Sun Life Financial Inc., Canada’s third-largest insurer, is seeking a buyer for a U.S. annuities business that may fetch more than $1 billion, said people with knowledge of the matter.
Morgan Stanley is helping Sun Life solicit bids and has attracted interest mostly from investment firms, including Guggenheim Partners LLC and a company run by U.K. investor Clive Cowdery, said the people, who asked not to be named because the talks are private. Sun Life may pick a suitor for exclusive talks within days, one of the people said.
Sun Life said in December that it would stop U.S. sales of variable annuities and individual life insurance. U.S. asset managers such as Guggenheim, Apollo Global Management LLC and Harbinger Capital Partners LLC have bought annuities operations from insurers in part to get access to a stable pool of funds for their investment-management operations.
“The fact that they would be selling that book of business, not exiting the United States, is really a reflection of the fact that the game has changed for insurance companies,” Craig Fehr, a strategist for Edward Jones & Co., said yesterday during an interview in Bloomberg’s Toronto office. “It’s more a reflection of the broader environment. It’s about risk management for insurance companies.”
Frank Switzer, a spokesman for Toronto-based Sun Life, declined to comment, as did Mary Claire Delaney of Morgan Stanley, Torie von Alt at Guggenheim and Alex Child-Villiers, a spokesman for Cowdery.
Sun Life rose 0.9 percent to C$24.67 at 4 p.m. in Toronto trading. The shares have climbed 31 percent this year, the best performer on the six-company S&P/TSX Life Insurance Index.
Chief Executive Officer Dean Connor told investors in March that the insurer is seeking to have C$2 billion ($2.02 billion) in annual operating income by 2015 as it focuses on businesses in Canada and Asia, the MFS mutual-fund operation and group and voluntary benefits in the U.S. The company had operating income of C$104 million in 2011, hindered by costs for variable-annuity and segregated-fund contracts.
Annuities contracts offer savers regular income payments, and are often used for retirement planning. Aviva Plc is also seeking a buyer for its U.S. annuities unit, people with knowledge of the matter said last month. Apollo, Harbinger and Guggenheim all submitted offers for that unit, they said.
While most of the divisions bought recently by asset managers focus on fixed annuities, as does the Aviva business, Sun Life’s U.S. arm consists mostly of variable annuities, in which the ultimate payouts can vary based on the performance of the underlying investments.
Sun Life would reduce return-on-equity volatility and capital requirements if it were to sell its U.S. annuities business, Andre-Philippe Hardy, an RBC Capital Markets analyst, wrote today in a note to clients.