Sun Life 2012 Annual Report Download - page 61

The Chief Risk Officer (“CRO”) is responsible for developing and implementing our enterprise risk management framework, and for
overseeing development and implementation of risk management strategies aimed at optimizing the global risk-return profile of the
Company. The CRO is responsible for providing independent functional oversight of our enterprise-wide risk management programs by
ensuring that effective risk management processes are in place for risk identification, risk measurement and assessment, risk
response, risk monitoring and control, and risk reporting and communication of risks inherent in our activities. Our governance model
for risk management also includes oversight from the various functional heads in the Corporate Office. There are functional heads for
all key business oversight functions such as the Chief Compliance Officer, the Chief Privacy Officer and the Chief Internal Auditor. The
Internal Audit function provides ongoing assessments of the effectiveness of, and adherence to, internal controls. All of the functional
heads support the CRO in the development and communication of our enterprise risk management framework. The CRO is also
supported by a network of business segment risk officers.
Risk Management Policies
In order to support the effective communication, implementation and governance of our enterprise risk framework, we have codified our
processes and operational requirements in a comprehensive series of risk management policies and operating guidelines. These
policies and guidelines promote the application of a consistent approach to managing risk exposures across our global business
platform. The Board of Directors and the Board Committees annually review and approve the risk management policies and also
review an annual report summarizing management’s attestation of compliance to these policies.
Risk Categories
The shaded text and tables in the following section of this MD&A represent our disclosure on credit, market and liquidity risks in
accordance with IFRS 7, Financial Instruments – Disclosures and includes a discussion on how we measure risk and our objectives,
policies and methodologies for managing these risks. Therefore, the shaded text and tables represent an integral part of our audited
annual Consolidated Financial Statements for the years ended December 31, 2012, and December 31, 2011. The shading in this
section does not imply that these disclosures are of any greater importance than non-shaded tables and text, and the Risk
Management disclosure should be read in its entirety.
The assets and liabilities of our Discontinued Operations have been classified as Assets of disposal group classified as held for sale
and Liabilities of disposal group classified as held for sale on our 2012 Consolidated Statement of Financial Position. Comparative
information for 2011 has not been restated. As a result, current year information does not include the products of the Discontinued
Operations, primarily domestic U.S. variable and fixed annuities. Unless otherwise indicated, amounts presented in the sections that
follow reflect the results of our Continuing Operations. When referring to segregated funds it is inclusive of segregated fund
guarantees, variable annuities and investment products, and includes Run-off reinsurance in our Corporate business segment.
Our Enterprise Risk Management framework highlights five major risk categories – credit risk, market risk, insurance risk, operational
risk and strategic risk.
Credit Risk
Risk Description
Credit risk is the risk of loss from amounts owed by our financial counterparties. We are subject to credit risk in connection with issuers
of securities held in our investment portfolio, debtors (e.g. mortgagors), structured securities, reinsurers, derivative counterparties,
other financial institutions (e.g. amounts held on deposit) and other entities. Losses may occur when a counterparty fails to make timely
payments pursuant to the terms of the underlying contractual arrangement or when the counterparty’s credit rating or risk profile
otherwise deteriorates. Credit risk can also arise in connection with deterioration in the value of or ability to realize on any underlying
security that may be used to collateralize the debt obligation. Credit risk can occur at multiple levels, as a result of broad economic
conditions, challenges within specific sectors of the economy, or from issues affecting individual companies. Events that result in
defaults, impairments or downgrades of the securities in our investment portfolio would cause the Company to record realized or
unrealized losses and increase our provisions for asset default, adversely impacting earnings.
Credit Risk Management Governance and Control
Credit risk is one of our key risks that is assumed in order to realize the organization’s business objectives. We endeavour to assume
only the amount of credit risk that is consistent with our risk appetite and produces an appropriate rate of return on the capital
employed.
The Board of Directors, the Risk Review Committee and the Governance, Nomination and Investment Committee, are responsible for
providing appropriate oversight of credit risk. The investment function is responsible for day-to-day portfolio credit risk selection and
underwriting and for monitoring implementation of and compliance with policies and strategies, and providing analytics support and
management information reporting for all of the asset classes and for the portfolio management function. Corporate Risk Management
is responsible for providing oversight of our credit risk management programs by ensuring that effective processes are in place for the
ongoing identification, assessment, monitoring, reporting and mitigation of risks inherent in the organization’s activities. Specific
accountabilities include ongoing policy administration of the credit risk management policy, review and monitoring of enterprise and
Business Group credit risk limits, adjudication of internal risk ratings for new fixed income investments, independent validation of
internal risk ratings and internal risk models, and development and coordination of credit risk reporting to the appropriate executive and
Board committees. The Corporate Credit Committee enhances overall governance of credit risk management activities, with a
particular focus on the oversight of enterprise level concentrations and exposures, emerging risk issues and trends in credit market
movements.
Management’s Discussion and Analysis Sun Life Financial Inc. Annual Report 2012 59