Sun Life 2010 Annual Report Download - page 110

Changes in assumptions or methodology – 2009:
Assumption or methodology
Policy liabilities
increase (decrease) pre-tax Description
Mortality / morbidity $ (137) Improved mortality experience on both
life insurance and savings products.
Lapses and other policyholder behaviour 375 Updates to policyholder behaviour
assumptions in our individual insurance
business.
Expense 119 Impact of reflecting recent experience
studies in several of our businesses.
Investment returns 872 Driven primarily from negative impact of
the implementation of equity- and
interest rate-related actuarial
assumption updates in the third quarter
of 2009.
Other (105)
Total $ 1,124
9.E Fair value of actuarial liabilities, future incomes taxes and deferred net realized gains
Changes in the fair value of assets backing actuarial and other policy liabilities would be substantially offset by a corresponding change
in the fair value of the liabilities (including actuarial liabilities and related future income taxes and deferred net realized gains), resulting
in limited impact on equity.
9.F Assumptions and measurement uncertainty
The following section includes measures of our estimated net income sensitivity to changes in best estimate assumptions in the
actuarial liabilities, based on a starting point and business mix as of December 31, 2010.
Mortality
Mortality refers to the rates at which death occurs for defined groups of people. Insurance mortality assumptions are generally based
on our five-year average experience. For annuities, our experience is generally combined with industry experience, since our own
experience is not sufficient to be statistically valid. In general, assumed mortality rates for life insurance contracts do not reflect any
future expected improvement, except in some instances where the net effect of reflecting future improvement increases the policy
liabilities. For annuities where lower mortality rates result in an increase in liabilities, assumed future mortality rates are adjusted to
reflect estimated future improvements.
For life insurance products, a 2% increase in the best estimate assumption would decrease net income by about $40. For annuity
products for which lower mortality would be financially adverse to us, a 2% decrease in the mortality assumption would decrease net
income by about $85.
Morbidity
Morbidity refers to both the rates of accident or sickness and the rates of recovery therefrom. Most of our disability insurance is
marketed on a group basis. In Canada and in Asia, we offer critical illness policies on an individual basis, and in Canada, we offer long-
term care on an individual basis. Medical stop-loss insurance is offered on a group basis in the United States and Canada. In Canada,
group morbidity assumptions are based on our five-year average experience, modified to reflect the trend in recovery rates. For long-
term care and critical illness insurance, assumptions are developed in collaboration with our reinsurers and are largely based on their
experience. In the United States, our experience is used for both medical stop-loss and disability assumptions, with some consideration
for industry experience. Larger provisions for adverse deviation are used for those benefits where experience is limited. For products
where the morbidity is a significant assumption, a 5% adverse change in that assumption would reduce net income by about $110.
Asset default
Assumptions related to investment returns include expected future credit losses on fixed income investments. Our past experience and
industry experience, as well as specific reviews of the current portfolio, are used to project credit losses.
In addition to the allowances for losses on invested assets outlined in Note 6, the actuarial liabilities include an amount of $2,915
determined on a pre-tax basis to provide for possible future asset defaults and loss of asset value on current assets and on future
purchases. The amount excludes defaults that can be passed through to participating policyholders and excludes provisions for losses
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 the Consolidated Financial Statements