Article by Michell Nader S. and Yves Hayaux-du-Tilly L.

On January 16, 2002, a Decree ("Decree") with Amendments to the Mexican General Law of Insurance and Mutual Companies (Ley General de Instituciones y Sociedades Mutualistas de Seguros) ("Insurance Law"), was published in the Official Gazette of the Federation. The Decree became effective as of January 17, 2002 (the "Effective Date").1

Below is a summary of some of the most relevant aspects of the Decree:

1. Lines of Business

An insurance company cannot longer be licensed to operate both the life and property & casualty lines of business. Insurance companies currently licensed to operate both lines of business may continue to operate as such under their current license; provided, however, that they may not modify nor expand the lines of business they currently operate without first spinning-off their life and property & casualty operations.

2. Participation in Insurance Companies

The prior authorization of the Ministry of the Treasury and Public Credit (Secretaría de Hacienda y Crédito Público) ("SHCP") is now required for any party to control 5% or more of the shares representing the paid-in capital stock of insurance companies, as from the Effective Date. The former threshold was 10%. Additionally, individuals or entities acquiring or transferring shares representing more than 2% of the paid-in capital stock of an insurance company must give notice of such acquisition or transfer to the SHCP within 3 business days following such acquisition or transfer.

In order to acquire a controlling interest2 in an insurance company, an application must be filed with the SHCP which must be accompanied with, inter alia, (i) a list of the individuals or entities who will acquire the control of the insurance company indicating the capital stock to be acquired, the manner in which they will pay for such capital stock and the origin of the funds with which the corresponding payment will be made, (ii) the names, nationality, domiciles and activity of the directors, officers and compliance officers of the insurance company, (iii) a plan of activities for the insurance company, (iv) a strategic plan for the implementation of the policies and guidelines on subscription of risks, investments, risk, management, reinsurance, financial reinsurance, marketing, development and financing of its operations, as well as the strategic objectives on those matters and the mechanisms to monitor and evaluate compliance of same, and (v) such other related documentation that SHCP may further require to evaluate the corresponding application.

The participation of foreign investors in the capital stock of a Mexican Insurance Company continues to be limited to 49% except for qualified foreign financial institutions3 who may acquire 51% or more of the paid-in capital stock of a Mexican insurance company or incorporate an affiliate insurance company in Mexico as its fully-owned subsidiary in accordance with international treaties signed by Mexico, the Insurance Law and the Rules on the Establishment of Affiliates of Foreign Financial Institutions (Reglas para el Establecimiento de Filiales de Instituciones Financieras del Exterior).

3. Corporate Governance

The Board of Directors of insurance companies must be composed by no less than 5 and no more than 15 members. At least 25% of the proprietary members of the Board of Directors must be independent directors.4

The Board of Directors of insurance companies must hold ordinary meetings at least every quarter and may hold extraordinary meetings at any time upon being called by the Chairman of the Board, 25% or more of the members of the Board of Directors or any of the statutory examiners.

In order to validly hold a Board of Directors Meeting, at least 51% of the members of the Board of Directors and one independent director must be present .

4. Specific Obligations of the Board of Directors

The Board of Directors has the obligation (which cannot delegate) to define and approve, as the case may be, the following:

(i) The policies and guidelines for risk subscription, investments, risk management, reinsurance, financial reinsurance, marketing, development and financing as well as the strategic objectives in those areas and the mechanisms to monitor and evaluate compliance therewith;

(ii) The guidelines to avoid conflicts of interest between the different areas of the insurance company;

(iii) The formation of consulting committees5 that report to the Board of Directors directly or through the chief executive officer whose purpose is to assist the Board in determining the policies and strategies to be followed in investments, management of risk and reinsurance.

(iv) The entering into of financial reinsurance operations and the issuance of subordinated debentures and other negotiable investments6.

(v) The appointment of the compliance officer.

(vi) The guidelines to prevent and avoid conflicts of interest; and

(vii) The entering of agreements with related entities, when same exceed the amounts set forth by the Shareholders’ Meeting.

Resolutions approving the matters referred to in items (vi) and (vii) above require the favorable vote of at least 75% of the directors present at the Board of Directors’ Meeting and the favorable vote of the majority of the independent directors present at such Meeting.

5. Compliance Officer (Contralor Normativo)

Insurance companies must have a compliance officer (contralor normativo) whose duty is to survey compliance by the insurance company with external and internal regulations.

The compliance officer (contralor normativo) must be appointed by the Board of Directors which may also suspend or remove same from office and revoke his/her appointment; in such cases, notice must be given to the National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas) ("CNSF") within the following 10 business days.

Insurance companies must provide the compliance officer (contralor normativo) with the necessary human and material resources required to perform his/her duties.

6. Appointment of Directors and Officers

The appointment of Directors and Officers does not longer require to be ratified by the Board of Governors of the CNSF. Insurance companies must verify that individuals appointed as directors, officers, compliance officer (contralor normativo), general directors and first and second level officers comply with the requirements set forth under the Insurance Law to assume their respective positions prior to their appointment.

7. Establishment in Mexico of Two or More Insurance Companies of the Same Group

The Insurance Law now permits the establishment of two or more insurance companies belonging to the same group of interest, to operate the same lines of business without having to merge such insurance companies.

8. Financing

Traditionally, insurance companies were not permitted to borrow (except for debentures obligatorily convertible into capital stock). Insurance companies are now permitted to enter into financial reinsurance agreement and to issue debentures and other debt instruments.

Financial reinsurance agreements are reinsurance agreements whereunder the insurance company transfers a significant amount of insurance risks and as part of the compensation, it agrees to receive financing from the reinsurer.

Now insurance companies are also permitted to issue debentures obligatorily not convertible into capital stock and other debt instruments. The foregoing will permit insurance companies to finance development programs by issuing debentures or other debt instruments up to an amount equal to 20% of the minimum guaranteed capital of the insurance company or its adjusted paid-in capital.

9. Amendments to the By-laws of Insurance Companies

Insurance Companies must amend their By-Laws to comply with the Decree and submit their revised By-laws with the SHCP no later than April 15, 2002.

Should you have any question or require additional information, please contact either of the authors who are partners of Jáuregui, Navarrete, Nader y Rojas.


  1. Except for the corporate governance provisions, the specific obligations of the Board of Directors, the obligation for insurance companies to appoint a compliance officer (contralor normativo), the obligation for independent external auditors to approve technical notes of insurance products and the new procedure to be followed to register technical notes of insurance products which will become effective as of July 16, 2002.
  2. The Law defines "controlling interest" as holding 30% or more of the shares representing the paid-in capital stock, having voting control in general shareholders’ meetings, having the right to appoint the majority of the members of the Board of Directors or having, for any reason whatsoever, a controlling interest in an insurance company.
  3. A qualified foreign financial institution is a foreign insurance company incorporated and licensed to operate in a country with which Mexico has entered into a Treaty that permits the establishment of affiliates. Mexico has currently entered into Treaties that permits the establishment of affiliates with the following countries: Austria, Australia, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Slovenia, Sweden, Switzerland, Turkey, United Kingdom and the United States of America.
  4. The Insurance Law defines as independent directors those individuals who are selected to serve as directors based on their experience, qualifications and professional reputation and who do not fall within any of seven categories which include: (a) employees or managers of the insurance company or individuals who served as such during the preceding year; (b) shareholders who are not employees or managers of the insurance company but who have command authority over such managers; (c) partners or employees of a firm who provides advisory or consulting services to the insurance company or its affiliates if the fees paid by the latter to such firm represent 10% or more of the revenue of such firm; (d) important clients, suppliers, creditors or debtors (or their shareholders, directors or employees); (e) employees of organizations who receive contributions from the insurance company if same accounts for more than 15% of the contributions received by the organization; (f) directors or senior managers of a company where a director or senior manager of the insurance company is a director; and (g) spouses and individuals with qualified family or affection ties with the individuals referred to in items (a) to (f) herein. The Insurance Law does not provide a timeframe for items (c), (d) and (e).
  5. The National Insurance and Bonding Commission will issue general rules with the minimum number of committees that the Board of Directors must have, their duties and the terms and conditions relating to their members and periodicity of their meetings.
  6. For further information on the issuance of subordinated debentures and other negotiable investments, please see Section 8 below "Financing".


The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.