New Solvency II-type regime boosts insurance sector in Mexico

The transition to a new solvency regime in Mexico based on the principles of Europe’s Solvency II has resulted in lower levels of required technical reserves allowing the country’s insurers to enjoy an immediate benefit to earnings, according to an AM Best briefing.

The rating agency's briefing, titled “initial impact of Solvency II regulations and supervision on Mexico’s insurance market,” states that the operating performance of the sector in first-quarter 2016 was favourable, coming on the heels of the implementation of the Pillar I framework, which sets out quantitative requirements.

According to preliminary results from Mexico’s regulator, the country’s insurance sector grew premiums by 14.5 percent in the first quarter of 2016 compared with the same period a year ago, and insurers recorded an average combined ratio of 91 percent.

Overall, as of March 2016, the Mexico insurance sector recorded a profit of Ps12.2 billion ($636.5 million), which in just one quarter, represents nearly half of the profit generated during 2015.

The first quarter 2016 results reflect the Pillar 1 framework, which came into effect at the start of 2016, and includes a comprehensive economic balance sheet assessment and a calculation of technical provisions by the best-estimate criteria.

In particular, life insurance operations grew 25.7 percent in the first quarter of 2016 year over year, mainly due to accounting records changing from being based upon receipt of payment, to being recorded according to the contract term.