Playing catch up: Choice, diversity and transparency can boost penetration rates

Enhancing Mexico’s traditionally low rate of insurance penetration has proved a challenge over the years. Indeed, the latest National Survey for Financial Inclusion (Encuesta Nacional de Inclusión Financiera, ENIF) conducted by the Mexican National Banking and Securities Commission and the National Institute of Statistics and Geography, shows that in 2012 only 22% of the adult population was covered by some kind of insurance. With a premiums-to-GDP ratio of about 2% – compared to 5% in Brazil – the insurance penetration rate is one of the lowest in the Latin American region.

The challenges faced by Mexico to develop its insurance industry are not so different from other emerging economies, and addressing issues such as financial education and the high cost of insurance for lower-income segments are important tasks going forward.


Life insurance is the main segment of the market, although natural disasters and micro-insurance are expected to be areas of future growth. Despite being a highly competitive industry, profitability and solvency margins are performing well, and regarding the latter, prospects for an even stronger system are increasing as reforms continue to be carried out (see analysis). Moreover, the sector’s poor performance in 2013 has not downgraded growth predictions for 2014.

The Insurance and Surety National Commission (Comisión Nacional de Seguros y Fianzas, CNSF) is the main body overseeing regulation of the sector. As an autonomous branch of the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Pú blico, SHCP), the body was created in 1990 after the separation of the National Commission on Banking and Insurance, and is responsible for promoting solvency and financial stability of companies operating in the industry. The CNSF implements constitutional and operational tasks as well as establishes the minimum capital requirements of insurance and surety companies.


There are currently 103 insurance companies operating in various segments in Mexico; 45 are local companies and 58 are subsidiaries of foreign companies. Of the total, 15 are controlled by a financial group. In 2000, there were 70 companies operating in the market. This number rose to 100 in 2008, and it has been stable ever since. At the same time, in 2000 there were more local (40) than foreign (30) companies, a trait that has since been reversed. The damage segment has the most firms operating (51), followed by life (47). The accidents and diseases (A&D) segment (including health) comprise 48, while automobiles form 38 firms. A total of 11 companies operate exclusively in the life segment, whereas some 36 operate in both life and non-life, and 56 exclusively in non-life segments.

In Numbers

According to CNSF, insurance companies in Mexico held MXN927.43bn ($72.06bn) in assets in 2013, corresponding to 5.7% of national GDP. The most important asset components were investments, with MXN723.65bn ($56.23bn), or 78% of the total. In turn, investments were comprised mostly of securities, at 95.2%. Loans made up 3.3% and real estate formed 1.5%, respectively. Public securities were the most important instrument with MXN415.94bn ($32.32bn), or 57.5% of total investments (and 45% of total assets). Next was fixed income (18.6%) and variable income (11%). Foreign investments’ share was 1.2% of the total.

Liabilities accounted for MXN791.83bn ($61.53bn) of assets in 2013, while equity stood at MXN135.6bn ($12.04bn). Liabilities were made up of technical reserves (77.1%), worth MXN714.97bn ($55.55bn), while other liabilities comprised 8.3% and equity 14.6%. Technical reserves for the life segment, meanwhile, were responsible for 53% of the total for liabilities and equity. Reserves for current risks represented 82.1% of technical reserves, MXN587.16bn ($45.62bn); for pending obligations, 12.7%; and for catastrophes, 5.2%.

As per CNSF data, insurance penetration as a proportion of premiums-to-GDP reached 2.1% in 2013, the highest in Mexico’s history. This figure, however, is still very low compared to other economies of Mexico’s size or even other Latin American countries. Notwithstanding, the volume of premiums and assets in Mexico is second only to Brazil in Latin America. In 2012, premiums issued in Mexico accounted for 16% of the total in Latin America and less than half for Brazil (42%), though still higher than the rest of the region. This, however, reflects more the large size of the economy than a developed insurance industry. In terms of the ratio to GDP, in 2012, among the larger economies in Latin America, Mexico’s insurance penetration was 2%, ahead of only Peru (1.2%) and Argentina (1.8%), and lagging behind Colombia (2.4%), Venezuela (3.7%), Brazil (3.8%) and Chile, with highest penetration, at 4.3%.


Roughly 22% (15.5m) of the adult population was covered by some kind of insurance, according to the most recent ENIF. Life insurance was the most common, extending to 79% of the covered population, followed by automobile (33%) and health (30%).

Considering regional disparities within the country, the challenge of financial inclusion is even higher. Whereas in the Federal District insurance penetration reached 4.4%, the second highest was just half of that, 2.4% in Guerrero, and only in those two regions and in Nuevo León (2.1%) was the ratio above 2%. In addition to regional inequality, income concentration matters too. According to Ingrid Carlou, CEO of Patria Re, a local reinsurance firm, “Extremely low penetration in the sector can be traced to the income inequality of Mexico,” she told OBG. “The wealthy do not need insurance because they can afford to replace what is lost, and the poor’s main goal is to be able to afford food, so insurance is the last thing they need. The middle class, on the other hand, is struggling to keep its head above water, so it does not see the benefit of spending its remaining disposable income on insurance,” she said.

According to Carlou, “Economic factors and financial history have also deterred insurance penetration in Mexico.” Indeed, between 1970 and 2000 the country was plagued by multiple financial crises. To this end, insurance is often “over-reactive” in its correlation with GDP. If GDP increases, insurance penetration tends to rise, double or triple in relation to GDP growth; the opposite is also true. Thus, in midst of all the crises, insurance never became a priority. Another key element is the lack of financial education, such that most of the population is not fully aware of the benefits of having insurance. According to Frédéric Fischer, chief financial officer at AXA Insurance Mexico, the Mexican Association of Insurance Companies has been putting a lot of effort into building the insurance and financial culture in Mexico and is active in encouraging financial education within the market. It promotes campaigns and organises conventions every year, focusing on different segments: health in 2013 and compulsory automobile insurance and natural disaster in 2014.


In 2013, total written premiums (TWPs) stood at MXN347.2bn ($26.98bn), with MXN341.28bn ($26.52bn), or 98.3%, in direct insurance and MXN5.92bn ($460m), or 1.7%, in reinsurance. Of the TWPs, MXN286.65bn ($22.27bn), or 82.6%, were retained and MXN60.55bn ($4.70bn), or 17.4%, ceded to reinsurance companies. The segment with the highest proportion of ceded premiums was damage (70%), while the segment with the lowest was automobile (3.3%). Considering only direct insurance, the segment with the highest share was life, with 40.7%, followed by automobile (19.5%), damage (19%), A&D – including health – (14.9%) and pensions (5.9%). The surety sector was dwarfed by insurance. In 2013 it comprised 15 companies, with MXN9.98bn ($775.45m) in premiums and MXN19.71bn ($1.53bn) in assets.

A breakdown of the pricing shows that the average costs in claims in 2013 were MXN163.38bn ($12.69bn), or 73.7% of premiums. The costs of acquisition, meanwhile, were MXN49.09bn ($3.81bn), or 17.1%, and operational costs MXN21.42bn ($1.66bn), or 6.3% of the total. The sum of these costs forms the combined index, which shows whether the earned premiums of the period were enough to cover all the costs. For 2013, the combined index was calculated at 97.1%, indicating that the value of premiums was 2.9% above total costs. With the net income generated by financial products, mostly investments, which generated MXN43.02bn ($3.34bn), the net result delivered profit of MXN22.9bn ($1.78bn), equivalent to 16.9% of the equity. In terms of assets held, as of December 2013 MetLife was the largest company, with MXN122.15bn ($9.49bn), a share of 13.2%, Grupo Nacional Provincial (GNP) second with 8.6%, followed by Inbursa (7.4%), Axa (6.7%), and Banamex (6.6%). Their combined share reached 42.4%. Thus, out of the five largest companies by assets, two are American (MetLife and Banamex, whose controller is Citigroup), one is French (Axa) and GNP and Inbursa are Mexican. Two are part of financial groups: Inbursa and Banamex are part of Inbursa and Banamex financial groups, respectively; and three are not.


Even though the three largest are “pure” insurance companies, banks are becoming increasingly important as distribution channels via “bancassurance”. According to Axa’s Fischer, partnering with banks to reach more people is becoming necessary to stay in the market. For example, Axa signed an agreement with banking group HSBC in March 2012 to sell non-life insurance products via the bank network. And Alejandro Meléndez González, deputy director of investments and investor relations at Quálitas, a local insurance group focused on the automobile segment, told OBG that traditional distribution channels have stalled, growing at a slower pace than distribution by banks.

Key Players

The largest companies by written premiums as of December 2013 were MetLife (14.2%), GNP (11.3%), Axa (8.9%), Inbursa (6.9%) and Banamex (5.7%). Ranking by assets equates to roughly the same order. The only difference is Axa is ranked fourth and Inbursa one spot higher at three. From 2012 to 2013, Banamex took BBVA Bancomer's position of fifth, but the difference in market shares is marginal (5.7% for Banamex and 5.1% for BBVA Bancomer). To assess concentration of the market, the CNSF uses the sum of the shares on premiums of the five largest providers, which it calls the “CR5”. In 2013, the CR5 accounted for 47% of the market. In the life sector the degree of concentration was higher, giving the CR5 70.9%. MetLife was also the leading company, with a market share of 29.8%, more than twice as high as Banamex’s 12.2% market share, the second largest. GNP was third with 11.6% and Monterrey fourth with 8.7%, closely followed by BBVA Bancomer, with 8.6%. In the non-life segment, the CR5 was 50.5% in 2013. Axa was the leader with 14%, followed by GNP (12.3%), Inbursa (10.8%), Quálitas (8.2%) and Mapfre Tepeyac (5.2%).

The distribution of premiums in each company is very different. MetLife, the largest, has its operations concentrated in the life segment, which is responsible for 85.7% of its premiums. Given that the company has no operations in the damage and automobile segments, A&D accounts for the remaining 14.3%. Life is also a core segment for Banamex, comprising 87% of the total, followed by A&D (11.6%), damage (1.2%) and automobile (0.2%). GNP also has most of its premiums in the life segment (42%), a lower share than MetLife and Banamex, though A&D (29.8%) and damage (28.2%) represent higher totals than for the other two firms. GNP is third in auto insurance, with 12% market share, after Qualitas and Axa. For Inbursa, damage is the main segment, with 56% of premiums, followed by automobile (18.2%), life (17%) and A&D (8.8%). Automobile is the main segment for Axa, comprising 35.9% of premiums, A&D makes up 28.2%, damage is 19.5%, while life, the lowest, accounts for a 16.4% share.


Between 2012 and 2013 assets went up from MXN836.66bn ($74.3bn) to MXN927.43bn ($82.36bn), a real increase of 6.7% - discounting the effect on inflation. The growth of investments was 5.1% and, being the most relevant component of assets (78%), it was responsible for 67% of the total growth. Growth in liabilities stood at 8%, higher than the growth in assets. Technical reserves (77% of liabilities) represented 89% of the increase in liabilities. Equity had a decrease of 0.5%. Over the past five years, the composition of investments has not changed significantly, with total investments in public securities amounting to 57.6% in 2009 and 57.5% in 2013. This trend has been replicated by fixed income, which rose by 0.4 percentage points and by 6.9% for other investments over the same five-year period. The share of variable income, in turn, jumped from 9.7% to 11%, while foreign investment saw the biggest change, from 2.7% in 2009 to 1.2% in 2013. Taken together these trends might indicate that the domestic market now provides more secure options for investments than five years ago. A TURNING POINT?: Net profit decreased by 6.3% in real terms from 2012 to 2013. Factors like the high real growth of claims (12%) and operational costs (10.5%), and the 10.8% fall in income from financial products help to explain the reduction. As a consequence of the increase in costs, the combined index of the insurance sector went up from 96.5% to 97.1% over the same period. Only the average acquisition costs fell, from 17.3% to 17.1%, while average claims costs rose to 73.7%, up from 73.2% in 2012. Average operational costs, meanwhile, increased from 6% to 6.3%.

Given that numbers are still below 100%, this indicates sustainable operation of the industry. During the past five years, the index was above 100% in 2009 and 2010, and 99.2% in 2011, which implies a more stable situation than a few years ago.

The decrease in income from financial products also affected financial profitability (the ratio of income from financial products over total investments). In 2012, the number was 7.4%, which fell to 6.2% in 2013. This indicator has been dropping since 2009, when it was 8.1%, and it is at its lowest value since 2007 when it stood at 5.7%. One of the possible reasons might be the lower interest rates in Mexico in recent years. Written premiums, in relation only to direct insurance, grew 6.7% in real terms from 2012 to 2013. The segment with best performance was pensions, with 9.6% real growth, followed by damage, whose premiums rose 8.7% (the 64.9% real growth on fire helps explain the good performance), A&D with 8.5%, life 7.3% and automobile 1.7%. The weight of the life segment, which comprised 40.7% of premiums, tends to have a knock-on effect on the performance of the entire insurance industry.

Over the past five years, premiums have gone up by 45%. The pension segment had the highest growth rate, 130%, followed by accidents and diseases (47%) and life (46%). The segments with growth lower than the sector average were automobile (41%) and damage (32%). Due to higher growth, the pension segment’s share of total premiums went from 3.7% in 2009 to 5.9% in 2013. Damage in turn dropped from 21% to 19% over the same period. Although accounting for 20% of premiums over the past five years, the automobile segment has seen a drop from the 25% total it represented 10 years ago. From 2012 to 2013, life was responsible for 40% of the total growth. Given that it has the lowest share of premiums, despite rapid growth, the contribution of the pension segment was only 7.8%, though this is higher than its 5.9% share of premiums.


As outlined in the last report on financial inclusion carried out by the National Council of Financial Inclusion (Nacional de Inclusión Financiera, CNIF), micro-insurance premiums were concentrated in three segments: life (50.6%), health (38.8%) and personal accidents (10.4%). Combined, they represent around 99.8% of the total. The development of micro-insurance faces some challenges common to other countries, especially those with large territories. Firstly, the structure of costs is different from traditional insurance. It is more difficult to reach consumers as the target public is often located in more remote areas and does not have access to financial products of any kind.

According to CNIF’s report, the main distribution channels of traditional insurance were insurance agents, responsible for 39.8% of premiums, followed by brokers with 21.5%, direct sales by the insurance company (19.5%) and bank branches (14.6%). Thus, one of the challenges is to use lower-cost distribution channels, including banking agencies (where they exist), micro-finance institutions and non-traditional channels, such as commercial establishments, including supermarkets and convenience stores, among others.

“Microcredit and micro-insurance are on the rise as there is a high demand from marginalised communities for insurance,” Carlou told OBG. “The big firms, however, are passing up on these due to the costs associated to its distribution, as well as the risk of collecting premiums,” she added. Other challenges come from the revenue side, where the premium has to be designed for customers with irregular cash flows and for quantity matters, since the value of premiums are very low. The target base of micro-insurance is the low-income segment of the population – above extreme poverty, but below the minimum purchasing power of the market for traditional insurance products, comprising medium- and high-income segments. The potential market for micro-insurance would be the range of people earning between two and five times the minimum wage, 47.6m people, of which only 6.9% were covered by some kind of insurance product. By and large, despite the known obstacles to micro-insurance, there is significant potential for increased penetration of the market.


One of the main issues facing the Mexican insurance industry is the country’s vulnerability to natural disasters such as earthquakes, hurricanes and volcanic eruptions, which pose risks for insurance companies due to their destructive potential. It is also a key issue for the government, which has to develop effective mechanisms to provide coordinated help in case of – and in response to – natural disasters, and not to put the state budget under pressure from such events. With that in mind, the government has sought a new way to prevent excessive fallout from the occurrence of natural disasters: the catastrophe bonds (known as “cat” bonds). Cat bonds were originally issued by insurance companies to prevent big losses in the event of disasters whereby losses could not be fully covered by premiums. It is essentially a bond that works as insurance cover in its own right. The bond is issued and, if nothing happens for the period stipulated, the investor keeps the premium and the interest. In cases where a disaster does occur, the issuer does not have to pay the principal and/or the interest, and can use the funds to mitigate losses from the disaster. Mexico issued its first cat bonds in 2009, known as MultiCat Mexico 2009, in which a total of $250m was released to protect against earthquakes and hurricanes, with a duration of three years. In 2012 MultiCat Mexico made a new issuance of $315m against earthquakes and hurricanes via the World Bank’s MultiCat Programme. Cat bonds can be an efficient way for governments to protect against natural disasters and are also an interesting option for investors, as they pay higher interest rates in comparison to products with a similar rating.


As AXA’s Fischer told OBG, 2013 was not a memorable year for the company or the sector. Insurance is very elastic to GDP, so a poorer performance from the economy, such as in 2013, usually means low growth for insurance too. Nevertheless, with higher GDP growth expected for 2014, the prospects for insurance are also better. The automobile and health are segments hold particularly promising potential, the latter favoured by the fact that many people in Mexico do not have access to health care. However, implementation of key legal reforms (see analysis) and how they affect firms and the sector will be central to growth prospects going forward. While the stable macroeconomic environment of previous years has been a positive factor in the industry’s development, any increase in the low penetration rate during 2014 and subsequent uptick in sector growth requires accelerated economic growth. As González told OBG, it is necessary to develop simpler products, so people understand them better and do not feel they are being deceived. Broadening distribution channels to go where people need insurance, but where there are no brokers, and adjusting supply to the demand, is at the core of this change.

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The Report: Mexico 2014

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