Since the beginning of the year, Government of Canada long bond yields have risen by approximately 50 basis points1, resulting in a decrease in annuity prices of around 5%!2
One of the most important factors determining the price of annuities is the returns available on the assets that insurance companies use to back the annuities. Most insurance companies use a mix of Canadian, provincial and corporate bonds to back their annuities. As Government of Canada bond yields rise, bonds become less expensive and the price of annuities fall.
1 From January 2, 2013, to June 27, 2013. Provincial and corporate bond spreads and other market conditions have been fairly constant over this period.
2 Estimate for a typical retiree group with duration of 10.
