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Table of contents

  • Page 1
    SU N LI F E FINAN FI NANC CIAL INC.. INC ANNUAL ANN R EP EPOR ORT T 201 20 10 Workin king g to BUILD a brighter futu tur re

  • Page 2
    ..., 2010 MFS and other assets under management Segregated funds General funds Financial flexibility Strong credit ratings, capital ratio and risk management practices put us in a position to capitalize on growth opportunities. Sun Life Assurance Company of Canada Financial strength ratings A.M. Best...

  • Page 3
    ... headquartered in the U.S. MFS research and investment and marketing/sales and service offices Products, services and distribution channels Products Individual life insurance Individual health insurance Individual annuity and savings Group life and health Group pension and retirement Mutual funds...

  • Page 4
    ... and corporate customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. Our mission, vision and values...

  • Page 5
    ... Board of Directors and Executive Team Major offices 6 Our highlights in 2010 9 Looking ahead 10 Business strategies 14 Our brand promise 15 Public accountability 17 Management's Discussion and Analysis 153 Subsidiary and affiliate companies 157 Corporate and shareholder information Sun Life...

  • Page 6
    ... Company. Strengthening oversight and governance of Sun Life includes development of directors and Board succession planning and renewal. Three directors assumed new roles as Chairs of Board Committees in 2010 as we implemented a policy of rotating Committee Chairs, generally every five years. Much...

  • Page 7
    .... Richard has had a long career in the U.S. insurance industry. Jon Boscia was President, Sun Life Financial until December 2010. Jon spent most of his career at the publicly traded U.S. life insurer, Lincoln National Corporation, retiring as Chairman and Chief Executive Officer in 2007. Our...

  • Page 8
    CHIEF EXECUTIVE OFFICER'S MESSAGE Businesses around the world are coming to terms with the aftermath of the global financial crisis - a fundamentally altered economic order with new risks, and new possibilities. At Sun Life, our capital strength, diversified business model and strong risk ...

  • Page 9
    ... to formal philanthropic support of health and wellness, culture and education, around the world our people take active leadership roles in their communities. Among many examples, we received the "Caring Company" award from the Hong Kong Council of Social Service for outstanding efforts in support...

  • Page 10
    ... execution of our enterprise strategy drove excellent sales performance across a number of businesses and geographies: In SLF Canada, sales of individual insurance products exceeded $200 million for the year, with record sales levels from our Sun Life Advisors. SLF Canada's Group Retirement Services...

  • Page 11
    ...range of product innovations. For example: In Canada, Group Retirement Services launched an industry-first wireless enrolment service using the new BlackBerry® PlayBook™ to make it easy for plan members to start saving for the future. In India, Birla Sun Life Asset Management Company Limited, one...

  • Page 12
    ... the world to help our customers achieve lifetime financial security and create value for our shareholders. We will work to achieve our strategy through focused execution of the following six enterprise priorities. Generate value-building growth Expand distribution capabilities and enhance products...

  • Page 13
    ...: ฀ The investment, retirement and tax-planning needs of baby boomers. ฀ The shift of responsibility from governments and employers to individuals including health care costs and retirement saving. ฀ The rapid growth of the middle class in China, India and Indonesia. To capitalize on these...

  • Page 14
    ... and product development. We will also leverage Sun Life Global Investments (Canada) Inc., our new investment company, in wealth accumulation and retirement strategies. Our Group Benefits businesses will see further profitable growth by increasing sales in the small-and medium-sized case markets and...

  • Page 15
    ... managing risk. Pursue top-line growth in Individual Life and Annuities by developing stronger relationships with key third-party distributors, increasing our advisor base and continuing to improve wholesaler productivity. Build on the success of our specialized Employee Benefits Group distribution...

  • Page 16
    ... of our processes BUSINESS STRATEGIES AROUND THE GLOBE MFS MFS's strategy is to grow its business by continually exceeding clients' expectations with superior investment performance. As distribution of retail funds continues to move toward platform-driven sales, long-term investment performance has...

  • Page 17
    ...to market SLF ASIA SLF Asia's strategy is to gain scale in each of the markets where we operate and develop into a significant long-term revenue and earnings growth operation. As such, we are increasing the speed to market for new and innovative products, developing alternative distribution channels...

  • Page 18
    ... address their real needs. As we continue to live our global brand promise, our efforts are paying off. Increasingly, consumers see us as a company that is warm, knowledgeable, approachable and spirited - a company committed to offering sustainable products and services that truly make life...

  • Page 19
    ... future PUBLIC ACCOUNTABILITY In 2010, we reinforced our long-standing support of health and wellness, cultural initiatives, and education, including financial literacy. We also accelerated our move to cleaner, greener practices in our businesses and expanded our leadership as a major investor in...

  • Page 20
    ... wellness; in our support for education and financial literacy that will help people achieve a brighter, more secure future; in building and development practices; and in our growing investments in renewable energy projects. As a for-profit corporation with obligations to customers and shareholders...

  • Page 21
    ... 19 Enterprise Mission, Vision, Values and Strategy 20 Business Profile 21 Financial Highlights 22 Corporate Developments 22 Outlook 22 Financial Objectives 52 Investments 23 Accounting and Control Matters 23 Critical Accounting Policies and Estimates 28 Changes in Accounting Policies 35 Disclosure...

  • Page 22
    ... operations of Sun Life Financial including those set out in this MD&A under Enterprise Mission, Vision, Values and Strategy, Business Profile, Outlook, Financial Objectives, Critical Accounting Policies and Estimates, Changes in Accounting Policies, Financial Performance, SLF Canada, SLF U.S., MFS...

  • Page 23
    ... the world to help our customers achieve lifetime financial security and create value for our shareholders. We will work to achieve our strategy through focused execution of the following six enterprise priorities: Generate value-building growth Expand distribution capabilities and enhance products...

  • Page 24
    ... and health insurance, savings, investment management, retirement, and pension products and services to both individual and corporate customers. We manage our operations and report our financial results in five business segments: Sun Life Financial Canada ("SLF Canada"), Sun Life Financial United...

  • Page 25
    ... per common share ($) Dividend payout ratio(2) (%) Dividend yield(3) (%) MCCSR ratio(4) Total Revenue Operating(1) Reported Operating(1) Reported Premiums, deposits and fund sales Premium revenue, including administration services only premium equivalents Segregated fund deposits Mutual fund sales...

  • Page 26
    ...growth. The sale increased Sun Life Assurance's MCCSR by 14 points, and did not have a material impact on net income in 2010. Other Developments On December 31, 2010, Sun Life Assurance entered into an external reinsurance agreement for the insured business in SLF Canada's Group Benefits operations...

  • Page 27
    ... our risk profile, while maintaining a capital efficient structure to optimize shareholder returns. Sun Life Assurance, our principal operating subsidiary in Canada, ended the year with an MCCSR ratio of 228%, well in excess of OSFI's capital target for life insurance companies. Our operating ROE...

  • Page 28
    ... guarantees. In addition, the value of our policyholder obligations for certain insurance products is dependent on assumptions about the future level of equity markets. The calculation of actuarial liabilities for equity market-sensitive products includes provisions for moderate changes in rates...

  • Page 29
    ... error in the information obtained from the pricing service. Stocks that do not have a quoted market price on an active market and are designated as AFS are reported at cost and are not material to our Consolidated Financial Statements. The fair value of non-publicly traded bonds is determined using...

  • Page 30
    ... to quoted market prices. Other invested assets designated as AFS also include investments in limited partnerships, which are accounted for at cost. Other-than-Temporary Impairment of Financial Assets and Allowance for Investment Losses Changes in the fair value of AFS bonds and stocks are recorded...

  • Page 31
    ... by $309 million during 2010 due to the sale of our life reinsurance business, $1.2 billion arising from the acquisition of Keyport Life Insurance Company in the United States in 2001, $437 million arising from the acquisition of CMG Asia Limited ("CMG Asia") in Hong Kong in 2005, $302 million...

  • Page 32
    ... been provided to the Board of Directors and its Audit Committee since Q2 2008, and will continue An education program on the impact of IFRS was developed for external stakeholders and information sessions occurred in the second half of 2010 ‰ ‰ 28 Sun Life Financial Inc. Annual Report 2010...

  • Page 33
    ... financial statements Accounting and general ledger systems and development of systems outside the general ledger and accounting feeder systems that are critical for interim reporting in 2011 were completed in 2010 We have completed our review of the impact of IFRS on products and lines of business...

  • Page 34
    ... the presentation under IFRS. Adjustments are shown on a gross basis with the related tax expense (recovery) recorded in the Deferred tax liabilities or Deferred tax asset lines. Changes to the Total Equity line are on a net of tax basis. 30 Sun Life Financial Inc. Annual Report 2010 Management...

  • Page 35
    ... payments and the related income tax amounts. Opening Equity Reconciliation The following table provides a reconciliation between the total equity reported under Canadian GAAP as at the Transition Date to opening equity under IFRS. The adjustments are presented net of tax and relate to optional...

  • Page 36
    ...SLF Canada, SLF U.S., MFS, SLF Asia, and Corporate. As a result of this accounting policy difference, we have recorded a goodwill impairment charge to opening equity which relates to substantially all of the goodwill recorded on the acquisition of Keyport Life Insurance Company in the United States...

  • Page 37
    ... impacts to our net income based on current policy choices. These estimates and current policy choices may be subject to change until the issuance of our 2011 Annual Consolidated Financial Statements. Share-based Compensation Canadian GAAP Share-based payment awards issued by MFS that are based on...

  • Page 38
    ... stock-based compensation equity awards of MFS, which are accounted for as cash-settled liabilities under IFRS. These awards result in an adjustment to the net income used in the diluted EPS calculation under Canadian GAAP. Future Accounting Standards On July 30, 2010, the International Accounting...

  • Page 39
    ...and reported to senior management, including the Company's Chief Executive Officer ("CEO"), Executive VicePresident and Chief Financial Officer ("CFO") and Executive Vice-President, Business Development and General Counsel, on a timely basis so that appropriate decisions can be made regarding public...

  • Page 40
    ...Operating earnings (loss)(1) Common shareholders' net income (loss) by segment SLF Canada SLF U.S. MFS SLF Asia Corporate Total (1) The items not included in operating earnings are described under the heading Non-GAAP Financial Measures. Results for the full year 2010 included $173 million related...

  • Page 41
    ... include (i) regular premiums received on life and health insurance policies and fixed annuity products, net of premiums ceded to reinsurers; (ii) net investment income comprised of income earned on general fund assets, realized gains and losses on AFS assets and changes in the value of HFT assets...

  • Page 42
    ... the sale of our life reinsurance business in the fourth quarter of 2010. Policy Benefits We have a diverse range of current and future benefit payment obligations that affect overall earnings, such as payments to policyholders, beneficiaries and depositors, net transfers to segregated funds and...

  • Page 43
    ... of our products. Our benefit payment obligations are estimated over the life of our annuity and insurance products, based on internal valuation models, and are recorded in its financial statements, primarily in the form of actuarial liabilities. We review these assumptions each year, generally in...

  • Page 44
    ... in higher tax jurisdictions, such as the United States, contributed to the income tax recovery in 2009. Impact of Currency We have operations in key markets worldwide, including the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Indonesia, India, China and Bermuda, and...

  • Page 45
    ... higher annuity premiums in SLF Canada and growth in health premiums; and (iii) an increase in fee income of $120 million on growth in fee-based businesses, including MFS, SLF Canada and SLF U.S. AUM increased $9.5 billion between September 30, 2010 and December 31, 2010. The increase in AUM related...

  • Page 46
    ... of equity- and interest rate-related actuarial assumption updates of $513 million and reserve increases of $194 million for downgrades on our investment portfolio, partially offset by reserve releases of $161 million as a result of favourable equity markets. Second Quarter 2009 Net income of...

  • Page 47
    ...for growth. SLF Canada's three business units - Individual Insurance & Investments, Group Benefits and Group Wealth (which includes our Group Retirement Services business) - offer a full range of protection and wealth accumulation products and services to individuals and corporate clients. Strategy...

  • Page 48
    ... include universal life, term life, permanent life, participating life, critical illness, long-term care and personal health insurance. We offer savings and retirement products, which include accumulation annuities, payout annuities, mutual funds and segregated funds. Our products are marketed...

  • Page 49
    ... 300 sales professionals located across the United States. We have aligned our business model to leverage shared services for Information Technology, Operations, Finance, Risk Management, Marketing, Human Resources and Legal to drive operational efficiency and to develop centers of excellence. 2010...

  • Page 50
    ... equity market improvements and positive net sales. Results by Business Unit Annuities The SLF U.S. Annuities business unit provides variable and fixed annuity products and investment management services. We are focused on balancing consumer and shareholder value to deliver sustainable growth...

  • Page 51
    ...EBG business unit leverages its strong underwriting expertise and extensive distribution capabilities to provide group life, long-term and short-term disability, medical stop-loss, and dental insurance to over 10 million group plan members. We currently provide customer-focused products and services...

  • Page 52
    ... distribution effective fee rate and higher ANA. Under IFRS, share-based compensation awards at MFS will be accounted for as cash settled liabilities. Additional information concerning share-based compensation can be found in this MD&A under the heading, International Financial Reporting Standards...

  • Page 53
    ... Everbright to capture a larger share of China's growing financial services sector. In August 2010, CIMB Sun Life, Sun Life's joint venture in Indonesia with P.T. Bank CIMB Niaga, was named "Best New Company of the Year" by the International Business Awards. This premier international business award...

  • Page 54
    ... insurance sales were impacted by major industry-wide regulatory changes to unit-linked products and down 31% in 2010 compared to 2009, on a local currency basis. The gross inflows of Birla Sun Life Asset Management Company Limited were up by 16% over last year. China Sun Life Everbright operates...

  • Page 55
    ...insurers. Coverage includes individual disability income, long-term care, group long-term disability and personal accident & medical on the health side, as well as guaranteed minimum income and death benefit coverage. Financial and Business Results Summary Statement of Operations ($ millions) 2010...

  • Page 56
    ...and limitations for interest rate, credit, equity market, real estate market, liquidity, concentration, currency and derivative risks. Compliance with these policies is monitored on a regular basis and reported annually to the Risk Review Committee. The Investment Oversight Committee of the Board of...

  • Page 57
    ... 25,699 5,843 8,618 61,307 HFT Bonds 21,293 20,817 5,080 7,563 54,753 AFS Bonds 1,964 6,940 392 1,456 10,752 Bonds Canada United States United Kingdom Other Total Bonds Management's Discussion and Analysis Sun Life Financial Inc. Annual Report 2010 53

  • Page 58
    ...a maximum loan-to-value ratio of 75%, we may invest in mortgages with a higher loanto-value ratio in Canada if the mortgage is insured. The estimated weighted average debt service coverage is 1.6 times, consistent with prior year-end levels. The Canada Mortgage and Housing Corporation insures 23% of...

  • Page 59
    ... and corporate loans December 31, 2009 Canada United States United Kingdom Total mortgages Corporate loans Total mortgages and corporate loans 2,341 280 - 2,621 5,193 5,905 57 11,155 7,534 6,185 57 13,776 5,673 19,449 In the United States, a gradual recovery of the commercial real estate market...

  • Page 60
    ... interest rate exposure of associated liabilities. Certain equity forwards are designated as cash flow hedges of the anticipated payments of awards under certain stock-based compensation plans. We also use currency swaps and forwards designated as net investment hedges to reduce foreign exchange...

  • Page 61
    ... universal life contracts and U.K. unit-linked pension products with guaranteed annuity rate options Interest rate exposure in relation to assetliability management U.S. variable annuities, Canadian segregated funds and reinsurance on variable annuity guarantees offered by other insurance companies...

  • Page 62
    ... the business of taking risk for appropriate return. This is core to our corporate vision, mission and customer value proposition. Effective risk-taking and risk management are critical to the overall profitability, competitive market positioning and long-term financial viability of the Company. We...

  • Page 63
    ... role by developing effective corporate governance guidelines and processes; reviewing policies and processes to sustain ethical behaviour; reviewing reports related to compliance with legal and regulatory matters; assessing the effectiveness of the Board of Directors and its Committees as well as...

  • Page 64
    ... rate risk, currency risk or real estate risk, whether those changes are caused by factors specific to the individual insurance contract, financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. 60 Sun Life Financial Inc. Annual Report 2010...

  • Page 65
    ... a number of sources. Our primary exposure to equity risk arises, in connection with the underwriting of benefit guarantees on variable annuity and segregated fund annuity contracts (i.e., segregated fund products in SLF Canada, variable annuities in SLF U.S. and run-off reinsurance in our Corporate...

  • Page 66
    ...% of our sensitivity to equity market risk is derived from segregated fund products in SLF Canada, variable annuities in SLF U.S. and run-off reinsurance in our Corporate business segment. These products provide benefit guarantees, which are linked to underlying fund performance and may be triggered...

  • Page 67
    ... to prior period end exchange rates The ultimate cost of providing for the guarantees in respect of the Company's variable annuity and segregated fund contracts is uncertain and will depend upon a number of factors including general capital market conditions, policyholder behaviour and mortality...

  • Page 68
    ...income and capital sensitivities. Given the nature of these calculations, we cannot provide assurance that actual earnings and capital impacts will be within the indicated ranges. Information related to market risk sensitivities and guarantees related to variable annuity and segregated fund products...

  • Page 69
    ..., benefits payments, expenses and the cost of embedded options and guarantees related to insurance risks. This risk class includes risk factors relating to product development and pricing, mortality, morbidity, longevity, policyholder behaviour and reinsurance. Insurance Risk Management Governance...

  • Page 70
    ... related to the timing and payment of death and disability claims, policy maturities, annuity payments, minimum guarantees on segregated fund products, policyholder dividends, amounts on deposits, commissions and premium taxes offset by contractual future premiums and fees on in-force contracts...

  • Page 71
    ... companies, such as Sun Life Assurance, and that would update OSFI's regulatory guidance for non-operating insurance companies acting as holding companies, such as SLF Inc. OSFI is also reviewing the use of internally modelled capital requirements for variable annuity and segregated fund guarantees...

  • Page 72
    ... their individual risk profiles. Sun Life Financial, including all of its business groups, engages in a capital planning process annually in which capital options, fundraising alternatives and dividend policies are presented to the Risk Review Committee of the Board. Capital reviews are regularly...

  • Page 73
    ... and losses on cash flow hedges and AFS debt securities are excluded from regulatory capital. Debt includes all short-term and long-term obligations. Total capital includes debt, preferred shares and common stock. Common shareholders' equity was $16.2 billion, as at December 31, 2010, compared with...

  • Page 74
    ... with financing arrangements to address U.S. statutory reserve requirements for certain universal life contracts. The following table shows the number of common shares and stock options outstanding of SLF Inc. for the last three years. Number of Common Shares Outstanding (in millions) 2010 564...

  • Page 75
    ... develops or the risk profile of Canadian life insurers changes or to reflect other risks OSFI deems necessary. SLF Inc. was well above its minimum internal targets as at December 31, 2010. Sun Life Assurance is subject to the MCCSR capital rules for a life insurance company in Canada. The Company...

  • Page 76
    ... risks Insurance risks Interest rate risks Total capital required MCCSR ratio Sun Life Assurance's MCCSR ratio increased from 221% as at December 31, 2009, to 228% as at December 31, 2010. The MCCSR ratio was favourably impacted by 14 points by the sale of the Company's life reinsurance business...

  • Page 77
    ...subsequent rating of life insurance companies. The following table summarizes the financial strength ratings/claims paying ability for the two main operating subsidiaries of SLF Inc. as at December 31, 2010. Standard & Poor's Sun Life Assurance Company of Canada Sun Life Assurance Company of Canada...

  • Page 78
    ... believe that the conclusion of any current legal or regulatory matters, either individually or in the aggregate, will have a material adverse effect on the Company's financial condition or results of operations. 74 Sun Life Financial Inc. Annual Report 2010 Management's Discussion and Analysis

  • Page 79
    ... Share capital Operating expenses Earnings (loss) per share Stock-based compensation Income taxes Income taxes included in OCI Commitments, guarantees and contingencies Pension plans and other post-retirement benefits Foreign exchange gain/ loss Related party transactions Variable interest...

  • Page 80
    ... the Company's Code of Business Conduct. Both the internal and external auditors and the Appointed Actuary have full and unrestricted access to the Audit Committee, with and without the presence of management. The Office of the Superintendent of Financial Institutions, Canada conducts periodic...

  • Page 81
    ... 3) Fee income POLICY BENEFITS AND EXPENSES Payments to policyholders, beneficiaries and depositors: Maturities and surrenders Annuity payments Death and disability benefits Health benefits Policyholder dividends and interest on claims and deposits Net transfers to (from) segregated funds Increase...

  • Page 82
    ... sheet date: U.S. dollars U.K. pounds The attached notes form part of these Consolidated Financial Statements. 1.00 1.55 1.05 1.70 Approved on behalf of the Board of Directors, Donald A. Stewart Chief Executive Officer John H. Clappison Director 78 Sun Life Financial Inc. Annual Report 2010...

  • Page 83
    ... Stock-based compensation (Note 18) Stock options exercised (Notes 15 and 18) Balance, end of year RETAINED EARNINGS Balance, beginning of year, as previously reported Accounting adjustments for error (Note 2) Balance, beginning of year, after adjustments Net income (loss) Dividends on common shares...

  • Page 84
    ... on common shares Dividends paid on preferred shares Net cash provided by (used in) financing activities CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES Sales, maturities and repayments of: Bonds Mortgages and corporate loans Stocks Real estate Purchases of: Bonds Mortgages and corporate loans...

  • Page 85
    ...units Stocks Bonds Cash, cash equivalents and short-term securities Real estate Mortgages Other assets LIABILITIES Net assets attributable to segregated funds policyholders The attached notes form part of these Consolidated Financial Statements. Consolidated Financial Statements Sun Life Financial...

  • Page 86
    ... diversified financial services organization providing savings, retirement and pension products, and life and health insurance to individuals and groups through our operations in Canada, the United States, the United Kingdom and Asia. We also operate mutual fund and investment management businesses...

  • Page 87
    ...held-for-trading stocks are recorded to Change in fair value of held-for-trading assets in our Consolidated Statements of Operations. The majority of held-for-trading equities are held to support products where investment returns are passed through to policyholders, hence equity market movements are...

  • Page 88
    ... the fair value hedging relationships are also recorded to Other net investment income (loss). Cash flow hedges Certain equity forwards are designated as cash flow hedges of the anticipated payments of awards under certain stock-based compensation plans. The difference between the forward price and...

  • Page 89
    ...year. Cash equivalents and short-term securities are designated as held-for-trading and are recorded at fair value with changes in fair value reported in Change in fair value of held-for-trading assets in our Consolidated Statements of Operations. Policy loans and other invested assets Policy loans...

  • Page 90
    ...of the exchange gain or loss accumulated in OCI is reflected in net income when there is a reduction in our net investment in a foreign operation resulting from a capital transaction, dilution, or sale of all or part of the foreign operation. 86 Sun Life Financial Inc. Annual Report 2010 Notes to...

  • Page 91
    ...estimated present value of post-retirement health care and life insurance benefits is charged to income over the employees' years of service to the date of eligibility. For the purpose of calculating the expected returns on pension plan assets for most of the Canadian pension plans, a market-related...

  • Page 92
    ... equity method and had a carrying value of $1,218 as at the date of sale. A pre-tax gain of $1,015, net of transaction costs of $6, was recorded in Net investment income (loss) in the fourth quarter ($825 net of taxes). 4. Segmented information We have five reportable segments: Sun Life Financial...

  • Page 93
    ... of additional strategic investors. Under the restructuring, which resulted in a net gain of $19, our interest in Sun Life Everbright Life Insurance Company Limited was reduced from 50% to 24.99%. Assets by segment as at December 31 SLF Canada 2010 General fund assets Segregated funds net assets...

  • Page 94
    ... in the process that the brokers use to develop the prices. Stocks that do not have a quoted market price on an active market and are designated as available-for-sale are reported at cost and are not material to our Consolidated Financial Statements. The fair value of non-publicly traded bonds is...

  • Page 95
    ... of cash equivalents and short-term securities are based on market yields. The fair values of other invested assets are usually determined by reference to quoted market prices. 5.A.ii Yield calculation Yield for all assets, except real estate, is calculated based on total net interest, dividend or...

  • Page 96
    ... available-for-sale Stocks - held-for-trading Stocks - available-for-sale Cash, cash equivalents and short-term securities Derivative assets Other invested assets Total financial assets measured at fair value Financial liabilities Amounts on deposit Derivative liabilities Total financial liabilities...

  • Page 97
    ... Total bonds - available-for-sale Stocks - held-for-trading Stocks - available-for-sale Cash, cash equivalents and short-term securities Derivative assets Other invested assets Total financial assets measured at fair value Financial liabilities Amounts on deposit Derivative liabilities Total...

  • Page 98
    ... within Net investment income (loss) in our Consolidated Statements of Operations. During 2010, transfers into level 3 occur when the inputs used to price the financial instrument lack observable market data and as a result, no longer meet the level 1 or 2 definition at the reporting date. In...

  • Page 99
    ... to changes in the transparency of inputs used to price the securities. For liabilities, gains are indicated in negative numbers. 5.B Real estate investments The carrying value of real estate by geographic location as at December 31 is as follows: 2010 Canada United States United Kingdom Other...

  • Page 100
    ...following components: 2010 Interest income: Held-for-trading bonds Available-for-sale bonds Mortgages and corporate loans Policy loans Cash, cash equivalents and short-term securities Interest income Dividends on held-for-trading stocks Dividends on available-for-sale stocks Real estate income (net...

  • Page 101
    ... we measure our risk and our objectives, policies and methodologies for managing these risks. Therefore, the shaded text and tables represent an integral part of these Consolidated Financial Statements. Notes to the Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2010 97

  • Page 102
    ...or any associated group of issuers. Exceptions exist for investments in securities which are issued or guaranteed by the Government of Canada, United States or United Kingdom and issuers for which the Board has granted specific approval. Mortgage loans are collateralized by the related property, and...

  • Page 103
    ... Total mortgages and corporate loans, before allowances for losses $ 1,276 1,188 777 1,085 1,227 8,329 13,882 $ 563 598 394 754 655 2,719 5,683 $ 1,839 1,786 1,171 1,839 1,882 11,048 19,565 $ $ $ Notes to the Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2010 99

  • Page 104
    ... financial instruments are the basis for calculating payments and are generally not the actual amounts exchanged. The following table provides the notional amounts of derivative instruments outstanding as at December 31 by type of derivative and term to maturity: 2010 Term to Maturity Under 1 Year...

  • Page 105
    ... we held as security for mortgages ($5 of real estate held as collateral in 2009). These assets are either retained as real estate investments if they comply with our investment policy standards or sold. Notes to the Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2010 101

  • Page 106
    ... has not been recognized in net income because it is considered temporary. Held-for-trading assets are excluded from the following table, as changes in fair value are recorded in our Consolidated Statements of Operations. Available-for-sale bonds, stocks and other invested assets have generally been...

  • Page 107
    ... next five years. 8. Other assets Other assets as at December 31 consist of the following: 2010 Accounts receivable Investment income due and accrued Future income taxes (Note 19) Deferred acquisition costs Prepaid expenses Premiums receivable Accrued benefit asset (Note 22) Capital assets Other...

  • Page 108
    ... premiums and net investment income, will provide for outstanding claims, estimated future benefits, policyholders' dividends, taxes (other than income taxes) and expenses on in-force policies. In calculating actuarial liabilities and other policy liabilities, assumptions must be made about equity...

  • Page 109
    ... Bonds Held-forAvailabletrading for-sale Stocks Held-forAvailabletrading for-sale Mortgages and corporate loans Real estate As at December 31, 2010 Individual participating life Individual non-participating life Group life Individual annuities Group annuities Health insurance Equity and other Total...

  • Page 110
    ... in the value of equity and real estate assets supporting actuarial liabilities. Equity market movements and interest rate The descriptions of the sensitivities that apply to Equity Market Movements and Interest Rate are included in Note 6. 106 Sun Life Financial Inc. Annual Report 2010 Notes to...

  • Page 111
    ...the work required to form this opinion. The Appointed Actuary is required each year to analyze the financial condition of the Company and prepare a report for the Board. The 2010 analysis tested our capital adequacy until December 31, 2014, under various adverse economic and business conditions. The...

  • Page 112
    ... to investment risk, insurance risk, interest rate and other market risks and general business risk. The risk-based capital of Sun Life Assurance Company of Canada (U.S.) was above the minimum regulatory level as at December 31, 2010 and December 31, 2009. In addition, other foreign operations and...

  • Page 113
    ... have features of equity capital. No interest payments or distributions will be paid in cash by the SL Capital Trusts on the SLEECS if Sun Life Assurance fails to declare regular dividends (i) on its Class B Non-Cumulative Preferred Shares Series A, or (ii) on its public preferred shares, if any are...

  • Page 114
    ... by Sun Life Assurance to the SL Capital Trusts are reported under Senior Debentures and interest expense is recognized on the senior debentures. The table below presents additional significant terms and conditions of the SLEECS. Issuer Issuance date Distribution or interest payment dates Annual...

  • Page 115
    ...$ 2010 160 120 280 $ $ 2009 184 137 321 12.D Senior financing On November 8, 2007, a VIE consolidated by SLF Inc. issued a U.S. $1,000 variable principal floating rate certificate (the "Certificate") to a financial institution (the "Lender"). At the same time, Sun Life Assurance Company of Canada...

  • Page 116
    ... by Sun Canada Financial are not redeemable prior to maturity. Designated as 6.30% Debentures, Series 2, due 2028. Issued by The Mutual Life Assurance Company of Canada, which thereafter changed its name to Clarica Life Insurance Company ("Clarica"). Clarica was amalgamated with Sun Life Assurance...

  • Page 117
    ... the year ended December 31 are as follows: 2010 Common shares (in millions of shares ) Balance, January 1 Stock options exercised (Note 18) Common shares purchased for cancellation(1) Shares issued under dividend reinvestment and share purchase plan(2) Balance, December 31 (1) 2009 Amount Number...

  • Page 118
    ...than the market price of the underlying stock on the day of grant. 2010 Compensation expense recorded Income tax benefit on expense recorded Income tax benefit realized on exercised options $ $ $ 17 1 1 2009 $ $ $ 16 2 - 2008 $ $ $ 10 1 1 114 Sun Life Financial Inc. Annual Report 2010 Notes to...

  • Page 119
    ... term of the option is based on Canadian government bond yield curve in effect at the time of grant. 18.B Employee share ownership plan In Canada, we match eligible employees' contributions to the Sun Life Financial Employee Stock Plan. The match is provided for employees who have met two years...

  • Page 120
    ... by the average closing price of a common share on the TSX on the five trading days immediately prior to the vesting date. Sun Share Unit ("Sun Shares") Plan: In December 2010, The Board approved the Sun Share Unit Plan which will replace the RSU and PSU plans for new awards granted effective in...

  • Page 121
    ... losses. For the Tax exempt investment income, the tax benefit amounted to $200 in 2010 as a result of improving market conditions during the year. During the recent years, the Canadian federal government and certain provinces enacted legislation reducing corporate income tax rates. As a result of...

  • Page 122
    ... liabilities for financial reporting purposes and the amounts used for income tax purposes. The sources of these temporary differences and the recognized tax effects in our Consolidated Statements of Operations for the years ended December 31 are as follows: 2010 Investments Actuarial liabilities...

  • Page 123
    ... aforesaid indemnities, and we also maintain insurance policies that may provide coverage against certain of these claims. Guarantees made by us that can be quantified are included in Note 6Ai. 21.E Guarantees of Sun Life Assurance preferred shares and subordinated debentures On November 15, 2007...

  • Page 124
    ... plans are open to new hires worldwide (except for one small defined benefit plan in the Philippines). In addition to our pension plans, in some countries we provide certain post-retirement medical, dental and life insurance benefits to eligible qualifying employees and to their dependants...

  • Page 125
    ... direction will change the health care cost as follows: 1% Increase Decrease Effect on post-retirement benefit obligations Effect on aggregated service and interest costs $ $ 23 2 $ $ (21) (2) Notes to the Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2010 121

  • Page 126
    ... Inc. for sales of its products by agents licensed through us. Distribution fees for 2008 of $129 are included in Fee income in our Consolidated Statements of Operations. As a result of the sale, CI Investments Inc. is no longer related party. 122 Sun Life Financial Inc. Annual Report 2010 Notes to...

  • Page 127
    ... its lifetime. Regardless of the accounting basis chosen, the total profit of an insurance contract will not change. The financial statement impact and a description of the material differences follow. Notes to the Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2010 123

  • Page 128
    ... financial statement information to U.S. GAAP 26.A.i Consolidated Statements of Operations for the years ended December 31: 2010 Cdn. GAAP U.S. GAAP 2009 Cdn. GAAP U.S. GAAP 2008 Cdn. GAAP U.S. GAAP REVENUE Premiums Total net investment income (loss) Net realized gains (losses) Fee income POLICY...

  • Page 129
    ...-for-sale Mortgages and corporate loans Stocks - held-for-trading Stocks - available-for-sale Real estate, net of accumulated depreciation (accumulated depreciation: 2010 - $600; 2009 - $561) Cash and cash equivalents Short-term securities(2) Derivative assets Policy loans and other invested assets...

  • Page 130
    ... after change in accounting policy Adjustment for change in accounting policy adopted on July 1, 2010(4) Net income (loss) for the year attributed to shareholders Dividends on common shares Dividends on preferred shares Balance, December 31 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), net of taxes...

  • Page 131
    ... available-for-sale assets Unrealized gains (losses) on cash flow hedging instruments Reclassifications to net income (loss) for cash flow hedges Changes to deferred acquisition costs and other liabilities Changes in unamortized net actuarial loss Changes in past service cost Changes in transition...

  • Page 132
    ... in accounting policies. For the years ended December 31 Total net income (loss) in accordance with Cdn. GAAP Adjustments related to: Investments Bonds(1) Stocks and segregated fund units(1) Derivative instruments Real estate Total investments Deferred acquisition costs Deferred acquisition costs...

  • Page 133
    ... United Kingdom, are computed using a net level premium reserve method with interest and mortality assumptions based primarily upon those assumptions used for establishing the cash surrender values in the contract. For universal life-type and investment contracts, contract holder deposits represent...

  • Page 134
    ...on claims and deposits Premiums for universal life and other investmenttype contracts are recorded as revenue, and a liability for future policy benefits is established as a charge to income. Interest accrued on contracts is shown as an increase in actuarial liabilities. Payments to contract holders...

  • Page 135
    ... of credit quality indicators and the aging of past due information for its financing receivables. The adoption of this standard did not have a material impact to our Consolidated Financial Statements. Notes to the Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2010 131

  • Page 136
    ... 116 (229) 26.D.ii Change In net gains (losses) included In Net investment income (loss) for securities classified as held-for-trading: For the years ended December 31 Bonds Stocks $ $ 2010 776 124 $ $ 2009 2,150 219 $ $ 2008 (3,492) (465) 26.D.iii Real estate: The depreciation expense included...

  • Page 137
    ... prices) and loan-specific information (e.g. delinquency rates, loan-to-value ratio). There are inherent risks and uncertainties in management's evaluation of securities for OTTI. These risks and uncertainties include factors both external and internal to us, such as general economic conditions...

  • Page 138
    ...036 451 48 391 $ 48,615 $ 3,560 $ 51,481 The gross unrealized losses include the before tax non-credit OTTI loss of $227, that is recorded as a component of accumulated OCI for assets still held at the reporting date. 134 Sun Life Financial Inc. Annual Report 2010 Notes to the Consolidated...

  • Page 139
    ... $617, that is recorded as a component of accumulated OCI for assets still held at the reporting date. The gross unrealized gains (losses) on available-for-sale stocks are as follows: Original Cost Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value As at December 31, 2010 As at...

  • Page 140
    ... differing accounting policies for assets and liabilities and differences in the recognition of tax rate changes are as follows: Future Income Tax Asset(1) Future Income Tax Liability(1) Cdn. GAAP U.S. GAAP As at December 31, 2010 Investments Actuarial liabilities Deferred acquisition costs Losses...

  • Page 141
    ... (net of tax recovery of $17) was $155 under U.S. GAAP. Determination of the U.S. GAAP loss on disposal includes the reversal of value of business acquired, deferred acquisition costs, and goodwill. Notes to the Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2010 137

  • Page 142
    ... of stock options was excluded from the calculation of diluted earnings per share since their effect is anti-dilutive when a loss is reported. 26.D.xii Statements of cash flows: Under Cdn. GAAP, deposits, maturities and withdrawals related to investment-type contracts and universal life contracts...

  • Page 143
    ...) 387 The liability for death and income benefit guarantees is established equal to a benefit ratio multiplied by the cumulative contract charges earned, plus accrued interest less contract benefit payments. The benefit ratio is calculated at the date of issue as the present value of all actual and...

  • Page 144
    ...net) Transfers in and/or (out) of level 3(1) Change in unrealized gains (losses) included in earnings relating to instruments still held at the reporting date(2) For the year ended December 31, 2010 Beginning balance Included in net income (loss) Included in OCI Ending balance Segregated funds...

  • Page 145
    ... maximum exposure to loss represents the maximum loss amount that we could recognize as a reduction in net investment income or as a realized capital loss and is the cost basis of our investment. Total Assets are included in Bonds - held-for-trading and Cash and cash equivalents, Total Liabilities...

  • Page 146
    ... losses or right to receive benefits, and our inability to direct the activities that most significantly impact the economic performance of the VIEs. Our maximum exposure to loss on these investments is limited to the amount of our investment. 142 Sun Life Financial Inc. Annual Report 2010 Notes...

  • Page 147
    ...'s Report THE SHAREHOLDERS AND DIRECTORS OF SUN LIFE FINANCIAL INC. I have valued the policy liabilities of Sun Life Financial Inc. and its subsidiaries for its Consolidated Balance Sheets at December 31, 2010 and 2009 and their change in the Consolidated Statements of Operations for the years then...

  • Page 148
    ... with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of...

  • Page 149
    ...reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors...

  • Page 150
    Additional Company Information 147 Sources of Earnings 149 Six-Year Summary by Segment 150 Eleven-Year Summary 152 Board of Directors and Executive Team 153 Subsidiary and Affiliate Companies 156 Major Offices 157 Corporate and Shareholder Information 146 Sun Life Financial Inc. Annual Report 2010...

  • Page 151
    ... profit for Variable Annuity and Segregated Fund products, partially offset by normal business growth and higher net assets in MFS. Expected profit in 2009 included the release of excess default provisions related to commercial mortgages. The new business issued in 2010 led to pre-tax income losses...

  • Page 152
    ... Income Taxes Income Taxes Earnings before Non-controlling Interests, Par Income and Preferred Share Dividends Less: Non-controlling Interests Par Policyholders' Income (Loss) Preferred Share Dividends Common Shareholders' Net Income (Loss) 148 Sun Life Financial Inc. Annual Report 2010 Sources...

  • Page 153
    ... December 31) SLF Canada SLF United States MFS SLF Asia Corporate Consolidation Adjustments Total Company Total Net Income (For the year ended December 31) SLF Canada SLF United States MFS SLF Asia Corporate Total Company Six-Year Summary by Segment Sun Life Financial Inc. Annual Report 2010 149

  • Page 154
    ... Segregated Fund Net Assets Mutual Funds and Other Assets Under Management Total Assets Under Management TOTAL EQUITY BUSINESS RESULTS (For the year ended December 31) Revenue Premiums Annuities Life Insurance Health Insurance Total Premiums Net Investment Income Fee Income Total Revenue Payments...

  • Page 155
    2009 120,091 81,305 231,244 432,640 17,414 2008 119,833 65,762 195,497 381,092 17,409 2007 114,291 73,205 ... 3,523 1,495 9,389 3,839 3,318 16,546 9,291 1,611 4,230 159 386 67 802 - 802 561,389 45,614 25,869 8,318 11,328 Eleven-Year Summary Sun Life Financial Inc. Annual Report 2010 151

  • Page 156
    ... (5) Member of Audit Committee Member of Governance and Conduct Review Committee Member of Investment Oversight Committee Member of Management Resources Committee Member of Risk Review Committee Additional information on the directors and a report on the Board's corporate governance processes and...

  • Page 157
    ... Birla Sun Life Asset Management Company Limited Sun Life (India) Distribution Investments Inc. Sun Life and Health Insurance Company (U.S.) Sun Life Assurance Company of Canada (Barbados) Limited Sun Life Capital Trust Sun Life Capital Trust II Sun Life Everbright Life Insurance Company Limited Sun...

  • Page 158
    Company Address of head or principal office Book value of shares owned* Per cent of voting shares owned by SLF Sun Life Financial (Hungary) Investments Inc. Sun Life Financial (India) Insurance Investments Inc. Birla Sun Life Insurance Company Limited Sun Life Financial (Mauritius) Inc. Sun Life...

  • Page 159
    ...(Hong Kong) Limited MFS International (U.K.) Limited MFS Investment Management Company (LUX) S.A. MFS Investment Management K.K. MFS Service Center, Inc. Sun Life of Canada (U.S.) Holdings, Inc. Dental Holdings, Inc. California Benefits Dental Plan Professional Insurance Company Sun Canada Financial...

  • Page 160
    ..., Basingstoke Hampshire United Kingdom RG21 4DZ Call centre: 0870-1611-111 Website: sloc.co.uk Sun Life Financial Asia Sun Life Financial Asia Regional Office 27/F Oxford House Taikoo Place 979 King's Road Hong Kong Tel: (852) 2918-3888 China Sun Life Everbright Life Insurance 15/F 28 Jianguomennei...

  • Page 161
    ....PR.G Sun Life Financial Inc. common shares are listed on the Toronto (TSX), New York (NYSE) and Philippine (PSE) stock exchanges. Ticker Symbol: SLF As of February 10, 2011, there were 574,448,184 outstanding common shares, which are the only voting securities. Shareholder Services For shareholder...

  • Page 162
    ... and services that help customers achieve lifetime financial security, Sun Life Financial recognizes that environmental sustainability is critical to our overall well-being. The use of Forest Stewardship Council (FSC) and recycled paper for this Annual Report resulted in the following savings: This...