Reinsurance is revolutionizing Canada’s pension risk transfer (PRT) market, providing crucial capacity and expertise for innovative de-risking solutions.
A bustling Tim Hortons restaurant is filled with retirees sipping their double-doubles, blissfully unaware of the financial intricacies ensuring their pension checks’ ongoing delivery. Behind this serene scene, a quiet revolution is reshaping Canada’s financial landscape.
"I have been passionate about longevity throughout my career. My experience has evolved from digging deep into longevity pricing and valuation to now focusing on the strategy and execution of pension risk transfer (PRT) and longevity transactions in Canada. This progression has given me a comprehensive view of the PRT landscape and the opportunity to leverage my background in actuarial mathematics and our extensive global experience to find innovative solutions for our clients. I feel fortunate to work for a forward-thinking company like RGA in the evolving PRT sector."
— Kris Kerwin, Vice President of Business Development
The Canadian pension risk transfer (PRT) market is undergoing a remarkable transformation. Once characterized by modest transactions, it is evolving into an arena of large-scale de-risking deals that are fundamentally altering how Canadian plan sponsors and insurers approach long-term financial obligations.
This article explores the changing face of Canada’s defined benefit pension environment, the crucial role of reinsurance in the PRT market, and the qualities to look for in a reinsurance partner.
Canada’s defined benefit pension environment is in flux. As demographics shift and the market matures, plan sponsors are increasingly seeking ways to de-risk their pension obligations. This emerging need has created fresh opportunities in the PRT market to address longevity.
The Canadian PRT market benefits from a maturing, sophisticated network comprising multiple carriers and consultants who bring specialized knowledge to the pricing, underwriting, and structuring of customized de-risking solutions.
By any global metric, the growth trajectory of the PRT market in Canada has been significant. What began as a series of modest transactions has evolved into a landscape dominated by large-scale de-risking deals. This evolution can be attributed to four key drivers:
In 2024, seniors comprised 18.94% of the Canadian population, up from 12.55% in 2000 (Figure 1).1 This trend has led to a higher proportion of retirees relative to active workers, putting increased pressure on pension plans to meet long-term obligations.
Canadians are living longer, which means pension plans must fund benefits for more people and for longer lifetimes. This increases the financial strain on both private and public sector plans. Between 2019 and 2050, the number of pensioners in Canada’s national pension plans is expected to soar by 225%. Private sector plans are expected to be similarly impacted (Figure 2).2
Many pension funds have increased their solvency ratios to meet or exceed the 100%-funded level over the past several years. These increased financial obligations have contributed to decisions to de-risk. The Mercer Pension Health Pulse (MPHP), a measure that tracks the median solvency ratio of the defined benefit pension plans in its database, improved to 125% at the end of 2024, near its record high. That was a 9-percentage-point increase from where it ended in 2023. The percentage of pension funds in this measurement below a 100% solvency ratio has decreased from 16% at the end of 2023 to 11% at the end of 2024, while those at 120% or above have risen from 41% to 57% (Figures 3A and Figure 3B).3
Plan sponsors are increasingly recognizing the need to address pension risks before they become unmanageable. Again, the magnitude of this risk is reflected in CPP projections and is indicative of what is being felt in the private sector. Total expenditures in the CPP are expected to increase nearly 340% by 2050, a projected rise of $167 billion in pension assets (Figure 4).4
These factors have collectively contributed to the market’s rapid expansion and sophistication.
At the heart of this evolving market sits a critical player: reinsurance. The power of reinsurance brings four key benefits:
Reinsurers offer substantial financial capacity, allowing for the assumption of large pension liabilities, often in the billions of dollars, which is crucial in a market where a single transaction might involve transferring the pension obligations for thousands of retirees.
Moreover, reinsurance spreads risk across a broader base, combining the risks from multiple pension plans across different industries and regions. Some reinsurers also have accumulated large life insurance books, a natural hedge to longevity risk. This diversification enables stable and predictable outcomes, ultimately benefiting both the insurer and the pension plans they support.
Reinsurers, particularly those with a global presence such as RGA, serve as invaluable importers of expertise and best practices from around the world. Global reinsurers might offer insights into emerging trends in longevity risk management, share innovative structuring techniques for PRT solutions, or provide guidance on regulatory changes. In Canada, global reinsurers apply successful strategies from more mature markets, adapting them to local needs and regulations.
One of the key advantages of reinsurance in the PRT market is the ability to customize structures to meet complex, evolving needs. For example, a reinsurer might work with a plan sponsor to develop a phased risk transfer approach, gradually de-risking the pension plan over time. Alternatively, they might create a bespoke longevity swap that precisely matches the plan’s liability profile. This customization ensures that each PRT solution is optimized for the pension plan and its sponsor’s goals.
Some reinsurers, including RGA, are able to assume investment risk. This can be a game-changer in structuring comprehensive de-risking solutions, particularly fully funded PRT transactions in which the reinsurer assumes responsibility for both the assets and liabilities of a pension plan. It allows for more efficient risk transfer and may lead to better pricing for plan sponsors.
As demographic trends evolve and longevity risk increases, the Canadian PRT market is poised for further growth and innovation. Reinsurance will play a central role in shaping this future by providing the capacity, expertise, and flexibility needed to navigate an increasingly complex environment.
For carriers, plan sponsors, and strategic advisors looking to explore innovative de-risking solutions, partnering with an experienced reinsurer offers a pathway to effectively manage pension risks and secure long-term financial stability.
RGA executed its first longevity swap in Canada in 2010 and has since helped de-risk billions of dollars across multiple transactions in present value of benefits. More recently, RGA completed its first funded PRT transaction, showcasing its ability to take on risks on both sides of the balance sheet. With decades of longevity risk transfer experience and a unique combination of leading biometric and investment expertise, RGA serves the Canadian market as a trusted PRT partner.
Learn more about how RGA can craft a customized pension risk solution for you. Contact us today.
