Tuesday, September 19, 2006

Life Insurance Cos' Excess Capital

Scotia Capital, 19 September 2006

• Great-West Lifeco's business is the least capital intensive of the group and IAG's is the most, with Manulife and Sun Life in the middle. With little in the way of share buybacks we expect Great-West Lifeco to rapidly rebuild excess capital (currently $500 million) and continue to make tuck-in acquisitions in Europe and/or the United States. We expect IAG to rebuild its excess capital ($80 million) back to pre-Clarington acquisition levels and then look to make an acquisition in the U.S. We expect Manulife to gradually chip away at its excess capital position ($3.3 billion) through increased buyback levels and payout ratio increases. For Sun Life, we expect the company will still look for U.S. acquisitions for its sub-scale U.S. insurance assets as well as maintaining a modest increase in share buyback and dividends. As such, we expect its excess capital position (currently $1.5 billion) to only arginally increase over the next two years.

• As far as options with MFS, which accounts for 9% of Sun Life's bottom line, we find it difficult to get much more than $0.05-$0.10 in EPS accretion.