Sun Life 2012 Annual Report Download - page 128

Changes in Allowances for Losses
The changes in the allowances for losses are as follows:
Mortgages Loans Total
Balance, January 1, 2011 $ 194 $ 71 $ 265
Provision for losses 60 (1) 59
Write-offs, net of recoveries (63) (44) (107)
Foreign exchange rate movements 5 1 6
Balance, December 31, 2011 $ 196 $ 27 $ 223
Provision for losses 8 (4) 4
Write-offs, net of recoveries (97) (6) (103)
Foreign exchange rate movements (5) – (5)
Less: Held for sale allowances (23) (1) (24)
Balance, December 31, 2012 $ 79 $ 16 $ 95
6.B Liquidity Risk
Liquidity risk is the risk that we will not be able to fund all cash outflow commitments as they fall due.
We generally maintain a conservative liquidity position and employ a wide range of liquidity risk management practices and controls,
which are described below:
• Liquidity is managed in accordance with our liquidity policies and operating guidelines
• Stress testing of our liquidity is performed by comparing liquidity coverage ratios under one-month and one-year stress scenarios to
our policy thresholds. These liquidity ratios are measured and managed at the enterprise and business segment level
• Cash management and asset-liability management programs support our ability to maintain our financial position by ensuring that
sufficient cash flow and liquid assets are available to cover potential funding requirements. We invest in various types of assets with
a view of matching them to our liabilities of various durations
• Target capital levels exceed regulatory minimums. We actively manage and monitor our capital and asset levels, and the
diversification and credit quality of our investments
• We maintain various credit facilities for general corporate purposes
• We also maintain liquidity contingency plans for the management of liquidity in the event of a liquidity crisis
We are subject to various regulations in the jurisdictions in which we operate. The ability of SLF Inc.’s subsidiaries to pay dividends and
transfer funds is regulated in certain jurisdictions and may require local regulatory approvals and the satisfaction of specific conditions
in certain circumstances. Through effective cash management and capital planning, SLF Inc. ensures that its subsidiaries, as a whole
and on a stand-alone basis, are appropriately funded and maintain adequate liquidity to meet obligations, both individually and in
aggregate.
Based on our historical cash flows and liquidity management processes, we believe that the cash flows from our operating activities will
continue to provide sufficient liquidity for us to satisfy debt service obligations and to pay other expenses as they fall due.
6.C Market Risk
Risk Description
We are exposed to significant financial and capital market risk – the risk that the fair value or future cash flows of an insurance contract
or financial instrument will fluctuate because of changes or volatility in market prices. Market risk includes: (i) equity market risk,
resulting from changes in equity market prices; (ii) interest rate and spread risk, resulting from changes in interest rates or spreads;
(iii) currency risk, resulting from changes in foreign exchange rates; and (iv) real estate risk resulting from changes in real estate prices.
In addition, we are subject to other price risk resulting from changes in market prices other than those arising from equity risk, interest
rate and spread risk, currency risk or real estate risk, whether those changes are caused by factors specific to the individual insurance
contract, financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.
Market Risk Management Governance and Control
We employ a wide range of market risk management practices and controls, as outlined below:
• Enterprise risk appetite and tolerance limits have been established for market risks
• Ongoing monitoring and reporting of market risk sensitivities against pre-established risk tolerance limits
• Detailed asset-liability and market risk management policies, guidelines and procedures
• Management and governance of market risks is achieved through various asset-liability management and risk committees that
oversee key market risk strategies and tactics, review compliance with applicable policies and standards, and review investment
and hedging performance
• Hedging and asset-liability management programs are maintained in respect of market risks
• Product design and pricing policy requires a detailed risk assessment and pricing provisions for material market risks
• Stress-testing techniques, such as DCAT, are used to measure the effects of large and sustained adverse market movements
• Insurance contract liability provisions are established in accordance with standards set forth by the Canadian actuarial standards of
practice
• Target capital levels exceed regulatory minimums
• Active market risk governance including independent monitoring and review and reporting to senior management and the Board of
Directors
126 Sun Life Financial Inc. Annual Report 2012 Notes to Consolidated Financial Statements