Sun Life sells U.S. annuity business, shares drop

Mon Dec 17, 2012 4:35pm EST
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By Cameron French

TORONTO (Reuters) - Sun Life Financial Inc (SLF.TO: Quote) will sell its U.S. annuity business for $1.35 billion to a firm connected to Guggenheim Partners in a deal that should reduce the exposure of the insurer's earnings to market swings and boost its cash levels.

While the deal could bring long-term benefits to Sun Life, whose earnings have been derailed by wild market swings during recent years, investors pulled the company's shares down by nearly 4 percent as the financial terms fell short of initial expectations.

"The stock's sort of correcting back because the deal isn't quite as big a windfall as I think the market was anticipating," said National Bank financial analyst Peter Routledge.

Delaware Life Holdings, owned by certain Guggenheim clients and shareholders, will rename itself Delaware Life Insurance Co following the cash purchase. Guggenheim will provide investment management services to the new company.

Sun Life, Canada's No. 3 insurer, said last year it would stop selling variable annuities and individual life products in the United States to focus more on group insurance and voluntary benefits.

Variable annuities - retirement products that guarantee the investor a minimum monthly payment - became a source of earnings volatility for Sun Life in the wake of the 2008 financial crisis. That is because low interest rates and Canadian accounting rules force insurers to take upfront losses on products that will not come due for years.

"The business makes money, but not enough," said Routledge.

Weak equity markets and low bond yields sent Sun Life's profit down 87.5 percent during the second quarter of 2012 and caused losses during the third and fourth quarters of 2011.   Continued...

Sun Life Financial President and CEO Dean Connor speaks at their annual general meeting for shareholders in Toronto, May 10, 2012. REUTERS/Mark Blinch