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Industrial Alliance sells U.S. annuity business

Yvon Charest, CEO of Industrial Alliance.

Francis Vachon/The Globe and Mail

Industrial Alliance Insurance and Financial Services Inc. has signed a deal to sell its U.S. annuity business, saying it will focus its efforts on developing its American life insurance business.

The company's U.S. annuity business has been sold to Security Benefit Life Insurance Co. and to Equitrust Life Insurance Co., two affiliates of U.S.-based Guggenheim Partners. The deal includes $800-million (U.S.) in contract liabilities and related assets.

"This announcement reflects the company's strategic decision to focus its resources in the U.S. on the continued development of its life insurance business," Industrial Alliance said in a news release on Thursday.

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The U.S. has recently been a volatile market for Canadian insurance companies.

Sun Life Financial Inc. decided to close shop on sales of variable annuities and individual insurance products in the United States in December.

Under an annuity contract a person pays an insurer a lump sum that will be distributed back over time and can be used to earn income in retirement.

However, insurers and particularly the annuities businesses have been hard hit by ultra-low interest rates that are affecting their returns.

The combination of a market downturn with a substantial increase in the amount of capital required by regulators has made variable annuities particularly less attractive.

Industrial Alliance Insurance and Financial Services bought Texas-based American-Amicable Holding in 2010 for $145-million with an eye to growing in the United States by selling insurance to lower and middle-class families.

"Going forward, its plan is to scale up the U.S. life business, reduce unit costs and increase its contribution to the overall profitability of Industrial Alliance," the company said.

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Industrial Alliance also said selling the U.S. annuity business will have a favourable impact on the company's capital. Based on preliminary management estimates, it's expected to increase the solvency ratio by eight percentage points, Industrial Alliance said.

The transaction is subject to regulatory approvals in the U.S.

The U.S. life insurance subsidiaries of Industrial Alliance are licensed in 49 states and territories.

Founded in 1892, Industrial Alliance Insurance and Financial Services Inc. is a life and health insurance company with operations in all regions of Canada as well as in the United States.

The company is Canada's fourth largest insurer.

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