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Review of Ontario's Solvency Funding Framework for Defined Benefit Pension Plans


Release Date: 09/30/2016
Staff Reference: Ronald Sanderson

Submission to Ontario's Ministry of Finance

September 30, 2016

Solvency Funding Review Pension Initiatives Unit Pension Policy Branch Ministry of Finance
7 Queen's Park Crescent
5th Floor, Frost Building South Toronto, Ontario M7A 1Y7

The consumer obligations borne by Canada's life insurance companies are, in many respects, similar to those of defined benefit pension plans; they are long-term, with contracts typically running for several decades, and the ultimate costs of benefits are sensitive to changes in both the investment environment and consumer longevity. Arguably, the funding and reserve requirements in relation to insurers' obligations are more challenging than those of defined benefit pensions, since there is no mechanism by which insurers can increase the price of the benefits promised after the contract is formed, and any guaranteed or potential indexation of benefits must be incorporated in insurance companies' regulatory valuations each year. These valuations and the attendant capital requirements reflect the public policy objective of ensuring, to the greatest extent possible, the ability of insurers to pay promised benefits, and to preserve consumer confidence in a sustainable and reliable insurance system.