Sun Life to stop selling variable annuity, individual life products in U.S.

The decision came after Connor began a strategic review of its business last summer, shortly after it was announced he would take the reins of the insurer.

“Our main focus for the last four or five months has been our strategy and the path going forward,” Connor said in an interview.

“It’s received an awful lot of focus, dialogue and debate… and we’ve come out in a place that I personally, and I know our executive team and our board, are very enthusiastic and energized (about).”

Sun Life said the move will not affect existing policyholders and is not expected to have a material impact on its 2012 operating net income.

The insurer will book a one-time, before tax charge of between $75 million and $100 million, some of which will be accounted for in the fourth quarter of 2011 and the rest in 2012.

Shares of the company were 52 cents higher in late morning trading at $18.84 on the Toronto Stock Exchange.

One of the attractions of variable annuity products to investors is that they offer a minimum rate of return guaranteed, which can cost the insurer when markets are underperforming.

The combination of a market downturn with a substantial increase in the amount of capital required by regulators, has made variable annuities less attractive, Connor said.

“That kind of volatility in interest rates and equities and hedge costs, when it’s applied to our business, has created too much volatility for our shareholders,” he said.

Sun Life faced massive charges in the third quarter as it hedged against future liabilities related to the insurance products, dropping it to its first quarterly loss in two years. The impact was mostly a result of U.S. operations which took a more than half-billion-dollar hit due to stock market chaos.

Last month, Sun Life said about $200 million of its third-quarter loss was related to an annual update of its actuarial methods and estimates — used to calculate the company’s obligations under various products sold. However, the insurer didn’t specify how much of the hit would be from equities and how much from interest rates.

“We will continue to drive growth in Sun Life Canada with more accelerated growth through the career sales force, growth in the retail wealth business and growth in our group pension and benefit businesses,” Connor said on a conference call.

“Over time, we will shift more of our capital into businesses that are growing, businesses that generate less volatility, and higher returns on shareholder equity.”

Connor pointed to Asia as a key area of growth for Sun Life in the coming years. With a presence in China, the Philippines, India, Indonesia and Hong Kong, the company generates about $100 million a year of run rate earnings.

“We see this as a significant opportunity that deserves a richer concentration of the company’s resources,” he said.

Connor took on the lead role at the end of November when former CEO Donald Stewart retired. He previous served at Sun Life’s chief operating officer.

Sun Life also appeared to hold steady on its quarterly dividend payments of 36 cents a share, though Connor suggested it could reconsider if the economy stumbles further. He said the company could look at selling non-core businesses as an alternative to cutting the dividend.

CIBC analyst Robert Sedran said the comments clarify Sun Life’s stance on dividend payments, which he said have been on somewhat uncertain ground lately.

“The support for that dividend, which, in our opinion, was clearly provided through management comments on the call, should be quite positive for the shares,” he wrote in a note, while keeping the company as a “sector performer.”

Sun Life employs about 16,000 people, including 7,000 in Canada, and has insurance, wealth management and mutual fund operations around the world.