An Empirical Analysis of the Annuity Rate in Chile

Empirical analyses of annuities markets have been limited to a few industrial countries and restricted by data limitations. Chile provides excellent conditions for research on annuities because of the depth of its market and the availability of data. The authors use a panel of life insurance company data to examine econometrically the main determinants of the annuity rate, defined as the internal rate of return on annuities. The results indicate that the annuity rate is determined by the risk-free interest rate, the share of privately-issued higher yield securities in the portfolio of providers as a proxy for the spread over the risk-free rate, the leverage of providers, the level of broker's commissions, the market share of individual providers, the level of the premium, and the degree of market competition. The results also show that efforts to improve market transparency produced structural shifts in the parameters of the annuity rate equation. The results are consistent with separate research on money's worth ratios, and indicate the need to develop appropriate financial instruments, allowing providers to hedge their risks while extracting higher returns, and also to ensure competition and transparency in annuities markets, in order to ensure good outcomes for annuitants.

Bibliographic Details

Main Authors:	Rocha, Roberto, Morales, Marco, Thorburn, Craig
Language:	English
Published:	World Bank, Washington, DC 2006-06
Subjects:	ADVERSE SELECTION, AGENTS, AGGREGATE DEMAND, AGGREGATE SUPPLY, ANNUITIES, ANNUITIES MARKETS, ANNUITY, ANNUITY MARKETS, ANNUITY PROVIDERS, ANNUITY RATE, ANNUITY RATES, ASSETS, AVERAGE COSTS, BANKRUPTCY, BROKERS, CAPITAL MARKETS, CENTRAL BANK, COMMERCIAL BANKS, COMMISSIONS, CONSUMERS, CREDIT RISK, DEMAND CURVE, DISCLOSURE, DISCLOSURE RULES, ECONOMETRIC ANALYSIS, ECONOMIES OF SCALE, EXPECTED PRESENT VALUE, EXPECTED RETURNS, FINANCIAL ASSETS, FINANCIAL INSTRUMENTS, FINANCIAL SECTOR, FIXED ANNUITIES, FIXED INCOME, GDP, GOVERNMENT BONDS, INDEXED BONDS, INSURANCE COMPANY, INSURANCE INDUSTRY, INTEREST RATE, INTEREST RATES, INTERNAL RATE OF RETURN, LIFE ANNUITIES, LIFE EXPECTANCY, LIFE INSURANCE, LIFE INSURANCE COMPANIES, LIQUIDITY, LONGEVITY RISKS, MACROECONOMIC CONDITIONS, MARKET RISK, MONOPOLY, MORTALITY TABLES, MORTGAGES, NORMAL RETIREMENT AGE, OPPORTUNITY COST, PAYOUT, PENSION FUND, PENSION FUND ADMINISTRATORS, PENSION LAW, PENSION REFORM, PENSION REFORMS, PENSION SAVINGS, PENSION SYSTEM, PENSIONERS, PENSIONS, PORTFOLIO, PORTFOLIO COMPOSITION, PORTFOLIO RETURN, PORTFOLIO RETURNS, PORTFOLIOS, PREMIUMS, PRIVATE PENSION, PRIVATE PENSION FUNDS, PRIVATE PENSION SYSTEMS, PRIVATE PILLARS, PROFIT MARGINS, PROFIT MAXIMIZATION, RATES OF RETURN, REINVESTMENT RISK, RESERVES, RETIREES, RETIREMENT, RETIREMENT INCOME, RISK AVERSION, RISK PREMIUM, RISK-FREE RATE, ROA, SAVINGS, SECURITIES, STATEMENTS, STRUCTURAL CHANGE, SUBSTITUTION EFFECT, SUPERVISORY AGENCY, TRANSPARENCY, TREASURY BONDS, UNDERWRITING, VALUATION, WAGES, WEALTH,
Online Access:	http://documents.worldbank.org/curated/en/2006/06/6822636/empirical-analysis-annuity-rate-chile https://hdl.handle.net/10986/8456
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