Throw away your crystal ball Speakers: Heather Wolfe Managing - - PowerPoint PPT Presentation
Throw away your crystal ball Speakers: Heather Wolfe Managing Director, Client Relationships, Defined Benefit Solutions Sun Life Financial Mathieu Tessier Director, Client Relationships, Defined Benefit Solutions Sun Life Financial T H E S
Speakers:
Managing Director, Client Relationships, Defined Benefit Solutions Sun Life Financial
Director, Client Relationships, Defined Benefit Solutions Sun Life Financial
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T H E S H O E M A K E R ’ S S T O R Y
O N C E U P O N A T I M E …
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T I M E S W E R E D I F F I C U LT …
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Cash infusions Time and attention
T H E S H O E M A K E R D E C I D E D T O TA K E A C T I O N
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Look for a buyer Put it in run-off
Company Pension Plan
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A N A L L E G O R Y F O R …
W H AT T H E S H O E M A K E R L E A R N E D
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A C L O U D Y R E S U LT
W H AT ’ S Y O U R R E WA R D F O R TA K I N G R I S K ?
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C o r e b u s i n e s s r i s k Profit Competitive advantage Grow th Shareholder value P e n s i o n p l a n r i s k No competitive advantage Management time and attention Trapped surplus
Risk budget
Volatility
R E D U C I N G P E N S I O N R I S K PAY S O F F
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Avoids trapped surplus Reduced pension volatility Potential tax savings Reduced investment management fees Additional reward: ensure benefit security for plan members
T H E M A R K E T R E WA R D S P L A N S T H AT D E - R I S K
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Announcement day returns relative to the S&P 500 Index
Kimberly-Clark
2015 Annuity purchase
Bristol-Myers Squibb
2014 Annuity purchase
Motorola
2014 Annuity purchase
NCR
2013 Annuity purchase
Verizon
2012 Annuity purchase
NCR
2012 Lump sum
General Motors
2012 Annuity purchase and lump sum
Ford
2012 Lump sum
Honeywell
2010 Accelerated funding
W H AT ’ S T H E B E S T O P T I O N F O R F I X E D I N C O M E A S S E T S ?
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Universe bond portfolio Customized matching bond portfolio
I S WA I T I N G F O R I N T E R E S T R AT E S T O R I S E W O R T H I T ?
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Source: Sun Life analysis for a typical Canadian defined benefit pension plan
I S A 2 . 5 % R AT E I N C R E A S E R E A L I S T I C ?
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1-year Government
10-year Government
Rates as of March 31, 2017
I S A 2 . 5 % R AT E I N C R E A S E R E A L I S T I C ?
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Bank of Canada rate hike history
Period Total rate hike Yield curve Change in 10-year spot rate Change in 30-year spot rate
2.75% Flattens
1.25% Flattens 0.17%
1.25% Flattens
2.50% Flattens
May 28, 2010 – Sep. 8, 2010 0.75% Flattens
During the rate increase period, longer duration credit spreads typically increased only slightly, which was not enough to materially counterbalance the decrease in risk free rates noted above.
I S A 2 . 5 % R AT E I N C R E A S E R E A L I S T I C ?
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T O P T I P S T O AV O I D A C L O U D Y R E S U LT
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Source: Aon Hewitt Median Solvency Index, February 1, 2017
W H AT W E ’ R E H E A R I N G F R O M S P O N S O R S – R E G R E T
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0 % 20 % 40 % 60 % 80 % 100 % 120 %
Median solvency ratio
69% 102% 94% 99% 97% 86% 93% 94% 76% 86% 83% 68% 93% 91% 86% 95% 97%
W H AT W E ’ R E H E A R I N G F R O M S P O N S O R S – U N C E R TA I N T Y
T H E F U T U R E I S R E A L LY C L O U D Y
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M A N Y H AV E D E C I D E D T O TA K E A C T I O N
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PPG (U.S.) Bell Canada (Canada) General Motors (U.S.) Verizon (U.S.) Loblaw (Canada) Kimberly Clark (U.S.) AstraZeneca (U.K.) Rolls Royce (U.K.) TRW (U.K., U.S., Canada) British Airways (U.K.) Siemens (U.K.) Bristol-Myers-Squibb (U.S.)
O P T I O N S F O R P E N S I O N P L A N S
buy bonds
benchmarking
insurance
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