This content is from: Local Insights

Legal interpretation of reinsurance agreements

Mario E Juarez

Foreign reinsurers carrying out transactions in Mexico or performing legal acts having effects in Mexico must comply with certain legal requirements. For instance, according to the General Law of Insurance Companies (the Insurance Law), local insurance companies (the local insurers) can only enter into reinsurance transactions with foreign reinsurers registered in the National Registry of Foreign Reinsurers (the registry), maintained by the Mexican Ministry of Finance (SHCP).

In order for foreign reinsurers to be registered with the Registry, they must comply with the requirements set forth in the rules related to the General Registry of Foreign Reinsurers authorised to carry out reinsurance and resurety transactions in Mexico (Reglas sobre el Registro General de Reaseguradoras Extranjeras para tomar Reaseguro y Reafianzamiento del País; the rules) issued by the SHCP.

Foreign reinsurers registered in the registry must renew such registration on an annual basis. Among such requirements, foreign reinsurers must be solvent in the opinion of the SHCP and must expressly agree to be subject to Mexican laws, including the Insurance Law, the Rules, the general policy rules related to insurance, surety and financial matters issued by the National Insurance and Surety Commission (Comisión Nacional de Seguros y Fianzas) or the SHCP (the policies), with respect to their reinsurance transactions in Mexico.

Additionally, foreign reinsurers must agree to submit themselves to Mexican authorities with respect to the transactions performed by them in Mexico.

It is important to note that all reinsurance transactions carried out by foreign reinsurers that will have effects in Mexico or reinsurance agreements between a local insurer and a foreign reinsurer must be governed by Mexican laws.

Likewise, foreign reinsurers must expressly submit to the Mexican authorities in respect of such transactions. However, foreign reinsurers may agree to arbitration in Mexico for the resolution of any dispute or claim related to any such transactions.

The Insurance Law provides that the activities and transactions performed by local insurers shall be governed by the Insurance Law or any special law applicable to relevant matter, such as the rules and the policies. However, neither the Insurance Law nor the rules or the policies issued as of the date hereof, contain guidelines as to how the transactions between local insurers and foreign reinsurers or the provisions of reinsurance agreements must be interpreted.

The Insurance Law and the rules do contain few provisions related to the general aspects of the reinsurance transactions that local insurers may carry out in Mexico but do not refer to any special law for the interpretation of reinsurance agreements.

Frequently, the provisions of the law regarding Insurance Agreements (Ley sobre el Contrato de Seguro; the Insurance Agreement Law) have been applied to reinsurance agreements between local insurers and foreign reinsurers.

However, the application of the provisions of the Insurance Agreement Law to reinsurance agreements has been contested arguing that (i) the legal nature of the insurance agreement is different to the legal nature of the reinsurance agreement and (ii) the Insurance Agreement Law only governs transactions between local insurers and their insureds in Mexico.

Those contesting the application of the Insurance Agreement Law consider that the provisions of the Mexican Commerce Code must apply to reinsurance agreements.

According to the Commerce Code, commerce acts performed by commercial entities (such as local insurers and foreign reinsurers) or individuals performing commercial acts, are regulated by the provisions of such Code. The Commerce Code regulates a wide range of aspects related to the acts performed by commercial entities.

Among such aspects are: the formalities that certain commercial acts must comply with, statute of limitations, general rules of interpretation of commercial agreements and general rules applicable to arbitration proceedings between commercial entities.

It is not clear what Mexican law would be applicable to reinsurance agreements entered into by foreign reinsurers with respect to their Mexico operations. Therefore it is recommended that foreign reinsurers expressly agree in the reinsurance agreements entered into with local insurers the laws that will govern such transactions.

Mario E Juarez

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