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THE MARKET FOR RETIREMENT PRODUCTS IN CHILE: A REVIEW (*)

THE MARKET FOR RETIREMENT PRODUCTS IN CHILE: A REVIEW (*). Guillermo Martínez Barros Augusto Iglesias Palau. * PrimAmérica Consultores – October 2003. Source: PrimAmérica Consultores. Source: SAFP-SVS. PW Initial Pension / Deferred Annuity Pension = 1 /1 . Return of Pension Funds = 7%.

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THE MARKET FOR RETIREMENT PRODUCTS IN CHILE: A REVIEW (*)

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  1. THE MARKET FOR RETIREMENT PRODUCTS IN CHILE: A REVIEW (*) Guillermo Martínez Barros Augusto Iglesias Palau * PrimAmérica Consultores – October 2003

  2. Source: PrimAmérica Consultores

  3. Source: SAFP-SVS

  4. PW Initial Pension / Deferred Annuity Pension = 1 /1 Return of Pension Funds = 7%

  5. Source: SAFP (1) Excluding the first pension payment.

  6. Source: SAFP (1) Excluding the first pension payment.

  7. (1) Excluding the first pension payment. (2) Does not include transitory disability pensions. (3) Correspond to pensions to mothers of offspring from a non-marital relationship, and the parents of the member. Source: SAFP

  8. Life Insurance Companies

  9. Source: SVS

  10. Number of Insurance Companiesin the Annuities Market Source: S.V.S. Annuities Statistics

  11. Source: PrimAmérica Consultores (*) Measured on the basis of Premium

  12. Annuities Market Concentration (%) % of Market Source : S.V.S. Annuities Statistics

  13. Annuities Market Concentration (%) Source : S.V.S. Annuities Statistics

  14. Source: PrimAmérica Consultores

  15. Source: SVS

  16. Profits of Insurance Companies

  17. ROE & ROA of LICOs

  18. Evolution of the Chilean Annuities Market

  19. The Evolution of Annuity Sales US$ 000s Source: S.V.S. Annuities Statistics

  20. % Annuities Sales Growth Rates (%) Source: S.V.S. Annuities Statistics

  21. Number of Annuity Policies and Average Premium Source: S.V.S. Annuities Statistics

  22. New Annuities Average Pension Source: S.V.S. Annuities Statistics.

  23. Capital per Unit of Pension The capital per unit of pension is a measure of the lump-sum savings needed to finance a lifetime pension of one unit per month. The most important inputs in determining the capital required to purchase a unit of pension are: • the interest rate, • the life expectancy of the person or group of people that will receive the pensions, and • the expenses the company expects to incur in meeting the obligations under the policy. The average ratio of capital per unit of pension has fluctuated between 150 and 175, averaging around 160 over the last twelve years.

  24. Capital per Unit of Pension Source: S.V.S. Annuities Statistics.

  25. Underwriting Losses The minimum technical reserve calculation rules issued by the Insurance Superintendency’ effectively mean that every new policy sold gives rise to an underwriting loss of around 117% of premium. As such, for every US$100 received as single premium from the client, the insurance company is obliged to set up a technical reserve of US$117; the imbalance between assets received (premium) and liabilities assumed (pensions to pay) is covered by a reduction in accounting equity, with this this differential being shown as a technical loss in the income statement.

  26. Underwriting Losses as % of Premium (% of Premium) Source: F.E.C.U.

  27. TYPES OF ANNUITYPRODUCTS

  28. Types of Annuity Products There are four types of annuity product: i) Old Age Pensions ii) Early Retirement Pension iii) Disability Pensions (total and partial) iv) Survivorship Pensions Of these four types of annuities, the largest share corresponds to early retirement, which in 2001 accounted for 74% of all annuity sales (US$962 million), followed by old age pensions with 15% (US$192 million).

  29. Annuity Sales by Type of Product US$ Millions Source: S.V.S. Annuities Statistics

  30. Annuity Sales by Type of Product (US$ Millions) Source: S.V.S. Annuities Statistics.

  31. Composition of Annuity Salesby Type of Product (%) % Source: S.V.S. Annuities Statistics

  32. Composition of Annuity Salesby Type of Product (%) Source: S.V.S. Annuities Statistics.

  33. New Annuities Average Pension by Type of Product (US$/month) US$ Source S.V.S. Annuities Statistics

  34. New Annuities Average Pension by Type of Product (US$/month) Source S.V.S. Annuities Statistics

  35. Annuities Average Premium by Type of Product (MUS$/policy) MUS$ Source S.V.S. Annuities Statistics

  36. Annuities Average Premium by Type of Product (US$/policy) Source S.V.S. Annuities Statistics

  37. Capital per Unit of Pension by Type of Product Source S.V.S. Annuities Statistics

  38. Survivorship Disability OldAge Early Retirement Year TOTAL 1991 173.76 152.71 163.44 131.02 166.08 1992 171.11 146.86 155.40 133.03 165.75 1993 169.87 147.70 154.17 126.14 162.40 1994 176.82 151.25 164.49 126.08 169.77 1995 177.88 150.96 162.83 125.20 171.22 1996 171.73 145.62 159.76 120.11 160.55 1997 173.24 147.58 162.29 122.32 162.52 1998 157.90 137.15 151.75 134.12 149.50 1999 170.6 149.71 161.75 119.35 159.91 2000 168.82 147.06 165.70 120.38 146.63 2001 172.52 150.59 156.61 119.90 165.26 Capital per Unit of Pension by Type of Product Source S.V.S. Annuities Statistics

  39. ANNUITIES DISTRIBUTION AND COMMISSIONS

  40. Annuities Sales by DistributionChannel in 2002 Source S.V.S.Annuities Statistics.

  41. Annuities Direct Intermediation Cost(% of Immediate Lump-sum Premium) (% Gross Written Premium) Source : S.V.S. Annuities Statistics

  42. ANNUITIES INTEREST RATES

  43. The Evolution of Annuity Rates (%) % Source: S.V.S. Annuities Statistics.

  44. The Evolution Annuity Rates by Type of Product (%) % Source: S.V.S. Annuities Statistics.

  45. The Evolution of Annuity Rates by Type of Product (%) Source: S.V.S. Annuities Statistics

  46. Annuity Rates, Commissions and Premium At the market level, there seems to be a clear trade-off between the technical interest rate and commissions: companies that pay higher interest rates tend to pay lower commissions to brokers and agents, and viceversa. On the other hand, there also seems to be a positive correlation between level of premium and the interest rate paid on annuities.

  47. 4,00% CIGNA CRUZ DEL SUR INTERRENTA AGF ALLIANZ RTANAC PRINCIPAL 3,50% ISE VITALIS METLIFE CHILENA OHIO 3,00% Commission (%) PROMEDIO CN LIFE ING BICE VIDA CORP CONSORCIO EUROAMERICA 2,50% CONSTRUCCION 2,00% 5,0% 5,1% 5,2% 5,3% 5,4% 5,5% 5,6% 5,7% Interest Rate (%) Annuity Rates v/s Commission (December 2001) Source: S.V.S. Annuities Statistics

  48. 80 CONSORCIO VIDA CORP 70 PRINCIPAL 60 CN LIFE AGF ALLIANZ INTERRENTA 50 Premium (MUS$) PROMEDIO CRUZ DEL SUR ING CIGNA EUROAMERICA 40 CONSTRUCCION CHILENA ISE BICE RTANAC VITALIS 30 METLIFE OHIO 20 5,0% 5,1% 5,2% 5,3% 5,4% 5,5% 5,6% 5,7% Interest Rate (%) Annuity Rates v/s Premium (December 2001) Source: S.V.S. Annuities Statistics (Dic 2002).

  49. ANNUITIES ADMINISTRATION COST

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