Official Letter Revoking Authorization for Istmo Mexico Reinsurance Company to Operate as an Insurance Institution

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DOF: 25/09/2017

OFFICIAL LETTER revoking the authorization to operate as an insurance institution for Istmo Mexico, Reinsurance Company, S.A. de C.V.

At the margin, a seal with the National Coat of Arms, which reads: United Mexican States.- Ministry of Finance and Public Credit.- National Insurance and Bonds Commission.- Presidency.- Legal Vice Presidency.- General Legal, Contentious and Sanctions Directorate.- Sanctions and Appeals Directorate.- File: C00.422.26.1./003"17".- Official Letter No. 06-C00-42200/49997.

SUBJECT: Authorization to operate as an insurance institution is revoked.

Istmo Mexico, Reinsurance Company, S.A. de C.V.
(Formerly QBE of Istmo Mexico, Reinsurance Company, S.A. de C.V.)

RFC: QIM9705195Z0

Suiza No. 40 Floor 6, Office 601
San Jerónimo Aculco Neighborhood
Magdalena Contreras C.P. 10200
Mexico City

Attn.: LEGAL REPRESENTATIVE

Having reviewed the background of the administrative procedure to revoke the authorization to operate as an Insurance Institution, granted by the Federal Government through the Ministry of Finance and Public Credit to Istmo Mexico, Reinsurance Company, S.A. de C.V., formerly QBE of Istmo Mexico, Reinsurance Company, S.A. de C.V.

BACKGROUND

I.

That Company holds authorization granted by the Federal Government through the Ministry of Finance and Public Credit, conferred by official letter 366-IV-2799 dated June 27, 1997, published in the Official Journal of the Federation on August 12 of the same year, and modified by official letters 366-IV-4994 dated September 26, 1997, 366-IV-2649 dated June 26, 2002, published in the Official Journal of the Federation on August 2 of the same year, 366-IV-USVP-277/07 dated October 4, 2007, published in the Official Journal of the Federation on October 9, 2014, and 366-III- 0265/14 dated March 19, 2014; to function as an Insurance Institution, to exclusively practice reinsurance of persons in the operation of accidents and illnesses, in the lines of personal accidents and medical expenses, and of goods, in the operation of damages, in the lines of civil liability and professional risks, maritime and transport, fire, agricultural and animals, automobiles, credit, diverse, as well as earthquake and other catastrophic risks.

II.

That Insurance Institution presented to this Commission on March 10, 2017, the Regulatory Report on Financial Statements (RR-7) with information as of December 31, 2016, through the Electronic Information Submission System (SEIVE).

As part of the Regulatory Report on Financial Statements (RR-7), that Insurance Institution sent to this Commission the RR7EFITR product, integrated, among others, with the files and information indicated below:

a) File named RR7EFITRBASES006320161231.txt (Determination of the Investment Base). b) File named RR7EFITRIRRES006320161231.txt (Recoverable Reinsurance Amounts). c) File named RR7EFITRFOPAS006320161231.txt (Report regarding the level of admissible funds and its sufficiency level regarding the SCR). d) File named RR7EFITROACTS006320161231.txt (Detail of other assets). e) File named RR7EFITRCCMPS006320161231.txt (Report regarding the coverage of Paid Minimum Capital).

The sending of the aforementioned information, to which the successful transaction number 224102 corresponds, was carried out by that Insurance Institution in terms of what is provided for in articles 250, first paragraph, and 389 of the Law of Insurance and Bond Institutions, in relation to provisions 38.1.1, fraction I, subsection g), 39.1.2, 39.1.3, 39.1.5, 39.1.7 and 39.1.8, fraction I, of the Single Insurance and Bonds Circular, published in the Official Journal of the Federation on December 19, 2014, and with Annexes 38.1.8, 39.1.5-a and 39.1.5-b of said Circular, the first of which was modified by Amending Circular 23/15 of the Single Insurance and Bonds Circular, published in the Official Journal of the Federation on January 8, 2016, while the last two were published in the Official Journal of the Federation on April 1, 2015.

Also on March 10, 2017 and based on provision 39.2.3, fractions II and III, of the Single Insurance and Bonds Circular, this Commission generated the file Cifras_Control_S63_20161231_231843.pdf, contained in the file 224102_RR7EFITRS006320161231.ZIP., as proof of the validation process of the information sent by that Insurance Institution through the aforementioned transaction 224102.

III.

By official letter 06-C00-22100/09872 dated March 14, 2017, notified to that Insurance Institution on the 15th of the same month and year, and based on the review of the information presented with the aforementioned Regulatory Report on Financial Statements (RR-7) corresponding to December 31, 2016, this Commission, through its General Directorate of Financial Supervision, issued a summons directed to that Insurance Institution regarding the probable commission of, among others, the following irregularities:

" SECOND.- From the analysis of the background it is deduced:

" a)
Probable Shortfall in the coverage of the Investment Base of Technical Reserves.

" According to articles 231, 247, 248, 250, 252 and 254 of the LISF, regarding the coverage of the investment base of technical reserves, that Institution was required to maintain at all times the assets destined to back its investment base of technical reserves; however, as a result of the review of the financial and statutory information corresponding to the month of December 2016 contained in the Regulatory Report on Financial Statements (RR-7), it was observed that that Institution presented an origin shortfall in the coverage of the investment base of technical reserves of $517,992,904.33.

" c)
Probable Shortfall in the coverage of the Solvency Capital Requirement (SCR).

" According to articles 232, 233, 235, 236, 241, 242, 243, 244, 250 and 252 of the LISF, regarding the coverage of the solvency capital requirement, that Institution was required to maintain sufficient admissible own funds to back its solvency capital requirement; however, as a result of the review of the financial and statutory information corresponding to the month of December 2016 contained in the RR-7, it was observed that that Institution presented an origin shortfall in the coverage of the solvency capital requirement of $312,754,048.38; notwithstanding, from the review carried out, a probable shortfall of $830,746,952.71 was determined, as shown below:

MODIFICATIONS DETERMINED IN THE COVERAGE OF THE SOLVENCY CAPITAL REQUIREMENT (SCR) (Amounts in pesos)

CONCEPT	COMPANY	CNSF	DIFFERENCE
Solvency Capital Requirement (SCR)	313,549,515.73	313,549,515.73	0.00 Admissible Own Funds computable to the Solvency Capital Requirement

I. IRREGULARITIES DETECTED IN THE DETERMINATION OF THE AMOUNTS OF ADMISSIBLE OWN FUNDS SUSCEPTIBLE OF COVERING THE SCR

CONCEPT	COMPANY	CNSF	DIFFERENCE
I.I The determination of the amounts of Admissible Own Funds susceptible of covering the SCR	795,467.35	(517,197,436.98)	(517,992,904.33) Excess of assets over liabilities affected to cover SCR
Reserve for the acquisition of own shares	0.00	0.00	0.00 Deferred taxes

PRESUMED INFRACTION. To what is established in articles 232, 233, 235, 236, 241, 242, 243, 244, 250 and 252 of the LISF, in relation to Chapter 7.1., Provision 7.1.4 of the CUSF which establishes that: The determination of the amounts of Admissible Own Funds susceptible of covering the SCR will be based on the excess of assets over liabilities of the Institutions. From said excess, the amount of: I. The reserve for the acquisition of own shares; II. Deferred taxes; III. The amount of resources obtained through the issuance of subordinated bonds mandatorily convertible into shares, which has been carried out without counting with the authorization referred to in Title 10 of these Provisions, or without adhering to the terms thereof, and IV. The shortfall that, in its case, the Institution presents in the coverage of its Investment Base.

" d)
Probable shortfall in the Coverage of Paid Minimum Capital (PMC)

" According to article 49 of the LISF, in relation to what is provided in Chapter 6.1 and Annex 6.1.2 of the CUSF, regarding the paid minimum capital that Insurance Institutions must affect for each operation or line they have authorized, as well as in Chapter 6.1 of the same Circular, it is manifested to that Institution that it must have had the paid minimum capital in accordance with the LISF and the general provisions issued by this Commission; however, as a result of the review of the financial and statutory information corresponding to the month of December 2016 contained in the RR-7, it was observed that that Institution presented a shortfall of $360,298,282.11 in the coverage of the paid minimum capital, as detailed below:

Coverage of Paid Minimum Capital
(Amounts in pesos)

Capital Stock	(332,785,787.25)
Less:
Increase by Net Real Estate Valuation (IVIN)	0.00 Profit by Valuation of investments in equity securities (UVIC)
The Increase by Real Estate Valuation already capitalized (IVIC)	0.00 The lesser of the amounts of 'Net Increase by Real Estate Valuation' susceptible of being considered

" Therefore, taking into consideration the aforementioned special circumstances, particular reasons, immediate causes, arguments, valuations and records forming part of the corresponding administrative file, this Commission concludes that that Institution probably contravened what is provided in articles 231, 247, 248, 250, 252 and 254 of the LISF, by determining a probable shortfall in the coverage of the investment base of technical reserves of $517,992,904.33; it also presented a probable shortfall in the coverage of the short-term investment base of technical reserves of $287,862,928.30, as well as what is provided in articles 232, 233, 235, 236, 241, 242, 243, 244, 250 and 252 of the LISF, regarding sufficient admissible own funds to cover the solvency capital requirement of $830,746,952.71; and what is provided in article 49 of the LISF, in relation to what is provided in Chapter 6.1 and Annex 6.1.2 of the CUSF, by determining a probable shortfall in the coverage of the paid minimum capital of $360,298,282.11. "

IV.

Also by the aforementioned official letter 06-C00-22100/09872 dated March 14, 2017, notified to that Insurance Institution on March 15, 2017, and based on what is prescribed by articles 320 and 252 of the Law of Insurance and Bond Institutions, among other provisions, the General Directorate of Financial Supervision of this Commission granted that Insurance Institution a period of fifteen business days, counted from the date of notification of the aforementioned official letter, to state what was convenient to its right in relation to the facts described in the summons formulated with the aforementioned official letter, consisting, among others, in: the probable shortfall in the coverage of the Investment Base of technical reserves, the probable shortfall in the coverage of the Solvency Capital Requirement and the probable shortfall in the coverage of the Paid Minimum Capital; and ordered that Insurance Institution that, within the same period, submit to the approval of this Commission a Regularization Plan to restore the coverages of the indicated solvency parameters, consisting, among others, in the coverages of its Investment Base of technical reserves, Solvency Capital Requirement and Paid Minimum Capital, in terms of what is provided for in articles 231, 232, 233, 235, 236, 241, 242, 243, 244, 247, 248, 250, 252 and 254 of the Law of Insurance and Bond Institutions.

V.

With a writing dated March 30, 2017, received by this Commission on April 5 of the same year, that Insurance Institution, through the President of its Board of Directors, responded to the summons official letter 06-C00-22100/09872 dated March 14, 2017.

In the aforementioned response writing, that Insurance Institution denied having infringed what is provided for in articles 49, 232, 233, 235, 236, 241, 242, 243, 244, 250 and 252 of the Law of Insurance and Bond Institutions, in relation to Chapter 6.1 and Annex 6.1.2 of the Single Insurance and Bonds Circular, since it also denied that as of December 31, 2016 it had presented, among others, an origin shortfall in the coverage of the Investment Base of technical reserves of $517,992,904.33, a shortfall in the Solvency Capital Requirement of $830,746,952.71 and a shortfall in the coverage of Paid Minimum Capital of $360,298,282.11.

Notwithstanding the above and for the ungranted assumption that that Insurance Institution had presented the probable shortfalls mentioned, among other clarifications, in the account writing it manifested the following:

• That at all times it maintained the assets destined to back its Investment Base of technical reserves for an amount equivalent to $415,123,573.52 in accordance with what is established in articles 231, 247, 248, 250, 252 and 254 of the Law of Insurance and Bond Institutions.

• That it has sufficient Admissible Own Funds to back its Solvency Capital Requirement for an amount of $119,816,523.03.

• That according to article 49 of the Law of Insurance and Bond Institutions, in relation to what is provided in chapter 6.1 and Annex 6.1.2 of the Single Insurance and Bonds Circular, it has always maintained a Paid Minimum Capital to operate as an insurance institution to operate exclusively reinsurance, being as of December 31 in the amount of $119,816,523.03.

That Insurance Institution also argued that on December 12, 2016, the Board of Directors of the Superintendence of Insurance and Reinsurance of Panama ordered the intervention of the principal reinsurer of that Insurance Institution, Istmo Reinsurance Company, Inc., taking possession of its assets and assuming its administration; as well as that the intervention of the Reinsurer will be for a period of 180 calendar days, extendable in exceptional cases and prior motivated request of the intervener to the Board of Directors, in accordance with the regulation in force in that country. The aforementioned, clarified in the aforementioned writing, that Insurance Institution made known to this Commission by writing dated December 26, 2016, delivered on January 5, 2017, as well as the actions it would take immediately to mitigate the negative effects that could affect the real financial situation of the institution.

Thus, explained that Insurance Institution, in order to reflect "the above" in the Regulatory Report on Financial Statements (RR-7) corresponding to December 31, 2016, sent to this Commission through the Electronic Information Delivery System (SEIVE), it carried out in the accounting entries suggested by external auditors and independent actuaries, the estimation of a write-off of debts for the amount of $452,602,310.28.

In this order of ideas, it stands out that in the ungranted assumption that that Insurance Institution had presented the shortfalls referred to in the summons official letter, Istmo Mexico, Reinsurance Company, S.A. de C.V., is executing collection actions that eliminate the accounting items that gave rise to the estimation for write-off of debts.

With the response writing, the summons contained in the aforementioned official letter 06-C00-22100/09872 dated March 14, 2017, that Insurance Institution exhibited the following proofs:

a) Photocopy of the writing dated December 25, 2016, presented on January 5, 2017, by virtue of which a representative of that Insurance Institution informs this Commission that in a council session of Istmo Mexico, Reinsurance Company, S.A. de C.V., held on December 15, 2016, it was resolved: to make known to this Commission the intervention by the Superintendence of Insurance and Reinsurance of the Republic of Panama, of Istmo Reinsurance Company, Inc., principal reinsurer of that Insurance Institution; to manage the collection of pending balances of the accounts of the excess contract as of the third quarter of 2016; and, if applicable, to look for a new reinsurer to whom to cede the new portfolio and transfer the current one.

b) Table of accounting entries to determine the estimation for write-off of debts applied in December 2016.

c) Photocopy of the email of December 21, 2016, addressed by a legal representative of Istmo Mexico, Reinsurance Company, S.A. de C.V., to Istmo Reinsurance Company, Inc., by virtue of which it requests payment of the balances shown in the accounts of the excess contracts as of the third quarter of 2016, for the amount of $71,591,003.46.

d) Photocopy of the email of December 21, 2016, addressed by the Intervening Board of Istmo Re Inc., to that Insurance Institution, by virtue of which it informs that they are in the phase of intervention, inventorying the assets and liabilities of the society, within which it is considering very particularly the balance of collection as of September 30, 2016 for the significant amount of the same, and communicates that it is the intention of the Intervening Board to honor all the liabilities of the Society and, if possible, ensure its continuity.

VI.

With a writing dated April 5, 2017, received by this Commission on the same date, the President of the Board of Directors of that Insurance Institution requested a 7 business day extension to present the Regularization Plan to remedy, among others, the shortfalls in the coverage of the Investment Base of technical reserves, of the Solvency Capital Requirement and of the Paid Minimum Capital, required by official letter 06-C00-22100/09872 dated March 14, 2017, the above, indicated in the promotion in question, with the purpose of determining with precision the detailed calendar of the actions that would be adopted to comply with it in its entirety.

VII.

By official letter 06-C00-22100/15257 dated April 10, 2017, received by that Insurance Institution on the 20th of the same month and year, the General Directorate of Financial Supervision of this Commission communicated that it had no objection to granting the extension requested with writing of April 5, 2017, of seven business days for that Insurance Institution to submit to the approval of this Authority the Regularization Plan required with official letter 06-C00-22100/09872. The above, was communicated in official letter 06-C00-22100/15257, under the understanding that the ninety-day period to comply with the Regularization Plan began to count from April 7, 2017 on which that Insurance Institution must have sent the aforementioned Regularization Plan.

VIII.

By official letter 06-C00-22100/17288 dated April 26, 2017, notified to that Insurance Institution on April 27, 2017, and based on what is provided for in article 320 of the Law of Insurance and Bond Institutions, the General Directorate of Financial Supervision of this Commission reiterated to that Insurance Institution the request for presentation of the Regularization Plan aimed at remedying, among others, the irregularities consisting of shortfalls in the coverages of the Investment Base of technical reserves, of the Solvency Capital Requirement and of the Paid Minimum Capital corresponding to the fourth quarter of 2016, as stated in official letter number 06-C00-22100/09872 mentioned above; and granted for the aforementioned effect a period of two business days counted from the business day following the receipt of the aforementioned official letter 06-C00-22100/17288. The above, was specified in official letter 06-C00-22100/17288, taking into account that by official letter 06-C00- 22100/15257 dated April 10, 2017 this Commission granted that Insurance Institution the extension for a period of seven business days requested with writing of April 5, 2017, and that the aforementioned period expired on April 20, 2017, without that Insurance Institution having presented for its approval the required Regularization Plan.

IX.

By writing dated May 2, 2017, received by this Commission on that same date, that Insurance Institution in order to comply with the requirement formulated with official letter 06-C00-22100/ 17288 dated April 26, 2017 and comply with the presentation of the Regularization Plan aimed at remedying, among others, the irregularities consisting of the shortfalls in the coverages of the Investment Base of technical reserves, of the Solvency Capital Requirement and in the Paid Minimum Capital, corresponding to the fourth quarter of 2016; requested from this Commission a period of thirty business days to be in a position to present for the approval of this Authority, a realistic Regularization Plan that would allow it to cover the aforementioned shortfalls.

The above, manifested that Insurance Institution in the aforementioned writing, taking into account that while it waited for a response to the collection management carried out by that Insurance Institution against Istmo Reinsurance Company, Inc., it learned that the Panamanian authority had ordered the forced liquidation of the company and suspended or limited the payment of the obligations of the company in liquidation and of the debts of the mass according to the availability of resources; and that given the gravity of the situation it is necessary to propose to the shareholders a capital contribution greater than originally planned.

X.

By official letter 06-C00-22100/20784 dated May 15, 2017, notified to that Insurance Institution on May 16, 2017, the General Directorate of Financial Supervision of this Commission responded to the request made in the writing of May 2, 2017, referred to in the Preceding Antecedent, manifesting that this Authority is not in a position to approve said request, by

lacking authority in this regard, since pursuant to Article 9 of the Law of Insurance and Bond Institutions, through official letter 06-C00-22100/15257 of April 10, 2017, this Commission had already granted the seven business days extension requested by that Insurance Institution through a written submission dated April 5, 2017, and that through official letter 06-C00-22100/17288 of April 26, 2017, with which this Authority reiterated the order to present the Plan of Regularization of antecedents, two additional business days were granted to that Insurance Institution to comply with the aforementioned requirement, without having presented the respective Plan of Regularization.

XI.

As of July 19, 2017, that Insurance Institution had not presented the Plan of Regularization ordered through official letter 06-C00-22100/09872 of March 14, 2017, nor had it demonstrated by any means the remediation of the deficiencies in the solvency parameters indicated in the aforementioned official letter.

XII.

Through official letter 06-C00-42200/41618 of July 19, 2017, the General Directorate of Contentious and Sanctions Law of this Commission summoned Istmo Mexico, Reinsurance Company, S.A. de C.V., to a procedure for the revocation of the authorization granted to it to function as an Insurance Institution, due to the probable alignment of its conduct with the grounds for revocation contemplated in Article 332, first paragraph and fraction II, of the Law of Insurance and Bond Institutions, in which it incurred, as specified in the aforementioned summons:

By not maintaining, as of December 31, 2016, the Investment Base covered due to a shortfall of $517,992,904.33, in terms of Articles 231, 250, and 252 of the Law of Insurance and Bond Institutions, as analyzed in Section I of Consideration Second of the aforementioned summons official letter 06-C00-42200/41618.

By not having, as of December 31, 2016, sufficient Admissible Own Funds to cover the Solvency Capital Requirement, due to a shortfall of $830,746,952.71, in terms of Articles 241, 250, and 252 of the Law of Insurance and Bond Institutions, as analyzed in Section II of Consideration Second of the aforementioned summons official letter 06-C00-42200/41618.

By not having the Paid Minimum Capital properly covered, as of December 31, 2016, due to a shortfall of $360,298,282.11, as provided in Article 49 of the Law of Insurance and Bond Institutions, as analyzed in Section III of Consideration Second of the aforementioned summons official letter 06-C00-42200/41618.

In the aforementioned summons official letter, a period of fifteen business days was granted to that Insurance Institution, counted from the date on which the notification of the indicated official letter took effect, for that Insurance Institution to manifest in writing what was convenient for its rights and to present the elements that, in its opinion, would prove that it had remedied the shortfalls in the coverage of the aforementioned solvency parameters.

XIII.

The summons official letter 06-C00-42200/41618 of July 19, 2017, was personally notified to that Insurance Institution on July 24, 2017, as evidenced by the notification records attached to the respective file, and in virtue thereof, the period of fifteen business days counted from the date on which the notification of the aforementioned official letter took effect, granted in the latter for that Insurance Institution to manifest in writing what was convenient for its rights and to present the elements that, in its opinion, would prove that it had remedied the shortfalls in the coverage of the aforementioned solvency parameters, elapsed from July 25, 2017, to August 14 of the same year, without that Insurance Institution having exercised its right to a hearing.

CONSIDERING

FIRST.- This National Commission of Insurance and Bonds, through its Board of Directors, is competent to issue this resolution pursuant to Article 90 of the Political Constitution of the United Mexican States; Articles 1, 2, fraction I, 17, 26, and 31, fraction VIII, of the Organic Law of the Federal Public Administration; Articles 2, section D, fraction III, 98 B, and 98 C of the Internal Regulations of the Secretariat of Finance and Public Credit; Articles 332, first paragraph and fraction II, 334, 366, first and second paragraphs and fractions I, VIII, and XIX, 367, first paragraph and fractions I and II, 369, first paragraph and fractions II and VII, 370, and 372, first paragraph and fraction XLI, and the Eighth Transitory Provision of the Law of Insurance and Bond Institutions; and Articles 1, 2, 4, fractions I and II, and 6, first and second paragraphs, of the Internal Regulations of the National Commission of Insurance and Bonds, published in the Official Journal of the Federation on June 3, 2015.

SECOND.- That Insurance Institution did not disprove the existence of the shortfalls described in Consideration Second of the summons official letter 06-C00-42200/41618 of July 19, 2017, which is referenced in Antecedent XII of this resolution, determined based on the information submitted by that Company in the Regulatory Report on Financial Statements as of December 31, 2016 (RR-7) and according to the analysis of that information performed by this Commission, namely: a shortfall of $517,992,904.33 in the coverage of the Investment Base, a shortfall of $830,746,952.71 in the coverage of the Solvency Capital Requirement, and a shortfall of $360,298,282.11 in the coverage of the Paid Minimum Capital, nor has it proven by any means that these shortfalls in the aforementioned solvency parameters have been remedied, determined as follows:

I. Shortfall in the coverage of the Investment Base.

Pursuant to Article 231 of the Law of Insurance and Bond Institutions, Insurance Institutions are obligated to have at all times sufficient assets and investments to cover their Investment Base, invested in accordance with what is stated in Articles 247 to 255 of the aforementioned Law, understanding the Investment Base, as provided in Article 2, fraction II, of the cited Law and by provision 1.1.1, fraction XV, of the Single Circular of Insurance and Bonds, as the sum of the technical reserves that, in the case of Insurance Institutions, will additionally include premiums in deposit, resources from the investment life insurance funds, and those related to the operations referred to in fractions XXI and XXII of Article 118 of the cited Law.

It is not omitted to note that since the operation of that Insurance Institution does not include liabilities for premiums in deposit, for resources from investment life insurance funds, nor for the operations of administration of sums and/or reserves referred to in fractions XXI and XXII of Article 118 of the Law of Insurance and Bond Institutions, and instead, only includes liabilities consisting of technical reserves, both in the summons official letter 06-C00-22100/09872 of March 14, 2017, referenced in Antecedent III of this resolution, and in the summons official letter 06-C00-42200/41618 of July 19, 2017, referenced in Antecedent XII of this resolution, the term "Technical Reserves Investment Base" was used as a synonym for the term "Investment Base" defined in fraction II of Article 2 of the Law of Insurance and Bond Institutions, with the circumstance that the "Investment Base" represents one of the sets of liabilities that Insurance Institutions must cover with assets and investments in terms of said Law and regulations emanating from it, and whose lack of coverage is a cause for revocation of the authorization to operate as an insurance institution, as provided in Article 332, fraction II, of the aforementioned Law of Insurance and Bond Institutions.

In the case at hand and in the terms specified in Antecedent II of this resolution, that Insurance Institution presented to this Commission on March 10, 2017, through the Electronic Information Submission System (SEIVE), product RR7EFITR, the Regulatory Report on Financial Statements (RR-7) with information as of December 31, 2016 (hereinafter RR-7 or Regulatory Report).

Based on the information provided by that Insurance Institution with the aforementioned Regulatory Report and attending to what is prescribed by the norms invoked in the first paragraph of this Section "I. Shortfall in the coverage of the Investment Base", in order to determine the Investment Base that that Insurance Institution was required to have covered as of December 31, 2016, this Commission summed the reserves reported by that Insurance Institution in the RR-7, through the file named RR7EFITRBASES006320161231.txt (Determination of the Investment Base), resulting in an Investment Base of $293,859,054.75, as follows:

Now, in the file named RR7EFITRIRRES006320161231.txt (Recoverable Amount of Reinsurance), part of the RR-7, that Insurance Institution reported assets affected by the coverage of the Investment Base for $228,473,413.62, as detailed below:

Likewise, this Commission takes into account that in the aforementioned file named RR7EFITRIRRES006320161231.txt of the RR-7, that Insurance Institution also registered a penalty or preventive estimation of credit risks of Foreign Reinsurers for $452,607,263.20, affected by the coverage of the Investment Base, as shown below:

It should be noted that, as acknowledged by that Insurance Institution in its written response to the summons official letter 06-C00-22100/09872 of March 14, 2017, referenced in Antecedents III and IV of this resolution, the registration of said penalty or preventive estimation was made at the suggestion of its external auditors and independent actuaries; and that said penalty or preventive estimation was carried out in accordance with what is provided in Annex 22.1.2 Accounting Criteria Applicable to Institutions, Mutual Societies, and Holding Companies of the Single Circular of Insurance and Bonds, modified by modifying Circular 22/16, published in the Official Journal of the Federation on December 16, 2016, Series II. Criteria related to specific concepts of insurance and bond operations, which establishes, among others "... i) Reinsurers and Rebonders (B-9) Estimation for penalties of reinsurance or rebonding operations (19) The asset items that Institutions and Mutual Societies must consider for the determination and accounting registration of estimations for penalties of reinsurance or rebonding operations, will be those that are in force in the financial statements established by this Commission, related to the following concepts, among others: 10) Those others related to collection rights generated against reinsurers or rebonders." .

Given the penalty or preventive estimation of credit risks of foreign reinsurers for $452,607,263.20, which that Insurance Institution affected to the coverage of the Investment Base, the assets for $228,473,413.62, described above, were reduced by the amount of said preventive estimation, so that by summing the aforementioned assets for the amount of $228,473,413.62 and the negative assets of $452,607,263.20, derived from the aforementioned preventive estimation, negative assets result of $224,133,849.58 affected by the coverage of the Investment Base of that Insurance Institution as of December 31, 2016, as follows:

ASSETS AFFECTED BY INVESTMENT BASE COVERAGE
(Amounts in pesos)

Concept
Amount

By participation of Institutions or
Foreign Reinsurers for risks in progress
(Technical Rate Valuation) and By participation of Institutions or Foreign Reinsurers for pending claims 228,473,413.62

Preventive estimation of credit risks of
Foreign Reinsurers
-452,607,263.20

Total
-224,133,849.58

Thus, considering that in terms of what is exposed in this Section "I. Shortfall in the coverage of the Investment Base", the Investment Base of that Insurance Institution as of December 31, 2016, was $293,859,054.75 and that the negative assets affected by the coverage of the aforementioned solvency parameter are for the amount of $224,133,849.58, that Insurance Institution presented, according to the information it reported with the RR-7, a shortfall in the coverage of the Investment Base as of December 31, 2016, of $517,992,904.33, which coincides with what is recorded in the file Cifras_Control_S63_20161231_231843.pdf, contained in the file 224102_RR7EFITRS006320161231.ZIP., generated by the Electronic Information Submission System (SEIVE) as indicated in Antecedent II, as proof of the validation process of the information provided with the RR-7, as shown below:

INVESTMENT BASE COVERAGE
(Amounts in pesos)

Concept
Amount

I.- Assets Affected by the coverage of the Investment Base-Recoverable Amounts of Reinsurance -224,133,849.58

II.- Investment Base
293,859,054.75

Shortfall in the coverage of the Investment Base (I-II) -517,992,904.33

In addition to the above, for the purposes of this resolution, it is considered that despite complying with what is established in Articles 320 and 252, second paragraph, of the Law of Insurance and Bond Institutions, in terms of official letter 06-C00-22100/09872 of March 14, 2017, indicated in Antecedent IV of this resolution, this Commission ordered that Insurance Institution to present a Regularization Plan aimed at remedying the aforementioned shortfall, that Insurance Institution has not yet presented said Plan of Regularization, nor has it offered any proof that it has remedied the aforementioned shortfall reported in the coverage of the Investment Base as of December 31, 2016.

Indeed, as described in Antecedents III and IV of this resolution, through official letter 06-C00-22100/09872 of March 14, 2017, notified on the 15th of the same month and year, the General Directorate of Financial Supervision of this Commission, in addition to summoning that Insurance Institution to the sanctioning procedure motivated by the possible administrative infringement derived from the shortfall in the coverage of the solvency parameter in question, granted that Insurance Institution, attending to what is provided by Articles 320 and 252, second paragraph, of the Law of Insurance and Bond Institutions, a period of fifteen business days to expose what was convenient for its rights in relation to the aforementioned probable shortfall in the coverage of the Investment Base and ordered it to submit for approval by this Commission a Plan of Regularization to restore the coverage of said solvency parameter within the same period.

Despite what is stated in the preceding paragraph and that this Commission, as described in Antecedents VI to XI of this resolution, granted to that Insurance Institution through official letter 06-C00-22100/15257 of April 10, 2017, the extension of seven business days requested by that same Insurance Institution with its written submission of April 5, 2017; despite that this Commission reiterated to it through official letter 06-C00-22100/17288 of April 26, 2017, the order to present the aforementioned Plan of Regularization, granting for that effect an additional period of two business days; and despite that that Insurance Institution with its written submissions dated April 5, 2017, and May 2, 2017, with which it requested extensions of the period granted in the aforementioned official letter 06-C00-22100/09872, manifested its intention to present for approval by this Commission a realistic Plan of Regularization that would allow it to solve, among others, the aforementioned shortfall in the coverage of the Investment Base, since, as that Insurance Institution admits in the second of the aforementioned written submissions, the gravity of the situation made it necessary to propose to the shareholders a capital contribution greater than originally planned; as of the date of this resolution, that Insurance Institution has not presented the aforementioned Plan of Regularization, nor has it offered proof of the remediation of the shortfall in question, which, in terms of what is exposed in this Section "I. Shortfall in the coverage of the Investment Base", as of December 31, 2016, amounted to $517,992,904.33.

Thus, that Insurance Institution, by presenting a shortfall in the coverage of the Investment Base, is subject to the causal ground for revocation of authorization to operate as an insurance institution provided in fraction II of Article 332 of the Law of Insurance and Bond Institutions, according to which that causal is configured if the insurance institution in question does not maintain the Investment Base covered, in terms of Articles 231, 250, and 252 of said Law, with the circumstance that this infringement by itself and because it immediately and directly affects the solvency of insurance institutions, is a sufficient cause, as established by the aforementioned fraction II of Article 332 of the Law of Insurance and Bond Institutions, for the revocation of the authorization to operate as an insurance institution to be declared.

II. Shortfall in the coverage of the Solvency Capital Requirement (SCR).

Pursuant to Articles 232, first paragraph, and 241, first paragraph, of the Law of Insurance and Bond Institutions, Insurance Institutions, without prejudice to maintaining sufficient assets and investments to cover the Investment Base, as well as the Paid Minimum Capital, provided in the aforementioned Law; have the obligation to maintain Admissible Own Funds necessary to back a Solvency Capital Requirement, it being understood that Admissible Own Funds in terms of what is provided in Article 2, fraction XII, of the indicated Law and by provision 1.1.1, fraction LXIV, of the Single Circular of Insurance and Bonds, are the own funds, determined as the excess of assets over the liabilities of the Institutions, which, in accordance with what is provided in Articles 241 to 244 of this Law, are susceptible to cover their Solvency Capital Requirement.

Now, in the case at hand and in the terms specified in Antecedent II of this resolution, that Insurance Institution presented to this Commission on March 10, 2017, through the Electronic Information Submission System (SEIVE), the Regulatory Report on Financial Statements (RR-7), product RR7EFITR, with information as of December 31, 2016.

Based on the review of the financial and statutory information corresponding to the month of December 2016 contained in the RR-7, this Commission determined a shortfall in the coverage of the Solvency Capital Requirement of $830,746,952.71, as shown below:

This is so, since it was observed that that Insurance Institution in the file named RR7EFITRFOPAS006320161231.txt (Report relative to the level of admissible funds and its level of sufficiency regarding the SCR) submitted with the RR-7, presented a Solvency Capital Requirement of $313,549,515.73.

On the other hand, in the file named RR7EFITROACTS006320161231.txt (Detail of other assets), also submitted with the RR-7, that Insurance Institution reported Admissible Own Funds of $795,467.35, integrated by the balance of $792,816.35 that that Insurance Institution affected by the concept of furniture and equipment, in accordance with provision 7.1.10 of the Single Circular of Insurance and Bonds, which states that "Level 3 of Admissible Own Funds will consider those that, complying with what is stated in Provision 7.1.4, do not fall into Level 1 or Level 2 provided in Provisions 7.1.6, 7.1.7, and 7.1.8"; and by the balance of $2,651.00 corresponding to the cash item, in accordance with provisions 7.1.7 of the Single Circular of Insurance and Bonds, which establishes that "The Admissible Own Funds that are included in Level 1 referred to in Provision 7.1.6, cannot be backed by the following assets: I. The net amount of the following expenses: a) Establishment and organization expenses; b) Installation expenses; c) Expenses for issuance and placement of subordinated bonds, to be amortized, and d) Other concepts to be amortized; II. Balances owed by agents and intermediaries; III. Documents receivable; IV. Various debtors; V. Unsecured credits included in the Commercial Credits indicated in fraction II of Provision 8.14.1 and Unsecured Credits referred to in fraction III of Provision 8.14.1; VI. Recoverable Amounts of Reinsurance; VII. Real Estate; VIII. Real Estate Companies that are owners or administrators of properties destined for offices of the Institutions; IX. Furniture and equipment, and X. Intangible assets of defined and long duration"; as shown below:

For the above, that Insurance Institution reported a shortfall in the coverage of the Solvency Capital Requirement of $312,754,048.38.

Notwithstanding the above, and pursuant to Article 241, first paragraph, of the Law of Insurance and Bond Institutions, in relation to what is provided in provision 7.1.4, first paragraph, fraction IV, of the Single Circular of Insurance and Bonds which establishes that "The determination of the amounts of Admissible Own Funds susceptible to cover the SCR will be based on the excess of assets over the liabilities of the Institutions. From said excess, the amount of: ... IV. The shortfall that, if any, the Institution presents in the coverage of its Investment Base . " , this Commission deducted from the aforementioned Admissible Own Funds by the sum of $795,467.35, the amount of the shortfall presented by that Insurance Institution in the coverage of its Investment Base of $517,992,904.33 referred to in Section "I. Shortfall in the coverage of the Investment Base" of this SECOND CONSIDERING, so that this Authority, based on the information provided by that Insurance Institution with the RR-7, determined as of December 31, 2016, negative Admissible Own Funds computable to the Solvency Capital Requirement of that Insurance Institution for $517,197,436.98, as shown below:

DETERMINATION OF THE AMOUNTS OF ADMISSIBLE OWN FUNDS SUSCEPTIBLE TO COVER THE SCR (Amounts in pesos)

Concept
By the Company
By the CNSF

III.- Excess of assets over liabilities affected to cover SCR (a+b+c) 795,467.35 -517,197,436.98

a) Other assets: Level 1 Cash
2,651.00
2,651.00

b) Other assets: Level 3 Furniture and Equipment

792,816.35

792,816.35

c) Shortfall in the coverage of the Investment Base

0.00

-517,992,904.33

Thus, considering that, as admitted in RR-7, as of December 31, 2016, that Insurance Institution had a Solvency Capital Requirement of $313,549,515.73 and that this Commission has determined, also based on the information provided in the cited Regulatory Report, that on that date that Insurance Institution had negative Admissible Own Funds computable for the coverage of said solvency parameter by $517,197,436.98, it is concluded that the shortfall in the coverage of the Solvency Capital Requirement presented by that Insurance Institution as of December 31, 2016 is $830,746,952.71 and not $312,754,048.38, as reported by that Insurance Institution, as follows:

In addition to the foregoing, for the purposes of this resolution, it is considered that despite the fact that in compliance with what is established in articles 320, 252, second paragraph, and 242, second paragraph, of the Insurance and Surety Companies Law, in terms of letter 06-C00-22100/09872 of March 14, 2017, cited in Antecedent IV of this resolution, this Commission ordered that Insurance Institution to present a Regularization Plan aimed at remedying the aforementioned shortfall, that Insurance Institution has not presented said Regularization Plan as of the date of this resolution, nor has it offered any proof that it has remedied the aforementioned shortfall reported in the coverage of the Solvency Capital Requirement as of December 31, 2016.

In effect, as described in Antecedents III and IV of this resolution, through letter 06-C00-22100/09872 of March 14, 2017, notified on the 15th of the same month and year, the General Directorate of Financial Supervision of this Commission, in addition to summoning that Insurance Institution to the sanctioning procedure motivated by the possible administrative infringement derived from the shortfall in the coverage of the aforementioned solvency parameter, granted that Insurance Institution, in accordance with what is provided in articles 320, 252, second paragraph, and 242, second paragraph, of the Insurance and Surety Companies Law, a period of fifteen business days to present what it deemed appropriate regarding the aforementioned probable shortfall in the coverage of the Solvency Capital Requirement and ordered it to submit for the approval of this Commission a Regularization Plan to restore the coverage of said solvency parameter within the same period.

Despite what was stated in the preceding paragraph and that this Commission, as described in Antecedents VI to XI of this resolution, granted that Insurance Institution through letter 06-C00-22100/15257 of April 10, 2017, the extension of seven business days requested with its writing of April 5, 2017; despite the fact that this Commission reiterated through letter 06-C00-22100/17288 of April 26, 2017 the order to present the aforementioned Regularization Plan, granting it for that effect an additional period of two business days; and despite the fact that that Insurance Institution with its writings dated April 5, 2017 and May 2, 2017, with which it requested extensions of the period granted in the aforementioned letter 06-C00-22100/09872 for the presentation of the aforementioned Regularization Plan, that Insurance Institution manifested its intention to present for the approval of this Commission a realistic Regularization Plan that would allow it to cover, among others, the aforementioned shortfall in the coverage of the Solvency Capital Requirement, since, as admitted by that Insurance Institution in the second of the aforementioned writings, the gravity of the situation made it necessary to propose to the shareholders a capital contribution greater than originally planned; as of the date of this resolution, that Insurance Institution has not presented the aforementioned Regularization Plan, nor has it offered proof of the remediation of the shortfall in question, which, in terms of what is stated in this Section "II. Shortfall in the coverage of the Solvency Capital Requirement (SCR)", as of December 31, 2016 amounted to $830,746,952.71.

Thus, by presenting a shortfall in the coverage of the Solvency Capital Requirement, that Insurance Institution is subject to the causal circumstance for the revocation of authorization to operate as an insurance institution provided for in fraction II of article 332 of the Insurance and Surety Companies Law, consisting of not having sufficient Admissible Own Funds to cover the solvency capital requirement, in terms of articles 241, 250 and 252 of said Law, with the circumstance that this infringement by itself and because it immediately and directly affects the solvency of insurance institutions, is sufficient cause, as established by said fraction II of article 332 of the Insurance and Surety Companies Law, for the revocation of the authorization to operate as an insurance institution to be declared.

III. Shortfall in the coverage of the Paid Minimum Capital.

Based on what is provided in article 49, paragraphs from the first to the third and the last, of the Insurance and Surety Companies Law, in relation to what is provided in provisions 6.1.1, first paragraph, 6.1.2 and 6.1.5 of the Single Insurance and Surety Circular published in the Official Journal of the Federation on December 19, 2014; the Paid Minimum Capital that Insurance Institutions must have for each operation or line of business authorized to them, is the equivalent in national currency to the value of the Investment Units that this Commission determines with agreement of its Board of Directors, through general provisions; which this Authority will make known, no later than June 30 of each year and must be subscribed and paid no later than the last business day of the year in question, considering the value of the corresponding Investment Units as of December 31 of the immediately preceding year.

To elaborate further, in accordance with what is prescribed by provision 6.1.2 of the aforementioned Single Insurance and Surety Circular, the Paid Minimum Capital that Insurance Institutions must have is established in Annex 6.1.2 of said Circular, which, according to Amending Circular 10/16 published in the Official Journal of the Federation on May 31, 2016, provides in its first paragraph, fractions III, subsection a), and IV, subsection c); and third; that the Paid Minimum Capital that Insurance Institutions authorized to function as such, referred to the operation of accidents and illnesses, lines of personal accidents and/or medical expenses, is equivalent to 1,704,243 Investment Units, while those with authorization to function in the operation of damages, in three lines, said Paid Minimum Capital is equivalent to 8,521,217 Investment Units, with the circumstance that Insurance Institutions authorized exclusively to practice reinsurance, are fixed, for each operation or line of business authorized to them to practice, 50% of the Paid Minimum Capital expressed in Investment Units previously mentioned.

Likewise, the last paragraph of the aforementioned Annex 6.1.2 of the Single Insurance and Surety Circular establishes that to cover the Paid Minimum Capital in accordance with what is established in said Annex, Insurance Institutions must multiply the number of Investment Units determined for each operation or line of business they are authorized to have, by the value of the Investment Unit corresponding to December 31, 2015 given by the Bank of Mexico in the Official Journal of the Federation of the 24th of the same month and year, which according to the indicated publication of the Central Bank, was $5.381175.

Now, in the case at hand and in the terms specified in Antecedent II of this resolution, that Insurance Institution presented to this Commission on March 10, 2017, through the Electronic Information Sending System (SEIVE), the Regulatory Report on Financial Statements (RR-7), product RR7EFITR, with information as of December 31, 2016.

With the aforementioned Regulatory Report, that Insurance Institution sent the file named RR7EFITRCCMPS006320161231.txt (Report relative to the coverage of paid minimum capital), in which, in accordance with what is provided in article 49, paragraphs from the first to the third and the last, of the Insurance and Surety Companies Law, in relation to what is provided in provisions 6.1.1, first paragraph, 6.1.2 and 6.1.5 of the Single Insurance and Surety Circular and with the aforementioned Annex 6.1.2 of said Circular, that Insurance Institution determined a Paid Minimum Capital requirement as of December 31, 2016 of $27,512,494.86, in accordance with the following:

AUTHORIZED OPERATIONS AND LINES FOR ISTMO MEXICO REINSURANCE COMPANY, S.A. DE C.V. | PAID MINIMUM CAPITAL EXPRESSED IN INVESTMENT UNITS | VALUE OF THE UDI AS OF 12/31/2015, ACCORDING TO BANXICO PUBLICATION IN DOF ON 12/24/2015 | PAID MINIMUM CAPITAL REQUIREMENT IN PESOS (NUMBER OF UDIS FOR EACH AUTHORIZED OPERATION OR LINE MULTIPLIED BY THE VALUE OF THE UDI AS OF DECEMBER 31, 2015) --- | --- | --- | --- Accidents and Illnesses Operation, personal accidents and medical expenses lines | 852,122 | Equivalent to 50% of 1,704,243, as it is an Insurance Institution authorized exclusively to practice reinsurance. | 5.381175 | 4,585,415 Damages Operation, civil liability and professional risks lines, maritime and transports, fire, agricultural and animals, automobiles, credit, various, as well as earthquake and other catastrophic risks | 4,260,609 | Equivalent to 50% of 8,521,217, as it is an Insurance Institution authorized exclusively to practice reinsurance | 5.381175 | 22,927,080 Total | | | 27,512,494.86

Notwithstanding the foregoing, in the aforementioned file RR7EFITRCCMPS006320161231.txt (Report relative to the coverage of paid minimum capital) part of RR-7, that Insurance Institution also recognized a negative Computable Paid Capital of $332,785,787.25, as well as a shortfall in the coverage of Paid Minimum Capital of $360,298,282.11, resulting from the following operation:

In addition to the foregoing, for the purposes of this resolution, it is considered that despite the fact that in compliance with what is established in articles 320 and 49, last paragraph, of the Insurance and Surety Companies Law, in terms of letter 06-C00-22100/09872 of March 14, 2017, cited in Antecedent IV of this resolution, this Commission ordered that Insurance Institution to present a Regularization Plan aimed at remedying the aforementioned shortfall, that Insurance Institution has not presented said Regularization Plan as of the date of this resolution, nor has it offered any proof that it has remedied the aforementioned shortfall reported in the coverage of the Paid Minimum Capital as of December 31, 2016.

In effect, as described in Antecedents III and IV of this resolution, through letter 06-C00-22100/09872 of March 14, 2017, notified on the 15th of the same month and year, the General Directorate of Financial Supervision of this Commission, in addition to summoning that Insurance Institution to the sanctioning procedure motivated by the possible administrative infringement derived from the shortfall in the coverage of the aforementioned solvency parameter, granted that Insurance Institution, in accordance with what is provided in articles 320 and 49, last paragraph, of the Insurance and Surety Companies Law, a period of fifteen business days to present what it deemed appropriate regarding the aforementioned probable shortfall in the coverage of the Paid Minimum Capital and ordered it to submit for the approval of this Commission a Regularization Plan to restore the coverage of said solvency parameter within the same period.

Despite what was stated in the preceding paragraph and that this Commission, as described in Antecedents VI to XI of this resolution, granted that Insurance Institution through letter 06-C00-22100/15257 of April 10, 2017, the extension of seven business days requested with its writing of April 5, 2017; despite the fact that this Commission reiterated through letter 06-C00-22100/17288 of April 26, 2017 the order to present the aforementioned Regularization Plan, granting it for that effect an additional period of two business days; and despite the fact that that Insurance Institution with its writings dated April 5, 2017 and May 2, 2017, with which it requested extensions of the period granted in the aforementioned letter 06-C00-22100/09872 for the presentation of the aforementioned Regularization Plan, that Insurance Institution manifested its intention to present for the approval of this Commission a realistic Regularization Plan that would allow it to cover, among others, the aforementioned shortfall in the coverage of the Paid Minimum Capital, since, as admitted by that Insurance Institution in the second of the aforementioned writings, the gravity of the situation made it necessary to propose to the shareholders a capital contribution greater than originally planned; as of the date of this resolution, that Insurance Institution has not presented the aforementioned Regularization Plan, nor has it offered proof of the remediation of the shortfall in question, which, in terms of what is stated in this Section "III. Shortfall in the coverage of the Paid Minimum Capital" of this SECOND CONSIDERING of this resolution, as of December 31, 2016 amounted to $360,298,282.11.

Thus, by presenting a shortfall in the coverage of the Paid Minimum Capital, that Insurance Institution is subject to the causal circumstance for the revocation of authorization to operate as an insurance institution pointed out in fraction II of article 332 of the Insurance and Surety Companies Law, consisting of not having the paid minimum capital duly covered, in the terms provided in article 49 of said Law, with the circumstance that this infringement by itself and because it immediately and directly affects the solvency of insurance institutions, is sufficient cause, as established by said fraction II of article 332 of the Insurance and Surety Companies Law, for the revocation of the authorization to operate as an insurance institution to be declared.

THIRD.- The existence of the shortfalls described in Sections "I. Shortfall in the coverage of the Investment Base", "II. Shortfall in the coverage of the Solvency Capital Requirement (SCR)" and "III. Shortfall in the coverage of the Paid Minimum Capital", of the SECOND CONSIDERING of this resolution and also, at its time, described in the Second Consideration of the summons letter 06-C00-42200/41618 of July 19, 2017, to which reference is made in Antecedent XII of this resolution, is proven with the evidence that are valued below:

1. The information contained in the files named RR7EFITRBASES006320161231.txt (Determination of the Investment Base), RR7EFITRIRRES006320161231.txt (Recoverable Reinsurance Amounts), RR7EFITRFOPAS006320161231.txt (Report relative to the level of admissible funds and its level of sufficiency regarding the SCR), RR7EFITROACTS006320161231.txt (Detail of other assets) and RR7EFITRCCMPS006320161231.txt (Report relative to the coverage of Paid Minimum Capital), part of the Regulatory Report on Financial Statements (RR-7) with information as of December 31, 2016, sent by that Insurance Institution to this Authority on March 10, 2017 through the Electronic Information Sending System (SEIVE) of this Commission, described in Antecedent II of this resolution; based on what is provided in article 479, paragraphs first and third, of the Insurance and Surety Companies Law and 210-A of the Federal Code of Civil Procedures, in the judgment of this Commission, fully proves that that Insurance Institution recognized and reported to this Commission, as specified in each of Sections I to III of the SECOND CONSIDERING of this resolution, among others, the base information for the determination of the shortfalls in the coverage of the Investment Base, the Solvency Capital Requirement and the Paid Minimum Capital, analyzed in this resolution.

This is so given that the information reported with the aforementioned RR-7 meets the reliability criteria of the method in which said information was generated, communicated, received and archived, referred to in article 210-A of the Federal Code of Civil Procedures, taking into account that in accordance with what is provided in articles 250, first paragraph, and 389 of the Insurance and Surety Companies Law, provisions 38.1.1, fraction I, subsection g), 39.1.2, 39.1.3, fraction I, subsections a) and d), 39.1.5, 39.1.7 and 39.1.8, fraction I, of the Single Insurance and Surety Circular, published in the Official Journal of the Federation on December 19, 2014, and Annexes 39.1.5-a and 39.1.5-b of said Circular, published in the Official Journal of the Federation on April 1, 2015; the indicated information generated by that Insurance Institution, was communicated and received by this Commission, through the Electronic Information Sending System (SEIVE), whose operation provides for the use of electronic identification means that in terms of provision 39.1.3, fraction I, of the aforementioned Circular, meet the characteristics of authentication, confidentiality, integrity and non-repudiation of the information.

In effect, there is certainty about the generation and communication of the information in question by that Insurance Institution, that is, it is possible to attribute to it the content of the relevant information, since in accordance with provision 39.1.3, fraction I, of the Single Insurance and Surety Circular, in relation to the aforementioned Annexes 39.1.5-a and 39.1.5-b of said Circular, the electronic identification means used for sending the information through the Electronic Information Sending System (SEIVE) form a set of non-repetitive personal electronic data, associated with a document, used in substitution of the autograph signature and which meets the following characteristics:

" a) Authentication. The certainty of the identity of the signatory, in their capacity as a registered user before the Commission, with which a communication is established; that is, there is certainty that the information only comes from him;

" b) Confidentiality. The certainty that only the recipient and the signatory will be able to access the sent message, since the encryption process transforms the original message into unintelligible characters to third parties and access to the original message is restricted by means of keys;

" c) Integrity. The certainty that the information contained in the message has not been modified during the process, that is, that the sent message and the signature have not suffered any alteration during its transmission to the recipient, and

" d) Non-repudiation. The signatory cannot deny authorship of the message; " .

Likewise, it is taken into account that in accordance with what is provided in provision 39.1.2 of the Single Insurance and Surety Circular, the use of the aforementioned electronic identification means established in said Circular in substitution of the autograph signature, will produce the same effects that the Laws grant to the corresponding documents and, consequently, will have the same probative value. In the line of ideas pointed out and considering that the document corresponding to the sending of the aforementioned Regulatory Report, coming from that Insurance Institution, is the private document in terms of what is established in article 133 of the Federal Code of Civil Procedures, it proceeds to give probative value to said Regulatory Report in terms of what is provided in article 203 of said Code, since it is contrary to the interests of that Insurance Institution, since with it, and in terms of what is stated in Sections I to III of the SECOND CONSIDERING of this resolution, it recognizes the base information of the possible shortfalls determined in the aforementioned Sections.

The foregoing, with the circumstance that the information reported with the RR-7 is stored on the servers of this Commission and that the same, as well as that relative to its sending, communication and reception by the Electronic Information Sending System (SEIVE), with successful transaction number 224102, is accessible for consultation.

2. The public documentary consisting of letter 06-C00-22100/09872 of March 14, 2017, issued in the exercise of its functions by the General Director of Financial Supervision of this Commission, in which it contains a reception stamp by that Insurance Institution on date March 15, 2017, described in Antecedents III and IV of this resolution, based on what is provided in articles 479, paragraphs first and third, of the Insurance and Surety Companies Law and 129 and 202, first paragraph, of the Federal Code of Civil Procedures, in the judgment of this Commission, fully proves that this Authority through the indicated letter notified on March 15, 2017, in addition to summoning that Insurance Institution to the sanctioning procedure motivated, among others, by the possible administrative infringements derived from the shortfalls, as of December 31, 2016, in the coverage of the Investment Base by $517,992,904.33, in the coverage of the Solvency Capital Requirement by $830,746,952.71 and in the coverage of the Paid Minimum Capital by $360,298,282.11; granted to that Insurance Institution, in accordance with what is provided in articles 49, last paragraph, 242, second paragraph, and 252, second paragraph, of the Insurance and Surety Companies Law, a period of fifteen business days to present what it deemed appropriate regarding the aforementioned probable shortfalls and ordered it to submit for the approval of this Commission a Regularization Plan to restore the coverage of said solvency parameters, in the terms of what is established by article 320 of the Insurance and Surety Companies Law.

3. The public documentary consisting of letter 06-C00-22100/15257 of April 10, 2017, issued in the exercise of its functions by the General Director of Financial Supervision of this Commission, in which it contains a reception stamp by that Insurance Institution on date April 20, 2017, described in Antecedent VII of this resolution, based on what is provided in articles 479, paragraphs

First and third, of the Law of Insurance and Bond Institutions and 129 and 202, first paragraph, of the Federal Code of Civil Procedures, in the judgment of this Commission, fully establishes that this Authority, through the aforementioned notice notified to said Insurance Institution on April 20, 2017, communicated to it that it had no objection to granting the requested seven business day extension for said Insurance Institution to submit for approval by this Authority the Regularization Plan required with notice 06-C00-22100/ 09872.

4. The public document consisting of notice 06-C00-22100/17288 of April 26, 2017, issued in the exercise of its functions by the General Director of Financial Supervision of this Commission, which contains a reception stamp by said Insurance Institution on April 27, 2017, described in Antecedent VIII of this resolution, based on the provisions of articles 479, first and third paragraphs, of the Law of Insurance and Bond Institutions and 129 and 202, first paragraph, of the Federal Code of Civil Procedures, in the judgment of this Commission, fully establishes that this Authority, through the aforementioned notice notified to said Insurance Institution on April 27, 2017, reiterated to said Insurance Institution the request to present the Regularization Plan aimed at correcting, among others, the irregularities consisting of shortfalls in the coverage of the Investment Base, the Solvency Capital Requirement, and the Paid Minimum Capital corresponding to the fourth quarter of 2016, as stated in notice number 06-C00-22100/09872 previously valued; and granted for the aforementioned effect a term of two business days counted from the next business day after the receipt of the aforementioned notice 06-C00-22100/ 17288.

5. The private documents from said Insurance Institution, consisting of the writing of April 5, 2017, received by this Commission on that same date, described in Antecedent VI of this resolution, by virtue of which said Insurance Institution requested an extension of 7 business days to present the Regularization Plan to correct, among others, the shortfalls in the coverage of the Investment Base, the Solvency Capital Requirement, and the Paid Minimum Capital, required through notice 06-C00- 22100/09872 of March 14, 2017, the above, indicated in the document in question, with the purpose of determining with precision the detailed schedule of actions that would be adopted to fully comply with it; and in the writing of May 2, 2017, received by this Commission on that same date, described in Antecedent IX of this resolution, by virtue of which said Insurance Institution requested from this Commission a term of thirty business days to be in a position to present for approval by this Authority the Regularization Plan required reiteratively through notice 06-C00-22100/17288 of April 26, 2017, and to realistically resolve, among others, the shortfalls in the coverage of the Investment Base, the Solvency Capital Requirement, and the Paid Minimum Capital, corresponding to the fourth quarter of 2016, since, as specified by said Insurance Institution in the document in question, given the gravity of the situation, it was necessary to propose to the shareholders a capital contribution greater than the originally planned one; based on the provisions of articles 479, first and third paragraphs, of the Law of Insurance and Bond Institutions and 133 and 203 of the Federal Code of Civil Procedures, in the judgment of this Commission, they fully establish that said Insurance Institution has recognized the existence of the shortfalls as of December 31, 2016, among others, in the coverage of the Investment Base, the Solvency Capital Requirement, and the Paid Minimum Capital, to whose restoration the order to present the Regularization Plan required by this Commission through notice 06-C00-22100/ 09872 of March 14, 2017, was directed.

For the reasons stated above, the evidence elements previously valued do not contradict each other and as a whole fully establish the existence as of December 31, 2016, of:

i.

Shortfall in the coverage of the Investment Base by $517,992,904.33.

ii.

Shortfall in the coverage of the Solvency Capital Requirement by $830,746,952.71.

iii.

Shortfall in the coverage of the Paid Minimum Capital by $360,298,282.11.

FOURTH.- To further elaborate on what has been analyzed, valued, and concluded in the preceding CONSIDERING SECOND and THIRD of this resolution, it must be weighed that said Insurance Institution did not respond to the notice of summons 06-C00-42200/41618 of July 19, 2017, so that as of the date of this resolution it has not disproven the existence of the shortfalls described in Sections I to III of CONSIDERING SECOND in relation to CONSIDERING THIRD of this resolution, exposed by said Insurance Institution as of December 31, 2016, in the coverage of the Investment Base, in the coverage of the Solvency Capital Requirement, and in the coverage of the Paid Minimum Capital, nor has said Insurance Institution accredited by any means that it has corrected the shortfalls in the referred solvency parameters. Furthermore, since said Insurance Institution did not exercise its right to a hearing, that right is deemed precluded, based on article 478, third paragraph, of the Law of Insurance and Bond Institutions.

For the above stated, the facts consisting of the existence of the shortfalls as of December 31, 2016, described in the Second Consideration of the notice of summons 06-C00-42200/41618 of July 19, 2017, to which reference is made in Antecedent XII of this resolution, namely: shortfall of $517,992,904.33 in the coverage of the Investment Base, shortfall of $830,746,952.71 in the coverage of the Solvency Capital Requirement, and shortfall of $360,298,282.11 in the coverage of the Paid Minimum Capital, in the judgment of this Commission, are fully proven with the legal presumption produced by the fictitious confession of said Insurance Institution by virtue of the fact that it did not contest these facts by omitting to formulate its response to the aforementioned summons, since these facts are not only not disproven or contradicted by other evidence elements in the file in which the proceedings are taking place, but, on the contrary, they have also been fully accredited by the various means of conviction described and valued in CONSIDERING SECOND in relation to CONSIDERING THIRD of this resolution. This, based on the provisions of articles 479, last paragraph, of the Law of Insurance and Bond Institutions, and 95, 96, 201, and 218, final part of the first paragraph, of the Federal Code of Civil Procedures.

FIFTH.- Based on what has been stated, analyzed, and valued in the CONSIDERING SECOND, THIRD, and FOURTH of this resolution, it is concluded that it has been proven that said Insurance Institution placed its conduct in the circumstances for revocation of the authorization granted to it to function as an Insurance Institution, provided for in article 332, first paragraph, and fraction II, of the Law of Insurance and Bond Institutions, by:

Not maintaining, as of December 31, 2016, the Investment Base covered due to the shortfall of $517,992,904.33, in terms of articles 231, 250, and 252 of the Law of Insurance and Bond Institutions, among other provisions, as analyzed in Section I of CONSIDERING SECOND of this resolution.

Not having, as of December 31, 2016, sufficient Admissible Own Funds to cover the Solvency Capital Requirement, due to the shortfall of $830,746,952.71, in terms of articles 241, 250, and 252 of the Law of Insurance and Bond Institutions, among other provisions, as analyzed in Section II of CONSIDERING SECOND of this resolution.

Not having the Paid Minimum Capital duly covered, as of December 31, 2016, due to the shortfall of $360,298,282.11, in the terms provided for in article 49 of the Law of Insurance and Bond Institutions, among other provisions, as analyzed in Section III of CONSIDERING SECOND of this resolution.

The irregularities in question were committed starting from December 31, 2016.

It should be noted that according to the aforementioned fraction II of article 332 of the Law of Insurance and Bond Institutions, the updating of just one of the infractions indicated in subsections 1 to 3 preceding is sufficient cause to generate the legal consequence consisting of this Commission, with the agreement of its Board of Directors, declaring the revocation of the authorization to operate as an insurance institution, with the circumstance that in the case of said Insurance Institution, the aforementioned three causes of this legal consequence concur.

For the above stated, the following are appropriate

RESOLUTIONS

FIRST.- The Board of Directors of this Commission, in its session number 196 of August 29, 2017, agreed to declare the revocation of the authorization granted by the Federal Government through the Secretariat of Finance and Public Credit to operate as an insurance institution for Istmo Mexico, Reinsurance Company, S.A. de C.V., formerly known as QBE del Istmo Mexico, Reinsurance Company, S.A. de C.V., through notice 366-IV-2799 of June 27, 1997, published in the Official Gazette of the Federation on August 12, 1997, and modified through notices 366-IV-4994 of September 26, 1997, 366-IV-2649 of June 26, 2002, published in the Official Gazette of the Federation on August 2 of the same year, 366- IV-USVP-277/07 of October 4, 2007, published in the Official Gazette of the Federation on October 9, 2014, and 366-III-0265/14 of March 19, 2014; to practice exclusively the reinsurance of persons in the operation of accidents and illnesses, in the lines of personal accidents and medical expenses, and of goods, in the operation of damages, in the lines of civil liability and professional risks, maritime and transports, fire, agricultural and animals, automobiles, credit, diverse, as well as earthquake and other catastrophic risks.

SECOND.- Based on articles 334, second paragraph, and 459 of the Law of Insurance and Bond Institutions, this resolution shall be notified.

THIRD.- Based on article 334, paragraphs second and third, of the Law of Insurance and Bond Institutions, the declaration of revocation incapacitates the insurance institution from issuing any insurance, from the date on which the revocation is notified; and places the society in a state of administrative dissolution and liquidation.

FOURTH.- Based on article 334, second paragraph, of the Law of Insurance and Bond Institutions, this resolution shall be published in the Official Gazette of the Federation and in two newspapers of wide circulation in the country.

FIFTH.- Based on article 334, second paragraph, of the Law of Insurance and Bond Institutions, this resolution shall be registered in the Public Commerce Registry.

Respectfully.

Effective Suffrage. No Re-election.

Mexico City, August 30, 2017.- The President of the National Commission of Insurance and Bonds, Norma Alicia Rosas Rodríguez. - Rubric.

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