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.
To compare answers across multiple jurisdictions visit the Insurance and Reinsurance Country Q&A tool.
This Q&A is part of the PLC multi-jurisdictional guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-mjg.
Market trends and regulatory framework
Market trends and regulatory framework
There are approximately 100 insurance companies licensed to operate in Mexico (excluding annuity insurance companies).
In 2012, the Mexican insurance market reported a steady growth in premiums of 11%, but its contribution to Mexican GDP remains under 2%.
There is growth in traditional insurance products, mainly in:
Major medical expenses.
Bancassurance is the main growth area and there is continued growth in ancillary services to insurance, such as:
Other assistance related services that are offered with insurance policies to the insured.
The legal framework governing the distribution of insurance products does not facilitate distribution, except in the case of banks. This continues to limit growth of the sector. 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 market has consolidated and the expectation is that further consolidation is required. 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 limitations, new players continue entering the market to develop niche sectors.
There are approximately 400 foreign reinsurance companies registered with 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.
Mexican courts, including the Supreme Court have recently been ruling and developing precedents on the interpretation of insurance contract law, while the market reviews policy wording to ensure that it is consistent with the applicable law and coverage, and to protect against the potential misinterpretation of the parties' intentions.
Fronting arrangements are required to comply with Mexican law. These continue to create inconsistencies between the insurance policy and Mexican law, with negative consequences for the parties when an insured risk occurs and the policy must be interpreted.
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 impact of foreign regulations, in particular those of the Office of Foreign Assets Control (OFAC) from the USA in reinsurance, continues to be a topic of discussion and source of risk to Mexican cedants.
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 29) in (re)insurance agreements where the parties wish to use arbitration to resolve disputes.
New Insurance and Surety Law
In February 2013, the Mexican Congress approved the bill with the new Insurance and Surety Companies Law. The new Insurance and Surety Companies Law was published in the Official Gazette of the Federation on 4 April 2013 and will become effective on 4 April 2015. The Insurance and Surety Companies Law sets the basis for a regulation aligned with Solvency II principles.
Mexican insurance companies are governed by the General Law of Insurance and Mutual Companies (Ley General de Instituciones y Sociedades Mutualistas de Seguros) (LGISMS). The LGISMS was published in the Official Gazette of the Federation (Diario Oficial de la Federación) (DOF) on 31 August 1935. The LGISMS has been amended on various occasions, the last of which was published in the DOF on 20 June 2008.
As a general rule, only Mexican-licensed insurance and mutual companies can carry out insurance activities (operaciones activas de seguros) in Mexican territory and only Mexican-licensed insurance and reinsurance companies, and foreign reinsurance companies registered with the Reinsurance Registry, can carry out reinsurance activities in Mexico.
Insurance and reinsurance activities are regulated at federal level and the LGISMS is a federal law that applies to all Mexican insurance and reinsurance companies, and their operations.
Mexican insurance contracts are governed by the Insurance Contract Law (Ley sobre el Contrato de Seguro) (LCS). The LCS applies to all insurance contracts, except for maritime insurance that is governed by the Navigation and Maritime Commerce Law (Ley de Navegación y Comercio Martítimo) published in the DOF on 1 June 2006. The LCS was enacted by Decrees dated 29 December 1934 and 1 January 1935, published in the DOF on 31 August 1935. The LCS has been amended on various occasions, the last of which was published in the DOF on 6 May 2009.
The LCS is a federal law and is mandatory to all insurance contracts that are subject to Mexican law.
Reinsurance contracts are governed by the applicable law agreed by the parties in the contract. Generally, reinsurance contracts are subject to Mexican law.
The Ministry of the Treasury and Public Credit (Secretaría de Hacienda y Crédito Público) (SHCP) is the Ministry of the Executive Branch with authority, among other things, to grant and revoke authorisation to operate in Mexico as an insurance or reinsurance company, or be registered in the Reinsurance Registry to take reinsurance from Mexican insurance companies. It has authority to interpret, for administrative reasons, the LGISMS. The SHCP can also interpret and issue regulations applicable to the operations of Mexican insurance companies.
Insurance companies are subject to the surveillance and inspection of the National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas) (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 a Circular Única compiling all applicable regulation issued by the CNSF.
Regulation of insurance and reinsurance contracts
Article 1 of the 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 10 Section II of the LGISMS 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 LGISMS 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;
credit 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 LGISMS only classifies reinsurance contracts as reinsurance and financial reinsurance contracts.
Regulation of insurers and reinsurers
Mexican insurance and reinsurance companies are regulated similarly by the LGISMS.
Mexican insurance companies can carry out reinsurance activities in those lines of business for which they are licensed by the SHCP. Mexican reinsurance companies are entities licensed to carry out exclusively reinsurance and re-bonding activities.
Insurance companies can only carry out the operations listed in Article 34 of the LGISMS. As a general rule, they can only carry out activities related to these operations as insurance companies.
Reinsurers and insurers cannot (Article 62, LGISMS):
Create a guarantee on their properties.
Enter into reinsurance agreements that require an assumption of their debt.
Repurchase credit instruments.
Pledge credit instruments or securities in their portfolio.
Operate with their own shares.
Consent to risks as authorised in the LGISMS.
Act as guarantors.
Purchase and sell goods of any kind.
Acquire goods, title or securities that cannot be part of their portfolio.
Enter into transactions in which the chief officers of the company or officers two tiers below may become debtors of the company.
Pay dividends from their reserves.
In housing loans and financing guaranties, enter into agreements with financing entities of the same financing group or with financing agents with which they have any economic link.
In addition, reinsurers cannot:
Act as trustees.
Manage amounts from dividends or indemnities of insureds or their beneficiaries.
Manage reserves of pension plans.
Generally, 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 66 of the LGISMS, in which case prior authorisation from the SHCP 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 LGISMS, the incorporation and operation of an insurance company in Mexico requires the prior authorisation of the SHCP. For this purpose, an application must be filed with the SHCP. The application must comply with the requirements set out in Article 16 of the LGISMS. The SHCP must request the prior opinion of the CNSF with regard to the application.
Once the SHCP grants authorisation, the insurance company must start operations within three months, starting from the date the SHCP 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 10.
Reinsurance companies. Under the LGISMS, 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 27 of the Reinsurance Registry Rules. To obtain registration with the Reinsurance Registry, the foreign reinsurance company must apply to the SHCP in the terms set out in the LGISMS, the Reinsurance Registry Rules and applicable regulations. On receiving a favourable opinion from the CNSF, the SHCP may grant or deny this registration on a discretionary basis. 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 23, LGISMS). 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 26, LGISMS). 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 25, LGISMS). 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 SHCP. 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 financial entities (incorporated in a country that has entered into an international treaty with Mexico to establish affiliates of foreign financial entities) that are licensed to operate insurance business in their respective jurisdictions, 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, the Insurance Affiliate 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).
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 lists 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 cannot 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 LGISMS have no specific restrictions on ownership or control.
The SHCP 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 (LGISMS). For this purpose, the interested party must file an application with the SHCP. The application must comply with the requirements, and contain the information and documents, set out in Article 29 of the LGISMS. The SHCP must request the prior opinion of the CNSF with regard to the application.
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 SHCP, 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 LGISMS 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 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 (LGISMS):
Create the following technical reserves:
the ongoing risk reserve (Reserva de Riesgos en Curso);
the outstanding obligations reserve (Reserva para Obligaciones Pendiente de Cumplir); and
the special technical reserves required under the specific insurance operations or line of business.
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 SHCP each year.
The following are the minimum paid-in capital requirements (in Mexican pesos) for 2012:
Accidents and health:
personal accident and/or medical expenses: MXN7,995,142.00;
health, including medical expenses: MXN7,995,142.00.
Property and casualty:
one line: MXN23,985,432.05;
two lines: MXN31,980,579.19;
three or more lines: MXN39,975,721.65;
mortgage insurance: MXN57,234,055.20;
financial guarantee: MXN155,751,691.20.
one line (in one or more of the sublines): MXN17,147,482.44;
two lines (in one or more of the sublines): MXN22,863,306.79;
three or more lines (in one or more of the sublines): MXN28,579,135.84.
Generally, insurance companies must register the insurance products they offer to the public with the CNSF.
Reinsurance companies. Reinsurance companies registered with the Reinsurance Registry must comply with the following minimum ratings required by the CNSF in Section 6.3.2. of the Circular Única.
AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
Aa1, Aa2, Aa3
A1, A2, A3,
Baa1, Baa2, Baa3
Standard & Poor's
AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
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. Articles 75 and 97 of the LGISMS set out the events in which the SHCP can revoke the authorisation to operate as an insurance company. The CNSF can also impose fines on insurance companies, its directors, main officers and employees for breach of the LGISMS and applicable regulations.
Articles 143 and 144 of the LGISMS contain a list of the cases in which the directors, main officers or employees of insurance or mutual insurance companies can be subject to criminal liability. Among others, directors, officers or employees are subject to criminal liability if they either:
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 SHCP can 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 the LGISMS, 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 LGISMS 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 142, LGISMS).
Reinsurance intermediaries. The CNSF can revoke the authorisation of the reinsurance intermediary in cases of breach of the LGISMS, 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 147 of the LGISMS, including providing certain 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 62, LGISMS):
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.
Insurance and reinsurance policies
Content requirements and commonly found clauses
Form and content requirements
Under the 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 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 CONDUSEF, and any insurance company must follow these proceedings.
Insureds can file claims with the specialised claims unit of the corresponding insurance company.
The CNSF must review the terms and conditions of non-negotiable insurance contracts to avoid clauses that may be unfair to the insured.
Standard policies or terms
The LGISMS obliges insurance companies to 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.
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 (LCS). 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 SHCP 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:
The rescission of its obligations under the corresponding insurance contract.
Indemnification for the damages and loss of profits suffered as a consequence of the breach.
The consequences of bad 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 Four of the LGISMS.
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 SHCP can begin an insolvency proceeding against an insurance company. After an insolvency proceeding is declared, the SHCP can request early termination of the conciliation stage, in which case the judge declares bankruptcy outright. The SHCP 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 LGISMS authorises the 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 29%. 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.
Business flat tax (Impuesto Empresarial a Tasa Unica) (IETU) at 17.5%. IETU is levied on the insurance companies' financial intermediation margin (margen de intermediación financiera), as determined by the special rules of the Business Flat Tax Law (Ley del Impuesto Empresarial a Tasa Unica). Income tax paid by the insurance companies is creditable against the IETU.
Value added tax (Impuesto al Valor Agregado) (IVA) at 16% (except for insurance companies located on the Mexican border, which are levied at 11% of IVA). IVA is levied on all insurance services paid for by their customers except for agricultural insurance, mortgage and financial guaranty insurance, and life insurance.
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, or for calculation of IETU.
Insurance and reinsurance dispute resolution
Insureds and the respective beneficiaries can file claims with either:
The insurance company.
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 MXN28,147,896. 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), in its capacity as the Mexican Chapter of AIDA (Association Internationale de Droit des Assurances) (see box, Main insurance/reinsurance trade organisations), established the Mexican Chapter of the Insurance and Reinsurance Arbitration Society (ARIAS Mexico), in a joint venture with CAM, 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.
In October 2012, the Senate of the Mexican Congress (Senate) received the bill with the Insurance and Bonding Companies Law (Ley de Instituciones de Seguros y Fianzas) (LISF) and amendments to the Insurance Contract Law (Ley Sobre el Contrato de Seguro) (LCS) from the President of Mexico.
The bill was introduced to contain the general principles and regulation applicable to both insurance and bonding companies (insurance institutions) in a single statute. It also provides that both financial entities share a common legal framework with both still maintaining their respective and different corporate purpose.
The Senate approved the bill in December 2012 and sent it to the Chamber of Deputies (Cámara de Diputados) where the bill was ultimately approved on 28 February 2013. The LISF was published in the Official Gazette of the Federation on 4 April, 2013.
The Transitory Articles of the LISF provide that the LISF will become effective two years (730 days) after its publication in the Official Gazette of the Federation. The amendments to the LCS become effective the day after its publication in the Official Gazette of the Federation, on 5 April 2013.
The LISF recommends that insurance institutions apply principles previously adopted by banks and broker dealers through the amendments to the Securities Market Law (Ley del Mercado de Valores) (LMV) in 2005 and the Banking Law (Ley de Instituciones de Crédito) (LIC) in 2008. Notably the bill's statement of purpose does not provide any explanation or reasoning as to why it is adopting the principles established for banks and broker dealers, rather than applying principles used by other financial entities, for example, private pension fund managers.
The amendments to the legal framework applicable to insurance institutions also aim to implement mechanisms similar to those that will be applicable in the European Union. This is through Directive 2009/138/EC of the European Parliament and Council, on taking and pursuing Insurance and Reinsurance (Solvency II). It basic principles are as follows:
Measures of assets, liabilities and capital (quantitative requirements).
Supervision (qualitative requirements).
Disclosure, transparency and market volatility requirements.
The Mexican regulators (Ministry of the Treasury and Public Credit (Secretaría de Hacienda y Crédito Público) (SHCP) and National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas) (CNSF)) clearly and publicly issued its decision for Mexico to adopt Solvency II principles and this is why the legal framework has been continuously adjusted and amended. However, taking such a big step may be premature as it is still not clear how Solvency II principles will be adopted in Europe.
The LISF provides the basic legal framework required to apply the solvency, stability and prudential security measures under Solvency II. Under this framework, the CNSF will issue regulations providing the mechanisms required by each insurance institution to develop their internal models of solvency capital requirements under their respective risk profile, instead of a single model system determined by the regulator applicable to all insurance institutions.
The repealed legal framework was arguably compatible with the implementation of Solvency II and, although some amendments were necessary, it was not an absolute necessity to pass a new law. The implementation of Solvency II is also not limited to the LISF but will be subject to and require secondary regulation that, once the LISF becomes effective, will be issued by the National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas) (CNSF).
The LISF adjusts the insurance and bonding legal framework by adopting surveillance procedures similar to those established in the Securities Market Law (Ley del Mercado de Valores) ( LMV) and the Credit Institutions Law (Ley de Instituciones de Crédito) (LIC). It includes a redistribution of the authorities currently granted upon the SHCP and the CNSF pursuant to the General Law of Insurance and Mutual Companies (Ley General de Instituciones y Sociedades Mutualistas de Seguros) (LGISMS) and the Federal Bonding Companies Law (Ley Federal de Instituciones) (LFIF). The LISF grants broad authority to the SHCP with regard to the design and operation of the insurance and bonding system. The CNSF will have authority on all aspects relating to insurance institutions' licensing and authorisation procedures, from incorporation and operation to the revocation of their licence and liquidation. With the redistribution, the authority of the CNSF is widened to grant such entities authority to issue general regulations to regulate insurance institutions. Originally this was the role of the SHCP. This new structure aims to standardise the legal framework of insurance institutions with that of other financial entities and regulators. This creates an imbalance between authority given to the SHCP as Ministry of State and regulator of financial activities, and the authority now granted to the CNSF under the LSIF. The CNSF had been a technical and surveillance authority and now becomes a more robust regulator of the insurance and bonding sectors, while still maintaining its supervisory role.
The LISF also adopts new corporate governance mechanisms, and reinforces those previously set out in the LGISMS and the LISF. One of the most important changes is that the LISF grants specific authority to the board of directors to determine an insurance institution's investment policy according to its own risk concentration ratio. The new investment regime applicable to insurance institutions also provides more flexibility by allowing:
In the case of investment in equity, that they invest in any security traded in regulated stock markets.
In the case of debt instruments, that they invest in securities with a minimum rating to be determined by the CNSF.
Despite its success, the LISF removes the role of the compliance officer and will now require insurance institutions to have an audit committee. Insurance institutions' internal comptroller functions (contraloría interna) are now expressly recognised and must periodically review compliance with laws and legal risks. Along with these measures, the LISF sets out additional transparency measures. These include the requirement for institutions to have a satisfactory credit rating and to disclose information to the public concerning their risk profile and capitalisation level.
The LISF include changes to the procedure to register insurance products. The aim is that institutions become responsible for verifying that documents associated with the insurance products are clear and comply with basic consumer protection principles. It is expected that the CNSF will adopt a less restrictive approach to the registration process for insurance products. However, it will still maintain the right to request corrective measures through regularisation programmes, when it identifies insurance products that do not comply with law and applicable regulations.
Importantly, the LISF will now allow insurance companies to carry out securitisations, permitting them to transfer their insurance portfolio to a vehicle offering securities to the general public.
Another new feature of the LISF is the creation of the new surety insurance (seguro de caución), which will compete with bonds to secure legal or contractual obligations. The LISF provides several mechanisms aimed to guarantee that the surety insurance is accepted as a guarantee with conditions that are equal to those applicable to any other mechanism with similar characteristics, and allows such insurance products to be offered by both insurance and bonding companies. This is an interesting development, as it will allow insurance surety companies to offer bonding products (subject to some limitations) and bonding companies to be converted into insurance surety companies. As the LISF will be governing both insurance and bonding, consideration is needed as to whether the traditional separation between insurance and bonding operations should be maintained, with two different financial institutions, or whether it is time to regulate for a single institution that offers both financial products.
*The author is grateful to Luciano Pérez G, Miguel A De la Fuente, and Ma José Pinillos (all members of Nader, Hayaux & Goebel's Insurance and Reinsurance practice), for their valued assistance in preparing this chapter.
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.
Yves Hayaux du Tilly L
Nader, Hayaux & Goebel
Qualified. Mexico, 1984
Areas of practice. Insurance and reinsurance; banking and finance; M&A.
- Representing AXA and Zurich in various high-level contentious matters involving Mexican risks and the London market.
- Representing Mexican and foreign investors in the incorporation of a Mexican-owned life insurance company, a foreign-owned life and health and accidents affiliate insurance company, a foreign-owned P&C affiliate insurance company, a Mexican-owned P&C insurance company specialised in agricultural risk, and a foreign-owned reinsurance broker.
- The liquidation of a Mexican foreign-owned P&C insurance company.