The Constitution is the basis of the Mexican legal system. In the case of insurance and reinsurance, Article 73, Section XVII, grants the Congress of the Union the power to legislate in matters of commerce, which includes insurance and reinsurance operations.

The Law on Insurance and Surety Institutions (Ley de Instituciones de Seguros y Fianzas) regulates the operations of insurance institutions and their constitution, functioning, supervision and liquidation. It also establishes the powers of the National Insurance and Bonding Commission as the regulatory body.

This regulation is largely supplemented by the Sole Insurance and Bonding Circular and its Annexes (Circular Única de Seguros y Fianzas y sus Anexos), issued by the National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas), which replaced multiple rules that were dispersed across various administrative circulars, thereby unifying the regulation.

It is important to consider that Mexico has been a member of the International Association of Insurance Supervisors, an international association that brings together various supervisory authorities in the field of insurance from around 160 countries, since 1994. This association is responsible for developing support material for the supervision of the insurance sector and assessing the compliance of its members.

Furthermore, the substantive regulatory framework relating to the insurance contract can be found in the following legislation:

• the Law on the Insurance Contract (Ley Sobre el Contrato de Seguro);
• the Commercial Code (Código de Comercio);
• the Federal Civil Code (Código Civil Federal);
• the Law on Navigation and Maritime Commerce (Ley de Navegación y Comercio Marítimos), regarding maritime insurance contracts; and
• the Civil Aviation Law (Ley de Aviación Civil), regarding aerial insurance contracts.

There are also other secondary legal instruments, such as regulations, which are relevant to the field of insurance, including:

• Internal Regulations of the National Insurance and Bonding Commission (Reglamento Interior de la Comisión Nacional de Seguros);
• Regulations of Insurance and Bonding Agents (Reglamento de Agentes de Seguros y Fianzas);
• Inspection and Surveillance Regulations of the National Insurance and Bonding Commission (Reglamento de Inspección y Vigilancia de la Comisión Nacional de Seguros y Fianzas); and
• Regulations on Group Insurance for Life Operations and Collective Insurance for Accident and Sickness Operations (Reglamento del Seguro de Grupo para la Operación de Vida y del Seguro Colectivo para la Operación de Accidentes y Enfermedades).

There is no specialised international treaty applicable to the field of insurance or reinsurance; however, the content of some existing treaties may be relevant in certain matters, such as the USMCA (Tratado entre México, Estados Unidos y Canadá, or United States-Mexico-Canada Agreement), which establishes certain provisions on financial services, including insurance conflicts related to international maritime or air transport, and international treaties on contracts.

In the Mexican legal system, common law plays a limited role, as written law predominates. However, commercial practice and mercantile customs and usage are recognised as a source of law that can influence the interpretation of insurance contracts in specific cases.

Regarding precedents, Mexico is not a common law country, but the decisions of the Mexican Supreme Court and Collegiate Circuit Courts can become binding jurisprudence under certain conditions. These decisions are relevant in the interpretation of insurance regulations, especially in controversial or novel matters.

Finally, reinsurance contracts are regulated by the legislation agreed upon by the parties, usually referring to Mexican law. In such cases, the provisions of the Federal Civil Code relating to contracts and obligations are relevant, as they are generally supplementary to mercantile matters.

Regulation of the insurance and reinsurance sector is the responsibility of the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) with regard to the application of the Insurance and Bonding Institutions Law. A decentralised body of said Ministry, the National Insurance and Bonding Commission (Comisión Nacional de Seguros y de Fianzas), is in charge of supervising the operations of the insurance and bonding sectors.

Matters relating to insurance companies are regulated within this framework, including:

• the authorisation to establish themselves;
• the modification of their statutes;
• the requirements to ensure their proper operation;
• the manner in which they fulfil their obligations;
• the determination of their premiums;
• their solvency;
• the manner in which their contracts must be issued;
• the products they can market, depending on the sector in which they are authorised;
• the preparation of technical notes;
• the constitution, increase, valuation and registration of current risk reserves; and
• proof of their solvency.

In summary, the regulation of the insurance and reinsurance sector in Mexico combines a solid legal framework, technical supervision by the National Insurance and Bonding Commission, and the implementation of international standards.

In accordance with the Insurance and Bonding Institutions Law and the Sole Insurance and Bonding Circular and its Annexes in Mexico, only commercial companies authorised by the National Insurance and Bonding Commission may enter into insurance contracts. These legal standards also condition the use of the words “insurance”, “reinsurance”, “assurance”, “surety” and “guarantee”, as well as others that express similar ideas – in any language – in the names of commercial companies, to avoid confusion among consumers.

In this regard, any insurance – whether for consumers, small and medium-sized enterprises (SMEs) or large corporations – must be issued by an institution that is authorised for this purpose by the National Insurance and Bonding Commission. The requirements that must be met to obtain such authorisation are outlined in the Insurance and Bonding Institutions Law and in the Sole Insurance and Bonding Circular and its Annexes, which is constantly updated.

Regarding the underwriting of various insurance contracts to cover a specific risk against damage, the insurer allows the concurrency of policies, provided that each insurer is informed, in writing, of the names of the insurers and the insured sums. The contracting of “excess reinsurance” policies intended to insure a greater civil liability risk than initially contracted with an insurance company is also valid, with no special rules applying in this regard.

In Mexico, the underwriting of insurance and reinsurance is limited to authorised institutions that comply with the legal and solvency requirements established primarily in the Insurance and Bonding Institutions Law. There are differences in the requirements depending on the type of client (consumers, SMEs or companies), and excess coverages and reinsurance are subject to specific regulations to ensure the stability of the system and the protection of policyholders. Detailed provisions can be found in the Insurance and Bonding Institutions Law and in the regulations issued by the National Insurance and Bonding Commission.

In Mexico, the taxation of insurance premiums is primarily regulated by the provisions of the Federal Fiscal Code (Código Fiscal de la Federación), the Income Tax Law (Ley del Impuesto sobre la Renta) and the Value Added Tax Law (Ley del Impuesto al Valor Agregado).

The insurance premium is subject to Value Added Tax at a rate of 16% of the premium amount paid by the policyholder. However, the withholding and remittance of this tax to the tax authority is the responsibility of the insurance company.

The following are exempt from this tax:

• insurance against agricultural risks;
• home credit insurance that covers the default risk of borrowers of mortgage loans or with fiduciary guarantees intended for residential housing;
• financial guarantee insurance that covers payment in the event of default by issuers of securities, credit instruments or documents that are subject to public offering or brokerage in securities markets, provided that the funds from the placement of such securities, credit instruments or documents are used to finance mortgage loans or fiduciary-guaranteed loans for the acquisition, expansion, construction or repair of real estate intended for residential housing; and
• life insurance, whether covering the risk of death or providing life annuities or pensions.

Currently, there is significant controversy between insurance companies and tax authorities regarding the crediting of the Value Added Tax that insured companies pay due to expenses incurred in compensating their policyholders and which they subsequently credit in their favour. Historically, tax authorities had permitted its crediting, but in 2019 the Tax Administration Service (Servicio de Administración Tributaria) changed its long-standing position and is now requiring insurance companies in Mexico to pay this tax retroactively from 2015 to date, in a bid to increase its revenues. This has caused great alarm among national and foreign companies providing insurance in Mexico.

In Mexico, any individual or legal entity that does not have the corresponding authorisation from the government is prohibited from entering into insurance operations in national territory. An insurance operation is understood as an agreement whereby one person undertakes to compensate another for damage or to pay a sum of money in the event of a future and uncertain event foreseen by the parties.

Furthermore, in accordance with the Insurance and Bonding Institutions Law, it is prohibited to contract with foreign companies in the following cases.

• Personal insurance:
1. when the policyholder is a natural person, and the contract is entered into within the national territory; or
2. when the policyholder is a legal person, and the insured reside within the national territory.
• Hull, vessel or aircraft insurance, and all types of vehicle insurance, against risks inherent to the maritime and transport sectors, provided that such vessels, aircraft or vehicles are registered in Mexico or owned by individuals domiciled in Mexico.
• Credit insurance, bond insurance, home credit insurance and financial guarantee insurance, when the insured is subject to Mexican legislation – in the case of financial warranty insurance, the prohibition does not apply when the securities, credit instruments or documents insured are exclusively offered in foreign markets.
• Liability insurance, against civil liability arising from events that may occur within the national territory.
• Insurance in other branches, against risks that may occur within the national territory.

Regarding the last point, the contracting of insurance for risks that may occur within national territory on goods transported from the national territory to a foreign territory or vice versa is excluded, as is the contracting of insurance by non-residents within the national territory for their persons or vehicles with the intention of covering risks during their occasional stays.

An applicant must receive approval from the Governing Board of the National Insurance and Bonding Commission in order to be recognised as an insurance organisation, and must meet the requirements stipulated in Title 37 of the Sole Insurance and Bonding Circular and its Annexes.

In order to enter into reinsurance contracts with a foreign reinsurance entity, an insurance company must be registered in the General Register of Foreign Reinsurers (Registro General de Reaseguradoras Extranjeras) for the undertaking of reinsurance and bonding operations in the country. This register is maintained by the National Insurance and Bonding Commission, which grants discretional authorisation to first-tier foreign insurance, reinsurance or bonding entities that meet solvency and stability requirements to conduct reinsurance and bonding operations. The registration is valid until December 31st of the year in which it is granted, and must be renewed annually.

Following the United Kingdom’s exit from the European Union, British insurers and reinsurers lost the benefits of the “European passport” that allowed them to operate in other member countries without requiring additional authorisations. In the Mexican context, British entities must follow the same procedures as any other foreign entity to operate in the country, without special privileges derived from previous agreements with the European Union.

Mexico maintains strict regulation regarding the operation of foreign insurers and reinsurers, requiring specific authorisations and compliance with local requirements. Foreign licences are not automatically recognised, and there are no passporting or equivalence mechanisms. Entities interested in operating in Mexico must follow the procedures established by the National Insurance and Bonding Commission and comply with current regulations.

In Mexico, the practice of fronting is permitted in the insurance sector. Fronting involves a local insurance company issuing a policy and transferring all or most of the risk to its reinsurers, acting primarily as an intermediary.

The Insurance and Bonding Institutions Law establishes that insurers may cede risks through reinsurance contracts, provided they comply with retention limits and the provisions established by the National Insurance and Bonding Commission. The Insurance and Bonding Institutions Law does not impose a specific retention percentage for insurers; however, the National Insurance and Bonding Commission supervises that institutions maintain adequate retention levels to ensure their solvency and financial stability.

Although fronting is an accepted practice, insurers must verify that the reinsurers involved have the necessary authorisation and solvency to operate in Mexico. Insurers must also comply with the information and transparency obligations established by the National Insurance and Bonding Commission, including the disclosure of reinsurance contracts and associated conditions.

Regardless, Article 18 of the Law on the Insurance Contract establishes that the insurance company will remain solely liable to the insured, even when it reinsures the risks it has insured. Therefore, formally, the company issuing the policy assumes the obligation towards the insured.

The insurance market in Mexico has undergone notable integration, with various M&A transactions aimed at strengthening companies' market positions and expanding their product offerings. These transactions include strategic acquisitions, mergers between local companies, and the entry of foreign capital through the acquisition of stakes in Mexican insurers.

As with any merger or acquisition transaction, the surviving company is liable for all obligations of the dissolved company.

• Domestic investment: local insurers have actively participated in M&A transactions to expand their portfolio of products and services and to increase their market share.
• Foreign investment: foreign investors' interest in the Mexican insurance market has remained consistent. A recent example is Mapfre's acquisition of 94% of the shares of the Mexican insurer Insignia Life for around EUR86 million.

An important consideration for the Mexican insurance market is the definitive resolution regarding the accreditation of Value Added Tax paid by insurance companies for claims made by their policyholders. As mentioned in 2.3 Taxation of Premium, many insurers are engaged in litigation with the Tax Administration Service, disputing tax credits amounting to hundreds of billions of pesos. The authority seeks to compel insurers to pay Value Added Tax that has been omitted since 2015, preventing them from accrediting the tax when settling claims for their policyholders.

Insurance institutions must comply with the following requirements.

• Offer and enter into contracts exclusively related to their authorised operations, complying with applicable legal provisions and adhering to sound insurance practices, ensuring an appropriate selection of the risks they assume.
• Determine the net risk premiums, based on technical criteria, to guarantee the fulfilment of the obligations they undertake with policyholders with a high degree of certainty.
• Ensure that the provisions included in the contractual documentation for various insurance operations, as well as the determination of premium and extra-premium amounts, their refunds and the payment of dividends or bonuses, if such benefits are stipulated, do not result in a reduction of the net risk premium.
• Clearly and precisely indicate the scope, terms, conditions, exclusions, limitations, deductibles or any other modalities established in the coverages or plans offered by the insurance institution, in the contractual documentation for insurance operations and related documents, as well as the rights and obligations of policyholders, insured parties or beneficiaries. Similarly, they must maintain clarity and precision in individual or collective communications made by any means with policyholders, clients, beneficiaries or the general public.
• Verify that the contractual documentation and the technical notes for the insurance products offered to the public maintain consistency, ensuring that the obligations of the parties in the contract align with the technical determinations of the respective insurance product.

The products offered by insurance institutions to the public are comprised of the technical note, contractual documentation and an “opinion on consistency” covering the following aspects:

• a description of the coverage and each insured risk;
• actuarial procedures for determining premiums and extra-premiums;
• technical justification of the sufficiency of premiums and, if applicable, extra-premiums;
• actuarial procedures for estimating the technical reserves of the insurance product and their connection to actuarial methods;
• deductibles, franchises or any other modalities that may apply;
• technical justification for the interest rate used in calculating premiums and technical reserves, including demographic and statistical bases, and the information supporting financial and demographic assumptions;
• actuarial procedures for determining dividends and bonuses applicable to each policyholder, where appropriate;
• actuarial procedures for calculating guaranteed values, where applicable; and
• surcharges for acquisition, administration and profit costs intended to be charged.

Institutions must register with the National Insurance and Bonding Commission to ensure the validity of contracts unilaterally drafted by the insurer; failure to do so may render such contracts null and void.

Once their products are registered, insurers may proceed immediately with their commercialisation. However, if the National Insurance and Bonding Commission conducts its inspection and surveillance duties and determines that the technical note, the contractual documentation or the opinion of an insurance product does not meet the requirements, it will require the insurer to submit a regularisation plan within a period not exceeding 30 business days, regardless of any sanctions imposed. The insurer must refrain from offering or contracting insurance operations for the supervised product and may, where applicable, authorise or permanently suspend the product.

The primary method of distributing insurance contracts in Mexico is through Insurance Agents, who may be natural persons or legal entities. In all cases, these agents require authorisation from the National Insurance and Bonding Commission to operate and must comply with the requirements established by the Regulations for Insurance and Bonding Agents (Reglamento de Agentes de Seguros y de Fianzas). As of September 2024, according to official figures, there are 50,185 natural person insurance agents and 675 legal entity agents.

The marketing of insurance operations can also occur through electronic means.

Distribution through banks (BIM) is permitted and is used quite frequently, as some financial institutions also provide these services and others form alliances with insurance companies. However, banks must clearly inform the insurance customer that the insurance is not a banking product and that it is subject to the insurer's conditions.

The regulation of distribution can primarily be found in the legal instruments outlined in 1.1 Sources of Insurance and Reinsurance Law.

In Mexico, most insurance contracts are unilaterally drafted by the insurance company, leaving no room for negotiation regarding the contract terms. However, this does not exclude the possibility of negotiating them in cases where the policyholder has the bargaining power to do so.

According to the Law on Insurance Contracts, when an insurance policy is taken out, the policyholder is required to declare in writing to the insurance company all significant facts relevant to the assessment of the risk that may influence the agreed conditions, using the questionnaire provided by the insurer. This applies whether the contract is entered into directly by the individual or through a representative.

Any omission or inaccurate or false declaration of the facts that the proposer of the insurance contract is required to declare authorises the insurance company to consider the insurance contract rescinded by operation of law, even if these facts did not influence the occurrence of the claim. In such cases, the insurer must duly inform the policyholder or their beneficiaries of the rescission of the insurance contract within 30 calendar days following the date on which the company becomes aware of the omission or inaccurate declaration.

The courts have established strict criteria regarding the notification of the rescission of the insurance contract due to omissions or false declarations. Therefore, it is important for insurers to undertake the necessary measures to notify the interested parties within 30 calendar days after becoming aware of the issue. Failure to do so will obligate the insurance company to honour the obligations stipulated in the insurance contract, even if it was misled by the policyholder.

Furthermore, in the event of any material aggravation of the risk for the duration of the insurance contract, the policyholder must give notice to the insurer within 24 hours of becoming aware of this risk. If the policyholder fails to provide this notice or if they themselves cause a material aggravation of the risk, the obligations of the insurance company will cease by operation of law.

Another very important point, which in Mexico has led to abuse by contracting and/or insured natural or legal persons, is the existence of a jurisprudential criterion that initially mandates insurance companies to reliably demonstrate the delivery of the general conditions applicable to the insurance contract to the policyholder.

This jurisprudential criterion was established by the Supreme Court following conflicting decisions from two Collegiate Circuit Courts that resolved two cases in conflicting ways where the insureds were individuals, with the Supreme Court ruling that including a website link in the policies is insufficient to fulfil the obligation to inform policyholders of the general conditions. This has led to many companies improperly claiming ignorance of the general conditions applicable to their contracts, seeking multimillion-dollar compensation to the detriment of the community of policyholders who do act in good faith.

As mentioned in 6.1 Obligations of the Insured and Insurer, omissions or inaccurate declarations by the insured to the insurance company during the proposal of the insurance contract authorise the insurer to notify the policyholder or their beneficiaries of the rescission of the contract within 30 days following the date on which the company becomes aware of the omission or false declaration, thereby ceasing its obligations.

Nevertheless, it is not uncommon for some insurance policies issued by insurance companies to include an “irrefutability” clause stipulating that the insurance company waives the right to dispute the validity of the policy after a certain period (typically around two years from the inception of the contract), even if there are inaccurate declarations or omissions by the insured.

When an insurance agent becomes involved in negotiating a contract, in accordance with the provisions of the Insurance and Bonding Institutions Law as well as various judicial criteria, the agent’s acceptance of the proposal to enter into an insurance contract will be binding on the insurance company, regardless of the existence of an employment relationship or a commercial contract between the agent and the insurer.

Similarly, the official receipts issued by insurance agents authorised by insurance institutions to policyholders or insured parties for the payment of their premiums are legally binding on insurance companies.

Given the responsibility of agents and the consequences their conduct can have for insurance companies, the law requires agents (either individuals or legal entities) to be accredited by the National Insurance and Bonding Commission to broker policies. To achieve this, they must obtain their licence and comply with the requirements.

The insurance contract begins with an offer made by the policyholder or the contracting party using the forms provided by the insurance companies to their clients. Once the offer is made, the proposer is obligated to maintain it for a period of 15 days; this period is doubled if a medical examination is required.

Offers for extensions, modifications or reinstatements of a suspended contract are considered accepted if they are submitted via certified mail with acknowledgment of receipt, provided the insurance company does not respond within 15 days from the date the offer is received. This acceptance is subject to the suspensive condition of approval by the Ministry of Finance and Public Credit.

The general terms of the insurance must be established within the same offer form provided by the insurance company, or alternatively sent to the proposer so that they may be included in the contract offer that must then be signed and submitted to the company, serving as the basis for the contract.

The Law on Insurance Contracts establishes the minimum requirements that must be included in a policy (which must be delivered to the policyholder), specifying the rights and obligations of the parties. These requirements include:

• the names and addresses of the contracting parties and the signature of the insurance company;
• the designation of the insured object or person;
• the time from which the risk is guaranteed and the duration of this guarantee;
• the amount of the guarantee;
• the insurable interest;
• the insurance premium or fee;
• where applicable, a specific statement that it is a legally required liability insurance policy; and
• other clauses that must appear in the policy in accordance with legal provisions, as well as those lawfully agreed upon by the contracting parties.

In the case of personal insurance, in addition to the aforementioned requirements, the policy must also contain:

• the full name and date of birth of the person(s) covered by the insurance;
• the full name of the beneficiary, if one is designated;
• the event or term upon which the insured sums become payable; and
• where applicable, the guaranteed values.

In Mexico, the law permits individuals other than the policyholder to be named as beneficiaries of the insurance contract, such as tenants, subcontractors or mortgage creditors, among others. These beneficiaries must be designated as such in the policy, except in the case of liability insurance, where the third-party beneficiary is the third party harmed by the insured, regardless of who that third party may be.

Furthermore, when proposing an insurance policy on behalf of another, the proposer must declare all significant facts that are or should be known by the third-party insured or their intermediary. In the event of any omission, the insurance company is authorised to consider the insurance contract rescinded by operation of law under the same terms as outlined in 6.1 Obligations of the Insured and Insurer.

In addition, the third-party beneficiary is entitled to pay the premium if the policyholder fails to do so, and the insurance company is prohibited from rejecting such payment.

Given that the purpose of an insurance contract is to provide indemnification, the only requirements for entering into such a contract are that the individuals to be indemnified must have a reparable right, such as a landlord’s interest, and that they must own the insured item that has been damaged by a claim.

A life insurance contract taken out in the name of a third party is valid if the third party gives their prior written consent, indicating the insured sum; otherwise, it is voidable. A personal insurance contract is also voidable in the case of the death of a minor under 12 years of age or of a person under guardianship.

The position regarding consumer contracts and reinsurance contracts is not significantly different, except that the latter are not subject to specific regulation, and the principle of pacta sunt servanda (“agreements are to be honoured”) prevails, provided that public policy provisions are not violated. Most disputes related to reinsurance contracts in Mexico are resolved through alternative dispute resolution methods, such as commercial arbitration, where this legal principle is upheld.

The Insurance and Bonding Institutions Law allows insurance companies to undertake operations through which they transfer portions of the risk from their portfolio related to technical risks to the capital market, in accordance with the guidelines established by the National Insurance and Bonding Commission in the Sole Insurance and Bonding Circular and its Annexes, with the approval of their board of directors.

Securities transactions conducted by insurance institutions in the fulfilment of trusts, mandates and administration contracts must comply with the provisions of the Insurance and Bonding Institutions Law and the Securities Market Law (Ley del Mercado de Valores), and, where applicable, in accordance with the guidelines established by the Bank of Mexico (Banco de México).

The Sole Insurance and Bonding Circular and its Annexes define the transfer of portions of a technical insurance risk portfolio to the capital market as an operation in which an insurance institution, through a contract, transfers part of the risk from its portfolio of technical insurance risks to a Special Purpose Vehicle for Insurance (Vehículo de Propósito Especial de Seguros). This includes transferring the funds corresponding to the coverage of the transferred risks. The Special Purpose Vehicle then finances its exposure to these risks by issuing debt securities on authorised stock exchanges, as regulated by the Securities Market Law. The funds raised from these securities are managed to cover the payments the insurance institution is required to make under the transferred risks, as specified in the contract. Importantly, the repayment rights of investors are subordinated to the Special Purpose Vehicle’s payment obligations to the insurance institution.

Such operations must consider the following.

• Funding of the Special Purpose Vehicle for Insurance.
• The Special Purpose Vehicle for Insurance must hold assets derived from the placement of debt securities on authorised stock exchanges, in compliance with the Securities Market Law. These assets must exceed by 10% the sum of:
1. the maximum liability that could arise from exposure to the transferred portion of the technical insurance risk portfolio; and
2. the fees, commissions and expenses necessary for its operation.
• The rights of the holders of the securities issued by the Special Purpose Vehicle for Insurance over its administered assets are subordinated to the payments the Vehicle must make to the insurance institution as part of the operation.
• The assets managed by the Special Purpose Vehicle for Insurance must comply with specific investment criteria, including:
1. consistency with the nature, duration and currency of the underlying obligations in the operation;
2. maintenance of appropriate diversification and counterparty risk strategies; and
3. ensuring liquidity.

All of the above are subject to approval by the National Insurance and Bonding Commission and the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores).

Operations involving the transfer of portions of a technical insurance risk portfolio to the capital market must be documented through trust contracts. These contracts must serve a purpose exclusively aligned with the requirements outlined in the Sole Insurance and Bonding Circular and its Annexes. Furthermore, they must adhere to the specified characteristics to ensure they are not classified as reinsurance operations.

The fiduciary institution and the brokerage house responsible for placing the securities issued by the Special Purpose Vehicle for Insurance must have no business ties or financial connections with the insurance institution conducting the transfer. They are also subject to rigorous oversight.

The Insurance and Bonding Institutions Law expressly limits the activities that insurance companies can undertake. Therefore, as the possibility for insurance institutions to carry out alternative risk transfer operations abroad is not provided for, such activities are not permitted, since they are also not envisaged in the Sole Insurance and Bonding Circular and its Annexes.

In principle, the general rules of contract interpretation that are provided for in the Federal Civil Code also apply to the insurance contract. These include, but are not limited to, the following:

• if the terms of a contract are clear and leave no doubt about the intent of the contracting parties, the literal meaning of its clauses shall prevail;
• if the words appear contrary to the evident intent of the contracting parties, the latter shall take precedence over the literal wording;
• regardless of the generality of the terms in a contract, they shall not be understood to include cases beyond those the parties intended to cover; and
• if any clause in a contract allows for multiple interpretations, it shall be understood in the manner most appropriate to produce effect.

Given the legal nature of insurance contracts, good faith must always prevail, and this principle must guide all interpretations. For instance, this applies to elements such as the responses provided in the questionnaire completed by the proposer at the insurer's request or the timely notification of a claim, given their specific characteristics.

Although the legislation does not provide a specific interpretative rule for insurance contracts, in practice judges often interpret such contracts in favour of the insured. This approach is largely due to the fact that most insurance contracts are adhesion contracts (unilaterally drafted by the insurer). The objective is to extend the constitutional protection afforded to consumers under the Mexican Constitution. However, this practice can significantly limit insurers' ability to defend themselves on critical issues, such as the right to rescind the contract when the insured risk has been aggravated, the timely notification of claims, the commencement of the prescription period and the validity of exclusions, among others.

Insurance contracts may stipulate warranties or similar risk mitigation conditions. For instance, a fire insurance contract may condition coverage on the installation of a fire prevention system, the placement of fire extinguishers or the prohibition of storing specific flammable products.

Pre-contractual declarations are considered warranties if the insurance company retains the original document containing the questionnaire and the insured's declarations. Any inaccuracy or omission in these declarations constitutes a breach of warranty, which exempts the insurer from liability and authorises the rescission of the insurance contract, even if the breach did not influence the occurrence of the claim. The insurer must notify the insured or their beneficiaries of the rescission within 30 calendar days from the date the company becomes aware of the inaccuracy or omission.

Regarding the aggravation of risk, the contract may expressly impose obligations on the insured to mitigate or prevent the aggravation of risk. When it affects the claim or the extent of the insurer's liability, non-compliance with these obligationsauthorises the insurer to invoke the clause that releases it from its obligations.

In general, a breach of warranty entitles the insurer to be released from its corresponding contractual obligations. However, the insurer cannot claim to be released from its obligations if the breach of warranty is unrelated to the loss or does not impact the specific obligation assumed by the insurer.

Mexican legislation does not make the validity of an insurance contract contingent upon the delivery of the policy, the payment of the premium or any other condition precedent to a claim.

However, suspensive conditions may be included within the policy's clauses to deny a specific claim without invalidating the policy itself. For example, in insurance covering the transportation of goods, a clause might require the carrier to use toll roads or fulfil similar conditions, depending on the type of insurance and the coverage agreed upon.

When a claim arises, the insured or the beneficiary of the policy must promptly notify the insurance company, either directly or through their insurance agent, so it can assess whether to approve or deny the payment of compensation.

If the insured or beneficiary wishes to challenge the insurance company’s decision to deny the claim, they may voluntarily approach either the insurer’s Specialised Unit or the National Commission for the Protection and Defence of Users of Financial Services (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros). The Commission can only handle claims involving amounts of approximately MXN50 million.

The National Commission for the Protection and Defence of Users of Financial Services is a government agency that offers free services to protect consumers of financial products. It acts as a mediator in disputes between insured individuals and insurance companies, as well as between other consumers and financial institutions. While it is common for consumers to bring cases before it, the Commission cannot issue binding resolutions unless both parties agree to arbitration, which is rare.

Regardless of this process, the insured may file a lawsuit in court to demand payment of the compensation they believe they are entitled to as soon as they receive the claim rejection or 30 days after the company has received the necessary documents and information to understand the basis of the claim.

In Mexico, the statute of limitations is a procedural defence that must be raised in court by the party invoking it and cannot be applied ex officio by the courts. According to the Law on Insurance Contracts, the statute of limitations for actions arising from an insurance contract is as follows:

• five years for death coverage in life insurance policies; and
• two years for all other cases.

The Mexican Supreme Court of Justice has issued various relevant jurisdictional criteria regarding the statute of limitations. For instance, it has been determined that the statute of limitations for insurance-related actions does not begin until the existence of the insurance contract is known. It has also been ruled that claims for compensation resulting from an accident causing death – whether under civil liability coverage or not – are subject to a five-year statute of limitations instead of two.

In matters of insurance jurisdiction, both local and federal judges have concurrent authority.

In certain cases, such as when claiming payment of compensation due to civil liability attributable to a state production company like the Federal Electricity Commission (Comisión Federal de Electricidad) (legally referred to as State Patrimonial Liability), the interpretation and resolution of such liability fall under the jurisdiction of administrative courts. It could be suggested that a claim for liability arising from the policy could only be pursued against the insurer covering that risk after the liability of the public entity has been judicially established.

Jurisdictional disputes related to insurance contracts are subject to Mexican legislation, and most cases are handled in an oral commercial trial. Occasionally, disputes may also be initiated through a civil process if a civil liability action is brought directly against the insurance company.

The implementation of oral commercial trials has significantly expedited the resolution of judicial disputes and usually, depending on their complexity, litigation in insurance matters within such processes can last for approximately four to ten months in its sole instance. The duration depends on various factors specific to each case, the federal entity where the litigation takes place, and other specific circumstances. This timeframe does not account for the direct amparo trial, which may still be filed against the judgment issued in the oral trial, and serves as a constitutional review process of said judgment that can extend the total litigation period by an additional 12 to 18 months.

Commercial trials can be initiated before either local or federal judges, at the claimant’s discretion. In addition, any judge located in a jurisdiction with a delegation of the National Commission for the Protection and Defence of Users of Financial Services is deemed competent to hear an insurance lawsuit, even if the federal entity chosen has no point of contact with the dispute, which has given rise to a kind of forum shopping.

The oral commercial trial comprises an initial written part and a verbal part, structured as follows.

• The presentation of the initial written claim, which must be accompanied by all documents that the claimant has in their possession, as well as a description of the evidence they intend to present during the trial.
• If the judge determines that the claim meets the requirements stipulated in the legislation, it will be admitted for processing and the judge will order the defendant (insurance company) to be summoned to trial to respond to the claim within nine working days.

• The insurer will submit their written response to the claim, addressing the alleged facts, raising defences and exceptions, and presenting evidence to demonstrate the inadmissibility of the claims made against them.
• If the judge determines that the response to the claim was submitted on time, they will consider the insurer as having duly responded to the claim, raised exceptions and defences, and announced their evidence for the trial. The claimant will then be granted a review period of three working days to respond as appropriate.
• Within that period, the claimant will address the defences and exceptions raised by the insurer and may offer evidence to refute them.
• Subsequently, the judge will set a date for the preliminary hearing within the next ten days. During this hearing, the judge will urge the parties to reach an agreement; if this is not possible, the dispute will be formally established, the admissibility of evidence will be determined, and the parties will be summoned for the trial hearing.

Once the trial hearing is opened, the admitted and duly prepared evidence will be examined. After the examination of the evidence, the parties will have the opportunity to present their arguments, following which a judgment should ideally be delivered. However, this rarely occurs in practice, and the hearing is suspended to set a later date at which the judgment will be pronounced, with the parties being summoned to hear it.

No ordinary appeal is allowed against the judgment issued in an oral commercial procedure. The only means of challenging it is through a direct amparo trial, which must be filed within 15 days of the notification of the judgment and is heard by the Collegiate Circuit Courts. Exceptionally, when the judgment involves a direct interpretation of a constitutional provision and establishes a relevant and significant criterion for the Mexican legal system, the Supreme Court may choose, at its discretion, to hear the case, and this decision cannot be challenged.

The enforcement of judgments in Mexico is considered a matter of public order.

In insurance matters, when a final judgment orders the insurance company to make a payment, the judge must require the insurer to demonstrate within 72 hours that it has fulfilled its obligation to pay the benefits as ordered. If the insurer fails to provide such verification, the judge will order the securities market intermediary or the institution holding the insurer's securities to proceed with the sale of the securities owned by the insurer, without liability for the depositary institution and without requiring the insurer's consent. Alternatively, in the case of depositary institutions referred to in the Securities Market Law, the securities may be transferred to a securities market intermediary to carry out said sale.

Judgments issued abroad may also be enforced in Mexico, provided they are final (ie, not subject to appeal or modification) and meet certain requirements. These include adherence to the essential formalities of due process, such as ensuring that the issuing judge was competent, that the defendant was notified and given an opportunity to present their defence, and, where applicable, the attachment of a certified translation of the judgment.

While the Commercial Code permits parties to submit commercial disputes to arbitration and the principle of pacta sunt servanda prevails in commercial matters, the reality is that, as insurance contracts are generally adhesion contracts, any clause in such contracts that imposes arbitration unilaterally on the insured by the insurer is considered invalid.

Nevertheless, the Sole Insurance and Bonding Circular requires insurance companies to include an option for the insured to submit disputes concerning pre-existing illnesses or conditions to arbitration in contracts for medical expense insurance, personal accident insurance and health insurance. This must be conducted through independent medical arbitration, with provisions clearly defining the independence of such arbitrators and the process for their appointment.

This is quite common in reassurance disputes, as most controversies in this area are resolved through commercial arbitration. As a rule, such arbitration agreements and the awards resulting from them are valid and enforceable.

Mexico is a jurisdiction that recognises the validity of arbitral awards, and their enforcement is provided for and upheld by law. Regardless of the country in which it was issued, an arbitral award will be recognised as binding and, upon the submission of a written petition to the appropriate judge, will be enforced in accordance with the provisions of the Commercial Code.

Under the Commercial Code, initiating the enforcement of foreign commercial arbitration awards in Mexico requires the original authenticated award or a certified copy thereof to be filed with a competent court.

However, in December 2022, the Supreme Court unanimously ruled that the requirement to present the original award “duly authenticated” or a certified copy thereof violates the right of access to justice. Therefore, this requirement can no longer limit the enforcement of an arbitral award.

The recognition and enforcement of a commercial arbitration award may only be denied if one of the grounds stipulated in Article 1462 of the Commercial Code is proven, such as:

• one party to the arbitration agreement was under some incapacity, or the agreement itself is invalid;
• one party was not properly notified of the appointment of an arbitrator or the arbitration proceedings, or was otherwise unable to assert their rights;
• the award addresses a dispute not covered by the arbitration agreement;
• the composition of the arbitral tribunal or the arbitral procedure did not comply with the agreement of the parties;
• the award is not yet binding on the parties or has been annulled or suspended by a court in the country where it was issued; or
• the court determines that, under Mexican law, the subject matter of the dispute is not arbitrable or that recognition or enforcement would conflict with public policy.

Mexico is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Inter-American Convention on the Extraterritorial Effectiveness of Foreign Judgments and Arbitral Awards.

Mediation in insurance matters falls under the responsibility of the ad hoc administrative body known as the National Commission for the Protection and Defence of Users of Financial Services. This method of conflict resolution is widely utilised in Mexico.

Furthermore, as mentioned in 9.3 Litigation Process, during oral commercial trials, the judge is required to encourage the parties to reconcile their interests to avoid litigation and reach an agreement. This obligation is consistently upheld in practice.

In Mexico, the Law on Insurance and Bonding Institutions provides a special formula for calculating the compensation an insurer must pay to the insured or policyholder beneficiary in cases of unjustified delay in settling a claim. The compensation amount is converted into Investment Units (Unidades de Inversión), a unit of account updated daily by the Bank of Mexico in line with inflation and designed to protect investors from inflationary fluctuations while maintaining the purchasing power of money.

The following procedure is applied.

• Obligations in national currency are denominated in Investment Units, calculated at their value on the due date of the period legally granted to the insurance company for fulfilment. Payment is then made in national currency, based on the value of the Investment Units on the date the payment is executed.
• The insurance institution must pay default interest on the obligation denominated in Investment Units as described above. This interest is capitalised monthly, with the rate determined by multiplying by 1.25 the term deposit cost of liabilities denominated in Investment Units used by the country’s multiple banking institutions. The Bank of Mexico publishes this rate monthly in the Official Gazette of the Federation (Diario Oficial de la Federación).
• When the principal obligation is denominated in foreign currency, the insurance institution is required to pay the original obligation, as well as default interest, capitalised monthly by applying to the obligation amount a percentage derived from multiplying by 1.25 the term deposit cost of liabilities denominated in United States dollars by the country’s multiple banking institutions, as published monthly by the Bank of Mexico in the Official Gazette of the Federation.
• Default interest accrues daily from the due date of the payment period until the day the payment is made.

Judges must order insurers to pay this compensation even if it has not been explicitly requested by the insured in their claim.

In October 2024, the Supreme Court resolved an amparo review in which it was determined, by a majority of three votes to two, that an additional award of damages for delay in non-performance was not appropriate. The ruling clarified that punitive damages for delayed payment of a claim are inadmissible. However, this criterion is not binding.

In insurance for things encumbered by privileges, mortgages or pledges, the privileged creditors, mortgagees or pledgees are subrogated by operation of law to the compensation, up to the amount of the claim secured by such encumbrances.

Similarly, the insurance company that pays the compensation is subrogated, up to the amount paid, in all the rights and actions against third parties that correspond to the insured person due to the damage suffered. In the case of surety insurance, the insurer is subrogated, up to the limit of the compensation paid, to the rights and actions that the insured may exercise against the contracting party and, if applicable, other parties responsible for the claim.

For inland transport insurance, the insurance company is subrogated to the rights of the insured parties to pursue claims against the carriers for damages for which they are liable.

In personal insurance, the insurance company may not be subrogated to the rights of the insured or the beneficiary against third parties because of the loss, except in the case of insurance contracts covering medical expenses or health.

The company may be wholly or partially released from its obligations if subrogation is prevented by acts or omissions on the part of the insured.

The insurance sector continues to strengthen its use of digital channels for the placement of insurance products, which necessitates robust information technology infrastructure and the ability to operate within an environment conducive to digital business models, given the risks and vulnerabilities posed by the digital market, particularly the threat of cyber-attacks to insurance companies.

It is increasingly common for companies to seek digital contracting across various product lines, a trend accelerated by the introduction of new market opportunities and the regulatory framework established under the Law to Regulate Financial Technology Institutions (Ley para Regular las Instituciones de Tecnología Financiera) and the ongoing need to digitalise the market, especially in response to the COVID-19 pandemic.

The National Insurance and Bonding Commission has adopted a co-operative and forward-looking approach in leveraging technology to support market development. This has led to the establishment of guidelines in the Sole Insurance and Bonding Circular and its Annexes regarding the use of innovative models that, for the purposes of the Law to Regulate Financial Technology Institutions, refer to the provision of financial services through tools or technological means that differ from those currently available in the market.

The Mexican insurance market faces a range of emerging risks that require proactive measures from both insurers and regulators. The National Insurance and Bonding Commission has introduced various initiatives to enhance the sector's resilience and safeguard policyholders against these challenges.

Cyber-Risks

The rise in cyber-attacks and vulnerabilities in digital systems has significantly increased the exposure of businesses and individuals to financial and informational losses. The National Insurance and Bonding Commission has encouraged the development of specific insurance products to cover cyber-risks, and has established guidelines for insurers to implement cybersecurity measures and effectively manage these risks.

New Disaster Risks

Climate change has intensified the frequency and severity of natural disasters such as hurricanes, earthquakes and floods, leading to greater potential losses for the insurance sector. The National Insurance and Bonding Commission has updated capital and technical reserve requirements for insurers to ensure they can meet obligations arising from catastrophic events. It also promotes the adoption of risk management models that incorporate climate change scenarios.

Artificial Intelligence and Increased Automation

The integration of artificial intelligence (AI) and automated processes into insurers’ operations presents challenges related to ethics, privacy and decision-making accuracy. The National Insurance and Bonding Commission is considering issuing guidelines for the ethical and responsible use of AI in the insurance sector, with a focus on transparency, data protection and non-discrimination in automated processes.

In response to the emerging risks outlined in 11.1 Emerging Risks Affecting the Insurance Market, insurers and technology companies in Mexico are developing innovative products and solutions to manage and mitigate these challenges, including the following notable initiatives.

Cyber-Insurance

To address increasing cyber threats, specific policies have been designed to cover financial losses caused by cyber-attacks.

Insurtech and Digitalisation

The adoption of financial technologies within the insurance sector, known as insurtech, has enabled the creation of more personalised and efficient products, improving the management of emerging risks.

In terms of legislative amendments, the regulatory framework remains largely unchanged, with modifications limited to updates in the Sole Insurance and Bonding Circular and its Annexes. These updates require insurers to incorporate ESG criteria into their Solvency and Financial Condition Reports.

Undoubtedly, one of the most relevant aspects to consider in Mexico is the current fiscal policy concerning the accreditation of Value Added Tax historically utilised by insurers. Plans to retroactively eliminate this tax accreditation could result in insurers owing billions of pesos, potentially creating significant disruption in the market; see 2.3 Taxation of Premium.

On the other hand, the insurance sector is continually shaped by judicial decisions that often establish important jurisprudence for the sector. Consequently, close monitoring of these rulings is essential.