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change in behavior was observed in the sharp reduction in broker’s commissions, from 6 percent of the premium in 1999 to 2.5 percent before approval of the Law in 2004.<sup>10</sup> If annuity rates became the main element of price competition, as opposed to other sales tactics that included cash rebates to annuitants, it would be reasonable to expect less dispersion of MWRs.

As shown in Table 13, there was indeed a significant reduction in the dispersion of MWRs after 1999, measured by the decline in the coefficient of variation. Moreover, the reduction in dispersion was more pronounced in the bottom third of the market, i.e., for annuitants with lower premiums and incomes. The decline in the coefficient of variation was not continuous over the whole period (it was lowest in 2002 for the bottom third and lowest in 2003 for the whole market), but this is probably due to the fact that MWRs were computed only for the months of March of each year, and not for the whole year, and there were probably specific factors affecting MWRs in those particular months.

The reduction in the dispersion of MWRs after 1999 is also illustrated in Figure 3, which shows the residuals around a simple regression of MWRs against individual premiums in 1999 and 2005. It is also apparent in Figure 3 that the reduction in the dispersion of MWRs was stronger at the lower end of the market. Overall, these results are consistent with the sharp decline in broker’s commissions after 1999 and probably also reflect a change in the behavior of market participants after the submission of the new Pensions Law to Congress in 2000.<sup>11</sup> The fact that the reduction in the dispersion of MWRs was more pronounced for lower premiums is a positive development, as these MWRs are generally related to lower income annuitants without complementary sources of retirement income.

**Table 13**

**<u>Mean, Standard Deviation and Coefficient of Variation of MWRs in Different Years</u>**

||**Marc**|**h 1999**|**March**|**2002**|**Marc**|**h 2003**|**Marc**|**h 2004**|**Marc**|**h 2005**|
|---|---|---|---|---|---|---|---|---|---|---|
||Bottom<br>Third|<br>All<br>MWRs|Bottom<br>Third|All<br>MWRs|Bottom<br>Third|All<br>MWRs|Bottom<br>Third|All<br>MWRs|Bottom<br>Third|<br>All<br>MWRs|
|Mean|0.980|0.980|1.077|1.080|1.034|1.036|1.060|1.064|1.055|1.062|
|Std. Dev.|0.049|0.049|0.041|0.047|0.043|0.042|0.042|0.045|0.041|0.045|
|Coef. Var.|4.956|5.009|3.807|4.363|4.137|4.074|3.942|4.239|3.928|4.245|

Source of raw data: SVS Whereas the dispersion of MWRs declined after the submission of the draft Pensions Law to Congress in 2000, the effects of the actual approval and implementation of the Law in 2004 are less clear. As shown in Table 13, the coefficient of variation declined further in the bottom third of the market in March of 2005, relative to March 2004, but increased slightly for the whole market in the same period. This is somewhat surprising, as the actual implementation of the Law in mid-2004 seems to have generated further efficiency gains, as indicated by a further decline in broker’s commissions from 2.5 to 2

> 10 See Walker (2005) and Rocha and Thorburn (2006).

> 11 Walker (2005) and Rocha, Morales and Thorburn (2006) provide econometric analyses of the annuity rate with company data and show that there were structural shifts in the annuities market after submission of the draft Pensions Law to Congress in 2000.