2006年-世界发展银行全球_An_Analysis_of_Moneys_Worth_Ratios_in_Chile_33页_405kb

Summary of WPS3926: An Analysis of Money's Worth Ratios in Chile

Core Content

This paper presents an empirical analysis of money's worth ratios (MWRs) in the Chilean annuities market, focusing on the period from 1999 to 2005. It explores the performance of annuities in Chile and compares it with other countries, highlighting the impact of market structure, regulation, and transparency on annuity pricing and customer value.

Main Points

• Chile's Annuity Market Context:
  Chile's annuity market has developed significantly since its 1981 pension reform, which shifted from a public pay-as-you-go (PAYG) system to a fully-funded (FF) system managed by private pension fund administrators (AFPs). By 2004, nearly 97% of contributors were in the new system, with a growing number of retirees opting for annuities, reaching over 60% by 2004.

• Money's Worth Ratios (MWRs):
  MWRs are defined as the ratio of the expected present value of annuity payments to the premium paid. The study finds that Chilean annuitants generally receive good value for their premiums, as MWRs are consistently above one and higher than those in other countries.

• Factors Influencing MWRs:
  The high MWRs in Chile are attributed to:

  • Indexation of Annuities: Chilean annuities are indexed to prices, which allows providers to hedge risks and potentially extract higher returns.
  • Market Competition: The annuities market is highly competitive, contributing to better pricing for customers.
  • Improved Transparency: A new electronic quotation system introduced in 2004 has reduced the dispersion of MWRs by increasing market transparency.

• MWR Trends:
  MWRs tend to decrease for longer-duration contracts, reflecting the higher risks associated with longevity and reinvestment. This trend is consistent with other studies on annuity rates.

• Methodological Considerations:
  The paper uses a comprehensive dataset on individual annuity policies, including details on annuitant characteristics and annuity types. This enables detailed econometric analysis of MWR determinants.

Key Information

• Annuity Types:
  Chilean annuities include:

  • Single life annuities
  • Joint life annuities (with 60% reversion to the surviving spouse)
  • Guaranteed annuities (payments are maintained for a defined period)
  • Phased withdrawals (PWs) and Temporary withdrawals (TWs)

• Mortality Tables:
  Three mortality tables were used: RV-85, RV-98, and RV-04. RV-04 is considered the most representative and scientific, based on updated Chilean annuitant data. The tables show a significant decline in mortality rates compared to RV-85, especially for males and females at intermediate ages.

• Discount Rates:
  Two discount rates were used: the risk-free rate (based on central bank bonds) and the corporate bond rate (with spreads added). The risk-free rate is more meaningful for average customers and facilitates international comparisons.

• Data Source and Scope:
  The study uses actual annuity sales data, which provides a more accurate reflection of customer value than quoted annuities. The dataset includes 5,137 annuities sold in March of 1999, 2002, 2003, 2004, and 2005, focusing on normal and early retirement annuities, excluding disability and survivorship annuities.

• Market Characteristics:

  • The insurance sector has grown rapidly, with total insurance assets reaching 20% of GDP by 2004.
  • The annuities market is more competitive than the pension fund sector, as shown by decreasing concentration ratios in the 1990s.
  • The use of electronic quotation systems has improved transparency and reduced the dispersion of MWRs.

Policy Implications

• The paper emphasizes the importance of ensuring competition and market transparency in annuities markets to provide good outcomes for annuitants.
• It also highlights the need to develop appropriate financial instruments for providers to manage risks effectively.
• The results suggest that improving data quality and market structure can lead to better annuity pricing and greater value for customers.

Conclusion

The analysis of MWRs in Chile provides valuable insights into the performance of annuities in a developing market. The high MWRs reflect the effectiveness of market competition, transparency, and the use of indexed instruments. These findings are important for policymakers in countries facing similar pension reform challenges, as they demonstrate the benefits of a well-regulated and competitive annuities market.