Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post
Newsgroups: americast.ibd
From: americast-post@AmeriCast.Com
Organization: American Cybercasting
Approved: americast-post@AmeriCast.com
Subject: Executive Update
Date: Tue, 3 Nov 92 12:44:32 EST
Message-ID: <16.1992Nov3.124433@AmeriCast.com>

11/3/92


TITLE Executive Update

#m#sw#m#NAFTA Holds Promise For U.S. Insurance Industry

Looser Ownership Rules, Economic Changes To Present Opportunities
Jeff Bounds In Washington

What area of the financial services sector will make out the best
under the North American Free Trade Agreement?

Would you believe insurance?  "You've named it," said Gary
Hufbauer of the Institute for International Economics, a Washing-
ton think tank. But he cautions that the insurance industry's
gain will be "relative" to its Business Abroad

tiny position now.  Nevertheless, many insurers are betting that
Congress will approve the treaty and are preparing to venture
into Mexico.

"A number of large (insurers) are contemplating going down
there," said Olin Werthington, chief U.S. negotiator of the NAFTA
sections relating to financial services.  U.S. insurers will do
well in Mexico, Hufbauer predicts, because Mexican insurance "is
like going to a Tasty Diner of the '40s compared to a McDonald's
of today. It's antiquated."

The AmericaO3 Insurance Association projects a NAFTA-driven econ-
omy could boost Mexico's per-capita consumption of insurance to
$420 a person by the year 2000, 14 times the current $30.  If the
association is right, the Mexican insurance market will mushroom
to $50 billion in 2000 from $3.5 billion in 1990.  American in-
surers are focusing on business-related insurance in Mexico, such
as property and casualty coverage, says Marc Rosenberg, a vice
president of the Insurance Information Institute, a trade associ-
ation.  They will sell more coverage to individuals as incomes
rise and people "can start planning for the future," he says.

Insurance premiums currently make up only 1% of Mexico's gross
domestic product, compared with 5.4% of Canada's GDP and 9.1% of
U.S. GDP, according to Hufbauer.  Per-capita consumption of in-
surance came to $1,900 in the U.S. and $1,200 in Canada in 1990.
Insurance makes up only about 1% of Mexico's $330 billion finan-
cial services sector. The rest is comprised of securities, 57%,
and banking, 42%.  NAFTA "will bring Mexican insurance into the
20th century," declared Henry G. Parker III, chairman of the
American Insurance Association's international committee.  Indi-
viduals in Mexico will buy more insurance, he says, and "there
will be new forms of coverage, new forms of group insurance."
Among the lines he expects to see are more modern forms of pro-
perty insurance, business interruption coverage and professional
liability insurance. Life insurance also is expected to grow to
about 50% of the total market from 40%.  If Congress approves the
treaty, Parker notes, U.S. insurers will find a ready supply of
customers in many U.S. and Canadian companies expected to flood
into Mexico.  "My guess is that we could count on" U.S. insurance
companies "getting a 10% share" of the projected $50 billion
market, Parker said.

Five or six U.S. companies now own minority stakes in Mexican in-
surance companies or are joint ventures parters with Mexican in-
surers, according to the Treasury Department. The Mexican govern-
ment allowed this activity in 1987, but it still does not let
foreigners buy out Mexican insurers or set up wholly owned subsi-
diaries.  For about 50 years before 1987, the Mexican insurance
market was closed to foreign companies.  NAFTA won't open the
floodgates to that insurance market. Instead, foreign companies
will be permitted to trickle in and build up their presence gra-
dually.  Faring the best under the treaty will be U.S. and Cana-
dian companies that owned 10% or more of a Mexican insurer as of
July 1, 1992. They will be able to buy out their affiliate by
Jan. 1, 1996.  Companies that had formed joint ventures with Mex-
ican insurers before July 1, 1992, may boost their their owner-
ship in steps, starting with 30% on Jan. 1, 1994, and building to
51% on Jan. 1, 1998, and 100% on Jan. 1, 2000.

Insurers with no prior involvement in Mexico will be able to es-
tablish wholly owned subsidiaries by Jan. 1, 1994.  And during
the so-called transition period of 1994 through 2000, subsidi-
aries will face limits on how much of the Mexican market they can
hold. As a group, subsidiaries of U.S. and insurance companies
initially will be limited to 6% of the Mexican market, with that
ceiling rising to 12% by 1999. Individual subsidiaries will be
restricted to 1.5% of the Mexican market share until 2000.

These caps will be lifted on Jan. 1, 2000.  The treaty's owner-
ship restrictions have insurers gravitating toward joint ventures
with Mexican insurers.  "Joint ventures have the lowest start-up
costs," observed Rosenberg of the Insurance Information Insti-
tute.

This article is copyright 1992 Investors Business Daily. Redis-
tribution to other sites is not permitted except by arrangement
with American Cybercasting Corporation.  For more information,
send-email to usa@AmeriCast.COM