The volume of group annuity transactions aimed at reducing pension plan risks reached $2.1 billion in the third quarter of 2024, according to the Pension risk transfer: 2024 Q3 review report from TELUS Health. This volume remained steady compared to the third quarter of 2023.
TELUS Health noted that third-quarter 2024 volume was estimated based on discussions with insurers. All eyes are now on the fourth quarter to see if 2024 will set a new record (see Strong year-end performance below). Third-quarter results bring the cumulative transaction total to $5.8 billion in 2024. In comparison, the group annuity market saw a transaction volume of $7.8 billion in 2023.
Resilience amid volatile rates
According to TELUS Health, the $2.1 billion in transactions in the third quarter of 2024 underscores the resilience of the pension risk transfer market, despite the downward trend in interest rates. The report explains that the calculation of the annuity purchase rate depends on long-term treasury rates and an adjustment based on the duration of a plan’s solvency liabilities (i.e., long-term commitments to participants).
The report mentions that annuities remain attractive to plan sponsors looking to reduce risks associated with defined benefit pension plans, which guarantee a lifetime monthly retirement benefit. By purchasing group annuities from an insurer, these plan sponsors can mitigate risks such as participant longevity, investment, and inflation.
Strong year-end performance
“This period was buoyed by a few significant transactions, complemented by a consistent stream of smaller transactions in various forms,” TELUS Health’s third-quarter 2024 report states. “As we approach the final quarter of 2024, the Canadian annuity purchase market is poised for a robust year-end finish,” the report continues, adding that “the market is running on all cylinders.”
In its report, TELUS Health notes that most insurers' have “full pipelines” until year-end. According to TELUS, several “jumbo” transactions (in market terms, transactions of $750 million or more are considered “jumbo”) are expected to close in the coming months, coinciding with the downward trajectory in interest rates. “This convergence of factors indicates that the market is well-positioned not only to meet but potentially exceed the projected annual targets,” TELUS Health reports.
Buyer advantages
TELUS Health observed a concentration of market share among a few insurers since the start of the year, a level of concentration not seen since 2022. According to its report, this trend will be advantageous for plan sponsors entering the market in the fourth quarter of 2024. “Some insurers, still seeking to meet their capacity targets, will likely be motivated to offer competitive bids,” the report notes.
