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.
Despite the significant decrease in interest rates at the end of 2023, we estimate that most DB pension plans continue to be well funded. Many plans have strategies in place to protect against adverse movements in interest rates while others were able to offset most of the interest rate impact by positive equity returns. We expect to continue to see plan sponsors taking steps toward reducing risks within their balance sheet by securing their funded positions either through a pension risk transfer activity or an asset de-risking strategy. A good example is the recent transaction completed by Ford of Canada (for CA$923 million covering over 2,700 members) advised by WTW. This transaction is part of a growing trend in the private sector, where plan sponsors can protect pension benefits for plan members and eliminate risk for the company. More information on this transaction can be found here.
With approx. 140 transactions completed in 2023, insurers have been selective in their participation approach, and we are seeing less participation on average for a given transaction, especially for smaller or complex transactions (e.g., ones with higher proportions of deferred vested members). WTW can help plan sponsors structure the transaction to try and maximize insurer participation or secure a competitive bid. Indeed, in cases of transactions not expected to generate a strong competitive bidding process, a solution that is successfully gaining popularity is the concept of exclusive deals, i.e., where a plan sponsor engages with a single insurer to achieve the pension risk transfer at the onset of the project. 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 quickly take advantage of market opportunities and can influence the insurers’ decision to participate in a given transaction.
Despite the increase in volume of annuity purchase transactions, approaching $60B in the last 15 years, the vast majority of Canadian DB pension liabilities in the private sector are still sitting on companies’ books (we estimate that only 10% to 15% has been insured through annuity purchases). In fact, the current settlement rate with insurance companies is still much less than actual benefit payments being paid annually by DB pension plans. Annuities continues to be a solution rarely used in the public sector.
Not long after the decision from Canada Life Assurance Company to stop participating in the Canadian group annuity market, Manulife Financial Corporation announced that it was reintroducing annuities as part of their solutions offered to policyholders. For now, their offering is limited to individual annuities.
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.
Other notable observations during 2023:
During the later months of 2023, interest rate levels dropped by over 100 bps while spreads offered by insurers over GoC 10 years contracted by 20 bps. The situation has partially reversed at the start of 2024 but assuming constant economic conditions, this suggests pricing in 2024 will be slightly less attractive on both absolute and relative levels compared to 2023. It is therefore important to land on an annuitization strategy that will provide you with the best chances of obtaining favourable pricing.
Multiple updates were announced during 2023, directly or indirectly impacting the Canadian group annuity market. One key update is the announcement by Assuris which significantly improved the protection provided to policyholders in Canada. Refer to our recent publications for more details:
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 4 years in terms of volume of annuities placed, including 70% of the market of indexed annuities in 2023
17 Experienced and growing team of specialists at the forefront of innovation
$16B of liabilities transferred through group annuity purchases representing a third of total historical volume in Canada, including multiple $500M+ transactions
500+ pension plans with robust and comprehensive financing strategy developed by our team
