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© Copyright 2000 Rogers Media. The following article first appeared in the February 2001 edition of
BENEFITS CANADA magazine.
Industry
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Clarica buys Royal's group retirement business
Clarica Life Insurance has bought the Canadian group retirement services business of Royal Trust Company
and Royal Trust Corporation (owned by Royal Bank), boosting its assets under administration from $5.6
billion to $8.6 billion as of Nov. 30, 2000.
The deal gives Waterloo, Ont.-based Clarica an additional 170 plan sponsors that, combined, have over
175,000 plan members. It also includes the Royal Employee Savings and Share Ownership Plan with about
39,000 participants and almost $850 million in administered assets.
Nick Thomas, a spokesperson with Clarica, says there will be no job losses as a result of the deal. "All
staff will be kept on by Royal or have been made offers by Clarica," he says, adding the combined business
will operate under the Clarica name and be based in Waterloo.
"[The Royal Trust group retirement business] will very easily fold into our existing business," says
Thomas. "They are very strong in Quebec and have a multilingual staff that will [enable us to] take our
business beyond Canada and into Europe. This is becoming more and more of an international business because
clients are multinational."
"This is very positive for Royal clients," says Mark Damelin, managing director of the Royal Bank's group
retirement services in Toronto. "Clarica operates in the small to large market and offers a full range of
products."
Damelin says the bank continually reviews all of its businesses and group retirement services did not
support its long-term goals. "It requires a significant investment in human resources and technology to
properly service clients. We do not have the scale of a Sun Life or Clarica that can offer world class
services to clients."
Damelin adds that clients--both plan sponsors and members--are more demanding today and this means that
providers must make a significant investment in the business to meet their needs. "The Internet has
empowered employees and they are not happy with [anything that can't be done immediately]. Clarica offers
daily valuations to all plan sponsors [whereas] we only do it on a select basis."
Thomas agrees that Royal wasn't able to compete with the bigger players in the defined contribution (DC)
plan business. "Scale is so important in this [DC] business today. [You] need it to deliver appropriate
pricing competitively."
Sharon Wilson, a principal with William M. Mercer Limited in Toronto, believes that plan sponsors' DC
recordkeeping fees will likely increase as a result of recent consolidation.
"Overall, costs to plan sponsors will go up as they have in the custody side of the business," she says.
"There's pressure on costs with a lot of consolidation."
Wilson also points out that this latest deal leaves the insurance industry holding the bulk of the DC
business. "[This deal] definitely gives plan sponsors less choice [in terms of providers] but the providers
that are taking over the business are good and there are enough of them left that there will still be good
competition," she says.
Is there more consolidation to come in the DC market? Wilson says that the two recent buy-outs put an
interesting spin on the issue as Canada Life and Clarica were two insurers regarded as takeover targets
prior to their deals with TD Canada Trust and Royal, respectively.
"This could be regarded as solidifying Canada Life's and Clarica's business," she says.
--Kathryn Dorrell
CIBC Mellon sells pooled funds
CIBC Mellon is getting out of the money management business, selling its eight pooled funds to
Montreal-based TAL Institutional Management.
The funds total $580 million in assets and represent about 140 clients. They will now be known as Centaur
Funds. The sale includes the transfer of CIBC Mellon's senior business development staff, David Adkins and
John Stookes, to TAL's Toronto office.
"For us, this agreement confirms our strategic decision to focus on our core business of global custody,"
says Tom MacMillan, chief executive officer with CIBC Mellon in Toronto.
The company acquired the funds when it purchased Canada Trust's custodial business in 1997.
"They were very profitable but not part of our core business and the best strategy was to find a money
manager that would grow them," says Cathy Goetz, assistant vice-president of sales and marketing at CIBC
Mellon.
Richard Campbell, president and chief operating officer at TAL in Montreal, says the deal will allow his
firm to "add a multi-manager approach to address the needs of smaller pension plans and defined
contribution plans seeking a level of diversification that would otherwise be inaccessible."
--Kathryn Dorrell
Manulife acquires Zurich's group life and health biz
Manulife Financial has signed an agreement to acquire Zurich Canada's group life and health employee
benefits business. The deal will close March 31, pending regulatory approvals. The purchase price was not
disclosed.
Zurich ranked No. 20 on benefits canada's list of top 20 group health providers in the May 2000 group
insurance report, with $76.4 million in insured premiums in 1999. The company ranked No. 18 in the list of
top 20 group life providers, with $7.4 million in insured premiums in 1999.
"This agreement will add a significant amount of high-quality, small-employer business to Manulife's group
business in Canada," says Trevor Matthews, Manulife's executive vice-president of Canadian operations.
In addition to the purchase, the two companies have entered into an agreement to offer selected lines of
their products to each other's distributors and customers in Canada. The companies will use a referral
network of licensed distributors to allow Manulife to supply a range of group life and health insurance
products to Zurich distributors, while Zurich will supply property and casualty products to Manulife's
group life and health benefits distributors in Canada.
Ontario to consult on surplus sharing
Ontario Finance Minister Ernie Eves says the provincial government will hold public consultations this year
on new pension surplus sharing rules.
Recent court decisions have changed the way pension surplus sharing arrangements are negotiated in Ontario.
A divisional court decision in May 2000 limited the ability of employers and employees to negotiate surplus
sharing arrangements. Employers must now demonstrate that the documents that created the pension plan
clearly entitle them to pension surplus. Many pension plans, particularly older plans, do not contain such
provisions.
When pension plans wind up, surplus sharing agreements are negotiated between employers and employees.
Current regulations under the Pension Benefits Act prohibit employers from withdrawing surplus from defined
benefit pension plans without first obtaining the consent of two-thirds of its pension plan members and
pensioners.
The government has extended the existing provisions for pension surplus sharing until Dec. 31.
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