##### 



EXHIBIT
2
 
 Sun Life Financial Inc.
 Managements Discussion and Analysis
 for the Year Ended December 31, 2005
 February 13, 2006




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##### 



TABLE OF CONTENTS
 FINANCIAL HIGHLIGHTS
    
    
    1ENTERPRISE MISSION, VISION AND STRATEGY
    
    
    3FINANCIAL PERFORMANCE AND OBJECTIVES
    
    
    4BUSINESS OVERVIEW
    
    
    5PERFORMANCE OVERVIEW
    
    
    6CONSOLIDATED RESULTS OF OPERATIONS
    
    
    8NON-GAAP FINANCIAL MEASURES
    
    
    12SLF CANADA
    
    
    13SLF U.S.
    
    
    17MFS
    
    
    21SLF ASIA
    
    
    23CORPORATE
    
    
    26CORPORATE DEVELOPMENTS
    
    
    28CRITICAL ACCOUNTING ESTIMATES
    
    
    29ACCOUNTING POLICIES
    
    
    32RISK MANAGEMENT
    
    
    33CONTROLS AND PROCEDURES
    
    
    35INVESTMENTS
    
    
    37FINANCIAL POSITION AND LIQUIDITY
    
    
    40LEGAL AND REGULATORY PROCEEDINGS
    
    
    45
 Unless otherwise indicated, all information
in this MD&A is presented as at and for the year ended December 31, 2005 and amounts are expressed
in Canadian dollars www.sedar.com www.sec.gov.
 Use of Non-GAAP Financial Measures
  Non-GAAP Financial Measures




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##### 



Forward-looking Statements
 Enterprise Mission, Vision and Strategy Financial Performance and Objectives Business Overview Performance Overview SLF Canada SLF U.S. MFS SLF Asia Corporate Investments Financial Position and Liquidity
 Critical Accounting Estimates Risk Management Risk
Factors www.sedar.com.




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##### 



FINANCIAL HIGHLIGHTS
 (in millions of dollars, except earnings and dividends per share)
    
    2005
    
    
    
    2004*
    
    
    2003*Common shareholders net income- Operating**
    
    
    1,906
    
    
    
    
    1,739
    
    
    
    1,518- Reported
    
    
    1,843
    
    
    
    
    1,680
    
    
    
    1,307Basic earnings per share (EPS)- Operating**
    
    
    3.24
    
    
    
    
    2.91
    
    
    
    2.50- Reported
    
    
    3.14
    
    
    
    
    2.81
    
    
    
    2.15Return on common shareholders equity (ROE)- Operating**
    
    
    13.1
    %
    
    
    
    12.0
    %
    
    
    10.6
    %- Reported
    
    
    12.6
    %
    
    
    
    11.6
    %
    
    
    9.2
    %Dividends per common share
    
    
    0.99
    
    
    
    
    0.86
    
    
    
    0.68Dividend payout ratio***
    
    
    31
    %
    
    
    
    30
    %
    
    
    27
    %Fee income
    
    
    2,899
    
    
    
    
    2,903
    
    
    
    2,810Total revenue
    
    
    21,918
    
    
    
    
    21,730
    
    
    
    22,056Premiums, deposits and fund salesPremium revenue, including ASO premium equivalents
    
    
    15,329
    
    
    
    
    15,100
    
    
    
    15,572Segregated fund deposits
    
    
    7,205
    
    
    
    
    7,145
    
    
    
    5,968Mutual fund sales
    
    
    20,329
    
    
    
    
    19,884
    
    
    
    27,491Managed fund sales
    
    
    31,135
    
    
    
    
    23,981
    
    
    
    25,202Total premiums, deposits and fund sales
    
    
    73,998
    
    
    
    
    66,110
    
    
    
    74,233Assets under management (AUM)(at December 31)General fund assets
    
    
    110,866
    
    
    
    
    107,803
    
    
    
    109,263Segregated fund net assets
    
    
    60,984
    
    
    
    
    56,564
    
    
    
    54,086Other AUM
    
    
    215,539
    
    
    
    
    195,283
    
    
    
    195,729Total AUM
    
    
    387,389
    
    
    
    
    359,650
    
    
    
    359,078Capital(at December 31)Subordinated debt
    
    
    1,456
    
    
    
    
    1,462
    
    
    
    1,730Liabilities for Cumulative Capital Securities and Sun Life
ExchangEable Capital Securities****
    
    
    1,849
    
    
    
    
    1,870
    
    
    
    1,924Preferred shares
    
    
    712
    
    
    
    
    152
    
    
    
    155Participating policyholders equity
    
    
    85
    
    
    
    
    77
    
    
    
    67Total common shareholders equity
    
    
    14,749
    
    
    
    
    14,338
    
    
    
    13,913Total capital
    
    
    18,851
    
    
    
    
    17,899
    
    
    
    17,789
 *
    
    Certain comparative figures have been restated to conform with presentations adopted in 2005 as described in Note 2 to SLF Inc.s 2005 Consolidated Financial
Statements.**
    
    Operating earnings, operating EPS, operating ROE and dividend payout ratio are non-GAAP measures and exclude certain items
described on page 12 under the heading Non-GAAP Financial Measures.***
    
    The dividend payout ratio represents ratio of common shareholders dividends to operating earnings.****
    
    These securities qualify as capital for Canadian regulatory purposes. Cumulative Capital Securities (CCS) and Sun Life ExchangEable Capital Securities (SLEECS) have
been deconsolidated and reclassified as debentures in other liabilities in SLF Inc.s 2005 Consolidated Financial Statements. Additional information is available on
page 40 under the heading Capital Structureand in Note 2 to SLF Inc.s 2005 Consolidated Financial Statements.
 Financial Performance
   Sun Life Financial Inc.
    
    1




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##### 



Financial Strength Ratings(as at December 31, 2005)
    
    AM Best
    
    
    Moodys
    
    
    Standard & PoorsSun Life Assurance Company of Canada
    
    
    A++
    
    
    Aa2
    
    AA+Sun Life Assurance Company of Canada (U.S.)
    
    
    A++
    
    
    Aa2
    
    AA+
 Sun Life Financial Inc.
    
    2




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##### 



ENTERPRISE MISSION, VISION AND STRATEGY
  
 Mission
 Vision
  Strategy
  
  
    
    Maintains a highly efficient and cost effective business platform characterized by operational excellence
 
    
    Focuses on markets where effective scale and scopecan be built and sustained
 
    
    Balancesthe stability of mature businesses with the higher growth potential of emerging businesses
 
    
    Enhances fitamong Sun Life Financials various businesses; finding opportunities to integrate the businesses to create
additional value
  Value Building Growth
    
    
    Sustain top-line growth and deliver on key medium-term financial targetsIntensify Customer Focus
    
    
    Set the standard in providing distinctive financial solutions that customers can trustEnhance Productivity
and Efficiency
    
    
    Achieve operational excellence by maintaining a highly efficient and cost effective
platformStrengthen Risk
Management
    
    
    Enhance risk identification, risk monitoring and control processes to maximize
shareholder valueInnovation
    
    
    Identify the processes that create innovation and embed innovation throughout the
CompanyLeverage International
Resources
    
    
    Enhance fit among the Companys businesses through the effective sharing of
resources, technology and best practices internationally
 Sun Life Financial Inc.
    
    3




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##### 



FINANCIAL PERFORMANCE AND OBJECTIVES
 Measure
    
    
    Medium-termGoals
    
 2005 Results
    


2005 Achievementsvs. GoalsOperating EPS(1)Growth
Growth in EPS reflects the Companys
focus on generating sustainable earnings
for shareholders.
    
    
    10%*
    
    
    11.3%**
    
    
    Exceeded targetOperating ROE(1)Growth
Growth in ROE is a significant driver
of shareholder value and continues to be a
major focus for management across all
businesses.
    
    
    75 - 100
basis points*
    
    
    110 basis points**
    
    
    Exceeded targetDividend Payout Ratio(1) (2)
The payment of common share dividends
is an indicator of managements confidence
in the Companys long-term ability to
generate capital as well as its significant
capital strength and flexibility.
    
    
    25%  35%***
    
    
    
    31
    %
    
    
    Met target*     The medium-term goals assume the following conditions:    A rise in the average level of key equity market indices, primarily the S&P 500, by approximately 7% - 8%    A steady increase in North American interest rates of approximately 100 basis points across the yield curve, with 5-year and 10-year U.S. Treasury bonds as the
primary focus   Stability in exchange rates between the Canadian dollar and foreign currencies, primarily the U.S. dollar and the British pound sterling**     Excluding the impact of currency exchange rate changes, operating EPS and operating ROE would have been up 15.5% and 130 basis points, respectively, from 2004.***   On February 9, 2006, the Board of Directors of Sun Life Financial Inc. approved an increase of this target to 30 - 40%.
 (1)
    
    Operating EPS, operating ROE and the
dividend payout ratio are non-GAAP measures. For additional information
see the section under the heading Non-GAAP Financial
Measures on page 12.(2)
    
    The dividend payout ratio represents the
ratio of common shareholders dividends to operating earnings.
 Sun Life Financial Inc.
    
    4




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##### 



BUSINESS OVERVIEW
   Products and Services by Business Segment
  
 
 
 Drivers of Profitability
  
    
    Mortality and morbidity rates
 
    
    Surrender and lapse rates
 
    
    Amount and composition of AUM
 
    
    Spreads between the interest credited to policy holders and
investment returns
 
    
    Equity market performance, interest rates, credit experience,
currency exchange rates, regulatory environment and other external
factors
 Risk Factors.
 Distribution
   Sun Life Financial Inc.
    
    5




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##### 



PERFORMANCE OVERVIEW
 2005 Performance
 (1)
      2006 Industry Outlook
    
 (1)
    
    Operating earnings, operating EPS and
operating ROE, are non-GAAP measures and exclude the items described in
this MD&A under the heading Non-GAAP Financial Measures on
page 12.
 Sun Life Financial Inc.
    
    6




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##### 



Sun Life Financial Inc.
    
    7




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##### 



CONSOLIDATED RESULTS OF OPERATIONS
 Common Shareholders Net Income
 (1)
  Earnings and Earnings Per
Share($ millions)
    
    2005
    
    
    
    2004*
    
    
    2003*Total Net Income
    
    
    1,876
    
    
    
    
    1,693
    
    
    
    1,306Less:Participating policyholders net income
    
    
    9
    
    
    
    
    13
    
    
    
    (1
    )Dividends paid to preferred shareholders
    
    
    24
    
    
    
    
    
    
    
    
    Common Shareholders Net Income
    
    
    1,843
    
    
    
    
    1,680
    
    
    
    1,307Plus: Special items
    
    
    63
    
    
    
    
    59
    
    
    
    211Operating earnings
    
    
    1,906
    
    
    
    
    1,739
    
    
    
    1,518Basic EPS from:- Common shareholders net income
    
    
    3.14
    
    
    
    
    2.81
    
    
    
    2.15- Operating earnings
    
    
    3.24
    
    
    
    
    2.91
    
    
    
    2.50Diluted EPS from:- Common shareholders net income
    
    
    3.12
    
    
    
    
    2.79
    
    
    
    2.15- Operating earnings
    
    
    3.23
    
    
    
    
    2.88
    
    
    
    2.50Common Shareholders Net Income by SegmentSLF Canada
    
    
    963
    
    
    
    
    895
    
    
    
    773SLF U.S.
    
    
    495
    
    
    
    
    391
    
    
    
    303MFS
    
    
    179
    
    
    
    
    114
    
    
    
    (43
    )SLF Asia
    
    
    42
    
    
    
    
    45
    
    
    
    37Corporate
    
    
    164
    
    
    
    
    235
    
    
    
    237Total
    
    
    1,843
    
    
    
    
    1,680
    
    
    
    1,307
 *
    
    Certain comparatives figures have been restated to
conform with the presentation adopted in 2005 as described
in Notes 2 and 4 to SLF Inc.s 2005 Consolidated Financial
Statements.
      Return on Equity
  
 (1)
    
    Operating earnings, operating EPS and
operating ROE, are non-GAAP measures and exclude the items described in this
MD&A under the heading Non-GAAP Financial Measures on page 12.
 Sun Life Financial Inc.
    
    8




---



##### 



Assets Under Management
      
 Revenue
  Total Revenue($ millions)
    
    2005
    
    
    
    2004*
    
    
    2003*PremiumsAnnuities
    
    
    4,556
    
    
    
    
    4,588
    
    
    
    4,805Life insurance
    
    
    5,683
    
    
    
    
    5,948
    
    
    
    6,325Health insurance
    
    
    2,701
    
    
    
    
    2,367
    
    
    
    2,413Total premiums
    
    
    12,940
    
    
    
    
    12,903
    
    
    
    13,543Net investment income
    
    
    6,079
    
    
    
    
    5,924
    
    
    
    5,703Fee income
    
    
    2,899
    
    
    
    
    2,903
    
    
    
    2,810Total
    
    
    21,918
    
    
    
    
    21,730
    
    
    
    22,056
 *
    
    Certain comparative figures have been restated to conform with
the presentation adopted in 2005 as described in
Note 2 to SLF
Inc.s 2005 Consolidated Financial Statements.
  Sun Life Financial Inc.
    
    9




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##### 



Sun Life Financial Inc.
    
    10




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##### 



Benefit Payments
  Benefit Payments($ millions)
    
    2005
    
    
    
    2004*
    
    
    2003*Payments to policyholders, beneficiaries and depositors
    
    
    12,802
    
    
    
    
    12,532
    
    
    
    12,926Net transfers to segregated funds
    
    
    704
    
    
    
    
    582
    
    
    
    544Increase in actuarial liabilities
    
    
    872
    
    
    
    
    1,425
    
    
    
    1,510Total
    
    
    14,378
    
    
    
    
    14,539
    
    
    
    14,980
 *
    
    Certain comparative figures have
been restated to conform with the presentation adopted in 2005
as described in Note 2 to SLF Inc.s 2005 Consolidated Financial Statements.
 Expenses and Other
    Expenses and Other($ millions)
    
    2005
    
    
    
    2004*
    
    
    2003*Commissions
    
    
    1,726
    
    
    
    
    1,916
    
    
    
    1,848Operating expenses
    
    
    2,899
    
    
    
    
    2,747
    
    
    
    2,744Regulatory settlement provisions related to MFS
    
    
    
    
    
    
    
    62
    
    
    
    320Intangibles amortization
    
    
    22
    
    
    
    
    22
    
    
    
    24Premium taxes
    
    
    190
    
    
    
    
    182
    
    
    
    171Interest expenses
    
    
    273
    
    
    
    
    278
    
    
    
    292Income taxes
    
    
    531
    
    
    
    
    263
    
    
    
    357Non-controlling interests in net income of subsidiaries
    
    
    23
    
    
    
    
    28
    
    
    
    14Participating policyholders net income (loss)
    
    
    9
    
    
    
    
    13
    
    
    
    (1
    )Dividends to preferred shareholders
    
    
    24
    
    
    
    
    
    
    
    
    Total
    
    
    5,697
    
    
    
    
    5,511
    
    
    
    5,769
 *
    
    Certain comparatives figures have been restated to conform with the presentation
adopted in 2005 as described in Note 2 to SLF Inc.s 2005 Consolidated Financial
Statements.
 Quarterly Information
  Quarterly Information
 ($ millions)
    
    2005
    
    2004*Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1Common shareholders net income- Operating**
    
    
    490
    
    
    
    481
    
    
    
    477
    
    
    
    458
    
    
    
    
    438
    
    
    
    439
    
    
    
    438
    
    
    
    424- Reported
    
    
    478
    
    
    
    430
    
    
    
    477
    
    
    
    458
    
    
    
    
    438
    
    
    
    439
    
    
    
    438
    
    
    
    365Basic EPS- Operating**
    
    
    0.84
    
    
    
    0.82
    
    
    
    0.81
    
    
    
    0.77
    
    
    
    
    0.74
    
    
    
    0.73
    
    
    
    0.73
    
    
    
    0.71- Reported
    
    
    0.82
    
    
    
    0.74
    
    
    
    0.81
    
    
    
    0.77
    
    
    
    
    0.74
    
    
    
    0.73
    
    
    
    0.73
    
    
    
    0.61Total revenue
    
    
    5,338
    
    
    
    5,504
    
    
    
    5,988
    
    
    
    5,088
    
    
    
    
    5,260
    
    
    
    5,387
    
    
    
    5,547
    
    
    
    5,536Total AUM
    
    
    387,389
    
    
    
    373,754
    
    
    
    377,379
    
    
    
    366,094
    
    
    
    
    359,650
    
    
    
    355,445
    
    
    
    373,009
    
    
    
    369,656
 *
    
    Certain comparative figures have been restated to conform with the presentation adopted in 2005 as described in Note 2 to SLF Inc.s 2005 Consolidated Financial Statements.**
    
    Operating earnings and operating EPS are non-GAAP measures and exclude the items described under the heading Non-GAAP Financial Measureson page 12.
 Sun Life Financial Inc.
    
    11




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##### 



NON-GAAP FINANCIAL MEASURES
        Impact of Special Items on Basic Earnings per
Share($ per share)
    
    2005
    
    
    
    2004
    
    
    2003EPS  Reported
    
    
    3.14
    
    
    
    
    2.81
    
    
    
    2.15(GAAP-based)Net gains (losses) on special items
    
    
    (0.10
    )
    
    
    
    (0.10
    )
    
    
    (0.35
    )EPS  Operating
    
    
    3.24
    
    
    
    
    2.91
    
    
    
    2.50
 Reconciliation of Operating Earnings
 ($ millions)
    
    2005
    
    
    
    2004*
    
    
    
    2003*Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    Total
    
    
    
    Q4
    
    
    Q3
    
    
    Q2
    
    
    Q1
    
    
    Total
    
    
    
    TotalReported earnings(GAAP-based)
    
    
    478
    
    
    
    430
    
    
    
    477
    
    
    
    458
    
    
    
    1,843
    
    
    
    
    438
    
    
    
    439
    
    
    
    438
    
    
    
    365
    
    
    
    1,680
    
    
    
    
    1,307After-tax gains (losses) on special itemsCMG Asia integration costs
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Net loss on sale of Cuprum
    
    
    
    
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (51
    )Provisions for MFS regulatory settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    (59
    )
    
    
    
    (211
    )Total special items
    
    
    (12
    )
    
    
    (51
    )
    
    
    
    
    
    
    
    
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    (59
    )
    
    
    
    (211
    )Operating earnings
    
    
    490
    
    
    
    481
    
    
    
    477
    
    
    
    458
    
    
    
    1,906
    
    
    
    
    438
    
    
    
    439
    
    
    
    438
    
    
    
    424
    
    
    
    1,739
    
    
    
    
    1,518
 *
    
    Certain comparative figures have been restated to conform with the presentation adopted in 2005
as described in Note 2 to SLF Inc.s 2005 Consolidated Financial Statements.
 Sun Life Financial Inc.
    
    12




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##### 



SLF CANADA
 
 Business Profile
  
 Industry Profile
  Competitive Position (1)
  
    
    1st in defined contribution pension plans, group RRSP plans and deferred profit sharing plans
    
    2nd in individual life insurance based on direct premiums in-force
    
    2nd in individual critical illness based on annualized premiums in-force
    
    3rd in group benefits based on annualized premiums and premium equivalents in-force
    
    3rd in individual annuities sales based on premiums and deposits
 (2)
 Strategy
    
    
    Solidify its leadership position in its core businesses with a focus on scale and
operating capabilities
    
    Grow the Individual Insurance & Investments business by expanding its distribution network
and leveraging its industry-leading brands
    
    Grow the group businesses by leveraging its ability to provide integrated service to both
Group Benefits and GRS clients
    
    Be a high performance and customer-focused organization
 
 (1)
    
    Competitive statistics are based on published
information at and for the year ended December 31, 2005, or the information
available for the latest period before December 31, 2005.(2)
    
    Long-term AUM include mutual, segregated,
labour-sponsored and other funds and pools, and exclude money market
funds.
 Sun Life Financial Inc.
    
    13




---



##### 



2005 Accomplishments
 
    
    Individual Insurance & Investments increased the productivity of its proprietary Clarica Sales
Force (CSF) by an average of 13% per advisor and gained traction in the wholesale channel by achieving
sales growth of $12 million, up 150% over 2004. It also strengthened and diversified its product
offerings by launching several new products and revitalizing existing products within its life and health
insurance product portfolio
    
    Individual Insurance & Investments wealth product sales were up 21% over 2004
    
    The Total Benefits offering enjoyed continued success in 2005. Joint clients, measured as a
percentage of GRSs top 200 clients, rose from 23% at the beginning of 2004 to 38% at the end of 2005.
Also during 2005, a unique Plan Advisor website was launched that provides Group Benefits and GRS Plan
advisors with a single point of access for their business needs
    
    GRS further strengthened its product portfolio by introducing the Milestone series of segregated
funds, the first lifecycle funds for employer-sponsored group retirement and savings plans in Canada to
feature a guaranteed unit value at maturity. GRS achieved continued strong sales results in all product
categories and record asset retention levels of $500 million
    
    Group Benefits developed new strategic alliances with Warren Shepell, a leading provider of
Employee Assistance Programs in North America, and with Medisys Health Group Inc., a provider of attendance
support for salary continuance sick-leave plans. Enhancements to the Group Benefits members enrolment tool
and redesigned claim forms and statements also improved customer service
 2006 Priorities
 
    
    Individual Insurance & Investments will continue to enhance its position in the retail
market by increasing the productivity of the CSF distribution channel and by growing sales through the
wholesale channel. It will also continue to leverage its strong partnership with CI Financial by
offering an attractive suite of guaranteed and market based products
    
    Group Benefits will build on the strength of its National Accounts through innovation and service
to drive aggressive growth
    
    GRS will continue to build on its leading market position as well as increase its rate of
retaining member assets when the members leave their company-based retirement plan
    
    Group Benefits and GRS will continue to market Total Benefits as an important competitive
advantage
 
 Financial and Business Results
   (1)
  Outlook
  
 (1)
    
    ROE for the business segments is a
non-GAAP measure. For additional information see Non-GAAP Financial
Measureson page 12.
 Sun Life Financial Inc.
    
    14




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##### 



Summary Statement of Operations($ millions, except as noted)
    
    2005
    
    
    
    2004*
    
    
    2003*Premiums
    
    
    5,314
    
    
    
    
    4,970
    
    
    
    5,197Net investment income
    
    
    2,780
    
    
    
    
    2,660
    
    
    
    2,512Fee income
    
    
    564
    
    
    
    
    532
    
    
    
    480Total revenue
    
    
    8,658
    
    
    
    
    8,162
    
    
    
    8,189Client disbursements & change
in actuarial liabilities
    
    
    5,625
    
    
    
    
    5,345
    
    
    
    5,587Commissions & other expenses
    
    
    1,660
    
    
    
    
    1,603
    
    
    
    1,499Income taxes
    
    
    385
    
    
    
    
    293
    
    
    
    322Non-controlling interests in
net income of subsidiaries
    
    
    17
    
    
    
    
    14
    
    
    
    11Par policyholders income (loss)
    
    
    8
    
    
    
    
    12
    
    
    
    (3
    )Common Shareholders Net Income
    
    
    963
    
    
    
    
    895
    
    
    
    773Selected Financial InformationEarnings by Business UnitIndividual Insurance
& Investments
    
    
    572
    
    
    
    
    511
    
    
    
    431Group Benefits
    
    
    246
    
    
    
    
    252
    
    
    
    236Group Retirement Services
& Institutional Investments
    
    
    145
    
    
    
    
    132
    
    
    
    106Total
    
    
    963
    
    
    
    
    895
    
    
    
    773ROE
    
    
    14.5
    %
    
    
    
    13.5
    %
    
    
    12.0
    %Total AUM ($billions)
    
    
    114.3
    
    
    
    
    105.1
    
    
    
    99.1
 *
    
    Certain comparative figures have been restated to conform with the
presentation adopted in 2005 as described in Notes 2 and 4 to SLF
Inc.s 2005 Consolidated Financial Statements.
 Results by Business Unit
 Individual Insurance & Investments
      Group Benefits
  TM
   Sun Life Financial Inc.
    
    15




---



##### 



Group Retirement Services & Institutional Investments (GRS&II)
 (1) (1)
    
 (1)
    
    As measured by Benefits Canadamagazines 2005 Defined Contribution Plan Survey.
 Sun Life Financial Inc.
    
    16




---



##### 



SLF U.S.
 
 Business Profile
  
    
    The Annuities business unit offers variable annuities, fixed annuities, private placement variable
annuities for high net worth clients, equity-indexed annuities and investment management services
    
    The Individual Life business unit offers single and joint universal life and variable universal life,
corporate-owned and bank-owned life insurance (COLI/BOLI) and variable universal life for high net worth clients
    
    The Group Life & Health business unit offers group life insurance, short-term and long-term disability
insurance and medical stop-loss insurance
 
 Industry Profile
    Competitive Position (1)
  
    
    #2 in individual universal life average face amount issued, demonstrating SLF U.S.s competitiveness in
the affluent market segment
    
    #3 in medical stop-loss insurance based on business in-force
 Strategy
  
    
    Enhancing distribution capabilities and productivity
    
    Achieving recognition as a product and solution expert by leveraging customer knowledge, risk management
and investment expertise
    
    Strengthening operational scale and efficiency by the implementation of a service centre multi-site
strategy
    
    Focusing on deeper penetration into existing distributor networks and adding specialty distributors
    
    Extending product range, distribution and market reach in all core business lines
    
    Pursuing bolt-on acquisitions and joint ventures for scale efficiency and enhanced growth
 
 (1)
    
    Competitive statistics are based on
published information at and for the year ended December 31, 2005, or the
information available for the latest period before December 31, 2005.
 Sun Life Financial Inc.
    
    17




---



##### 



2005 Accomplishments
 
    
    Grew earnings by 36% on a US dollar basis and increased ROE to 12.9%, 250 basis points over 2004
levels
    
    Increased Group Life & U.S. Health business in-force to over US$1.0 billion by December 31, 2005, an increase
of 19% over December 31, 2004
    
    Achieved record net sales of US$153 million in Group Life & Health, up 45% from 2004
    
    More than doubled the number of Annuities wholesale distributors to 78 at December 31, 2005
    
    Introduced a number of new product enhancements to the Sun Life Financial Masters annuity product
portfolio, including withdrawal-benefit-for-life and refund-of-fees features
    
    Achieved high net worth new premium and deposits of
US$32 million in individual life and US$104 million in
annuity, a combined increase of 109% from 2004
    
    Achieved US$165 million of COLI new premium deposits, a 193% increase from 2004
    
    Issued US$900 million of fixed annuity backed medium term notes
    
    Received the Financial Intermediary Post-Sale award for 2005, the highest post sale service award given by
Dalbar
    
    Implemented an innovative structure to deal with U.S. statutory reserve requirements for the no-lapse
guarantee on universal life products (known as regulation AXXX), which reduces the companys costs of funding
 2006 Priorities
 
    
    Achieve variable annuity growth
    
    Enhance Individual Life sales growth within the existing distributor network by more than doubling the
number of account relationship managers, expanding distribution reach to new channels, and extending the
geographic reach and range of product offerings
    
    Continue to improve Individual Life new business and underwriting operational efficiencies
    
    Gain market share in larger case and employee-paid group insurance market
    
    Build payout annuity capabilities to capitalize on demographic trends and to position for future growth of
this business
    
    Continue service centre cost improvement initiatives
    
    Pursue bolt-on acquisitions for scale efficiencies and enhanced growth
 
 Sun Life Financial Inc.
    
    18




---



##### 



Financial and Business Results
   (1)
 Outlook
  Summary Statement of Operations(C$ millions)
    
    2005
    
    
    
    2004
    
    
    2003Premiums
    
    
    6,246
    
    
    
    
    6,465
    
    
    
    6,666Net investment income
    
    
    2,298
    
    
    
    
    2,355
    
    
    
    2,433Fee income
    
    
    617
    
    
    
    
    609
    
    
    
    564Total revenue
    
    
    9,161
    
    
    
    
    9,429
    
    
    
    9,663Client disbursement & change
in actuarial liabilities
    
    
    6,993
    
    
    
    
    7,330
    
    
    
    7,709Commissions & other expenses
    
    
    1,560
    
    
    
    
    1,652
    
    
    
    1,552Income taxes
    
    
    113
    
    
    
    
    55
    
    
    
    97Non-controlling interests in
net income of subsidiaries
    
    
    (1
    )
    
    
    
    
    
    
    
    Par policyholders income (loss)
    
    
    1
    
    
    
    
    1
    
    
    
    2Common Shareholders Net Income
    
    
    495
    
    
    
    
    391
    
    
    
    303Selected Financial Information(US$ millions, except as noted)Earnings by Business UnitAnnuities
    
    
    268
    
    
    
    
    184
    
    
    
    111Individual Life
    
    
    100
    
    
    
    
    81
    
    
    
    77Group Life and Health
    
    
    41
    
    
    
    
    35
    
    
    
    30Total
    
    
    409
    
    
    
    
    300
    
    
    
    218Total revenue
    
    
    7,539
    
    
    
    
    7,245
    
    
    
    6,887Common shareholders net income
    
    
    409
    
    
    
    
    300
    
    
    
    218ROE
    
    
    12.9
    %
    
    
    
    10.4
    %
    
    
    7.3
    %Total AUM(US$ billions)
    
    
    58.4
    
    
    
    
    56.1
    
    
    
    52.7
 Results by Business Unit
 Annuities
       Individual Life
   
 (1)
    
    ROE for the business segments is a non-GAAP
measure. For additional information see Non-GAAP Financial
Measures on page 12.
 Sun Life Financial Inc.
    
    19




---



##### 



Group Life & Health
     Sun Life Financial Inc.
    
    20




---



##### 



MFS
 
 Business Profile
  
 Industry Profile
  Competitive Position (1)
  
    
    12th largest U.S. retail mutual fund company based on long-term AUM of US$75 billion at December 31, 2005
    
    5th largest investment manager of variable annuity assets, with US$29 billion under management at September
30, 2005
    
    Over 25% of gross sales are now sourced from non-U.S. retail and institutional clients
    
    Serves over 6 million investor accounts through 15 global offices
 Strategy
 
    
    Deliver superior long-term investment performance built on the strength of disciplined investment
research
    
    Achieve a balanced business model, servicing the needs of individual and institutional investors, in the U.S.
and globally
    
    Improve position in the U.S. retail distribution channel by developing superior products and offering quality
service and value-added sales support
    
    Diversify the mix of AUM across the full range of asset categories
    
    Capitalize on efficient operating infrastructure
 
 2005 Accomplishments
 
    
    Gross sales across all products increased 31.5% over 2004 to US$38.8 billion
    
    Returned to positive net flows in aggregate with over US$7.5 billion in 2005
    
    Lipper Inc.(2)ranked 67% and 69% of funds in the top half of their respective categories for
3-year and 5-year performance
    
    Consolidated multiple offshore retail fund groups into one family registered in Luxembourg with US$7 billion
in AUM
    
    Continued expansion of asset allocation mutual fund product line with the launch of 5 target maturity
lifetime funds
 2006 Priorities
 
    
    Improve and sustain long-term investment performance
    
    Realign distribution organization into three channels: retail, advisor and institutional
    
    Achieve positive net flows through organic growth in the retail channel and improve net flows in the
institutional distribution channel in the U.S. and globally
 
 (1)
    
    Competitive statistics are based on
published information at and for the year ended December 31, 2005, or for the
latest period before December 31,2005.(2)
    
    Lipper Inc. is an independent company providing mutual fund
analysis and benchmarking services.
 Sun Life Financial Inc.
    
    21




---



##### 



Financial and Business Results
 (1)
    
  Summary Statement of Operations(C$ millions)
    
    2005
    
    
    
    2004
    
    
    2003Total revenue
    
    
    1,648
    
    
    
    
    1,700
    
    
    
    1,684Commissions & other
expenses
    
    
    1,355
    
    
    
    
    1,471
    
    
    
    1,727Income taxes
    
    
    110
    
    
    
    
    108
    
    
    
    5Non-controlling interests in
net income of subsidiaries
    
    
    4
    
    
    
    
    7
    
    
    
    (5
    )Common Shareholders Net Income
(Loss)  Reported
    
    
    179
    
    
    
    
    114
    
    
    
    (43
    )Plus: Regulatory settlement
provisions
    
    
    
    
    
    
    
    59
    
    
    
    211Common Shareholders Net Income
- Operating
    
    
    179
    
    
    
    
    173
    
    
    
    168
  Selected Financial Information(US$ millions, except as noted)Total revenue
    
    
    1,360
    
    
    
    
    1,306
    
    
    
    1,206Common shareholders net income- Reported
    
    
    147
    
    
    
    
    88
    
    
    
    (39
    )- Operating
    
    
    147
    
    
    
    
    133
    
    
    
    121Sales (US$ billions)Gross
    
    
    38.8
    
    
    
    
    29.5
    
    
    
    34.2Net
    
    
    7.5
    
    
    
    
    (8.9
    )
    
    
    4.2AUM (US$ billions)
    
    
    162
    
    
    
    
    146
    
    
    
    140Average net assets (US$ billions)
    
    
    151
    
    
    
    
    138
    
    
    
    125
 Outlook
   
 (1)
    
    Operating earnings for 2004 excluded a $59
million charge for regulatory settlement.
 Sun Life Financial Inc.
    
    22




---



##### 



SLF ASIA
 
 Business Profile
  
 Industry Profile
 (1)
 Competitive Position (2)
  
    
    2nd in individual life insurance by total premiums in the Philippines
    
    7th in individual life insurance by in-force premiums in Hong Kong (including CMG Asia)
    
    4th in the private sector for the protection business and 5th in wealth management
business in India, based on first-year premiums and AUM, respectively
 Strategy
 
    
    Develop SLF Asia into a significant long-term revenue and earnings growth
operation, focusing on becoming or remaining a market leader in a select number of
geographies
    
    Build multiple distribution channels that can deliver innovative products that meet customer needs
    
    Provide a customer service focused operation
 
 2005 Accomplishments
 
    
    On October 18, 2005, the Company acquired CMG Asia, moving Sun Life Financial Hong
Kong to the #7 position from #19 in 2004 and increasing its market share from 1.5% to 3.9%
based on in-force individual life premiums
    
    The Hong Kong operations also strengthened its distribution network by forming a new
bancassurance partnership in Hong Kong with China Construction Bank Corporation (CCB)
    
    In September, SLF Asias China joint venture started selling life insurance products in
its third China city location, Hangzhou, the capital of the Zhejiang province. It also
entered the group insurance business in late 2005
    
    SLF Asias India wealth management joint venture acquired the Indian mutual funds assets
of Alliance Capital Mutual Funds, adding $350 million in AUM
    
    The Philippines diversified its distribution network by establishing a joint venture
with Standard Chartered Bank
 2006 Priorities
 
    
    Fully integrate CMG Asia operations with Sun Life Financials existing Hong Kong
operations, capitalizing on the expanded distribution capacity and synergies created by the
acquisition
    
    Rapidly expand the India life insurance joint venture branch network by opening 50 new
branches and increasing the number of agents to 20,000
    
    Launch operations in two important cities in China  Shanghai and Nanjing
    
    Enhance customer service capabilities throughout the region, to provide effective and
efficient services that meet the needs of the various market segments
    
    Achieve individual sales growth in excess of 50% with Hong Kong nearly double the 2005
level and significant growth in India and China.
 
 (1)
    
    Premium as percentage of Gross Domestic
Product. Source: Swiss Re  Sigma, volume 2/2005.(2)
    
    Competitivestatistics are based on published
information at and for the year ended December 31, 2005, or the information
available for the latest period before December 31, 2005.
 Sun Life Financial Inc.
    
    23




---



##### 



Financial and Business Results
   Summary Statement of Operations($millions, except as noted)
    
    2005
    
    
    
    2004*
    
    
    2003*Premiums
    
    
    524
    
    
    
    
    506
    
    
    
    439Net investment income
    
    
    223
    
    
    
    
    185
    
    
    
    168Fee income
    
    
    12
    
    
    
    
    3
    
    
    
    4Total revenue
    
    
    759
    
    
    
    
    694
    
    
    
    611Client disbursements & change
in actuarial liabilities
    
    
    499
    
    
    
    
    470
    
    
    
    400Commissions & other expenses
    
    
    201
    
    
    
    
    165
    
    
    
    162Income taxes
    
    
    17
    
    
    
    
    14
    
    
    
    12Common Shareholders Net Income
    
    
    42
    
    
    
    
    45
    
    
    
    37Selected Financial InformationSales  New annualized
premiumsIndividual life **
    
    
    261
    
    
    
    
    239
    
    
    
    128Total AUM ($ billions)
    
    
    7.3
    
    
    
    
    2.5
    
    
    
    2.1
 *
    
    Certain comparative figures have been restated to conform with the
presentation adopted in 2005 as described in Notes 2 and 4 to
SLF Inc.s 2005
Consolidated Financial Statements.**
    
    Includes 100% of sales for joint ventures. Individual life sales would be $181
million, $162 million and $97 million for 2005, 2004
and 2003, respectively, if joint venture sales were included at 50%.
 Operations by Business unit
 Philippines
  Hong Kong
  Indonesia
   India
  th
 Sun Life Financial Inc.
    
    24




---



##### 



China
  Sun Life Financial Inc.
    
    25




---



##### 



CORPORATE
 
 Business Profile
  
 2005 Accomplishments
 
    
    Continued to optimize capital with additional capital repatriated from SLF U.K.
    
    Reinsurance business unit maintained its position as one of the leaders in the North American life retrocession market with a 30% market share
of the in-force business and secured several large in-force mortality blocks resulting in a year-over-year sales increase of 50%
    
    Purchased and cancelled approximately 13.2 million common shares for $544 million as part of a share repurchase program. This level of
repurchase exceeded the Companys stated objective of $500 million for 2005
 2006 Priorities
 
    
    Continue to enhance shareholder value through capital optimization and productivity improvements
    
    Leverage reinsurance capabilities in other parts of the organization
    
    Continue to expand the Reinsurance business units European operations
 
 Financial and Business Results
  Summary Statement of Operations*($ millions)
    
    2005
    
    
    
    2004**
    
    
    2003**Premiums
    
    
    856
    
    
    
    
    962
    
    
    
    1,241Net investment income
    
    
    791
    
    
    
    
    725
    
    
    
    599Fee income
    
    
    45
    
    
    
    
    58
    
    
    
    69Total revenue
    
    
    1,692
    
    
    
    
    1,745
    
    
    
    1,909Client disbursements & change
in actuarial liabilities
    
    
    1,261
    
    
    
    
    1,394
    
    
    
    1,284Commissions & other expenses
    
    
    334
    
    
    
    
    316
    
    
    
    459Income taxes
    
    
    (94
    )
    
    
    
    (207
    )
    
    
    (79
    )Non-controlling interests in
net income of subsidiaries
    
    
    3
    
    
    
    
    7
    
    
    
    8Dividends paid to preferred
shareholders
    
    
    24
    
    
    
    
    
    
    
    
    Common Shareholders Net Income
    
    
    164
    
    
    
    
    235
    
    
    
    237Selected Financial Information
Earnings by Business UnitSLF U.K.
    
    
    192
    
    
    
    
    173
    
    
    
    203Reinsurance
    
    
    5
    
    
    
    
    72
    
    
    
    56Corporate Other
    
    
    (33
    )
    
    
    
    (10
    )
    
    
    (22
    )Total
    
    
    164
    
    
    
    
    235
    
    
    
    237
 *
    
    Including consolidation adjustments related to activities between segments.**
    
    Certain comparative figures have been restated to conform with the presentation
adopted in 2005 as described in Notes 2 and 4 to SLF Inc.s
2005 Consolidated Financial Statements.
 Sun Life Financial Inc.
    
    26




---



##### 



Results by Business Unit
 SLF U.K.
    Reinsurance
     
  Corporate Other
   Sun Life Financial Inc.
    
    27




---



##### 



CORPORATE DEVELOPMENTS
  Corporate Reorganization
  Sale of Cuprum
  Share Repurchase Program
  Increased Quarterly Shareholder Dividends
    Financing Arrangements
   Capital
Structure Financial Position and Liquidity
 Sun Life Financial Inc.
    
    28




---



##### 



CRITICAL ACCOUNTING ESTIMATES
  BENEFITS TO POLICYHOLDERS
    
    
    when taken one at a time, each provision is reasonable with respect to the underlying
best estimate assumption and the extent of uncertainty present in making that assumption;
and
    
    in total, the cumulative effect of all provisions is reasonable with respect to the
total actuarial liabilities.
   Critical Accounting
    
    
    
    
    
    Determination Methodology and
    
    
    
    
    
    Financial SignificanceEstimate
    
    
    
    
    
    Assumptions
    
    
    
    
    
    (measured as at December 31, 2005)Mortality the rate of
death for a defined group of
people
    
    
    

    
    
    Generally based on the Companys
average five-year experience
Industry experience considered where
the Companys experience is not
sufficient
Rates on annuities, where lower
mortality rates result in an increase
in actuarial liabilities, are
adjusted to reflect estimated future
improvements in lifespan
Rates for life insurance contracts do
not reflect any future improvement
that might be expected
    
    
    
    
    
    For products for which higher
mortality would be financially
adverse to the Company, a 1%
increase in the best estimate
assumption would decrease net income
by $80 million
For products for which lower
mortality would be financially
adverse to the Company, a 1%
reduction in the mortality
assumption would decrease net income
by $40 millionMorbidity both the rates
of accident or sickness, and
the rates of subsequent
recovery for defined groups
of people
    
    
    



    
    
    Generally based on the Companys
average five-year experience
Industry experience considered where
the Companys experience is not
sufficient
Long-term care and critical illness
insurance assumptions developed in
collaboration with reinsurers and
largely based on their experience
For those benefits where the Company
or industry experience is limited,
larger provisions for adverse
deviation are included
    
    
    
    
    
    For products for which the morbidity
is a significant assumption, a 1%
adverse change in that assumption
would reduce net income by $16
million
 Sun Life Financial Inc.
    
    29




---



##### 



Critical Accounting
    
    
    
    
    
    Determination Methodology and
    
    
    
    
    
    Financial SignificanceEstimate
    
    
    
    
    
    Assumptions
    
    
    
    
    
    (measured as at December 31, 2005)Policy Termination Rates
the rates at which policies
terminate prior to the end
of the contractual coverage
periods
    
    
    



    
    
    Generally based on the Companys
average five-year experience
Industry studies used where the
Companys experience is not
sufficient
Rates may vary by plan, age at issue,
method of premium payment and policy
duration
Assumptions for premium cessation
occurring prior to termination of the
policy required for universal life
contracts
    
    
    
    
    
    For individual life insurance
products for which fewer
terminations would be financially
adverse to the Company, net income
would decrease $93 million if the
termination rate assumption were
reduced by 10% starting in policy
year six (5% for participating
policies and policies with
adjustable premiums)
For products for which more
terminations would be financially
adverse to the Company, net income
would decrease $81 million if an
extra 1% of the in-force policies
were assumed to terminate each year
beginning in policy year six (0.5%
for participating policies and
policies with adjustable premiums)Equity Markets the value
of the Companys
policyholder obligations for
certain products is
dependent on assumptions
about the future level of
equity markets
    
    
    
    
    
    The calculation of actuarial
liabilities for equity
market-sensitive products includes
adequate provisions to absorb moderate
changes in rates of equity market
return with provisions determined
using scenario testing under the
standards established by the Canadian
Institute of Actuaries
    
    
    
    
    
    For participating insurance
products, a portion of the effect of
changes in equity market movements
is passed through to policyholders
as changes in the amount of
dividends declared
For variable annuity guarantees
primarily in SLF U.S. (including
reinsured business) and for certain
annuity options in SLF U.K., a 1%
reduction in the expected long-term
equity market return assumption
would decrease net income by $36
millionInterest Rates the value
of the Companys
policyholder obligations for
all policies is sensitive to
changes in interest rates
    
    
    
    
    
    The calculation of actuarial
liabilities for all policies includes
adequate provisions to absorb moderate
changes in interest rates with
provisions determined using scenario
testing under the standards
established by the Canadian Institute
of Actuaries
    
    
    

    
    
    For certain product types, including
participating insurance policies and
certain forms of universal life
policies and annuities, the effect
of changes in interest rates is
largely passed through to
policyholders as changes in the
amount of dividends declared or in
the rate of interest credited
An immediate 1% increase in interest
rates across the entire yield curve
would result in an estimated
increase in net income of $29
million
An immediate 1% parallel decrease in
interest rates would result in an
estimated decrease in net income of
$143 millionAsset Defaultprovisions are
included in actuarial
liabilities for possible
future asset defaults and
loss of asset value in
current assets and future
purchases
    
    
    
    
    
    Based on a reduction in the expected
future investment yield or a reduction
in the value of equity assets
recognized in the computation of
actuarial liabilities
    
    
    
    
    
    Asset default provisions included in
actuarial liabilities amounted to
$2.4 billion on a pre-tax basis as
at December 31, 2005Operating Expenses and
Inflation actuarial
liabilities provide for
future policy-related
expenses
    
    
    
    
    
    Mainly based on recent Company
experience using an internal expense
allocation methodology
The increases assumed in future
expenses are consistent with the
inflation rate used in the scenario
testing under the standards
established by the Canadian Institute
of Actuaries
    
    
    
    
    
    A 10% increase in maintenance unit
expenses Company-wide would result
in a decrease in net income of $253
million
 Sun Life Financial Inc.
    
    30




---



##### 



FAIR VALUE OF INVESTMENTS
    ALLOWANCE FOR INVESTMENT LOSSES
      GOODWILL AND OTHER INTANGIBLES
      Sun Life Financial Inc.
    
    
    31




---



##### 



Income
Taxes
  ACCOUNTING POLICIES
 Changes
in Accounting Policies in 2005
  Consolidation of Variable Interest Entities
     Financial
Instruments-Disclosure and Presentation
  Future
Adoption
 Financial Instruments, Hedges and Comprehensive Income
    Sun Life Financial Inc.
    
    
    32




---



##### 



RISK MANAGEMENT
 Introduction
  Risk
Framework
 Objectives
  (i)
    
    avoid risks that could materially affect the value of the Company,(ii)
    
    contribute to sustainable earnings,(iii)
    
    take risks that the Company can manage in order to increase returns, and(iv)
    
    provide transparency of the Companys risks through internal and external reporting.
 Risk Philosophy
  Risk Culture
  (i)
    
    acting with integrity,(ii)
    
    understanding the impact of risk on customers,(iii)
    
    embedding risk management into the business,(iv)
    
    promoting full and transparent communications,(v)
    
    collaboration, and(vi)
    
    aligning of objectives and incentives.
 Accountabilities
  Key
Risk Processes
  Risk Identification
 Risk Factors
 Business Practices Reviews
  Risk
Policies
  Risk
Measurement
 Market Risk Tolerance and Earnings-at-Risk
   Sun Life Financial Inc.
    
    
    33




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##### 



Sensitivity of Earnings
  Increase (Decrease)($ millions)
    
    in EarningsInterest Rate Sensitivity (1)1% Increase
    
    
    371% Decrease
    
    
    (118
    )Equity Market Sensitivity (2)10% Increase
    
    
    10810% Decrease
    
    
    (123
    )
 (1)
    
    Represents a 100 basis point parallel shift in assumed interest rates across
the entire yield curve.(2)
    
    Represents the percentage change in equity markets.
 Risk
Categories
  Risk Category
    
    
    How Risk is ManagedMarket Risk ManagementMarket Risk the
uncertainty in the
valuation of assets and the cost of
embedded options and
guarantees arising
from changes in  equity markets and/or interest rates
    
    
    
    
    The Companys insurance liabilities are segmented according to
major product type, with investment guidelines established for each
segment
    
    Exposure to capital markets is monitored and managed against
established risk tolerance limits
    
    Individual stock holdings are diversified by industry type and
corporate entity
    
    Real estate holdings are diversified by location and property
type
    
    Effects of large and sustained adverse market movement in real
estate values are monitored through Dynamic Capital Adequacy Testing and
other stress-testing techniques
    
    Considerations are given to the use of derivatives and the
Companys policies regarding liquidity management and foreign exchange
risks (see pages 39 to 43 in this MD&A under the heading Financial
Position and Liquidity)Interest Rate Risk
the risk
of
asset-liability
mismatch resulting
from interest rate
volatility
    
    
    
    
    Matching policy established for each portfolio of assets and
associated liabilities to keep potential losses within acceptable limits
    
    Key rate duration technique employed for interest-sensitive
businesses (e.g. individual and group annuities) to examine duration
gaps of assets, liabilities and off-balance sheet instruments at
discrete points on the yield curve and to manage these gaps within
specified tolerance limitsCredit Risk ManagementCredit Risk- the uncertainty
surrounding the likelihood of default or credit downgrade
    
    
    
    
    Credit risks associated with fixed income investments are
managed by major business groups and the Company in aggregate using:o      Detailed credit and underwriting policieso      Specific diversification requirementso      Comprehensive due diligence and ongoing credit analysiso      Aggregate counterparty exposure limitso      Monitoring against pre-established limits
    
    Provisions for impaired assets are charged against the carrying
value of the asset with additional allowances provided for in actuarial
liabilitiesReinsurance Ceded
Risk the
counterparty risk
relating to
externally reinsuring
exposures
    
    
    
    
    Policy established to limit and monitor the level of reinsurance
ceded to any single reinsurer or group of reinsurers and prevent ceding
to companies which are poor credit risks
 Sun Life Financial Inc.
    
    
    34




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##### 



Risk Category
    
    
    How Risk is ManagedInsurance Risk ManagementProduct Design and Pricing
Riskthe risk arising
from inappropriate or
inadequate product design
and pricing, including
deviations from the
assumptions used in
pricing products as a
result of uncertainty
concerning future
investment yields,
mortality and morbidity experience, expenses,
rates of policy
termination, and taxes
    
    
    

    
    Annual compliance assessment is performed by all business units
against standards and guidelines for product design and pricing
methods, pricing assumptions, profit margin objectives, required
scenario analysis, documentation, internal peer review and pricing
approval processes

Internal audit of business unit pricing processes is performed
on a rotating basisMortality
and
Morbidity
Risk-
the
risk
of
incurring higher
than
anticipated
mortality and
morbidity claim losses on
any one policy or group of
policies
    
    
    

    
    Detailed uniform underwriting
procedures have been established to determine the insurability of
applicants and to manage exposure to large claims
Underwriting requirements are regularly scrutinized against industry guidelines
Group insurance policies are underwritten prior to initial
issue and renewals, driven by risk selection, plan design and rating
techniques
Risk policies approved by 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, varying by geographical
region
    
    Amounts in excess of limits are reinsuredOperational Risk ManagementLegal, Regulatory and
Market Conduct Risk
Managementthe risk
associated with
failure to
comply with laws or to
conduct
business
consistent with changing
regulatory or public
expectations
    
    
    

    
    A strong compliance culture is promoted by setting the
appropriate tone at the top with respect to compliance with laws and
regulations
Worldwide compliance policies and framework have been
established
Compliance and legal obligations are monitored at the corporate
and business group levelsOperational Risk-the
uncertainty
arising
from
internal
events
caused
by
failures
of people,
process and technology as
well as external events
    
    
    

    
    Worldwide and business-specific policies and guidelines have
been established
Comprehensive insurance program, including appropriate levels
of self-insurance, is maintained to provide protection against
potential losses
Environmental risk management program is maintained to help
protect investment assets (primarily real estate, mortgage and
structured finance portfolios) from losses due to environmental issues
and to help ensure compliance with applicable laws
 CONTROLS AND PROCEDURES
  United States Securities and Exchange Act Multilateral Instrument
   Sun Life Financial Inc.
    
    
    35




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##### 



Sun Life Financial Inc.
    
    
    36




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##### 



INVESTMENTS
  Investment
Profile
     Investments($ millions)
    
    
    

    2005
    
    
    
    
    
    
    

    2004*
    
    

    
    
    
    

    2003*Carrying
    
    
    % of
    
    
    
    Carrying
    
    
    % of
    
    
    Carrying
    
    
    % ofValue
    
    
    Total
    
    
    
    Value
    
    
    Total
    
    
    Value
    
    
    TotalBonds
    
    
    66,154
    
    
    
    67
    
    
    
    
    64,496
    
    
    
    67
    
    
    
    66,090
    
    
    
    68Mortgages
    
    
    14,561
    
    
    
    15
    
    
    
    
    13,862
    
    
    
    14
    
    
    
    13,601
    
    
    
    14Stocks
    
    
    3,856
    
    
    
    4
    
    
    
    
    3,463
    
    
    
    4
    
    
    
    3,473
    
    
    
    4Real estate
    
    
    3,241
    
    
    
    3
    
    
    
    
    3,148
    
    
    
    3
    
    
    
    3,067
    
    
    
    3Cash and equivalent investments
    
    
    5,091
    
    
    
    5
    
    
    
    
    5,958
    
    
    
    6
    
    
    
    4,969
    
    
    
    5Policy loans and other invested assets
    
    
    5,689
    
    
    
    6
    
    
    
    
    5,984
    
    
    
    6
    
    
    
    5,975
    
    
    
    6Total carrying value
    
    
    98,592
    
    
    
    100
    
    
    
    
    96,911
    
    
    
    100
    
    
    
    97,175
    
    
    
    100Total market value
    
    
    105,358
    
    
    
    
    
    
    
    
    102,792
    
    
    
    
    
    
    
    102,252
 *
    
    Certain comparative figures have been restated to conform with the presentation adopted in 2005 as described in Note 6 to SLF Inc.s 2005
Consolidated Financial Statements.
 Bonds
  
 Sun Life Financial Inc.
    
    
    37




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##### 



Mortgages
   Stocks
  Real Estate
  Impaired
Assets
    ($ millions)
    
    2005
    
    
    
    2004As at December 31Gross impaired assets
    
    
    321
    
    
    
    
    441Specific allowance
    
    
    119
    
    
    
    
    165Sectoral allowance
    
    
    21
    
    
    
    
    98Net impaired assets
    
    
    181
    
    
    
    
    178Net impaired ratio
    
    
    0.18
    %
    
    
    
    0.18
    %For the Year Ended December 31Provisions (recoveries) for
impaired assets
    
    
    (47
    )
    
    
    
    21
 Deferred
Net Realized Gains
   Sun Life Financial Inc.
    
    
    38




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##### 



Net
Unrealized Gains
   Sun Life Financial Inc.
    
    
    39




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##### 



FINANCIAL POSITION AND LIQUIDITY
  Principal
Sources of Funds
    Cash Flow
 ($ millions )
    
    2005
    
    
    
    2004 *
    
    
    2003 *Net cash provided by operating activities **
    
    
    2,481
    
    
    
    
    3,225
    
    
    
    3,242Net cash provided by (used in) financing activities
    
    
    290
    
    
    
    
    (1,102
    )
    
    
    (1,204
    )Net cash provided by (used in) investing activities
    
    
    (3,678
    )
    
    
    
    (1,460
    )
    
    
    (2,564
    )Changes due to fluctuations in exchange rates
    
    
    (101
    )
    
    
    
    (90
    )
    
    
    (455
    )Increase (decrease) in cash and cash equivalents
    
    
    (1,008
    )
    
    
    
    573
    
    
    
    (981
    )Cash and cash equivalents, beginning of period
    
    
    3,748
    
    
    
    
    3,175
    
    
    
    4,156Cash and cash equivalents, end of period
    
    
    2,740
    
    
    
    
    3,748
    
    
    
    3,175Short-term securities, end of period
    
    
    2,351
    
    
    
    
    2,210
    
    
    
    1,794Cash, cash equivalents and short-term securities, end of period
    
    
    5,091
    
    
    
    
    5,958
    
    
    
    4,969
 *
    
    Certain comparative figures have been restated to conform the presentations adopted in 2005 as described in
Note 2 to SLF Inc.s 2005 Consolidated Financial Statements.**
    
    Includes net cash provided by discontinued operations.
 Liquidity
  
    
    capital levels,
    
    asset levels,
    
    matching position,
    
    diversification and credit quality of its investments, and
    
    cash forecasts and actual amounts against established targets.
    Sun Life Financial Inc.
    
    
    40




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##### 



Capital
Structure
             
 Shareholder
Dividends
  Sun Life Financial Inc.
    
    
    41




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##### 



Capital
Adequacy
     Regulatory Matters
  Sun Life Financial Inc.
    
    
    42




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##### 



Off-Balance
Sheet Arrangements
  
    
    earn management fees and additional spread on a matched book
of business,
    
    hedge and match the Companys liabilities, and reduce risks associated with currency,
interest rate and stock market fluctuations,
    
    reproduce permissible investments, and
    
    reduce financing costs.
  
    
    asset securitizations,
    
    securities lending, and
    
    financial derivatives.
 Asset Securitizations
   ($ millions)
    
    2005
    
    
    
    2004As at December 31Securitized assets under
management
    
    
    2,829
    
    
    
    
    3,178The Companys retained interests
    
    
    117
    
    
    
    
    138For the year ended December 31Cash flow received on retained
interests and servicing fees
    
    
    33
    
    
    
    
    57Proceeds from sale of company
assets through securitization
including pre-tax gains
    
    
    
    
    
    
    
    179
 Securities Lending
  Financial Derivatives and Risk Mitigation
  Sun Life Financial Inc.
    
    
    43




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##### 



Products/Application
    
    
    Use of Derivative
    
    
    Derivative UsedU.S. universal life
contracts, certain Canadian
group annuity contracts
containing minimum interest
rate guarantees, and U.K.
unit-linked pension products
with guaranteed annuity rate
options
    
    
    To limit potential
financial losses
from significant
reductions in asset
earned rates
relative to
contract guarantees
    
    
    Interest rate options and swapsInterest rate exposure in
relation to asset/liability
management
    
    
    To manage the
sensitivity of the
duration gap
between assets,
liabilities and
off-balance sheet
instruments to
interest rate
changes
    
    
    Interest rate swaps and optionsU.S. variable annuities and
reinsurance on variable
annuity guarantees offered
by other insurance companies
    
    
    To manage the
exposure to product
guarantees
sensitive to
movement in equity
market levels
    
    
    Put options on equity index;
futures on equity indices and on
interest ratesU.S. equity-indexed annuities
    
    
    To manage the
exposure to product
guarantees related
to equity market
performance
    
    
    Equity-indexed futures and optionsU.K. With Profit Fund
    
    
    To protect the fund
from the impact of
a significant fall
in the U.K. equity
market below a
predetermined level
    
    
    Collar option on equity index
maturing in 2006 and put options
on equity index maturing in 2007Currency exposure in
relation to asset/liability
management
    
    
    To reduce the
sensitivity to
currency
fluctuations by
matching the value
and cash flows of
specific assets
denominated in one
currency with the
value and cash
flows of the
corresponding
liabilities
denominated in
another currency
    
    
    Currency swaps and forwards
   ($ millions)
    
    2005
    
    
    
    2004As at December 31Net fair value
    
    
    1,195
    
    
    
    
    1,080Total notional amount
    
    
    38,364
    
    
    
    
    30,217Credit equivalent amount
    
    
    2,463
    
    
    
    
    2,480Risk-weighted credit
equivalent amount
    
    
    53
    
    
    
    
    59
   Sun Life Financial Inc.
    
    
    44




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##### 



Commitments,
Guarantees, Contingencies and Reinsurance Matters
  Outsourcing Agreements
    Contractual Obligations
 Payments Due by Period($ millions)
    
    Total
    
    
    Within 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    Over 5 YearsLong-term debt
    
    
    3,905
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    3,873Operating leases
    
    
    452
    
    
    
    103
    
    
    
    149
    
    
    
    82
    
    
    
    118Credit-related arrangementsContractual commitments
    
    
    2,166
    
    
    
    1,472
    
    
    
    694
    
    
    
    
    
    
    
    Letters of credit
    
    
    209
    
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    General fund policyholder liabilities (1)
    
    
    174,231
    
    
    
    12,378
    
    
    
    14,731
    
    
    
    12,946
    
    
    
    134,176Total contractual obligations
    
    
    180,963
    
    
    
    14,162
    
    
    
    15,606
    
    
    
    13,028
    
    
    
    138,167
 (1)
    
    General fund policyholder liability cash flows include estimates related to the timing and payment of death and
disability claims, policy surrenders, policy maturities, annuity payments, minimum guarantees on segregated fund
products, policyholder dividends, commissions and premium taxes offset by contractual future premiums and fees on
in-force contracts. These estimated cash flows are based on the best estimate assumptions used in the determination of
policy liabilities. These amounts are undiscounted and do not reflect recoveries from reinsurance agreements. The
actuarial and other policy liabilities amounts included in the 2005 SLF Consolidated Financial Statements are based on
the present value of the estimated cash flows and are net of reinsured amounts. Due to the use of assumptions, actual
cash flows will differ from these estimates.
 LEGAL AND REGULATORY PROCEEDINGS
  Sun Life Financial Inc.
    
    
    45