Chile has the highest level of life insurance premiums relative to GDP in Latin America and compares well with high-income OECD countries. As shown in Table 3, life insurance premiums are there times the Latin American average and about two-thirds the OECD average. This was essentially due to the large size of annuity and PW premiums, which amounted to about 2.4 percent of GDP and almost 70 percent of life premiums.<sup>7</sup> The lack of accurate information on annuity and PW premiums in OECD countries does not allow a direct comparison, but the size of annuities and PW markets in the OECD is known to be much smaller than in Chile. For example, in Australia (a country with a mandatory, private and DC pension system like Chile) premiums on PWs and annuities are equivalent to only 0.8 percent of GDP and 16 percent of life premiums. In the US, the share of single immediate life annuities is only 7 percent of life business, excluding variable annuities in the accumulation stage.<sup>8</sup>

**Table 3: Insurance Premiums in Chile, LAS, and OECD, 2007-2008** <u>(as a percentage of GDP)</u>

||Chil<br>2007|e<br>2008|Latin A<br>2007|merica<br>2008|High Incom<br>2007|e OECD<br>2008|
|---|---|---|---|---|---|---|
|Insurance Premiums|4.1|4.5|2.6|2.6|7.7|7.5|
|Life|2.7|2.9|1.0|1.0|4.7|4.5|
|o/w PW in AFPs<sup>1</sup>|0.5|0.5|||||
|Non-Life|1.4|1.6|1.6|1.7|3.1|3.0|

1 Estimated Source: Swiss Re, SP Comparing total insurance assets in Chile with the relevant benchmarks yields similar conclusions. As shown in Table 4, the ratio of insurance assets to GDP in Chile is about four times larger than the Latin American average and the difference is primarily due to the large volume of annuity assets in Chile. The ratio of insurance assets to GDP is still smaller than the OECD average, but the share of annuity related assets is probably larger than most OECD countries (a straight comparison of annuity assets is not possible due to the lack of information). Moreover, combining pension and insurance assets places Chile at the same level as many OECD countries and indicates that insurance assets in Chile should continue growing strongly in coming years, as these amounts include pension accounts that will need to be converted into annuities and PWs at retirement.<sup>9</sup> All in all, the numbers indicate that the Chilean market for retirement products is already large by international standards and should continue to expand in the coming decades as the second pillar pension system matures.

> 7In Chile, PWs are provided by pension funds, and the PW premiums (the initial balance) are not reported.  The PW premium was estimated and included in Table 3 to allow for international comparisons.  The PW premium was estimated assuming a ratio of the average payout to the average premium similar to that observed for annuities. 8Premiums on variable annuities are large, but these products are mostly in the accumulation stage and may not be converted into actual life annuities at retirement.  See, e.g., Brown et al (2001).

> 9 However, the total assets of pension and life insurance institutions are smaller relative to GDP than in several OECD countries (e.g. Australia, Canada, Denmark, Netherlands, Sweden, Switzerland, the UK and the US), mainly because labor market coverage of the pension system is so much smaller in Chile compared with all these countries.

5