Firm one of four Canadian insurers involved as Morneau Shepell transaction secures retirees’ future
Sun Life emerged delighted with its role in an $885 million Morneau Shepell annuity buy-in and backed the trend of large retirement plan deals to continue.
Morneau Shepell bought several contracts from Stelco Hamilton Works via complex transactions involving four Canadian insurers: The Canada Life Assurance Company, Sun Life Assurance Company of Canada, BMO Life Assurance Company and Co-operators Life Insurance Company. The deal covers 2,725 retirees and beneficiaries, deferred vested and active/suspended participants.
Brent Simmons, Senior Managing Director and Head, Defined Benefit Solutions at Sun Life told LHP the company was pleased to play a part in helping plan members secure their retirement and help de-risk the defined benefit pension plan.
He said: “We help defined benefit pension plan sponsors in a couple of different ways. We help them better manage their assets to match their liabilities and if you think about it as an insurance company, we are uniquely positioned to do that because we have more than $150 billion that we're managing for ourselves, and we manage it in such a way that the assets and liabilities move together.”
Sun Life also provides risk transfer, like in this instance, taking on the responsibility of the paying the pensions and reduce the plan’s risk. It’s a market that is getter bigger and bigger, with 17 deals in 2018 over $100 million versus only nine in 2017.
Simmons said it’s a growth market driven by innovation but also by annuity’s favourable performance when compared to the bond market.
“If you were to look at the yield on an annuity, it would be lower than the yield on a bond portfolio. And the reason for that is these insurance company is taking risk now. If members live longer than expected, the insurance company is going to make up that difference. If an investment in the bond portfolio gets downgraded, the insurance company is going to have to kick in some extra money.
“You would think annuities would be more expensive than bonds but we did some analysis that revealed over the last four years, annuities had a yield that was 17 basis points higher than a passive bond portfolio. That’s one of the secrets to the growth in the market.”