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Article | Group Annuity Market Pulse

Group Annuity Market Pulse – Second Quarter 2022

By Marco Dickner and Charbel Abi-Assal | August 8, 2022

On a quarterly basis, the Group Annuity Purchase Team at WTW provides updates on the Canadian group annuity market.

Key Observations

  • On May 31st, Stelco purchased $1.3B of buy-in annuities, the largest transfer with a single insurer (~$1.2B with Brookfield) and the second largest single day transaction after the GM transaction announced in 2021.
  • We estimate that over $2.6 billion of group annuities were placed during the second quarter of 2022, contributing to the largest volume in the first half of a year in Canadian history.
  • We expect a very busy second half of the year, with multiple transactions above $500M already confirmed.

1) For 2008 to 2012, the breakdown of sales between buy-in and buy-out for terminated plans and buy-out for ongoing plans is not available. Excludes longevity insurance agreements.

2) Source of data: LIMRA, Assumption Life, BMO Financial Group, Brookfield Annuity, The Canada Life Assurance Company, Co-operators Life Insurance Company, Desjardins Financial Security, Industrial Alliance, RBC Insurance and Sun Life Financial.

CIA Annuity Purchase Guidance

The Canadian Institute of Actuaries (“CIA”) annuity purchase discount rate guidance (“CIA guidance”)3 supports actuaries in selecting actuarial valuation assumptions, without having to request annuity quotes from insurers, by providing market pricing for blocks of business of three different durations at a given date.

The most recently published CIA guidance indicates annuity pricing at unadjusted long Government of Canada (GoC) marketable bond yields (CANSIM V39062) plus a spread of 150 basis points (using the CPM2014Proj mortality table) for non-indexed pensions with a medium duration, resulting in a discount rate of 4.69% as at June 30, 2022 (up from 2.86% as at December 31, 2021).

The 183 basis points increase in the CIA guidance in 2022 can be attributable to the increase in GoC bond yields (153 bps) and an increase of 30 bps in the CIA guidance spread for non-indexed pensions with a medium duration.

Rates have since decreased during July 2022 by 34 basis points as at July 26, 2022.

3) Details regarding the most recent CIA guidance can be found at

Market insight

Update on annuity market and insurers appetite

We observed a higher than average volume of transactions in the first half of 2022, driven primarily by the Stelco transaction of $1.3B of buy-in annuities. Although Brookfield Annuity was awarded most of this transaction, they confirmed they have no capacity limit for the balance of the year. This is another testimony of the growing capacity in the Canadian annuity market. Furthermore, the market volatility has not impacted the insurers’ appetite to underwrite new group annuity business.

We expect a very busy second half filled with many transactions including multiple $500M+ deals. Consistent with last year, we expect insurers to be more selective for the second half of the year, which may lead to a lower participation rate for smaller deals, or ones with higher proportion of deferred members. Being transaction ready will be key!

Are annuities an attractive strategy for plan sponsors in 2022?

Affordability is still good as the average pension plan remains well-funded due to the significant increase in interest rates despite witnessing losses in the bond market and major equity markets around the world since the beginning of the year. This offers another opportunity for plan sponsors to review their financing strategy. As plans are well funded, the ability for many plan sponsors to purchase annuities without a special cash influx will contribute to an increase in interest for annuities.

The absolute level of annuity cost is determined by the implied discount rate offered by insurers and it is illustrated by the pink line in the above graph. This measure is relevant for plan sponsors swapping equities for annuities. During 2022, absolute cost of purchasing annuities decreased to a level not seen in many years.

The relative level of annuity cost is determined by the level of spread offered by insurers in excess of long-term risk-free rates and is illustrated by the purple bars in the above graph. This measure is relevant for plan sponsors swapping bonds for annuities. The current spread offered by insurers is 40 bps points above historical average since 2015. This translates to a ~4% reduction in annuity premiums for a sample group of retirees with a liability duration of 10 years.

The implicit yield offered by insurers tracks very closely to the Corporate AA yields used by plan sponsors to measure accounting liabilities. The spread between accounting liabilities and annuity pricing is in line with the smallest gap we observed during the last decade.

Regulatory updates

On June 2, 2022, Alberta released a consultation paper seeking feedback on possible funding reforms including the possibility of allowing a liability discharge for annuity purchases. Alberta joins other jurisdictions who are in the process of or have already implemented provisions for liability discharge for annuity purchases:

  • Already in-force: British Columbia, Nova Scotia, Ontario and Quebec.
  • Pending or imminent: Alberta, Federal, New Brunswick and Saskatchewan

Several proposed changes to the federal Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act are contained in Bill C-228. In general, Bill C-228 would give the full windup deficit the same high priority that is currently reserved for overdue normal cost and employee contributions. If the bill passes, it may have a negative impact on a company’s ability to borrow and the cost of that borrowing. The Bill does contain a 5-year phase-in period so that the increased priority on insolvency would not apply to existing pension plans until five years after the Bill comes into effect. This could provide another valid reason for plan sponsors to consider annuities for their registered DB pension plan in order to reduce their exposure.

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Group Annuity Market Pulse – Second Quarter 2022 PDF .3 MB

Leader, Retirement Risk Management, Canada
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Leader, Group Annuity Purchase Team
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