Sun Life 2010 Annual Report Download - page 106

Temporarily impaired available-for-sale assets
The available-for-sale assets disclosed in the following table exhibit evidence of impairment; however, the impairment loss 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 identified as temporarily impaired if their amortized cost as at the end of the period was greater than their
fair value, resulting in an unrealized loss. Unrealized losses may be due to interest rate fluctuations, widening of credit spreads,
general depressed market prices due to current market conditions, and/or depressed fair values in sectors which have experienced
unusually strong negative market reactions. In connection with our investment management practices and review of our investment
holdings, it is believed that the contractual terms of these investments will be met and/or we have the ability to hold these investments
until recovery in value.
December 31, 2010 December 31, 2009
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Available-for-sale bonds $ 2,755 $ 142 $ 3,369 $ 371
Available-for-sale stocks(1) 223 16 88 14
Available-for-sale other invested assets(2) 95 12 135 19
Total temporarily impaired financial assets $ 3,073 $ 170 $ 3,592 $ 404
(1) These assets include available-for-sale private equities that are accounted for at cost with a carrying value of $19 as at December 31, 2010 ($2 as at December 31, 2009).
(2) These assets include available-for-sale limited partnerships and other invested assets that are accounted for at cost with a carrying value of $107 as at December 31, 2010
($154 as at December 31, 2009).
Other-than-temporarily impaired available-for-sale assets
We wrote down $39 of impaired available-for-sale assets recorded at fair value during 2010 ($185 and $318 in 2009 and 2008). There
were no write-downs during 2010 ($3 and $28 in 2009 and 2008) relating to impaired available-for-sale bonds that were part of fair
value hedging relationships as described in Note 5D. These write-downs are included in Net gains (losses) on available-for-sale assets
in our Consolidated Statements of Operations.
These assets were written down since the length of time that the fair value was less than the cost and the extent and nature of the loss
indicated that the fair value would not recover.
We did not reverse any impairment on available-for-sale bonds during 2010 and 2009.
Impairment of held-for-trading assets
We generally maintain distinct asset portfolios for each line of business. Changes in the fair values of these assets are largely offset by
changes in the fair value of actuarial liabilities, when there is an effective matching of assets and liabilities. When assets are
designated as held-for-trading, the change in fair value arising from impairment is not required to be separately disclosed under
Canadian GAAP. The reduction in fair values of held-for-trading assets attributable to impairment results in an increase in actuarial
liabilities charged through our Consolidated Statement of Operations for the period.
Non-income producing bonds
The carrying value of non-income producing bonds for the preceding 12 months was $76 ($48 in 2009).
6.B Liquidity risk
Liquidity risk is the risk we will not be able to fund all cash outflow commitments as they fall due. We generally maintain a conservative
liquidity position that exceeds anticipated demand liabilities. Our asset-liability management process supports our ability to maintain our
financial position by ensuring that sufficient cash flow and liquid assets are available to cover our potential funding requirements. We
invest in various types of assets with a view of matching them with our liabilities of various durations. To strengthen our liquidity further,
we actively manage and monitor our capital and asset levels, diversification and credit quality of our investments and cash forecasts
and actual amounts against established targets. We also maintain liquidity contingency plans for the management of liquidity in the
event of a liquidity crisis.
In addition, we maintain standby credit facilities with a variety of banks. The agreements relating to our debt, letters of credit and lines
of credit contain typical covenants regarding solvency, credit ratings and other such matters.
We manage liquidity risk through a variety of tools including liquidity policies and operating guidelines, liquidity contingency plans and
quarterly stress testing.
Stress testing of our liquidity is performed by comparing liquidity coverage ratios under 1-month and 1-year stress scenarios to our policy
thresholds. These liquidity ratios are calculated by dividing net liquidity adjusted assets by liquidity adjusted liabilities. A factor based
approach is used for both assets and liabilities, whereby asset factors are applied to asset market values representing the net realizable
value upon disposition, and liability factors are applied to the liabilities to reflect the amount which is demandable under the given stress
scenarios. Fixed obligations are deducted directly from liquidity adjusted assets when calculating net liquidity adjusted assets as
102 Sun Life Financial Inc. Annual Report 2010 Notes to the Consolidated Financial Statements