Damages for Late Payment of Insurance and Reinsurance Claims Mexican Legal Framework AIDA Europe, Reinsurance Working Group, Paris 2 December, 2015 Yves Hayaux-du-Tilly L. México.

Timeframe Payment of a claim by an insurer is due 30 days following the date in which the insurer has received all documents and information evidencing the basis of the claim. Insureds and beneficiaries must notify the insurer of a claim within 5 days following the date in which they have knowledge a covered risk occurred. Protection to the Insured Any provision that conditions the right of the insured to collect any payment due by an insurer to a prior confirmation of the validity of the claim by the insurer or by a Court shall be null and void. FRAMEWORK FOR PAYMENT OF CLAIMS

Default by Insurer According to Article 276 of the Insurance and Surety Companies Law, insurer must pay the insured penalties in case of delay in payment of a claim. The penalty consists in payment of the indemnity due plus penalty interests in arrears accrued from the day payment was due until the payment date (CCP+1.25). If the indemnity is denominated in Mexican Pesos, same shall be converted into UDIS at the exchange rate when payment was due and paid at the exchange rate in effect on the payment date. Fine to Insurer If the insurer does not pay the penalties, a Judge or the National Commission for the Protection and Defense of User’s of Financial Services may impose fines of up to approximately US$60,000. PAYMENT OF CLAIMS IN INSURANCE

REINSURANCE Reinsurance Background Definition. Agreement in which a reinsurer takes totally o partially a risk already covered by an insurer in the terms and conditions set forth in the respective reinsurance agreement. Purpose. To provide the insurer coverage for certain risks covered by the insurer under the underlying insurance policy or policies.

REINSURANCE Reinsurance Background (cont) Applicable Law The reinsurance agreement is a commercial agreement, not denominated nor expressly regulated in Mexican law. The Insurance Contract Law does not expressly apply to reinsurance agreements. Commercial agreements that are not denominated nor expressly regulated follow the rules generally applicable to commercial agreements set forth in the Commercial and the Federal Civil Code.

REINSURANCE Reinsurance Background (cont) Reinsurer is only responsible to pay the insured in the terms and subject to the conditions set forth in the reinsurance agreement. Mexican law provides that the insurer is the only responsible party before the insured, irrespective on whether the risk is reinsured. Reinsurer is liable to the insurer for its obligations under the reinsurance agreement but has not legal relationship with, nor liability to the insured. The Federal Civil Code provides that each party shall be liable for damages caused to the other party.

Can the Insurer pass on to the Reinsurer any damages or penalties it would have paid for late payment of claims due to its own negligence or failure to pay timely? Yes, if the parties expressly agree to the foregoing in the reinsurance agreement. As a general rule, and provided the reinsurer did not breach its obligations under the reinsurance agreement or caused the late payment or liability of the insured, the insurer is liable for its default and any moratorium compensation, damages or penalties. The Reinsurer shall be released of any obligation by reimbursing the payment made by the insured exclusive of moratorium compensation, damages or penalties. REINSURANCE COVERAGE

Would damages be payable by the Reinsurer if it delays payment of the claim reported by the Insurer? Yes, if the damages payable by the insurer are a direct consequence of a breach by the reinsurer to its obligations under the reinsurance agreement. No, if the reinsurer did not breach any of its obligations under the reinsurance agreement. In any case, the insurer is bound to pay any compensation due to the insured, irrespective on whether or not the reinsurer pays or delays payment of the reinsurance agreement, as the insurer is the only party liable to the insured. REINSURANCE COVERAGE

Gracias ∙ Merci ∙ Thank You Yves Hayaux-du-Tilly