SLF Put on CreditWatch Negative by S&P

Sun Life Financial announced December 12:

the completion of a major strategic review of its businesses. Dean A. Connor, President and Chief Executive Officer, said the company will be repositioned to accelerate growth, improve return on shareholders’ equity and reduce volatility by concentrating its future growth into four key pillars:
  • Continuing to build on its leadership position in Canada in insurance, wealth management and employee benefits;
  • Becoming a leader in group insurance and voluntary benefits in the U.S.;
  • Supporting continued growth in MFS Investment Management, and broadening Sun Life’s other asset management businesses around the world; and
  • Strengthening Sun Life’s competitive position in Asia.

As a result of this strategic review, the Company announced that it will close its domestic U.S. variable annuity and individual life products to new sales effective December 30, 2011. The decision to discontinue sales in these two lines of business is based on unfavourable product economics which, due to ongoing shifts in capital markets and regulatory requirements, no longer enhance shareholder value. This decision reflects the Company’s intensified focus on reducing volatility and improving the return on shareholders’ equity by shifting capital to businesses with superior growth, risk and return characteristics.

Standard & Poor’s has announced:

  • Sun Life Financial Inc. announced that it will discontinue sales of its U.S. variable annuity (VA) and U.S. individual life products effective Dec. 31, 2011.
  • We have placed our ratings on Sun Life Financial Inc., including our ‘A’ counterparty credit rating, on CreditWatch with negative implications, reflecting the potential loss of earnings quality and diversification at the holding company.
  • In addition, we have revised our view of Sun Life Assurance Co. of Canada (U.S.) and subsidiaries (SLUS) to nonstrategically important to Sun Life Financial Inc., from core.
  • As a result, we lowered our long-term counterparty and financial strength rating on SLUS to ‘A-‘ and placed the ratings on CreditWatch with negative implications.
  • The ratings on the Canadian entities within the group are unaffected.

We expect to resolve the CreditWatch within three months, following a more in-depth analysis of the SLUS prospective stand-alone capitalization, earnings, the details of the run-off plan, and the potential parental support.

We could affirm the ratings on Sun Life Financial if, upon further analysis, we believe the loss of earnings from SLUS is immaterial and coverage ratios and earnings diversification from remaining operations continue to support the current holding company notching. Otherwise, we could lower our ratings on the holding company by one notch, so that we would rate it three notches below the financial strength rating on the group’s core subsidiaries instead of the current two notches.

In contrast:

DBRS has today commented on the decision announced today by Sun Life Financial Inc. (SLF or the Company) to stop selling variable annuity and individual life insurance products in the U.S. market. DBRS views the decision favourably. There are no rating changes as a result of this action.

SLF has the following preferred shares outstanding: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D and SLF.PR.E (DeemedRetractible) and SLF.PR.F, SLF.PR.G, SLF.PR.H and SLF.PR.I (FixedReset). All are tracked by HIMIPref™ and assigned to their respective indices.

2 Responses to “SLF Put on CreditWatch Negative by S&P”

  1. […] Fitch downgraded GS and BAC among others: The downgrades “reflected challenges faced by the sector as a whole,” Fitch said. “These challenges result from both economic developments as well as a myriad of regulatory changes.” […]

  2. […] Negative Watch was reported on PrefBlog on December 14. In the interim, Moody’s downgraded SLF. S&P rates the preferreds P-2(high); DBRS viewed […]

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