UBS Securities Canada Inc. is upgrading its rating on Sun Life Financial Inc.

In a new report, UBS opines that Manulife Financial Corp. has the best platform among Canadian life insurers for organic growth and acquisitions, “but we see more upside in SLF stock”.

Manulife’s superior platform, “is largely reflected in its premium multiple,” UBS says. Sun Life, “is pursuing a range of initiatives to improve performance, and is also exceptionally well capitalized and has restructuring opportunities,” it notes.

As a result, it is upgrading Sun Life to a Buy, making it its top pick in the group. It also initiates coverage of Industrial Alliance and Great-West Life with neutral ratings.

The Canadian lifecos have plenty of capital, it notes, and so it sees more M&A on the horizon. “Integration of recent acquisitions should bolster growth in 2006. However, excess capital levels remain high, and we see additional acquisitions, potentially large deals, as the biggest likely event in the group over the near term,” UBS suggests.

“Absent sizeable deals, dividends and buybacks should meaningfully enhance shareholder returns,” it says.

“Secular growth in North America/Europe is moderate and competition remains relatively intense. We see much better medium term growth prospects and profit dynamics in Asian markets,” UBS adds, noting that Manulife and, to a lesser extent, Sun Life are well positioned in Asian markets and provide a unique way to invest in that region.

“Valuations across the group are near the high end of the range and the sector appears fully valued relative to the global peer group. We see 16% total return across the group and maintain a neutral weight on the sector,” it concludes.