Corporate Governance in Mexican Insurance and Bonding Institutions
The recent enactment of Mexico's Insurance and Bonding Institutions Legislation is designed to protect the economic interests of policyholders and other stakeholders and to strengthen the organization, operation and functioning of Insurance and Bonding Institutions and Mutual Societies. The Board of Directors is primarily responsible for establishing a corporate governance model that ensures the effective and prudent management of the business.
Article 69 of Mexico's Insurance and Bonding Institutions Legislation
Mexican Insurance and Bonding Institutions must have an effective governance system that ensures the prudent management company operations as well as a transparent and appropriate organizational structure with a clear allocation and segregation of duties. Furthermore, effective mechanisms to ensure the transmission of information and policies and practices consistent with risk management should be implemented.
The Board of Directors shall be responsible for putting the necessary measures, policies and procedures into place for internal risk assessments and solvency, internal controls and compliance, internal audit, actuarial function and outsourcing of functions or activities.
The Corporate Governance model should be established according to the "Principle of Proportionality", therefore, companies must consider the volume of operations and the nature and complexity of the activities and risks of the institution.
The National Commission of Insurance and Bonds (the "Commission"), with the agreement of the Board of Governors, shall issue general regulations, laying down the elements that the institutions should consider in the design of policies and procedures that conform to their corporate governance model.
Additionally, the Commission, in exercising their power of inspection and enforcement, shall establish mechanisms to ensure that the governance model of the institutions complies with necessary requirements.
A framework of internal control used internationally, which is common in the supervision of financial markets and which is also influencing the European framework of Solvency II in terms of the definition of the components of internal control, is the internal control model "COSO "(Committee of Sponsoring Organizations of the Treadway Commission).
The COSO model approach considers the correlation between the stated objectives of Corporate Governance, the components required to achieve the objectives, and the organizational structure to be able to implement and control. Internal control components of the conceptual framework established in the COSO model include:
- Control Environment
- Risk Assessment
- Control Activities
- Information and Communication
The comprehensive and thorough review of the corporate governance model will be a cornerstone in the implementation of the Solvency regime in Mexico and in the strategic management of its results, giving confidence to policyholders, regulators, shareholders and any other third parties.
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