ISN Country Insurance Information Report - Insurance Research Letter

ISN Country Insurance Information Report
                      Demographic/economic data on Mexico

List of Contents
• General Information
• Product Information
       o Property
       o Boiler & Machinery / Machinery Breakdown / Engineering
       o Construction
       o Bonds / Surety
       o General / Public Liability
       o Products Liability
       o Workers’ Compensation / Employer’s Liability
       o E&O
       o D&O
       o Automobile / Motor
       o Personal Accident
       o Medical Expenses
       o Disability
       o Crime / Fidelity
       o Marine / Inland Transit
       o Other

General Information

Legislation & Supervision:

Mexico is a federal republic. Mexican law has evolved from the Napoleonic Code,
amended by both federal and individual state civil codes: these recognize the concept of
negligence but punitive damages are not permitted. There is both federal and state law.
The judiciary consists of the Supreme Court of Justice, the electoral tribunal, circuit
courts, district courts and the federal judiciary council. The Supreme Court is rarely
called upon for a decision.

Insurance supervision is the responsibility of the National Commission of Insurance and
Bonding, the Comision Nacional de Seguros y Fianzas (CNSF) and the Secretariat of
Public Credit (SHCP) www.shcp.gob.mx which form part of the Ministry of Finance.

Major forms of Compulsory Insurance:
  1. Third party liability for fishing vessels (Marine Trade and Navigation Law)
  2. P&I cover (Marine Trade and Navigation Law)
  3. Third party liability for aircraft (civil aviation law).
  4. Carriers’ liability
  5. Third party liability for fare paying passengers
  6. Hotelkeepers’ liability
  7. Liability in respect of transportation of dangerous or toxic substances
  8. Fire, earthquake and catastrophe risks on time-share apartments
  9. Motor third party liability in the Federal District (Mexico City) and the states of
      Mexico, Nuevo Leon and Chihuahua
  10. D & O for companies operating in the stock market
  11. Generators, importers or exporters of hazardous waste

Non-Admitted Insurance:
Non-admitted insurance is not permitted because the law provides that insurance must
only be purchased from local authorised insurers. The supervisory authority can give
approval for specific cases to be placed abroad if cover is not available locally.

Types of Insurance Restricted to Government Institutions:
There are only a few insurance coverages which have to be placed with/through
Government Institutions:

When an individual is granted an agricultural loan by the Government, they are
requested to buy insurance from “Banrural” (a State-owned bank), to cover the crops.

Mortgage loans granted by the National Fund of Housing for Workers (Infonavit –
Instituto del Fondo Nacional de la Vivienda para los Trabajadores), where insurance to
cover the real estate has to be purchased through Infonavit, but is actually underwritten
by a local private insurance company.

Private employees and expatriates, when legally employed, are subject to the Social
Security Law which provides a wide range of benefits for sickness, disability or death
resulting from a work-related accident or disease.

The Social Security Law, approved in 1943, allowed for the establishment of the Social
Security Institute (IMSS – Instituto Mexicano del Seguro Social, www.imss.gob.mx),
financed by contributions from employers and employees for those in employment

In addition to the IMSS for private employees and expatriates, there are also the Social
Security and Services Institute for State Employees (ISSSTE - Instituto de Seguridad y
Servicios Sociales de los Trabajadores del Estado, www.issste.gob.mx), one for State

Oil Company Petroleos Mexicanos (PEMEX) workers, and one each for the army and
the navy.

Although these workers are to be covered by the above mentioned Institutions, there
are no restrictions to buy extra cover; in addition, extra private health insurance is often
taken out, especially as the attention offered by the Government can sometimes be
inefficient or insufficient.

State Involvement:
Credit insurance: the State involvement on insurance is through the Ministry of Finance
(Secretaria de Hacienda y Credito Publico – SHCP, www.shcp.gob.mx)

Insurance Companies:
There are about 70 insurance companies registered at the CNSF. Most are members of
the Asociacion Mexicana de Instituciones de Seguros (AMIS, www.amis.org.mx)

Distribution Channels:
Intermediaries must be authorized to transact insurance business, as stipulated in
Article 23 of the insurance law. There are over 300 insurance brokers in Mexico. Clients
may also approach local insurers and banks directly. Intermediaries are not allowed to
place business with non-admitted insurers. Most brokers are members of the
Asociacion Mexicana de Agentes de Seguros y Fianzas A.C. (AMASFAC,
www.amasfac.org)

Currency Restrictions / Exchange Controls:
Yes

Policy Wordings & Rates / Tariff Controlled:
All tariffs were abandoned as a result of the new insurance law and the market has
subsequently been free as regards rating.

In the insurance sector foreign wordings are admissible as long as they are translated
into Spanish and approved by the National Commission of Insurance and Bonding
(Comision Nacional de Seguros y Fianzas – CNSF, www.cnsf.gob.mx) on a 30 day file
and use basis.

Some of the smaller companies which have too narrow a business base to produce
their own rates use advisory tariffs and wordings produced by the insurance association
(Asociacion Mexicana de Instituciones de Seguros - AMIS), but these also must be
presented to the CNSF.

Market rates are applied for hydro-meterological perils and for earthquake

Companies are exempt from applying their own tariffs in respect of property risks with a
sum insured in excess of US$ 50 million, or for groups of properties with total insured
values in excess of US$100 million.

Policy Language:
The insurance law states that policies must be in the Spanish language and be in
characters easily legible to a person with normal vision. Any foreign wordings must be
used in translation.

Policy Currency:
Mexican pesos or U.S. dollars

Policy Period:
Annual. Longer terms policies (three-year term renewal) are available but they are not
common

Cancellation Provisions:
Return premiums for mid-term cancellation are on the basis of short-term rates. A 60
day written notice is required by the insurance company

Premium Taxes and Charges:
The following table lists only those taxes, value added tax (VAT), stamp duty, fire
brigade charges and other policy charges which are payable by the insured or the
insurer on a premium or per policy basis. Taxes and charges which can be identified as
applying directly to the premium charged are included. Industry levies at the corporate
or portfolio level are not included

Insurance class Description of tax        % (unless otherwise stated) To be paid by
All non-life except    VAT                15*                           Insured
agricultural insurance

All non-life             Policy fee       Charged by each insurer on a        Insured
                                          scale based on premium**

Note: * for risks placed with insurers with offices in Baja California Norte, Baja California
Sur and Quintana Roo, or within 12.5 miles (20 km) of any land border, the rate is
reduced to 10%, as per tax laws

Tax on Reinsurance Premiums
A remittance tax of 2% applies to all premiums ceded to foreign reinsurers, although this
is not applicable if the country of domicile of the foreign reinsurer has a free trade and/or
double taxation agreement with Mexico. This includes U.S.A., Canada and most of
Europe.

Business ceded to overseas tax havens is subject to a 40% tax, which was introduced
to discourage captive company operations. Tax havens are places such as Bermuda,
Guernsey and the Isle of Man. Switzerland and Ireland are not defined as tax havens.

Brokerage Commissions:
In general, the local insurance market provides the following brokerage commissions:
Property: 05-25% (average 15%); General Liability: 15-20% (average 16%);
Automobile: 16%-30% (average 20%); Accident & Health: 15-20%

Broker of Record Letters:
In Mexico, the insurance companies will always ask for a Broker of Record Letter (in
Spanish) written by your client in order to be able to proceed if:

- you want a quote from an insurance company which has previously been contacted by
another broker
- you want to become the broker on a specific policy currently handled by another
broker
- you want to become the broker of all the policies of a company handled by another
broker
- the client/prospect wants to allocate companies per broker

Reinsurance:
Foreign reinsurers are required to be registered according to the Rules and Regulations
with the Finance Ministry, the Secretaria de Hacienda y Credito Publico (SHCP), but
they do not have to put up any deposits in Mexico
Since July 1997 all foreign reinsurers accepting Mexican risks, either treaty or
facultative, have been obliged to provide a certificate of rating provided by a recognized
agency.

Pooling Facilities:
Some healthcare and pensions business

Local Natural Hazards:
Earthquake, Windstorm, Flood and other perils such as Bushfire and Hail

Main Classes of Business:

      Non-life (P&C) Insurance Market
      In 2009 the Mexican market comprised 10 large insurers, a handful of smaller
      ones and a dozen bonding companies. This included one state owned, one
      mutual and the remainder were private companies. Many of the leading carriers
      had a majority foreign capital. The seven largest non-life insurers in 2009
      accounted for 60% of premium income.

      While ordinary Mexicans are not litigious, the country’s proximity to the United
      States inevitably has an influence on the business sector. Lack of confidence in
      the courts keeps litigation to a minimum, however. Court procedures are
      extremely slow and the courts are also regarded as corrupt. Third party bodily
      injury claims are low and consequently in most cases the parties are happy to
      settle out of court.

      The federal civil code stipulates awards in bodily injury cases; some state codes
      have different limits and several are open-ended. In the Federal District (Mexico
      City) awards are expressed as multiples of the official daily minimum wage.

      Life Insurance Market
      Premium income figures for the life sector have been growing strongly but
      remains behind the income generated by non-life business. Life insurance still
      retains a low profile. Life business in 2009 was written by 10 large companies,
      including a significant presence of international insurers. As a result the life
      market is becoming more sophisticated and more adept at developing customer
      focused financial services. This is illustrated by the development of micro-
      insurances and low cost products which will bring affordable security to those on
      low incomes.

      Healthcare:
      The social security system is limited in scope and effectiveness. Private schemes
      are excellent but one must shop around. There are private clinics without waiting
      lists and these are widely available in the large cities. Local pools can be created
      through local brokers. International pooling is also available.

      Pensions:
      Only through local Government and private programs with different options and
      benefits, but not as a pool. All employees must contribute to the state scheme
      which, besides Old Age benefits, also provides Life and Disability benefits

Product Information

Property Insurance

       Named Perils:
       Standard fire perils include fire, lightning, explosion, aircraft. Extensions available

       All Risks:
       Available for most accounts and international programs

       Coinsurance:
       Available, mostly applicable for Catastrophic Risks

       Basis of Indemnity:
       According to the values reported by the insured: replacement cost or actual cash
       value

       Business Interruption:
       Available, coverage includes Loss Profit and Gross Earnings form, according to
       insured’s needs

       Discount for fire protection equipment / systems:
       Available, based on the insured security measures, fire protection equipment,
       main activity and the risk exposure

Terrorism:
Only available as a local/fronting policy

Boiler & Machinery / Machinery Breakdown / Engineering:
These risks are normally covered under the basic local fire policy. If requested by the
client, a separate policy can be issued for Machinery Breakdown

Construction:
Locally available and usually bound by the builder or subcontractor

Bonds / Surety:
There are four types of bonds available in Mexico:

1. Administrative Bonds: ensure the compliance of general obligations between two
parties, who due to their activities, sign contracts which should be guaranteed for
security or mutual trust

2. Fidelity Bonds: guarantee the compensation of property damage caused by an
employee for crimes such as fraud, theft, betrayal of trust or embezzlement against the
goods of the beneficiary company

3. Credit Bonds: provide coverage for the performance of credit obligations related to
the payment of certain amount of money. This type of bond guarantees the payment of
the credit granted for the acquisition of goods or services

4. Judicial Bonds: ensure obligations before the Judicial Authorities, as a consequence
of a judicial procedure

General / Public Liability:
This coverage is widely available in the Mexican insurance market.
Policies can be written either on a Claims Made or an Occurrence basis

Products Liability:
Widely available. Policies usually written on an Occurrence Basis
Products recall coverage is not part of the common products liability and is not easily
available in the market

Workers’ Compensation / Employer’s Liability:
Private WC coverage is not permitted in Mexico. According to the Mexican Social
Security Institute (IMSS) all Employers are compelled to register their employees for
governmental social security services and to pay taxes for this.
This Social Security Institute (IMSS) provides employees with minor medical and major
medical services as well as other benefits such as day care services, sport centres,
commodities stores, funeral services, disability payments, among others.

Professional Indemnity (Errors & Omissions):
Available

Directors & Officers Liability:
Not all, but most insurance companies in Mexico do offer the D&O coverage.
Depending on the client business line, sales and whether the company is public or
private, the insurer could help the client determine the best insured limit of liability. The
minimum insured limit for private companies is US$1,000,000 and a maximum of
US$10,000,000 but for public companies the maximum insured limit can exceed
US$10,000,000

Automobile / Motor:
     Compulsory Limits:
     Resident Vehicles Maximum Limits
     • Material Damage and Theft: the vehicle’s commercial value
     • Third Party Liability for Bodily Injury and Material damage: 1,500,000 Pesos
        (about US$121,000)
     • Medical Expenses: 400,000 Pesos
     • Road assistance and Legal assistance are common coverages
     Tourist Vehicles Maximum Limits
     • Material Damage and Theft: the vehicle’s commercial value
     • Third Party Liability for Bodily Injury and Material damage: US$100,000

       Comments:
       It is compulsory in the following cases:

       - Motor third party liability in the Federal District (Mexico City) and the states of
       Mexico, Nuevo Leon and Chihuahua
        - Cargo Liability
        - Third party liability for fare paying passengers.
        - Liability in respect of transportation of dangerous or toxic substances

Personal Accident:
Coverage is available against death and loss of limbs, incapacity and medical
expenses, all as the result of an accident. Some insurers offer double indemnity for
accidents in public places.

Medical Expenses:
This coverage is available. It is an employee benefit provided by the employer and/or it
could be purchased by any person or any family, in order to cover major expenses.

Disability:
Disability Insurance is provided through the Social Security Services which the
Employer pays for their Employees, although additional coverage can be acquired in
excess of this primary service.

Private Life Insurance and Accidents Insurance can be obtained as complementary
coverages.

Private additional coverage is very common for expatriates.

Crime / Fidelity
Limited availability

Marine / Inland Transit
London Institute Clauses are available through the Mexican market for All Risk policies

Other Classes of Insurance readily available:
Aviation; Trade credit; Corporate travel; Title insurance, Crop insurance; Hull
insurance; Hole in one, Film insurance

  Note: Information contained in this report has been obtained from a number of sources. As legislation,
 regulation, market practice and characteristics are constantly changing, we cannot accept responsibility
 for any inaccuracies in this report or any decisions or action taken on the basis of such information. We
              recommend local advice be sought before any action or decisions are taken.

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