Sun Life 2010 Annual Report Download - page 31

equity instrument below its cost. If, as a result of this review, the security is determined to be other-than-temporarily impaired, it is
written down to its fair value. When this occurs, the loss accumulated in OCI is reclassified to net gains (losses) on AFS assets in the
Company’s Consolidated Statement of Operations.
For the twelve months ended December 31, 2010, we wrote down $39 million of impaired AFS assets compared to $185 million in
2009. These assets were written down since the length of time that the fair value was less than the cost or the extent and nature of the
loss indicated that the fair value would not recover. These write-downs are included in net gains (losses) on AFS assets in the
Company’s Consolidated Statement of Operations. There were no write-downs during 2010 ($3 million in 2009) relating to impaired
AFS bonds that were part of fair value hedging relationships as described in Note 5.D. to our 2010 Consolidated Financial Statements.
Mortgages and corporate loans are carried at amortized cost, net of allowances for losses. A mortgage or loan is classified as impaired
when there is no longer assurance of the timely collection of the full amount of principal and interest. When mortgages or corporate
loans are classified as impaired, allowances for losses are established to adjust the carrying value of the asset to its net recoverable
amount. The use of different methodologies and assumptions may have a material effect on the estimates of net recoverable amount.
We consider various factors when identifying the potential impairment of mortgages and corporate loans. In addition to our ability and
intent to hold these invested assets to maturity or until a recovery in value occurs, consideration is given to general economic and
business conditions, industry trends, specific developments with regard to security issuers, and available market values. Increases in
the allowances are charged against net investment income. Once the conditions causing the impairment improve and future payments
are reasonably assured, allowances are reduced and the invested asset is no longer classified as impaired.
As at December 31, 2010, we had net allowances for losses of $216 million on impaired mortgages and corporate loans compared to
$116 million as at December 31, 2009. These allowances for losses were recognized since there was no longer reasonable assurance
of collection of the estimated future cash flows. The change in allowances for losses is included in the other net investment income in
the Company’s Consolidated Statement of Operations.
Goodwill and Other Intangibles
Goodwill represents the excess of the cost of businesses acquired over the fair value of the net identifiable tangible and intangible
assets. Goodwill is not amortized, but is assessed for impairment by comparing the carrying values of the appropriate reporting units to
their respective fair values. Goodwill is assessed for impairment annually. Goodwill assessment may occur between annual periods if
events or circumstances occur that may result in the fair value of a reporting unit falling below its carrying amount. If a potential
impairment is identified, it is quantified by comparing the carrying value of the respective goodwill to its fair value. The fair value of the
business and subsidiary segments is determined using various valuation models which require management to make judgments and
assumptions that could affect the fair value estimates and result in impairment write-downs. During 2010, no goodwill was written down
due to impairment.
We had a carrying value of $6.0 billion in goodwill as at December 31, 2010. The goodwill consisted primarily of $3.4 billion arising from
the acquisition of Clarica Life Insurance Company in 2002, which decreased by $309 million during 2010 due to the sale of our life
reinsurance business, $1.2 billion arising from the acquisition of Keyport Life Insurance Company in the United States in 2001,
$437 million arising from the acquisition of CMG Asia Limited (“CMG Asia”) in Hong Kong in 2005, $302 million arising from the
acquisition of the Genworth EBG business in the United States in 2007, and $169 million from the Lincoln U.K. acquisition in the United
Kingdom in 2009.
Information concerning goodwill under IFRS can be found in this MD&A under the heading, International Financial Reporting
Standards.
Other identifiable intangible assets consist of finite-life and indefinite-life intangible assets. Finite-life intangible assets are amortized on
a straight-line basis over varying periods of up to 40 years. The useful life of finite-life intangible assets are reviewed annually, and the
amortization is adjusted as necessary. Indefinite-life intangibles are not amortized; instead they are assessed for impairment annually
or more frequently if events or changes in circumstances indicate that the asset may be impaired. Impairment is determined by
comparing the indefinite-life intangible assets’ carrying values to their fair values. If the carrying values of the assets exceed their fair
values, these assets are considered impaired and a charge for impairment is recognized. The fair value of intangible assets is
determined using various valuation models, which require management to make certain judgments and assumptions that could affect
the fair value estimates and result in impairment write-downs. During 2010, none of our indefinite-life intangible assets were written
down due to impairment.
As at December 31, 2010, our finite-life intangible assets had a carrying value of $657 million, which reflected the value of the field
force and asset administration contracts acquired as part of the Clarica, CMG Asia, and Genworth EBG acquisitions, as well as
software costs. Our indefinite-life intangible assets had a carrying value of $241 million as at December 31, 2010. The value of the
indefinite-life intangible assets reflected fund management contracts and state licenses.
Income Taxes
Sun Life Financial’s provision for income taxes is calculated based on the expected tax rules of a particular fiscal period. The
determination of the required provision for current and future income taxes requires that we interpret tax legislation in the jurisdictions in
which we operate and that we make assumptions about the expected timing of realization of future tax assets and liabilities. To the
extent that our interpretations differ from those of tax authorities or the timing of realization is not as expected, the provision for income
taxes may increase or decrease in future periods to reflect actual experience. The amount of any increase or decrease cannot be
reasonably estimated.
Future tax assets are recognized to the extent that the benefits of tax losses and tax deductions are more likely than not to be realized;
if it is apparent that it is more likely than not that the benefit of tax losses and tax deductions will not be realized, a future income tax
asset is not recognized. At each reporting period, we assess all available evidence, both positive and negative, to determine the
amount of future tax assets to be recorded. The assessment requires significant estimates and judgment about future events based on
the information available at the reporting date.
Management’s Discussion and Analysis Sun Life Financial Inc. Annual Report 2010 27