EXHIBIT 2

CONSOLIDATED

FINANCIAL STATEMENTS

AND NOTES





|                                                                                |  |  |     | 
|------------------------------------------------------------------------------- |  |  | --- | 
|                                                                                | 
|FINANCIAL REPORTING RESPONSIBILITIES                                            |  |  | 79  | 
|                                                                                | 
|CONSOLIDATED FINANCIAL STATEMENTS                                               |  |  | 80  | 
|Consolidated statements of operations                                           |  |  | 80  | 
|Consolidated statements of comprehensive income (loss)                          |  |  | 81  | 
|Income taxes included in other comprehensive income (loss)                      |  |  | 81  | 
|Consolidated statements of financial position                                   |  |  | 82  | 
|Consolidated statements of changes in equity                                    |  |  | 83  | 
|Consolidated statements of cash flows                                           |  |  | 84  | 
|                                                                                | 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                                  |  |  | 85  | 
|Accounting policies      Note   1                                               |  |  | 85  | 
|IFRS 1  First time adoption      Note   2                                      |  |  | 93  | 
|Disposition      Note   3                                                       |  |  | 102 | 
|Segmented information      Note   4                                             |  |  | 102 | 
|Total invested assets and related net investment income      Note   5           |  |  | 104 | 
|Financial instrument risk management      Note   6                              |  |  | 115 | 
|Insurance risk management      Note   7                                         |  |  | 129 | 
|Other assets      Note   8                                                      |  |  | 131 | 
|Property and equipment      Note   9                                            |  |  | 132 | 
|Goodwill and intangible assets      Note 10                                     |  |  | 133 | 
|Insurance contract liabilities and investment contract liabilities      Note 11 |  |  | 135 | 
|Reinsurance      Note 12                                                        |  |  | 141 | 
|Other liabilities      Note 13                                                  |  |  | 142 | 
|Senior debentures and innovative capital instruments      Note 14               |  |  | 143 | 
|Subordinated debt      Note 15                                                  |  |  | 145 | 
|Share capital      Note 16                                                      |  |  | 145 | 
|Non-controlling interests in subsidiaries      Note 17                          |  |  | 147 | 
|Fee income      Note 18                                                         |  |  | 147 | 
|Operating expenses      Note 19                                                 |  |  | 147 | 
|Share-based payments      Note 20                                               |  |  | 148 | 
|Restructuring      Note 21                                                      |  |  | 150 | 
|Income taxes      Note 22                                                       |  |  | 150 | 
|Capital management      Note 23                                                 |  |  | 153 | 
|Segregated funds      Note 24                                                   |  |  | 154 | 
|Commitments, guarantees and contingencies      Note 25                          |  |  | 155 | 
|Related party transactions      Note 26                                         |  |  | 157 | 
|Pension plans and other post-retirement benefits      Note 27                   |  |  | 158 | 
|Earnings (loss) per share      Note 28                                          |  |  | 161 | 
|                                                                                | 
|APPOINTED ACTUARYS REPORT                                                      |  |  | 162 | 
|                                                                                | 
|REPORTS OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS                         |  |  | 163 | 



|                                                    |  |                                   |  | 
|--------------------------------------------------- |  | --------------------------------- |  | 
|78    Sun Life Financial Inc.    Annual Report 2011 |  | Consolidated Financial Statements |  | 



---

Financial Reporting Responsibilities







Management is responsible for preparing the
Consolidated Financial Statements. This responsibility includes selecting appropriate accounting policies and making estimates and other judgments consistent with International Financial Reporting Standards. The financial information presented
elsewhere in the annual report to shareholders is consistent with these statements.

The Board of Directors (Board) oversees
managements responsibilities for financial reporting. An Audit Committee of non-management directors is appointed by the Board to review the Consolidated Financial Statements and report to the Board prior to their approval of the Consolidated
Financial Statements for issuance to shareholders. Other key responsibilities of the Audit Committee include reviewing the Companys existing internal control procedures and planned revisions to those procedures, and advising the Board on
auditing matters and financial reporting issues.

Management is also responsible for maintaining systems of internal control that provide reasonable
assurance that financial information is reliable, that all financial transactions are properly authorized, that assets are safeguarded, and that Sun Life Financial Inc. and its subsidiaries, collectively referred to as the Company,
adhere to legislative and regulatory requirements. These systems include the communication of policies and the Companys Code of Business Conduct throughout the organization. Internal controls are reviewed and evaluated by the Companys
internal auditors.

Management conducted an assessment of the effectiveness of the Companys internal control over financial reporting, as of
December 31, 2011, based on the framework and criteria established inInternal ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management has
concluded that internal control over financial reporting was effective as of December 31, 2011.

The Audit Committee also conducts such review and
inquiry of management and the internal and external auditors as it deems necessary towards establishing that the Company is employing appropriate systems of internal control, is adhering to legislative and regulatory requirements and is applying the
Companys Code of Business Conduct. Both the internal and external auditors and the Appointed Actuary have full and unrestricted access to the Audit Committee, with and without the presence of management.

The Office of the Superintendent of Financial Institutions, Canada conducts periodic examinations of the Company. These examinations are designed to evaluate
compliance with provisions of the Insurance Companies Act of Canada and to ensure that the interests of policyholders, depositors and the public are safeguarded. The Companys foreign operations and foreign subsidiaries are examined by
regulators in their local jurisdictions.

The Appointed Actuary, who is a member of management, is appointed by the Board to discharge the various
actuarial responsibilities required under the Insurance Companies Act of Canada, and conducts the valuation of the Companys actuarial liabilities. The role of the Appointed Actuary is described in more detail in Note 11. The report of the
Appointed Actuary accompanies these Consolidated Financial Statements.

The Companys external auditors, Deloitte & Touche LLP,
Independent Registered Chartered Accountants, have audited the Companys internal control over financial reporting as of December 31, 2011 in addition to auditing the Companys Consolidated Financial Statements for the years ended
December 31, 2011 and December 31, 2010 and the Consolidated Statement of Financial Position as at January 1, 2010. Their reports to the Board and Shareholders express an unqualified opinion and accompany these Consolidated Financial
Statements. Deloitte & Touche meet separately with both management and the Audit Committee to discuss the results of their audit.



|                                      |  |                                                     
|------------------------------------- |  | ----------------------------------------------------
|                                      | 
|LOGO                                  |  | LOGO                                                
|Dean A. Connor                        |  | Colm J. Freyne                                      
|President and Chief Executive Officer |  | Executive Vice-President and Chief Financial Officer

Toronto,
February 15, 2012



| |  |                                   |  |                                                    
| |  | --------------------------------- |  | ---------------------------------------------------
| |  | Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    79



---

CONSOLIDATED STATEMENTS OF OPERATIONS





|                                                                                                |  |      |         |   |      |   |         | 
|----------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | 
|For the years ended December 31, (in millions of Canadian dollars except for per share amounts) |  | 2011 |         |   | 2010 |  
|Revenue                                                                                         |  |      |         |   |      |   |         | 
|Premiums                                                                                        |  |      |         |   |      |   |         | 
|Gross                                                                                           |  | $    | 14,325  |   |      | $ | 15,187  | 
|Less: Ceded                                                                                     |  |      | 5,011   |   |      |   | 1,417   | 
|Net                                                                                             |  |      | 9,314   |   |      |   | 13,770  | 
|Net investment income (loss):                                                                   |  |      |         |   |      |   |         | 
|Interest and other investment income (Note 5)                                                   |  |      | 5,055   |   |      |   | 5,065   | 
|Change in fair value through profit or loss assets and liabilities (Note 5)                     |  |      | 4,657   |   |      |   | 2,778   | 
|Net gains (losses) on available-for-sale assets                                                 |  |      | 202     |   |      |   | 84      | 
|Net investment income (loss)                                                                    |  |      | 9,914   |   |      |   | 7,927   | 
|Fee income (Note 18)                                                                            |  |      | 3,353   |   |      |   | 3,104   | 
|Total revenue                                                                                   |  |      | 22,581  |   |      |   | 24,801  | 
|Benefits and expenses                                                                           |  |      |         |   |      |   |         | 
|Gross claims and benefits paid (Note 11)                                                        |  |      | 12,896  |   |      |   | 13,483  | 
|Increase (decrease) in insurance contract liabilities (Note 11)                                 |  |      | 7,584   |   |      |   | 4,391   | 
|Decrease (increase) in reinsurance assets (Note 11)                                             |  |      | 590     |   |      |   | (770)   | 
|Increase (decrease) in investment contract liabilities (Note 11)                                |  |      | (25)    |   |      |   | 144     | 
|Reinsurance expenses (recoveries) (Note 12)                                                     |  |      | (4,556) |   |      |   | (1,060) | 
|Commissions                                                                                     |  |      | 1,545   |   |      |   | 1,647   | 
|Net transfer to (from) segregated funds (Note 24)                                               |  |      | 617     |   |      |   | 921     | 
|Operating expenses (Note 19)                                                                    |  |      | 3,580   |   |      |   | 3,470   | 
|Impairment of goodwill and intangible assets (Note 10)                                          |  |      | 307     |   |      |   | 7       | 
|Premium taxes                                                                                   |  |      | 240     |   |      |   | 238     | 
|Interest expense                                                                                |  |      | 434     |   |      |   | 459     | 
|Total benefits and expenses                                                                     |  |      | 23,212  |   |      |   | 22,930  | 
|Income (loss) before income taxes                                                               |  |      | (631)   |   |      |   | 1,871   | 
|Less: Income tax expense (benefit) (Note 22)                                                    |  |      | (447)   |   |      |   | 353     | 
|Total net income (loss)                                                                         |  |      | (184)   |   |      |   | 1,518   | 
|Less: Net income (loss) attributable to participating policyholders                             |  |      | 7       |   |      |   | 8       | 
|Less: Net income (loss) attributable to non-controlling interests                               |  |      | 9       |   |      |   | 11      | 
|Shareholders' net income (loss)                                                                 |  |      | (200)   |   |      |   | 1,499   | 
|Less: Preferred shareholders' dividends                                                         |  |      | 100     |   |      |   | 93      | 
|Common shareholders' net income (loss)                                                          |  | $    | (300)   |   |      | $ | 1,406   | 
|                                                                                                |  |     
|Average exchange rates during the reporting periods:                                            |  |      |         |   |      |   |         | 
|U.S. dollars                                                                                    |  |      | 0.99    |   |      |   | 1.03    | 
|U.K. pounds                                                                                     |  |      | 1.59    |   |      |   | 1.59    | 
|                                                                                                |  |     
|Earnings (loss) per share (Note 28)                                                             |  |      |         |   |      |   |         | 
|Basic                                                                                           |  | $    | (0.52   | ) |      | $ | 2.48    | 
|Diluted                                                                                         |  | $    | (0.52   | ) |      | $ | 2.39    | 
|                                                                                                |  |     
|Weighted average shares outstanding in millions(Note 28)                                        |  |      |         |   |      |   |         | 
|Basic                                                                                           |  |      | 579     |   |      |   | 568     | 
|Diluted                                                                                         |  |      | 579     |   |      |   | 611     | 
|                                                                                                |  |     
|Dividends per common share                                                                      |  | $    | 1.44    |   |      | $ | 1.44    | 

The attached notes form part of these Consolidated Financial Statements.



|                                                    |  |                                   |  | 
|--------------------------------------------------- |  | --------------------------------- |  | 
|80    Sun Life Financial Inc.    Annual Report 2011 |  | Consolidated Financial Statements |  | 



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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)





|                                                                   |  |      |       |   |      |   |       |  
|------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|For the years ended December 31, (in millions of Canadian dollars) |  | 2011 |       |   | 2010 |  
|Total net income (loss)                                            |  | $    | (184) |   |      | $ | 1,518 |  
|Other comprehensive income (loss), net of taxes:                   |  |      |       |   |      |   |       |  
|Change in unrealized foreign currency translation gains (losses):  |  |      |       |   |      |   |       |  
|Gross unrealized gains (losses) during the period                  |  |      | 270   |   |      |   | (577  | )
|Unrealized gains (losses) on net investment hedges                 |  |      | (43   | ) |      |   | 70    |  
|Reclassifications to net income (loss)                             |  |      | (8    | ) |      |   |      |  
|Change in unrealized gains (losses) on available-for-sale assets:  |  |      |       |   |      |   |       |  
|Unrealized gains (losses) during the period                        |  |      | 117   |   |      |   | 338   |  
|Reclassifications to net income (loss)                             |  |      | (184  | ) |      |   | (58   | )
|Change in unrealized gains (losses) on cash flow hedges:           |  |      |       |   |      |   |       |  
|Unrealized gains (losses) during the period                        |  |      | (43   | ) |      |   | (13   | )
|Reclassifications to net income (loss)                             |  |      | 14    |   |      |   | (4    | )
|Revaluation of property and equipment                              |  |      |      |   |      |   | 6     |  
|Total other comprehensive income (loss)                            |  |      | 123   |   |      |   | (238  | )
|Total comprehensive income (loss)                                  |  |      | (61   | ) |      |   | 1,280 |  
|Less: Participating policyholders' comprehensive income (loss)     |  |      | 8     |   |      |   | 6     |  
|Non-controlling interests in comprehensive income
(loss)           |  |      | 9     |   |      |   | 11    |  
|Shareholders' comprehensive income (loss)                          |  | $    | (78   | ) |      | $ | 1,263 |  

INCOME TAXES INCLUDED IN OTHER COMPREHENSIVE INCOME (LOSS)





|                                                                                        |  |      |     |  |      |   |      | 
|--------------------------------------------------------------------------------------- |  | ---- | --- |  | ---- | - | ---- | 
|For the years ended December 31, (in millions of Canadian dollars)                      |  | 2011 |     |  | 2010 |  
|Income tax benefit (expense):                                                           |  |      |     |  |      |   |      | 
|Unrealized foreign currency translation gains / losses, including net investment hedges |  | $    | 2   |  |      | $ | 16   | 
|Reclassifications to net income of foreign currency translation gains/losses            |  |      | (8) |  |      |   |     | 
|Unrealized gains / losses on available-for-sale assets                                  |  |      | (8) |  |      |   | (79) | 
|Reclassifications to net income for available-for-sale assets                           |  |      | 58  |  |      |   | 23   | 
|Unrealized gains / losses on cash flow hedges                                           |  |      | (5) |  |      |   | (17) | 
|Reclassifications to net income for cash flow hedges                                    |  |      | (5) |  |      |   | 2    | 
|Revaluation of property and equipment                                                   |  |      |    |  |      |   | (2)  | 
|Total income tax benefit (expense) included in other comprehensive income (loss)        |  | $    | 34  |  |      | $ | (57) | 

The attached notes form part of these Consolidated Financial Statements.



| |  |                                   |  |                                                    
| |  | --------------------------------- |  | ---------------------------------------------------
| |  | Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    81



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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION





|                                                                      |  |                  |         |  |                  |   |         |                |  |   |         | 
|--------------------------------------------------------------------- |  | ---------------- | ------- |  | ---------------- | - | ------- | -------------- |  | - | ------- | 
|As at (in millions of Canadian dollars)                               |  | December 31,2011 |         |  | December 31,2010 |   |         | January 1,2010 | 
|Assets                                                                |  |                  |         |  |                  |   |         |                |  |   |         | 
|Cash, cash equivalents and short-term securities (Note 5)             |  | $                | 8,837   |  |                  | $ | 8,462   |                |  | $ | 11,934  | 
|Debt securities (Note 5)                                              |  |                  | 62,930  |  |                  |   | 58,613  |                |  |   | 53,915  | 
|Equity securities (Note 5)                                            |  |                  | 4,570   |  |                  |   | 5,231   |                |  |   | 4,969   | 
|Mortgages and loans (Note 6)                                          |  |                  | 27,755  |  |                  |   | 26,034  |                |  |   | 26,921  | 
|Derivative assets (Notes 5 and 6)                                     |  |                  | 2,632   |  |                  |   | 1,648   |                |  |   | 1,455   | 
|Other invested assets (Note 5)                                        |  |                  | 1,348   |  |                  |   | 1,185   |                |  |   | 1,126   | 
|Policy loans                                                          |  |                  | 3,276   |  |                  |   | 3,277   |                |  |   | 3,302   | 
|Investment properties (Note 5)                                        |  |                  | 5,313   |  |                  |   | 4,544   |                |  |   | 4,546   | 
|Invested assets                                                       |  |                  | 116,661 |  |                  |   | 108,994 |                |  |   | 108,168 | 
|Other assets (Note 8)                                                 |  |                  | 2,885   |  |                  |   | 2,884   |                |  |   | 2,916   | 
|Reinsurance assets (Note 12)                                          |  |                  | 3,277   |  |                  |   | 3,855   |                |  |   | 3,343   | 
|Deferred tax assets (Note 22)                                         |  |                  | 1,648   |  |                  |   | 980     |                |  |   | 1,312   | 
|Property and equipment (Note 9)                                       |  |                  | 546     |  |                  |   | 492     |                |  |   | 499     | 
|Intangible assets (Note 10)                                           |  |                  | 885     |  |                  |   | 896     |                |  |   | 926     | 
|Goodwill (Note 10)                                                    |  |                  | 3,942   |  |                  |   | 4,200   |                |  |   | 4,590   | 
|Total general fund assets                                             |  |                  | 129,844 |  |                  |   | 122,301 |                |  |   | 121,754 | 
|Investments for account of segregated fund holders (Note 24)          |  |                  | 88,183  |  |                  |   | 87,946  |                |  |   | 80,548  | 
|Total assets                                                          |  | $                | 218,027 |  |                  | $ | 210,247 |                |  | $ | 202,302 | 
|Liabilities and equity                                                |  |                  |         |  |                  |   |         |                |  |   |         | 
|Liabilities                                                           |  |                  |         |  |                  |   |         |                |  |   |         | 
|Insurance contract liabilities (Note 11)                              |  | $                | 96,374  |  |                  | $ | 88,056  |                |  | $ | 86,856  | 
|Investment contract liabilities (Note 11)                             |  |                  | 3,073   |  |                  |   | 4,143   |                |  |   | 4,915   | 
|Derivative liabilities (Notes 5 and 6)                                |  |                  | 1,059   |  |                  |   | 718     |                |  |   | 1,294   | 
|Deferred tax liabilities (Note 22)                                    |  |                  | 7       |  |                  |   | 39      |                |  |   | 12      | 
|Other liabilities (Note 13)                                           |  |                  | 8,011   |  |                  |   | 6,738   |                |  |   | 6,693   | 
|Senior debentures (Note 14)                                           |  |                  | 2,149   |  |                  |   | 2,151   |                |  |   | 2,151   | 
|Innovative capital instruments (Note 14)                              |  |                  | 695     |  |                  |   | 1,644   |                |  |   | 1,644   | 
|Subordinated debt (Note 15)                                           |  |                  | 2,746   |  |                  |   | 2,741   |                |  |   | 3,048   | 
|Total general fund liabilities                                        |  |                  | 114,114 |  |                  |   | 106,230 |                |  |   | 106,613 | 
|Insurance contracts for account of segregated fund holders (Note 24)  |  |                  | 82,650  |  |                  |   | 81,931  |                |  |   | 74,293  | 
|Investment contracts for account of segregated fund holders (Note 24) |  |                  | 5,533   |  |                  |   | 6,015   |                |  |   | 6,255   | 
|Total liabilities                                                     |  | $                | 202,297 |  |                  | $ | 194,176 |                |  | $ | 187,161 | 
|Equity                                                                |  |                  |         |  |                  |   |         |                |  |   |         | 
|Issued share capital and contributed surplus                          |  | $                | 10,340  |  |                  | $ | 9,517   |                |  | $ | 8,948   | 
|Retained earnings and accumulated other comprehensive income          |  |                  | 5,390   |  |                  |   | 6,530   |                |  |   | 6,169   | 
|Non-controlling interests (Note 17)                                   |  |                  |        |  |                  |   | 24      |                |  |   | 24      | 
|Total equity                                                          |  | $                | 15,730  |  |                  | $ | 16,071  |                |  | $ | 15,141  | 
|Total liabilities and equity                                          |  | $                | 218,027 |  |                  | $ | 210,247 |                |  | $ | 202,302 | 
|                                                                      |  |                  |        
|Exchange rates at the end of the reporting periods:                   |  |                  |         |  |                  |   |         |                |  |   |         | 
|U.S. dollars                                                          |  |                  | 1.02    |  |                  |   | 1.00    |                |  |   | 1.05    | 
|U.K. pounds                                                           |  |                  | 1.58    |  |                  |   | 1.55    |                |  |   | 1.70    | 

The attached notes form part of these Consolidated Financial Statements.

Approved on behalf of the Board of Directors on February 15, 2012.



|                                      |  |                  
|------------------------------------- |  | -----------------
|LOGO                                  |  | LOGO             
|Dean A. Connor                        |  | John H. Clappison
|President and Chief Executive Officer |  | Director         



|                                                    |  |                                   |  | 
|--------------------------------------------------- |  | --------------------------------- |  | 
|82    Sun Life Financial Inc.    Annual Report 2011 |  | Consolidated Financial Statements |  | 



---

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY





|                                                                         |  |      |        |  |      |   |        | 
|------------------------------------------------------------------------ |  | ---- | ------ |  | ---- | - | ------ | 
|For the years ended December 31, (in millions of Canadian dollars)       |  | 2011 |        |  | 2010 |  
|Shareholders:                                                            |  |      |        |  |      |   |        | 
|Preferred shares (Note 16)                                               |  |      |        |  |      |   |        | 
|Balance, beginning of year                                               |  | $    | 2,015  |  |      | $ | 1,741  | 
|Issued                                                                   |  |      | 500    |  |      |   | 280    | 
|Issuance cost, net of taxes                                              |  |      | (12)   |  |      |   | (6)    | 
|Balance, end of year                                                     |  |      | 2,503  |  |      |   | 2,015  | 
|Common shares                                                            |  |      |        |  |      |   |        | 
|Balance, beginning of year                                               |  |      | 7,407  |  |      |   | 7,126  | 
|Stock options exercised (Note 20)                                        |  |      | 48     |  |      |   | 18     | 
|Issued to non-controlling interests (Note 17)                            |  |      | 37     |  |      |   |       | 
|Issued under dividend reinvestment and share purchase plan (Note 16)     |  |      | 243    |  |      |   | 263    | 
|Balance, end of year                                                     |  |      | 7,735  |  |      |   | 7,407  | 
|Contributed surplus (Note 20)                                            |  |      |        |  |      |   |        | 
|Balance, beginning of year                                               |  |      | 95     |  |      |   | 81     | 
|Share-based payments                                                     |  |      | 13     |  |      |   | 17     | 
|Stock options exercised                                                  |  |      | (6)    |  |      |   | (3)    | 
|Balance, end of year                                                     |  |      | 102    |  |      |   | 95     | 
|Retained earnings                                                        |  |      |        |  |      |   |        | 
|Balance, beginning of year                                               |  |      | 6,489  |  |      |   | 5,898  | 
|Net Income (loss)                                                        |  |      | (200)  |  |      |   | 1,499  | 
|Dividends on common shares                                               |  |      | (829)  |  |      |   | (811)  | 
|Dividends on preferred shares                                            |  |      | (100)  |  |      |   | (93)   | 
|Change due to transactions with non-controlling interests (Note 17)      |  |      | (141)  |  |      |   | (4)    | 
|Balance, end of year                                                     |  |      | 5,219  |  |      |   | 6,489  | 
|Accumulated other comprehensive income (loss), net of taxes              |  |      |        |  |      |   |        | 
|Unrealized gains (losses) on available-for-sale assets                   |  |      | 387    |  |      |   | 107    | 
|Unrealized cumulative translation differences, net of hedging activities |  |      | (505)  |  |      |   |       | 
|Unrealized gains (losses) on transfers to investment properties          |  |      | 6      |  |      |   |       | 
|Unrealized gains on derivatives designated as cash flow hedges           |  |      | 38     |  |      |   | 55     | 
|Balance, beginning of year                                               |  |      | (74)   |  |      |   | 162    | 
|Total other comprehensive income (loss) for the year                     |  |      | 122    |  |      |   | (236)  | 
|Balance, end of year                                                     |  |      | 48     |  |      |   | (74)   | 
|Total shareholders equity, end of year                                  |  | $    | 15,607 |  |      | $ | 15,932 | 
|Participating policyholders:                                             |  |      |        |  |      |   |        | 
|Retained earnings                                                        |  |      |        |  |      |   |        | 
|Balance, beginning of year                                               |  | $    | 117    |  |      | $ | 109    | 
|Net Income (loss)                                                        |  |      | 7      |  |      |   | 8      | 
|Balance, end of year                                                     |  |      | 124    |  |      |   | 117    | 
|Accumulated other comprehensive income (loss), net of taxes              |  |      |        |  |      |   |        | 
|Unrealized cumulative translation differences, net of hedging activities |  |      | (2)    |  |      |   |       | 
|Balance, beginning of year                                               |  |      | (2)    |  |      |   |       | 
|Total other comprehensive income (loss) for the year                     |  |      | 1      |  |      |   | (2)    | 
|Balance, end of year                                                     |  |      | (1)    |  |      |   | (2)    | 
|Total participating policyholders equity, end of year                   |  | $    | 123    |  |      | $ | 115    | 
|Non-controlling interests:(Note 17)                                      |  |      |        |  |      |   |        | 
|Balance, beginning of year                                               |  | $    | 24     |  |      | $ | 24     | 
|Net income (loss)                                                        |  |      | 9      |  |      |   | 11     | 
|Other changes in non-controlling interests                               |  |      | (33)   |  |      |   | (11)   | 
|Total non-controlling interests, end of year                             |  | $    |       |  |      | $ | 24     | 
|                                                                         |  |     
|Total equity                                                             |  | $    | 15,730 |  |      | $ | 16,071 | 

The attached notes form part of these Consolidated Financial Statements.



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| |  | --------------------------------- |  | ---------------------------------------------------
| |  | Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    83



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CONSOLIDATED STATEMENTS OF CASH FLOWS





|                                                                                                                                    |  |      |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|For the years ended December 31, (in millions of Canadian dollars)                                                                  |  | 2011 |         |   | 2010 |  
|Cash flows provided by (used in) operating activities                                                                               |  |      |         |   |      |   |         |  
|Income (loss) before income taxes                                                                                                   |  | $    | (631    | ) |      | $ | 1,871   |  
|Add interest expense related to financing activities                                                                                |  |      | 434     |   |      |   | 459     |  
|Operating items not affecting cash:                                                                                                 |  |      |         |   |      |   |         |  
|Increase (decrease) in contract liabilities                                                                                         |  |      | 6,381   |   |      |   | 4,096   |  
|(Increase) decrease in reinsurance assets                                                                                           |  |      | 595     |   |      |   | (773    | )
|Unrealized (gains) losses on investments                                                                                            |  |      | (4,094  | ) |      |   | (3,067  | )
|Impairment of goodwill and intangible assets (Note 10)                                                                              |  |      | 307     |   |      |   | 7       |  
|Gain on sale of life retrocession business (Note 3)                                                                                 |  |      |        |   |      |   | (97     | )
|Other non-cash items                                                                                                                |  |      | (117    | ) |      |   | (20     | )
|Operating cash items:                                                                                                               |  |      |         |   |      |   |         |  
|Deferred acquisition costs                                                                                                          |  |      | (43     | ) |      |   | (45     | )
|Realized (gains) losses on investments                                                                                              |  |      | (765    | ) |      |   | 205     |  
|Sales, maturities and repayments of investments                                                                                     |  |      | 96,809  |   |      |   | 77,762  |  
|Purchases of investments                                                                                                            |  |      | (97,464 | ) |      |   | (80,744 | )
|Change in policy loans                                                                                                              |  |      | 32      |   |      |   | (58     | )
|Income taxes refund (paid)                                                                                                          |  |      | (166    | ) |      |   | 143     |  
|Other cash items                                                                                                                    |  |      | 1,436   |   |      |   | (685    | )
|Net cash provided by (used in) operating activities                                                                                 |  |      | 2,714   |   |      |   | (946    | )
|Cash flows provided by (used in) investing activities                                                                               |  |      |         |   |      |   |         |  
|(Purchase) sale of property and equipment (Note 9)                                                                                  |  |      | (120    | ) |      |   | (74     | )
|Transactions with associates and joint ventures and other investing activities (Note 26)                                            |  |      | (87     | ) |      |   | (51     | )
|Purchase of shares from non-controlling interests (Note 17)                                                                         |  |      | (51     | ) |      |   | (4      | )
|Net cash paid on sale of life retrocession business (Note 3)                                                                        |  |      |        |   |      |   | (262    | )
|Other investing activities                                                                                                          |  |      | (64     | ) |      |   | (26     | )
|Net cash provided by (used in) investing activities                                                                                 |  |      | (322    | ) |      |   | (417    | )
|Cash flows provided by (used in) financing activities                                                                               |  |      |         |   |      |   |         |  
|Borrowed funds                                                                                                                      |  |      | 35      |   |      |   | (33     | )
|Issuance of senior financing, senior debentures and subordinated debentures (Notes 13, 14 and 15)                                   |  |      | 297     |   |      |   | 76      |  
|Collateral on senior financing, senior debentures and subordinated debentures (Notes 13, 14 and 15)                                 |  |      | (25     | ) |      |   | 14      |  
|Redemption of senior financing, senior debentures, subordinated debentures and innovative capital instruments (Notes 13, 14
and 15) |  |      | (1,250  | ) |      |   | (300    | )
|Issuance of preferred shares (Note 16)                                                                                              |  |      | 485     |   |      |   | 271     |  
|Issuance of common shares on exercise of stock options (Note 16)                                                                    |  |      | 42      |   |      |   | 15      |  
|Dividends paid on common and preferred shares                                                                                       |  |      | (679    | ) |      |   | (634    | )
|Interest expense paid                                                                                                               |  |      | (355    | ) |      |   | (450    | )
|Net cash provided by (used in) financing activities                                                                                 |  |      | (1,450  | ) |      |   | (1,041  | )
|Changes due to fluctuations in exchange rates                                                                                       |  |      | 10      |   |      |   | (120    | )
|Increase (decrease) in cash and cash equivalents                                                                                    |  |      | 952     |   |      |   | (2,524  | )
|Net cash and cash equivalents, beginning of period                                                                                  |  |      | 3,401   |   |      |   | 5,925   |  
|Net cash and cash equivalents, end of period                                                                                        |  |      | 4,353   |   |      |   | 3,401   |  
|Short-term securities, end of period                                                                                                |  |      | 4,378   |   |      |   | 4,853   |  
|Net cash and cash equivalents and short-term securities, end of period (Note 5)                                                     |  | $    | 8,731   |   |      | $ | 8,254   |  

The attached notes form part of these Consolidated Financial Statements.



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|84    Sun Life Financial Inc.    Annual Report 2011 |  | Consolidated Financial Statements |  | 



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Notes to the Consolidated Financial Statements





(Amounts in millions of Canadian dollars except for per share amounts and where otherwise stated)

1. Accounting
Policies





1.A Significant Accounting Policies

Description of Business

Sun Life Financial Inc. (SLF Inc.) is a publicly traded company domiciled in Canada and is the holding company of Sun Life Assurance Company of Canada
(Sun Life Assurance). Both companies are incorporated under the Insurance Companies Act of Canada, and are regulated by the Office of the Superintendent of Financial Institutions, Canada (OSFI). SLF Inc. and its subsidiaries
are collectively referred to as us, our, ours, we or the Company. We are an internationally diversified financial services organization providing savings, retirement and pension products,
and life and health insurance to individuals and groups through our operations in Canada, the United States, the United Kingdom and Asia. We also operate mutual fund and investment management businesses, primarily in Canada, the United States and
Asia.

Statement of Compliance

We prepare our
Consolidated Financial Statements using International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and the former International Accounting Standards Committee, which includes
International Financial Reporting Standards, International Accounting Standards (IAS), and interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC) and the former Standing
Interpretations Committee (SIC). These various standards are collectively referred to as IFRS. Our Consolidated Financial Statements are prepared in accordance with IFRS 1 First Time Adoption of International Financial
Reporting Statements. The accounting policies have been applied consistently within our Consolidated Financial Statements and our opening Consolidated Statement of Financial Position at the transition date of January 1, 2010 (the
Transition Date) prepared for the purposes of transition to IFRS, which are our first annual financial statements in accordance with IFRS. Note 2 contains the required disclosures with regards to our first time adoption of IFRS and the
differences from our previous basis of accounting, Canadian generally accepted accounting principles (GAAP).

Basis of Presentation

Our Consolidated Statements of Financial Position have been presented in the order of liquidity and each statement of financial position line item
includes both current and non-current balances, as applicable.

We have defined our reportable segments and the amounts disclosed for those segments
based on our management structure and the manner in which our internal financial reporting is conducted. Transactions between segments are executed and priced on an arms-length basis in a manner similar to transactions with third parties.

The significant accounting policies used in the preparation of our Consolidated Financial Statements are summarized below and are applied consistently
by us.

Critical Estimates, Judgments and Provisions

The preparation of our Consolidated Financial Statements requires us to make estimates, judgments and provisions that affect the application of policies and reported amounts of assets, liabilities, revenue and
expenses. Actual results will differ from those estimates. Areas of significant accounting estimates and judgments include the measurement and classification of insurance contract liabilities and investment contract liabilities, determination of
fair value of financial instruments, impairment of financial instruments, impairment of goodwill and intangible assets, determination of fair value of share-based payments, and determination of provisions and liabilities for pension plans,
contingencies and other post retirement benefits, restructuring and taxes. We also use judgment when determining functional currencies and whether the substance of our relationship with a special purpose entity (SPE), subsidiary, joint
venture or associate constitutes control, joint control or significant influence. Details on the estimates and judgments are further described in the relevant accounting policies in these Notes.

Other than insurance contract liabilities and investment contract liabilities, provisions are recognized for present legal or constructive obligations as a result
of a past event, if it is probable that they will result in an outflow of economic resources and the amount can be reliably estimated. The amounts recognized for these provisions are the best estimates of the expenditures required to settle the
present obligations or to transfer them to a third party at the statement of financial position date, considering all the inherent risks and uncertainties, as well as the time value of money. These provisions are reviewed as relevant facts and
circumstances change. The unwinding of the effect of discounting is recorded in our Consolidated Statements of Operations as interest expense. Provisions included in insurance contract liabilities and investment contract liabilities are determined
in accordance with Canadian accepted actuarial practice.

Consolidation, Joint Ventures and Investments in Associates

Our Consolidated Financial Statements include the results of operations and the financial position of entities controlled by SLF Inc. or its subsidiaries, including
certain investment funds and SPEs, after intercompany balances and transactions have been eliminated. Control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Entities
are fully consolidated from the date control is obtained by SLF Inc. or one of its subsidiaries, and deconsolidated on the date control ceases. The acquisition method is used to account for the acquisition of a subsidiary at the date that control is
obtained, with the difference between the acquisition cost of the subsidiary and the fair value of the subsidiarys net identifiable assets acquired recorded as goodwill. Equity interests held by external parties are shown as non-controlling
interests and transactions with non-controlling interest holders are recorded in our Consolidated Statements of Changes in Equity.



| |  |                                            |  |                                                    
| |  | ------------------------------------------ |  | ---------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    85



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The equity method is used to account for joint ventures and entities over which SLF Inc. or its subsidiaries are able
to exercise significant influence. Joint control is the contractually agreed sharing of control and exists only when the strategic and operating decisions require the unanimous consent of the parties sharing control. Significant influence is the
power to participate in the financial and operating policies of an investee but is not control or joint control over those policies. Significant influence is generally presumed to exist when SLF Inc. or its subsidiaries holds greater than 20% but
less than 50% of the voting power of the investee unless it can be demonstrated that this is not the case.

Foreign Currency Translation

Translation of Transactions in Foreign Currencies

The individual financial statements of SLF Inc. and its subsidiaries, joint ventures and associates are prepared in the currency in which they conduct their ordinary course of business, which is referred to as
functional currency. Transactions occurring in currencies other than the functional currency are translated to the functional currency using the spot exchange rates at the dates of the transactions.

At the statement of financial position date, monetary assets and liabilities in foreign currencies are translated to the functional currency at the exchange rate at
the statement of financial position date. Non-monetary assets and liabilities in foreign currencies that are held at fair value are translated at the statement of financial position date, while non-monetary assets and liabilities that are measured
at historical cost are translated using the exchange rate at the date of the transaction.

The resulting exchange differences from the translation of
monetary items and non-monetary items held at fair value, with changes in fair value recorded to income, are recognized in our Consolidated Statements of Operations. For monetary assets classified as available-for-sale (AFS), translation
differences calculated on amortized cost are recognized in our Consolidated Statements of Operations and other changes in carrying amount are recognized in other comprehensive income (OCI). The exchange differences from the translation
of non-monetary items classified as AFS are recognized in OCI.

Translations to the Presentation Currency

In preparing our Consolidated Financial Statements, the financial statements of foreign operations are translated from their respective functional currencies to
Canadian dollars, our presentation currency. Assets and liabilities are translated at the closing exchange rate at the statement of financial position date, and income and expenses are translated using the average exchange rates. The accumulated
gains or losses arising from translation of functional currencies to the presentation currency, net of the effect of any hedges, are included as a separate component of OCI within equity. Upon disposal of a foreign operation that includes loss of
control, significant influence or joint control over a foreign operation, the cumulative exchange gain or loss related to that foreign operation is recognized in income.

Invested Assets

Financial Assets Excluding Derivative Financial Instruments

Financial assets include cash, cash equivalents and short-term securities, debt securities, equity securities, mortgages and loans, the financial assets included in
other invested assets and policy loans. Financial assets are designated as financial assets at fair value through profit or loss (FVTPL) or AFS assets, or classified as loans and receivables at initial recognition. The following table
summarizes the financial assets included in our Consolidated Statements of Financial Position and the asset classifications applicable to these assets.



|                                                   |  |                      
|-------------------------------------------------- |  | ---------------------
|Consolidated Statements of Financial Position line |  | Asset classification 
|Cash, cash equivalents and short-term securities   |  | FVTPL                
|Debt securities                                    |  | FVTPL and AFS        
|Equity securities                                  |  | FVTPL and AFS        
|Mortgages and loans                                |  | Loans and receivables
|Other invested assets                              |  | FVTPL and AFS        
|Policy loans                                       |  | Loans and receivables

Mortgages and loans include mortgage loans and debt securities not quoted in an active market. Financial assets included in Other
invested assets include investments in limited partnerships, segregated funds and mutual funds. Cash equivalents are highly liquid instruments with an original term to maturity of three months or less, while short-term securities have an original
term to maturity exceeding three months but less than one year. Policy loans are fully secured by the policy values on which the loans are made. The accounting for each asset classification is described in the following sections.

i) Initial Recognition and Subsequent Measurement

Generally, debt securities, equity securities and other invested assets supporting our insurance contract liabilities or investment contract liabilities measured at
fair value are designated as FVTPL, while debt securities, equity securities and other invested assets not supporting our insurance contract liabilities or supporting investment contract liabilities measured at amortized cost are designated as AFS.
Mortgages and loans and policy loans are classified as loans and receivables. Financial assets are recognized in the Consolidated Statements of Financial Position on their trade dates, which are the dates that we commit to purchase or sell the
assets.

Financial Assets at Fair Value Through Profit or Loss

Financial assets at FVTPL include financial assets that are held for trading (HFT), as well as financial assets that have been designated as FVTPL at initial recognition. A financial asset is classified
as HFT if it is acquired principally for the purpose of selling in the near term. A financial asset can be designated as FVTPL if it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from
measuring assets or liabilities or recognizing the gains and losses on them on different bases; or if a group of financial assets, financial liabilities or both, is managed and its performance is evaluated on a fair value basis. Cash equivalents and
short-term securities have been classified as HFT. Debt securities, equity securities and other invested assets supporting insurance contract liabilities or investment contract liabilities measured at fair value have been designated as FVTPL. This



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|--------------------------------------------------- |  | ------------------------------------------ |  | 
|86    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



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designation has been made to eliminate or significantly reduce the measurement inconsistency that would arise due to the measurement of the insurance contract or investment contract liabilities,
which are based on the carrying value of the assets supporting those liabilities.

Financial assets classified as FVTPL are recorded at fair value in our
Consolidated Statements of Financial Position and transaction costs are expensed immediately. Changes in fair value as well as realized gains and losses on sale are recorded in Change in fair value through profit or loss assets and liabilities in
our Consolidated Statements of Operations. Interest income earned and dividends received are recorded in Interest and other investment income in our Consolidated Statements of Operations. Because the carrying value of insurance contract liabilities
is determined by reference to the assets supporting those liabilities, changes in the insurance contract liabilities generally offset changes in the fair value of debt securities classified as FVTPL, except for changes that are due to impairment.
The majority of equity securities and other invested assets classified as FVTPL are held to support products where investment returns are passed through to policyholders and therefore, changes in the fair value of those assets are significantly
offset by changes in insurance contract liabilities.

Available-for-Sale Financial Assets

Financial assets classified as AFS are recorded at fair value in our Consolidated Statements of Financial Position and transaction costs are capitalized on initial
recognition. Transaction costs for debt securities are recognized in income using the effective interest method, while transaction costs for equity securities and other invested assets are recognized in income when the asset is derecognized. Changes
in fair value are recorded to unrealized gains and losses in OCI. For foreign currency translation, exchange differences calculated on the amortized cost of AFS debt securities are recognized in income and other changes in carrying amount are
recognized in OCI. The exchange differences from the translation of AFS equity securities and other invested assets are recognized in OCI. Interest income earned and dividends received are recorded in Interest and other investment income in our
Consolidated Statements of Operations. Net impairment losses and realized gains and losses on the sale of assets classified as AFS are reclassified from accumulated OCI to Net gains (losses) on available-for-sale assets in the Consolidated
Statements of Operations.

Loans and Receivables

Loans and receivables are carried at amortized cost using the effective interest method. Transaction costs for mortgages and loans are capitalized on initial
recognition and are recognized in income using the effective interest method. Realized gains and losses on the sale of mortgages and loans and interest income earned, are recorded in Interest and other investment income in our Consolidated
Statements of Operations.

ii) Derecognition

A
financial asset is derecognized when the contractual rights to its cash flows expire, or we have transferred our economic rights to the asset and substantially all risks and rewards. In instances where substantially all risks and rewards have not
been transferred or retained, the assets are derecognized if the asset is not controlled through rights to sell or pledge the asset.

iii) Impairment

Financial assets are assessed for impairment on a quarterly basis. Financial assets are impaired and impairment losses are incurred if there is
objective evidence of impairment as a result of one or more loss events and that event has an impact on the estimated future cash flows that can be reliably estimated. Objective evidence of impairment generally includes significant financial
difficulty of the issuer, including actual or anticipated bankruptcy or defaults and delinquency in payments of interest or principal or disappearance of an active market for that financial asset. Objective evidence of impairment for an investment
in an equity instrument or other invested asset also includes, but is not limited to, the financial condition and near-term prospects of the issuer, including information about significant changes with adverse effects that have taken place in the
technological, market, economic or legal environment in which the issuer operates that may indicate that the carrying amount will not be recovered, and a significant or prolonged decline in the fair value of an equity instrument or other invested
asset below its cost.

Financial Assets at Fair Value Through Profit or Loss

Since financial assets classified as FVTPL are carried at fair value with changes in fair value recorded to income, any reduction in value of the assets due to impairment is already reflected in investment income.
However, the impairment of expected future cash flows from assets classified as FVTPL generally impacts the change in insurance contract liabilities due to the impact of impairment on future cash flows.

Available-for-Sale Financial Assets

When there is objective
evidence that a financial asset classified as AFS is impaired, the loss in accumulated OCI is reclassified to Net gains (losses) on available-for-sale assets in our Consolidated Statements of Operations. Following impairment loss recognition, a debt
security continues to be carried at fair value with changes in fair value recorded in OCI, and it is assessed quarterly for further impairment loss or reversal. Subsequent losses on an impaired equity security or other invested asset, including
losses relating to foreign currency changes, are reclassified from OCI to income in subsequent reporting periods until the asset is derecognized. Once an impairment loss on a debt security classified as AFS is recorded to income, any reversal of
impairment loss through income occurs only when the recovery in fair value is objectively related to an event occurring after the impairment was recognized. Impairment losses on an equity security or other invested asset classified as AFS are not
reversed through income.

Loans and Receivables

If an impairment loss on an individual mortgage or loan has been incurred, the amount of the loss is measured as the difference between the assets carrying
amount and the present value of the estimated future cash flows discounted at the assets original effective interest rate. For collateralized financial assets, the present value of the estimated future cash flows reflects the cash flows that
may result from foreclosure less costs to sell,whether or not foreclosure is probable. If no evidence of impairment exists for an individually assessed mortgage or loan, it is included in a group of loans with similar credit risk
characteristics and collectively assessed for impairment.

When an impairment loss has been incurred, the carrying amount of the asset is reduced through
the use of an allowance account, and the amount of the loss is recognized in income. If the impairment loss subsequently decreases and the decrease can be related



| |  |                                            |  |                                                    
| |  | ------------------------------------------ |  | ---------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    87



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objectively to an event occurring after the initial impairment charge was recognized, the previous impairment charge is reversed by adjusting the allowance account and the reversal is recognized
in income. Interest income is recognized on impaired mortgages and loans using the effective interest rate method and it is based on the estimated future cash flows used to measure the impairment loss.

Changes in the allowance account, other than write-offs net of recoveries, are charged against Interest and other investment income in our Consolidated Statements
of Operations. Write offs, net of recoveries, are deducted from the allowance account when there is no realistic prospect of recovery, which is typically not before de-recognition of the asset through foreclosure or sale.

Derivative Financial Instruments

All derivative financial
instruments are recorded at fair value in our Consolidated Statements of Financial Position. Derivatives with a positive fair value are recorded as Derivative assets while derivatives with a negative fair value are recorded as Derivative
liabilities.

The accounting for the changes in fair value of a derivative instrument depends on whether or not it is designated as a hedging instrument
for accounting purposes. Changes in fair value of derivatives that are not designated as hedging instruments for accounting purposes, which are defined as derivative investments, and embedded derivatives that are bifurcated are recorded in Change in
fair value through profit or loss assets and liabilities in our Consolidated Statements of Operations. Income earned or paid on these derivatives is recorded in Interest and other investment income in our Consolidated Statements of Operations. Hedge
accounting is applied to certain derivatives to reduce income statement volatility. When certain qualification criteria are met, hedge accounting recognizes the offsetting effects of hedging instruments and hedged items in income or defers the
effective portion of changes in fair value of hedging instruments in OCI until there is a recognition event, such as the occurrence of a forecasted transaction or the disposal of a net investment in a foreign subsidiary. All hedging relationships
are documented at inception and hedge effectiveness is assessed on a quarterly basis.

Fair Value Hedges

Certain interest rate swaps and foreign currency forwards are designated as fair value hedges of the interest rate or foreign exchange rate risks associated with
AFS assets. Changes in fair value of the derivatives are recorded in Interest and other investment income in our Consolidated Statements of Operations. The change in fair value of the AFS assets related to the hedged risk is reclassified from OCI to
income. As a result, ineffectiveness, if any, is recognized in income to the extent that changes in fair value of the derivatives and AFS assets do not offset. Interest income earned and paid on the AFS assets and swaps in the fair value hedging
relationships are recorded in Interest and other investment income in the Consolidated Statements of Operations.

Cash Flow Hedges

Certain equity forwards are designated as cash flow hedges of the anticipated payments of awards under certain share-based payment plans. Changes in fair value
based on spot price changes are recorded to OCI, with the spot to forward differential and any ineffectiveness recognized in Interest and other investment income in the Consolidated Statements of Operations. A portion of the amount included in OCI
related to these forwards is reclassified to income as a component of operating expenses as the liabilities are accrued for the share-based payment awards over the vesting periods.

Net Investment Hedges

Certain swaps are designated as net investment hedges to reduce foreign exchange
fluctuations associated with certain net investments in funding of foreign subsidiaries. Changes in fair value of these swaps based on forward prices are recorded to foreign exchange gains and losses in OCI, offsetting the respective foreign
currency translation gains or losses arising from the underlying net investments in foreign subsidiaries. All amounts recorded to or from OCI are net of related taxes. If the hedging relationship is terminated, amounts deferred in accumulated OCI
continue to be deferred until there is a disposal or partial disposal of our net investment in the hedged foreign subsidiary. Interest earned and paid on the swaps is recorded in Interest and other investment income in the Consolidated Statements of
Operations.

Embedded Derivatives

An embedded
derivative is a component of a host contract that modifies the cash flows of the host in a manner similar to a derivative, according to a specified interest rate, financial instrument price, foreign exchange rate underlying index or other variable.
We are required to separate embedded derivatives from the host contract, if an embedded derivative has economic and risk characteristics that are not closely related to the host contract, meets the definition of a derivative, and the combined
contract is not measured at fair value with changes recognized in income. If an embedded derivative is separated from the host contract, it will be accounted for as a derivative. For further details on embedded derivatives in insurance contracts,
see the Insurance Contract Liabilities accounting policy in this Note.

Investment Properties

Investment properties are real estate held to earn rental income or for capital appreciation. Properties held to earn rental income or for capital appreciation that
have an insignificant portion that is owner-occupied are classified as investment properties. Properties that do not meet these criteria are classified as property and equipment. Expenditures related to ongoing maintenance of properties incurred
subsequent to acquisition are expensed. Investment properties are initially recognized at transaction price including transaction costs in our Consolidated Statements of Financial Position. These properties are subsequently measured at fair value
with changes in value recorded to Change in fair value through profit or loss assets and liabilities in our Consolidated Statements of Operations. Fair value is supported by market evidence, as assessed by qualified appraisers. All assets are
appraised annually and reviewed quarterly for material changes. External appraisals are obtained at least once every two years. In all cases, the valuation methodology used is a recognized or accepted approach in accordance with the valuation
standards of the Appraisal Institutes of Canada or the United States.

Other Invested Assets  Non-Financial Assets

Other invested assets also include non-financial assets such as investments in associates and joint ventures, which are accounted for using the equity method.
Investments in associates and joint ventures are initially recorded at cost. Subsequent adjustments to the investment are made for our share of net income or loss and our share of OCI. Our share of net income is recorded in Interest and other
investment income in our Consolidated Statements of Operations and our share of OCI is recorded in our Consolidated Statements of Comprehensive Income (Loss). Impairment losses on equity method investments are recognized when events or changes in
circumstances indicate that they are impaired. The impairment loss recognized is the difference between the carrying amount and the recoverable amount.



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|88    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



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Other Assets

Other assets include receivables, deferred acquisition costs, investment income due and accrued as well as prepaid expenses.

Deferred acquisition costs arising from service contracts or from service components of investment contracts are amortized over the expected life of the contracts
based on the future expected fees.

Reinsurance Assets

In the normal course of business, we use reinsurance to limit exposure to large losses. We have a retention policy which requires that such arrangements be placed with well-established, highly rated reinsurers.
Reinsurance assets are measured consistently with the amounts associated with the underlying insurance contracts and in accordance with the terms of each reinsurance contract. Amounts due to or from reinsurers with respect to premiums received or
paid claims are included in Other assets and Other liabilities in the Consolidated Statements of Financial Position. Premiums for reinsurance ceded are presented as premiums ceded in the Consolidated Statements of Operations. Reinsurance expenses
(recoveries), as presented in our Consolidated Statements of Operations, denote reinsurance expenses and expense recoveries resulting from reinsurance agreements.

Reinsurance assets are subject to impairment testing. If impaired, the carrying value is reduced, and an impairment loss is recognized in Reinsurance expenses (recoveries) in our Consolidated Statements of
Operations. Impairment occurs when objective evidence exists (as a result of an event) after the initial recognition of the reinsurance asset indicating that not all amounts due under the terms of the contract will be received, and the impairment
can be reliably measured.

Reinsurance assumed is accounted for as an insurance, investment or service contract depending on the underlying nature of the
agreement and if it meets the definition of an insurance, investment or service contract. For the accounting for these types of contracts, see the respective policy section in this Note.

Property and Equipment

Owner-occupied properties and all other items classified as property and equipment are
carried at historical cost less accumulated depreciation and impairment.

Borrowing costs incurred from the time of acquisition to the time when
substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete are capitalized as part of the cost of the property, while borrowing costs and repairs and maintenance incurred subsequent to the
acquisition of the property are charged through operating expenses during the period in which they are incurred. Other subsequent costs are included in the assets carrying amount or recognized as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to us and the cost of the item can be measured reliably.

Depreciation of
property and equipment, excluding land which is not depreciated, is calculated using a straight-line method and amortized to their residual values over their estimated useful lives as follows:



|                                                                        |  |  |                | 
|----------------------------------------------------------------------- |  |  | -------------- | 
|Owner-occupied properties                                               |  |  | 25 to 49 years | 
|Furniture, computers, other office equipment and leasehold improvements |  |  | 2 to 10 years  | 

The assets residual values, useful lives and method of depreciation are reviewed regularly, at a minimum at the end of each
fiscal year, and adjusted if appropriate. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is considered to be impaired and it is written down immediately to its recoverable amount. In the event of an
improvement in the estimated recoverable amount, the related impairment may be reversed. Gains and losses on disposal of property and equipment are determined by reference to their carrying amount, and are recognized in the Consolidated Statements
of Operations.

Intangible Assets

Intangible
assets consist of finite-life and indefinite-life intangible assets. Finite-life intangible assets are amortized on a straight-line basis over varying periods of up to 40 years, and are charged through operating expenses. The useful lives of
finite-life intangible assets are reviewed annually, and the amortization is adjusted as necessary. Indefinite-life intangibles are not amortized, and are assessed for impairment annually or more frequently if events or changes in circumstances
indicate that the asset may be impaired. Impairment is assessed by comparing the carrying values of the indefinite-life intangible assets to their recoverable amounts. If the carrying values of the indefinite-life intangibles exceed their
recoverable amounts, these assets are considered impaired, and a charge for impairment is recognized in our Consolidated Statements of Operations.

Goodwill

Goodwill represents the excess of the cost of an
acquisition over the fair value of the net identifiable tangible and intangible assets of the acquired businesses. It is carried at original cost less any impairment subsequently incurred. Goodwill is assessed for impairment annually or more
frequently if events or circumstances occur that may result in the recoverable amount of a cash generating unit (CGU) falling below its carrying value. A CGU is the smallest identifiable group of assets that generates cash inflows that
are largely independent of cash inflows from other groups of assets. The goodwill balances are allocated to either individual or groups of CGUs that are expected to benefit from the synergies of the business combination. Goodwill impairment is
quantified by comparing a CGUs carrying value to its recoverable amount, which is the higher of fair value less cost to sell and value in use. Impairment losses are recognized immediately and may not be reversed in future periods.

Insurance Contract Liabilities

Insurance contracts are
contracts under which we accept significant insurance risk from a policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. The presence of significant insurance risk in
individual contracts is assessed by reviewing books of contracts with homogeneous risk features.

As discussed in the Segregated Funds section of this
Note, certain insurance contracts under which the policyholder bears the risks associated with the underlying investments are classified as Insurance contracts for account of segregated fund holders in our Consolidated Statements of Financial
Position.



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| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    89



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Insurance contract liabilities, including policy benefits payable and provisions for policyholder dividends, are
determined in accordance with Canadian accepted actuarial practice and any requirements of OSFI. As confirmed by guidance provided by the Canadian Institute of Actuaries (CIA), the current Canadian Asset Liability Method
(CALM) of valuation of insurance contract liabilities satisfies the IFRS 4 Insurance Contracts requirements for eligibility for use under IFRS. Under CALM, liabilities are set equal to the statement of financial position value of
the assets required to support them.

Some insurance contracts contain discretionary participation features (DPF), whereby the policyholder
has the right to receive potentially significant additional benefits based on the actual investments and other experience on a block of similar contracts. IFRS allows the non-guaranteed, or participating, elements of such contracts to be classified
as either a liability or as equity, depending on the nature of our obligation to the policyholder. The contracts issued by us contain constructive obligations to the policyholder with respect to the DPF of the contracts. We have therefore elected to
classify these features as a liability, consistent with accounting treatment under CALM, and in accordance with guidance provided by the CIA.

Derivatives embedded in insurance contracts are treated as separate derivatives and measured at fair value with changes in fair value recognized in income, except
when the embedded derivative itself meets the definition of an insurance contract under IFRS, or when the risks and characteristics are closely related to those of the host contracts or when the derivative is the policyholders option to
surrender an insurance contract for a fixed amount or an amount based on a fixed amount and an interest rate. The derivatives that have not been separated are accounted for as insurance contract liabilities.

Financial Liabilities

Investment Contract Liabilities

Contracts issued by us that do not transfer significant insurance risk, but do transfer financial risk from the policyholder to us, are financial
liabilities and are accounted for as investment contracts. Service components of investment contracts are treated as service contracts. For further details on how service components of investment contracts are treated, see the Service Contracts
accounting policy in this Note.

Liabilities for investment contracts without DPF are measured at FVTPL or amortized cost. Contracts recorded at FVTPL
are measured at fair value at inception and each subsequent reporting period. Contracts recorded at amortized cost are initially recognized at fair value, less transaction costs directly attributable to the issue of the contract. These liabilities
are derecognized when the obligation of the contract is discharged, cancelled or expired. At each subsequent period, the contracts are measured at amortized cost using the effective interest method. Changes in fair value of investment contract
liabilities recorded at FVTPL and amortization on contracts recorded at amortized cost are recorded as an Increase (decrease) in investment contract liabilities in our Consolidated Statements of Operations. Deposits collected from and payments made
to contract holders are recorded as an Increase and decrease in investment contract liabilities in our Consolidated Statements of Financial Position.

As
discussed in the Segregated Funds section of this Note, certain investment contracts under which the policyholder bears the risks associated with the underlying investments are classified as Investment contracts for account of segregated fund
holders in the Consolidated Statements of Financial Position.

The accounting for Investment contracts that contain DPF is described in the Insurance
Contract Liabilities section of this Note.

Other Liabilities

Other liabilities include accounts payable, bond purchase agreements, senior financing, provisions, and deferred income and are measured at amortized cost. Deferred income arises from investment contracts where
funds are received in advance of services provided.

Senior Debentures, Innovative Capital Instruments and Subordinated Debt

Senior debentures, innovative capital instruments and subordinated debt liabilities are recorded at amortized cost using the effective interest method. Transaction
costs are recorded as part of the liability and are recognized in income using the effective interest method. These liabilities are derecognized when the obligation of the contract is discharged, cancelled or expired.

Service Contracts

Contracts issued by us that do not
transfer significant insurance risk and do not transfer financial risk from the policyholder to us are classified as service contracts. Service components of investment contracts are also accounted for as service contracts. Fee income earned from
these contracts is described in the Premium and Fee Income Recognition accounting policy section of this Note. Deferred acquisition costs are described under the Other Assets accounting policy section of this Note. Where the cost of meeting the
obligations of the contract exceed the economic benefits expected to be received under it, a provision is set up in other liabilities.

Segregated
Funds

Segregated funds are products for which we issue a contract where the benefit amount is directly linked to the fair value of the investments
held in the particular segregated fund. Although the underlying assets are registered in our name and the segregated fund contract holder has no direct access to the specific assets, the contractual arrangements are such that the segregated fund
policyholder bears the risk and rewards of the funds investment performance. In addition, certain contracts include guarantees from us. We derive fee income from segregated funds, which is included in Fee income in our Consolidated Statements
of Operations. Policyholder transfers between general funds and segregated funds are included in Net transfers to (from) segregated funds in the Consolidated Statements of Operations. Deposits to segregated funds are reported as increases in
segregated funds liabilities and are not reported as revenues in our Consolidated Statements of Operations.

Investments for Account of Segregated
Fund Holders

Investments for account of segregated fund holders are recorded separately from the Total general fund assets in our Consolidated
Statements of Financial Position and are carried at fair value. Fair values are determined using quoted market values or, where quoted market values are not available, estimated fair values as determined by us.



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|90    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



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Insurance Contracts for Account of Segregated Fund Holders

Insurance contracts for account of segregated fund holders are recorded separately from the Total general fund liabilities in our Consolidated Statements of
Financial Position. Insurance contracts under which the segregated fund holders bear the risks associated with the underlying investments are classified as insurance contracts for account of segregated fund holders. The liabilities reported as
insurance contracts for account of segregated fund holders are measured at the aggregate of the policyholder account balances. Changes in the fair value of the invested assets of the segregated funds are recorded in net realized and unrealized gains
(losses) within the segregated fund and are not recorded in our Consolidated Statements of Operations.

Other assets and liabilities associated with
these insurance contracts, such as origination costs and the liabilities associated with guarantees provided by us, are included in general fund liabilities in Insurance contracts in the Consolidated Statements of Financial Position.

Investment Contracts for Account of Segregated Fund Holders

Investment contracts for account of segregated fund holders are recorded separately from the Total general fund liabilities in our Consolidated Statements of
Financial Position. Investment contracts under which the segregated fund holders bear the risks associated with the underlying investments are classified as investment contracts for account of segregated fund holders. The liabilities reported as
investment contracts for account of segregated fund holders are measured at the aggregate of the policyholder account balances.

Other liabilities
associated with these investment contracts, such as onerous contract provisions required for service components, are included with general fund liabilities in Investment contracts in the Consolidated Statements of Financial Position.

Income Taxes

Current income tax assets and liabilities for
the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. Deferred income tax is provided using the liability method on temporary differences at the statement of financial position
date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Current and deferred income tax relating to items recognized directly in equity is recognized in equity and not in our Consolidated
Statements of Operations. Interest and penalties payable to taxation authorities are recorded in Operating expenses in our Consolidated Statements of Operations.

Deferred income tax assets and liabilities are calculated based on income tax rates and laws that are expected to apply when the liability is settled or the asset is realized, which are normally those enacted or
considered substantively enacted at our Consolidated Statements of Financial Position dates. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses to the extent
that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures,
except where we control the timing of the reversal of the temporary difference and it is apparent that the temporary difference will not reverse in the foreseeable future. No deferred income tax asset or liability is recognized in relation to
temporary differences that arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, did not affect either the accounting profit or taxable profit or loss.
Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate to the same legal entity and the same
taxation authority and we intend either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

In determining the
impact of taxes, we are required to comply with Canadian accepted actuarial practice and IFRS. CALM requires that all projected cash flows associated with insurance contract liabilities, including income taxes, be included in the determination of
insurance contract liabilities. The insurance contract liabilities are therefore determined including all policy-related income tax effects on a discounted basis, and then adjusted for any related deferred income tax assets and liabilities held in
accordance with IFRS. The net result of this adjustment is to leave the discounting effect of the deferred income taxes associated with temporary differences on policy-related tax items in the insurance contract liabilities.

Pension Plans and Other Post-Retirement Benefits

For
defined benefit plans the present value of the defined benefit obligation is calculated by independent actuaries using the projected unit credit method, and actuarial assumptions that represent best estimates of future variables that will affect the
ultimate cost of these obligations. Plan assets are measured at fair value and are held in separate trustee administered funds. The difference between the fair value of the plan assets and the present value of the defined benefit obligation,
adjusted for any historic unrecognized actuarial gains or losses and past service cost is recognized on the Consolidated Statements of Financial Position as an asset or liability.

Actuarial gains and losses are accounted for using the corridor method. Actuarial gains and losses are amortized to income over the average remaining service period of active employees expected to receive benefits
under the plan, but only to the extent that such gains or losses exceed 10% of the greater of plan assets or the benefit obligation at the beginning of the year.

Dividends

Dividends payable to holders of shares of SLF Inc. are recognized in the period in which they are
authorized or approved. Dividends that have been reinvested in additional common shares under the Dividend Reinvestment and Share Purchase Plan (DRIP) are also reflected as dividends within retained earnings. Where SLF Inc. has issued
common shares from treasury under the DRIP, the additional shares have been reflected in common shares.

Premium and Fee Income Recognition

Gross premiums for all types of insurance contracts excluding segregated fund contracts are generally recognized as revenue when due.

Fee income includes fund management and other asset-based fees, commissions from intermediary activities, fees on service contracts and is recognized when services
are rendered.



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| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    91



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Share-Based Payments

Stock options of SLF Inc. granted to employees are accounted for as equity-settled share-based payment transactions. The total compensation expense for stock options is computed based on the fair value of the stock
option at the date of grant and the estimated number of options expected to vest at the end of the vesting period. The expense is recognized over the vesting period as compensation expense in Operating expenses in the Consolidated Statements of
Operations, with an offset to contributed surplus in our Consolidated Statements of Changes in Equity. When options are exercised, new shares are issued, contributed surplus is reversed and the shares issued are credited to common shares in our
Consolidated Statements of Changes in Equity.

Other share-based payment plans based on the value of SLF Inc.s shares are accounted for as
cash-settled share-based payment transactions. The total liabilities for these plans are computed based on the estimated number of awards expected to vest at the end of the vesting period. The liabilities are recomputed at the end of each reporting
period and are measured at the fair value of the award at that reporting date. The liabilities are accrued and expensed on a straight-line basis over the vesting periods. The liabilities are paid in cash at the end of the vesting period.

Share-based payment awards within MFS Investment Management (MFS) which are based on their own shares, are accounted for as cash-settled share-based
payment awards. The vested and unvested awards, as well as the shares that have been issued under these plans, are recognized as liabilities because the subsidiary has a practice of purchasing the issued shares from employees after a specified
holding period. The total liabilities for these plans are computed based on the estimated number of awards expected to vest at the end of the vesting period. The liabilities are accrued over the vesting period and are measured at fair value at each
reporting period with the change in fair value recognized as compensation expense. The liabilities are paid in cash when the shares are purchased from the employees.

1.B Changes in Accounting Policies

The following new standards and amendments to existing standards were
issued by the IASB and are expected to be adopted by us in future years.

Future Changes Expected to be Adopted in 2012

In October 2010, IFRS 7 Financial Instruments: Disclosureswas amended to revise the disclosures related to transfers of financial assets. The revised
disclosures will help users of financial statements evaluate the risk exposures relating to transfers of financial assets and the effect of those risks on an entitys financial position and provide transparency in the reporting of these
transactions, particularly those that involve securitization of financial assets. The amended disclosure requirements will be applicable for us in 2012 and we are currently assessing the impact on our Consolidated Financial Statements.

In December 2010, IAS 12 Income Taxes was amended regarding
deferred tax and the recovery of underlying assets. The amendments provide an approach for measuring deferred tax liabilities and deferred tax assets when investment properties are measured at fair value. These amendments are effective on
January 1, 2012. The adoption of these amendments will not impact our Consolidated Financial Statements as the amendments are consistent with our current accounting policy.

Future Changes Expected to be Adopted in 2013 or Later

In May 2011, IFRS 10 Consolidated Financial
Statements was issued, which replaces the consolidation guidance in IAS 27, Consolidated and Separate Financial Statementsand SIC-12 Consolidation-Special Purpose Entities. It defines the principle of control, establishes control
as the basis for determining which entities are consolidated, and sets out the requirements for the preparation of consolidated financial statements. Under the standard, an investor controls an investee when it has power over the investee, exposure
or rights to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect the amount of the investors returns. IFRS 10 is effective for annual periods beginning on or after
January 1, 2013. We are currently assessing the impact the adoption of this standard will have on our Consolidated Financial Statements.

In May
2011, IFRS 11 Joint Arrangements was issued which replaces IAS 31, Interests in Joint Ventures. It requires a party to a joint arrangement to determine the type of arrangement in which it is involved by assessing its rights and
obligations from the arrangement. It eliminates the option to use the proportionate consolidation method for joint ventures and requires that the equity method be applied to account for our investment in these entities. This standard is effective
for annual periods beginning on or after January 1, 2013. We are currently assessing the impact the adoption of this standard will have on our Consolidated Financial Statements.

In May 2011, IFRS 12 Disclosure of Interests in Other Entities was issued, which applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured
entity. IFRS 12 requires that an entity disclose information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and to evaluate the effects of those interests on its
financial position, financial performance and cash flows. We are currently assessing the impact the adoption of this standard will have on our Consolidated Financial Statements.

As a result of the issuance of IFRS 10, IFRS 11 and IFRS 12, both the current IAS 27 Consolidated and Separate Financial Statementsand IAS 28 Investments in Associates,were amended. The requirements
related to separate financial statements will remain in IAS 27 while the requirements related to consolidated financial statements are replaced by IFRS 10. The disclosure requirements currently in IAS 28 are replaced with IFRS 12. The amendments are
effective for annual periods beginning on or after January 1, 2013. The amendments to IAS 27 and IAS 28 are not expected to have a material impact on our Consolidated Financial Statements.

In May 2011, IFRS 13 Fair Value Measurement was issued. IFRS 13 defines fair value and sets out a single framework for measuring fair value when measurement at fair value is required by other IFRS standards,
and requires disclosures about fair value measurement. This standard is effective for annual periods beginning on or after January 1, 2013. We are currently assessing the impact the adoption of this standard will have on our Consolidated
Financial Statements.

In June 2011, IAS 19 Employee Benefitswas amended. Under the amended standard, actuarial gains and losses will no longer
be deferred or recognized in profit or loss, but will be recognized immediately in other comprehensive income. Past service costs will be recognized in the period of a plan amendment and the annual expense for a funded plan will include net interest
expense or income using the discount rate to the net defined benefit asset or liability. The amendments also require changes to the presentation in the



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consolidated financial statements and enhanced disclosures for defined benefit plans. This amended standard is effective for annual periods beginning on or after January 1, 2013. We are
currently assessing the impact the adoption of these amendments will have on our Consolidated Financial Statements.

In June 2011, IAS 1 Presentation
of Financial Statementswas amended regarding the presentation of items in other comprehensive income. The amendments require separate presentation within other comprehensive income of items that are potentially reclassifiable to profit or loss
subsequently and those that will not be reclassified to profit or loss. The amendments are effective for annual periods beginning on or after July 1, 2012. We are currently assessing the impact the adoption of these amendments will have on our
Consolidated Financial Statements.

In December 2011, amendments to IFRS 7 Financial Instruments: Disclosureswere issued which require additional
disclosures about the effects of offsetting financial assets and financial liabilities and related arrangements. The new disclosures will require entities to disclose gross amounts subject to rights of set off, amounts set off, and the related net
credit exposure. The disclosures are intended to help investors understand the effect or potential effect of offsetting arrangements on a companys financial position. The new disclosures are effective for annual periods beginning on or after
January 1, 2013. We are currently assessing the impact the adoption of these amendments will have on our Consolidated Financial Statements.

In
December 2011, amendments to IAS 32Financial Instruments: Presentation were issued to address inconsistencies in current practice in the application of the offsetting criteria in IAS 32 by providing certain clarifications. The amendments are
effective for annual periods beginning on or after January 1, 2014. We are currently assessing the impact the adoption of these amendments will have on our Consolidated Financial Statements.

In November 2009, IFRS 9 Financial Instruments was issued and subsequently amended in October 2010. The current IFRS 9, which addresses the
classification and measurement of financial assets and liabilities, is the first phase of a three phase project to replace IAS 39 Financial Instruments: Recognition and Measurement.It requires financial assets to be measured at fair value or
amortized cost on the basis of their contractual cash flow characteristics and the entitys business model for managing the assets. It also changes the accounting for financial liabilities measured using the fair value option. The IASB
continues to deliberate on the other two phases of the project, which address impairment and hedge accounting. IFRS 9 was originally issued with an effective date of annual periods beginning on or after January 1, 2013. However, in December
2011, the effective date was deferred to January 1, 2015. The December amendments also provide relief from the requirements to restate comparative financial statements. We are currently assessing the impact that the various phases of this
project may have on our Consolidated Financial Statements.

2. IFRS 1  First Time Adoption





The Canadian Accounting Standards Board (AcSB) requires that Canadian publicly accountable entities prepare their financial statements in accordance with IFRS for fiscal years beginning on or after
January 1, 2011. As these financial statements represent the presentation of our results and financial position under IFRS, they were prepared in accordance with IFRS 1 First Time Adoption of International Financial Reporting Standards
(IFRS 1). IFRS 1 requires retrospective application of all IFRS standards, with certain optional exemptions and mandatory exceptions, which are described further in this Note. The accounting policies described in Note 1 have been applied
consistently to all periods presented in our Consolidated Financial Statements with the exception of the optional exemptions elected and the mandatory exceptions required. At the Transition Date, an opening statement of financial position was
prepared under IFRS.

Our 2010 Annual Consolidated Financial Statements were previously prepared in accordance with Canadian GAAP. In this Note our
transition to IFRS is explained through the following:

2.A First Time Adoption Optional Exemptions and Mandatory Exceptions to Retrospective
Application of IFRS

This section describes the standards for which IFRS was not applied retrospectively as available in IFRS 1.

2.B Reconciliations of Total Equity and Comprehensive Income from Canadian GAAP to IFRS

Quantitative and qualitative explanations are included in this section to explain the differences between Canadian GAAP and IFRS in total equity and comprehensive income.

2.C Reconciliation of Opening Consolidated Statement of Financial Position from Canadian GAAP to IFRS

This section explains quantitatively and qualitatively the impact and differences between Canadian GAAP and IFRS.

2.D Reconciliation of Consolidated Cash Flow from Canadian GAAP to IFRS

This section explains the impact and differences between Canadian GAAP and IFRS

2.A First Time Adoption Optional
Exemptions and Mandatory Exceptions to Retrospective Application of IFRS

As previously noted, IFRS 1 requires retrospective application of all IFRS
standards with certain optional exemptions and mandatory exceptions. The optional exemptions elected and the mandatory exceptions to retrospective application of IFRS are described below and the quantification of these are discussed in Section B of
this Note.

2.A.i Optional Exemptions

1.
Cumulative Foreign Currency Translation Differences

Retrospective application of IFRS would require us to determine cumulative foreign currency
translation differences in accordance with IAS 21The Effects of Changes in Foreign Exchange Rates, from the date a subsidiary or equity method investee was formed or acquired. IFRS 1 permits cumulative translation differences to be reset to
zero at the Transition Date. We have elected to reset all cumulative foreign currency translation differences in accumulated OCI to zero with an offset to retained earnings as at the Transition Date.



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| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    93



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2. Cumulative Unrecognized Actuarial Losses on Employee Benefits

IAS 19Employee Benefits, requires retrospective application for the recognition of all cumulative actuarial gains and losses on pension plans and other
post-retirement benefits. IFRS 1 provides the option to recognize all deferred cumulative unamortized actuarial gains and losses on defined benefit pension plans and other benefits plans under Canadian GAAP in opening equity at the Transition Date
and provide disclosures on a prospective basis. We have taken this option, resulting in the cumulative amount of actuarial losses on our defined benefit pension plans and other benefits plans being recognized in retained earnings at the Transition
Date.

3. Financial Instruments

IAS 39Financial Instruments: Recognition and Measurement (IAS 39) sets out the classification and designation requirements for financial instruments at the date of initial recognition, which is the date the entity becomes a party to the
contractual provisions of the financial instrument. However, IFRS 1 allows for revised designation of financial instruments held at the Transition Date as AFS or FVTPL. The revised designations have been done primarily to reduce measurement
inconsistencies or accounting mismatch.

4. Business Combinations

The retrospective application of IFRS 3R(Revised) Business Combinations (January 2008)(IFRS 3R), would require the restatement of all business combinations that occurred prior to the Transition
Date. IFRS 1 provides an option not to apply IFRS 3R retrospectively to acquisitions that occurred before the Transition Date and we have elected this optional exemption. Therefore, no adjustments were required to retained earnings or other balances
as a result of the adoption of IFRS 3R. As we have elected not to apply IFRS 3R retrospectively, we have applied the accounting requirements in IAS 27Consolidated and Separate Financial Statements (IAS 27), for transactions with
non-controlling interests prospectively from the Transition Date.

5. Share-Based Payments

Under IFRS, a first-time adopter is encouraged but not required to apply IFRS 2 Share-Based Payment, to liabilities arising from share-based payment
transactions that were settled before the Transition Date. We have taken this exemption and have not applied IFRS 2 Share-Based Payment to liabilities settled prior to the Transition Date.

6. Borrowing Costs

IAS 23 Borrowing Costs, requires
that borrowing costs directly attributable to the acquisition, construction or production of an asset be capitalized using the weighted average of applicable borrowing costs. We have elected to apply this standard prospectively from the Transition
Date.

2.A.ii Mandatory Exceptions

1. Hedging
Relationships

Hedge accounting can only be applied from the Transition Date to hedging relationships that satisfy the hedge accounting criteria in
IAS 39 at that date. As at the Transition Date, we reclassified amounts from accumulated OCI to retained earnings relating to hedging relationships under Canadian GAAP that are no longer designated as hedges under IFRS.

2. Estimates

Estimates made in accordance with IFRS at the
Transition Date are consistent with estimates we previously made under Canadian GAAP.



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2.B Reconciliations of Total Equity and Comprehensive Income from Canadian GAAP to IFRS

2.B.i Reconciliation of Total Equity

The following tables
reconcile the total equity as previously reported under Canadian GAAP to the amounts reported under IFRS as at the Transition Date of January 1, 2010 and December 31, 2010. Certain adjustments did not impact total equity but resulted in
reclassifications between amounts in OCI, retained earnings and contributed surplus. A separate reconciliation is provided for the amounts reclassified between OCI, retained earnings and contributed surplus as at January 1, 2010. Explanations
for each of the adjustments to equity are included in section 2.B.iv that follows the reconciliations.



|                                                              |  |      |    |  |                  |   |        |                |  |   |        |  
|------------------------------------------------------------- |  | ---- | -- |  | ---------------- | - | ------ | -------------- |  | - | ------ | -
|As at                                                         |  | Item |    |  | December 31,2010 |   |        | January 1,2010 | 
|Total equity as reported under Canadian GAAP                  |  |      |    |  |                  | $ | 18,359 |                |  | $ | 17,337 |  
|Adjustments to total equity under IFRS:                       |  |      |    |  |                  |   |        |                |  |   |        |  
|Reclassification of Non-controlling interests                 |  |      | 1  |  |                  |   | 24     |                |  |   | 24     |  
|Consolidation:                                                |  |      |    |  |                  |   |        |                |  |   |        |  
|Consolidation of special purpose entities                     |  |      | 2  |  |                  |   | 19     |                |  |   | 33     |  
|Reversal of dilution gains                                    |  |      | 3  |  |                  |   | (36    | )              |  |   |       |  
|Asset and contract remeasurements:                            |  |      |    |  |                  |   |        |                |  |   |        |  
|Property and equipment at cost less accumulated depreciation  |  |      | 4  |  |                  |   | (183   | )              |  |   | (180   | )
|Investment properties adjustment to fair value                |  |      | 5  |  |                  |   | 2      |                |  |   | 71     |  
|Deferred net realized gains on real estate reversed           |  |      | 6  |  |                  |   | 219    |                |  |   | 225    |  
|Limited partnerships and private equities to fair value       |  |      | 7  |  |                  |   | 37     |                |  |   | 44     |  
|Private debt reclassification to loans and receivables        |  |      | 8  |  |                  |   | (532   | )              |  |   | (613   | )
|Investment contract liabilities remeasurements                |  |      | 9  |  |                  |   | (74    | )              |  |   | (61    | )
|Insurance contract liabilities remeasurements                 |  |      | 10 |  |                  |   | 368    |                |  |   | 369    |  
|IFRS exemptions and other:                                    |  |      |    |  |                  |   |        |                |  |   |        |  
|Impairment of goodwill                                        |  |      | 11 |  |                  |   | (1,771 | )              |  |   | (1,833 | )
|Share-based payments                                          |  |      | 12 |  |                  |   | (241   | )              |  |   | (129   | )
|Cumulative unrecognized actuarial losses on employee benefits |  |      | 13 |  |                  |   | (434   | )              |  |   | (450   | )
|Income taxes                                                  |  |      | 14 |  |                  |   | 314    |                |  |   | 304    |  
|Total adjustments to equity under IFRS                        |  |      |    |  |                  | $ | (2,288 | )              |  | $ | (2,196 | )
|Total equity as reported under IFRS                           |  |      |    |  |                  | $ | 16,071 |                |  | $ | 15,141 |  

2.B.ii Reclassifications Between Components of Total Equity

The following table shows the reclassifications between OCI, retained earnings and capital and contributed surplus (includes preferred shares, common shares and contributed surplus). There were no adjustments to
preferred shares or common shares.



|                                                                |  |      |    |  |                              |   |       |                  |  |   |                |   |  |       |        |   |  |   |        | 
|--------------------------------------------------------------- |  | ---- | -- |  | ---------------------------- | - | ----- | ---------------- |  | - | -------------- | - |  | ----- | ------ | - |  | - | ------ | 
|As at January 1, 2010                                           |  | Item |    |  | Capitalandcontributedsurplus |   |       | Retainedearnings |  |   | AccumulatedOCI |   |  | Total |       
|Equity reported under Canadian GAAP                             |  |      |    |  |                              | $ | 9,000 |                  |  | $ | 10,882         |   |  | $     | (2,545 | ) |  | $ | 17,337 | 
|Reclassifications between components of equity under IFRS       |  |      |    |  |                              |   |       |                  |  |   |                |   |  |       |        |   |  |   |        | 
|Reset cumulative foreign currency translation
differences(1)    |  |      | 15 |  |                              |   |      |                  |  |   | (2,637         | ) |  |       | 2,637  |   |  |   |       | 
|Derivatives and hedge accounting                                |  |      | 16 |  |                              |   |      |                  |  |   | (40            | ) |  |       | 40     |   |  |   |       | 
|Share-based payments                                            |  |      | 12 |  |                              |   | (52   | )                |  |   | 52             |   |  |       |       |   |  |   |       | 
|Total reclassifications between components of equity under IFRS |  |      |    |  |                              | $ | (52   | )                |  | $ | (2,625         | ) |  | $     | 2,677  |   |  | $ |       | 
|Equity before IFRS adjustments                                  |  |      |    |  |                              | $ | 8,948 |                  |  | $ | 8,257          |   |  | $     | 132    |   |  | $ | 17,337 | 



|(1) | This adjustment is net of tax of $90
|--- | ------------------------------------

2.B.iii Reconciliation of
Comprehensive Income

The following table reconciles total net income and total comprehensive income as reported under Canadian GAAP to the amounts
reported under IFRS for the periods presented. In addition to the items included in the reconciliation that follows, certain amounts in our Consolidated Statements of Operations have been presented differently under IFRS as compared to Canadian
GAAP, without impacting total net income or total comprehensive income. Most of the income items that are presented differently under IFRS are due to their presentation under our opening IFRS Consolidated Statement of Financial Position. Further
explanations of the statement of financial position reclassifications and consolidations affecting our Consolidated Statements of Operations presentation can be found in Section 2.C of this Note as part of the explanation of the differences
between Canadian GAAP and IFRS for the opening statement of financial position.



| |  |                                            |  |                                                    
| |  | ------------------------------------------ |  | ---------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    95



---



|                                                                        |  |      |    |  |                                     |   |       |  
|----------------------------------------------------------------------- |  | ---- | -- |  | ----------------------------------- | - | ----- | -
|                                                                        |  |     
|                                                                        |  | Item |    |  | For the
year endedDecember 31, 2010 |  
|Total net income as reported under Canadian GAAP                        |  |      |    |  |                                     | $ | 1,685 |  
|Reclassification of non-controlling interests                           |  |      | 1  |  |                                     |   | 23    |  
|                                                                        |  |      |    |  |                                     | $ | 1,708 |  
|Adjustments to total net income (loss):                                 |  |      |    |  |                                     |   |       |  
|Consolidation:                                                          |  |      |    |  |                                     |   |       |  
|Consolidation of special purpose entities                               |  |      | 2  |  |                                     |   | (8    | )
|Reversal of dilution gains                                              |  |      | 3  |  |                                     |   | (29   | )
|Asset and contract remeasurements:                                      |  |      |    |  |                                     |   |       |  
|Property and equipment at cost less accumulated depreciation            |  |      | 4  |  |                                     |   | (6    | )
|Investment properties adjustment to fair value                          |  |      | 5  |  |                                     |   | (90   | )
|Deferred net realized gains on real estate reversed                     |  |      | 6  |  |                                     |   | 1     |  
|Limited partnerships and private equities to fair value                 |  |      | 7  |  |                                     |   | 4     |  
|Private debt reclassification to loans and receivables                  |  |      | 8  |  |                                     |   | 67    |  
|Investment contract liabilities remeasurements                          |  |      | 9  |  |                                     |   | (17   | )
|Insurance contract liabilities remeasurements                           |  |      | 10 |  |                                     |   | 10    |  
|Derivatives and hedge accounting                                        |  |      | 16 |  |                                     |   | 24    |  
|IFRS exemptions and other:                                              |  |      |    |  |                                     |   |       |  
|Share-based payments                                                    |  |      | 12 |  |                                     |   | (132  | )
|Cumulative unrecognized actuarial losses on employee benefits           |  |      | 13 |  |                                     |   | 6     |  
|Foreign currency translation differences                                |  |      | 17 |  |                                     |   | (38   | )
|Income taxes                                                            |  |      | 14 |  |                                     |   | 18    |  
|Total adjustments to total net income (loss)                            |  |      |    |  |                                     | $ | (190  | )
|Total net income (loss) as reported under IFRS                          |  |      |    |  |                                     | $ | 1,518 |  
|Total other comprehensive income (loss) as reported under Canadian GAAP |  |      |    |  |                                     | $ | (330  | )
|Adjustments to other comprehensive income (loss):                       |  |      |    |  |                                     |   |       |  
|Foreign currency translation differences                                |  |      | 17 |  |                                     |   | 100   |  
|Derivatives and hedge accounting                                        |  |      | 16 |  |                                     |   | (6    | )
|Limited partnerships and private equities to fair value                 |  |      | 7  |  |                                     |   | (10   | )
|Private debt reclassification to loans and receivables                  |  |      | 8  |  |                                     |   | 3     |  
|Consolidation of special purpose entities                               |  |      | 2  |  |                                     |   | 1     |  
|Owner occupied property transferred to investment properties            |  |      | 18 |  |                                     |   | 8     |  
|Income taxes                                                            |  |      | 14 |  |                                     |   | (4    | )
|Total adjustments to other comprehensive income (loss)                  |  |      |    |  |                                     | $ | 92    |  
|Total other comprehensive income (loss) as reported under IFRS          |  |      |    |  |                                     | $ | (238  | )
|Total comprehensive income as reported under Canadian GAAP              |  |      |    |  |                                     | $ | 1,378 |  
|Total comprehensive income as reported under IFRS                       |  |      |    |  |                                     | $ | 1,280 |  
|Basic EPS  Canadian GAAP                                               |  |      | 19 |  |                                     | $ | 2.79  |  
|Basic EPS  IFRS                                                        |  |      | 19 |  |                                     | $ | 2.48  |  
|Diluted EPS  Canadian GAAP                                             |  |      | 19 |  |                                     | $ | 2.76  |  
|Diluted EPS  IFRS                                                      |  |      | 19 |  |                                     | $ | 2.39  |  

2.B.iv Analysis of Adjustments to Equity and Comprehensive Income Due to the Adoption of IFRS

The following sections describe the adjustments to equity and comprehensive income shown in the preceding tables in further detail. Adjustments to equity in periods
subsequent to the Transition Date may change due to fluctuations in the foreign exchange rates for each reporting period.

1. Reclassification of
Non-Controlling Interests

Under Canadian GAAP, non-controlling interests were presented separately from total equity in our Consolidated Statements
of Financial Position. In accordance with IAS 27, non-controlling interests are presented as part of equity, separate from the parent company shareholders equity, resulting in an adjustment to total equity on the Transition Date. As a result,
income attributable to non-controlling interests is included in total net income under IFRS.

2. Consolidation of Special Purpose Entities

Under IFRS, we are required to consolidate SPEs where we have control, based on the substance of the relationship between us and the SPE which
differs from the consolidation model used under Canadian GAAP for these types of entities.





|                                                    |  |                                            |  | 
|--------------------------------------------------- |  | ------------------------------------------ |  | 
|96    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

As a result, we have consolidated the assets and liabilities of certain securitization structures that meet the
definition of an SPE under our control under IFRS, and have reversed the retained interest we hold in these structures, which were recorded at fair value under Canadian GAAP. Certain assets within these SPEs are measured at amortized cost under IFRS
resulting in a measurement difference from Canadian GAAP and an adjustment to equity on the Transition Date. Subsequent to the Transition Date, the income earned and expenses paid by these consolidated entities under IFRS compared to the income and
market value changes on the retained interests that are eliminated result in a difference in total net income between IFRS and Canadian GAAP.

In
addition, Sun Life Capital Trust vehicles used for the issuance of innovative capital instruments, Sun Life ExchangEable Capital Securities (SLEECS), which did not previously require consolidation under Canadian GAAP also meet these
requirements and are consolidated under IFRS.

3. Reversal of Dilution Gains

Under IFRS, transactions with non-controlling interests that do not result in a change in control are required to be recorded in equity. Under Canadian GAAP these transactions were recorded as step acquisitions or
disposals resulting in the recording of goodwill or a gain or loss in income. This adjustment reflects the reversal of these balances to equity in the reporting periods in 2010.

4. Property and Equipment at Cost Less Accumulated Depreciation

Owner-occupied properties are classified as
property and equipment under IAS 16Property, Plant and Equipment, and accounted for at cost less accumulated depreciation and accumulated impairment loss. Under Canadian GAAP, owner-occupied properties were recorded as part of Real estate in
the Consolidated Statements of Financial Position. IFRS 1 allows us to elect fair value as deemed cost on the Transition Date for property and equipment. We have not elected this option and property and equipment, including owner-occupied
properties, have been measured at cost less accumulated depreciation on the Transition Date. The adjustment to opening equity on the Transition Date reflects the measurement change of being recorded at cost less accumulated depreciation under IFRS
from the value using the moving average market method (MAMM) under Canadian GAAP. While both IFRS and Canadian GAAP total net income include rental income from third parties on these properties they differ as a result of the difference
between the reversal for MAMM under Canadian GAAP and the recording of the depreciation expense to that recorded under IFRS.

5. Investment
Properties Adjustment to Fair Value

Properties that meet the definition of investment properties under IAS 40Investment Properties, have
been reclassified from Real estate under Canadian GAAP, which were measured using MAMM, to Investment properties which are measured at fair value under IFRS. The adjustment to opening equity on the Transition Date related to investment properties
reflects this measurement difference. For those investments backing insurance contract liabilities, an adjustment is recorded in insurance contract liabilities that offsets a significant portion of this asset measurement change. For further details,
see Item 10 in this section of this Note which includes additional information regarding the impact on insurance contract liabilities. In periods subsequent to the Transition Date the difference between measurement methods results in a
difference in total net income between Canadian GAAP and IFRS.

6. Deferred Net Realized Gains on Real Estate Reversed

Under Canadian GAAP, net realized gains on our real estate portfolio were deferred and amortized into income. On the Transition Date, these deferred net realized
gains were recorded to retained earnings as IAS 40 Investment Properties, and IAS 16 Property, Plant and Equipment, require recognition of all gains and losses on these properties in income on realization. In periods subsequent to the
Transition Date, adjustments are recognized in total net income for the difference between the amortization of the deferred gains recorded in income in Canadian GAAP and the gains realized on sales of properties that occurred subsequent to the
Transition Date that were recognized in income immediately under IFRS. For further details, see Item 10 in this section of this Note which includes additional information regarding the impact on insurance contract liabilities.

7. Limited Partnerships and Private Equities to Fair Value

In accordance with IAS 39, investments held by us that are not quoted in an active market must be measured at fair value when fair value is reliably measureable,
while Canadian GAAP required these be recorded at cost. The difference in the measurement of these assets has been recorded to opening equity. For those investments backing insurance contract liabilities, an adjustment was recorded in insurance
contract liabilities that offsets a significant portion of the asset measurement change. For further details, see Item 10 in this section of this Note which includes additional information regarding the impact on insurance contract liabilities.
The difference in measurement from cost to fair value at each reporting period is recorded in OCI, resulting in a difference from Canadian GAAP.

8.
Private Debt Reclassification to Loans and Receivables

In accordance with IAS 39, certain financial instruments that were previously classified
as HFT or AFS measured at fair value do not meet the criteria for this classification under IFRS. Therefore, they are reclassified to loans and receivables, have been recorded in Mortgages and loans in the Consolidated Statements of Financial
Position and are measured at amortized cost. The difference in the measurement of these assets has been recorded to opening equity. For those investments supporting insurance contract liabilities, an adjustment is recorded in insurance contract
liabilities that offsets a significant portion of this asset measurement change. For further details, see Item 10 in this section of this Note which includes additional information regarding the impact on insurance contract liabilities. There
is also a difference in OCI for the reversal of fair value adjustments of assets previously classified as AFS assets under Canadian GAAP which are now measured at amortized cost. In reporting periods subsequent to the Transition Date, the difference
between measurement methods results in a difference in total net income between Canadian GAAP and IFRS.

9. Investment Contract Liabilities
Remeasurements

In accordance with IAS 39, investment contracts are measured at fair value or amortized cost. The adjustment to equity at the
Transition Date reflects the difference between fair value or amortized cost of the investment contract and the amount previously reported as an actuarial liability under Canadian GAAP. Assets supporting these investment contract liabilities have
been redesignated to ensure any accounting mismatch in measurement between assets and liabilities is minimized. The difference in measurement between Canadian GAAP and IFRS at each reporting period subsequent to the Transition Date is recorded in
total net income.



| |  |                                            |  |                                                    
| |  | ------------------------------------------ |  | ---------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    97



---

10. Insurance Contract Liabilities Remeasurements

Under Canadian accepted actuarial practice, the value of insurance contract liabilities is determined by reference to the carrying value of the assets supporting those liabilities. As a result of the measurement
differences recorded on assets supporting insurance contract liabilities, adjustments were recorded to equity to reflect the corresponding change in measurement to insurance contract liabilities as at the Transition Date. Therefore, for assets
supporting insurance contract liabilities, the impact to equity from asset measurement differences under IFRS from Canadian GAAP is significantly offset by the associated adjustment to insurance contract liabilities.

Adjustments to insurance contract liabilities were made for asset remeasurements discussed in items 5, 6, 7 and 8 in this section of this Note.

11. Impairment of Goodwill

Impairment testing of goodwill
is required to be performed at the CGU level under IFRS, which is a more granular level, compared to the reporting unit level under Canadian GAAP. The primary basis for determining a reporting unit is that it constitutes a business with discrete
financial information that is regularly reviewed by management. A CGU, by comparison, is defined as the smallest identifiable group of assets that generate cash inflows that are independent of cash inflows from other groups of assets.

Canadian GAAP reporting units for purpose of goodwill impairment testing consisted of Canada, McLean Budden, U.S., MFS, Asia, U.K. and Reinsurance. These reporting
units have been further divided into their respective CGUs under IFRS, where required. The goodwill acquired in past business combinations has been allocated to the CGUs or groups of CGUs that were expected to benefit from the synergies of the
particular acquisition at the time. Included in the table below are the CGUs defined upon transition where goodwill has been allocated.

Goodwill has
been tested for impairment at the Transition Date. Further details on the goodwill impairment testing process under IFRS are included in Note 10.

The
following table summarizes the CGUs and groups of CGUs to which goodwill has been allocated and the results of the impairment test performed at the Transition Date which resulted in certain impairment of goodwill by CGU recorded in opening
equity.



|                          |  |                              |       |  |               |   |        |                             |  |   |       | 
|------------------------- |  | ---------------------------- | ----- |  | ------------- | - | ------ | --------------------------- |  | - | ----- | 
|                          |  |                              |      
|As at January 1, 2010     |  | IFRSgoodwillbeforeimpairment |       |  | Impairment(2) |   |        | IFRSgoodwillafterimpairment | 
|SLF Canada(1)             |  |                              |       |  |               |   |        |                             |  |   |       | 
|Individual insurance      |  | $                            | 1,216 |  |               | $ | (310   | )                           |  | $ | 906   | 
|Individual wealth         |  |                              | 685   |  |               |   | (333   | )                           |  |   | 352   | 
|Group retirement services |  |                              | 453   |  |               |   |       |                             |  |   | 453   | 
|Group benefits            |  |                              | 1,054 |  |               |   |       |                             |  |   | 1,054 | 
|SLF U.S.                  |  |                              |       |  |               |   |        |                             |  |   |       | 
|Fixed annuities           |  |                              | 1,190 |  |               |   | (1,190 | )                           |  |   |      | 
|Variable annuities        |  |                              | 98    |  |               |   |       |                             |  |   | 98    | 
|Employee benefits group   |  |                              | 352   |  |               |   |       |                             |  |   | 352   | 
|SLF Asia                  |  |                              |       |  |               |   |        |                             |  |   |       | 
|Hong Kong                 |  |                              | 463   |  |               |   |       |                             |  |   | 463   | 
|Corporate                 |  |                              |       |  |               |   |        |                             |  |   |       | 
|MFS Holdings(1)           |  |                              | 420   |  |               |   |       |                             |  |   | 420   | 
|U.K.                      |  |                              | 183   |  |               |   |       |                             |  |   | 183   | 
|Reinsurance               |  |                              | 309   |  |               |   |       |                             |  |   | 309   | 
|Total                     |  | $                            | 6,423 |  |               | $ | (1,833 | )                           |  | $ | 4,590 | 



|(1) | The McLean Budden CGU, which had a goodwill balance of $74 at the Transition Date and was previously reported under SLF Canada, was transferred to MFS Holdings subsequent to our
purchase of the minority shares of McLean Budden. See Note 17 for details.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Due to foreign exchange rate movements during 2010, the adjustment to equity as at December 31, 2010 would have been $1,771.
|--- | ----------------------------------------------------------------------------------------------------------------------------

12. Share-Based Payments

Share-based payment awards within
MFS, are accounted for as cash-settled share-based payment awards under IFRS 2 Share-Based Payment, rather than as equity settled awards as under Canadian GAAP. The vested and unvested awards, as well as the shares that have been issued under
these plans, are recognized as liabilities because the subsidiary has a practice of purchasing the issued shares from employees after a specified holding period. The liabilities are accrued over the vesting period and are measured at fair value at
each reporting period with the change in fair value recognized as compensation expense. Under Canadian GAAP, the period over which the employees held the shares prior to MFS purchasing their shares was sufficient for the awards to be accounted for
as equity-settled share-based payment awards. This resulted in recognition of compensation expense that was based on the fair value at the date of grant and non-controlling interests when shares were issued under the plans.

On the Transition Date, the difference between the liability recorded under IFRS and the amount that had been recognized as non-controlling interest under Canadian
GAAP was recognized as an adjustment to opening equity. In addition, amounts accumulated in contributed surplus relating to the unvested portion of these awards under Canadian GAAP were reclassified to retained earnings on the Transition Date. IFRS
also requires that forfeitures be estimated when recording compensation expense. Canadian GAAP allowed the effect of forfeitures to be recognized in the period when the forfeiture occurred. This difference also resulted in an adjustment that was
recognized in opening retained earnings at the Transition Date.

In the periods subsequent to the Transition Date, adjustments were made to total net
income due to the difference in the compensation expense recorded under IFRS and the amounts recorded under Canadian GAAP.



|                                                    |  |                                            |  | 
|--------------------------------------------------- |  | ------------------------------------------ |  | 
|98    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

13. Cumulative Unrecognized Actuarial Losses on Employee Benefits

IFRS 1 provides the option to recognize all cumulative actuarial gains and losses on pension plans and other post-retirement benefits deferred under Canadian GAAP
in opening retained earnings at the Transition Date. The cumulative amount of actuarial losses recorded in other assets on our defined benefit pension plans and other benefits plans has been recognized in retained earnings as at the Transition Date.
The total net income in periods subsequent to the Transition Date has been adjusted under IFRS to reverse the amortization of these losses under Canadian GAAP.

14. Income Taxes

The adjustment to total equity at the Transition Date reflects the total tax recovery on all
the adjustments from Canadian GAAP to IFRS other than those adjustments that are not considered a temporary difference. The adjustment to total net income in subsequent periods in 2010 is the deferred tax expense recorded under IFRS which reduces
the tax recovery recorded at the Transition Date.

15. Reset Cumulative Foreign Currency Translation Differences

As described in Section A of this Note, IFRS 1 permits cumulative foreign currency translation differences to be reset to zero at the Transition Date. We
have elected to reset all cumulative translation differences in accumulated OCI to zero with an offset to retained earnings as at the Transition Date.

16. Derivative and Hedge Accounting

As described in Section
A of this Note, all hedging relationships that qualify for hedge accounting under IFRS have been documented on the Transition Date. As at the Transition Date, we reclassified amounts between accumulated OCI and retained earnings relating to hedging
relationships under Canadian GAAP that did not qualify for hedge accounting under IFRS.

Subsequent to the Transition Date, total net income and OCI
differ between Canadian GAAP and IFRS due to hedges that did not qualify for hedge accounting under IFRS as well as interest income or expense from derivatives designated as net investment hedges which is recorded directly to income under IFRS.

17. Foreign Currency Translation Differences

Foreign currency translation amounts recorded in our Consolidated Financial Statements differ under IFRS when compared to Canadian GAAP as a result of the following
accounting policy differences.

As a result of different carrying amounts between Canadian GAAP and IFRS, the foreign currency translation differences
when translating foreign operations to our functional currency differs.

Under IFRS, cumulative foreign currency translation differences are recorded in
income upon disposal of a foreign operation, which includes loss of control, significant influence or joint control over a foreign operation. Canadian GAAP recognized foreign currency translation differences in income when there is a reduction in
our net investment in a self-sustaining foreign operation resulting from a capital transaction, dilution or sale of all or part of the foreign operation.

In 2010, we sold our life retrocession business, which constituted the disposition of a foreign operation under IFRS, as we no longer control this business, and
therefore, recorded the related cumulative foreign currency translation differences of $33 in income. Under Canadian GAAP, we did not recognize foreign currency translation differences in income as there was no reduction of net investment or
repatriation of capital as at December 31, 2010. As a result, we recognized an after-tax loss in income of $32 on this transaction under IFRS instead of the $1 after-tax gain recognized under Canadian GAAP.

In addition, IAS 21 The Effects of Changes in Foreign Exchange Rates, requires that foreign currency gains and losses on AFS debt securities held in a
currency other than the subsidiarys functional currency be recorded in our Consolidated Statements of Operations.

18. Owner-Occupied Property
Transferred to Investment Properties

In the fourth quarter of 2010, there was a change in the use of a property that resulted in an owner-occupied
property measured at cost less accumulated depreciation being transferred to investment properties measured at fair value under IFRS. As a result, the increase in value was required to be recorded in the Consolidated Statements of Comprehensive
Income (Loss). There was no distinction between owner-occupied and investment property under Canadian GAAP.

19. Diluted Earnings Per Share

The diluted earnings (loss) per share (EPS) under IFRS excludes the impact of share-based payment equity awards of a subsidiary that are
accounted for as liabilities under IFRS. Adjustments made to common shareholders net income due to the potential reduction that would result from the vesting and exercise of these awards under Canadian GAAP did not impact the diluted EPS of
SLF Inc. under IFRS. In addition, the potential conversion of certain instruments described further in Note 28, are included in the calculation of diluted EPS under IFRS. When these instruments are converted to preferred shares of Sun Life
Assurance, we have the option to settle the preferred shares with cash or common shares of SLF Inc. Under IFRS, diluted EPS must be based on the presumption that these securities will be settled by the issuance of common shares while under Canadian
GAAP these potential common shares could be excluded from the calculation of diluted EPS since our past experience or policy provided a reasonable basis that these securities would be settled in cash rather than shares.



| |  |                                            |  |                                                    
| |  | ------------------------------------------ |  | ---------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    99



---

2.C Reconciliation of Opening Consolidated Statement of Financial Position from Canadian GAAP to IFRS

The following reconciles our Canadian GAAP Consolidated Statement of Financial Position to our IFRS Consolidated Statement of Financial Position as
at the Transition Date. The Canadian GAAP balances have been presented in a format that is consistent with the presentation under IFRS and includes:



| |  | Elimination of separate presentation of HFT and AFS bonds and stocks which are now included in debt securities and equity securities, respectively.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Presentation of policy loans separate from other invested assets.
|- |  | -----------------------------------------------------------------

| |  | Presentation of property and equipment and deferred tax assets separate from other assets.
|- |  | ------------------------------------------------------------------------------------------

| |  | Presentation of investments for account of segregated fund holders and the related liabilities within total assets and total liabilities, respectively, and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Combined presentation of actuarial liabilities and other policy liabilities and amounts on deposit as insurance contracts.
|- |  | --------------------------------------------------------------------------------------------------------------------------

Explanations for the IFRS adjustments are included in the section that follows the opening Consolidated Statement of Financial Position reconciliation.



|                                                               |  |              |         |  |                     |   |        |                  |  |   |                                 |   |  |                              |        |   |      |   |        |   |  |   |         | 
|-------------------------------------------------------------- |  | ------------ | ------- |  | ------------------- | - | ------ | ---------------- |  | - | ------------------------------- | - |  | ---------------------------- | ------ | - | ---- | - | ------ | - |  | - | ------- | 
|                                                               |  |              |         |  | IFRS ADJUSTMENTS    |   |        |                  | 
|                                                               |  |              |         |  |                     |  
|As at January 1, 2010                                          |  | CanadianGAAP |         |  | Reclassification(1) |   |        | Consolidation(2) |  |   | Asset
&contractremeasurement(3) |   |  | IFRS 1exemptionsand
other(4) |        |   | IFRS |  
|Assets                                                         |  |              |         |  |                     |   |        |                  |  |   |                                 |   |  |                              |        |   |      |   |        |   |  |   |         | 
|Cash, cash equivalents and short-term securities               |  | $            | 11,868  |  |                     | $ | 19     |                  |  | $ | 47                              |   |  | $                            |       |   |      | $ |       |   |  | $ | 11,934  | 
|Debt securities(1)                                             |  |              | 61,307  |  |                     |   |       |                  |  |   | 288                             |   |  |                              | (7,680 | ) |      |   |       |   |  |   | 53,915  | 
|Equity securities(1)                                           |  |              | 4,966   |  |                     |   |       |                  |  |   | (11                             | ) |  |                              | 14     |   |      |   |       |   |  |   | 4,969   | 
|Mortgage and loans                                             |  |              | 19,449  |  |                     |   |       |                  |  |   | 405                             |   |  |                              | 7,067  |   |      |   |       |   |  |   | 26,921  | 
|Derivative assets                                              |  |              | 1,382   |  |                     |   |       |                  |  |   | 65                              |   |  |                              | 8      |   |      |   |       |   |  |   | 1,455   | 
|Other invested assets(1)                                       |  |              | 1,077   |  |                     |   |       |                  |  |   | 19                              |   |  |                              | 30     |   |      |   |       |   |  |   | 1,126   | 
|Policy loans(1)                                                |  |              | 3,303   |  |                     |   |       |                  |  |   | (1                              | ) |  |                              |       |   |      |   |       |   |  |   | 3,302   | 
|Investment properties                                          |  |              | 4,877   |  |                     |   | (402   | )                |  |   |                                |   |  |                              | 71     |   |      |   |       |   |  |   | 4,546   | 
|Other assets(1)                                                |  |              | 3,307   |  |                     |   | 34     |                  |  |   | (21                             | ) |  |                              | (12    | ) |      |   | (392   | ) |  |   | 2,916   | 
|Reinsurance assets                                             |  |              |        |  |                     |   | 3,334  |                  |  |   |                                |   |  |                              | 9      |   |      |   |       |   |  |   | 3,343   | 
|Deferred tax asset(1) (2)                                      |  |              | 1,054   |  |                     |   |       |                  |  |   | (12                             | ) |  |                              | 127    |   |      |   | 143    |   |  |   | 1,312   | 
|Property and equipment(1)                                      |  |              | 156     |  |                     |   | 523    |                  |  |   |                                |   |  |                              | (180   | ) |      |   |       |   |  |   | 499     | 
|Intangible assets                                              |  |              | 926     |  |                     |   |       |                  |  |   |                                |   |  |                              |       |   |      |   |       |   |  |   | 926     | 
|Goodwill                                                       |  |              | 6,419   |  |                     |   |       |                  |  |   |                                |   |  |                              |       |   |      |   | (1,829 | ) |  |   | 4,590   | 
|Investments for account of segregated fund holders(1)          |  |              | 81,305  |  |                     |   | (3     | )                |  |   | (754                            | ) |  |                              |       |   |      |   |       |   |  |   | 80,548  | 
|Total assets                                                   |  | $            | 201,396 |  |                     | $ | 3,505  |                  |  | $ | 25                              |   |  | $                            | (546   | ) |      | $ | (2,078 | ) |  | $ | 202,302 | 
|Liabilities and Equity                                         |  |              |         |  |                     |   |        |                  |  |   |                                 |   |  |                              |        |   |      |   |        |   |  |   |         | 
|Liabilities                                                    |  |              |         |  |                     |   |        |                  |  |   |                                 |   |  |                              |        |   |      |   |        |   |  |   |         | 
|Insurance contract liabilities(1)                              |  | $            | 88,939  |  |                     | $ | (1,649 | )                |  | $ | (60                             | ) |  | $                            | (374   | ) |      | $ |       |   |  | $ | 86,856  | 
|Investment contract liabilities(1)                             |  |              |        |  |                     |   | 4,899  |                  |  |   |                                |   |  |                              | 16     |   |      |   |       |   |  |   | 4,915   | 
|Derivative liabilities                                         |  |              | 1,257   |  |                     |   |       |                  |  |   | 26                              |   |  |                              | 11     |   |      |   |       |   |  |   | 1,294   | 
|Deferred tax liabilities(2)                                    |  |              | 58      |  |                     |   |       |                  |  |   |                                |   |  |                              | (2     | ) |      |   | (44    | ) |  |   | 12      | 
|Other liabilities(1)                                           |  |              | 5,374   |  |                     |   | 258    |                  |  |   | 808                             |   |  |                              | 44     |   |      |   | 209    |   |  |   | 6,693   | 
|Senior debentures                                              |  |              | 3,811   |  |                     |   |       |                  |  |   | (1,660                          | ) |  |                              |       |   |      |   |       |   |  |   | 2,151   | 
|Innovative capital instruments                                 |  |              |        |  |                     |   |       |                  |  |   | 1,644                           |   |  |                              |       |   |      |   |       |   |  |   | 1,644   | 
|Subordinated debt                                              |  |              | 3,048   |  |                     |   |       |                  |  |   |                                |   |  |                              |       |   |      |   |       |   |  |   | 3,048   | 
|Deferred net realized gains                                    |  |              | 225     |  |                     |   |       |                  |  |   |                                |   |  |                              | (225   | ) |      |   |       |   |  |   |        | 
|Insurance contracts for account of segregated fund
holders(1)  |  |              | 81,305  |  |                     |   | (6,258 | )                |  |   | (754                            | ) |  |                              |       |   |      |   |       |   |  |   | 74,293  | 
|Investment contracts for account of segregated fund holders(1) |  |              |        |  |                     |   | 6,255  |                  |  |   |                                |   |  |                              |       |   |      |   |       |   |  |   | 6,255   | 
|Total liabilities                                              |  | $            | 184,017 |  |                     | $ | 3,505  |                  |  | $ | 4                               |   |  | $                            | (530   | ) |      | $ | 165    |   |  | $ | 187,161 | 
|Non-controlling interests                                      |  |              | 42      |  |                     |   | (24    | )                |  |   |                                |   |  |                              |       |   |      |   | (18    | ) |  |   |        | 
|Total equity                                                   |  | $            | 17,337  |  |                     | $ | 24     |                  |  | $ | 21                              |   |  | $                            | (16    | ) |      | $ | (2,225 | ) |  | $ | 15,141  | 
|Total liabilities and equity                                   |  | $            | 201,396 |  |                     | $ | 3,505  |                  |  | $ | 25                              |   |  | $                            | (546   | ) |      | $ | (2,078 | ) |  | $ | 202,302 | 



|(1) | These descriptions are in a format consistent with the presentation under IFRS.
|--- | -------------------------------------------------------------------------------

|(2) | Adjustments have been presented on a gross basis with the related tax amount recorded in the deferred tax asset or deferred tax liabilities lines. The net of tax adjustment is
recorded in total equity.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|100    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

2.C.i Analysis of Adjustments to the Consolidated Statement of Financial Position from Transition to IFRS

Adjustments to our Consolidated Statement of Financial Position on the Transition Date were due to both measurement, as described in Section B of
this Note, and presentation differences between IFRS and Canadian GAAP which are described in the following sections.

1. Reclassification

These adjustments reflect changes in presentation under IFRS where there are no measurement differences.

Reinsurance Assets

In accordance with IFRS 4 Insurance
Contracts, reinsurance assets, representing the portion of the insurance contract liabilities that is covered by reinsurance arrangements are reported as assets. Under Canadian GAAP, these amounts were netted against Actuarial liabilities and
other policy liabilities in our Consolidated Statements of Financial Position.

Investment Contracts

Contracts issued by us that do not transfer significant insurance risk but do transfer financial risk from the policyholder to us, are financial liabilities. This
adjustment is to reclassify the balance from its previous classification under Canadian GAAP to investment contracts under IFRS.

Non-Controlling
Interests

In accordance with IAS 27, non-controlling interests are presented within equity. Under IFRS 1, we are required to apply this at the
Transition Date and therefore this adjustment is to reclassify the balance from liabilities to equity.

Segregated Funds

Assets held to cover certain liabilities related to segregated funds were required to be reported separately from general fund assets and liabilities under Canadian
GAAP. Under IAS 1 Presentation of Financial Statements, they are reported in separate accounts included in total assets and total liabilities. The segregated fund liabilities that are classified as investment contracts are to be presented
separately from insurance contract liabilities and therefore this adjustment is to reclassify the amounts.

Investment Properties and Property and
Equipment

Certain properties previously reported as Real estate under Canadian GAAP have been reclassified as owner-occupied assets under IFRS.
Leasehold improvements on investment properties have also been reclassified from Other assets to Investment properties.

2. Consolidation

Joint Ventures

Under IAS 31 Interests in
Joint Ventures, investments in joint ventures can be reported using the equity method or proportionate consolidation. We have elected to apply the equity method to investments in joint ventures. Under Canadian GAAP, these joint ventures were
reported using the proportionate consolidation method. As a result, the proportionately consolidated amounts recognized in our Consolidated Statements of Financial Position in both the general fund and segregated fund balances, were reversed with an
increase to Other invested assets to record the equity investment.

Consolidation of Special Purpose Entities

In accordance with SIC 12 Consolidation-Special Purpose Entities, we are required to consolidate certain SPEs where we have control, based on the substance
of the relationship between us and the SPEs. The SPEs that have been consolidated include certain trust entities that were created to securitize mortgage assets originated by us where we are a creditor. We have also consolidated SPEs that were used
to securitize various financial assets, including debt and equity securities where we are the asset manager and a creditor. All the assets, liabilities, income and expenses of these SPEs have been consolidated by us, while our investment in
securities issued by these SPEs, and related income have been eliminated.

As a result of the consolidation of the Sun Life Capital Trusts, innovative
capital instruments have been included on our Consolidated Statement of Financial Position under IFRS and the Sun Life Assurance senior debentures held by these trusts that were included on the Consolidated Statement of Financial Position under
Canadian GAAP have been eliminated on consolidation.

3. Assets and Contract Remeasurement

These adjustments reflect differences in measurement of assets and insurance contracts as described in Section B of this Note.

Debt Securities

Certain debt securities classified as HFT
or AFS under Canadian GAAP are required to be reclassified as loans and receivables and measured at amortized cost under IFRS, as these debt instruments are not quoted in an active market. These assets have been reclassified from Debt securities
previously classified as HFT and AFS of $7,550 and $168, respectively, under Canadian GAAP to Mortgages and loans classified as loans and receivables under IFRS and measured at amortized cost of $7,102. In addition, certain debt securities
classified as HFT assets under Canadian GAAP have been reclassified as AFS under IFRS as they support contracts classified as investment contract liabilities under IFRS. These assets continue to be measured at fair value under IFRS.

Certain debt securities classified as corporate loans under Canadian GAAP have been reclassified as HFT under IFRS. These assets, previously recorded at their
amortized cost of $35, have been reclassified and measured at their fair value of $38.

Equity Securities

Certain non-quoted equity securities classified as AFS and measured at amortized cost of $14 under Canadian GAAP have been reclassified as FVTPL and have been
measured at fair value of $28 as required under IFRS.





| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    101



---

Other Invested Assets

In accordance with IAS 39, investments which were not quoted in an active market must be measured at fair value when fair value is reliably measureable whereas under Canadian GAAP these were classified as AFS and
were measured at cost. Certain investments in limited partnerships have been reclassified from AFS measured at amortized cost of $292 to FVTPL measured at fair value of $301. Certain investments in limited partnerships continued to be classified as
AFS, however, the measurement basis has changed from amortized cost of $127 to fair value of $148.

Investment Properties

The adjustment of $71 is for the change in measurement of investment properties from MAMM previously reported under Canadian GAAP to fair value under IFRS.

Property and Equipment

As part of the IFRS 1
exemptions, we have chosen to measure assets classified as Property and equipment under IFRS at cost less accumulated depreciation and impairment. Certain assets were previously reported in Real estate and measured using MAMM. The adjustment
reflects the change in measurement of these assets from MAMM to depreciated cost under IFRS.

Investment Contracts

Some contracts that were classified as insurance contracts under Canadian GAAP are classified as investment contracts under IFRS. Investment contract liabilities
are measured at fair value or amortized cost in accordance with IAS 39, which is different than the measurement basis under Canadian GAAP. Investment contracts include medium-term notes, certain unit-linked products, certain non-unit linked pension
contracts, trust deposit contracts and term certain annuities.

Investment contracts with DPF continue to be measured on the basis used for insurance
contracts.

Insurance Contracts

Under Canadian
accepted actuarial practice, the value of insurance contract liabilities is determined by reference to the carrying value of the assets supporting those liabilities. As a result of the measurement differences recorded on assets supporting insurance
contract liabilities, corresponding adjustments were made to the measurement of insurance contract liabilities.

4. IFRS 1 Exemptions and Other

These adjustments reflect the adjustments for optional exemptions and mandatory exceptions described in Section A of this Note and differences in
measurement that were described in Section B of this Note. These include adjustments related to employee benefits, goodwill impairment, share-based payments and the related income tax amounts. This also includes an adjustment to opening goodwill of
$4 to reflect the timing differences of purchase price adjustments between Canadian GAAP and IFRS.

2.D Reconciliation of Consolidated Cash Flows
from Canadian GAAP to IFRS

We have presented our Consolidated Statements of Cash Flows in accordance with IAS 7 Statement of Cash Flows. Our
cash flows are required to be classified as operating, investing or financing activities in a manner consistent with that of a financial services organization. Operating activities include sales, purchases and maturities of invested assets which are
previously included in investing activities under Canadian GAAP. The difference between Canadian GAAP and IFRS for cash, cash equivalents and short-term securities is primarily due to the deconsolidation of joint venture investments and
consolidation of SPEs (see Sections B and C of this Note for further details).

3. Disposition





On December 31, 2010, we sold our life retrocession business to Berkshire Hathaway Life Co. of Nebraska (BHLN). Our run-off reinsurance business, which is a closed block of reinsurance assumed from
other reinsurers, was excluded from this transaction. The transaction was structured as reinsurance agreements between BHLN and us, in which we transferred the actuarial liabilities as well as the policy-related assets and liabilities to BHLN. The
net cash payment to BHLN was $240 in lieu of transferring the invested assets backing the actuarial liabilities. As a result of the agreement, we exited the life retrocession business and transferred the infrastructure (which includes the IT systems
and workforce) needed to administer the life retrocession business to BHLN. As we transferred substantially all of the economic risks and benefits relating to this business, the transaction was accounted for as a sale of business. The after-tax loss
on disposal was $32 (net of taxes of $129). The pre-tax gain on disposal, net of cumulative foreign currency translation loss of $33, was recorded in Interest and other investment income (loss) in our Consolidated Statements of Operations. The
carrying value of the business sold included $309 of goodwill.

4. Segmented Information





We have five reportable segments: Sun Life Financial Canada (SLF Canada), Sun Life Financial United States (SLF U.S.), MFS, Sun Life Financial Asia (SLF Asia) and Corporate.
These reportable segments operate in the financial services industry and reflect our management structure and internal financial reporting. Corporate includes the results of our U.K. business unit, our Corporate Support operations, which includes
life retrocession and run-off reinsurance as well as investment income, expenses, capital and other items not allocated to our other business groups. In the fourth quarter of 2011, we transferred McLean Budden Limited to our subsidiary MFS. As a
result, the results of McLean Budden Limited are reported as part of the MFS segment instead of the SLF Canada segment and the related goodwill and intangible assets previously reported in SLF Canada are now reported as part of Corporate. Prior
period information has been restated to reflect this change in organization.

Revenues from our reportable segments are derived principally from life and
health insurance, investment management and annuities, mutual funds, and life retrocession. Revenues not attributed to the strategic business units are derived primarily from Corporate investments and earnings on capital.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|102    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

Transactions between segments are executed and priced on an arms-length basis in a manner similar to
transactions with third parties. These transactions consist primarily of internal financing agreements. They are measured at fair values prevailing when the arrangements are negotiated. Inter-segment revenue consists of interest income and fee
income and is presented in the consolidation adjustments column in the tables that follow.



|                                                                   |  |           |        |   |          |   |        |     |  |   |         |  |  |           |       |  |                           |   |        |       |  |   |        |   |  |   |         |  
|------------------------------------------------------------------ |  | --------- | ------ | - | -------- | - | ------ | --- |  | - | ------- |  |  | --------- | ----- |  | ------------------------- | - | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                                                                  
|Results by segment for the years ended December 31 are as
follows: | 
|                                                                   |  |           |        |   |          |   |       
|                                                                   |  | SLFCanada |        |   | SLF U.S. |   |        | MFS |  |   | SLFAsia |  |  | Corporate |       |  | Consolidation
adjustments |   |        | Total | 
|2011                                                               |  |           |        |   |          |   |        |     |  |   |         |  |  |           |       |  |                           |   |        |       |  |   |        |   |  |   |         |  
|Gross premiums:                                                    |  |           |        |   |          |   |        |     |  |   |         |  |  |           |       |  |                           |   |        |       |  |   |        |   |  |   |         |  
|Annuities                                                          |  | $         | 1,840  |   |          | $ | 1,234  |     |  | $ |        |  |  | $         |      |  |                           | $ | 202    |       |  | $ |       |   |  | $ | 3,276   |  
|Life insurance                                                     |  |           | 3,249  |   |          |   | 2,111  |     |  |   |        |  |  |           | 674   |  |                           |   | 116    |       |  |   |       |   |  |   | 6,150   |  
|Health insurance                                                   |  |           | 3,376  |   |          |   | 1,504  |     |  |   |        |  |  |           | 9     |  |                           |   | 10     |       |  |   |       |   |  |   | 4,899   |  
|Total gross premiums                                               |  |           | 8,465  |   |          |   | 4,849  |     |  |   |        |  |  |           | 683   |  |                           |   | 328    |       |  |   |       |   |  |   | 14,325  |  
|Less: ceded premiums                                               |  |           | 4,551  |   |          |   | 384    |     |  |   |        |  |  |           | 49    |  |                           |   | 27     |       |  |   |       |   |  |   | 5,011   |  
|Net Investment income (loss)                                       |  |           | 4,958  |   |          |   | 3,327  |     |  |   |        |  |  |           | 684   |  |                           |   | 1,057  |       |  |   | (112   | ) |  |   | 9,914   |  
|Fee income                                                         |  |           | 746    |   |          |   | 757    |     |  |   | 1,640   |  |  |           | 119   |  |                           |   | 171    |       |  |   | (80    | ) |  |   | 3,353   |  
|Total revenue                                                      |  | $         | 9,618  |   |          | $ | 8,549  |     |  | $ | 1,640   |  |  | $         | 1,437 |  |                           | $ | 1,529  |       |  | $ | (192   | ) |  | $ | 22,581  |  
|Total benefits and expenses                                        |  | $         | 9,172  |   |          | $ | 9,827  |     |  | $ | 1,305   |  |  | $         | 1,266 |  |                           | $ | 1,834  |       |  | $ | (192   | ) |  | $ | 23,212  |  
|Income tax expense (benefit)                                       |  | $         | (10    | ) |          | $ | (388   | )   |  | $ | 140     |  |  | $         | 33    |  |                           | $ | (222   | )     |  | $ |       |   |  | $ | (447    | )
|Total net income (loss)                                            |  | $         | 456    |   |          | $ | (890   | )   |  | $ | 195     |  |  | $         | 138   |  |                           | $ | (83    | )     |  | $ |       |   |  | $ | (184    | )
|2010                                                               |  |           |        |   |          |   |        |     |  |   |         |  |  |           |       |  |                           |   |        |       |  |   |        |   |  |   |         |  
|Gross premiums:                                                    |  |           |        |   |          |   |        |     |  |   |         |  |  |           |       |  |                           |   |        |       |  |   |        |   |  |   |         |  
|Annuities                                                          |  | $         | 1,333  |   |          | $ | 1,676  |     |  | $ |        |  |  | $         |      |  |                           | $ | 219    |       |  | $ |       |   |  | $ | 3,228   |  
|Life insurance                                                     |  |           | 3,167  |   |          |   | 2,660  |     |  |   |        |  |  |           | 777   |  |                           |   | 651    |       |  |   |       |   |  |   | 7,255   |  
|Health insurance                                                   |  |           | 3,184  |   |          |   | 1,501  |     |  |   |        |  |  |           | 8     |  |                           |   | 11     |       |  |   |       |   |  |   | 4,704   |  
|Total gross premiums                                               |  |           | 7,684  |   |          |   | 5,837  |     |  |   |        |  |  |           | 785   |  |                           |   | 881    |       |  |   |       |   |  |   | 15,187  |  
|Less: ceded premiums                                               |  |           | 972    |   |          |   | 382    |     |  |   |        |  |  |           | 21    |  |                           |   | 42     |       |  |   |       |   |  |   | 1,417   |  
|Net Investment income (loss)                                       |  |           | 3,793  |   |          |   | 2,459  |     |  |   | 8       |  |  |           | 698   |  |                           |   | 1,090  |       |  |   | (121   | ) |  |   | 7,927   |  
|Fee income                                                         |  |           | 716    |   |          |   | 654    |     |  |   | 1,527   |  |  |           | 109   |  |                           |   | 165    |       |  |   | (67    | ) |  |   | 3,104   |  
|Total revenue                                                      |  | $         | 11,221 |   |          | $ | 8,568  |     |  | $ | 1,535   |  |  | $         | 1,571 |  |                           | $ | 2,094  |       |  | $ | (188   | ) |  | $ | 24,801  |  
|Total benefits and expenses                                        |  | $         | 10,355 |   |          | $ | 8,145  |     |  | $ | 1,257   |  |  | $         | 1,445 |  |                           | $ | 1,916  |       |  | $ | (188   | ) |  | $ | 22,930  |  
|Income tax expense (benefit)                                       |  | $         | 80     |   |          | $ | 116    |     |  | $ | 119     |  |  | $         | 34    |  |                           | $ | 4      |       |  | $ |       |   |  | $ | 353     |  
|Total net income (loss)                                            |  | $         | 786    |   |          | $ | 307    |     |  | $ | 159     |  |  | $         | 92    |  |                           | $ | 174    |       |  | $ |       |   |  | $ | 1,518   |  
|                                                                   |  |           |        |   |          |   |        |     |  |   |         |  |  |           |       |  |                           |   |        |       |  |   |        |   |  |   |         |  
|                                                                  
|Assets and liabilities by segment are as follows:                  | 
|                                                                   |  |           |        |   |          |   |       
|                                                                   |  | SLFCanada |        |   | SLF U.S. |   |        | MFS |  |   | SLFAsia |  |  | Corporate |       |  | Consolidation
adjustments |   |        | Total | 
|As at December 31, 2011                                            |  |           |        |   |          |   |        |     |  |   |         |  |  |           |       |  |                           |   |        |       |  |   |        |   |  |   |         |  
|Total general fund assets                                          |  | $         | 64,192 |   |          | $ | 44,490 |     |  | $ | 1,180   |  |  | $         | 8,122 |  |                           | $ | 12,165 |       |  | $ | (305   | ) |  | $ | 129,844 |  
|Investments for account of segregated fund holders                 |  | $         | 47,245 |   |          | $ | 29,804 |     |  | $ |        |  |  | $         | 1,198 |  |                           | $ | 9,936  |       |  | $ |       |   |  | $ | 88,183  |  
|Total general fund liabilities                                     |  | $         | 57,615 |   |          | $ | 38,196 |     |  | $ | 973     |  |  | $         | 6,336 |  |                           | $ | 11,299 |       |  | $ | (305   | ) |  | $ | 114,114 |  
|As at December 31, 2010                                            |  |           |        |   |          |   |        |     |  |   |         |  |  |           |       |  |                           |   |        |       |  |   |        |   |  |   |         |  
|Total general fund assets                                          |  | $         | 59,746 |   |          | $ | 41,791 |     |  | $ | 1,085   |  |  | $         | 7,164 |  |                           | $ | 12,749 |       |  | $ | (234   | ) |  | $ | 122,301 |  
|Investments for account of segregated fund holders                 |  | $         | 47,171 |   |          | $ | 28,830 |     |  | $ |        |  |  | $         | 1,181 |  |                           | $ | 10,764 |       |  | $ |       |   |  | $ | 87,946  |  
|Total general fund liabilities                                     |  | $         | 53,405 |   |          | $ | 36,477 |     |  | $ | 791     |  |  | $         | 5,538 |  |                           | $ | 10,253 |       |  | $ | (234   | ) |  | $ | 106,230 |  
|As at January 1, 2010                                              |  |           |        |   |          |   |        |     |  |   |         |  |  |           |       |  |                           |   |        |       |  |   |        |   |  |   |         |  
|Total general fund assets                                          |  | $         | 55,754 |   |          | $ | 43,502 |     |  | $ | 925     |  |  | $         | 6,447 |  |                           | $ | 16,431 |       |  | $ | (1,305 | ) |  | $ | 121,754 |  
|Investments for account of segregated fund holders                 |  | $         | 41,426 |   |          | $ | 26,848 |     |  | $ |        |  |  | $         | 1,034 |  |                           | $ | 11,240 |       |  | $ |       |   |  | $ | 80,548  |  
|Total general fund liabilities                                     |  | $         | 50,046 |   |          | $ | 39,792 |     |  | $ | 556     |  |  | $         | 4,912 |  |                           | $ | 12,612 |       |  | $ | (1,305 | ) |  | $ | 106,613 |  



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    103



---

The results of our reportable segments differ from geographic segments primarily due to segmenting the results of our
Corporate segment.

The following table shows revenue, net income (loss), assets and liabilities by country for Corporate:

|                                |  |      |       |   |      |   |       |  
|------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|For the years ended December 31 |  | 2011 |       |   | 2010 |  
|Revenue:                        |  |      |       |   |      |   |       |  
|United States                   |  | $    | 225   |   |      | $ | 518   |  
|United Kingdom                  |  |      | 1,336 |   |      |   | 1,354 |  
|Canada                          |  |      | (55   | ) |      |   | 204   |  
|Other countries                 |  |      | 23    |   |      |   | 18    |  
|Total revenue                   |  | $    | 1,529 |   |      | $ | 2,094 |  
|Total net income (loss):        |  |      |       |   |      |   |       |  
|United States                   |  | $    | (72   | ) |      | $ | 65    |  
|United Kingdom                  |  |      | 156   |   |      |   | 237   |  
|Canada                          |  |      | (173  | ) |      |   | (142  | )
|Other countries                 |  |      | 6     |   |      |   | 14    |  
|Total net income (loss)         |  | $    | (83   | ) |      | $ | 174   |  



|                                                        |  |                  |        |  |                  |   |        |                |  |   |        | 
|------------------------------------------------------- |  | ---------------- | ------ |  | ---------------- | - | ------ | -------------- |  | - | ------ | 
|As at                                                   |  | December 31,2011 |        |  | December 31,2010 |   |        | January 1,2010 | 
|Total general fund assets:                              |  |                  |        |  |                  |   |        |                |  |   |        | 
|United States                                           |  | $                | 2,866  |  |                  | $ | 3,107  |                |  | $ | 4,987  | 
|United Kingdom                                          |  |                  | 8,635  |  |                  |   | 8,047  |                |  |   | 8,690  | 
|Canada                                                  |  |                  | 553    |  |                  |   | 1,480  |                |  |   | 2,638  | 
|Other countries                                         |  |                  | 111    |  |                  |   | 115    |                |  |   | 116    | 
|Total general fund assets                               |  | $                | 12,165 |  |                  | $ | 12,749 |                |  | $ | 16,431 | 
|Investment for account of segregated fund holders:      |  |                  |        |  |                  |   |        |                |  |   |        | 
|United Kingdom                                          |  | $                | 9,936  |  |                  | $ | 10,764 |                |  | $ | 11,240 | 
|Total investment for account of segregated fund holders |  | $                | 9,936  |  |                  | $ | 10,764 |                |  | $ | 11,240 | 
|Total general fund liabilities:                         |  |                  |        |  |                  |   |        |                |  |   |        | 
|United States                                           |  | $                | 2,216  |  |                  | $ | (16    | )              |  | $ | 548    | 
|United Kingdom                                          |  |                  | 7,620  |  |                  |   | 7,062  |                |  |   | 7,820  | 
|Canada                                                  |  |                  | 1,374  |  |                  |   | 3,114  |                |  |   | 4,136  | 
|Other countries                                         |  |                  | 89     |  |                  |   | 93     |                |  |   | 108    | 
|Total general fund liabilities                          |  | $                | 11,299 |  |                  | $ | 10,253 |                |  | $ | 12,612 | 

Management considers its external customers to be the individual policyholders and as such we are not reliant on any individual
customer.

5. Total Invested Assets and Related Net Investment Income





We invest primarily in debt securities, equity securities, mortgages and loans, derivatives, other invested assets and investment properties.

5.A Fair Value of All Invested Assets

The carrying values and fair values of our invested assets are shown in
the following tables:

|                                                      |  |               |         |  |            |   |         | 
|----------------------------------------------------- |  | ------------- | ------- |  | ---------- | - | ------- | 
|As at December 31, 2011                               |  | Carryingvalue |         |  | Fair
value |  
|Assets                                                |  |               |         |  |            |   |         | 
|Cash, cash equivalents and short-term securities      |  | $             | 8,837   |  |            | $ | 8,837   | 
|Debt securities  fair value through profit or loss   |  |               | 51,627  |  |            |   | 51,627  | 
|Debt securities  available-for-sale                  |  |               | 11,303  |  |            |   | 11,303  | 
|Equity securities  fair value through profit or loss |  |               | 3,731   |  |            |   | 3,731   | 
|Equity securities  available-for-sale                |  |               | 839     |  |            |   | 839     | 
|Mortgages and loans                                   |  |               | 27,755  |  |            |   | 30,530  | 
|Derivative assets                                     |  |               | 2,632   |  |            |   | 2,632   | 
|Other invested assets(1)                              |  |               | 1,348   |  |            |   | 1,348   | 
|Policy loans                                          |  |               | 3,276   |  |            |   | 3,276   | 
|Investment properties                                 |  |               | 5,313   |  |            |   | 5,313   | 
|Total invested assets                                 |  | $             | 116,661 |  |            | $ | 119,436 | 



|(1) | The carrying value includes other invested assets classified as FVTPL of $809, other invested assets classified as AFS of $155, and investments accounted for using the equity
method.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|104    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---



|                                                      |  |               |         |  |            |   |         | 
|----------------------------------------------------- |  | ------------- | ------- |  | ---------- | - | ------- | 
|                                                      |  |              
|As at December 31, 2010                               |  | Carryingvalue |         |  | Fair
value |  
|Assets                                                |  |               |         |  |            |   |         | 
|Cash, cash equivalents and short-term securities      |  | $             | 8,462   |  |            | $ | 8,462   | 
|Debt securities  fair value through profit or loss   |  |               | 47,982  |  |            |   | 47,982  | 
|Debt securities  available-for-sale                  |  |               | 10,631  |  |            |   | 10,631  | 
|Equity securities  fair value through profit or loss |  |               | 4,449   |  |            |   | 4,449   | 
|Equity securities  available-for-sale                |  |               | 782     |  |            |   | 782     | 
|Mortgages and loans                                   |  |               | 26,034  |  |            |   | 27,523  | 
|Derivative assets                                     |  |               | 1,648   |  |            |   | 1,648   | 
|Other invested assets(1)                              |  |               | 1,185   |  |            |   | 1,185   | 
|Policy loans                                          |  |               | 3,277   |  |            |   | 3,277   | 
|Investment properties                                 |  |               | 4,544   |  |            |   | 4,544   | 
|Total invested assets                                 |  | $             | 108,994 |  |            | $ | 110,483 | 



|(1) | The carrying value includes other invested assets classified as FVTPL of $749, other invested assets classified as AFS of $161, and investments accounted for using the equity
method.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                      |  |               |         |  |            |   |              | 
|----------------------------------------------------- |  | ------------- | ------- |  | ---------- | - | ------------ | 
|                                                      |  |              
|As at January 1, 2010                                 |  | Carryingvalue |         |  | Fair
value |  
|Assets                                                |  |               |         |  |            |   |              | 
|Cash, cash equivalents and short-term securities      |  | $             | 11,934  |  |            | $ | 11,934       | 
|Debt securities  fair value through profit or loss   |  |               | 44,384  |  |            |   | 44,384       | 
|Debt securities  available-for-sale                  |  |               | 9,531   |  |            |   | 9,531        | 
|Equity securities  fair value through profit or loss |  |               | 4,359   |  |            |   | 4,359        | 
|Equity securities  available-for-sale                |  |               | 610     |  |            |   | 610          | 
|Mortgages and loans                                   |  |               | 26,921  |  |            |   | 27,977       | 
|Derivative assets                                     |  |               | 1,455   |  |            |   | 1,455        | 
|Other invested assets(1)                              |  |               | 1,126   |  |            |   | 1,126        | 
|Policy loans                                          |  |               | 3,302   |  |            |   | 3,302        | 
|Investment properties                                 |  |               | 4,546   |  |            |   | 4,546        | 
|Total invested assets                                 |  | $             | 108,168 |  |            |   | $    109,224 | 



|(1) | The carrying value includes other invested assets classified as FVTPL of $727, other invested assets classified as AFS of $183, and investments accounted for using the equity
method.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other invested assets include our investment in segregated funds, mutual funds, investments accounted for by the equity method and
investments in limited partnerships.

Derivative assets are derivative financial instruments that have a positive fair value and are, therefore, recorded
as assets on the Consolidated Statements of Financial Position. Derivative liabilities with a fair value of $1,059 ($718 as at December 31, 2010 and $1,294 as at January 1, 2010) are also included on the Consolidated Statements of
Financial Position.

5.A.i Fair Value Methodologies and Assumptions

The fair value of short-term securities is approximated by their carrying amount adjusted for credit risk where appropriate.

The fair value of government and corporate debt securities is determined using quoted market prices in active markets for identical or similar securities. When quoted prices in active markets are not available,
fair value is determined using market standard valuation methodologies, which include discounted cash flow analysis, consensus pricing from various broker dealers that are typically the market makers, or other similar techniques. The assumptions and
valuation inputs in applying these market standard valuation methodologies are determined primarily using observable market inputs, which include, but are not limited to, benchmark yields, reported trades of identical or similar instruments, broker
dealer quotes, issuer spreads, bid prices, and reference data including market research publications. In limited circumstances, non-binding broker quotes are used.

The fair value of asset-backed securities is determined using quoted market prices in active markets for identical or similar securities, when available, or valuation methodologies and valuation inputs similar to
those used for government and corporate debt securities. Additional valuation inputs include structural characteristics of the securities, and the underlying collateral performance, such as prepayment speeds and delinquencies. Expected prepayment
speeds are based primarily on those previously experienced in the market at projected future interest rate levels. In instances where there is a lack of sufficient observable market data to value the securities, non-binding broker quotes are used.

The fair value of equity securities is determined using quoted market prices in active markets for identical securities or similar securities. When
quoted prices in active markets are not available, fair value is determined using equity valuation models, which include discounted cash flow analysis and other techniques that involve benchmark comparison. Valuation inputs primarily include
projected future operating cash flows and earnings, dividends, market discount rates, and earning multiples of comparable companies.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    105



---

The fair value of mortgages and loans, for disclosure purposes only, is determined by discounting the expected future
cash flows using a current market interest rate applicable to financial instruments with similar yield, credit quality and maturity characteristics. Valuation inputs typically include benchmark yields and risk-adjusted spreads from current lending
activities or loan issuances.

The fair value of derivative financial instruments depends upon derivative types. The fair value of exchange-traded
futures and options is determined using quoted market prices in active markets, while the fair value of over-the-counter (OTC) derivatives is determined using pricing models, such as discounted cash flow analysis or other market standard
valuation techniques, with primarily observable market inputs. Valuation inputs used to price OTC derivatives may include swap interest rate curves, foreign exchange spot and forward rates, index prices, the value of underlying securities, projected
dividends, volatility surfaces, and in limited circumstances, counterparty quotes.

The fair value of OTC derivative financial instruments also includes
credit valuation adjustments (CVA) to reflect the credit risk of both the derivative counterparty and ourselves as well as the impact of contractual factors designed to reduce our credit exposure, such as collateral and legal rights of
offset under master netting agreements. Inputs into determining the appropriate CVA are typically obtained from publicly available information and include credit default swap spreads when available, credit spreads derived from specific bond yields,
or published cumulative default experience data adjusted for current trends when credit default swap spreads are not available.

The fair value of other
invested assets is determined using quoted market prices in active markets or independent valuation information provided by investment management.

The
fair value of investment properties is determined using property valuation models that typically include expected future net cash flows discounted at current market interest rates. The methodologies and inputs used in these models are in accordance
with real estate industry valuation standards. Valuations are prepared externally or internally by professionally accredited real estate appraisers.

The
fair value of investments for accounts of segregated fund holders is determined using quoted market prices in active markets or independent valuation information provided by investment management. The fair value of direct investments within
investments for accounts of segregated fund holders, such as short term securities, government and corporate debt securities, is determined according to valuation methodologies and inputs described above in the respective asset type sections.

The methodologies and assumptions for determining the fair values of investment contract liabilities are included in Note 11.B.

5.A.ii Fair Value Hierarchy of Financial Instruments

We
categorize our financial instruments carried at fair value, based on the priority of the inputs to the valuation techniques used to measure fair value, into a three level fair value hierarchy as follows:

Level 1:    Fair value is based on unadjusted quoted prices for identical assets or liabilities in an active market. The types of
financial instruments classified as Level 1 generally include cash and cash equivalents, certain U.S. government and agency securities, and exchange traded equity securities.

Level 2:    Fair value is based on quoted prices for similar assets or liabilities in active markets, valuation that is based on significant observable inputs, or inputs that are derived
principally from or corroborated with observable market data through correlation or other means. The types of financial instruments classified as Level 2 generally include Canadian federal, provincial and municipal government, other foreign
government and corporate debt securities, certain asset-backed securities, and OTC derivatives.

Level 3:    Fair value is
based on valuation techniques that require one or more significant inputs that are not based on observable market inputs. These unobservable inputs reflect our expectations about the assumptions market participants would use in pricing the asset or
liability. The types of financial instruments classified as Level 3 generally include certain asset-backed securities, certain other invested assets, and investment contract liabilities.

The following tables present our financial instruments that are carried at fair value by hierarchy level:



|                                                              |  |         |        |  |         |   |         |         |  |   |       |  |  |   |         | 
|------------------------------------------------------------- |  | ------- | ------ |  | ------- | - | ------- | ------- |  | - | ----- |  |  | - | ------- | 
|As at December 31, 2011                                       |  | Level 1 |        |  | Level 2 |   |         | Level 3 |  |   | Total | 
|Assets                                                        |  |         |        |  |         |   |         |         |  |   |       |  |  |   |         | 
|Cash, cash equivalents and short-term securities              |  | $       | 8,540  |  |         | $ | 297     |         |  | $ |      |  |  | $ | 8,837   | 
|Debt securities  fair value through profit or loss(1)        |  |         | 2,065  |  |         |   | 48,041  |         |  |   | 1,521 |  |  |   | 51,627  | 
|Debt securities  available-for-sale(1)                       |  |         | 902    |  |         |   | 10,283  |         |  |   | 118   |  |  |   | 11,303  | 
|Equity securities  fair value through profit or loss         |  |         | 3,023  |  |         |   | 582     |         |  |   | 126   |  |  |   | 3,731   | 
|Equity securities  available-for-sale                        |  |         | 720    |  |         |   | 119     |         |  |   |      |  |  |   | 839     | 
|Derivative assets                                             |  |         | 58     |  |         |   | 2,561   |         |  |   | 13    |  |  |   | 2,632   | 
|Other invested assets                                         |  |         | 323    |  |         |   | 46      |         |  |   | 595   |  |  |   | 964     | 
|Total invested assets                                         |  | $       | 15,631 |  |         | $ | 61,929  |         |  | $ | 2,373 |  |  | $ | 79,933  | 
|Investments for account of segregated fund holders            |  | $       | 45,363 |  |         | $ | 42,550  |         |  | $ | 656   |  |  | $ | 88,569  | 
|Total financial instrument assets measured at fair value      |  | $       | 60,994 |  |         | $ | 104,479 |         |  | $ | 3,029 |  |  | $ | 168,502 | 
|Liabilities                                                   |  |         |        |  |         |   |         |         |  |   |       |  |  |   |         | 
|Investment contract liabilities                               |  | $       |       |  |         | $ | 54      |         |  | $ | 912   |  |  | $ | 966     | 
|Derivative liabilities                                        |  |         | 53     |  |         |   | 957     |         |  |   | 49    |  |  |   | 1,059   | 
|Investment contracts for account of segregated fund holders   |  |         | 4,360  |  |         |   | 1,154   |         |  |   | 19    |  |  |   | 5,533   | 
|Total financial instrument liabilities measured at fair value |  | $       | 4,413  |  |         | $ | 2,165   |         |  | $ | 980   |  |  | $ | 7,558   | 



|(1) | See tables below for further details.
|--- | -------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|106    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

Debt securities  FVTPL consist of the following:



|                                                          |  |         |            |  |         |   |             |         |  |   |            |  |  |   |             | 
|--------------------------------------------------------- |  | ------- | ---------- |  | ------- | - | ----------- | ------- |  | - | ---------- |  |  | - | ----------- | 
|As at December 31, 2011                                   |  | Level 1 |            |  | Level 2 |   |             | Level 3 |  |   | Total      | 
|Canada federal government                                 |  | $       |           |  |         | $ | 2,324       |         |  | $ |           |  |  | $ | 2,324       | 
|Canada provincial and municipal government                |  |         |           |  |         |   | 9,268       |         |  |   | 51         |  |  |   | 9,319       | 
|U.S. government and agency                                |  |         | 2,065      |  |         |   | 62          |         |  |   | 2          |  |  |   | 2,129       | 
|Other foreign government                                  |  |         |           |  |         |   | 4,876       |         |  |   | 19         |  |  |   | 4,895       | 
|Corporate                                                 |  |         |           |  |         |   | 29,300      |         |  |   | 502        |  |  |   | 29,802      | 
|Asset-backed securities:                                  |  |         |            |  |         |   |             |         |  |   |            |  |  |   |             | 
|Commercial mortgage-backed securities                     |  |         |           |  |         |   | 862         |         |  |   | 593        |  |  |   | 1,455       | 
|Residential mortgage-backed securities                    |  |         |           |  |         |   | 756         |         |  |   | 124        |  |  |   | 880         | 
|Collateralized debt obligations                           |  |         |           |  |         |   | 22          |         |  |   | 55         |  |  |   | 77          | 
|Other                                                     |  |         |           |  |         |   | 571         |         |  |   | 175        |  |  |   | 746         | 
|Total debt securities  fair value through profit or loss |  |         | $    2,065 |  |         |   | $    48,041 |         |  |   | $    1,521 |  |  |   | $    51,627 | 

Debt securities  AFS consist of the following:



|                                           |  |         |     |  |         |   |        |         |  |   |       |  |  |   |        | 
|------------------------------------------ |  | ------- | --- |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------ | 
|As at December 31, 2011                    |  | Level 1 |     |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Canada federal government                  |  | $       |    |  |         | $ | 1,194  |         |  | $ |      |  |  | $ | 1,194  | 
|Canada provincial and municipal government |  |         |    |  |         |   | 214    |         |  |   |      |  |  |   | 214    | 
|U.S. government and agency                 |  |         | 902 |  |         |   | 61     |         |  |   |      |  |  |   | 963    | 
|Other foreign government                   |  |         |    |  |         |   | 457    |         |  |   |      |  |  |   | 457    | 
|Corporate                                  |  |         |    |  |         |   | 7,868  |         |  |   | 31    |  |  |   | 7,899  | 
|Asset-backed securities:                   |  |         |     |  |         |   |        |         |  |   |       |  |  |   |        | 
|Commercial mortgage-backed securities      |  |         |    |  |         |   | 180    |         |  |   | 27    |  |  |   | 207    | 
|Residential mortgage-backed securities     |  |         |    |  |         |   | 260    |         |  |   |      |  |  |   | 260    | 
|Collateralized debt obligations            |  |         |    |  |         |   |       |         |  |   | 22    |  |  |   | 22     | 
|Other                                      |  |         |    |  |         |   | 49     |         |  |   | 38    |  |  |   | 87     | 
|Total debt securities  available-for-sale |  | $       | 902 |  |         | $ | 10,283 |         |  | $ | 118   |  |  | $ | 11,303 | 



|                                                              |  |         |        |  |         |   |        |         |  |   |       |  |  |   |         | 
|------------------------------------------------------------- |  | ------- | ------ |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------- | 
|                                                              |  |         |        | 
|As at December 31, 2010                                       |  | Level 1 |        |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Assets                                                        |  |         |        |  |         |   |        |         |  |   |       |  |  |   |         | 
|Cash, cash equivalents and short-term
securities(1)           |  | $       | 8,226  |  |         | $ | 236    |         |  | $ |      |  |  | $ | 8,462   | 
|Debt securities  fair value through profit or loss(2)        |  |         | 1,778  |  |         |   | 44,761 |         |  |   | 1,443 |  |  |   | 47,982  | 
|Debt securities  available-for-sale(2)                       |  |         | 1,157  |  |         |   | 9,383  |         |  |   | 91    |  |  |   | 10,631  | 
|Equity securities  fair value through profit or loss         |  |         | 3,846  |  |         |   | 509    |         |  |   | 94    |  |  |   | 4,449   | 
|Equity securities  available-for-sale                        |  |         | 636    |  |         |   | 105    |         |  |   | 41    |  |  |   | 782     | 
|Derivative assets                                             |  |         | 31     |  |         |   | 1,599  |         |  |   | 18    |  |  |   | 1,648   | 
|Other invested assets                                         |  |         | 255    |  |         |   | 54     |         |  |   | 601   |  |  |   | 910     | 
|Total invested assets                                         |  | $       | 15,929 |  |         | $ | 56,647 |         |  | $ | 2,288 |  |  | $ | 74,864  | 
|Investments for account of segregated fund holders            |  | $       | 46,984 |  |         | $ | 41,966 |         |  | $ | 571   |  |  | $ | 89,521  | 
|Total financial instrument assets measured at fair value      |  | $       | 62,913 |  |         | $ | 98,613 |         |  | $ | 2,859 |  |  | $ | 164,385 | 
|Liabilities                                                   |  |         |        |  |         |   |        |         |  |   |       |  |  |   |         | 
|Investment contract liabilities                               |  | $       |       |  |         | $ | 95     |         |  | $ | 2,112 |  |  | $ | 2,207   | 
|Derivative liabilities                                        |  |         | 2      |  |         |   | 666    |         |  |   | 50    |  |  |   | 718     | 
|Investment contracts for account of segregated fund holders   |  |         | 4,956  |  |         |   | 1,042  |         |  |   | 17    |  |  |   | 6,015   | 
|Total financial instrument liabilities measured at fair value |  | $       | 4,958  |  |         | $ | 1,803  |         |  | $ | 2,179 |  |  | $ | 8,940   | 



|(1) | $1,167 were transferred from Level 2 to Level 1 due to the improved transparency of the inputs used to measure the fair value of the financial instruments.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | See tables below for further details.
|--- | -------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    107



---

Debt securities  FVTPL consist of the following:



|                                                          |  |         |       |  |         |   |        |         |  |   |       |  |  |   |        | 
|--------------------------------------------------------- |  | ------- | ----- |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------ | 
|                                                          |  |         |       | 
|As at December 31, 2010                                   |  | Level 1 |       |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Canada federal government                                 |  | $       |      |  |         | $ | 2,136  |         |  | $ |      |  |  | $ | 2,136  | 
|Canada provincial and municipal government                |  |         |      |  |         |   | 7,231  |         |  |   | 42    |  |  |   | 7,273  | 
|U.S. government and agency                                |  |         | 1,778 |  |         |   | 92     |         |  |   | 6     |  |  |   | 1,876  | 
|Other foreign government                                  |  |         |      |  |         |   | 4,348  |         |  |   | 5     |  |  |   | 4,353  | 
|Corporate                                                 |  |         |      |  |         |   | 28,182 |         |  |   | 570   |  |  |   | 28,752 | 
|Asset-backed securities:                                  |  |         |       |  |         |   |        |         |  |   |       |  |  |   |        | 
|Commercial mortgage-backed securities                     |  |         |      |  |         |   | 1,036  |         |  |   | 597   |  |  |   | 1,633  | 
|Residential mortgage-backed securities                    |  |         |      |  |         |   | 1,045  |         |  |   | 90    |  |  |   | 1,135  | 
|Collateralized debt obligations                           |  |         |      |  |         |   | 22     |         |  |   | 57    |  |  |   | 79     | 
|Other                                                     |  |         |      |  |         |   | 669    |         |  |   | 76    |  |  |   | 745    | 
|Total debt securities  fair value through profit or loss |  | $       | 1,778 |  |         | $ | 44,761 |         |  | $ | 1,443 |  |  | $ | 47,982 | 

Debt securities  AFS consist of the following:



|                                           |  |         |       |  |         |   |       |         |  |   |       |  |  |   |        | 
|------------------------------------------ |  | ------- | ----- |  | ------- | - | ----- | ------- |  | - | ----- |  |  | - | ------ | 
|                                           |  |         |       | 
|As at December 31, 2010                    |  | Level 1 |       |  | Level 2 |   |       | Level 3 |  |   | Total | 
|Canada federal government                  |  | $       |      |  |         | $ | 1,312 |         |  | $ |      |  |  | $ | 1,312  | 
|Canada provincial and municipal government |  |         |      |  |         |   | 170   |         |  |   |      |  |  |   | 170    | 
|U.S. government and agency                 |  |         | 1,157 |  |         |   | 45    |         |  |   |      |  |  |   | 1,202  | 
|Other foreign government                   |  |         |      |  |         |   | 426   |         |  |   |      |  |  |   | 426    | 
|Corporate                                  |  |         |      |  |         |   | 6,948 |         |  |   | 32    |  |  |   | 6,980  | 
|Asset-backed securities:                   |  |         |       |  |         |   |       |         |  |   |       |  |  |   |        | 
|Commercial mortgage-backed securities      |  |         |      |  |         |   | 186   |         |  |   | 29    |  |  |   | 215    | 
|Residential mortgage-backed securities     |  |         |      |  |         |   | 279   |         |  |   | 1     |  |  |   | 280    | 
|Collateralized debt obligations            |  |         |      |  |         |   | 1     |         |  |   | 29    |  |  |   | 30     | 
|Other                                      |  |         |      |  |         |   | 16    |         |  |   |      |  |  |   | 16     | 
|Total debt securities  available-for-sale |  | $       | 1,157 |  |         | $ | 9,383 |         |  | $ | 91    |  |  | $ | 10,631 | 



|                                                              |  |         |        |  |         |   |        |         |  |   |       |  |  |   |         | 
|------------------------------------------------------------- |  | ------- | ------ |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------- | 
|                                                              |  |         |        | 
|As at January 1, 2010                                         |  | Level 1 |        |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Assets                                                        |  |         |        |  |         |   |        |         |  |   |       |  |  |   |         | 
|Cash, cash equivalents and short-term securities              |  | $       | 9,724  |  |         | $ | 2,210  |         |  | $ |      |  |  | $ | 11,934  | 
|Debt securities  fair value through profit or
loss(1)        |  |         | 1,133  |  |         |   | 41,492 |         |  |   | 1,759 |  |  |   | 44,384  | 
|Debt securities  available-for-sale(1)                       |  |         | 393    |  |         |   | 8,998  |         |  |   | 140   |  |  |   | 9,531   | 
|Equity securities  fair value through profit or loss         |  |         | 4,013  |  |         |   | 318    |         |  |   | 28    |  |  |   | 4,359   | 
|Equity securities  available-for-sale                        |  |         | 594    |  |         |   |       |         |  |   | 16    |  |  |   | 610     | 
|Derivative assets                                             |  |         | 30     |  |         |   | 1,341  |         |  |   | 84    |  |  |   | 1,455   | 
|Other invested assets                                         |  |         | 264    |  |         |   | 47     |         |  |   | 599   |  |  |   | 910     | 
|Total invested assets                                         |  | $       | 16,151 |  |         | $ | 54,406 |         |  | $ | 2,626 |  |  | $ | 73,183  | 
|Investments for account of segregated fund holders            |  | $       | 42,200 |  |         | $ | 37,814 |         |  | $ | 822   |  |  | $ | 80,836  | 
|Total financial instrument assets measured at fair value      |  | $       | 58,351 |  |         | $ | 92,220 |         |  | $ | 3,448 |  |  | $ | 154,019 | 
|Liabilities                                                   |  |         |        |  |         |   |        |         |  |   |       |  |  |   |         | 
|Investment contract liabilities                               |  | $       |       |  |         | $ | 82     |         |  | $ | 3,142 |  |  | $ | 3,224   | 
|Derivative liabilities                                        |  |         | 8      |  |         |   | 1,208  |         |  |   | 78    |  |  |   | 1,294   | 
|Other liabilities                                             |  |         |       |  |         |   |       |         |  |   | 456   |  |  |   | 456     | 
|Investment contracts for account of segregated fund holders   |  |         | 5,108  |  |         |   | 1,122  |         |  |   | 25    |  |  |   | 6,255   | 
|Total financial instrument liabilities measured at fair value |  | $       | 5,116  |  |         | $ | 2,412  |         |  | $ | 3,701 |  |  | $ | 11,229  | 



|(1) | See tables below for further details.
|--- | -------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|108    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

Debt securities  FVTPL consist of the following:



|                                                          |  |         |       |  |         |   |        |         |  |   |       |  |  |   |        | 
|--------------------------------------------------------- |  | ------- | ----- |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------ | 
|                                                          |  |         |       | 
|As at January 1, 2010                                     |  | Level 1 |       |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Canada federal government                                 |  | $       |      |  |         | $ | 2,540  |         |  | $ |      |  |  | $ | 2,540  | 
|Canada provincial and municipal government                |  |         |      |  |         |   | 6,179  |         |  |   | 110   |  |  |   | 6,289  | 
|U.S. government and agency                                |  |         | 1,133 |  |         |   | 283    |         |  |   |      |  |  |   | 1,416  | 
|Other foreign government                                  |  |         |      |  |         |   | 3,940  |         |  |   | 92    |  |  |   | 4,032  | 
|Corporate                                                 |  |         |      |  |         |   | 25,848 |         |  |   | 723   |  |  |   | 26,571 | 
|Asset-backed securities:                                  |  |         |       |  |         |   |        |         |  |   |       |  |  |   |        | 
|Commercial mortgage-backed securities                     |  |         |      |  |         |   | 972    |         |  |   | 557   |  |  |   | 1,529  | 
|Residential mortgage-backed securities                    |  |         |      |  |         |   | 1,174  |         |  |   | 163   |  |  |   | 1,337  | 
|Collateralized debt obligations                           |  |         |      |  |         |   | 27     |         |  |   | 78    |  |  |   | 105    | 
|Other                                                     |  |         |      |  |         |   | 529    |         |  |   | 36    |  |  |   | 565    | 
|Total debt securities  fair value through profit or loss |  | $       | 1,133 |  |         | $ | 41,492 |         |  | $ | 1,759 |  |  | $ | 44,384 | 

Debt securities  AFS consist of the following:



|                                           |  |         |     |  |         |   |       |         |  |   |       |  |  |   |       | 
|------------------------------------------ |  | ------- | --- |  | ------- | - | ----- | ------- |  | - | ----- |  |  | - | ----- | 
|                                           |  |         |     | 
|As at January 1, 2010                      |  | Level 1 |     |  | Level 2 |   |       | Level 3 |  |   | Total | 
|Canada federal government                  |  | $       |    |  |         | $ | 395   |         |  | $ |      |  |  | $ | 395   | 
|Canada provincial and municipal government |  |         |    |  |         |   | 74    |         |  |   |      |  |  |   | 74    | 
|U.S. government and agency                 |  |         | 393 |  |         |   | 77    |         |  |   |      |  |  |   | 470   | 
|Other foreign government                   |  |         |    |  |         |   | 492   |         |  |   | 2     |  |  |   | 494   | 
|Corporate                                  |  |         |    |  |         |   | 7,437 |         |  |   | 71    |  |  |   | 7,508 | 
|Asset-backed securities:                   |  |         |     |  |         |   |       |         |  |   |       |  |  |   |       | 
|Commercial mortgage-backed securities      |  |         |    |  |         |   | 196   |         |  |   | 25    |  |  |   | 221   | 
|Residential mortgage-backed securities     |  |         |    |  |         |   | 318   |         |  |   |      |  |  |   | 318   | 
|Collateralized debt obligations            |  |         |    |  |         |   |      |         |  |   | 42    |  |  |   | 42    | 
|Other                                      |  |         |    |  |         |   | 9     |         |  |   |      |  |  |   | 9     | 
|Total debt securities  available-for-sale |  | $       | 393 |  |         | $ | 8,998 |         |  | $ | 140   |  |  | $ | 9,531 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    109



---

The following table shows a reconciliation of the beginning and ending balances for financial instruments that are
categorized in Level 3 for the year ended December 31, 2011:



|                                                              |  |                  |       |  |                             |   |     |                   |  |   |              |   |  |       |       |  |             |   |      |                           |  |   |                              |      |  |                                 |     |  |                |   |      |                                                                                          |  |   |     |   |  |   |       |  |  |   |    |  
|------------------------------------------------------------- |  | ---------------- | ----- |  | --------------------------- | - | --- | ----------------- |  | - | ------------ | - |  | ----- | ----- |  | ----------- | - | ---- | ------------------------- |  | - | ---------------------------- | ---- |  | ------------------------------- | --- |  | -------------- | - | ---- | ---------------------------------------------------------------------------------------- |  | - | --- | - |  | - | ----- |  |  | - | -- | -
|                                                              |  | Beginningbalance |       |  | Included
in netincome(1)(3) |   |     | Includedin
OCI(3) |  |   | Purchases(7) |   |  | Sales |       |  | Settlements |   |      | Transfers
into level 3(2) |  |   | Transfer
(out) of level 3(2) |      |  | Foreign
currency translation(4) |     |  | Ending
balance |   |      | Gains(losses)Includedin earningsrelating toinstruments
still heldat the
reportingdate(1) | 
|Assets                                                        |  |                  |       |  |                             |   |     |                   |  |   |              |   |  |       |       |  |             |   |      |                           |  |   |                              |      |  |                                 |     |  |                |   |      |                                                                                          |  |   |     |   |  |   |       |  |  |   |    |  
|Debt securities  fair value through profit or loss           |  | $                | 1,443 |  |                             | $ | (6  | )                 |  | $ |             |   |  | $     | 202   |  |             | $ | (146 | )                         |  | $ | (142                         | )    |  | $                               | 345 |  |                | $ | (194 | )                                                                                        |  | $ | 19  |   |  | $ | 1,521 |  |  | $ | 29 |  
|Debt securities  available-for-sale                          |  |                  | 91    |  |                             |   | (1  | )                 |  |   | (1           | ) |  |       | 43    |  |             |   | (15  | )                         |  |   | (7                           | )    |  |                                 | 13  |  |                |   | (6   | )                                                                                        |  |   | 1   |   |  |   | 118   |  |  |   | (1 | )
|Equity securities  fair value through profit or loss         |  |                  | 94    |  |                             |   | 18  |                   |  |   |             |   |  |       | 35    |  |             |   | (2   | )                         |  |   |                             |      |  |                                 |    |  |                |   | (21  | )                                                                                        |  |   | 2   |   |  |   | 126   |  |  |   | 18 |  
|Equity securities  available-for-sale                        |  |                  | 41    |  |                             |   |    |                   |  |   |             |   |  |       |      |  |             |   |     |                           |  |   | (2                           | )    |  |                                 |    |  |                |   | (39  | )                                                                                        |  |   |    |   |  |   |      |  |  |   |   |  
|Derivative assets                                             |  |                  | 18    |  |                             |   | 4   |                   |  |   |             |   |  |       | 5     |  |             |   |     |                           |  |   | (14                          | )    |  |                                 |    |  |                |   |     |                                                                                          |  |   |    |   |  |   | 13    |  |  |   |   |  
|Other invested assets                                         |  |                  | 601   |  |                             |   | (10 | )                 |  |   | (3           | ) |  |       | 97    |  |             |   | (92  | )                         |  |   |                             |      |  |                                 |    |  |                |   |     |                                                                                          |  |   | 2   |   |  |   | 595   |  |  |   | (3 | )
|Total invested assets                                         |  | $                | 2,288 |  |                             | $ | 5   |                   |  | $ | (4           | ) |  | $     | 382   |  |             | $ | (255 | )                         |  | $ | (165                         | )    |  | $                               | 358 |  |                | $ | (260 | )                                                                                        |  | $ | 24  |   |  | $ | 2,373 |  |  | $ | 43 |  
|Investments for account of segregated fund holders            |  | $                | 571   |  |                             | $ | (7  | )                 |  | $ |             |   |  | $     | 770   |  |             | $ | (685 | )                         |  | $ | (34                          | )    |  | $                               | 63  |  |                | $ | (34  | )                                                                                        |  | $ | 12  |   |  | $ | 656   |  |  | $ | (9 | )
|Total financial instrument assets measured at fair value      |  | $                | 2,859 |  |                             | $ | (2  | )                 |  | $ | (4           | ) |  | $     | 1,152 |  |             | $ | (940 | )                         |  | $ | (199                         | )    |  | $                               | 421 |  |                | $ | (294 | )                                                                                        |  | $ | 36  |   |  | $ | 3,029 |  |  | $ | 34 |  
|Liabilities(5)                                                |  |                  |       |  |                             |   |     |                   |  |   |              |   |  |       |       |  |             |   |      |                           |  |   |                              |      |  |                                 |     |  |                |   |      |                                                                                          |  |   |     |   |  |   |       |  |  |   |    |  
|Investment contract liabilities                               |  | $                | 2,112 |  |                             | $ |    |                   |  | $ |             |   |  | $     |      |  |             | $ |     |                           |  | $ | (1,172                       | )(6) |  | $                               |    |  |                | $ |     |                                                                                          |  | $ | (28 | ) |  | $ | 912   |  |  | $ |   |  
|Derivative liabilities                                        |  |                  | 50    |  |                             |   | (5  | )                 |  |   |             |   |  |       | 19    |  |             |   |     |                           |  |   | (13                          | )    |  |                                 |    |  |                |   | (3   | )                                                                                        |  |   | 1   |   |  |   | 49    |  |  |   | (7 | )
|Investment contracts for account of segregated fund-holders   |  |                  | 17    |  |                             |   | (2  | )                 |  |   |             |   |  |       | 4     |  |             |   | (5   | )                         |  |   |                             |      |  |                                 | 5   |  |                |   |     |                                                                                          |  |   |    |   |  |   | 19    |  |  | $ |   |  
|Total financial instrument liabilities measured at fair value |  | $                | 2,179 |  |                             | $ | (7  | )                 |  | $ |             |   |  | $     | 23    |  |             | $ | (5   | )                         |  | $ | (1,185                       | )    |  | $                               | 5   |  |                | $ | (3   | )                                                                                        |  | $ | (27 | ) |  | $ | 980   |  |  | $ | (7 | )



|(1) | Included within Net investment income (loss) in our Consolidated Statements of Operations.
|--- | ------------------------------------------------------------------------------------------

|(2) | During 2011, transfers into Level 3 occur when the inputs used to price the financial instrument lack observable market data and as a result, no longer meet the Level 1 or 2
definitions at the reporting date. In addition, transfers out of Level 3 occur when the pricing inputs become more transparent and satisfy the Level 1 or 2 criteria and are primarily the result of observable market data being available at the
reporting date, thus removing the requirement to rely on inputs that lack observability. If a financial instrument is transferred into and out of Level 3 during the same period, it is not included in the above table.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Total gains and losses in net income (loss) and OCI are calculated assuming transfers into or out of Level 3 occur at the beginning of the period. For a financial instrument that
transfers into Level 3 during the reporting period, the entire change in fair value for the period is included in the table above. For transfers out of Level 3 during the reporting period, the change in fair value for the period is excluded from the
table above.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Foreign currency translation relates to the foreign exchange impact of translating from functional currencies of Level 3 financial instruments in foreign subsidiaries to Canadian
dollars.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | For liabilities, gains are indicated in negative numbers.
|--- | ---------------------------------------------------------

|(6) | Some of our medium-term notes matured during the period.
|--- | --------------------------------------------------------

|(7) | Purchases of investments for account of segregated fund holders and Derivative liabilities include issuances of $4 and $19, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|110    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

The following table shows a reconciliation of the beginning and ending balances for financial instruments that are
categorized in Level 3 for the year ended December 31, 2010:



|                                                              |  |                  |       |  |                             |   |     |                   |  |   |           |   |  |       |       |  |             |   |        |                          |  |   |                             |      |  |                               |     |  |               |   |      |                                                                                        |  |   |      |   |  |   |       |  |  |   |     |  
|------------------------------------------------------------- |  | ---------------- | ----- |  | --------------------------- | - | --- | ----------------- |  | - | --------- | - |  | ----- | ----- |  | ----------- | - | ------ | ------------------------ |  | - | --------------------------- | ---- |  | ----------------------------- | --- |  | ------------- | - | ---- | -------------------------------------------------------------------------------------- |  | - | ---- | - |  | - | ----- |  |  | - | --- | -
|                                                              |  |                  |       |  |                             |   |     |                   |  |   |          
|                                                              |  | Beginningbalance |       |  | Includedin 
netincome(1)(3) |   |     | Includedin OCI(3) |  |   | Purchases |   |  | Sales |       |  | Settlements |   |        | Transfersintolevel 
3(2) |  |   | Transfers(out) oflevel
3(2) |      |  | Foreigncurrencytranslation(4) |     |  | Endingbalance |   |      | Gains(losses)included inearningsrelating
toinstrumentsstill heldat thereportingdate(1) | 
|Assets                                                        |  |                  |       |  |                             |   |     |                   |  |   |           |   |  |       |       |  |             |   |        |                          |  |   |                             |      |  |                               |     |  |               |   |      |                                                                                        |  |   |      |   |  |   |       |  |  |   |     |  
|Debt securities  fair value through profit or loss           |  | $                | 1,759 |  |                             | $ | 57  |                   |  | $ |          |   |  | $     | 261   |  |             | $ | (347   | )                        |  | $ | (95                         | )    |  | $                             | 268 |  |               | $ | (394 | )                                                                                      |  | $ | (66  | ) |  | $ | 1,443 |  |  | $ | 62  |  
|Debt securities  available-for-sale                          |  |                  | 140   |  |                             |   | (10 | )                 |  |   | 9         |   |  |       | 28    |  |             |   | (69    | )                        |  |   | (1                          | )    |  |                               | 11  |  |               |   | (13  | )                                                                                      |  |   | (4   | ) |  |   | 91    |  |  |   |    |  
|Equity securities  fair value through profit or loss         |  |                  | 28    |  |                             |   | 4   |                   |  |   |          |   |  |       | 71    |  |             |   | (7     | )                        |  |   |                            |      |  |                               |    |  |               |   |     |                                                                                        |  |   | (2   | ) |  |   | 94    |  |  |   | 1   |  
|Equity securities  available-for-sale                        |  |                  | 16    |  |                             |   | (7  | )                 |  |   | 9         |   |  |       | 37    |  |             |   | (11    | )                        |  |   | (2                          | )    |  |                               |    |  |               |   |     |                                                                                        |  |   | (1   | ) |  |   | 41    |  |  |   |    |  
|Derivative assets                                             |  |                  | 84    |  |                             |   | (13 | )                 |  |   |          |   |  |       | 13    |  |             |   | (41    | )                        |  |   | (2                          | )    |  |                               |    |  |               |   | (21  | )                                                                                      |  |   | (2   | ) |  |   | 18    |  |  |   | (1  | )
|Other invested assets                                         |  |                  | 599   |  |                             |   | (9  | )                 |  |   | (1        | ) |  |       | 83    |  |             |   | (63    | )                        |  |   |                            |      |  |                               |    |  |               |   |     |                                                                                        |  |   | (8   | ) |  |   | 601   |  |  |   | 4   |  
|Total invested assets                                         |  | $                | 2,626 |  |                             | $ | 22  |                   |  | $ | 17        |   |  | $     | 493   |  |             | $ | (538   | )                        |  | $ | (100                        | )    |  | $                             | 279 |  |               | $ | (428 | )                                                                                      |  | $ | (83  | ) |  | $ | 2,288 |  |  | $ | 66  |  
|Investments for account of segregated fund holders            |  | $                | 822   |  |                             | $ | 2   |                   |  | $ |          |   |  | $     | 622   |  |             | $ | (678   | )                        |  | $ | (1                          | )    |  | $                             | 4   |  |               | $ | (165 | )                                                                                      |  | $ | (35  | ) |  | $ | 571   |  |  | $ | 6   |  
|Total financial instrument assets measured at fair value      |  | $                | 3,448 |  |                             | $ | 24  |                   |  | $ | 17        |   |  | $     | 1,115 |  |             | $ | (1,216 | )                        |  | $ | (101                        | )    |  | $                             | 283 |  |               | $ | (593 | )                                                                                      |  | $ | (118 | ) |  | $ | 2,859 |  |  | $ | 72  |  
|Liabilities(5)                                                |  |                  |       |  |                             |   |     |                   |  |   |           |   |  |       |       |  |             |   |        |                          |  |   |                             |      |  |                               |     |  |               |   |      |                                                                                        |  |   |      |   |  |   |       |  |  |   |     |  
|Investment contract liabilities                               |  | $                | 3,142 |  |                             | $ | 75  |                   |  | $ |          |   |  | $     |      |  |             | $ |       |                          |  | $ | (988                        | )(6) |  | $                             |    |  |               | $ |     |                                                                                        |  | $ | (117 | ) |  | $ | 2,112 |  |  | $ |    |  
|Derivative liabilities                                        |  |                  | 78    |  |                             |   | (31 | )                 |  |   |          |   |  |       | 7     |  |             |   | (4     | )                        |  |   |                            |      |  |                               | 3   |  |               |   |     |                                                                                        |  |   | (3   | ) |  |   | 50    |  |  |   | (17 | )
|Other liabilities                                             |  |                  | 456   |  |                             |   |    |                   |  |   | (7        | ) |  |       |      |  |             |   | (440   | )(7)                     |  |   |                            |      |  |                               |    |  |               |   |     |                                                                                        |  |   | (9   | ) |  |   |      |  |  |   |    |  
|Investment contracts for account of segregated fund-holders   |  |                  | 25    |  |                             |   | (2  | )                 |  |   |          |   |  |       | 6     |  |             |   | (1     | )                        |  |   |                            |      |  |                               | 2   |  |               |   | (12  | )                                                                                      |  |   | (1   | ) |  |   | 17    |  |  |   |    |  
|Total financial instrument liabilities measured at fair value |  | $                | 3,701 |  |                             | $ | 42  |                   |  | $ | (7        | ) |  | $     | 13    |  |             | $ | (445   | )                        |  | $ | (988                        | )    |  | $                             | 5   |  |               | $ | (12  | )                                                                                      |  | $ | (130 | ) |  | $ | 2,179 |  |  | $ | (17 | )



|(1) | Included within Net investment income (loss) in our Consolidated Statements of Operations.
|--- | ------------------------------------------------------------------------------------------

|(2) | During 2010, transfers into Level 3 occur when the inputs used to price the financial instrument lack observable market data and as a result, no longer meet the Level 1 or 2
definitions at the reporting date. In addition, transfers out of Level 3 occur when the pricing inputs become more transparent and satisfy the Level 1 or 2 criteria and are primarily the result of observable market data being available at the
reporting date, thus removing the requirement to rely on inputs that lack observability. If a financial instrument is transferred into and out of Level 3 during the same period, it is not included in the above table.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Total gains and losses in net income (loss) and OCI are calculated assuming transfers into or out of Level 3 occur at the beginning of the period. For a financial instrument that
transfers into Level 3 during the reporting period, the entire change in fair value for the period is included in the table above. For transfers out of Level 3 during the reporting period, the change in fair value for the period is excluded from the
table above.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Foreign currency translation relates to the foreign exchange impact of translating from functional currencies of Level 3 financial instruments in foreign subsidiaries to Canadian
dollars.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | For liabilities, gains are indicated in negative numbers.
|--- | ---------------------------------------------------------

|(6) | Some of our medium-term notes matured during the period.
|--- | --------------------------------------------------------

|(7) | Other liabilities previously recognized through consolidation of certain SPEs are not recognized where we no longer consolidate the SPEs due to loss of control.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    111



---

5.B Interest and Other Investment Income

Interest and other investment income consist of the following:



|                                                                   |  |      |       |   |      |   |       |  
|------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|For the years ended December 31,                                   |  | 2011 |       |   | 2010 |  
|Interest income:                                                   |  |      |       |   |      |   |       |  
|Cash, cash equivalents and short-term securities                   |  | $    | 51    |   |      | $ | 31    |  
|Debt securities  fair value through profit or loss                |  |      | 2,376 |   |      |   | 2,467 |  
|Debt securities  available-for-sale                               |  |      | 423   |   |      |   | 469   |  
|Mortgages and loans                                                |  |      | 1,563 |   |      |   | 1,603 |  
|Derivative investments                                             |  |      | 42    |   |      |   | (47   | )
|Policy loans                                                       |  |      | 178   |   |      |   | 186   |  
|Interest income                                                    |  |      | 4,633 |   |      |   | 4,709 |  
|Equity securities  dividends on fair value through profit or loss |  |      | 115   |   |      |   | 107   |  
|Equity securities  dividends on available-for-sale                |  |      | 17    |   |      |   | 14    |  
|Investment properties rental income(1)                             |  |      | 546   |   |      |   | 555   |  
|Investment properties expenses                                     |  |      | (262  | ) |      |   | (268  | )
|Foreign exchange gains (losses)                                    |  |      | 69    |   |      |   | (59   | )
|Other income                                                       |  |      | 73    |   |      |   | 133   |  
|Investment expenses and taxes                                      |  |      | (136  | ) |      |   | (126  | )
|Total interest and other investment income                         |  | $    | 5,055 |   |      | $ | 5,065 |  



|(1) | Comprised of operating lease rental income.
|--- | -------------------------------------------

5.C Change in Fair
Value Through Profit or Loss Assets and Liabilities

Change in fair value through profit or loss assets and liabilities recorded to net income for
the years ended December 31 consist of the following:



|                                                                         |  |      |       |   |      |   |       |  
|------------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|                                                                         |  | 2011 |       |   | 2010 |  
|Cash, cash equivalents and short-term securities                         |  | $    | 4     |   |      | $ | 4     |  
|Debt securities                                                          |  |      | 3,242 |   |      |   | 2,358 |  
|Equity securities                                                        |  |      | (305  | ) |      |   | 431   |  
|Derivative investments                                                   |  |      | 1,435 |   |      |   | (12   | )
|Other invested assets                                                    |  |      | (15   | ) |      |   | 48    |  
|Investment properties                                                    |  |      | 296   |   |      |   | (51   | )
|Total change in fair value through profit or loss assets and liabilities |  | $    | 4,657 |   |      | $ | 2,778 |  

5.D Cash, Cash Equivalents, and Short-Term Securities

Cash, cash equivalents and short-term securities presented in the Consolidated Statements of Financial Position and Net cash, cash equivalents and short-term securities presented in the Consolidated Statements of
Cash Flows consist of the following:



|                                                     |  |                  |       |  |                  |   |       |                |  |   |        | 
|---------------------------------------------------- |  | ---------------- | ----- |  | ---------------- | - | ----- | -------------- |  | - | ------ | 
|As at                                                |  | December 31,2011 |       |  | December 31,2010 |   |       | January 1,2010 | 
|Cash                                                 |  | $                | 1,506 |  |                  | $ | 880   |                |  | $ | 1,291  | 
|Cash equivalents                                     |  |                  | 2,953 |  |                  |   | 2,729 |                |  |   | 4,673  | 
|Short term securities                                |  |                  | 4,378 |  |                  |   | 4,853 |                |  |   | 5,970  | 
|Cash, cash equivalents and short-term securities     |  |                  | 8,837 |  |                  |   | 8,462 |                |  |   | 11,934 | 
|Less: Bank overdraft, recorded in Other liabilities  |  |                  | 106   |  |                  |   | 208   |                |  |   | 39     | 
|Net cash, cash equivalents and short-term securities |  | $                | 8,731 |  |                  | $ | 8,254 |                |  | $ | 11,895 | 



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|112    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

5.E Gross Unrealized Gains and Gross Unrealized Losses on Available-For-Sale Debt and Equity Securities

Gross unrealized gains and gross unrealized losses included in accumulated OCI on AFS debt and equity securities are comprised as follows:



|                                             |  |                |        |  |                        |   |     |                           |  |   |            |   |  |   |        | 
|-------------------------------------------- |  | -------------- | ------ |  | ---------------------- | - | --- | ------------------------- |  | - | ---------- | - |  | - | ------ | 
|As at December 31, 2011                      |  | Amortized
cost |        |  | Gross
unrealized
gains |   |     | Gross
unrealized
(losses) |  |   | Fair
value |  
|Debt securities:                             |  |                |        |  |                        |   |     |                           |  |   |            |   |  |   |        | 
|Canadian federal government                  |  | $              | 1,190  |  |                        | $ | 5   |                           |  | $ | (1         | ) |  | $ | 1,194  | 
|Canadian provincial and municipal government |  |                | 202    |  |                        |   | 12  |                           |  |   |           |   |  |   | 214    | 
|U.S. government and agency                   |  |                | 932    |  |                        |   | 31  |                           |  |   |           |   |  |   | 963    | 
|Other foreign government                     |  |                | 388    |  |                        |   | 69  |                           |  |   |           |   |  |   | 457    | 
|Corporate                                    |  |                | 7,516  |  |                        |   | 506 |                           |  |   | (123       | ) |  |   | 7,899  | 
|Asset-backed securities:                     |  |                |        |  |                        |   |     |                           |  |   |            |   |  |   |        | 
|Commercial mortgage-backed securities        |  |                | 200    |  |                        |   | 17  |                           |  |   | (10        | ) |  |   | 207    | 
|Residential mortgage-backed securities       |  |                | 250    |  |                        |   | 10  |                           |  |   |           |   |  |   | 260    | 
|Collateralized debt obligations              |  |                | 32     |  |                        |   |    |                           |  |   | (10        | ) |  |   | 22     | 
|Other                                        |  |                | 87     |  |                        |   |    |                           |  |   |           |   |  |   | 87     | 
|Total debt securities                        |  |                | 10,797 |  |                        |   | 650 |                           |  |   | (144       | ) |  |   | 11,303 | 
|Equity securities                            |  |                | 797    |  |                        |   | 88  |                           |  |   | (46        | ) |  |   | 839    | 
|Total debt and equity securities             |  | $              | 11,594 |  |                        | $ | 738 |                           |  | $ | (190       | ) |  | $ | 12,142 | 



|                                             |  |                |        |  |                        |   |     |                           |  |   |            |   |  |   |        | 
|-------------------------------------------- |  | -------------- | ------ |  | ---------------------- | - | --- | ------------------------- |  | - | ---------- | - |  | - | ------ | 
|                                             |  |                |        | 
|As at December 31, 2010                      |  | Amortized
cost |        |  | Gross
unrealized gains |   |     | Gross
unrealized (losses) |  |   | Fair
value |  
|Debt securities:                             |  |                |        |  |                        |   |     |                           |  |   |            |   |  |   |        | 
|Canadian federal government                  |  | $              | 1,292  |  |                        | $ | 22  |                           |  | $ | (2         | ) |  | $ | 1,312  | 
|Canadian provincial and municipal government |  |                | 160    |  |                        |   | 10  |                           |  |   |           |   |  |   | 170    | 
|U.S. government and agency                   |  |                | 1,207  |  |                        |   | 13  |                           |  |   | (18        | ) |  |   | 1,202  | 
|Other foreign government                     |  |                | 376    |  |                        |   | 51  |                           |  |   | (1         | ) |  |   | 426    | 
|Corporate                                    |  |                | 6,700  |  |                        |   | 364 |                           |  |   | (84        | ) |  |   | 6,980  | 
|Asset-backed securities:                     |  |                |        |  |                        |   |     |                           |  |   |            |   |  |   |        | 
|Commercial mortgage-backed securities        |  |                | 210    |  |                        |   | 24  |                           |  |   | (19        | ) |  |   | 215    | 
|Residential mortgage-backed securities       |  |                | 269    |  |                        |   | 11  |                           |  |   |           |   |  |   | 280    | 
|Collateralized debt obligations              |  |                | 39     |  |                        |   |    |                           |  |   | (9         | ) |  |   | 30     | 
|Other                                        |  |                | 16     |  |                        |   |    |                           |  |   |           |   |  |   | 16     | 
|Total debt securities                        |  |                | 10,269 |  |                        |   | 495 |                           |  |   | (133       | ) |  |   | 10,631 | 
|Equity securities                            |  |                | 654    |  |                        |   | 142 |                           |  |   | (14        | ) |  |   | 782    | 
|Total debt and equity securities             |  | $              | 10,923 |  |                        | $ | 637 |                           |  | $ | (147       | ) |  | $ | 11,413 | 



|                                             |  |                |        |  |                        |   |     |                           |  |   |            |   |  |   |        | 
|-------------------------------------------- |  | -------------- | ------ |  | ---------------------- | - | --- | ------------------------- |  | - | ---------- | - |  | - | ------ | 
|                                             |  |                |        | 
|As at January 1, 2010                        |  | Amortized
cost |        |  | Gross
unrealized gains |   |     | Gross
unrealized (losses) |  |   | Fair
value |  
|Debt securities:                             |  |                |        |  |                        |   |     |                           |  |   |            |   |  |   |        | 
|Canadian federal government                  |  | $              | 388    |  |                        | $ | 7   |                           |  | $ |           |   |  | $ | 395    | 
|Canadian provincial and municipal government |  |                | 69     |  |                        |   | 5   |                           |  |   |           |   |  |   | 74     | 
|U.S. government and agency                   |  |                | 481    |  |                        |   | 9   |                           |  |   | (20        | ) |  |   | 470    | 
|Other foreign government                     |  |                | 450    |  |                        |   | 49  |                           |  |   | (5         | ) |  |   | 494    | 
|Corporate                                    |  |                | 7,514  |  |                        |   | 251 |                           |  |   | (257       | ) |  |   | 7,508  | 
|Asset-backed securities:                     |  |                |        |  |                        |   |     |                           |  |   |            |   |  |   |        | 
|Commercial mortgage-backed securities        |  |                | 245    |  |                        |   | 27  |                           |  |   | (51        | ) |  |   | 221    | 
|Residential mortgage-backed securities       |  |                | 305    |  |                        |   | 14  |                           |  |   | (1         | ) |  |   | 318    | 
|Collateralized debt obligations              |  |                | 56     |  |                        |   |    |                           |  |   | (14        | ) |  |   | 42     | 
|Other                                        |  |                | 9      |  |                        |   |    |                           |  |   |           |   |  |   | 9      | 
|Total debt securities                        |  |                | 9,517  |  |                        |   | 362 |                           |  |   | (348       | ) |  |   | 9,531  | 
|Equity securities                            |  |                | 494    |  |                        |   | 129 |                           |  |   | (13        | ) |  |   | 610    | 
|Total debt and equity securities             |  | $              | 10,011 |  |                        | $ | 491 |                           |  | $ | (361       | ) |  | $ | 10,141 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    113



---

5.F Derivative Financial Instruments and Hedging Activities

The fair values of derivative financial instruments by major class of derivatives are shown in the following table:



|                           |  |                   |       |  |                   |   |        |                 |  |   |             |  |  |        |      |   |             |   |       |  |  |   |        |  
|-------------------------- |  | ----------------- | ----- |  | ----------------- | - | ------ | --------------- |  | - | ----------- |  |  | ------ | ---- | - | ----------- | - | ----- |  |  | - | ------ | -
|As at                      |  | December 31, 2011 |       |  | December 31, 2010 |   |        | January 1, 2010 | 
|                           |  | Fair value        |       |  | Fair value        |   |        | Fair value      | 
|                           |  | Assets            |       |  | Liabilities       |   |        | Assets          |  |   | Liabilities |  |  | Assets |      |   | Liabilities |  
|Interest rate contracts    |  | $                 | 2,118 |  |                   | $ | (760   | )               |  | $ | 588         |  |  | $      | (576 | ) |             | $ | 444   |  |  | $ | (915   | )
|Foreign exchange contracts |  |                   | 432   |  |                   |   | (174   | )               |  |   | 981         |  |  |        | (63  | ) |             |   | 823   |  |  |   | (121   | )
|Other contracts            |  |                   | 82    |  |                   |   | (125   | )               |  |   | 79          |  |  |        | (79  | ) |             |   | 188   |  |  |   | (258   | )
|Total derivatives          |  | $                 | 2,632 |  |                   | $ | (1,059 | )               |  | $ | 1,648       |  |  | $      | (718 | ) |             | $ | 1,455 |  |  | $ | (1,294 | )

The following table presents the fair values of derivative assets and liabilities categorized by derivatives designated as hedges
for accounting purposes and those not designated as hedges:



|                          |  |                       |        |  |            |             |       |  |  |   |        |  
|------------------------- |  | --------------------- | ------ |  | ---------- | ----------- | ----- |  |  | - | ------ | -
|                          |  | Total notional
amount |        |  | Fair value |            
|As at December 31, 2011   |  |                       | Assets |  |            | Liabilities |      
|Derivative investments(1) |  | $                     | 47,890 |  |            | $           | 2,494 |  |  | $ | (798   | )
|Fair value hedges         |  |                       | 1,011  |  |            |             |      |  |  |   | (228   | )
|Cash flow hedges          |  |                       | 108    |  |            |             | 2     |  |  |   | (25    | )
|Net investment hedges     |  |                       | 1,850  |  |            |             | 136   |  |  |   | (8     | )
|Total derivatives         |  | $                     | 50,859 |  |            | $           | 2,632 |  |  | $ | (1,059 | )



|(1) | Derivative investments are derivatives that have not been designated as hedges for accounting purposes.
|--- | -------------------------------------------------------------------------------------------------------



|                          |  |                       |        |  |            |             |       |  |  |   |      |  
|------------------------- |  | --------------------- | ------ |  | ---------- | ----------- | ----- |  |  | - | ---- | -
|                          |  |                      
|                          |  | Total notional
amount |        |  | Fair value |            
|As at December 31, 2010   |  |                       | Assets |  |            | Liabilities |      
|Derivative investments(1) |  | $                     | 39,743 |  |            | $           | 1,114 |  |  | $ | (615 | )
|Fair value hedges         |  |                       | 811    |  |            |             | 3     |  |  |   | (58  | )
|Cash flow hedges          |  |                       | 96     |  |            |             | 20    |  |  |   | (11  | )
|Net investment hedges     |  |                       | 3,164  |  |            |             | 511   |  |  |   | (34  | )
|Total derivatives         |  | $                     | 43,814 |  |            | $           | 1,648 |  |  | $ | (718 | )



|(1) | Derivative investments are derivatives that have not been designated as hedges for accounting purposes.
|--- | -------------------------------------------------------------------------------------------------------



|                          |  |                       |        |  |            |             |       |  |  |   |        |  
|------------------------- |  | --------------------- | ------ |  | ---------- | ----------- | ----- |  |  | - | ------ | -
|                          |  |                      
|                          |  | Total notional
amount |        |  | Fair value |            
|As at January 1, 2010     |  |                       | Assets |  |            | Liabilities |      
|Derivative investments(1) |  | $                     | 43,692 |  |            | $           | 985   |  |  | $ | (1,200 | )
|Fair value hedges         |  |                       | 592    |  |            |             | 1     |  |  |   | (25    | )
|Cash flow hedges          |  |                       | 92     |  |            |             | 19    |  |  |   | (24    | )
|Net investment hedges     |  |                       | 3,193  |  |            |             | 450   |  |  |   | (45    | )
|Total derivatives         |  | $                     | 47,569 |  |            | $           | 1,455 |  |  | $ | (1,294 | )



|(1) | Derivative investments are derivatives that have not been designated as hedges for accounting purposes.
|--- | -------------------------------------------------------------------------------------------------------

Additional information on the derivatives designated as hedges for accounting purposes is included in the following sections.

Hedge ineffectiveness recognized in Interest and other investment income for the years ended December 31 are comprised of the following:



|                                                                   |  |      |      |   |      |   |     |  
|------------------------------------------------------------------ |  | ---- | ---- | - | ---- | - | --- | -
|                                                                   |  | 2011 |      |   | 2010 |  
|Fair value hedging ineffectiveness:                                |  |      |      |   |      |   |     |  
|(Losses) gains on the hedged items attributable to the hedged risk |  | $    | 166  |   |      | $ | 33  |  
|Gains (losses) on the hedging derivatives                          |  |      | (166 | ) |      |   | (32 | )
|Net ineffectiveness on fair value hedges                           |  |      |     |   |      |   | 1   |  
|Net investment in foreign operations hedge ineffectiveness         |  |      |     |   |      |   |    |  
|Cash flow hedging
ineffectiveness(1)                               |  |      |     |   |      |   |    |  
|Total hedge ineffectiveness                                        |  | $    |     |   |      | $ | 1   |  



|(1) | Cash flow hedges include equity forwards hedging the variation in the cash flows associated with the anticipated payments expected to occur in 2012, 2013, and 2014 under certain
share-based payment plans. The amounts included in accumulated OCI related to the equity forwards are reclassified to net income as the liability is accrued for the share-based payment plan over the vesting period. We expect to reclassify losses of
$5 from accumulated OCI to net income within the next 12 months.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|114    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

5.G Investment Properties

Changes in investment properties are as follows:



|                                                         |  |      |       |   |      |   |       |  
|-------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|For the years ended December 31                          |  | 2011 |       |   | 2010 |  
|Balance, beginning of year                               |  | $    | 4,544 |   |      | $ | 4,546 |  
|Additions                                                |  |      | 599   |   |      |   | 239   |  
|Leasing commissions and tenant inducements, amortization |  |      | (19   | ) |      |   | (17   | )
|Fair value gains (losses)                                |  |      | 293   |   |      |   | (93   | )
|Disposals                                                |  |      | (144  | ) |      |   | (75   | )
|Transfers from property and equipment                    |  |      | 6     |   |      |   | 22    |  
|Foreign exchange rate movements                          |  |      | 34    |   |      |   | (78   | )
|Balance, end of year                                     |  | $    | 5,313 |   |      | $ | 4,544 |  

5.H Securities Lending

The
Company engages in securities lending to generate additional income. Certain securities from its portfolio are loaned to other institutions for short periods. Collateral, which exceeds the fair value of the loaned securities, is deposited by the
borrower with a lending agent, usually a securities custodian, and maintained by the lending agent until the underlying security has been returned to us. The fair value of the loaned securities is monitored on a daily basis with additional
collateral obtained or refunded as the fair values fluctuate. Certain arrangements allow us to invest the cash collateral received for the securities loaned. It is our practice to obtain a guarantee from the lending agent against counterparty
default, including non-cash collateral deficiency. As at December 31, 2011, the Company loaned securities, which are included in invested assets, with a carrying value and fair value of approximately $746 ($555 on December 31, 2010 and
$785 on January 1, 2010) for which the collateral held was $784 ($585 on December 31, 2010 and $827 on January 1, 2010).

6. Financial
Instrument Risk Management





The significant risks related to financial instruments are credit risk, liquidity risk and market risk (currency, interest rate, and equity). The following
sections describe how we manage each of these risks.

Some of our financial instruments risk management policies and procedures are described in our
Annual Managements Discussion and Analysis (MD&A) for the year ended December 31, 2011. The shaded text and tables in the Risk Management section of the MD&A represent part of our disclosures on Market Risk and include
discussions on how we measure our risk and our objectives, policies and methodologies for managing these risks. Therefore, the shaded text and tables represent an integral part of these Consolidated Financial Statements.

We use derivative instruments to manage risks related to interest rate, equity market and currency fluctuations and in replication strategies for permissible
investments.We do not engage in speculative investment in derivatives. The gap in market sensitivities or exposures between liabilities and supporting assets is monitored and managed within defined tolerance limits by, where appropriate, the
use of derivative instruments. Models and techniques are used by us to measure the continuing effectiveness of our risk management strategies.

6.A.
Credit Risk

Risk Description

Credit risk is
the risk of loss from amounts owed by our financial counterparties. We are subject to credit risk in connection with issuers of securities held in our investment portfolio, debtors (e.g. mortgagors), structured securities, reinsurers, derivative
counterparties, other financial institutions (e.g. amounts held on deposit) and other entities. Losses may occur when a counterparty fails to make timely payments pursuant to the terms of the underlying contractual arrangement or when the
counterpartys credit rating or risk profile otherwise deteriorates. Credit risk can also arise in connection with deterioration in the value of or ability to realize on any underlying security that may be used to collateralize the debt
obligation. Credit risk can occur at multiple levels; as a result of broad economic conditions, challenges within specific sectors of the economy, or from issues affecting individual companies. Events that result in defaults, impairments or
downgrades of the securities in our investment portfolio would cause the Company to record realized or unrealized losses, and increase our provisions for asset default, adversely impacting earnings.

Credit Risk Management Governance and Control

Key controls
utilized in the management and measurement of credit risk are outlined below:



| |  | Enterprise-wide risk appetite and tolerance limits have been established for credit risk
|- |  | ----------------------------------------------------------------------------------------

| |  | Ongoing monitoring and reporting of credit risk sensitivities against pre-established risk tolerance limits
|- |  | -----------------------------------------------------------------------------------------------------------

| |  | Detailed credit risk management policies, guidelines and procedures
|- |  | -------------------------------------------------------------------

| |  | Specific investment diversification requirements such as defined investment limits for asset class, geography and industry
|- |  | --------------------------------------------------------------------------------------------------------------------------

| |  | Risk based credit portfolio, counterparty and sector exposure limits
|- |  | --------------------------------------------------------------------

| |  | Mandatory use of credit quality ratings for portfolio investments which are established and reviewed regularly
|- |  | --------------------------------------------------------------------------------------------------------------

| |  | Comprehensive due diligence processes and ongoing credit analysis
|- |  | -----------------------------------------------------------------

| |  | Regulatory solvency requirements that include risk based capital requirements
|- |  | -----------------------------------------------------------------------------

| |  | Comprehensive compliance monitoring practices and procedures including reporting against pre-established investment limits
|- |  | --------------------------------------------------------------------------------------------------------------------------

| |  | Reinsurance exposures are monitored to ensure that no single reinsurer represents an undue level of credit risk
|- |  | ---------------------------------------------------------------------------------------------------------------

| |  | Stress-testing techniques, such as Dynamic Capital Adequacy Testing (DCAT), are used to measure the effects of large and sustained adverse credit
developments
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    115



---

| |  | Reserve provisions are established in accordance with standards set forth by the CIA
|- |  | ------------------------------------------------------------------------------------

| |  | Target capital levels that exceed regulatory minimums
|- |  | -----------------------------------------------------

| |  | Active credit risk governance including independent monitoring and review and reporting to senior management and the Board
|- |  | --------------------------------------------------------------------------------------------------------------------------

6.A.i Maximum Exposure to Credit Risk

Our maximum credit
exposure related to financial instruments as at December 31 is the balance as presented in our Consolidated Statements of Financial Position as we believe that these carrying amounts best represent the maximum exposure to credit risk. The
credit exposure for debt securities may be increased to the extent that the amounts recovered from default are insufficient to satisfy the actuarial liability cash flows that the assets are intended to support.

The positive fair value of derivative assets is used to determine the credit risk exposure if the counterparties were to default. The credit risk exposure is the
cost of replacing, at current market rates, all derivative contracts with a positive fair value. Additionally, we have credit exposure to items not on the Consolidated Statements of Financial Position as follows:



|                              |  |                  |     |  |                  |   |     |                |  |   |     | 
|----------------------------- |  | ---------------- | --- |  | ---------------- | - | --- | -------------- |  | - | --- | 
|As at                         |  | December 31,2011 |     |  | December 31,2010 |   |     | January 1,2010 | 
|Off-balance sheet items:      |  |                  |     |  |                  |   |     |                |  |   |     | 
|Loan commitments(1)           |  | $                | 779 |  |                  | $ | 666 |                |  | $ | 446 | 
|Guarantees                    |  |                  | 55  |  |                  |   | 31  |                |  |   | 45  | 
|Total off-balance sheet items |  | $                | 834 |  |                  | $ | 697 |                |  | $ | 491 | 



|(1) | Loan commitments include commitments to extend credit under commercial and residential mortgages and private debt securities. Private debt securities commitments contain
provisions that allow for withdrawal of the commitment if there is deterioration in the credit quality of the borrower.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6.A.ii
Collateral Held

Collateral Held and Other Credit Enhancements

During the normal course of business, we invest in financial assets secured by real estate properties, pools of financial assets, third-party financial guarantees, credit insurance and other arrangements. In the
case of derivatives, collateral is collected from the counterparty to manage the credit exposure according to the Credit Support Annex (CSA), which forms part of the International Swaps and Derivatives Associations
(ISDA) Master Agreement. It is our common practice to execute a CSA in conjunction with an ISDA Master Agreement.

6.A.iii Concentration
Risk

Concentrations of credit risk arise from exposures to a single debtor, a group of related debtors or groups of debtors that have similar credit
risk characteristics, such as groups of debtors in the same economic or geographic regions or in similar industries. The financial instrument issuers have similar economic characteristics so that their ability to meet contractual obligations may be
impacted similarly by changes in the economic or political conditions. We manage this risk by appropriately diversifying our investment portfolio through the use of concentration limits. In particular, we maintain policies which set counterparty
exposure limits to manage the credit exposure for investments in any single issuer or any associated group of issuers. Exceptions exist for investments in securities which are issued or guaranteed by the Government of Canada, United States or United
Kingdom and issuers for which the Board has granted specific approval. Mortgages are collateralized by the related property, and generally do not exceed 75% of the value of the property at the time the original loan is made. Our mortgages and loans
are diversified by type and location and, for mortgages, by borrower. Loans provide diversification benefits (name, industry and geography) and often provide stronger covenants and collateral than public debt securities, thereby providing both
better credit protection and potentially higher recoveries in the event of default.

The following tables provide details of the debt securities,
mortgages and loans held by issuer country, geographic location and industry sector where applicable.

The carrying value of debt securities by
geographic location is shown in the following tables. The geographic location is based on the country of the creditors parent.



|                        |  |                                  |        |  |                     |   |        |                      |  |   |        | 
|----------------------- |  | -------------------------------- | ------ |  | ------------------- | - | ------ | -------------------- |  | - | ------ | 
|As at December 31, 2011 |  | Fair value throughprofit or loss |        |  | Available-
for-sale |   |        | Total debtsecurities | 
|Canada                  |  | $                                | 18,692 |  |                     | $ | 2,007  |                      |  | $ | 20,699 | 
|United States           |  |                                  | 19,378 |  |                     |   | 6,675  |                      |  |   | 26,053 | 
|United Kingdom          |  |                                  | 5,546  |  |                     |   | 498    |                      |  |   | 6,044  | 
|Other                   |  |                                  | 8,011  |  |                     |   | 2,123  |                      |  |   | 10,134 | 
|Balance, end of period  |  | $                                | 51,627 |  |                     | $ | 11,303 |                      |  | $ | 62,930 | 



|                        |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|----------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ------ | -------------------- |  | - | ------ | 
|                        |  |                                  |       
|As at December 31, 2010 |  | Fair value throughprofit or loss |        |  | Available-for-sale |   |        | Total debtsecurities | 
|Canada                  |  | $                                | 16,156 |  |                    | $ | 1,807  |                      |  | $ | 17,963 | 
|United States           |  |                                  | 18,784 |  |                    |   | 6,567  |                      |  |   | 25,351 | 
|United Kingdom          |  |                                  | 5,165  |  |                    |   | 469    |                      |  |   | 5,634  | 
|Other                   |  |                                  | 7,877  |  |                    |   | 1,788  |                      |  |   | 9,665  | 
|Balance, end of period  |  | $                                | 47,982 |  |                    | $ | 10,631 |                      |  | $ | 58,613 | 



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|116    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---



|                       |  |                                  |        |  |                    |   |       |                      |  |   |        | 
|---------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ----- | -------------------- |  | - | ------ | 
|                       |  |                                  |       
|As at January 1, 2010  |  | Fair value throughprofit or loss |        |  | Available-for-sale |   |       | Total debtsecurities | 
|Canada                 |  | $                                | 14,529 |  |                    | $ | 761   |                      |  | $ | 15,290 | 
|United States          |  |                                  | 17,257 |  |                    |   | 6,399 |                      |  |   | 23,656 | 
|United Kingdom         |  |                                  | 5,306  |  |                    |   | 756   |                      |  |   | 6,062  | 
|Other                  |  |                                  | 7,292  |  |                    |   | 1,615 |                      |  |   | 8,907  | 
|Balance, end of period |  | $                                | 44,384 |  |                    | $ | 9,531 |                      |  | $ | 53,915 | 

The carrying value of debt securities by issuer and industry sector is shown in the following table:



|                                                      |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|----------------------------------------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ------ | -------------------- |  | - | ------ | 
|As at December 31, 2011                               |  | Fair value throughprofit or loss |        |  | Available-for-sale |   |        | Total debtsecurities | 
|Debt securities issued or guaranteed by:              |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|Canadian federal government                           |  | $                                | 2,324  |  |                    | $ | 1,194  |                      |  | $ | 3,518  | 
|Canadian provincial and municipal government          |  |                                  | 9,319  |  |                    |   | 214    |                      |  |   | 9,533  | 
|U.S. government and agency                            |  |                                  | 2,129  |  |                    |   | 963    |                      |  |   | 3,092  | 
|Other foreign government                              |  |                                  | 4,895  |  |                    |   | 457    |                      |  |   | 5,352  | 
|Total government issued or guaranteed debt securities |  |                                  | 18,667 |  |                    |   | 2,828  |                      |  |   | 21,495 | 
|Corporate debt securities by industry sector:         |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|Financials                                            |  |                                  | 8,597  |  |                    |   | 2,786  |                      |  |   | 11,383 | 
|Utilities and energy                                  |  |                                  | 8,560  |  |                    |   | 1,302  |                      |  |   | 9,862  | 
|Telecommunication services                            |  |                                  | 1,715  |  |                    |   | 568    |                      |  |   | 2,283  | 
|Consumer staples and discretionary                    |  |                                  | 5,834  |  |                    |   | 1,582  |                      |  |   | 7,416  | 
|Industrials                                           |  |                                  | 2,364  |  |                    |   | 609    |                      |  |   | 2,973  | 
|Other                                                 |  |                                  | 2,732  |  |                    |   | 1,052  |                      |  |   | 3,784  | 
|Total corporate debt securities                       |  |                                  | 29,802 |  |                    |   | 7,899  |                      |  |   | 37,701 | 
|Asset-backed securities                               |  |                                  | 3,158  |  |                    |   | 576    |                      |  |   | 3,734  | 
|Total debt securities                                 |  | $                                | 51,627 |  |                    | $ | 11,303 |                      |  | $ | 62,930 | 



|                                                      |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|----------------------------------------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ------ | -------------------- |  | - | ------ | 
|                                                      |  |                                  |       
|As at December 31, 2010                               |  | Fair value throughprofit or loss |        |  | Available-for-sale |   |        | Total debtsecurities | 
|Debt securities issued or guaranteed by:              |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|Canadian federal government                           |  | $                                | 2,136  |  |                    | $ | 1,312  |                      |  | $ | 3,448  | 
|Canadian provincial and municipal government          |  |                                  | 7,273  |  |                    |   | 170    |                      |  |   | 7,443  | 
|U.S. government and agency                            |  |                                  | 1,876  |  |                    |   | 1,202  |                      |  |   | 3,078  | 
|Other foreign government                              |  |                                  | 4,353  |  |                    |   | 426    |                      |  |   | 4,779  | 
|Total government issued or guaranteed debt securities |  |                                  | 15,638 |  |                    |   | 3,110  |                      |  |   | 18,748 | 
|Corporate debt securities by industry sector:         |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|Financials                                            |  |                                  | 9,553  |  |                    |   | 2,900  |                      |  |   | 12,453 | 
|Utilities and energy                                  |  |                                  | 7,735  |  |                    |   | 1,009  |                      |  |   | 8,744  | 
|Telecommunication services                            |  |                                  | 1,811  |  |                    |   | 596    |                      |  |   | 2,407  | 
|Consumer staples and discretionary                    |  |                                  | 5,266  |  |                    |   | 1,307  |                      |  |   | 6,573  | 
|Industrials                                           |  |                                  | 2,211  |  |                    |   | 552    |                      |  |   | 2,763  | 
|Other                                                 |  |                                  | 2,176  |  |                    |   | 616    |                      |  |   | 2,792  | 
|Total corporate debt securities                       |  |                                  | 28,752 |  |                    |   | 6,980  |                      |  |   | 35,732 | 
|Asset-backed securities                               |  |                                  | 3,592  |  |                    |   | 541    |                      |  |   | 4,133  | 
|Total debt securities                                 |  | $                                | 47,982 |  |                    | $ | 10,631 |                      |  | $ | 58,613 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    117



---



|                                                      |  |                                  |        |  |                    |   |       |                      |  |   |        | 
|----------------------------------------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ----- | -------------------- |  | - | ------ | 
|As at January 1, 2010                                 |  | Fair value throughprofit or loss |        |  | Available-for-sale |   |       | Total debtsecurities | 
|Debt securities issued or guaranteed by:              |  |                                  |        |  |                    |   |       |                      |  |   |        | 
|Canadian federal government                           |  | $                                | 2,540  |  |                    | $ | 395   |                      |  | $ | 2,935  | 
|Canadian provincial and municipal government          |  |                                  | 6,289  |  |                    |   | 74    |                      |  |   | 6,363  | 
|U.S. government and agency                            |  |                                  | 1,416  |  |                    |   | 470   |                      |  |   | 1,886  | 
|Other foreign government                              |  |                                  | 4,032  |  |                    |   | 494   |                      |  |   | 4,526  | 
|Total government issued or guaranteed debt securities |  |                                  | 14,277 |  |                    |   | 1,433 |                      |  |   | 15,710 | 
|Corporate debt securities by industry sector:         |  |                                  |        |  |                    |   |       |                      |  |   |        | 
|Financials                                            |  |                                  | 10,109 |  |                    |   | 3,403 |                      |  |   | 13,512 | 
|Utilities and energy                                  |  |                                  | 6,686  |  |                    |   | 1,053 |                      |  |   | 7,739  | 
|Telecommunication services                            |  |                                  | 2,169  |  |                    |   | 786   |                      |  |   | 2,955  | 
|Consumer staples and discretionary                    |  |                                  | 4,125  |  |                    |   | 1,277 |                      |  |   | 5,402  | 
|Industrials                                           |  |                                  | 1,919  |  |                    |   | 512   |                      |  |   | 2,431  | 
|Other                                                 |  |                                  | 1,563  |  |                    |   | 477   |                      |  |   | 2,040  | 
|Total corporate debt securities                       |  |                                  | 26,571 |  |                    |   | 7,508 |                      |  |   | 34,079 | 
|Asset-backed securities                               |  |                                  | 3,536  |  |                    |   | 590   |                      |  |   | 4,126  | 
|Total debt securities                                 |  | $                                | 44,384 |  |                    | $ | 9,531 |                      |  | $ | 53,915 | 

The carrying value of mortgages and loans by geographic location is shown in the following table. The geographic location for
mortgages is based on location of property, while for corporate loans it is based on the country of the creditors parent. Residential mortgages include mortgages for both single and multiple family dwellings.



|                          |  |             |       |  |                 |   |        |       |  |   |        |  |  |   |        | 
|------------------------- |  | ----------- | ----- |  | --------------- | - | ------ | ----- |  | - | ------ |  |  | - | ------ | 
|As at December 31, 2011   |  | Residential |       |  | Non-residential |   |        | Loans |  |   | Total  | 
|Canada                    |  | $           | 2,011 |  |                 | $ | 5,489  |       |  | $ | 9,154  |  |  | $ | 16,654 | 
|United States             |  |             | 219   |  |                 |   | 5,612  |       |  |   | 3,135  |  |  |   | 8,966  | 
|United Kingdom            |  |             |      |  |                 |   | 24     |       |  |   | 253    |  |  |   | 277    | 
|Other                     |  |             |      |  |                 |   |       |       |  |   | 1,858  |  |  |   | 1,858  | 
|Total mortgages and loans |  | $           | 2,230 |  |                 | $ | 11,125 |       |  | $ | 14,400 |  |  | $ | 27,755 | 



|                          |  |   |       |  |  |   |        |  |  |   |        |  |  |   |        | 
|------------------------- |  | - | ----- |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|As at December 31, 2010   |  |   |       |  |  |   |        |  |  |   |        | 
|Canada                    |  | $ | 2,272 |  |  | $ | 5,167  |  |  | $ | 8,368  |  |  | $ | 15,807 | 
|United States             |  |   | 223   |  |  |   | 5,592  |  |  |   | 2,593  |  |  |   | 8,408  | 
|United Kingdom            |  |   |      |  |  |   | 48     |  |  |   | 190    |  |  |   | 238    | 
|Other                     |  |   |      |  |  |   |       |  |  |   | 1,581  |  |  |   | 1,581  | 
|Total mortgages and loans |  | $ | 2,495 |  |  | $ | 10,807 |  |  | $ | 12,732 |  |  | $ | 26,034 | 



|                          |  |   |       |  |  |   |        |  |  |   |        |  |  |   |        | 
|------------------------- |  | - | ----- |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|As at January 1, 2010     |  |   |       |  |  |   |        |  |  |   |        | 
|Canada                    |  | $ | 2,342 |  |  | $ | 5,245  |  |  | $ | 8,588  |  |  | $ | 16,175 | 
|United States             |  |   | 290   |  |  |   | 6,247  |  |  |   | 2,376  |  |  |   | 8,913  | 
|United Kingdom            |  |   |      |  |  |   | 57     |  |  |   | 187    |  |  |   | 244    | 
|Other                     |  |   |      |  |  |   |       |  |  |   | 1,589  |  |  |   | 1,589  | 
|Total mortgages and loans |  | $ | 2,632 |  |  | $ | 11,549 |  |  | $ | 12,740 |  |  | $ | 26,921 | 



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|118    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

6.A.iv Contractual Maturities of Mortgages, Debt Securities and Derivatives

The contractual maturities of debt securities are shown in the table below. Debt securities that are not due at a single maturity date are included in the table in
the year of final maturity. Actual maturities could differ from contractual maturities because of the borrowers right to call or extend or right to prepay obligations, with or without prepayment penalties.



|                        |  |                                  |        |  |                     |   |        |                      |  |   |        | 
|----------------------- |  | -------------------------------- | ------ |  | ------------------- | - | ------ | -------------------- |  | - | ------ | 
|As at December 31, 2011 |  | Fair value throughprofit or loss |        |  | Available-
for-sale |   |        | Total debtsecurities | 
|Due in 1 year or less   |  | $                                | 2,865  |  |                     | $ | 1,073  |                      |  | $ | 3,938  | 
|Due in years 2-5        |  |                                  | 10,850 |  |                     |   | 4,567  |                      |  |   | 15,417 | 
|Due in years 6-10       |  |                                  | 9,633  |  |                     |   | 2,266  |                      |  |   | 11,899 | 
|Due after 10 years      |  |                                  | 28,279 |  |                     |   | 3,397  |                      |  |   | 31,676 | 
|Total debt securities   |  | $                                | 51,627 |  |                     | $ | 11,303 |                      |  | $ | 62,930 | 



|                        |  |   |        |  |  |   |        |  |  |   |        | 
|----------------------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                        |  |   |       
|As at December 31, 2010 |  |   |        |  |  |   |        |  | 
|Due in 1 year or less   |  | $ | 3,490  |  |  | $ | 1,377  |  |  | $ | 4,867  | 
|Due in years 2-5        |  |   | 10,984 |  |  |   | 3,786  |  |  |   | 14,770 | 
|Due in years 6-10       |  |   | 9,958  |  |  |   | 2,357  |  |  |   | 12,315 | 
|Due after 10 years      |  |   | 23,550 |  |  |   | 3,111  |  |  |   | 26,661 | 
|Total debt securities   |  | $ | 47,982 |  |  | $ | 10,631 |  |  | $ | 58,613 | 



|                      |  |   |        |  |  |   |       |  |  |   |        | 
|--------------------- |  | - | ------ |  |  | - | ----- |  |  | - | ------ | 
|As at January 1, 2010 |  |   |        |  |  |   |       |  | 
|Due in 1 year or less |  | $ | 2,024  |  |  | $ | 476   |  |  | $ | 2,500  | 
|Due in years 2-5      |  |   | 10,620 |  |  |   | 2,663 |  |  |   | 13,283 | 
|Due in years 6-10     |  |   | 9,860  |  |  |   | 2,801 |  |  |   | 12,661 | 
|Due after 10 years    |  |   | 21,880 |  |  |   | 3,591 |  |  |   | 25,471 | 
|Total debt securities |  | $ | 44,384 |  |  | $ | 9,531 |  |  | $ | 53,915 | 

The carrying value of mortgages by scheduled maturity before allowances for losses, are as follows:



|                      |  |                  |        |  |                  |   |        |                |  |   |        | 
|--------------------- |  | ---------------- | ------ |  | ---------------- | - | ------ | -------------- |  | - | ------ | 
|As at                 |  | December 31,2011 |        |  | December 31,2010 |   |        | January 1,2010 | 
|Due in 1 year or less |  | $                | 941    |  |                  | $ | 1,412  |                |  | $ | 1,340  | 
|Due in years 2-5      |  |                  | 5,474  |  |                  |   | 4,467  |                |  |   | 4,452  | 
|Due in years 6-10     |  |                  | 4,247  |  |                  |   | 4,745  |                |  |   | 5,236  | 
|Due after 10 years    |  |                  | 2,889  |  |                  |   | 2,872  |                |  |   | 3,263  | 
|Total mortgages       |  | $                | 13,551 |  |                  | $ | 13,496 |                |  | $ | 14,291 | 

The carrying value of loans by scheduled maturity, before allowances for losses, are as follows:



|                      |  |                  |        |  |                  |   |        |                |  |   |        | 
|--------------------- |  | ---------------- | ------ |  | ---------------- | - | ------ | -------------- |  | - | ------ | 
|As at                 |  | December 31,2011 |        |  | December 31,2010 |   |        | January 1,2010 | 
|Due in 1 year or less |  | $                | 905    |  |                  | $ | 1,013  |                |  | $ | 1,154  | 
|Due in years 2-5      |  |                  | 4,555  |  |                  |   | 4,207  |                |  |   | 4,400  | 
|Due in years 6-10     |  |                  | 3,292  |  |                  |   | 2,697  |                |  |   | 2,860  | 
|Due after 10 years    |  |                  | 5,675  |  |                  |   | 4,886  |                |  |   | 4,390  | 
|Total loans           |  | $                | 14,427 |  |                  | $ | 12,803 |                |  | $ | 12,804 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    119



---

Notional amounts of derivative financial instruments are the basis for calculating payments and are generally not the
actual amounts exchanged. The following tables provide the notional amounts of derivative instruments outstanding by type of derivative and term to maturity:



|                            |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|--------------------------- |  | ---------------- | ------ |  | ----------- | - | ------ | ----------- |  | - | ------ |  |  | - | ------ | 
|                            |  | Term to Maturity |       
|As at December 31, 2011     |  | Under1 Year      |        |  | 1 to 5Years |   |        | Over 5Years |  |   | Total  | 
|Over-the-counter contracts: |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Interest rate contracts:    |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Swap contracts              |  | $                | 565    |  |             | $ | 4,928  |             |  | $ | 14,029 |  |  | $ | 19,522 | 
|Options purchased           |  |                  | 219    |  |             |   | 2,099  |             |  |   | 3,798  |  |  |   | 6,116  | 
|Options written(1)          |  |                  |       |  |             |   | 815    |             |  |   | 1,427  |  |  |   | 2,242  | 
|Foreign exchange contracts: |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Forward contracts           |  |                  | 1,902  |  |             |   |       |             |  |   | 161    |  |  |   | 2,063  | 
|Swap contracts              |  |                  | 245    |  |             |   | 3,631  |             |  |   | 5,113  |  |  |   | 8,989  | 
|Other contracts:            |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Options purchased           |  |                  | 1,332  |  |             |   | 96     |             |  |   |       |  |  |   | 1,428  | 
|Forward contracts           |  |                  | 63     |  |             |   | 88     |             |  |   |       |  |  |   | 151    | 
|Swap contracts              |  |                  | 177    |  |             |   | 31     |             |  |   |       |  |  |   | 208    | 
|Options written             |  |                  |       |  |             |   |       |             |  |   |       |  |  |   |       | 
|Credit derivatives          |  |                  |       |  |             |   | 169    |             |  |   |       |  |  |   | 169    | 
|Exchange-traded contracts:  |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Interest rate contracts:    |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  | 2,358  |  |             |   | 148    |             |  |   |       |  |  |   | 2,506  | 
|Foreign exchange contracts: |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  | 613    |  |             |   |       |             |  |   |       |  |  |   | 613    | 
|Equity contracts:           |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  | 5,902  |  |             |   |       |             |  |   |       |  |  |   | 5,902  | 
|Options purchased           |  |                  | 903    |  |             |   | 26     |             |  |   |       |  |  |   | 929    | 
|Options written             |  |                  | 21     |  |             |   |       |             |  |   |       |  |  |   | 21     | 
|Total notional amount       |  | $                | 14,300 |  |             | $ | 12,031 |             |  | $ | 24,528 |  |  | $ | 50,859 | 



|(1) | These are covered short derivative positions that may include interest rate options, swaptions or floors.
|--- | ---------------------------------------------------------------------------------------------------------



|                            |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|--------------------------- |  | ---------------- | ------ |  | ----------- | - | ------ | ----------- |  | - | ------ |  |  | - | ------ | 
|                            | 
|                            |  | Term to Maturity |       
|As at December 31, 2010     |  | Under
1 Year     |        |  | 1 to 5Years |   |        | Over 5Years |  |   | Total  | 
|Over-the-counter contracts: |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Interest rate contracts:    |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Swap contracts              |  | $                | 1,312  |  |             | $ | 4,890  |             |  | $ | 11,486 |  |  | $ | 17,688 | 
|Options purchased           |  |                  | 400    |  |             |   | 1,387  |             |  |   | 2,497  |  |  |   | 4,284  | 
|Options written(1)          |  |                  |       |  |             |   | 598    |             |  |   | 1,395  |  |  |   | 1,993  | 
|Foreign exchange contracts: |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Forward contracts           |  |                  | 2,092  |  |             |   | 87     |             |  |   | 156    |  |  |   | 2,335  | 
|Swap contracts              |  |                  | 758    |  |             |   | 3,522  |             |  |   | 4,894  |  |  |   | 9,174  | 
|Other contracts:            |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Options purchased           |  |                  | 1,695  |  |             |   | 213    |             |  |   |       |  |  |   | 1,908  | 
|Forward contracts           |  |                  | 32     |  |             |   | 66     |             |  |   |       |  |  |   | 98     | 
|Swap contracts              |  |                  | 234    |  |             |   | 69     |             |  |   |       |  |  |   | 303    | 
|Options written             |  |                  |       |  |             |   |       |             |  |   |        |  |  |   |        | 
|Credit derivatives          |  |                  |       |  |             |   | 172    |             |  |   | 10     |  |  |   | 182    | 
|Exchange-traded contracts:  |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Interest rate contracts:    |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  | 1,125  |  |             |   | 139    |             |  |   |       |  |  |   | 1,264  | 
|Foreign exchange contracts: |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  | 302    |  |             |   |       |             |  |   |       |  |  |   | 302    | 
|Equity contracts:           |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  | 3,588  |  |             |   |       |             |  |   |       |  |  |   | 3,588  | 
|Options purchased           |  |                  | 607    |  |             |   | 88     |             |  |   |       |  |  |   | 695    | 
|Total notional amount       |  | $                | 12,145 |  |             | $ | 11,231 |             |  | $ | 20,438 |  |  | $ | 43,814 | 



|(1) | These are covered short derivative positions that may include interest rate options, swaptions or floors.
|--- | ---------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|120    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---



|                            |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|--------------------------- |  | ---------------- | ------ |  | ----------- | - | ------ | ----------- |  | - | ------ |  |  | - | ------ | 
|                            |  | Term to Maturity |       
|As at January 1, 2010       |  | Under
1 Year     |        |  | 1 to 5Years |   |        | Over 5Years |  |   | Total  | 
|Over-the-counter contracts: |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Interest rate contracts:    |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Swap contracts              |  | $                | 2,304  |  |             | $ | 6,563  |             |  | $ | 12,389 |  |  | $ | 21,256 | 
|Options purchased           |  |                  | 509    |  |             |   | 1,440  |             |  |   | 3,628  |  |  |   | 5,577  | 
|Options written(1)          |  |                  | 425    |  |             |   |       |             |  |   |       |  |  |   | 425    | 
|Foreign exchange contracts: |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Forward contracts           |  |                  | 2,123  |  |             |   | 65     |             |  |   | 167    |  |  |   | 2,355  | 
|Swap contracts              |  |                  | 432    |  |             |   | 3,322  |             |  |   | 4,771  |  |  |   | 8,525  | 
|Other contracts:            |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Options purchased           |  |                  | 2,829  |  |             |   | 425    |             |  |   |       |  |  |   | 3,254  | 
|Forward contracts           |  |                  | 32     |  |             |   | 64     |             |  |   |       |  |  |   | 96     | 
|Swap contracts              |  |                  | 185    |  |             |   | 104    |             |  |   |       |  |  |   | 289    | 
|Options written             |  |                  | 1,319  |  |             |   |       |             |  |   |       |  |  |   | 1,319  | 
|Credit derivatives          |  |                  | 5      |  |             |   | 222    |             |  |   | 10     |  |  |   | 237    | 
|Exchange-traded contracts:  |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Interest rate contracts:    |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  | 855    |  |             |   | 81     |             |  |   |       |  |  |   | 936    | 
|Foreign exchange contracts: |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  |       |  |             |   |       |             |  |   |       |  |  |   |       | 
|Equity contracts:           |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  | 3,298  |  |             |   |       |             |  |   |       |  |  |   | 3,298  | 
|Options purchased           |  |                  | 2      |  |             |   |       |             |  |   |       |  |  |   | 2      | 
|Total notional amount       |  | $                | 14,318 |  |             | $ | 12,286 |             |  | $ | 20,965 |  |  | $ | 47,569 | 



|(1) | These are covered short derivative positions that may include interest rate options, swaptions or floors.
|--- | ---------------------------------------------------------------------------------------------------------

The following tables provide the fair value of derivative instruments outstanding by term to maturity:



|                        |  |                  |     |   |             |   |      |             |  |   |       |   |  |   |        |  
|----------------------- |  | ---------------- | --- | - | ----------- | - | ---- | ----------- |  | - | ----- | - |  | - | ------ | -
|                        |  | Term to maturity |    
|As at December 31, 2011 |  | Under1 Year      |     |   | 1 to 5Years |   |      | Over 5Years |  |   | Total |  
|Derivative assets       |  | $                | 146 |   |             | $ | 499  |             |  | $ | 1,987 |   |  | $ | 2,632  |  
|Derivative liabilities  |  | $                | (60 | ) |             | $ | (276 | )           |  | $ | (723  | ) |  | $ | (1,059 | )



|                        |  |                  |     |   |             |   |      |             |  |   |       |   |  |   |       |  
|----------------------- |  | ---------------- | --- | - | ----------- | - | ---- | ----------- |  | - | ----- | - |  | - | ----- | -
|                        | 
|                        |  | Term to maturity |    
|As at December 31, 2010 |  | Under1 Year      |     |   | 1 to 5Years |   |      | Over 5Years |  |   | Total |  
|Derivative assets       |  | $                | 159 |   |             | $ | 699  |             |  | $ | 790   |   |  | $ | 1,648 |  
|Derivative liabilities  |  | $                | (69 | ) |             | $ | (219 | )           |  | $ | (430  | ) |  | $ | (718  | )



|                       |  |                  |      |   |             |   |      |             |  |   |       |   |  |   |        |  
|---------------------- |  | ---------------- | ---- | - | ----------- | - | ---- | ----------- |  | - | ----- | - |  | - | ------ | -
|                       | 
|                       |  | Term to maturity |     
|As at January 1, 2010  |  | Under1 Year      |      |   | 1 to 5Years |   |      | Over 5Years |  |   | Total |  
|Derivative assets      |  | $                | 190  |   |             | $ | 726  |             |  | $ | 539   |   |  | $ | 1,455  |  
|Derivative liabilities |  | $                | (245 | ) |             | $ | (365 | )           |  | $ | (684  | ) |  | $ | (1,294 | )

6.A.v Asset Quality

The
following sections describe our assessment of the credit quality of our financial assets. We monitor credit quality based on internal risk ratings as well as ratings assigned by external rating agencies where available.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    121



---

Debt Securities by Credit Rating

Investment grade debt securities are those rated BBB and above. Our debt security portfolio was 97% investment grade based on carrying value as at December 31, 2011 (96% as at December 31, 2010 and 95% as at
January 1, 2010). The carrying value of debt securities by credit rating is shown in the following table:



|                                    |  |                                  |        |  |                         |   |        |                      |  |   |        | 
|----------------------------------- |  | -------------------------------- | ------ |  | ----------------------- | - | ------ | -------------------- |  | - | ------ | 
|As at December 31, 2011             |  | Fair value throughprofit or loss |        |  | Available-for-sale debt |   |        | Total debtsecurities | 
|Debt securities by credit rating(1) |  |                                  |        |  |                         |   |        |                      |  |   |        | 
|AAA                                 |  | $                                | 9,098  |  |                         | $ | 2,853  |                      |  | $ | 11,951 | 
|AA                                  |  |                                  | 10,369 |  |                         |   | 1,156  |                      |  |   | 11,525 | 
|A                                   |  |                                  | 15,667 |  |                         |   | 3,886  |                      |  |   | 19,553 | 
|BBB                                 |  |                                  | 14,857 |  |                         |   | 3,214  |                      |  |   | 18,071 | 
|BB and lower                        |  |                                  | 1,636  |  |                         |   | 194    |                      |  |   | 1,830  | 
|Total debt securities               |  | $                                | 51,627 |  |                         | $ | 11,303 |                      |  | $ | 62,930 | 



|                                    |  |                                  |        |  |                         |   |        |                      |  |   |        | 
|----------------------------------- |  | -------------------------------- | ------ |  | ----------------------- | - | ------ | -------------------- |  | - | ------ | 
|                                    |  |                                  |       
|As at December 31, 2010             |  | Fair value throughprofit or loss |        |  | Available-for-sale debt |   |        | Total debtsecurities | 
|Debt securities by credit rating(1) |  |                                  |        |  |                         |   |        |                      |  |   |        | 
|AAA                                 |  | $                                | 8,998  |  |                         | $ | 3,153  |                      |  | $ | 12,151 | 
|AA                                  |  |                                  | 9,426  |  |                         |   | 1,177  |                      |  |   | 10,603 | 
|A                                   |  |                                  | 14,489 |  |                         |   | 3,199  |                      |  |   | 17,688 | 
|BBB                                 |  |                                  | 13,155 |  |                         |   | 2,834  |                      |  |   | 15,989 | 
|BB and lower                        |  |                                  | 1,914  |  |                         |   | 268    |                      |  |   | 2,182  | 
|Total debt securities               |  | $                                | 47,982 |  |                         | $ | 10,631 |                      |  | $ | 58,613 | 



|                                    |  |                                  |        |  |                          |   |       |                      |  |   |        | 
|----------------------------------- |  | -------------------------------- | ------ |  | ------------------------ | - | ----- | -------------------- |  | - | ------ | 
|                                    |  |                                  |       
|As at January 1, 2010               |  | Fair value throughprofit or loss |        |  | Available-for- sale debt |   |       | Total debtsecurities | 
|Debt securities by credit rating(1) |  |                                  |        |  |                          |   |       |                      |  |   |        | 
|AAA                                 |  | $                                | 8,751  |  |                          | $ | 1,742 |                      |  | $ | 10,493 | 
|AA                                  |  |                                  | 8,396  |  |                          |   | 1,042 |                      |  |   | 9,438  | 
|A                                   |  |                                  | 13,049 |  |                          |   | 3,378 |                      |  |   | 16,427 | 
|BBB                                 |  |                                  | 12,076 |  |                          |   | 2,847 |                      |  |   | 14,923 | 
|BB and lower                        |  |                                  | 2,112  |  |                          |   | 522   |                      |  |   | 2,634  | 
|Total debt securities               |  | $                                | 44,384 |  |                          | $ | 9,531 |                      |  | $ | 53,915 | 



|(1) | Local currency denominated sovereign debts of certain developing countries, used in backing local liabilities, have been classified as investment grade.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

Mortgages and Loans by Credit Rating

The credit quality of
mortgages and loans is evaluated internally through regular monitoring of credit related exposures. We use judgement and experience to determine what factors should be considered when assigning an internal credit rating, which is validated through
the use of credit scoring models, to a particular mortgage or corporate loan. The internal credit ratings reflect the credit quality of the borrower as well as the value of any collateral.

The following tables summarize our mortgages and loans by credit quality indicator:

Mortgages by Credit Rating



|                        |  |                  |        |  |                  |   |        |                 |  |   |        | 
|----------------------- |  | ---------------- | ------ |  | ---------------- | - | ------ | --------------- |  | - | ------ | 
|As at                   |  | December 31,2011 |        |  | December 31,2010 |   |        | January 1,
2010 | 
|Insured                 |  | $                | 1,685  |  |                  | $ | 1,704  |                 |  | $ | 1,681  | 
|High quality(1)         |  |                  | 3,356  |  |                  |   | 3,838  |                 |  |   | 4,462  | 
|Medium quality(2)       |  |                  | 6,538  |  |                  |   | 5,841  |                 |  |   | 6,639  | 
|Below medium quality(3) |  |                  | 1,432  |  |                  |   | 1,629  |                 |  |   | 1,239  | 
|Impaired                |  |                  | 344    |  |                  |   | 290    |                 |  |   | 160    | 
|Total mortgages         |  | $                | 13,355 |  |                  | $ | 13,302 |                 |  | $ | 14,181 | 



|(1) | Amounts include past due of $Nil as at December 31, 2011 ($14 as at December 31, 2010 and $12 as at January 1, 2010).
|--- | ---------------------------------------------------------------------------------------------------------------------

|(2) | Amounts include past due of $Nil as at December 31, 2011 ($48 as at December 31, 2010 and $16 as at January 1, 2010).
|--- | ---------------------------------------------------------------------------------------------------------------------

|(3) | Amounts include past due of $10 as at December 31, 2011 ($17 as at December 31, 2010 and $2 as at January 1, 2010).
|--- | -------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|122    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

Loans by Credit Rating



|                |  |                  |        |  |                  |   |        |                 |  |   |        | 
|--------------- |  | ---------------- | ------ |  | ---------------- | - | ------ | --------------- |  | - | ------ | 
|As at           |  | December 31,2011 |        |  | December 31,2010 |   |        | January 1,
2010 | 
|AAA             |  | $                | 277    |  |                  | $ | 272    |                 |  | $ | 341    | 
|AA              |  |                  | 1,257  |  |                  |   | 1,446  |                 |  |   | 1,806  | 
|A               |  |                  | 7,094  |  |                  |   | 5,760  |                 |  |   | 5,035  | 
|BBB             |  |                  | 5,390  |  |                  |   | 4,791  |                 |  |   | 4,987  | 
|BB and lower(1) |  |                  | 340    |  |                  |   | 398    |                 |  |   | 491    | 
|Impaired        |  |                  | 42     |  |                  |   | 65     |                 |  |   | 80     | 
|Total           |  | $                | 14,400 |  |                  | $ | 12,732 |                 |  | $ | 12,740 | 



|(1) | Amounts include past due of $Nil as at December 31, 2011 ($Nil as at December 31, 2010 and $1 as at January 1, 2010).
|--- | ---------------------------------------------------------------------------------------------------------------------

Derivative Financial Instruments by Counterparty Credit Rating

Derivative instruments are either exchange-traded or OTC contracts negotiated between counterparties. Since counterparty failure in an OTC derivative transaction could render it ineffective for hedging purposes, we
generally transact our derivative contracts with highly rated counterparties. In limited circumstances, we will enter into transactions with lower rated counterparties if credit enhancement features are included. As at December 31, 2011, we had
assets of $540 ($459 as at December 31, 2010 and $476 as at January 1, 2010) pledged as collateral for derivative contracts. The assets pledged are cash, cash equivalents and short-term securities.

As at December 31, 2011, we held collateral assets with a fair value of $1,897 ($928 as at December 31, 2010 and $568 as at January 1, 2010) under
certain derivative contracts and we are usually permitted to sell or re-pledge this collateral. We have not sold or re-pledged any collateral. The assets pledged are primarily cash, U.S. Treasuries, and other government securities. The terms and
conditions related to the use of the collateral are consistent with industry practice.

The following tables show the derivative financial instruments
with a positive fair value split by counterparty credit rating:



|                            |  |                                   |       |  |                                       |   |      |                         |  |   |       | 
|--------------------------- |  | --------------------------------- | ----- |  | ------------------------------------- | - | ---- | ----------------------- |  | - | ----- | 
|                            |  | Gross positivereplacement cost(1) |       |  | Impact of masternetting agreements(2) |   |      | Net 
replacementcost(3) | 
|As at December 31, 2011     |  |                                   |       |  |                                       |   |      |                         |  |   |       | 
|Over-the-counter contracts: |  |                                   |       |  |                                       |   |      |                         |  |   |       | 
|AA                          |  | $                                 | 624   |  |                                       | $ | (192 | )                       |  | $ | 432   | 
|A                           |  |                                   | 1,942 |  |                                       |   | (341 | )                       |  |   | 1,601 | 
|BBB                         |  |                                   | 9     |  |                                       |   | (9   | )                       |  |   |      | 
|Exchange-traded             |  |                                   | 57    |  |                                       |   | (28  | )                       |  |   | 29    | 
|Total                       |  | $                                 | 2,632 |  |                                       | $ | (570 | )                       |  | $ | 2,062 | 
|As at December 31, 2010     |  |                                   |       |  |                                       |   |      |                         |  |   |       | 
|Over-the-counter contracts: |  |                                   |       |  |                                       |   |      |                         |  |   |       | 
|AA                          |  | $                                 | 746   |  |                                       | $ | (139 | )                       |  | $ | 607   | 
|A                           |  |                                   | 869   |  |                                       |   | (173 | )                       |  |   | 696   | 
|Exchange-traded             |  |                                   | 33    |  |                                       |   | (4   | )                       |  |   | 29    | 
|Total                       |  | $                                 | 1,648 |  |                                       | $ | (316 | )                       |  | $ | 1,332 | 
|As at January 1, 2010       |  |                                   |       |  |                                       |   |      |                         |  |   |       | 
|Over-the-counter contracts: |  |                                   |       |  |                                       |   |      |                         |  |   |       | 
|AA                          |  | $                                 | 599   |  |                                       | $ | (166 | )                       |  | $ | 433   | 
|A                           |  |                                   | 822   |  |                                       |   | (416 | )                       |  |   | 406   | 
|Exchange-traded             |  |                                   | 34    |  |                                       |   | (7   | )                       |  |   | 27    | 
|Total                       |  | $                                 | 1,455 |  |                                       | $ | (589 | )                       |  | $ | 866   | 



|(1) | Used to determine the credit risk exposure if the counterparties were to default. The credit risk exposure is the cost of replacing, at current market rates, all contracts with a
positive fair value.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The credit risk associated with derivative assets subject to master netting arrangements is reduced by derivative liabilities due to the same counterparty in the event of
default. Our overall exposure to credit risk reduced through master netting arrangements may change substantially following the reporting date as the exposure is affected by each transaction subject to the arrangement.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Gross positive replacement cost after netting agreements.
|--- | ---------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    123



---

Reinsurance Counterparties Exposure by Credit Rating

The following is the potential maximum exposure to loss based on ceded reserves and outstanding claims. The ratings are those assigned by external ratings agencies where available.



|                        |  |                |       |  |            |   |       |              |  |   |       | 
|----------------------- |  | -------------- | ----- |  | ---------- | - | ----- | ------------ |  | - | ----- | 
|As at December 31, 2011 |  | Gross
exposure |       |  | Collateral |   |       | Net
exposure | 
|AAA                     |  | $              | 1     |  |            | $ | 1     |              |  | $ |      | 
|AA                      |  |                | 1,912 |  |            |   | 340   |              |  |   | 1,572 | 
|A                       |  |                | 246   |  |            |   | 3     |              |  |   | 243   | 
|BB                      |  |                | 854   |  |            |   | 837   |              |  |   | 17    | 
|Not Rated               |  |                | 264   |  |            |   | 83    |              |  |   | 181   | 
|Total                   |  | $              | 3,277 |  |            | $ | 1,264 |              |  | $ | 2,013 | 
|                        |  |                |      
|As at December 31, 2010 |  | Grossexposure  |       |  | Collateral |   |       | Net
exposure | 
|AAA                     |  | $              | 1     |  |            | $ | 1     |              |  | $ |      | 
|AA                      |  |                | 1,883 |  |            |   | 312   |              |  |   | 1,571 | 
|A                       |  |                | 1,063 |  |            |   | 2     |              |  |   | 1,061 | 
|BB                      |  |                | 778   |  |            |   | 752   |              |  |   | 26    | 
|Not Rated               |  |                | 130   |  |            |   | 37    |              |  |   | 93    | 
|Total                   |  | $              | 3,855 |  |            | $ | 1,104 |              |  | $ | 2,751 | 
|                        |  |                |      
|As at January 1, 2010   |  | Grossexposure  |       |  | Collateral |   |       | Net
exposure | 
|AAA                     |  | $              | 21    |  |            | $ |      |              |  | $ | 21    | 
|AA                      |  |                | 1,729 |  |            |   | 174   |              |  |   | 1,555 | 
|A                       |  |                | 804   |  |            |   | 21    |              |  |   | 783   | 
|BB                      |  |                | 763   |  |            |   | 682   |              |  |   | 81    | 
|Not Rated               |  |                | 26    |  |            |   | 9     |              |  |   | 17    | 
|Total                   |  | $              | 3,343 |  |            | $ | 886   |              |  | $ | 2,457 | 

6.A.vi Impairment of Assets

Management assesses debt and equity securities, mortgages and loans and other invested assets for objective evidence of impairment at each reporting date. We employ
a portfolio monitoring process to identify assets or groups of assets that have objective evidence of impairment, having experienced a loss event or events that has an impact on the estimated future cash flows of the asset or group of assets. There
are inherent risks and uncertainties in our evaluation of assets or groups of assets for objective evidence of impairment, including both internal and external factors such as general economic conditions, issuers financial conditions and
prospects for economic recovery, 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 our evaluation of an asset or group of assets for objective evidence of impairment.

Management exercises considerable judgment in assessing for objective evidence of impairment and, based on its assessment, classifies specific assets as performing or into one of our credit quality lists:

Monitor List  the timely collection of all contractually specified cash flows is reasonably assured, but changes in issuer-specific
facts and circumstances require monitoring. No impairment charge is recorded for unrealized losses on assets related to these debtors.

Watch
List  the timely collection of all contractually specified cash flows is reasonably assured, but changes in issuer-specific facts and circumstances require heightened monitoring. An asset 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 experience a loss event on an imminent basis. No impairment charge is recorded for unrealized losses on assets related to these debtors.

Impaired List  the timely collection of all contractually specified cash flows is no longer reasonably assured. For these investments that are
classified as AFS or amortized cost, an impairment charge is recorded or the asset is sold and a realized loss is recorded as a charge to income. Impairment charges and realized losses are recorded on assets related to these debtors.

Equity securities and other invested assets are assessed for impairment according to the prospect of recovering the cost of our investment from estimated future
cash flows.

Our approach to determining whether there is objective evidence of impairment varies by asset type. However, in all cases, we have a process
to ensure that in all instances where a decision has been made to sell an asset at a loss, the asset is impaired.

Debt Securities

Objective evidence of impairment on debt securities involves an assessment of the issuers ability to meet current and future contractual interest and
principal payments. In determining whether debt securities have objective evidence of impairment, we employ a screening process. The process identifies securities in an unrealized loss position, with particular attention paid to those securities
whose fair value to amortized cost percentages have been less than 80% for an extended period of time. Discrete credit events, such



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|124    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

as a ratings downgrade, are also used to identify securities that may have objective evidence of impairment. The securities identified are then evaluated based on issuer-specific facts and
circumstances, including an evaluation of the issuers financial condition and prospects for economic recovery, evidence of difficulty being experienced by the issuers parent or affiliate, and managements assessment of the outlook
for the issuers industry sector.

Management also assesses previously impaired debt securities whose fair value has recovered to determine whether
it is objectively related to an event occurring subsequent to the impairment loss that has an impact on the estimated future cash flows of the asset.

Asset backed securities are assessed for objective evidence of impairment on an alternative basis. Specifically, we periodically update our best estimate of cash
flows over the life of the security. In the event that there is an adverse change in the expected cash flows, the asset is impaired. 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 mortgage-backed securities 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.

Equity
Securities and Other Invested Assets

Objective evidence of impairment for equity securities as well as investments in limited partnerships,
segregated funds and mutual funds involves an assessment of the prospect of recovering the cost of our investment. Instruments in an unrealized loss position are reviewed to determine if objective evidence of impairment exists. Objective evidence of
impairment for these instruments includes, but is not limited to, the financial condition and near-term prospects of the issuer, including information about significant changes with adverse effects that have taken place in the technological, market,
economic or legal environment in which the issuer operates, and a significant or prolonged decline in the fair value of the instruments below their cost.

We apply presumptive impairment tests to determine whether there has been a significant or prolonged decline in the fair value of an instrument below its cost, and
unless extenuating circumstances exist, the instrument is considered to be impaired.

Mortgages and Loans

Objective evidence of impairment on mortgages and loans involves an assessment of the borrowers ability to meet current and future contractual interest and
principal payments. In determining whether an individual mortgage or loan has objective evidence of impairment, we consider a number of triggers that cause us to reassess its creditworthiness and consequent cause for concern, generally based on a
decline in the current financial position of the borrower and, for collateral-dependant mortgages and loans, the value of the collateral.

Mortgages and
loans causing concern are monitored closely and evaluated for objective evidence of impairment. For these mortgages and loans, we review information that is appropriate to the circumstances, including recent operating developments, strategy review,
time lines for remediation, financial position of the borrower and, for collateral-dependent mortgages and loans, the value of security as well as occupancy and cash flow considerations.

In addition to specific allowances, circumstances may warrant a collective allowance based on objective evidence of impairment for a group of mortgages and loans. In our review, we consider, for example in the case
of certain collateral-dependant mortgages and loans, regional economic conditions, developments for various property types, or significant exposure to struggling tenants in determining whether there is objective evidence of impairment, even though
it is not possible to identify specific mortgages and loans which are likely to become impaired on an individual basis.

Management also assesses
previously impaired mortgages and loans to determine whether a recovery is objectively related to an event occurring subsequent to the impairment loss that has an impact on the estimated future cash flows of the asset.

Impairment of Fair Value Through Profit or Loss Assets

We
generally maintain distinct asset portfolios for each line of business. Changes in the fair values of these assets are largely offset by changes in the fair value of liabilities for insurance contracts, when there is an effective matching of assets
and liabilities. When assets are designated as FVTPL, the change in fair value arising from impairment is not required to be separately disclosed under IFRS. The reduction in fair values of FVTPL debt securities attributable to impairment results in
an increase in liabilities for insurance contracts charged through the Consolidated Statements of Operations for the period.

Impairment of
Available-For-Sale Assets

We wrote down $34 of impaired AFS assets recorded at fair value during 2011 ($34 during 2010). These write-downs are
included in Net gains (losses) on AFS assets in our Consolidated Statements of Operations.

We did not reverse any impairment on AFS debt securities
during 2011 and 2010.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    125



---

Past Due and Impaired Mortgages and Loans

The distribution of mortgages and loans by credit quality as at December 31 is shown in the following tables:



|                           |  |                      |        |     |                      |   |        |       |  |   |           |  |  |       |     |  |       |   |    |  |  |   |     | 
|-------------------------- |  | -------------------- | ------ | --- | -------------------- | - | ------ | ----- |  | - | --------- |  |  | ----- | --- |  | ----- | - | -- |  |  | - | --- | 
|                           |  | Gross Carrying Value |        |     | Allowance for Losses |  
|                           |  | Mortgages            |        |     | Loans                |   |        | Total |  |   | Mortgages |  |  | Loans |     |  | Total |  
|As at December 31, 2011    |  |                      |        |     |                      |   |        |       |  |   |           |  |  |       |     |  |       |   |    |  |  |   |     | 
|Not past due               |  | $                    | 13,001 |     |                      | $ | 14,358 |       |  | $ | 27,359    |  |  | $     |    |  |       | $ |   |  |  | $ |    | 
|Past due:                  |  |                      |        |     |                      |   |        |       |  |   |           |  |  |       |     |  |       |   |    |  |  |   |     | 
|Past due less than 90 days |  |                      | 10     |     |                      |   |       |       |  |   | 10        |  |  |       |    |  |       |   |   |  |  |   |    | 
|Past due 90 to 179 days    |  |                      |       |     |                      |   |       |       |  |   |          |  |  |       |    |  |       |   |   |  |  |   |    | 
|Past due 180 days or more  |  |                      |       |     |                      |   |       |       |  |   |          |  |  |       |    |  |       |   |   |  |  |   |    | 
|Impaired                   |  |                      | 540    |     |                      |   | 69     |       |  |   | 609       |  |  |       | 196 |  |       |   | 27 |  |  |   | 223 | 
|Total                      |  | $                    | 13,551 |     |                      | $ | 14,427 |       |  | $ | 27,978    |  |  | $     | 196 |  |       | $ | 27 |  |  | $ | 223 | 
|                           |  |                      |        |     |                      |  
|As at December 31, 2010    |  |                      |        |     |                      |   |        |       |  |   |           |  |  |       |     |  |       |   |    |  |  |   |     | 
|Not past due               |  | $                    | 12,933 |     |                      | $ | 12,667 |       |  | $ | 25,600    |  |  | $     |    |  |       | $ |   |  |  | $ |    | 
|Past due:                  |  |                      |        |     |                      |   |        |       |  |   |           |  |  |       |     |  |       |   |    |  |  |   |     | 
|Past due less than 90 days |  |                      | 79     |     |                      |   |       |       |  |   | 79        |  |  |       |    |  |       |   |   |  |  |   |    | 
|Past due 90 to 179 days    |  |                      |       |     |                      |   |       |       |  |   |          |  |  |       |    |  |       |   |   |  |  |   |    | 
|Past due 180 days or more  |  |                      |       |     |                      |   |       |       |  |   |          |  |  |       |    |  |       |   |   |  |  |   |    | 
|Impaired                   |  |                      | 484    | (1) |                      |   | 136    |       |  |   | 620       |  |  |       | 194 |  |       |   | 71 |  |  |   | 265 | 
|Total                      |  | $                    | 13,496 |     |                      | $ | 12,803 |       |  | $ | 26,299    |  |  | $     | 194 |  |       | $ | 71 |  |  | $ | 265 | 
|As at January 1, 2010      |  |                      |        |     |                      |   |        |       |  |   |           |  |  |       |     |  |       |   |    |  |  |   |     | 
|Not past due               |  | $                    | 13,991 |     |                      | $ | 12,659 |       |  | $ | 26,650    |  |  | $     |    |  |       | $ |   |  |  | $ |    | 
|Past due:                  |  |                      |        |     |                      |   |        |       |  |   |           |  |  |       |     |  |       |   |    |  |  |   |     | 
|Past due less than 90 days |  |                      | 30     |     |                      |   |       |       |  |   | 30        |  |  |       |    |  |       |   |   |  |  |   |    | 
|Past due 90 to 179 days    |  |                      |       |     |                      |   |       |       |  |   |          |  |  |       |    |  |       |   |   |  |  |   |    | 
|Past due 180 days or more  |  |                      |       |     |                      |   | 1      |       |  |   | 1         |  |  |       |    |  |       |   |   |  |  |   |    | 
|Impaired                   |  |                      | 270    |     |                      |   | 144    |       |  |   | 414       |  |  |       | 110 |  |       |   | 64 |  |  |   | 174 | 
|Total                      |  | $                    | 14,291 |     |                      | $ | 12,804 |       |  | $ | 27,095    |  |  | $     | 110 |  |       | $ | 64 |  |  | $ | 174 | 



|(1) | $115 of restructured mortgages are no longer classified as impaired, because they are performing and do not require an allowance.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

Possession of Collateral on Foreclosed Assets

During 2011,
we took possession of real estate collateral of $11 that we held as security for mortgages ($22 in 2010). These assets are either retained as real estate assets held for sale if they comply with our investment policy standards or sold.

Changes in Allowances for Losses

The changes in the
allowances for losses are as follows:



|                                |  |           |     |   |       |   |     |       |  |   |      |  
|------------------------------- |  | --------- | --- | - | ----- | - | --- | ----- |  | - | ---- | -
|                                |  | Mortgages |     |   | Loans |   |     | Total | 
|Balance, January 1, 2010        |  | $         | 110 |   |       | $ | 64  |       |  | $ | 174  |  
|Provision for losses            |  |           | 106 |   |       |   | 11  |       |  |   | 117  |  
|Write-offs, net of recoveries   |  |           | (14 | ) |       |   | (1  | )     |  |   | (15  | )
|Foreign exchange rate movements |  |           | (8  | ) |       |   | (3  | )     |  |   | (11  | )
|Balance, December 31, 2010      |  | $         | 194 |   |       | $ | 71  |       |  | $ | 265  |  
|Provision for losses            |  |           | 60  |   |       |   | (1  | )     |  |   | 59   |  
|Write-offs, net of recoveries   |  |           | (63 | ) |       |   | (44 | )     |  |   | (107 | )
|Foreign exchange rate movements |  |           | 5   |   |       |   | 1   |       |  |   | 6    |  
|Balance, December 31, 2011      |  | $         | 196 |   |       | $ | 27  |       |  | $ | 223  |  

6.B Liquidity Risk

Liquidity risk is the risk that we will not be able to fund all cash outflow commitments as they fall due.

We generally maintain a conservative liquidity position and employ a wide range of liquidity risk management practices and controls, which are described below:



| |  | Liquidity is managed in accordance with our liquidity policies and operating guidelines.
|- |  | ----------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|126    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

| |  | Stress testing of our liquidity is performed by comparing liquidity coverage ratios under one-month and one-year stress scenarios to Company policy thresholds.
These liquidity ratios are measured and managed at the business segment level and at the total Company level.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Cash management and asset liability management programs support our ability to maintain our financial position by ensuring that sufficient cash flow and liquid
assets are available to cover potential funding requirements. We invest in various types of assets with a view of matching them to our liabilities of various durations.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Target capital levels exceed regulatory minimums. We actively manage and monitor our capital and asset levels, and the diversification and credit quality of our
investments.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | We maintain various credit facilities for general corporate purposes.
|- |  | ---------------------------------------------------------------------

| |  | We also maintain liquidity contingency plans for the management of liquidity in the event of a liquidity crisis.
|- |  | ----------------------------------------------------------------------------------------------------------------

We are subject to various regulations in the jurisdictions in which we operate. The ability of SLF Inc.s subsidiaries to pay dividends and transfer funds is
regulated in certain jurisdictions and may require local regulatory approvals and the satisfaction of specific conditions in certain circumstances. Through effective cash management and capital planning, SLF Inc. ensures that its subsidiaries, as a
whole and on a stand-alone basis, are appropriately funded and maintain adequate liquidity to meet obligations, both individually and in aggregate.

Based on our historical cash flows and liquidity management processes, we believe that the cash flows from our operating activities will continue to provide
sufficient liquidity for us to satisfy debt service obligations and to pay other expenses as they fall due.

6.C Market Risk

Risk Description

We are exposed to significant financial and
capital market risk  the risk that the fair value or future cash flows of an insurance contract or financial instrument will fluctuate because of changes or volatility in market prices. Market risk includes: (i) equity market risk, resulting
from changes in equity market prices; (ii) interest rate risk, resulting from changes in interest rates or spreads; (iii) currency risk, resulting from changes in foreign exchange rates; and (iv) real estate risk resulting from
changes in real estate prices. In addition, we are subject to other price risk resulting from changes in market prices other than those arising from equity risk, interest rate risk, currency risk or real estate risk, whether those changes are caused
by factors specific to the individual insurance contract, financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

Market Risk Management Governance and Control

We employ a wide range of market risk management practices and
controls, as outlined below:

| |  | Enterprise wide risk appetite and tolerance limits have been established for market risk
|- |  | ----------------------------------------------------------------------------------------

| |  | Market risk exposures are compared to pre-established risk tolerance limits and reported to the Risk Review Committee of the Board on a regular basis
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Detailed asset-liability and market risk management policies, guidelines and procedures are in place
|- |  | ----------------------------------------------------------------------------------------------------

| |  | Management and governance of market risks is achieved through various asset-liability management and risk committees that oversee key market risk strategies and
tactics, review compliance with applicable policies and standards, and review investment and hedging performance
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Hedging and asset-liability management programs are maintained in respect of key selected market risks
|- |  | ------------------------------------------------------------------------------------------------------

| |  | Product development and pricing policies require a detailed risk assessment and pricing provisions for material market risks
|- |  | ----------------------------------------------------------------------------------------------------------------------------

| |  | Stress-testing techniques, such as DCAT, are used to measure the effects of large and sustained adverse market movements
|- |  | ------------------------------------------------------------------------------------------------------------------------

| |  | Insurance contract liability provisions are established in accordance with standards set forth by the CIA
|- |  | ---------------------------------------------------------------------------------------------------------

| |  | Target capital levels established that exceed regulatory minimums
|- |  | -----------------------------------------------------------------

6.C.i Equity Market Risk

Equity market risk is the potential for financial loss arising from declines and
volatility in equity market prices. We are exposed to equity risk from a number of sources. Our primary exposure to equity risk arises in connection with benefit guarantees on variable annuity and segregated fund annuity contracts (i.e. segregated
fund products in SLF Canada, variable annuities in SLF U.S. and run-off reinsurance in our Corporate segment). These benefit guarantees are linked to underlying fund performance and may be triggered upon death, maturity, withdrawal or annuitization.

We derive a portion of our revenue from fee income generated by our asset management businesses and from certain insurance and annuity contracts where
fee income is levied on account balances that generally move in line with equity market levels. Accordingly, adverse fluctuations in the market value of such assets would result in corresponding adverse impacts on our revenue and net income. In
addition, declining and volatile equity markets may have a negative impact on sales and redemptions (surrenders) for this business, resulting in further adverse impacts on our net income and financial position.

We also have direct exposure to equity markets from the investments supporting other general account liabilities, surplus and employee benefit plans. These
exposures generally fall within our risk taking philosophy and appetite and are therefore generally not hedged.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    127



---

The carrying value of equities by issuer country is shown in the following table:



|                        |  |                                  |       |  |                     |   |     |               |  |   |       | 
|----------------------- |  | -------------------------------- | ----- |  | ------------------- | - | --- | ------------- |  | - | ----- | 
|As at December 31, 2011 |  | Fair value throughprofit or loss |       |  | Available-
for-sale |   |     | Totalequities | 
|Canada                  |  | $                                | 2,715 |  |                     | $ | 100 |               |  | $ | 2,815 | 
|United States           |  |                                  | 458   |  |                     |   | 583 |               |  |   | 1,041 | 
|United Kingdom          |  |                                  | 174   |  |                     |   | 34  |               |  |   | 208   | 
|Other                   |  |                                  | 384   |  |                     |   | 122 |               |  |   | 506   | 
|Total equities          |  | $                                | 3,731 |  |                     | $ | 839 |               |  | $ | 4,570 | 
|                        |  |                                  |      
|As at December 31, 2010 |  | Fair value throughprofit or loss |       |  | Available-
for-sale |   |     | Totalequities | 
|Canada                  |  | $                                | 2,642 |  |                     | $ | 118 |               |  | $ | 2,760 | 
|United States           |  |                                  | 1,181 |  |                     |   | 464 |               |  |   | 1,645 | 
|United Kingdom          |  |                                  | 241   |  |                     |   | 50  |               |  |   | 291   | 
|Other                   |  |                                  | 385   |  |                     |   | 150 |               |  |   | 535   | 
|Total equities          |  | $                                | 4,449 |  |                     | $ | 782 |               |  | $ | 5,231 | 
|                        |  |                                  |      
|As at January 1, 2010   |  | Fair value throughprofit or loss |       |  | Available-
for-sale |   |     | Totalequities | 
|Canada                  |  | $                                | 2,311 |  |                     | $ | 117 |               |  | $ | 2,428 | 
|United States           |  |                                  | 1,137 |  |                     |   | 442 |               |  |   | 1,579 | 
|United Kingdom          |  |                                  | 501   |  |                     |   | 7   |               |  |   | 508   | 
|Other                   |  |                                  | 410   |  |                     |   | 44  |               |  |   | 454   | 
|Total equities          |  | $                                | 4,359 |  |                     | $ | 610 |               |  | $ | 4,969 | 

6.C.ii Embedded Derivatives Risk

An embedded derivative is contained within a host insurance contract if it includes an identifiable condition to modify the cash flows that are otherwise payable. This section is applicable to those embedded
derivatives where we are not required to, and have not measured (either separately or together with the host contract) the embedded derivative at fair value.

The most significant market risk exposure from embedded derivatives arises in connection with the benefit guarantees on variable annuity and segregated fund annuity contracts (i.e. segregated fund products in
Canada, variable annuities in SLF U.S. and run-off reinsurance in our Corporate segment). These benefit guarantees are linked to underlying fund performance and may be triggered upon death, maturity, withdrawal or annuitization. We have implemented
hedging programs to mitigate a portion of this market risk exposure.

We are also exposed to significant interest rate risk from embedded derivatives in
certain general account products and variable annuity and segregated fund contracts, which contain explicit or implicit investment guarantees in the form of minimum crediting rates, guaranteed premium rates, settlement options and benefit
guarantees. If investment returns fall below guaranteed levels, we may be required to increase liabilities or capital in respect of these contracts. The guarantees attached to these products may be applicable to both past premiums collected and
future premiums not yet received. Variable annuity and segregated fund contracts provide benefit guarantees that are linked to underlying fund performance and may be triggered upon death, maturity, withdrawal or annuitization. These products are
included in our asset-liability management program and the residual interest rate exposure is managed within risk tolerance limits.

We are also exposed
to interest rate risk through guaranteed annuitization options included primarily in retirement contracts and pension plans. These embedded options give policyholders the right to convert their investment into a pension on a guaranteed basis,
thereby exposing us to declining long-term interest rates as the annuity guarantee rates come into effect. Embedded options on unit-linked pension contracts give policyholders the right to convert their fund at retirement into pensions on a
guaranteed basis, thereby exposing us to declining interest rates and increasing equity market returns (increasing the size of the fund which is eligible for the guaranteed conversion basis). Guaranteed annuity options are included in our
asset-liability management program and most of the interest rate and equity exposure is mitigated through hedging.

Significant changes or volatility in
interest rates or spreads could have a negative impact on sales of certain insurance and annuity products, and adversely impact the expected pattern of redemptions (surrenders) on existing policies. Increases in interest rates or widening spreads
may increase the risk that policyholders will surrender their contracts, forcing us to liquidate investment assets at a loss and accelerate recognition of certain acquisition expenses. While we have established hedging programs in place and our
insurance and annuity products often contain surrender mitigation features, these may not be sufficient to fully offset the adverse impact of the underlying losses.

Fixed indexed annuity contracts contain embedded derivatives as policyholder funds are credited a return that is based on the performance of an equity index such as the S&P 500. We have implemented hedging
programs to mitigate this equity market risk exposure.

Certain annuity and long-term disability contracts contain embedded derivatives as benefits are
linked to the Consumer Price Index; however most of this exposure is hedged through the Companys ongoing asset liability management program.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|128    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

7. Insurance Risk Management





7.A Insurance Risk

Risk Description

Insurance risk is the uncertainty of
product performance due to differences between the actual experience and expected assumptions affecting amounts of claims, benefits payments, expenses and the cost of embedded options and guarantees related to insurance risks. This risk class
includes risk factors relating to product development and pricing, mortality, morbidity, longevity, policyholder behaviour, and reinsurance.

Insurance Risk Management Governance and Control

Insurance
risk is managed through a number of enterprise wide controls addressing a wide range of insurance risk factors, as follows:



| |  | Enterprise wide insurance underwriting and claims, product development and pricing, and reinsurance risk management policies
|- |  | ----------------------------------------------------------------------------------------------------------------------------

| |  | Product development and pricing policies require detailed risk assessment and provision for material insurance risks
|- |  | --------------------------------------------------------------------------------------------------------------------

| |  | Insurance contract liability provisions are established in accordance with standards set forth by the CIA
|- |  | ---------------------------------------------------------------------------------------------------------

| |  | Target capital levels established that exceed regulatory minimums
|- |  | -----------------------------------------------------------------

| |  | Board approved maximum retention limits (amounts issued in excess of these limits are reinsured)
|- |  | ------------------------------------------------------------------------------------------------

| |  | Various limits, restrictions and fee structures may be introduced into plan designs in order to establish more homogeneous policy risk profile and limit
potential for anti-selection
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Enterprise underwriting and risk selection standards with oversight by corporate underwriting and claims risk management function
|- |  | ---------------------------------------------------------------------------------------------------------------------------------

| |  | Diversification and risk pooling is managed by aggregation of broad exposures across product lines, geography, distribution channels etc.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------

| |  | Experience studies (both Company specific and industry level) and Source of Earnings analysis are periodically monitored and factored into ongoing valuation,
renewal and new business pricing processes
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Stress-testing techniques, such as DCAT, are used to measure the effects of large and sustained adverse movements in insurance risk factors
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| |  | We have established a reinsurance ceded policy to set acceptance criteria and protocols to monitor the level of reinsurance ceded to any single reinsurer or
group of reinsurers. Our reinsurance counterparty risk profile is monitored closely, including through regular reporting to the Risk Review Committee of the Board of Directors
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The components of insurance risk are disclosed below:

7.A.i
Product Design and Pricing Risk

Risk Description

Product design and pricing risk is the risk a product does not perform as expected causing adverse financial consequences. This risk may arise from deviations in realized experience versus assumptions used in the
pricing of products. Risk factors include uncertainty concerning future investment yields, policyholder behaviour, mortality and morbidity experience, sales levels, mix of business, expenses and taxes. Although some of our products permit us to
increase premiums or adjust other charges and credits during the life of the policy or contract, the terms of these policies or contracts may not allow for sufficient adjustments to maintain expected profitability

Product Design and Pricing Governance and Control

An annual
compliance assessment is performed by all business segments to confirm compliance with the enterprise wide product design and pricing policy which is approved by the Risk Review Committee of the Board of Directors and related operating guidelines.
Pricing models, methods and assumptions are subject to periodic internal peer reviews. New products are subject to a risk assessment process to identify key risks and must be approved by multi-disciplinary committees. Product development, design and
pricing processes have been implemented throughout the Company.

Experience studies and sources of earnings analysis are used to monitor actual
experience against those assumed in pricing and valuation.

On experience rated products, participating and adjustable products, emerging experience is
reflected through changes in policyholder dividend scales as well as other policy adjustment mechanisms such as premium and benefit levels.

Limits and
restrictions may be introduced into the design of the product to mitigate adverse policyholder behaviour or apply upper thresholds on certain benefits.

7.A.ii Policyholder Behaviour Risk

Risk Description

We can incur losses due to adverse policyholder behaviour relative to that assumed in the liabilities with regard to lapse of policies or exercise
of other embedded policy options.

Uncertainty in policyholder behaviour can arise from several sources including unexpected events in the
policyholders circumstances, the general level of economic activity (whether higher or lower than expected), changes in pricing and availability of current products, the introduction of new products, changes in underwriting technology and
standards as well as changes in our financial strength or reputation. Uncertainty in future cash flows affected by policyholder behaviour can be further exacerbated by irrational behaviour during times of economic turbulence or at key option
exercise points in the life of an insurance contract.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    129



---

Policyholder Behaviour Risk Management Governance and Control

Various types of provisions are built into many of our products to reduce the impact of uncertain policyholder behaviour. These provisions include:



| |  | Surrender charges which adjust the payout to the policyholder by taking into account prevailing market conditions
|- |  | -----------------------------------------------------------------------------------------------------------------

| |  | Limits on the amount that policyholders can surrender or borrow
|- |  | ---------------------------------------------------------------

| |  | Restrictions on the timing of policyholders ability to exercise certain options
|- |  | --------------------------------------------------------------------------------

| |  | Restrictions on both the types of funds customers can select and the frequency with which they can change funds
|- |  | ---------------------------------------------------------------------------------------------------------------

| |  | Policyholder behaviour risk is also mitigated through reinsurance on some insurance contracts
|- |  | ---------------------------------------------------------------------------------------------

For individual life insurance products where fewer terminations would be financially adverse to us, net income and equity would be decreased by about $270 ($225 in
2010) if the termination rate assumption were reduced by 10%. For products where more terminations would be financially adverse to us, net income and equity would be decreased by about $65 ($80 in 2010) if the termination rate assumption were
increased by 10%.

7.A.iii Mortality and Morbidity Risk

Risk Description

Mortality and morbidity risk is the risk that future experience could be worse than assumed.
Mortality and morbidity risk can arise in the normal course of business through the random fluctuation in realized experience, through catastrophes, or in association with other risk factors such as product development and pricing or model risk.
Adverse mortality and morbidity experience could also occur through systemic anti-selection, which could arise due to poor plan design or underwriting process failure or the development of investor owned and secondary markets for life insurance
policies.

During economic slowdowns, the risk of adverse morbidity experience increases, especially with respect to disability coverages. This
introduces the potential for adverse financial volatility in disability results.

For life insurance products for which higher mortality would be
financially adverse to the Company, a 2% increase in the best estimate assumption would decrease net income and equity by about $15 ($40 in 2010).

For
products where morbidity is a significant assumption, a 5% adverse change in that assumption would reduce net income and equity by about $120 ($110 in 2010).

We do not have a high degree of concentration risk to single individuals or groups due to our well diversified geographic and business mix. The largest portion of mortality risk within the Company is in North
America.

Mortality and Morbidity Risk Management Governance and Control

Detailed uniform underwriting procedures have been established to determine the insurability of applicants and to manage exposure to large claims. These underwriting requirements are regularly scrutinized against
industry guidelines and oversight is provided through a corporate underwriting and claim management function.

Individual and group insurance policies
are underwritten prior to initial issue and renewals, based on risk selection, plan design and rating techniques.

Underwriting and claims risk policies
approved by the Risk Review Committee of the Board of Directors include limits on the maximum amount of insurance that may be issued under one policy and the maximum amount that may be retained. These limits vary by geographic region and amounts in
excess of limits are reinsured to ensure there is no exposure to unreasonable concentration of risk.

7.A.iv Longevity Risk

Risk Description

Longevity risk is the potential for
economic loss, accounting loss or volatility in earnings arising from uncertain ongoing changes in rates of mortality improvement. This risk can manifest itself slowly over time as socioeconomic conditions improve and medical advances continue. It
could also manifest itself more quickly, for example, due to significant medical breakthroughs that significantly extend life expectancy. Longevity risk affects contracts where benefits are based upon the likelihood of survival (for example,
annuities, pensions, pure endowments and specific types of health contracts).

Longevity Risk Management Governance and Control

To improve management of longevity risk, we are active in studying research in the field of mortality improvement from various countries. Stress testing techniques
are used to measure and monitor the impact of extreme mortality improvement on the aggregate portfolio of insurance and annuity products as well as our own pension plans.

For annuities products for which lower mortality would be financially adverse to us, a 2% decrease in the mortality assumption would decrease net income and equity by about $100 ($85 in 2010).

7.A.v Expense Risk

Risk Description

Expense risk is the risk that future expenses are higher than assumed. This risk can arise from general economic conditions, unexpected increases in inflation, or
reduction in productivity leading to increase in unit expenses. Expense risk occurs in products where we cannot or will not pass increased costs on to the customer and will manifest itself in the form of a liability increase or a reduction in
expected future profits.

The sensitivity of liabilities for insurance contracts to a 5% increase in unit expenses would result in a decrease in net
income and equity of about $160 ($140 in 2010).



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|130    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

Expenses Risk Management Governance and Control

We closely monitor expenses through an annual budgeting process and ongoing monitoring of any expense gaps between unit expenses assumed in pricing and actual expenses.

7.A.vi Reinsurance Market Risk

Risk Description

We purchase reinsurance for certain risks underwritten by our various insurance businesses. Reinsurance market risk is the risk of financial loss
due to adverse developments in reinsurance markets (for example, discontinuance or diminution of reinsurance capacity or an increase in the cost of reinsurance) or insolvency of a reinsurer.

Changes in reinsurance market conditions, including actions taken by reinsurers to increase rates on existing coverage with non-guaranteed premiums, may adversely impact the availability or cost of maintaining
existing or securing new requisite reinsurance capacity, with adverse impacts on our profitability and financial position.

Reinsurance Markets Risk
Management Governance and Control

We have a reinsurance ceded policy approved by the Risk Review Committee of the Board of Directors to set
acceptance criteria and monitor the level of reinsurance ceded to any single reinsurer or group of reinsurers. The policy also determines which reinsurance companies qualify as suitable business partners and requires that all agreements include
provisions to allow action to be taken, such as recapture of ceded risk (at a potential cost to the Company), in the event that the reinsurer is losing its legal ability to carry on business through insolvency or regulatory action. New sales of our
products can also be discontinued or changed to reflect developments in the reinsurance markets. In force reinsurance treaties are typically guaranteed for the life of the ceded policy, however, some reinsurance rates may be adjustable. There is
generally more than one reinsurer supporting a reinsurance pool and to diversify risks.

8. Other Assets





Other assets consist of the following:

|                                  |  |                  |       |  |                  |   |       |                |  |   |       | 
|--------------------------------- |  | ---------------- | ----- |  | ---------------- | - | ----- | -------------- |  | - | ----- | 
|As at                             |  | December 31,2011 |       |  | December 31,2010 |   |       | January 1,2010 | 
|Accounts receivable               |  | $                | 1,059 |  |                  | $ | 1,205 |                |  | $ | 1,082 | 
|Investment income due and accrued |  |                  | 1,109 |  |                  |   | 1,044 |                |  |   | 1,107 | 
|Deferred acquisition costs(1)     |  |                  | 148   |  |                  |   | 147   |                |  |   | 156   | 
|Prepaid expenses                  |  |                  | 113   |  |                  |   | 78    |                |  |   | 66    | 
|Premiums receivable               |  |                  | 352   |  |                  |   | 334   |                |  |   | 429   | 
|Accrued benefit assets (Note 27)  |  |                  | 51    |  |                  |   | 28    |                |  |   | 14    | 
|Other                             |  |                  | 53    |  |                  |   | 48    |                |  |   | 62    | 
|Total other assets                |  | $                | 2,885 |  |                  | $ | 2,884 |                |  | $ | 2,916 | 



|(1) | Amortization of deferred acquisition costs charged to income during the year amounted to $33 in 2011 ($35 in 2010).
|--- | -------------------------------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    131



---

9. Property and Equipment







|                                                         |  |                          |    |   |                            |   |      |       |  |   |      |   |  |   |       |  
|-------------------------------------------------------- |  | ------------------------ | -- | - | -------------------------- | - | ---- | ----- |  | - | ---- | - |  | - | ----- | -
|                                                         |  | Owner-occupiedproperties |    |   | Otherproperty andequipment |   |      | Total | 
|                                                         |  | Land                     |    |   | Building                   |   |      |      
|Gross carrying amount                                    |  |                          |    |   |                            |   |      |       |  |   |      |   |  |   |       |  
|Balance, January 1, 2010                                 |  | $                        | 59 |   |                            | $ | 468  |       |  | $ | 675  |   |  | $ | 1,202 |  
|Additions                                                |  |                          | 1  |   |                            |   | 36   |       |  |   | 33   |   |  |   | 70    |  
|Disposals                                                |  |                          |   |   |                            |   | (3   | )     |  |   | (24  | ) |  |   | (27   | )
|Transfers to investment properties                       |  |                          | (1 | ) |                            |   | (13  | )     |  |   |     |   |  |   | (14   | )
|Transfers from other assets                              |  |                          |   |   |                            |   |     |       |  |   | 8    |   |  |   | 8     |  
|Foreign exchange rate movements                          |  |                          | (1 | ) |                            |   | (5   | )     |  |   | (13  | ) |  |   | (19   | )
|Balance, December 31, 2010                               |  | $                        | 58 |   |                            | $ | 483  |       |  | $ | 679  |   |  | $ | 1,220 |  
|Additions                                                |  |                          |   |   |                            |   | 25   |       |  |   | 102  |   |  |   | 127   |  
|Disposals                                                |  |                          |   |   |                            |   |     |       |  |   | (199 | ) |  |   | (199  | )
|Foreign exchange rate movements                          |  |                          |   |   |                            |   | 3    |       |  |   | 2    |   |  |   | 5     |  
|Balance, December 31, 2011                               |  | $                        | 58 |   |                            | $ | 511  |       |  | $ | 584  |   |  | $ | 1,153 |  
|Accumulated depreciation and impairment losses           |  |                          |    |   |                            |   |      |       |  |   |      |   |  |   |       |  
|Balance, January 1, 2010                                 |  | $                        |   |   |                            | $ | (144 | )     |  | $ | (559 | ) |  | $ | (703  | )
|Depreciation charge for the year                         |  |                          |   |   |                            |   | (9   | )     |  |   | (43  | ) |  |   | (52   | )
|Leasing commissions and tenant inducements, amortization |  |                          |   |   |                            |   | (4   | )     |  |   |     |   |  |   | (4    | )
|Disposals                                                |  |                          |   |   |                            |   |     |       |  |   | 24   |   |  |   | 24    |  
|Transfers from other assets                              |  |                          |   |   |                            |   |     |       |  |   | (6   | ) |  |   | (6    | )
|Foreign exchange rate movements                          |  |                          |   |   |                            |   | 1    |       |  |   | 12   |   |  |   | 13    |  
|Balance, December 31, 2010                               |  | $                        |   |   |                            | $ | (156 | )     |  | $ | (572 | ) |  | $ | (728  | )
|Depreciation charge for the year                         |  |                          |   |   |                            |   | (12  | )     |  |   | (46  | ) |  |   | (58   | )
|Leasing commissions and tenant inducements, amortization |  |                          |   |   |                            |   | (3   | )     |  |   |     |   |  |   | (3    | )
|Impairment losses                                        |  |                          |   |   |                            |   |     |       |  |   | (2   | ) |  |   | (2    | )
|Disposals                                                |  |                          |   |   |                            |   |     |       |  |   | 185  |   |  |   | 185   |  
|Foreign exchange rate movements                          |  |                          |   |   |                            |   |     |       |  |   | (1   | ) |  |   | (1    | )
|Balance, December 31, 2011                               |  | $                        |   |   |                            | $ | (171 | )     |  | $ | (436 | ) |  | $ | (607  | )
|Net carrying amount, end of period:                      |  |                          |    |   |                            |   |      |       |  |   |      |   |  |   |       |  
|As at January 1, 2010                                    |  | $                        | 59 |   |                            | $ | 324  |       |  | $ | 116  |   |  | $ | 499   |  
|As at December 31, 2010                                  |  | $                        | 58 |   |                            | $ | 327  |       |  | $ | 107  |   |  | $ | 492   |  
|As at December 31, 2011                                  |  | $                        | 58 |   |                            | $ | 340  |       |  | $ | 148  |   |  | $ | 546   |  



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|132    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

10. Goodwill and Intangible Assets





10.A Goodwill

This note analyzes the changes to the carrying amount of goodwill during the year and details
the result of our impairment testing on goodwill.

Changes in the carrying amount of goodwill acquired through business combinations by reportable
segment are as follows:



|                                |  |            |       |   |          |   |     |          |  |   |           |   |  |       |      |   |  |   |       |  
|------------------------------- |  | ---------- | ----- | - | -------- | - | --- | -------- |  | - | --------- | - |  | ----- | ---- | - |  | - | ----- | -
|                                |  | SLF Canada |       |   | SLF U.S. |   |     | SLF Asia |  |   | Corporate |   |  | Total |     
|Balance, January 1, 2010(1)     |  | $          | 2,765 |   |          | $ | 450 |          |  | $ | 463       |   |  | $     | 912  |   |  | $ | 4,590 |  
|Disposition (Note 3)            |  |            |      |   |          |   |    |          |  |   |          |   |  |       | (309 | ) |  |   | (309  | )
|Foreign exchange rate movements |  |            |      |   |          |   | (24 | )        |  |   | (25       | ) |  |       | (32  | ) |  |   | (81   | )
|Balance, December 31, 2010(1)   |  | $          | 2,765 |   |          | $ | 426 |          |  | $ | 438       |   |  | $     | 571  |   |  | $ | 4,200 |  
|Impairment(2)                   |  |            | (194  | ) |          |   | (94 | )        |  |   |          |   |  |       |     |   |  |   | (288  | )
|Foreign exchange rate movements |  |            |      |   |          |   | 10  |          |  |   | 10        |   |  |       | 10   |   |  |   | 30    |  
|Balance, December 31, 2011      |  | $          | 2,571 |   |          | $ | 342 |          |  | $ | 448       |   |  | $     | 581  |   |  | $ | 3,942 |  



|(1) | January 1, 2010 and December 31, 2010 balances for SLF Canada and Corporate have been restated by $74 as a result of the transfer of McLean Budden from SLF Canada to
MFS Holdings within Corporate. See Note 17 for details.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The goodwill relating to the variable annuities CGU within SLF U.S. was impaired as a result of the restructuring that took place during the fourth quarter of 2011. See Note 21
for details on the impact of the restructuring. The goodwill relating to the Individual Wealth CGU within SLF Canada was impaired by $194.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The carrying amounts of goodwill allocated to our CGUs are as follows:



|                          |  |                  |       |  |                  |   |       |                |  |   |       | 
|------------------------- |  | ---------------- | ----- |  | ---------------- | - | ----- | -------------- |  | - | ----- | 
|As at                     |  | December 31,2011 |       |  | December 31,2010 |   |       | January 1,2010 | 
|SLF Canada                |  |                  |       |  |                  |   |       |                |  |   |       | 
|Individual insurance      |  | $                | 906   |  |                  | $ | 906   |                |  | $ | 906   | 
|Individual wealth         |  |                  | 158   |  |                  |   | 352   |                |  |   | 352   | 
|Group retirement services |  |                  | 453   |  |                  |   | 453   |                |  |   | 453   | 
|Group benefits            |  |                  | 1,054 |  |                  |   | 1,054 |                |  |   | 1,054 | 
|SLF U.S.                  |  |                  |       |  |                  |   |       |                |  |   |       | 
|Variable annuities        |  |                  |      |  |                  |   | 92    |                |  |   | 98    | 
|Employee benefits group   |  |                  | 342   |  |                  |   | 334   |                |  |   | 352   | 
|SLF Asia                  |  |                  |       |  |                  |   |       |                |  |   |       | 
|Hong Kong                 |  |                  | 448   |  |                  |   | 438   |                |  |   | 463   | 
|Corporate                 |  |                  |       |  |                  |   |       |                |  |   |       | 
|MFS Holdings(3)           |  |                  | 409   |  |                  |   | 402   |                |  |   | 420   | 
|U.K.                      |  |                  | 172   |  |                  |   | 169   |                |  |   | 183   | 
|Reinsurance               |  |                  |      |  |                  |   |      |                |  |   | 309   | 
|Total                     |  | $                | 3,942 |  |                  | $ | 4,200 |                |  | $ | 4,590 | 



|(3) | Goodwill of $74 previously allocated to the McLean Budden CGU within SLF Canada has been transferred to the MFS Holdings CGU subsequent to our purchase of the minority shares of
McLean Budden. See Note 17 for details.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Goodwill acquired in business combinations is allocated to the CGUs or groups of CGUs that are
expected to benefit from the synergies of the particular acquisition. Goodwill is assessed for impairment annually or more frequently if events or circumstances occur that may result in the recoverable amount of a CGU falling below its carrying
value. The recoverable amount is the higher of fair value less cost to sell and value in use.

We use the best evidence of fair value less cost to sell
as the price obtainable for the sale of a CGU, or group of CGUs. Fair value less cost to sell is initially assessed by looking at recently completed market comparable transactions. In the absence of such comparables, we use either an appraisal
methodology (with market assumptions commonly used in the valuation of insurance companies), earnings multiples or factors based on assets under management.

The appraisal methodology is based on best estimates of future income, expenses, level and cost of capital over the lifetime of the policies and, where appropriate, adjusted for items such as transaction costs.

The value ascribed to new business is based on sales anticipated in our business plans, sales projections for the valuation period based on reasonable
growth assumptions, and anticipated levels of profitability of that new business. In calculating the value of new business, future sales are projected for 10 to 15 years. In some instances, market multiples are used to approximate the explicit
projection of new business.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    133



---

The discount rates applied reflect the nature of the environment of that CGU and our target leveraged capital base.
The discount rates used range from 10% to 12% (after tax), with CGUs in the more established markets using discount rates at the low end of the range, and those in the developing markets using discount rates at the high end of the range. The
targeted capital level used is aligned with our business objectives.

10.B Intangible Assets

Changes in intangible assets are as follows:



|                                               |  |                              |     |   |       |   |      |                |  |   |       |   |  |   |       |  
|---------------------------------------------- |  | ---------------------------- | --- | - | ----- | - | ---- | -------------- |  | - | ----- | - |  | - | ----- | -
|                                               |  | Finite life                  |     |   |       |   |      |                | 
|                                               |  | Internallygenerated software |     |   | Other |   |      | Indefinitelife |  |   | Total |  
|Gross carrying amount                          |  |                              |     |   |       |   |      |                |  |   |       |   |  |   |       |  
|Balance, January 1, 2010                       |  | $                            | 141 |   |       | $ | 719  |                |  | $ | 252   |   |  | $ | 1,112 |  
|Additions                                      |  |                              | 39  |   |       |   | 1    |                |  |   |      |   |  |   | 40    |  
|Disposals                                      |  |                              | (4  | ) |       |   |     |                |  |   |      |   |  |   | (4    | )
|Foreign exchange rate movements                |  |                              | (3  | ) |       |   | (7   | )              |  |   | (13   | ) |  |   | (23   | )
|Balance, December 31, 2010                     |  | $                            | 173 |   |       | $ | 713  |                |  | $ | 239   |   |  | $ | 1,125 |  
|Additions                                      |  |                              | 47  |   |       |   |     |                |  |   |      |   |  |   | 47    |  
|Foreign exchange rate movements                |  |                              | 1   |   |       |   | 1    |                |  |   | 5     |   |  |   | 7     |  
|Balance, December 31, 2011                     |  | $                            | 221 |   |       | $ | 714  |                |  | $ | 244   |   |  | $ | 1,179 |  
|                                               |  |                              |     |  
|Accumulated amortization and impairment losses |  |                              |     |   |       |   |      |                |  |   |       |   |  |   |       |  
|Balance, January 1, 2010                       |  | $                            | (29 | ) |       | $ | (157 | )              |  | $ |      |   |  | $ | (186  | )
|Amortization charge for the year               |  |                              | (17 | ) |       |   | (24  | )              |  |   |      |   |  |   | (41   | )
|Impairment losses                              |  |                              | (7  | ) |       |   |     |                |  |   |      |   |  |   | (7    | )
|Impairment reversals                           |  |                              |    |   |       |   |     |                |  |   |      |   |  |   |      |  
|Disposals                                      |  |                              | 4   |   |       |   |     |                |  |   |      |   |  |   | 4     |  
|Foreign exchange rate movements                |  |                              | (1  | ) |       |   | 2    |                |  |   |      |   |  |   | 1     |  
|Balance, December 31, 2010                     |  | $                            | (50 | ) |       | $ | (179 | )              |  | $ |      |   |  | $ | (229  | )
|Amortization charge for the year               |  |                              | (23 | ) |       |   | (23  | )              |  |   |      |   |  |   | (46   | )
|Impairment losses                              |  |                              | (12 | ) |       |   |     |                |  |   | (9    | ) |  |   | (21   | )
|Impairment reversals                           |  |                              |    |   |       |   |     |                |  |   | 2     |   |  |   | 2     |  
|Foreign exchange rate movements                |  |                              |    |   |       |   |     |                |  |   |      |   |  |   |      |  
|Balance, December 31, 2011                     |  | $                            | (85 | ) |       | $ | (202 | )              |  | $ | (7    | ) |  | $ | (294  | )
|                                               |  |                              |     |  
|Net carrying amount, end of period:            |  |                              |     |   |       |   |      |                |  |   |       |   |  |   |       |  
|As at January 1, 2010                          |  | $                            | 112 |   |       | $ | 562  |                |  | $ | 252   |   |  | $ | 926   |  
|As at December 31, 2010                        |  | $                            | 123 |   |       | $ | 534  |                |  | $ | 239   |   |  | $ | 896   |  
|As at December 31, 2011                        |  | $                            | 136 |   |       | $ | 512  |                |  | $ | 237   |   |  | $ | 885   |  

The components of the intangible assets are as follows:

|                                   |  |                  |     |  |                  |   |     |                |  |   |     | 
|---------------------------------- |  | ---------------- | --- |  | ---------------- | - | --- | -------------- |  | - | --- | 
|As at                              |  | December 31,2011 |     |  | December 31,2010 |   |     | January 1,2010 | 
|Finite-life intangible assets:     |  |                  |     |  |                  |   |     |                |  |   |     | 
|Sales potential of field force     |  | $                | 373 |  |                  | $ | 385 |                |  | $ | 403 | 
|Asset administration contracts     |  |                  | 139 |  |                  |   | 149 |                |  |   | 159 | 
|Internally generated software      |  |                  | 136 |  |                  |   | 123 |                |  |   | 112 | 
|                                   |  | $                | 648 |  |                  | $ | 657 |                |  | $ | 674 | 
|Indefinite-life intangible assets: |  |                  |     |  |                  |   |     |                |  |   |     | 
|Fund management contracts(1)       |  | $                | 232 |  |                  | $ | 229 |                |  | $ | 241 | 
|State licenses                     |  |                  | 5   |  |                  |   | 10  |                |  |   | 11  | 
|                                   |  | $                | 237 |  |                  | $ | 239 |                |  | $ | 252 | 
|Total intangible assets            |  | $                | 885 |  |                  | $ | 896 |                |  | $ | 926 | 



|(1) | Fund management contracts are attributable to the MFS Holdings CGU, where their competitive position in, and the stability of, their respective markets support their
classification as indefinite life intangible assets.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|134    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

11. Insurance Contract Liabilities and Investment Contract Liabilities





11.A Insurance Contract Liabilities

11.A.i Description of Business

The majority of the products sold by the Company are insurance contracts. These contracts include all forms of life, health and critical illness insurance sold to
individuals and groups, life contingent annuities, accumulation annuities, and segregated fund products with guarantees.

11.A.ii Assumptions and
Methodology

General

The liabilities for
insurance contracts represent the estimated amounts which, together with estimated future premiums and net investment income, will provide for outstanding claims, estimated future benefits, policyholders dividends, taxes (other than income
taxes) and expenses on in-force insurance contracts.

In calculating liabilities for insurance contracts, assumptions must be made about mortality and
morbidity rates, lapse and other policyholder behaviour, interest rates, equity market performance, asset default, inflation, expenses and other factors over the life of our products.

We use best estimate assumptions for expected future experience. Most assumptions relate to events that are anticipated to occur many years in the future and require regular review and revision where appropriate.
Additional provisions are included in our insurance contract liabilities to provide for possible adverse deviations from the best estimates. If an assumption is more susceptible to change or if there is more uncertainty about an underlying best
estimate assumption, a correspondingly larger provision is included in our insurance contract liabilities.

In determining these provisions, we ensure:



| |  | When taken one at a time, each provision is reasonable with respect to the underlying best estimate assumption and the extent of uncertainty present in making
that assumption; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In total, the cumulative effect of all provisions is reasonable with respect to the total insurance contract liabilities.
|- |  | -------------------------------------------------------------------------------------------------------------------------

In recognition of the long-term nature of insurance contract liabilities, the margin for possible deviations generally increases for contingencies further in the
future. The best estimate assumptions and margins for adverse deviations are reviewed annually, and revisions are made where deemed necessary and prudent. With the passage of time and resulting reduction in estimation risk, excess provisions are
released into income.

Mortality

Insurance
mortality assumptions are generally based on our five-year average experience. Our experience is combined with industry experience where our own experience is insufficient to be statistically valid. Assumed mortality rates for life insurance and
annuity contracts include assumptions about future mortality improvement in accordance with CIA standards.

Morbidity

Morbidity refers to both the rates of accident or sickness and the rates of recovery therefrom. Most of our disability insurance is marketed on a group basis. We
offer critical illness policies on an individual basis in Canada and Asia, long-term care on an individual basis in Canada and medical stop-loss insurance is offered on a group basis in the United States. In Canada, group morbidity assumptions are
based on our five-year average experience, modified to reflect an emerging trend in recovery rates. For long-term care and critical illness insurance, assumptions are developed in collaboration with our reinsurers and are largely based on their
experience. In the United States, our experience is used for both medical stop-loss and disability assumptions, with some consideration of industry experience.

Lapse and Other Policyholder Behaviour

Lapse

Policyholders may allow their policies to lapse prior to the end of the contractual coverage period by choosing not to continue to pay premiums or by surrendering their policy for the cash surrender value.
Assumptions for lapse experience on life insurance are generally based on our five-year average experience. Lapse rates vary by plan, age at issue, method of premium payment, and policy duration.

Premium Payment Patterns

For universal life contracts, it
is necessary to set assumptions about premium payment patterns. Studies prepared by industry or the actuarial profession are used for products where our experience is insufficient to be statistically valid. Premium payment patterns usually vary by
plan, age at issue, method of premium payment, and policy duration.

Expense

Insurance contract liabilities provide for future policy-related expenses. These include the costs of premium collection, claims adjudication and processing, actuarial calculations, preparation and mailing of
policy statements and related indirect expenses and overheads. Expense assumptions are mainly based on our recent experience using an internal expense allocation methodology. Inflationary increases assumed in future expenses are consistent with the
future interest rates used in scenario testing.

Investment Returns

Interest Rates

We generally maintain distinct asset portfolios for each major line of business. Under CALM,
the future cash flows from insurance contracts and the assets that support them are projected under a number of interest rate scenarios, some of which are prescribed by Canadian accepted actuarial practice. Reinvestments and disinvestments take
place according to the specifications of each scenario, and the liability is set to be at least equal to the assets required to fund the worst prescribed scenario.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    135



---

Equity Rates of Return

We are exposed to equity markets through our segregated fund and annuity products that provide guarantees linked to underlying fund performance. We have implemented hedging programs involving the use of derivative
instruments to mitigate a portion of the equity market risk. As at December 31, 2011, the cost of these hedging programs is reflected in the liabilities.

In addition, the value of our liabilities for insurance products supported by equity assets depends on assumptions about the future level of equity markets. The
calculation of insurance contract liabilities for such products includes provisions for moderate changes in rates of equity market return determined in accordance with CIA standards.

Asset Default

Assumptions related to investment returns include expected future credit losses on fixed income
investments. Our past experience and industry experience over the long term, as well as specific reviews of the current portfolio, are used to project credit losses.

In addition to the allowances for losses on invested assets outlined in Note 6, the insurance contract liabilities net of reinsurance assets include an amount of $3,376 determined on a pre-tax basis to provide for
possible future asset defaults and loss of asset value on current assets and on future purchases. This amount excludes defaults that can be passed through to participating policyholders.

11.A.iii Insurance Contract Liabilities

Insurance contract liabilities consist of the following:



|                                                               |  |            |        |  |          |   |        |          |  |   |              |  |  |       |       |  |  |   |        | 
|-------------------------------------------------------------- |  | ---------- | ------ |  | -------- | - | ------ | -------- |  | - | ------------ |  |  | ----- | ----- |  |  | - | ------ | 
|As at December 31, 2011                                        |  | SLF Canada |        |  | SLF U.S. |   |        | SLF Asia |  |   | Corporate(1) |  |  | Total |      
|Individual participating life                                  |  | $          | 16,973 |  |          | $ | 5,129  |          |  | $ | 4,194        |  |  | $     | 2,005 |  |  | $ | 28,301 | 
|Individual non-participating life                              |  |            | 5,441  |  |          |   | 13,261 |          |  |   | 326          |  |  |       | 732   |  |  |   | 19,760 | 
|Group life                                                     |  |            | 1,292  |  |          |   | 1,094  |          |  |   | 9            |  |  |       |      |  |  |   | 2,395  | 
|Individual annuities                                           |  |            | 9,505  |  |          |   | 9,668  |          |  |   |             |  |  |       | 4,924 |  |  |   | 24,097 | 
|Group annuities                                                |  |            | 7,197  |  |          |   | 613    |          |  |   |             |  |  |       |      |  |  |   | 7,810  | 
|Health insurance                                               |  |            | 7,376  |  |          |   | 1,255  |          |  |   | 1            |  |  |       | 117   |  |  |   | 8,749  | 
|Insurance contract liabilities before other policy liabilities |  |            | 47,784 |  |          |   | 31,020 |          |  |   | 4,530        |  |  |       | 7,778 |  |  |   | 91,112 | 
|Add: Other policy
liabilities(2)                               |  |            | 2,630  |  |          |   | 1,104  |          |  |   | 1,219        |  |  |       | 309   |  |  |   | 5,262  | 
|Total insurance contract liabilities                           |  | $          | 50,414 |  |          | $ | 32,124 |          |  | $ | 5,749        |  |  | $     | 8,087 |  |  | $ | 96,374 | 



|(1) | Primarily business from the U.K. and run-off reinsurance operations. Includes SLF U.K. of $1,929 for Individual participating life; $17 for Individual non-participating life;
$4,924 for Individual annuities and $121 for Other policy liabilities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends and provisions for experience rating refunds.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                               |  |            |        |  |          |   |        |          |  |   |              |  |  |       |       |  |  |   |        | 
|-------------------------------------------------------------- |  | ---------- | ------ |  | -------- | - | ------ | -------- |  | - | ------------ |  |  | ----- | ----- |  |  | - | ------ | 
|                                                               |  |            |        |  |         
|As at December 31, 2010                                        |  | SLF Canada |        |  | SLF U.S. |   |        | SLF Asia |  |   | Corporate(1) |  |  | Total |      
|Individual participating life                                  |  | $          | 16,115 |  |          | $ | 4,978  |          |  | $ | 3,511        |  |  | $     | 2,055 |  |  | $ | 26,659 | 
|Individual non-participating life                              |  |            | 4,640  |  |          |   | 11,297 |          |  |   | 303          |  |  |       | 608   |  |  |   | 16,848 | 
|Group life                                                     |  |            | 1,270  |  |          |   | 985    |          |  |   | 8            |  |  |       |      |  |  |   | 2,263  | 
|Individual annuities                                           |  |            | 8,628  |  |          |   | 9,012  |          |  |   |             |  |  |       | 4,316 |  |  |   | 21,956 | 
|Group annuities                                                |  |            | 6,489  |  |          |   | 614    |          |  |   |             |  |  |       |      |  |  |   | 7,103  | 
|Health insurance                                               |  |            | 6,662  |  |          |   | 1,124  |          |  |   | 1            |  |  |       | 113   |  |  |   | 7,900  | 
|Insurance contract liabilities before other policy liabilities |  |            | 43,804 |  |          |   | 28,010 |          |  |   | 3,823        |  |  |       | 7,092 |  |  |   | 82,729 | 
|Add: Other policy
liabilities(2)                               |  |            | 2,832  |  |          |   | 1,058  |          |  |   | 1,114        |  |  |       | 323   |  |  |   | 5,327  | 
|Total insurance contract liabilities                           |  | $          | 46,636 |  |          | $ | 29,068 |          |  | $ | 4,937        |  |  | $     | 7,415 |  |  | $ | 88,056 | 



|(1) | Primarily business from the U.K. and run-off reinsurance operations. Includes SLF U.K. of $1,976 for Individual participating life; $21 for Individual non-participating life;
$4,316 for Individual annuities and $118 for Other policy liabilities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends and provisions for experience rating refunds.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|136    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---



|                                                               |  |            |        |  |          |   |        |          |  |   |              |  |  |       |       |  |  |   |        | 
|-------------------------------------------------------------- |  | ---------- | ------ |  | -------- | - | ------ | -------- |  | - | ------------ |  |  | ----- | ----- |  |  | - | ------ | 
|As at January 1, 2010                                          |  | SLF Canada |        |  | SLF U.S. |   |        | SLF Asia |  |   | Corporate(1) |  |  | Total |      
|Individual participating life                                  |  | $          | 15,240 |  |          | $ | 5,162  |          |  | $ | 3,027        |  |  | $     | 2,328 |  |  | $ | 25,757 | 
|Individual non-participating life                              |  |            | 3,710  |  |          |   | 9,833  |          |  |   | 257          |  |  |       | 1,082 |  |  |   | 14,882 | 
|Group life                                                     |  |            | 1,290  |  |          |   | 972    |          |  |   | 8            |  |  |       | 124   |  |  |   | 2,394  | 
|Individual annuities                                           |  |            | 8,600  |  |          |   | 10,690 |          |  |   |             |  |  |       | 4,380 |  |  |   | 23,670 | 
|Group annuities                                                |  |            | 6,391  |  |          |   | 670    |          |  |   |             |  |  |       |      |  |  |   | 7,061  | 
|Health insurance                                               |  |            | 6,231  |  |          |   | 1,121  |          |  |   | 1            |  |  |       | 115   |  |  |   | 7,468  | 
|Insurance contract liabilities before other policy liabilities |  |            | 41,462 |  |          |   | 28,448 |          |  |   | 3,293        |  |  |       | 8,029 |  |  |   | 81,232 | 
|Add: Other policy
liabilities(2)                               |  |            | 2,763  |  |          |   | 1,142  |          |  |   | 1,030        |  |  |       | 689   |  |  |   | 5,624  | 
|Total insurance contract liabilities                           |  | $          | 44,225 |  |          | $ | 29,590 |          |  | $ | 4,323        |  |  | $     | 8,718 |  |  | $ | 86,856 | 



|(1) | Primarily business from the U.K., life retrocession and run-off reinsurance operations. Includes SLF U.K. of $2,238 for Individual participating life; $24 for Individual
non-participating life; $4,380 for Individual annuities and $122 for other policy liabilities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends and provisions for experience rating refunds.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11.A.iv Changes in Insurance Contract Liabilities and Reinsurance Assets

Changes in Insurance contract liabilities and Reinsurance assets for the period are as follows:



|                                                                             |  |                                      |        |   |                                      |   |       |     |  |   |                              |   |  |                   |        |   |     |   |       |   |  |   |        |  
|---------------------------------------------------------------------------- |  | ------------------------------------ | ------ | - | ------------------------------------ | - | ----- | --- |  | - | ---------------------------- | - |  | ----------------- | ------ | - | --- | - | ----- | - |  | - | ------ | -
|                                                                             |  | For the year ended December 31, 2011 |        |   | For the year ended December 31, 2010 |  
|                                                                             |  | Insurancecontractliabilities         |        |   | Reinsuranceassets                    |   |       | Net |  |   | Insurancecontractliabilities |   |  | Reinsuranceassets |        |   | Net |  
|Balances, beginning of period                                                |  | $                                    | 82,729 |   |                                      | $ | 3,652 |     |  | $ | 79,077                       |   |  | $                 | 81,232 |   |     | $ | 3,133 |   |  | $ | 78,099 |  
|Change in balances on in-force policies                                      |  |                                      | 4,515  |   |                                      |   | 216   |     |  |   | 4,299                        |   |  |                   | 1,673  |   |     |   | 589   |   |  |   | 1,084  |  
|Balances arising from new policies                                           |  |                                      | 2,486  |   |                                      |   | 114   |     |  |   | 2,372                        |   |  |                   | 2,586  |   |     |   | 153   |   |  |   | 2,433  |  
|Changes in assumptions or methodology                                        |  |                                      | 583    |   |                                      |   | (920  | )   |  |   | 1,503                        |   |  |                   | 132    |   |     |   | 28    |   |  |   | 104    |  
|Increase (decrease) in Insurance contract liabilities and Reinsurance assets |  |                                      | 7,584  |   |                                      |   | (590  | )   |  |   | 8,174                        |   |  |                   | 4,391  |   |     |   | 770   |   |  |   | 3,621  |  
|Balances before the following:                                               |  |                                      | 90,313 |   |                                      |   | 3,062 |     |  |   | 87,251                       |   |  |                   | 85,623 |   |     |   | 3,903 |   |  |   | 81,720 |  
|Disposition (Note 3)                                                         |  |                                      |       |   |                                      |   |      |     |  |   |                             |   |  |                   | (563   | ) |     |   | 6     |   |  |   | (569   | )
|Other(1)                                                                     |  |                                      | (117   | ) |                                      |   |      |     |  |   | (117                         | ) |  |                   |       |   |     |   |      |   |  |   |       |  
|Foreign exchange rate movements                                              |  |                                      | 916    |   |                                      |   | 32    |     |  |   | 884                          |   |  |                   | (2,331 | ) |     |   | (257  | ) |  |   | (2,074 | )
|Balances before Other policy liabilities and assets                          |  |                                      | 91,112 |   |                                      |   | 3,094 |     |  |   | 88,018                       |   |  |                   | 82,729 |   |     |   | 3,652 |   |  |   | 79,077 |  
|Other policy liabilities and assets                                          |  |                                      | 5,262  |   |                                      |   | 183   |     |  |   | 5,079                        |   |  |                   | 5,327  |   |     |   | 203   |   |  |   | 5,124  |  
|Total Insurance contract liabilities and Reinsurance assets                  |  | $                                    | 96,374 |   |                                      | $ | 3,277 |     |  | $ | 93,097                       |   |  | $                 | 88,056 |   |     | $ | 3,855 |   |  | $ | 84,201 |  



|(1) | Reduction in liabilities due to Policy loan adjustment.
|--- | -------------------------------------------------------

11.A.v
Impact of Changes in Assumptions or Methodology

Impact of Changes in Assumptions or Methodology on Insurance Contract Liabilities net of
Reinsurance Assets  2011



|                                       |  |                                                            |  |                                                                                                                                                                                                                     
|-------------------------------------- |  | ---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Assumption or methodology              |  | Policy liabilities increase
(decrease) before income taxes |  | Description                                                                                                                                                                                                         
|Mortality / Morbidity                  |  | $     164                                                  |  | Primarily due to updates to reflect new industry guidance from the CIA related to mortality improvement.                                                                                                            
|Lapse and other policyholder behaviour |  | 405                                                        |  | Reflects higher lapse rates on term insurance renewals in SLF Canada, as well as updates for premium persistency in Individual Insurance in
SLF U.S.                                                                
|Expense                                |  | 10                                                         |  | Impact of reflecting recent experience studies across the Company (i.e. higher unit costs).                                                                                                                         
|Investment returns                     |  | 192                                                        |  | Largely due to updates to a number of investment assumptions including updates to real estate returns and the impact of a lower interest rate
environment, partially offset by changes to asset default assumptions.
|Model enhancements                     |  | (207)                                                      |  | Modelling enhancements to improve the projection of future cash flows across a number of our
businesses.                                                                                                            



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    137



---

|                                                                                                                   |  |                                                            |  |                                                                                                                                                                                                            
|------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                   |  |                                                           
|Assumption or methodology                                                                                          |  | Policy liabilities increase
(decrease) before income taxes |  | Description                                                                                                                                                                                                
|Hedging in the liabilities                                                                                         |  | 939                                                        |  | Reflects a change in methodology to provide for the cost of hedging our existing variable annuity and segregated fund contracts over their remaining
lifetime.                                             
|Total impact                                                                                                       |  | $    1,503                                                 |  |                                                                                                                                                                                                            
|                                                                                                                  
|Impact of Changes in Assumptions or Methodology on Insurance Contract Liabilities net of Reinsurance Assets  2010
|                                                                                                                   |  |                                                           
|Assumption or methodology                                                                                          |  | Policy liabilities increase (decrease) before income taxes |  | Description                                                                                                                                                                                                
|Mortality / Morbidity                                                                                              |  | $    (249)                                                 |  | Largely due to favourable changes to the mortality basis in Individual Insurance in SLF U.S., Reinsurance in Corporate and mortality/morbidity in the
Companys Group businesses in SLF Canada and SLF U.S.
|Lapse and other policyholder behaviour                                                                             |  | 269                                                        |  | Reflects the impact of higher persistency as a result of low interest rates in Individual insurance in SLF U.S., as well as higher lapse rates on term
insurance renewals in SLF Canada.                   
|Expense                                                                                                            |  | 54                                                         |  | Impact of reflecting recent experience studies across the Company.                                                                                                                                         
|Investment returns                                                                                                 |  | 83                                                         |  | Primarily from impact of Company wide revisions to equity and interest rate return assumptions.                                                                                                            
|Model enhancements                                                                                                 |  | (53)                                                       |  | Modelling enhancements to improve the projection of future cash flows across a number of our businesses.                                                                                                   
|Total impact                                                                                                       |  | $     104                                                  |  |                                                                                                                                                                                                            

11.A.vi Gross Claims and Benefits Paid

Gross claims and benefits paid consist of the following:



|                                                           |  |      |        |  |      |   |        | 
|---------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|For the years ended December 31                            |  | 2011 |        |  | 2010 |  
|Maturities and surrenders                                  |  | $    | 4,112  |  |      | $ | 4,333  | 
|Annuity payments                                           |  |      | 1,282  |  |      |   | 1,242  | 
|Death and disability benefits                              |  |      | 3,075  |  |      |   | 3,444  | 
|Health benefits                                            |  |      | 3,526  |  |      |   | 3,360  | 
|Policyholder dividends and interest on claims and deposits |  |      | 901    |  |      |   | 1,104  | 
|Total gross claims and benefits paid                       |  | $    | 12,896 |  |      | $ | 13,483 | 

11.B Investment Contract Liabilities

11.B.i Description of Business

The following are the types of Investment contracts in force:



| |  | Term certain payout annuities in Canada and the U.S.
|- |  | ----------------------------------------------------

| |  | Guaranteed Investment Contracts in Canada
|- |  | -----------------------------------------

| |  | European Medium Term Notes and Medium Term Notes products issued in the U.S.
|- |  | ----------------------------------------------------------------------------

| |  | Unit-linked products issued in the U.K. and Hong Kong; and
|- |  | ----------------------------------------------------------

| |  | Non-unit-linked pensions contracts issued in the U.K. and Hong Kong
|- |  | -------------------------------------------------------------------

11.B.ii Assumptions and Methodology

Investment Contracts with Discretionary Participation Features

Investment contracts with DPF are measured using the same approach as insurance contracts.

Investment Contracts without Discretionary Participation Features

Investment contracts without DPF are
measured at FVTPL if by doing so a potential accounting mismatch is eliminated or significantly reduced or if the contract is managed on a fair value basis. Other investment contracts without DPF are measured at amortized cost.

The fair value liability is measured through the use of prospective discounted cash-flow techniques. For unit-linked contracts, the fair value liability is equal to
the current unit fund value, plus additional non-unit liability amounts on a fair value basis if required. For non-linked contracts, the fair value liability is equal to the present value of expected cash flows.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|138    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

Amortized cost is measured at the date of initial recognition as the fair value of consideration received, less the
net effect of principal payments such as transaction costs and front-end fees. At each reporting date, the amortized cost liability is measured as the value of future best estimate cash flows discounted at the effective interest rate. The effective
interest rate is the one that equates the discounted cash payments to the liability at the date of initial recognition.

11.B.iii Investment Contract
Liabilities

Investment contract liabilities consist of the following:



|                                      |  |            |       |  |          |   |     |          |  |   |           |  |  |       |    |  |  |   |       | 
|------------------------------------- |  | ---------- | ----- |  | -------- | - | --- | -------- |  | - | --------- |  |  | ----- | -- |  |  | - | ----- | 
|As at December 31, 2011               |  | SLF Canada |       |  | SLF U.S. |   |     | SLF Asia |  |   | Corporate |  |  | Total |   
|Individual participating life         |  | $          |      |  |          | $ |    |          |  | $ |          |  |  | $     | 19 |  |  | $ | 19    | 
|Individual non-participating life     |  |            |      |  |          |   |    |          |  |   | 152       |  |  |       | 7  |  |  |   | 159   | 
|Individual annuities                  |  |            | 1,581 |  |          |   | 76  |          |  |   |          |  |  |       | 68 |  |  |   | 1,725 | 
|Group annuities                       |  |            |      |  |          |   | 921 |          |  |   | 249       |  |  |       |   |  |  |   | 1,170 | 
|Total investment contract liabilities |  | $          | 1,581 |  |          | $ | 997 |          |  | $ | 401       |  |  | $     | 94 |  |  | $ | 3,073 | 

Included in the Investment contract liabilities of $3,073 are liabilities of $487 for investment contracts with DPF, $1,620 for
investment contracts without DPF measured at amortized cost and $966 for investment contracts without DPF measured at fair value.



|                                      |  |            |       |  |          |   |       |          |  |   |           |  |  |       |    |  |  |   |       | 
|------------------------------------- |  | ---------- | ----- |  | -------- | - | ----- | -------- |  | - | --------- |  |  | ----- | -- |  |  | - | ----- | 
|                                      |  |            |       |  |         
|As at December 31, 2010               |  | SLF Canada |       |  | SLF U.S. |   |       | SLF Asia |  |   | Corporate |  |  | Total |   
|Individual participating life         |  | $          |      |  |          | $ |      |          |  | $ |          |  |  | $     | 19 |  |  | $ | 19    | 
|Individual non-participating life     |  |            |      |  |          |   |      |          |  |   | 152       |  |  |       | 7  |  |  |   | 159   | 
|Individual annuities                  |  |            | 1,386 |  |          |   | 78    |          |  |   |          |  |  |       | 69 |  |  |   | 1,533 | 
|Group annuities                       |  |            |      |  |          |   | 2,130 |          |  |   | 302       |  |  |       |   |  |  |   | 2,432 | 
|Total investment contract liabilities |  | $          | 1,386 |  |          | $ | 2,208 |          |  | $ | 454       |  |  | $     | 95 |  |  | $ | 4,143 | 

Included in the Investment contract liabilities of $4,143 are liabilities of $540 for investment contracts with DPF, $1,396 for
investment contracts without DPF measured at amortized cost and $2,207 for investment contracts without DPF measured at fair value.



|                                      |  |            |       |  |          |   |       |          |  |   |           |  |  |       |     |  |  |   |       | 
|------------------------------------- |  | ---------- | ----- |  | -------- | - | ----- | -------- |  | - | --------- |  |  | ----- | --- |  |  | - | ----- | 
|                                      |  |            |       |  |         
|As at January 1, 2010                 |  | SLF Canada |       |  | SLF U.S. |   |       | SLF Asia |  |   | Corporate |  |  | Total |    
|Individual participating life         |  | $          |      |  |          | $ |      |          |  | $ |          |  |  | $     | 23  |  |  | $ | 23    | 
|Individual non-participating life     |  |            |      |  |          |   |      |          |  |   | 71        |  |  |       | 11  |  |  |   | 82    | 
|Individual annuities                  |  |            | 1,092 |  |          |   | 92    |          |  |   |          |  |  |       | 79  |  |  |   | 1,263 | 
|Group annuities                       |  |            |      |  |          |   | 3,174 |          |  |   | 373       |  |  |       |    |  |  |   | 3,547 | 
|Total investment contract liabilities |  | $          | 1,092 |  |          | $ | 3,266 |          |  | $ | 444       |  |  | $     | 113 |  |  | $ | 4,915 | 

Included in the Investment contract liabilities of $4,915 are liabilities of $542 for investment contracts with DPF, $1,149 for
investment contracts without DPF measured at amortized cost and $3,224 for investment contracts without DPF measured at fair value.

11.B.iv Changes
in Investment Contract Liabilities

Changes in investment contract liabilities without DPF are as follows:



|                                |  |                        |        |   |                           |   |       |                        |  |   |                           |   |  |   |       |  
|------------------------------- |  | ---------------------- | ------ | - | ------------------------- | - | ----- | ---------------------- |  | - | ------------------------- | - |  | - | ----- | -
|For the years ended             |  | December 31, 2011      |        |   | December 31, 2010         |  
|                                |  | Measured at
fair value |        |   | Measured atamortized cost |   |       | Measured at
fair value |  |   | Measured atamortized cost |  
|Balance, beginning of period    |  | $                      | 2,207  |   |                           | $ | 1,396 |                        |  | $ | 3,224                     |   |  | $ | 1,149 |  
|Deposits                        |  |                        |       |   |                           |   | 395   |                        |  |   | 7                         |   |  |   | 409   |  
|Interest                        |  |                        | 19     |   |                           |   | 40    |                        |  |   | 33                        |   |  |   | 38    |  
|Withdrawals                     |  |                        | (1,218 | ) |                           |   | (228  | )                      |  |   | (984                      | ) |  |   | (203  | )
|Fees                            |  |                        |       |   |                           |   | (2    | )                      |  |   |                          |   |  |   | (4    | )
|Change in fair value            |  |                        | (19    | ) |                           |   |      |                        |  |   | 40                        |   |  |   |      |  
|Other                           |  |                        | 5      |   |                           |   | 17    |                        |  |   | 3                         |   |  |   | 13    |  
|Foreign exchange rate movements |  |                        | (28    | ) |                           |   | 2     |                        |  |   | (116                      | ) |  |   | (6    | )
|Balance, end of period          |  | $                      | 966    |   |                           | $ | 1,620 |                        |  | $ | 2,207                     |   |  | $ | 1,396 |  



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    139



---

Changes in investment contract liabilities with DPF are as follows:



|                                      |  |                   |     |   |                   |   |     |  
|------------------------------------- |  | ----------------- | --- | - | ----------------- | - | --- | -
|For the years ended                   |  | December 31, 2011 |     |   | December 31, 2010 |  
|Balance, beginning of period          |  | $                 | 540 |   |                   | $ | 542 |  
|Change in liabilities on in-force     |  |                   | (74 | ) |                   |   | (43 | )
|Liabilities arising from new policies |  |                   | 9   |   |                   |   | 75  |  
|Changes in assumptions or methodology |  |                   |    |   |                   |   | 1   |  
|Increase (decrease) in liabilities    |  |                   | (65 | ) |                   |   | 33  |  
|Liabilities before the following:     |  |                   | 475 |   |                   |   | 575 |  
|Foreign exchange rate movements       |  |                   | 12  |   |                   |   | (35 | )
|Balance, end of period                |  | $                 | 487 |   |                   | $ | 540 |  

11.C Total Assets Supporting Liabilities and Equity

The following tables show the total assets supporting total liabilities for the product lines shown (including insurance contract and investment contract liabilities) and assets supporting equity and other:



|                                  |  |                         |        |  |                      |   |        |                          |  |   |                        |  |  |                     |     |  |                       |   |        |       |  |   |       |  |  |   |        |  |  |   |         | 
|--------------------------------- |  | ----------------------- | ------ |  | -------------------- | - | ------ | ------------------------ |  | - | ---------------------- |  |  | ------------------- | --- |  | --------------------- | - | ------ | ----- |  | - | ----- |  |  | - | ------ |  |  | - | ------- | 
|                                  |  | As at December 31, 2011 |       
|                                  |  | FVTPL
-debt
securities  |        |  | AFS
-debt
securities |   |        | FVTPL
-equity
securities |  |   | AFS
-equity
securities |  |  | Mortgages
and loans |     |  | Investment
properties |   |        | Other |  |   | Total | 
|Individual participating life     |  | $                       | 15,227 |  |                      | $ |       |                          |  | $ | 2,274                  |  |  | $                   |    |  |                       | $ | 5,588  |       |  | $ | 3,658 |  |  | $ | 5,033  |  |  | $ | 31,780  | 
|Individual non-participating life |  |                         | 11,247 |  |                      |   | 479    |                          |  |   | 995                    |  |  |                     | 9   |  |                       |   | 4,670  |       |  |   | 699   |  |  |   | 8,040  |  |  |   | 26,139  | 
|Group life                        |  |                         | 879    |  |                      |   |       |                          |  |   | 8                      |  |  |                     |    |  |                       |   | 1,293  |       |  |   | 26    |  |  |   | 965    |  |  |   | 3,171   | 
|Individual annuities              |  |                         | 15,982 |  |                      |   | 382    |                          |  |   | 273                    |  |  |                     |    |  |                       |   | 6,984  |       |  |   | 15    |  |  |   | 3,639  |  |  |   | 27,275  | 
|Group annuities                   |  |                         | 4,226  |  |                      |   | 169    |                          |  |   | 83                     |  |  |                     | 1   |  |                       |   | 4,120  |       |  |   | 168   |  |  |   | 650    |  |  |   | 9,417   | 
|Health insurance                  |  |                         | 3,996  |  |                      |   |       |                          |  |   | 98                     |  |  |                     |    |  |                       |   | 4,694  |       |  |   | 133   |  |  |   | 1,144  |  |  |   | 10,065  | 
|Equity and other                  |  |                         | 70     |  |                      |   | 10,273 |                          |  |   |                       |  |  |                     | 829 |  |                       |   | 406    |       |  |   | 614   |  |  |   | 9,805  |  |  |   | 21,997  | 
|Total assets                      |  | $                       | 51,627 |  |                      | $ | 11,303 |                          |  | $ | 3,731                  |  |  | $                   | 839 |  |                       | $ | 27,755 |       |  | $ | 5,313 |  |  | $ | 29,276 |  |  | $ | 129,844 | 
|                                  | 
|                                  |  | As at December 31, 2010 |       
|                                  |  |                         |        |  |                      |   |        |                         
|                                  |  | FVTPL
-debt securities  |        |  | AFS
-debt securities |   |        | FVTPL
-equity securities |  |   | AFS
-equity securities |  |  | Mortgages
and loans |     |  | Investment
properties |   |        | Other |  |   | Total | 
|Individual participating life     |  | $                       | 14,022 |  |                      | $ |       |                          |  | $ | 3,054                  |  |  | $                   |    |  |                       | $ | 5,295  |       |  | $ | 3,330 |  |  | $ | 4,321  |  |  | $ | 30,022  | 
|Individual non-participating life |  |                         | 9,099  |  |                      |   | 420    |                          |  |   | 1,005                  |  |  |                     | 14  |  |                       |   | 3,769  |       |  |   | 355   |  |  |   | 6,863  |  |  |   | 21,525  | 
|Group life                        |  |                         | 848    |  |                      |   |       |                          |  |   | 3                      |  |  |                     |    |  |                       |   | 1,255  |       |  |   | 25    |  |  |   | 873    |  |  |   | 3,004   | 
|Individual annuities              |  |                         | 15,363 |  |                      |   | 246    |                          |  |   | 274                    |  |  |                     |    |  |                       |   | 6,957  |       |  |   | 9     |  |  |   | 1,596  |  |  |   | 24,445  | 
|Group annuities                   |  |                         | 4,421  |  |                      |   | 246    |                          |  |   | 76                     |  |  |                     |    |  |                       |   | 3,921  |       |  |   | 156   |  |  |   | 1,265  |  |  |   | 10,085  | 
|Health insurance                  |  |                         | 3,755  |  |                      |   |       |                          |  |   | 35                     |  |  |                     |    |  |                       |   | 4,242  |       |  |   | 115   |  |  |   | 1,201  |  |  |   | 9,348   | 
|Equity and other                  |  |                         | 474    |  |                      |   | 9,719  |                          |  |   | 2                      |  |  |                     | 768 |  |                       |   | 595    |       |  |   | 554   |  |  |   | 11,760 |  |  |   | 23,872  | 
|Total assets                      |  | $                       | 47,982 |  |                      | $ | 10,631 |                          |  | $ | 4,449                  |  |  | $                   | 782 |  |                       | $ | 26,034 |       |  | $ | 4,544 |  |  | $ | 27,879 |  |  | $ | 122,301 | 
|                                  | 
|                                  |  | As at January 1, 2010   |       
|                                  |  | FVTPL-debtsecurities    |        |  | AFS
-debtsecurities  |   |        | FVTPL
-equitysecurities  |  |   | AFS
-equitysecurities  |  |  | Mortgagesand loans  |     |  | Investmentproperties  |   |        | Other |  |   | Total | 
|Individual participating life     |  | $                       | 12,644 |  |                      | $ |       |                          |  | $ | 3,165                  |  |  | $                   |    |  |                       | $ | 5,488  |       |  | $ | 3,379 |  |  | $ | 4,335  |  |  | $ | 29,011  | 
|Individual non-participating life |  |                         | 7,280  |  |                      |   | 442    |                          |  |   | 847                    |  |  |                     |    |  |                       |   | 3,639  |       |  |   | 308   |  |  |   | 7,231  |  |  |   | 19,747  | 
|Group life                        |  |                         | 860    |  |                      |   |       |                          |  |   | 3                      |  |  |                     |    |  |                       |   | 1,316  |       |  |   | 27    |  |  |   | 960    |  |  |   | 3,166   | 
|Individual annuities              |  |                         | 15,054 |  |                      |   | 169    |                          |  |   | 247                    |  |  |                     |    |  |                       |   | 7,456  |       |  |   |      |  |  |   | 3,268  |  |  |   | 26,194  | 
|Group annuities                   |  |                         | 4,737  |  |                      |   | 315    |                          |  |   | 79                     |  |  |                     |    |  |                       |   | 4,171  |       |  |   | 155   |  |  |   | 1,847  |  |  |   | 11,304  | 
|Health insurance                  |  |                         | 3,337  |  |                      |   |       |                          |  |   | 18                     |  |  |                     |    |  |                       |   | 4,183  |       |  |   | 138   |  |  |   | 1,219  |  |  |   | 8,895   | 
|Equity and other                  |  |                         | 472    |  |                      |   | 8,605  |                          |  |   |                       |  |  |                     | 610 |  |                       |   | 668    |       |  |   | 539   |  |  |   | 12,543 |  |  |   | 23,437  | 
|Total assets                      |  | $                       | 44,384 |  |                      | $ | 9,531  |                          |  | $ | 4,359                  |  |  | $                   | 610 |  |                       | $ | 26,921 |       |  | $ | 4,546 |  |  | $ | 31,403 |  |  | $ | 121,754 | 



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|140    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

11.D Role of the Appointed Actuary

The Appointed Actuary is appointed by the Board and is responsible for ensuring that the assumptions and methods used in the valuation of policy liabilities are in accordance with Canadian accepted actuarial
practice, applicable legislation and associated regulations or directives.

The Appointed Actuary is required to provide an opinion regarding the
appropriateness of the policy liabilities at the statement dates to meet all obligations to policyholders of the Company. Examination of supporting data for accuracy and completeness and analysis of our assets for their ability to support the amount
of policy liabilities are important elements of the work required to form this opinion.

The Appointed Actuary is required each year to analyze the
financial condition of the Company and prepare a report for the Board. The 2011 analysis tested our capital adequacy until December 31, 2015, under various adverse economic and business conditions. The Appointed Actuary reviews the calculation
of our Canadian capital and surplus requirements. In addition, our foreign operations and foreign subsidiaries must comply with local capital requirements in each of the jurisdictions in which they operate.

12. Reinsurance





Reinsurance is used primarily to limit exposure to large
losses. We have an individual life insurance retention policy that requires that such arrangements be placed with well-established, highly rated reinsurers. Coverage is well-diversified and controls are in place to manage exposure to reinsurance
counterparties. While reinsurance arrangements provide for the recovery of claims arising from the liabilities ceded, we retain primary responsibility to the policyholders.

12.A Reinsurance Assets

Reinsurance assets are comprised of the following:



|                                              |  |            |       |  |          |   |       |          |  |   |              |  |  |       |     |  |  |   |       | 
|--------------------------------------------- |  | ---------- | ----- |  | -------- | - | ----- | -------- |  | - | ------------ |  |  | ----- | --- |  |  | - | ----- | 
|As at December 31, 2011                       |  | SLF Canada |       |  | SLF U.S. |   |       | SLF Asia |  |   | Corporate(1) |  |  | Total |    
|Individual participating life                 |  | $          | 177   |  |          | $ | (16   | )        |  | $ | 137          |  |  | $     |    |  |  | $ | 298   | 
|Individual non-participating life             |  |            | 352   |  |          |   | 617   |          |  |   | 60           |  |  |       | 204 |  |  |   | 1,233 | 
|Group life                                    |  |            | 73    |  |          |   | 866   |          |  |   |             |  |  |       |    |  |  |   | 939   | 
|Individual annuities                          |  |            |      |  |          |   | 110   |          |  |   |             |  |  |       | 65  |  |  |   | 175   | 
|Health insurance                              |  |            | 379   |  |          |   | 69    |          |  |   |             |  |  |       | 1   |  |  |   | 449   | 
|Reinsurance assets before other policy assets |  |            | 981   |  |          |   | 1,646 |          |  |   | 197          |  |  |       | 270 |  |  |   | 3,094 | 
|Add: Other policy
assets(2)                   |  |            | 57    |  |          |   | 104   |          |  |   | 11           |  |  |       | 11  |  |  |   | 183   | 
|Total reinsurance assets                      |  | $          | 1,038 |  |          | $ | 1,750 |          |  | $ | 208          |  |  | $     | 281 |  |  | $ | 3,277 | 



|(1) | Primarily business from the U.K. and run-off reinsurance operations. Includes SLF U.K. of $25 for Individual non-participating life and $65 for Individual annuities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends, and provisions for experience rating refunds.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                              |  |            |       |  |          |   |       |          |  |   |              |  |  |       |     |  |  |   |       | 
|--------------------------------------------- |  | ---------- | ----- |  | -------- | - | ----- | -------- |  | - | ------------ |  |  | ----- | --- |  |  | - | ----- | 
|As at December 31, 2010                       |  | SLF Canada |       |  | SLF U.S. |   |       | SLF Asia |  |   | Corporate(1) |  |  | Total |    
|Individual participating life                 |  | $          | 171   |  |          | $ | (19   | )        |  | $ | 8            |  |  | $     |    |  |  | $ | 160   | 
|Individual non-participating life             |  |            | 799   |  |          |   | 1,041 |          |  |   | 24           |  |  |       | 212 |  |  |   | 2,076 | 
|Group life                                    |  |            | 72    |  |          |   | 782   |          |  |   |             |  |  |       |    |  |  |   | 854   | 
|Individual annuities                          |  |            |      |  |          |   | 101   |          |  |   |             |  |  |       | 62  |  |  |   | 163   | 
|Health insurance                              |  |            | 335   |  |          |   | 63    |          |  |   |             |  |  |       | 1   |  |  |   | 399   | 
|Reinsurance assets before other policy assets |  |            | 1,377 |  |          |   | 1,968 |          |  |   | 32           |  |  |       | 275 |  |  |   | 3,652 | 
|Add: Other policy
assets(2)                   |  |            | 64    |  |          |   | 115   |          |  |   | 11           |  |  |       | 13  |  |  |   | 203   | 
|Total reinsurance assets                      |  | $          | 1,441 |  |          | $ | 2,083 |          |  | $ | 43           |  |  | $     | 288 |  |  | $ | 3,855 | 



|(1) | Primarily business from the U.K. and run-off reinsurance operations. Includes SLF U.K. of $27 for Individual non-participating life and $62 for Individual annuities.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends, and provisions for experience rating refunds.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    141



---



|                                              |  |            |       |  |          |   |       |          |  |   |              |  |  |       |     |  |  |   |       | 
|--------------------------------------------- |  | ---------- | ----- |  | -------- | - | ----- | -------- |  | - | ------------ |  |  | ----- | --- |  |  | - | ----- | 
|As at January 1, 2010                         |  | SLF Canada |       |  | SLF U.S. |   |       | SLF Asia |  |   | Corporate(1) |  |  | Total |    
|Individual participating life                 |  | $          | 149   |  |          | $ | (50   | )        |  | $ | 13           |  |  | $     |    |  |  | $ | 112   | 
|Individual non-participating life             |  |            | 702   |  |          |   | 562   |          |  |   | 11           |  |  |       | 293 |  |  |   | 1,568 | 
|Group life                                    |  |            | 79    |  |          |   | 763   |          |  |   | 1            |  |  |       |    |  |  |   | 843   | 
|Individual annuities                          |  |            |      |  |          |   | 102   |          |  |   |             |  |  |       | 64  |  |  |   | 166   | 
|Health insurance                              |  |            | 385   |  |          |   | 58    |          |  |   |             |  |  |       | 1   |  |  |   | 444   | 
|Reinsurance assets before other policy assets |  |            | 1,315 |  |          |   | 1,435 |          |  |   | 25           |  |  |       | 358 |  |  |   | 3,133 | 
|Add: Other policy
assets(2)                   |  |            | 67    |  |          |   | 97    |          |  |   | 4            |  |  |       | 42  |  |  |   | 210   | 
|Total reinsurance assets                      |  | $          | 1,382 |  |          | $ | 1,532 |          |  | $ | 29           |  |  | $     | 400 |  |  | $ | 3,343 | 



|(1) | Primarily business from the U.K., life retrocession and run-off reinsurance operations. Includes SLF U.K. of $112 for Individual non-participating life and $64 for Individual
annuities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Consists of amounts on deposit, policy benefits payable, provisions for unreported claims, provisions for policyholder dividends, and provisions for experience rating refunds.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

No impairment was incurred for fiscal year ended December 31, 2011. See Note 11 for the Changes in Reinsurance assets for the period.

12.B Reinsurance (Expenses) Recoveries

Reinsurance (expenses) recoveries are comprised of the following:



|                                  |  |                  |       |  |                  |   |       | 
|--------------------------------- |  | ---------------- | ----- |  | ---------------- | - | ----- | 
|For the years ended               |  | December 31,2011 |       |  | December 31,2010 |  
|Recovered claims and benefits     |  | $                | 3,796 |  |                  | $ | 930   | 
|Commissions                       |  |                  | 65    |  |                  |   | 53    | 
|Reserve adjustments               |  |                  | 255   |  |                  |   | 34    | 
|Operating expenses and other      |  |                  | 440   |  |                  |   | 43    | 
|Reinsurance (expenses) recoveries |  | $                | 4,556 |  |                  | $ | 1,060 | 

12.C Reinsurance Gains or Losses

During the year we entered into reinsurance arrangements which resulted in profits on inception of $46 ($Nil in 2010).

13. Other Liabilities





13.A Composition of Other Liabilities

Other liabilities consist of the following:



|                                    |  |                  |       |  |                  |   |       |                |  |   |       | 
|----------------------------------- |  | ---------------- | ----- |  | ---------------- | - | ----- | -------------- |  | - | ----- | 
|As at                               |  | December 31,2011 |       |  | December 31,2010 |   |       | January 1,2010 | 
|Accounts payable                    |  | $                | 2,202 |  |                  | $ | 1,516 |                |  | $ | 1,458 | 
|Bank overdrafts and cash pooling    |  |                  | 106   |  |                  |   | 208   |                |  |   | 39    | 
|Bond repurchase agreements          |  |                  | 1,341 |  |                  |   | 994   |                |  |   | 1,006 | 
|Accrued expenses and taxes          |  |                  | 1,331 |  |                  |   | 1,119 |                |  |   | 707   | 
|Borrowed funds                      |  |                  | 314   |  |                  |   | 280   |                |  |   | 321   | 
|Senior financing                    |  |                  | 1,416 |  |                  |   | 1,385 |                |  |   | 1,383 | 
|Accrued benefit liability (Note 27) |  |                  | 484   |  |                  |   | 520   |                |  |   | 533   | 
|Special purpose entity liabilities  |  |                  | 138   |  |                  |   | 246   |                |  |   | 825   | 
|Other                               |  |                  | 679   |  |                  |   | 470   |                |  |   | 421   | 
|Total other liabilities             |  | $                | 8,011 |  |                  | $ | 6,738 |                |  | $ | 6,693 | 

Except for items noted below, carrying value approximates fair value.

13.B Bond Repurchase Agreements

We enter into bond repurchase agreements for operational funding and liquidity
purposes where carrying value approximates fair value. Bond repurchase agreements have maturities ranging from 4 to 87 days, averaging 58 days, and bear interest at rates averaging 1.06% as at December 31, 2011 and 2010 (0.28% on
January 1, 2010). As at December 31, 2011, the Company had assets with a total fair value and carrying value of $1,341 ($994 on December 31, 2010 and $1,006 on January 1, 2010), pledged as collateral for the bond repurchase
agreements. As at December 31, 2011, the fair value of bond repurchase liability approximates the carrying value. During the term of the agreements, the Company does not have access to these securities.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|142    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

13.C Borrowed Funds

Borrowed funds are encumbrances on real estate as follows as at:



|                      |  |          |              |  |                  |   |     |                  |  |   |                |  |  |   |     | 
|--------------------- |  | -------- | ------------ |  | ---------------- | - | --- | ---------------- |  | - | -------------- |  |  | - | --- | 
|Currency of Borrowing |  | Maturity |              |  | December 31,2011 |   |     | December 31,2010 |  |   | January 1,2010 | 
|Cdn. dollars          |  |          | Current-2028 |  |                  | $ | 214 |                  |  | $ | 160            |  |  | $ | 184 | 
|U.S. dollars          |  |          | Current-2024 |  |                  |   | 100 |                  |  |   | 120            |  |  |   | 137 | 
|Total borrowed funds  |  |          |              |  |                  | $ | 314 |                  |  | $ | 280            |  |  | $ | 321 | 

The aggregate maturities of borrowed funds on real estate are included in Note 6.B.

Interest expense for the borrowed funds was $15 and $17 for 2011 and 2010, respectively.

13.D Senior Financing

On November 8, 2007, a SPE consolidated by SLF Inc. issued a U.S. $1,000 variable
principal floating rate certificate (the Certificate) to a financial institution (the Lender). At the same time, Sun Life Assurance Company of Canada-U.S. Operations Holdings, Inc. (U.S. Holdings), a subsidiary of
SLF Inc., entered into an agreement with the Lender, pursuant to which U.S. Holdings will bear the ultimate obligation to repay the outstanding principal amount of the Certificate and be obligated to make quarterly interest payments at three-month
LIBOR plus a fixed spread. The SPE issued additional certificates after the initial issuance in subsequent years, totalling to U.S. $390 of which none was issued during 2011 and U.S. $75 of certificates were issued during 2010. Total collateral
posted per financing agreement was U.S. $35, U.S. $11 and U.S $25 at December 31, 2011, December 31, 2010 and January 1, 2010 respectively.

The maximum capacity of this agreement is U.S. $2,500. The agreement expires on November 8, 2037 and the maturity date may be extended annually for an additional one-year period upon the mutual agreement of
the parties, provided such date is not beyond November 8, 2067.

The agreement could be cancelled or unwound at the option of U.S. Holdings in whole
or in part from time to time, or in whole under certain events. If the agreement is cancelled before November 8, 2015, U.S. Holdings may be required to pay a make-whole amount based on the present value of expected quarterly payments between
the cancellation date and November 8, 2015.

For the year ended December 31, 2011, we recorded $14 of interest expense relating to this
obligation ($14 in 2010). The fair value of the obligation is $797 ($1,010 in 2010), based on market prices for the same or similar instruments as appropriate.

14. Senior Debentures and Innovative Capital Instruments





14.A Senior Debentures

The following Canadian dollar obligations are included in Senior debentures:



|                                     |  |               |      |   |                        |  |                   |          |  |  |                  |  |  |                  |       |  |                |   |       |  |  |   |       | 
|------------------------------------ |  | ------------- | ---- | - | ---------------------- |  | ----------------- | -------- |  |  | ---------------- |  |  | ---------------- | ----- |  | -------------- | - | ----- |  |  | - | ----- | 
|                                     |  | Interest
Rate |      |   | Earliest par
call date |  |                   | Maturity |  |  | December 31,2011 |  |  | December 31,2010 |       |  | January 1,2010 |  
|SLF Inc. senior unsecured debentures |  |               |      |   |                        |  |                   |          |  |  |                  |  |  |                  |       |  |                |   |       |  |  |   |       | 
|Series A issued November 23, 2005(1) |  |               | 4.80 | % |                        |  | November 23, 2015 | (2)      |  |  | 2035             |  |  | $                | 600   |  |                | $ | 600   |  |  | $ | 600   | 
|Series B issued March 13, 2006(3)    |  |               | 4.95 | % |                        |  | June 1, 2016      | (2)      |  |  | 2036             |  |  |                  | 700   |  |                |   | 700   |  |  |   | 700   | 
|Series B issued February 26, 2007(3) |  |               | 4.95 | % |                        |  | June 1, 2016      | (2)      |  |  | 2036             |  |  |                  | 251   |  |                |   | 251   |  |  |   | 251   | 
|Series C issued July 11, 2006(4)     |  |               | 5.00 | % |                        |  | July 11, 2011     | (2)      |  |  | 2031             |  |  |                  |      |  |                |   | 300   |  |  |   | 300   | 
|Series D issued June 30, 2009        |  |               | 5.70 | % |                        |  | n/a               | (5)      |  |  | 2019             |  |  |                  | 300   |  |                |   | 300   |  |  |   | 300   | 
|Series E issued August 23, 2011      |  |               | 4.57 | % |                        |  | n/a               | (5)      |  |  | 2021             |  |  |                  | 298   |  |                |   |      |  |  |   |      | 
|                                     |  |               |      |   |                        |  |                   |          |  |  |                  |  |  | $                | 2,149 |  |                | $ | 2,151 |  |  | $ | 2,151 | 
|Fair value                           |  |               |      |   |                        |  |                   |          |  |  |                  |  |  | $                | 2,207 |  |                | $ | 2,230 |  |  | $ | 2,228 | 



|(1) | From November 23, 2015, interest is payable at 1% over the 90-day Bankers Acceptance Rate.
|--- | -------------------------------------------------------------------------------------------

|(2) | The relevant debenture may be redeemed, at par, on an interest payment date on or after the date noted, at the option of the issuer.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(3) | From June 1, 2016, interest is payable at 1% over the 90-day Bankers Acceptance Rate.
|--- | --------------------------------------------------------------------------------------

|(4) | Redeemed on July 11,2011 at a redemption price equal to the principal amount together with accrued and unpaid interest.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(5) | The relevant debenture may be redeemed, at the option of SLF Inc. at any time, at a redemption price equal to the greater of par and a price based on the yield of a corresponding
Government of Canada bond.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fair value is based on market price for the same or similar instruments as appropriate. Interest expense for
senior debentures was $106 and $108 for 2011 and 2010, respectively.

All senior unsecured debentures of SLF Inc. are direct senior unsecured obligations
of SLF Inc. and rank equally with other unsecured and unsubordinated indebtedness of SLF Inc.





| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    143



---

14.B Innovative Capital Instruments

Innovative capital instruments consist of Sun Life ExchangEable Capital Securities (SLEECS), issued by Sun Life Capital Trust (SLCT I) and Sun Life Capital Trust II (SLCT II, and
together with SLCT I, the SL Capital Trusts), established as trusts under the laws of Ontario.

SLCT I issued Sun Life ExchangEable
Securities  Series A (SLEECS A) and Sun Life ExchangEable Securities  Series B (SLEECS B), which are classes of units that represent an undivided beneficial ownership interest in the assets of that trust. The
SLEECS A were redeemed at par on December 31, 2011. SLEECS B are non-voting except in certain limited circumstances. Holders of SLEECS A were, and holders of the SLEECS B are eligible to receive semi-annual non-cumulative fixed cash
distributions. SLCT II issued Sun Life ExchangEable Capital Securities  Series 2009-1 (SLEECS 2009-1), which are subordinated unsecured debt obligations. Holders of SLEECS 2009-1 are eligible to receive semi-annual interest
payments. The proceeds of the issuances of SLEECS A, SLEECS B and SLEECS 2009-1 were used by the SL Capital Trusts to purchase senior debentures of Sun Life Assurance. These senior debentures are eliminated on consolidation because the SL Capital
Trusts are consolidated by Sun Life Assurance. The Sun Life Assurance senior debenture purchased with the proceeds of the issuance of SLEECS A was redeemed on December 31, 2011.

The SLEECS are structured with the intention of achieving Tier 1 regulatory capital treatment for SLF Inc. and Sun Life Assurance and, as such, have features of equity capital. No interest payments or distributions
will be paid in cash by the SL Capital Trusts on the SLEECS if Sun Life Assurance fails to declare regular dividends (i) on its Class B Non-Cumulative Preferred Shares Series A, or (ii) on its public preferred shares, if any are
outstanding (Missed Dividend Event). In the case of the SLEECS 2009-1, if a Missed Dividend Event occurs or if an interest payment is not made in cash on the SLEECS 2009-1 for any reason, including at the election of Sun Life Assurance,
holders of the SLEECS 2009-1 will be required to invest interest paid on the SLEECS 2009-1 in non-cumulative perpetual preferred shares of Sun Life Assurance. In the case of the SLEECS B, if a Missed Dividend Event occurs, the net distributable
funds of SLCT I will be distributed to Sun Life Assurance as the holder of Special Trust Securities of that trust. If the SL Capital Trusts fail to pay in cash the semi-annual interest payments or distributions on the SLEECS in full for any reason
other than a Missed Dividend Event, then, for a specified period of time, Sun Life Assurance will not declare dividends of any kind on any of its public preferred shares, and if no such public preferred shares are outstanding, SLF Inc. will not
declare dividends of any kind on any of its preferred shares or common shares.

Each SLEECS B and each one thousand dollars principal amount of SLEECS
2009-1 will be automatically exchanged for 40 non-cumulative perpetual preferred shares of Sun Life Assurance if any one of the following events occurs: (i) proceedings are commenced or an order is made for the winding-up of Sun Life Assurance;
(ii) OSFI takes control of Sun Life Assurance or its assets; (iii) Sun Life Assurances Tier 1 capital ratio is less than 75% or its MCCSR ratio is less than 120%; or (iv) OSFI directs Sun Life Assurance to increase its capital
or provide additional liquidity and Sun Life Assurance either fails to comply with such direction or elects to have the SLEECS automatically exchanged (Automatic Exchange Event). Upon an Automatic Exchange Event, former holders of the
SLEECS will cease to have any claim or entitlement to distributions, interest or principal against the issuing SL Capital Trust and will rank as preferred shareholders of Sun Life Assurance in a liquidation of Sun Life Assurance.

According to OSFI guidelines, innovative capital instruments can comprise up to 15% of net Tier 1 capital with an additional 5% eligible for Tier 2B capital. As at
December 31, 2011, for regulatory capital purposes of Sun Life Assurance, $695 (2010 - $1,442) represents Tier 1 capital, and nil (2010  $202) represents Tier 2B capital.

The table below presents additional significant terms and conditions of the Innovative Capital Instruments:



|                                      |  |               |                   |  |                                      |  |                      |             |  |  |                                        |      |  |                                        |                   |  |                  |  |                     |                  |  |   |                |  |  |   |       |  |  |   |       | 
|------------------------------------- |  | ------------- | ----------------- |  | ------------------------------------ |  | -------------------- | ----------- |  |  | -------------------------------------- | ---- |  | -------------------------------------- | ----------------- |  | ---------------- |  | ------------------- | ---------------- |  | - | -------------- |  |  | - | ----- |  |  | - | ----- | 
|Issuer                                |  | Issuance date |                   |  | Distributionor interestpayment dates |  |                      | Annualyield |  |  | Redemption date at
the issuers option |      |  | Conversion date at
the holders option |                   |  | December 31,2011 |  |                     | December 31,2010 |  |   | January 1,2010 | 
|Sun Life Capital Trust(1),(2),(3),(4) |  |               |                   |  |                                      |  |                      |             |  |  |                                        |      |  |                                        |                   |  |                  |  |                     |                  |  |   |                |  |  |   |       |  |  |   |       | 
|SLEECS A                              |  |               | October 19, 2001  |  |                                      |  | June 30, December 31 |             |  |  | 6.865                                  | %    |  |                                        | December 31, 2006 |  |                  |  | Any time            |                  |  | $ |               |  |  | $ | 950   |  |  | $ | 950   | 
|SLEECS B                              |  |               | June 25, 2002     |  |                                      |  | June 30,December 31  |             |  |  | 7.093                                  | %    |  |                                        | June 30, 2007     |  |                  |  | Any time            |                  |  |   | 200            |  |  |   | 200   |  |  |   | 200   | 
|Sun Life Capital Trust II(1),(2)      |  |               |                   |  |                                      |  |                      |             |  |  |                                        |      |  |                                        |                   |  |                  |  |                     |                  |  |   |                |  |  |   |       |  |  |   |       | 
|SLEECS 2009-1                         |  |               | November 20, 2009 |  |                                      |  | June 30,December 31  |             |  |  | 5.863                                  | %(5) |  |                                        | December 31, 2014 |  |                  |  | No conversionoption |                  |  |   | 495            |  |  |   | 494   |  |  |   | 494   | 
|                                      |  |               |                   |  |                                      |  |                      |             |  |  |                                        |      |  |                                        |                   |  |                  |  |                     |                  |  | $ | 695            |  |  | $ | 1,644 |  |  | $ | 1,644 | 
|Fair value                            |  |               |                   |  |                                      |  |                      |             |  |  |                                        |      |  |                                        |                   |  |                  |  |                     |                  |  | $ | 712            |  |  | $ | 1,729 |  |  | $ | 1,741 | 



|(1) | Subject to the approval of OSFI, (i) the SL Capital Trusts may, in whole or in part, on the redemption date specified above or on any distribution date thereafter, or in the
case of SLCT II, on any date thereafter, redeem any outstanding SLEECS without the consent of the holders, and (ii) upon occurrence of a regulatory event or a tax event (as defined), prior to the redemption date specified above, the SL Capital
Trusts may redeem all, but not part of, any class of SLEECS without the consent of the holders.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The SLEECS A were redeemed at par on December 31, 2011. The SLEECS B may be redeemed for cash equivalent to (i) the greater of the Early Redemption Price or the
Redemption Price if the redemption occurs prior to June 30, 2032 or (ii) the Redemption Price if the redemption occurs on or after June 30, 2032. Redemption Price refers to an amount equal to one thousand dollars plus the unpaid
distributions, other than unpaid distributions resulting from a Missed Dividend Event, to the redemption date. Early Redemption Price for the SLEECS B refers to the price calculated to provide an annual yield, equal to the yield of a Government of
Canada bond issued on the redemption date that has a maturity date of June 30, 2032, plus 32 basis points, plus the unpaid distributions, other than unpaid distributions resulting from a Missed Dividend Event, to the redemption date. The SLEECS
2009-1 may be redeemed for cash equivalent to, on any day that is not an Interest Rate Reset Date, accrued and unpaid interest on the SLEECS 2009-1 plus the greater of par and a price calculated to provide an annual yield equal to the yield of a
Government of Canada bond maturing on the next Interest Reset Date plus (i) 0.60% if the redemption date is prior to December 31, 2019 or (ii) 1.20% if the redemption date is any time after December 31, 2019. On an Interest Rate
Reset Date, the redemption price is equal to par plus accrued and unpaid interest on the SLEECS 20091.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The non-cumulative perpetual preferred shares of Sun Life Assurance issued upon an Automatic Exchange Event in respect of the SLEECS B will become convertible, at the option of
the holder, into a variable number of common shares of SLF Inc. on distribution dates on or after December 31, 2032.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Holders of SLEECS B may exchange, at any time, all or part of their holdings of SLEECS B at a price for each SLEECS of 40 non-cumulative perpetual preferred shares of Sun Life
Assurance. SLCT I will have the right, at any time before the exchange is completed, to arrange for a substituted purchaser to purchase SLEECS tendered for surrender to SLCT I so long as the holder of the SLEECS so tendered has not withheld consent
to the purchase of its SLEECS. Any non-cumulative perpetual preferred shares issued in respect of an exchange by the holders of SLEECS B will become convertible, at the option of the holder, into a variable number of common shares of SLF Inc. on
distribution dates on or after December 31, 2032.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Holders of SLEECS 2009-1 are eligible to receive semi-annual interest payments at a fixed rate until December 31, 2019. The interest rate on the SLEECS 2009-1 will reset on
December 31, 2019 and every fifth anniversary thereafter to equal the five-year Government of Canada bond yield plus 3.40%.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fair
value is based on market prices for the same or similar instruments as appropriate. Interest expense on Innovative capital instruments was $109 and $109 for 2011 and 2010, respectively.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|144    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

15. Subordinated Debt





The following obligations are included in Subordinated debt
and qualify as capital for Canadian regulatory purposes:



|                            |  |          |              |  |               |  |       |                           |  |  |                  |  |  |                  |      |  |                  |   |       |                |  |   |       |  |  |   |       | 
|--------------------------- |  | -------- | ------------ |  | ------------- |  | ----- | ------------------------- |  |  | ---------------- |  |  | ---------------- | ---- |  | ---------------- | - | ----- | -------------- |  | - | ----- |  |  | - | ----- | 
|                            |  | Currency |              |  | Interest
Rate |  |       | Earliest Par
Call date(1) |  |  | Maturity         |  |  | December 31,2011 |      |  | December 31,2010 |   |       | January 1,2010 | 
|Sun Life Assurance:         |  |          |              |  |               |  |       |                           |  |  |                  |  |  |                  |      |  |                  |   |       |                |  |   |       |  |  |   |       | 
|Issued May 15, 1998(2)      |  |          | Cdn. dollars |  |               |  | 6.30% |                           |  |  |                 |  |  |                  | 2028 |  |                  | $ | 150   |                |  | $ | 150   |  |  | $ | 150   | 
|Issued October 12, 2000(3)  |  |          | Cdn. dollars |  |               |  | 6.65% |                           |  |  | October 12, 2010 |  |  |                  | 2015 |  |                  |   |      |                |  |   |      |  |  |   | 300   | 
|Issued June 25, 2002(4)     |  |          | Cdn. dollars |  |               |  | 6.15% |                           |  |  | June 30, 2012    |  |  |                  | 2022 |  |                  |   | 800   |                |  |   | 800   |  |  |   | 800   | 
|Sun Life Financial Inc.:    |  |          |              |  |               |  |       |                           |  |  |                  |  |  |                  |      |  |                  |   |       |                |  |   |       |  |  |   |       | 
|Issued May 29, 2007(5)      |  |          | Cdn. dollars |  |               |  | 5.40% |                           |  |  | May 29, 2037     |  |  |                  | 2042 |  |                  |   | 398   |                |  |   | 398   |  |  |   | 398   | 
|Issued January 30, 2008(6)  |  |          | Cdn. dollars |  |               |  | 5.59% |                           |  |  | January 30, 2018 |  |  |                  | 2023 |  |                  |   | 398   |                |  |   | 398   |  |  |   | 398   | 
|Issued June 26, 2008(7)     |  |          | Cdn. dollars |  |               |  | 5.12% |                           |  |  | June 26, 2013    |  |  |                  | 2018 |  |                  |   | 349   |                |  |   | 349   |  |  |   | 348   | 
|Issued March 31, 2009(8)    |  |          | Cdn. dollars |  |               |  | 7.90% |                           |  |  | March 31, 2014   |  |  |                  | 2019 |  |                  |   | 498   |                |  |   | 497   |  |  |   | 496   | 
|Sun Canada Financial Co.:   |  |          |              |  |               |  |       |                           |  |  |                  |  |  |                  |      |  |                  |   |       |                |  |   |       |  |  |   |       | 
|Issued December 15,
1995(9) |  |          | U.S. dollars |  |               |  | 7.25% |                           |  |  | n/a              |  |  |                  | 2015 |  |                  |   | 153   |                |  |   | 149   |  |  |   | 158   | 
|Total                       |  |          |              |  |               |  |       |                           |  |  |                  |  |  |                  |      |  |                  | $ | 2,746 |                |  | $ | 2,741 |  |  | $ | 3,048 | 
|Fair value                  |  |          |              |  |               |  |       |                           |  |  |                  |  |  |                  |      |  |                  | $ | 2,836 |                |  | $ | 2,874 |  |  | $ | 3,202 | 



|(1) | The relevant debenture may be redeemed, at the option of the issuer. Prior to the date noted, the redemption price is the greater of par and a price based on the yield of a
corresponding Government of Canada bond; from the date noted, the redemption price is par and redemption may only occur on a scheduled interest payment date. Redemption of all subordinated debentures is subject to regulatory approval. The notes
issued by Sun Canada Financial are not redeemable prior to maturity.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 6.30% Debentures, Series 2, due 2028. Issued by The Mutual Life Assurance Company of Canada, which thereafter changed its name to Clarica Life Insurance Company
(Clarica). Clarica was amalgamated with Sun Life Assurance effective December 31, 2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 6.65% Debentures, Series 3, due 2015. Issued by Clarica, and redeemed on October 12, 2010.
|--- | ------------------------------------------------------------------------------------------

|(4) | 6.15% Debentures due June 30, 2022. From June 30, 2012, interest is payable at 1.54% over the 90-day Bankers Acceptance Rate.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(5) | Series 2007-1 Subordinated Unsecured 5.40% Fixed/Floating Debentures due 2042. From May 29, 2037, interest is payable at 1.00% over the 90-day Bankers Acceptance Rate.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Series 2008-1 Subordinated Unsecured 5.59% Fixed/Floating Debentures due 2023. From January 30, 2018, interest is payable at 2.10% over the 90-day Bankers Acceptance
Rate.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Series 2008-2 Subordinated Unsecured 5.12% Fixed/Floating Debentures due 2018. From June 26, 2013, interest is payable at 2.00% over the 90-day Bankers Acceptance
Rate.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Series 2009-1 Subordinated Unsecured 7.90% Fixed/Floating Debentures due 2019. From March 31, 2014, interest is payable at 7.15% over the 90-day Bankers Acceptance
Rate.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | 71/4% Subordinated Notes due December 15, 2015.
|--- | -----------------------------------------------

Fair value is based on market prices for
the same or similar instruments as appropriate. Interest expense on subordinated debt was $171 and $188 for 2011 and 2010, respectively.

16. Share
Capital





The authorized share capital of SLF Inc. consists of the following:



| |  | An unlimited number of common shares without nominal or par value. Each common share is entitled to one vote at meetings of the shareholders of SLF Inc. There
are no pre-emptive, redemption, purchase or conversion rights attached to the common shares.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | An unlimited number of Class A and Class B non-voting preferred shares, issuable in series. The Board is authorized before issuing the shares, to fix the
number, the consideration per share, the designation of, and the rights and restrictions of the Class A and Class B shares of each series, subject to the special rights and restrictions attached to all the Class A and Class B shares. The
Board has authorized thirteen series of Class A non-voting preferred shares (Preferred Shares), nine of which are outstanding.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The common and preferred shares qualify as capital for Canadian regulatory purposes, and are included in Note 23.

Dividends and restrictions on the payment of dividends

Under provisions of the Insurance Companies Act that apply to each of SLF Inc. and Sun Life Assurance, we are prohibited from declaring or paying a dividend on
preferred or common shares if there are reasonable grounds for believing we are, or by paying the dividend would be, in contravention of the requirement that we maintain adequate capital and adequate and appropriate forms of liquidity, that we
comply with any regulations in relation to capital and liquidity that are made under the Insurance Companies Act, and that we comply with any order by which OSFI directs us to increase our capital or provide additional liquidity.

We have covenanted that, if a distribution is not paid when due on any outstanding SLEECS issued by Sun Life Capital Trust and Sun Life Capital Trust II, then (i)
Sun Life Assurance will not pay dividends on its Public Preferred Shares, if any are outstanding, and (ii) if Sun Life Assurance does not have any Public Preferred Shares outstanding, then SLF Inc. will not pay dividends on its preferred shares or
common shares, in each case, until the 12th month (in the case of the SLEECS issued by Sun Life Capital Trust) or 6th month (in the case of SLEECS issued by Sun Life Capital Trust II) following the failure to pay the required distribution in full,
unless the required distribution is paid to the holders of SLEECS. Public Preferred Shares means preferred shares issued by Sun Life Assurance which: (a) have been issued to the public (excluding any preferred shares held beneficially by affiliates
of Sun Life Assurance); (b) are listed on a recognized stock exchange; and (c) have an aggregate liquidation entitlement of at least $200. As at December 31, 2011, Sun Life Assurance did not have outstanding any shares that qualify as Public
Preferred Shares.

The terms of SLF Inc.s outstanding preferred shares provide that for so long as Sun Life Assurance is a subsidiary of SLF Inc.,
no dividends on such preferred shares are to be declared or paid if the MCCSR ratio of Sun Life Assurance is then less than 120%.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    145



---

The terms of SLF Inc.s outstanding preferred shares also restrict our ability to pay dividends on SLF
Inc.s common shares. Under the terms of our preferred shares, we cannot pay dividends on SLF Inc.s common shares without the approval of the holders of the preferred shares unless all dividends on the preferred shares for the last
completed period for which dividends are payable have been declared and paid or set apart for payment.

Currently, the above limitations do not restrict
the payment of dividends on SLF Inc.s preferred or common shares.

The declaration and payment of dividends on SLF Inc.s shares are at the
sole discretion of the board of directors and will be dependent upon our earnings, financial condition and capital requirements. Dividends may be adjusted or eliminated at the discretion of the board on the basis of these or other considerations.

16.A Common Shares

The changes in shares issued
and outstanding common shares for the years ended December 31 are as follows:



|                                                                         |  |                  |     |  |        |   |       |                  |  |  |        |  |  |   |       | 
|------------------------------------------------------------------------ |  | ---------------- | --- |  | ------ | - | ----- | ---------------- |  |  | ------ |  |  | - | ----- | 
|                                                                         |  | 2011             |     |  | 2010   |  
|Common shares (in millions of shares)                                    |  | Number of
shares |     |  | Amount |   |       | Number of
shares |  |  | Amount | 
|Balance, January 1                                                       |  |                  | 574 |  |        | $ | 7,407 |                  |  |  | 564    |  |  | $ | 7,126 | 
|Stock options exercised (Note 20)                                        |  |                  | 2   |  |        |   | 48    |                  |  |  | 1      |  |  |   | 18    | 
|Common shares issued to non-controlling interest (Note 17)               |  |                  | 2   |  |        |   | 37    |                  |  |  |       |  |  |   |      | 
|Shares issued under the dividend reinvestment and share purchase plan(1) |  |                  | 10  |  |        |   | 243   |                  |  |  | 9      |  |  |   | 263   | 
|Balance, December 31                                                     |  |                  | 588 |  |        | $ | 7,735 |                  |  |  | 574    |  |  | $ | 7,407 | 



|(1) | Under SLF Inc.s Canadian Dividend Reinvestment and Share Purchase Plan, Canadian-resident common and preferred shareholders may choose to have their dividends automatically
reinvested in common shares and may also purchase common shares for cash. For dividend reinvestments, SLF Inc. may, at its option, issue common shares from treasury at a discount of up to 5% to the volume weighted average trading price or direct
that common shares be purchased for participants through the Toronto Stock Exchange (TSX) at the market price. Common shares acquired by participants through optional cash purchases may be issued from treasury or purchased through the
TSX at SLF Inc.s option, in either case at no discount. The common shares issued from treasury for dividend reinvestments during 2011 and 2010 were issued at a discount of 2%. An insignificant number of common shares were issued from
treasury for optional cash purchases at no discount.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16.B Preferred Shares

The changes in issued and outstanding preferred shares for the years ended December 31 are as follows:



|                                                 |  |                 |     |  |        |   |       |                 |  |  |        |  |  |   |       |  
|------------------------------------------------ |  | --------------- | --- |  | ------ | - | ----- | --------------- |  |  | ------ |  |  | - | ----- | -
|                                                 |  | 2011            |     |  | 2010   |  
|Class A Preferred shares (in millions of shares) |  | Number ofshares |     |  | Amount |   |       | Number ofshares |  |  | Amount | 
|Balance, January 1                               |  |                 | 82  |  |        | $ | 2,015 |                 |  |  | 71     |  |  | $ | 1,741 |  
|Issued, Series 8R                                |  |                 |    |  |        |   |      |                 |  |  | 11     |  |  |   | 280   |  
|Issued, Series 10R                               |  |                 | 8   |  |        |   | 200   |                 |  |  |       |  |  |   |      |  
|Issued, Series 12R                               |  |                 | 12  |  |        |   | 300   |                 |  |  |       |  |  |   |      |  
|Issuance costs, net of taxes                     |  |                 |    |  |        |   | (12   | )               |  |  |       |  |  |   | (6    | )
|Balance, December 31                             |  |                 | 102 |  |        | $ | 2,503 |                 |  |  | 82     |  |  | $ | 2,015 |  

Further information on the preferred shares outstanding as at December 31, 2011, is as follows:



|                                                 |  |                   |  |                     |       |  |                         |   |      |                             |  |                       |  |  |            |  |  |              |       |  |  |   |       | 
|------------------------------------------------ |  | ----------------- |  | ------------------- | ----- |  | ----------------------- | - | ---- | --------------------------- |  | --------------------- |  |  | ---------- |  |  | ------------ | ----- |  |  | - | ----- | 
|Class A Preferred shares (in millions of shares) |  | Issue Date        |  | Annual
DividendRate |       |  | AnnualDividendPer Share |   |      | Earliest
redemption date(1) |  | Number ofshares       |  |  | FaceAmount |  |  | NetAmount(2) |      
|Series 1                                         |  | February 25, 2005 |  |                     | 4.75% |  |                         | $ | 1.19 |                             |  | March 31, 2010(3)     |  |  | 16         |  |  | $            | 400   |  |  | $ | 394   | 
|Series 2                                         |  | July 15, 2005     |  |                     | 4.80% |  |                         | $ | 1.20 |                             |  | September 30, 2010(3) |  |  | 13         |  |  |              | 325   |  |  |   | 318   | 
|Series 3                                         |  | January 13, 2006  |  |                     | 4.45% |  |                         | $ | 1.11 |                             |  | March 31, 2011(3)     |  |  | 10         |  |  |              | 250   |  |  |   | 245   | 
|Series 4                                         |  | October 10, 2006  |  |                     | 4.45% |  |                         | $ | 1.11 |                             |  | December 31, 2011(3)  |  |  | 12         |  |  |              | 300   |  |  |   | 293   | 
|Series 5                                         |  | February 2, 2007  |  |                     | 4.50% |  |                         | $ | 1.13 |                             |  | March 31, 2012(3)     |  |  | 10         |  |  |              | 250   |  |  |   | 245   | 
|Series 6R(4)                                     |  | May 20, 2009      |  |                     | 6.00% |  |                         | $ | 1.50 |                             |  | June 30, 2014(5)      |  |  | 10         |  |  |              | 250   |  |  |   | 246   | 
|Series 8R(6)                                     |  | May 25, 2010      |  |                     | 4.35% |  |                         | $ | 1.09 |                             |  | June 30, 2015(7)      |  |  | 11         |  |  |              | 280   |  |  |   | 274   | 
|Series 10R(8)                                    |  | August 12, 2011   |  |                     | 3.90% |  |                         | $ | 0.98 |                             |  | September 30, 2016(9) |  |  | 8          |  |  |              | 200   |  |  |   | 195   | 
|Series
12R(10)                                   |  | November 10, 2011 |  |                     | 4.25% |  |                         | $ | 1.06 |                             |  | December 31, 2016(11) |  |  | 12         |  |  |              | 300   |  |  |   | 293   | 
|Total Preferred shares                           |  |                   |  |                     |       |  |                         |   |      |                             |  |                       |  |  | 102        |  |  | $            | 2,555 |  |  | $ | 2,503 | 



|(1) | Redemption of all preferred shares is subject to regulatory approval.
|--- | ---------------------------------------------------------------------

|(2) | Net of after-tax issuance costs.
|--- | --------------------------------

|(3) | On or after the earliest redemption date, SLF Inc. may redeem these shares in whole or in part, at a premium that declines from 4% of the par amount to Nil over the next
following four years.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | On June 30, 2014, and every five years thereafter, the annual dividend rate will reset to an annual rate equal to the 5-year Government of Canada bond yield plus 3.79%.
Holders of the Series 6R Shares will have the right, at their option, to convert their Series 6R Shares into Class A Non-Cumulative Floating Rate Preferred Shares Series 7QR (Series 7QR Shares) on June 30, 2014 and every five
years thereafter. Holders of Series 7QR Shares will be entitled to receive floating non-cumulative quarterly dividends at an annual rate equal to the then 3-month Government of Canada treasury bill yield plus 3.79%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|146    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

|(5) | On June 30, 2014 and June 30 each fifth year thereafter, SLF Inc. may redeem these shares in whole or in part, at par.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(6) | On June 30, 2015, and every five years thereafter, the annual dividend rate will reset to an annual rate equal to the 5-year Government of Canada bond yield plus 1.41%.
Holders of the Series 8R Shares will have the right, at their option, to convert their Series 8R Shares into Class A Non-Cumulative Floating Rate Preferred Shares Series 9QR (Series 9QR Shares) on June 30, 2015 and every five
years thereafter. Holders of Series 9QR Shares will be entitled to receive floating non-cumulative quarterly dividends at an annual rate equal to the then 3-month Government of Canada treasury bill yield plus 1.41%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | On June 30, 2015 and June 30 each fifth year thereafter, SLF Inc. may redeem these shares in whole or in part, at par.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(8) | On September 30, 2016, and every five years thereafter, the annual dividend rate will reset to an annual rate equal to the 5-year Government of Canada bond yield plus 2.17%.
Holders of the Series 10R Shares will have the right, at their option, to convert their Series 10R Shares into Class A Non-Cumulative Floating Rate Preferred Shares Series 11QR (Series 11QR Shares) on September 30, 2016 every
five years thereafter. Holders of Series 11QR Shares will be entitled to receive floating non-cumulative quarterly dividends at an annual rate equal to the then 3-month Government of Canada treasury bill yield plus 2.17%.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | On September 30, 2016 and September 30 each fifth year thereafter, SLF Inc. may redeem these shares in whole or in part, at par.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(10) | On December 31, 2016, and every five years thereafter, the annual dividend rate will reset to an annual rate equal to the 5-year Government of Canada bond yield plus 2.73%.
Holders of the Series 12R Shares will have the right, at their option, to convert their Series 12R Shares into Class A Non-Cumulative Floating Rate Preferred shares Series 13QR (Series 13QR Shares) on December 31, 2016 and on
every five years thereafter. Holders of Series 13QR Shares will be entitled to receive floating non-cumulative quarterly dividends at an annual rate to the then 3-month Government of Canada treasury bill yield plus 2.73%.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | On December 31, 2016 and December 31 each fifth year thereafter, SLF Inc. may redeem these shares in whole or in part, at par.
|---- | ------------------------------------------------------------------------------------------------------------------------------

17. Non-Controlling Interests in Subsidiaries





Non-controlling interests in our Consolidated Statements of
Financial Position, Consolidated Statements of Changes in Equity, and Net income (loss) attributable to non-controlling interests in our Consolidated Statements of Operations, consisted of non-controlling interests in McLean Budden Limited until the
fourth quarter of 2011.

In the fourth quarter of 2011, we purchased the minority shares of McLean Budden Limited, our investment management subsidiary
for consideration of approximately $144 plus additional consideration which will be based on the attaining of performance targets. The consideration consisted of cash of $48, common shares of SLF Inc. of $37 with the remaining amount payable in
promissory notes. The difference between the consideration paid and the non-controlling interest acquired was recorded as an adjustment to the equity attributable to the SLF Inc. shareholders. Subsequent to the purchase of the minority shares, all
of the shares of McLean Budden Limited were transferred to our subsidiary MFS.

18. Fee Income





Fee income for the years ended December 31 consist of the following:

|                                                              |  |      |       |  |      |   |       | 
|------------------------------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                                              |  | 2011 |       |  | 2010 |  
|Income associated with administration and contract guarantees |  | $    | 903   |  |      | $ | 788   | 
|Fund management and other asset based fees                    |  |      | 1,641 |  |      |   | 1,525 | 
|Commissions                                                   |  |      | 506   |  |      |   | 495   | 
|Service contract fee income                                   |  |      | 191   |  |      |   | 214   | 
|Other fee income                                              |  |      | 112   |  |      |   | 82    | 
|Total fee income                                              |  | $    | 3,353 |  |      | $ | 3,104 | 

19. Operating Expenses





Operating expenses for the years ended December 31
consist of the following:



|                                      |  |      |       |  |      |   |       | 
|------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                      |  | 2011 |       |  | 2010 |  
|Employee expenses(1)                  |  | $    | 1,874 |  |      | $ | 1,865 | 
|Premises and equipment                |  |      | 176   |  |      |   | 168   | 
|Capital asset depreciation (Note 9)   |  |      | 58    |  |      |   | 52    | 
|Service fees                          |  |      | 525   |  |      |   | 491   | 
|Amortization of intangibles (Note 10) |  |      | 46    |  |      |   | 41    | 
|Restructuring costs (Note 21)         |  |      | 59    |  |      |   |      | 
|Other expenses                        |  |      | 842   |  |      |   | 853   | 
|Total operating expenses              |  | $    | 3,580 |  |      | $ | 3,470 | 



|(1) | See table below for further details
|--- | -----------------------------------

Employee expenses for the years
ended December 31 consist of the following:



|                                   |  |      |       |  |      |   |       | 
|---------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                   |  | 2011 |       |  | 2010 |  
|Salaries, bonus, employee benefits |  | $    | 1,581 |  |      | $ | 1,535 | 
|Share-based payments (Note 20)     |  |      | 236   |  |      |   | 263   | 
|Other personnel costs              |  |      | 57    |  |      |   | 67    | 
|Total employee expenses            |  | $    | 1,874 |  |      | $ | 1,865 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    147



---

20. Share-Based Payments





20.A Stock Option Plans

SLF Inc. granted stock options to certain employees and directors under the Executive Stock Option Plan and the Director Stock Option Plan and to all eligible
employees under the Special 2001 Stock Option Award Plan. These options are granted at the closing price of the common shares on the TSX on the grant date for stock options granted after January 1, 2007, and the closing price of the trading day
preceding the grant date for stock options granted before January 1, 2007. The options granted under the stock option plans generally vest over a four-year period under the Executive Stock Option Plan; two years after the grant date under the
Special 2001 Stock Option Award Plan; and over a two-year period under the Director Stock Option Plan. All options have a maximum exercise period of 10 years. The maximum numbers of common shares that may be issued under the Executive Stock Option
Plan, the Special 2001 Stock Option Award Plan and the Director Stock Option Plan are 29,525,000 shares, 1,150,000 shares and 150,000 shares, respectively. Effective April 2, 2003, grants under the Director Stock Option Plan were discontinued.

The activities in the stock option plans for the years ended December 31 are as follows:



|                         |  |                                    |        |   |                                |   |       |                                    |  |  |                                 |   |  |   |       | 
|------------------------ |  | ---------------------------------- | ------ | - | ------------------------------ | - | ----- | ---------------------------------- |  |  | ------------------------------- | - |  | - | ----- | 
|                         |  | 2011                               |        |   | 2010                           |  
|                         |  | Number of
Stock
Options(Thousands) |        |   | Weighted
AverageExercise
Price |   |       | Number of
Stock
Options(Thousands) |  |  | Weighted
Average Exercise
Price |  
|Balance, January 1       |  |                                    | 14,193 |   |                                | $ | 31.87 |                                    |  |  | 13,191                          |   |  | $ | 32.27 | 
|Granted                  |  |                                    | 1,704  |   |                                | $ | 31.35 |                                    |  |  | 2,861                           |   |  | $ | 30.21 | 
|Exercised                |  |                                    | (1,654 | ) |                                | $ | 25.20 |                                    |  |  | (690                            | ) |  | $ | 20.83 | 
|Forfeited                |  |                                    | (745   | ) |                                | $ | 35.09 |                                    |  |  | (1,169                          | ) |  | $ | 37.69 | 
|Expired                  |  |                                    | (303   | ) |                                | $ | 31.78 |                                    |  |  |                                |   |  | $ |      | 
|Balance, December 31     |  |                                    | 13,195 |   |                                | $ | 32.49 |                                    |  |  | 14,193                          |   |  | $ | 31.87 | 
|Exercisable, December 31 |  |                                    | 7,434  |   |                                | $ | 35.69 |                                    |  |  | 7,467                           |   |  | $ | 35.03 | 

The average share price at the date of exercise of stock options for the year ended December 31, 2011 was $31.25 ($29.65 for
2010).

Compensation expense for stock options was $15 for the year ended December 31, 2011 ($17 for 2010).

The stock options outstanding as at December 31, by exercise price, are as follows:



|                         |  |                                  |        |  |                                                 |  |      |                              |  |   |                                  |  |  |                                                 |        |  |                              |  |      |  |  |   |       | 
|------------------------ |  | -------------------------------- | ------ |  | ----------------------------------------------- |  | ---- | ---------------------------- |  | - | -------------------------------- |  |  | ----------------------------------------------- | ------ |  | ---------------------------- |  | ---- |  |  | - | ----- | 
|                         |  | December 31, 2011                |        |  | December 31, 2010                               | 
|Range of exercise prices |  | Number ofStockOptions(Thousands) |        |  | WeightedAverageRemainingContractualLife (Years) |  |      | WeightedAverageExercisePrice |  |   | Number ofStockOptions(Thousands) |  |  | WeightedAverageRemainingContractualLife (Years) |        |  | WeightedAverageExercisePrice | 
|$18.00 to $24.00         |  |                                  | 3,388  |  |                                                 |  | 6.08 |                              |  | $ | 20.05                            |  |  |                                                 | 4,172  |  |                              |  | 6.74 |  |  | $ | 19.94 | 
|$24.01 to $30.00         |  |                                  | 1,295  |  |                                                 |  | 4.89 |                              |  | $ | 27.93                            |  |  |                                                 | 2,333  |  |                              |  | 4.37 |  |  | $ | 28.41 | 
|$30.01 to $35.00         |  |                                  | 4,948  |  |                                                 |  | 7.12 |                              |  | $ | 31.21                            |  |  |                                                 | 3,790  |  |                              |  | 7.02 |  |  | $ | 30.96 | 
|$35.01 to $45.00         |  |                                  | 796    |  |                                                 |  | 3.08 |                              |  | $ | 40.59                            |  |  |                                                 | 918    |  |                              |  | 3.86 |  |  | $ | 40.39 | 
|$45.01 to $53.00         |  |                                  | 2,768  |  |                                                 |  | 5.20 |                              |  | $ | 49.80                            |  |  |                                                 | 2,980  |  |                              |  | 6.15 |  |  | $ | 49.81 | 
|Total stock options      |  |                                  | 13,195 |  |                                                 |  | 5.99 |                              |  | $ | 32.49                            |  |  |                                                 | 14,193 |  |                              |  | 6.11 |  |  | $ | 31.87 | 

The weighted average fair values of the stock options, calculated using the Black-Scholes option-pricing model, granted during the
year ended December 31, 2011, was $7.74 ($7.53 for 2010). The Black-Scholes option-pricing model used the following assumptions to determine the fair value of options granted during the years ending December 31:



|                                       |  |      |       |  |      |   |       | 
|-------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|Weighted average assumptions           |  | 2011 |       |  | 2010 |  
|Risk-free interest rate                |  |      | 2.9%  |  |      |   | 2.9%  | 
|Expected volatility                    |  |      | 35.3% |  |      |   | 35.3% | 
|Expected dividend yield                |  |      | 4.0%  |  |      |   | 4.0%  | 
|Expected life of the option (in years) |  |      | 6.3   |  |      |   | 6.4   | 
|Exercise price                         |  | $    | 31.35 |  |      | $ | 30.21 | 

Expected volatility is based on historical volatility of the common shares, implied volatilities from traded options on the common
shares and other factors. The expected term of options granted is derived based on historical employee exercise behaviour and employee termination experience. The risk-free rate for periods within the expected term of the option is based on the
Canadian government bond yield curve in effect at the time of grant.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|148    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

20.B Employee Share Ownership Plan

In Canada, we match eligible employees contributions to the Sun Life Financial Employee Stock Plan. The match is provided for employees who have met two years of employment eligibility and is equal to 50% of
the employees contributions up to 5% of an employees annual compensation. The match is further capped by a one thousand five hundred dollar annual maximum. Employees may elect to contribute from 1% to 20% of their target annual
compensation to the Sun Life Financial Employee Stock Plan. Our contributions vest immediately and are expensed. We recorded an expense of $4 for the year ended December 31, 2011 ($4 for 2010).

20.C Other Share-Based Payment Plans

All other share-based
payment plans use notional units that are valued based on the common share price on the TSX. Any fluctuation in the common share price changes the value of the units, which affects our share-based payment compensation expense. Upon redemption of
these units, payments are made to the employees with a corresponding reduction in the accrued liability. We use equity swaps and forwards to hedge our exposure to variations in cash flows due to changes in the common share price for all of these
plans.

Details of these plans are as follows:

Senior Executives Deferred Share Unit (DSU) Plan:    Under the DSU plan, designated executives may elect to receive all
or a portion of their annual incentive award in the form of DSUs. Each DSU is equivalent in value to one common share and earns dividend equivalents in the form of additional DSUs at the same rate as the dividends on common shares. The designated
executives must elect to participate in the plan prior to the beginning of the plan year and this election is irrevocable. Awards generally vest immediately; however, participants are not permitted to redeem the DSUs until termination, death or
retirement. The value at the time of redemption will be based on the fair value of the common shares immediately before their redemption.

Sun Share
Unit (Sun Shares) Plan:    In December 2010, the Board approved the Sun Share Unit Plan which replaced the Restricted Share Unit (RSU) and Performance Share Unit (PSU) plans for new awards
granted effective in 2011. Under the Sun Share plan, participants are granted units that are equivalent in value to one common share and have a grant price equal to the average of the closing price of a common share on the TSX on the five trading
days immediately prior to date of the grant. Participants must hold units for up to 36 months from the date of grant. The units earn dividend equivalents in the form of additional units at the same rate as the dividends on common shares. Units may
vest or become payable if we meet specified threshold performance targets. The plan provides for an enhanced payout if we achieve superior levels of performance to motivate participants to achieve a higher return for shareholders (enhanced payout is
determined through a multiplier that can be as low as zero or as high as two times the number of units that vest). Payments to participants are based on the number of units earned multiplied by the average closing price of a common share on the TSX
on the five trading days immediately prior to the vesting date.

RSU Plan:    As noted previously, the Sun Share plan has
replaced the RSU plan for new awards granted effective in 2011. Under the RSU plan, participants were granted units that are equivalent in value to one common share and have a grant price equal to the average closing price of a common share on the
TSX on the five trading days immediately prior to the date of grant. Plan participants generally hold RSUs for 36 months from the date of grant. RSUs earn dividend equivalents in the form of additional RSUs at the same rate as the dividends on
common shares. The redemption value is the average closing price of a common share on the TSX on the five trading days immediately prior to the vesting date.

PSU Plan/Incentive Share Unit (ISU) Plan:    As noted previously, the Sun Share plan has replaced the PSU plan for new awards granted effective in 2011. Grants under the ISU
plan will continue. Under these arrangements, participants are granted units that are equivalent in value to one common share and have a grant price equal to the average of the closing price of a common share on the TSX on the five trading days
immediately prior to the date of grant. Participants must hold units for 36 months (or 40 months in the case of ISUs) from the date of grant. The units earn dividend equivalents in the form of additional units at the same rate as the dividends on
common shares. No units will vest or become payable unless we meet our specified threshold performance targets. The plans provide for an enhanced payout if we achieve superior levels of performance to motivate participants to achieve a higher return
for shareholders. Payments to participants are based on the number of units vested multiplied by the average closing price of a common share on the TSX on the five trading days immediately prior to the vesting date.

Additional information for other share-based payment plans:    The units outstanding under these plans and the liabilities accrued on the
statement of financial position are summarized in the following table.



|                                          |  |            |       |  |      |   |     |      |  |   |           |  |  |       |       |  |  |   |       | 
|----------------------------------------- |  | ---------- | ----- |  | ---- | - | --- | ---- |  | - | --------- |  |  | ----- | ----- |  |  | - | ----- | 
|Number of units (in thousands)            |  | Sun Shares |       |  | DSUs |   |     | RSUs |  |   | PSUs/ISUs |  |  | Total |      
|Units outstanding December 31, 2010       |  |            |      |  |      |   | 777 |      |  |   | 4,409     |  |  |       | 1,181 |  |  |   | 6,367 | 
|Units outstanding December 31, 2011       |  |            | 1,863 |  |      |   | 739 |      |  |   | 3,386     |  |  |       | 942   |  |  |   | 6,930 | 
|Liability accrued as at December 31, 2011 |  | $          | 12    |  |      | $ | 13  |      |  | $ | 54        |  |  | $     | 8     |  |  | $ | 87    | 

Compensation expense and the income tax expense (benefit) for other share-based payment plans for the years ended December 31
are shown in the following table. Since expenses for the DSUs are accrued as part of incentive compensation in the year awarded, the expenses below do not include these accruals. The expenses presented in the following table include increases in the
liabilities for Sun Shares, DSUs, RSUs and PSUs due to changes in the fair value of the common shares and the accruals of the RSU and PSU liabilities over the vesting period, and exclude any adjustment in expenses due to the impact of hedging.



|                                |  |      |    |   |      |   |     |  
|------------------------------- |  | ---- | -- | - | ---- | - | --- | -
|For the years ended December 31 |  | 2011 |    |   | 2010 |  
|Compensation expense            |  | $    | 11 |   |      | $ | 61  |  
|Income tax expense (benefit)    |  | $    | (4 | ) |      | $ | (19 | )



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    149



---

20.D Share-Based Payment Plans of MFS

Share-based payment awards within MFS are based on their own shares. Stock options and restricted shares are settled in shares and restricted stock units are settled in cash. The restricted share awards and stock
options vest over a four-year period. The restricted stock units vest over a two-year or four-year period from the grant date and holders are entitled to receive non-forfeitable dividend equivalent payments over the vesting period. Dividends are
paid to restricted shareholders and are not forfeited if the award does not ultimately vest.

Although the stock options and restricted shares are
settled in shares, all of the awards, including the outstanding shares held by employees, are accounted for as cash-settled share-based payment awards because the parent company has a practice of purchasing the issued shares from employees after a
specified holding period. The fair value of options is determined using the Black-Scholes option pricing model, while the fair value of restricted shares, restricted stock units and outstanding shares are estimated using a market consistent share
valuation model. The compensation expense recorded each period is impacted by changes in fair value of the awards and shares outstanding as well as the number of new awards granted and the number of issued shares repurchased. The liability accrued
related to these plans as at December 31, 2011 was $446.

Compensation expense and the income tax expense (benefit) for these awards for the years
ended December 31 are shown in the following table:



|                                |  |      |     |   |      |   |     |  
|------------------------------- |  | ---- | --- | - | ---- | - | --- | -
|For the years ended December 31 |  | 2011 |     |   | 2010 |  
|Compensation expense            |  | $    | 206 |   |      | $ | 181 |  
|Income tax expense (benefit)    |  | $    | (41 | ) |      | $ | (36 | )

21. Restructuring





In the fourth quarter of 2011, we restructured our
operations, primarily in the United States. The domestic U.S. variable annuity and individual life products were closed to new sales effective December 30, 2011.

As a result, we recognized a provision for restructuring costs during the fourth quarter. A provision for restructuring costs is recognized when we have a detailed formal plan that identifies the business
concerned, the locations affected, the location, function and number employees to be compensated for termination of services, as well as the expenditures to be made and when the plan will be implemented. The provision is our best estimate of the
expenditures that will be required to settle our obligations under the plan and includes only those costs that are a result of the restructuring and that are not associated with our ongoing activities.

We recorded restructuring costs of $59 in Operating expenses, which consisted of the following:



|                                  |  |   |    | 
|--------------------------------- |  | - | -- | 
|Employee termination benefits     |  | $ | 51 | 
|Lease termination and other costs |  |   | 8  | 
|Total restructuring costs         |  | $ | 59 | 

As at December 31, 2011, the remaining restructuring liability was $53. We expect to pay a significant amount of the costs
accrued as part of this liability in the next 12 months. Additional restructuring costs that did not meet the recognition criteria in 2011 will be expensed or accrued in future years.

In addition to the restructuring costs above, we recognized charges in SLF U.S. of $94 due to impairment of the goodwill in the variable annuities CGU and $17 due to impairment of intangible assets. Further
information on these impairments is included in Note 10.

22. Income Taxes





22.A Deferred Income Taxes

The following represents the deferred income tax assets and
liabilities(1) in the Consolidated Statements of Financial Position by source of temporary differences:



|                                     |  |                   |       |   |                   |   |       |                 |  |   |             |   |  |        |     |   |             |   |       |   |  |   |       |  
|------------------------------------ |  | ----------------- | ----- | - | ----------------- | - | ----- | --------------- |  | - | ----------- | - |  | ------ | --- | - | ----------- | - | ----- | - |  | - | ----- | -
|As at                                |  | December 31, 2011 |       |   | December 31, 2010 |   |       | January 1, 2010 | 
|                                     |  | Assets            |       |   | Liabilities       |   |       | Assets          |  |   | Liabilities |   |  | Assets |     |   | Liabilities |  
|Investments                          |  | $                 | (790  | ) |                   | $ | 2     |                 |  | $ | (406        | ) |  | $      | 33  |   |             | $ | (133  | ) |  | $ | 46    |  
|Policy liabilities(2)                |  |                   | 769   |   |                   |   |      |                 |  |   | (1          | ) |  |        | 86  |   |             |   | 259   |   |  |   | 82    |  
|Deferred acquisition costs           |  |                   | 302   |   |                   |   |      |                 |  |   | 297         |   |  |        | 4   |   |             |   | 381   |   |  |   | 5     |  
|Losses available for carry forward   |  |                   | 924   |   |                   |   |      |                 |  |   | 859         |   |  |        | (84 | ) |             |   | 488   |   |  |   | (86   | )
|Pensions and other employee benefits |  |                   | 235   |   |                   |   |      |                 |  |   | 219         |   |  |        | (2  | ) |             |   | 187   |   |  |   | (3    | )
|Other                                |  |                   | 208   |   |                   |   | 5     |                 |  |   | 12          |   |  |        | 2   |   |             |   | 130   |   |  |   | (32   | )
|Total                                |  | $                 | 1,648 |   |                   |   | 7     |                 |  | $ | 980         |   |  | $      | 39  |   |             | $ | 1,312 |   |  | $ | 12    |  
|Total net deferred tax asset         |  |                   |       |   |                   | $ | 1,641 |                 |  |   |             |   |  | $      | 941 |   |             |   |       |   |  | $ | 1,300 |  



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|150    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

The movement in net deferred income tax assets for the years ended December 31, are as follows:



|                                                         |  |             |      |   |                      |   |     |                          |  |   |                                |  |  |                                |     |   |       |   |     |       |  |   |     |   |  |   |       |  
|-------------------------------------------------------- |  | ----------- | ---- | - | -------------------- | - | --- | ------------------------ |  | - | ------------------------------ |  |  | ------------------------------ | --- | - | ----- | - | --- | ----- |  | - | --- | - |  | - | ----- | -
|                                                         |  | Investments |      |   | Policyliabilities(2) |   |     | Deferredacquisitioncosts |  |   | Lossesavailableforcarryforward |  |  | Pension& otheremployeebenefits |     |   | Other |   |     | Total | 
|As at December 31, 2010                                  |  | $           | (439 | ) |                      | $ | (87 | )                        |  | $ | 293                            |  |  | $                              | 943 |   |       | $ | 221 |       |  | $ | 10  |   |  | $ | 941   |  
|Charged to income statement                              |  |             | (343 | ) |                      |   | 850 |                          |  |   | 1                              |  |  |                                | (54 | ) |       |   | 19  |       |  |   | 189 |   |  |   | 662   |  
|Charged to other comprehensive income                    |  |             | 16   |   |                      |   |    |                          |  |   |                               |  |  |                                | 20  |   |       |   |    |       |  |   | 3   |   |  |   | 39    |  
|Charged to equity, other than other comprehensive income |  |             | 4    |   |                      |   |    |                          |  |   |                               |  |  |                                |    |   |       |   |    |       |  |   | (7  | ) |  |   | (3    | )
|Foreign exchange rate movements                          |  |             | (30  | ) |                      |   | 6   |                          |  |   | 8                              |  |  |                                | 15  |   |       |   | (5  | )     |  |   | 8   |   |  |   | 2     |  
|As at December 31, 2011                                  |  | $           | (792 | ) |                      | $ | 769 |                          |  | $ | 302                            |  |  | $                              | 924 |   |       | $ | 235 |       |  | $ | 203 |   |  | $ | 1,641 |  



|                                                         |  |             |      |   |                      |   |      |                          |  |   |                                 |   |  |                                |     |   |       |   |     |       |  |   |      |   |  |   |       |  
|-------------------------------------------------------- |  | ----------- | ---- | - | -------------------- | - | ---- | ------------------------ |  | - | ------------------------------- | - |  | ------------------------------ | --- | - | ----- | - | --- | ----- |  | - | ---- | - |  | - | ----- | -
|                                                         |  |             |      |   |                      |   |     
|                                                         |  | Investments |      |   | Policyliabilities(2) |   |      | Deferredacquisitioncosts |  |   | Lossesavailablefor carryforward |   |  | Pension& otheremployeebenefits |     |   | Other |   |     | Total | 
|As at January 1, 2010                                    |  | $           | (179 | ) |                      | $ | 177  |                          |  | $ | 376                             |   |  | $                              | 574 |   |       | $ | 190 |       |  | $ | 162  |   |  | $ | 1,300 |  
|Charged to income statement                              |  |             | (195 | ) |                      |   | (288 | )                        |  |   | (65                             | ) |  |                                | 404 |   |       |   | 38  |       |  |   | (142 | ) |  |   | (248  | )
|Charged to other comprehensive income                    |  |             | (56  | ) |                      |   |     |                          |  |   |                                |   |  |                                |    |   |       |   |    |       |  |   | (3   | ) |  |   | (59   | )
|Charged to equity, other than other comprehensive income |  |             | 2    |   |                      |   |     |                          |  |   |                                |   |  |                                |    |   |       |   |    |       |  |   |     |   |  |   | 2     |  
|Foreign exchange rate movements                          |  |             | (11  | ) |                      |   | 24   |                          |  |   | (18                             | ) |  |                                | (35 | ) |       |   | (7  | )     |  |   | (7   | ) |  |   | (54   | )
|As at December 31, 2010                                  |  | $           | (439 | ) |                      | $ | (87  | )                        |  | $ | 293                             |   |  | $                              | 943 |   |       | $ | 221 |       |  | $ | 10   |   |  | $ | 941   |  



|(1) | Our deferred income tax assets and deferred income tax liabilities are offset when there is legally enforceable right to offset current income tax assets against current income
tax liabilities and when the deferred income taxes relate to the same taxable entity and the same taxation authority. Negative amounts reported under Assets are deferred income tax liabilities included in a net deferred income tax asset position;
negative amounts under Liabilities are deferred income tax assets included in a net deferred income tax liability position.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Consists of Insurance contract liabilities and Investment contract liabilities net of Reinsurance assets
|--- | --------------------------------------------------------------------------------------------------------

We have accumulated tax losses, primarily in Canada, the United States, and the United Kingdom, totaling $4,422 ($3,714 in 2010). The benefit of these tax losses has been recognized to the extent that it is
probable that the benefit will be realized. Unused tax losses for which a deferred tax asset has not been recognized amount to $727 in 2011 ($614 in 2010), primarily in the United Kingdom.

We will realize the benefit of the tax losses carried forward in future years through a reduction in current income taxes as and when the losses are utilized. These tax losses are subject to examination by various
tax authorities and could be reduced as a result of the adjustments to tax returns. Furthermore, legislative, business or other changes may limit our ability to utilize these losses.

Included in the deferred tax asset related to losses available for carry forward are tax benefits that have been recognized on losses incurred in either the current or the preceding year. In determining if it is
appropriate to recognize these tax benefits we relied on projections of future taxable profits.

Tax losses carried forward in the United States consist
primarily of non-capital losses which expire beginning in 2023. Capital losses in the United States expire beginning 2014. The non-capital losses carried forward in Canada expire beginning in 2028. The losses in the United Kingdom can be carried
forward indefinitely.

We recognize a deferred income tax liability on all temporary differences associated with investments in subsidiaries, branches,
associates and joint ventures unless we are able to control the timing of the reversal of these differences and it is probable that these differences will not reverse in the foreseeable future. In 2011, temporary differences associated with
investments in subsidiaries, branches, associates and joint ventures for which a deferred income tax liability has not been recognized amount to $2,822 ($2,748 in 2010).

22.B Income Tax Expense

22.B.i. In our Consolidated Statements of Operations, income tax expense
(benefit) for the years ended December 31 has the following components:



|                                                                            |  |      |     |   |      |   |      |  
|--------------------------------------------------------------------------- |  | ---- | --- | - | ---- | - | ---- | -
|                                                                            |  | 2011 |     |   | 2010 |  
|Current income tax expense (benefit):                                       |  |      |     |   |      |   |      |  
|Current year                                                                |  | $    | 273 |   |      | $ | 225  |  
|Adjustments in respect of prior years, including resolution of tax disputes |  |      | (58 | ) |      |   | (120 | )
|Total current income tax expense (benefit)                                  |  | $    | 215 |   |      | $ | 105  |  



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    151



---



|                                                                            |  |      |      |   |      |   |     |  
|--------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | --- | -
|                                                                            |  | 2011 |      |   | 2010 |  
|Deferred income tax expense (benefit):                                      |  |      |      |   |      |   |     |  
|Origination and reversal of temporary differences                           |  | $    | (608 | ) |      | $ | 218 |  
|Tax expense (benefit) arising from unrecognized tax losses                  |  |      | (70  | ) |      |   | 36  |  
|Adjustments in respect of prior years, including resolution of tax disputes |  |      | 16   |   |      |   | (6  | )
|Total deferred income tax expense (benefit)                                 |  | $    | (662 | ) |      | $ | 248 |  
|Total income tax expense (benefit)                                          |  | $    | (447 | ) |      | $ | 353 |  

22.B.ii Income tax benefit (expense) recognized directly in equity for the years ended December 31:



|                                                                                                                              |  |      |    |   |      |   |     |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | - | ---- | - | --- | -
|                                                                                                                              |  | 2011 |    |   | 2010 |  
|Recognized in other comprehensive income:                                                                                     |  |      |    |   |      |   |     |  
|Current income tax benefit (expense)                                                                                          |  | $    | (5 | ) |      | $ | 2   |  
|Deferred income tax benefit (expense)                                                                                         |  |      | 39 |   |      |   | (59 | )
|Total recognized in other comprehensive income                                                                                |  | $    | 34 |   |      | $ | (57 | )
|                                                                                                                              |  |     
|Recognized in equity, other than other comprehensive income:                                                                  |  |      |    |   |      |   |     |  
|Deferred income tax benefit (expense)                                                                                         |  |      | (3 | ) |      |   | 2   |  
|Total income tax benefit (expense) recorded in equity, including tax benefit (expense) recorded in
other comprehensive income |  | $    | 31 |   |      | $ | (55 | )

22.B.iiiOur effective income tax rate differs from the combined Canadian federal and provincial statutory income tax rate
as follows:



|                                                                                      |  |                   |      |   |                   |  |      |   |  |   |       |   |  |  |      |  
|------------------------------------------------------------------------------------- |  | ----------------- | ---- | - | ----------------- |  | ---- | - |  | - | ----- | - |  |  | ---- | -
|For the years ended                                                                   |  | December 31, 2011 |      |   | December 31, 2010 | 
|                                                                                      |  |                   |      |   | %                 |  |      |   |  |   | %     |  
|Total net income (loss)                                                               |  | $                 | (184 | ) |                   |  |      |   |  | $ | 1,518 |   |  |  |      |  
|Add: Income tax expense (benefit)                                                     |  |                   | (447 | ) |                   |  |      |   |  |   | 353   |   |  |  |      |  
|Total net income (loss) before income taxes                                           |  | $                 | (631 | ) |                   |  |      |   |  | $ | 1,871 |   |  |  |      |  
|                                                                                      |  |                   |      |  
|Taxes at the combined Canadian federal and provincial statutory income tax rate       |  | $                 | (177 | ) |                   |  | 28.0 |   |  | $ | 571   |   |  |  | 30.5 |  
|Increase (decrease) in rate resulting from:                                           |  |                   |      |   |                   |  |      |   |  |   |       |   |  |  |      |  
|Higher (lower) effective rates on income subject to taxation in foreign jurisdictions |  |                   | (10  | ) |                   |  | 1.6  |   |  |   | (66   | ) |  |  | (3.5 | )
|Tax (benefit) cost of unrecognized tax losses                                         |  |                   | (70  | ) |                   |  | 11.1 |   |  |   | 36    |   |  |  | 1.9  |  
|Tax exempt investment income                                                          |  |                   | (201 | ) |                   |  | 31.9 |   |  |   | (174  | ) |  |  | (9.3 | )
|Adjustments in respect of prior years, including resolution of tax disputes           |  |                   | (42  | ) |                   |  | 6.6  |   |  |   | (126  | ) |  |  | (6.7 | )
|Other                                                                                 |  |                   | 53   |   |                   |  | (8.4 | ) |  |   | 112   |   |  |  | 6.0  |  
|Total tax expense (benefit) and effective income tax rate                             |  | $                 | (447 | ) |                   |  | 70.8 |   |  | $ | 353   |   |  |  | 18.9 |  

During recent years, the Canadian federal government and certain provinces enacted legislation reducing corporate income tax rates.
As a result of these enactments, our statutory income tax rates will decline gradually to 26% in 2013 as these rate reductions become effective. In 2011, the U.K. government enacted legislation reducing the corporate statutory income tax rate to 26%
effective April 1, 2011 and 25% effective April 1, 2012.

Statutory tax rates in the jurisdictions in which we conduct business range from 0%
to 35% which creates a tax rate differential and corresponding tax provision difference compared to the Canadian federal and provincial statutory rate when applied to foreign income not subject to tax in Canada. These differences are reported in the
line Higher (lower) effective rates on income subject to taxation in foreign jurisdictions. The impact of these differences was lower in 2011 compared to the prior year predominantly due to losses incurred during the year in lower tax jurisdictions.

In 2011, the benefit of lower taxes on investment income amounted to $201, partially in relation to the appreciation of real estate classified as
investment properties. The fair value gains over original cost on real estate are considered capital in nature and taxed at lower income tax rates in Canada. As a result of the appreciation of these properties our income tax provision included a tax
benefit of $34 in 2011.

In December 2011, we recorded a tax benefit of $68, mostly relating to previously unrecognized losses, following the
reorganization of our principal U.K. subsidiaries. Of this benefit, $58 has been classified as Tax benefit of unrecognized losses and the remaining benefit of $10 is included in Higher (lower) effective rates on income subject to taxation in foreign
jurisdictions.

Our income tax recovery in 2011 was reduced by $54 as a result of the write-off of goodwill in SLF Canada that was not deductible for tax
purposes. This impact is reported in Other in the table above.

Our tax benefits in 2010 include a benefit of $76 associated with the favourable
resolution of tax litigation in the U.K. In the table above this benefit is reported in the line Adjustments in respect of prior years, including resolution of tax disputes. An offsetting valuation allowance of $23 related to this tax benefit is
reported in Tax (benefit) cost of unrecognized losses. In December 2010, we sold our life retrocession business. As a result, our income tax expense was increased by $ 90 due to the write-off of goodwill that was not deductible for tax purposes.
This impact is reported in Other in the table above.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|152    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

23. Capital Management





Our capital base is structured to exceed minimum regulatory
and internal capital targets and maintain strong credit and financial strength ratings while maintaining a capital efficient structure. We strive to achieve an optimal capital structure by balancing the use of debt and equity financing. Capital is
managed both on a consolidated basis under principles that consider all the risks associated with the business as well as at the business group level under the principles appropriate to the jurisdiction in which each operates. We manage the capital
for all of our international subsidiaries on a local statutory basis in a manner commensurate with their individual risk profiles.

The Board is
responsible for the annual review and approval of the Companys capital plan. The Risk Review Committee of the Board of Directors reviews and approves SLF Inc.s capital policy annually. Management oversight of our capital programs and
position is provided by the Capital Management Committee, whose members include senior management from the finance, actuarial and risk management functions.

We engage in a capital planning process annually in which capital deployment options, fundraising and dividend recommendations are presented to the Risk Review Committee. Capital reviews are regularly conducted
which consider the potential impacts under various business, interest rate and equity market scenarios. Relevant components of these capital reviews, including dividend recommendations, are presented to the Risk Review Committee on a quarterly
basis.

The capital policy is designed to ensure that adequate capital is maintained to provide the flexibility necessary to take advantage of growth
opportunities, to support the risks associated with our businesses and to optimize return to our shareholders. This policy is also intended to provide an appropriate level of risk management over capital adequacy risk, which is defined as the risk
that capital is not or will not be sufficient to withstand adverse economic conditions, to maintain financial strength or to allow us and our subsidiaries to support ongoing operations and to take advantage of opportunities for expansion.

OSFI has established Guideline A-2  Capital Regime for Regulated Insurance Holding Companies and Non-Operating Life Companies, which sets out the
framework within which OSFI will assess whether regulated non-operating life companies, and insurance holding companies (collectively, Insurance Holding Companies) are maintaining adequate capital. Under this guideline, Insurance Holding
Companies, such as SLF Inc., are expected to manage their capital in a manner commensurate with their risk profile and control environments. The Companys regulated subsidiaries are expected to comply with the capital adequacy requirements
imposed in the jurisdictions in which they operate. Our principal operating life insurance subsidiary in Canada, Sun Life Assurance, is subject to the Minimum Continuing Capital and Surplus Requirement (MCCSR) capital rules and our
principal operating life insurance subsidiary in the United States, Sun Life (U.S.) is subject to the risk-based capital rules issued by the National Association of Insurance Commissioners (NAIC).

OSFI may intervene and assume control of an insurance holding company or a Canadian life insurance company if it deems the amount of available capital insufficient.
Capital requirements may be adjusted by OSFI in the future, as experience develops or the risk profile of Canadian life insurers changes or to reflect other risks. SLF Inc. exceeded levels that would require regulatory or corrective action as at
December 31, 2011 and December 31, 2010.

Sun Life Assurance is subject to the MCCSR capital rules for a life insurance company in Canada. We
expect to maintain an MCCSR ratio for Sun Life Assurance at or above 200%. With an MCCSR ratio of 211% as at December 31, 2011, Sun Life Assurances capital ratio is well above OSFIs supervisory target ratio of 150% and regulatory
minimum ratio of 120%. In the U.S., the risk-based capital of Sun Life Assurance Company of Canada (U.S.) exceeded the levels under which any remedial or regulatory action would be required as at December 31, 2011 and December 31, 2010.

In addition, other foreign operations and foreign subsidiaries of SLF Inc. must comply with local capital or solvency requirements in the jurisdictions
in which they operate. We maintained capital levels above minimum local requirements as at December 31, 2011 and December 31, 2010.

Sun Life
Assurance adopted IFRS as at January 1, 2011. Under OSFIs IFRS transition guidance, companies can elect to phase in the impact of the conversion to IFRS on adjusted Tier 1 available capital over eight quarters ending in the fourth quarter of
2012. Sun Life Assurance has made this election and will be phasing in a reduction of approximately $300 to its adjusted Tier 1 capital over this period, largely related to the recognition of deferred actuarial losses on defined benefit pension
plans.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    153



---

Our capital base consists mainly of common shareholders equity, participating policyholders equity,
preferred shareholders equity and certain other capital securities that qualify as regulatory capital. For regulatory reporting purposes, there are further adjustments including goodwill, non-life investments, and others as prescribed by OSFI
to the total capital figure presented in the table below.



|                                                                                           |  |                  |        |  |                  |   |        |                |  |   |        | 
|------------------------------------------------------------------------------------------ |  | ---------------- | ------ |  | ---------------- | - | ------ | -------------- |  | - | ------ | 
|As at                                                                                      |  | December 31,2011 |        |  | December 31,2010 |   |        | January 1,2010 | 
|Equity:                                                                                    |  |                  |        |  |                  |   |        |                |  |   |        | 
|Participating policyholders equity                                                        |  | $                | 123    |  |                  | $ | 115    |                |  | $ | 109    | 
|Preferred shareholders equity                                                             |  |                  | 2,503  |  |                  |   | 2,015  |                |  |   | 1,741  | 
|Common shareholders equity                                                                |  |                  | 13,104 |  |                  |   | 13,917 |                |  |   | 13,267 | 
|Total equity included in capital(1)                                                        |  |                  | 15,730 |  |                  |   | 16,047 |                |  |   | 15,117 | 
|Less: Unrealized gains (losses) on available-for-sale debt securities and cash
flow hedges |  |                  | 275    |  |                  |   | 303    |                |  |   | 49     | 
|Equity after adjustments                                                                   |  |                  | 15,455 |  |                  |   | 15,744 |                |  |   | 15,068 | 
|Other capital securities:                                                                  |  |                  |        |  |                  |   |        |                |  |   |        | 
|Subordinated debt                                                                          |  |                  | 2,746  |  |                  |   | 2,741  |                |  |   | 3,048  | 
|Innovative capital
instruments(2)                                                          |  |                  | 695    |  |                  |   | 1,644  |                |  |   | 1,644  | 
|Total capital                                                                              |  | $                | 18,896 |  |                  | $ | 20,129 |                |  | $ | 19,760 | 



|(1) | Excludes non-controlling interests not treated as capital for regulatory purposes.
|--- | ----------------------------------------------------------------------------------

|(2) | Innovative capital instruments are SLEECS issued by Sun Life Capital Trust and Sun Life Capital Trust II (Note 14). These trusts are SPEs that are consolidated by us.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

The significant changes in capital are included in the notes on senior debentures, subordinated debt and share capital.

24. Segregated Funds





24.A Investments for Account of Segregated Fund Holders

The carrying value of investments held for segregated fund holders are as follows:



|                                                         |  |                  |        |  |                  |   |        |                |  |   |        | 
|-------------------------------------------------------- |  | ---------------- | ------ |  | ---------------- | - | ------ | -------------- |  | - | ------ | 
|                                                         |  |                  |       
|As at                                                    |  | December 31,2011 |        |  | December 31,2010 |   |        | January 1,2010 | 
|Segregated and mutual fund units                         |  | $                | 72,840 |  |                  | $ | 71,959 |                |  | $ | 64,214 | 
|Equity securities                                        |  |                  | 5,830  |  |                  |   | 7,454  |                |  |   | 7,420  | 
|Debt securities                                          |  |                  | 8,473  |  |                  |   | 7,603  |                |  |   | 7,526  | 
|Cash, cash equivalents and short term securities         |  |                  | 1,425  |  |                  |   | 2,501  |                |  |   | 1,642  | 
|Investment properties                                    |  |                  | 318    |  |                  |   | 298    |                |  |   | 319    | 
|Mortgages                                                |  |                  | 27     |  |                  |   | 29     |                |  |   | 34     | 
|Other assets                                             |  |                  | 2,492  |  |                  |   | 5,037  |                |  |   | 1,972  | 
|Total assets                                             |  | $                | 91,405 |  |                  | $ | 94,881 |                |  | $ | 83,127 | 
|Less: Liabilities arising from investing activities      |  | $                | 3,222  |  |                  | $ | 6,935  |                |  | $ | 2,579  | 
|Total investments for account of segregated fund holders |  | $                | 88,183 |  |                  | $ | 87,946 |                |  | $ | 80,548 | 



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|154    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

24.B Insurance Contracts and Investment Contracts for Account of Segregated Fund Holders

Changes in insurance contracts and investment contracts for account of segregated fund holders are as follows:



|                                                  |  |                     |        |   |                      |   |        |                  |  |   |                  |   |  |   |       |  
|------------------------------------------------- |  | ------------------- | ------ | - | -------------------- | - | ------ | ---------------- |  | - | ---------------- | - |  | - | ----- | -
|                                                  |  |                    
|                                                  |  | Insurance Contracts |        |   | Investment Contracts |  
|For the years ended                               |  | December 31,2011    |        |   | December 31,2010     |   |        | December 31,2011 |  |   | December 31,2010 |  
|Balance, beginning of the period                  |  | $                   | 81,931 |   |                      | $ | 74,293 |                  |  | $ | 6,015            |   |  | $ | 6,255 |  
|Additions to segregated funds:                    |  |                     |        |   |                      |   |        |                  |  |   |                  |   |  |   |       |  
|Deposits                                          |  |                     | 9,964  |   |                      |   | 9,948  |                  |  |   | 218              |   |  |   | 293   |  
|Net transfers (to) from general funds             |  |                     | 617    |   |                      |   | 921    |                  |  |   |                 |   |  |   |      |  
|Net realized and unrealized gains (losses)        |  |                     | (3,645 | ) |                      |   | 6,257  |                  |  |   | (323             | ) |  |   | 573   |  
|Other investment income                           |  |                     | 2,409  |   |                      |   | 1,981  |                  |  |   | 84               |   |  |   | 37    |  
|Total additions                                   |  | $                   | 9,345  |   |                      | $ | 19,107 |                  |  | $ | (21              | ) |  | $ | 903   |  
|Deductions from segregated funds:                 |  |                     |        |   |                      |   |        |                  |  |   |                  |   |  |   |       |  
|Payments to policyholders and their beneficiaries |  | $                   | 8,084  |   |                      | $ | 8,258  |                  |  | $ | 491              |   |  | $ | 535   |  
|Management fees                                   |  |                     | 1,149  |   |                      |   | 1,011  |                  |  |   | 75               |   |  |   | 57    |  
|Taxes and other expenses                          |  |                     | 159    |   |                      |   | 228    |                  |  |   | 7                |   |  |   | 20    |  
|Foreign exchange rate movements                   |  |                     | (766   | ) |                      |   | 1,972  |                  |  |   | (112             | ) |  |   | 531   |  
|Total deductions                                  |  | $                   | 8,626  |   |                      | $ | 11,469 |                  |  | $ | 461              |   |  | $ | 1,143 |  
|Net additions (deductions)                        |  | $                   | 719    |   |                      | $ | 7,638  |                  |  | $ | (482             | ) |  | $ | (240  | )
|Balance, end of period                            |  | $                   | 82,650 |   |                      | $ | 81,931 |                  |  | $ | 5,533            |   |  | $ | 6,015 |  

25. Commitments, Guarantees and Contingencies





25.A Lease Commitments

We lease offices and certain equipment. These are operating leases with rents charged
to operations in the year to which they relate. Total future rental payments for the remainder of these leases total $509. The future rental payments by year of payment are included in Note 6.

25.B Contractual Commitments

In the normal course of
business, various contractual commitments are outstanding, which are not reflected in our Consolidated Financial Statements. In addition to loan commitments for debt securities and mortgages included in Note 6.A.i, we have equity, investment
property, and property and equipment commitments. As at December 31, 2011, we had a total of $1,350 of contractual commitments outstanding. The expected maturities of these commitments are included in Note 6.

25.C Letters of Credit

We issue commercial letters of
credit in the normal course of business. As at December 31, 2011, lines of credit from financial institutions of $1,739 were in place ($1,680 as at December 31, 2010 and $1,973 as at January 1, 2010) of which a total of $821 in letters of
credit were outstanding ($577 as at December 31, 2010 and $703 as at January 1, 2010) of which $612 relate to internal reinsurance ($404 as at December 31, 2010 and $515 as at January 1, 2010).

25.D Indemnities and Guarantees

In the normal course of our
business, we have entered into agreements that include indemnities in favour of third parties, such as purchase and sale agreements, confidentiality agreements, engagement letters with advisors and consultants, outsourcing agreements, leasing
contracts, trade-mark licensing agreements, underwriting and agency agreements, information technology agreements, distribution agreements, financing agreements, the sale of equity interests, and service agreements. These agreements may require us
to compensate the counterparties for damages, losses, or costs incurred by the counterparties as a result of breaches in representation, changes in regulations (including tax matters) or as a result of litigation claims or statutory sanctions that
may be suffered by the counterparty as a consequence of the transaction. We have also agreed to indemnify our directors and certain of our officers and employees in accordance with our by-laws. These indemnification provisions will vary based upon
the nature and terms of the agreements. In many cases, these indemnification provisions do not contain limits on our liability, and the occurrence of contingent events that will trigger payment under these indemnities is difficult to predict. As a
result, we cannot estimate our potential liability under these indemnities. We believe that the likelihood of conditions arising that would trigger these indemnities is remote and, historically, we have not made any significant payment under such
indemnification provisions.

In certain cases, we have recourse against third parties with respect to the aforesaid indemnities, and we also maintain
insurance policies that may provide coverage against certain of these claims.

Guarantees made by us that can be quantified are included in Note 6.A.i.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    155



---

25.E Guarantees of Sun Life Assurance Preferred Shares and Subordinated Debentures

SLF Inc. has provided a guarantee of the following subordinated debentures issued by Sun Life Assurance: the $150 of 6.30% subordinated debentures due 2028, and the
$800 of 6.15% subordinated debentures due 2022. Claims under this guarantee will rank equally with all other subordinated indebtedness of SLF Inc. SLF Inc. has also provided a subordinated guarantee of the preferred shares issued by Sun Life
Assurance from time to time, other than such preferred shares held by SLF Inc. and its affiliates. Sun Life Assurance has no outstanding preferred shares subject to the guarantee. As a result of these guarantees, Sun Life Assurance is entitled to
rely on exemptive relief from most continuous disclosure and the certification requirements of Canadian securities laws.

The following tables set forth
certain consolidating summary financial information for SLF Inc. and Sun Life Assurance (Consolidated):



|                                |  |                          |       |   |                                 |   |        |                                        |  |   |                         |   |  |                        |        |   |  |   |        |  
|------------------------------- |  | ------------------------ | ----- | - | ------------------------------- | - | ------ | -------------------------------------- |  | - | ----------------------- | - |  | ---------------------- | ------ | - |  | - | ------ | -
|Results for the years ended     |  | SLF Inc.(unconsolidated) |       |   | Sun LifeAssurance(consolidated) |   |        | Othersubsidiariesof SLF Inc.(combined) |  |   | Consolidationadjustment |   |  | SLF Inc.(consolidated) |       
|December 31, 2011               |  |                          |       |   |                                 |   |        |                                        |  |   |                         |   |  |                        |        |   |  |   |        |  
|Revenue                         |  | $                        | 528   |   |                                 | $ | 17,959 |                                        |  | $ | 5,744                   |   |  | $                      | (1,650 | ) |  | $ | 22,581 |  
|Shareholders net income (loss) |  | $                        | (200  | ) |                                 | $ | 863    |                                        |  | $ | (1,123                  | ) |  | $                      | 260    |   |  | $ | (200   | )
|                                |  |                          |       |   |                                
|December 31, 2010               |  |                          |       |   |                                 |   |        |                                        |  |   |                         |   |  |                        |        |   |  |   |        |  
|Revenue                         |  | $                        | 449   |   |                                 | $ | 20,467 |                                        |  | $ | 5,457                   |   |  | $                      | (1,572 | ) |  | $ | 24,801 |  
|Shareholders net income (loss) |  | $                        | 1,503 |   |                                 | $ | 1,530  |                                        |  | $ | 100                     |   |  | $                      | (1,634 | ) |  | $ | 1,499  |  



|                                |  |                          |        |  |                                 |   |        |                                        |  |   |                         |  |  |                        |         |   |  |   |         | 
|------------------------------- |  | ------------------------ | ------ |  | ------------------------------- | - | ------ | -------------------------------------- |  | - | ----------------------- |  |  | ---------------------- | ------- | - |  | - | ------- | 
|Assets as at                    |  | SLF Inc.(unconsolidated) |        |  | Sun LifeAssurance(consolidated) |   |        | Othersubsidiariesof SLF Inc.(combined) |  |   | Consolidationadjustment |  |  | SLF Inc.(consolidated) |        
|December 31, 2011               |  |                          |        |  |                                 |   |        |                                        |  |   |                         |  |  |                        |         |   |  |   |         | 
|Invested assets                 |  | $                        | 16,435 |  |                                 | $ | 94,540 |                                        |  | $ | 21,243                  |  |  | $                      | (15,557 | ) |  | $ | 116,661 | 
|Total other assets              |  |                          | 8,634  |  |                                 |   | 73,581 |                                        |  |   | 47,541                  |  |  |                        | (28,390 | ) |  |   | 101,366 | 
|Insurance contract liabilities  |  |                          |       |  |                                 |   | 85,548 |                                        |  |   | 14,942                  |  |  |                        | (4,116  | ) |  |   | 96,374  | 
|Investment contract liabilities |  |                          |       |  |                                 |   | 2,083  |                                        |  |   | 990                     |  |  |                        |        |   |  |   | 3,073   | 
|Total other liabilities         |  | $                        | 9,474  |  |                                 | $ | 69,698 |                                        |  | $ | 50,737                  |  |  | $                      | (27,059 | ) |  | $ | 102,850 | 
|                                |  |                          |        |  |                                
|December 31, 2010               |  |                          |        |  |                                 |   |        |                                        |  |   |                         |  |  |                        |         |   |  |   |         | 
|Invested assets                 |  | $                        | 17,600 |  |                                 | $ | 85,816 |                                        |  | $ | 22,246                  |  |  | $                      | (16,668 | ) |  | $ | 108,994 | 
|Total other assets              |  |                          | 8,219  |  |                                 |   | 74,504 |                                        |  |   | 44,775                  |  |  |                        | (26,245 | ) |  |   | 101,253 | 
|Insurance contract liabilities  |  |                          |       |  |                                 |   | 78,083 |                                        |  |   | 13,189                  |  |  |                        | (3,216  | ) |  |   | 88,056  | 
|Investment contract liabilities |  |                          |       |  |                                 |   | 1,935  |                                        |  |   | 2,221                   |  |  |                        | (13     | ) |  |   | 4,143   | 
|Total other liabilities         |  | $                        | 9,903  |  |                                 | $ | 69,990 |                                        |  | $ | 47,940                  |  |  | $                      | (25,856 | ) |  | $ | 101,977 | 
|                                |  |                          |        |  |                                
|January 1, 2010                 |  |                          |        |  |                                 |   |        |                                        |  |   |                         |  |  |                        |         |   |  |   |         | 
|Invested assets                 |  | $                        | 19,095 |  |                                 | $ | 83,020 |                                        |  | $ | 24,242                  |  |  | $                      | (18,189 | ) |  | $ | 108,168 | 
|Total other assets              |  |                          | 4,317  |  |                                 |   | 69,890 |                                        |  |   | 37,718                  |  |  |                        | (17,791 | ) |  |   | 94,134  | 
|Insurance contract liabilities  |  |                          |       |  |                                 |   | 75,250 |                                        |  |   | 14,472                  |  |  |                        | (2,866  | ) |  |   | 86,856  | 
|Investment contract liabilities |  |                          |       |  |                                 |   | 1,649  |                                        |  |   | 3,291                   |  |  |                        | (25     | ) |  |   | 4,915   | 
|Total other liabilities         |  | $                        | 8,413  |  |                                 | $ | 66,374 |                                        |  | $ | 38,647                  |  |  | $                      | (18,044 | ) |  | $ | 95,390  | 

25.F Legal and Regulatory Proceedings

We are regularly involved in legal actions, both as a defendant and as a plaintiff. In addition, government and regulatory bodies in Canada, the United States, the United Kingdom and Asia, including federal,
provincial and state securities and insurance regulators in Canada, the United States and other jurisdictions, including the Security Exchange Commission, the Financial Industry Regulatory Authority and state attorneys general in the United States,
from time to time, make inquiries and require the production of information or conduct examinations or investigations concerning our compliance with insurance, securities and other laws. Management does not believe that the conclusion of any current
legal or regulatory matters, either individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|156    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

26. Related Party Transactions





SLF Inc. and its subsidiaries transact business worldwide. All transactions between SLF Inc. and its subsidiaries have been eliminated on consolidation. Transactions between the Company and related parties are
executed and priced on an arms-length basis in a manner similar to transactions with third parties.

26.A Transactions with Joint Ventures

Principal joint ventures as at December 31, 2011 are listed below:



|                                                   |  |               |       | 
|-------------------------------------------------- |  | ------------- | ----- | 
|Name of Joint Venture Company                      |  | % ofOwnership |      
|Birla Sun Life Asset Management Company Limited    |  |               | 50    | 
|PT CIMB Sun Life                                   |  |               | 49    | 
|Sun Life Grepa Financial Inc.                      |  |               | 49    | 
|Birla Sun Life Insurance Company Limited           |  |               | 26    | 
|Sun Life Everbright Life Insurance Company Limited |  |               | 24.99 | 

Income earned from our investments in joint ventures are as follows:



|                                |  |      |    |  |      |   |    |  
|------------------------------- |  | ---- | -- |  | ---- | - | -- | -
|For the years ended December 31 |  | 2011 |    |  | 2010 |  
|Joint ventures                  |  | $    | 17 |  |      | $ | (9 | )

26.B Transactions with Key Management Personnel, Remuneration and Other Compensation

Key management personnel have been defined as the executive team and board of directors of SLF Inc. during the year. These individuals have the authority and
responsibility for planning, directing and controlling the activities of the Company. The aggregate compensation to the executive team and directors are as follows:



|                                              |  |                |    |  |           |   |    |                |  |   |           |  |  |   |    | 
|--------------------------------------------- |  | -------------- | -- |  | --------- | - | -- | -------------- |  | - | --------- |  |  | - | -- | 
|For the years ended December 31               |  | 2011           |    |  | 2010      |  
|                                              |  | Executive team |    |  | Directors |   |    | Executive team |  |   | Directors | 
|Number of individuals                         |  |                | 10 |  |           |   | 14 |                |  |   | 11        |  |  |   | 15 | 
|Base salary and annual incentive compensation |  | $              | 9  |  |           | $ |   |                |  | $ | 15        |  |  | $ |   | 
|Additional short-term benefits and other      |  | $              | 1  |  |           | $ | 1  |                |  | $ |          |  |  | $ | 1  | 
|Share-based long-term incentive compensation  |  | $              | 18 |  |           | $ | 1  |                |  | $ | 19        |  |  | $ | 1  | 
|Value of pension and post-retirement benefits |  | $              | 1  |  |           | $ |   |                |  | $ | 1         |  |  | $ |   | 
|Severance payments on termination             |  | $              |   |  |           | $ |   |                |  | $ |          |  |  | $ |   | 

26.C Indebtedness of Directors, Executive Officers and Employees

The following sets out the aggregate indebtedness outstanding to the Company incurred by all its executive officers, directors and employees, and former executive officers, directors and employees.



|                                             |  |                  |   |  |                   |   |    |                |  |   |    | 
|-------------------------------------------- |  | ---------------- | - |  | ----------------- | - | -- | -------------- |  | - | -- | 
|As at                                        |  | December 31,2011 |   |  | December 31,
2010 |   |    | January 1,2010 | 
|Purchases of shares of McLean Budden Limited |  | $                |  |  |                   | $ | 21 |                |  | $ | 20 | 
|Other                                        |  | $                | 3 |  |                   | $ | 4  |                |  | $ | 4  | 

26.D Other Related Party Transactions

We provide investment management services for our pension plans. The services are provided on substantially the same terms as for comparable transactions with third parties.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    157



---

27. Pension Plans and Other Post-Retirement Benefits





We sponsor non-contributory defined benefit pension plans for eligible qualifying employees. The material defined benefit plans are located in Canada, the U.S. and the U.K. The defined benefit pension plans offer
benefits based on length of service and final average earnings and certain plans offer some indexation of benefits. The specific features of these plans vary in accordance with the employee group and countries in which employees are located. In
addition, we maintain supplementary non-contributory pension arrangements for eligible employees, primarily for benefits which do not qualify for funding under the various registered pension plans. On January 1, 2009, the Canadian defined
benefit plan was closed to new employees. Canadian employees hired before January 1, 2009 continue to participate in the previous plan, which includes both defined benefit and defined contribution components, while new hires since then are
eligible to join a defined contribution plan. As a result, all of our material defined benefit plans worldwide are closed to new hires, with new hires participating in defined contribution plans (one small defined benefit plan in the Philippines
remains open to new hires).

We also established defined contribution pension plans for eligible qualifying employees. Our contributions to these defined
contribution pension plans are subject to certain vesting requirements. Generally, our contributions are a set percentage of employees annual income and matched against employee contributions.

In addition to our pension plans, in Canada and the US, we provide certain post-retirement healthcare and life insurance benefits to eligible qualifying employees
and to their dependants upon meeting certain requirements. Eligible retirees may be required to pay a portion of the premiums for these benefits and, in general, deductible amounts and co-insurance percentages apply to benefit payments. In Canada,
post-retirement healthcare and life insurance benefits are provided for eligible employees who retired before December 31, 2011; eligible employees who retire between January 1, 2012 and December 31, 2015 will receive an annual
healthcare spending account allocation and life insurance, and will have access to voluntary retiree-paid healthcare coverage; eligible employees who retiree after December 31, 2015 will have access to voluntary retiree-paid healthcare
coverage. These post-retirement benefits are not pre-funded.

The following tables set forth the status of the defined benefit pension and other
post-retirement benefit plans:



|                                                       |  |         |        |   |                       |   |      |       |  |   |         |   |  |                       |        |   |       |   |      |   |  |   |        |  
|------------------------------------------------------ |  | ------- | ------ | - | --------------------- | - | ---- | ----- |  | - | ------- | - |  | --------------------- | ------ | - | ----- | - | ---- | - |  | - | ------ | -
|                                                       |  | 2011    |        |   | 2010                  |  
|                                                       |  |         |        |   |                       |  
|                                                       |  | Pension |        |   | Other post-retirement |   |      | Total |  |   | Pension |   |  | Other post-retirement |        |   | Total |  
|Change in defined benefit obligation:                  |  |         |        |   |                       |   |      |       |  |   |         |   |  |                       |        |   |       |   |      |   |  |   |        |  
|Benefit obligation, January 1                          |  | $       | 2,246  |   |                       | $ | 271  |       |  | $ | 2,517   |   |  | $                     | 2,253  |   |       | $ | 266  |   |  | $ | 2,519  |  
|Current service cost                                   |  |         | 34     |   |                       |   | 5    |       |  |   | 39      |   |  |                       | 34     |   |       |   | 5    |   |  |   | 39     |  
|Past service cost                                      |  |         |       |   |                       |   |     |       |  |   |        |   |  |                       |       |   |       |   |     |   |  |   |       |  
|Interest cost                                          |  |         | 116    |   |                       |   | 14   |       |  |   | 130     |   |  |                       | 128    |   |       |   | 15   |   |  |   | 143    |  
|Actuarial losses (gains)                               |  |         | 223    |   |                       |   | 4    |       |  |   | 227     |   |  |                       | 36     |   |       |   | (1   | ) |  |   | 35     |  
|Benefits paid                                          |  |         | (99    | ) |                       |   | (20  | )     |  |   | (119    | ) |  |                       | (143   | ) |       |   | (11  | ) |  |   | (154   | )
|Settlement losses (gains)                              |  |         |       |   |                       |   | (9   | )     |  |   | (9      | ) |  |                       |       |   |       |   |     |   |  |   |       |  
|Foreign exchange rate movement                         |  |         | 18     |   |                       |   | 2    |       |  |   | 20      |   |  |                       | (62    | ) |       |   | (3   | ) |  |   | (65    | )
|Benefit obligation, December 31                        |  | $       | 2,538  |   |                       | $ | 267  |       |  | $ | 2,805   |   |  | $                     | 2,246  |   |       | $ | 271  |   |  | $ | 2,517  |  
|Benefit obligation, wholly or partially funded plans   |  | $       | 2,477  |   |                       | $ |     |       |  | $ | 2,477   |   |  | $                     | 2,190  |   |       | $ |     |   |  | $ | 2,190  |  
|Benefit obligation, wholly unfunded plans              |  |         | 61     |   |                       |   | 267  |       |  |   | 328     |   |  |                       | 56     |   |       |   | 271  |   |  |   | 327    |  
|Total benefit obligation, December 31                  |  | $       | 2,538  |   |                       | $ | 267  |       |  | $ | 2,805   |   |  | $                     | 2,246  |   |       | $ | 271  |   |  | $ | 2,517  |  
|Change in plan assets:                                 |  |         |        |   |                       |   |      |       |  |   |         |   |  |                       |        |   |       |   |      |   |  |   |        |  
|Fair value of plan assets, January 1                   |  | $       | 2,065  |   |                       | $ |     |       |  | $ | 2,065   |   |  | $                     | 2,016  |   |       | $ |     |   |  | $ | 2,016  |  
|Expected return on assets                              |  |         | 127    |   |                       |   |     |       |  |   | 127     |   |  |                       | 126    |   |       |   |     |   |  |   | 126    |  
|Actuarial gains (losses)                               |  |         | (19    | ) |                       |   |     |       |  |   | (19     | ) |  |                       | 68     |   |       |   |     |   |  |   | 68     |  
|Employer contributions                                 |  |         | 68     |   |                       |   | 20   |       |  |   | 88      |   |  |                       | 54     |   |       |   | 11   |   |  |   | 65     |  
|Benefits paid                                          |  |         | (99    | ) |                       |   | (20  | )     |  |   | (119    | ) |  |                       | (143   | ) |       |   | (11  | ) |  |   | (154   | )
|Foreign exchange rate movement                         |  |         | 16     |   |                       |   |     |       |  |   | 16      |   |  |                       | (56    | ) |       |   |     |   |  |   | (56    | )
|Fair value of plan assets, December 31                 |  | $       | 2,158  |   |                       | $ |     |       |  | $ | 2,158   |   |  | $                     | 2,065  |   |       | $ |     |   |  | $ | 2,065  |  
|Amounts recognized on statement of financial position: |  |         |        |   |                       |   |      |       |  |   |         |   |  |                       |        |   |       |   |      |   |  |   |        |  
|Fair value of plan assets                              |  | $       | 2,158  |   |                       | $ |     |       |  | $ | 2,158   |   |  | $                     | 2,065  |   |       | $ |     |   |  | $ | 2,065  |  
|Benefit (obligation), wholly or partially funded plans |  |         | (2,477 | ) |                       |   |     |       |  |   | (2,477  | ) |  |                       | (2,190 | ) |       |   |     |   |  |   | (2,190 | )
|Funded status, wholly or partially funded plans        |  |         | (319   | ) |                       |   |     |       |  |   | (319    | ) |  |                       | (125   | ) |       |   |     |   |  |   | (125   | )
|Benefit (obligation), wholly unfunded plans            |  |         | (61    | ) |                       |   | (267 | )     |  |   | (328    | ) |  |                       | (56    | ) |       |   | (271 | ) |  |   | (327   | )
|Unamortized actuarial losses (gains)                   |  |         | 212    |   |                       |   | 5    |       |  |   | 217     |   |  |                       | (34    | ) |       |   | (1   | ) |  |   | (35    | )
|Unamortized past service cost                          |  |         |       |   |                       |   | (3   | )     |  |   | (3      | ) |  |                       |       |   |       |   | (5   | ) |  |   | (5     | )
|Net recognized (liability) asset, December 31          |  | $       | (168   | ) |                       | $ | (265 | )     |  | $ | (433    | ) |  | $                     | (215   | ) |       | $ | (277 | ) |  | $ | (492   | )



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|158    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

|                                              |  |         |      |   |                       |   |    |       |  |   |         |   |  |                       |      |   |       |   |    |   |  |   |      |  
|--------------------------------------------- |  | ------- | ---- | - | --------------------- | - | -- | ----- |  | - | ------- | - |  | --------------------- | ---- | - | ----- | - | -- | - |  | - | ---- | -
|                                              |  | 2011    |      |   | 2010                  |  
|                                              |  |         |      |   |                       |  
|                                              |  | Pension |      |   | Other post-retirement |   |    | Total |  |   | Pension |   |  | Other post-retirement |      |   | Total |  
|Components of net benefit expense recognized: |  |         |      |   |                       |   |    |       |  |   |         |   |  |                       |      |   |       |   |    |   |  |   |      |  
|Current service cost                          |  | $       | 34   |   |                       | $ | 5  |       |  | $ | 39      |   |  | $                     | 34   |   |       | $ | 5  |   |  | $ | 39   |  
|Interest cost                                 |  |         | 116  |   |                       |   | 14 |       |  |   | 130     |   |  |                       | 128  |   |       |   | 15 |   |  |   | 143  |  
|Expected return on assets(1)                  |  |         | (127 | ) |                       |   |   |       |  |   | (127    | ) |  |                       | (126 | ) |       |   |   |   |  |   | (126 | )
|Recognized actuarial losses (gains)(1)        |  |         |     |   |                       |   | (2 | )     |  |   | (2      | ) |  |                       |     |   |       |   |   |   |  |   |     |  
|Settlement losses (gains)                     |  |         |     |   |                       |   | (9 | )     |  |   | (9      | ) |  |                       |     |   |       |   |   |   |  |   |     |  
|Past service cost                             |  |         | (2   | ) |                       |   | (1 | )     |  |   | (3      | ) |  |                       |     |   |       |   | (9 | ) |  |   | (9   | )
|Net benefit expense                           |  | $       | 21   |   |                       | $ | 7  |       |  | $ | 28      |   |  | $                     | 36   |   |       | $ | 11 |   |  | $ | 47   |  



|(1) | Actual return consists of the sum of Expected return on assets and the Recognized actuarial losses (gains).
|--- | -----------------------------------------------------------------------------------------------------------

Principal assumptions for materials plans:



|                                                    |  |         |           |  |        |  |      |        |  |  |          |  |  |        |           |  |        |  |      |  |  |  |      | 
|--------------------------------------------------- |  | ------- | --------- |  | ------ |  | ---- | ------ |  |  | -------- |  |  | ------ | --------- |  | ------ |  | ---- |  |  |  | ---- | 
|                                                    |  | 2011    |           |  | 2010   | 
|                                                    |  | Canada% |           |  | U.K.
% |  |      | U.S.
% |  |  | Canada
% |  |  | U.K.
% |           |  | U.S.
% | 
|To determine benefit obligation at end of year      |  |         |           |  |        |  |      |        |  |  |          |  |  |        |           |  |        |  |      |  |  |  |      | 
|Discount rate for pension plans                     |  |         | 4.50      |  |        |  | 4.80 |        |  |  | 5.40     |  |  |        | 5.00      |  |        |  | 5.40 |  |  |  | 5.90 | 
|Discount rate for other post-employment benefits    |  |         | 4.00-4.50 |  |        |  | n/a  |        |  |  | 5.40     |  |  |        | 4.75-5.00 |  |        |  | n/a  |  |  |  | 5.90 | 
|Rate of compensation increase                       |  |         | 3.00      |  |        |  | n/a  |        |  |  | 3.75     |  |  |        | 3.00      |  |        |  | 4.40 |  |  |  | 3.75 | 
|Pension increases                                   |  |         | 0.00-0.25 |  |        |  | 3.50 |        |  |  | n/a      |  |  |        | 0.00-0.25 |  |        |  | 3.40 |  |  |  | n/a  | 
|Deferred pension increases                          |  |         | 0.00-0.20 |  |        |  | 2.80 |        |  |  | n/a      |  |  |        | 0.00-0.20 |  |        |  | 2.90 |  |  |  | n/a  | 
|Initial health care trend rate                      |  |         | 7.50      |  |        |  | n/a  |        |  |  | 8.50     |  |  |        | 7.50      |  |        |  | n/a  |  |  |  | 8.50 | 
|Ultimate health care trend rate                     |  |         | 4.50      |  |        |  | n/a  |        |  |  | 5.00     |  |  |        | 4.50      |  |        |  | n/a  |  |  |  | 5.00 | 
|Year ultimate health care trend rate reached        |  |         | 2030      |  |        |  | n/a  |        |  |  | 2017     |  |  |        | 2030      |  |        |  | n/a  |  |  |  | 2017 | 
|To determine benefit costs or income for the period |  |         |           |  |        |  |      |        |  |  |          |  |  |        |           |  |        |  |      |  |  |  |      | 
|Expected long-term rate of return on plan assets    |  |         | 6.50      |  |        |  | 5.40 |        |  |  | 7.00     |  |  |        | 6.75-7.00 |  |        |  | 5.75 |  |  |  | 7.75 | 

History of experience gains (losses):



|                                              |  |      |     |   |      |   |    | 
|--------------------------------------------- |  | ---- | --- | - | ---- | - | -- | 
|                                              |  | 2011 |     |   | 2010 |  
|Experience gains (losses) on plan liabilities |  | $    | 9   |   |      | $ | 11 | 
|Experience gains (losses) on plan assets      |  | $    | (19 | ) |      | $ | 68 | 

Discount rate, return on plan assets and rate of compensation increase:

The major economic assumptions which are used in determining the actuarial present value of the accrued benefit obligations vary by country. In determining the discount rate for the Canadian plans, a yield curve
for long-term Corporate AA bonds is developed from the Canadian provincial government yield curves by adding an appropriate adjustment to reflect the risk characteristics of high-quality Corporate bonds. This curve is then used to
calculate a single discount rate by reference to the spot yields on high-quality, non-callable, zero-coupon Corporate bonds with maturities that match the estimated benefit cash flows for the plan.

In determining the discount rate for the plans in the United States a portfolio of Corporate AA bonds is selected that matches the projected benefit
payments of the plans. The discount rate assumption is a single rate that equates the market value of the matching bond portfolio to the discounted value of the projected benefit payments.

The expected rate of return on assets for pension cost purposes is the weighted average of expected long-term asset return assumptions by asset class and is selected from a range of possible future asset returns.

Health care cost calculations are based on trend rate assumptions which may differ from actual results. Changes in trend rate assumptions by 1% in
either direction will change the health care cost as follows:



|                                                |  |          |    |  |          |   |     |  
|----------------------------------------------- |  | -------- | -- |  | -------- | - | --- | -
|                                                |  | 1%       |   
|December 31, 2011                               |  | Increase |    |  | Decrease |  
|Effect on post-retirement benefit obligations   |  | $        | 20 |  |          | $ | (18 | )
|Effect on aggregated service and interest costs |  | $        | 1  |  |          | $ | (1  | )



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    159



---

Composition of fair value of plan assets, December 31:

|                                               |  |      |      |  |      |  |      | 
|---------------------------------------------- |  | ---- | ---- |  | ---- |  | ---- | 
|                                               |  | 2011 |      |  | 2010 | 
|Equity investments                             |  |      | 40%  |  |      |  | 45%  | 
|Fixed income investments                       |  |      | 50%  |  |      |  | 45%  | 
|Real estate investments                        |  |      | 4%   |  |      |  | 3%   | 
|Other                                          |  |      | 6%   |  |      |  | 7%   | 
|Total composition of fair value of plan assets |  |      | 100% |  |      |  | 100% | 

Target allocation of plan assets, December 31:

|                         |  |      |      |  |      |  |      | 
|------------------------ |  | ---- | ---- |  | ---- |  | ---- | 
|                         |  | 2011 |      |  | 2010 | 
|Equity investments       |  |      | 44%  |  |      |  | 45%  | 
|Fixed income investments |  |      | 48%  |  |      |  | 46%  | 
|Real estate investments  |  |      | 4%   |  |      |  | 4%   | 
|Other                    |  |      | 4%   |  |      |  | 5%   | 
|Total                    |  |      | 100% |  |      |  | 100% | 

The assets of the defined benefit pension plans are primarily held in trust for plan members, and are managed within the provisions
of the plans investment policies and procedures. Diversification of the investments is used to minimize credit, market and foreign currency risks. Due to the long-term nature of the pension obligations and related cash flows, asset mix
decisions are based on long-term market outlooks within the specified policy ranges. The long-term investment objectives of the defined benefit pension plans are to exceed the real rate of investment return assumed in the actuarial valuation of plan
liabilities. Over shorter periods, the objective of the defined benefit pension plans is to exceed the market benchmarks of a well-diversified portfolio. Liquidity is managed with consideration to the cash flow requirements of the liabilities.

Permitted investments of the defined benefit pension plans include guaranteed funds, annuities, and pooled and non-pooled variable accumulation funds in
addition to any other investment vehicle approved by the plan sponsors that is eligible under pension regulations. The policy statement for each fund or manager mandate either prohibits, or permits, within specified constraints, the use of
derivative instruments such as options and futures. The use of derivative instruments is limited to unleveraged substitution and hedging strategies. The defined benefit pension plans may not invest in securities of a related party or lend to any
related party unless such securities are publicly traded and selected by the manager, acting independently on behalf of all that managers discretionary accounts or pooled funds, which have mandates similar to those of our defined benefit
pension plans.

The following tables set forth the expected contributions and expected future benefit payments of the defined benefit pension and other
post-retirement benefit plans:

|                                              |  |         |    |  |                 |   |    |       |  |   |    | 
|--------------------------------------------- |  | ------- | -- |  | --------------- | - | -- | ----- |  | - | -- | 
|                                              |  |         |   
|                                              |  | Pension |    |  | Post-Retirement |   |    | Total | 
|Expected contributions for the next 12 months |  | $       | 67 |  |                 | $ | 14 |       |  | $ | 81 | 

Expected future benefit payments



|                |  |      |     |  |      |   |     |      |  |   |      |  |  |      |     |  |              |   |     |  |  |   |     | 
|--------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  | ------------ | - | --- |  |  | - | --- | 
|                |  |      |     |  |      |  
|                |  | 2012 |     |  | 2013 |   |     | 2014 |  |   | 2015 |  |  | 2016 |     |  | 2017 to 2021 |  
|Pension         |  | $    | 103 |  |      | $ | 109 |      |  | $ | 112  |  |  | $    | 117 |  |              | $ | 124 |  |  | $ | 728 | 
|Post-retirement |  |      | 14  |  |      |   | 14  |      |  |   | 15   |  |  |      | 15  |  |              |   | 16  |  |  |   | 85  | 
|Total           |  | $    | 117 |  |      | $ | 123 |      |  | $ | 127  |  |  | $    | 132 |  |              | $ | 140 |  |  | $ | 813 | 

We expensed $53 in 2011 ($55 for 2010) with respect to defined contribution plans.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|160    Sun Life Financial Inc.    Annual Report 2011 |  | Notes to Consolidated Financial Statements |  | 



---

28. Earnings (Loss) Per Share





Basic EPS is calculated by dividing the common
shareholders net income by the weighted average number of common shares issued and outstanding. Diluted EPS is calculated by adjusting common shareholders net income and the weighted average number of shares for the effects of all
dilutive potential common shares under the assumption that convertible instruments are converted and that outstanding options are exercised.

Details of
the calculation of the net income (loss) and the weighted average number of shares used in the EPS computations are as follows:



|                                                                                         |  |                  |       |   |                  |   |       | 
|---------------------------------------------------------------------------------------- |  | ---------------- | ----- | - | ---------------- | - | ----- | 
|For the years ended                                                                      |  | December 31,2011 |       |   | December 31,2010 |  
|Common shareholders net income (loss) for basic earnings per share                      |  | $                | (300  | ) |                  | $ | 1,406 | 
|Add: Increase in income due to convertible instruments(1)                                |  |                  |      |   |                  |   | 55    | 
|Common shareholders net income (loss) on a diluted basis                                |  | $                | (300  | ) |                  | $ | 1,461 | 
|Weighted average number of shares outstanding for basic earnings per share (in millions) |  |                  | 579   |   |                  |   | 568   | 
|Add: dilutive impact of stock options(2) (in
millions)                                   |  |                  |      |   |                  |   | 2     | 
|Add: dilutive impact of convertible securities(1) (in millions)                          |  |                  |      |   |                  |   | 41    | 
|Weighted average number of shares outstanding on a diluted basis (in millions)           |  |                  | 579   |   |                  |   | 611   | 
|Basic earnings (loss) per share                                                          |  | $                | (0.52 | ) |                  | $ | 2.48  | 
|Diluted earnings (loss) per share                                                        |  | $                | (0.52 | ) |                  | $ | 2.39  | 



|(1) | Innovative capital instruments, (SLEECS), have been issued through Sun Life Capital Trust. Holders of the $950 SLEECS A and $200 SLEECS B may exchange, at any time, all or part
of their holdings of SLEECS A or SLEECS B at a price for each one thousand dollars principal amount of SLEECS to 40 non-cumulative perpetual preferred shares of Sun Life Assurance. Any non-cumulative perpetual preferred shares issued in respect of
an exchange by the holders of SLEECS A or SLEECS B will become convertible, at the option of the holder, into a variable number of common shares of SLF Inc. on distribution dates on or after June 30, 2012 in respect of the SLEECS A and on
distribution dates on or after December 31, 2032 in respect of the SLEECS B. For the purposes of diluted EPS, it is assumed that the conversion to SLF Inc. common shares has occurred. Common shareholders net income is increased by the
after-tax interest on the SLEECS A and B, while the weighted average common shares are increased by the number of SLF Inc. common shares that would be issued at conversion. For the year ended December 31, 2011, the impact of the conversion of
innovative capital instruments was excluded from the calculation of dilutive earnings per share since the effect of conversion is anti-dillutive. SLEECS A were redeemed on December 31, 2011.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Diluted EPS assumes the exercise of all dilutive stock options of SLF Inc. It is assumed that the proceeds from the exercise of the options were received from the issuance of
common shares of SLF Inc. at the average market price of common shares during the period. The difference between the number of shares issued for the exercise of the dilutive options and the number of shares that would have been issued at the average
market price of the common shares during the period is adjusted to the weighted average number of shares for purposes of calculating diluted earnings per share. The number of stock options that have not been included in the weighted average
number of common shares used in the calculation of diluted EPS because these stock options were anti-dilutive for the periods presented, amounted to 10 million for the year ended December 31, 2011 (8 million for the year ended
December 31, 2010). For the year ended December 31, 2011, an adjustment of 1 million common shares related to the dilutive impact of stock options was excluded from the calculation of earnings per share since their effect is
anti-dillutive when a loss is reported.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2011    161



---

Appointed Actuarys Report

THE SHAREHOLDERS AND DIRECTORS OF SUN LIFE FINANCIAL INC.

I have valued the policy liabilities and
reinsurance recoverables of Sun Life Financial Inc. and its subsidiaries for its Consolidated Statements of Financial Position at December 31, 2011, December 31, 2010 and January 1, 2010, and their change in the Consolidated
Statements of Operations for the years ended December 31, 2011 and December 31, 2010 in accordance with accepted actuarial practice in Canada, including selection of appropriate assumptions and methods.

In my opinion, the amount of policy liabilities net of reinsurance recoverables makes appropriate provision for all policyholder obligations and the Consolidated
Financial Statements fairly present the results of the valuation.



LOGO

Lesley Thomson

Fellow,
Canadian Institute of Actuaries

Toronto, Canada

February 15, 2012



|                                                     |  |                            |  | 
|---------------------------------------------------- |  | -------------------------- |  | 
|162    Sun Life Financial Inc.    Annual Report 2011 |  | Appointed Actuarys Report |  | 



---

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of

Sun Life Financial Inc.

We have audited the accompanying consolidated financial statements of Sun Life Financial Inc. and subsidiaries (the Company), which comprise the
consolidated statements of financial position as at December 31, 2011, December 31, 2010 and January 1, 2010, and the consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the
years ended December 31, 2011 and December 31, 2010, and a summary of significant accounting policies and other explanatory information.

Managements Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors Responsibility

Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected
depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Sun Life Financial Inc. and subsidiaries as at December 31, 2011, December 31, 2010 and January 1, 2010 and their financial performance and cash flows for the years ended December 31, 2011 and
December 31, 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Other Matter

We have also audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 15, 2012 expressed an unqualified opinion on the Companys internal control over financial reporting.



LOGO

Independent Registered Chartered Accountants

Licensed Public Accountants

February 15, 2012

Toronto, Canada



| |  |                                                        |  |                                                     
| |  | ------------------------------------------------------ |  | ----------------------------------------------------
| |  | Report of Independent Registered Chartered Accountants |  | Sun Life Financial Inc.    Annual Report 2011    163



---

Report of Independent Registered Chartered Accountants

To the Board of Directors and Shareholders of

Sun Life Financial Inc.

We have audited the internal control over financial reporting of Sun Life Financial Inc. and subsidiaries (the Company) as of December 31, 2011,
based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Companys internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing
similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may
not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended December 31, 2011 of the Company and our report dated February 15, 2012 expressed an unqualified opinion on those financial statements



LOGO

Independent Registered Chartered Accountants

Licensed Public Accountants

February 15, 2012

Toronto, Canada



|                                                     |  |                                                        |  | 
|---------------------------------------------------- |  | ------------------------------------------------------ |  | 
|164    Sun Life Financial Inc.    Annual Report 2011 |  | Report of Independent Registered Chartered Accountants |  |