Standard & Poor’s Ratings Services has revised its outlook on Sun Life Financial Inc. (TSX:SLF) to stable from negative, as its earnings strengthen.
The ratings agency also affirmed its ratings on Sun Life, and noted that the shift in outlook comes as Sun Life has delivered strong earnings.
“The change to a stable outlook on SLF is driven primarily by the improvement in Sun Life’s after-tax net operating income to $1.679 billion in 2012,” said Standard & Poor’s credit analyst Robert Hafner.
S&P also notes that Sun Life continues to reduce its sensitivity to equity market and interest rate changes, thereby improving earnings stability. Earnings and capital sensitivity will improve further when the pending sale of its US subsidiary is completed, it notes.
“The stable outlook on SLF and its core subsidiaries reflects our view that Sun Life is well positioned to weather a wide range of potential adverse economic environments,” it says, adding that it expects Sun Life’s consolidated pretax operating earnings to continue to improve in the intermediate term and to exceed $1.5 billion in 2013.
If earnings disappoint, and come in at levels that are materially less than $1.3 billion to $1.4 billion, asset-quality issues exceed expectations and erode capitalization, or its competitive advantages deteriorate, it could lower the firm’s ratings, S&P warns.
“We believe that Sun Life’s competitive advantages will enable it to continue to expand its market share profitably in many of its chosen markets,” it says. “We expect asset-quality issues to be less severe than for many North American peers. If the proportion of nonprotection business increases, the quality of earnings would decline, even while the quantity of earnings increases.”