Sun Life 2010 Annual Report Download - page 26

Corporate Developments
The following developments occurred in 2010.
Sale of Reinsurance Business
On December 31, 2010, we completed the sale our life reinsurance business. The transaction is part of our strategy to deploy capital to
parts of our business that can best achieve strong sustainable growth. The sale increased Sun Life Assurance’s MCCSR by 14 points,
and did not have a material impact on net income in 2010.
Other Developments
On December 31, 2010, Sun Life Assurance entered into an external reinsurance agreement for the insured business in SLF Canada’s
Group Benefits operations. The implementation of this agreement resulted in an increase in Sun Life Assurance’s MCCSR ratio by
12 points and had no impact on net income in 2010.
On July 20, 2010, Sun Life Everbright Life Insurance Company Limited (“Sun Life Everbright”) was restructured as a domestic
insurance company. Under the restructuring of our joint venture with China Everbright Group Company (“China Everbright Group”),
additional strategic investors were introduced, which reduced our ownership in Sun Life Everbright from 50% to 24.99%.
Common Share Activity
In 2010, SLF Inc. paid common shareholder dividends of $1.44 per common share. This was the same level of dividends paid in 2009.
In 2010, SLF Inc. issued approximately 9 million shares from treasury under its Canadian Dividend Reinvestment and Share Plan.
Financing Arrangements
On October 12, 2010, Sun Life Assurance redeemed all of the outstanding $300 million principal amount of 6.65% Debentures,
Series 3, due October 12, 2015, issued by Clarica Life Insurance Company (“Clarica”).
On May 25, 2010, SLF Inc. issued $280 million of Class A Non-Cumulative Rate Reset Preferred Shares Series 8R at a price of $25.00
per share and yielding 4.35% annually.
Outlook
Equity markets recorded a second consecutive year of positive returns in 2010. In North America, the economic recovery remained
fragile as high unemployment, reduced spending and weakness in the housing market moderated economic growth in the United
States, putting downward pressure on interest rates. The growing influence and strong performance of emerging markets such as
China and India contributed positively to global economic growth in 2010.
According to the Organization for Economic Development and Cooperation, emerging economies are expected to continue to be the
growth engines for the world in 2011. The emerging economies of China, India and Indonesia are expected to achieve growth rates
ranging from 6% - 9% in 2011. GDP growth in North America is expected to be moderate, with both the United States and Canada
expected to grow at approximately 2%. In the United States the Federal Reserve is expected to maintain its federal funds rate in the
range of 0% - 0.25% throughout 2011 to stimulate the economy. In Canada, the economy has fared better than its G7 counterparts,
causing the Bank of Canada to raise interest rates three times in 2010 before a pause to further action. However, the Bank of Canada
has indicated that any further reduction in monetary policy stimulus would need to be carefully considered.
As we emerge from the financial crisis we are faced with challenges and opportunities. The regulatory environment is evolving as
governments and regulators develop enhanced requirements for capital, liquidity and risk management practices to help financial
institutions better withstand periods of substantial volatility. For consumers, the financial crisis highlighted the need for greater security
and protection of retirement savings. We see several trends that will drive growth in the insurance industry. The aging of the population
in North America, the rise of the middle class in the emerging markets of China and India, as well the shifting responsibility from
governments and employers to individuals are all expected to increase the demand for private solutions for pension, savings and
health care needs.
Financial Objectives
Financial objectives are established for the Company each year based on our view of future financial performance and the evolving
economic and regulatory conditions. In 2010, the following financial objectives were established:
• to achieve an operating ROE in the 12% – 14% range over a three-to-five year period(1), while maintaining a strong capital position
and effective capital deployment
We made progress toward our operating ROE objective in 2010, but remain below our three-to-five year target range. In 2010, the
Company generated an operating ROE of 9.9%, which was below our three-to-five year objective, but was higher than our 2009
operating ROE of 3.5%. The improvement in our ROE over 2009 was primarily the result of operating earnings of $1,583 million for the
full-year 2010, compared to $561 in 2009. Results for the full year 2010 included $173 million related to improvements in equity
markets in excess of assumed levels, the favourable impact of asset liability re-balancing and the favourable impact of the purchase of
the United Kingdom operations of Lincoln National Corporation (“Lincoln U.K. acquisition”) in the fourth quarter of 2009. Movements in
interest rates contributed $34 million to net income in 2010 as interest rate swap movements more than offset the adverse impact of
lower interest rates. These favourable impacts were partially offset by increased expense levels from business initiatives in 2010 and
$49 million of unfavourable credit impacts.
(1) Operating ROE is a non-GAAP measure. For additional information, see the section under the heading Non-GAAP Financial Measures.
22 Sun Life Financial Inc. Annual Report 2010 Management’s Discussion and Analysis