Canadian group annuity sales exceed $3 billion for the first time
In 2017, the Canadian group annuity market established a new record with $3.7 billion in annuity sales, a $1 billion increase over 20161.
Over the last 10 years, the market has achieved impressive growth. The amount of pension obligations transferred to insurers has tripled from just over $1 billion in 2007 to nearly $4 billion in 20171.
For the 10th consecutive year, Sun Life Financial was the #1 provider of Canadian group annuities.
Three main trends can explain the growth of the Canadian annuity market.
1. Transaction size is increasing
Following a trend that will most likely continue in the future, the increase in annuity sales was driven in part by larger deals coming to market2.
Deals over $100M
2017: 9
2016: 5
Average deal size
2017: $80M
2016: $50M
Largest single sponsor deal
$900M
2. Record-level solvency funding ratios drove annuity sales in 2017
The Mercer Pension Health Index ended 2017 at 106%, which matches the highest funded level in the last 16 years3. In the past year, many plan sponsors reached their de-risking triggers and recognized that buying annuities is an affordable way to divest pension risk so that they can focus on their core business.
There are other signs that show plan sponsors think this is the right time to de-risk their pension plans:
Buy-ins are popular
Plan sponsors continued to leverage the flexibility of annuity buy-ins in 2017 with $2.1 billion in liabilities covered, bringing the total to $5.9 billion since 20091.
Inflation-linked deals are affordable
More than ever, inflation-linked deals continue to be an important part of the market with over $300 million in 2017 and over $1.5 billion placing in the last 3 years2.
Supportive annuity legislation
Both Quebec and Ontario moved forward with legislation, which when finalized, will eliminate the possibility that purchased annuities will revert to them should the insurer fail.
Most purchases are voluntary
As of Q4 2017, $3.1 billion out of $3.7 billion annuity sales were voluntary2.
3. More innovative annuity solutions
In 2017, we were pleased to work with several plan sponsors to create innovative and affordable de-risking solutions:
Largest deal in Canada
Consultant: Willis Towers Watson
In-kind transfers to mitigate interest rate risk
Over $300M
"After 10 years of being part of this fast-evolving industry, we are excited to see Canadian plan sponsors embrace annuities as an affordable way to de-risk their DB pension plans,” says Brent Simmons, Senior Managing Director & Head, Defined Benefit Solutions. “With demand and capacity increasing year after year, we believe this trend will continue not just in 2018 but in the coming years. A $5 billion market may be here sooner than we think."
Group annuities are provided by Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies.
1 LIMRA Secure Retirement Institute (February 14, 2018)
2 Sun Life estimates
3 Funded position of defined benefit plans improves in 2017, Mercer, January 3, 2018
