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The costs of annuitizing

Cecilia Dassatti Camors () and Rodrigo Lluberas

No 2016004, Documentos de trabajo from Banco Central del Uruguay

Abstract: This study analyzes the costs associated with annuitization and provides estimates of the margin that an efficient insurance company could charge in order to cover these costs. Using data from the financial statements filed by insurance companies to the regulator, we estimate a translog cost function following the stochastic frontier methodology. Our dataset consists on quarterly balance sheet information from 13 Uruguayan insurance companies over the period 2005-2015. We find that the average cost inefficiency is 17.8% and that there is substantial heterogeneity across firms. In addition, our results show that the annuity margin that an efficient insurance company could charge in order to cover its administrative costs is of 11 basis points over the market long-term interest rate.

Keywords: annuities; insurance firms; annuity margin; stochastic frontier; cost effciency (search for similar items in EconPapers)
JEL-codes: D24 G22 G28 H55 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2016
New Economics Papers: this item is included in nep-eff and nep-ias
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