The operation of Mexican insurance and surety companies and the verification that such operation is in accordance with applicable regulations, is the responsibility of the National Insurance and Sureties Commission (CNSF), a decentralized agency of the Secretariat of Finance and Public Credit. According to a Financial System Stability Assessment (FSSA) of Mexico conducted in 2001 by the International Monetary Fund (IMF), insurance regulation and supervision in the country broadly complied with Insurance Supervisory Principles (later renamed as Insurance Core Principles and revised in 2003) promulgated by the International Association of Insurance Supervisors (IAIS). The IMF commended the Mexican authorities for their ongoing efforts to reform insurance sector supervision, especially noting the qualified stuff of the CNSF, strong supervisory process, strict regulation of changes in control, and extensive on-site inspections. Nevertheless, certain shortcomings -- including the autonomy and powers of the CNSF, corporate governance, as well as the legal protection of supervisory staff -- were identified. As indicated in the 2001 FSSA, Mexican authorities agreed with the conclusions of the IMF's mission and, based on its recommendations, developed a detailed action plan to improve compliance with the IAIS principles. In 2006, the IMF published an Update of the FSSA which praised the CNSF on the progress made in strengthening insurance sector in line with the recommendations of the 2001 FSSA. However, the CNSF still was not politically, budgetary, or operationally autonomous. The 2007 IMF report on effective financial system regulation proposes a building-block approach to the reform of the financial sector in Mexico, which, among other issues, entails improving inter-agency cooperation, and achieving full autonomy of the regulators, including the CNSF.

General Overview

A 2007 IMF report on effective financial system regulation provides a detailed description of the organizational framework of the Mexican financial system. The Secretariat of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, or SHCP) sets regulatory policy for the financial sector, while a number of agencies supervise different sectors of the financial system. In particular, the National Insurance and Sureties Commission (Comision Nacional de Seguros y Fianzas, or CNSF) is in charge of supervising the operation of the Mexican insurance and surety companies and verifying that such operation is in accordance with applicable regulations. Banks, other credit institutions, and securities markets are overseen by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, or CNBV). Both the CNBV and the CNSF are decentralized agencies of the SHCP. The CNSF is a member of the International Association of Insurance Supervisors (IAIS).

In 2001, the International Monetary Fund (IMF) conducted a Financial System Stability Assessment (FSSA) of Mexico, including Mexico's observance of the Insurance Supervisory Principles (later renamed as Insurance Core Principles and revised in 2003) promulgated by the IAIS. The major shortcomings identified by the IMF were "insufficient clarity and duplication in the distribution of regulatory functions across agencies, fragmentation of supervisory powers, and lack of formal autonomy of regulatory agencies, hurting the agencies' accountability and credibility and hampering their ability to enforce regulations" (IMF 2007b, p. 6). As far as the insurance sector was concerned, the IMF concluded that supervision and regulation of the Mexican insurance market was carried out in broad observance of the IAIS principles effective at the time of the assessment. Nevertheless, certain shortcomings relating to the autonomy and powers of the CNSF, corporate governance, and the legal protection of supervisory staff, among other issues, were identified. At the same time, the IMF commended the authorities for the ongoing efforts to reform the insurance sector supervision, especially noting the qualified stuff of the CNSF, strong supervisory process, strict control over changes in control, and extensive on-site inspections. As indicated in the 2001 FSSA, the Mexican authorities agreed with the conclusions of the IMF's mission and, based on its recommendations, developed a detailed action plan to improve compliance with the IAIS principles.

In 2006, the IMF published an Update of the FSSA, in which it praised the Mexican authorities on the progress made in addressing the earlier report's recommendations. A detailed assessment of Mexico's adherence to the Insurance Core Principles, which superseded Insurance Supervisory Principles -- benchmarks in the 2001 FSSA -- has not been yet conducted. However, the report noted that "regulation and supervision for the insurance industry have been significantly strengthened in line with the 2001 FSAP recommendations" (p. 6). The IMF pointed out in its 2006 report that the legal framework for insurance regulation and supervision had improved with the adoption of legal amendments introduced in 2002. These amendments led to the streamlining licensing rules for life and non-life insurance companies and strengthening rules for corporate governance and internal controls, among other improvements. However, the CNSF still was not politically, budgetary or operationally autonomous. The 2007 IMF report on effective financial system regulation proposes a building block approach to reforms in Mexico consisting of improving operations and inter-agency cooperation; enhancing operational autonomy of the regulators, including the CNSF; establishing consolidated supervision of financial conglomerates; achieving full autonomy of the regulators, including the CNSF; and initiating contingency planning exercises.

The Principles

ICP 1 Conditions for effective insurance supervision

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There is insufficient publicly available information addressing this principle.

ICP 2 Supervisory objectives

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There is insufficient publicly available information addressing this principle.

ICP 3 Supervisory authority

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The CNSF, a decentralized agency of the SHCP, is in charge of supervising the operation of the Mexican insurance and surety companies and verifying that such operation is in accordance with applicable regulations. The 2001 FSSA pointed out to insufficient political, budgetary, and operational autonomy, as well as limited powers of the CNSF, although commending the regulator for the highly qualified staff it employs, overall strong supervisory process, strict regulation of changes in control, and extensive on-site inspections. A subsequent 2006 FSSA Update also concluded that "CNSF has not yet achieved full political, budgetary, and operational autonomy" (p. 21). No further information regarding compliance with ICP 3 is publicly available.

ICP 4 Supervisory process

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A "well thought out supervisory process" demonstrated by the CNSF was identified by the IMF in 2001 as one of the strengths of the Mexican system of the supervision of insurance companies. No further information regarding compliance with ICP 4 is publicly available.

ICP 5 Supervisory cooperation and information sharing

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In its 2001 assessment the IMF noted that "written memoranda of understanding with foreign supervisors are thought not to be necessary for the CNSF to observe the principle on cooperation and coordination" (p. 77). No further information as to Mexico's compliance with ICP 5 is publicly available.

ICP 6 Licensing

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At the time of the 2001 IMF assessment, an insurance company could obtain a composite life and non-life licenses. This situation, according to the 2006 FSSA Update, changed with the amendments of the legal framework introduced in 2002 which brought into line licensing requirements for life and non-life insurance companies. Nevertheless, there is no further information as to Mexico's compliance with ICP 6.

ICP 7 Suitability of persons

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The 2001 FSSA observed that directors and senior management of general insurance companies were approved after the license was obtained. No further information regarding compliance with ICP 7 is publicly available.

ICP 8 Changes in control and portfolio transfers

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Among specific strengths in the Mexican supervisory and regulatory framework identified by the 2001 IMF mission was the fact that the CNSF "exercises strong controls on changes in control" (p. 74). No further information regarding compliance with ICP 8 is publicly available.

ICP 9 Corporate governance

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At the time of the 2001 IMF assessment, the CNSF did not have sufficient powers in the area of corporate governance and was in the process of addressing this issue. The subsequent 2006 FSSA Update observed, however, that the regulations on corporate governance have been reinforced as a result of the legal amendments introduced in 2002. However, there is insufficient information as to compliance of these regulations with ICP 9.

ICP 10 Internal control

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At the time of the 2001 IMF assessment, the CNSF did not have powers to impose internal control requirements, although it was able to monitor internal controls once they were established. However, according to the 2006 FSSA Update, regulations on internal controls have been reinforced as a result of the legal amendments introduced in 2002. No further information as to compliance of these regulations with ICP 10 is publicly available.

ICP 11 Market analysis

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There is insufficient publicly available information addressing this principle.

ICP 12 Reporting to supervisors and off-site monitoring

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The 2001 IMF report notes that the CNSF "collects and analyzes a considerable volume of information" (p. 74). No further information regarding compliance with ICP 12 is publicly available.

ICP 13 On-site inspection

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Among specific strengths of the Mexican supervisory and regulatory framework identified by the 2001 IMF mission was the fact that the CNSF "carries out extensive on-site inspections" (p. 74). No further information regarding compliance with ICP 13 is publicly available.

ICP 14 Preventive and corrective measures

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There is insufficient publicly available information addressing this principle.

ICP 15 Enforcement or sanctions

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The 2001 IMF assessment recommended amending the law to provide for gradual application of sanctions. No further information regarding compliance with ICP 15 is publicly available.

ICP 16 Winding-up & exit from the market

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The 2001 IMF assessment observed that "the liquidation processes... allows too much time to the SHCP to revoke license from the moment the CNSF recognizes insolvency and recommends the revocation of license. Also the CNSF lacks the executive power to suspend operation for all or some line of business. At present, suspension of operations can only be implemented through revocation of license" (p. 77). No further information regarding compliance with ICP 16 is publicly available.

ICP 17 Group-wide supervision

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There is insufficient publicly available information addressing this principle.

ICP 18 Risk assessment and management

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There is insufficient publicly available information addressing this principle.

ICP 19 Insurance activity

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Among specific strengths in the Mexican supervisory and regulatory framework identified by the 2001 IMF mission was the fact that the CNSF "exercises strong controls on... reinsurance activity" (p. 74). No further information regarding compliance with ICP 19 is publicly available.

ICP 20 Liabilities

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There is insufficient publicly available information addressing this principle.

ICP 21 Investments

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There is insufficient publicly available information addressing this principle.

ICP 22 Derivatives and similar commitments

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There is insufficient publicly available information addressing this principle.

ICP 23 Capital adequacy and solvency

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According to the 2001 IMF assessment, there was some room for improvement in respect to liquidity requirements, which were considered too high for certain types of companies, and in respect to actuarial valuation of technical provisions. The 2007 IMF Report on Risk Management Practices and Stress Tests of Commercial Banks states that "the CNSF has completed and implemented a dynamic solvency model, an important step toward the adoption of statutory solvency rules envisioned within the Solvency II framework. The model uses historical data to construct claim distributions for different lines of business. It allows the CNSF to calculate the probability of bankruptcy of each insurance company by stressing variables that affect its underwriting and overall profit. The output of this exercise guides conversations with the industry to monitor adequacy of reserves" (p. 9). However, no further information as to Mexico's compliance with ICP 23 is publicly available.

ICP 24 Intermediaries

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The National Commission for Protection of Users of Financial Services (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros, or CONDUSEF) is responsible for addressing the complaints of consumers of financial services. According to the 2001 IMF assessment, principles on market conduct were "largely observed," although the absence of corporate governance regulations at the time of the assessment (later introduced in 2002) weakened the compliance. Further, the IMF noted that the CNSF had the powers to suspend marketing of a product in case of unfair treatment of customers and insufficient disclosures. However, no further information as to Mexico's compliance with ICP 24 is publicly available.

ICP 25 Consumer protection

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The CONDUSEF is responsible for addressing the complaints of consumers of financial services. According to the 2001 IMF assessment, principles on market conduct were "largely observed," although the absence of corporate governance regulations at the time of the assessment (later introduced in 2002) weakened the compliance. Further, the IMF noted that the CNSF had the powers to suspend marketing of a product in case of unfair treatment of customers and insufficient disclosures. However, no further information as to Mexico's compliance with ICP 25 is publicly available.

ICP 26 Information, disclosure & transparency towards the market

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There is insufficient publicly available information addressing this principle.

ICP 27 Fraud

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There is insufficient publicly available information addressing this principle.

ICP 28 Anti-money laundering/ Combating the Financing of Terrorism

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As stated in the U.S. Department of State's "International Narcotics Control Strategy Report 2008," insurance companies in Mexico are required to maintain know-your-customer records, as well as to keep track of all transactions over U.S. $10,000. Mexico's Financial Intelligence Unit, (Unidad de Inteligencia Financiera, or UIF) is a unit of the SHCP. The UIF and the CNSF have signed an agreement to coordinate their anti money laundering/counter-terrorist financing efforts. However, no further information as to Mexico's compliance with ICP 28 is publicly available.