Hostname: page-component-848d4c4894-sjtt6 Total loading time: 0 Render date: 2024-07-02T19:13:30.607Z Has data issue: false hasContentIssue false
  • English
  • Français

Longevity insurance markets and Money's worth ratios in Korea*

Published online by Cambridge University Press:  03 June 2013

KYONGHEE LEE
KYONGHEE LEE*
Affiliation:
Department of Risk Management and Insurance, Sangmyung University, Cheonan, The Republic of Korea (e-mail: khlee@smu.ac.kr)
Get access Rights & Permissions [Opens in a new window]

Abstract

The rare annuitization, thin immediate annuity market, and date limitation have prevented the attempts to analyze the longevity insurance market in Korea. The purpose of this paper is to examine the relative value of Korean annuity rates to theoretical ones and to provide a new evidence on the function of the voluntary annuity market in terms of the money's worth ratio (MWR). Our results show that the immediate annuity market in Korea is reasonably efficient. For example, the money's worth ratio of an immediate annuity of a 10-year guarantee period for a 65-year-old male is estimated to be about 0.8 with the general population mortality rate, while it improves to 0.9 with the annuitant mortality table. Average MWR is similar to that of other countries with thin annuity market, which show that annuitants in Korea pay a comparable cost to that in other countries.

Keywords

Korean annuity marketmoney's worth ratios
Type
Issues and Policy
Information
Journal of Pension Economics & Finance , Volume 12 , Issue 4 , October 2013 , pp. 435 - 454
Copyright
Copyright © Cambridge University Press 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

We grately appreciate the two anonymous referees for useful comments.

References

Association of British Insurers (2008) Pension Annuities: pension annuities and the Open Market Option. ABI Research Paper, No. 8.Google Scholar
Bank of Korea, Annual Report, various issues. (http://www.bok.or.kr/broadcast.action?menuNaviId=740)Google Scholar
Brown, J. and Poterba, J. (2006) Household Ownership of Variable Annuities, NBER Working Paper 11964, National Bureau of Economic Research, Inc.Google Scholar
Cannon, E. and Tonks, I. (2008) Annuity Markets. Oxford: Oxford University Press.CrossRefGoogle Scholar
Financial Supervisory Service, Annual Report, various issues. (http://english.fss.or.kr/fss/en/publications/annual/list.jsp?bbsid=1289364303986)Google Scholar
Finkelstein, A. and Poterba, J. (2002) Selection effects in the United Kingdom individual annuities market. Economic Journal, 112(January): 28–50.CrossRefGoogle Scholar
Finkelstein, A. and Poterba, J. (2004) Adverse selection in insurance markets: policyholder evidence from the U.K. annuity market. Journal of Political Economy, 112(February): 183–208.Google Scholar
Fong, J., Mitchell, O.S., and Koh, B. (2010) Longevity risk management in Singapore's National Pension System. Pension Research Council Working Paper, No. 2010–10, PA: University of Pennsylvania.Google Scholar
Fong, W.M. (2002) On the cost of adverse selection in individual annuity markets: evidence from Singapore. Journal of Risk and Insurance, 66 (June): 193–207.Google Scholar
Ganegoda, A. and Bateman, H. (2008) Australia's disappearing market for life annuities. Discussion Paper, No. 2008–1, Center for Pensions and Superannuation, Sydney: University of New South Wales.Google Scholar
James, E. and Vittas, D. (1999). Annuities markets in comparative perspective: do consumers get their money's worth? World Bank Research Paper, No. 2493. Washington, DC: The World Bank.Google Scholar
Korea Financial Investment Association (2010) Comparison of major household Financial assets.Google Scholar
Korea Insurance Development Institute (2009). 6th Individual Annuitant Mortality Table.Google Scholar
Korea Insurance Development Institute. Monthly Insurance Report, various issues, Seoul.Google Scholar
Mitchell, O., Piggott, J., and Takayama, N. (Eds.), ( 2011) Securing Lifelong Retirement Income: Global Annuity Markets and Policy. Oxford: Oxford University Press.Google Scholar
Mitchell, O., Poterba, J.M., Warshawsky, M.J., and Brown, J. (1999) New evidence on the money's worth of individual annuities. American Economic Review 89(December): 1299–1318.Google Scholar
Moon, H.P. (2007) Evaluation of the Korean Public Pension System and Policy Issues: From the Perspective Retirement Income Security. Seoul: Korea Development Institute.Google Scholar
NICE Pricing Service INC. November 8, 2010.Google Scholar
OECD (2009). Pensions at a Glance: Retirement-Income Systems in OECD Countries. Paris: OECD Publishing.Google Scholar
Rocha, R. and Thorburn, C. (2007) Developing Annuities Markets-The Experience of Chile. Washington, DC: The World Bank.Google Scholar
Rocha, R., Morales, M., and Thorburn, C. (2008) An empirical analysis of the annuity rate in Chile. Journal of Pension Economics and Finance, 7(1): 95–119.CrossRefGoogle Scholar
Statistics Korea (2008a) Future Population Projection (http://kosis.kr/)Google Scholar
Statistics Korea (2008b) General Population Mortality Table (http://kosis.kr/)Google Scholar
Statistics Korea (2009) Social Indicators in Korea (http://kosis.kr/)Google Scholar
Thorburn, C., Rocha, R., and Morales, M. (2007) An analysis of money's worth ratios in Chile. Journal of Pension Economics and Finance, 6(3): 287–312.Google Scholar