Group annuity sales nearly triple in first half of 2017, setting a Canadian record

The first half of 2017 marks the fastest growing group annuity market in Canada, which nearly tripled in size compared to the first half of 2016. As of June 30, 2017, there were $1.8 billion of deals completed compared to $629 million over the same period last year1.

Large and innovative deals drove sales in the second quarter:

  • A single plan sponsor de-risked $900 million with three insurers, including $494 million with Sun Life Financial – the largest single client deal ever done in Canada.
  • A plan sponsor completed an annuity deal with Sun Life covering past and future benefits for active members, in what we believe to be the first deal of its kind in Canada.

There were other exciting developments in the first half of the year:

  • While the $900 million annuity deal made up a significant portion of the sales, the rest of the market was strong with close to $1 billion.
  • The average deal size has been close to $100 million this year compared to $30 million at this time last year2.
  • Plan sponsors continue to embrace the flexibility of annuity buy-ins with $1.3 billion in liabilities covered1, bringing the total to $5.0 billion since 20092.
  • The majority of deals were voluntary3 with plan sponsors choosing annuities to reduce pension risk:
    • Annuities for ongoing plans – $1.8 billion
    • Annuities for terminated plans – $100 million

So what's driving the market?

  • Growing demand is leading to increased capacity – as more plan sponsors realize large deals can be done in Canada, insurers are responding by providing more capacity in the market. This is leading to larger deals than before.
  • Competition + innovation = new affordable solutions – we continue to see new players entering the annuity market in Canada, with many bringing new ideas to help sponsors de-risk at an affordable price. This year's innovations include our annuity deal with active members and the Loblaw deals providing cost-effective inflation-linked protection.
  • Solvency funding positions continue to be strong – equity markets have driven solvency ratios to a 10-year high. For only the second time since 2008, the Mercer Pension Health Index has been above 100% since the beginning of 2017.

"We are seeing that plan sponsors are recognizing that after two decades of roller-coaster funded positions, now is the time that they need to take action," said Brent Simmons, Senior Managing Director, Defined Benefit Solutions, Sun Life Financial. "They do not want to look back at this moment, and regret not taking risk off the table when they had the opportunity."

 

1LIMRA Secure Retirement Institute (August 15, 2017)
2Sun Life estimates
3Willis Towers Watson Group Annuity Market Pulse, Second Quarter 2017