2023 marks boom in Canadian group annuity market

Over $1.25b paid out as Sun Life leads the annuity market, ensuring pension stability for Canadians

2023 marks boom in Canadian group annuity market

The Canadian group annuity market in 2023 showcased a robust trend in securing Defined Benefit (DB) pensions, benefiting over 37,000 Canadians, and accumulating to more than 200,000 insured since 2017.

Sun Life has notably led this effort, disbursing over $1.25bn in annual pension payments to upwards of 125,000 Canadians. 

A collective move towards de-risking was observed among plan sponsors, with around 140 DB plan sponsors engaging in the purchase of group annuities. This market facilitated transactions across a broad spectrum, accommodating deals from less than $15,000 to those exceeding $700m.

This flexibility has encouraged more than 20 repeat buyers to engage further, gradually assembling “jumbo” deals piece by piece and contributing to the emergence of the 'Billion Dollar Club.' 

Sun Life stood out in 2023, leading the group annuity market for the 16th consecutive year, underscoring another record year for pension risk transfer volume.

Over the last decade, the Canadian group annuity market has experienced exponential growth, escalating from transactions worth just over $2bn in 2014 to nearly $8bn in 2023. The pivotal role of consultants in this growth cannot be overstated, their expertise being crucial to the market's success.

 Despite this success, 2023 was a volatile year for pension plans. Funded statuses witnessed a 3 percent increase, reaching 116 percent, yet faced a 9 percent decline in the fourth quarter, highlighting the swift changes that can affect pensions.

Group annuities have played a critical role in mitigating this volatility, enabling the locking-in of strong funded positions. 

Inflation-linked annuities have risen as a significant counter to increasing costs, with transactions exceeding $2.4bn since 2021, including more than $925m in 2023 alone. This segment of the market has seen substantial growth, with more than $2.4bn transacted between 2021 and 2023, compared to $2.2bn from 2013 to 2020. 

Annuities were found to be surprisingly affordable for plan sponsors in 2023, with transactions being 1 percent to 3 percent cheaper than their longevity-adjusted solvency liability.

This affordability is influenced by various factors, including the data and longevity profile of plan members, assets available to insurers, market competitiveness, and the transaction's structure and specifications. 

As we look towards 2024, there are potential deals in discussion, though not all are expected to transact within the year. Regulatory changes might stimulate additional demand for de-risking.

Nadia Ivanova from the Montreal Port Authority captures the prevailing sentiment, stating, “The reality is a lot of defined benefit plan sponsors are not in the pension business.”