Competitive Edge: Participating life insurance and risk

Risk sharing

Participating life insurance involves risk sharing between policy owners and the life insurance company. Because they share in the risk, participating policy owners share in the benefits when performance is better than originally expected. This sharing is provided in the form of dividends, which are calculated based on actual experience versus assumptions on a number of key risks. These risks can include investment returns, mortality, expenses, taxes, inflation and lapses.

Companies selling participating insurance should ensure that decisions about their par products consider any impact to participating policy owners. A decision about a product feature or investment direction can affect the amount available to be distributed as dividends. For example, allowing Clients to purchase products without underwriting can introduce negative mortality risk into the par block. This negative experience is passed back to the policy owner and can affect future dividend performance.

Safeguards to help protect policy owner interests

Sun Life considers the impact to our par policy owners with every decision we make about participating insurance. Our governance committees review all changes and communications to ensure we are being fair to all of our policy owners.

As required by law, we maintain an account for par policies that is separate from the accounts for non-par policies and other businesses. The Sun Life Participating Account records the assets, liabilities, premiums and any earnings for par policies only. We maintain assets in the participating account in an amount equal to the accounts’ total liabilities and surplus. We monitor the participating account to ensure that we’re following a consistent investment policy and to ensure we maintain target mixes by type of asset, quality and term within defined tolerance limits.

Sun Life’s Board of Directors decides if policy owner dividends will be paid out, and the dividend scale that will be used to allocate them. Par policy owner dividends are reviewed at least annually. The Board considers the par policy owner dividend recommendation of Sun Life’s Appointed Actuary, who applies sound actuarial principles and practices when formulating the recommendation. Before declaring the annual par policy owner dividend, the Board reviews a written report stating that the policy owner dividends being considered are in accordance with Sun Life’s dividend policies.


Our approach to balancing risk and return is rooted in our corporate risk management philosophy of taking appropriate risks for solid returns. We take an active risk management approach by identifying, measuring and monitoring risk. We use a balanced product portfolio and global earnings mix to help minimize downturns in both specific business lines and in geographical markets.

How does Sun Life help mitigate risk?

Investment return

We take a prudent investment approach by using a high quality asset portfolio that adheres to a research-based process conducted by more than 200 experienced professionals and support staff. Our operating guidelines contain maximum weightings by asset type, sector and geographic exposure. Each year, our Asset Liability Committee reviews the guidelines to help maintain a well-diversified portfolio with the goal of achieving superior risk adjusted returns. Furthermore, by using a total rate of return investment approach, we’re able to better manage the account through normal business cycle progressions.

Asset mix guidelines – March 31, 2019

  Strategic target % Tactical range
Min % Max %
Cash & short term 0.5% 0.0% 5.0%
Fixed income
Public fixed income 41.0% 34.0% 50.0%
Private fixed income 12.5% 5.0% 20.0%
Commercial mortgages 12.0% 4.0% 20.0%
Total fixed income 65.5% 42.0% 89.0%
Real estate 17.0% 12.0% 22.0%
Equities 17.0% 7.5% 23.5%
Other assets 0.0% 0.0% 2.0%
Total non fixed income 34.0% 20.5% 49.5%
Total assets 100.0%

Asset selection

As of December 31, 2018, Sun Life holds $1.672 billion of private fixed income (PFI) assets in the Par account, giving a competitive advantage.

Par account Sun Life Equitable Life Manulife Canada Life
Private fixed income* 16.1% 8.0% 1 7.7% 2 5.6% 3

*All values are as of December 31, 2018, unless otherwise stated.

Generally, private fixed income assets are low risk and the quality of our portfolio is especially high with 100% of holdings ranked as investment grade. Using AA and A rated issues helps give us the opportunity for an enhanced risk adjusted return.

Inflation Hedging

The Sun Life Par Account holds 15.7% or $1.623 billion of the total participating assets in real estate holdings as of December 31, 2018. Real estate assets help provide protection against low interest rates given that returns do not follow the return patterns of other asset classes. Historically, real estate investments have provided a stable income return, with capital appreciation over the long term. Rental rates tend to increase with inflation, therefore, real estate hedges against inflation.

Mitigating risk by prudent underwriting practices

We employ a relatively conservative mortality assumption, which uses the natural curve of mortality that increases with age. Over the last century, mortality has demonstrated stable and continuous improvement in Canada. It is expected that claims performance will be better than the original assumption, which can provide additional stability in the dividend scale.


Our corporate vision, mission and Client value proposition includes effective risk taking and risk management, as it is critical to the company’s overall profitability, competitive market position and long-term financial viability. When managing participating insurance, we always consider the impact decisions will have on our participating policy owners.

Talk to your Sales Director about Sun Life’s participating life insurance solutions today.

This article is intended to provide general information only. Dividends are not guaranteed, and past performance is not an indicator of future performance. Before a Client acts on any of the information in this article, or before you recommend any course of action, make sure the Client seeks advice from a qualified professional, including a thorough examination of his or her specific legal, accounting and tax situation. Unless specifically stated, the values and rates presented are not guaranteed.