Sun Life 2015 Annual Report Download - page 50

Sector Exposure
Our general fund invested assets are well diversified across investment types, geographies and sectors.
As at December 31, 2015, our exposure to the energy sector for debt securities and corporate loans was $5.6 billion, of which 93% was
rated investment grade ($5.5 billion, of which 98% was rated investment grade as at December 31, 2014). Approximately 45% of our
energy sector exposure was invested in pipeline, storage and transportation entities, approximately 15% was invested in integrated oil
and gas entities, and the remaining exposure was invested in companies involved in exploration and production, refining and drilling
and servicing, which included approximately 7% in drilling and oil field services.
Our mortgage and real estate portfolio includes office, industrial, retail, and multi-family buildings occupied by tenants in diversified
industries. Our most significant property exposure to the oil and gas sector was located in Alberta, which represented approximately
8% of our mortgage portfolio and approximately 21% of our real estate portfolio. Within our Alberta portfolio, there has been no
significant change in exposure to energy sector tenants and there have been no material indications of stress such as arrears,
mortgage defaults and tenant insolvencies. However, as the period of weak energy prices continues, market fundamentals within the
province are deteriorating, resulting in rising vacancy levels and lower rental rates, which should they continue, may lead to further
reductions in valuations particularly in the office sector. We continue to closely monitor the impact of these market changes in the
energy sector on the real estate and mortgage portfolios.
As at December 31, 2015, our exposure to the metals and mining sub-sector consists of debt securities and was $0.8 billion, of which
97% is investment grade and is diversified by several different commodity types. The metals and mining sub-sector is included in the
Materials line of the Debt Securities by Issuer and Industry Sector table included in the Debt Securities section of this MD&A.
Debt Securities
Our debt securities portfolio is actively managed through a regular program of purchases and sales aimed at optimizing yield, quality
and liquidity, while ensuring that it remains well diversified and duration-matched to insurance contract liabilities. As at December 31,
2015, we held $69.9 billion of debt securities, representing 50.7% of our total invested assets compared to $66.2 billion, representing
52.9% as at December 31, 2014. Debt securities with a credit rating of “A” or higher represented 67.9% of the total debt securities as at
December 31, 2015, consistent with December 31, 2014. Debt securities with a credit rating of “BBB” or higher represented 96.9% of
total debt securities as at December 31, 2015, compared to 97.3% as at December 31, 2014.
Corporate debt securities not issued or guaranteed by sovereign, regional and municipal governments represented 66.0% of our total
debt securities as at December 31, 2015, compared to 66.7% as at December 31, 2014. Total government issued or guaranteed debt
securities as at December 31, 2015 were $23.8 billion, compared to $22.1 billion as at December 31, 2014. With the exception of
certain countries where we have business operations, including Canada, the United States, the United Kingdom and the Philippines,
our exposure to debt securities from any single country did not exceed 1% of total invested assets on our Consolidated Statements of
Financial Position as at December 31, 2015.
The carrying value of debt securities of governments and financial institutions by geographic location is presented in the following table.
Debt Securities of Governments and Financial Institutions by Geography
December 31, 2015 December 31, 2014
($ millions)
Government
issued or
guaranteed Financials
Government
issued or
guaranteed Financials
Canada 15,411 1,826 14,650 2,391
United States 1,702 6,046 1,590 5,992
United Kingdom 2,561 1,937 2,484 1,992
Philippines 2,745 42 2,575 17
Eurozone(1) 237 828 171 762
Other 1,111 1,577 611 1,390
Total 23,767 12,256 22,081 12,544
(1) Our investments in Eurozone countries primarily included the Netherlands, Spain, Germany and France. We did not have any direct exposure to Greece. Of our exposure to
Eurozone countries, 99.1% was rated investment grade and 77.4% had a credit rating of “A” or higher.
Our gross unrealized losses as at December 31, 2015 for FVTPL and AFS debt securities were $1.1 billion and $0.22 billion,
respectively, compared with $0.22 billion and $0.04 billion, respectively, as at December 31, 2014. The increase in gross unrealized
losses was largely due to the impact of rising interest rates, including credit spreads, primarily in the U.S.
48 Sun Life Financial Inc. Annual Report 2015 Management’s Discussion and Analysis