Industry Watch 2023
March 13, 2024
DB Solutions Industry Watch
Overview of the 2023 Canadian group annuity market
Securing DB pensions for Canadians
Pension benefits insured for over 37K Canadians – 200K+ since 2017.
Sun Life made over $1.25B in annual pension payments to more than 125K Canadians.1
Plan sponsors continue to de-risk
Around 140 DB plan sponsors purchased group annuities.2
The Canadian group annuity market is supporting transactions of all sizes – from less than $15K to larger than $700M in 2023.
De-risking success fuels further transactions
More than 20 repeat buyers transacted.
Repeat buyers can structure “jumbo” deals piece by piece.
The ‘Billion Dollar Club’
Largest Canadian annuity transactions by volume. These are some of the largest volumes transacted in Canada based on information available to Sun Life. It’s possible that the Canadian 'Billion Dollar Club' is even larger than we think! Many plan sponsors have taken a phased approach to “jumbo” transactions. They have completed multiple transactions for targeted segments of their DB pension plan populations. An honourable mention goes to the Ford Motor Company of Canada with their $923M single-day transaction.
Each colour block in the chart represents a separate transaction.
Source: Sun Life estimates.
Strong pension risk transfer volume continues - another record year
Sun Life led the group annuity market in 2023 – that’s 16 years in a row!3
Evolution of the Canadian group annuity market4
Consultants are critical to the success of the group annuity market.
Consultants help ensure successful transactions
2021 - 2023 lead consultant market share by total volume transacted
Consultants are fully engaged in the pension risk transfer market. They offer a range of pension expertise with specialized annuity desks. It’s important to engage your consultant early to help guide you through your de-risking journey and build a robust governance framework. Coming to market early in the year will also help your organization get more attention from insurers.
Source: Sun Life estimates.
A volatile year for pension plans
Funded statuses are up 3% for the year to 116%, but saw a 9% decline in Q4.5
Circumstances can change quickly. Group annuities help reduce volatility and lock-in strong funded positions.
Pension plan funded statuses
Most pensions plans are fully funded after many years of volatility and deficit funding. De-risking now can help plan sponsors refocus their time and energy to their core business.
The Mercer Pension Health Pulse
Source: Mercer
Inflation-linked annuities fight rising costs
Over $2.4B in transactions since 2021, including $925M+ in 2023 alone. Another record year!
Inflation-linked annuity market volume
The inflation-linked annuity market is facing headwinds
Facts |
Consequences |
|---|---|
|
|
Annuities are surprisingly affordable
On average, plan sponsors transacted 1% to 3% cheaper than their longevity-adjusted solvency liability in 20236 – very favourable outcomes!
Transaction dynamics can enhance annuity pricing
Data & longevity profile of plan members
Assets available to insurers
Market competitiveness
Transaction’s structure and specifications
Looking ahead to 2024
$17B+
Potential deals in discussion for 2024 – not all are expected to transact this year.
Key 2023 Regulatory updates
Regulatory changes may drive additional demand for de-risking
Pension Protection Act (formerly Bill C-228)
- This law is designed to protect DB pension plan members, providing pension deficits with super priority ahead of creditors in the case of plan sponsor insolvency.
- The changes will fully come into effect in 2027 for existing DB plans.
- This law could lead plan sponsors to focus more on the risk management of their DB plans.
Assuris
- Assuris increased their policyholder protection levels.
Monthly Pension |
Buy-in Old Coverage |
Buy-in New Coverage |
Buy-out Old Coverage |
Buy-out New Coverage |
|---|---|---|---|---|
Less than $2,000 |
85% |
90% |
100% |
100% |
$2,000-$5,000 |
85% |
90% |
85% (or $2,000 if greater) |
100% |
Greater than $5,000 |
85% |
90% |
85% |
90% (or $5,000 if greater) |
❝The reality is a lot of defined benefit plan sponsors are not in the pension business.❞ - Nadia Ivanova, Montreal Port Authority (MPA)
Safeguard your resources and focus on your core business in 2024.
Group annuities are 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 Includes only buy-in, buy-out and longevity insurance contracts.
2 WTW Group Annuity Market Pulse – Fourth Quarter 2023
3 The Secure Retirement Institute Canadian Pension Market report published by LIMRA, March 12, 2024.
4 Average annuity proxy rate over the year is calculated by taking the average of daily annuity purchase rates within the year. The daily annuity purchase rate is calculated using the applicable medium duration annuity proxy spread, published by the CIA, and CANSIM V39062 yield.
5 Mercer Pension Health Pulse published January 2, 2024.
6 Pricing statistics are Sun Life estimates and based only on transactions that Sun Life quoted on. The longevity-adjusted solvency liability is calculated by using industry expectations to adjust a plan’s solvency liability to reflect the sub or super standard mortality of its population.
Get more Industry Watch insights
Join us on March 26, 2024, for a webinar that shines a light on de-risking solutions that work.
Speak with an expert
We partner with plan sponsors to provide innovative, customized solutions that reduce DB plan risk.