Sun Life 2010 Annual Report Download - page 108

9. Actuarial liabilities and other policy liabilities
9.A Actuarial policies
Actuarial liabilities and other policy liabilities represent the estimated amounts which, together with estimated future premiums and net
investment income, will provide for outstanding claims, estimated future benefits, policyholders’ dividends, taxes (other than income
taxes) and expenses on in-force policies.
In calculating actuarial liabilities and other policy liabilities, assumptions must be made about equity market performance, interest rates,
asset default, inflation, mortality and morbidity rates, policy terminations, expenses and other factors over the life of our products. The
general approaches to the setting of assumptions are described later in this note.
We use best estimate assumptions for expected future experience. Some assumptions relate to events that are anticipated to occur
many years in the future and are likely to require subsequent revision. Additional provisions are included in the actuarial liabilities to
provide for possible adverse deviations from the best estimates. If the assumption is more susceptible to change or if there is more
uncertainty about the underlying best estimate assumption, a correspondingly larger provision is included in the actuarial liabilities.
In determining these provisions, we ensure:
• when taken one at a time, each provision is reasonable with respect to the underlying best estimate assumption, and the extent of
uncertainty present in making that assumption,
• in total, the cumulative effect of all provisions is reasonable with respect to the total actuarial liabilities.
With the passage of time and resulting reduction in estimation risk, excess provisions are released into income. In recognition of the
long-term nature of policy liabilities, the margin for possible deviations generally increases for contingencies further in the future. The
best estimate assumptions and margins for adverse deviations are reviewed annually, and revisions are made where deemed
necessary and prudent.
We generally maintain distinct asset portfolios for each line of business. To ensure the adequacy of liabilities, we do cash flow testing
using several plausible scenarios for future interest rates and economic environments. In each test, asset and liability cash flows are
projected. Net cash flows are invested in new assets, if positive, or assets are sold to meet cash needs, in accordance with the
assumptions in the test and the standards of the Canadian Institute of Actuaries.
Provision for policyholder dividends
An amount equal to the earned and accrued portion of policyholder dividends including earned and accrued terminal dividends is
shown as a provision for policyholder dividends. Actuarial liabilities provide for the payment of policyholder dividends that are
forecasted to be paid over the next 12 months and beyond, in excess of dividends earned and accrued. Both liabilities are determined
taking into account the scale of dividends approved by the Board. Actuarial liabilities take into account the expectation that future
dividends will be adjusted to reflect future experience. Earned and accrued policyholder dividends of $697 are included in Policyholder
dividends and interest on claims and deposits in our Consolidated Statements of Operations ($818 in 2009 and $877 in 2008).
9.B Composition of actuarial liabilities and other policy liabilities
The actuarial liabilities and other policy liabilities consist of the following:
As at December 31, 2010 SLF Canada SLF U.S. SLF Asia Corporate(1) Total
Individual participating life $ 15,821 $ 5,099 $ 3,503 $ 2,057 $ 26,480
Individual non-participating life 3,855 10,297 410 393 14,955
Group life 1,213 208 17 – 1,438
Individual annuities 9,416 8,946 – 4,312 22,674
Group annuities 6,570 2,754 303 – 9,627
Health insurance 6,390 1,079 1 112 7,582
Total actuarial liabilities 43,265 28,383 4,234 6,874 82,756
Add: Other policy liabilities(2) 616 592 90 309 1,607
Actuarial liabilities and other policy liabilities $ 43,881 $ 28,975 $ 4,324 $ 7,183 $ 84,363
As at December 31, 2009 SLF Canada SLF U.S. SLF Asia Corporate(1) Total
Individual participating life(3) $ 14,933 $ 5,291 $ 3,034 $ 2,346 $ 25,604
Individual non-participating life 3,017 9,317 264 988 13,586
Group life 1,233 215 16 9 1,473
Individual annuities 9,323 10,538 – 4,392 24,253
Group annuities 6,498 3,814 372 – 10,684
Health insurance 5,938 1,077 1 114 7,130
Total actuarial liabilities 40,942 30,252 3,687 7,849 82,730
Add: Other policy liabilities(2) 641 663 77 647 2,028
Actuarial liabilities and other policy liabilities $ 41,583 $ 30,915 $ 3,764 $ 8,496 $ 84,758
(1) Primarily business from the U.K., life retrocession and run-off reinsurance operations. Includes U.K. of $1,979 ($2,257 in 2009) for Individual participating life; $(10) ($(5) in
2009) for Individual non-participating life; $4,312 ($4,393 in 2009) for Individual annuities and $117 ($121 in 2009) for other policy liabilities.
(2) Consists of policy benefits payable, provisions for unreported claims, provisions for policyholder dividends, and provisions for experience rating refunds.
(3) SLF Canada – Individual participating life balance has been restated. Refer to Note 2.
104 Sun Life Financial Inc. Annual Report 2010 Notes to the Consolidated Financial Statements