Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel...

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Credit Insurance and Surety Markets in Mexico International Credit Insurance & Surety Association Meeting Guadalajara, Jalisco June 7, 2007

Transcript of Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel...

Page 1: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

Credit Insurance andSurety Markets in Mexico

International Credit Insurance & Surety Association MeetingGuadalajara, Jalisco

June 7, 2007

Page 2: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

Credit Insurance andSurety Markets in Mexico

Manuel Aguilera-VerduzcoPresident, Insurance and Surety National Commission (CNSF)

June 7, 2007

Page 3: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, 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

Page 4: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 5: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 6: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 7: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 8: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 9: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, 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

Page 10: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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%.

Page 11: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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.

Page 12: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, 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

Page 13: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 14: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 15: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 16: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, 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

Page 17: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 18: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 19: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 20: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

-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

Page 21: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 22: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, 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

Page 23: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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.

Page 24: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 25: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 26: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 27: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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)

Page 28: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 29: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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.

Page 30: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, 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

Page 31: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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.

Page 32: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 33: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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

Page 34: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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.

Page 35: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, 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

Page 36: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

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.

Page 37: Credit Insurance and Surety Markets in Mexico Insurance and Surety Markets in Mexico Manuel Aguilera-Verduzco President, Insurance and Surety National Commission (CNSF) June 7, 2007

Credit Insurance andSurety Markets in Mexico

www.cnsf.gob.mx

[email protected]