Aon: despite slight decline, financial health of defined benefit pension plans remains strong in first quarter
April 03 2018 - 2:01PM
Coming off decade-high levels at the end of 2017, the financial
health of Canadian defined benefit pensions plans declined only
slightly in the first quarter of 2018, and overall financial health
remains very strong, according to the latest quarterly Median
Solvency Ratio survey from Aon, a leading global professional
services firm providing a broad range of risk, retirement and
health solutions.
Quotes:“Despite a slight decline in median
solvency this quarter, the fact remains that DB plans continue to
have funded statuses that are exceptionally strong,” said William
da Silva, Senior Partner and Retirement Practice Director at Aon.
“That means it’s the best time in a long time for plan sponsors to
implement or at least revisit their risk management strategies.
With the move away from solvency funding in some jurisdictions,
most plans will be soon experiencing a much different risk
environment and their risk management strategies may need to evolve
as a result. Couple that with a much deeper market for pension risk
transfer and management solutions, and it is clearly a great time
for pension plans to do something to better manage risk.”
“The first quarter has given pension plans a reminder of
the rollercoaster of volatile markets, and a preview of what we
expect to be a more volatile investment landscape in 2018,” noted
Ian Struthers, Partner and Investment Consulting Practice Director
at Aon. “We have seen some recovery in equity markets from the
February selloff, but there are lots of reasons to expect more
volatility. Although the economy is generally viewed as strong and
corporate performance remains positive, this is offset by high
valuations, a ‘long-in-the-tooth’ equity bull market, trade noise
and sector risk. Additionally, interest rates present a mixed
picture – policy rates are rising but a flattening yield curve
implies a more pessimistic long-term view.”
“The environment puts a lot of emphasis on effective risk
management. Where plans are well funded and have a solvency or
windup objective, LDI strategies allow a ‘hedge path’ to be
developed that takes advantage of interest rate increases,”
Struthers added. “All plans need to be taking advantage of
diversification across asset classes, including liquid and illiquid
alternatives. When it is not clear where the next market storm will
come from, it is important to build an all-weather portfolio.”
Key Facts:
- Aon’s quarterly median solvency ratio stood at 98.7% as of
April 1, 2018, a slight decline from the previous quarter
(99.2%).
- The proportion of plans that were more than fully funded
deteriorated as well, with 46% of them fully funded, compared with
47% in Q4 2017 and 48% in Q3 2017.
- Benchmark bond yields were little changed over the quarter,
with Canada 10-year yields up five basis points and Canada long
bond yields down three bps from the beginning of the year to March
29. Lower yields effectively raise pension plan liabilities, and
adversely impact pension plan solvency.
- Amid mixed equity and fixed income markets, pension assets
during the quarter declined by 0.4%; in the previous quarter, asset
returns were -0.3%.
- Emerging Market and international MSCI EAFE equities were the
strongest performers among asset classes in the quarter, returning
+3.5% and +1.1%, respectively. U.S. (+0.7%) and global MSCI World
(+0.6%) also finished March positive, but Canadian equities
(S&P/TSX Total Return) fell by 5.8% - the worst performer of
all measured equity classes.
- In fixed income, FTSE TMX Long Term and FTSE TMX Universe bond
indices were little changed, declining by 0.3% and 0.1%
respectively through the quarter.
- Global infrastructure ended the quarter down by 1.6%, while
global real estate declined by 2.0%, both in Canadian dollar
terms.
A photo accompanying this announcement is available at
http://www.globenewswire.com/NewsRoom/AttachmentNg/3e87b997-efb7-4158-b063-55faf546b72b
About Aon’s median solvency ratio surveyAon’s
median solvency ratio measures the financial health of a defined
benefit plan by comparing total assets to total pension liabilities
in the event of plan termination. It is the most accurate and
timely representation of the financial condition of Canadian DB
plans because it draws on a large database and reflects each plan’s
specific features, investment policy, contributions and solvency
relief steps taken by the plan sponsor. The analysis of the plans
in the database takes into account the index performance of various
asset classes, as well as the applicable interest rates to value
liabilities on a solvency basis.
About AonAon plc (NYSE:AON) is a leading global
professional services firm providing a broad range of risk,
retirement and health solutions. Our 50,000 colleagues in 120
countries empower results for clients by using proprietary data and
analytics to deliver insights that reduce volatility and improve
performance.
Media contactsFor further information please
contact the Aon Hewitt media team: Alexandre Daudelin
(+1.514.982.4910)
Aon (NYSE:AON)
Historical Stock Chart
From Aug 2024 to Sep 2024
Aon (NYSE:AON)
Historical Stock Chart
From Sep 2023 to Sep 2024