An Empirical Analysis of the Annuity Rate in Chile

30 Pages Posted: 20 Apr 2016

See all articles by Craig Thorburn

Craig Thorburn

World Bank

Marco Morales

Universidad Diego Portales

Roberto de Rezende Rocha

World Bank - Middle East & North Africa Region; National Bureau of Economic Research (NBER)

Date Written: June 1, 2006

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 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

Thorburn, Craig and Morales, Marco and Rocha, Roberto de Rezende, An Empirical Analysis of the Annuity Rate in Chile (June 1, 2006). World Bank Policy Research Working Paper No. 3929. Available at SSRN: https://ssrn.com/abstract=917500

Craig Thorburn (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Marco Morales

Universidad Diego Portales ( email )

Vergara 210
Santiago, Santiag
Chile

Roberto de Rezende Rocha

World Bank - Middle East & North Africa Region ( email )

1818 H Street N.W
Washington, DC 20433
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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