Sun Life 2010 Annual Report Download - page 77

The financial strength ratings assigned are intended to provide an independent view of the creditworthiness and financial strength of an
organization. Each rating agency has developed its own methodology for the assessment and 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 Moody’s AM Best DBRS
Sun Life Assurance Company of Canada AA- Aa3 A+ IC-1
Sun Life Assurance Company of Canada (U.S.) AA- Aa3 A+
During 2010, Standard & Poor’s lowered its rating of Sun Life Assurance and Sun Life (U.S.) to AA- from AA. In doing so, Standard &
Poor’s removed its negative outlook on these subsidiaries and replaced it with a stable outlook. All of the rating agencies listed in the
table above have a stable outlook on the financial strength ratings of the operating companies above, with the exception of Moody’s
which has a negative outlook on Sun Life (U.S.).
Off-Balance Sheet Arrangements
In the normal course of business, we are engaged in a variety of financial arrangements. The principal purposes of these arrangements
are to:
• earn management fees and additional spread on a matched book of business
• reduce financing costs
While most of these activities are reflected on our balance sheet with respect to assets and liabilities, certain of them are either not
recorded or are recorded on the balance sheet in amounts that differ from the full contract or notional amounts. The types of
off-balance sheet activities we undertake primarily include:
• asset securitizations
• securities lending
Asset Securitizations
We engage in asset securitization activities primarily to earn origination or management fees by leveraging our investment expertise to
source and manage assets for the investors. In the past, we have sold mortgage or bond assets to a non-consolidated SPE, which may
also purchase investment assets from third parties. The SPE funds the asset purchase by selling securities to investors. As part of the
SPE arrangement, we may subscribe to a subordinated investment interest in the issued securities.
($ millions) 2010 2009
As at December 31
Securitized assets under management 1,252 1,882
The Company’s retained interest 27 35
For the year ended December 31
Cash flow received on retained interests and servicing fees 811
We are generally retained to manage the assets in the SPE on a fee-for-service basis. All of the asset securitization transactions we
undertake are structured on a non-recourse basis so that we have no exposure to the default risks associated with the assets in the
SPEs other than through any of our retained interests. The table summarizes our asset securitization program.
Securities Lending
We lend securities in our investment portfolio to other institutions for short periods to generate additional fee income. We conduct our
program only with well-established, reputable banking institutions that carry a minimum credit rating of “AA”. We monitor the fair value
of the loaned securities on a daily basis with additional collateral obtained or refunded as the fair value fluctuates. It is our practice to
obtain a guarantee from the lending agent against counterparty default, including non-cash collateral deficiency, in securities lending
transactions. Additional information on securities lending is available in Note 5 to our 2010 Consolidated Financial Statements.
Commitments, Guarantees, Contingencies and Reinsurance Matters
In the normal course of business, we enter into leasing agreements, outsourcing arrangements and agreements involving indemnities
to third parties. We are also engaged in arbitration proceedings in the U.S. and U.K. with certain companies that have contracts to
provide reinsurance to the Company. Details regarding our commitments, guarantees and contingencies are summarized in Notes 6
and 21 to our 2010 Consolidated Financial Statements. A table summarizing our financial liabilities and contractual obligations can be
found in the Risk Management section of this document under the heading Operational Risk.
Management’s Discussion and Analysis Sun Life Financial Inc. Annual Report 2010 73