SLF Upgraded To Pfd-2(high) By DBRS

DBRS has announced that it:

upgraded Sun Life Financial Inc.’s (SLF or the Company) Issuer Rating and Senior Unsecured Debentures rating to A (high) from “A,” its Subordinated Unsecured Debentures rating to “A” from A (low) and its Preferred Shares rating to Pfd-2 (high) from Pfd-2.

The ratings upgrade recognizes the Company’s improved franchise strength, the increasing diversification of earnings across its four core business segments and its excellent capitalization. Furthermore, DBRS Morningstar has gained comfort from management’s actions over the past year to turn around the performance of SLF’s legacy U.S. individual life block that is in run-off, including the reserve strengthening, which should reduce the probability of the block adversely impacting results. The ratings also consider the Company’s exposure to operational risk arising from operating in multiple jurisdictions with varying degrees of geopolitical risk in Asia, as well as its guaranteed products in Canada that can result in profit volatility. Also a ratings constraint is SLF’s higher proportion of mortgages, BBB-rated bonds and corporate loans in the Company’s investment portfolio relative to those of similarly rated peers.

SLF and its main operating insurance subsidiary, SLA, are maintaining strong regulatory capital ratios. Indeed, with sizable cushions over regulatory minimums under the Life Insurance Capital Adequacy Test (LICAT) framework that was implemented in 2018, DBRS Morningstar views the Company as very well positioned to navigate adverse scenarios. As of Q2 2019, the LICAT for the consolidated holding company was 144%, higher than SLA’s LICAT of 133%, as the holding company held $2.2 billion of additional assets comprising cash and other liquid assets. Solid earnings in the last five years have also contributed to the Company’s strong capitalization level. Moreover, financial leverage remains conservative at 20.4% with a fixed-charge coverage ratio of 9.0 times as of Q2 2019.

Affected issues are: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D, SLF.PR.E, SLF.PR.G, SLF.PR.H, SLF.PR.I, SLF.PR.J and SLF.PR.K.

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