Sun Life 2012 Annual Report Download - page 78

companies. The following table summarizes the financial strength ratings for Sun Life Assurance and Sun Life (U.S.). SLF Inc. is not
assigned a financial strength rating.
January 31, 2013 Standard & Poor’s Moody’s AM Best DBRS
Sun Life Assurance AA- Aa3 A+ IC-1
Sun Life (U.S.) BBB Baa2 A- Not Rated
December 31, 2011 Standard & Poor’s Moody’s AM Best DBRS
Sun Life Assurance AA- Aa3 A+ IC-1
Sun Life (U.S.) A- A3 A+ Not Rated
Rating agencies took the following actions on the financial strength ratings of the above-mentioned operating subsidiaries of SLF Inc.
throughout 2012:
• January 26, 2012 - Moody’s affirmed the financial strength rating of Sun Life Assurance with a negative outlook. At the same time
Moody’s changed the financial strength rating of Sun Life (U.S.) to A3 with a negative outlook.
• February 24, 2012 - Standard & Poor’s affirmed the financial strength rating of Sun Life Assurance. At the same time Standard &
Poor’s changed the financial strength rating of Sun Life (U.S.) to BBB+. Both ratings were assigned a stable outlook. The rating on
Sun Life (U.S.) was removed from CreditWatch.
• April 11, 2012 - AM Best affirmed the financial strength rating of Sun Life Assurance. At the same time AM Best changed the
financial strength rating of Sun Life (U.S.) to A. Both ratings were assigned a stable outlook.
• September 7, 2012 - DBRS affirmed the financial strength rating of Sun Life Assurance with a stable outlook.
• December 17, 2012 - Moody’s affirmed the financial strength rating of Sun Life Assurance with a negative outlook. At the same time
Moody’s changed the financial strength rating of Sun Life (U.S.) to Baa2 and placed the rating on review for downgrade.
• December 18, 2012 - AM Best affirmed the financial strength rating of Sun Life Assurance with a stable outlook. At the same time
AM Best changed the financial strength rating of Sun Life (U.S.) to A- and placed the rating under review with negative implications.
• December 18, 2012 - Standard & Poor’s affirmed the financial strength rating of Sun Life Assurance with a stable outlook. At the
same time Standard & Poor’s changed the financial strength rating of Sun Life (U.S.) to BBB with a developing outlook.
We expect AM Best, Moody’s and Standard & Poor’s to complete their reviews during the first half of 2013. We cannot predict or
provide any assurances on the outcome of these reviews.
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 on our balance sheet or are recorded on our 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
In the past, we have sold mortgage or bond assets to a non-consolidated special purpose entity, which may also purchase investment
assets from third parties. As at December 31, 2012, our securitized assets under management held by these special purpose entities
were $33 million, compared to $40 million at December 31, 2011.
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”. Collateral, which exceeds
the fair value of the loaned securities, is deposited by the borrower with a lending agent, usually a securities custodian, and maintained
by the lending agent until the underlying security has been returned to us. We monitor the fair value of the loaned securities on a daily
basis with additional collateral obtained or refunded as the fair value fluctuates. Certain arrangements allow us to invest the cash
collateral received for the securities loaned. Loaned securities are recognized in our Consolidated Statements of Financial Position as
Invested Assets. As at December 31, 2012, we loaned securities with a carrying value of $730 million for which the collateral held was
$771 million. This compares to loaned securities of $746 million, with collateral of $784 million as at December 31, 2011.
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 from time to time with certain companies that have contracts to provide
reinsurance to the Company. Information regarding our commitments, guarantees and contingencies are summarized in Notes 25 to
our 2012 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.
76 Sun Life Financial Inc. Annual Report 2012 Management’s Discussion and Analysis