Under the reform and modernization of the Mexican financial system, driven by the administration of President Enrique Peña Nieto, the new Insurance and Surety Institutions Law (LISF) was enacted on April 4, 2013, and became effective on April 4, 2015. The implementation of the new law is part of the Mexican federal government’s effort to promote dynamic growth of the economy as a prerequisite for improving the living conditions of the country’s population.
The overall design of the LISF considers a Solvency II-type model comprised of three pillars in which the solvency system is based.
The first pillar considers quantitative elements for the valuation of technical provisions, calculation of capital requirements, risk aggregation and mitigation models, as well as criteria for the determination of the economic balance sheet.
The second pillar considers qualitative elements regarding the corporate governance of institutions, while the third pillar includes elements relating to transparency and disclosure of information.
The underlying quantitative and qualitative elements of the solvency model established in the LISF are aimed at preserving the financial position of the insurance and surety institutions through the balanced operation of regulatory discipline imposed by the new law and its secondary regulatory framework, the self-discipline generated by the strengthening of the corporate governance system, and the market discipline which is stimulated from greater transparency and disclosure.
In order to achieve an appropriate implementation process of the law, the Insurance and Surety National Commission of Mexico (CNSF) issued the secondary regulation of the LISF prior to the new law coming into effect under a broad consultation process that was based on the active participation of the insurance and surety companies, as well as their representative organizations and other entities and supervised persons.
The secondary regulation (Circular Única de Seguros y Fianzas – CUSF) comprises a single legal instrument all the general provisions in accordance with the LISF, and was published in the Federal Official Gazette on December 19, 2014.
On June 5th, 2015 the European Commission issued a decision on the equivalence of supervisory regimes for insurance and reinsurance under Solvency II criteria, for countries that are not members of the European Union. Specifically, Mexico was granted the equivalence based on the principles of regulation and supervision established in the new Law, as well as in the secondary regulation (CUSF).
The equivalence is temporary for a period of ten years, beginning in January 2016, and it must be ratified by the European Council and Parliament. This resolution confirms the international recognition to the efforts of the Mexican authorities to establish a new regulatory framework based on best practices and international standards, allowing to encourage the development of the insurance and reinsu-
rance market at international level.
