Contents -- Acknowledgments -- Acronyms and Abbreviations -- Glossary -- Executive Summary -- Chapter 1 Introduction -- Background -- The Importance of Chile as a Case Study -- The Purpose and Structure of the Report -- Chapter 2 The Market for Retirement Products: An Overview -- The Evolution and Current Size of the Market for Retirement Products -- The Conditions for Retirement -- The Menu of Retirement Products -- The Demand for Retirement Products -- The Structure of the Market for Retirement Products -- The Performance of the PW Market -- The Performance of the Annuities Market: The Consumer's Side -- The Performance of the Annuities Market: The Provider's Side -- Chapter 3 Major Risks in the Market for Retirement Products -- Introduction -- Major Risks Faced by Workers -- Major Risks Faced by Pensioners -- Major Risks Faced by Providers -- Major Risks Faced by the Government -- Addressing the Risks in the Market for Retirement Products -- Chapter 4 Internal Risk Management by Providers -- Introduction -- The Availability of Financial Instruments in Chile -- Risk Management by AFPs -- Risk Management by Life Insurance Companies -- Summary of Findings and Recommendations -- Chapter 5 The Regulation of Retirement Products -- Background -- Retirement Rules -- The Menu of Retirement Products and Individual Product Design -- The Time Path of Annuities and Phased Withdrawals -- Marketing Regulation -- Conclusions and Recommendations -- Chapter 6 The Regulation of Market Participants -- Background -- Investment Regulation of AFPs and Life Insurance Companies -- Capital Regulations of AFPs and Life Insurance Companies -- Evaluation of Capital Rules for Annuity Providers -- The Annuity Guarantee and Resolution Mechanisms -- Conclusions and Recommendations -- Chapter 7 Conclusions, Recommendations, and Lessons for Other Countries.

Main Findings and Conclusions -- Main Recommendations -- Lessons for Other Countries -- Annex 1 An Analysis of Money's Worth Ratios in Chile -- Introduction -- Methodology -- Data -- Analysis of Money's Worth Ratios -- Comparisons with Other Empirical Studies -- Conclusions -- Annex 2 An Economic Analysis of the Annuity Rate in Chile -- Introduction -- A Heuristic Model of the Annuity Rate -- Data -- Econometric Results -- Estimation Results -- Summary of Findings and Conclusions -- Annex 3 Statistical Tables -- Bibliography -- Index -- Figures -- 2.1 Minimum Pension and Poverty Line in UF and Minimum Pension as % of the Average Covered Wage, 1990-2005 -- 2.2 Insurance Premia: Total, Life, Non-Life, and Annuities (in % of GDP), 1990-2003 -- 2.3 Pension and Insurance Assets (% of GDP), 1990-2004 -- 2.4 Shares of PWs and Annuities in the Stock of Normal Old-Age Pensions (in %), 1990-2004 -- 2.5 Number of Life Insurance Companies, Annuity Providers, and AFPs, 1988-2005 -- 2.6 Market Concentration Ratios in Herfindahl Pensions and Annuities, and Share of the Three Largest Firms, 1988-2005 -- 2.7 Average Annuity Rate and the Risk-Free Rate (% p.a.) 1993-2005 -- 2.8 Annuity Rate, Adjusted Annuity Rate, Central Bank Bonds and Corporate Bonds (% p.a.), 1993-2005 -- 2.9 Commission Rates (% of the Premium), 1990-2005 -- 2.10 Administrative Costs of Annuity Providers, as % of Total Assets, 1989-2003 -- 2.11 Returns on Equity (ROE) of AFPs and Life Insurance Companies (%), 1992-2004 -- 4.1 Real Return and Risk of Each AFP and Type of Fund, Sep. 2002-Feb. 2004 -- 5.1 Hypothetical Payment Paths for PW and Annuity, 55-Year-Old Pensioner -- 5.2 Payment Paths for a 55-Year-Old Pensioner -- 5.3 Payment Paths for a 65-Year-Old Pensioner -- 5.4 Payment Paths for a Low Income 65-Year-Old Pensioner.

6.1 Consolidated Balance Sheet of Life Insurance Companies (UF millions), Sep. 2005 -- 6.2 Annuity Company Capacity to Absorb Provisioning Increases -- 6.3 Annuity Company Capacity to Absorb Increases (Detail) -- A1.1 MWRs and Premiums in 1999 and 2005 -- A1.2 Annuity Rate and Interest Rates on Central Bank Bonds and Corporate Bonds (%p.a.), 1993-2005 -- A2.1 Supply and Demand for Annuities -- Tables -- 2.1 Coverage in the Chilean Pension System, 1990-2004 -- 2.2 Number of Pensioners in the Old and New Pension Systems, 1990-2004 -- 2.3 Insurance Premiums (% of GDP) in Chile, LAC, and OECD, 2001 -- 2.4 Assets of Insurance Companies and Pension Funds (% of GDP) in Chile, LAC, and OECD -- 2.5 Breakdown of the Stock of Pensioners, by Type of Retirement, 1990-2004 -- 2.6 Average Retirement Age, by Type of Retirement, 1988-2003 -- 2.7 Average Monthly Pensions by Type (in UF), 1990-2004, Period Averages -- 2.8 Breakdown of Stock of Pensions, by Type of Instrument, 1990-2004 -- 2.9 Average Pensions by Instrument (in UF), 1990-2004, Period Averages -- 2.10 Types of Annuities Issued in March 1999, 2002, 2003, 2004, and 2005 -- 2.11 Average MWRs for Annuities Issued in March 1999, 2002, 2003, 2004, and 2005 -- 2.12 Money's Worth Ratios as a Function of Selected Variables -- 2.13 Average Money's Worth Ratios in Selected Countries -- 2.14 Portfolio of Life Insurance Companies (in % of Total), 1991-2005 -- 2.15 Main Determinants of the Average Annuity Rate -- 3.1 Major Risks in the Market for Retirement Products -- 4.1 Financial Assets (% of GDP) and Participation by AFPs and Life Insurance Companies, 1995-2003 -- 4.2 Characteristics of Major Financial Instruments -- 4.3 Range of Fund Choices by Age -- 4.4 Average Age, Wage, Balance, and Size of Different Funds, Dec. 2005 -- 4.5 Portfolio Composition of Pension Funds, by Type of Fund (%), Dec. 2004.

4.6 Value at Risk of Pension Fund Portfolios, August 2003-April 2004 -- 4.7 Impact of Different Mortality Tables on Annuity Values and LICO Liabilities -- 4.8 Expected Duration of Different Annuities by Age -- 4.9 Portfolio of Life Insurance Companies (in % of Total), 1991-2004 -- 4.10 Portfolio Composition of Life Insurance Companies (% of Total Portfolio), Chile (2003) and OECD Countries (2001) -- 5.1 Summary of Retirement Rules -- 5.2 Summary of Characteristics of Retirement Products -- 5.3 Number and Average Amount of Phased Withdrawals, According to Relation to PW Formula and the MPG, Dec. 2004 -- 5.4 Annuities Issued in March of 1999, 2002, 2003, 2004, and 2005 -- 5.5 Comparison of Retirement Product Features -- 5.6 Number of Requests for Quotes, Broken Down by Type of Access, Aug. 2004-Oct. 2005 -- 5.7 Choice of Retirement Products under New Quotation System, Aug. 2004-Oct. 2005 -- 5.8 Acceptance of Annuity Offers by Ranking of Quotes, Aug. 2004-Oct. 2005 -- 6.1 CP k Factors Used in the CALCE Rule -- 6.2 Liability Impact of Updating Mortality and Discount Rates-Male Annuitants -- 6.3 Liability Impact of Updating Mortality and Discount Rates-Female Annuitants -- A1.1 Levels and Changes in Mortality Rates -- A1.2 Summary Statistics of the Dataset -- A1.3 Summary Statistics of the Dataset by Subgroups -- A1.4 Money's Worth Ratios in 1999, 2002, 2003, 2004, and 2005, Computed with the Risk-Free Rate and an Update Cohort Annuitan -- A1.5 Main Determinants of MWRs, Pooled Data -- A1.6 Variable Correlation Matrix -- A1.7 Main Determinants of MWRs, 1999 -- A1.8 Main Determinants of MWRs, 2002 -- A1.9 Main Determinants of MWRs, 2003 -- A1.10 Main Determinants of MWRs, 2004 -- A1.11 Main Determinants of MWRs, 2005 -- A1.12 Mean, Standard Deviation, and Coefficient of Variation of MWRs in Different Years -- A1.13 White Heteroskedasticity Test.

A1.14 Money's Worth Ratios in Chile, March 2004, Computed with Cohort Annuitant Tables and Alternative Discount Rates -- A1.15 Money's Worth Ratios in Selected Countries Computed with Cohort Annuitant and Risk-Free Rate -- A1.16 Money's Worth Ratios in Selected Countries Computed with Cohort Annuitant and Corporate Bond Rate -- A1.17 Money's Worth Ratios for Chile Estimated by James, Martinez, and Iglesias (2006) for 1999 and 2003 -- A1.18 Money's Worth Ratios for Chile Estimated by This Report, 1999 and 2003 -- A2.1 Panel Unit Root Tests (p-values) -- A2.2 Fixed Effects Estimation -- A2.3 Fixed Effects Estimation, with Robust Standard Errors - Dependent Variable: AR(EARLY) -- A2.4 Fixed Effects Estimation, with Robust Standard Errors, Excluding MIS Variable -Dependent Variable: AR(EARLY) -- A2.5 Fixed Effects Estimation -Dependent Variable: AR(OLD) -- A2.6 Fixed Effects Estimation, with Robust Standard Errors - Dependent Variable: AR(OLD) -- A2.7 Fixed Effects Estimation, with Robust Standard Errors, Excluding MIS Variable -Dependent Variable: AR(OLD) -- A2.8 Pairwise Correlation Matrix -- A3.1 Assets of Insurance Companies and Pension Funds as Percentage of GDP, Chile and Selected Benchmarks -- A3.2 Insurance Premiums in Chile and Selected Benchmarks as Percentage of GDP, 2003 -- A3.3 Number of Pensions and Average Amount Paid (UF) in the New System, by Instrument, 1982-2004 -- A3.4 Number of Pensions and Average Amount Paid (UF)in the New System, 1982-2004 -- A3.5 Age Distribution of Old Age Pensioners -- A3.6 Number and Average Amount of Old Age Pensions Paid (UF) in the New System, by Instrument, 1983-2004 -- A3.7 Number and Average Amount of Early Retirement Pensions Paid (UF) in the New System, by Instrument, 1988-2004 -- A3.8 Number and Average Amount of Disability Pensions Paid (UF) in the New System, by Instrument, 1982-2004.

A3.9 Number and Average Amount of Survivorship Pensions Paid (UF) in the New System, by Instrument, 1982-2004.