Sun Life 2010 Annual Report Download - page 95
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Fair value of mortgages and corporate loans is determined by discounting the expected future cash flows using current market interest
rates with similar credit risks and terms to maturity. Fair value of real estate is determined by external appraisals, using expected future
net cash flows discounted at current market interest rates. Fair values of policy loans and cash are assumed to be equal to their
carrying values, due to their nature. Fair values of cash equivalents and short-term securities are based on market yields. The fair
values of other invested assets are usually determined by reference to quoted market prices.
5.A.ii Yield calculation
Yield for all assets, except real estate, is calculated based on total net interest, dividend or other investment income divided by the total
average amortized cost or cost of the assets, which includes accrued investment income. The yield for real estate was calculated
based on its average carrying value, which includes deferred net realized gains.
5.A.iii Fair value hierarchy of financial instruments
We categorized our financial instruments carried at fair value, based on the priority of the inputs to the valuation techniques used to
measure fair value, into a three level fair value hierarchy as follows:
Level 1: Fair value is based on unadjusted quoted prices for identical assets or liabilities in an active market. The types of financial
instruments classified as level 1 generally include U.S. Treasury and agency securities, cash and cash equivalents, and exchange-
traded equities.
Level 2: Fair value is based on quoted prices for similar assets or liabilities in active markets, valuation that is based on significant
observable inputs, or inputs that are derived principally from or corroborated with observable market data through correlation or other
means. The types of financial instruments classified as level 2 generally include government bonds, certain corporate and private
bonds, certain asset-backed securities (“ABS”) and derivatives.
Level 3: Fair value is based on valuation techniques that require one or more significant inputs that are not based on observable
market inputs. These unobservable inputs reflect our expectations about the assumptions market participants would use in pricing the
asset or liability. The types of financial instruments classified as level 3 generally include certain commercial mortgage-backed
securities (“CMBS”), certain residential mortgage-backed securities (“RMBS”), certain structured products and certain corporate bonds.
Notes to the Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2010 91