“Over the past decade, we have transformed the US business from a primarily personal life insurance and annuity business into a powerful, market-leading benefits business,” said Dan Fishbein, President of Sun Life Financial US. “The acquisition of DentaQuest continues this evolution and transforms our company’s US presence into a larger, more healthcare-focused organization where more than 70% of our revenue is now derived from healthcare.
“These changes have transformed Sun Life US from a capital-intensive company to a capital-poor company with strong cash flow generation; from companies with long-term risk profiles to mostly short-term risk and fee-based companies; from slow growth markets to higher growth markets; and from a return on equity (ROE) in the single digits to a return on tangible equity in the high teens.”
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Headquartered in Boston, DentaQuest was founded in 2001 and has brought more than 33 million members in 36 states and more than 2,400 employees to Sun Life US. At the time of the acquisition, it was the largest provider of US Medicaid dental care with growing Medicare Advantage, commercial, and US Affordable Care Act (ACA) exchange businesses.
Fishbein said the executive team for Sun Life US’s combined dental benefits business is a mix of executives from DentaQuest and Sun Life, all focused on growth strategies, revenue synergies and performance optimization.
“We are approaching the integration with great care and our goal is to realize the full potential of the transaction for all of our stakeholders, including delivering enhanced offerings to customers, meeting our shareholder value and cost savings goals, creating new opportunities for ours employees, and providing a positive integration experience for all,” he explained.
“We have a strong track record of successfully integrating businesses for group benefits while minimizing disruption to our customers. Many of the executives who led the Assurant integration are involved in the DentaQuest integration. We are focused on integration activities that will support our ongoing cost savings goal of $60 million by 2024. We are off to a strong start with a fully integrated leadership team, committed people and a detailed plan for the remaining steps.”
Sun Life US reported its second-quarter 2022 financial results on Aug. 3, in which it reported insurance sales of $213 million, up 12% year over year, reflecting higher stop-loss sales in the dental and medical fields. The company reported net income of $213 million, up 36% or $56 million from the prior-year period, but partially offset by costs related to the DentaQuest acquisition.
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When Sun Life first announced the DentaQuest deal, it was forecasting growth of an additional 42 basis points to underlying ROE in 2022 on an annualized basis. In 2024, after realizing cost synergies, Sun Life expects the acquisition to add approximately 50 basis points to underlying ROE.
“The underlying earnings for DentaQuest in one month [June 2022] was $10 million,” Fishbein said. “We remain confident in the growth projections we made when announcing the transaction and the June results would certainly support that. We saw higher margins in June than we might have expected and slightly lower revenue, but the higher margins more than offset the small fluctuations in revenue. In total […] This first month gives us confidence in our previous forecasts.”
Fishbein said he is excited about the future of Sun Life US, adding, “We now have four strong companies with market-leading positions in dental and stop-loss, as well as a top 10 employee benefits company. While recent results have been somewhat obscured by the impact of COVID, we remain confident of achieving our medium-term goals for the U.S., including 10% or more earnings growth for our benefits business once this slows.”