Sun Life 2012 Annual Report Download - page 64

The following table sets out the estimated immediate impact or sensitivity of our net income, OCI and Sun Life Assurance’s MCCSR
ratio to certain instantaneous changes in interest rates and equity market prices as at December 31, 2012 and December 31, 2011.
Interest rate and equity market sensitivities
As at December 31, 2012(1)
Interest rate sensitivity(2)
100 basis point
decrease
50 basis point
decrease
50 basis point
increase
100 basis point
increase
Potential impact on net income ($ millions)(3)
Individual Insurance $(300) $(150) $100 $200
Segregated Fund Guarantees(4) ––––
Fixed Annuity and Other – – – $(50)
Total $(300) $(150) $100 $150
Potential impact on OCI ($ millions)(5) $300 $150 $(150) $(300)
Potential impact on MCCSR (percentage
points)(6)
6% points
decrease
3% points
decrease
1% point
increase
3% points
increase
Equity markets sensitivity(7) 25% decrease 10% decrease 10% increase 25% increase
Potential impact on net income ($ millions)(3) $(150) $(50) $50 $100
Potential impact on OCI ($ millions)(5) $(150) $(50) $50 $150
Potential impact on MCCSR (percentage
points)(6)
8% points
decrease
3% points
decrease
4% points
increase
5% points
increase
As at December 31, 2011(1)
Interest rate sensitivity(2) 100 basis point
decrease
50 basis point
decrease
50 basis point
increase
100 basis point
increase
Potential impact on net income ($ millions)(3)
Individual Insurance $(400) $(200) $150 $250
Segregated Fund Guarantees(4) $(250) $(100) $100 $200
Fixed Annuity and Other $(50) – – $50
Total $(700) $(300) $250 $500
Potential impact on OCI ($ millions)(5) $350 $200 $(150) $(350)
Potential impact on MCCSR (percentage points)(6) 9% points
decrease
3% points
decrease
3% points
increase
7% points
increase
Equity markets sensitivity(7) 25% decrease 10% decrease 10% increase 25% increase
Potential impact on net income ($ millions)(3) $(350) $(150) $100 $200
Potential impact on OCI ($ millions)(5) $(150) $(50) $50 $150
Potential impact on MCCSR (percentage points)(6) 6% points
decrease
2% points
decrease
3% points
increase
4% points
increase
(1) Amounts as at December 31, 2012 do not include the impact of assets and liabilities of the Discontinued Operations. Comparative amounts in 2011 have not been restated.
Net income and OCI sensitivities have been rounded to the nearest $50 million.
(2) Represents a parallel shift in assumed interest rates across the entire yield curve as at December 31, 2012 and December 31, 2011, respectively. Variations in realized
yields based on factors such as different terms to maturity and geographies may result in realized sensitivities being significantly different from those illustrated above.
Sensitivities include the impact of re-balancing interest rate hedges for segregated funds at 10 basis point intervals (for 50 basis point changes in interest rates) and at 20
basis point intervals (for 100 basis point changes in interest rates).
(3) The market risk sensitivities include the estimated mitigation impact of our hedging programs in effect as at December 31, 2012 and December 31, 2011, respectively, and
include new business added and product changes implemented prior to such dates.
(4) Segregated Fund Guarantees is inclusive of segregated funds, variable annuities and investment products, and includes Run off reinsurance in our Corporate business
segment.
(5) A portion of assets designated as AFS are required to support certain policyholder liabilities and any realized gains (losses) on these securities would result in a
commensurate increase (decrease) in actuarial liabilities, with no net income impact in the reporting period.
(6) The MCCSR sensitivities illustrate the impact on Sun Life Assurance as at December 31, 2012 and December 31, 2011, respectively. This excludes the impact on assets
and liabilities that are included in SLF Inc. but not included in Sun Life Assurance.
(7) Represents the respective change across all equity markets as at December 31, 2012 and December 31, 2011, respectively. Assumes that actual equity exposures
consistently and precisely track the broader equity markets. Since in actual practice equity-related exposures generally differ from broad market indices (due to the impact of
active management, basis risk and other factors), realized sensitivities may differ significantly from those illustrated above. Sensitivities include the impact of re-balancing
equity hedges for segregated funds at 2% intervals (for 10% changes in equity markets) and at 5% intervals (for 25% changes in equity markets).
Our net income sensitivity to interest rates and equity markets has decreased since December 31, 2011. Approximately one third of the
decrease in interest rate sensitivity and nearly all of the decrease in equity market sensitivity results from assets and liabilities of the
Discontinued Operations which are separately classified as Assets of disposal group classified as held for sale and Liabilities of
disposal group classified as held for sale and are not included in our December 31, 2012 sensitivities. Our interest rate sensitivities
have also decreased since December 31, 2011 as a result of increased hedging done throughout 2012 in our segregated fund and
individual insurance lines of business. The balance of the change results primarily from changes in actuarial methods, assumptions
and modelling, which have reduced the sensitivity of our liabilities and net income to interest rates. In addition, included in our
Discontinued Operations are asset-backed securities which we expect to retain and redeploy as assets backing liabilities in the
Continuing Operations upon sale of our U.S. Annuity Business. As at December 31, 2012 we estimate that these assets would not
have a material impact on our net income sensitivity to interest rates.
62 Sun Life Financial Inc. Annual Report 2012 Management’s Discussion and Analysis