Mexican Insurance Market - gob.mx · Mexican Insurance Market: developments and new regulations ... lia Ca n a d a Ge r m n y Sp a i n N e w Z e al an d Ar g e n t i n a C h ile Me

Mexican Insurance Market: developments and new regulations

National Association of Insurance CommissionersSummer National Meeting

Philadelphia, PAJune 11, 2002


Manuel Aguilera-Verduzco

Insurance and Surety National Commission (CNSF-Mexico)

President

Contents

1. The Mexican Insurance Market in 2001

2. Recent reforms to the Mexican Insurance Legislation

3. Outlook of the Mexican Insurance Industry

Real growthwritten premiums

7.5%

-13.8%

21.1%

7.7%

12.7%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1993 1994 1995 1996 1997 1998 1999 2000 2001 Mar-02

Source: CNSF-SHCP

7.7% 6.7%

-3.8%

10.5%

21.1%

7.0%9.3%

12.5%

7.5%

-13.8%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1993 1994 1995 1996 1997 1998 1999 2000 2001 Mar-02

Life PensionsHealth and Accidents P&C without AutoAuto Total

Real growthcontribution by line of business

Source: CNSF

7.7% 6.7%

-3.8%

10.5%

21.1%

7.0%9.3%

12.5%

7.5%

-13.8%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1993 1994 1995 1996 1997 1998 1999 2000 2001 Mar-02

Life Non-Life Total

Real growthcontribution by line of business

Source: CNSF

Growth dynamicsmain factors

Market maturity

MarketLiberalization

Macroeconomic Environment

Regulatory Reform

Macroeconomic environmentwritten premiums real growth vs. GDP

-2.0%1.9% -0.3%

7.5%7.7%12.7%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1993 1994 1995 1996 1997 1998 1999 2000 2001 Mar-02

GDP Written Premiums

Source: CNSF-SHCP

Macroeconomic environmentwritten premiums real growth vs. inflation

12.7%7.7%

-13.8%

7.5%4.7%4.4%

52.0%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1993 1994 1995 1996 1997 1998 1999 2000 2001 Mar-02

Written Premiums Inflation

Source: CNSF-BANXICO


Market maturity



Regulatory Reform

Market Liberalizationmarket participants

113 18 23 24 26 29 31 361

2 2 2 2 26

12

1412

15 16 16 14 1314

34 35

2830

30 26 24 25 24

32

1

100

20

40

60

80

100

1993 (44)

1994 (48)

1995 (56)

1996 (61)

1997 (70)

1998 (68)

1999 (68)

2000 (70)

2001(70)

2002e(88)

Subsidiaries Subsidiaries & FCFinancial Conglomerates Rest of the industry

Source: CNSF

Market Liberalizationliberalization and industry concentration

10.6%

9.1%

12.3%

0

20

40

60

80

100

1993 (44)

1994 (48)

1995 (56)

1996 (61)

1997 (70)

1998 (68)

1999 (68)

2000 (70)

2001 (70)

2002e(88)

5%

6%

7%

8%

9%

10%

11%

12%

13%

Subsidiaries Subsidiaries & FC Financial ConglomeratesRest of the industry Herfindahl Index

Source: CNSF

Market Liberalizationinsurance product filing

226507

845

1,285

2,113

3,021

3,577

4,068

417

9041,263

1,5571,897

2,1212,346

2,529

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1994 1995 1996 1997 1998 1999 2000 2001

Life Non-Life

Source: CNSF


Market maturity



Regulatory Reform

Market Maturityinsurance industry portfolio

41.6% 58.4%

57.9% 42.1%

0% 20% 40% 60% 80% 100%

2001

2000

1999

1998

1997

1996

1995

1994

1993

Life Non-LifeSource: CNSF

Insurance densityinternational comparison, premiums per capita (2000)

0

1,000

2,000

3,000

4,000Ja

pan

Uni

ted

Kin

gdom

Uni

ted

Stat

es

Irela

nd

Fran

ce

Aus

tralia

Can

ada

Ger

man

y

Spai

n

New

Zea

land

Arg

entin

a

Chi

le

Mex

ico

*

Bra

zil

Indi

a

(US

Dolla

rs)

Market MaturityInsurance density (premiums per capita)

74 70 76

9187

96104

117

0

20

40

60

80

100

120

140

1994 1995 1996 1997 1998 1999 2000 2001

(US

Dol

lars

)

Source: CNSF-CONAPO

Insurance penetrationinternational comparison, premiums/GDP (2000)

0

2

4

6

8

10

12

14

16

18

Uni

ted

Kin

gdom

Japa

n

Irela

nd

Aus

tralia

Fran

ce

Uni

ted

Stat

es

Spai

n

Can

ada

Ger

man

y

New

Zea

land

Chi

le

Arg

entin

a

Indi

a

Bra

zil

Mex

ico

(% G

DP)

Insurance penetration 1994-2001written premiums / GDP

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%19

94

1995

1996

1997

1998

1999

2000

2001

1.23%

1.82%

Source: CNSF

Estimated insurance penetration 2002-2020written premiums / GDP

0%

1%

2%

3%

4%

5%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

High Scenario Medium Scenario Low Scenario

2.8%

1.23%

1.82%

Source: CNSF


Market maturity



Regulatory Reform

Regulatory reform

Regulatory Reform

• Started in 1993

• Main objectives:

• Fulfill international standards on insurance regulation and supervision

• Promote the development of the insurance market

Directive regulation

Solvency regulation

Pro-competitive solvency

regulation

Inte

rnat

iona

l st

anda

rds

com

plia

nce

leve

l

Regulatory reformtrends

Support on independent third partiesand corporate governance

IAIS Insurance Core PrinciplesGeneral structure

Organization of theInsurance Supervisor (1) Market Conduct (11)

Licensing andChanges in Control (2-3)

Supervision andSanctions (12-14)

Corporate Governanceand Internal Controls (4-5)

Cross Border BusinessOperations (15)

Prudential Rules (6-10) Coordination, Cooperationand Confidentiality (16-17)

IAIS Insurance Core PrinciplesAssessment mechanisms

Spectrum of assessment mechanisms

WB-

IMF

FSAP

Self

asse

ssm

ent

coor

dina

ted

byan

othe

r sup

ervi

sor

Self

asse

ssm

ent

coor

dina

ted

by a

nex

tern

al a

sses

sor

Self

asse

ssm

ent

Self

asse

ssm

ent

base

d on

inte

rnat

iona

llyac

cept

ed m

etho

dolo

gies

IAIS Insurance Core PrinciplesMexico overall level of observance in 1993

0

1

2

3

E-1 E-2 E-3 E-4 E-5 E-6 E-7 E-8 E-9 E-10 E-11 E-12 E-13 E-14 E-15 E-16 E-17

Self-assessment 1993

O

LO

MNO

NO

O: Observed LO: Largely observed; MNO: Materially Non-Observed; NO: Non-observed

E-1: Organization of the Insurance Supervisor

E-2: LicensingE-3: Changes in ControlE-4: Corporate GovernanceE-5 Internal ControlsE-6: AssetsE-7: LiabilitiesE-8: Capital Adequacy and

SolvencyE-9: DerivativesE-10: ReinsuranceE-11: Market ConductE-12: Financial ReportingE-13: On-site InspectionE-14: SanctionsE-15: Cross Border business

OperationsE-16: Coordination and

CooperationE-17: Confidentiality


O

LO

MNO

NO

0

1

2

3


Self-assessment 1993 Improvement 1993-1997








O

LO

MNO

NO

0

1

2

3


Self-assessment 1997 Improvement 1997-2001








O

LO

MNO

NO

0

1

2

3


FSAP Assessment 2001 Improvement 2001-2002







Contents



3. Outlook of the Mexican Insurance Industry

Regulatory reformpro―competitive solvency regulation

Supervisory Body

Independent Third Parties Board of Directors

Legislative process

� The reforms were included in the second set of the Financial System Reform publicly stated by the Federal Government.

� The initiatives were presented by the President to the Congress on November of 2001.

� The reforms became effective on January the 17th of 2002 .

Elements considered in the reform

1. Self assessment of the compliance with the IAIS Insurance Core Principles (2000).

2. WB-IMF Financial Sector Assessment Program results (2001).

3. Insurance Industry opinions.4. Financial system reforms previously approved by the

Mexican Congress.

General objectives of the reform to the Insurance Law

1. Promote a sound development of the insurance industry.

2. Harmonization with the regulatory framework applicable to the rest of the Mexican financial sector.

3. Advance towards a greater level of international standards’ compliance regarding insurance regulation and supervision.

Insurance Law Reformgeneral structure

1. Promotion of the insurance industry development

2. Regulation and supervision modernization

3. Corporate governance development

General structure (1):Promotion of the insurance industry development

1. Access to alternative capital sources 2. Promote product innovation 3. Operation processes via electronic means 4. New activity areas and business

opportunities

1. Access to alternative capital sources

� Extension of the available scope for corporate debt issuing.

� Broadening the possibilities to access financial reinsurance, as a way to support risk diversification and financial support of the domestic insurance companies.

2. Promote product innovation

� Introduction of a process that facilitates and accelerates insurance products’ filing.� The purpose is to encourage innovation and competition

in the market place.

3. Operation processes via electronic means

� It will make possible for insurance companies to send information for supervisory purposes via Internet or any other available technology.

� It creates the required legal framework to allow electronic insurance transactions.

4. New activity areas and business opportunities

� Authorization granted to the insurance companies in order to allow the inclusion of activities related with the distribution of mutual investment funds.� It will allow a more flexible operation of certain kind of

insurance products.� It will also constitute a new business opportunity by itself.

General structure (2):Regulation and supervision modernization

1. Licensing and shareholders’ change of control2. Technical reserves and solvency margin3. Inspection and surveillance 4. Foreign subsidiaries

1. Licensing and change in control

� Standardize guidelines that rule the licensing requirements and shareholders’ change of control.

� Specialization of Life and Non-Life insurance companies for new licenses, in order to protect the policyholders’ interests.

� Authorize that a same investor may keep two or more insurance companies in a similar operation (same line of business).

2. Technical reserves and solvency margin

� Include the actuarial concept of “sufficiency” in the technical reserves’ valuation.� Establish the requirements that the actuaries must fulfill

in order to: file insurance products, carry out reserve valuations and perform actuarial auditing.

� Eliminate the “prevision reserve”.� The purpose of this technical reserve, will be covered

with equity resources.

2. Technical reserves and solvency margin

� Include in the solvency margin regime an incentive to promote the diversification of reinsurers related to the cession and acceptance of reinsurance operations.

� The solvency margin regime is complemented with a prospective monitoring analysis which will allow the identification of problems that require preventive measures.

3. Inspection and surveillance

� Establish the CNSF’s capability for adopting control measures in case of serious financial situations derived from shortages in regulatory parameters (reserves and capital).

� Establish professional license requirements and certification for:� The actuaries who elaborate insurance products and

valuate technical reserves.� The accountants who will subscribe the financial

statements of an insurance company.


� Establish the CNSF’s capability for supervising companies that provide outsourcing services to supervised insurance companies.

� Enable the possibility for the CNSF to hire auditors and other independent professionals as auxiliary staff in the CNSF’s inspection activities.


� Adequate procedures regarding regularization plans.� These plans look for a transparent procedure to aim the

correct coverage shortage in reserves and equity requirements.

� This instrument will also allow the adjustment of observed deficiencies regarding the general operations of an insurance company.

4. Foreign subsidiaries

� Eliminate the restriction to establish subsidiaries or branch offices outside the national territory by a subsidiary established in Mexico.

� Allow the establishment of two or more subsidiaries in the same line of business.

� Homologate the different requirements regarding shareholders’ changes of control, management board and CEO.

General structure (3):Corporate governance development

1. Corporate governance2. Self correction programs 3. External auditors

1. Corporate governance

� The Board of Directors must establish:� Policies, strategic objectives and norms regarding

corporate governance as well as guidelines that prevent conflict of interests.

� That at least 25% of the Board’s members must be independent.

� That Board’s sessions must fulfill the following conditions:

� at least 51% of its members must be present, and;� at least one of them must be an independent member.

1. Corporate governance

� Define the operations that must be authorized with the vote in favor of the majority of the independent board members.

� Establish standards for the companies to perform “fit & proper” tests regarding its board members and executives.

� Establish the figure of the Compliance Officer, appointed by the Board, as a corporative mechanism to monitor the compliance of the internal and external regulation.

2. Self correction programs

� Include the possibility of self correction programs to correct irregularities detected by the insurance company.

� The self correction programs must be presented by the Compliance Officer and have to be informed to the Board.

3. External auditors

� Establish measures that guarantee a suitable switching of both, financial and actuarial external auditors.

� The information to be disclosed in their reports, regarding other services and, in general, any professional or business relation that insurance companies maintain with the auditors.

Contents



3. Final remarks

Final remarks

� The performance of the Mexican Insurance Industry in the recent years has shown a great dynamism, reflected in its growth rates, above those presented by the economy as a whole.

� This situation has been favored by a greater competition in the market, the entrance of companies and the development of suitable products for the consumers necessities.

Final remarks

� Moreover, the structural change of the industry, the possibility to get into new businesses and the expected sustained growth of the Mexican economy, allow to anticipate that real growth rates will continue in the years to come.

� Even so, the insurance sector needs to sustain comparable growth rates so that it can reach a maturity level similar to that observed in other emerging economies with similar economic development.

Final remarks� The recent structural reforms, the macroeconomic

achievements, and the opening to the international markets as well as the international scrutiny in Mexico, have set the necessary bases for the consolidation of the Mexican insurance industry.

1.0*13.04.5Property and Casualty 9.3*15.917.4Health and Accidents7.8*10.612.7Life5.1*12.79.1Insurance Sector

1.7**-0.36.6GDP

2002(estimate)

20012000Growth rates (%)

Source: * * SHCP* CNSF


www.cnsf.gob.mx

Documents

Mexican Insurance Market - gob.mx · Mexican Insurance Market: developments and new regulations ... lia Ca n a d a Ge r m n y Sp a i n N e w Z e al an d Ar g e n t i n a C h ile Me