|[January 28, 2013]
Fitch Publishes Special Report on the Mexican Insurance Industry
NEW YORK --(Business Wire)--
Fitch Ratings has published a special report on the Mexican insurance
industry. Fitch maintains a stable rating outlook for the Mexican
insurance industry, which indicates the agency believes most insurer
ratings will be affirmed as they are reviewed over the next 12 - 24
The Mexican insurance sector experienced recovery in its combined ratio
to 101% in September 2012 (an average of 105% in last three years). This
was due to solid annual premiums growth (11% in real terms), and a net
loss ratio reduction to 69.5% in September 2012 from 72% in September
2011. The net loss ratio reduction was due to tariff increase actions,
stabilization of total cost of claims, and the improvement in the claims
environment, while catastrophic related losses were mitigated by
adequate catastrophic reinsurance and reserves.
Industry technical and mathematical reserve coverage reaches historic
high levels, as Total Reserves to Net Retained Premium's ratio stood
just below 200% in third-quarter 2012 after having exceeded that level
for the first time in 2011, reflecting the solid growth of life and
catastrophic lines that require large reserve accumulation.
An ample amount of accumulated reserves provides the sector a broad base
of resources available for investment, which translates into an
important financial income contribution (an average of 16% of net earned
premiums over the last four years). The significant investment income,
allows the industry to offset recurring operating losses and large
reserve constitution expenses, and achieve significant levels of
profitability (ROE: 20% in September 2012).
The industry's solvency is largely explained by the existing measures
used by Mexican insurance regulators to evaluate solvency margins, which
are based on stringent rules an requirements regarding adequate
technical reserve levels, reinsurance protection, and diversified
high-quality investments. However, in the Mexican insurance industry,
directly held equities make up a large portion of total capital (59% in
Sept. 30, 2012), which impacts the sector's liquidity position. Further
deterioration of liquidity ratios could negatively impact the industry's
The new insurance law, which was intended to introduce a risk-based
capital approach into the sector and has been under review for many
years was recently approved by the senate and is now being submitted to
the chamber of deputies to be tentatively implemented in 2014. Fitch
expects the new regulatory regime to lead to greater capital resources
and risk management, and also improve industry's transparency and
supervision. However, a return to aggressive pricing policies would have
a negative effect on the sector's profitability and could prompt a
revision of the outlook to negative.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Jan. 11, 2013).
Applicable Criteria and Related Research: 2013 Outlook: Mexican
Insurance Rating Methodology - Amended
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