Canadian group annuity sales reached an estimated $1 billion in the first quarter of 2018, according to Willis Towers Watson’s quarterly update.
The significant volume of activity is largely due to a single large transaction. Recently, Alcoa Corp. completed an annuity buyout worth more than $700 million for about 2,100 pension plan members across Canada. The annuity purchase was a key part of a larger de-risking effort in North America, which involved 9,000 retirees and US$300 million in additional funding, the report noted. As was the case in all of the large-scale transactions completed so far in Canada, the Alcoa buyout involved several large insurers: Sun Life Financial, Desjardins Insurance and iA Financial Group.
Read: Buy-ins and boomerangs: A look at the trends in Canada’s annuity market
“This large transaction further supports the global trend in risk-transfer initiatives and reiterates that the Canadian group annuity market has capacity for large transactions to occur on a regular basis,” Willis Towers Watson noted in its update.
It also suggested that the recent volume of transactions reflects a range of factors, including the effect of a general improvement in pension funding levels on the affordability of settlement activities; the removal of regulatory burdens in Ontario, Quebec and British Columbia; and tax reform in the United States that may provide incentives to U.S. companies to inject cash into their Canadian pension plans.
On July 1, 2018, Ontario will implement new provisions under the Pension Benefits Act allowing administrators of defined benefit pension plans to obtain a discharge from their obligations to former and retired members for whom they’ve purchased an annuity.
“Plan administrators should review these new annuity discharge rules in order to assess opportunities with respect to future annuity purchases,” the update stated.
“As well, they should consider a review of any past annuity purchases to determine what steps they can take to obtain a discharge.”