03/05/2015 12:19 EST | Updated 05/05/2015 05:59 EDT

Sun Life says it's set to profit from growing demand for pension risk transfer

TORONTO - Sun Life Financial (TSX:SLF) hopes its deal to take on $5 billion of pension risk from BCE Inc. (TSX:BCE) will bring it more business from pension plan sponsors looking to offset the possibility of retirees living longer than expected.

"We've got the expertise now to bring more of these kinds of solutions to customers," Kevin Dougherty, president of Sun Life Financial Canada, said at the company's investor day Thursday.

"I think prior to this plan sponsors in Canada would have thought there isn't adequate capacity to do this, and we've brought that to the table."

The insurance company struck a deal this week to take on the longevity risk, the possibility that pensioners will live longer, from the Bell Canada Pension Plan.

BCE will continue to administer the pension plan, which will pay monthly premiums to Sun Life, while the insurer will make monthly pension payments into the plan for existing pensioners.

Morningstar analyst Vincent Lui said pension funding risk transfers like this one have become popular in the United States as companies look to reduce the risk they will have to increase their contributions if retirees receiving defined benefit pensions live longer than expected.

Lui said the de-risking business doesn't generate high margins for insurance companies, but is still a profitable venture.

He expects and demand for the service to grow, and notes that the deal with BCE positions Sun Life to benefit from this growth, as the company has now developed the expertise to do such "complex" transactions.

Under the Bell deal, Sun Life will pass off some of that risk to a syndicate of reinsurers that consists of RGA Canada and SCOR Global Life.

"Doing this kind of transaction will really help Sun Life get their name out there to continue to do more in future years," Lui said.

"It'll be easier for them to go out and market this product to other prominent defined benefit plans in Canada. BCE is a big client."