Morningstar DBRS Confirms OMERS Administration Corporation at AAA and OMERS Finance Trust at AAA and R-1 (high), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed OMERS Administration Corporation's (OMERS) Issuer Rating at AAA. Morningstar DBRS also confirmed the credit ratings of OMERS Finance Trust (OFT) Medium-Term Notes at AAA and its Canadian Commercial Paper and U.S. Commercial Paper at R-1 (high). The trends on all credit ratings are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations and Stable trends reflect the high level of assets relative to pension payments, low leverage, large base of financially sound employers, and a healthy demographic profile. OMERS legislative and operating framework has been historically stable, notwithstanding the ongoing governance review by the Ontario government. The pool of employer sponsors is well diversified and financially sound, which enhances their ability to meet increases in contributions, as required. OMERS also has a funding deficit in the Primary Pension Plan (the Plan), which has been decreasing over time, with the Plan's funding ratio now standing at 98% and with a target of reaching over 100% by 2030. OFT is a wholly-owned subsidiary of OMERS, and issues debt with recourse to the Plan. The credit ratings assigned to the debt issued by OFT are predicated on the unconditional and irrevocable guarantee provided by OMERS.

CREDIT RATING DRIVERS
Morningstar DBRS would downgrade the credit ratings if OMERS were to experience a material adverse change in its legislated framework. The credit ratings would also be downgraded in case of persistently weak investment returns leading to a significant funding deficit.

CREDIT RATING RATIONALE

Legislated Framework: AAA
OMERS is one of the largest defined benefit pension plans in Canada with more than 1,000 participating employers and almost 640,000 active, deferred, and retired employees of municipalities, local agencies, public utilities, firefighters, police, paramedic, and nonteaching school board staff across Ontario. OMERS is overseen by two corporations: OMERS Sponsors Corporation (SC) and OMERS Administration Corporation, with their two separate mandates and board of directors, as set out in the OMERS Act, 2006. The SC has the pension plan design responsibilities and also determines appointment protocols of both boards of directors. OMERS' responsibilities relate to managing the assets of public sector employers including investments, pension plan valuations, and pensions administration. This governance framework was previously assessed in 2012 and is presently under review by the Ontario government in order to ensure transparency in decision-making with the expected conclusion in the Fall of 2025.

Plan Sponsors and Demographics of a Plan's Membership: AAA
The Plan's sponsor pool is well diversified across OMERS' 1,000 employers, providing stability to contributions which are mandatory. The benefits OMERS provides are funded equally from active members' and their employers' contributions, combined with investment income. Investment returns will constitute the majority of the funding for future benefit payments of today's active members. Morningstar DBRS considers OMERS to have reasonably good membership fundamentals with an adequate active-to-retired member ratio of 1.7 times (x) and a relatively young active membership.

Management Framework: AAA
The OMERS board of directors and its committees set the overall direction for risk-management activities and provide oversight related to investments and investment-related functions as well as governance and pension services. Enterprise Risk Management framework is prudent, addressing key risks including governance, strategic, investment, operational, and reputational risk. The board of directors-approved risk appetite provides guidance on risk taking, with effective stress testing in place. Average investment returns over the last 10 years are meeting the benchmark returns, reflecting robust investment risk management practices. Effective liquidity risk measurement and monitoring are in place.

Financial Resources: AAA
OMERS achieved a net return of 8.3% in 2024, surpassing its benchmark rate of 7.5%. In light of CAD depreciation, exposures to USD and other major currencies contributed positively to the returns across the portfolio, while real estate underperformed showing losses for 2024. Overall, OMERS net assets grew by $9.6 billion to $138.4 billion as of YE2024, well in excess of the pension payments of $6.5 billion. Liquid assets, comprised of cash, short-term deposits and U.S and Canadian government securities amounted to $18.2 billion as at YE2024 and significantly exceed pledged assets and pension payments. As such, OMERS holds sufficient liquid assets as well as marketable securities and other liquid resources including ample capacity related to the undrawn portion of the credit facility held by OFT that supports the commercial paper program. In addition to commercial paper capacity of up to $5.0 billion, OFT has the ability to issue term notes.

Funding Status: AAA
The Plan's funded ratio improved by one percentage point to 98% despite a decrease in the discount rate, which acts to increase the pension liabilities of the Plan. Solid investment returns as well as contributions led to this improvement. The discount rate was decreased in 2024, in accordance with the target to gradually bring the funded ratio to at least 100% by 2030. Nonetheless, the Plan's fund deficit stands at $2.9 billion as at YE2024. Mitigating the funding shortfall risk, shared risk indexing option, if implemented, allows for less than the full inflation protection on benefits earned after January 2023, thereby promoting shared responsibility for any funding shortfalls among retired members, active members, and employers; and in this way supporting intergenerational equity.

Liabilities: AAA
OMERS unconditionally and irrevocably guarantees the full payment of principal and interest in respect of the debt issued by OFT. Should OFT miss a payment, debtholders can demand payment from OMERS under the guarantee without having to first exhaust recourse to OFT. OMERS maintains, per the board of directors' policy, recourse debt at less than 10% of adjusted net assets. The recourse debt consists of $1.2 billion of commercial paper and $12.6 billion of term notes. OMERS also has a small amount of guarantees on debt that finances specific asset classes including infrastructure and real estate.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Canadian Methodology for Rating Public Pension Funds & Exclusive Asset Managers (June 3, 2025; https://dbrs.morningstar.com/research/455482). In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025; https://dbrs.morningstar.com/research/454196) in its consideration of ESG factors.

The following methodology has also been applied:
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025), https://dbrs.morningstar.com/research/447186

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at https://dbrs.morningstar.com .

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 600
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577