Annuities Become An Unsustainable Drain On Sun Life Profits, Forcing The Company To Exit The Space

Tuesday, December 13, 2011 08:45
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Annuities Become An Unsustainable Drain On Sun Life Profits, Forcing The Company To Exit The Space

Tags: annuities

While many have complained about annuity contract pricing, the products simply were not profitable enough to keep a $2 billion player in the business.

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Industry insiders say Sun Life Financial was hamstrung by its Canadian partner's strict accounting rules, which forced it to report a $560 million loss in the recent quarter instead of roll it over or hide it.

 

This is a huge number for a company that generated maybe four times as much money in revenue from annuity product sales last year.

 

Effectively, Sun Life was breaking even, no matter how many miscellaneous fees it managed to charge.

 

The problem was that the underlying investments simply weren't generating what they needed to make their required annuity payouts.

 

That's a good situation for investors, but Sun Life evidently wants no part of that.

 

They are ending their U.S. annuity sales effort and laying off 800 people.

Comments (4)

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vguettlein
Hmmmm, so with proper accounting (vs Congressional accounting), we are to learn that insurance companies must invest by the same rules as the rest of us - that is to say, low interest rates affect them too! Econ 101 - TANSTAAFL (There Aint No Such Thing As A Free Lunch!). Perhaps we are seeing an annuity bubble? Now, if only insurance companies had the same advertising and disclosure requirements as the advisory world does.
vguettlein , December 13, 2011
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ScottMartin
That's pretty much the impression I get. The carriers theoretically had economies of scale and a theoretically infinite investment horizon on their side and they're still not making their numbers. No wonder they've been a little edgy lately.
ScottMartin , December 13, 2011
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vguettlein
It's always helpful for us all to remember that there are only 100 pennies in a dollar, no matter how you slice, dice, or shave it. Only by cooking the books can more be seemingly had.
vguettlein , December 13, 2011
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mitchellkeil
So now what? The thousands of cutomers (not clients) who purchased the Sun Products and the salespeople who sold them are to do what now that Sun is existing the annuity space? If the company is laying off 800 people, who will answer the phones when there is a question about the product or a need for service? What happens to ongoing monitoring of the asset managers in the various sub-accounts? Does SUn sell its book of business to another insurance company and saddle it with unprofitable business. (We have seen this before in the LTC and disability space.) How did that strategy work out? Not well given the increases in costs that were passed on to policy holders as premium increases by the acquiring companies and the re-defining of contract language.) Is this the beginning of some real upheavals in the annuity business?
mitchellkeil , December 19, 2011

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