1. Implementing ICPs: Assessment as the First Step
Implementing ICPs: Assessment as the First Step Mexico’s (CNSF) experience
José Gerardo López Hoyo
Vice-president of Analysis and Sectorial Studies
Comisión Nacional de Seguros y Fianzas (CNSF)
Insurance and Sureties National Commission

2. Content Regulatory Changes / Regulatory Development in Mexico
On the road to International Standards (assessments).
Mexico’s assessment experience
Final Considerations / next steps

3. Regulatory Changes in Mexico.
40% Corporate Governance (independent actuaries, Fit & Proper, external auditors).
40% Risk Based Scheme (Capital and Liabilities)
10% Market Transparency
10% Public Policies
54% Investment regime
41% Public policies
5% Corporate government
30% Liberalization schemes (investments, foreign investment)
30% New insurance business lines
30% Public policies
10% Market Conduct
New Laws
1935 Insurance Institutions and Mutual Societies General Law (LGISMS)
2013 Insurance and Sureties Institutions Law (LISF)
Directive Regulation
Solvency Regulation
Solvency Regulation +
Three Pillars

4. Regulatory Development in Mexico.
Solvency Regulation
“+” Three Pillars (S-II type)
Solvency Regulation
2015 IAIS ICP’s Revision (4)
2003 IAIS ICP’s Revision (2)
2011 IAIS ICP’s Revision (3)
1994 IAIS is formed
1999 IAIS Insurance Core Principles (ICP) (1)
Directive Regulation
1930
1940
1950
1960
1970
1980
1990
2000
2010
2020

5. On the road to International Standards (assessments).
Assessment processes:
Facilitate identifying financial and economic vulnerabilities;
Assess vs. International Standards and detect gaps in the regulatory structures and practices.
Provide elements for regulatory framework reforms.
Spectrum of assessment mechanisms
Self assessment coordinated by another supervisor
Self assessment based on accepted methodologies
Self assessment coordinated by external assessor
FSAP (WB-IMF)
Self assessment

6. On the road to International Standards (assessments).
ICP’s assessment:
Assessment Mechanisms:
Degree of rigor
Implementation (complexity)
Self assessment
Self assessment based on accepted methodologies
Self assessment coordinated by external assessor
Self assessment coordinated by another supervisor
Financial Sector Assessment Program
(FSAP)
O=observed: All essential criteria is met without any deficiency.
LO=largely observed: Minimum issues to fulfillment.
MNO=mostly not observed: Clear limits for adequate fulfillment
NO=not observed: An action plan must be prepared for its fulfillment.
NA: not applicable

7. Mexico’s experience1993-2006 O LO MNO NO
P-1: Organization of the Insurance Supervisor
P-2: Licensing
P-3: Changes in Control
P-4: Corporate Governance
P-5 Internal Controls
P-6: Assets
P-7: Liabilities
P-8: Capital Adequacy and Solvency
P-9: Derivatives
P-10: Reinsurance
P-11: Market Conduct
P-12: Financial Reporting
P-13: On-site Inspection
P-14: Sanctions
P-15: Cross Border business Operations
P-16: Coordination and Cooperation
P-17: Confidentiality NO
MNO LO O

8. Self-assessment vs FSAP 2011
P-1: Conditions for effective insurance Supervision
P-2: Supervisory objectives
P-3: Supervisory authority
P-4: Supervisory process
P-5 Supervisory cooperation and information sharing
P-6: Licensing
P-7: Suitability of persons
P-8: Changes in control and portfolio transfers
P-9: Corporate governance
P-10: Internal controls
P-11: Market analysis
P-12: Reporting to supervisors and off-site monitoring.
P-13: On-site inspection
P-14: Preventive and corrective measures.
P-15: Enforcement or sanctions.
P-16: Winding-up or exit from the market.
P-17: Group-wide supervision
P-18 Risk assessment and management.
P-19 Insurance activity
P-20 Liabilities
P-21 Investments
P-22 Derivatives and similar commitments
P-23 Capital adequacy and solvency
P-24 Intermediaries
P-25 Consumer protection
P-26 Information, disclosure and transparency toward markets
P-27 Fraud
P-28 Anti-money-laundering, combating the financing of terrorism
P-1: Conditions for effective insurance Supervision
P-2: Supervisory objectives
P-3: Supervisory authority
P-4: Supervisory process
P-5 Supervisory cooperation and information sharing
P-6: Licensing
P-7: Suitability of persons
P-8: Changes in control and portfolio transfers
P-9: Corporate governance
P-10: Internal controls
P-11: Market analysis
P-12: Reporting to supervisors and off-site monitoring.
P-13: On-site inspection
P-14: Preventive and corrective measures.
P-15: Enforcement or sanctions.
P-16: Winding-up or exit from the market.
P-17: Group-wide supervision
P-18 Risk assessment and management.
P-19 Insurance activity
P-20 Liabilities
P-21 Investments
P-22 Derivatives and similar commitments
P-23 Capital adequacy and solvency
P-24 Intermediaries
P-25 Consumer protection
P-26 Information, disclosure and transparency toward markets
P-27 Fraud
P-28 Anti-money-laundering, combating the financing of terrorism
P-1: Conditions for effective insurance Supervision
P-2: Supervisory objectives
P-3: Supervisory authority
P-4: Supervisory process
P-5 Supervisory cooperation and information sharing
P-6: Licensing
P-7: Suitability of persons
P-8: Changes in control and portfolio transfers
P-9: Corporate governance
P-10: Internal controls
P-11: Market analysis
P-12: Reporting to supervisors and off-site monitoring.
P-13: On-site inspection
P-14: Preventive and corrective measures.
P-15: Enforcement or sanctions.
P-16: Winding-up or exit from the market.
P-17: Group-wide supervision
P-18 Risk assessment and management.
P-19 Insurance activity
P-20 Liabilities
P-21 Investments
P-22 Derivatives and similar commitments
P-23 Capital adequacy and solvency
P-24 Intermediaries
P-25 Consumer protection
P-26 Information, disclosure and transparency toward markets
P-27 Fraud
P-28 Anti-money-laundering, combating the financing of terrorism NO
MNO LO O

9. FSAP 2011 Recommendations…
With respect to ICP-3:
“Approve the LISF to grant required powers to the CNSF for a more efficient supervision.”
“The introduction of an explicit mechanism for the appointment or withdrawal of the CNSF’s president or the members of the CNSF’s Board is recommended together with a mandate to publish the removal reasons whenever the president or a Board member is dismissed from duty. Consideration on the introduction of a term of office should be made.”
“The supervisory authority should have full discretion on resource allocation in accordance with its mandate, objectives, and the perceived risks. The supervisory agency needs to be able to hire key senior technical staff, in particular, when the new solvency regime enters in force. This could include consulting arrangements or direct salary supplements for high-level professional qualifications.”
With respect to ICP-9 and ICP-10:
“Pass the new law strengthening corporate governance and internal controls of the supervised entities.”
“A more intrusive supervisory approach should accompany the new law to permit proper monitoring and enforcement of the new governance and internal controls requirements. This will require additional resources.”
With respect to ICP-27:
“The new law should grant explicit power to the CNSF to require that the intermediaries or institutions have specific measures to prevent or detect the frauds in their operations, including providing counter-fraud training to management and staff. This is included in the current proposed law.”

10. FSAP 2011 Recommendations…
Downgrades:
With respect to ICP-6:
“Consideration should be made to introduce a transition period separating all life and nonlife operations, or appropriate measures should be introduced to warrant a segregated treatment of the risks on both a going-concern and a winding-up situation.”
With respect to ICP-15:
“Consider providing the CNSF with the power to arrange for a compulsory transfer of the obligations under the policies from a failing insurer to another willing insurer. This is explicitly addressed in Article 485 of the new proposed law.”
With respect to ICP-16:
“Requirements with respect to the maximization of the value of the liquidated assets and on the efficiency of the process should be included in the law to improve the procedure in winding up insurers. Article 393 of the LISF covers this recommendation.”
With respect to ICP-25:
“Given the existing level of insurance literacy, more detailed guidelines pertaining to the offering, sales operations, and financial services of the insurance and surety institutions, seeking to protect the public should be issued.
Given the low insurance penetration and insurance culture in Mexico, requirements for more clarity and transparency in the contracts aiming to protect insurance consumers is needed. The CNSF, together with CONDUSEF, should continue to increase their efforts in this area.”
With respect to ICP-28:
“Implement the missing AML-CFT requirements of the FATF recommendations.”

11. FSAP 2011 Recommendations…
Upgrades:
With respect to ICP-18:
“It is recommended to formalize the requirement to have a Risk Committee when a defined complexity and/or size of the institution are reached, as recommended in the LISF.”

12. Self assessment 2016 O LO MNO NO
P-1: Conditions for effective insurance Supervision
P-2: Supervisory objectives
P-3: Supervisory authority
P-4: Supervisory process
P-5 Supervisory cooperation and information sharing
P-6: Licensing
P-7: Suitability of persons
P-8: Changes in control and portfolio transfers
P-9: Corporate governance
P-10: Internal controls
P-11: Market analysis
P-12: Reporting to supervisors and off-site monitoring.
P-13: On-site inspection
P-14: Preventive and corrective measures.
P-15: Enforcement or sanctions.
P-16: Winding-up or exit from the market.
P-17: Group-wide supervision
P-18 Risk assessment and management.
P-19 Insurance activity
P-20 Liabilities
P-21 Investments
P-22 Derivatives and similar commitments
P-23 Capital adequacy and solvency
P-24 Intermediaries
P-25 Consumer protection
P-26 Information, disclosure and transparency toward markets
P-27 Fraud
P-28 Anti-money-laundering, combating the financing of terrorism
P-1: Conditions for effective insurance Supervision
P-2: Supervisory objectives
P-3: Supervisory authority
P-4: Supervisory process
P-5 Supervisory cooperation and information sharing
P-6: Licensing
P-7: Suitability of persons
P-8: Changes in control and portfolio transfers
P-9: Corporate governance
P-10: Internal controls
P-11: Market analysis
P-12: Reporting to supervisors and off-site monitoring.
P-13: On-site inspection
P-14: Preventive and corrective measures.
P-15: Enforcement or sanctions.
P-16: Winding-up or exit from the market.
P-17: Group-wide supervision
P-18 Risk assessment and management.
P-19 Insurance activity
P-20 Liabilities
P-21 Investments
P-22 Derivatives and similar commitments
P-23 Capital adequacy and solvency
P-24 Intermediaries
P-25 Consumer protection
P-26 Information, disclosure and transparency toward markets
P-27 Fraud
P-28 Anti-money-laundering, combating the financing of terrorism NO
MNO LO O

13. Final Considerations Regulatory adequacy is a continuous process.
Market changes   conditions change   regulation change;
The best way to confirm that market is changing is by considering what is happening in other jurisdictions and knowing what is happening in their markets.
There is always a resistance to change / modify existing conditions.
Support is helpful (international institutions, government entities, Congress, Industry associations, etc.).
Self-assessments give us an idea on where we are.
Third party assessments support the required change.
Next steps
FSAP 2016 (partial)
Self assessment (Revised ICP’s  2015)

14. Implementing ICPs: Assessment as the First Step
Implementing ICPs: Assessment as the First Step Mexico’s (CNSF) experience
José Gerardo López Hoyo
Vice-president of Analysis and Sectorial Studies
Comisión Nacional de Seguros y Fianzas (CNSF)
Insurance and Sureties National Commission