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An empirical analysis of the annuity rate in Chile

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  • Rocha, Roberto
  • Morales, Marco
  • Thorburn, Craig

Abstract

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 ofreturn 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.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3929.

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Date of creation: 01 Jun 2006
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Handle: RePEc:wbk:wbrwps:3929

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Keywords: Insurance&Risk Mitigation; Pensions&Retirement Systems; Economic Theory&Research; Investment and Investment Climate; Non Bank Financial Institutions;

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  11. Thorburn, Craig & Rocha, Roberto & Morales, Marco, 2006. "An analysis of money's worth ratios in Chile," Policy Research Working Paper Series 3926, The World Bank.
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  14. Walker, Eduardo, 2006. "Annuity markets in Chile : competition, regulation - and myopia ?," Policy Research Working Paper Series 3972, The World Bank.
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Cited by:
  1. Thorburn, Craig & Rocha, Roberto & Morales, Marco, 2006. "An analysis of money's worth ratios in Chile," Policy Research Working Paper Series 3926, The World Bank.
  2. Ferro, Gustavo, 2008. "Un impulso al mercado de rentas vitalicias en España
    [Promoting the annuities market in Spain]
    ," MPRA Paper 20211, University Library of Munich, Germany, revised Jul 2008.
  3. Feyen, Erik & Lester, Rodney & Rocha, Roberto, 2011. "What drives the development of the insurance sector ? an empirical analysis based on a panel of developed and developing countries," Policy Research Working Paper Series 5572, The World Bank.
  4. Ferro, Gustavo, 2008. "On annuities: an overview of the issues," MPRA Paper 20209, University Library of Munich, Germany, revised Oct 2009.
  5. Guillermo Larraín & Marco Morales, 2010. "The Chilean Electronic Market for Annuities (SCOMP):Reducing Information Asymmetries and Improving Competition," Working Papers 5, Facultad de Economía y Empresa, Universidad Diego Portales.
  6. Jaime Casassus & Eduardo Walker, 2013. "Adjusted Money's Worth Ratios in Life Annuities," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 434, Instituto de Economia. Pontificia Universidad Católica de Chile..

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