Canadian pension solvency in the first quarter of 2017 reaches its highest level since 2007 financial crisis
April 06 2017 - 1:09PM
· Aon’s median solvency ratio for surveyed defined benefit plans
increased to 96.7%
As the global equity rally continued in the first quarter of 2017,
the median solvency ratio of Canadian defined benefit (DB) pension
plans – a key measure of their financial health – hit its highest
level since before the 2007 financial crisis, according to the
latest quarterly pension plan solvency survey from Aon Hewitt, the
global talent, retirement and health solutions business of Aon plc
(NYSE:AON). Driven by continuing positive returns across
risk-seeking asset classes, and supported by relative stability in
bond markets, median solvency on April 1, 2017 stood at 96.7%, up
nearly two percentage points from the beginning of the year.
Meanwhile, almost 40% of plans were fully funded at quarter’s end,
up four percentage points from Q4 2016.
An infographic accompanying this announcement is available
at http://www.globenewswire.com/NewsRoom/AttachmentNg/5abf013d-e0a5-46eb-ae0d-f7d3b9585f92
Quotes:“With solvency ratios at their best
levels in a decade, conditions may not get much better to take
meaningful steps in optimizing risks within pension plans,”
according to William da Silva, Senior Partner and Retirement
Practice Director at Aon Hewitt. “Many plans that have been on the
sidelines waiting for the ‘right’ time to take action should
realize that time may be now.”
“The equity rally that defined the latter half of 2016 has
continued into 2017, and was a key driver behind the current
solvency ratios,” noted Ian Struthers, Partner and Investment
Consulting Practice Director at Aon Hewitt. “However, capital
market conditions seem to be at an inflection point. Stocks
continue to be priced for perfection, while the selloff in bonds
has slowed, suggesting a more pessimistic view of the future. Amid
these conflicting signals, our view is that pension plan sponsors
should consider their strong solvency position as an opportunity to
review their risk management and governance practices, so that they
are prepared for market challenges.”
“Actions taken to manage a plan’s risk can vary from small
adjustments to big and final decisions,” adds da Silva. “We have
more tools than ever before to manage and optimize risks within a
pension plan. Now is the time to reassess your risk, understand
what can be done about those risks, and take deliberate actions no
matter how big or how small.”
Key Facts:
- Aon’s Median Solvency Ratio as of April 1, 2017 was 96.7%, up
from 94.9% as of Jan. 1, 2017.
- First-quarter solvency was at its highest level since the third
quarter of 2007, when it stood at 99.7%; by December 31, 2007,
median solvency had declined to 94.4%.
- 39.2% of plans were fully funded as of April 1, up from 35.2%
as of Jan. 1, 2017.
- Pension assets increased during the quarter by 3.2%; in the
fourth quarter of 2016, asset returns were 7.2%.
- Among risk-seeking asset classes, emerging market equities
performed the best in Q1, returning 10.8%, while U.S. equities
(+5.5%), international (MSCI EAFE) equities (+6.7%) and global
(MSCI World) stocks (+5.8%) also performed well.
- Domestic equities marked the worst performance among tracked
stock indices, returning 2.4% through the quarter.
- As yields declined marginally (Canada 10-year benchmark yield
was down ~10 basis points), bond returns were positive: FTSE Long
Term Bonds returned 1.9%, while FTSE TMX Universe bonds finished
the quarter up by 1.2%.
- Alternative asset returns were marginally positive, with global
real estate up 1.7% and infrastructure up 5.7%.
- As bond yields declined, annuity purchase rates fell slightly
through the quarter; however, the resulting increase in pension
liabilities was more than offset by positive asset returns.
About Aon’s Median Solvency RatioAon’s Median
Solvency Ratio measures the financial health of a DB plan by
comparing total assets to total pension liabilities in the event of
plan termination. It is the most accurate and timely representation
of the financial condition of Canadian DB plans because it draws on
a large database and reflects each plan’s specific features,
investment policy, contributions and solvency relief steps taken by
the plan sponsor. The analysis of the plans in the database takes
into account the index performance of various asset classes, as
well as the applicable interest rates to value liabilities on a
solvency basis. Actuarial valuation data are refreshed on an annual
basis as new valuations are filed keeping the database always up to
date. The Aon survey, which measures plans’ assets over liabilities
to calculate their solvency funded ratio, is based on results from
Aon Hewitt-administered DB pensions from the public, semi-public
and private sectors.
About AonAon plc (NYSE:AON) is a
leading global provider of risk management, insurance brokerage and
reinsurance brokerage, and human resources solutions and
outsourcing services. Through its more than 72,000 colleagues
worldwide, Aon unites to empower results for clients in over 120
countries via innovative risk and people solutions. For further
information on our capabilities and to learn how we empower results
for clients, please visit: http://aon.mediaroom.com.
Media contacts Rosa Damonte (+1.416.402-2177)
or Alexandre Daudelin (+1.514.982.4910)
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