New Regulations for Insurance and Reinsurance Activities in Mexico

August 24, 2007
New Regulations for Insurance and Reinsurance Activities in Mexico

On July 24 the Department of Finance and Public Credit (SHCP) published in the Official Journal of the Federation (DOF) newregulations for insurance and reinsurance transactions denominated in foreign currency by mutual insurance institutions and companiesin Mexico (Reglas para operaciones de seguro y reaseguro en moneda extranjera celebradas por instituciones y sociedades mutualistasde seguros en el país). The new regulations establish that insurance institutions and companies in Mexico may assume up to 100% oftheir technical reserves risks derived from insurance policies denominated in foreign currency. In addition, the regulations provide forthe issuance of insurance policies denominated in foreign currency, as well as corresponding reinsurance contracts assigned and/or pre-assigned, including those of foreign reinsurance companies registered with the General Registry of Foreign Reinsurers to Engage inReinsurance and Refinancing in Mexico maintained by the SHCP. This registration must be carried out in accordance with the rulesdictated by the National Commission of Insurance and Bonds (Comisión Nacional de Seguros y Fianzas), considering: i) theestablishment of a position for each currency it manages; ii) application of “Equivalency to currencies of various countries with theUnited States of America dollar” of a determined position, corresponding to the month in question as issued by the Banco de Méxicoand published in the DOF; and iii) once the foreign currency has been converted into U.S. dollars, such amounts must be valued inaccordance with the exchange rate applicable to foreign denominated obligations paid in the Mexican Republic on the last working dayof the month in which such transaction occurs, which exchange rate is published by the Banco de México in the DOF. The regulationsprovide that amounts insured in foreign currency contracted for in the respective insurance policies, and the obligation to pay suchamounts, shall be settled in accordance with the terms of the Mexican Monetary Law (Ley Monetaria).

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