Sun Life 2010 Annual Report Download - page 72

Liquidity
The shaded text in the following section of this MD&A represent our disclosures on liquidity and funding risk in accordance with
CICA Handbook Section 3862, Financial Instruments – Disclosures, and includes discussion on how we measure our risk and our
objectives, policies and methodologies for managing this risk. Therefore, this shaded text represents an integral part of our audited
2010 Annual Consolidated Financial Statements for the years ended December 31, 2010, and December 31, 2009. The shading in
this section does not imply that these disclosures are of any greater importance than non-shaded text, and the Capital and Liquidity
Management disclosure should be read in its entirety.
We generally maintain an overall asset liquidity profile that exceeds requirements to fund potential demand liabilities under prescribed
adverse liability demand scenarios. To strengthen our liquidity further, we actively manage and monitor our:
• capital levels
• asset levels
• matching position
• diversification and credit quality of investments
• cash forecasts and actual amounts against established targets.
We are subject to various regulations in the jurisdictions in which we operate. The ability of SLF Inc.’s subsidiaries to pay dividends
and transfer funds is regulated in certain jurisdictions and may require local regulatory approvals and the satisfaction of specific
conditions in certain circumstances. Through effective cash management and capital planning, SLF Inc. ensures that its
subsidiaries, as a whole and on a stand-alone basis, are appropriately funded and maintain adequate liquidity to meet obligations,
both individually and in aggregate.
We maintain various credit facilities for general corporate purposes. As at December 31, 2010, we had two U.S. dollar denominated
committed credit facilities totalling US$1.5 billion, of which US$519 million was utilized. In addition, we had uncommitted credit facilities
(denominated in Canadian dollars) totalling $185 million, of which $60 million was utilized. As at December 31, 2009, we had three
committed credit facilities totalling US$1.7 billion, of which US$596 million was utilized, and uncommitted credit facilities for
$185 million, of which $76 million was utilized. All utilization of these facilities was in respect of letters of credit. As at December 31,
2010, the maturity of these credit facilities ranged from one and a half to two years.
The agreements relating to our committed credit facilities contain typical covenants for investment grade companies regarding
solvency, credit ratings and financial strength, all of which were met as at December 31, 2010. These covenants include but are not
limited to the maintenance of total equity by SLF Inc. of at least $12 billion, tested as of the last day of each fiscal quarter. SLF Inc.’s
total equity was $18.4 billion as at December 31, 2010.
Our failure to comply with the covenants under the committed credit facilities would, subject to grace periods in the case of certain
covenants, result in an event of default. This could require us to repay any outstanding borrowings or to cash collateralize letters of
credit under such facility. A failure by SLF Inc. (or any of its subsidiaries) to pay an obligation due for an amount exceeding $250 million
would also result in an event of default under the committed credit facilities described above.
Based on our historical cash flows, and liquidity management processes, we believe that the cash flow from our operating activities
will continue to provide sufficient liquidity for us to satisfy debt service obligations and to pay other expenses as they fall due.
Capital
We have a capital risk policy designed to maintain a strong capital position and to provide the flexibility necessary to take advantage of
growth opportunities, to support the risk associated with its businesses and optimize shareholder return. Our capital risk policy is also
intended to provide an appropriate level of risk management over capital adequacy risk, which is defined as the risk that capital is not
or will not be sufficient to withstand adverse economic conditions, to maintain financial strength or to allow the Company and its
subsidiaries to take advantage of opportunities for expansion. Our capital base is structured to exceed regulatory and internal capital
targets and maintain strong credit ratings, while maintaining a capital-efficient structure and desired capital ratios. Capital is managed
both on a consolidated basis under principles that consider all the risks associated with the business as well as at the business group
level under the principles appropriate to the jurisdictions in which we operate. We manage capital for all of our subsidiaries in a manner
commensurate with their individual risk profiles.
Sun Life Financial, including all of its business groups, engages in a capital planning process annually in which capital options,
fundraising alternatives and dividend policies are presented to the Risk Review Committee of the Board. Capital reviews are regularly
conducted which consider the potential impacts under various business, interest rate and equity market scenarios. Relevant
components of the capital reviews are presented to the Risk Review Committee of the Board on a quarterly basis. The Board of
Directors is responsible for the annual review and approval of our capital plan.
The Company’s capital risk policy establishes policies, operating guidelines and procedures that govern the management of capital.
The Risk Review Committee of the Board reviews and approves SLF Inc.’s capital risk policy annually. Our Corporate Treasury and
Risk Management functions are responsible for the design and implementation of the capital risk policy.
The Company’s capital base consists mainly of common shareholders’ equity and retained earnings. Other sources of capital include
preferred shareholders’ equity and subordinated debt issued by SLF Inc., Sun Life Assurance and Sun Canada Financial Co. For
Canadian regulatory purposes, our capital also includes innovative capital instruments issued by Sun Life Capital Trust and Sun Life
Capital Trust II.
68 Sun Life Financial Inc. Annual Report 2010 Management’s Discussion and Analysis