Modifying Circular 17/19 of the Single Insurance and Surety Circular

DOF: 04/12/2019

Modifying Circular 17/19 of the Single Insurance and Surety Circular

A seal with the National Coat of Arms, which reads: United Mexican States.- SHCP.- Ministry of Finance and Public Credit.- National Insurance and Sureties Commission.

MODIFYING CIRCULAR 17/19 OF THE SINGLE INSURANCE AND SURETY CIRCULAR

(Provision 1.1.1.)

The National Insurance and Sureties Commission, based on the provisions of articles 366, fraction II, 372, fractions VI and XLII, 373 and 381 of the Law of Insurance and Surety Institutions, and

CONSIDERING

That with the objective of providing greater legal certainty regarding the regulatory framework to which insurance institutions and mutual societies, surety institutions, and other persons and entities subject to the inspection and supervision of the National Insurance and Sureties Commission must adhere, it is deemed necessary to make some modifications and additions related to technical aspects of the Single Insurance and Surety Circular, published in the Official Gazette of the Federation on December 19, 2014.

That in Provision 1.1.1. of the Single Insurance and Surety Circular, the necessary definitions of the concepts used in said regulation are established, for the purposes of their timely understanding, so that, particularly in the definitions referred to in fraction CXLV regarding the "Certain Transfer of Liabilities Assumed by Active Sureties", and fraction CXLVI regarding the "Certain Transfer of Insurance Risk", it is necessary to make clarifications related to the different ways in which the certain transfer of risk can be carried out, whether in proportional reinsurance or reinsuring contracts, as well as in non-proportional ones.

That in this context, and with the objective that the aforementioned entities have the necessary elements to carry out the certain transfer of risk, in accordance with the definitions in the applicable regulation, this National Insurance and Sureties Commission has determined it convenient to update the definitions cited in the preceding paragraph.

For the aforementioned reasons, the National Insurance and Sureties Commission has resolved to issue the following modification to the Single Insurance and Surety Circular in the following terms:

MODIFYING CIRCULAR 17/19 OF THE SINGLE INSURANCE AND SURETY CIRCULAR

(Provision 1.1.1.)

FIRST. -

Provision 1.1.1. of the Single Insurance and Surety Circular is modified, to read as follows:

TITLE 1.

OF THE PRELIMINARY PROVISIONS

CHAPTER 1.1.

OF THE PRELIMINARY PROVISIONS

For the purposes of these Provisions, and in accordance with what is stated in article 2 of the Law of Insurance and Surety Institutions, the following shall be understood:

I to CXLIV.- ...

CXLV.

Certain Transfer of Liabilities Assumed by Active Sureties, is the transfer of liabilities that occurs between an institution that cedes (ceding institution) part of the liabilities derived from a certain set of surety policies or reinsuring contracts that it has subscribed under its charge (reinsured portfolio), and another institution that takes said part of liabilities (reinsuring institution), within the framework of a reinsurance contract, in which it is agreed, from the beginning of the validity of the reinsurance or reinsuring contract, that the reinsurer or reinsurer will pay, obligatorily and indistinctly, a proportion of each of the future claims arising from the ceded liabilities, or it is agreed that the reinsurer will pay the loss ratio that exceeds a certain amount, provided that in these cases, it can be verified that the condition is met that the net liability for the payment of future claims derived from the reinsured portfolio, under any scenario of future behavior of the same, except for those scenarios that contemplate claim amounts whose magnitude is greater than any other with a possibility inferior to 1/200, results lower than the expected value of the gross claims obtained without considering the coverage of the reinsurance or reinsuring contract in question, or when said condition is met in at least 99% of the scenarios of future behavior of the claims arising from the reinsured portfolio in the case of non-proportional risk-by-risk reinsurance contracts known as working cover, determining the expected value of future claims, as the participation of the reinsurer considered in the recoverable amounts of reinsurance, in accordance with the principles and procedures established for the constitution and valuation of technical reserves provided for in the LISF and in Title 5 of these Provisions;

CXLVI.

Certain Transfer of Insurance Risk, is the transfer of risk that occurs between an institution that cedes (ceding institution) part of the risks derived from a certain set of insurance or reinsurance policies that it has subscribed under its charge (reinsured portfolio), and another institution that takes said part of risks (reinsuring institution), within the framework of a reinsurance contract, in which it is agreed, from the beginning of the validity of the reinsurance contract, that the reinsurer will pay, obligatorily and indistinctly, a proportion of each of the future claims arising from the ceded risks, or it is agreed that the reinsurer will pay the loss ratio that exceeds a certain amount, provided that in these cases, it can be verified that the condition is met that the net liability, of the ceding institution, for the payment of future claims derived from the reinsured portfolio, under any scenario of future behavior of the same, except for those scenarios that contemplate claim amounts whose magnitude is greater than any other with a possibility of occurrence inferior to 1/200, results lower than the expected value of the gross loss ratio obtained without considering the coverage of the reinsurance in question, or when said condition is met in at least 99% of the scenarios of future behavior of the claims arising from the reinsured portfolio in the case of non-proportional risk-by-risk reinsurance contracts known as working cover, determining said expected value, in accordance with the method of calculation of the best estimate of obligations for future loss ratio, taking into account that, both the calculation of the referred expected value of future loss ratio, as well as the participation of the reinsurer considered in the recoverable amounts of reinsurance, adhere to the principles established for the constitution and valuation of technical reserves provided for in the LISF and in Title 5 of these Provisions;

CXLVII to CLV.- ...

The foregoing is made known to you, based on articles 366, fraction II, 372, fractions VI and XLII, 373 and 381 of the Law of Insurance and Surety Institutions.

TRANSITORY

SINGLE. - This Modifying Circular shall enter into force from the day following its publication in the Official Gazette of the Federation.

Respectfully

Mexico City, November 13, 2019. - The President of the National Insurance and Sureties Commission, Ricardo Ernesto Ochoa Rodríguez.- Signature.

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