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An empirical analysis of the annuity rate in Chile

Author

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  • ROCHA, ROBERTO
  • MORALES, MARCO
  • THORBURN, CRAIG

Abstract

Empirical analyses of annuities markets have been limited to a few developed countries and restricted by data limitations. Chile provides excellent conditions for research on annuities due to the depth of its market and the availability of data. The paper utilizes 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.

Suggested Citation

  • 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(1), pages 95-119, March.
    • Handle: RePEc:cup:jpenef:v:7:y:2008:i:01:p:95-119_00
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    Cited by:

    1. Marco Morales & Guillermo Larraín, 2017. "The Chilean Electronic Market for Annuities (SCOMP): Reducing Information Asymmetries and Improving Competition," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 42(3), pages 389-405, July.
    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. Cristian Escudero & José L. Ruiz, 2022. "Choosing the highest annuity payout: the role of intermediation and firm reputation," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(4), pages 973-1004, October.
    5. Jaime Casassus & Eduardo Walker, 2013. "Adjusted Money's Worth Ratios in Life Annuities," Documentos de Trabajo 434, Instituto de Economia. Pontificia Universidad Católica de Chile..
    6. Cristian Escudero & José L. Ruiz, 2021. "Life insurance companies’ investment abroad and the internal rate of return on Chilean annuities," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(4), pages 688-709, October.
    7. Guillermo Larrain & Simon Ballesteros & Sebastián Garci, 2017. "Longevidad y Pensiones: una Propuesta de Seguro para la Cuarta Edad," Working Papers wp441, University of Chile, Department of Economics.
    8. Ferro, Gustavo, 2008. "On annuities: an overview of the issues," MPRA Paper 20209, University Library of Munich, Germany, revised Oct 2009.
    9. Thorburn, Craig & Rocha, Roberto & Morales, Marco, 2007. "An analysis of money's worth ratios in Chile," Journal of Pension Economics and Finance, Cambridge University Press, vol. 6(3), pages 287-312, November.
    10. Bernardita Vial & Pilar Alcalde, 2020. "Intermediary Commissions in a Regulated Market with Heterogeneous Customers," Documentos de Trabajo 532, Instituto de Economia. Pontificia Universidad Católica de Chile..

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