Tuesday, July 18, 2006

Sun Life Signs China Pension Deal

The Globe and Mail, Sinclair Stewart, 18 July 2006

Sun Life Financial Inc. has signed a deal to distribute pension products through one of China's largest state-owned banks, an arrangement that is believed to be the first of its kind for a foreign insurer.

The move will give Sun Life a head start in the race to cash in on "enterprise annuities," a fledgling market that is viewed as one of the fastest-growing opportunities in China's deregulating financial sector.

Enterprise annuities are essentially corporate pension policies, and resemble group retirement plans in Canada or 401K plans in the United States. The Chinese government handed out licences to about 15 fund managers last year enabling them to offer the product, and is hoping it will become sufficiently popular to stave off what some fear could be a retirement funding crisis for the country's aging population.

Currently, the entire market is only worth about $13-million, but that number is expected to boom to approximately $55-billion in the next four years, according to independent research cited by Sun Life.

That would far exceed China's $25-billion (U.S.) National Social Security Fund, which was created to help bridge pension shortfalls, and in the process provide another lucrative source of fees for fund managers.

"The government is very much encouraging corporations to form these programs to help support the pension reform," said Janet De Silva, president and CEO of Sun Life Everbright Life Insurance Co., the insurer's 50-50 joint venture with China Everbright Group Ltd.

The annuities will be sold through the group's banking arm, China Everbright Bank.

Ms. De Silva said the enterprise annuities business will be a "very significant" part of Sun Life's growth plans in the world's most populous country. In Canada, Sun Life has lobbied against allowing banks to sell insurance products through their branches, but has made use of these very channels to fuel its expansion in India and China. The insurer has maintained that these markets are different, since they don't have the same concentration of banking powers in only a few hands.

Sun Life is targeting a top-10 position among all life insurers in China -- right now it is in the top 15 -- and intends to have a presence in 50 cities by 2009. Right now it has offices in seven cities, including Beijing, Tianjin and Hangzhou.

Yet it is competing against larger, foreign-owned insurance rivals, as well as state-run financial colossuses that have hands in banking, insurance, asset management and brokerage services.

"In the Chinese market, the competition in the life insurance industry is very fierce," acknowledged Xu Bin, the chairman of Sun Life Everbright, and former head of China Everbright Bank. "In the future, I think, according to a Chinese saying, we should give full play to our strengths and avoid our weaknesses."

Mr. Xu Bin is spearheading a delegation of about 15 officials who are in Toronto for the joint venture's first board meeting on foreign soil, which will be held today. He maintained that one of Sun Life Everbright's advantages is that both partners are rooted in the financial sector, something that is not always the case when Western banks or insurers look to team up with Chinese enterprise.

China Everbright Group has assets of 550 billion yuan, or about $80-billion (Canadian), while China Everbright Bank is ranked as the 10th-largest player in the country.

Initially, Sun Life will push its pension products through the bank's network of 370 branches, and support the bank's annuity offerings. Eventually, the plan is for China Everbright Bank to distribute Sun Life's life and health insurance products as well.

Mr. Xu Bin, who is also a vice-chairman of the China Everbright Group parent company, said the bank is also preparing for an initial public offering of its shares.

Amid the gold rush to grab a piece of China's emerging financial sector, skeptics have voiced concerns about the quality of the banking industry's books and its corporate governance regime.

Mr. Xu Bin acknowledged that the joint venture is benefiting from Sun Life's greater breadth of experience, and said the board meeting in Toronto has provided a first-hand opportunity for some of his Chinese officials to see how the business functions in Canada.

"I think Canadian people are very easy-going," he said, insisting that he was not saying this for the benefit of Sun Life CEO Donald Stewart, who was seated beside him at a conference table.

"Sun Life has more than 100 years of history and have shown their financial strength . . . but in our corporation they treat us on an equal basis. They never say you should listen to me because I'm bigger and stronger than you."