The document explains the role that the Colombian insurance companies play in the pension system,and seeks, through the understanding of the evolution of the macroeocnomic environment andthe regulatory framework, to identify the challeges that they are facing. The challeges explained inthe document are three: the profitability challenge, the challenge orginated by the rather frequentchanges in the regulation, and the “matching” challenge. The document emphasizes in the first oneand develops an Efficient frontier exercise that uses expected returns calculated under the Damodaran(2012) methodology. The results of the exercise support the idea that the expected returns willbe lower for every level of risk and suggest that relaxing the restrictions imposed by the regulatoryframework could relieve the concerns of the insurance companies regarding this matter. For theother two challenges there are suggested alternatives as well: the Algorithmic trading for the caseof the challege originated by the changes in the regulation, and the Public-Private Associationswhen it comes to deal with the “matching” challenge.
