There has been much speculation around the implications of:
- Brexit, which will occur in March 2019; and
- the possible termination of the North American Free Trade Agreement (NAFTA).
One of the clear benefits of both NAFTA and the free trade agreement entered into between Mexico and the European Union was the ability of NAFTA and EU insurers to acquire 100% ownership of Mexican insurers. This exemption from the 49% foreign investment restriction otherwise affecting investment from other countries provided a significant advantage for US and EU insurers establishing themselves in Mexico. The exemption enabled foreign insurers in Mexico to establish affiliates as long as their parent companies undertook, either directly or indirectly, the same underwriting activities as in their home countries.
However, in January 2014 the 49% foreign investment ownership restriction was eliminated. Thus, from that date, foreign insurers have been able to acquire up to 100% ownership of Mexican insurers, regardless of whether they are from a NAFTA or EU member state (or any other country with which Mexico has entered into a free trade agreement).
Consequently, affiliates of insurers located in EU and NAFTA member states will not be substantially affected by Brexit or the termination of NAFTA. Absent an amendment to the Foreign Investment Law, investments from the United Kingdom and NAFTA member states will continue to be legal and there will thus be no reason to disinvest in Mexican insurers.
However, given the specific regime applicable to affiliates (which differs from that applicable to non-afffiliates only with regard to minor corporate regulatory matters), it will be necessary to amend the applicable bylaws in order to change the regime from an affiliate regime to a normal regime. Such changes will require regulatory authorisation, which is expected to constitute a mere administrative process. Thus, the actual operation of affiliates from the United Kingdom and NAFTA member states is not expected to be materially affected.
As investments from such countries will cease to be protected under the investment protection rules applicable under the corresponding free trade agreements, the United Kingdom, the United States and Canada must familiarise themselves with other foreign investment protection treaties where applicable.
For further information on this topic please contact Carlos Ramos Miranda at Hogan Lovells BSTL SC by telephone (+52 55 5091 0000) or email (firstname.lastname@example.org). The Hogan Lovells BSTL SC website can be accessed at www.hoganlovells.com.
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