Monday, July 10, 2006

A.M. Best Affirms Sun Life’s Debt Ratings

Investment Executive, 10 July 2006

A.M. Best Co. has affirmed the financial strength rating of A++ and the issuer credit ratings of "aa+" for Sun Life Assurance Co. of Canada’s Canadian and U.S. divisions, and Sun Life Insurance and Annuity Co. of New York.

Concurrently, A.M. Best has affirmed all existing debt ratings for Sun Life Financial Inc. and its subsidiaries. A.M. Best has also affirmed the ICR of "aa-" of SLF and has assigned a debt rating of "aa-" to SLF’s issuance of up to $300 million senior unsecured fixed/floating debentures Series C, due 2031. The outlook for all ratings is stable.

The proceeds from the offering will be used for general corporate purposes, including investments in the subsidiaries. The offering does not significantly increase SLF’s leverage or fixed-charge coverage, which remain within acceptable ranges for the company’s ratings.

The ratings reflect Sun Life’s diversified and profitable operations, favourable risk-adjusted capitalization and very strong market position in all major business segments in Canada, complemented by growth outside of North America.

Sun Life has strong debt servicing capabilities underpinned by a favourable liquidity position, along with a high quality investment portfolio and continued growth in operating earnings. Sun Life’s earnings are supported by its diverse operations and have been enhanced from expense synergies arising from earlier acquisitions.

Operating earnings are anchored by its very strong franchise in the Canadian market, along with a favourable position in the U.S. annuity area. Accordingly, Sun Life enjoys a good balance between its wealth management and protection businesses and is now less reliant upon earnings from its mutual fund operation, Massachusetts Financial Services Co., which had experienced volatility in recent years.

Despite overall improved earnings performance, A.M. Best believes Sun Life will remain challenged to significantly improve the operating performance of its U.S. wealth management and protection businesses, which remain exposed to both interest rate risk and volatility in the equity markets. Moreover, the future earnings from international businesses may be subject to uncertainty, reflecting a number of risks inherent in emerging economies as well as changes in currency valuations.