Standard & Poor’s Rating Services has put Sun Life Financial Inc. on credit watch with negative implications and downgraded its U.S. subsidiaries on news that the insurer is to stop selling variable annuities and life insurance products in the United States.
S&P said Tuesday it put Sun Life’s rating on credit watch with negative implications, “reflecting the potential loss of earnings quality and diversification at the holding company”. It also downgraded its U.S. subsidiaries on the basis that they are no longer considered strategically important. The ratings on its Canadian operations are unaffected.
“The CreditWatch placement reflects what we view as the potential loss of earnings quality and diversification following the company’s announcement that it will be discontinuing new sales of U.S. variable annuity and individual life insurance products,” said Standard & Poor’s credit analyst Robert Hafner.
While the closure of the U.S. VA and individual life insurance businesses will diminish Sun Life’s presence in the U.S. market, S&P says that the strategic decision to discontinue sales in these two lines of business “should allow the company to allocate its capital more effectively and to businesses with a higher quality of earnings.”
S&P notes that it could affirm the ratings on Sun Life Financial if it believes the loss of earnings is immaterial and coverage ratios and earnings diversification from remaining operations continue to support the current rating. Otherwise, it could lower the ratings on the holding company by one notch.