New internal criteria imposed by the Ministry of Finance and Public Credit are delaying various foreign reinsurers in securing registration or renewal with the Registry of Foreign Reinsurance Companies.
While there have been no recent changes to insurance law or the rules on the general registration of foreign reinsurers, the new criteria imposed by the ministry suggest the need for strict compliance with all requirements in order to secure and maintain registration.
Registration is required in order for local underwriters to cede risks to foreign reinsurers. Local underwriters ceding risk to non-registered reinsurers must create special reserves and face penalties for non-compliance with this rule. Since the local reinsurance market is neither large nor robust enough to accept all risks to be ceded, the ministry has been flexible in the interpretation of the law and rules and sometimes also in their application, which has resulted in an easy registration process overall. The practical consequences of such a policy have included a greater array of options for local underwriters to cede risks under the best conditions available internationally.
Recently, the interpretation and application of the rules have changed. As part of the new policy, the ministry now requires the formal appointment of local representatives to file application requests. This entails the need to secure a power of attorney granted abroad, which is further required to be notarised and either apostilled or legalised and thereafter notarised in Mexico in order for a registration application to be filed. The ministry also requires that all documents submitted as evidence of the credit rating and standing of the foreign reinsurer be apostilled (whereas previously, a simple print-out of the rating was sufficient).
Furthermore, the ministry now undertakes a much more detailed analysis of the actual regulatory framework applicable to the foreign reinsurer in order to ensure that it is effectively authorised to undertake reinsurance from foreign risks (eg, those located in Mexico), from both a corporate (bylaws) and regulatory perspective. Thus, reinsurers will now have to provide evidence of the regulatory framework under which they operate, allowing for reinsurance undertakings and specific authorisations for such activities.
While this new policy should be welcomed, as it is aimed at ensuring the strength and solvency of the reinsurance market in Mexico, it has nonetheless posed serious problems to many reinsurers seeking to secure or renew their registration.