Best’s Special Report: Mexico Insurance Market in a Stronger Solvency Position One Year After New Regulations

OLDWICK, N.J.--()--A.M. Best expects that the new Solvency II-type regulations in Mexico could lead to improved insurance penetration, as the new regulation allows for more efficient capital use, innovation in new segments and expanded distribution channels, according to a new special report.

The Best’s Special Report, titled “Performance of Mexico’s Insurance Market in 2016, Following Implementation of Solvency II,” states that Mexico’s insurance market, in conjunction with economic growth and improvements in income distribution, is well-positioned to exploit distribution channels such as retail stores, banks or telecommunication services for the macro- and microinsurance insurance segments, and as a result, the sector’s penetration ratio could expand. According to the report, insurance penetration in Mexico increased by 0.13 percentage points to 2.34% in 2016 from 2.21% in the prior year.

Premium volume in Mexico’s insurance industry was MXN447.6 billion (USD23.9 billion) in 2016, according to the country’s regulator. Mexico accounts for around 0.5% of global premium volume and is the second largest insurance market in Latin America after Brazil. Mexico’s insurance industry growth rate in 2016 was 6.7%, based on direct premium, excluding pensions, accounting for the 24-month accrual of the Petróleos Mexicanos (PEMEX) multiannual policy and discounting the annualization effect of life policies. The automobile and accident and health lines of business had a greater growth rate of 16.5% and 13.4%, respectively. Including pensions, the overall sector grew by 6.1%.

The Mexico insurance sector’s net income increased by more than 80% year over year in 2016, to MXN 38.7 billion (USD 2.1 billion) from MXN 21.2 billion. The factors driving this increase were the lower reserve development due to changes in the valuation criteria, as a part of the new regulations, and the industry’s approximate growth rate of 30% in financial products.

A.M. Best views Mexico’s insurance sector as stable. Operating performance among Mexico insurers has benefited from the new regulations, as annualization of life premiums and the reduced need to create reserves has resulted in better financial ratios. Derived from the new regulation, revenues from reserve releases will be gradually reflected (at 24 months) and this effect is expected to be completed by the end of 2017.

Overall, A.M. Best believes that due to the new Solvency II-type regulatory requirements, the industry’s solvency has improved. However, A.M. Best notes that that the capital base derived from the surplus is vulnerable to changes in interest rates, which could cause some volatility when these obligations come to maturity or the investments held available for sale are sold.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=265351.

A video interview with A.M. Best Senior Director of Analytics Alfonso Novelo and Senior Financial Analyst Eli Sanchez also is available for viewing.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Eli Sanchez, +52 55 1102 2720, ext. 108
Senior Financial Analyst
eli.sanchez@ambest.com
or
Christopher Sharkey, +1 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Eli Sanchez, +52 55 1102 2720, ext. 108
Senior Financial Analyst
eli.sanchez@ambest.com
or
Christopher Sharkey, +1 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1 908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com