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Article | Group Annuity Market Pulse

Group Annuity Market Pulse – 2022 Annual Review

By Marco Dickner , Benoit Labrosse and Charbel Abi-Assal | March 15, 2023

This issue provides a year-end review of 2022 market activity.

WTW Annuity Purchase Index

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.
2 Excludes longevity insurance agreements.
3 Sources of data: LIMRA, Assumption Life, BMO Financial Group, Brookfield Annuity, The Canada Life Assurance Company, Co-operators Life Insurance Company, Desjardins Financial Security, iA Financial Group, RBC Insurance and Sun Life Financial.

Key observations

  • The 2022 volume surpassed the prior record despite an increase in interest rates neighbouring 200 bps (as a point of reference, $1.00 of annuities in 2021 is worth ~$0.80 in 2022 due to the increase in rates).
  • Four insurers recorded a volume of sales greater than $1B in 2022, including two insurers with sales greater than $2B.
  • The second and third quarters were the busiest with $2.8B and $3.6B of sales, respectively.
  • 10 transactions north of $300M were completed, most of which were funded via a transfer of assets in-kind.
  • Largest transaction during 2022 was Stelco with $1.3B of buy-in annuities, also representing the largest transfer with a single insurer (~$1.2B with Brookfield) and second largest single day transaction after GM transaction announced in 2021.
  • CPI linked annuities represented approximately $1B of market volume.

So far, the insurers have kept pace with demand. In fact, recent history suggests that the insurers’ risk capacity is growing at a faster pace than demand. However, in periods of high activity, staffing challenges have resulted in lower participation rates from insurers. Plan sponsors can mitigate this risk by:

  • Being transaction ready – Transaction readiness includes internal governance readiness, having clear transaction triggers, being responsive throughout the process, and providing clean and complete transaction and mortality profiling data.
  • Transacting when others are not – Plan sponsors that have shown to be flexible with timing have benefited from higher participation rates from insurers, which results in greater competitiveness and flexibility to elect a preferred insurer.

Despite the increase in volume of annuity purchase transactions, approaching $45B in the last decade, the vast majority of Canadian DB pension liabilities in the private sector are still sitting on companies’ books (we estimate that only ~10% has been insured through annuity purchases). This historic growth in demand is also prompting reinsurers to look more closely at the Canadian annuity market. Many are in discussions with Canadian insurers to explore partnerships to support the Canadian annuity market. While the use of reinsurers in Canadian transactions is rare, we expect reinsurers to play a growing role as the annuity market continues to expand.

Affordability remains the main driver of the annuity market volume with many pension plans in fully funded positions. The mix of high market volatility combined with the healthy funded positions has further propelled the desire to purchase annuities. The current environment is expected to continue to fuel the annuity market into 2023, with another busy year ahead. This level of activity is also expected to boost innovative solutions such as jumbo single-day transactions or transactions with high proportion of deferred vested and active members.

In addition, when permitted by legislation, an emerging trend is to capitalize on built up DB surplus via contribution holidays. This allows plan sponsors to recoup portions of past deficit contributions they were required to make historically.

Were annuities affordable in 2022?

Using our WTW Real-Time Annuity Tracker, we can track the cost of annuities and assess the true competitiveness of quotes received from insurers by reflecting the evolution of credit spreads in real-time. In addition, the WTW Real-Time Annuity Tracker reflects the mortality profile of specific cohorts based on socio-economic factors obtained from an analysis of the members’ data and postal codes.

Price of annuities can be looked at from two different angles – in absolute terms or in relative terms.

  • The absolute level of annuity cost is determined by the implied gross rate offered by insurers, and it is illustrated by the purple line in the graph (the higher it is, the lower the absolute cost). It is mostly relevant for plan sponsors swapping equities for annuities. During 2022, absolute cost of purchasing annuities reached 5.5%, a level not seen in over a decade.
  • The relative level of annuity cost is determined by the level of spread offered by insurers in excess of long-term risk-free rates (government of Canada (GoC) 10 years) and is illustrated by the pink area in the above graph (the higher it is, the lower the relative cost). It is mostly relevant for plan sponsors swapping bonds for annuities. During 2022, the spreads offered by insurers over GoC 10 years averaged ~175bps, ~50+ bps higher than historical average. This translates into a ~5%+ reduction in annuity premiums for a sample group of pensioners with a duration of 10 years.

Furthermore, throughout 2022 on a duration adjusted basis, we estimate that the yield offered by annuities exceeded the yield on provincial bonds by 50-70 bps. Absent of a major change in economic conditions, annuity pricing is expected to continue to be attractive during 2023.

Regulatory and other updates

Pension legislation continued to evolve with more jurisdictions allowing for a statutory discharge of the liabilities covered by a buy-out annuity policy. A statutory discharge is currently permissible for members in British Columbia, New Brunswick, Nova Scotia, Ontario and Quebec. Draft regulations are currently pending for Saskatchewan and Federal members.

Bill C-228 was recently passed by Parliament and currently before the Senate for approval. 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. Plan sponsors that may be impacted by Bill C-228 could consider hastening pension risk transfer activity. More information can be found here.

Insurers in Canada must now report under IFRS 17 for annual reporting effective January 1, 2023. IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts on their financial statements. The objective of IFRS 17 is to ensure that an insurer provides relevant information that accurately represents their balance sheet. Based on transactions we have seen so far and our discussions with insurers, we do not expect IFRS 17 to have a material impact on insurers’ capacity and pricing.

About WTW group annuity purchase team

Currently celebrating our 10-year anniversary, the WTW group annuity team has been offering extensive expertise and experience in Canadian group annuities to provide the best outcomes for our clients:

#1 firm in Canada over the last 3 years in terms of volume of annuities placed

14 Experienced and growing team of 14 specialists at the forefront of innovation

$13B of liabilities transferred through group annuity purchases representing a third of total historical volume in Canada, including multiple $500M+ transactions

400+ Advisor for over 400 pension plans in developing a robust and comprehensive financing strategy


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