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AM Best Upgrades Issuer Credit Ratings of Sun Life Financial Inc. and Certain Subsidiaries

AM Best has upgraded the Long-Term Issuer Credit Ratings (Long-Term ICR) to "aa" from "aa-" and affirmed the Financial Strength Rating (FSR) of A+ (Superior) of Sun Life Assurance Company of Canada (Sun Life) (Ontario, Canada) and Sun Life and Health Insurance Company (U.S.) (SLHIC) (Lansing, MI) – the core insurance subsidiaries of Sun Life Financial Inc. (SLF) (Ontario, Canada) [NYSE: SLF] (collectively referred to as Sun Life Group). Concurrently, AM Best has upgraded the Long-Term ICR to "a" from "a-" and existing Long-Term Issue Credit Ratings (Long-Term IR) of SLF.

Additionally, AM Best has upgraded the FSR to A- (Excellent) from B++ (Good) and the Long-Term ICR to "a-" from "bbb+" of Independence Life & Annuity Company (Independence) (Wilmington, DE), a strategic subsidiary of SLF, to reflect the increased strategic importance of the company’s operation. Lastly, AM Best has affirmed the FSR of B++ (Good) and the Long-Term ICR of "bbb+" of Professional Insurance Company (Dallas, TX), an SLF run-off subsidiary. The outlook of these Credit Ratings (ratings) is stable. (Please see below for a detailed listing of the Long-Term IRs.)

The ratings of Sun Life Group reflects its balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and very strong enterprise risk management (ERM).

The upgrade of Sun Life Group’s Long-Term ICRs reflects the continued strength and evolution of the organization’s ERM capabilities in relation to its risk profile. The group’s risk culture and governance is well-defined and embedded within all levels of the organization. Sun Life Group also conducts an extensive array of sensitivity and stress testing beyond what is required by regulators including impacts on earnings, regulatory capital and liquidity. The results assist the company in setting its risk appetite and tolerances, as well as to evaluate exposures versus risk limits in many different categories. AM Best expects that the group’s risk management practices will continue to evolve favorably, driven by strategies and innovation in line with other leading insurers.

Sun Life Group’s ERM also reflects its generally stable operating performance and solid balance sheet position. The group maintains a very strong level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy (BCAR), and strong liquidity throughout the organization with strong cash flows, moderate financial leverage, a liquid investment portfolio, and a significant amount of cash and short-term investments at the holding company as an additional buffer. The balance sheet also continues to be bolstered by favorable earnings in its core segments while continuing to grow overall revenue.

While the company has focused on reducing volatility within the liability structure of its product offerings in recent periods, Sun Life Group’s earnings remain moderately exposed to equity market volatility and changes in interest rates, as well as fluctuations in foreign currencies. AM Best notes the continuation of net outflows within the group’s asset management business in recent periods. While this has been mitigated by generally favorable equity markets during this time, the group’s earnings remain susceptible to increased volatility within the financial markets.

The ratings of Independence reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its marginal operating performance, very limited business profile and very strong ERM.

The rating upgrades of Independence reflect its increased strategic importance to its parent, as it is anticipated to start writing stop-loss insurance in 2020. AM Best believes that Independence will benefit from its parent company’s significant experience in the stop-loss insurance market and synergies from its turnkey administrative platform.

The ratings of Professional Insurance Company reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its marginal operating performance, very limited business profile and very strong ERM.

The following Long-Term IRs have been upgraded with a stable outlook:

Sun Life Financial Inc.—
-- to "a" from "a-" on CAD 300 million 4.57% senior unsecured debentures, Series E, due 2021
-- to "a-" from "bbb+" on CAD 500 million 2.60% subordinated debentures, due 2025
-- to "a-" from "bbb+" on CAD 350 million 3.10% subordinated debentures, due 2026
-- to "a-" from "bbb+" on CAD 400 million 2.75% subordinated debentures, due 2027
-- to "a-" from "bbb+" on CAD 1,000 million 3.05% subordinated debentures, due 2028
-- to "a-" from "bbb+" on CAD 750 million 2.38% subordinated debentures, due 2029
-- to "a-" from "bbb+" on CAD 400 million 5.40% subordinated debentures, due 2042
-- to "bbb+" from "bbb" on CAD 400 million 4.75% Class A non-cumulative preferred shares, Series 1
-- to "bbb+" from "bbb" on CAD 325 million 4.80% Class A non-cumulative preferred shares, Series 2
-- to "bbb+" from "bbb" on CAD 250 million 4.45% Class A non-cumulative preferred shares, Series 3
-- to "bbb+" from "bbb" on CAD 300 million 4.45% Class A non-cumulative preferred shares, Series 4
-- to "bbb+" from "bbb" on CAD 250 million 4.50% Class A non-cumulative preferred shares, Series 5
-- to "bbb+" from "bbb" on CAD 130 million 2.275% Class A non-cumulative preferred shares, Series 8R
-- to "bbb+" from "bbb" on CAD 150 million floating rate Class A non-cumulative preferred shares, Series 9QR
-- to "bbb+" from "bbb" on CAD 173 million 3.90% Class A non-cumulative preferred shares, Series 10R
-- to "bbb+" from "bbb" on CAD 27 million Class A non-cumulative preferred shares, Series 11QR
-- to "bbb+" from "bbb" on CAD 300 million 4.25% Class A non-cumulative preferred shares, Series 12R (current rate 2.842%)

The following Long-Term IRs have been upgraded with a stable outlook:

Sun Life Assurance Company of Canada—
-- to "a+" from "a" on CAD 150 million 6.30% subordinated debentures, Series 2, due 2028*
* Securities originally issued by Clarica Life Insurance Company

Sun Life Capital Trust—
-- to "a" from "a-" on CAD 200 million 7.09% non-cumulative Sun Life ExchangEable Capital Securities (SLEECS), call date 2032

Sun Life Capital Trust II—
-- to "a" from "a-" on CAD 500 million 5.863% non-cumulative Sun Life ExchangEable Capital Securities (SLEECS), due 2108

The following indicative Long-Term IRs under shelf registration have been upgraded with a stable outlook:

Sun Life Financial Inc.—
-- to "a" from "a-" on senior unsecured debt
-- to "a-" from "bbb+" on subordinated debt
-- to "bbb+" from "bbb" on preferred shares

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency, news publisher and data provider specializing in the insurance industry. The company does business in more than 100 countries. Headquartered in Oldwick, NJ, AM Best has offices in cities around the world, including London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Contacts

Michael Adams
Senior Financial Analyst

+1 908 439 2200, ext. 5133
michael.adams@ambest.com

Anthony McSwieney
Senior Financial Analyst
+1 908 439 2200, ext. 5171
anthony.mcswieney@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com