RECORD OF SOCIETY OF ACTUARIES

1995 VOL. 21 NO. 1

MEASURING MORTALITY RISKS IN MEXICO,

CHILE, AND ARGENTINA

MODERATOR: DAVID M. TOWRISS

PANELISTS: JORGE RENDON ELIZONDO*
JOHN O. NIGH
RECORDER: DANIEL B. JOHNSTON

The panel will discuss mortality tables used in Mexico, Chile, and Argemina. Discussion
will cover their developments, uses, and limitations.

MR. DAVID M. TOWRISS: I'm director of the international reinsurance product develop-
ment area at Lincoln National. The primary objective of this session is to discuss
mortality tables used in Mexico, Chile, and Argentina including their development, uses,
and limitations. We have two panelists who have been deeply involved in mortality
studies in Mexico, Chile and Argentina. Our fast panelist is Jorge Rendon Elizondo.
Jorge is general director of a life insurance actuarial consulting office in Mexico, as well
as a professor at the university in Mexico. He received the title of actuary in 1961 and
was the second titled actuary in Mexico at that time. He was president of the Mexican
Association of Actuaries from 1970 to 1972 and is currently a member of the International
Committee and of the Association's Consulting Counsel as well as a member of the
International Association of Actuaries. Jorge is author of the Mexican Mortality Tables
1962-67 and 1986-90 and has had several other works published in the actuarial records
of the Mexican Association. Jorge will discuss mortality tables used in Mexico.

Our second panelist is John Nigh, a principal in the Atlanta office of Tillinghast. John is
a Fellow of the Society and is an active member of the Reinsurance, Financial Reporting,
and Product Development sections of the Society of Actuaries. At Tillinghast, John is an
actuarial and management consultant to the life insurance industry. He has day-to-day
responsibilities as unit manager of the Mexico City office as well as the South American
operation. At Tillinghast, he has been involved in many areas such as mergers and
acquisitions, reinsurance, and strategic alliances. John will discuss mortality tables used in
Argentina and Chile.

Our recorder is Dan Johnston, a pricing actuary in the International Division at Lincoln
National. With that I'll turn it over to Jorge.

MR. JORGE RENDON ELIZONDO: First, I will present the graph of the life expec-
tancy from Canada, U.S. and Mexico, Brazil, and Argentina (Chart 1). Mexico and
Argentina have similar life expectancies, at around 70, while in the U.S. it is 76 and
Canada it is 78. Brazil is shorter. The principal difference is in the first year of age. In
Mexico and Argentina we have a rate of 35 deaths per thousand, while in the U.S. it is 8
and in Canada it is 7, more or less. This is the largest difference.

The life expectancies I quoted are based on population data. Now I will present the
information regarding mortality tables for ordinary life insurance, individual ordinary

*Mr. RendonElizondo,not a memberof the Society,is an actuaryat ITAMDivisionGeneralde Mate-

maticas in D.F., Mexico.

305
 RECORD, VOLUME 21

insurance. There is improvement of the mortality compared to the population data_ The
first table developed for the Mexican market is the AMA 1968, and it was a mortality
table with a mix of male and female. Now we have AMA 1981 by gender. The first one
has higher mortality rates than the others.

CHART 1
LIFE EXPECTANCY-- 1990-95 FIGURES

76

74
i

72 "iF
zo i
68

66

64

62 -J

60

Canada U.S. Mexico Brazil Argentina

In relation to the CSO 1980, the AMA for males reflects a big difference in the younger
age. I think it is because the accidental mortality is higher in Mexico. It is the same for
males and for females.

With respect to life expectancy in some age, the AMA 1991 at age 20 for males is more
or less 54 per thousand and CSO 1980 is 54.5 or something like that (Chart 2). There's a
difference of about one year. In females, it is more or less the same.

The next chart shows age 35 and the difference is half a year expectancy at age 35, male
or female (Chart 3). The next is at age 50 and the difference is less; around less than half
a year in males and females (Chart 4). Chart 5 shows whole life net premiums at age 20,
at 6% interest. It's a common rate used in Mexico. The difference in premiums is more
or less 10% when you compare AMA 1991 against CSO 1980 at age 20. Then at age 35,
the difference is around 5% among AMA 1991 and CSO 1980 in males (Chart 6). Then
we have whole life net premiums at age 50 and the difference is very small, around 2.5%
(Chart 7). Chart 8 shows the select factors, the percentage of ultimate mortality in
different years of selection periods. It shows the AMA 1991 and CSO 1980 to males
aged 40-44, 45--49, and 50-54. It shows that our selection is less efficient in males, and
we have a higher percentage of ultimate mortality during the select period. In females, the
difference is smaller (Chart 9).

306
 MEASURING MORTALITY RISKS

CHART 2
LIFE EXPECTANCY
61-

60-

59-

58-

57-

56-

55-

54-

52 -- ----
AMA 91 CSO 80 CAN 82-88

[] Age 20, Male [] Age 20, Female

CHART 3
LIFEEXPECTANCY

46-

46-

44-

43-

42

41

40

39-

38---
AMA 91 CSO 80 CAN 82-88

[] Age 35, Male [] Age 35, Female j

307
 RECORD, VOLUME 21

CHART 4
LIFE EXPECTANCY

32-

31--

30 "_

29

27
28
26
t I i
F
25 ---
AMA 91 080 80 CAN 82-88

Age 50, Male _ Age 50, Female

CHART 5
WHOLE LIFE NET PREMIUM

0.004 -t
0.0035

0.003

0.0025

0.002

0.0015 i I
I I
0.001

0.0005 =! I I

0
AMA91 CSO80 CAN82-88

Age 20, Male [] Age 20, Female

308
 MEASURING MORTALITY RISKS

CHART 6
WHOLE LIFE NET PREMIUM

0.0085

0.008

0.0075

0.007

0.0065

0.006

0.0055

0.005
AMA91 CSO80 CAN82-88

[] Age 35, Male [] Age 35, Female

CHART 7
WHOLE LIFE NET PREMIUM

0.02 -

0.019 -

0.018 -

0.017 -

0.016 -

0.015 -

0.014 -

0.013 -

0.012
AMA 91 CSO 80 CAN 82-88

[] Age 50, Male [_ Age 50, Female ]

309
 RECORD, VOLUME 21

CHART 8
PERCENTAGE OF MORTALITY

40-44, Male, s
100-

80---

60-

20

0 l q 7
2 3 4
Policy Year

............................. i

45-49, Males
100 ....

80!

004

20

0 i i q
1 2 3 4
Policy Year

AMA 91 ................... CSO 80

50-54, IVlale_s
100

80

60 ...................................................................................................................................

40

20

2 3 4
Policy Ye_u"

I AMA91 CSO80
................... I

310
 MEASURING MORTALITY RISKS

CHART 9
PERCENTAGE OF MORTALITY

30-34, Females
100

80 l .............................................................................................

60

40

20

0 i i
1 2 3
Policy Year

[ AMA,1 ..................... CSO80 I

35-39, ]P'emale__

100
80 ......................................................................................

60--

40-

20-

O- "I i i
2 3 4
Policy Year

[ AMA91 ..................... 0SO80 ]

40-44, Females
100

80

60

40

20

0 t
1 2 3 4
Policy Year

[ AMA91 ..................... CSO80 ]

311
 RECORD, VOLUME 21

MR. JOHN O. NIGH: Before I get into my presentation, I'd like to make just a couple
of observations about mortality tables used in Argentina and Chile and I think these
observations can apply to several countries throughout the world. When we look at
intemational companies that have entered Mexico, Argentina, or Chile, we'll oftentimes
see that they'll import their own mortality table. They know more about it, they're more
comfortable using it and they try to relate that table to what companies are generally using
in the host country where they're operating. This is particularly true in Argentina. It's a
little bit less true in Chile. Mexico, as Jorge said, has done a very good job over the
years of collecting mortality data and developing mortality tables for use in not only
evaluation but also pricing. The situation, as you'll see for Argentina and Chile, is not
quite as advanced, particularly in Argentina where there are very few mortality statistics.

First I'll give some background on Chile and Argentina, just to give some flair for how
the insurance markets have developed in those countries. In Chile, the word life insurance
refers to what has occurred through the pfivatization of the Social Security program in
1983. That privatization took place under a military dictatorship, and as a consequence, it
was very successful and continues to be very successful. The mechanism for the pfivat-
ization was what is referred to as an AFP. The AFP is essentially a fund manager for
these retirement funds that the employee checks. Then he or she selects an AFP to
administer his or her funds. The AFP will then purchase insurance on behalf of the fired
participants or the employees that have directed their funds to the AFP. The insurance is
designed to cover survivorship income for the surviving spouse in the case of the death of
the employee, or in the case of the disablement of the employee the disablement disability
income. The insurance itself funds the difference between the fund value that is in the
AFP and the amount necessary to purchase the disability income or the survivorship
income.

We also have, of course, the retirement itself. If the employee reaches normal retirement
age, then insurance is purchased and the amount of retirement income that is purchased is
what can be purchased by the fund.

Traditional life insurance, or as we call it, traditional individual life insurance (term,
permanent, or universal life), has only recently become popular on a local basis and many
people may argue with me about whether or not that's even a true statement. We have
seen some evidence of an increase in activity in individual life sales. In the past, we have
seen offshore business or bootleg business, and even though Chile has had laws and
regulations that effectively try to prohibit this offshore business, they really haven't been
effectively implemented, regulated or enforced until recently. The enforcement procedures
can include the imposition of excise taxes against those purchasing the insurance, or
people that are involved in this process could end up in jail. I don't know if anybody has.

Finally, it is relatively easy to enter the Chile insurance market either by providing
insurance to the AFPs or on a direct-sale basis.

For those of you who are familiar with the Argentina insurance market or the Argentinean
economy, you know that it had very high inflation for quite a number of years. The
inflation started subsiding in 1991, but unlike Mexico that went through similar periods of
hyperinflation and whose insurance market developed insurance products that had features
to accommodate hypefirLflation, Argentina didn't. As a consequence, the individual life
insurance market in Argentina was really the bootleg or the offshore business. Through

312
 MEASURING MORTALITY RISKS

the governrnent either looking the other way or through silent encouragement or endorse-
ment, this business was effectively encouraged. I should state this existed until December
17, 1994 because of the peso devaluation in Mexico and how that has affected the
economies of some other Latin American countries. Now that we have lower inflation
and the open door policy of the Argentinean government, life insurance sales on a local
basis have been increasing.

On July 1, 1994, Argentina went through a privafization much like what we saw in Chile
in 1983. The difference was it was through a democratic government and it was optional.
I don't know the percentage, but a little over 50% of the employees have opted for the
private scheme which is funded through AFJPs in Argentina rather than through AFPs as
in Chile. Again, it's similar coverage. The AFJP will in turn purchase insurance from
retirement companies and this is a distinction I'll get into shortly. The retirement
insurance companies will provide insurance to fund the inadeqmcy of the fund balance in
the AFJP to purchase disability income or survivorship income.

Entry into Argentina for life insurance, as we traditionally call life insurance, is limited to
existing companies. By that I mean, if you want to sell individual life insurance or group
insurance in Argentina, you need to buy an existing license or an existing company. For
those of you who know the Latin American markets, you realize that many of the
countries have legislation that allows for combination companies, so one company could
have a life, property and casualty and health license, and if that company so chooses, and
is not using the life license, they could sell it to a company entering the market.

Now you may form a wholly owned retirement company, and this retirement company is
the company that provides insurance to the AFJPs to fund the disability income as well as
the survivorship income.

The reason I prefaced my remarks was because in Argentina we really see the use of U.S.
style tables for pricing purposes. For individual life, some percentage of 1980 CSO was
used and, generally speaking, 100% of it is used for valuation purposes. For individual
annuities, 1971 IAM is used and for group armuities, 1983 GAM is used. The process is
similar to what you see in Mexico and technical notes are filed with the insurance
regulatory authorities for approval before a product can be sold; therefore as my preparato-
ry remarks indicated, there can be a fairly wide variation in mortality tables used, but
generally speaking this is what we will see in Argentina.

In Chile there have been developed a separate and distinct set of mortality tables for use.
By and large these tables are somewhat dated and in the ease of individual life, you'll see
what's called the M90. There is a recent trend for companies that are entering the
individual life insurance market to use 1980 CSO.

I have not, as Jorge has done, calculated life expectancies. I will show a couple of
representative examples comparing oar mortality tables to the Chilean mortality tables and
Argentinean tables, but Argentina sort of compared them against its own.

For the retirement annuities, there is the R85. D85 is used for survivorship annuities, and
MI85 is used for disability annuities.

3t3
 RECORD, VOLUME 21

Comparing tables is very difficult, particularly given the prevalence or lack of prevalence
of smoking, or if you want to compare males or females, during the select period or not
during the select period. I picked attained-age 40 and attained-age 50, and for my
comparison to the U.S. table, I selected what we call the Tillinghast standard. What that
really reflects is our version of current industry and mortality experience. I've used the
ultimate table for comparison purposes.

As you can tell from Table 1, the mortality differential is somewhat significant, particu-
larly between the U.S. and Argentina. The mortality differential is not as great in the case
of Chile, but remember that the tables are somewhat dated. In the case of Argentina, we
do not have access to mortality statistics for the insured population. Looking at the
relationship of these tables to the Tillinghast standard, we'll see in Table 2 that Chile is
178% or 148% at age 40 and 50, respectively, and over 200% for Argentina.

TABLE 1
COMPARISON OF MORTALITY TABLES
INDIVIDUAL LIFE

1,000 =

Attained age Chile Argentina U.S2

40 2.10 2.72 1.18
50 4.11 5.83 2.78
_Tillinghast
standard asedonSOl, 1975'80 basictables.

TABLE 2
COMPARISON OF MORTALITY TABLES
INDIVIDUAL LIFE

Ratios to U.S. a

Attained age Chile Argentina

40 1.78 2.31
50 1.48 2.10
r_iiinghast
standardb_ ;edonSOA 1 _75-80basic
tables.

For retirement annuities, I used the R85 table for Chile and the 71 IAM for Argentina.
When comparing that to the U.S. table, we'll again see that there is a lower mortality for
U.S. versus Argentina and Chile in Table 3. However, the relationship is not nearly as
significant as we found for individual life insurance.

314
 MEASURING MORTALITY RISKS

TABLE 3
COMPARISON OF MORTALITY TABLES
RETIREMENT ANNUITIES

1,000 q"

Attained age Chile Argentina U.S. a

70 22.64 20.02 16.53
80 57.46 55.49 46.71
a1983 IAM

MR. EDWARD L. ROBBINS: Are the Chilean tables that you cited mandated valuation
tables?

MR. NIGH: Right.

MR. ROBBINS: You indieated that the annuitant tables are somewhat dated. I think I
agree with that. When you say dated I guess you're really implying that the reserves are
probably inadequate, at least with respect to the mortality assumption.

MR. NIGH: Nice try. I think that would be the general consensus opinion with respect
to the reserve.

MR. ROBBINS: In your experience, are companies in Chile using those tables for pricing
mortality as well?

MR. NIGH: As I said, Ed, the use of tables is so widespread and in some cases I don't
think there's a use of tables. In some eases it's just meeting the competition or doing
whatever it takes to beat it. My experience is that yes, they'll use these or some percent-
age of these, or they'll take Lincoln National and knock off 5%.

MR. J. LYNN PEABODY: With respect to the Mexican experience and the rates that
you were showing, were those used for pricing or reserving? Also, the second question is,
do you have any idea how the experience in Mexico would translate to Hispanic experi-
ence in, for instance, the southern part of the U.S.? Would there be a relationship or are
you aware of any comparisons of those two markets?

MR. RENDON ELIZONDO: As to the first question, these table are officially to reserve
and the companies would use some similarities or differences of their own experience or
of the largest companies.

MR. PEABODY: I was wondering whether or not you would have an idea of any
relationship between the mortality in Mexico compared to the Hispanic population in the
southern part of the U.S. Are there are any relationships shown in studies?

MR. RENDON ELIZONDO: I don't think that it can be similar. The Mexican popula-
tion that buys individual life insurance numbers about four million people and it is the
middle class and not popular.

315
 RECORD, VOLUME 21

MR. MICHAEL H. BERKOWITZ: John, I was wondering why you picked Argentina
and Chile as the two countries. Can you comment on other countries in South America as
far as mortality?

MR. NIGH: I only know of three countries' mortalities. I worked in Brazil, Argentina,
and Chile and when Dave put this panel together, he chose Mexico, Argentina, and Chile.
Since Jorge was already on the panel, I couldn't take Mexico, even though I felt more
comfortable with Mexico. Generally speaking, with respect to Brazil, it's essentially the
same situation as we see in Chile where they do have mortality tables. The ones that are
prescribed, however, are for valuation purposes and are even more dated than the ones that
are prescribed in either Argentina or Chile. Generally speaking, they're still using 1958
CSO or some version of that.

MR. CHARLES BARRY H. WATSON: You mentioned the mortality tables that are
derived for these various countries. How good is the data on which it is based and what's
the background and the source of it? I know that looking at Social Security systems and
things like that in these countries, the data are usually bad and somewhat inadequate. I'm
curious about how good it is for the insurance market that you're talking about.

MR. NIGH: To be honest, I have not looked at the underlying data. Ed, I don't know if
you have the same experience but the best answer I can give you is that there seems to be
a vew real perceived need to do an incredible update of these mortality tables. There's a
real concern about the fact that there's not a process in place to credibly collect mortality
statistics that are needed to develop these tables. But I think that there is a need and that
would suggest that maybe there is a lack of confidence in those tables. As far as looking
at the underlying data, I can't say that.

MR. ROBBINS: The hearsay in Chile indicates that the retirement annuity table is an
adaptation of the 1983 GAM and very close to it, I understand.

MR. NIGH: I'll have to look at my last table.

MR. ROBBINS: It could be the basic or the valuation table, I'm not sure, that's a
hearsay issue. But my impression is it was taking standard tables from elsewhere,
primarily the U.S., and kind of adjusting it to what they thought the Chilean mortality rate
was on retired lives. I don't know about the disabled lives or the beneficiary survivorship
lives.

MR. NIGH: The conversation I've had has been about individual life insurance and the
table that was developed there was developed, I believe, in the early 1970s based on
statistic insured lives issued through 1960 or something like that, so it is somewhat dated.
I apologize for not having that exact information, but the comment that I had or the
conversation I had was focused directly on the individual life mortality tables.

MS. KAREN L. GERVASONI: Can the panel comment on the major causes of death in
these countries?

MR. RENDON ELIZONDO: They are the same in Mexico as in the U.S., except that at
younger ages, I think the accidental mortality is worse in Mexico than the other countries,
which is important. The other causes are the same--the circulatory diseases, heart disease,

316
 MEASURING MORTALITY RISKS

and cancer. Remember that individual life insurance is sold to the middle class in
Mexico, and they have the same problems.

MR. THOMAS P. LAINE: In connection with the ability to sell life insurance in an
inflationary environment, I wondered whether they allow the sale of dollar-denominated
policies in Chile? Also, I think I remember reading once that there is an artificial
currency called the UF or something like that, and it was used for the AFPs. I wondered
if life insurance policies were also sold in that artificial currency.

MR. NIGH: It's intended that they allow it to be sold in the artificial currency, and in
Chile you're not allowed to sell dollar-denominated policies. In Argentina, they only have
dollar denominated policies. In Mexico, you can have either peso-denominated or dollar-
denominated at the choice of the insurance company selling it and at the choice of the
buyer of the insurance policies.

Just another comment on Brazil. Brazil does not allow dollar-denominated policies either,
but they do have a currency index that can be used for the sale of insurance. The
problem with that is, if the currency doesn't follow the inflation, you can have a fairly real
mismatch and that's the danger, but that's really the only option you have in that country.

MR. WATSON: Just going back to the question of the causes of death and mortality.
SeiIor Rendon made a very good point that in Mexioo--and I'm sure that in terms of
individual insurance, it would be equally true of Chile and Argentina---the insurance is
largely for the middle class and above. We tend to think of pictures of poverty that you
can see in certain sections of the Mexican economy and in the other countries. Outside of
the urban areas, these people are basically out of the insurance market in the traditional
sense. If you're talking to the multinational companies I've tended to deal with you know
they are interested in the mortality and morbidity of their work force, and there is at least
a preliminary assumption that the mortality and morbidity during at least the working
years would be very similar to what it is in the U.S., or some minor variation of it, be-
cause of the basic effects of selection of higher salaries, better conditions of living, better
nutrition, etc. When one is talking about generalized mortality as opposed to specific
mortality, one needs to be careful both in looking at these tables and in what is adopted as
a suitable rate of mortality.

MR. RENDON ELIZONDO: This presentation was about the individual life insurance,
but we have group mortality tables and the population census. The first graph was about
the population census. The difference is seven years in the expectation of life between
insured lives and the population total. In the group life insurance, we have many insured
people. I think that it must be around 12 million or something like that and the mortality
is only a little higher.

MR. NIGH: When you do look at the insured lives or the working population, and I
define it to mean those in Mexico and Brazil that have Social Security contributions made
on their behalf or contributions made to AFP or AFJP, remember that you have an
extremely high proportion of the population that smokes. That factor is going to con-
tribute significantly to a difference in mortality.

317