Toronto-based Sun Life and Khazanah are purchasing the CIMB Aviva Assurance life insurance company as well as CIMB Aviva Takaful, which provides Sharia law compliant insurance, for a total shared cost of $586 million.
CIMB Group, which has its head office in the Malaysian capital, will retain a two per cent share in the company but Aviva, one of the U.K.'s largest insurance groups, will make an exit from Malaysia to focus on other parts of its business.
The deal includes a new 20-year exclusive agreement that will allow the life insurance companies to sell products to CIMB Bank's client base. Sun Life has a similar arrangement with CIMB's banking operation in Indonesia.
Recent media reports have said Manulife Financial Corp. (TSX:MFC), another Canadian company that has been growing in China and elsewhere in the Asia-Pacific region, had also been interested in making a deal with Aviva and CIMB.
Sun Life chief executive Dean Connor acknowledged in an interview Thursday that his company faced competition for Aviva's stake in the Malaysian business but added the deal will pay off in the long run.
"It's an economy that's showing very good and steady growth. . . . And yet, the penetration in the insurance market is still underdeveloped," Connor said.
In addition, Sun Life thinks there's an opportunity to use its expertise in pensions to fill an emerging demand in Malaysia.
Connor said the deal's value is expected to be neutral to Sun Life in the early years and positive over the life of the 20-year agreement with CIMB.
"That's the nature of our business," he said. "Even in Canada, some of the products we sell on individual insurance . . . take many, many years to produce returns to shareholders."
"Other products, like pensions and group insurance, have a faster payback period and those are certainly areas that we'll be looking at for Malaysia," Connor said.
Sun Life and Khazanah are each acquiring 49 per cent of the company from Aviva International Holdings Ltd. and CIMB Group Holdings Berhad (CIMB Group), respectively.
The transaction includes an exclusive right to distribute insurance products, including takaful products, through CIMB Bank's network across Malaysia. This network includes 312 branches across the country and eight million customers.
"This transaction is perfectly aligned with our strategy for expanding our footprint in Asia," said Kevin Strain the president of Sun Life Financial in Asia.
He said Khazanah and CIMB are "very strong partners with a broad distribution platform and we are investing in a country with one of the most developed economies in the ASEAN region and a growing middle class."
The transaction is expected to close by the first half of 2013, pending regulatory approvals in Canada and Malaysia.
Sun Life shares were up 35 cents, or 1.25 per cent, at C$28.29 in Toronto in late-day trading Thursday.