docCredit Insurance and Surety Markets in Mexico
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Credit Insurance and Surety Markets in Mexico
Credit Insurance and Surety Markets in Mexico International Credit Insurance & Surety Association Meeting Guadalajara, Jalisco June 7, 2007 Credit 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 Market structure Insurance industry Mexican owned insurers Foreign subsidiaries 100 80 52 60 30 1 40 20 47 40 40 0 1994 (48) Source: CNSF 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) Market share % of direct written premium Mexican owned insurers 100% Foreign subsidiaries 3.1% 17.6% 97.0% 80% 82.4% 60.6% 60% 58.7% 62.9% 40% 39.4% 37.1% 41.3% 20% 0% 1994 Source: CNSF 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07 Real growth rate Direct written premium 30% Direct written premium GDP 20% 16.2% 10% 2.6% 0% 1994 -10% -20% Source: CNSF, SHCP, INEGI 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07 Market size Written premiums 200,000 186,666 (Millions of pesos at March 2007) 180,000 160,000 140,000 119,705 120,000 100,000 91,286 75,729 80,000 60,000 40,000 20,000 0 1994 2007: annual estimation Source: CNSF 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* Real growth Direct written premiums March 2006 March 2007 Real growth 15,111.7 18,234.6 15.8% Annuities 1,054.5 1,399.0 27.3% Health and Accidents 6,288.2 8,030.4 22.6% P&C (without auto) 6,034.6 7,618.7 21.2% Automobile 10,038.8 11,383.8 8.8% Total 38,527.8 46,666.5 16.2% Life Growth share (pp.) Market share Annuities 3.0% H & A 17.2% P&C (w/o Auto) 16.3% 14 12 10 Vida 39.1% 3.7 2.3 0.7 8 6 6.2 Source: CNSF 2 0 Automobile Annuities Life 4 Automobile 24.4% H&A 3.3 P&C (w/o auto) Contents 1. Mexican insurance market: an overview 2. Credit insurance and surety markets Commercial Credit Insurance Surety Mortgage Insurance Financial Guaranty Insurance 3. Conclusions Overview Credit insurance and surety markets (1) Traditionally, credit insurance and surety have covered companies for risks associated to their commercial receivable accounts, protecting them against the insolvency risk from their buyers (commercial credit insurance). Nevertheless, credit insurance and surety markets have undergone a rapid transformation. New market’s needs have motivated these financial institutions to offer innovating products, specially for the area of credit risk administration linked 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 last year, only commercial credit insurance was operated. In the case of credit surety, its participation in the total portfolio was 13.2%. Overview Credit 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 to create 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 insurance Real growth rate (direct written premium) 50% Direct written premium GDP 36.7% 40% 30% 20% 10% 2.6% 0% 1994 -10% -20% Source: CNSF, SHCP, INEGI 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07 Commercial credit insurance Market size (written premiums) 494 500 (Millions of pesos at March 2007) 450 400 350 317 300 250 200 150 163 116 100 50 0 1994 2007: annual estimation Source: CNSF 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07 Commercial credit insurance Operating insurers Currently, 7 commercial credit insurance carriers operate in Mexico. Insurer Source: CNSF % Written Premium Commercial credit insurance share (March-07) Euler 43.4% Atradius 35.9% Mapfre Seguros de Crédito 6.2% Coface 6.1% Grupo Nacional Provincial 4.0% CESCE (Seguros Bancomext) 2.8% AIG México 1.6% 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 structure Surety industry Mexican owned companies Foreign subsidiaries 25 20 1 15 4 6 10 20 11 5 8 0 1994 (21) Source: CNSF 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) Market share % of direct written premium Mexican owned companies Foreign subsidiaries 0.5% 100% 99.5% 80% 54.2% 39.6% 60% 55.7% 56.0% 60.4% 40% 44.0% 44.3% 45.8% 20% 0% 1994 Source: CNSF 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07 Real growth rate Direct written premium 20% Direct written premium GDP 10.5% 10% 2.6% 0% 1994 -10% -20% -30% Source: CNSF, SHCP, INEGI 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Mar-07 Real growth Direct written premiums March 2006 March 2007 Real growth Fidelity 45.5 48.9 3.1% Judiciary 63.0 51.3 -21.8% Administrative 833.1 1,026 18.2% Credit 185.3 171.9 -11.0% Total 1,126.9 1,298 10.5% Growth share (pp) Market share Fidelity Credit 13.2% Judiciary Administrative Fidelity Judiciary 3.8% 4.0% 12 10 Adminis. 79.0% 8 6 13.4 4 2 0 -2 -4 Source: CNSF 0.1 -1.2 -1.8 Credit Market size Written premiums 6,000 5,203 (Million pesos at March 2007) 5,000 4,000 3,935 3,673 3,631 2,989 3,000 2,000 1,000 0 1994 2007: annual estimation Source: CNSF 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 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 Mortgage insurance Background In order to stimulate the growth of both, the housing sector and the mortgage market, it was necessary to meet the requirements of credit consumers and the security requirements of creditors. Traditionally, credits with an important percentage of down-payment were granted, but those consumers with lower capacity to give an important sum for the down-payment were impeded to access mortgages. On the other hand, credit suppliers limited their own resources, in order to limit their financial risk exposure, since they did not have additional guarantees. A solution to the above mentioned problem was given by the establishment of the mortgage insurance as an additional guarantee. Credit portfolio Granted by Banks and Sofoles to the Private Sector (Millions of pesos at December 2006) 3,000,000 Sofoles 2,500,000 Commercial Banks 2,000,000 Development Banks 1,500,000 1,000,000 500,000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Financing: Commercial Bank, Development Bank and Sofoles Credits destined to: Private Sector = Agricultural, forestry and fishing sectors, Industrial, Services and others activities, Mortgage and Consumption Credit Sectors Source: BANXICO Credit portfolio Mortgages 500,000 Sofoles (Millions of pesos at December 2006) 450,000 Development Banks 400,000 Commercial Banks 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 1997 Source: BANXICO 1998 1999 2000 2001 2002 2003 2004 2005 2006 Credit portfolio Mortgages Infonavit 800,000 (Millions of pesos at December 2006) Sofoles 700,000 Development Banks 600,000 Commercial Banks 500,000 400,000 300,000 200,000 100,000 0 1997 Source: BANXICO 1998 1999 2000 2001 2002 2003 2004 2005 2006 Credit portfolio Mortgages: growth projection (2004-2020) Annual Rate of Growth = 7.9% 240 220 200 (Billion dollars) 180 160 140 120 100 80 60 40 20 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: SHF 0% Source: SHF An annual GDP growth of 3% is assumed. Poland India China Brazil 20% Mex ico(2004) Italy Korea Thailand South Afric a 30% Mex ico (2020) France Japan Spain Canada Ireland Germany Aus tralia UK USA Netherlands Mortgage Portfolio Balanc e (%GDP) Credit portfolio Mortgages / GDP 100% 90% 80% 70% 60% 50% 40% 27.7% 11.1% 10% Mortgage insurance Current situation As of today, three companies have asked for license in order to operate as monoliners (MI): Two subsidiaries from US companies, and One Mexican company (state owned). One of these companies has already received the CNSF’s favorable opinion, while the other two are under the CNSF’s study. The three companies have been previously involved with the Mexican mortgage market, either: as foreign insurance institutions covering risks that could not be covered by established 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 insurance Background 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 diverse portfolios (i.e. mortgage securitization) so that the financial institutions restore the available resources to continue granting credits, in order to satisfy the increasing demand. Additionally, investors require security conditions when investing in this type of bonds. Therefore, it is necessary to increase credit quality of such bonds, by means of 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 to the owner of the bond. Mexican debt corporate market Other Instruments Private Stock Market Certificates (Millions of pesos at December 2006) 300,000 250,000 200,000 150,000 100,000 50,000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 Other instruments includes: Commercial Bill, Medium Term bonds, Ordinary Participation Certificates, Medium Term Promissory Note, CBIC’s and PIC’s Source: BANXICO 2003 2004 2005 2006 Stock market certificates 450,000 400,000 (Millions of pesos at december 2006) Governmental 350,000 Private 300,000 250,000 200,000 150,000 100,000 50,000 0 2001 Source: BANXICO 2002 2003 2004 2005 2006 Financial guaranty insurance Current situation As of today: Two companies (subsidiaries from US companies) are in the last phase of 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 previously involved with the Mexican market under the figure of foreign insurance institutions covering risks that could not be covered by established 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 gone through an expansion period that has allowed the market to duplicate in real terms, during the last decade. In coming years, demand for credit insurance is expected to continue 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 the international standards and best practices. Credit Insurance and Surety Markets in Mexico www.cnsf.gob.mx [email protected]
