Sun Life has completed a combined annuity buy-in transaction valued at $530 million with two Canadian pension plan sponsors to transfer investment, longevity and inflation risk to Sun Life.
The annuity buy-in for the two plans, which opted not to be named, were combined, with the pricing conditional on both purchases occurring at the same time.
This generated significant cost savings for the plan sponsors that would not have been available for separate annuity purchases, according to Sun Life.
The transaction was completed in December 2015.
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“This transaction is in response to market demand for affordable solutions for inflation-linked plans,” said Brent Simmons, senior managing director, defined benefit solutions at Sun Life Financial.
“Plan sponsors are looking for creative ways to de-risk and this is just one example of how we can help them meet their objectives and focus on their core business.”
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Mercer acted as advisor to the two plans sponsors, which both provide pensions that are partially indexed to inflation. Each plan sponsor had previously concluded that purchasing indexed annuities would be expensive, according to Mercer, but combining the two plans into a single transaction resulted in lower overall inflation risk exposure to the insurer, which allowed it to provide pricing that was much more attractive to the plan sponsors.
“This innovative transaction allowed two of our clients to execute their de-risking strategy while achieving significant cost savings – tens of millions of dollars – that would not have been available if the annuities were purchased separately,” said Manuel Monteiro, leader of Mercer’s financial strategy group, in a news release.
“This annuity purchase transferred the investment, longevity and inflation risk present in each plan to an outside insurer, at an attractive price.”