Sun Life of Canada's pounds 324m UK blow

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The Independent Online
SUN LIFE of Canada, the mutual insurer, yesterday revealed it had been forced to make giant exceptional provisions of pounds 324m for its UK operations, pushing the worldwide business into a pounds 101m first-half loss.

Behind the provisions were multiple problems stemming from the group's purchase of Confederation Life UK in 1994. The purchase was made after Confederation Life's Canadian parent went out of business.

The group put pounds 114m extra into its UK subsidiaries' reserves to cover promises made by Confed to customers buying personal, group and company pensions before 1994.

The promise guaranteed customers a minimum rate of income when they bought annuities with money saved through Confed's pensions.

But the guarantees relied crucially on long-term interest rates and life expectancy. Since the policies were bought, long-term rates have plummetted and life expectancy has lengthened. That has left SLOC with the prospect of paying more through its annuities than the rest of the market.

A second hit of pounds 110m consisted of a write-down of goodwill stemming from the acquisition of Confed Life UK. The company said it needed to remove an ambiguity about the value of the goodwill on the balance sheet.

The third hit was an extra pounds 100m to cover extra liabilities arising from the review of pension misselling. Sun Life of Canada, fined pounds 600,000 for serious failings in its conduct of the review, has already set aside pounds 177m.

Maurice Bates, chief executive, said: "I am naturally disappointed to have to report exceptional provisions of the order contained in these results.

"However, I believe it is appropriate to face up to the issues and fully provide for them in order to ensure the company is in sound financial shape for the future."