mexican surety market · 2019. 10. 10. · actuarial function technical design and feasibility....

MEXICAN SURETY MARKET

SEPTEMBER 2013 FILE2013086

Figures in millions

MARKET

The following Surety Bonds results at the end of July 2012 to 2013 were presented:

Concept

National

Currency

(pesos)

Euros

National

Currency

(pesos)

Euros

Premium Issued 4628 269 4365 253

Increase of the reserves 309 18 221 13

Cost of Adquisition 318 18 453 26

Operations Expenses 620 36 705 41

Operating Profit 712 41 453 26

Valuation of Investments 102 6 -16 -1

Profit of the Year 848 49 607 35

2012 2013

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INSURANCE AND SURETY

INSTITUTIONS LAW

SEPTEMBER 2013 FILE2013086

INSURANCE AND SURETY INSTITUTIONS LAW

BACKGROUND

Changes to financial regulation schemes (Global).

Competitive and modern regulatory framework.

Start work date: 2008.

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PURPOSES

1. SOLVENCY.

3. COMPETITION.

4. PROTECTION/SECURITY.

2. DEVELOPMENT.


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PURPOSES

SOLVENCY

•CAPITAL REQUIREMENTS

• UNDERWRITING RESERVES

•INVESTMENTS

•REINSURANCE

QUANTITATIVE

ELEMENTS

STRENGTHENING OF THE FINANCIAL POSITION

QUALITATIVE

ELEMENTS

•CORPORATE GOVERNANCE

•TRANSPARENCY


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CREDIT

LIQUIDITY

MARKET

CONCENTRATION

MISMATCH

OPERATION

UNDERWRITING

SOLVENCY II

UNDERWRITING RESERVES

CAPITAL REQUERIMENTS

INVESTMENTS

REINSURANCE

CORPORATE GOVERNANCE

RISK MANAGEMENT

INTERNAL CONTROL AND

AUDIT

SUPERVISORY REVIEW

TRANSPARENCY AND DISCLOSURE

MARKET REVIEW

PILLAR 1 PILLAR 2 PILLAR 3

SOLVENCY REVIEW AND

CONTROL MARKET

DISCIPLINE


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CORPORATE GOVERNANCE

SYSTEM LISI, SECTION 69

BOARD OF DIRECTORS

CG System

SUBJECT NOTES |

Integral Risk

Management

Monitor, manage, measure,

control, mitigate (risks).

- Specific area.

- Part of the structure.

Internal

Control

Design, implementation and

updating of measures and

controls to favor regulation

compliance (internal and

external).

Not regulated.

Internal Audit

Review compliance with

internal and external

regulations.

- Specific area.

- Part of the structure.

- Independent from

operating functions.

Actuarial function

Technical design and

feasibility.

Underwriting reserves.

Methodology and models.

Define underwriting policy

and reinsurance/surety

reinsurance contracts.

Knowledgeable and

experienced people

(actuarial, financial and

statistical mathematics).

Outsourcing Operating functions.

According to GP Not regulated.


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BOARD OF DIRECTORS

CGS

COMMITTEES

AUDIT (LISI, Section 72 )

• Compliance follow-up:

CGS Policies

Internal and external audits

Legal provisions

• They shall submit the internal control system to the Board of Directors’ consideration.

• They shall approve self-correction programs and submit them to the Board.

Members: - From 3 to 5 Directors (at least one independent director). - In no case officers or employees.

Quarterly meetings (at least).

Penalties for non-compliance: (among others)

- Suspension of dividend payment. -Warning, suspension, removal, disqualification. -Penalty from 200 to 2000 salary days.

INVESTMENTS (LISI, Section 248 )

They are responsible for the selection of assets and investments to be purchased according to the investment policy approved by the Board.

Members: -5 (at least). -It shall include the CEO , the Investment Director and 2 Directors (at least one independent director).

Monthly meetings (at least).

Other (LISI, Section 70 par. IV )

General regulations

•Reinsurance/Surety reinsurance.

•Underwriting.

•Communication and Control.

IRM INTERNAL CONTROL

INTERNAL AUDIT ACTUARIAL FUNCTION

OUTSOURCING

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PURPOSES

DEVELOPMENT

PROMOTE BROADER COVERAGE

-Establishment of solid bases - Market efficiency - Better services for users

COMPETITION

INNOVATION AND EFFICIENCY

-Encourage competition -Product registration and supervision -Securitization of operations - Additional Financial guarantees


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PURPOSES

PROTECTION

SECURITY


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SIGNIFICANT CHANGES

-CONSOLIDATION OF LAWS

• General Law on Mutual Insurance Institutions and

Societies (1935)

• Federal Law on Surety Institutions (1950)


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SIGNIFICANT CHANGES

SUBJECT SECTIONS

I. PRELIMINARY PROVISIONS 1 – 18

II. INSTITUTIONS 19-40

III. ORGANIZATION AND CORPORATE GOVERNANCE OF INSTITUTIONS 41-88

IV. OTHER PLAYERS OF THE INSURANCE AND SURETY SYSTEMS 89-117

V. FUNCTIONING, OPERATION AND PRUDENTIAL RULES 118-275

VI. PROCEDURES 276-293

VII. PROHIBITIONS ON INSTITUTIONS 294-295

VIII. INSTITUTIONS’ ACCOUNTING AND REPORTING 296-319

IX. PREVENTIVE AND CORRECTIVE MEASURES, INTERVENTION AND REVOCATION 320-335

X. MUTUAL INSURANCE SOCIETIES 336-365

XI. NATIONAL INSURANCE AND SURETY COMMISSION (CNSF) 366-392

XII. WINDING-UP AND BANKRUPTCY PROCEEDINGS 393-458

XIII. NOTICES, COMPELLING MEASURES AND PENALTIES 459-510


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SIGNIFICANT CHANGES

SUBJECT SECTION COMMENTS

Authorization to operate - requirements Section 11 The CNSF Governing Body shall

grant the authorization.

Prohibition to enter into contracts with

foreign companies Section 21

Assumptions are defined (personal

insurance contracting).

Duties of the Board of Directors Section 70

Prudential rules, control and follow-

up mechanisms, corporate

governance, investments, capital,

risk securitization, client service.

Insurance adjusters Section 109

– 113

Applicable to insurance.

Operations allowed to institutions.

Insurance and Surety Products .

Section 118-

199

Securities loans and repo

transactions; derivative financial

operations; securitization of

insurance underwriting risks;

regulations on publicity and

advertising; exchange of

information to prevent fraud.

CHANGES


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SIGNIFICANT CHANGES


Underwriting Reserves Sections 216, 217,

220 and 221

Actuarial methods, best estimates and

risk margin. Actuarial sufficiency.

Management responsibility for

valuation and sufficiency.

Dynamic solvency test Sections 245 and

246

Stress tests.

Investment in other companies,

and outsourcing Sections 268, 269

Inclusion and adaptation of the existing

regulations.

Portfolio transfer, merger and

spin-off Sections 270-272

Procedures.

Special insurance funds Sections 273-274

Procedures for calling on surety

bonds

Sections 279 and

282

Strengthening of the procedure for the

auction of assets.

Indemnification for delay Sections 276 and

283

Capitalization.

Other special surety procedures Section 293 Tacit refusal to cancellation.

Institutions’ accounting Section 296

Criteria for the valuation of assets and

liabilities.

CHANGES


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SIGNIFICANT CHANGES


Financial Statements and data

disclosure

Sections 307,

308

Institutions’ responsibility.

Mandatory credit ratings.

External auditors and independent

actuaries

Sections 316-

319

Responsibilities and quality control.

Revocation of authorizations.

General aspects of CNSF’s

organization.

CNSF’s

authority

Authority of the CNSF Governing

Body.

Conventional winding-up Section 443 Requirements.

Bankruptcy proceedings Section 447 Capital extinction. Basic principles.

Violations and crimes Sections 480 –

495

Criteria, fines reduction, reordering

of violations and consumers’

crimes.

CHANGES


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SIGNIFICANT CHANGES

NEW REGULATIONS SUBJECT SECTION COMMENTS

Acceptance of Federal States,

Municipal and Government Enterprises

guarantees

Sections 17

and 18

Applicable to surety insurance

and surety bonds.

Surety insurance Section 25, III,

g).

Creation of the surety insurance

line.

Corporate governance Section 69

Responsibility of the Board of

Directors, integral risk

management, internal control,

internal audit, actuarial area,

outsourcing.

Audit committee Section 72 Made up of 3 or 5 directors who

replace the mandatory auditor.

Business or equity institutions related

to natural persons who do business Sections 85-88

Relations of financial institutions

with natural persons.

Insurance and surety self-regulatory

bodies

Sections 114-

117

Power of self-regulation.


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SIGNIFICANT CHANGES

NEW REGULATIONS

Subject Section Comments

Solvency capital and admissible own

funds requirements

Sections 223-

244

Dual scheme (general formula and

internal models). All risks.

Responsibilities.

Investments

Sections 247-

250

Policies, targets, limitations.

Investment Committee.

Responsibilities.

Surety insurance requirement

Section 278 Guarantees granted in favor of the

Federation, Mexico D.F., states

and municipalities.

Notification procedures Sections 459 –

471

General procedures.

Administrative winding–up proceedings

Sections 393-

442

Procedure, appointment and

obligations, disposal of assets,

portfolio transfer,

acknowledgement of credits,

determination of quotas and

priority of payments.


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- BACKGROUND

SURETY INSURANCE

- CHARACTERISTICS AND DIFFERENCES VS.

SURETY BONDS


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- BACKGROUND

SURETY INSURANCE

- BROADER GUARANTEE OFFER

- HIGHER COMPETITION

-EFFICIENCY AND EFFECTIVENESS OF THE GUARANTEE

- REPLICATION OF THE SPANISH MODEL

- GUARANTEE SCHEME IN FAVOR OF BENEFICIARIES


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SURETY INSURANCE

- NONMANDATORY COUNTERGUARANTEES

- RAPID CALL-ON PROCESS

- INDEMNIFICATION PURPOSE

- RESERVES

- INSURANCE (MAIN CONTRACT – CERTIFICATE)

- CHARACTERISTICS AND DIFFERENCES VS. SURETY BONDS


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In the coming weeks we are going to start reviewing the sole

circular on seguro de caución (surety insurance) and with that

the on demand guarantee and conditional guarantee products.

We are going to add the experience of the uniform rules for the

demand of guarantees of the International Chamber of

Commerce, which are related to the conditional guarantees.


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Surety

insurance

contract (main

contract)

Insurer

Policyholder

Noncompliance cover

Policy

Insured

Surety

contract

(accessory

obligation)

Principal

Main obligation

that may involve

the contract

Beneficiary

Surety Principal’s guarantor

Application for contract 3 3

1 1

2 2

SURETY INSURANCE GENERAL OUTLINE

Source: Document submitted by the CNSF to the COFEMER


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SURETY INSURANCE

Law on Insurance and Surety Institutions. “SECTION 27.- Insurance operations and lines detailed in Sections 25 and 26 of this Law are the following:

XII. For the surety insurance line, the payment of indemnification to the beneficiary as

compensation or penalty for equity damage suffered, within the limits set forth in the

insurance contract, when the principal fails to perform his/her legal or contractual

obligations, excluding those related to financial contracts. In this line, any payment by the

insurance institution shall be reimbursed by the principal, in which case the insurance

institution may require the recovery guarantees it deems convenient; …” Law on the Insurance Contract. “SECTION 151.- Through a surety contract the insurance company obliges itself to

indemnify the beneficiary as compensation or penalty for equity damage suffered, within the limits set forth in such contract,

when the principal fails to perform his/her legal or contractual obligations, excluding those related to financial contracts. Any

payment made by the insurer shall be reimbursed by the principal.“


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SURETY INSURANCE

Law on the Insurance Contract. “SECTION 153.- The surety insurance certificate shall contain: I. Name and address of the insurance company, the principal and the beneficiary; II. The legal or contractual obligations of the principal in relation to the insured risk; III. The insured amount, or the amount of the indemnification agreed, if any. IV. Documents the beneficiary shall deliver to the insurance company as evidence of occurrence of the circumstances agreed to make the amount of the indemnification payable : In case of insurance in favor of the Federal Government, the Federal District, the states or the municipalities, the provisions set forth in the legal, regulatory and administrative provisions shall be applied; V. Date of inception and expiration of the insurance policy; VI. Transcription of Sections 154, 155 and 156 of this Law; VII. All other clauses which shall govern the contract according to the regulations in force; VIII. The number and date of the policy under which the certificate is issued, and IX. The signature of the insurance company.”


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SISC

• Single insurance circular

• Single surety circular

• 35 SHCP regulations on insurance

•16 SHCP regulations on insurance.

SINGLE INSURANCE AND SURETY CIRCULAR (SISC)

39

TÍTLES


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SISC TITLES

1. PRELIMINARY PROVISIONS

2. APPLICATION FOR AND GRANTING OF AUTHORIZATIONS

3. CORPORATE GOVERNANCE

4. INSURANCE PRODUCTS AND TECHNICAL NOTES AND

CONTRACTUAL DOCUMENTATION OF SURETY BONDS

5. UNDERWRITING RESERVES

6. CAPITAL REQUIREMENTS

7. OWN ADMISSIBLE FUNDS AND DYNAMIC SOLVENCY

TESTS

8.INVESTMENT AND OTHER ASSETS

9. REINSURANCE, SURETY REINSURANCE AND OTHER RISK

AND RESPONSIBILITY TRANSFER MECHANISMS

10. ISSUANCE OF SUBORDINATED OBLIGATIONS AND

OTHER CREDIT SECURITIES

11. RECOVERY GUARANTEES

12. OUTSOURCING

13. OPENING, MOVING AND CLOSING OF PREMISES

14. PENSION INSURANCE OPERATIONS DERIVED FROM

SOCIAL SECURITY LAWS.

15. HEALTH INSURANCE OPERATIONS

16. CREDIT AND SURETY INSURANCE OPERATIONS

17. HOUSING CREDIT INSURANCE OPERATIONS

18. FINANCIAL GUARANTEE INSURANCE OPERATIONS

19. SPECIALIZED SURETY BOND OPERATIONS

20. SPECIAL INSURANCE FUNDS

21. ANALOGOUS AND RELATED OPERATIONS AUTHORIZED BY

THE SECRETARIAT

22. ACCOUNTING AND FINANCIAL STATEMENTS

23. OPINIONS AND REPORTS BY EXTERNAL AUDITORS AND

INDEPENDENT ACTUARIES

24. DISCLOSURE OF INFORMATION

25. FINANCIAL GROUP CONTROLLING COMPANIES SUBJECT TO

INSPECTON AND SURVEILLANCE BY THE COMMISSION

26. STATISTICAL DATA

27. SUPERVISION OF THE OPERATIONS PROVIDED FOR IN SECTION

492 OF THE LISI AND COMPLETION OF THE AUTHORITIES’

REPORTING REQUESTS .

28 REGULARIZATION PLANS AND SELF-CORRECTION PROGRAMS

29. WINDING-UP OF MUTUAL INSTITUTIONS AND SOCIETIES

30. EXTERNAL AUDITORS, ACTUARIES AND COUNSEL

31. ACTUARIES’ KNOWLEDGE ACCREDITATION

32. INSURANCE AND SURETY AGENTS

33. NATURAL PERSONS INVOLVED IN INSURANCE CONTRACTS

34. FOREIGN REINSURERS

35. REINSURANCE BROKERS

36. INSURANCE ADJUSTERS

37. INSURANCE AND SURETY INSTITUTIONS

38. PRESENTATION OF REGULATORY REPORTS

39. REPORTING MECHANISMS

APPENDICES


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THANK YOU

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