Thursday, September 10, 2009

(No.50) Pt.1 - Sun Life: Comments on its performance


The Toronto Star, Canada's largest circulation newspaper, published on Sept.9, 2009 an 'op-ed' opinion article I wrote presenting a Canadian view of the U.S. health care reform debate: "A puzzled Canadian ponders surreal U.S. health-care debate". It offers opinions posted previously on

The article can be read on the Star's website:


I intended to offer before now some comments on Sun Life Financial's current performance but was distracted by other insurance industry matters (q.v., column Nos. 46-49 in

Since Sun Life bought Clarica Life its Canadian operations have accounted for a large share of the company's total world-wide profits. Hence one might assume that it would be wise to properly fund those operations as well as to invest in their continued good health, especially Sun's distribution systems generating Canadian insurance and asset product sales. This has not been happening as I, among others, think it should have (see column Nos. 9 & 26 in

While I do not intend to rehearse here what I have said and written elsewhere, I will offer several comments you have not been hearing from the financial services 'paparazzi' to whom I have referred in previous columns and whose views are rarely distinguished by deep understanding of the reality of life insurance distribution. [Jim Daw, the award-winning business columnist for the Toronto Star and in my experience the most knowledgeable Canadian journalist when it comes to the insurance business, is an exception that proves the rule.]

-- The operating budget for Sun's Canadian career agency distribution system which accounts for 80+% of its sales of individual insurance premium in Canada has been effectively flat over the past 4-5 years, which means a de facto reduction in budget given the effect of rising costs and inflation on the operation of a proprietary agency system. Nor should one ignore the budget slashing imposed by Sun early this year on business units' 2009 operating budgets across the company (the likely impact on an already squeezed Canadian agency operation budget: my estimate -- as much as $15 million).

-- In terms of Sun's 2009 sales of new individual life and critical illness premium in Canada, I think it more likely than not they will end the year at least 10% behind 2009 plan, if not more. If they are off plan by more than 10% then 2009 sales are apt to be below actual sales in 2008. There are several reasons for this continuing pattern but an important one involves years of squeezing the resources supporting the career agency distribution system, a pattern which began before Sun took over Mutual/Clarica but one that continued thereafter.

-- Sun's proprietary career agency system in Canada, an immensely valuable asset and a key competitive advantage, has been the victim of a prolonged period of inadequate support by the company, a process which began in earnest when the senior management and board of the Mutual Life of Canada decided (unwisely in my view) to demutualize Canada's oldest and finest mutual life insurance company. This process then accelerated as Clarica Life ( its stock company successor) sought to impress the market and the financial services paparazzi with its financial performance as a 'new' stock company.

The momentum increased in order to stay in step with 'integration targets' arising from Sun's takeover of Clarica. Since then Sun seems to have been, however unintentionally (as indeed the Power crowd did for for awhile in their handling of the London Life career sales force) on a course of depreciating the value of the career sales force asset which it badly needed to compete more effectively in the Canadian individual insurance market-place.

In the post-takeover years it seems to me that several of Sun's senior management embraced the patently ridiculous assumption that a career sales force can, year after year, be expected to produce more and more based on less and less.

The reality is that Sun's proprietary, exclusive, career agency distribution system is for the company a significant if not the most significant competitive edge it has in both the individual insurance and asset product markets in Canada. It is an asset deserving of receiving from company coffers even a small fraction of the barrels of 'investment' dollars Sun has been putting annually in (to take just one example) its China operation -- one in which its ownership share is now even smaller. The odds of Sun achieving a 15% ROE on this investment ( if the calculations include all the relevant numbers over time) before, say, the passage of 15 years are only slightly better than the Queen appointing me Archbishop of Canterbury.

-- For a variety of reasons (insufficient Sun 'investment' in its Canadian career system is but one) the morale of Sun's exclusive career agents in Canada has been in decline. Such a decline affects agent loyalty to the company (and productivity for Sun) and their willingness to trust both what it says to them and the actions it takes or fails to take that agents regard as central to their interests and those of their clients. This pattern has even been reflected in certain annual media surveys of financial services sales intermediaries ( caution: I have long regarded these as flawed in survey methodology; however it must be admitted that the results are consistent in indicating lagging Sun sales force attitudes).

-- The current Sun career agency sales force of agents and managers in Canada is an organization of considerable complexity. Any career agency system is a challenging type of organization to operate successfully but especially so in Sun's case because of the diverse origins of those in its career agency system.

Its membership is comprised of agents and field managers who were recruited into and formerly belonged to the career agency systems of:

1. Mutual Life of Canada, the developer in Canada over decades beginning ca 1910 of the branch office, managerial, exclusive, inexperienced recruits financed and trained, career agency distribution system,

2. Prudential of England's Canadian career agency system (acquired by Mutual Life),

3. Metropolitan Life's Canadian career agency system (also acquired by Mutual Life),

4. the new agents recruited into the Clarica Life sales force (post-demutualization of Mutual Life),

5. the 300+ 'original' Sun Life agents ( mostly former members of the Sun Life Canadian career agency system before its gradual disintegration occurred in the 1990s) who, after the acquisition of Clarica by Sun, took up the offer to leave a non-exclusive relationship with Sun in order to join the exclusive, lifetime level commission system of the 'new' Sun career
agency system (i.e., the Mutual/Clarica career system Sun had just purchased, and finally

6. the new agents recruited into the current iteration of the Mutual/Clarica/Sun career agency system.

The attitudes and experience of the agents and managers in each of these segments are different to varying degrees as have been their expectations. In terms of the 'culture' of the Mutual/Clarica/Sun agency system some agents and managers have mixed about as well as oil does with water but stayed on anyway. Many others have left for various reasons.


Alastair Rickard