Mexican insurers will have to take aggressive steps to remain competitive with U.S. and Canadian companies that are acquiring a stronger presence in the country, according to A.M. Best Co. in a statement released today.
Provisions of the North American Free Trade Agreement (NAFTA) that became effective Jan. 1, 2000, open Mexico’s borders to 100 percent U.S. or Canadian ownership of insurance companies.
Approved in 1994, NAFTA brought Mexico greater prosperity and an improved infrastructure. This increased prosperity increased the likelihood Mexicans will purchase insurance.
Mexican insurance companies face two serious disadvantages relative to U.S. and Canadian companies, A.M. Best said. The first is their lack of technological and underwriting sophistication. This makes their operations less cost efficient. The second disadvantage is their inadequate positioning to survive a price war with the U.S. and Canadian firms.
Small Mexican insurers will seek to create strategic affiliations with each other in order to compete more effectively against the large U.S. and Canadian companies, A.M. Best said. In addition, they will have to become more sophisticated in terms of asset/liability management. Mexican insurers also are likely to seek efficiencies by creating separately capitalized subsidiaries with business or country-specific product lines.
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