Canadian insurer Sun Life recently announced that it will exit the variable annuity and individual life insurance markets in the United States.
Continued equity market volatility has resulted in a variable annuity business that is plagued with uncertainty and higher costs.
Insurers such as Sun Life offer guarantees that are linked to the performance of underlying equity portfolios. These guarantees are a liability for the insurance company, and equity market volatility contributes to the cost of these liabilities.
When combined with a hyper-competitive product landscape such as the U.S. variable annuity market, the higher cost-basis results in what many market participants consider an unattractive market.
Sun Life is not the first insurer to make an exit from the U.S. variable annuity market.
Several of Sun Life’s competitors have made similar moves to either pare-back existing product lines or completely exit certain markets that are considered less attractive.
Similar to several of its competitors, Sun Life intends to focus on other countries and lines of business that are more attractive from a margin and return on equity standpoint.
Source: Bloomberg Businessweek
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