Principal unfazed by annuity dispute with social security agency

Principal Financial Group plans to keep its Mexican annuity business even though a fund transfer dispute with the social security agency (IMSS) has caused at least one company to freeze its investments with others expected to exit the market. "We continue to be active in the [annuity market]. If we look at it in terms of premiums we have over a 10% market share in new sales," Principal country manager Roberto Walker told BNamericas. "A market that shrinks by 80% makes it difficult for the current players and we hope this is a transitory [problem]," he said, adding that Principal continues investing in its annuity business. Insurers currently manage annuity funds for over 130,000 people and have invested 4bn-5bn pesos ((US$365mn-457mn) in this line of business since 1997. Under the pension reform law of 1997, workers who contributed to the IMSS can opt at retirement or in the case of special circumstances - invalidity, disability or death - to keep their funds with the agency or transfer them to annuities. However, from May last year the IMSS started hindering the transfer of funds to insurers in order to shore up its ailing finances. Industry observers believe the dispute could force consolidation among annuity providers because of the small size of the market. Dutch financial group ING (NYSE: ING) has frozen further investment in its Mexican annuity business until the row with IMSS is resolved. If the dispute continues into the middle of next year "its not going to be profitable for all of the current players, but with the information we have we hope the market recovers," he said. Looking down the road, Walker said the expansion of Principal s annuity division would come from organic growth and acquisitions. In December of last year Principal acquired AIG's annuity portfolio. Representatives from Mexico's insurance association AMIS, finance ministry and the IMSS have been in talks since early May, and AMIS chairman Jose Luis Llamosas Portilla told press in late August that he expected an agreement would be reached before year end.