How much for a lifetime? : pricing annuities under heterogeneity and risk
Date
2025-08
Authors
Riquelme, Ana Abigail
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Gabrielli, María Florencia
Willington, Carlos Manuel
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Publisher
Universidad de San Andrés. Departamento de Economía
Abstract
This paper studies how life insurance companies price annuity products in the Chilean pension market. Using detailed administrative data that contains all formal offers made to retirees for various annuity contracts, I examine whether insurers adjust prices based on observable individual characteristics, such as gender, marital status, and income, and whether pricing patterns are consistent with adverse selection or prudent risk management. In particular, I assess whether back-loaded annuities systematically exhibit different money’s worth ratios (MWRs). Additionally, I examine whether pricing reflects cohort-specific mortality risk. I also investigate how insurers adjust prices in response to exogenous shifts in survival probabilities, exploiting the inclusion of diseases in Chile’s AUGE health reform as a plausibly exogenous shock to cohort life expectancy. My findings contribute to a better understanding of how regulated annuity providers incorporate both individual risk factors and systemic longevity risk into pricing decisions.
Description
Fil: Riquelme, Ana Abigail. Universidad de San Andrés. Departamento de Economía; Argentina.