EXHIBIT 2

CONSOLIDATED

FINANCIAL STATEMENTS

AND NOTES





|                                                                                |  |  |        | 
|------------------------------------------------------------------------------- |  |  | ------ | 
|                                                                                | 
|FINANCIAL REPORTING RESPONSIBILITIES                                            |  |  | 86     | 
|                                                                                | 
|CONSOLIDATED FINANCIAL STATEMENTS                                               |  |  | 87     | 
|Consolidated Statements of Operations                                           |  |  | 87     | 
|Consolidated Statements of Comprehensive Income (Loss)                          |  |  | 88     | 
|Consolidated Statements of Financial Position                                   |  |  | 89     | 
|Consolidated Statements of Changes in Equity                                    |  |  | 90     | 
|Consolidated Statements of Cash Flows                                           |  |  | 91     | 
|                                                                                | 
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                                  |  |  | 92     | 
|Significant Accounting Policies      Note   1                                   |  |  | 92     | 
|Changes in Accounting Policies and Adjustments      Note   2                    |  |  | 100    | 
|Held for Sale Classification and Discontinued Operation      Note   3           |  |  | 102    | 
|Segmented Information      Note   4                                             |  |  | 106    | 
|Total Invested Assets and Related Net Investment Income      Note   5           |  |  | 108    | 
|Financial Instrument Risk Management      Note   6                              |  |  | 116    | 
|Insurance Risk Management      Note   7                                         |  |  | 128    | 
|Other Assets      Note   8                                                      |  |  | 130    | 
|Property and Equipment      Note   9                                            |  |  | 131    | 
|Goodwill and Intangible Assets      Note 10                                     |  |  | 131    | 
|Insurance Contract Liabilities and Investment Contract Liabilities      Note 11 |  |  | 134    | 
|Reinsurance      Note 12                                                        |  |  | 140    | 
|Other Liabilities      Note 13                                                  |  |  | 141    | 
|Senior Debentures and Innovative Capital Instruments      Note 14               |  |  | 142    | 
|Subordinated Debt      Note 15                                                  |  |  | 143    | 
|Share Capital      Note 16                                                      |  |  | 144    | 
|Non-Controlling Interests in Subsidiaries      Note 17                          |  |  | 145    | 
|Fee Income      Note 18                                                         |  |  | 146    | 
|Operating Expenses      Note 19                                                 |  |  | 146    | 
|Share-Based Payments      Note 20                                               |  |  | 146    | 
|Restructuring      Note 21                                                      |  |  | 149    | 
|Income Taxes      Note 22                                                       |  |  | 149    | 
|Capital Management      Note 23                                                 |  |  | 152    | 
|Segregated Funds      Note 24                                                   |  |  | 153    | 
|Commitments, Guarantees and Contingencies      Note 25                          |  |  | 154    | 
|Related Party Transactions      Note 26                                         |  |  | 156    | 
|Pension Plans and Other Post-Retirement Benefits      Note 27                   |  |  | 156    | 
|Earnings (Loss) Per
Share      Note 28 Subsequent Event      
Note 29           |  |  | 160160 | 
|                                                                                | 
|APPOINTED ACTUARYS REPORT                                                      |  |  | 161    | 
|                                                                                | 
|REPORTS OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS                         |  |  | 162    | 



| |  |                                   |  |                                                    
| |  | --------------------------------- |  | ---------------------------------------------------
| |  | Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    85



---

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 & Conduct Review 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 & Conduct Review 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, 2012, 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, 2012.

The Audit & Conduct Review 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 & Conduct Review 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 LLP, Independent Registered Chartered Accountants, have audited the Companys
internal control over financial reporting as of December 31, 2012 in addition to auditing the Companys Consolidated Financial Statements for the years ended December 31, 2012 and December 31, 2011. Their reports to the Board and Shareholders
express an unqualified opinion and accompany these Consolidated Financial Statements. Deloitte LLP meet separately with both management and the Audit & Conduct Review 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 13, 2013



|                                                    |  |                                   |  | 
|--------------------------------------------------- |  | --------------------------------- |  | 
|86    Sun Life Financial Inc.    Annual Report 2012 |  | Consolidated Financial Statements |  | 



---

CONSOLIDATED STATEMENTS OF OPERATIONS





|                                                                                                |  |      |        |   |         |   |        |  
|----------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ------- | - | ------ | -
|For the years ended December 31, (in millions of Canadian dollars except for per share amounts) |  | 2012 |        |   | 2011(1) |  
|Revenue                                                                                         |  |      |        |   |         |   |        |  
|Premiums                                                                                        |  |      |        |   |         |   |        |  
|Gross                                                                                           |  | $    | 13,415 |   |         | $ | 13,221 |  
|Less: Ceded                                                                                     |  |      | 5,168  |   |         |   | 4,983  |  
|Net                                                                                             |  |      | 8,247  |   |         |   | 8,238  |  
|Net investment income (loss):                                                                   |  |      |        |   |         |   |        |  
|Interest and other investment income (Note 5)                                                   |  |      | 4,430  |   |         |   | 4,388  |  
|Change in fair value through profit or loss assets and liabilities (Note 5)                     |  |      | 1,728  |   |         |   | 4,257  |  
|Net gains (losses) on available-for-sale assets                                                 |  |      | 126    |   |         |   | 151    |  
|Net investment income (loss)                                                                    |  |      | 6,284  |   |         |   | 8,796  |  
|Fee income (Note 18)                                                                            |  |      | 3,028  |   |         |   | 2,796  |  
|Total revenue                                                                                   |  |      | 17,559 |   |         |   | 19,830 |  
|Benefits and expenses                                                                           |  |      |        |   |         |   |        |  
|Gross claims and benefits paid (Note 11)                                                        |  |      | 11,347 |   |         |   | 11,152 |  
|Increase (decrease) in insurance contract liabilities (Note 11)                                 |  |      | 3,718  |   |         |   | 7,391  |  
|Decrease (increase) in reinsurance assets (Note 11)                                             |  |      | 134    |   |         |   | 384    |  
|Increase (decrease) in investment contract liabilities (Note 11)                                |  |      | 51     |   |         |   | (34    | )
|Reinsurance expenses (recoveries) (Note 12)                                                     |  |      | (4,832 | ) |         |   | (4,540 | )
|Commissions                                                                                     |  |      | 1,399  |   |         |   | 1,307  |  
|Net transfer to (from) segregated funds (Note 24)                                               |  |      | (79    | ) |         |   | (149   | )
|Operating expenses (Note 19)                                                                    |  |      | 3,507  |   |         |   | 3,262  |  
|Impairment of goodwill and intangible assets (Note 10)                                          |  |      |       |   |         |   | 204    |  
|Premium taxes                                                                                   |  |      | 236    |   |         |   | 233    |  
|Interest expense                                                                                |  |      | 367    |   |         |   | 430    |  
|Total benefits and expenses                                                                     |  |      | 15,848 |   |         |   | 19,640 |  
|Income (loss) before income taxes                                                               |  |      | 1,711  |   |         |   | 190    |  
|Less: Income tax expense (benefit) (Note 22)                                                    |  |      | 210    |   |         |   | (151   | )
|Total net income (loss) from continuing operations                                              |  |      | 1,501  |   |         |   | 341    |  
|Less: Net income (loss) attributable to participating policyholders                             |  |      | 7      |   |         |   | 7      |  
|Less: Net income (loss) attributable to non-controlling interests                               |  |      |       |   |         |   | 9      |  
|Shareholders net income (loss) from continuing operations                                      |  |      | 1,494  |   |         |   | 325    |  
|Less: Preferred shareholders dividends                                                         |  |      | 120    |   |         |   | 100    |  
|Common shareholders net income (loss) from continuing operations                               |  | $    | 1,374  |   |         | $ | 225    |  
|Common shareholders net income (loss) from discontinued operation (Note 3)                     |  | $    | 180    |   |         | $ | (595   | )
|Common shareholders net income (loss)                                                          |  | $    | 1,554  |   |         | $ | (370   | )
|(1)   Balances have
been restated. Refer to Notes 2 and 3.                                      |  |      |        |   |         |   |        |  
|                                                                                                |  |     
|                                                                                                |  |      |        |   |         |   |        |  
|Average exchange rates during the reporting periods:
U.S. dollars                               |  |      | 1.00   |   |         |   | 0.99   |  
|U.K. pounds                                                                                     |  |      | 1.58   |   |         |   | 1.59   |  
|                                                                                                |  |     
|Earnings (loss) per share(Note 28)                                                              |  |      |        |   |         |   |        |  
|Basic earnings (loss) per share from continuing operations                                      |  | $    | 2.32   |   |         | $ | 0.39   |  
|Basic earnings (loss) per share from discontinued operation                                     |  | $    | 0.30   |   |         | $ | (1.03  | )
|Basic earnings (loss) per share                                                                 |  | $    | 2.62   |   |         | $ | (0.64  | )
|                                                                                                |  |     
|Diluted earnings (loss) per share from continuing operations                                    |  | $    | 2.29   |   |         | $ | 0.39   |  
|Diluted earnings (loss) per share from discontinued operation                                   |  | $    | 0.30   |   |         | $ | (1.03  | )
|Diluted earnings (loss) per share                                                               |  | $    | 2.59   |   |         | $ | (0.64  | )
|                                                                                                |  |     
|Dividends per common share                                                                      |  | $    | 1.44   |   |         | $ | 1.44   |  

The attached notes form part of these Consolidated Financial Statements.



| |  |                                   |  |                                                    
| |  | --------------------------------- |  | ---------------------------------------------------
| |  | Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    87



---

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)





|                                                                   |  |      |       |   |         |   |      |  
|------------------------------------------------------------------ |  | ---- | ----- | - | ------- | - | ---- | -
|For the years ended December 31, (in millions of Canadian dollars) |  | 2012 |       |   | 2011(1) |  
|Total net income (loss)                                            |  | $    | 1,681 |   |         | $ | (254 | )
|Other comprehensive income (loss), net of taxes:                   |  |      |       |   |         |   |      |  
|Change in unrealized foreign currency translation gains (losses):  |  |      |       |   |         |   |      |  
|Unrealized gains (losses) before net investment hedges             |  |      | (212  | ) |         |   | 270  |  
|Unrealized gains (losses) on net investment hedges                 |  |      | 33    |   |         |   | (43  | )
|Reclassifications to net income (loss)                             |  |      |      |   |         |   | (8   | )
|Change in unrealized gains (losses) on available-for-sale assets:  |  |      |       |   |         |   |      |  
|Unrealized gains (losses)                                          |  |      | 431   |   |         |   | 117  |  
|Reclassifications to net income (loss)                             |  |      | (147  | ) |         |   | (184 | )
|Change in unrealized gains (losses) on cash flow hedges:           |  |      |       |   |         |   |      |  
|Unrealized gains (losses)                                          |  |      | 15    |   |         |   | (43  | )
|Reclassifications to net income (loss)                             |  |      | (11   | ) |         |   | 14   |  
|Total other comprehensive income (loss)                            |  |      | 109   |   |         |   | 123  |  
|Total comprehensive income (loss)                                  |  |      | 1,790 |   |         |   | (131 | )
|Less: Participating policyholders comprehensive income (loss)     |  |      | 5     |   |         |   | 8    |  
|Less: Non-controlling interests in comprehensive income (loss)     |  |      |      |   |         |   | 9    |  
|Shareholders comprehensive income (loss)                          |  | $    | 1,785 |   |         | $ | (148 | )

INCOME TAXES INCLUDED IN OTHER COMPREHENSIVE INCOME (LOSS)





|                                                                                        |  |      |     |   |      |   |    |  
|--------------------------------------------------------------------------------------- |  | ---- | --- | - | ---- | - | -- | -
|For the years ended December 31, (in millions of Canadian dollars)                      |  | 2012 |     |   | 2011 |  
|Income tax benefit (expense):                                                           |  |      |     |   |      |   |    |  
|Unrealized foreign currency translation gains / losses, including net investment hedges |  | $    | 3   |   |      | $ | 2  |  
|Reclassifications to net income of foreign currency translation gains / losses          |  |      |    |   |      |   | (8 | )
|Unrealized gains / losses on available-for-sale assets                                  |  |      | (93 | ) |      |   | (8 | )
|Reclassifications to net income for available-for-sale assets                           |  |      | 34  |   |      |   | 58 |  
|Unrealized gains / losses on cash flow hedges                                           |  |      | (17 | ) |      |   | (5 | )
|Reclassifications to net income for cash flow hedges                                    |  |      | 4   |   |      |   | (5 | )
|Total income tax benefit (expense) included in other comprehensive income
(loss)        |  | $    | (69 | ) |      | $ | 34 |  



|(1) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------

The attached notes
form part of these Consolidated Financial Statements.



|                                                    |  |                                   |  | 
|--------------------------------------------------- |  | --------------------------------- |  | 
|88    Sun Life Financial Inc.    Annual Report 2012 |  | Consolidated Financial Statements |  | 



---

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION





|                                                                                                 |  |      |         |  |         |   |         | 
|------------------------------------------------------------------------------------------------ |  | ---- | ------- |  | ------- | - | ------- | 
|As at December 31, (in millions of Canadian dollars)                                             |  | 2012 |         |  | 2011(1) |  
|Assets                                                                                           |  |      |         |  |         |   |         | 
|Cash, cash equivalents and short-term securities (Note 5)                                        |  | $    | 7,034   |  |         | $ | 8,837   | 
|Debt securities (Note 5 and 6)                                                                   |  |      | 54,362  |  |         |   | 62,930  | 
|Equity securities (Note 5 and 6)                                                                 |  |      | 5,026   |  |         |   | 4,570   | 
|Mortgages and loans (Note 6)                                                                     |  |      | 27,248  |  |         |   | 27,755  | 
|Derivative assets (Notes 5 and 6)                                                                |  |      | 2,113   |  |         |   | 2,632   | 
|Other invested assets (Note 5)                                                                   |  |      | 1,269   |  |         |   | 1,348   | 
|Policy loans                                                                                     |  |      | 2,681   |  |         |   | 3,276   | 
|Investment properties (Note 5)                                                                   |  |      | 5,942   |  |         |   | 5,313   | 
|Invested assets                                                                                  |  |      | 105,675 |  |         |   | 116,661 | 
|Other assets (Note 8)                                                                            |  |      | 2,702   |  |         |   | 2,885   | 
|Reinsurance assets (Note 12)                                                                     |  |      | 3,240   |  |         |   | 3,458   | 
|Deferred tax assets (Note 22)                                                                    |  |      | 1,005   |  |         |   | 1,694   | 
|Property and equipment (Note 9)                                                                  |  |      | 665     |  |         |   | 546     | 
|Intangible assets (Note 10)                                                                      |  |      | 862     |  |         |   | 885     | 
|Goodwill (Note 10)                                                                               |  |      | 3,911   |  |         |   | 3,942   | 
|Assets of disposal group classified as held for sale (Note 3)                                    |  |      | 15,067  |  |         |   |         | 
|Total general fund assets                                                                        |  |      | 133,127 |  |         |   | 130,071 | 
|Investments for account of segregated fund holders from continuing operations (Note 24)          |  |      | 64,987  |  |         |   | 88,183  | 
|Investments for account of segregated fund holders classified as held for sale (Note
3)          |  |      | 27,668  |  |         |   |         | 
|Total assets                                                                                     |  | $    | 225,782 |  |         | $ | 218,254 | 
|Liabilities and equity                                                                           |  |      |         |  |         |   |         | 
|Liabilities                                                                                      |  |      |         |  |         |   |         | 
|Insurance contract liabilities (Note 11)                                                         |  | $    | 87,275  |  |         | $ | 96,687  | 
|Investment contract liabilities (Note 11)                                                        |  |      | 2,303   |  |         |   | 3,073   | 
|Derivative liabilities (Notes 5 and 6)                                                           |  |      | 594     |  |         |   | 1,059   | 
|Deferred tax liabilities (Note 22)                                                               |  |      | 5       |  |         |   | 7       | 
|Other liabilities (Note 13)                                                                      |  |      | 7,925   |  |         |   | 8,011   | 
|Senior debentures (Note 14)                                                                      |  |      | 2,149   |  |         |   | 2,149   | 
|Innovative capital instruments (Note 14)                                                         |  |      | 696     |  |         |   | 695     | 
|Subordinated debt (Note 15)                                                                      |  |      | 2,740   |  |         |   | 2,746   | 
|Liabilities of disposal group classified as held for sale (Note 3)                               |  |      | 12,689  |  |         |   |         | 
|Total general fund liabilities                                                                   |  |      | 116,376 |  |         |   | 114,427 | 
|Insurance contracts for account of segregated fund holders from continuing operations (Note 24)  |  |      | 59,025  |  |         |   | 82,650  | 
|Investment contracts for account of segregated fund holders from continuing operations (Note 24) |  |      | 5,962   |  |         |   | 5,533   | 
|Insurance contracts for account of segregated fund holders classified as held for sale (Note
3)  |  |      | 27,668  |  |         |   |         | 
|Total liabilities                                                                                |  | $    | 209,031 |  |         | $ | 202,610 | 
|Equity                                                                                           |  |      |         |  |         |   |         | 
|Issued share capital and contributed surplus                                                     |  | $    | 10,621  |  |         | $ | 10,340  | 
|Retained earnings and accumulated other comprehensive income                                     |  |      | 6,130   |  |         |   | 5,304   | 
|Total equity                                                                                     |  | $    | 16,751  |  |         | $ | 15,644  | 
|Total liabilities and equity                                                                     |  | $    | 225,782 |  |         | $ | 218,254 | 
|                                                                                                 |  |     
|(1)   Balances have been restated. Refer to Note 2.                                              |  |      |         |  |         |   |         | 
|                                                                                                 |  |     
|Exchange rates at the end of the reporting periods:                                              |  |      |         |  |         |   |         | 
|U.S. dollars                                                                                     |  |      | 0.99    |  |         |   | 1.02    | 
|U.K. pounds                                                                                      |  |      | 1.61    |  |         |   | 1.58    | 

The attached notes form part of these Consolidated Financial Statements.

Approved on behalf of the Board of Directors on February 13, 2013.



|                                      |  |                    
|------------------------------------- |  | -------------------
|LOGO                                  |  | LOGO               
|Dean A. Connor                        |  | William D. Anderson
|President and Chief Executive Officer |  | Director           



| |  |                                   |  |                                                    
| |  | --------------------------------- |  | ---------------------------------------------------
| |  | Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    89



---

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY





|                                                                         |  |      |        |   |         |   |        |  
|------------------------------------------------------------------------ |  | ---- | ------ | - | ------- | - | ------ | -
|For the years ended December 31, (in millions of Canadian dollars)       |  | 2012 |        |   | 2011(1) |  
|Shareholders:                                                            |  |      |        |   |         |   |        |  
|Preferred shares (Note 16)                                               |  |      |        |   |         |   |        |  
|Balance, beginning of year                                               |  | $    | 2,503  |   |         | $ | 2,015  |  
|Issued                                                                   |  |      |       |   |         |   | 500    |  
|Issuance cost, net of taxes                                              |  |      |       |   |         |   | (12    | )
|Balance, end of year                                                     |  |      | 2,503  |   |         |   | 2,503  |  
|Common shares                                                            |  |      |        |   |         |   |        |  
|Balance, beginning of year                                               |  |      | 7,735  |   |         |   | 7,407  |  
|Stock options exercised (Note 20)                                        |  |      | 12     |   |         |   | 48     |  
|Issued to non-controlling interests (Note 17)                            |  |      |       |   |         |   | 37     |  
|Issued under dividend reinvestment and share purchase plan (Note 16)     |  |      | 261    |   |         |   | 243    |  
|Balance, end of year                                                     |  |      | 8,008  |   |         |   | 7,735  |  
|Contributed surplus (Note 20)                                            |  |      |        |   |         |   |        |  
|Balance, beginning of year                                               |  |      | 102    |   |         |   | 95     |  
|Share-based payments                                                     |  |      | 10     |   |         |   | 13     |  
|Stock options exercised                                                  |  |      | (2     | ) |         |   | (6     | )
|Balance, end of year                                                     |  |      | 110    |   |         |   | 102    |  
|Retained earnings                                                        |  |      |        |   |         |   |        |  
|Balance, beginning of year                                               |  |      | 5,133  |   |         |   | 6,473  |  
|Net Income (loss)                                                        |  |      | 1,674  |   |         |   | (270   | )
|Dividends on common shares                                               |  |      | (844   | ) |         |   | (829   | )
|Dividends on preferred shares                                            |  |      | (120   | ) |         |   | (100   | )
|Change due to transactions with non-controlling interests (Note 17)      |  |      |       |   |         |   | (141   | )
|Balance, end of year                                                     |  |      | 5,843  |   |         |   | 5,133  |  
|Accumulated other comprehensive income (loss), net of taxes              |  |      |        |   |         |   |        |  
|Unrealized gains (losses) on available-for-sale assets                   |  |      | 320    |   |         |   | 387    |  
|Unrealized cumulative translation differences, net of hedging activities |  |      | (287   | ) |         |   | (505   | )
|Unrealized gains (losses) on transfers to investment properties          |  |      | 6      |   |         |   | 6      |  
|Unrealized gains on derivatives designated as cash flow hedges           |  |      | 9      |   |         |   | 38     |  
|Balance, beginning of year                                               |  |      | 48     |   |         |   | (74    | )
|Total other comprehensive income (loss) for the year                     |  |      | 111    |   |         |   | 122    |  
|Balance, end of year                                                     |  |      | 159    |   |         |   | 48     |  
|Total shareholders equity, end of year                                  |  | $    | 16,623 |   |         | $ | 15,521 |  
|Participating policyholders:                                             |  |      |        |   |         |   |        |  
|Retained earnings                                                        |  |      |        |   |         |   |        |  
|Balance, beginning of year                                               |  | $    | 124    |   |         | $ | 117    |  
|Net income (loss)                                                        |  |      | 7      |   |         |   | 7      |  
|Balance, end of year                                                     |  |      | 131    |   |         |   | 124    |  
|Accumulated other comprehensive income (loss), net of taxes              |  |      |        |   |         |   |        |  
|Unrealized cumulative translation differences, net of hedging activities |  |      | (1     | ) |         |   | (2     | )
|Balance, beginning of year                                               |  |      | (1     | ) |         |   | (2     | )
|Total other comprehensive income (loss) for the year                     |  |      | (2     | ) |         |   | 1      |  
|Balance, end of period                                                   |  |      | (3     | ) |         |   | (1     | )
|Total participating policyholders equity, end of year                   |  | $    | 128    |   |         | $ | 123    |  
|Non-controlling interests: (Note 17)                                     |  |      |        |   |         |   |        |  
|Balance, beginning of year                                               |  | $    |       |   |         | $ | 24     |  
|Net income (loss)                                                        |  |      |       |   |         |   | 9      |  
|Other changes in non-controlling interests                               |  |      |       |   |         |   | (33    | )
|Total non-controlling interests, end of year                             |  |      |       |   |         |   |       |  
|                                                                         |  |     
|Total equity                                                             |  | $    | 16,751 |   |         | $ | 15,644 |  



|(1) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------

The attached notes
form part of these Consolidated Financial Statements.



|                                                    |  |                                   |  | 
|--------------------------------------------------- |  | --------------------------------- |  | 
|90    Sun Life Financial Inc.    Annual Report 2012 |  | Consolidated Financial Statements |  | 



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CONSOLIDATED STATEMENTS OF CASH FLOWS





|                                                                                                                              |  |      |         |   |         |   |         |     
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ------- | - | ------- | ----
|For the years ended December 31, (in millions of Canadian dollars)                                                            |  | 2012 |         |   | 2011(1) |  
|Cash flows provided by (used in) operating activities                                                                         |  |      |         |   |         |   |         |     
|Total income (loss) before income taxes                                                                                       |  | $    | 1,958   |   |         | $ | (742    | )   
|Add: interest expense related to financing activities                                                                         |  |      | 367     |   |         |   | 434     |     
|Operating items not affecting cash:                                                                                           |  |      |         |   |         |   |         |     
|Increase (decrease) in contract liabilities                                                                                   |  |      | 2,859   |   |         |   | 6,686   |     
|(Increase) decrease in reinsurance assets                                                                                     |  |      | 4       |   |         |   | 401     |     
|Unrealized (gains) losses on investments                                                                                      |  |      | (1,176  | ) |         |   | (3,926  | )(2)
|Impairment of goodwill and intangible in assets (Note 10)                                                                     |  |      |        |   |         |   | 307     |     
|Other non-cash items                                                                                                          |  |      | 239     |   |         |   | (117    | )   
|Operating cash items:                                                                                                         |  |      |         |   |         |   |         |     
|Deferred acquisition costs                                                                                                    |  |      | (48     | ) |         |   | (43     | )   
|Realized (gains) losses on investments                                                                                        |  |      | (471    | ) |         |   | (763    | )(2)
|Sales, maturities and repayments of investments                                                                               |  |      | 86,197  |   |         |   | 97,572  | (2) 
|Purchases of investments                                                                                                      |  |      | (89,310 | ) |         |   | (97,666 | )(2)
|Change in policy loans                                                                                                        |  |      | 7       |   |         |   | 32      |     
|Income taxes received (paid)                                                                                                  |  |      | (36     | ) |         |   | (166    | )   
|Other cash items                                                                                                              |  |      | 158     |   |         |   | 705     | (2) 
|Net cash provided by (used in) operating activities                                                                           |  |      | 748     |   |         |   | 2,714   |     
|Cash flows provided by (used in) investing activities                                                                         |  |      |         |   |         |   |         |     
|(Purchase) sale of property and equipment                                                                                     |  |      | (181    | ) |         |   | (120    | )   
|Transactions with associates and joint ventures (Note 26)                                                                     |  |      | 34      |   |         |   | (87     | )   
|Purchase of shares from non-controlling interests (Note 17)                                                                   |  |      |        |   |         |   | (51     | )   
|Dividends received from associates and joint ventures                                                                         |  |      | 14      |   |         |   |        |     
|Other investing activities                                                                                                    |  |      | (43     | ) |         |   | (64     | )   
|Net cash provided by (used in) investing activities                                                                           |  |      | (176    | ) |         |   | (322    | )   
|Cash flows provided by (used in) financing activities                                                                         |  |      |         |   |         |   |         |     
|Borrowed funds                                                                                                                |  |      | 36      |   |         |   | 35      |     
|Issuance of senior financing, senior debentures and subordinated debt (Notes 13, 14, and 15)                                  |  |      | 796     |   |         |   | 297     |     
|Collateral on senior financing (Note 13)                                                                                      |  |      | (2      | ) |         |   | (25     | )   
|Redemption of senior financing, senior debentures, subordinated debt and innovative capital instruments (Notes 13, 14 and
15) |  |      | (800    | ) |         |   | (1,250  | )   
|Issuance of preferred shares (Note 16)                                                                                        |  |      |        |   |         |   | 485     |     
|Issuance of common shares on exercise of stock options (Note 16)                                                              |  |      | 10      |   |         |   | 42      |     
|Dividends paid on common and preferred shares                                                                                 |  |      | (699    | ) |         |   | (679    | )   
|Interest expense paid                                                                                                         |  |      | (401    | ) |         |   | (355    | )   
|Net cash provided by (used in) financing activities                                                                           |  |      | (1,060  | ) |         |   | (1,450  | )   
|Changes due to fluctuations in exchange rates                                                                                 |  |      | (31     | ) |         |   | 10      |     
|Increase (decrease) in cash and cash equivalents                                                                              |  |      | (519    | ) |         |   | 952     |     
|Net cash and cash equivalents, beginning of year                                                                              |  |      | 4,353   |   |         |   | 3,401   |     
|Net cash and cash equivalents, end of year                                                                                    |  |      | 3,834   |   |         |   | 4,353   |     
|Short-term securities, end of year                                                                                            |  |      | 3,771   |   |         |   | 4,378   |     
|Net cash and cash equivalents and short-term securities, end of year                                                          |  | $    | 7,605   |   |         | $ | 8,731   |     
|Less: Net cash and cash equivalents and short-term securities, classified as held for sale,
as at December 31, 2012 (Note 3)  |  | $    | 574     |   |         |   |         |     
|Net cash and cash equivalents and short-term securities, continuing operations,
as at December 31, 2012                       |  | $    | 7,031   |   |         |   |         |     



|(1) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------

|(2) | Certain derivative cash flows within operating activities have been reclassified to be consistent with the 2012 presentation of these cash flows.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

The attached notes form part of these Consolidated Financial Statements.



| |  |                                   |  |                                                    
| |  | --------------------------------- |  | ---------------------------------------------------
| |  | Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    91



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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. 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, the
Enterprise 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 prepared our Consolidated Financial Statements in accordance with International
Financial Reporting Standards (IFRS) as issued and adopted by the International Accounting Standards Board (IASB). Our accounting policies have been applied consistently within our Consolidated Financial Statements.

Basis of Presentation

Our Consolidated
Statements of Financial Position are 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 and judgments that affect
the application of policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may 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, whether the substance of our relationship
with a special purpose entity (SPE), subsidiary, joint venture or associate constitutes control, joint control or significant influence and determination of provisions and liabilities for pension plans, other post-retirement benefits,
and taxes. We also use judgment when determining functional currencies, contingencies, restructuring, non-current assets and disposal groups classified as held for sale and discontinued operations and the determination of fair value of share-based
payments. 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 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.

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.



|                                                    |  |                                            |  | 
|--------------------------------------------------- |  | ------------------------------------------ |  | 
|92    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



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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, 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 a term to maturity of three months or less, while short-term securities have a 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 that are 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
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



| |  |                                            |  |                                                    
| |  | ------------------------------------------ |  | ---------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    93



---

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, interest income earned, and fee income, 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 assets classified as FVTPL generally impacts the change in insurance contract liabilities due to the impact of asset 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 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 derecognition of the asset through foreclosure or sale.



|                                                    |  |                                            |  | 
|--------------------------------------------------- |  | ------------------------------------------ |  | 
|94    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

Collateral

Cash received (pledged) as collateral is recognized (derecognized) in our Consolidated Statements of Financial Position with corresponding amounts recognized in
Other liabilities (Other assets), respectively. All other types of assets received (pledged) as collateral are not recognized (derecognized) in our Consolidated Statements of Financial Position.

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 of
these forwards 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. All amounts recorded to or from OCI are net of
related taxes.

Net Investment Hedges

Certain
swaps and foreign currency denominated liabilities 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 instruments
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 three 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.



| |  |                                            |  |                                                    
| |  | ------------------------------------------ |  | ---------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    95



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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 that 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 assets carrying amount or recognized as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the asset will flow to us and the cost of the asset can be measured reliably.

Depreciation of
property and equipment, excluding land which is not depreciated, is calculated using a straight-line method and the asset is amortized to its residual value over its estimated useful life as follows:



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

The assets residual value, useful life 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. Gain and loss on disposal of property and equipment is determined by reference to its carrying amount and is 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. We exercise significant
judgment in determining our CGUs. The factors considered in determining our CGUs include product cash inflows, product distribution, target markets and how management monitors and evaluates the operations.

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.



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|96    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



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Non-Current Assets and Disposal Groups Classified as Held for Sale and Discontinued Operations

Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather
than through continuing use. This condition is satisfied when a sale is highly probable and the assets are available for immediate sale in their present condition, subject only to terms that are usual and customary for sales of non-current assets
and disposal groups. For a sale to be highly probable, management must be committed to sell the non-current asset or disposal group within one year from the date of classification as held for sale.

Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Individual
assets and assets in a disposal group not subject to these measurement requirements include financial assets, investment properties, insurance and reinsurance assets, deferred tax assets and assets arising from employee benefits. These exempt assets
are measured in accordance with the relevant accounting policies described for those assets included in this note before the disposal group as a whole is measured to the lower of its carrying amount and fair value less cost to sell. Any impairment
loss for the disposal group is recognized as a reduction to the carrying amount of the non-current assets in the disposal group that are in scope of the measurement requirements.

A disposal group is presented as a discontinued operation if all of the following conditions are met: i) it is a component of the Company for which operations and cash flows can be clearly distinguished
operationally and financially from the rest of the Company, ii) it represents a separate major line of business or geographical area of operations that either has been disposed of or is classified as held for sale; or it is part of a single
co-ordinated plan to dispose of a separate major line of business or geographical area of operations.

Assets in a disposal group classified as held for
sale are presented separately in our Consolidated Statements of Financial Position. Discontinued operations are presented separately from continuing operations in our Consolidated Statements of Operations.

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.

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.



| |  |                                            |  |                                                    
| |  | ------------------------------------------ |  | ---------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    97



---

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 recognized 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.

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.



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|98    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



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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.

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 common shares are issued, contributed surplus is reversed and the common 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 common 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.

Basic and Diluted Earnings
Per Share (EPS)

Basic EPS is calculated by dividing the common shareholders net income by the weighted average number of common
shares issued and outstanding.

Diluted EPS adjusts common shareholders net income and the weighted average number of common shares for the effects
of all dilutive potential common shares under the assumption that convertible instruments are converted and that outstanding options are exercised. Diluted EPS is calculated by dividing the adjusted common shareholders net income by the
adjusted weighted average number of common shares outstanding. For convertible instruments, common shareholders net income is increased by the after-tax expense on the convertible instrument while the weighted average common shares are
increased by the number of common shares that would be issued at conversion. For stock options, it is assumed that the proceeds from the exercise of options whose exercise price is less than the average market price of common shares during the
period are used to repurchase common shares at the average market price for the period. The difference between the number of common shares issued for the exercise of the dilutive options and the number of common shares that would have been
repurchased at the average market price of the common shares during the period is adjusted to the weighted average number of common shares outstanding.



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| |  | ------------------------------------------ |  | ---------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    99



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2. Changes in Accounting Policies and Adjustments





2.A Amended and New International Financial Reporting Standards

Amended International Financial Reporting
Standards Adopted in 2012

The following amendments to existing standards were issued by the IASB and adopted by us in the current year.

In October 2010, IFRS 7 Financial Instruments: Disclosures (IFRS 7) was 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 adoption of these amendments did not have a material 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 were effective on January 1, 2012. The adoption of these amendments did not have a material impact on our
Consolidated Financial Statements as these amendments are consistent with our current accounting policy.

Amended and New International Financial
Reporting Standards to be Adopted in 2013

The following new standards and amendments to existing standards were issued by the IASB and are expected
to be adopted by us in 2013.

In May 2011, IFRS 10 Consolidated Financial Statements (IFRS 10) was issued, which replaces the
consolidation guidance in IAS 27 Consolidated and Separate Financial Statements(IAS 27) and 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 that this standard may have on our Consolidated Financial Statements. We have not yet concluded on how IFRS 10 should be applied to the mutual funds within our segregated funds. Specific issues under discussion and
interpretation internationally related to segregated funds include how to assess variable returns, how the level of legal segregation of a segregated fund would influence the consolidation assessment, and the presentation of a segregated fund on the
consolidated financial statements if it is concluded that a fund should be consolidated. Since specific application issues are still being evaluated, we cannot reasonably estimate the impact, if any, that the adoption of this standard will have on
our Consolidated Financial Statements in 2013.

In May 2011, IFRS 11Joint Arrangements (IFRS 11) 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 do not
expect the adoption of this standard to have a material impact on our Consolidated Financial Statements.

In May 2011, IFRS 12Disclosure of Interests
in Other Entities (IFRS 12) 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 will
include these disclosures on our 2013 Consolidated Financial Statements.

In June 2012, the IASB issued Consolidated Financial Statements,
Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12). The amendments clarify the transition guidance in IFRS 10 and provide transitional relief for IFRS 10, IFRS 11
and IFRS 12 by limiting the comparative information requirements to only the preceding comparative period and by removing certain disclosure requirements for the comparative periods from IFRS 12. The effective date of these amendments is
January 1, 2013, consistent with IFRS 10, 11 and 12 and we will apply these amendments when we adopt those standards in 2013.

As a result of the
issuance of IFRS 10, IFRS 11 and IFRS 12, both the current IAS 27 and IAS 28 Investments in Associates(IAS 28) 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
Measurementwas issued (IFRS 13). IFRS 13 defines fair value and sets out a single framework for measuring fair value when fair value is required by other IFRS standards. It also requires disclosures about fair value measurements and
expands fair value disclosures to include non-financial assets. This standard is effective for quarterly and annual periods beginning on or after January 1, 2013. The adoption of IFRS 13 will result in additional disclosures but is not expected
to have a material impact on our Consolidated Financial Statements.

In June 2011, IAS 19 Employee Benefits was 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 applied to the net defined benefit asset or liability. The amendments also require changes to the presentation in the 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. The impact of adoption on January 1, 2013 will decrease retained earnings and OCI by $28 and $182
respectively in our Consolidated Financial Statements.

In June 2011, IAS 1Presentation of Financial Statements was amended regarding the
presentation of items in OCI. The amendments require separate presentation within OCI 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 will include these presentation amendments on our 2013 Consolidated Financial Statements.



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|100    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



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In December 2011, amendments to IFRS 7 were 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 do not
expect the adoption of these amendments to have a significant impact on our Consolidated Financial Statements.

In May 2012, the IASB issued Annual
Improvements 2009-2011 Cycle, which includes amendments to five IFRSs. The annual improvements process is used to make necessary but non-urgent changes to IFRS that are not included as part of any other project. The amendments clarify guidance
and wording or make relatively minor amendments to the standards that address unintended consequences, conflicts or oversights. The amendments issued as part of this cycle must be applied retrospectively and are effective for annual periods
beginning on or after January 1, 2013. We do not expect the adoption of these amendments to have a significant impact on our Consolidated Financial Statements.

Amended and New International Financial Reporting Standards to be Adopted in 2014 or Later

The following new
standards and amendments to existing standards were issued by the IASB and are expected to be adopted by us in 2014 or later.

In December 2011,
amendments to IAS 32Financial Instruments: Presentation were issued to clarify the existing requirements for offsetting financial assets and financial liabilities. 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(IFRS 9) 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 the 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. 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 monitoring the continuing IASB developments and changes relating to this standard and assessing the impact of the adoption of this standard may have
on our Consolidated Financial Statements.

In October 2012, Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) was issued. The amendments
apply to investment entities, which are entities that evaluate the performance of their investments on a fair value basis and whose business purpose is to invest funds solely for returns from capital appreciation, investment income or both. The
amendments provide an exemption to the consolidation requirements in IFRS 10 for investment entities and require investment entities to measure certain subsidiaries at fair value through profit or loss rather than consolidate them. The amendments
are effective from January 1, 2014 with early adoption permitted. The exemption from consolidation for investment entities is not retained by a non-investment entity parent, and as a result, we do not expect the adoption of this standard to
have an impact on our Consolidated Financial Statements.

2.B Accounting Adjustment

During 2012, we identified required adjustments for two prior period errors in our Insurance contract liability valuation models within the Sun Life Financial Canada (SLF Canada) and Sun Life Financial
United States (SLF U.S.) segments. For SLF Canada the error resulted in an understatement in the cost of reinsurance for our non-participating contracts after tax of $47 of which $16 relates to prior to January 1, 2011. For SLF U.S.
the error resulted in an understatement of projections of the future cost of mortality of $39 after tax.

Adjustments have been made to Reinsurance
assets, Deferred tax assets, Insurance contract liabilities and net income. These adjustments are not material to our Consolidated Financial Statements for each of the prior periods to which they relate, but adjusting for the cumulative impact of
these errors in one reporting period would have materially impacted the results of the 2012 reporting period. Accordingly, we restated our Consolidated Statements of Operations and Consolidated Statements of Changes in Equity for the reporting
periods to which they apply and our opening Consolidated Statement of Financial Position for the earliest comparative period presented January 1, 2011.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    101



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2.B.i Financial Statement Restatements

The effects of these restatements on our Consolidated Statements of Operations are as follows:



|                                                                                  |  |                     |       |      |             |   |      |          |  |   |       |  
|--------------------------------------------------------------------------------- |  | ------------------- | ----- | ---- | ----------- | - | ---- | -------- |  | - | ----- | -
|                                                                                  |  |                     |      
|For the year ended December 31, 2011                                              |  | Prior torestatement |       |      | Restatement |   |      | Restated | 
|Increase (decrease) in insurance contract liabilities from continuing operations  |  | $                   | 7,104 |      |             | $ | 287  |          |  | $ | 7,391 |  
|Increase (decrease) in insurance contract liabilities from discontinued operation |  |                     | 480   |      |             |   | 18   |          |  |   | 498   |  
|Total increase (decrease) in insurance contract liabilities                       |  | $                   | 7,584 | (1)  |             | $ | 305  |          |  | $ | 7,889 |  
|Decrease (increase) in reinsurance assets from continuing operations              |  | $                   | 578   |      |             | $ | (194 | )        |  | $ | 384   |  
|Decrease (increase) in reinsurance assets from discontinued operation             |  |                     | 12    |      |             |   |     |          |  |   | 12    |  
|Total decrease (increase) in reinsurance assets                                   |  | $                   | 590   | (1)  |             | $ | (194 | )        |  | $ | 396   |  
|Income tax expense (benefit) from continuing operations                           |  | $                   | (116  | )    |             | $ | (35  | )        |  | $ | (151  | )
|Income tax expense (benefit) from discontinued operation                          |  |                     | (331  | )    |             |   | (6   | )        |  |   | (337  | )
|Combined income tax expense (benefit)                                             |  | $                   | (447  | )(1) |             | $ | (41  | )        |  | $ | (488  | )
|(Decrease) in net income from continuing operations                               |  |                     |       |      |             | $ | (58  | )        |  |   |       |  
|(Decrease) in net income from discontinued operation                              |  |                     |       |      |             |   | (12  | )        |  |   |       |  
|Total (decrease) in net income                                                    |  |                     |       |      |             | $ | (70  | )        |  |   |       |  



|(1) | As previously published.
|--- | ------------------------

The effects of these restatements on our
Consolidated Statements of Financial Position are as follows:



|                                                             |  |                        |        |  |             |   |     |          |  |   |        | 
|------------------------------------------------------------ |  | ---------------------- | ------ |  | ----------- | - | --- | -------- |  | - | ------ | 
|                                                             |  |                        |       
|As at December 31, 2011                                      |  | As previouslypublished |        |  | Restatement |   |     | Restated | 
|Assets                                                       |  |                        |        |  |             |   |     |          |  |   |        | 
|Reinsurance assets                                           |  | $                      | 3,277  |  |             | $ | 181 |          |  | $ | 3,458  | 
|Deferred tax assets                                          |  | $                      | 1,648  |  |             | $ | 46  |          |  | $ | 1,694  | 
|                                                             |  |                        |       
|Liabilities and equity                                       |  |                        |        |  |             |   |     |          |  |   |        | 
|Insurance contract liabilities                               |  | $                      | 96,374 |  |             | $ | 313 |          |  | $ | 96,687 | 
|Retained earnings and accumulated other comprehensive income |  | $                      | 5,390  |  |             | $ | (86 | )        |  | $ | 5,304  | 

The effects of these restatements on our Consolidated Statements of Changes in Equity are as follows:



|                                                          |  |                               |       |   |             |   |        |  
|--------------------------------------------------------- |  | ----------------------------- | ----- | - | ----------- | - | ------ | -
|                                                          |  | Shareholdersretainedearnings |       |   | Totalequity |  
|Balances, as at January 1, 2011 as previously published   |  | $                             | 6,489 |   |             | $ | 16,071 |  
|Increase (decrease)                                       |  |                               | (16   | ) |             |   | (16    | )
|Balances restated as at January 1, 2011                   |  | $                             | 6,473 |   |             | $ | 16,055 |  
|Balances, as at December 31, 2011 as previously published |  | $                             | 5,219 |   |             | $ | 15,730 |  
|Increase (decrease)                                       |  |                               | (86   | ) |             |   | (86    | )
|Balances restated as at December 31, 2011                 |  | $                             | 5,133 |   |             | $ | 15,644 |  

3. Held for Sale Classification and Discontinued Operation





On December 17, 2012, SLF Inc. and certain of its subsidiaries entered into a definitive stock purchase agreement with Delaware Life Holdings, LLC (the purchaser), a Delaware limited liability
company, pursuant to which we agreed to sell our U.S. Annuities business and certain of our U.S. life insurance businesses to the purchaser for a base purchase price of US$1,350, which will be adjusted to reflect the performance of the business
through closing. The transaction will consist primarily of the sale of 100% of the shares of Sun Life Assurance Company of Canada (U.S.) (Sun Life (U.S.)), which includes the U.S. domestic variable annuity, fixed annuity and fixed
indexed annuity products, corporate and bank-owned life insurance products and variable life insurance products. This transaction will include the transfer of certain related operating assets, systems and employees that support these businesses. The
transaction is subject to regulatory approvals and other closing conditions and is expected to close by the end of the second quarter of 2013.

The
assets and liabilities of the disposal group are comprised almost entirely of financial assets and liabilities that are not within the scope of the measurement requirements of IFRS 5Non-current Assets Held for Sale and Discontinued Operations.IFRS 5 does not address the situation which arises when the carrying amount of scoped-in non-current assets are less than the amount by which a



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|102    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

disposal groups carrying amount exceeds its fair value less costs to sell. We have concluded that it is appropriate to recognize the loss on disposition at the time the transaction is
completed and the related assets and liabilities are derecognized. Loss recognition at that time will coincide with the transfer of risks to the purchaser. The loss will be calculated by netting the adjusted purchase price against the net carrying
value of the assets and liabilities classified as held for sale and will include the cumulative foreign currency translation difference for the operation. The adjusted purchase price will be derived from the base purchase price of US$1,350, subject
to purchase price adjustments based on business results from September 30, 2012 to the date of sale measured on a U.S. statutory basis and other agreed terms. As at December 31, 2012, the net carrying value of assets less liabilities
classified as held for sale is $2,378, and the cumulative foreign currency translation difference for the operation is a loss of $132. The amount of the loss will be subject to several other adjustments to reflect closing price adjustments,
pre-closing transactions, closing costs, and certain tax adjustments. The net carrying value of assets and liabilities classified as held for sale as at December 31, 2012 do not include such adjustments that relate to transactions that will
occur subsequent to December 31, 2012.

As a result of the stock purchase agreement referred to above, we are committed to sell the U.S. Annuities
business included as a part of the SLF U.S. segment. The operations and cash flows of the U.S. Annuities business can be clearly distinguished, operationally and for financial reporting purposes, from the rest of our operations. The financial
results of the U.S. Annuities business have been disclosed publicly and have been separately reported to key management personnel. In addition, the U.S. Annuities business is comprised of two CGUs.As this transaction is part of a single
coordinated plan to dispose of a separate major line of business within our U.S. reportable business segment, it meets the criteria to be presented as a discontinued operation. Other than the U.S. Annuities business, Sun Life (U.S.)s
operations also include certain U.S. life insurance businesses, including corporate and bank-owned life insurance products and variable life insurance products. These businesses are also presented as part of the discontinued operation but are not a
significant component of the sale.

The results of operations relating to our U.S. Annuities business and certain life insurance businesses (the
U.S. Annuity Business) in SLF U.S. are reflected as a discontinued operation in our Consolidated Statements of Operations for all the years presented. The related assets and liabilities are separately presented as assets and liabilities
classified as held for sale respectively in our Consolidated Statement of Financial Position as at December 31, 2012.

Discontinued Operation

Common Shareholders Net Income (Loss) from Discontinued Operation

The components of the common shareholders net income (loss) from discontinued operation included in our Consolidated Statements of Operations are as follows:



|                                                                                                           |  |      |        |   |      |   |       |  
|---------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | -
|For the years ended December 31,                                                                           |  | 2012 |        |   | 2011 |  
|Net premiums                                                                                               |  | $    | 282    |   |      | $ | 1,076 |  
|Net investment income (loss)                                                                               |  |      | 457    |   |      |   | 1,118 |  
|Fee income                                                                                                 |  |      | 589    |   |      |   | 557   |  
|Total revenue                                                                                              |  |      | 1,328  |   |      |   | 2,751 |  
|                                                                                                           |  |     
|Gross claims and benefits paid                                                                             |  |      | 1,835  |   |      |   | 1,744 |  
|Changes in insurance/investment contract liabilities and reinsurance assets, net of reinsurance recoveries |  |      | (1,276 | ) |      |   | 503   |  
|Net transfer to (from) segregated funds                                                                    |  |      | 268    |   |      |   | 766   |  
|Other expenses                                                                                             |  |      | 254    |   |      |   | 670   |  
|Total benefits and expenses                                                                                |  |      | 1,081  |   |      |   | 3,683 |  
|Income (loss) before income taxes                                                                          |  |      | 247    |   |      |   | (932  | )
|Income tax expense (benefit)                                                                               |  |      | 67     |   |      |   | (337  | )
|Total net income (loss) from discontinued operation                                                        |  |      | 180    |   |      |   | (595  | )
|Shareholders net income (loss) from discontinued operation                                                |  |      | 180    |   |      |   | (595  | )
|Common shareholders net income (loss) from discontinued operation                                         |  | $    | 180    |   |      | $ | (595  | )

Cash Flows from Discontinued Operation

The details of the cash flows from the discontinued operation included in our Consolidated Statements of Cash Flows are as follows:



|                                                    |  |      |      |   |      |   |      |  
|--------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|For the years ended December 31,                    |  | 2012 |      |   | 2011 |  
|Net cash provided by (used in) operating activities |  | $    | (473 | ) |      | $ | 500  |  
|Net cash provided by (used in) investing activities |  |      | 57   |   |      |   | (98  | )
|Net cash provided by (used in) financing activities |  |      | (5   | ) |      |   | (238 | )
|Changes due to fluctuations in exchange rates       |  |      | (14  | ) |      |   | 26   |  
|Increase (decrease) in cash and cash equivalents    |  | $    | (435 | ) |      | $ | 190  |  



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    103



---

Disposal Group Classified as Held for Sale

Assets and Liabilities of the Disposal Group Classified as Held for Sale

The composition of the assets and
liabilities of the disposal group classified as held for sale included in our Consolidated Statement of Financial Position as at December 31, 2012 are as follows:



|                                                                |  |   |        | 
|--------------------------------------------------------------- |  | - | ------ | 
|Assets                                                          |  |   |       
|Cash, cash equivalents and short-term securities                |  | $ | 574    | 
|Debt securities                                                 |  |   | 10,449 | 
|Equity securities                                               |  |   | 47     | 
|Mortgages and loans                                             |  |   | 2,234  | 
|Derivative assets                                               |  |   | 309    | 
|Other invested assets                                           |  |   | 25     | 
|Policy loans                                                    |  |   | 559    | 
|Investment properties                                           |  |   | 150    | 
|Invested assets                                                 |  |   | 14,347 | 
|Other assets                                                    |  |   | 156    | 
|Reinsurance assets                                              |  |   | 158    | 
|Deferred tax assets                                             |  |   | 406    | 
|Total general fund assets                                       |  |   | 15,067 | 
|Investments for account of segregated fund holders              |  |   | 27,668 | 
|Total assets of disposal group classified as held for sale      |  | $ | 42,735 | 
|Liabilities                                                     |  |   |        | 
|Insurance contract liabilities                                  |  | $ | 11,238 | 
|Investment contract liabilities                                 |  |   | 957    | 
|Derivative liabilities                                          |  |   | 265    | 
|Other liabilities                                               |  |   | 229    | 
|Total general fund liabilities                                  |  |   | 12,689 | 
|Insurance contract for account of segregated fund holders       |  |   | 27,668 | 
|Total liabilities of disposal group classified as held for sale |  | $ | 40,357 | 

Accumulated Other Comprehensive Income (Loss) of the Disposal Group Classified as Held for Sale

The components of accumulated other comprehensive income (loss), net of taxes, of disposal group classified as held for sale included in our Consolidated Statement
of Changes in Equity as at December 31, 2012 are as follows:



|                                                                                                  |  |   |      |  
|------------------------------------------------------------------------------------------------- |  | - | ---- | -
|Unrealized gains (losses) on available-for-sale assets                                            |  | $ | 72   |  
|Unrealized cumulative translation differences, net of hedging activities                          |  |   | (132 | )
|Total accumulated other comprehensive income (loss) of disposal group classified as held for
sale |  | $ | (60  | )

Fair Value Hierarchy of Financial Instruments Classified as Held for Sale

The following tables present our financial instruments included in assets and liabilities of the disposal group classified as held for sale that are measured at
fair value by hierarchy level:



|                                                                                                 |  |         |        |  |         |   |        |         |  |   |       |  |  |   |        | 
|------------------------------------------------------------------------------------------------ |  | ------- | ------ |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------ | 
|As at December 31, 2012                                                                          |  | Level 1 |        |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Assets                                                                                           |  |         |        |  |         |   |        |         |  |   |       |  |  |   |        | 
|Cash, cash equivalents and short-term securities                                                 |  | $       | 574    |  |         | $ |       |         |  | $ |      |  |  | $ | 574    | 
|Debt securities  fair value through profit or
loss(1)                                           |  |         | 636    |  |         |   | 7,489  |         |  |   | 323   |  |  |   | 8,448  | 
|Debt securities  available-for-sale(1)                                                          |  |         | 661    |  |         |   | 1,327  |         |  |   | 13    |  |  |   | 2,001  | 
|Equity securities  fair value through profit or loss                                            |  |         |       |  |         |   | 14     |         |  |   | 23    |  |  |   | 37     | 
|Equity securities  available-for-sale                                                           |  |         |       |  |         |   | 10     |         |  |   |      |  |  |   | 10     | 
|Derivative assets                                                                                |  |         | 38     |  |         |   | 271    |         |  |   |      |  |  |   | 309    | 
|Other invested assets                                                                            |  |         |       |  |         |   |       |         |  |   | 21    |  |  |   | 21     | 
|Total invested assets                                                                            |  |         | 1,909  |  |         |   | 9,111  |         |  |   | 380   |  |  |   | 11,400 | 
|Investments for account of segregated fund holders                                               |  |         | 22,509 |  |         |   | 6,269  |         |  |   | 442   |  |  |   | 29,220 | 
|Total financial assets of disposal group classified as held for sale measured at fair
value      |  | $       | 24,418 |  |         | $ | 15,380 |         |  | $ | 822   |  |  | $ | 40,620 | 
|Liabilities                                                                                      |  |         |        |  |         |   |        |         |  |   |       |  |  |   |        | 
|Investment contract liabilities                                                                  |  |         |       |  |         |   |       |         |  |   | 890   |  |  |   | 890    | 
|Derivative liabilities                                                                           |  |         | 57     |  |         |   | 207    |         |  |   | 1     |  |  |   | 265    | 
|Investment contracts for account of segregated fund holders                                      |  |         |       |  |         |   |       |         |  |   |      |  |  |   |       | 
|Total financial liabilities of disposal group classified as held for sale measured at fair
value |  | $       | 57     |  |         | $ | 207    |         |  | $ | 891   |  |  | $ | 1,155  | 



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



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|104    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

Debt securities  FVTPL of disposal group classified as held for sale consist of the following:



|                                                                                                        |  |         |          |  |         |   |            |         |  |   |          |  |  |   |            | 
|------------------------------------------------------------------------------------------------------- |  | ------- | -------- |  | ------- | - | ---------- | ------- |  | - | -------- |  |  | - | ---------- | 
|As at December 31, 2012                                                                                 |  | Level 1 |          |  | Level 2 |   |            | Level 3 |  |   | Total    | 
|Canada federal government                                                                               |  | $       |         |  |         | $ | 12         |         |  | $ |         |  |  | $ | 12         | 
|Canada provincial and municipal government                                                              |  |         |         |  |         |   | 2          |         |  |   | 10       |  |  |   | 12         | 
|U.S. government and agency                                                                              |  |         | 636      |  |         |   | 4          |         |  |   | 2        |  |  |   | 642        | 
|Other foreign government                                                                                |  |         |         |  |         |   | 4          |         |  |   |         |  |  |   | 4          | 
|Corporate                                                                                               |  |         |         |  |         |   | 6,098      |         |  |   | 146      |  |  |   | 6,244      | 
|Asset-backed securities:                                                                                |  |         |          |  |         |   |            |         |  |   |          |  |  |   |            | 
|Commercial mortgage-backed securities                                                                   |  |         |         |  |         |   | 637        |         |  |   | 44       |  |  |   | 681        | 
|Residential mortgage-backed securities                                                                  |  |         |         |  |         |   | 541        |         |  |   | 50       |  |  |   | 591        | 
|Collateralized debt obligations                                                                         |  |         |         |  |         |   |           |         |  |   | 46       |  |  |   | 46         | 
|Other                                                                                                   |  |         |         |  |         |   | 191        |         |  |   | 25       |  |  |   | 216        | 
|Total debt securities  fair value through profit or loss of disposal group classified as held
for sale |  |         | $    636 |  |         |   | $    7,489 |         |  |   | $    323 |  |  |   | $    8,448 | 

Debt securities  AFS of disposal group classified as held for sale consist of the following:



|                                                                                         |  |         |     |  |         |   |       |         |  |   |       |  |  |   |       | 
|---------------------------------------------------------------------------------------- |  | ------- | --- |  | ------- | - | ----- | ------- |  | - | ----- |  |  | - | ----- | 
|As at December 31, 2012                                                                  |  | Level 1 |     |  | Level 2 |   |       | Level 3 |  |   | Total | 
|Canada federal government                                                                |  | $       |    |  |         | $ |      |         |  | $ |      |  |  | $ |      | 
|Canada provincial and municipal government                                               |  |         |    |  |         |   |      |         |  |   |      |  |  |   |      | 
|U.S. government and agency                                                               |  |         | 661 |  |         |   |      |         |  |   |      |  |  |   | 661   | 
|Other foreign government                                                                 |  |         |    |  |         |   |      |         |  |   |      |  |  |   |      | 
|Corporate                                                                                |  |         |    |  |         |   | 1,169 |         |  |   | 11    |  |  |   | 1,180 | 
|Asset-backed securities:                                                                 |  |         |     |  |         |   |       |         |  |   |       |  |  |   |       | 
|Commercial mortgage-backed securities                                                    |  |         |    |  |         |   | 39    |         |  |   |      |  |  |   | 39    | 
|Residential mortgage-backed securities                                                   |  |         |    |  |         |   | 119   |         |  |   |      |  |  |   | 119   | 
|Collateralized debt obligations                                                          |  |         |    |  |         |   |      |         |  |   | 2     |  |  |   | 2     | 
|Other                                                                                    |  |         |    |  |         |   |      |         |  |   |      |  |  |   |      | 
|Total debt securities  available for sale of disposal group classified as held for
sale |  | $       | 661 |  |         | $ | 1,327 |         |  | $ | 13    |  |  | $ | 2,001 | 

Asset-Backed Securities Supporting the U.S. Annuity Business

Before the closing of the transaction, we expect to substitute replacement assets for certain asset-backed securities supporting the general fund liabilities for fixed annuities in SLF U.S. These asset-backed
securities will be reallocated to support other lines of business in the continuing operations of the Company, or a portion may be sold. As we have not reached a conclusion as to which replacement assets should be substituted for the asset-backed
securities and to which lines of business the asset-backed securities should be reallocated, we have included the asset-backed securities in the held for sale classification as they currently support the general fund liabilities of the U.S. Annuity
Business.

The carrying value of the asset-backed securities supporting the U.S. Annuity Business by credit rating is shown in the following table:



|                                                                   |  |                                                                 |       | 
|------------------------------------------------------------------ |  | --------------------------------------------------------------- | ----- | 
|As at December 31, 2012                                            |  | Total asset-backedsecuritiessupporting the U.S.Annuity
Business |      
|AAA                                                                |  | $                                                               | 14    | 
|AA                                                                 |  |                                                                 | 48    | 
|A                                                                  |  |                                                                 | 65    | 
|BBB                                                                |  |                                                                 | 147   | 
|BB and lower                                                       |  |                                                                 | 767   | 
|Total asset-backed securities supporting the U.S. Annuity Business |  | $                                                               | 1,041 | 

The following table presents the fair value hierarchy of the asset-backed securities supporting the U.S. Annuity Business included
in the preceding fair value hierarchy of financial instruments classified as held for sale:



|                                                                   |  |         |   |  |         |   |     |         |  |   |       |  |  |   |       | 
|------------------------------------------------------------------ |  | ------- | - |  | ------- | - | --- | ------- |  | - | ----- |  |  | - | ----- | 
|As at December 31, 2012                                            |  | Level 1 |   |  | Level 2 |   |     | Level 3 |  |   | Total | 
|Asset-backed securities:                                           |  |         |   |  |         |   |     |         |  |   |       |  |  |   |       | 
|Commercial mortgage-backed securities                              |  | $       |  |  |         | $ | 389 |         |  | $ | 1     |  |  | $ | 390   | 
|Residential mortgage-backed securities                             |  |         |  |  |         |   | 391 |         |  |   | 44    |  |  |   | 435   | 
|Collateralized debt obligations                                    |  |         |  |  |         |   |    |         |  |   | 26    |  |  |   | 26    | 
|Other                                                              |  |         |  |  |         |   | 166 |         |  |   | 24    |  |  |   | 190   | 
|Total asset-backed securities supporting the U.S. Annuity Business |  | $       |  |  |         | $ | 946 |         |  | $ | 95    |  |  | $ | 1,041 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    105



---

4. Segmented Information





We have five reportable segments: SLF Canada, 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 and our Corporate Support operations, which include our run-off reinsurance operations 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. Consequently, the results of McLean Budden Limited are reported as part of MFS instead of SLF
Canada. The related intangible assets previously reported as a part of SLF Canada were reported as part Corporate in 2011. In the fourth quarter of 2012, the indefinite life intangible assets were transferred from Corporate back to SLF Canada and
the finite life intangible assets were transferred from Corporate to MFS.

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

Intersegment transactions consist primarily of internal financing agreements which are measured at fair values prevailing when the arrangements are settled.
Intersegment investment income consists primarily of interest paid by SLF U.S. to Corporate. Intersegment fee income is primarily asset management fees paid by SLF Canada and Corporate to MFS, and by MFS and SLF Asia to SLF U.S.

Results by segment for the years ended December 31, are as follows:



|                                                             |  |           |       |   |          |   |       |     |  |   |         |  |  |           |       |  |                          |   |       |       |  |   |      |   |  |   |        |  
|------------------------------------------------------------ |  | --------- | ----- | - | -------- | - | ----- | --- |  | - | ------- |  |  | --------- | ----- |  | ------------------------ | - | ----- | ----- |  | - | ---- | - |  | - | ------ | -
|                                                             |  |           |       |   |          |   |      
|                                                             |  | SLFCanada |       |   | SLF U.S. |   |       | MFS |  |   | SLFAsia |  |  | Corporate |       |  | Consolidationadjustments |   |       | Total | 
|2012                                                         |  |           |       |   |          |   |       |     |  |   |         |  |  |           |       |  |                          |   |       |       |  |   |      |   |  |   |        |  
|Gross premiums:                                              |  |           |       |   |          |   |       |     |  |   |         |  |  |           |       |  |                          |   |       |       |  |   |      |   |  |   |        |  
|Annuities                                                    |  | $         | 1,739 |   |          | $ | 281   |     |  | $ |        |  |  | $         |      |  |                          | $ | 233   |       |  | $ |     |   |  | $ | 2,253  |  
|Life insurance                                               |  |           | 3,318 |   |          |   | 2,014 |     |  |   |        |  |  |           | 660   |  |                          |   | 104   |       |  |   |     |   |  |   | 6,096  |  
|Health insurance                                             |  |           | 3,550 |   |          |   | 1,496 |     |  |   |        |  |  |           | 10    |  |                          |   | 10    |       |  |   |     |   |  |   | 5,066  |  
|Total gross premiums                                         |  |           | 8,607 |   |          |   | 3,791 |     |  |   |        |  |  |           | 670   |  |                          |   | 347   |       |  |   |     |   |  |   | 13,415 |  
|Less: ceded premiums                                         |  |           | 4,725 |   |          |   | 388   |     |  |   |        |  |  |           | 31    |  |                          |   | 24    |       |  |   |     |   |  |   | 5,168  |  
|Net investment income (loss)                                 |  |           | 3,354 |   |          |   | 1,491 |     |  |   | 9       |  |  |           | 778   |  |                          |   | 707   |       |  |   | (55  | ) |  |   | 6,284  |  
|Fee income                                                   |  |           | 769   |   |          |   | 182   |     |  |   | 1,848   |  |  |           | 138   |  |                          |   | 152   |       |  |   | (61  | ) |  |   | 3,028  |  
|Total revenue                                                |  |           | 8,005 |   |          |   | 5,076 |     |  |   | 1,857   |  |  |           | 1,555 |  |                          |   | 1,182 |       |  |   | (116 | ) |  |   | 17,559 |  
|Less:                                                        |  |           |       |   |          |   |       |     |  |   |         |  |  |           |       |  |                          |   |       |       |  |   |      |   |  |   |        |  
|Total benefits and expenses                                  |  |           | 7,163 |   |          |   | 4,664 |     |  |   | 1,472   |  |  |           | 1,390 |  |                          |   | 1,275 |       |  |   | (116 | ) |  |   | 15,848 |  
|Income tax expense (benefit)                                 |  |           | 50    |   |          |   | 87    |     |  |   | 177     |  |  |           | 36    |  |                          |   | (140  | )     |  |   |     |   |  |   | 210    |  
|Total net income (loss) from continuing operations           |  | $         | 792   |   |          | $ | 325   |     |  | $ | 208     |  |  | $         | 129   |  |                          | $ | 47    |       |  | $ |     |   |  | $ | 1,501  |  
|Total net income (loss) from discontinued operation (Note 3) |  | $         |      |   |          | $ | 173   |     |  | $ |        |  |  | $         |      |  |                          | $ | 7     |       |  | $ |     |   |  | $ | 180    |  
|2011                                                         |  |           |       |   |          |   |       |     |  |   |         |  |  |           |       |  |                          |   |       |       |  |   |      |   |  |   |        |  
|Gross premiums:                                              |  |           |       |   |          |   |       |     |  |   |         |  |  |           |       |  |                          |   |       |       |  |   |      |   |  |   |        |  
|Annuities                                                    |  | $         | 1,840 |   |          | $ | 398   |     |  | $ |        |  |  | $         |      |  |                          | $ | 202   |       |  | $ |     |   |  | $ | 2,440  |  
|Life insurance                                               |  |           | 3,249 |   |          |   | 1,843 |     |  |   |        |  |  |           | 674   |  |                          |   | 116   |       |  |   |     |   |  |   | 5,882  |  
|Health insurance                                             |  |           | 3,376 |   |          |   | 1,504 |     |  |   |        |  |  |           | 9     |  |                          |   | 10    |       |  |   |     |   |  |   | 4,899  |  
|Total gross premiums                                         |  |           | 8,465 |   |          |   | 3,745 |     |  |   |        |  |  |           | 683   |  |                          |   | 328   |       |  |   |     |   |  |   | 13,221 |  
|Less: ceded premiums                                         |  |           | 4,551 |   |          |   | 356   |     |  |   |        |  |  |           | 49    |  |                          |   | 27    |       |  |   |     |   |  |   | 4,983  |  
|Net investment income (loss)                                 |  |           | 4,958 |   |          |   | 2,209 |     |  |   |        |  |  |           | 684   |  |                          |   | 1,015 |       |  |   | (70  | ) |  |   | 8,796  |  
|Fee income                                                   |  |           | 746   |   |          |   | 176   |     |  |   | 1,640   |  |  |           | 119   |  |                          |   | 171   |       |  |   | (56  | ) |  |   | 2,796  |  
|Total revenue                                                |  |           | 9,618 |   |          |   | 5,774 |     |  |   | 1,640   |  |  |           | 1,437 |  |                          |   | 1,487 |       |  |   | (126 | ) |  |   | 19,830 |  
|Less:                                                        |  |           |       |   |          |   |       |     |  |   |         |  |  |           |       |  |                          |   |       |       |  |   |      |   |  |   |        |  
|Total benefits and expenses(1)                               |  |           | 9,215 |   |          |   | 6,140 |     |  |   | 1,305   |  |  |           | 1,266 |  |                          |   | 1,840 |       |  |   | (126 | ) |  |   | 19,640 |  
|Income tax expense
(benefit)(1)                              |  |           | (22   | ) |          |   | (61   | )   |  |   | 140     |  |  |           | 33    |  |                          |   | (241  | )     |  |   |     |   |  |   | (151   | )
|Total net income (loss) from continuing operations           |  | $         | 425   |   |          | $ | (305  | )   |  | $ | 195     |  |  | $         | 138   |  |                          | $ | (112  | )     |  | $ |     |   |  | $ | 341    |  
|Total net income (loss) from discontinued operation (Note 3) |  | $         |      |   |          | $ | (624  | )   |  | $ |        |  |  | $         |      |  |                          | $ | 29    |       |  | $ |     |   |  | $ | (595   | )



|(1) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|106    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

|                                                                               |  |           |        |  |          |   |        |     |  |   |         |  |  |           |       |  |                          |   |        |       |  |   |      |   |  |   |         | 
|------------------------------------------------------------------------------ |  | --------- | ------ |  | -------- | - | ------ | --- |  | - | ------- |  |  | --------- | ----- |  | ------------------------ | - | ------ | ----- |  | - | ---- | - |  | - | ------- | 
|                                                                              
|Assets and liabilities by segment are as follows:                              | 
|                                                                               |  |           |        |  |          |   |       
|                                                                               |  | SLFCanada |        |  | SLF U.S. |   |        | MFS |  |   | SLFAsia |  |  | Corporate |       |  | Consolidationadjustments |   |        | Total | 
|As at December 31, 2012                                                        |  |           |        |  |          |   |        |     |  |   |         |  |  |           |       |  |                          |   |        |       |  |   |      |   |  |   |         | 
|Total general fund assets for continuing operations                            |  | $         | 67,071 |  |          | $ | 28,941 |     |  | $ | 1,354   |  |  | $         | 8,881 |  |                          | $ | 11,928 |       |  | $ | (115 | ) |  | $ | 118,060 | 
|Total general fund assets classified as held for sale                          |  |           |       |  |          |   | 15,067 |     |  |   |        |  |  |           |      |  |                          |   | 4      |       |  |   | (4   | ) |  |   | 15,067  | 
|Total general fund assets                                                      |  | $         | 67,071 |  |          | $ | 44,008 |     |  | $ | 1,354   |  |  | $         | 8,881 |  |                          | $ | 11,932 |       |  | $ | (119 | ) |  | $ | 133,127 | 
|Investments for account of segregated fund holders for continuing operations   |  | $         | 51,478 |  |          | $ | 1,493  |     |  | $ |        |  |  | $         | 1,625 |  |                          | $ | 10,391 |       |  | $ |     |   |  | $ | 64,987  | 
|Investments for account of segregated fund holders classified as held for sale |  |           |       |  |          |   | 27,668 |     |  |   |        |  |  |           |      |  |                          |   |       |       |  |   |     |   |  |   | 27,668  | 
|Investments for account of segregated fund holders                             |  | $         | 51,478 |  |          | $ | 29,161 |     |  | $ |        |  |  | $         | 1,625 |  |                          | $ | 10,391 |       |  | $ |     |   |  | $ | 92,655  | 
|Total general fund liabilities for continuing operations                       |  | $         | 59,770 |  |          | $ | 25,990 |     |  | $ | 1,174   |  |  | $         | 6,923 |  |                          | $ | 9,945  |       |  | $ | (115 | ) |  | $ | 103,687 | 
|Total general fund liabilities classified as held for sale                     |  |           |       |  |          |   | 12,490 |     |  |   |        |  |  |           |      |  |                          |   | 203    |       |  |   | (4   | ) |  |   | 12,689  | 
|Total general fund liabilities                                                 |  | $         | 59,770 |  |          | $ | 38,480 |     |  | $ | 1,174   |  |  | $         | 6,923 |  |                          | $ | 10,148 |       |  | $ | (119 | ) |  | $ | 116,376 | 
|As at December 31, 2011                                                        |  |           |        |  |          |   |        |     |  |   |         |  |  |           |       |  |                          |   |        |       |  |   |      |   |  |   |         | 
|Total general fund assets(1)                                                   |  | $         | 64,169 |  |          | $ | 44,740 |     |  | $ | 1,180   |  |  | $         | 8,122 |  |                          | $ | 12,165 |       |  | $ | (305 | ) |  | $ | 130,071 | 
|Investments for account of segregated fund holders                             |  | $         | 47,245 |  |          | $ | 29,804 |     |  | $ |        |  |  | $         | 1,198 |  |                          | $ | 9,936  |       |  | $ |     |   |  | $ | 88,183  | 
|Total general fund
liabilities(1)                                              |  | $         | 57,639 |  |          | $ | 38,485 |     |  | $ | 973     |  |  | $         | 6,336 |  |                          | $ | 11,299 |       |  | $ | (305 | ) |  | $ | 114,427 | 



|(1) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------

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
and net income (loss) for continuing operations by country for Corporate:



|                                                   |  |      |       |   |      |   |       |  
|-------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|For the years ended December 31                    |  | 2012 |       |   | 2011 |  
|Revenue:                                           |  |      |       |   |      |   |       |  
|United States                                      |  | $    | 83    |   |      | $ | 183   |  
|United Kingdom                                     |  |      | 1,079 |   |      |   | 1,336 |  
|Canada                                             |  |      |      |   |      |   | (55   | )
|Other Countries                                    |  |      | 20    |   |      |   | 23    |  
|Total Revenue                                      |  | $    | 1,182 |   |      | $ | 1,487 |  
|Total net income (loss):                           |  |      |       |   |      |   |       |  
|United States                                      |  | $    | (29   | ) |      | $ | (101  | )
|United Kingdom                                     |  |      | 213   |   |      |   | 156   |  
|Canada                                             |  |      | (131  | ) |      |   | (173  | )
|Other Countries                                    |  |      | (6    | ) |      |   | 6     |  
|Total net income (loss) from continuing operations |  | $    | 47    |   |      | $ | (112  | )



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    107



---

The following table shows total assets and liabilities by country for corporate:



|                                                        |  |      |        |  |      |   |        | 
|------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|As at December 31,                                      |  | 2012 |        |  | 2011 |  
|Total general fund assets:                              |  |      |        |  |      |   |        | 
|United States                                           |  | $    | 2,671  |  |      | $ | 2,866  | 
|United Kingdom                                          |  |      | 8,973  |  |      |   | 8,635  | 
|Canada                                                  |  |      | 181    |  |      |   | 553    | 
|Other Countries                                         |  |      | 107    |  |      |   | 111    | 
|Total general fund assets                               |  | $    | 11,932 |  |      | $ | 12,165 | 
|Investment for account of segregated fund holders:      |  |      |        |  |      |   |        | 
|United Kingdom                                          |  | $    | 10,391 |  |      | $ | 9,936  | 
|Total investment for account of segregated fund holders |  | $    | 10,391 |  |      | $ | 9,936  | 
|Total general fund liabilities:                         |  |      |        |  |      |   |        | 
|United States                                           |  | $    | 1,092  |  |      | $ | 2,216  | 
|United Kingdom                                          |  |      | 7,647  |  |      |   | 7,620  | 
|Canada                                                  |  |      | 1,313  |  |      |   | 1,374  | 
|Other Countries                                         |  |      | 96     |  |      |   | 89     | 
|Total general fund liabilities                          |  | $    | 10,148 |  |      | $ | 11,299 | 

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 Financial Assets

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



|                                                             |  |               |        |  |            |   |         | 
|------------------------------------------------------------ |  | ------------- | ------ |  | ---------- | - | ------- | 
|As at December 31, 2012                                      |  | Carryingvalue |        |  | Fair
value |  
|Assets                                                       |  |               |        |  |            |   |         | 
|Cash, cash equivalents and short-term securities             |  | $             | 7,034  |  |            | $ | 7,034   | 
|Debt securities  fair value through profit or loss          |  |               | 43,773 |  |            |   | 43,773  | 
|Debt securities  available-for-sale                         |  |               | 10,589 |  |            |   | 10,589  | 
|Equity securities  fair value through profit or loss        |  |               | 4,169  |  |            |   | 4,169   | 
|Equity securities  available-for-sale                       |  |               | 857    |  |            |   | 857     | 
|Mortgages and loans                                          |  |               | 27,248 |  |            |   | 29,930  | 
|Derivative assets                                            |  |               | 2,113  |  |            |   | 2,113   | 
|Other invested assets  fair value through profit or
loss(2) |  |               | 786    |  |            |   | 786     | 
|Other invested
assets  available-for-sale(2)                |  |               | 111    |  |            |   | 111     | 
|Policy loans                                                 |  |               | 2,681  |  |            |   | 2,681   | 
|Total financial
assets(1)                                    |  | $             | 99,361 |  |            | $ | 102,043 | 



|(1) | Invested assets on our Consolidated Statements of Financial Position of $105,675 includes total financial assets, Investment properties of $5,942, and Other invested
assets  non-financial assets of $372.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Other invested assets (FVTPL and AFS) include our investments in segregated funds, mutual funds and limited partnerships.
|--- | -------------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|108    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

|                                                             |  |               |         |  |            |   |         | 
|------------------------------------------------------------ |  | ------------- | ------- |  | ---------- | - | ------- | 
|                                                             |  |              
|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  fair value through profit or
loss(2) |  |               | 809     |  |            |   | 809     | 
|Other invested
assets  available-for-sale(2)                |  |               | 155     |  |            |   | 155     | 
|Policy loans                                                 |  |               | 3,276   |  |            |   | 3,276   | 
|Total financial
assets(1)                                    |  | $             | 110,964 |  |            | $ | 113,739 | 



|(1) | Invested assets on our Consolidated Statements of Financial Position of $116,661 includes total financial assets, Investment properties of $5,313, and other invested
assets  non-financial assets of $384.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Other invested assets (FVTPL and AFS) include our investments in segregated funds, mutual funds and limited partnerships.
|--- | -------------------------------------------------------------------------------------------------------------------------

Derivative liabilities with a fair value of $594 ($1,059 as at December 31, 2011) 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 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 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 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.

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 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 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 involved benchmark comparison.
Valuation inputs primarily include projected future operating cash flows and earnings, dividends, market discount rates, and earnings multiples of comparable companies.

The fair value of investment properties is generally determined using property valuation models that are based on expected capitalization rates and models that discount expected future net cash flows at current
market interest rates reflective of the characteristics, location and market of each property. Expected future net cash flows include contractual and projected cash flows, forecasted operating expenses, and take into account interest, rental and
occupancy rates derived from market surveys. The estimates of future cash inflows in addition to expected rental income from current leases, include projected income from future leases based on



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    109



---

significant assumptions that are consistent with current market conditions. The future rental rates are estimated depending on the actual location, type and quality of the properties, and taking
into account market data and projections at the valuation date. The fair values are typically compared to market-based information, including recent transactions involving comparable assets for reasonability. 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 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 and certain segregated and mutual fund units held for account of segregated
fund holders.

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, OTC derivatives, and certain segregated and mutual fund units held for account of segregated fund
holders.

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, 2012                                     |  | Level 1 |        |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Assets                                                      |  |         |        |  |         |   |        |         |  |   |       |  |  |   |         | 
|Cash, cash equivalents and short-term securities            |  | $       | 5,660  |  |         | $ | 1,374  |         |  | $ |      |  |  | $ | 7,034   | 
|Debt securities  fair value through profit or
loss(1)      |  |         | 1,006  |  |         |   | 41,626 |         |  |   | 1,141 |  |  |   | 43,773  | 
|Debt
securities  available-for-sale(1)                     |  |         | 454    |  |         |   | 10,012 |         |  |   | 123   |  |  |   | 10,589  | 
|Equity securities  fair value through profit or loss       |  |         | 2,997  |  |         |   | 1,062  |         |  |   | 110   |  |  |   | 4,169   | 
|Equity securities  available-for-sale                      |  |         | 724    |  |         |   | 133    |         |  |   |      |  |  |   | 857     | 
|Derivative assets                                           |  |         | 30     |  |         |   | 2,076  |         |  |   | 7     |  |  |   | 2,113   | 
|Other invested assets                                       |  |         | 291    |  |         |   | 59     |         |  |   | 547   |  |  |   | 897     | 
|Total invested assets                                       |  | $       | 11,162 |  |         | $ | 56,342 |         |  | $ | 1,928 |  |  | $ | 69,432  | 
|Investments for account of segregated fund holders          |  | $       | 23,461 |  |         | $ | 41,167 |         |  | $ | 150   |  |  | $ | 64,778  | 
|Total financial assets measured at fair value               |  | $       | 34,623 |  |         | $ | 97,509 |         |  | $ | 2,078 |  |  | $ | 134,210 | 
|Liabilities                                                 |  |         |        |  |         |   |        |         |  |   |       |  |  |   |         | 
|Investment contract liabilities                             |  | $       |       |  |         | $ | 28     |         |  | $ | 7     |  |  | $ | 35      | 
|Derivative liabilities                                      |  |         | 51     |  |         |   | 527    |         |  |   | 16    |  |  |   | 594     | 
|Investment contracts for account of segregated fund holders |  |         | 4,572  |  |         |   | 1,376  |         |  |   | 14    |  |  |   | 5,962   | 
|Total financial liabilities measured at fair value          |  | $       | 4,623  |  |         | $ | 1,931  |         |  | $ | 37    |  |  | $ | 6,591   | 



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

Debt securities  FVTPL
consist of the following:



|                                                          |  |         |            |  |         |   |             |         |  |   |            |  |  |   |             | 
|--------------------------------------------------------- |  | ------- | ---------- |  | ------- | - | ----------- | ------- |  | - | ---------- |  |  | - | ----------- | 
|As at December 31, 2012                                   |  | Level 1 |            |  | Level 2 |   |             | Level 3 |  |   | Total      | 
|Canadian federal government                               |  | $       |           |  |         | $ | 1,810       |         |  | $ |           |  |  | $ | 1,810       | 
|Canadian provincial and municipal government              |  |         |           |  |         |   | 9,592       |         |  |   | 26         |  |  |   | 9,618       | 
|U.S. government and agency                                |  |         | 1,006      |  |         |   | 44          |         |  |   | 11         |  |  |   | 1,061       | 
|Other foreign government                                  |  |         |           |  |         |   | 4,526       |         |  |   | 18         |  |  |   | 4,544       | 
|Corporate                                                 |  |         |           |  |         |   | 24,751      |         |  |   | 525        |  |  |   | 25,276      | 
|Asset-backed securities:                                  |  |         |            |  |         |   |             |         |  |   |            |  |  |   |             | 
|Commercial mortgage-backed securities                     |  |         |           |  |         |   | 209         |         |  |   | 527        |  |  |   | 736         | 
|Residential mortgage-backed securities                    |  |         |           |  |         |   | 269         |         |  |   | 3          |  |  |   | 272         | 
|Collateralized debt obligations                           |  |         |           |  |         |   | 26          |         |  |   | 17         |  |  |   | 43          | 
|Other                                                     |  |         |           |  |         |   | 399         |         |  |   | 14         |  |  |   | 413         | 
|Total debt securities  fair value through profit or loss |  |         | $    1,006 |  |         |   | $    41,626 |         |  |   | $    1,141 |  |  |   | $    43,773 | 



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|110    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

Debt securities  AFS consist of the following:



|                                             |  |         |     |  |         |   |        |         |  |   |       |  |  |   |        | 
|-------------------------------------------- |  | ------- | --- |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------ | 
|As at December 31, 2012                      |  | Level 1 |     |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Canadian federal government                  |  | $       |    |  |         | $ | 1,306  |         |  | $ |      |  |  | $ | 1,306  | 
|Canadian provincial and municipal government |  |         |    |  |         |   | 168    |         |  |   |      |  |  |   | 168    | 
|U.S. government and agency                   |  |         | 454 |  |         |   | 54     |         |  |   |      |  |  |   | 508    | 
|Other foreign government                     |  |         |    |  |         |   | 390    |         |  |   |      |  |  |   | 390    | 
|Corporate                                    |  |         |    |  |         |   | 7,663  |         |  |   | 70    |  |  |   | 7,733  | 
|Asset-backed securities:                     |  |         |     |  |         |   |        |         |  |   |       |  |  |   |        | 
|Commercial mortgage-backed securities        |  |         |    |  |         |   | 148    |         |  |   | 12    |  |  |   | 160    | 
|Residential mortgage-backed securities       |  |         |    |  |         |   | 112    |         |  |   |      |  |  |   | 112    | 
|Collateralized debt obligations              |  |         |    |  |         |   |       |         |  |   | 27    |  |  |   | 27     | 
|Other                                        |  |         |    |  |         |   | 171    |         |  |   | 14    |  |  |   | 185    | 
|Total debt securities  available-for-sale   |  | $       | 454 |  |         | $ | 10,012 |         |  | $ | 123   |  |  | $ | 10,589 | 



|                                                            |  |         |        |  |         |   |         |         |  |   |       |  |  |   |         | 
|----------------------------------------------------------- |  | ------- | ------ |  | ------- | - | ------- | ------- |  | - | ----- |  |  | - | ------- | 
|                                                            |  |         |        | 
|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(2)    |  |         | 2,750  |  |         |   | 855     |         |  |   | 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(2)                                    |  | $       | 15,358 |  |         | $ | 62,202  |         |  | $ | 2,373 |  |  | $ | 79,933  | 
|Investments for account of segregated fund holders          |  | $       | 45,363 |  |         | $ | 42,550  |         |  | $ | 656   |  |  | $ | 88,569  | 
|Total financial assets measured at fair value(2)            |  | $       | 60,721 |  |         | $ | 104,752 |         |  | $ | 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 liabilities measured at fair value          |  | $       | 4,413  |  |         | $ | 2,165   |         |  | $ | 980   |  |  | $ | 7,558   | 



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

|(2) | Certain securities have been reclassified to be consistent with the 2012 presentation.
|--- | --------------------------------------------------------------------------------------

Debt securities  FVTPL consist of the following:



|                                                          |  |         |       |  |         |   |        |         |  |   |       |  |  |   |        | 
|--------------------------------------------------------- |  | ------- | ----- |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------ | 
|As at December 31, 2011                                   |  | Level 1 |       |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Canadian federal government                               |  | $       |      |  |         | $ | 2,324  |         |  | $ |      |  |  | $ | 2,324  | 
|Canadian 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 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    111



---

Debt securities  AFS consist of the following:



|                                             |  |         |     |  |         |   |        |         |  |   |       |  |  |   |        | 
|-------------------------------------------- |  | ------- | --- |  | ------- | - | ------ | ------- |  | - | ----- |  |  | - | ------ | 
|As at December 31, 2011                      |  | Level 1 |     |  | Level 2 |   |        | Level 3 |  |   | Total | 
|Canadian federal government                  |  | $       |    |  |         | $ | 1,194  |         |  | $ |      |  |  | $ | 1,194  | 
|Canadian 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 | 

The following table provides a reconciliation of the beginning and ending balances for financial instruments that are categorized in
Level 3 for the year ended December 31, 2012:



|                                                            |  |                  |       |  |                            |   |     |                    |  |   |           |   |  |       |     |  |             |   |      |                          |  |   |                             |   |  |                               |     |  |                               |   |      |               |  |   |                                                                                            |   |  |   |      |   |  |   |       |  |  |   |     |  
|----------------------------------------------------------- |  | ---------------- | ----- |  | -------------------------- | - | --- | ------------------ |  | - | --------- | - |  | ----- | --- |  | ----------- | - | ---- | ------------------------ |  | - | --------------------------- | - |  | ----------------------------- | --- |  | ----------------------------- | - | ---- | ------------- |  | - | ------------------------------------------------------------------------------------------ | - |  | - | ---- | - |  | - | ----- |  |  | - | --- | -
|                                                            |  | Beginningbalance |       |  | Includedin
netincome(1)(3) |   |     | Includedin 
OCI(3) |  |   | Purchases |   |  | Sales |     |  | Settlements |   |      | Transfersinto
level 3(2) |  |   | Transfers(out) oflevel
3(2) |   |  | Foreigncurrencytranslation(4) |     |  | Transferredto held
forsale(6) |   |      | Endingbalance |  |   | Gains (losses)included
in earningsrelating toinstrumentsstill held at thereporting date(1) |  
|Assets                                                      |  |                  |       |  |                            |   |     |                    |  |   |           |   |  |       |     |  |             |   |      |                          |  |   |                             |   |  |                               |     |  |                               |   |      |               |  |   |                                                                                            |   |  |   |      |   |  |   |       |  |  |   |     |  
|Debt securities  fair value through profit or loss         |  | $                | 1,521 |  |                            | $ | 39  |                    |  | $ | (1        | ) |  | $     | 77  |  |             | $ | (63  | )                        |  | $ | (159                        | ) |  | $                             | 331 |  |                               | $ | (276 | )             |  | $ | (5                                                                                         | ) |  | $ | (323 | ) |  | $ | 1,141 |  |  | $ | 34  |  
|Debt securities  available-for-sale                        |  |                  | 118   |  |                            |   | 8   |                    |  |   | 6         |   |  |       | 56  |  |             |   | (19  | )                        |  |   | (26                         | ) |  |                               | 25  |  |                               |   | (32  | )             |  |   |                                                                                           |   |  |   | (13  | ) |  |   | 123   |  |  |   | 6   |  
|Equity securities  fair value through profit or loss       |  |                  | 126   |  |                            |   | 10  |                    |  |   |          |   |  |       | 31  |  |             |   | (31  | )                        |  |   |                            |   |  |                               |    |  |                               |   |     |               |  |   | (3                                                                                         | ) |  |   | (23  | ) |  |   | 110   |  |  |   | 9   |  
|Derivative assets                                           |  |                  | 13    |  |                            |   | (1  | )                  |  |   |          |   |  |       |    |  |             |   |     |                          |  |   | (5                          | ) |  |                               |    |  |                               |   |     |               |  |   |                                                                                           |   |  |   |     |   |  |   | 7     |  |  |   |    |  
|Other invested assets                                       |  |                  | 595   |  |                            |   | (4  | )                  |  |   | (8        | ) |  |       | 118 |  |             |   | (129 | )                        |  |   |                            |   |  |                               |    |  |                               |   |     |               |  |   | (4                                                                                         | ) |  |   | (21  | ) |  |   | 547   |  |  |   | (11 | )
|Total invested assets                                       |  | $                | 2,373 |  |                            | $ | 52  |                    |  | $ | (3        | ) |  | $     | 282 |  |             | $ | (242 | )                        |  | $ | (190                        | ) |  | $                             | 356 |  |                               | $ | (308 | )             |  | $ | (12                                                                                        | ) |  | $ | (380 | ) |  | $ | 1,928 |  |  | $ | 38  |  
|Investments for account of segregated fund holders          |  | $                | 656   |  |                            | $ | 27  |                    |  | $ |          |   |  | $     | 311 |  |             | $ | (313 | )                        |  | $ | (35                         | ) |  | $                             | 17  |  |                               | $ | (58  | )             |  | $ | (13                                                                                        | ) |  | $ | (442 | ) |  | $ | 150   |  |  | $ |    |  
|Total Financial assets measured at fair value               |  | $                | 3,029 |  |                            | $ | 79  |                    |  | $ | (3        | ) |  | $     | 593 |  |             | $ | (555 | )                        |  | $ | (225                        | ) |  | $                             | 373 |  |                               | $ | (366 | )             |  | $ | (25                                                                                        | ) |  | $ | (822 | ) |  | $ | 2,078 |  |  | $ | 38  |  
|Liabilities(5)                                              |  |                  |       |  |                            |   |     |                    |  |   |           |   |  |       |     |  |             |   |      |                          |  |   |                             |   |  |                               |     |  |                               |   |      |               |  |   |                                                                                            |   |  |   |      |   |  |   |       |  |  |   |     |  
|Investment contract liabilities                             |  | $                | 912   |  |                            | $ | 17  |                    |  | $ |          |   |  | $     |    |  |             | $ |     |                          |  | $ | (8                          | ) |  | $                             |    |  |                               | $ |     |               |  | $ | (24                                                                                        | ) |  | $ | (890 | ) |  | $ | 7     |  |  | $ |    |  
|Derivative liabilities                                      |  |                  | 49    |  |                            |   | (26 | )                  |  |   |          |   |  |       |    |  |             |   |     |                          |  |   | (5                          | ) |  |                               |    |  |                               |   |     |               |  |   | (1                                                                                         | ) |  |   | (1   | ) |  |   | 16    |  |  |   |    |  
|Investment contracts for account of segregated fund-holders |  |                  | 19    |  |                            |   | (1  | )                  |  |   |          |   |  |       | 2   |  |             |   | (4   | )                        |  |   |                            |   |  |                               |    |  |                               |   | (2   | )             |  |   |                                                                                           |   |  |   |     |   |  |   | 14    |  |  |   |    |  
|Total financial liabilities measured at fair value          |  | $                | 980   |  |                            | $ | (10 | )                  |  | $ |          |   |  | $     | 2   |  |             | $ | (4   | )                        |  | $ | (13                         | ) |  | $                             |    |  |                               | $ | (2   | )             |  | $ | (25                                                                                        | ) |  | $ | (891 | ) |  | $ | 37    |  |  | $ |    |  



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

|(2) | 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) | See Note 3.
|--- | -----------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|112    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

The following table provides 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 |       |  | Includedin
netincome(1)(3) |   |     | Includedin OCI(3) |  |   | Purchases(7) |   |  | Sales |       |  | Settlements |   |      | Transfersinto level 
3(2) |  |   | Transfers(out) oflevel
3(2) |      |  | Foreigncurrencytranslation(4) |     |  | Endingbalance |   |      | Gains (losses)included inearningsrelating toinstruments stillheld at
thereporting date(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) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

5.B Interest and Other Investment Income

Interest and other
investment income consist of the following:



|                                                                   |  |      |       |   |      |   |       |  
|------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|For the years ended December 31,                                   |  | 2012 |       |   | 2011 |  
|Interest income:                                                   |  |      |       |   |      |   |       |  
|Cash, cash equivalents and short-term securities                   |  | $    | 44    |   |      | $ | 50    |  
|Debt securities  fair value through profit or loss                |  |      | 1,903 |   |      |   | 1,909 |  
|Debt securities  available-for-sale                               |  |      | 315   |   |      |   | 338   |  
|Mortgages and loans                                                |  |      | 1,524 |   |      |   | 1,421 |  
|Derivative investments                                             |  |      | 103   |   |      |   | 72    |  
|Policy loans                                                       |  |      | 151   |   |      |   | 147   |  
|Interest income                                                    |  |      | 4,040 |   |      |   | 3,937 |  
|Equity securities  dividends on fair value through profit or loss |  |      | 124   |   |      |   | 114   |  
|Equity securities  dividends on available-for-sale                |  |      | 19    |   |      |   | 17    |  
|Investment properties rental income(1)                             |  |      | 577   |   |      |   | 529   |  
|Investment properties expenses                                     |  |      | (273  | ) |      |   | (253  | )
|Foreign exchange gains (losses)                                    |  |      | (58   | ) |      |   | 74    |  
|Other income                                                       |  |      | 123   |   |      |   | 86    |  
|Investment expenses and taxes                                      |  |      | (122  | ) |      |   | (116  | )
|Total interest and other investment income                         |  | $    | 4,430 |   |      | $ | 4,388 |  



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



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    113



---

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:



|                                                                         |  |      |       |   |      |   |       |  
|------------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|                                                                         |  | 2012 |       |   | 2011 |  
|Cash, cash equivalents and short-term securities                         |  | $    | (1    | ) |      | $ | 4     |  
|Debt securities                                                          |  |      | 1,181 |   |      |   | 3,178 |  
|Equity securities                                                        |  |      | 254   |   |      |   | (302  | )
|Derivative investments                                                   |  |      | (69   | ) |      |   | 1,102 |  
|Other invested assets                                                    |  |      | 41    |   |      |   | (15   | )
|Investment properties                                                    |  |      | 322   |   |      |   | 290   |  
|Total change in fair value through profit or loss assets and liabilities |  | $    | 1,728 |   |      | $ | 4,257 |  

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,                                   |  | 2012 |       |  | 2011 |  
|Cash                                                 |  | $    | 1,475 |  |      | $ | 1,506 | 
|Cash equivalents                                     |  |      | 1,983 |  |      |   | 2,953 | 
|Short-term securities                                |  |      | 3,576 |  |      |   | 4,378 | 
|Cash, cash equivalents and short-term securities     |  |      | 7,034 |  |      |   | 8,837 | 
|Less: Bank overdraft, recorded in Other liabilities  |  |      | 3     |  |      |   | 106   | 
|Net cash, cash equivalents and short-term securities |  | $    | 7,031 |  |      | $ | 8,731 | 

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, 2012                      |  | Amortizedcost |        |  | Grossunrealizedgains |   |     | Grossunrealized(losses) |  |   | Fairvalue |  
|Debt securities:                             |  |               |        |  |                      |   |     |                         |  |   |           |   |  |   |        | 
|Canadian federal government                  |  | $             | 1,307  |  |                      | $ | 1   |                         |  | $ | (2        | ) |  | $ | 1,306  | 
|Canadian provincial and municipal government |  |               | 163    |  |                      |   | 5   |                         |  |   |          |   |  |   | 168    | 
|U.S. government and agency                   |  |               | 493    |  |                      |   | 16  |                         |  |   | (1        | ) |  |   | 508    | 
|Other foreign government                     |  |               | 317    |  |                      |   | 73  |                         |  |   |          |   |  |   | 390    | 
|Corporate                                    |  |               | 7,165  |  |                      |   | 585 |                         |  |   | (17       | ) |  |   | 7,733  | 
|Asset-backed securities:                     |  |               |        |  |                      |   |     |                         |  |   |           |   |  |   |        | 
|Commercial mortgage-backed securities        |  |               | 151    |  |                      |   | 15  |                         |  |   | (6        | ) |  |   | 160    | 
|Residential mortgage-backed securities       |  |               | 109    |  |                      |   | 3   |                         |  |   |          |   |  |   | 112    | 
|Collateralized debt obligations              |  |               | 28     |  |                      |   |    |                         |  |   | (1        | ) |  |   | 27     | 
|Other                                        |  |               | 185    |  |                      |   | 1   |                         |  |   | (1        | ) |  |   | 185    | 
|Total debt securities                        |  |               | 9,918  |  |                      |   | 699 |                         |  |   | (28       | ) |  |   | 10,589 | 
|Equity securities                            |  |               | 774    |  |                      |   | 94  |                         |  |   | (11       | ) |  |   | 857    | 
|Total AFS debt and equity securities         |  | $             | 10,692 |  |                      | $ | 793 |                         |  | $ | (39       | ) |  | $ | 11,446 | 



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|114    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

|                                             |  |               |        |  |                      |   |     |                         |  |   |            |   |  |   |        | 
|-------------------------------------------- |  | ------------- | ------ |  | -------------------- | - | --- | ----------------------- |  | - | ---------- | - |  | - | ------ | 
|As at December 31, 2011                      |  | Amortizedcost |        |  | Grossunrealizedgains |   |     | Grossunrealized(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 AFS debt and equity securities         |  | $             | 11,594 |  |                      | $ | 738 |                         |  | $ | (190       | ) |  | $ | 12,142 | 

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, 2012 |       |  | December 31, 2011 |  
|                           |  | Fair value        |       |  | Fair value        |  
|                           |  | Assets            |       |  | Liabilities       |   |      | Assets |  |   | Liabilities | 
|Interest rate contracts    |  | $                 | 1,601 |  |                   | $ | (414 | )      |  | $ | 2,118       |  |  | $ | (760   | )
|Foreign exchange contracts |  |                   | 449   |  |                   |   | (137 | )      |  |   | 432         |  |  |   | (174   | )
|Other contracts            |  |                   | 63    |  |                   |   | (43  | )      |  |   | 82          |  |  |   | (125   | )
|Total derivatives          |  | $                 | 2,113 |  |                   | $ | (594 | )      |  | $ | 2,632       |  |  | $ | (1,059 | )

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 notionalamount |        |  | Fair value |            
|As at December 31, 2012   |  |                      | Assets |  |            | Liabilities |      
|Derivative investments(1) |  | $                    | 39,533 |  |            | $           | 1,936 |  |  | $ | (375 | )
|Fair value hedges         |  |                      | 991    |  |            |             |      |  |  |   | (204 | )
|Cash flow hedges          |  |                      | 104    |  |            |             | 9     |  |  |   | (7   | )
|Net investment
hedges(2)  |  |                      | 1,850  |  |            |             | 168   |  |  |   | (8   | )
|Total derivatives         |  | $                    | 42,478 |  |            | $           | 2,113 |  |  | $ | (594 | )



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

|(2) | Fair value of non-derivative instruments designated as net investment hedges was $167. These non-derivative instruments are presented as Subordinated Debts on the Consolidated
Statements of Financial Position.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                          |  |                      |        |  |            |             |       |  |  |   |        |  
|------------------------- |  | -------------------- | ------ |  | ---------- | ----------- | ----- |  |  | - | ------ | -
|                          |  | Total notionalamount |        |  | 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.
|--- | -------------------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    115



---

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 is comprised of the following:



|                                                                   |  |      |     |   |      |   |      |  
|------------------------------------------------------------------ |  | ---- | --- | - | ---- | - | ---- | -
|For the years ended December 31,                                   |  | 2012 |     |   | 2011 |  
|Fair value hedging ineffectiveness:                                |  |      |     |   |      |   |      |  
|(Losses) gains on the hedged items attributable to the hedged risk |  | $    | (19 | ) |      | $ | 166  |  
|Gains (losses) on the hedging derivatives                          |  |      | 17  |   |      |   | (166 | )
|Net ineffectiveness on fair value hedges                           |  |      | (2  | ) |      |   |     |  
|Net investment in foreign operations hedge ineffectiveness         |  |      |    |   |      |   |     |  
|Cash flow hedging
ineffectiveness(1)                               |  |      |    |   |      |   |     |  
|Total hedge ineffectiveness                                        |  | $    | (2  | ) |      | $ |     |  



|(1) | Cash flow hedges include equity forwards hedging the variation in the cash flows associated with the anticipated payments expected to occur in 2013, 2014, and 2015 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 a gain of
$1 from accumulated OCI to net income within the next 12 months.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.G Investment Properties

Changes in investment properties are as follows:



|                                                         |  |      |       |   |      |   |       |  
|-------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|For the years ended December 31,                         |  | 2012 |       |   | 2011 |  
|Balance as at January 1,                                 |  | $    | 5,313 |   |      | $ | 4,544 |  
|Additions                                                |  |      | 919   |   |      |   | 599   |  
|Leasing commissions and tenant inducements, amortization |  |      | (38   | ) |      |   | (19   | )
|Fair value gains (losses)                                |  |      | 248   |   |      |   | 293   |  
|Disposals                                                |  |      | (316  | ) |      |   | (144  | )
|Transfers from property and equipment                    |  |      |      |   |      |   | 6     |  
|Foreign exchange rate movements                          |  |      | (34   | ) |      |   | 34    |  
|Less: Held for sale                                      |  |      | (150  | ) |      |   |       |  
|Balance as at December 31                                |  | $    | 5,942 |   |      | $ | 5,313 |  

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. The carrying values of the loaned securities approximate their fair values. The carrying
values of the loaned securities and the related collateral held are included in Note 6.A.ii.

6. Financial Instrument Risk
Management





The significant risks related to financial instruments are credit risk, liquidity risk and market risk (currency, interest rate and spread risk 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, 2012. 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.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|116    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

Credit Risk Management Governance and Control

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



| |  | Enterprise 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
|- |  | --------------------------------------------------------------------------------------------------------------

| |  | Independent adjudication of new fixed income investment internal rating decisions and ongoing reviews of the in-force portfolio internal rating decisions
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | 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
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Insurance contract liability provisions are established in accordance with standards set forth by the Canadian actuarial standards of practice
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

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

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

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,            |  | 2012 |     |  | 2011 |  
|Off-balance sheet items:      |  |      |     |  |      |   |     | 
|Loan commitments(1)           |  | $    | 707 |  |      | $ | 779 | 
|Guarantees                    |  |      | 105 |  |      |   | 55  | 
|Total off-balance sheet items |  | $    | 812 |  |      | $ | 834 | 



|(1) | Loan commitments include commitments to extend credit under commercial and residential mortgages and private debt securities not quoted in an active market. Commitments on debt
securities contain provisions that allow for withdrawal of the commitment if there is deterioration in the credit quality of the borrower.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6.A.ii Right of Offset and Collateral

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 OTC derivatives, collateral is collected from and pledged to counterparties to manage credit exposure according to the Credit Support Annexes (CSA), which forms part of the International
Swaps and Derivatives Associations (ISDA) master agreements. It is common practice to execute a CSA in conjunction with an ISDA master agreement. Under the ISDA master agreements for OTC derivatives, we have a right of offset in
the event of default, insolvency, bankruptcy or other early termination. In the ordinary course of business, bilateral OTC exposures under these agreements are substantially mitigated through associated collateral agreements with a majority of our
counterparties.

In the case of exchange-traded derivatives subject to derivative clearing agreements with the exchanges and clearinghouses, there is no
provision for set-off at default. Initial margin is excluded from the table below as it would become part of a pooled settlement process.

In the case of
reverse repurchase agreements and repurchase agreements, assets are borrowed or lent with a commitment to return or repurchase at a future date. Additional collateral may be collected from or pledged to counterparties to manage credit exposure
according to bilateral repurchase or reverse repurchase agreements. In the event of default by a counterparty, we are entitled to liquidate the assets we hold as collateral to offset against obligations to the same counterparty.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    117



---

We do not offset financial instruments in our Consolidated Statements of Financial Position, as our rights of offset
are conditional. The following tables present the effect of conditional netting and similar arrangements. Similar arrangements include global master repurchase agreements, security lending agreements and any related rights to financial collateral.



|                                       |  |                                                                                     |                      |   |                                                                    |                                         |      |            |  |   |        |   |  |   |      |  
|-------------------------------------- |  | ----------------------------------------------------------------------------------- | -------------------- | - | ------------------------------------------------------------------ | --------------------------------------- | ---- | ---------- |  | - | ------ | - |  | - | ---- | -
|                                       |  | Net amount offinancialinstrumentspresented in theStatements ofFinancial Position(1) |                      |   | Related amounts not setoff in the Statements 
ofFinancial Position |                                         |      | Net amount | 
|As at December 31, 2012                |  |                                                                                     | Financialinstruments |   |                                                                    | Financialcollateral(received)pledged(2) |      |           
|Financial assets                       |  |                                                                                     |                      |   |                                                                    |                                         |      |            |  |   |        |   |  |   |      |  
|Derivative assets (Note 6.A.iv)        |  | $                                                                                   | 2,113                |   |                                                                    | $                                       | (288 | )          |  | $ | (1,597 | ) |  | $ | 228  |  
|Securities Lending (Note 5.H)          |  |                                                                                     | 730                  |   |                                                                    |                                         |     |            |  |   | (730   | ) |  |   |     |  
|Reverse repurchase agreements (Note 8) |  |                                                                                     | 68                   |   |                                                                    |                                         | (68  | )          |  |   |       |   |  |   |     |  
|Total financial assets                 |  | $                                                                                   | 2,911                |   |                                                                    | $                                       | (356 | )          |  | $ | (2,327 | ) |  | $ | 228  |  
|Financial Liabilities                  |  |                                                                                     |                      |   |                                                                    |                                         |      |            |  |   |        |   |  |   |      |  
|Derivative liabilities                 |  | $                                                                                   | (594                 | ) |                                                                    | $                                       | 288  |            |  | $ | 30     |   |  | $ | (276 | )
|Repurchase agreements (Note 13.B)      |  |                                                                                     | (1,395               | ) |                                                                    |                                         | 68   |            |  |   | 1,327  |   |  |   |     |  
|Total financial liabilities            |  | $                                                                                   | (1,989               | ) |                                                                    | $                                       | 356  |            |  | $ | 1,357  |   |  | $ | (276 | )



|(1) | Net amounts of the financial instruments presented in the Consolidated Statements of Financial Position are the same as our gross recognized financial instruments, as we do not
offset financial instruments in our Consolidated Statements of Financial Position.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Financial collateral excludes overcollateralization and, for exchange traded derivatives, initial margin. Total financial collateral, including initial margin and
overcollateralization, received on derivative assets was $1,790, received on securities lending was $771, received on reverse repurchase agreements was $68, pledged on derivative liabilities was $140 and pledged on repurchase agreements was $1,395.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                  |  |                                                                                                  |             |                      |                                                                               |  |           |                                         |  |  |             |   |  |  |           |  
|--------------------------------- |  | ------------------------------------------------------------------------------------------------ | ----------- | -------------------- | ----------------------------------------------------------------------------- |  | --------- | --------------------------------------- |  |  | ----------- | - |  |  | --------- | -
|                                  |  | Net amount offinancial
instrumentspresented in theConsolidatedStatements ofFinancial Position(1) |             |                      | Related amounts not setoff in the ConsolidatedStatements of FinancialPosition |  |           | Net amount                              | 
|As at December 31, 2011           |  |                                                                                                  |             | Financialinstruments |                                                                               |  |           | Financialcollateral(received)pledged(2) |  | 
|Financial assets                  |  |                                                                                                  |             |                      |                                                                               |  |           |                                         |  |  |             |   |  |  |           |  
|Derivative assets (Note 6.A.v)    |  |                                                                                                  | $     2,632 |                      |                                                                               |  | $    (542 | )                                       |  |  | $    (1,815 | ) |  |  | $     275 |  
|Securities Lending (Note 5H)      |  |                                                                                                  | 746         |                      |                                                                               |  |          |                                         |  |  | (746        | ) |  |  |          |  
|Total financial assets            |  |                                                                                                  | $     3,378 |                      |                                                                               |  | $    (542 | )                                       |  |  | $    (2,561 | ) |  |  | $     275 |  
|Financial Liabilities             |  |                                                                                                  |             |                      |                                                                               |  |           |                                         |  |  |             |   |  |  |           |  
|Derivative liabilities            |  |                                                                                                  | $    (1,059 | )                    |                                                                               |  | $     542 |                                         |  |  | $115        |   |  |  | $    (402 | )
|Repurchase agreements (Note 13.B) |  |                                                                                                  | (1,341      | )                    |                                                                               |  |          |                                         |  |  | 1,341       |   |  |  |          |  
|Total financial liabilities       |  |                                                                                                  | $    (2,400 | )                    |                                                                               |  | $     542 |                                         |  |  | $     1,456 |   |  |  | $    (402 | )



|(1) | Net amounts of financial instruments presented in the Consolidated Statements of Financial Position are the same as our gross recognized financial instruments, as we do not
offset financial instruments in our Consolidated Statements of Financial Position.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Financial collateral presented in the table above excludes overcollateralization and, for exchange traded derivatives, initial margin. Total financial collateral, including
initial margin and overcollateralization, received on derivative assets was $1,897, received on securities lending was $784, pledged on derivative liabilities was $540 and pledged on repurchase agreements was $1,341.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 to the same underlying credit. 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.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|118    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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, 2012 |  | Fair value throughprofit or loss |        |  | Available-for-sale |   |        | Total debtsecurities | 
|Canada                  |  | $                                | 18,192 |  |                    | $ | 2,438  |                      |  | $ | 20,630 | 
|United States           |  |                                  | 13,103 |  |                    |   | 5,498  |                      |  |   | 18,601 | 
|United Kingdom          |  |                                  | 5,265  |  |                    |   | 484    |                      |  |   | 5,749  | 
|Other                   |  |                                  | 7,213  |  |                    |   | 2,169  |                      |  |   | 9,382  | 
|Balance                 |  | $                                | 43,773 |  |                    | $ | 10,589 |                      |  | $ | 54,362 | 



|                        |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|----------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ------ | -------------------- |  | - | ------ | 
|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                 |  | $                                | 51,627 |  |                    | $ | 11,303 |                      |  | $ | 62,930 | 

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



|                                                      |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|----------------------------------------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ------ | -------------------- |  | - | ------ | 
|As at December 31, 2012                               |  | Fair value throughprofit or loss |        |  | Available-for-sale |   |        | Total debtsecurities | 
|Debt securities issued or guaranteed by:              |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|Canadian federal government                           |  | $                                | 1,810  |  |                    | $ | 1,306  |                      |  | $ | 3,116  | 
|Canadian provincial and municipal government          |  |                                  | 9,618  |  |                    |   | 168    |                      |  |   | 9,786  | 
|U.S. government and agency                            |  |                                  | 1,061  |  |                    |   | 508    |                      |  |   | 1,569  | 
|Other foreign government                              |  |                                  | 4,544  |  |                    |   | 390    |                      |  |   | 4,934  | 
|Total government issued or guaranteed debt securities |  |                                  | 17,033 |  |                    |   | 2,372  |                      |  |   | 19,405 | 
|Corporate debt securities by industry sector:         |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|Financials                                            |  |                                  | 6,662  |  |                    |   | 2,602  |                      |  |   | 9,264  | 
|Utilities and energy                                  |  |                                  | 8,192  |  |                    |   | 1,335  |                      |  |   | 9,527  | 
|Telecommunication services                            |  |                                  | 1,399  |  |                    |   | 525    |                      |  |   | 1,924  | 
|Consumer staples and discretionary                    |  |                                  | 4,732  |  |                    |   | 1,635  |                      |  |   | 6,367  | 
|Industrials                                           |  |                                  | 2,274  |  |                    |   | 692    |                      |  |   | 2,966  | 
|Other                                                 |  |                                  | 2,017  |  |                    |   | 944    |                      |  |   | 2,961  | 
|Total corporate debt securities                       |  |                                  | 25,276 |  |                    |   | 7,733  |                      |  |   | 33,009 | 
|Asset-backed securities                               |  |                                  | 1,464  |  |                    |   | 484    |                      |  |   | 1,948  | 
|Total debt securities                                 |  | $                                | 43,773 |  |                    | $ | 10,589 |                      |  | $ | 54,362 | 



|                                                      |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|----------------------------------------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ------ | -------------------- |  | - | ------ | 
|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 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    119



---

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, 2012   |  | Residential |       |  | Non-residential |   |       | Loans |  |   | Total  | 
|Canada                    |  | $           | 1,886 |  |                 | $ | 5,571 |       |  | $ | 9,946  |  |  | $ | 17,403 | 
|United States             |  |             | 301   |  |                 |   | 4,214 |       |  |   | 3,399  |  |  |   | 7,914  | 
|United Kingdom            |  |             |      |  |                 |   | 22    |       |  |   | 420    |  |  |   | 442    | 
|Other                     |  |             |      |  |                 |   |      |       |  |   | 1,489  |  |  |   | 1,489  | 
|Total mortgages and loans |  | $           | 2,187 |  |                 | $ | 9,807 |       |  | $ | 15,254 |  |  | $ | 27,248 | 



|                          |  |             |       |  |                 |   |        |       |  |   |        |  |  |   |        | 
|------------------------- |  | ----------- | ----- |  | --------------- | - | ------ | ----- |  | - | ------ |  |  | - | ------ | 
|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 | 

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

The contractual maturities of debt securities are shown in the tables 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, 2012 |  | Fair value throughprofit or loss |        |  | Available-for-sale |   |        | Total debtsecurities | 
|Due in 1 year or less   |  | $                                | 1,658  |  |                    | $ | 1,636  |                      |  | $ | 3,294  | 
|Due in years 2-5        |  |                                  | 7,375  |  |                    |   | 4,566  |                      |  |   | 11,941 | 
|Due in years 6-10       |  |                                  | 7,274  |  |                    |   | 1,897  |                      |  |   | 9,171  | 
|Due after 10 years      |  |                                  | 27,466 |  |                    |   | 2,490  |                      |  |   | 29,956 | 
|Total debt securities   |  | $                                | 43,773 |  |                    | $ | 10,589 |                      |  | $ | 54,362 | 



|                        |  |                                  |        |  |                    |   |        |                      |  |   |        | 
|----------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ------ | -------------------- |  | - | ------ | 
|                        |  |                                  |       
|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 | 

The carrying value of mortgages by scheduled maturity, before allowance for losses, is comprised as follows:



|                      |  |      |        |  |      |   |        | 
|--------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|As at December 31,    |  | 2012 |        |  | 2011 |  
|Due in 1 year or less |  | $    | 942    |  |      | $ | 941    | 
|Due in years 2-5      |  |      | 4,973  |  |      |   | 5,474  | 
|Due in years 6-10     |  |      | 3,744  |  |      |   | 4,247  | 
|Due after 10 years    |  |      | 2,414  |  |      |   | 2,889  | 
|Total mortgages       |  | $    | 12,073 |  |      | $ | 13,551 | 

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



|                      |  |      |        |  |      |   |        | 
|--------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|As at December 31,    |  | 2012 |        |  | 2011 |  
|Due in 1 year or less |  | $    | 839    |  |      | $ | 905    | 
|Due in years 2-5      |  |      | 4,027  |  |      |   | 4,555  | 
|Due in years 6-10     |  |      | 3,350  |  |      |   | 3,292  | 
|Due after 10 years    |  |      | 7,054  |  |      |   | 5,675  | 
|Total loans           |  | $    | 15,270 |  |      | $ | 14,427 | 



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|120    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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, 2012     |  | Under1 Year      |       |  | 1 to 5Years |   |        | Over 5Years |  |   | Total  | 
|Over-the-counter contracts: |  |                  |       |  |             |   |        |             |  |   |        |  |  |   |        | 
|Interest rate contracts:    |  |                  |       |  |             |   |        |             |  |   |        |  |  |   |        | 
|Swap contracts              |  | $                | 1,359 |  |             | $ | 3,678  |             |  | $ | 9,990  |  |  | $ | 15,027 | 
|Options purchased           |  |                  | 186   |  |             |   | 2,780  |             |  |   | 3,735  |  |  |   | 6,701  | 
|Options written(1)          |  |                  |      |  |             |   | 1,191  |             |  |   | 992    |  |  |   | 2,183  | 
|Foreign exchange contracts: |  |                  |       |  |             |   |        |             |  |   |        |  |  |   |        | 
|Forward contracts           |  |                  | 2,329 |  |             |   |       |             |  |   | 157    |  |  |   | 2,486  | 
|Swap contracts              |  |                  | 272   |  |             |   | 4,639  |             |  |   | 5,777  |  |  |   | 10,688 | 
|Other contracts:            |  |                  |       |  |             |   |        |             |  |   |        |  |  |   |        | 
|Options purchased           |  |                  | 1     |  |             |   | 2      |             |  |   |       |  |  |   | 3      | 
|Forward contracts           |  |                  | 57    |  |             |   | 104    |             |  |   |       |  |  |   | 161    | 
|Swap contracts              |  |                  | 200   |  |             |   | 11     |             |  |   |       |  |  |   | 211    | 
|Options written             |  |                  |      |  |             |   |       |             |  |   |       |  |  |   |       | 
|Credit derivatives          |  |                  | 10    |  |             |   | 324    |             |  |   | 8      |  |  |   | 342    | 
|Exchange-traded contracts:  |  |                  |       |  |             |   |        |             |  |   |        |  |  |   |        | 
|Interest rate contracts:    |  |                  |       |  |             |   |        |             |  |   |        |  |  |   |        | 
|Future contracts            |  |                  | 1,110 |  |             |   |       |             |  |   |       |  |  |   | 1,110  | 
|Foreign exchange contracts: |  |                  |       |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  | 102   |  |             |   |       |             |  |   |       |  |  |   | 102    | 
|Equity contracts:           |  |                  |       |  |             |   |        |             |  |   |        |  |  |   |        | 
|Futures contracts           |  |                  | 3,083 |  |             |   |       |             |  |   |       |  |  |   | 3,083  | 
|Options purchased           |  |                  | 381   |  |             |   |       |             |  |   |       |  |  |   | 381    | 
|Options written             |  |                  |      |  |             |   |       |             |  |   |       |  |  |   |       | 
|Total notional amount       |  | $                | 9,090 |  |             | $ | 12,729 |             |  | $ | 20,659 |  |  | $ | 42,478 | 



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



|                            |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|--------------------------- |  | ---------------- | ------ |  | ----------- | - | ------ | ----------- |  | - | ------ |  |  | - | ------ | 
|                            |  | Term to Maturity |       
|As at December 31, 2011     |  | Under
1 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:    |  |                  |        |  |             |   |        |             |  |   |        |  |  |   |        | 
|Future 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.
|--- | ---------------------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    121



---

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



|                        |  |                  |     |   |              |   |      |              |  |   |       |   |  |   |       |  
|----------------------- |  | ---------------- | --- | - | ------------ | - | ---- | ------------ |  | - | ----- | - |  | - | ----- | -
|                        |  | Term to maturity |    
|As at December 31, 2012 |  | Under
1 Year     |     |   | 1 to 5
Years |   |      | Over 5
Years |  |   | Total |  
|Derivative assets       |  | $                | 78  |   |              | $ | 582  |              |  | $ | 1,453 |   |  | $ | 2,113 |  
|Derivative liabilities  |  | $                | (76 | ) |              | $ | (124 | )            |  | $ | (394  | ) |  | $ | (594  | )



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

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.

Debt Securities by Credit Rating

Investment grade debt
securities are those rated BBB and above. Our debt security portfolio was 98% investment grade based on carrying value as at December 31, 2012 (97% as at December 31, 2011). The carrying value of debt securities by credit rating is shown
in the following tables:



|                                    |  |                                   |        |  |                          |   |        |                       |  |   |        | 
|----------------------------------- |  | --------------------------------- | ------ |  | ------------------------ | - | ------ | --------------------- |  | - | ------ | 
|As at December 31, 2012             |  | Fair value through
profit or loss |        |  | Available-
for-sale debt |   |        | Total debt
securities | 
|Debt securities by credit rating(1) |  |                                   |        |  |                          |   |        |                       |  |   |        | 
|AAA                                 |  | $                                 | 6,284  |  |                          | $ | 2,342  |                       |  | $ | 8,626  | 
|AA                                  |  |                                   | 9,506  |  |                          |   | 1,179  |                       |  |   | 10,685 | 
|A                                   |  |                                   | 14,641 |  |                          |   | 4,065  |                       |  |   | 18,706 | 
|BBB                                 |  |                                   | 12,527 |  |                          |   | 2,839  |                       |  |   | 15,366 | 
|BB and lower                        |  |                                   | 815    |  |                          |   | 164    |                       |  |   | 979    | 
|Total debt securities               |  | $                                 | 43,773 |  |                          | $ | 10,589 |                       |  | $ | 54,362 | 



|                                    |  |                                   |        |  |                          |   |        |                       |  |   |        | 
|----------------------------------- |  | --------------------------------- | ------ |  | ------------------------ | - | ------ | --------------------- |  | - | ------ | 
|                                    |  |                                   |       
|As at December 31, 2011             |  | Fair value through
profit or loss |        |  | Available-
for-sale debt |   |        | Total debt
securities | 
|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 | 



|(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 judgment 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 held as security.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|122    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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

Mortgages and Loans by Credit Rating

Mortgages by Credit
Rating



|                   |  |      |        |  |      |   |        | 
|------------------ |  | ---- | ------ |  | ---- | - | ------ | 
|As at December 31, |  | 2012 |        |  | 2011 |  
|Insured            |  | $    | 1,562  |  |      | $ | 1,685  | 
|AAA                |  |      | 1      |  |      |   | 14     | 
|AA                 |  |      | 804    |  |      |   | 674    | 
|A                  |  |      | 1,814  |  |      |   | 1,505  | 
|BBB                |  |      | 4,128  |  |      |   | 3,928  | 
|BB and lower       |  |      | 3,563  |  |      |   | 5,205  | 
|Impaired           |  |      | 122    |  |      |   | 344    | 
|Total mortgages    |  | $    | 11,994 |  |      | $ | 13,355 | 

Loans by Credit Rating



|                   |  |      |        |  |      |   |        | 
|------------------ |  | ---- | ------ |  | ---- | - | ------ | 
|As at December 31, |  | 2012 |        |  | 2011 |  
|AAA                |  | $    | 395    |  |      | $ | 277    | 
|AA                 |  |      | 1,791  |  |      |   | 1,257  | 
|A                  |  |      | 7,597  |  |      |   | 7,094  | 
|BBB                |  |      | 5,124  |  |      |   | 5,390  | 
|BB and lower       |  |      | 323    |  |      |   | 340    | 
|Impaired           |  |      | 24     |  |      |   | 42     | 
|Total              |  | $    | 15,254 |  |      | $ | 14,400 | 

Derivative Financial Instruments by Counterparty Credit Rating

Derivative instruments are either OTC contracts negotiated between counterparties or exchange-traded, some of which are settled daily. 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.

We pledge and hold assets as collateral under CSAs for bilateral OTC derivatives. The collateral is realized in the event of early termination as
defined in the agreements.

The assets held and pledged are primarily cash and debt securities issued by the Canadian federal government and U.S.
government and agencies.

While we are generally permitted to sell or re-pledge the assets held as collateral, we have not sold or re-pledged any assets.
The terms and conditions related to the use of the collateral are consistent with industry practice.

Refer to Note 6.A.ii for more details on collateral
held and pledged as well as the impact of netting arrangements.

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



|                            |  |                                   |       |  |                                       |   |      |                         |  |   |       | 
|--------------------------- |  | --------------------------------- | ----- |  | ------------------------------------- | - | ---- | ----------------------- |  | - | ----- | 
|As at December 31, 2012     |  | Gross positivereplacement cost(2) |       |  | Impact of masternetting agreements(3) |   |      | Net 
replacementcost(4) | 
|Over-the-counter contracts: |  |                                   |       |  |                                       |   |      |                         |  |   |       | 
|AA                          |  | $                                 | 437   |  |                                       | $ | (69  | )                       |  | $ | 368   | 
|A                           |  |                                   | 1,245 |  |                                       |   | (205 | )                       |  |   | 1,040 | 
|BBB                         |  |                                   | 401   |  |                                       |   | (14  | )                       |  |   | 387   | 
|Total OTC
derivatives(1)    |  | $                                 | 2,083 |  |                                       | $ | (288 | )                       |  | $ | 1,795 | 
|                            |  |                                   |      
|As at December 31, 2011     |  | Gross positivereplacement
cost(2) |       |  | Impact of masternetting
agreements(3) |   |      | Net replacementcost(4)  | 
|Over-the-counter contracts: |  |                                   |       |  |                                       |   |      |                         |  |   |       | 
|AA                          |  | $                                 | 624   |  |                                       | $ | (192 | )                       |  | $ | 432   | 
|A                           |  |                                   | 1,942 |  |                                       |   | (341 | )                       |  |   | 1,601 | 
|BBB                         |  |                                   | 9     |  |                                       |   | (9   | )                       |  |   |      | 
|Total OTC
derivatives(1)    |  | $                                 | 2,575 |  |                                       | $ | (542 | )                       |  | $ | 2,033 | 



|(1) | Exchange traded derivatives with a positive fair value of $30 ($57 in 2011) are excluded from the table above, as they are subject to daily margining requirements. Our credit
exposure on these derivatives is with the exchanges and clearinghouses.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 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
or early termination. 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Net replacement cost is positive replacement cost less the impact of master netting agreements.
|--- | -----------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    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, 2012 |  | Grossexposure |       |  | Collateral |   |       | Netexposure | 
|AA                      |  | $             | 1,504 |  |            | $ | 2     |             |  | $ | 1,502 | 
|A                       |  |               | 671   |  |            |   | 139   |             |  |   | 532   | 
|BB                      |  |               | 869   |  |            |   | 856   |             |  |   | 13    | 
|Not rated               |  |               | 196   |  |            |   | 37    |             |  |   | 159   | 
|Total                   |  | $             | 3,240 |  |            | $ | 1,034 |             |  | $ | 2,206 | 
|                        |  |               |      
|As at December 31, 2011 |  | Grossexposure |       |  | Collateral |   |       | Netexposure | 
|AA                      |  | $             | 1,985 |  |            | $ | 340   |             |  | $ | 1,645 | 
|A                       |  |               | 308   |  |            |   | 3     |             |  |   | 305   | 
|BB                      |  |               | 855   |  |            |   | 838   |             |  |   | 17    | 
|Not rated               |  |               | 310   |  |            |   | 83    |             |  |   | 227   | 
|Total                   |  | $             | 3,458 |  |            | $ | 1,264 |             |  | $ | 2,194 | 

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 have 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 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.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|124    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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-dependent 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-dependent 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. 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 year.

Impairment of Available-For-Sale Assets

We wrote down $19
of impaired AFS assets recorded at fair value during 2012 ($31 during 2011). 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 2012 and 2011.

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, 2012    |  |                      |        |  |                      |   |        |       |  |   |           |  |  |       |     |  |       |   |    |  |  |   |     | 
|Not past due               |  | $                    | 11,865 |  |                      | $ | 15,230 |       |  | $ | 27,095    |  |  | $     |    |  |       | $ |   |  |  | $ |    | 
|Past due:                  |  |                      |        |  |                      |   |        |       |  |   |           |  |  |       |     |  |       |   |    |  |  |   |     | 
|Past due less than 90 days |  |                      | 7      |  |                      |   |       |       |  |   | 7         |  |  |       |    |  |       |   |   |  |  |   |    | 
|Past due 90 to 179 days    |  |                      |       |  |                      |   |       |       |  |   |          |  |  |       |    |  |       |   |   |  |  |   |    | 
|Past due 180 days or more  |  |                      |       |  |                      |   |       |       |  |   |          |  |  |       |    |  |       |   |   |  |  |   |    | 
|Impaired                   |  |                      | 201    |  |                      |   | 40     |       |  |   | 241       |  |  |       | 79  |  |       |   | 16 |  |  |   | 95  | 
|Total                      |  | $                    | 12,073 |  |                      | $ | 15,270 |       |  | $ | 27,343    |  |  | $     | 79  |  |       | $ | 16 |  |  | $ | 95  | 
|                           |  |                     
|                           |  | 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 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    125



---

Changes in Allowances for Losses

The changes in the allowances for losses are as follows:



|                                |  |           |     |   |       |   |     |       |  |   |      |  
|------------------------------- |  | --------- | --- | - | ----- | - | --- | ----- |  | - | ---- | -
|                                |  | Mortgages |     |   | Loans |   |     | Total | 
|Balance, January 1, 2011        |  | $         | 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  |  
|Provision for losses            |  |           | 8   |   |       |   | (4  | )     |  |   | 4    |  
|Write-offs, net of recoveries   |  |           | (97 | ) |       |   | (6  | )     |  |   | (103 | )
|Foreign exchange rate movements |  |           | (5  | ) |       |   |    |       |  |   | (5   | )
|Less: Held for sale allowances  |  |           | (23 | ) |       |   | (1  | )     |  |   | (24  | )
|Balance, December 31, 2012      |  | $         | 79  |   |       | $ | 16  |       |  | $ | 95   |  

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
|- |  | ---------------------------------------------------------------------------------------

| |  | Stress testing of our liquidity is performed by comparing liquidity coverage ratios under one-month and one-year stress scenarios to our policy thresholds. These
liquidity ratios are measured and managed at the enterprise and business segment 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 and spread 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 and spread 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 risk appetite and tolerance limits have been established for market risks
|- |  | ------------------------------------------------------------------------------------

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

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

| |  | 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 market risks
|- |  | -----------------------------------------------------------------------------------------

| |  | Product design and pricing policy requires 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 Canadian actuarial standards of practice
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

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

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



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|126    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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. A significant portion of our exposure to
equity risk arises in connection with benefit guarantees on segregated fund contracts. 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, and this may result 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.

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



|                        |  |                                  |       |  |                     |   |     |               |  |   |       | 
|----------------------- |  | -------------------------------- | ----- |  | ------------------- | - | --- | ------------- |  | - | ----- | 
|As at December 31, 2012 |  | Fair value throughprofit or loss |       |  | Available-
for-sale |   |     | Totalequities | 
|Canada                  |  | $                                | 2,918 |  |                     | $ | 106 |               |  | $ | 3,024 | 
|United States           |  |                                  | 478   |  |                     |   | 578 |               |  |   | 1,056 | 
|United Kingdom          |  |                                  | 172   |  |                     |   | 38  |               |  |   | 210   | 
|Other                   |  |                                  | 601   |  |                     |   | 135 |               |  |   | 736   | 
|Total equities          |  | $                                | 4,169 |  |                     | $ | 857 |               |  | $ | 5,026 | 
|                        |  |                                  |      
|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 | 

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 segregated fund contracts. 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 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. 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.

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.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    127



---

7. Insurance Risk Management





7. 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, expense 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 risk appetite and tolerance limits have been established for longevity, mortality and morbidity risk
|- |  | ---------------------------------------------------------------------------------------------------------------

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

| |  | Enterprise-insurance underwriting and claims management policy product design and pricing policy and reinsurance ceded policy
|- |  | -----------------------------------------------------------------------------------------------------------------------------

| |  | Our global underwriting manual aligns underwriting practices with our corporate risk management standards and ensures a consistent approach in insurance
underwriting. Policies and procedures, including criteria for approval of risks and for claims adjudication are established for each business segment
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Product design and pricing policy requires detailed risk assessment and provision for material insurance risks
|- |  | --------------------------------------------------------------------------------------------------------------

| |  | Insurance contract liability provisions are established in accordance with the Canadian actuarial standards of practice
|- |  | -----------------------------------------------------------------------------------------------------------------------

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

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

| |  | Various limits, restrictions and fee structures are 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.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------

| |  | Company specific and industry level experience studies and Source of Earnings analysis are 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
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------

| |  | Reinsurance ceded policy establishes 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 annual reporting to the Risk Review Committee of the Board
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We use reinsurance to limit losses, minimize exposure to significant risks and to provide additional capacity for growth. Our Underwriting and Claims Liability Management Policy sets maximum global retention limits
and related management standards and practices which are applied to reduce our exposure to large claims. Amounts in excess of the Board approved maximum retention limits are reinsured. Our maximum global retention limits are unchanged from 2011. On
a single life or joint-first-to-die basis our retention limit is $25 in Canada and is US$25 outside of Canada. For survivorship life insurance, our maximum global retention limit is $30 in Canada and is US$30 outside of Canada. In certain markets
and jurisdictions retention levels below the maximum are applied. Reinsurance is utilized for numerous products in most business segments, and placement is done on an automatic basis for defined insurance portfolios and on a facultative basis for
individual risks with certain characteristics. Reinsurance is used to provide catastrophic mortality and morbidity coverage for the Canadian group benefits business.

Our reinsurance coverage is well-diversified and controls are in place to manage exposure to reinsurance counterparties. Reinsurance exposures are monitored to ensure that no single reinsurer represents an undue
level of credit risk. While reinsurance arrangements provide for the recovery of claims arising from the liabilities ceded, we retain primary responsibility to the policyholders.

The components of insurance risk are discussed below. The sensitivities provided below reflect the impact of any applicable ceded reinsurance arrangements.

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

Our Product Design and Pricing Policy, approved by the Risk Review Committee of the Board of Directors, establishes the framework governing our product design and pricing practices and is designed to align our
product offerings with our strategic objectives and risk taking philosophy. Consistent with this policy, product development, design and pricing processes have been implemented throughout the Company. New products follow a stage-gate process with
defined management approvals based on the level of the initiative, and each initiative is subject to a risk assessment process to identify key risks and risk mitigation requirements and must be approved by multi-disciplinary committees. An annual
compliance assessment is performed by all business segments to confirm compliance with the policy and related operating guidelines.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|128    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

Pricing models, methods and assumptions are subject to periodic internal peer reviews.

Experience studies, sources of earnings analysis and product dashboards 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 products to
mitigate adverse policyholder behaviour or apply upper thresholds on certain benefits.

Policyholder Behaviour Risk

Risk Description

We can incur losses due to adverse
policyholder behavior relative to assumptions used in the pricing and valuation of products 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 life 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.

For individual life insurance products where fewer terminations would be financially adverse to us, net income and equity would be decreased by about $220 ($270 in 2011) 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 $70 ($65 in 2011) if the termination rate assumption were increased by 10%. These sensitivities reflect the
impact of any applicable ceded reinsurance arrangements.

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
|- |  | ---------------------------------------------------------------------------------------------

Mortality and Morbidity Risk

Risk Description

Mortality and morbidity risk is the risk that future experience could be worse than the assumptions used in the pricing and valuation of products.
Mortality and morbidity risk can arise in the normal course of business through 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 $20 ($15 in 2011). These sensitivities reflect the impact of any applicable ceded reinsurance arrangements.

For products where morbidity is a significant assumption, a 5% adverse change in that assumption would reduce net income and equity by about $125 ($120 in 2011).
These sensitivities reflect the impact of any applicable ceded reinsurance arrangements.

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.

Longevity Risk

Risk
Description

Longevity risk is the potential for economic loss, accounting loss or volatility in earnings arising from uncertain adverse changes in
rates of mortality improvement relative to the assumptions used in the pricing and valuation of products. 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).



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    129



---

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 $95 ($100 in 2011). These sensitivities reflect the impact of any applicable ceded reinsurance arrangements.

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.

Expense Risk

Risk Description

Expense risk is the risk that future
expenses are higher than the assumptions used in the pricing and valuations of products. 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 $130 ($160 in
2011). These sensitivities reflect the impact of any applicable ceded reinsurance arrangements.

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.

Reinsurance Risk

Risk
Description

We purchase reinsurance for certain risks underwritten by our various insurance businesses. Reinsurance 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), insolvency of a reinsurer or inadequate reinsurance coverage.

Changes in reinsurance market conditions, including actions taken by reinsurers to increase rates on existing and new coverage and our ability to obtain appropriate
reinsurance, 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 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 reinsurance counterparties 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 loses 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. Reinsurance counterparty credit exposures are
monitored closely and reported annually to the Risk Review Committee.

8. Other Assets





Other assets consist of the following:



|                                  |  |      |       |  |      |   |       | 
|--------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|As at December 31,                |  | 2012 |       |  | 2011 |  
|Accounts receivable               |  | $    | 1,047 |  |      | $ | 1,059 | 
|Investment income due and accrued |  |      | 930   |  |      |   | 1,109 | 
|Deferred acquisition costs(1)     |  |      | 148   |  |      |   | 148   | 
|Prepaid expenses                  |  |      | 118   |  |      |   | 113   | 
|Premium receivable                |  |      | 308   |  |      |   | 352   | 
|Accrued benefit assets (Note 27)  |  |      | 62    |  |      |   | 51    | 
|Other                             |  |      | 89    |  |      |   | 53    | 
|Total other assets                |  | $    | 2,702 |  |      | $ | 2,885 | 



|(1) | Amortization of deferred acquisition cost charged to income during the year amounted to $35 in 2012 ($33 in 2011).
|--- | ------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|130    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

9. Property and Equipment







|                                        |  |                          |    |  |                            |   |      |       |  |   |      |   |  |   |       |  
|--------------------------------------- |  | ------------------------ | -- |  | -------------------------- | - | ---- | ----- |  | - | ---- | - |  | - | ----- | -
|                                        |  | Owner-occupiedproperties |    |  | Otherproperty andequipment |   |      | Total | 
|                                        |  | Land                     |    |  | Building                   |   |      |      
|Gross carrying amount                   |  |                          |    |  |                            |   |      |       |  |   |      |   |  |   |       |  
|Balance, January 1, 2011                |  | $                        | 58 |  |                            | $ | 459  |       |  | $ | 699  |   |  | $ | 1,216 |  
|Additions                               |  |                          |   |  |                            |   | 25   |       |  |   | 102  |   |  |   | 127   |  
|Disposals                               |  |                          |   |  |                            |   |     |       |  |   | (199 | ) |  |   | (199  | )
|Leasing commissions amortization        |  |                          |   |  |                            |   | (3   | )     |  |   |     |   |  |   | (3    | )
|Foreign exchange rate movements         |  |                          |   |  |                            |   | 3    |       |  |   | 2    |   |  |   | 5     |  
|Balance, December 31, 2011              |  | $                        | 58 |  |                            | $ | 484  |       |  | $ | 604  |   |  | $ | 1,146 |  
|Additions                               |  |                          |   |  |                            |   | 33   |       |  |   | 159  |   |  |   | 192   |  
|Disposals                               |  |                          |   |  |                            |   |     |       |  |   | (167 | ) |  |   | (167  | )
|Leasing commissions amortization        |  |                          |   |  |                            |   | (4   | )     |  |   |     |   |  |   | (4    | )
|Transfers to investment properties      |  |                          |   |  |                            |   |     |       |  |   | (3   | ) |  |   | (3    | )
|Foreign exchange rate movements         |  |                          |   |  |                            |   |     |       |  |   | (3   | ) |  |   | (3    | )
|Balance, December 31, 2012              |  | $                        | 58 |  |                            | $ | 513  |       |  | $ | 590  |   |  | $ | 1,161 |  
|Accumulated depreciation and impairment |  |                          |    |  |                            |   |      |       |  |   |      |   |  |   |       |  
|Balance, January 1, 2011                |  | $                        |   |  |                            | $ | (143 | )     |  | $ | (581 | ) |  | $ | (724  | )
|Depreciation charge for the year        |  |                          |   |  |                            |   | (12  | )     |  |   | (46  | ) |  |   | (58   | )
|Disposals                               |  |                          |   |  |                            |   |     |       |  |   | 185  |   |  |   | 185   |  
|Impairment losses                       |  |                          |   |  |                            |   |     |       |  |   | (2   | ) |  |   | (2    | )
|Foreign exchange rate movements         |  |                          |   |  |                            |   |     |       |  |   | (1   | ) |  |   | (1    | )
|Balance, December 31, 2011              |  | $                        |   |  |                            | $ | (155 | )     |  | $ | (445 | ) |  | $ | (600  | )
|Depreciation charge for the year        |  |                          |   |  |                            |   | (13  | )     |  |   | (54  | ) |  |   | (67   | )
|Disposals                               |  |                          |   |  |                            |   | 3    |       |  |   | 163  |   |  |   | 166   |  
|Impairment losses                       |  |                          |   |  |                            |   | (1   | )     |  |   |     |   |  |   | (1    | )
|Foreign exchange rate movements         |  |                          |   |  |                            |   |     |       |  |   | 6    |   |  |   | 6     |  
|Balance, December 31, 2012              |  | $                        |   |  |                            | $ | (166 | )     |  | $ | (330 | ) |  | $ | (496  | )
|Net carrying amount, end of period:     |  |                          |    |  |                            |   |      |       |  |   |      |   |  |   |       |  
|As at December 31, 2011                 |  | $                        | 58 |  |                            | $ | 329  |       |  | $ | 159  |   |  | $ | 546   |  
|As at December 31, 2012                 |  | $                        | 58 |  |                            | $ | 347  |       |  | $ | 260  |   |  | $ | 665   |  

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, 2011        |  | $          | 2,765 |   |          | $ | 426 |          |  | $ | 438       |   |  | $     | 571 |   |  | $ | 4,200 |  
|Impairment(1)                   |  |            | (194  | ) |          |   | (94 | )        |  |   |          |   |  |       |    |   |  |   | (288  | )
|Foreign exchange rate movements |  |            |      |   |          |   | 10  |          |  |   | 10        |   |  |       | 10  |   |  |   | 30    |  
|Balance December 31, 2011       |  | $          | 2,571 |   |          | $ | 342 |          |  | $ | 448       |   |  | $     | 581 |   |  | $ | 3,942 |  
|Disposal                        |  |            |      |   |          |   |    |          |  |   |          |   |  |       | (4  | ) |  |   | (4    | )
|Inter-company transfer          |  |            | 2     |   |          |   |    |          |  |   |          |   |  |       | (2  | ) |  |   |      |  
|Foreign exchange rate movements |  |            |      |   |          |   | (9  | )        |  |   | (11       | ) |  |       | (7  | ) |  |   | (27   | )
|Balance, December 31, 2012      |  | $          | 2,573 |   |          | $ | 333 |          |  | $ | 437       |   |  | $     | 568 |   |  | $ | 3,911 |  



|(1) | The goodwill relating to the Variable Annuities CGU within SLF U.S. was impaired as a result of the restructuring that took place during 2011. See Note 21 for details. The
goodwill relating to the Individual Wealth CGU within SLF Canada was impaired by $194 in 2011.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    131



---

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



|                          |  |      |       |  |      |   |       | 
|------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|As at December 31,        |  | 2012 |       |  | 2011 |  
|SLF Canada                |  |      |       |  |      |   |       | 
|Individual insurance      |  | $    | 906   |  |      | $ | 906   | 
|Individual wealth         |  |      | 160   |  |      |   | 158   | 
|Group retirement services |  |      | 453   |  |      |   | 453   | 
|Group benefits            |  |      | 1,054 |  |      |   | 1,054 | 
|SLF U.S.                  |  |      |       |  |      |   |       | 
|Variable annuities        |  |      |      |  |      |   |      | 
|Employee benefits group   |  |      | 333   |  |      |   | 342   | 
|SLF Asia                  |  |      |       |  |      |   |       | 
|Hong Kong                 |  |      | 437   |  |      |   | 448   | 
|Corporate                 |  |      |       |  |      |   |       | 
|MFS Holdings              |  |      | 393   |  |      |   | 409   | 
|U.K.                      |  |      | 175   |  |      |   | 172   | 
|Total                     |  | $    | 3,911 |  |      | $ | 3,942 | 

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 fair value less cost to sell as the recoverable amount

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 5 to 15 years. In some instances, market multiples are used to approximate the explicit projection of new business.

The discount rates applied reflect the nature of the environment for that CGU. The discount rates used range from 10% to 12% (after tax). More established CGUs with a stronger brand and competitive market position
use discount rates at the low end of the range and CGUs with a weaker competitive position use discount rates at the high end of the range. The capital levels used are aligned with our business objectives.

Judgment is used in estimating the recoverable amounts of CGUs and the use of different assumptions and estimates could result in material adjustments to the
valuation of CGUs and the size of any impairment. Any material change in the key assumptions including those for capital, discount rates, the value of new business, and expenses as well as cash flow projections used in the determination of
recoverable amounts may result in impairment charges, which could be material. CGUs with higher risk of impairment are Individual Wealth and Individual Insurance in SLF Canada due to the relatively small, if any, excess of fair value over carrying
value.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|132    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

10.B Intangible Assets

Changes in intangible assets are as follows:



|                                               |  |                               |     |   |                |   |      |       |  |   |     |   |  |   |       |  
|---------------------------------------------- |  | ----------------------------- | --- | - | -------------- | - | ---- | ----- |  | - | --- | - |  | - | ----- | -
|                                               |  | Finite life                   |     |   | Indefinitelife |   |      | Total | 
|                                               |  | Internally
generated software |     |   | Other          |   |      |      
|Gross carrying amount                          |  |                               |     |   |                |   |      |       |  |   |     |   |  |   |       |  
|Balance, January 1, 2011                       |  | $                             | 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 |  
|Additions                                      |  |                               | 52  |   |                |   |     |       |  |   |    |   |  |   | 52    |  
|Disposals                                      |  |                               | (17 | ) |                |   | (2   | )     |  |   |    |   |  |   | (19   | )
|Foreign exchange rate movements                |  |                               | (3  | ) |                |   | (1   | )     |  |   | (6  | ) |  |   | (10   | )
|Less: Held for Sale                            |  |                               | (11 | ) |                |   |     |       |  |   | (10 | ) |  |   | (21   | )
|Balance, December 31, 2012                     |  | $                             | 242 |   |                | $ | 711  |       |  | $ | 228 |   |  | $ | 1,181 |  
|                                               |  |                               |     |  
|Accumulated amortization and impairment losses |  |                               |     |   |                |   |      |       |  |   |     |   |  |   |       |  
|Balance, January 1, 2011                       |  | $                             | (50 | ) |                | $ | (179 | )     |  | $ |    |   |  | $ | (229  | )
|Amortization charge for the year               |  |                               | (23 | ) |                |   | (23  | )     |  |   |    |   |  |   | (46   | )
|Impairment losses                              |  |                               | (12 | ) |                |   |     |       |  |   | (9  | ) |  |   | (21   | )
|Impairment reversals                           |  |                               |    |   |                |   |     |       |  |   | 2   |   |  |   | 2     |  
|Balance, December 31, 2011                     |  | $                             | (85 | ) |                | $ | (202 | )     |  | $ | (7  | ) |  | $ | (294  | )
|Amortization charge for the year               |  |                               | (31 | ) |                |   | (23  | )     |  |   |    |   |  |   | (54   | )
|Impairment reversals                           |  |                               |    |   |                |   |     |       |  |   | 2   |   |  |   | 2     |  
|Disposals                                      |  |                               | 16  |   |                |   |     |       |  |   |    |   |  |   | 16    |  
|Foreign exchange rate movements                |  |                               |    |   |                |   |     |       |  |   |    |   |  |   |      |  
|Less: Held for Sale                            |  |                               | 6   |   |                |   |     |       |  |   | 5   |   |  |   | 11    |  
|Balance, December 31, 2012                     |  | $                             | (94 | ) |                | $ | (225 | )     |  | $ |    |   |  | $ | (319  | )
|                                               |  |                               |     |  
|Net carrying amount, end of period:            |  |                               |     |   |                |   |      |       |  |   |     |   |  |   |       |  
|As at December 31, 2011                        |  | $                             | 136 |   |                | $ | 512  |       |  | $ | 237 |   |  | $ | 885   |  
|As at December 31, 2012                        |  | $                             | 148 |   |                | $ | 486  |       |  | $ | 228 |   |  | $ | 862   |  

The components of the intangible assets are as follows:



|                                   |  |      |     |  |      |   |     | 
|---------------------------------- |  | ---- | --- |  | ---- | - | --- | 
|As at December 31,                 |  | 2012 |     |  | 2011 |  
|Finite-life intangible assets:     |  |      |     |  |      |   |     | 
|Sales potential of field force     |  | $    | 358 |  |      | $ | 373 | 
|Asset administration contracts     |  |      | 128 |  |      |   | 139 | 
|Internally generated software      |  |      | 148 |  |      |   | 136 | 
|                                   |  | $    | 634 |  |      | $ | 648 | 
|Indefinite-life intangible assets: |  |      |     |  |      |   |     | 
|Fund management contracts(1)       |  | $    | 228 |  |      | $ | 232 | 
|State licenses                     |  |      |    |  |      |   | 5   | 
|                                   |  | $    | 228 |  |      | $ | 237 | 
|Total intangible assets            |  | $    | 862 |  |      | $ | 885 | 



|(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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    133



---

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 determining our 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. Most of these assumptions relate to events that are
anticipated to occur many years in the future. Assumptions require regular review and, where appropriate, revision.

We use best estimate assumptions for
expected future experience and apply margins for adverse deviations to provide for uncertainty in the choice of the best estimate assumptions. The amount of insurance contract liabilities related to the application of margins for adverse deviations
to best estimate assumptions is called a provision for adverse deviations.

Best Estimate Assumptions

Best estimate assumptions are intended to be current, neutral estimates of the expected outcome as guided by Canadian actuarial standards of practice. The choice of
best estimate assumptions takes into account current circumstances, past experience data (Company and/or industry), the relationship of past to expected future experience, anti-selection, the relationship among assumptions and other relevant
factors. For assumptions on economic matters, the assets supporting the liabilities and the expected policy for asset-liability management are relevant factors.

Margins for Adverse Deviations

The appropriate level of margin for adverse deviations on an assumption is
guided by Canadian actuarial standards of practice. For most assumptions, the standard range of margins for adverse deviations is 5% to 20% of the best estimate assumption, and the actuary chooses from within that range based on a number of
considerations related to the uncertainty in the determination of the best estimate assumption. The level of uncertainty, and hence the margin chosen, will vary by assumption and by line of business and other factors. Considerations that would tend
to indicate a choice of margin at the high end of the range include:



| |  | The statistical credibility of the Companys experience is too low to be the primary source of data for choosing the best estimate assumption
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  | Future experience is difficult to estimate
|- |  | ------------------------------------------

| |  | The cohort of risks lacks homogeneity
|- |  | -------------------------------------

| |  | Operational risks adversely impact the ability to estimate the best estimate assumption; and
|- |  | --------------------------------------------------------------------------------------------

| |  | Past experience may not be representative of future experience and the experience may deteriorate
|- |  | -------------------------------------------------------------------------------------------------

Provisions for adverse deviations in future interest rates are included by testing a number of scenarios of future interest rates, some of which are prescribed by
Canadian actuarial standards of practice, and determining the liability based on the range of possible outcomes. A scenario of future interest rates includes, for each forecast period between the balance sheet date and the last liability cash flow,
interest rates for risk-free assets, premiums for asset default, rates of inflation, and an investment strategy consistent with the Companys investment policy. The starting point for all future interest rate scenarios is consistent with the
current market environment. If few scenarios are tested, the liability would be the largest of the outcomes. If many scenarios are tested, the liability would be within a range defined by the average of the outcomes that are above the 60th
percentile of the range of outcomes and the corresponding average for the 80th percentile.

Provisions for adverse deviations in future equity returns
are included by scenario testing or by applying margins for adverse deviations. In blocks of business where the valuation of liabilities employs scenario testing of future equity returns, the liability would be within a range defined by the average
of the outcomes that are above the 60th percentile of the range of outcomes and the corresponding average for the 80th percentile. In blocks of business where the valuation of liabilities does not employ scenario testing of future equity returns,
the margin for adverse deviations on common share dividends is between 5% and 20%, and the margin for adverse deviations on capital gains would be 20% plus an assumption that those assets reduce in value by 25% to 40% at the time when the reduction
is most adverse. A 30% reduction is appropriate for a diversified portfolio of North American common shares and, for other portfolios, the appropriate reduction depends on the volatility of the portfolio relative to a diversified portfolio of North
American common shares.

In choosing margins, we ensure that, when taken one at a time, each margin is reasonable with respect to the underlying best
estimate assumption and the extent of uncertainty present in making that assumption, and also that, in aggregate, the cumulative impact of the margins for adverse deviations is considered reasonable with respect to the total amount of our insurance
contract liabilities. Our margins are generally stable over time and are generally only revised to reflect changes in the level of uncertainty in the best estimate assumptions. Our margins tend to be at the high end of the range for expenses and
future equity and real estate returns and in the mid-range for mortality, morbidity, policyholder behaviour, and future interest rates. When considering the aggregate impact of margins, the actuary assesses the consistency of margins for each
assumption across each block of business to ensure there is no double counting or omission and to avoid choosing margins that might be mutually exclusive. In particular, the actuary chooses similar margins for blocks of business with similar
characteristics, and also chooses margins that are consistent with other assumptions, including assumptions about economic factors. The actuary is guided by Canadian actuarial standards of practice in making these professional judgments about the
reasonableness of margins for adverse deviations.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|134    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

The best estimate assumptions and margins for adverse deviations are reviewed at least annually and revisions are made
when appropriate. The choice of assumptions underlying the valuation of insurance contract liabilities is subject to external actuarial peer review.

Mortality

Mortality refers to the rates at which death
occurs for defined groups of people. Life 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 Canadian actuarial standards of practice.

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 any 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

Future policy-related expenses 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 actuarial standards of practice. Reinvestments and disinvestments take
place according to the specifications of each scenario, and the liability is set based on the range of possible outcomes.

Non-fixed Income Rates of
Return

We are exposed to equity markets through our segregated fund products (including variable annuities) that provide guarantees linked to
underlying fund performance and through insurance products where the insurance contract liabilities are supported by non-fixed income assets.

For
segregated fund products (including variable annuities), we have implemented hedging programs involving the use of derivative instruments to mitigate a large portion of the equity market risk associated with the guarantees. The cost of these hedging
programs is reflected in the liabilities. The unhedged portion of risk for these products reflects equity market risks associated with items such as provisions for adverse deviation and a portion of fee income that is not related to the guarantees
provided.

The majority of non-fixed income assets which are designated as FVTPL support our participating and universal life products where investment
returns are passed through to policyholders through routine changes in the amount of dividends declared or in the rate of interest credited. In these cases, changes in non-fixed income values are largely offset by changes in insurance contract
liabilities.

Asset Default

As required by
Canadian actuarial standards of practice, insurance contract liabilities include a provision for possible future default of the assets supporting those liabilities. The amount of the provision for asset default included in the insurance contract
liabilities is based on possible reductions in future investment yield that vary by factors such as type of asset, asset credit quality (rating), duration and country of origin. The asset default assumptions are comprised of a best estimate plus a
margin for adverse deviations, and are intended to provide for loss of both principal and income. Best estimate asset default assumptions by asset category and geography are derived from long-term studies of industry experience and the
Companys experience. Margins for adverse deviation are chosen from the standard range (of 25% to 100%) as recommended by Canadian actuarial standards of practice based on the amount of uncertainty in the choice of best estimate assumption. The
credit quality of an asset is based on external ratings if available (public bonds) and internal ratings if not (mortgages and corporate loans). Any assets without ratings are treated as if they are rated below investment grade.

In contrast to asset impairment provisions and changes in FVTPL assets arising from impairments, both of which arise from known credit events, the asset default
provision in the insurance contract liabilities covers losses related to possible future (unknown) credit events. Canadian actuarial standards of practice require the asset default provision to be determined taking into account known impairments
that are recognized elsewhere on the balance sheet. The asset default provision included in the insurance contract liabilities is re-assessed each reporting period in light of impairments, changes in asset quality ratings and other events that
occurred during the period.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    135



---

11.A.iii Insurance Contract Liabilities

Insurance contract liabilities consist of the following:



|                                                               |  |            |        |  |              |   |        |          |  |   |              |  |  |       |       |  |  |   |        | 
|-------------------------------------------------------------- |  | ---------- | ------ |  | ------------ | - | ------ | -------- |  | - | ------------ |  |  | ----- | ----- |  |  | - | ------ | 
|As at December 31, 2012                                        |  | SLF Canada |        |  | SLF 
U.S.(3) |   |        | SLF Asia |  |   | Corporate(1) |  |  | Total |      
|Individual participating life                                  |  | $          | 17,601 |  |              | $ | 4,896  |          |  | $ | 4,642        |  |  | $     | 1,917 |  |  | $ | 29,056 | 
|Individual non-participating life                              |  |            | 5,976  |  |              |   | 12,121 |          |  |   | 339          |  |  |       | 668   |  |  |   | 19,104 | 
|Group life                                                     |  |            | 1,246  |  |              |   | 1,112  |          |  |   | 11           |  |  |       |      |  |  |   | 2,369  | 
|Individual annuities                                           |  |            | 9,378  |  |              |   | 76     |          |  |   |             |  |  |       | 5,234 |  |  |   | 14,688 | 
|Group annuities                                                |  |            | 7,773  |  |              |   | 27     |          |  |   |             |  |  |       |      |  |  |   | 7,800  | 
|Health insurance                                               |  |            | 7,756  |  |              |   | 1,310  |          |  |   | 1            |  |  |       | 117   |  |  |   | 9,184  | 
|Insurance contract liabilities before other policy
liabilities |  |            | 49,730 |  |              |   | 19,542 |          |  |   | 4,993        |  |  |       | 7,936 |  |  |   | 82,201 | 
|Add: Other policy
liabilities(2)                               |  |            | 2,732  |  |              |   | 736    |          |  |   | 1,302        |  |  |       | 304   |  |  |   | 5,074  | 
|Total insurance contract liabilities(3)                        |  | $          | 52,462 |  |              | $ | 20,278 |          |  | $ | 6,295        |  |  | $     | 8,240 |  |  | $ | 87,275 | 



|(1) | Primarily business from the U.K. and run-off reinsurance operations. Includes SLF U.K. of $1,839 for Individual participating life; $7 for Individual non-participating life;
$5,235 for Individual annuities and $123 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | For insurance contract liabilities categorized as held for sale, see Note 3.
|--- | ----------------------------------------------------------------------------



|                                                               |  |            |        |  |          |   |        |          |  |   |              |  |  |       |       |  |  |   |        | 
|-------------------------------------------------------------- |  | ---------- | ------ |  | -------- | - | ------ | -------- |  | - | ------------ |  |  | ----- | ----- |  |  | - | ------ | 
|                                                               |  |            |        |  |         
|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(2)                           |  |            | 5,465  |  |          |   | 13,550 |          |  |   | 326          |  |  |       | 732   |  |  |   | 20,073 | 
|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 |  |            | 47,808 |  |          |   | 31,309 |          |  |   | 4,530        |  |  |       | 7,778 |  |  |   | 91,425 | 
|Add: Other policy
liabilities(3)                               |  |            | 2,630  |  |          |   | 1,104  |          |  |   | 1,219        |  |  |       | 309   |  |  |   | 5,262  | 
|Total insurance contract liabilities                           |  | $          | 50,438 |  |          | $ | 32,413 |          |  | $ | 5,749        |  |  | $     | 8,087 |  |  | $ | 96,687 | 



|(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) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------

|(3) | 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, 2012 |        |   | For the year ended December 31, 2011 |  
|                                                                                      |  | Insurancecontractliabilities         |        |   | Reinsuranceassets                    |   |       | Net |  |   | Insurancecontractliabilities |   |  | Reinsuranceassets |        |   | Net |  
|Balance as at January 1,(1)                                                           |  | $                                    | 91,425 |   |                                      | $ | 3,275 |     |  | $ | 88,150                       |   |  | $                 | 82,737 |   |     | $ | 3,639 |      |  | $ | 79,098 |  
|Change in balances on in-force policies                                               |  |                                      | 163    |   |                                      |   | (130  | )   |  |   | 293                          |   |  |                   | 4,515  |   |     |   | 216   |      |  |   | 4,299  |  
|Balances arising from new policies                                                    |  |                                      | 2,432  |   |                                      |   | 109   |     |  |   | 2,323                        |   |  |                   | 2,486  |   |     |   | 114   |      |  |   | 2,372  |  
|Changes in assumptions or methodology(1)                                              |  |                                      | (100   | ) |                                      |   | (65   | )   |  |   | (35                          | ) |  |                   | 888    |   |     |   | (726  | )(5) |  |   | 1,614  |  
|Increase (decrease) in Insurance contract liabilities and Reinsurance assets(2)       |  |                                      | 2,495  |   |                                      |   | (86   | )   |  |   | 2,581                        |   |  |                   | 7,889  |   |     |   | (396  | )    |  |   | 8,285  |  
|Balances before the following:                                                        |  |                                      | 93,920 |   |                                      |   | 3,189 |     |  |   | 90,731                       |   |  |                   | 90,626 |   |     |   | 3,243 |      |  |   | 87,383 |  
|Other(3)                                                                              |  |                                      |       |   |                                      |   |      |     |  |   |                             |   |  |                   | (117   | ) |     |   |      |      |  |   | (117   | )
|Foreign exchange rate movements                                                       |  |                                      | (783   | ) |                                      |   | (52   | )   |  |   | (731                         | ) |  |                   | 916    |   |     |   | 32    |      |  |   | 884    |  
|Balances before Other policy liabilities and assets                                   |  |                                      | 93,137 |   |                                      |   | 3,137 |     |  |   | 90,000                       |   |  |                   | 91,425 |   |     |   | 3,275 |      |  |   | 88,150 |  
|Other policy liabilities and assets                                                   |  |                                      | 5,376  |   |                                      |   | 261   |     |  |   | 5,115                        |   |  |                   | 5,262  |   |     |   | 183   |      |  |   | 5,079  |  
|Total Insurance contract liabilities and Reinsurance assets                           |  |                                      | 98,513 |   |                                      |   | 3,398 |     |  |   | 95,115                       |   |  |                   | 96,687 |   |     |   | 3,458 |      |  |   | 93,229 |  
|Less: Held for
sale(4)                                                                |  |                                      | 11,238 |   |                                      |   | 158   |     |  |   | 11,080                       |   |  |                   |        |   |     |   |       |      |  |   |        |  
|Total Insurance contract liabilities and Reinsurance assets for continuing
operations |  | $                                    | 87,275 |   |                                      | $ | 3,240 |     |  | $ | 84,035                       |   |  | $                 | 96,687 |   |     | $ | 3,458 |      |  | $ | 93,229 |  



|(1) | 2011 balances have been restated. Refer to Note 2.
|--- | --------------------------------------------------

|(2) | For discontinued operations, see Note 3. Includes increase (decrease) for continuing operations of $3,718 ($7,391 in 2011) for Insurance contract liabilities and $134 ($384 in
2011) for Reinsurance assets for the years ended December 31, 2012.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Reduction in liabilities due to Policy loan adjustment.
|--- | -------------------------------------------------------

|(4) | See Note 3.
|--- | -----------

|(5) | The 2011 change in reinsurance assets was primarily due to a one-time change to reflect revised actuarial standards.
|--- | --------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|136    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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  2012



|                                      |  |                                                           |  |                                                                                                                                           
|------------------------------------- |  | --------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Assumption or methodology             |  | Policy liabilities increase(decrease) before income taxes |  | Description                                                                                                                               
|Mortality / Morbidity                 |  | $       20                                                |  | Driven primarily by updates to reflect recent experience in SLF U.S. and SLF Canada.                                                      
|Lapse and other policyholder behavior |  | 65                                                        |  | Largely due to a reduction in SLF U.S. variable annuity lapse assumptions reflecting recent company and industry
experience.              
|Expense                               |  | (6)                                                       |  | Reflects impact of updates to expenses and the favourable impact of lower fund management fees.                                           
|Investment returns                    |  | 46                                                        |  | Resulting primarily from updates to our economic scenario generator, partially offset by an increase in average long-term credit
spreads. 
|Model enhancements and other          |  | (160)                                                     |  | Reflects the impact of modeling enhancements and assumptions relating to our ability to recapture certain reinsurance treaties in the
U.S.
|Total impact                          |  | $      (35)                                               |  |                                                                                                                                           

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(1)              |  | $        275                                              |  | Primarily due to updates to reflect new industry guidance from the CIA related to mortality improvement.                                                                                                            
|Lapse and other policyholder behavior |  | 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 and other          |  | (207)                                                     |  | Modelling enhancements to improve the projection of future cash flows across a number of our businesses.                                                                                                            
|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                          |  | $    1,614                                                |  |                                                                                                                                                                                                                     



|(1) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------

11.A.vi Gross
Claims and Benefits Paid

Gross claims and benefits paid consist of the following:



|                                                           |  |      |        |  |      |   |        | 
|---------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|For the years ended December 31                            |  | 2012 |        |  | 2011 |  
|Maturities and surrenders                                  |  | $    | 2,764  |  |      | $ | 3,052  | 
|Annuity payments                                           |  |      | 1,128  |  |      |   | 1,091  | 
|Death and disability benefits                              |  |      | 2,803  |  |      |   | 2,631  | 
|Health benefits                                            |  |      | 3,663  |  |      |   | 3,526  | 
|Policyholder dividends and interest on claims and deposits |  |      | 989    |  |      |   | 852    | 
|Total gross claims and benefits paid                       |  | $    | 11,347 |  |      | $ | 11,152 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    137



---

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
|- |  | -----------------------------------------

| |  | 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.

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, 2012                  |  | SLF Canada |       |  | SLF 
U.S.(1) |   |    | SLF Asia |  |   | Corporate |  |  | Total |   
|Individual participating life            |  | $          |      |  |              | $ |   |          |  | $ |          |  |  | $     | 18 |  |  | $ | 18    | 
|Individual non-participating life        |  |            |      |  |              |   |   |          |  |   | 173       |  |  |       | 5  |  |  |   | 178   | 
|Individual annuities                     |  |            | 1,771 |  |              |   | 29 |          |  |   |          |  |  |       | 68 |  |  |   | 1,868 | 
|Group annuities                          |  |            |      |  |              |   |   |          |  |   | 239       |  |  |       |   |  |  |   | 239   | 
|Total investment contract liabilities(1) |  | $          | 1,771 |  |              | $ | 29 |          |  | $ | 412       |  |  | $     | 91 |  |  | $ | 2,303 | 



|(1) | For investment contract liabilities categorized as held for sale, see Note 3.
|--- | -----------------------------------------------------------------------------

Included in the Investment contract liabilities of $2,303 are liabilities of $496 for investment contracts with DPF, $1,772 for investment contracts without DPF measured at amortized cost and $35 for investment
contracts without DPF measured at fair value.



|                                      |  |            |       |  |          |   |     |          |  |   |           |  |  |       |    |  |  |   |       | 
|------------------------------------- |  | ---------- | ----- |  | -------- | - | --- | -------- |  | - | --------- |  |  | ----- | -- |  |  | - | ----- | 
|                                      |  |            |       |  |         
|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.

11.B.iv Changes in
Investment Contract Liabilities

Changes in investment contract liabilities without DPF are as follows:



|                                 |  |                       |     |   |                           |   |       |                       |  |   |                           |   |  |   |       |  
|-------------------------------- |  | --------------------- | --- | - | ------------------------- | - | ----- | --------------------- |  | - | ------------------------- | - |  | - | ----- | -
|For the years ended December 31, |  | 2012                  |     |   | 2011                      |  
|                                 |  | Measured atfair value |     |   | Measured atamortized cost |   |       | Measured atfair value |  |   | Measured atamortized cost |  
|Balance as at January 1          |  | $                     | 966 |   |                           | $ | 1,620 |                       |  | $ | 2,207                     |   |  | $ | 1,396 |  
|Deposits                         |  |                       |    |   |                           |   | 433   |                       |  |   |                          |   |  |   | 395   |  
|Interest(1)                      |  |                       | 7   |   |                           |   | 38    |                       |  |   | 19                        |   |  |   | 40    |  
|Withdrawals                      |  |                       | (35 | ) |                           |   | (266  | )                     |  |   | (1,218                    | ) |  |   | (228  | )
|Fees                             |  |                       |    |   |                           |   | (3    | )                     |  |   |                          |   |  |   | (2    | )
|Change in fair value(1)          |  |                       | 9   |   |                           |   |      |                       |  |   | (19                       | ) |  |   |      |  
|Other                            |  |                       |    |   |                           |   | 20    |                       |  |   | 5                         |   |  |   | 17    |  
|Foreign exchange rate movements  |  |                       | (22 | ) |                           |   | (3    | )                     |  |   | (28                       | ) |  |   | 2     |  
|Balance                          |  |                       | 925 |   |                           |   | 1,839 |                       |  |   | 966                       |   |  |   | 1,620 |  
|Less: Held for
sale(2)           |  |                       | 890 |   |                           |   | 67    |                       |  |   |                           |   |  |   |       |  
|Balance, as at December 31       |  | $                     | 35  |   |                           | $ | 1,772 |                       |  | $ | 966                       |   |  | $ | 1,620 |  



|(1) | Interest includes continuing operations of $33 in 2012 ($34 in 2011) for Measured at amortized cost. Change in fair value includes continuing operations of $(1) in 2012 ($(4) in
2011) for Measured at fair value.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | See Note 3.
|--- | -----------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|138    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

Changes in investment contract liabilities with DPF are as follows:



|                                      |  |      |     |   |      |   |     |  
|------------------------------------- |  | ---- | --- | - | ---- | - | --- | -
|For the years ended December 31,      |  | 2012 |     |   | 2011 |  
|Balance as at January 1               |  | $    | 487 |   |      | $ | 540 |  
|Change in liabilities on in-force     |  |      | (7  | ) |      |   | (74 | )
|Liabilities arising from new policies |  |      | 26  |   |      |   | 9   |  
|Changes in assumptions or methodology |  |      |    |   |      |   |    |  
|Increase (decrease) in liabilities    |  |      | 19  |   |      |   | (65 | )
|Liabilities before the following:     |  |      | 506 |   |      |   | 475 |  
|Foreign exchange rate movements       |  |      | (10 | ) |      |   | 12  |  
|Balance as at December 31             |  | $    | 496 |   |      | $ | 487 |  

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, 2012 |       
|                                        |  | FVTPL
 debtsecurities  |        |  | AFS
 debtsecurities |   |        | FVTPL
 equitysecurities |  |   | AFS
 equitysecurities |  |  | Mortgagesand
loans |          |  | Investmentproperties |   |        | Other |  |   | Total | 
|Individual participating life           |  | $                       | 15,312 |  |                      | $ |       |                          |  | $ | 2,691                  |  |  | $                  |         |  |                      | $ | 6,034  |       |  | $ | 4,167 |  |  | $ | 4,152  |  |  | $ | 32,356  | 
|Individual non-participating life       |  |                         | 10,766 |  |                      |   | 140    |                          |  |   | 1,025                  |  |  |                    | 13       |  |                      |   | 4,742  |       |  |   | 1,041 |  |  |   | 7,341  |  |  |   | 25,068  | 
|Group Life                              |  |                         | 807    |  |                      |   |       |                          |  |   | 10                     |  |  |                    |         |  |                      |   | 1,345  |       |  |   | 28    |  |  |   | 963    |  |  |   | 3,153   | 
|Individual annuities                    |  |                         | 9,633  |  |                      |   | 456    |                          |  |   | 261                    |  |  |                    |         |  |                      |   | 5,253  |       |  |   |      |  |  |   | 1,102  |  |  |   | 16,705  | 
|Group annuities                         |  |                         | 3,564  |  |                      |   |       |                          |  |   | 78                     |  |  |                    |         |  |                      |   | 4,228  |       |  |   | 41    |  |  |   | 301    |  |  |   | 8,212   | 
|Health insurance                        |  |                         | 3,529  |  |                      |   |       |                          |  |   | 104                    |  |  |                    |         |  |                      |   | 5,243  |       |  |   | 176   |  |  |   | 1,618  |  |  |   | 10,670  | 
|Equity and other                        |  |                         | 162    |  |                      |   | 9,993  |                          |  |   |                       |  |  |                    | 844      |  |                      |   | 403    |       |  |   | 489   |  |  |   | 10,005 |  |  |   | 21,896  | 
|Total assets from Continuing operations |  |                         | 43,773 |  |                      |   | 10,589 |                          |  |   | 4,169                  |  |  |                    | 857      |  |                      |   | 27,248 |       |  |   | 5,942 |  |  |   | 25,482 |  |  |   | 118,060 | 
|Assets of disposal group held for sale  |  |                         |       |  |                      |   |       |                          |  |   |                       |  |  |                    |         |  |                      |   |       |       |  |   |      |  |  |   | 15,067 |  |  |   | 15,067  | 
|Total assets                            |  | $                       | 43,773 |  |                      | $ | 10,589 |                          |  | $ | 4,169                  |  |  |                    | $    857 |  |                      | $ | 27,248 |       |  | $ | 5,942 |  |  | $ | 40,549 |  |  | $ | 133,127 | 
|                                        | 
|                                        |  | As at December 31, 2011 |       
|                                        |  | FVTPL
 debtsecurities  |        |  | AFS
 debtsecurities |   |        | FVTPL
 equitysecurities |  |   | AFS
 equitysecurities |  |  | Mortgagesand
loans |          |  | Investmentproperties |   |        | Other |  |   | Total | 
|Individual participating life           |  | $                       | 15,227 |  |                      | $ |       |                          |  | $ | 2,274                  |  |  | $                  |         |  |                      | $ | 5,588  |       |  | $ | 3,658 |  |  | $ | 5,033  |  |  | $ | 31,780  | 
|Individual non-participating life(1)    |  |                         | 11,247 |  |                      |   | 479    |                          |  |   | 995                    |  |  |                    | 9        |  |                      |   | 4,670  |       |  |   | 699   |  |  |   | 8,353  |  |  |   | 26,452  | 
|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(1)                     |  |                         | 70     |  |                      |   | 10,273 |                          |  |   |                       |  |  |                    | 829      |  |                      |   | 406    |       |  |   | 614   |  |  |   | 9,719  |  |  |   | 21,911  | 
|Total assets                            |  | $                       | 51,627 |  |                      | $ | 11,303 |                          |  | $ | 3,731                  |  |  | $                  | 839      |  |                      | $ | 27,755 |       |  | $ | 5,313 |  |  | $ | 29,503 |  |  | $ | 130,071 | 



|(1) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------

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 2012 analysis tested our
capital adequacy until December 31, 2016, 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.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    139



---

12. Reinsurance





Reinsurance is used primarily to limit exposure to large losses. We have a 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
measured using the amounts and assumptions associated with the underlying insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance assets are comprised of the following:



|                                              |  |            |     |   |              |   |       |          |  |   |              |  |  |       |     |  |  |   |       | 
|--------------------------------------------- |  | ---------- | --- | - | ------------ | - | ----- | -------- |  | - | ------------ |  |  | ----- | --- |  |  | - | ----- | 
|As at December 31, 2012                       |  | SLF Canada |     |   | SLF 
U.S.(3) |   |       | SLF Asia |  |   | Corporate(1) |  |  | Total |    
|Individual participating life                 |  | $          | (11 | ) |              | $ | (15   | )        |  | $ | 91           |  |  | $     |    |  |  | $ | 65    | 
|Individual non-participating life             |  |            | 92  |   |              |   | 1,035 |          |  |   | 61           |  |  |       | 188 |  |  |   | 1,376 | 
|Group Life                                    |  |            | 64  |   |              |   | 870   |          |  |   |             |  |  |       |    |  |  |   | 934   | 
|Individual annuities                          |  |            |    |   |              |   |      |          |  |   |             |  |  |       | 72  |  |  |   | 72    | 
|Health Insurance                              |  |            | 455 |   |              |   | 81    |          |  |   |             |  |  |       | 1   |  |  |   | 537   | 
|Reinsurance assets before other policy assets |  |            | 600 |   |              |   | 1,971 |          |  |   | 152          |  |  |       | 261 |  |  |   | 2,984 | 
|Add: Other policy
assets(2)                   |  |            | 65  |   |              |   | 167   |          |  |   | 15           |  |  |       | 9   |  |  |   | 256   | 
|Total reinsurance
assets(3)                   |  | $          | 665 |   |              | $ | 2,138 |          |  | $ | 167          |  |  | $     | 270 |  |  | $ | 3,240 | 



|(1) | Primarily business from the U.K. and run-off reinsurance operations. Includes SLF U.K. business of $27 for Individual non-participating life and $72 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | For reinsurance assets categorized as held for sale, see Note 3.
|--- | ----------------------------------------------------------------



|                                              |  |            |     |  |          |   |       |          |  |   |              |  |  |       |     |  |  |   |       | 
|--------------------------------------------- |  | ---------- | --- |  | -------- | - | ----- | -------- |  | - | ------------ |  |  | ----- | --- |  |  | - | ----- | 
|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(2)          |  |            | 312 |  |          |   | 838   |          |  |   | 60           |  |  |       | 204 |  |  |   | 1,414 | 
|Group Life                                    |  |            | 73  |  |          |   | 866   |          |  |   |             |  |  |       |    |  |  |   | 939   | 
|Individual annuities                          |  |            |    |  |          |   | 110   |          |  |   |             |  |  |       | 65  |  |  |   | 175   | 
|Health Insurance                              |  |            | 379 |  |          |   | 69    |          |  |   |             |  |  |       | 1   |  |  |   | 449   | 
|Reinsurance assets before other policy assets |  |            | 941 |  |          |   | 1,867 |          |  |   | 197          |  |  |       | 270 |  |  |   | 3,275 | 
|Add: Other policy
assets(3)                   |  |            | 57  |  |          |   | 104   |          |  |   | 11           |  |  |       | 11  |  |  |   | 183   | 
|Total reinsurance assets                      |  | $          | 998 |  |          | $ | 1,971 |          |  | $ | 208          |  |  | $     | 281 |  |  | $ | 3,458 | 



|(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) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------

|(3) | 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, 2012. See Note 11.A.iv 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,  |  | 2012 |       |  | 2011 |  
|Recovered claims and benefits     |  | $    | 4,178 |  |      | $ | 3,786 | 
|Commissions                       |  |      | 54    |  |      |   | 63    | 
|Reserve adjustments               |  |      | 137   |  |      |   | 251   | 
|Operating expenses and other      |  |      | 463   |  |      |   | 440   | 
|Reinsurance (expenses) recoveries |  | $    | 4,832 |  |      | $ | 4,540 | 

12.C Reinsurance Gains or Losses

We did not enter into significant reinsurance arrangements which resulted in profits on inception for the year ended December 31, 2012 ($46 in 2011).



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|140    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

13. Other Liabilities





13.A Composition of Other Liabilities

Other liabilities consist of the following:



|                                    |  |      |       |  |      |   |       | 
|----------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|As at December 31,                  |  | 2012 |       |  | 2011 |  
|Accounts payable                    |  | $    | 2,056 |  |      | $ | 2,202 | 
|Bank overdrafts and cash pooling    |  |      | 3     |  |      |   | 106   | 
|Repurchase agreements               |  |      | 1,395 |  |      |   | 1,341 | 
|Accrued expenses and taxes          |  |      | 1,581 |  |      |   | 1,331 | 
|Borrowed funds                      |  |      | 334   |  |      |   | 314   | 
|Senior financing                    |  |      | 1,379 |  |      |   | 1,416 | 
|Accrued benefit liability (Note 27) |  |      | 446   |  |      |   | 484   | 
|Special purpose entity liabilities  |  |      | 77    |  |      |   | 138   | 
|Other                               |  |      | 654   |  |      |   | 679   | 
|Total other liabilities             |  | $    | 7,925 |  |      | $ | 8,011 | 

13.B Repurchase Agreements

We enter into repurchase agreements for operational funding and liquidity purposes. Repurchase agreements have maturities ranging from 2 to 84 days, averaging 47
days, and bear interest at an average rate of 1.05% as at December 31, 2012 (1.06% as at December 31, 2011). The fair values of the repurchase agreements approximate their carrying values. Refer to Note 6.A.ii for more details on the
collateral pledged.

13.C Borrowed Funds

Borrowed funds are encumbrances on real estate as follows as at December 31:



|                      |  |          |                |  |      |   |     |      |  |   |     | 
|--------------------- |  | -------- | -------------- |  | ---- | - | --- | ---- |  | - | --- | 
|Currency of Borrowing |  | Maturity |                |  | 2012 |   |     | 2011 | 
|Cdn. dollars          |  |          | Current  2028 |  |      | $ | 261 |      |  | $ | 214 | 
|U.S. dollars          |  |          | Current  2024 |  |      |   | 73  |      |  |   | 100 | 
|Total borrowed funds  |  |          |                |  |      | $ | 334 |      |  | $ | 314 | 

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

Interest expense for the borrowed funds was $16 and $14 for 2012 and 2011, 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, totalling to U.S. $390, none of which were issued during 2012 or 2011. Total collateral posted per the financing agreement was U.S. $36 as at
December 31, 2012 (U.S. $35 as at December 31, 2011).

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, 2012, we recorded $16 of interest expense relating to this obligation ($14 in 2011). The fair value of the obligation is $1,010
($797 in 2011), based on market prices for the same or similar instruments as appropriate.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    141



---

14. Senior Debentures and Innovative Capital Instruments





14.A Senior Debentures

The following Canadian dollar obligations are included in Senior debentures:



|                                     |  |              |       |  |                        |  |                   |          |  |  |                  |  |  |                  |       |  |  |   |       | 
|------------------------------------ |  | ------------ | ----- |  | ---------------------- |  | ----------------- | -------- |  |  | ---------------- |  |  | ---------------- | ----- |  |  | - | ----- | 
|                                     |  | InterestRate |       |  | Earliest par
call date |  |                   | Maturity |  |  | December 31,2012 |  |  | December 31,2011 |      
|SLF Inc. senior unsecured debentures |  |              |       |  |                        |  |                   |          |  |  |                  |  |  |                  |       |  |  |   |       | 
|Series A issued November 23, 2005(1) |  |              | 4.80% |  |                        |  | November 23, 2015 | (2)      |  |  | 2035             |  |  | $                | 600   |  |  | $ | 600   | 
|Series B issued March 13, 2006(3)    |  |              | 4.95% |  |                        |  | June 1, 2016      | (2)      |  |  | 2036             |  |  |                  | 700   |  |  |   | 700   | 
|Series B issued February 26, 2007(3) |  |              | 4.95% |  |                        |  | June 1, 2016      | (2)      |  |  | 2036             |  |  |                  | 251   |  |  |   | 251   | 
|Series C issued July 11, 2006(4)     |  |              | 5.00% |  |                        |  | July 11, 2011     | (2)      |  |  | 2031             |  |  |                  |      |  |  |   |      | 
|Series D issued June 30, 2009        |  |              | 5.70% |  |                        |  | n/a               | (5)      |  |  | 2019             |  |  |                  | 300   |  |  |   | 300   | 
|Series E issued August 23, 2011      |  |              | 4.57% |  |                        |  | n/a               | (5)      |  |  | 2021             |  |  |                  | 298   |  |  |   | 298   | 
|                                     |  |              |       |  |                        |  |                   |          |  |  |                  |  |  | $                | 2,149 |  |  | $ | 2,149 | 
|Fair value                           |  |              |       |  |                        |  |                   |          |  |  |                  |  |  | $                | 2,316 |  |  | $ | 2,207 | 



|(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 $107 and $106 for 2012 and 2011, respectively.

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

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 Minimum Continuing Capital and Surplus
Requirement (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, 2012, for regulatory capital purposes of Sun Life Assurance, $695 (2011  $695) represents Tier 1
capital, and nil (2011  nil) represents Tier 2B capital.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|142    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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



|                                   |  |               |                   |  |                                       |  |                      |             |  |  |                                       |     |  |                                       |                   |  |                  |  |                      |                  |  |   |     |  |  |   |     | 
|---------------------------------- |  | ------------- | ----------------- |  | ------------------------------------- |  | -------------------- | ----------- |  |  | ------------------------------------- | --- |  | ------------------------------------- | ----------------- |  | ---------------- |  | -------------------- | ---------------- |  | - | --- |  |  | - | --- | 
|Issuer                             |  | Issuance Date |                   |  | Distribution or interestpayment dates |  |                      | Annualyield |  |  | Redemption date atthe issuers option |     |  | Conversion date atthe holders option |                   |  | December 31,2012 |  |                      | December 31,2011 | 
|Sun Life Capital Trust(1)(2)(3)(4) |  |               |                   |  |                                       |  |                      |             |  |  |                                       |     |  |                                       |                   |  |                  |  |                      |                  |  |   |     |  |  |   |     | 
|SLEECS A                           |  |               | October 19, 2001  |  |                                       |  | June 30, December 31 |             |  |  | 6.865%                                |     |  |                                       | December 31, 2006 |  |                  |  | Any time             |                  |  | $ |    |  |  | $ |    | 
|SLEECS B                           |  |               | June 25, 2002     |  |                                       |  | June 30, December 31 |             |  |  | 7.093%                                |     |  |                                       | June 30, 2007     |  |                  |  | Any time             |                  |  |   | 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 conversion option |                  |  |   | 496 |  |  |   | 495 | 
|                                   |  |               |                   |  |                                       |  |                      |             |  |  |                                       |     |  |                                       |                   |  |                  |  |                      |                  |  | $ | 696 |  |  | $ | 695 | 
|Fair value                         |  |               |                   |  |                                       |  |                      |             |  |  |                                       |     |  |                                       |                   |  |                  |  |                      |                  |  | $ | 784 |  |  | $ | 712 | 



|(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 $44 and $109 for 2012 and 2011, respectively.

15. Subordinated Debt





The following obligations are included in Subordinated debt
as at December 31, and qualify as capital for Canadian regulatory purposes:



|                            |  |          |              |  |              |  |       |                           |  |  |                  |  |  |      |      |  |      |   |       |  |  |   |       | 
|--------------------------- |  | -------- | ------------ |  | ------------ |  | ----- | ------------------------- |  |  | ---------------- |  |  | ---- | ---- |  | ---- | - | ----- |  |  | - | ----- | 
|                            |  | Currency |              |  | InterestRate |  |       | Earliest Par
Call date(1) |  |  | Maturity         |  |  | 2012 |      |  | 2011 |  
|Sun Life Assurance:         |  |          |              |  |              |  |       |                           |  |  |                  |  |  |      |      |  |      |   |       |  |  |   |       | 
|Issued May 15, 1998(2)      |  |          | Cdn. dollars |  |              |  | 6.30% |                           |  |  |                 |  |  |      | 2028 |  |      | $ | 150   |  |  | $ | 150   | 
|Issued June 25, 2002(3)     |  |          | Cdn. dollars |  |              |  | 6.15% |                           |  |  | June 30, 2012    |  |  |      | 2022 |  |      |   |      |  |  |   | 800   | 
|Sun Life Financial Inc.:    |  |          |              |  |              |  |       |                           |  |  |                  |  |  |      |      |  |      |   |       |  |  |   |       | 
|Issued May 29, 2007(4)      |  |          | Cdn. dollars |  |              |  | 5.40% |                           |  |  | May 29, 2037     |  |  |      | 2042 |  |      |   | 398   |  |  |   | 398   | 
|Issued January 30, 2008(5)  |  |          | Cdn. dollars |  |              |  | 5.59% |                           |  |  | January 30, 2018 |  |  |      | 2023 |  |      |   | 398   |  |  |   | 398   | 
|Issued June 26, 2008(6)     |  |          | Cdn. dollars |  |              |  | 5.12% |                           |  |  | June 26, 2013    |  |  |      | 2018 |  |      |   | 350   |  |  |   | 349   | 
|Issued March 31, 2009(7)    |  |          | Cdn. dollars |  |              |  | 7.90% |                           |  |  | March 31, 2014   |  |  |      | 2019 |  |      |   | 499   |  |  |   | 498   | 
|Issued March 2, 2012(8)     |  |          | Cdn. dollars |  |              |  | 4.38% |                           |  |  | March 2, 2017    |  |  |      | 2022 |  |      |   | 796   |  |  |   |      | 
|Sun Canada Financial Co.:   |  |          |              |  |              |  |       |                           |  |  |                  |  |  |      |      |  |      |   |       |  |  |   |       | 
|Issued December 15,
1995(9) |  |          | U.S. dollars |  |              |  | 7.25% |                           |  |  | n/a              |  |  |      | 2015 |  |      |   | 149   |  |  |   | 153   | 
|Total                       |  |          |              |  |              |  |       |                           |  |  |                  |  |  |      |      |  |      | $ | 2,740 |  |  | $ | 2,746 | 
|Fair value                  |  |          |              |  |              |  |       |                           |  |  |                  |  |  |      |      |  |      | $ | 2,912 |  |  | $ | 2,836 | 



|(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 Co. 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) | 6.15% Debentures due June 30, 2022. Redeemed on June 30, 2012.
|--- | --------------------------------------------------------------

|(4) | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | 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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Series 2012-1 Subordinated Unsecured 4.38% Fixed/Floating Debentures due 2022. From March 2, 2017, interest is payable at 2.70% over the 90-day Bankers Acceptance
Rate.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | 7.25% 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 $175 and $171 for 2012 and 2011, respectively.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    143



---

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, 2012, 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%.

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:



|                                                                         |  |                 |     |  |        |   |       |                 |  |  |        |  |  |   |       | 
|------------------------------------------------------------------------ |  | --------------- | --- |  | ------ | - | ----- | --------------- |  |  | ------ |  |  | - | ----- | 
|                                                                         |  | 2012            |     |  | 2011   |  
|Common shares (in millions of shares)                                    |  | Number ofshares |     |  | Amount |   |       | Number ofshares |  |  | Amount | 
|Balance, January 1                                                       |  |                 | 588 |  |        | $ | 7,735 |                 |  |  | 574    |  |  | $ | 7,407 | 
|Stock options exercised (Note 20)                                        |  |                 | 1   |  |        |   | 12    |                 |  |  | 2      |  |  |   | 48    | 
|Common shares issued to non-controlling interest (Note 17)               |  |                 |    |  |        |   |      |                 |  |  | 2      |  |  |   | 37    | 
|Shares issued under the dividend reinvestment and share purchase plan(1) |  |                 | 11  |  |        |   | 261   |                 |  |  | 10     |  |  |   | 243   | 
|Balance, December 31                                                     |  |                 | 600 |  |        | $ | 8,008 |                 |  |  | 588    |  |  | $ | 7,735 | 



|(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 2012 and 2011 were issued at a discount of 2%. An insignificant number of common shares were issued from treasury
for optional cash purchases at no discount.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|144    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

16.B Preferred Shares

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



|                                                 |  |                 |     |  |        |   |       |                 |  |  |        |  |  |   |       |  
|------------------------------------------------ |  | --------------- | --- |  | ------ | - | ----- | --------------- |  |  | ------ |  |  | - | ----- | -
|                                                 |  | 2012            |     |  | 2011   |  
|Class A Preferred shares (in millions of shares) |  | Number ofshares |     |  | Amount |   |       | Number ofshares |  |  | Amount | 
|Balance, January 1                               |  |                 | 102 |  |        | $ | 2,503 |                 |  |  | 82     |  |  | $ | 2,015 |  
|Issued, Series 10R                               |  |                 |    |  |        |   |      |                 |  |  | 8      |  |  |   | 200   |  
|Issued, Series 12R                               |  |                 |    |  |        |   |      |                 |  |  | 12     |  |  |   | 300   |  
|Issuance costs, net of taxes                     |  |                 |    |  |        |   |      |                 |  |  |       |  |  |   | (12   | )
|Balance, December 31                             |  |                 | 102 |  |        | $ | 2,503 |                 |  |  | 102    |  |  | $ | 2,503 |  

Further information on the preferred shares outstanding as at December 31, 2012, is as follows:



|                                                 |  |                   |  |                    |       |  |                         |   |      |                             |  |                        |  |  |            |  |  |              |       |  |  |   |       | 
|------------------------------------------------ |  | ----------------- |  | ------------------ | ----- |  | ----------------------- | - | ---- | --------------------------- |  | ---------------------- |  |  | ---------- |  |  | ------------ | ----- |  |  | - | ----- | 
|Class A Preferred shares
(in millions of shares) |  | Issue Date        |  | AnnualDividendRate |       |  | 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%.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 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.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    145



---

18. Fee Income





Fee income for the years ended December 31, consists of the following:



|                                                              |  |      |       |  |      |   |       | 
|------------------------------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                                              |  | 2012 |       |  | 2011 |  
|Income associated with administration and contract guarantees |  | $    | 422   |  |      | $ | 400   | 
|Fund management and other asset based fees                    |  |      | 1,806 |  |      |   | 1,624 | 
|Commissions                                                   |  |      | 542   |  |      |   | 506   | 
|Service contract fee income                                   |  |      | 193   |  |      |   | 191   | 
|Other fee income                                              |  |      | 65    |  |      |   | 75    | 
|Total fee income                                              |  | $    | 3,028 |  |      | $ | 2,796 | 

19. Operating Expenses





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



|                                      |  |      |       |  |      |   |       | 
|------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                      |  | 2012 |       |  | 2011 |  
|Employee expenses(1)                  |  | $    | 1,909 |  |      | $ | 1,729 | 
|Premises and equipment                |  |      | 164   |  |      |   | 156   | 
|Capital asset depreciation (Note 9)   |  |      | 62    |  |      |   | 54    | 
|Service fees                          |  |      | 493   |  |      |   | 517   | 
|Amortization of intangibles (Note 10) |  |      | 54    |  |      |   | 46    | 
|Restructuring costs (Note 21)         |  |      |      |  |      |   | 17    | 
|Other expenses                        |  |      | 825   |  |      |   | 743   | 
|Total operating expenses              |  | $    | 3,507 |  |      | $ | 3,262 | 



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

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



|                                   |  |      |       |  |      |   |       | 
|---------------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                                   |  | 2012 |       |  | 2011 |  
|Salaries, bonus, employee benefits |  | $    | 1,579 |  |      | $ | 1,475 | 
|Share-based payments (Note 20)     |  |      | 305   |  |      |   | 232   | 
|Other personnel costs              |  |      | 25    |  |      |   | 22    | 
|Total employee expenses            |  | $    | 1,909 |  |      | $ | 1,729 | 

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.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|146    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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



|                          |  |                                  |        |   |                              |   |       |                                  |  |  |                              |   |  |   |       | 
|------------------------- |  | -------------------------------- | ------ | - | ---------------------------- | - | ----- | -------------------------------- |  |  | ---------------------------- | - |  | - | ----- | 
|                          |  | 2012                             |        |   | 2011                         |  
|                          |  | Number ofStockOptions(Thousands) |        |   | WeightedAverageExercisePrice |   |       | Number ofStockOptions(Thousands) |  |  | WeightedAverageExercisePrice |  
|Balance, January 1,       |  |                                  | 13,195 |   |                              | $ | 32.49 |                                  |  |  | 14,193                       |   |  | $ | 31.87 | 
|Granted                   |  |                                  | 2,164  |   |                              | $ | 21.52 |                                  |  |  | 1,704                        |   |  | $ | 31.35 | 
|Exercised                 |  |                                  | (484   | ) |                              | $ | 19.70 |                                  |  |  | (1,654                       | ) |  | $ | 25.20 | 
|Forfeited                 |  |                                  | (705   | ) |                              | $ | 34.58 |                                  |  |  | (745                         | ) |  | $ | 35.09 | 
|Expired                   |  |                                  | (954   | ) |                              | $ | 31.47 |                                  |  |  | (303                         | ) |  | $ | 31.78 | 
|Balance, December 31,     |  |                                  | 13,216 |   |                              | $ | 31.10 |                                  |  |  | 13,195                       |   |  | $ | 32.49 | 
|Exercisable, December 31, |  |                                  | 7,955  |   |                              | $ | 34.86 |                                  |  |  | 7,434                        |   |  | $ | 35.69 | 

The average share price at the date of exercise of stock options for the year ended December 31, 2012 was $23.88 ($31.25 for
2011).

Compensation expense for stock options was $10 for the year ended December 31, 2012 ($15 for 2011). $9 of this compensation expense is
related to the continuing operations ($15 in 2011).

The stock options outstanding as at December 31, 2012 by exercise price, are as follows:



|                         |  |                                  |        |  |                                                 |  |     |                              |  |   |       | 
|------------------------ |  | -------------------------------- | ------ |  | ----------------------------------------------- |  | --- | ---------------------------- |  | - | ----- | 
|Range of exercise prices |  | Number ofStockOptions(Thousands) |        |  | WeightedAverageRemainingContractualLife (Years) |  |     | WeightedAverageExercisePrice | 
|$18.00 to $24.00         |  |                                  | 4,793  |  |                                                 |  | 7.2 |                              |  | $ | 20.65 | 
|$24.01 to $30.00         |  |                                  | 1,261  |  |                                                 |  | 3.7 |                              |  | $ | 27.93 | 
|$30.01 to $35.00         |  |                                  | 3,840  |  |                                                 |  | 7.4 |                              |  | $ | 30.80 | 
|$35.01 to $45.00         |  |                                  | 748    |  |                                                 |  | 2.1 |                              |  | $ | 40.58 | 
|$45.01 to $53.00         |  |                                  | 2,574  |  |                                                 |  | 4.2 |                              |  | $ | 49.79 | 
|Total stock options      |  |                                  | 13,216 |  |                                                 |  | 6.1 |                              |  | $ | 31.10 | 

The weighted average fair values of the stock options, calculated using the Black-Scholes option-pricing model, granted during the
year ended December 31, 2012, was $4.85 ($7.74 for 2011). 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           |  | 2012 |       |  | 2011 |  
|Risk-free interest rate                |  |      | 1.6%  |  |      |   | 2.9%  | 
|Expected volatility                    |  |      | 35.1% |  |      |   | 35.3% | 
|Expected dividend yield                |  |      | 4%    |  |      |   | 4%    | 
|Expected life of the option (in years) |  |      | 6.2   |  |      |   | 6.3   | 
|Exercise price                         |  | $    | 21.52 |  |      | $ | 31.35 | 

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.

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, 2012 ($4 for 2011).

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



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    147



---

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, 2011       |  |            | 1,863 |  |      |   | 739 |      |  |   | 3,386     |  |  |       | 942 |  |  |   | 6,930 | 
|Units outstanding December 31, 2012       |  |            | 4,653 |  |      |   | 842 |      |  |   | 1,213     |  |  |       | 576 |  |  |   | 7,284 | 
|Liability accrued as at December 31, 2012 |  | $          | 56    |  |      | $ | 21  |      |  | $ | 31        |  |  | $     | 15  |  |  | $ | 123   | 

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 Sun Shares 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, |  | 2012 |     |   | 2011 |  
|Compensation expense(1)          |  | $    | 84  |   |      | $ | 11 |  
|Income tax expense (benefit)(2)  |  | $    | (23 | ) |      | $ | (4 | )



|(1) | $82 of the compensation expense in 2012 relates to the continuing operations ($8 in 2011).
|--- | ------------------------------------------------------------------------------------------

|(2) | $(22) of the income tax expense (benefit) in 2012 relates to the continuing operations ($(3) in 2011).
|--- | ------------------------------------------------------------------------------------------------------

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, 2012 was $546.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|148    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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, |  | 2012 |     |   | 2011 |  
|Compensation expense             |  | $    | 210 |   |      | $ | 206 |  
|Income tax expense (benefit)     |  | $    | (53 | ) |      | $ | (41 | )

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 of 2011. 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.

In 2011, we recorded restructuring costs of $59, $17 of which is related to our continuing operations and included in Operating
expenses. The total restructuring costs 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 paid a significant amount of the costs accrued as
part of this liability in 2012. Additional restructuring costs that did not meet the recognition criteria in 2011 were expensed in 2012 as part of the discontinued operation.

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, which is included as part of the discontinued operation
described in Note 3, and $17 due to impairment of intangible assets, $9 of which is related to our continuing operations. 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)as at December 31, in the Consolidated Statements of Financial Position by source of temporary differences:



|                                    |  |                   |        |   |                   |   |       |        |  |   |             |   |  |   |       | 
|----------------------------------- |  | ----------------- | ------ | - | ----------------- | - | ----- | ------ |  | - | ----------- | - |  | - | ----- | 
|As at                               |  | December 31, 2012 |        |   | December 31, 2011 |  
|                                    |  | Assets            |        |   | Liabilities       |   |       | Assets |  |   | Liabilities |  
|Investments                         |  | $                 | (1,153 | ) |                   | $ | 2     |        |  | $ | (790        | ) |  | $ | 2     | 
|Policy liabilities(2)(3)            |  |                   | 858    |   |                   |   | (1    | )      |  |   | 815         |   |  |   |      | 
|Deferred acquisition costs          |  |                   | 220    |   |                   |   |      |        |  |   | 302         |   |  |   |      | 
|Losses available for carry forward  |  |                   | 748    |   |                   |   |      |        |  |   | 924         |   |  |   |      | 
|Pension and other employee benefits |  |                   | 259    |   |                   |   |      |        |  |   | 235         |   |  |   |      | 
|Other                               |  |                   | 73     |   |                   |   | 4     |        |  |   | 208         |   |  |   | 5     | 
|Total                               |  | $                 | 1,005  |   |                   | $ | 5     |        |  | $ | 1,694       |   |  | $ | 7     | 
|Total net deferred tax asset        |  |                   |        |   |                   | $ | 1,000 |        |  |   |             |   |  | $ | 1,687 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    149



---

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



|                                                         |  |             |        |   |                         |   |      |                          |  |   |                                 |   |  |                                |      |   |       |   |     |       |  |   |      |   |  |   |       |  
|-------------------------------------------------------- |  | ----------- | ------ | - | ----------------------- | - | ---- | ------------------------ |  | - | ------------------------------- | - |  | ------------------------------ | ---- | - | ----- | - | --- | ----- |  | - | ---- | - |  | - | ----- | -
|                                                         |  | Investments |        |   | Policyliabilities(2)(3) |   |      | Deferredacquisitioncosts |  |   | Lossesavailablefor carryforward |   |  | Pension& otheremployeebenefits |      |   | Other |   |     | Total | 
|As at December 31, 2011                                  |  | $           | (792   | ) |                         | $ | 815  |                          |  | $ | 302                             |   |  | $                              | 924  |   |       | $ | 235 |       |  | $ | 203  |   |  | $ | 1,687 |  
|Charged to income statement                              |  |             | (254   | ) |                         |   | 272  |                          |  |   | (64                             | ) |  |                                | (133 | ) |       |   | 47  |       |  |   | (18  | ) |  |   | (150  | )
|Charged to other comprehensive income                    |  |             | (60    | ) |                         |   |     |                          |  |   |                                |   |  |                                | (8   | ) |       |   |    |       |  |   | 3    |   |  |   | (65   | )
|Charged to equity, other than other comprehensive income |  |             |       |   |                         |   |     |                          |  |   |                                |   |  |                                |     |   |       |   | (30 | )     |  |   | 2    |   |  |   | (28   | )
|Foreign exchange rate movements                          |  |             | 8      |   |                         |   | (21  | )                        |  |   | (7                              | ) |  |                                | (8   | ) |       |   | (1  | )     |  |   | (9   | ) |  |   | (38   | )
|Less: Held for sale                                      |  |             | (57    | ) |                         |   | (207 | )                        |  |   | (11                             | ) |  |                                | (27  | ) |       |   | 8   |       |  |   | (112 | ) |  |   | (406  | )
|As at December 31, 2012                                  |  | $           | (1,155 | ) |                         | $ | 859  |                          |  | $ | 220                             |   |  | $                              | 748  |   |       | $ | 259 |       |  | $ | 69   |   |  | $ | 1,000 |  



|                                                         |  |             |      |   |                         |   |     |                          |  |   |                                 |  |  |                                |     |   |       |   |     |       |  |   |     |   |  |   |       |  
|-------------------------------------------------------- |  | ----------- | ---- | - | ----------------------- | - | --- | ------------------------ |  | - | ------------------------------- |  |  | ------------------------------ | --- | - | ----- | - | --- | ----- |  | - | --- | - |  | - | ----- | -
|                                                         |  |             |      |   |                         |   |    
|                                                         |  | Investments |      |   | Policyliabilities(2)(3) |   |     | Deferredacquisitioncosts |  |   | Lossesavailablefor carryforward |  |  | Pension& otheremployeebenefits |     |   | Other |   |     | Total | 
|As at January 1, 2011                                    |  | $           | (439 | ) |                         | $ | (82 | )                        |  | $ | 293                             |  |  | $                              | 943 |   |       | $ | 221 |       |  | $ | 10  |   |  | $ | 946   |  
|Charged to income statement                              |  |             | (343 | ) |                         |   | 891 |                          |  |   | 1                               |  |  |                                | (54 | ) |       |   | 19  |       |  |   | 189 |   |  |   | 703   |  
|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 | ) |                         | $ | 815 |                          |  | $ | 302                             |  |  | $                              | 924 |   |       | $ | 235 |       |  | $ | 203 |   |  | $ | 1,687 |  



|(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.
|--- | ---------------------------------------------------------------------------------------------------------

|(3) | 2011 balances have been restated. Refer to Note 2.
|--- | --------------------------------------------------

We have
accumulated tax losses, primarily in Canada, the United States, and the United Kingdom, totaling $3,303 (for Combined Operations $4,422 in 2011). 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 $496 as of December 31, 2012 ($727 in 2011) in Asia and the U.K.

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
of non-capital losses which expire beginning in 2023. 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. As at December 31, 2012, 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 $3,054 (for Combined Operations $2,822 in 2011).



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|150    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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:



|                                                                            |  |      |     |   |      |   |      |  
|--------------------------------------------------------------------------- |  | ---- | --- | - | ---- | - | ---- | -
|                                                                            |  | 2012 |     |   | 2011 |  
|Current income tax expense (benefit):                                       |  |      |     |   |      |   |      |  
|Current year                                                                |  | $    | 226 |   |      | $ | 287  |  
|Adjustments in respect of prior years, including resolution of tax disputes |  |      | (44 | ) |      |   | (69  | )
|Total current income tax expense (benefit)                                  |  | $    | 182 |   |      | $ | 218  |  
|                                                                            |  |      |     |   |      |   |      |  
|                                                                            |  | 2012 |     |   | 2011 |  
|Deferred income tax expense (benefit):                                      |  |      |     |   |      |   |      |  
|Origination and reversal of temporary
differences(1)                        |  | $    | 14  |   |      | $ | (329 | )
|Tax expense (benefit) arising from unrecognized tax losses                  |  |      | (8  | ) |      |   | (64  | )
|Adjustments in respect of prior years, including resolution of tax disputes |  |      | 22  |   |      |   | 24   |  
|Total deferred income tax expense (benefit)                                 |  | $    | 28  |   |      | $ | (369 | )
|Total income tax expense (benefit)                                          |  | $    | 210 |   |      | $ | (151 | )



|(1) | 2011 balances have been restated. Refer to Note 2.
|--- | --------------------------------------------------

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



|                                                                                                                              |  |      |     |   |      |   |    |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | - | ---- | - | -- | -
|                                                                                                                              |  | 2012 |     |   | 2011 |  
|Recognized in other comprehensive income:                                                                                     |  |      |     |   |      |   |    |  
|Current income tax benefit (expense)                                                                                          |  | $    | (4  | ) |      | $ | (5 | )
|Deferred income tax benefit (expense)                                                                                         |  |      | (65 | ) |      |   | 39 |  
|Total recognized in other comprehensive income                                                                                |  | $    | (69 | ) |      | $ | 34 |  
|Recognized in equity, other than other comprehensive income:                                                                  |  |      |     |   |      |   |    |  
|Current income tax benefit (expense)                                                                                          |  |      | 29  |   |      |   |   |  
|Deferred income tax benefit (expense)                                                                                         |  |      | (28 | ) |      |   | (3 | )
|Total income tax benefit (expense) recorded in equity, including tax benefit (expense) recorded in
other comprehensive income |  | $    | (68 | ) |      | $ | 31 |  

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,                                                         |  | 2012 |       |   | 2011 | 
|                                                                                         |  |      |       |   | %    |  |       |   |  |   | %    |  
|Total net income (loss)                                                                  |  | $    | 1,501 |   |      |  |       |   |  | $ | 341  |   |  |  |        |  
|Add: Income tax expense
(benefit)(1)                                                     |  |      | 210   |   |      |  |       |   |  |   | (151 | ) |  |  |        |  
|Total net income (loss) before income taxes                                              |  | $    | 1,711 |   |      |  |       |   |  | $ | 190  |   |  |  |        |  
|                                                                                         |  |      |       |  
|Taxes at the combined Canadian federal and provincial statutory income tax rate(1)       |  | $    | 453   |   |      |  | 26.5  |   |  | $ | 53   |   |  |  | 28.0   |  
|Increase (decrease) in rate resulting from:                                              |  |      |       |   |      |  |       |   |  |   |      |   |  |  |        |  
|Higher (lower) effective rates on income subject to taxation in foreign jurisdictions(1) |  |      | (9    | ) |      |  | (0.5  | ) |  |   | 56   |   |  |  | 29.5   |  
|Tax (benefit) cost of unrecognized tax losses                                            |  |      | (8    | ) |      |  | (0.5  | ) |  |   | (64  | ) |  |  | (33.7  | )
|Tax exempt investment income                                                             |  |      | (200  | ) |      |  | (11.7 | ) |  |   | (201 | ) |  |  | (105.8 | )
|Tax rate and other legislative changes                                                   |  |      | 3     |   |      |  | 0.2   |   |  |   |     |   |  |  |       |  
|Adjustments in respect of prior years, including resolution of tax disputes              |  |      | (22   | ) |      |  | (1.3  | ) |  |   | (45  | ) |  |  | (23.7  | )
|Other                                                                                    |  |      | (7    | ) |      |  | (0.4  | ) |  |   | 50   |   |  |  | 26.2   |  
|Total tax expense (benefit) and effective income tax rate                                |  | $    | 210   |   |      |  | 12.3  |   |  | $ | (151 | ) |  |  | (79.5  | )



|(1) | 2011 balances have been restated. Refer to Note 2.
|--- | --------------------------------------------------

In 2006 and
later 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 rate declined from 28% in 2011 to 26.5% in 2012.

In 2012, the U.K. government enacted legislation reducing the statutory corporate income tax rate to 24% effective April 1, 2012 and 23% effective
April 1, 2013. In addition, a new tax regime for life companies, effective January 1, 2013, has been enacted in the U.K. The net impact of these enactments is reflected in line Tax rate and other legislative changes in the table above.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    151



---

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.

In 2012, the benefit of lower taxes on investment income amounted to $200 partially in
relation to the appreciation of real estate classified as investment properties in Canada. 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 expense included a tax benefit of $44 in 2012. Our tax expense in 2012 was further reduced due to adjustments related to prior years, mostly due to the successful resolution of tax audits, and
recognition of previously unrecognized tax losses in the U.K.

In 2011, line Higher (lower) effective rates on income subject to taxation in foreign
jurisdictions reflected the impact of losses in lower tax jurisdictions incurred during the year. Our benefit of lower taxes on investment income in 2011 amounted to $201 including a tax benefit of $34 related the appreciation of investment
properties in Canada. 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.

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 Executive Risk Committee, the membership of which includes 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 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, 2012 and December 31, 2011.

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 209% as at December 31, 2012, 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, 2012 and December 31, 2011.

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, 2012 and December 31, 2011.

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 made this election and has now completed phasing in a reduction of approximately $300 to its adjusted tier 1 available capital over this period, largely related to the recognition of deferred actuarial losses on defined
benefit pension plans.

As at January 1, 2013, Sun Life Assurance elected the phase-in of the initial impact on gross tier 1 available capital of
adopting the revisions to IAS 19 relating to accumulated defined benefit OCI remeasurements, as per OSFIs 2013 MCCSR Guideline. Sun Life Assurance will phase in a reduction of approximately $152 to its gross tier 1 available capital over eight
quarters, ending in the fourth quarter of 2014.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|152    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

The 2013 MCCSR Guideline reduced the lapse risk capital requirement, effective first quarter of 2013. The reduced
requirement will be immediately implemented with no transition. The impact to the MCCSR ratio for Sun Life Assurance is expected to be an increase of three percentage points.

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,                                                                         |  | 2012 |        |  | 2011 |  
|Equity:                                                                                    |  |      |        |  |      |   |        | 
|Participating policyholders equity                                                        |  | $    | 128    |  |      | $ | 123    | 
|Preferred shareholders equity                                                             |  |      | 2,503  |  |      |   | 2,503  | 
|Common shareholders
equity(2)                                                             |  |      | 14,120 |  |      |   | 13,018 | 
|Total equity included in capital                                                           |  |      | 16,751 |  |      |   | 15,644 | 
|Less: Unrealized gains (losses) on available-for-sale debt securities and cash flow
hedges |  |      | 528    |  |      |   | 275    | 
|Equity after adjustments                                                                   |  |      | 16,223 |  |      |   | 15,369 | 
|Other capital securities:                                                                  |  |      |        |  |      |   |        | 
|Subordinated debt                                                                          |  |      | 2,740  |  |      |   | 2,746  | 
|Innovative capital
instruments(1)                                                          |  |      | 696    |  |      |   | 695    | 
|Total capital                                                                              |  | $    | 19,659 |  |      | $ | 18,810 | 



|(1) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 2011 balances have been restated. Refer to Note 2.
|--- | --------------------------------------------------

The significant
changes in capital are included in the notes on Innovative Capital Instruments and 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,                                       |  | 2012 |        |  | 2011 |  
|Segregated and mutual fund units                         |  | $    | 54,167 |  |      | $ | 72,840 | 
|Equity securities                                        |  |      | 7,256  |  |      |   | 5,830  | 
|Debt securities                                          |  |      | 2,797  |  |      |   | 8,473  | 
|Cash, cash equivalents and short term securities         |  |      | 558    |  |      |   | 1,425  | 
|Investment properties                                    |  |      | 276    |  |      |   | 318    | 
|Mortgages                                                |  |      | 18     |  |      |   | 27     | 
|Other assets                                             |  |      | 100    |  |      |   | 2,492  | 
|Total assets                                             |  | $    | 65,172 |  |      | $ | 91,405 | 
|Less: Liabilities arising from investing activities      |  | $    | 185    |  |      | $ | 3,222  | 
|Total investments for account of segregated fund holders |  | $    | 64,987 |  |      | $ | 88,183 | 



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    153



---

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,                  |  | 2012                |        |  | 2011                 |   |        | 2012 |  |   | 2011  |  
|Balance as at January 1,                          |  | $                   | 82,650 |  |                      | $ | 81,931 |      |  | $ | 5,533 |   |  | $ | 6,015 |  
|Additions to segregated funds:                    |  |                     |        |  |                      |   |        |      |  |   |       |   |  |   |       |  
|Deposits                                          |  |                     | 7,163  |  |                      |   | 9,964  |      |  |   | 164   |   |  |   | 218   |  
|Net transfers (to) from general funds             |  |                     | 189    |  |                      |   | 617    |      |  |   |      |   |  |   |      |  
|Net realized and unrealized gains (losses)        |  |                     | 5,134  |  |                      |   | (3,645 | )    |  |   | 574   |   |  |   | (323  | )
|Other investment income                           |  |                     | 2,366  |  |                      |   | 2,409  |      |  |   | 174   |   |  |   | 84    |  
|Total additions                                   |  | $                   | 14,852 |  |                      | $ | 9,345  |      |  | $ | 912   |   |  | $ | (21   | )
|Deductions from segregated funds:                 |  |                     |        |  |                      |   |        |      |  |   |       |   |  |   |       |  
|Payments to policyholders and their beneficiaries |  |                     | 8,697  |  |                      |   | 8,084  |      |  |   | 493   |   |  |   | 491   |  
|Management fees                                   |  |                     | 1,130  |  |                      |   | 1,149  |      |  |   | 62    |   |  |   | 75    |  
|Taxes and other expenses                          |  |                     | 266    |  |                      |   | 159    |      |  |   | 12    |   |  |   | 7     |  
|Foreign exchange rate movements                   |  |                     | 716    |  |                      |   | (766   | )    |  |   | (84   | ) |  |   | (112  | )
|Total deductions                                  |  | $                   | 10,809 |  |                      | $ | 8,626  |      |  | $ | 483   |   |  | $ | 461   |  
|Net additions (deductions)                        |  | $                   | 4,043  |  |                      | $ | 719    |      |  | $ | 429   |   |  | $ | (482  | )
|Less: Held for sale (Note 3)                      |  | $                   | 27,668 |  |                      |   |        |      |  | $ |      |   |  |   |       |  
|Balance as at December 31                         |  | $                   | 59,025 |  |                      | $ | 82,650 |      |  | $ | 5,962 |   |  | $ | 5,533 |  

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 $352. 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, 2012, we had a total of $1,203 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, 2012, lines of credit from financial institutions of $1,688 were in place ($1,739 as at December 31, 2011) of which a total of $640 in letters of credit were outstanding ($821 as
at December 31, 2011) of which $377 relate to internal reinsurance ($612 as at December 31, 2011).

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.

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



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|154    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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, 2012                                             |  |                          |       |   |                                 |   |        |                                        |  |   |                         |   |  |                        |        |   |  |   |        |  
|Revenue                                                       |  | $                        | 482   |   |                                 | $ | 15,497 |                                        |  | $ | 2,851                   |   |  | $                      | (1,271 | ) |  | $ | 17,559 |  
|Shareholders net income (loss) from continuing operations    |  | $                        | 1,672 |   |                                 | $ | 1,351  |                                        |  | $ | (52                     | ) |  | $                      | (1,477 | ) |  | $ | 1,494  |  
|Shareholders net income (loss) from discontinued operation   |  | $                        |      |   |                                 | $ |       |                                        |  | $ | 180                     |   |  | $                      |       |   |  | $ | 180    |  
|                                                              |  |                          |       |   |                                
|December 31, 2011                                             |  |                          |       |   |                                 |   |        |                                        |  |   |                         |   |  |                        |        |   |  |   |        |  
|Revenue                                                       |  | $                        | 528   |   |                                 | $ | 17,959 |                                        |  | $ | 2,993                   |   |  | $                      | (1,650 | ) |  | $ | 19,830 |  
|Shareholders net income (loss) from continuing
operations(1) |  | $                        | (200  | ) |                                 | $ | 774    |                                        |  | $ | (509                    | ) |  | $                      | 260    |   |  | $ | 325    |  
|Shareholders net income (loss) from discontinued operation   |  | $                        |      |   |                                 | $ |       |                                        |  | $ | (595                    | ) |  | $                      |       |   |  | $ | (595   | )



|(1) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------



|                                                   |  |                          |        |  |                                 |   |        |                                        |  |   |                         |  |  |                        |         |   |  |   |         | 
|-------------------------------------------------- |  | ------------------------ | ------ |  | ------------------------------- | - | ------ | -------------------------------------- |  | - | ----------------------- |  |  | ---------------------- | ------- | - |  | - | ------- | 
|Assets as at                                       |  | SLF Inc.(unconsolidated) |        |  | Sun LifeAssurance(consolidated) |   |        | Othersubsidiariesof SLF Inc.(combined) |  |   | Consolidationadjustment |  |  | SLF Inc.(consolidated) |        
|December 31, 2012                                  |  |                          |        |  |                                 |   |        |                                        |  |   |                         |  |  |                        |         |   |  |   |         | 
|Invested assets                                    |  | $                        | 18,658 |  |                                 | $ | 99,459 |                                        |  | $ | 5,725                   |  |  | $                      | (18,167 | ) |  | $ | 105,675 | 
|Total other general fund assets                    |  |                          | 8,239  |  |                                 |   | 13,419 |                                        |  |   | 33,068                  |  |  |                        | (27,274 | ) |  |   | 27,452  | 
|Investments for account of segregated fund holders |  |                          |       |  |                                 |   | 65,177 |                                        |  |   | 27,478                  |  |  |                        |        |   |  |   | 92,655  | 
|Insurance contract liabilities                     |  |                          |       |  |                                 |   | 89,160 |                                        |  |   | 682                     |  |  |                        | (2,567  | ) |  |   | 87,275  | 
|Investment contract liabilities                    |  |                          |       |  |                                 |   | 2,303  |                                        |  |   |                        |  |  |                        |        |   |  |   | 2,303   | 
|Total other general fund liabilities               |  | $                        | 10,287 |  |                                 | $ | 9,631  |                                        |  | $ | 34,368                  |  |  | $                      | (27,488 | ) |  | $ | 26,798  | 
|                                                   |  |                          |        |  |                                
|December 31, 2011                                  |  |                          |        |  |                                 |   |        |                                        |  |   |                         |  |  |                        |         |   |  |   |         | 
|Invested assets                                    |  | $                        | 16,435 |  |                                 | $ | 94,540 |                                        |  | $ | 21,243                  |  |  | $                      | (15,557 | ) |  | $ | 116,661 | 
|Total other general fund assets(1)                 |  |                          | 8,634  |  |                                 |   | 13,593 |                                        |  |   | 19,542                  |  |  |                        | (28,359 | ) |  |   | 13,410  | 
|Investments for account of segregated fund holders |  |                          |       |  |                                 |   | 60,169 |                                        |  |   | 28,014                  |  |  |                        |        |   |  |   | 88,183  | 
|Insurance contract liabilities(1)                  |  |                          |       |  |                                 |   | 85,834 |                                        |  |   | 14,938                  |  |  |                        | (4,085  | ) |  |   | 96,687  | 
|Investment contract liabilities                    |  |                          |       |  |                                 |   | 2,083  |                                        |  |   | 990                     |  |  |                        |        |   |  |   | 3,073   | 
|Total other general fund liabilities               |  | $                        | 9,474  |  |                                 | $ | 9,529  |                                        |  | $ | 22,723                  |  |  | $                      | (27,059 | ) |  | $ | 14,667  | 



|(1) | Balances have been restated. Refer to Note 2.
|--- | ---------------------------------------------

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, the United Kingdom 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.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    155



---

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, 2012 are listed below:



|                                                   |  |               |       | 
|-------------------------------------------------- |  | ------------- | ----- | 
|Name of Joint Venture Company                      |  | % ofOwnership |      
|Birla Sun Life Asset Management Company Limited    |  |               | 49    | 
|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 |  | 2012 |    |  | 2011 |  
|Joint ventures                  |  | $    | 34 |  |      | $ | 17 | 

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,              |  | 2012           |    |  | 2011      |  
|                                              |  | Executive team |    |  | Directors |   |    | Executive team |  |   | Directors | 
|Number of individuals                         |  |                | 12 |  |           |   | 14 |                |  |   | 10        |  |  |   | 14 | 
|Base salary and annual incentive compensation |  | $              | 14 |  |           | $ |   |                |  | $ | 9         |  |  | $ |   | 
|Additional short-term benefits and other      |  | $              | 1  |  |           | $ | 1  |                |  | $ | 1         |  |  | $ | 1  | 
|Share-based long-term incentive compensation  |  | $              | 18 |  |           | $ | 1  |                |  | $ | 18        |  |  | $ | 1  | 
|Value of pension and post-retirement benefits |  | $              | 2  |  |           | $ |   |                |  | $ | 1         |  |  | $ |   | 
|Severance                                     |  | $              | 2  |  |           | $ |   |                |  | $ |          |  |  | $ |   | 

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, |  | 2012 |   |  | 2011 |  
|Indebtedness       |  | $    | 3 |  |      | $ | 3 | 

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.

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



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|156    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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, 2012; 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 retire 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:



|                                                       |  |         |        |   |                       |   |      |       |  |   |         |   |  |                       |        |   |       |   |      |   |  |   |        |  
|------------------------------------------------------ |  | ------- | ------ | - | --------------------- | - | ---- | ----- |  | - | ------- | - |  | --------------------- | ------ | - | ----- | - | ---- | - |  | - | ------ | -
|                                                       |  | 2012    |        |   | 2011                  |  
|                                                       |  | Pension |        |   | Other post-retirement |   |      | Total |  |   | Pension |   |  | Other post-retirement |        |   | Total |  
|Change in defined benefit obligations:                 |  |         |        |   |                       |   |      |       |  |   |         |   |  |                       |        |   |       |   |      |   |  |   |        |  
|Benefit obligation, January 1,                         |  | $       | 2,538  |   |                       | $ | 267  |       |  | $ | 2,805   |   |  | $                     | 2,246  |   |       | $ | 271  |   |  | $ | 2,517  |  
|Current service cost                                   |  |         | 35     |   |                       |   | 5    |       |  |   | 40      |   |  |                       | 34     |   |       |   | 5    |   |  |   | 39     |  
|Interest cost                                          |  |         | 118    |   |                       |   | 12   |       |  |   | 130     |   |  |                       | 116    |   |       |   | 14   |   |  |   | 130    |  
|Actuarial losses (gains)                               |  |         | 158    |   |                       |   | 8    |       |  |   | 166     |   |  |                       | 223    |   |       |   | 4    |   |  |   | 227    |  
|Benefits paid                                          |  |         | (147   | ) |                       |   | (11  | )     |  |   | (158    | ) |  |                       | (99    | ) |       |   | (20  | ) |  |   | (119   | )
|Settlement losses (gains)                              |  |         | (15    | ) |                       |   |     |       |  |   | (15     | ) |  |                       |       |   |       |   | (9   | ) |  |   | (9     | )
|Foreign exchange rate movement                         |  |         |       |   |                       |   | (2   | )     |  |   | (2      | ) |  |                       | 18     |   |       |   | 2    |   |  |   | 20     |  
|Benefit obligation, December 31,                       |  | $       | 2,687  |   |                       | $ | 279  |       |  | $ | 2,966   |   |  | $                     | 2,538  |   |       | $ | 267  |   |  | $ | 2,805  |  
|Benefit obligation, wholly or partially funded plans   |  | $       | 2,645  |   |                       | $ |     |       |  | $ | 2,645   |   |  | $                     | 2,477  |   |       | $ |     |   |  | $ | 2,477  |  
|Benefit obligation, wholly unfunded plans              |  |         | 42     |   |                       |   | 279  |       |  |   | 321     |   |  |                       | 61     |   |       |   | 267  |   |  |   | 328    |  
|Total benefit obligation, December 31,                 |  | $       | 2,687  |   |                       | $ | 279  |       |  | $ | 2,966   |   |  | $                     | 2,538  |   |       | $ | 267  |   |  | $ | 2,805  |  
|Change in plan assets:                                 |  |         |        |   |                       |   |      |       |  |   |         |   |  |                       |        |   |       |   |      |   |  |   |        |  
|Fair value of plan assets, January 1,                  |  | $       | 2,158  |   |                       | $ |     |       |  | $ | 2,158   |   |  | $                     | 2,065  |   |       | $ |     |   |  | $ | 2,065  |  
|Expected return on assets(1)                           |  |         | 126    |   |                       |   |     |       |  |   | 126     |   |  |                       | 127    |   |       |   |     |   |  |   | 127    |  
|Actuarial gains (losses) on plan assets(1)             |  |         | 62     |   |                       |   |     |       |  |   | 62      |   |  |                       | (19    | ) |       |   |     |   |  |   | (19    | )
|Employer contributions                                 |  |         | 80     |   |                       |   | 11   |       |  |   | 91      |   |  |                       | 68     |   |       |   | 20   |   |  |   | 88     |  
|Benefits paid                                          |  |         | (147   | ) |                       |   | (11  | )     |  |   | (158    | ) |  |                       | (99    | ) |       |   | (20  | ) |  |   | (119   | )
|Foreign exchange rate movement                         |  |         | 4      |   |                       |   |     |       |  |   | 4       |   |  |                       | 16     |   |       |   |     |   |  |   | 16     |  
|Fair value of plan assets, December 31,                |  | $       | 2,283  |   |                       | $ |     |       |  | $ | 2,283   |   |  | $                     | 2,158  |   |       | $ |     |   |  | $ | 2,158  |  
|Amounts recognized on statement of financial position: |  |         |        |   |                       |   |      |       |  |   |         |   |  |                       |        |   |       |   |      |   |  |   |        |  
|Fair value of plan assets                              |  | $       | 2,283  |   |                       | $ |     |       |  | $ | 2,283   |   |  | $                     | 2,158  |   |       | $ |     |   |  | $ | 2,158  |  
|Benefit (obligation), wholly or partially funded plans |  |         | (2,645 | ) |                       |   |     |       |  |   | (2,645  | ) |  |                       | (2,477 | ) |       |   |     |   |  |   | (2,477 | )
|Funded status, wholly or partially funded plans        |  |         | (362   | ) |                       |   |     |       |  |   | (362    | ) |  |                       | (319   | ) |       |   |     |   |  |   | (319   | )
|Benefit (obligation), wholly unfunded plans            |  |         | (42    | ) |                       |   | (279 | )     |  |   | (321    | ) |  |                       | (61    | ) |       |   | (267 | ) |  |   | (328   | )
|Unamortized actuarial losses (gains)                   |  |         | 286    |   |                       |   | 16   |       |  |   | 302     |   |  |                       | 212    |   |       |   | 5    |   |  |   | 217    |  
|Unamortized past service cost                          |  |         |       |   |                       |   | (3   | )     |  |   | (3      | ) |  |                       |       |   |       |   | (3   | ) |  |   | (3     | )
|Net recognized (liability)asset, December 31,          |  | $       | (118   | ) |                       | $ | (266 | )     |  | $ | (384    | ) |  | $                     | (168   | ) |       | $ | (265 | ) |  | $ | (433   | )



|                                              |  |         |      |   |                       |   |    |       |  |   |         |   |  |                       |      |   |       |   |    |   |  |   |      |  
|--------------------------------------------- |  | ------- | ---- | - | --------------------- | - | -- | ----- |  | - | ------- | - |  | --------------------- | ---- | - | ----- | - | -- | - |  | - | ---- | -
|                                              |  | 2012    |      |   | 2011                  |  
|                                              |  | Pension |      |   | Other post-retirement |   |    | Total |  |   | Pension |   |  | Other post-retirement |      |   | Total |  
|Components of net benefit expense recognized: |  |         |      |   |                       |   |    |       |  |   |         |   |  |                       |      |   |       |   |    |   |  |   |      |  
|Current service cost                          |  | $       | 35   |   |                       | $ | 5  |       |  | $ | 40      |   |  | $                     | 34   |   |       | $ | 5  |   |  | $ | 39   |  
|Interest cost                                 |  |         | 118  |   |                       |   | 12 |       |  |   | 130     |   |  |                       | 116  |   |       |   | 14 |   |  |   | 130  |  
|Expected return on assets(1)                  |  |         | (126 | ) |                       |   |   |       |  |   | (126    | ) |  |                       | (127 | ) |       |   |   |   |  |   | (127 | )
|Recognized actuarial losses (gains)           |  |         | 9    |   |                       |   | (3 | )     |  |   | 6       |   |  |                       |     |   |       |   | (2 | ) |  |   | (2   | )
|Settlement losses (gains)                     |  |         | (3   | ) |                       |   |   |       |  |   | (3      | ) |  |                       |     |   |       |   | (9 | ) |  |   | (9   | )
|Past service cost                             |  |         |     |   |                       |   | (1 | )     |  |   | (1      | ) |  |                       | (2   | ) |       |   | (1 | ) |  |   | (3   | )
|Net benefit expense                           |  | $       | 33   |   |                       | $ | 13 |       |  | $ | 46      |   |  | $                     | 21   |   |       | $ | 7  |   |  | $ | 28   |  



|(1) | Actual return consists of the sum of expected return on assets and actuarial gains (losses) on plan assets.
|--- | -----------------------------------------------------------------------------------------------------------



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    157



---

Principal assumptions for materials plans:



|                                                    |  |         |           |  |        |  |      |        |  |  |         |  |  |        |           |  |        |  |      |  |  |  |      | 
|--------------------------------------------------- |  | ------- | --------- |  | ------ |  | ---- | ------ |  |  | ------- |  |  | ------ | --------- |  | ------ |  | ---- |  |  |  | ---- | 
|                                                    |  | 2012    |           |  | 2011   | 
|                                                    |  | Canada% |           |  | U.K.
% |  |      | U.S.
% |  |  | Canada% |  |  | U.K.
% |           |  | U.S.
% | 
|To determine benefit obligation at end of year      |  |         |           |  |        |  |      |        |  |  |         |  |  |        |           |  |        |  |      |  |  |  |      | 
|Discount rate for pension plans                     |  |         | 4.20      |  |        |  | 4.40 |        |  |  | 4.20    |  |  |        | 4.50      |  |        |  | 4.80 |  |  |  | 5.40 | 
|Discount rate for other post-employment benefits    |  |         | 3.50-4.20 |  |        |  | n/a  |        |  |  | 4.20    |  |  |        | 4.00-4.50 |  |        |  | n/a  |  |  |  | 5.40 | 
|Rate of compensation increase                       |  |         | 3.00      |  |        |  | n/a  |        |  |  | 3.50    |  |  |        | 3.00      |  |        |  | n/a  |  |  |  | 3.75 | 
|Pension increases                                   |  |         | 0.00-0.25 |  |        |  | 3.40 |        |  |  | n/a     |  |  |        | 0.00-0.25 |  |        |  | 3.50 |  |  |  | n/a  | 
|Deferred pension increases                          |  |         | 0.00-0.20 |  |        |  | 2.70 |        |  |  | n/a     |  |  |        | 0.00-0.20 |  |        |  | 2.80 |  |  |  | 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  |        |  |  | 2020    |  |  |        | 2030      |  |        |  | n/a  |  |  |  | 2017 | 
|To determine benefit costs or income for the period |  |         |           |  |        |  |      |        |  |  |         |  |  |        |           |  |        |  |      |  |  |  |      | 
|Expected long-term rate of return on plan assets    |  |         | 6.50      |  |        |  | 4.60 |        |  |  | 7.00    |  |  |        | 6.50      |  |        |  | 5.40 |  |  |  | 7.00 | 

History of experience gains (losses):



|                                              |  |      |    |  |      |   |     |      |  |   |     |  
|--------------------------------------------- |  | ---- | -- |  | ---- | - | --- | ---- |  | - | --- | -
|                                              |  | 2012 |    |  | 2011 |   |     | 2010 | 
|Experience (gains) losses on plan liabilities |  | $    | 1  |  |      | $ | (9  | )    |  | $ | (11 | )
|Experience gains (losses) on plan assets      |  | $    | 62 |  |      | $ | (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.

The discount rate assumption used in each country is based on the market yields, as of December 31, of corporate AA bonds that match the expected timing of
benefit payments. The expected return on assets assumption 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. Heath care
cost calculations are based on long-term trend assumptions which may differ from actual results.

Sensitivity of Key Assumptions

The following table provides the potential sensitivity of the benefit obligation and expense for pension and post-retirement benefits to a 1% change in certain key
assumptions based on pension and post-retirement obligations as at December 31, 2012. These sensitivities are hypothetical and should be used with caution. The impact of changes in each key assumption may result in greater than proportional
changes in sensitivities.



|                                         |  |            |      |   |                       |   |     |            |  |   |         |   |  |   |     |  
|---------------------------------------- |  | ---------- | ---- | - | --------------------- | - | --- | ---------- |  | - | ------- | - |  | - | --- | -
|                                         |  | Pension    |      |   | Other post-retirement |  
|                                         |  | Obligation |      |   | Expense               |   |     | Obligation |  |   | Expense |  
|Impact of a 1% change in key assumptions |  |            |      |   |                       |   |     |            |  |   |         |   |  |   |     |  
|Discount rate                            |  |            |      |   |                       |   |     |            |  |   |         |   |  |   |     |  
|Decrease in assumption                   |  | $          | 456  |   |                       | $ | 72  |            |  | $ | 37      |   |  | $ | 4   |  
|Increase in assumption                   |  | $          | (377 | ) |                       | $ | (66 | )          |  | $ | (31     | ) |  | $ | (2  | )
|Rate of compensation increase            |  |            |      |   |                       |   |     |            |  |   |         |   |  |   |     |  
|Decrease in assumption                   |  | $          | (55  | ) |                       | $ | (10 | )          |  |   | n/a     |   |  |   | n/a |  
|Increase in assumption                   |  | $          | 57   |   |                       | $ | 10  |            |  |   | n/a     |   |  |   | n/a |  
|Expected return on assets                |  |            |      |   |                       |   |     |            |  |   |         |   |  |   |     |  
|Decrease in assumption                   |  |            | n/a  |   |                       | $ | 22  |            |  |   | n/a     |   |  |   | n/a |  
|Increase in assumption                   |  |            | n/a  |   |                       | $ | (22 | )          |  |   | n/a     |   |  |   | n/a |  
|Healthcare trend increase                |  |            |      |   |                       |   |     |            |  |   |         |   |  |   |     |  
|Decrease in assumption                   |  |            | n/a  |   |                       |   | n/a |            |  | $ | (19     | ) |  | $ | (1  | )
|Increase in assumption                   |  |            | n/a  |   |                       |   | n/a |            |  | $ | 21      |   |  | $ | 1   |  



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|158    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

Composition of fair value of plan assets, December 31:



|                                               |  |      |      |  |      |  |      | 
|---------------------------------------------- |  | ---- | ---- |  | ---- |  | ---- | 
|                                               |  | 2012 |      |  | 2011 | 
|Equity investments                             |  |      | 41%  |  |      |  | 40%  | 
|Fixed income investments                       |  |      | 51%  |  |      |  | 50%  | 
|Real estate investments                        |  |      | 4%   |  |      |  | 4%   | 
|Other                                          |  |      | 4%   |  |      |  | 6%   | 
|Total composition of fair value of plan assets |  |      | 100% |  |      |  | 100% | 

Target allocation of plan assets, December 31:



|                         |  |      |      |  |      |  |      | 
|------------------------ |  | ---- | ---- |  | ---- |  | ---- | 
|                         |  | 2012 |      |  | 2011 | 
|Equity investments       |  |      | 44%  |  |      |  | 44%  | 
|Fixed income investments |  |      | 48%  |  |      |  | 48%  | 
|Real estate investments  |  |      | 4%   |  |      |  | 4%   | 
|Other                    |  |      | 4%   |  |      |  | 4%   | 
|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 |  | $       | 81 |  |                 | $ | 14 |       |  | $ | 95 | 

Expected future benefit payments



|                |  |      |     |  |      |   |     |      |  |   |      |  |  |      |     |  |              |   |     |  |  |   |     | 
|--------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  | ------------ | - | --- |  |  | - | --- | 
|                |  | 2013 |     |  | 2014 |   |     | 2015 |  |   | 2016 |  |  | 2017 |     |  | 2018 to 2021 |  
|Pension         |  | $    | 112 |  |      | $ | 115 |      |  | $ | 120  |  |  | $    | 128 |  |              | $ | 135 |  |  | $ | 769 | 
|Post-retirement |  |      | 14  |  |      |   | 14  |      |  |   | 15   |  |  |      | 15  |  |              |   | 16  |  |  |   | 82  | 
|Total           |  | $    | 126 |  |      | $ | 129 |      |  | $ | 135  |  |  | $    | 143 |  |              | $ | 151 |  |  | $ | 851 | 

We expensed $54 in 2012 ($53 for 2011) with respect to defined contribution plans.



| |  |                                            |  |                                                     
| |  | ------------------------------------------ |  | ----------------------------------------------------
| |  | Notes to Consolidated Financial Statements |  | Sun Life Financial Inc.    Annual Report 2012    159



---

28. Earnings (Loss) Per Share





Details of the calculation of the net income (loss) and the weighted average number of shares used in the earnings per share computations are as follows:



|                                                                                      |  |      |       |  |         |   |       |  
|------------------------------------------------------------------------------------- |  | ---- | ----- |  | ------- | - | ----- | -
|For the years ended December 31,                                                      |  | 2012 |       |  | 2011(3) |  
|Basic EPS:                                                                            |  |      |       |  |         |   |       |  
|Common shareholders net income (loss) from continuing operations                     |  | $    | 1,374 |  |         | $ | 225   |  
|Common shareholders net income (loss) from discontinued operation                    |  | $    | 180   |  |         | $ | (595  | )
|Weighted average number of common shares outstanding (in millions)                    |  |      | 593   |  |         |   | 579   |  
|Basic EPS:                                                                            |  |      |       |  |         |   |       |  
|Continuing operations                                                                 |  | $    | 2.32  |  |         | $ | 0.39  |  
|Discontinued operation                                                                |  | $    | 0.30  |  |         | $ | (1.03 | )
|Total                                                                                 |  | $    | 2.62  |  |         | $ | (0.64 | )
|Diluted EPS:                                                                          |  |      |       |  |         |   |       |  
|Common shareholders net income (loss) from continuing operations                     |  | $    | 1,374 |  |         | $ | 225   |  
|Add: increase in income due to convertible instruments(1)                             |  | $    | 10    |  |         | $ |      |  
|Common shareholders net income (loss) from continuing operations on a diluted
basis  |  | $    | 1,384 |  |         | $ | 225   |  
|Common shareholders net income (loss) from discontinued operation                    |  | $    | 180   |  |         | $ | (595  | )
|Weighted average number of common shares outstanding (in millions)                    |  |      | 593   |  |         |   | 579   |  
|Add: dilutive impact of stock options(2)(in
millions)                                 |  |      |      |  |         |   | 1     |  
|Add: dilutive impact of convertible securities(1) (in millions)                       |  |      | 11    |  |         |   |      |  
|Weighted average number of common shares outstanding on a diluted basis (in
millions) |  |      | 604   |  |         |   | 580   |  
|Diluted EPS:                                                                          |  |      |       |  |         |   |       |  
|Continuing operations                                                                 |  | $    | 2.29  |  |         | $ | 0.39  |  
|Discontinued operation                                                                |  | $    | 0.30  |  |         | $ | (1.03 | )
|Total                                                                                 |  | $    | 2.59  |  |         | $ | (0.64 | )



|(1) | The convertible instruments are certain Innovative capital instruments (SLEECS A and SLEECS B). SLEECS A were redeemed on December 31, 2011 and are therefore excluded from
the calculations of diluted earnings per share for the year ended December 31, 2012. For the year ended December 31, 2011, the impact of the conversion of innovative capital instruments was excluded from the calculations of diluted
earnings per share since the effect of conversion is anti-dilutive.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 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 amounted to 11 million for the year ended December 31, 2012 (10 million for the year ended December 31, 2011).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 2011 computations have been restated. Refer to Note 2.
|--- | ------------------------------------------------------

29. Subsequent Event





On January 17, 2013, we announced that SLF Inc. and Khazanah Nasional Berhad (Khazanah) are establishing a strategic partnership to acquire 98% of
CIMB Aviva Assurance Berhad, a Malaysian insurance company and CIMB Aviva Takaful Berhad, a Malaysian takaful company (together, CIMB Aviva). SLF Inc.s subsidiary, Sun Life Assurance, and Khazanah will each pay $293 as part of the
transaction, which includes entering into a new 20-year exclusive banacassurance agreement with CIMB Bank. Sun Life Assurance will acquire 49% of CIMB Aviva from Aviva International Holdings Limited and Khazanah will acquire 49% of CIMB Aviva from
CIMB Group Holdings Berhad (CIMB Group). CIMB Group will retain a two percent share of CIMB Aviva. The transaction includes an exclusive right to distribute insurance products, including takaful products, through CIMB Banks network
across Malaysia. The transaction is subject to regulatory approvals in Canada and Malaysia and is expected to close in the first half of 2013.



|                                                     |  |                                            |  | 
|---------------------------------------------------- |  | ------------------------------------------ |  | 
|160    Sun Life Financial Inc.    Annual Report 2012 |  | Notes to Consolidated Financial Statements |  | 



---

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, 2012 and December 31, 2011 and their change in the Consolidated Statements of Operations for the year
ended December 31, 2012 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 policy obligations and the Consolidated Financial Statements fairly present the results of the valuation.

LOGO

Lesley Thomson

Fellow,
Canadian Institute of Actuaries

Toronto, Canada

February 13, 2013



| |  |                            |  |                                                     
| |  | -------------------------- |  | ----------------------------------------------------
| |  | Appointed Actuarys Report |  | Sun Life Financial Inc.    Annual Report 2012    161



---

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, 2012 and 2011, and the consolidated statements of operations, consolidated statements of comprehensive income (loss), consolidated statements of changes in equity,
and consolidated statements of cash flows for each of the years in the two-year period ended December 31, 2012, 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, 2012 and 2011, and their financial performance and cash flows for each of the years in the two-year period ended December 31, 2012 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, 2012, 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
13, 2013 expressed an unqualified opinion on the Companys internal control over financial reporting.



LOGO

Independent Registered Chartered Accountants

Licensed Public Accountants

February 13, 2013

Toronto, Canada



|                                                     |  |                                                        |  | 
|---------------------------------------------------- |  | ------------------------------------------------------ |  | 
|162    Sun Life Financial Inc.    Annual Report 2012 |  | Report of Independent Registered Chartered Accountants |  | 



---

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, 2012, 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 Controls 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, 2012, 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 Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2012 of the
Company and our report dated February 13, 2013 expressed an unqualified opinion on those financial statements.



LOGO

Independent Registered Chartered Accountants

Licensed Public Accountants

February 13, 2013

Toronto, Canada



| |  |                                                        |  |                                                     
| |  | ------------------------------------------------------ |  | ----------------------------------------------------
| |  | Report of Independent Registered Chartered Accountants |  | Sun Life Financial Inc.    Annual Report 2012    163