Canada Life helps Canadian Bank Note to smallest longevity swap

The Canada Life Assurance Company has helped the pension plan of the Canadian Bank Note Company, Limited to a streamlined longevity swap, a $35 million transfer of longevity risk associated with its pensioners which is the smallest transaction we’ve seen at Artemis.

This transaction is the first so-called streamlined longevity risk transfer arrangement to have been transacted in Canada, according to the parties involved, helping a smaller pension plan to benefit from reinsurance protection.

Under the terms of the arrangement, the Canadian Bank Note Company transferred $35 million of longevity risk associated with just over 200 members of its pension plan to insurer Canada Life. Canadian Bank Note remains responsible for making monthly pension payments to the covered members, but Canada Life takes on the longevity risk and would reimburse the pension plan should its pensioners live longer than expected.

“Canadian Bank Note is invested in the future of our employees, and we are continuously evaluating the risks associated with our pension plans to ensure their long-term viability,” explained Douglas Arends, Chairman at Canadian Bank Note. “This innovative agreement with Canada Life protects our company and our employees against the rising costs associated with increased longevity.”

“This is an exciting development since the industry has not really seen many transactions done on this scale,” added 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.”

“Plan sponsors are becoming more focused than ever on understanding and managing non-core business risks,” stated 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.” Mercer advised Canadian Bank Note on the agreement.

Streamlined longevity swaps and risk transfer arrangements have become increasingly popular as a way to extend the benefits of reinsurance protection for pensioners living longer than anticipated to smaller pension plans.

By streamlining the transaction process, often using a vehicle or captive insurer which then transfers the risk to the reinsurance market as well as standardised documentation, the costs of longevity swaps and risk transfer transactions can be kept down, enabling much smaller pension plans to transfer their longevity risk in a cost-effective manner.

Prior to this longevity deal the smallest we had listed in our Directory of longevity risk transfer deals was $50m, so it is possible that this is the smallest longevity swap or risk transfer ever completed, at least that we’re aware of.

View details of many historical longevity swap and reinsurance transactions in our Longevity Risk Deal Directory.