Fitch affirms Sun Life’s A+ credit rating with stable outlook

Fitch maintains Sun Life’s A+ issuer and AA insurer ratings, citing strong earnings, capital adequacy and liquidity despite rising investment risk and leverage.

Fitch Ratings has affirmed Sun Life Financial’s (SLF) Long-Term Issuer Default Rating (IDR) at ‘A+’ and the Insurer Financial Strength (IFS) rating of its operating subsidiary, Sun Life Assurance Company of Canada (SLA), at ‘AA’. Both ratings carry a Stable Outlook.

The decision follows Fitch’s assessment of Sun Life’s international insurance and asset management operations, established market positions and financial performance. The insurer maintains strong capital levels and manageable debt, supported by earnings growth across its businesses. Rising exposure to higher-risk investments remains a consideration in Fitch’s credit assessment.

Sun Life’s international insurance and asset management operations

Fitch considers Sun Life’s business profile strong, with operations covering life insurance, group benefits, retirement services and asset management across international markets. Its ‘AA’ insurer financial strength rating matches Fitch’s implied assessment of the company’s insurance operations.

Sun Life holds leading positions in several of its principal business segments. Its geographical and product diversification provides multiple sources of earnings, reducing dependence on individual markets or insurance products.

The company also carries less exposure than many competitors to older insurance liabilities involving greater financial uncertainty. These include universal life policies with secondary guarantees, which expose insurers to long-term policyholder obligations.

Fitch regards this relatively limited exposure as a favorable feature of Sun Life’s risk profile.

Capital adequacy remains strong despite intangible asset exposure

Sun Life’s capital position continues to support its credit ratings, although Fitch identifies a relatively large proportion of goodwill and intangible assets on its balance sheet.

These assets account for approximately 41% of shareholders’ equity, including the contractual service margin. Their size partly offsets the strength of the group’s regulatory capital.

During the second quarter of 2026, Sun Life reported a Life Insurance Capital Adequacy Test (LICAT) ratio of 145% at the holding company level. Sun Life Assurance Company of Canada recorded a LICAT ratio of 133%.

Both figures remained within Fitch’s expectations for insurers carrying ratings at these levels.

Financial leverage increases but remains manageable

Sun Life’s financial leverage has risen gradually since 2024, although Fitch continues to consider its debt position consistent with the current rating.

The company’s financial leverage ratio, including credit facilities, reached 21.8% in 2Q26. This compares with 21.4% at year-end 2025 and 18.8% at year-end 2024.

Total leverage followed a similar pattern, increasing to 25.2% in 2Q26 from 25.0% in 2025 and 22.6% in 2024. Despite the increases, both measures remain below the levels Fitch identifies as potential triggers for negative rating action if sustained. The agency expects Sun Life to maintain financial flexibility while managing its debt obligations and capital requirements.

Earnings performance supports higher Fitch assessment

Fitch upgraded its assessment of Sun Life’s financial performance and earnings from ‘aa-‘ to ‘aa’, following improvements in underlying profitability.

The company’s Fitch-calculated underlying return on equity (ROE) reached 17.3% in the first half of 2026, compared with 16.8% for the full year 2025.

Revenue and earnings growth across multiple business segments contributed to these results. Asset management delivered strong performance as rising assets under management generated additional fee income.

The insurer’s international operations also contributed to its earnings results, reducing reliance on a single business or geographical market.

Improved profitability strengthened Sun Life’s capacity to meet financing obligations. Its fixed-charge coverage ratio increased to 13.5x in 2025, up from 11.4x in 2024.

Fitch considers the earnings figures consistent with its ‘aa’ assessment, although sustained profitability remains relevant to future credit decisions.

Investment risk rises as Sun Life increases exposure to riskier assets

Fitch lowered its investment and asset risk assessment for Sun Life to ‘a’ from ‘a+’, following an increase in holdings of higher-risk investments. The insurer’s risky asset ratio climbed to approximately 106% in 2Q26 from 84% in 2023.

Higher allocations to common equities and real estate contributed to the increase, alongside exposure to other investments carrying greater financial risk.

Such investments introduce additional sensitivity to changes in asset valuations and financial market conditions.

Fitch’s revised assessment recognizes this shift in the portfolio’s composition. The agency nevertheless continues to regard Sun Life’s investment holdings as high quality and well diversified.

The distinction matters for the insurer’s credit position. An increase in risky assets affects the assessment of investment exposure without necessarily changing the broader evaluation of portfolio quality.

Liquidity remains stable with CAD2.292 bn in liquid assets

Sun Life maintains access to capital markets and several funding sources, supported by cash reserves and marketable securities at the holding company level.

Cash and other liquid assets held by Sun Life Financial Inc. and its wholly owned holding companies totaled CAD2.292 bn as of June 30, 2026. The comparable figure stood at CAD2.396 bn on December 31, 2025.

The company’s liquidity ratio remained stable at 67.4% during 2Q26.

Fitch considers these resources sufficient to support the insurer’s liquidity position and access to financing. The assessment also takes account of Sun Life’s established position in capital markets.

Factors behind a potential Sun Life rating downgrade

Fitch identifies several developments capable of putting downward pressure on Sun Life’s credit ratings. A sustained loss of market share or deterioration in competitive strength across its principal markets would weaken the current assessment. Changes in the insurer’s risk profile would also attract attention, especially greater concentration in particular products, geographical markets or distribution channels.

Financial performance remains another consideration. Fitch identifies a decline in fixed-charge coverage below 9.5x as a negative rating sensitivity, alongside a sustained reduction in underlying ROE below 10%.

Capital adequacy is equally relevant. A downward trend in LICAT ratios at either Sun Life Financial or Sun Life Assurance Company of Canada would increase pressure on the ratings.

The agency also identifies changes in investment allocation involving greater risk-taking. Continued increases in the risky asset ratio, especially beyond the levels recorded by comparable insurers, would weigh on its assessment.

Financial leverage consistently above 25%, or total leverage consistently exceeding 35%, represents another potential reason for a downgrade.

Conditions for a potential credit rating upgrade

An upgrade would require stronger financial measures alongside improvements in Sun Life’s competitive position.

Fitch identifies financial leverage consistently below 11% and total leverage below 22% as favorable rating conditions. These thresholds represent substantial reductions from the insurer’s reported 2Q26 figures.

Profitability would also need to remain strong. The agency specifies underlying ROE consistently at or above 14%, supported by a fixed-charge coverage ratio above 15x.

Further expansion and improved competitive positioning in the U.S. and Asian markets would strengthen the case for higher ratings, provided Sun Life preserves its capital strength.

Fitch would look for greater operating scale and broader diversification across the company’s businesses without weakening its financial position.

For now, the Stable Outlook indicates Fitch expects Sun Life’s financial position, earnings and business profile to remain consistent with its existing ‘A+’ issuer and ‘AA’ insurer financial strength ratings.