“Over the past decade, we have transformed the U.S. business from a primarily retail individual life and annuity business to a high-performing, market-leading benefits business,” said Dan Fishbein, president of Sun Life Financial US. “The acquisition of DentaQuest continues this evolution, changing the footprint of our US business into a larger, more healthcare-focused organization, now with more than 70% of our benefits revenue coming from healthcare.
“These changes have transformed Sun Life US from a capital-intensive to a capital-intensive business with strong cash flow generation; from businesses with long-term risk profiles to predominantly short-term risk and fee-based businesses; from slow growth markets to higher growth markets; and from a return on equity (ROE) in the single digits to a return on tangible capital in the teens.”
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Headquartered in Boston and founded in 2001, DentaQuest 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 Medicaid dental benefits in the US, with growing Medicare Advantage, commercial and Affordable Care Act (ACA) exchange businesses.
The leadership team for the combined dental benefits business under Sun Life US is comprised of a combination of DentaQuest and Sun Life leaders, all of whom are focused on growth strategies, revenue synergies and performance optimization, according to Fishbein.
“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 customer offerings, achieving our growth objectives and cost savings for shareholders, creating new opportunities for our employees, and providing a positive integration experience for all,” he explained.
“We have a strong track record of successfully integrating businesses with group benefits while minimizing disruption to our customers. Many of the leaders who managed the Assurant integration are involved in the DentaQuest integration. We are focused on integration activities that will support our goal of $60 million in cost savings by 2024. We are off to a strong start with a fully integrated leadership team, engaged employees and a detailed plan for the remaining steps.”
Sun Life US announced its financial results for the second quarter of 2022 on August 3, in which it reported insurance sales of $213 million, up 12% year-over-year, led by higher stop-loss sales for dental and medicine. The business reported net income of $213 million, an increase of 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 forecast an additional 42 basis points of growth in core ROE in 2022 on an annualized basis. In 2024, upon realization of cost synergies, Sun Life expects the acquisition to add approximately 50 basis points to core ROE.
“The main income for DentaQuest in one month [June 2022] it was $10 million,” Fishbein said. “We remain confident in the growth forecasts we made when we announced the deal, and certainly the results in June will support this. We saw higher margins in June than we might have expected and slightly lower revenue, but the higher margins more than made up for the small difference in revenue. Generally […] this first month gives us confidence in our previous forecasts.”
Fishbein said he is excited about the future at Sun Life US, adding, “We now have four strong businesses with market-leading positions in dental and stop-loss, as well as a top 10 employee benefit business. While recent results have been somewhat masked by the impact of COVID, once that subsides, we remain confident of achieving our medium-term US targets, including 10% or more earnings growth for our benefits businesses.”