There has been much speculation around the implications of Brexit and the possible termination of the North American Free Trade Agreement (NAFTA). One of the clear benefits of both NAFTA and the free trade agreement entered into between Mexico and the European Union was the exemption of NAFTA and EU insurers from the foreign investment restriction. However, as this restriction was eliminated in 2014, affiliates of insurers located in NAFTA and EU member states will not be substantially affected.
The National Insurance and Bonds Commission recently added two new articles to the Insurance and Bonding Sole Provisions which set out new surety insurance contract requirements. Contracts must now include, among other things, confirmation that the insurer is authorised to pay the indemnity for damages without prior notice or consent of the policyholder and that the indemnity may be paid as compensation or as a penalty for the damages suffered.
In order to prevent the misuse of customer information, the National Insurance and Bonds Commission recently amended the Insurance and Bonding Sole Provisions with regard to information gathered electronically. Among other things, the amendments require insurers to implement security measures and mechanisms for the transfer, storage and processing of information generated electronically when contracting insurance and bonds and rendering other services to customers.
The National Insurance and Bonds Commission has issued a temporary measure to enable insureds and their beneficiaries to be immediately compensated for damages suffered as a consequence of the recent earthquakes that affected several areas of Mexico. The temporary measure applies to Mexican insurers that have ceded risks to reinsurers and allows them to use funds to meet assumed risks and recover compensation from reinsurers at a later date.
The National Insurance and Bonds Commission recently amended the Sole Provisions on Insurance and Bonds in order to increase legal certainty with regard to the regulatory framework that applies to actuarial, financial and investment functions. These amendments aim to ensure that the commission has the information required to take necessary regulatory action in the event that irregularities are detected and prompt intervention is needed.
The National Insurance and Bonds Commission recently amended the Sole Provisions on Insurance and Bonds to provide the value of the investment unit that insurers and bonding companies must consider when calculating their required minimum paid-in capital. Insurers and bonding companies must comply with the required minimum paid-in capital each year to ensure that they can meet their financial obligations and responsibilities in the exercise of their activities.
Two years after the Insurance and Bonding Companies Law was enacted, surety insurance is finally starting to take effect in Mexico. In essence, surety insurance is easier to collect and enforce than traditional bonds. The federal government is expected to start requesting surety insurance from its contractors, rather than traditional bonds. This shift in policy will encourage development in the surety insurance market.
The National Commission for the Protection and Defence of Users of Financial Services recently issued the General Provisions for the Registration of Insurance Adhesion Contracts, which regulate the organisation and operation of the Registry of Adhesion Insurance Contracts. Insurers can now comply with their obligation to register the non-negotiable contracts that they offer; failure to do so may result in a fine ranging from $758.31 to $3,791.56.
The Ministry of Finance and Public Credit recently issued a ruling interpreting the requirement to establish special funds under the Insurance and Bonding Companies Law. The ministry has clarified that special funds should be established to support compliance with obligations that stem only from insurance (and not reinsurance) contracts. This will ease some of the sector's concerns, as reinsurance-based contributions would have required insureds to contribute twice as much to the special funds.
The new Solvency II accounting and reporting standards deviate dramatically from the prior reporting standards, which makes it difficult for insurers to issue financial statements that can be appropriately compared with similar statements for 2015. In light of this, the National Insurance and Bonding Commission recently issued an amendment to the Sole Regulations on Insurance and Bonding, acknowledging that it is impractical for regulated entities to issue comparative financial statements during 2016.
The Ministry of Environment and Natural Resources recently issued guidelines setting out the minimum insurance requirements for companies undertaking oil and natural gas exploration and production, processing and refining. All regulated entities engaged in such activities must secure civil liability, environmental damage and – if applicable – well control insurance. The insured amounts vary depending on the activities to be undertaken, but are substantive.
In April 2016 the National Insurance and Bonds Commission amended the Sole Provisions on Insurance and Bonds to include HR Ratings de México, SA de CV as an entity authorised to issue credit ratings to foreign reinsurers. HR Ratings is the first Latin-American rating company authorised to issue such credit ratings, which are necessary for foreign reinsurers working with Mexican insurance and bonding companies.
The Ministry of Finance and Public Credit recently issued general provisions which specify the types of loan that insurance and surety companies may issue to third parties. In doing so, the ministry aims to democratise access to finance, avoid imbalances, promote national economic growth and create another option for debtors to secure credit at competitive rates.
The National Commission for the Protection and Defence of Users of Financial Services (CONDUSEF) has issued general provisions to define certain activities that deviate from good practices with respect to the offer and sale of services that insurance entities provide. CONDUSEF's intention is to strengthen the protection of general public interest.
Given the entry into force of Solvency II requirements in Mexico, the National Insurance and Bonds Commission continues its efforts to streamline internal and external control compliance mechanisms to which insurers are subject. The relevant provisions have been modified to allow regularisation plans and auto-correct programmes to be submitted to the regulator through its website, with the aim of facilitating easier and swifter compliance.
Since 2014, vehicle owners travelling on federal roads have been obliged to obtain liability insurance to cover damage caused to third parties or their property. However, insurers report that car liability insurance has not increased as expected. States are now looking into requiring liability insurance for all cars on the roads in their cities. Mexico City is the first to do so.
The new Insurance and Bonding Law, which implements the Solvency II requirements in Mexico, recently came into effect alongside the new Sole Regulation on Insurance and Bonding. Among other things, insurers must now file periodic regulatory reports using certain forms and templates, which consolidate information that was previously submitted to the regulator through individual reports.
The National Commission for the Defence of the Rights of Financial Services Users has issued rules regarding abusive clauses contained in non-negotiable contracts used by financial institutions, including insurers. The regulator is now empowered to inspect all insurance products and – where it deems necessary – order the use of a product containing an abusive clause to be suspended.
The National Insurance and Bonding Commission has disclosed draft sole rules for comment. One of the changes concerns coverholders appointed by registered foreign reinsurance companies. Under the proposed sole rules, Mexican underwriters will no longer agree to do business with coverholders unless there is evidence that they have been properly registered.
Foreign investment in Mexican insurance companies has traditionally been restricted to 49% of capital stock, with certain exceptions. However, the Foreign Investment Law was recently amended to eliminate the restrictions on participation in insurance and surety companies. Foreign investors can now invest up to 100% in such companies, regardless of the investment's country of origin.