Fitch: Major Regulatory Changes Face Mexican Insurance Sector

MONTERREY, Mexico--(BUSINESS WIRE)-- The implementation of new regulatory requirements could have implications in the balance sheet of Mexican insurance companies, especially reserves and equity, Fitch Ratings says. The degree to which companies are exposed to regulatory changes will depend on their focus and/or business concentration.

Since the introduction of new regulation (the Insurance and Surety Institutions Law- LISF and Unique Insurance and Surety Circular - CUSF) in April 2013, Mexican companies have worked to implement a risk-base Solvency II type regulation. As part of this effort, companies executed several quantitative and qualitative impact studies during 2014-2015.

Timely, and in some cases, also costly implementation of the new regulatory framework has challenged the industry. Net income fell by 17% in 2015 from the prior year, even though written premiums grew by 9%. This performance was due to a 22% jump in operational and management costs over the previous year, which were largely affected by increased regulatory requirements, including the implementation of stronger corporate governance as well as higher costs related to generating and sending information to local regulators.

Even though as of December 2015 sector's financial profile remains stable, Fitch expects material changes in 2016 as a result of quantitative impact studies implementation.

One of the main changes that the new regulatory regime will bring to the market is the migration from accounting to economic balance sheets. As a result, movements on assets will be observed regarding mark-to-market revaluation. On the liabilities side, we can expect some insurers to register significant changes in technical reserves, due to the introduction of a new model for calculating reserves by line of business.

Equity may also be affected by the new solvency capital rules, which will require insurance companies to quantify at least technical, operational and counterparty risks through new stochastic models. On income statements, written and earned premiums may change due the effect of registering annualized and anticipated premiums.

Fitch will continue to analyze information and will deliver additional commentary regarding individual companies or the entire Mexican insurance sector as this situation unfolds.

Additional information is available at 'www.fitchratings.com'.

Related Research

2016 Outlook: Mexican Insurance (Strong Finances, Regulatory Changes and Economic Challenges)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=876177

Mexican Insurers: December 2015 Financial Ratios (Challenging Economic and Regulatory Environment)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879911

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160510006139/en/

Fitch Ratings
Rosa Elena Turrubiartes
Analyst
+52 (81) 83-99-9100
Fitch Mexico
Prol. Alfonso Reyes 2612
Monterrey, Mexico
or
Eugenia Martinez
Associate Director
+52 (81) 83-99-9155
or
Milena Carrizosa
Director
+(571) 326-9999
or
Eduardo Recinos
Senior Director
+(503) 2516-6606
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: [email protected]

Source: Fitch Ratings

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