Sun Life Assurance Company of Canada (“Sun Life”) is a company governed by the Insurance Companies Act (Canada) 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 Dividend Policy applies to participating policies of the Company.
Participating policyholders of the Company are eligible to receive distributions in respect of their policies, commonly referred to as policy dividends*, as declared from time to time at the discretion of the Board of Directors of the Company in accordance with applicable law.
Participating policies are accounted for separately by territory as outlined in the Participating Account Management Policy. Within the Canadian territory, participating policies issued by Sun Life before its Conversion are accounted for separately from policies issued by Sun Life after its Conversion, and participating policies issued by Clarica before its Conversion are accounted for separately from policies issued by Clarica after its Conversion.
The assets and earnings of the pre-Conversion blocks of participating business that are specified by the terms of the Conversion plans of Sun Life and Clarica are exclusively for the benefit of the participating policies in the applicable pre-Conversion block. (These blocks of participating business are referred to as “Closed Blocks”.)
Earnings arise from all sources of gain and loss related to experience factors including, but not limited to, investment returns, mortality, policy surrender, expenses, and taxes (these and other applicable factors are referred to as “Experience Factors”). The dividends are generated by the differences between the actual levels of experience and the assumed levels of experience for these Experience Factors. Since actual levels of experience cannot be known in advance, dividends cannot be guaranteed.
Experience can improve or deteriorate over time and, as a result, dividends may be increased or reduced.
The amount of dividends distributed generally reflects changes in experience, by territorial participating sub-accounts, over time, which may be smoothed to provide greater consistency in the amount of dividends distributed from one period to the next. The effect of smoothing is to spread the impact of experience fluctuations into policyholder dividends over time, with the objective of achieving greater stability of dividends from one period to the next. The extent of smoothing to be used, if any, will depend on considerations such as the source and extent of the fluctuation in experience, expected trends in the future experience, and the potential impact on policyholder dividends. This is done with the objective of ensuring no unnecessary build-up or deficiency.
Dividends on Closed Block participating policies are distributed from the earnings of the Closed Block participating business consisting of those policies, with the objective of distributing the assets in the Closed Block over the lifetime of the business in the Closed Block.
Dividends on pre-Conversion participating policies that are not in Closed Blocks (i.e. Malta and Other Foreign) are determined as required by the terms of the Conversion plans or are determined in the same manner as dividends on participating policies issued after Conversion.
Dividends on post-Conversion participating policies are distributed from the earnings of the post-Conversion participating business consisting of those policies.. In addition, the Company retains a portion of earnings in the post-Conversion participating business, as part of the dividend scale process, as a permanent contribution to surplus. Further details on the management and use of surplus of the Participating Account is described in the Participating Account Management Policy.
Any distribution of funds from the participating accounts to shareholders of the Company is limited by the provisions of the Insurance Companies Act (Canada) and the Conversion plans of Sun Life and Clarica.
The dividend allocation process followed by the Company in respect of participating policies recognizes the contributions made by the policies to the pre-Conversion or post-Conversion participating business to which they belong. Not all policies contribute to the same extent or at the same time, and there are certain practical limits, legal constraints and prevailing local practices that apply to the allocation in some circumstances. This process seeks to achieve reasonable equity among classes and generations of policies. In order to determine the contribution of policies, policies are grouped into classes with common Experience Factors.
The dividend scales of the Company are established by the Board of Directors of the Company from time to time, and reviewed at least once each year based on a recommendation from the Appointed Actuary that is required to be in compliance with all relevant standards of the Canadian Institute of Actuaries. If any significant deviation from the recommendation is approved, it will be documented in Board minutes and with the final dividend recommendation.
Dividends are credited to policies on the anniversary date or as otherwise specified by the policy. For certain groups of policies, dividends may vary according to the amount of any policy loan. Other dividends called terminal or special maturity dividends may be credited to a policy upon surrender or maturity of the policy, or upon death of the insured. The type of policy, the amount of time it has been in force and the manner of its termination will affect eligibility for, and the amount of, the terminal or special maturity dividend, if any.
The Company may, from time to time, acquire participating business from other insurers. This Dividend Policy is intended to apply to such acquired business, subject to the terms and conditions applying to the acquisition.
This Dividend Policy is subject to change from time to time at the discretion of the Board of Directors of the Company, subject to applicable law. The principal factors that might cause the Board of Directors of the Company to review this policy include legislative or regulatory changes, significant corporate restructuring, significant unforeseen events, or a desire to clarify this policy.