Sun Life Financial Inc.'s exit from the U.S. variable annuity and individual life insurance businesses has raised concerns among broker-dealers and other distributors about the shrinking pool of carriers.
Canadian carrier Sun Life said it would cease sales of new VA and life insurance policies, effective Dec. 30. The company's management blamed stock market volatility and depressed interest rates for the pullback. Some 800 jobs globally will be affected, with the majority in the U.S.
The carrier was also hamstrung by Canadian capital requirements, which are more onerous than those in the U.S., particularly with regard to variable annuities. Sun Life ranked 13th among variable annuity sellers, with $2.3 billion through Sept. 30, according to data from LIMRA.
Sun Life's departure from the market comes at a time when the insurer has been ramping up its presence in the U.S. That ramping up included acquiring the naming rights in 2010 Miami's Joe Robbie Stadium, now Sun Life Stadium, According to figures cited by Street & Smith’s SportsBusiness Journal, the totoal cost of the five-year contract was $37.5 million. The New York Times pegged the price at $20 million.
News of the company's departure, discussed on an investor conference call today, was a surprise to distributors and analysts alike.
“They were No. 5 on our system through November,” said Kraig Lange, first vice president and manager of the insurance department at Stifel Nicolaus & Co. Inc. He had heard the news this morning from one Sun Life's account representatives. “There are so few players left in the market and right now, one of my overall long-term concerns for the VA market is having ample suppliers to make good competitive choices available to the customers,” Mr. Lange added.
The major carriers — many of whom are looking to rein in variable annuity sales — likely will see more business as Sun Life exits the business, Mr. Lange said.
RELATED ITEM Where does Sun Life rank among advisers' favorite VA carriers? »
This is not the first time the carrier has backed away from the annuity business. When the dot.com bubble burst in 2002, Sun Life took great pains to curtail VA sales. It decided to return to the business after bringing Lincoln National Corp. veterans Wes Thompson and Jon Boscia on board, growing its VA distribution in the U.S. A massive advertising and wholesaling campaign followed.
“They wanted a major push to add VA distribution; they had some success in growing the business, and now they're shutting it down,” said Mario Mendonca, a life insurance analyst at Canaccord Genuity. “It's odd that they would shut it down like this.”
He noted that, should equity markets and interest rates improve to a point where it would make sense to return, it would be hard to win over broker-dealers and other distributors who find the insurer too fickle for their tastes. “How do you go back to the distributors you wooed to the system? How do you get them to come back? You don't,” Mr. Mendonca added.
Sun Life spokesman Frank Switzer noted that the insurer had signaled in the past that it wanted to pull away from long-dated guaranteed products, namely when it left the universal life insurance business last year.
Nevertheless, the call by CEO Dean A. Connor — who officially took the reins as chief executive on Dec. 1 — was a courageous one and one that insurers don't particularly enjoy making, Mr. Mendonca said. Mr. Connor, previously chief operating officer, was in July named to succeed Donald Stewart, who has retired.
In the future, the insurer will concentrate on employee benefits and continue to bolster growth in MFS Investment Management, in which it is a majority owner.
