Estimation of Conversion Rates into Annuities: A Brazilian Perspective

Thalita A. Vaz, Sérgio J. Machado and Adriana B. Bortoluzzo

No 139, Business and Economics Working Papers from Unidade de Negocios e Economia, Insper

Abstract: Because pension plans have been marketed with outdated technical premises, Brazilian insurance companies find themselves required to identify additional resources to ensure their ability to meet future benefit payments obligations. When calculating the additional amount of this provision, the parameters used are: mortality and disability decrements, the structure of interest rates, financial performance, cancellation fees and conversion rates. The aim of this study is to present new techniques for the estimation of conversion rates. The resulting analysis of the data allows us to conclude that two factors—the volume of accumulated reserves and the classification of prices as actuarially fair—increase the propensity of an individual to convert resources in retirement. In turn, retirement age and the need for liquidity reduce the propensity to convert resources in retirement.

Pages: 17 pages
Date: 2011
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