An individual who is in receipt of annuity payments from a life insurance company (i.e., a pensioner receiving monthly pension payments). Note: At Brookfield Annuity, we also call our annuitants “policy members”.
An industry-funded organization that protects Canadian policyholders if their life insurance company should fail.
The risk that the liabilities transferred through a pension buy-out return to the plan sponsor if the insurance company fails.
The rating assigned by a rating agency (e.g., S&P, Moody’s, A.M Best) to indicate the financial strength of a company. In 2018, A.M. Best assigned to Brookfield Annuity a Financial Strength Rating of B++ (Good) and a Long-Term Issuer Credit Rating of bbb+.
Deferred Vested Member
An individual entitled to a pension who has not yet commenced receiving annuity payments. Typically, these members have not yet reached retirement age as specified by the Pension Plan provisions.
Defined Benefit (DB) Pension Plan
A Pension Plan where the pensioner’s benefits are predetermined (i.e., defined) in a formula outlined in the plan’s provisions. Typically, the pensioner’s benefits are based on a formula that includes the employee’s salary and years of service. The amounts required to fund the plan benefits are the responsibility of the Plan Sponsor.
Defined Contribution (DC) Plan
A Pension Plan where the contributions of the Plan Sponsor and employees are predefined, typically as a percentage of salary. The benefit amount that the pensioner receives at retirement is not guaranteed by the Pension Plan, and depends on the accumulated amount of contributions and the investment performance of these contributions.
An individual who is entitled to a pension and is disabled such that the individual is not able to return to work on a regular basis.
The ratio of plan assets to plan liabilities for a DB Pension Plan. For example, if a Pension Plan is 90% funded, it means that the plan holds $90 of assets for every $100 of liabilities and, in this example, is underfunded. The funded position of the plan is one factor that Plan Sponsors will consider when deciding whether to buy-out or buy-in through a group annuity.
Group Annuity Policy
An insurance policy purchased by the employer for a group of employees/former employees to provide ongoing payment of periodic benefits (typically monthly for life). Group Annuity Policies are almost always purchased in the context of a pension obligation that the employer owes to its employees.
An annuity where benefit payments may increase over time based on cost-of-living adjustments.
The transfer of assets from a Pension Plan to the insurer, without a sale and purchase, to avoid transaction fees.
An insurance product where the Pension Plan pays the insurer fixed payments based on the expected lifespan of the pensioners, and the insurer pays the Pension Plan variable payments based on the actual lifespan. This product allows the Pension Plan to transfer Longevity Risk, but retain other risk (e.g., investment risk, inflation risk) associated with pensioner benefit payments.
The risk that someone lives longer than expected. For Pension Plan (and Group Annuity Policy) purposes, Longevity Risk is the risk that pensioners live longer than has been assumed when determining how to fund the Pension Plan (or price the Group Annuity Policy). It then costs more than expected to provide those benefits.
The use of medical or health information for the evaluation of an applicant for coverage. In the context of Group Annuity Policies, a subset of Pension Plan members may be selected to undergo medical underwriting to better evaluate the Longevity Risk of the Pension Plan. It is not currently the norm in Canada to use medical underwriting for Group Annuity Policies, but this is becoming more prevalent in other jurisdictions; e.g., in the UK.
The Office of the Superintendent of Financial Institutions, our primary regulator which monitors and assesses the stability and capital adequacy of financial institutions, including insurance companies. We are also supervised by provincial regulators; those regulators are mainly concerned with market conduct, i.e., how we represent ourselves to customers and our selling practices.
A Group Annuity Policy where the Pension Plan makes a single premium payment to the insurer, and the insurer makes guaranteed payments to the Pension Plan on a monthly basis representing the total benefits of the pensioners covered under the policy. The Pension Plan continues to make monthly payments to the pensioners (using the funds received from the insurer). The pensioners have no interaction with the insurer. Please see De-risking Options for more information.
A Group Annuity Policy where the Pension Plan makes a single premium payment to the insurer, and the insurer makes guaranteed payments to pensioners directly. The pensioners become annuitants of the insurer, and the Pension Plan (and hence Plan Sponsor) do not have any further responsibility to the pensioners (except in the case of “boomerang risk”). Please see De-risking Options for more information.
A plan set up specifically for members of an organization under which retirement benefits are accrued by eligible members during their working lifetimes with the organization, with benefits distributed to the members (and eligible spouses/beneficiaries) in accordance with the plan’s provisions.
An individual currently receiving payments from a Pension Plan.
The organization/employer that has established the Pension Plan and is responsible for paying and funding the benefits promised under the plan’s provisions.
Insurance purchased by an insurer to cover direct risk written by the insurer.