Good news for group annuities: Assuris upgrades its protection levels

On May 25, 2023, Assuris announced that it increased its protection levels for different insurance products should an insurer fail. This change is effective immediately and positively affects millions of existing and upcoming policyholders across Canada.

This is good news for the defined benefit pension plan industry and for any plan sponsor or plan fiduciary who has purchased or is contemplating purchasing group annuities for their plan membership. The new protection levels for annuitants has improved as follows:

This increase in benefit protection is indicative of the strength of the insurance industry in Canada and modernizes the protection levels to meet the industry’s objectives of providing 100% coverage to most Canadian policyholders. We expect these new protection levels to remain the same for the next 5-10 years. We do not expect group annuity pricing from insurers to change as a result of these revised and improved protection levels.

What this means for defined benefit plan sponsors or fiduciaries can be broken down into 2 categories

Existing group annuity contracts

• Current group annuity policies are eligible for the new protection levels as they are triggered by the timing of the insurer’s failure. No action is required from policyholders, plan sponsors or insurers.
• Current buy-out group annuity policies benefit from additional protection for anyone whose monthly pension is in excess of $2,000 per month. Clients should consider if it’s beneficial to communicate this change to affected members (coordination with the insurer is highly recommended).
• Current buy-in group annuity policies, which are an investment policy of the pension plan, benefit from a guarantee improvement from 85% to 90% of monthly benefit payments covered under the policy. Member level communication is likely not needed as the transaction is typically invisible to them. It would be important to consider as part of the communication strategy should there be a conversion from a buy-in to a buy-out in the future.

For future group annuity contracts

• All upcoming buy-in or buy-out group annuity policies will be eligible for this new protection.
• For the pension plan sponsor or fiduciary who seeks to provide full Assuris coverage for monthly pensions above the $5,000 limit, the higher protection levels mean fewer insurers will be needed to obtain coverage in excess of that threshold.