Sun Life 2015 Annual Report Download - page 81

Sun Life Assurance’s MCCSR ratio was 240% as at December 31, 2015, which includes the issuance of $1,250 million of preferred
shares by Sun Life Assurance to SLF Inc. in connection with the funding of the pending acquisition of Assurant EB, compared to 217%
as at December 31, 2014. Excluding this impact, the increase in the MCCSR ratio over the period primarily results from earnings net of
dividends to SLF Inc., partially offset by capital used to support new business and the impact of a partial recapture of a reinsurance
arrangement. Additional details concerning the calculation of available capital and MCCSR are included in SLF Inc.’s 2015 AIF under
the heading Regulatory Matters.
OSFI has released the 2016 MCCSR Guideline, which is effective for reporting periods commencing January 1, 2016. It is not expected
that the changes in the 2016 MCCSR Guideline will have a material impact on Sun Life Assurance’s MCCSR ratio. As noted above, the
2016 MCCSR Guideline will be applicable to Insurance Holding Companies effective January 1, 2016. Effective the first quarter of
2016, we will disclose the MCCSR ratio of both SLF Inc. and Sun Life Assurance.
Foreign Life Insurance Companies
Foreign subsidiaries and foreign operations of SLF Inc. must comply with local capital or solvency requirements in the jurisdictions in
which they operate. Our operations maintained capital levels above the minimum local regulatory requirements during 2015. Additional
information on capital and regulatory requirements for our foreign subsidiaries and foreign operations is provided in SLF Inc.’s AIF
under the heading Regulatory Matters.
In the U.S., as at December 31, 2015, we have two reinsurance arrangements with affiliated reinsurance captives, in Delaware and
Vermont, relating to our closed block of individual universal life insurance products with no-lapse guarantee benefits issued in the U.S.
In 2013, we completed the restructuring of a reinsurance arrangement, transitioning from a captive reinsurer domiciled outside of the
U.S. to one domiciled in Delaware for certain universal life policies issued between January 2000 and February 2006. The financing of
U.S. statutory reserve requirements in excess of those required under IFRS for the Delaware reinsurance captive is supported by a
guarantee from SLF Inc. The Vermont reinsurance captive was established in 2007 for certain policies issued between March 2006 and
December 2008. Under the Vermont captive structure, the related excess U.S. statutory reserve requirements are funded through a
long-term financing arrangement established with an unrelated financial institution.
Financial Strength Ratings
Independent rating agencies assign credit ratings to securities issued by companies and assign financial strength ratings to financial
institutions such as Sun Life Assurance.
The financial strength ratings assigned by rating agencies are intended to provide an independent view of the creditworthiness and
financial strength of a financial institution. Each rating agency has developed its own methodology for the assessment and subsequent
rating of life insurance companies.
Rating agencies do not assign a financial strength rating for SLF Inc., however, credit ratings are assigned to the securities issued by
SLF Inc. and its subsidiaries and are described in SLF Inc.’s AIF under the heading Security Ratings.
The following table summarizes the financial strength ratings for Sun Life Assurance as at January 31, 2016 and December 31, 2014.
Standard & Poor’s Moody’s A.M. Best DBRS
January 31, 2016 AA- Aa3 A+ AA(low)(1)
December 31, 2014 AA- Aa3 A+ IC-1
(1) On December 17, 2015, DBRS published a new global insurance methodology, implementing the financial strength rating scale and withdrawing the previous claims paying
ability rating.
All rating agencies currently have stable outlooks on Sun Life Assurance’s financial strength ratings. Rating agencies took the following
actions on the financial strength rating of Sun Life Assurance throughout 2015:
• March 30, 2015 – Standard & Poor’s affirmed the financial strength rating with a stable outlook.
• July 9, 2015 – A.M. Best affirmed the financial strength rating with a stable outlook.
• July 23, 2015 – Moody’s affirmed the financial strength rating with a stable outlook.
• December 17, 2015 – DBRS assigned a financial strength rating of AA (low) with a stable outlook and withdrew the claims paying
ability rating.
Off-Balance Sheet Arrangements
In the normal course of business, we are engaged in a variety of financial arrangements. The principal purposes of these arrangements
are to earn management fees and additional spread on a matched book of business and to reduce financing costs.
While most of these activities are reflected on our balance sheet with respect to assets and liabilities, certain of them are either not
recorded on our balance sheet or are recorded on our balance sheet in amounts that differ from the full contract or notional amounts.
The types of off-balance sheet activities we undertake primarily include asset securitizations and securities lending.
Asset Securitizations
In the past, we sold mortgage or bond assets to non-consolidated structured entities, which may also purchase investment assets from
third parties. Our securitized AUM held by these non-consolidated structured entities were $7 million as at December 31, 2015,
compared to $15 million as at December 31, 2014.
However, the majority of our securitization activities are recorded on our Consolidated Statements of Financial Position. We securitize
residential mortgages under the National Housing Act Mortgage-Backed Securities program sponsored by the CMHC. The
Management’s Discussion and Analysis Sun Life Financial Inc. Annual Report 2015 79