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Session 098 PD - Latin American Update: Insurance & Pension Regulatory Topics
Moderator:
Edward L. Robbins, FSA, MAAA
Presenters: Marcela Abraham Carlos Arocha, FSA
Ramon D. Galanes, ASA, MAAA
SOA Antitrust Compliance Guidelines SOA Presentation Disclaimer
2017 SOA Annual Meeting & ExhibitMARCELA ABRAHAM | CARLOS AROCHA, FSA98—Latin American Insurance Regulatory UpdateOctober 17, 2017
SOCIETY OF ACTUARIESAntitrust Compliance Guidelines
Active participation in the Society of Actuaries is an important aspect of membership. While the positive contributions of professional societies and associations are well-recognized and encouraged, association activities are vulnerable to close antitrust scrutiny. By their very nature, associations bring together industry competitors and other market participants.
The United States antitrust laws aim to protect consumers by preserving the free economy and prohibiting anti-competitive business practices; they promote competition. There are both state and federal antitrust laws, although state antitrust laws closely follow federal law. The Sherman Act, is the primary U.S. antitrust law pertaining to association activities. The Sherman Act prohibits every contract, combination or conspiracy that places an unreasonable restraint on trade. There are, however, some activities that are illegal under all circumstances, such as price fixing, market allocation and collusive bidding.
There is no safe harbor under the antitrust law for professional association activities. Therefore, association meeting participants should refrain from discussing any activity that could potentially be construed as having an anti-competitive effect. Discussions relating to product or service pricing, market allocations, membership restrictions, product standardization or other conditions on trade could arguably be perceived as a restraint on trade and may expose the SOA and its members to antitrust enforcement procedures.
While participating in all SOA in person meetings, webinars, teleconferences or side discussions, you should avoid discussing competitively sensitive information with competitors and follow these guidelines:
• Do not discuss prices for services or products or anything else that might affect prices• Do not discuss what you or other entities plan to do in a particular geographic or product markets or with particular customers.• Do not speak on behalf of the SOA or any of its committees unless specifically authorized to do so.
• Do leave a meeting where any anticompetitive pricing or market allocation discussion occurs.• Do alert SOA staff and/or legal counsel to any concerning discussions• Do consult with legal counsel before raising any matter or making a statement that may involve competitively sensitive information.
Adherence to these guidelines involves not only avoidance of antitrust violations, but avoidance of behavior which might be so construed. These guidelines only provide an overview of prohibited activities. SOA legal counsel reviews meeting agenda and materials as deemed appropriate and any discussion that departs from the formal agenda should be scrutinized carefully. Antitrust compliance is everyone’s responsibility; however, please seek legal counsel if you have any questions or concerns.
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Presentation Disclaimer
Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Society of Actuaries, its cosponsors or its committees. The Society of Actuaries does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that the sessions are audio-recorded and may be published in various media, including print, audio and video formats without further notice.
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Agenda• Market Overview• Regulatory Trend Landscape and Market Impact• Concluding Remarks
4
Market Overview
6
CENTRAL/EASTERN EUROPE
MIDDLE EAST/CENTRAL ASIA
AFRICA
LATIN AMERICA/CARIBBEAN
OCEANIA
EMERGING ASIAN MARKETS
ADVANCED ASIAN MARKETS
WESTERN EUROPE
US/CANADA
PREMIUM VOLUME BY REGION IN 2016 (USD b)
1 467
1 417
821
619
149
92
61
54
54
Source: Sigma 3/2017, Swiss Re Institute
7
LATIN AMERICA/CARIBBEAN
ASIA
EUROPE
US/CAN
OCEANIA
0 1 000 2 000 3 000 4 000
3.2%
5.6%
6.7%
6.3%
7.3%
INSURANCE DENSITY AND PENETRATION IN 2016Density in premium dollars per capita, penetration in premiums as % of GDP
Non-lifeLife
Source: Sigma 3/2017, Swiss Re Institute
0% 2% 4% 6% 8%
8
BRAZIL
MEXICO
ARGENTINA
CHILE
COLOMBIA
PERU
PREMIUM VOLUME BY COUNTRY IN 2016 (USD b)
Source: Sigma 3/2017, Swiss Re Institute
3.333.3
7.8
11.7
14.3
24.4
72.6Focus group countries represent 90% ofregional premium
9
INSURANCE DENSITY AND PENETRATION IN 2016Density in premium dollars per capita, penetration in premiums as % of GDP
BRAZIL
MEXICO
ARGENTINA
CHILE
COLOMBIA
PERU 1.7%
2.7%
2.3%
2.6%
4.0%
4.8%
$105
$161
$190
$326
$346
$634Regional averages:density: $257penetration: 3.2%
Focus group averages:density: $294penetration: 3.0%
0% 1% 2% 3% 4% 5%
Source: Sigma 3/2017, Swiss Re Institute
10
REAL PREMIUM GROWTH VS. REAL GDP GROWTH IN 2016
Mexico(L)Mexico(NL)Colombia(L)
Colombia(NL)
Brazil(L)
Chile(L)
Chile(NL)
Brazil(NL)
Argentina(NL)
Argentina(L)
Peru(L)
Peru(L)
Source: Sigma 3/2017, Swiss Re Institute
Non-lifeLife
REAL % PREMIUMGROWTH
REAL % GDP GROWTH
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PREMIUM CONCENTRATION IN 2016% of market share of five largest insurers
38%33%
51%
85%
55% 55% 56%
73%
52%
68%
96%
83%
Focus group averagesNon-life: 58%Life: 66%
12
INSURANCE PROTECTION GAP IN 2015current market size as % of assumed market potential
38% 38%
57%
33%
26%23%
Source: Latin American Insurance Markets in 2015, Mapfre Foundation
Drivers of insurance growth in Latin America
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More awareness/knowledge, derived from natural disasters
Growing middle class, increasing demand for products, particularly saving products
Compulsory insurance, life annuities derived from social security, workers compensation, health and third party liability (automobiles)
Microinsurance, through various channels, including microfinance
Bancassurance, use of banking infrastructure to reach the unattended population, credit-related insurance and as a way to reduce acquisition costs
Mass marketing and new distribution channels, to penetrate new market segments and new generations
Important commercial insurance demand, SMEs products, micro-enterprises, and of the unsatisfied demand in terms of infrastructure and durable goods
Growth potential
Potential market• Low penetration• 550 million people• Emerging middle class interested in investing in
education and savingsEconomic and political stability
• Investment in infrastructure• Structural reforms that boost and guarantee
growth• Expectation of a stable economic environment in
most countriesEvolution towards global regulatory and financial systems
• Adoption of best practices• Closing gaps vs. developed economies
Alternative distribution channels and underpenetrated markets
• InsurTech - Millennials• Micro insurance
Regulatory Trend Landscape and Market Impact
Insurance Supervision
16
G-20
FINANCIAL STABILITY BOARD (FSB)
INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS (IAIS)
JURISDICTIONAL AUTHORITIES
E.G., EIOPA, NAIC & 56 US JURISDICTIONS, 13 LATAM COUNTRIES, ETC.
POLITICAL AUTHORITY
FINANCIAL REGULATION POLICY
INSURANCE CORE PRINCIPLES
SUPERVISORY AND REGULATORY STANDARDS AND LAWS
IAIS / ASSAL
17
Balance sheet approach to solvencyRecognition of all relevant risksCalibration of solvency capital requirementsDisclosure and transparency
Working committees:• Microinsurance (Peru)• Education (Argentina)• Solvency (Mexico)• Information Exchange (Chile)
LATIN AMERICAN ASSOCIATION OFINSURANCE SUPERVISORS
Insurance Supervision—Revisions to ICP 1
18
Proportionality test
FOUR STAGES
• there must be a legitimate aim for a measure
• the measure must be suitable to achieve the aim
• the measure must be necessary to achieve the aim
• the measure must be reasonable, considering competing interests of different stakeholders
Country Classification in Terms of Solvency Modernization
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SOLVENCY MODERNIZATION IS WELL UNDERWAY OR HAS ALREADY BEEN ENACTED INTO LAW
• Brazil• Chile• Mexico
SOLVENCY MODERNIZATION PROCESS HAS BEEN INITIATED
• Colombia• Costa Rica• Peru
LITTLE OR NO ACTIVITY REGARDING SOLVENCY MODERNIZATION
• Rest of Latin American countries
Brazil
21
SUPERINTENDENCIA DE SEGUROS PRIVADOS (SUSEP)
CURRENT SITUATION• New regime has been gradually introduced• The insurance risk module is factor-based• There is a capital requirement to mitigate credit and operational risk• Market risk requirements have been gradually introduced• Supervision activities have been strengthened, and aimed to be consistent with
Solvency II• SUSEP may be understaffed
Chile
22
SUPERINTENDENCIA DE SEGUROS Y VALORES (SVS)
CURRENT SITUATION• Solvency modernization project launched in 2004• Approach analogous to Solvency II• Quantitative Impact Study No. 5 issued in May, 2017• Quantitative requirements have been approved by Congress, but qualitative and
supervisory requirements require no approval• It is foreseen that insurers will have to appoint a Chief Risk Officer
Mexico
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COMISIÓN NACIONAL DE SEGUROS Y FIANZAS (CNSF)
CURRENT SITUATION• Solvency modernization project launched in 2014• A mix between Solvency II, Switzerland’s Swiss Solvency Test, NAIC methodologies,
and organic development• Qualitative requirements in place as of April 2015, including solvency and financial
condition reports and quantitative requirements in place as of January 2016• Compulsory dynamic solvency requirement and stress tests• Shift to an economic balance sheet for compliance reporting, which together with
the new solvency requirements, has increased financial statements volatility
Colombia
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SUPERINTENDENCIA FINANCIERA DE COLOMBIA (SFC)
CURRENT SITUATION• Gradually shifting from a factor-based model to a risk-based model• Underwriting risk is measured by a Solvency I type formula• Credit and market risk capital charges already in place• Companies may use an internal model upon approval by the SFC
Peru
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SUPERINTENDENCIA DE BANCA, SEGUROS Y AFP
CURRENT SITUATION• Solvency modernization project launched in 2008• Solvency is factor-based with additional capital charges for credit, market and
operational risk• In 2014, the SBS implemented a capital charge for asset concentration risk• Debt for insurance companies cannot exceed the total solvency capital
Concluding Remarks
In general
The Insurance Core Principles of IAIS have set the tone for industry regulation
1There is an enormous gulf between highly developed economies and emerging markets
2Insurance superintendents and industry face substantial challenges
3The principle of proportionality is now more relevant
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Regional challenges
Uninsured or underinsured populations
Broker-dominated markets that emphasize production over risk-based returns
Significant concentration on a few (local) players, however a sound solvency market requires a minimum company sizeIncrease in operational cost difficult to justify given current industry size
Small and midsize carriers still depend on a few large policies, exacerbating volatility problems
Superintendents of insurance may experience lack resources
Likely responses
from the insurance
sector
• Increased pressure on monoline insurers and smaller players
• Multinationals may lose interest, owing to complex environments, but M&A activity may be spurred
• Business mix may change to optimize regulatory capital utilization
• Increased demand of reinsurance as a capital management tool
• Should supervisors support market development?
Our views
Each market is unique—Markets should engage in modernization projects at
their own pace
a “copy/paste” approach is not
suitable
A full-blown risk-based solvency regime may not
be the answer
viable alternatives are simplified factor models, scenario
models, or stress tests
2017 SOA Annual Meeting & ExhibitRAMÓN GALANESSession 98, Chilean Pension SystemOctober 17, 2017
Divided in 15 Regions
Capital: Santiago
Width: 177 Km Lenth: 4.300 Km
Population: 17.819.054 (2014)
Men: 49 %Women: 51 %
Urban: 87 %Rural: 13 %
2
3
1950. 1980
2001 2050 projection
4
5
• Towards the end of the 19th there is a startto the “Cuestión Social” or Social Issue.
• The workers organized into groupsdestined to provide protection in case of accidents, sicknesses and deaths.
• That gave way in 1924 to the start of theSocial Security associations called “Cajas” for dependent employees and labourers.
• Through the years more “Cajas” were organized in accordance to work type groupings.
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• The active workers finance the benefitsof the retired or inactive ones
• The objective was to maintain a similar standard of living as the one the workerhad during his/her last active workingyears.
0
2
4
6
8
10
12
14
1955 1960 1965 1970 1975 1980
Number of active workers per pensioner
Member ofParliament
Bank employees
Public workers
Private workers
Labourers
77
35 working years
30 working years
24 working years
15 working years
Age 65 years12,2
2,5
8
13
18
23
28
33
38
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Birth Rates
14
34
45
50
55
60
65
70
75
80
85
90
Life Expectancy
Both Men Women
54,8
80,2
9
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• With the exception of a couple, in 1980 all of the “Cajas” were grouped into a single entityknown as INP, later changed to IPS, but keepingthe contributions and benefits of the original “Caja”.
• The new voluntary Capitalization Systemmandated a lower 10% contribution and alsorecognized the participation in the prior system by providing a bond called “Bono de Reconocimiento”.
• Scheme of individual savings into personal retirement accounts.
• Administrated by private entities called AFP´s(Pension Funds Administrators).
• AFP´s had only one investment fund for thesavings
• In 2002 additional investment fund types, withdifferent risk profiles and expected returns, were added
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• Individual capitalized savings accounts• Stress individual responsibility• Freedom components
Election and change of desired AFP Aditional voluntary contributions Early retirement option
• Transparency• Non guaranteed returns
12
• Pension modalitiesScheduled withdrawalsImmediate annuityWith or without guanteed periodScheduled witdrawals with deferred
immediate annuity
13
14
• Lack of information access by thepensioner and controlled by thesales agent.
• High sales commissions, commission quick backs.
• No commissions for scheduledwithdrawals.
15
• Started in 2004• An electronic system that
inteconnects the AFP´s, theinsurance companies and the Social Security agents (advisors).
• The purpose is to provide complete and comparable information aboutthe various annuity offers and scheduled withdrawals.
16
17
Commission Rates as % of Premium
18
• This insurance complements thesavings in order to finance a disabilityor survivorship pension (annuity)
• The disability and the type is awardedby a public system of medical commissions.
19
• Each AFP had to purchase its own insurancewith the liberty of choosing its own insurer.
• Males and Females paid the same for theinsurance.
• Each AFP had a large incentive to control benefit costs.
• AFP´s participated in the underwriting margins.
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• The AFP´s would pool the risk as a wholeand put it up for bids.
• Diversication of the risk, increasecompetition and lower prices.
• Transparency in the effective insurancerate.
• Separate rates for males and females.
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22
MERCADO1,87
ONSV 1,98 - 1
MERCADO1,49
ONSV1,38 - 1
ONSV2 - 1,28
MERCADO1,26 ONSV
1,19 - 2
ONSV 1,42 - 1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2
2.1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55
MERCADO1,41
MERCADO1,16
Contrato Nº1 Contrato Nº2 Contrato Nº3 Contrato Nº4 Contrato Nº5
23
24
25