Interview: Mario Vela Berrondo

Mexico’s insurance penetration still lies at around 2% of its GDP. How can this rate be increased, and what would be an ideal penetration rate for 2020?

MARIO VELA BERRONDO: The Mexican Association of Insurance Companies (Asociación Mexicana de Instituciones de Seguros, AMIS) has developed a market plan involving three pillars – public policy, internal tasks and insurance regulation – geared towards increasing the penetration rate to 3.4% of Mexico’s GDP by 2020. Regarding the public policy, it would be meaningful to have a national risk transference policy, in order to reach optimal insurance programmes for the government, private industry and individuals. Having compulsory automobile insurance would be a another great idea; therefore, AMIS puts a great emphasis on this matter. We also have a common agenda with the Ministry of Finance comprising a series of initiatives linked to some social programmes to serve and attend new lower- and middle-class markets. Internally, we are working on analysing the regulatory barriers for insurance inclusion and keeping a permanent agenda with the Insurance and Surety National Commission (Comisión Nacional de Seguros y Fianzas, CNSF) in order to continue driving forward regulation updates.

What role does the reinsurance market play in increasing insurance capacity and building better risk dispersion for the sector?

VELA: Mexico has been open to the international reinsurance market for many years. Our laws require reinsurers to register with the supervisor to operate in our market and to follow the local insurance and fiscal rules. There are more than 240 international reinsurers registered under the supervision of the CNSF to take reinsurance from Mexican cedents, in addition to 170 specialised reinsurers that participate in the Mexican nuclear pool. We have collaborative and fierce competition among reinsurers within the local market. Eleven reinsurers have established representative offices in the country, while the majority of the biggest international brokers work alongside Mexican reinsurance brokers. Alternative risk transfer schemes and capital markets complement the offer.

While competition has opened new business opportunities we are witnessing an increasing offer of innovative products and contracts design. Thanks to our large supply capacity and low prices, effective risk management in insurance companies could produce a good dispersion with sustained growth. A key factor is to get a positive rating at a reasonable price, in order to encourage enough certainty under the new Solvency II legislation. Another key factor is the transparency between cedents, brokers and reinsurers. International brokers are required to have full disclosure of their operations. Therefore, it could be expected that a higher level of transparency will lead to more extensive levels of trust between actors within the sector.

To what extent has the recent Insurance and Surety Institutions Law made the Mexican insurance sector more globally competitive?

VELA: It is too soon to measure the real impact of the law because it was fully implemented only very recently; furthermore, the 2016 Annual Economic Balance has yet to be presented to the Insurance Commission. However, companies should not encounter any difficulty matching the solvency requirements. At a market level, at the end of the third quarter of 2016, the solvency ratio was around 2.35%. We expect to witness a change in the way companies are managed involving a risk-oriented approach that will make firms more aware of the risk levels underwritten and the corresponding solvency needs. There are some modules in the standard formula, such as asset liability matching, surplus capital and risk transference, which are used to calculate the solvency capital requirement that are very accurate and will give insurance companies the possibility of assessing different strategies for risk management.