Embed Size (px)
Citation preview
Speakers:Mathieu Tessier, Managing Director, Client Relationships,
Defined Benefit Solutions, Sun Life Financial
Marie Desrochers, Director, Client Relationships, Defined Benefit Solutions, Sun Life Financial
THE PRICE IS RIGHT – OR IS IT?An insider’s view of annuity pricing
and the true costs of de-risking
ROUND 1
THE PRICE HAS BEEN RIGHT
R E C O R D A N N U I T Y S A L E S I N 2 0 1 8
∼$1B increase2017-2018
17 deals $100M+
$4.6B
Record4th quarter
Q4$1.6B
80% voluntary
W H Y C O M PA N I E S F O C U S E D O N R I S K M A N A G E M E N T
$124B
Pension deficits have been costly for Canadian companies
Deficit contributions between 1997-2016:
W H Y T H E M A R K E T A C C E L E R AT E D
Navistar
$333M2019
Alcoa
$750M2018
Loblaw
$350M2017
Confidential
$900M2017
Husky Energy
$70M2017
Molson Coors
$ UNDISCLOSED2016
Large deal in January Another large Canadian deal
Inflation-linked solution
Largest deal & in-kind transfer
First deal with active members
Inflation-linked solution
M A R K E T S R E WA R D C O M PA N I E S T H AT D E - R I S K
+1.75%Molson Coors
2017Risk reduced by 5%
+1.42%CBS Corporation
2017Risk reduced by 4%
+0.60%International Paper
2017Risk reduced by 5%
+1.08%Hartford Financial
2017Risk reduced by 8%
-1.14%United Technologies
2016Risk reduced by 2%
-1.08%WestRock
2016Risk reduced by 22%
+0.12%PPG Industries
2016Risk reduced by 6%
+5.58%J.C. Penney
2015Risk reduced by 58%
+0.65%Philips
2015Risk reduced by 6%
+0.06%Kimberly-Clark
2015Risk reduced by 6%
Note: announcement day returns relative to the S&P 500 Index.Source: Divesting to create shareholder value; The Prudential Insurance Company of America; 2018.
T H E W O R L D I S N O T P R E D I C TA B L E
I N T E R E S T
S L O W SA S E C O N O M Y
R A T E S O N H O L DT H E W O R L D
A B O U T B R E X I TP A N I C K I N G
N E E D S T O S T A R TW H Y U S - C H I N A
T I M E B O M BT I C K I N G
W A R I S AE U R O Z O N E
F E A R SG L O B A L G R O W T HS L O W D O W N F U E L S
I N T H E N E W S
W H AT FA C TO R S H E L P P L A N S P O N S O R S C H O O S E A N I N S U R E R ?
PRICE
EXECUTION EXPERIENCE
FINANCIAL STRENGTH
CLIENT SERVICE
INNOVATION
ROUND 2
HOW INSURERS PRICE ANNUITIES
W H AT ’ S I N A N A N N U I T Y P R I C E ?
What are the four key factors that drive annuity prices?
A: Longevity B: Asset yields
C: Supply and demand D: Governance/data readiness
W H Y L O N G E V I T Y M AT T E R S
ROBBOBMarital status Married Widower
Region Richmond Hill, Ontario North Battleford, Saskatchewan
Socioeconomic status High Low
Job type Management in financial company Manual labourDisability Healthy DisabledPension amount $50,000 $15,000
Life expectancy at age 65
30years
20years
W H Y L O N G E V I T Y M AT T E R S
ROBBOB
Bob vs. Rob: greater than 30% difference in premium
Blue collar vs. white collar: experience shows 4%-6% difference in premium
Life expectancy at age 65
30years
20years
A S S E T S M A K E T H E D I F F E R E N C E
50%50%
10%
40%
50%
Traditional Annuity asset mix
Equities Fixed income Private fixed income
Government bonds
Corporate bonds
A C L O S E R L O O K AT I N S U R A N C E P R O F I T S
$100M liabilities
Expected pension payments
Expenses
Profit
5% required equity capital = $5M
12% return on capital = $0.6M
Annual profit of $0.6M Thin margins
Annuity deal
Annual profit of $0.6M Thin margins
A C L O S E R L O O K AT I N S U R A N C E P R O F I T S
INSURANCE
Profit margin of ~80%
Source: MarketWatch
Profit margin of 60%-70%Source: phoneArena.com
-0.10%
0.00%
0.10%
0.20%
0.30%
0.40%
31-12-14 31-3-15 30-6-15 30-9-15 31-12-15 31-3-16 30-6-16 30-9-16 31-12-16 31-3-17 30-6-17 29-9-17 29-12-17 29-3-18 29-6-18 28-9-18 31-12-18
Yield difference
A N N U I T I E S A R E S T I L L C H E A P
Comparing annuities to a passive fixed income portfolio
0.00%
0.10%
0.20%
0.30%
0.40%
-0.10%
A N N U I T I E S A R E S T I L L C H E A P
Risk premium, expenses and profit
Passive universe bonds
Yield
Comfort with credit + illiquidity
0.17%
Significant market risks reduction
Can self-insure against longevity
Able to fund plan over time
S H O U L D Y O U D O I T Y O U R S E L F ?
True elimination of market risks
Transfer longevity risk
Benefit security for plan members
✓ ✘
ROUND 3
THE “FINAL ANSWER” FOR
SPONSORS
H O W Y O U C A N G E T T H E B E S T A N N U I T Y P R I C E
Be proactive Align your investment portfolio Be ready to act Gather detailed data
C A S E S T U D Y: P R O A C T I V E & D ATA D R I V E N S P O N S O R
$164 million annuity buy-out
deal in 2018
• Mining company in northern Canada• Total DB assets of ~$430 million• Purchased annuities for over 1,000 inactives
Rebounding solvency
ratios
T H E P R I C E M AY N O T A LWAY S B E R I G H T
Deals are getting larger
