December 17, 2012 6:09 pm

Sun Life sells US annuities business

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Sun Life Financial has become the latest life assurer to walk away from US annuities, agreeing to sell its business in the country for about $1.35bn in cash to backers of Guggenheim Partners.

The sale of the business, which has been hurt by persistently low interest rates, is Sun Life’s first big deal since Dean Connor became chief executive of the Canadian life assurer a year ago.

Shareholders in Guggenheim, the privately owned financial services group and asset manager, have set up a new company, called Delaware Life, to buy the Sun Life assets, which guarantees financial returns to policyholders. They are paying 1.2 times book value.

Weak investment returns have prompted several US life assurers – including Hartford Financial Services and Genworth – to scale back their annuities operations.

Private equity houses and investment managers have been eyeing acquisitions of such assets to boost funds under management and diversify their businesses.

Guggenheim, along with other parties including Apollo, has also been holding exclusive talks with the UK insurer Aviva about a deal to buy its US business, people familiar with the matter said.

Bankers said a deal may be announced within days.

Guggenheim will provide investment management for the Sun Life business. Todd Boehly, president of Guggenheim, said Delaware Life planned to build on the assets’ “impressive platform”.

Sun Life said it would use the cash raised from the sale to support its dividend and expand its operations elsewhere – particularly in Asia, where the Toronto-listed company has been considering acquisitions.

“This transaction represents a transformational change for Sun Life,” said Mr Connor. “It significantly advances our strategy of reducing Sun Life’s risk profile and earnings volatility.”

Sun Life shares fell 3.92 per cent to $26.74 in Toronto. The Canadian group estimated the sale would reduce earnings by about 22 cents a share next year.

The disposal of the annuities business, whose net operating income swung from losses of US$461m in the fourth quarter of 2011 to profits of $325m in the first quarter of this year, is subject to regulatory approval.

The company still has a back book of life assurance business in the US, which it has deemed “non-core”, as well as an employee benefits business and an asset manager. Sun Life earlier this year called off a prospective sale of its UK arm.

Barclays advised the Guggenheim shareholders and Morgan Stanley advised Sun Life, which said it expected to complete the disposal by the end of June.

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