The Canadian Bank Note Company (CBN) is transferring $35 million of longevity risk to Canada Life.
Canadian Bank Note, which designs and manufactures anti-counterfeit documents, announced the transaction today. Under the arrangement CBN will maintain full responsibility for the payment of monthly pensions, but Canada Life will reimburse the plan should pensioners exceed life expectancy. The transfer involves just over 200 employees.
The structure of the deal allows CBN to retain control of its investments and keep a long-term asset mix. Traditional single premium group annuities can also move risk off of a plan sponsor's books, but they may considered as investing entirely in fixed income. The two companies says this is country's first streamlined longevity agreement, and the consulting firm Mercer provided advice to Canadian Bank Note during the process.
“An exciting development”
“This is an exciting development since the industry has not really seen many transactions done on this scale,” says Neil Duffy, Vice-President, Pension Risk Transfer, Canada Life. “Globally, through our reinsurance division, we have continually demonstrated our ability to write innovative longevity transactions, with one of our recent transactions being as large as €6 billion. When Canadian Bank Note approached us to help solve their longevity risk concern, it gave us the opportunity to build on our ability to innovate by developing a streamlined longevity insurance contract tailored to their needs as a smaller pension plan, opening doors for transactions of all sizes.”
“Understanding and managing non-core business risks”
“Plan sponsors are becoming more focused than ever on understanding and managing non-core business risks,” adds Manuel Monteiro, Canadian Financial Strategy Group Leader at Mercer. “With continuous improvements in life expectancy, which affects pension plans of all sizes, we expect there will be further developments in the market with more longevity related insurance transactions by organizations, both large and small across Canada.”