NEW YORK U.S. institutional asset manager Guggenheim Partners has emerged as the lead bidder for Sun Life Financial Inc's (SLF.TO) variable annuity business, in a deal that could fetch more than $1 billion, according to people familiar with the matter.
Guggenheim Partners has outbid at least two other parties - British financial services firm Resolution Group and U.S. private equity firm JC Flowers - in the auction for the Sun Life unit, the four sources said this week.
Resolution and JC Flowers are no longer working on a deal, leaving Guggenheim in pole position to win the auction, said the sources, who requested anonymity because they were not allowed to speak publicly about the deal. The negotiations are continuing and could still fall apart, they added.
Canadian insurer Sun Life, Resolution and Guggenheim declined to comment. JC Flowers did not immediately respond to requests for comment.
Sun Life, the third-biggest insurer in Canada, announced in December that it would stop selling variable annuities and individual life products in the United States to focus more on group insurance and voluntary benefits.
Variable annuities are insurance contracts that guarantee the investor a minimum monthly payment. They are usually used for retirement planning.
Many insurers have struggled with their variable annuity businesses because providing guarantees to investors has been particularly costly owing to low interest rates and market volatility, said Peter Routledge, an analyst with National Bank Financial.
Also, Canadian accounting rules require insurers to take losses upfront on investments and obligations that will not come due for years, whereas Sun Life's U.S.-based competitors are able to smooth out the impact over several years.
"There is a lot of earnings volatility associated with this kind of business," Routledge said.
Guggenheim, meanwhile, is also providing capital to Apollo Global Management LLC APO.N. to support its bid for Aviva Plc's (AV.L) U.S. life insurance and annuities unit, according to one of the sources.