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Introducing Morneau Shepell’s Pension Risk Bulletin

Morneau Shepell’s Pension Risk Transfer Team has introduced a periodic Pension Risk Bulletin to provide pension risk transfer market updates and provide other important information on risk management to defined benefit pension plan sponsors in Canada. The first edition of the Pension Risk Bulletin provides a summary of 2019 pension risk transfer activities as well as touching on key trends that Morneau Shepell’s Pension Risk Transfer team is expecting for 2020 and beyond.

Key highlights

  • Preliminary statistics for 2019 suggest that the total volume transacted has reached the $5 billion mark, another record for Canada.
  • Buy-in group annuities represented a large part of the total volume in 2019, reinforcing the fact that they can represent a desirable short- or long-term investment strategy vis-à-vis a low-risk liability driven investment strategy.
  • A busy fourth quarter in 2019 that had many insurers reached their annual capacity impaired the market’s ability to provide competitive pricing to clients towards the end of the year. Careful planning and an ongoing dialogue with insurers are of paramount importance to obtain a successful result.
  • The number of jurisdictions allowing plan administrators to obtain a statutory discharge upon an elective buy-out continues to grow in Canada. As of the end of 2019, statutory discharge following an elective annuity purchase is possible in Québec, Ontario and British Columbia. In 2019, the Nova Scotia and the Federal governments both adopted bills to that effect that have yet to be proclaimed.
  • The increasing number of data breaches and heightened scrutiny on cybersecurity risk reinforce the importance of incorporating cybersecurity elements in the due diligence process as part of selecting insurers for pension risk transfer transactions.
  • As transaction size keeps increasing for group annuities, reinsurers will have an important role to play to support an insurer’s appetite for growth and to provide overall stability in the pension risk transfer market.
  • The demand for pension risk transfer activities is still strong even though it is heavily influenced by the financial health of the pension plan. The supply has never been as high. Insurers are often better able to assist plan administrators in addressing interest rate and longevity risks than would otherwise be possible for plan administrators working within the framework of pension legislation.

News & Views - February 2020 (PDF)