Toronto-based Canada Life Assurance Co. has announced the signing of a longevity insurance pension agreement with Ottawa-based Canadian Bank Note Co. Ltd. on Monday, paving the way for smaller pensions to have access to more de-risking options.
The agreement with Canadian Bank Note, which designs and manufactures anti-counterfeit documents, transfers $35 million of longevity risk associated with approximately 200 pensioners to Canada Life.
Pension risk transfer agreements have become popular in recent years as continuously improving life expectancy threatens the long-term financial viability of many pension plans. Under these agreements, pension plan sponsors can transfer some of that risk to an insurance company.
Whereas many of the pension risk agreements in the industry so far have been large-scale in nature — Canada Life’s reinsurance division recently conducted a €6-billion transaction, for example — the Canadian Bank Note transaction is tailored to its smaller size.
“This is an exciting development as the industry has not really seen many transactions done on this scale,” says Neil Duffy, vice president, pension risk transfer at Canada Life, in a statement. “When Canadian Bank Note approached us to help solve their longevity risk concern, it gave us the opportunity to build on our ability to innovate by developing a streamlined longevity insurance contract tailored to their needs as a smaller pension plan, opening doors for transactions of all sizes.”
Under the agreement, Canadian Bank Note maintains full responsibility for paying monthly pensions to its members and retains control of its investments. In the event that pensioners’ actual life expectancy exceeds current expectations, Canada Life will reimburse the pension plan.
More transactions of this kind are likely, according to Manuel Monteiro, Canadian financial strategy group leader with global consulting firm Mercer LLC, which provided advice to Canadian Bank Note on the agreement.
“Plan sponsors are becoming more focused than ever on understanding and managing non-core business risks,” Monteiro says in a statement. “With continuous improvements in life expectancy, which affects pension plans of all sizes, we expect there will be further developments in the market with more longevity-related insurance transactions by organizations, both large and small across Canada.”
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