Insurance and reinsurance in Mexico: overview
A Q&A guide to insurance and reinsurance law in Mexico.
The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in Mexico.
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This Q&A is part of the global guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-guide.
Market trends and regulatory framework
Market trends and regulatory framework
The Mexican insurance market is the second largest insurance market in Latin America. It has grown steadily in recent years. In the third quarter of 2015 the insurance market registered an annual growth of 12% in nominal terms.
Nevertheless, the Mexican insurance market still has one of the lowest proportion of insurance penetration in Latin America with roughly 2% of GDP. While Mexico's potential for growth is one of the most promising in the world, insurance penetration is likely to see very slow growth, despite the new Insurance Law and Surety Companies Law (LISF) that entered into force on April 4 2015, as it does not incorporate any relevant changes to increase insurance penetration or distribution of insurance products.
It is estimated that the insurance industry in Mexico will grow between approximately 6% to 8% in 2016. However, insurance penetration in Mexico will remain low compared to other more developed economies and, as a result, will continue representing a small proportion of the gross domestic product. As an example of this, less than 10% of Mexican homes are insured for fire and theft and less than 30% of automobiles are insured.
Market growth is foreseeable in bancassurance (the sale of insurance products through a bank), micro-insurance (insurance designed to cover low-income persons), automobile insurance and the development of schemes of mandatory insurance products (including those in credit and mortgage related products) and new products such as unemployment, cyberrisk and identity theft, along with a moderate increase in directors' and officers' liability insurance (D&O) products.
There has been steady growth in ancillary services to insurance such as extended warranty and other assistance-related services generally packaged with other insurance products. Banks have continued the trend of divesting their insurance operations and establishing joint ventures with insurance companies to further distribute insurance products among their client base. The few banks that had not divested their insurance operations have concluded major transactions and joint ventures to distribute insurance products to their customers. Multinational insurance companies continue looking for acquisitions and other mechanisms to increase their market share. Despite the limited growth of the market, new players are continuing to enter the market and focusing on developing niche sectors.
As for the distribution of insurance products, the market is pretty much controlled by insurance brokers and the most important non-traditional channel continues to be financial institutions through joint ventures or other schemes with insurance companies. The legal framework governing the distribution of insurance products is rigid and does not facilitate distribution through non-traditional channels, except for financial institutions, telemarketing, and micro-insurance.
It is also expected that other reforms recently approved in Mexico, such as the energy and telecommunications reforms, will impact positively on the Mexican insurance market. The tax reforms that became effective on 1 January 2015 will require the adjustment of certain sales and marketing strategies for certain lines of business, such as life and health and accidents and may end up affecting growth in such lines of business. There is also an increasing interest in the new surety insurance (seguro de caución) which, combined with the growth in the infrastructure, energy and telecommunications sectors, is expected to grow more than 50% in 2016.
The regulatory changes and new responsibilities of the National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas) (CNSF) have impacted on the proceedings to secure authorisations for new licences and authorisations, amendments to bye-laws, renewal registrations with the Reinsurance Registry and other regulatory proceedings. This is because there have been adjustments in the internal policies and proceedings and new criteria are being implemented by the CNSF. Furthermore, the budget cuts within the federal government have impacted on the CNSF which has not been able to grow in personnel to cope with the new and increased responsibilities of the CNSF.
Regarding the implementation of Solvency II, the quantitative elements, such as those related to the calculation of solvency capital and the implementation of the provisions related to the economic balance, became effective on 1 January 2016, concluding with the implementation of all Solvency II requirements under the LISF.
As of March 2016, 248 foreign reinsurance companies were registered in the General Registry of Foreign Reinsurance Companies to take Reinsurance and Rebonding from Mexico (Reinsurance Registry) and authorised to take reinsurance from Mexican insurance companies.
The effect of various provisions of the regulations that apply to foreign reinsurance companies taking risk from Mexican cedants, in relation to the applicable law and competent courts in the reinsurance contracts of Mexican cedants, continues to be a topic of discussion, conflict and litigation in Mexico. The manner in which foreign regulations, such as those that stem from the Office of Foreign Assets Control (OFAC) from the USA, impact on reinsurance in Mexico, continues to be a topic of discussion and source of risk to Mexican cedants, as no satisfactory solution has yet been implemented.
Fronting arrangements commonly have underlying policies subject to Mexican law, causing inconsistencies with reinsurance that may have negative consequences when there are differences between the understanding of the London or foreign market and principles of Mexican law.
The market is working towards developing alternative dispute resolution mechanisms, such as mediation and arbitration, and in particular to supporting the use of the ARIAS Mexico arbitration clause (see Question 33) in (re)insurance agreements where the parties wish to use arbitration to resolve disputes.
Despite these efforts, there are still inconsistencies in the market in using such mechanisms and arbitration clauses used are generally unenforceable. Mediation continues to be attractive as a new and efficient mechanism to settle claims and disputes between Mexican cedants and the London market.
The Lloyd's Corporation has established a representative office in Mexico and this will certainly contribute to develop further relationships and business flow between Mexico and the London market. The Mexican reinsurance company, Patria Re, is taking risk in Lloyd's, operating with a special purpose syndicate in collaboration with Pembroke Managing Agency.
Mexican insurance and reinsurance companies are governed by the Insurance and Surety Companies Law (LISF), which came into effect as of 5 April 2015 and the Insurance Contract Law (Ley Sobre el Contrato de Seguro) (LCS, which has been in effect since 1935. The specific regulation is consolidated in the Circular Única de Seguros. The only exception is marine insurance, regulated by the Navigation and Maritime Commerce Law 2006).
Reinsurance contracts are governed by the applicable law agreed by the parties in the contract. Generally, reinsurance contracts are subject to Mexican law.
Insurance and reinsurance operations in Mexico are regulated and supervised by the National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas) (CNSF), an independent agency of the Ministry of Finance (Secretaría de Hacienda y Crédito Público) (SHCP). Article 20 of the LISF provides that entities conducting insurance operations in Mexico must be authorised by the CNSF. Specific regulation is enacted by the SHCP to regulate insurance and reinsurance intermediaries, the structure and activities of the CNSF, and the group life insurance and the collective insurance for accidents and illnesses. Additionally, the CNSF provides the specific norms for the activity of the insurance sector. These norms are compiled into a single regulation, the Circular Única de Seguros y Fianzas.
There is continued major involvement of the Mexican courts and in particular the Supreme Court in insurance-related matters and it is likely that this will go on, requiring the insurance market to be alert and adapt to such developments by analysing the consequence of each ruling and construction of laws and regulations, with required adjustments to the wording of insurance policies.
Insurance companies are subject to regulation, surveillance and inspection by the CNSF, an independent agency of the SHCP. The CNSF has authority to supervise and inspect the operations of Mexican insurance and reinsurance companies, and issue regulations applicable to the operations of Mexican insurance and reinsurance companies. Such regulations are contained in the Circular Única de Seguros y Fianzas, which compiles all applicable regulations issued by the CNSF. The CNSF has the authority to:
Grant and revoke authorisations to operate as an insurance or reinsurance company in Mexico.
Authorise the registration of foreign reinsurance companies in the Reinsurance Registry, to be allowed to take reinsurance from Mexican insurance companies.
The SHCP has authority to interpret the LISF for administrative aims.
Regulation of insurance and reinsurance contracts
Article 1 of the Insurance Contract Law (LCS) defines insurance contracts as agreements in which an insurance company agrees to provide indemnification for damages or to pay an amount of money on the occurrence of a risk covered under the terms of the contract, in exchange for the payment of a premium.
Article 12 Section XXV of the Insurance Law and Surety Companies Law (LISF) defines reinsurance as the contracts in which terms an insurance company assumes totally or partially a risk that is covered by another insurance company, or the excess liability above the amount insured by the direct insurer.
The Insurance Law and Surety Companies Law (LISF) provides a general classification of insurance contracts as follows:
Life operations. These are insurance contracts that cover risks affecting the insured's existence.
Accidents and health operations. These consist of:
personal accidents. Insurance contracts that cover injuries or disabilities affecting the insured's personal integrity or health;
medical expenses. Insurance contracts that cover medical, hospital and other expenses considered necessary for the recovery of the insured's health;
health. Insurance contracts that cover services to prevent and restore the insured's health.
Property and casualty operations. These consist of:
civil liability and professional risks. Insurance contracts that cover indemnity payments that an insured must pay in favour of third parties, as a consequence of losses caused by specific situations;
maritime and transportation. Insurance contracts that cover indemnity payments for damages and losses suffered on cargo, vessels and other maritime assets;
fire. Insurance contracts that cover damages and losses caused by fire, explosion, fulmination or related accidents;
agriculture and animal. Insurance contracts that cover damages and losses suffered by the insured due to the partial or total loss of expected profits from land or by death, loss or damages of animals;
automobiles. Insurance contracts that cover damages and losses caused as a consequence of the use of automobiles;
surety insurance. Insurance contracts that cover the insured's losses suffered by total or partial insolvency of commercial loan debtors;
mortgage insurance. Insurance contracts that cover damages caused by breach of a mortgage loan debtor;
financial guaranty insurance. Insurance contracts that cover damages caused by breach of issuers of securities;
miscellaneous. Insurance contracts that cover damages and losses suffered by individuals or in property, caused by any other risk not contemplated in other lines of business;
earthquake and other catastrophic risks. Insurance contracts that cover damages and losses caused to individuals or property as a consequence of a non-predictable event.
The marketing of goods or services to be delivered or provided in the future are not deemed insurance operations if the agreed obligation is satisfied with resources and installations of the offeror of the goods or services, even if it depends on the occurrence of a future and uncertain event, if no indemnification for damages or payment of an amount of money is made.
Extended guarantees are considered insurance operations. However, non-regulated entities can offer extended guarantees, if they contract a stop-loss or reimbursement insurance covering such risks with a licensed Mexican insurance company.
The LISF only distinguishes reinsurance contracts as reinsurance and financial reinsurance contracts.
Regulation of insurers and reinsurers
Mexican insurance and reinsurance companies are governed similarly by the Insurance Law and Surety Companies Law (LISF) and the Insurance Contract Law (LCS).
Mexican insurance companies can carry out reinsurance activities in those lines of business for which they are licensed. Mexican reinsurance companies are entities licensed to carry out exclusively reinsurance and re-bonding activities.
As a general rule, insurance companies can only carry out activities related to insurance operations.
Article 294 of the Insurance Law and Surety Companies Law (LISF) sets out a list of operations not permitted to be carried out by insurance companies. These prohibited activities include:
Creating a guarantee on their properties.
Entering into reinsurance agreements that require an assumption of their debt.
Repurchasing credit instruments.
Pledging credit instruments or securities in their portfolio.
Operating with their own shares.
Consenting to risks as authorised in the LISF.
Acting as guarantors.
Purchasing and selling goods of any kind.
Acquiring goods, title or securities that cannot be part of their portfolio.
Entering into transactions in which the chief officers of the company or officers two tiers below may become debtors of the company.
Paying dividends from their reserves.
In housing loans and financing guaranties, entering into agreements with financing entities of the same financing group or with financing agents with which they have any economic link.
Granting insurance or bonds in contravention of the provisions in the LISF.
Speculating with assets received as collateral in a surety or a surety insurance.
Acting as fiduciaries in trusts in which public resources are received directly or indirectly.
Granting bonds to its officials and managers as counter guarantors or joint obligors as well as granting policies in which they appear as beneficiaries.
In addition, reinsurers cannot:
Act as trustees.
Manage amounts from dividends or indemnities of insureds or their beneficiaries.
Manage reserves of pension plans.
As a general rule, insurance and reinsurance companies can only transfer risk of their insurance portfolio by either:
Ceding risks in reinsurance to a Mexican insurance or reinsurance company, or a foreign reinsurance company registered with the Reinsurance Registry.
Transferring the insurance portfolio, in the terms set out in Article 270 of the Insurance Law and Surety Companies Law (LISF), in which case prior authorisation from the National Insurance and Bonding Commission (CNSF) is required.
Mexican insurance companies can retain risk up to a maximum limit, depending on their capital and risk exposure, and must cede in reinsurance any excess over their maximum retention limit. There is no minimum retention limit.
Authorisation or licensing
Insurance companies. Under the Insurance Law and Surety Companies Law (LISF), the incorporation and operation of an insurance company in Mexico requires the prior authorisation of the National Insurance and Bonding Commission (CNSF). For this purpose, an application must be filed with the CNSF. The application must comply with the requirements set out in Article 41 of the LISF.
Once the CNSF grants authorisation, the insurance company must start operations within three months, starting from the date the CNSF approves the incorporation deed of the insurance company. Before starting operations, the CNSF must carry out an inspection visit and confirm that the insurance company has the infrastructure, procedures and systems required to operate.
For the requirements to obtain the authorisation to incorporate and operate an affiliate insurance company of a foreign financial entity, see Question 12.
Reinsurance companies. Under the LISF, Mexican reinsurance companies and foreign reinsurance companies registered with the Reinsurance Registry can cede or take risks in reinsurance with Mexican insurance companies.
Insurance companies incorporated and authorised to operate in Mexico can carry out reinsurance operations in the same lines of business for which they are licensed, without the need for further authorisation. Insurance companies can be authorised to operate exclusively in the reinsurance line of business.
The registration of foreign reinsurance companies with the Reinsurance Registry is governed by Article 34 and the Reinsurance Registry Rules. To obtain registration with the Reinsurance Registry, the foreign reinsurance company must apply to the CNSF in the terms set out in the LISF, the Reinsurance Registry Rules and applicable regulations. The registration of the foreign reinsurance company is valid until 31 December of the year on which it is granted and can be renewed each year.
Insurance brokers. The intermediation of insurance contracts is reserved exclusively to insurance brokers (Article 91, LISF). An insurance broker requires the prior authorisation of the CNSF to perform insurance intermediation services. For this purpose an application must be filed with the CNSF. The authorisation may be granted to the following persons, if they comply with the requirements set out in the Regulation of Insurance and Surety Brokers (Reglamento de Agentes de Seguros y de Fianzas) (Brokers Regulation):
Individuals with a labour relationship with the insurance company or independent individuals with a mercantile agreement with the insurance company.
Legal entities (insurance broker legal entities), which must be incorporated as limited liability stock companies (sociedades anónimas).
The authorisation granted by the CNSF to act as an insurance broker is valid for three years for individuals, renewable at the request of the insurance broker. The CNSF can grant the authorisation to incorporate and operate insurance broker legal entities for an indefinite period of time.
Reinsurance intermediaries. Reinsurance intermediaries are the only entities authorised to provide reinsurance intermediation services (Article 106, LISF). To incorporate and operate a reinsurance intermediary, the prior authorisation of the CNSF is required. For these purposes, an application must be filed with the CNSF. The application must comply with the requirements set out in the Rules on the Authorisation and Operation of Reinsurance Intermediaries (Reglas para la Autorización y Operación de Intermediarios de Reaseguro) (Intermediaries Rules). The reinsurance intermediary must be incorporated as a limited liability stock company (sociedad anónima) and establish its corporate domicile in Mexican territory.
Other providers of insurance/reinsurance-related activities
Insurance claims adjusters. They require the prior authorisation of the CNSF to perform activities related to the adjustment of insurance claims, if they comply with the requirements set out in the regulations issued by the CNSF (Article 106, LISF). However, as yet, these regulations have not been issued, and according to CNSF criteria, insurance claims adjusters are not subject to any authorisation to conduct activities related to the adjustment of insurance claims until these regulations are issued.
Generally, insurance operations in Mexico must be underwritten by Mexican insurance companies duly incorporated and licensed by the National Insurance and Bonding Commission (CNSF). As an exception, certain pre-paid services (excluding health services) can be offered in Mexico, provided they are rendered within the premises and with the resources of the service provider, and no payment in cash is made.
An entity can sell standard form insurance agreements, without an insurance broker, if the insurance company and the entity enter into a services agreement previously registered with the CNSF. The entity does not require authorisation from the CNSF, nor is it subject to the corporate requirements and limitations applicable to insurance brokers. However, its attorneys or employees may have to be certified by the CNSF to carry out their activities.
Other providers of insurance/reinsurance-related activities
Extended warranty services are deemed insurance. However, non-licensed entities can offer extended warranty services, provided they have a stop-loss insurance coverage or reimbursement insurance coverage, in the terms required by applicable regulations relating to a Mexican insurance company.
Restrictions on ownership or control
Foreign investors can control up to 100% of the capital stock of a Mexican insurance company (insurance affiliates).
In addition to the requirements to obtain authorisation to incorporate and operate an insurance company, insurance affiliates must comply with the requirements set out in the Rules for the Establishment of Affiliates of Foreign Financial Entities (Reglas para el Establecimiento de Filiales de Instituciones Financieras del Exterior). Recent changes in the foreign investment law now permits any foreign investor to invest up to 100%in a Mexican insurance company, subject to the applicable provisions of the Insurance Law and Surety Companies Law (LISF).
Foreign entities that act as "authorities" (ejerzan funciones de autoridad) cannot participate in any way in the capital of Mexican insurance companies. Mexican law does not define the term "authority". However, it can be defined as an individual or governmental agency with legal powers and authority to issue binding orders and regulations within the scope of such powers and authority.
The following cannot participate, directly or indirectly, in the capital stock of an insurance company, unless the participation results from the holding of shares in a financial holding company (sociedad controladora) established under the Law for the Regulation of Financial Groups (Ley para Regular las Agrupaciones Financieras) (Financial Groups Law):
Mexican credit institutions.
Mutual insurance companies.
Ancillary credit organisations.
Managers of investment funds.
Savings and loans entities.
Money exchange companies.
Insurance brokers. Article 12 of the Brokers Regulation sets out a list of entities and individuals that cannot participate, directly or indirectly, in the capital stock of an insurance broker legal entity, including:
Mexican financial entities subject to approval by the corresponding Mexican authority.
Foreign governments or authorities.
Foreign financial entities.
Reinsurance intermediaries. Foreign governments or authorities, or holding companies governed by the Financial Groups Law are not allowed to participate, directly or indirectly, in the capital stock of reinsurance intermediaries.
Other providers of insurance/reinsurance-related activities
Non-regulated extended warranty companies offering insurance in compliance with the LISF have no specific restrictions on ownership or control.
The National Insurance and Bonding Commission (CNSF) must grant its prior authorisation to any person acquiring shares representing more than 5% of the capital stock of an insurance company, or to one or more shareholders taking control of the management of the insurance company (Insurance Law and Surety Companies Law (LISF)). For this purpose, the interested party must file an application with the CNSF. The application must comply with the requirements set out in number 2.2.2 of the Circula Unica de Seguros, and contain the information and documents, set out in Section II of Article 42 of the LISF.
In addition, any person acquiring or transferring shares representing more than 2% of the capital stock of an insurance company must give written notice of the transaction to the CNSF, within three business days following the transaction.
Insurance broker. No specific approval, authorisation or notice is required.
Reinsurance broker. The reinsurance intermediaries must notify the CNSF of any change of its shareholders. No other specific approval or authorisation is required.
Other providers of insurance/reinsurance-related activities
Non-regulated extended warranty companies offering insurance in compliance with the LISF do not require specific approval, authorisation or notice.
Ongoing requirements for the authorised or licensed entity
Insurance companies must obtain the prior authorisation of its board of directors and of the National Insurance and Bonding Commission (CNSF), to issue debentures or other securities as well as the authorisations that may be required depending on the kind of securities being issued.
Mexican laws and regulations require the board of directors of insurance companies to approve any transactions with affiliates within the same holding company group and in general terms, any transaction with related parties.
Insurance companies. Insurance companies must comply with the following solvency requirements (Insurance Law and Surety Companies Law (LISF)):
Create the following technical reserves:
the ongoing risk reserve (Reserva de Riesgos en Curso);
the outstanding obligations reserve (Reserva para Obligaciones Pendiente de Cumplir);
the fluctuation reserve for investments;
the contingency reserve;
the reserve for catastrophic risk (Reserva de riesgos catastróficos) and;
any special reserve the CNSF deems necessary.
The insurance company must invest the technical reserves in permitted instruments and securities under the SHCP Rules for the Investment of the Technical Reserves of Insurance Companies and Mutual Insurance Companies (Reglas para la Inversión de las Reservas Técnicas de las Instituciones y Sociedades Mutualistas de Seguros).
Maintain a minimum guarantee capital under the SHCP Rules for the Minimum Guaranty Capital of Insurance Companies (Reglas para el Capital Mínimo de Garantía de las Instituciones de Seguros). The minimum guarantee capital serves, among other things, as support for any unforeseen claims, non-payment by the reinsurance and losses on investments.
Maintain a minimum paid-up capital stock, in accordance with the minimum paid-up capital requirements for each insurance line of business or operation issued by the CNSF each year.
The following are the approximate minimum paid-in capital requirements applicable for 2016 expressed in Mexican pesos, for each line of business:
Accidents and health:
personal accident and/or medical expenses: MXN9,288,783.89;
health, including personal accident and/or medical expenses: MXN9,288,783.89.
Property and casualty:
one line: MXN27,866,357.13;
two lines: MXN37,155,146.47;
three or more lines: MXN46,443,930.36;
mortgage insurance: MXN66,494,721.40;
financial guarantee insurance: MXN180,952,848.40.
one line (in one or more of the sublines): MXN19,922,003.84;
two lines (in one or more of the sublines): MXN26,562,668.16;
three or more lines (in one or more of the sublines): MXN33,203,337.92.
On 1 January 2016, the quantitative provisions regarding Solvency II entered into force, becoming compulsory for Mexican insurance companies. Along with the domestic impact of Solvency II, it allowed Mexico to be recognised by the European Commission into the third country equivalence scheme for the next ten years, allowing an insurer in Mexico owned by a EU insurance company to calculate the group solvency based on the Solvency Capital Requirements and own funds of the Mexican insurer and vice versa.
Reinsurance companies. Insurance companies authorised to operate exclusively in the reinsurance line of business are required to maintain only 50% of the respective minimum paid-in requirement set out above.
Reinsurance companies registered with the Reinsurance Registry must comply with the minimum ratings required by the CNSF in Chapter 34.2 of the Circular Única de Seguros.
Insurance brokers. Insurance brokers must contract civil liability insurance in the terms and conditions set out by the CNSF. Insurance broker legal entities must carry out their corporate purpose through individuals authorised by the CNSF to act as attorneys-in-fact (apoderados).
Reinsurance intermediaries. Reinsurance intermediaries must carry out their corporate purpose through individuals authorised by the CNSF to act as reinsurance brokers (apoderado de reaseguro). Reinsurance intermediaries must contract civil liability insurance in the terms and conditions set out by the CNSF.
Other providers of insurance/reinsurance-related activities
Penalties for non-compliance with legal and regulatory requirements
Insurance companies. Article 332 of the Insurance Law and Surety Companies Law (LISF) sets out the events in which the National Insurance and Bonding Commission (CNSF) can revoke the authorisation to operate as an insurance company. Article 495 of the LISF sets out the sanctions, including criminal liability, for unlicensed insurance operations and not complying with the requirements to operate as an insurance or reinsurance company in Mexico. Such sanctions are applicable to directors, main officers or employees of insurance or mutual insurance companies. Among others, directors, officers or employees are subject to criminal liability if they:
Create a lien on the underlying securities or rights in which the technical reserves are invested.
Alter or hide information on the insurance companies' situation.
In cases of breach of the insurance company's obligations, any customer can:
File a complaint with the National Commission for the Protection and Defence of Financial Services Users (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros) (CONDUSEF).
Start legal action against the corresponding insurance company before competent courts.
Reinsurance companies. The CNSF may cancel the registration of a foreign reinsurance company in the Reinsurance Registry if the foreign reinsurance company either:
Does not maintain or comply with the requirements for registration.
Breaches to the LISF, the Reinsurance Registry rules and/or applicable regulations.
Insurance brokers. Under the Brokers Regulation, the CNSF can impose on the insurance broker the following administrative penalties for breach of the LISF and applicable regulations:
Any customer or person with a legal interest can file a complaint with the CNSF against an insurance broker.
Individuals authorised to act as insurance brokers who, intentionally or pursuing an economic benefit, hide or conceal information from the insurance company which otherwise may have prevented the company from entering into the insurance contract, are subject to criminal liability for these acts (Article 495, LISF).
Reinsurance intermediaries. The CNSF can revoke the authorisation of the reinsurance intermediary in cases of breach of the LISF, the Intermediaries Rules and applicable regulations (Intermediaries Rules). The reinsurance company or ceding company can file a complaint with the CNSF for any breach of the obligations of the reinsurance intermediary.
The directors, officers or employees of reinsurance intermediaries are subject to criminal liability if they carry out the activities set out in Article 503 of the LISF, including providing false information to the reinsurance company or the ceding company.
Other providers of insurance/reinsurance-related activities
Restrictions on persons to whom services can be marketed or sold
Generally, there are no restrictions on the persons to whom insurance/reinsurance services and contracts can be marketed or sold. However, insurance companies cannot enter into insurance contracts with either (Article 294, LISF):
Financial intermediaries forming part of the same financial group.
Financial intermediaries with a patrimonial relationship with the insurance company.
In the case of insurance contracts with related parties, the contract must be approved by the insurance company's board of directors.
Reinsurance monitoring and disclosure requirements
The parties to a contract can freely agree the terms and conditions by which they will be bound. Therefore, reinsurance companies and cedants can agree to the right for reinsurance companies to monitor claims, settlements and underwriting activities of the cedant companies, provided the right does not breach any mandatory legal provision or public policy.
International practice may be used (and has been used) to build and construe control and co-operation clauses in Mexico, for which London market practice would be a relevant and persuasive precedent to consider and take into account in the construction of such clauses, to the extent not otherwise agreed in the wording of the contracts.
In recent years, there have been discussions within the Mexican insurance industry on the validity of claims control and co-operation clauses and their extent, mostly considering that, under the LCS, the insurance company will always be the only responsible in front of insured to comply with the insurance contract, even if it ceded the risks under the insurance policy to a reinsurance company.
Cedants must provide the reinsurance company with all information on the insured event that may be required to determine the circumstances in which the event occurred and its consequences.
Mexican law is silent on any proof of loss requirements or obligations. The terms and conditions on proof of loss requirements are regulated under the terms agreed by the parties in the reinsurance contract in accordance with the general principles of contracting law in Mexico. However, as a general rule, the requirements on proof of loss to bind a reinsurer to follow a settlement may consist of, where applicable:
Confirmation of coverage.
An adjusters report or confirmation of the indemnity due coverage.
Payment of the indemnity under the insurance policy.
A settlement or other agreement between the insured and cedent that expressly provides that the claim was covered under the insurance policy, legally made and payable in its terms.
Confirmation that the claim and payment does not constitute an ex gratia payment (which under Mexican law are deemed to be non-deductible for tax purposes).
Insurance and reinsurance policies
Content requirements and commonly found clauses
Form and content requirements
Under the Insurance Contract Law (LCS), insurance policies must contain:
Name and address of contracting parties and the insurance company's signature.
Description of the insured asset or person.
Description of the insured risks.
Effective date of coverage and duration of it.
Insurance fees or premium.
Other clauses required by law or agreed by the parties.
Commonly found clauses
The most common clauses in insurance policies are the following:
Limitations and exclusions of coverage.
Form and terms of payment of the premium.
The insured's right to request corrections to the insurance policy if the content of the policy differs from the agreed terms.
The insured's right to receive information on commissions paid by the insurance company to intermediaries.
Submission of the parties to the competence of CONDUSEF and choice of jurisdiction.
The special clauses required by regulations for specific lines of business.
The provisions contained in the Insurance Contract Law (LCS) are mandatory. Therefore, unless otherwise permitted under the LCS, any agreement contrary to the LCS is null and void. In this regard, it is generally implied that the provisions of the LCS apply to the insurance contract.
The duty of utmost good faith is implied in each insurance policy entered into in Mexico. This duty has been construed to require diligent conduct, including to inform and disclose any fact to the insurer to determine and evaluate the insured's risks.
Mexican insurance laws have been designed to balance and protect the rights of the insured before insurance companies. In relation to this:
Insureds can start conciliation proceedings with the National Commission for the Protection and Defence of Financial Services Users (CONDUSEF), and any insurance company must follow these proceedings.
Insureds can file claims with the specialised claims unit of the corresponding insurance company.
The National Insurance and Bonding Commission (CNSF) must review the terms and conditions of non-negotiable (standard) insurance contracts to avoid clauses that may be unfair to the insured.
Standard policies or terms
Insurance companies must offer basic standardised insurance products for:
Basic standardised insurance products are intended to offer similar and specific coverage to the Mexican population, to satisfy common risks and allow the public to compare prices and services between insurance companies and, therefore, must comply with specific requirements and be registered with the National Insurance and Bonding Commission (CNSF).
Basic standardised insurance products can be obtained at the request of a potential insured from any licensed insurance company. The insurance company must provide the requested coverage, on the terms of the standardised insurance product offered.
Insurance and reinsurance policy claims
Establishing an insurance claim
Third party insurance claims
Third parties can claim payment and other benefits under an insurance policy if, for legal or contractual purposes, they are considered successors or assignees of the insured's or beneficiary's rights. A third party can acquire this status, among other things, by:
Assignment of rights.
The legal right to claim under an insurance contract lapses two years following the date of the occurrence of the insured event, except for life insurance where the statute of limitation expires in five years. The statute of limitation can be interrupted:
On appointment of experts due to the occurrence of an insured event.
If a claim is filed before the specialised unit of the corresponding insurance company or the CONDUSEF.
By the commencement of any action or proceeding before competent courts, on service of process to the insurance company.
If the insurance company expressly acknowledges the rights of the insured or its beneficiaries.
An insurance company is the only party liable to the insured, even if the insurance company reinsured the risk with a reinsurance company.
There are no governmental schemes that provide compensation if the insurer is insolvent or is not able to provide coverage.
However, if an insurer is declared insolvent or cannot provide coverage due to insolvency, any interested party can request the National Insurance and Bonding Commission (CNSF) to either:
Intervene in the insurance company administratively.
Initiate proceedings before a competent court to seek declaration of bankruptcy.
If a party breaches an insurance policy, the non-defaulting party can initiate ordinary commercial proceedings and request:
Rescission of the contract.
Indemnification for the damages and loss of profits suffered as a consequence of the breach.
The consequences of a breach to the principle of good faith would either:
Trigger the right to terminate the insurance contract.
Allow the parties to recover premiums paid or request payment of damages and loss of profit, and/or, if applicable; release the parties from their obligations under the insurance contract.
Mexican courts do not recognise the concept of punitive damages and therefore, punitive damages if insured would refer to risk that may occur in jurisdictions in which courts have authority to impose punitive damages.
Punitive damage claims
Punitive damages are insurable and may be covered by an underlying policy, however, Mexican courts do not recognise the concept of punitive damages (see Question 27).
Insolvency of insurance and reinsurance providers
Insolvency of Mexican individuals and entities is governed by the Insolvency Law (Ley de Concursos Mercantiles). The insolvency of Mexican insurance and reinsurance companies is also governed by the special provisions in Title Twelve of the Insurance Law and Surety Companies Law (LISF).
An insolvency proceeding (concurso mercantil) has two stages; conciliation and bankruptcy, and is carried out before federal insolvency courts with jurisdiction in the domicile of the insurance company. Both stages are supervised by a member of the Federal Institute of Specialists in Business Insolvency (Instituto Federal de Especialistas de Concursos Mercantiles) (IFECOM):
In the conciliation stage, the parties negotiate an agreement for the company to continue operating. This stage cannot last more than 365 calendar days.
The bankruptcy stage starts if the parties do not reach a non-bankruptcy agreement, and its objective is to sell the insolvent insurance company assets to pay its creditors.
Only the National Insurance and Bonding Commission (CNSF) can begin an insolvency proceeding against an insurance company. After an insolvency proceeding is declared, the CNSF can request early termination of the conciliation stage, in which case the judge declares bankruptcy outright. The CNSF can propose to the judge a conciliator (conciliador) responsible to reach a non-bankruptcy agreement between the creditors and the insurance company, and a receiver (síndico) of the insolvent insurance company assets. In addition, the LISF authorises the National Commission for the Protection and Defence of Financial Services Users (CONDUSEF) to appoint three managing conservators (interventores), to represent and protect the rights and interests of the creditors of the insolvent insurance company.
Taxation of insurance and reinsurance providers
Insurance companies are subject to the following taxes in Mexico:
Income tax (Impuesto sobre la Renta) at 30%. Income tax is levied on the insurance companies' accrued income less authorised deductions. The Income Tax Law (Ley del Impuesto sobre la Renta) provides special rules for deductions of insurance companies.
Value added tax (Impuesto al Valor Agregado) (IVA) at 16%. IVA is levied on all insurance services paid for by their customers except agricultural insurance, mortgage and financial guaranty insurance, and life insurance pursuant to Article 15 Section IX of the Value Added Tax Law (Ley del Impuesto al Valor Agregado). In any of the latter cases intermediation services are subject to VAT.
Mexican reinsurance companies have the same tax treatment as described for insurance companies (see above, Insurance companies).
Foreign reinsurance companies are subject to income tax in Mexico when the paid or assigned premiums are paid by a Mexican resident or a foreign resident with a permanent establishment in Mexico. The income tax is calculated by applying a withholding rate of 2% on the gross amount paid to reinsurers without any deductions. The income tax must be paid through withholding by the person who makes the payments to the reinsurers.
Insurance brokers and reinsurance intermediaries
Insurance brokers and reinsurance intermediaries are subject to the taxes and rates described for insurance companies (see above, Insurance companies). However, the insurance brokers and reinsurance intermediaries are not subject to any special tax regime for deductions relating to the Income Tax Law.
Insurance and reinsurance dispute resolution
Insureds and the respective beneficiaries can file claims with either:
The insurance company.
The National Commission for the Protection and Defence of Financial Services Users (CONDUSEF).
Only claims filed with CONDUSEF, the insurance companies' specialised unit or competent courts interrupt the statute of limitations.
CONDUSEF is authorised to act as a conciliator among insurance companies and its clients when the amount in dispute does not exceed six million investment units (unidades de inversion) (a measure of value created by the central bank and used in commercial transactions, mainly in mortgage credits), which currently represent approximately US$1,863,004. If the parties do not reach a settlement in the conciliation hearing and the parties agree to solve their disputes by arbitration, CONDUSEF can act as arbitrator or a third party can be appointed as arbitrator. Otherwise, the parties can bring legal action before Mexican courts.
Agreements to submit disputes arising from reinsurance policies to arbitration and the respective awards are valid and enforceable in Mexico.
The Mexican Insurance and Bonding Law Association (Asociación Mexicana de Derecho de Seguros y Fianzas) (AMEDESEF) and the Mexican Chapter of AIDA (Association Internationale de Droit des Assurances), established the Mexican Chapter of the Insurance and Reinsurance Arbitration Society (ARIAS Mexico), in a joint venture with CAM (Centro de Arbitraje de México), a well-known private institution specialised in the administration of arbitration proceedings. Jointly, they promote arbitration to resolve insurance and reinsurance disputes managed by CAM, with the technical assistance of AMEDESEF.
Reinsurance claims can be resolved in judicial proceedings before competent courts or through arbitration. Other forms of alternative dispute resolution such as mediation and conciliation can also be used.
The new Insurance and Surety Companies Law (LISF) entered into effect on 4 April 2015 and the quantitative provisions regarding Solvency II entered into effect on 1 January 2016.
As a result of the energy reform, which achieved the liberalisation of all commercial activities in the Mexican energy sector, regulations on insurance requirements and the minimum coverage for exploration and exploitation of hydrocarbons will be issued later in 2016.
Main insurance/reinsurance trade organisations
Mexican Association of Actuaries (Asociación Mexicana de Actuarios, AC) (AMAAC)
Main activities. The AMAAC is the organisation of actuaries, dedicated to study, analyse and co-ordinate the position of Mexican actuaries on technical matters.
Mexican Association of Insurance and Surety Brokers (Asociación Mexicana de Agentes de Seguros y Fianzas, AC) (AMASFAC)
Main activities. The AMASFAC represents insurance and surety brokers, protects their interests and promotes insurance.
Mexican Association of Insurance and Surety Law (Asociación Mexicana de Derecho de Seguros y Fianzas, AC) (AMEDESEF)
Main activities. AMEDESEF is the Mexican branch of AIDA (the International Association of Insurance Law), dedicated to the study and analysis of insurance and reinsurance law and legal issues of interest to the insurance industry, and promoting alternative dispute resolution mechanisms, through ARIAS Mexico.
Mexican Association of Insurance Companies (Asociación Mexicana de Instituciones de Seguros, AC) (AMIS)
Main activities. AMIS represents Mexican insurance companies, promotes the insurance culture and protects the interests of insurance companies.
Officers of the Insurance Industry (Funcionarios del Sector Asegurador, AC) (FUSA)
Main activities. FUSA is the organisation for officers of the insurance industry.
Description. The official website of the National Insurance and Bonding Commission (CNSF) has up-to-date insurance and bonding laws and regulations. There are no official English translations of the insurance laws and regulations.
Description. The official website of the Federal Congress of Representatives has updated federal laws. There are no official English translations of the federal laws.
Yves Hayaux-du-Tilly L
Nader, Hayaux & Goebel
Qualified. Mexico, 1984
Areas of practice. Insurance and reinsurance; banking and finance; M&A; arbitration.
- Representing 31 reinsurance companies in all regulatory aspects related to their operations as foreign reinsurance companies in Mexico and ensures that they maintain their licences to take reinsurance from Mexican cedants.
- Represented Armour Group, the first Bermuda holding company to enter the Mexican insurance market, in the acquisition of Fidelity National Title's Mexican affiliates. Having secured authorisation from the Ministry of the Treasury and Public Credit, Trebuchet Investments Limited and Trebuchet Mexico Limited acquired Fidelity National Title de México, Fidelity National Escrow Services and Fidelity National de México Administrative Services Company from FNF Title International Holding Company, Fidelity National Title Group and Fidelity National Title Insurance Company.
- Represented Zurich Fianzas México on its successful entry into the Mexican surety market. Having secured all licences and authorisations required to operate in Mexico, Zurich launched its operations offering fidelity bonds, judicial bonds, performance bonds, credit bonds and guaranty trust to the Mexican market.
- Advising Assurant on the development of various legal structures for the distribution of insurance products through non-traditional distribution channels.
- Represented Nissan in the licensing and incorporation of insurance broker ANZEN, Agente de Seguros, S.A. de C.V., a subsidiary of NR Finance Services, S.A. de C.V. (the financial entity of Nissan in Mexico). The broker's main target is to perform intermediation activities in the car insurance market and complement the car financial services provided by NR Finance.
- Representing Travelers Insurance Co. Limited (Travelers UK) in its registration as a foreign reinsurance company in Argentina, Brazil, Chile, Colombia, Ecuador and Mexico to take reinsurance.
Member of the Mexican Association of Insurance and Bonding Law (AMEDESEF).
Member of the Presidential Council of the Association Internationale de Droit des Assurances (AIDA).
Member of the Section of International Law of the American Bar Association.
Honorary Member of the Commercial Bar Association in England (COMBAR).
President of the Mexican Chamber of Commerce in Great Britain (MexCC).
Monograph on Mexican Insurance Law, The International Encyclopedia for Insurance Law, Kluwer Law International BV, Netherlands, June 2015.
The Insurance and Reinsurance Law Review: Mexico, April, 2015.
Practical Law Multi-jurisdictional Guide 2013/2014: Insurance and Reinsurance Mexico, April 2014.
ICLG The International Comparative Legal Guide to M&A Mexico Chapter, January 2015.
New Insurance and Bonding Companies Law, Nader, Hayaux & Goebel, March 2013.