Overview of the 2022 Canadian group annuity market

DB Solutions Industry Watch

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Overview of the 2022 Canadian group annuity market

Plan sponsors are taking action

Over 85 transacted in 2022, including 15 repeat buyers.

Since 2013 45+ plan sponsors have come to market at least 2x and 20+ have come atleast 3x. 

 

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Over 38K Canadians had part or all of their pension insured in 2022. 165k+ insured since 2017. Innovation enables insurers to protect more plan members.

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The market continues with strong momentum1

2022 is another record year at $7.8B

The market hit another growth marker in the last two years

Evolution of the Canadian group annuity market

The Canadian group annuity market has evolved. 2013 to 2016 the average transaction average per year was $2.5 billion. 2017 to 2020 the transaction average was $4.5 billion per year. 2021 and 2022 are seeing an average transaction of $7.7 billion.

With good communication and preparation, any DB plan sponsor can transact

2022 annuity premiums by transaction size

Planning for a successful transaction is essential, with the market completing almost two transactions per week in 2022!

Annuity premium transactions size below $50 million was 17% of the market in 2022 while transactions between $50 million and $250 million was 13%. Annuity premiums transactions between $250 million and $500 million were 22% of the deal size in 2022 with transactions between $500 million and $1 billion was 25%. Annuity premiums transactions over $1 billion was 22% of the market.

Buy-ins have been the popular choice since 20191

Interesting trend as strong funded statuses could have led to more buy-outs

Total buy-ins since 2019 totals $16 billion. $2.7 billion in 2019, $2.9 billion in 2020, $4.6 billion in 2021 and $5.8 billion in 2022. Total buy-outs since 2019 totals $9.1 billion. $2.5 billion in 2019, $1.5 billion in 2020, $3.1 billion in 2021, and $2 billion in 2022.

Read more on buy-ins

Record year for inflation-linked annuities

Over $3.7B inflation-linked liabilities insured since 2013

2022 saw 17 inflation-linked annuities, totaling over $900 million compared to $600 million in 2021 and $175 million in 2020.

The cost of inflation protection remains attractive

The cost of inflation protection can be illustrated as the difference in yield between Canadian nominal return bonds and Canadian real return bonds.

The cost of inflation protection is hovering around the 2% mark. With 2022 year-over-year inflation at 6.3% in Canada, there is an opportunity to transfer inflation risk.

The Government of Canada’s announcement to cease the issuance of real return bonds will impact DB plan sponsors with inflation-linked liabilities. To find out how, read the Canadian Institute of Actuaries (CIA) statement.

Implied inflation1

The cost of inflation protection is cheaper than the 5 year historical average of 1.51%.

1Calculated using [(1+CANSIM V39062) / (1+ CANSIM V39057) – 1] for each year. As of December 31, 2022.

Annuities may be cheaper than you think

Price of group annuities relative to provincial bonds has improved by about 6% since early 2019 – a big shift in relative value.

* Using the December 31, 2022, medium duration annuity proxy spread, published by the CIA, and CANSIM V39062 yields at December 31, 2022.

** Duration Equivalent Provincial Yields are based on a blend of the All and Long Term FTSE Canada provincial bond indices to achieve the same duration as the CIA medium duration annuity proxy at December 31, 2022.

Annuity pricing is attractive

The CIA guidance has resulted in annuity yields that were often similar to corporate bond yields. In addition, “…most of our transactions during the third quarter have resulted in premiums below the estimates determined using the CIA guidance.” – WTW Group Annuity Market Pulse – Third Quarter 2022

Evolution of the Annuity Proxy Yield

The evolution of the annuity proxy yield in comparison to the yield on a passive provincial bond portfolio and a passive corporate bond portfolio with equivalent duration. Historically the yield on annuities was very close to the yield on a passive provincial bond portfolio. In early 2019 this started to shift and now the yield on annuities is closer to the yield on a passive corporate bond portfolio.

Source: Sun Life, December 31, 2022.​

Notes: The Annuity Proxy Yield (mid-duration plan) is calculated using the medium duration annuity proxy spread, published by the CIA, and CANSIM V39062 yields at various effective dates.​

Duration Equivalent Corporate and Provincial Yields are based on a blend of the All and Long Term FTSE Canada corporate and provincial bond indices to achieve the same duration as the CIA medium duration annuity proxy at various dates. ​

For a detailed comparison between annuity yield and passive bond yield, read this recent article from Brent Simmons: Are annuities on your efficient frontier?

Sun Life led the group annuity market in 2022

DB Solutions is excited to celebrate 15 years in the Canadian group annuity market.

We’re proud to have the largest market share for the 15th year in a row.1

We made more than $1.1B in annual pension payments to over 120K Canadians.2

Group annuities provided by Sun Life Assurance Company of Canada, a member of the Sun Life group of companies. Results and information in this infographic are based on Sun Life estimates unless otherwise noted.

Sources & notes:

1 The Secure Retirement Institute Canadian Pension Market report published by LIMRA, February 8, 2023.
2 Includes only buy-in, buy-out and longevity insurance contracts.

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