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Sun Life Sees China Insurance Venture Turning Profitable in 2015

Sun Life Financial
Sun Life is seeking to expand in higher-growth regions, including in China, the world’s fourth-largest insurance market, while it exits some U.S. businesses such as variable annuities and individual life insurance. Photographer: Brent Lewin/Bloomberg

Sun Life Financial Inc., Canada’s third-largest insurer, expects to become profitable in the Chinese market in 2015, ending more than a decade of losses after obtaining status to do business as a local insurer.

The insurance company seeks to raise net income contribution from Asia to 12 percent in 2015 through organic growth, up from 8.3 percent last year, Chief Executive Officer Dean Connor said. The Toronto-based firm would require acquisitions in the region to bring that level to the 15 percent to 20 percent range that would be high enough to matter to investors, he said.

Sun Life is seeking to expand in higher-growth regions, including in China, the world’s fourth-largest insurance market, while it exits some U.S. businesses such as variable annuities and individual life insurance. Profits from China would help the insurer meet net-income targets that Connor said were “ambitious” without acquisitions.

“Now the challenge is to take the benefit of that scale and make the business profitable,” Connor said in an Oct. 18 interview in Beijing. “We’re targeting to break even next year, and then profit should come after that.”

Premium income at Sun Life Everbright Life Insurance Co. jumped after Sun Life cut its stake in the joint venture set up in 2002 with state-controlled China Everbright Group Ltd. The Canadian company cut its stake to just below 25 percent in 2010, giving it the legal status of a Chinese insurer and allowing it to open branches across the country at a faster pace.

Sun Life in August revised its net income target for 2015 to C$1.85 billion ($1.8 billion) from C$2 billion, after the sale of its U.S. annuities unit to Guggenheim Partners LLC shareholders for C$1.35 billion as it seeks to cut risk.

‘Ambitious’ Target

“To achieve that organically is ambitious, but achievable,” Connor said. “We’re also out, looking at potential acquisitions, but the nice thing is we don’t need an acquisition to achieve our aspirations.”

Sun Life announced a deal in January with Khazanah Nasional Bhd to buy 98 percent of Aviva Plc’s and CIMB Group Holdings Bhd’s Malaysian insurance joint venture for 1.8 billion Malaysian ringgit ($571 million). Such deals won’t be limited to Asia if the company can find “suitable acquisitions that make sense” in its other major business areas such as asset management and U.S. group insurance, Connor said without naming any potential targets.

Premium income at Sun Life Everbright in 2010 exceeded the venture’s combined sales in the previous seven years, the company said. The status as a local insurer also helped the joint venture win regulatory permission to set up an asset-management unit, which is already contributing to its profit after becoming operational last year, Connor said.

Unequal Treatment

Foreign insurers struggled to expand their market share in China, due to barriers including a joint-venture requirement on life insurance and unequal treatment in branch approvals, PricewaterhouseCoopers LLP said in a report in September 2010 that surveyed 31 foreign companies including Sun Life Everbright.

Overseas insurers accounted for 5.1 percent of China’s life insurance market by premiums in the first eight months of this year, up from 4.8 percent in 2012, according to China Insurance Regulatory Commission data.

Profitability in China will mainly be from a better product mix, expense management and a higher percentage of regular-premium policies, as the company takes a “more selective” approach to growth, Connor said, adding that premium growth will decline this year because of the strategy.

Premiums for Sun Life Everbright slid by 21 percent to 2.3 billion yuan in the first eight months of this year, compared with 4 billion yuan for the whole of 2012, CIRC data showed.

“We’re very pleased with the progress towards break-even,” he said.

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