Sun Life 2015 Annual Report Download - page 22

The following table reconciles our net income measures and sets out the impact that other notable items had on our net income in 2015
and 2014.
($ millions, after-tax) 2015 2014
Reported net income 2,185 1,762
Certain hedges that do not qualify for hedge accounting in SLF Canada 21 (7)
Fair value adjustments on MFS’s share-based payment awards (9) (125)
Acquisition, integration and restructuring costs(1) (80) (26)
Operating net income(2) 2,253 1,920
Equity market impact
Impact from equity market changes (99) 45
Basis risk impact (29) (1)
Equity market impact(3) (128) 44
Interest rate impact
Impact from interest rate changes 3(195)
Impact of credit spread movements 33 (5)
Impact of swap spread movements 29 21
Interest rate impact(4) 65 (179)
Increases (decreases) from changes in the fair value of real estate 20 12
Market related impacts (43) (123)
Assumption changes and management actions (9) 227
Underlying net income(2) 2,305 1,816
Impact of other notable items on our net income:
Experience related items(5)
Impact of investment activity on insurance contract liabilities 164 125
Mortality 29 (38)
Morbidity –(80)
Credit 72 48
Lapse and other policyholder behaviour (14) (44)
Expenses (86) (100)
Other 28
Other items(6) –29
(1) In 2015, Acquisition, integration and restructuring costs consisted of $63 million related to the closing of our wealth business in SLF U.S. International to new sales, which
included assumption changes and management actions of $41 million to reflect assumption updates including the expense strengthening associated with closing the
business, and $17 million related to our acquisitions and integrations of Bentall Kennedy, Prime Advisors and Ryan Labs as well as our pending acquisition of Assurant EB.
In 2014, restructuring costs consisted of transition costs of $26 million related to the sale of our U.S. Annuity Business.
(2) Represents a non-IFRS financial measure. See Non-IFRS Financial Measures.
(3) Equity market impact consists primarily of the effect of changes in equity markets during the period, net of hedging, that differ from the best estimate assumptions used in
the determination of our insurance contract liabilities of approximately 2% growth per quarter in equity markets. Equity market impact also includes the income impact of the
basis risk inherent in our hedging program, which is the difference between the return on underlying funds of products that provide benefit guarantees and the return on the
derivative assets used to hedge those benefit guarantees.
(4) Interest rate impact includes the effect of interest rate changes on investment returns that differ from best estimate assumptions, and on the value of derivative instruments
used in our hedging programs. Our exposure to interest rates varies by product type, line of business and geography. Given the long-term nature of our business, we have
a higher degree of sensitivity in respect of interest rates at long durations. Interest rate impact also includes the income impact of changes in assumed fixed income
reinvestment rates and of credit and swap spread movements.
(5) Experience related items reflect the difference between actual experience during the reporting period and best estimate assumptions used in the determination of our
insurance contract liabilities.
(6) In 2014, Other items included non-recurring tax benefits pertaining to SLF U.K. and MFS.
Our reported net income for 2015 and 2014 included items that we believe are not operational or ongoing in nature and which are,
therefore, excluded in our calculation of operating net income. Operating net income for 2015 and 2014 excluded the net impact of
certain hedges that do not qualify for hedge accounting in SLF Canada, fair value adjustments on MFS’s share-based payment awards,
and acquisition, integration and restructuring costs. The net impact of these items reduced reported net income by $68 million in 2015,
compared to a reduction of $158 million in 2014. In addition, our operating net income for the year ended December 31, 2015
increased by $200 million as a result of the favourable impact of the weakening Canadian dollar relative to the average exchange rates
in 2014.
Our underlying net income for 2015 and 2014 adjusts for market related impacts and assumption changes and management actions.
The net impact of market related impacts and assumption changes and management actions reduced operating net income by
$52 million in 2015, compared to an increase of $104 million in the same period in 2014.
Net income in 2015 also reflected favourable impact from investment activity on insurance contract liabilities, positive credit and
mortality experience, partially offset by unfavourable expense experience including investment in growing our businesses and lapse
and other policyholder behaviour.
Net income in 2014 also reflected gains from investment activity on insurance contract liabilities, favourable credit experience and
business growth. This was partially offset by unfavourable impacts of mortality and morbidity, lapse and other policyholder behaviour
and expense experience.
20 Sun Life Financial Inc. Annual Report 2015 Management’s Discussion and Analysis