Eckler’s recently released Pension Risk Transfer Report confirms that 2021 was a record year. Pension risk transfers totalled approximately $7.7 billion in 2021, up 71 per cent from 2020, the actuarial firm notes. With $4.5 billion in plan risk transfers, 2020 saw a decline of nearly 14 per cent compared with the $5.5 billion in transfers in 2019.
To transfer investment or retiree longevity risks, plan sponsors can purchase group annuities from life and health insurance companies. Sponsors can de-risk while remaining the plan administrator and benefit payer. This is known as a buy-in transaction. One such deal is the $560 million transaction between the Iron Ore Company of Canada (IOC) plan and Sun Life.
Sponsors may also choose to divest both risks and benefit administration and payment, which is known as a buy-out transaction. One example is the $1.8 billion mega-deal between the General Motors Canada plan and three insurers (Sun Life, iA Financial Group and Brookfield Securities) in 2021.
Alternatively, a plan may choose to pay an insurance premium to protect itself from the risk of retirees outliving their projected life expectancy. This is known as a longevity swap. In one recent transaction, The Co-operators became the longevity insurer for 6,300 retirees of a co-op plan in 2020.
Buy-ins more popular in 2021
More than half (60 per cent) of the transactions completed in 2021 were buy-ins, the report notes. At $4.6 billion, Eckler says this total deal value is the largest annual amount since 2009, when the first such deal was made.
The year 2022 looks promising for the group annuity market. Two insurers closed a $1.33 billion transaction to secure a plan for the restructuring steel company Stelco on June 17: Brookfield Annuity Company and Sun Life.
Recent explosion
Even though it was a record year, 2021 got off to a “quiet” start, Eckler notes. The report mentions annuity transactions of more than $200 million in the first quarter and more than $800 million in the second quarter. Sales then exploded: $3.1 billion in the third quarter and $3.5 billion in the fourth quarter.
“In the second half of the year alone, the market saw a level of activity which exceeded that seen in any previous calendar year,” the report continues. Eckler also believes that 2021 sales demonstrate the market's ability to continue its upward spiral.
The market explosion is recent. The total value of risk transferred to insurers since 2008 exceeds $45 billion, the Eckler report points out. More than 50 per cent of that value was created in the four-year period ending Dec. 31, 2021. “This is a clear demonstration of plan sponsors’ increased willingness to transact in the market and risk takers’ capacity to absorb this risk,” the report says.
Volatile shares
Sun Life, RBC Insurance and Brookfield Annuity are the three market leaders. Sun Life and Brookfield have held their respective positions for three years, Eckler points out. However, the firms’ results moved in opposite directions between 2020 and 2021. Sun Life's share plunged from 42 per cent to 29 per cent, while Brookfield Annuity’s share climbed from 13 per cent to 17 per cent. RBC Insurance moved up two spots to take second place in 2021, boosting its share from 10 per cent to 17 per cent. RBC displaced iA, whose share declined from 17 per cent to 8 per cent.
