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Canada's biggest airline seeks finance ministry approval to form insurance firm

Last Updated Aug 17, 2018 at 4:40 pm MST

Air Canada is seeking finance ministry approval to form its own life insurance company as a gateway to the annuities market and a hedge against looming pension payouts. An Air Canada passenger jet lands at Halifax Stanfield International Airport in Halifax on Monday, Jan. 21, 2013. THE CANADIAN PRESS/Andrew Vaughan

MONTREAL – Air Canada is seeking finance ministry approval to form its own life insurance company as a gateway to the annuities market and a hedge against looming pension payouts.

A spokesperson says the airline aims to shore up pension risks by buying annuities from Canadian insurers and reinsuring the fixed payments through an insurance subsidiary.

The Montreal-based carrier plans to purchase the annuities over several years, starting in 2019.

The country’s largest airline currently doles out $725 million in annual pension payouts. That number is projected to grow to more than $900 million in a decade.

Air Canada says the national market is too small to bear such big annuities purchases.

The airline’s defined benefit pension plans cover nearly 53,000 employees — roughly half of whom are retired — and carry a solvency surplus of $2.6 billion.

Companies in the story: (TSX:AC)