Canada’s Sun Life Financial Considering U.S. Insurance Acquisitions

Canada’s Sun Life Financial Inc. said Thursday it is seeking acquisitions to expand its U.S. insurance business but believes organic growth is the better way to gain market share in mutual funds.

Sun Life, the fifth-largest insurer in North America by market capitalization, is making a push into the United States, aiming to take advantage of market consolidation after the financial crisis that crippled competitors like AIG.

“If we have opportunities on the insurance side of the business, where we can find blocks of business or perhaps companies that have the right type of business on their books now, with good risk characteristics, then we would be very interested in exploring those,” Sun Life President Jon Boscia said in an interview after the company made presentations in New York.

Announcing an advertising campaign aimed at U.S. baby boomers through outlets like NFL Football and Fox Television, Boscia said Canada’s third-largest life insurer is well-positioned to gain market share in the United States, free of the baggage of bankruptcies and bailouts that have plagued U.S. rivals.

Retiring Americans are looking to be reassured about the security of investments and annuities they need to supplement their U.S. Social Security income, as well about stability of the insurer or mutual fund company itself.

“Another way of looking at that is not only do they want to outlive their savings, they don’t want to outlive the provider of that cash flow either,” Boscia said.

As proof of its relative conservatism, Sun Life said it is willing to miss opportunities to expand its Boston-based fund manager MFS Investment Management through acquisitions, because they are often hard to harmonize.

The purchase of assets that Sun Life could easily transfer into the MFS franchise — grown organically over 85 years rather than through acquisitions — were another matter, however. “Those types of acquisitions we are interested in and would participate in,” Boscia said.

He said Sun Life would also keep its distance from some of the bargains on the U.S. insurance side if they involved troubled companies that have poor performing businesses on their books.

While there is growing appetite for life insurance products and annuities, which offer steady income and often supplement retirement savings, headwinds remain for the U.S. mutual fund business because Americans remain concerned about their jobs.

“As long as people are worried about their jobs they have the tendency to keep money in checking accounts and savings accounts, where it is more liquid and they don’t have a fear of a loss of principle,” Boscia said.

Despite the economic hurdles that remain, Sun Life said it was comfortable with its capital levels, unless cash is needed for a big acquisition.

“We’ve been consistent in saying we believe we have a very high quality capital position,” Boscia said, noting Sun Life issued C$500 million [US$472 million] in additional Tier I capital Wednesday.

Rival insurer Manulife Financial Corp surprised markets with a C$2.5 billion ($2.3 billion) equity financing Wednesday, diluting share values for a second time in less than a year.

The move by Manulife has raised speculation that the insurer either sees big clouds on the horizon and is being extra prudent in building fortress capital levels, or sees acquisition opportunities that will require extra cash.

The offerings sent shares of both insurers lower Thursday. Manulife shares dropped 7 percent to C$18.77 while Sun Life shares were down 3.8 percent to C$27.60 in afternoon trade on the Toronto Stock Exchange.

($1=$1.06 Canadian)

(Reporting by Andrea Hopkins; editing by Frank McGurty)