The Impact Of Macroeconomic Variables On Individual Annuity Insurance: Empirical Study Of Taiwan And Suggestions For Mainland China

There are over120million elderly citizens in Mainland China. This aging population has a significant impact making retirement protection a great challenge for Mainland China. The national income level is still not high enough to meet the needs of the aging population in China. The demographic situation combined with the low-income environment leads us to forecast that people will have a higher and higher demand for individual annuity products. Fortunately, The China Insurance regulator has published a variable annuity guideline meaning China has entered into a new annuity insurance era. As of yet, there is very limited experiences and empirical data on variable annuity and interest-sensitive annuities in China.The study finds that the entire range of annuity products with higher premiums share exist in the United States, Japan, United Kingdom and Taiwan. Moreover, the study concludes that individual annuity is popular and important to clients and so cannot be replaced with individual life or enterprise annuity products.The Taiwan empirical study focused on the impact of macroeconomic variables on individual annuity insurance premiums using the vector error-correction model monthly figures from2003to2010. The study finds that a long-term cointegration relationship exists between macroeconomic variables and individual annuity insurance premiums in Taiwan. Furthermore, the study finds that there are some similarities and differences between variable annuities and interest-sensitive annuities in long-term and short-term relationships. The study is helpful for developing annuity product regulation or business by the Insurance Bureau or Life insurers across the Taiwan straits.The essay is composed of seven chapters. Chapter I describes the background, literature review and the research methods of this study. Chapter II covers the theory of individual annuity insurance demands and a commentary on the positive function of annuity insurance for the country. Chapter III focuses on the product features and main regulations for individual annuities in Taiwan. It is intended to give insight into the background and development of individual annuity in Taiwan. Chapter IV describes the premium trend and development of annuity insurance in the United States, Japan, the United Kingdom and Taiwan.Chapter V is the empirical study of the relationship between macroeconomic variables and individual annuity insurance premiums in Taiwan. For the long-term equilibrium relationship, the study finds the following results:1. There is a positive relationship between bank deposits balance and the premium of variable annuity and interest-sensitive annuity. Furthermore, there is a positive relationship between the stock index and the premium of variable annuities. However, there is a negative relationship between the stock index and the premium of interest-sensitive annuities.2. There is a positive relationship for inflation rate, interest rate of time deposit, exchange rate and premium of interest-sensitive annuity; however, there is a negative relationship with the premium of variable annuities.The study finds the following results for short-term relationships. There mainly exists a positive relationship between macroeconomic variables and interest-sensitive annuity; however there is a predominantly negative relationship between macroeconomic variables and variable annuity. Chapter VI includes the comparative study of annuity product features and regulations across Taiwan straits and ends with some suggestions for China’s reference.