Tuesday, June 16, 2009

Sun Life's UK Acquisition Adds to Existing Run-off Operations

  
Scotia Capital, 16 June 2009

• Sun Life is buying Lincoln's U.K. operations for C$359 million cash.

Implications

• Virtually all of what Sun Life picks up is a runoff block of individual insurance and annuity policies, with nearly £4B of assets, about 60% of the size of Sun Life's current U.K. runoff business (£6.5B of assets, about 8% of SLF's bottom line).

• Sun Life says it's $0.08-$0.10 per share accretive in 2010, which implies the ROE on the Lincoln block of runoff business is a profitable mid-to-high teens, (1. Lincoln, in need of capital, was a bit of a desperate seller, shedding non-core. 2. runoff business, versus ongoing business, can be profitable to a lifeco since there are no commissions and other selling xpenses, and 3. SLF will likely benefit from synergies in combining two runoff operations together).

• Cash for deal might come out of holdco, but if it came out of Sun Life's operating life companies the impact on capital is an immaterial three to five points on the company's MCCSR.

Recommendation

• Good small tuck-in deal. Sun Life's likely not done buying. Reiterate 2-Sector Perform.
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