Fitch Ratings has downgraded the ratings on Sun Life Financial Inc.’s U.S. life insurance subsidiaries, following the firm’s retreat from those businesses.
The rating agency says that the downgrade of the U.S. subsidiaries follows its review of those entities. It notes that Sun Life exited the U.S. variable annuity and individual insurance markets at the end of 2011, and says that it now views the U.S. subsidiaries as having “limited importance” from a strategic perspective.
Fitch says it expects Sun Life to support these subsidiaries should additional capital be required. However, it also believes that the firm will look for ways to accelerate the release of capital from the run-off block of business via a sale or reinsurance transaction.
At the same time, Fitch has also affirmed its ratings on the parent company, Sun Life Financial, and its primary Canadian life insurance subsidiary. It says the affirmation of those ratings reflects Sun Life’s strong capitalization; disciplined investment strategies that have resulted in strong liquidity and solid asset quality; and the company’s leading market position in Canada, growth prospects for emerging Asian markets, and relatively stable performance in U.S. mutual funds.
Offsetting these positives are the company’s higher levels of operating debt, low debt service capacity, and sizable common shareholder dividends, it adds.
Moreover, the rating outlook is negative, which Fitch says “reflects the risk that [Sun Life] will be unable to generate run-rate operating earnings and debt service capacity that is supportive of the current rating level. Additionally, Fitch believes management of the closed block of U.S. business will continue to be a challenge and there is a risk for further charges as the book matures. As such, the discontinued U.S. operations may continue to be a drag on overall earnings or require further capital injections.”