Sun Life 2015 Annual Report Download - page 59

The second line of defence includes the Chief Risk Officer (“CRO”) and various functional heads who are responsible for providing
independent oversight of our Company-wide risk management programs. The CRO is responsible for developing our Risk Framework
and Risk Appetite Policy, and for overseeing the development and implementation of risk management strategies aimed at optimizing
the risk-return profile of the Company. The CRO is supported by a network of business segment risk officers. The functional heads
support the CRO in the implementation and communication of our Risk Framework and Risk Appetite Policy.
The Internal Audit function is the third line of defence and is responsible for providing independent assurance to the Audit & Conduct
Review Committee on whether all significant risks are identified and appropriately reported to the Board Committees and executive
officers, and assessing whether these risks are effectively controlled. Additionally, the Risk Review Committee may engage third-party
independent reviews to supplement the third line of defence review of the effectiveness of the Company’s risk management programs.
Risk Management Policies
In order to support the effective communication, implementation and governance of our Risk Framework, we have codified our
processes and operational requirements in a comprehensive series of risk management policies and operating guidelines. These
policies and guidelines promote the application of a consistent approach to managing risk exposures across our global business
platform. The Board of Directors and Board Committees regularly review and approve any significant changes to the risk management
policies and also regularly review management’s reporting and attestation on compliance to these policies.
Risk Management Process
The risk management process as set out in our Risk Framework is described below:
Risk Identification and Measurement
All business segments employ a common approach to identify and measure risks. Business segments have accountability for
identifying and managing risks facing their business. We also have a process to identify and monitor emerging risks that may have a
material impact on our finances, operations or reputation. We evaluate potential correlations between various risk events and
categories, and monitor emerging risks, regulatory and rating agency requirements, and industry developments.
Risk measurement involves determining and evaluating potential risk exposures, and includes a number of techniques such as
monitoring key risk indicators, assessing probability and severity of risks, and conducting stress testing including sensitivity and
scenario analysis.
A robust stress testing program is an essential component of the Company’s Risk Framework to measure, monitor and mitigate the
Company’s risk exposures and ensure ongoing capital adequacy under plausible stress events. We perform stress testing on earnings,
regulatory capital ratios and liquidity which is used to set the Company’s risk appetite and evaluate risk exposures versus limits and
enables us to identify and monitor potential vulnerabilities to key risk drivers and ensure that the Company is operating within its risk
appetite.
We develop and test a range of scenarios based on our internal assessment and regulatory guidance. Sensitivity testing is conducted
on a regular basis and measures the earnings and MCCSR impact from changes in an underlying risk factor, assuming that there are
no changes to any of the other risk factors. Sensitivity testing is performed for individual risks and for consolidated risk exposures at
different levels of stress and at various levels of aggregation. Scenario testing involves changes to a number of risk factors to assess
the impact of and interaction between these risk factors. These scenarios include integrated scenario testing, reverse scenario testing
and key assumption sensitivity testing. We also use the DCAT process, as required by our regulator, to project income and capital for a
five-year period under plausible adverse scenarios.
Risk Management, Monitoring and Reporting
Risk management decisions are formed by evaluating how well the outcomes of the risk measurements and risk assessments for a
business activity conform to our risk appetite, including an assessment of risk-adjusted return.
Monitoring processes include oversight by the Board of Directors, which is exercised through Board Committees and senior
management committees described in the section of this MD&A under the heading Governance Structure and Accountabilities.
At least on a quarterly basis, the senior management committees, Board Committees and the Board of Directors review reports that
summarize the risk profile, including the exposures across our principal risks including any changes in risk trends and emerging risks.
These committees also review the effectiveness of the mitigation strategies presented in the reports. On a regular basis, the Board of
Directors and the Board Committees review and approve any significant changes to key policies for the management of risk and review
compliance with these policies.
Risk Categories
The shaded text and tables in the following section of this MD&A represent our disclosure on credit, market and liquidity risks in
accordance with IFRS 7 Financial Instruments – Disclosures and includes a discussion on how we measure risk and our objectives,
policies and methodologies for managing these risks. The shaded text and tables represent an integral part of our audited annual
Consolidated Financial Statements for the year ended December 31, 2015. The shading in this section does not imply that these
disclosures are of any greater importance than non-shaded tables and text, and the Risk Management disclosure should be read in
its entirety. This information should be considered carefully together with other information in this MD&A and in our 2015 AIF, our
2015 Consolidated Financial Statements and other reports and materials that we file with securities regulators.
Management’s Discussion and Analysis Sun Life Financial Inc. Annual Report 2015 57