A.M. Best Affirms Ratings of Sun Life Financial Inc. and Its Core Life Subsidiaries
OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. 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). Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of Independence Life & Annuity Company (ILAC) (Wilmington, DE) and the FSR of B++ (Good) and ICR of “bbb+” of Professional Insurance Company (Dallas, TX). A.M. Best also has affirmed the ICR of “a-” as well as all existing debt ratings of Sun Life Financial, Inc. (SLF) (Ontario, Canada). The outlook for the above ratings is stable. (See link below for a detailed listing of the companies and ratings.)
The rating affirmations reflect Sun Life’s strong business profile, with a top three market position in the Canadian life insurance market. Sun Life has maintained a historically diversified revenue stream from multiple regions, profitable operations in Canada, favorable risk-adjusted capitalization and well developed and fully integrated risk management framework. In addition, Sun Life has taken steps to reduce volatility in its operating results through the sale of two of its U.S. subsidiaries, Sun Life Assurance Company of Canada (U.S.) (SLUS) and Sun Life Insurance and Annuity Company of New York (SLNY) to Delaware Life Holdings, LLC, a company owned by shareholders of Guggenheim Partners. The sale is anticipated to close beyond the end of the second quarter of 2013 and will include SLF’s U.S. annuity and certain life insurance business lines.
With this sale, Sun Life will be able to focus on its “four pillar” growth strategy, which in the United States is focused primarily on the employee benefits market as well as growing the organization's asset management businesses globally through MFS Investment Management. A.M. Best expects SLHIC will play a more important role in this strategy as the New York marketing arm for Sun Life in the United States.
A.M. Best notes that SLF and its operating subsidiaries remain well capitalized from a risk-adjusted perspective. SLF also continues to broaden its global footprint by expanding its wealth management and life insurance operation in Asia. SLF has taken steps to further reduce volatility through risk mitigation techniques, such as product redesign.
While expected to improve, the low interest rate environment continues to challenge Sun Life with declines in the fixed income reinvestment rates and unfavorable credit and swap spread movements. SLF also is exposed to market risk from its segregated funds business in Canada. 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 it may be subject to significant losses should deterioration occur in the commercial real estate market. A large portion of the real estate portfolio is underwritten in Canada, where it typically performs better than similar investments in the United States. In addition, while reducing volatility, the sale of certain U.S. businesses will reduce overall revenue and earnings diversification, making SLF more dependent on cash flows from its Canadian and growing Asian business segments.
A.M. Best believes the ratings are well positioned and upward rating movement is unlikely in the near term. Downward rating pressures may occur should SLF fail to reduce earnings volatility following the planned disposition of certain U.S. assets, record measurable deterioration in risk-adjusted capital levels, weakened earnings coverage or underperformance in its core Canadian and Asian operations.
For a complete listing of Sun Life Financial Inc. and its subsidiaries' FSRs, ICRs and debt ratings, please visit http://www.ambest.com/press/062806sunlife.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.
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