HALF-YEARLY REPORT NO INTERNATIONAL FEDERATION OF PENSION FUND ADMINISTRATORS FIAP STATISTICAL EXECUTIVE REPORT

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1 HALF-YEARLY REPORT NO INTERNATIONAL FEDERATION OF PENSION FUND ADMINISTRATORS FIAP STATISTICAL EXECUTIVE REPORT Address: Av. Nueva Providencia 2155, Torre B, Piso 8, Oficinas , Providencia, Santiago, Chile. Phone: (56-2) Fax: (56-2) Web site: 1 The publication of this report was possible due to the collaboration of FIAP s member associations, which cooperated by submitting information and comments. The content of this report may be entirely reproduced citing the source.

2 International Federation of Pension Fund Administrators FIAP Guillermo Arthur Errázuriz President Francisco Margozzini General Secretary Manuel Tabilo Research Manager Karol Fernández Delgado Research Advisor 2

3 INDEX Page I.-EXECUTIVE REPORT FIAP MEMBER COUNTRIES 4 II. PENSION FUND MANAGERS ACTIVE IN EACH FIAP COUNTRY 34 III. EXECUTIVE REPORT NON-FIAP-MEMBER COUNTRIES 38 IV.-PENSION FUND MANAGERS ACTIVE IN EACH NON-FIAP-MEMBER COUNTRY 42 3

4 I.- EXECUTIVE REPORT FIAP MEMBER COUNTRIES 4

5 Latin America Mandatory Systems Table No. 1 NUMBER OF MEMBERS TO AND Year Members Members Var. % Startup year (*) % % Bolivia ,077, % 1,938, % 7.19% Chile ,178, % 9,961, % 2.18% Colombia ,115, % 13,296, % 6.16% Costa Rica ,486, % 2,399, % 3.64% El Salvador ,928, % 2,788, % 5.05% Mexico ,243, % 47,783, % 3.05% Panama (1) , % 442, % 3.41% Peru ,264, % 5,963, % 5.05% The Dominican Republic ,257, % 3,056, % 6.58% Uruguay ,342, % 1,304, % 2.92% TOTAL 92,353, % 88,935, % 3.84% Voluntary Systems: Honduras (2) 103, % 55, % 87.66% TOTAL 103, % 55, % 87.66% 3. Europe and Asia Year Members Members Var. % Startup Mandatory Systems year (*) % % Kazakhstan (3) ,380, % 9,474, % -1.00% TOTAL 9,380, % 9,474, % -1.00% Voluntary Systems: Spain (4) 9,927, % 9,967, % -0.41% Ukraine 860, % 864, % -0.45% TOTAL 10,787, % 10,831, % -0.41% TOTAL FIAP 112,624, ,296, % 3.04% (*) The year in which the mandatory individually funded system started operating. (1) Panama: Information corresponding to the Public Servants Individually-Funded Savings System (SIACAP). (2) Honduras: Information corresponding to AFP Atlántida. (3) Kazakhstan. Only includes members enrolled in mandatory personal savings (excludes members enrolled in mandatory savings in professional pension funds). (4) Spain: Information corresponding to the number of accounts of members of the Individually-Funded System, the Employment System, and the Associated System. Source: FIAP. 5

6 I. MEMBERS, CONTRIBUTORS AND COVERAGE During the period under analysis (December December 2016), the number of workers enrolled in the private individually-funded pension system in FIAP member countries increased by 3.04%, from 109 million enrolled members in December 2015, to 113 million in December 2016 (see Table No. 1). In the FIAP countries for which information is available, the number of contributors increased by 3.05%, from 33.3 million contributing workers in December 2015 to 34.3 million in December 2016 (see Table No. 3). Coverage, measured as the number of contributors in the Economically Active Population (EAP), increased from an average of 34.01% in December 2015, to an average of 34.92% in December 2016 (see Table No. 5). 1. MEMBERS Latin American Countries To December 2016, the number of Latin American countries with mandatory pension systems increased by 3.84% compared to the same date of the previous year, from 89 million enrolled members in December 2015, to 92 million in December The countries that most contributed to this increase were Mexico (43%), Colombia (24%) and Peru (9%). The three countries in which membership most grew were Bolivia (7.19%), Dominican Republic (6.58%) and Colombia (6.16%). Table No. 2 Unemployment rates in FIAP member countries Unemployment Rate (*) Variation (percentage points) Country Dec Dec Bolivia 4.10% 3.20% 0.28 Chile 6.10% 5.80% 0.05 Colombia 8.70% 8.60% 0.01 Costa Rica 9.50% 9.60% El Salvador (1) 5.50% 5.50% 0.00 Spain 18.63% 20.90% Honduras (1) 3.90% 4.10% Kazakhstan 5.00% 5.10% Mexico 3.54% 4.16% Panama 4.50% 4.50% 0.00 Peru 6.2% 5.7% 0.09 The Dominican Republic 13.80% 14.03% Ukraine 9.10% 9.10% 0.00 Uruguay 7.8% 7.5% 0.04 Simple average 7.60% 7.70% (*) Drawn up by FIAP on the basis of information provided by each member country, the web pages of Central Banks, International Agencies and Official Statistical Institutes of each country. (1) The information presented here for El Salvador, Honduras, Panama and the Dominican Republic, is based on estimates prepared by the Central Intelligence Agency of the USA. (CIA World Factbook, 6

7 European and Asian Countries The only country with a mandatory system in this zone is Kazakhstan, where the number of members dropped by 1%, from 9.5 million in December 2015 to 9.4 million in December In countries with voluntary pension schemes, membership fell by 0.41%, influenced by the reduction in Spain of 0.41% in the number of accounts in the Individual, Employment, and Associated Systems, 2 as well as the reduction in the number of members with voluntary savings accounts in Arkada Bank (Ukraine). It is worth mentioning that the estimated number of participants in Spain is approximately eight million, since there are participants with more than one plan. 3 2 The Individual System comprises plans sponsored by one or several financial agencies; anyone can participate, with the exception of individuals linked to such agencies by a labor relationship and their relatives up to the third degree, inclusive; the Employment System comprises plans whose sponsors are any agency, corporation, partnership or company; all their employees can participate; and the Associated System comprises plans sponsored by any association, union, trade association or group; all their associates or members can participate. 3 Source: Note from Quarterly Newsletter, Pension Funds, INVERCO, Dec (see here). 7

8 2. CONTRIBUTORS The Latin American countries with reformed mandatory systems for which information is available have been considered in the analysis of the number of contributors (See Table No. 3). Table No. 3 NUMBER OF CONTRIBUTORS TO AND Latin America Year Countries Startup year Contributors Contributors Mandatory Systems (*) % % Var. % Chile ,691, % 5,583, % 1.93% Colombia ,639, % 5,097, % -8.97% Costa Rica ,066, % 1,028, % 3.70% El Salvador , % 689, % 3.19% Mexico ,278, % 16,142, % 7.04% Peru ,593, % 2,588, % 0.19% The Dominican Republic ,565, % 1,476, % 6.06% Uruguay , % 720, % 10.69% TOTAL 34,344, % 33,326, % 3.05% (*) The year in which the mandatory individually funded system started operating. Source: FIAP. The number of contributors in these countries increased by 3.05%, from 33.3 million in December 2015, to 34.3 million in December The number of contributors had been decreasing in the last couple of years prior to 2013; this trend reversed in 2014, but growth slowed down again in 2015 and 2016, as can be seen in Graph No ,00% 8,00% 6,00% 4,00% 2,00% 0,00% -2,00% -4,00% Source: FIAP. Graph No. 1 Annual percentage growth in the number of contributors Private Pension Systems - Latin America 6,41% 1,82% -2,24% 5,25% 4,54% 4,06% 0,56% 8,06% 3,19% 3,05%

9 As can be seen, the growth rate in the number of contributors dropped considerably in the middle of the financial crisis ( ), and growth was in fact negative in Subsequently, in 2010, the number of contributors started growing again. The number of contributors grew between 2011 in 2013, but at a slower rate. Growth continued in 2014, and finally slowed down again in This only serves to highlight the procyclic characteristics of this variable with respect to prevailing unemployment and economic conditions. The increase in the number of contributors is in line with the growth of the pension systems and the increase in enrolled members, being generally more sensitive to the behavior of economic cycles than the latter. The three countries with the highest increases in the number of contributors were Uruguay (10.69%), Mexico (7.04%) and the Dominican Republic (6.06%). There was an 8.97% drop in the number of contributors in Colombia, which could be partly related to negative conditions in the labor market (the unemployment rate rose from 8.6% to 8.7% between 2015 and 2016). 9

10 3. COVERAGE A simple way to gauge the coverage of the individually funded systems is to calculate the ratio of members or contributors against the Economically Active Population (EAP). 3.1 Members vs. EAP Table No. 4 shows this exercise for the countries with mandatory individually funded systems for which information is available. Table No. 4 Coverage (Members/EAP (1), %) Mandatory Systems - Latin America Variation (percentage points) Bolivia 38.34% 36.57% 1.77 Chile % % 1.00 Colombia 57.35% 54.34% 3.01 Costa Rica % % 2.05 El Salvador % 98.07% 4.05 Mexico 91.13% 88.80% 2.33 Panama 24.45% 23.64% 0.81 Peru 36.70% 35.58% 1.12 The Dominican Republic 66.57% 63.47% 3.10 Uruguay 75.24% 73.19% 2.05 Simple Average Latin America 71.73% 69.60% 2.13 Source: FIAP. (1) The EAP, or Labor Force, is at national level in each case. The sources are local bodies that work with the statistics reported by FIAP members, and when there is no local information available, the data published by the World Bank is used ( As can be seen, the average Member/EAP ratio for Latin America was 69.6% in December 2015, and 71.7% in December 2016, a 2.13 percentage point increase in the coverage of the individually funded systems. The coverage of the mandatory systems to December 2016 was a minimum of 24.5% (Panama) and a maximum of 116.4% (Chile). El Salvador and the Dominican Republic were the countries that recorded the largest increases in this indicator. It is worth mentioning that the Member/EAP ratio tends to grow naturally, since membership includes workers who contribute and those who do not (for a variety of reasons such as unemployment, migration, etc.), but also inactive individuals who are not part of the EAP. Hence, a more representative indicator of coverage is the Contributor/EAP ratio, which we will review below. 10

11 3.2. Contributors vs. EAP Table No. 5 shows the Contributors/EAP ratio for the countries with mandatory individually funded systems for which information is available. Table No. 5 Coverage (Contributors/EAP, %) Mandatory Systems - Latin America Variation (percentage points) Chile 65.06% 64.65% 0.41 Colombia 18.85% 20.83% Costa Rica 46.78% 45.87% 0.90 El Salvador 24.82% 24.26% 0.56 Mexico 31.98% 30.00% 1.98 Peru 15.19% 15.44% The Dominican Republic 31.99% 30.65% 1.34 Uruguay 44.67% 40.40% 4.27 Simple average 34.92% 34.01% 0.90 Source: FIAP. To December 2016, the average Contributors/EAP ratio for Latin American countries was 34.9%, an increase of 0.9 percentage points with respect to December Within this group of countries, this ratio reached a maximum of 65.1% (Chile) and a minimum of 15.2% (Peru). Six countries recorded an increase in coverage between December 2015 and December 2016, whereas Colombia and Peru recorded drops in this ratio of 1.98 and 0.25 percentage points, respectively. Countries that most advanced in EAP coverage were Uruguay (1.98 pp increase) and the Dominican Republic (1.34 pp increase). II. MANAGED FUNDS In the period analyzed, the managed funds in FIAP member countries increased by 8.02% in real terms (considering the value of the exchange rate at the end of 2016, for both periods), from USD 556,680 million in December 2015 to USD 601,305 million in December 2016 (see Table No. 6 (a)). When performing this exercise using the exchange rate at the end of each period (Dec and Dec. 2015), the managed funds recorded an increase in value of 4.95% (see Table No. 6 (b)). This lesser increase is due to the depreciation of the currencies of some of the FIAP member countries against the US dollar (see Table No. 7), during the period analyzed. It is important to reiterate, as previously mentioned on many occasions, and in other versions of this statistical report, that the return on the investments of the pension funds must be seen in a long-term horizon, since benefits will be paid in a similar term. It is a mistake to focus on short term assessments (scenarios of increases or decreases in the value of the pension funds), since they are influenced by economic conditions 11

12 that will not necessarily be repeated in the future. Latin America Mandatory Systems Table No. 6 (a) MANAGED FUNDS TO AND (at the US dollar exchange rate on , for both periods) Year Fund Fund Var. % Startup year (*) % % 2015 (Thousands of (Thousands of US$) US$) Bolivia ,172, % 12,381, % 14.46% Chile ,479, % 163,996, % 6.39% Colombia ,561, % 55,585, % 14.35% Costa Rica ,128, % 7,112, % 14.28% El Salvador ,314, % 8,637, % 7.85% Mexico ,215, % 126,902, % 8.91% Panama (1) , % 661, % 3.40% Peru ,225, % 36,608, % 9.88% The Dominican Republic ,336, % 6,164, % 19.03% Uruguay ,414, % 10,836, % 14.56% TOTAL 468,532, % 428,887, % 9.24% Voluntary Systems: Honduras (2) 338, % 274, % 23.28% TOTAL 338, % 274, % 23.28% Europe and Asia Mandatory Systems Kazakhstan (3) ,751, % 17,288, % 14.25% TOTAL 19,751, % 17,288, % 14.25% Voluntary Systems: Spain (4) 112,579, % 110,134, % 2.22% Ukraine 102, % 95, % 7.53% TOTAL 112,681, % 110,229, % 2.22% TOTAL FIAP 601,304, % 556,679, % 8.02% (*) The year in which the mandatory individually funded system started operating. (1) Panama: Information corresponding to the Public Servants Individually Funded Savings System (SIACAP). (2) Honduras: Information corresponding to AFP Atlántida. (3) Kazakhstan: Information corresponding to mandatory savings funds in personal accounts (excludes mandatory savings funds of professional pension funds). (4) Spain: Information corresponding to the equity of the Individually Funded, Employment, and Associated Systems. Source: FIAP. 12

13 Latin America Mandatory Systems Table No. 6 (b) MANAGED FUNDS TO AND (at the US dollar exchange rate on each date) Year Fund Fund Var. % Startup year (*) % % 2015 (Thousands of (Thousands of US$) US$) Bolivia ,172, % 12,381, % 14.46% Chile ,479, % 154,711, % 12.78% Colombia ,561, % 52,960, % 20.02% Costa Rica ,128, % 7,330, % 10.90% El Salvador ,314, % 8,637, % 7.85% Mexico ,215, % 151,701, % -8.89% Panama (1) , % 661, % 3.40% Peru ,225, % 36,040, % 11.61% The Dominican Republic ,336, % 6,320, % 16.09% Uruguay ,414, % 10,612, % 16.97% TOTAL 468,532, % 441,356, % 6.16% Voluntary Systems: Honduras (2) 338, % 288, % 17.38% TOTAL 338, % 288, % 17.38% Europe and Asia Mandatory Systems Kazakhstan (3) ,751, % 16,973, % 16.36% TOTAL 19,751, % 16,973, % 16.36% Voluntary Systems: Spain (4) 112,579, % 114,207, % -1.43% Ukraine 102, % 107, % -5.09% TOTAL 112,681, % 114,315, % -1.43% TOTAL FIAP 601,304, % 572,933, % 4.95% (*) The year in which the mandatory individually funded system started operating. (1) Panama: Information corresponding to the Public Servants Individually Funded Savings System (SIACAP). (2) Honduras: Information corresponding to AFP Atlántida. (3) Kazakhstan: Information corresponding to mandatory savings funds in personal accounts (excludes mandatory savings funds of professional pension funds). (4) Spain: Information corresponding to the equity of the Individually Funded, Employment, and Associated Systems. Source: FIAP. 13

14 Country Table No. 7 Exchange Rate (Value of 1 USD in local currency) Dec Dec % Change Bolivia % Chile % Colombia % Costa Rica % El Salvador % Spain % Honduras % Kazakhstan % Mexico % Panama % Peru % The Dominican Republic % Ukraine % Uruguay % Drawn up by: FIAP. Note: The Exchange rate shown in this table is the rate on the last business day of December each year. Latin American Countries In the Latin American countries with mandatory systems, a nominal increase of 9.2% in the value of the managed funds can be observed for the period between December 2015 and December 2016, using the US dollar figures at the end of December 2016 (see Table No. 6 (a)). The 2 countries with the largest increases were the Dominican Republic (19.0%) and Uruguay (14.6%). The increase in the Dominican Republic is partly explained by the increase in the number of contributors (6.06%) and the real positive return in the last twelve months for the period ending in December 2015 (8.10%, the highest in the FIAP countries; see Table No.9)). The most predominant factor in Uruguay was the increase in the number of contributors (10.7%, the largest increase in the FIAP countries). European and Asian Countries The only country with a mandatory system in this area is Kazakhstan, which shows a real increase of 14.3% in the value of managed funds, using the US dollar figures at closure in December 2016 (see Table No.6 (a)). In countries with voluntary systems, managed funds increased in real terms by 2.2%, which is explained mainly by the 7.5% increase in the value of the funds in Ukraine. The funds also increased in Spain, due to the positive annual nominal returns of the systems in 2016 (a trend already in place since 2013): in 2016 the Individually-Funded System

15 earned nominal returns of 1.7%, the Employment System 2.7%, and the Associated System 2.5%. The weighted average annual nominal return of the three systems to December 2016 was 2.0%. 4 Table No. 8 Composition of the Portfolio to and Year Sector Sector Sector Sector Others Latin America State Corporate Financial Foreign % % % % % Mandatory Systems F.I. E F.I. E F.I. E F.I. E Chile Dec % 0.00% 6.69% 8.67% 19.31% 0.85% 14.88% 24.07% 0.15% Colombia Costa Rica El Salvador (1) Mexico (2) Peru Dominican Republic (3) Uruguay (4) Dec % 0.00% 6.52% 8.11% 17.20% 0.71% 13.32% 30.86% 0.35% Dec % 0.00% 2.30% 11.09% 8.27% 7.70% 3.37% 25.78% 4.13% Dec % 0.00% 2.03% 11.12% 8.32% 6.96% 2.98% 29.71% 3.61% Dec % 0.00% 1.05% 0.00% 14.09% 3.05% 0.09% 7.84% 2.70% Dec % 0.00% 1.23% 0.00% 12.57% 2.15% 1.85% 4.58% 4.36% Dec % 0.00% 6.60% 0.00% 6.51% 0.00% 5.81% 0.00% 0.69% Dec % 0.00% 6.92% 0.00% 5.41% 0.00% 6.85% 0.00% 1.42% Dec % 0.00% 25.31% 5.68% 2.61% 0.00% 0.88% 13.37% 3.56% Dec % 0.00% 25.19% 6.24% 2.01% 0.00% 0.88% 15.54% 3.04% Dec % 0.00% 6.73% 17.65% 12.73% 1.90% 2.79% 35.34% 0.97% Dec % 0.00% 6.75% 15.92% 17.97% 1.07% 2.08% 38.13% 0.30% Dec % 0.00% 3.39% 0.00% 23.37% 0.00% 0.11% 0.00% 0.00% Dec % 0.00% 2.59% 0.00% 27.56% 0.00% 0.00% 0.00% 0.00% Dec % 0.00% 9.01% 4.37% 6.44% 0.00% 10.00% 0.00% 8.97% Dec % 0.00% 8.89% 4.37% 3.69% 0.00% 9.95% 0.00% 13.67% F.I. = Fixed Income; E = Equity (1) Foreign investment is prohibited in El Salvador; the percentage shown in the table reflects compliance with the rules governing the classification of instruments in the country. (2) In Mexico, the Afores began investing abroad in October, (3) Foreign investment is not permitted in the Dominican Republic. (4) As of May, 2008, the Pension Savings Fund (AFAP) in Uruguay are allowed to invest up to 15% abroad (fixed income issued by international credit agencies). Source: FIAP. 4 It is worth mentioning that pension plans are still generating positive returns for their participants: after 26 years, the annual average return was 5.0% for all of the plans. In the midterm (5 to 10 years), pension plans also have an annual average return of 5.1% and 2.2% per year. (Source: Inverco Press Release December 2016). 15

16 III. COMPOSITION OF THE INVESTMENT PORTFOLIO 5 The portfolio composition analysis includes 8 countries that have reformed their pension systems, for which information is available. In order to facilitate the analysis, the information has been classified into: State Sector, Corporate Sector, Financial Sector, Foreign Sector, and Others. Each sector, in turn (except for the group 'Others'), has been divided into Fixed and Equity to reflect the investment in each one of these types of instruments. A. Analysis by Sector On analyzing the instruments in which the pension funds are invested (see Chart No. 8), it can be seen that the funds were mainly invested in State Sector instruments, with a weighted average 6 share of 37.5% in the countries analyzed. Foreign sector instruments were the second investment preference in FIAP member countries, with a weighted average of 27.3%; the corporate sector comes third with a weighted average of 19.8% and the Financial Sector fourth with a weighted average of 13.1%. When observing how the percentage share in each sector varied between December 2015 and December 2016 (see Graphs Nos. 2 and 3), we can see that the pension funds in the countries analyzed increased their average share in the State Sector by 1.3 percentage points (pp), and by 1.66 pp in the Foreign Sector, whereas the pension funds reduced their average exposure by 0.6 pp in the Corporate Sector and 2.4 pp in the Foreign Sector. 5 Note that any difference in the percentage variations of participation in each economic sector may occur due to the approximation of decimal points. 6 The weighted average is calculated from the share percentages of the respective sector, for all the pension funds managed in each country, analyzed to December

17 Graph No. 2 Average weighted investment by the pension funds by economic sector (Dec and Dec. 2015) 7 Others 2.11% Foreign 27.32% State 37.48% Foreign 26.69% Others 2,12% State 36.18% Financial 13.08% Source: FIAP. As of December 2016 Corporate 19.84% Financial 11.53% As of December 2015 Corporate 20.48% Graph No. 3 Variation in the average weighted share of the pension funds by economic sector (Dec Dec. 2015) 2,00% 1,50% 1,00% 0,50% 1.30pp 1.55 pp 0,00% -0,50% -1,00% -1,50% State Corporate Financial Foreign Others 0.00 pp pp -2,00% -2,50% Source: FIAP pp 7 In order to obtain the weighted average share in each sector, the percentage shares in the respective sectors in each country are used (at each date), and multiplied by the ratio or coefficient between the total number of pension funds managed in the respective country and the sum of all the funds managed in all the countries (at each date). Then, the results of the multiplications in each country are added to obtain a weighted average share in each sector (at each date). 17

18 1. State Sector: Corresponds to the investment in fixed income instruments issued by State or government agencies, or the central bank of each country. To December 2016, the State Sector was the main destination of pension fund investments, with a share of more than 37% of the portfolio: El Salvador (80.4%), Dominican Republic (73.1%), Costa Rica (71.2%), Uruguay (59.9%), Mexico (48.6 %) and Colombia (37.4%), whereas in the other 2 FIAP countries analyzed, investment percentages in this sector are less than 26 per cent: Chile (25.4%) and Peru (21.9%). 2. Corporate Sector: Corresponds to the investment in fixed and Equity instruments issued by non-financial domestic companies. For example, corporate bonds, the shares of companies listed on the stock exchange and investment fund shares, among others, are classified in this sector. The Corporate sector is not the main destination of pension fund investments in all FIAP member countries analyzed to December 2016, and exposure percentages are lower than 32% of the portfolio: Mexico (31.0%), Peru (24.4%), Chile (15.4%), Uruguay (9.0%), Colombia (13.4%), El Salvador (6.6%), Dominican Republic (3.4%) and Costa Rica (1.0%). 3. Financial Sector: Corresponds to investment in fixed and Equity instruments issued by domestic financial agencies. For example, the bonds and shares of financial institutions, mortgage bonds and term deposits, among others, are classified in this sector. The Financial Sector is not the main destination of pension fund investments in all FIAP member countries analyzed to December 2015, and share percentages in this sector range from 2.6% of the portfolio (Mexico) to 23.4% (Dominican Republic). 4. Foreign Sector 6 Fiap member countries are currently authorized and regulated for foreign investment, namely: Colombia, Costa Rica, Chile, Mexico, Peru and Uruguay 8, whereas investment of the pension funds abroad is prohibited in three countries: Bolivia 9, El Salvador and the Dominican Republic. It is important to note that the percentage of foreign investment shown in Table No. 8 for El Salvador corresponds to investment in foreign securities traded on the local Exchange. To December 2016, there were 2 countries in which the Foreign Sector is the main destination of the investments of the pension funds, with more than 38% of the portfolio: Chile (39.0%) and Peru (38.1%), whereas in the rest of the FIAP member countries analyzed, the percentages of investment in this sector were lower than 30% of the portfolio. The ranking of the other countries is as follows: Colombia (29.1%), Mexico (14.2%), Uruguay (10.0%), Costa Rica (7.9%) and El Salvador (5.8%). 8 In Uruguay, the regulatory framework allows the Pension Savings Fund (AFAPs) to invest up to 15% of the total managed funds abroad, but only in placements (fixed income instruments) in multilateral credit agencies (such as for example, the World Bank or the Inter-American Development Bank (IDB)). Hence, investment in foreign variable income instruments is still prohibited. 9 There is no information available on the investment portfolio in Bolivia, which is why it is not shown in Table No

19 5. Others Instruments that cannot be classified within the aforementioned sectors are classified in Others. The aspects taken into account for constructing this group are detailed below: - Costa Rica, El Salvador, Mexico and Uruguay: available assets. - Chile: net position in derivatives (forwards) + other instruments. - Colombia: available assets + net position in derivatives. - Peru: transactions in process 10. To December 2016, the percentage of the investment portfolio that this group represents lies within the range of 0.0% (Dominican Republic) to 9.0% (Uruguay). B. Analysis by fixed income and equities On analyzing the investment of the pension funds in fixed income and equities, it can be seen that the Dominican Republic invested only in fixed income instruments. El Salvador, Costa Rica and Uruguay also invest a significant percentage (more than 80% of the portfolio) in fixed income instruments (99.3%; 86.4%; and 85.3%, respectively). The remaining countries invest in both fixed income and equities, with Peru, Colombia and Chile being the 3 countries that allocated the highest percentage of funds to equity (54.9%; 44.6% and 33.6%, respectively). 10 Comprises the accounts payable and accounts receivable of the managed portfolio. 19

20 Graph No. 4 Weighted average share of the pension funds in fixed income and equities (Dec and Dec. 2015) 11 Source: FIAP. On analyzing the weighted share average in fixed income and equities according to the weight of the funds (see Graph No. 4), a predominance of investments in fixed income was clearly visible, reaching, on average, 67.7% to December 2016, while investments in equities were 32.77% to December of the same year. On observing how the share percentages in fixed income and equities varied between December 2015 and December 2016 (see Graphs Nos. 4 and 5), we see that the pension funds of the countries analyzed reduced their exposure to equity instruments by 2.7 pp on average, while increasing their exposure to fixed income by 2.6 pp on average. Graph No. 5 Variation in average weighted share of the pension funds in fixed income and equities (Dec Dec. 2016) 3,00% 2,00% 2.63 pp 1,00% 0,00% -1,00% Equities Fixed Income Others 0.00 pp -2,00% -3,00% pp Source: FIAP. 11 In order to obtain the weighted share averages in each type of income, the share percentages of the respective sector in each country are used (at each date), and are multiplied by the ratio or coefficient between the total number of pension funds managed in the respective country and the sum of the total funds managed in all countries (at each date). Then, the results of the multiplications in each country are added to obtain a weighted share average in each type of income (at each date). 20

21 IV. RETURN OF THE PENSION FUNDS The Latin American FIAP member countries with mandatory systems for which information is available, are analyzed in the returns analysis. Latin America Countries Table No. 9 Real Annual and Historical Return of the Pension Funds Real Annual Return (a) % Jan 16 - Dec 16 Jan.15 - Dec.15 Real Historical Return (b) % To December 2016 To December 2015 Chile (1) 1.74% 2.16% 8.18% 8.37% Colombia (2) 3.66% -3.10% 7.65% 7.88% Costa Rica 6.84% 12.44% 4.96% 4.83% El Salvador 4.68% 1.26% 7.77% 7.76% Mexico (3) -0.61% -0.67% 4.88% 5.17% Peru (4) 6.53% 0.59% 7.47% 7.52% Dominican Republic 8.00% 8.16% 4.73% 4.81% Uruguay (5) 0.20% 2.90% 7.39% 7.78% Weighted average of managed pension funds 1.93% 0.64% 6.89% 6.96% (a) Real Annual Return: Average return in the last 12 months to each date, in local currency, adjusted for inflation (Consumer Price Index). (b) Real Historical Return: Return obtained since the beginning of the system to each date, expressed on a yearly basis, in local currency, adjusted for inflation (Consumer Price Index). (1) Chile: The real annual and historical returns corresponding to the Type C fund (Intermediate), representing 34.9% of the total managed funds to December The real historical return takes 1981 as the startup date. (2) Colombia: The real annual and historical returns correspond to the Moderate Fund, which represents 83.8% of all managed funds to December The Net Asset Value (NAV) methodology is used by the Colombian Association of Pension and Unemployment Fund (ASOFONDOS) for calculating returns. Note that the Multifunds in this country began operating in March 2011, and the Moderate Fund is the continuation of the former sole existing fund. The other funds are: (i) The Highest Risk Fund; (ii) The Conservative Fund; and (iii) the Programmed Withdrawal Fund. The real historical return takes February 1998 as the startup date. (3) Mexico: The average weighted real annual and historical return on the assets managed in each Basic Siefore (SB1, SB2 and SB3 SB4) is used. (4) Peru: The real annual and historical return of the Private Pension System (SPP) is shown, calculated by the Pension Research Area of the Peruvian Association of Private Pension Fund. (5) Uruguay: Return adjusted by the IU (Indexed Unit, which is adjusted for inflation). The return of the Accumulation Subfund is reported. Drawn up by: FIAP 21

22 Graph No. 6 Real Annual and Historical Return of the Pension Funds (%) 9,00% 8,00% 7,00% 8,18% 7,65% 6,84% 7,77% 6,53% 7,47% 8,00% 7,39% 6,00% 5,00% 4,00% 3,66% 4,96% 4,68% 4,88% 4,73% 3,00% 2,00% 1,74% 1,00% 0,20% 0,00% -1,00% -0,61% Source: FIAP. Real Annual Yield 2016 Real Historic Yield (up to Dec. 2016) The real return in the last twelve months, to December 2016 (period covering January to December 2016) of the nine countries analyzed ranged between - 0.6% (Mexico) and 8.0% (Dominican Republic) [see table No. 9 and Graph No. 6]. It can be seen that all the countries had real positive annual returns in this period, except for Mexico. The graph shows that the real average annual return (weighted by the level of the managed pension funds of the countries analyzed) for the period ending in December 2016, was 1.9%, and 0.6% for the twelve-month period ending in December 2015, so there was an increase of 1.3 pp in real short-term yields. The real return of the pension funds since the Individually funded systems began operating (historical real return), for the period ended in December 2016, fluctuates between 4.7% (Dominican Republic) and 8.2% (Chile), amounting to an average (weighted by the level of managed pension funds of the countries analyzed) of 6.9 percent, 0.1 pp lower than the weighted average real historical returns recorded to December 2015 (7.0%). An analysis of the return by country shows the following: Chile. Due to the existence of the Multifunds, the return obtained during the period depends on the fund the worker is enrolled in. As can be seen in Table No. 10, in the 12-month period ending in December 2016, all the funds obtained positive returns, with the exception of the riskiest fund (A): Fund A (-0.87%); Fund B (1.07%); Fund C (1.74%); Fund D (2.60%); and fund E (3.89%). The weighted real average annual return of all the Multifunds was 1.90% for the period under analysis, 0.37 pp lower than the return obtained in 2015 (2.27%). 22

23 Fund Dec (month) Table No. 10 Real Return of the Multifunds in Chile Jan Dec. 16 (Year) Jan Dec. 16 (Annual average last 36 months) Sept Dec. 16 Annual average A (Riskiest) -0.51% -0.87% 3.85% 6.13% B (Risky) 0.07% 1.07% 3.88% 5.23% C (Intermediate) 0.78% 1.74% 4.24% 4.90% D (Conservative) 1.43% 2.60% 4.07% 4.54% E (Most Conservative) 1.76% 3.89% 3.74% 3.92% Real Average Annual 1.90% Return (*) (*) The Real Average Annual Return of all the Multifunds (based on the level of the assets of the pension funds). Source: Monthly, yearly and average yearly return data: Superintendency of Pensions, Chile. Real weighted annual average return data of all the Multifunds: Chilean Association of AFPs. Colombia. Due to the existence of Multifunds, as in Chile, the return obtained in the period depends on the fund the worker is enrolled in. In this country the Multifunds started operating in March 2011, and the Moderate Fund is the continuation of the former sole existing fund. The other funds are: (i) The Highest Risk Fund; (ii) The Conservative Fund; and (iii) the Programmed Withdrawal Fund. Table No. 9 shows the real annual return on the Moderate Fund 12 which represents 83.8% of all managed funds to December 2016 and is the continuation of the former sole existing fund. This fund had a real annual return of 3.7% in 2015, 6.8 pp higher than that obtained in In historical terms, the real returns of the Moderate Fund remained at relatively high levels (the second highest in the region), amounting to 7.6%, only 0.2 pp lower than the returns obtained to December Table No. 11 also shows the real returns of the other Multifunds. As can be seen, the remaining funds also obtained positive annual returns in 2016, and from the beginning of the Multifunds system (March 2011) they have had positive historical annual returns (3.5% for the Conservative Fund; 2.8% for the Greatest Risk Fund; and 4.1% for the Programmed Withdrawal Fund). 12 The official information regarding returns published by the Financial Superintendency of Colombia refers to a calculation based on the IRR methodology for the last 4 to 5 years, and from the time the system started operating (historical return) in the case of the Moderate Fund. In the IRR methodology, the return is calculated from the value of the contributions and the initial and final value of the fund. However, a more accurate measurement of the financial returns of the pension funds is the Net Asset Value (NAV), which calculates returns according to the change in the value of the fund unit (as occurs in other countries, such as Chile and Peru, for example). This report presents the returns based on the NAV methodology, as reported by ASOFONDOS. 23

24 Table No. 11 Colombia - Real Return of the Multifunds Fund Jan Dec. 16 Jan.15 - Dec. 15 Annual Historical to Dec ( *) Moderate 3.66% -3.10% 7.65% Conservative 4.23% -1.59% 3.55% Highest Risk 2.93% -2.93% 2.77% Programmed Withdrawal 5.85% -1.51% 4.07% (*) The real historical returns shown for the Moderate Fund are calculated from the outset of the system (1998) and from the start of the Multifunds (March 2011) for the other funds. Source: ASOFONDOS, Colombia. Costa Rica. The real annual return for the period ending in December 2016 was 6.8%, 5.6 pp lower than the return obtained in the previous period (Jan.15 - Dec. 15), which is related to the drop in the nominal annual return (from 11.5% in 2015 to 7.6% in 2016) and the increase in inflation (which rose from - 0.8% in 2015 to 0.8% in 2016). The real historical return to December 2016 is 5.0%, 0.2 pp higher than the return obtained to December 2015 (4.8%). El Salvador. The real annual return for the period ending in December 2016 was 4.39%, 3.4 pp higher than the return obtained in the previous period (Jan.15 - Dec. 15), which is related to the increase in the nominal annual return (from 2.3% in 2015 to 3.7% in 2016) and the drop in inflation (from 1.0% in 2015 to - 0.9% in 2016). The real historical return to December 2016 is 7.8%, 0.01 pp higher than the return obtained to December Mexico. Due to the existence of the Multifunds, as in Chile and Colombia, the return obtained during the period depends on the fund the worker is enrolled in. As can be seen in Table No. 12, the real annual average weighted return for all the Multifunds in the period ending in December 2016 is -0.6%, 0.1 pp higher than the return obtained in the previous period (Jan.15 - Dec. 15), which is related to the increase in the weighted average annual nominal return of all the Multifunds (from 1.40% in 2015 to 2.7% in 2016), which more than compensated for the rise in inflation (from 2.1% in 2015 to 3.4% in 2016). The annualized real historical return of all the Multifunds to December 2016 was 4.9%, 0.3 pp less than that obtained in

25 Table No. 12 Mexico - Real Return of the Multifunds Fund Jan Dec (Year) Jan Dec (Year) Historical Annualized ( Dec. 2016) Basic Siefore 1 (Least Risky) 0.42% -0.89% 4.42% Basic Siefore % -0.73% 4.80% Basic Siefore % -0.75% 5.02% Basic Siefore 4 (Riskiest) -0.69% -0.43% 5.30% Real Average Annual Return (*) 0.61% -0.66% 4.88% (*) The Real Average Annual Return of all the Multifunds (based on the level of the assets of the pension funds). Source: AMAFORE, Mexico. Peru. Due to the existence of Multifunds, as in Chile, Colombia and Mexico, the returns obtained during the period depend on the fund the worker is enrolled in. All the multifunds obtained real positive annual returns for the 12-month period ending in December 2016, as shown in Table No. 13: Fund Type 1 (most conservative; 4.6%); Fund Type 2 (Intermediate or Mixed; 6.7%); and Fund Type 3 (Riskiest; 7.1%). The real average annual weighted return (based on the level of the funds managed by the pension funds) of all the Multifunds was 6.5% for the period under analysis, which is 5.9 pp higher than the returns obtained in the previous period (0.6%). The real historical return of the Private Pension System (SPP) from the beginning of operations to December 2016, was 7.5%, slightly lower than the returns obtained to December Table No. 13 Real Return of the Multifunds in Peru Peru - Real Return of the Multifunds Fund Jan Dec. 16 (Year) Jan Dec. 15 (Year) Annual average from the time that SPP started operating to Dec (*) Annual average from the time that SPP started operating to Dec (*) Type % 1.21% 4.14% 4.23% Type % 1.11% 7.61% 7.56% Type % -2.02% 9.05% 7.47% Total SPP 6.53% 0.59% 7.52% 7.47% (*) The return of the SPP is the sum of the return of each AFP weighted by the total value of the managed fund. The result includes the returns obtained by all the AFPs that are part of the system. Source: Pension Research Area of the Peruvian Association of AFPs. Dominican Republic. The real annual return for the period ending in December 2016 was 8.0%, 0,2 pp lower than the return obtained in the previous period (Jan.15 - Dec. 15), which is mainly related to the drop in nominal returns (from 10.7% in 2015 to 9.8% in 2016). The real historical return to December 2016 was 4.7%, 0.1 pp lower than the return obtained to December 2015 (4.8%). 25

26 Uruguay. The real annual return in IU (Indexed Unit 13 ) of the Accumulation Subfund 14 for the year ended in December 2016 amounts to 0.2%, 2.7 pp lower than that obtained in the previous period (Jan.15 - Dec.15), which is related to the fall of the nominal return (from 12.4% in 2015 to 8.6% in 2016) which more than compensated for the effect of the drop in inflation (from 9.4% in 2015 to 8.1% in 2016). 13 The Indexed Unit is the accounting unit created by Law No of May 4, 2004, Decree 210/2002 and its amendments, based on the past variation of the Consumer Price Index. In accordance with the aforementioned regulation, the indexed unit varies daily and is published by the Central Bank of Uruguay (BCU) and the National Institute of Statistics (INE). 14 Since 2014, the Pension Savings Fund (FAP), managed by the AFAPs, has been divided into two subfunds denominated "Accumulation Subfund" and "Retirement Subfund," with independently calculated return rates. These subfunds were created to protect the retirement subfund from market fluctuations. 26

27 V. SALES FORCE An increase in the number of sales personnel is observed to December 2016 in 2 of the countries for which information is available (see Table No.14). The country in which sales personnel most increased was Chile (10.7% increase), followed by Uruguay (2.5% increase). Mexico and Peru, on the other hand, recorded drops in the sales force of 23.2% and 3.5%, respectively. Table No. 14 Evolution of the Number of Sales Personnel Latin America Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Var. % Dec Dec. 15 Bolivia n.a. n.a Chile 3,343 3,020 2,781 2,964 2,400 1,927 2,242 2,130 2,890 2,625 2, % Colombia n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10,060 9,811 9,410 - Costa Rica n.a. n.a. n.a. n.a. n.a. 100 n.a. n.a. n.a. n.a. n.a. - El Salvador n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. - Mexico 28,967 37,717 46,971 42,121 38,500 33,290 30,331 26,259 26,420 30,433 39, % Peru ,172 1,142 1,149 1,128 1,763 2,340 5, % The Dominican Republic n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. - Uruguay % 3. Europe and Asia Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Var. % Dec Dec. 15 Kazakhstan n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. - TOTAL 32,968 41,409 50,513 45,889 42,331 36,711 33,978 29,758 41, , , % Source: FIAP. n.a.: Not Available. 27

28 VI. VOLUME OF TRANSFERS Table No. 15 shows the volume of transfers between fund managers in the 12-month period between January and December 2016, and between January and December, 2015, respectively. It can be seen that increases in the number of transfers are recorded in 6 of the countries with available information, especially Peru (76.5% increase), Dominican Republic (69.9% increase), Uruguay (46.6% increase) and Colombia (35.7% increase). Furthermore, 2 of the countries analyzed show a reduction in the number of transfers, especially Mexico, with a reduction of 21.5%. Table No. 15 Evolution of the Volume of Transfers between Fund Latin America Jan Dec. 16 Jan Dec. 15 Jan Dec. 14 Jan Dec. 13 Jan Dec. 12 Jan Dec. 11 Jan Dec. 10 Jan Dec. 09 Jan Dec. 08 Var. % Bolivia (1) N.a. N.a. N.a. N.a. N.a. N.a. 3,493 4,401 4,982 - Chile (2) 624, , , , , , , , , % Colombia 80,236 62,638 63,512 71,386 68,990 64, ,966 88,336 90, % Costa Rica 43,438 32,003 45,509 18, , , , , , % El Salvador ,378 5,339 4,764 4,492 7, % Mexico 1,555,792 1,981,128 2,436,697 2,128,947 1,788,883 1,799,758 1,856,306 2,597,918 3,532, % Peru 45,762 25,934 23,372 35,466 24,978 32,036 41,903 89, , % The Dominican Republic 62,196 36,604 24,868 11,959 6,571 4,291 3,219 1,562 1, % Uruguay 5,887 4,015 6,301 1,616 2,045 1,666 1,489 1,341 1, % 3. Europe and Asia Jan Dec. 16 Jan Dec. 15 Jan Dec. 14 Jan Dec. 13 Jan Dec. 12 Jan Dec. 11 Jan Dec. 10 Jan Dec. 09 Jan Dec. 08 Var. % Kazakhstan n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. - TOTAL 2,418,730 2,612,178 3,015,202 2,693,311 2,415,200 2,397,807 2,485,011 3,307, % Source: FIAP. n.a.: Not Available. N.A..: Not Applicable. 28

29 VII. COMMISSIONS Only the countries with mandatory systems were considered in the commissions analysis. In order to facilitate the comparison and analysis of commissions between countries, they are classified depending on whether they are fixed or variable, and whether they are charged on the worker's salary, on the contribution paid in, the managed fund or the return of the fund. On comparing the commissions charged by the fund managers in each country to December 2015 and December 2016 (see Table No. 16), the following was observed: Latin America Bolivia: The same structure and level of commissions as in the previous period were maintained. The Commission charged by the fund managers is 0.50% of the salary, and the premium charged by the Insurance Companies is 1.71% of the salary, totaling a variable commission of 2.21%. Chile: The total variable Commission as a percentage of the wage increased from 2.43% in December 2015 to 2.64% in December 2016 for independent and voluntary workers, and dropped from 1.28% in December 2015 to 1.23% in December of 2016 for dependent workers. This is explained by two factors: (i) The Disability and Survival Insurance (SIS) is subject to a public bidding process every two years, pursuant to Law (the Pension Reform Law of 2008). A premium of 1.26% of the taxable income of workers was established in the third bidding process held in April, The premium dropped 0.11 percentage points to 1.15% of the taxable income of workers in the fourth bidding process held in April 2014, applicable to the July 2014 payroll (paid in August, 2014). A premium of 1.41% of taxable income (an increase of 0.26 percentage points with respect to the previous bid) was established in the fifth tender (April 2016). Bidding takes place every two years, so the fifth bidding process is scheduled for April, (ii) The Pension Reform of 2008 made it mandatory for workers entering the labor market to enroll in the fund manager most convenient for them in terms of cost, through a bidding process for new members entering the pension system. In January 2014 it was announced that AFP PlanVital had won the third tender for capturing new members enrolling in the pension system, after offering a commission of 0.47%. This bettered the 0.72% offer of AFP Modelo (which had won the second tender). Subsequently, in January 2016 it was announced that PlanVital had won this tender again (with a Commission of 0.41%, 0.06 percentage points lower). Thus, this AFP offers the lowest Commission in the industry, not only to workers enrolling in the pension system for the first time (who must mandatorily join this AFP), but to all its members, during the period covered by the tender (24 months; from August 1, 2014, to July 31, 2018). 29

30 Colombia: The total variable commission as a percentage of salary remained at its legal ceiling 15 of 3% in December 2015 and December This occurred as a result of the premium charged by the Life Insurance Companies from 1.80% in 2015 to 1.86% in 2016, with the consequent drop in the commission charged by the fund managers from 1.20% in 2015 to 1.14% in Costa Rica: As of January, 2011, changes in the rules and regulations established a new system of commissions on the balance (% of the managed funds), with a cap of 1.10% of the fund. The commission system previously established a commission as a percentage of the contribution (3.59%) and another commission as a percentage of the returns of the fund (7.75%). The regulations have established a commission ceiling of 0.70% of the fund between 2014 and In practice, as of December, 2016, all the Complementary Pension Operators (OPCs) charged the maximum commission on the balance (0.7%), except for the Costa Rican Social Security Fund (CCSC - Caja Costarricense del Seguro Social) which charged 0.68% of the fund, which explains why the average commission on all the OPCs is 0.699% to December El Salvador: The total variable commission as a percentage of salary remained at its legal ceiling 16 of 2.20% in December 2015 and December The average commission charged by the fund managers as a percentage of salary increased from 1.181% in December 2015 to 1.256% in December 2016, and the premium charged by the Insurance Companies dropped from 1.019% in December 2015 to 1.944% in December Mexico: The variable commission as a percentage of the fund dropped with respect to the previous period from 1.09% of the fund (annually) in December 2015, to 1.05% in December It is estimated that commissions will continue to drop in line with the rhythm of the growth of resources, as a result of the transition to charging a sole commission on the balance of accounts. It must be pointed out that the Afores are currently legally obligated to annually submit their proposal for commissions to the Board of Directors of CONSAR. Should their proposal be rejected, the Afores must charge the average market commission. Peru: The variable commission charged by the fund managers as a percentage of the salary remained at the same level (1.61%) in December 2015 and December 2016, for those members remaining in the commission-on-salary system, and dropped from 1.15% in December 2015 to 1.10% in December 2016, for those members who switched to the "Mixed Commission" system. The fee charged by the life insurance companies remained unchanged at 1.33 percent from December 2015 to December It is worth mentioning that the Private Pension System (SPP) Reform Law No introduced a new Commission on the Balance system denominated Mixed Commission in 2013, for a transitory period of 10 years. Members enrolled in the SPP 15 In Colombia, the management commission and the disability and survival insurance premium are limited by law to 3% of the gross salary of workers. 16 In El Salvador, the management commission and the disability and survival insurance premium are limited by law to 2.2% of the gross salary of workers. 17 On September 13, 2013, the first insurance bidding process established by the reform of the Private Pension System (SPP) in 2012, was held. The pension insurance premium paid by all contributors as of (and until December 2014) is 1.23% of their salaries. The market was divided into seven sectors for bidding purposes (each insurer could be awarded 2 at the most). The second tender was held on , and it was announced that the premium would increase to 1.33% from January 1, 2015, until December 2016, the date on which the third tender for the next period will be held. 30