485BPOS 1 compass3.htm compass3.htm
 
 
 

As Filed with the Securities and Exchange Commission on April 29, 2013
REGISTRATION NO. 033-19628
811-03563


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 37

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 51

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(Exact Name of Registrant)

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Name of Depositor)

One Sun Life Executive Park
Wellesley Hills, Massachusetts 02481
(Address of Depositor's Principal Executive Offices)

Depositor's Telephone Number: (800) 752-7219

William T. Evers, Assistant Vice President and Senior Counsel
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park SC 2335
Wellesley Hills, Massachusetts 02481
(Name and Address of Agent for Service)



It is proposed that this filing will become effective (check appropriate box)

R immediately upon filing pursuant to paragraph (b) of Rule 485
£ on (date) pursuant to paragraph (b) of Rule 485
£ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
£ on (date) pursuant to paragraph (a)(1) of Rule 485.

If appropriate, check the following box:
£ this post-effective amendment designates a new effective date for a previously filed post-effective amendment.

Title of Securities Being Registered: Flexible Premium Deferred Variable Annuity Contracts.

No filing fee is due because an indefinite amount of securities is deemed to have been registered in reliance on Section 24(f) of the Investment Company Act of 1940.

 
 
 




PART A


 
 
 

COMPASS 3

PROSPECTUS DATED APRIL 29, 2013

Sun Life Assurance Company of Canada (U.S.) (the “Company”) and Sun Life of Canada (U.S.) Variable Account L (the “Variable Account”) of the Company identified below offer the individual flexible payment deferred annuity contracts described in this Prospectus (the “Contracts”).

You may choose among six variable investment options and a fixed investment option. The variable investment options are the sub-accounts of the Variable Account, each of which invests in one of the following investment portfolios (the “Funds’) of the MFS® Variable Insurance Trust II (the “Trust”), advised by  Massachusetts Financial Services Company (“MFS”):

MFS® Money Market Portfolio
MFS® High Yield Portfolio
MFS® Massachusetts Investors Growth Stock Portfolio
MFS® Government Securities Portfolio
MFS® Global Governments Portfolio
MFS® Total Return Portfolio

The fixed investment option pays interest at a guaranteed fixed rate.

Please read this Prospectus carefully before investing and keep it for future reference. It contains important information about the Contracts and the Variable Account.

We have filed a Statement of Additional Information dated April 29, 2013 (the “SAI”) with the Securities and Exchange Commission (the “SEC”). The SAI is incorporated by reference in this Prospectus. The table of contents for the SAI is on page 29 of this Prospectus. You may obtain a copy of the SAI without charge by writing to Sun Life Assurance Company of Canada (U.S.), P.O. Box 9133, Wellesley Hills, MA 02481 or by telephoning us at (800) 752-7216. In addition, the SEC has a website (www.sec.gov) that contains this Prospectus, the SAI, materials incorporated by reference, and other information regarding companies that file with the SEC.

The Contracts are not deposits or obligations of, or guaranteed or endorsed by, any bank, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other agency. It is possible to lose money by investing in the Variable Account. An investment in the MFS Money Market Portfolio is neither insured nor guaranteed by the U.S. Government.

The Securities and Exchange Commission has not approved or disapproved these securities or determined whether this prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime.

If you have any questions about your Contract or need more information, please contact us at:

Sun Life Assurance Company of Canada (U.S.)
P.O. Box 9133
Wellesley Hills, MA 02481
Toll Free (800) 752-7216


 
 
 

TABLE OF CONTENTS
 
Page

EXPENSE SUMMARY [INSERT PAGE NUMBER]
CONDENSED FINANCIAL INFORMATION [INSERT PAGE NUMBER]
FINANCIAL STATEMENTS [INSERT PAGE NUMBER]
THE COMPANY, THE VARIABLE ACCOUNT, AND THE TRUST [INSERT PAGE NUMBER]
The Variable Account [INSERT PAGE NUMBER]
The Fixed Account [INSERT PAGE NUMBER]
PURCHASE PAYMENTS AND CONTRACT VALUES DURING ACCUMULATION PERIOD                                                                                                                                                                [INSERT PAGE NUMBER]
Purchase Payments [INSERT PAGE NUMBER]
Net Investment Factor [INSERT PAGE NUMBER]
Short-Term Trading [INSERT PAGE NUMBER]
CASH WITHDRAWALS [INSERT PAGE NUMBER]
Section 403(b) Annuities [INSERT PAGE NUMBER]
Texas Optional Retirement Program [INSERT PAGE NUMBER]
DEATH BENEFIT [INSERT PAGE NUMBER]
Payment of Death Benefit [INSERT PAGE NUMBER]
Amount of Death Benefit [INSERT PAGE NUMBER]
CONTRACT CHARGES [INSERT PAGE NUMBER]
Contract Maintenance Charge [INSERT PAGE NUMBER]
Mortality and Expense Risk Charge and Distribution Expense Risk Charge [INSERT PAGE NUMBER]
Withdrawal Charges [INSERT PAGE NUMBER]
Premium Taxes [INSERT PAGE NUMBER]
ANNUITY PROVISIONS [INSERT PAGE NUMBER]
Annuity Commencement Date [INSERT PAGE NUMBER]
Annuity Options [INSERT PAGE NUMBER]
Determination of Annuity Payments [INSERT PAGE NUMBER]
Transfer of Variable Annuity Units [INSERT PAGE NUMBER]
Annuity Payment Rates [INSERT PAGE NUMBER]
OTHER CONTRACT PROVISIONS [INSERT PAGE NUMBER]
Death of Owner [INSERT PAGE NUMBER]
Voting Rights [INSERT PAGE NUMBER]
Periodic Reports [INSERT PAGE NUMBER]
Modification [INSERT PAGE NUMBER]
Change in Operation of Variable Account [INSERT PAGE NUMBER]
Splitting Units [INSERT PAGE NUMBER]
TAX CONSIDERATIONS [INSERT PAGE NUMBER]
U.S. Federal Income Tax Considerations [INSERT PAGE NUMBER]
Puerto Rico Tax Considerations [INSERT PAGE NUMBER]
DISTRIBUTION OF THE CONTRACTS [INSERT PAGE NUMBER]
OWNER INQUIRIES [INSERT PAGE NUMBER]
Electronic Account Information [INSERT PAGE NUMBER]
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS [INSERT PAGE NUMBER]
APPENDIX A - THE FIXED ACCOUNT [INSERT PAGE NUMBER]
APPENDIX B - WITHDRAWALS AND WITHDRAWAL CHARGES [INSERT PAGE NUMBER]



 
 
 

DEFINITIONS

This section provides definitions or brief explanations of the following terms used in this Prospectus. If you come across a term that you do not understand, please refer to this list of definitions for an explanation.

The terms “we,” “us,” and “the Company” will be used to refer to Sun Life Assurance Company of Canada (U.S.). We will use the term “you” to refer to the Owner of the Contract.

Accumulation Account: An account we establish for the Contract to which we credit Net Purchase Payments in the form of Accumulation Units.

Accumulation Period: The period before the Annuity Commencement Date and during the lifetime of the Annuitant. The Accumulation Period will also terminate when you surrender your Contract.

Accumulation Unit: A unit of measure we use to calculate the value of the Accumulation Account. There are two types of Accumulation Units: Variable Accumulation Units and Fixed Accumulation Units.

Annuitant: The person or persons named in the Contract and on whose life the first annuity payment is to be made. You may name a Co-Annuitant only if both (1) yours is a Non-Qualified Contract and (2) you are not the Annuitant. If you properly name a Co-Annuitant, all Contract provisions based on the death of the Annuitant (such as the death benefit provision) will be based on the date of death of the last surviving Annuitant or Co-Annuitant. Furthermore, if you have properly named a Co-Annuitant, you may choose one of them to become the sole Annuitant on the Annuity Commencement Date, for the purpose of calculating and paying annuity benefits. If you do not make this choice at least 30 days before the Annuity Commencement Date, and both the Annuitant and Co-Annuitant are living on the Annuity Commencement Date, the Co-Annuitant will become the sole Annuitant.

Annuity Commencement Date: The date on which we are to make the first annuity payment. This date may not be later than the first day of the month following the youngest Annuitant’s 95th birthday.

Annuity Unit: A unit of measure we use to calculate the amount of the second and each subsequent Variable Annuity payment.

Beneficiary: The person who has the right to the death benefit set forth in the Contract.

Business Day: Any day the New York Stock Exchange is open for trading. Also, any day on which we make a determination of the value of a Variable Accumulation Unit. A Business Day generally ends at 4:00 p.m. Eastern Time (or as of an earlier close of regular trading).

Company: Sun Life Assurance Company of Canada (U.S.) (also referred to in this Prospectus as “we,” “us,” and “the Company”).

Contract Years and Contract Anniversaries: The first Contract Year is the period of 12 months plus a part of a month as measured from the date we issue the Contract to the first day of the calendar month that follows the calendar month of issue. All Contract Years and Contract Anniversaries thereafter are 12 month periods based upon the first day of the calendar month that follows the calendar month of issue.

Due Proof of Death: Receipt by the Company of (1) an original certified copy of an official death certificate or an original certified copy of a decree of a court of competent jurisdiction as to the finding of death, and (2) any other information or documentation required by the Company that is necessary to make payment (e.g. taxpayer identification numbers, beneficiary names and addresses, state inheritance tax waivers, etc.).

Fixed Account: The Fixed Account consists of all assets of the Company other than those allocated to a separate account of the Company.

Fixed Annuity: An annuity with payments that do not vary as to dollar amount.

Fund: One of the investment portfolios of the MFS® Variable Insurance Trust II.

Net Purchase Payment: The portion of a Purchase Payment which remains after the deduction of any applicable premium tax or similar tax.

Non-Qualified Contract: A Contract used in connection with a retirement plan that does not receive favorable federal income tax treatment under Sections 401, 403, 408, or 408A of the Internal Revenue Code of 1986, as amended (the “Code”). The Contract must be owned by a natural person or agent for a natural person for the Contract to receive favorable income tax treatment as an annuity.

Owner: The person, persons or entity entitled to the ownership rights stated in the Contract and in whose name or names the Contract is issued. In this Prospectus, we refer to the Owner as “you”.

Payee: The recipient of payments under the Contract. The term may include an Annuitant, a Beneficiary who becomes entitled to benefits upon the death of the last surviving Annuitant or any person who is designated as the beneficiary of distributions made as a result of the death of the Owner.

Purchase Payment (Payment): An amount you, or someone on your behalf, pay to us as consideration for the benefits provided by the Contract.

Qualified Contract: A Contract used in connection with a retirement plan that receives favorable federal income tax treatment under Sections 401, 403, 408, or 408A of the Code.

Seven Year Anniversary:  The seventh Contract Anniversary and each succeeding Contract Anniversary occurring at any seven year interval thereafter, for example, the 14th, 21st and 28th Contract Anniversaries.

Sub-Account: That portion of the Variable Account that invests in shares of a specific Fund.

Us: Sun Life Assurance Company of Canada (U.S.).

Valuation Period: The period of time from one determination of Accumulation Unit and Annuity Unit values to the next subsequent determination of these values. Value determinations are made as of the close of the New York Stock Exchange on each day that the Exchange is open for trading.

Variable Annuity: An annuity with payments that vary as to dollar amount in relation to the investment performance of specified Variable Accounts.

We: Sun Life Assurance Company of Canada (U.S.).

You: The Owner of the Contract.

SYNOPSIS

You may allocate Purchase Payments to the Sub-Accounts or to the Fixed Account or both. Purchase Payments must total at least $300 for the first Contract Year and each Purchase Payment must be at least $25. (See “Purchase Payments.”) During the Accumulation Period you may, without charge, transfer amounts among the Sub-Accounts and between the Sub-Accounts and the Fixed Account, subject to certain conditions. (See “Transfers.”)

We do not deduct a sales charge from Purchase Payments; however, if you make a cash withdrawal, we will, with certain exceptions, deduct a withdrawal charge ranging from 6% to 0%. You may withdraw a portion of your Accumulation Account each year before we impose the withdrawal charge, and after we have held a Purchase Payment for seven years you may withdraw it without charge. We do not impose a withdrawal charge upon annuitization or upon the transfers described above. (See “CASH WITHDRAWALS” and “Withdrawal Charges.”)

Special restrictions on withdrawals apply to Qualified Contracts, including Contracts used with Tax-Sheltered Annuities established pursuant to Sections 403(b) and 408A of the Code. In addition, under certain circumstances, withdrawals may result in tax penalties. (See “TAX CONSIDERATIONS.”)

If the Annuitant dies before the Annuity Commencement Date, we will pay a death benefit to your Beneficiary. If the Annuitant dies on or after the Annuity Commencement Date, we will not pay a death benefit (unless the annuity option elected provides for a death benefit). (See “DEATH BENEFIT.”)

On each Contract Anniversary and on surrender of the Contract for full value, we will deduct a contract maintenance charge of $30. After the Annuity Commencement Date, we deduct this pro rata from each annuity payment we make during the year. (See “Contract Maintenance Charge.”)

We also deduct a mortality and expense risk charge equal to an annual rate of 1.25% of the daily net assets of Sub-Accounts attributable to the Contracts (see “Mortality and Expense Risk Charge” below).  In addition, for the first seven Contract Years we deduct a distribution expense risk charge equal to an annual rate of 0.15% of the daily net assets in the Sub-Accounts attributable to the Contracts. We do not deduct the distribution expense risk charge after the seventh Contract Anniversary. (See “Mortality and Expense Risk Charge and Distribution Expense Risk Charge.”)

We also make a deduction from the Sub-Accounts for the investment management fees payable to the investment adviser of the MFS Variable Insurance Trust II (the “Trust”), Massachusetts Financial Services Company (“MFS”). These fees are based on the average daily net assets of each Sub-Account. (See “EXPENSE SUMMARY.”)

We will deduct a charge for premium taxes payable to any governmental entity. (See “Premium Taxes.”)

Annuity payments will begin on the Annuity Commencement Date. You select the Annuity Commencement Date, frequency of payments, and the annuity option. (See “ANNUITY PROVISIONS.”)

If you are not satisfied with the Contract, you may return it to us at our Annuity Service Mailing Address within ten days after we deliver the Contract to you. When we receive the returned Contract, we will cancel it and refund to you the value of the Contract’s Accumulation Account at the end of the Valuation Period during which we received the returned Contract. However, if applicable state law requires, we will refund the full amount of all Purchase Payments you have made.

EXPENSE SUMMARY

The table below describes the fees and expenses that you will pay when you buy the Contract, surrender the Contract, or transfer Contract Value among Sub-Accounts. State premium taxes may also be deducted.

Owner Transaction Expenses

Deferred Sales Load (as a percentage of Purchase Payments withdrawn(1))

Years Payment in Account
  
0-1
6%
2-3
5%
4-5
4%
6
3%
7 or more
0%

Maximum Transfer Fee
$15(2)
   
Premium Taxes (as a percentage of Account Value or total Purchase Payments):
0% - 3.5%(3)


The tables below describe the fees and expenses that you will pay periodically while you own the Contract, not including Fund fees and expenses.

Annual Contract Maintenance Charge
$30

Variable Account Annual Expenses
(as a percentage of average net assets)

 
Mortality and Expense Risk Charge
1.25%
 
Distribution Expense Risk Charge
0.15%(4)
   
Maximum Variable Account Annual Expenses
1.40%


The table below shows the lowest and highest total operating expenses charged by the Funds (for the year ended December 31, 2012) that you may pay periodically during the time that you own the Contract. More detail concerning these fees and expenses is contained in the prospectus for each Fund.

Total Annual Fund Operating Expenses(5)
Lowest
Highest
(expenses that are deducted from Fund assets, including management fees,
distribution and/or service (12b-1) fees, and other expenses)
0.55.%
0.98%


(1)
A portion of the Accumulation Account value may be withdrawn each year without imposition of any withdrawal charge, and after a Purchase Payment has been held by the Company for seven years, it may be withdrawn free of any withdrawal charge. (See “CASH WITHDRAWALS” and “Withdrawal Charges.”)

(2)
Currently, we do not impose a fee for transfers. (See “Short-Term Trading.”)

(3)
The premium tax rate and base vary by your state of residence and the type of Contract you own. We may deduct premium taxes from Contract Value upon full surrender (including surrender for the death benefit) or annuitization. (See “Premium Taxes.”)

(4)
The distribution expense risk charge is imposed only during the first seven Contract Years.

(5)
The Fund expenses shown, which include any acquired fund fees and expenses, were provided to us by the Funds and do not reflect any fee waivers or reimbursements. We have not independently verified such information. Current or future expenses may be greater or less than those shown. For more information about Fund expenses, including a description of any applicable fee waiver or expense reimbursement arrangement, see the prospectuses for the Funds.

EXAMPLE

This “Example” is intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include withdrawal charges, the annual contract fee, Variable Account annual expenses, and Fund fees and expenses.

The Example assumes:

·      a $10,000 investment in the contract for the time periods indicated;
·      a 5% return each year;
·      the maximum fees and expenses of any of the Funds;
·      an average contract size of $30,000 for the purpose of converting the annual contract fee to a percentage;
·      the maximum Variable Account fees;
·      no premium taxes were deducted; and
·      no transfers were made.

If you surrender your Contract at the end of the applicable time period:

 
1 Year
3 Years
5 Years
10 Years
 
$791
$1,223
$1,681
$2,816

If you annuitize your Contract at the end of the applicable time period:

 
1 Year
3 Years
5 Years
10 Years
 
$251
$773
$1,321
$2,816

If you do not surrender your Contract, at the end of the applicable time period:

 
1 Year
3 Years
5 Years
10 Years
 
$251
$773
$1,321
$2,816

Please remember that the Example is an illustration and should not be considered a representation of past or future expenses. Your actual expenses may be higher or lower than those reflected in the Example. Similarly, your annual rate of return may be more or less than the 5% rate assumed in the Example.

CONDENSED FINANCIAL INFORMATION

The following information should be read in conjunction with the financial statements of the Variable Account appearing in the SAI. Note that “Level 2” refers to values after the seventh Contract Anniversary when the 0.15% Distribution Expense Risk Charge is no longer deducted from the Variable Account.

 
ACCUMULATION UNIT VALUES*
   
Sub- Account
Accumulation
Unit Value
Beginning
of Period
Accumulation
Unit Value
End
of Period
Number of
Accumulation
Units End
of Period
(000 Omitted)
Year
         
MFS® Global Governments Portfolio
$31.751
 
$31.511
 
1
 
2012
 
30.421
 
31.751
 
1
 
2011
 
29.508
 
30.421
 
6
 
2010
 
29.059
 
29.508
 
7
 
2009
 
26.814
 
29.059
 
11
 
2008
 
25.017
 
26.814
 
15
 
2007
 
24.209
 
25.017
 
18
 
2006
 
26.561
 
24.209
 
26
 
2005
 
24.578
 
26.561
 
28
 
2004
 
21.638
 
24.578
 
41
 
2003
               
MFS® Global Governments Portfolio – Level 2
18.819
 
18.705
 
185
 
2012
 
18.003
 
18.819
 
213
 
2011
 
17.438
 
18.003
 
230
 
2010
 
17.147
 
17.438
 
274
 
2009
 
15.798
 
17.147
 
306
 
2008
 
14.718
 
15.798
 
332
 
2007
 
14.221
 
14.718
 
403
 
2006
 
15.580
 
14.221
 
468
 
2005
 
14.396
 
15.580
 
500
 
2004
 
12.655
 
14.396
 
559
 
2003
               
MFS® Government Securities Portfolio
34.368
 
34.747
 
1
 
2012
 
32.441
 
34.368
 
1
 
2011
 
31.409
 
32.441
 
3
 
2010
 
30.417
 
31.409
 
10
 
2009
 
28.419
 
30.417
 
20
 
2008
 
26.924
 
28.419
 
28
 
2007
 
26.295
 
26.924
 
40
 
2006
 
26.082
 
26.295
 
69
 
2005
 
25.501
 
26.082
 
100
 
2004
 
25.284
 
25.501
 
147
 
2003
               
MFS® Government Securities Portfolio – Level 2
20.336
 
20.591
 
546
 
2012
 
19.168
 
20.336
 
614
 
2011
 
18.530
 
19.168
 
667
 
2010
 
17.918
 
18.530
 
731
 
2009
 
16.717
 
17.918
 
831
 
2008
 
15.814
 
16.717
 
889
 
2007
 
15.421
 
15.814
 
1,054
 
2006
 
15.274
 
15.421
 
1,280
 
2005
 
14.912
 
15.274
 
1,377
 
2004
 
14.763
 
14.912
 
1,562
 
2003
               
MFS® High Yield Portfolio
35.990
 
40.781
 
1
 
2012
 
35.117
 
35.990
 
3
 
2011
 
30.972
 
35.117
 
6
 
2010
 
21.266
 
30.972
 
8
 
2009
 
29.556
 
21.266
 
13
 
2008
 
29.459
 
29.556
 
21
 
2007
 
27.043
 
29.459
 
34
 
2006
 
26.943
 
27.043
 
47
 
2005
 
25.048
 
26.943
 
67
 
2004
 
20.986
 
25.048
 
115
 
2003
 
21.349
 
20.986
 
178
 
2002
               
MFS High Yield Portfolio – Level 2
19.463
 
22.087
 
353
 
2012
 
18.963
 
19.463
 
393
 
2011
 
16.700
 
18.963
 
428
 
2010
 
11.450
 
16.700
 
493
 
2009
 
15.890
 
11.450
 
558
 
2008
 
15.814
 
15.890
 
579
 
2007
 
14.495
 
15.814
 
774
 
2006
 
14.421
 
14.495
 
937
 
2005
 
13.386
 
14.421
 
971
 
2004
 
11.199
 
13.386
 
2,631
 
2003
               
MFS® Massachusetts Investors Growth Stock Portfolio
40.052
 
46.309
 
6
 
2012
 
40.282
 
40.052
 
10
 
2011
 
36.129
 
40.282
 
20
 
2010
 
26.107
 
36.129
 
27
 
2009
 
41.858
 
26.107
 
46
 
2008
 
38.235
 
41.858
 
73
 
2007
 
36.524
 
38.235
 
128
 
2006
 
36.678
 
36.524
 
237
 
2005
 
33.539
 
36.678
 
413
 
2004
 
26.334
 
33.539
 
621
 
2003
               
MFS Massachusetts Investors Growth Stock Portfolio –
16.846
 
19.506
 
1,957
 
2012
Level 2
16.917
 
16.846
 
2,308
 
2011
 
15.151
 
16.917
 
2,588
 
2010
 
10.932
 
15.151
 
2,945
 
2009
 
17.501
 
10.932
 
3,335
 
2008
 
15.963
 
17.501
 
3,671
 
2007
 
15.226
 
15.963
 
4,378
 
2006
 
15.267
 
15.226
 
5,248
 
2005
 
13.940
 
15.267
 
5,798
 
2004
 
10.929
 
13.940
 
6,086
 
2003
               
MFS® Money Market Portfolio
17.063
 
16.826
 
2
 
2012
 
17.302
 
17.063
 
4
 
2011
 
17.544
 
17.302
 
11
 
2010
 
17.790
 
17.544
 
18
 
2009
 
17.704
 
17.790
 
45
 
2008
 
17.152
 
17.704
 
64
 
2007
 
16.638
 
17.152
 
131
 
2006
 
16.443
 
16.638
 
218
 
2005
 
16.553
 
16.443
 
97
 
2004
 
16.680
 
16.553
 
155
 
2003
               
MFS® Money Market Portfolio – Level 2
12.925
 
12.764
 
795
 
2012
 
13.086
 
12.925
 
932
 
2011
 
13.249
 
13.086
 
1,106
 
2010
 
13.415
 
13.249
 
1,332
 
2009
 
13.330
 
13.415
 
1,673
 
2008
 
12.895
 
13.330
 
1,871
 
2007
 
12.491
 
12.895
 
1,969
 
2006
 
12.326
 
12.491
 
2,384
 
2005
 
12.390
 
12.326
 
2,259
 
2004
 
12.466
 
12.390
 
896
 
2003
               
MFS® Total Return Portfolio
49.900
 
54.788
 
8
 
2012
 
49.689
 
49.900
 
13
 
2011
 
45.750
 
49.689
 
23
 
2010
 
39.224
 
45.750
 
48
 
2009
 
51.169
 
39.224
 
74
 
2008
 
49.947
 
51.169
 
107
 
2007
 
45.236
 
49.947
 
142
 
2006
 
44.592
 
45.236
 
217
 
2005
 
40.597
 
44.592
 
315
 
2004
 
35.160
 
40.597
 
453
 
2003
               
MFS® Total Return Portfolio – Level 2
24.378
 
26.805
 
2,090
 
2012
 
24.238
 
24.378
 
2,422
 
2011
 
22.284
 
24.238
 
2,757
 
2010
 
19.077
 
22.284
 
3,136
 
2009
 
24.850
 
19.077
 
3,572
 
2008
 
24.220
 
24.850
 
4,116
 
2007
 
21.903
 
24.220
 
4,695
 
2006
 
21.559
 
21.903
 
5,462
 
2005
 
19.599
 
21.559
 
5,646
 
2004
 
16.949
 
19.599
 
5,946
 
2003

* Accumulation Unit Values are rounded to the nearest tenth of a cent and numbers of accumulation units are rounded to the nearest whole number.

FINANCIAL STATEMENTS

The full financial statements for the Variable Account and Sun Life Assurance Company of Canada (U.S.) are in the Statement of Additional Information.

THE COMPANY, THE VARIABLE ACCOUNT, AND THE TRUST

The Company

Sun Life Assurance Company of Canada (U.S.) is a stock life insurance company incorporated under the laws of Delaware on January 12, 1970. We do business in 49 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, and we have an insurance company subsidiary that does business in New York. Our Executive Office mailing address is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.

We are ultimately controlled by Sun Life Financial Inc. (“Sun Life Financial”), a diversified financial services organization. Sun Life Financial, a corporation organized in Canada, is a reporting company under the Securities Exchange Act of 1934, as amended, with common shares listed on the Toronto, New York, and Philippine stock exchanges.

Sun Life Financial has announced the execution of a definitive agreement  to sell its United States domestic annuity business and certain of its United States life insurance businesses to Delaware Life Holdings, LLC (the “Purchaser”) (the “Proposed Transaction”).  The Purchaser is a limited liability company organized under the laws of the State of Delaware.  The Proposed Transaction will include the transfer of all of the issued and outstanding shares of the Company to the Purchaser.  The closing date for the Proposed Transaction is expected to be as soon as May 31, 2013, subject to receipt of all required regulatory approvals as well as satisfaction of other closing conditions.  Although completion of the Proposed Transaction will result in a change in control of the Company, the terms and conditions of your Contract with the Company will not change and you will not need to take any action.

The Variable Account

We established the Variable Account as a separate account of the Company on July 21, 1982, pursuant to a resolution of our Board of Directors. The Variable Account meets the definition of a separate account under the federal securities laws and was initially registered with the Securities and Exchange Commission as a management separate account under the Investment Company Act of 1940. Pursuant to a shareholder vote, after the close of business on December 2, 2011, the Variable Account was reorganized, in a tax-free exchange, into a unit investment trust, and all of the assets and liabilities of the management separate account (other than insurance obligations) were transferred to the MFS Variable Insurance Trust II.

Under Delaware insurance law and the Contract, the income, gains or losses of the Variable Account are credited to or charged against the assets of the Variable Account without regard to the other income, gains or losses of the Company. These assets are held in relation to the Contracts described in this Prospectus and other variable annuity contracts that provide benefits that vary in accordance with the investment performance of the Variable Account.  Although the assets maintained in the Variable Account will not be charged with any liabilities arising out of any other business conducted by the Company, all obligations arising under the Contracts, including the promise to make annuity payments, are general corporate obligations of the Company.

The assets of the Variable Account are divided into Sub-Accounts. Each Sub-Account invests exclusively in shares of one of the Funds of the Trust, described below.  All amounts allocated by you to a Sub-Account will be used to purchase Fund shares at their net asset value. Any and all distributions made by the Fund with respect to the shares held by the Variable Account will be reinvested to purchase additional shares at their net asset value. Deductions from the Variable Account for cash withdrawals, annuity payments, death benefits, Account Fees, contract charges against the assets of the Variable Account for the assumption of mortality and expense risks, distribution expense risk and any applicable taxes will, in effect, be made by redeeming the number of Fund shares at their net asset value equal in total value to the amount to be deducted. The Variable Account will be fully invested in Fund shares at all times.

The Trust

The MFS® Variable Insurance Trust II (the “Trust”) is an open-end management investment company registered under the Investment Company Act of 1940. Massachusetts Financial Services Company (“MFS®”) serves as the investment adviser to the Trust.

The Trust is composed of a number of independent portfolios of securities, each of which has separate investment objectives and policies. Shares of the Trust are issued in a number of investment options (each a “Fund”), each corresponding to one of the portfolios. The Contracts allow investment by the Sub-Accounts in shares of the Funds of the Trust. Additional portfolios may be added to the Trust which may or may not be available for investment by the Variable Account.

MFS® Global Governments Portfolio: The Fund’s investment objective is to seek total return with an emphasis on current income, but also considering capital appreciation. The Fund’s objective may be changed without shareholder approval.

MFS® Government Securities Portfolio: The Fund’s investment objective is to seek total return with an emphasis on current income, but also considering capital appreciation. The Fund’s objective may be changed without shareholder approval.

MFS® High Yield Portfolio: The Fund’s investment objective is to seek total return with an emphasis on high current income, but also considering capital appreciation. The Fund’s objective may be changed without shareholder approval.

MFS® Massachusetts Investors Growth Stock Portfolio: The Fund’s investment objective is to seek capital appreciation. The Fund’s objective may be changed without shareholder approval.

MFS® Money Market Portfolio: The Fund’s investment objective is to seek a high level of current income consistent with preservation of capital and liquidity. The Fund’s objective may be changed without shareholder approval.

MFS® Total Return Portfolio: The Fund’s investment objective is to seek total return. The Fund’s objective may be changed without shareholder approval.

A more detailed description of the Trust and its management and of the investment objectives, policies, restrictions, and expenses of the Fund may be found in the current prospectus of the Trust, and in the Trust’s Statement of Additional Information, both of which are available at no cost to you by calling us at (800) 752-7216.

The Trust also offers its shares to other separate accounts established by the Company and our New York subsidiary in connection with variable annuity and variable life insurance contracts. Although we do not anticipate any disadvantages to this arrangement, there is a possibility that a material conflict may arise between the interests of the Variable Account and one or more of the other separate accounts investing in the Trust. A conflict may occur due to differences in tax laws affecting the operations of variable life and variable annuity separate accounts, or some other reason. We and the Trust’s Board of Trustees will monitor events for such conflicts, and, in the event of a conflict, we will take steps necessary to remedy the conflict, including withdrawal of the Variable Account from participation in the Series which is involved in the conflict or substitution of shares of other Series or other mutual funds.

MFS also serves as the investment adviser to other mutual funds which have similar investment goals and principal investment policies and risks as the Fund, and which may be managed by a Fund’s’ portfolio manager(s). While a Fund may have many similarities to these other funds, its investment performance will differ from their investment performance. This is due to a number of differences between a Fund and these similar products, including differences in sales charges, expense ratios and cash flows.

The Fixed Account

Purchase Payments may be allocated to the Fixed Account which is made up of all of the general assets of the Company other than those allocated to any separate account. The Company will invest the assets of the Fixed Account in those assets chosen by the Company and allowed by applicable law. The Company guarantees that it will credit interest at a rate of not less than 4% per year, compounded annually, to amounts allocated to the Fixed Account under the Contract. See “APPENDIX A – THE FIXED ACCOUNT” for a more detailed description of the Fixed Account.

PURCHASE PAYMENTS AND CONTRACT VALUES DURING ACCUMULATION PERIOD

Purchase Payments

You must send all Purchase Payments to us at our Annuity Service Mailing Address. Unless you have surrendered the Contract, you may make Purchase Payments at any time during the life of the Annuitant and before the Annuity Commencement Date (the “Accumulation Period”). Purchase Payments may be made annually, semi-annually, quarterly, monthly, or on any other frequency acceptable to us. The amount of Purchase Payments may vary; however, Purchase Payments must total at least $300 for the first Contract Year, and each Purchase Payment must be at least $25. In addition, unless we agree otherwise, the Company will not accept a Purchase Payment if the value of your Accumulation Account exceeds $1,000,000, or if the Purchase Payment would cause the value of your Accumulation Account to exceed $1,000,000.

An applicant’s completed application forms, together with the initial Purchase Payment, are forwarded to us. Upon acceptance, we issue the Contract to you and credit the initial Purchase Payment to the Contract in the form of Accumulation Units. We will credit the initial Purchase Payment within two business days after we receive your completed application. If your application is incomplete, we may retain the Purchase Payment for up to five business days while we try to complete the application. If we cannot complete the application within five business days, we will notify you of the reason for the delay and will return the Purchase Payment immediately unless you specifically consent to our retaining the Purchase Payment until we can complete the application. No interest will be credited or Accumulation Units purchased until the application is completed. Once the application is completed, we will credit the Purchase Payment within two business days. We will credit all subsequent Purchase Payments using the Accumulation Unit values for the Valuation Period during which we receive the Purchase Payment.

We will establish an Accumulation Account for each Contract. Your Accumulation Account value for any Valuation Period is equal to the variable accumulation value, if any, plus the fixed accumulation value, if any, for that Valuation Period. The variable accumulation value is equal to the sum of the value of all Variable Accumulation Units credited to your Accumulation Account.

Although it is currently not our practice, we may deduct applicable premium taxes or similar taxes from your Purchase Payments. (See “Premium Taxes.”) In that case, we will credit your Net Purchase Payment, which is the Purchase Payment minus the amount of those taxes. We will allocate each Net Purchase Payment to the Fixed Account, the Sub-Accounts or both the Sub-Accounts and the Fixed Account, in accordance with the allocation factors you have specified in the application or as subsequently changed.

When we receive a Purchase Payment, we will credit all of that portion, if any, of the Net Purchase Payment to be allocated to the Sub-Accounts to the Accumulation Account in the form of Variable Accumulation Units. The number of Variable Accumulation Units we credit is determined by dividing the dollar amount allocated to the Sub-Account by the Variable Accumulation Unit value for that Sub-Account for the Valuation Period during which we receive the Purchase Payment.

We determine the value of each Variable Accumulation Unit in a Sub-Account at the close of trading on each day that the New York Stock Exchange is open for trading. We also may determine the value of Variable Accumulation Units of a Sub-Account on days the Exchange is closed, if there is enough trading in securities held by that Sub-Account to materially affect the value of the Variable Accumulation Units. Each day we make a valuation is called a “Business Day.” The period that begins at the time Variable Accumulation Units are valued on a Business Day and ends at that time on the next Business Day is called a Valuation Period. On days other than Business Days, the value of a Variable Accumulation Unit does not change.  We calculate the Variable Accumulation Unit value for any Valuation Period as follows: we multiply the Variable Accumulation Unit value for the immediately preceding Valuation Period by the appropriate Net Investment Factor for the subsequent Valuation Period.

If mandated under applicable law, we may be required to reject a Purchase Payment. We may also be required to provide additional information about your account to government regulators. We may also be required to block an Owner’s account and thereby refuse to pay any request for transfers, withdrawals, surrenders, or death benefits, until instructions are received from the appropriate regulator.

Net Investment Factor

The Net Investment Factor is an index applied to measure the investment performance of a Sub-Account from one Valuation Period to the next. The Net Investment Factor may be greater or less than or equal to one; therefore, the value of a Variable Accumulation Unit may increase, decrease or remain the same.

We calculate the net investment factor for each Subaccount for any Valuation Period using the following equation:

Investment Factor
=
[(a) + (b)] – [(c) + (d)]
(a)

where:
 
(a)
is the value of the Sub-Account’s net assets attributable to the Contracts at the end of the preceding Valuation Period;
 
(b)
is the investment income and capital gains, realized or unrealized, that are credited to such assets of the Sub-Account during the Valuation Period;
 
(c)
is the capital losses, realized or unrealized, charged against such assets of the Sub-Account in the Valuation Period plus, with respect to such assets, any amount charged against the Sub-Account or set aside as a reserve to maintain or operate the Sub-Account for the Valuation Period; and
 
(d)
is the expenses of the Sub-Account attributable to the Contracts incurred during the Valuation Period including the mortality and expense risk charge, the distribution expense risk charge, and the other expenses of the Sub-Account, subject to any applicable expense limitation.

Transfers

During the Accumulation Period, you may transfer all or part of the value of your Accumulation Account to one or more Sub-Accounts or to the Fixed Account, or to any combination of these options. We make these transfers by converting the value of the Accumulation Units you wish to transfer into Variable Accumulation Units of the Sub-Accounts and/or Fixed Accumulation Units of the same aggregate value, as you choose. These transfers are subject to the following conditions:

1.
you may make transfers involving Fixed Accumulation Units only during the 45 day period before and the 45 day period after each Contract Anniversary;
2.
you may not make more than 12 transfers in any Contract Year;
3.
the amount transferred may not be less than $1,000 unless you are transferring your entire balance in the Fixed Account or a Sub-Account; and
4.
we impose additional restrictions on market timers, which are further described under “Short-Term Trading.”

We will make these transfers using the Accumulation Unit values for the Valuation Period during which we receive the request for transfer. Under current tax law a transfer will not result in any tax liability.

Requests for Transfers

You, your authorized registered representative of the broker-dealer of record, or another authorized third party may request transfers in writing or by telephone, using our Annuity Service Mailing Address and telephone number listed on the cover page of this Prospectus. Registered representatives of broker-dealer firms that have entered into selling agreements with us may, on behalf of their clients, submit transfer requests electronically over the Internet on our broker website. To use this electronic transfer service, a registered representative must agree to our online terms of use. If you wish to purchase a Contract for which this electronic transfer service is available, you can contact us by telephone at (800) 752-7216 to identify broker-dealers with registered representatives that use this service.

If a written, telephone, or electronic transfer request is received before the earlier of (a) 4:00 p.m. Eastern Time on a Business Day, or (b) the close of the New York Stock Exchange on days that the Stock Exchange closes before 4:00 p.m., the transfer will be priced that day. The telephone transfer privilege is available automatically during regular business hours before 4:00 p.m. Eastern Time, and does not require your written election. We have established procedures reasonably designed to confirm that instructions communicated to us by telephone or electronically are genuine. These procedures may require any person requesting a transfer made by telephone or electronically to provide personal identifying information. We will not be liable for following instructions communicated by telephone that we reasonably believe are genuine.

We reserve the right to deny any and all transfer requests made by telephone or electronically and to require that certain transfer requests be submitted in writing. A transfer request may be denied if it is not in good order or if it does not comply with the terms of our short-term trading policy or the trading policy of a fund involved in the transfer. If an electronic or a telephone transfer request is denied, we will immediately notify you and your authorized registered representative.

We also reserve the right to suspend, modify, restrict, or terminate the telephone or electronic transfer privilege at any time. Your ability (or the ability of your authorized registered representative or another authorized third party) to request transfers by telephone and/or electronically may also be limited due to circumstances beyond our control, such as during system outages or periods of high volume.

A transfer request will be priced at the Variable Accumulation Unit value next determined at the close of the Business Day if we receive your transfer request, in good order, before the earlier of (a) 4:00 p.m. Eastern Time on a Business Day, or (b) the close of the New York Stock Exchange on days that the Stock Exchange closes before 4:00 p.m. Otherwise, your transfer request will be priced on the next Business Day.

No more than one transfer request of Account Values may be made on the same Business Day regardless of whether the request is made by you, your authorized registered representative, or another authorized third party, and regardless of whether the request is submitted in writing, by telephone, or electronically. The Company has established reasonable procedures for handling multiple transfer requests received on the same Business Day, including processing the first transfer request received in good order on a Business Day (unless otherwise cancelled in accordance with the cancellation procedures described in the next paragraph).

You, your authorized registered representative, or another authorized third party may cancel a transfer request by contacting us by telephone at (800) 752-7216 before the end of the Business Day during which the transfer request was submitted.  We may also permit your authorized registered representative to request cancellation of a transfer request electronically over the Internet, provided we receive the electronic request before the end of the Business Day during which the transfer request was submitted.

Short-Term Trading

The Contracts are not designed for short-term trading. If you wish to employ such strategies, do not purchase a Contract. Transfer limits and other restrictions, described below, are subject to our ability to monitor transfer activity. Some Owners and their third party intermediaries engaging in short-term trading may employ a variety of strategies to avoid detection. Despite our efforts to prevent short-term trading, there is no assurance that we will be able to identify such Owners or intermediaries or curtail their trading. A failure to detect and curtail short-term trading could result in adverse consequences to the Owners. Short-term trading can increase costs for all Owners as a result of excessive portfolio transaction fees. In addition, short-term trading can adversely affect a Fund’s performance. If large amounts of money are suddenly transferred out of a Fund, the Fund’s investment adviser cannot effectively invest in accordance with the Fund’s investment objectives and policies.

The Company has policies and procedures to limit the number and frequency of transfers of Accumulation Account value. The Company also reserves the right to charge a fee for transfers to discourage frequent trading. In no event will the total charge assessed in connection with a transfer, that includes this fee as well as any charge that we may assess on a permitted transfer of Accumulation Account value among Sub-Accounts (see “Transfers” above), exceed the maximum fee per transfer presented in the “EXPENSE SUMMARY” in this Prospectus.

Short-term trading activities whether by the Owner or a third party authorized to initiate transfer requests on behalf of Owner(s) may be subject to other restrictions as well. For example, we reserve the right to take actions against short-term trading which restrict your transfer privileges more narrowly than the policies described under “Transfers,” such as requiring transfer requests to be submitted in writing through regular first-class U.S. mail (e.g., no overnight, priority or courier delivery allowed), and refusing any and all transfer instructions.

If we determine that a third party acting on your behalf is engaging (alone or in combination with transfers effected by you directly) in a pattern of short-term trading, we may refuse to process certain transfers requested by such a third party. We impose additional administrative restrictions on third parties that engage in transfers of Accumulation Account values on behalf of multiple Owners at one time.

Specifically, we limit the form of such large group transfers to fax or mail delivery only, require the third party to provide us with advance notice of any possible large group transfer so that we can have additional staff ready to process the request, and require that the amount transferred out of a Sub-Account for each Owner be equal to 100% of that Owner’s value in the Sub-Account. In the last situation, we will not transfer any of the Sub-Account value. Instead, we will deem the request not in good order and immediately notify you.

We will provide you written notification of any restrictions imposed.

We also reserve the right to refuse requests involving transfers to or from the Fixed Account.

We reserve the right to waive short-term trading restrictions, where permitted by law and not adverse to the interests of the relevant underlying Fund, in the following instances:

 
·
when a new broker of record is designated for the Contract;

 
·
when the Owner changes;

 
·
when control of the Contract passes to the designated beneficiary upon the death of the Owner or Annuitant;

 
·
when necessary in our view to avoid hardship to an Owner;

 
·
when Funds are dissolved,  merged, or substituted.

If short-term trading results as a consequence of waiving the restrictions against short-term trading, it could expose Owners to certain risks. The short-term trading could increase costs for all Owners as a result of excessive portfolio transaction fees. In addition, the short-term trading could adversely affect a Fund’s performance. If large amounts of money are suddenly transferred out of a Fund, the Fund’s investment adviser cannot effectively invest in accordance with the Fund’s investment objectives and policies. We uniformly apply the short-term trading policy and the permitted waivers of that policy to all Contracts. If we did not do so, some Owners could experience a different application of the policy and therefore may be treated unfairly. Too much discretion on our part in allowing the waivers of short-term trading policy could result in an unequal treatment of short-term traders by permitting some short-term traders to engage in short-term trading while prohibiting others from doing the same.

Funds’ Shareholder Trading Policies. In addition to the restrictions that we impose (as described under “Transfers” and “Short-Term Trading”), most of the Funds have adopted restrictions or other policies about transfers or other purchases and sales of the Fund’s shares. These policies (the “Funds’ Shareholder Trading Policies”) are intended to protect the Fund from short-term trading or other trading practices that are potentially harmful to the Fund. The Funds’ Shareholder Trading Policies may be more restrictive in some respects than the restrictions that we otherwise would impose, and the Funds may modify their Shareholder Trading Policies from time to time.

We are legally obligated to provide (at the Funds’ request) information about each amount you cause to be deposited into a Fund (including by way of Purchase Payments and transfers under your Contract) or removed from the Fund (including by way of withdrawals and transfers under your Contract). If a Fund identifies you as having violated the Fund’s Shareholder Trading Policies, we are obligated, if the Fund requests, to restrict or prohibit any further deposits or exchanges by you (or a third party acting on your behalf) in respect of that Fund. Any such restriction or prohibition may remain in place indefinitely.

Accordingly, if you do not comply with any Fund’s Shareholder Trading Policies, you (or a third party acting on your behalf) may be prohibited from directing any additional amounts into that Fund or directing any transfers or other exchanges involving that Fund. You should review and comply with each Fund’s Shareholder Trading Policies, which are disclosed in the Funds’ current prospectuses.

Funds may differ significantly as to such matters as: (a) the amount, format, and frequency of information that the Funds request from us about transactions that our customers make; and (b) the extent and nature of any limits or restrictions that the Funds request us to impose upon such transactions. As a result of these differences, the costs borne by us and (directly or indirectly) by our customers may be significantly increased. Any such additional costs may outweigh any additional protection that would be provided to our customers, particularly in view of the protections already afforded by the trading restrictions that we impose as described under “Transfers” and under “Short-Term Trading.” Also, if a Fund imposes more strict trading restrictions than are reasonably necessary under the circumstances, you could be deprived of potentially valuable flexibility to make transactions with respect to that Fund. For these and other reasons, we may disagree with the timing or substance of a Fund’s requests for information from us or with any transaction limits or restrictions that the Fund requests us to impose upon our customers. If any such disagreement with respect to a Fund cannot be satisfactorily resolved, the Fund might be restricted or, subject to obtaining any required regulatory approval, replaced as a variable investment option.

CASH WITHDRAWALS

At any time during the Accumulation Period you may withdraw in cash all or any portion of the value of your Accumulation Account. Withdrawals may be subject to a withdrawal charge. (See “Withdrawal Charges.”) Withdrawals also may have adverse federal income tax consequences, including a 10% penalty tax if taken prior to age 59½. See “U.S. Federal Income Tax Considerations.” In addition, if you own a Qualified Contract you should check the terms of your retirement plan for restrictions on withdrawals.

Your withdrawal request will be priced at the end of the Valuation Period during which we receive it. If you request a withdrawal of more than $5,000 we may require a signature guarantee. Your request must specify the amount you wish to withdraw. For a partial withdrawal you may specify the amount you want withdrawn from the Fixed Account and/or each Sub-Account to which your Accumulation Account is allocated. If you do not so specify, we will deduct the total amount you request pro rata based on your allocations at the end of the Valuation Period during which we receive your request.

If you request a full withdrawal, we will pay you the value of your Accumulation Account at the end of the Valuation Period during which we receive your request, minus the contract maintenance charge for the current Contract Year and any applicable withdrawal charge. Note that a full withdrawal results in the surrender of, and the cancellation of all rights and privileges under, your Contract.

When you request a partial withdrawal, you can ask to have any applicable charges deducted either from:

 
·
the amount of your partial withdrawal request (thereby reducing the amount you are to receive); or
 
·
your Account Value (thereby reducing your Account Value by the amount of your partial withdrawal request plus any applicable withdrawal charges).

If you make no specification, we will process your withdrawal request using the first option above. Please note: Under either option any applicable taxes will be deducted from the amount you receive.

If you request a partial withdrawal that would result in the value of your Accumulation Account being reduced to an amount less than the contract maintenance charge for the current Contract Year, we will treat it as a request for a full withdrawal. Note that the amount of your withdrawal may be reduced by the amount of any outstanding loan balance and accrued interest thereon. (See “Loans from Fixed Account (Qualified Contracts Only)” in Appendix A.)

We will pay you the applicable amount of any full or partial withdrawal within seven days after we receive your withdrawal request, except in cases where we are permitted to defer payment under the Investment Company Act of 1940 and applicable state insurance law. Currently, we may defer payment of amounts you withdraw only for following periods:

 
·
when the New York Stock Exchange is closed except weekends and holidays or when trading on the New York Stock Exchange is restricted;

 
·
when it is not reasonably practical to dispose of securities held by the Sub-Accounts or to determine the value of the net assets of the Sub-Accounts, because an emergency exists as defined by the SEC; or

 
·
when an SEC order permits us to defer payment for the protection of security holders.

Section 403(b) Annuities

The Internal Revenue Code imposes restrictions on cash withdrawals from Contracts used with Section 403(b) Annuities. In order for the Contract to receive tax deferred treatment, the Contract must provide that cash withdrawals of amounts attributable to salary reduction contributions (other than withdrawals of Accumulation Account value as of December 31, 1988 (“Pre-1989 Account Value”) may be made only when you attain age 59½, separate from service with your employer, die or become disabled (within the meaning of Section 72(m)(7) of the Code). These restrictions apply to any growth or interest on or after January 1, 1989 on Pre-1989 Account Value, salary reduction contributions made on or after January 1, 1989, and any growth or interest on such contributions (“Restricted Account Value”).

Withdrawals of Restricted Account Value are also permitted in cases of financial hardship, but only to the extent of contributions; earnings on contributions cannot be withdrawn for hardship reasons. While specific rules defining hardship have not been issued by the Internal Revenue Service, it is expected that to qualify for a hardship distribution, you must have an immediate and heavy bona fide financial need and lack other resources reasonably available to satisfy the need. Hardship withdrawals (as well as certain other premature withdrawals) will be subject to a 10% tax penalty, in addition to any withdrawal charge applicable under the Contract. (See “Tax Sheltered Annuities” under “TAX CONSIDERATIONS.”) Under certain circumstances, the 10% tax penalty will not apply to withdrawals to pay medical expenses.

Under the terms of a particular Section 403(b) plan, you may be entitled to transfer all or a portion of the Accumulation Account value to one or more alternative funding options. You should consult the documents governing your plan and the person who administers such plan for information as to such investment alternatives.

For information on the federal income tax withholding rules that apply to distributions from Qualified Contracts (including Section 403(b) annuities) and on how we administer 403(b) annuity policies, see “Tax Sheltered Annuities” under “TAX CONSIDERATIONS.”

Texas Optional Retirement Program

Under the terms of the Optional Retirement Program, if a participant makes the required contribution, the State of Texas will contribute a specified amount to the participant’s retirement account. If a participant does not commence the second year of participation in the plan as a “faculty member” as defined in Title 110B of the State of Texas Statutes, we will return the State’s contribution. If a participant does begin a second year of participation, the employer’s first year contributions will then be applied as a Purchase Payment under the Qualified Contract, as will the employer’s subsequent contributions.

The Attorney General of the State of Texas has ruled that under Title 110B of the State of Texas Statutes, withdrawal benefits of contracts issued under the Optional Retirement Program are available only in the event of a participant’s death, retirement, termination of employment due to total disability, or other termination of employment in a Texas public institution of higher education. A participant will not, therefore, be entitled to exercise the right of withdrawal in order to receive the cash values credited to such participant under the Qualified Contract unless one of the foregoing conditions has been satisfied. The value of such Qualified Contracts may, however, be transferred to other contracts or other carriers during the period of participation in the Program.

DEATH BENEFIT

If the Annuitant dies before the Annuity Commencement Date, we will pay a death benefit to your Beneficiary. If the Annuitant dies on or after the Annuity Commencement Date, we will not pay a death benefit except as may be provided under annuity option B, D, or E if elected. (Under these options, the Beneficiary may choose to receive remaining payments as they become due or in a single lump sum payment of their discounted value).

You select the Beneficiary in your Contract application. You may change your Beneficiary at any time by sending us written notice on our required form, unless you previously made an irrevocable Beneficiary designation. A new Beneficiary designation is not effective until we record the change. If your designated Beneficiary is not living on the date of death of the Annuitant, we will pay the death benefit in one lump sum to you, or if you are the Annuitant, to your estate. If your designated Beneficiary dies after the date of death of the Annuitant and before an election is made to receive the death benefit in either a cash payment or under one of our annuity options, the estate of the Beneficiary shall be entitled to receive the death benefit in a single lump sum.

During the lifetime of the Annuitant and before the Annuity Commencement Date, you may elect to have the death benefit payable under one or more of our annuity options listed under “Annuity Provisions” in this Prospectus, for the Beneficiary as Payee. If you have not elected a method of settlement of the death benefit that is in effect on the date of death of the Annuitant, the Beneficiary may elect to receive the death benefit in the form of either a cash payment or one or more of our annuity options. If we do not receive an election by the Beneficiary within 60 days after the date we receive Due Proof of Death of the Annuitant and any required release or consent, the Beneficiary will be deemed to have elected a cash payment as of the last day of the 60 day period.

In all cases, no Owner or Beneficiary will be entitled to exercise any rights that would adversely affect the treatment of the Contract as an annuity contract under the Internal Revenue Code (see “Death of Owner”).

Payment of Death Benefit

If the death benefit is to be paid in cash to the Beneficiary, we will make payment within seven days of the date the election becomes effective or is deemed to become effective, except as we may be permitted to defer such payment in accordance with the Investment Company Act of 1940 under the circumstances described in this Prospectus under “Cash Withdrawals.” If the death benefit is to be paid in one lump sum to you (or to your estate if you are the Annuitant), we will make payment within seven days of the date we receive Due Proof of Death of the Annuitant, the Owner and/or the Beneficiary, as applicable. If you elect to have the death benefit paid under one or more of our annuity options, the Annuity Commencement Date will be the first day of the second calendar month following the date we receive Due Proof of Death of the Annuitant and the Beneficiary, if any. If your Beneficiary elects to have the death benefit paid under one or more of our annuity options, the Annuity Commencement Date will be the first day of the second calendar month following the effective date or the deemed effective date of the election, and we will maintain your Accumulation Account in effect until the Annuity Commencement Date. Unless otherwise restricted by the terms of your retirement plan or applicable law, you or your Beneficiary, as the case may be, may elect an Annuity Commencement Date later than that specified above, provided that the later date is (a) the first day of a calendar month and (b) not later than the first day of the first month following the 85th birthday of you or your Beneficiary, as applicable. (See “Annuity Commencement Date.”)

Amount of Death Benefit

The death benefit is equal to the greatest of:

 
1.
the value of your Accumulation Account;
 
2.
the total Purchase Payments made under the Contract reduced by all withdrawals; and
 
3.
the value of your Accumulation Account on the Seven Year Anniversary, immediately preceding the death of the Annuitant, adjusted for any Purchase Payments or cash withdrawal payments made and Contract charges assessed after such Seven Year Anniversary.

To determine the amount of the death benefit under (1) above we will use Accumulation Unit values for the Valuation Period during which we receive Due Proof of Death of the Annuitant if you have elected settlement under one or more of the annuity options; if no election by you is in effect, we will use either the values for the Valuation Period during which an election by the Beneficiary becomes or is deemed effective or, if the death benefit is to be paid in one sum to you or your estate, the values for the Valuation Period during which we receive Due Proof of Death of both the Annuitant and the designated Beneficiary.

Note that the amount of your death benefit may be reduced by the amount of any outstanding loan balance and accrued interest thereon. (See “Loans from Fixed Account (Qualified Contracts Only)” in Appendix A.)

CONTRACT CHARGES

We will assess contract charges under the Contracts as follows:

Contract Maintenance Charge

We deduct an annual contract maintenance charge of $30 as partial reimbursement for administrative expenses relating to the issuance and maintenance of the Contract. Prior to the Annuity Commencement Date, we deduct this charge on each Contract Anniversary. We also deduct this charge on surrender of the Contract for full value on a date other than the Contract Anniversary. We deduct the contract maintenance charge in equal amounts from the Fixed Account and each Variable Account in which you have Accumulation Units at the time of the deduction.

On the Annuity Commencement Date we will reduce the value of your Accumulation Account by the proportionate amount of the contract maintenance charge to reflect the time elapsed between the last Contract Anniversary and the day before the Annuity Commencement Date. After the Annuity Commencement Date, we will deduct the contract maintenance charge pro rata from each annuity payment made during the year.

We will not increase the amount of the contract maintenance charge. We reserve the right to reduce the amount of the contract maintenance charge for groups of participants with individual Contracts under an employer’s retirement program in situations in which the size of the group and established administrative efficiencies contribute to a reduction in administrative expenses.

Mortality and Expense Risk Charge and Distribution Expense Risk Charge

We assume the risk that Annuitants may live for a longer period of time than we have estimated in establishing the guaranteed annuity rates incorporated into the Contract and the risk that administrative charges assessed under the Contracts may be insufficient to cover our actual administrative expenses.

For assuming these risks, we make a deduction from each Sub-Accounts with respect to the Contracts at the end of each Valuation Period both during the Accumulation Period and after annuity payments begin at an effective annual rate of 1.25%.

We may change the rate of this deduction annually but it will not exceed 1.25% on an annual basis. If the deduction is insufficient to cover the actual cost of the mortality and expense risk undertaking, we will bear the loss. Conversely, if the deduction proves more than sufficient, the excess would be profit to us and would be available for any proper corporate purpose including, among other things, payment of distribution expenses. If the withdrawal charges and distribution expense risk charges described below prove insufficient to cover expenses associated with the distribution of the Contracts, we will meet the deficiency from our general corporate funds, which may include amounts derived from the mortality and expense risk charges.

We assume the risk that withdrawal charges we assess under the Contracts may be insufficient to compensate us for the costs of distributing the Contracts. For assuming this risk, we make a deduction from the Sub-Accounts with respect to the Contracts at the end of each Valuation Period for the first seven Contract Years (during both the Accumulation Phase and, if applicable, after annuity payments begin) at an effective annual rate of 0.15% of the assets of the Sub-Accounts attributable to the Contracts. We do not make a deduction for this charge after the seventh Contract Anniversary. If the distribution expense risk charge is insufficient to cover the actual risk assumed, we will bear the loss; however, if the charge is more than sufficient, any excess will be profit to us and would be available for any proper corporate purpose. In no event will the distribution expense risk charge and any withdrawal charges assessed under a Contract exceed 9% of the Purchase Payments.

Withdrawal Charges

We do not deduct a sales charge from Purchase Payments. However, we will impose a withdrawal charge (i.e., a contingent deferred sales charge) on certain amounts you withdraw as reimbursement for certain expenses relating to the distribution of the Contracts, including commissions, costs of preparation of sales literature and other promotional costs and acquisition expenses.

You may withdraw a portion of your Accumulation Account value each year before incurring the withdrawal charge, and after we have held a Purchase Payment for seven years you may withdraw it free of any withdrawal charge. In addition, we do not impose a withdrawal charge upon annuitization or upon the transfer of Accumulation Account values among the Sub-Accounts or between the Sub-Accounts and the Fixed Account.

We do not impose the withdrawal charge with respect to a Contract established for the personal account of an employee of the Company or of any of its affiliates, or of a licensed insurance agent engaged in distributing the Contracts.

All other full or partial withdrawals are subject to a withdrawal charge which will be applied as follows:

(1) Old Payments, New Payments and accumulated value: In a given Contract Year, “New Payments” are Payments you have made in that Contract Year or in the six previous Contract Years; “Old Payments” are all Purchase Payments made before the previous six Contract years; and the remainder of your Accumulation Account value—that is, the value of your Accumulation Account minus the total of Old and New Payments—is called the “accumulated value.”

(2) Order of withdrawal: When you make a partial withdrawal or surrender your Contract, we consider the oldest Payment not previously withdrawn to be withdrawn first, then the next oldest, and so forth. Once all Old and New Payments have been withdrawn, additional amounts withdrawn will be attributed to accumulated value.

(3) Free withdrawal amount: In any Contract Year, you may withdraw the following amount before we impose a withdrawal charge: (a) any Old Payments you have not previously withdrawn, and (b) 10% of any New Payments, whether or not these new Payments have been previously withdrawn.

(4) Amount subject to withdrawal charge: We will impose the withdrawal charge on the excess, if any, of (a) Old and New Payments being withdrawn over (b) the remaining free withdrawal amount at the time of the withdrawal. We do not impose the withdrawal charge on amounts attributed to accumulated value.

The withdrawal charge percentage varies according to the number of Contract Years the Purchase Payment has been in your Accumulation Account, including the year in which you made the Payment, but not the year you withdraw it. The applicable percentages are as follows:

Number of Contract Years
Withdrawal Charge Percentage
0-1
6%
2-3
5%
4-5
4%
6
3%
7 or more
0%

Aggregate withdrawal charges (including any distribution expense risk charge described above) assessed against a Contract will never exceed 9% of the total amount of Purchase Payments made under the Contract. (See Appendix B for examples of withdrawals and withdrawal charges.)

Premium Taxes

We will make a deduction, when applicable, for premium taxes or similar state or local taxes. The amount of such applicable tax varies by jurisdiction and in many jurisdictions there is no premium tax at all. We believe that such premium taxes or similar taxes currently range from 0% to 3.5%. You should consult a qualified tax professional to find out if you could be subject to a premium tax and the amount of any tax. It is currently our policy to deduct the tax from the amount applied to provide an annuity at the time annuity payments commence. However, we reserve the right to deduct the amount of any applicable tax from your Contract at any time, including at the time you make a Purchase Payment or make a full or partial withdrawal.

ANNUITY PROVISIONS

Annuity Commencement Date

We begin making annuity payments under a Contract on the Annuity Commencement Date, which you select in your Contract application. You may change the Annuity Commencement Date from time to time as provided in the Contract. The Annuity Commencement Date must be the first day of a month that falls after the first thirty days following issuance of the Contract and before the first month following the Annuitant’s 95th birthday. Any new Annuity Commencement Date must be at least 30 days after we receive notice of the change.

For Qualified Contracts, there may be other restrictions on your selection of the Annuity Commencement Date imposed by the particular retirement plan or by applicable law. For example, in most situations, current law requires that under a Qualified Contract certain minimum distributions commence no later than April 1 following the year the Annuitant reaches age 70 1/2 (or, for Qualified Contracts other than IRAs, no later than April 1 following the year the Annuitant retires, if later than the year the Annuitant reaches age 70 1/2). The Annuity Commencement Date may also be changed by an election of an annuity option as described under “Death Benefit.” Please refer to the terms of your plan for additional restrictions. In addition, if you borrowed money from your Contract’s Fixed Accumulation Value, then, on your Annuity Commencement Date, the amount of your annuity will be reduced by the amount of any outstanding loan balance plus accrued interest thereon. (See “Loans from Fixed Account (Qualified Contracts Only)” in Appendix A.)

On the Annuity Commencement Date, we will cancel your Accumulation Account and apply its adjusted value to provide an annuity. The adjusted value will be equal to the value of the Accumulation Account for the Valuation Period which ends immediately before the Annuity Commencement Date, reduced by any applicable premium or similar taxes and a proportionate amount of the contract maintenance charge. (See “Contract Maintenance Charge.”) No cash withdrawals will be permitted after the Annuity Commencement Date except as may be available under Annuity Option B, D, or E if elected.

(Under these options, if the Annuitant dies on or after the Annuity Commencement Date, the Beneficiary may choose to receive the remaining payments as they become due or in a single lump sum payment of their discounted value. The discount rate for a Variable Annuity will be the assumed interest rate in effect. (See “Annuity Payment Rates.”) The discount rate for a Fixed Annuity will be based on the interest rate used to determine the amount of each payment.)

Annuity Options

During the lifetime of the Annuitant and prior to the Annuity Commencement Date, you may elect one or more of the annuity options described below or such other settlement option as we may agree to for the Annuitant as Payee, except as restricted by the particular retirement plan or any applicable legislation. These annuity options may also be elected by you or the Beneficiary as provided under “Death Benefit.”

You may not change any election after 30 days before the Annuity Commencement Date, and no change of annuity option is permitted after the Annuity Commencement Date. If no election is in effect on the 30th day before the Annuity Commencement Date, we will deem Annuity Option B, for a Life Annuity with 120 monthly payments certain, to have been elected. If you have properly named a Co-Annuitant, but have not selected the sole Annuitant at least 30 days before the Annuity Commencement Date, the person you have named as the Co-Annuitant will become the sole Annuitant.

Any election may specify the proportion of the adjusted value of your Accumulation Account to be applied to the Fixed Account and the Sub-Accounts. If the election does not so specify, then the portion of the adjusted value of the Accumulation Account to be applied to the Fixed Account and the Sub-Accounts will be determined on a pro rata basis from the composition of your Accumulation Account on the Annuity Commencement Date.

Annuity Options A, B and C are available to provide either a Fixed Annuity or a Variable Annuity. Annuity Options D and E are available only to provide a Fixed Annuity. Under Option A and Option C it is possible that a Contract Owner will only receive one payment.

Annuity Option A. Life Annuity: We make monthly payments during the lifetime of the Payee. This option offers a higher level of monthly payments than Annuity Options B or C because we do not make further payments after the death of the Payee, and there is no provision for a death benefit payable to a Beneficiary.

Annuity Option B. Life Annuity with 60, 120, 180 or 240 Monthly Payments Certain: We make monthly payments during the lifetime of the Payee and in any event for 60, 120, 180 or 240 months certain as elected. The election of a longer period certain results in smaller monthly payments than would be the case if a shorter period certain were elected.

Annuity Option C. Joint and Survivor Annuity: We make monthly payments during the joint lifetime of the Payee and the designated second person and during the lifetime of the survivor. During the lifetime of the survivor, variable monthly payments, if any, will be determined using the percentage chosen at the time of the election of this option of the number of each type of Annuity Unit credited to the Contract and each fixed monthly payment, if any, will be equal to the same percentage of the fixed monthly payment payable during the joint lifetime of the Payee and the designated second person.

*Annuity Option D. Fixed Payments for a Specified Period Certain: We make fixed monthly payments for a specified period of time (at least five years but not exceeding 30 years), as elected.

*Annuity Option E. Fixed Payments: We will hold the amount applied to provide fixed payments in accordance with this option at interest. We will make fixed payments in such amounts and at such times (at least over a period of five years) as we have agreed upon and will continue until the amount we hold with interest is exhausted. We will credit interest yearly on the amount remaining unpaid at a rate which we shall determine from time to time but which shall not be less than 4% per year compounded annually. We may change the rate so determined at any time; however, the rate may not be reduced more frequently than once during each calendar year.

 
* The election of this Annuity Option may result in the imposition of a penalty tax.

Determination of Annuity Payments

We will determine the dollar amount of the first Variable Annuity payment in accordance with the annuity payment rates found in the Contract, which are based on an assumed interest rate of 4% per year. We determine all Variable Annuity payments other than the first by means of Annuity Units credited to the Contract. The number of Annuity Units to be credited in respect of a particular Sub-Account is determined by dividing the portion of the first Variable Annuity payment attributable to that Sub-Account by the Annuity Unit value of that Sub-Account for the Valuation Period that ends immediately before the Annuity Commencement Date. The number of Annuity Units of each Sub-Account credited to the Contract then remains fixed unless an exchange of Annuity Units is made as described below. The dollar amount of each Variable Annuity payment after the first may increase, decrease or remain constant depending on the net investment return of the Sub-Accounts.

The Statement of Additional Information contains detailed disclosure regarding the method of determining the amount of each Variable Annuity payment and calculating the value of a Variable Annuity Unit, as well as hypothetical examples of these calculations.

Transfer of Variable Annuity Units

After the Annuity Commencement Date, the Payee may transfer Variable Annuity Units from one Sub-Account to another, up to a maximum of twelve such transfers each Contract Year. We calculate the number of new Variable Annuity Units so that the dollar amount of an annuity payment made on the date of the transfer would be unaffected by the fact of the transfer.

Annuity Payment Rates

The Contract contains annuity payment rates for each annuity option described above. The rates show, for each $1,000 applied, the dollar amount of (a) the first monthly Variable Annuity payment based on the assumed interest rate of 4%, and (b) the monthly Fixed Annuity payment, when this payment is based on the minimum guaranteed interest rate of 4% per year. The annuity payment rates may vary according to the annuity option elected and the adjusted age of the Payee.

If net investment return of the Sub-Accounts were exactly equal to the assumed interest rate of 4%, the amount of each Variable Annuity payment would remain level. If net investment return is greater than 4%, the amount of each Variable Annuity payment would increase; conversely, if net investment return is less than 4%, the amount of each Variable Annuity payment would decrease.

As a general rule within a particular Annuity Option, annuity payments of a shorter duration result in a higher payment amount than an annuity payment paid over a longer duration. Similarly, annuity payments made on a more frequent basis will result in a smaller payment amount than annuity payments made on a less frequent basis.

OTHER CONTRACT PROVISIONS

Owner

As the Owner, you are entitled to exercise all Contract rights and privileges without the consent of the Beneficiary or any other person. Such rights and privileges may be exercised only during the lifetime of the Annuitant and prior to the Annuity Commencement Date, except as otherwise provided in the Contract. The Owner of a Non-Qualified Contract may change the ownership of the Contract, subject to the provisions of the Contract, although such change may result in the imposition of tax. (See “U.S. Federal Income Tax Considerations.”) Transfer of ownership of a Qualified Contract is governed by the laws and regulations applicable to the retirement or deferred compensation plan for which the Contract was issued. Subject to the foregoing, a Qualified Contract may not be sold, assigned, transferred, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose to any person other than the Company.

Subject to the rights of an irrevocably designated Beneficiary, you may change or revoke the designation of a Beneficiary at any time while the Annuitant is living.

Death of Owner

If you are the Owner of a Non-Qualified Contract and you die before the Annuity Commencement Date, the entire value of your Accumulation Account must be distributed either (1) within five years after the date of your death, or (2) over some period not greater than the life or expected life of the “designated beneficiary” as defined below, with annuity payments beginning within one year after the date of your death. The person named as “successor Owner” shall be considered the designated beneficiary for the purposes of Section 72(s) of the Internal Revenue Code and if no person then living has been so named, then the Annuitant shall automatically be the designated beneficiary for this purpose.

These mandatory distribution requirements will not apply when the Beneficiary is your spouse, if your spouse elects to continue the Contract in his or her own name as Owner. If you were the Annuitant as well as the Owner (unless your spouse is your Beneficiary and elects to continue the Contract) the Death Benefit provision of the Contract controls, subject to the condition that any annuity option elected complies with the Section 72(s) distribution requirements.

If you are both the Owner and Annuitant and you die on or after the Annuity Commencement Date and before the entire accumulation under the Contract has been distributed, the remaining portion of such accumulation, if any, must be distributed at least as rapidly as the method of distribution then in effect.

In all cases, no Owner or Beneficiary shall be entitled to exercise any rights that would adversely affect the treatment of the Contract as an annuity contract under the Code.

Any distributions upon the death of the Owner of a Qualified Contract will be subject to the laws and regulations governing the particular retirement or deferred compensation plan in connection with which the Qualified Contract was issued.

Voting Rights

To the extent required by law, we will vote all shares held in the Variable Account in accordance with instructions we receive from persons with voting interests in the Funds. During the Accumulation Phase, you will have the right to give voting instructions, except in the case of a Group Contract in which the Owner has reserved this right. During the Income Phase, the Payee (that is, the Annuitant or Beneficiary entitled to receive benefits) is the person having the right to give voting instructions.

Before a vote of the shareholders of a Fund occurs, each person with voting interests in the Fund will receive voting materials from us. We will ask those persons to instruct us on how to vote and to return their respective voting instructions to us in a timely manner. Each such person is permitted to cast votes based on the dollar value of the shares of each Fund that we hold for your Contract in the corresponding Sub-Account. We calculate this value based on the number of Variable Accumulation Units or Variable Annuity Units allocated to your Contract as of the date set by the Fund and the value of each Variable Accumulation Unit or Variable Annuity Unit on that date. We count fractional votes.

We will vote any shares attributable to us and Fund shares for which no timely voting instructions are received in the same proportion as the shares for which we receive instructions from person(s) with voting interests in the Fund. Because of this method of proportional voting, a small number of persons with voting interests in the Fund may determine the outcome of a shareholder vote. If, however, we determine that we are permitted to vote the Fund shares in our own right, then we may do so.

Note: Owners of Qualified Contracts issued on a group basis may be subject to other voting provisions of the particular retirement plan and under the Investment Company Act of 1940. Employees who contribute to retirement plans that are funded by the Contracts may be entitled to instruct the Owners as to how to instruct us to vote the Fund shares attributable to their contributions. Such retirement plans may also provide the additional extent, if any, to which an Owner shall follow voting instructions of persons with rights under those plans. If no voting instructions are received from any such person with respect to a particular Contract, the Owner may instruct us as to how to vote the number of Fund shares for which instructions may be given.

Periodic Reports

During the Accumulation Phase, we may send the Owner, or such other person having voting rights, at least once during each Contract Year, a statement showing the number, type and value of Accumulation Units credited to the Contract’s Variable Accumulation Account and the Fixed Account, which statement shall be accurate as of a date not more than two months previous to the date of mailing. These periodic statements contain important information concerning Accumulation Account transactions with respect to a Contract. It is the obligation of the Owner to review each such statement carefully and to report to us, at the address or telephone number provided on the statement, any errors or discrepancies in the information presented therein within 60 days of the date of such statement. Unless we receive notice of any such error or discrepancy from the Owner within such time period, we may not be responsible for correcting the error or discrepancy.

In addition, every person having voting rights will receive such reports or prospectuses concerning the Variable Account and the Funds as may be required by the Investment Company Act of 1940 and the Securities Act of 1933. We will also send such statements reflecting transactions in the Contract’s Accumulation Account and Fixed Account as may be required by applicable laws, rules and regulations. Upon request, we will provide the Owner with information regarding fixed and variable Accumulation Unit values.

If you have enrolled in the electronic delivery service and consented to receive documents electronically, we will send you an email at the address you provided notifying you when we have posted your confirmations, statements, and reports on our website.

Modification

Upon notice to you, or to the Payee during the annuity period, we may modify the Contract, but only if such modification is consistent with federal securities laws and regulations and (i) is necessary to make the Contract or the Variable Account comply with any law or regulation issued by a governmental agency to which we are subject or (ii) is necessary to assure continued qualification of the Contract under the Internal Revenue Code or other federal or state laws relating to retirement annuities or variable annuity contracts or (iii) is necessary to reflect a change in the operation of the Variable Account or (iv) provides additional Variable Account and/or fixed accumulation options. In the event of any such modification, we may supplement this prospectus to reflect such modification.

Change in Operation of Variable Account

At the Company’s election and subject to any necessary vote by persons having the right to vote, the Variable Account may be operated as  a management company under the Investment Company Act of 1940 or it may be deregistered under the Investment Company Act of 1940 in the event registration is no longer required. Deregistration of the Variable Account requires an order by the Securities and Exchange Commission. In the event of any change in the operation of the Variable Account pursuant to this provision, we may supplement this prospectus to reflect the change and take such action as may be necessary and appropriate to effect the change.

Splitting Units

We reserve the right to split or combine the value of Variable Accumulation Units, Fixed Accumulation Units, Annuity Units or any of them. In effecting any such change in unit values, strict equity will be preserved and no change will have a material effect on the benefits or other provisions of the Contract. Any changes we make by splitting or combining Variable Accumulation Unit values must comply with federal securities laws and regulations.

TAX CONSIDERATIONS

This section provides general information on the federal income tax consequences of ownership of a Contract and is not intended as tax advice. Actual federal tax consequences will vary depending on, among other things, the type of retirement plan under which your Contract is issued. Also, legislation altering the current tax treatment of annuity contracts could be enacted in the future and could apply retroactively to Contracts that were purchased before the date of enactment. We make no attempt to consider any applicable state or other income tax laws, any state and local estate or inheritance tax, or other tax consequences of ownership or receipt of distributions under a Contract. We also make no guarantee regarding the federal, state, or local tax status of any Contract or any transaction involving any Contract. You should consult a qualified tax professional for advice before purchasing a Contract or executing any other transaction (such as a rollover, distribution, withdrawal or payment) involving a Contract.

When you invest in an annuity contract, you usually do not pay taxes on your investment gains until you withdraw the money – generally for retirement purposes. If you invest in a variable annuity as part of an individual retirement plan, pension plan or employer-sponsored retirement program, your Contract is called a “Qualified Contract.” If your annuity is independent of any formal retirement or pension plan, it is termed a “Non-Qualified Contract.” The tax rules applicable to Qualified Contracts vary according to the type of retirement plan and the terms and conditions of the plan.

U.S. Federal Income Tax Considerations

The following discussion applies only to those Contracts issued in the United States. For a discussion of tax considerations effecting Contracts issued in Puerto Rico, see “Puerto Rico Tax Considerations.”

Taxation of Non-Qualified Contracts

Deductibility of Purchase Payments. For federal income tax purposes, Purchase Payments made under Non-Qualified Contracts are not deductible. Under certain circumstances, Purchase Payments made under Qualified Contracts may be excludible or deductible from taxable income. Any such amounts will also be excluded from the “investment in the contract” for purposes of determining the taxable portion of any distributions from a Qualified Contract. As a general rule, regardless of whether you own a Qualified or a Non-Qualified Contract, the amount of your tax liability on earnings and distributions will depend upon the specific tax rules applicable to your Contract and your particular circumstances.

Pre-Distribution Taxation of Contracts. Generally, an increase in the value of a Contract will not give rise to a current income tax liability to the Owner of a Contract or to any payee under the Contract until a distribution is received from the Contract. However, certain assignments or pledges of a Contract or loans under a Contract will be treated as distributions to the Owner of the Contract and will accelerate the taxability of any increases in the value of a Contract.

Also, corporate (or other non-natural person) Owners of a Non-Qualified Contract will generally incur a current tax liability on Accumulation Account Value increases. There are certain exceptions to this current taxation rule, including: (i) any Contract that is an “immediate annuity”, which the Internal Revenue Code (the “Code”) defines as a single premium contract with an annuity commencement date within one year of the date of purchase which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period, and (ii) any Contract that the non-natural person holds as agent for a natural person (such as where a bank or other entity holds a Contract as trustee under a trust agreement).

You should note that a qualified retirement plan generally provides tax deferral regardless of whether the plan invests in an annuity contract. For that reason, no decision to purchase a Qualified Contract should be based on the assumption that the purchase of a Qualified Contract is necessary to obtain tax deferral under a qualified plan.

Distributions and Withdrawals from Non-Qualified Contracts. The Accumulation Account Value of a Non-Qualified Contract will generally include both (i) an amount attributable to Purchase Payments, the return of which will not be taxable, and (ii) an amount attributable to investment earnings, the receipt of which will be taxable at ordinary income rates. The relative portions of any particular distribution that derive from nontaxable Purchase Payments and taxable investment earnings depend upon the nature and the timing of that distribution.

Any withdrawal of less than your entire Accumulation Account Value under a Non-Qualified Contract before the Annuity Commencement Date must be treated as a receipt of investment earnings. You may not treat such withdrawals as a nontaxable return of Purchase Payments unless you have first withdrawn the entire amount of the Accumulation Account Value that is attributable to investment earnings. For purposes of determining whether you have withdrawn the entire amount of the investment earnings under a Non-Qualified Contract, the Code provides that all Non-Qualified deferred annuity contracts issued by the same company to the same Owner during any one calendar year must be treated as one annuity contract. If you withdraw your entire Accumulation Account Value under a Non-Qualified Contract before the Annuity Commencement Date (a “full surrender”), the taxable portion will equal the amount you receive less the “investment in the contract” (i.e., the total Purchase Payments (excluding amounts that were deductible by, or excluded from the gross income of, the Owner of a Contract), less any Purchase Payments that were amounts previously received which were not includable in income).

Annuity Payments. A Payee who receives annuity payments under a Non-Qualified Contract after the Annuity Commencement Date, will generally be able to treat a portion of each payment as a nontaxable return of Purchase Payments and to treat only the remainder of each such payment as taxable investment earnings. Until the Purchase Payments have been fully recovered in this manner, the nontaxable portion of each payment will be determined by the ratio of (i) the total amount of the Purchase Payments made under the Contract, to (ii) the Payee’s expected return under the Contract. Once the Payee has received nontaxable payments in an amount equal to total Purchase Payments, no further exclusion is allowed and all future distributions will constitute fully taxable ordinary income. If payments are terminated upon the death of the Annuitant or other Payee before the Purchase Payments have been fully recovered, the unrecovered Purchase Payments may be deducted on the final return of the Annuitant or other Payee.

Penalty Tax on Certain Withdrawals. A penalty tax of 10% may also apply to taxable cash withdrawals, including lump-sum payments from Non-Qualified Contracts. This penalty will generally not apply to distributions made after age 59½, to distributions pursuant to the death or disability of the owner, to distributions that are a part of a series of substantially equal periodic payments made not less frequently than annually for life or life expectancy, or to distributions under an immediate annuity (as defined above). Other exceptions may be applicable under certain circumstances and special rules may be applicable in connection with the exceptions enumerated above. Also, additional exceptions apply to distributions from a Qualified Contract. You should consult a qualified tax professional with regard to exceptions from the penalty tax.

Taxation of Death Benefit Proceeds. Death benefits paid upon the death of an Annuitant are not life insurance benefits and will generally be includible in the income of the recipient to the extent they represent investment earnings under the contract. For this purpose, the amount of the investment in the contract is not affected by the Owner’s or Annuitant’s death, i.e., the investment in the contract must still be determined by reference to the Owner’s investment in the Contract. Special mandatory distribution rules also apply after the death of the Owner when the beneficiary is not the surviving spouse of the Owner.

If death benefits are distributed in a lump sum, the taxable amount of those benefits will be determined in the same manner as upon a full surrender of the contract. If death benefits are distributed under an annuity option, the taxable amount of those benefits will be determined in the same manner as annuity payments, as described above.

Transfers, Assignments or Exchanges of a Contract. A transfer or assignment of ownership of a Contract, the designation of an Annuitant other than the Owner, the selection of certain maturity dates, or the exchange of a Contract may result in certain tax consequences to you that are not discussed herein. An Owner contemplating any such transfer, assignment or exchange should consult a qualified tax professional as to the tax consequences.

Withholding. Annuity distributions are generally subject to withholding for the recipient’s federal income tax liability.  Recipients can generally elect, however, not to have tax withheld from distributions.

Multiple Contracts. All non-qualified deferred annuity contracts that are issued by us (or our affiliates) to the same owner during any calendar year are treated as one annuity contract for purposes of determining the amount includible in such owner’s income when a taxable distribution occurs.

Partial Annuitization. Under a new tax provision enacted in 2010, if part of an annuity contract’s value is applied to an annuity option that provides payments for one or more lives and for a period of at least ten years, those payments may be taxed as annuity payments instead of withdrawals. None of the payment options under the Contract is intended to qualify for this “partial annuitization” treatment.

Taxation of Qualified Contracts

“Qualified Contracts” are Contracts used with plans that receive tax-deferral treatment pursuant to specific provisions of the Code. Annuity contracts also receive tax-deferral treatment. It is not necessary that you purchase an annuity contract to receive the tax- deferral treatment available through a Qualified Contract. If you purchase this annuity Contract as a Qualified Contract, you do not receive additional tax-deferral. Therefore, if you purchase this annuity Contract as a Qualified Contract, you should do so for reasons other than obtaining tax deferral.

You may use Qualified Contracts with several types of qualified retirement plans. Because tax consequences will vary with the type of qualified retirement plan and the plan’s specific terms and conditions, we provide below only brief, general descriptions of the consequences that follow from using Qualified Contracts in connection with various types of qualified retirement plans. We stress that the rights of any person to any benefits under these plans may be subject to the terms and conditions of the plans themselves, regardless of the terms of the Qualified Contracts that you are using. These terms and conditions may include restrictions on, among other things, ownership, transferability, assignability, contributions and distributions.  Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions with respect to the Contract comply with the law.

Pension and Profit-Sharing Plans. Sections 401(a), 401(k) and 403(a) of the Code permit business employers and certain associations to establish various types of retirement plans for employees. The Code requirements are similar for qualified retirement plans of corporations and those of self- employed individuals. Self-employed persons, as a general rule, may therefore use Qualified Contracts as a funding vehicle for their retirement plans. Adverse tax consequences to the retirement plan, the participant or both may result if the Contract is transferred to any individual as a means to provide benefit payments, unless the plan complies with all the requirements applicable to such benefits prior to transferring the Contract.

Tax-Sheltered Annuities. Section 403(b) of the Code permits public school employees and employees of certain types of charitable, educational and scientific organizations specified in Section 501(c)(3) of the Code to purchase annuity contracts and, subject to certain limitations, exclude the amount of purchase payments from gross income for tax purposes. The Code imposes restrictions on cash withdrawals from Section 403(b) annuities (“TSA”).

Effective October 1, 2008, we stopped issuing any new TSAs, including Texas Optional Retirement Program annuities. We no longer accept any additional Purchase Payments to any previously issued TSAs.

The Internal Revenue Service’s (“IRS”) comprehensive TSA regulations are generally effective January 1, 2009, and these regulations, subsequent IRS guidance, and/or the terms of an employer’s TSA plan impose new restrictions on TSAs, including restrictions on (1) the availability of hardship distributions and loans, (2) TSA exchanges within the same employer’s TSA plan, and (3) TSA transfers to another employer’s TSA plan. You should consult with a qualified tax professional about how the regulations affect you and your TSA.

If TSAs are to receive tax-deferred treatment, cash withdrawals of amounts attributable to salary reduction contributions (other than withdrawals of Accumulation Account Value as of December 31, 1988) may be made only when you attain age 59½, have a severance from employment with the employer, die or become disabled (within the meaning of Section 72(m)(7) of the Code). These restrictions apply to (i) any post-1988 salary reduction contributions, (ii) any growth or interest on post-1988 salary reduction contributions, (iii) any growth or interest on pre-1989 salary reduction contributions that occurs on or after January 1, 1989, and (iv) any pre-1989 salary reduction contributions since we do not maintain records that separately account for such contributions. It is permissible, however, to withdraw post-1988 salary reduction contributions (but not the earnings attributable to such contributions) in cases of financial hardship. Financial hardship withdrawals (as well as certain other premature withdrawals) are fully taxable and will be subject to a 10% federal income tax penalty, in addition to any applicable Contract withdrawal charge. Under certain circumstances the 10% federal income tax penalty will not apply if the withdrawal is for medical expenses. A financial hardship withdrawal may not be repaid once it is taken.

The IRS’s TSA regulations provide that TSA financial hardship withdrawals will be subject to the IRS rules applicable to hardship distributions from 401(k) plans. Specifically, if you have not terminated your employment or reached age 59½, you may be able to withdraw a limited amount of monies if you have an immediate and heavy financial need and the withdrawal amount is necessary to satisfy such financial need. An immediate and heavy financial need may arise only from:

 
·
deductible medical expenses incurred by you, your spouse, or your dependents;
 
·
payments of tuition and related educational fees for the next 12 months of post-secondary education for you, your spouse, or your dependents;
 
·
costs related to the purchase of your principal residence (not including mortgage payments);
 
·
payment necessary to prevent eviction from your principal residence or foreclosure of the mortgage on your principal residence;
 
·
payments for burial or funeral expenses for your parent, spouse, children, or dependents; or
 
·
expenses for the repair of damage to your principal residence that would qualify for the federal income tax casualty deduction.

You will be required to represent in writing to us (1) that your specified immediate and heavy financial need cannot reasonably be relieved through insurance or otherwise, by liquidation of your assets, by ending any contributions you are making under your TSA plan, by other distributions and nontaxable loans under any of your qualified plans, or by borrowing from commercial sources and (2) that your requested withdrawal amount complies with applicable law, including the federal tax law limit. And, unless your TSA was issued prior to September 25, 2007 and the only payments you made to such TSA were TSA funds you transferred directly to us from another TSA carrier (a “90-24 Transfer TSA”), your TSA employer also may need to agree in writing to your hardship request.

If your TSA contains a provision that permits loans, you may request a loan but you will be required to represent in writing to us that your requested loan amount complies with applicable law, including the federal tax law limit. And, unless your TSA is a 90-24 Transfer TSA, your TSA employer also may need to agree in writing to your loan request.

TSAs, like IRAs, are subject to required minimum distributions under the Code. TSAs are unique, however, in that any account balance accruing before January 1, 1987 (the “pre-1987 balance”) needs to comply with only the minimum distribution incidental benefit (MDIB) rule and not also with the minimum distribution rules set forth in Section 401(a)(9) of the Code. This special treatment for any pre-1987 balance is, however, conditioned upon the issuer identifying the pre-1987 balance and maintaining accurate records of changes to the balance. Since we do not maintain such records, your pre-1987 balance, if any, will not be eligible for special distribution treatment.

Under the terms of a particular TSA plan, you may be entitled to transfer or exchange all or a portion of your TSA to one or more alternative funding options within the same or different TSA plan. You should consult the documents governing your TSA plan and your plan administrator for information as to such investment alternatives. If you wish to transfer/exchange your TSA, you will be able to do so only if the issuer of the new TSA certifies to us that the transfer/exchange is permissible under the TSA regulations and the applicable TSA plan. Your TSA employer also may need to agree in writing to your transfer/exchange request.

Individual Retirement Accounts and Annuities. Individual Retirement Accounts and Annuities (“IRAs”), as defined in Section 408 of the Code, permit eligible individuals to make annual contributions of up to the lesser of a specified dollar amount for the year or the amount of compensation includible in the individual’s gross income for the year. The contributions may be deductible in whole or in part, depending on the individual’s income. In addition, certain distributions from some other types of retirement plans may be “rolled over” into an IRA on a tax-deferred basis without regard to these limits.  Amounts in the IRA (other than nondeductible contributions) are taxed when distributed from the IRA. A 10% penalty tax generally applies to distributions made before age 59½, unless an exception applies. The Internal Revenue Service imposes special information requirements with respect to IRAs and we will provide purchasers of the Contracts as Individual Retirement Annuities with any necessary information. You will have the right to revoke a Contract issued as an Individual Retirement Annuity under certain circumstances, as described in the section of this Prospectus entitled “Right to Return.” If your Contract is issued in connection with an Individual Retirement Account, we have no information about the Account and you should contact the Account’s trustee or custodian.

Roth Individual Retirement Arrangements. Section 408A of the Code permits certain eligible individuals to contribute to an individual retirement program called a Roth IRA. Unlike contributions to a traditional IRA under Section 408 of the Code, contributions to a Roth IRA are not tax-deductible. Provided certain conditions are satisfied, distributions are generally tax-free. Like traditional IRAs, Roth IRAs are subject to limitations on contribution amounts and the timing of distributions. If you roll over from or convert a traditional IRA Contract into a Roth IRA Contract or your Individual Retirement Account that holds a Contract is converted to a Roth Individual Retirement Account, the fair market value of the Contract is included in taxable income. Under IRS regulations and Revenue Procedure 2006-13, fair market value may exceed the Contract’s account balance. Thus, you should consult with a qualified tax professional prior to any conversion.  Distributions from a Roth IRA are generally not taxed, except that once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59½ (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA.  A 10% penalty tax may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years beginning with the year in which the conversion was made.

The Internal Revenue Service imposes special information requirements with respect to Roth IRAs and we will provide the necessary information for Contracts issued as Roth Individual Retirement Annuities. If your Contract is issued in connection with a Roth Individual Retirement Account, we have no information about the Account and you should contact the Account’s trustee or custodian.

Distributions and Withdrawals from Qualified Contracts. In most cases, all of the distributions you receive from a Qualified Contract will constitute fully taxable ordinary income. Also, a 10% penalty tax will apply to distributions prior to age 59½, except in certain circumstances.

If you receive a distribution for a Qualified Contract used in connection with a qualified pension plan, from a tax-sheltered annuity, a governmental Code Section 457 plan or an IRA and roll over some or all of that distribution to another eligible plan, following the rules set out in the Code and IRS regulations, the portion of such distribution that is rolled over will not be includible in your income. An eligible rollover distribution from a qualified plan, tax-sheltered annuity or governmental Section 457 plan will be subject to 20% mandatory withholding as described below. Because the amount of the cash paid to you as an eligible rollover distribution will be reduced by this withholding, you will not be able to roll over the entire account balance under your Contract, unless you use other funds equal to the tax withholding to complete the rollover. Rollovers of IRA distributions are not subject to the 20% mandatory withholding requirement.

An eligible rollover distribution from a qualified plan, governmental Section 457 plan or tax-sheltered annuity is any distribution of all or any portion of the balance to the credit of an employee, except that the term does not include:

 
·
a distribution which is one of a series of substantially equal periodic payments made annually under a lifetime annuity or for a specified period of ten years or more;

 
·
any required minimum distribution, or

 
·
any hardship distribution.

Only you or your surviving spouse Beneficiary may elect to roll over a distribution to an eligible retirement plan. However, a non-surviving-spouse Beneficiary may be able to directly transfer a distribution to a so-called inherited IRA that will be subject to the IRS distribution rules applicable to beneficiaries.

Withholding. In the case of an eligible rollover distribution (as defined above) from a Qualified Contract (other than from an IRA), we (or the plan administrator) must withhold and remit to the U.S. Government 20% of the distribution, unless the Owner or Payee elects to make a direct rollover of the distribution to another qualified retirement plan that is eligible to receive the rollover; however, a non-surviving-spouse beneficiary may elect a direct rollover only to a so-called inherited IRA. In the case of a distribution from (i) a Non-Qualified Contract, (ii) an IRA, or (iii) a Qualified Contract where the distribution is not an eligible rollover distribution, we will withhold and remit to the U.S. Government a part of the taxable portion of each distribution unless, prior to the distribution, the Owner or Payee provides us his or her taxpayer identification number and instructs us (in the manner prescribed) not to withhold. The Owner or Payee may credit against his or her federal income tax liability for the year of distribution any amounts that we (or the plan administrator) withhold.

Investment Diversification and Control

The Treasury Department has issued regulations that prescribe investment diversification requirements for the mutual fund series underlying non-qualified variable contracts. All Non-Qualified Contracts must comply with these regulations to qualify as annuities for federal income tax purposes. The owner of a Non-Qualified Contract that does not meet these guidelines will be subject to current taxation on annual increases in value of the Contract. We believe that each Fund available as an investment option under the Contract complies with these regulations.

In certain circumstances, owners of variable annuity contracts have been considered for Federal income tax purposes to be the owners of the assets of the separate account supporting their contracts due to their ability to exercise investment control over those assets. When this is the case, the contract owners have been currently taxed on income and gains attributable to the variable account assets. There is limited guidance in this area, and some features of our Contracts, such as the flexibility of an owner to allocate premium payments and transfer amounts among the investment divisions of the separate account, have not been explicitly addressed in published rulings. While we believe that the Contracts do not give Owners investment control over separate account assets, we reserve the right to modify the Contracts as necessary to prevent an Owner from being treated as the Owner of the separate account assets supporting the Contract. Nevertheless, you should consult with a qualified tax professional on the potential impact of the investor control rules of the IRS as they relate to the investment decisions and activities you may undertake with respect to the Contract. In addition, the IRS and/or the Treasury Department may issue new rulings, interpretations or regulations on this subject in the future. Accordingly, we therefore reserve the right to modify the Contracts as necessary to attempt to prevent you from being considered the owner, for tax purposes, of the underlying assets. We also reserve the right to notify you if we determine that it is no longer practicable to maintain the Contract in a manner that was designed to prevent you from being considered the owner of the assets of the Separate Account. You bear the risk that you may be treated as the owner of Separate Account assets and taxed accordingly.

Tax Treatment of the Company and the Variable Account

As a life insurance company under the Code, we will record and report operations of the Variable Account separately from other operations. The Variable Account will not, however, constitute a regulated investment company or any other type of taxable entity distinct from our other operations. Under present law, we will not incur tax on the income of the Variable Account (consisting primarily of interest, dividends, and net capital gains) if we use this income to increase reserves under Contracts participating in the Variable Account.

Required Minimum Distribution Requirements

If your Contract is a Qualified Contract other than a Roth IRA, it is subject to certain required minimum distribution (RMD) requirements imposed by the Internal Revenue Code and IRS regulations. Under the RMD rules, distributions must begin no later than April 1 of the calendar year following the year in which you attain age 70½ or, for non-IRAs, the date of retirement instead of age 70½ if it is later. The RMD amount for a distribution calendar year is generally calculated by dividing the Contract’s value as of 12/31 of the prior calendar year by the applicable distribution factor set forth in a Uniform Lifetime Table in the IRS regulations.

For Contracts issued in connection with traditional Individual Retirement Accounts, you should contact the Account’s trustee or custodian about RMD requirements since we only provide the trustee or custodian with the Contract’s value (including any actuarial present value of additional benefits discussed below) so that it can be used in the Account’s RMD calculations.

The IRS’s RMD regulations provide that the annual RMD amount is to be calculated based on the Contract’s Account Value as of 12/31 plus “the actuarial present value of any additional benefits” that are provided under your Contract (such as optional death benefits) which is also calculated as of 12/31. When we notify you yearly of the RMD amount, we will inform you if the calculation included the actuarial present value of any additional benefits since such inclusion would have increased your RMD amount. Because of the above requirements, a death benefit in your Contract could cause your RMD amount to be higher than it would be without such a benefit.

You may take an RMD amount calculated for a particular Individual Retirement Annuity from that Annuity or from another IRA of yours. Similarly, you may take an RMD amount calculated for a particular TSA annuity from that annuity or from another TSA account or TSA annuity of yours. If your Qualified Contract is an asset of a qualified retirement plan, the qualified plan is subject to the RMD requirements and the Contract, as an asset of the qualified plan, may need to be used as a source of funds for the RMDs.

For Qualified Contracts issued other than as Individual Retirement Annuities, (1) we do not calculate your annual RMD amount nor do we notify you of such amount and (2) you should contact the Account’s trustee or custodian about RMD requirements since we only provide the trustee or custodian with the Contract’s value so that it can be used by the trustee or custodian in the Account’s RMD calculations.

Non-Qualified Contracts. We are required to make a determination as to the taxability of any withdrawal you make in order to be able to annually report to the IRS and your information about your withdrawal. Under the Internal Revenue Code, any withdrawal from a Non-Qualified Contract is taxable to the extent the annuity’s cash value (determined without regard to surrender charges) exceeds the investment in the contract. There is no definition of “cash value” in the Code and, for tax reporting purposes, we are currently treating it as the Accumulation Account Value of the Contract. However, there can be no assurance that the IRS will agree that this is the correct cash value. You should consult with a qualified tax professional as to the meaning of “cash value.”

Federal Defense of Marriage Act and Same-Sex Marriages

The Contract provides that upon your death a surviving spouse may have certain continuation rights that he or she may elect to exercise for the Contract’s death benefit. Because of the Federal Defense of Marriage Act, all such Contract continuation rights are available only to a person who is defined as a “spouse” under such Act and that definition does not include a same-sex spouse. Thus, under current Federal law, if you are in a same-sex marriage, your spouse would not be able to exercise any of the Contract’s spousal continuation rights. You should consult a qualified tax professional for advice before purchasing a Contract and/or joint-life coverage under an optional living benefit.

Federal Estate Taxes

While no attempt is being made to discuss the Federal estate tax implications of the Contract, a purchaser should keep in mind that the value of an annuity contract owned by a decedent and payable to a beneficiary by virtue of an annuity contract owned by a decedent and payable to a beneficiary by virtue of surviving the decedent is included in the decedent’s gross estate. Depending on the terms of the annuity contract, the value of the annuity included in the gross estate may be the value of the lump sum payment payable to the designated beneficiary or the actuarial value of the payments to be received by the beneficiary. Please consult an estate planning advisor for more information.

Generation-skipping Transfer Tax

Under certain circumstances, the Code may impose a “generation-skipping transfer tax” when all or part of an annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger than the Owner. Regulations issued under the Code may require us to deduct the tax from your Contract, or from any applicable payment, and pay it directly to the IRS. Please consult a qualified tax professional for more information.

American Taxpayer Relief Act of 2012

The American Taxpayer Relief Act of 2012 (ATRA) permanently extended the laws governing estate taxes, gift taxes and generation skipping transfer taxes that were put in place by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA 2010), with one notable exception – the top estate tax, gift tax and generation skipping tax rate increases from 35% to 40%.

Medicare Tax

Beginning in 2013, distributions from non-qualified annuity policies will be considered “investment income” for purposes of the newly enacted Medicare tax on investment income. Thus, in certain circumstances, a 3.8% tax may be applied to some or all of the taxable portion of distributions (e.g. earnings) to individuals whose income exceeds certain threshold amounts ($200,000 for filing single, $250,000 for married filing jointly and $125,000 for married filing separately.) Please consult a tax advisor for more information.

Annuity Purchases by Residents of Puerto Rico

The Internal Revenue Service has announced that income received by residents of Puerto Rico under life insurance or annuity contracts issued by a Puerto Rico branch of a United States life insurance company is U.S.-source income that is generally subject to United States Federal income tax.”

Annuity Purchases by Nonresident Aliens and Foreign Corporations

The discussion above provides general information regarding U.S. federal income tax consequences to annuity purchasers that are U.S. citizens or residents. Purchasers that are not U.S. citizens or residents will generally be subject to U.S. federal withholding tax on taxable distributions from annuity contracts at a 30% rate, unless a lower treaty rate applies. In addition, purchasers may be subject to state and/or municipal taxes and taxes that may be imposed by the purchaser’s country of citizenship or residence. Prospective purchasers are advised to consult with a qualified tax professional regarding U.S. state, and foreign taxation with respect to an annuity contract purchase.

Possible Tax Law Changes

Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Contract could change by legislation or otherwise. Consult a qualified tax professional with respect to legislative developments and their effect on the Contract.

We have the right to modify the Contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity contract owners currently receive. We make no guarantee regarding the tax status of any contact and do not intend the above discussion as tax advice.

Puerto Rico Tax Provisions

The Contract offered by this Prospectus is considered an annuity contract under Section 1022 of the Puerto Rico Internal Revenue Code of 1994, as amended and Section 1031.01 of the 2011 Internal Revenue Code for a New Puerto Rico, as amended (collectively the “Puerto Rico Code”). Under the current provisions of the Puerto Rico Code, no income tax is payable on increases in value of accumulation shares of annuity units credited to a variable annuity contract until payments are made to the annuitant or other payee under such contract.

When payments are made from your Contract in the form of an annuity, the annuitant or other payee will be required to include as gross income the lesser of the amount received during the taxable year or the portion of the amount received equal to 3% of the aggregate premiums or other consideration paid for the annuity. The amount, if any, in excess of the included amount is excluded from gross income as a return of premium. After an amount equal to the aggregate premiums or other consideration paid for the annuity has been excluded from gross income, all of the subsequent annuity payments are considered to be taxable income.

When a payment under a Contract is made in a lump sum, the amount of the payment would be included in the gross income of the Annuitant or other Payee to the extent it exceeds the Annuitant’s aggregate premiums or other consideration paid.

The provisions of the Puerto Rico Code with respect to qualified retirement plans described in this Prospectus vary significantly from those under the Internal Revenue Code. We currently offer the Contract in Puerto Rico in connection with Individual Retirement Arrangements that qualify under the U.S. Internal Revenue Code but do not qualify under the Puerto Rico Code. See the applicable text of this Prospectus under the heading “Federal Tax Status” dealing with such Arrangements and their RMD requirements. We may make Contracts available for use with other retirement plans that similarly qualify under the U.S. Internal Revenue Code but do not qualify under the Puerto Rico Code.

As a result of IRS Revenue Ruling 2004-75, as amplified by Revenue Ruling 2004-97, we will treat Contract distributions and withdrawals occurring on or after January 1, 2005 as U.S. source income that is subject to U.S. income tax withholding and reporting. Under “TAX CONSIDERATIONS”, see “Pre-Distribution Taxation of Contracts”, “Distributions and Withdrawals from Non-Qualified Contracts”, and “Withholding”. You should consult a qualified tax professional for advice regarding the effect of Revenue Ruling 2004-75 on your U.S. and Puerto Rico income tax situation.

For information regarding the income tax consequences of owning a Contract, you should consult a qualified tax professional.

DISTRIBUTION OF THE CONTRACTS

We offer the Contract on a continuous basis. Contracts are sold by licensed insurance agents (“the Selling Agents”) in those states where the Contract may be lawfully sold. Such Selling Agents will be registered representatives of affiliated and unaffiliated broker-dealer firms (“the Selling Broker-Dealers”) registered under the Securities Exchange Act of 1934 who are members of the Financial Industry Regulatory Authority (“FINRA”) and who have entered into selling agreements with the Company and the general distributor, Clarendon Insurance Agency, Inc. (“Clarendon”), One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. Clarendon is a wholly-owned subsidiary of the Company, is registered with the SEC under the Securities Exchange Act of 1934 as a broker-dealer and is a member of FINRA.

The Company (or its affiliates, for purposes of this section only, collectively, “the Company”), pays the Selling Broker-Dealers compensation for the promotion and sale of the Contract. The Selling Agents who solicit sales of the Contract typically receive a portion of the compensation paid by the Company to the Selling Broker-Dealers in the form of commissions or other compensation, depending on the agreement between the Selling Broker-Dealer and their Selling Agent. This compensation is not paid directly by the Owner or the separate account. The Company intends to recoup this compensation through fees and charges imposed under the Contract, and from profits on payments received by the Company for providing administrative, marketing, and other support and services to the Variable Account.

The amount and timing of commissions the Company may pay to Selling Broker-Dealers may vary depending on the selling agreement but is not expected to be more than 5.00% of Purchase Payments, and 0.20% annually of the Contract’s Accumulation Account Value. The Company may pay or allow other promotional incentives or payments in the form of cash or other compensation to the extent permitted by FINRA rules and other applicable laws and regulations.

The Company also pays compensation to wholesaling broker-dealers, including payments to affiliates of the Company, in return for wholesaling services such as providing marketing and sales support and product training to the Selling Agents of the Selling Broker-Dealers. These payments may be based on a percentage of Purchase Payments and/or a percentage of Accumulation Account value.

In addition to the compensation described above, the Company may make additional cash payments or reimbursements to Selling Broker-Dealers in recognition of their marketing and distribution, transaction processing and/or administrative services support. These payments are not offered to all Selling Broker-Dealers, and the terms of any particular agreement governing the payments may vary among Selling Broker-Dealers depending on, among other things, the level and type of marketing and distribution support provided. Marketing and distribution support services may include, among other services, placement of the Company’s products on the Selling Broker-Dealers’ preferred or recommended list, access to the Selling Broker-Dealers’ registered representatives for purposes of promoting sales of the Company’s products, assistance in training and education of the Selling Agents, and opportunities for the Company to participate in sales conferences and educational seminars. The payments or reimbursements may be a fixed dollar amount, and/or may be calculated as a percentage of the particular Selling Broker-Dealer’s actual or expected aggregate sales of our variable contracts (including the Contract) or assets held within those contracts (in most cases not to exceed 0.25% of aggregate sales and 0.10% of assets attributable to the Selling-Broker-Dealer.

These payments may provide your Selling Agent with additional incentives to promote the Contracts or otherwise cooperate with the Company’s promotional efforts.

You should ask your Selling Agent for further information about what commissions or other compensation he or she, or the Selling Broker-Dealer for which he or she works, may receive in connection with your purchase of a Contract. During 2010, 2011, and 2012, approximately $22,805, $10,024, and $7,823, respectively, in commissions were paid to but not retained by Clarendon in connection with the distribution of the Contracts described in this prospectus.

OWNER INQUIRIES

You may submit transaction requests or otherwise communicate with us in writing or by telephone. All materials mailed to us, including Purchase Payments, must be sent to our mailing address as set forth at the beginning of this Prospectus. For all telephone communications, you must call (800) 752-7216. In addition, the authorized registered representative of the broker-dealer of record may submit transfer requests on your behalf in writing, by telephone, or over the Internet on our broker website. To use the broker website, the registered representative must first consent to our online terms of use. (See “Requests for Transfers” under “Transfer Privilege.”)

Unless this Prospectus states differently, we will consider all materials sent to us and all telephone communications to be received on the date we actually receive them at our mailing address or at (800) 752-7216. However, we will consider all financial transactions, including Purchase Payments, withdrawal requests and transfer instructions, to be received on the next Business Day if we receive them (1) on a day that is not a Business Day or (2) after the close of regular trading on the New York Stock Exchange, which is normally 4:00 p.m., Eastern Time. In some cases, receipt of requests for financial transactions by the broker-dealer of record will be deemed to be constructive receipt by us. This would include only cases where we have a specific agreement with the broker-dealer that provides for this treatment and the broker-dealer electronically forwards to us the request promptly after the end of the Business Day on which it receives the request in good order. In such cases, financial transactions received by us in good order will be priced that Business Day, provided the broker-dealer received the request before the earlier of (a) 4:00 p.m. Eastern Time on a Business Day, or (b) the close of the New York Stock Exchange on days that the Stock Exchange closes before 4:00 p.m. For information about whether we have this type of arrangement with your broker-dealer, you may call us at the above number.

Certain methods of contacting us, such as by telephone or over the Internet, may be unavailable or delayed. Any computer or telephone system (including yours, ours, and your registered representative’s) can experience delays or outages that may delay or prevent us from processing your request. While we have taken reasonable precautions to allow our systems to accommodate heavy usage, we do not guarantee access or reliability under all circumstances. If you experience delays or an outage, you may submit your request to us in writing to our mailing address, as set forth at the beginning of this Prospectus.

When we specify that notice to us must be in writing, we reserve the right, at our sole discretion, to accept notice in another form.

Electronic Account Information

You may elect to receive prospectuses, transaction confirmations, reports and other communications in electronic format, instead of receiving paper copies of these documents. To enroll in this optional electronic delivery service Owners must register and log on to our Internet customer website at https://customerlink.sunlife-usa.com. First-time users of this website can enroll in this electronic delivery service by selecting “eDeliver Documents” when registering to use the website. If you are already a registered user of this website, you can enroll in the electronic delivery service by logging on to your account and selecting “eDeliver Documents” on the “Update Profile” page. The electronic delivery service is subject to various terms and conditions, including a requirement that you promptly notify us of any change in your e-mail address, in order to avoid any disruption of deliveries to you. You may obtain more information and assistance at the above-mentioned internet location or by writing us at our Annuity Service Mailing Address or by telephone at (800) 752-7216.

STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS

General Information
2
The Company
2
Tax Deferred Accumulation
2
Example of Net Investment Factor Calculation
2
Example of Variable Accumulation Unit Value Calculation
3
Annuity Provisions
3
Determination of Annuity Payments
3
Annuity Unit Value
3
Example of Variable Annuity Unit Value Calculation
4
Example of Variable Annuity Payment Calculation
4
Other Contractual Provisions
4
Owner and Change of Ownership
4
Designation and Change of Beneficiary
5
Administration of the Contracts
5
Distribution of the Contracts
5
Experts
6
Financial Statements
6

 
 
 

APPENDIX A -
THE FIXED ACCOUNT

That portion of the Contract relating to the Fixed Account is not registered under the Securities Act of 1933 (“1933 Act”) and the Fixed Account is not registered as an investment company under the Investment Company Act of 1940 (“1940 Act”). Accordingly, neither the Fixed Account nor any interests therein are subject to the provisions or restrictions of the 1933 Act or the 1940 Act, and the disclosure in this Appendix A has not been reviewed by the staff of the Securities and Exchange Commission. However, the following disclosure about the Fixed Account may be subject to certain generally applicable provisions of the federal securities laws regarding the accuracy and completeness of disclosure.

The Fixed Account

The Fixed Account is made up of all of the general assets of the Company other than those allocated to any separate account. Purchase Payments will be allocated to the Fixed Account as elected by the Owner at the time of purchase or as subsequently changed. The Company will invest the assets of the Fixed Account in those assets chosen by the Company and allowed by applicable law. Investment income from such Fixed Account assets will be allocated between the Company and the contracts participating in the Fixed Account in accordance with the terms of such contracts.

Annuity payments made to Annuitants under the Contracts will not be affected by the mortality experience (death rate) of persons receiving such payments or of the general population. The Company assumes this “mortality risk” by virtue of annuity rates incorporated in the Contract which cannot be changed. In addition the Company guarantees that it will not increase charges for maintenance of the Contracts regardless of its actual expenses.

Investment income from the Fixed Account allocated to the Company includes compensation for mortality and expense risks borne by the Company in connection with Fixed Account Contracts. The Company expects to derive a profit from this compensation. The amount of such investment income allocated to the Contracts will vary from year to year in the sole discretion of the Company. However, the Company guarantees that it will credit interest at a rate of not less than 4% per year, compounded annually, to amounts allocated to the Fixed Account under the Contracts. The Company may credit interest at a rate in excess of 4% per year; however, the Company is not obligated to credit any interest in excess of 4% per year. There is no specific formula for the determination of excess interest credits. Such credits, if any, will be determined by the Company based on information as to expected investment yields. Some of the factors that the Company may consider in determining whether to credit interest in excess of 4% to amounts allocated to the Fixed Account and the amount thereof, are general economic trends, rates of return currently available and anticipated on the Company’s investments, regulatory and tax requirements and competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE FIXED ACCOUNT IN EXCESS OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF THE COMPANY. THE OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO FIXED ACCOUNT ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 4% FOR ANY GIVEN YEAR.

Excess interest, if any, will be credited on the fixed accumulation value. The Company guarantees that, at any time, the fixed accumulation value will not be less than the amount of Purchase Payments allocated to the Fixed Account, plus interest at the rate of 4% per year, compounded annually, plus any additional interest which the Company may, in its discretion, credit to the Fixed Account, less the sum of all administrative or withdrawal charges, any applicable premium taxes and less any amounts surrendered. If the Owner surrenders the Contract, the amount available from the Fixed Account will be reduced by any applicable withdrawal charge. (See “Withdrawal Charges” in the Prospectus.)

If, on any Contract Anniversary, the rate at which the Company credits interest to amounts allocated to the Fixed Account under the Contract is less than 80% of the average discount rate on 52-week United States Treasury Bills for the most recent auction prior to the Contract Anniversary on which the declared interest rate becomes applicable, then, during the 45 day period after the Contract Anniversary, the Owner may elect to receive the value of the Contract’s Accumulation Account without assessment of a withdrawal charge. Such withdrawal may, however, result in adverse tax consequences. (See “U.S. Federal Income Tax Considerations.”)

The Company reserves the right to defer the payment of amounts withdrawn from the Fixed Account for a period not to exceed six months from the date written request for such withdrawal is received by The Company.


 
 
 

Fixed Accumulation Value

(1) Crediting Fixed Accumulation Units

Upon receipt of a Purchase Payment by the Company, all or that portion, if any, of the Net Purchase Payment to be allocated to the Fixed Account in accordance with the allocation factor will be credited to the Accumulation Account in the form of Fixed Accumulation Units. The number of Fixed Accumulation Units to be credited is determined by dividing the dollar amount allocated to the Fixed Account by the Fixed Accumulation Unit value for the Contract for the Valuation Period during which the Purchase Payment is received by the Company.

(2) Fixed Accumulation Unit Value

The Fixed Accumulation Unit value is established at $10.00 for the first Valuation Period of the calendar month in which the Contract is issued, and will increase for each successive Valuation Period as interest is accrued. All Contracts issued in a particular calendar month and at a particular rate of interest, as specified in advance by the Company from time to time, will use the same series of Fixed Accumulation Unit values throughout the first Contract Year.

At the first Contract Anniversary, the Fixed Accumulation Units credited to a Contract’s Accumulation Account will be exchanged for a second type of Fixed Accumulation Unit with an equal aggregate value. The value of this second type of Fixed Accumulation Unit will increase for each Valuation Period during each Contract Year as interest is accrued at a rate which shall have been determined by the Company prior to the first day of each Contract Year.

The Company will credit interest to the Contract’s Fixed Accumulation Account at a rate of not less than 4% per year, compounded annually. Once the rate applicable to a specific Contract is established by the Company, it may not be changed for the balance of the Contract Year. Additional Payments made during the Contract Year will be credited with interest for the balance of the Contract Year at the rate applicable at the beginning of that Contract Year. The Fixed Accumulation Unit value for the Contract for any Valuation Period is the value determined as of the end of such Valuation Period.

(3) Fixed Accumulation Value

The fixed accumulation value of a Contract, if any, for any Valuation Period is equal to the value of the Fixed Accumulation Units credited to the Accumulation Account for such Valuation Period.

Loans From the Fixed Account (Qualified Contracts Only)

Loans will be permitted from the Contract’s Fixed Accumulation Account (to the extent permitted by the retirement plan for which the Contract is purchased) UNDER QUALIFIED CONTRACTS ONLY. The maximum loan amount is the amount determined under the Company’s maximum loan formula for qualified plans. The minimum loan amount is $1,000. Loans will be secured by a security interest in the Contract. Loans are subject to applicable retirement program legislation and their taxation is determined under the federal income tax laws. The amount borrowed will be transferred to a fixed minimum guarantee accumulation account in the Company’s general account where it will accrue interest at a specified rate below the then current loan interest rate. Generally, loans must be repaid within five years.

The amount of the death benefit, the amount payable on a full surrender and the amount applied to provide an annuity on the Annuity Commencement Date will be reduced to reflect any outstanding loan balance (plus accrued interest thereon). Partial withdrawals may be restricted by the maximum loan limitation.

Fixed Annuity Payments

The dollar amount of each fixed annuity payment will be determined in accordance with the annuity payment rates found in the Contract which are based on a minimum guaranteed interest rate of 4% per year, or, if more favorable to the Payee(s), in accordance with the Single Premium Immediate Settlement Rates published by the Company and in use on the Annuity Commencement Date.

 
 
 

APPENDIX B -
WITHDRAWALS AND WITHDRAWAL CHARGES

This example assumes that the date of the full surrender or partial withdrawal is during the 9th Contract Year.

1
2
  
3
  
4
  
5
  
6
1
$  1,000
  
$1,000
  
$         0
  
0%
  
$         0
2
$  1,200
  
$1,200
  
$         0
  
0%
  
$         0
3
$  1,400
  
$1,280
  
$     120
  
3%
  
$    3.60
4
$  1,600
  
$       0
  
$  1,600
  
4%
  
$  64.00
5
$  1,800
  
$       0
  
$  1,800
  
4%
  
$  72.00
6
$  2,000
  
$       0
  
$  2,000
  
5%
  
$100.00
7
$  2,000
  
$       0
  
$  2,000
  
5%
  
$100.00
8
$  2,000
  
$       0
  
$  2,000
  
6%
  
$120.00
9
$  2,000
  
$       0
  
$  2,000
  
6%
  
$120.00
 
$15,000
  
$3,480
  
$11,520
      
$579.60

Where:

Column 1 represents the Contract Year in which the Purchase Payment was made.

Column 2 represents the amounts of the Purchase Payments (“Payments”). Each Payment was made on the first day of each Contract Year.

Column 3 represents the amounts that may be withdrawn without the imposition of withdrawal charges, as follows:

(a)
Payments 1 and 2 ($1,000 and $1,200, respectively) have been credited to the Contract for more than seven years.
   
(b)
Payment 3 ($1,280) represents 10% of Payments that have been credited to the Contract for less than seven years. The 10% amount is applied to the oldest unliquidated Payment, then the next oldest and so forth.

Column 4 represents the amount of each Payment that is subject to a withdrawal charge. It is determined by subtracting the amount in Column 3 from the Payment in Column 2.

Column 5 represents the withdrawal charge percentages imposed on the amounts in Column 4.

Column 6 represents the withdrawal charge imposed on each Payment. It is determined by multiplying the amount in Column 4 by the percentage in Column 5.

For example, the withdrawal charge imposed on Payment 8
 
= Payment 8 Column 4 x Payment 8 Column 5
 
= $2,000 x 6%
 
= $120
   
For a full surrender, the total of Column 6 ($579.60) represents the total amount of withdrawal charges imposed on Payments in this example.
   
For a partial withdrawal, the sum of amounts in Column 6, for as many Payments as are liquidated, reflects the withdrawal charges imposed in the case of a partial withdrawal.
   
 
For example, the sum of payments 1, 2, 3, 4, and 5 is $7,000. If the full $7,000 were withdrawn, the amount of the withdrawal charges imposed would be the sum of amounts in Column 6 for Payments 1, 2, 3, 4 and 5 which is $139.60.


 
 
 

April 29, 2013

COMPASS 3


This Prospectus sets forth information about the Contract and the Variable Account that a prospective purchaser should know before investing. Additional information about the Contract and the Variable Account has been filed with the SEC in a SAI dated April 29, 2013 which is incorporated herein by reference. The SAI is available upon request and without charge from Sun Life Assurance Company of Canada (U.S.). To receive a copy, return this request form to the address shown below or telephone (800) 752-7216.

To:
Sun Life Assurance Company of Canada (U.S.)
 
P.O. Box 9133
 
Wellesley Hills, Massachusetts 02481

Please send me a Statement of Additional Information for Compass 3—Sun Life of Canada (U.S.) Variable Account L.

Name
    
Address
    
     
City
  
State
  
Zip
    
Telephone
  
 
  


 
 
 

PART B





 
 
 

April 29, 2013

COMPASS 3

STATEMENT OF ADDITIONAL INFORMATION



TABLE OF CONTENTS
 
General Information
2
The Company
2
Tax Deferred Accumulation
2
Example of Net Investment Factor Calculation
2
Example of Variable Accumulation Unit Value Calculation
3
Annuity Provisions
3
Determination of Annuity Payments
3
Annuity Unit Value
3
Example of Variable Annuity Unit Value Calculation
4
Example of Variable Annuity Payment Calculation
4
Other Contractual Provisions
4
Owner and Change of Ownership
4
Designation and Change of Beneficiary
5
Administration of the Contracts
5
Distribution of the Contracts
5
Experts
6
Financial Statements
6

This Statement of Additional Information (the “SAI”) sets forth information which may be of interest to prospective purchasers of Compass 3 Combination Fixed/Variable Annuity Contract for personal and qualified retirement plans (the “Contracts”) issued by Sun Life Assurance Company of Canada (U.S.) (the “Company”) in connection Sun Life of Canada (U.S.) Variable Account L (the “Variable Account”). This SAI should be read in conjunction with the Compass 2 Prospectus, dated April 29, 2013 (the “Prospectus”), a copy of which may be obtained without charge from the Company by writing to Sun Life Assurance Company of Canada (U.S.), P.O. Box 9133, Wellesley Hills, Massachusetts 02481, or by telephoning (800) 752-7216.

The terms used in this SAI have the same meanings as those used in the Prospectus.

THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE PURCHASERS ONLY IF PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS.


 
 
 

GENERAL INFORMATION

The Company

Sun Life Assurance Company of Canada (U.S.) is a stock life insurance company incorporated under the laws of Delaware on January 12, 1970. We do business in 49 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, and we have an insurance company subsidiary that does business in New York. Our Executive Office mailing address is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.

We are ultimately controlled by Sun Life Financial Inc. (“Sun Life Financial”). Sun Life Financial, a corporation organized in Canada, is a reporting company under the Securities Exchange Act of 1934 with common shares listed on the Toronto, New York, and Philippine stock exchanges.

Sun Life Financial has announced the execution of a definitive agreement to sell its United States domestic annuity business and certain of its United States life insurance businesses to Delaware Life Holdings, LLC (the “Purchaser”) (the “Proposed Transaction”). The Purchaser is a limited liability company organized under the laws of the State of Delaware. The Proposed Transaction will include the transfer of all of the issued and outstanding shares of the Company to the Purchaser. The closing date for the Proposed Transaction is expected to be as soon as May 31, 2013, subject to receipt of all required regulatory approvals as well as satisfaction of other closing conditions. Although completion of the Proposed Transaction will result in a change in control of the Company, the terms and conditions of your Contract with Sun Life (U.S.) will not change and you will not need to take any action.

TAX-DEFERRED ACCUMULATION

In general, individuals who own annuity contracts are not taxed on increases in the value of their annuity contracts until some form of distribution is made under the contract. As a result, the annuity contract would benefit from tax deferral during the contract's accumulation phase; this would have the effect of permitting an investment in an annuity contract to grow more rapidly that a comparable investment under which increases in value are taxed on a current basis.

In reports or other communications to you or in advertising or sales materials, we may also describe the effects of tax-deferred compounding on the Variable Account's investment returns. We may illustrate these effects in charts or graphs and from time to time may include comparisons of returns under the Contract or in general on a tax-deferred basis, with the returns on a taxable basis. Different tax rates may be assumed. Any such illustrative chart or graph would show accumulations on an initial investment or Purchase Payment, assuming a given amount (including the applicable interest credit), hypothetical gross annual returns compounded annually, and a stated rate of return. The values shown for the taxable investment would not include any deduction for management fees or other expenses, but would assume the annual deduction of federal and state taxes from investment returns. The values shown for the Contract in a chart would reflect the deduction of Contract expenses, such as the mortality and expense risk charge, the 0.15% administrative charge, the 0.15% distribution fee, and the $50 annual Account Fee. In addition, the values shown would assume that the Participant has not surrendered his or her Contract or made any partial surrenders until the end of the period shown. The chart would assume a full surrender at the end of the period shown and the payment of federal and state taxes, at a rate of not more than 33%, on the amount in excess of the Purchase Payments.

In developing illustrative tax deferral charts, we will observe these general principles:

●
The assumed rate of earnings will be realistic.
●
The illustrative chart will accurately depict the effect of all fees and charges or provide a narrative that prominently discloses all fees and charges under the Contract.
●
Charts comparing accumulation values for tax-deferred and non-tax-deferred investments will depict the implications of any surrender.
●
A narrative accompanying the chart will prominently disclose that there may be a 10% tax penalty on a surrender by a Participant who has not reached age 59½ at the time of surrender.

The rates of return illustrated in any chart would be hypothetical and are not an estimate or guaranty of performance. Actual tax returns may vary among Participants.

Example of Net Investment Factor Calculation:

We determine the net investment factor using the following formula:

Investment Factor
=
[(a) + (b)] – [(c) + (d)]
(a)

where:
 
(a)
is the value of the Sub-Account’s net assets attributable to the Contracts at the end of the preceding Valuation Period;
 
(b)
is the investment income and capital gains, realized or unrealized, that are credited to such assets of the Sub-Account during the Valuation Period;
 
(c)
is the capital losses, realized or unrealized, charged against such assets of the Sub-Account in the Valuation Period plus, with respect to such assets, any amount charged against the Sub-Account or set aside as a reserve to maintain or operate the Sub-Account for the Valuation Period; and
 
(d)
is the expenses of the Sub-Account attributable to the Contracts incurred during the Valuation Period including the mortality and expense risk charge and the other expenses of the Sub-Account, subject to any applicable expense limitation.

Assume the following facts about a particular Variable Account at the end of the preceding Valuation Period:

 
(a)
the net assets attributable to the Contracts equal $111,234,567.89;
 
(b)
the investment income and capital gains credited to such assets equal $434,782.61;
 
(c)
the capital losses charged against such assets equal $63,778.99; and
 
(d)
the expenses equal $10,634.77.

The net investment factor is, therefore, determined as follows:

(111,234,567.89 + 434,782.61) – (63,778.99 + 10,634.77)
=
1.00323972
111,234,567.89

Example of Variable Accumulation Unit Value Calculations:

We calculate the Variable Accumulation Unit value for any Valuation Period as follows: we multiply the Variable Accumulation Unit value for the immediately preceding Valuation Period by the appropriate Net Investment Factor for the subsequent Valuation Period.

Assume the Variable Accumulation Unit value for the immediately preceding Valuation Period had been 14.5645672. Assume that the Net Investment Factor for the subsequent Valuation Period is 1.00323972 as shown in the calculation above. The value for the current Valuation Period would, therefore, be determined as follows:

(14.5645672 x 1.00323972) = 14.6117523

ANNUITY PROVISIONS

Determination of Annuity Payments

On the Annuity Commencement Date the Contract’s Accumulation Account will be canceled and its adjusted value will be applied to provide a Variable Annuity or a Fixed Annuity or a combination of both. The adjusted value will be equal to the value of the Accumulation Account for the Valuation Period which ends immediately preceding the Annuity Commencement Date, reduced by any applicable premium or similar taxes and a proportionate amount of the contract maintenance charge to reflect the time elapsed between the last Contract Anniversary and the day before the Annuity Commencement Date.

The dollar amount of the first variable annuity payment will be determined in accordance with the annuity payment rates found in the Contract which are based on an assumed interest rate of 4% per year. All variable annuity payments other than the first are determined by means of Annuity Units credited to the Contract. The number of Annuity Units to be credited in respect of a particular Variable Account is determined by dividing that portion of the first variable annuity payment attributable to that Variable Account by the Annuity Unit value of that Variable Account for the Valuation Period which ends immediately preceding the Annuity Commencement Date. The number of Annuity Units of each particular Variable Account credited to the Contract then remains fixed unless an exchange of Annuity Units is made as described below. The dollar amount of each variable annuity payment after the first may increase, decrease or remain constant, and is equal to the sum of the amounts determined by multiplying the number of Annuity Units of a particular Variable Account credited to the Contract by the Annuity Unit value for the particular Variable Account for the Valuation Period which ends immediately preceding the due date of each subsequent payment.

Annuity Unit Value

The Annuity Unit value for each Variable Account was established at $10.00 for the first Valuation Period of the particular Variable Account. The Annuity Unit value for any subsequent Valuation Period is determined using the following formula:

Annuity Unit Value
=
(A x B) x C

where:

 
A
equals the Annuity Unit value for the immediately preceding Valuation Period.
 
B
equals the Net Investment Factor for the current Valuation Period.
 
C
equals a factor to neutralize the assumed interest rate of 4% per year used to establish the annuity payment rates found in the Contract. (This factor is 0.99989255 for a one day Valuation Period.)

Example of Variable Annuity Unit Value Calculations

Assume the value of an Annuity Unit for the immediately preceding Valuation Period had been 12.3456789. Assume that the Net Investment Factor for the subsequent Valuation Period is 1.00323972 as shown in the calculation above. If the first variable annuity payment is determined by using an annuity payment based on an assumed interest rate of 4% per year, the value of the Annuity Unit for the current Valuation Period would be determined as follows:

(12.3456789 x 1.00323972) x 0.99989255
=
12.3843446

Example of Variable Annuity Payment Calculations

The first Variable Annuity payment is determined by multiplying the Variable Accumulation Unit value for the current Valuation Period (as described under “Example of Variable Accumulation Unit Calculation”) by the annuity payment rate for the age and annuity option elected.

Assume the following facts:

 
·
the Account value being annuitized is made up of a particular Variable Account of a Contract is credited with 8,765.4321 Variable Accumulation Units;
 
·
at the end of the Valuation Period immediately preceding the Annuity Commencement Date, the Variable Accumulation Unit value and the Annuity Unit value for that Variable Account are 14.5645672 and 12.3456789, respectively;
 
·
the annuity payment rate for the age and option elected is $6.78 per $1,000; and
 
·
on the day prior to the second variable annuity payment date, the Annuity Unit value is 12.3724831.

The first Variable Annuity payment would be determined as follows:

(8,765.4321 x 14.5645672) x 6.78
=
$865.57
1,000

This first Variable Annuity payment of $865.57 represents 70.1112 Variable Annuity Units, which are calculated by dividing the first Variable Annuity Payment by the Variable Annuity Unit value at the end of the Valuation Period immediately preceding the Annuity Commencement Date. In this case, $865.57 divided by 12.3456789. Once established, the number of Annuity Units will not change

Subsequent Variable Annuity payments are determined by multiplying the number of Variable Annuity Units (calculated for the first Variable Annuity payment) by the Variable Annuity Unit value at the end of the Valuation Period immediately preceding the current annuity payment date. Thus, the second Variable Annuity payment would be determined as follows:

70.1112 x 12.3724831
=
$867.45

OTHER CONTRACTUAL PROVISIONS

Owner and Change of Ownership

The Contract shall belong to the Owner. All Contract rights and privileges may be exercised by the Owner without the consent of the Beneficiary (other than an irrevocably designated beneficiary) or any other person. Such rights and privileges may be exercised only during the lifetime of the Annuitant and prior to the Annuity Commencement Date, except as otherwise provided in the Contract. In some qualified plans the Owner of the Contract is a Trustee and the Trust authorizes the Annuitant/Participant to exercise certain contract rights and privileges.

Ownership of a Qualified Contract may not be transferred except to: (1) the Annuitant; (2) a trustee or successor trustee of a pension or profit sharing trust which is qualified under Section 401 of the Internal Revenue Code; (3) the employer of the Annuitant provided that the Qualified Contract after transfer is maintained under the terms of a retirement plan qualified under Section 403(a) of the Internal Revenue Code for the benefit of the Annuitant; (4) the trustee of an individual retirement account plan qualified under Section 408 of the Internal Revenue Code for the benefit of the Owner; or (5) as otherwise permitted from time to time by laws and regulations governing the retirement or deferred compensation plans for which a Qualified Contract may be issued. Subject to the foregoing, a Qualified Contract may not be sold, assigned, transferred, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose to any person other than the Company.

The Owner of a Non-Qualified Contract may change the ownership of the Contract during the lifetime of the Annuitant and prior to the Annuity Commencement Date, although such change may result in the imposition of tax (see “Federal Tax Status—Taxation of Annuities in General”). A change of ownership will not be binding upon the Company until written notification is received by the Company. Once received by the Company the change will be effective as of the date on which the request for change was signed by the Owner but the change will be without prejudice to the Company on account of any payment made or any action taken by the Company prior to receiving the change. The Company may require that the signature of the Owner be guaranteed by a member firm of the New York, American, Boston, Midwest, Philadelphia or Pacific Stock Exchange, or by a commercial bank (not a savings bank) which is a member of the Federal Deposit Insurance Corporation or, in certain cases, by a member firm of the National Association of Securities Dealers, Inc. which has entered into an appropriate agreement with the Company.

Designation and Change of Beneficiary

The Beneficiary designation contained in the application will remain in effect until changed. The interest of any Beneficiary is subject to the particular Beneficiary surviving the Annuitant.

Subject to the rights of an irrevocably designated Beneficiary, the Owner may change or revoke the designation of a Beneficiary at any time while the Annuitant is living by filing with the Company a written beneficiary designation or revocation in such form as the Company may require. The change or revocation will not be binding upon the Company until it is received by the Company. When it is so received the change or revocation will be effective as of the date on which the Beneficiary designation or revocation was signed by the Owner.

ADMINISTRATION OF THE CONTRACTS

The Company performs certain administrative functions relating to the contracts participating in the Variable Accounts and the Funds. These functions include, among other things, maintaining the books and records of the Variable Accounts and maintaining records of the name, address, taxpayer identification number, contract number, type of contract issued to each owner, the status of the accumulation account under each contract and other pertinent information necessary to the administration and operation of the contracts.

DISTRIBUTION OF THE CONTRACTS

We offer the Contract on a continuous basis. Contracts are sold by licensed insurance agents (“the Selling Agents”) in those states where the Contract may be lawfully sold. Such Selling Agents will be registered representatives of affiliated and unaffiliated broker-dealer firms (“the Selling Broker-Dealers”) registered under the Securities Exchange Act of 1934 who are members of the Financial Industry Regulatory Authority (“FINRA”) and who have entered into selling agreements with the Company and the general distributor, Clarendon Insurance Agency, Inc. (“Clarendon”), One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481. Clarendon is a wholly-owned subsidiary of the Company, is registered with the SEC under the Securities Exchange Act of 1934 as a broker-dealer and is a member of FINRA.

The Company (or its affiliate, for purposes of this section only, collectively, “the Company”), pays the Selling Broker-Dealers compensation for the promotion and sale of the Contract. The Selling Agents who solicit sales of the Contract typically receive a portion of the compensation paid by the Company to the Selling Broker-Dealers in the form of commissions or other compensation, depending on the agreement between the Selling Broker-Dealer and their Selling Agent. This compensation is not paid directly by the Contract Owner or the separate account. The Company intends to recoup this compensation through fees and charges imposed under the Contract, and from profits on payments received by the Company for providing administrative, marketing, and other support and services to the Variable Accounts.

The amount and timing of commissions the Company may pay to Selling Broker-Dealers may vary depending on the selling agreement but is not expected to be more than 4.00% for Compass 2 and 5.00% for Compass 3 of Purchase Payments, and 0.20% annually of the Contract’s Account Value. The Company may pay or allow other promotional incentives or payments in the form of cash or other compensation to the extent permitted by FINRA rules and other applicable laws and regulations, and this compensation may be significant in amount.

The Company also pays compensation to wholesaling broker-dealers, including payments to affiliates of the Company, in return for wholesaling services such as providing marketing and sales support and product training to the Selling Agents of the Selling Broker-Dealers. These payments may be significant in amount and may be based on a percentage of Purchase Payments and/or a percentage of Contract Value.

In addition to the compensation described above, the Company may make additional cash payments or reimbursements to Selling Broker-Dealers in recognition of their marketing and distribution, transaction processing and/or administrative services support. These payments are not offered to all Selling Broker-Dealers, and the terms of any particular agreement governing the payments may vary among Selling Broker-Dealers depending on, among other things, the level and type of marketing and distribution support provided. Marketing and distribution support services may include, among other services, placement of the Company’s products on the Selling Broker-Dealers’ preferred or recommended list, access to the Selling Broker-dealers’ registered representatives for purposes of promoting sales of the Company’s products, assistance in training and education of the Selling Agents, and opportunities for the Company to participate in sales conferences and educational seminars. The payments of reimbursements may be a fixed dollar amount, and/or may be calculated as a percentage of the particular Selling Broker-Dealer’s actual or expected aggregate sales of our variable contracts (including the Contract) or assets held within those contracts. The prospect of receiving, or the receipt of additional compensation as described above may provide Selling Broker-Dealers with an incentive to favor sales of the Contracts over other variable annuity contracts (or other investments) with respect to which the Selling Broker-Dealer does not receive additional compensation, or lower levels of additional compensation. You should take such payment arrangements into account when considering and evaluating any recommendation relating to the Contracts.

As discussed in the preceding paragraphs, the Selling Broker-Dealer may receive numerous forms of payments that, directly or indirectly, provide incentives to, and otherwise facilitate and encourage the offer and sale of the Contracts by Selling Broker-Dealers and their registered representatives. Such payments may be greater or less in connection with the Contracts than in connection with other products offered and sold by the Company or by others. Accordingly, the payments described above may create a potential conflict of interest, as they may influence your Selling Broker-Dealer or registered representative to present a Contract to you instead of (or more favorably than) another product or products that might be preferable to you. Total commissions paid by the Variable Account to, but not retained by, Clarendon during 2010, 2011, and 2012, were approximately $37,000, $17,709, and $13,603, respectively.

You should ask your Selling Agent for further information about what commissions or other compensation he or she, or the Selling Broker-Dealer for which he or she works, may receive in connection with your purchase of a Contract.

EXPERTS

The statutory-basis financial statements of Sun Life Assurance Company of Canada (U.S.) (the “Company”) as of December 31, 2012 and December 31, 2011 and for each of the three years in the period ended December 31, 2012 (which report expresses an unmodified opinion in accordance with accounting practices prescribed or permitted by the Insurance Department of the State of Delaware and includes an emphasis-of-matter paragraph relating to the Company adopting Statement of Statutory Accounting Principle (“SSAP”) No. 101 Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10 in 2012 and an other matter paragraph relating to significant balances and transactions with affiliates), included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.  Their office is located at 200 Berkeley Street, Boston, Massachusetts 02116.

The financial statements of Sun Life of Canada (U.S.) Variable Account L, included in this Statement of Additional Information have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

FINANCIAL STATEMENTS

The financial statements of the Variable Account and Sun Life Assurance Company of Canada (U.S.) are included herein. The statutory-basis financial statements of Sun Life Assurance Company of Canada (U.S.) are provided as relevant to its ability to meet its financial obligations under the Certificates and should not be considered as bearing on the investment performance of the assets held in the Variable Account.



 
 
 


INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Sun Life Assurance Company of Canada (U.S.)
1 Sun Life Executive Park
Wellesley, Massachusetts 02481



We have audited the accompanying statutory-basis financial statements of Sun Life Assurance Company of Canada (U.S.) (the "Company"), which comprise the statutory-basis statements of admitted assets, liabilities, and capital stock and surplus as of December 31, 2012 and 2011, and the related statutory-basis statements of operations, changes in capital stock and surplus, and cash flows for each of the three years in the period ended December 31, 2012, and the related notes to the statutory-basis financial statements.

Management’s Responsibility for the Statutory-Basis Financial Statements

Management is responsible for the preparation and fair presentation of these statutory-basis financial statements in accordance with the accounting practices prescribed or permitted by the Insurance Department of the State of Delaware. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these statutory-basis financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statutory-basis financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statutory-basis financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the statutory-basis financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the statutory-basis financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statutory-basis financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America

As described in Note 1 of the statutory-basis financial statements, the statutory-basis financial statements are prepared by Sun Life Assurance Company of Canada (U.S) using accounting practices prescribed or permitted by the Insurance Department of the State of Delaware, which is a basis of accounting other than accounting principles generally accepted in the United States of America, to meet the requirements of the Insurance Department of the State of Delaware.

The effects on the statutory-basis financial statements of the variances between the regulatory basis of accounting described in Note 1 to the statutory-basis financial statements and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

Adverse Opinion on Accounting Principles Generally Accepted in the United States of America

In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America paragraph, the statutory-basis financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position Sun Life Assurance Company of Canada (U.S.) as of December 31, 2012 and 2011, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2012.

Opinion on Regulatory Basis of Accounting

In our opinion, the statutory-basis financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities, and capital stock and surplus of Sun Life Assurance Company of Canada (U.S.) as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in accordance with the accounting practices prescribed or permitted by the Insurance Department of the State of Delaware as described in Note 1 to the statutory-basis financial statements.

Emphasis-of-Matter

As discussed in Note 1 to the statutory-basis financial statements, in 2012, the Company adopted Statement of Statutory Accounting Principle (“SSAP”) No. 101 Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10.

Other Matter

As discussed in Note 2 to the statutory-basis financial statements, the accompanying statutory-basis financial statements reflect significant balances and transactions with affiliates. The Company’s admitted assets, liabilities, and capital stock and surplus and results of its operations and cash flows may have been different if these balances and transactions had been with unrelated parties.

/s/ Deloitte & Touche LLP

Boston, Massachusetts
April 24, 2013



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

STATUTORY–BASIS STATEMENTS OF ADMITTED ASSETS, LIABILITIES AND CAPITAL STOCK AND SURPLUS
AS OF DECEMBER 31, 2012 AND 2011 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

ADMITTED ASSETS
  
2012
    
2011
  
LIABILITIES, CAPITAL STOCK AND SURPLUS
  
2012
    
2011
GENERAL ACCOUNT ASSETS:
            
GENERAL ACCOUNT LIABILITIES:
          
 
Debt securities
$
7,308,199
  
$
7,455,226
    
Aggregate reserve for life contracts
$
6,750,774
  
$
7,300,954
 
Preferred stocks
  
23,000
    
23,330
    
Liability for deposit type contracts
  
1,128,331
    
1,159,839
 
Common stocks
  
414,206
    
372,408
    
Contract claims
  
19,805
    
20,040
 
Mortgage loans on real estate
  
814,612
    
967,480
    
Other amounts payable on reinsurance
  
789
    
10,322
 
Properties occupied by the Company
  
-
    
57,588
    
Interest maintenance reserve
  
64,711
    
36,660
 
Properties held for the production of income
  
100,798
    
127,027
    
Commissions to agents due or accrued
  
7,949
    
8,223
 
Properties held for sale
  
93,033
    
-
    
General expenses due or accrued
  
20,733
    
20,812
 
Cash, cash equivalents and short-term investments
341,431
    
747,160
    
Transfers from Separate Accounts due or accrued
  
(861,565)
    
(953,501)
 
Contract loans
  
564,071
    
582,575
    
Taxes, licenses and fees due or accrued
  
11,545
    
15,438
 
Derivatives
  
312,424
    
415,679
    
Unearned investment income
  
114
    
39
 
Other invested assets
  
121,773
    
121,291
    
Amounts withheld or retained by the Company
  
722
    
248
 
Receivable for securities
  
3,382
    
3,844
    
Remittances and items not allocated
  
1,581
    
6,683
 
Investment income due and accrued
  
100,290
    
114,019
    
Borrowed money and accrued interest thereon
  
100,002
    
118,005
 
Amounts recoverable from reinsurers
  
34,077
    
10,178
    
Asset valuation reserve
  
47,141
    
188,181
 
Current federal and foreign income tax recoverable
36,749
    
6,076
    
Payable for securities
  
1,030
    
-
 
Net deferred tax asset
  
161,198
    
215,031
    
Reinsurance in unauthorized companies
  
14
    
8
 
Receivables from parent, subsidiaries and affiliates
70,954
    
54,033
    
Funds held under coinsurance
  
1,659,347
    
1,740,875
 
Other assets
  
12,588
    
5,832
    
Derivatives
  
182,053
    
132,639
                 
Other liabilities
  
142,310
    
158,443
 
Total general account assets
  
10,512,785
    
11,278,777
  
Total general account liabilities
  
9,277,386
    
9,963,908
 
SEPARATE ACCOUNT ASSETS
  
31,948,727
    
31,623,647
  
SEPARATE ACCOUNT LIABLITIES
  
31,948,272
    
31,623,245
               
Total liabilities
  
41,225,658
    
41,587,153
                             
               
CAPITAL STOCK AND SURPLUS:
          
                 
Common capital stock, $1,000 par value - 10,000 shares
      
                 
   authorized; 6,437 shares issued and outstanding
  
6,437
    
6,437
                 
Surplus notes
  
565,000
    
565,000
                 
Special surplus funds
  
-
    
71,677
                 
Gross paid in and contributed surplus
  
2,588,377
    
2,588,377
                 
Unassigned funds
  
(1,923,960)
    
(1,916,220)
               
Total surplus
  
1,229,417
    
1,308,834
               
Total capital stock and surplus
  
1,235,854
    
1,315,271
                             
               
TOTAL LIABILITIES, CAPITAL STOCK AND
          
 
TOTAL ADMITTED ASSETS
$
42,461,512
  
$
42,902,424
  
SURPLUS
$
42,461,512
  
$
42,902,424
                             
 
See notes to statutory-basis financial statements.
                        

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

STATUTORY–BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010 (IN THOUSANDS)

       
2012
    
2011
    
2010
INCOME:
                
 
Premiums and annuity considerations
$
415,915
  
$
3,230,219
  
$
3,466,690
 
Considerations for supplementary contracts with life contingencies
  
18,123
    
11,474
    
14,627
 
Net investment income
  
613
    
605,357
    
319,475
 
Amortization of interest maintenance reserve
  
13,396
    
15,205
    
18,734
 
Commissions and expense allowances on reinsurance ceded
  
(557)
    
1,789
    
8,016
 
Reserve adjustments on reinsurance ceded
  
170
    
3,115
    
(14,400)
 
Income from fees associated with investment management,
                
   
administration and contract guarantees from Separate Accounts
  
539,845
    
524,948
    
495,388
 
Other income
  
134,495
    
129,179
    
118,810
                     
   
Total Income
  
1,122,000
    
4,521,286
    
4,427,340
                     
BENEFITS AND EXPENSES:
                
 
Death benefits
  
35,535
    
29,376
    
26,859
 
Annuity benefits
  
756,487
    
765,760
    
415,009
 
Surrender benefits and withdrawals for life contracts
  
2,781,813
    
2,713,462
    
2,825,593
 
Interest and adjustments on contracts or deposit-type contract funds
  
(5,342)
    
2,747
    
50,383
 
Payments on supplementary contracts with life contingencies
  
11,929
    
12,561
    
22,829
 
(Decrease) increase in aggregate reserves for life and accident and
                
   
health policies and contracts
  
(550,180)
    
380,852
    
(629,999)
                     
   
Total Benefits
  
3,030,242
    
3,904,758
    
2,710,674
                     
 
Commissions on premiums and annuity considerations (direct
                
   
business only)
  
109,722
    
272,446
    
273,819
 
Commissions and expense allowances on reinsurance assumed
  
131
    
132
    
122
 
General insurance expenses
  
152,556
    
207,334
    
198,137
 
Insurance taxes, licenses and fees, excluding federal income taxes
  
10,032
    
16,522
    
9,971
 
Net transfers (from) to Separate Accounts
  
(2,215,192)
    
463,339
    
1,064,578
 
Aggregate write-ins for deductions
  
76,306
    
80,010
    
97,772
                     
   
Total Benefits and Expenses
  
1,163,797
    
4,944,541
    
4,355,073
                     
Net (loss) gain from operations before federal income taxes and
                
 
net realized capital losses
  
(41,797)
    
(423,255)
    
72,267
                     
Federal income tax benefit, excluding tax on
                
 
capital losses
  
(84,977)
    
(37,926)
    
(25,108)
                     
Net gain (loss) from operations after federal income taxes and
                
 
before net realized capital losses
  
43,180
    
(385,329)
    
97,375
                     
Net realized capital losses less capital gains tax and
                
 
transfers to the interest maintenance reserve
  
(443,936)
    
(131,722)
    
(233,177)
                     
NET LOSS
$
(400,756)
  
$
(517,051)
  
$
(135,802)
                     
See notes to statutory-basis financial statements.
                

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

STATUTORY–BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010 (IN THOUSANDS)

                 
   
2012
    
2011
    
2010
                 
CAPITAL STOCK AND SURPLUS, BEGINNING OF YEAR
$
1,315,271
  
$
1,879,856
  
$
1,749,839
                 
Net loss
  
(400,756)
    
(517,051)
    
(135,802)
                 
Change in net unrealized capital gains (losses), net of deferred income tax
  
158,563
    
230,011
    
191,534
                 
Change in net unrealized foreign exchange capital (loss) gain
  
3,872
    
(5,354)
    
6,017
                 
Change in net deferred income tax
  
(287,767)
    
169,379
    
52,182
                 
Change in non-admitted assets
  
355,645
    
(40,194)
    
39,519
                 
Change in liability for reinsurance in unauthorized companies
  
(7)
    
(8)
    
286
                 
Change in asset valuation reserve
  
141,040
    
(106,042)
    
(48,955)
                 
Changes in Separate Account surplus
  
54
    
(13)
    
62
                 
Cumulative effect of changes in accounting principles (Note 1)
  
21,800
    
-
    
-
                 
Dividends to stockholders
  
-
    
(300,000)
    
-
                 
Stock option excess tax benefit
  
(184)
    
982
    
569
                 
Surplus change from SSAP 10R
  
(71,677)
    
3,705
    
13,294
                 
Aggregate write-ins for gains and (losses) in surplus (Note 1)
  
-
    
-
    
11,311
                 
CAPITAL STOCK AND SURPLUS, END OF YEAR
$
1,235,854
  
$
1,315,271
  
$
1,879,856
                 
See notes to statutory-basis financial statements.
                


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(A Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

STATUTORY–BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010 (IN THOUSANDS)

       
2012
    
2011
    
2010
                     
CASH FROM OPERATIONS:
                
 
Premiums collected net of reinsurance
$
428,308
  
$
3,261,075
  
$
3,517,842
 
Net investment income
  
492,927
    
508,625
    
570,144
 
Miscellaneous income
  
707,003
    
671,323
    
697,430
   
Total receipts
  
1,628,238
    
4,441,023
    
4,785,416
                     
 
Benefits and loss related payments
  
3,768,957
    
3,632,429
    
3,473,268
 
Net transfers (from) to Separate Accounts
  
(2,307,128)
    
528,821
    
1,213,069
 
Commissions, expenses paid and aggregate write-ins for deductions
  
277,329
    
497,711
    
541,253
 
Federal and foreign income taxes received
  
(56,336)
    
(30,269)
    
(80,273)
   
Total payments
  
1,682,822
    
4,628,692
    
5,147,317
Net cash from operations
  
(54,584)
    
(187,669)
    
(361,901)
                     
CASH FROM INVESTMENTS:
                
 
Proceeds from investments sold, matured, repaid or received
  
2,404,110
    
3,278,741
    
3,074,116
 
Cost of investments acquired
  
(2,642,421)
    
(1,865,311)
    
(3,177,296)
 
Net increase in contract loans and premium notes
  
18,509
    
6,378
    
5,356
Net cash from investments
  
(219,802)
    
1,419,808
    
(97,824)
                     
CASH FROM FINANCING AND MISCELLANEOUS SOURCES:
                
 
Capital and paid in surplus, less treasury stock
  
-
    
-
    
400,000
 
Borrowed funds
  
(18,003)
    
(99,998)
    
(100,002)
 
Net deposits on deposit-type contracts and other liabilities
  
(64,737)
    
(1,298,514)
    
(962,633)
 
Dividends to stockholders
  
-
    
(300,000)
    
-
 
Other cash (used) provided
  
(48,603)
    
6,567
    
57,550
Net cash from financing and miscellaneous sources
  
(131,343)
    
(1,691,945)
    
(605,085)
                     
Net increase in cash, cash equivalents, and short-term investments
  
(405,729)
    
(459,806)
    
(1,064,810)
                     
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
                
 
Beginning of year
  
747,160
    
1,206,966
    
2,271,776
                     
 
End of year
$
341,431
  
$
747,160
  
$
1,206,966
                     
                     
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
      
                     
During the years ended December 31, 2012, 2011 and 2010, the Company recorded the following non-cash activity: exchanges of debt securities of  $19.0 million, $49.0 million and $68.9 million, respectively, and transfers of mortgages to other invested assets of $41.1 million, $23.4 million and $30.5 million, respectively. During the years ended December 31, 2011 and 2010, the Company recorded the following non-cash activity: transfers of bonds to preferred stock of $16.0 million and $13.4 million, respectively, and transfers of other invested assets to real estate of $28.9 million and $2.0 million, respectively.  During the year ended December 31, 2010, the Company also transferred $7.1 million of bonds to other invested assets.
                     
See notes to statutory-basis financial statements.
                




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

Sun Life Assurance Company of Canada (U.S.) (the “Company”) is a stock life insurance company incorporated under the laws of Delaware.  The Company is a direct wholly-owned subsidiary of Sun Life of Canada (U.S.) Holdings, Inc. (the “Parent”).  The Company is an indirect wholly-owned subsidiary of Sun Life Assurance Company of Canada - U.S. Operations Holdings, Inc. (“SLC - U.S. Ops Holdings”) and is an indirect wholly-owned subsidiary of Sun Life Financial, Inc. (“SLF”), a reporting company under the Securities Exchange Act of 1934.  SLF and its subsidiaries are collectively referred to herein as “Sun Life Financial.”

The Company is authorized to transact business in 49 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands.  In addition, the Company’s wholly-owned subsidiary, Sun Life Insurance and Annuity Company of New York (“SLNY”), is authorized to transact business in the State of New York. The business of the Company and its subsidiaries includes a variety of wealth accumulation products, protection products and institutional investment contracts.  These products include individual and group fixed and variable annuities, individual and group variable life insurance, individual universal life insurance, group life, group disability, group dental and group stop loss insurance and funding agreements.

In the normal course of business, the Company and its subsidiaries reinsure portions of their life insurance, annuity, group life insurance, group disability income and group stop loss exposure with both affiliated and unaffiliated companies using traditional indemnity reinsurance agreements.

On December 17, 2012, SLF announced the execution of a definitive agreement to sell its domestic U.S. annuity business and certain life insurance businesses to Delaware Life Holdings, LLC, including all of the issued and outstanding shares of stock of the Company (the “Sale Transaction”).  The Sale Transaction is expected to close by the end of the second quarter of 2013, subject to regulatory approvals and customary closing conditions.  In connection with the Sale Transaction, the Company is seeking regulatory approval for certain affiliated transactions, including those described in Notes 2, 3, 5, 9 and 15.

During the first quarter of 2012, the Company and its wholly-owned subsidiary, SLNY, received all necessary insurance regulatory approvals to amend the fixed investment option period in their combination fixed and variable annuity contracts and other contracts to remove any negative market value adjustment (“MVA”) that can decrease the amount of the withdrawal proceeds. (Refer to Note 12 for additional information concerning the MVA Contracts.) The Company and SLNY filed amendments to the associated registration statements to include the contract amendments and to remove from registration any fixed investment options that remained unsold. The SEC declared the associated amended registration statements effective on March 22, 2012. As a result of the foregoing, the fixed investment option period in the contracts is no longer considered a “security” under the Securities Act of 1933, and the Company subsequently filed Forms 15 on March 23, 2012 to provide notice of suspension of its duty to file reports under Section 15(d) of the Securities Exchange Act of 1934. No other changes were made to the contracts, and all other terms and conditions of the contracts remain unchanged. The contract amendments described above did not have a material impact on the Company’s financial position.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

On December 12, 2011, SLF announced the completion of a major strategic review of its businesses. As a result of this strategic review, SLF announced that it would close its domestic U.S. variable annuity and individual life products to new sales effective December 30, 2011.

Existing legal, business and contractual requirements called for the Company to, among other things, continue accepting limited applications for (1) certain private placement variable annuities until mid-2012, and (2) new employees of corporate-owned life insurance (“COLI”) customers. Subject to these and other existing obligations, the Company ceased writing all other COLI new business effective January 31, 2012 and all other individual life and annuities new business effective December 31, 2011. The Company, through its subsidiary, SLNY, continues to offer group life, group disability, group dental and group stop loss insurance.

The decision to stop selling variable annuity and individual life products did not impact existing customers and their policies.  The Company continues to provide service to its policyholders, while focusing on the profitability, capital efficiency and risk management of its in-force business.  The Company will continue to earn revenue and to provide policyholder benefits on its in-force business.

Of the one-time restructuring costs on a pre-tax basis associated with the discontinuation of these product lines, $11.7 million was allocated to the Company. The restructuring costs related primarily to employee severance and other employee benefits, which were paid in the form of cash expenditures.

BASIS OF PRESENTATION

The accompanying statutory-basis financial statements of the Company are presented on the basis of accounting principles prescribed or permitted by the Delaware Department of Insurance (the “Department”).  The Department recognizes only statutory accounting principles prescribed or permitted by the State of Delaware for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under the Delaware Insurance Law.  The National Association of Insurance Commissioners’ (“NAIC”) Accounting Practices and Procedures Manual (“NAIC SAP”) has been adopted as a component of prescribed or permitted principles by the State of Delaware.  As of December 31, 2009 and until withdrawn, the Company has received a permitted practice from the Insurance Commissioner of the State of Delaware related to Statement of Statutory Accounting Principles (“SSAP”) No. 97 Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88 (“SSAP No. 97”), specifically paragraph 8.b.i to record the unaudited statutory equity of a subsidiary, Independence Life and Annuity Company (“ILAC”), as an admitted asset.  ILAC is not required to prepare audited financial statements under regulations adopted in its state of domicile, Delaware.  Note, effective December 10, 2012, after receiving regulatory approval, ILAC redomesticated from the State of Rhode Island to the State of Delaware. The Company would not have triggered a regulatory event if the permitted practice had not been used.  Effective Q1 2013, ILAC was distributed to the Parent.  Refer to Note 19 for additional information.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

A reconciliation of the Company’s capital and surplus between NAIC SAP and practices prescribed and permitted by the State of Delaware is shown below.  There is no difference in the Company’s net loss between NAIC SSAP and practices prescribed and permitted by the State of Delaware.

(In Thousands)
State of Domicile
  
2012
2011
2010
             
SURPLUS
          
             
 
Company state basis
Delaware
  
$1,235,854
$1,315,271
$1,879,856
             
             
 
State Permitted Practice that increase/(decrease) NAIC SAP: unaudited subsidiary
Delaware
  
64,186
61,818
58,579
             
 
NAIC SAP
    
$1,171,668
$1,253,453
$1,821,277

Accounting principles and procedures of the NAIC as prescribed or permitted by the Department comprise a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America (“GAAP”).  The more significant differences that affect the Company are as follows:

Under statutory accounting principles, financial statements are not consolidated.  Investments in domestic life insurance subsidiaries, as defined by SSAP No. 97 are carried at their net statutory-basis equity value.  The changes in value are recorded directly to surplus.  Non-public, non-insurance subsidiaries and controlled partnerships are carried at GAAP equity value. Dividends paid by subsidiaries to the Company are included in the Company’s net investment income.

Statutory accounting principles do not recognize the following assets or liabilities, which are recognized under GAAP: deferred policy acquisition costs, unearned premium reserve and statutory non-admitted assets. Deferred policy acquisition costs do create a temporary tax difference as disclosed in Note 15.  An asset valuation reserve (“AVR”) and interest maintenance reserve (“IMR”) are established under statutory accounting principles but not under GAAP.  Methods for calculating real estate investment valuation allowances differ under statutory accounting principles and GAAP.  Actuarial assumptions and reserving methods differ under statutory accounting principles and GAAP.  There are certain limitations on net deferred tax assets under statutory accounting principles. The MVA annuity products are classified within the General Account under GAAP, but are classified within the Separate Account under statutory accounting principles.




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

Under GAAP, investments in fixed maturity securities classified as available-for-sale or trading are carried at aggregate fair value.  Changes in unrealized gains and losses are reported net of taxes in a separate component of stockholder’s equity for available-for-sale securities and changes in unrealized gains and losses on trading securities are recorded in net investment income.  Fixed maturity securities are generally carried at amortized cost under statutory accounting principles.

RECONCILIATION OF STATUTORY FINANCIAL STATEMENTS, AS FILED, AND AUDITED
STATUTORY BASIS FINANCIAL STATEMENTS

Each year the Company files its annual statutory financial statements on March 1.  Subsequent to this filing, the annual independent audit of the statutory financial statements is performed.  Presented below is a reconciliation of amounts reported in the annual statement and those amounts reported in the audited statutory-basis financial statements for the year ended December 31, 2012. Total admitted assets and liabilities were reduced by $64.9 million due to a separate account balance sheet reclass.  There was no change to surplus, net income or cash flows.

(In Thousands)
            
   
As reported in the
 Annual Statement
  
Adjustment
  
As reported herein
             
Total Admitted Assets
$
42,526,371 
$
(64,859)
$
42,461,512 
Total Liabilities
  
(41,290,517)
  
64,859 
  
(41,225,658)
Total Capital & Surplus
$
1,235,854 
$
- 
$
1,235,854 

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles prescribed or permitted by the State of Delaware requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities.  It also requires disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period.  Actual results could differ from those estimates.  The most significant estimates are those used in determining the fair value of financial instruments, allowance for loan losses, aggregate reserves for life policies and contracts, liability for deposit-type contracts, deferred income taxes, provision for income taxes and other-than-temporary-impairments (“OTTI”) of investments.
 

CORRECTION OF ERRORS

Adjustments were recorded during 2011 to correct the Company’s prior year contract loan balances which were overstated due to inaccurate interest rates on certain loan balances related to single premium whole life (“SPWL”) policies. The adjustments were as follows: a decrease to Contract loans of $107.2 million, an


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

increase to Amounts recoverable from reinsurers of $3.0 million, an increase to Other liabilities of $2.3 million, and a decrease to Funds held under coinsurance of $106.5 million. These adjustments did not have an impact on surplus or net income for the current period or prior period, due to the 100% funds-withheld reinsurance agreement with the United States Branch of the Company’s affiliate, Sun Life Assurance Company of Canada “(SLOC)”

During 2010, the Company discovered the following error related to the prior period: Commissions to agents due or accrued and Commissions on premiums and annuity considerations were overstated by $17.4 million.  This error has been adjusted and recorded, net of tax, in “Aggregate write-ins for gains and losses in surplus” for the year ended December 31, 2010 in the amount of $11.3 million.
 

RECLASSIFICATIONS

During 2011, the Company changed its classification for certain perpetual debt instruments from bonds to preferred stock.  The classification change was made for assets where distributions and/or redemptions were at the sole discretion of the issuer.  The statement values of these assets were $16.0 million at December 31, 2011 and $13.4 million at December 31, 2010.

FINANCIAL INSTRUMENTS

In the normal course of business, the Company enters into transactions involving various types of financial instruments, including cash equivalents, short-term investments, debt and equity securities, mortgage loans and financial guarantees.  These instruments involve credit risk and also may be subject to risk of loss due to interest rate fluctuation.  The Company evaluates and monitors each financial instrument individually and, when appropriate, obtains collateral or other security to minimize losses.

SIGNIFICANT ACCOUNTING POLICIES

 
The following is a summary of significant accounting policies followed by the Company in preparing the accompanying statutory-based financial statements:

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash, cash equivalents and short-term investments are highly liquid securities.  The Company’s cash equivalents primarily include cash, commercial paper and money market investments which have an original term to maturity of less than three months.  Short-term investments include debt instruments with a term to maturity exceeding three months, but less than one year on the date of acquisition.  Cash equivalents and short-term investments are held at amortized cost, which approximates fair value.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       (CONTINUED)

INVESTMENTS

Debt Securities

Investments in debt securities including bonds, mortgage-backed securities (“MBS”) and asset-backed securities (“ABS”) are carried at amortized cost using the scientific method, except for those securities where the NAIC rating has fallen to 6 and the fair value has fallen below amortized cost, in which case they are carried at fair value. Adjustments to the value of MBS and ABS securities based on changes in cash flows, including those related to changes in prepayment assumptions, are made retrospectively. As part of this process, a third-party vendor for each security type was appointed by the NAIC to develop a revised NAIC rating methodology to be used for December 31, 2010 and thereafter.  The ratings for these RMBS and CMBS securities were determined by comparing the insurer’s carrying value divided by remaining par value to price ranges provided by the third-party vendors corresponding to each NAIC designation.  Comparisons were initially made to the model based on amortized cost.  Where the resulting rating was a NAIC 6 per the model, further comparison based on fair value was required which, in some cases, resulted in a higher final NAIC rating.  The net impact to surplus and unrealized gain/loss within surplus for the CMBS securities when placed under regulatory review at December 31, 2010 was a loss of $38.1 million.

The definition of structured securities under SSAP No. 43R, Loan Backed and Structured Securities – Revised (“SSAP No. 43R”), was modified in 2011 to include within the category of ABS certain debt securities that were previously classified by the Company as issuer obligations.  The types of securities reclassified under the revised definition included certain equipment trust certificates, guaranteed contracts, secured leases and secured contracts. Interest income on bonds, MBS, and ABS is recognized when earned based upon estimated principal repayments, if applicable.  For debt securities subject to prepayment risk, yields are recalculated and asset balances adjusted periodically so that expected return on future cash flows matches the expected return over the life of the investment from acquisition.  If the collection of all contractual cash flows is not probable, an OTTI may be indicated.  The process of analyzing securities for an OTTI adjustment is further described in Note 3.

Preferred Stocks and Common Stocks

Preferred stocks with an NAIC designation of 1 through 3 are carried at amortized cost.  Those with NAIC designations of 4 through 6 are carried at the lower of amortized cost or fair value.  Common stocks are carried at fair value except investments in subsidiaries.  The latter are carried based on the underlying statutory equity of the subsidiary.  The Company accounts for its investments in subsidiaries in accordance with SSAP No. 97 with the exception of the permitted practice granted by the Commissioner discussed previously. The Company has ownership interests in joint ventures and partnerships which are carried at values based on the underlying equity of the investee in accordance with SSAP No. 48 Joint Ventures, Partnerships and Limited Liability Companies (“SSAP No. 48”), and SSAP No. 93, Accounting for Low Income Housing Tax Credit Property Investments (“SSAP No. 93”).  Audited financial statements are received on an annual basis.  OTTI on stocks is evaluated under the methodology described in Note 3.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

Mortgage Loans

Mortgage loans are stated at unpaid principal balances, net of provisions for estimated losses.  Mortgage loans acquired at a premium or discount are carried at amortized cost using the effective interest rate method, net of provisions for estimated losses.  Purchases and sales of mortgage loans are recognized or derecognized in the Company’s balance sheet on the loan’s trade date, which is the date that the Company commits to purchase or sell the loan.  Transaction costs on mortgage loans are capitalized on initial recognition and are recognized in the Company’s Statement of Operations using the effective interest method.  Mortgage loans, which primarily include commercial first mortgages, are diversified by property type and geographic area throughout the United States.  Mortgage loans are collateralized by the related properties and generally are no more than 75% of the property’s value at the time that the original loan is made.  The Company regularly assesses the value of the collateral.

A mortgage loan is considered impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan. When a mortgage loan is classified as impaired, allowances for credit losses are established to adjust the carrying value of the loan to its net recoverable amount.

The allowance for credit losses are estimated using the present value of expected cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, if the loan is collateral dependent. A specific allowance for loan loss is established for an impaired loan if the present value of expected cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral less cost to sell, is less than the recorded amount of the loan.  The full extent of impairment in the mortgage portfolio cannot be assessed solely by reviewing these loans individually.  A general allowance for loan loss is established based on an assessment of past loss experience on groups of loans with similar characteristics and current economic conditions.  While management believes that it uses the best information available to establish the loan loss allowances, future adjustments may become necessary if economic conditions differ from the assumptions used in calculating them.

Interest income is recognized on impaired mortgage loans when the collection of contractually specified future cash flows is probable, in which case cash receipts are recorded in accordance with the effective interest rate method.  Interest income is not recognized on impaired mortgage loans and these mortgage loans are placed on non-accrual status when the collection of contractually specified future cash flows is not probable, in which case cash receipts are applied in the following order: first against the carrying value of the loan, then against the provision, and then to income.  The accrual of interest resumes when the collection of contractually specified future cash flows becomes probable based on certain facts and circumstances.

Changes in allowances for losses are recorded as changes in unrealized gains and losses to surplus.  Once the conditions causing impairment improve and future payments are reasonably assured, the mortgages are no longer classified as impaired and the Company resumes accrual of income.  However, if the original terms of
the contract have been changed resulting in the Company providing an economic concession to the borrower at below market rates, then the mortgage is reclassified as restructured.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

If the conditions causing impairment do not improve and future payments remain unassured, the Company typically derecognizes the asset through disposition or foreclosure.  Uncollectible collateral-dependent loans are written off through realized losses for any difference between the carrying value and amount received for the underlying property at the time of disposition or foreclosure.

Real Estate

 
Real Estate includes properties held for investment and properties held for sale. Real estate held for investment is stated at depreciated cost using the straight-line method net of encumbrances.  Properties held for sale are carried at the lower of depreciated cost or fair value less encumbrances and disposition costs.
 
Contract Loans

Contract loans are carried at the amount of outstanding principal balance. Contract loans are collateralized by the related insurance policy and do not exceed the net cash surrender value of such policy.
 

Asset Valuation Reserve and Interest Maintenance Reserve

The AVR is established as a liability based upon a formula prescribed by the NAIC to offset potential credit-related investment losses on all invested assets, with changes in the AVR charged or credited directly to surplus.  The IMR is established as a liability to capture realized gains and losses, net of income tax, on the sale of fixed income investments, principally bonds, mortgage loans and derivatives, resulting from changes in the general level of interest rates, and is amortized into income over the remaining years to expected maturity of the assets sold.
 

Derivatives

As part of the Company’s overall risk management policy, the Company uses interest rate swaps, over the counter (“OTC”) and listed options, exchange traded futures, currency forwards, currency swaps and swaptions.  Interest rate swaps are used to adjust asset duration and to better match interest rates earned on long-term fixed rate assets with interest credited to policyholders.  Interest rate swaps, purchased prior to January 1, 2003, are financial instruments with off-balance sheet risk.  Swaps purchased on January 1, 2003 and after are stated at fair value and changes in fair value are recorded through unrealized gains/losses within surplus.  Since October 1, 2008, the Company also utilizes interest rate swaps to hedge interest rate risk arising from the variability of cash flows due to certain variable rate funding agreements. These swaps are designated as cash flow hedges. Interest rate swaps that qualify for hedge accounting treatment are recognized in a manner consistent with the hedged item, at amortized cost.  At the date of designation, the fair value of the associated interest rate swap which had previously been recorded as an unrealized loss to surplus is fixed with subsequent amortization into income through the related policy’s maturity date. In the event a swap is not proven highly effective it is stated at fair value and then changes in fair value are recorded through unrealized gains/losses within surplus.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

The Company utilizes OTC put options and exchange traded futures on the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500 Index”) and other indices to hedge against stock market exposure inherent in the mortality and expense risk charges and guaranteed minimum death and living benefit features of the Company's variable annuities.  These options are stated at fair value.  Changes in fair value for options purchased prior to January 1, 2003 are recorded in net investment income. Changes in fair value for options purchased on January 1, 2003 and after are recorded in unrealized gains/losses within surplus.  The Company also purchases OTC and listed call options and exchange traded futures on the S&P 500 Index and other indices to economically hedge its obligation under certain fixed indexed annuity contracts.  The interest credited on these 1, 3, 5, 7 and 10 year term products are based on the changes in the S&P 500 Index.

The Company uses currency swaps to hedge against the risk of fluctuations in foreign currency exchange rates.  Currency swaps are marked to market.  Changes in fair value are recorded as unrealized gains/losses  within surplus.  Swaptions are utilized by the Company to hedge exposure to interest rate risk.  At the trade settlement date of a swaption, a premium is paid to the counterparty and recorded as an asset.  At expiration, swaptions either cash settle for value, settle into an interest rate swap or expire worthless. Swaptions are marked to market and changes in fair value are recorded in unrealized gains/losses (surplus).  Credit valuation adjustments (“CVAs”) are necessary to properly reflect the component of fair value of derivative instruments that arises from default risk.  CVAs are based on a methodology that uses credit default swap (“CDS”) spreads as a key input in determining an implied level of expected loss over the total life of the derivative contact. Where no observable CDS spreads are available, the counterparty’s or the Company’s credit spreads derived from bond yields are used instead.  CVAs are intended to achieve a fair value of the underlying contracts and are normally based on publicly available information. The CVAs also take into account contractual factors designed to reduce the Company’s credit exposure to each counterparty, such as collateral and legal rights of offset. CVAs are not recorded for interest rate swaps used as cash flow hedges when proven highly effective.

POLICY AND CONTRACT RESERVES
 

The reserves for life insurance and annuity contracts are computed in accordance with presently accepted actuarial standards, and are based on actuarial assumptions and methods (including use of published mortality tables and prescribed interest rates) which produce reserves at least as great as those required by law and/or contract provisions.

Liabilities for unpaid claims consist of the estimated amount payable for claims reported but not yet settled and an estimate of claims incurred but not reported.  The amounts reported are based upon historical experience, adjusted for trends and current circumstances.  Management believes that the recorded liability is sufficient to provide for the associated claims adjustment expenses. Revisions of these estimates are included in operations in the year such adjustments are determined to be required.
 



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

INCOME TAXES
 
 
The Company accounts for current and deferred income taxes and recognizes reserves for income tax contingencies in accordance with SSAP No. 101, Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10 (“SSAP No. 101”). Under the applicable asset and liability method for recording deferred income taxes, deferred taxes are recognized when assets and liabilities have different values for financial statement and tax reporting purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.  Valuation allowances on deferred tax assets are estimated based on the Company’s assessment of the realizability of such amounts.  Refer to Note 15 of the Company’s financial statements for further discussion of the Company’s income taxes.

INCOME AND EXPENSES

Life premiums are recognized as income over the premium paying period of the related policies.  Annuity considerations are recognized as revenue when received.  Expenses, such as commissions and other costs applicable to the acquisition of new business, are charged to operations as incurred.

SEPARATE ACCOUNTS

The Company has established unitized separate accounts applicable to various classes of contracts providing for variable benefits (the “variable separate accounts”). Contracts for which funds are invested in the variable separate accounts include individual and group life and annuity contracts.

The Company has also established non-unitized separate accounts for certain MVA fixed annuities including those for amounts allocated to the fixed portion of certain combination fixed and variable deferred annuity contracts.  The assets of the non-unitized separate account are not legally insulated from the Company’s general account and can be used to satisfy general account liabilities.  See Note 12 for additional information.

Net investment income, capital gains and losses, and changes in mutual fund asset values on the variable separate accounts are allocated to policyholders and therefore do not affect the operating results of the Company.  Assets held in the variable separate accounts are carried at fair value. The investment risk of such securities is retained by the contractholder.  The Company earns separate account fees for providing administrative services and bearing the mortality risks related to contracts for which funds are invested in variable separate accounts.

The activity of the separate accounts is not reflected in the Company’s financial statements except for the following:

 
·
The fees that the Company receives, which are assessed periodically and recognized as revenue when assessed.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       (CONTINUED)

·      The activity related to the guaranteed minimum death benefit (“GMDB”), guaranteed minimum accumulation benefit (“GMAB”) and guaranteed minimum withdrawal benefit (“GMWB”), which is reflected in the Company’s financial statements.

·      Premiums and withdrawals with offsetting transfers to/from the separate accounts are reflected in the Statement of Operations.

·      Transfers from the separate accounts due and accrued, which include accrued expense allowances receivable from the variable separate accounts and the aggregate surplus (income) due and accrued from MVA contracts.

·      The dividends-received-deduction (“DRD”), which is included in the Company’s income tax expense, is calculated based upon the variable separate accounts’ assets held in connection with variable contracts.

ACCOUNTING PRONOUNCEMENTS

New and Adopted Accounting Pronouncements

Effective January 1, 2012, the NAIC adopted SSAP No. 101. Under SSAP No. 101, deferred tax assets are admitted based on a realization threshold limitation table. The Company recorded the following changes in surplus as a result of the adoption:

(In Thousands)
  
   
Reclassification of SSAP No. 10R
  
  write-in within surplus
 $71,677 
   
Change in non-admitted DTA
  
  as a result of adoption
 (49,877)
   
Cumulative effect of change
  
  in accounting principle
 $21,800 

Prior to the adoption of SSAP No. 101, the Company accounted for income taxes under SSAP No. 10R, Income Taxes – Revised, A Temporary Replacement of SSAP No. 10 (“SSAP No. 10R”), which provided for a three-year reversal period and 15% of adjusted surplus.  The application of SSAP No. 10R resulted in an increase of $71.7 million and $68.0 million in the Company’s surplus at December 31, 2011 and 2010, respectively.

Effective January 1, 2012, the NAIC revised the disclosure requirements of SSAP No. 100, Fair Value Measurements, to clarify the disclosures of the fair value of financial instruments. The changes in the disclosures have been reflected in Note 13.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       (CONTINUED)

Effective December 31, 2011, the NAIC adopted SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets (“SSAP No. 5R”).   SSAP No. 5R requires entities to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee, even if the likelihood of having to make payments under the guarantee is remote.  Guarantees made to/or on behalf of a wholly-owned subsidiary, and inter-company and related party guarantees that are considered “unlimited” are exempted from the initial liability recognition.  As such, the guidance did not have a significant impact upon adoption.  The additional disclosures required by SSAP No. 5R have been incorporated in Note 2.
 
 
Effective January 1, 2011, the NAIC adopted changes to SSAP No. 43R, Loan-backed and Structured Securities, Revised (“SSAP No. 43R”).  These changes included broadening the definition of loan-backed and structured securities and clarification of the requirement to bifurcate realized gains and losses between the asset valuation reserve (“AVR”) and the interest maintenance reserve (“IMR”).  Neither of the changes had a material impact on the Company's statutory-basis net income or surplus.

Effective January 1, 2011, the NAIC adopted SSAP No. 35R, Guaranty Fund and Other Assessments (“SSAP No. 35R”). SSAP No. 35R modifies the conditions required before recognizing liabilities for insurance-related assessments. The liability is not recognized until the event obligating an entity to pay an imposed or probable assessment has occurred. The adoption of SSAP No. 35R did not have a significant impact on the financial statements of the Company.

Accounting Standards Not Yet Adopted

Effective December 31, 2013, the NAIC adopted SSAP No. 103, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SSAP No. 103”). SSAP No. 103 replaces SSAP No. 91R of the same name and establishes new conditions for when a transferred financial asset is accounted for as a sale in addition to removing the concept of a qualifying special-purpose entity. The adoption of the standard is not expected to have a significant impact on the financial statements of the Company.

2.   RELATED PARTY TRANSACTIONS

The Company has significant transactions with affiliates.  Management believes intercompany revenues and expenses are calculated on a reasonable basis; however, these amounts may not necessarily be indicative of costs that would be incurred if the Company operated on a stand-alone basis and these transactions were with unrelated parties.  Below is a summary of significant transactions with affiliates.

As of December 31, 2012, the Company directly or indirectly owned all of the outstanding shares or members interest of the following entities, all of which are recorded as investments in subsidiaries in the Company’s statutory-basis financial statements: SLNY, the business of which includes individual fixed and variable annuity contracts, group life, group disability, group dental, group stop loss  and individual life insurance in New York; ILAC, a Delaware life insurance company that sold variable life insurance products and fixed annuities; Clarendon Insurance Agency, Inc., a registered broker-dealer; 7101 France Avenue, LLC; Sun MetroNorth, LLC; SL Investment DELRE Holdings 2009-1, LLC; SLF Private Placement Investment

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


2.   RELATED PARTY TRANSACTIONS (CONTINUED)

Company I, LLC and SLNY Private Placement Investment Company I, LLC. SLF Private Placement Investment Company I, LLC and SLNY Private Placement Investment Company I, LLC are carried at a zero equity value.

In December 2012, the Company’s Board of Directors approved the extraordinary distribution of all of the issued and outstanding shares of ILAC to the Parent. The Company received regulatory approval for the distribution, and ILAC was distributed effective January 1, 2013.  Refer to Note 19.  In addition, SLNY Private Placement Investment Company I, LLC, which was carried at a zero equity value, was cancelled during the fourth quarter of 2012.  During 2011, Sun Parkaire Landing, LLC was dissolved.  The value of real estate transferred to held for production of income was $18.5 million.

Summarized combined financial information of the Company’s subsidiaries, which are included in common stocks and other invested assets in the accompanying financial statements on an equity basis, are as follows:


   
Years Ended December 31,
(In Thousands)
  
2012
    
2011
           
Assets
$
 3,733,791
  
 $
 3,700,561
Liabilities
  
 3,239,634
    
 3,264,337
Total net assets
$
 494,157
  
 $
 436,224
           
Total revenues
$
 272,476
  
 $
 508,828
Operating expenses
  
 216,718
    
 505,876
Income tax expense
  
 16,379
    
 919
Net gain
$
 39,379
  
 $
 2,033

The Company does not own shares of an upstream intermediate entity or ultimate parent, directly or indirectly, via a downstream subsidiary, controlled, or affiliated entity.

In accordance with SLF’s strategy, SLNY also closed its variable annuity and individual life products to new sales effective December 30, 2011, with certain exceptions.  (See Note 1.)
 
 
Reinsurance Related Agreements

As more fully described in Note 9, the Company is party to several reinsurance transactions with SLOC and other affiliates.

In December 2012, in connection with the Sale Transaction, the Company’s Board of Directors of the Company approved the recapture of 100 percent of the risks under certain SPWL policies that are currently reinsured to its affiliate, SLOC, pursuant to a December 31, 2003 reinsurance agreement.  The transaction was recorded during the first quarter of 2013.  See Note 19 for further details.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


2.   RELATED PARTY TRANSACTIONS (CONTINUED)

The Company  has a reinsurance agreement with Sun Life Reinsurance (Barbados) No. 3 Corp. (“BarbCo 3”), an affiliate, to cede all of the risks associated with certain in-force corporate and bank-owned variable universal life and private placement variable universal life policies on a combination coinsurance, coinsurance with funds-withheld and a modified coinsurance basis.

Effective January 1, 2010, the Company and BarbCo 3 amended the agreement to include coverage of certain corporate and bank-owned variable universal life and private placement variable universal life insurance cases sold between December 31, 2009 and March 31, 2010, inclusive.  Reinsurance coverage continued for all cases sold prior to April 1, 2010.  However, cases sold on or after April 1, 2010 have not been reinsured.  This amendment also enabled the Company to discontinue reinsuring a portion of the covered business that was previously reinsured on a modified coinsurance basis, effective April 1, 2010.  The discontinuance of the business reinsured on a modified coinsurance basis did not have a material impact on the Company’s financial statements.

Capital Transactions

The Company did not receive any capital contributions from the Parent during the years ended December 31, 2012, 2011 and 2010.  No dividends were paid during the year ended December 31, 2012. During the year ended December 31, 2011, the Company paid an extraordinary cash dividend of $300.0 million to the Parent. No dividends were paid during the year ended December 31, 2010.

During 2012 and 2011, the Company contributed to its subsidiary, SL Investment DELRE Holdings 2009-1, LLC, mortgages with a book value and fair value of approximately $41.1 million and 23.4 million, respectively.

Debt and Surplus Note Transactions

As of December 31, 2011 and 2010, the Company had an $18.0 million outstanding promissory note that was originally issued to Sun Life (Hungary) Group Financing Limited Company (“Sun Life (Hungary) LLC”), an affiliate, for which the Company paid interest semi-annually.  On June 2, 2011, Sun Life (Hungry) LLC sold the $18.0 million note to SLOC.  With the exception of the change in lenders, this transaction did not have any impact on the terms of the promissory note.  Effective June 2, 2011, the Company began paying the related interest to SLOC. On June 29, 2012, the Company paid the $18.0 million of outstanding principal, plus $0.5 million in accrued interest to SLOC due to the maturity of the note.  Related to this note, the Company incurred interest expense of $0.5 million for the year ended December 31, 2012 and $1.0 million for each of the years ended December 31, 2011 and 2010, respectively.

As of December 31, 2012, and 2011, the Company had $565.0 million of surplus notes payable to Sun Life Financial (U.S.) Finance Inc., an affiliate.  During 2012, the Company applied for and received approval from the Delaware Department of Insurance for certain modifications to two surplus notes payable to Sun Life Financial (U.S.) Finance, Inc. The modifications extended the maturity dates on both surplus notes from December 15, 2015 to December 15, 2032, changed the interest rates from 6.125% per annum and 7.25% per annum to 7.626% and modified the prepayment language in both surplus notes. These changes were effective October 1, 2012.  The Company expensed $42.7 million for interest on these surplus notes for year ended December 31, 2012 and $42.6 million for each of the years ended December 31, 2011 and 2010, respectively.

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

2.   RELATED PARTY TRANSACTIONS (CONTINUED)

Institutional Investments Contracts

On September 12, 2006, the Company issued two floating rate funding agreements totaling $900.0 million to Sun Life Financial Global Funding III, L.L.C. (“LLC III”) which will mature on October 6, 2013.  On April 7, 2008, the Company issued a third floating rate funding agreement totaling $5.8 million to LLC III, which matured on December 1, 2011.  The Company paid $5.9 million to LLC III, including $0.01 million in interest due to the maturity of the third funding agreement.  Total interest credited for these three funding agreements was $7.3 million, $5.9 million and $6.2 million for the years ended December 31, 2012, 2011 and 2010, respectively.  On September 19, 2006, the Company also issued a $100.0 million floating rate demand note payable to LLC III.  For interest on this demand note, the Company expensed $0.8 million for year ended December 31, 2012 and $0.7 million for each of the years ended 2011 and 2010, respectively. The Company has entered into an interest rate swap agreement with LLC III with an aggregate notional amount of $900.0 million that effectively converts the floating rate payment obligations under the funding agreements to fixed rate obligations.

On May 17, 2006, the Company issued a floating rate funding agreement of $900.0 million to Sun Life Financial Global Funding II, L.L.C. (“LLC II”), an affiliate.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $7.5 million to LLC II.  On July 1, 2011 and July 19, 2011, the Company paid $901.3 million and $7.5 million to LLC II due to the maturity of these funding agreements that the Company issued to LLC II.  The payments included $1.3 million of accrued interest.

Total interest credited for these funding agreements was $2.6 million and $5.4 million for the years ended December 31, 2011 and 2010, respectively.

The Company also issued a $100.0 million floating rate demand note payable to LLC II on May 24, 2006.    On July 19, 2011, the Company paid $100.0 million to LLC II, including $0.01 million in interest due to the maturity of the floating rate demand note.  For interest on this demand note, the Company expensed $0.3 million and $0.6 million for the years ended December 31, 2011 and 2010, respectively.

The Company had entered into an interest rate swap agreement with LLC II with an aggregate notional amount of $900.0 million that effectively converted the floating rate payment obligations under the funding agreement to fixed rate obligations.  This interest swap agreement expired on July 6, 2011 due to the maturity of the underlying floating rate funding agreement with LLC II.

On June 3, 2005 and June 29, 2005, the Company issued two floating rate funding agreements with a combined total of $900.0 million to Sun Life Financial Global Funding, L.L.C. ("LLC") due 2010.  On April 7, 2008, the Company issued an additional floating rate funding agreement totaling $10.0 million to LLC.  On July 1, 2010 and July 8, 2010, the Company paid $900.0 million and $10.0 million, respectively, to LLC due to the maturity of these funding agreements. Total interest credited for these funding agreements was $2.9 million for the year ended December 31, 2010.  On June 10, 2005, the Company also issued a $100.0 million floating rate demand note payable to LLC, which matured on July 6, 2010.  On August 6, 2010, the Company paid $100.1 million to LLC, including $0.1 million in interest due to settle the $100 million demand note payable.  The Company expensed $0.5 million for the year ended December 31, 2010, for interest on this demand note.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

2.   RELATED PARTY TRANSACTIONS (CONTINUED)

The Company had an interest rate swap agreement with LLC with an aggregate notional amount of $900.0 million that effectively converted the floating rate payment obligations under the funding agreements to fixed rate obligations. The related $900.0 million interest rate swap agreement expired on July 6, 2010 due to the maturity of the floating rate funding agreements with LLC.

The account values related to these funding agreements issued to LLC III, and LLC II are reported in the Company’s statutory-basis statements of admitted assets, liabilities, capital stock and surplus as a component of liability for deposit-type contracts.

 
The details of outstanding notes due affiliates at December 31, 2012 are as follows (amounts in thousands):

Issue Date
Payees
Type
Rate
Maturity
  
Principal/
Carrying
Value
    
Interest
Expense
                   
12/15/1995
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.150%
12/15/2027
$
150,000
  
$
9,225
12/15/1995
Sun Life Financial (U.S.) Finance, Inc.
Surplus
7.626%
12/15/2032
  
150,000
    
10,991
12/15/1995
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.150%
12/15/2027
  
7,500
    
461
12/15/1995
Sun Life Financial (U.S.) Finance, Inc.
Surplus
7.626%
12/15/2032
  
7,500
    
483
12/22/1997
Sun Life Financial (U.S.) Finance, Inc.
Surplus
8.625%
11/06/2027
  
250,000
    
21,563
 
Total surplus notes
      
$
565,000
  
$
42,723
                   
07/22/2002
Sun Life Assurance Company of Canada
Promissory
5.710%
06/30/2012
  
-
    
514
09/19/2006
Sun Life Financial Global Funding III, L.L.C.
Demand
Libor plus 0.35%
10/06/2013
  
100,000
    
836
 
Total borrowed money
      
$
100,000
  
$
1,350
 
Grand total
      
$
665,000
  
$
44,073

The details of outstanding notes due affiliates at December 31, 2011 are as follows (amounts in thousands):

Issue Date
Payees
Type
Rate
Maturity
  
Principal/
Carrying Value
    
Interest Expense
                   
12/15/1995
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.150%
12/15/2027
$
150,000
  
$
9,225
12/15/1995
Sun Life Financial (U.S.) Finance, Inc.
Surplus
7.250%
12/15/2015
  
150,000
    
10,875
12/15/1995
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.150%
12/15/2027
  
7,500
    
461
12/15/1995
Sun Life Financial (U.S.) Finance, Inc.
Surplus
6.125%
12/15/2015
  
7,500
    
459
12/22/1997
Sun Life Financial (U.S.) Finance, Inc.
Surplus
8.625%
11/06/2027
  
250,000
    
21,563
 
Total surplus notes
      
$
565,000
  
$
42,583
                   
07/22/2002
Sun Life Assurance Company of Canada
Promissory
5.710%
06/30/2012
  
18,000
    
1,028
05/24/2006
Sun Life Financial Global Funding II, L.L.C.
Demand
Libor plus 0.26%
07/06/2011
  
-
    
310
09/19/2006
Sun Life Financial Global Funding III, L.L.C.
Demand
Libor plus 0.35%
10/06/2013
  
100,000
    
664
 
Total borrowed money
      
$
118,000
  
$
2,002
 
Grand total
      
$
683,000
  
$
44,585


Each payment and accrual of interest on surplus notes may be made only with the prior approval of the Commissioner of Insurance of the State of Delaware and only to the extent the Company has sufficient surplus to make such payment.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

2.   RELATED PARTY TRANSACTIONS (CONTINUED)

Administrative Service Agreements, Rent and Other

The Company participates in a pension plan and other retirement plans sponsored by an affiliate, Sun Life Financial (U.S.) Services Company, Inc. (“Sun Life Services”). The allocated expenses to the Company from Sun Life Services were $18.0 million, $21.9 million and $24.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.

On December 31, 2009 the Company transferred assets to Sun Life Services, which resulted in a sale-leaseback transaction.  At the time of the transfer, the Company established a liability, which represented the cost of certain of the assets transferred, and had been amortizing the liability over the remaining useful life of the assets on a straight-line basis.  During December, 2012, the value of the assets transferred were written down to zero, and the remaining liability was amortized into income.  The write-off resulted in an increase to surplus of approximately $8.6 million, pre-tax, as the leased assets had been previously non-admitted.  The Company has no remaining future minimum lease payments related to these assets.  For the year ended December 31, 2011, the Company recorded non-admitted assets with a corresponding deposit liability of $11.4 million.

The Company is party to various related party administrative service agreements as described below.  Certain of these affiliated service agreements may be amended or terminated upon the close of the Sale Transaction, described in Note 1.

Pursuant to an administrative services agreement between the Company and Sun Life Services, Sun Life Services agrees to provide human resource services (e.g., recruiting and maintaining appropriately trained and qualified personnel and equipment necessary for the performance of actuarial, financial, legal, administrative, and other operational support functions) to the Company, and the Company agrees to reimburse Sun Life Services for the cost of such services plus an arms-length based profit margin to be agreed upon by the parties.  Total expenses under this agreement were $75.1 million, $91.1 million and $100.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company has an administrative services agreement with SLOC under which the Company provides various administrative services to SLOC upon request.  Pursuant to this agreement, the Company recorded reimbursements of $129.6 million, $99.3 million and $99.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company has an administrative services agreement with SLOC, which provides that SLOC will furnish, as requested, certain services and facilities on a cost-reimbursement basis.  Expenses under this agreement amounted to approximately $7.5 million, $12.6 million, and $11.5 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company has an administrative services agreement with Sun Life Information Services Canada, Inc. ("SLISC"), an affiliate, under which SLISC provides administrative and support services to the Company in connection with the Company’s insurance and annuity business.  Expenses under this agreement amounted to approximately $18.4 million, $19.3 million and $18.0 million for the years ended December 31, 2012, 2011 and 2010, respectively.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


2.   RELATED PARTY TRANSACTIONS (CONTINUED)

The Company has service agreements with Sun Life Information Services Ireland Limited ("SLISIL"), an affiliate, under which SLISIL provides various insurance related and information systems services to the Company.  Expenses under these agreements amounted to approximately $25.3 million, $22.6 million and $23.5 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company has an administrative services agreement with SLC-U.S. Ops Holdings, under which the Company provides administrative and investor services with respect to certain open-end management investment companies for which an affiliate, Massachusetts Financial Services Company (“MFS”), serves as the investment adviser, and which are offered to certain of the Company’s separate accounts established in connection with variable annuity contracts issued by the Company.  Amounts received under this agreement amounted to approximately $14.2 million, $12.7 million and $13.0 million for the years ended December 31, 2012, 2011 and 2010, respectively.

During 2012, 2011 and 2010, the Company paid $10.2 million, $35.9 million and $38.2 million, respectively, in commission fees to Sun Life Financial Distributors, Inc. (“SLFD”), an affiliated broker dealer.

The Company has an administrative services agreement with Sun Capital Advisers LLC (“SCA”), an affiliated investment adviser, under which the Company provides administrative services with respect to certain open-end investment management companies for which SCA serves as the investment adviser, and which are offered to certain of the Company's separate accounts established in connection with variable contracts issued by the Company. Amounts received under this agreement amounted to approximately $16.4 million, $16.6 million and $13.0 million for the years ended December 31, 2012, 2011 and 2010.  The Company paid $15.7 million, $17.9 million and $18.9 million in investment management fees to SCA under a separate investment services agreement for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company has a management services agreement with SLNY, whereby the Company furnishes certain investment, actuarial, and administrative services to SLNY on a cost reimbursement basis.  The Company received reimbursements related to this agreement of $30.0 million, $31.2 million and $30.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The Company leased office space to SLOC under lease agreements with terms expiring on December 31, 2014 and options to extend the terms for each of twelve successive five-year terms at fair market rental value, not to exceed 125% of the fixed rent for the term which is then ending.  Rent received by the Company under
the leases amounted to approximately $12.6 million in 2012 and $12.1 million in 2011 and 2010. Rental income is reported as a component of net investment income.  This lease was revised on January 1, 2013.  Refer to Note 19.

During 2010, the Company sold mortgages to SLOC with a book value of $85.6 million and a fair value of $93.4 million and recognized a pre-tax gain of $7.8 million as a result.  During 2010, the Company also purchased $52.2 million of unrelated mortgage loans from SLOC at fair value.

The Company had $71.0 million and $54.0 million due from related parties at December 31, 2012 and 2011, respectively, and had $18.5 million and $27.9 million due to related parties, recorded as a component of Other liabilities, at December 31, 2012 and 2011, respectively, under the terms of various management and service contracts which provide for cash settlements on a quarterly or more frequent basis.

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


2.   RELATED PARTY TRANSACTIONS (CONTINUED)

The Company, as successor to Keyport Life Insurance Company (“Keyport”), which merged with and into the Company at close of business on December 31, 2003, unconditionally guarantees the full and punctual payment when due of any obligations of its wholly-owned subsidiary, ILAC, arising out of or in connection with any insurance or annuity contract (“Contract”) issued by ILAC on or after June 25, 1998. The purpose of this guaranty is to enhance the financial strength of ILAC. The liability of the Company under the guaranty is unlimited to any specific sum and continues until terminated by mutual agreement of the parties. In the event of such termination, the Company will not be liable under the guarantee in connection with any Contract issued by ILAC after the termination date; however, the guarantee will continue in effect with respect to any obligations arising out of or in connection with any Contract issued after June 25, 1998 and before the termination date. The guaranty will not exceed contractual obligations to the policyholders of the contracts.  No contracts were issued by ILAC after June 25, 1998. At December 31, 2012 and 2011, there is no liability accrued under this guaranty.

The Company, as successor to Keyport, unconditionally guarantees the full and punctual payment when due of any obligations of Keyport Benefit Life Insurance Company (“KBL”) arising out of or in connection with any Contract issued by KBL on or after June 25, 1998 and before December 31, 2002, the date that KBL merged with and into the Company’s wholly-owned subsidiary, SLNY. The purpose of this guaranty was to enhance the financial strength of KBL. The liability of the Company under the guaranty is unlimited to any specific sum. The guaranty will not exceed contractual obligations to the policyholders of the contracts. At December 31, 2012 and 2011, there is no liability accrued under this guaranty.

The Company guarantees on a subordinated basis all amounts payable by SLNY to holders of certain deferred combination fixed and variable annuity contracts (“MVA Contracts”) issued by SLNY which include the option to earn a guaranteed fixed return for specified periods (“Guarantee Period”). The Company unconditionally and irrevocably guarantees the full and punctual payment when due of all amounts payable by SLNY from a Guarantee Period to any holder. The guarantee is subject to no preconditions other than the failure by SLNY to pay when due any Guarantee Period interests. SLNY registered such Guarantee Period interests under the Securities Act of 1933 with the Securities and Exchange Commission (“SEC”). Under the SEC’s rules, implementation of the guarantee permitted SLNY to stop filing periodic reports with the SEC pursuant to the Securities Exchange Act of 1934, and the purpose of the guarantee was to achieve that result. The Company’s guarantee in this regard guarantees the payment of amounts payable by SLNY from a Guarantee Period but does not guarantee any other obligations of SLNY under the MVA Contracts. The obligations under the guarantee are unsecured obligations of the Company and subordinate in right of payment to the prior payment in full of all other obligations of the Company except for guarantees which by their terms are designated as ranking equally in right of payment with or subordinate to this guarantee. The
liability of the Company under the guaranty is unlimited to any specific sum. The guaranty will not exceed contractual obligations to the policyholders of the MVA Contracts. At December 31, 2012 and 2011, there is no liability accrued under this guaranty.

The Company guaranteed the full and timely payment of the obligations of SLFD, as tenant under a commercial office lease dated April 13, 2007.  Prior to December 31, 2011, SLFD provided written notice to the landlord of its intention to terminate the lease effective January 14, 2013 and paid $3.5 million in surrender considerations.  The maximum potential amount of future payments (undiscounted) that the guarantor could have been required to make under the guarantee was $0. This guarantee terminated with the termination of the office lease.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


2.   RELATED PARTY TRANSACTIONS (CONTINUED)

The Company recorded tax benefits from stock options of approximately $(0.2) million, $1.0 million and $0.6 million for the years ended December 31, 2012, 2011 and 2010, respectively. Employees of the Company’s affiliates are participants in a restricted share unit (“RSU”) plan with the Company’s indirect parent, SLF.

Under the RSU plan, participants are granted units that are equivalent to one common share of SLF stock and have a fair value of a common share of SLF stock on the date of grant.  RSUs earn dividend equivalents in the form of additional RSUs at the same rate as the dividends on common shares of SLF stock.  The redemption value, upon vesting, is the fair value of an equal number of common shares of SLF stock.  The Company incurred expenses of $7.8 million, $5.7 million and $9.6 million relating to RSUs for the years ended December 31, 2012, 2011 and 2010, respectively.

3.  DEBT SECURITIES

The statement value and fair value of the Company’s debt securities were as follows:

 
December 31, 2012
(In Thousands)
        
Gross
    
Gross
      
   
Statement
    
Unrealized
    
Unrealized
    
Estimated
   
Value
    
Gains
    
Losses
    
Fair Value
                       
Foreign Government
$
3,211
  
$
441
  
$
- 
  
$
3,652
US State, Municipals and Political Subdivisions
  
1,058
    
22
    
(14)
    
1,066
US Treasury & Agency
  
1,099,088
    
2,974
    
(954)
    
1,101,108
Residential Mortgage Backed Securities
  
672,085
    
12,385
    
(25)
    
684,445
Commercial Mortgage Backed Securities
  
616,847
    
38,538
    
(7,109)
    
648,276
Corporate
  
4,504,111
    
350,525
    
(25,611)
    
4,829,025
Asset Backed Securities
  
411,799
    
53,507
    
(1,439)
    
463,867
Total
$
7,308,199
  
$
458,392
  
$
(35,152)
  
$
7,731,439

 
December 31, 2011
(In Thousands)
        
Gross
    
Gross
      
   
Statement
    
Unrealized
    
Unrealized
    
Estimated
   
Value
    
Gains
    
Losses
    
Fair Value
                       
Foreign Government
$
3,183
  
$
236
  
$
- 
  
$
3,419
US State, Municipals and Political Subdivisions
  
816
    
56
    
- 
    
872
US Treasury & Agency
  
503,412
    
5,187
    
- 
    
508,599
Residential Mortgage Backed Securities
  
864,049
    
13,534
    
(113,865)
    
763,718
Commercial Mortgage Backed Securities
  
669,740
    
30,605
    
(85,563)
    
614,782
Corporate
  
4,911,942
    
252,596
    
(74,871)
    
5,089,667
Asset Backed Securities
  
502,084
    
52,826
    
(14,912)
    
539,998
Total
$
7,455,226
  
$
355,040
  
$
(289,211)
  
$
7,521,055


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


3.  DEBT SECURITIES (CONTINUED)

The statement value and estimated fair value by maturity periods for debt securities, other than ABS and MBS are shown below.  Actual maturities may differ from contractual maturities on ABS and MBS because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; accordingly the contractual maturities for those securities are not shown.

 
December 31, 2012
(In Thousands)
  
Statement
    
Estimated
   
Value
    
Fair Value
Due in one year or less
$
1,136,526
  
$
1,144,560
Due after one year through five years
  
2,147,269
    
2,265,367
Due after five years through ten  years
  
1,229,766
    
1,311,661
Due after ten years
  
1,093,907
    
1,213,263
Total before asset and mortgage-backed securities
  
5,607,468
    
5,934,851
Asset and mortgage-backed securities
  
1,700,731
    
1,796,588
Total
$
7,308,199
  
$
7,731,439

Proceeds from sales and maturities of investments in debt securities during 2012, 2011 and 2010, were $2.2 billion, $3.0 billion, and $2.9 billion, respectively; gross gains were $56.8 million, $98.5 million and $161.4 million; and gross losses were $31.0 million, $26.0 million and $40.6 million, respectively.

Debt securities included above with a statement value of approximately $4.2 million for each of the years ended December 31, 2012 and 2011, respectively, were on deposit with governmental authorities as required by law.

Investment grade debt securities were 93.6% and 89.0% of the Company’s total debt securities as of December 31, 2012 and 2011, respectively.

The fair values of publicly traded debt securities are determined using three primary pricing methods: third-party pricing services, non-binding broker quotes and pricing models.  Prices are first sought from third party pricing services with the remaining unpriced securities priced using one of the other two methods.  For privately-placed fixed maturity securities, fair values are estimated using a fair value model which includes estimates that take into account credit spreads for a variety of public and private securities of similar credit risk, maturity, prepayment and liquidity characteristics.  A portion of privately-placed fixed maturity securities also are priced using market prices or broker quotes.

Estimates of expected future prepayments are factors in determining the price of ABS, RMBS and CMBS.  These estimates are based on the underlying collateral and structure of the security, as well as prepayment speeds previously experienced in the market at interest rate levels projected for the underlying collateral.  Actual prepayment experience may vary from these estimates. Exposure to any single issuer is less than 10% of net admitted assets.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

3.  DEBT SECURITIES (CONTINUED)

Other-than-temporary-impairment

The Company recognizes and measures OTTI for ABS and MBS in accordance with SSAP No. 43R. In accordance with SSAP No. 43R, if the fair value of a structured security is less than its amortized cost basis at the balance sheet date, the Company assesses whether the impairment is an OTTI.  When an OTTI has occurred, the amount of OTTI recognized in earnings is the difference between the amortized cost basis of the security and the present value of its expected future cash flows discounted at the effective interest rate implicit in the security.

If the Company intends to sell the structured security, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, an OTTI is considered to have occurred.  The amount of the OTTI recognized in earnings is the difference between the amortized cost basis and the fair value of the security.

If the Company does not intend to sell the structured security, or it is not more likely than not that it will be required to sell the security before recovery of its amortized cost basis, the Company performs cash flow based testing to determine if the present value of its expected future cash flows discounted at the effective interest rate implicit in the security is less than its amortized cost basis.

Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third parties, along with assumptions and judgments about the future performance of the underlying collateral.  Losses incurred on the respective portfolios are based on loss models using assumptions about key systematic risks such as unemployment rates and housing prices and loan specific information such as delinquency rates and loan-to-value ratios.

OTTI was recognized during 2012 on loan-backed or structured securities that the Company had intent to sell in conjunction with the Sale Transaction, as defined in Note 1.  Refer to details in Note 20.  The OTTI balances under SSAP No. 43R where the present value of expected cash flows are less than amortized cost as of December 31, 2012 and 2011 are also detailed in Note 20.

If the fair value of a debt security other than those subject to SSAP No. 43R, is less than its amortized cost basis at the balance sheet date, the Company assesses whether the impairment is an OTTI.  When an OTTI has occurred, the amount of OTTI recognized in earnings is the difference between the amortized cost basis of the security and its fair value.

If the Company intends to sell the debt security, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, an OTTI is considered to have occurred.  If the Company does not intend to sell the debt security, or it is not more likely than not that it will be required to sell the security before recovery of its amortized cost basis, the Company employs a portfolio monitoring process to identify securities that are OTTI.  The Company has a Credit Committee comprised of investment and finance professionals which meets at least quarterly to review individual issues or issuers that may be of concern.  In determining whether a security is OTTI, the Credit Committee considers the factors described below.  The process involves a quarterly screening of all securities where fair value is less than the amortized cost basis.   Discrete credit events, such as a ratings downgrade, are also used to identify securities that may be OTTI.  The securities identified are then evaluated based on issuer-specific facts and circumstances, such as the issuer’s ability to meet current and future interest and principal payments, an evaluation of the issuer’s financial position and its near term recovery prospects, difficulties being experienced by an issuer’s parent or affiliate, and management’s assessment of the outlook for the issuer’s sector.
 

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


3.  DEBT SECURITIES (CONTINUED)

In making these evaluations, the Credit Committee exercises considerable judgment.  Based on this evaluation, issues or issuers are considered for inclusion on one of the Company’s following credit lists:

“Monitor List”- Management has concluded that the Company’s amortized cost will be recovered through timely collection of all contractually specified cash flows, but that changes in issuer-specific facts and circumstances require monitoring on a quarterly basis.  No OTTI charge is recorded in the Company’s statements of operations for unrealized loss on securities related to these issuers.

“Watch List”- Management has concluded that the Company’s amortized cost will be recovered through timely collection of all contractually specified cash flows, but that changes in issuer-specific facts and circumstances require continued monitoring during the quarter.  A security is moved from the Monitor List to the Watch List when changes in issuer-specific facts and circumstances increase the possibility that a security may become impaired within the next 24 months.  No OTTI charge is recorded in the Company’s statements of operations for unrealized loss on securities related to these issuers.

“Impaired List”- Management has concluded that the Company has the intent to sell the security, it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, or the amortized cost basis of the security is not expected to be recovered due to expected delays or shortfalls in the contractually specified cash flows. For these investments, the amount of OTTI recognized in the Company’s statements of operations is the difference between the amortized cost basis of the security and its fair value or discounted cash flows.

Should it be determined that a security is other than temporarily impaired, the Company records a loss through an appropriate adjustment in carrying value.  For the year ended December 31, 2012, the Company incurred write-downs of debt securities, including those subject to SSAP No. 43R and those which the Company had the intent to sell in connection with the Sale Transaction, defined in Note 1, totaling $367.6 million.  Of this amount, $119.9 million was recorded related to sub-prime and Alternative-A (“Alt-A”) loans.  For the year ended December 31, 2011, the Company incurred write-downs on debt securities of $111.4 million in total, of which $17.7 million was related to sub-prime and Alt-A loans.  For the year ended December 31, 2010, the Company incurred write-downs of debt securities of $163.1 million in total, of which $11.3 million was recorded on sub prime and Alt-A loans.

There are inherent risks and uncertainties in management’s evaluation of securities for OTTI.  These risks and uncertainties include factors both external and internal to the Company, such as general economic conditions, an issuer’s financial condition or near-term recovery prospects, market interest rates, unforeseen events which affect one or more issuers or industry sectors, and portfolio management parameters, including asset mix, interest rate risk, portfolio diversification, duration matching, and greater than expected liquidity needs.  All of these factors could impact management’s evaluation of securities for OTTI.




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


3.  DEBT SECURITIES (CONTINUED)

The gross unrealized losses and fair value of investments, which have been deemed temporarily impaired, aggregated by investment category, number of securities and length of time that securities have been in an unrealized loss position at December 31, 2012 are as follows (in thousands except # of securities):


 
 Less than 12 months
  
 12 months or more
  
      Total
     
 Fair
  
 Unrealized
      
 Fair
  
 Unrealized
      
 Fair
  
 Unrealized
 
#
  
 Value
  
 Losses
  
 #
  
 Value
  
 Losses
  
 #
  
 Value
  
 Losses
                                   
Asset Backed Securities
3
  
2,951
  
(36)
  
3
  
6,247
  
(1,403)
  
6
$
9,198
$
(1,439)
                                   
Commercial Mortgage Backed Securities
2
  
6,852
  
(63)
  
6
  
9,043
  
(7,046)
  
8
  
15,895
  
(7,109)
                                   
Corporate
52
  
220,145
  
(9,731)
  
18
  
116,941
  
(15,880)
  
70
  
337,086
  
(25,611)
                                   
Residential Mortgage Backed Securities
1
  
84
  
(1)
  
7
  
6,229
  
(24)
  
8
  
6,313
  
(25)
                                   
US State, Municipals and Political Subdivisions
1
  
234
  
(14)
  
-
  
-
  
-
  
1
  
234
  
(14)
                                   
US Treasury and Agency
3
  
208,831
  
(954)
  
-
  
-
  
-
  
3
  
208,831
  
(954)
Total
62
 $
439,097
 $
(10,799)
  
34
$
138,460
$
(24,353)
  
96
$
577,557
$
(35,152)

The gross unrealized losses and fair value of investments, which have been deemed temporarily impaired, aggregated by investment category, number of securities and length of time that securities have been in an unrealized loss position at December 31, 2011 are as follows (in thousands except # of securities):


 
 Less than 12 months
  
 12 months or more
  
      Total
     
 Fair
  
 Unrealized
      
 Fair
  
 Unrealized
      
 Fair
  
 Unrealized
 
 #
  
 Value
  
 Losses
  
 #
  
 Value
  
 Losses
  
 #
  
 Value
  
 Losses
                                   
Asset Backed Securities
 12
 $
36,144
 $
 (1,401)
  
 11
 $
19,392
 $
 (13,511)
  
 23
 $
 55,536
 $
 (14,912)
                                   
Commercial Mortgage Backed Securities
 36
  
91,193
  
 (14,376)
  
 84
  
212,669
  
 (71,187)
  
 120
  
 303,862
  
 (85,563)
                                   
Corporate
 75
  
632,286
  
 (43,159)
  
 30
  
178,972
  
 (31,712)
  
 105
  
 811,258
  
 (74,871)
                                   
Residential Mortgage Backed Securities
 15
  
37,937
  
 (4,656)
  
 214
  
436,452
  
 (109,209)
  
 229
  
 474,389
  
 (113,865)
                                   
Total
 138
 $
 797,560
 $
 (63,592)
  
 339
 $
 847,485
 $
 (225,619)
  
 477
 $
 1,645,045
 $
 (289,211)






 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

3.  DEBT SECURITIES (CONTINUED)

As summarized in the table below, the Company had indirect exposure to residential sub-prime and Alt-A loans with book adjusted carrying values of $122.9 million and $81.9 million, respectively, as of December 31, 2012.  This represents approximately 2.0% of the Company’s total invested assets. Alt-A loans are generally residential loans made to borrowers with credit profiles that are stronger than sub-prime but weaker than prime. Of these investments 96.2 % were issued before 2007 and 65.0% have a NAIC 1 rating.


       
Book/Adjusting
    
Type
  
Actual Cost
  
Carrying Value
(excluding
interest)
  
Fair Value
Sub-prime: Residential asset backed securities
$
122,907
$
122,873
$
123,665
Alt-A loans: Residential asset backed securities
  
81,893
  
81,918
  
81,974
 
$
204,800
$
204,791
$
205,639

As summarized in the table below, the Company had indirect exposure to residential sub-prime and Alt-A loans with book adjusted carrying values of $153.4 million and $104.1 million, respectively, as of December 31, 2011.  This represents approximately 2.3% of the Company’s total invested assets. Alt-A loans are generally residential loans made to borrowers with credit profiles that are stronger than sub-prime but weaker than prime. Of these investments 96.1 % were issued before 2007 and 43.7% have a NAIC 1 rating.

       
Book/Adjusting
    
Type
  
Actual Cost
  
Carrying Value
  
Fair Value
Sub-prime: Residential asset backed securities
$
206,115
$
153,352
$
116,571
Alt-A loans: Residential asset backed securities
  
151,342
  
104,094
  
90,219
 
$
357,457
$
257,446
$
206,790


4.  MORTGAGE LOANS

The Company invests in commercial first mortgage loans throughout the United States.  Investments are diversified by property type and geographic area.  The Company monitors the condition of the mortgage loans in its portfolio.  In those cases where mortgages have been restructured, appropriate allowances for losses have been made.  In those cases where, in management’s judgment, the mortgage loans’ values are impaired, appropriate losses are recorded.





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

4.   MORTGAGE LOANS (CONTINUED)

The following table shows the geographical distribution of the statement value of the mortgage loans portfolio for the years ended December 31:


(In Thousands)
  
2012
    
2011
Alabama
$
10,539
  
$
6,482
Alaska
  
5,286
    
5,450
Arizona
  
15,908
    
17,772
California
  
54,122
    
59,178
Colorado
  
11,412
    
15,948
District of Columbia
  
12,404
    
12,744
Florida
  
58,522
    
115,445
Georgia
  
22,376
    
28,733
Idaho
  
1,798
    
1,846
Illinois
  
35,002
    
34,499
Indiana
  
1,878
    
1,882
Iowa
  
64
    
127
Kansas
  
1,707
    
1,783
Kentucky
  
19,479
    
20,756
Louisiana
  
11,765
    
14,084
Maine
  
633
    
758
Maryland
  
12,476
    
14,060
Massachusetts
  
11,239
    
15,680
Michigan
  
8,610
    
12,900
Minnesota
  
12,529
    
13,345
Missouri
  
36,711
    
39,025
Mississippi
  
3,193
    
3,275
Montana
  
1,588
    
1,679
Nebraska
  
2,386
    
2,523
Nevada
  
7,779
    
8,370
New Jersey
  
16,040
    
19,240
New Mexico
  
8,045
    
8,377
New York
  
114,727
    
127,946
North Carolina
  
22,914
    
21,249
North Dakota
  
566
    
867
Ohio
  
42,028
    
53,223
Oklahoma
  
1,215
    
1,923
Oregon
  
17,966
    
18,661
Pennsylvania
  
39,167
    
44,068
Rhode Island
  
729
    
-
South Carolina
  
25,064
    
26,787
Tennessee
  
14,905
    
17,631
Texas
  
105,580
    
128,765
Utah
  
25,682
    
24,581
Virginia
  
3,721
    
6,302
Washington
  
20,793
    
27,447
West Virginia
  
3,867
    
4,060
Wisconsin
  
3,043
    
3,287
General allowance for loan loss
  
(10,846)
    
(15,278)
Total Mortgage Loans on Real Estate
$
814,612
  
$
967,480


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


4.  MORTGAGE LOANS (CONTINUED)

The Company had no outstanding mortgage loan commitments on real estate as of December 31, 2012 and 2011.

The Company originated ten commercial mortgage loans with a total cost of $14.1 million during the year ended December 31, 2012 with rates ranging from 3.9% to 7.5% and originated three commercial mortgage loans with a total cost of $10.4 million during the year ended December 31, 2011 with rates ranging from 4.5% to 5.4%.  During the years ended December 31, 2012 and 2011, the Company did not reduce interest rates on any outstanding mortgage loans.  Mortgage loans are collateralized by the related properties and generally are no more than 75% of the properties’ value at the time that the original loan is made.

A loan is considered impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan.  The allowance for credit losses is estimated using the present value of expected cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, if the loan is collateral dependent.  A specific allowance for loan loss is established for an impaired loan if the present value of expected cash flows discounted at the loan’s effective interest rate, or the fair value of the loan collateral, less cost to sell, is less than the recorded amount of the loan.  The specific allowance for loan loss was $4.9 million and $19.2 million at December 31, 2012 and 2011, respectively.  A general allowance for loan loss is established based on an assessment of past loss experience on groups of loans with similar characteristics and current economic conditions.  The general allowance for loan loss was $10.8 million and $15.3 million at December 31, 2012 and 2011, respectively.  While management believes that it uses the best information available to establish the allowances, future adjustments may become necessary if economic conditions differ from the assumptions used in calculating them. At December 31, 2012, the Company individually and collectively evaluated loans with a gross carrying value of $830.3 million and $813.3 million, respectively.  At December 31, 2011, the Company individually and collectively evaluated loans with a gross carrying value of $1,002.0 million and $982.8 million, respectively.

All mortgages held at December 31, 2012 are in good standing.  Should the Company have any troubled debt, the Company may modify the terms of a loan by adjusting the interest rate, extending the maturity date or both.

Delinquency status is determined based upon the occurrence of a missed contract payment. There were no loans past due greater than 90 days at December 31, 2012 and 2011.

The Company accrues interest income on impaired loans to the extent it is deemed collectible.  Otherwise, receipts on non-performing loans are not recognized as interest income until the loan is no longer impaired, is sold or is otherwise made whole.  Any cash collected during the period where the loan is impaired is applied to lower its carrying value.





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


4.  MORTGAGE LOANS (CONTINUED)

Other information is as follows:


(In Thousands)
  
2012
  
2011
  
2010
             
As of year end, the Company held mortgages with interest more than 180
days past due with a recorded investment, excluding accrued interest
$
-
  
$             -
  
$            -
             
Total interest due on mortgages with interest more than 180 days past
due
  
-
  
-
  
-
             
Taxes, assessments and any amounts advanced and not included in the
mortgage loan total
  
-
  
-
  
-
             
Current year impaired loans with a related allowance for credit losses
  
17,016
  
62,995
  
26,692
Related allowance for credit losses
  
4,855
  
19,220
  
9,195
             
Impaired mortgage loans without an allowance for credit losses
  
-
  
-
  
-
             
Average recorded investment in impaired loans
  
1,702
  
3,499
  
2,644
             
Interest income recognized during the period the loans were impaired
  
-
  
-
  
-
             
Amount of interest income recognized on a cash basis during the period
the loans were impaired
  
-
  
-
  
-
             
Allowance for credit losses:
            
 
Balance at beginning of period
$
34,498
  
$    30,145
  
$    32,197
 
Additions charged to operations
  
5,872
  
15,479
  
20,935
 
Direct write-downs charged against the allowances
  
(15,715)
  
(4,037)
  
(22,987)
 
Recoveries of amounts previously charged off
  
(8,954)
  
(7,089)
  
-
 
Balance at end of period
$
15,701
  
$    34,498
  
$    30,145













 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


4.  MORTGAGE LOANS (CONTINUED)

The credit quality indicator for the Company’s mortgage loans is an internal risk rated measure based on the borrowers’ ability to pay and the value of the underlying collateral.  The internal risk rating is related to an increasing likelihood of loss, with a low quality rating representing the category in which a loss is first expected.  The following table shows the recorded investment of the Company’s mortgage loans net of allowances for credit losses disaggregated by credit quality indicator as of December 31, 2012 and 2011:

(In Thousands)
        
         
Internal Risk Rating
  
2012
  
2011
AAA
  
$           - 
  
$     13,647 
AA
  
25,920 
  
11,298 
A
  
10,478 
  
- 
BBB
  
199,344 
  
149,068 
BB and Lower
  
577,555 
  
764,969 
Impaired
  
17,016 
  
62,996 
Total
  
$830,313 
  
$1,001,978 
         
Total allowance for loan loss
  
(15,701)
  
(34,498)
Mortgage Loans on Real Estate
  
$814,612 
  
$   967,480 

The following table provides an aging of past due commercial mortgage loans as of December 31, 2012 and 2011, based on the recorded investment net of allowances for credit losses.

(In Thousands)
      
 
2012
  
2011
Current
$830,313 
  
$997,429 
       
30-59 Days Past Due
- 
  
1,822 
60-89 Days Past Due
- 
  
2,727 
Greater Than 90 Days - Accruing
- 
  
- 
Greater Than 90 Days - Not Accruing
- 
  
- 
Total Past Due
$            - 
  
$    4,549 
       
Total allowance for loan loss
(15,701)
  
(34,498)
Total Mortgage Loans on Real Estate
$814,612 
  
$967,480 

5.  REAL ESTATE

The Company held four real estate properties for sale as of December 31, 2012.  One of the properties was originally acquired by foreclosure from the mortgage portfolio and the remaining three were acquired through purchase. The real estate held for sale includes $56.5 million of properties formerly occupied by the Company and $36.5 million formerly held for investment. These properties are being sold to a related party in connection with the Sale Transaction as described in Note 1 and are expected to be sold within the next annual statement period.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


5.  REAL ESTATE (CONTINUED)

The Company sold five properties during 2012 including four properties previously impaired that resulted in a total net realized gains of $3.4 million as compared to one property sold during 2011 for a net loss of $0.1 million.  These amounts are shown in the Company's Statement of Operations as part of net realized capital gains and losses.
 
The Company recognized four impairment losses on real estate as of December 31, 2012 as compared to no impairment losses recorded for 2011.  All four properties were real estate moved to held for sale during 2012 and were impaired for $1.5 million based on estimated fair value less costs to sell.  The properties were sold during the year for a total realized gain of $0.7 million.  The impairments are shown in the Company's Statement of Operations as part of net realized capital gains and losses.

6.  INVESTMENT GAINS AND LOSSES

Realized capital gains and losses on debt securities, preferred stock, mortgages and interest rate swaps which relate to changes in levels of interest rates are charged or credited to the IMR, net of tax, and amortized into income over the remaining contractual life of the security sold.  Realized gains and losses from the remaining investments are reported, net of tax, on the Statement of Operations, but are not included in the computation of net gain from operations.
 
Changes in unrealized gains and losses from investments are reported as a component of Capital Stock and Surplus, net of deferred income taxes.

 
Years Ended December 31,
   
2012
    
2011
    
2010
(In Thousands)
                
Realized gains (losses):
                
Debt securities
$
(341,475)
  
$
(38,604)
  
$
(41,370)
Preferred stocks
  
71 
    
(111)
    
(2,189)
Common stocks
  
917 
    
67 
    
5,647 
Common stocks of affiliates
  
- 
    
(9)
    
- 
Mortgage loans
  
(25,080)
    
(7,140)
    
2,171 
Real estate
  
1,924 
    
(77)
    
- 
Cash, cash equivalents and short-terms
  
(1)
    
15 
    
(45)
Other invested assets
  
476 
    
(223)
    
3,447
Derivative instruments
  
(38,009)
    
(48,513)
    
(242,488)
Subtotal
  
(401,177)
    
(94,595)
    
(274,827)
Capital gains tax benefit
  
(2,216)
    
(1,288)
    
- 
Net realized losses
  
(398,961)
    
(93,307)
    
(274,827)
Gains/losses transferred to IMR (net of taxes)
  
(44,975)
    
(38,415)
    
41,650 
Total
$
(443,936)
  
$
(131,722)
  
$
(233,177)


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

6.  INVESTMENT GAINS AND LOSSES (CONTINUED)

 
Years Ended December 31,
   
2012
    
2011
    
2010
(In Thousands)
                
Changes in net unrealized capital gains
                
(losses), net of deferred income tax:
                
Debt securities
$
162,954 
  
$
19,089 
  
$
4,098 
Common stocks
  
(25)
    
(166)
    
(2,698)
Common stocks of affiliates
  
46,080 
    
12,375 
    
66,483 
Mortgage loans
  
12,218 
    
(2,829)
    
1,334 
Derivative instruments
  
(61,068)
    
205,495 
    
127,814 
Other invested assets
  
(1,596)
    
(3,953)
    
(5,497)
Total
$
158,563 
  
$
230,011 
  
$
191,534 

Deferred tax expense netted in unrealized capital gains (losses) above, except for common stock of affiliates and affiliated other invested assets, were $60.6 million, $117.2 million and $67.3 million at December 31, 2012, 2011 and 2010, respectively.

7.  NET INVESTMENT INCOME

Net investment income consisted of:

 
Years Ended December 31,
(In Thousands)
  
2012
    
2011
    
2010
                 
Debt securities (unaffiliated)
$
357,153 
  
$
420,578 
  
$
515,133 
Debt securities of affiliates
  
- 
    
- 
    
32 
Preferred stocks
  
1,336 
    
1,139 
    
262 
Mortgage loans
  
56,621 
    
63,059 
    
73,637 
Real estate investment income
  
28,693 
    
25,810 
    
25,703 
Contract loans
  
24,446 
    
31,580 
    
43,962 
Cash, cash equivalents and short-terms
  
510 
    
819 
    
2,031 
Derivative instruments
  
(394,532)
    
131,554 
    
(270,173)
Other invested assets
  
5,660 
    
8,818 
    
6,334 
Other investment income
  
554 
    
3,446 
    
3,490 
Gross investment income
  
80,441 
    
686,803 
    
400,411 
                 
Interest expense on surplus notes
  
42,752 
    
42,583 
    
42,583 
Investment expenses and other interest expense on
                
borrowed money
  
37,076 
    
38,863 
    
38,353 
Net investment income
$
613 
  
$
605,357 
  
$
319,475 


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


7.  NET INVESTMENT INCOME (CONTINUED)

The Company’s policy is to exclude all investment income due and accrued with amounts that are over 90 days past due or where the collection of interest is uncertain.  The total amount of investment income due and accrued excluded from surplus for the year ended December 31, 2012 and 2011 was $0.2 million and $0.1 million, respectively.  The investment income due and accrued excluded from interest income for the year ended December 31, 2010 was $0.2 million.

8.  DERIVATIVES

The Company uses derivatives for hedging or replication purposes only.  Interest rate swaps are mainly employed for duration matching purposes.  Combination swaps comprised of currency and equity returns in combination with interest rate swaps, are used to hedge the Company’s European Medium Term Note program.  Beginning in the second quarter of 2005 and continuing into 2006, the Company marketed guaranteed investment contracts (“GICS”) to unrelated third parties and entered into Funding Agreements and interest rate swaps as part of this guaranteed investment program.  The interest rate swaps allow the Company to lock U.S. dollar fixed rate payments for the life of the contracts.  Effective October 1, 2008, the Company designated existing interest rate swaps as a cash flow hedge of variable cash payments to be made under the respective funding agreements. To qualify for hedge accounting treatment, the swap must be highly effective in mitigating the designated risk of the hedged item.  Effectiveness of the hedge is formally assessed and documented at the inception of each hedging relationship and quarterly throughout the life of the hedging relationship.  Options are used to hedge equity exposure embedded in contracts issued by the Company and to hedge equity exposure embedded in fixed and variable annuity products.  Futures are used to hedge equity exposure included in the equity indexed annuities, as well as the guaranteed minimum death and living benefit features of the Company’s variable annuities. Currency forwards and swaps are used to hedge changes in foreign currency exchange rates.

Interest rate swaps and combination swaps entered into prior to January 1, 2003, the effective date of SSAP No. 86, Accounting for Derivative Instruments and Hedging Activities, Income Generation and Replication (Synthetic Asset) Transactions (“SSAP No. 86”) are carried at zero value or cumulative foreign currency gains, respectively.  Swaps entered into January 1, 2003 and after as well as options, swaptions, and currency swaps are reported at fair value with the unrealized gain or loss reported as an adjustment to surplus.  All futures are marked to market and settled on a daily basis with the gain or loss reported as a component of investment income.  Credit valuation adjustments (“CVAs”) are necessary to properly reflect the component of fair value of derivative instruments that arises from default risk.  CVAs are based on a methodology that uses credit default swap (“CDS”) spreads as a key input in determining an implied level of expected loss over the total life of the derivative contact. Where no observable CDS spreads are available, the counterparty or Company credit spreads derived from bond yields are used instead.  CVAs are intended to achieve a fair value of the underlying contracts and are normally based on publicly available information. The CVAs also take into account contractual factors designed to reduce the Company’s credit exposure to each counterparty, such as collateral and legal rights of offset.

CVAs are not recorded for interest rate swaps used as cash flow hedges, when proven highly effective. The Company accounts for its interest rate swaps, used as cash flow hedges, in accordance with the guidance in SSAP No. 86. In accordance with SSAP No. 86, derivatives that qualify for hedge accounting are recognized in a manner consistent with the hedged item.  The interest rate swaps employed by the Company have been designated as cash flow hedges of


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


8.  DERIVATIVES (CONTINUED)

specific funding agreements, and accordingly if proven highly effective, the swap will be reported at amortized cost, consistent with the hedged funding agreement. At initial designation, the fair values of the swaps were recorded into surplus with subsequent amortization into income through the maturity date of the funding agreements. In the event that a swap is not proven highly effective, it will be recorded at fair value with unrealized gains/losses recorded to surplus. At December 31, 2012 and 2011, all hedges were highly effective.

Market risk is the risk of loss due to market price changes of the derivative instrument or underlying security or index.  To mitigate this risk the Company matches the market sensitivity of the hedge with the market sensitivity of the underling asset or liability being hedged.

Credit risk is the counterparty credit risk or risk of loss as a result of default or a decline in market value stemming from a credit downgrade of the counterparty to the derivative transaction.  The Company minimizes this risk by entering into derivatives only with counterparties that meet certain criteria, by utilizing standardized agreements, and by limiting counterparty concentrations.

All derivative transactions are covered under standardized contractual agreements with counterparties all of which include credit-related contingent features.  Certain counterparty relationships also may include supplementary agreements with such tailored terms as additional triggers for early terminations, acceptable practices related to cross-transaction netting and minimum thresholds for determining collateral.

Credit-related triggers include failure to pay or deliver on an obligation past certain grace periods, bankruptcy or the downgrade of credit ratings to below a stipulated level.  These triggers apply to both the Company and its counterparty.

At December 31, 2012 and 2011, the Company pledged $185.2 million and $276.6 million, respectively, in U.S. Treasury securities as collateral to counterparties.  At December 31, 2012 and 2011, counterparties pledged to the Company $175.2 million and $240.2 million, respectively, in collateral comprised of cash and U.S. Treasury securities.

Derivatives entered into prior to January 1, 2003 are carried in accordance with SSAP No. 31, Derivatives.  There were no outstanding notional or principal amounts at December 31, 2012 for derivatives entered into prior to January 1, 2003.  Derivatives entered into subsequent to January 1, 2003 are carried in accordance with SSAP No. 86.  The Company’s underlying notional or principal amounts associated with open derivatives positions were as follows:




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


8.  DERIVATIVES (CONTINUED)

 
 Outstanding at
 
 December 31, 2012
 
 (per SSAP No. 86)
                       
(In Thousands)
  
Notional
    
Fair Value/
          
   
Principal
    
Statement
    
Amortized
    
Unrealized
   
Amounts
    
Value
    
Cost
    
Gain (Loss)
                       
Non-hedging interest rate swaps
  
$ 5,618,430
    
$148,367 
    
$          - 
    
$148,367 
Hedging interest rate swaps
  
900,000
    
(33,863)
    
(7,065)
    
(26,798)
Currency swaps
  
67,500
    
(9,149)
    
- 
    
(9,149)
Payor swaptions
  
3,115,000
    
12,994 
    
14,037 
    
(1,043)
Equity index options
  
861,101
    
35,432 
    
57,766 
    
(22,334)
Total
  
$10,562,031
    
$153,781 
    
$64,738 
    
$ 89,043 


 
 Outstanding at
 
 December 31, 2011
 
 (per SSAP No. 86)
                       
(In Thousands)
  
 Notional
    
 Fair Value/
          
   
 Principal
    
 Statement
    
 Amortized
    
 Unrealized
   
 Amounts
    
 Value
    
 Cost
    
 Gain (Loss)
                       
Non-hedging interest rate swaps
  
$4,244,007
    
$251,816 
    
$          - 
    
$251,816 
Hedging interest rate swaps
  
900,000
    
(68,562)
    
(16,284)
    
(52,278)
Currency swaps
  
47,500
    
(3,357)
    
- 
    
(3,357)
Payor swaptions
  
-
    
- 
    
- 
    
- 
Equity index options
  
1,949,878
    
46,945 
    
92,327 
    
(45,382)
Total
  
$7,141,385
    
$226,842 
    
$76,043 
    
$150,799 

At December 31, 2012 and 2011, open futures contracts had a notional value of $5,223.7 million and $4,747.8 million and a fair value of $(50.2) million and $3.9 million, respectively. This amount does not include the component of variation margin that has already been cash settled.






 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

9.  REINSURANCE

Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders.  The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreement.  To minimize its exposure to significant losses from reinsurer insolvencies, the Company regularly evaluates the financial condition of its reinsurers and monitors concentrations of credit risk.  Management believes that any liability arising from this contingency is unlikely.

The Company manages a closed block of SPWL insurance policies, a retirement-oriented tax-advantaged life insurance product.  The Company discontinued sales of SPWLs in response to certain tax law changes in the 1980s.  The Company had SPWL policyholder balances of $1.4 billion and $1.3 billion as of December 31, 2012 and 2011, respectively.  On December 31, 2003, this entire block of business was reinsured on a funds withheld basis with SLOC, an affiliated company.  As discussed in Note 2, in connection with the Sale Transaction, the Board of Directors approved the recapture of 100% of the risks pursuant to this agreement.  The recapture occurred during the first quarter of 2013.  See Note 19.

The Company  has a reinsurance agreement with BarbCo 3, an affiliate, to cede all of the risks associated with certain in-force corporate and bank-owned variable universal life and private placement variable universal life policies on a combination coinsurance, coinsurance with funds-withheld and a modified coinsurance basis.  This agreement also provided for the ceding of new business written after the effective date.

Effective January 1, 2010, the Company and BarbCo 3 amended the agreement to include coverage of certain corporate and bank-owned variable universal life and private placement variable universal life insurance cases
sold between December 31, 2009 and March 31, 2010, inclusive.  Reinsurance coverage continued for all cases sold prior to April 1, 2010.  However, cases sold on or after April 1, 2010 have not been reinsured.  This amendment also enabled the Company to discontinue reinsuring a portion of the covered business that was previously reinsured on a modified coinsurance basis, effective April 1, 2010.  The discontinuance of the business reinsured on a modified coinsurance basis did not have a material impact on the Company’s financial statements.

The Company has agreements with SLOC and several unrelated companies, which provide for reinsurance of portions of the net-amount-at-risk under certain individual variable universal life, individual universal life, individual private placement variable universal life, BOLI and COLI policies.  These amounts are reinsured on either a monthly renewable, yearly renewable term basis or modified coinsurance basis.

The Company has agreements with unrelated companies that provide for reinsurance of guaranteed minimum death benefits under certain variable annuity contracts.  These amounts are reinsured on a monthly renewable term basis.





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


9.  REINSURANCE (CONTINUED)

The effects of reinsurance were as follows:

 
Years Ended December 31,
(In Thousands)
  
2012
    
2011
    
2010
Premiums and annuity considerations:
                
Direct
$
453,109 
  
$
3,349,441 
  
$
3,595,173 
Ceded - Affiliated
  
(24,101)
    
(98,654)
    
(104,781)
Ceded - Non-Affiliated
  
(13,093)
    
(20,568)
    
(23,702)
Net premiums and annuity considerations
$
415,915 
  
$
3,230,219 
  
$
3,466,690 
                 
Insurance and other individual policy benefits and claims:
              
Direct
$
968,595 
  
$
957,552 
  
$
627,871 
Assumed - Non-Affiliated
  
5,503 
    
6,679 
    
10,214 
Ceded - Affiliated
  
(145,408)
    
(147,092)
    
(154,212)
Ceded - Non-Affiliated
  
(24,739)
    
(9,442)
    
(19,176)
Net policy benefits and claims
$
803,951 
  
$
807,697 
  
$
464,697 

The following schedule reflects related party reinsurance information recorded in the Statement of Operations for the years ended December 31, 2012, 2011 and 2010:

   
December 31, 2012
(In Thousands)
  
Assumed
  
Ceded
         
Premiums and annuity considerations
  
- 
  
(24,101)
Commission and expense allowance ceded
  
- 
  
(1,101)
Policy benefits and changes in reserves
  
- 
  
(7,950)
Commission and expense allowance assumed
  
- 
  
- 
         
         
   
December 31, 2011
(In Thousands)
  
Assumed
  
Ceded
         
Premiums and annuity considerations
  
- 
  
(98,654)
Commission and expense allowance ceded
  
- 
  
287 
Policy benefits and changes in reserves
  
- 
  
(143,732)
Commission and expense allowance assumed
  
- 
  
- 
         
         
   
December 31, 2010
(In Thousands)
  
Assumed
  
Ceded
         
Premiums and annuity considerations
  
- 
  
(104,781)
Commission and expense allowance ceded
  
- 
  
5,819 
Policy benefits and changes in reserves
  
- 
  
(121,278)
Commission and expense allowance assumed
  
- 
  
- 


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

10.  RESERVES FOR LIFE CONTRACTS AND DEPOSIT TYPE CONTRACTS

The reserves for life insurance and annuity contracts are computed in accordance with presently accepted actuarial standards, and are based on actuarial assumptions and methods (including use of published mortality tables and prescribed interest rates and methodologies) which produce reserves at least as great as those required by law and contract provisions.

Deduction of deferred fractional premiums upon death of the insured and return of any portion of the final premium for the period beyond the date of death are not applicable to the business of the Company.  Surrender values are not promised in excess of reserves legally computed.

For policies with annual extra premiums, additional reserves are held equal to one-half the extra premium.  Extra premiums on single premium policies are amortized over ten years.  Policies issued with premiums corresponding to ages higher than the true ages are valued at the rated-up ages.  Policies issued subject to
a lien are valued as if the full amount were payable without any deduction. For interest sensitive policies, substandard is reflected in the cost of insurance charges.

As of December 31, 2012 and 2011, the Company had $18.7 million and $23.5 million, respectively, of insurance in force (direct and assumed), for which gross premiums were less than the net premiums according to the standard of valuation required by the State of Delaware.  Reserves (direct and assumed) to cover the above insurance as of December 31, 2012 and 2011 totaled $3.2 million and $3.8 million, respectively.

The Tabular Interest has been determined by formula as described in the NAIC instructions, except for some business which is determined from basic policy data for reserving. The Tabular less Actual Reserve Released has been determined by formula as described in the NAIC instructions. The Tabular Cost has been determined by formula as described in the NAIC instructions, except for universal life products which use cost of insurance and some business which uses basic policy data for reserving. The Tabular Interest on funds not involving life contingencies was determined from the interest credited to the deposits, except for certain guaranteed interest contracts which are determined by formula as described in the instructions. Other than normal updates of reserves, the only significant reserve changes as of December 31, 2012 and 2011 were the changes in additional reserves held due to asset adequacy analysis testing. Direct asset adequacy reserves were $236.4 million and $174.4 million at December 31, 2012 and 2011, respectively.










 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

11.  WITHDRAWAL CHARACTERISTICS OF ANNUITY RESERVES AND DEPOSIT LIABILITIES

The withdrawal characteristics of general account and separate account annuity reserves and deposits are as follows:

(In Thousands)
  
General
Account
  
Separate Account
with Guarantees
  
Separate Account
Nonguaranteed
  
Total
12/31/2012
  
%
of Total
Subject to discretionary withdrawal:
                    
                       
 
With fair value adjustment
  
$                -
  
$1,644,686
  
$                 -
  
$1,644,686
  
6%
 
At book value less current surrender charge of 5%
or more
  
2,204,320
  
-
  
-
  
2,204,320
  
9%
 
At fair value
  
-
  
-
  
18,324,602
  
18,324,602
  
70%
 
Total with adjustment or at fair value
  
$2,204,320
  
$1,644,686
  
$18,324,602
  
$22,173,608
  
85%
 
At book value without adjustment
                    
 
(minimal or no charge or adjustment)
  
$2,099,491
  
$               -
  
$                -
  
$  2,099,491
  
8%
                       
Not subject to discretionary withdrawal
  
1,786,178
  
-
  
27,031
  
1,813,209
  
7%
Total (Gross: Direct +Assumed)
  
6,089,989
  
1,644,686
  
18,351,633
  
26,086,308
  
100%
Reinsurance ceded
  
32,494
  
-
  
-
  
32,494
    
Total (net)
  
$6,057,495
  
$1,644,686
  
$18,351,633
  
$26,053,814
    


(In Thousands)
  
General
Account
  
Separate Account
with Guarantees
  
Separate Account
Nonguaranteed
  
Total
12/31/2011
  
%
of Total
Subject to discretionary withdrawal:
                    
                       
 
With fair value adjustment
  
$               -
  
$2,290,921
  
$                 -
  
$  2,290,921
  
8%
 
At book value less current surrender charge of
5% or more
  
2,716,685
  
-
  
-
  
2,716,685
  
10%
 
At fair value
  
-
  
-
  
18,091,642
  
18,091,642
  
67%
 
Total with adjustment or at fair value
  
$2,716,685
  
$2,290,921
  
$18,091,642
  
$23,099,248
  
85%
 
At book value without adjustment
                    
 
(minimal or no charge or adjustment)
  
$2,080,394
  
$               -
  
$                 -
  
$  2,080,394
  
8%
                       
Not subject to discretionary withdrawal
  
1,823,304
  
-
  
24,856
  
1,848,160
  
7%
Total (Gross: Direct +Assumed)
  
6,620,383
  
2,290,921
  
18,116,498
  
27,027,802
  
100%
Reinsurance ceded
  
31,703
  
-
  
-
  
31,703
    
Total (net)
  
$6,588,680
  
$2,290,921
  
$18,116,498
  
$26,996,099
    

12.  SEPARATE ACCOUNTS

The Company has established unitized separate accounts applicable to various classes of contracts providing for variable benefits. Contracts for which funds are invested in variable separate accounts include individual and group life and annuity contracts. The assets of this account are carried at fair value and the investment risk of such securities is retained by the contractholder. These variable products provide minimum death benefits and in certain annuity contracts minimum accumulation or withdrawal benefits.  The minimum guaranteed benefit reserves associated with the unitized separate account are reported in Aggregate reserves for life contracts in the Company’s statements of Admitted assets, Liabilities, Capital stock and Surplus.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

12.  SEPARATE ACCOUNTS (CONTINUED)

The Company has also established non-unitized separate accounts for certain MVA fixed annuities, including those for amounts allocated to the fixed portion of certain combination fixed and variable deferred annuity contracts.  The assets of the variable deferred annuity account are carried at fair value. The assets of the fixed deferred annuity account are carried on a general account basis.

The Company earns separate account fees for providing administrative services and bearing the mortality risks related to these variable contracts. Investment income and changes in mutual fund asset values on variable separate accounts are allocated to policyholders and therefore are not reflected in the Statements of Operations of the general account.
 
 
For the current reporting year, the Company summarized the reported assets and liabilities from these product lines/transactions into a separate account as follows:

 
·
Sun Life (U.S.) Variable Life
 
·
Sun Life (U.S.) Variable Annuity
 
·
Sun Life (U.S.) Market Value Adjusted Annuity

A majority of the variable separate account assets are legally insulated from the general account whereas the MVA assets are not legally insulated from the general account. The legal insulation of the separate account assets prevents such assets from being generally available to satisfy claims resulting from the general account.  In accordance with the domiciliary state procedures for approving items within the separate account, the separate account classification of legally insulated, vs. not legally insulated, is supported by section 2932 of the Delaware Insurance Code.

The Company maintained separate account assets totaling $31,948.7 million and $31,623.6 million as of December 31, 2012 and 2011, respectively. As of December 31, 2012 and 2011 the Company’s separate account statement included legally insulated assets of $30,012.1 million and $29,068.9 million respectively.

The assets legally insulated and non-legally insulated from the general account as of December 31, 2012 are attributed to the following products/transactions:


Product / Transactions
  
Legally Insulated
Assets
  
Non- Legally Insulated
Assets
         
(In millions)
        
Sun Life (U.S.) Variable Life
  
$11,069.3
  
$          -
Sun Life (U.S.) Variable Annuity
  
18,942.8
  
-
Sun Life (U.S.) Market Value Adjusted Annuity
  
-
  
1,936.6
Total
  
$30,012.1
  
$1,936.6


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


12.  SEPARATE ACCOUNTS (CONTINUED)

Separate account liabilities are determined in accordance with prescribed actuarial methodologies, which approximate the fair value of the related assets less applicable surrender charges.  The resulting surplus is recorded in the general account Statement of Operations as a component of Net Transfers from Separate Accounts.  The variable separate accounts are non-guaranteed separate accounts, wherein the policyholder assumes substantially all the investment risks and rewards, and MVA separate accounts are guaranteed separate accounts, wherein the Company contractually guarantees either a minimum return or account value to the policyholder. In accordance with the guarantees provided, if the investment proceeds are insufficient to cover the rate of return guaranteed for the product, the policyholder proceeds will be remitted by the general account.

The Company had $25,687.6 million and $25,331.3 million of non-guaranteed separate account reserves and $1,644.7 million and $2,290.9 million of guaranteed separate account reserves as of December 31, 2012 and 2011, respectively.

As of December 31, 2012 and 2011, the general account of the Company had a maximum guarantee for separate account liabilities of $22,695.0 million and $25,025.7 million, respectively.

To compensate the general account for the risk taken, the separate account paid risk charges of $191.1 million, $182.3 million and $241.5 million during the years ended December 31, 2012, 2011 and 2010, respectively.

For the years ended December 31, 2012, 2011 and 2010, the general account of the Company paid $110.1 million, $88.4 million and $123.7 million towards separate account guarantees, respectively.

The Company does not engage in securities lending transactions within the separate account.




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


12.  SEPARATE ACCOUNTS (CONTINUED)

An analysis of the separate account reserves as of December 31, 2012 is as follows:


(In Thousands)
Nonindexed
    
 
Guarantee
Nonguaranteed
 
Less than/
Separate
 
equal to 4%
Accounts
Total
       
Premiums, considerations
      
or deposits for year ended
      
12/31/2012
 $(164,491)
$635,210
$470,719
       
Reserves at 12/31/2012
      
       
For accounts with assets at:
      
 
Fair Value
350,650 
25,687,602
26,038,252
 
Amortized Cost
1,294,036 
-
1,294,036
 
Total Reserves
$1,644,686 
$25,687,602
$27,332,288
         
By withdrawal characteristics:
      
 
With FV adjustment
 $1,644,686 
$               -
$1,644,686
 
At fair value
 - 
25,660,571
25,660,571
 
Subtotal
 1,644,686 
25,660,571
27,305,257
 
Not subject to discretionary
      
 
withdrawal
 - 
27,031
27,031
 
Total
 $1,644,686 
$25,687,602
$27,332,288

Below is the reconciliation of Net Transfers to Separate Accounts:

 
Years Ended December 31,
(In Thousands)
  
2012
    
2011
    
2010
                 
Transfers to Separate Accounts
$
 470,719 
  
 $
 2,734,402 
  
 $
 3,133,485 
Transfers from Separate Accounts
  
 (2,685,911)
    
 (2,271,063)
    
 (2,068,907)
Net Transfers to Separate Accounts on the Statement of Operations
 $
 (2,215,192)
  
 $
 463,339 
  
 $
 1,064,578 



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


13.  FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company uses various methods including market, income and cost approaches.  The Company utilizes valuation techniques that maximize the use of observable inputs and minimizes the use of unobservable inputs.

The Company has categorized its financial instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value in the Company’s balance sheet are categorized as follows:

Level 1

 
·
Unadjusted quoted prices for identical assets or liabilities in an active market.

The types of assets and liabilities utilizing Level 1 valuations include U.S. Treasury and agency securities, investments in publicly-traded mutual funds with quoted market prices and exchange traded derivatives.

Level 2

 
·
Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly.

Level 2 inputs include the following:

Quoted prices for similar assets or liabilities in active markets,

Quoted prices for identical or similar assets or liabilities in non-active markets,

Inputs other than quoted market prices that are observable, and

Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

The types of assets and liabilities utilizing Level 2 valuations generally include U.S. Government securities not backed by the full faith and credit of the government, municipal bonds, structured notes and certain ABS including collateralized debt obligations, RMBS, CMBS, certain corporate debt, certain private equity investments and certain derivatives.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


13.  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Level 3

Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management's opinions regarding the assumptions a market participant would use in pricing the asset or liability.  Generally, the types of assets and liabilities utilizing Level 3 valuations are certain ABS, RMBS, and CMBS, certain corporate debt, certain private equity investments, certain mutual fund holdings and certain derivatives.

There have been no significant changes made in valuation techniques during 2012 or 2011.

The Company’s assets and liabilities by classification measured at fair value as of December 31, 2012 are as follows:

(In Thousands)
          
Description for each class of asset or liability
  
Level 1
Level 2
Level 3
Total
Assets at fair value:
          
Preferred stock - Unaffiliated (a)
        
Industrial and Misc
  
$                 - 
$              - 
$           - 
$                 - 
Common stock - Unaffiliated  (b)
        
Industrial and miscellaneous
  
- 
- 
- 
- 
Debt securities - Unaffiliated  (c)
        
Asset-backed securities
  
- 
- 
19,405 
19,405 
Residential mortgage-backed securities
  
- 
37,869 
6,486 
44,355 
Commercial mortgage-backed securities
  
- 
13,718 
- 
13,718 
Industrial and miscellaneous
  
- 
- 
- 
- 
Derivative Assets (e)
      
- 
Interest Rate contracts
  
8 
269,898 
- 
269,906 
Equity contracts
  
36,780 
4,563 
- 
41,343 
FX contracts
  
839 
337 
- 
1,176 
Separate Accounts assets (d)
21,405,998 
6,476,234 
508,231 
28,390,463 
Total assets at fair value
$21,443,625 
$6,802,619 
$534,122 
$28,780,366 
           
Liabilities at fair value:
          
Separate Accounts (d)
$                 - 
$    (58,247)
$            - 
$      (58,247)
Derivative Liabilities (e)
        
Interest Rate contracts
  
(3,353)
(108,873)
- 
(112,226)
Equity Contracts
(51,763)
- 
- 
(51,763)
FX contracts
  
(1,849)
(9,149)
- 
(10,998)
Total liabilities at fair value
  
$      (56,965)
$   (176,269)
$            - 
$    (233,234)



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

13.  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The Company’s assets and liabilities by classification measured at fair value as of December 31, 2011 are as follows:

(In Thousands)
          
Description for each class of asset or liability
  
Level 1
Level 2
Level 3
Total
Assets at fair value:
          
Preferred stock - Unaffiliated (a)
        
Industrial and Misc
  
$                - 
$               - 
$            -
$                 - 
Common stock - Unaffiliated  (b)
        
Industrial and miscellaneous
  
458 
- 
3,824
4,282 
Debt securities - Unaffiliated  (c)
        
Asset-backed securities
  
- 
- 
23,157
23,157 
Residential mortgage-backed securities
  
- 
110,080 
29,857
139,937 
Commercial mortgage-backed securities
  
- 
43,857 
-
43,857 
Industrial and miscellaneous
  
- 
7,343 
-
7,343 
Derivative Assets (e)
        
Interest Rate contracts
  
4,044 
356,028 
-
360,072 
Equity contracts
  
32,585 
17,252 
5,193
55,030 
FX contracts
  
- 
577 
-
577 
Separate Accounts assets (d)
21,314,394 
5,662,018 
518,053
27,494,465 
Total assets at fair value
$21,351,481 
$6,197,155 
$580,084
$28,128,720 
           
Liabilities at fair value:
          
Separate Accounts (d)
$                 - 
$    (84,434)
$           -
$      (84,434)
Derivative Liabilities (e)
      
- 
Interest Rate contracts
  
- 
(104,724)
-
(104,724)
Equity Contracts
(4,686)
- 
-
(4,686)
FX contracts
  
(3,524)
(3,422)
-
(6,946)
Total liabilities at fair value
  
$        (8,210)
$  (192,580)
$           -
$    (200,790)

(a) Preferred stocks with NAIC designations between 4 and 6 are carried at the lower of amortized cost or fair value.  Where fair value is less than amortized cost, amounts are included in the table above.

(b) Common stocks are carried at fair value.

(c) Debt securities with NAIC designations of 6 are carried at the lower of amortized cost or fair value.  Where fair value is less than amortized cost, amounts are included in the table above.

(d) Separate Account assets include invested assets carried at fair value, but exclude debt securities and preferred stocks where market risk is guaranteed by the Company and assets carried at amortized cost based on the respective NAIC rating, as explained above, as well as $2,186.6 million and $2,365.8 million of investment income and receivables due at December 31, 2012 and 2011, respectively, which are included in the Separate Account assets on the Statement of Admitted Assets, Liabilities, Capital Stock and Surplus. Separate Account liabilities include derivative liabilities carried at fair value.

(e) The derivatives included in the leveling descriptions are carried at fair value.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

13.  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

None of the Company's assets measured at fair value transferred between levels 1 and 2 during the years ended December 31, 2012 and December 31, 2011.

The following table is a reconciliation of the beginning and ending balances for assets and liabilities which are categorized as Level 3 for the twelve-month period ended December 31, 2012:


(In Thousands)
Beginning Balance at 01/01/2012
Transfers Into Level 3
Transfers Out of Level 3
Total gains and (losses) included in Net Income
Total gains and (losses) included in Surplus
Purchases
Issuances
Sales
Settlements
Ending Balance at 12/31/2012
Assets:
                    
Common stock
$3,824
$         -
$         - 
$     670 
$       16
$            -
$          -
$(4,510)
$           - 
$            -
Debt securities - Unaffiliated
                  
Asset-backed securities
23,157
16
(8,425)
(1,220)
7,018
-
-
(618)
(523)
19,405
Residential mortgage-backed securities
29,857
4,381
(27,719)
(4,885)
5,671
-
-
- 
(819)
6,486
Industrial and miscellaneous
-
-
- 
- 
-
-
-
- 
- 
-
Derivative Assets
5,193
-
- 
- 
-
-
-
- 
(5,193)
-
Separate Accounts assets
518,053
31,673
(4,931)
585 
8,078
266,219
11,512
(266,621)
(56,337)
508,231
Total Assets
$580,084
$36,070
$(41,075)
$(4,850)
$20,783
$266,219
$11,512
$(271,749)
$(62,872)
$534,122

The following table is a reconciliation of the beginning and ending balances for assets and liabilities which are categorized as Level 3 for the twelve-month period ended December 31, 2011:



(In Thousands)
Beginning Balance at 01/01/2011
Transfers Into Level 3
Transfers Out of Level 3
Total gains and (losses) included in Net Income
Total gains and (losses) included in Surplus
Purchases
Issuances
Sales
Settlements
Ending Balance at 12/31/2011
Assets:
                    
Common stock
$           -
$         -
$           - 
$          84 
$       17
$   3,723
$       -
$            - 
$             - 
$     3,824
Debt securities - Unaffiliated
                  
Asset-backed securities
23,943
27,729
(11,523)
(17,912)
1,838
-
-
- 
(918)
23,157
Residential mortgage-backed securities
4,251
48,889
(6,692)
(11,232)
1,551
-
-
- 
(6,910)
29,857
Industrial and miscellaneous
1
-
(1)
- 
-
-
-
- 
- 
-
Derivative Assets
13,785
-
- 
- 
-
-
-
- 
(8,592)
5,193
Separate Accounts assets
553,319
11,345
(49,035)
(2,145)
8,306
694,866
-
(623,201)
(75,402)
518,053
Total Assets
$595,299
$87,963
$(67,251)
$(31,205)
$11,712
$698,589
$       -
$(623,201)
$(91,822)
$580,084

The Company transfers assets into or out of Level 3 at the fair value as of the beginning of the reporting period.  Transfers made were the result of changes in the level of observability of inputs used to price the assets as well as changes in NAIC ratings.





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

13.  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments for the twelve-month period ended December 31, 2012:

All Financial Instruments:
              
(In Thousands)
              
             
   
Aggregate
Admitted
      
Not  Practicable
Type of Financial Instrument
  
Fair Value
Assets
Level 1
Level 2
Level 3
(Carrying Value)
               
Cash, cash equivalents and
              
short-term investments
  
$       341,431 
$        341,431 
$        341,431 
$                 - 
$                 - 
$                   - 
Debt securities
  
7,731,439 
7,308,199 
1,101,108 
6,326,443 
303,888 
- 
Preferred stocks
  
22,833 
23,000 
- 
21,677 
1,156 
- 
Mortgages
  
870,010 
814,612 
- 
- 
870,010 
- 
Derivatives – options and swaptions
  
48,426 
48,426 
30,869 
17,557 
- 
- 
Derivatives – swaps and forwards
  
257,241 
257,241 
- 
257,241 
- 
- 
Derivatives- futures
  
6,758 
6,758 
6,758 
- 
- 
- 
Contract loans
  
610,742 
564,071 
- 
- 
610,742 
- 
Other invested assets
  
33,668 
30,569 
- 
20,542 
13,126 
- 
Separate account assets
  
29,859,238 
29,761,545 
21,456,900 
7,711,370 
690,968 
- 
               
Contractholder deposit funds and other
policyholder liabilities
  
(1,088,797)
(1,128,331)
- 
- 
(1,088,797)
- 
Long-term debt to affiliates
  
(100,000)
(100,000)
- 
- 
(100,000)
- 
Derivatives – swaps and forwards
  
(151,886)
(125,088)
- 
(151,886)
- 
- 
Derivatives- Futures
  
(56,965)
(56,965)
(56,965)
- 
- 
- 
Separate account liabilities
  
(91,958)
(91,958)
- 
(58,247)
(33,711)
- 

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments for the twelve-month period ended December 31, 2011:

(In Thousands)
              
   
Aggregate
Admitted
      
Not  Practicable
Type of Financial Instrument
  
Fair Value
Assets
Level 1
Level 2
Level 3
(Carrying Value)
               
Cash, cash equivalents and
              
short-term investments
  
$         747,160 
$      747,160 
$     747,160 
$                 - 
$                  - 
$              - 
Debt securities
  
7,521,055 
7,455,226 
508,599 
6,682,204 
330,252 
- 
Preferred stocks
  
19,106 
23,330 
- 
17,936 
1,170 
- 
Common stocks
  
4,283 
4,283 
459 
- 
3,824 
- 
Mortgages
  
1,061,235 
967,480 
- 
- 
1,061,235 
- 
Derivatives – options and swaptions
  
46,945 
46,945 
24,499 
17,253 
5,193 
- 
Derivatives – swaps and forwards
  
356,604 
356,604 
- 
356,604 
- 
- 
Derivatives- futures
  
12,130 
12,130 
12,130 
- 
- 
- 
Contract loans
  
629,185 
582,575 
- 
- 
629,185 
- 
Other invested assets
  
35,885 
34,040 
- 
19,418 
16,467 
- 
Separate account assets
  
29,342,707 
29,249,073 
21,326,429 
7,307,369 
708,909 
- 
               
Contractholder deposit funds and other
policyholder liabilities
  
(1,088,697)
(1,159,839)
- 
- 
(1,088,697)
- 
Long-term debt to affiliates
  
(683,503)
(683,000)
- 
- 
(683,503)
- 
Derivatives – swaps and forwards
  
(176,707)
(124,429)
- 
(176,707)
- 
- 
Derivatives- Futures
  
(8,210)
(8,210)
(8,210)
- 
- 
- 
Separate account liabilities
  
(121,538)
(121,538)
- 
(84,434)
(37,104)
- 


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

13.  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The methods and assumptions that the Company uses in determining the estimated fair value of its financial instruments are summarized below:

Cash, cash equivalents and short-term investments - The carrying value for cash, cash equivalents and short-term investments approximates fair value due to the short-term nature and liquidity of the balances.

Debt securities - The Company determines the fair value of its publicly-traded fixed maturity securities using three primary pricing methods: third-party pricing services, non-binding broker quotes and pricing models.  Prices are first sought from third-party pricing services with the remaining unpriced securities priced using one of the other two methods.  Third-party pricing services derive the security prices through recently reported trades for identical or similar securities with adjustments for trading volumes and market observable information through the reporting date.  In the event that there are no recent market trades, pricing services and brokers may use pricing models to develop a security price based on future expected cash flows discounted at an estimated market rate using collateral performance and vintages.  The Company generally does not adjust quotes or prices obtained from brokers or pricing services.

Structured securities, such as ABS, RMBS and CMBS, are priced using third-party pricing services, a fair value model, or independent broker quotations.  Typical inputs used by these three pricing methods include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids and/or estimated cash flows and prepayment speeds.

In addition, estimates of expected future prepayments are factors in determining the price of ABS, RMBS and CMBS.  These estimates are based on the underlying collateral and structure of the security, as well as prepayment speeds previously experienced in the market at interest rate levels projected for the underlying collateral.  Actual prepayment experience may vary from these estimates.

For privately-placed fixed maturity securities, fair values are estimated using models which take into account credit spreads for a variety of public and private securities of similar credit risk, maturity, prepayment and liquidity characteristics.  A portion of privately-placed fixed maturity securities also are priced using market prices or broker quotes.

The Company’s ability to liquidate positions in privately-placed fixed securities and mortgages could be impacted to a significant degree by the lack of an actively traded market.  Although the Company believes that its estimates reasonably reflect the fair value of those instruments, its key assumptions about risk-free interest rates, risk premiums, performance of underlying collateral (if any) and other factors may not reflect those of an active market.

Common and Preferred Stocks - The fair value of the Company’s equity securities not accounted for under the equity method is first based on quoted market prices.  Similar to fixed maturity securities, the Company uses pricing services and broker quotes to price the equity securities for which the quoted market price is not available.

Mortgage loans - The fair values of mortgage loans are estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

13.  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Derivatives - The fair values of swaps are based on current settlement values, dealer quotes and market prices.  Fair values for options and futures are also based on dealer quotes and market prices.

Contract loans - The fair value of policy loans is determined by estimating future policy loan cash flows and discounting the cash flows at a current market interest rate.

Other invested assets - Other invested assets (excluding investments accounted for under the equity method) include low income housing tax credits (“LIHTC”), surplus debentures, and equipment leases.  The fair value of LIHTCs and equipment leases approximate their carrying values. The fair values of surplus debentures are based upon the same methods used for other private placements as described above.

Separate accounts – The estimated fair values of assets and liabilities are valued with the same methodology described above.  The difference between Separate Account assets and liabilities reflected above and the total recognized in the statements of admitted assets, liabilities and capital and surplus represents amounts that are considered non-financial instruments.

Liabilities for deposit type contracts - The fair values of the Company’s general account insurance reserves and liabilities under investment-type contracts (insurance and annuity contracts that do not involve mortality or morbidity risks) are estimated using discounted cash flow analyses or surrender values.  Those contracts that are deemed to have short-term guarantees have a carrying amount equal to the estimated fair value.

Long-term debt to affiliates - The fair value of long-term debt to affiliates is based on future cash flows discounted at the stated interest rate, considering all appropriate terms of the related agreements.  Due to certain provisions included in such agreements, whereby the issuer of the notes has the ability to call each note at par with appropriate approvals, the fair value is equal to par value.  Long-term debt to affiliates includes borrowed money and surplus funds.


14.  STATUTORY INVESTMENT VALUATION RESERVES

The AVR provides a reserve for losses from investments in debt securities, preferred stocks, mortgage loans, real estate and other invested assets with related increases or decreases being recorded directly to surplus.

Realized capital gains and losses on debt securities, mortgages and derivatives which relate to changes in levels of interest rates are charged or credited to the IMR and amortized into income over the remaining contractual life of the security sold.





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

14.  STATUTORY INVESTMENT VALUATION RESERVES (CONTINUED)

The table shown below presents changes in the AVR and IMR:


 
December 31, 2012
  
December 31, 2011
(In Thousands)
  
AVR
  
IMR
    
AVR
  
IMR
                   
Balance, beginning of year
$
188,181 
  
36,660 
  
$
82,139 
$
21,873 
                   
Net realized investment (losses) gains,
                  
net of tax - General Account
  
(305,741)
  
44,975 
    
(99,396)
  
38,415 
                   
Net realized investment losses,
                  
net of tax - Separate Account
  
(4,316)
  
- 
    
(5,731)
  
- 
                   
Net unrealized capital gains,
                  
net of deferred taxes - General Account
  
114,911 
  
- 
    
217,718 
  
- 
                   
Net unrealized capital gains (losses),
                  
net of deferred taxes - Separate Account
  
13,077 
  
- 
    
(17,354)
  
- 
                   
Adjustment for CY liability losses released
                  
 from reserve
  
- 
  
(3,528)
    
- 
  
(8,423)
                   
Less amortization of net investment gains
  
- 
  
(13,396)
    
- 
  
(15,205)
                   
Increase in reserve based upon SVO requirements
  
41,029 
  
- 
    
21,548 
  
- 
                   
Balance, before transfers
  
47,141 
  
64,711 
    
198,924 
  
36,660 
                   
Adjustment down to maximum
  
- 
  
- 
    
(10,743)
  
- 
Balance, end of year
$
47,141 
$
64,711 
  
$
188,181 
$
36,660 





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


15.  FEDERAL INCOME TAXES

The application of SSAP No. 101 requires a company to evaluate the recoverability of deferred tax assets and to establish a valuation allowance, if necessary, to reduce the deferred tax asset to an amount which is more likely than not to be realized.  Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In connection with the Sale Transaction described in Note 1, the Parent is planning to make an election under Treasury Regulation Section 1.1502-36(d) to retain the deferred tax asset related to the Company’s net operating loss carryforward, capital loss carryforward and deferred acquisition cost.  Upon receipt of regulatory approval of the Sale Transaction, it is expected that the deferred tax asset related to these items will be transferred to the Parent.  Therefore, since Management believes that because it is more likely than not that the deferred tax assets related to the Sale Transaction will be not be realized by the Company, a valuation allowance has been recorded against these particular deferred tax assets as of December 31, 2012.

The following table provides the components of the Company’s net deferred tax asset (“DTAs”) and deferred tax liabilities (“DTLs”) as of December 31, 2012 and 2011.  The net admitted DTA was calculated under SSAP No. 101 for the year ended December 31, 2012 and was calculated under SSAP No. 10R for the year ended December 31, 2011.  The impact of transitioning from SSAP No. 10R to SSAP No. 101 was a decrease in net admitted deferred tax assets and surplus of $49.9 million.

(In Thousands)
  
December 31, 2012
  
December 31, 2011
  
 Change
 Description
  
 Ordinary
  
 Capital
  
 Total
  
 Ordinary
  
 Capital
  
 Total
  
 Ordinary
  
 Capital
  
 Total
Gross Deferred Tax Assets
  
$1,156,141
  
$17,856
  
$1,173,997
  
$1,138,890
  
$71,582
  
$1,210,472
  
$    17,251
  
$(53,726)
  
$(36,475)
Statutory Valuation Allowance Adjustments
  
(361,941)
  
(17,856)
  
(379,797)
  
-
  
-
  
-
  
(361,941)
  
(17,856)
  
(379,797)
Adjusted Gross Deferred Tax Assets
  
794,200
-
-
-
794,200
  
1,138,890
-
71,582
  
1,210,472
  
(344,690)
  
(71,582)
  
(416,272)
Deferred Tax Assets Nonadmitted
  
392,830
  
-
  
392,830
  
615,750
  
71,582
  
687,332
  
(222,920)
  
(71,582)
  
(294,502)
Subtotal Net Admitted Deferred Tax Assets
  
401,370
  
-
  
401,370
  
523,140
  
-
  
523,140
  
(121,770)
  
-
  
(121,770)
Deferred Tax Liabilities
  
240,172
  
-
  
240,172
  
308,109
  
-
  
308,109
  
(67,937)
  
-
  
(67,937)
Net Admitted Deferred Tax Assets/(Net Deferred Tax Liability)
  
$    161,198
  
$          -
  
$161,198
  
$215,031
  
$         -
  
$215,031
  
$(53,833)
  
$           -
  
$(53,833)

The following table provides a reconciliation of the impact of adoption of SSAP No. 101:

Net Admitted Deferred Tax Asset/(Net Deferred Tax Liability) under SSAP No. 101 
  
 $(53,833)
Less: Tax effect of unrealized gains/(losses)
  
 (60,568)
Less: Change in net admitted deferred tax assets as a result of the adoption of SSAP No. 101
  
 (49,877)
Change in net admitted deferred tax assets (excluding the impact of the adoption of SSAP No. 101)
  
 $56,612
     
Deferred Tax Assets Nonadmitted under SSAP No. 101
  
 $(294,502)
Less: Change in non-admitted deferred tax assets as a result of the adoption of SSAP No. 101
  
 49,877
Change in non-admitted deferred tax assets (excluding the impact of the adoption of SSAP No. 101)
  
 $(344,379)

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

15.  FEDERAL INCOME TAXES (CONTINUED)

The following table provides component amounts of the Company's net admitted DTA calculation by tax character.  The components of the admission calculation were performed under (i) paragraphs 11.a, 11.b.i, 11.b.ii, and 11.c of SSAP No. 101 for the year ended December 31, 2012 and (ii) paragraphs 10.e.i, 10.e.ii.a, 10.e.ii.b, 10.e.iii of SSAP No. 10R for the year ended December 31, 2011.  As it pertains to the Company, the only difference between the two computations is that SSAP No. 101 uses the current reporting period surplus figures whereas SSAP No. 10R uses the prior quarter surplus figures.

   
December 31, 2012
December 31, 2011
 Change
   
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
       
(Col 1+2)
    
(Col 4+5)
(Col 1-4)
(Col 2-5)
(Col 7+8)
 Description
Ordinary
Capital
Total
Ordinary
Capital
Total
Ordinary
Capital
Total
Admission Calculation Components
SSAP No. 101
                
                     
 
(a) Admitted Pursuant to 11.a.
-
-
-
-
  
-
-
-
-
 
(b) Admitted Pursuant to 11.b.
(lesser of 11.b.i. or 11.b.ii.)
161,198
-
161,198
215,031
-
215,031
(53,833)
-
(53,833)
 
    (c) 11.b.i
459,248
-
459,248
579,334
-
579,334
(120,086)
-
(120,086)
 
    (d) 11.b.ii
    
161,198
    
215,031
    
(53,832)
 
(e) Admitted Pursuant to 11.c.
207,226
1,124
208,350
308,109
-
308,109
(100,883)
1,124
(99,759)
 
(f) Total admitted under 11.a. - 11.c.
368,424
1,124
369,548
523,140
-
523,140
(154,716)
1,124
(153,592)
 
(g) Deferred tax liabilities
207,226
1,124
208,350
308,109
-
308,109
(100,883)
1,124
(99,759)
 
Net admitted deferred tax
asset/liability
161,198
-
161,198
215,031
-
215,031
(53,833)
-
(53,833)


 
 2012
 2011
Ratio Percentage Used To Determine
Recovery Period And Threshold Limitation
Amount
893%
708%
     
Amount Of Adjusted Capital And Surplus
Used To Determine Recovery Period And
Threshold Limitation
$1,074,655,679
$1,101,023,536



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

15.  FEDERAL INCOME TAXES (CONTINUED)

The following table provides the impact of tax planning strategies, if used in the Company's SSAP No. 101 calculation, on adjusted gross and net admitted DTAs.

   
December 31, 2012
  
December 31, 2011
  
 Change
   
Ordinary
  
Capital
      
Ordinary
  
Capital
                
 Description
  
Percent
  
Percent
  
Total Percent
  
Percent
  
Percent
  
Total Percent
  
Ordinary
  
Capital
  
Total Percent
Impact of Tax Planning Strategies
                                    
                                     
  Adjusted Gross DTAs
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  (% of Total Adjusted Gross DTAs)
                                    
                                     
  Net Admitted Adjusted Gross DTAs
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  
0.00%
  (% of Total Net Admitted Adjusted
                                    
  Gross DTAs)
                                    


The Company utilizes tax planning strategies in the calculation of its adjusted gross DTA.  However, due to the method prescribed for calculating the ratios for the net admitted DTA as shown in the above table, the percentage impact of using tax planning strategies used to calculate the adjusted gross DTA is not reflected in the table above.

The following tables provide the Company's significant components of income taxes incurred and the changes in DTAs and DTLs.

                 
Change
  
Change
(In Thousands)
  
December 31, 2012
  
December 31, 2011
  
December 31, 2010
  
2012 - 2011
  
2011 - 2010
 Current Income Tax
                    
                     
 
 Federal tax benefit from operations
  
$(84,977)
  
$(37,926)
  
$(25,108)
  
$(47,051)
  
$(12,818)
 
 Federal tax expense on prior period adjustment
  
-
  
-
  
6,091
  
-
  
(6,091)
 
 Federal income tax on net capital gains
  
(2,216)
  
9,659
  
52,206
  
(11,875)
  
(42,547)
 
 Utilization of capital loss carry-forwards
  
-
  
(10,948)
  
(52,206)
  
10,948
  
41,258
 
 Federal tax expense (benefit) on stock options
  
184
  
(982)
  
(569)
  
1,166
  
(413)
 
 Current income tax benefit
  
$(87,009)
  
$(40,197)
  
$(19,586)
  
$(46,812)
  
$(20,611)




 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

15.  FEDERAL INCOME TAXES (CONTINUED)

(In Thousands)
  
December 31, 2012
  
December 31, 2011
  
Change
 Deferred Tax Assets:
            
               
 Ordinary
            
 
Policyholder reserves
  
$             517,331
  
$               536,293
  
$             (18,962)
 
Investments
  
213,028
  
165,450
  
47,578
 
Deferred acquisition costs
  
119,385
  
139,678
  
(20,293)
 
Net operating loss carry-forward
  
242,556
  
244,481
  
(1,925)
 
Other (including items <5% of total ordinary tax assets)
  
63,841
  
52,988
  
10,853
 
Total ordinary deferred tax assets
  
$           1,156,141
  
$          1,138,890
  
$                 17,251
               
               
 Statutory valuation allowance adjustment
  
$              361,941
  
$                         -
  
$                361,941
               
 Nonadmitted
  
392,830
  
615,750
  
(222,920)
               
 Admitted ordinary deferred tax assets
  
$             401,370
  
$             523,140
  
$              (121,770)
               
 Capital:
            
 
 Investments
  
-
  
66,124
  
(66,124)
 
 Net capital loss carry-forward
  
17,856
  
5,458
  
12,398
 
 Subtotal
  
$                17,856
  
$               71,582
  
$                 (53,726)
               
 Statutory valuation allowance adjustment
  
$                17,856
  
$                         -
  
$                   17,856
               
 Nonadmitted
  
-
  
71,582
  
(71,582)
               
 Admitted capital deferred tax assets
  
$                         -
  
$                         -
  
$                             -
               
 Admitted deferred tax assets
  
$              401,370
  
$              523,140
  
$              (121,770)
               
 Deferred Tax Liabilities:
            
               
 Ordinary
            
 
Investments
  
$             135,748
  
$              147,150
  
$                (11,402)
 
Policyholder reserves
  
89,539
  
147,072
  
(57,533)
 
Other (including items <5% of total ordinary tax liabilities)
  
14,885
  
13,887
  
998
 
Subtotal
  
$              240,172
  
$              308,109
  
$                (67,937)
               
 Capital:
            
 
 Investments
  
-
  
-
  
-
 
 Subtotal
  
$                         -
  
$                          -
  
$                            -
               
 Deferred tax liabilities
  
$             240,172
  
$              308,109
  
$               (67,937)
               
 Net admitted deferred tax assets/liabilities
  
$                   161,198
  
$                     215,031
  
$                   (53,833)





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

15.  FEDERAL INCOME TAXES (CONTINUED)


The following table provides a reconciliation of the impact of adoption of SSAP No. 101:

Net Admitted Deferred Tax Assets/(Net Deferred Tax Liability) under SSAP No. 101
  
 $(53,833)
Less: Tax effect of unrealized gains/(losses)
  
 (60,568)
Less: Change in net admitted deferred tax assets as a result of the adoption of SSAP No. 101
  
 (49,877)
Change in net admitted deferred tax assets (excluding the impact of the adoption of SSAP No. 101)
  
 $56,612
     
     
Deferred Tax Assets Nonadmitted under SSAP No. 101
  
 $(294,502)
Less: Change in non-admitted deferred tax assets as a result of the adoption of SSAP No. 101
  
 49,877
Change in non-admitted deferred tax assets (excluding the impact of the adoption of SSAP No. 101)
  
 $(344,379)


The change in net deferred income taxes is comprised of the following:

(In Thousands)
            
 Description
  
December 31, 2012
  
December 31, 2011
  
 Change
Total deferred tax assets
  
$1,173,997 
  
$1,210,472
  
$(36,475)
Total deferred tax liabilities
  
240,172 
  
308,109
  
(67,937)
Net deferred tax asset
  
$933,825 
  
$902,363
  
$31,462 
Statutory valuation allowance
  
(379,797)
  
-
  
(379,797)
Net deferred tax assets/liabilities
  
$554,028 
  
$902,363
  
$(348,335)
Tax effect of unrealized (gains)/losses
          
(60,568)
Change in net deferred income tax
          
$(287,767)
             
Change in net deferred income tax (before admissibility) due to the adoption of SSAP 101
  
49,877 
Change in net deferred income tax (before admissibility) excluding the effects of SSAP 101
  
$(337,644)

The provision for federal income taxes incurred for the current year is different from that which would be obtained by applying the statutory federal income tax rate of 35% to income before income taxes. The significant items causing this difference at December 31, 2012, 2011 and 2010 are as follows:







 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

15.  FEDERAL INCOME TAXES (CONTINUED)

(In Thousands)
  
December 31, 2012
  
December 31, 2011
  
December 31, 2010
 Description
  
Amount
  
Tax Effect @ 35%
  
Effective Tax Rate
  
Amount
  
Tax Effect @ 35%
  
Effective Tax Rate
  
Amount
  
Tax Effect @ 35%
  
Effective Tax Rate
Net gain from operations
  
$(41,797)
  
$(14,629)
  
3.3%
  
$(423,255)
  
$(148,139)
  
28.6%
  
$72,267
  
$25,294
  
-12.5%
Pre-tax capital gains - Pre IMR
  
(401,177)
  
(140,412)
  
31.7%
  
(94,595)
  
(33,108)
  
6.4%
  
(274,828)
  
(96,190)
  
47.5%
Dividends Received Deduction
      
(14,000)
  
3.2%
      
(14,000)
  
2.7%
      
(14,000)
  
6.9%
Tax Credits
      
(4,739)
  
1.1%
      
(4,281)
  
0.8%
      
(3,930)
  
1.9%
Non-deductible expenses
      
545
  
-0.1%
      
669
  
-0.1%
      
639
  
-0.3%
Change in tax contingency reserves
      
(1,860)
  
0.4%
      
1,676
  
-0.3%
      
4,153
  
-2.1%
Reversal of IMR
      
(4,743)
  
1.1%
      
(8,270)
  
1.6%
      
3,932
  
-1.9%
Change in non-admitted assets
      
4,763
  
-1.1%
      
1,605
  
-0.3%
      
(777)
  
0.4%
Prior year adjustments
      
(2,455)
  
0.6%
      
(5,728)
  
1.1%
      
3,149
  
-1.6%
Prior period adjustment booked to Surplus
      
-
  
0.0%
      
-
  
0.0%
      
6,091
  
-3.0%
Change in statutory valuation allowance
      
379,797
  
-85.9%
      
-
  
0.0%
      
-
  
0.0%
Other
      
(1,509)
  
0.3%
      
-
  
0.0%
      
(129)
  
0.1%
Total statutory income taxes
      
$200,758
  
-45.4%
      
$(209,576)
  
40.5%
      
$(71,768)
  
35.4%
                                     
Federal income taxes incurred
      
$(87,009)
  
19.6%
      
$(40,197)
  
7.8%
      
$(19,586)
  
9.6%
Change in net deferred income taxes
      
287,767
  
-65.0%
      
(169,379)
  
32.7%
      
(52,182)
  
25.8%
Total statutory income taxes
      
$200,758
  
-45.4%
      
$(209,576)
  
40.5%
      
$(71,768)
  
35.4%

At December 31, 2012, the Company has $693.0 million of net operating losses carryforwards, which will begin to expire, if not utilized, in 2023.  At December 31, 2012, the Company has $51.0 million of capital loss carryforward, which will expire, if not utilized, in 2014. At December 31, 2012, the Company has $6.2 million of foreign tax credit carryforwards, which will begin to expire if not utilized, in 2019. At December 31, 2012, the Company has $6.2 million of LIHTC carryforwards, which will expire, if not utilized, in 2029.  At December 31, 2012, the Company has no Minimum Tax Credits.

At December 31, 2012, the following are income tax expenses (benefits) incurred in current and prior years that will be available for recoupment in the event of future net losses (gains) (in thousands):

2012
  
 $                   (64,460)
2011
  
(59,740)
2010
  
(65,258)

The Company did not pay income taxes for the years ended December 31, 2012, 2011 or 2010.

A reconciliation of the beginning and ending balances of tax contingencies computed in accordance with SSAP No. 101 and No. 5R is as follows:

(In Thousands)
  
2012
  
2011
Balance, beginning of year
  
$                       1,477
  
$                         3,625
Gross increases related to tax positions in prior years
  
-
  
-
Gross decreases related to tax positions in prior years
  
-
  
-
Gross increases related to tax positions in current year
  
-
  
-
Settlements
  
-
  
(2,148)
Close of tax examinations/statutes of limitations
  
-
  
-
Balance, end of year
  
$                       1,477
  
$                         1,477


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

15.  FEDERAL INCOME TAXES (CONTINUED)

Included above in the balance of tax contingencies are liabilities for unrecognized tax benefits (“UTBs”) related to permanent tax adjustments, exclusive of interest.  If recognized, these amounts would favorably affect the Company’s effective tax rate on income from operations in future periods, exclusive of any related interest.

The Company recognizes interest accrued related to UTBs in income tax expense.  The Company had accrued interest balance of $6.3 million and $9.2 million as of December 31, 2012 and 2011, respectively. The Company recognized $2.9 million in gross interest benefit related to UTBs during the year ended December 31, 2012. The Company has not accrued any penalties related to UTBs.

As of December 31, 2012, there were no positions for which management believes it is reasonably possible that the total amounts of tax contingencies will significantly increase or decrease within 12 months of the reporting date.

The Company files federal income tax returns and income tax returns in various state and local jurisdictions.  With few exceptions, the Company is no longer subject to examinations by the tax authorities in these jurisdictions for tax years before 2003.  In August 2006, the Internal Revenue Service (“IRS”) issued a Revenue Agent’s Report for the Company’s 2001 and 2002 tax years.  The Company disagreed with some of the proposed adjustments and the case was assigned to The Appeals Division of the IRS (“Appeals”).  A settlement was reached and formally approved by the Company on January 11, 2010.   The effects of the settlement are in line with previous expectations and have no material impact on the Company’s financial statements.

In October 2008, the IRS issued a Revenue Agent’s Report for the Company’s tax years 2003 and 2004. The Company disagreed with some of the adjustments and filed a protest, which was assigned to Appeals in 2009.  On May 27, 2010 the IRS held opening conference for the 2003 and 2004 Appeal.  The Company is involved in discussions with the IRS to reach a resolution. On January 6, 2011 the IRS issued a Revenue Agent’s Report for the Company for tax years 2005 and 2006. The Company disagrees with some of the issues and is in the process of filing a protest.

While the final outcome of the appeals and ongoing tax examinations is not determinable, the Company has recorded its best estimate of potential liability and does not believe that any adjustments would be material to its financial position.

On August 4, 2011, the IRS held Open Conference for the tax years 2007-2009.  The Company is in the process of responding to the IRS requests for information.  The Company also provided the disclosure letter to the IRS on September 21, 2011.

The Company will file a consolidated return with SLC – U.S. Ops Holdings for the year ended December 31, 2012, as the Company did for the years ended December 31, 2011 and 2010.

The Company has a written agreement approved by the Board of Directors, which sets forth the manner in which the total combined federal income tax is allocated to each entity which is a party to the consolidation.  Pursuant to this agreement, allocation is based upon separate return calculations with current credit (benefit) given for losses and tax attributes that are utilized by the consolidated group.  Intercompany tax balances are settled on a quarterly basis, with a final true up after filing of the federal income tax return, as prescribed by the terms of the tax sharing agreement.


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

15.  FEDERAL INCOME TAXES (CONTINUED)

The Company will file a consolidated federal income tax return for 2012 with the following affiliates:

Sun Life Assurance Company of Canada - U.S. Operations Holdings, Inc.
  
 Sun Life Financial (U.S.) Reinsurance Company
 Sun Life Financial (U.S.) Holdings, Inc.
    
 Massachusetts Financial Services Company
 Sun Life Financial (Japan), Inc.
    
 MFS Investment Management K.K.
 Sun Life Financial (U.S.) Finance, Inc.
    
 MFS Fund Distributors, Inc.
  
 Sun Canada Financial Co.
    
 MFS Service Center, Inc.
  
 Sun Life Financial Distributors, Inc.
    
 MFS Institutional Advisors, Inc.
  
 Clarendon Insurance Agency, Inc.
    
 MFS Heritage Trust Company
  
 Sun Life of Canada (U.S.) Holdings, Inc.
    
 California Benefits Dental Plan
  
 Sun Life of Canada (U.S.) Financial Services Holdings, Inc.
  
 Sun Life Administrators (U.S.), Inc.
 Sun Life Assurance Company of Canada (U.S.)
    
 Dental Holdings, Inc.
  
 Independence Life and Annuity Company
    
 Sun Life Financial (U.S.) Services Company, Inc.

16.  CAPITAL STOCK AND SURPLUS AND DIVIDEND RESTRICTIONS

The Company’s ability to pay dividends is subject to certain statutory restrictions.  The State of Delaware has enacted laws governing the payment of dividends to stockholders by domestic insurers.

Pursuant to Delaware's statute, the maximum amount of dividends and other distributions that a domestic insurer may pay in any twelve-month period without the prior approval of the Delaware Commissioner of Insurance is limited to the greater of:  (i) 10% of its statutory surplus as of the preceding December 31, or (ii) the individual company's statutory net gain from operations for the preceding calendar year.  Any dividends to be paid by an insurer from a source other than statutory surplus, whether or not in excess of the aforementioned threshold, would also require the prior approval of the Delaware Commissioner of Insurance.  The Company was not permitted to pay dividends in 2012 without prior approval from the Delaware Commissioner of Insurance.

No dividends were paid to the Parent during 2012. Extra ordinary dividends of $300 million were paid to the Parent during 2011. No dividends were paid to the Parent during 2010.

The portion of unassigned funds (surplus) represented or (reduced) by each of the following items at December 31, 2012 and 2011 was as follows (in thousands):


   
2012
    
2011
Net unrealized capital losses, excluding deferred tax
$
 81,981
  
$
 (137,151)
Non-admitted assets
  
 (401,635)
    
 (707,402)
Asset valuation reserve
  
 (47,141)
    
 (188,181)



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


17.  RISK-BASED CAPITAL

Life and health insurance companies are subject to certain RBC requirements as specified by the NAIC. The RBC requirements provide a method for measuring the minimum acceptable amount of adjusted capital that a life insurer should have, as determined under statutory accounting principles, taking into account the risk characteristics of its investments and products.  The Company has met the minimum RBC requirements at December 31, 2012 and 2011.

18.  COMMITMENTS AND CONTINGENT LIABILITIES

Contingent commitments

The Company has commitments for partnership investments of $11.5 million and $11.8 million as of December 31, 2012 and 2011, respectively.

Regulatory and industry developments

Under insurance guaranty fund laws in each state, the District of Columbia and Puerto Rico, insurers licensed to do business can be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants.  Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's solvency and further provide annual limits on such assessments.  Part of the assessments paid by the Company pursuant to these laws may be used as credits for a portion of the associated premium taxes.

The pending liquidation of Executive Life Insurance Company, along with other insolvencies reported by National Organization of Life and Health Insurance Guaranty Associations, will result in retrospective premium-based guaranty fund assessments against the Company. Based on the best information available, the Company has recorded an accrued liability of $10.2 million for guaranty fund assessments as of December 31, 2012. The Company does not know the period over which the guaranty fund assessments are expected to be paid.

The Company has not established any asset for premium tax credits or policy surcharges as their recoveries are not estimable.

Litigation, Income Taxes and Other Matters

In Revenue Ruling 2007-61, issued on September 25, 2007, the IRS announced its intention to issue regulations with respect to certain computational aspects of the dividends-received-deduction (the “DRD”) on separate account assets held in connection with variable annuity contracts.  Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54, issued on August 16, 2007, that purported to change accepted industry and IRS interpretations of the statutes governing computational questions impacting the DRD.  On May 30, 2010, the IRS issued an Industry Director Directive which makes it clear that IRS interpretations prior to Revenue Ruling 2007-54 should be followed until new regulations are issued.





 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


18.  COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

New DRD regulations that the IRS proposes for issuance on this matter will be subject to public comment, at which time the insurance industry and other interested parties will have the opportunity to raise comments and questions about the content, scope, and application of new regulations.  The issue was included in the 2012-2013 Priority Guidance Plan, issued on November 19, 2012, as one of the projects the IRS intends to work on in 2013. The timing, substance, and effective date of the new regulations are unknown, but they could result in the elimination of some or all of the separate account DRD tax benefit that the Company ultimately receives. For the years ended December 31, 2012,  2011 and 2010, the Company’s financial statements reflect benefits of $11.6 million, $13.8 million and $10.6 million, respectively, related to the separate account DRD.

The Company recorded adjustments as of, and for the twelve months ended, December 31, 2011 due to inaccurate interest rates on certain contract loan balances processed during the year, and in prior years, related to SPWL policies (see Note 1). The Company continues to investigate the interest rates used on SPWL contract loans outstanding in prior years, although management has not determined a reasonable estimate for any remaining potential future adjustments at this time.  Potential future adjustments will also be subject to the 100% funds-withheld reinsurance agreement with SLOC.

The Company is not aware of any contingent liabilities arising from litigation or other matters that could have a material effect upon the financial condition, results of operations or cash flows of the Company.

Indemnities
 
In the normal course of its business, the Company has entered into agreements that include indemnities in favor of third parties, such as contracts with advisors and consultants, outsourcing agreements, underwriting and agency agreements, information technology agreements, distribution agreements, and service agreements.  The Company has also agreed to indemnify its directors, officers and employees in accordance with the Company’s by-laws.  The Company believes any potential liability under these agreements is neither probable nor estimable.  Therefore, the Company has not recorded any associated liability.

Lease Commitments
 
The Company leases various facilities and equipment under non-cancelable operating lease agreements.  Rental expenses, including allocated amounts, for 2012, 2011 and 2010 were approximately $5.4 million, $5.7 million and $5.9 million, respectively.

The Company had previously transferred assets to Sun Life Services, which resulted in a sale-leaseback transaction.  At the time of the transfer, the Company established a liability, which represented the cost of certain of the assets transferred, and had been amortizing the liability over the remaining useful life of the assets on a straight-line basis.  During December, 2012, the value of the assets transferred were written down to zero, and the remaining liability was amortized into income.  The write-off resulted in an increase to surplus of approximately $8.6 million, pre-tax, as the leased assets had been previously non-admitted.  The Company has no remaining future minimum lease payments related to these assets.



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


18.  COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

Leasing is not a significant part of the Company’s business activities.  At December 31, 2012, the Company leased office space to its affiliate, the U.S. Branch.  This lease was scheduled to expire in December 2014 and included options to extend the terms for each of twelve successive five-year terms at fair market rental. This lease was revised on January 1, 2013.  Refer to Note 19.


19.  SUBSEQUENT EVENTS

Effective January 1, 2013, the Company revised the lease agreement with its affiliate, the US Branch, to assign the rights, liabilities and obligations under the lease from the U.S. Branch to another affiliate, Sun Life Services.  The lease was amended to be a 20 year term, subject to termination rights every 5th year after the start of the lease.

In December 2012, the Board of Directors of the Company approved the recapture of 100 percent of the risks under certain single premium whole life insurance policies that are currently reinsured to its affiliate, SLOC, pursuant to a December 31, 2003 reinsurance agreement.  The transaction was effective for the first quarter of 2013, and the Company recorded a decrease to surplus of approximately $34.7 million.

During December 2012, the Company’s Board of Directors approved the extraordinary distribution of all of the issued and outstanding shares of the Company’s wholly-owned subsidiary, ILAC, to the Parent. The Company received regulatory approval and ILAC was distributed effective January 1, 2013.  The impact to the Company's surplus was a decrease of $64.2 million.  The Company recorded the distribution as a return of gross paid in and contributed surplus.

Subsequent events were evaluated through the issuance of the audited statutory-basis financial statements, which were made available on April 24, 2013.  No events were identified subsequent to the filing of the Company’s Annual Statement on March 1, 2013, other than those disclosed above.








 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS

The following OTTI was recognized during the statement year on loan-backed or structured securities that the Company had either intent to sell or inability to hold until recovery.

   
(1)
Amortized Cost Basis Before Other-than-Temporary Impairment
(2)
Other-than-Temporary Impairment Recognized in Loss
(3)
Fair Value
1 - (2a + 2b)
(In Thousands)
    
2(a)
Interest
2(b)
Non-Interest
  
           
OTTI recognized 1st Quarter
          
           
a.     Intent to sell
  
$               -
$               -
$               -
$               -
b.   Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis
  
$               -
$               -
$               -
$               -
c.     Total 1st Quarter
  
$               -
$               -
$               -
$               -
           
OTTI recognized 2nd Quarter
          
           
d.    Intent to sell
  
$               -
$               -
$               -
$               -
e.   Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis
  
$               -
$               -
$               -
$               -
f.     Total 2nd Quarter
  
$               -
$               -
$               -
$               -
           
OTTI recognized 3rd Quarter
          
           
g.     Intent to sell
  
$               -
$               -
$               -
$               -
h.   Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis
  
$               -
$               -
$               -
$               -
i.     Total 3rd Quarter
  
$               -
$               -
$               -
$               -
           
OTTI recognized 4th Quarter
          
           
j.     Intent to sell
  
$1,020,430
$               -
$   309,060
$   711,370
k.   Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis
  
$               -
$               -
$               -
$               -
           
l.     Total 4th Quarter
  
$1,020,430
$               -
$   309,060
$   711,370
           
m.   Annual Aggregate Total
    
$               -
$   309,060
  

 

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

The following table presents details on credit impairments recorded on loan-backed and structured securities pursuant to SSAP No. 43R for the year ended December 31, 2012.

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
04542BMV1
$               715,694
$               616,316
$              99,379
$                616,316
$                616,316
03/31/2012
058931BR6
701,587
599,987
101,600
599,987
420,046
03/31/2012
05948KCC1
1,364,954
1,364,675
279
1,364,675
1,364,675
03/31/2012
05948KCD9
488,310
427,848
60,463
427,848
427,848
03/31/2012
05948KDV8
209,699
99,825
109,875
99,825
99,825
03/31/2012
05948KHW2
690,518
689,185
1,333
689,185
689,185
03/31/2012
05948KMR7
1,950,097
1,947,662
2,434
1,947,662
1,947,662
03/31/2012
05948KST7
967,969
617,006
350,962
617,006
617,006
03/31/2012
05948KTP4
1,085,092
1,083,831
1,261
1,083,831
1,083,831
03/31/2012
05948KVE6
1,631,340
1,628,616
2,723
1,628,616
1,628,616
03/31/2012
05948KVF3
252,137
158,148
93,989
158,148
158,148
03/31/2012
05948KYD5
657,184
526,678
130,506
526,678
309,738
03/31/2012
05948X2A8
2,046,752
2,043,928
2,824
2,043,928
1,697,023
03/31/2012
05948XD99
3,984,971
3,981,293
3,679
3,981,293
3,651,260
03/31/2012
05948XY96
2,720,165
2,716,433
3,732
2,716,433
2,239,994
03/31/2012
05949AQL7
6,115,675
6,112,074
3,601
6,112,074
4,665,375
03/31/2012
05949AYP9
795,413
779,024
16,389
779,024
779,024
03/31/2012
05949CBN5
259,273
249,951
9,323
249,951
97,533
03/31/2012
05949CQD1
6,425,577
6,422,496
3,082
6,422,496
6,320,767
03/31/2012
05949QBV6
218,552
151,576
66,976
151,576
65,243
03/31/2012
06052LAA5
10,739,243
10,705,683
33,560
10,705,683
10,649,697
03/31/2012
12513YAK6
1,981,016
1,351,747
629,270
1,351,747
1,351,747
03/31/2012
12669FQF3
238,607
154,420
84,187
154,420
154,420
03/31/2012
12669FXC2
432,867
368,405
64,462
368,405
368,405
03/31/2012
172973D63
3,018,944
3,018,834
110
3,018,834
2,788,378
03/31/2012
17309BAB3
772,049
745,969
26,081
745,969
612,640
03/31/2012
225308BG9
18,592,800
2,092,800
16,500,000
2,092,800
2,092,800
03/31/2012
32051GD77
278,429
-
278,429
-
30
03/31/2012
32051GMN2
1,500,725
1,500,274
451
1,500,274
1,500,274
03/31/2012
32051GRL1
951
-
951
-
13
03/31/2012
32051GWZ4
829,084
446,352
382,732
446,352
446,352
03/31/2012
32052LAC7
3,340,036
3,339,853
183
3,339,853
3,119,776
03/31/2012
32052LAT0
106,944
-
106,944
-
13,883
03/31/2012
362341EV7
34,276
15,370
18,906
15,370
18
03/31/2012
36828QQS8
1,410,040
827,520
582,520
827,520
827,520
03/31/2012



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
41161PNC3
$                261,414
$                160,813
$             100,602
$                160,813
$                180,057
03/31/2012
466247HG1
206,664
180,929
25,735
180,929
180,929
03/31/2012
466247RD7
82,517
78,118
4,399
78,118
78,118
03/31/2012
466247ST1
151,358
70,222
81,137
70,222
70,222
03/31/2012
466247WV1
1,201,854
175,584
1,026,270
175,584
175,584
03/31/2012
46625M7A1
3,593,085
3,147,948
445,137
3,147,948
1,752,828
03/31/2012
46625YDW0
1,816,954
800,012
1,016,942
800,012
800,012
03/31/2012
46625YNY5
2,221,575
1,349,946
871,629
1,349,946
1,349,946
03/31/2012
46625YRC9
2,775,579
1,267,316
1,508,263
1,267,316
1,267,316
03/31/2012
46629PAJ7
156,286
78,838
77,449
78,838
78,838
03/31/2012
46630VAQ5
1,400,777
671,778
728,999
671,778
671,778
03/31/2012
57643LRK4
1,056,919
986,257
70,662
986,257
461,415
03/31/2012
57643MAY0
495,692
475,334
20,359
475,334
381,220
03/31/2012
68403BAE5
5,161,869
5,127,228
34,641
5,127,228
3,930,695
03/31/2012
69335YAJ5
1,184,975
1,184,186
789
1,184,186
1,184,186
03/31/2012
73316PCL2
403,403
329,086
74,318
329,086
329,086
03/31/2012
749577AA0
18,562,056
18,547,193
14,864
18,547,193
16,598,553
03/31/2012
74958AAD6
5,213,223
5,183,195
30,028
5,183,195
4,690,130
03/31/2012
74958EAG1
9,758,550
9,745,382
13,168
9,745,382
9,132,248
03/31/2012
74958YAA0
4,219,010
4,196,925
22,085
4,196,925
4,014,899
03/31/2012
75970NAT4
535,899
489,193
46,706
489,193
323,601
03/31/2012
75970QAF7
4,983,532
4,938,546
44,986
4,938,546
2,777,406
03/31/2012
759950DT2
447,341
280,066
167,275
280,066
273,148
03/31/2012
760985D32
322,777
303,961
18,817
303,961
303,961
03/31/2012
760985XY2
335,948
242,263
93,685
242,263
242,263
03/31/2012
760985XZ9
44,887
39,772
5,115
39,772
39,772
03/31/2012
760985ZJ3
445,376
414,982
30,393
414,982
414,982
03/31/2012
76110WWJ1
467,919
465,398
2,521
465,398
465,398
03/31/2012
76111J2B9
2,281,454
2,277,098
4,356
2,277,098
1,926,738
03/31/2012
76111J7T5
670,771
670,338
433
670,338
606,234
03/31/2012
76111XPG2
220,812
211,825
8,987
211,825
211,825
03/31/2012
863576AT1
16,377
2,215
14,161
2,215
24
03/31/2012
863576CV4
3,404,658
2,294,503
1,110,155
2,294,503
2,294,503
03/31/2012
929227WP7
20,269
19,764
505
19,764
12,939
03/31/2012
929227Z66
4,959,994
4,958,183
1,811
4,958,183
3,724,548
03/31/2012
92922FH27
54,290
8,821
45,469
8,821
30,269
03/31/2012
939336Y31
193,154
150,850
42,303
150,850
150,850
03/31/2012
94981FAN2
1,237,573
1,216,932
20,641
1,216,932
1,216,932
03/31/2012
94983JAJ1
128,041
84,399
43,642
84,399
84,399
03/31/2012
04542BMW9
80,317
39,797
40,520
39,797
39,797
06/30/2012

 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
05946XGH0
$                 813,629
$                768,919
$               44,710
$                768,919
$                768,919
06/30/2012
05948KCD9
617,923
386,581
231,342
386,581
386,581
06/30/2012
05948KGM5
294,205
244,424
49,782
244,424
244,424
06/30/2012
+05948KHW2
868,719
749,954
118,766
749,954
749,954
06/30/2012
05948KST7
612,021
408,363
203,658
408,363
408,363
06/30/2012
05948KVF3
228,995
194,345
34,650
194,345
194,345
06/30/2012
05949AXN5
586,035
579,458
6,577
579,458
579,458
06/30/2012
05949AYP9
692,554
653,266
39,288
653,266
653,266
06/30/2012
05949QBV6
117,358
-
117,358
-
17,061
06/30/2012
1248P8AC3
2,509,395
2,504,861
4,534
2,504,861
2,590,501
06/30/2012
12501RAC3
1,001,102
996,001
5,101
996,001
876,862
06/30/2012
12666CAF0
69,224
68,773
451
68,773
312,970
06/30/2012
12669FHU0
776,196
717,077
59,119
717,077
717,077
06/30/2012
12669FQF3
204,038
157,319
46,719
157,319
157,319
06/30/2012
12669FSH7
1,040,603
937,822
102,781
937,822
937,822
06/30/2012
12669FXC2
502,793
428,930
73,862
428,930
428,930
06/30/2012
17309BAB3
643,529
629,429
14,100
629,429
489,050
06/30/2012
20173QAK7
2,895,563
1,057,500
1,838,063
1,057,500
1,057,500
06/30/2012
21075WBM6
303,235
302,288
947
302,288
302,419
06/30/2012
225308BG9
4,172,944
-
4,172,944
-
1,339,470
06/30/2012
31846LBT2
92,792
91,839
953
91,839
82,327
06/30/2012
31846LBW5
136,856
133,130
3,726
133,130
133,667
06/30/2012
32051GVB8
840,900
142,131
698,769
142,131
142,131
06/30/2012
32051GWZ4
878,164
388,198
489,966
388,198
388,198
06/30/2012
362341EV7
13,255
-
13,255
-
16
06/30/2012
36242DYN7
76,375
27,308
49,066
27,308
115,440
06/30/2012
393505MU3
427,713
406,940
20,774
406,940
431,375
06/30/2012
393505QN5
9,005
8,862
143
8,862
9,104
06/30/2012
393505QZ8
3,666,005
3,550,607
115,398
3,550,607
3,894,727
06/30/2012
393505SU7
320,188
299,393
20,795
299,393
329,814
06/30/2012
393505UU4
1,154,212
1,144,485
9,727
1,144,485
1,183,337
06/30/2012
393505VW9
95,387
93,890
1,497
93,890
97,747
06/30/2012
396789KD0
3,107,559
2,384,646
722,913
2,384,646
626,416
06/30/2012
41161PNC3
137,072
106,403
30,669
106,403
117,578
06/30/2012
456684AA7
12,528,669
6,278,669
6,250,000
6,278,669
4,225,000
06/30/2012
466247HG1
196,878
155,188
41,690
155,188
155,188
06/30/2012
466247QP1
1,395,960
1,333,695
62,265
1,333,695
1,088,306
06/30/2012
466247ST1
139,130
102,574
36,556
102,574
65,561
06/30/2012
466247WV1
196,405
180,495
15,910
180,495
180,495
06/30/2012
46625M7A1
3,147,948
2,231,715
916,233
2,231,715
1,793,551
06/30/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
46630VAQ5
$              2,447,271
$             1,451,528
$             995,743
$             1,451,528
$                841,146
06/30/2012
477122AU9
240,828
-
240,828
-
787
06/30/2012
52108H3S1
3,096,806
2,089,661
1,007,145
2,089,661
260,747
06/30/2012
59549NAA1
4,863,223
4,846,795
16,429
4,846,795
5,015,851
06/30/2012
59549NAD5
1,442,539
1,441,623
916
1,441,623
1,462,399
06/30/2012
59549RAC8
773,345
765,179
8,166
765,179
709,032
06/30/2012
59549WAD5
2,219,088
2,218,604
485
2,218,604
2,202,269
06/30/2012
59560UAC5
4,311,890
4,308,300
3,590
4,308,300
4,528,580
06/30/2012
68403BAE5
5,127,228
5,103,385
23,843
5,103,385
3,891,963
06/30/2012
68619ABJ5
1,109,239
1,109,036
202
1,109,036
1,125,607
06/30/2012
749577AA0
17,487,126
16,877,535
609,591
16,877,535
15,822,388
06/30/2012
74958AAD6
4,987,417
4,849,256
138,160
4,849,256
4,422,437
06/30/2012
74958EAG1
9,572,748
9,454,153
118,595
9,454,153
8,949,993
06/30/2012
74958YAA0
3,974,466
3,927,508
46,957
3,927,508
3,701,205
06/30/2012
760985D32
323,164
293,859
29,306
293,859
293,859
06/30/2012
760985YX3
451,882
447,707
4,175
447,707
134,790
06/30/2012
760985ZJ3
431,796
415,711
16,084
415,711
415,711
06/30/2012
76110VBX5
415,523
411,351
4,172
411,351
402,988
06/30/2012
76110WWJ1
470,690
453,768
16,922
453,768
453,768
06/30/2012
76111J2B9
2,102,528
2,086,732
15,796
2,086,732
1,778,712
06/30/2012
76111J5M2
2,239,142
2,219,079
20,063
2,219,079
2,145,225
06/30/2012
76111XPE7
2,654,650
2,651,441
3,210
2,651,441
2,415,022
06/30/2012
76111XPG2
458,936
278,907
180,030
278,907
278,907
06/30/2012
76111XXX6
45,922
-
45,922
-
20
06/30/2012
79548KA73
2,701,839
2,701,296
543
2,701,296
1,607,639
06/30/2012
863576AT1
2,022
-
2,022
-
22
06/30/2012
863576CV4
2,798,169
2,249,080
549,090
2,249,080
2,249,080
06/30/2012
921796GR3
1,205,010
1,190,001
15,008
1,190,001
1,172,989
06/30/2012
921796HD3
1,805,081
1,729,936
75,146
1,729,936
1,834,646
06/30/2012
921796KF4
5,270,632
4,997,633
272,999
4,997,633
5,150,024
06/30/2012
929227K21
918,408
918,261
147
918,261
830,594
06/30/2012
929227Z66
4,593,605
4,593,065
541
4,593,065
3,609,181
06/30/2012
92922FH27
6,738
2,797
3,941
2,797
19,868
06/30/2012
92922FXB9
108,270
99,938
8,332
99,938
99,938
06/30/2012
92978MAL0
2,782,435
1,632,069
1,150,366
1,632,069
1,632,069
06/30/2012
939336RN5
4,666,141
4,636,794
29,347
4,636,794
4,380,807
06/30/2012
939336TY9
2,312,992
2,310,770
2,222
2,310,770
2,264,249
06/30/2012
939336TZ6
880,953
880,531
422
880,531
829,849
06/30/2012
939336Y31
160,147
98,334
61,813
98,334
98,334
06/30/2012
94979YBC8
3,273,949
3,236,450
37,499
3,236,450
2,333,711
06/30/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
94980DAE8
$              4,049,806
$             4,030,147
$               19,659
$             4,030,147
$             3,064,033
06/30/2012
94980XAS3
5,352,047
5,326,963
25,084
5,326,963
4,030,375
06/30/2012
94981FAN2
1,326,845
1,083,762
243,083
1,083,762
1,083,762
06/30/2012
94981UAL3
330,943
276,749
54,194
276,749
276,749
06/30/2012
94981YAA9
1,514,980
1,488,146
26,835
1,488,146
1,344,060
06/30/2012
94983JAJ1
74,848
60,982
13,866
60,982
53,699
06/30/2012
94983NAN3
26,535
9,992
16,543
9,992
30,202
06/30/2012
000780AV8
3,773,810
3,771,157
2,653
3,771,157
3,505,489
09/30/2012
03072SQX6
365,142
334,757
30,385
334,757
334,757
09/30/2012
03927PAE8
2,669,908
1,274,175
1,395,733
1,274,175
1,274,175
09/30/2012
04542BMW9
62,425
12,017
50,408
12,017
24,653
09/30/2012
05946XGH0
750,322
682,238
68,083
682,238
682,238
09/30/2012
05948KCC1
1,088,395
1,086,064
2,330
1,086,064
1,086,064
09/30/2012
05948KCD9
350,011
325,534
24,476
325,534
325,534
09/30/2012
05948KGM5
212,693
198,496
14,197
198,496
198,496
09/30/2012
05948KJX8
3,647,492
3,644,707
2,785
3,644,707
3,644,707
09/30/2012
05948KMR7
2,219,299
2,212,190
7,110
2,212,190
2,212,190
09/30/2012
05948KST7
425,000
363,068
61,932
363,068
363,068
09/30/2012
05948KTP4
1,283,329
1,278,733
4,596
1,278,733
1,278,733
09/30/2012
05948KVE6
2,019,251
2,008,165
11,085
2,008,165
2,008,165
09/30/2012
05948KVF3
432,977
129,568
303,409
129,568
129,568
09/30/2012
05948KYD5
521,288
473,190
48,099
473,190
396,143
09/30/2012
05948X2A8
1,920,380
1,906,116
14,264
1,906,116
1,597,823
09/30/2012
05948XD99
3,714,841
3,708,274
6,567
3,708,274
3,174,683
09/30/2012
05948XY96
2,555,519
2,550,616
4,903
2,550,616
1,958,416
09/30/2012
059497AB3
971,154
681,261
289,893
681,261
202,500
09/30/2012
059497AF4
539,296
243,900
295,396
243,900
243,900
09/30/2012
05949AQL7
5,841,980
5,838,205
3,775
5,838,205
4,512,178
09/30/2012
05949AXN5
430,549
297,518
133,031
297,518
297,518
09/30/2012
05949AYP9
611,267
176,848
434,419
176,848
176,848
09/30/2012
06051GCY3
4,595,510
4,582,076
13,434
4,582,076
3,925,990
09/30/2012
07324YAK5
457,369
334,344
123,025
334,344
185,813
09/30/2012
12666CAF0
68,773
66,632
2,142
66,632
269,125
09/30/2012
12669EGX8
318,804
298,854
19,950
298,854
298,854
09/30/2012
12669ETE6
2,128,731
2,127,955
776
2,127,955
1,889,322
09/30/2012
12669FXC2
369,370
340,219
29,152
340,219
340,219
09/30/2012
161546DN3
215,462
215,314
148
215,314
215,314
09/30/2012
16162WGC7
2,912,279
2,910,768
1,511
2,910,768
2,734,032
09/30/2012
172973D63
2,683,774
2,681,683
2,090
2,681,683
2,485,428
09/30/2012
17307GPH5
516,665
413,826
102,839
413,826
413,826
09/30/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
17309BAB3
$                 616,605
$                603,094
$               13,511
$                603,094
$                514,995
09/30/2012
22545LAT6
161,272
106,492
54,779
106,492
37,725
09/30/2012
294751DF6
555,914
554,387
1,527
554,387
468,300
09/30/2012
32051GMN2
1,512,009
1,501,420
10,589
1,501,420
1,501,420
09/30/2012
32051GZ99
6,781,183
6,778,396
2,787
6,778,396
6,783,895
09/30/2012
32052LAC7
3,198,430
3,193,132
5,298
3,193,132
3,234,469
09/30/2012
36242DYN7
19,538
-
19,538
-
12
09/30/2012
378961AF3
5,205,677
5,204,611
1,066
5,204,611
5,204,611
09/30/2012
466247RD7
357,231
59,623
297,609
59,623
59,623
09/30/2012
46629PAJ7
189,295
74,400
114,895
74,400
74,400
09/30/2012
55265KZR3
6,378,549
6,373,570
4,979
6,373,570
5,461,822
09/30/2012
55265WAT0
2,537,801
2,536,316
1,484
2,536,316
2,428,114
09/30/2012
57643MAY0
442,492
404,433
38,059
404,433
372,182
09/30/2012
57643MHT4
2,647,499
2,644,323
3,176
2,644,323
2,224,674
09/30/2012
59022HEB4
1,433,024
1,186,130
246,894
1,186,130
1,186,130
09/30/2012
68403BAE5
5,103,385
5,077,281
26,103
5,077,281
4,603,481
09/30/2012
69335YAJ5
1,652,558
1,649,885
2,673
1,649,885
1,649,885
09/30/2012
75970NAT4
489,193
459,097
30,096
459,097
224,639
09/30/2012
75970QAF7
4,934,658
4,852,220
82,438
4,852,220
2,989,145
09/30/2012
760985TP6
1,050,089
1,048,112
1,977
1,048,112
873,467
09/30/2012
760985U41
1,340,645
1,338,080
2,565
1,338,080
1,181,235
09/30/2012
76110VPG7
1,548,634
1,546,137
2,496
1,546,137
1,361,480
09/30/2012
76110WVR4
2,536,501
2,536,280
221
2,536,280
2,304,801
09/30/2012
76111XPE7
2,519,361
2,518,070
1,291
2,518,070
2,249,408
09/30/2012
76111XPF4
811,414
811,390
24
811,390
811,390
09/30/2012
863576CV4
2,362,966
2,102,173
260,793
2,102,173
2,102,173
09/30/2012
90263BHE1
858,821
858,614
207
858,614
626,816
09/30/2012
9292275R3
2,378,957
2,166,853
212,104
2,166,853
2,145,124
09/30/2012
929227Z66
4,382,182
4,378,491
3,692
4,378,491
3,452,223
09/30/2012
92922FH27
1,415
-
1,415
-
7,979
09/30/2012
92922FKK3
2,953,747
2,952,625
1,122
2,952,625
2,381,767
09/30/2012
92922FXB9
129,197
88,100
41,097
88,100
88,100
09/30/2012
939336Y31
64,026
57,621
6,404
57,621
57,621
09/30/2012
94979YBC8
3,084,646
3,062,528
22,117
3,062,528
2,213,461
09/30/2012
94980DAE8
3,717,296
3,673,130
44,166
3,673,130
2,812,807
09/30/2012
94980DAF5
1,060,283
1,049,531
10,751
1,049,531
734,157
09/30/2012
94980XAS3
5,107,600
5,070,816
36,784
5,070,816
3,853,180
09/30/2012
94980XAT1
1,230,611
1,223,894
6,717
1,223,894
795,303
09/30/2012
94981UAL3
344,475
217,651
126,824
217,651
217,651
09/30/2012
94983JAJ1
41,256
23,725
17,531
23,725
24,994
09/30/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
94983NAN3
$                     7,568
$                            -
$                 7,568
$                            -
$                  16,503
09/30/2012
000780AV8
3,631,960
3,373,039
258,920
3,373,039
3,373,039
12/31/2012
000780AX4
632,839
494,104
138,735
494,104
494,104
12/31/2012
000780GM2
641,496
580,112
61,384
580,112
580,112
12/31/2012
000780KJ4
1,502,924
1,430,437
72,487
1,430,437
1,430,437
12/31/2012
03072SQW8
2,410,465
274,833
2,135,632
274,833
274,833
12/31/2012
03072SQX6
2,181,658
272,104
1,909,555
272,104
272,104
12/31/2012
03702WAK0
765,304
5,798
759,506
5,798
63,700
12/31/2012
03927PAE8
2,117,730
1,880,925
236,805
1,880,925
1,880,925
12/31/2012
03927PAG3
26,498
1,500
24,998
1,500
1,500
12/31/2012
04542BMV1
2,109,131
432,010
1,677,121
432,010
432,010
12/31/2012
04542BMW9
9,160
995
8,165
995
14,074
12/31/2012
04544PAE9
5,045,815
2,277,369
2,768,447
2,277,369
2,277,369
12/31/2012
058931BR6
492,314
362,427
129,887
362,427
362,427
12/31/2012
05946XFK4
965,693
859,524
106,170
859,524
859,524
12/31/2012
05946XGG2
12,209,071
8,097,849
4,111,222
8,097,849
8,097,849
12/31/2012
05946XGH0
2,283,933
275,682
2,008,251
275,682
275,682
12/31/2012
05948KCC1
1,793,613
1,027,297
766,316
1,027,297
1,027,297
12/31/2012
05948KCD9
515,781
212,674
303,107
212,674
212,674
12/31/2012
05948KCU1
3,611,435
3,182,928
428,508
3,182,928
3,182,928
12/31/2012
05948KDT3
5,870,079
5,000,447
869,633
5,000,447
5,000,447
12/31/2012
05948KDU0
2,745,012
679,951
2,065,061
679,951
679,951
12/31/2012
05948KDV8
463,283
58,777
404,507
58,777
58,777
12/31/2012
05948KGK9
4,488,181
3,895,049
593,132
3,895,049
3,895,049
12/31/2012
05948KGL7
2,052,683
1,304,035
748,648
1,304,035
1,304,035
12/31/2012
05948KGM5
824,286
216,911
607,375
216,911
216,911
12/31/2012
05948KHU6
5,521,363
4,588,665
932,698
4,588,665
4,588,665
12/31/2012
05948KHV4
2,354,051
1,838,724
515,327
1,838,724
1,838,724
12/31/2012
05948KHW2
872,047
643,697
228,350
643,697
643,697
12/31/2012
05948KJX8
4,258,031
3,581,872
676,159
3,581,872
3,581,872
12/31/2012
05948KJY6
1,947,804
1,299,490
648,314
1,299,490
1,299,490
12/31/2012
05948KJZ3
828,066
357,905
470,162
357,905
357,905
12/31/2012
05948KMR7
3,661,974
2,201,172
1,460,803
2,201,172
2,201,172
12/31/2012
05948KNU9
2,929,135
1,445,360
1,483,775
1,445,360
1,445,360
12/31/2012
05948KRR2
4,948,306
2,821,847
2,126,458
2,821,847
2,821,847
12/31/2012
05948KST7
1,326,119
169,803
1,156,316
169,803
169,803
12/31/2012
05948KTP4
3,939,151
1,126,244
2,812,906
1,126,244
1,126,244
12/31/2012
05948KVE6
4,656,909
1,929,566
2,727,343
1,929,566
1,929,566
12/31/2012
05948KVF3
428,800
83,931
344,869
83,931
83,931
12/31/2012
05948KYD5
429,431
271,410
158,022
271,410
271,410
12/31/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
05948X2A8
$              1,853,002
$             1,553,812
$             299,190
$             1,553,812
$             1,553,812
12/31/2012
05948X5C1
845,591
742,698
102,894
742,698
742,698
12/31/2012
05948XD99
3,625,545
3,159,458
466,087
3,159,458
3,159,458
12/31/2012
05948XDK4
903,540
833,783
69,757
833,783
833,783
12/31/2012
05948XUE9
7,158,303
5,731,682
1,426,621
5,731,682
5,731,682
12/31/2012
05948XUF6
3,288,311
856,922
2,431,389
856,922
856,922
12/31/2012
05948XXB2
2,815,031
2,505,151
309,880
2,505,151
2,505,151
12/31/2012
05948XXC0
1,106,743
876,673
230,070
876,673
876,673
12/31/2012
05948XXD8
533,167
388,739
144,428
388,739
388,739
12/31/2012
05948XY96
2,496,124
1,917,693
578,431
1,917,693
1,917,693
12/31/2012
059497AB3
681,261
225,133
456,128
225,133
225,133
12/31/2012
059497AF4
434,201
173,400
260,801
173,400
173,400
12/31/2012
05949AF47
1,309,453
963,444
346,009
963,444
963,444
12/31/2012
05949AQL7
5,727,666
4,429,748
1,297,918
4,429,748
4,429,748
12/31/2012
05949AXN5
2,508,229
243,109
2,265,120
243,109
243,109
12/31/2012
05949AYP9
551,783
116,393
435,390
116,393
116,393
12/31/2012
05949CBN5
201,153
115,049
86,103
115,049
115,049
12/31/2012
06051GCY3
4,454,613
3,755,089
699,524
3,755,089
3,755,089
12/31/2012
07324MAF2
1,145,368
851,220
294,148
851,220
851,220
12/31/2012
07324MAH8
604,972
50,022
554,950
50,022
50,022
12/31/2012
07324SCV2
1,581,889
961,411
620,478
961,411
961,411
12/31/2012
07324YAK5
324,507
105,993
218,514
105,993
105,993
12/31/2012
07325NBR2
2,661,291
1,186,041
1,475,250
1,186,041
1,186,041
12/31/2012
07388LAQ3
766,806
441,000
325,806
441,000
441,000
12/31/2012
12498NAB9
2,257,214
1,443,044
814,170
1,443,044
1,443,044
12/31/2012
12513EAU8
5,195,280
3,200,000
1,995,280
3,200,000
3,200,000
12/31/2012
12513YAK6
2,498,304
1,040,886
1,457,418
1,040,886
1,040,886
12/31/2012
12513YAS9
201,164
15,312
185,853
15,312
15,312
12/31/2012
12558MBM3
2,570,591
2,343,445
227,145
2,343,445
2,343,445
12/31/2012
12666CAF0
66,632
46,335
20,297
46,335
230,695
12/31/2012
126670ZM3
4,521,697
2,087,850
2,433,847
2,087,850
2,087,850
12/31/2012
126673DR0
5,490,616
1,790,140
3,700,476
1,790,140
1,790,140
12/31/2012
126673GC0
1,882,217
466,477
1,415,740
466,477
466,477
12/31/2012
126673JE3
2,921,722
893,016
2,028,706
893,016
893,016
12/31/2012
126673NF5
2,444,100
944,070
1,500,030
944,070
944,070
12/31/2012
126673P48
3,689,072
646,771
3,042,301
646,771
646,771
12/31/2012
126673ZW5
6,875,193
1,063,355
5,811,838
1,063,355
1,063,355
12/31/2012
126673ZZ8
916,600
41,589
875,012
41,589
41,589
12/31/2012
12667FD44
853,903
319,652
534,251
319,652
319,652
12/31/2012
12669EGX8
472,125
284,016
188,110
284,016
284,016
12/31/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
12669ETE6
$              2,023,158
$             1,796,839
$             226,319
$             1,796,839
$             1,796,839
12/31/2012
12669FHU0
912,916
642,756
270,160
642,756
642,756
12/31/2012
12669FQF3
134,883
45,887
88,996
45,887
45,887
12/31/2012
12669FSH7
1,816,823
1,457,594
359,228
1,457,594
1,457,594
12/31/2012
12669FXC2
1,316,705
218,161
1,098,544
218,161
218,161
12/31/2012
12669GJK8
3,420,402
1,485,355
1,935,047
1,485,355
1,485,355
12/31/2012
14986DAT7
276,103
191,320
84,783
191,320
191,320
12/31/2012
14986DAU4
99,856
-
99,856
-
57,684
12/31/2012
161546DN3
294,891
266,211
28,680
266,211
266,211
12/31/2012
161546GN0
1,191,358
1,050,069
141,289
1,050,069
1,050,069
12/31/2012
161546HW9
965,266
907,139
58,127
907,139
907,139
12/31/2012
16162WGC7
2,798,809
2,629,303
169,506
2,629,303
2,629,303
12/31/2012
16162WJZ3
1,853,947
1,554,159
299,788
1,554,159
1,554,159
12/31/2012
172973D63
2,577,404
2,391,535
185,869
2,391,535
2,391,535
12/31/2012
172973D89
654,772
550,705
104,067
550,705
550,705
12/31/2012
172973TG4
424,156
352,045
72,111
352,045
352,045
12/31/2012
172973UY3
1,672,701
1,509,911
162,790
1,509,911
1,509,911
12/31/2012
172973YG8
831,247
781,798
49,449
781,798
781,798
12/31/2012
17307GPH5
2,031,634
422,513
1,609,121
422,513
422,513
12/31/2012
17307GVL9
7,821,564
7,095,384
726,180
7,095,384
7,095,384
12/31/2012
17309BAB3
591,631
520,323
71,308
520,323
520,323
12/31/2012
17311QBS8
5,804,504
1,671,609
4,132,895
1,671,609
1,671,609
12/31/2012
20047NAN2
3,447,842
312,261
3,135,581
312,261
312,261
12/31/2012
20173QAK7
2,518,461
1,107,486
1,410,975
1,107,486
1,107,486
12/31/2012
20173QAR2
792,759
80,960
711,799
80,960
80,960
12/31/2012
225458RZ3
113,669
97,224
16,445
97,224
97,224
12/31/2012
22545LAT6
106,492
30,000
76,492
30,000
30,000
12/31/2012
22545MAP2
288,142
7,680
280,462
7,680
7,680
12/31/2012
225470BC6
3,240,696
1,856,928
1,383,768
1,856,928
1,856,928
12/31/2012
225470BE2
1,315,919
439,954
875,965
439,954
439,954
12/31/2012
225470H22
1,501,709
1,325,000
176,709
1,325,000
1,325,000
12/31/2012
294751DF6
554,387
472,565
81,822
472,565
472,565
12/31/2012
294751EL2
530,504
336,684
193,820
336,684
336,684
12/31/2012
294751FA5
3,033,731
1,209,949
1,823,783
1,209,949
1,209,949
12/31/2012
31846LBT2
86,320
77,432
8,888
77,432
77,432
12/31/2012
32027NFV8
811,001
759,568
51,433
759,568
759,568
12/31/2012
32027NNS6
1,306,760
839,774
466,986
839,774
839,774
12/31/2012
32051DL75
627,907
580,897
47,009
580,897
580,897
12/31/2012
32051GEF8
316,042
25,140
290,901
25,140
25,140
12/31/2012
32051GMN2
2,732,660
1,482,063
1,250,597
1,482,063
1,482,063
12/31/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
32051GNB7
$              3,456,505
$                694,089
$          2,762,417
$                694,089
$                694,089
12/31/2012
32051GVB8
1,047,616
19,754
1,027,863
19,754
19,754
12/31/2012
32051GWZ4
1,801,125
75,052
1,726,074
75,052
75,052
12/31/2012
32052LAC7
3,144,307
3,142,157
2,150
3,142,157
3,191,132
12/31/2012
361849K68
3,397,716
1,750,000
1,647,716
1,750,000
1,750,000
12/31/2012
361849K84
967,916
479,034
488,882
479,034
479,034
12/31/2012
36185N4T4
1,731,177
1,396,760
334,417
1,396,760
1,396,760
12/31/2012
36228FC61
1,222,535
1,010,471
212,064
1,010,471
1,010,471
12/31/2012
36242D7Y3
3,611,749
2,780,208
831,540
2,780,208
2,780,208
12/31/2012
36242DNF6
1,900,875
949,154
951,722
949,154
949,154
12/31/2012
36242DSU8
3,965,466
3,679,120
286,346
3,679,120
3,679,120
12/31/2012
36828QQS8
1,693,655
382,234
1,311,422
382,234
382,234
12/31/2012
36828QSL1
660,344
275,550
384,794
275,550
275,550
12/31/2012
378961AF3
5,361,449
4,959,812
401,637
4,959,812
4,959,812
12/31/2012
396789KD0
2,384,646
706,484
1,678,162
706,484
706,484
12/31/2012
41161PNC3
64,000
36,962
27,038
36,962
36,962
12/31/2012
45254TTZ7
3,680,351
2,277,556
1,402,795
2,277,556
2,277,556
12/31/2012
466247HF3
1,629,465
340,912
1,288,553
340,912
340,912
12/31/2012
466247HG1
217,621
126,724
90,897
126,724
126,724
12/31/2012
466247QP1
1,281,848
1,200,115
81,734
1,200,115
1,202,187
12/31/2012
466247RD7
765,289
59,623
705,666
59,623
59,623
12/31/2012
466247ST1
78,873
41,834
37,038
41,834
41,834
12/31/2012
466247WV1
263,476
159,243
104,233
159,243
159,243
12/31/2012
46625M7A1
2,231,715
1,825,653
406,063
1,825,653
1,825,653
12/31/2012
46625YBQ5
239,957
139,942
100,015
139,942
139,942
12/31/2012
46625YBR3
3,411,899
944,526
2,467,374
944,526
944,526
12/31/2012
46625YDW0
1,364,398
497,956
866,442
497,956
497,956
12/31/2012
46625YHA4
2,090,251
1,464,901
625,350
1,464,901
1,464,901
12/31/2012
46625YNY5
2,336,117
788,199
1,547,918
788,199
788,199
12/31/2012
46625YRC9
1,518,375
624,837
893,538
624,837
1,311,796
12/31/2012
46625YSU8
2,799,103
1,901,618
897,485
1,901,618
1,901,618
12/31/2012
46625YWB5
4,593,759
743,436
3,850,323
743,436
743,436
12/31/2012
46625YWL3
190,383
139,026
51,357
139,026
139,026
12/31/2012
46627QAA6
97,328
-
97,328
-
36,747
12/31/2012
46629GAR9
886,025
858,660
27,365
858,660
858,660
12/31/2012
46629MAU9
3,034,691
1,670,005
1,364,686
1,670,005
1,670,005
12/31/2012
46629PAJ7
142,477
60,000
82,477
60,000
60,000
12/31/2012
46630AAA6
1,567,232
660,800
906,432
660,800
660,800
12/31/2012
46630VAQ5
1,451,528
473,328
978,200
473,328
473,328
12/31/2012
46630VAS1
303,691
177,560
126,131
177,560
177,560
12/31/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
46631BAN5
$              1,601,873
$                784,674
$             817,199
$                784,674
$                784,674
12/31/2012
46632HAN1
6,497,754
2,024,150
4,473,605
2,024,150
2,024,150
12/31/2012
46632MAU4
16,005
1,600
14,405
1,600
1,600
12/31/2012
49436PAD7
15,720
189
15,531
189
189
12/31/2012
49436PAE5
34,279
353
33,925
353
353
12/31/2012
50179MAR2
1,485,782
1,260,000
225,782
1,260,000
1,260,000
12/31/2012
52108H3R3
2,854,698
354,202
2,500,496
354,202
354,202
12/31/2012
52108H3S1
2,089,661
224,614
1,865,046
224,614
224,614
12/31/2012
52108HA87
3,003,898
2,195,094
808,804
2,195,094
2,195,094
12/31/2012
55265KN62
1,977,874
1,714,286
263,589
1,714,286
1,714,286
12/31/2012
55265KZR3
6,180,890
5,309,465
871,425
5,309,465
5,309,465
12/31/2012
55265KZT9
1,625,249
1,123,972
501,277
1,123,972
1,123,972
12/31/2012
55265WAT0
2,335,168
2,235,946
99,223
2,235,946
2,235,946
12/31/2012
55313KAK7
157,312
35,000
122,312
35,000
35,000
12/31/2012
57643LRK4
932,132
652,013
280,118
652,013
652,013
12/31/2012
57643MAY0
379,967
313,039
66,927
313,039
313,039
12/31/2012
57643MHT4
2,529,216
2,139,900
389,316
2,139,900
2,139,900
12/31/2012
57643MHV9
463,949
36,844
427,105
36,844
36,844
12/31/2012
585525EJ3
2,034,283
1,711,824
322,459
1,711,824
1,711,824
12/31/2012
59020UNG6
2,153,883
1,101,756
1,052,126
1,101,756
1,101,756
12/31/2012
59022HEA6
2,888,705
1,490,575
1,398,130
1,490,575
1,490,575
12/31/2012
59022HEB4
1,711,720
1,130,817
580,903
1,130,817
1,203,567
12/31/2012
59022HJV5
2,742,592
1,285,056
1,457,536
1,285,056
1,285,056
12/31/2012
59023BAJ3
6,468,587
4,057,774
2,410,813
4,057,774
4,057,774
12/31/2012
59025KAJ1
4,331,858
641,655
3,690,203
641,655
641,655
12/31/2012
59549RAC8
746,302
722,855
23,447
722,855
722,855
12/31/2012
59549WAD5
2,158,531
2,142,483
16,048
2,142,483
2,142,483
12/31/2012
61750WBD4
18,368
-
18,368
-
12,991
12/31/2012
68403BAE5
5,077,281
4,572,367
504,914
4,572,367
4,572,367
12/31/2012
69335YAJ5
2,533,096
1,684,489
848,607
1,684,489
1,684,489
12/31/2012
70069FGB7
2,641,414
2,590,680
50,734
2,590,680
2,590,680
12/31/2012
73316PAJ9
2,418,891
1,488,569
930,323
1,488,569
1,488,569
12/31/2012
73316PBA7
3,391,850
2,470,631
921,219
2,470,631
2,470,631
12/31/2012
73316PBB5
2,689,792
1,345,967
1,343,824
1,345,967
1,345,967
12/31/2012
73316PBS8
7,360,511
5,263,895
2,096,616
5,263,895
5,263,895
12/31/2012
73316PCK4
1,205,895
863,769
342,126
863,769
863,769
12/31/2012
73316PCL2
617,236
247,748
369,488
247,748
247,748
12/31/2012
73316PGL8
3,011,124
505,477
2,505,647
505,477
505,477
12/31/2012
749577AA0
15,512,951
15,136,511
376,440
15,136,511
15,136,511
12/31/2012
74958AAD6
4,460,147
4,318,699
141,447
4,318,699
4,318,699
12/31/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
74958YAA0
$              3,630,970
$             3,503,186
$             127,784
$             3,503,186
$             3,503,186
12/31/2012
75970NAT4
459,097
297,430
161,667
297,430
297,430
12/31/2012
75970QAF7
4,838,532
3,158,690
1,679,841
3,158,690
3,158,690
12/31/2012
759950DS4
2,584,200
628,692
1,955,509
628,692
628,692
12/31/2012
760985D32
1,067,888
409,762
658,125
409,762
409,762
12/31/2012
760985Q61
1,404,801
1,082,380
322,420
1,082,380
1,082,380
12/31/2012
760985TP6
962,542
802,443
160,100
802,443
802,443
12/31/2012
760985TQ4
615,370
466,580
148,790
466,580
466,580
12/31/2012
760985U41
1,338,080
1,234,928
103,152
1,234,928
1,234,928
12/31/2012
760985XY2
942,246
221,342
720,904
221,342
221,342
12/31/2012
760985XZ9
41,387
14,792
26,595
14,792
14,792
12/31/2012
760985YX3
447,707
121,538
326,170
121,538
121,538
12/31/2012
760985ZJ3
1,414,921
731,230
683,691
731,230
731,230
12/31/2012
76110VBX5
317,620
313,198
4,423
313,198
313,198
12/31/2012
76110VPG7
1,459,721
1,320,080
139,641
1,320,080
1,320,080
12/31/2012
76110WC79
1,407,092
1,072,592
334,499
1,072,592
1,072,592
12/31/2012
76110WC87
1,912,817
644,046
1,268,770
644,046
644,046
12/31/2012
76110WVR4
2,427,528
2,263,455
164,073
2,263,455
2,263,455
12/31/2012
76110WVS2
561,192
443,956
117,236
443,956
443,956
12/31/2012
76110WWJ1
1,219,069
449,081
769,987
449,081
449,081
12/31/2012
76111J2B9
1,792,533
1,667,600
124,933
1,667,600
1,667,600
12/31/2012
76111J5M2
2,009,320
1,938,347
70,973
1,938,347
1,938,347
12/31/2012
76111J6G4
522,590
475,143
47,446
475,143
475,143
12/31/2012
76111J7T5
515,962
446,840
69,122
446,840
446,840
12/31/2012
76111XCZ4
450,459
397,853
52,606
397,853
397,853
12/31/2012
76111XEK5
640,342
601,985
38,356
601,985
601,985
12/31/2012
76111XFN8
627,096
575,418
51,678
575,418
575,418
12/31/2012
76111XJA2
642,447
525,950
116,498
525,950
525,950
12/31/2012
76111XPE7
2,323,876
2,076,607
247,269
2,076,607
2,076,607
12/31/2012
76111XPF4
940,353
738,528
201,826
738,528
738,528
12/31/2012
76111XPG2
255,300
127,837
127,463
127,837
127,837
12/31/2012
76112BHZ6
4,495,205
1,949,422
2,545,783
1,949,422
1,949,422
12/31/2012
76113ABJ9
4,652,571
3,957,730
694,841
3,957,730
3,957,730
12/31/2012
79548KA73
2,148,194
1,453,989
694,204
1,453,989
1,453,989
12/31/2012
80382UAT0
860,891
480,890
380,001
480,890
480,890
12/31/2012
81744FGG6
2,979,286
430,677
2,548,610
430,677
430,677
12/31/2012
81744FHQ3
1,531,805
226,201
1,305,604
226,201
226,201
12/31/2012
83611MDJ4
6,919,468
1,544,141
5,375,327
1,544,141
1,544,141
12/31/2012
83611MMK1
2,318,487
2,068,840
249,647
2,068,840
2,068,840
12/31/2012
863576CV4
10,137,251
1,691,574
8,445,678
1,691,574
1,691,574
12/31/2012



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
86359BV81
$                 550,671
$                388,281
$             162,390
$                388,281
$                388,281
12/31/2012
86359BW98
1,928,966
1,737,904
191,062
1,737,904
1,737,904
12/31/2012
90263BHE1
858,614
654,253
204,361
654,253
654,253
12/31/2012
921796GR3
1,087,264
1,074,777
12,487
1,074,777
1,074,777
12/31/2012
9292275R3
2,037,806
2,019,136
18,669
2,019,136
2,019,136
12/31/2012
929227K21
905,010
819,346
85,664
819,346
819,346
12/31/2012
929227WP7
18,846
11,883
6,963
11,883
11,883
12/31/2012
92922FKK3
2,890,935
2,338,966
551,969
2,338,966
2,338,966
12/31/2012
92922FVM7
1,108,551
825,824
282,727
825,824
825,824
12/31/2012
92922FXB9
342,517
95,136
247,381
95,136
95,136
12/31/2012
9297663A9
3,529,483
2,635,981
893,502
2,635,981
2,635,981
12/31/2012
92976BBV3
1,225,869
768,320
457,549
768,320
768,320
12/31/2012
92977QAQ1
956,053
273,552
682,500
273,552
273,552
12/31/2012
92978MAL0
4,517,268
3,285,509
1,231,760
3,285,509
3,285,509
12/31/2012
92978PAQ2
136,922
29,896
107,026
29,896
29,896
12/31/2012
92978PAR0
648,835
146,401
502,434
146,401
146,401
12/31/2012
939336RN5
4,224,462
3,990,922
233,540
3,990,922
3,990,922
12/31/2012
939336TY9
2,058,741
2,014,369
44,372
2,014,369
2,014,369
12/31/2012
939336TZ6
784,472
719,888
64,584
719,888
719,888
12/31/2012
939336Y31
204,565
62,788
141,777
62,788
62,788
12/31/2012
949760AW2
3,664,355
3,529,257
135,098
3,529,257
3,529,257
12/31/2012
949760AY8
918,895
698,480
220,415
698,480
698,480
12/31/2012
94979YBC8
2,983,747
2,151,562
832,185
2,151,562
2,151,562
12/31/2012
94980DAE8
3,457,958
2,688,892
769,066
2,688,892
2,688,892
12/31/2012
94980DAF5
988,050
709,150
278,900
709,150
709,150
12/31/2012
94980XAS3
4,853,099
3,694,609
1,158,491
3,694,609
3,694,609
12/31/2012
94980XAT1
1,171,346
763,388
407,958
763,388
763,388
12/31/2012
94981FAN2
3,724,374
717,541
3,006,833
717,541
717,541
12/31/2012
94981UAL3
1,474,857
151,858
1,322,999
151,858
151,858
12/31/2012
94982FAS0
7,266,191
3,948,450
3,317,740
3,948,450
3,948,450
12/31/2012
94982MAH9
156,185
155,678
507
155,678
155,678
12/31/2012
94982QAE7
2,801,020
2,398,153
402,868
2,398,153
2,398,153
12/31/2012
94983JAJ1
12,612
6,897
5,715
6,897
6,897
12/31/2012
9292275Q5
5,291,440
4,843,623
447,816
4,843,623
4,842,483
12/31/2012
05947U2X5
2,689,349
2,447,050
242,299
2,447,050
2,447,050
12/31/2012
05947UMH8
3,960,355
3,833,004
127,351
3,833,004
3,833,004
12/31/2012
05947UPX0
2,710,047
2,576,451
133,596
2,576,451
2,576,451
12/31/2012
05947UQA9
4,001,001
3,466,092
534,909
3,466,092
3,466,092
12/31/2012
05947UQC5
4,614,901
3,184,668
1,430,233
3,184,668
3,184,668
12/31/2012
05947USK5
7,235,732
6,552,134
683,598
6,552,134
6,552,134
12/31/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
05950WAM0
$              6,155,522
$             2,950,090
$          3,205,432
$             2,950,090
$             2,950,090
12/31/2012
05952AAQ7
994,410
574,470
419,940
574,470
574,470
12/31/2012
07383FWL8
3,970,173
3,589,484
380,689
3,589,484
3,589,484
12/31/2012
126175AK4
4,998,867
4,885,600
113,267
4,885,600
4,885,600
12/31/2012
17309DAH6
5,056,790
3,621,615
1,435,175
3,621,615
3,621,615
12/31/2012
201730BE7
315,190
222,412
92,778
222,412
222,412
12/31/2012
22540VCY6
5,300,000
2,576,966
2,723,034
2,576,966
2,576,966
12/31/2012
22541QSM5
3,988,854
3,920,612
68,242
3,920,612
3,920,612
12/31/2012
22541QSN3
2,033,096
1,967,209
65,887
1,967,209
1,967,209
12/31/2012
22541QV82
2,805,364
2,562,756
242,608
2,562,756
2,562,756
12/31/2012
22541S2W7
734,843
734,622
221
734,622
734,622
12/31/2012
22541SKU1
7,333,054
7,230,109
102,944
7,230,109
7,230,109
12/31/2012
225470DN0
4,453,344
3,808,161
645,183
3,808,161
3,808,161
12/31/2012
22943EAE3
4,800,768
4,671,696
129,072
4,671,696
4,671,696
12/31/2012
23322BNY0
3,204
2
3,202
2
2
12/31/2012
361849ZC9
1,989,039
1,957,282
31,757
1,957,282
1,957,282
12/31/2012
36228CWA7
3,731,162
2,450,505
1,280,657
2,450,505
2,450,505
12/31/2012
36828QFV3
1,999,074
1,985,288
13,786
1,985,288
1,985,288
12/31/2012
36828QFX9
1,978,414
1,919,824
58,590
1,919,824
1,919,824
12/31/2012
36828QHZ2
1,501,180
1,495,583
5,597
1,495,583
1,495,583
12/31/2012
36828QJM9
1,993,588
1,830,870
162,718
1,830,870
1,830,870
12/31/2012
36828QPG5
4,915,146
4,217,910
697,236
4,217,910
4,217,910
12/31/2012
36828QPH3
3,939,836
3,209,208
730,628
3,209,208
3,209,208
12/31/2012
396789KA6
247,495
212,430
35,066
212,430
212,430
12/31/2012
45254NLY1
695,277
609,453
85,823
609,453
609,453
12/31/2012
45254TUA0
2,934,137
1,547,514
1,386,623
1,547,514
1,547,514
12/31/2012
46625M2E8
4,910,704
4,708,695
202,009
4,708,695
4,708,695
12/31/2012
46625M2N8
2,999,379
2,489,277
510,102
2,489,277
2,489,277
12/31/2012
46625M3X5
4,891,658
3,584,858
1,306,800
3,584,858
3,584,858
12/31/2012
46625M3Z0
4,674,255
2,170,905
2,503,349
2,170,905
2,170,905
12/31/2012
46625MB65
8,509,231
8,030,485
478,746
8,030,485
8,030,485
12/31/2012
46625MQ44
5,007,174
3,827,010
1,180,164
3,827,010
3,827,010
12/31/2012
46625MW39
2,490,905
2,420,190
70,715
2,420,190
2,420,190
12/31/2012
46625MW70
7,713,856
7,035,568
678,287
7,035,568
7,035,568
12/31/2012
46625YDJ9
1,493,314
1,305,392
187,923
1,305,392
1,305,392
12/31/2012
46625YDK6
3,969,977
2,800,424
1,169,553
2,800,424
2,800,424
12/31/2012
46625YDS9
999,547
342,957
656,590
342,957
342,957
12/31/2012
46625YGZ0
3,483,534
2,426,305
1,057,229
2,426,305
2,426,305
12/31/2012
46625YNL3
4,999,765
4,492,550
507,215
4,492,550
4,492,550
12/31/2012
46625YNP4
1,277,491
1,269,208
8,284
1,269,208
1,269,208
12/31/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
46628FAQ4
$              8,933,741
$             5,572,395
$          3,361,346
$             5,572,395
$             5,572,395
12/31/2012
52108HA79
3,000,457
2,664,654
335,803
2,664,654
2,664,654
12/31/2012
52108HUW2
4,987,024
4,915,340
71,684
4,915,340
4,915,340
12/31/2012
55312VAN8
5,446,398
2,029,290
3,417,108
2,029,290
2,029,290
12/31/2012
59022HBV3
1,994,063
1,334,065
659,997
1,334,065
1,334,065
12/31/2012
61745MTL7
4,195,800
4,141,028
54,772
4,141,028
4,141,028
12/31/2012
61750CAM9
5,005,769
4,002,670
1,003,099
4,002,670
4,002,670
12/31/2012
929766EK5
3,260,218
3,251,266
8,952
3,251,266
3,251,266
12/31/2012
929766KR3
1,212,610
1,131,895
80,715
1,131,895
1,131,895
12/31/2012
929766MZ3
4,992,504
3,987,000
1,005,504
3,987,000
3,987,000
12/31/2012
929766NA7
3,156,200
715,246
2,440,954
715,246
715,246
12/31/2012
929766UG6
606,238
548,833
57,405
548,833
548,833
12/31/2012
929766WN9
6,669,460
6,643,520
25,940
6,643,520
6,643,520
12/31/2012
92976BAC6
7,127,925
5,863,528
1,264,397
5,863,528
5,863,528
12/31/2012
92976BDW9
2,175,297
1,303,884
871,414
1,303,884
1,303,884
12/31/2012
92976BEB4
4,712,125
3,750,837
961,288
3,750,837
3,750,837
12/31/2012
000780CW4
1,351,525
1,325,464
26,060
1,325,464
1,325,464
12/31/2012
004375BF7
901,654
446,924
454,730
446,924
446,924
12/31/2012
040104BV2
7,033,455
6,692,892
340,563
6,692,892
6,692,892
12/31/2012
05946XFJ7
3,044,481
2,776,280
268,201
2,776,280
2,776,280
12/31/2012
05948JAM4
511,640
381,492
130,148
381,492
381,492
12/31/2012
05948KAL3
2,649,704
2,480,382
169,322
2,480,382
2,480,382
12/31/2012
05948KFC8
5,823,204
5,049,686
773,518
5,049,686
5,049,686
12/31/2012
05948KFD6
2,688,379
1,907,999
780,380
1,907,999
1,907,999
12/31/2012
05948KFE4
1,274,865
442,235
832,630
442,235
442,235
12/31/2012
05948XEG2
882,936
550,783
332,153
550,783
550,783
12/31/2012
05948XLA7
947,921
777,446
170,475
777,446
777,446
12/31/2012
05948XM24
747,840
678,751
69,089
678,751
678,751
12/31/2012
05949ACJ7
2,084,590
1,970,321
114,268
1,970,321
1,970,321
12/31/2012
05949AJF8
3,794,004
562,949
3,231,055
562,949
562,949
12/31/2012
06051GAK5
596,185
528,974
67,211
528,974
528,974
12/31/2012
06051GAL3
313,755
265,946
47,809
265,946
265,946
12/31/2012
126502AC7
120,410
106,752
13,659
106,752
106,752
12/31/2012
126502E*0
59,416
51,200
8,216
51,200
51,200
12/31/2012
126671ZS8
139,828
135,133
4,696
135,133
135,133
12/31/2012
12669D2W7
1,238,382
1,052,166
186,216
1,052,166
1,052,166
12/31/2012
12669DMH8
2,203,535
2,108,929
94,606
2,108,929
2,108,929
12/31/2012
12669DZS0
614,208
577,378
36,830
577,378
577,378
12/31/2012
12669EMM5
750,940
554,778
196,162
554,778
554,778
12/31/2012
12669ETF3
761,053
660,167
100,886
660,167
660,167
12/31/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
12669ETG1
$                 402,410
$                339,204
$               63,205
$                339,204
$                339,204
12/31/2012
12669FHB2
2,473,327
2,321,483
151,844
2,321,483
2,321,483
12/31/2012
12669FHC0
957,419
860,325
97,094
860,325
860,325
12/31/2012
12669FHT3
2,458,036
1,976,478
481,558
1,976,478
1,976,478
12/31/2012
12669GHZ7
312,007
262,360
49,647
262,360
262,360
12/31/2012
15132EHR2
291,035
271,000
20,035
271,000
271,000
12/31/2012
152314LN8
1,410,491
1,155,292
255,199
1,155,292
1,155,292
12/31/2012
161546JL1
992,542
935,680
56,862
935,680
935,680
12/31/2012
16162WGD5
1,699,898
1,510,999
188,898
1,510,999
1,510,999
12/31/2012
172939AB6
22,241
20,376
1,865
20,376
20,376
12/31/2012
172973D71
1,285,475
1,131,114
154,361
1,131,114
1,131,114
12/31/2012
172973TE9
1,714,243
1,546,196
168,047
1,546,196
1,546,196
12/31/2012
172973YF0
2,903,343
2,831,033
72,310
2,831,033
2,831,033
12/31/2012
294751DW9
2,541,893
1,944,940
596,953
1,944,940
1,944,940
12/31/2012
294751DX7
607,492
364,709
242,783
364,709
364,709
12/31/2012
31738VCA1
249,708
245,964
3,744
245,964
245,964
12/31/2012
32051D4G4
2,604,291
1,951,821
652,469
1,951,821
1,951,821
12/31/2012
32051DQ88
127,112
8,458
118,654
8,458
8,458
12/31/2012
32051GJE6
4,663,177
1,217,887
3,445,290
1,217,887
1,217,887
12/31/2012
36185HEC3
1,458,227
1,142,784
315,443
1,142,784
1,142,784
12/31/2012
36185N4S6
4,519,758
3,995,062
524,695
3,995,062
3,995,062
12/31/2012
36185NQ78
3,071,868
2,401,045
670,823
2,401,045
2,401,045
12/31/2012
36228FC20
4,818,893
4,640,985
177,908
4,640,985
4,640,985
12/31/2012
36242DR62
779,111
774,951
4,160
774,951
774,951
12/31/2012
36242DSV6
1,991,751
1,223,886
767,865
1,223,886
1,223,886
12/31/2012
378961AV8
3,695,467
3,273,033
422,434
3,273,033
3,273,033
12/31/2012
44967#AD7
25,853
25,277
575
25,277
25,277
12/31/2012
46626LFL9
494,186
464,790
29,396
464,790
464,790
12/31/2012
493553BL4
301,348
244,319
57,030
244,319
244,319
12/31/2012
55265KJ34
7,590,237
7,375,088
215,149
7,375,088
7,375,088
12/31/2012
55265KN54
6,525,824
5,852,711
673,112
5,852,711
5,852,711
12/31/2012
55265KSX8
1,956,405
1,934,631
21,774
1,934,631
1,934,631
12/31/2012
55265KUP2
2,020,200
1,981,659
38,541
1,981,659
1,981,659
12/31/2012
55265KWS4
547,577
517,895
29,682
517,895
517,895
12/31/2012
55265KWT2
266,851
246,843
20,009
246,843
246,843
12/31/2012
55265KYB9
3,899,236
3,769,244
129,992
3,769,244
3,769,244
12/31/2012
55265WAU7
1,737,608
1,662,925
74,683
1,662,925
1,662,925
12/31/2012
57643MAX2
1,615,539
1,375,797
239,742
1,375,797
1,375,797
12/31/2012
57643MDQ4
1,945,136
1,802,160
142,976
1,802,160
1,802,160
12/31/2012
57643MHU1
871,526
610,612
260,914
610,612
610,612
12/31/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
64352VEH0
$              3,229,720
$             3,112,093
$             117,627
$             3,112,093
$             3,112,093
12/31/2012
73316PDT4
5,879,965
1,679,815
4,200,150
1,679,815
1,679,815
12/31/2012
743947AA1
7,317
6,507
810
6,507
6,507
12/31/2012
743947AB9
11,037
10,715
322
10,715
10,715
12/31/2012
74434UCQ5
1,806
1,388
418
1,388
1,388
12/31/2012
74434UJA3
40,036
37,530
2,506
37,530
37,530
12/31/2012
759950BJ6
2,479,245
1,949,944
529,301
1,949,944
1,949,944
12/31/2012
759950BV9
1,599,184
1,305,122
294,063
1,305,122
1,305,122
12/31/2012
760985D24
573,640
532,730
40,910
532,730
532,730
12/31/2012
760985H95
1,409,146
1,302,352
106,794
1,302,352
1,302,352
12/31/2012
760985N56
1,582,236
688,380
893,856
688,380
688,380
12/31/2012
760985VT5
1,582,861
1,497,971
84,890
1,497,971
1,497,971
12/31/2012
760985VU2
638,363
590,371
47,992
590,371
590,371
12/31/2012
760985VV0
408,446
369,933
38,513
369,933
369,933
12/31/2012
76110VMJ4
322,423
309,636
12,787
309,636
309,636
12/31/2012
76110VPT9
461,573
436,327
25,245
436,327
436,327
12/31/2012
76110WRV0
97,679
64,107
33,572
64,107
64,107
12/31/2012
76111J5N0
1,311,341
1,245,602
65,739
1,245,602
1,245,602
12/31/2012
76111XCX9
2,055,130
2,008,122
47,008
2,008,122
2,008,122
12/31/2012
76111XCY7
603,752
567,840
35,913
567,840
567,840
12/31/2012
76111XEJ8
1,808,856
1,712,534
96,322
1,712,534
1,712,534
12/31/2012
76112BAG5
5,113,070
2,282,103
2,830,967
2,282,103
2,282,103
12/31/2012
76112BDV9
2,416,615
1,361,850
1,054,765
1,361,850
1,361,850
12/31/2012
805564QB0
4,546,020
2,738,448
1,807,572
2,738,448
2,738,448
12/31/2012
81375WDS2
542,271
535,097
7,174
535,097
535,097
12/31/2012
86358RR82
96,603
15,594
81,009
15,594
15,594
12/31/2012
86359A4Q3
7,507,376
6,933,519
573,857
6,933,519
6,933,519
12/31/2012
86359A4R1
2,334,756
2,040,373
294,383
2,040,373
2,040,373
12/31/2012
86359AF24
2,317,797
2,167,146
150,651
2,167,146
2,167,146
12/31/2012
86359AP31
2,049,013
1,941,719
107,295
1,941,719
1,941,719
12/31/2012
86359AP49
662,024
617,030
44,994
617,030
617,030
12/31/2012
86359APH0
1,494,813
1,346,465
148,348
1,346,465
1,346,465
12/31/2012
86359APK3
1,117,949
890,387
227,562
890,387
890,387
12/31/2012
86359AUL5
748,257
708,736
39,521
708,736
708,736
12/31/2012
86359AUM3
308,137
282,089
26,048
282,089
282,089
12/31/2012
86359AY56
7,171,930
6,180,032
991,898
6,180,032
6,180,032
12/31/2012
86359AY64
1,733,121
1,248,913
484,208
1,248,913
1,248,913
12/31/2012
86359BX48
425,101
110,716
314,385
110,716
110,716
12/31/2012
929227E51
2,110,415
2,088,064
22,351
2,088,064
2,088,064
12/31/2012
92922FHD3
13,718,261
12,765,252
953,010
12,765,252
12,765,252
12/31/2012


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
92922FQT8
$              4,636,290
$             4,324,840
$             311,450
$             4,324,840
$             4,324,840
12/31/2012
939336UA9
613,776
498,739
115,037
498,739
498,739
12/31/2012
939336Z63
1,791,657
347,518
1,444,139
347,518
347,518
12/31/2012
939336ZW6
668,990
604,444
64,546
604,444
604,444
12/31/2012
939336ZX4
451,055
402,421
48,634
402,421
402,421
12/31/2012
94979LAM5
4,198,187
2,126,597
2,071,591
2,126,597
2,126,597
12/31/2012
05946XTX1
63,578
-
63,578
-
9,226
03/31/2011
05949QBV6
439,387
320,778
118,609
320,778
320,778
03/31/2011
12501RAA7
687,384
634,111
53,273
634,111
247,215
03/31/2011
12501RAB5
473,819
455,923
17,896
455,923
278,023
03/31/2011
1729734M8
598,459
34,517
563,942
34,517
34,517
03/31/2011
32051GRL1
216,906
94,593
122,313
94,593
94,593
03/31/2011
32051GVB8
1,061,652
662,991
398,661
662,991
662,991
03/31/2011
32052UAX1
223,793
44,476
179,317
44,476
44,476
03/31/2011
362341EV7
200,442
127,315
73,127
127,315
127,315
03/31/2011
36828QMN3
1,572,785
1,190,445
382,340
1,190,445
1,190,445
03/31/2011
466247HG1
167,823
136,184
31,639
136,184
136,184
03/31/2011
466247ST1
306,662
263,619
43,043
263,619
263,619
03/31/2011
46625YRC9
4,458,814
3,074,844
1,383,970
3,074,844
3,074,844
03/31/2011
52520MGD9
367,415
321,919
45,496
321,919
612,377
03/31/2011
59025KAJ1
4,854,518
4,165,509
689,009
4,165,509
4,165,509
03/31/2011
74958AAD6
5,925,044
5,918,038
7,006
5,918,038
5,243,442
03/31/2011
74958YAA0
4,966,566
4,956,324
10,242
4,956,324
4,422,432
03/31/2011
75970QAF7
5,410,463
5,363,550
46,913
5,363,550
3,439,667
03/31/2011
760985XZ9
212,864
65,288
147,576
65,288
65,288
03/31/2011
76110WVR4
3,211,131
3,207,855
3,276
3,207,855
2,619,300
03/31/2011
76111XA60
47,620
29,572
18,048
29,572
29,572
03/31/2011
929227WP7
105,591
89,560
16,031
89,560
10,934
03/31/2011
92922FH27
1,386,838
80,165
1,306,673
80,165
80,165
03/31/2011
04542BMW9
114,495
106,111
8,384
106,111
106,111
06/30/2011
05948KJX8
4,736,028
4,735,999
29
4,735,999
3,904,985
06/30/2011
05949AQL7
6,499,368
6,498,921
447
6,498,921
5,007,687
06/30/2011
05949QBV6
2,438,027
335,492
2,102,535
335,492
335,492
06/30/2011
12669FQF3
116,729
79,244
37,485
79,244
79,244
06/30/2011
1729734M8
224,643
37,434
187,209
37,434
37,434
06/30/2011
32051GD77
1,206,432
110,044
1,096,388
110,044
110,044
06/30/2011
32051GRL1
109,815
36,279
73,536
36,279
36,279
06/30/2011
32051GVB8
665,328
601,955
63,373
601,955
601,955
06/30/2011
32052LAT0
150,776
112,095
38,681
112,095
112,095
06/30/2011
32052UAX1
101,690
25,904
75,786
25,904
46,534
06/30/2011


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
362341EV7
$                120,714
$                  79,368
$               41,346
$                  79,368
$                  79,368
06/30/2011
378961AF3
7,146,891
7,128,339
18,552
7,128,339
6,168,008
06/30/2011
393505QZ8
3,700,762
3,666,005
34,757
3,666,005
3,963,679
06/30/2011
396789KD0
4,005,465
3,107,559
897,906
3,107,559
2,690,682
06/30/2011
466247HG1
164,017
133,674
30,343
133,674
133,674
06/30/2011
466247ST1
210,248
193,695
16,553
193,695
193,695
06/30/2011
46625YHA4
3,048,496
2,090,251
958,245
2,090,251
1,459,754
06/30/2011
46625YSU8
2,987,943
2,034,739
953,204
2,034,739
2,034,739
06/30/2011
52520MGD9
281,889
257,299
24,590
257,299
277,975
06/30/2011
73316PGL8
905,964
835,934
70,030
835,934
835,934
06/30/2011
749577AA0
20,091,722
20,001,589
90,133
20,001,589
18,045,720
06/30/2011
74958AAD6
5,918,038
5,883,237
34,801
5,883,237
5,310,489
06/30/2011
74958YAA0
4,909,517
4,855,315
54,202
4,855,315
4,484,588
06/30/2011
75970QAF7
5,363,550
5,334,229
29,321
5,334,229
2,978,902
06/30/2011
760985XZ9
67,558
51,399
16,159
51,399
51,399
06/30/2011
760985YX3
772,122
771,413
709
771,413
134,671
06/30/2011
76110WWJ1
548,807
548,777
30
548,777
548,777
06/30/2011
76111XA60
124,883
-
124,883
-
25
06/30/2011
76111XXX6
125,032
112,682
12,350
112,682
112,682
06/30/2011
863576AT1
131,834
128,663
3,171
128,663
128,663
06/30/2011
929227Z66
5,128,490
5,127,793
697
5,127,793
4,143,659
06/30/2011
92922FH27
90,411
73,028
17,383
73,028
73,028
06/30/2011
94981FAN2
1,435,300
1,419,729
15,571
1,419,729
1,419,729
06/30/2011
94983JAJ1
1,754,968
215,801
1,539,167
215,801
215,801
06/30/2011
94983NAN3
1,928,910
275,047
1,653,863
275,047
275,047
06/30/2011
058931BR6
4,003,028
807,566
3,195,462
807,566
807,566
09/30/2011
05948KCC1
2,200,773
2,194,261
6,512
2,194,261
1,397,800
09/30/2011
05948KJX8
4,670,175
4,665,114
5,061
4,665,114
3,859,951
09/30/2011
05948KMR7
1,973,971
1,961,471
12,500
1,961,471
1,961,471
09/30/2011
05948KTP4
1,045,935
1,037,456
8,479
1,037,456
1,037,456
09/30/2011
05949AQL7
6,375,850
6,373,905
1,945
6,373,905
5,099,796
09/30/2011
12498NAB9
2,496,412
2,487,974
8,438
2,487,974
1,776,388
09/30/2011
12669EGX8
794,335
787,816
6,519
787,816
355,249
09/30/2011
12669FQF3
191,381
121,550
69,831
121,550
121,550
09/30/2011
1729734M8
249,998
2,861
247,137
2,861
2,861
09/30/2011
32051GD77
136,440
82,385
54,055
82,385
82,385
09/30/2011
32051GMN2
2,821,948
2,821,279
669
2,821,279
1,447,532
09/30/2011
32051GRL1
563,098
4,600
558,498
4,600
4,600
09/30/2011
32051GVB8
937,953
701,759
236,194
701,759
701,759
09/30/2011
32052LAT0
546,240
97,984
448,256
97,984
97,984
09/30/2011


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
32052UAX1
$                   22,506
$                          -
$               22,506
$                          -
$                    2,131
09/30/2011
362341EV7
193,579
73,217
120,362
73,217
73,217
09/30/2011
36242DYN7
1,245,587
191,813
1,053,774
191,813
191,813
09/30/2011
36828QQS8
2,292,515
1,681,795
610,720
1,681,795
1,681,795
09/30/2011
378961AF3
6,823,930
6,823,597
333
6,823,597
5,917,366
09/30/2011
41161PNC3
490,169
271,297
218,872
271,297
271,297
09/30/2011
466247HG1
187,421
125,127
62,294
125,127
125,127
09/30/2011
466247RD7
177,307
72,229
105,078
72,229
72,229
09/30/2011
466247ST1
141,876
88,983
52,893
88,983
88,983
09/30/2011
46625YRC9
3,185,700
2,017,746
1,167,954
2,017,746
2,017,746
09/30/2011
46625YWB5
3,407,724
1,995,408
1,412,316
1,995,408
1,995,408
09/30/2011
52108RAF9
23,037,046
22,826,282
210,764
22,826,282
22,455,728
09/30/2011
52520MGD9
251,205
-
251,205
-
210,301
09/30/2011
57643MAY0
653,019
631,992
21,027
631,992
447,902
09/30/2011
57643MHT4
3,096,463
3,084,054
12,409
3,084,054
2,507,802
09/30/2011
57643MHV9
330,179
314,810
15,369
314,810
314,810
09/30/2011
59022HEB4
2,612,095
1,958,614
653,481
1,958,614
1,076,814
09/30/2011
59022HJV5
3,321,042
2,742,592
578,450
2,742,592
1,281,305
09/30/2011
69335YAJ5
1,192,980
1,191,908
1,072
1,191,908
1,191,908
09/30/2011
73316PCL2
414,590
366,316
48,274
366,316
366,316
09/30/2011
749577AA0
20,001,589
19,931,154
70,435
19,931,154
17,887,740
09/30/2011
74958AAD6
5,731,239
5,695,345
35,894
5,695,345
4,851,337
09/30/2011
74958EAG1
10,031,158
9,967,239
63,919
9,967,239
9,397,290
09/30/2011
75970QAF7
5,334,229
5,308,922
25,307
5,308,922
2,966,313
09/30/2011
760985XZ9
143,765
89,346
54,419
89,346
55,486
09/30/2011
760985YX3
771,413
771,294
119
771,294
136,716
09/30/2011
76110WWJ1
500,717
500,610
107
500,610
500,610
09/30/2011
76111XPF4
1,261,129
1,260,953
176
1,260,953
774,735
09/30/2011
76111XPG2
674,890
588,362
86,528
588,362
236,411
09/30/2011
76111XXX6
314,771
112,085
202,686
112,085
112,085
09/30/2011
79548KA73
3,421,473
3,420,266
1,207
3,420,266
2,035,242
09/30/2011
863576AT1
368,875
85,218
283,657
85,218
85,218
09/30/2011
929227Z66
5,073,191
5,070,516
2,675
5,070,516
4,094,174
09/30/2011
92922FH27
97,182
66,765
30,417
66,765
66,765
09/30/2011
92922FKK3
3,207,478
3,198,049
9,429
3,198,049
2,547,647
09/30/2011
9297663A9
4,028,914
3,529,483
499,431
3,529,483
1,986,182
09/30/2011
94983JAJ1
351,280
170,099
181,181
170,099
170,099
09/30/2011
94983NAN3
173,817
92,809
81,008
92,809
92,809
09/30/2011
05950EAG3
30,183,307
30,056,008
127,299
30,056,008
29,669,370
12/31/2011
00011#AA1
2,100,280
1,547,987
552,293
1,547,987
1,547,987
12/31/2011


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
03072SQX6
$             2,050,818
$                423,137
$          1,627,681
$                423,137
$                423,137
12/31/2011
04542BMV1
1,328,167
643,496
684,671
643,496
643,496
12/31/2011
04542BMW9
506,326
64,724
441,602
64,724
64,724
12/31/2011
058931BR6
7,177,477
543,772
6,633,705
543,772
543,772
12/31/2011
05946XGH0
382,543
356,478
26,065
356,478
356,478
12/31/2011
05948KCC1
1,392,116
1,391,706
410
1,391,706
1,391,706
12/31/2011
05948KCD9
515,244
442,579
72,665
442,579
442,579
12/31/2011
05948KDV8
884,509
108,900
775,609
108,900
108,900
12/31/2011
05948KGM5
694,551
596,539
98,012
596,539
596,539
12/31/2011
05948KHW2
816,786
706,375
110,411
706,375
706,375
12/31/2011
05948KMR7
1,661,014
1,658,803
2,211
1,658,803
1,658,803
12/31/2011
05948KST7
1,053,127
639,748
413,379
639,748
639,748
12/31/2011
05948KTP4
1,183,682
1,181,674
2,008
1,181,674
1,181,674
12/31/2011
05948KVE6
2,258,559
2,247,528
11,031
2,247,528
2,247,528
12/31/2011
05948KVF3
727,012
207,877
519,135
207,877
207,877
12/31/2011
05948KYD5
2,251,679
362,895
1,888,784
362,895
362,895
12/31/2011
05948X2A8
2,137,551
2,128,744
8,807
2,128,744
1,763,555
12/31/2011
05948XXB2
3,109,409
3,107,330
2,079
3,107,330
2,729,311
12/31/2011
05948XXD8
262,117
257,777
4,340
257,777
257,777
12/31/2011
05949AXN5
540,501
325,520
214,981
325,520
325,520
12/31/2011
05949CQD1
6,597,410
6,595,176
2,234
6,595,176
6,239,982
12/31/2011
05949QBV6
2,415,385
241,556
2,173,829
241,556
249,771
12/31/2011
12666CAF0
123,383
69,224
54,159
69,224
503,275
12/31/2011
12669EGX8
375,979
280,186
95,793
280,186
280,186
12/31/2011
12669ETE6
2,498,517
2,493,814
4,703
2,493,814
2,221,902
12/31/2011
12669FHU0
719,948
717,904
2,044
717,904
717,904
12/31/2011
12669FQF3
245,424
132,049
113,375
132,049
132,049
12/31/2011
12669FSH7
1,435,476
995,092
440,384
995,092
995,092
12/31/2011
12669FXC2
404,672
273,184
131,488
273,184
273,184
12/31/2011
161546DN3
351,057
349,900
1,157
349,900
349,900
12/31/2011
161546HW9
756,388
726,182
30,206
726,182
726,182
12/31/2011
16162WGC7
3,461,672
3,449,244
12,428
3,449,244
3,227,112
12/31/2011
16162WJZ3
2,371,231
2,359,279
11,952
2,359,279
2,062,297
12/31/2011
1729734M8
623,572
-
623,572
-
19
12/31/2011
172973D63
3,192,154
3,169,067
23,087
3,169,067
2,380,205
12/31/2011
172973D89
670,127
651,802
18,325
651,802
651,802
12/31/2011
172973TG4
594,441
593,328
1,113
593,328
484,583
12/31/2011
17307GPH5
1,010,982
353,916
657,066
353,916
353,916
12/31/2011
17307GVL9
7,834,492
7,821,564
12,928
7,821,564
5,494,912
12/31/2011
294751DF6
557,080
555,914
1,166
555,914
330,203
12/31/2011


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
32027NFV8
$              1,017,588
$             1,016,627
$                    961
$             1,016,627
$                890,143
12/31/2011
32051GD77
528,714
40,604
488,110
40,604
40,604
12/31/2011
32051GEF8
63,140
23,752
39,388
23,752
23,752
12/31/2011
32051GMN2
1,490,618
1,489,908
710
1,489,908
1,489,908
12/31/2011
32051GRL1
499,454
951
498,503
951
1,829
12/31/2011
32051GVB8
1,206,614
269,833
936,781
269,833
269,833
12/31/2011
32051GWZ4
1,162,314
921,577
240,737
921,577
921,577
12/31/2011
32051GZ99
7,237,940
7,235,767
2,173
7,235,767
6,445,194
12/31/2011
32052LAT0
714,063
36,692
677,371
36,692
36,692
12/31/2011
362341EV7
901,766
34,276
867,490
34,276
12,027
12/31/2011
36242DYN7
687,876
76,701
611,175
76,701
89,736
12/31/2011
41161PNC3
3,018,573
221,195
2,797,378
221,195
221,195
12/31/2011
466247HG1
1,123,781
176,277
947,504
176,277
176,277
12/31/2011
466247RD7
1,203,396
58,102
1,145,294
58,102
58,102
12/31/2011
466247ST1
1,360,058
92,874
1,267,184
92,874
92,874
12/31/2011
466247WV1
3,456,993
287,019
3,169,974
287,019
287,019
12/31/2011
46625YDW0
2,406,451
1,401,920
1,004,531
1,401,920
1,401,920
12/31/2011
46625YNY5
3,241,193
1,021,498
2,219,695
1,021,498
1,021,498
12/31/2011
46629GAH1
11,020,499
11,018,895
1,604
11,018,895
10,454,169
12/31/2011
55265WAT0
2,992,397
2,969,350
23,047
2,969,350
2,687,695
12/31/2011
57643LRK4
1,097,221
1,070,887
26,334
1,070,887
457,086
12/31/2011
57643MAY0
612,710
515,169
97,541
515,169
395,635
12/31/2011
59025KAJ1
3,907,836
2,335,500
1,572,336
2,335,500
2,335,500
12/31/2011
68403BAE5
5,268,205
5,161,869
106,336
5,161,869
3,522,620
12/31/2011
73316PBB5
1,575,032
1,354,955
220,077
1,354,955
1,354,955
12/31/2011
73316PCL2
393,515
335,646
57,869
335,646
335,646
12/31/2011
749577AA0
19,406,292
19,136,446
269,846
19,136,446
17,368,349
12/31/2011
74958AAD6
5,437,888
5,412,308
25,580
5,412,308
4,943,011
12/31/2011
74958EAG1
9,967,239
9,898,451
68,788
9,898,451
8,974,350
12/31/2011
74958YAA0
4,583,343
4,455,509
127,834
4,455,509
3,814,289
12/31/2011
75970NAT4
5,959,232
535,899
5,423,333
535,899
421,417
12/31/2011
75970QAF7
5,308,923
4,983,532
325,391
4,983,532
2,622,406
12/31/2011
759950DS4
840,905
647,426
193,479
647,426
647,426
12/31/2011
759950DT2
1,489,823
298,370
1,191,453
298,370
298,370
12/31/2011
760985D32
532,550
339,945
192,605
339,945
339,945
12/31/2011
760985Q61
1,015,461
595,619
419,842
595,619
595,619
12/31/2011
760985TQ4
830,301
828,530
1,771
828,530
676,091
12/31/2011
760985XY2
622,403
254,807
367,596
254,807
254,807
12/31/2011
760985YX3
770,112
451,882
318,230
451,882
134,281
12/31/2011
760985ZJ3
642,566
436,305
206,261
436,305
436,305
12/31/2011


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
76110WC87
$                 750,726
$                626,383
$             124,343
$                626,383
$                626,383
12/31/2011
76110WVS2
370,484
333,673
36,811
333,673
333,673
12/31/2011
76110WWJ1
552,222
482,590
69,632
482,590
482,590
12/31/2011
76111XCZ4
614,758
612,514
2,244
612,514
455,771
12/31/2011
76111XEK5
1,050,178
1,044,486
5,692
1,044,486
961,912
12/31/2011
76111XPG2
270,306
242,952
27,354
242,952
242,952
12/31/2011
76111XXX6
1,384,838
46,272
1,338,566
46,272
157,240
12/31/2011
863576AT1
1,620,876
17,608
1,603,268
17,608
37,280
12/31/2011
863576CV4
2,993,569
2,910,155
83,414
2,910,155
2,910,155
12/31/2011
90263BHE1
883,466
858,821
24,645
858,821
608,721
12/31/2011
929227WP7
82,125
20,448
61,677
20,448
12,864
12/31/2011
92922FH27
263,260
37,024
226,236
37,024
37,024
12/31/2011
92922FXB9
388,231
141,252
246,979
141,252
141,252
12/31/2011
929766C43
1,500,952
1,499,955
997
1,499,955
1,426,053
12/31/2011
939336Y31
334,049
214,920
119,129
214,920
214,920
12/31/2011
949760AW2
4,914,535
4,901,463
13,072
4,901,463
4,665,359
12/31/2011
94981FAN2
1,383,151
1,280,331
102,820
1,280,331
1,280,331
12/31/2011
94981UAL3
1,055,663
300,291
755,372
300,291
300,291
12/31/2011
94983JAJ1
171,925
123,493
48,432
123,493
123,493
12/31/2011
94983NAN3
1,238,828
31,651
1,207,177
31,651
68,415
12/31/2011
97180*FL7
1,784,426
947,685
836,741
947,685
947,685
12/31/2011
04542BMW9
163,346
160,150
3,196
160,150
160,150
03/31/2010
05948KJX8
5,085,617
5,070,831
14,786
5,070,831
3,044,716
03/31/2010
05948KYD5
1,130,518
1,126,693
3,825
1,126,693
1,126,693
03/31/2010
05948XXC0
1,490,624
1,480,529
10,095
1,480,529
987,361
03/31/2010
059497AF4
3,009,716
1,679,420
1,330,296
1,679,420
288,571
03/31/2010
05949AQL7
7,370,316
7,222,748
147,568
7,222,748
4,295,382
03/31/2010
07388LAQ3
2,664,161
2,448,776
215,385
2,448,776
846,215
03/31/2010
12513YAS9
525,912
410,719
115,193
410,719
410,719
03/31/2010
12669FQF3
834,006
737,326
96,680
737,326
169,856
03/31/2010
14986DAT7
3,137,985
1,142,533
1,995,452
1,142,533
837,853
03/31/2010
14986DAU4
1,020,551
658,935
361,616
658,935
694,661
03/31/2010
161546HE9
7,479,230
7,478,623
607
7,478,623
3,334,619
03/31/2010
172973YG8
1,670,825
1,669,866
959
1,669,866
1,140,727
03/31/2010
17307GVL9
7,862,741
7,834,493
28,248
7,834,493
4,920,625
03/31/2010
19075CAL7
1,712,054
1,564,519
147,535
1,564,519
898,237
03/31/2010
20047NAN2
7,029,548
5,118,446
1,911,102
5,118,446
2,938,690
03/31/2010
20173QAR2
1,584,995
1,234,810
350,185
1,234,810
747,376
03/31/2010
225458RZ3
1,035,044
200,698
834,346
200,698
277,185
03/31/2010
22545LAT6
439,955
332,939
107,016
332,939
121,477
03/31/2010


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at
time of OTTI
Date of Financial Statement Where Reported
             
24763LFY1
$                 561,822
$                  538,115
$                 23,707
$                  538,115
$                  296,317
03/31/2010
294751FA5
1,639,916
1,603,298
36,618
1,603,298
1,603,298
03/31/2010
361849K84
1,936,810
1,417,161
519,649
1,417,161
798,768
03/31/2010
36228FC61
1,546,683
1,545,575
1,108
1,545,575
1,545,575
03/31/2010
36242DYN7
477,674
469,311
8,363
469,311
469,311
03/31/2010
36828QSL1
4,840,420
660,344
4,180,076
660,344
896,775
03/31/2010
46625YBQ5
1,001,702
371,970
629,732
371,970
418,914
03/31/2010
46625YBR3
7,505,956
4,984,873
2,521,083
4,984,873
947,025
03/31/2010
46627QAA6
2,916,509
1,849,052
1,067,457
1,849,052
1,603,888
03/31/2010
46629MAU9
3,788,101
3,241,420
546,681
3,241,420
992,881
03/31/2010
46630VAS1
1,597,543
1,195,892
401,651
1,195,892
756,919
03/31/2010
46631BAN5
6,418,655
3,552,290
2,866,365
3,552,290
1,208,011
03/31/2010
59023NAS7
1,057,720
172,962
884,758
172,962
172,962
03/31/2010
61750WBD4
592,726
150,106
442,620
150,106
189,092
03/31/2010
69335YAJ5
2,661,078
2,642,652
18,426
2,642,652
1,137,763
03/31/2010
73316PBB5
738,420
734,002
4,418
734,002
734,002
03/31/2010
73316PCK4
1,207,016
1,205,895
1,121
1,205,895
612,767
03/31/2010
73316PCL2
269,630
268,265
1,365
268,265
268,265
03/31/2010
76110WWJ1
650,648
649,453
1,195
649,453
649,453
03/31/2010
76111XA60
719,495
513,327
206,168
513,327
513,327
03/31/2010
863576AT1
262,582
250,910
11,672
250,910
250,910
03/31/2010
929227Z66
6,968,632
6,922,086
46,546
6,922,086
4,734,268
03/31/2010
929766D42
2,936,327
2,315,970
620,357
2,315,970
2,687,157
03/31/2010
929766TU7
2,020,496
1,813,590
206,906
1,813,590
1,766,645
03/31/2010
92977QAQ1
1,214,832
956,053
258,779
956,053
832,427
03/31/2010
92978TAW1
1,044,074
912,432
131,642
912,432
306,577
03/31/2010
982512AC9
240,000
-
240,000
-
160,000
03/31/2010
982512AD7
270,000
-
270,000
-
150,000
03/31/2010
000780KJ4
2,472,754
2,450,454
22,300
2,450,454
1,475,438
06/30/2010
04542BMW9
319,454
176,197
143,257
176,197
176,197
06/30/2010
05946XTX1
498,941
148,217
350,724
148,217
148,217
06/30/2010
05948KCC1
2,500,508
2,499,042
1,466
2,499,042
1,860,238
06/30/2010
05948KJX8
5,018,923
5,015,726
3,197
5,015,726
3,159,525
06/30/2010
05948KST7
885,235
879,839
5,396
879,839
879,839
06/30/2010
05948KTP4
1,467,660
1,464,290
3,370
1,464,290
1,464,290
06/30/2010
059497AF4
1,679,420
729,597
949,823
729,597
302,072
06/30/2010
05949AQL7
7,091,458
7,087,744
3,714
7,087,744
4,386,158
06/30/2010
07388LAQ3
2,448,776
861,057
1,587,719
861,057
914,626
06/30/2010
12513YAS9
592,740
201,164
391,576
201,164
422,835
06/30/2010
12669FQF3
723,927
695,845
28,082
695,845
170,468
06/30/2010



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
1729734B2
$            10,369,524
$           10,328,482
$            41,042
$         10,328,482
$       9,845,910
06/30/2010
17309BAB3
3,315,004
3,204,330
110,674
3,204,330
1,931,124
06/30/2010
20047NAN2
5,118,446
3,891,086
1,227,360
3,891,086
3,386,225
06/30/2010
225458RZ3
200,698
179,469
21,229
179,469
317,887
06/30/2010
22545LAT6
332,938
212,132
120,806
212,132
130,326
06/30/2010
24763LFY1
533,733
473,182
60,551
473,182
275,243
06/30/2010
32051GD77
766,269
418,021
348,248
418,021
418,021
06/30/2010
32052UAX1
254,919
178,199
76,720
178,199
178,199
06/30/2010
36242DYN7
481,991
481,146
845
481,146
481,146
06/30/2010
393505QZ8
3,729,647
3,700,762
28,885
3,700,762
3,564,991
06/30/2010
466247HG1
253,893
191,598
62,295
191,598
191,598
06/30/2010
46629GAR9
2,889,411
886,025
2,003,386
886,025
1,320,992
06/30/2010
46629MAU9
3,241,421
3,034,691
206,730
3,034,691
1,051,762
06/30/2010
46630AAA6
4,068,290
1,567,232
2,501,058
1,567,232
1,294,678
06/30/2010
46630VAQ5
5,695,973
4,916,541
779,432
4,916,541
1,736,071
06/30/2010
46630VAS1
1,195,892
795,922
399,970
795,922
800,606
06/30/2010
52108H3R3
4,960,373
3,239,380
1,720,993
3,239,380
1,727,429
06/30/2010
52108H3S1
6,441,029
3,608,579
2,832,450
3,608,579
942,927
06/30/2010
52470UAJ4
470,139
371,968
98,171
371,968
705,000
06/30/2010
55313KAK7
1,186,450
603,064
583,386
603,064
511,459
06/30/2010
59023NAS7
509,783
169,442
340,341
169,442
169,442
06/30/2010
61750CAT4
386,659
300,386
86,273
300,386
350,832
06/30/2010
61750WBD4
150,106
120,699
29,407
120,699
136,556
06/30/2010
69335YAJ5
2,632,954
2,631,479
1,475
2,631,479
1,190,602
06/30/2010
75970QAF7
6,180,351
6,165,261
15,090
6,165,261
3,067,781
06/30/2010
760985YX3
917,631
917,298
333
917,298
180,999
06/30/2010
76110WWJ1
651,460
650,763
697
650,763
650,763
06/30/2010
76111XA60
219,869
164,533
55,336
164,533
164,533
06/30/2010
76111XPF4
1,482,549
1,482,525
24
1,482,525
958,700
06/30/2010
76111XXX6
341,776
278,381
63,395
278,381
278,381
06/30/2010
79548KA73
3,852,829
3,852,502
327
3,852,502
2,069,474
06/30/2010
863576AT1
288,946
258,059
30,887
258,059
258,059
06/30/2010
929227Z66
6,597,439
6,593,172
4,267
6,593,172
4,610,062
06/30/2010
929766D42
2,315,970
2,014,001
301,969
2,014,001
3,081,130
06/30/2010
92976BBV3
1,981,127
1,754,571
226,556
1,754,571
825,900
06/30/2010
92978MAL0
6,459,170
5,667,635
791,535
5,667,635
2,203,832
06/30/2010
92978TAW1
912,432
310,094
602,338
310,094
324,603
06/30/2010
939336Y31
591,862
191,673
400,189
191,673
191,673
06/30/2010
03702WAK0
901,336
846,217
55,119
846,217
163,800
09/30/2010
05946XTX1
97,076
36,779
60,297
36,779
36,779
09/30/2010


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
05948KCC1
$              2,457,109
$             2,454,980
$               2,129
$               2,454,980
$            1,864,815
09/30/2010
05948KGK9
5,644,212
5,637,378
6,834
5,637,378
3,627,031
09/30/2010
05948KJX8
4,960,880
4,959,318
1,562
4,959,318
3,209,528
09/30/2010
05948KTP4
1,484,002
1,464,574
19,428
1,464,574
1,464,574
09/30/2010
05949AQL7
6,913,447
6,911,857
1,590
6,911,857
4,405,716
09/30/2010
05949CQD1
7,028,946
7,025,882
3,065
7,025,882
6,610,080
09/30/2010
07324MAF2
1,833,107
1,396,120
436,987
1,396,120
357,102
09/30/2010
07324MAH8
1,127,494
753,783
373,711
753,783
78,372
09/30/2010
07324YAK5
1,033,205
730,253
302,951
730,253
420,492
09/30/2010
07388LAQ3
861,057
766,806
94,251
766,806
963,604
09/30/2010
12513EAU8
7,743,834
5,195,280
2,548,554
5,195,280
3,000,039
09/30/2010
14986DAT7
1,142,533
675,315
467,218
675,315
1,041,873
09/30/2010
14986DAU4
658,935
260,355
398,580
260,355
739,644
09/30/2010
17309BAB3
2,921,148
2,331,794
589,354
2,331,794
1,943,993
09/30/2010
20047NAN2
3,891,086
3,447,842
443,244
3,447,842
3,559,671
09/30/2010
20173QAR2
1,234,810
792,759
442,051
792,759
879,448
09/30/2010
225458RZ3
179,469
113,669
65,801
113,669
315,630
09/30/2010
22545LAT6
212,132
161,272
50,861
161,272
137,033
09/30/2010
225470H22
2,490,925
1,501,709
989,216
1,501,709
667,541
09/30/2010
24763LFY1
464,853
405,394
59,459
405,394
277,440
09/30/2010
30249YAC7
928,590
821,510
107,080
821,510
70,000
09/30/2010
32051GVB8
1,475,156
1,224,159
250,997
1,224,159
1,224,159
09/30/2010
32052UAX1
983,428
139,360
844,069
139,360
139,360
09/30/2010
361849K68
4,886,861
4,140,080
746,781
4,140,080
2,134,556
09/30/2010
361849K84
1,417,161
967,916
449,245
967,916
827,018
09/30/2010
36828QQS8
4,722,738
2,886,895
1,835,843
2,886,895
1,350,415
09/30/2010
46625YBR3
4,984,873
4,041,145
943,728
4,041,145
4,084,059
09/30/2010
46625YDW0
4,024,429
3,910,989
113,440
3,910,989
1,372,045
09/30/2010
46625YNY5
7,708,957
5,427,441
2,281,515
5,427,441
2,392,480
09/30/2010
46627QAA6
1,849,052
720,428
1,128,624
720,428
1,817,355
09/30/2010
46630VAQ5
4,916,541
3,176,271
1,740,271
3,176,271
1,819,895
09/30/2010
46630VAS1
795,922
303,691
492,231
303,691
831,497
09/30/2010
46631BAN5
3,552,290
1,601,873
1,950,417
1,601,873
1,350,706
09/30/2010
501673AA5
7,823,069
7,643,277
179,792
7,643,277
6,985,475
09/30/2010
52108H3R3
3,239,380
3,079,175
160,205
3,079,175
1,808,802
09/30/2010
52108H3S1
3,608,579
3,096,806
511,773
3,096,806
922,856
09/30/2010
57643LRK4
1,595,201
1,580,900
14,301
1,580,900
832,745
09/30/2010
59022HJV5
6,163,822
4,492,159
1,671,663
4,492,159
2,421,887
09/30/2010
59023BAJ3
6,610,785
6,468,587
142,198
6,468,587
3,585,236
09/30/2010
61750CAT4
300,386
265,031
35,355
265,031
365,641
09/30/2010


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
61750WBD4
$                 120,699
$             90,758
$              29,941
$            90,758
$      118,203
09/30/2010
69335YAJ5
2,621,890
2,618,601
3,289
2,618,601
1,220,855
09/30/2010
74958AAD6
5,978,385
5,977,848
538
5,977,848
5,451,282
09/30/2010
75970QAF7
6,165,261
5,990,156
175,105
5,990,156
3,534,000
09/30/2010
760985XZ9
1,029,985
424,003
605,982
424,003
177,288
09/30/2010
760985YX3
917,298
917,083
214
917,083
183,292
09/30/2010
76111XA60
376,816
117,087
259,729
117,087
117,087
09/30/2010
79548KA73
3,852,502
3,851,756
745
3,851,756
2,308,375
09/30/2010
863576AT1
180,309
178,696
1,614
178,696
178,696
09/30/2010
929227WP7
166,429
118,630
47,800
118,630
4,374
09/30/2010
929227Z66
6,143,586
6,142,145
1,441
6,142,145
4,362,464
09/30/2010
92976BBV3
1,754,571
1,558,689
195,882
1,558,689
972,621
09/30/2010
92978TAW1
310,094
140,244
169,849
140,244
337,741
09/30/2010
94982MAH9
211,734
70,341
141,392
70,341
70,341
09/30/2010
94982MAJ5
246,297
11,878
234,420
11,878
3,353
09/30/2010
03702WAK0
846,217
765,304
80,913
765,304
227,500
12/31/2010
058931BR6
2,372,861
2,035,212
337,649
2,035,212
2,035,212
12/31/2010
05946XTX1
782,843
17,627
765,216
17,627
17,627
12/31/2010
05948KYD5
2,980,670
1,146,902
1,833,768
1,146,902
1,146,902
12/31/2010
05949QBV6
4,844,699
360,042
4,484,657
360,042
360,042
12/31/2010
07324MAF2
1,396,120
1,145,368
250,752
1,145,368
638,792
12/31/2010
07324MAH8
753,783
604,972
148,811
604,972
237,294
12/31/2010
07324SCV2
2,401,515
2,088,844
312,671
2,088,844
1,374,812
12/31/2010
07324YAK5
708,659
587,686
120,973
587,686
413,579
12/31/2010
12513YAK6
2,496,971
1,443,260
1,053,711
1,443,260
1,443,260
12/31/2010
12558MBM3
3,247,227
3,246,368
859
3,246,368
1,697,988
12/31/2010
12669FQF3
248,932
194,676
54,256
194,676
194,676
12/31/2010
14986DAT7
675,316
276,103
399,213
276,103
970,463
12/31/2010
1729734M8
457,557
134,580
322,977
134,580
134,580
12/31/2010
19075CAL7
1,564,519
1,405,971
158,548
1,405,971
1,252,320
12/31/2010
225470BC6
2,512,002
1,908,758
603,244
1,908,758
1,908,758
12/31/2010
225470BE2
1,405,664
811,496
594,168
811,496
811,496
12/31/2010
24763LFY1
395,102
237,201
157,901
237,201
260,771
12/31/2010
30249YAC7
821,511
679,736
141,775
679,736
150,000
12/31/2010
32051GD77
1,759,378
435,593
1,323,785
435,593
435,593
12/31/2010
32051GEF8
69,228
23,366
45,862
23,366
23,366
12/31/2010
32051GNB7
1,370,928
690,671
680,257
690,671
690,671
12/31/2010
32051GVB8
2,591,522
1,216,677
1,374,845
1,216,677
1,216,677
12/31/2010
32052LAT0
845,340
386,404
458,936
386,404
386,404
12/31/2010
32052UAX1
198,000
104,891
93,109
104,891
104,891
12/31/2010



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
 
Present Value of Projected Cash Flows
 
Recognized Other-Than-Temporary Impairment
 
Amortized Cost After Other-Than-  Temporary   Impairment
 
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
361849K68
$             4,140,081
$            3,397,716
$            742,365
$            3,397,716
$        2,132,186
12/31/2010
36185N4T4
2,526,810
2,498,866
27,944
2,498,866
1,470,067
12/31/2010
362341EV7
620,364
350,784
269,580
350,784
350,784
12/31/2010
36242DYN7
502,111
501,388
723
501,388
501,388
12/31/2010
41161PNC3
1,088,687
419,527
669,160
419,527
419,527
12/31/2010
466247HG1
766,300
137,008
629,292
137,008
137,008
12/31/2010
466247ST1
440,254
262,265
177,989
262,265
262,265
12/31/2010
46625YBQ5
371,970
239,957
132,013
239,957
645,469
12/31/2010
46625YBR3
4,041,145
3,411,899
629,246
3,411,899
3,809,170
12/31/2010
46625YDW0
3,910,989
3,385,871
525,118
3,385,871
1,367,837
12/31/2010
46625YRC9
5,802,991
3,582,883
2,220,108
3,582,883
3,582,883
12/31/2010
46625YSU8
2,453,973
2,031,513
422,460
2,031,513
2,031,513
12/31/2010
46629PAJ7
224,525
208,317
16,208
208,317
208,317
12/31/2010
501673AA5
7,128,339
7,123,086
5,253
7,123,086
6,660,438
12/31/2010
50179MAR2
2,412,499
1,485,782
926,717
1,485,782
2,147,855
12/31/2010
52108H3R3
3,079,175
2,854,698
224,477
2,854,698
1,154,094
12/31/2010
52520MGD9
798,362
415,414
382,948
415,414
551,928
12/31/2010
55313KAK7
603,064
157,312
445,752
157,312
467,689
12/31/2010
57643LRK4
1,554,982
1,195,982
359,000
1,195,982
844,168
12/31/2010
59022HEA6
3,006,376
2,888,705
117,671
2,888,705
1,795,782
12/31/2010
59022HEB4
2,758,100
2,612,095
146,005
2,612,095
1,386,249
12/31/2010
59022HJV5
3,595,170
2,424,054
1,171,116
2,424,054
2,424,054
12/31/2010
59023NAS7
889,189
-
889,189
-
51,488
12/31/2010
61750WBD4
90,758
44,566
46,192
44,566
66,506
12/31/2010
749577AA0
20,177,132
20,091,722
85,410
20,091,722
18,676,820
12/31/2010
74958AAD6
5,977,847
5,925,044
52,803
5,925,044
5,460,000
12/31/2010
74958YAA0
5,031,438
4,966,566
64,872
4,966,566
4,431,025
12/31/2010
75970QAF7
5,990,156
5,410,463
579,693
5,410,463
3,273,302
12/31/2010
76111XA60
1,399,254
60,304
1,338,950
60,304
60,304
12/31/2010
76111XXX6
555,787
272,945
282,842
272,945
272,945
12/31/2010
863576AT1
1,011,402
365,193
646,209
365,193
365,193
12/31/2010
929227WP7
117,689
116,577
1,112
116,577
4,443
12/31/2010
9297663A9
5,554,741
4,028,914
1,525,827
4,028,914
1,224,167
12/31/2010
92976BBV3
1,153,698
820,878
332,820
820,878
820,878
12/31/2010
92978PAR0
835,535
648,835
186,700
648,835
970,875
12/31/2010
94982MAH9
293,093
62,028
231,065
62,028
62,028
12/31/2010
94982MAJ5
11,382
-
11,382
-
3,648
12/31/2010
94983JAJ1
1,002,072
349,065
653,007
349,065
349,065
12/31/2010
52470LAL9
6,985,639
1,400,193
5,585,446
1,400,193
1,750,000
09/30/2009
22545MAP2
1,159,551
288,142
871,409
288,142
573,973
09/30/2009



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
52470UAJ4
$                4,688,325
$                  470,139
$            4,218,186
$                  470,139
$         470,000
09/30/2009
92977QAQ1
5,174,207
1,630,057
3,544,150
1,630,057
686,376
09/30/2009
14986DAU4
1,709,398
1,304,079
405,319
1,304,079
667,264
09/30/2009
982512AD7
3,000,000
270,000
2,730,000
270,000
270,000
09/30/2009
939336Y31
2,026,129
1,259,088
767,041
1,259,088
317,326
09/30/2009
62940HAG0
60
-
60
-
77,866
09/30/2009
92978PAR0
1,230,854
1,022,472
208,382
1,022,472
427,024
09/30/2009
46630JBN8
2,659,534
1,547,406
1,112,128
1,547,406
466,082
09/30/2009
00011#AA1
4,212,719
2,105,098
2,107,621
2,105,098
2,106,360
09/30/2009
94985JBM1
9,858,656
7,806,976
2,051,680
7,806,976
7,900,000
09/30/2009
52520MGD9
8,418,688
6,465,075
1,953,613
6,465,075
1,342,816
09/30/2009
982512AC9
2,000,000
240,000
1,760,000
240,000
240,000
09/30/2009
92922FXB9
1,056,201
819,717
236,484
819,717
226,047
09/30/2009
61750CAT4
422,293
386,659
35,634
386,659
285,233
09/30/2009
46630VAS1
3,514,501
2,430,615
1,083,886
2,430,615
1,178,095
09/30/2009
12666CAF0
1,137,783
108,140
1,029,643
108,140
108,140
09/30/2009
07388LAQ3
3,688,803
2,664,161
1,024,642
2,664,161
670,209
09/30/2009
92922FHE1
5,909,853
4,959,175
950,678
4,959,175
4,238,455
09/30/2009
92978TAW1
2,259,889
1,534,166
725,723
1,534,166
431,440
09/30/2009
94983NAN3
3,823,387
3,108,005
715,382
3,108,005
1,264,882
09/30/2009
929766RC9
986,883
286,139
700,744
286,139
294,110
09/30/2009
760985XZ9
1,118,083
422,713
695,370
422,713
422,713
09/30/2009
41161PNC3
4,145,640
4,145,606
34
4,145,606
780,989
09/30/2009
32052LAT0
2,609,333
2,105,917
503,416
2,105,917
582,883
09/30/2009
126670ZM3
5,000,000
4,522,872
477,128
4,522,872
1,131,355
09/30/2009
362341EV7
1,873,949
1,449,004
424,945
1,449,004
644,672
09/30/2009
04544PAE9
5,500,000
5,078,219
421,781
5,078,219
1,932,007
09/30/2009
14986DAT7
5,019,721
4,640,950
378,771
4,640,950
836,312
09/30/2009
32052UAX1
2,215,022
1,840,129
374,893
1,840,129
331,534
09/30/2009
76113ABJ9
5,000,000
4,652,571
347,429
4,652,571
1,507,580
09/30/2009
07325NBR2
3,000,000
2,661,291
338,709
2,661,291
205,926
09/30/2009
45254TTZ7
4,000,000
3,680,351
319,649
3,680,351
1,296,632
09/30/2009
92922FVM7
1,528,813
1,214,899
313,914
1,214,899
866,598
09/30/2009
12669GJK8
3,912,446
3,640,807
271,639
3,640,807
1,668,658
09/30/2009
05949AF47
1,701,838
1,452,385
249,453
1,452,385
403,640
09/30/2009
22545LAT6
481,914
439,326
42,588
439,326
129,012
09/30/2009
81744FGG6
3,235,863
3,017,797
218,066
3,017,797
858,741
09/30/2009
760985XY2
1,823,208
1,612,669
210,539
1,612,669
788,427
09/30/2009
83611MDJ4
1,435,961
1,238,822
197,139
1,238,822
1,238,822
09/30/2009
07324SCV2
2,936,189
2,751,255
184,934
2,751,255
1,256,524
09/30/2009



 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
81744FHQ3
$                2,014,843
$           1,832,170
$             182,673
$               1,832,170
$         586,803
09/30/2009
92978PAQ2
450,685
274,574
176,111
274,574
71,175
09/30/2009
07324MAF2
2,000,001
1,833,107
166,894
1,833,107
240,000
09/30/2009
161546HE9
8,046,825
7,882,684
164,141
7,882,684
3,986,115
09/30/2009
59020UNG6
3,116,869
2,958,347
158,522
2,958,347
1,244,393
09/30/2009
94982MAJ5
431,149
281,054
150,095
281,054
41,812
09/30/2009
83611MMK1
4,310,134
4,165,753
144,381
4,165,753
3,213,951
09/30/2009
61750WBD4
732,301
592,726
139,575
592,726
152,259
09/30/2009
17307GVL9
7,996,278
7,862,741
133,537
7,862,741
4,750,552
09/30/2009
05947U5C8
3,710,081
3,607,910
102,171
3,607,910
3,243,545
09/30/2009
57643LRK4
2,000,000
1,907,872
92,128
1,907,872
963,306
09/30/2009
058931BR6
11,371,571
11,283,550
88,021
11,283,550
1,973,481
09/30/2009
393505QZ8
3,816,034
3,729,647
86,387
3,729,647
2,983,040
09/30/2009
921796HD3
2,746,710
2,668,591
78,119
2,668,591
2,410,776
09/30/2009
07324MAH8
1,202,000
1,127,494
74,506
1,127,494
72,120
09/30/2009
70069FGB7
3,000,000
2,926,370
73,630
2,926,370
1,984,218
09/30/2009
30249YAC7
1,000,000
928,590
71,410
928,590
80,000
09/30/2009
07324YAK5
1,221,964
1,155,619
66,345
1,155,619
360,113
09/30/2009
86359BW98
2,000,000
1,934,091
65,909
1,934,091
1,109,004
09/30/2009
05949QBV6
9,345,379
9,281,254
64,125
9,281,254
2,695,278
09/30/2009
05946XGG2
14,811,796
14,750,498
61,298
14,750,498
10,657,216
09/30/2009
05948KDT3
7,338,265
7,281,442
56,823
7,281,442
4,117,024
09/30/2009
55265KZT9
2,663,503
2,607,377
56,126
2,607,377
1,235,036
09/30/2009
05948KRR2
6,003,719
5,948,027
55,692
5,948,027
2,965,353
09/30/2009
05948KTP4
2,450,491
2,396,695
53,796
2,396,695
2,396,695
09/30/2009
73316PAJ9
2,963,570
2,911,805
51,765
2,911,805
1,290,531
09/30/2009
949760AY8
2,000,521
1,951,714
48,807
1,951,714
1,107,708
09/30/2009
05948KDV8
1,589,017
1,543,043
45,974
1,543,043
294,134
09/30/2009
12667FD44
1,000,000
956,557
43,443
956,557
412,204
09/30/2009
94983QAL0
9,761,307
9,718,494
42,813
9,718,494
8,200,000
09/30/2009
05948KHW2
1,368,202
1,326,345
41,857
1,326,345
538,017
09/30/2009
294751FA5
3,732,993
3,691,195
41,798
3,691,195
1,645,545
09/30/2009
05948KCU1
4,934,707
4,893,451
41,256
4,893,451
2,892,012
09/30/2009
05948KDU0
3,365,059
3,324,479
40,580
3,324,479
1,399,368
09/30/2009
32027NNS6
1,894,230
1,853,732
40,498
1,853,732
1,059,058
09/30/2009
12669FXC2
2,231,806
2,192,100
39,706
2,192,100
622,285
09/30/2009
86359BV81
1,332,327
1,293,683
38,644
1,293,683
796,625
09/30/2009
32051GD77
4,057,716
4,020,725
36,991
4,020,725
457,353
09/30/2009
80382UAT0
1,382,139
1,346,185
35,954
1,346,185
639,116
09/30/2009
94983HAE6
6,949,595
6,916,514
33,081
6,916,514
6,481,074
09/30/2009


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
161546GN0
$              1,585,814
$            1,552,789
$             33,025
$            1,552,789
$        661,209
09/30/2009
05946XGH0
1,661,356
1,628,896
32,460
1,628,896
1,628,896
09/30/2009
73316PBB5
2,959,275
2,927,866
31,409
2,927,866
752,340
09/30/2009
05948KGM5
1,283,048
1,252,179
30,869
1,252,179
426,357
09/30/2009
36242DSU8
3,995,581
3,965,466
30,115
3,965,466
1,964,400
09/30/2009
36228FC61
2,466,883
2,438,890
27,993
2,438,890
1,619,877
09/30/2009
000780GM2
1,529,671
1,501,780
27,891
1,501,780
1,286,499
09/30/2009
32051GWZ4
3,793,221
3,765,374
27,847
3,765,374
1,607,941
09/30/2009
05948XDK4
2,064,327
2,039,416
24,911
2,039,416
1,612,303
09/30/2009
05948KJZ3
1,003,980
979,169
24,811
979,169
378,811
09/30/2009
05948KCC1
2,662,512
2,637,954
24,558
2,637,954
1,923,238
09/30/2009
76111XA60
3,419,200
3,394,730
24,470
3,394,730
504,814
09/30/2009
79548KA73
3,877,304
3,853,161
24,143
3,853,161
2,114,452
09/30/2009
05948KGL7
2,728,102
2,704,923
23,179
2,704,923
1,423,328
09/30/2009
172973YG8
1,778,018
1,755,723
22,295
1,755,723
1,253,287
09/30/2009
05948KHV4
2,903,736
2,882,005
21,731
2,882,005
1,314,819
09/30/2009
05948XUE9
9,079,088
9,057,459
21,629
9,057,459
6,666,364
09/30/2009
863576AT1
2,654,654
2,633,856
20,798
2,633,856
782,459
09/30/2009
12669FQF3
886,171
865,747
20,424
865,747
189,734
09/30/2009
76111XJA2
1,168,979
1,149,017
19,962
1,149,017
590,151
09/30/2009
05948XUF6
4,159,336
4,139,391
19,945
4,139,391
2,735,553
09/30/2009
75970QAF7
6,200,000
6,180,351
19,649
6,180,351
2,819,369
09/30/2009
59023NAS7
210,356
190,791
19,565
190,791
190,791
09/30/2009
1729734M8
2,110,476
2,092,667
17,809
2,092,667
217,727
09/30/2009
172973D89
1,200,206
1,182,572
17,634
1,182,572
570,730
09/30/2009
126673ZW5
6,892,709
6,875,193
17,516
6,875,193
1,428,106
09/30/2009
73316PGL8
3,097,204
3,081,154
16,050
3,081,154
1,011,781
09/30/2009
36242DNF6
1,916,862
1,900,875
15,987
1,900,875
753,653
09/30/2009
863576CV4
13,336,016
13,321,409
14,607
13,321,409
3,879,489
09/30/2009
126673DR0
5,504,724
5,490,616
14,108
5,490,616
2,961,121
09/30/2009
05948KNU9
3,517,370
3,505,447
11,923
3,505,447
1,546,716
09/30/2009
05946XTX1
1,272,012
1,260,090
11,922
1,260,090
320,030
09/30/2009
05948KHU6
6,776,820
6,764,966
11,854
6,764,966
4,227,900
09/30/2009
172973UY3
3,291,891
3,280,044
11,847
3,280,044
1,556,863
09/30/2009
76111XXX6
2,108,395
2,096,980
11,415
2,096,980
203,201
09/30/2009
12498NAB9
3,869,708
3,858,572
11,136
3,858,572
2,985,682
09/30/2009
76111XFN8
1,178,532
1,168,989
9,543
1,168,989
624,489
09/30/2009
05948KYD5
1,144,187
1,134,648
9,539
1,134,648
1,134,648
09/30/2009
9292275R3
4,623,774
4,614,688
9,086
4,614,688
3,566,745
09/30/2009
05949AYP9
1,481,161
1,472,139
9,022
1,472,139
264,908
09/30/2009


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
126673P48
$            3,698,052
$          3,689,072
$            8,980
$           3,689,072
$          897,646
09/30/2009
32051DL75
1,471,427
1,462,462
8,965
1,462,462
932,952
09/30/2009
05948KJY6
2,341,037
2,334,051
6,986
2,334,051
1,186,638
09/30/2009
126673JE3
2,928,643
2,921,722
6,921
2,921,722
913,718
09/30/2009
73316PCK4
1,213,795
1,207,016
6,779
1,207,016
545,252
09/30/2009
05948KST7
2,634,023
2,627,244
6,779
2,627,244
878,384
09/30/2009
04542BMW9
986,607
979,876
6,731
979,876
261,633
09/30/2009
73316PBA7
3,400,239
3,393,581
6,658
3,393,581
1,616,222
09/30/2009
04542BMV1
2,961,218
2,955,282
5,936
2,955,282
1,272,742
09/30/2009
76110WC87
2,782,895
2,776,966
5,929
2,776,966
1,207,355
09/30/2009
05946XFK4
2,305,673
2,299,746
5,927
2,299,746
1,380,840
09/30/2009
126673NF5
2,449,935
2,444,100
5,835
2,444,100
624,503
09/30/2009
76112BHZ6
4,500,508
4,495,205
5,303
4,495,205
967,537
09/30/2009
17309BAB3
4,460,319
4,455,085
5,234
4,455,085
2,760,754
09/30/2009
05948KVF3
1,895,405
1,890,433
4,972
1,890,433
652,633
09/30/2009
126673GC0
1,886,987
1,882,217
4,770
1,882,217
399,302
09/30/2009
76110WC79
1,987,831
1,983,803
4,028
1,983,803
989,420
09/30/2009
161546HW9
1,826,923
1,824,265
2,658
1,824,265
486,507
09/30/2009
17307GPH5
2,793,950
2,791,540
2,410
2,791,540
1,158,195
09/30/2009
12558MBM3
3,741,659
3,739,287
2,372
3,739,287
1,208,716
09/30/2009
126673ZZ8
918,957
916,600
2,357
916,600
101,071
09/30/2009
760985YX3
921,902
919,948
1,954
919,948
174,201
09/30/2009
000780KJ4
2,704,947
2,703,042
1,905
2,703,042
1,481,815
09/30/2009
76110WVS2
948,581
946,805
1,776
946,805
433,727
09/30/2009
55265KN62
4,216,252
4,214,523
1,729
4,214,523
3,158,209
09/30/2009
49436PAD7
8,114
6,463
1,651
6,463
18,750
09/30/2009
03072SQW8
2,411,577
2,410,465
1,112
2,410,465
324,128
09/30/2009
05948X5C1
1,329,548
1,329,210
338
1,329,210
494,543
09/30/2009
05949CQD1
7,029,101
7,028,946
155
7,028,946
6,117,840
09/30/2009
294751EL2
688,089
687,939
150
687,939
189,294
09/30/2009
76111XPF4
1,582,656
1,582,626
30
1,582,626
1,026,600
09/30/2009
52520MGD9
6,457,436
802,118
5,655,318
802,118
1,007,185
12/31/2009
05950VAV2
2,347,277
-
2,347,277
-
1,720,809
12/31/2009
19075CAL7
6,588,882
1,712,054
4,876,828
1,712,054
872,746
12/31/2009
12666CAF0
3,956,428
109,455
3,846,973
109,455
109,455
12/31/2009
92977QAQ1
1,630,057
1,214,832
415,225
1,214,832
803,782
12/31/2009
46630JBN8
2,507,276
-
2,507,276
-
521,355
12/31/2009
14986DAU4
1,304,079
1,020,551
283,528
1,020,551
692,779
12/31/2009
46625YWL3
3,850,659
190,383
3,660,276
190,383
960,272
12/31/2009
20173QAR2
5,017,973
1,584,996
3,432,977
1,584,996
724,486
12/31/2009


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010


20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
92978TAM3
$             3,382,212
$                384,005
$          2,998,207
$                  384,005
$             701,486
12/31/2009
939336Y31
591,631
331,868
259,763
331,868
331,868
12/31/2009
039279AD6
2,913,397
93,038
2,820,359
93,038
462,400
12/31/2009
92978PAR0
1,022,473
835,535
186,938
835,535
657,536
12/31/2009
46629YAR0
1,812,715
-
1,812,715
-
881,574
12/31/2009
50179MAR2
6,120,728
2,412,499
3,708,229
2,412,499
984,643
12/31/2009
92976UAE0
787,206
-
787,206
-
776,158
12/31/2009
55313KAK7
3,111,989
1,186,450
1,925,539
1,186,450
529,488
12/31/2009
46630VAS1
2,430,615
1,597,543
833,072
1,597,543
965,910
12/31/2009
14986DAT7
4,640,950
3,137,985
1,502,965
3,137,985
828,309
12/31/2009
92922FXB9
328,528
210,089
118,439
210,089
210,089
12/31/2009
46629MAU9
5,229,909
3,788,101
1,441,808
3,788,101
984,955
12/31/2009
76111XA60
1,724,371
505,901
1,218,470
505,901
505,901
12/31/2009
92978TAW1
1,534,165
1,044,074
490,091
1,044,074
298,409
12/31/2009
46630EAP5
1,784,701
-
1,784,701
-
1,427,915
12/31/2009
12513YAS9
977,144
707,933
269,211
707,933
463,176
12/31/2009
929766TU7
3,005,384
2,020,496
984,888
2,020,496
1,228,252
12/31/2009
929766RC9
286,139
30,699
255,440
30,699
397,716
12/31/2009
03927PAG3
967,933
26,498
941,435
26,498
102,500
12/31/2009
83611MDJ4
1,920,970
1,287,577
633,393
1,287,577
1,287,577
12/31/2009
32052UAX1
657,866
335,246
322,620
335,246
335,246
12/31/2009
36242D7Y3
4,616,450
3,994,454
621,996
3,994,454
1,528,751
12/31/2009
03927PAE8
4,025,740
3,513,463
512,277
3,513,463
1,061,813
12/31/2009
161546HW9
932,751
433,836
498,915
433,836
433,836
12/31/2009
126670ZM3
4,522,872
4,521,697
1,175
4,521,697
1,733,065
12/31/2009
04544PAE9
5,078,219
5,045,815
32,404
5,045,815
1,741,718
12/31/2009
05948KVF3
1,082,955
637,052
445,903
637,052
637,052
12/31/2009
81744FHQ3
521,191
268,780
252,411
268,780
268,780
12/31/2009
12669GJK8
3,586,261
3,542,023
44,238
3,542,023
1,408,487
12/31/2009
92978PAQ2
274,574
136,922
137,652
136,922
74,128
12/31/2009
04542BMW9
492,332
228,941
263,391
228,941
228,941
12/31/2009
81744FGG6
1,336,150
1,331,444
4,706
1,331,444
1,331,444
12/31/2009
76111J6G4
1,299,758
1,093,144
206,614
1,093,144
583,775
12/31/2009
59020UNG6
1,221,083
1,215,962
5,121
1,215,962
1,215,962
12/31/2009
12667FD44
956,556
853,903
102,653
853,903
415,403
12/31/2009
32051GD77
515,097
411,794
103,303
411,794
411,794
12/31/2009
12669FXC2
2,158,004
2,069,445
88,559
2,069,445
509,396
12/31/2009
05946XGG2
14,568,401
14,508,165
60,236
14,508,165
10,355,641
12/31/2009
393505QZ8
3,834,016
3,729,647
104,369
3,729,647
3,185,172
12/31/2009
86359BW98
1,934,092
1,928,966
5,126
1,928,966
1,194,206
12/31/2009


 
 
 

SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
(Wholly-Owned Subsidiary of Sun Life of Canada (U.S.) Holdings, Inc.)

NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2012 AND 2011 AND FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND
2010

20.  SSAP No. 43R: OTHER THAN TEMPORARY IMPAIRMENTS (CONTINUED)

 
CUSIP
Book/Adjusted Carrying Value Amortized Cost Before Current Period OTTI
Present Value of Projected Cash Flows
Recognized Other-Than-Temporary Impairment
Amortized Cost After Other-Than-  Temporary   Impairment
Fair Value at    time of OTTI
Date of Financial Statement Where Reported
             
05946XGH0
$            1,146,994
$            1,114,628
$              32,366
$            1,114,628
$          1,114,628
12/31/2009
05948KTP4
1,352,946
1,351,720
1,226
1,351,720
1,351,720
12/31/2009
94983QAL0
9,718,495
9,708,975
9,520
9,708,975
8,800,000
12/31/2009
73316PBB5
815,103
801,523
13,580
801,523
801,523
12/31/2009
80382UAT0
1,174,916
1,171,632
3,284
1,171,632
570,286
12/31/2009
000780AX4
1,332,875
1,297,611
35,264
1,297,611
463,084
12/31/2009
94984EAD4
8,881,011
8,849,306
31,705
8,849,306
8,212,374
12/31/2009
69335YAJ5
2,700,687
2,670,388
30,299
2,670,388
1,128,164
12/31/2009
94982FAS0
7,801,857
7,775,269
26,588
7,775,269
2,712,794
12/31/2009
05948KCC1
2,598,158
2,598,122
36
2,598,122
1,855,173
12/31/2009
79548KA73
3,853,161
3,852,829
332
3,852,829
2,101,269
12/31/2009
863576AT1
307,409
305,817
1,592
305,817
305,817
12/31/2009
05948KHV4
1,285,785
1,285,647
138
1,285,647
1,285,647
12/31/2009
94982QAE7
1,824,206
1,805,617
18,589
1,805,617
1,805,617
12/31/2009
1729734M8
232,824
232,362
462
232,362
232,362
12/31/2009
863576CV4
3,816,873
3,813,277
3,596
3,813,277
3,813,277
12/31/2009
05948KHU6
6,663,738
6,659,494
4,244
6,659,494
4,099,059
12/31/2009
466247HF3
324,064
309,427
14,637
309,427
309,427
12/31/2009
73316PBS8
7,374,627
7,360,511
14,116
7,360,511
3,870,072
12/31/2009
73316PCL2
249,414
235,528
13,886
235,528
235,528
12/31/2009
05948KYD5
1,124,112
1,120,866
3,246
1,120,866
1,120,866
12/31/2009
05948KST7
867,584
865,700
1,884
865,700
865,700
12/31/2009
73316PBA7
3,393,581
3,391,850
1,731
3,391,850
1,559,969
12/31/2009
466247HG1
298,770
297,709
1,061
297,709
297,709
12/31/2009
05948X5C1
1,290,122
1,290,072
50
1,290,072
468,637
12/31/2009
74041AAD5
10,000,249
6,900,249
3,100,000
6,900,249
2,912,500
12/31/2009
Total
$      3,207,854,633
$      2,555,666,406
$      652,188,244
$      2,555,666,406
$  2,060,302,724
  



 
 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Participants of Sun Life of Canada (U.S.) Variable Account L and the Board of Directors of Sun Life Assurance Company of Canada (U.S.) (the “Sponsor”):

We have audited the accompanying statements of assets and liabilities of MFS VIT II Global Governments Portfolio I Class Sub-Account, MFS VIT II Government Securities Portfolio I Class Sub-Account, MFS VIT II High Yield Portfolio I Class Sub-Account, MFS VIT II Massachusetts Investors Growth Stock Portfolio I Class Sub-Account, MFS VIT II Money Market Portfolio I Class Sub-Account, and MFS VIT II Total Return Portfolio I Class Sub-Account of Sun Life of Canada (U.S.) Variable Account L (collectively the "Sub-Accounts"), as of December 31, 2012, and the related statements of operations and the statements of changes in net assets for each of the periods presented.  These financial statements are the responsibility of the Sponsor’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Sub-Accounts are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Sub-Accounts’ internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the mutual fund companies.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the Sub-Accounts as of December 31, 2012, and the results of their operations and the changes in their net assets for each of the periods presented in conformity with accounting principles generally accepted in the United States of America.


/s/ Deloitte & Touche LLP

Boston, Massachusetts
April 24, 2013




 
 
 


SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

 
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2012
      
Assets:
Shares
Cost
Value
Investments at fair value:
      
       
MFS VIT II Global Governments Portfolio I Class Sub-Account (GGS)
459,943
$    5,155,040
$    5,073,166
MFS VIT II Government Securities Portfolio I Class Sub-Account (GSS)
3,531,821
48,122,354
47,644,268
MFS VIT II High Yield Portfolio I Class Sub-Account (HYS)
6,488,657
36,287,335
39,256,375
MFS VIT II Massachusetts Investors Growth Stock Portfolio I Class Sub-Account (MIS)
8,807,501
102,804,879
117,756,282
MFS VIT II Money Market Portfolio I Class Sub-Account (MMS)
19,280,479
19,280,479
19,280,479
MFS VIT II Total Return Portfolio I Class Sub-Account (TRS)
4,603,948
76,079,638
83,009,185
       
Total  investments
  
287,729,725
312,019,755
       
Total assets
  
$287,729,725
$312,019,755
       
Liabilities:
      
Payable to Sponsor
    
$       186,543
       
Total liabilities
    
186,543
       
Net assets
    
$311,833,212
       
       
       
       
       
       











The accompanying notes are an integral part of these financial statements.

 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 2012

     
Value Applicable to
        
     
Owners of Deferred
        
     
Variable Annuity
  
 Reserve for
  
 Total
 
 Total Units
  
Contracts
  
 Variable Annuities
  
 Value
Net Assets:
              
               
GGS
232,734
  
$             5,027,343
  
$          41,464
  
$           5,068,807
GSS
1,250,856
  
46,587,650
  
968,863
  
47,556,513
HYS
903,168
  
38,596,298
  
674,801
  
39,271,099
MIS
3,054,135
  
115,983,322
  
1,810,984
  
117,794,306
MMS
1,227,160
  
19,106,832
  
174,603
  
19,281,435
TRS
2,542,604
  
81,977,481
  
883,571
  
82,861,052
               
               
Total net assets
    
$         307,278,926
  
$     4,554,286
  
$       311,833,212






























The accompanying notes are an integral part of these financial statements.



 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012


 
GGS
  
GSS
  
HYS
  
MIS
  
MMS
 
Sub-Account
  
Sub-Account
  
Sub-Account
  
Sub-Account
  
Sub-Account
Income:
                  
  Dividend income
                  
 
$             156,962
  
$          1,593,053
  
$          2,553,325
  
$             487,589
  
$                        2
Expenses:
                  
   Mortality and expense risk charges
(60,506)
  
(567,601)
  
(437,341)
  
(1,349,981)
  
(239,539)
Distribution charges
(7,261)
  
(68,112)
  
(52,481)
  
(161,998)
  
(28,745)
Net investment income (loss)
89,195
  
957,340
  
2,063,503
  
(1,024,390)
  
(268,282)
                   
Net realized and change in unrealized gains (losses):
                  
  Net realized gains (losses) on sale of investments
4,919
  
52,979
  
458,037
  
1,412,235
  
-
  Realized gain distributions
-
  
450,865
  
-
  
-
  
-
   Net realized gains (losses)
4,919
  
503,844
  
458,037
  
1,412,235
  
-
                   
 Net change in unrealized appreciation (depreciation)
(122,799)
  
(826,633)
  
2,305,250
  
17,075,554
  
-
                   
Net realized and change in unrealized gains (losses)
(117,880)
  
(322,789)
  
2,763,287
  
18,487,789
  
-
                   
Increase (decrease) in net assets from operations
(28,685)
  
(634,551)
  
4,826,790
  
17,463,399
  
(268,282)
                   










The accompanying notes are an integral part of these financial statements.

 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2012


 
TRS
                
 
Sub-Account
                
Income:
                  
                   
  Dividend income
 $          2,176,641
                
                   
Expenses:
                  
   Mortality and expense risk charges
              (944,461)
                
Distribution charges
              (113,335)
                
Net investment income (loss)
             1,118,845
                
                   
Net realized and change in unrealized gains (losses):
                  
  Net realized gains (losses) on sale of investments
                983,597
                
  Realized gain distributions
                            -
                
   Net realized gains (losses)
                983,597
                
                   
 Net change in unrealized appreciation (depreciation)
             6,140,595
                
                   
Net realized and change in unrealized gains (losses)
             7,124,192
                
                   
Increase (decrease) in net assets from operations
 $          8,243,037
                
                   










The accompanying notes are an integral part of these financial statements.

 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND THE PERIOD ENDED DECEMBER 31, 2011


Operations:
GGS Sub-Account
  
GSS Sub-Account
  
HYS Sub-Account
December 31,
2012
December 31,
2011
  
December 31,
2012
December 31,
2011
  
December 31,
2012
December 31,
2011
               
Net investment income (loss)
$             89,195
$             (5,595)
  
$           957,340
$           (51,117)
  
$        2,063,503
$           (36,147)
Net realized gains (losses)
4,919
536
  
503,844
2,004
  
458,037
5,340
Net change in unrealized appreciation (depreciation)
(122,799)
40,925
  
(826,633)
348,547
  
2,305,250
663,790
   Net increase (decrease) from operations
(28,685)
35,866
  
634,551
299,434
  
4,826,790
632,983
                 
Contract Owner Transactions:
                
                 
Accumulation Activity:
                
Purchase payments received
12,273
71
  
553,163
16,035
  
289,996
67,100
Transfer into UIT
-
5,924,115
  
-
53,310,360
  
-
37,061,768
Transfers between Sub-Accounts
                
    (including the Fixed Account), net
(57,062)
(28,743)
  
(775,239)
101,126
  
919,157
235,210
Withdrawals, surrenders, annuitizations and contract charges
(629,890)
(151,227)
  
(5,791,952)
(489,424)
  
(4,248,113)
(402,773)
      Net accumulation activity
(674,679)
5,744,216
  
(6,014,028)
52,938,097
  
(3,038,960)
36,961,305
                 
Annuitization Activity:
                
Annuitizations
-
-
  
-
-
  
2,273
-
Annuity payments and contract charges
(3,551)
-
  
(213,786)
-
  
(128,016)
-
Transfers between Sub-Accounts, net
-
-
  
-
-
  
-
-
Adjustments to annuity reserves
(4,287)
(73)
  
(33,989)
(53,766)
  
(381)
15,105
   Net annuitization activity
(7,838)
(73)
  
(247,775)
(53,766)
  
(126,124)
15,105
                 
Net increase (decrease) from contract owner transactions
(682,517)
5,744,143
  
(6,261,803)
52,884,331
  
(3,165,084)
36,976,410
                 
Total increase (decrease) in net assets
(711,202)
5,780,009
  
(5,627,252)
53,183,765
  
1,661,706
37,609,393
                 
Net assets at beginning of year
5,780,009
-
  
53,183,765
-
  
37,609,393
-
Net assets at end of year
$        5,068,807
$        5,780,009
  
$      47,556,513
$      53,183,765
  
$      39,271,099
$      37,609,393

The accompanying notes are an integral part of these financial statements.

 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND THE PERIOD ENDED DECEMBER 31, 2011 (CONTINUED)


Operations:
MIS Sub-Account
  
MMS Sub-Account
  
TRS Sub-Account
December 31,
2012
December 31,
2011
  
December 31,
2012
December 31,
2011
  
December 31,
2012
December 31,
2011
               
Net investment income (loss)
$      (1,024,390)
$         (112,895)
  
$         (268,282)
$           (23,026)
  
$        1,118,845
$           (82,161)
Net realized gains (losses)
1,412,235
(23,359)
  
-
-
  
983,597
602
Net change in unrealized appreciation (depreciation)
17,075,554
(2,124,151)
  
-
-
  
6,140,595
788,952
   Net increase (decrease) from operations
17,463,399
(2,260,405)
  
(268,282)
(23,026)
  
8,243,037
707,393
                 
Contract Owner Transactions:
                
                 
Accumulation Activity:
                
Purchase payments received
681,425
18,343
  
354,743
47,801
  
840,822
88,613
Transfer into UIT
-
119,577,341
  
-
24,205,785
  
-
87,449,070
Transfers between Sub-Accounts
                
    (including the Fixed Account), net
(2,099,253)
(123,815)
  
(459,981)
(336,873)
  
(728,597)
63,652
Withdrawals, surrenders, annuitizations and contract charges
(13,850,508)
(1,370,882)
  
(3,957,497)
(260,824)
  
(12,653,322)
(858,636)
      Net accumulation activity
(15,268,336)
118,100,987
  
(4,062,735)
23,655,889
  
(12,541,097)
86,742,699
                 
Annuitization Activity:
                
Annuitizations
13,903
-
  
9,963
-
  
8,753
-
Annuity payments and contract charges
(293,266)
-
  
(31,330)
-
  
(151,601)
-
Transfers between Sub-Accounts, net
-
-
  
-
-
  
-
-
Adjustments to annuity reserves
24,916
13,108
  
1,118
(162)
  
(152,834)
4,702
   Net annuitization activity
(254,447)
13,108
  
(20,249)
(162)
  
(295,682)
4,702
                 
Net increase (decrease) from contract owner transactions
(15,522,783)
118,114,095
  
(4,082,984)
23,655,727
  
(12,836,779)
86,747,401
                 
Total increase (decrease) in net assets
1,940,616
115,853,690
  
(4,351,266)
23,632,701
  
(4,593,742)
87,454,794
                 
Net assets at beginning of year
115,853,690
-
  
23,632,701
-
  
87,454,794
-
Net assets at end of year
$    117,794,306
$    115,853,690
  
$      19,281,435
$      23,632,701
  
$      82,861,052
$      87,454,794

The accompanying notes are an integral part of these financial statements.


 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

 
NOTES TO FINANCIAL STATEMENTS
 
FOR THE YEAR ENDED DECEMBER 31, 2012

1. BUSINESS AND ORGANIZATION

Sun Life of Canada (U.S.) Variable Account L (the “Variable Account”) is a separate account of Sun Life Assurance Company of Canada (U.S.) (the “Sponsor”) and was established on July 21, 1982, as a funding vehicle for the variable portion of the Compass 2 and Compass 3 contracts (the “Contracts”) issued by the Sponsor.  Until December 2, 2011 the Variable Account was registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as a management separate account existing in accordance with the regulations of the Delaware Insurance Department. Pursuant to a contract holder vote, after the close of business on December 2, 2011, the Variable Account was reorganized, in a tax-free exchange, into a unit investment trust, and all of the investment-related assets and liabilities of the management separate account (other than insurance obligations) were transferred to the MFS Variable Insurance Trust II.  The financial statements include the results of the Variable Account from the date of the reorganization until December 31, 2012.
 
 
The assets of the Variable Account are divided into “Sub-Accounts”.  Each Sub-Account is invested in shares of a specific mutual fund (collectively the “Funds”), or series thereof, registered under the Investment Company Act of 1940, as amended. The contract owners of the Variable Account direct the deposits into the Sub-Accounts of the Variable Account.

Under applicable insurance law, the assets and liabilities of the Variable Account are clearly identified and distinguished from the Sponsor’s other assets and liabilities.  Assets applicable to the Variable Account are not chargeable with liabilities arising out of any other business the Sponsor may conduct.

On December 17, 2012, Sun Life Financial Inc., the Sponsor’s indirect parent company, announced the execution of a definitive agreement to sell its domestic U.S. annuity business and certain life insurance businesses to Delaware Life Holdings, LLC, including all of the issued and outstanding shares of stock of the Sponsor (“the Sale Transaction”). The Sale Transaction is expected to close by the end of the second quarter 2013, subject to regulatory approvals and customary closing conditions.

There were no Sub-Accounts held by the contract owners of the Variable Account that had a name change, were closed or part of a fund merger during the current year, or that commenced operations during the past two years subsequent to the establishment of the Variable Account.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  The preparation of financial statements in conformity with GAAP requires the Sponsor’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from these estimates.

Investment Valuation and Transactions

Investments made in mutual funds are carried at fair value and are valued at their closing net asset value as determined by the respective mutual fund, which in turn value their investments at fair value, as of December 31, 2012.  Transactions are recorded on a trade date basis.  Realized gains and losses on sales of investments are determined on the first in, first out basis.  Dividend income and realized gain distributions are reinvested in additional fund shares and recognized on the ex-dividend date.

Units

The number of units credited is determined by dividing the dollar amount allocated to a Sub-Account by the unit value for that Sub-Account for the period during which the purchase payment was received.  The unit value for each Sub-Account is established at $10.00 for the first period of that Sub-Account and is subsequently measured based on the performance of the investments and the contract charges selected by the contract holder, as discussed in note 5.

 
 
 


SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Purchase Payments

Upon issuance of new contracts, the initial purchase payment is credited to the contract in the form of units.  All subsequent purchase payments are applied using the unit values for the period during which the purchase payment is received.

Transfers

Transfers between Sub-Accounts requested by contract owners are recorded in the new Sub-Account upon receipt of the
redemption proceeds at the net asset value at the time of receipt.  In addition, transfers can be made between the Sub-Accounts and the “Fixed Account”.  The Fixed Account is part of the general account of the Sponsor in which purchase payments or contract values may be allocated or transferred.

Withdrawals

At any time during the accumulation phase (the period before the first annuity payment), the contract owner may elect to receive a cash withdrawal payment under the contract.  If the contract owner requests a full withdrawal, the contract owner will receive the value of their account at the end of period, less the contract maintenance charge for the current contract year and any applicable withdrawal charge.

If the contract owner requests a partial withdrawal, the contract owner will receive the amount requested less any applicable withdrawal charge and the account value will be reduced by the amount requested.  Any requests for partial withdrawals that would result in the value of the contract owner’s account being reduced to an amount less than the contract maintenance charge for the current contract year is treated as a request for a full withdrawal.

Annuitization

On the annuity commencement date, the contract's accumulation account is canceled and its adjusted value is applied to provide an annuity. The adjusted value will be equal to the value of the accumulation account for the period that ends immediately before the annuity commencement date, reduced by any applicable premium taxes or similar taxes and a proportionate amount of the contract maintenance charge.

Annuity Payments

The amount of the first variable annuity payment is determined in accordance with the annuity payment rates found in the contract, which are based on an assumed interest rate of 4% per year.

The number of units to be credited in respect of a particular Sub-Account is determined by dividing that portion of the first variable annuity payment attributable to that Sub-Account by the annuity unit value of that Sub-Account for the period that ends immediately before the annuity commencement date. The number of units of each Sub-Account credited to the contract then remains fixed, unless an exchange of units is made. The dollar amount of each variable annuity payment after the first may increase, decrease or remain constant, depending on the investment performance of the Sub-Accounts.

Contract Loans

Contract holders are permitted to borrow against the cash value of their accounts.  The loan proceeds are deducted from the Variable Account and recorded in the Sponsor’s general account as an asset.  Contract loan activity is reflected in Transfers between Sub-Accounts, net in the Statement of Changes in Net Assets.

Federal Income Taxes

The operations of the Variable Account are part of the operations of the Sponsor and are not taxed separately. The Sponsor qualifies for the federal income tax treatment granted to life insurance companies under Subchapter L of the Internal Revenue Code (the “Code”). Under existing federal income tax law, investment income and realized gain distributions earned by the Variable Account on contract owner reserves are not taxable, and therefore, no provision has been made for federal income taxes.  In the event of a change in applicable tax law, the Sponsor will review this policy and if necessary a provision may be made in future years.

 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounting for Uncertain Tax Provisions

Management evaluates whether or not there are uncertain tax positions that require financial statement recognition and has determined that no reserves for uncertain tax positions are required at December 31, 2012.  The 2011 and 2012 tax years generally remain subject to examination by U.S. federal and most state tax authorities.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the period. The most significant estimate is fair value measurements of investments.  Actual results could vary from the amounts derived from management's estimates.

Subsequent events

Management has evaluated events subsequent to December 31, 2012 and through the issuance date of the Variable Account’s financial statements, noting there are no subsequent events requiring accounting or disclosure.

New and Adopted Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” which change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements.  Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements, while other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  Many of the requirements in this update are not meant to result in a change in application of the requirements of Topic 820, but to improve upon an entities consistency in application across jurisdictions to ensure that U.S. GAAP and International Financial Reporting Standards (“IFRS”) fair value measurement and disclosure requirements are described in the same way.  The amendments in ASU 2011-04 are effective, on a retrospective basis, for fiscal years and interim periods within those fiscal years beginning after December 15, 2011.  On January 1, 2012, the Variable Account adopted the provisions of ASU 2011-04. The adoption did not impact the Variable Account’s financial statements or disclosures.

In October 2012, FASB issued ASU 2012-04, “Technical Corrections and Improvements”.  The amendments in this update cover a wide range of Topics in the Codification. The technical corrections (Section A) are divided into three main categories: (1) Source literature amendments – amendments to carry forward the original intent of certain pre-Codification authoritative literature that was inadvertently altered during the Codification process, (2) Guidance clarification and reference corrections – changes in wording and references to avoid misapplication or misinterpretation of guidance, and (3) Relocated guidance – moving guidance from one part of the Codification to another to correct instances in which the scope of pre-Codification guidance may have been unintentionally narrowed or broadened during the Codification process. The purpose of Section B of ASU 2012-04 is to conform the use of the term “fair value” throughout the Codification “to fully reflect the fair value measurement and disclosure requirements” of Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurement”. These provisions are effective upon issuance, except for amendments that are subject to transition guidance discussed below. The Variable Account adopted the provisions of ASU 2012-04 on October 1, 2012.  The adoption did not impact the Variable Account’s financial statements or disclosures.

Accounting Pronouncements Not Yet Adopted

ASU 2012-04 includes certain amendments that are subject to transition guidance that will be effective for fiscal periods beginning after December 15, 2012.  The Variable Account will adopt these amendments on January 1, 2013 and does not expect its requirements to have a material impact on the Variable Account’s financial statements or disclosures.


 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

 
3.  FAIR VALUE MEASUREMENTS

The Sub-Accounts’ investments are carried at fair value.  Fair Value is an exit price, representing the amount that would be received from a sale of an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, U.S. GAAP establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value (i.e., Level 1, 2 and 3). Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Variable Account has the ability to access at the measurement date. Level 2 inputs are observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Level 3 inputs are unobservable inputs reflecting the reporting entity’s estimates of the assumptions that market participants would use in pricing the asset or liability. Topic 820 requires that a fair value measurement technique include an adjustment for risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model, if market participants would also include such an adjustment.

The Variable Account has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three level hierarchy described above.  If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

As of December 31, 2012, the inputs used to price the Funds are observable and represent Level 1 assets under the Topic 820 hierarchy levels. There were no Level 2 or 3 investments in the Variable Account during the year ended December 31, 2012. As of December 31, 2012, the Level 1 assets held by the Variable Account was $312 million.  There were no transfers between levels during the period.

4. RELATED PARTY TRANSACTIONS

Massachusetts Financial Services Company, an affiliate of the Sponsor, is the investment adviser to the Funds and charges management fees at an annual rate ranging from 0.50% to 0.75% of the Funds’ average daily net assets.  For additional related party transactions, see notes 5 and 6.

5. CONTRACT CHARGES

Mortality and expense risk charges

Charges for mortality and expense risks are based on the value of the Sub-Account and are deducted from the Variable Account at the end of each valuation period to cover the risks assumed by the Sponsor. The deductions are transferred periodically to the Sponsor.  As of December 31, 2012, the deduction is at an effective annual rate of 1.30% for Compass 2 and 1.25% for Compass 3.  These charges are reflected in the Statement of Operations.

Distribution charges

Additionally, the Sponsor makes a deduction from the Sub-Account for a distribution expense risk charge equal to an effective annual rate of 0.15% of the daily net assets attributable to the Compass 3 contracts.  This distribution expense charge is not deducted after the seventh contract anniversary.  These charges are reflected in the Statement of Operations.

Administration charges

Each year on the contract anniversary date an account administration fee (‘‘Account Fee’’) is deducted from the contract owner’s account to reimburse the Sponsor for certain administrative expenses equal to $25 for the Compass 2 contracts and $30 for the Compass 3 contracts. This amount is deducted pro-rata from all variable sub-accounts, based on the allocation of the Contract Value.   The Account Fee is reflected in the Statement of Changes in Net Assets.


 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

5. CONTRACT CHARGES (CONTINUED)

Surrender charges

The Sponsor does not deduct a sales charge from purchase payments. However, a surrender charge (contingent deferred sales charge) may be deducted to cover certain expenses relating to the sale of the contract if the contract holder requests a full withdrawal prior to reaching the pay-out phase.  In no event shall the aggregate surrender charges exceed 6% of the purchase payments made under the contract.  The surrender charge is reflected in the Statement of Changes in Net Assets.

Premium Taxes

A deduction, when applicable, is made for premium taxes or similar state or local taxes.  It is currently the policy of the Sponsor to deduct the taxes at the annuity commencement date.  However, the Sponsor reserves the right to deduct such taxes when incurred.

6. RESERVE FOR VARIABLE ANNUITIES

Annuity reserves for contracts with annuity commencement dates prior to February 1, 1987 are calculated using the 1971 Individual Annuitant Mortality Table. Annuity reserves for contracts with annuity commencement dates on or after February 1, 1987 and before January 1, 2000 are calculated using the 1983 Individual Annuitant Mortality Table. Annuity reserves for contracts with annuity commencement dates on or after January 1, 2000 are calculated using the 2000 Individual Annuity Mortality Table and an assumed interest rate of 4% per year.  The Individual Annuitant Mortality Tables utilized are subject to change in conjunction with changes in the tables currently adopted by the National Association of Insurance Commissioners (“NAIC”).  The mortality risk is fully borne by the Sponsor and may result in additional amounts being transferred into the variable annuity account by the Sponsor to cover greater longevity of annuities than expected. Required adjustments to the reserves are accomplished by transfers to or from the Sponsor.

7.  INVESTMENT PURCHASES AND SALES

The cost of purchases and proceeds from sales of investments for the year ended December 31, 2012 were as follows:

 
Purchases
  
Sales
GGS
$
421,507
  
$
1,010,543
GSS
  
3,700,014
    
8,519,623
HYS
  
5,854,383
    
6,955,583
MIS
  
1,358,864
    
17,930,953
MMS
  
3,457,623
    
7,810,006
TRS
  
3,951,552
    
15,516,651






 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

8. CHANGES IN UNITS OUTSTANDING

The changes in units outstanding for the year ended December 31, 2012 were as follows:

 
Units
Issued
  
Units
Redeemed
  
Net Increase (Decrease)
GGS
14,773
  
46,650
  
(31,877)
GSS
274,164
  
434,235
  
(160,071)
HYS
94,599
  
177,045
  
(82,446)
MIS
453,814
  
932,846
  
(479,032)
MMS
217,410
  
464,372
  
(246,962)
TRS
59,951
  
461,069
  
(401,118)

The changes in units outstanding for the period ended December 31, 2011 were as follows:

 
Units
Issued
  
Units
Redeemed
  
Net Increase (Decrease)
GGS
              271,184
  
                6,573
  
              264,611
GSS
           1,479,754
  
              68,827
  
           1,410,927
HYS
              997,569
  
              11,955
  
              985,614
MIS
           3,696,492
  
            163,325
  
           3,533,167
MMS
           1,517,337
  
              43,215
  
           1,474,122
TRS
           2,977,035
  
              33,313
  
           2,943,722


9. TAX DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Code, a variable annuity contract, other than a pension plan contract, is not treated as an annuity contract for federal tax purposes for any period in which the investments of the segregated asset account on which the contract is based are not adequately diversified.  The Code provides that the “adequately diversified” requirement may be met if the underlying investments satisfy either a statutory safe harbor test or diversification requirements set forth in regulations issued by the Secretary of Treasury.  The Sponsor believes that the Variable Account satisfies the current requirements of the regulations, and it intends that the Variable Account will continue to meet such requirements.


 
 
 

SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
(A Separate Account of Sun Life Assurance Company of Canada (U.S.))

10. FINANCIAL HIGHLIGHTS

The summary of units outstanding, unit value (some of which may be rounded), net assets, investment income ratios, expense ratios (excluding expenses of the underlying mutual funds) and the total return, for each of the five years in the period ended December 31, is as follows:

 
At December 31
  
For the year ended December 31
         
Investment
    
   
Unit Value
Net
  
Income
Expense Ratio
Total Return
 
Units
lowest to highest
Assets
  
Ratio1
lowest to highest2
lowest to highest3
GGS
                          
2012
232,734
$   18.705
to
$  32.703
$  5,068,807
  
2.90%
1.25%
to
1.40%
(0.76%)
to
(0.61%)
2011
264,611
18.819
to
32.903
5,780,009
  
-
1.25
to
1.40
0.61
to
0.62
                           
GSS
                          
2012
1,250,856
20.591
to
50.136
47,556,513
  
3.23
1.25
to
1.40
1.10
to
1.26
2011
1,410,927
20.336
to
49.539
53,183,765
  
-
1.25
to
1.40
0.55
to
0.56
                           
HYS
                          
2012
903,168
22.087
to
55.941
39,271,099
  
6.73
1.25
to
1.40
13.31
to
13.48
2011
985,614
19.463
to
49.320
37,609,393
  
-
1.25
to
1.40
1.70
to
1.71
                           
MIS
                          
2012
3,054,135
19.506
to
70.788
117,794,306
  
0.41
1.25
to
1.40
15.62
to
15.79
2011
3,533,167
16.846
to
61.163
115,853,690
  
-
1.25
to
1.40
(1.91)
to
(1.89)
                           
MMS
                          
2012
1,227,160
12.764
to
20.704
19,281,435
  
-
1.25
to
1.40
(1.39)
to
(1.24)
2011
1,474,122
12.925
to
20.975
23,632,701
  
-
1.25
to
1.40
(0.11)
to
(0.10)
                           
TRS
                          
2012
2,542,604
26.805
to
56.857
82,861,052
  
2.57
1.25
to
1.40
9.79
to
9.96
2011
2,943,722
24.378
to
51.708
87,454,794
  
-
1.25
to
1.40
0.80
to
0.81
                           

1 Represents the dividends, excluding distributions of capital gains, received by the Sub-Account from the underlying mutual fund, which are net of management fees assessed by the fund manager, divided by the average net assets. The ratio excludes those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the Sub-Account is affected by the timing of the declaration of dividends by the underlying mutual fund in which the Sub-Accounts invest.

2 Ratio represents the annualized contract expenses of the Sub-Account, consisting primarily of mortality and expense charges, minimum death benefit guarantee and administrative charges. The ratio includes only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying mutual fund are excluded.

3 Ratio represents the total return for the year indicated, including changes in the value of the underlying mutual fund, and expenses assessed through the reduction of units.  The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in reduction in the total return presented.





 
 
 

PART C
OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS

 
(a)
The following Financial Statements are included in the Registration Statement:
 
 
A.
Condensed Financial Information - Accumulation Unit Values (Part A)
 
 
B.
Financial Statements of the Depositor (Part B)
 
 
1.
Report of Independent Registered Public Accounting Firm;
 
2.
Statutory-Basis Statements of Admitted Assets, Liabilities, and Capital Stock and Surplus as of December 31, 2012 and 2011;
 
3.
Statutory-Basis Statements of Operations for the Years Ended December 31, 2012, 2011 and 2010;
 
4.
Statutory-Basis Statements of Changes in Capital Stock and Surplus for the Years Ended December 31, 2012, 2011 and 2010;
 
5.
Statutory-Basis Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010; and
 
6.
Notes to Statutory-Basis Financial Statements.
 
   
C.
Financial Statements of the Registrant (Part B)
 
   
1.
Report of Independent Registered Public Accounting Firm;
   
2.
Statements of Assets and Liabilities, December 31, 2012;
   
3.
Statements of Operations, Year Ended December 31, 2012;
   
4.
Statements of Changes in Net Assets, Years Ended December 31, 2012 and 2011; and
   
5.
Notes to Financial Statements.
 
 
(b)
The following Exhibits are incorporated in the Registration Statement by reference unless otherwise indicated:
 
 
(1)
Resolution of Board of Directors of the Depositor dated August 11, 2011, authorizing the establishment of Sun Life of Canada (U.S.) Variable Account L and the reorganization of the Registrant from a managed separate account to a unit investment trust (Incorporated herein by reference to the Registration Statement on Form N-4, File No. 002-79141, filed on September 13, 2011);
     
 
(2)
Not Applicable;
     
 
(3)(a)(i)
Principal Underwriter’s Agreement by and between Sun Life Assurance Company of Canada (U.S.) and Clarendon Insurance Agency, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 16 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, File No. 333-83364, filed on or about April 27, 2009);
     
 
(3)(a)(ii)
Amendment No. 1 to Principal Underwriter’s Agreement by and between Sun Life Assurance Company of Canada (U.S.) and Clarendon Insurance Agency, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 16 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4 (File No. 333-83364) filed on or about April 27, 2009);
     
 
(3)(a)(iii)
Amendment No. 2 to Principal Underwriter’s Agreement by and between Sun Life Assurance Company of Canada (U.S.) and Clarendon Insurance Agency, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 12 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-100829, filed on April 30, 2009.)
     
 
(3)(a)(iv)
Amendment No. 3 to Principal Underwriter’s Agreement by and between Sun Life Assurance Company of Canada (U.S.) and Clarendon Insurance Agency, Inc. (Incorporated herein by reference to Post-Effective Amendment No. 12 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account I on Form N-6, File No. 333-100829, filed on April 30, 2009.)
     
 
(3)(b)(i)
Sales Operations and General Agent Agreement (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, File No. 333-37907, filed on January 16, 1998);
     
 
(3)(b)(ii)
Broker-Dealer Supervisory and Service Agreement (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, File No. 333-37907, filed on January 16, 1998); and
     
 
(3)(c)(iii)
General Agent Agreement (Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4, File No. 333-37907, filed on January 16, 1998);
     
 
(4)
Individual Flexible Payment Deferred Annuity Contract (Compass 3 Variable Annuity Contract) (Incorporated herein by reference to Post-Effective Amendment No. 23 to the Registration Statement on Form N-3, File No. 002-79141, filed on March 6, 1998);
     
 
(5)
Application used with the annuity contract filed as Exhibit 4 (Incorporated herein by reference to Post-Effective Amendment No. 23 to the Registration Statement on Form N-3, File No. 002-79141, filed on March 6, 1998);
     
 
(6)(a)
Certificate of Incorporation of the Depositor (Incorporated herein by reference to Depositor's Form 10-K, File No. 333-82824, filed on March 29, 2004);
     
 
(6)(b)
By-Laws of the Depositor, as amended March 19, 2004 (Incorporated herein by reference to Depositor's Form 10-K, File No. 333-82824, filed on March 29, 2004)
     
 
(7)
Not Applicable;
     
 
(8)
Participation Agreement, dated December 10, 2012, by and among MFS Variable Insurance Trusts I, II and III, Sun Life Assurance Company of Canada (U.S.), Sun Life Insurance and Annuity Company of New York, and Massachusetts Financial Services Company. (Incorporated herein by reference to Post-Effective Amendment No. 24 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account G on Form N-6, File No. 333-65048, filed with the Securities and Exchange Commission on December 10, 2012);
     
 
(9)
Opinion of Counsel as to the legality of the securities being registered and Consent to its use (Incorporated herein by reference to Post-Effective No. 34 to the Registration Statement on Form N-4, File No. 33-19628, filed on December 2, 2011);*
     
 
(10)(a)
Consents of Deloitte & Touche LLP;*
     
 
(10)(b)
Representation of Counsel pursuant to Rule 485(b);*
     
 
(11)
Financial Statement Schedules I and VI (Incorporated herein by reference to Post-Effective Amendment No. 47 to the Registration Statement on Form N-4, File No. 333-83516, filed on April 29, 2013);
     
 
(12)
Not Applicable;
     
 
(13)
Schedule for Computation of Performance Quotations (Incorporated herein by reference to Post-Effective Amendment No. 10 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F of the Registrant on Form N-4, File No. 33-41628, filed on April 29, 1998)
     
 
(14)(a)
Powers of Attorney;*
     
 
(14)(b)
Resolution of the Board of Directors of the depositor dated April 11, 2013 authorizing the use of powers of attorney for Officer signatures (Incorporated by reference to Post-Effective Amendment No. 47 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, File No. 333-83516, filed on April 29, 2013);
     
 
(15)
Organizational Chart (Incorporated by reference to Post-Effective Amendment No. 47 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, File No. 333-83516, filed on April 29, 2013).

*   Filed herewith.

Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR

Name and Principal
Business Address
Positions and Offices
With Depositor
   
Thomas A. Bogart
Sun Life Assurance Company of Canada
150 King Street West, SC 114D10
Toronto, Ontario Canada M5H 1J9
Director
   
Scott M. Davis
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Vice President and General Counsel and
Director
   
Colm J. Freyne
Sun Life Assurance Company of Canada
150 King Street West
Toronto, Ontario Canada M5H 1J9
Director
   
Larry R. Madge
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA  02481
Director
   
Kenneth A. McCullum
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Vice President and General Manager, Life and
Annuities, Inforce Management and Director
   
Westley V. Thompson
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
President, SLF U.S., and Director and Chairman
   
Kerri R. Ansello
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Counsel and Secretary
   
Keith Gubbay
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Vice President and Chief Financial Officer
and Treasurer
   
David J. Healy
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Senior Vice President, Sun Life Financial U.S. Operations
   
Stephen C. Peacher
Sun Life Assurance Company of Canada
150 King Street West
Toronto, ON M5H 1J9
Executive Vice President and Chief Investment Officer
   
Fred M. Tavan
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Vice President, Chief Actuary
   
Sean N. Woodroffe
Sun Life Assurance Company of Canada (U.S.)
One Sun Life Executive Park
Wellesley Hills, MA 02481
Vice President, Human Resources

Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT

No person is directly or indirectly controlled by the Registrant. The Registrant is a separate account of Sun Life Assurance Company of Canada (U.S.), which is ultimately controlled by Sun Life Financial Inc.

The organization chart of Sun Life Financial is incorporated by reference to Post-Effective Amendment No. 47 to the Registration Statement on Form N-4, File No. 333-83516, filed April 29, 2013.

None of the companies listed in such Exhibit 15 is a subsidiary of the Registrant, therefore the only financial statements being filed are those of Sun Life Assurance Company of Canada (U.S.).

Item 27. NUMBER OF CONTRACT OWNERS

As of February 28, 2013 there were 5,027 qualified and 1,549 non-qualified contract owners.

Item 28. INDEMNIFICATION

Pursuant to Section 145 of the Delaware Corporation Law, Article 8 of the By-laws of Sun Life Assurance Company of Canada (U.S.), as amended March 19, 2004 (a copy of which as filed as Exhibit 3.2 to Depositor’s Form 10-K, File No. 333-82824, filed on March 29, 2004), provides for the indemnification of directors, officers and employees of Sun Life Assurance Company of Canada (U.S.). Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Sun Life Assurance Company of Canada (U.S.) pursuant to the certificate of incorporation, by-laws, or otherwise, Sun Life (U.S.) has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Sun Life (U.S.) of expenses incurred or paid by a director, officer, controlling person of Sun Life (U.S.) in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Sun Life (U.S.) will submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Act, unless in the opinion of their counsel the matter has been settled by controlling precedent, and will be governed by the final adjudication of such issue.

Item 29. PRINCIPAL UNDERWRITERS

(a) Clarendon Insurance Agency, Inc., a wholly-owned subsidiary of Sun Life Assurance Company of Canada (U.S.), acts as general distributor for the Registrant, Sun Life of Canada (U.S.) Variable Accounts C, D, E, F, G, I, and K; Keyport Variable Account A; KMA Variable Account; Keyport Variable Account I; KBL Variable Account A; KBL Variable Annuity Account; and Sun Life (N.Y.) Variable Accounts A, B, C, D, J, and N.

(b)
Name and Principal
Position and Offices
 
Business Address*
with Underwriter
     
 
Kenneth A. McCullum
President and Director
 
Larry R. Madge
Director
 
Scott M. Davis
Director
 
Kerri R. Ansello
Secretary
 
Michael S. Bloom
Assistant Secretary
 
Paul Finnegan
Anti-Money Laundering Compliance Officer
 
Kathleen T. Baron
Chief Compliance Officer
 
William T. Evers
Assistant Vice President and Senior Counsel
 
Jane F. Jette
Financial/Operations Principal and Treasurer
 
Michelle A. Greco
Senior Counsel
 
Jie Cheng
Tax Assistant Vice President
 
Maryellen Percuoco
Assistant Secretary

*The principal business address of all directors and officers of the principal underwriter is, One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.

(c) Inapplicable.

Item 30. LOCATION OF ACCOUNTS AND RECORDS

Accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are maintained by Sun Life Assurance Company of Canada (U.S.), in whole or in part, at its executive office at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481, or at the offices of Clarendon Insurance Agency, Inc. at One Sun Life Executive Park, Wellesley Hills, Massachusetts 02481.

Item 31. MANAGEMENT SERVICES

Not Applicable.

Item 32. UNDERTAKINGS

The Registrant hereby undertakes:

 
(a)
To file a post-effective amendment to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the variable annuity Contracts may be accepted;
   
 
(b)
To include either (1) as part of any application to purchase a Contract offered by the prospectus, a space that an Applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the Applicant can remove to send for a Statement of Additional Information;
   
 
(c)
To deliver any Statement of Additional Information and any financial statements required to be made available under SEC Form N-4 promptly upon written or oral request.
   
 
(d)
Representation with respect to Section 26(f)(2)(A) of the Investment Company Act of 1940: Sun Life Assurance Company of Canada (U.S.) represents that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. The Registrant is relying on the no-action letter issued by the Division of Investment Management of the Securities and Exchange Commission to American Council of Life Insurance, Ref. No. IP-6-88, dated November 28, 1988, the requirements for which have been complied with by the Registrant.


 
 
 


SIGNATURES

As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment to the Registration Statement and has caused this Post-Effective Amendment to the Registration Statement to be signed on its behalf, in the Town of Wellesley Hills, and Commonwealth of Massachusetts on this 29th day of April, 2013.

 
SUN LIFE OF CANADA (U.S.) VARIABLE ACCOUNT L
 
(Registrant)
 
 
SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.)
 
(Depositor)
 
 
By: /s/ Westley V. Thompson*
 
Westley V. Thompson
 
President, SLF U.S.

*By:
/s/ Kenneth N. Crowley
 
Kenneth N. Crowley
 
Senior Counsel

As required by the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities with the Depositor, Sun Life Assurance Company of Canada (U.S.), and on the dates indicated.

SIGNATURE
TITLE
DATE
     
     
/s/ Westley V. Thompson*
President, SLF U.S. and Director
April 29, 2013
Westley V. Thompson
(Principal Executive Officer)
  
     
     
/s/ Keith Gubbay*
Senior Vice President and Chief Financial Officer
April 29, 2013
Keith Gubbay
and Treasurer
  
 
(Principal Financial Officer)
  
     
     
/s/ Vincent A. Montiverdi*
Vice President and Chief Accounting Officer
April 29, 2013
Vincent A. Montiverdi
(Principal Accounting Officer)
  
     
     
*By: /s/ Kenneth N. Crowley
Attorney-in-Fact for:
April 29, 2013
Kenneth N. Crowley
Thomas A. Bogart, Director
  
 
Scott M. Davis, Director
  
 
Colm J. Freyne, Director
  
 
Larry R. Madge, Director
  
 
Kenneth A. McCullum, Director
  

* Kenneth N. Crowley has signed this document on the indicated date on behalf of the above Directors for the Depositor pursuant to powers or attorney duly executed by such persons and a resolution of the Board of Directors authorizing use of powers of attorney for Officer signatures. Resolution of the Board of Directors is incorporated herein by reference to Post-Effective Amendment No. 47 to the Registration Statement of Sun Life of Canada (U.S.) Variable Account F on Form N-4, File No. 333-83516, filed April 29, 2013). Powers of attorney are included as Exhibit 14(a).


 
 
 


Exhibits


(10)(a)
Consents of Deloitte & Touche LLP
   
(10)(b)
Representation of Counsel pursuant to Rule 485(b)
   
(14)(a)
Powers of Attorney