Sun Life not pursuing merger with bank, CEO says

(February 24, 2003) Sun Life Financial, Canada’s largest insurer, has no interest in merging with one of the country’s big banks, company CEO Donald Stewart suggested today in Montreal. Calling a bank-life insurance merger “fraught with risk,” Stewart said Sun Life is instead focusing on international expansion.

“It is not clear to us that a combination of Sun Life Financial with a major Canadian bank will fully benefit our stakeholders,” Stewart said in a lunch speech to the Canadian Club. “Synergies from any such combination would appear to be modest, so that increases in shareholder value would be minimal in relation to transaction risk.”

Last week, the head of the Senate banking committee said the federal government should allow banks and life insurers to join forces, suggesting such partnerships would sidestep the public interest concerns raised by bank mergers.

Stewart noted there are very few successful examples of bank-life insurer ownership combinations in the world. “If the experiences of Credit Suisse and Winterthur in Switzerland, Allianz and Dresdner in Germany and Lloyds Abbey in the U.K. are anything to go by, these combinations are fraught with risk.”

Strategic distribution alliances, such as the ones Sun Life has in India and Hong Kong, are more representative of the firm’s current thinking, Stewart said. “The Canadian life insurance industry has been highly successful in international expansion, which is where much of our future growth will arise, given our relatively small domestic market.”

Stewart’s remarks come as something of a surprise, considering the recent wave of consolidation in the financial services industry: Sun Life acquired Clarica in 2002. Late last year, Manulife announced a hostile bid for Canada Life, but appears to have been trumped by Great-West Life, which announced a friendly bid for Canada Life earlier this month. Reports suggest a proposed merger between Manulife and CIBC last summer was nixed by the federal government.

In his speech today, Stewart also touched on last week’s federal budget, praising Ottawa for agreeing to study tax prepaid savings plans and for increasing RRSP contribution limits to $18,000 by 2006. But he hinted RRSP limits should be raised even further.

“While these improvements build on a robust foundation and offer individuals full opportunity to build their own retirement savings, there is a strong need to continue in this direction, rather than freeze limits for long periods, as has happened in the past,” Stewart said.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca