Mercer Short Duration Fixed Income Fund Class Y-3 · NASDAQ:MSDYX
Mercer Short Duration Fixed Income Fund Class Y-3 — Mercer — Conference Presentation (December 2016)
28 slides from Mercer Short Duration Fixed Income Fund Class Y-3's conference presentation, Dec 5, 2016
Slide 1: Streamlined Longevity Insurance: A Solution Accessible to All Plan Sponsors
BACK TO MERCER.CA HEALTH WEALTH CAREER STREAMLINED LONGEVITY INSURANCE A SOLUTION ACCESSIBLE TO ALL PLAN SPONSORS December 5, 2016 BRADLEY BAKER Senior Actuary C A N A D I A N B A N K N O T E C O M PA N Y BENOIT HUDON Global Defined Benefit Leader MERCER MANUEL MONTEIRO Head of Canadian Financial St
Slide 2: Agenda
AGENDA Market context and background What is longevity risk and what can plan sponsors do about it? Canadian Bank Note case study What is to come next? Question & Answer period © MERCER 2016 2
Slide 3: Market Context and Background
HEALTH WEALTH CAREER MARKET CONTEXT AND BACKGROUND © MERCER 2016 3
Slide 4: We Live in Interesting Times...
WE LIVE IN INTERESTING TIMES... AGEING PUBLIC P O P U L AT I O N DEBT FUTURE BREXIT OF EUROZONE U.S. ANTI (?) ELECTION G L O B A L I Z AT I O N © MERCER 2016 4
Slide 5: Pressure on the Economy and on Pension Plans
AND THESE ARE ALL PUTTING PRESSURE ON THE ECONOMY… AS WELL AS ON PENSION PLANS Interest rates Equity risk Currency Credit Longevity Inflation Regulatory Accounting Operational rules © MERCER 2016 5
Slide 6: Sponsors Have Access to a Whole Suite of Risk Management Tools
1 S P O N S O R S H AV E A C C E S S TO A W H O L E S U I T E O F RISK MANAGEMENT TOOLS Managing Pension Risk Retain Risk Transfer Risk Insurance Individual Plan strategies Asset strategies Terminated vested Annuity buy-in Plan redesign Change asset mix lump sums Retiree Optimize growth Annuity buy-
Slide 7: Pension Risk Transfer Transactions Continue Around the World
AND PENSION RISK TRANSFER TRANSACTIONS CONTINUE TO HAPPEN AROUND THE WORLD C U M U L AT I V E P E N S I O N R I S K T R A N S F E R T R A N S A C T I O N S S I N C E 2 0 0 7 ($ Billions) 250 200 150 100 50 0 2007 2008 2009 2010 2 0 11 2012 2013 2014 2015 2016E Canada (annuities only) Canada (with lo
Slide 8: This Trend Is Also Observed in Canada
THIS TREND IS ALSO OBSERVED IN CANADA Q1 Q2 Q3 Q4 Total ($ M) 3,000 $2,460M $2,567M $2,218M $1,500M 2,500 (year to date) Record 2,000 Record Year Record Year ? $1,362M Year 1,500 $1,054M 1,000 $748M 500 0 2010 2 0 11 2012 2013 2014 2015 2016 Sources: LIMRA and Mercer P L U S L O N G E V I T Y - O N
Slide 9: What Is Longevity Risk and What Can Plan Sponsors Do About It?
HEALTH WEALTH CAREER W H AT I S L O N G E V I T Y R I S K ? A N D W H AT C A N P L A N S P O N S O R S DO ABOUT IT © MERCER 2016 9
Slide 10: Historical Longevity Trends in Canada
HISTORICAL LONGEVITY TRENDS IN CANADA • Life expectancy has consistently improved in the last 40 years • Over time, the Canadian Institute of Actuaries has suggested the use of more conservative mortality assumptions EXPECTED LONGEVITY (CANADIAN MALE – AGE 65) ? 25 20 15 10 5 0 GAM71 GAM83 UP94 UP94
Slide 11: RMS Approach: Model Five Fundamental Drivers of Mortality Improvements
RMS APPRO ACH: MO DEL F I VE F UNDAMENTAL D R I V E R S O F M O R TAL I T Y I M P R O V E M E N T S © MERCER 2016 11
Slide 12: Sources of Longevity Risk
SOURCES OF LONGEVITY RISK BASELINE RISK TREND RISK C O N C E N T R AT I O N R I S K The current mortality Future improvements are Experience correct “on is mis-stated. different to those assumed. average”, but individual high earners create risk. © MERCER 2016 12
Slide 13: Pension Liabilities Under Various Longevity Scenarios
P E N S I O N L I A B I L I T I E S U N D E R VA R I O U S LONGEVITY SCENARIOS Based on current expectations, longevity risk is asymmetrical and plan sponsors are more exposed to downside than upside Current Expectation -4% +14% No future mortality “Medical breakthroughs” improvements (elimination o
Slide 14: Longevity Risk Trend: Sponsors Hedging Different Combinations
TREND: PLAN SPONSORS ARE HEDGING DIFFERENT C O M B I N AT I O N S O F L O N G E V I T Y A N D I N V E S T M E N T RISK HEDGED Longevity Longevity insurance insurance LONGEVITY RISK + Group + Liability annuities Traditional matching asset mix bonds UNHEDGED Liability Status Quo matching bonds UNHEDGE
Slide 15: What Is Longevity Insurance
W H AT I S L O N G E V I T Y I N S U R A N C E Fixed payments that the plan 2 pays the counterparty (e.g. 105% of “best estimate”) The third party is exposed to fluctuations 3 in future mortality and longevity Best estimate cashflows experience and its payments may 1 exceed the fixed payments it rec
Slide 16: Canadian Bank Note Case Study
HEALTH WEALTH CAREER CANADIAN BANK NOTE CASE STUDY © MERCER 2016 16
Slide 17: CBN's Perspective on Longevity Risk
CBN’S PERSPECTIVE ON LONGEVITY RISK • A bit about CBN • CBN sponsors a closed DB plan • Approx. 220 retirees, $35 M liabilities • Pension Committee identified longevity risk as one of the most important risks • Very little upside benefit to longevity risk • Mortality assumption improvements have led
Slide 18: Longevity De-Risking Process
LONGEVITY DE-RISKING PROCESS • Starting point: Pension Committee meeting 3 years ago • Annual governance meeting • Risks affecting pension plan identified • Reached out to all large Canadian insurers • None were willing to quote on a longevity hedging solution initially • Eventually three insurers p
Slide 19: Other Notes: Why Not Annuities
OTHER NOTES WHY NOT ANNUITIES Not ready to annuitize or wind-up plan • 100+ Active members continue to accrue service • Did not want to lock-in solvency obligation • Comfortable managing the pension plan • Comfortable with other risks, such as investment risk PERFORMING DUE DILIGENCE In-house pensio
Slide 20: Message to Plan Members
MESSAGE TO PLAN MEMBERS Contract signed in October 2016 • Still in early stages of communication plan Mediums: Press release, notice, annual statements, closer contact with our retirees Messaging: Very positive • Added an additional level of security for retiree pensions Streamlined longevity soluti
Slide 21: What Is to Come Next?
HEALTH WEALTH CAREER W H AT I S TO COME NEXT? © MERCER 2016 21
Slide 22: Streamlined Longevity Solutions for Smaller Plans
STREAMLINED LONGEVITY SOLUTIONS FOR SMALLER PLANS • Longevity swaps typically reserved for only the largest of plans • The CBN deal with Canada Life proves the viability of a “small-scale” longevity risk transfer solution • How is it different than the traditional longevity swap? – No collateral (ra
Slide 23: Mercer Mortality Model for Canada
M E R C E R M O R TA L I T Y M O D E L F O R C A N A D A • New model to be launched in 2017 • Will apply the theory of survival models to Canadian mortality, allowing for detailed analysis across numerous risk factors simultaneously • Will introduce the concept of “geo-demographic” profiling similar
Slide 24: Mercer Mortality Model for Canada
M E R C E R M O R TA L I T Y M O D E L F O R C A N A D A L O C AT I O N Accessibility Rural vs. Urban DEMOGRAPHIC Postal code Household demographics Population movement FINANCIAL Health MEASURES Background & beliefs Income Credit behaviour PROPERTY CHARACTERISTIC SOCIO- Building ECONOMICS Tenure AND
Slide 25: Mercer Pension Risk Exchange
M E R C E R P E N S I O N R I S K E X C H A N G E TM MERCER’S GROUND-BREAKING SOLUTION TO ANNUITY TRANSACTION CHALLENGES READINESS TRANSPARENCY MONITORING EXECUTION GLOBAL VIEW Beginning in 2017, the Mercer Pension Risk Exchange will be expanded to monitor longevity insurance pricing, bringing its u
Slide 26: Question and Answer Period
HEALTH WEALTH CAREER QUESTION AND ANSWER PERIOD © MERCER 2016 26
Slide 27: Any Questions?
ANY QUESTIONS? Bradley Baker Benoit Hudon Manuel Monteiro Senior Actuary, Global Defined Benefit Leader, Head of Canadian Financial Strategy Canadian Bank Note Company Mercer Group, Mercer bbaker@cbnco.com benoit.hudon@mercer.com manuel.monteiro@mercer.com (613) 722 3421 (579) 880 9182 (416) 868 292
Slide 28: Make Tomorrow, Today
MAKE @% MERCER TOMORROW, TODAY