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Canadian Bank Note insures longevity risk with Canada Life

Canadian Bank Note Co., Ottawa, entered into an agreement with Canada Life Assurance to assume C$35 million ($26 million) in longevity risk for its 200 retirees.

Canadian Bank Note has a total of C$52 million in assets in its defined benefit plan, said Bradley Baker, senior actuary at CBN. The C$35 million covered by Canada Life “represents the liabilities for present retirees on a solvency basis,” he said. “The liability on a going-concern basis is approximately C$30 million for the current retirees.”

Ontario law requires liabilities to be disclosed on both a solvency and going-concern basis.

CBN will maintain full responsibility for the payment of monthly pensions to its retirees, but Canada Life will reimburse the pension plan should those retirees exceed life expectancy.

Mr. Baker said plan officials have not yet considered a change in the investment strategy because of the longevity agreement. “However, we may consider a small increase in our equities exposure at a future date,” Mr. Baker added. “This may be appropriate given that our risk budget has changed; we no longer carry longevity risk in our plan. We can use the space that longevity risk took up in our risk budget to take on other, more balanced risks, such as investment risk.”

The plan's target asset allocation is 60% equities and 40% fixed income, Mr. Baker said.