Canadian Wheat Board transfers pension plan longevity and investment risks

The Canadian Wheat Board (CWB) has entered into a $150m transaction with Sun Life Assurance Company of Canada, a subsidiary of Sun Life Financial Inc., to transfer investment and longevity risk from CWB’s defined benefit pension plan to Sun Life. It is the first inflation-linked pension risk transfer deal of its kind in Canada.

According to the release the agreement is unique in Canada as it involves the use of an annuity buy-in and covers pension income that grows with inflation. The deal also involved the transfer of CWB’s portfolio of investment assets to Sun Life to purchase the annuity policy.

“We’re extremely pleased to partner with Canadian Wheat Board to provide an annuity solution that is the first of its kind in Canada,” commented Brent Simmons, Senior Managing Director, Defined Benefit Solutions, Sun Life Financial. “It is a game-changing transaction for our industry, and highlights our ability to provide competitive pricing for inflation-linked annuities through superior investment management. Our agreement is designed to provide long-term security to Canadian Wheat Board’s pension plan members.”

“The deal is a ‘win-win’ for Canadian Wheat Board and its plan members,” added Andrea Carlson, Vice-President, Corporate Finance & Strategy, CWB. “Sun Life is now managing all of the market-related risks of our pension plan through an annuity buy-in, providing an indexed solution that others in the market told us couldn’t be done. We selected Sun Life because of their expertise in investing and managing risk, their high credit rating and their reputation for innovation.”

Through the annuity buy-in, the CWB makes an investment which allows it to transfer the longevity and investment risk associated with a defined book of pension risk to Sun Life without it having any impact on the pension plan members. Accordingly, it allows the pension plan to better match its assets with the pension liabilities it has, thus increasing members security.

The $150 million transaction is the largest single day purchase of inflation-linked annuities in Canada, and the largest single day purchase of a next generation annuity buy-in in Canada, according to the release.

CWB was advised by Steve Windsor of Aon Hewitt, as well as Scott Sweatman and Mary Picard of Dentons Canada LLP. “Aon Hewitt guided Canadian Wheat Board through the many complex decisions required for securing pension plan obligations, and the annuity buy-in was the best solution for Canadian Wheat Board,” commented Steve Windsor, Associate Partner, Aon Hewitt.

The market for transferring longevity risks is becoming more broad and diverse, with different ways of effecting the transfer of longevity risk being used depending on the clients needs. It’s encouraging to see a Canadian transaction come to market which has the dual benefits of offloading the longevity and investment risks for the client.