Sun Life 2015 Annual Report Download - page 54

Investment Properties by Type and Geography
December 31, 2015 December 31, 2014
($ millions)
Carrying
value
% of total
carrying
value
Carrying
value
% of total
carrying
value
Canada
Office 1,618 24.7% 1,638 26.8%
Industrial 931 14.2% 930 15.2%
Retail 988 15.1% 1,018 16.7%
Other 972 14.9% 862 14.1%
United States
Office 979 15.0% 769 12.6%
Industrial 415 6.3% 335 5.5%
Retail 444 6.8% 392 6.4%
Other 90 1.4% 74 1.2%
United Kingdom
Office 34 0.5% 28 0.5%
Industrial 11 0.2% 10 0.2%
Retail 45 0.7% 40 0.6%
Other 13 0.2% 12 0.2%
Total investment properties 6,540 100% 6,108 100%
Derivative Financial Instruments and Risk Mitigation
The fair value of derivative assets held by the Company was $1,866 million, while the fair value of derivative liabilities was $3,378
million as at December 31, 2015.
We use derivative instruments to manage risks related to interest rate, equity market, and currency fluctuations and in replication
strategies to reproduce permissible investments. Our use of derivatives in these risk mitigation strategies does not mitigate all risk
exposure; rather, they are used to keep us within our risk tolerance limits.
Certain of our derivatives are designated in qualifying hedging relationships for accounting purposes, and represented $1.1 billion, or
1.9% of the total notional amount. Derivatives are designated in hedging relationships for accounting purposes to minimize accounting
mismatches. These hedging relationships are documented at inception and hedge effectiveness is assessed on a quarterly basis.
Our derivatives designated in qualifying hedging relationships for accounting purposes include interest rate swaps, foreign exchange
agreements, equity forwards and, previously, currency swaps. We designate certain interest rate swaps in fair value hedging
relationships to hedge interest rate exposure on AFS assets. We also designate certain foreign exchange agreements in fair value and
cash flow hedging relationships to manage foreign currency fluctuations associated with AFS assets and the anticipated purchase of
an equity interest. Additionally, we designate certain equity forwards in cash flow hedging relationships for anticipated payments of
awards under certain stock-based compensation plans.
In addition to the general policies and monitoring, we use a variety of tools in counterparty risk management. Over-the-counter (“OTC”)
derivative transactions are executed under ISDA Master Agreements. A Credit Support Annex accompanies most of the ISDAs, which
establish requirements for collateral.
The values associated with our derivative instruments are presented in the following table. Notional amounts serve as the basis for
payments calculated under derivatives contracts and are not exchanged.
Derivative Instruments
($ millions) 2015 2014
As at December 31
Net fair value (1,512) 236
Total notional amount 57,845 48,211
Credit equivalent amount 607 738
Risk-weighted credit equivalent amount 77
The total notional amount of our derivatives increased to $57.8 billion as at December 31, 2015 from $48.2 billion as at December 31,
2014. The increase in the total notional amount was primarily due to an increase of $5.9 billion in interest rate contracts for duration
matching activities and an increase of $0.9 billion in currency contracts hedging foreign currency assets.
52 Sun Life Financial Inc. Annual Report 2015 Management’s Discussion and Analysis