National Insurance and Surety Commission (Mexico)

Comisión Nacional de Seguros y Fianzas (CNSF)

Country

Location

Regulated area

Mexico

Mexico City

Banking

Useful pages on the regulator website

Key individuals

  • Ricardo Ernesto Ochoa Rodríguez, President
  • Pedro Aguilar Beltrán, Vice President of Institutional Operations
  • Gerardo Rubio, Vice President of Analysis and Risks
  • Julio César Pérez Santacruz, General Legal Defence and Sanctions Director
  • Mario José Pereira Meléndez, General Legal Consulting and Intermediaries Director

Regulatory oversight

The CNSF is a decentralised body of the Ministry of Finance and Public Credit, with technical autonomy and executive powers in terms of the Insurance and Surety Institutions Law, which has been in effect since early April 2015 and which replicates the Solvency II principles contained in Directive 2009/138/EC of the European Union. The CNSF is responsible for supervising the operation of insurance and surety institutions and mutual insurance companies, and ensuring that such entities adhere to their respective regulatory framework.

The CNSF is, among other things, tasked with the following:

  • preserving the solvency and financial stability of insurance and surety institutions;
  • fostering the interests of the general public and promoting the sound development of insurance and surety industries;
  • extending the coverage of insurance and surety services to the majority of the Mexican population;
  • resolving inquiries from the Secretaría de Hacienda y Crédito Público (SHCP) (Ministry of Finance and Public Credit) in matters related to the insurance and surety industry;
  • carrying out research and making recommendations about the insurance and surety industry to the SHCP;
  • making sure that surety and insurance institutions comply with their offered services; and
  • imposing sanctions on those who carry out acts contrary to the provisions of the law.

The CNSF is directed by a governing board, which is made up of a President of the Commission (who will also act as President of the Board), three Vice-Presidents appointed by the President of the Commission, four members appointed by the SHCP, one member appointed by the Comisión Nacional Bancaria y de Valores (CNBV) (National Banking and Securities Commission), one member appointed by the Comisión Nacional del Sistema de Ahorro para el Retiro (CONSAR) (National Commission of the Retirement Savings System), one member appointed by Banco de México (the Mexican Central Bank), two independent members and a non-member secretary.

The regulatory framework of the CNSF is set forth in the Insurance and Surety Institutions Law, along with the regulation deriving from such law. The regulatory framework for insurance and surety activities is contained in the Sole Insurance and Surety Regulation and other related regulations covering the underwriting of insurance and surety risks, and the activities of insurance and surety agents and brokers, employees or representatives of companies, insurance adjusters, certified actuaries, external auditors and reinsurance intermediaries. 

Moreover, the CNSF has the authority to issue general provisions that, in addition to the general laws, must be considered within the normative framework of the CNSF. Nonetheless, the operation and sale of insurance policies are regulated by the Insurance Contract Law.

Reporting and disclosure obligations

In early April 2015, the current Insurance and Surety Institutions Law and the Sole Insurance and Surety Regulation entered into effect, replicating throughout its terms the three pillars that support the Solvency II Directive 2009/138/EC of the Economic European Union: capital requirements (solvency), risk management (enhanced corporate governance rules) and disclosure of information.

On the reporting side, insurance and surety carriers have experienced an increase in their reporting workload to the regulator as a result of the enactment of the current regulation. Information is communicated to the CNSF through what are called regulatory reports (RRs). By means of the RRs, carriers periodically provide the regulator with required information that allows it to ensure their adherence to the rules. Among the pieces of information to be provided, to mention just a few, are the following: information on the persons that form a carrier’s various corporate bodies and regulatory committees (RR1); reports on the operation of the corporate governance system of the relevant carrier (RR2); reports on the situation of the carrier’s technical reserves (RR3); reports on the capital requirements (RR4); and reports in connection with financial statements and other solvency parameters (RR7).

On the disclosure side, carriers are required to communicate to the general public certain information related to their financial condition and credit rating by publishing it in a newspaper and having information available on their own webpages. Carriers shall make public their quarterly financial information (balance sheet and income statement) by publishing such information in a newspaper with nationwide reach. Carriers’ webpages shall also have available for the general public the following, among other things: their financial statements and disclosure notes; a report on the solvency and financial condition of the relevant carrier; information about the coverage of the investment base and the level of eligible own funds covering the solvency capital requirement; and the credit rating of the relevant institution as measured by an eligible credit rating organisation.

Monetary sanctions and recent behaviour

It has to be acknowledged that Mexican insurance and surety regulation is framed to encourage carriers, agents, brokers and other participants to adhere to it rather than to punish these operators when not in compliance with such regulation. As a matter of regulation, insurance and surety participants may voluntarily inform the CNSF about any non-compliance in the form of an auto correction programme to avoid the risk of being fined while correcting a relevant deficiency. Certain situations, such as when there are shortfalls in meeting the solvency capital requirements, deficiencies in reserves and the like, or when the regulator formally notifies a breach before an auto correction programme is filed, are not suited to escaping sanctions. In such events, it is the regulator who formally requests the filing of a normalisation plan followed by the imposition of a fine or a more severe sanction, depending on the seriousness of the breach.

Sanctions provided by the applicable legislation may be of a monetary or non-monetary nature. The CNSF has the authority to impose fines deemed applicable in the event of a breach of the applicable regulation. In its imposition of fines, the CNSF will take into account the financial condition as well as the intention of the relevant person or entity involved. Such sanctions are imposed, among many other reasons, for:

  • carrying out active insurance operations in the Mexican territory without having the corresponding authorisation issued by the CNSF;
  • acting as an insurance intermediary pertaining to active insurance operations in the Mexican territory without having the corresponding authorisation issued by the CNSF;
  • granting of bonds as a regular business without having the corresponding authorisation issued by the CNSF;
  • offering reductions in premiums or granting benefits, or both, either by insurance/surety companies and/or insurance/surety agents, for purposes of maintaining an insurance or surety contract;
  • failure by insurance and surety companies to comply with any of the control measures set forth in the Insurance and Surety Institutions Law or any other applicable laws;
  • contracting with foreign surety companies bonds that guarantee obligations of natural persons or legal entities when the relevant obligation is to be complied with in the Mexican territory. There are certain exceptions to such prohibition; or
  • contracting insurance with foreign insurance companies to cover risks that may occur in the Mexican territory. Again, there are certain exceptions to such prohibition.

The economic sanctions imposed by the CNSF may reach an amount of between approximately US$910 and US$455,000.

Non-monetary sanctioning powers and behaviour

In addition to the economic sanctions that can be imposed by the CNSF, prohibited activities may also carry the following non-monetary sanctions, among others: warnings; suspension; revocation of authorisations to operate as a carrier; prohibitions to carry out certain activities; and prison time, which can vary between three months and up to 15 years (eg, underwriting risks without being authorised by the CNSF will entail a term of imprisonment from three to 15 years).

Recent and upcoming developments

As is widely known, a United States-Mexico-Canada Agreement (UMSCA) is on course to replace the North America Free Trade Agreement (NAFTA), in effect for the three countries since 1994. The USMCA does not change the rule in the NAFTA under which investment from the US and Canada may hold a controlling stake in Mexican insurance and surety entities. While under the current regulation in Mexico, investment from countries with no treaty with Mexico may hold controlling stakes in Mexican carriers, certain practical benefits exist on the regulatory side when requesting an authorisation to be able to acquire a Mexican insurance and surety company.

Mexico also has had a treaty in effect with the European Union since October 2000 – the EU-Mexico Trade Agreement – of which the United Kingdom was a part. The EU-Mexico Trade Agreement also contains a series of provisions allowing investments in Mexican financial institutions from EU countries. With the United Kingdom leaving the EU, UK investors holding a controlling stake in Mexican insurance and surety entities have adopted a series of strategies to prevent this affecting the operation of their Mexican subsidiaries from a legal standpoint.

Challenges

Mexico’s insurance activity represents just 2.2% of Mexico’s GDP compared to the average of 8.9% in OECD countries (as of 2018), which evidences there is work to do to incorporate a larger portion of the population in these markets.

A steady increase in workload, coupled with financial constraints and less availability of human talent, sometimes causes the CNSF to operate at a slower pace in times when more dynamism is required from insurance and surety markets and participants.

Interacting with the regulator

The CNSF naturally interacts with insurance and surety carriers, mutual insurance companies, as well as with insurance and surety agents and brokers, but also with other participants in the field such as accounting firms (as they render services as external auditors for carriers), the Asociacion Mexicana de Instituciones de Seguros (Mexican Association of Insurers), the Asociacion Mexicana de Instituciones de Garantías (Mexican Association of Guarantee Institutions for surety companies) and legal professionals.

In recent times the leadership of the CNSF has renewed its aim to maintain the frank but always professional openness of its current officials to address the concerns of the insurance and surety markets, while at the same time fostering the purpose of the CNSF: to expand the reach of insurance and surety products to the less favoured.

Notes for foreign investors

As a result of entering into the NAFTA in January 1994 in North America (with the United States and Canada), and several other treaties entered into with other countries following on from the NAFTA, a controlling stake in Mexico’s insurance and surety market was open to foreign investment from countries holding a treaty with Mexico allowing for foreign investment to have a controlling participation in Mexican financial institutions. Due to a financial reform in early 2014, foreign investment intending to have a controlling stake in Mexican insurance and surety companies may now come from any country (whether it has a treaty with Mexico or not), provided that foreign and domestic investment in insurance and surety carriers shall obtain the prior consent of the CNSF when intending to acquire a 5% or greater stake in the relevant carrier, whether directly or indirectly, and whether individually or as a group.

Other regulators it works closely with

On a regular basis, the regulator works closely with the following authorities in Mexico:

  • Secretaría de Hacienda y Crédito Público (SHCP): Ministry of Finance and Public Credit;
  • Banco de México: Bank of Mexico;
  • Comisión Nacional Bancaria y de Valores (CNBV): National Banking and Securities Commission;
  • Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros (CONDUSEF): National Commission of Protection and Defense of Financial Services Users; and
  • Comisión Nacional del Sistema de Ahorro para el Retiro (CONSAR) National Commission of the Retirement Savings System.

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