Sun Life 2010 Annual Report Download - page 101

Download and view the complete annual report

Please find page 101 of the 2010 Sun Life annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 162

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162

5.D Derivative financial instruments and hedging activities
The fair values of derivative financial instruments by major class of derivative as at December 31 are shown in the following table:
2010 2009
Fair Value Fair Value
Positive Negative Positive Negative
Interest rate contracts $ 588 $ (575) $ 444 $ (910)
Foreign exchange contracts 965 (63) 801 (119)
Other contracts 76 (62) 137 (228)
Total derivatives $ 1,629 $ (700) $ 1,382 $ (1,257)
The following table presents the fair values of Derivative assets and Derivative liabilities categorized by derivatives designated as
hedges for accounting purposes and those not designated as hedges as at December 31.
2010 2009
Total
Notional
Amount
Fair value Total
Notional
Amount
Fair Value
Positive Negative Positive Negative
Derivative investments(1) $ 37,924 $ 973 $ (591) $ 41,665 $ 823 $ (1,138)
Fair value hedges 2,533 125 (64) 2,310 90 (50)
Cash flow hedges 96 20 (11) 92 19 (24)
Net investment hedges 3,164 511 (34) 3,193 450 (45)
Total $ 43,717 $ 1,629 $ (700) $ 47,260 $ 1,382 $ (1,257)
(1) Derivative investments are derivatives that have not been designated as hedges for accounting purposes.
Additional information on the derivatives designated as hedges for accounting purposes is included below.
Fair value and cash flow hedges
Results for the hedging relationships for the years ended December 31 are shown in the following table:
2010 2009 2008
Fair value hedges
Income (loss) arising from hedge ineffectiveness $ (1) $ 6 $ (4)
Cash flow hedges(1)
Income (loss) due to amounts excluded from hedge effectiveness assessment $ (2) $ (3) $ (6)
(1) Cash flow hedges include equity forwards hedging the variation in the cash flows associated with the anticipated payments under certain stock-based compensation plans
expected to occur in 2011, 2012 and 2013. The amounts included in accumulated OCI related to the equity forwards are reclassified to net income as the liability is accrued for
the stock-based compensation plan over the vesting period. We expect to reclassify a gain of $5 (gain of $2 in 2009) from accumulated OCI to net income within the next
12 months.
5.E Securities lending
We engage in securities lending to generate additional income. Certain securities from our portfolio are loaned to other institutions for
short periods. Collateral, which exceeds the fair value of the loaned securities, is deposited by the borrower with a lending agent,
usually a securities custodian, and maintained by the lending agent until the underlying security has been returned to us. The fair value
of the loaned securities is monitored on a daily basis with additional collateral obtained or refunded as the fair values fluctuate. Certain
arrangements allow us to invest the cash collateral received for the securities loaned. It is our practice to obtain a guarantee from the
lending agent against counterparty default, including non-cash collateral deficiency. As at December 31, 2010, we loaned securities,
included in Invested assets, with a carrying value and fair value of approximately $555 ($785 in 2009) for which collateral held was
$585 ($827 in 2009).
6. Financial instrument risk management
The significant risks related to financial instruments are credit risk, liquidity risk and market risk (currency, interest rate and equity). The
following sections describe how we manage each of these risks.
Some of our financial instruments risk management policies and procedures are described in our 2010 Annual Management
Discussion and Analysis (“MD&A”). The shaded text and tables in the Risk Management, Capital and Liquidity Management and
Investment sections of the MD&A represent part of our disclosures on Credit Risk, Liquidity and Market risks in accordance with CICA
Handbook Section 3862, Financial Instruments – Disclosures, and include discussions on how 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