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Life’s brighter under the sun
SUN LIFE FINANCIAL INC.
ANNUAL REPORT 2009
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Table of contents

  • Page 1
    Life's brighter under the sun SUN LIFE FINANCIAL INC. ANNUAL REPORT 2009

  • Page 2
    ...Xki_d[iiiebZ$ * Excludes fair value changes in Held-for-trading Assets. MFS and other assets under management Segregated funds General funds Financial strength Strong credit ratings, capital ratios and risk management practices put Sun Life in a position to capitalize on growth opportunities...

  • Page 3
    ... IRELAND CANADA TORONTO UNITED KINGDOM UNITED STATES PHOENIX LONDON ROTTERDAM FRANKFURT PARIS ZURICH MILAN MADRID LISBON TOKYO BERMUDA MEXICO CITY CHINA BAHRAIN HONG KONG TAIPEI INDIA PHILIPPINES SINGAPORE INDONESIA SAO PAULO BUENOS AIRES SYDNEY Sun Life Financial around the world MFS...

  • Page 4
    ... and corporate customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. OUR MISSION, VISION AND VALUES...

  • Page 5
    ... Consolidated Financial Statements 141 Sources of earnings 143 Six-year summary by segment 144 Eleven-year summary 146 Board of Directors and executive team 147 Subsidiary and affiliate companies 151 Major offices 152 Corporate and shareholder information Sun Life Financial Inc. Annual Report 2009...

  • Page 6
    ... world. The Board took a number of steps in 2009 to strengthen oversight and governance at Sun Life. We reviewed our executive compensation programs to ensure they are aligned with evolving compensation principles and support a conservative risk culture. We established a new Committee of the Board...

  • Page 7
    ... online tool in Canada that uses personal criteria to match individuals with compatible financial advisors, grew out of our analysis of customer and prospect focus groups. And our innovative Critical Illness with Universal Life Fund Package, developed by Sun Life Everbright in China, responds to...

  • Page 8
    ... life brighter under the sun for all our stakeholders. DONALD A. STEWART CHIEF EXECUTIVE OFFICER "We believe that our business is about people - our customers, shareholders and the communities in which we operate." 4 Sun Life Financial Inc. Annual Report 2009 CHIEF EXECUTIVE OFFICER'S MESSAGE

  • Page 9
    ... customer research project covering nine markets across Asia, launched Sun Life Everbright's award-winning Critical Illness with Universal Life Fund Package, the first product in China to combine savings and critical illness insurance. 2 REINFORCED OUR RISK MANAGEMENT Rebalanced our risk portfolio...

  • Page 10
    ... Strengthen risk management Continue to enhance risk management processes and practices to maximize shareholder value. We achieve our Generate strategy through value-building focused execution of growth the following five Sustain profitable top-line growth. enterprise priorities: Intensify customer...

  • Page 11
    ...THE WORLD These photos have been taken by Sun Life employees to express what the brand means to them. These photos were submitted on our innovative internal social media site called Brand Share. JENNY RYAN / IRELAND CRAIG MCLAUGHLIN / CANADA OUR STRATEGY Sun Life Financial Inc. Annual Report 2009...

  • Page 12
    ... grow profitability by increasing sales in the small- and medium-sized case markets. • Additional sales growth will be achieved by extending voluntary benefit offerings, by building on the success of the rollover business in both Group Retirement Services and Group Benefits and by continuing to...

  • Page 13
    ...risk management and continuous improvements in operational efficiency remain top priorities. MFS MFS's strategy is to grow by continually exceeding customers' expectations with superior investment performance. As distribution of retail funds continues to move toward platform-driven sales, long-term...

  • Page 14
    ...is to gain scale rapidly in each of our markets where we operate and develop into a significant long-term revenue and earnings growth operation. ANDY OJA / CANADA BRUCE MOFFAT / CANADA MIGUEL GUANIPA / UNITED STATES LORNA JESSEMY / CANADA 10 Sun Life Financial Inc. Annual Report 2009 BUSINESS...

  • Page 15
    ... our weaknesses. And its fulfillment means lives that are indeed brighter under the sun for all our stakeholders. SAMRAT KAPOOR / INDIA JENNIFER ALMEIDA / CANADA ELIANE CORDILEONE / CANADA RUSSELL BERGEVINE / UNITED STATES OUR BRAND PROMISE Sun Life Financial Inc. Annual Report 2009 11

  • Page 16
    .... In 2009 we supported the health, cultural, social and educational well-being of the communities in which we live and do business. We invite you to read Sun Life Financial's 2009 Public Accountability Statement, which provides further information about our governance, philanthropy, investment and...

  • Page 17
    ... Enterprise mission, vision, values and strategy 16 Business profile 17 Financial highlights 18 Corporate developments 18 Outlook 19 Medium-term financial objectives 45 inVestMents 20 AccOuntinG And cOntrOl MAtters 20 Critical accounting policies and estimates 25 Changes in accounting policies...

  • Page 18
    ...Enterprise Mission, Vision, Values and Strategy, Business Profile, Outlook, Medium-term Financial Objectives, Critical Accounting Policies and Estimates, Changes in Accounting Policies, Financial Performance, SLF Canada, SLF U.S., MFS, SLF Asia, Corporate Investments, Risk Management and Capital and...

  • Page 19
    ... enhance risk management processes and practices to maximize shareholder value. foster innovation Embed creativity and innovation throughout the organization to improve business results and gain competitive advantage. MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Annual Report 2009...

  • Page 20
    ... funds Asset management Individual health insurance Reinsurance (life retrocession) SLF Canada SLF U.S. MFS SLF Asia Corporate • • • The Company's focus on multi-channel distribution offers customers choices as to how and when they purchase products and access services...

  • Page 21
    ...' net income. The dividend yield represents the common dividend per share as a percentage of the average of the high and low share price. Represents the Minimum Continuing Capital Surplus Requirement ratio of Sun Life Assurance Company of Canada. AUM, mutual fund assets, managed fund assets, other...

  • Page 22
    ... for dividend reinvestments and issued an insignificant number of common shares from treasury at no discount for optional cash purchases. fInAnCInG ARRAnGEMEnTS On November 20, 2009, Sun Life Capital Trust II issued $500 million principal amount of Sun Life ExchangEable Capital Securities (SLEECS...

  • Page 23
    ...of Canada (Sun Life Assurance or SLA) ended the year with an MCCSR of 221%, well in excess of OSFI's capital target for life insurance companies. The 2009 medium-term objectives were based on the assumptions described below relating to equity market performance, interest rates and credit markets and...

  • Page 24
    ... of the Company's financial results. BEnEfITS TO POLICYhOLdERS The Company's benefit payment obligations are estimated over the life of its annuity and insurance products based on internal valuation models and are recorded in its financial statements, primarily in the form of actuarial...

  • Page 25
    ...insurance and universal life products, investment returns are passed through to policyholders through changes in the amounts of dividends declared or in the rate of interest credited. Changes in equity values are largely offset by changes in actuarial liabilities • Products such as segregated fund...

  • Page 26
    ... in net income of about $140 million fAIR vALUE Of InvESTMEnTS As described in Note 1 to SLF Inc.'s 2009 Consolidated Financial Statements, the majority of the Company's financial assets are recorded at fair value. Held-for-trading and available-for-sale bonds and stocks are recorded at fair...

  • Page 27
    ... using current market interest and exchange rates for similar instruments. Fair value of common stock index swaps and options is determined using the value of underlying securities or indices and option pricing models using index prices, projected dividends and volatility surfaces. Real estate held...

  • Page 28
    ... continue to accrue future benefits in the prior defined benefit plan. In general, the pension plan open to new entrants is a defined contribution plan. In addition to the Company's pension plans, in some countries the Company provides certain post-retirement medical, dental and life insurance...

  • Page 29
    ...AccOuntinG POlicies ChAnGES In ACCOUnTInG POLICIES In 2009 In 2009, SLF Inc. adopted the following accounting standards and policies. Additional information is provided in Note 2 to SLF Inc.'s 2009 Consolidated Financial Statements. GOOdWILL And InTAnGIBLE ASSETS On January 1, 2009, the Company...

  • Page 30
    ... prior year. The Company's IFRS changeover plan addresses key elements of the Company's conversion to IFRS, including: • Education and training • Accounting policy changes and financial reporting • Information technology and data systems • Impacts on business activities • Internal controls...

  • Page 31
    ...are included in Sun Life Financial Inc.'s annual and interim MD&A and the Supplementary Financial Information packages that are available at www.sunlife.com under Investors - Financial Results & Reports - Year-end Reports. Management measures the Company's performance based on operating earnings and...

  • Page 32
    ... year 2008 excluded an after-tax gain of $825 million related to the sale of the Company's interest in CI Financial. ($ millions, unless otherwise noted) 2009 2008 2007 Total net income Less: Participating policyholders' net income Dividends paid to preferred shareholders' Common shareholders...

  • Page 33
    ... 2008 195 66 120 2009 232 81 120 (1) AUM, mutual fund assets, managed fund assets, other AUM and total AUM are Non-GAAP Financial Measures. See the section under the heading Non-GAAP Financial Measures on page 27. MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Annual Report 2009...

  • Page 34
    ...sale assets were higher by $236 million. These increases were partly offset by a reduction of $1.0 billion arising from the pre-tax gain on the sale of the Company's interest in CI Financial in the fourth quarter of 2008 investment income. 30 Sun Life Financial Inc. Annual Report 2009 MANAGEMENT...

  • Page 35
    ...morbidity rates, policy terminations, expenses and inflation, and other factors over the life of its products. The Company's benefit payment obligations are estimated over the life of its annuity and insurance products, based on internal valuation models, and are recorded in its financial statements...

  • Page 36
    ... notably in the United States, contributed to the income tax recovery in 2009. IMPACT Of CURREnCY The Company has operations in key markets worldwide, including the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Indonesia, India, China and Bermuda, and generates earnings...

  • Page 37
    ... rates. Net income in the fourth quarter also benefited from an overall tax recovery. These impacts were partially offset by net impairments, downgrades on the Company's investment portfolio and lower asset reinvestment gains from changes in credit spreads. Results in the fourth quarter of 2008...

  • Page 38
    ... capital markets in the quarter were partially offset by increased reserves for downgrades on the Company's investment portfolio, changes in asset default assumptions in anticipation of future credit-related losses, and credit impairments. 34 Sun Life Financial Inc. Annual Report 2009 MANAGEMENT...

  • Page 39
    ...in Annuities, reduced new business strain in Individual Insurance, and business growth in the Company's U.S. Employee Benefits Group and the positive effect of income tax-related items in Corporate Support and SLF U.K. Business seGMent results Sun Life Financial manages its operations and reports...

  • Page 40
    ... client base in partnership with the advice channels. COMMOn ShAREhOLdERS' nET InCOME BY BUSInESS UnIT ($ millions) 2007 Group Wealth Group Benefits Individual Insurance & Investments 173 255 622 2008 137 284 224 2009 153 233 480 36 Sun Life Financial Inc. Annual Report 2009 MANAGEMENT...

  • Page 41
    ... insurance products in Canada, providing services to approximately 13,000 employers with a market share of 22% (based on in-force premiums and premium equivalents for the year ended December 31, 2008). Group Benefits provides life, dental, drug, extended health care, disability and critical illness...

  • Page 42
    ... annuities and investment management services. The Individual Insurance business unit offers protection products to affluent individuals and small business owners, such as single and joint universal life, variable universal life and corporate-owned life insurance (COLI). The Employee Benefits Group...

  • Page 43
    ...from 2008 on equity market improvement and positive net sales. RESULTS BY BUSInESS UnIT AnnUITIES The SLF U.S. Annuities business unit provides variable and fixed annuity products and investment management services. Through the end of 2009 Annuities also provided fixed index annuity products. The...

  • Page 44
    .... Financial intermediaries that provide sales support, product administration and client services distribute these products. MFS services institutional clients by providing asset management services for corporate retirement plans, separate accounts, public or government funds and insurance company...

  • Page 45
    ... into conservative investments and, by year's end, into equities. It is expected that this trend will continue into 2010 with investors showing a renewed appetite for traditional long-only investment management. MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Annual Report 2009 41

  • Page 46
    ...in 2009 compared to 2008. • In India, Birla Sun Life Asset Management Company Limited was awarded the industry's prestigious "Mutual Fund House of the Year" award for the second consecutive year, a first in the Indian Mutual Fund Industry. The business continued to have strong momentum with assets...

  • Page 47
    ... Sun Life's mutual funds to the retail sector, while the direct distribution serves corporate clients. Birla Sun Life Insurance's individual insurance sales were up 10% in 2009 compared to 2008, on a local currency basis. Despite the market downturn, Birla Sun Life Asset Management Company Limited...

  • Page 48
    ...disability income, long-term care, group long-term disability and personal accident & medical on the health side, as well as guaranteed minimum income benefit and guaranteed minimum death benefit coverage. fInAnCIAL And BUSInESS RESULTS SUMMARY STATEMEnT Of OPERATIOnS (1) ($ millions) 2009 2008...

  • Page 49
    ... of enterprise pension and savings plans. InvESTMEnT PROfILE The Company had total general fund-invested assets of $108.2 billion as at December 31, 2009. The majority of the Company's general funds are invested in medium- to long-term fixed income instruments, such as bonds and mortgages...

  • Page 50
    ... may result from continued deterioration in economic factors, such as property values and unemployment rates, or changes in the assumed default rate of the collateral pool or loss given default expectations. 46 Sun Life Financial Inc. Annual Report 2009 MANAGEMENT'S DISCUSSION AND ANALYSIS

  • Page 51
    ...Company established a sectoral allowance of $55 million against potential commercial mortgage impairments. As at December 31, 2009, the Company held $5.7 billion in corporate loans as compared to $6.0 billion in 2008. MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Annual Report 2009...

  • Page 52
    ... are deferred and amortized into future investment income at a quarterly rate of 3% of the unamortized balance. The Company had $225 million in deferred net realized gains on real estate as at December 31, 2009. 48 Sun Life Financial Inc. Annual Report 2009 MANAGEMENT'S DISCUSSION AND ANALYSIS

  • Page 53
    ... stronger equity markets. ($ millions) 2009 2008 As at December 31 Net fair value Total notional amount Credit equivalent amount Risk-weighted credit equivalent amount 125 47,260 1,010 7 (550) 50,796 1,260 28 MANAGEMENT'S DISCUSSION AND ANALYSIS Sun Life Financial Inc. Annual Report 2009 49

  • Page 54
    ...Company is in the business of taking risk for appropriate return. This is core to Sun Life Financial's corporate vision, mission and customer value proposition. Effective risk taking and risk management are critical to the overall profitability, competitive market positioning and long-term financial...

  • Page 55
    ... pursuit of shareholder value while ensuring that the Company's ability to pay claims and fulfil long-term policyholder commitments is not compromised. Sun Life Financial's risk management approach is designed to support long-term credit and financial strength ratings, strong capital levels, ongoing...

  • Page 56
    ... investment limits • Active credit risk governance, including independent monitoring and review and reporting to senior management and the Board Additional information concerning credit risk can be found in Note 6 to SLF Inc.'s 2009 Consolidated Financial Statements. 52 Sun Life Financial...

  • Page 57
    ... limits SOURCES Of EQUITY MARKET RISK Sun Life Financial is exposed to equity risk from a number of sources. In particular, the Company derives a portion of its revenue from fee income generated by its asset management businesses and from certain insurance and annuity contracts where fee income...

  • Page 58
    ... businesses, such as individual and group annuities, duration management and key rate duration techniques are used to manage interest rate risk exposures to within prescribed tolerance limits and ranges. As an international provider of financial services, Sun Life Financial operates in a number...

  • Page 59
    .... Information related to market risk sensitivities and guarantees related to variable annuity and segregated fund products should be read in conjunction with the information contained in the Outlook, Critical Accounting Policies and Estimates and Risk Management sections in the Company's 2009 annual...

  • Page 60
    ... appropriate levels of self-insurance, is maintained to provide protection against a specified range of potential operational losses • An environmental risk management program is maintained to help protect investment assets (primarily real estate, mortgage and structured finance portfolios) from...

  • Page 61
    PrinciPAl sOurces OF Funds The Company's primary source of funds is cash provided by operating activities, including premiums, investment management fees and net investment income. These funds are used primarily to pay policy benefits, dividends to policyholders, claims, commissions, operating ...

  • Page 62
    ...manner commensurate with their individual risk profiles. Sun Life Financial, including all of its business groups, conducts a rigorous capital plan annually where capital options, fundraising alternatives and dividend policies are presented to the Board. Capital reviews are regularly conducted which...

  • Page 63
    ... Total common shareholder dividends declared in 2009 were $1.44 per share, consistent with 2008 levels. The declaration, amount and payment of dividends by SLF Inc. is subject to the approval of its Board of Directors and is dependent on the Company's results of operations, financial condition, cash...

  • Page 64
    .... C1 RISK BY TYPE - SLA BOnd C1 RISK BY ASSET QUALITY - SLA Bonds - 34% Asset-backed Securities - 1% Mortgages - 22% Equity Investments - 14% Real Estate - 18% Other - 11% AA - 5% A - 15% BBB - 32% BB and Lower - 48% 60 Sun Life Financial Inc. Annual Report 2009 MANAGEMENT'S DISCUSSION...

  • Page 65
    ... surplus Other comprehensive income Common and preferred shares Innovative instruments and subordinated debt Other Less: Goodwill and intangibles in excess of limit Non-life investments and other Total capital available Required capital Asset default and market risks Insurance risks Interest rate...

  • Page 66
    ... included. General fund policyholder liability cash flows include estimates related to the timing and payment of death and disability claims, policy maturities, annuity payments, minimum guarantees on segregated fund products, policyholder dividends, amounts on deposits, commissions and premium...

  • Page 67
    ...for cancellation 107 Note 16 Operating expenses 108 Note 17 Earnings per share 108 Note 18 Stock-based compensation 111 Note 19 Income taxes 112 Note 20 Income taxes included in OCI 112 Note 21 Commitments, guarantees and contingencies 114 Note 22 Pension plans and other post-retirement benefits 118...

  • Page 68
    ... accounting principles generally accepted in the United States of America. The financial information presented elsewhere in the annual report to shareholders is consistent with these statements. The Board of Directors (Board) oversees management's responsibilities for financial reporting. An Audit...

  • Page 69
    ... on sale of equity investment (Note 3) Fee income Policy benefits and expenses Payments to policyholders, beneficiaries and depositors: Maturities and surrenders Annuity payments Death and disability benefits Health benefits Policyholder dividends and interest on claims and deposits Net transfers to...

  • Page 70
    ...-trading (Note 6) Bonds - available-for-sale (Note 6) Mortgages and corporate loans (Note 6) Stocks - held-for-trading (Note 6) Stocks - available-for-sale (Note 6) Real estate (Note 5) Cash, cash equivalents and short-term securities Derivative assets (Notes 5 and 6) Policy loans and other invested...

  • Page 71
    ... plan (Note 15) Common shares purchased for cancellation (Note 15) Balance, end of year Contributed surplus Balance, beginning of year Stock-based compensation (Note 18) Stock options exercised (Notes 15 and 18) Balance, end of year Retained earnings Balance, beginning of year Net income Dividends...

  • Page 72
    ...in) financing activities Cash flows provided by (used in) investing activities Sales, maturities and repayments of: Bonds Mortgages and corporate loans Stocks Real estate Purchases of: Bonds Mortgages and corporate loans Stocks Real estate Policy loans Short-term securities* Cash cost of acquisition...

  • Page 73
    ... stAteMents OF chAnGes in seGreGAted Funds net Assets Years ended December 31 (in millions of Canadian dollars) 2009 2008 2007 Additions to segregated funds Deposits: Annuities Life insurance Net transfers (to) from general funds Net realized and unrealized (losses) gains Other investment income...

  • Page 74
    ... financial services organization providing savings, retirement and pension products, and life and health insurance to individuals and groups through its operations in Canada, the United States, the United Kingdom and Asia. The Company also operates mutual fund and investment management businesses...

  • Page 75
    ...held-for-trading assets in the consolidated statements of operations. Dividends received on both held-for-trading and available-for-sale stocks are recorded as other net investment income in the consolidated statements of operations. All equity instruments in an unrealized loss position are reviewed...

  • Page 76
    ... as cash flow hedges of the anticipated payments of awards under certain stock-based compensation plans. The difference between the forward price and the spot price of these forwards is excluded from the assessment of hedge effectiveness and is recorded in other net investment income. Changes in...

  • Page 77
    ... in fee income on the consolidated statements of operations. Changes in the Company's interest in the segregated funds, including undistributed net investment income, are reflected in net investment income. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009 73

  • Page 78
    ...-retirement health care and life insurance benefits is charged to income over the employees' years of service to the date of eligibility. For the purpose of calculating the expected returns on pension plan assets for most of the Canadian pension plans, 74 Sun Life Financial Inc. Annual Report 2009...

  • Page 79
    ... When options are exercised, new shares are issued, contributed surplus is reversed and the shares issued are credited to share capital in the consolidated statements of equity. Other stock-based compensation plans are accounted for as liability awards. The liabilities for these plans are calculated...

  • Page 80
    ... United Kingdom by nearly 60% and doubles the number of policies in-force. The results and assets of Lincoln U.K., including goodwill, are included in the Corporate reportable segment in these Consolidated Financial Statements. The Lincoln U.K. results are included in the 2009 income reported from...

  • Page 81
    ...Life Retirement Services (U.S.), Inc., a 401(k) plan administration business in the United States, to Hartford Financial Services LLC. The sale is not material to these Consolidated Financial Statements. 4. seGMented inFOrMAtiOn The Company has five reportable segments: Sun Life Financial Canada...

  • Page 82
    ... assets by country for the Corporate reportable segment: 2009 2008 2007 Revenue: United States United Kingdom Canada Other countries Total revenue Total net income (loss): United States United Kingdom Canada Other countries Total net income (loss) Assets: General funds: United States United Kingdom...

  • Page 83
    ... interest rates with similar credit risks and terms to maturity. Fair value of real estate is determined by external appraisals, using expected future net cash flows discounted at current market interest rates. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009...

  • Page 84
    ...securities are based on market yields. The fair values of other invested assets are determined by reference to quoted market prices. ii) YIELd CALCULATIOn Yield for all assets, excluding real estate, is calculated based on total net interest, dividend or other investment income divided by the total...

  • Page 85
    ... Total bonds - available-for-sale Stocks - held-for-trading Cash, cash equivalents and short-term securities Derivative assets Other invested assets Total investments and cash Stocks - available-for-sale Total Financial Instrument assets measured at fair value Liabilities Amounts on deposit...

  • Page 86
    ... to changes in the transparency of inputs used to price the securities. For liabilities, gains are indicated in negative numbers. Certain invested assets are accounted for differently under U.S. GAAP. 82 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 87
    ... the following: 2009 2008 2007 Changes in fair value Interest income (expense) Other income Total income from derivative investments $ $ (847) (114) 18 (943) $ $ (154) (70) 4 (220) $ $ 75 10 1 86 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009 83

  • Page 88
    ...components: 2009 2008 2007 Interest income: Held-for-trading bonds Available-for-sale bonds Mortgages and corporate loans Policy loans Cash, cash equivalents and short-term securities Interest income Dividends on held-for-trading stocks Dividends on available-for-sale stocks Real estate income (net...

  • Page 89
    ... and procedures, including reporting against pre-established investment limits • Active credit risk governance, including independent monitoring and review and reporting to senior management and the Board NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009 85

  • Page 90
    ... $ 96,084 2008 8,879 48,458 10,616 16,267 6,035 2,669 2,704 $ 95,628 Cash, cash equivalents and short-term securities Held-for-trading bonds(1) Available-for-sale bonds Mortgages Corporate loans Derivative assets(2) Other financial assets(3) Total balance sheet maximum credit exposure Off-balance...

  • Page 91
    ...States United Kingdom Other Total mortgages and corporate loans 5,896 7,338 71 - $ 13,305 $ $ $ 2,620 342 - - 2,962 8,516 7,680 71 - $ 16,267 $ $ $ 5,518 254 - 263 6,035 $ 14,034 7,934 71 263 $ 22,302 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009...

  • Page 92
    ... - 3,298 2 $ 14,313 81 - - - $ 11,982 - - - - $ 20,965 936 - 3,298 2 $ 47,260 1,697 323 2,280 - $ 10,455 45 - - - $ 18,262 - - - - $ 22,079 1,742 323 2,280 - $ 50,796 88 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 93
    ... The Company's bond portfolio was 95.6% (97.0% in 2008) investment grade based on carrying value. The carrying value of bonds by rating is shown in the following table. 2009 Held-fortrading bonds Availablefor-sale bonds Total Held-fortrading bonds 2008 Availablefor-sale bonds Total Bonds by credit...

  • Page 94
    ... allowances for losses, was $222 as at December 31, 2009 ($46 in 2008). The carrying value of mortgages and corporate loans that were non-income producing for the preceding 12 months was $65 ($37 in 2008). 90 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 95
    ... statement of operations for the period. During 2009, the net charge to the income statement attributable to impairments of held-for-trading assets backing actuarial liabilities amounted to $522 ($608 in 2008). NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009...

  • Page 96
    ...(3) General fund policyholder liability cash flows include estimates related to the timing and payment of death and disability claims, policy surrenders, policy maturities, annuity payments, minimum guarantees on segregated fund products, policyholder dividends, amounts on deposit, commissions and...

  • Page 97
    ... interest rates, credit spreads, equity market prices, foreign currency exchange rates, real estate values, private equity values and market volatility. MARKET RISK SEnSITIvITY The Company's earnings are dependent on the determination of its policyholder obligations under its annuity and insurance...

  • Page 98
    ... Market Change 2009 2008 10% increase 10% decrease $ 25 to $ 75 $ (25) to $ (75) $ 50 to $ 100 $ (50) to $ (100) The Company's equity portfolio is well-diversified within North America and contains a significant amount of exchange-traded funds which are indexed to various North American stock...

  • Page 99
    ... years. During 2007, the Company retired the Clarica brand name as part of its integrated brand strategy in Canada. The write-down of the brand name of $52 was recorded to operating expenses in 2007 ($43 net of the related taxes of $9). 8. Other Assets Other assets consist of the following: 2009...

  • Page 100
    ... 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...

  • Page 101
    ... 120,082 2008 Bonds Heldfor-trading Availablefor-sale Stocks Heldfor-trading Availablefor-sale Mortgages and corporate loans Real estate Other Total Individual participating life Individual non-participating life Group life Individual annuities Group annuities Health insurance Equity and other...

  • Page 102
    ... increases the policy liabilities. For annuities where lower mortality rates result in an increase in liabilities, assumed future mortality rates are adjusted to reflect estimated future improvements. 98 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 103
    ... net income by about $110. ASSET dEfAULT Assumptions related to investment returns include expected future credit losses on fixed income investments. Past Company and industry experience over the long term, as well as specific reviews of the current portfolio, are used to project credit losses...

  • Page 104
    ... participating insurance and certain forms of universal life policies and annuities, policyholders share investment performance through routine changes in the amount of dividends declared or in the rate of interest credited. These products generally have minimum interest rate guarantees. The values...

  • Page 105
    ... The Risk Review Committee of the Board of Directors reviews and approves SLF Inc.'s capital policy annually. Management oversight of the Company's capital programs and position is provided by the CMC that is chaired by the Executive Vice-President and the Chief Financial Officer. Corporate Treasury...

  • Page 106
    ...interest rate reset date, or at the greater of the Canada yield price or par if redeemed prior to these dates. Early redemption of the debentures issued by Sun Life Assurance is subject to regulatory approval. The Sun Life Assurance debentures were issued to SLCT I and SLCT II (the SL Capital Trusts...

  • Page 107
    ... have features of equity capital. No interest payments or distributions will be paid in cash by the SL Capital Trusts on the SLEECS if Sun Life Assurance fails to declare regular dividends (i) on its Class B Non-Cumulative Preferred Shares Series A, or (ii) on its public preferred shares, if any are...

  • Page 108
    ... 0.28 % as at December 31, 2009 (1.64% in 2008). As at December 31, 2009, the Company had assets with a total fair value of $1,006 ($1,419 in 2008), pledged as collateral for the bond repurchase agreements. 104 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 109
    ..., U.S. Holdings may be required to pay a make-whole amount based on the present value of expected quarterly payments between the cancellation date and November 8, 2015. For the year ended December 31, 2009, the Company recorded $22 of interest expense relating to this obligation ($48 in 2008). The...

  • Page 110
    ... dividends at an annual rate equal to the then three-month Government of Canada treasury bill yield plus 3.79%. The preferred shares qualify as capital for Canadian regulatory purposes, and are included in Note 10. 106 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL...

  • Page 111
    ...the TSX at the market price. In 2009, SLF Inc. issued approximately 4.4 million common shares from treasury at a discount of 2% for dividend reinvestments and issued an insignificant number of common shares from treasury at no discount for optional cash purchases. 16. OPerAtinG eXPenses Operating...

  • Page 112
    ... in common shareholders' net income. The effect of stock options is calculated based on the treasury stock method requirements, which assume that unrecognized compensation as well as any proceeds from the exercise of the options would be used to purchase common shares at the average market prices...

  • Page 113
    ... risk-free rate for periods within the expected term of the option is based on the Canadian government bond yield curve in effect at the time of grant. B) EMPLOYEE ShARE OWnERShIP PLAn In Canada, the Company matches eligible employees' contributions to the Sun Life Financial Employee Stock Plan...

  • Page 114
    ...a higher return for shareholders. Payments to participants are based on the number of units vested multiplied by the average closing price of a common share on the TSX on the five trading days immediately prior to the vesting date. Additional information for other stock-based compensation plans: The...

  • Page 115
    ... by various tax authorities and could be reduced as a result of the adjustments to tax returns. Furthermore, legislative, business or other changes may limit the Company's ability to utilize these losses. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009 111

  • Page 116
    ... CREdIT The Company issues commercial letters of credit in the normal course of business. As at December 31, 2009, letters of credit in the amount of $703 are outstanding, of which $515 relate to internal reinsurance. 112 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL...

  • Page 117
    ... Shareholders' net income 2007 Revenue Shareholders' net income SLF Inc. (unconsolidated) Sun Life assurance (consolidated) Consolidation adjustments SLF Inc. (consolidated) 2009 Invested assets Total other assets Actuarial and other policy liabilities Total other liabilities 2008 21...

  • Page 118
    ...be required to pay a portion of the premiums for these benefits and, in general, deductible amounts and co-insurance percentages apply to benefit payments. These post-retirement benefits are not pre-funded. 114 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 119
    ... for change in measurement date Benefits paid Effect of changes in currency exchange rates Fair value of plan assets, December 31(1) Net funded status, December 31 Unamortized net actuarial loss (gain) Unamortized past service cost Unamortized transition asset Contributions (transfers), October...

  • Page 120
    ... Pensions Post-Retirement 2009 To measure benefit obligation at end of year(1) Discount rate Rate of compensation increase Initial health care cost trend rate(4) To determine benefit costs or income for the period Discount rate Expected long-term rate of return on plan assets Rate of compensation...

  • Page 121
    ...The assets of the defined benefit pension plans are primarily held in trust for plan members, and are managed within the provisions of the plans' investment policies and procedures. Diversification of the investments is used to minimize credit, market and foreign currency risks. Due to the long-term...

  • Page 122
    ...of its products by agents licensed through the Company. Distribution fees for 2008 and 2007 ($129 and $144, respectively) are included in fee income in the consolidated statements of operations. As a result of the sale, CI Investments Inc. is no longer a related party of the Company. 25. VAriABle...

  • Page 123
    ... (Cdn.) GAAP fInAnCIAL STATEMEnT InfORMATIOn TO U.S. GAAP i) COnSOLIdATEd STATEMEnTS Of OPERATIOnS: 2009 Cdn. GAAP U.S. GAAP 2008 Cdn. GAAP U.S. GAAP 2007 Cdn. GAAP U.S. GAAP Revenue Premiums Total net investment income (loss) Net realized gains (losses) Fee income Policy benefits and expenses...

  • Page 124
    ...adjusted in the 2008 column above. U.S. GAAP terminology is short-term investments. U.S. GAAP terminology is deferred income tax. U.S. GAAP terminology is separate accounts. Included in equity in U.S. GAAP. 120 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 125
    ...costs Balance, December 31 Paid in capital Balance, January 1 Common shares issued under dividend reinvestment and share purchase plan Stock options exercised(2) Common shares purchased for cancellation(1) Stock option compensation(3) Subsidiary equity transaction Change due to transactions with non...

  • Page 126
    ...-for-sale assets Unrealized gains (losses) on cash flow hedging instruments Reclassifications to net income (loss) for cash flow hedges Changes to deferred acquisition costs and other liabilities Changes in unamortized net actuarial loss Changes in past service cost Changes in transition asset Total...

  • Page 127
    ... were also recorded in income for declines in fair values of available-for-sale bonds due to changes in prevailing interest rates when the Company did not have the intent and ability to hold to recovery. Sun Life Financial Inc. Annual Report 2009 123 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 128
    ...The account values represent an accumulation of gross deposits received plus credited interest less withdrawals, expenses and mortality charges. Other non-participating products include term, group and disability insurance. For these products, as well as participating contracts in the United Kingdom...

  • Page 129
    ...-acquisitions or disposals. Business combinations Transaction and other costs directly related to an acquisition are capitalized as part of the purchase. (1) U.S. GAAP terminology is deferred income tax. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009...

  • Page 130
    ...is limited to financial guarantee insurance (and reinsurance) contracts issued by insurance enterprises. The adoption of this portion of FASB ASC Topic 944 on January 1, 2009, did not have an impact on the Company's Consolidated Financial Statements. 126 Sun Life Financial Inc. Annual Report 2009...

  • Page 131
    ...the Company's Consolidated Financial Statements. E) AddITIOnAL InfORMATIOn REQUIREd TO BE REPORTEd UndER U.S. GAAP i) REALIZEd GAInS (LOSSES) On SALES Of AvAILABLE-fOR-SALE SECURITIES InCLUdEd In nET REALIZEd GAInS: 2009 2008 2007 Bonds: Gross realized gains Gross realized losses Stocks: Gross...

  • Page 132
    ... loss models. Expected cash flows include assumptions about key systematic risks (e.g. unemployment rates, housing prices) and loan-specific information (e.g., delinquency rates, loan-to-value ratio). 128 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 133
    ...for the anticipated recovery of its cost, the instrument is written down to fair value. For the year ended December 31, 2009, impairment charges of $352 were recognized related to available-for-sale stocks. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009 129

  • Page 134
    ...-sale stocks are as follows: Original cost Gross unrealized gains Gross unrealized (losses) Estimated fair value Total 2009 Total 2008 $ 3,253 $ 3,901 $ $ 393 135 $ $ (10) (640) $ 3,636 $ 3,396 130 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 135
    ... stock positions, unrealized losses less than 12 months included 19 positions with an aggregate fair value of $27 having unrealized losses of less than one hundred thousand dollars per individual holding. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009 131

  • Page 136
    ... been completed at the beginning of those years or what may be obtained in the future. Where applicable, the impact of synergy savings and integration costs arising from the acquisition have been reflected. 132 Sun Life Financial Inc. Annual Report 2009 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  • Page 137
    ...there are limitations on when these guarantees may be exercised. The table below represents information regarding the Company's variable annuity and unit-linked pension contracts with guarantees as at December 31, 2009: Weighted average attained age of contract holders Benefit type Account balance...

  • Page 138
    ... benefit ratio may be in excess of 100%. For guarantees in the event of death, benefits represent the current guaranteed minimum death payments in excess of the current account balance. For guarantees at annuitization, benefits represent the present value of the minimum guaranteed annuity benefits...

  • Page 139
    ...2008: Level 1 Level 2 Level 3 Total Assets Bonds - held-for-trading Bonds - available-for-sale Stocks - held-for-trading Stocks - available-for-sale Cash, cash equivalents and short-term securities Derivative assets Other invested assets - held-for-trading Other invested assets - available-for-sale...

  • Page 140
    ... penalties related to income taxes as a component of other expense in the consolidated statements of operations. The Company has $39 of net interest and penalties accrued related to UTBs as at December 31, 2009 ($51 as at December 31, 2008). 136 Sun Life Financial Inc. Annual Report 2009 NOTES...

  • Page 141
    ...risk. The carrying amount of the Company's significant variable interest in VIEs is included in bonds - held-for-trading, bonds - available-for-sale, and other invested assets on the consolidated balance sheets. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Life Financial Inc. Annual Report 2009...

  • Page 142
    ...Sun Life Financial Inc. and subsidiaries (the "Company") and the separate consolidated statements of segregated funds net assets as at December 31, 2009 and 2008 and the related consolidated statements of operations, equity, comprehensive income, cash flows and changes in segregated funds net assets...

  • Page 143
    ... Chartered Accountants Licensed Public Accountants Toronto, Canada February 10, 2010 rePOrt OF indePendent reGistered chArtered AccOuntAnts TO ThE BOARd Of dIRECTORS And ShAREhOLdERS Of SUn LIfE fInAnCIAL InC. We have audited the internal control over financial reporting of Sun Life Financial...

  • Page 144
    ...eleVen-YeAr suMMArY 146 BOArd OF directOrs And eXecutiVe teAM 147 suBsidiArY And AFFiliAte cOMPAnies 151 M AJOr OFFices 152 c OrPOrAte And shArehOlder inFOrMAtiOn 140 Sun Life Financial Inc. Annual Report 2009 NOTESCOMPANY TO CONSOLIDATED FINANCIAL STATEMENTS ADDITIONAL INFORMATION

  • Page 145
    ... a year ago. The decrease is due primarily to lower investment income and higher debt service costs. The income from CI during 2008 and the gain from the sale of the Company's interest in CI Financial in 2008 was $942 million after-tax. SOURCES OF EARNINGS Sun Life Financial Inc. Annual Report 2009...

  • Page 146
    ...) SLF Canada SLF U.S. MFS SLF Asia Corporate Total Expected profit on in-force business Impact of new business Experience gains and losses Management actions and changes in assumptions Earnings on operations (pre-tax) Earnings on surplus Earnings before income taxes Income taxes Earnings...

  • Page 147
    ...) 2009 2008 2007 2006 2005 2004 Total assets under management (as at December 31) SLF Canada SLF United States MFS SLF Asia Corporate Consolidation adjustments Total Company Total revenue (for the year ended December 31) SLF Canada SLF United States MFS SLF Asia Corporate Consolidation...

  • Page 148
    ... (benefit) Non-controlling interests in net income of subsidiaries Net income from continuing operations Loss from discontinued operations, net of income taxes Total net income Business statistics Life insurance in-force(2) Mutual fund sales Managed fund sales(3) Segregated fund deposits Employees...

  • Page 149
    2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 119,833 65,762 195,497 381,092 17,409 114,291 73,205 237,768 ...,466 31,953 5,851 11,702 561,389 45,614 25,869 8,318 11,328 673,322 38,123 13,939 4,137 11,046 ELEVEN-YEAR SUMMARY Sun Life Financial Inc. Annual Report 2009 145

  • Page 150
    .... Limited (1) (2) (3) (4) (5) Member of Audit Committee Member of Governance and Conduct Review Committee Member of Investment Oversight Committee Member of Management Resources Committee Member of Risk Review Committee Additional information on the directors and a report on the Board's corporate...

  • Page 151
    ... 31, 2009 Address of head or principal office Book value of shares owned* Per cent of voting shares owned by SLF Company Sun Life Assurance Company of Canada Amaulico Fund Ltd. Amaulico Ltd. BestServe Financial Limited CCPI Holdco Limited Clarica MEEL Holdings Limited Crosspointe Shops II LLC...

  • Page 152
    Company Address of head or principal office Book value of shares owned* Per cent of voting shares owned by SLF Sun Highlands Plaza, LLC Sun Lakewood GP, LLC Sun Lakewood, L.P. Sun Life (Hungary) Group Financing Limited Liability Company Sun Life (India) AMC Investments Inc. Birla Sun Life Asset ...

  • Page 153
    ...(Hong Kong) Limited MFS International (U.K.) Limited MFS Investment Management Company (LUX) S.A. MFS Investment Management K.K. MFS Service Center, Inc. Sun Life of Canada (U.S.) Holdings, Inc. Dental Holdings, Inc. California Benefits Dental Plan Professional Insurance Company Sun Canada Financial...

  • Page 154
    Company Address of head or principal office Book value of shares owned* Per cent of voting shares owned by SLF Sun Life Administrators (U.S.), Inc. Sun Life Assurance Company of Canada (U.S.) 7101 France Avenue Manager, LLC 7101 France Avenue, LLC Clarendon Insurance Agency, Inc. Independence ...

  • Page 155
    ....ca Toronto, Ontario Canada M5V 3C5 Tel: 416-408-8338 Website: sunlife.com SUn LIfE fInAnCIAL U.S. One Sun Life Executive Park Wellesley Hills, Massachusetts USA 02481 Call centre: 1 800 SUN-LIFE / 1 800 786-5433 Website: sunlife.com/us MfS InvESTMEnT MAnAGEMEnT head office 500 Boylston Street...

  • Page 156
    ... news and financial results, please visit www.sunlife.com. united states BNY Mellon Shareowner Services dIvIdEndS 2010 dividend dates Common shares Record dates Payment dates CORPORATE OffICE Sun Life Financial Inc. 150 King Street West Toronto, Ontario Canada M5H 1J9 Tel: 416-979-9966 Website...

  • Page 157
    ... and services that help customers achieve lifetime financial security, Sun Life Financial recognizes that environmental sustainability is critical to our overall well-being. The use of Forest Stewardship Council (FSC) and recycled paper for this Annual Report resulted in the following savings: This...

  • Page 158
    SUN LIFE FINANCIAL INC. ANNUAL REPORT 2009 150 KING STREET WEST TORONTO, ONTARIO CANADA M5H 1J9 SUNLIFE.COM