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Canadian Firms to Shed Billions in Pension Risk This Year: Sun Life

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Sun Life Financial Inc., one of Canada’s biggest life insurers, sees the country’s pension risk-transfer market growing to as much as C$5 billion ($3.9 billion) this year as more companies look to divest retirement plans.

The Canadian group annuity market will probably reach at least C$4.5 billion this year, up from C$2.7 billion in 2016, Brent Simmons, senior managing director and head of the firm’s defined-benefit solutions group, said in a phone interview.

“Pension plans are now at a better funding position so they have more money in the plan — they actually have enough money in the plan to divest or to go into runoff, so, buy annuities,” Simmons said. “A lot of it comes back to these companies having hard, nasty surprises with their pension plans for the last 20 years and really wanting to get back to focusing on their core business.”

(Related: Prudential Signs Jumbo Pension Risk Transfer Client)

North American companies including General Motors Co. and FedEx Corp. have struck deals with life insurers to take on pension obligations. Pension buyouts in the U.S. climbed to $23 billion last year, an increase of 68% from a year earlier, according to industry group Limra.

In Canada, the assets held by defined-benefit pension plans are about C$1.7 trillion, Simmons said. “The market has a lot more room to grow both on the demand side but also on the supply side,” he said.

The largest pension risk-transfer deal in Canada so far is a C$900 million agreement struck last year, and the second largest was about C$750 million in the first quarter of 2018, Simmons said. Sun Life won about C$500 million in each transaction. Simmons declined to comment further on the deals.

“That myth of, ‘The market’s not big enough, I have to wait, I have to do this purchase over several years,’ well, we’ve really put a pin in that message and popped it,” Simmons said. “Big companies can come to the market and divest their pension plans.”

— Read Investors Helping Life Insurers Shift to Pension Transfer Market: Analyston ThinkAdvisor.

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