A.M. Best has affirmed the financial strength rating (FSR) of A+
(Superior) and issuer credit ratings (ICR) of “aa-” of Sun Life
Assurance Company of Canada (Sun Life) (Ontario, Canada) and Sun
Life and Health Insurance Company (U.S.) (SLHIC) (Windsor, CT)—the
core insurance subsidiaries of Sun Life Financial Inc. (SLF)
(Ontario, Canada) [NYSE:SLF]. Concurrently, A.M. Best has affirmed the
ICR of “a-” as well as all existing debt ratings of SLF.
A.M. Best also has affirmed the FSR of A- (Excellent) and ICR of “a-” of Independence
Life & Annuity Company (Wilmington, DE) as well as the FSR of
B++ (Good) and ICR of “bbb+” of Professional Insurance Company
(Dallas, TX). The outlook for all ratings is stable. (See link below for
a detailed listing of the companies and ratings.)
The rating affirmations reflect SLF’s strong business profile, anchored
by leading positions in its core Canadian markets—group benefits, group
pension and individual insurance—and complemented by its established
presence in the U.S. group insurance and voluntary benefits space. SLF’s
diversified revenue stream is further enhanced by its well-performing
asset management business, MFS Investment Management (MFS) and its
expanding footprint in Asia. Additionally, the organization maintains
sound risk-adjusted capitalization, strong financial flexibility and a
sophisticated enterprise risk management process. Over the last few
years, this framework has yielded action plans to reduce the volatility
of SLF’s results including selling the U.S. annuity business and
de-emphasizing universal life and segregated fund sales in Canada, which
A.M. Best views positively.
SLF’s sales and earnings trends are favorable and continue to foster the
group’s excellent financial flexibility. With a debt-to-capital ratio
(including preferred shares) below 30% and interest coverage of five to
six times, SLF is within A.M. Best’s guidelines for its current ratings.
While SLF’s re-positioned U.S. operations focus is on markets and
businesses that lack sensitivity to interest rates and equity market
fluctuations, significant competition remains from established players
in these markets as well as in Canada and Asia. As the organization
continues to realign its new core business strategies, SLF’s results
could remain subject to new business strain and lower investment income.
Additionally, the company retains exposure to real estate-linked assets
through its investments in commercial mortgage loans, direct real estate
and residential and commercial mortgage-backed securities and may be
subject to significant losses should real estate market fundamentals
deteriorate. A.M. Best notes that a large portion of SLF’s real estate
portfolio is underwritten in Canada, where it typically performs better
than similar investments in the United States. While reducing
volatility, the sale of the U.S. annuity and certain life businesses
will reduce overall revenue and earnings diversification, making SLF
more dependent on cash flows from its Canadian, MFS and growing Asian
business segments.
Given the stable outlook on Sun Life’s ratings, A.M. Best believes that
positive rating actions are unlikely in the near term. Negative ratings
pressure could occur should operating performance or capital levels
substantially deteriorate, if investment and earnings performance fall
below A.M. Best’s expectations relative to SLF’s current ratings or the
execution of the company’s re-focused strategy fails to meet
management’s expectations.
For a complete listing of SLF and its subsidiaries’ FSRs, ICRs and debt
ratings, please visit www.ambest.com/press/050102sunlife.pdf.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Best’s Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
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