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Regional Watch Broker Version MEXICO International Markets Market Intelligence February 2010 FOR BROKERS Disclaimer MEXICO: country dashboard GDP 2008 USD 1,088BN GDP SIZE IN USD BN AND GDP GROWTH 1500 Agriculture 4% 1000 Industry 34% OVERVIEW GDP SIZE: 13th worldwide (UK ranks 6th) 15% 952 1025 1,088 10% 500 5% 0 0% Services 62% 2006 2007 2008 NON-LIFE DWP 2008 USD 10.7BN DWP SIZE IN USD BN AND DWP GROWTH INSURANCE Property 12% 15 Liability 3% MAT 4% Rest 36% Credit 5% Motor 37% 10 10.7 8.4 5 0 Construction & Engineering 3% LLOYD’S MAT 23% Liability 4% Motor 1% Property 35% Liability 46% Property 71% 15% TOP 5 INSURERS: ING, GNP, Inbursa, Qualitas and Aba/Seguros together control 36% of market share in 2007. 10% KEY CLASSES: Motor and Property 5% REINSURANCE: USD 2.1bn in 2005 (estimate) 0% NON-LIFE MARKET PENETRATION: ~ 1% OVERVIEW SIZE: 13th for Lloyd’s (UK ranks 2nd) 100% Health 1% MAT 10% 306 300 227 240 75% 200 50% 100 25% 0 0% distribution 2006 2007 2008 The insurance market in Mexico is dominated by brokers and agents. Direct sales and bancassurance currently represent weak channels. Since 1984, all brokers need to be registered with the CNSF. Major international brokers playing in Mexico are: Aon, Marsh and Willis. catastrophes click for basic information click for detailed information CHALLENGES: an economy affected by high crime, the economic crisis and delays on essential structural reforms. SIZE: 21st worldwide (UK ranks 3rd) GWP SIZE IN USD MN AND DWP GROWTH 400 Misc 8% STRENGTHS: a notable manufacturing power, with good control over its foreign debt and a young and growing working population. 2006 2007 2008 NON-LIFE GWP 2008 USD 306M Misc 1% GLOBAL COMPETITIVENESS: N/A OVERVIEW 20% 9.9 EASE OF DOING BUSINESS: 56th worldwide TOP 5 MAs: write 17% of non-life GWP KEY CLASSES: property and MAT REINSURANCE: USD 292m (95%) LLOYD’S MARKET SHARE: ~ 2.9% STATUS: no direct licence. Direct insurance only if CNSF approves placement with a nonadmitted insurer. Licenced reinsurer. OFFICE: no office REGULATIONS ECONOMY Back To > Regional Dashboard COMPULSORY CLASSES: Third party liability for motor, fishing vessels, aircrafts & fare paying passengers, liability for carriers, hotelkeepers and transporters or dealers of dangerous substances, D&O, P&I and CAT on time-share apartments. REGULATOR OF INSURERS AND INTERMEDIARIES: www.cnsf.gob.mx Mexico is susceptible to hurricanes (high), earthquakes (med) and droughts (med). Market Intelligence data based on: AMIS, CNSF, Global Edge, Global Opportunities, Lloyd’s Crystal, Lloyd’s Xchanging, Munich Re, Swiss Re Sigma and the World Economic Outlook Database. DWP = direct written premiums. GWP = gross written premium (includes reinsurance). Claims ratio = claims as % of GWP earned from 2005 to 2008. Disclaimer MEXICO: economy Back To > Country Dashboard overview ECONOMIC CRISIS: Mexico is a free market economy with strong trade links to both the US and Canada, to whom it delivers over 80% of its exports. This close tie to the US has left Mexico very exposed to the current economic crisis, with Mexico recording no GDP growth over 2008 – 2009. The government, led by president Calderon, claims that economic recovery is imminent, although there has currently been no published data to support this statement and consumer confidence remains low. OTHER CHALLENGES: The Mexican manufacturing industry is facing tough competition from China. It has since become very competitive and is now focusing on logistics and value added products. Furthermore, corruption, crime, fraud and violence remain a problem and the disparity between the poor and the rich is still very large. OIL AND PEMEX: In 2008, Mexico was the world’s 7th largest oil producer. State owned PeMex (Petroleos Mexicanos) holds a monopoly on oil production in the country, and is one of the world’s largest oil companies. The oil sector is still a crucial component of the Mexican economy – with the government relying on its earnings to generate in excess of 40% of its tax revenues. Oil production is however on the decline, with few funds available to invest in exploration. Market Intelligence data based on Global Edge, local information and Google searches Disclaimer MEXICO: insurance market (1 of 2) Back To > Country Dashboard Latin AMERICA SMALL BUT GROWING: The Latin American insurance market is slow but with strong potential for growth, with Brazil and Mexico dominating the region and accounting for approximately two thirds of all premiums. LOW PENETRATION: The Latin American market displays many of the characteristics of emerging markets – most notably low penetration rates. A non-life penetration of approximately 1% in Mexico compares to an established markets world average of approximately 3.5%. PROFITABLE: The Latin American insurance market is reported to be largely profitable and combined ratios are generally strong. In Brazil and Mexico, returns on equity have been in excess of 10% over the last 5 years. THE MARKET: The Mexican insurance market is the second largest insurance market in Latin America after Brazil. Growth has been strong, excluding a lull between 2002-2004, with market size more than doubling in the last decade. Premium growth is expected to be very low in 2009, as a result of weak economic conditions. DWP SIZE (USD bn) AND GROWTH 15 30% 9.9 INSURANCE overview 10 6 5 4.2 6.9 6.7 7.1 7.6 10.7 20% 8.4 5 10% 0 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 MARKET PENETRATION: Non-life insurance market penetration in Mexico is still very low at approximately 0.98% in 2008, just up from 0.93% in 2004 and 0.78% in 2000. AMIS, the Mexican Association of Insurance Services, believes that this current low penetration level is a good indicator for significant future growth of the Mexican insurance market. Reinsurance OVERVIEW MARKET PROFITABILITY: A report by Benfiled (2007) states that Mexico is a profitable, albeit small, insurance market. Earnings in primary insurance have been positive for 2000-2005, with cumulative net profits of USD 3.1bn. The average combined ratio over the same period was 97%.Notwithstanding major hurricanes in 2005, the market remained profitable (96%). In 2007, 371 reinsurers were registered with CNSF. The reinsurance market however, was largely characterised by 2 local reinsurers, 11 representative offices of foreign reinsurers and 30 reinsurance brokers. The two (and only) local reinsurers are Reaseguradora Patria and QBE del Istmo. Active foreign reinsurers include: Gen Re, Hannover Re, Munich Re, Mapfre Re, Mitsui Sumitomo, Tokio Marine Global and Swiss Re. Little is known about the size of the Mexican reinsurance market, although 2005 estimates place it at approximately USD 2.1bn. Of this total amount, only USD 115m (5.5%) was reinsured with the two local reinsurers, with the remainder going to foreign reinsurers. The local market is hence heavily reliant on foreign reinsurers, most probably due to the high CAT exposure and the low retention of local insurance companies. This might change however, as Mexican insurers look to retain a greater proportion of the premiums. Market Intelligence data based on AMIS, Benfield 2007 – Latin America Insurance Market Review - Focus on Brazil and Mexico, and CNSF, Disclaimer MEXICO: insurance market (2 of 2) Back To > Country Dashboard INSURANCE Market players MARKET COMPOSITION: Following the liberalisation of the Mexican insurance market in 1994 and the relaxation of restrictions on foreign participants in 2000, foreign insurance companies have been strengthening their presence in Mexico. Some of these international players include: ING, ABA, Zurich and AIG. The top 5 players, of which ING is the only foreign insurer, controlled 36% of market share in 2007. Overall, market share was split 59% to 41% between foreign insurers and Mexican owned insurers in 2007. KEY PLAYERS: Of the top 5 insurers in Mexico, the top insurer (ING) is international, whilst the other 4 are Mexican owned. ING: After purchasing Santander’s pension assets and selling its Mexican non-life insurer, ING is shifting its Mexican focus to the pensions and life insurance. Its share of Mexican market premiums was 9.5% in 2008. GNP: The largest Mexican owned insurer and part of the Mexican financial group Grupo BAL – one of Mexico’s largest and most diverse business conglomerates. Its share of Mexican market premiums was 8.3% in 2008. INBURSA: The company is part of the local group Grupo Financiero Inbursa and as an insurer covers most major business classes. Its share of Mexican market premiums was 7.4% in 2008 QUALITAS: Established in 1994, Qualitas is a specialist motor insurer and Mexico’s largest motor insurer controlling 20% of motor premium. The company has risen rapidly, most probably due to its widespread office network, and in 2007 controlled 7.3% of market share. ABA: The company is part of GMAC Insurance, ABA specialises in damage to home, companies and cars as well as casualty. Its share of Mexican market premiums was 3.4% in 2007. Key classes MOTOR: At USD 3.69bn in 2008, motor is currently Mexico’s largest class. Motor insurance is nor yet a legal requirement in Mexico (excepting third party motor liability) and it is estimated that only 40% of cars are insured. PROPERTY: At USD1.28bn in 2008, property is Mexico’s second largest class. At USD 217m in 2008, Lloyd’s writes a significant proportion of this class (17%). Current estimates indicate that about 20% of Mexico’s 25m households do not hold any type of insurance coverage at all, with 97% of all households having no earthquake coverage whatsoever. Clearly, there is scope for growth within this class. It should be noted however, that the prevalence of hurricanes on Mexico’s coast can lead to exceedingly high claims ratio for property, such as 210% in 2005 following hurricanes Emily, Stan and Wilma. INFRASTRUCTURE: Massive government investment in infrastructure projects should also present future opportunities, especially for the London market, perceived as it is as a centre of excellence for the underwriting of such projects. The following slide shows size, growth and claims ratio for all classes of business between 2006-2008 based on data gathered from AMIS. Market Intelligence data based on AMIS data, the Insurance Information Institute, the website of relevant insurance companies and Google searches Disclaimer MEXICO: classes of business CLASS SIZE Back To > Country Dashboard GWP SIZE (USD M) & GROWTH CLASS OVERVIEW 15 10 9.9 10.7 8.4 5 0 CLAIMS RATIO 20% 100% 15% 75% 10% 50% 5% 25% 0% 0% 2006 2007 2008 PROPERTY Property 12% 1800 1200 1260 20% Other 88% 0% 0 -20% LIABILITY 600 400 350 57% 49% 25% 100% Liability is a small class (3%) with erratic growth; 330 0% 50% 25% 0 -20% 600 20% 29% 400 40% 410 20% 100% MAT Other 88% 0% 0 52% -20% 6000 0% 2006 2007 2008 20% MOTOR 4060 4000 3950 3605 10% 100% 75% 74% 73% 71% 2000 0% 0 -10% 25% 0% 2006 2007 2008 2006 2007 2008 Construc & eng. Other 88% 600 20% 400 270 310 52% 0% 50% -20% 0% 2006 2007 2008 2006 2007 2008 477 530 426 15% 10% 100% Credit is a small class (5%) showing strong growth since 2006; 75% Along with construction and engineering, it was the only class to grow in 2008; credit 50% 200 Credit 5% 5% 0 0% 2006 2007 2008 Along with credit, it was the only class to grow in 2008; Claims ratio for construction and engineering alone are erratic. 29% 0 400 64% 25% 600 Other 88% Construction and engineering is a small class (3%) showing growth since 2006; 100% 75% 345 200 Construction & Engineering 3% Motor is the largest class (37%) in Mexico; The claims ratio for motor alone are consistently above the average Mexican claims ratio. 50% Motor 37% MAT is a small class (4%) with erratic growth; The claims ratio for MAT alone are comparable to the average Mexican claims ratio. 50% 25% 2006 2007 2008 Other 88% 73% 75% 50% 200 The claims ratio for liability alone are low (approx 25%) and consistently below the average Mexican claims ratio. 2006 2007 2008 495 395 24% 0% 2006 2007 2008 MAT 4% Claims ratio for property alone are erratic. Hurricane Dean and landslides in Chiapas resulted in a 92% claims ratio in 2007. Hurricanes Emily, Stan and Wilma gave a 210% claims ratio in 2005. 0% 75% 200 Other 88% Property is a relatively large class (12%); 92% 2006 2007 2008 20% 395 Key classes in Mexico (discounting unknown) are motor and property; Average claims ratio across Mexico are medium (between 60% and 70%). 75% 2006 2007 2008 Liability 3% 61% Insurance market growth has been strong; 100% 50% 600 67% 2006 2007 2008 40% 1520 1170 61% OVERVIEW 25% 19% 13% 14% 0% 2006 2007 2008 Claims ratio for credit alone are very low (approx 15%) and consistently below the average Mexican claims ratio. Disclaimer MEXICO: LLOYD’S POSITION Back To > Country Dashboard LLOYD’S GWP SIZE (USD MN) AND GROWTH 400 CLASS GWP AS % OF TOTAL DWP 100% 120% LIABILITY 300 80% 200 40% 100 0% MAT MISC HEALTH overview 0 80% PROPERTY -40% 02 03 04 05 06 07 08 60% 40% 20% 0% 01 02 03 04 05 06 07 08 Lloyd’s GWP growth since 2002 has been erratic if largely positive. CAGR since 2002 has been approximately 14%. The chart on the right illustrates how different classes have been fairing within Lloyd’s, as a percentage of total GWP written by Lloyd’s that year. Lloyd’s key classes have always been property and MAT. In the past however, the two classes were more fairly balanced. Over the last 6 years, the proportion of GWP written in property has increased at the expense of that written in MAT. Note that Lloyd’s is a significant player in both the property and MAT Mexican market. Liability, Miscellaneous and Health have always been minor classes for Lloyd’s. Lloyd’s top 10 Managing Agents write approximately 30% of GWP, whilst Lloyd’s top 10 brokers place approximately 45%of Lloyd’s GWP. overview MEXICO: REGULATIONS The CNSF (Comisión Nacional de Seguros y Fianzas or the National Commission For Insurance And Surety), is the sole regulator of insurance in Mexico. overview MEXICO: catastrophes Mexico is susceptible to natural catastrophes. In particular, its coastal regions are very susceptible to hurricane damage. In the last 5 years, Mexico has witnessed the following major natural catastrophes: - September 2009, Hurricane Jimena, approx USD 40m - July 2008, Hurricane Dolly, approx USD 300m - November 2007, floods and landslide in Chiapas, approx USD 2500m - August 2007, Hurricane Dean, approx 600m - October 2005, Hurricane Wilma, approx 5000m Market Intelligence data based on Lloyd’s XChanging, the CNSF, and Munich Re Nathan. Disclaimer Disclaimer This document is intended for general information purposes only. Whilst all care has been taken to ensure the accuracy of the information Lloyd's does not accept any responsibility for any errors or omissions. Lloyd's does not accept any responsibility or liability for any loss to any person acting or refraining from action as a result of, but not limited to, any statement, fact, figure, expression of opinion or belief obtained in this document.