* CEO says would rather buy assets than let money sit
* 10-year bond yields hover below 2 pct
* Sun Life, Khazanah buy Aviva Malaysian JV
* Canadian insurer focused on Asia growth
By Cameron French
TORONTO, Jan 17 (Reuters) - Low bond yields have taken a nasty bite out of Sun Life Financial Inc's profits over the last few years, but they're also helping drive the insurer's latest push to expand overseas.
With benchmark 10-year yields below 2 percent in both Canada and the United States, and shorter-term rates even worse, the insurer can put its cash to work more effectively by investing in growth, the chief executive of Canada's third-largest insurer told Reuters.
"Interest rates are so low today, the returns we're earning on the cash are lower than any of us would like and so if you can put that cash to work in businesses that are earning good returns that's a good use of that cash," said CEO Dean Connor.
Sun Life put some of that cash to work on Thursday, announcing it will partner with Malaysian state investor Khazanah to buy Aviva Plc's Malaysian insurance joint venture with lender CIMB Group for 1.8 billion Malaysian ringgit ($597 million).
The cash deal will allow Sun Life to enter its fourth market in Southeast Asia, a region where it sees compelling demographics and a general lack of penetration of insurance products.
It follows the insurer's agreement last year to sell its U.S. annuity business for $1.35 billion to U.S. firm Delaware Life Holdings, part of a multi-year plan to reduce the company's exposure to weak markets.
Once that deal closes, expected around mid-year, Sun Life will have more ammunition for hunting takeovers. The company has stated its growth goals lie in Asia, as well as in its global asset management business and its U.S. group insurance and voluntary benefits businesses.
"We continue to be in the deal flow, we continue to look at opportunities," Connor said.
Sun Life, along with Canadian rival Manulife Financial Corp , were hit hard by the 2008 market crash, which turned many of their insurance and investment products into money-losers and forced them to take billions in charges.
Falling bond yields in the wake of the crisis have added to their problems, forcing them to set aside reserves to make sure their vast investments are sufficient to pay their future life insurance policy payout obligations.
Both companies have since been busy hedging their market exposure and jettisoning higher-risk businesses - such as Sun Life's annuity sale - and their shares have begun to respond.
Sun Life charged ahead 40 percent last year, leading Canadian financials higher.
However, the stock - which hit an 18-month high of C$28.38 on Thursday - is still trading at just half of its all-time high from late 2007, and Connor is reluctant to use the company's shares as currency to make acquisitions.
"In theory, it would give you a bit more firepower if you chose to make an acquisition with stock. For us in the short term that's less of an issue because post the sale of our U.S. (annuities) business, we'll have a fair bit of cash on the balance sheet," he said.