Sun Life Doing Robust Business in Variable Annuities

Canada's third largest life insurer, Sun Life Financial, is making news this week. First the company announced its interest in a U.S. acquisition, and then its stateside chief executive said that it's doing a robust business in variable annuities.
This should make investors, as well as the rest of the insurance market, sit up and take notice, since variable annuities have been nothing but a black eye for many insurers. In contrast, Sun Life Financial U.S. President Wes Thompson told National Underwriter that sales were up 64 percent to $2.5 billion this year over last year.

Variable annuities are insurance products based on the performance of a stock market index or basket of indices. They offer the opportunity to make money if the market goes up but, at the same time, the insurer guarantees some level of return even if the market goes down.

Unfortunately variable annuity sales hit their stride just prior to the recession, and many insurers promised too much in the way of downside protection. These insurers had to cover their losses - big time - when the Dow plunged to below 7,000 in early 2009 from its high of just over 14,000 in 2007.

With investors breathing new life into the stock market, which is now trading above 10,000, it's not surprising that well-run companies like Sun Life are making money at this again. But Thompson says the secret to his company's success is the migration of wholesalers who sell this product to Sun Life. So far this year, Sun Life has hired 43 new wholesalers, many of whom had "lost faith" in their previous variable annuity providers, he said.

It's not difficult to figure out where the defectors come from. Just look at the variable annuity insurers who had near-death experiences and were brought back with transfusions from the TARP Fund: American International Group, Hartford Financial and, to a lesser extent, Lincoln National.

But life insurers with similar products had better watch out. Sun Life is rolling out an aggressive ad campaign aimed at the NFL and college football audience. Sun Life sees a weakness in the U.S. life insurance market - and is exploiting it. Blame Canada.