Participating Account Management Policy for Sun Life Assurance Company of Canada

Sun Life Assurance Company of Canada (“Sun Life”) is a company governed by the Insurance Companies Act (Canada) (ICA) that was converted from a mutual company into a company with common shares in 2000. (Such a transaction is referred to as a “Conversion”.) Clarica Life Insurance Company (“Clarica”) was converted from a mutual company into a company with common shares in 1999 and was amalgamated with Sun Life in 2002. (The amalgamated company, named Sun Life Assurance Company of Canada, is referred to as the “Company”.)

This Participating Account Management Policy applies to participating (par) accounts of the Company set up pursuant to section 456 of the ICA.

(a) Business Governed by the Participating Account Management Policy

The Company maintains territorial par accounts, some of which have sub-accounts, for its par policies that are separate from the accounts for its non-par policies and other businesses. Each par account records the assets, liabilities, premiums and any earnings for par policies only. Par policies issued by Sun Life are also accounted for separately from par policies issued by Clarica in order to be able to administer all business in accordance with commitments made by Sun Life and Clarica at the time of their Conversions.

The Company has 6 territorial par accounts, one each for

  • Canadian par policies issued by Sun Life
  • Par policies issued or acquired by Clarica (all of which were issued in Canada)
  • US par policies issued by Sun Life
  • Philippines par policies issued by Sun Life prior to its Conversion
  • Malta par policies issued by Sun Life
  • Other Foreign par policies issued by Sun Life

Only the par account for Canadian par policies issued by Sun Life is open to new business.

(b) Investment Policy for the Participating Account

The Company has an investment policy for the assets in each par account. These policies are reviewed regularly to ensure they meet the Board approved requirements. The Company monitors each par account to ensure that its investment policy is followed consistently and controls are in place to ensure target mixes by type of asset, quality and term are maintained within defined tolerance limits.

(c) Allocating Investment Income to the Participating Account

Assets are maintained in each par account in an amount equal to the account’s total liabilities and surplus. The investment income credited to each account is the earnings on assets allocated to that account. The Appointed Actuary of the Company provides an annual opinion to the Board as to whether the allocations are fair and equitable to participating policyholders.

(d) Allocation of Expenses, including Taxes, to the Participating Account

The allocation of Company expenses to each par account is supported by expense analysis prepared in accordance with professional standards and legal requirements. The allocation includes an appropriate assignment of overhead costs. Premium taxes are allocated directly with the premium that gives rise to the tax. Income taxes are allocated based on accounting income subject to tax multiplied by the effective tax rate. In the Philippines, final taxes relating to investment income are allocated in the same proportion as the investment income. The Appointed Actuary provides an annual opinion to the Board as to whether the allocations are fair and equitable to participating policyholders.

Commitments made at the time of demutualization may impact allocations of expenses at the sub-account level.

(e) Management and Use of Surplus

Blocks of par business sold pre-Conversion do not generate surplus as these were funded at Conversion to meet policyholders’ reasonable expectations and all funds are expected to be returned to policyholders over time. For any post-Conversion business, initial surplus was contributed by Shareholders at Conversion to support new sales. Additional amounts of surplus are contributed if required to support post-Conversion business. Transfers of surplus to shareholders are limited by the ICA.

(f) Factors which Might Result in Modification of the Policy

Changes might be contemplated to clarify the intent of this policy or in the event of legislative and regulatory changes, changes in accounting rules, acquisitions, divestitures, or any significant corporate restructuring.

(g) Management and Disposal of Surplus in Par Accounts for which New Business is Not Accepted
The par accounts are managed in accordance with the commitments made at the time of Conversion. Under the ICA, Sun Life has the right to transfer surplus amounts not required by the participating business to the shareholders with the permission of the Regulator.

(h) Measures to Ensure Fairness to Participating Policyholders whose Policies form part of a Closed Block Created as Part of Conversion Terms:

The management of Closed Blocks of par business sold pre-Conversion are specified by the terms of the Conversion plans of Sun Life and Clarica.

Measures to ensure fairness to par policyholders in the Closed Blocks were described in the Conversion Plans which provided the information upon which participating policyholders voted for Conversion. As part of Conversion, each of Sun Life and Clarica made commitments to provide for Policyholders Reasonable Expectations (PRE). The commitments were further described in supplementary documents which guide the administration of par business.

The Appointed Actuary provides an annual opinion to the Regulator as to whether all par blocks are being managed according to the commitments made at Conversion. The Appointed Actuary also provides fairness opinions with respect to the dividend policy, the dividend recommendations, participating account management and allocations of income and expenses to the par accounts.

(i) Percentage of Par Account Income Transferred to Shareholders or Shareholder Accounts as a Percentage of Maximum Allowed

ICA section 461 restricts the maximum amount that can be transferred from the par account to between 2.5% and 10% of total amounts distributed to par policyholders, dependent on the size of the par accounts of the company. The maximum percentage that can be distributed by the Company is redetermined annually and is close to 2.5% at this time. The Company intends to transfer the maximum amount allowed.