Case Analysis Of Sun Life

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Credit Risk:
Credit risk involves the possibility of borrowers, bond issuers or other counter-parties defaulting in transactions. In class we learned about various ways to estimate default probabilities, including historical data, CDS spreads, bond prices or asset swaps or Merton’s model.

Sun Life has established a wide range of risk management controls to manage credit risks. Income and regulatory capital sensitivities are monitored, controlled and reported against their pre-established risk limits. Due to the nature of insurance products, investment diversification is needed to match their various liabilities. Investment limits are defined at Sun Life, which include asset class, geography and industry limits. Use of credit quality ratings …show more content…

The transactions introduce some risks of financial loss due to the failure in achieving the expected financial or strategic objectives. The financial or strategic benefits may not be realized due to competitions, regulatory requirements or other factors. One business risk involves effectively integrating the transferred businesses. Also, restructuring or reorganization of the businesses after transactions have been closed can be risky too. In terms of operational risks, integrating operations, especially the differences in organizational culture, can be a problem and may require significant management resources. Management’s attention from day-to-day businesses can be distracted. Thus, those synergies may not be realized if integration is not successful. Nevertheless, Sun Life tries to mitigate the risks associated with the integration of businesses by establishing procedures to oversee the execution and integration of M&A transactions. On the other hand, there could be potential market risks associated with the acquisition, as the investment returns depend heavily on market conditions. In particular, Sun Life is entering the emerging markets, which could be a bit risky even though they provide higher returns and growth opportunities. Some possible risks associated with emerging markets include lack of liquidity, political risks, foreign exchange rate risks, …show more content…

With the well-established risk management framework, we believe that Sun Life is able to tackle those risks to the best of its ability and minimize potential

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