Latin American Capital Markets

INSTITUTIONAL INVESTORS AND CAPITAL MARKET DEVELOPMENT 123savings account for 15 to 25 percent of total institutional assets (World Bank andCGCED 1998) and have relatively broad coverage in countries such as the Bahamas,Trinidad and Tobago, and Jamaica.Insurance companies within Latin America and the Caribbean are less significantthan pension funds, as shown in table 5-1, although the insurance companieshave begun to foster diversity of coverage and competition (S&P 2001 b). Insurancepremiums as a percentage of GDP—a measure typically used to show the importanceof insurance within an economy—are less than 2 percent on average in LatinAmerica and the Caribbean, 4 compared with 8 to 13 percent in the OECD (ASSAL2001; S&P 2001 b). Six countries account for the majority of premiums in Latin America:Brazil, Mexico, Argentina, Chile, Colombia, and Venezuela (ASSAL 2001). In Barbados,Trinidad and Tobago, the Bahamas, and Jamaica, the life insurance sector is moredeveloped than in Latin America. For example, in the mid-1990s, premiums in theBahamas accounted for 2.8 percent of GDR and in Jamaica they constituted 8.5 percentof GDP A recent World Bank report credits the growth of insurance in theCaribbean largely to tax loopholes that made life insurance attractive savings and cashmanagement vehicles.The report also notes, however, that the insurance industry inthese countries is hurt by low asset returns and lack of domestic long-term investments(World Bank and CGCED 1998).The mutual fund sector in Latin America and the Caribbean is growingrapidly, but still has great potential for further development The sector consists of twotypes of funds: domestic funds that are primarily owned and administered by commercialbanks and funds directed toward foreign investors. Foreign funds are administeredby foreign investment companies and handled separately from those directedtoward domestic investors.Thus, the development of domestic funds is integrally relatedto the banking industry (Yermo 2000). In a number of countries, mutual fund assetshave increased sharply over the past few years. In some cases, such as Mexico,regulatory reforms have incited mutual fund growth (box 5-1). In Peru, which experienceda 37 percent growth in mutual fund assets in 2000, positive economic developmentsand low interest rates offered on traditional banking products have promptedmutual fund demand (AFM 2002). In spite of recent growth, the region's mutual fundsector remains relatively concentrated. In Peru, for example, the sector is made upof nine fixed-income funds, accounting for 81 percent of total sector assets, alongwith seven money market funds and six equity funds. The region's mutual funds are4 The insurance industry in Latin America and the Caribbean currently consists of two sectors—life insurance andgeneral insurance. In some countries, there is a large discrepancy in the amount of premiums for each sector, averaginggenerally 3 to I within the region (Yermo 2000). References to insurance companies in this chapter refer to thesector as a whole.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub