Sun Life 2015 Annual Report Download - page 27

Assumption Changes and Management Actions by Type
2015 Full year
($ millions, after-tax)
Impact on
net income Comments
Mortality/morbidity 174 Updates to reflect mortality/morbidity experience in all
jurisdictions and changes to future mortality improvement
assumptions in the International insurance business in SLF U.S.
Lapse and other policyholder behaviour (552) Updates to reflect experience as discussed below.
Expenses (84) Updates to reflect expense studies primarily in our International
wealth business in SLF U.S. and in the individual wealth
business in SLF Canada.
Investment returns 242 Updates to various investment related assumptions. The largest
items are a change to the provision for investment risk in the
SLF Canada participating account and the reflection of
investment strategy changes in the SLF Canada non-
participating insurance business.
Model enhancements and other 170 Other changes, the largest of which are changes in reinsurance
agreements and tax assumptions in the SLF U.S. insurance
business, partially offset by assumption updates in SLF
International wealth business which included the expense
strengthening associated with closing the business to new sales.
Total impact on reported net income(1) (50)
(1) The impact to operating net income was a decrease of $9 million, which is presented as an adjustment to arrive at underlying net income. $41 million related to the SLF
U.S. International wealth business recorded in the “Model enhancements and other” line in the table above is included in the adjustment to operating net income. Additional
information is provided in the section in this MD&A under the heading Financial Performance – 2015 Consolidated Results of Operations – Net Income.
In 2015, changes in lapse and policyholder behaviour assumptions were primarily in the individual insurance businesses in SLF
Canada and SLF U.S. The largest items, which all had negative impacts, were the increase in lapse rates at renewal for term insurance
in SLF Canada to reflect a stronger link between lapse rates and the size of the renewal premium increase; the reduction in lapse rates
at medium policy durations for Universal Life policies in SLF Canada to reflect emerging experience; the reduction in assumed
premium payments for flexible premium insurance policies in SLF U.S. to reflect the increasing tendency of policyholders to stop paying
premiums when their policy becomes fully funded; and the reduction in lapse rates on International insurance policies, especially for
no-lapse-guarantee policies.
Additional information on estimates relating to our policyholder obligations, including the methodology and assumptions used in their
determination, can be found in this MD&A under the heading Accounting and Control Matters – Critical Accounting Policies and
Estimates and in Note 11 in our 2015 Annual Consolidated Financial Statements.
Annual Goodwill and Intangibles Impairment Testing
The Company completed its annual goodwill and indefinite life intangible asset impairment testing in the fourth quarter of 2015.
Impairment charges on intangible assets of $4 million were recognized in 2015. No impairment charges were taken as a result of this
testing in 2014.
Income Taxes
In 2015, we had an income tax expense of $599 million on reported net income before taxes of $2,899 million, which resulted in an
effective income tax rate of 20.7%. This compares to an income tax expense of $491 million on reported net income before taxes of
$2,373 million and an effective income tax rate of 20.7% in 2014.
On an operating basis(1), in 2015, we had an income tax expense of $629 million on our operating net income before taxes of $3,044
million, representing an effective income tax rate of 20.7%. This compares to an income tax expense of $494 million on operating net
income before taxes of $2,586 million and an effective income tax rate of 19.1% in 2014.
The provincial corporate tax rate increased in Alberta, Canada effective the second quarter of 2015, and as a result, our statutory tax
rate increased from 26.5% to 26.75% for 2015 and future years. Our statutory tax rate is normally reduced by various tax benefits, such
as lower taxes on income subject to tax in foreign jurisdictions, a range of tax exempt investment income and other sustainable tax
benefits that are expected to decrease our effective tax rate to a range of 18% to 22%. The effective tax rate calculated on an
operating basis excludes amounts attributable to participating policyholders and non-operating items.
In 2015, the impacts of higher taxes on distributions from foreign subsidiaries and unrecognized tax losses were primarily offset by
favourable adjustments to prior years, which resulted from resolution of tax audits and finalization of prior years’ tax returns in various
jurisdictions.
In 2014 our effective income tax rate calculated on operating basis was favourably impacted by adjustments in various tax jurisdictions
primarily resulting from resolution of uncertain tax positions, closure of taxation years and finalization of prior years’ income tax returns.
Our effective tax rate also benefited from non-recurring tax impacts in the U.K. and MFS related to previously unrecognized tax losses
and credits.
(1) Our effective income tax rate on an operating net income basis is calculated using operating net income and income tax expense associated with operating net income.
Management’s Discussion and Analysis Sun Life Financial Inc. Annual Report 2015 25