August 25, 2014
Longevity insurance, how it is regulated and how risk is allocated between insurers and plan administrators are issues stirring conversation among players in the pensions sector. Partner Mitch Frazer offers his insight into the issue for Law Times. Below is an excerpt of the article.
“It’s too expensive for small plans,” says Mitch Frazer of Torys LLP’s Toronto office.
Longevity insurance first attracted media attention in Canada in June 2013. In a transaction that echoed billion-dollar deals in the United States by General Motors Co. and Verizon Communications Inc. with Prudential Financial Inc., the Canadian Wheat Board and Sun Life Financial Inc. agreed to a $150-million annuity policy that transferred some of the pension risk to the insurer.
Soon after the announcement, Brent Simmons, senior managing director of defined-benefits solutions at Sun Life Financial, estimated that de-risking transfers could amount to a $10-billion business in Canada by 2016.
By August 2013, the regulator had released a draft version of the longevity policy for comment. Citing a report on Canadian pensioner mortality from the Canadian Institute of Actuaries, the regulator noted the life expectancies of Canadian pensioners has continued to increase and is boosting the funding requirements inherent in pension plan obligations.
Consequently, the regulator noted, pension plans around the world were seeking ways to hedge mortality risk, something in which life insurance and reinsurance companies have traditionally played a significant role. Regulators, of course, were looking into the phenomenon.
“Some jurisdictions allow longevity insurance and swaps and some don’t,” says Frazer.
To read the full article, click here.