(Corrects relationship between Delaware and Guggenheim in
* Delaware Life Holdings to pay $1.35 bln for business
* Delaware owned by shareholders of Guggenheim Partners
* Deal to cut Sun Life annual earnings by C$0.22/shr
* Sun Life's book value to drop by C$950 mln
* Its cash position will rise by C$1.9 bln
* Shares down 2.5 pct on Toronto Stock Exchange
By Cameron French
TORONTO, Dec 17 Sun Life Financial Inc
will sell its U.S. annuity business for $1.35 billion to a firm
connected to Guggenheim Partners in a deal that should reduce
the exposure of the insurer's earnings to market swings and
boost its cash levels.
Even so, shareholders pulled Sun Life's stock down by 2.5
percent on Monday after the Canadian company announced the deal,
which will reduce its book value and core earnings.
"The financial implications are more negative than we had
assumed both in terms of the book value decline and the ongoing
earnings impairment," CIBC World Markets analyst Robert Sedran
wrote in a research note.
Delaware Life Holdings, which is owned by Guggenheim clients
and shareholders, will rename itself Delaware Life Insurance Co
following the purchase. Guggenheim will provide investment
management services to the new company.
New York-based Guggenheim, which has about $160 billion in
assets under management, had in recent weeks emerged as the lead
bidder for the Sun Life assets, outbidding at least two other
parties, sources told Reuters in November.
Sun Life, Canada's No. 3 insurer, said last year it would
stop selling variable annuities and individual life products in
the United States to focus more on group insurance and voluntary
Variable annuities are retirement products that guarantee
the investor a minimum monthly payment.
They have become a source of earnings volatility for Sun
Life in the wake of the 2008 financial crisis, because of low
interest rates and Canadian accounting rules that force insurers
to take upfront losses on products that will not come due for
Weak equity markets and low bond yields sent Sun Life's
profit down by 87.5 percent during the second quarter of 2012
and caused losses during the third and fourth quarters of 2011.
The deal will cut Sun Life's profit by 22 Canadian cents per
share annually, and reduce the company's book value by C$950
million ($963 million), the company said in a statement.
According to Thomson Reuters I/B/E/S, Sun Life was expected to
earn C$2.53 per share on a net basis in 2013.
It is also expected to reduce the company's earnings
sensitivity to equity markets by 50 percent and its sensitivity
to interest rates by 35 percent, compared with its sensitivities
as of Sept. 30.
"This transaction represents a transformational change to
the company's business and supports our strategy of improving
our risk profile and reducing the volatility of earnings," Sun
Life Chief Executive Dean Connor said on a conference call.
The deal will also boost Sun Life's cash position by C$1.9
Sun Life shares were down 2.5 percent at C$27.14 on the
Toronto Stock Exchange on Monday afternoon.
Sedran said the earnings and book value reductions were
worse than he had expected.
"Moreover, while the decline in the earnings sensitivity to
market variables improves the risk-reward profile, we did not
view those sensitivities as excessive to begin with," he said.
However, he said the deal will free up time and capital that
would otherwise have been engaged in what is essentially a
closed business, which is a positive.
Morgan Stanley & Co advised Sun Life on the transaction,
which is expected to close by the end of the second quarter next
($1 = 0.9866 Canadian dollar)
(Additional reporting by Bhaswati Mukhopadhyay in Bangalore;
editing by Frank McGurty and Matthew Lewis)