Eckler report: 2022 pension risk transfer market has record year

How interest rates and funded status led to increased pension plan de-risking strategies

Eckler report: 2022 pension risk transfer market has record year

Given the interest rate environment in 2022 along with the strong funded status, pension plan sponsors were well positioned to initiate de-risking strategies. In fact, it was a record-breaking year for the pension risk transfer (PRT) market. PRT is when plan sponsors remove pension obligations from their balance sheets through an annuity purchase.

The 2022 Canadian PRT market had $7.8 billion in total market sales from 155 transactions, says the ‘2023 Canadian Pension Risk Transfer Market Report’ by Eckler. This compared to $7.7 billion in market sales from 149 transactions in 2021.

“We were not surprised to see that 2022 was another record-breaking year in the PRT market,” says Mary Kate Archibald, Eckler Principal. “With 10 rate hikes since March 2022, insurers have been able to back their obligations with higher-yielding assets, which in turn lowers the premiums they charge pension plans to take on their pension obligations. Despite the asset losses which took place for most pension plans during 2022, this cost to annuitize often dropped even more, leading to improved wind-up funded positions for many plans and the decision to transfer risk. So far 2023 is shaping up to be just as active with perhaps even more transactions (in number) expected.”

PRT market evolves

2022 also had some significant developments in the Canadian PRT market.

Several insurers experienced notable growth in market share with some hiring new staff due growing demand.

With 2002 such a competitive year, there was significant reshuffling of the Canadian insurer market share. Sun Life continues to dominate the group annuity market with almost 30% market share, but it did decline during the year by almost 2%. Together, Sun Life and Brookfield Annuity now constitute over 50% of the Canadian PRT market. 

As well, the PRT landscape continued to evolve with influences from shifting demographics and regulatory developments that directly impacted the demand for PRT solutions.

“Changes to the landscape for pension risk transfer, including the forthcoming ramifications of the Pension Protection Act giving super-priority to pension plan contributions and plan deficits, as well as increased Assuris coverage, are all contributing to increased interest in annuities and a very active PRT market,” says Archibald.

The Eckler report says the PRT market growth will likely continue in 2023. Compared to past years, the market has been more active in the first quarter of 2023. This increase may be due to a backlog of plans sponsors who were looking to come to market in 2022 but had deferred due to capacity constraints. However, the PRT trend is expected to continue its upwards trajectory.