Sales of annuities in Chile rise more than 130% in January due to higher interest rates

RIO DE JANEIRO, BRAZIL – In the last two years, 2020 and especially 2021, the insurance industry has had to deal with a sharp decline in the sale of annuities, one of the “star products” of the sector.

However, insurance companies offering this product may be seeing the light at the end of the tunnel. In January of this year, 1,298 of these policies were marketed, compared to 560 in the same month of 2021, an increase of 131.7%.

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“The increase in sales of annuities is due to the better conditions that can be offered, thanks to the rates. This encourages people to opt for them,” explains José Luis Ruiz, a researcher at the Faculty of Economics of the University of Chile.

However, the rate used to calculate the programmed withdrawal amounts offered by AFPs – the competition to annuities in retirement plans – has also increased. The pension regulator has set the rate for the first quarter of 2022 at 4.96%, up 54 basis points from the 4.42% between October and December last year.

“Given the increase in annuity rates, people planning their retirement compare it to their planned withdrawal and find many differences. Some appreciate the stability that annuities offer, especially in these times when funds managed by AFPs suffer from high volatility in their returns,” Ruiz adds.

FEAR OF REFORM

The managing director of the pension consulting firm Brain Invest, María Eugenia Jiménez, points out that part of the people in the pension process is trying to avoid possible reforms that could affect their retirement savings by taking out an annuity since ownership of the fund is transferred to the insurance company.

“Part of the population over 70 with high net worth is afraid of future changes to the system and takes out an annuity to protect themselves,” she explains.

PENTA LEADS THE BUSINESS

Between March 2020 and January this year, Penta Vida leads the sales figures with 5,573 policies.

It means it is gaining ground on Consorcio, MetLife, and Confuturo, which sold 8,922 annuities during the same period.

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