OREANDA-NEWS. Fitch Ratings has affirmed the ratings of Sun Life Financial Inc. (TSE, NYSE: SLF) including its senior and subordinated notes, as well as the Insurer Financial Strength (IFS) ratings of SLF's primary Canadian insurance subsidiary, Sun Life Assurance Co. of Canada (SLAC), at 'AA-'. A full list of ratings follows at the end of this release. The Rating Outlook is Stable.

KEY RATING DRIVERS

Today's rating action reflects SLF's strong capitalization, improved earnings and fixed-charge coverage, solid asset quality and improved operating profile following the sale of its U.S. VA business. The ratings also reflect the company's leading market position in Canada and continued growth in emerging Asian markets.

Offsetting factors include turmoil in the energy sector and its impact on the broader Canadian economy, sustained low interest rates and a sluggish recovery in the global economy. Fitch's ratings also consider SLF's exposure to equity market volatility given that approximately 80% of MFS Investment Management's (MFS) assets under management (AUM) are comprised of equities.

Fitch notes that SLF has met, or is close to meeting, multiple upgrade triggers. Any positive future rating action will be driven by the company's ability to sustain recent improvements in financial performance and maintain current strong balance sheet fundamentals.

Fitch views SLF's competitive position as strong in Canada, as one of the three largest insurers that serve more than two-thirds of the insurance market. SLF is a significant competitor among the top three companies in every market and major product line in which it competes in Canada.

On Sept. 9, 2015, SLF announced an agreement to acquire Assurant's Employee Benefits business, which will increase its scale and capabilities in the U.S. group benefits market. The acquisition is due to close in the first quarter of 2016.

Fitch views SLF as very strongly capitalized on a risk-adjusted basis, with a minimum continuing capital and surplus requirement (MCCSR) for SLAC of 229% at Sept. 30, 2015. The company's strong balance sheet fundamentals also include extremely low asset and operating leverage. Financial leverage remained modest at 14% and total financing and commitments (TFC) ratio, which includes operating debt, is considered moderate at 0.6x as of Sept. 30, 2015.

SLF continued its favorable earnings trend with a 17% increase in operating earnings to C$1.7 billion during the first nine months as of Sept. 30, 2015. The improvement was primarily driven by increased fee income from greater average net assets and earnings growth in Asia.

SLF reported an operating return on equity (ROE) of 12.6% for the first nine months of 2015, which is in line with its medium-term objective of 12% -- 14%. The net impact of market factors was modest during the period, as unfavorable equity markets and lower interest rates were offset by gains from credit spreads and swaps.

SLF's fixed-charge coverage, excluding the net impact of market factors and assumption changes, has shown continued improvement in recent years to 10.0x as of Sept. 30, 2015. This compares with 8.1x in the prior-year period.

Favorably, under Canadian regulations, SLF has greater flexibility to upstream dividends from operating subsidiaries without regulatory approval than do most U.S. peers, which, in Fitch's view, enhances holding company liquidity. Additionally, MFS provides a source of unregulated cash flow to the holding company.

Cash at the holding company totaled C$1.7 billion as of Sept. 30, 2015, which includes the proceeds of its C$500 million subordinated debt issuance to partially fund the acquisition of Assurant's Employee Benefits business. The company's stated minimum level of holding cash is approximately C$500 million.

Fitch views SLF's asset management business as favorable and an enhancement to earnings diversification. During 2015, the company closed three modest-sized acquisitions, which added, in aggregate, approximately C$45 billion in AUM to Sun Life Investment Management, a subsidiary of SLF. This drove an 18% increase in AUM during the period, despite lower assets at MFS.

MFS reported AUM of $404 billion as of Sept. 30, 2015 compared with $431 billion at Dec. 31, 2014, which was partially driven by equity market declines. Additionally, net outflows were negative during the period, driven by higher redemptions and portfolio rebalancing. Despite lower asset levels, MFS's pretax operating profit margin ratio remained very strong at 40% as of Sept. 30, 2015, compared with 41% and 40% in 2014 and 2013, respectively.

RATING SENSITIVITIES
The key rating triggers that could result in an upgrade include:

--Consistent maintenance of fixed-charge coverage, excluding the net impact of market factors, of over 10x;
--Sustained improvement in underlying and reported profitability with a ROE maintained above 12%;
--Stable balance sheet fundamentals evidenced by an MCCSR ratio at or above 220% and financial leverage below 20%.

The key rating triggers that could result in a downgrade include:

--A decline in fixed-charge coverage, excluding the net impact of market factors, to below 6x;
--A sustained drop in the company's risk-adjusted capital position, including the MCCSR ratio falling below 200%;
--An increase in financial leverage to over 25% or an increase in total leverage to over 35%;
--A large acquisition that involves execution and integration risk or impacts the company's leverage and capitalization.

Fitch has affirmed the following ratings with a Stable Outlook:

Sun Life Financial, Inc.
--Long-term Issuer Default Rating (IDR) at 'A';
--5.7% senior notes due 2019 at 'A-';
--4.57% senior notes due 2021 at 'A-';
--4.95% senior notes due 2036 at 'A-';
--4.38% subordinated debentures due 2022 at 'BBB+';
--5.59% subordinated debentures due 2023 at 'BBB+';
--2.77% subordinated debentures due 2024 at 'BBB+';
--2.60% subordinated debentures due 2025 at 'BBB+';
--5.4% subordinated debentures due 2042 at 'BBB+';
--4.75% noncumulative preferred shares, series 1, at 'BBB-';
--4.8% noncumulative preferred shares, series 2, at 'BBB-';
--4.45% noncumulative preferred shares, series 3, at 'BBB-';
--4.45% noncumulative preferred shares, series 4, at 'BBB-';
--4.5% noncumulative preferred shares, series 5, at 'BBB-';
--2.275% noncumulative preference shares series 8R, at 'BBB-';
--2.075% (floating rate) noncumulative preference shares series 9QR, at 'BBB-';
--3.9% noncumulative preference shares series 10R, at 'BBB-';
--4.25% noncumulative preference shares series 12R at 'BBB-'.

Sun Life Assurance Co. of Canada
--IFS ratings at 'AA-';
--Long-term IDR at 'A+';
--6.30% subordinated notes due 2028 at 'A'.

Sun Life Capital Trust
--Sun Life ExchangEable Capital Securities (SLEECS), 7.093% series B, at 'A-';
--Sun Life ExchangEable Capital Securities (SLEECS), 5.863% Series 2009-1, at 'A-'.