MEXICO UPDATE

Following recent governmental actions against organized crime leadership this past weekend, we have received numerous inquiries from clients and partners worldwide regarding security and insurance implications.

Governmental security forces successfully concluded an operation to capture the leader of the Jalisco New Generation Cartel (CJNG), one of the largest and most violent drug cartels, based primarily in Jalisco. The operation resulted in the deaths of the cartel leader and several members. The US designated CJNG as a Foreign Terrorist Organization last year and has applied significant pressure on the Mexican government to combat cartels responsible for illicit drug trafficking into the US.

The Cartel's response included localized, violent acts, such as road blockades using burning vehicles and the burning of approximately 200 convenience stores and other businesses. These incidents were largely confined to specific regions around the state of Jalisco and surrounding states. 

While the operation is broadly viewed as successful and supported by all political parties, 24-hour news coverage tends to magnify certain aspects of the events: 

• Incidents: Road blockades and the burning of vehicles and stores occurred primarily on the day of the operation (Sunday, February 22). 

• Casualties: Only one civilian casualty has been reported as a result of crossfire; all other casualties were either cartel members or security forces personnel. There has been no direct threat or attack against the civil or foreign population anywhere in Mexico. 

• Disruptions: Activities, including air travel, were temporarily affected in the immediate region, primarily Guadalajara and Puerto Vallarta. Air travel has since resumed its normal schedule. 

• Precautionary measures: Schools and other activities were temporarily halted on Monday in the affected regions but have largely resumed normal operations today. 

Mexico is a vast and diverse country. While news reports may portray the events as impacting all of Mexico, the rest of the country was largely unaffected. Most activities are now back to normal. Insurance coverage and placement observations Regarding the effects or repercussions related to insurance coverage and placements, we offer the following observations: 1. Market capacity and underwriting • Regional Suspensions: A few local insurers have temporarily suspended the acceptance of new risks in high-conflict states. We anticipate these suspensions will be lifted shortly, as the majority of the market continues to operate under standard protocols. • Reinsurance Constraints: The reinsurance market has currently closed the acceptance of new risks, specifically related to Terrorism and Organized Crime acts. • Premium Forecast: Due to the potential fragmentation of criminal organizations, an uptick in regional violence is anticipated, leading to an expected upward trend in insurance premiums in the coming months. 2. Property and Casualty (P&C) considerations • Terrorism vs. Vandalism: Some local insurers have broadened their "Terrorism" definitions to encompass acts of organized crime. This is a critical distinction, as standard "Vandalism" coverage (under Mexican All-Risk policies) may now exclude these events. Insureds may need to specifically procure Terrorism coverage to ensure protection. • Industry Impact: Retail risks remain a primary target for these events in Mexico and require heightened attention. Manufacturing and wholesale operations have historically seen a lower level of impact. • Operational Adjustments: Some insurers have temporarily transitioned to remote loss adjusting and remote work for staff in high-conflict zones as a safety precaution. 3. Transportation and Auto Risks • Marine & Inland Transit: Significant losses have been reported due to the hijacking of trucks and cargo to create road blockades. • Auto Insurance: Most auto policies contain a standard Terrorism exclusion. This creates a "gray area" regarding acts of organized crime, and claims resulting from recent events will be reviewed on a case-by-case basis by adjusters. 4. Life and Health (Employee Benefits) • Medical Expenses (GMM): For injuries resulting from organized crime, a formal report from the Public Prosecutor (Ministerio Público) is required to confirm the insured was not an active participant in the event. During periods of high violence, saturation at these government offices can delay medical coverage authorizations. • Life Insurance: While basic life coverage remains active, many insurers do not classify death caused by organized crime as "Accidental Death," meaning the Double Indemnity clause may not be triggered. A Public Prosecutor’s report is also mandatory for these claims. We are monitoring the situation closely and maintaining constant dialogue with the leading carriers in the region. We strongly recommend a proactive review of your current policy wording, particularly regarding Terrorism endorsements. Please contact any of our international team members if you require assistance or email us at info@mxrisk.mx