Despite market upheaval as a result of the coronavirus pandemic, the Canadian pension risk transfer market had its third-best year for group annuity transactions, according to Eckler Ltd.’s latest report.
By the end of 2020, pension risk transfer market transactions totalled $4.45 billion, only slightly behind 2018’s $4.5 billion but below 2019’s $5.2 billion, noted the report. Last year brought the total value of risk transferred to insurers via group annuities to $14.2 billion. Buy-in annuities accounted for 65 per cent of the year’s transactions — the highest percentage since insurers began offering them in 2009.
Read: Annuity sales hit record highs in 2018, led by buyouts: report
Market confidence was buoyed by several high-profile transactions over the course of 2020, noted the report. During the first half of the year, Sun Life Financial Inc. secured a $176 million buy-in annuity with Corby Spirit and Wine Ltd. and Hiram Walker and Sons Ltd., in consultation with Eckler.
And in the second half of 2020, a $1.8 billion buyout annuity for more than 6,000 pensioners of the General Motors of Canada Co. Salaried Pension Plan was placed with three insurers. Brookfield Annuity Co., iA Financial Group and Sun Life Financial Inc. are each responsible for $100 million, $600 million and $1.1 billion, respectively. In addition to being the largest group annuity deal to date in Canadian history, it was also the largest asset in-kind transfer within the pension risk transfer market, which helped bring market activity over the second half of 2020 to $3.9 billion — exceeding that for the same period in 2019 ($3.7 billion).
Read: GM Canada transferring $1.8BN in pension liabilities via group annuity buyout
In 2020, iA jumped two spots ahead to secure the second-highest market share for the year, up from the fifth spot in 2019, while Sun Life and Brookfield Annuity retained the first and third positions. As well, the average yields on long-term Government of Canada bonds (10-plus years), a key indicator of pricing, increased significantly, noted the report, from 1.1 per cent at the beginning of the year to 1.8 per cent as of June 30, 2021.
In addition, the report noted the pandemic introduced significant risk to the nation’s population, and as a result, 2020 saw the largest one-year increase in Canadian deaths in over 90 years. While the Atlantic provinces experienced less deaths than expected (based on the latest Statistics Canada data), the impact in Quebec and Alberta was markedly higher than for Canada as a whole.
Read: Pension risk-transfer market sees $5.2BN in transactions in 2019: report
Looking ahead, the report also cited a paper by Eckler’s analytic firm Club Vita Canada Inc. that explored potential implications of the coronavirus on defined benefit pension plans over the long term, including how it could lead to an immediate increase in deaths due to variations of the virus, disruption to non-coronavirus medical care, changes to health and care systems and a global recession — all of which could ultimately affect the longevity of the population.