A.M. Best Co. has raised the financial strength rating to A++ (Superior) from A+ (Superior) of Clarica Life Insurance Co., and affirmed the financial strength rating of A++ (Superior) of Sun Life Assurance Co. of Canada.

A.M. Best has also affirmed the financial strength rating of A+ (Superior) of Sun Life’s subsidiary, Keyport Life Insurance Company, based in Rhode Island, and Clarica’s subsidiary, Clarica Life Insurance Company – U.S., headquartered in North Dakota.

Additionally, A.M. Best has raised the existing debt ratings on securities issued or guaranteed by Sun Life and Clarica Life, while affirming the rating on existing debt issued by Clarica U.S. Inc. Both Clarica Life and Clarica Life Insurance Company – U.S. are being removed from under review. The outlook for the ratings is stable.

These rating actions follow Sun Life Financial Services of Canada Inc.’s acquisition of Clarica Life and its subsidiary in an all stock transaction valued at approximately $6.9 billion.

The ratings agency says Clarica enjoys strong market positions in a number of major business segments. The company’s strong retail market presence is enhanced by its large, loyal career sales force, which contributes to both sales growth and excellent persistency. A.M. Best considers this to a competitive advantage

The ratings agency also says Clarica Life is a significant player in the wealth management, employee benefits and pension market segments.

It notes that Sun Life’s recent agreement to acquire a significant ownership position in C.I. Fund Management Inc., in Canada, in exchange for Spectrum Investment Management Ltd. and Clarica Diversico Ltd., moves the company closer to achieving a leadership position in the Canadian mutual fund market.

A.M. Best says the amalgamation creates Canada’s largest life insurance company, which is expected to achieve leading market share positions in virtually all major life protection product and wealth accumulation businesses in Canada. This is driven in part by the creation of a strong diversified life insurance distribution system that includes Sun Life’s existing brokerage network with Clarica Life’s industry-leading direct sales force.

In A.M. Best’s opinion, the amalgamation creates a significantly stronger international financial services player, thus enhancing Sun Life’s market positions in Canada while adding to its strong market profile in the United States.

However, the firm notes there are significant challenges associated with business integration of Clarica Life, as well asissues associated with the integration of both sales forces.

The ratings agency concludes that the financial performance of the combined entity is highly contingent upon the realization of planned expense synergies, which if not attained, will have a material dampening effect on shareholder returns.