Sun Life 2010 Annual Report Download - page 112

10. Capital management
Our capital base is structured to exceed regulatory and internal capital targets and maintain strong credit ratings while maintaining a
capital efficient structure and desired capital ratios. We strive to achieve an optimal capital structure by balancing the use of debt and
equity financing. Capital is managed both on a consolidated basis under principles that consider all the risks associated with the
business, as well as at the business group level under the principles appropriate to the jurisdiction in which we operate. We manage
the capital for all of our subsidiaries in a manner commensurate with their individual risk profiles.
The Board is responsible for the annual review and approval of our capital plan. The capital risk policy establishes policies, operating
guidelines and procedures that govern the management of capital. The Risk Review Committee of the Board of Directors reviews and
approves SLF Inc.’s capital risk policy annually. Corporate Treasury and Risk Management are responsible for the design and
implementation of the capital risk policy.
This policy is designed to ensure that adequate capital is maintained to provide the flexibility necessary to take advantage of growth
opportunities, to support the risks associated with our businesses and to optimize return to our shareholders. This policy is also
intended to provide an appropriate level of risk management over capital adequacy risk, which is defined as the risk that capital is not
or will not be sufficient to withstand adverse economic conditions, to maintain financial strength or to allow us and our subsidiaries to
take advantage of opportunities for expansion.
As an insurance holding company, SLF Inc. is expected to manage its capital in a manner commensurate with its risk profile and
control environment. For purposes of determining required capital under the capital risk metrics, the risk component factors for
significant foreign life subsidiaries are not included in the Insurance Holding Company’s total capital required. OSFI may intervene and
assume control of an Insurance Holding Company or a Canadian life insurance company if it deems the amount of available capital
insufficient. Capital requirements may be adjusted by OSFI in the future, as experience develops or the risk profile of Canadian life
insurers changes or to reflect other risks. SLF Inc. was above its minimum internal targets as at December 31, 2010 and December 31,
2009.
Sun Life Assurance is subject to the Minimum Continuing Capital Surplus Requirements (“MCCSR”) capital rules for a life insurance
company in Canada. We generally expect to maintain an MCCSR ratio for Sun Life Assurance at or above 200%. From time to time,
during adverse economic conditions and periods of high market volatility, Sun Life Assurance may maintain an MCCSR ratio in the
range of 180% to 200%. Sun Life Assurance’s MCCSR ratio as at December 31, 2010 and December 31, 2009, was above the
minimum levels that would require any regulatory or corrective action. Significant foreign life subsidiaries that are not subject to the
MCCSR rules are expected to comply with the capital adequacy requirements imposed in the foreign jurisdictions in which they
operate. Our principal operating life insurance subsidiary in the United States, Sun Life Assurance Company of Canada (U.S.), qualifies
as a significant foreign life subsidiary. Sun Life Assurance Company of Canada (U.S.) is subject to the risk-based capital rules issued
by the National Association of Insurance Commissioners (“NAIC”), which measures exposures 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 foreign subsidiaries of SLF Inc. must comply with local capital or solvency requirements in the
jurisdictions in which they operate. We maintained capital levels above minimum local requirements as at December 31, 2010 and
December 31, 2009.
Our capital base consists mainly of common shareholders’ equity, participating policyholders’ equity, preferred shareholders’ equity
and certain other capital securities (that qualify as regulatory capital).
As at December 31 2010 2009
Equity:
Participating policyholders’ equity $ 114 $ 107
Preferred shareholders’ equity 2,015 1,741
Common shareholders’ equity(1) 16,230 15,489
Total equity $ 18,359 $ 17,337
Other capital securities:
Subordinated debt $ 2,741 $ 3,048
Trust Capital Securities(2) 1,644 1,644
Total other capital securities 4,385 4,692
Total capital $ 22,744 $ 22,029
(1) Unrealized gains and losses on cash flow hedges and available-for-sale debt securities are excluded from regulatory capital.
(2) Trust Capital Securities are Sun Life ExchangEable Capital Securities issued by Sun Life Capital Trust and Sun Life Capital Trust II (Note 11). These trusts are VIEs that are
not consolidated by us.
The significant changes in capital are included in the following notes on Senior debentures, Subordinated debt and Share capital.
108 Sun Life Financial Inc. Annual Report 2010 Notes to the Consolidated Financial Statements