DBRS Morningstar also confirmed
KEY RATING CONSIDERATIONS
The ratings confirmation reflects SLF's global franchise, encompassing
RATING DRIVERS
Given the already high rating level and uncertain macroeconomic environment, a ratings upgrade is unlikely in the near term. In the longer term, an upgrade could arise from continued progress with SLF's business diversification strategy while maintaining a conservative risk profile, as well as from an improvement in asset quality, including having a larger proportion of higher-rated bonds (rated 'A' or higher) in its investment portfolio.
The ratings would be downgraded if the Canadian business, a strong contributor to overall results, were to report a sustained decline in earnings, indicating a weakened franchise. Moreover, a substantial decline in regulatory capital levels or a sustained deterioration in financial leverage over 30% would result in a downgrade.
RATING RATIONALE
The Company has an expansive global franchise and strong market position in several of the businesses that it operates in. SLF has successfully maintained leading market shares in the Canadian market, where it has significant positions in the group benefits and retirement and individual insurance and annuities spaces. The Company's
SLF's ratings also benefit from the Company's comprehensive and well-developed risk management framework which ensures that risks are well understood and mitigated. The Company faces residual risks as a result of its sizable legacy businesses with runoff blocks of life insurance businesses in the
Positively, the Company has made progress with the diversification of its four-pillar enterprise strategy. SLF's asset management segment generally generates at least 30% of common shareholders' net income and is an important component in diversifying SLF's earnings in noninsurance business. At Q2 2020, total assets under management and administration reached a substantial
DBRS Morningstar views the Company as having excellent liquidity supported by an investment portfolio that comprises a high proportion of cash and marketable bonds and equities. As is typical for a life insurer, the claims profile is relatively predictable, with a very low probability of a high-severity event occurring that would put pressure on the Company's resources. SLF's liquidity profile benefits from a steady stream of recurring premium income with the Company also maintaining standby credit facilities to meet financial obligations under adverse stress scenarios. Positively, SLF has only a limited proportion of nonliquid assets in its investment portfolio.
SLF has conservative capital management, with the Company maintaining stable regulatory ratios and an excess of cash at both the operating company and holding company levels. As of Q2 2020, the Life Insurance Capital Adequacy Test (LICAT) for the consolidated holding company was 146%, higher than SLA's LICAT of 126%, as the holding company held
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
The Grid Summary Scores for SLF are as follows: Franchise Strength - Strong; Risk Profile -Strong/Good; Earnings Ability - Strong; Liquidity - Very Strong; Capitalization - Strong.
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are monitored.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com.
Tel. +1 416 593-5577
Ratings
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
15-Oct-20 Issuer Rating Confirmed AA Stb CA
15-Oct-20 Subordinated Debt Confirmed AA (low) Stb CA
15-Oct-20 Financial Strength Rating Confirmed AA Stb CA
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
15-Oct-20 SLEECS Series B Confirmed A (high) Stb CA
Sun Life Capital Trust II
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
15-Oct-20 SLEECS Series 2009-1 Disc.-Repaid Discontinued -- CA
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
15-Oct-20 Issuer Rating Confirmed A (high) Stb CA
15-Oct-20 Senior Unsecured Debentures Confirmed A (high) Stb CA
15-Oct-20 Subordinated Unsecured Debentures Confirmed A Stb CA
15-Oct-20 Preferred Shares Confirmed Pfd-2 (high) Stb CA
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