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Announcement:

Moody's affirms Sun Life Financial's credit ratings

13 Oct 2010

New York, October 13, 2010 -- Moody's Investors Service affirmed the credit ratings of Sun Life Financial Inc. (SLF; TSX: SLF), and its Canadian affiliates, including the Aa3 insurance financial strength (IFS) ratings of Sun Life Assurance Company of Canada (SLA) with a stable outlook. The ratings of SLF's U.S. affiliates, including the Aa3 IFS rating of Sun Life Assurance Company of Canada U.S. (Sun Life US), were also affirmed and their the negative outlook was maintained. (see complete rating listing below).

Commenting on the rating affirmations of both SLF's Canadian and U.S. subsidiaries, Moody's said they continue to be based on SLA's leading market position in Canada, with top positions in virtually all of its market segments that, together, generate solid, diversified earnings and capital. According to Senior Vice President, Peter Nerby "SLF's excellent business and financial profiles in Canada remain the lynchpin of the group's ratings -- particularly those of its financially weaker U.S. subsidiary, Sun Life US, whose stand-alone credit profile is considerably weaker." Sun Life US's Aa3 IFS ratings currently benefits from 3 notches of uplift above its stand-alone credit profile of A3.

Moody's said that the stable outlook on SLF and its Canadian entities reflects the ability of these operations to produce consistent profitability through the economic cycle, both to fund their own business needs and to provide capital support to Sun Life US in a stress scenario, if need be.

The negative outlook on Sun Life US reflects the risks associated with its new business strategy, which includes a focus on variable annuity (VA) sales and an exit or retreat from certain non-core, and/or underperforming businesses (i.e., no-lapse universal life policies; fixed annuities; bank-owned life insurance).

"Although Sun Life US has reduced the risk of its variable annuity product features for new business, the size and consistency of its profits will continue to be challenged by its smaller scale, the ultimate competitiveness of its product offering, as well as the firm's more limited diversification relative to other US competitors," said Vice President and Senior Credit Officer, Laura Bazer. "The success of the new strategy is untested, and remains to be seen," the analyst added.

The rating agency added that should Sun Life US' stand-alone rating weaken further, it would be unusual to assign four notches of lift between the legal entity's stand-alone credit profile and its public IFS rating. In such a circumstance, the ratings of the US and Canadian affiliates would most likely be de-coupled, and ratings of Sun Life US and its US affiliates would be lowered.

According to Moody's, the Aa3 IFS rating of Sun Life US reflects three notches of benefit from its ownership by, and the expectation of continuing financial support of, SLF. Support of the US operations has been demonstrated by US$1.9 billion of capital contributions from its Canadian parent company following significant asset and equity market-driven net losses and adverse regulatory capital movements during the 2008-2009 financial crisis.

Specifically, the rating agency noted that the following factors could lead to the downgrade of the ratings of Sun Life US and its U.S. affiliates: the failure of its new strategy to improve ROC to at least 6% on a consistent basis; NAIC Risk-Based Capital below 300%; pre-tax statutory investment losses above $600 million; significant reduction in market share; a downgrade of SLF.

The following could move the ratings of Sun Life US and its affiliates back to stable from negative: success of Sun Life's new VA strategy, resulting in sustainable U.S. GAAP and statutory profitability, with U.S. GAAP ROCs of at least 6% on a consistent basis, and reduced regulatory capital volatility; asset impairments and/or realized investment losses of less than $100 million, pre-tax; NAIC RBC maintained at over 350% on a consolidated basis (i.e. Sun Life US and the US branch) on a consistent basis.

Regarding SLF, Moody's said one or more of the following developments could lead to a downgrade of the group's ratings: MCCSR ratio at SLA below 200% for a sustained period; consolidated financial leverage at SLF above 30%; consolidated earnings below 8x and cash coverage below 5x for a sustained period.

Conversely, the following could result in an upgrade of SLF's Canadian ratings: an upgrade of the financial strength ratings of SLA: increased geographic diversification of earnings via growth in contribution from SLF's Asian subsidiaries.

The following ratings were affirmed with stable outlook:

Sun Life Financial, Inc. -- preferred stock at Baa2;

Sun Life Assurance Company of Canada -- insurance financial strength at Aa3;

Clarica Life Insurance Company -- backed subordinate at A2;

Sun Life Capital Trust -- preferred stock at A3;

Sun Canada Financial Co. -- backed subordinate at A2.

The following ratings were affirmed and maintain their negative outlook:

Sun Life Assurance Company of Canada (U.S.) -- insurance financial strength at Aa3;

Sun Life of Canada Funding, LLC -- provisional backed senior secured at (P)Aa3;

Sun Life Financial Global Funding, L.P. -- provisional backed senior secured at (P)A1;

Sun Life Financial Global Funding II, L.P. -- backed senior secured at A1; provisional backed senior secured rating at P(A1);

Sun Life Financial Global Funding III, L.P. -- backed senior secured at A1; provisional backed senior secured rating at P(A1);

Sun Life of Canada (US) Holding Inc. -- preferred stock at Baa1.

Sun Life Financial Inc., headquartered in Toronto, Canada, reported total general and segregated fund assets of approximately C$205 billion, and total common shareholders' equity of C$18 billion as of June 30, 2010.

The principal methodology used in rating SLF and its affililates was Moody's Global Rating Methodology for Life Insurers, May 2010. Other rating methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations. Please see Moody's website at www.moodys.com/insurance for more information.

New York
Laura Bazer
VP - Senior Credit Officer
Life and Health Insurance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Riegel
MD - Insurance
Life and Health Insurance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's affirms Sun Life Financial's credit ratings
No Related Data.
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