Lincoln losses seen as Sun Life distribution arm’s gain

The hiring of three former Lincoln National Corp. executives at Sun Life Financial Inc. is expected to strengthen the distribution arm of Sun Life and increase its U.S. profile, according to industry experts.

The addition of the three executives would beef up Toronto-based Sun Life’s U.S. business and quell analysts’ concerns about the viability of the company’s annuity business here, said Tamiko Toland, editor of Annuity Insight, a variable annuity research service run by New York-based Strategic Insight Mutual Fund Research and Consulting LLC.

On Oct. 6, Westley V. Thompson, former president of retirement solutions at Philadelphia-based Lincoln National, started at Sun Life, and Terrence J. Mullen, ex-chief executive of Lincoln Financial Distributors Inc., a Radnor, Pa.-based subsidiary, is scheduled to start Oct. 20.

They are joining Jon A. Boscia, ex-chief executive of Lincoln, who will become president of Sun Life Financial on Tuesday and oversee the company’s overall worldwide marketing and U.S. business except for its mutual fund subsidiary MFS Investment Management of Boston. He left Lincoln in August 2007.

Mr. Thompson will be president of Sun Life Financial U.S. in Wellesley Hills, Mass., overseeing all business lines under that unit, and Mr. Mullen will begin as president of Sun Life Financial Distributors Inc. of Wellesley Hills, overseeing distribution at Sun Life’s employee benefits group, as well as life and annuities products.

A major weapon in Lincoln’s arsenal has been its wholesale distribution arm, Lincoln Financial Distributors, and Mr. Mullen and Mr. Thompson both worked at the unit. The latter ran the distribution team prior to joining Lincoln’s employee benefits business.

Additionally, Sun Life’s U.S. business has been in need of improvement, according to the industry. Rough equity markets, currency valuation differences between the Canadian and U.S. dollars, and credit-related losses linked to asset sales in the U.S. business all played a role in Sun Life’s $35 million decrease in profits in the first half this year, compared with the comparable period in 2007.

The company reported a $1.05 billion profit for the first half.

“It was evident that something needed to change, so it was, ‘Are you going to fix it or are you going to sell it?’” Ms. Toland said. “My guess is that by making the move of hiring the folks from Lincoln, it’s a statement of [Sun Life’s] commitment to the business.”

Steven Schwartz, an analyst with Raymond James & Associates Inc. of St. Petersburg, Fla., agrees.

“I don’t follow Sun Life, but they’re not the presence that Lincoln is,” he said. “Jon, Terry and Wes could certainly help build that presence.”

Both companies have managed to come out with strong products. Lincoln has its i4LIFE Advantage, a VA feature that it released last year as an option for defined contribution plans. Sun Life has its Income ON Demand VA option, which allows users to defer and save their withdrawals for later use.

ACQUISITION GOSSIP

Gossip of Lincoln’s prospects as an acquisition target started circulating after Mr. Boscia’s retirement from Lincoln, analysts noted.

“One of the rumors that [stems from] Boscia’s leaving so abruptly is that he was interested in pursuing a merger between Sun Life and Lincoln,” Mr. Schwartz said. According to that rumor, the idea was supposedly turned down by Lincoln’s board, fueling the departure, he said.

“I have no idea if that rumor is true,” Mr. Schwartz said. “But it’s interesting that he ended up at Sun Life and brought two of Lincoln’s top lieutenants with him.”

As to Lincoln’s ability to survive without the Thompson-Boscia-Mullen triumvirate, “Lincoln has a deep bench, there’s no doubt about it,” Mr. Schwartz said. “Jon’s been off for a year, and they can run without Wes and Terry.”

Although nothing has been announced on the buying front, observers pointed out that Sun Life Financial is positioned for a major purchase, and it probably won’t run into the same financing difficulties plaguing U.S. companies.

However, spun-off subsidiaries from American International Group Inc. of New York, such as AIG American General Life Cos. and The Variable Annuity Life Insurance Co., both of Houston, would also make handsome acquisition targets.

Those would be likelier purchases for Canadian insurers, such as Sun Life, according to analysts.

“In this market, anything is possible, but it’s a tough environment for mergers and acquisitions to occur. AIG’s life companies are more tangible,” said Joel Levine, senior vice president of U.S. life and health insurance at Moody’s Investors Service in New York. He declined to comment on takeover prospects but said that sometimes an executive departure is just that.

“Boscia is a young guy, so I’m not surprised he’d want to reinvent himself and poach a few people — this is what senior executives do,” Mr. Levine said.

E-mail Darla Mercado at [email protected].