Sun Life Assurance Company of Canada (Sun Life), a wholly-owned subsidiary of Sun Life Financial Inc. (TSX/NYSE: SLF) today announced a groundbreaking combined annuity buy-in transaction with two Canadian pension plan sponsors to transfer investment, longevity and inflation risk to Sun Life. The annuity transaction is valued at approximately $530 million, making it the largest group annuity in Canadian history.
Many Canadian defined benefit pension plans provide pensions that increase with inflation and employers are looking for solutions to reduce risk. To help solve this problem, Sun Life created a new combined annuity solution providing inflation-linked annuities at an affordable cost.
Sun Life developed the idea for the new solution after receiving inquiries from two unrelated inflation-linked pension plans. Sun Life combined the annuity purchases for the two plans, with the pricing conditional on both purchases occurring at the same time. This generated significant cost savings for the clients that would not have been available for separate annuity purchases because Sun Life was able to pool the inflation risk for both plans and create a more efficient asset strategy. A combined annuity purchase is appropriate for plans with indexing formulas that are related to inflation but are different enough to be complementary. The transaction was completed in December 2015.
“We are thrilled to be transforming the annuity market, creating an innovative solution to help inflation-linked pension plans reduce risk,” said Brent Simmons, Senior Managing Director, Defined Benefit Solutions, Sun Life Financial. “This transaction is in response to market demand for affordable solutions for inflation-linked plans. Plan sponsors are looking for creative ways to de-risk and this is just one example of how we can help them meet their objectives and focus on their core business.”
This transaction highlights the growing demand for de-risking solutions and how the market is evolving to meet that demand. With estimated volumes of $7.5 billion, 2015 was the largest Canadian pension risk transfer market on record, three times larger than 2014.
An annuity buy-in is an investment that a pension plan makes to transfer investment, longevity and inflation risk to an insurance company, without any impact on plan members’ pensions. It can increase benefit security by allowing the pension plan to better match its assets with the pension promises it has made. In exchange for a lump sum premium, Sun Life makes a monthly payment to the pension plan equal to the pension payments for the covered group, and the plan continues to pay each member directly.
About Defined Benefit Solutions
Sun Life’s Defined Benefit Solutions group is a team of experienced pension and investment professionals, whose mandate is to help Canadian companies manage the risks of their defined benefit pension plans. We work closely with plan sponsors, consultants and other industry experts to deliver innovative, customized solutions, including annuity buy-outs, annuity buy-ins, longevity insurance and liability driven investments, which address the specific challenges of each plan sponsor. For more information please visitsunlife.ca/DBSolutions.
About Sun Life Financial
Sun Life Financial is a leading international financial services organization providing a diverse range of protection and wealth products and services to individuals and corporate customers. Sun Life Financial and its partners have operations in a number of markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India,China, Australia, Singapore, Vietnam, Malaysia and Bermuda. As of September 30, 2015 the Sun Life Financial group of companies had total assets under management of $846 billion. For more information please visit www.sunlife.com.
Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and Philippine (PSE) stock exchanges under the ticker symbol SLF.
SOURCE Sun Life Financial Canada
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