Sun Life discusses record-breaking year in the pension risk transfer market

Sun Life Canada’s defined benefit solutions group has created a number of resources for those interested in the latest risk management trends for defined benefit pension (DB) pension plans. Among them, in a recent webinar with Mathieu Tessier, vice president of client relationships and innovation, the company discusses the key drivers behind the record-breaking year of pension risk transfer (PRT) market activity. 

Annuity pricing is attractive right now, he says. “More specifically, in the last few years we’ve seen annuity yields improved by about six per cent compared to provincial bond yields,” he told those gathered for the recent webinar. “It represents a bit of an opportunity for plan sponsors. You swap your provincial bond portfolio for a higher yielding annuity contract and you get to transfer longevity risk. You get to transfer investment risks and some expenses as well while doing so. We’re seeing some plan sponsors really rethink their passive bond allocation.” 

With plan funding positions near all-time highs, he says 38,000 pensioners had their benefits guaranteed by insurers last year – more than 165,000 plan members since 2017. In 2022, $7.8-billion in pension obligations were transferred to insurers through various annuity deals.

“Well prepared transactions of any size can happen in Canada,” he continues, adding that the market saw one jumbo transaction – over $1-billion – and eight deals in the large range between $250-million and $1-billion, along with a dozen in the medium range between $50-million and $250-million. He adds that dozens of deals (more than 70) have also been made at lower thresholds, as well. “All in, that’s about two transactions per week for the PRT market,” he says.

One phenomenon that has emerged and become more noticeable, are plan sponsors de-risking in phases. During the year, 15 plan sponsors were repeat buyers of annuities. These 15 transactions made up about half of the $7.8-billion transacted. In the last 10 years, he says more than 45 plan sponsors have come to the market more than once; about 20 have done at least three transactions. “We’ve seen different ways of doing those transactions in phases,” Tessier adds.

He concludes saying growth will likely continue in the near future. “We want to keep solving more challenges for more plan sponsors. That’s really been key to the growth.” He adds that the companies in the market want to keep pushing boundaries, as well. “I encourage plan sponsors to be vocal with their challenges, their limitations,” he concludes. “Creativity really likes constraints.”