The Mexican Pension Annuity Market

# **TABLE OF CONTENTS**

|Table of Contents................................................................................................................. i|
|---|
|List of Tables ....................................................................................................................... i|
|List of Figures..................................................................................................................... ii<br>|
|Introduction......................................................................................................................... 1|
|I<br>The 1992 and 1997 Pension Reforms......................................................................... 1|
|II<br>The Market for Pension Annuities.............................................................................. 4|
|II.A<br>Market Structure and Growth ............................................................................. 4|
|II.B<br>Pension Annuity Products, Pricing, and Competition ........................................ 7|
|II.C<br>Evolution of Liabilities ..................................................................................... 11|
|II.D<br>Evolution of Assets and Investment ................................................................. 13|
|II.E<br>Market Performance.......................................................................................... 20|
|III<br>Development Prospects For The Pension Annuity Market................................... 28|
|Conclusions and Policy Considerations............................................................................ 34|
|References......................................................................................................................... 39|
|APPENDIX A : Regulatory Framework for Pension Annuities....................................... 41|
|APPENDIX B : List of Acronyms.................................................................................... 44<br>**LIST OFTABLES**|
|Table 1: Contributions Under SAR-92 and SAR-97 (Percentage of Base Salary)............. 2|
|Table 2: Accumulated Savings in the AFORE System ...................................................... 3|
|Table 3: Transitional and New Generations in the Pension System (Year 2004) .............. 4|
|Table 4: Pension Annuity Providers and 2005 Market Shares (Percentage of Market|
|Premium)............................................................................................................................. 5|
|Table 5: Evolution of Market Structure, 1997–2005.......................................................... 5|
|Table 6: Insurance Sector Business Lines Growth, 1997–2005 ......................................... 6|
|Table 7: Pension Annuity Market Growth, 1997–2005...................................................... 7|
|Table 8: Evolution of Separate Technical Provisions, 1997–2005 (MXN mln.).............. 12|
|Table 9: Investment Limits by Type of Security for Technical Provisions...................... 15|
|Table 10: Investment Limits by Type of Issuer for Technical Provisions........................ 16|
|Table 11: Investment of Technical Provisions, 1997–2005.............................................. 17|
|Table 12: Inflation and Currency Risk in Technical Provisions, 1997–2005................... 17|
|Table 13: Average Maturity of Government Bond Portfolio (Years)............................... 18|
|Table 14: Average Maturity of Private Sector Bond Portfolio (Years)............................ 18|
|Table 15: Evolution of Average Underwriting Costs, MXN Million, 2001–2005........... 22|
|Table 16: Evolution of Average Non-Life Loss Ratios in Select Countries (in Percent). 23|
|<br>Table 17: Weighting System for Asset Liability Mismatches.......................................... 26|
|Table 18: Pension Annuities Solvency and Profitability Indicators (1997–2005) ........... 27|
|Table 19: Disability Benefits Under LSS-73 and LSS-97................................................ 30|
|Table 20: Monthly Disability Benefit Comparison Under 1973 and 1997 Laws (MXN )31|
|Table 21: Choice of IV Benefits Under LSS-73 and LSS-97 For Transitional Cohort.... 33|
|Table 22: Regulatory Framework for Pension Annuities (as of May 2006)..................... 41|

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