You probably heard about Sun Life Financial’s recent decision to exit the variable annuity and individual life product markets in the United States, effective Dec. 30, 2011.
The announcement came from newly appointed Sun Life President and CEO Dean Connor, who said the decision to abandon the two lines of business was based on unfavorable product economics. “This decision reflects the company’s intensified focus on reducing volatility and improving the return on shareholders’ equity by shifting capital to businesses with superior growth, risk and return characteristics,” Connor said in a press statement about the announcement.
While Sun Life’s VA business had been struggling and the company reported a $572 million operating loss in 3Q 2011 — the first loss in two years — the move can still be looked at as a surprise. The company had been a significant player in the VA market, and its 2010 annual report listed “top-line growth” in individual life and annuities as an objective.
The move is expected to result in the reduction of about 800 positions, mostly in the United States — about 30% of Sun Life’s U.S. workforce.
The decision marks the latest chapter in the company’s revolving approach to direct sales to consumers. A massive ad campaign trumpeted Sun Life’s reentry into the VA market back in 2002, and the company stepped up its marketing efforts again in 2010 by purchasing the naming rights for around $37 million to the football stadium in Miami (Sun Life Stadium) where the NFL’s Dolphins play and the Discover Orange Bowl is held. That deal runs through 2014.
The announcement has been largely seen as another blow to an already struggling VA market, which has been negatively impacted by high market volatility (a major source of hedging and reserve requirement headaches for promises made by popular GLWB options) and the continued low interest rate environment.
The reason why individual life insurance products got the ax seems somewhat like a case of guilt by association — Sun Life’s distribution network largely wedded VAs and life insurance, so the same people selling their VAs were also selling their life insurance products. It would make little sense to keep offering one line without the other.
Moving forward, Connor said Sun Life will seek to strengthen its business in four key areas:
• Continuing to build on its leadership position in Canada in insurance, wealth management and employee benefits;
• Becoming a leader in group insurance and voluntary benefits in the United States;
• Supporting continued growth in MFS Investment Management and broadening Sun Life’s other asset management businesses around the world; and
• Strengthening Sun Life’s competitive position in Asia.