By CAROLINE VAN HASSELT
TORONTO—Sun Life Financial Inc. has agreed to sell its life reinsurance business to Warren Buffett's Berkshire Hathaway Life Co., a move that enables the Canadian life insurer to bolster its highly watched regulatory capital levels.
Berkshire is buying a reinsurance unit that has life insurance in-force of C$113 billion (US$110.38 billion) and 70 people in offices in Canada, the U.S. and Ireland. Terms weren't disclosed. The transaction is expected to close Dec. 31.
Low interest rates are wreaking havoc for Canada's life insurers, prompting them to consider asset sales. Sun Life is also selling noncore assets to redeploy capital into areas where it sees growth, namely in the U.S., where it is making a big push to expand, in Asia and in its wealth-management business.
"Our reinsurance business is profitable but it is not a growth area," said Sun Life Chief Executive Don Stewart in a statement.
The transaction is expected to increase Sun Life's minimum continuing capital and surplus requirements, or MCCSR, by 10 to 14 percentage points, the company said. Its MCCSR ratio was 210% as of June 30.
A ratio of 100% means the company has adequate capital. The Office of the Superintendent of Financial Institutions, responsible for setting policy and monitoring the financial-services industry, requires life insurers to maintain an MCCSR ratio of at least 120% and expects them to target a ratio of at least 150%.
While Sun Life has much lower interest-rate sensitivity than its larger Canadian rival Manulife Financial Corp., analysts expect declining benchmark government bond yields to hurt third-quarter earnings, as the life insurers are forced to revise their actuarial assumptions on policies. Rising equity markets are expected to offset somewhat the impact of lower rates.
Sun Life and Manulife report their third-quarter results next week.
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