Intercorp Financial Services Stock

Intercorp Financial Services Inc. provides banking, insurance and wealth management services for retail customers and commercial clients in Peru.

The company has invested in building a leading and scalable digital platform (mobile and online), which is rapidly being adopted by existing and new customers. The company’s digital platform is complemented by one of the largest distribution networks in the country, which includes financial stores, ATMs, correspondent agents, dedicated sales forces, financial advisors, and call centers.

Segments

The company operates through four segments: Banking, Insurance, Wealth Management, and Payments.

Banking segment

Banking segment operates through the company’s subsidiary Interbank, which is the second largest provider of consumer loans in Peru, according to the SBS. Interbank provides a full range of retail banking and commercial banking products, and services to individuals, large companies, and small and medium enterprises.

Banking: Interbank is the second largest provider of consumer loans in Peru with a 21.8% market share in terms of total gross consumer loans outstanding as of December 31, 2022, according to the SBS. Interbank is the largest provider (among non-government owned banks) of payroll deduction loans to public sector employees. Interbank has built one of the most convenient and extensive retail banking distribution platforms in Peru including, online banking, mobile applications, a total of 164 financial stores, ATMs and 5,672 correspondent agents (includes external network), as of December 31, 2022.

Interbank’s CAGR in gross loans, and deposits and obligations between 2018 and 2022 was 8.5 % and 9.3%, respectively.

Interbank provides retail and commercial banking services to more than 5.5 million total customers as of December 31, 2022, which includes more than 5.3 million retail customers and approximately 152,232 commercial clients. Interbank focuses on fast-growing and highly profitable retail banking businesses, such as credit card financing, payroll deduction loans to public employees and mortgages, as well as Peruvian corporates and medium-size companies within commercial banking.

Interbank is the second largest provider of consumer loans, the leading player among private banks in payroll deduction loans to public sector employees and the third largest bank in retail deposits in Peru. As part of its strategy to serve retail banking customers, Interbank has one of the most convenient and extensive retail banking distribution networks in Peru and is present in 23 of Peru’s 25 regions. Interbank serves its customers through 164 financial stores, ATMs throughout Peru, which is the third-largest ATM network nationwide and one of the largest out of branch ATM networks, and 5,672 correspondent agents (includes external network), and a digital platform including a mobile app with 70.9% of 100%-digital customers as of December 31, 2022.

Interbank focuses on high margin and fee generating products such as leasing, structured finance, cash management, trade finance and factoring in its commercial lending business.

Business Lines

Interbank has three business lines, such as retail banking, commercial banking and treasury and institutional.

Retail Banking

Interbank’s retail banking business line provides a variety of financial products and services to individuals, including retail loans and retail deposits. Interbank’s retail banking strategy consists of providing the best customer experience through convenient, agile and friendly service. Interbank’s key objectives include increasing its market share in its core products through acquiring new clients, increasing its share of wallet and cross-selling products to its existing customers. Interbank seeks to meet the financial service needs of Peru’s growing middle class. Interbank believes the retail banking sector presents significant opportunities to continue to grow and sustain high margins, while taking on reasonable risk.

As of December 31, 2022, retail loans represented 53.6% of Interbank’s total loan portfolio outstanding as compared to 36.2% for the Peruvian banking system under SBS GAAP. Furthermore, Interbank’s strategy also seeks to continue capturing low-cost funding through a stable and diversified deposit base.

Retail Loans

Retail loans consist of consumer and mortgage loans. Interbank classifies its consumer loans into three categories, such as credit cards and payroll deduction and personal loans.

Consumer Loans

Credit Cards: Credit cards represent the largest portion of Interbank’s consumer loan portfolio in terms of outstanding loans. Interbank offers its retail customers two major credit cards: VISA and American Express. Interbank has an exclusivity agreement with American Express for its Centurion line of credit cards in Peru. Interbank also offers credit cards with different value propositions catering to each customer segment.

In November 2019, the SBS issued Resolution No. 5570-2019 which became effective in January 2021. This resolution establishes that the non-revolving financing portion of credit card loans must be presented for regulatory considerations as loans instead of credit card loans.

Payroll Deduction Loans: Payroll deduction loans to public sector employees, such as police officers, teachers and army employees, Interbank ranks first among private banks in Peru in terms of payroll deduction loans to public sector employees, with a market share of 22.3% as of December 31, 2022.

Personal Loans: Personal loans include cash loans, student loans, and collateralized cash loans. Cash loans have a term of up to 60 months and a grace period of up to two months. In addition, collateralized cash loans allow customers to include savings accounts or real estate as collateral, have a term of up to 60 months and a grace period of up to two months.

Mortgage Loans

Interbank offers fixed rate mortgage loans with a typical term of 20 years and a typical down payment of 20% denominated in either U.S. dollars or soles.

Interbank also provides residential construction loans to real estate developers. Although these loans are reported within the commercial banking portfolio, they are managed together with retail banking mortgages because of the synergies between the businesses. Financing real estate projects provides Interbank with an opportunity to market mortgage loans to home buyers.

In 2001, the Peruvian government launched the Nuevo Credito Mivivienda program, a social initiative to promote the construction of low-income housing, of which Interbank is an active participant. As of November 2022, the Mivivienda program had successfully disbursed 12,353 loans, mainly to develop multi-family buildings. The Nuevo Credito Mivivienda program provides direct funding to match each loan underwritten by banks, as well as credit risk coverage for up to two-thirds of any realized loss. Furthermore, the program subsidizes interest rates by rewarding the end customer with direct financial incentives if payments are kept current.

Retail Deposits

Interbank offers a wide range of sol and the U.S. dollar denominated transactional, savings and investment accounts through one of the largest distribution networks, as measured by total financial stores, ATMs and correspondent agents. These products satisfy key consumer needs and position Interbank as an attractive financial institution for retail customers.

Transactional Accounts

Within retail deposits, Interbank offers transactional accounts with different interest rates, maintenance fees and options for accessing funds.

Cuenta Sueldo is a payroll account into which an employer may deposit an accountholder’s salary on a regular basis. These payroll accounts provide debit cards for employees and discounts at restaurants and retailers, among other benefits. Interbank offers these payroll account services to employers in conjunction with other commercial banking products, and also markets directly to employees.

Cuenta Simple is used by customers for their everyday banking needs and does not have a maintenance fee. Transactions are free of charge for up to a certain number of monthly transactions through physical channels.

Savings Accounts

Interbank offers savings accounts with a variety of interest rates, maintenance charges and options for alternative access channels, such as ATM cards, and free Internet access and mobile access.

Cuenta Millonaria is Interbank’s fastest growing savings account, which may be denominated in soles or U.S. dollars. The Cuenta Millonaria account allows accountholders to participate in sweepstakes to win prizes, such as apartments, cars, courses of studies, among other prizes.

Cuenta Super Tasa offers special interest rates based on clients’ account balances and free unlimited transactions through electronic channels.

Alcancía Virtual is a digitally-enabled feature of a transactional or payroll account in either soles or the U.S. Dollars, which encourages the company’s customers to save. This virtual piggy bank allows customers to easily transfer or swipe certain amounts from other accounts to their piggy bank. The funds allocated to the piggy bank are not subject to maintenance fees and benefit from higher rates than those applied to the associated transactional account. Customers retain full flexibility to transfer any funds in their piggy bank account to their transactional accounts through mobile banking or online banking and can also personalize the piggy bank account according to their goals or saving purpose.

Investment Accounts

Interbank offers time deposits, certificates of deposit (CDs) and CTS accounts denominated in soles, U.S. dollars, and Euros (only for time deposits), to customers who may or may not have a checking or savings account with Interbank.

Interbank offers time deposits and CDs, with maturities ranging from 31 days to one year. Time deposits with maturities ranging from five years to 10 years are only offered in soles and can be opened with a minimum initial balance of S/50,000.

CTS accounts are severance accounts that employers must open for the benefit of their employees pursuant to Peruvian law. Employers must deposit into these accounts twice a year (in May and November) an amount equal to one half of an employee’s month salary. Employees may withdraw from their CTS account any amount exceeding the sum of such employee’s four months’ salary calculated based on the most recent monthly salary.

Commercial Banking

Interbank’s commercial banking is organized in three business units, such as corporate; medium-size businesses; and small businesses.

As of December 31, 2022, Interbank was the fourth largest bank in terms of commercial loans outstanding.

Corporate Banking

Interbank’s corporate banking unit is primarily responsible for providing services to companies with annual sales exceeding S/100.0 million or are part of a large economic group. Interbank’s corporate banking unit provides investment banking, structured finance and other sophisticated banking products to meet the needs of its target clients. Furthermore, Interbank focuses on developing a relationship with each client and promoting fee-related and low-risk products, such as supply chain financing, collections, transfers and foreign exchange services, all tailored to meet the particular requirements of each client.

Medium-Size Business Banking

Interbank’s medium-size business banking unit offers many of the same products as those of the corporate banking unit mainly to medium-size enterprises with annual sales between S/3.0 million and S/100.0 million. The unit primarily provides Interbank’s clients with working capital loans secured by accounts receivable and other products, including financing for medium and long-term investment programs. Medium-size businesses also constitute an important source of deposits.

Medium-size enterprises in Peru generally do not have access to financing through local or international capital markets or to term loans from foreign banks. Interbank expects to capitalize on the significant growth opportunities in this sector and to profit from the margins that it offers when taking into account the reasonable degree of risk involved. We believe that this sector will continue to grow along with the Peruvian economy.

Small Business Banking

Interbank’s small business banking unit serves companies with annual sales between S/500,000 and S/3.0 million. Interbank offers working capital loans, fixed asset financing, revolving lines of credit and transactional accounts to small businesses. Interbank has invested in building an experienced team and developing a strong IT platform, with online and automated processes to better serve these customers.

Main Commercial Banking Products

Medium-Term Loans. Interbank offers Term Loans, which are loans with tenors over 1 year and with average duration of 3.2 years. These loans are usually collateralized with mortgages and/or other assets in order to secure the credit facility. Furthermore, Interbank earns structuring fees from these transactions.

Leasing: Interbank provides financial leasing including commercial real estate, vehicles, machinery and other goods.

Cuenta Negocios: The only 100% digital current-account for businesses in the Peruvian market. This account can be opened by customers following a very simple process, with no physical documentation required. Cuenta Negocios is the principal client acquisition tool in ourcommercial banking business. It also supports many other of the company’s products, such as factoring.

Cash Management: Interbank offers products and services that strengthen its relationship with clients, build loyalty by using electronic channels and by increasing fee income. Services managed by this unit include collection services (automated trade bill collection), automated payments (payroll and payments to suppliers) and digital banking and cash management. Interbank earns fees from cash management services by charging its clients a fixed fee and a variable fee based on the volume and frequency of the transactions.

Trade finance. Interbank provides short-term loans for trade, funded with internal resources or with credit lines from foreign banks. In addition, the trade finance unit offers medium-term credit lines using funds granted by international commercial banks and foreign governmental institutions. The trade finance unit also earns fees by providing customers with letters of credit, international collection and foreign exchange services.

Supply Chain Financing: Interbank’s electronic factoring products enable its clients to pay in advance and at a discount to their suppliers. The company has a 100% digital-platform for the onboarding of new providers. New customers can also open a Cuenta Negocios during that same process.

Treasury and Institutional

The main activities of Interbank’s treasury and institutional business line include treasury and institutional banking, as well as securitization services through Internacional de Titulos Sociedad Titulizadora S.A. (Intertítulos).

Treasury

Interbank is an active participant in the money and foreign exchange trading markets in Peru. Its money market desk plays an active role in the sol and foreign currency short-term money markets. In addition, the money market desk participates in the auction of certificates of deposit issued by the Central Reserve Bank of Peru. Interbank’s proprietary trading activities focus on foreign exchange trading and short-term investments in securities, which primarily include certificates of deposit of the Central Reserve Bank of Peru, Peruvian global bonds and sovereign debt instruments.

Institutional Banking

Interbank’s institutional banking unit serves primarily non-profit public and private organizations, international entities, educational institutions and nongovernmental organizations. As of December 31, 2022, the institutional banking unit had more than 760 clients and S/7.3 billion in current account deposits and S/4.4 billion in time deposits, accounting for 26.2% of Interbank’s total deposits.

The institutional banking unit is strategically important to Interbank as it provides Interbank with a stable deposit base, as well as opportunities for fee income generation. The clients for the institutional banking unit require mainly transactional products, such as remote office banking, collection services, automated payroll payment services and investment management. Interbank’s strategy focuses on building customer loyalty with these clients by offering customized services at competitive rates and by providing high-quality customer service.

Securitization Services

In addition, Interbank provides securitization services through its wholly-owned subsidiary, Intertítulos, which is regulated by the SMV. Intertítulos, acting as a trustee, enables its clients to issue securities in order to obtain funds directly from financial markets.

Distribution Channels

Interbank has built and developed one of the best omni-channel platforms that combine physical and digital presence, serving over 5.3 million customers, as well as non-customers across Peru.

In terms of physical presence, Interbank has developed a highly convenient network. As of December 31, 2022, Interbank had 164 financial stores and operated ATMs, the third-largest ATM network in Peru and the largest out-of-branch ATM network. Interbank has the largest number of financial stores within retail locations in Peru. The company has 58 financial stores in the aggregate across Plaza Vea, Vivanda and shopping malls. Moreover, with the intention of offering greater convenience, as well as providing underserved customers with greater access to financial services, Interbank operates a network of over 5,672 correspondent agents (includes external network) as of December 31, 2022, known as Interbank Agente.

In terms of online channels, Interbank provides any customer or non-customer with the option to have a completely digital experience with the bank, from acquisition and onboarding to the use of its financial products. Its website has a strong commercial focus and manages the bank’s digital acquisition of new customers. Its online banking and mobile application give customers immediate access to its day-to-day transactions and after-sales services and uses those interactions to capture cross-sell opportunities. Furthermore, Interbank has developed other channels that serve specific segments or customer needs. For example, a separate website that serves customers under the Interbank Benefit loyalty program, and Cuenta Sueldo is a mobile application for payroll account customers that gives access to discounts and benefits.

Financial Stores

As of December 31, 2022, Interbank had 164 financial stores in Peru. A large number of the financial stores are located in convenient, high traffic areas, such as supermarkets and shopping malls, to maximize client coverage.

In 2013, Interbank introduced Imagine financial stores, a concept jointly developed with IDEO, a design and innovation consulting firm. Imagine fosters a more pleasant and inviting environment to Interbank’s customers and is designed to educate customers on the use of electronic channels in order to migrate low value transactions to more efficient channels, while continuing to capture new customers and exploit cross-selling opportunities. Imagine has set new service standards in the industry and many of its elements have been adopted by Interbank’s main competitors.

In July 2020, Interbank introduced an evolution of the Imagine concept, Xperience. Xperience enables customer to perform digital transaction in stores and also reinforces the role of digital education. This concept was developed into two store models, Express and Universal. Express stores are located inside retailers and they are the first cashless stores, focused on education and new customer acquisition. Universal stores transform Interbank financial stores by creating a physical-digital area at the entrance of the store that is specifically dedicated to offer digital solutions to the company’s customers and non-customer. These new stores have offered new and existing customers an assisted onboarding process onto its digital channels. In 2022, 36.9% of new digital users utilized the onboarding process offered at Interbank’s financial stores, which resulted in increased customer satisfaction level by 3pp compared to the traditional model and increased assisted digital sales to represent to 29% of sales per store.

Correspondent Agents

This channel operates under the Interbank Agente brand and consists of providing traditional merchants, for example, warehouses, pharmacies, low-cost electronic terminals that allow customers to carry out basic cash transactions, such as withdrawals, deposits and utility bill payments.

Mobile Banking

Interbank has developed a robust digital ecosystem that allows its customers to fulfil their financial needs and goals with a 100% digital experience. In December 2022, Interbank had more than 3.1 million monthly active users and registered over 20.8 million monetary transactions, as well as 220.9 million non-monetary transactions. Its mobile application was the highest rated in the Google Play Store among the four largest banks in Peru. In addition to its website and mobile banking channels, Interbank has also developed other digital solutions that address specific customer segments or needs, such as Interbank Benefit, a loyalty program, and Cuenta Sueldo APP, where the company’s payroll account customers can access special discounts and benefits. Furthermore, in 2019, Interbank launched Credito por Convenio APP, which services the company’s public sector payroll deduction loan customers.

Interbank’s website provides general information about the bank and its products and services and has a commercial orientation, allowing non-customers to acquire credit cards and loans or open a savings or transactional account.

Interbank’s mobile banking is available to existing customers and its services include transactions: account balance and transaction inquiries, transfers between accounts to Interbank and other local and international banks, credit card, bills and loan payments, mutual funds investments and cardless ATM withdrawal requests; after-sales services: lock your card, enable or disable card usage online or abroad, turn on notifications for card usage, mobile transactions and/or ATM withdrawals and divide card transactions into installments; product cross-sell: credit cards, credit card line extension, pre-approved loans, savings accounts and insurance products; and personal financial management tools: view your credit score and tips to improve it, spending, creating a budget. As of December 31, 2022, more than 82.8% of Interbank’s transactions, 67.1% of the after-sales services and 95.5% of Interbank’s products were available online.

Furthermore, in December 2022, 70.9% of the company’s retail customers that interacted with the bank through any channel were digital customers, that is, customers that also access Interbank’s services though internet and mobile banking, while monetary transactions in this channel grew by 35.6% from December 2021 to December 2022.

Contact Center

Interbank seeks to prioritize the self-service of the company’s clients, offering the help of service advisors 24/7 who can meet the needs of customers. The company’s strategy focuses on delivering first contact solutions, generating value in each contact.

Additionally, the company seeks to generate value in each touch point, with products and benefits to improve customers’ experience and thus their relationship with the bank. In May 2020, Interbank launched their service bot AVI offered through the WhatsApp platform. During 2022, Interbank focused on continuing to grow this channel, reaching 250,000 average monthly interactions, approximately 131,000 of which were self-assisted in December 2022, compared to 93,000 self-assisted interactions in January 2022.

Interbank has a state-of-the-art contact center, which managed an average of over 543,000 assisted interactions per month in 2022, answering inquiries from clients, offering assistance and information, and selling new products to customers.

Interbank has a dedicated telephone sales force of 290 employees as of December 31, 2022, which sells credit cards and short loans. The dedicated sales force is a key resource for customer acquisition and for the company’s up-selling and cross-selling campaigns.

Information Technology Unit

Interbank continuously invests in new technology and the maintenance of its existing equipment and infrastructure in order to improve its value proposition to its customers, increase its efficiency and support business growth. The Information Technology Unit focuses on assuring 24-hour channel availability, enhancing the timeliness of data processing, guaranteeing data protection and anti-fraud security, updating and maintaining hardware platforms and software systems, developing contingency plans and implementing technology projects. Interbank’s IT system also processes credit card, personal and commercial loans, and electronic transactions.

Interbank has also made significant investments to upgrade its data centers and central technology platforms. As part of its cybersecurity strategy, Interbank continued to evolve the maturity level of its cybersecurity capabilities, processes and tools, based on security standards, such as the National Institute of Standards and Technology Cybersecurity Framework (NIST), cybersecurity framework, CSF), ISO 27001 and PCI DSS, new industry trends and definitions established by the bank. In 2022, Interbank focused its cybersecurity strategy on defining and beginning four points:

Strengthening the cybersecurity department, evolving the roles and responsibilities of the team and doubling its headcount

Continue to implement and develop the Zero Trust approach to address emerging risks through a stronger and more adaptable posture. Along this path, SASE (Security Access Service Edge) architecture capabilities, such as CASB (Cloud Access Security Broker), CSPM (Cloud Security Posture Management) and NGSWG (Next Generation Web Gateway) have been implemented. Interbank also advanced its DevSecOps approach through continuous testing in the software development cycle and security automations in the integration and continuous deployment pipelines. During 2022, ZTNA (Zero Trust Network Access) has been implemented for all remote connections, including third-party connections;

Implementing new endpoint cybersecurity model through Endpoint Detection and Response (EDR) technologies; and

Evolving detection and response capabilities with new intelligence driven SOC (Security Operations Center) services, mainly supported by artificial intelligence and machine learning technologies.

Interbank will continue to move towards a Zero Trust approach, the implementation of new local regulatory requirements in terms of cybersecurity and the generation of digital trust in the services offered to the customers.

Interbank’s IT strategy focuses on dedicating more resources to projects that add more value to the customer and help to accelerate digital transformation. Interbank invests in back-end applications with the aim of keeping applications current while more effort and resources are dedicated to customer facing applications in order to provide a seamless digital experience to internal and external customers through all the company’s channels.

Insurance segment

Insurance segment operates through the company’s subsidiary Interseguro, which is the leading provider of annuities in Peru by premiums and one of the leading life insurance companies in the country according to the SBS. Interseguro provides a wide range of retirement, savings, life, unemployment and other insurance products mainly to retail customers.

Interseguro offers private annuities, individual life insurance, disability and survivorship insurance, as well as low premium retail insurance products, including credit life, mandatory traffic accident insurance (SOAT), car insurance and credit card protection insurance, through a comprehensive multi-channel distribution platform which includes Interseguro’s sales force, which is a key component of Interseguro’s sales. Interseguro also distributes through Interbank, retailers and its own digital channels.

Interseguro is an insurance company that caters to Peru’s growing middle class. Interseguro focuses on annuities and life insurance, two of the fastest growing insurance market segments in Peru, which are driven by the sale of annuities mostly to individuals that reached retirement or became disabled or died and individuals seeking life protection with savings options. Interseguro has been the leader in the Peruvian annuities (excluding private annuities) segment.

Interseguro intends to leverage its leading position in annuities, as well as Intercorp Peru’s and Interbank’s retail distribution capacity to continue capturing growth opportunities in the insurance industry. In addition, Interseguro expects to continue developing new products to satisfy increasing demand for insurance products by middle class families in Peru.

Interseguro also offers traditional life insurance products, as well as premium retail insurance products, including credit life, SOAT, credit card protection insurance, among others, mainly sold through Interbank and Intercorp Peru’s complementary channels, as well as digital channels. Interseguro’s life and retail insurance business lines have grown significantly over the last five years. As of December 31, 2022, Interseguro was the fifth largest consolidated insurance company and the fourth largest life insurance company in Peru in terms of premiums. In addition, in terms of the size of its portfolio, Interseguro was the largest insurance company in Peru as of December 31, 2022.

Interseguro’s Business Lines

Interseguro has three business lines, such as annuities, retail insurance and individual life.

Annuities

An annuity is a type of insurance policy that, in exchange for an initial lump sum payment, provides regular monthly payments. Interseguro offers three types of annuities: Soles, U.S. dollars and soles indexed to CPI, adjusted by 2% per year.

There are two groups of annuities, such s regular retirement annuities are the annuities sold under the Peruvian private pension system, and private annuities which include the Renta Privada product. In Peru, employees may choose to deposit their cumulative contributions in the public or the private pension system. Under the private pension system, upon retirement, a retiree has the option of converting the capital accumulated into a personal account maintained with an AFP, collecting 95.5% of their accumulated capital or converting the capital into an annuity offered by an insurance company, such as Interseguro.

In addition to Regular Retirement Annuities and Private Annuities, Interseguro offers disability annuities to members of the Peruvian private pension system who have been declared permanently or partially disabled before reaching retirement age and thus unable to access a sufficient pension and survivorship annuities for beneficiaries of deceased members of the system.

Regular Retirement Annuities

Retirement: The retirement annuity product is directed to members of the Peruvian private pension system who are 65 years of age or older and retiring.

Early Retirement: The early retirement product was offered to members of the Peruvian private pension system who are not yet 65 years of age, but who are permitted to have access to their Peruvian private pension system accounts if the savings in such accounts allow for a pension of at least 40% of the average last 120 months’ compensation.

Special Early Retirement: This product is more flexible than the standard early retirement annuity product.

Private Annuities: The Private Annuities product was launched in 2016 allowing the recovery of Interseguro’s premiums and collections from the effects of the law No. 30,425, enacted in 2016. This product can be sold to any owner of private funds and is not restricted to members of the system and their accumulated capital. The annuity can have any duration and the lump sum invested can be partially or totally repaid at the end of the annuity, if it has one.

Disability and Survivorship Annuities

Disability and Survivorship. Under Peruvian law there is a mandatory insurance coverage for all members of the pension system paid monthly in addition to their contribution. In case a member has been declared permanently or partially disabled, or deceased while having legal beneficiaries, this insurance completes the accumulated capital as if the individual had worked until retirement age, allowing a better pension when applying for the retirement.

Disability and Survivorship Annuities: The disability and survivorship product is offered to members of the Peruvian private pension system who have been declared permanently or partially disabled and to beneficiaries of deceased members of the Peruvian private pension system. This annuity is offered in conjunction with the disability and survivorship mandatory insurance.

All retirement annuities sold under the Peruvian private pension system offer monthly payments for the life of the policyholder and thus the initial lump sum is never recovered. A retiree’s joint choice of an insurance company, currency denomination and retirement modality is irrevocable.

Product differentiation is limited in the Peruvian annuities sector, as product features are regulated by the SBS. The market position of each insurance company is driven instead by its sales strategy and quality of service. Interseguro’s sales strategy, consisting of providing ongoing sales force training, and implementing innovative control and management mechanisms, has permitted Interseguro to be the market leader in the annuities sector over the past four years, with an increasing advantage over the second largest market participant.

Retail Insurance

Interseguro offers simple, low-cost premium products targeted to middle class families and sold mainly through Interbank financial stores, as well as channels owned by Intercorp Peru Ltd (Intercorp Peru), including Intercorp Retail points of sale (Plaza Vea and Oechsle) and digital channels. In 2016, Interseguro expanded its retail insurance portfolio with an online sale for the launch of the digital Seguro Obligatorio de Accidentes de Tránsito (SOAT) and in 2018, with travel insurance and vehicle insurance.

Interseguro offers the following retail insurance products:

Credit Life Insurance: The credit life insurance product protects against death or disability of the insured and is designed to pay the debt owed by a customer to the financial institution. This product is available for mortgages, credit cards and personal loans.

Debit and Credit Card Protection Insurance: The debit and credit card protection insurance product protects the insured against financial loss, medical expenses for hospitalization or accidental death as a result of theft, assault and abduction.

SOAT (Seguro Obligatorio de Accidentes de Tránsito): The SOAT product protects against the risk of death or injury to occupants and third parties involved in an automobile accident. The SOAT product is mandatory, and coverage is limited to cover personal injury, excluding any physical damage to the vehicle.

Vehicle Insurance: The vehicle insurance coverage includes damage to vehicles due to traffic accidents, total loss, theft, fire, nature risks, strikes or vandalism and civil liability for occupants and third parties. Occupants’ damages, such as permanent disability, healing expenses, funeral expenses and death are also covered. In addition, this insurance includes replacement drivers, cranes and mechanical assistance, among others.

Loan Protection Insurance: The loan protection insurance covers a specific number of payments of a loan in case the insured loses his job. Loan protection insurance accounted for 4.9% of total retail insurance premiums assumed by Interseguro for the year ended December 31, 2022.

Extended Warranty: The extended warranty product extends the product’s original warranty period by about 12–24 months.

Others: The other products category protects against personal accidents.

Individual Life

Interseguro offers a variety of individual life insurance products, providing a wide range of coverage for the length of a policyholder’s life. Most of Interseguro’s products also provide savings features.

Interseguro’s strategy in individual life insurance consists in adapting its products to the emerging Peruvian middle class, developing a highly trained sales force, achieving high standards of sales efficiency and leveraging digitalization to increase sales of life insurance.

Sales Force

Interseguro markets its annuities and individual life insurance products through its own dedicated sales force both in Lima and across Peru’s provinces, without a third-party intermediary.

In annuities, Interseguro employed 120 agents, 71 in Lima and 49 outside of Lima as of December 31, 2022. Each salesperson receives continuous training through a multiple-level program, which includes training in macroeconomic background, financial statement analysis, investment policy, marketing techniques and time management. In addition, Interseguro’s annuity sales agents specialize in the sale of different types of annuity products. As a result, Interseguro’s sales force is trained to satisfy each customer’s needs.

As of December 31, 2022, Interseguro worked with six brokers nationwide to offer SOAT. Interseguro also works with insurance brokers to sell SOAT to increase coverage in Peru with limited capital investment. As of December 31, 2022, the brokerage channel accounts for approximately 13.9% of Interseguro’s total SOAT sales.

Strategic Partners

Interseguro offers its retail insurance, such as credit life insurance, debit and credit card protection insurance, loan protection insurance, SOAT and extended warranty through non-traditional channels, including partnerships with Interbank and Intercorp Retail.

Through its partner companies, Interseguro reaches a large number of customers, offering a convenient and reliable payment mechanism. This distribution network represents one of Interseguro’s strongest competitive advantages, as it allows for a broad insurance product offering through several points of sales.

Investments and Investment Management

Investment Portfolio

Interseguro invests the insurance premiums yet to be paid out in claims in its investment portfolio, based on a policy of capital conservation and adequate diversification.

Interseguro’s portfolio focuses on investment grade fixed-income instruments in the U.S. dollars, soles and inflation linked notes, mitigating interest rate, inflation, and currency risks. Interseguro’s obligations consist of technical obligations related to annuities that are sold at a fixed interest rate, thus Interseguro prioritizes the investments on fixed income securities that hedge such obligations. Based on Interseguro’s investment strategy, its portfolio shows asset sufficiency to cover insurance liabilities at a currency, duration, inflation and interest rate levels that hedge against volatility in these factors.

Interseguro is required to comply with the following investment management principles according to the SBS:

Security Principle: Based on the protection and preservation of the economic value of assets over time.

Liquidity Principle: Consist of the availability of an asset to be converted into cash at the required time and without significantly affecting its value.

Diversification Principle: Based on the set of assets that contribute to the diversification of the risk factors of the portfolio and reduction of the potential impact of adverse effects.

Parity Principle: Parity between the characteristics of the asset and the obligations that it supports. These features include the term or horizon, the degree of liquidity or enforceability, currency, volatility in valuation, predictability and timing of flows, among others.

Profitability Principle: Based on generation of returns that would cover at least the commitments offered to policyholders.

Additionally, as established by the investment regulation of insurance companies, Interseguro must meet its technical obligations. As part of the coverage of the technical obligation proceeds, Interseguro must follow the investment management principles established in the regulation and comply with the eligibility requirements of its investments by type of assets.

Interseguro’s investment management complies with the limits and requirements indicated in the regulation in order to minimize non-eligible investments and comply with the coverage of its technical reserves, minimum solvency capital required and guaranty fund.

Fixed-Income

The fixed-income securities portfolio is mainly composed of long-term fixed rate debt that are eligible instruments to cover reserves, in compliance with the requirements established by the SBS.

Equity and Funds

Substantially all of Interseguro’s equity and funds portfolio is invested in companies with low beta and relatively stable and predictable cash flows. Interseguro’s equity and funds portfolio is invested across Latin America and the United States. As of December 31, 2022, Interseguro’s equity and funds portfolio represented 6.0% and of its total portfolio, of which 63.3% was invested in foreign securities and 36.7% in local securities.

Real Estate

Interseguro’s investments in real estate are made across the different types of properties: office, industrial, retail and land for development. Interseguro leverages advice from its affiliates, InRetail Shopping Malls and Real Plaza, in order to maximize its real estate portfolio. InRetail Properties Management is specialized in securing new locations and developing shopping malls based on its proprietary consumer demand analytics and projected yield targets. Real Plaza focuses on operating shopping malls in Peru.

Real estate income derives from the appreciation of real estate property and from rental income from its tenants. Interseguro’s rental income comes primarily from Orquídeas (offices building) and Tabacalera (industrial asset). Tabacalera is an industrial property leased to Teleatento Peru S.A.C, which is a company dedicated to call centers. As of December 31, 2022, Interseguro’s investments in real estate projects represented 10.2% of its total portfolio.

Reinsurance

Interseguro transfers risks to reinsurers in order to limit its maximum aggregate potential loss and minimize exposures on large particular individual risks.

Interseguro also has catastrophe reinsurance that covers individual and group life insurance products, except annuities. These contracts are intended to limit Interseguro’s risk exposure in the event of low-probability but high-cost events, such as natural or man-made disasters.

Information Technology Unit

Interseguro’s IT unit is responsible for managing its technology infrastructure, telecommunications network and computer systems. The unit is also responsible for designing and implementing in-house solutions or third-party technological developments to support Interseguro’s operation.

Interseguro has undertaken investments in technology with the aim of providing a stable and secure platform to support its rapidly expanding business.

Wealth Management segment

Wealth Management segment operates mainly through the company’s subsidiaries Inteligo Bank, Inteligo SAB and Interfondos, which together provide wealth management, private banking, financing, brokerage, advisory and other investment services mainly to high-net-worth individuals.

Inteligo is a provider of wealth management services, which includes banking, financing, brokerage and investing activities for high-net-worth individuals through three operating subsidiaries: Inteligo Bank, Inteligo SAB (brokerage) and Interfondos (mutual funds).

Inteligo is a provider of wealth management services through Inteligo Bank, brokerage services through Inteligo SAB and mutual funds management services through Interfondos.

Inteligo SAB also provides sales and trading operations for individual and institutional customers primarily in the Peruvian capital markets. As of December 31, 2022, Inteligo SAB was the seventh largest broker by market share in equities trading, according to the SMV. Interfondos is the fourth largest mutual fund manager in Peru with a 15.6% market share based on assets under management, according to the SMV.

Business Lines

Inteligo has three business lines, such as financial advisory; lending; and portfolio investments.

Financial Advisory

Inteligo provides financial advisory services to high net worth individuals regarding investments, including equities, fixed income, structured products, alternative investments and managed accounts. Through its team of investment analysts, Inteligo designs financial strategies to satisfy the investment objectives of each client in the Peruvian and international financial markets. Furthermore, Inteligo provides regular updates to its clients on market conditions through reports from its in-house research team.

Lending

Inteligo offers lending services through Inteligo Bank to complement its wealth management business only to its existing clients. Most of the loans are categorized as consumer financing. Inteligo Bank’s loan portfolio was fully collateralized by its clients’ assets as of December 31, 2022.

Portfolio Investments

Inteligo manages a proprietary portfolio primarily composed of medium-term investments in fixed-income securities and private equity. Inteligo’s investment team uses third-party funds as well as individual fixed income and equity securities.

Inteligo’s investment portfolio as of December 31, 2022, totaled S/ 1,698.2 million.

Inteligo’s successful strategy is reflected by the strong growth of its assets under management which had a CAGR of 4.9% between December 31, 2018 and December 31, 2022.

Payments

This segment provides an end-to-end digital ecosystem of financial services and technology solutions to enable consumers, individual entrepreneurs, micro-merchants, small and medium-sized enterprises (SME), in Peru, makes and processes payments in a safe, seamless, digital, mobile first and affordable manner. The company owns the remaining 50% ownership interest of PMP and its subsidiary Izipay in April 2022.

Payments: Izipay is a payments company and provider of products and services related to payments acquirer, a correspondent bank and a credit cards processor. Moreover, it provides financial services and technology solutions that enable consumers, individual entrepreneurs, micro-merchants, SMEs, in Peru, to make and/or process payments in a safe, seamless, digital, mobile first and affordable manner. Izipay’s technology solutions allow it to be full acquirer company, with a complete set of payment solutions through Point-of-Sale (POS) devices and e-commerce, provide a digital platform with proprietary solutions for business management such as self check-out,split payments, product and inventory management, business reports, anti-fraud system and CRM, among others.

As of December 31, 2022, Izipay represented 1.0% of the company’s total assets.

The company’s key strategic priority is to achieve digital excellence for its customers by providing them with a world-class, flexible and secure digital platform. In December 2022, more than 5,306,100 retail customers used the company’s digital platform. More than 2,175,500 retail customers no longer utilize

The company’s advanced analytics and technology capabilities continue to be enriched with new sources of data and new tools that technology offers, such as cloud, real-time decision, machine learning and artificial intelligence.

Market Segmentation

Inteligo Bank primarily focuses on individuals with investable assets in the range of U.S.$500,000 and U.S.$10 million. As of December 31, 2022, Inteligo Bank, Inteligo SAB and Interfondos had approximately 4,192, 1,772 and 62,259 clients,.

Inteligo’s strategy consists of establishing long-term relationships with its broad and profitable client base, segmenting its customers effectively and proactively providing financial advisory services. Inteligo’s committed advisory service, supported by a local investment team that possess extensive knowledge of its Peruvian clients’ preferences for financial products, and delivered through an experienced group of relationship managers is a key pillar of Inteligo’s success. Inteligo’s position further benefits from its leading brokerage operation in Peru through Inteligo SAB, an important mutual fund manager in Peru, Interfondos, and from being a part of one of Peru’s leading economic groups.

Financial Advisory Team

Inteligo serves its customers through its advisory team of approximately 69 people. Through its relationship managers, Inteligo establishes strong client relationships which result in a loyal and growing customer base. Inteligo’s experienced relationship managers team has acquired specialized product knowledge and deep understanding of its customers’ needs.

Information Technology Unit

Inteligo Bank implemented a new core system in 2020 to support its rapidly expanding operations. As of December 31, 2022 and 2021, Inteligo Bank had invested S/2.6 million and S/2.7 million, respectively, in the development of its technology platform, which will allow it to leverage its existing CRM platform and develop stronger business intelligence capabilities.

As a part of its cybersecurity strategy, Inteligo continued to strengthen its identification, protection, detection and action cybersecurity plans, which reduced the occurrence of attacks and mitigated the risk of cyber threats. This strategy is based on the cybersecurity framework of the National Institute of Standards and Technology (NIST), and other standards such as ISO 27000 and 27032. Inteligo’s cybersecurity strategy includes improvements to security on different fronts, including mobile devices, workstations, in the cloud and on premises. Inteligo uses updated technology, such as behavior analysis and artificial intelligence, which allow its human resources to reduce time spent on threat detection and analysis.

Payments Segment

In April 2022, the company acquired the remaining 50% equity interest in Izipay, a provider of products and services related to payments acquirer, a correspondent bank and credit cards processor. Moreover, Izipay provides financial services and technology solutions that enable consumers, individual entrepreneurs, micro-merchants, SMEs, in Peru, to make and/or process payments in a safe, seamless, digital, mobile first and affordable manner. Izipay’s technology solutions allow it to be full acquirer company, with a complete set of payment solutions through POS devices and e-commerce, provide a digital platform with proprietary solutions for business management such as self check-out,split payments, product and inventory management, business reports, anti-fraud system and CRM, among others. Izipay operates a national, two-sided network at scale that helps merchants and consumers connect, transact, and complete payments, whether they are online or in person. As of December 31, 2022, the number of Izipay merchant active accounts (merchant codes) in Peru was 1 million compared to 0.7 million as of April 2022. Izipay is one of the leaders in the physical card payment business in Peru.

COVID-19 Measures

Izipay deployed several strategies across the organization to mitigate the remaining impact of the COVID-19 pandemic on both its operations and on its employees.

Business Lines

Izipay has three main business lines, such as payments acquirer, correspondent banking and (iii) credit card processing.

Payments acquirer

Izipay offers merchants an end-to-end payments solution that provides authorization and settlement capabilities, helping merchants connect with their customers, process exchanges and returns, and manage risk. This is Izipay’s main activities, accounting for most of its revenues.

For its payments acquirer activities, Izipay generates revenue from credit, debit and prepaid card transactions by charging a merchant discount rate, or MDR, a commission withheld by Izipay from the transaction value paid to the merchant. The transaction amount, less the MDR, is credited to the merchant’s account. Izipay’s MDR pricing model is standardized, easy to understand and transparent. It also offers customized MDR pricing for certain merchants who process large payment volumes.

Correspondent Banking

Izipay offers correspondent services at merchants throughout Peru like pharmacies, libraries and mom-and-pop stores, with exclusive POS terminals leased to banks that allow customers to perform basic cash-based transactions, such as withdrawals, deposits and payment of utility bills.

For its correspondent banking activities, Izipay earns revenues primarily from fees of financial and administrative transactions and fees for each exclusive POS terminal installed.

Credit Card Processing

Izipay uses world-class software (Credit Management Systems) to provide its services. Through this system, the company can manage the credit and prepaid card accounts of our clients, who are mainly financial institutions, which allows them to control credit card balances, issue account statements, calculate payment schedules, among other functions.

For its credit card processing activities, Izipay generates revenue mainly from fees by number of total accounts.

Information Technology Unit

During the year 2022, Izipay invested S/104.3 million, in the development of its technology platform (including POSs, Software and Hardware), which will allow it to leverage its existing platform and develop stronger business intelligence capabilities.

As part of its cybersecurity strategy, Izipay has strengthened its preventive, detective, and recovery cybersecurity controls to reduce the occurrence of attacks and mitigate the risk of cyberthreats. This strategy takes as a framework the security requirements of PCI DSS, and other standards such as NIST, ISO 27000 and ISO 27032. Izipay’s cybersecurity strategy includes security improvements on different fronts, included in our e-commerce applications, workstations, cloud or on-premises architectures. Izipay has tools and services based on behavioral analysis and artificial intelligence, that allow detecting and carrying out an exhaustive analysis of known or 0 day threats that are exposed, allowing your human resources to reduce the time spent on detection and analysis of threats.

Strategy

The company’s key strategic priority is to achieve digital excellence for its customers by providing them with a world-class, flexible and secure digital platform. The company’s digital transformation is vital to its continued growth and profitability, and for this reason it has been investing in developing the capabilities necessary to offer digital products and services to its customers. In December 2022, more than 5,306,100 retail customers used the company’s digital platform compared to more than 600,000 retail customers in December 2017. More than 2,175,500 retail customers no longer utilize physical channels other than ATMs or POSs as of December 2022. The company is in the process of redesigning its physical presence in order to better serve the evolving needs of its customers.

The company’s advanced analytics and technology capabilities continue to be enriched with new sources of data and new tools that technology offers, such as cloud, real-time decision, machine learning and artificial intelligence.

Strategy

The company strives to increase its customer base by leveraging data and analytics with sound risk management skills; provide the best digital experience based on operational excellence; and become the leading digital financial platform to provide profitable solutions with a clear strategic focus on key businesses, such as payments, consumer financing, wealth management and life insurance.

The company continues working on four main pillars, including developing a simple, resilient and scalable technology platform for current and future growth; becoming a data driven organization with deep understanding of Peruvians and consumer preferences; attracting and developing the best talent within its remote-fist framework; and becoming a leader in sustainable operations within its segments in Peru.

The key elements of the company’s strategy are to growth with strategic focus on key businesses; create the largest payments ecosystem in Peru; resilient, simple and scalable technology; strengthen a data driven organization; and unique working environment to capture and retain the best talent worldwide.

Regulations

Inteligo Bank’s asset management activities and securities custody and trading activities are subject to supervision by the Securities Commission of The Bahamas. Inteligo Bank holds the following licenses from the Securities Commission of The Bahamas: Dealing as Agent or Principal; Arranging Securities; Managing Securities; and Advising on Securities. Inteligo Bank is licensed to undertake all securities related activities that are ancillary to its banking business.

Competition

Inteligo Bank operates in the highly competitive and regulated wealth management industry, competing with independent advisors, global banks and Peruvian firms, such as its main competitor Credicorp Ltd. through its subsidiary Atlantic Security Bank.

History

Intercorp Financial Services Inc. was founded in 1897. The company was incorporated in Peru in 1897.