DBRS Confirms Sun Life Assurance at AA (low); Downgrades Sun Life Financial Inc.’s Senior Unsecured Debentures to “A” from A (high)

DBRS Limited (DBRS) has today downgraded Sun Life Financial Inc.’s (SLF or the Company) Senior Unsecured Debentures to “A” from A (high), its Subordinated Unsecured Debentures to A (low) from “A” and its Preferred Shares to Pfd-2 from Pfd-2 (high). DBRS has also assigned an Issuer Rating of “A” to the Company. At the same time, DBRS assigned a Financial Strength Rating (FSR) of AA (low) to Sun Life Assurance Company of Canada (Sun Life Assurance) and confirmed its Issuer Rating at AA (low) and its Subordinated Debt rating at A (high). DBRS withdrew the Claims Paying Ability rating of Sun Life Assurance, replacing it with the newly assigned FSR. All trends are Stable. All the rating actions are detailed in the table below. The rating actions taken today follow the publication of DBRS’s new methodology, “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (December 2015) (Global Insurance Methodology).

The downgrade of the holding company ratings results from the application of the Global Insurance Methodology under which there is typically a wider notch differential between holding company and operating company ratings than in prior methodologies. Specifically, SLF’s Issuer Rating is positioned two notches below the FSR of its major operating subsidiary, Sun Life Assurance. Among other factors, the two-notch differential reflects the structural subordination of the holding company’s creditors to the operating company’s creditors in an insolvency situation and recognizes the reliance of the Company on the upstreaming of earnings from its operating companies.

In confirming the ratings of Sun Life Assurance, DBRS evaluated SLF’s fundamentals using the Global Insurance Methodology. In DBRS’s view, the Company has an excellent franchise, which reflects its position among the top three insurance and financial services companies in Canada, with insurance and wealth management operations in Canada, the United States and Asia. The Company’s risk profile is well positioned, and it has excellent earnings capacity and liquidity. As indicated by its leverage ratio of 23.4% and a minimum continuing capital and surplus requirement (MCCSR) of 229%, the Company has good capitalization and asset quality.

The Stable trend considers the Company’s resilient fundamentals and its ability to adapt to the current challenging operating environment. Negative ratings pressure could arise if the Company’s fundamentals weaken, which may include a sustained decline in equity markets or significant deviations of experience from actuarial assumptions. A deterioration in regulatory capital ratios and loss of market share may also negatively affect ratings. Positive rating pressure could arise if the Company experiences solid earnings and growth resulting in increased market share, or displays consistently improved financial metrics and asset quality coupled with income stability.

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (December 2015), and Preferred Share and Hybrid Criteria for Corporate Issuers (January 2015), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

DBRS will publish a report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, or for more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.