The Canadian pension risk transfer market registered about $6.6 billion in annuity sales in the second half of 2021, far exceeding the activity of any previous calendar year, according to a new report by Eckler Ltd.
It found total annual sales of about $7.7 billion were generated in 2021, with more than $200 million in business placed by March 31, more than $800 million as of June 30, $3.1 billion by Sept. 30 and $3.5 billion by the end of the year. Since 2008, the total value of risk transferred to insurers — including longevity hedging transactions — now exceeds $45 billion, with more than 50 per cent occurring within the last four years.
While many insurers met or exceeded their targets, others were more selective regarding the risk profile of pension plans they’d quote on in the later part of the year, said the report. The volume of business also meant insurers indicated a preference for some plans coming to market in 2022 instead of in Q4 2021, as consideration was given not only to their pricing teams’ capacity but also to their onboarding teams for implementation of annuity purchases.
The report also found many pension plan sponsors continued to target buy-in annuities, with the goal of removing or reducing investment and longevity risks while maintaining relationships with plan members. Indeed, the report noted $4.6 billion (60 per cent) of transactions were classified as buy-ins rather than buyouts in 2021, the biggest dollar amount since the first buy-in transaction in Canada in 2009.
While 2021 transactions were mainly medium or large, no transactions above the $500-million mark were awarded to a single insurer, noted the report. In addition, it found 2021 saw a 60 per cent reduction in the proportion of transactions below $25 million, a slight rise from 2020 (72 per cent).
In terms of market share, Sun Life Financial Inc. and Brookfield Annuity Co. landed in first and third place (29 per cent and 17 per cent, respectively) for the third year in a row, while the Royal Bank of Canada Insurance Services Inc. increased its market share to 17 per cent, slightly edging out Brookfield for second place.
For the first quarter of 2022, the report found the market was quiet, with sales of roughly $300 million, though there were several smaller deals in the pipeline and pricing continued to be favourable for plan sponsors. And while some plan sponsors made plans to come to market as soon as possible, it found others waited out the market volatility or paused to see if they could benefit from the expected increase in interest rates. Insurers said they’re seeing large deals in the pipeline for the remainder of the year, according to the report.