DBRS Morningstar commented on Sun Life Financial’s Q2 2020 results on August 7, and assigned the insurer a financial strength rating of AA and an issuer rating of A (high). The firm’s growth outlooks remain stable, the rating agency adds.
DBRS Morningstar explains that “the Company's ratings and Stable trends remain supported by its strong regulatory capital ratio at both the holding company and main operating subsidiary.”
Sun Life reported net income of $519 million in the second quarter of 2020. This represents a 13% decrease compared with the corresponding quarter of 2019. Insurance sales fell 6% versus the same period last year, to reach $619 million.
The rating agency notes that the company’s assets under management were $1.122 trillion, up 9.4% compared with the first quarter.
This is why DBRS Morningstar maintains that even with continued market volatility, Sun Life continues “to deliver strong results, benefitting revenue.”
Financial leverage increases
Owing to a “recent subordinated debt issuance of $1 billion, Sun Life’s financial leverage increased to 23.2%,” DBRS Morningstar points out. Financial leverage is used to measure a firm’s debt ratio.
“Nonetheless, the Company's leverage remains well below peer average and it is expected to decline to below 22% by the end of September due to a $500 million redemption in subordinated debt This level of financial leverage supports our view of SLF's strong financial flexibility and conservative leverage position,” the rating agency continues.
All the same, the Life Insurance Capital Adequacy Test (LICAT) indicated that Sun Life of Canada’s solvency ratio was 126% in Q2. This amounts to a 4-point decrease versus the previous quarter, and a loss of seven percentage points compared with Q2 2019.