Credit rating agencies say that the decision by Sun Life Financial Inc. (TSX:SLF) to sell its U.S. subsidiary should be positive for the Canadian firm’s credit ratings in the longer term, but it doesn’t have any immediate ratings implications.

DBRS Ltd. says that the sales of Sun Life’s U.S. annuity business (Sun Life Assurance Co. of Canada (U.S.)) to Delaware Life Holdings for US$1.35 billion doesn’t affect the parent company’s current ratings, most of which remain under review with negative implications, where they were placed on September 7.

The rating agency notes that SLA (US) houses the company’s U.S. fixed and variable annuity business, as well as certain institutional life insurance lines including variable life insurance. In total, the business represents between 10% and 15% of the company’s normalized earnings and a similar percentage of balance sheet assets, it says.

“However, the business also accounted for much of the earnings volatility experienced by the company over the past five years, brought on by deteriorating credit market conditions and equity market volatility,” it notes.

Since Sun Life announced in late 2011 that it would cease writing most of the products housed in SLA (US), DBRS has expected that a sale was possible, if only to de-risk the company in the event of further capital market deterioration. It notes that the firm’s exposure to equity markets following the closing of the transaction will fall by an estimated 50%, and exposure to lower interest rates will drop by 35%.

Additionally, it says that the announced sale is “incrementally positive” for Sun Life’s longer-term credit rating profile. “As the market exposures related to the affected segments are reduced once and for all, company management can focus on delivering on its four point strategic plan, and holding company liquidity and regulatory capital is temporarily enhanced albeit at the cost of a lower return on invested capital,” it says.

Yet, DBRS adds that it remains concerned about the strategic position of the industry in a difficult economic environment. “Over the past year, SLF has become more concentrated on its successful Canadian franchise. Strategic initiatives in Canada could well continue to support the company’s core profitability. However, DBRS has yet to be convinced that the company’s earnings projections for other businesses will be achieved in line with SLF’s proposed schedule,” it says.

Also in response to the transaction, Moody’s Investors Service has downgraded to SLA US, in anticipation of the removal of financial support from Sun Life upon the transaction’s closing, as well as the lower financial flexibility of the entity under its new ownership.

“Sun Life US’s rating had previously benefitted from two notches of uplift from its stand-alone credit profile due to its ownership and support by SLF, which will fall away with the divestiture, leaving its financial profile weaker,” said Moody’s vice president and senior credit officer, Laura Bazer.

As for the Canadian business, Moody’s says that the sale of Sun Life US will, once completed, alleviate the rating agency’s concerns related to the execution risks of the runoff strategy for the U.S. businesses and that any further charges arising from Sun Life US’ closed blocks would remain a drag on earnings and capital generation.

“Moody’s views the transaction as credit positive for SLA as it eliminates the potential for additional capital support being needed at Sun Life US, which is the primary driver of the negative outlook” said vice president and senior credit officer, David Beattie.

Similarly, it says the deal is a positive to the credit profile of Sun Life “as it will eliminate the group’s exposure to the chronically poor earnings performance of the U.S. subsidiary, possibility of future charges associated with the U.S. subsidiary’s business, as well as the equity market and interest rate sensitivity of the run-off businesses.”

Fitch Ratings has also placed its ratings on the U.S. subsidiary on rating watch negative.