Sun Life take a Fourth Quarter Annuity Loss

By on March 21, 2012 at 12:00 am

Sun Life Financial Inc is the third largest insurance company operating in Canada. During the fourth quarter of 2011, the company announced a loss of $525 million. The loss was blamed on costs associated with the companies variable annuity program and segregated fund contracts.

The losses were valued at $525 million dollars, in line with the November estimates of losses reaching $550 million. Canada’s top insurance carrier also reported losses for the fourth quarter of 2011. The number two carrier reported an increase of $500 million for the final quarter of 2011, a raise of 7.5 percent from 2010.

The loss for Sun Life Financial marks the second quarter of losses for the company, causing investors to question the stability of the company in the near future.

$636 million dollars worth of the losses were blamed on new accounting rules, changing how insurance companies record their accounts based in the United States. These short term losses were a one-time accounting change, bringing the company with new requirements in America for reporting account values. The change ensures Sun Life Financial will not face a similar change in 2012 or stiff penalties for violating US accounting laws.

Sun Life Financial also announced they will end their variable annuity account programs in the United States. The reasoning were low profits in a saturated marketplace, combined with high administrative costs of the accounts. The costs were cutting into returns for investors and the company, as the United States’ complex set of requirements became too burdensome to overcome.

Other foreign companies are looking at leaving the US annuity markets for the same reasons. These departures open up new possibilities for American companies, familiar with the complexities in the American markets. Many American companies have exemptions from the most complex requirements in the American annuity market.

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