Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel...
Transcript of Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel...
Credit Insurance andSurety Markets in Mexico
International Credit Insurance & Surety Association MeetingGuadalajara, Jalisco
June 7, 2007
Credit Insurance andSurety Markets in Mexico
Manuel Aguilera-VerduzcoPresident, Insurance and Surety National Commission (CNSF)
June 7, 2007
Contents
1. Mexican insurance market: an overview
2. Credit insurance and surety markets
Commercial Credit Insurance
Surety
Mortgage Insurance
Financial Guaranty Insurance
3. Conclusions
Market structureInsurance industry
404047
1
52
30
0
20
40
60
80
100
1994(48)
1995(56)
1996(61)
1997(70)
1998(68)
1999(68)
2000(70)
2001(70)
2002(81)
2003(85)
2004(87)
2005(86)
2006(91)
Mar-07(92)
Mexican owned insurers Foreign subsidiaries
Source: CNSF
Market share% of direct written premium
3.1%
17.6%
41.3%
39.4%
97.0%
82.4%
37.1%
58.7%
60.6%
62.9%
0%
20%
40%
60%
80%
100%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07
Mexican owned insurers Foreign subsidiaries
Source: CNSF
Real growth rateDirect written premium
16.2%
2.6%
-20%
-10%
0%
10%
20%
30%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07
Direct written premium GDP
Source: CNSF, SHCP, INEGI
Market sizeWritten premiums
91,286
75,729
119,705
186,666
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*
(Mill
ions
ofpe
sos
atM
arch
2007
)
2007: annual estimation
Source: CNSF
Market share
H & A 17.2%
Annuities3.0%
Automobile24.4%
P&C (w/oAuto) 16.3%
Vida 39.1%
Growth share (pp.)
16.2%46,666.538,527.8Total
8.8%11,383.810,038.8Automobile
21.2%
22.6%
27.3%
15.8%
Real growth
7,618.76,034.6P&C (without auto)
8,030.46,288.2Health and Accidents
1,399.01,054.5Annuities
18,234.615,111.7Life
March 2007March 2006
Real growthDirect written premiums
3.3
6.2
0.72.3
3.7
0
2
4
6
8
10
12
14
H & A
Automobile
Annuities
Life
P&C (w/o auto)
Source: CNSF
Contents
1. Mexican insurance market: an overview
2. Credit insurance and surety markets
Commercial Credit Insurance
Surety
Mortgage Insurance
Financial Guaranty Insurance
3. Conclusions
OverviewCredit insurance and surety markets (1)
Traditionally, credit insurance and surety have covered companies forrisks associated to their commercial receivable accounts, protectingthem against the insolvency risk from their buyers (commercial creditinsurance).
Nevertheless, credit insurance and surety markets have undergone arapid transformation.
New market’s needs have motivated these financial institutions to offerinnovating products, specially for the area of credit risk administrationlinked to financial operations.
In Mexico, the portfolio share of credit insurance within P&C is 0.31%(vs. 1.0% of industrialized economies), due to the fact that, until lastyear, only commercial credit insurance was operated.
In the case of credit surety, its participation in the total portfolio was13.2%.
OverviewCredit insurance and surety markets (2)
On April, 2006, Mexican Insurance Law was amended in order to:
Incorporate two new lines of business:
Mortgage Insurance
Financial Guaranty Insurance
Establish that the operation of the three types of credit insurance:
Commercial Credit,
Mortgage, and
Financial Guaranty
should be carried out by mono-line insurers.
Additional changes in regulation might be needed in the future tocreate a new impulse for credit insurance.
Contents
1. Mexican insurance market: an overview
2. Credit insurance and surety markets
Commercial Credit Insurance
Surety
Mortgage Insurance
Financial Guaranty Insurance
3. Conclusions
Commercial credit insuranceReal growth rate (direct written premium)
36.7%
2.6%
-20%
-10%
0%
10%
20%
30%
40%
50%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07
Direct written premium GDP
Source: CNSF, SHCP, INEGI
Commercial credit insuranceMarket size (written premiums)
494
163
116
317
0
50
100
150
200
250
300
350
400
450
500
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07
(Mill
ions
ofpe
sos
atM
arch
2007
)
2007: annual estimation
Source: CNSF
Currently, 7 commercial credit insurance carriers operate in Mexico.
6.1%Coface
4.0%Grupo Nacional Provincial
2.8%CESCE (Seguros Bancomext)
6.2%Mapfre Seguros de Crédito
% Written PremiumCommercial credit insurance share
(March-07)Insurer
1.6%AIG México
35.9%Atradius
43.4%Euler
Source: CNSF
Commercial credit insuranceOperating insurers
Contents
1. Mexican insurance market: an overview
2. Credit insurance and surety markets
Commercial Credit Insurance
Surety
Mortgage Insurance
Financial Guaranty Insurance
3. Conclusions
Market structureSurety industry
8
11
206
4
1
0
5
10
15
20
25
1994(21)
1995(21)
1996(21)
1997(21)
1998(21)
1999(19)
2000(15)
2001(14)
2002(14)
2003(14)
2004(13)
2005(13)
2006(14)
Mar-07(14)
Mexican owned companies Foreign subsidiaries
Source: CNSF
Market share% of direct written premium
45.8%
44.0%
60.4%
99.5%
44.3%
54.2%39.6%
0.5%
56.0% 55.7%
0%
20%
40%
60%
80%
100%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07
Mexican owned companies Foreign subsidiaries
Source: CNSF
Real growth rateDirect written premium
10.5%
2.6%
-30%
-20%
-10%
0%
10%
20%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07
Direct written premium GDP
Source: CNSF, SHCP, INEGI
-1.20.1
13.4
-1.8-4
-2
0
2
4
6
8
10
12
Fidelity Judiciary Administrative Credit
Growth share (pp)Market share
Judiciary4.0%
Fidelity3.8%Credit
13.2%
Adminis.79.0%
1,126.9
185.3
833.1
63.0
45.5
March 2006
-11.0%171.9Credit
10.5%1,298Total
18.2%1,026Administrative
-21.8%51.3Judiciary
3.1%48.9Fidelity
Real growthMarch 2007
Real growthDirect written premiums
Source: CNSF
Market sizeWritten premiums
3,935
2,989
3,673 3,631
5,203
0
1,000
2,000
3,000
4,000
5,000
6,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*
(Mill
ion
peso
sat
Mar
ch20
07)
Source: CNSF
2007: annual estimation
Contents
1. Mexican insurance market: an overview
2. Credit insurance and surety markets
Commercial Credit Insurance
Surety
Mortgage Insurance
Financial Guaranty Insurance
3. Conclusions
Mortgage insuranceBackground
In order to stimulate the growth of both, the housing sector and themortgage market, it was necessary to meet the requirements of creditconsumers and the security requirements of creditors.
Traditionally, credits with an important percentage of down-paymentwere granted, but those consumers with lower capacity to give animportant sum for the down-payment were impeded to accessmortgages.
On the other hand, credit suppliers limited their own resources, inorder to limit their financial risk exposure, since they did not haveadditional guarantees.
A solution to the above mentioned problem was given by theestablishment of the mortgage insurance as an additional guarantee.
Credit portfolioGranted by Banks and Sofoles to the Private Sector
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
(Mill
ions
ofpe
sos
atD
ecem
ber
2006
) Sofoles
Commercial Banks
Development Banks
Source: BANXICO
Financing: Commercial Bank, Development Bank and SofolesCredits destined to: Private Sector = Agricultural, forestry and fishing sectors, Industrial, Services and others activities, Mortgage and ConsumptionCredit Sectors
Credit portfolioMortgages
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
(Mill
ions
ofpe
sos
atD
ecem
ber
2006
)
Sofoles
Development Banks
Commercial Banks
Source: BANXICO
Credit portfolioMortgages
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
(Mill
ions
ofp
eso
sa
tDec
em
ber
2006
)
Infonavit
Sofoles
Development Banks
Commercial Banks
Source: BANXICO
Annual Rate of Growth = 7.9%
0
20
40
60
80
100
120
140
160
180
200
220
240
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
(Bill
ion
dolla
rs)
Source: SHF
Credit portfolioMortgages: growth projection (2004-2020)
11.1%
27.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Net
herla
nds
US
A
UK
Aus
tralia
Ger
man
y
Irela
nd
Can
ada
Spa
in
Japa
n
Fran
ce
Mex
ico
(202
0)
Sou
thA
frica
Thai
land
Kore
a
Italy
Mex
ico(
2004
)
Bra
zil
Chi
na
Indi
a
Pol
and
Mor
tgag
eP
ortfo
lioB
alan
ce(%
GD
P)
Source: SHF
An annual GDP growth of 3% is assumed.
Credit portfolioMortgages / GDP
Mortgage insuranceCurrent situation
As of today, three companies have asked for license in order to operateas monoliners (MI):
Two subsidiaries from US companies, and
One Mexican company (state owned).
One of these companies has already received the CNSF’s favorableopinion, while the other two are under the CNSF’s study.
The three companies have been previously involved with the Mexicanmortgage market, either:
as foreign insurance institutions covering risks that could not be covered byestablished companies, or
as a second-tier mortgage creditors.
Contents
1. Mexican insurance market: an overview
2. Credit insurance and surety markets
Commercial Credit Insurance
Surety
Mortgage Insurance
Financial Guaranty Insurance
3. Conclusions
Financial guaranty insuranceBackground
Under macroeconomic stability, demand for credit is increasing.Therefore, the private sector requires efficient funding mechanisms.
In this sense, it is required to promote the securitization of the diverseportfolios (i.e. mortgage securitization) so that the financialinstitutions restore the available resources to continue grantingcredits, in order to satisfy the increasing demand.
Additionally, investors require security conditions when investing inthis type of bonds.
Therefore, it is necessary to increase credit quality of such bonds, by meansof the use of an additional guarantee.
Financial Guaranty Insurance covers the default of bonds’ issuers to pay(principal and interests) in time and under the conditions established tothe owner of the bond.
0
50,000
100,000
150,000
200,000
250,000
300,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
(Mill
ions
ofpe
sos
atD
ecem
ber
2006
)
Other Instruments Private Stock Market Certificates
Source: BANXICO
Other instruments includes: Commercial Bill, Medium Term bonds, Ordinary Participation Certificates,Medium Term Promissory Note, CBIC’s and PIC’s
Mexican debt corporate market
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2001 2002 2003 2004 2005 2006
(Milli
ons
ofpe
sos
atde
cem
ber2
006)
Governmental
Private
Source: BANXICO
Stock market certificates
Financial guaranty insuranceCurrent situation
As of today:
Two companies (subsidiaries from US companies) are in the last phaseof the licensing procedure to operate as monoliners.
Both of them have already received a favorable CNSF’s opinion.
As in the case of MI, such companies have been previouslyinvolved with the Mexican market under the figure of foreigninsurance institutions covering risks that could not be covered byestablished company in Mexico.
Contents
1. Mexican insurance market: an overview
2. Credit insurance and surety markets
Commercial Credit Insurance
Surety
Mortgage Insurance
Financial Guaranty Insurance
3. Conclusions
Conclusions
Credit insurance and surety are closely tied to economic growth.
In Mexico, on a parallel path, the insurance market has gonethrough an expansion period that has allowed the market toduplicate in real terms, during the last decade.
In coming years, demand for credit insurance is expected tocontinue growing faster than the GDP.
Credit insurers will be benefited from several broad trends:
The macroeconomic stability that has prevailed in Mexico since 1998.
The sustained economic dynamics.
The modernization of the regulatory framework, in line with theinternational standards and best practices.