The elimination of solvency funding - LDI's kryptonite?

The elimination of solvency funding – LDI’s kryptonite?

May 2017

Are recent changes to funding regulations affecting the need for LDI?

Authors: Brent Simmons and Heather Wolfe

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Ontario recently announced proposed changes to their funding rules to relax solvency funding requirements. Since many DB plan sponsors use solvency as their liability target for liability driven investment (LDI) purposes, they are now wondering whether LDI is still appropriate in this pending new regulatory environment.

In our latest issue of DB Solutions InSights “The elimination of solvency funding – LDI’s kryptonite?”, we take a closer look at Quebec’s Bill 57, which eliminated solvency in 2016, to demonstrate why an investment strategy should be driven by the plan sponsor’s objectives and not by the funding regime. They also look back at what happened when the U.K. eliminated solvency funding in 2006, and conclude that LDI may still save the day for many plan sponsors.

Carl Bang, President, Sun Life Institutional Investments (Canada) Inc., also shares insights on why there is increased demand for private fixed income for DB pension plans with LDI strategies.