As a consequence of its rating action, A.M. Best Co. has
reaffirmed the investment grade ratings of
Sun Life Financial Inc.
). The rating agency reiterated the insurer's Issuer Credit
Ratings (ICR) of a-, while the debt existing debt ratings were
Some of its units - Sun Life Assurance Company of Canada and
Sun Life and Health Insurance Company (U.S.) witnessed the
financial strength rating (FSR) and ICR of A+ and aa-
Also the rating agency affirmed the FSR of A- and ICR of "a-"
of Independence Life & Annuity Company and the FSR of B++ and
ICR of "bbb+" of Professional Insurance Company.
All the company ratings are of investment grade and carry a
The rating affirmation acknowledges a company's niche presence
in the Canadian life insurance industry. Sun Life Financial has
traditionally presented a strong operating performance.
Sun Life also benefits from its diversified business profile.
Though headquartered in Canada, the insurer has a significant
presence in U.S. and is also growing aggressively in Asia by
developing its life insurance and wealth management lines of
The rating agency also acknowledges strategic steps taken by
Sun Life to offload the variable annuities and Individual Life
Insurance in the U.S. in order to unlock capital tied to this
runoff business. The company plans to deploy the capital
elsewhere to generate a higher return on equity.
A.M. Best is very optimistic on this step as it will reduce
the risks faced by the company. Sun Life would rather shift its
focus toward products that require lower capital and generate
more predictable earnings such as mutual funds and group
benefits. These include voluntary benefits where the company is
targeting to earn a place amongst the top five players. The
company is transforming its U.S. business to leverage its top
position in Group Benefits by investing in the voluntary benefits
The rating agency also views favorably Sun Life's strong
capital profile with all its units maintaining sufficient risk
based capital requirements.
An offsetting rating factor is the continuing low interest
rate environment which presents a headwind for the company, in
the form of low reinvestment yields. Also unfavorable credit and
swap spread movements can lead to losses. Moreover, a substantial
exposure to commercial mortgage loans, direct real estate and
commercial mortgage backed securities pose risk of huge losses in
case the commercial real estate market tumbles.
Moreover, while the sell off of its U.S. annuity business will
reduce the company's earnings volatility it will make the company
more dependent on cash flows from its other businesses in Canada
Financial strength and credit ratings, which intend to measure
a company's ability to meet policyholder obligations, are
important factors affecting public confidence and
creditworthiness of a company, and hence provide a company's
competitiveness. Securing an investment grade debt rating with a
stable outlook reflects optimism about Sun Life's future
The ratings of Sun Life is expected to remain well positioned
for the near to medium term. Key factors that could result in
negative rating actions include deterioration in the financial
strength of the company, a significant or sustained decline in
its risk-adjusted capitalization or an operating performance that
does not meet A.M. Best's expectations over a sustained period.
Another Canadian Life Insurer
Manulife Financial Corp.
) also carries an investment grade rating from A.M. Best.
StanCorp Financial Group Inc.
China Life Insurance Co.
) carry a Zacks Rank# 2 (Buy) and are worth considering.
CHINA LIFE INS (LFC): Free Stock Analysis
MANULIFE FINL (MFC): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
SUN LIFE FINL (SLF): Free Stock Analysis
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