incurred claims or on handling expense for future claims. These provisions are checked each year using standard actuarial methods. Furthermore for unreported incurred claims.

    For deviations with the claims rate:
    This reserve is set up on 40% of the net retained premiums in the case of earthquake risk which may accrue until reaching twice the maximum probable loss from the cluster retained by the Company within the seismic area with the greatest exposure.

    The reserve for deviations with the claims rate in the case of workers´ compensation insurance is cumulative and is increased on a quarterly basis in an amount equal to 4% of the premiums earned during that period, on the retained portion of the risk without the accumulated balance of the reserve exceeding 25% of the payments received over the last 12 months, less one-half of the insured amount for excess catastrophic losses that cover these risks.

    Pursuant to Decree 2347 of 1995, the reserve may be used to pay claims that, due to their amount or nature, c

    Mathematical reserve:
    In the case of the life insurance companies, a mathematical reserve is set up on a policy-to-policy basis this according to actuarial calculations that are adjusted based on the technical note submitted to the Colombian Superintendency of Finance, using the same technical interest and mortality table for calculating the premiums for each type of insurance.

    In the case of workers´ compensation insurance, the reserve is set up on an individual basis, beginning on the date on which the obligation to recognize the disability or survivors´ pension is determined. The total amount of this reserve is the expected current value of the monthly outlays on the part of the workers´ compensation firm.

    This reserve is calculated using the system of fractionated annuities in arrears, pursuant to Resolutions 585 and 610 of 1994 issued by the Colombian Superintendency of Finance, or any new rules and regulations that should supersede these.

    In the case of the mathematical reserve corresponding to the savings fund, this is calculated based on the net balance available per client, and includes any accretions or withdrawals on the part of each holder, in addition to the interest payable to each

    The value of the savings fund unit is calculated on a daily basis, this serving as a daily adjustment for the savings fund.

    • Law 100 pensions

    • Pensions subject to the Pension Changeover

    • Voluntary pensions

    • Pension annuities

    • Education annuities

    The mathematical reserve corresponds to the present actuarial value of the obligation acquired by the insurance company, calculated based on a real technical interest rate of 4%, as stipulated by the Colombian Superintendency of Finance in Resolution 0610 issued April 14, 1994 for companies that do not come under the oversight of said Superintendency. The life insurance reserve is calculated based on a prudent forecast using the actuarial method, considering the current conditions of the insurance contracts. Specific methodologies may be used between business units in accordance with local regulations and local practices for specific products with local market characteristics, these reserves are calculated based on assumptions with regard to mortality, morbidity, expense, return on investments and assignments. These assumptions are drawn up on the date the policy is issued and are constantly reviewed throughout the term of the policy, except in the case of recognizing losses.

    Special reserves – Workers´ Compensation:
    External Circular No. 052 of 2002 issued by the Colombian Superintendency of Finance stipulates a gradual framework for setting up a workman´s compensation reserve, which can only be used to cover the sums transferred by the Company NOTE 4 to other workers´ compensation administrators claiming economic benefits for occupational sickness.

    This reserve is cumulative and represents two per cent (2%) of the monthly payments earned.

  23. Materiality
    All economic events are recognized and presented according to their relative importance. Upon preparing the financial statements, materiality was determined based on total current assets and liabilities, total assets and liabilities, working capital, shareholders´ equity and results for the year, as appropriate.

    As a general rule we applied a materiality threshold of 5% of the total value of assets and operating revenues.

  24. Bonds and commercial paper: These are securities received by the economic entity as a result of issuing and selling bonds and commercial paper defined as credit securities issued for the purpose of financing working capital.

  25. Net earnings per share in pesos:
    Net earnings per share for the year 2010 were calculated based on 469,037,260 shares outstanding. For 2011 these were calculated based on the weighted average of the Company’s subscribed shares outstanding for the period of time these had been placed which came to 477.898.507.

NOTE 3

Cash and banks

These correspond to cash and due from domestic and foreign banks as well as savings accounts held abroad for the purpose of paying financial obligations and working capital. The cash and due from banks account is free from any constraint or encumbrance, except for an embargo affecting two checking accounts belonging to Seguros Generales Suramericana S.A.

NOTE 4

Investments

The following is a breakdown of investments held at December 31:

  2011 2010
Temporary: $    
Negotiable investments in the form of debt securities:      
Int. Govt securities issued and guaranteed by the Govt Pension Bond 374,554 15,169
Int Govt securities issued and guaranteed by Govt TES bonds 78,233 546,007
Int Govt securities issued and guaranteed by Govt TIDIS bonds 5,323 578
Ext Govt securities issued and guaranteed by the State 117,546 4,325
Other Govt securities, Stock Company Bonds 107,806 8,376
Int Govt securities issued and guaranteed by the Govt Republic Bond 29,938 30,527
Int Govt securities issued and guaranteed by the Govt Constant Value Bond 188,035 5,090
Securities issued as credit for securitization processes 25,565 7,985
Int.securities issued and guaranteed (oversight) Stock Company Bonds - 107,847
Int. Bonds issued and guaranteed (oversight) IFI CDs - 197,781
Int. securities issued and guaranteed (non-oversight) Stock Company Bonds - 73,179
Securities issued and guaranteed by Foreign Govts Structured Notes - 15,756
Securities issued and guaranteed foreign. bank stock company bonds - 112,787
Securities issued and guaranteed foreign bank acceptances structured notes - 16,750
Securities issued and guaranteed foreign bank acceptances IFI CDs - 36,785
Securities issued and guaranteed multilateral banks stock company credit 6 35,238
Fiduciary rights 25,604 -
Other Stock Company Bonds 82,497 7,184
1,035,106 1,221,364

  2011 2010
Investments held for sale in the form of debt securities: $    
Int Govt security issued and guaranteed by the State Pension Bond 297,134 357
Int Govt security issued and guaranteed by Govt TES bonds 10,274 125,585
Other Govt securities, Stock Company Bonds 3,280 9,312
Securities issued by credit establishments 73,151 -
Int. Bonds issued and guaranteed (oversight) IFI CDs 76,648 22,973
Int.securities issued and guaranteed (oversight) Stock Company Bonds 25,308 83,445
Int. securities issued and guaranteed (non-oversight) Stock Company Bonds 5,462 76,387
Securities issued and guaranteed foreign bank acceptances stock company bonds - 5,054
Credit securities originating in securitization operations 448
$ 491,257 323,561
Investments held for sale in the form of participatory securities:
Shares with high degree of liquidity 81,861 177,506
Shares with medium degree of liquidity 32,250 -
Shares with a low or minimum degree of liquidity 1,838 1,842
$ 115,950 179,348

  2011 2010
Negotiable investments in participatory securities: $    
Shares
Shares with high degree of liquidity 45,114 16,149
Participations in mutual funds 9,372 22,364
Participations in special mutual funds 11,874 94,395
Participations in equity funds 3,726 59,017
Participatory securities obtained from securitizations 3,326 11,587
Mixed securities obtained from securitizations 36,866 3,695
Participations in mutual funds – domestic investments 221,999 36,175
Participations in Investment Funds. Domestic equity 106,720 9,715
Repo rights on investments 1,519 40,416
Commercial paper 38,569 11,435
Fiduciary rights 12,480 549,332
$ 491,563 854,280
Less provision (3,334) (690)

  2011 2010
Total temporary investments: $ 2,130,541 2,577,863

  2011 2010
Permanent investments in participatory securities $    
Shares:
Finance sector 3,669,461 3,411,214
Real sector 50,295 68,224
Other foreign residents 76,102 -
Other investments:
Others - 93
Fiduciary rights - 138,517
$ 3,795,858 3,618,048

  2011 2010
Investments held to maturity in the form of debt securities: $    
Int Govt securities issued and guaranteed by the State Pension Bond 109,256 43,020
Int Govt securities issued and guaranteed by Govt TES bonds 19,489 89,966
Int Govt securities issued and guaranteed by the Govt Red. Bond 3,185,408 26,373
Int Govt securities issued and guaranteed by the Govt Republic Bond 55,644 13,358
Int Govt securities issued and guaranteed by the Govt 1,476,546 9,027
Other Govt securities, Stock Companies 786,637 131,246
Credit securities originating in securitization operations 3,032 45,483
Int.securities issued and guaranteed (oversight) Stock Company Bonds 29,369 477,283
Int. Bonds issued and guaranteed (oversight) IFI CDs - 459,064
Int.securities issued and guaranteed (oversight) Stock Company Bonds - 31,056
Int. securities issued and guaranteed Stock Company Bonds - 557,216
Securities issued and guaranteed multilateral banking stock company credit - 6,616
Int. securities issued and guaranteed (non-oversight) commercial paper - 5,196
Securities issued and guaranteed by Govt Ext. Structured Notes - 7,043
Securities issued and guaranteed ext. bank acceptances IFI CDs - 5,643
5,665,381 1,907,590

Total permanent investments
  2011 2010
Total permanent investments 9,461,239 5,525,638
Less provision (8,447) (21,829)
Total inversiones permanentes $ 9,452,792 5,503,809
Total investments $ 11,583,333 8,081,672

Provision for investments

Movements in the provision for investments corresponding to the years ended December 31, 2011 and December 31, 2010 are broken down as follows

  2011 2010
Opening balance $ 22,519 37,903
Provision charged to expenses 3,480 16,342
Reversed provisions (870) (3,282)
Cancellation of provision for sales (13,348) (27,266)
Provision on transfers to memoranda accounts - (1,178)
Provisions $ 11,781 22,519
Temporary investments 3,334 690
Permanent investments 8,447 21,829
$ 11,781 22,519

The following is a breakdown of the Company’s investments in participatory securities at December 31, 2011:
  NUMBER OF SHARES % STAKE
Finance Sector
Workers Compensation Firms 227,800,800 28.9%
Food 42,182 0.0%
Cement 168 16.8%
Insurance and Social Security
Services 10,257,279 48.4%
Textiles 62,401 22.6%
Real estate
Others 163,431,661 35.5%
Cemento
Inversiones Argos 231,218,358 35.8%
Insurance and Social Security
Alianza Cía - Bolivia 10,962 38.1%
Alianza Vida - Bolivia 4,559 32.6%
La Positiva - Perú 25,161,492 12.3%
Services
Sodexo Soluciones de Motivación 144,005 27.0%
Promotora de proyectos 3,009,024 49.6%
Hábitat Adulto Mayor 624,999 34.8%
Tipiel 18,216,104 41.4%
Sodexo 916,580 20.0%
Planeco 10,500 50.0%
Zona Franca 63,826,441 16.7%
Textile
Confecol 46,182,356 42.5%
Enka 2,250,383,109 19.1%
Real Estate
Caribbean Tourist Development 20,000 20.0%
Other
Pizano 6,491,397 10.0%
Holding Concorde 1,650,000 5.8%
Fogansa 285,000 0.5%
Altos M de Y S.A.S. 1,706,447 15.0%
Colinversiones 20,000 0.0%
DCV Vida S.A. 2,425 17.8%
Deposito central de valores 62,445 40.0%
Inversiones DCV S.A. 2,193 22.3%
Servicios de administración Previsional S.A. 168,807 22.6%

NOTE 5

Accounts receivable

The following is a breakdown of Accounts Receivable at December 31:

  2011 2010
Loan portfolio $ 380,310 104,440
Advance payments 8,895 2,086
Deposits 3,791 2,769
Interest receivable 81,135 61,281
Prepaid taxes 110,396 56,762
Accounts receivable due from employees 4,648 9,935
Accounts receivable due from insurance business 1,032,606 772,621
Loans to private individuals 176,995 139,828
Credit cards 514 242
Miscellaneous receivables 31,930 36,693
1,831,220 1,186,657
Provisions (66,046) (59,009)
1,765,174 1,127,648
Less long-term portion 22,662 31,798
Current portion $ 1,742,512 1,095,850

Provision for Accounts Receivable

Movements in the provision for accounts receivable for the years ended December 31, 2011 and December 31, 2010 are broken down as follows

  2011 2010
Opening balance $ 59,009 57,230
Provision charged to expenses   18,172 15,923
Reversed provisions   (11,135) (14,144)
Closing balance   66,046 59,009

The following is a breakdown of the accounts receivable corresponding to the Company’s insurance business at December 31:

  2011 2010
Coinsurance accounts –accepted amounts $ 14,227 2,564
Coinsurance accounts – transferred amounts 246 2,493
Foreign assignor companies´ account 5,844 101
Domestic reinsurers´ account 886 851
Foreign reinsurers´ account 16,768 16,946
Claims pending reinsurance portion 183,821 135,679
Reserve deposits corresponding to foreign reinsurers: 561 515
General worker compensation risk system 49,208 -
Insurance brokers 6,866 -
Premiums pending collection 754,179 613,472
Total 1,032,606 772,621
Provision for premiums pending collection $ (37,217) (32,647)

The following is a breakdown of accounts receivable in the form of employee loans at December 31:

  2011 2010
Secured with collateral $
Housing   25,243 19,165
Vehicles 11,571 11,744
Other loans 20,901 -
57,715 30,909

  2011 2010
Secured with personal guarantee
Financing using employee bonuses 98,265 83,819
Personal 16,104 20,292
Subsidiary employee insurance 4,911 4,808
119,280 108,919
Total loans to private individuals $ 176,995 139,828

Maturity Period

  • The maturity period for premiums pending collection is one month after delivery of the policy, except when otherwise stipulated by any legal or contractual provision.

  • The balances corresponding to the accepted coinsurance current account are paid within 30 days following the receipt of the account cut-off forms as sent by the leader Company

  • The balances corresponding to the assigned coinsurers' account are paid in the same month in which the account cut off forms are sent.

  • Balances corresponding to foreign reinsurers' account are paid and collected within 90 days following the quarterly cut off date

  • Claims pending the reinsurer´s portion are paid once the losses are settled or upon a court ruling being given exonerating the reinsurer from all responsibility.

NOTE 6

Realizable assets and assets received as payment

The following is a breakdown of realizable assets and assets received in the form of payment at December 31:

  2011 2010
Cost $ 3,083 6,467
Provision (1,174) (1,135)
  $ 1,909 5,332

NOTE 7

Prepaid expense and deferred charges

The following is a breakdown of the Prepaid Expense and Deferred Charges Account at December 31:

  2011 2010
Pre-paid Expense $ 25,217 731
Deferred charges:
Brokerage commissions 660,499 118,880
Non proportional contract costs 13,713 11,363
Projects - 1,533
Deferred tax 15,262 -
Organizational and pre-operating expense 64,912 -
Others 108 626
779,710 133,133
Less long-term portion 520,822 2,171
Current portion $ 258,888 130,962

NOTE 8

Property, plant and equipment

The following is a breakdown of the Property, Plant and Equipment account at December 31:

  2011 2010
Land, buildings and construction in progress $ 440,994 135,155
Equipment, furniture and office fixtures 112,670 48,003
Computer equipment 104,602 74,145
Transport fleet and equipment 2,935 2,909
Machinery and medical equipment 11,162 16,245
Others 5,528 4,011
677,891 280,468
Depreciation (136,867) (121,781)
Provision (110) (79)
$ 540,914 158,608

NOTE 9

Intangibles

The following is a breakdown of the Intangibles account at December 31:

  2011 2010
Acquired goodwill $ 2,385,050 -
Trademarks 100,890 -
Non-Competition Agreements 502 -
Contractual relations with clients 3,157,881 -
Assets leased under financial leasing arrangements 6,265 -
Software 10,364 -
Trusts 150 293
Licenses 205 -
$ 5,661,308 293

NOTE 10

Other assets

The following is a breakdown of the Other Assets account at December 31:

  2011 2010
Works of art and cultural collections $ 35,860 2,367
Permanent contributions 500 500
Judicial deposits 5,401 7,032
Country club fees 67 -
Others 10348 7,129
52,176 17,028
Provisión - (54)
$ 52,176 16,974

NOTE 11

Valuations

The following is a breakdown of the Valuation account at December 31:

  2011 2010
Pertaining to investments $ 10,673,521 11,764,343
Property, plant and equipment 77,104 1,053,731
Pertaining to other assets 9,346 9,219
  10,759,971 12,827,293

NOTE 12

Financial obligations

The following is a breakdown of the Financial Obligations account at December 31:

  2011 2010
Checking account overdrafts $ 3,319 86
Loans from banks and financial institutions 2,017,820 57,565
Foreign banks 165,592 38,280
Leasing obligations 5,232 6,945
Repos on investments - 43,558
Other entities 5,442 8,315
2,197,405 154,749
Less long-term portion 149,703 -
Current portion $ 2,047,702 154,749

(1) This change is due to the acquisition of the ING assets, the credit obtained through Bancolombia Panamá for COP 1,103,454 for a term of three years at a rate equal to Libor +3.99%; Bancafé Panamá for COP 116,562 for a term of one year at a rate equal to Libor +4.25%; Banco de Bogotá for COP 360,000 for a term of less than one year at a rate equal to the DTF deposit rate +2.5% and Banco Davivienda S.A. for COP 271,978 for a term of one year at an average rate equal to Libor +4%.

NOTE 13

Accounts Payable

The following is a breakdown of the Accounts Payable account at December 31:

  2011 2010
Insurance business $ 209,037 159,593
Costs and expense payable 110,060 46,091
Amounts owed by shareholders or partners (1) 811,085 -
Dividends or distributions payable 69,576 7,422
Withholding tax 27,969 22,090
Sales tax 29,686 27,323
Contributions and membership fees 20,475 18,970
Withholdings and payroll contributions 28,874 9,496
Miscellaneous payables 30,841 38,215
$ 1,337,603 329,200

(1) This corresponds to the co-investors of Grupo de Inversiones Suramericana España, S.L, as a result of the acquisition of the ING assets, and consists of General Atlantic Cooperative COP 309.306 and Sociedades Bolívar S.A. COP 501.779

NOTE 14

Accounts Payable

The following is a breakdown of the Estimated Liabilities and Provisions account at December 31:

  2011 2010
Labor liabilities $ 24,396 4,785
Tax liabilities 17,590 15,342
Commissions accruing on premiums pending collection 70,607 72,571
Industry and commerce tax 17,800 16,816
Income and complementary tax 15,762 16,766
High–cost sicknesses and diseases – mandatory healthcare - 28,061
Others 85,242 3,974
$ 231,397 158,315

NOTE 17

Bonds and commercial paper

The following table lists the companies which at December 31 held issues of outstanding bonds and commercial paper :

On November 25, 2009, GRUPOSURA issued on the local bond market a total of COP 250,000 million in CPI indexed senior notes divided up into three tranches: (i) a 10 year tranche for a total value of COP 54,500 million bearing an interest rate equal to the CPI + 4.40%, (ii) a 20 year tranche totaling COP 98,000 million and bearing an interest rate equal to the CPI + 5.90% and (iii) a 40 year tranche in the amount of COP 97,500 million carrying an interest rate equal to the CPI + 6.98%.

On May 11, 2011, our subsidiary Grupo Sura Finance placed on the international capital markets an issue of ordinary bonds worth USD 300 million, which in Colombian pesos comes to COP 582.810, for a term of ten (10) years. This issue was guaranteed in its entirety by Grupo de Inversiones Suramericana S.A, in its capacity as Parent Company.

NOTE 18

Other Liabilities

The following is a breakdown of the Other Liabilities account at December 31:

  2011 2010
Advance payments received $ 15,762 2,919
Joint accounts 41 42
Surpluses from premiums - 18,190
Others 251,997 2,692
$ 267,800 23,843

NOTE 19

Subscribed and paid-in capital

The Company’s authorized capital consists of 600,000,000 shares each with a nominal value of COP $187.50. Its subscribed and paid-capital at December 31, 2011 and December 31, 2010 consisted of 575.372.223 and 469.037.260 shares, respectively.

NOTE 20

Capital surplus

The following is a breakdown of the Capital Surplus account at December 31:

  2011 2010
Share placement premium (1) $ 3,769,549 358,026
Accumulated unrealized gains or losses (392,776) -
on investments held for sale - 27,375
$ 3,376,773 385,401

(1) Corresponding to an issue of 10,334,963 preferred shares

NOTE 21

Reserves

The following is a breakdown of the reserves held at December 31:

  2011 2010
Mandatory $ 620,376 381,894
Statutory 7,384 381,894
Occasional 2,727,866 2,689,317
$ 3,355,626 3,077,359

NOTE 22

Equity Revaluation

The Equity Revaluation account cannot be distributed in the form of profits but may be capitalized on a tax-exempt basis. Pursuant to Law 1111 of 2006, the book value of this account as of January 1, 2007 is not subject to the aforementioned tax benefit given the elimination of inflation adjustments for tax purposes.

As stipulated in the paragraph contained in Article 25 Chapter II of Law 1111 passed December 27, 2006, taxpayers may offset wealth tax against the equity revaluation account without affecting the results for the period.

NOTE 23

Memorandum accounts

The following is a breakdown of the Memorandum Accounts at December 31:

  2011 2010
Debit accounts:
Contingent rights $ 2,089,210 384,654
Tax receivable 6,348,541 6,275,174
Debit control account 9,877,648 10,360,913
18,315,399 17,020,741
Credit accounts
Contingent liabilities 566,602,971 427,313,962
Tax payable 17,414,352 17,510,571
Credit control account 333,870,325 297,184,069
$ 917,887,648 742,008,602

NOTE 24

Income tax

Income tax expense totaling COP 27,082 and COP 20,898 for the years 2010 and 2011 respectively correspond to the calculations made individually by each company included in the consolidation.

Law 1370 passed December 30, 2009 stipulated a wealth tax for the tax year of 2011 at a rate of 2,4% for all those taxpayers with net equities of more than COP 3.000 million and less than COP 5.000 million, and at a rate of 4,8% for all those taxpayers with net equities equal to or higher than COP 5.000 million. This tax accrued on the amount of equity held at January 1, 2011 and its payment consisted of eight equal installments scheduled between 2011 and 2014.

Decree 4825 issued December 29, 2010 effectively extended the base for this tax and consequently all those taxpayers with equities of between COP 1.000 million and COP 2.000 million must pay wealth tax at a rate of 1% and all those taxpayers with equities of between COP 2.000 million and COP 3.000 million shall pay wealth tax at a rate of 1,4%. Furthermore a surtax of 25% was levied on all those taxpayers’ equities of COP 3.000 million or more.

For the purposes of this tax, all debt owed by the taxpayer to its foreign-based parent company, agencies, branches or subsidiaries is considered to form part of the taxpayer´s equity, except for debt giving rise to costs and deductions which are duly stipulated in sections a and b of Article 124-1 of the Colombian Tax Code.

Wealth Tax: The companies that took advantage of the different options contained in Concept No. 115-009819 issued on January 26, 2011 by the Colombian Superintendency for Companies were as follows.

COMPANY TOTAL TAX DECLARED TAX ACCRUING FOR 2011 TAX PAID IN 2011 BALANCE TO BE ACCRUED BALANCE TO BE PAID
ADMINISTRADORA DE CARTERAS COLECTIVAS SURAMERICANA S.A 99 99 25 0 74
SEGUROS GENERALES SURAMERICANA S.A. 21,891 5,473 5,473 16,418 16,418
SEGUROS DE VIDA SURAMERICANA S.A. 37,373 9,343 9,343 28,030 28,030
SEGUROS DE RIESGOS PROFESIONALES SURAMERICANA S.A. 11,200 11,200 2,800 0 8,400
DIAGNOSTICO Y ASISTENCIA MEDICA S.A. IPS 374 93 93 280 280
SERVICIOS GENERALES SURAMERICANA S.A. 7,646 1,911 1,911 5,734 5,734
EPS Y MEDICINA PREPAGADA SURAMERICANA S.A. 3,959 990 990 2,970 2,970
SERVICIOS DE VEHICULOS SURAMERICANA S.A. 99 99 99 0 0
SERVICIOS DE SALUD IPS SURAMERICANA S.A. 106 106 27 0 80
SURAMERICANA S.A. 3,485 871 871 2,614 2,614
GRUPO DE INVERSIONES SURAMERICANA S.A. 861 8,601 2,150 0 6,451
INVERSIONES Y CONSTRUCCIONES ESTRATEGICAS S.A. 1,694 1,694 423 0 1,270
ENLACE OPERATIVO S.A. 309 84 77 224 231
TOTAL 10,603 10,379 2,651 224 7,954

NOTE 25

Contingencies


The following are the most representative contingencies existing:

Grupo de Inversiones Suramericana S.A.
The Company is involved in a lawsuit or legal action that has arisen in the ordinary course of business, for which the amount claimed has been reasonably estimated at COP 100. These proceedings are not likely to have a material adverse effect on GRUPOSURA’s operations or financial condition.

Diagnóstico y Asistencia Médica S.A. Institución Prestadora de Servicios de Salud – DINAMICA IPS
This Company is currently defending two extra-contractual civil liability lawsuits where the amounts being claimed have been reasonably estimated at COP 1,017. These lawsuits have been filed based on alleged damages caused by medical personnel.

Servicios de Salud IPS suramericana S.A.
This Company is currently defending 21 legal actions, 18 of these being contractual and extra-contractual civil liability suits based on alleged damages caused by medical personnel where the amounts being claimed have been reasonably estimated at COP 1,803. The three other legal proceedings are labor suits filed by former employees claiming compensation due to dismissal without just cause which has been reasonably estimated at a total of COP 28.

EPS y Medicina Prepagada Suramericana S.A.
A total of 192 contractual and extracontractual civil liability lawsuits have been filed against the Company nationwide, notably in Medellin with 135 lawsuits, followed by Barranquilla with 20, Cali with 19, Bogotá with 15, and Manizales with 3. Compared with the 163 lawsuits filed in 2010 this shows an increase of 28.

The amounts claimed as a result of these processes comes to COP 547,190; however the claims estimated and/or assessed by the Company in the hypothetical event of losing these cases comes to just COP 28.454.

The majority (74%) of these lawsuits correspond to civil liability claims on the grounds of diagnostic errors, lack of timeliness, medical negligence, followed by disability claims accounting for 10% of the total.

In 2010 rulings were given on 24 lawsuits where claims came to COP 4,582 however, the total amount paid out by the Company came to just COP 88 million.

In 2011, the Company continued with its legal strategy designed to obtain compensation for damages caused by unlawful conduct on the part of the State with regard to recovering the benefits authorized by the Scientific Technical Committees as well as rulings given as part of judicial protection orders. There are 9 of these lawsuits currently being heard and more than 20 thousand million pesos are being claimed, mainly due to three main causes of damage, namely, the failure to pay the total value of the medicine not included in the Mandatory Healthcare Plan (POS in Spanish), the failure to pay the benefits that have been locked into a grey zone, that is to say the Colombian Ministry of Social Proteccion considers these to be included in the Mandatory Healthcare Plan but these are not taken into account in the weighting of the UPC (Unit of Payment Received) as well as the failure to pay the listed benefits given their untimely presentation pursuant to the interpretation given by the Colombian Constitutional Court.

Also the Company continues to defend its interests with regard to adverse rules and regulations being issued, arguing that sound criteria are not being borne in mind when guaranteeing the stability of the System, where we have an annulment actions and a suit for the restoration of rights with regard to Agreements and Resolutions that have been regulating the redistribution of resources corresponding to high-cost pathologies through which we are claiming more than 9 thousand million pesos. This annulment action and the proceeding claiming the restoration of rights were filed against Government agreements that included abortions being included in the Mandatory Healthcare Plan without these being appropriately weighted in the UPC (Unit of Payment Per Capita). Furthermore there are additional lawsuits claiming the unconstitutionality of articles contained in Law 1122 of 2007 which provided for special payment procedures for Healthcare Service Provider Institutions and payments for medicine authorized by the Scientific Technical Committees as well as annulment actions against regulations, terms and procedure for the affiliation procedure. In 2011 EPS Sura continued to act in defense of its interests filing lawsuits against all those rules and regulations that were issued without bearing in mind the legal criteria required for guaranteeing the stability of the Healthcare System. It is also pursuing actions regarding an annulment as well as the restoration of its rights for which a total of COP 6 is being claimed.

The Company has a civil liability insurance policy which covers these risks, as required from all Healthcare Service Provider Institutions along with their respective professionals as well as other employees."

NOTE 26

Reclassifications

For presentation and comparative purposes, some figures contained in the financial statements for the previous year were reclassified.

NOTE 27

Subsequent Events

Enlace Operativo S.A. Alliance:This year we expect Colombia to have one of the largest data centers existing in Latin America, thanks to an alliance formed between the BPO companies Enlace Operativo and Compuredes with the support of GRUPO SURA, UNE EPM Telecomunicaciones and the Mexican firm KIO Networks, which specializes in the administration and development of this type of infrastructure. This world-class data center shall provide the technical support required in order to drive the competitiveness and productivity of companies operating in Colombia.

ADR Level 1 Program:
In March 2012, Grupo de Inversiones Suramericana S.A. shall be registering its preferred shares with the ADR – Level 1 program in the United States. Thus both its ordinary and preferred shares shall be made available to international investors on the OTC (“Over the Counter”) market. One ADR shall represent one preferred share.

Changes in the mandatory healthcare plan:
Framework Agreement 029 of 2011 lays out new operating conditions for EPS y Medicina Prepagada Suramericana S.A. and the manner in which it shall be handling the Obligatory Healthcare Plan in 2012. This Framework Agreement provides for new coverages and amendments to existing coverages with regard to medical procedures and medicine, terms and conditions for accessing the services provided and specifications for recovering the services provided outside the Obligatory Healthcare Plan. Also the Anti-Red Tape law contains changes to the terms and conditions for accessing the services provided as well as the operating aspects of such, all of which the Company shall be incorporating by means of adjusting its processes in 2012.