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. Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.