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Regional Watch MEXICO

Broker Version. Regional Watch MEXICO. International Markets Market Intelligence February 2010. FOR BROKERS. Disclaimer. MEXICO: country dashboard. GDP 2008 USD 1,088BN. GDP SIZE IN USD BN AND GDP GROWTH. OVERVIEW GDP SIZE: 13 th worldwide (UK ranks 6 th )

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Regional Watch MEXICO

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  1. Broker Version Regional Watch MEXICO International MarketsMarket IntelligenceFebruary 2010 FOR BROKERS Disclaimer

  2. MEXICO:country dashboard GDP 2008 USD 1,088BN GDP SIZE IN USD BN AND GDP GROWTH OVERVIEW GDP SIZE: 13th worldwide (UK ranks 6th) EASE OF DOING BUSINESS: 56th worldwide GLOBAL COMPETITIVENESS: N/A STRENGTHS: a notable manufacturing power, with good control over its foreign debt and a young and growing working population. CHALLENGES: an economy affected by high crime, the economic crisis and delays on essential structural reforms. 1500 15% Agriculture 4% 1,088 1025 952 1000 10% ECONOMY Industry 34% 500 5% Services 62% 0 0% 2006 2007 2008 15 20% 10.7 15% 9.9 10 8.4 10% 5 5% 0 0% 2006 2007 2008 400 100% Misc 1% Health 1% 306 300 75% 240 227 MAT 200 50% 23% Liability 100 25% Property 4% 71% 0 0% 2006 2007 2008 click for basic information click for detailed information Back To >Regional Dashboard NON-LIFE DWP 2008 USD 10.7BN DWP SIZE IN USD BN AND DWP GROWTH OVERVIEW SIZE: 21st worldwide (UK ranks 3rd) TOP 5 INSURERS: ING, GNP, Inbursa, Qualitas and Aba/Seguros together control 36% of market share in 2007. KEY CLASSES: Motor and Property REINSURANCE: USD 2.1bn in 2005 (estimate) NON-LIFE MARKET PENETRATION: ~ 1% Property 12% Liability 3% MAT 4% INSURANCE Rest 36% Motor 37% Credit 5% Construction & Engineering 3% OVERVIEW SIZE: 13th for Lloyd’s (UK ranks 2nd) TOP 5 MAs: write 17% of non-life GWP KEY CLASSES: property and MAT REINSURANCE: USD 292m (95%) LLOYD’S MARKET SHARE: ~ 2.9% STATUS: no direct licence. Direct insurance only if CNSF approves placement with a non-admitted insurer. Licenced reinsurer. OFFICE: no office GWP SIZE IN USD MN AND DWP GROWTH NON-LIFE GWP 2008 USD306M LLOYD’S COMPULSORY CLASSES: Third party liability for motor, fishing vessels, aircrafts & fare paying passengers, liability for carriers, hotelkeepers and transporters or dealers of dangerous substances, D&O, P&I and CAT on time-share apartments. REGULATOR OF INSURERS AND INTERMEDIARIES: www.cnsf.gob.mx The insurance market in Mexico is dominated by brokers and agents. Direct sales and bancassurance currently represent weak channels. Since 1984, all brokers need to be registered with the CNSF. Major international brokers playing in Mexico are: Aon, Marsh and Willis. REGULATIONS distribution Mexico is susceptible to hurricanes (high), earthquakes (med) and droughts (med). catastrophes Market Intelligence data based on: AMIS, CNSF, Global Edge, Global Opportunities, Lloyd’s Crystal, Lloyd’s Xchanging, Munich Re, Swiss Re Sigma and the World Economic Outlook Database. DWP = direct written premiums. GWP = gross written premium (includes reinsurance). Claims ratio = claims as % of GWP earned from 2005 to 2008. Disclaimer

  3. MEXICO:economy Back To > Country Dashboard ECONOMIC CRISIS: Mexico is a free market economy with strong trade links to both the US and Canada, to whom it delivers over 80% of its exports. This close tie to the US has left Mexico very exposed to the current economic crisis, with Mexico recording no GDP growth over 2008 – 2009. The government, led by president Calderon, claims that economic recovery is imminent, although there has currently been no published data to support this statement and consumer confidence remains low. OTHER CHALLENGES: The Mexican manufacturing industry is facing tough competition from China. It has since become very competitive and is now focusing on logistics and value added products. Furthermore, corruption, crime, fraud and violence remain a problem and the disparity between the poor and the rich is still very large. OIL AND PEMEX: In 2008, Mexico was the world’s 7th largest oil producer. State owned PeMex (Petroleos Mexicanos) holds a monopoly on oil production in the country, and is one of the world’s largest oil companies. The oil sector is still a crucial component of the Mexican economy – with the government relying on its earnings to generate in excess of 40% of its tax revenues. Oil production is however on the decline, with few funds available to invest in exploration. overview Market Intelligence data based on Global Edge, local information and Google searches Disclaimer

  4. MEXICO:insurance market (1 of 2) 15 30% 10.7 9.9 10 20% 8.4 7.6 7.1 6.9 6.7 6 5 4.2 5 10% 0 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Back To > Country Dashboard SMALL BUT GROWING: The Latin American insurance market is slow but with strong potential for growth, with Brazil and Mexico dominating the region and accounting for approximately two thirds of all premiums. LOW PENETRATION: The Latin American market displays many of the characteristics of emerging markets – most notably low penetration rates. A non-life penetration of approximately 1% in Mexico compares to an established markets world average of approximately 3.5%. PROFITABLE: The Latin American insurance market is reported to be largely profitable and combined ratios are generally strong. In Brazil and Mexico, returns on equity have been in excess of 10% over the last 5 years. Latin AMERICA THE MARKET: The Mexican insurance market is the second largest insurance market in Latin America after Brazil. Growth has been strong, excluding a lull between 2002-2004, with market size more than doubling in the last decade. Premium growth is expected to be very low in 2009, as a result of weak economic conditions. MARKET PENETRATION: Non-life insurance market penetration in Mexico is still very low at approximately 0.98% in 2008, just up from 0.93% in 2004 and 0.78% in 2000. AMIS, the Mexican Association of Insurance Services, believes that this current low penetration level is a good indicator for significant future growth of the Mexican insurance market. MARKET PROFITABILITY: A report by Benfiled (2007) states that Mexico is a profitable, albeit small, insurance market. Earnings in primary insurance have been positive for 2000-2005, with cumulative net profits of USD 3.1bn. The average combined ratio over the same period was 97%.Notwithstanding major hurricanes in 2005, the market remained profitable (96%). DWP SIZE (USD bn) AND GROWTH INSURANCE overview In 2007, 371 reinsurers were registered with CNSF. The reinsurance market however, was largely characterised by 2 local reinsurers, 11 representative offices of foreign reinsurers and 30 reinsurance brokers. The two (and only) local reinsurers are Reaseguradora Patria and QBE del Istmo. Active foreign reinsurers include: Gen Re, Hannover Re, Munich Re, Mapfre Re, Mitsui Sumitomo, Tokio Marine Global and Swiss Re. Little is known about the size of the Mexican reinsurance market, although 2005 estimates place it at approximately USD 2.1bn. Of this total amount, only USD 115m (5.5%) was reinsured with the two local reinsurers, with the remainder going to foreign reinsurers. The local market is hence heavily reliant on foreign reinsurers, most probably due to the high CAT exposure and the low retention of local insurance companies. This might change however, as Mexican insurers look to retain a greater proportion of the premiums. Reinsurance OVERVIEW Market Intelligence data based on AMIS, Benfield 2007 – Latin America Insurance Market Review - Focus on Brazil and Mexico, and CNSF, Disclaimer

  5. MEXICO:insurance market (2 of 2) Back To > Country Dashboard MARKET COMPOSITION: Following the liberalisation of the Mexican insurance market in 1994 and the relaxation of restrictions on foreign participants in 2000, foreign insurance companies have been strengthening their presence in Mexico. Some of these international players include: ING, ABA, Zurich and AIG. The top 5 players, of which ING is the only foreign insurer, controlled 36% of market share in 2007. Overall, market share was split 59% to 41% between foreign insurers and Mexican owned insurers in 2007. KEY PLAYERS: Of the top 5 insurers in Mexico, the top insurer (ING) is international, whilst the other 4 are Mexican owned. ING: After purchasing Santander’s pension assets and selling its Mexican non-life insurer, ING is shifting its Mexican focus to the pensions and life insurance. Its share of Mexican market premiums was 9.5% in 2008. GNP: The largest Mexican owned insurer and part of the Mexican financial group Grupo BAL – one of Mexico’s largest and most diverse business conglomerates. Its share of Mexican market premiums was 8.3% in 2008. INBURSA: The company is part of the local group Grupo Financiero Inbursa and as an insurer covers most major business classes. Its share of Mexican market premiums was 7.4% in 2008 QUALITAS: Established in 1994, Qualitas is a specialist motor insurer and Mexico’s largest motor insurer controlling 20% of motor premium. The company has risen rapidly, most probably due to its widespread office network, and in 2007 controlled 7.3% of market share. ABA: The company is part of GMAC Insurance, ABA specialises in damage to home, companies and cars as well as casualty. Its share of Mexican market premiums was 3.4% in 2007. INSURANCE Market players MOTOR: At USD 3.69bn in 2008, motor is currently Mexico’s largest class. Motor insurance is nor yet a legal requirement in Mexico (excepting third party motor liability) and it is estimated that only 40% of cars are insured. PROPERTY: At USD1.28bn in 2008, property is Mexico’s second largest class. At USD 217m in 2008, Lloyd’s writes a significant proportion of this class (17%). Current estimates indicate that about 20% of Mexico’s 25m households do not hold any type of insurance coverage at all, with 97% of all households having no earthquake coverage whatsoever. Clearly, there is scope for growth within this class. It should be noted however, that the prevalence of hurricanes on Mexico’s coast can lead to exceedingly high claims ratio for property, such as 210% in 2005 following hurricanes Emily, Stan and Wilma. INFRASTRUCTURE: Massive government investment in infrastructure projects should also present future opportunities, especially for the London market, perceived as it is as a centre of excellence for the underwriting of such projects. The following slide shows size, growth and claims ratio for all classes of business between 2006-2008 based on data gathered from AMIS. Key classes Market Intelligence data based on AMIS data, the Insurance Information Institute, the website of relevant insurance companies and Google searches Disclaimer

  6. MEXICO:classes of business CLASS SIZE OVERVIEW GWP SIZE (USD M) & GROWTH CLAIMS RATIO 600 20% 100% 75% 64% 400 345 52% 310 270 0% 50% 29% 200 25% 0 -20% 0% 2006 2007 2008 2006 2007 2008 600 15% 530 477 426 400 10% 200 5% 0 0% 2006 2007 2008 Back To > Country Dashboard Key classes in Mexico (discounting unknown) are motor and property; Insurance market growth has been strong; Average claims ratio across Mexico are medium (between 60% and 70%). CLASS OVERVIEW Property is a relatively large class (12%); Claims ratio for property alone are erratic. Hurricane Dean and landslides in Chiapas resulted in a 92% claims ratio in 2007. Hurricanes Emily, Stan and Wilma gave a 210% claims ratio in 2005. Property 12% PROPERTY Other 88% Liability is a small class (3%) with erratic growth; The claims ratio for liability alone are low (approx 25%) and consistently below the average Mexican claims ratio. Liability 3% LIABILITY Other 88% MAT is a small class (4%) with erratic growth; The claims ratio for MAT alone are comparable to the average Mexican claims ratio. MAT 4% MAT Other 88% Motor is the largest class (37%) in Mexico; The claims ratio for motor alone are consistently above the average Mexican claims ratio. Other MOTOR 88% Motor 37% Construction and engineering is a small class (3%) showing growth since 2006; Along with credit, it was the only class to grow in 2008; Claims ratio for construction and engineering alone are erratic. Other 88% Construc & eng. Construction & Engineering 3% Credit is a small class (5%) showing strong growth since 2006; Along with construction and engineering, it was the only class to grow in 2008; Claims ratio for credit alone are very low (approx 15%) and consistently below the average Mexican claims ratio. Other 88% credit Credit 5% Disclaimer

  7. MEXICO:LLOYD’S POSITION LIABILITY PROPERTY MAT MISC HEALTH Back To > Country Dashboard CLASS GWP AS % OF TOTAL DWP LLOYD’S GWP SIZE (USD MN) AND GROWTH overview Lloyd’s GWP growth since 2002 has been erratic if largely positive. CAGR since 2002 has been approximately 14%. The chart on the right illustrates how different classes have been fairing within Lloyd’s, as a percentage of total GWP written by Lloyd’s that year. Lloyd’s key classes have always been property and MAT. In the past however, the two classes were more fairly balanced. Over the last 6 years, the proportion of GWP written in property has increased at the expense of that written in MAT. Note that Lloyd’s is a significant player in both the property and MAT Mexican market. Liability, Miscellaneous and Health have always been minor classes for Lloyd’s. Lloyd’s top 10 Managing Agents write approximately 30% of GWP, whilst Lloyd’s top 10 brokers place approximately 45%of Lloyd’s GWP. MEXICO:REGULATIONS The CNSF (Comisión Nacional de Seguros y Fianzas or the National Commission For Insurance And Surety), is the sole regulator of insurance in Mexico. overview MEXICO:catastrophes • Mexico is susceptible to natural catastrophes. In particular, its coastal regions are very susceptible to hurricane damage. In the last 5 years, Mexico has witnessed the following major natural catastrophes: • September 2009, Hurricane Jimena, approx USD 40m • July 2008, Hurricane Dolly, approx USD 300m • November 2007, floods and landslide in Chiapas, approx USD 2500m • August 2007, Hurricane Dean, approx 600m • October 2005, Hurricane Wilma, approx 5000m overview Market Intelligence data based on Lloyd’s XChanging, the CNSF, and Munich Re Nathan. Disclaimer

  8. Disclaimer This document is intended for general information purposes only. Whilst all care has been taken to ensure the accuracy of the information Lloyd's does not accept any responsibility for any errors or omissions. Lloyd's does not accept any responsibility or liability for any loss to any person acting or refraining from action as a result of, but not limited to, any statement, fact, figure, expression of opinion or belief obtained in this document.

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