Latin Americas largest and fastest-growing insurance markets are pushing ahead with ambitious plans to implement Solvency II. Both Mexico and Brazil are determined to make sure they keep abreast of best practice, but they will have to proceed by trial and error.
Both markets have been growing rapidly, as large segments of the population clamour for basic insurance products. The Mexican market has doubled in size in the past 10 years, with the number of companies jumping from about 40 to around 100.
Norma Alicia Rosas, vice-president of analysis and sectoral studies at the Insurance and Surety National Commission (CNSF) in Mexico City, says this rate of growth is sustainable. Basic products such as life insurance are most sought after, meaning the Mexican industry does not suffer the bewildering complexity of products available in Europe and the US.
In Mexico, the regulator has introduced a tighter form of Solvency I that is more exacting than standards in Europe, she says. We think of it as a halfway house, a sort of Solvency 1.5, she says. This year, the CNSF is preparing reforms to legislation that it plans to submit to Congress by year-end. Rosas expects the law to be introduced by June next year, and Solvency II to be implemented within four years.
Rosas admits the move will require Mexican insurers to consider their functions and duties more carefully. We need to change the culture, to be more transparent in evaluating risk and liabilities, and management, she admits.
However, she believes the transition will be smooth. First, many international firms have entered the market and will act as catalysts and information disseminators for local firms. Also, outside providers are offering new products and systems. Lastly, the CNSF is working to introduce more transparency and disclosure, and the professional certified college of actuaries is providing training.
In Brazil, the Superintendency of Private Insurers will tackle subscription (underwriting) risk first, with new minimum capital and additional capital provisions. Credit, legal, operational and market risk will follow.
The industry is grappling both with Solvency II and the transition in Brazil to international accounting standards, says Alexandre Paraskevopoulos, manager, global corporate reporting, at Pricewater-houseCoopers (PwC) in São Paulo. Implementation will take until 2012.
For Solvency II, it has not all been plain sailing. Initially, the regulator intended to use a minimum capital requirement of about 50% of the premium, says Carlos da Matta, an insurance manager at PwC. That created a furore and, after vigorous lobbying, the regulator cut requirements that can now be as little as 15%, depending on the contract. The regulators willingness to heed the advice from the industry shows that it is flexible, says da Matta.