An empirical analysis of the annuity rate in Chile
AbstractEmpirical 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 InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 3929.
Date of creation: 01 Jun 2006
Date of revision:
Insurance&Risk Mitigation; Pensions&Retirement Systems; Economic Theory&Research; Investment and Investment Climate; Non Bank Financial Institutions;
Other versions of this item:
- Rocha, Roberto & Morales, Marco & Thorburn, Craig, 2008. "An empirical analysis of the annuity rate in Chile," Journal of Pension Economics and Finance, Cambridge University Press, vol. 7(01), pages 95-119, March.
- NEP-ALL-2006-06-10 (All new papers)
- NEP-FMK-2006-06-10 (Financial Markets)
- NEP-IAS-2006-06-10 (Insurance Economics)
- NEP-LAM-2006-06-10 (Central & South America)
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