Sun Life President and CEO Dean Connor

A Canada-based life insurer is exiting the variable annuities and individual life products markets in the U.S.

Sun Life Financial Inc., Toronto, (NYSE: SLF), disclosed its decision on Monday to halt sales of its domestic U.S. variable annuity and individual life products effective December 30. The decision follows completion of a strategic review of the company’s businesses.

In a press statement, Sun Life President and Chief Executive Officer Dean Connor says that a desire to improve returns on shareholders’ equity and reduce volatility were among the factors contributing to the company’s market reorientation.

“The decision to discontinue sales in these two lines of business is based on unfavorable product economics which, due to ongoing shifts in capital markets and regulatory requirements, no longer enhance shareholder value,” says Connor. “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.

“The decision to stop selling variable annuity and individual life products in the U.S. will not impact existing customers and their policies,” he adds.

Going forward, says Connor, Sun Life will seek to strengthen its business in four key areas, including: (1) insurance, wealth management and employee benefits; (2) group insurance and voluntary benefits in the U.S.; (3) investment/asset management (including MFS, a SunLife’s investment manager that has a large U.S. presence and more than $250 billion (U.S.) of assets under management globally); and (4) Sun Life’s market presence in Asia.

“To achieve growth in the U.S., we will focus on increasing sales in our employee benefits business, which is already a top ten player, and will expand our presence in the growing voluntary benefits segment,” says Connor. “We are confident that with the focused investment announced earlier this year we can build leading positions in these two sustainable, less capital-intensive businesses.” 

Sun Life says the strategic repositioning should not materially impact its 2012 operating net income. (In November, Sun Life recorded an operating loss of $572 million (CDN) for the third quarter of 2011, compared with operating net income of $403 million in the same period last year.)

The estimated one-time transition cost associated with the discontinuation of these products is approximately $75 to $100 million on a pre-tax basis, a portion of which will be recorded in the fourth quarter of 2011, with the remainder expected to be charged to income in 2012.

The company adds the changes entail no immediate impact to the risk-based capital ratio of Sun Life Assurance Company of Canada (U.S.) or to the minimum continuing capital and surplus requirements ratio of Sun Life Assurance Company of Canada.

In addition, as of September 30, 2011, Sun Life has $97 million of goodwill associated with variable annuity business in SLF U.S., which the company says will be reviewed and likely written down as part of the company’s decision to discontinue sales of the product.