1 For 2008 to 2012, the breakdown of sales between buy-in and buy-out for terminated plans and buy-out for ongoing plans is not available.
2 Excludes longevity insurance agreements.
3 Sources of data: LIMRA, Assumption Life, BMO Financial Group, Brookfield Annuity, The Canada Life Assurance Company, Co-operators Life Insurance Company, Desjardins Financial Security, iA Financial Group, RBC Insurance and Sun Life Financial.
The funded status bull market continues as the funded ratios of pension plans continues to improve (refer to our article released earlier this year explaining how defined benefits plans are at an inflection point). This is also true for plans offering pensions linked to CPI. Plans registered in Ontario (and to some extent Alberta) were historically not required to fund future indexation leaving them in a deficit on a solvency valuation basis, but with the recent surge in interest rates and positive equity returns year-to-date, their wind-up ratios have improved significantly. This is allowing plan sponsors to take steps to reduce risks within their balance sheet by securing their funded positions either through a pension risk transfer activity or an asset de-risking strategy. This economic environment should lead to having many plan sponsors considering group annuities for the near future.
Despite the busy Canadian group annuity market, the Canada Life Assurance Company has decided to stop participating until further notice. We don’t expect this news to significantly impact the market in the short-term as Canada Life was awarded 3% of the group annuity market volume during 2022. Nevertheless, this brings the total number of active insurers down to eight and this may have mid or longer-term implications for smaller transactions or more complex ones (e.g., ones with higher proportions of deferred vested members) that are already witnessing a lower participation rate from insurers compared to historical average. Consultants will need to think outside the box to help the plan sponsors of a small or complex transaction get a competitive bid with a preferred provider. As always, plan sponsors who are “transaction ready” (i.e., conducted activities such as an early diagnostic of the underlying membership data and internal governance readiness) can influence the insurers’ decision to participate or not in a given transaction.
Using our WTW Real-Time Annuity Tracker, we track the cost of annuities and assess the true competitiveness of quotes received from insurers by reflecting the evolution of credit spreads in real-time. In addition, the WTW Real-Time Annuity Tracker reflects the mortality profile of specific cohorts based on socio-economic factors obtained from an analysis of the members’ data and postal codes.
Price of annuities can be looked at from two different angles – in absolute terms or in relative terms.
We estimate that the yield offered by annuities exceeded the yield on provincial bonds by 70-100 bps throughout 2023. Furthermore, the insurers have shown to be more competitive for a block of liabilities with a lower duration versus a higher duration given the inverted yield curve and the lack of high yielding private assets with high duration in Canada.
For annuities linked to CPI, there are currently up to three insurers who are able to provide attractive bids. Consistent with previous quarters, the yields offered by insurers remain up to 3.8% lower than the yield offered for non-indexed annuities, but the yield can be improved with a good annuity purchase strategy.
Absent a major change in economic conditions, annuity pricing is expected to continue to be attractive for the last quarter of 2023.
Quebec Law 25 – Quebec Law 25 follows the 2021 adoption of Quebec Bill 64, an Act to modernize legislative provisions with respect to the protection of personal information, which enacted significant changes to the requirements governing the collection, use, and communication of personal information. While the first set of requirements came into effect on September 22, 2022, most of the amendments are effective on September 22, 2023. This has implications on the Canadian annuity market as various set of personal information is shared among stakeholders as part of an annuity transaction. While best practices already exist with respect to protecting personal information and cybersecurity, this new law will further refine the way organizations collect and use personal information. The increased scrutiny on this topic is applicable for all jurisdictions and should be part of the insurers’ due diligence process.
The WTW group annuity team has extensive expertise and experience in Canadian group annuities helping to provide the best outcomes for our clients:
#1 firm in Canada over the last 3 years in terms of volume of annuities placed
14 Experienced and growing team of 14 specialists at the forefront of innovation
$14B+ of liabilities transferred through group annuity purchases representing a third of total historical volume in Canada, including multiple $500M+ transactions
450+ pension plans with robust and comprehensive financing strategy developed by our team
